2010 ANNUAL REPORT

Turkey’s leading

energy company

Our founder Metin Kazancı who accept diligence, honesty, professionalism, the value of acting as a group, and patriotism as the sine qua non of everything he carried out in his business life leads our Group, which is now the pioneer of energy sector in Turkey. Mr Kazancı, who describes making investments and being successful as a reason to be happy, is one of the outstanding businessmen in Turkey.

Contents 1 2 4 6 8 12 14 16 22 23 28 36 38 47 48

CORPORATE PROFILE FINANCIAL AND OPERATIONAL INDICATORS THE KAZANCI GROUP AKSA ENERGY PROJECTS AND LICENSES SUSTAINABLE GROWTH STRATEGIES & FOCUS CHAIRMAN’S MESSAGE CEO’S ASSESSMENT OF 2010 OUR PRODUCTION STRENGTH AKSA ENERGY BOARD OF DIRECTORS AKSA ENERGY MANAGEMENT TEAM 2010 ACTIVITIES ASSESSMENT HUMAN RESOURCES AT AKSA ENERGY CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT AUDITOR’S REPORT SUMMARY CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 TOGETHER WITH AUDITOR’S REPORT

Aksa Energy is a member of

AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE PROFILE

Aksa Energy = Turkey’s leading energy company

Founded in 1997, Aksa Energy is Turkey’s leading independent power producer with 1,542 MW of installed capacity as of 2010 year end.

Supplying high quality, continuous electricity both to national grid and to its own customers, Aksa Energy owns 11 thermal and wind power plants located in different parts of Turkey. The company’s existing production capacity accounts for 10.6% of all of the electricity generated by independent producers in the country. Aksa Energy’s competitive edge and corporate strengths are rooted in its strong technical competencies and expert human resources. Aksa Energy’s integrated approach to the establishment and operation of power plants is what gives her an unrivalled position in the sector.

Aksa Energy attaches great importance to activities in the area of renewable energy. Acting in line with its vision of producing energy from locally-available, renewable sources, the company is currently working on 20 renewable energy (hydroelectric and wind) power plant projects in different parts of Turkey under the licenses that it holds in its portfolio. Shaping its strategy around the main theme of maintaining and advancing its position as the leading privately-owned company engaged in the production and sale of energy in Turkey, Aksa Energy explores and takes advantage of energy business opportunities not just in its national market but also in the Turkish Republic of Northern Cyprus and in neighboring countries as it continues its efforts to become a regional energy supplier.

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AKSA ENERGY 2010 ANNUAL REPORT

Financial and operational indicators

Making use of all appropriate international financial instruments, Aksa Energy continues to pursue sound growth in the energy sector with further investments.

KEY FINANCIAL INDICATORS 2007

2008

2009

2010

218

434

881

912

Consolidated (TL million) Sales income (net) Net profit

25

43

146

69

EBITDA

45

101

231

188

Total assets

569

1,339

1,706

2,360

Shareholders' equity

182

398

558

919

EBITDA margin (%)

20%

23%

26%

21%

Total investments

172

538

360

315

A subsidiary of Kazancı Holding, Aksa Energy’s shares are traded in the ISE National Market under the AKSEN symbol.

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AKSA ENERGY 2010 ANNUAL REPORT

Aksa Energy’s goal is to increase its installed capacity to at least 4,000 MW by 2014.

Total investments (TL million)

360

315

538

3,009

1,542

4,227

Electricity generation (gWh)

07

08

09

10

Over the last four years, Aksa Energy has increased its installed capacity by 385%. Investments completed since 2007 have brought the company’s installed capacity to 1,542 MW.

385% increase

07

172

1,136

846

318

690

1,342

Total installed capacity (MW)

08

09

10

Aksa Energy’s yearly electricity production continues to rise in parallel with the growth achieved in its installed capacity. In 2010 it reached 4,227 gWh.

4,227

gWh of electricity

07

08

09

10

Under its strategic investment plan during the 2007-2010 period, Aksa Energy undertook investments totaling more than TL 1.34 billion in value.

TL 1.3

billion in investments

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AKSA ENERGY 2010 ANNUAL REPORT

The Kazancı Group

Engaged in business for more than half a century, Kazancı Holding’s leading position in the energy sector today is rooted in generating sets production in the early 1980s that was followed up with power plant investments and electrical power generation in the mid-1990s. Undertaking its first venture into natural gas distribution at the beginning of the 2000s, the company moved into electricity distribution business in 2010. Six decades of progress • Aksa Power Generation: Turkey’s leading generating sets manufacturer and one of the world’s top six. • Aksa Energy: Turkey’s biggest independent power producer. • Aksa Natural Gas: Turkey’s biggest privately-owned natural gas distributor, with 620,000 customers in 20 of the country’s 60 licensed territories. • Aksa Electricity: Serving about 3 million subscribers in four distribution regions. When the liberalization and privatization of Turkey’s energy sector got under way in 1997, the Kazancı Group set up Aksa Energy to engage in energy production and sales. The new company’s first investment was the Bursa Biogas Power Plant.

Having acquired its first natural gas distribution license through Aksa Natural Gas in 2004, the group formed Turkey’s first privatelyowned natural gas distributor in 2006. By the end of 2007, the new company had become Turkey’s biggest natural gas distributor and the holder of 20 natural gas distribution licenses.

Aksa Natural Gas Distribution Regions Çatalca-Hadımköy

Zonguldak* Samsun***

Düzce Bolu Bursa**

Çanakkale

Rize Trabzon

Gümüşhane Bayburt

Tokat

Bilecik

Balıkesir****

Manisa

Ordu Giresun

Amasya

Sivas

Afyon Malatya

Elazığ Van

Adana

Osmaniye

Şanlıurfa

Mersin Hatay

* Ereğli ** Gemlik, Karacabey, Mustafa Kemal Paşa *** Çarşamba, Terme **** Bandırma, Susurluk

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Aksa Natural Gas Distribution Regions

AKSA ENERGY 2010 ANNUAL REPORT

Energy is our expertise A Turkish holding company whose expertise is energy Kazancı Holding takes a long-term strategic focus as it pursues growth in the energy sector. Having completed its horizontal and vertical integration through its subsidiaries’ investments in electrical power production, distribution and sale and in natural gas distribution, sale, and wholesale trade, Kazancı Holding has a presence in all aspects of the energy value creation chain that allows it to take advantage of the sector’s growth dynamics. Having become Turkey’s biggest independent power producer in 2008, the Kazancı Group submitted the winning bids and acquired the distribution rights in four of the regional electricity distribution privatizations (Çoruh, Fırat, Van Gölü, and Trakya regions) conducted in Turkey in 2009 and 2010. The take over of Çoruh and Fırat distribution companies was completed in 2010.

The process of taking over Van Gölü and Trakya distribution companies is continuing as of this writing. Although energy is the group’s core business activity, Kazancı Holding also has subsidiaries in agriculture and tourism that provide 2% of its total turnover.

Aksa Electricity Distribution Regions Kırklareli Tekirdağ Edirne

Rize Giresun

Artvin

Trabzon

Gümüşhane

Tunceli Malatya

Elazığ

Bingöl

Muş Bitlis Van Hakkâri

Trakya Fırat Van Gölü Çoruh

For detailed information about Kazancı Holding, please visit www.kazanciholding.com.tr

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AKSA ENERGY 2010 ANNUAL REPORT

AKsA eneRGY PRoJeCTs And LICenses

PAZARKÖY HPP

26.4 MW

TOR HPP

120 MW

BALIKESİR ŞAMLI WEP Capacity Extension

: 90 MW : 24 MW

EMET HPP

21 MW

ÇORUM İNCESU HPP Capacity: 15.6 MW

MANİSA KARAKURT WEP Capacity: 10.8 MW

MANİSA NGCC Capacity: 115 MW EFRENK HPP

20 MW Natural gas combined cycle plant

ANTALYA NGCC Capacity Extension

Fuel oil power plant Wind power plant

Wind power plant license

Hydroelectric power plant

Hydroelectric power plant license

Operating power plants Licensed and granted licensed power plants

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: 850 MW : 300 MW

NORTH CYPRUS FPP Capacity Extension

: 89 MW : 31 MW

AKSA ENERGY 2010 ANNUAL REPORT

SAMSUN NGCC Capacity : 130 MW Conversion: Natural Gas ŞAHİNKAYA HPP

85 MW KOZBÜKÜ HPP

62 MW

KORU HPP

15 MW

KULETAŞI HPP AVLUCA HPP 30 MW

VAN NGCC

40 MW

Capacity: 115 MW OLUR HPP

60 MW NARLI HPP

89 MW

TATLAR HPP

59 MW İNDERE HPP

SANSA HPP

85 MW

AYŞEHATUN HPP KAZAN HPP

32 MW

20 MW

30 MW

KOR HPP

26 MW YAMANLI HPP

24 MW

DİPNİ HPP

BELEN WEP

83 MW

30 MW İDİL FPP MARDİN FPP Capacity Extension

HATAY SEBENOBA WEP

: 33 MW : 30 MW

Capacity: 24 MW

HAKKARİ FPP Capacity: 24 MW

Capacity: 30 MW

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AKSA ENERGY 2010 ANNUAL REPORT

Sustainable Growth Strategies & Focus

1,542 MW of installed production capacity

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AKSA ENERGY 2010 ANNUAL REPORT

Aksa Energy’s sustainable growth roadmap is informed by six fundamental strategies that are designed to serve the company’s long-term goal of pursuing healthy growth and further strengthening its market leadership. The Turkish energy industry is an extremely competitive one. Aksa Energy therefore makes the best possible use of every advantage arising from its position as a company whose core business activity is energy while ensuring, through its vision and reputation as a pioneer, that market opportunities are correctly perceived and are translated into increasingly greater performance over the years.

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AKSA ENERGY 2010 ANNUAL REPORT

OUR SUSTAINABLE GROWTH STRATEGY AND SOURCES OF POWER

Our goals Our successes

Our short-term objectives

Our long-term objectives

A simple cycle based young portfolio

Capacity and efficiency increases through combined-cycle conversions

Undertake and operate hydroelectric power plants

Licenses on renewables

Renewables

Privatizations in Turkey and business opportunities in neighboring countries

Capacity utilization

Peak shaving

Increase capacity utilization by means of sales to eligible customers and distribution companies through bilateral agreements

Baseload with long-term contracts

Wind & Hydro

Increase renewables

Fuel types

Petroleum and natural gas-based fuels

Conversion from petroleum based to natural gas

Use of local fuel sources such as lignite

Local suppliers

Direct access to producers (neighboring countries, LNG)

Long-term agreements with producers

Sales to BSM (Balancing & Settlement Market)

Eligible customers

Bilateral agreements & eligible customers

Captive customers in KIB-TEK & regional sales

Customers of affiliate electricity distribution companies

Exports

Exports to neighboring countries

Develop activities in international markets

Capacity bailout and projects

Fuel procurement

Customer reach

Geographical expansion

Turkey Turkish Republic of Northern Cyprus

Market realities and projections support our strategies while our corporate assets give us the strength that we need to bring those strategies to life. • Huge development potential in the Turkish economy Expected to grow by an average of 4.1% per year until 2014, there is a huge potential for energy sector development and investment in the Turkish economy.

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electricity. Focusing its attention entirely on energy, Aksa Energy’s existing strong competencies as well as the synergies arising from the horizontal and vertical integration which it has achieved with other Kazancı Group companies will enable it to create increasingly more added value as the liberalization of Turkey’s electrical power sector proceeds.

• The dynamics of the Turkish electrical power market The demand for electricity in Turkey rose by an average of 6% per year in 2001-2009 in parallel with the country’s economic development, industrialization, urbanization, and population growth. Turkey’s currently projected annual growth rate of 7% between now and 2018 is expected to drive a rise in consumption that will outpace that in any other European country.

• Newly developed projects Aksa Energy has new projects totaling more than 2,500 MW in development while it is currently undertaking expansion projects amounting to about 500 MW. Such projects underlie the company’s plan to have more than 4,000 MW of installed capacity by the end of 2014.

• Turkey’s leading independent power producer Aksa Energy’s installed capacity amounts to 1,542 MW. In 2010 the company generated about 4.2 billion kWh of

• A strong power plant portfolio Aksa Energy makes use of natural gas, fuel-oil combinedcycle thermal, wind, and hydroelectric resources to generate

On the way to 2014

The foundations of our strategies

AKSA ENERGY 2010 ANNUAL REPORT

Our strategic roadmap

Installed capacity is planned to exceed 4,000 MW in 2014. Aksa Energy intends to maintain its leading position in the independent power producers market through investments in new, efficient, and renewable energy power plants. As it undergoes the process of liberalization, Turkey’s energy market offers more and more opportunities to sell energy directly to an increasing number of eligible customers. Aksa Energy will use the benefits of its horizontal and vertical integration with other Kazancı Group energy companies available to all of the customers in its portfolio.

Aksa Energy seeks to bring together as many types of fuel as possible in order to formulate an energy resource mix which is the most economical and efficient resource usage.

By developing long-term and efficient collaborations with fuel suppliers, Aksa Energy seeks to lock in the lowest possible production costs while guaranteeing its fuel supply.

By entering into long-term sale agreements and expanding its customer portfolio, Aksa Energy seeks to guarantee its future sales and revenue streams.

Aksa Energy keeps a close watch on opportunities to export electricity to neighboring countries where there is a strong demand for energy while also undertaking power plant investments in them.

electricity. The company’s goal is to achieve the most economical, efficient, and sustainable fuel mix possible. • Strong, deep-rooted experience in the sector thanks to senior management and technical teams which have been working for the company for many years The members of Aksa Energy’s management team have an average of a decade and a half of experience working in the sector and they have been working for the company for many years. • Operational excellence Aksa Energy’s strong and experienced project development and management teams give it an important cost advantage. The company has one of the lowest construction, maintenance, and operational cost basis compared to any player in the industry.

• Foreseeable demand in electricity sales An ability to correctly anticipate demand in electricity sales gives Aksa Energy an important competitive advantage. Production activities in the Turkish Republic of Northern Cyprus, a strong presence throughout Turkey, the Kazancı Group’s electrical power distribution activities, and a solid customer portfolio are the main factors that contribute towards this advantage. • Group synergies Kazancı Holding has been active in the energy sector since the 1950s and it remains the leading group of energy companies in Turkey today. The group’s core business activity is energy and its members are active in the electricity and natural gas markets. The vertical integration which has been created throughout the group engenders important synergies in the areas of fuel supply, marketing, and sales.

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AKSA ENERGY 2010 ANNUAL REPORT

Chairman’s message

The energy sector in Turkey The energy business is foremost among our country’s most dynamic and rapidly-growing sectors. Turkey offers many longterm and sustainable growth opportunities for the energy sector by virtue both of its geopolitical position and of its vigorous domestic market. Turkey occupies a key position in the natural bridge connecting the Middle East, the Caucasus region, and Europe to each other. Situated at the heart of one of the world’s most strategic regions from the standpoint of energy, our country plays a role in all major international initiatives: indeed nearly every strategic project concerning the energy transfer among those regions must necessarily involve Turkey. Over the last two decades, the electricity production sector in which we are engaged has been undergoing a vitally important process of transformation and liberalization. Our sector’s dynamic structure and strong potential attract the interest of numerous domestic and international investors while every privatization that is carried out becomes a focal point of great attention. The stabilization of the country’s macroeconomic development at the beginning of the 2000s triggered a demand for electricity in Turkey and it made the need for new capacity a matter of urgent concern. Demand projections clearly revealed the huge development potential that existed in Turkey’s electrical power production sector. We expect that this sector will successfully complete the liberalization process, thereby acquiring a structure and achieving a correct balance among the interests of the state, of the private sector investor, and of the consumer that will be capable of serving as a model for the whole world.

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Leadership is a position that demands one to balance one’s strengths and responsibilities. For Aksa Energy, the leader of the Turkish electricity production sector, 2010 was a year of continued stability and growth. Bringing together the many decades of sectoral experience, knowledge, and expertise, the brand value, and the solid management practices of the Kazancı Group of which it is a member, our company further improved upon its financial and operational performance while once again achieving all of its investment targets in full and on time. Our company’s level of expertise makes it a model representative of our country’s energy sector and it has taken all steps to maintain this reputation since the day it was founded. Aksa Energy continues to create value for the national economy while also fulfilling its responsibilities towards its stakeholders. We never forget that leadership is a matter not just of strength but of responsibility as well. Carrying out our activities with our transparent structure and commitment to ethical values, we protect our corporate values while taking them into account as fundamental concerns in every decision that we make. So long as we are able to keep our strengths and our responsibilities in balance we will remain successful on the path of sustainable growth and continue to take the Aksa name to even greater heights. Our attributes and forms of corporate behavior position Aksa Energy uniquely among competitors. Our enduring and prestigious name, our production strengths, our superior quality standards, our sense of social and environmental responsibility, our commitment to ethical business principles, and our ability to continuously create economic and social value and to do so within the framework of a sustainable strategy are Aksa Energy’s most essential attributes.

AKSA ENERGY 2010 ANNUAL REPORT

We are determined to take the efforts which we make in 2010 to develop our installed capacity to even greater levels in the years ahead; and, we have all of the resources which are necessary to accomplish this.

At the same time however, the overall framework of Aksa Energy’s business principles demands that nothing take precedence over the importance which is given to the consumer. This rule, which we keep in view in all of our processes, makes our company stronger and gives us a critically important vision that transcends that of being just a commercial concern. Being aware that what it does sets the trends for the whole sector, our company takes pains to abide by production processes which entail high levels of both labor as well as environmental health and safety. At the same time, our company is also quite sensitive in its approach to matters involving the diversification of renewable energy sources. To this end, Aksa Energy is getting ready to launch many new projects on which it is presently working and to contribute towards Turkey’s transition to a lowcarbon economy. As Turkey’s leading energy company, Aksa Energy is focused on sustainable growth and development. Rising from the strong roots which Kazancı Holding has put out in the course of its half a century of existence, Aksa Energy is an expression of continuous and increasing value for all of its stakeholders. Our group’s unmatched knowledge and experience and the corporate and technical competencies which it has built up over many years in the energy business give Aksa Energy a strong competitive edge and are an indication of our most precious intangible asset. We are a company that designs even its near-term strategies and action plans with a long-term point of view. We will continue to move forward as laid out in our fiveyear business plan. We are committed to reflecting the potential that exists in Turkey’s hinterland as well as in its national market in our performance and we are taking key steps towards achieving this. The initial public offering (IPO) which we undertook in the early part of 2010 not only represents another important milestone in Aksa Energy’s corporate history but also gives us a way to achieve a much broader shareholder structure.

With that IPO, the issues of corporate governance, accountability, and transparency have become much more crucial than ever. We also regard access to a broader group of shareholders and investors as a new and vital dimension from the standpoint of our sustainable growth. Focusing on responding to the expectations of its audience of national and international investors, Aksa Energy will continuously raise the bar and set the standards in its ongoing efforts to make its own performance even stronger while striving to be the best in its own sector. Our expectations for the future are positive. Aksa Energy is a company that is focused on and committed to maintaining its position as the market’s strongest leader. Competent human resources and a name that is synonymous with trust among customers provide us with the essential underpinning for our confident and consistent growth in the Turkish electricity production sector as it undergoes its process of transformation and liberalization. We are determined to take the efforts which we make in 2010 to develop our installed capacity to even greater levels in the years ahead; and, we have all of the resources which are necessary to accomplish this. Another of our goals is to take the Aksa Energy name abroad into Turkey’s hinterland and to take advantage of new business opportunities both by exporting energy and by undertaking investments. Aksa Energy’s aim is to contribute towards the building of a better future in which our shareholders, customers, employees, and the community of which we are a part may live. So long as you, our stakeholders, continue to give us your support, Aksa Energy will continue to advance its position as Turkey’s leading privately-owned company in the production and sale of energy and to create increasingly more added value in line with its strategies.

Cemil Kazancı Chairman of the Board of Directors

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AKSA ENERGY 2010 ANNUAL REPORT

CEO’s assessment of 2010

Aksa Energy in 2010 2010 was a successful operational year in which Aksa Energy: • continued to work intensively on investments to expand and diversify its installed capacity portfolio; • launched many improvement and system development projects within the scope of the company’s strategic growth plan, which particular attention being given to its power plants’ fuel diversification and productivity; • stepped up both its horizontal and its vertical integration in the context of the Kazancı Group’s synergetic restructuring; • continued to acquire new corporate customers within the framework of its proactive marketing approach. In 2010 Aksa Energy produced 4,227 gWh of electricity, thereby reinforcing its leading position by supplying 10.6% of all of the power generated by the private sector in Turkey. In 2010 Aksa Energy sold more than 75% of the electricity that it produced to the Balancing & Settlement Market (national grid) while at the same time it was witness to a noteworthy increase in the number of free industrial and commercial customers to which it sold energy within the framework of bilateral agreements. These successful results in the free customer segment once again demonstrate the ability of the Aksa Energy team to effectively combine their commercial and technical skills to make a favorable impact on the company’s performance.

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Esteemed shareholders, customers, and employees: The first post-crisis growth year and our sector’s potential: With the global economic crisis experienced in 2008, the energetic growth performance which the world economy had been demonstrating for a decade was interrupted and the ensuing recession persisted through to the end of 2009. The strong contributions and vigorous momentum of China and a number of other developing countries in 2010 however signaled that the world was returning to the path of economic growth. The recent crisis was truly global in its scope and affected the whole world. The economic contraction which it engendered led to declines in energy demand and consumption. With the resumption of economic growth in 2010 however, the need for energy began to rise as well. The near future points to an economic context in which energy from every resources will become a matter of the most vital concern not just for our own country but for the whole world. Our country is in the midst of a phase of rapid economic growth and it will be confronted by a need for energy that will grow increasingly greater. It is at this point that ensuring supply security and eliminating potential energy bottleneck risks through rational policies become issues of great importance.

According to the company’s independent audited consolidated financial statements dated 31 December 2010, Aksa Energy had net sales amounting TL 911.3 million on which it booked TL 59.1 million worth of net profit.

Turkey’s demographic and economic structures make the country a center of attraction in every aspect of the energy sector. Electrical power generation, the business line in which we are active, will also grow in this process and will become a focal point of interest for an increasing number of entrepreneurial and investment groups.

Having broadened its economic stakeholder base and opened its doors to investors both in Turkey and abroad through the initial public offering (IPO) that it undertook in 2010, this superior performance is a matter of particular value to our company.

We believe strongly that we should take a medium- and longterm view of investments in the energy sector. Any investment that we might consider today will require a period of at least two to four years to materialize when its associated feasibility

AKSA ENERGY 2010 ANNUAL REPORT

Projects that we will be completing and bringing on stream in 2011 will raise our installed capacity to 2,071 MW. In the next stage, Aksa Energy will be seeking to increase this to at least 4,000 MW by 2014.

studies and preliminary results are taken into account. Thus only investments that are planned in light of the right strategies and the right policies will be able to contribute towards the electricity market’s supply-side security and thus ensure that our country will have the uninterrupted energy that it needs for its sustainable growth and development. Aksa Energy continues to be a leading and responsiblyminded producer. Our deep-rooted corporate identity, our superior production strengths, our sound financial structure, our high quality standards, our environmental awareness, our commitment to ethical business principles, and our ability to continuously create economic value and to do so in the context of sustainabilityfocused strategies are the fundamental elements that contribute to Aksa Energy’s growth. Aksa Energy is a model producer, a merchant which is firmly committed to ethical values, and a good corporate citizen which strives to fulfill its social responsibilities. The importance which we give to occupational health and safety and to working conditions and the high standards that we have achieved in these areas give us a distinguished position in the business world while also enabling us to take pride in processes and practices which minimize our environmental impact. Aksa Energy is the flagship company of Kazancı Holding, a corporate group whose expertise and core business activity are energy. Aksa Energy distinguishes and sets itself apart among other companies active in the Turkish electrical power generation industry by virtue of this most important feature, which is also an indication of the philosophy, competencies, and strengths that underlie Aksa Energy’s commitment to its stakeholders.

Our outlook on the future is optimistic. We are engaged in a market that is displaying a strong positive momentum as it casts off the effects of the recent global crisis. In line with this observation, our outlook on the future is positive and our expectations about it are strong. In this process, Aksa Energy is committed to making the best possible use of its strong market position and of the opportunities afforded by the scope and diversity of its production strengths and to reinforcing its position as the market’s leader. Projects that we will be completing and bringing on stream in 2011 within the framework of our strategic investment plan will raise our installed capacity to 2,071 MW. In the next stage, Aksa Energy will be seeking to increase this to 4,000 MW by achieving average year-on growth rates of 28% between now and 2014. Within the framework of this goal, we plan to give increasingly more attention to renewable energy resources such as hydroelectric and wind in line with our efforts to achieve fuel diversification. The diversity that we achieve in our installed capacity portfolio will play a big role in our ability to generate uninterrupted, standard base load operation for a customer portfolio that we also intend to be diversifying rapidly. The superior strategic position which Aksa Energy enjoys allows it to be decisive as it looks ahead to the future. Our competent human resources, our uncompromising brand reputation, and our superior service processes are the most important elements that will enable us to transform intense competition into an advantage. With the uninterrupted support of its stakeholders, Aksa Energy will continue to be Turkey’s leading, preferred energy producer.

Serdar Nişli CEO

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AKSA ENERGY 2010 ANNUAL REPORT

Our production strength

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AKSA ENERGY 2010 ANNUAL REPORT

Organic growth A power plant portfolio that reinforces its leading position

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AKSA ENERGY 2010 ANNUAL REPORT

OUR PRODUCTION STRENGTH

With operations going on at 11 locations, Aksa Energy sustains its organic growth with a total of 28 projects of which: • 6 are currently under construction • 22 have received or granted licenses.

Ali Metin Kazancı Antalya Natural Gas Combined-Cycle Power Plant 850 MW natural gas combined-cycle power plant Turkey most efficient (59% thermal efficiency) installed-capacity independent power plant • Phase I: 4 GE LM6000 gas turbines, 50 MW each • Phase II: 2 Siemens SGT5-4000F gas turbines, 300 MW each Phase I of the combine-cycle plant was completed in December 2009. 4 IST boilers and 2 GE Thermodyne steam turbines (25 MW each) have been brought on line. Capacity increase Completion of Phase II of the combinedcycle operation project is scheduled to take place by midyear 2011. This will involve the commissioning of two Nooter/Eriksen boilers and one 300 MW Siemens SST5-5000F steam turbine.

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Manisa Natural Gas CombinedCycle Power Plant

Van Natural Gas CombinedCycle Power Plant

115 MW natural gas combined-cycle power plant

115 MW natural gas combined-cycle power plant

• 12 gas-powered Wartsila 20V34SG generating sets (8.7 MW each) • 12 Aalborg boilers • 1 Dresser-Rand steam turbine (10.5 MW)

• 12 gas-powered Wartsila 20V34SG generating sets (8.7 MW each) • 12 Aalborg boilers • 1 Dresser-Rand steam turbine (10.5 MW)

The company’s Manisa power plant was Turkey’s first gas-powered combined-cycle power plant. It originally commenced operation in 2008 on a simple-cycle basis.

The company’s Van power plant includes a state-of-the-art carbon-monoxide oxidation system. It originally commenced operation in 2008 on a simple-cycle basis and was fully converted to combined-cycle operation as of end-2010.

Combined-cycle conversion The plant was fully converted to combinedcycle operation during the first quarter of 2010. It employs a state-of-the-art carbonmonoxide oxidation system.

AKSA ENERGY 2010 ANNUAL REPORT

Samsun Combined-Cycle Power Plant 130 MW fuel oil combined-cycle power plant • 7 Wartsila 18V46 diesel engines (17.5 MW each) • 1 Siemens steam turbine (7.5 MW) • 7 Aalborg heat recovery steam generator boilers. The plant was originally commissioned in 2003. The company’s Samsun power plant is one of only two power plants in Turkey with DeSOx/DeNOx emissions control systems installed. The plant’s engines will be fully converted to natural gas operation by midyear 2011.

Northern Cyprus Power Plant

Mardin Power Plant

89 MW fuel oil power plant

33 MW fuel oil power plant

• 5 Wartsila 18V46 diesel engines (17.8 MW each)

• 3 Wartsila 18V38B diesel engines (11 MW each) The plant was commissioned in 2001.

The original 5-year agreement with Northern Cyprus Electricity Distributor that ended in 2008 has been extended on a 15+3-year basis. The plant has a DeSOx emissions control system installed.

Capacity increase The company plans to increase the power plant’s capacity with the commissioning of 3 18s8A diesel engines (10 MW each) in 2011.

Capacity increase The plant will be fully converted to combined-cycle operation during the third quarter of 2011. • Capacity will be increased with the commissioning of a 17.5 MW W18V46 diesel engine. Other additions consist of the commissioning of: • 6 Aalborg boilers • 1 Dresser-Rand (13.5 MW) steam turbine.

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AKSA ENERGY 2010 ANNUAL REPORT

OUR PRODUCTION STRENGTH

Hakkari Power Plant

İdil Power Plant

Şamlı Wind Power Plant

24 MW fuel oil power plant

24 MW fuel oil power plant

90 MW capacity wind park located in the Şamlı district of Balıkesir province

• 4 Wartsila 18V32LN diesel engines (6 MW each)

• 4 Wartsila 18V32LN diesel engines (6 MW each)

The plant has a DeSOx emissions control system installed.

The plant was commissioned in 2001. The plant has a DeSOx emissions control system installed.

The plant was commissioned in 2001 and has been meeting local electricity requirements since then.

• 30 80 m-tall Vestas V90 wind turbines (3 MW each) The Şamlı WPP has one of the biggest installed capacities of any wind farm in Turkey. The plant’s Gold Standard Certification has been applied for. It operates on a 95% readiness basis under a 5-year operation and maintenance contract with Vestas. Capacity increase An annex agreement has been signed with Vestas to increase capacity by 24 MW. Installation of the additional turbines is scheduled for completion by midyear 2011.

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AKSA ENERGY 2010 ANNUAL REPORT

Sebenoba Wind Power Plant

Karakurt Wind Power Plant

30 MW capacity wind park located in the Sebenoba district of Hatay province

10.8 MW capacity wind park located in the Karakurt district of Manisa province

• 15 67 m-tall Vestas V80 wind turbines (2 MW each)

• 6 80 m-tall Vestas V90 wind turbines (1.8 MW each)

The power plant has been awarded VER+ Standard Voluntary Emission Certification. It operates on a 95% readiness basis under a 3-year operation and maintenance contract with Vestas.

The wind farm was the first in Turkey to be awarded VCS+ Standard Voluntary Emission Certification. It was commissioned in 2007.

İncesu Hydroelectric Power Plant 15.6 MW river type power plant located on Çekerek Çayı in Çorum province The power plant consists of the Kazankaya regulator and the İncesu hydroelectric power plant. • 3 VaTech Francis hydro-turbine generators (5.2 MW each) The power plant will commence operation by midyear 2011. İncesu HPP will be the first hydroelectric power plant to be added to Aksa Energy’s production portfolio. Construction work has been completed on the regulator dam, the energy tunnel, and buildings as has the installation work on the switchyard and hydro-turbines.

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AKSA ENERGY 2010 ANNUAL REPORT

Aksa Energy Board of Directors

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Cemil KAZANCI Chairman (1961) Cemil Kazancı began his career working in Kazancı Group companies. His first management position was in generator production and sales. He subsequently played an active role in the formation of Aksa Energy, which was set up to expand the group’s operations in the energy industry and to produce electricity and which commenced operation in 1997. In addition to being chairman of Aksa Energy, Mr Kazancı is a member of the boards of directors of Kazancı Holding and a number of other group companies. Cemil Kazancı is married and has one child.

Sedat SİVEREK Vice Chairman (1955) Sedat Siverek is a graduate of Ankara University (Faculty of Political Sciences, Department of Economics). Since 1978 he has held a variety of management positions in both the public and the private sectors. Mr Siverek joined the Kazancı Holding family in 1995 and has served in a variety of management positions there. In addition to being vice chairman of Aksa Energy, he is the head of financial affairs for Kazancı Holding. Sedat Siverek Kazancı is married and has one child.

Serdar NİŞLİ CEO (1954) Serdar Nişli is a graduate of Middle East Technical University (Department of Mechanical Engineering), from which he holds bachelor’s and master’s degrees. He began his career at the TEK Çayırhan Thermal Power Plant and worked in a variety of private sector positions for 18 years prior to joining Kazancı Holding in 1996. In addition to being a member of the Aksa Energy Board of Directors, Serdar Nişli is also the company’s general manager.

Tülay KAZANCI Director (1959) Tülay Kazancı has been a member of the Aksa Energy Board of Directors since 2010. She also holds a seat on the Kazancı Holding Board of Directors as well as seats on the boards of ATK Sigorta Aracılık Hizmetleri and of Aksa Anadolu Yakası Makine Satış ve Servis.

Çetin YALÇIN Director (1949) Çetin Yalçın is a graduate of İstanbul University (Faculty of Law), from which he received a bachelor’s degree in 1971. In addition to his seat on the Aksa Energy Board of Directors and to his law practice, Mr Yalçın also serves as a legal adviser for Kazancı Holding.

Serdar ŞEŞEN Director (1963) Serdar Şeşen graduated from Marmara University (Faculty of Law) in 1986. He has served as an attorney for Makyal, İş Bankası, and Elginkan Holding. In addition to his seat on the Aksa Energy Board of Directors, Mr Şeşen is also a legal adviser for Kazancı Holding.

Yavuz İŞBAKAN Independent Director (1942) Yavuz İşbakan retired in 2004 from his position as assistant general manager for Türkiye Sınai Kalkınma Bankası. In addition to his seat on the Aksa Energy Board of Directors, Mr İşbakan also serves as an independent director on the boards of a number of other companies.

AKSA ENERGY 2010 ANNUAL REPORT

Aksa Energy Management Team

Cüneyt Uygun CFO A graduate of Saint Joseph French Lycee, Cüneyt Uygun holds a bachelor’s degree in mathematics and a master’s degree in economics from Boğaziçi University. He joined Kazancı Holding in 2010. After undertaking a variety of management positions at Türkiye Sınai Kalkınma Bankası, Efes İçecek, and Turkcell, Mr Uygun served as the chief financial officer for Turkcell’s Ukrainian operations. Şenol İnan Assistant General Manager for Operations Şenol İnan holds a bachelor’s degree in electrical and electronic engineering from Yıldız Technical University. He joined Kazancı Holding in 1997 and is responsible for the operation of the group’s power plants.

Kaan Görenek Assistant General Manager for Projects Kaan Görenek is a graduate of Kocaeli University (Department of Mechanical Engineering). Before he began working for the Kazancı Group as a project manager in 2001, Mr Görenek served in the same capacity at a number of other private-sector firms.

Ayla Karabeyaz Accounting Manager Ayla Karabeyaz is a graduate of İstanbul University (Faculty of Economics), from which she holds a bachelor’s degree. A certified public accountant, Ms Karabeyaz served as Accounting Manager at the Elginkan Group before joining Kazancı Holding.

Banu Gürel Finance Manager Banu Gürel is a graduate of Marmara University (Faculty of Economics). She served in a variety of positions at Akbank, Tekfenbank, and Merko Gıda before joining Kazancı Holding.

Aslı Su Investor Relations Manager Aslı Su joined Kazancı Holding in 2010. She is a graduate of İstanbul University (Faculty of Business Administration), from which she holds bachelor’s and master’s degrees. She has also received an MBA from the University of Leeds (UK). Before joining Kazancı Holding, Ms Su undertook a variety of management positions at Osmanlı Bankası, Garanti Bankası, Oyak Yatırım, Turkcell, and Tekstilbank.

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AKSA ENERGY 2010 ANNUAL REPORT

ECONOMIC AND SECTORAL DEVELOPMENTS

Crisis exit policies implemented around the world have enabled the global economy’s recovery.

World and Turkish economic review • In the wake of the extraordinary measures taken to overcome the global economic crisis, the world economy appeared to be undergoing a recovery in 2010. One of the most important results of the year was an unmistakable divergence in the growth rates of different country groups. While developing countries’ economies showed strong growth performances, the situation by comparison looked weaker among the developed countries.



Problems associated with the banking and public sectors in Europe as well as high rates of unemployment around the world were the most important pressures exerted on global economic development. Among the developed countries, where budget deficits and the stock of debt remained uncomfortably high, expansionist monetary policies continued to be followed in 2010.

• Just as the world economy shrank sharply in 2009, so to was there a serious contraction in employment markets. Among developing countries, unemployment rates rose to the 6.2% level in 2009 but this was largely due to such markets’ structural problems; among the developed countries, it was recession that drove unemployment up sharply to the 7.9% level.

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In 2010 unemployment remained an intransigent problem that provoked much contention and searching for solutions. In their projections for 2011, both the IMF and the World Bank pointed to unemployment as the most important problem facing the global economy. Indeed according to the IMF, unemployment was likely to remain high in the developed countries in 2012 despite whatever improvements might take place in 2011.

• The recovery witnessed in the early part of 2010 provoked fears of a resumption in inflation. The expansionist monetary policies being adhered to in the USA, Eurozone, and Japan are seen as being potentially fraught with inflationary risks.

Among the developing economies, inflation rates that were observed to be in decline in association with the crisis are expected to reverse themselves and begin to rise again as demand begins to pick up again, labor markets continue to recover, and commodity prices rise.

• There is a strong expectation that the developing economies will be able to sustain the strong growth performances that they achieved over the last decade in the years ahead even though growth in output among the developed economies will remain slow. In the developing economies, which have cast off the effects of the economic crisis much faster than western European countries or the United States have managed to do and which are now rapidly returning to their pre-crisis growth rates and having to reign in their expansionist monetary policies, central banks are likely to begin raising interest rates again in the near term.

AKSA ENERGY 2010 ANNUAL REPORT

The Turkish energy market is in the midst of a radical transformation which began in 2005 and which is expected to be completed by 2013.

• The Turkish economy exceeded expectations and grew by 8.9%in 2010.

In the year to end-2009 the Turkish economy shrank by 4.7% due to the effects of the global crisis, to contractions in private-sector borrowing opportunities, and to cutbacks in investment outlays. That was reversed abruptly in 2010, with strong growth rates of 11.8% and 10.2% being registered respectively in the first and second quarters of the year. Continuing to perform strongly for the rest of 2010 with growth rates of 5.5% and 9.2% respectively in the third and fourth quarters, the Turkish economy clearly demonstrated that it had returned to the path of sustainable growth.

• The unemployment rate, which remained high in 2010 as well, dropped rapidly during the early months of the year until June but then started moving upwards again in the second half. Current estimates put the end-2010 unemployment rate on the order of 11.6%. • Twelve-month consumer price inflation was 6.40% in 2010. This was not only below the Turkish Central Bank’s 7.5% projection and below the 6.50% target for the year but also the lowest rate of CPI inflation recorded in the last thirty-two years. • In 2009 the foreign trade deficit shrank to USD 38.8 billion due to the effects of the global economic crisis. In the first eleven months of 2010 however it shot up again by 85.7% to USD 62.8 billion. Although the most important contributor to this sharp rise in Turkey’s foreign trade deficit in 2010 was the discrepancy between the rates at which domestic demand and foreign demand recovered, rises in oil prices also had a hand in the deficit’s growth.

• The appearance of the current account deficit paralleled that of the foreign trade deficit in 2010 with the deficit reaching USD 37.5 in the first ten months of the year. There was also some impairment to be seen in the deficit’s financing: foreign direct investment was down by 25.8% in January-to-October and amounted to USD 4.6 billion while at the same time, short-term capital inflows and portfolio investments shot up 20-fold and reached USD 15.4 billion in value. • Paralleling the persistent adherence to expansionist monetary policies by the monetary authorities of developed countries, foreign investment inflows into Turkey accelerated in the second half of 2010. In an environment in which the Turkish lira was appreciating and there was an excessive misalignment between domestic and foreign demand, the Turkish Central Bank took the view that capital inflows could cause the current account deficit to grow even more and that this posed a serious risk. Towards the end of the year the bank began drawing attention to the importance of both financial system and price stability. In its December meeting CBT reduced its policy interest rate while also announcing that henceforth banks’ Turkish lira reserve requirements were to be detailed on the basis of account maturities. The Turkish electrical power sector The Turkish energy market is in the midst of a radical transformation which began in 2005 and is expected to be completed by 2013. The underlying strategy of this transformation is to reduce the state’s involvement in energy production to about the 20% range in a process that involves not only the privatization of production and distribution activities but also the support of numerous changes in laws and regulations that are intended to encourage the private sector to invest more in efforts to meet the country’s energy requirements.

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AKSA ENERGY 2010 ANNUAL REPORT

Economic and sectoral developments

Dynamics related to electricity supply in Turkey The distribution of installed power by fuel type and ownership (2010) Lignite / Coal 23%

EÜAŞ 52%

Fuel Oil 3%

Autoproducer 6%

Other 9%

Producers which has Agreements with State 18%

Gas 33%

Independent Producers 24%

Hydroelectric 32%

The distribution of power generation by fuel type and ownership (2010) EÜAŞ 47%

Lignite / Coal 25% Other 4%

Autoproducer 6%

Independent Producers 19%

Gas 46%

Producers which has Agreements with State 28% Hydroelectric 25%

Turkey follows a strategy that projects liberalization in electricity market. • The depressive effects of the global economic crisis on the Turkish economy were felt by the country’s electrical power industry in 2008 and 2009. By the last quarter of the latter year however, the impact of the crisis was seen to be on the wane and with the first quarter of 2010, the demand for electricity was observed to be on the rise once again. Total electricity production in the twelve months to end-2010 in Turkey was 210 billion kWh, of which 19% was generated by independent producers. • In the 1980s, per capita electricity consumption in Turkey was on the order of 750 kWh/year. During the 1990s that figure had doubled and by the mid-2000s the average reached 2,300 kWh. The existence of enormous potential demand for electricity is inherent in expectations that these numbers will rise even higher as economic growth regains momentum in the wake of the steadily diminishing effects of the global crisis and both population and urbanization continue to increase. To put it another way, per capita consumption figures are likely to reach even higher levels as Turkey’s GDP continues to rise.

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• The Turkish energy sector is undergoing rapid growth and deregulation. This process is expected to drive a correspondingly rapid increase in investment in production plant in order to meet the growing demand for energy. • In order for investments on such a magnitude to be undertaken by the private sector however, the investment climate needs to be improved in a number of ways that include opening the electrical power industry to competition, ensuring supply-side security by making public-side oversight and auditing more effective, and accelerating the privatization of plant which is still publicly owned. • Four state-owned concerns are currently engaged in the Turkish electrical power market: EÜAŞ (production), TETAŞ (sales), TEİAŞ (transmission), and TEDAŞ (distribution). As of end-2009, EÜAŞ was one of Europe’s biggest electrical power producers with 19 thermal and 106 hydroelectric power plants generating 89.45 tWh of electricity a year. When our country’s installed capacity during 1984-2009 is examined on the basis of its ownership status, one observes that the public sector’s share of the total has declined significantly from 85% in 1984 to 52% by end-2010.

AKSA ENERGY 2010 ANNUAL REPORT

The process of electricity market liberalization in Turkey 2005

The liberalization of electricity market and independent consumer limit (kWh/year)

2007

2008

2009

2010

2011

2012

2013

The liberalization of gas market (supply, distribution and sale)

>7.7 million >6.0 million >3.0 million >1.2 million

>480 thousand

>100 thousand

>30 thousand

=0 LIBERAL MARKET

The liberalization of gas market and privatizations

2006

Transition to cost basis pricing SRR (Stabilization & Reconciliation Regulations) system

Pricing

Renewable Energy Law and cost and purchase guarantee for renewable energy

Liberalization

Privatization of ADÜAŞ

Privatization of electricity distribution companies Privatization of run-of-the-river stations

68,816 MW in 2018. This means that between 2009 and 2018, additional capacity somewhere between 12,434 MW (scenario 1) and 14,576 MW (scenario 2) will have to be found.

• What with private-sector investment supplying more of the increasing demand for electricity and in view of the ongoing privatization of EÜAŞ-owned power plants that began in 2010, the share of the public sector in total output can be expected to continue falling in the years ahead. • In a capacity projection study for 2009-2018 published by TEİAŞ in June 2009, calculations are made according to two scenarios based on total installed capacity of 44,559 MW in 2009. As projected in this study, new capacity which is licensed, is under construction, and is expected to come on stream will, by 2018, reach 11,823 MW according to the first (high-demand) scenario and 9,681 MW according to the second (low-demand) scenario. According to the same report, peak demand is expected to reach 55,053 in the first scenario and 51,757 MW in the second.

Taking additionally into account the capacity requirements engendered by primary, secondary, tertiary, and other system operational reserves (which are normally calculated as being 25% of peak demand), total demand could reach as high as

Privatization of electricity generation plants

• The two underlying aims of the structural transformation that has been taking place in the Turkish electrical power market for the last two decades have been to increase productivity and to ensure supply security through market mechanisms that give consumers the option of choosing their suppliers.

Two of the most important developments involving the sector’s fundamental structure in recent years have been the changeover to a day-ahead planning and balancing electrical power market which is based on the principle of hour-by-hour reconciliation and which is governed by the Stabilization & Reconciliation Regulations and the introduction of primary frequency control under the Ancillary Services Regulations (both in 2009) and the introduction of secondary frequency control (in 2010).

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AKSA ENERGY 2010 ANNUAL REPORT

2010 activities assessment

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AKSA ENERGY 2010 ANNUAL REPORT

Aksa Energy is focused on creating value for its stakeholders within the framework of a sustainable growth strategy.

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AKSA ENERGY 2010 ANNUAL REPORT

2010 activities assessment

In 2010 Aksa Energy produced 4,227 gWh of electricity, thereby supplying 10.6% of all of the power generated by independent producers in Turkey.

Aksa Energy is a player which has correctly assessed the transition process that the electrical power sector in Turkey is undergoing and which has successfully completed both its horizontal and its vertical integration within the framework of the synergetic structure of the corporate group which it is a member.

New ventures and completed projects in 2010 enabled Aksa Energy to achieve an installed capacity structure that will allow it to sell baseload electricity to the growing number of eligible consumers and distribution companies (DisCos) as well as to the Balancing & Settlement Market (national grid). Realized investments have contributed to Aksa Energy’s installed capacity and productivity while also playing a big role in optimizing the management of the company’s operational cost base. The financial and operational results registered last year once again confirmed the validity of the strategy that Aksa Energy adheres to in Turkey’s rapidly growing electricity market while also bolstering its market position. In 2010 Aksa Energy produced 4,227 gWh of electricity, thereby supplying 10.6% of all of the power generated by independent producers in Turkey. Natural gas power plants Aksa Energy, one of the biggest-capacity independent producers of electricity from natural gas in Turkey, has natural gas-fired power plants in Antalya, Manisa, and Van whose total installed capacity is 1,210 MW and which generated 3,220 gWh of electricity in 2010. Fuel oil power plants Aksa Energy’s fuel oil-fired electrical power plants are located in Mardin, İdil, Samsun, and Hakkari in Turkey and in the Turkish Republic of Northern Cyprus (TRNC). Their total installed capacity is 170 MW. In 2010 they generated 701 gWh of electricity.

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AKSA ENERGY 2010 ANNUAL REPORT

1.4

Wind power plants Aksa Energy has three wind parks located in Balıkesir, Hatay, and Manisa. The total installed capacity of these three windfarms is 131 MW, which makes up one of the biggest production capacity WPP portfolios in Turkey today. Aksa Energy’s wind power plants generated 305 gWh of electricity in 2010. Operations, maintenance, repairs Aksa Energy has been building up its knowledge and experience with power plant operation and maintenance services since 1999. The company carries out its power plant operations with its own highly-trained and competent personnel. Aksa Energy works under long-term agreements that it has entered into with such leading firms as Siemens, GE, Wartsila, Vestas, and Vatech, which are its prime suppliers. It conducts all of its operations, maintenance, and repair activities with its own trained personnel under the supervision of the original manufacturers. Aksa Energy has entered into service and maintenance agreements with primary and secondary suppliers under which it obtains maintenance spare parts, backups, and servicing labor on the most favorable terms. This contributes towards Aksa Energy’s competitive edge by enabling the company to keep its operational costs tightly controlled.

1,542

Generation (billion kWh) 690

4,227

944

Natural gas 1,018

07

Bio-gas Wind

3,053 318

Aksa Energy’s installed capacity amounted to 1.4 MW in 1997. Investments undertaken in 2007-2010 increased the company’s total installed capacity fourfold. 1997

1,342

Aksa Energy total installed capacity (MW) and the development of electricity generation (1997-2010)

08

09

10

Fuel oil

All of the technical personnel employed in the operation, maintenance, and repair of power plants are trained and certified by manufacturers or suppliers as appropriate. These personnel also undergo periodic training on a continuous basis as required by laws and regulations. Seeking to always be in full compliance with the requirements of law and its contractual obligations with respect to power plant operation, maintenance, and repairs, Aksa Energy takes pains to fulfill all licensing, authorization, and similar official procedures necessary for the operation of power plants. The company also regularly complies with the periodic reporting requirements made by official bodies. Electricity sales Aksa Energy successfully increased its sales by an average of 90% a year between 2007-2009. In 2010 the company booked sales revenues amounting to TL 911 million. Aksa Energy sells a big part of its output to the Balancing & Settlement Market. Through insightful management, the electrical power spot market price rises that occurred in the third quarter of the year had a favorable impact on the company’s performance and increased its EBITDA margin. Aksa Energy’s EBITDA (earnings before interest, taxes, depreciation, and amortization) amounted to TL 188 million in 2010, while EBITDA margin was 21%.

Aksa Energy is focused on maintaining the highest levels of reliability and readiness at the power plants in its portfolio.

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AKSA ENERGY 2010 ANNUAL REPORT

2010 activities assessment

Aksa Energy’s shares began trading on the İstanbul Stock Exchange’s National Market on 21 May 2010 under the AKSEN symbol.

Aksa Energy undertook a public offering in 2010. In the wake of a public offering and a two-day bookbuilding period on 13-14 May 2010, Aksa Energy’s shares began trading on the İstanbul Stock Exchange’s National Market on 21 May 2010 under the AKSEN symbol. As of 31 December 2010, 5.47% of the company’s shares were being traded on the ISE. To mark the start of trading in Aksa Energy shares on the İstanbul Stock Exchange on Friday May 21st, ISE President Hüseyin Erkan, CMB Chairman Vedat Akgiray, Kazancı Holding Chairman Ali Metin Kazancı, and Aksa Energy Chairman Cemil Kazancı took part in the day’s opening-bell ceremony. Speaking at the opening ceremony, Cemil Kazancı said that Aksa Energy’s public offering was only the first stage of the company’s long-term engagement to capital markets transactions. He also added “This public offering is a very important part of our growth strategy. For this reason, we decided to abide by that strategy and to go through with this offering despite the recent global economic downturn.” Customer base diversification One of Aksa Energy’s objectives is to diversify and continuously expand its customer base. Seeking to take the best possible advantage of opportunities which emerge as Turkey’s electrical power market undergoes deregulation, the company plans as its first step to enlarge the dimensions of its bilateral customer portfolio.

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As of end-2010 Aksa Energy was selling electricity to more than 400 corporate customers that qualify as eligible customers. The company’s aim is to have a customer portfolio consisting largely of bilateral sales agreements by 2014. In addition to sales to end consumers and distribution companies, electrical power exports will also be dealt with in the context of bilateral sales agreements. Aksa Energy sees the subscribers of Kazancı Group electricity distribution companies as an important source of candidates for its own customer portfolio. The company is focused on developing collaborations with both group and non-group distribution companies, accordingly. Strong contributions to productivity and profitability Besides increasing its total installed capacity, fuel conversion and capacity increase projects contribute significantly towards Aksa Energy’s productivity and profitability as well. They also increase the overall share of renewable energy sources. Under the heading of its strategic growth plan, Aksa Energy seeks to make its existing production capacity more productive while achieving greater diversification in the resources that support its production. The company expects that its efforts to achieve an optimal balance in its fuel mix will largely be finalized in 2011. By doing so, it will achieve improved gains in both its total installed capacity and its total production capacity.

AKSA ENERGY 2010 ANNUAL REPORT

In the next stage, Aksa Energy will increase the share of renewable energy sources in its overall portfolio through new projects that it will be undertaking between now and 2014. Projects to optimize the fuel mix focus primarily on converting Aksa Energy facilities that produce electricity from fuel oil to natural gas combined-cycle power plants as a way of increasing the company’s productivity and profitability. Until now Aksa Energy has shaped its strategic marketing preferences around making sales to the Balancing & Settlement Market. Fuel mix optimization will allow it to make more baseload sales, which implies a quality and continous load profile. In 2011 Aksa Energy will complete and commission two combined-cycle conversion projects: one in Antalya (300 MW) and one in TRNC (13.5 MW). Other similar projects that the company has in the works for 2011 are: • The company’s 130 MW power plant in Samsun will be converted to natural gas. • Work has begun on the company’s plan to complete a 30 MW capacity increase investments at the Mardin plant. • Work has begun on increasing the TRNC’s plant’s capacity by 17.5 MW.

Windfarm capacity increases Aksa Energy’s 90 MW WPP located in the Şamlı district of Balıkesir province is one of the biggest windfarms in Turkey. The wind park has a Gold Standard Certification. A 24 MW capacity increase investment is planned for this facility in 2011. Construction work on Aksa Energy’s first hydroelectric power plant at İncesu in Çorum province has been completed. Seeking to increase the share of renewable energy sources in its production mix, Aksa Energy has successfully completed the construction phase of the Çorum-İncesu Project, the company’s first hydroelectric power plant investment. The plant will begin generating electricity in 2011. The company’s river type power plant located on Çekerek Çayı in Çorum province consists of the Kazankaya regulator and the İncesu hydroelectric power plant. It has a total capacity of 15.6 MW.

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AKSA ENERGY 2010 ANNUAL REPORT

Investments

Investments focused on increasing total output, quality, and productivity

Last year Aksa Energy once again continued to focus on investments and projects to increase total output, quality, and productivity at every stage of its production in line with its strategic investments plan. In 2010 Aksa Energy spent a total of TL 417 million as investment outlays. Highlights of the investment activities that the company carried out last year are summarized below. Our investment strengths From wind and water flow measurements to feasibility studies, the projects that Aksa Energy undertakes to produce electricity from renewable sources are developed in-house by the company itself. The company also develops thermal power plant projects in which full consideration is given to the issues of fuel procurement, energy transmission, access, location, and environmental impact.

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Because it gives such great importance to plant quality, Aksa Energy works with sector leaders on the basis of long-term agreements in order to procure electrical power generation equipment from such manufacturers as: • Siemens, GE, Dresser-Rand, and Thermodyne (gas and steam turbines) • Wartsila (diesel and gas engines) • Vestas (wind turbines) • Vatech (hydroelectric turbines) The company also works together with such national and international equipment suppliers as ABB, Schneider, Nooter/ Eriksen, Aalborg, and Best as well as with engineering, construction, and installation firms. Employing highly competent project teams, Aksa Energy has the ability to undertake and deliver thermal, hydroelectric, and wind power plants in the least amount of time. Aksa Energy handles all of a project’s licensing, authorization, and permission formalities itself. Employing its own appropriately qualified technical and administrative personnel it carries out the project development, engineering, procurement, logistics, control, installation, and commissioning phases of the investments that it undertakes. In this way it is able to minimize costs by keeping them under control.

AKSA ENERGY 2010 ANNUAL REPORT

Antalya Power Plant combined-cycle conversion investment Under the first phase of company’s Antalya Power Plant combined-cycle conversion investment project, two 25 MW GE Thermodyne steam turbines were commissioned in 2010. This has resulted in significant improvements in the efficiency of the existing four 50 MW GE gas turbines. The completed projects represent important progress towards enabling the Antalya plant to work with higher baseload capacity and lowering fuel costs. Manisa Power Plant combined-cycle conversion and steam turbine investment The Manisa Power Plant was built as a simple-cycle power plant consisting of natural gas engines, which are seen as being the type of generating set that is the most appropriate for peak shaving. In this investment, which was completed in early 2010, a steam turbine was commissioned and Manisa was converted to combined-cycle power plant. As a result of this conversion project, the Manisa Power Plant’s installed capacity was increased by 11 MW to 115 MW. İdil İki Enerji The İdil İki Power Plant consists of four 6 MW Wartsila fueloil engines. It is located next to a BOTAŞ oil pipeline pumping station in southeastern Anatolia.

Rasa Enerji A controlling interest in Rasa Enerji, originally a Kazancı Holding subsidiary, was transferred to Aksa Energy in 2010. The 115 MW Van Power Plant in Rasa Enerji’s portfolio is strategically located in a part of eastern Anatolia where there is a shortage of reliable energy production capacity. Following the transfer of the company’s control to Aksa Energy, a combinedcycle conversion project was launched that was completed and commissioned in just six months’ time. Rasa Enerji’s portfolio also includes a HPP license application for which water usage rights have already been acquired. The Van Power Plant will be capable of supplying a large part of the energy requirements of the Van Gölü Electricity Distribution Company, which was acquired by a Kazancı Group subsidiary and will be transferred to Aksa Energy in 2011. During 2010 Aksa Energy continued to work on renewable energy investments without letup. New project applications were submitted, progress was made in obtaining the licenses for existing applications, and a number of licensed projects under construction neared completion.

İdil İki Enerji is a company that is strategically positioned from the standpoints both of its license portfolio and of the investments in renewable energy sources that Aksa Energy intends to undertake. The company holds two HPP licenses as well as the water usage rights for one HPP application. İdil İki Enerji has also submitted license applications for a number of wind power plants of various sizes.

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AKSA ENERGY 2010 ANNUAL REPORT

Human resources at Aksa Energy

The Kazancı Group’s “Our most precious capital is our human resources” approach is also the foundation of Aksa Energy’s own human resources policies.

Aksa Energy’s human resources vision is to have a system that ensures the satisfaction and loyalty of the company’s human resources, who, because they manage all of its resources, are seen as its most important strategic advantage.

Personnel: Basic indicators 2009

2010

Number of employees

482

580

Men

411

503

Women

71

77

Average age

32

32

Educational background University (Bachelor’s, Master’s, Doctor’s degrees) Vocational college Vocational lycee, general lycee or below

36

124

168

53

55

305

357

Aksa Energy’s human resources mission is, in coordination with those units involved, to install human resources systems that support all of the company’s management and employees in order to achieve continuity in a team whose members are creative, dynamic, knowledgeable, motivated, effective, and productive. To this end, training is provided to enable individuals to develop all of the technical, professional, and personal skills which they need to be equipped for their roles in the units in which they work. Aksa Energy human resources structure As of 31 December 2010, Aksa Energy had 514 people on its payroll. 5% of the company’s personnel work in headquarters units while the remaining 95% are employed at plants and construction sites. 16% of the company’s personnel are whitecollar and 84% are blue-collar employees. Aksa Energy’s approach to human rights and working life With respect to its responsibilities towards its employees, whom it numbers among its essential stakeholders, Aksa Energy is always careful to be in full compliance with the requirements of all laws and regulations governing human resources and working life in Turkey. The company develops policies as necessary to increase the satisfaction of its human resources and it implements them in all of its workplaces.

AKSA ENERGY 2010 ANNUAL REPORT

Full compliance with globally recognized quality, environment, and occupational health and safety standards The principles of diversity and equality of opportunity lie at the foundation of Aksa Energy’s human resources policy. Aksa Energy regards diversity as a valuable element of its organizational structure and an essential feature of the human resources that make up its intellectual capital. Taking this as its point of departure, the company encourages its employees to think multidimensionally, and to develop their individual abilities. Ensuring equality of opportunity among all employees is a matter to which attention is given in all human resources policies, processes, and practices at Aksa Energy. Competency development and continuous training Aksa Energy provides all of its employees with a variety of training opportunities in line with their career progression and personal development needs, with its own changing requirements, and with the goals and strategies of the Kazancı Group. In 2010 the company provided a per-employee average of 30 hours of training under eight different headings. The training methods used at Aksa Energy consist of on-the-job training, extramural training, and training conferences. Health and safety at Aksa Energy Aksa Energy takes care to be in full compliance with all currently applicable laws and regulations pertaining to workplace health and safety both at its headquarters in İstanbul and in all of its plants everywhere in Turkey. The company also carries out projects that take the world’s most up-to-date workplace health and safety practices into account. In the conduct of its activities, Aksa Energy is committed to ensuring that workplace health and safety measures which continuously safeguard the wellbeing of employees, contractors, and visitors are taken by concerns with which it has business direct relationships.

To this end, Aksa Energy: • Fulfills the requirements of applicable national and international laws and regulations while also identifying the sector’s best health and safety practices and integrating them into its own operations; • Seeks to define and assess activity-related threats and risks, to classify them, and to minimize their potential impact as much as possible; • Ensures that all precautions related to workplace health and safety are taken for its own personnel, for contractors, and for visitors in the conduct of all of its operations and periodically reviews their effectiveness; • Makes it a fundamental principle to take and abide by a proactive rather than reactive approach with respect to health and safety issues; • Has formulated and effectively deploys plans to deal with any and all possible emergencies and accidents at all of its facilities; • Takes fire-prevention measures and has installed automatic firefighting systems at all of its power plants; • Provides training to employees and contractors about occupational health and safety matters and about the risks involved in their particular operations and seeks to keep them all continuously aware of such issues. Aksa Energy has fulfilled the requirements of and has been awarded the following standards certifications: • ISO 9001:2000 Quality Management System • ISO 14001:2008 Environmental Management System • OHSAS 18001-2007 Occupational Health & Safety Management System Aksa Energy demonstrates its good corporate citizenship by successfully internalizing and continuously ensuring its full compliance with the requirements of all three management systems.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

1. Statement of Compliance with Corporate Governance Principles In the context of “Corporate Governance Principles” publicly issued by Capital Markets Board, Compliance Report of Aksa Enerji Üretim A.Ş. (in the following referred to as Company or Aksa Enerji) about minimum elements requested by Capital Markets Board to be included in company activity reports on compliance and pertaining to activity period ending on 31.12.2010 is presented below. Our Company accepts compliance with requirements of Corporate Governance Principles as a strategic goal. Activities for application of requirements of said principles in compliance with company’s own dynamics and for improvement of current management systems in the context of principles still resume. Although it is possible for our company to comply with some of these changes immediately, conduct of required infrastructure and organization work for compliance with rest of the changes causes a need for a longer process. In periods to follow, as much as characteristics of energy industry operated within would allow, activities for ensuring compliance with not complied matters of Corporate Governance Principles will be continued. 2. Investor Relations with Shareholders In Aksa Enerji, Department of Investor Relations performs duties on relations with stakeholders, starting activities as of 21 May 2010, company’s first transaction date on Istanbul Stock Exchange (ISE). Developments of Company’s strategy and activities, industry operated within, and legal regulations being subjected to are corresponded to analysts and investors in meetings organized according to prevailing law. Oral and written questions directed to Department of Investor Relations are answered orally and/or in written form as soon as possible in the context of publicly known information. Disclosure of Material Events is made by coordination of Department of Investor Relations according to prevailing law and as required by Company’s Disclosure Policy. Following first transaction date in ISE as of 21 May 2010, in 2010, more than 40 face to face meetings and teleconferences with analysts and investors have been organized. Again in this period, a total of approximately 240 information requests have reached Department of Investor Relations as approximately 100 e-mails and 140 phone calls, these requests have been answered in the context of publicly known information. Investor Relations Manager: Aslı Su Investor Relations Contact Details: Tel: +90 212 478 66 66 Fax: +90 212 655 61 25 E-Mail: [email protected] Web: http://www.aksaenerji.com.tr 3. Exercise of Shareholders’ Right to Obtain Information Care is exercised for presenting equal information and allowing evaluation opportunity to shareholders, information except of trade secret nature is shared with shareholders. Approximately 240 information requests that were directed to Department of Investor Relations during the period and that were answered completely have been mostly about subjects such as Company’s strategy, activities and financial performance, on-going and planned investments, etc. Although to a lesser extent, information requests about share performance and dividend plans have also been directed. All information publicly revealed is presented for use of stakeholders in Investor Relations part of corporate internet website (www.aksaenerji.com.tr) in order to provide easy and equal access related to Company for stakeholders. No regulation on appointment of private auditor exists in Company articles of association. There have been no private auditor appointment requests within the period.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

4. Information about General Assembly During 2010, Ordinary General Assembly meeting was held on 1 March, and three Extraordinary General Assembly meetings were also held on 21 April, 27 April and 4 May. Following public offering, no General Assembly meeting was held, General Assembly meeting for 2010 will be held on 29.04.2011. For invitation to General assembly meetings, related provisions of prevailing law of the Turkish Commercial Code and Capital Markets Board are applied. As required by prevailing law, General assembly meetings are notified to Ministry of Industry and Trade, Energy Market Regulatory Authority, Capital Markets Board and Exchange Commission, and İstanbul Stock Exchange. In notices of General Assembly, care is exercised to include following matters as: • Date and time of the meeting, • Place of meeting announced as causing no hesitation, • Agenda, • Information needed for agenda items, • If there is amendment of articles of association on agenda, former and new forms of amended item/items as allowed by related institutions, • Which section is inviting, • Upon postponement of first meeting due to any reason, if General Assembly is again invited to meeting, reason of postponement of first meeting with sufficient quorum for this meeting, • At ordinary meeting notices, at which address activity report and financial statements, other General Assembly documentation can be examined. As required by the law and our master agreement, ordinary General Assembly meetings should be held in 3 months from ending of accounting period. Ordinary General Assembly meeting should be held as soon as possible not exceeding three months from ending of each accounting period. Starting from date of notice of general assembly meeting invitation, financial statements and reports including annual report, dividend policy, information documentation prepared for General Assembly agenda items as needed and other documentation upon which agenda items are based, and final version of articles of association and amendment text and reasoning if an amendment will be done in articles of association are kept open to examinations of Shareholders in General Directorate building. As required by articles of association, General Assembly meetings are held at a location of Company headquarters or at a suitable location in the city of the management center. General Assembly meeting minutes can be reached at any time in written form or in electronic domain through website address at www.aksaenerji.com.tr. In General Assembly meetings, stakeholders may have themselves represented through other stakeholders or an externally appointed deputy. Shareholder deputies are authorized to use the votes owned by stakeholder they represent other than their own votes. Board of Directors appoints and announces form of authorization documents in consideration of related regulations of Capital Markets Board. 5. Voting Rights and Minority Rights As required by articles of association, each share at 1 TL nominal value owns one vote. Company’s shares are classified into two groups as A and B groups, and Group A shares are preferred shares. 5 members of Board of Directors composed of 7 individuals are selected among nominees nominated by Group A stakeholders. There is no regulation in Company’s articles of association that foresees use of voting right within a specific period after date of acquisition or complicates use of voting right.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

There are no provisions in articles of association that prevent individuals who are not stakeholders to vote as representatives by proxy. Cumulative voting method is not included in articles of association. 6. Dividend Payment Policy and Timing By decision of Board of Directors on 04.04.2011, dividend policy is decided to be done according to Serial: IV, No:27 numbered “Notification for Guidelines to be Complied by Public Co-operations Subject to Capital Markets Law in Dividend and Dividend Advance Sharing” titled provisions of Capital Markets Board (CMB) and provision of 15. Item of 2499 numbered Capital Markets Law and in amount of minimum dividend ratio determined by CMB for the related accounting period. Principles about dividend payment are regulated in 16. Item of Company’s articles of association. Form and timing of dividend payment are decided by General Assembly upon related proposal of Board of Directors. 7. Transfer of Shares Each time for share transfers resulting in change of control in cooperation structure of legal entity independent of determined share acquisitions by exceeding or staying below ratios determined in regulations of Energy Market Regulatory Authority for direct or indirect transfer of company shares and voting rights, approval of Energy Market Regulatory Authority is mandatory. Even though there is no share transfer issue, removing preference on current shares is also subject to approval of Energy Market Regulatory Authority without consideration of proportional limits related to share transfer. 8. Company Disclosure Policy Company information policy is composed and approved by decision of Board of Directors dated 04.04.2011 and is publicly announced. In the context of provisions of prevailing Law for Capital Markets, Company’s Disclosure Policy is composed in order to share necessary information and explanations of no trade secret nature with local and foreign stakeholders, investors, securities and exchange market experts, all related parties and financial intermediaries in a simultaneous, fair, complete, clear, true, understandable and easily reachable manner. For public information, the law of Capital Markets, ISE regulations, and Capital Markets Board Corporate Governance Principles are taken into account, and effective, active, and transparent communication with investor circles is aimed. Disclosure policy includes information that is composed of any kind of information, document, electronic record and data related to activities with no “Internal Information” and “Trade Secret” nature as known by members of Board of Directors, high level executives, and employees and that is not legally inconvenient to disclose. The composition and improvement of Disclosure Policy are under the responsibility of Board of Directors, its implementation and follow up are under the responsibility of Financial Affairs Directorate. Amendments to be done in Disclosure Policy are published in company’s website following approval of Board of Directors and are presented to shareholders for information in the first General Assembly to be held. 9. Disclosure of Material Events 13 Material Disclosures were made in 2010 starting as of 21 may 2010, first transaction date in ISE. 10. Company Website and its Content Web site at internet address www.aksaenerji.com.tr is effectively used in order to ensure access to announced current and former information and in public enlightenment. Web site is prepared in content and context required by CMB’s Corporate Governance Principles, in Turkish and English. Final version of company’s articles of association, periodical financial statements and reports, prospectuses, public offering circulars and general assembly meeting agendas are published at internet site. Website is regularly updated in order to reflect latest status of co-operation and management structure. Company answers any information request corresponded through internet site urgently and all explanations publicly announced by Company can be reached at the website.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

11. Disclosure of Non-Corporate Ultimate Shareholder(s) Who Have a Controlling Interest: Company’s shareholding structure is presented below as of 26 May 2010; Title of Shareholder Kazancı Holding A.Ş. Public Part Other Total

Nominal Amount (TL) 545,865,624.00 31,600,000.00 34,376 577,500,000

Share (%) 94.52 5.47 0.01 100.00

12. Public Disclosure of Those Who Have Access to Insider Information Company has composed List of Individuals Having Access to Insider Information on 1 March 2011 as required by “Serial: VIII, No: 54 numbered “Notification for Guidelines Related to Public Disclosure of Material Events” of Capital Markets Board (CMB). Updates on the list are made following changes in assignments. Additional to Head and Members of Board of Directors, individuals on the list are indicated below; Name and Last Name Cüneyt Uygun Şenol İnan Kaan Görenek Banu Gürel Ayla Karabeyaz Uğur Ünal Şükrü Şişman Ahmet Şahbaz Aslı G. Su Handan Eroğlu

Title CFO Assistant General Manager for Operations Assistant General Manager for Projects Finance Manager Accounting Manager Hydropower Plant Manager Thermal Power Plants Project Manager Antalya Power Plant Project Manager Investor Relations Manager Budget and Reporting Manager

The list of individuals having access to insider information is updated regularly by Company, in compliance to contents of changing project and subjects. Company employees with insider information and other parties communicated are informed about their obligation to protect confidentiality of this information during the formation of material event and throughout the period from formation of material event to disclosure in ISE. Company might delay disclosure of insider information in order to prevent damage to its legal rights and interests in the context of provisions of related notification. 13. Keeping Interested Parties Informed Necessary arrangements at the website are made in order to inform interested parties and every kind of information related to Company is presented to interested parties in line with Corporate Governance Principles. In case of requests from investors and financial intermediaries, face to face or group meetings with these institutions are organized. 14. Stakeholder Participation in Management Supportive mechanism and models for participation of Company employees and interested parties to Company management are not developed in Company’s structure.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

15. Human Resources Policy Company prioritizes the employment of well educated, talented, and successful individuals, being aware that it would reach its desired high targets by owning the most qualified human power. In employment, not only meeting current needs for personnel vacancies, but also long term company objectives should be evaluated with. As a rule, personnel needs are met primarily by Company’s current human resources. In order to fill vacancies that cannot be met by promotion and transfer from resources, external resources are employed for new staff recruitment. “Our most valuable capital is our human resources” approach as adopted by Company consists the foundation of the Human Resources Policy. Mission of human resources is to support all company management and employees for ensuring continuity of a creative, dynamic, motivated, effective, and efficient Company team and to establish human resources systems in coordination with related units. Company provides its employees every kind of opportunity for career development. Different training opportunities are provided to all employees in parallel to career and personal development needs, to requirements occurring in time, and to Company’s targets and strategies. In this respect, trainings are presented in order to develop all technical, occupational knowledge, and personal talents required for individuals to be equipped in their roles at units they work. Human Resources Policy is also publicly announced at the website. 16. Relations with Customers and Suppliers Company accepts mutual satisfaction of clients and suppliers principle in the context of quality policy. Our company continues to be an institution of trust for its partners, employees, clients, suppliers, and community, always producing and expressing value. A special unit is composed for energy sales to Free Consumers and this unit operates in a structure to which clients can reach at any time. Activities of our company ensure the compliance of contractors and suppliers, who may affect quality, to quality commitments. Informing meetings are organized in order to develop quality awareness of contractors and suppliers and maximum care is exercised to create an effective communication medium between parties. Company resumes its activities towards developing client satisfaction continuously in the context of importance considered for product, service, and quality. Moreover, important events and developments that will interest our clients and suppliers together with legal changes are shared with our clients and suppliers through the fastest communication tools. 17. Corporate Social Responsibility Our company, which had performed several applications until today in the context of social responsibility insight, believes in the requirement of leaving a livable planet to future generations, as an institution aware of its responsibility against law and environmental values. Our company takes this approach into account at each step of its activity and applies. Our company strives to take every kind of measure towards protection of environmental and human health and in line with this goal, deserved to receive these certificates by complying with requirements of 9001:2000 Quality Management System, 14001:2008 Environmental Management System and OHSAS 18001-2007 Laborer Health and Occupational Safety Management System Standard and by ensuring continuity of systems.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

18. Structure and Formation of the Board of Directors and Independent Members Board of Directors is composed of 7 individuals. 5 members out of these 7 individuals are selected among nominees nominated by capital majority of Group (A) stakeholders with registered share, other 2 members are selected by General Assembly among nominees nominated in General Assembly. In its meeting after each Ordinary General Assembly or each General Assembly in which members are selected, Board of Directors selects Head and Head deputy among members participating by proxy for Group (A) stakeholders with registered share. Name / Last Name Şaban Cemil Kazancı Sedat Siverek Ahmet Serdar Nişli Tülay Kazancı M. Çetin Yalçın N. Serdar Şeşen T. Yavuz İşbakan

Title Chairman Vice Chairman CEO Director Director Director Independent Director

Whether Functionary in Execution or not Yes Yes Yes No No No No

Duties of Head of Board of Directors and General Manager are executed by different individuals. As for independent member, Tevfik Yavuz İşbakan is selected. Independent member bears independence criteria included in CMB Corporate Governance Principles Declaration. As required by Corporate Governance Principles, although minimum 1/3 of board of directors should be composed of independent members, there is only one independent member in our Company’s Board of Directors. In current Board of Directors, along with presence of professional managers from the industry and who have served in Kazancı Family companies, it is believed that limited number of professionals who might make an additional contribution to Company complicates selection of independent member. For assurance of sending of representatives to Board of Directors by minority stakeholders, no regulation is made with the consideration that including cumulative voting method in articles of association will disturb Company’s harmonious management structure. Moreover, there had been no incident that would have removed independence of independent member until date of report in assignment period. As for the issue that other assignments of members of Board of Directors outside company are related or not to specific rules, regulations compliant to the Turkish Commercial Code and other related legislation are accepted. 19. Qualifications of Board Members Since it is regulated in law, there is no separate regulation in articles of association related to minimum qualifications required in member selection. Board of Directors is composed of members, possessing all qualifications indicated in related items. 20. Mission, Vision, and Strategic Goals of the Company Our Mission: In light of our profound knowledge and experience in energy industry, to continue to implement our highly efficient projects with our sensitivity for technological developments and with our educated staff who is renewing themselves all the time and operating in quality. Our Vision: To create a sustainable and increasing value for our country and investors by perpetuating our role as largest private sector electricity producer in Turkish electricity market.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

Strategy and Targets: Increase of Organic Capacity: It is targeted that established power of Aksa Enerji as 1542 MW surmounts 4000 MW as of 2014 by transformation of on-going investments and licenses received into investment. Evaluation of Potential Acquisition Opportunities: Privatizations in Turkish electricity industry are closely monitored. Customer’s Portfolio: Aksa targets to increase capacity utilization and profitability by selling electricity directly to free consumers and distribution companies. Evaluation of opportunities of electric energy import – export with nearby geographical regions is aimed. 21. Risk Management and Internal Control Mechanism Risk Management and Internal Control Mechanism are under the responsibility and the control of Company Management. Company Management reviews company’s risk management and internal control system regularly as to reach goals below: • Protection of company assets; • Ensuring compliance with laws, regulations, and agreements; • Efficiency in operations and effectiveness of operations; • Correctness and reliability of financial and operational information; • Controlling or avoidance to an extent of activities and operations, including risk factor previously determined and reported, in the context of proposals accepted by management. Results of activities of companies, extent of meeting targets, and determinations and reporting of related to risks faced are evaluated in Board of Directors meetings, periodically held by participation of relevant managers. 22. Authorities and Responsibilities of Board Members and Executives As required by company articles of association, company’s management and representation externally is of board of directors. By development of company business and activities, in case of necessity and need, board of directors determines the distribution of its administrative tasks and duties among its own members in which form and on which principles. Board of Directors might form committee or commissions for execution of business. 23. Operation Principles of the Board of Directors Draft agenda of Board of Directors is prepared by General Manager and finalized in line with proposals of Head and members of Board of Directors. Board of Directors has conducted [·] meetings between 1 January – 31 December 2010. Meeting invitation is made at least seven days before Board of Directors meeting. Invitation includes meeting agenda and documents related to agenda are attached to invitation. Invitation is firstly done by orally at phone, later on in written form. As required by articles of association, in case of presence of all members of Board of Directors in the meeting, invitation is not necessary. In case of requirement by a matter of urgency, invitation to meetings of Board of Directors can also be made in good will, without seven day notice before. In this case, sufficient time will be allowed to members of Board of Directors for them to get prepared for the meeting and to be readily present in the meeting. Maximum care is exercised to ensure equal information flow to members of Board of Directors. A secretariat is composed for informing of members of Board of Directors and auditors and for furnishing communication with them. Appendance to decision record and correspondence of justifications for negative vote related to decisions of Board of Directors to auditors in writing is considered.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

On principle, members of Board of Directors participate in each meeting. Moreover, all members of Board of Directors exercise care for participation actually to meetings on important matters about company’s activities. Preferably, first meeting of Board of Directors is conducted on date of selection. In first meeting, head of board of directors and head deputy are selected and they decide to conduct or not to conduct distribution of duty by decisions among themselves. Board of Directors meets regularly and as planned before, with condition that it is not less than once a month as required by company business and deals, and in cases required, without depending on this term. Also if deemed necessary by chairman or five of members, separate meeting of Board of Directors is necessary. Each member of Board of Directors owns one voting right without considering position and spheres of duty. As required by articles of association, Board of Directors meets by participation of minimum five members and takes decisions by majority of meeting participants. 24. Prohibition on Doing Business or Competing With the Company With respect to decision taken in Ordinary General Assembly Meeting dated 21 April 2010, members of Board of Directors are permitted, as required by 334 and 335. items of The Turkish Commercial Code, to conduct business on company matters personally or on behalf of others, to be a partner in companies doing this kind of business, and to conduct other deals. In 2010, Board members were involved in no business transactions with the Company and none were involved in any competition with the Company. In context of Corporate Governance Principles, in case of occurrence of any kind of case related to prohibition on doing business or competing with the Company, conflict of interests arising from this will be publicly announced. 25. Code of Ethics Generally accepted codes of ethics by our Board of Directors are valid for Company and its employees, and employees are informed on this subject. 26. Numbers, Structures, and Independence of Committees within the Board of Directors Audit Committee Audit Committee, composed of minimum two members, is responsible for taking all necessary precautions to have every kind of internal and independent audit conducted sufficiently and transparently, is especially assigned and responsible from realization of issues indicated below: • Conduct of investigations for selection of independent external audit company, presentation to Board of Directors following prior approval; • Evaluation of compliance of financial statements and disclosure to be publicly announced with legislation and international financial reporting standards; • Surveillance of operation and effectiveness of Company accounting system, public announcement of financial information, independent audit, and company internal control system; • Examination and finalization of complaints related to Company accounting, internal control system, and independent audit. • Audit Committee meets minimum every three months upon invitation of head of committee. It can collect information by inviting manager, internal and independent auditor, as required, to meetings. • Audit Committee may notify specific issues to Company General Assembly if deemed necessary.

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AKSA ENERGY 2010 ANNUAL REPORT

CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT

Audit Committee is established by Board of Directors decision dated 04.04.2011 and numbered 189 and composed of following members; Sedat Siverek, M. Çetin Yalçın and T. Yavuz İşbakan. Member of Audit Committee, M. Çetin Yalçın, is a member of board of directors not functionary in execution, and T. Yavuz İşbakan is an independent member of Board of Directors. Since there is one independent member of board of directors in our Company’s Board of Directors, T. Yavuz İşbakan is a member of Corporate Governance Committee at the same time. Corporate Governance Committee Corporate Governance Committee is responsible from monitoring of compliance of Company with corporate governance principles, and especially is assigned with realization of matters to examine to what extent corporate governance principles are applied in Company, in case of non-compliance, to determine related reasons, and to suggest taking corrective measures by determining complications arising from incomplete incompliance. Corporate governance committee is established by Board of Directors decision dated 04.04.2011 and numbered 190 and composed of following members; Sedat Siverek, N. Serdar Şeşen ve T. Yavuz İşbakan. Member of Corporate Governance Committee, N. Serdar Şeşen, is a member of board of directors not functionary in execution, and T. Yavuz İşbakan is an independent member of board of directors. Since there is one independent member of board of directors in our Company’s Board of Directors, T. Yavuz İşbakan is a member of Audit Committee at the same time. 27. Remuneration of the Board of Directors For members of Board of Directors, no fee payment is done except monthly honorarium.

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AKSA ENERGY 2010 ANNUAL REPORT

AUDITOR’S REPORT SUMMARY

TO THE GENERAL ASSEMBLY OF AKSA ENERJİ ÜRETİM A.Ş. Name of the Company Center Paid in Capital Field of Activity

: AKSA ENERJİ ÜRETİM A.Ş. : Barbaros Bulvarı No: 91 Beşiktaş - İstanbul : TL 577,500,000.00 : Stated in Articles of Association.

Auditors’ names, term in office, being partner or company’s staff: Şeref ÖZÇELİK - 1 year - Emine Mahinur DENGİZ - 1 year not partner nor personnel. Number of Board of Directors Meetings and Audit Committee Meetings Attended: 1 The Result of the Audit of Company Accounts: Audits in every three months revealed that the Company’s records are in line with legislation and are grounded on confirmative documents. The number and results of Treasury Counts in accordance with Turkish Trade Law’s 353rd article’s 1st anecdote’s 3rd definition: Treasury counts were made four times and it was resolved that stocks are in compliance with the records. Audit dates and results that have been performed in accordance with Turkish Trade Law’s 353rd article’s 1st anecdote’s 4th definition: Monthly audits revealed that all negotiable instruments shown in the records were present. Complaints or frauds perceived, and legal proceedings: There are no complaints or frauds perceived. We have audited the accounts and transactions of Aksa Enerji Üretim A. Ş. at the period of 01.01.2010-31.12.2010 in accordance with Turkish Trade Law, The Company’s Articles of Association, other regulations and general accounting principles. In our opinion, the attached balance sheet drawn up on 31 December 2010, the contents of which we acknowledge, fairly and accurately presents the Company’s financial status on the date, and the income statement for the period 01 January 2010 – 31 December 2010 fairly and accurately presents the operating results for the period. We propose that the balance sheet and income statement be approved and that the members of the Board of Directors be acquitted of their fiduciary responsibilities. 29 April 2011

Auditor Auditor Şeref ÖZÇELİK Emine Mahinur DENGİZ

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AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 TOGETHER WITH AUDITOR’S REPORT

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AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

INDEPENDENT AUDITOR’S REPORT OF AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2010

To the Shareholders and Board of Directors of Aksa Enerji Üretim A.Ş. Istanbul 1. We have audited the accompanying financial statements of Aksa Enerji Üretim A.Ş. and it’s wholly owned subsidiaries (together referred to as the Group) listed under Note 1 to the financial statements comprise the consolidated balance sheets as of 31 December 2010, and the consolidated statements of income, changes in equity and cash flows for the year ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements 2. Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes; designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility 3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion 6. In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of Aksa Enerji Üretim A.Ş. and it’s wholly owned subsidiaries as of 31 December 2010 and the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards.

EREN Bağımsız Denetim ve Yeminli Mali Müşavirlik A.Ş. Member Firm of GRANT THORNTON International

Nazım Hikmet Partner

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AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF 31.12.2010 AND 2009 (Currency - Turkish Lira)

ASSETS

Note

31.12.2010

31.12.2009  

Current Assets

TL

TL

Cash and Cash Equivalents Trade Receivables, net Due from/to Related Parties and Shareholders, net Inventory Other Current Assets

4 5 6 7 8

78,323,598 113,026,263 607,869,263 117,624,192 22,269,272

16,309,187 173,662,585 253,752,018 82,583,401 21,170,146

 

 

939,112,588

547,477,337

Assets Held for Sale

24

12,913,379

-

Investments Property, Plant and Equipment, net Goodwill Intangible Assets, net Other Non-Current Assets Deferred Tax Asset

9 10 2 11 14

1,648,812 1,395,783,815 6,023,899 652,150 227,800 4,109,211

1,534,796 1,152,467,998 223,983 560,062 219,607 3,932,289

 

 

1,408,445,687

1,158,938,735

2,360,471,654

1,706,416,072

Non-Current Assets

TOTAL ASSETS

 

The accompanying notes are an integral part of these consolidated financial statements.

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AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF 31.12.2010 AND 2009 (Currency - Turkish Lira)

LIABILITIES

Note

31.12.2010

31.12.2009

TL

TL

  Short Term Liabilities Financial Liabilities Trade Payables, net Taxation Payable on Income Other Payables and Accrued Liabilities

12 13 14 15

413,198,014 197,630,971 13,471,828 9,919,151

221,420,008 277,556,313 16,463,236 4,612,972

 

 

634,219,964

520,052,529

Financial Liabilities Retirement Pay Provision Deferred Tax Liability

12 16 14

803,415,965 1,331,912 2,936,550

624,112,009 865,130 2,909,200

 

 

807,684,427

627,886,339

Share Capital General Reserves Share Premium Net Profit for the Year

17 18

579,487,932 173,652,620 95,999,686 69,427,025

317,312,432 95,651,274 145,513,498

 

 

918,567,263

558,477,204

Commitments and Contingencies

25

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

   

  2,360,471,654

  1,706,416,072

Long Term Liabilities

Shareholders’ Equity

The accompanying notes are an integral part of these consolidated financial statements.

51

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED 31.12 2010 AND 2009 (Currency - Turkish Lira)

Note

01.01.31.12.2010 TL

01.01.31.12.2009 TL

Net Sales

19

911,850,475

880,635,217

Cost of Sales

20

(775,486,013)

(692,670,518)

Gross Profit

 

136,364,462

187,964,699

Research and Development Expenses

21

(13,000)

(874,749)

Marketing and Selling Expenses

21

(1,831,438)

(949,132)

General Administrative Expenses

21

(17,810,624)

(15,827,888)

Basic Operating Profit

 

116,709,400

170,312,930

Goodwill arising from the acquisition of new subsidiaries

2

6,987,334

-

Other Income/(Expenses), net

22

4,552,503

(2,630,984)

Financing Income/(Expenses), net

23

(43,519,762)

(5,705,212)

Profit Before Tax for the Year

 

84,729,475

161,976,734

Taxation on Profit - Current - Deferred

14 14

(14,069,889) -

(16,463,236) -

Profit After Tax for the Year

 

70,659,586

145,513,498

Discontinued Operations

24

(1,232,561)

-

NET PROFIT FOR THE YEAR

 

69,427,025

145,513,498

Earnings before interest, tax, depreciation and amortization (EBITDA)

  3

  188,316,208

  231,173,236

INCOME STATEMENT

The accompanying notes are an integral part of these consolidated financial statements.

52

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED 31.12.2010 AND 2009 (Currency - Turkish Lira)

SHAREHOLDERS’ EQUITY Balance, 31.12.2008 Increase in share capital - in cash Transfer to reserves Dividend paid Net profit for the year Balance, 31.12.2009 Increase in share capital - in cash Transfer to reserves Effect of first time aggregation of İdil 2 and Rasa Enerji Share premium Dividend paid Net profit for the year Balance, 31.12.2010

Share Capital

General Reserves

Share Premium

Net Profit for the Year

Total

279,561,770

75,548,120

-

43,305,091

398,414,981

37,750,662 -

43,305,091 (23,201,937) -

-

(43,305,091) 145,513,498

37,750,662 (23,201,937) 145,513,498

317,312,432

95,651,274

-

145,513,498

558,477,204

263,765,700 -

145,513,498

-

(145,513,498)

263,765,700 -

(1,590,200) -

2,510,655 (70,022,807) -

95,999,686 -

69,427,025

920,455 95,999,686 (70,022,807) 69,427,025

173,652,620 95,999,686

69,427,025

918,567,263

579,487,932

The accompanying notes are an integral part of these consolidated financial statements.

53

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED 31.12.2010 AND 2009 (Currency - Turkish Lira)

01.01.31.12.2010

01.01.31.12.2009

69,427,025

145,513,498

71,694,184

60,860,306

466,782 (1,271,911) 17,014,841 524,106 13,471,828 (149,572)

15,082 851,157 (2,252,660) 475,065 16,463,236 -

171,177,283

221,925,684

61,581,190 (35,040,791) (1,099,126) (8,193) (81,394,316) 5,306,179 (16,463,236)

52,255,665 43,584,506 6,663,265 (71,747) 4,245,839 (6,483,495) (5,829,418)

104,058,990

316,290,299

(12,913,379) (315,102,089) (5,799,916) (114,016)

(360,146,205) 3,987

(333,929,400)

(360,142,218)

193,049,917 162,289,115 (354,117,245) 920,455 95,999,686 (70,022,807) 263,765,700

75,844,353 121,033,767 (181,542,079) (23,201,937) 37,750,662

Net Cash Flows Generated from Financing Activities

291,884,821

29,884,766

Net Increase/(Decrease) in Cash and Cash Equivalents

62,014,411

(13,967,153)

Cash and Cash Equivalents at Beginning of Year

16,309,187

30,276,340

78,323,598

16,309,187

CASH FLOWS FROM OPERATING ACTIVITIES

Net profit for the year Adjustment for: Depreciation and amortization Minority interest Retirement pay provision Interest expense accruals on loans Unrealised foreign exchange (gains)/losses on loans Discount on receivables/(payables), net Tax provision Deferred taxation, net Operating profit before working capital changes Trade receivables Inventory Other current assets Other non current assets Trade payables Other payables and accrued liabilities Taxes paid Net Cash Flows Generated from Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES Assets Held for Sale Purchases/(Disposals) of property, plant and equipment and intangible assets, net Goodwill Purchase/(Disposal) of equity participations, net Net Cash Flows Used in Investment Activities

CASH FLOWS FROM FINANCING ACTIVITIES Short-term financial liabilities Long-term financial liabilities Due from/to related parties and shareholders Effect of first time aggregation of İdil 2 and Rasa Enerji Share Premium Dividend Paid Share capital

Cash and Cash Equivalents at the End of Year

The accompanying notes are an integral part of these consolidated financial statements.

54

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

1. Organization and Nature of Activities Aksa Enerji Üretim A.Ş. (The Company) was established on 12 March 1997 for production and sale of electricity. 94.52% of its capital is owned by Kazancı Holding. The electrical energy produced by the Company in 2010 was sold to the TEİAŞ (Electricity Transmission Company of Turkey), KIB-TEK (Electricity Transmission Company of Turkish Republic of Northern Cyprus) and to the Free Customers by Bilateral Agreements. • Bursa Power Plant: The power plant at Bursa which has a capacity of 1.39 MW (Megawatts) produces electricity from methane gas. Methane gas is extracted from biological waste naturals. This installation is the first of its kind in Turkey. Since the methane gas at the region is almost used up, the operation is stopped for a while. Dated on 24.04.2004 with the number of EÜ/133-6/153 license was ended by the Energy Market Regulatory Authority board resolution which is dated on 21.12.2010 and number of 2938-45. • Hakkari Power Plant Hakkari power plant has an installed capacity of 24 MW. It is a mobile power plant and it uses fuel oil for energy production. All production for five years (2001-2006) was contracted to be sold to EÜAŞ. Electricity production license was obtained from EMRA (Electricity Market Regulatory Authority in Turkey) at the end of 2007. In 2007, the contract period was extended for a year and after 2008, all production of the Power Plant was sold to TEİAŞ. • Samsun Power Plant The Company has another mobile electricity production plant located in Samsun which has installed capacity of 130 MW. It uses fueloil. All of the production from this installation for five years (2003-2008) is contracted to be sold to EÜAŞ. The Company Management decided to stop the production on April 2009 to convert the existing Wartsila diesel engines to gas-diesel engines. Within 2011, Samsun Power Plant will start to work as natural gas power plant. • Antalya Power Plant The Company has been awarded an electricity production license for a natural gas fired combined cycle power plant at Antalya with an installed capacity of 1,150 MW. In relation to Antalya power plant, a purchase agreement was signed with General Electric Packaged Power Inc. (“GE”) for 4 units of LM6000 sprint natural gas turbine generator sets, each of them with 50 MW capacity. Another agreement was signed with Thermodyn and IST companies for the steam turbines which will add 50 MW to the power plant without any natural gas costs. In line with this investment, the Company signed a loan agreement with US Exim as export credit institution and JP Morgan as a funding bank. The Company completed the construction of simple cycle at the end of 2008 and the combined cycle at the end of 2009. GE Natural Gas Power Plants, which are 250 MW, are fully operative until beginning of 2010. Additionally, again in relation to Antalya power plant, the Company signed another purchase agreement with Siemens Aktiengesellschaft, fossil power generation (“Siemens”) for 2 units of Sgt 5 Pac 4000F natural gas turbine generator sets, each of them with 300 MW capacity, in order to establish an open cycle natural gas fired power plant with 600 MW installed capacity. The Company also completed finance structure of this project with Hermes as export credit institution and Commerzbank as the funding bank. The Siemens and GE turbines are located at the same area and most of the constructional works regarding Siemens turbines and GE turbines are carried in parallel. Antalya power plant will be fully completed and operational in the second quarter of 2011. 600 MW Siemens Natural Gas Power Plant in Antalya has become operational in 2009 and increased to 900 MW in the first half of 2011.

55

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

• Manisa Power Plant During 2008, the Company has obtained a license for natural gas power plant in Manisa, which has 115 MW installed capacity. The purchase agreement was signed with Wartsila and the finance was completed with West LB as funding bank and Finnvera as export credit institution. Manisa power plant construction has been partially completed in 2008 and fully completed and operational in 2009. As of 31 December 2010, the number of personnel employed by the Company is 278 (2009: 267). As of 31 December 2010 the subsidiaries which have been included in consolidation are below: 1. Aksa Enerji Üretim A.Ş. - (Y.Ş.) (Northern Cyprus) Early in 2003, the Company had been awarded a new contract of 20 MW mobile power plant in Northern Cyprus. The plant had started electricity production in mid 2003 and all of its production was sold to Electricity Distribution Company of Turkish Northern Cyprus (KIB-TEK). In October 2004, the Company had signed an additional protocol with KIB-TEK. Accordingly, the Company has increased its capacity to 89 MW during 2005 and all of its production was sold to KIB-TEK. At the end of 2008, the contract with KIB-TEK has been revised and the contract period has been extended up to 2024. The Company in Northern Cyprus, named Aksa Enerji Üretim A.Ş. (Y.Ş.), is the wholly owned subsidiary of the Company and its financial results have been consolidated in the accompanying financial statements. In addition, there is an ongoing investment to increase the capacity of the Power Plant by 17.5 MW, which will be completed in the third quarter of 2011. As of 31 December 2010, the number of personnel employed by the Company is 46 (2009: 43). 2. Rasa Elektrik Üretim A.Ş. (Previously called as Rasa Radyatör Sanayi A.Ş.): The Company was established on 30 January 1996 in Istanbul. It was originally engaged in the production of oil and water coolers for automobiles, agricultural machinery and generators. During 2001, the Company completed the construction of a mobile power plant in Mardin which has installed capacity of 33 MW. This is a mobile power plant which uses fuel oil and it has been established to meet the electricity needs of Mardin and surrounding areas. The contract with TEİAŞ (Turkey Electricity Production and Relaying Company) foresees that all production during five years (2001-2007) is sold to TEİAŞ and public institutions. The contract with TEİAŞ has expired as of 31 December 2007. An electricity production licence was obtained from EMRA in 2007 and since then the power plant is producing and selling its energy to TEİAŞ. As of 31 December 2010, the number of personnel employed by the Company is 104 (2009: 101). 3. Deniz Elektrik Üretim Limited Şirketi: The Company was initially established in 1997 in Izmir with the name of “Deniz Rüzgar Enerjisi ve Cihazları Sanayi ve Ticaret Limited Şirketi”. In 2003, the Company changed its name to Deniz Elektrik Üretim Limited Şirketi. In May 2004, Aksa Enerji Üretim A.Ş. acquired 95% of the shares of the Company. On 13.08.2010, Aksa Enerji Üretim A.Ş. has made the purchase of new shares participate in Deniz Elektrik Üretim Ltd. Şti. and raised its shares to 99.99%. The Company established to produce electricity from wind energy. In 2004, the Company awarded two wind farm licenses located in Sebenova/Hatay and Karakurt/Manisa, the production capacities of which are 30 MW and 10.8 MW respectively. Karakurt/Manisa Wind Power Plant and Sebenova/Hatay Wind Power Plant became operational in June 2007 and April 2008, respectively. The Company sold most of its production to TEIAS in 2010, while, small amount is contracted to the Free Customers by the Bilateral Agreements. As of 31 December 2010, the number of personnel employed by the Company is 50 (2009: 42).

56

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

4. Baki Elektrik Üretim Limited Şirketi: Baki Elektrik Üretim Ltd. Şti. (the Company) was established on 4 July 2003 in Ankara for the production and sale of wind power electricity. In March 2004, Aksa Enerji Üretim A.Ş. acquired 95% of the shares of the Company. The Company started the construction of a plant which will produce electricity from wind power with a capacity of 90 MW (thirty wind turbines, each with a capacity of 3 MW) in Şamlı, Balıkesir in 2007. The plant became operational in September 2008. The Company sold most of its production to TEIAS in 2010, while, small amount is contracted to the Free Customers by the Bilateral Agreements The Company is currently increasing the capacity by 24 MW. It is expected that the expansion project will be completed by the first half of 2011 (note 10). As of 31 December 2010, the number of personnel employed by the Company is 31 (2009: 29). 5. Rasa Enerji Üretim A.Ş.: Rasa Enerji Üretim A.Ş. (The Company) was established on 12.09.2000 for production and distribution of the electricity. As of 31 December 2010, the number of personnel employed by the Company is 46. • The Van Plant: The Company has licence for a natural gas power plant in Van which has a 104 MW capacity. The plant is located in the Van organized industrial zone, 5 km from the Van city center, and connected to the national grid at the Van transformer center located 6.8 km from the power plant. Rasa Enerji obtained an EMRA generation licence for the Van plant in 2009 for a period of 49 years. The licence expires in 2058. The Company sells the electrical energy it produces to TEİAŞ (Electricity Transmission Company of Turkey). The total installed capacity of the Van plant was increased to 104 MW in the first quarter of 2010 and 115 MW in the last quarter of 2010. 6. İdil İki Enerji Sanayi ve Ticaret A.Ş.: İdil İki Enerji Sanayi ve Ticaret A.Ş. (the Company) was established in 2001. Nature of the Company’s business is to produce electrical energy by using fuel oil, natural wind and water. The Company owns Şırnak plant which is a fuel oil fired power plant with an installed capacity of 24 MW. The Company has contracts to sell all the electricity it produces to TEAŞ and TEDAŞ, which are Turkey’s state electricity distribution companies. In 2010, all the production of the Company was sold to TEIAS. During 2007, the Company has obtained electricity production licenses from Energy Market Regulatory Authority (EMRA) for a 20 year period as follows: a. Wind Electricity Powerhouses in Türkbahçe/Gaziantep, Yağcılar/İzmir, Arsus/İskenderun, Bozlu/Hatay and Hereke/Kocaeli. b. Hydro-Electricity Powerhouses in Olur/Erzurum, İkisu/Erzurum, Kozbükü/Ordu and Avluca/Giresun. As of 31 December 2010, the number of personnel employed by the Company is 25.

57

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Electricity production licences held by the Group are as follows:

Licence Owner

Area

Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji Aksa Enerji

Type of Facility

Date of Licence Started

KKTC Samsun Hakkari Antalya Manisa İncesu-Ortaköy-Çorum Bolu Erzincan (*) Mersin (*) Kayseri (*) Mutki-Bitlis (*) Pazarköy-Akyazı-Sakarya (*) EğrikayaSırtı-Atikboynutepe-AtıkkayasıtepeAlacıkkayatepe-Çardaklıtepe-İskenderun-Hatay (*) Aksa Enerji City of Gümüşhane, Kuletası Dam (*) Aksa Enerji City of Bitlis, Kor Dam (*) Aksa Enerji Koru Dam (*) Aksa Enerji Adana, Yamanlı 1 Reg. (*) Baki Elektrik Merkez-Şamlı-Balıkesir Deniz Elektrik Sebenoba-Gözene-Yayladağı-Samandağ-Hatay Deniz Elektrik Karakurt-İlyaslar-Çakaltepe-Manisa Rasa Elektrik Mardin İdil İki Şırnak İdil İki Ordu (*) İdil İki Erzurum (*) Rasa Enerji Van Energy Station

Fuel oil Fuel oil Fuel oil Natural Gas Natural Gas HES Thermic HES HES HES HES HES RES

18.10.2007 13.11.2007 21.02.2008 29.09.2005 25.03.2008 17.01.2008 14.06.2007 17.01.2008 24.03.2005 10.02.2005 13.03.2008

HES HES HES HES RES RES RES Fuel oil Thermic HES HES Natural Gas

05.03.2009 30.10.2008 17.06.2009 20.05.2010 06.04.2004 04.06.2004 05.12.2003 22.03.2007 22.03.2007 25.04.2008 06.09.2007 15.01.2009

Total

 

The The capacity capacity of Licence of the plant sbusiness Duration (MWe) (MWe)

10 year 30 year 30 year 40 year 30 year 49 year 49 year 49 year 35 year 40 year 49 year

89.0 130.0 24.0 1,150.0 115.26 15.0 270.0 85.0 20.0 30.0 32.0 26.4 30.0

89.0 130.0 24.0 850.00 115.26 -

49 year 49 year 49 year 49 year 49 year 49 year 49 year 20 year 20 year 49 year 49 year 49 year

30.0 26.0 15.0 24.2 114.0 60.0 10.8 33.0 24.0 62.34 60.0 114.88

90.0 30.0 10.8 33.0 24.0 114.88

2,590.88

1,510.94

 

(*) The licences which the investments are being planned but not started yet. 2. Basis of Presentation of the Financial Statements The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect.

58

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Basis of Consolidation The consolidated financial statements included the financial statements of Aksa Enerji Üretim A.Ş., Deniz Elektrik Üretim Limited Şirketi, Aksa Enerji Üretim Kıbrıs, Baki Elektrik Üretim Ltd. Şti., Rasa Elektrik Üretim A.Ş., Rasa Enerji Üretim A.Ş. and İdil İki Enerji Sanayi ve Ticaret A.Ş. The balance sheets and income statements of the consolidated entities are added on a line by line basis. All significant inter-company transactions and balances between the consolidated entities are eliminated on consolidation. The subsidiaries which have been included in consolidation and their shareholding percentages at 31 December 2010 and 31 December 2009 are as follows: Name of Consolidated Entity 1. Aksa Enerji Üretim Kıbrıs – Y.Ş. (Northern Cyprus) 2. Rasa Elektrik Üretim A.Ş. 3. Deniz Elektrik Üretim Limited Şirketi 4. Baki Elektrik Üretim Limited Şirketi 5. Rasa Enerji Üretim A.Ş. 6. İdil İki Enerji Sanayi ve Ticaret A.Ş.

Effective Rate of Ownership (%) 31.12.2010 31.12.2009 100.00 99.96 99.99 95.00 99.99 99.99

100.00 99.96 95.00 95.00 -

All subsidiaries in the attached financial statements are fully consolidated and no minority interest is calculated because the companies are under the control of the Kazancı family. The Group is incorporated in Turkey, maintains its books of account and prepares its statutory financial statements in accordance with the Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The financial statements have been prepared from statutory financial statements of the Group and presented in Turkish Lira (TL) with adjustments and reclassifications for the purpose of fair presentation in accordance with IFRS. Financial Statements Translation into US Dollars for Convenience Purposes For the convenience of the reader, the accompanying financial statements have been translated from Turkish Lira to USD with the Central Bank buying exchange rate at year-end (31.12.2010: USD = TL 1.5460, 31.12.2009: USD= TL 1.5057). Such convenience translations are not intended to comply with the provisions of IAS 21 “The Effects of Changes in Foreign Exchange Rates” or Financial Accounting Standards Board No.52 “Foreign Currency Translations” for the translation of financial statements Reporting currency The currency used in these consolidated financial statements is Turkish Lira, which is denoted by the symbol TL. Goodwill Goodwill is taken into account at the consolidation stage. Goodwill is the difference of the realizable value and cost of a subsidiary. Goodwill is carried at cost as reduced by appropriate provisions for diminution in the value of goodwill (if one exists) in the accompanying financial statements. Positive goodwill (included in the balance sheet): Cost (Baki Elektrik)

31.12.2006

Payment Fair value of the asset acquired

180,258 43,725

Goodwill

223,983

59

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

As of 24.05.2006 (from financial statements dated 31.12.2006), 95% of the shares of Baki Elektrik were acquired by the Group and TL 223,983 worth of positive goodwill arised. Cost (İdil iki) Payment Fair value of the asset acquired Goodwill

31.12.2010 18,000,000 (14,650,644) 3,349,356

As of 05.03.2010 (from financial statements dated 31.03.2010), 99.99% of the shares of İdil İki were acquired by the Group and TL 3,349,356 worth of positive goodwill arised. Cost (Deniz Elektrik)

31.12.2010

Payment Fair value of the asset acquired

2,880,310 (429,750)

Goodwill

2,450,560

As of 13.08.2010, the Group acquired additional 4.99% and TL 2,450,560 worth of positive goodwill arised. Negative goodwill (included in the income statement): Cost (Rasa Enerji)

31.12.2010

Payment Fair value of the asset acquired

28,000,000 (34,987,334)

Negative goodwill

(6,987,334)

As of 05.03.2010 (from financial statements dated 31.03.2010), 99.99% of the shares of Rasa Enerji were acquired by the Group and TL 6,987,334 worth of negative goodwill arised. Inflation accounting The restatement for the changes in the general purchasing power of TL until 31 December 2005 is based on IAS 29 (“Financial Reporting in Hyperinflationary Economies”). As of 1 January 2006, it has been decided to discontinue the adjustment of financial statements for inflation after taking into account that the hyperinflation period has come to an end as indicated by existing objective criteria and, that other signs indicating the continuance of hyperinflation have largely disappeared. Adoption of new and revised international financial reporting standards In the current period, the Group has applied the standards and interpretations relevant to their scope of activities of the new and newly revised standards and interpretations issued by International Accounting Standards Board (“IASB) and the International Financial Reporting Interpretation Committee (“IFRIC”) of “IASB” being effective from 1st of January 2010. Adoption of New and Revised International Financial Reporting Standards a) Effective for annual periods beginning on or after 01 January 2010: - Improvements to IFRS (issued 2009) - Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards - Additional exemptions for first-time adopters” - Amendments to IFRS 2 “Cash settled share based Payment Transactions”

60

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

- Amendments to IFRS 3 “Business Combinations” - IAS 27 “Amendments to separate financial statements” - Amendments to IAS 39 “Financial Instruments: Recognition and Measurement”- Eligible hedged items - IFRIC 17, “Distributions of Non-cash Assets to Owners” Application of the above Standards and Interpretations had no effects on reported results of the Group or the financial situation. b) New and amended standards and interpretations issued that are effective subsequent to 31 December 2010: - IFRS 9, “(Revised) Financial Instruments, Classification and Measurement of Financial Assets” (effective for fiscal periods beginning on or after 01.01.2013) - Amendment to IAS 24, “Related Party Disclosure’s” (effective for periods beginning on or after 01.01.2011) - Amendment to IAS 32, “Classification of Right Issues” (effective for periods beginning on or after 01.02.2010) - IFRIC 9, “Reassessment of Embedded Derivatives” (effective for periods beginning on or after 01.01.2013) - Amendment to IFRIC 14, “Prepayments of a Minimum Funding Requirement” (effective for periods beginning on or after 01.01.2011, with earlier application permitted) - IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments” (effective for periods beginning on or after 01.07.2010, with earlier application permitted) The Group Management thinks that the application of the above Standards and Interpretations shall not make an important effect on the financial statements of the Group in future periods. 3. Summary of Significant Accounting Policies The significant accounting policies followed in the preparation of the accompanying consolidated financial statements are set forth below: Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents include all short-term, highly liquid investments that are readily convertible to known amounts of cash and near to maturity that they present an insignificant risk of changes in value because of changes in interest rates. Trade receivables and allowance for doubtful receivables Trade receivables and notes receivable are recognized at original invoice amount and discounted to present value less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. In case the provision decreases as a result of an event that occurs after write off, the amount is reflected on the income statement in the current period. Based on an evaluation of its trade portfolio such as volume, character of outstanding loans, past loan experience and general economic conditions management provides a general reserve that it believes is adequate to cover possible losses and uncollectible amounts in the Group’s receivables, in addition to specific reserves provided for receivables in legal follow-up. Related parties For the purpose of the accompanying financial statements, key personnel in management and board of directors, their family and controlled or dependent companies, participations and subsidiaries of the Group are referred to as related parties (Appendix 1). Trade payables Trade payables are stated at their nominal value, discounted to present value as appropriate.

61

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Inventory Inventory (including raw materials) are valued at the lower of cost and net realizable value. Cost is calculated using the average method. Net realizable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. Property, plant and equipment, intangible assets and related depreciation and amortization Property, plant and equipment and intangible assets are restated in equivalent purchasing power at 31 December 2005 and subsequent additions are carried at cost. Depreciation and amortization are provided on pro-rata basis. Repair and maintenance expenditure related to property, plant and equipment is expensed as incurred. The depreciation and amortization periods for property, plant, equipment and intangible assets which approximate the economic useful lives of such assets, are as follows: Year Buildings Machinery and equipment (*) Furniture, fixtures and office equipment Motor vehicles Intangible assets

10-50 10-20 5-15 5-8 5-7

(*) Breakdown of machinery and equipment is as follows: Year Karakurt (Manisa) Wind Electricity Powerhouse Sebenova (Hatay) Wind Electricity Powerhouse Şamlı (Balıkesir) Wind Electricity Powerhouse Natural Gas Power Plants Fuel Oil Power Plants

20 20 20 20 15

Financial liabilities Interest bearing bank loans are recorded at the proceeds received, net of direct issue costs. Finance charges are accounted for on an accrual basis and shown in other liabilities and expense accruals to the extent they are not settled in the period in which they arise. Aksa Enerji Üretim A.Ş. has an export credit premium payable in connection with its long term loans used to finance the wind electricity, natural gas and other energy plants. In statutory financial statements, the Company recorded these both at assets (Other current and noncurrent assets – Note 8) and liabilities (Financial liabilities– Note 12) until the time of payment. As of 31 December 2010, TL 45,381,689 (USD 29,354,262) and 31 December 2009 TL 36,133,018 (USD 23,997,488) of export credit premium is netted of from assets and liabilities. Deniz Elektrik Üretim Ltd. Şti. has an export credit premium payable in connection with its long term loans used to finance the wind electricity plant. In statutory financial statements, the Company recorded these both at assets (Other current and noncurrent assets – Note 8) and liabilities (Financial liabilities – Note 12) until the time of payment. As of 31 December 2010, TL 5,224,022 (USD 3,379,057) and 31 December 2009, TL 5,830,763 (USD 3,872,460) of export credit premium is netted of from assets and liabilities. Baki Elektrik Üretim Ltd. Şti. has an export credit premium payable in connection with its long term loans used to finance the wind electricity plant. In statutory financial statements, the Company recorded these both at assets (Other current and noncurrent assets – Note 8) and liabilities (Financial liabilities – Note 12) until the time of payment. As of 31 December 2010, TL 28,758,259 (USD 18,601,720) and 31 December 2009, TL 23,459,875 (USD 15,580,710) of export credit premium is netted of from assets and liabilities. Rasa Enerji Üretim A.Ş. has an export credit premium payable in connection with its long term loans used to finance the wind electricity plant. In statutory financial statements, the Company recorded these both at assets (Other current and noncurrent assets – Note 8) and liabilities (Financial liabilities – Note 12) until the time of payment. As of 31 December 2010, TL 4,716,834 (USD 3,050,992) of export credit premium is netted of from assets and liabilities.

62

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Impairment of assets Assets that have indefinite useful lives, for example goodwill, are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Taxation and deferred income taxes Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax: The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax: Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Employee benefits / retirement pay provision Under the Turkish Labor Law and union agreements, employee termination payments are made to employees retiring or involuntarily leaving the Group. Such payments are considered as being part of defined retirement benefit plan as per International Accounting Standard No: 19 (revised) “Employee Benefits” (“IAS 19”). The retirement benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses. Operating expenses Operating expenses are recognized in profit or loss upon utilization of the service or at the date of their origin. Expenditure for warranties is recognized and charged against the associated provision when the related revenue is recognized. Revenue recognition Revenue involves the goods and service sales invoiced value. Revenues are recognized on an accrual basis at the time deliveries of goods and services or acceptances are made, the transfer of risks and benefits related to good are realized, the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group, at the fair value of the consideration received or receivable. The significant risks and benefits in sales are transferred when the goods are delivered or legal proprietorship is transferred to the customer. Interest income and expenses are recognized in the income statement on an accrual basis. Net sales represent the invoiced value of goods shipped less sales returns and commission and excluding sales taxes. Research and development costs Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved power plant equipments) are recognized as intangible assets to the extent that such expenditure is expected to generate future economic benefits. Development costs that have been capitalized are amortized over five years. Segment reporting In identifying its operating segments, management generally follows the Group’s service lines, which represent the main services provided by the Group. All the Group’s power plants and wind electricity powerhouses are located in Turkey (Notes 19-20). Offsetting Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

63

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Foreign currency transactions and translation Transactions in foreign currencies during the periods have been translated at the exchange rates prevailing at the dates of these transactions. Balance sheet items denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet dates. The foreign exchange gains and losses are recognized in the income statement. The year end rates used for USD, EURO, CHF, GBP and JPY are shown below: Currency USD EURO CHF GBP JPY

31.12.2010 1.5460 2.0491 1.6438 2.3886 0.0189

31.12.2009 1.5057 2.1603 1.4492 2.3892 0.0163

Provisions A provision is recognized when, and only when an enterprise has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Commitments and contingencies Transactions that may give rise to contingencies and commitments are those where the outcome and the performance of which will be ultimately confirmed only on the occurrence or non occurrence of certain future events, unless the expected performance is not very likely. Accordingly, contingent losses are recognized in the financial statements if a reasonable estimate of the amount of the resulting loss can be made. Contingent gains are reflected only if it is probable that the gain will be realized. Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the periods in which they become known. Significant management judgment in applying accounting policies The following are significant management judgments in applying the accounting policies of the Group that have the most significant effect on the financial statements: Revenue: Management needs to make significant judgment in determining when to recognize income from after-sales services. Impairment: An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. To determine the recoverable amount, management makes assumptions about future events and circumstances. Provisions: The Group is currently defending certain lawsuits where the actual outcome may vary from the amount recognized in the financial statements. None of the provisions will be discussed here in further detail so as not to seriously prejudice the Group’s position in the related disputes. EBITDA EBITDA is defined as earnings before interest expense, income tax expense (benefit), depreciation and amortization. This information should be read with the statements of cash flows contained in the accompanying financial statements.

64

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

4. Cash and Cash Equivalents  

31.12.2010

31.12.2009

Cash on hand Cash at banks - Demand account - Time deposits and repurchase agreements - Blocked account

93,711

70,447

23,179,292 47,707,410 7,343,185

10,208,493 1,450,000 4,580,247

 

78,323,598

16,309,187

Bank accounts are listed below: 31.12.2010 31.12.2009 Foreign currency TL Equivalent Foreign currency TL Equivalent

  Demand Deposits - TL - USD - EUR - GBP - CHF - JPY

1,202,398 967,483 2,773 91 53,452

19,330,129 1,858,908 1,982,470 6,623 150 1,012

441,958 1,031,677 5,050 114 -

7,302,001 665,530 2,228,731 12,066 165 -

 

23,179,292

 

10,208,493

20,085,243 2,112,500

12,326,902 31,051,785 4,328,723

-

1,450,000 -

 

47,707,410

 

1,450,000

3,026,750 1,300,000

4,679,355 2,663,830

3,042,975 -

4,580,247 -

 

 

7,343,185

 

4,580,247

 

 

78,229,887

 

16,238,740

  Time Deposits and repurchase agreements (*) - TL - USD - EUR   Blocked Account (**) - USD - EUR

(*)

As of 31 December 2010, the average term of the time deposit is 30 days and the effective interest rate on time deposit is 8%.

As of 31 December 2010, the average term of repurchase agreements is between 3 - 41 days and interest rate for TL is between 5.3% - 6.5% and for foreign currency is between 0.40% - 1.25%.

(*)

As of 31 December 2010, TL 7,343,185 (2009: TL 4,580,247) is related to the liabilities of the Group, in accordance with provision of the loan agreement. (**)

65

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

5. Trade Receivables, net  

31.12.2010

31.12.2009

Customers’ current accounts - Turkish Lira - Foreign currency Trade receivables from related parties (*) Notes receivable (**) Unearned interest on notes receivable (-) Provision for doubtful receivables (-)

53,742,276 668,486 60,068,753 1,278,899 (233,063) (2,499,088)

19,640,099 22,133,861 131,623,271 3,068,758 (204,776) (2,598,628)

113,026,263

173,662,585

 

As of 31 December 2010, trade transactions with related parties which are mainly comprised of sale of imported natural gas equipments to Kazancı Group gas distribution companies. Receivables from overseas related parties are mainly in relation to sale of power generations (detailed note 6).

(*)

(**)

As of 31 December 2010, maturity breakdown of post dated checks and notes receivables were as follows:

Up to 3 months Between 3 months and 6 months 6 months and more

626,660 469,283 182,956  

1,278,899

As of 31 December 2010, letters of guarantee received for trade receivables as follows: Letters of guarantee Security bond Guarantee cheques   Total

33,165,621 31,185,790 2,716,475   67,067,886

6. Due from/to Related Parties and Shareholders, net Due from/to related parties and shareholders comprised balances with Kazancı Family and Kazancı Group Companies all of which are under the control of Kazancı Family. Additionally Kazancı Holding A.Ş. has signed a protocol (31.12.2009) with Aksa Enerji Üretim A.Ş. that this balance will be repaid within two years.

66

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

As of 31 December 2010 and 2009 the breakdown of the related parties balances are as follows: Due from related parties Afyon Doğalgaz Dağıtım A.Ş. Aksa CNG Sıkıştırılmış Doğalgaz Dağıtım İletim ve Satış A.Ş. Aksa Doğalgaz Toptan Satış A.Ş. Aksa Doğalgaz Dağıtım A.Ş. Aksa Elektrik Perakende Satış A.Ş. Aksa Elektrik Toptan Satış A.Ş. Aksa Gaz Dağıtım A.Ş. Aksa Gaz Dağıtım A.Ş. Aksa Göynük Enerji Üretim A.Ş. Aksa International LTD. Aksa Jeneratör Sanayi A.Ş. Aksa Makina Sanayi A.Ş. Aksa Power Gen Changzhou Aksa Power Generation Co. Aksa Power Generation Fze. Aksa Satış ve Pazarlama A.Ş. Aksa Servis ve Yedek Parça A.Ş. Aksa Teknoloji A.Ş. Aksa Televizyon Hizmetleri A.Ş. Aksa Turizm İşletmeleri A.Ş. Alenka Enerji Ltd. Şti. Anadolu Doğalgaz Dağıtım A.Ş. Anadolu Doğalgaz Toptan Satış A.Ş. Atel Telekomünikasyon A.Ş. Ayres Ayvacık Rüzgar Enerji Santrali Ltd. Şti. Balıkesir Doğal Gaz Dağıtım A.Ş. Bandırma Doğal Gaz Dağıtım A.Ş. Bilecik Bolu Doğal Gaz Dağıtım A.Ş. Ceka Enerji Üretim A.Ş. Çanakkale Doğalgaz Dağıtım A.Ş. Çoruh Aksa Elektrik Hizmetleri A.Ş. Çoruh Elektrik Dağıtım A.Ş. Deriş İnşaat A.Ş. Doust Company (Iraq) Düzce Ereğli Doğal Gaz Dağıtım A.Ş.

31.12.2010 Trade Non-Trade 1,468,797 328,445 183,198 982,227 10,147,477 3,728,879 655,784 1,566,816 242,139 5,908,015 7,921 1,221 5,883 569,296 65,900 249,242 85 14,234 1,951 163,891 315,719 709,341 113,110 3,070,044 422,356 2,879,445 1,848,329

11,484,546 408 234,053 298 1,953,737 22 193 501,417 1,460,305 6,618,325 1,433,043 686,394 1,583 292,392 62 68,988 8,059,390 665,985 159,337 97 7,401,882 368,474 1,245,808 7,369,178 1,366 1,331 3,399,415 12,980,061

31.12.2009 Trade Non-Trade 4,925,731 13,757 102,186 271,554 1,041,155 430,203 3,261,283 30,831,103 2,639,086

10 155 86 47,271 7,261,554 -

670,717 4,820,344 274,181 16,690 154,242 2,561,054 2,905,136 1,238,154 366,879

100,882 2,259 6,119,393 480,820 114 127,813 149 115,080 -

3,864,798 -

4,422 -

67

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Due from related parties Elazığ Doğalgaz Dağıtım A.Ş. Eurl Aksa Generateurs Fatih Büyüktopçu Fırat Aksa Elektrik Hizmetleri A.Ş. Gemlik Doğal Gaz Dağıtım A.Ş. Gesa Güç Sistemleri A.Ş. Gümüşhane Bayburt Doğalgaz A.Ş. ISP Uluslararası Yedek Parça A.Ş. İdil İki Enerji Sanayi ve Ticaret A.Ş. İrfan Cengiz Kapıdağ Rüzgar Enerji Santrali Ltd. Şti. Karadeniz Doğalgaz Dağıtım A.Ş. Kazancı Holding A.Ş. Kazancı Teknik Cihazlar Yedek Parça A.Ş. Koni İnşaat Sanayi A.Ş. Koni Tarım İşletmeleri A.Ş. Koni Tarımsal Yatırımlar Koni Turizm San. ve Ticaret A.Ş. Malatya Doğalgaz A.Ş. Manisa Doğalgaz Dağıtım A.Ş. Mustafa Kemal Paşa Susurluk Doğalgaz Dağıtım A.Ş. Onan Enerji Üretim A.Ş. Ordu Giresun Doğalgaz Dağıtım A.Ş. Pegaz Malatya Şehiriçi Doğalgaz Dağıtım A.Ş. Rasa Enerji Üretim A.Ş. Renk Transmisyon San A.Ş. Şanlıurfa Doğalgaz Dağıtım A.Ş. Siirt Batman Doğal Gaz Dağıtım A.Ş. Sivas Doğal Gaz Dağıtım A.Ş. Tasfiye Halinde S.S. Endüstriyel Ürün Üreticileri Tokat Amasya Doğal Gaz Dağıtım A.Ş. Trakya Doğal Gaz Dağıtım A.Ş. Van Doğalgaz Dağıtım A.Ş. Total due from related parties

68

31.12.2010 Trade Non-Trade

31.12.2009 Trade Non-Trade

3,023,511 535,611 416,051 1,598 2,753,364 4,432,260 1,111,096 14,953 5,953 107,143 3,173,982 173,296 1,194,692 11,801 93,540 2,612,973 6,586 4,141,374 524,446 84,778

2,298,033 56,972 30 11,686 162,925 99,384 615,745 295,727,058 2,777,807 178,596,578 5,249,867 95,674 97,123 61,637 384 24,149,739 98,202 1,065 45 1,360,611 40 533 2,112 24,173,317 20,703,425 972

6,126,944 560,104 -

106 9,130

4,203,059 688 19,060 1,225,559 2,420,684 8,187,482 1,005,559 76,812 4,567,145 13,359,084 349,114 22,146,284 6,023,765 963,675

117 469,176 1,531 139 199,098 128,945,796 111,582,564 92 58 54 1,217,506 10 400 150,963 -

60,068,753

622,729,054

131,623,271

256,836,748

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Due to related parties

31.12.2010 Trade Non-Trade

31.12.2009 Trade Non-Trade

Aksa Doğal Gaz Toptan Satış A.Ş. Aksa Doğalgaz Dağıtım A.Ş. Aksa Elektrik Perakende Satış A.Ş. Aksa Elektrik Toptan Satış A.Ş. Aksa Far East PTE Ltd. Aksa Gaz Dağıtım A.Ş. Aksa İzmir Makina Satış A.Ş. Aksa Jeneratör Sanayi A.Ş. Aksa Makina Sanayi A.Ş. Aksa Satış ve Pazarlama A.Ş. Aksa Servis ve Yedek Parça A.Ş. Aksa Turizm İşletmeleri A.Ş. Alenka Enerji Üretim Ltd. Şti. Anadolu Doğalgaz Dağıtım A.Ş. Ayres Ayvacık Rüzgar Enerji Santrali Ltd. Şti. Balıkesir Doğal Gaz Dağıtım A.Ş. Bilecik Bolu Doğal Gaz Dağıtım A.Ş. Deriş İnşaat A.Ş. Eurl Aksa Generateurs Gemlik Doğal Gaz Dağıtım A.Ş. Gesa Güç Sistemleri A.Ş. İdil İki Enerji Sanayi ve Ticaret A.Ş. Kapıdağ Rüzgar Enerji Santrali Ltd. Şti. Kazancı Holding A.Ş. Kazancı Makina ve Motor Ltd. Şti. Kazancı Teknik Cihazlar Yedek Parça A.Ş. Koni İnşaat Sanayi A.Ş. Malatya Doğalgaz Dağıtım A.Ş. Manisa Doğalgaz Dağıtım A.Ş. Rasa Enerji Üretim A.Ş. Sivas Doğal Gaz Dağıtım A.Ş. Tw.Energy Target Van Doğalgaz Dağıtım A.Ş. Shareholders

9,675 4,326 2,378 29,775 975 134 170,350 897 186,785 332,458 33,305 -

59,506 3,884 51,282 354,610 727,140 989 728,575 28,169 51,926 747 162,099 15 779,371 2,991 3,644 56,536 382,645 195 10,579,316 3,346 1,202 420,585 373,794 21,737 3,000 54,685 7,802

-

20,757 36 28,704 18,937 -

10,597,007 313,193 2,978,088 2,605,857 -

597 2,270,510 90,695 48,616 279 747 895 195 283,192 1,928 9,902 39,805 163,154 23,264 82,129 388

Total due to related parties

771,058

14,859,791

16,494,145

3,084,730

59,297,695

607,869,263

115,129,126

253,752,018

Due from / (to) related parties, net

69

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

7. Inventory  

31.12.2010

31.12.2009

Raw materials (*) Work in process Finished goods Merchandise Other inventory Provision for diminution in value of inventory (-) Advances given

59,010,833 538,452 316,931 16,952,709 5,011,692 (506,698) 36,300,273

25,844,295 132,653 761,948 23,426,491 5,476,259 26,941,755

117,624,192

82,583,401

  (*)

Raw materials are mainly comprised of fuel oil which is purchased on the basis of CIF (Cost, Insurance, and Freight Inclusive).

8. Other Current Assets  

31.12.2010

31.12.2009

Prepaid expenses (**) Deposits given VAT carried forward Prepaid taxes and funds Advances given for business purposes Advances given to personnel Due from personnel Other doubtful receivables Provision for other sundry receivables Sundry debtors

2,432,404 341,159 3,604,782 15,179,610 274,445 335,101 4,130 446,281 (446,281) 97,641

4,606,422 2,999,581 1,202,339 11,101,887 395,747 106,749 622,017 135,404

22,269,272

21,170,146

31.12.2010

31.12.2009

1,512,300 119,575 16,937 42,108 (42,108)

1,512,300 15,559 6,937 42,108 (42,108)

1,648,812

1,534,796

  (**)

Prepaid expenses are mainly related to rent and insurance expenses.

9. Investments   Rasa Radiator (Jiangyin) Co. Ltd. Kapıdağ Rüzgar Enerji Santrali Ltd. Şti. Ayres Ayvacık Rüzgar Enerji Santrali Ltd. Şti. I.S.P. A.Ş. Provision for impairment of I.S.P. A.Ş.  

No consolidation or equity accounting has been applied due to immateriality of the above noted investments.

70

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

10. Property, Plant and Equipment, net

 

31.12.2009

Additions

Disposals

Transfer

Acquisition of Rasa Enerji and İdil İki

Property, Plant and Equipment Held For Sale

31.12.2010

61,260,457

924,467

-

110,142

94,811

(632,657)

61,757,220

414,711 1,083,035,600 3,402,624

15,413 3,262,897 596,898

(988,783) (639,663)

88,526,599 -

204 108,989,378 132,389

(307,676) (2,500)

430,328 1,282,518,015 3,489,748

7,751,843

864,082

(27,098)

-

720,193

(174,698)

9,134,322

232,316,354

210,194,533

-

(88,636,741)

27,713,170

(12,016,205)

(*)

215,858,290 (1,655,544)

-

137,650,145

(13,133,736)

1,726,900,744

Cost Land, land improvements and buildings Leasehold improvements Machinery and equipment Motor vehicles Furniture, fixtures and office equipment Construction in progress and advances given  

1,388,181,589

369,571,111

Accumulated Depreciation Land improvements and buildings Leasehold improvements Machinery and equipment Motor vehicles Furniture, fixtures and office equipment

534,542 171,710 228,204,477 1,698,845

150,633 68,913 70,257,380 366,183

(320,852) (477,026)

-

10,326 24,621,844 53,524

(11,813) (73,449) (1,958)

683,688 240,623 322,689,400 1,639,568

5,104,017

659,270

(6,095)

-

239,595

(133,137)

5,863,650

 

235,713,591

71,502,379

(803,973)

-

24,925,289

(220,357)

331,116,929

1,152,467,998 144,355,911

(851,571)

- 112,724,856

(12,913,379)

1,395,783,815

Net Book Value

As of 31 December 2010 the Group’s property, plant and equipment were insured at EURO 701,555,814, USD 46,078,435 and TL 751,308. As of 31 December 2010, TL 18,717,549 (31 December 2009 TL 27,740,648) of interest expenses and foreign exchange losses has been capitalized. (*)

As of 31 December 2010, the breakdown of construction in progress and advances given are as follows:

Antalya Siemens & GE NGPP Çorum İncesu Hydro Electric Power Plant Şamlı Wind Farm Samsun Operating Cycle Power Plant Van Natural Gas Power Plant Turkish Republic of Northern Cyprus (TRNC) capacity expansion Advances Given (**) Other Projects (***)     (**)

197,498,726 51,090,205 48,500,664 17,279,163 11,602,689 11,454,998 20,044,076 12,100,590   369,571,111

The amount is related to advances given to suppliers for power generation plants projects.

(***)

Other projects are related to HES and RES Projects explained as note 1.

71

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

The allocation of current period depreciation and amortization expenses for the periods ended 31 December 2010 and 2009 is as follows:  

01.01.-31.12.2010 01.01.-31.12.2009

Cost of sales General administration expenses Discontinued Operations

71,287,146 319,663 87,375

60,223,390 636,916 -

 

71,694,184

60,860,306

31.12.2010

11. Intangible Assets, net

31.12.2009

Additions

Disposals

Acquisition of Rasa Enerji and İdil İki

Rights

881,262

290,567

(165,519)

49,594

1,055,904

 

881,262

290,567

(165,519)

49,594

1,055,904

Rights

321,200

191,805

(111,659)

2,408

403,754

 

321,200

191,805

(111,659)

2,408

403,754

Net Book Value

560,062

98,762

(53,860)

47,186

652,150

  Cost

Accumulated Amortization

12. Financial Liabilities  

31.12.2010

31.12.2009

Short-term bank loans Current portion of long-term bank loans Factoring Payables Finance lease liabilities, net Interest expense accruals

129,648,120 181,038,070 71,161,519 19,285,895 12,064,410

83,515,435 83,918,418 32,442,510 8,207,324 13,336,321

Total short-term financial liabilities

413,198,014

221,420,008

Long-term bank loans Factoring Payables Finance lease liabilities, net

679,447,154 42,669,600 81,299,211

558,570,096 65,541,913

Total long -term financial liabilities

803,415,965

624,112,009

1,216,613,979

845,532,017

Total financial liabilities

72

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

A summary per type of loan is given below:     Current: Bank Loans -TL -USD -EUR

31.12.2010 Foreign Currency TL Amount

31.12.2009 Foreign Currency

TL Amount

167,110,787 22,743,063

5,730,102 258,353,277 46,602,811

96,464,985 7,491,105

6,003,490 145,247,328 16,183,035

Factoring Payables -TL -USD

10,640,530

54,711,260 16,450,259

-

32,442,510 -

Finance lease liabilities, net -USD -EUR

11,396,210 813,702

17,618,539 1,667,356

5,230,883 156,600

7,876,139 331,185

Interest expense accruals Total Short Term

12,064,410

13,336,321

 

413,198,014

 

221,420,008

330,789,640 79,997,280

4,123,945 511,400,783 163,922,426

353,799,074 11,207,153

1,644,010 532,715,273 24,210,813

Factoring Payables -USD

27,600,000

42,669,600

-

-

Finance lease liabilities, net -USD -EUR

47,305,549 3,984,594

73,134,379 8,164,832

42,918,938 425,342

64,623,047 918,866

 

803,415,965

 

624,112,009

Non-current: Bank Loans -TL -USD -EUR

Total Long Term

As of 31 December 2010, the annual interest rate of the long term TL loans is 11.35%-15.69%, USD loans varied between 1.48%6.93% and EURO loans varied between 2.61%-9.67%. Bank loans are guaranteed by Kazancı Holding A.Ş., Aksa Jeneratör Sanayi A.Ş. (a related party), personal guarantee of the Group’s shareholders, as well as several other securities (Note 25-b).

73

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

As of 31 December 2010, the repayment schedule of the short term and long term loans is as follows: EURO

TL Equivalent

USD

TL Equivalent

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

22,743,063 17,814,367 11,318,648 9,192,984 9,598,173 5,012,551 4,185,216 4,185,216 4,185,216 4,185,216 4,185,216 1,363,216 1,363,216 1,363,216 1,363,216 681,613

46,602,811 36,503,419 23,193,042 18,837,344 19,667,616 10,271,218 8,575,926 8,575,926 8,575,926 8,575,926 8,575,926 2,793,366 2,793,366 2,793,366 2,793,366 1,396,693

167,110,787 93,427,706 44,165,140 40,245,891 33,090,312 28,310,275 25,937,196 21,348,042 20,418,231 11,368,902 6,238,971 6,238,974 -

258,353,277 144,439,233 68,279,306 62,220,147 51,157,622 43,767,685 40,098,905 33,004,073 31,566,585 17,576,322 9,645,449 9,645,456 -

5,730,102 3,229,076 894,869 -

310,686,190 184,171,728 92,367,217 81,057,491 70,825,238 54,038,903 48,674,831 41,579,999 40,142,511 26,152,248 18,221,375 12,438,822 2,793,366 2,793,366 2,793,366 1,396,693

Total

102,740,343

210,525,237

497,900,427

769,754,060

9,854,047

990,133,344

Payment Year

TL Total TL Equivalent

Factoring Payables As of 31 December 2010, the breakdown of the factoring payables is as follows:   Short-term:

31.12.2010

31.12.2009

Girişim Faktoring A.Ş. Yapı ve Kredi Faktoring A.Ş.

54,711,260 16,450,259

32,442,510 -

 

71,161,519

32,442,510

Yapı ve Kredi Faktoring A.Ş.

42,669,600

-

 

42,669,600

-

113,831,119

32,442,510

Long-term:

Total As of 31 December 2010, TL 39,884,153 of TEIAŞ receivables is netted of from assets and liabilities.

74

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Lease Payables The Group acquired machinery and equipment via financial leasing. As of 31 December 2010, the repayment schedule of leasing obligations is as follows: EURO

TL Equivalent

USD

2011 2012 2013 2014 2015 2016

813,702 857,459 828,435 762,458 801,084 735,158

1,667,356 1,757,019 1,697,546 1,562,353 1,641,501 1,506,413

11,396,210 13,151,621 13,720,531 9,969,238 7,719,110 2,745,049

17,618,539 20,332,406 21,211,941 15,412,442 11,933,744 4,243,846

19,285,895 22,089,425 22,909,487 16,974,795 13,575,245 5,750,259

Total

4,798,296

9,832,188

58,701,759

90,752,918

100,585,106

Payment Year

TL Equivalent Total TL Equivalent

13. Trade Payables, net  

31.12.2010

31.12.2009

Suppliers’ current accounts - Turkish Lira - Foreign Currency (*) Trade payables from related parties (**) Notes payable Unearned interest on notes payable (-) Other

96,319,091 101,007,236 771,058 87,722 (554,350) 214

94,039,220 120,315,730 16,494,145 51,721,145 (5,535,634) 521,707

197,630,971

277,556,313

 

TL 96,669,697 (2009: TL 119,094,892) of the amount is related to letter of credits which are in relation to import of spare parts and small equipments for power plants.

(*)

(**)

The amount is detailed note 6.

14. Taxation Payable on Income The corporation tax rate in Turkey on the profits for the calendar year 2010 is 20% (2009: 20%). Taxable profits are calculated by modifying accounting income for certain exclusions and allowances for tax purposes from the profit disclosed in the statutory income. No other taxes are paid unless profits are distributed. In Turkey, no taxes are withheld from undistributed profits, profits added to share capital (bonus shares) and dividends paid to other resident companies. Other than those, profits distributed in dividends to individuals and non-resident companies are subject to withholding at the rate of 15%. The Turkish Tax Procedural Law does not include a procedure for formally agreeing tax assessments. Tax returns must be filed within three and a half months of the year-end and may be subject to investigation, together with their underlying accounting records, by the tax authorities at any stage during the following five years. Investment Allowance Exemption: The investment allowance application which had been in force for a significant period of time was abolished by Law No.5479 dated 30.03.2006. However, in accordance with the temporary article 69 of the Income Tax Law, income and corporate taxpayers can deduct the following amounts from their income related to the years 2006, 2007 and 2008 as well as the investment allowance amounts they could not offset against 2005 gains which were present as of 31.12.2005, in accordance with the legislation (including the provisions related to tax rates) in force as of 31.12.2005.

75

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

During 2007, the Group revised its foreseeable utilization of investment allowances in future corporate tax computations and wrote off TL 5,000,000 from its deferred tax assets. Accordingly the Group is not creating any deferred tax assets or liability since 31.12.2007. The tax liabilities included in the accompanying financial statements comprised:   a) Included in the income statement: Current tax charge b) Included in the balance sheet: Taxation payable on income (current) Deferred tax assets Deferred tax liabilities

31.12.2010

31.12.2009

(14,069,889)

(16,463,236)

13,471,828 4,109,211 2,936,550

16,463,236 3,932,289 2,909,200

Deferred taxes As of 31 December 2010 and 31 December 2009, The Group does not have material timing differences which will be reversed in the foreseeable future. Accordingly, the Group does not create any provision for deferred taxation. 15. Other Payables and Accrued Liabilities   Order advances received Taxes and dues payable Social security premiums payable Deposits received Expenses provisions Due to personnel  

31.12.2010

31.12.2009

1,920,685 3,414,618 444,230 2,801,164 156,102 1,182,352

1,030,270 1,625,610 738,110 266,491 150,526 801,965

9,919,151

4,612,972

16. Retirement Pay Provision Under the Turkish Labor Law, the Group is required to pay employment termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). The provision is made in respect of all eligible employees, at a rate of 30 days gross pay for each year of service. The rate of pay is that ruling at the respective balance sheet dates, subject to a maximum of TL 2,517 per year as of 31.12.2010 (31.12.2009 : TL 2,365 per year). The liability is not funded, as there is no funding requirement. As of 31 December 2010 and 2009 in the accompanying financial statements in accordance with revised IAS 19 (Employee Benefits) the Group reflected a liability for termination benefits based upon factors derived using their experience of personnel terminating their services and being eligible to receive retirement pay and discounted to present value at the balance sheet date by using average market yield, expected inflation rate (5.1%) and an appropriate discount rate (10%).

76

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

17. Share Capital The issued and paid up share capital of the Group comprised 577,500,000 shares of par value TL 1 each at 31 December 2010 and 550,000,000 shares of par value TL 1 each at 31 December 2009.  

31.12.2010

%

31.12.2009

%

Kazancı Holding A.Ş. Ali Metin Kazancı Mehmet Kazancı Şaban Cemil Kazancı Necati Baykal Aksa Makina Sanayi A.Ş. Public Share

545,865,625 4,814 4,812 4,812 4,812 15,125 31,600,000

94.52

99.99

5.47

549,965,625 4,814 4,812 4,812 4,812 15,125 -

Historic share capital

577,500,000

100.00

550,000,000

100.00

Unpaid portion of share capital (-) Inflation adjustment to share capital Inflation adjusted share capital (*)

(*) (*) (*) (*) (*)

-

(234,675,500)

1,987,932

1,987,932

579,487,932

 

317,312,432

(*) (*) (*) (*) (*)

-

 

Less than 0.01

18. General Reserves General reserves comprise prior years’ undistributed income and legal reserves. The legal reserves are appropriated in accordance with the Turkish Commercial Code. The first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the paid-in share capital. The legal reserves are not available for distribution unless they exceed 50% of the paid-in share capital but may be used to offset losses in the event that the general reserve is exhausted. Undistributed retained earnings are available for distribution. However if this reserve is distributed as dividends, a further legal reserve is required to be provided equal to 10% of dividend declared.

77

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

19. Net Sales  Total Sales – MWH / Unit Energy sales – MWH Radiator sales – unit Generator sales – unit

01.01.31.12.2010

01.01.31.12.2009

4,226,680 10,380 1,267

3,009,304 9,932 1,175

802,126,164 7,285,730 18,871,929 65,766,618 17,800,034

743,263,618 21,520,449 6,302,412 18,081,451 91,467,287 -

911,850,475

880,635,217

Total Sales- Amount Energy Sales (*) Total Lignite Sales and Transportation Income (**) Radiator Sales Generator Sales Natural Gas Equipments Other Total Sales

Total amount of balancing invoices issued by TEIAS in 2010 is TL 62,407,520 (01.01.-31.12.2009: TL 94,266,634), which has been deducted from the cost of sales account.

(*)

Lignite sales and transportation income is related to Aksa Enerji Bolu Göynük Branch in October 2010, the branch has ceased its operations and it is shown in discontinued operation in the Income statement (note 24).

(**)

20. Cost of Sales 01.01.31.12.2010

01.01.31.12.2009

681,176,731 6,408,748 17,618,465 52,956,512 17,325,557

592,952,194 14,812,567 5,600,838 17,460,812 61,844,107 -

775,486,013

692,670,518

Research and development expenses Marketing, selling and distribution expenses General administrative expenses

13,000 1,831,438 17,810,624

874,749 949,132 15,827,888

 

19,655,062

17,651,769

  Cost of Energy Sales Cost of Lignite Sales Cost of Radiator Sales Cost of Generator Sales Cost of Natural Gas Equipments Sales Cost of Other Sales Total Cost Of Sales 21. Research and Development, Marketing and Selling and General Administrative Expenses

78

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Breakdown of operating expenses are as follows:   Personnel expenses Consultancy and notary expenses Freight and freight insurance Traveling expenses Taxes paid Motor vehicle expenses Advertising and Representation expenses Insurance expenses Communication expenses Rent expenses Office expenses Repair and maintenance expenses Transportation expenses Retirement pay provision expense Doubtful debts provision expense Research and development expenses Depreciation and amortization expenses Other  

01.01.31.12.2010

01.01.31.12.2009

8,914,349 2,553,963 1,489,533 1,306,156 1,253,374 748,659 617,749 433,573 364,403 273,580 94,238 61,134 54,972 84,698 446,281 13,000 319,663 625,737

8,482,264 1,352,659 157,619 1,371,493 593,455 536,176 1,022,559 529,126 341,703 196,641 409,245 91,405 221,077 92,008 874,749 636,916 742,674

19,655,062

17,651,769

22. Other Income / (Expenses), net For the year ended 2010, TL 3,458,100 of other income is related to profit on sale of investment from Rasa Enerji Üretim A.Ş. and for the year ended 2009, TL 2,567,028 of other expenses is related to provision for doubtful receivables. 23. Financing Income / (Expenses), net   Interest income on time deposits at banks and interest income on receivables from Kazancı Group Companies Foreign exchange gains / (losses), net Interest paid on loans and lease payables Bank commission expenses Unearned interest income / (expense), net Letters of Guarantee expenses Other  

01.01.31.12.2010

01.01.31.12.2009

47,422,247 (13,525,405) (67,951,217) (6,831,473) (524,106) (2,064,988) (44,820)

51,775,438 (5,630,155) (42,905,003) (6,345,444) (475,065) (2,054,021) (70,962)

(43,519,762)

(5,705,212)

79

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

24. Assets Held For Sale and Discontinued Operations Aksa Enerji Üretim A.Ş. has a branch in Göynük, Bolu which would establish a thermal (coal fired) power plant by 25.07.2012. In the meantime, the Company sold lignite (note 19) from this lignite mine. On 27.10.2010, the Energy Market Regulatory Authority has approved the transfer of production licence and energy licence from Aksa Enerji Üretim A.Ş. to Aksa Göynük Enerji Üretim A.Ş. Accordingly, the branch in Göynük, Bolu has ceased its operations. The assets held by Aksa Enerji Bolu Göynük branch will be sold to Aksa Göynük Enerji Üretim A.Ş. Aksa Göynük Enerji Üretim A.Ş. is not a subsidiary of Aksa Enerji Üretim A.Ş. Assets Held For Sale by Aksa Enerji Bolu Göynük Branch:  

31.12.2010

31.12.2009

Land Buildings Machinery and equipment Motor vehicles Fixtures and fittings Construction in progress

339,878 292,779 307,676 2,500 174,698 12,016,205 13,133,736

-

(220,357)

-

12,913,379

-

Depreciation and Amortization (-) Net Book Value Discontinued Operation of Aksa Enerji Bolu Göynük Branch:   Net Sales Cost of Sales Gross Profit Marketing and Selling Expenses General Administrative Expenses Basic Operating Profit Other Income / (Expenses), net Financing Income / (Expenses), net   (*) Included in the relevant captions of the Income Statement.

80

01.01.-31.12.2010 01.01.-31.12.2009 (*) 3,415,831 (3,123,375) 292,456

-

(818,384) (826,200) (1,352,128)

-

326,210 (206,643)

-

(1,232,561)

-

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

25. Commitments and Contingencies a) Letters of guarantee given to:   Ankara 29. İcra Müdürlüğü Beyoğlu 4. İcra Müdürlüğü Boğaziçi Elektrik Dağ. A.Ş. Genel Müdürlüğü Botaş Boru Bursa Büyükşehir Belediyesi Commerzbank AG Devlet Su İşleri Genel Müdürlüğü Energy Market Regulatory Authority (EMRA) Electricity Generation Co. Inc. (EÜAŞ) Electricity Generation Co. Inc. (EÜAŞ) Gediz Elektrik Dağıtım A.Ş. Halkalı Gümrük Müdürlüğü İstanbul 10. Asliye Ticaret Mahkemesi K.K.T.C. Elektrik Kurumu K.K.T.C. Maliye Bak. Gelir ve Vergi Dairesi Müd. Ortadoğu Antalya Liman İşl. A.Ş. Özer Metal San. A.Ş. Sakarya Elektrik Dağıtım A.Ş. Sakarya Elektrik Dağıtım A.Ş. (Göynük Şube) Sedaş Bolu İl İşletme Müdürlüğü (Göynük Şube) T.C. Başbakanlık Gümrük Müsteşarlığı İstanbul Gümrük ve Muhafaza Müdürlüğü T.C. Akdeniz Elektrik Dağ. A.Ş. T.C. Çevre ve Orman Bakanlığı Tedaş Tedaş Bursa Elektrik Dağıtım Tedaş Müessese Müdürlüğü Ankara Teiaş Teiaş Araştırma Planlama Türkiye Kömür İşletmeleri Uedaş Çanakkale İl Müd. Yeşilırmak Elektrik Dağıtım A.Ş. Yibitaş A.Ş.    Total

Foreign Currency   TL TL TL USD TL EUR TL TL TL USD TL TL TL USD TL USD TL TL TL TL EUR TL TL TL TL TL TL TL TL TL TL TL      

Currency Amount   62,000 7,444 69,120 2,641,000 1,621 1,000,000 3,756,000 81,426,874 62,184 29,888,156 15,570 10,965 1,500 3,000,000 15,000 425,000 150,000 68,305 2,200 17,000

TL Equivalent   62,000 7,444 69,120 4,082,986 1,621 2,049,100 3,756,000 81,426,874 62,184 46,207,089 15,570 10,965 1,500 4,638,000 15,000 657,050 150,000 68,305 2,200 17,000

250,000 24,192 400,000 10,000 600 26,862 3,017,348 589,140 19,190,195 410,000 1,024,022 50,000

512,275 24,192 400,000 10,000 600 26,862 3,017,348 589,140 19,190,195 410,000 1,024,022 50,000 168,554,642

81

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

b) Guarantees given for the Group’s loans Guarantee Genus

Foreign Currency

Mortgage (*) Commercial Enterprise Pledge (**) Machinery and Equipment Pledge Bank Deposit Blockage Surety Ship Surety Ship Surety Ship Assignment of claim   Total

EUR USD EUR EUR TL USD EUR TL    

Currency Amount

Total (TL)

12,000,000 133,000,000 24,914,673 1,300,000 661,809,767 55,920,237    

24,589,200 205,618,000 51,052,656 2,663,830 411,087,648 1,023,157,900 114,586,158 240,000,000   2,072,755,392

(*) Mortgages have been established on Samsun power plant at amounts of EUR 12,000,000 on 30.06.2005. (**) The amount is related to Antalya power plant. c) Guarantees given to related parties As of 31 December 2010, the amount of corporate guarantees granted to Kazancı Group companies in relation to their bank loans were at TL 1,579,751,706 (31.12.2009: TL 1,006,409,012). As of 31 December 2010, there was 7 lawsuits pending in favor of the Group at the amount of TL 4,339,357 and there were 30 law suits pending against the Group at the amount of TL 2,119,383. 26. The Nature and Level of Risks Arising from Financial Instruments The table below summarizes the foreign monetary position risk of the Group as of 31 December 2010, the recorded amounts of the foreign monetary assets were kept by the Group and those of the payables in terms of total amounts and foreign exchange are as follows: 31.12.2010

USD

EUR

CHF

GBP

JPY

TL Equivalent

15,621 24,314,391 5,472,796 150,000 1,388,550 122,021 308,395   31,771,774

3,973 4,379,983 749,493 4,356,876 4,918,750   14,409,075

91   91

2,773 24,000   26,773

53,452   53,452

32,291 46,572,856 9,996,729 231,900 2,146,698 9,173,645 10,555,789   78,709,908

Financial liabilities Trade payables   Total foreign currency liabilities

594,842,716 49,753,041   644,595,757

107,538,639 11,755,909   119,294,548

  -

  -

  -

1,139,984,262 101,007,236   1,240,991,498

Net foreign currency position

(612,823,983)

(104,885,473)

91

26,773

53,452

(1,162,281,590)

Cash in hand Cash at banks Trade receivables (included related parties) Notes receivable Due from related parties Advances given for inventory purchasing Advances given for fixed assets   Total foreign currency assets

82

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

Supplementary Disclosures on financial instruments (a) Capital Management Policies and Procedures The risk related with each of the capital class and group capital cost is considered by the top management of the Group. The primary objective of the Group’s capital management objectives is to ensure that it maintains a healthy capital structure in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions. To maintain or adjust the capital structure, the Group may obtain new loans, repay existing loans; make cash and non cash (bonus shares) dividend payments to shareholders, issue new shares based on Management’s evaluation. The Group manages the capital structure so as to ensure the Group’s ability to continue as a going concern; and maximize its profitability by maintaining an adequate capital to overall financing structure ratio. The Group monitors capital using a gearing ratio, which is net debt divided by total financing used. The Group includes within net financial debt, borrowings, trade letters of credit, less cash and cash equivalents. Financing used is the sum of total equity and net financial debt. The following table sets out the gearing ratios as of 31 December 2010 and 31 December 2009:   Total financial liabilities Less: cash and cash equivalents Net financial debt Total equity Total financing used

31.12.2010

31.12.2009

1,216,613,979 (78,323,598) 1,138,290,381 918,567,263 2,056,857,644

845,532,017 (16,309,187) 829,222,830 558,477,204 1,387,700,034

55%

60%

78,323,598 113,026,263 191,349,861

16,309,187 173,662,585 189,971,772

1,216,613,979 197,630,971 1,414,244,950

845,532,017 277,556,313 1,123,088,330

Gearing ratio (net financial debt to overall financing used ratio) (b) Financial instruments and categories Financial assets Cash and cash equivalents Trade receivables   Financial liabilities Financial payables Trade payables   (c) Market risk

The Group is exposed to financial risks arising from changes in currency rate (paragraph d), interest rate (paragraph e) and price risk (paragraph f) which arise directly from its operations. The market risks that the Group is exposed to are measured on the basis of sensitivity analysis. The Group’s risk management policies and processes used to measure those risks have been similar to previous periods. (d) Foreign currency risk The Group does not have transactional currency exposure from foreign currency denominated transactions. The Group is exposed to foreign currency risk arising from the translation of foreign currency denominated assets and liabilities to TL, the foreign currency denominated assets and liabilities mainly include bank deposits, bank borrowings and trade payables and trade receivables.

83

AKSA ENERGY 2010 ANNUAL REPORT

AKSA ENERJİ ÜRETİM A.Ş. AND ITS WHOLLY OWNED SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009 (Currency - Turkish Lira)

(e) Interest rate risk management The Group is exposed to interest rate risk through the impact of rate changes on interest bearing assets and liabilities. These exposures are managed by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities. Certain parts of the interest rates related to borrowings are based on market interest rates; therefore the Group is exposed to interest rate fluctuations on domestic and international markets. The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s debt obligations. The majority of the Group’s financial obligations consist of fixed and variable interest rate borrowings. (f) Price risk Sales invoices to TEİAŞ and EÜAŞ are issued in Turkish Lira and sales unit prices are fixed, the management of the Group is carefully monitoring the costs, when needed appropriate measures are taken. 27. Subsequent Events The Group has decided with an announcement dated 01March 2011 that the amount of Aksa Enerji shares, which corresponds to 11.93% of Aksa Enerji’s share capital will subject to sale within 2011. And also, it is decided that the fund will come from Aksa Enerji’s stake sale will be utilized by Kazancı Holding and other Group Companies to pay back outstanding debt of Aksa Enerji. Appendix 1 Related parties of the Group are shown below: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

84

Afyon Doğal Gaz Dağıtım A.Ş. Aksa Ankara Makina Satış ve Servis A.Ş. Aksa CNG Sıkıştırılmış Doğal Gaz Dağ. İletim ve Satış A.Ş. Aksa Doğal Gaz Toptan Satış A.Ş. Aksa Doğalgaz Dağıtım A.Ş. Aksa Elektrik Perakende Satış A.Ş. Aksa Elektrik Toptan Satış A.Ş. Aksa Far East Pte Ltd. Aksa Gaz Dağıtım A.S. Aksa Göynük Üretim A.Ş. Aksa Havacılık A.Ş. Aksa International Ltd. Aksa Jeneratör Sanayi A.Ş. Aksa Makina Sanayi A.Ş. Aksa Power Generation Co. Aksa Power Generation Fze. Aksa Satış ve Pazarlama A.Ş. Aksa Servis ve Kiralama A.Ş. Aksa Teknoloji A.Ş. Aksa Televizyon Hizmetleri A.Ş. Aksa Tokat Amasya Doğal Gaz Dağıtım A.Ş. Aksa Turizm İşletmeleri A.Ş. Alenka Enerji Ltd. Şti. Anadolu Doğalgaz Dağıtım A.Ş. Ayres Ayvacık Rüzgar Enerji Santrali Ltd. Şti. Balıkesir Doğal Gaz Dağıtım A.Ş. Bandırma Doğal Gaz Dağıtım A.Ş. Bilecik Bolu Doğal Gaz Dağıtım A.Ş. Ceka Enerji Üretim A.Ş. Çanakkale Doğalgaz Dağıtım A.Ş.

31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61

Çoruh Aksa Elektrik Dağıtım A.Ş. Çoruh Aksa Elektrik Hizmetleri A.Ş. Deriş İnşaat A.Ş. Doust Company (Iraq) Düzce Ereğli Doğal Gaz Dağıtım A.Ş.: Elazığ Doğalgaz Dağıtım A.Ş. EURL AKSA Generateurs Gemlik Doğal Gaz Dağıtım A.Ş. Gesa Güç Sistemleri A.Ş. Gümüşhane Bayburt Doğalgaz A.Ş. Gürgaz Şanlıurfa Doğalgaz Dağıtım Ltd. Şti. I.S.P Kapıdağ Rüzgar Enerji Santrali Ltd. Şti. Karadeniz Doğalgaz Dağıtım A.Ş. Kazancı Holding A.Ş. Kazancı Makina ve Motor Ltd. Şti. Kazancı Teknik Cihazlar Yedek Parça A.Ş. Koni İnşaat Sanayi A.Ş. Koni Tarım İşletmeleri A.Ş. Koni Tarımsal Yatırımlar A.Ş. Koni Turizm San. ve Ticaret A.Ş. Malatya Doğalgaz A.Ş. Manisa Doğalgaz Dağıtım A.Ş. Mustafa Kemal Paşa Susurluk Doğalgaz Dağıtım A.Ş. Onan Enerji Üretim A.Ş. Ordu Giresun Doğalgaz Dağıtım A.Ş. Renk Transmisyon San A.Ş. Siirt Batman Doğalgaz Dağıtım A.Ş. Sivas Doğal Gaz Dağıtım A.Ş. Trakya Doğal Gaz Dağıtım A.Ş. Van Doğalgaz Dağıtım A.Ş.

Contact Aksa Enerji Üretim A.Ş. Gülbahar Cad. 1. Sk. 34212 İstanbul / Turkey T: + 90 212 478 66 66 F: + 90 212 657 55 16 Investor Relations [email protected] www.aksaenerji.com.tr

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