Energy Group - Zorlu Enerji
Energy Group - Zorlu Enerji
Energy Group - Zorlu Enerji
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2007 Annual Report<br />
<strong>Energy</strong> in our dreams...
in this report<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>: From Past to Present 04<br />
Corporate Profile 08<br />
Financial Highlights 09<br />
<strong>Zorlu</strong> <strong>Group</strong> 12<br />
<strong>Energy</strong> <strong>Group</strong> 13<br />
Power Plants of <strong>Zorlu</strong> <strong>Energy</strong> 14<br />
The Strengths and Competitive Advantages of <strong>Zorlu</strong> <strong>Energy</strong> 16<br />
Message from the Chairman 18<br />
Message from the CEO of the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> 20<br />
Board of Directors 24<br />
Senior Management 26<br />
Management Assessment and Analysis of Operational Results 28<br />
<strong>Group</strong> Companies 46<br />
Corporate Governance Principles Compliance Report<br />
and Financial Information 50<br />
Profit Distribution Policy and Proposal 62<br />
Statutory Auditors’ Report 63<br />
Resolution of the Board of Directors 64<br />
Consolidated Financial Statements at 31 December 2007<br />
Together with Auditor's Report 65<br />
Investor Information 103<br />
Directory 104
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report<br />
With its integrated activities extending<br />
from generation and sales of electric<br />
power, production, distribution and<br />
sales of natural gas and project<br />
process to “turnkey” installation and<br />
long term maintenance and operation<br />
of power plants, <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong><br />
enjoys a unique position in its sector.<br />
our dreams<br />
Working for a happy future in a better<br />
world.<br />
01
02 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
continuous<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> is one of the leading and<br />
most powerful players in the sector.<br />
6 Natural gas<br />
conversion<br />
plants<br />
<strong>Energy</strong> in our dreams...<br />
420 MW<br />
Installed capacity
<strong>Energy</strong> 2007 Annual Report 03<br />
progress<strong>Zorlu</strong><br />
207<br />
ton/hour<br />
Steam capacity<br />
10<br />
Projects
04 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
from past to<br />
<strong>Zorlu</strong> <strong>Energy</strong>'s 15-year adventure<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>: From past to present<br />
1993<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation Co.<br />
Inc. was set up to meet the electricity and<br />
steam needs of industrial companies<br />
belonging to the <strong>Zorlu</strong> <strong>Group</strong>.<br />
1997<br />
Auto producer agreements have been<br />
signed with the Ministry of <strong>Energy</strong> and<br />
Natural Resources. Construction work of<br />
two power stations has started in<br />
Lüleburgaz and Bursa.<br />
The first power unit, capable of producing<br />
7 MW of electricity and 20 tons of steam<br />
per hour, entered operation in Lüleburgaz.<br />
1998<br />
The second unit at the cogeneration power<br />
plant in Lüleburgaz, with a production<br />
capacity of 7 MW of electricity and 20 tons<br />
of steam per hour, entered commercial<br />
operation.<br />
LM2500 gas turbines, with an installed<br />
capacity of 26 MW at the combined<br />
conversion plant in Bursa, entered<br />
operation as a simple cycle plant. As the<br />
9 MW capacity steam turbine came on<br />
stream, the total capacity of the combined<br />
conversion plant reached 35 MW. With<br />
these new power plants, <strong>Zorlu</strong> <strong>Energy</strong> was<br />
able to meet the entire electricity needs of<br />
the whole <strong>Zorlu</strong> <strong>Group</strong>.<br />
1999<br />
Two combined conversion plants with a<br />
combined generation capacity of 43 MW<br />
were constructed by <strong>Zorlu</strong> <strong>Energy</strong> Systems<br />
Construction <strong>Group</strong> in Bursa and in<br />
Lüleburgaz, and entered operation as<br />
simple cycle plants. The total capacity of<br />
the plants in both cities subsequently<br />
reached 135 MW.<br />
A 154 kV switch center was installed at<br />
TE‹Afi (The Transmission System Operator<br />
of Turkey) in Industry Zone in Bursa, and<br />
Bursa Generation System was connected<br />
to the Turkish 154 kV energy transmission<br />
system. The Company, founded to meet<br />
the energy needs of <strong>Group</strong> companies,<br />
was able to sell about 50% of the electricity<br />
it generated to companies outside the<br />
<strong>Zorlu</strong> <strong>Group</strong>.<br />
2000<br />
<strong>Zorlu</strong> Industrial and <strong>Energy</strong> Facilities<br />
Construction and Trade Inc. was<br />
established as the first step taken by the<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> to diversify its fields<br />
of activity. <strong>Zorlu</strong> Industrial raised the total<br />
capacity to 156 MW of electricity and<br />
150 tons of steam per hour.<br />
The ratio of energy provided to companies<br />
outside the <strong>Zorlu</strong> <strong>Group</strong> rose to 70% and<br />
the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> gained a more<br />
prominent position for itself in the energy<br />
market.<br />
20% of the paid-in capital of <strong>Zorlu</strong> <strong>Energy</strong><br />
Electricity Generation Co. Inc. was offered<br />
to the public through the ISE (‹stanbul<br />
Stock Exchange).<br />
<strong>Zorlu</strong> O&M <strong>Energy</strong> Facilities Operating and<br />
Maintenance Services Inc. was established<br />
<strong>Zorlu</strong> Petrogas Petroleum, Gas and<br />
Petrochemical Products Construction<br />
Industry and Trade Inc. was established<br />
2001<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> was issued with the<br />
ISO 9001/2000 quality management<br />
system certificate for its three companies.<br />
<strong>Zorlu</strong> O&M signed its first long term service<br />
agreement beyond the <strong>Zorlu</strong> <strong>Group</strong>. <strong>Zorlu</strong><br />
O&M maintenance services established a<br />
R&D unit at METU Techno Kent in order<br />
to conduct studies aimed at increasing<br />
the efficiency and the performance of those<br />
plants for which it carries out maintenance<br />
services. Moreover, <strong>Zorlu</strong> O&M signed an<br />
agreement of mutual cooperation with<br />
General Electric.<br />
The number of the company's customers<br />
outside the <strong>Zorlu</strong> <strong>Group</strong> approached 200.<br />
Once performance and efficiency<br />
increasing measures were completed at<br />
each generation station, electricity<br />
generation was observed to increase by<br />
up to 15% through the installation of<br />
evaporation systems for the gas turbines<br />
by <strong>Zorlu</strong> Industrial and <strong>Energy</strong> Facilities<br />
Construction and Trade Inc.<br />
2002<br />
Following the signing of an agreement with<br />
the First Ankara Chamber of Organized<br />
Industry Zone, the <strong>Zorlu</strong> Industrial and<br />
<strong>Energy</strong> Facilities Construction and Trade<br />
Inc. initiated construction work of a 55 MW<br />
capacity combined cycled electricity<br />
generation plant.<br />
Maintenance services were carried out in<br />
India and Greece by <strong>Zorlu</strong> O&M.<br />
With the installation of a 154 kV switch<br />
center at <strong>Zorlu</strong> <strong>Energy</strong>'s Lüleburgaz power<br />
station, in a bid to raise the quality of power<br />
and production safety, the station was<br />
connected to the 154 kV national grid.<br />
2003<br />
The Ankara Power Station entered<br />
operation, bringing the total installed power<br />
generation capacity up to 211 MW.<br />
<strong>Zorlu</strong> Natural Gas Import, Export and<br />
Wholesale Inc. and <strong>Zorlu</strong> Electricity Import,<br />
Export and Wholesale Trade Inc. was<br />
established.<br />
<strong>Zorlu</strong> Industrial and <strong>Energy</strong> Facilities<br />
Construction Trade Inc. entered contracts<br />
to establish power stations in the Kayseri<br />
Organized Industry Zone and preliminary<br />
studies were carried out for Kayseri Birlik<br />
Textiles and Yalova ‹pek Ka¤›t.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> initiated the OHSAS<br />
18001 and ISO 14001 Management<br />
Systems Establishment and Settlement<br />
Project in all of its companies.<br />
<strong>Zorlu</strong> O&M provided substitute turbine<br />
services in Greece.
present<br />
Performance and efficiency enhancing<br />
measures were implemented at each plant,<br />
with installation of “sprint” systems in the<br />
LM6000 gas turbines, undertaken by <strong>Zorlu</strong><br />
O&M Inc., increasing the power generation<br />
in the power stations by 10%.<br />
2004<br />
<strong>Zorlu</strong> O&M initiated maintenance activities<br />
at General Electric's (GE) LM6000 gas<br />
turbines at a plant level. A joint service<br />
contract was also reached between and<br />
<strong>Zorlu</strong> O&M and Turkish Airlines.<br />
<strong>Zorlu</strong> Industrial signed a letter of intent for<br />
a project to construct two turn-key energy<br />
stations in Israel.<br />
<strong>Zorlu</strong> <strong>Energy</strong> and <strong>Zorlu</strong> O&M received<br />
the OHSAS 18001 Occupational Health<br />
and Safety System Certificate and the ISO<br />
14001 Environmental Management System<br />
Certificate. <strong>Zorlu</strong> Industrial also initiated<br />
studies regarding such certification.<br />
2005<br />
The decision was taken to enter a<br />
partnership with Dorad <strong>Energy</strong> Ltd., with<br />
a 25% stake. The Company plans to<br />
develop power stations with 800 MW of<br />
installed power capacity to render<br />
contracting, operating and maintenance<br />
services for power stations in Israel, with<br />
a view to partnerships and investments.<br />
In addition, a decision was also taken<br />
to enter a 51% partnership with ICFS<br />
International LLC Limited located in Virginia,<br />
USA to invest in and be a partner in power<br />
stations and to render contracting,<br />
operation and maintenance services in<br />
Russia.<br />
The project for the first private power station<br />
in Moscow got underway with the<br />
foundations for the plant laid down.<br />
Having been awarded a natural gas<br />
exploration license, <strong>Zorlu</strong> Petrogas initiated<br />
exploration operations in the Gulf of<br />
‹skenderun and the Adana Region.<br />
<strong>Zorlu</strong> Petrogas won the tenders related to<br />
the Gaziantep-Kilis and K›rklareli-Tekirda¤-<br />
Edirne natural gas distribution lines.<br />
<strong>Zorlu</strong> <strong>Energy</strong> joined the list of the 100<br />
fastest growing companies in Europe.<br />
The Trade Finance Magazine voted the<br />
Kayseri power station project as the most<br />
successful finance project in 2005. The<br />
Kayseri OSB power station, built by <strong>Zorlu</strong><br />
Industrial, entered simple cycle commercial<br />
generation.<br />
<strong>Zorlu</strong> Petrogas purchased the Australian<br />
based Amity Oil International Pty. Ltd.,<br />
which has a partnership with the TPAO<br />
(Turkish Petroleum Corporation), carrying<br />
out petroleum and natural gas exploration<br />
and production operations in Turkey.<br />
2006<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> continued to grow with<br />
recently founded <strong>Zorlu</strong> Hydroelectric Power<br />
Generation Inc. and Rotor Electric<br />
Generation Co. Inc., license of which was<br />
taken over by <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>.<br />
<strong>Zorlu</strong> <strong>Energy</strong> signed a 20-year long electric<br />
power generation agreement with the<br />
Pakistan Alternative <strong>Energy</strong> Development<br />
Board (AEDB) to establish a wind farm in<br />
Pakistan. The first phase of the wind farm<br />
has a capacity of 49.5 MW with an option<br />
to increase this capacity up to 300 MW.<br />
Studies were started in Osmaniye to build<br />
a wind farm which would boast the single<br />
highest installed capacity of any wind farm<br />
in Turkey. The first phase of the wind farm<br />
has a capacity of 135 MW, and it is targeted<br />
to raise this capacity to 245 MW by the<br />
end of 2009.<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation Co.<br />
Inc. won the tender held for the Sandalc›k<br />
(127.8 MW) and Narl› (82.5 MW)<br />
hydroelectric power plants to be located<br />
on the Dalaman River in Mu¤la, and<br />
initiated feasibility studies for these<br />
hydroelectric power plants.<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 05<br />
2007<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity<br />
Generation Inc. won the tender<br />
held by the General Directorate<br />
of State Water Operations for<br />
the Tirebolu Hydroelectric<br />
Power Plant, which is planned<br />
to be built in the Tirebolu<br />
district in the province of<br />
Giresun. Feasibility studies<br />
have started for the plant,<br />
which will have a capacity of<br />
60 MW.<br />
Thrace Region Natural Gas<br />
Distribution Inc. has brought<br />
natural gas to the Fevzipafla,<br />
Gaziosmanpafla and Y›ld›r›m<br />
Beyaz›t districts of Çerkezköy.<br />
Gazdafl started natural gas<br />
distribution in Merveflehir,<br />
Gaziantep.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
06<br />
energy for<br />
We undertake timely and accurate investments<br />
to ensure high quality and uninterrupted<br />
energy.
life<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report07<br />
<strong>Energy</strong> in our dreams...
08 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
<strong>Zorlu</strong> <strong>Energy</strong><br />
A strong financial structure and investment portfolio<br />
Corporate Profile<br />
Present in all stages of the energy<br />
business line…<br />
With its foundations laid down with <strong>Zorlu</strong> <strong>Energy</strong> Electricity<br />
Generation Co. Inc. founded in 1993, <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong><br />
is currently one of the leading and most powerful participants<br />
in its sector.<br />
With its integrated activities extending from generation and<br />
sales of electricity, the production, distribution and sales<br />
of natural gas and project process to “turnkey” installation<br />
and long term maintenance and operation of power plants,<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> enjoys a unique position in the sector.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> has 6 natural gas conversion plants<br />
with a total installed capacity of 420 MW of electricity and<br />
207 tons/hour of steam. The electricity generated at these<br />
plants is predominantly directed to the Balancing and<br />
Settlement system while some is allocated to industrial<br />
firms as an uninterrupted and high quality source of energy.<br />
The current levels of electricity generation accounts for 8%<br />
of all the electricity produced by private sector companies.<br />
Apart from electricity generation, the <strong>Group</strong> also undertakes<br />
natural gas exploration activities in Thrace and already<br />
distributes natural gas in Thrace and Gaziantep.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> attaches a great deal of importance<br />
to studies into fields of renewable energy, such as<br />
hydroelectric, wind energy and geothermal energy, as well<br />
as thermal power plants and aims to step up its activities<br />
in this direction. With this vision, the <strong>Group</strong> aims to better<br />
evaluate Turkey's wind and hydro energy potential,<br />
• Work on the first phase of a 135 MW wind farm project<br />
in Osmaniye got underway. The electricity generation<br />
capacity of the plant will be raised to 245 MW through an<br />
investment to add 110 MW of new capacity. The license<br />
for the new capacity has already been obtained.<br />
• The <strong>Group</strong> currently carries out feasibility and projecting<br />
studies for three hydroelectric power plants, two of which<br />
will be in Dalaman and one will be in Tirebolu.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> has cemented its presence in Europe,<br />
Asia and the Middle East as well as Turkey to evaluate<br />
opportunities in the field of energy and become a regional<br />
power. The projects carried out in Russia, Pakistan and<br />
Israel are important steps for the <strong>Group</strong> in reaching this<br />
target.<br />
The <strong>Group</strong> continues to grow in compliance with the principle<br />
of diversifying products and services under the strategy of<br />
commanding a presence in every field of the energy<br />
business line, aiming to raise its investments in the<br />
generation, transmission, transportation and distribution<br />
of energy at both a national and international level going<br />
forward.
Financial Highlights<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 09<br />
(USD million) 2005 2006 2007<br />
Revenues 163.0 274.1 361.3<br />
Gross Profit 17.3 33.7 51.8<br />
Operating Profit -4.8 -4.2 -9.2<br />
adj. EBITDA* 12.1 22.9 35.0<br />
Net Income 2.6 -27.3 1.4<br />
Total Assets 472.0 597.4 970.0<br />
Shareholders' equity 250.6 215.1 271.2<br />
Net Debt 169.9 304.5 553.4<br />
Net Debt / Equity 0.68 1.42 2.04<br />
Gross margin (%) 10.6% 12.3% 14.3%<br />
EBITDA margin (%) 7.4% 8.4% 9.7%<br />
Net Profit margin (%) 1.6% -10.0% 0.4%<br />
* excl. drilling expenses<br />
Financials are in accordance with IFRS.
10 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
We use more renewable energy sources for the future of<br />
the earth.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 11<br />
<strong>Energy</strong> in our dreams...
12 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
group<br />
<strong>Zorlu</strong> <strong>Group</strong> produces and works for Turkey.<br />
<strong>Zorlu</strong> <strong>Group</strong><br />
The story of the <strong>Zorlu</strong> <strong>Group</strong> reaches back to its foundation in<br />
the early 1950s in a small textile atelier in the town of Babada¤<br />
in Denizli province. Growing and gaining strength in textiles by<br />
creating globally recognized brands, the <strong>Zorlu</strong> <strong>Group</strong> translated<br />
its success in textiles into the businesses of brown and white<br />
goods and digital products through Vestel and into the energy<br />
sector through <strong>Zorlu</strong> <strong>Energy</strong>. In 2006, the <strong>Zorlu</strong> <strong>Group</strong> made a<br />
bold and successful entry into real estate investment and<br />
development in order to tap the huge growth potential that it<br />
saw there and it undertook a number of investments in ‹stanbul<br />
as well as in ‹zmir and Marmaris.<br />
Textile <strong>Group</strong><br />
Korteks<br />
<strong>Zorlu</strong>teks<br />
Linens Marketing<br />
<strong>Zorlu</strong> Foreign Trade<br />
Vestel <strong>Group</strong> of Companies<br />
Vestel Electronics<br />
Vestel White Goods<br />
Vestel Digital<br />
Vestel Communications<br />
Vestel Foreign Trade<br />
Vestel Durable Goods Marketing<br />
Vestel CIS<br />
Vestel Defense Industrials<br />
AYESAfi<br />
Birim<br />
Veseg<br />
Vestel France<br />
Vestel Iberia<br />
Vestel Italy SRL<br />
Vestel Holland BV<br />
Vestel Benelux BV<br />
Vestel Trade<br />
Vestel UK Ltd.<br />
Vestel Electronica SRL<br />
OY Vestel Scandinavia AB<br />
UTS-United Technical Services, SPOL S.R.O.<br />
Vestpro Electronics S.A.<br />
Dexar Multimedia&Telecommunications<br />
Vestel USA<br />
CABOT Communications Ltd.<br />
Vestel Electronic India<br />
Vestel Electronics Research&Development<br />
Deksarnet Telecommunications<br />
‹zmir Technology Development<br />
Vestek<br />
With brands that Turkey takes pride in, facilities that carry Turkish<br />
industry into the future, and uninterrupted investment in business<br />
and society, the <strong>Zorlu</strong> <strong>Group</strong> today produces and works for<br />
Turkey.<br />
With 30 thousand employees and total assets worth TRY 11<br />
billion and in keeping with its philosophy “If we're going to go,<br />
then go as far as we can. If we're going to ascend, then go as<br />
high as we can. If we're going to be, then be the best we can<br />
be”, the <strong>Zorlu</strong> <strong>Group</strong> continues to increase the visibility of the<br />
<strong>Zorlu</strong> name in the global arena as well as the confidence that<br />
is felt in it.<br />
<strong>Energy</strong> <strong>Group</strong><br />
<strong>Zorlu</strong> <strong>Energy</strong><br />
<strong>Zorlu</strong> O&M<br />
<strong>Zorlu</strong> Industrial<br />
<strong>Zorlu</strong> Petrogas<br />
Amity Oil International<br />
Rotor<br />
<strong>Zorlu</strong> Hydroelectric<br />
Thrace Region Natural Gas Distribution<br />
Gaziantep Natural Gas Distribution<br />
<strong>Zorlu</strong> Electricity<br />
<strong>Zorlu</strong> Natural Gas<br />
ICFS International LLC<br />
Rosmiks International B.V.<br />
Rosmiks LLC (Russia)<br />
<strong>Zorlu</strong> <strong>Energy</strong> Pakistan<br />
Dorad <strong>Energy</strong> (Israel)<br />
Ashdod <strong>Energy</strong> (Israel)<br />
Ramat Negev <strong>Energy</strong> (Israel)<br />
Solbar <strong>Energy</strong> (Israel)<br />
Property <strong>Group</strong><br />
<strong>Zorlu</strong> Yap› Yat›r›m A.fi.<br />
<strong>Zorlu</strong> Property<br />
Development & Investment<br />
Akmerkez G›da ve ‹htiyaç<br />
Maddeleri Pazarlama<br />
‹hracat ‹thalat San. ve Tic. A.fi.<br />
‹ntermar Ticaret Pazarlama<br />
Turizm A.fi.
<strong>Energy</strong> <strong>Group</strong><br />
ZORLU ENERGY ELECTRICITY GENERATION CO. INC.<br />
<strong>Zorlu</strong> <strong>Energy</strong>, the first company in the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>, was<br />
founded as an auto producer company to meet the electricity<br />
and steam requirements of textiles factories belonging to the<br />
<strong>Zorlu</strong> <strong>Group</strong>. The Company later started to provide electricity<br />
and steam for other companies in response to demand from<br />
outside the <strong>Group</strong>. The Company today currently controls a total<br />
installed capacity of 420 MW in six power stations.<br />
<strong>Zorlu</strong> <strong>Energy</strong> is the flagship of the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> as well<br />
as a shareholder of all other <strong>Group</strong> companies. As one of the<br />
fastest growing companies in the energy sector in Europe, <strong>Zorlu</strong><br />
<strong>Energy</strong> also draws attention in the global arena.<br />
<strong>Zorlu</strong> <strong>Energy</strong>, ranked 158th place in the list of the top 500<br />
companies published annually by the ‹stanbul Chamber of<br />
Industry in 2005, increased its rank to 135th in 2006.<br />
<strong>Zorlu</strong> <strong>Energy</strong> operates with sensitivity to the environment, nature<br />
and the society in which it operates. It has equipped all of its<br />
power stations with water injection systems to ensure NOX<br />
emissions come within the limits stipulated by the World Bank.<br />
<strong>Zorlu</strong> <strong>Energy</strong><br />
<strong>Zorlu</strong> <strong>Energy</strong> Shareholding Structure<br />
Domestic Subsidiaries<br />
20% <strong>Zorlu</strong> O&M<br />
20% <strong>Zorlu</strong> Industrial<br />
80% Rotor<br />
73% <strong>Zorlu</strong> Petrogas 100% Amity Oil Int.<br />
80% <strong>Zorlu</strong> Hydroelectric<br />
5% Gaziantep Natural Gas Distribution<br />
1% <strong>Zorlu</strong> Electricity<br />
5% Thrace Region Natural Gas Distribution<br />
1% <strong>Zorlu</strong> Natural Gas<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 13<br />
This system, which helps limit greenhouse warming by using<br />
the waste heat in steam, is known as environment-friendly energy<br />
generation. <strong>Zorlu</strong> <strong>Energy</strong> was the first auto producer to have<br />
achieved a quality certificate in Turkey. The Company, which<br />
was awarded the TS/EN ISO 9001-2000, the OHSAS 18001 and<br />
the ISO 14001 certificates, also employs the Integrated<br />
Management System.<br />
20% of <strong>Zorlu</strong> <strong>Energy</strong> shares went public in 2000, and 29.4% of<br />
the company's shares currently trade on the ISE. <strong>Zorlu</strong> <strong>Energy</strong>,<br />
the first listed energy company in Turkey, is the only publiclyheld<br />
company of the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>.<br />
<strong>Zorlu</strong> <strong>Energy</strong> signed a Carbon Emission Sale Contract with<br />
EcoSecurities in 2007 for the first 135 MW phase of the wind<br />
farm being established in Osmaniye. The first phase of the wind<br />
farm, which will enter production in Osmaniye in 2009, will<br />
produce around 500,000 MWh of electricity per year, reducing<br />
CO2 emissions by 400,000 tons/year. The Company aims to<br />
sign a similar contract for the additional capacity of 110 MW to<br />
the wind farm in Osmaniye, the wind farm project in Pakistan<br />
and natural gas conversion and cogeneration plant projects in<br />
Russia and Israel.<br />
<strong>Zorlu</strong> <strong>Energy</strong><br />
Korteks 17.55%<br />
<strong>Zorlu</strong> Holding 43.21% Other <strong>Zorlu</strong> <strong>Group</strong><br />
Companies 9.83%<br />
Publicly Held 29.41%<br />
Foreign Subsidiaries<br />
51% 100% 100%<br />
ICFS Int. LLC Rosmiks Int. B.V. Rosmiks LLC<br />
100% <strong>Zorlu</strong> <strong>Energy</strong> Pakistan<br />
25% Dorad <strong>Energy</strong><br />
51% Ashdod <strong>Energy</strong><br />
51% Ramat Negev <strong>Energy</strong><br />
26,5% Solbar <strong>Energy</strong><br />
on the next page <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>'s generation power
14 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong><br />
generation<br />
Power Plants of <strong>Zorlu</strong> <strong>Energy</strong><br />
Lüleburgaz Power Plant<br />
Type: Cogeneration <strong>Energy</strong> Plant with Natural Gas Conversion<br />
Capacity: 65.7 MW Electricity + 162 tons/hour Steam<br />
Ankara Power Plant (Organized Industry Zone)<br />
Type: Combined Cycle <strong>Energy</strong> Generation Plant with Natural<br />
Gas Conversion<br />
Capacity: 50.3 MW Electricity<br />
Bursa Power Plant (Organized Industry Zone)<br />
Type: Combined Cycle <strong>Energy</strong> Generation Plant with Natural<br />
Gas Conversion<br />
Capacity: 90 MW Electricity
power<br />
Kayseri Power Plant (Organized Industry Zone)<br />
Type: Combined Cycle <strong>Energy</strong> Generation Plant with Natural<br />
Gas Conversion<br />
Capacity: 188.5 MW Electricity<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 15<br />
Yalova Power Plant (‹pek Ka¤›t - Alt›nova)<br />
Type: Cogeneration <strong>Energy</strong> Plant with Natural Gas Conversion<br />
Capacity: 15.9 MW Electricity + 30 tons/hour Steam<br />
Kayseri Power Plant (Birlik Textiles Enterprises Middle<br />
Organized Industry Zone)<br />
Type: Cogeneration <strong>Energy</strong> Plant with Natural Gas Conversion<br />
Capacity: 7.2 MW Electricity + 15 tons/hour Steam<br />
on the next page competitive advantages
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
16<br />
competitive<br />
We convert market opportunities into success through<br />
our vision and our identity as a leader.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 17<br />
advantages<br />
The strengths and competitive<br />
advantages of <strong>Zorlu</strong> <strong>Energy</strong><br />
Seizing on the advantage of being one of the first in this field of industry, <strong>Zorlu</strong> <strong>Energy</strong><br />
<strong>Group</strong> has astutely anticipated market opportunities through its vision and its identity<br />
as a leader, and converted them into success.<br />
The <strong>Group</strong> is expanding its operations in Turkey and in neighboring countries in<br />
accordance with developments taking place in the energy field, implementing the<br />
principle of diversification of risk the most appropriate way, while taking firm steps<br />
towards being a global energy power.<br />
Diversity of Products and Services<br />
In the first years following its establishment, the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> had only been<br />
producing electricity for the <strong>Zorlu</strong> <strong>Group</strong>; after years of steadily raising its generation<br />
capacity, the Company is now able to supply the energy and steam needs of other<br />
industrial organizations as well. Through its specialized companies, the <strong>Group</strong> also<br />
conducts business abroad, including natural gas exploration and production, turnkey<br />
power plant installation services for industrial firms, natural gas sales and distribution<br />
services to meet residential and commercial natural gas needs, maintenance and<br />
operational services for other industrial entities operating power plants.<br />
In the framework of its product and service diversity strategy, <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> is<br />
following tenders for wind farms, hydroelectric plants on the privatization agenda,<br />
electricity distribution tenders and natural gas contract transfer tenders.<br />
Geographic Advantage<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> now carries its mobility and competence to beyond national<br />
borders, is still constructing the first private sector-operated power plants in Moscow<br />
and taking solid steps towards gaining a presence in Israel, in accordance to company's<br />
strategic goals. With a key interest in projects in the surrounding region, as well as<br />
in developing new markets, <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> is dedicated to carry its experience<br />
and know-how to different countries, and the 50 MW wind farm being built in Pakistan<br />
is an example of this.<br />
on the next page Message from the Chairman
18 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
Message from the Chairman<br />
A number of developing countries, including Turkey, are in the<br />
midst of a process of liberalization and privatization of the energy<br />
sector as a necessity to create liberal markets. New market<br />
regulation laws enacted in Turkey since 2001 have paved the way<br />
for the entry of private sector companies into the energy market,<br />
setting the stage for competition in the electricity, natural gas and<br />
petroleum business lines and bringing improvements in efficiency,<br />
quality, sustainability and customer satisfaction .<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> has built up its presence in the energy sector<br />
over more than 15 years, either by taking over investments in the<br />
privatization process, and/or being awarded the rights to operate<br />
or making investments from scratch. Our <strong>Group</strong> has been carrying<br />
out its activities, from natural gas and oil exploration to extraction<br />
and distribution of natural gas, from generation to distribution of<br />
regi<br />
electric power, from installation to maintenance and operation of<br />
power plants, through its companies specialized in different fields<br />
in an approach of gradual growth which embraces more and<br />
more sub-sectors within the energy business line.<br />
<strong>Energy</strong> supply security on the global agenda.<br />
A look at developments in international markets shows that the<br />
global energy sector is suffering from a bottleneck; it is also clear<br />
that fossil fuels, which currently produce 80% of the world's total<br />
energy, will maintain their weight until 2030-2040 on the basis of<br />
recent evaluations, and that progress on the use of renewable<br />
energy has yet to achieve the targeted levels. In this context, at<br />
a time of global energy constraints, priority has been given to<br />
R&D studies for the conversion of energy produced by fossil fuels<br />
into cleaner and more environment-friendly energy.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 19<br />
onal power<br />
Against the current backdrop of relentlessly rising energy costs,<br />
it is vital that we reach our decisions in a healthy and rapid manner<br />
on behalf of both Turkey and our <strong>Group</strong>. If Turkey fails to grasp<br />
the nettle of this challenge, the country will be late to meet the<br />
rising demand for energy and suffer from an exponentially rising<br />
cost of supplying energy.<br />
Our biggest hope lies in liberalization, which targets a sectoral<br />
environment with no cross-subsidies in all value chains of the<br />
sector, with a pricing mechanism left entirely to market forces.<br />
2008 is set to be a crucial year in terms of the swift privatization<br />
of electricity distribution networks, but also in allowing new players<br />
enter the market through this privatization process, as well as<br />
initiation of the operation of the liberal market in real sense, and<br />
the transfer of publicly owned - the state is the biggest player in<br />
national energy production, accounting for a share of 75-80% the<br />
total - and inefficiently operated plants to the private sector in<br />
order to make necessary investments as soon as possible in<br />
terms of providing the liquidity required by the market.<br />
Working with high ideals.<br />
We act with a long-term point of view in all our projects and<br />
activities, always striving to ensure that our services in the energy<br />
sector serve the general public, and aware that no public benefit<br />
can be neglected for the sake of any corporate benefits. We<br />
believe companies in the energy sector have a historical<br />
responsibility to pave the way for new liberalization and privatization<br />
activities, and in order to remove related concerns amongst the<br />
general public.<br />
Under all circumstances, our core service principle is to work to<br />
the principles of quality, reliability and lower energy prices which<br />
the public will expect from us following the liberalization and/or<br />
privatization processes.<br />
Further to this, one of the issues which we, as <strong>Zorlu</strong> <strong>Energy</strong>, have<br />
focused on is to act within a corporate approach based on energy<br />
sustainability while minimizing the damage to the environment<br />
while striving to maximize the use of renewable energy resources<br />
within our total production portfolio.<br />
We aim to become a regional power through the investments<br />
evaluating the strategic position of our country.<br />
<strong>Zorlu</strong> <strong>Group</strong> signed the UN Global Compact on November 12,<br />
2007, thereby carrying the principles and values which it has<br />
adopted since its foundation to a dimension of global social<br />
responsibility. We believe that the wide recognition of the Global<br />
Compact will help ensure a better world, and we would hope that<br />
more and more institutions in Turkey implement such principles.<br />
Our Vision: To be a global company and a regional player<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> specified the route to its growth based on<br />
the target of being an ambitious regional player with its broad<br />
range of activities in the most strategic sector of Turkey and the<br />
world.<br />
Our <strong>Group</strong> configures its investment portfolio based on the<br />
awareness that Turkey is located at a crossroads in the global<br />
energy map and is gradually becoming a more and more popular<br />
brand, not only in Turkey, but also in projects abroad; the<br />
development of Russia's first privately owned power station,<br />
energy projects in Israel and a wind farm project in Pakistan are<br />
all leading steps of our vision, and also mark the beginning of<br />
our success story in being a global company and a regional<br />
power.<br />
We, as <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>, always place our nation at the top<br />
of our list of priorities. We have contributed steadfastly to the<br />
development of our country and will continue to do so through<br />
our investments and projects.<br />
I would like to extend my sincerest best wishes to all our<br />
shareholders, business partners and social stakeholders.<br />
Zeki <strong>Zorlu</strong><br />
Chairman of the Board
20 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
Message from the CEO of the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong><br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> has strived to continuously<br />
develop and activate its corporate and operational<br />
structure in its journey towards becoming a<br />
regional power in the global league.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 21<br />
performance<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> ended the year 2007 with a successful<br />
performance, having achieved significant progress on its journey<br />
towards becoming a regional power in the energy business thanks<br />
to expanding its organization in various fields of the energy sector<br />
its strong financial structure and through astute investments as<br />
part of its strategic growth roadmap.<br />
Large scale and efficient production<br />
The year 2007 was marked by a bottleneck in energy supplies in<br />
Turkey. To combat this, <strong>Zorlu</strong> <strong>Energy</strong> raised its production efficiency<br />
by renewal and optimization activities, and attained its highest<br />
production since its foundation by operating its plants at maximum<br />
capacity.<br />
The implementation of the Balancing and Settlement Regulation<br />
(DUY) system also enabled our <strong>Group</strong> recoup previous years'<br />
losses during 2007, which had arisen from the situation whereby,<br />
the rises in natural gas prices and in our other expenses parallel<br />
to this rising trend, were not reflected to electricity sale prices.<br />
Taking precautions necessary to keep our power stations operating<br />
at maximum efficiency and adjusting their operation systems in<br />
accordance with the structure set forth in the DUY system will<br />
remain our priorities in the coming period.<br />
The supply-demand imbalance has gradually been seen to<br />
increase in the Turkish energy market, while serious threats now<br />
face supply security. Against this backdrop, it has become ever<br />
more vital to encourage investment. We, as a company, are<br />
carrying out our investments by making use of all related incentive<br />
mechanisms in order to supply the energy required by the nation.<br />
<strong>Zorlu</strong> <strong>Energy</strong> attained its highest production since its<br />
foundation by operating its plants at maximum capacity.<br />
The building blocks of continuous development<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> has striven to continuously develop its<br />
corporate and operational structure in order to create an energy<br />
company profile which fits modern global models. <strong>Zorlu</strong> <strong>Energy</strong><br />
<strong>Group</strong>'s general investment targets and strategy have been<br />
configured on the following principles:<br />
• Diversification of resources for production; bringing our<br />
production, which is currently carried out based on a single<br />
source, to a point where it can be carried out through a variety<br />
of resources;<br />
• Selecting environment- friendly technologies with a focus on<br />
renewable energy;<br />
• Balancing base load power plants which provide a steady flow<br />
of power to ensure supply security and renewable energy power<br />
stations in our portfolio.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> has concentrated on investments for the<br />
future, by taking their environmental impact into account.<br />
Accordingly, we plan to expand our portfolio with investments in<br />
wind energy as well as geothermal and hydroelectric energy in<br />
near future.<br />
Aiming to grow through renewable energy sources.<br />
We are very ambitious in renewable energy projects, which will<br />
play an extremely important role in our country's future. To this<br />
end, we have already started projects on wind farms and<br />
hydroelectric power plants. We have begun to establish one of<br />
the biggest wind farms of the world, which will be completed in<br />
2009.
22 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> has concentrated on<br />
investments for the future, by taking their<br />
environmental impact into account. Accordingly,<br />
we plan to expand our portfolio with investments<br />
in wind energy as well as geothermal and<br />
hydroelectric energy in near future.<br />
The Osmaniye wind farm will stand out in the international energy<br />
arena with a capacity of 245 MW. The wind farm will generate<br />
half as much electricity as the Seyhan Dam. In addition, the <strong>Group</strong><br />
plans to swiftly bring two hydroelectric power plants into operation<br />
on the Dalaman River. As well as contributing significantly to the<br />
national economy with its investments in renewable energy, <strong>Zorlu</strong><br />
<strong>Energy</strong> also aims to take decisive steps towards protecting the<br />
environment.<br />
We have acted decisively with our actions. In 2007, <strong>Zorlu</strong> <strong>Energy</strong><br />
signed a VERPA (Voluntary Emission Reduction Purchasing<br />
Agreement) with EcoSecurities, which is one of the most<br />
experienced and leading companies of its sector in the field of<br />
“carbon credit” applications. This agreement is an important step<br />
for the Turkish energy sector, which is currently not party to the<br />
Kyoto Agreement.<br />
Stepping up our power abroad.<br />
Our operation and maintenance company provides operation<br />
and maintenance services to both our own plants as well as<br />
private sector energy corporations, by participating in various<br />
tenders both at home and abroad.<br />
Our EPC group, <strong>Zorlu</strong> Industrial, is constructing two power plants<br />
in Moscow with the strength it receives from the power plants that<br />
it previously constructed in Turkey. Once the first phase of the<br />
construction work on the power stations is completed, each power<br />
plant will have a generation capacity of 170 MW; this will increase<br />
to 680 MW in the second phase of the investment.<br />
Negotiations for the financing of four projects in Israel, with a<br />
combined capacity of 1,050 MW, and work on the procurement<br />
of goods are currently under way.<br />
All permits have now been received for the establishment of a 50<br />
MW capacity wind farm in Pakistan, and we reached the point of<br />
signing agreements including guarantees given to us by the<br />
Pakistani government. If activities proceed in line with our<br />
expectations, the capacity of the wind farm could later be raised<br />
to 300 MW.<br />
Investments to continue in the period ahead<br />
Our first target for 2008 is to rapidly complete our existing projects<br />
and gradually raise our production capacity. Our management<br />
capability, our strong financial structure and our credibility will<br />
stand out as the significant advantages to allow us to successfully<br />
complete our investments.
Our strategies to diversify energy resources in our investments<br />
in Turkey are concentrated on renewable energy. In line with our<br />
target of increasing the number of renewable energy power plants<br />
in our portfolio, work on our hydroelectric power plants and wind<br />
farms will proceed at full speed during 2008.<br />
Moreover, as part of measures implemented to reduce dependency<br />
on natural gas, one of our targets is to establish of a new coalfired<br />
power station. Coal still accounts for 40% of global electricity<br />
and energy production.<br />
We have developed a more sensitive approach with respect to<br />
these issues, mainly global warming and reducing carbon<br />
emissions, which have gradually assumed a more prominent<br />
position on the global agenda. Therefore, realizing these<br />
investments for this purpose without delay and in a timely manner<br />
stands out as another issue of concern for us.<br />
We are willing and decisive to participate in electricity distribution<br />
privatization tenders and to operate in this field.<br />
In the field of natural gas distribution, we are conducting<br />
infrastructure activities within the framework of the guarantees<br />
provided to EMRA in respect to the distribution of natural gas in<br />
Tekirda¤, Edirne and K›rklareli in Thrace, and also Gaziantep and<br />
Kilis in the south east of Turkey. Once the homes are connected,<br />
gas supplies will gradually be rolled out in these cities.<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 23<br />
Working together to achieve success…<br />
We are building <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>'s success, both for today<br />
and in the future, with the support of all of our employees; by<br />
keeping a close watch of global developments and by continuously<br />
questioning ourselves to do better… Our road is long, but we are<br />
advancing in great strides towards our ambitious targets, which<br />
we have inherited from our deep rooted past.<br />
I would like to extend my sincerest thanks to our board members,<br />
employees and all our social stakeholders.<br />
Murat Sungur Bursa<br />
CEO of the <strong>Energy</strong> <strong>Group</strong> and Board Member
24 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
Board of Directors<br />
1 Zeki ZORLU<br />
Chairman of Board of Directors<br />
(1939 - Denizli) Zeki <strong>Zorlu</strong> began his career in<br />
a family company operating in the textiles sector<br />
and opened his first textiles store in Trabzon.<br />
Having founded Korteks in 1976 during his<br />
career, which began in Babada¤, Denizli and<br />
continued in ‹stanbul, Zeki <strong>Zorlu</strong> laid down the<br />
foundation of <strong>Zorlu</strong> Holding which today has<br />
25,000 employees and 60 companies. Apart<br />
from its new investments in the textiles sector,<br />
<strong>Zorlu</strong> <strong>Group</strong> stepped into electronics and white<br />
goods sector with Vestel, which was acquired<br />
in 1994, into the energy sector in 1996 and into<br />
the real estate sector in 2006. As well as serving<br />
as the Co-Chairman of the Board of Directors<br />
of <strong>Zorlu</strong> Holding, Zeki <strong>Zorlu</strong> is also serving as<br />
the Chairman of the <strong>Group</strong> companies operating<br />
in the textiles and energy sectors.<br />
2 Olgun ZORLU<br />
Board Member<br />
(1965 - Trabzon) After graduating from high<br />
school, Olgun <strong>Zorlu</strong> completed a number of<br />
courses in the UK in the fields of textiles and<br />
business administration and completed an<br />
internship in the textiles industry. He started to<br />
serve as a manager at the <strong>Zorlu</strong> <strong>Group</strong> in 1988.<br />
Having acquired business administration and<br />
management experience in the textiles field,<br />
which is one of the main fields of activity of the<br />
<strong>Group</strong>, Olgun <strong>Zorlu</strong> still conducts market<br />
research abroad and manages new application<br />
and development activities. Apart from his duty<br />
as a Board Member at <strong>Zorlu</strong> <strong>Energy</strong>, Olgun<br />
<strong>Zorlu</strong> also serves as the Board Member in a<br />
variety of <strong>Group</strong> companies.<br />
3 Selen ZORLU MEL‹K<br />
Board Member<br />
(1975 - Trabzon) Selen <strong>Zorlu</strong> Melik has<br />
graduated from Uluda¤ University Business<br />
Administration Department. She started her<br />
career in Denizbank in 1998 and joined<br />
Management Trainee Program in 1999 at the<br />
same bank. Within Denizbank she served several<br />
positions and in 2001 she attended Marketing<br />
Certificate Program at the University of California<br />
Berkley (USA). In 2002 she started to work in<br />
Korteks, textile manufacturing and trade<br />
company of <strong>Zorlu</strong> <strong>Group</strong>, and she became<br />
Member of the Board at the same company in<br />
2004. She joined to <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> as the<br />
Board Member in 2005.<br />
4 Murat Sungur BURSA<br />
Board Member<br />
(1954 - Mersin) Murat Sungur Bursa has<br />
graduated from Middle East Technical University<br />
in 1977. Following his education in American<br />
Hobart School of Welding Technology, he<br />
completed his MBA in Gazi University Business<br />
Administration-Product Management. He began<br />
his career in Industrial Training and Development<br />
Centre as mechanical engineer. Between 1986-<br />
1988 he worked as Vice Chairman of WASME<br />
(World Assembly of Small and Medium<br />
Enterprises). Also between 1988-1990 he<br />
operated in State Planning Organization as<br />
European Community Relations Expert. 1990-<br />
1991 he was Part-Time Consultant in World<br />
Bank assisted Turkish Eximbank Project to<br />
promote Export Oriented Small and Medium<br />
Scale Industries. 1991-1994 he was General<br />
Director of Environmental Impact Assessment<br />
and Planning General Directorate. During 1995<br />
-1998, first he was appointed to Deputy<br />
Undersecretary of Ministry of Environment, then<br />
he became Undersecretary of Ministry. At the<br />
beginning of October 2003 he started to work<br />
as Director in Prime Ministries Project<br />
Implementation Unit. He than joined to <strong>Zorlu</strong><br />
<strong>Energy</strong> <strong>Group</strong> in May 2006 as CEO and Board<br />
Member.<br />
5 Melih E. ARAZ<br />
Vice Chairman<br />
(1948 - ‹stanbul) Melih E. Araz graduated from<br />
the Faculty of Political Sciences at Ankara<br />
University in 1972. After having completed an<br />
MBA at the Kelley School of Business within<br />
the University of Indiana, he continued his<br />
education at the Harvard Business School in<br />
the field of “Top Level Management”.<br />
Commencing his career at the Citibank N.A.'s<br />
organization in Turkey, Mr. Araz assumed top<br />
level duties in a variety of units in the ‹stanbul,<br />
‹zmir, Bahrain, Athens and New York branches<br />
and took on important responsibilities in the<br />
foundation and expansion of the Citibank<br />
organization. Later, being appointed as the<br />
CEO/General Manager at Interbank A.fi., Mr.<br />
Araz played a leading role in bringing Interbank<br />
to a respected position in the corporate and<br />
investment banking fields in Turkey. Mr. Araz<br />
now serves as a consultant for a variety of<br />
companies in the fields of finance and strategic<br />
management, and is also the Vice Chairman of<br />
the Board of Directors of <strong>Zorlu</strong> <strong>Energy</strong> Inc., a<br />
Managing Director at Ata Yat›r›m A.fi., and a<br />
Board Member at fienocak Holding A.fi.,<br />
Klimasan A.fi., ‹zmir Enternasyonel Otelcilik A.fi.<br />
and Entegre A.fi.<br />
6 Prof. Dr. A. Can TUNCAY<br />
Board Member<br />
(1944 - Ankara) Prof. Dr. A. Can Tuncay<br />
graduated from the Faculty of Law at the Ankara<br />
University in 1966. After completing his advocacy<br />
internship, he was admitted to the Faculty of<br />
Law at the ‹stanbul University in 1968 as an<br />
assistant lecturer. He received a Ph. D. in law<br />
in 1975 and became an assistant professor of<br />
law in 1980. Having promoted as a professor<br />
in 1988, Mr. Tuncay lectured in the Department<br />
of Law on Occupational and Social Security at<br />
the ‹stanbul Faculty of Law for 32 years. After<br />
retiring, he started to serve at the Faculty of<br />
Law at the Yeditepe University in 2000. Being<br />
appointed as the Board Member of the <strong>Zorlu</strong><br />
<strong>Energy</strong> <strong>Group</strong> in 2006, Mr. Tuncay still works<br />
at Bahçeflehir University as the Head of the<br />
Department of Law on Occupational and Social<br />
Security. A. Can Tuncay is also a legal advisor<br />
for many domestic and foreign companies.<br />
7 Burak ‹. OKAY<br />
Board Member<br />
(1967 - Ankara) Burak ‹. Okay graduated from<br />
the Faculty of Law at the Ankara University in<br />
1990. After completing the international law<br />
certificate program in New York, he started his<br />
career at the Department of Legal Consultancy<br />
in Türkiye ‹fl Bank. He later went on to work in<br />
Garanti Bank, MNG Bank and Nortel Networks<br />
Netafl respectively and then served at the Bener<br />
Law Firm as an executive. Joining <strong>Zorlu</strong> <strong>Group</strong><br />
in 2006, he played an active role in the<br />
configuration of the law department serving all<br />
the <strong>Group</strong> companies. Mr. Okay still serves as<br />
the Law Coordinator of the <strong>Zorlu</strong> <strong>Group</strong> and is<br />
a Board Member of the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong><br />
since 2007.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 25<br />
5 3<br />
1<br />
4 6 2 7<br />
on the next page Senior Management
26 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
Senior Management<br />
Murat Sungur BURSA<br />
CEO of the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>,<br />
Board Member<br />
Please refer page 24 for the CV of Murat Sungur<br />
Bursa.<br />
Selen ZORLU MEL‹K<br />
Deputy CEO of the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>,<br />
Board Member<br />
Please refer page 24 for the CV of Selen <strong>Zorlu</strong><br />
Melik.<br />
Mehmet Ali NEYZ‹<br />
Deputy CEO of <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong><br />
(1959 - ‹stanbul) Mehmet Ali Neyzi completed<br />
his high school education at the German High<br />
School and Robert College, before going on to<br />
graduate from the Department of Electrical<br />
Engineering and Computer Science at Princeton<br />
University in 1980. Mr. Neyzi began his career<br />
in Arçelik in 1983 and worked there until 1998<br />
were he served as the Deputy General Manager<br />
responsible for materials and marketing.<br />
Completing the Strategic Marketing education<br />
program at the Harvard Business School in<br />
1997, Mehmet Ali Neyzi became the General<br />
Manager of Ram D›fl Ticaret A.fi. in 1998.<br />
Working at Tan› Pazarlama ve ‹letiflim Hizmetleri<br />
A.fi. as the company's General Manager<br />
between 2002 and 2004, Mr. Neyzi then served<br />
as the General Manager of Aygaz A.fi. during<br />
the period 2004-2008. He joined the <strong>Zorlu</strong><br />
<strong>Energy</strong> <strong>Group</strong> in April 2008 as the Deputy CEO<br />
in order to take duty in the decision-making<br />
process in respect to studies in existing and<br />
new areas of activity.<br />
‹. Sinan AK<br />
Assistant General Manager, Finance<br />
(1971 - Ankara) ‹. Sinan Ak has graduated from<br />
‹stanbul Technical University with a bachelor<br />
degree of engineering management. He served<br />
as a bond dealer in Evgin Securities in 1996.<br />
Later he got his MBA degree from Old Dominion<br />
University (USA) with a finance concentration.<br />
He than joined to <strong>Zorlu</strong> group in June 2000.<br />
Within the <strong>Zorlu</strong> <strong>Group</strong> he served in various<br />
positions and companies as follows: between<br />
2000 and 2002 in Vestel Communications as<br />
finance chief; between 2002 and 2006 in Vestel<br />
White Goods as finance manager and since<br />
2006 in <strong>Zorlu</strong> <strong>Energy</strong> as Assistant General<br />
Manager.<br />
Serhat fi‹MfiEK<br />
Assistant General Manager, Production and<br />
Trade<br />
(1968 - Elaz›¤) Serhat fiimflek has graduated<br />
from Y›ld›z Technical University Electrical<br />
Engineering Department in 1990. He has started<br />
his career in Tekfen as an engineer and<br />
undertaken several managerial positions in<br />
Temel Su, Shell and Trakya ‹plik. In February<br />
2001 he joined to <strong>Zorlu</strong> <strong>Energy</strong> and since 2007<br />
served as Assistant General Manager.
Gökmen TOPUZ<br />
Assistant General Manager, Investments<br />
(1972 - ‹stanbul) Gökmen Topuz has graduated<br />
from ‹stanbul Technical University Electrical<br />
Engineering Department in 1995. He got his<br />
MBA degree in Yeditepe University and<br />
continues his PhD on Organizational Behaviors<br />
Program at the same university. He started his<br />
career as a Project Manager in MAN Desentrale<br />
Energie Systeme. He served in various<br />
managerial positions in Wartsila-Enpa, Kale<br />
<strong>Energy</strong>, Piramit <strong>Energy</strong> between 1998 - 2007<br />
and joined to <strong>Zorlu</strong> <strong>Energy</strong> in September 2007<br />
as Assistant General Manager.<br />
Bülent Ç‹L‹NG‹R<br />
Director, Procurement and Logistics<br />
(1963 - Ankara) Bülent Çilingir has graduated<br />
from Middle East Technical University<br />
Department of Civil Engineering and got his<br />
MSc degree at the same University in 1985. He<br />
started his career as a Project Manager in<br />
Kutlutafl Construction in 1989. Between 1989 -<br />
2003 he has undertaken several managerial<br />
positions in Bay›nd›r Holding, Bay›nd›r<br />
Construction, Erel Technology <strong>Group</strong>. In 2003<br />
he started to work as a consultant and in April<br />
2006 he joined to <strong>Zorlu</strong> <strong>Energy</strong> as Procurement<br />
and Logistics Director.<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 27<br />
A. Tansel VARAN<br />
Director, Human Resources and Corporate<br />
Communications<br />
(1970 - ‹stanbul) A. Tansel Varan has graduated<br />
from ‹stanbul University Faculty of Economics<br />
and Finance. He got his MA degree in<br />
economics from University of Vienna in 1996<br />
and in 1997 he attended Business English and<br />
Internet Certificate Program at the University of<br />
California Berkley (USA). He joined to Anadolu<br />
<strong>Group</strong> as a Management Trainee in 1997 and<br />
served in various managerial positions in the<br />
group. He worked as Human Resources<br />
Manager in Do¤an <strong>Group</strong> and Ak-Al Textile<br />
between 2002 and 2005 and joined to <strong>Zorlu</strong><br />
<strong>Energy</strong> in December 2005 as Human Resources<br />
and Corporate Communications Director.
28 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
activities<br />
<strong>Zorlu</strong> <strong>Energy</strong>'s power stations reached their maximum<br />
capacity in 2007, allowing the Company to continue increasing<br />
its sales.<br />
Management assessment and<br />
analysis of operational results
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 29
30<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
production<br />
EÜAfi (Electricity Generation Co. Inc.) and its subsidiaries account<br />
for 48% of all energy generation. The private sector accounts for<br />
52% of all energy produced in Turkey.<br />
Economic and sectoral developments impacting operations<br />
Turkish Electricity Sector<br />
Four public enterprises operate in the Turkish electric power<br />
market: EÜAfi-Electricity Generation Co. Inc. (generation), TETAfi-<br />
General Management of Turkish Electricity Trading and Contracting<br />
Inc. (sale), TE‹Afi-Turkish Electricity Transmission Company<br />
(transmission) and TEDAfi-Turkish Electricity Distribution Co. Inc.<br />
(distribution). While the distribution business is carried out by 21<br />
companies, only one of them (operating in Kayseri) is a private<br />
sector company. Three more distribution companies (Baflkent,<br />
Sakarya and Ayedafl) are expected to be brought under the scope<br />
of the privatization program to be auctioned by the end of 2008.<br />
EÜAfi and its subsidiaries command a 48% share of total energy<br />
production. The private sector accounts for 52% of all electricity<br />
generation.<br />
Natural gas has the biggest share (45%) of electricity generation<br />
in Turkey, followed by hydroelectric power with a 24% share, while<br />
domestically mined lignite (a variant of coal) accounts for a further<br />
20% of all electricity generated. The private sector is now expected<br />
to reduce use of imported natural gas in electricity generation<br />
and concentrate on hydroelectric power and power stations<br />
operating with imported coal going forward.<br />
Demand for electricity in Turkey has increased at a CAGR of 7.8%<br />
since 1985 in parallel with economic development, industrialization<br />
and urbanization. The growth has continued largely unabated<br />
even in the face of challenges facing the national economy.<br />
Consumption of electricity is expected to carry on rising in the<br />
next 10-15 years. The growth rate in the first 10 months of 2007<br />
was 9%.<br />
Despite the increase in recent years, Turkey's per capita electricity<br />
consumption remains the lowest in Europe at just 1,656 kWh per<br />
year, only half the per capita consumption of 3,325 kWh in Poland,<br />
which has the next lowest consumption on a per capita basis.<br />
According to a research study conducted by TE‹Afi, Turkey will<br />
face a deficit in electricity supply by 2009 based on a high-demand<br />
scenario, or by 2011 under a low-demand scenario projection.<br />
According to TE‹Afi estimates, Turkey will require 30,000 MW of<br />
new generation capacity by 2016, necessitating USD 3-4 billion<br />
in annual investment expenditure.<br />
Although natural gas prices have risen by 84% since 2003 in<br />
parallel with the continuous surge in crude oil prices, electricity<br />
sales prices were not raised until 2008.<br />
The reason for the squeezing profitability in the sector becomes<br />
clear when it is considered that the private sector generates 70%<br />
of its electricity from natural gas. Some private sector companies<br />
even requested the cancellation of their licenses during this period.<br />
A balancing mechanism was established in August, 2006 as per<br />
the Balancing and Settlement Regulation (DUY) in order to close<br />
the deficit in supply and to raise private sector interest in electricity<br />
generation investments.<br />
The purpose of the system is to provide cost-effective and efficient<br />
use of production resources within the system by creating a<br />
competitive quoting environment through a spot market to be<br />
formed by means of price offers of the electricity generating<br />
companies.
A balancing mechanism<br />
was established in August,<br />
2006 as per the Balancing<br />
and Settlement Regulation<br />
(DUY) in order to close the<br />
deficit in supply and to<br />
raise private sector interest<br />
in electricity generation<br />
investments.<br />
Electricity generation by primary energy source<br />
(%)<br />
2,5%<br />
46%<br />
25%<br />
26,5%<br />
Sector<br />
1%<br />
18%<br />
46%<br />
35%<br />
EÜAfi<br />
Liquid Fuels<br />
Natural Gas<br />
Hydro<br />
Coal<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 31<br />
Although a complete open spot market has not yet emerged due<br />
to the fact that most of the actors on the sale and purchase side<br />
are state enterprises, private producers have started to improve<br />
their margins by on the back of the high price levels dominating<br />
the market.<br />
Residential electricity tariffs were raised by 19% and industrial<br />
tariffs were raised by 12% with effect from January 1, 2008.<br />
In order to encourage the private sector to invest in the sector,<br />
and also by taking planned privatizations into account, the<br />
government declared that the automatic pricing mechanism would<br />
be implemented from July 2008.<br />
The privatization of electricity distribution rights and power station<br />
- particularly coal-fired power stations - is on EÜAfi's agenda.<br />
The privatization of the electricity distribution networks for three<br />
regions is planned to be completed by the end of 2008.<br />
The Russian, Israeli and Pakistani electricity sectors, in which<br />
<strong>Zorlu</strong> <strong>Energy</strong> continues to invest, offer similar characteristics to<br />
those of the Turkish electricity sector:<br />
• Demand rising in excess of global average levels<br />
• A need for foreign investment in order to remove the deficit in<br />
supply in near future<br />
• A state-controlled market in electricity generation and distribution<br />
• Increasing electricity prices on the back of strong demand<br />
combined with weak supply, due to rising liberalization
32<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
The Russian Electricity Sector<br />
Russia is one of the world's three largest producers and consumers<br />
of energy and is one of the key players in the global energy sector.<br />
However, the country's aging infrastructure is struggling under<br />
the weight of Russia's rapid economic growth.<br />
Power stations with around 50 GW of installed capacity in Russia's<br />
European region, corresponding to one quarter of the nation's<br />
total installed capacity, will reach the end of their service life by<br />
2010.<br />
As Russia generates a high level of income from natural gas<br />
exports, the Russian government plans to limit natural gas supply<br />
in electricity generation. The government plans to reduce the<br />
share of electricity generated by natural gas fired power stations<br />
in total electricity production from 69% in 2006 to 65% in 2010<br />
and 60% in 2015.<br />
Unified <strong>Energy</strong> (UES), 52% owned by the Russian state and 10%<br />
owned by Gazprom, a public company with a monopoly in the<br />
natural gas sector. This energy giant accounts for 70% of Russia's<br />
total energy production and commands a considerable share of<br />
its electricity transmission and distribution networks. Following a<br />
restructuring process, UES expects to offer its shares to the public<br />
or transfer shares of 20 publicly owned energy generation<br />
companies. The reform process necessitates the privatization of<br />
production and distribution facilities by UES; however, the entire<br />
transmission network of the country will remain under state control.<br />
Demand for electricity in Russia is expected to rise by 5.2% in<br />
2008 and to triple by 2020. Electricity consumption in Russia rose<br />
by 4.2% in 2006, double the government's official estimate, and<br />
exceeding the increase in energy production.<br />
UES decided to bring a large scale USD 124 billion investment<br />
plan into effect in 2016.<br />
UES announced that global energy giants such as Fortum<br />
(Finland), Enel (Italy), E.ON (Germany), Endesa (Spain), Electricite<br />
de France (France) and AES (USA) were ready to invest in the<br />
Russian market.<br />
The Electricity Sector in Israel<br />
Israel Electric Corp. (IEC) is Israel's only integrated electricity<br />
generating company and produces, transmits and distributes<br />
almost all of the electricity consumed throughout the country.<br />
The Israeli state owns 99.85% of IEC. At the end of 2006, the<br />
Company had 17 power stations with a combined installed<br />
capacity of 10,899 MW. Israel is world's leader in solar energy<br />
research and makes extensive use of solar energy for hot water.<br />
The government has been targeting privatizations in the energy<br />
sector since 1996. According to reform plans revised by the<br />
Ministry of Infrastructure, the IEC will be divided into a variety of<br />
subsidiaries based on business function (generation, transmission<br />
and distribution). The second phase of the reform package is to<br />
divide these subsidiaries into smaller companies and then privatize<br />
them. The development of the electricity sector will be left only<br />
to private electricity producers by 2010.<br />
Israel's demand for electricity rose at a CAGR of 4.9% between<br />
1996 and 2006, surpassing the 3.4% rate of GDP growth in the<br />
same period, while the rate of growth in the country's total installed<br />
capacity was 3.1% over the same period. In 2006, the state issued<br />
licenses to private electricity producers to generate 2,500 MW of<br />
electricity, equal to 25% of the country's total installed capacity.<br />
In order to meet the increase in demand that it has projected,<br />
IEC aims to raise its production capacity by a total of 36% to<br />
15,000 MW by 2011.<br />
As of December 2006, 71% of Israel's electricity was generated<br />
from coal, 18% from natural gas and 11% from gasoline and<br />
diesel. IEC converts generators coal and oil fired generators into<br />
natural gas fired generators and plans to raise the amount of<br />
electricity generated from natural gas to 50% of the total by 2010.
The Russian, Israeli and<br />
Pakistani electricity<br />
sectors, in which <strong>Zorlu</strong><br />
<strong>Energy</strong> continues to invest,<br />
offer similar characteristics<br />
to those of the Turkish<br />
electricity sector.<br />
The Electricity Sector in Pakistan<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 33<br />
The electricity sector in Pakistan is managed by two primary<br />
energy authorities. The Pakistani Water and Power Development<br />
Authority (WADPA) is responsible for the supply of energy<br />
throughout Pakistan. The energy branch of the WADPA has been<br />
divided into generation, transmission and distribution companies.<br />
The Karachi Electric Supply Company Ltd. serves Karachi and<br />
its immediate surroundings with the contribution of private<br />
producers. As of December 2006, there were 21 private electricity<br />
producers in the country on the basis of the build-own-operate<br />
(BOO) system.<br />
Pakistan has a total installed production capacity of 19,800 MW.<br />
Thermal power plants account for about 65% of this total with<br />
33% generated from hydroelectricity and 2% from nuclear power<br />
plants.<br />
Private producers have accounted for a large part of the growth<br />
in energy production in recent years, along with several of the<br />
WADPA's hydroelectric dam projects. Some private producers<br />
have been raising funds from foreign investors. The rapid increase<br />
in capacity has brought a partial solution to the power cuts<br />
throughout the country and the seasonal fluctuations in Pakistan's<br />
hydro-electricity capacity.<br />
Electricity consumption has grown at a CAGR of 6% since 2001.<br />
Pakistan's energy deficit is projected to hit 5,000 MW by 2010<br />
based on the current level of capacity; projects have been<br />
approved with a combined capacity of 1,769 MW to come on<br />
stream by 2010, only meeting 30% of the projected deficit.<br />
Swathes of the country's rural regions still lack access to electricity,<br />
and these regions are expected to drive substantial growth in<br />
demand for energy in the long term.<br />
It is estimated that around 25% of the electricity generated in<br />
Pakistan is lost during transmission and distribution, due to the<br />
poor quality of the country's transmission and distribution<br />
infrastructure and the significant illegal usage of electricity.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
34<br />
8%<br />
<strong>Zorlu</strong> <strong>Energy</strong>'s power stations produce 8% of the private<br />
sector's total electricity production.<br />
Assessment of the <strong>Group</strong>'s operations and their results<br />
Domestic operations<br />
Electricity Production<br />
Natural Gas Power Plants<br />
The <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>'s Lüleburgaz, Bursa, Ankara, Kayseri<br />
and Yalova power stations generate electricity and steam for the<br />
industrial enterprises which compose the group's main customer<br />
portfolio. The plants have a total installed capacity of 420 MW of<br />
electricity and can produce a total of 207 tons of steam per hour.<br />
These plants generate 8% of the total electric power produced<br />
by the private sector in Turkey, and the energy produced at these<br />
plants is predominantly directed to the Balancing and Settlement<br />
system and partially to industrial firms as uninterrupted and high<br />
quality source of energy.<br />
Hydroelectric Power Plants<br />
The <strong>Group</strong> continues to work on the projects of three hydroelectric<br />
power plants. Detailed feasibility studies for the construction of<br />
the Sandalc›k (127.8 MW) and Narl› (82.5 MW) hydroelectric power<br />
plants on the Dalaman River and project design activities for the<br />
Tirebolu hydroelectric power plant (preliminary feasibility: 60 MW)<br />
are still in progress.<br />
Renewable <strong>Energy</strong> Plants<br />
Osmaniye Wind Farm Project<br />
With a focus on renewable and alternative energy resources,<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> is building Turkey's largest wind farm.<br />
Rotor Electric Power Generation Inc., one of the <strong>Group</strong> companies,<br />
holds a 25-year license to generate electricity at the 135 MW wind<br />
farm in Osmaniye. The Company also received two further electricity<br />
production licenses from the <strong>Energy</strong> Market Regulatory Authority<br />
in 2007 for the two wind farm projects, which will have capacities<br />
of 60 MW and 50 MW, in the same region. <strong>Zorlu</strong> <strong>Energy</strong> signed<br />
a contract with GE <strong>Energy</strong> for the purchase of 54 turbines, each<br />
capable of generating 2.5 MW of electricity, to be used at the<br />
wind farm, to be built by Rotor on the licensed field. In its first<br />
phase, the wind farm will have a capacity to produce 135 MW of<br />
electricity, with electricity generation planned to commence in<br />
2009. The state guaranteed that it will buy the generated electricity<br />
at a price of Euro 0.055/kWh.<br />
A Carbon Emission Sale Contract was signed with Ireland-based<br />
EcoSecurities <strong>Group</strong> PLC in 2007 for the sale of carbon emissions<br />
until the end of 2012, arising in connection with the wind farm<br />
project.<br />
Natural Gas Exploration and Production Activities<br />
<strong>Zorlu</strong> Petrogas and Amity Oil International are the two <strong>Zorlu</strong> <strong>Energy</strong><br />
<strong>Group</strong> companies to operate in the field of natural gas exploration.<br />
<strong>Zorlu</strong> Petrogas, in which <strong>Zorlu</strong> <strong>Energy</strong> holds a 79.1% stake, holds<br />
a natural gas exploration license for 15 regions. Although geological<br />
and geophysical studies and evaluations are still being carried<br />
out in the respective regions, the Company currently has no<br />
natural gas reserves or power stations. Amity Oil International, in<br />
which <strong>Zorlu</strong> Petrogas acquired a 100% stake in 2005, holds a<br />
natural gas exploration license for 9 regions. Amity Oil International<br />
continues natural gas and oil exploration activities in Thrace in<br />
cooperation with TPAO (Turkish Petroleum Corporation), while<br />
the Company has been producing and selling natural gas since<br />
2002. Amity Oil International extracted 182 million m 3 of natural<br />
gas in 2007, and aims to increase this figure to 185 million m 3 by<br />
2008.<br />
Natural Gas Distribution Activities<br />
The <strong>Group</strong> is currently engaged in natural gas distribution activities<br />
in Thrace and Gaziantep, and has been undertaking infrastructural<br />
work on one hand while gradually initiating natural gas distribution<br />
on the other. Natural gas was brought to both regions in 2007.<br />
Natural gas distribution was rolled out to homes as well as<br />
industrial facilities.
With a focus on renewable<br />
and alternative energy<br />
resources, <strong>Zorlu</strong> <strong>Energy</strong><br />
<strong>Group</strong> is building Turkey's<br />
largest wind farm.<br />
International Operations<br />
Electricity Generation<br />
Natural Gas Power Plants<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 35<br />
Russia<br />
<strong>Zorlu</strong> <strong>Energy</strong> builds two power plants in Moscow:<br />
• Tereshkovo (340 MW & 150 Gcal heat)<br />
• Kojukhovo (340 MW & 270 Gcal heat)<br />
Following the establishment of a 51% partnership with ICFS<br />
International located in Virginia, USA, chosen as the investment<br />
partner to realize power station projects in Russia, Rosmiks Ltd.,<br />
100% indirectly controlled by ICFS, won the tenders for the 340<br />
MW Tereshkovo power station and 340 MW Kojukhovo power<br />
station which were called by the Moscow Municipality for the city's<br />
electricity and heating requirements.<br />
Construction work for the 170 MW Tereshkovo and Kojukhovo<br />
power stations - which comprise the first phase of the investment<br />
- got underway in 2006 and gained pace in 2007. Both power<br />
stations are expected to enter operation in the last quarter of<br />
2008. Work on the second phase of the investment is planned to<br />
get underway in early 2009.<br />
Construction of the two power stations in Russia is carried out by<br />
<strong>Zorlu</strong> Industrial, while <strong>Zorlu</strong> O&M will be responsible for their<br />
operation and maintenance.<br />
Negotiations with the Russian Tariff Committee in respect to<br />
electricity tariffs are still under way. Agreements will be also signed<br />
with possible purchasers - Mosenergosbyt (electricity) and Moek<br />
(heat). Tariffs will be set at an annual basis until 2011, when the<br />
Russian natural gas and electricity price quoting mechanism is<br />
scheduled to be completely liberalized. Moreover, the Moscow<br />
Municipality will guarantee to refund the difference between the<br />
commercial gas price and the price set for Mosenergo, the city's<br />
biggest electricity auto-producer.
36 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
1,050 MW<br />
Work is currently in progress on four projects<br />
with a total capacity of 1,050 MW in Israel.<br />
Israel<br />
<strong>Zorlu</strong> <strong>Energy</strong> has a presence in Israel's private electricity production<br />
sector. The Company plans to realize four projects in Israel through<br />
partnerships which it has established. While such projects are<br />
still in the planning process, investments are envisaged to get<br />
underway following the completion of necessary financial<br />
processes. Production is anticipated to commence in 2011 at the<br />
earliest once the investments have been completed.<br />
Dorad Project<br />
The <strong>Group</strong>'s largest project in Israel is the Dorad project. A<br />
shareholder's agreement was signed between Eilat Ashkelon<br />
Infrastructure Services Ltd., Edelcom Ltd, U. Dori Engineering<br />
Works Corporation Ltd. and <strong>Zorlu</strong> <strong>Enerji</strong> for the project in respect<br />
to Dorad <strong>Energy</strong> Ltd's natural gas conversion power plant located<br />
in Ashkelon, Israel, with an installed capacity of 800 MW, whereby<br />
the <strong>Group</strong> has a 25% partnership with Dorad <strong>Energy</strong> Ltd. The<br />
plant in question is the largest privately owned power plant in<br />
Israel and will provide about 8% of the total national installed<br />
capacity.<br />
Dorad's biggest customer will be the Ministry of Defense.<br />
Additionally, under the scope of the project, a 15-year gas purchase<br />
agreement was signed with the Egypt-based EMG at the end of<br />
2007, which will be effective from 2011.<br />
<strong>Zorlu</strong> <strong>Energy</strong> has three further projects of cooperation with the<br />
Israel based Edeltech Ltd. for the establishment of natural gas<br />
fired power stations, which will provide electricity and steam to<br />
Israel's industrial enterprises.<br />
Ashdod Project<br />
Ashdod <strong>Energy</strong> Ltd., in which the Company holds a 51% stake,<br />
plans to invest in a cogeneration power plant which will have a<br />
capacity of about 50 MW of electricity and 40 tons/hour of steam.<br />
Ramat Negev Project<br />
Ramat Negev <strong>Energy</strong> Ltd., in which the Company holds a 51%<br />
stake, plans to invest in a cogeneration power station which will<br />
have a capacity of about 100 MW of electricity and 70 tons/hour<br />
of steam.<br />
Solbar Project<br />
The Company has established a 26.5% partnership with Solbar<br />
<strong>Energy</strong> Ltd. which plans to invest in a cogeneration power station<br />
which will have a capacity of about 100 MW of electricity and<br />
70 tons/hour of steam.<br />
<strong>Zorlu</strong> Industrial is constructing the power stations in Israel, while<br />
<strong>Zorlu</strong> O&M will be responsible for their operation and maintenance.<br />
Renewable <strong>Energy</strong> Plants<br />
Pakistan Wind Farm Project<br />
<strong>Zorlu</strong> <strong>Energy</strong> signed an agreement with the Pakistani Alternative<br />
<strong>Energy</strong> Development Board (AEDB) in 2006 to establish a wind<br />
farm in Pakistan. According to the signed agreement, AEDB will<br />
allocate an area to <strong>Zorlu</strong> <strong>Energy</strong> in the wind power development<br />
region located in Jamphir, Haydarabat; <strong>Zorlu</strong> <strong>Energy</strong>, in return,<br />
will build a wind farm in this region and generate electricity for a<br />
period of 20 years. The first phase of the project will have a<br />
maximum generation capacity of 49.5 MW, with an option to<br />
increase capacity up to 300 MW.<br />
In this project, as in <strong>Zorlu</strong> <strong>Energy</strong>'s other investments, <strong>Zorlu</strong><br />
Industrial is constructing the wind farm while <strong>Zorlu</strong> O&M will be<br />
responsible for their operation and maintenance.<br />
Work on the power station is planned to get underway in 2008,<br />
with the power station scheduled to come on stream during 2009.<br />
The electricity generation and electricity sale tariffs were announced<br />
in the declaration made by the Pakistani National Electric Power<br />
Regulatory Authority (NEPRA) at the end of 2007, and these<br />
terms will be valid for a period of 20 years. According to this,<br />
the first 50 MW phase of the project is projected to generate<br />
149,000 MWh of electricity, with the weighted average sale price<br />
of the energy determined as 10.5 US cents/kWh over the 20 year<br />
period.
One field where <strong>Zorlu</strong><br />
<strong>Energy</strong> <strong>Group</strong> stands out<br />
from the competition is its<br />
ability to produce solutions<br />
including turnkey EPC<br />
(Engineering, Procurement<br />
and Construction) services.<br />
Other Operations<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 37<br />
Maintenance and Operation Services for Power Stations<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> serves power plants both at home and abroad,<br />
predominantly with long-term maintenance agreements under<br />
the scope of its maintenance and operation services.<br />
In addition to its cooperation agreements with General Electric,<br />
Chromalloy and Turkish Airlines, the <strong>Group</strong> provides operation<br />
and maintenance services for <strong>Zorlu</strong> <strong>Energy</strong>'s power stations in<br />
Turkey, as well as Nuh <strong>Energy</strong>, Bosen <strong>Energy</strong> and Y›ld›z MDF;<br />
internationally, the <strong>Group</strong> provides services for power stations of<br />
the Public Power Corporation in Greece and the Alghanim<br />
International General Trading & Contracting Co. in Kuwait.<br />
<strong>Zorlu</strong> O&M will provide the operation and maintenance services<br />
for <strong>Zorlu</strong> <strong>Energy</strong>'s projects in Russia, Israel and Pakistan, where<br />
the construction is still under way.<br />
Power Plants Construction and Installation Services<br />
One field where <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> stands out from the<br />
competition is its ability to produce solutions including turnkey<br />
EPC (Engineering, Procurement and Construction) services. This<br />
feature, which moves the <strong>Group</strong> one step forward in its sector,<br />
ensures that it is a preferred business partner in national and<br />
international markets.<br />
Within the scope of these services, <strong>Zorlu</strong> <strong>Energy</strong> will provide EPC<br />
services for the construction of the <strong>Group</strong>'s two 340 MW power<br />
plants in Moscow and four combined conversion plants in Israel,<br />
with generation capacities ranging between 50 and 800 MW.
38 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
906.6 MW<br />
The company's total installed capacity is projected to reach<br />
906.6 MW in 2008 following the completion of projects and<br />
investments currently under way.<br />
Developments in production<br />
Electricity generation for 2007<br />
<strong>Zorlu</strong> <strong>Energy</strong> Turkey<br />
Months (MWh) (MWh)<br />
January 215,903 15,863,243<br />
February 195,841 14,646,495<br />
March 184,989 15,749,667<br />
April 215,080 14,917,033<br />
May 188,757 15,204,905<br />
June 179,781 15,815,617<br />
July 219,836 17,581,158<br />
August 220,240 17,773,217<br />
September 207,363 15,785,791<br />
October 196,153 15,051,196<br />
November 215,427 16,079,322<br />
December 225,655 16,695,227<br />
Total 2,465,026 191,162,871<br />
Cumulative installed capacity<br />
(MW)<br />
420<br />
2007<br />
173.4<br />
906.6<br />
2008<br />
173.4<br />
1,153.6<br />
2009<br />
197.9<br />
1,241.1<br />
2010<br />
246.9<br />
1,482.1<br />
2011<br />
<strong>Zorlu</strong> <strong>Energy</strong>'s current level of production constitutes 8% of the<br />
total electricity generated by private sector companies in Turkey.<br />
Productivity and safety studies are continuously being carried<br />
out and improvements have been made accordingly at the<br />
Company's plants. Efficiency per kWh increased during 2007,<br />
and thus more electricity was generated by using less gas.<br />
<strong>Zorlu</strong> <strong>Energy</strong>'s established capacity is projected to rise to<br />
906.6 MW in 2008 following the completion of projects currently<br />
in progress and further planned investments, and is planned to<br />
reach 1,912 MW by 2014 by sustaining the growth trend in the<br />
coming years.<br />
320.4<br />
1,508.6<br />
2012<br />
920.4<br />
1.708,6<br />
2013<br />
920.4<br />
1.912,6<br />
2014<br />
Partners<br />
<strong>Zorlu</strong> <strong>Energy</strong>
Breakdown of sales<br />
(MW)<br />
<strong>Group</strong> 14%<br />
Outside the <strong>Group</strong> 12%<br />
Inside 2%<br />
DUY 72%<br />
Sales 2005 2006 2007<br />
Electricity (KWh) 1,948,655,767 2,474,980,355 2,643,410,040<br />
Steam (tonnes) 556,010 711,323 702,700<br />
Natural Gas (S/m 3 ) - 250,085,768 227,888,631<br />
Sales revenues-EBITDA<br />
(USD million)<br />
9.0<br />
161,1<br />
2005<br />
21.9<br />
274.1<br />
2006<br />
37.0<br />
361.3<br />
2007<br />
EBITDA<br />
Sales revenues<br />
Sales<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 39<br />
<strong>Zorlu</strong> <strong>Energy</strong> sells 72% of the electricity it generates to the<br />
Balancing and Settlement (DUY) market. The Balancing and<br />
Settlement market offered a price 4% in excess of that offered by<br />
TEDAfi (Turkish Electricity Distribution Co. Inc.) in 2007.<br />
<strong>Zorlu</strong> <strong>Energy</strong> sells the remaining 14% of the electricity it generates<br />
to <strong>Group</strong> companies and 12% to companies outside the <strong>Group</strong>.<br />
The Company's sales revenues exhibited 32% YoY growth in 2007<br />
to be realized at USD 361 million, while the Company's EBITDA<br />
reached USD 35 million in 2007 vs. USD 23 million in 2006.
40 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
2,700 GWh<br />
<strong>Zorlu</strong> <strong>Energy</strong> aims to produce 2,700 GWh of electricity<br />
in 2008.<br />
Investments<br />
Most of the investment expenditures for the first phase of the<br />
Tereshkovo-Kojukhovo projects in Russia will be made in 2008.<br />
The second phase investments (2*170 MW) are planned to start<br />
in the first half of 2009.<br />
Investment expenditures concerning the Osmaniye (Rotor) Wind<br />
Farm and Jhampir, Pakistan Wind Farm projects will be carried<br />
out during 2008.<br />
Project Capacity MW Type Investment Planned (USD million)<br />
Domestic<br />
Osmaniye 135 Wind 240<br />
60 110<br />
50 90<br />
Narl›&Sandalc›k 204 Hydroelectric 250<br />
Tirebolu 60 Hydroelectric 100<br />
Foreign<br />
Moscow, Russia<br />
Tereshkovo-Kojukhovo 680 Natural Gas 1,110<br />
Phase 1 340 710<br />
Phase 2 340 400<br />
Jhampir, Pakistan 49.5 Wind 115<br />
Israel<br />
Dorad 800 Natural Gas 850<br />
Ashdod 50 Natural Gas 70<br />
Solbar 100 Natural Gas 110<br />
Ramat 100 Natural Gas 110<br />
Investment concerning natural gas distribution totaled to USD 40.2 million.<br />
Investment (USD million) Current Planned<br />
Thrace region 24.2 147<br />
Gaziantep region 16 132<br />
Total 40.2 279<br />
Future-related expectations and projections<br />
• <strong>Zorlu</strong> <strong>Energy</strong> aims to generate 2,700 GWh of electricity and<br />
703,000 tons of steam in 2008.<br />
• As a part of vertical integration process, <strong>Zorlu</strong> <strong>Energy</strong> will deal<br />
with electricity distribution privatization tenders planned to be<br />
held in 2008.<br />
• Studies into the establishment of a coal fired power station with<br />
a minimum capacity of 1,000 MW are under way.<br />
• Russia, Tereshkovo-Kojukhovo (1st phase), Pakistan, Jhampir<br />
Wind Farm and Turkey Osmaniye Wind Farm,,investments will<br />
be carried out during 2008. The completion and full operation of<br />
these projects are targeted for 2009.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 41
42<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
people<br />
As a core plank of its social responsibility principle, <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong><br />
carries out its activities within an environmental management system based<br />
on improving environmental awareness and supporting the protection of the<br />
environment and natural resources, to create a better, cleaner world.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>, People and the Environment<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> specifies working standards to protect the<br />
health and safety of its employees and to reduce the negative<br />
impact of its activities on the environment by reflecting its<br />
philosophy of quality, which lies at the heart of its corporate culture<br />
and is confirmed with its Integrated Management System.<br />
<strong>Zorlu</strong> <strong>Energy</strong>, the main company performing the production<br />
activities of the <strong>Group</strong>, holds the ISO 9001:2000, ISO 14001 and<br />
OHSAS 18001 Management System certificates and works in<br />
accordance with the Integrated Management System.<br />
<strong>Zorlu</strong> <strong>Energy</strong> was the first auto producer company in Turkey to<br />
be awarded with a quality certificate. The Company was found<br />
to be in compliance with all criteria set out by the quality system<br />
FORCE-Dantest CERT and was awarded the TS/EN ISO 9001:2000<br />
Quality Management System Certificate in 2001. In 2004, <strong>Zorlu</strong><br />
<strong>Energy</strong> went on to acquire the OHSAS 18001-1999 Occupational<br />
Health and Safety Standards Certificate and the ISO 14001:1999<br />
Environmental Management System Certificate.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>'s Environmental Policy<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> views the environment as a treasure to be<br />
preserved for future generations, and as a key plank of its social<br />
responsibility, conducts its activities within an environmental<br />
management system based on improving environmental<br />
awareness and protecting natural resources in order to create a<br />
better and cleaner world.<br />
In line with this purpose, in all activities of <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>:<br />
• Materials and technologies are chosen which will minimize<br />
negative impacts on the environment.<br />
• <strong>Energy</strong> and natural resources are used the most efficient manner<br />
possible.<br />
• Systems are applied to prevent pollution at the source, even<br />
before it appears.<br />
• Wastes (solid, liquid and gaseous) are kept under strict control<br />
and disposed of without harming the environment.<br />
• National and international legal environmentally related<br />
regulations and agreements are followed.<br />
• Employees and subcontractors undergo training aimed at<br />
raising their environmental awareness.<br />
• Impact analysis studies are conducted which take the<br />
environmental factor into consideration in new investments.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>'s Policy on Workers' Occupational<br />
Health and Safety<br />
One of <strong>Zorlu</strong> <strong>Energy</strong>'s core policies is not to compromise on its<br />
workers' health and safety in its activities.<br />
The elements of this policy have been specified in line with the<br />
objectives such as accident prevention and avoiding harm to<br />
people and facilities in operational activities, and to take any kinds<br />
of measures for this purpose:<br />
• To always preempt dangers and take measures against the<br />
risk of possible losses, accidents or damages within the scope<br />
of the principles related to health and safety;<br />
• To reduce the adverse impacts of activities on human health,<br />
to raise the awareness of all employees, subcontractors,<br />
customers, and contractors on health and safety, to support them<br />
with training programs and to cooperate with all institutions which<br />
monitor public benefits in this field;<br />
• To prevent recurrence of any harmful events or accidents and<br />
prepare reports in respect to such events and accidents in order<br />
to improve organizational performance, as well as to ensure that<br />
lessons are learnt from such events;<br />
• To award those who contribute to the improvement of health<br />
and safety related issues;<br />
• To effectively carry out the Emergency Management Plan when<br />
necessary;<br />
• To comply with legal regulations related to this policy.
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 43<br />
environment<br />
<strong>Energy</strong> efficiency and<br />
savings are central themes<br />
of <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>'s<br />
field of social<br />
responsibility, which are<br />
followed by the <strong>Group</strong>'s<br />
activities towards the<br />
environment, education<br />
and children, especially<br />
those who are disabled or<br />
who have special needs.<br />
Corporate Social Responsibility<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> approaches the concept of social responsibility<br />
from two angles: corporate responsibility and corporate social<br />
responsibility.<br />
The field of corporate responsibility deals with issues directly<br />
related to the <strong>Group</strong>'s activities such as ethical business-making<br />
principles, corporate governance, environmental awareness, and<br />
employees' rights. Within this framework, the UN Global Compact<br />
signed by the <strong>Zorlu</strong> Holding is principally taken as a reference in<br />
the activities of the <strong>Energy</strong> <strong>Group</strong>. Moreover, practices adopted<br />
by <strong>Group</strong> companies follow targets and resolutions specified in<br />
respect to energy savings and regarding each activity (from use<br />
of paper to water consumption) in an attempt to reduce the impact<br />
of the <strong>Group</strong>'s activities on global warming.<br />
The field of corporate social responsibility aims to make a<br />
sustainable contribution to areas which are of importance to<br />
society. Apart from social needs, social responsibility fields have<br />
been specified following evaluations based on trends in developed<br />
countries, society's expectations, compliance with the <strong>Group</strong>'s<br />
activities and their contribution to corporate identity.<br />
<strong>Energy</strong> efficiency and savings are central themes of <strong>Zorlu</strong> <strong>Energy</strong><br />
<strong>Group</strong>'s field of social responsibility, which are followed by the<br />
<strong>Group</strong>'s activities towards the environment, education and children,<br />
especially those who are disabled or who have special needs.<br />
<strong>Zorlu</strong> <strong>Energy</strong>, along with other <strong>Zorlu</strong> <strong>Group</strong> companies, contributes<br />
to education through the Mehmet <strong>Zorlu</strong> Foundation. Moreover,<br />
<strong>Zorlu</strong> <strong>Energy</strong> has donated computers and electrical devices to<br />
the education center established in ‹stanbul, belonging to the<br />
Par›lt› Association, where our visually impaired children are<br />
educated so they can continue their lives as independent<br />
individuals.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> has followed a route of rapid growth in recent<br />
years, in parallel with the liberalization in the sector, while at the<br />
same time strengthening its corporate structure.<br />
Within this framework, studies have been carried out to prepare<br />
for long-term projects concerning energy efficiency and other<br />
specified fields within the scope of corporate communication<br />
activities, which are deemed to be of high benefit to society and<br />
generate a tangible contribution for society.
44 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
communica ca<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> boasts a sound, assertive and strong<br />
name before the public, supported by the <strong>Zorlu</strong> name.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>, People and the Environment<br />
Corporate Communication Strategy<br />
Fundamental elements of the corporate communication strategy<br />
of <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> are:<br />
• To develop corporate prestige;<br />
• To cement and perpetuate the existing perception with activities<br />
that will enable us reach the targeted perception;<br />
• To strengthen bidirectional communication with all stakeholders;<br />
• To ensure the adoption of the <strong>Group</strong>'s position and values<br />
within the organization and to strengthen communication and<br />
sharing;<br />
• To take social responsibility in specified areas;<br />
• To perform planned and continuous communication.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> boasts a sound, assertive and strong name<br />
before the public, supported by the <strong>Zorlu</strong> name. The <strong>Group</strong> has<br />
further strengthened its prestige by stressing the importance of<br />
the social dimension inherent in the energy sector in its activities<br />
and communication, and highlighting <strong>Zorlu</strong> <strong>Energy</strong>'s position as<br />
a leading and reliable corporation in respect to national energy<br />
policies.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>'s ultimate target in its communication activities<br />
to spread awareness that it is an employer with the following<br />
features, by further improving the existing positive perception of<br />
the <strong>Group</strong>:<br />
• Specialized and experienced,<br />
• A leader, with a voice and a point of reference in the sector,<br />
• Popular,<br />
• Transparent, well managed and equipped with a sense of<br />
corporate and social responsibility,<br />
• Respectful of the environment,<br />
• A reliable business partner in the global dimension,<br />
• Cares about the happiness of its employees in their business<br />
and private lives, and contributes to their individual development<br />
and careers.<br />
Human Resources<br />
The basic HR principles at <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>, which believes<br />
that happy employees bring high performance, are as follows:<br />
• To provide a pool of professionals qualified for and capable of<br />
applying new developments in the field of energy in line with our<br />
targets to the <strong>Group</strong> companies;<br />
• To provide its employees with national and international career<br />
opportunities where they can unleash their potential, display their<br />
creativity and abilities and thus raise individual and team<br />
performance; and<br />
• To support the working environment through effective<br />
communication and motivation.<br />
Within the framework of these principles, <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong><br />
works to establish a rapidly moving and proactive organizational<br />
structure and to implement HR policy practices which will raise<br />
employees' abilities and efficiency for the purpose of all <strong>Group</strong><br />
companies to reach their targets. Such activities are supported<br />
by a fair and competitive performance evaluation and pay system<br />
based on the abilities of the personnel, as well as their businessrelated<br />
responsibilities, training and experience, as required by<br />
the business, while addressing to employees' abilities and high<br />
performance.<br />
Professional training sessions are held with a view towards<br />
supporting individual development of employees.<br />
<strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> employs a total of 598 people, 213 of whom<br />
serve at <strong>Zorlu</strong> <strong>Energy</strong>. 43% of the employees are university<br />
graduates and 50% are high school graduates.<br />
In line with the growth of the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong>, achieved on<br />
the back of its vision and targets, the <strong>Group</strong>'s workforce is<br />
constantly expanding. <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> plans to hire 100-150<br />
new workers to join <strong>Group</strong> companies in 2008. Planned<br />
communication activities are conducted to promote communication<br />
between employees and to develop a sense of corporate<br />
citizenship. Employee awareness of corporate targets and<br />
managerial decisions and practices is considered highly important<br />
in raising employee loyalty to the company and therefore achieving<br />
successful business results. Therefore, managerial decisions are<br />
shared with all employees through intra-corporate communication<br />
channels.
tion<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 45
46<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
<strong>Group</strong> Companies<br />
ZORLU INDUSTRIAL AND ENERGY FACILITIES<br />
CONSTRUCTION AND TRADE INC.<br />
<strong>Zorlu</strong> Industrial entered operation in 2000 for the purpose of being<br />
a preferred contractor in the international energy market.<br />
<strong>Zorlu</strong> Industrial produces environment-friendly and cost-effective<br />
solutions including the following services:<br />
• Pre-feasibility studies for investors<br />
• Engineering<br />
• Purchasing activities<br />
• Turn-key construction and mounting (EPC - Engineering,<br />
Procurement and Construction)<br />
Performing all of its operations under the ISO 9001-2000 Quality<br />
Assurance System Certificate, <strong>Zorlu</strong> Industrial gained a presence<br />
for itself in the international market with its successfully completed<br />
facilities. <strong>Zorlu</strong> Industrial is also responsible for the construction<br />
of two plants in Moscow, each with a capacity of 340 MW, and<br />
the EPC of 4 combined cycle plants in Israel, the capacities of<br />
which vary between 50 and 800 MW.<br />
ZORLU O&M POWER PLANT OPERATION AND<br />
MAINTENANCE SERVICES INC.<br />
<strong>Zorlu</strong> O&M was founded in 2000 to provide operation and<br />
maintenance services for <strong>Zorlu</strong> <strong>Energy</strong> and other energy<br />
companies. <strong>Zorlu</strong> O&M is the first national operation and<br />
maintenance company in the Turkish energy sector.<br />
<strong>Zorlu</strong> O&M renders service in the following fields:<br />
• Complete plant maintenance<br />
• Plant operation<br />
• Complete turbine replacement<br />
• Replacement of hot part modules<br />
• Repair of compressor steering fin<br />
• Maintenance of control systems and software development<br />
• Performance and efficiency increasing repairs<br />
Holding the ISO 9001:2000, ISO 14001:1996 and OHSAS<br />
18001:1999 Quality Assurance Systems Certificates, <strong>Zorlu</strong> O&M<br />
focuses on providing timely services with a customer-oriented<br />
service approach, applying the latest technology through a welltrained<br />
and experienced maintenance workforce.<br />
<strong>Zorlu</strong> O&M has cooperation agreements with General Electric,<br />
Chromalloy and Turkish Airlines, and provides operation and<br />
maintenance services in Turkey for <strong>Zorlu</strong> <strong>Energy</strong>'s power stations<br />
in Turkey, as well as Nuh <strong>Energy</strong>, Bosen <strong>Energy</strong> and Y›ld›z MDF;<br />
internationally, it provides services for the power stations of the<br />
Public Power Corporation in Greece and Alghanim International<br />
General Trading & Contracting Co. in Kuwait.<br />
Operation and maintenance services to <strong>Zorlu</strong> <strong>Energy</strong>'s projects<br />
in Israel and Pakistan, construction of which is still under way,<br />
will also be rendered by <strong>Zorlu</strong> O&M.<br />
ZORLU PETROGAS PETROLEUM, GAS AND<br />
PETROCHEMICAL PRODUCTS, CONSTRUCTION,<br />
INDUSTRY AND TRADE INC.<br />
<strong>Zorlu</strong> Petrogas was founded in 2000 to conduct natural gas<br />
distribution projects, set up oil and petrochemicals production<br />
facilities as well as the search, exploration, extraction and trading<br />
of oil and natural gas.<br />
Having acquired 15 licenses for natural gas and petroleum<br />
exploration in a variety of regions throughout Turkey, the Company<br />
conducted drilling and seismological studies in Adana and Hatay<br />
between 2004 and 2006. The Company has been conducting<br />
studies in Thrace since 2007.<br />
Having bid in tenders held by EMRA (the <strong>Energy</strong> Market Regulatory<br />
Authority) in 2005, <strong>Zorlu</strong> Petrogas won the tenders for natural gas<br />
distribution in Thrace and Gaziantep for a period of 30 years and<br />
established a variety of companies to carry out the distribution<br />
business.
AMITY OIL INTERNATIONAL<br />
Fully owned by <strong>Zorlu</strong> Petrogas, Amity Oil was founded to conduct<br />
the search, extraction, production and trade of oil and natural<br />
gas. Amity Oil conducts searching and extraction of natural gas<br />
in Thrace, where Amity Oil and the TPAO (Turkish Petroleum<br />
Corporation) hold a common license.<br />
Amity Oil sells the natural gas it extracts in 9 natural gas wells<br />
drilled in Göçerler, Çay›rdere, Adatepe, D. Adatepe, Velimefle,<br />
B.Velimefle, Eskitafll›, Reisdere and Alpullu to industrial facilities<br />
in the Marmara Region. The Company continues its drilling<br />
exploration activities in the same region and is also performing<br />
studies aimed at finding new natural gas production fields.<br />
THRACE REGION NATURAL GAS DISTRIBUTION INC.<br />
<strong>Zorlu</strong> Petrogas subsequently set up a subsidiary, Thrace Region<br />
Natural Gas Distribution (Gazdafl Thrace), to carry out the<br />
distribution in the residential areas (Tekirda¤, Muratl›, Edirne,<br />
K›rklareli, Kavakl›, Babaeski, Lüleburgaz, Evrensekiz,<br />
Büyükkar›flt›ran, Misinli, Ulafl, Çerkezköy, Kapakl›, K›z›lp›nar,<br />
Karaa¤aç, Velimefle, and Veliköy) in Thrace, for which it was<br />
granted the right to perform natural gas distribution. The subsidiary<br />
was granted the distribution license on January 25, 2006. Having<br />
begun installing the infrastructure necessary for the distribution<br />
process by establishing operation offices in Edirne, K›rklareli,<br />
Tekirda¤, Çerkezköy and Lüleburgaz, the Company started to<br />
distribute natural gas to Çerkezköy, K›rklareli and Lüleburgaz for<br />
the first time in 2007. Gazdafl Thrace's customer portfolio includes<br />
industrial facilities as well as residential customers.<br />
GAZDAfi GAZ‹ANTEP NATURAL GAS DISTRIBUTION INC.<br />
<strong>Zorlu</strong> Petrogas subsequently set up a subsidiary, Gazdafl<br />
Gaziantep Natural Gas Distribution Inc., to carry out the distribution<br />
to homes in Gaziantep, Kilis and Nizip, for which it was granted<br />
the right to perform natural gas distribution. Having obtained its<br />
distribution license on February 24, 2006, the distributor company<br />
established a Regional Directorate in Gaziantep and an operation<br />
office in Nizip and began installing infrastructure from early 2006.<br />
Natural gas was brought to Gaziantep for the first time in 2007.<br />
Gazdafl Gaziantep provides natural gas to industrial facilities as<br />
well as homes in the region.<br />
<strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report 47<br />
ZORLU ELECTRICITY IMPORT, EXPORT AND WHOLESALE<br />
TRADE INC.<br />
<strong>Zorlu</strong> Electric was established in 2003 to purchase electricity from<br />
within Turkey and duty free zones and carry out wholesale or<br />
direct sale within Turkey and export it to foreign countries.<br />
ZORLU NATURAL GAS IMPORT, EXPORT AND WHOLESALE<br />
TRADE INC.<br />
<strong>Zorlu</strong> Natural Gas was established in 2003 to purchase<br />
compressed natural gas (CNG) and liquefied natural gas (LNG)<br />
from within Turkey, in duty free zones and internationally, to carry<br />
out the wholesale or direct sale both within Turkey and export<br />
CNG to foreign countries.<br />
ROTOR ELECTRIC POWER GENERATION INC.<br />
Rotor was purchased by <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> in 2007. The<br />
Company was established to build, operate and provide<br />
maintenance to wind farms as well as electricity, steam and heat<br />
production facilities operating with all forms of renewable energy,<br />
and to sell produced electric power, heat and steam.<br />
Rotor Electric Power Generation Inc., in which <strong>Zorlu</strong> <strong>Energy</strong> owns<br />
a 80% share through both direct and indirect stakes, carries out<br />
its activities under the scope of its 25-year production license to<br />
implement its project in Osmaniye, the first phase of which has<br />
a capacity of 135 MW, and two other wind farm projects, one of<br />
which has a capacity of 60 MW and the other a 50 MW capacity.<br />
ZORLU HYDROELECTRIC POWER GENERATION INC.<br />
<strong>Zorlu</strong> Hydroelectric was established in 2007 to build hydroelectric<br />
power plants as well as power stations based on all forms of<br />
renewable energy, and to sell the electricity produced at these<br />
facilities.
48 <strong>Zorlu</strong> <strong>Energy</strong> 2007 Annual Report<br />
Corporate Governance<br />
Principles Compliance Report<br />
and Financial Information
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CONTENTS<br />
1- Statement of Compliance with Corporate Governance Principles<br />
PART I-SHAREHOLDERS<br />
2- Investor Relations Unit<br />
3- Shareholders’ Exercise of their Right to Obtain Information<br />
4- Information about General Meetings<br />
5- Voting Rights and Minority Rights<br />
6- Dividend Distribution Policy and Timing<br />
7- Transfer of Shares<br />
PART II-PUBLIC DISCLOSURE AND TRANSPARENCY<br />
8- Company Disclosure Policy<br />
9- Disclosure of Material Events<br />
10- The Corporate Website and its Content<br />
11- Disclosure of the Company’s Ultimate Controlling Shareholder(s)<br />
12- Public Disclosure of Those who may Have Access to Insider Information<br />
PART III-STAKEHOLDERS<br />
13- Keeping Stakeholders Informed<br />
14- Stakeholder Participation in Management<br />
15- Human Resources Policy<br />
16- Relations with Customers and Suppliers<br />
17- Social Responsibility<br />
PART IV-BOARD OF DIRECTORS<br />
18- Structure and Composition of the Board of Directors and Independent Members<br />
19- Qualifications of Board Members<br />
20- Mission, Vision and Strategic Goals of the Company<br />
21- Risk Management and Internal Control Mechanism<br />
22- Authorities and Responsibilities of Board Members and Executives<br />
23- Operating Principles of the Board of Directors<br />
24- Prohibition on Doing Business or Competing with the Company<br />
25- Code of Ethics<br />
26- Number, Structure and Independence of Committees Established by the Board of Directors<br />
27- Financial Benefits Provided to the Board of Directors
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1- Statement of Compliance with Corporate Governance Principles<br />
In parallel with the activities related to Corporate Governance commenced in 2005 at <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation, corporate<br />
governance mechanisms were started to be run across the Company in line with the said principles. In the first phase of these<br />
activities, a series of amendments were made to the Company’s articles of incorporation so as to be able to offer an egalitarian,<br />
accountable, responsible and transparent structure to the shareholders. While these amendments served to grant the rights<br />
envisaged by the Corporate Governance Principles to minority shareholders, radical changes were made to the management<br />
structure in pursuance of “better governance”. Following the revisions made to the articles of incorporation, Corporate Governance<br />
practices were carried on with the establishment of Corporate Governance mechanisms at the Company. While the Board of<br />
Directors was vested in greater efficiency with independent members, it was aimed to further increase the efficacy in management<br />
by the Audit Committee set up under the Board of Directors.<br />
Activities undertaken in 2007 with a view to further increasing the compliance of <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation are<br />
summarized below:<br />
• Appointment of an independent member as the head of the Audit Committee: Melih E. Araz, an independent board member,<br />
has been appointed to serve as the head of the Audit Committee, and Olgun <strong>Zorlu</strong>, a non-executive board member, has been<br />
appointed as the other member of the Committee.<br />
• Revamping of the Company’s corporate website in 2007 in line with Corporate Governance Principles: Commenced in 2007, the<br />
work on revamping the Company’s website in line with Corporate Governance Principles is aimed to be brought to completion<br />
during the first quarter of 2008.<br />
• A new performance appraisal system has been introduced for the <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> employees, which is based on individual<br />
performance but also relates to results obtained by the department and the Company, and which aims to contribute to the<br />
employees’ individual and the organization’s corporate development.<br />
In the implementation of Corporate Governance Principles, certain principles that do not conform to the Company’s structure and<br />
that are regarded as potential obstacles against its activities were excluded. These principles and the reasons for opting not to<br />
comply therewith are summarized below:<br />
• Cumulative voting: The Company does not make use of the cumulative voting method. However, the representation to be<br />
provided by cumulative voting on the Board of Directors is achieved by the presence of independent members on the Board.<br />
• The Company’s articles of incorporation contain no provisions stipulating that material decisions such as “demergers and share<br />
exchanges, buying, selling, or leasing substantial amounts of tangible/intangible assets, or donations and grants, or giving<br />
guarantees such as suretyship, mortgage in favor of third parties” are required to be taken at a general meeting. The underlying<br />
reason is that the nature of the sector in which the Company is active requires it to buy, sell, or lease quite frequently. Having to<br />
hold a general meeting every time such a transaction takes place is considered to be impossible and thus, no such article has<br />
been included in the articles of incorporation. This practice is refrained from in order to ensure that deals are made quickly and to<br />
prevent opportunities from being missed.<br />
<strong>Zorlu</strong> <strong>Energy</strong> hereby espouses a transparent and open management style and aims to establish its approach to management that<br />
is responsible and accountable towards all of its shareholders in general and to its minority shareholders in particular.<br />
The new steps to be taken in time in keeping with Corporate Governance Principles will be publicly disclosed on the Company’s<br />
website.<br />
Murat Sungur Bursa Selen <strong>Zorlu</strong> Melik<br />
CEO of the <strong>Energy</strong> <strong>Group</strong> Deputy CEO of the <strong>Energy</strong> <strong>Group</strong><br />
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PART I- SHAREHOLDERS<br />
2- Investor Relations Unit<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation carries out its relations with shareholders through <strong>Zorlu</strong> <strong>Group</strong> of Companies Investor Relations<br />
and Corporate Finance Department. Information for this department which carries out <strong>Zorlu</strong> <strong>Energy</strong>’s relations with shareholders is<br />
as follows:<br />
Figen Çevik serves as the director of Corporate Finance and Investor Relations Unit.<br />
The Corporate Finance and Investor Relations Unit can be reached via the Company’s website; also it can be contacted at the<br />
phone number 0 212 286 03 20 or by sending an email to yatirimci@zoren.com.tr. The direct phone line of the Corporate Finance<br />
and Investor Relations Unit also provides a continual means of access.<br />
The principal activities carried out by the Unit in 2007 are summarized below:<br />
About 35 one-on-one meetings<br />
During the reporting period, the Unit received about 80 queries by e-mail and about 40 by telephone.<br />
All these queries were carefully responded to verbally and/or in writing within the framework of the Company's disclosure policy<br />
and in such a way so as not to reveal any trade secrets.<br />
3- Shareholder’s exercise of their right to obtain information<br />
During 2007, <strong>Zorlu</strong> <strong>Energy</strong> Accounting Unit received 120 queries from investors, all of which have been responded to in detail. The<br />
breakdown of these queries is presented below:<br />
Query byNumber<br />
E-mail 80<br />
Fax -<br />
Letter -<br />
Phone 40<br />
Total 120<br />
The Investor Relations Unit provided detailed responses to all 120 queries received in 2007. Of the queries received by the Unit,<br />
80% was related to operational and financial performance, and the remaining 20% to various topics including investments, share<br />
movements, information on general meeting, etc.<br />
<strong>Zorlu</strong> <strong>Energy</strong> website and material event disclosures were the tools used in 2007 for the disclosure of developments that might<br />
have an impact on the shareholders’ exercise of their rights. Efforts are ongoing to revamp the Company’s website so as to be<br />
able to communicate maximum amount of information in the shortest time possible and on the principles of timeliness, accuracy,<br />
completeness, and in a quick and intelligible manner. By these efforts, it is aimed to vest the website in a structure that covers<br />
sufficient details with respect to shareholders’ right to obtain information, as well as all other aspects stated in the CMB’s<br />
Corporate Governance Principles.<br />
During 2006 annual general meeting, an article regarding the appointment of a special auditor in the form of an amendment to the<br />
articles of incorporation has been presented to the shareholders. The said article read “Shareholders representing five percent of
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Corporate Governance Principles Compliance Report<br />
the Company’s publicly-held shares may demand appointment of a special auditor for specific auditing of a certain material event.<br />
In the event such demand is rejected by the general assembly, shareholders representing at least one twentieth of the Company’s<br />
capitalization shall be entitled to request the appointment of a special auditor from a competent court for the examination and<br />
clarification of the predicament.” No request was made during the reporting period for the appointment of a special auditor.<br />
4- Information on general meetings<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation held its 2006 annual general meeting on 30 May 2007 at 13:30 at the address Bursa Organized<br />
Industrial Zone.<br />
The invitation for the meeting including the meeting agenda and date has been made within due time by being published in the<br />
Turkish Trade Registry Gazette issue 6803 dated 08 May 2007 and in the Dünya newspaper and Bursa Hakimiyet newspaper, both<br />
dated 08 May 2007, for publicly-held shares; by registered mail to shareholders who had notified their addresses by delivering<br />
share certificates in advance, as well as via the Company website, and by registered mail to all holders of registered share<br />
certificates which are not traded on the stock exchange.<br />
While the general meeting is open to the participation of stakeholders and the media, neither stakeholders nor the media<br />
representatives attended the meeting.<br />
Out of 8,166,535,000 shares corresponding to the Company’s total capitalization of TRY 81,665,350, 5,310,552,008.40 shares or<br />
65% representing TRY 53,105,520,084 in capital were present in person at the meeting. No proxy votes were cast.<br />
To facilitate participation of the holders of registered shares in the general meeting, no deadlines are set for registration in the<br />
shareholders’ register.<br />
Prior to the general meeting, the annual report, financial statements, and the articles of incorporation were made available for the<br />
inspection of shareholders at the Company’s headquarters and at the head office of the Holding. All this information was also<br />
published on the corporate website together with the general meeting announcement and agenda.<br />
Shareholders were allowed to direct questions during the general meeting. All questions posed by shareholders were answered in<br />
detail.<br />
Shareholders introduced no motions during the meeting.<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 53<br />
The Company's articles of incorporation contain no provisions requiring material decisions such as “demergers or buying, selling,<br />
or leasing substantial amounts of assets and property” to be taken at a general meeting. The reason for this is the fact that the<br />
nature of the sector in which the Company is active requires it to buy, sell, and lease quite frequently, and having to hold a general<br />
meeting every time such a transaction takes place is not deemed to be possible. Hence, it has been refrained from including such<br />
an article in the articles of incorporation.<br />
The minutes of the general meetings are made available for the examination of shareholders at the Company's own headquarters<br />
and at the head office of the Holding. Additionally, all announcements, documents, and other materials related to general<br />
meetings are accessible to shareholders and to all other stakeholders on the Company’s website.
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5- Voting rights and minority rights<br />
All of the shares of <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation entail equal rights. There are no privileges with respect to voting rights or<br />
participation in dividends. This matter is not provided for in the Company’s articles of incorporation either.<br />
<strong>Zorlu</strong> Industrial and <strong>Energy</strong> Facilities Construction and Trade Inc., <strong>Zorlu</strong> O&M Power Plant Operation and Maintenance Services,<br />
<strong>Zorlu</strong> Petrogas Petroleum, Gas and Petrochemical Products, Construction, Industry And Trade Inc., Trakya Region Natural Gas<br />
Distribution Inc., Gazdafl Gaziantep Natural Gas Distribution Inc., <strong>Zorlu</strong> Electricity Import, Export and Wholesale Trade Inc., <strong>Zorlu</strong><br />
Natural Gas Import, Export and Wholesale Trade Inc., <strong>Zorlu</strong> Hydroelectric Power Production Inc. which are the investments of<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation, do not have a stake in the Company.<br />
Minority shares are represented in the management by two independent members elected to seats on the Board of Directors. Due<br />
to the fact that the independent members on the Board of Directors have the capability to perform their duties without yielding to<br />
any influence, they equally protect and represent the rights of all shareholders including those of minority shareholders at the<br />
Board of Directors.<br />
The Company does not implement cumulative voting method. However, the representation of cumulative voting is achieved by the<br />
presence of independent members on the Board of Directors.<br />
6- Dividend distribution policy and timing<br />
The Company’s shares provide no privileges concerning distribution of profits. Each share of stock is entitled to an equal dividend.<br />
The proposal for distribution of profits earned in 2006 covered in item 8 of the Company’s general meeting agenda was explained<br />
to the participants, and was unanimously approved at the general meeting.<br />
No dividend distribution was made due to the fact that the financial statements showed loss, which were drawn up according to<br />
the Capital Market Law, the Communiqué Serial: XI No: 25 concerning “Accounting Standards in the Capital Markets”, and the tax<br />
laws.<br />
In accord with the dividend distribution policy established in the Board of Directors meeting held on 07 May 2007, the Company<br />
decided to distribute dividends that are equal to minimum 25% of the attributable profit in cash or in the form of bonus shares to<br />
the shareholders in 2007 and in subsequent years, in line with the provisions of the articles of incorporation. The amount of<br />
dividends to be distributed shall be proposed depending on national and global economic conditions and the Company’s growth<br />
plan by the Board of Directors each year at the general meeting. The said policy was presented for the information of the<br />
shareholders at the 2006 general meeting convened on 30 May 2007.<br />
7- Transfer of shares<br />
The Company's articles of incorporation contain no provisions restricting the transfer of shareholding interests. Article 6 of the<br />
articles of incorporation states that “shares in the Company may be freely transferred without prejudice to the provisions of the<br />
Turkish Commercial Code, CMB Legislation, EMRA Legislation, and these articles of incorporation”.<br />
PART II- PUBLIC DISCLOSURE AND TRANSPARENCY<br />
8- Company disclosure policy<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation's disclosure policy has been formulated in 2005 in line with the CMB’s Corporate Governance<br />
Principles and has been distributed as an appendix to the annual report for the information of investors at the 2006 annual general<br />
meeting. The disclosure policy has also been published on the corporate website.
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The issues addressed by the Company's public disclosure policy are summarized below:<br />
• The clarity, timeliness, and truthfulness of public disclosures<br />
• The contents of public disclosures<br />
• The frequency and the ways in which information may be publicly disclosed<br />
• Disclosure tools<br />
• Individuals authorized to make disclosures<br />
• Relations of Board members and executives with the media<br />
• Meetings with investors<br />
• General meetings<br />
• Disclosures to be made to the media<br />
• Effectiveness of the website<br />
• Disclosures to be made regarding future matters<br />
The disclosure policy has been approved by the board of directors. The Board of Directors is responsible for monitoring, reviewing<br />
and improving the disclosure policy. The Investor Relations Unit, which is planned to be set up, will be responsible for the<br />
supervision and monitoring of the disclosure policy.<br />
9- Disclosure of material events<br />
During 2007, the Company made a total of 20 material event disclosures, which were sent to the CMB and the ISE. Additional<br />
information was requested by the ISE and the CMB for two of the disclosures made. The Investor Relations Unit is responsible for<br />
the disclosure of material events.<br />
Since the Company is not quoted on any overseas stock exchange, the disclosures made were limited to Turkey.<br />
10- The corporate website and its content<br />
The Company has an easily accessible and active website at the address www.zorluenerji.com.tr. The efforts are in progress to<br />
revamp the website so as to cover all of the information listed in Article I.11.5 of Section II of the CMB’s Corporate Governance<br />
Principles.<br />
11- Disclosure of the Company’s ultimate controlling shareholder(s)<br />
The Company has no non-corporate ultimate controlling shareholders.<br />
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The Company’s shareholding structure is presented below:<br />
SHAREHOLDERS SHAREHOLDING INTEREST (%) NOMINAL SHARE VALUE (TRY)<br />
<strong>Zorlu</strong> Holding 43.21% 35,288,432.74<br />
Korteks 17.55% 14,330,198.11<br />
Prime Emerging M. 3.50% 2,858,287.25<br />
<strong>Zorlu</strong> Linen 0.53% 428,743.09<br />
Linens Marketing 0.47% 383,827.15<br />
<strong>Zorlu</strong>teks Textile 0.23% 191,913.57<br />
<strong>Zorlu</strong> Real Estate Development and Investment Inc 0.35% 287,870.36<br />
<strong>Zorlu</strong> Grand Hotel 0.23% 191,913.57<br />
Vestek Electronics 0.40% 326,661.40<br />
<strong>Zorlu</strong> Foreign Trade 4.12% 3,361,276.00<br />
Publicly Held 29.41% 24,016,226.76<br />
TOTAL 100.00% 81,665,350.00<br />
12- Public disclosure of those who may have access to insider information<br />
The Company has publicly disclosed the list of individuals who are in a position to have access to insider information.<br />
These individuals are listed below.<br />
Individual Position<br />
Zeki <strong>Zorlu</strong> Chairman of the Board of Directors<br />
Melih E. Araz Deputy Chairman of the Board of Directors<br />
Murat Sungur Bursa Board Member and CEO<br />
Olgun <strong>Zorlu</strong> Board Member<br />
Selen <strong>Zorlu</strong> Melik Board Member<br />
A. Can Tuncay Board Member<br />
Burak ‹. Okay Board Member<br />
fierif Ar› Statutory Auditor<br />
Hakan Efltürk Statutory Auditor<br />
Mehmet Ali Neyzi Vice President<br />
Hamit Özaslan General Manager / <strong>Zorlu</strong> Industrial Inc.<br />
M. Erdo¤an Günefl General Manager / <strong>Zorlu</strong> O&M Inc.<br />
‹. Sinan Ak Deputy General Manager / <strong>Energy</strong> <strong>Group</strong><br />
Gökmen Topuz Deputy General Manager / <strong>Energy</strong> <strong>Group</strong><br />
Serhat fiimflek Deputy General Manager / <strong>Energy</strong> <strong>Group</strong><br />
Hüseyin Morkoyun Deputy General Manager / Natural Gas <strong>Group</strong><br />
Abdullah Lütfi Kurtbo¤an Deputy General Manager / O&M<br />
A. Tansel Varan Human Resources and Corporate Communications Director<br />
Bülent Çilingir Procurement and Logistics Director<br />
fiahin Göndiken Projects and Investments Director / <strong>Zorlu</strong> Petrogas<br />
Figen Çevik <strong>Zorlu</strong> <strong>Group</strong> of Companies Investor Relations and Corporate Finance Directors<br />
Gürsel Ya¤an Natural Gas Distribution and Regions Manager[G1]<br />
F. Ayten Eslek Accounting Manager<br />
Erol Birinci Accounting Manager<br />
Hasan Ayd›n Finance Manager
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A. Ya¤mur Özdemir Project Finance Manager<br />
Ebru Haytaç Finance and Budget Manager<br />
Mehmet Çavuflo¤lu Optimization and Control Services Manager<br />
Osman Karabay Geothermal Investments Manager<br />
Atilay Y›lmaz Kayseri Power Plant Manager<br />
Gürcan Okumufl Bursa Power Plant Manager<br />
Hüseyin Gül Lüleburgaz Power Plant Manager<br />
Hüseyin Atabay Ankara Power Plant Manager<br />
Türkan Güngör Accounting Assistant Manager<br />
Baflak Sezgin Contracts Specialist<br />
Elif Do¤an Contracts Specialist<br />
Erdal Kural Budget Chief<br />
Müjgan Selik Chief Accountant<br />
PART III- STAKEHOLDERS<br />
13- Keeping stakeholders informed<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation redesigned its website so as to keep stakeholders informed on matters concerning them, and<br />
made available all kinds of information relating to the Company in line with the Corporate Governance Principles. In addition, the<br />
Company has the intranet system to keep employees informed, whereby the information on the Company can be accessed<br />
subject to limits of authorization. All kinds of information geared towards employees are provided in detail on the intranet.<br />
With respect to keeping customers and suppliers informed, informative meetings are organized as and when such requests are<br />
received from them.<br />
One-to-one or collective meetings are held with investors and brokers, if so requested thereby.<br />
14- Stakeholder participation in management<br />
Stakeholders do not participate in the management. However, importance is attached to ensure participation of employees in the<br />
Board meetings at certain intervals, so as to offer them the chance to voice their opinions directly. There is no model designed to<br />
involve other stakeholders in the management.<br />
15- Human resources policy<br />
The HR policy is devised to cover the recruitment, promotion, dismissal, training, performance appraisal and compensation<br />
systems.<br />
The training activities to be carried out for the purpose of supporting professional and personal development of employees are<br />
structured; the Training Catalogue prepared offers the employees the chance to choose training programs in line with their needs.<br />
Designed to monitor all the training activities in parallel with career plans, the training portal is brought to the final phase.<br />
There is no representative assigned to conduct the Company-employee relationships. Upon appointment, independent members<br />
will represent employees along with all other stakeholders in the Board of Directors.<br />
T<br />
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he employees are treated equally and without any discrimination whatsoever in all matters involving training, career development,<br />
promotion, etc.<br />
No complaints have been received from the employees regarding discrimination.<br />
16- Relations with customers and suppliers<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation gives utmost importance to customer satisfaction. The requests of customers are responded to<br />
within the shortest time possible, and all resources are put into immediate action for resolution of problems forthwith.<br />
Also the Customer Care Unit has been set up to ensure customer satisfaction. The Unit mostly extends technical and financial<br />
support. Intermediary services are also offered in relation to the problems the customers experience with the regulatory authorities<br />
such as the EMRA and the Treasury. In line with the EMRA regulation, the customers’ counters have been replaced by the<br />
Company and modems have been installed to enable remote monitoring of counters.<br />
Because the Company is not in direct relationship with its customers, customer satisfaction is predominantly related to the high<br />
level of discount rates.<br />
17- Social responsibility<br />
In all of its activities, <strong>Zorlu</strong> <strong>Energy</strong> carefully observes the United Nations Global Compact which is signed by <strong>Zorlu</strong> Holding and<br />
which covers all <strong>Group</strong> companies.<br />
During 2007, the Company had all necessary and legal examinations carried out concerning the protection of the environment.<br />
Along this line, Environmental Impact Assessment (EIA) certificates are obtained for all installations every year from the Ministry of<br />
Environment.<br />
According to the environmental impact reports, no violations of environmental protection have been established to date and all of<br />
the Company’s practices are being carried out with a keen eye on the environment factor.<br />
The Company also holds three certifications received from ISO relating to the protection of the environment.<br />
During the reporting period, the Company caused no harm to the environment and no lawsuits were lodged against the Company<br />
on account of environmental damage.<br />
Within the scope of social responsibility, the aim is to offer sustainable contribution in areas that the society needs. <strong>Energy</strong><br />
efficiency and saving takes the lead among the social responsibility fields identified. It is planned to launch publications that will<br />
enhance awareness of the society in these topics. These are followed, in order of priority, by environment, education, and activities<br />
geared towards children in general and handicapped children in particular. The computer and electrical household appliance<br />
needs were fulfilled for the training center set up in ‹stanbul by Par›lt› Derne¤i, an association pursuing activities on the premise of<br />
offering training and education to visually-impaired children so as to help them carry on with their lives as independent individuals.<br />
Contributions to education are carried out by Mehmet <strong>Zorlu</strong> Foundation, and <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation supports these<br />
initiatives as a <strong>Group</strong> company.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Corporate Governance Principles Compliance Report<br />
PART IV- BOARD OF DIRECTORS<br />
18- Structure and composition of the Board of Directors and independent members<br />
The Board of Directors of <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation is composed of seven members. Almost all of the Board members<br />
are non-executive members.<br />
Zeki <strong>Zorlu</strong>, the chairman of the Board, serves as a non-executive member. The general manager of the Company is Salim<br />
Arslanalp. The chairman of the Board and chief executive officer are different individuals.<br />
Member Position Classification<br />
Zeki <strong>Zorlu</strong> Chairman of the Board of Directors Non-executive<br />
Melih E. Araz Deputy Chairman of the Board of Directors Non-executive<br />
Murat Sungur Bursa Member Executive<br />
Olgun <strong>Zorlu</strong> Member Non-executive<br />
Selen <strong>Zorlu</strong> Melik Member Executive<br />
A. Can Tuncay Member Non-executive<br />
‹. Burak Okay Member Non-executive<br />
In keeping with Corporate Governance, two independent members have been elected to the Board of Directors which is<br />
composed of seven members in total.<br />
Independent members satisfy the independence criteria set forth in the CMB’s Corporate Governance Principles Communiqué.<br />
No restrictions are imposed on Board members' undertaking one or more duties outside the Company.<br />
19- Qualifications of Board members<br />
Upon the amendments to be made to the articles of incorporation at the annual general meeting, the minimum qualifications<br />
required of Board members shall be incorporated in the articles of incorporation. Qualifications that will be included in the articles<br />
of incorporation fully coincide with those stipulated in articles 3.1.1, 3.1.2 and 3.1.5 of Section IV of the CMB’s Corporate<br />
Governance Principles.<br />
The Corporate Governance Committee which will function under the Board of Directors of <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation has<br />
decided to create training programs for members not satisfying some of the qualifications referred to above, in case such a need<br />
arises. To date, no training has been given to Board members.<br />
20- Mission, vision and strategic goals of the Company<br />
The mission and vision of the Company have been spelled out and publicly disclosed by the Board of Directors.<br />
Mission: Be the leading power in Turkey and a regional power in the world in all segments of the energy sector.<br />
Vision: Generate and distribute safe, quality, environmentally-compatible and sustainable energy; create value for our<br />
shareholders, customers and employees based on effective, market- and customer-focused activities.<br />
The Board of Directors approves the strategic goals formulated by executives.<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 59
60<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Corporate Governance Principles Compliance Report<br />
The Board of Directors of <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation takes care to obtain the opinions and suggestions of the relevant<br />
units while setting the strategic goals. Suggestions relating to strategic goals are reported to the Board of Directors and work is<br />
undertaken so as to implement these goals as soon as possible. The extent to which the goals are attained is measured by<br />
monitoring the results on the basis of activities quarterly when financial statements are drawn up and at year-end. Once a year, the<br />
Board of Directors conducts an annual review of the degree to which the Company has accomplished its objectives, as well as its<br />
activities and past performance.<br />
21- Risk management and internal control mechanism<br />
<strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation Board of Directors uses the SAP system at the Company for purposes of risk management and<br />
internal control. The SAP system enables running/recording of all integrated work processes on computer systems at the<br />
establishments, thus increasing the speed and productivity of the relevant establishment. The system also gives employees and<br />
managers access to all kinds of information and reports that concern them in line with the scopes of their authorizations.<br />
In addition, a program has been created on the Company’s intranet system for monitoring problems related to internal control,<br />
which is effectively operated. Any issue that arises at any level is referred to the relevant manager and resolved.<br />
The Board of Directors of <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation defined existing and potential risks and formulated the policies in<br />
relation to the same.<br />
22- Authorities and responsibilities of Board members and executives<br />
The authorities and responsibilities of Board members were not set forth in detail in the articles of incorporation of <strong>Zorlu</strong> <strong>Energy</strong><br />
Electricity Generation<br />
By the revision made to the articles of incorporation at the 2005 general meeting, the authorities and responsibilities of Board<br />
members were incorporated in the articles of incorporation.<br />
The authorities and responsibilities of the Board of Directors, which are also covered in the articles of incorporation, are stated<br />
below:<br />
• Defining and publicly disclosing the Company’s mission and vision, and monitoring and supervising the accomplishment of the<br />
targets set;<br />
• Representing the Company before shareholders and third parties, formulating the Company principles therefor;<br />
• Approving the Company’s annual budget and business plans;<br />
• Observing the compliance of the Company’s activities to applicable legislation, articles of incorporation and internal regulations;<br />
• Ensuring that the Company books are duly kept;<br />
• Drawing up the Company’s balance sheet and profit and loss statements, preparing the annual report, and making the same<br />
available for examination by shareholders prior to the general meeting;<br />
• Submitting a proposal to the general assembly concerning the distribution of profit;<br />
• Summoning the general assembly for ordinary or extraordinary meeting and satisfying the procedure related to general<br />
meetings;<br />
• Overseeing that the decisions passed by shareholders at general meetings are enforced;<br />
• Setting the rules to be complied with by the Company employees, including the code of ethics;<br />
• Formulating and publicly disclosing the Company’s disclosure policy;<br />
• Setting up the committees that will function under the Board of Directors, electing their members, defining their operating<br />
principles, and ensuring that they operate effectively and productively;<br />
• Taking into consideration the recommendations of the Corporate Governance Committee in relation to the Company’s senior<br />
executives.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Corporate Governance Principles Compliance Report<br />
23- Operating principles of the Board of Directors<br />
Agendas for Board meetings are determined by the chairman and the members of the Board of Directors. Requests received from<br />
executives are taken into consideration in determining the agenda items.<br />
Article 9 of the articles of incorporation stipulates that the Board of Directors shall hold at least monthly meetings. Board meetings<br />
are convened 12 times a year at a minimum.<br />
In line with Corporate Governance Principles, a secretariat has been set up under the Board of Directors at the Company. The<br />
secretariat is responsible for keeping the minutes of the Board meetings and archiving them. The secretariat also keeps the Board<br />
members informed in a timely and simultaneous manner and delivers the agenda and related information and reports to the Board<br />
members at least one week in advance of each meeting.<br />
It has been decided that difference of opinions that may be voiced at Board meetings and detailed justifications for dissenting<br />
votes must be entered into the record and forwarded to statutory auditors in written form; however, to date there has never been<br />
such an instance. Upon approval of the articles of incorporation at the general meeting, justifications for dissenting votes cast by<br />
independent members by reason of difference of opinions will be publicly disclosed on the corporate website.<br />
It is made sure that the Board members are personally present at Board meetings that will vote on the issues stipulated in article<br />
2.17.4 of Section IV of the CMB's Corporate Governance Principles as requiring the actual attendance of Board members at<br />
meetings.<br />
No Board members, including the chairman, have weighted voting and/or vetoing rights. Each member, including the chairman,<br />
possesses an equal vote.<br />
24- Prohibition on doing business or competing with the Company<br />
The agenda item concerning <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation Board members’ doing business or competing with the Company<br />
is laid down for the approval of shareholders each year at the general meetings.<br />
No board member did any business or competed with the Company during the year.<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 61<br />
If any event occurs relating to the prohibition of doing business and competing with the Company, any conflict of interest that<br />
might arise therefrom will be publicly disclosed within the frame of Corporate Governance Principles.<br />
25- Code of Ethics<br />
The Company’s code of ethics has been spelled out in writing and made known to the employees. Utmost care is given to ensure<br />
compliance with the code of ethics that is formulated for the Board of Directors, the Company and its employees.<br />
26- Number, structure and independence of the committees established by the Board of Directors<br />
Pursuant to article 3 of the CMB Communiqué Serial: X, No: 19, the Board of Directors established the Audit Committee so as to<br />
ensure healthy oversight of financial and operational activities. The Corporate Governance Committee has not been set up as yet.<br />
However, with the election of independent members to the seats on the Board of Directors, it is planned to establish the Corporate<br />
Governance Committee chaired by an independent head in line with the CMB’s Corporate Governance Principles. Within the frame<br />
of this plan, the detailed operating principles of the Committee are formulated in writing.
62<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Corporate Governance Principles Compliance Report<br />
The detailed work plans of the Audit Committee and the Corporate Governance Committee are put into writing.<br />
The Audit Committee is composed of two individuals: Melih E. Araz and Olgun <strong>Zorlu</strong>. Melih E. Araz, who is an independent Board<br />
member, serves as the head of the Audit Committee.<br />
The articles of incorporation stipulate that the Audit Committee must meet at least four times a year (once in each quarter). The<br />
Board secretariat is responsible for recording the decisions made, and keeping the minutes of the meetings held by the<br />
Committee.<br />
The Committee carries out its activities in accord with the detailed operating principles put into writing.<br />
27- Financial benefits provided to the Board of Directors<br />
The attendance fees to be paid to the members of the Board of Directors are determined at the general meeting. In 2007, the<br />
members of the <strong>Zorlu</strong> <strong>Energy</strong> Electricity Generation Board of Directors were paid TRY 50,000 in total, which is commensurate with<br />
precedents in the sector. The statutory auditors were paid TRY 2,412 a year each.<br />
There is no performance measurement for the Board members. No rewarding system reflecting the Company’s performance has<br />
been set up.<br />
The Company has extended no loans or credits to any Board member or manager.<br />
Profit distribution policy and proposal<br />
Under a resolution passed at a meeting of the Board of Directors of <strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim Afi held at the company<br />
headquarters on 7 May 2007, it has been decided to distribute at least 25% of the company’s net distributable profits to<br />
shareholders in 2007 and the years that follow in accordance with the dividend policy specified by the board as cash payments or<br />
in the form of shares of stock. The amount of dividend to be paid is to be recommended by the Board of Directors at the ordinary<br />
general meeting of shareholders that is held every year on the basis of national and international economic conditions and the<br />
company’s growth plans.<br />
Profit distribution proposal for the 1 January 2007-31 December 2007 fiscal year<br />
Although the financial statements prepared as required by tax laws show a profit, the consolidated financial statements prepared<br />
in accordance with Capital Markets Board communique XI:25 concerning accounting standards in capital markets show a loss.<br />
For this reason, it has been decided pursuant to CMB resolution 7/242 25 February 2005 to recommend to the general assembly<br />
of shareholders that no dividend be paid out as there is no distributable profit.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
‹ç Denetim Raporu<br />
Ortakl›¤›n Unvan› : <strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim Anonim fiirketi<br />
Merkezi : Organize Sanayi Bölgesi Pembe Cd. No:13 BURSA<br />
Sermayesi : 81.665.350.- YTL<br />
Faaliyet Konusu : Elektronik ve buhar üretimi<br />
Denetçi veya denetçilerin ad›<br />
ve görev süreleri, ortak veya flirketin<br />
personeli olup olmad›klar› : fierif ARI – 1 y›l<br />
Hakan EfiTÜRK – 1 y›l<br />
Ortak ve personel de¤iller<br />
Kat›l›nan Yönetim Kurulu ve<br />
yap›lan denetleme kurulu<br />
toplant›lar› say›s› : 5<br />
Ortakl›k hesaplar›, defter ve<br />
belgeleri üzerinde yap›lan<br />
incelemenin kapsam›, hangi<br />
tarihlerde inceleme yap›ld›¤› ve<br />
var›lan sonuç<br />
hükümlerine göre tutuldu¤u : Her ay bafl›, bir önceki ay geçici bilanço hesaplar› denetlenmifltir. Defterlerin V.U.K<br />
görülmüfltür.<br />
Türk Ticaret Kanunu’nun 353’ncü<br />
maddesinin 1’inci f›kras›n›n 3<br />
numaral› bendi gere¤ince ortakl›k<br />
veznesinde yap›lan say›mlar›n<br />
say›s› ve sonuçlar› : Y›lda de¤iflik tarihlerde dört defa vezne say›m› yap›lm›fl olup, mevcutlar›n kay›tlara<br />
uygun oldu¤u anlafl›lm›flt›r.<br />
Türk Ticaret Kanunu’nun 353.<br />
maddesinin 1. f›kras›n›n 4<br />
numaral› bendi gere¤ince yap›lan<br />
inceleme tarihleri ve sonuçlar› : Ayda bir defa yap›lan incelemede flirkete rehin ve teminat veya vedia olarak teslim<br />
edilen k›ymetli evrak bulunmad›¤› anlafl›ld›.<br />
‹ntikal eden flikayet ve<br />
yolsuzluklar ve bunlar hakk›nda<br />
yap›lan ifllemler : Herhangi bir konuda flikayet ve yolsuzluk müracaat yap›lmam›flt›r.<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim Anonim fiirketi’nin 01.01.2007-31.12.2007 dönemi hesap ve ifllemlerini Türk Ticaret Kanunu, ortakl›¤›n<br />
esas sözleflmesi ve di¤er mevzuat ile genel kabul görmüfl muhasebe ilke ve standartlar›na göre incelemifl bulunmaktay›z.<br />
Görüflümüze göre içeri¤ini benimsedi¤imiz 31.12.2007 tarihi itibariyle düzenlenmifl bilanço, ortakl›¤›n an›lan tarihteki mali durumunu<br />
01.01.2007-31.12.2007 dönemine ait gelir tablosu, an›lan döneme ait faaliyet sonuçlar›n› gerçe¤e uygun ve do¤ru olarak<br />
yans›tmaktad›r.<br />
Bilanço’nun ve Gelir Tablosu’nun onaylanmas›n› ve Yönetim Kurulu’nun aklanmas›n› arz ederiz.<br />
fierif ARI Hakan EfiTÜRK<br />
Denetçi Denetçi<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 63
64<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Resolution of the Board of Directors<br />
RESOLUTION DATE : 27.04.2008<br />
RESOLUTION NO : 2008/9<br />
PARTICIPANTS : Zeki <strong>Zorlu</strong><br />
Elmas Melih Araz<br />
Olgun <strong>Zorlu</strong><br />
Selen <strong>Zorlu</strong> Melik<br />
Murat Sungur Bursa<br />
Aziz Can Tuncay<br />
Burak ‹smail Okay<br />
MEETING AGENDA:<br />
The Board of Directors of ZORLU ENERJ‹ ELEKTR‹K ÜRET‹M ANON‹M fi‹RKET‹ convened at the company’s headquarters under<br />
the chairmanship of Mr. Zeki <strong>Zorlu</strong> and discussed the subjects on the agenda and adopted the below-mentioned resolutions.<br />
The Board of Directors who convened for the meeting decided unanimously to accept the 2007 Annual Report, which has been<br />
presented to the Board of Directors and is attached hereto, and to make the report available to shareholders.<br />
BOARD OF DIRECTORS<br />
Zeki <strong>Zorlu</strong> Elmas Melih Araz Olgun <strong>Zorlu</strong> Selen <strong>Zorlu</strong> Melik<br />
Chairman Vice Chairman Board Member Board Member<br />
Murat Sungur Bursa Aziz Can Tuncay Burak ‹smail Okay<br />
Board Member Board Member Board Member
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Consolidated Financial Statements At 31 December 2007 Together With Auditor’s Report<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 65
66<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Independent Auditor’s Report<br />
To The Shareholders and Board of Directors of<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
We have audited the accompanying consolidated financial statements of <strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi. (the “Company”) and its<br />
subsidiaries listed under note 1, which comprise the consolidated balance sheet as at 31 December 2007, and the consolidated<br />
statements of income, changes in equity and cash flow for the year then ended and a summary of significant accounting policies<br />
and other explanatory notes.<br />
Management’s responsibility for the financial statements<br />
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International<br />
Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to<br />
the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;<br />
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the<br />
circumstances.<br />
Auditor’s responsibility<br />
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in<br />
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan<br />
and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.<br />
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.<br />
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the<br />
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control<br />
relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are<br />
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal<br />
control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting<br />
estimates made by management, as well as evaluating the overall presentation of the financial statements.<br />
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.<br />
During 2006, there have been changes in the regulations related to investment allowances. According to these changes<br />
investment allowances have been discontinued as from 01 January 2006. However investment allowances unused and carried<br />
forward as of 31 December 2005 and investment allowances on projects approved as of 31 December 2005 on which expenditure<br />
continues to be incurred after 31 December 2005 may be deducted from the profits for the years 2006, 2007 and 2008. However,<br />
the profit remaining after deduction of investment allowances for the said three years will be subject to 30% corporation tax. The<br />
Company has become entitled to investment allowances of YTL 348.034.194 as of 31 December 2006 and the Company has<br />
exercised the option of using investment allowances and pay corporation tax at 30%. The deferred tax asset related to investment<br />
allowances as of 31 December 2007 was calculated as YTL 51.258.430. The realization of this deferred tax asset is dependent<br />
upon generation of sufficient profits until and including 2008.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Independent Auditor’s Report<br />
Opinion<br />
In our opinion, except for the effects, if any, of the matters explained in the preceding paragraph, the consolidated financial<br />
statements present fairly in all material respects, the consolidated financial position of the Company as of 31 December 2007, and<br />
of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International<br />
Financial Reporting Standards.<br />
Ergin Uluslararas› Denetim ve Yeminli Mali Müflavirlik A.fi.<br />
Member Firm of GRANT THORNTON International<br />
Aykut Halit<br />
Partner<br />
Istanbul, 10 April 2008<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 67
68<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Consolidated Balance Sheets at 31.12.2007 and 2006<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Assets Note 2007 2006<br />
Current assets<br />
Cash and cash equivalents 5 26.773.720 305.099<br />
Trade receivables 6 26.622.514 44.099.957<br />
Inventories 7 33.998.103 26.090.263<br />
Other assets 8 59.595.220 14.353.822<br />
Total current assets 146.989.557 84.849.141<br />
Non-current assets<br />
Investments 9 5.782.621 1.334.102<br />
Property, plant and equipment 10 879.290.107 672.810.009<br />
Intangible assets 11 41.905.045 28.782.240<br />
Other assets 8 108.428 95.455<br />
Deferred tax asset 16 55.701.097 51.765.217<br />
Total non-current assets 982.787.298 754.787.023<br />
Total assets 1.129.776.855 839.636.164<br />
The accompanying notes are an integral part of these consolidated financial statements.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Consolidated Balance Sheets at 31.12.2007 and 2006<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Liabilities and equity Note 2007 2006<br />
Current liabilities<br />
Borrowings 12 248.320.274 157.115.394<br />
Trade payables 13 70.369.621 45.437.084<br />
Taxation on income 16 916.416 2.618.822<br />
Provision for expenses 14 248.711 399.681<br />
Due to related parties 23 285.683.524 71.896.365<br />
Other liabilities 15 5.387.881 3.784.275<br />
Total current liabilities 610.926.427 281.251.621<br />
Non-current liabilities<br />
Borrowings 12 137.297.075 199.299.125<br />
Trade payables 13 668.879 172.102<br />
Provision for expenses 14 7.114.416 4.350.855<br />
Reserve for retirement pay 17 1.366.011 1.033.844<br />
Deferred tax liability 16 56.587.640 51.231.617<br />
Total non-current liabilities 203.034.021 256.087.543<br />
Equity<br />
Share capital 18 192.613.350 192.613.350<br />
Minority interest 47.487.126 20.731.161<br />
Translation reserve (794.760) --<br />
General reserves 76.510.691 88.952.489<br />
Total equity 315.816.407 302.297.000<br />
Commitments and contingencies 19<br />
Total liabilities and equity 1.129.776.855 839.636.164<br />
The accompanying notes are an integral part of these consolidated financial statements.<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 69
70<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Consolidated Income Statements for the Years Ended 31.12.2007 and 2006<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Note 2007 2006<br />
Net sales 469.773.925 391.845.682<br />
Cost of sales (402.405.095) (343.626.103)<br />
Gross profit 67.368.830 48.219.579<br />
Selling expenses (12.686.760) (24.362.698)<br />
General and administrative expenses (47.344.916) (25.244.031)<br />
Other expense, net 21 (19.300.210) (4.648.420)<br />
Operating loss (11.963.056) (6.035.570)<br />
Financing income 22 87.854.964 54.804.468<br />
Financing expense 22 (64.964.909) (79.719.961)<br />
Profit (loss) before taxation 10.926.999 (30.951.063)<br />
Taxation charge<br />
Current (7.838.673) (7.190.144)<br />
Deferred (1.255.064) (882.010)<br />
Taxation on income 16 (9.093.737) (8.072.154)<br />
Net profit (loss) for the year 1.833.262 (39.023.217)<br />
Attributable to:<br />
Equity holders of the Company (10.324.440) (44.917.559)<br />
Minority interest 12.157.702 5.894.342<br />
1.833.262 (39.023.217)<br />
Basic and fully diluted earnings per share 4 0,00 (0,00)<br />
The accompanying notes are an integral part of these consolidated financial statements.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Consolidated Statements of Changes in Equity for the Years Ended 31.12.2007 and 2006<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Share capital General reserves Translation reserve Minority interest Total equity<br />
Balance at 01 January 2006 192.613.350 133.870.048 -- 9.744.666 336.228.064<br />
Cash increase in subsidiaries share capital -- -- -- 5.092.153 5.092.153<br />
Net loss for the year -- (44.917.559) -- 5.894.342 (39.023.217)<br />
Balance at 31 December 2006 192.613.350 88.952.489 -- 20.731.161 302.297.000<br />
Consolidated subsidiaries as from 01 January 2007 -- (2.117.358) (339.088) 39.606 (2.416.840)<br />
Acquisition of subsidiary -- -- -- 1.674.265 1.674.265<br />
Cash increase in subsidiaries share capital -- -- -- 13.300.000 13.300.000<br />
Translation differences -- -- (455.672) (415.608) (871.280)<br />
Net profit for the year -- (10.324.440) -- 12.157.702 1.833.262<br />
Balance at 31 December 2007 192.613.350 76.510.691 (794.760) 47.487.126 315.816.407<br />
The accompanying notes are an integral part of these consolidated financial statements.<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 71
72<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Consolidated Cash Flow Statements for the Years Ended 31.12.2007 and 2006<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Note 2007 2006<br />
Profit (loss) before tax 10.926.999 (30.951.063)<br />
Adjustment to reconcile net income to net cash provided<br />
from operating activities:<br />
Depreciation of property plant and equipment 10 35.547.626 31.810.537<br />
Amortization of intangible assets 11 3.906.906 602.964<br />
Increase in provisions 2.612.591 (763.207)<br />
Provision for retirement pay 332.167 310.453<br />
Profit on sale of property, plant and equipment (27.816) (153.481)<br />
Loss on sale of property, plant and equipment 40.599 313.506<br />
Interest expense 22 38.280.235 18.748.320<br />
Interest income 22 (2.457.233) (2.234.855)<br />
Unearned interest on receivables (154.941) (70.549)<br />
Unearned interest on payables 88.324 (112.486)<br />
Provision for diminution in value of inventories 746.532 343.601<br />
Provision for doubtful receivables 3.009.103 --<br />
Operating profit before changes in working capital 92.851.092 17.843.740<br />
Changes in operating assets and liabilities<br />
Trade receivables 14.668.513 (10.286.536)<br />
Inventories (8.654.372) (11.643.787)<br />
Other assets (46.028.088) 36.027.449<br />
Trade payables 25.340.990 18.347.692<br />
Due to related parties 222.879.426 65.060.139<br />
Other liabilities 1.879.788 8.265.359<br />
Taxes paid (9.541.079) (5.858.778)<br />
Net cash provided by (used in) operating activities 293.396.270 117.755.278<br />
Cash flows from investing activities<br />
Acquisition of subsidiary (25.363.341) --<br />
Cash increase in subsidiaries share capital 13.300.000 5.092.153<br />
Purchases of investments (5.011.692) (801.057)<br />
Purchases of property, plant and equipment (260.297.451) (235.988.178)<br />
Purchases of intangible assets (300.023) (4.181.961)<br />
Disposal of natural gas drilling expenses 18.057.232 6.405.603<br />
Proceeds from sale of property, plant and equipment 179.078 31.368<br />
Net cash used in investing activities (259.436.197) (229.442.072)<br />
Cash flows from financing activities<br />
Proceeds from borrowings 25.102.014 124.670.411<br />
Interest received 2.457.233 2.234.855<br />
Interest paid (34.179.419) (15.661.066)<br />
Net cash provided by (used in) financing activities (6.620.172) 111.244.200<br />
Translation difference (871.280) --<br />
Net increase (decrease) in cash and cash equivalents 27.339.901 (442.594)<br />
Cash and cash equivalents at beginning of year 305.099 747.693<br />
Cash and cash equivalents at end of year 26.773.720 305.099<br />
The accompanying notes are an integral part of these consolidated financial statements.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
1. ORGANISATION AND NATURE OF ACTIVITIES<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi. (the “Company” or “<strong>Zorlu</strong> <strong>Enerji</strong>”) is a member of the <strong>Zorlu</strong> <strong>Group</strong> of Companies which are under<br />
the control of the <strong>Zorlu</strong> family. The Company and its subsidiaries were established to meet the power requirements of <strong>Zorlu</strong> <strong>Group</strong><br />
establishments and other industrial companies.<br />
The registered office address of the Company is Nilüfer Organize Sanayi Bölgesi, Pembe Caddesi, Bursa/Turkey.<br />
The direct and indirect shareholding of <strong>Zorlu</strong> <strong>Enerji</strong> in their capital, are:<br />
Operating Shareholding (%)<br />
Consolidated company Location 2007 2006<br />
<strong>Zorlu</strong> O/M <strong>Enerji</strong> Tesisleri ‹flletme ve Bak›m Hizmetleri A.fi. Turkey 24,0 24,0<br />
<strong>Zorlu</strong> Endüstriyel ve <strong>Enerji</strong> Tesisleri ‹nflaat Ticaret A.fi. Turkey 20,0 20,0<br />
<strong>Zorlu</strong> Petrogas, Petrol, Gaz, Petrokimya Ürünleri ‹nflaat Sanayii ve Ticaret A.fi. Turkey 79,1 79,1<br />
<strong>Zorlu</strong> Elektrik <strong>Enerji</strong>si ‹thalat ‹hracat ve Toptan Ticaret A.fi. Turkey 2,4 2,4<br />
<strong>Zorlu</strong> Do¤algaz ‹thalat ‹hracat ve Toptan Ticaret A.fi. Turkey 2,4 2,4<br />
Trakya Bölgesi Do¤algaz Da¤›t›m A.fi. Turkey 11,0 11,0<br />
Gazdafl Gaziantep Do¤algaz Da¤›t›m A.fi. Turkey 11,0 11,0<br />
Amity Oil International Pty. Ltd. Turkey 79,1 79,1<br />
Rosmiks International B.V. Holland 51,0 51,0<br />
Rosmiks LLC Russia 51,0 --<br />
ICFS International LLC USA 51,0 --<br />
Rotor Elektrik Üretim A.fi. Turkey 88,0 --<br />
<strong>Zorlu</strong> Hidroelektrik <strong>Enerji</strong> Üretim A.fi. Turkey 88,0 --<br />
For the purpose of consolidated financial statements <strong>Zorlu</strong> <strong>Enerji</strong> and its subsidiaries will be referred to collectively as the “<strong>Group</strong>”.<br />
<strong>Zorlu</strong> Elektrik <strong>Enerji</strong> ‹thalat ‹hracat A.fi., <strong>Zorlu</strong> Do¤algaz ‹thalat ‹hracat A.fi., Trakya Bölgesi Do¤algaz Da¤›t›m A.fi. and Gazdafl<br />
Gaziantep Do¤algaz Da¤›t›m A.fi. are consolidated because they are under the effective control and management of the <strong>Group</strong>.<br />
Nature of activities of the <strong>Group</strong><br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 73<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi. (Bursa/Turkey) - <strong>Zorlu</strong> <strong>Energy</strong> was established in 1993 for the purpose of generating<br />
electricity and steam mainly for <strong>Zorlu</strong> Holding <strong>Group</strong> Companies. <strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi. supplies uninterrupted power to<br />
around some industrial users and mainly DUY system, by its natural gas combined cycle plants in Bursa (90 MW), in Ankara (50,3<br />
MW), in Kayseri (189 MW) and by its cogeneration plants in Lüleburgaz (66 MW), in Kayseri (7MW) and Yalova (16MW).<br />
<strong>Zorlu</strong> O&M <strong>Enerji</strong> Tesisleri ‹flletme ve Bak›m Hizmetleri A.fi. (Istanbul/Turkey) - <strong>Zorlu</strong> O&M Powerplant Operation and<br />
Maintenance Services was established 2000 to provide operational and maintenance services to power plants.<br />
<strong>Zorlu</strong> Endüstriyel ve <strong>Enerji</strong> Tesisleri ‹nflaat Ticaret A.fi. - (Istanbul/Turkey) - This company became operational in 2000 for<br />
the purpose of developing, implementing and providing financial support to industrial and energy plant projects.<br />
<strong>Zorlu</strong> Petrogas, Petrol, Gaz ve Petrokimya Ürünleri ‹nflaat Sanayi ve Ticaret A.fi. (Istanbul/Turkey) - <strong>Zorlu</strong> Petrogas,<br />
Petroleum, Gas and Petrochemical Products, Construction was established 2000 to engage in natural gas distribution projects,<br />
petroleum and petrochemical production facilities, as well as marketing of petroleum and natural gas.
74<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
<strong>Zorlu</strong> Elektrik <strong>Enerji</strong> ‹thalat ‹hracat A.fi. (Istanbul/Turkey) - <strong>Zorlu</strong> Elektrik was established in 2003 for the purpose of<br />
procurement of wholesale electricity from domestic sources, free trade zones and international grid-connected countries for resale;<br />
on wholesale and retail basis.<br />
<strong>Zorlu</strong> Do¤algaz ‹thalat ‹hracat A.fi. (Istanbul/Turkey) - <strong>Zorlu</strong> Do¤algaz was established in 2003 for the purpose of wholesale<br />
procurement of compressed natural gas and/or liquefied natural gas to other wholesale companies, free trade zones and countries<br />
abroad; owns license for wholesale and retail sales and direct sales to free consumers .<br />
Trakya Bölgesi Do¤algaz Da¤›t›m A.fi. (Istanbul/Turkey) - This company was established in 2005 for the purpose of city gas<br />
distribution in Edirne-K›rklareli-Trakya, Turkey.<br />
Gazdafl Gaziantep Do¤algaz Da¤›t›m A.fi. (Istanbul/Turkey) - This company was established in 2005 for the purpose city gas<br />
distribution in Gaziantep-Kilis region, Turkey.<br />
Amity Oil International Pty. Ltd. <strong>Zorlu</strong> Petrogas acquired the 100% shares in Amity Oil in 2005. Amity Oil is engaged in<br />
petroleum and natural gas exploration and production in Turkey.<br />
Rosmiks International B.V. (Holland)<br />
This company was established in 2006 for the purpose of providing financial support to two energy plant projects in Russia and<br />
owns 100% of Rosmiks LLC.<br />
Rosmiks LLC<br />
Rosmiks LLC was established for the purpose of building and operating two energy plants respectively in “Kozukhovo” and<br />
“Tereskhova” regions in Russia with a capacity of 170MW each. Rosmiks LLC started these projects around mid 2007 and plans<br />
to complete them by the end in 4th quarter of 2008 and operate them thereafter.<br />
ICFS International LLC (“ICFS”)<br />
ICFS was established in the USA in 2005 and owns 100% of Rosmiks International BV established in Holland.<br />
Rotor Elektrik Üretim A.fi. (“Rotor”)<br />
Rotor was established for the purpose of building wind power plants and was acquired by <strong>Zorlu</strong> <strong>Energy</strong> <strong>Group</strong> in 2007.<br />
<strong>Zorlu</strong> Hidroelektrik <strong>Enerji</strong> Üretim A.fi. (“Hidroelektrik”)<br />
<strong>Zorlu</strong> Hidroelektrik was established in 2007 for the purpose of building hydroelectric power plants and other power plants based<br />
on renewable energy sources.<br />
2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS<br />
The financial statements of the <strong>Group</strong> have been prepared in accordance with International Financial Reporting Standards (“IFRS”)<br />
as developed and published by the International Accounting Standards Board (“IASB”).<br />
The Company, which is quoted on the Istanbul Stock Exchange, maintains its books of account and prepares its statutory financial<br />
statements in accordance with the Turkish Commercial Code, accounting policies prescribed by the Turkish Capital Markets Board<br />
and tax legislation and since 1994 has adopted the Uniform Chart of Accounts issued by the Ministry of Finance (collectively<br />
“Turkish Practices”). Its subsidiaries which are incorporated in Turkey maintain their books of account and prepare their statutory<br />
financial statements in accordance with the Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts<br />
issued by the Ministry of Finance. The foreign subsidiaries maintain their books of account and prepare their statutory financial<br />
statements in their local currencies and in accordance with the regulations of the countries in which they operate. The financial<br />
statements of overseas subsidiaries are converted into New Turkish Lira (YTL) by closing rate method. The consolidated financial<br />
statements have been prepared from statutory financial statements of the Company and its subsidiaries and presented in New
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Turkish Lira (YTL) with adjustments and reclassifications for the purpose of fair presentation in accordance with IFRS. Such<br />
adjustments mainly comprise deferred taxation, employee termination benefits, fixed assets and borrowing costs, investment<br />
property, receivables, interest expense accruals on bank loans.<br />
Measurement currency and reporting currency<br />
The restatement for the changes in the general purchasing power of YTL as of 31 December 2005 is based on IAS 29 (“Financial<br />
Reporting in Hyperinflationary Economies”). IAS 29 requires that financial statements prepared in the currency of a<br />
hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date and the corresponding<br />
figures for previous periods be restated in the same terms. One characteristic (but not limited to) that necessitates the application<br />
of IAS 29 is a cumulative three year inflation rate approaching or exceeding 100%. As of 31 December 2005, the three year<br />
cumulative rate has been 36% (31 December 2004: 70% - 31 December 2003: 181%) based on the Turkish countrywide wholesale<br />
price index published by the State Institute of Statistics.<br />
As of 1 January 2006, it has been decided to discontinue the adjustment of financial statements for inflation after taking into<br />
account that hyperinflation period has come to an end as indicated by existing objective criteria and, that other signs indicating the<br />
continuance of hyperinflation have largely disappeared the financial statement as of 31 December 2006 have therefore, not been<br />
subjected to any adjustment for inflation.<br />
The effects of ending the adjustments for inflation on financial statements are summarized as follows:<br />
The financial statements as of 31 December 2006 have not been subjected to any inflation adjustment whereas the financial<br />
statements for previous periods have been adjusted for inflation on basis of the measuring unit current at the last preceding<br />
balance sheet date namely 31 December 2005.<br />
Together with the ending of the hyperinflationary period the balances adjusted for inflation as of the last preceding balance sheet<br />
date form the opening balances of the assets, liabilities and equity accounts as of 1 January 2006.<br />
Offsetting<br />
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right<br />
to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability<br />
simultaneously.<br />
Comparable financial information and reclassification of prior period financial statements<br />
The balance sheets with the accompanying notes as of 31.12.2007 and 2006 and statement of income, cash flow and changes in<br />
equity with the accompanying notes for the twelve months period ended 31.12.2007 and 2006 are presented as comparatively.<br />
For the compatibility of the current financial statements these financial statements are reclassified if necessary.<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 75<br />
As of 31.12.2006 advances paid to suppliers for the construction of two 170MW energy power plants in Rosmiks LLC, Russia<br />
amounted to YTL 136.526.469 which was accounted for “Construction contracts work in progress” was reclassified to construction<br />
in progress under property, plant and equipment.<br />
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES<br />
The significant accounting policies followed in the preparation of the accompanying financial statements are summarized below:<br />
Basis of consolidation<br />
The consolidated financial statements incorporate the financial statements of <strong>Zorlu</strong> <strong>Enerji</strong> and entities controlled by <strong>Zorlu</strong> <strong>Enerji</strong><br />
(listed under note 1). Control is achieved where the Company has the power to govern the financial and operating policies of an<br />
entity so as to obtain benefits from its activities.
76<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the<br />
effective date of acquisition or up to the effective date of disposal, as appropriate.<br />
All intra-group transactions, balances, income and expenses are eliminated on consolidation.<br />
Minority interests in the net assets of consolidated subsidiaries are identified separately from the <strong>Group</strong>’s equity therein. Minority<br />
interests consist of the amount of those interests at the date of the original business combination and the minority’s share of<br />
changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the<br />
subsidiary’s equity are allocated against the interests of the <strong>Group</strong> except to the extent that the minority has a binding obligation<br />
and is able to make an additional investment to cover the losses.<br />
Business combinations<br />
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the<br />
aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments<br />
issued by the <strong>Group</strong> in exchange for control of the acquire, plus any costs directly attributable to the business combination. The<br />
acquirer’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are<br />
recognised at their fair values at the acquisition date.<br />
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the<br />
business combination over the <strong>Group</strong>’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities<br />
recognised. If, after reassessment, the <strong>Group</strong>’s interest in the net fair value of the acquirer’s identifiable assets, liabilities and<br />
contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.<br />
The interest of minority shareholders in the acquire is initially measured at the minority’s proportion of the net fair value of the<br />
assets, liabilities and contingent liabilities recognised.<br />
Foreign currency translations<br />
Transactions are recorded in New Turkish Lira, which is the Company’s functional currency. Transactions in foreign currencies<br />
during the periods have been translated at the exchange rates prevailing at the dates of these transactions. Balance sheet items<br />
denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet dates. Exchange<br />
gains or losses arising from settlement and translation of foreign currency items have been included in the financing income or<br />
expense accounts as appropriate.<br />
The foreign exchange rates used by the <strong>Group</strong> are as follows:<br />
2007 2006<br />
US Dollar 1,1647 1,4056<br />
EUR 1,7102 1,8515<br />
Foreign entities - Foreign consolidated subsidiaries are regarded as foreign entities since they are financially, economically and<br />
organizationally autonomous. Their reporting currencies are the respective local currencies. Financial statements of foreign<br />
consolidated subsidiaries are translated at year-end exchange rates with respect to the balance sheet and at exchange rates at<br />
the dates of the transactions with respect to the income statement. All resulting translation differences between the closing<br />
balances and opening balances due to the difference in inflation and devaluation are included in currency translation adjustment in<br />
equity.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Property, plant and equipment<br />
Property, plant and equipment are stated at cost as restated in the equivalent purchasing power of YTL at 31 December 2005 less<br />
accumulated depreciation and any impairment in value. Depreciation is charged so as to write off the cost or valuation of assets,<br />
other than land and properties under construction, over the estimated useful live of the asset using the straight line basis over the<br />
following years stated below:<br />
Useful life<br />
in years<br />
Land improvements 25-30<br />
Buildings 25-30<br />
Leasehold improvements 5<br />
Machinery and equipments 17-25<br />
Furniture, fixtures and office equipments 5-10<br />
Motor vehicles 5<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 77<br />
The carrying values of property, plant and equipment are reviewed for impairment periodically and when events or changes in<br />
circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values<br />
exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.<br />
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and<br />
the carrying amount of the asset and is recognized in income.<br />
Intangible assets<br />
Rights and other intangible assets are capitalized and amortized on a straight line basis over their estimated useful lives, not<br />
exceeding a period of 5 years.<br />
Natural gas exploration expenses<br />
Costs directly associated with an exploration well, and exploration and property leasehold acquisition costs are capitalised until the<br />
determination of reserves is evaluated. If it is determined that commercial discovery has not been achieved, these costs are<br />
charged to expense.<br />
Capitalisation is made within property, plant and equipment or intangible assets according to the nature of the expenditure. Once<br />
commercial reserves are found, exploration and evaluation assets are tested for impairment and transferred to development<br />
tangible and intangible assets and depreciation and/or amortisation is charged during the exploration and evaluation phase.<br />
Development tangible and intangible assets<br />
Expenditure on the construction, installation or completion of infrastructure facilities, such as platforms, pipelines and the drilling of<br />
commercially proven development wells, is capitalised within tangible and intangible assets according to nature. When<br />
development is completed on a specific field, it is transferred to production assets. Depreciation and/or amortisation are charged<br />
during the exploration and evaluation phase.<br />
Depreciation/amortisation<br />
Natural gas properties/intangible assets are depreciated/amortised using the unit-of-production method. Unit-of-production rates<br />
are based on proved developed reserves, which are oil, gas and other mineral reserves estimated to be recovered from existing<br />
facilities using current operating methods.
78<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Impairment - exploration and evaluation assets<br />
An impairment loss is recognised for the amount by which the exploration and evaluation assets’ carrying amount exceeds their<br />
recoverable amount. The recoverable amount is the higher of the exploration and evaluation assets’ fair value less costs to sell and<br />
their value in use.<br />
Finance lease<br />
Assets held under finance leases are recognized as assets of the Company at their fair value at the date of acquisition. The<br />
corresponding liability to the Company is included in the balance sheet as a finance lease obligation. Finance costs, which<br />
represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the<br />
income statement over the term of the relevant lease so as to produce a constant periodic rate of interest on the remaining<br />
balance of the liability for each accounting period.<br />
Inventories<br />
Inventories are stated at the lower of cost and net realizable value. Costs comprise direct materials and, where applicable, direct<br />
labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition but<br />
excludes borrowing cost. Cost is calculated by using the weighted average method. Net realizable value represents the estimated<br />
selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.<br />
Related parties<br />
Companies and their related parties, investments and affiliates controlled by <strong>Zorlu</strong> <strong>Group</strong> are considered and referred to as related<br />
parties.<br />
Revenue recognition<br />
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the <strong>Group</strong> and the revenue can be<br />
reliably measured. Revenue is shown net of value added and sales taxes, discounts and returns.<br />
Borrowing cost<br />
Borrowing cost directly attributable to the acquisition, construction or production of qualifying assets, which are assets that<br />
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until<br />
such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary<br />
investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. All<br />
other borrowing costs are recognized in net profit or loss in the period in which they are incurred.<br />
Commitments and contingencies<br />
Transactions that may give rise to contingencies and commitments are those where the outcome and the performance of which<br />
will be ultimately confirmed only on the occurrence or non occurrence of certain future events, unless the expected performance is<br />
not very likely. Accordingly, contingent losses are recognized in the financial statements if a reasonable estimate of the amount of<br />
the resulting loss can be made. Contingent gains are reflected only if it is virtually certain that the gain will be realized.<br />
Use of estimates<br />
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that<br />
affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial<br />
statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these<br />
estimates. These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the<br />
periods in which they become known.<br />
Income taxes<br />
Tax expense (income) is the aggregate amount included in the determination of net profit or loss for the period in respect of<br />
current and deferred tax.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 79<br />
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax<br />
bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are<br />
recognized for all taxable temporary differences.<br />
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no<br />
longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.<br />
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is<br />
realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance<br />
sheet date.<br />
Provisions<br />
Employee benefits - Under Turkish labour law, the <strong>Group</strong> and its Turkish subsidiaries are required to pay termination benefits to<br />
each employee who has completed one year of service and whose employment is terminated without due cause, or who retires in<br />
accordance with social insurance regulations or is called up for military service or dies.<br />
Other provisions - Provisions are recognized when the <strong>Group</strong> has a present obligation (legal or constructive) as a result of a past<br />
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a<br />
reliable estimate can be made of the amount of the obligation. Where the <strong>Group</strong> expects a provision to be reimbursed, for<br />
example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is<br />
virtually certain.<br />
Investments<br />
All investments are initially recognized at cost, restated at the equivalent purchasing power of New Turkish lira at 31 December<br />
2005, being the fair value of the consideration given and including acquisition charges associated with the investment.<br />
Recognition and derecognition of financial instruments<br />
The <strong>Group</strong> recognizes a financial asset or financial liability in its balance sheet when and only when it becomes a party to the<br />
contractual provisions of the instrument. The <strong>Group</strong> derecognizes a financial asset or a portion of financial asset when and only<br />
when it loses control of the contractual rights that comprise the financial asset or a portion financial asset. The <strong>Group</strong><br />
derecognizes a financial liability when and only when a liability is extinguished that is when the obligation specified in the contract<br />
is discharged, cancelled and expires.<br />
Trade receivables<br />
Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortized cost using the<br />
effective interest rate method to set an allowance for unearned interest. Appropriate allowances for estimated irrecoverable<br />
amounts are recognized in profit or loss when there is objective evidence that the asset is impaired. The allowance recognized is<br />
measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted<br />
at the effective interest rate computed at initial recognition.<br />
Trade payables<br />
Trade payables are initially measured at fair value and are subsequently measured at amortized cost using the effective interest<br />
rate method to set an allowance for unearned interest.<br />
Bank borrowings<br />
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges,<br />
including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying<br />
amount of the instrument to the extent that they are not settled in the period in which they arise.
80<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Cash and cash equivalents<br />
For the purpose of cash flow statement, cash and cash equivalents comprise cash in hand, deposits with banks and other<br />
financial institutions, other money market placements and funds lent under securities resale agreements with the original maturity<br />
of three months or less.<br />
Earnings per share<br />
Earnings per share (“EPS”) disclosed in the income statements are determined by dividing net income by the weighted average<br />
number of shares that have been outstanding during the related year or period and taking into account bonus issues and right<br />
issues. There is no difference between basic and diluted earnings per share for any class of shares for any of the years.<br />
4. EARNINGS PER SHARE<br />
2007 2006<br />
Net profit attributable to shareholders 1.833.262 (39.023.217)<br />
Weighted average number of ordinary shares in issue 8.166.535.000 8.166.535.000<br />
Basic and diluted earnings per share 0,00 (0,00)<br />
5. CASH AND CASH EQUIVALENTS<br />
Cash in hand 62.026 180.434<br />
Demand deposit at banks 2.538.724 124.665<br />
Time deposit at banks 24.172.970 --<br />
26.773.720 305.099<br />
As of 3.12.2007, the interest rate varied between 3,75% and 4,5% per year for foreign currency and 16,5 - 16,75% per YTL.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
6. TRADE RECEIVABLES<br />
2007 2006<br />
Current accounts<br />
- Third parties 22.629.213 37.072.071<br />
- Related parties, note 23<br />
Notes receivable<br />
5.394.750 7.503.658<br />
- Third parties 2.274.064 371.008<br />
Others 35.318 9.889<br />
30.333.345 44.956.626<br />
Unearned interest on receivables (-) (121.464) (276.405)<br />
Allowance for doubtful receivables (-) (3.589.367) (580.264)<br />
Movement of doubtful receivables is as follows:<br />
26.622.514 44.099.957<br />
Opening balance as of 1 January 580.264 580.264<br />
Charge for the period 3.009.103 --<br />
Ending balance 3.589.367 580.264<br />
7. INVENTORIES<br />
2007 2006<br />
Raw materials 1.926.749 1.428.955<br />
Spare part 27.996.234 23.645.455<br />
Merchandise 671.901 178.208<br />
Advances given 4.493.352 1.181.246<br />
35.088.236 26.433.864<br />
Allowance for diminution in value (-) (1.090.133) (343.601)<br />
Movement of allowance for diminution in value of inventories is as follows:<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 81<br />
33.998.103 26.090.263<br />
Opening balance as of 1 January 343.601 --<br />
Charge for the year 746.532 343.601<br />
Ending balance 1.090.133 343.601
82<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
8. OTHER ASSETS<br />
2007 2006<br />
Current<br />
Prepaid expenses and income accruals 1.717.457 1.567.862<br />
Income accruals 23.287.273 6.462.289<br />
VAT receivable 22.322.548 4.953.976<br />
Work advances 186.733 321.431<br />
Due from personnel 35.765 23.490<br />
Prepaid taxes 1.362.064 13.527<br />
Other 10.683.380 1.011.247<br />
59.595.220 14.353.822<br />
Non-current<br />
Prepaid expenses 108.428 95.455<br />
9. INVESTMENTS<br />
Share % Amount<br />
Entity Country 2007 2006 2007 2006<br />
Equity investments<br />
Solbar <strong>Energy</strong> Ltd. Israel 27% 27% 764.235 932.621<br />
Dorad <strong>Enerji</strong> Ltd. Israel 25% -- 36.049 --<br />
800.284 932.621<br />
Unconsolidated subsidiaries<br />
ICFS International LCC Russia -- 51% -- 394.787<br />
LLC <strong>Zorlu</strong> <strong>Enerji</strong> Ukraine 100% 100% 13.604 6.694<br />
Machteshim <strong>Energy</strong> Ltd. Israel 51% -- 1.412.600 --<br />
Ashdod <strong>Energy</strong> Ltd. Israel 51% -- 3.387.500 --<br />
<strong>Zorlu</strong> Intergas GMBH Austria 80% -- 51.472 --<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Pakistan Ltd. Pakistan 100% -- 117.161 --<br />
As from 01.01.2007 ICFS International LCC was consolidated in the accompanying financial statements.<br />
4.982.337 401.481<br />
5.782.621 1.334.102<br />
As of 31 December 2007, the above noted companies in which the Company has a controlling interest or significant influence are<br />
not consolidated or equity accounted as they are immaterial individually and in aggregate to the results and financial position of<br />
the <strong>Group</strong>.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
10. PROPERTY, PLANT AND EQUIPMENT<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 83<br />
Consolidated<br />
2006 Disposals Disposals subsidiary Transfers 2007<br />
Cost<br />
Land 5.807.246 147.999 -- -- -- 5.955.245<br />
Land improvements 14.053.936 6.056.846 (35.347) -- 3.884.607 23.960.042<br />
Buildings 23.031.549 196.995 -- 172.977 379.322 23.780.843<br />
Leasehold improvements 45.160 41.367 (37.570) -- -- 48.957<br />
Plant and machinery 528.964.828 334.894 -- -- 429.473 529.729.195<br />
Motor vehicles 193.361 483.492 (15.475) 299.818 -- 961.196<br />
Furniture and fixtures 4.621.229 2.172.028 (123.158) 96.722 288.443 7.055.264<br />
Natural gas drilling cost 9.939.077 -- -- -- 2.250.865 12.189.942<br />
586.656.386 9.433.621 (211.550) 569.517 7.232.710 603.680.684<br />
Construction in progress<br />
- Natural gas drilling expenses 26.864.560 18.590.090 (18.057.232) -- (2.708.814) 24.688.604<br />
- <strong>Energy</strong> power plants 188.799.040 195.923.969 -- 3.779.938 (764.961) 387.737.986<br />
- Other 10.207.816 32.112.440 -- -- (3.780.366) 38.539.890<br />
812.527.802 256.060.120 (18.268.782) 4.349.455 (21.431) 1.054.647.164<br />
Accumulated depreciation<br />
Land improvements 6.949.877 1.281.089 (937) -- -- 8.230.029<br />
Buildings 2.655.078 773.875 -- -- (4.767) 3.424.186<br />
Leasehold improvements 13.266 9.622 (2.205) -- -- 20.683<br />
Plant and machinery 122.025.721 31.883.753 -- 74.105 -- 153.983.579<br />
Motor vehicles 185.310 98.464 (4.633) 29.852 -- 308.993<br />
Furniture and fixtures 2.508.736 596.353 (11.914) 8.167 3.970 3.105.312<br />
Natural gas drilling cost 5.379.805 904.470 -- -- 6.284.275<br />
139.717.793 35.547.626 (19.689) 112.124 (797) 175.357.057<br />
Net book value 672.810.009 879.290.107
84<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
2005 Additions Disposals Transfers 2006<br />
Cost<br />
Land 5.507.690 299.556 -- -- 5.807.246<br />
Land improvements 13.591.744 540.075 (77.883) -- 14.053.936<br />
Buildings 22.426.636 70.531 -- 534.382 23.031.549<br />
Leasehold improvements 18.633 26.527 -- -- 45.160<br />
Plant and machinery 492.643.757 700.419 -- 35.620.652 528.964.828<br />
Motor vehicles 405.857 -- (212.496) -- 193.361<br />
Furniture and fixtures 3.772.663 692.048 -- 156.518 4.621.229<br />
Natural gas drilling cost 8.857.795 1.081.282 -- -- 9.939.077<br />
547.224.775 3.410.438 (290.379) 36.311.552 586.656.386<br />
Construction in progress<br />
- Natural gas drilling expenses 9.661.149 27.211.261 (6.405.603) (3.602.247) 26.864.560<br />
- <strong>Energy</strong> power plants 24.789.510 196.133.151 -- (32.123.621) 188.799.040<br />
- Other 478.890 10.314.610 -- (585.684) 10.207.816<br />
582.154.324 237.069.460 (6.695.982) -- 812.527.802<br />
Accumulated depreciation<br />
Land improvements 5.013.054 1.960.967 (24.144) -- 6.949.877<br />
Buildings 2.018.316 636.762 -- -- 2.655.078<br />
Leasehold improvements 5.837 7.429 -- -- 13.266<br />
Plant and machinery 94.353.903 27.671.818 -- -- 122.025.721<br />
Motor vehicles 227.310 32.842 (74.842) -- 185.310<br />
Furniture and fixtures 2.121.748 386.988 -- -- 2.508.736<br />
Natural gas drilling cost 4.266.074 1.113.731 -- -- 5.379.805<br />
108.006.242 31.810.537 (98.986) -- 139.717.793<br />
Net book value 474.148.082 672.810.009<br />
Disposals related to Natural Gas Drilling Expenses represent costs directly associated with exploration wells where sufficient<br />
profitability could not be attained. As a result, as of 31.12.2007 YTL 18.057.232 (2006: YTL 6.405.603) was expensed under other<br />
expenses in the income statement.<br />
The Company’s policy is to trace all material and significant fixed asset additions under construction in progress and transfer to<br />
the related fixed asset accounts when the construction process is completed. Significant portion of the construction-in-progress<br />
balance represented the investment made in;<br />
- natural gas exploration in Trakya region,<br />
- construction of two energy power plants in Russia and<br />
- laying down natural gas pipeline infrastructure in Lüleburgaz, Edirne, Çerkezköy, K›rklareli and Tekirda¤.<br />
As of 31.12.2007, fixed assets were insured for YTL 383.274.723 (31.12.2006: 468.427.896).<br />
The guarantees given to secure bank loans are set out in note 20.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
11. INTANGIBLE ASSETS<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 85<br />
Consolidated<br />
2006 Additions subsidiary Transfer 2007<br />
Cost<br />
Rights 6.454.887 101.704 16.709.054 24.616.996 47.882.641<br />
Goodwill 24.595.565 -- -- (24.595.565) --<br />
Other intangible assets 457.432 198.319 -- -- 655.751<br />
31.507.884 300.023 16.709.054 21.431 48.538.392<br />
Accumulated amortization<br />
Rights 2.539.116 3.137.178 668.362 797 6.345.453<br />
Other intangible assets 186.528 101.366 -- -- 287.894<br />
2.725.644 3.238.544 668.362 797 6.633.347<br />
Net book value 28.782.240 41.905.045<br />
Consolidated<br />
2005 Additions subsidiary Transfer 2006<br />
Cost<br />
Rights 3.380.173 3.074.714 -- -- 6.454.887<br />
Goodwill 24.595.565 -- -- -- 24.595.565<br />
Other intangible assets 431.467 25.965 -- -- 457.432<br />
28.407.205 3.100.679 -- -- 31.507.884<br />
Accumulated amortization<br />
Rights 2.007.092 532.024 -- -- 2.539.116<br />
Other intangible assets 115.588 70.940 -- -- 186.528<br />
2.122.680 602.964 -- -- 2.725.644<br />
Net book value 26.284.525 28.782.240
86<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
12. BORROWINGS<br />
2007 2006<br />
Current<br />
New Turkish Lira bank loans 328.487 29<br />
Foreign currency bank loans 247.957.071 157.082.647<br />
Finance lease liabilities, net 34.716 32.718<br />
248.320.274 157.115.394<br />
Non-current<br />
Foreign currency bank loans 137.261.499 199.223.024<br />
Finance lease liabilities, net 35.576 76.101<br />
137.297.075 199.299.125<br />
Foreign currency bank loans effective interest rates vary between 3,6% and 8,9% (2006: 3,56% and 8,87%).<br />
Current foreign currency bank loans<br />
As of 22 August 2007, the <strong>Group</strong> obtained a loan from Standard Bank (Holland) amounting USD 160 million with a maturity of 31<br />
March 2008 with an interest rate of 7,3% per year . Additionally the <strong>Group</strong> obtained a loan from Credit Europe Bank CJSC<br />
amounting to USD 22 million with an interest rate of 7,25% per year. Both loans were obtained for the bridge financing of the<br />
energy power plants construction in Russia.<br />
As of 31 December 2006, the <strong>Group</strong> obtained a loan from Fortis Bank N.V. (Holland) amounting USD 80 million also for financing<br />
its energy power plants construction in Russia. This loan has a maturity of 22 August 2007 and bore an interest of Libor +1,8% per<br />
year was duly repaid during 2007.<br />
Summary maturity schedule of bank borrowings is given below:<br />
2007 YTL<br />
USD EUR Equivalent<br />
2008 206.583.009 4.297.650 247.957.072<br />
2009 21.471.708 3.986.199 31.825.296<br />
2010 21.471.708 3.986.199 31.825.296<br />
2011 14.831.708 3.800.445 23.774.011<br />
2012 8.191.708 3.241.783 15.084.980<br />
2013 5.002.090 1.109.059 7.722.647<br />
2014 5.002.090 1.109.059 7.722.647<br />
2015 5.002.090 1.109.059 7.722.647<br />
2016 5.002.090 1.109.059 7.722.647<br />
2017 2.501.050 554.529 3.861.327<br />
295.059.251 24.303.041 385.218.570
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
2006 YTL<br />
USD EUR Equivalent<br />
2007 105.871.810 4.466.233 157.082.647<br />
2008 21.471.708 4.126.494 37.820.836<br />
2009 21.471.708 3.986.199 37.561.080<br />
2010 21.471.708 3.986.199 37.561.080<br />
2011 14.831.708 3.800.445 27.883.979<br />
2012 8.191.708 3.241.783 17.516.426<br />
2013 5.002.091 1.109.058 9.084.360<br />
2014 5.002.091 1.109.058 9.084.360<br />
2015 5.002.091 1.109.058 9.084.360<br />
2016 5.002.091 1.109.058 9.084.360<br />
2017 2.501.047 554.529 4.542.183<br />
The payment schedules of finance lease liabilities are given below:<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 87<br />
215.819.761 28.598.114 356.305.671<br />
2007 2006<br />
Finance lease instalments:<br />
Due in one year 41.936 45.638<br />
Due between one to five years 38.274 86.839<br />
Future finance charges on finance leases (9.918) (23.658)<br />
70.292 108.819<br />
The present value of finance lease liabilities:<br />
Due in one year 34.716 32.718<br />
Due between one to five years 35.576 76.101<br />
70.292 108.819
88<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
13. TRADE PAYABLES<br />
2007 2006<br />
Current<br />
Current accounts<br />
- Third parties 69.585.933 45.794.823<br />
- Related parties, note 23 1.096.591 43.566<br />
Other 894 816<br />
70.683.418 45.839.205<br />
Unearned interest on payables (-) (313.797) (402.121)<br />
70.369.621 45.437.084<br />
Non-current<br />
Deposits and guarantees received 668.879 172.102<br />
14. PROVISION FOR EXPENSES<br />
Current<br />
Provision for legal claims 248.711 399.681<br />
Non-current<br />
Provision for share of TRT 7.114.416 4.350.855<br />
An accrual for the share of Turkish Radio Television (“TRT”) charged to the Company in regards the license agreement signed with<br />
EPDK (<strong>Energy</strong> Market Regulatory Board) on 21.03.2003. According to the representation furnished by the Company’s<br />
management, the Company filed a lawsuit against EPDK to object to such amounts claimed. The related court proceeding is in<br />
progress and the outcome of the court decision is being awaited. In the accompanying financial statements full provision was set<br />
aside for this claim.<br />
Movement of provision for expenses is as follows:<br />
Legal Provision for share<br />
claims of TRT<br />
Opening balance 399.681 4.350.855<br />
Additions 33.147 2.807.653<br />
Disposals (184.117) (44.092)<br />
Ending balance 248.711 7.114.416
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
15. OTHER LIABILITIES<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 89<br />
2007 2006<br />
Income tax and social security premiums payable 2.016.766 3.324.151<br />
Advances received 150.152 206.238<br />
Due to personnel 460.530 227.432<br />
Other 2.760.433 26.454<br />
5.387.881 3.784.275<br />
16. TAXATION ON INCOME<br />
In Turkey, the corporation tax rate on the profits for the calendar year 2007 is 20% (2006: 20%). Taxable profits are calculated by<br />
modifying accounting income for certain exclusions and allowances for tax purposes from the profit disclosed in the statutory<br />
income. No other taxes are paid unless profits are distributed.<br />
In Turkey no taxes are withheld from undistributed profits, profits added to share capital (bonus shares) and dividends paid to<br />
other resident companies. Other than those, profits distributed in dividend to individuals and non-resident companies are subject<br />
to withholding at the rate of 15%.<br />
In Turkey, the tax legislation does not permit a parent company and its affiliates to file a consolidated tax return. Therefore,<br />
provision for taxation charge, as reflected in the accompanying consolidated financial information, has been calculated on a<br />
separate-entity basis.<br />
The exemption period granted on profits from the sale of investment shares and immovable property by Corporation Tax Law<br />
transitory articles No. 28 and 29 expired on 31 December 2004. However this exemption was re-enacted by Law No. 5281 on<br />
permanent basis in effect from 1 January 2005. Accordingly, 75% of profits from the sale of investments and immovable’s held for<br />
a minimum of two years will be tax exempt provided the sale proceeds are collected within two years and 75% of the profit is<br />
added to share capital or is kept in a special reserve account for minimum five years.<br />
Companies were allowed to deduct 40% of the value of fixed assets (exceeding YTL 6.000) purchased after 24 April 2003<br />
(investment allowances) from their taxable profits as investment incentive. Such investment deduction is also not subject to income<br />
tax withholding. The investment deductions not used in any year because of insufficient profits may be carried to future periods.<br />
Investment allowances related to fixed assets purchased or to be purchased under Investment Incentive Certificates granted or<br />
applied for before 24 April 2003, may be based on up to 100% of the investment value in fixed assets, but these are subject to tax<br />
at 19.8%. Investment allowances have been cancelled as from 1 January 2006 but investment allowances earned prior to this date<br />
may be used up to 31 December 2008; any balance unused after this date may not be carried forward; if this option is exercised<br />
the balance of taxable profit after deduction of investment allowances is to be taxed at 30%.<br />
Tax losses that are reported in the Corporation Tax in Turkey return may be carried forward and deducted from the corporation tax<br />
base for a maximum of five consecutive years.<br />
The Turkish Tax Procedural Law does not include a procedure for formally agreeing tax assessments. Tax returns must be filed<br />
within three and half months of the year-end and may be subject to investigation, together with their underlying accounting<br />
records, by the tax authorities at any stage during the following five years.
90<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
Taxes included in the balance sheet are shown below:<br />
2007 2006<br />
Corporation and income taxes 7.838.673 7.190.144<br />
Prepaid taxes (-) (6.922.257) (4.571.322)<br />
916.416 2.618.822<br />
Deferred taxation<br />
The <strong>Group</strong> recognizes deferred tax assets and liabilities based upon temporary differences between its financial statements as<br />
reported for IAS purposes and its statutory tax financial statements. These differences usually result in the recognition of revenue<br />
and expenses in different reporting periods for IAS and tax purposes.<br />
The composition of cumulative temporary differences and the related deferred tax assets/liabilities in respect of items for which<br />
deferred tax has been provided at the balance sheet dates using the expected future tax rates were as follows:<br />
Cumulative<br />
temporary difference Deferred tax<br />
2007 2006 2007 2006<br />
Deferred tax asset<br />
Retirement pay provision 1.366.011 1.033.844 359.630 268.353<br />
Unearned interest on receivables 121.464 276.405 36.439 74.577<br />
Accrued expenses 10.188.660 4.516.342 2.862.444 1.333.968<br />
Investment incentives 348.034.196 343.492.425 51.258.430 49.911.573<br />
Doubt debt provision expenses 2.866.390 -- 859.917 --<br />
Other 1.611.535 836.614 324.237 176.746<br />
55.701.097 51.765.217<br />
Deferred tax liability<br />
Temporary differences arising<br />
from restating non-monetary assets 187.202.032 171.600.077 56.493.499 51.114.515<br />
Unearned interest on payables 313.797 402.131 94.141 117.102<br />
The movement of deferred tax liability is given below:<br />
56.587.640 51.231.617<br />
886.543 (533.600)<br />
2007 2006<br />
Opening balance (533.600) (1.415.610)<br />
Consolidated subsidiary as from 01 January 2007 165.079 --<br />
Deferred tax charge 1.255.064 882.010<br />
Ending balance 886.543 (533.600)
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
17. RESERVE FOR RETIREMENT PAY<br />
In accordance with existing social legislation in Turkey, the Company is required to make lump-sum termination indemnities to<br />
each eligible employee who has completed one year of service with the Company, and whose employment is terminated due to<br />
retirement or for reasons other than resignation or misconduct.<br />
The amount of indemnity is the equivalent of one month’s salary for each year of service subject to a ceiling which is YTL 2.030,19<br />
as of 31 December 2007 (2006: YTL 1.857,4) on historical cost basis).<br />
The Company has no other obligation for employee termination other than the retirement pay above.<br />
In the accompanying consolidated financial statements, the Company reflected a liability for termination benefits based upon<br />
factors derived using their experience of personnel terminating their services and being eligible to receive retirement pay and<br />
discounted to present value at the balance sheet date by using average market yield, expected inflation rates and an appropriate<br />
discount rate.<br />
The <strong>Group</strong> has no other obligation for employee termination other than the retirement pay above.<br />
Movement of reserve for retirement pay is given below:<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 91<br />
Opening balance 1.033.844 723.391<br />
Additions 571.583 380.835<br />
Disposals (239.416) (70.382)<br />
Ending balance 1.366.011 1.033.844<br />
Personnel cost:<br />
Gross salaries, wages and employers' share of social insurance 18.334.374 11.336.339<br />
Key personnel salaries and other short term benefits 1.554.529 690.843<br />
Number of personnel at year end: 537 437<br />
18. SHARE CAPITAL<br />
The authorized share capital of the Company comprised 190.000.000 shares of par value Ykr 1 each at 31.12.2007 and the issued<br />
and paid up share capital of the Company comprised 81.665.350 shares of par value Ykr 1 each at 31.12.2007 and 2006.<br />
As of 31.12.2007 and 2006 the shareholders of the Company and their percentage shareholdings were as follows:<br />
Shareholding % Shareholding amount<br />
2007 2006 2007 2006<br />
<strong>Zorlu</strong> Holding A.fi. 43% 43% 35.288.433 35.288.433<br />
Korteks Mensucat Sanayi ve Ticaret A.fi. 18% 18% 14.330.198 14.330.198<br />
Shares held by public 29% 29% 24.016.227 24.016.227<br />
Other shareholders 10% 10% 8.030.492 8.030.492<br />
Share capital 100% 100% 81.665.350 81.665.350<br />
Inflation adjustment of share capital 110.948.000 110.948.000<br />
192.613.350 192.613.350
92<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
19. COMMITMENTS AND CONTINGENCIES<br />
Contingent assets<br />
2007 2006<br />
Obtained from customers and supplier<br />
Letters of guarantee 95.081.756 71.549.713<br />
Checks and notes 6.251.627 25.967.117<br />
Contingent liabilities<br />
a. Letters of guarantee, checks and notes received<br />
<strong>Energy</strong> Market Regulatory Authority 23.535.000 8.460.600<br />
Other 13.345.102 9.983.073<br />
b. As of 31.12.2006, the <strong>Group</strong> mortgaged its property, plant and equipment to the extent of USD 60.000.000. Additionally <strong>Zorlu</strong><br />
Holding A.fi. and Korteks Mensucat Sanayi ve Ticaret A.fi. were guarantors for the loans obtained for long term investments by the<br />
<strong>Group</strong>.<br />
c. Courts cases started by the <strong>Group</strong> and pending as of 31.12.2007 amounted to YTL 1.865.894 and as of the same date court<br />
cases started and pending against the <strong>Group</strong> amounted YTL 404.062.<br />
d. The Company and <strong>Zorlu</strong> Holding A.fi. were guarantors for the bridge loan signed between Fortis Bank N.V./Fortis Banque S.A.<br />
and Standard Bank PLC amounting USD 160 million.<br />
20. SEGMENT INFORMATION<br />
The <strong>Group</strong> is currently organised into two major production divisions. The basis on which the group reports its primary and<br />
secondary segment information is as follows:<br />
Electricity, steam production and maintenance services (Electricity segment):<br />
Production and sales by <strong>Zorlu</strong> <strong>Enerji</strong> - Turkey<br />
Production and sales by Rosmiks LLC (under construction)- Russia<br />
Production and sales by Rotor (under construction) - Turkey<br />
Production and sales by <strong>Zorlu</strong> Hidroelektrik (under construction) - Turkey<br />
Sales by <strong>Zorlu</strong> Elektrik - Turkey<br />
Maintenance services by <strong>Zorlu</strong> O/M - Turkey<br />
Development and financial services to energy segment by <strong>Zorlu</strong> Endüstriyel - Turkey<br />
Financial services to energy segment by ICFS and Rosmiks International - USA and Holland<br />
Natural gas extraction and distribution services (Natural gas segment):<br />
Production and sales by Amity Oil - Turkey<br />
Production and sales by <strong>Zorlu</strong> Petrogas - Turkey<br />
Sales by Trakya Do¤algaz - Turkey<br />
Sales by Gazdafl - Turkey<br />
Sales by <strong>Zorlu</strong> Do¤algaz - Turkey
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
A. Business segments 2007 2006<br />
Net sales:<br />
Electricity segment 363.955.576 296.535.423<br />
Natural gas segment 105.818.349 95.310.259<br />
469.773.925 391.845.682<br />
Segment assets:<br />
Electricity segment 1.029.687.083 758.362.247<br />
Natural gas segment 100.089.772 81.273.917<br />
1.129.776.855 839.636.164<br />
Capital expenditure on property, plant and equipment<br />
Electricity segment 196.115.473 196.770.998<br />
Natural gas segment 59.944.647 40.298.462<br />
256.060.120 237.069.460<br />
Depreciation expense<br />
Electricity segment 32.989.092 28.965.331<br />
Natural gas segment 2.558.534 2.845.206<br />
35.547.626 31.810.537<br />
B. Geographical segments 2007 2006<br />
Segment assets<br />
Turkey 952.296.394 839.636.164<br />
Asia 176.840.583 --<br />
Rest of the world 639.878 --<br />
1.129.776.855 839.636.164<br />
Capital expenditure on property, plant and equipment<br />
Turkey 100.703.723 237.069.460<br />
Asia (construction in progress) 155.356.397 --<br />
More than 99% (2006: more than 99%) of sales are generated from sales in Turkey.<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 93<br />
256.060.120 237.069.460
94<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
21. OTHER INCOME (EXPENSE), net<br />
2007 2006<br />
Profit on sale of property, plant and equipment 27.816 153.481<br />
Disposal of unnecessary provision for TRT (note 14) -- 1.109.477<br />
Income from insurance claims 1.976.317 342.334<br />
Other 1.817.854 612.334<br />
Other income 3.821.987 2.217.626<br />
Loss on sale of property, plant and equipment (40.599) (313.506)<br />
Contribution to TRT (note 14) (2.807.653) --<br />
Drilling expenses (18.057.232) (6.405.603)<br />
Other (2.216.713) (146.937)<br />
Other expense (23.122.197) (6.866.046)<br />
22. FINANCING INCOME (EXPENSE), net<br />
(19.300.210) (4.648.420)<br />
Foreign exchange gain 84.807.529 51.820.538<br />
Interest income 2.457.233 2.234.855<br />
Unearned interest on payables 590.202 749.075<br />
Financing income 87.854.964 54.804.468<br />
Foreign exchange loss (24.504.496) (59.699.820)<br />
Interest expense (38.280.235) (18.748.320)<br />
Bank commission expenses (133.346) (26.772)<br />
Unearned interest on receivables (523.585) (566.040)<br />
Other financing expenses (1.523.247) (679.009)<br />
Financing expense (64.964.909) (79.719.961)<br />
22.890.055 (24.915.493)<br />
23. RELATED PARTY DISCLOSURE<br />
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the<br />
other party in making the financial and operating decisions. For the purpose of these financial statements shareholders are<br />
referred to as related parties. Related parties also include individuals that are principle owners, management and members of the<br />
<strong>Group</strong>'s Board of Directors and their families. In the course of conducting its business, the <strong>Group</strong> conducted various business<br />
transactions with related parties on commercial terms.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
a) As of 31.12.2007 and 2006, the most significant balances with related parties are as follows:<br />
Trade Trade Due from Due to<br />
receivables payables related parties related parties<br />
2007<br />
<strong>Zorlu</strong> Holding A.fi. -- 625.493 -- 285.475.534<br />
<strong>Zorlu</strong>teks Tekstil Ticaret ve Sanayi A.fi. 1.394.733 -- -- --<br />
Korteks Mensucat Sanayi ve Ticaret A.fi. 3.403.035 -- -- --<br />
Other related parties 596.982 471.098 -- 207.990<br />
5.394.750 1.096.591 -- 285.683.524<br />
2006<br />
<strong>Zorlu</strong> Holding A.fi. -- -- -- 68.488.033<br />
<strong>Zorlu</strong> Linen Dokuma Emprime Konfeksiyon A.fi. 1.983.311 -- -- 3.408.332<br />
Korteks Mensucat Sanayi ve Ticaret A.fi. 5.438.361 -- -- --<br />
Other related parties 81.986 43.566 -- --<br />
b) Transactions carried out with related parties are as follows:<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 95<br />
7.503.658 43.566 -- 71.896.365<br />
Operating Financing Financing<br />
Sales expenses income expense<br />
2007<br />
<strong>Zorlu</strong> Holding A.fi. -- 4.654.551 30.669.292 14.728.939<br />
Korteks Mensucat Sanayi ve Ticaret A.fi. 41.001.804 386.984 -- --<br />
<strong>Zorlu</strong>teks Tekstil Ticaret ve Sanayi A.fi. 21.767.669 4.183 29.032 --<br />
Other related parties 400.263 251.148 54.690 273.135<br />
63.169.736 5.296.866 30.753.014 15.002.074<br />
Operating Financing Financing<br />
Sales expenses income expense<br />
2006<br />
<strong>Zorlu</strong> Holding A.fi. -- 4.579.989 7.337.374 4.024.055<br />
Korteks Mensucat Sanayi ve Ticaret A.fi. 38.190.584 109.607 2.115.267 684.886<br />
<strong>Zorlu</strong> Linen Dokuma Emprime Konfeksiyon A.fi. 17.671.637 906 31.666 --<br />
Other related parties 792.493 -- -- --<br />
56.654.714 4.690.502 9.484.307 4.708.941
96<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
24. FINANCIAL INSTRUMENTS<br />
Financial risk management objectives and policies<br />
The <strong>Group</strong>’s principal financial instruments comprise bank loans, overdrafts, cash and short-term deposits. The main purpose of<br />
these financial instruments is to raise funds for the <strong>Group</strong>’s operations. The <strong>Group</strong> has various other financial instruments such as<br />
trade debtors and trade creditors, which arise directly from its operations.<br />
The main risks arising from the <strong>Group</strong>’s financial instruments are liquidity risk, foreign currency risk and credit risk. The<br />
management reviews and agrees policies for managing each of these risks and they are summarized below.<br />
Interest rates risk<br />
The <strong>Group</strong>’s exposure to market risk for changes in interest rates relates primarily to the <strong>Group</strong>’s long-term debt obligations. The<br />
<strong>Group</strong>’s policy is to manage its interest cost using a mix of fixed and variable rate debt.<br />
Liquidity risk<br />
The <strong>Group</strong> raises funds by liquidating its short term financial instruments, e.g. by collecting receivables and disposing of trading<br />
investments. The <strong>Group</strong>’s proceeds from these instruments generally approximate their fair values.<br />
Credit risk<br />
The <strong>Group</strong> trades primarily with recognized, creditworthy third parties. It is the <strong>Group</strong> policy that all customers who wish to trade<br />
on credit terms are subject to credit screening procedures. In addition, receivable balances are monitored on an ongoing basis<br />
with the result that the <strong>Group</strong>’s exposure to bad debts is not significant.<br />
With respect to credit risk arising from the other financial assets of the <strong>Group</strong>, comprising cash and cash equivalents, the <strong>Group</strong>’s<br />
exposure to credit risk arises from default of the other party, with a maximum exposure equal to the carrying amount of these<br />
instruments. There are no significant concentrations of credit risk within the <strong>Group</strong>.<br />
Foreign currency risk<br />
The <strong>Group</strong>’s operations are conducted locally. During the course of its business, the <strong>Group</strong> is exposed to transactional and<br />
contractual foreign exchange risks resulting from currency exposures with respect to USD and EURO. The most significant foreign<br />
currency risk exposure arises from the foreign currency borrowings that were obtained to finance the investments undertaken. The<br />
<strong>Group</strong> tries to manage such risk by strictly monitoring the domestic and international money markets and taking precautionary<br />
position in the event of high currency fluctuations.
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
YTL<br />
USD EUR RUBLE ('000) GBP equivalent<br />
2007<br />
Cash and cash equivalents 14.904.377 2.492.856 44.178 145 23.732.822<br />
Trade receivables 1.065.251 84.137 -- -- 1.384.589<br />
Other receivables 80.000 10.065 17.604 -- 951.209<br />
Advances given 50.583.928 75.533.717 -- -- 188.092.864<br />
Total foreign currency assets 66.633.556 78.120.775 61.782 145 214.161.484<br />
Current borrowings 206.583.008 4.297.650 -- -- 247.957.071<br />
Non-current borrowings 88.476.241 20.005.392 -- -- 137.261.499<br />
Current finance lease liabilities -- 20.299 -- -- 34.715<br />
Non-current finance lease liabilities -- 20.802 -- -- 35.576<br />
Trade payables 3.168.117 403.226 495.135 26.146 28.089.458<br />
Due to related parties 245.106.494 -- -- -- 285.475.534<br />
Other liabilities 96.000 -- -- -- 111.811<br />
Total foreign currency liabilities 543.429.860 24.747.369 495.135 26.146 698.965.664<br />
Net foreign currency position (476.796.304) 53.373.406 (433.353) (26.001) (484.804.180)<br />
2006<br />
Cash and cash equivalents 16.031 70.883 -- 1 153.776<br />
Trade receivables 955.004 45.484 -- -- 1.426.567<br />
Due from related parties 4.094.608 -- -- -- 5.755.381<br />
Other receivables 686.550 5.363 -- -- 974.944<br />
Advances given 350.000 -- -- -- 491.960<br />
Construction contracts work in progress 81.810.000 11.630.749 -- -- 136.526.469<br />
Total foreign currency assets 87.912.193 11.752.479 -- 1 145.329.097<br />
Current borrowings 105.871.810 4.466.233 -- -- 157.082.647<br />
Non-current borrowings 109.947.951 24.131.884 -- -- 199.223.024<br />
Current finance lease liabilities -- 17.669 -- -- 32.716<br />
Non-current finance lease liabilities -- 41.102 -- -- 76.101<br />
Trade payables 5.206.652 39.655 -- 49.935 7.529.557<br />
Due to related parties 11.575.191 -- -- -- 16.270.088<br />
Other liabilities -- 2.554 -- -- 4.729<br />
Total foreign currency liabilities 232.601.604 28.699.097 -- 49.935 380.218.862<br />
Net foreign currency position (144.689.411) (16.946.618) -- (49.934) (234.889.765)<br />
25. POST BALANCE SHEET EVENTS<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 97<br />
a) A “Contract for Purchase/Sale of Carbon Emissions” was signed on 22 January 2008 between the Company and EcoSecurities<br />
<strong>Group</strong> PLC (Ireland) whereby the carbon emissions generated by the wind field power plant to be built in Osmaniye Region with<br />
capacity of 135MW under the licence owned by the subsidiary “Rotor” will be purchased by Eco Securities <strong>Group</strong> PLC until end of<br />
year 2012.
98<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Notes to Consolidated Financial Statements for the Year Ended 31 December 2007<br />
(All amounts in New Turkish Lira ("YTL") unless indicated otherwise.)<br />
b) The Company’s subsidiary Rotor has applied to obtain a license from the <strong>Energy</strong> Market Regulatory Board (“EMRA”) for a<br />
licence to set up and operate a 50 MW and a 60 MW wind power energy plant respectively in two regions of Osmaniye for 25<br />
years. With its letter dated 24 January 2008 EMRA required Rotor to increase its share capital from YTL 34,5 million to YTL 65,4<br />
million in order to grant the requested licence. The notification that above mentioned increase in the share capital occurred was<br />
published in Trade Registry Gazette dated 03 April 2008.<br />
c) The Company’s subsidiary Rotor has applied to and obtained an investment incentive certificate dated 23 January 2008,<br />
numbered 88998 from Turkish Treasury related to the construction of the 135 MW electricity production plant operated by wind<br />
power.<br />
d) With the agreement dated 21 February 2008 the Company has authorised Standard Bank PLC to organize a 5 year USD 500<br />
million syndication loan for financing of Tereshkovo ve Kojuhovo energy power plant projects in Russia.<br />
e) The General Directorate of Petroleum Affairs (GDPA) has granted licences to the subsidiary <strong>Zorlu</strong> Petrogas for a period of four<br />
years (2008-2012) or petroleum exploration in region numbered XVII in ‹zmir and region numbered XVIII in Mu¤la.<br />
f) A licence for petroleum exploration by the Company’s subsidiary Amity Oil in the region numbered XIV in Adana has been<br />
granted by GDPA for four years (2008-2012).<br />
g) The Company’s subsidiary Ashdod <strong>Energy</strong> Limited signed a contract with Bank Leumi (Israel) on 25 March 2008 for financing<br />
its 50 MW electricity power plant construction amounting USD 60 million in Ashdad, Israel with repayment of the loan depending<br />
upon the completion date of the construction.<br />
h) On 05 March 2008 the <strong>Group</strong> has won the tender for the operating license of Tercan, Kuzgun, Mercan, ‹kizdere, Ç›ld›r, Beyköy<br />
and Ataköy Hydroelectric power plants and the thermal power plant in Denizli for a period of 30 years and for acquisition of the<br />
ownership of natural gas power plant located in Van all owned by Ankara Do¤al Elektrik Üretim ve Ticaret A.fi. for USD 510 million.<br />
The tender was organised by the Turkish Privatisation Administration.<br />
With this bidding the <strong>Group</strong> acquired the ownership of the natural gas power plant located in Van, obtained a 30 year license to<br />
operate the hydroelectric power plants located in Tokat, Eskiflehir, Kars, Rize, Erzurum, Erzincan and Tunceli and the thermal<br />
power plant located in Denizli.<br />
The final takeover of above plants awaits the decision of the Privatisation Administration and of the competition board. Details of<br />
the plants are as follows :<br />
Region Type Power<br />
Edremit-Van (Engil Natural gas power plant) Natural gas 15,0 MW<br />
Sarayköy (Denizli Thermal power plant) Thermal 15,0 MW<br />
Almus-Tokat (Ataköy Hydroelectric power plant) Hydroelectric 5,5 MW<br />
Sar›cakaya-Eskiflehir (Beyköy Hydroelectric power plant) Hydroelectric 16,8 MW<br />
Arpaçay-Kars (Ç›ld›r Hydroelectric power plant) Hydroelectric 15,4 MW<br />
‹kizdere-Rize (‹kizdere Hydroelectric power plant) Hydroelectric 18,6 MW<br />
Il›ca-Erzurum (Kuzgun Hydroelectric power plant) Hydroelectric 20,9 MW<br />
Ovac›k-Tunceli (Mercan Hydroelectric power plant) Hydroelectric 19,2 MW<br />
Tercan-Erzincan (Tercan Hydroelectric power plant) Hydroelectric 15,0 MW
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Investor Information<br />
Ordinary General Meeting<br />
In line with a resolution passed at a meeting of the Board of Directors of <strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi., the Company’s ordinary<br />
general meeting for 2007 will be held on 22 May 2008 at 13:30 am at the address of Bursa Organize Sanayi Bölgesi Pembe Cad.<br />
No: 13 - Bursa.<br />
Independent Auditor<br />
Engin Ba¤›ms›z Denetim ve Serbest Muhasebecilik Mali Müflavirlik A.fi.<br />
Member of Grant Thornton International<br />
Y›ld›z Posta Cad.<br />
Dedeman ‹flhan› No: 48, Kat: 5<br />
34349 Gayrettepe-‹stanbul<br />
Financial Information and Company News<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi. annual reports, financial statements, auditor’s reports, explanations on special events and other<br />
information about the Company may be obtained from the Company’s website at http://zorluenerji.com.tr/ as well as from the <strong>Zorlu</strong><br />
<strong>Group</strong> Investor Relations Department by email or telephone.<br />
Investor Relations<br />
Figen Çevik<br />
Corporate Finance and Investor Relations Director<br />
<strong>Zorlu</strong> Plaza 34310 Avc›lar ‹stanbul Turkey<br />
Phone: (+90 212) 286 03 20<br />
Email: yatirimci@zoren.com.tr<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007 99<br />
Share Information<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.’s shares have been trading on the ‹stanbul Stock Exchange National Market under the symbol<br />
ZOREN since 2000.<br />
As of 31 December 2007, <strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.’s market value was on the order of USD 347 million. The trading volume<br />
of the Company’s shares on ISE was worth about USD 3 million in 2007.
100<br />
<strong>Zorlu</strong> <strong>Energy</strong> Annual Report 2007<br />
<strong>Zorlu</strong> <strong>Enerji</strong> Elektrik Üretim A.fi.<br />
Directory<br />
Bursa (Head Office) : Organize Sanayi Bölgesi, Pembe Cadde, No: 13 16159 Bursa, Turkey<br />
Tel: +90 224 242 5616<br />
Fax: +90 224 242 5611<br />
‹stanbul : <strong>Zorlu</strong> Plaza 34310 Avc›lar - ‹stanbul, Turkey<br />
Tel: +90 212 456 2300<br />
Fax: +90 212 422 0099<br />
K›rklareli : Büyükkar›flt›ran Kasabas›, Teyyare Meydan› Mevkii 39760 Lüleburgaz - K›rklareli, Turkey<br />
Tel: +90 288 436 2478<br />
Fax:+90 288 436 2487<br />
Ankara : ASO 1.Organize Sanayi Bölgesi, Büyük Selçuklu Caddesi No: 1 06935 Sincan - Ankara, Turkey<br />
Tel: +90 312 267 1929<br />
Fax: +90 312 267 1939<br />
Kayseri : Organize Sanayi Bölgesi, 6. Cadde, No: 21 38070 Melikgazi - Kayseri, Turkey<br />
Tel: +90 352 321 2420<br />
Fax: +90 352 321 2918<br />
Yalova : ‹pek Ka¤›t Fabrikas›, <strong>Zorlu</strong> <strong>Enerji</strong> Tesisleri, Tokmakköyü 77700 Alt›nova - Yalova, Turkey<br />
Tel: +90 226 462 8900<br />
Fax: +90 226 462 8899
www.zorluenerji.com.tr