JCR Eurasia Rating affirmed the credit ratings of Palgaz Doğalgaz Dağıtım Sanayi ve Ticaret A.Ş.as ‘BBB+(Trk)’ on the Long Term National Scale in the periodic annual review and upgraded the outlook on the national ratings to Positive’. The ratings on the

JCR Eurasia Rating evaluated “Palgaz Doğalgaz Dağıtım Sanayi ve Ticaret A.Ş.” in an investment-level category on the national and international scales in the

periodic annual review and affirmed the ratings on the Long Term National Scale as ‘BBB+ (Trk)’ and upgraded the outlook on the ratings to ‘Positive’. On the

other hand, JCR Eurasia Rating affirmed the Long Term International Foreign and Local Currency Ratings as ‘BBB-’. Other notes and details of the ratings are

given in the table below:

Long Term International Foreign Currency : BBB- / (Stable Outlook)

Long Term International Local Currency : BBB- / (Stable Outlook)

Long Term National Local Rating : BBB+ (Trk) / (Positive Outlook)

Short Term International Foreign Currency : A-3 / (Stable Outlook)

Short Term International Local Currency : A-3 / (Stable Outlook)

Short Term National Local Rating : A-1 (Trk) / (Positive Outlook)

Sponsor Support : 2

Stand Alone : B

Following the tender held in September, 2003 by the Energy Markets Regulatory Authority (EMRA), Palgaz was issued with the necessary license for natural

gas distribution in the Gebze, Tavsancıl, Darıca, Sekerpınar, Dilovası ve Çayırova regions for a 30 year period beginning from February, 2004. The Company

maintained its stable growth trend and sustained investments in the completed financial year and successfully managed to increase its membership rates and

sales revenues. The Company carries out its activities under Palmet Enerji, one of Turkey’s leading integrated energy groups with operations in the fields of

natural gas distribution/trade, electricity generation and trade along with energy infrastructure. In addition, it contains local authorities in its shareholder

structure in line with the necessary EMRA regulations and enjoys a monopoly status in its operating zone covered by the license.

The Company, which primarily utilizes external resources to fund its growing operational volume and investments, reduced its foreign currency risk and short

position stemming from its financial liabilities in the completed fiscal year, which positively impacted its profitability performance and the associated volatility

risk and increased the capacity generate internal equity. Despite the pressures exerted on the Company’s net working capital position by short term resource

structure, the sustainability of asset returns and cash flows determined, high collection rates, bond issues successfully realized in the past with future rollover

plans are the major factors that contribute to liquidity management. The devaluation in the Turkish Lira stimulated by the rising levels of domestic

political instability in the aftermath of the general elections and the ongoing volatility in the global economy, the high level of import dependency observed

across the natural gas sector and the hegemony enjoyed by state-owned BOTAS with respect to imports increase upward risks, however changes in gas prices

do not impact revenue streams in accordance with EMRA tariffs and supply-side diversification is provided via Gazport, one of the Group subsidiaries.

Rising levels of natural gas consumption on a national scale in line with population growth, urbanization, income levels and sector wide liberalization process,

the penetration levels attained in the Gebze region in which the Company operates, the positive impacts on the Company’s future profitability and cash flow

generation potential of developed industrial zones and ongoing large scale infrastructure projects, the synergy and productivity generated by the

management of operational and administrative risks at the Group level and the contribution that will be made to the Group’s capital structure and scale in

the sector by the resources provided via the planned Initial Public Offering (IPO) of the newly constructed gas group as a result of company-wide restructuring

constitute the major factors underlying the upward revision of the Group’s outlook attached to the short and long-term national ratings to ‘Positive’.

When taking into consideration the vertically integrated structure of the Company’s qualified shareholder, Palmet Enerji, across different fields in the energy

sector and know-how, its scale and capitalization level along with the relative weight belonging to Palgaz at the Group level, asset base supported by

regulatory authorities at the national level and the containment of local authorities within the shareholder structure, JCR Eurasia Rating has affirmed its

‘Sponsor Support’ grade as (2), denoting an adequate level. On the other hand, regardless of the support provided by the shareholders or at the system level,

taking into account the stable growth trend in its operational volume, profitability ratios, predictability of cash flows, asset quality, the operating environment

safeguarded from external competition through official licenses, successful bond issues realized in the past and presence of a skilled management team, its

‘Stand Alone’ grade has been affirmed as (B), denoting a strong level.

For more information regarding the rating results, you may visit our internet site http://www.jcrer.com.tr or contact our analysts Mr. Zeki Metin ÇOKTAN

and Mr. Dinçer SEMERCILER.

JCR EURASIA RATING

Administrative Board