Palmet is a privately owned project management and construction/contracting company founded in 1984, with approximately 84% of its shares owned by its founder, main shareholder and general manager, Mr. Doganay Samuary. The Palmet Group’s main activities include: - IT infrastructure; - telecommunications infrastructure; - co-location facility provider; - facilities management; - high precision A/C manufacturing; - raised floor manufacturing; - fire industry; - mechanical products; - construction; - services and maintenance; - and with its two gas distribution concessions, natural gas distribution. Palmet has captured a significant market niche in its area and has worked with all the major telecom sector players and major equipment suppliers in Turkey such as Nokia, Siemens, Ericsson and Alcatel. Palmet is also unique in the Turkish market as the sole contractor that has been awarded an ISO 9001 certificate for the supply, installation and commissioning in several areas including natural gas distribution network installation. Palmet has entered into a joint-venture operations and management company with Terasen International, a wholly-owned subsidiary of the Canadian gas transmission and distribution company, Terasen Inc., to oversee the operations of Palen. Terasen Inc. (formerly British Columbia Gas Inc.) is one of Canada’s largest gas transportation and distribution companies, operating over 47,500 km of pipeline and serving over 850,000 customers. Terasen International (TI) offers engineering, construction and operational expertise in all aspects of the natural gas distribution. TI was created in 1991 and has since completed over 70 assignments around the world, including Azerbaijan, Pakistan, Chile, Colombia, Russia and Slovakia.

The total project cost is estimated at $13.6 million. The proposed IFC investment is a $2.0 million A loan for IFC’s own account. A stand-by loan of $5.0 million to Palmet is also being considered for future gas distribution licenses.

2.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	2.0
Equity

* These investment figures are indicative

The project is located in the counties of Erzurum and Ilica. Erzurum is the largest city in eastern Anatolia, located on a high plateau at an altitude of 1,950 meters above sea level. The city consists of an old center city surrounded by newer residential developments. There is very little industry and the city is an important center for trade in livestock and agricultural products. The climate is characterized by mild summers and very cold winters.

IFC funding will allow Palen to implement a gas distribution project with high development impact by: - delivering high environmental benefits through the substitution of more efficient and cleaner-burning natural gas for other fuels such as oil and lignite, resulting in a significant decrease in noxious emissions; - making significant costs savings available to residential consumers for their household heating and cooking needs; - lowering the fuel costs to industry and stimulating local industrial and economic growth. Expanded gas use will lower household energy costs and thereby contribute both to direct poverty reduction and to lowering the vulnerability of poor households by providing a greater buffer between income and outflows for basic services. The project is consistent with the decision by the Government of Turkey to increase domestic natural gas use in the country, particularly in light of the extensive take-or-pay commitments into which Turkey has entered into, which presently exceed its current demand for natural gas. Turkish lignite commonly used by urban households contains high levels of sulfur (up to 6%) and ash (up to 40%) and is a principal source of air pollution due to release of SO2 and Suspended Particulate Material (SPM) into the atmosphere. This results in poor air quality, both indoor and outdoor, especially during the winter heating seasons when brown smog accumulation in the cities is common. This has long been recognized as arguably the most serious environmental issue facing Turkey and leads to high incidence of pulmonary diseases among exposed population. Indeed, the government’s rationale for commencing natural gas imports from Russia in 1988 was founded on the amelioration of air pollution in Ankara and Istanbul through the displacement of lignite and other polluting fuels. As natural gas replaces the use of lignite in Erzurum, the massive level of pollution should dramatically decrease. The Palen project is a good candidate for IFC support for a number of reasons. The Project is being undertaken by a comparatively small, but successful, local company with appropriate technical and managerial support from a competent and well established international gas distribution company. The project is in the natural gas distribution industry, which provides very important economic and environmental benefits to a country which to date suffers from massive air pollution caused by the continuing use of lignite. The investment is also one of the first in the nascent privatization of the Turkish gas distribution sector, and would provide much needed backing from an international institution.

This is a category B project according to IFC’s Environmental Review Procedure because specific impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines, or design criteria. IFC’s Environment and Social Development Department staff’s review consisted of appraising technical, environmental, and social information submitted by Palen.

The following potential environment, health and safety (EHS), social and community impacts of the project were reviewed:

- Compliance of Palen and their subcontractors with Turkish EHS requirements and IFC EHS and social requirements;
- Commitment of Palen to quality and to EHS performance including ISO and OHSAS certification;
- Emergency response planning and clean-up of contaminated land associated with past operations; and
- Environmental benefits associated with the increased use of natural gas in Erzurum.
Location of environmental documents in locally affected community
ERS will be disclosed in the Erzurum and Ilica Municipalities, Palen’s website and headquarters in Istanbul at the following two locations: - Erzurum Belediyesi, Merkez Yönetim Caddesi, Büyüksehir Belediye Binasi, 25100 Erzurum/TURKEY - Ilica Belediyesi, Ilica-Erzurum/TURKEY