Turkey - Izmir Water Supply and Sewerage Project

Do rmut of The World Bank FOR OMCAL USE ONLY Report No. P-4539-TU MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$ 184.0 MILLION TO THE IZMIR WATER SUPPLY AND SEWEFAGE GENERAL DIRECTORATE WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY FOR AN IZMIR WATER SUPPLY AND SEWERAGE PROJECT May 1, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclsed without World Bank authorization.  CURRENCY EQUIVALENI-S 100 Turkish Lira (TL) . US$0Q134 744 Turkish Lira (TL) 5 US$1.00 (as of January 1, 1987) FISCAL YEAR January 1 - December 31 PRINCIPAL ABBREVIATIONS AND ACRONYMS USED DSI = State Hydraulic Works ISKI = Istanbul Water Supply and Sewerage General Directorate IZSU = Izmir Water Supply and Sewerage General Directorate  FOR OMCIAL USE ONLY REPUBUC OF TURKEY IZMUL WATER SUPPLY AND SEWERAGE PROJECT LOAN AND PROJECT SUMMARY Borrower: Izmir Water Supply and Sewerage General Directorate (IZSU) Guarantor. Republic of Turkey Amount: US$184 million equivalent Terms: Seventeen years, including 4 years of grace, at standard variable interest rate. Financa4g PbUU IBRD $184.0 million DSI Budget $ 49.7 million Iller Bank $ 77.3 million IZSU Internal Cash Generation $103.0 million Izmir Municipal Budget $107.8 million TOTAL $521.8 million Economic Rate of RWtm: Not applicable Staff Apraisal Report: 6656-TU This document has a restricted distribution and rnay be used by recipients only in fth pofornanco of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMNFDATION OF THE PRESIDENT OF THE DNTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTVE DIRECTORS ON A PROPOSED LOAN FOR A WATER SUPPLY AND SEWERAGE PROJECT OF THE MUNICIPALlTY OF IZMR IN TNE REPUBLIC OF TURKEY 1. The following report on a proposed loan of US$184.0 million equivalent to the Izmir Water Supply and Sewerage General Directorate, IZSU, is submitted for approval. The proposed loan would be for a term of seventeen years, including four years grace, at the Bank's standard variable interest rate, and would help finance a water supply and sewerage project. 2. Background. The Project is located in Izmir, the third largest city in Turkey. Izmir is an important industrial center, and 402 of the Nation's exports pass through its port. Its population of 1.7 million is growing at 5 per year. About 802 of the population have water connections, but only two-thirds of these have adequate supply. Only 60S of the population is connected to the sewerage system. The system discharges untreated sewage and industrial wastes directly into Izmir bay, around which the city is situated, and into surface channels and streams flowing through the city to the bay. This has caused severe pollution within the city and in the bay, and has created significant health hazards. 3. In addition to service deficiencies and pollution, there have been institutional and financial deficiencies. Responsibilities for developing new water and sewerage facilities for the area have been divided among the Municipel Administration and two Central Government agencies, none of which has had sufficient finances to address more than a small fraction of its objective. Water and sewerage operating responsibilities in the Municipality have been divided among separate branches of the Municipal Administration which carry out a variety of other functions as well. Charges for water and sewerage services have been low compared to costs and to financial requirements for future development. Maintenance, quality of service, and the pace of development have suffered as a consequence. 4. To counter these problems, which are common also in other communities in Turkey and not. just in Izmir, the Central Government has established a water supply and sewerage strategy for urban areas: (i) to begin shifting responsibilities for sector development from Central Government agencies to municipalities; (ii) to create separate, autonomous municipal authorities; and (iii) to improve cost recovery and reduce local financial dependence on Central Government resources. The strategy proved to be successful in Istanbul, and Izmir is now embracing it in the proposed project. 5. Prolect Obiectives. The Project would promote better environmental conditions in Izmir through adequate water supply, sewerage, and sewage treatment facilities, and the establishment of appropriate industrial waste treatment policies and practices. These actions would reduce health hazards and bring about major environmental improvements and economic benefits. The Project would help to strengthen institutional and financial aspects of the sector in Izmir following the approach taken in the Istanbul Sewerage Project (Loan 2159-TU). This has begun with the establishment in Izmir of the separate, autonomous water supply and sewerage organization, IZSU, using as a model the highly successful organization, ISKI, which was  established in Istanbul. In addition, the Project will correct deficiencies in the existing water and sewerage systems in Izmir, and will provide training which will improve maintenance and promote more efficient operation. 6. Proiect Description. The Project, to be carried out over a nine-year period, would help to strengthen the newly established water supply and sewerage entity, IZSU, particularly its operation, maintenance, and administrative capabilities, through technical assistance and training components. These components would also focus on improved control of unaccounted-for water and monitoring and control of industrial waste discharges. Physical improvements of the water and sewerage systems would include; Water SupDlY - completion of the construction of the Tahtali Dam and Reservoir; construction for the Tahtali system of an intake, water treatment plant, treated water storage, pumping station, water transmission main, and a terminal storage reservoir; expansion, reinforcement and rehabilitation of the water distribution network (including the provision of meters and service connections); Sewerage - construction of a sewage interceptor, a sewage treatment plant, seven pumping stations and asRociated force mains, sewage collectors, secondary and tertiary sewers, and property connections. 7. The total cost of the Project is estimated at US$521.8 million equivalent, with a foreign exchange component of US$225.4 million equivalent (43X). A breakdown of costs and the financing plan are shown in schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status oi Bank Group operations in Turkey are given in Schedules C and D, respectively. A map is also attached. The Staff Appraisal Report, No. 6656-TU dated May 1, 1987 is being distributed separately. 8. Rationale for World Bank Involvement. The proposed loan would support the Government's strategy of promoting the development of self sustaining local institutions in the water supply and sewerage sector. The principal objectives for Izmir would be to strengthen the local sector institution; to have it adopt appropriate financial policies; and to have it establish acceptable methods for treatment and disposal of industrial wastes and provide adequate water supply and sewerage facilities to reduce health hazards and bring about economic benefits and environmental improvement. This is in line with the Bank's strategy to assist in reinforcing changes toward more efficient water supply and waste disposal, environmental and health improvements, the adoption of a full cost recovery policy, and the introduction of institutional reforms. The loan would support the Bank's strategy of promoting autonomous water supply and sewerage authorities in Turkey's larger municipalities. It would help to insure that IZSU, the new agency formed with the Project, would receive the assistance and support it needs to implement appropriate tariff policies, sound financial planning, least-cost solutions, control of unaccounted-for water, monitoring and control of industrial wastes, and effective maintenance. 9. Agreed Actions. Agreements have been reached that IZSU would: (a) prepare and carry out an action plan with agreed dates from 1988 to 1991 for the treatment of industrial wastes and the control of industrial discharges to the sewerage system and Izmir bay; (b) after a tariff study and consultation with the Bank, introduce by the end of 1988 a tariff structure which would encourage conservation while ensuring that a reasonable level of service remains affordable to low income consumers;  - 3 - (c) achieve self-financing of at least 302 of investments by 1991; and (d) complete by December 31, 1988 the acquisition of the land needed for sewage treatment plant construction, and request disbursements for major sewerage works only after completing the land acquisition. In addition, agreements have been reached that the Government would: (a) provide to the Bank by December 31, 1987, a detailed plan of action satisfactory to the Bank for the resettlement of persons displaced by the Project; and (b) have the Tahtali Dam inspected during and after its construction to ensure that it meets appropriate safety standards. 10. Justification. The Project would help to build up a strong sector organization, and, through the organization, would provide piped water facilities for approximately 0.84 million people, and sewerage for 1.17 million people by 1994. It would contribute to more reliable supply for 0.8 million people presently served, through improved operation and maintenance and the rehabilitation of the existing water and sewerage networks. The Project would also improve supply to industrial and commercial enterprises, thereby contributing to improving their productivity. An additional benefit would be a saving of US$4.5 million per year in operating costs and delayed capital investment resulting from reductions in leakage and waste. 11. Financial strengthening of IZSU through revenue increases would reduce reliance on outside sources for financing future investments. Management strengthening and training would increase cost-effectiveness. Reduction of pollution in Izmir bay through industrial waste control and sewage treatment would increase land values along the shore-front, and help to generate new commercial and recreational activities. The Project also would have significant health benefits, particularly among lower-income groups which have not previously had access to sufficient safe water and water-borne sewage disposal. 12. Risks. The Project's main risks are: (i) the possibility of reduction in the effectiveness of the sewage treatment process, which is biological, because of a failure by the authorities to obtain adequate pretreatment of certain kinds of industrial discharges before they are allowed to enter the sewerage system; and (ii) the possibility of failure of the Tahtali Dam (which is located in a seismically active region). The first possibility will be minimized by adopting and enforcing appropriate waste control policy. The second possibility can be virtually eliminated since the works will be implemented by DSI, an experienced and capable entity in works of this nature, using appropriate design and construction standards subject to rigorous inspection. 13. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber B. Conable President Attachments Washington, D.C. May 1, 1987  Schedule A Local Foreign Total Estimated Costs -/ -US$ million-- WATER SUPPLY AND DISTRIBUTION Tahtali Dam and Reservoir 12.9 5.0 17.9 Tahtali Intake, Treatment Plant, and Transmission 17.8 22.2 40.0 Distribution 42.7 69.8 112.5 Sub-Total 73.4 97.0 170.4 SEWAGE COLLECTION AND TREATMENT Interceptor, Pumping Stations, and Treatment Plant 101.2 67.6 168.8 Collection 50.6 17.6 68.2 Sub-Total 151.8 85.2 237.0 INSTITUTIONAL STRENGTHENING 1.9 11.2 13.1 LAND ACQUISITION 30.8 - 30.8 BASE COST (01/87 Prices) 258.0 193.3 451.3 Physical Contingencies 21.0 18.4 39.4 Price Contingencies 17.4 13.7 31.1 TOTAL PROJECT COST 296.4 225.4 521.8 a/ Figures include US$48.0 million equivalent of taxes and duties. Local Forgin Total Financing Plan - US$ million- Internal Cash Generation 103.0 - 103.0 Municipal Budget 96.6 11.2 107.8 Iller Bank 52.8 24.5 77.3 DSI Budget 44.0 5.7 49.7 Proposed World Bank Loan - 184.0 184.0 Total 296.4 225.4 521.8  Sehedule B Procurement Procurement Nethod a/ Project Element ICB LCB Other b/ N/A cJ Total Materials & Equipment 133.7 13.9 3.6 - 151.2 (122.2) (0.0) (2.2) - (124.4) Civil Works 131.7 170.6 - 9.1 311.4 (39.9) (3.4) - (0.0) (43.3) Consultant_ - - 18.1 - 18.1 - - (16.3) - (16.3) Land Acquisition - - - 31.7 31.7 _ _ - (0.0) (0.0) Local Administrative - - - 9.4 9.4 and Technical Staff - - - (0.0) (0.0) TOTAL 265.4 184.5 21.7 50.2 521.8 (162.1) (3.4) (18.5) (0.0) (184.0) a/ Figures in parentheses are the amounts which would be financed from the proposed World Bank loan. b/ International and local shopping, and World Bank Guidelines for selection of consultants. cl Force account, in-house staff and expropriation settlement for land acquisition. Dismeiets Category Amount % (USt million) Civil Works and Concrete Pipes 48.8 1001 of foreign expendi- manufactured locally tures and 27% of local expenditures. Materials, Equipment, and 100.7 1001 of foreign expendi- Pipes other than concrete tures; 1001 of local expenditures (ex- factory); and 652 of other local expenditures. Consultants' Services and 12.0 1001 of expenditures. Overseas Training Refunding of PPF advance 1.5 Amount due. Unallocated 21.0 184.0 ,Estmted D Mbreet World 3ank Fiscal Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 - - - liSt million-----------s Annual 4.8 18.4 29.2 32.8 32.8 25.6 20.2 14.8 5.4 Cumulative 4.8 23.2 52.4 85.2 118.0 143.6 163.8 178.6 184.0  Schedule C REPUBLIC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT Timetable of Key Proiect Processing Events (a) Time taken to prepare: One and one half years. (b) Prepared by: Municipality of Izmir (using consultants) and Central Government agencies (Iller Bank and DSI). (c) First Bank mission: July 1985 (d) Appraisal mission departure: November 1986 (e) Negotiations: April 6-11, 1987 (f) Planned date of effectiveness: September 1987 (g) List of relevant PCRs and PPARs: PPAR 4835 (Istanbul Water Supply Project)  931EDW D Pap I of 2 MM1~ 0! BAR GW 0iWM10W 14 IUMG? A. W OF 0D1M LOW ANDA QWMID1S l (As of Marc 31, 1987) 1a Fin b milliau) kb 6 year DMrO8k A Li4e d iftWrfive low, four limn, and fDurtew cesita fully disbursed 3447.35 16.15 1385-lu 1978 Iepblic of Turkey Nutheen Foatry 86.00 25.47 1661o 1973 spsblic of Turkey Ersaiz Steel Star II 95.00 2.5) 1742-1 1979 Ibpslic of Tukey *a. Storae 79.0O 4.06 18'A11 19EO ReDpiblic of MwI y Hydr_ 12.O .03 18621- 19 1aphlic of Tneoay Fifw siDw1opant 51.00 14.34 1917-lU 1981 Republic of Turkey 0 8wvary 62.WD 10.23 1985-lU 1981 tpblic of Tufty Fertilizer hatiaaiatiGl 110.00 36.71 19984 1981 sate soai t Sta Izti*mtrial hut. Fin. 70.00 1.77 2093-U 12 'IS hport-Orimted IrAmti 100.00 8.25 20%-M 1982 Rpublic of flke Era%unu al Devdeopt 40.00 22.54 2X31-' 192 fpblic of Tuady acei Fert. Rhii1itati(z 29.8 3.53 2137-U WS Rep1jbic of wakey W* .ay ha. 71.10 0.02 2159-lU 1981 IE Istarbu sag 88.IX 31.12 2318-lU 1983 TQzB Send ATiculural Credit 15D0. 46.27 2322-IU 1983 Tl X9C Ut 14i3. 128.35 2327-l 1983 TMi wace Gas lplratian 55.20 28.59 2399-l 1984 Repiblic of Twikey Ulduntial Training 36.80 31.41 24004U 1984 Republic of Drkey Mhnixal Asistnce fer Me 4.65 2.50 2'05-IU 1984 Reptblic of Tudwy Ag.Extaim and Rinech 72.20 56.34 2433-1U 1984 Repblic of Totkey TME rr tidn 115.30 103.38 2439-lu 1984 Fopdlic of Tukay Seconl iJay 186.4- 143.35 2535-l 1985 lApublic of Turkey fhird Ports B4.50 120.81 2536-lU 1985 Reptblic of twkey UuJustrial Sdcools 57.70 55.67 2537-tlU 195 Rpjblic of Drwkey OAura Reg. Urbs Devt. 9.20 1.00 2585-IU 1985 lpblic of Tueay Aic. Sector AdJwtmt . 3DO.U0 19.6 25-LU 1985 Fourth TW Tranmissim 142.OU 131.79 260-v1U 1986 = Power System Opatiis Asst. 1AO.UO 132.01 2(7-7U 198b Reapblic of luwkey Smll 6 Ieijn-Scale n4atry 100.00 75.09 2650-l 1986 = Ebistn 0 man1 10.00 7.4a 2655-TU 1986 Republic of Turkey Kayr*Appe lydropcw 200.00 199.32 2663-IU 1986 Hopblic of Tigy Drainage & Qi-am Delop. cl 255.00 255.00 2714-lU 1987 Republic of lTrlwy FinAncial Sector Adj. loam 300.U 74.34 2739-lU 1987 Republic of Turkey RPaimys aI 197.OD 197.00 2750-lU 1987 Republic of I)akey Sir Hgdropw 132.00 127.96 2776-IU 1987 Fepblic of Tu9ey N4o-rFmal Voc. Training di 58. J 5b.50 Total 7269.20 19.15 2383.36 of thich has been repaid 1058.36 23.M Total toitmding and adisbursed 6210. 173.13 ArXt sold 3.55 of hidch has be% repaid 3.55 Total now held by * and MA e/ 6207.29 173.13 Total undisburesd 238D.36 /a The stats of the jtojects listed in Part A is described in a separate report en all Bank/i finawcd projects in emoution, whidc is updated twice yearly and ciraclated to the Naojtive Directors am April 30 aid Ocrtder 31. /b Net of cancellatims. Ic Not yet effective. /d effective on April 3, 1987. /e Prior to exdha adjustmits. April 23, 1987 (0982T)  SQ93IL D Page 2 of 2 SDUtB OF WK Q)UP 1aI IN IUilEY L STAUW OF IFC DRED*1 Qs of Miwch 31, 1987) Fis4az hAmt * Millons Yew Cbl pe of aimwsEoui t ai 19fi467/69/ TSi DPC 6. 4.77 64.77 72/73/75/76/ 77/SD/83 1966169/ SIFAS I 4yl Yarn 3.15 1.42 4.57 71/72 19V/71/ Vikirg I Pulp and Paper 2.50 0.82 3.32 82/83 1970/86/87 AS Gls 20.75 1.68 22.43 1971/76/ NASS Al--iimU 8.58 1.46 10.04 83/84 1973 AIdis Toursa 0.33 0.27 0.60 1974/77 Btxusa Steel Pips 3.60 0.49 4.09 1974 AKSA Texiles 10.00 - lo.00 1975 Kartaltepe Textiles 1.30 - 1.30 1975 Sasa i Yarn 15.00 - 15.00 1975 ASIa cement 10.60 - 10.60 1975/78/83 DDIMS Steel 7.50 1.53 9.03 1976/79 Asil Celik steel 12.0A 4.00 16.00 1979 Eg Itsn sigie fixr lHpeds 2.15 - 2.15 1979/80/84/85 ISAS Mor Vehicles & Access. 8.85 2.34 11.19 1986 Cam EIyaf Fibes Glass 7.94 - 7.94 1979/81/ Trakya Cam Glass 33.15 3.23 36.38 83/E4 198D A Taxtiles and Fibers 4.00 - 4.00 1981 Xirk1weli Cm Si A.S. Glass Tablemge 12.95 - 12.95 1982 I.AN. Ibtms btor Vehicles & Access. 7.bB - 7.88 1984 Pinaw Food ad Food Processing 3.90 - 3.9U 93 1WNAS Motor Vehiles & Access. 6.47 b.47 1986 Silkar Turizm Yatinm Tarism 5.80 - 5.8) ve IslefOlari A.S. 1986 Eskca Trim ve Turism 2.38 - 2.38 Ticatet A.S. 1987 Guny Sanyi ve Textiles 16.51 - 16.51 Ticaret Isletmleri A.S. Total Gross C.mio mits 267.29 22.01 289.30 less Canoelacos, merminatias, Exdi Atjusbts, bgpaynBts and Sales 174.72 9.78 184.50 Total Cduitmets no held by MFC 92.57 12.23 104.80 lbtsl Ikhsbursed 8.51 - 8.51 April 23, 1987 (09821)  26050 27000 27