Turkey - Third TEK Transmission Project

Docmt of The World Bank FOR OMFCIAL USE, ONLY MICROFICHE: COIPY Repon No. 10257 R,Sport No. 10257-TU Type: (PCR) MAUPRIVEZ,/ X31709 / T9 069/ OEDD3 PROJECT COMPLETION RPORT TURKEY THIRD TEK TRASS4ISSION PROJECT (LOAN 2322-TV) DECEMBER 31, 1991 Energy Operations Division Country l)epartment I Europe and Central Asia Regional Office tis doc-ument bas a restricted distibution and may be used by recipients only in tbe performance of thelr offecial duties. ts contents may not otherwise be disclosed without World Bank uthoritation. .~~~~~~~~~~~~~~~~~~~ l Ban .au_t..ho_r.iz.at.____n  CURRENCY EQUIVALENTS Currency Unit - Lira (TL) At Appraisal (January 1983): US$1 - TL 190 TL 1000 - US$5.26 June 1990: US$1 - TL 2610 TL 1000 - US$0.3831 WEIGHTS AND MEASURES kW kilowatt MW - 1,000 kW kWh = kilowatt hour GWh (Gigawatt hour) = 1,000,000 kWh kV (kilovolt) - 1,000 volts One meter (m) - 3.28 feet One kilometer (km) = 0.624 miles One kilogram (kg) (1,000 grams) - 2.2 pounds One ton (metric ton) (1,000 kg) 2,205 pounds One kilocalorie (kcal) (1,000 calories) 3,968 BTU Cumecs (m3/second) 35.31 cubic feet per second GLOSSARY AND ABBREVIATIONS GOT - Government of Turkey MENR - Ministry of Energy and Natural Resources PCR - Project Completion Report SEE - State Economic Enterprise SPO - State Planning Organization TEK - Turkiye Elektrik Kurumu (Turkish Electricity Authority) Fiscal Year - January 1 to December 31  THE WORLD BANK FOR OMCM USE ONLY Washington, D.C 20433 U.S.A. OMMce of Dveciv.Geal Opetatmm Evaluktwo December 31, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Turkey Third TER Transmission Project (Loan 2322-TU) Attached, for information, is a copy of a report entitled "Project Completion Report on Turkey - Third TEK Ttansmission Project (Loan 2322-TU)" prepared by the Europe and Central Asia Regional Office with Part II contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment 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 disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY ,ROJECT COKPLETION REPORT TURKEY THIRD TEK TRANSMISSION PROJECT (LOAN 2322-TU) TABLE OF CONTENTS Page Nos, PREFACE ........................................................... i EVALUATION SUMMARY ................................................ ii Part I 1. Project Identity .1 2. Background .1 3. Project Objectives and Description .1 4. Project Design and Organization. 2 5. Project Implementation. 4 6. Project Results. 5 7. Bank Performance. 6 8. Performance of the Borrower and Guarantor. 6 9. Consultants' Services ....................................... 7 10. Findings and Lessons ........................................ 8 PART II TEK's Comments on the PCR ......................................... 9 PART III 1. Related Bank Loans and Grant .12 2. Project Timetable .................... 13 3. Loan Disbursement .14 4. Project Implementation .14 5 Project Costs and F1.nancing.15 6. Project Results .16 7. Status of Covenants .18 8. Use of Bank Resources .20 This document has a restricted distribution and mav be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT COMPLETION REPORT TURKEY THIRD TEK TRANSMISSION PROJECT (LOAN 2322-TU) Preface This is the Project Completion Report (PC') for the Third TEK Transmission Project in Turkey, for which Loan 2322-TU in the amount of US$163 million was approved on June 23, 1983. After a cancellation of US$65 million effective April 4, 1988, the remainder of the loan was closed on September 30, 1989, and fully disbursed on January 31, 1990, except for a balance of US$159,323.68 which was cancelled as of the date of the last disbursement. The PCR was prepared by the Energy Operations Division, Country Department I of the Europe, and Central Asia Reeional Office (Preface, Evaluation Summary, Parts I and III). Part II of the PCR has been prepared by the Borrower (Turkish Electricity Authority - TEK). The findings of this PCR are based, inter alia, on the Staff Appraisal Report; the Loan and Guarantee Agreements; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.  - ii - PROJECT COMPLETION REPORT TURKEY THIRD TEK TRANSMISSION PROJECT (LOA.N 2322-TU) Evaluation Summary A loan of US$163 million was made to the Turkish Electricity Authority (TEK) in 1983 for the development of Turkey's high voltage power transmission grid. The project was the fifteenth Bank group operation in Turkey's power subsector, and was a continuation of the Bank's assistance, started in 1952, for developing the subsector and increasing utilization of indigenous resources. The loan was guaranteed by the Republic of Turkey. Objectives The principal objectives of the project were to expand the high- voltage transmission network to permit utilization of power based on indigenous resources, and to support reform of TEK in the context of the Government's aim of SEE reform. Implementation Experience Project implementation, originally expected to be completed in 1986, was not completed until September 1989. While technical problems contributed to this delay, the most important factors were: (a) TEK's slow and cumbersome bidding and contracting procedures and its reluctance to use standardized bid documents; (b) the unsatisfactory local cost funding arrangements; and (c) the institutional weakness of TEK. Lack of local currency funds slowed down transmission line completion, and the situation became worse when one of the contractors also started to experience financial difficulties. Also, project management was poor, and liaison between the TEK managers responsible for project implementation and those responsible for generation planning, construction and operation was insufficient to prevent the serious power transmission bottleneck for the new Karakaya hydropower station (6x300 MW), which resulted from the delay in completion of the Keban-Kangal line from 198' to the fall of 1989. When it became clear that due to lower than expected pricez for equipment and materials stemming from the slump in the international market and the use of materials already in stock, actual disbursements would fall considerably short of the Bank loan of US$163 million, a sum of US$65 million was cancelled in 1988. Despite the considerable consulting assistance provided and the diverse nature of the matters addressed (ranging from development of improved operating procedures for the distribution enterprises, urban distribution rehabilitation, load research, tariff design, and demand management, to manpower planning, training, and development of improved accounting, financial reporting, billing and management information systems), most of the technical assistance efforts and studies included in the project have had little or no impact and few of the consultants' recommendations have been implemented, although the relevant studies were completed. TEK's involvement in these studies was, for the most part, unsatisfactory, a symptom both of TEK's lack of commitment to the institutional objectives of the project and shortage of good quality staff.  - iii - Results Of the project's two objectives, only one was fulfilled. The completed physical facilities helped TEK to meet forecast growth in demand, although subsequent load flow studies showed a need also for a further, southern transmission line to evacuate power generated at Karakaya, which was included in the Fourth Transmission Project (Ln.2586-TU). The technical assistance objectives of the project, i.e. to improve TEK's organization, staff development, manpower planning and training, accounting systems, management information system etc., were not attained. TEK's financial targets (current ratio target of 1.0, accounts receivable target of no more than 100 days of electricity sales by December 31, 1988, and a not internal cash generation target of 35% of public power sector investments by FY85 and beyond) have also not been met in recent years. ThuL, the project's institutional goals remain largely unfulfilled. The estimated 3.5% rate of return on the "time slice" of TEK's investment program, of which the project was a part, falls short of the 8.4% estimated at appraisal, mainly because tariffs have been lower than expected at appraisal. Construction of the transmission lines included in the project has not had a significant negative environmental impact or resulted in more than very limited resettlement. Findings and Lessons The immediately apparent causes of the problems that beset the project may be summarized as follows: (i) failure to use standardized bid documents; (ii) lack of coordinati-n among the TEK departments concerned; (iii) failure to make efficient use of the engineering consultants for the management of the project; (iv) lack of local funds; (v) lack of commitment on the part of TEK's management to the technical assistance objectives of the project; (vi) absence of a strategic approach in the implementation of the technical assistance components, i.e., failure to define and attain the short- term goals in the pursuit of the longer term objectives, such as the development of the data base needed for the development of a load management program; and (vii) lack of a strategy for the development and deployment of TEK's human resources, and for overcoming the problem of freeing TEK's middle managers from their day-to-day tasks to enable them to devote time to improving the structure and organization of their jobs. The more fundamental reasons for these deficiencies, however, must be sought in the scarcity, in TEK, of appropriately qualified top and middle managers with the ability and necessary energy and enthusiasm to define and take charge of the institutional efforts needed to improve the performance of TEK as a whole and of its administration and financial management in particular. This in turn may be attributed to TEK's lack of autonomy in establishing its personnel and financial strategies and, in particular, in recruiting and retaining qualified managers and staff on a competitive basis. It is unlikely that these problems can be overcome without partial or total transfer of TEK's activities to one or several corporations functioning independently from the Government and in accordance with normal commercial principles, either by spinning off activities such as TEK's data processing into a commercial company, or by privatizing TEK altogether and transforming it into a utility functioning autonomously within a framework of parameters defined by an independent regulatory authority.  - iv - The lessons to be learned from this lending operation are that good quality staff and management cannot be entirely substitt-ed by consu'lting resources, and that institution building efforts will not be successful unless the borrower takes charge and there is a firm and continuing commitment on the part of both the borrower and the Government to the agreed goals.  PROJECT COMPLETION REPORT .TURKEY. THIRD TEX TRANSMISSION PROJECT (LOAN 2322-TU) PART I: PREPARED BY THE ASSOCIATION 1. Project Identity Project Name : Third TEK Transmission Project Loan No. 2322-TU RVP Unit : Europe, Middle East and North Africa Region Country Turkey Sector Energy Subsector : Power Borrower : Turkish Electricity Authority (TEK) Guarantor : Rep.:blic of Turkey 2. Background 2.01 At project appraisal in 1983, Turkey had been facing a period of serious shortages of electricity which had resulted in factory shut downs and reduced industrial output. With the Karakaya hydro plant scheduled for completion mid 1986 and other plants also being built as part of the generation expansion program, it was essential that the construction of the Karakaya and other transmission lines be started by end 1983 and completed by mid 1986. The subject project was designed to permit the utilization of the power produced by Karakaya and other stations through additions tc the transmission network. 3. Project Objectives and Description 3.01 The project had two objectives: (i) to permit utilization of the power produced by Karakaya and other generating stations; and (ii) to continue the institution building activities initiated under the Bank's previous projects in the subsector, especially the financial strengthening of TEK. 3.02 The project was part of TEK's then current 1982-1986 development plan and consisted of the following parts: (a) The construction and placing into operation of about 1,500 km of 380 kV transmission lines, including series capacitors, to interconnect various power stations to TEK's bulk supply system; and (b) Technical assistance for TEK to: (i) address organizational, financial, technical and operational problems posed by the recent transfer to TEK of municipal power distribution assets throughout Turkey, also through feasibility studies on distribution rehabilitation and extension; (ii) prepare and implement a program of load research, tariff studies, demand management and energy conservation leading to optimum utilization of TEK's existing and future assets;  - 2 - (iii) start the implementation of a long-term manpower development and training program; and (iv) improve TEK's existing accounting and billing systems and introduce the first stage of a mianagement information system. 3.03 The project cost was estimated at US$259.1 million equivalent (foreign cost of US$178 million equivalent), and the interest during construction and front-end fee on Bank loan at US$35.5 millioLi equivalent. Therefore, the total financing required was estimated at US$294.6 million equivalent (foreign costs of US$213.5 million equivalent). Funding for the local costs (US$81.1 million), and for the foreign exchange not financed by the Bank (US$50.5 million), was to be provided by foreign cofinancing sources (US$8.8 million) and by the Government and TEK (US$122.8 million). 4. Project Design and Org,nization 4.01 Design. To prepare an adequate design for each new extension of the 380 kV network, including the proposed Project, specific studies were carried out in the following areas: (a) load flows for normal and emergency conditions; (b) energization of long lines; (c) transient and steady state stability; (d) switching surges and dynamic over voltages; (e) short circuits; (f) mechanical and electrical design; and (g) optimum line routing. 4.02 Basic design for the project was on hand, and equipment and materials were standardized in accordance with criteria established during previous construction of 380 kV transmission lines in TEK's network. Following the mechanical failure of several 380 kV lines caused by ice and wind in 1975-1980, TEK had revised the mechanical design criteria for 380 kV lines to take into account the findings of extensive investigations conducted by TEK and consultants. Specifically the new specifications called for span lengths not to exceed 500 m, less sagging of center phase conductors, and ACSR conductors with a ratio of aluminum-to-steel sections of about 8/1. In addition, all lattice towers were to have square bases instead of the rectangular bases previously specified. Other minor modifications had also been included in the improved design. Rights-of-way had been obtained and bidding documents were to be issued starting in July 1983. TEK's engineering department was capable of preparing detailed project design and required only highly specialized outside technical assistance in a few areas. No difficulties were foreseen in maintaining adequate flow of construction drawings to the installation and erection contractors. 4.03 Organization. The project organization was based essentially on that which existed for the works under the earlier Second TEK Transmission project with improvements for deficiencies during the construction and service period of the earlier lines.  4.04 At project appraisal, implementation of many of TEK's projects was held up owing to a shortage of local funds. To ensure the timely availability of local currency funds, TEK was to establish a TL revolving fund. Two other measures were taken tu avoid slippages in project implementation. First, there was an effort to ensure timely completion of related substations. TEK was close to completing negotiations for several 380 kV substations under turnkey supplier financed contracts. To avoi, the possibility of slippages, the award of contracts for the substations ited to the project was a condition of loan effectiveness. Second, TEK project management capabi