Turkey - Fourth TEK Transmission Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 12679 PROJECT COMPLETION REPORT TURKEY FOURTH TEK TRANSMISSION PROJECT (LOAN 2586-TU) JANUARY 4, 1994 Industry and Energy Operations Division Country Department I Europe and Central Asia Regional Office This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents mav not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Lira (TL) At Appraisal (January 1985): US$1 - TL 450 TL 1000 - US$2.22 June 1993: US$1 TL 10400 TL 1000 - US$0.096 WEIGHTS AND MEASURES kW - kilowatt MW - 1,000 kW kWh - kilowatt hour GWh (Gigawatt hour) - 1,000,000 kWh kV (kilovolt) - 1,000 volts One meter (m) - 3.28 feet One kilometer (km) - 0.624 miles One kilogram (kg) (1,000 grams) - 2.2 pounds One ton (metric ton) (1,000 kg) - 2,205 pounds One kilocalorie (kcal) (1,000 calories) - 3,968 BTU Gumecs (m3/second) - 35.31 cubic feet per second Fiscal Year January 1 to December 31  FOR OFFICLAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation January 4, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Turkey Fourth TEK Transmission Protect (Loan 2586-TU) Attached is the "Project Completion Report on Turkey - Fourth Tek Transmission Project (Loan 2586-TU)" prepared by the Europe and Central Asia Regional Office. No comments were received from the Borrower. This project, the sixteenth operation in the power sector, had two stated objectives. First, to expand the high voltage interconnected system of the Turkish Electricity Authority (TEK) to allow continued supply of the growing electricity demand; and second, to increase TEK's capability in network planning and in transmission lines and substation design. TEK fully met the first objective but not the second one as it failed to implement the corresponding training program. Since TEK did not comply with important financial covenants, the rate of return on sector investments based on current prices is only 6%. The project was completed at a cost of US$ 268 million, i.e. 29% above the original cost estimate, and its construction took almost two years longer than the scheduled five years. The Bank loan financed US$ 136.8 million, and TEK and the Government, the balance. The delays in project implementation, caused mainly by poor compliance of TEK with Bank procurement guidelines, concurred with delays in commissioning the power generating plants supplying the TEK interconnected system and did not thwart the project objectives. The outcome of the project is rated as marginally satisfactory. TEK's low electricity prices underestimate the important economic benefits of meeting the increased demand on TEK's power interconnected system. The institutional development impact is rated as negligible. The project's sustainability is rated as uncertain because TEK's financial position remains precarious for two reasons: first, TEK is burdened by a large debt overhang incurred as a result of the inadequate tariff policy during the implementation of the project; second, the Government and TEK's commitment to improved efficiency in operations, investment planning and financial management has been weak. The very concise PCR presents a clear picture of the project implementation and its results and lessons. No audit is planned. Attachment < II Z 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 TURKEY FOURTH TEK TRANSMISSION PROJECT (LOAN 2586-TU) PROJECT COMPLETION REPORT 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 ....................................... 3 6. Project Results .............................................. 4 7. Bank Performance ............................................. 5 8. Performance of the Borrower and Guarantor .................... 5 9. Consulting Services .......................................... 6 10. Findings and Lessons ......................................... 6 Part II 7 Part III 1. Related Bank Loans and Grant ................................. 8 2. Project Timetable ............................................ 9 3. Loan Disbursements ........................................... 9 4. Project Implementation ....................................... 9 5. Project Costs and Financing .................................. 11 6. Project Results .............................................. 12 7. Status of Covenants .......................................... 14 8. Use of Bank Resources ........................................ 15 This document has a restricted distribution and may be used by recipients only in the performance or their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   i TURKEY FOURTH TEK TRANSMISSION PROJECT (LOAN 2586-TU) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Fourth TEK Transmission Project in Turkey, for which Loan 2586-TU in the amount of US$142.0 million was approved on June 18, 1985. US$136.8 million equivalent was disbursed from the loan which was closed on December 31, 1991, one year behind the original schedule with the last disbursement in May 1992. The undisbursed balance of US$5.2 million was cancelled in December 1992. The PCR was prepared by the Industry & Energy Operations Division, Country Department I of the Europe & Central Asia Region (Preface, Evaluation Summary, Parts I and III). Part II of the PCR, to be prepared by the Borrower (Turkish Electricity Authority - TEK), has not yet been received. The draft of Parts I and III have been submitted to TEK for comments in March 1993. Preparation of this PCR is based, inter alia, on the Staff Appraisal Report; the President's Report; the Loan and Guarantee Agreements; supervision reports; project progress reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.   ii TURKEY FOURTH TEK TRANSMISSION PROJECT (LOAN 2586-TU) PROJECT COMPLETION REPORT EVALUATION SUMMARY Introduction 1. A loan of US$142 million was made to the Turkish Electricity Authority (TEK) in 1985 for the development of Turkey's high voltage power transmission grid. The project was the sixteenth 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 for increasing utilization of indigenous resources. The loan was guaranteed by the Republic of Turkey. Obiectives 2. The project had two main objectives: (i) to provide major transmission links and transformer substations required to strengthen TEK's power system and to ensure a continued supply of electricity to the growing demand on TEK's interconnected systems; and (ii) to increase TEK's capabilities in network planning and in transmission lines and substation design through a training component. Implementation Experience 3. Proj ect implementation proceeded more slowly than originally planned. The major transmission lines, with one exception, were commissioned some two years later than scheduled. This was due in large measure to the delays in the power generation plant construction schedules, which required corresponding changes in connecting the high voltage transmission lines to the national grid. 4. The other factors affecting project implementation were institutional in nature: (i) TEK's slow and cumbersome bidding and contracting procedures and its reluctance to use standardized bid documents; (ii) the unsatisfactory local cost funding arrangements; and (iii) the institutional weakness of TEK. 5. TEK and the Government did not display the hoped for commitment to the institutional aspects of the project. The training component was never implemented, partly because the Bank did not adequately supervise this component. Thus, the objective of increasing TEK's technical capability was largely unrealized. Results 6. Of the project's two main objectives, only one was fulfilled. Over 800 km of 380-kV transmission lines and the associated substations were added to  iii TEK's transmission network. These facilities will enable TEK to service an ever and rapidly increasing electricity demand. The delay in commissioning facilities was not overly detrimental to system performance, because in most cases the transmission lines were in place when needed to evacuate power from the generation plants. As mentioned earlier, the institutional objectives of the project were not achieved. 7. The financial performance of TEK and its ability to function as a viable economic organization were major concerns. Financial management continued to be poor, and financial targets were not met. The major factors affecting TEK's financial performance were inadequate tariff adjustments, increased investments in generation plants due to non-realization of BOT schemes, and accelerating inflation and devaluation of the Turkish Lira against major currencies. 8. At project appraisal, the economic rate of return was estimated at 11.2%. An analysis of the project cost data reveals a more likely rate of return of 6.14%, considerably less than originally forecast. Sustainability 9. From a technical standpoint, the project can be sustained. TEK is capable of designing, constructing, and operating modern high-voltage transmission facilities that can reliably deliver electricity to distant demand centers. TEK has also improved its in-house training facilities and is now able to provide training to its staff in most areas of network operations. Findings and Lessons 10. The immediately apparent causes of the problems that beset the project may be summarized as follows: (i) failure to use standardized bidding documents; (ii) lack of coordination among the TEK departments concerned; (iii) lack of local funds; (iv) lack of commitment on the part of TEK's management to the technical assistance objectives of the project; (v) lack of a strategy for the development and deployment of TEK's human resources. 11. The lessons to be learned from this lending operation are that project implementation and 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. To become a more viable institution in the power subsector, TEK must begin to function more independently from the Government and must conduct its operations on a more commercial and competitive basis. 12. The Bank should have worked more closely with the Borrower in the initial project phase to develop a coherent and consistent procurement plan, including standard bidding documents, and should have relied on upfront actions given the less than satisfactory progress of the then ongoing TEK Transmission III Project.  PART I 1. Project Identity Project Name Fourth TEK Transmission Project Loan No. 2586-TU RVP Unit Europe & Central Asia Region Country Turkey Sector Energy Subsector Power Borrower Turkish Electricity Authority (TEK) Guarantor : Republic of Turkey 2. Background 2.01 In every year from 1971 through Project Appraisal in 1985, electricity supply was insufficient to meet demand, resulting in high costs to the economy, as imports increased and supply interruptions became more frequent. During the Five Year Plan of 1985-89, priority was to be given to domestic sources of energy, especially hydro and lignite, in the country's generation expansion program. The salient feature of the Turkish electricity system is that the largest load centers are located at considerable distances from the main indigenous energy resources of hydro and lignite. As a result, TEK has had to pay special attention to the development and construction of a high-voltage transmission grid. 2.02 Implementation of a least-cost, long-term construction program for the 380-kV transmission grid began in 1974, which was updated regularly to take account of changes in TEK's load growth and generation system requirements. The Fourth TEK Transmission Project was to be a continuation of the then on-going Third Transmission Project (Loan 2322-TU), constituting the fourth phase of development of the 380-kV transmission network, covering the period 1986-1990. 3. Project Objectives and Description 3.01 The project had two main objectives: (i) to provide major transmission links and transformer substations needed so as to strengthen further TEK's power system and to ensure a continued supply of electricity to the growing demand on TEK's interconnected system; and (ii) to increase TEK's capabilities in network planning and in transmission lines and substation design through a training component. 3.02 The project was part of TEK's then current 1986-1990 development plan and included the following components: (a) construction of about 800 km of 380-kV transmission lines to interconnect the Altinkaya and Hamitabat power stations to TEK's bulk supply system and provide two additional links for the Karakaya power station: (b) construction and/or extension of 380/154-kV transformer substations with total installed capacity of about 2,100 MVA;  -2- (c) supply, installation, and commissioning of equipment for the construction and extension of 154-kV substations with about 3,300 MVA of new installed capacity; (d) construction of a tower testing station for towers for transmission lines up to 380-kV, with possibility of extension to the 800-kV range; (e) supply of specialized line stringing equipment and vehicles to be used in the installation of transmission lines; (f) training and supply of devices, such as computer hardware/software to strengthen TEK's capabilities in network engineering and planning, and in transmission lines and substation design; and (g) consulting services to assist TEK in project implementation. 3.03 The total cost of the project, including physical and price contingencies, but excluding the interest during construction, was estimated at US$195 million equivalent, of which US$146 million was in foreign exchange. Interest during construction was estimated at US$13 million equivalent, bringing the total financing required to US$208 million. 3.04 The Bank loan of US$142 million was to finance 89 percent of the foreign cost including the $13 million for interest during construction. The remaining $66 million of total cost were to be covered by TEK's internal cash generation, materials from stock, and Government contributions ($17 million of the foreign exchange cost represent the cost of material and equipment supplied by TEK and the indirect foreign exchange cost for installation and erection to be undertaken by TEK or local contractors). 4. Project Design and Organization 4.01 Design. At Project Appraisal, the preparation of detailed design and tender documents for procurement was underway and was expected to be completed by March 30, 1986. As this project was viewed as an extension of the TEK III Transmission Project, the planning and design had been performed according to the criteria established during previous construction and operation of TEK's transmission system. Installation and erection of project facilities was to commence in mid-1986, with the project scheduled for completion by June 30, 1990. 4.02 Acquisition of rights-of-way for the transmission lines was also underway at Project Appraisal, whereas land acquisition for the new substations had not yet started. The land acquisition schedule agreed to by TEK and the Bank during negotiations called for all transmission line land acquisition to be completed by September 30, 1986, and at least 50% of the substation land acquisition to be completed by June 30, 1986. 4.03 Organization. As implementing agency for the project, TEK planned to use essentially the same organizational structure that was used for the TEK III Transmission Project. ELTEM-TEK, a private local engineering consulting firm, would be retained to act as project manager, providing assistance in engineering, project management and coordination, and other technical and administrative services. The use of ELTEM-TEK was consistent with the condition of effectiveness specified in Article 7.01 of the Loan Agreement, namely, that engineering consultants must be engaged. ELTEM-TEK would hire foreign  - 3 - consultants, whenever needed, to assist its own personnel. The consulting assistance was estimated at 60 man-months, for both ELTEM-TEK and any foreign consultants. 4.04 Procurement. The goods and services to be procured for the project were initially grouped into 10 contract packages for the transmission lines component and into 11 contract packages for the substations component. The proposed procurement plan called for all contracts for the lines component to awarded by the end of 1986 and all contracts for the substations component to be awarded by the end of May 1987. By following this schedule project completion should have been achievable by mid-year 1990, as originally planned. 4.05 Training. Training was an important project component to complement the training and manpower development activities under the ongoing TEK Transmission III Project. At least 90 individuals were to participate with the aim of improving TEK's capabilities in network engineering and planning, and in transmission lines and substations design. A detailed staff training plan was to be submitted to the Bank no later than June 30, 1986. 5. Project Implementation 5.01 Implementation of the project proceeded more slowly than expected at appraisal. Through the first four years of the project, disbursements were only 25Z of the planned disbursement curve. Although the loan closing was only extended by one year, project completion was actually two years later than scheduled. 5.02 Land acquisition proceeded more slowly than scheduled because of the governmental approval process, changes in routing and changes in project scope, as well as construction delays. However, land acquisition was not the main contributing factor to overall project slippage. Procurement proved to be the biggest obstacle to achieving the project schedule. 5.03 At Appraisal it was felt that the design and bid specification preparation for the agreed 21 contract packages was well in-hand, and that the schedule was achievable. The completion of the preparation of the procurement packages, however, took longer than planned, and this jeopardized the implementation of an otherwise well conceived procurement plan. 5.04 The schedule slipped by two years for both the transmission lines and substations components. A further complication was the vacillation over contracting approach. Changes in power generation plant construction schedules, due to disappointing experiences with new power plants under BOT arrangements, inevitably resulted in changes to transmission line connection schedules. Faced with difficulties in implementation of some of the transmission lines on schedule due to the major reorganization of TEK in late-1987 as well as the pressure to complete the ongoing construction of power plants, TEK decided to use the turn- key approach to accelerate implementation. With the Bank's assistance, TEK prepared standard bidding documents for turn-key procurement of lines and substations in early 1988. However, towards the end of 1988, TEK decided to use multiple contracts instead of turn-key contracts, largely due to pressure from domestic contractors because domestic preference of 15% was not allowed on turn- key contracts.  - 4 - 5.05 In most Bank projects in Turkey, institutional strengthening or training is an important component. The training component for the TEK IV Transmission Project was to involve at least 90 individuals in network engineering and planning and in transmission lines and substations design. Although a training program was developed, the actual training was never implemented. Causes for this include TEK's general lack of commitment to training and human resource development and the overstretching of TEK's management with day-to-day operations. Inadequate supervision of this component by the Bank contributed to the failure of this component of the project. 6. Proiect Results 6.01 Although the overall project was completed well behind schedule, the construction of the physical facilities can be considered a success. Apart from the schedule delay, the transmission lines and substations were designed and constructed with a minimum of technical problems. Over 800 km of 380-kV transmission lines were added to TEK's transmission network. The associated substations will facilitate electricity distribution to an ever-growing demand. 6.02 Out of the four main transmission lines constructed under the project, three are located in remote and relatively sparsely inhabited areas. Two lines (Karakaya - Osmaniye and Karakaya - Diyarbakir) in the east and one line (Altinkaya - Carsamba) in the Black Sea coast helped transmit power generated from Ataturk, Karakaya and Altinkaya hydropower plants reducing the use of other fuels. The fourth line (Hamitabat - Alibeykoy) in the northwest enabled transmission of power generated from the new natural gas power station in Hamitabat. Thus, the project resulted in positive rather than negative environmental impact. Very limited resettlement resulted from the construction of the lines due to their location. 6.03 The institutional objectives of the project, however, were not achieved. The training program designed to increase TEK's technical and managerial capability was never implemented. This led to deterioration of TEK's effectiveness and of its financial situation. The financial performance of TEK and its ability to function as a viable economic organization were major concerns. Financial management of the operation continued to be poor. Although accounts receivable collection was improved, the progress was really minimal and targets were not met. The target ratio 1.0 for current assets to current liabilities was not met during the life of the loan. TEK was unable to produce funds from internal sources equal to 35% of the average incurred capital expenditures during the life of the loan. Inadequate tariff adjustments coupled with the accelerating inflation and devaluation of the Turkish Lira against major currencies forced TEK into insolvency. Consequently, the estimated 6.14% rate of return on the (1986-91) time-slice of the power system's investment program of which the project was a part falls short of the 11.2% rate of return estimated at appraisal. Further the first audit in 1988 by a private auditor of international repute (Price Waterhouse) revealed major difficulties in TEK's accounts. 6.04 TEK and the Government began addressing these issues from 1991 in the context of the TEK Restructuring Project. The measures include, inter alia, implementation of a comprehensive financial management improvement program in TEK and preparation annually of TEK's corporate performance plan mutually agreed between TEK and the Government.  -5- 7. Bank Performance 7.01 The Bank was involved actively in the preparation as well as the design of the project. The training of TEK's staff in network operations and management under the project was intended to complement the larger institutional building efforts initiated under the TEK Transmission III Project. 7.02 The Bank monitored the project implementation on a very regular basis. However, even when loan disbursements were well below the planned disbursement curve and the project was behind schedule, the project was rated as having no problems. During the early phase of implementation, the Bank should have been making recommendations that could have had positive results in the latter phases. 7.03 Procurement was a problem in the TEK Transmission III Project, and the procurement plan was not being achieved on the TEK IV project. Yet it was not until early 1988, some three years into project implementation and one year after all contracts were to have been awarded, that the subject of standardized bid documents was raised. In the PCR for the TEK III Project, TEK commented that seminars for "Procurement of Works" should be held in the early days of project implementation so that both the Bank and TEK management could better understand each other and the project requirements and restrictions. 7.04 Training was considered an important project component. TEK did not attach much importance to training and was nine months late in submitting its initial training program for Bank review and approval. However, the Bank was negligent in responding to TEK. A formal response to TEK's proposed program was sent some eleven months after submittal, and only after five requests from TEK asking for comments. The Bank must take care that its own internal procedures and staffing reorganizations do not impose untimely, and unacceptable, delays on the Borrower's attempts to maintain schedule 8. Performance of the Borrower and Guarantor 8.01 From a technical standpoint, the project was implemented satisfactorily by TEK and its consultant ELTEM-TEK. Despite the two year delay in project completion, there was little adverse impact on TEK's ability to deliver power from its generation facilities to its load centers. 8.02 TEK and the Government did not display the hoped for commitment to the institutional aspects of the project. Training, which can have positive long term impacts on the organization's capabilities, was never implemented. With regard to financial aspects of TEK, hopes of improvement were raised from the significant increases to TEK's tariffs and capital prior to release of the second tranche of the Energy Sector Adjustment Loan (ESAL, Ln.2856-TU) in March 1988. However, the increase of TEK's tariffs and capital (which was not paid until 1989) was soon eroded by the onset of high inflation in 1988 and 1989. 8.03 The financial condition of TEK and the entire power sector was adversely affected by electricity tariffs which did not reflect the economic cost of supply, nor fully cover the financial obligations. As a result, TEK was unable to meet the agreed financial performance targets at anytime during the project implementation.  - 6 - 8.04 Although tariffs are not fully under its direct control, TEK should have taken greater responsibility for those financial decisions that were within its purview, namely, preparation of reasonable investment programs, implementation of financial action plans to address deficiencies in accounts receivables and foreign debt service, and auditing of financial statements. 9. Consulting Services 9.01 The engineering and project management services provided by ELTEM-TEK were satisfactory. Through the TEK Transmission III Project, ELTEM-TEK gained extensive experience in design and construction supervision of EHV transmission systems. Foreign consultants were not utilized on this project. 10. Findings and Lessons 10.01 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 coordination among the TEK departments concerned; (iii) lack of local funds; (iv) lack of commitment on the part of TEK's management to the technical assistance objectives of the project; (v) 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. 10.02 The more fundamental reasons for these deficiencies, however, must be sought in the lack of commitment by TEK's top and middle managers to the need 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 within a framework of parameters defined by an independent regulatory authority. 10.03 The lessons to be learned from this lending operation are that project implementation and 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. Also, Bank supervision needs to devote much more attention than was done for this project to the implementation not only of the physical aspects of projects, but also of institution building components. 10.04 The Bank should have worked more closely with the Borrower in the initial project phase to develop a coherent and consistent project procurement plan and to develop concise and complete bidding documents, either as standardized bidding documents if the project can be so structured or as individual bidding documents for major contract packages. The Bank should also have relied more on upfront actions critical to project implementation and on measures such as TEK's annual corporate performance plan (introduced under the ongoing TEK Restructuring Project) requiring TEK's and the Government's acknowledgement of and agreement to their respective responsibilities and obligations towards achieving the targeted performance objectives.  PROJECT COMPLETION REPORT TURKEY FOURTH TEK TRANSMISSION PROJECT (LOAN 2586-TU) PART II - PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE No comments were received from the Borrower.  PART III 1. Related Bank Loans and Grant Title Purpose Year Status Comments T/A Grant Assistance in reorganizing 1967 Complete Turkey's power industry. 568-TU Keban 380-kV transmission lines. 1968 Complete PPAR issued Transmission Nov. 1981. 1194-TU TEK Construction of substations 1976 Completed in PCR issued Transmission II and transmission lines, as June 1984 Oct. 1984. well as training of TEK staff against Institu- in the design and operation estimated tional of the transmission system, date of objectives and tariff, manpower, and June 1979. partially power system studies. achieved. 1844-TU Construction of hydro dam 1981 Completed in PCR issued Karakaya and 6x300 MW power station. Feb. 1989 Dec. 1991. against estimated date of Dec. 1986. 2322-TU TEK Construction of 1,500 km 1983 Completed in PCR issued Transmission III of 380-kV transmission lines Sept. 1989 May 1990. to interconnect various power against Institu- stations to TEK's bulk supply estimated tional system; continue institution date of objectives building activities initiated Dec. 1986. only under previous Bank projects partially in the sector. achieved. 2602-TU Power Upgrading and improvement 1985 Expected to be System Operations of the efficiency and completed by Assistance availability of TEK's September 1993. Project electric power facilities. 2856-TU ESAL Assistance in carrying out 1987 Expected to be an energy sector adjustment completed by program. Sept. 30, 1993. 3345-TU TEK Corporate restructuring and 1991 In progress. Restructuring implementation of a least- cost investment program for the power subsector in both the public and private sectors during 1990-94.  -9- 2. Project Timetable Item Date Planned Date Revised Actual Date Identification September 1984 Preparation Late 1984 Appraisal February 1985 Loan Negotiations Apr. 30 - May 2, 1985 Board Approval June 18, 1985 Loan Signature June 27, 1985 Loan Effectiveness Sept. 27, 1985 Oct. 7, 1985 Project Completion June 30, 1990 Dec. 31, 1991 Loan Closing Dec. 31, 1990 Dec. 7, 1990 Dec. 31, 1991 3. Loan Disbursements Cumulative Estimated and Actual Disbursements (US$ Millions) 1986 1987 1988 1989 1990 1991 1992 Appraisal Estimate 4.4 25.5 59.6 92.3 116.4 142.0 Actual 8.5 10.3 13.4 23.2 58.8 127.1 136.8 Actual as % of Estimate - % 193% 40% 22% 25% 51% 90% 96% 4. Proiect Implementation Original Actual Schedule Performance Detailed design/tender documents for procurement - Transmission lines March 30, 1986 June 30, 1988 - Substations January 1987 January 1989 Staff training program June 30, 1986 March 1987 - Submission of plan completed. - Actual training program never implemented. Land Acquisition - Transmission lines December 31, 1987 December 1987 - Substations (50%) June 30, 1986 - Substations (100%) September 30, 1986 May/June 1987 Commissioning of Facilities - Transmission lines - Karakaya-Osmaniye December 31, 1988 August 17, 1990 - Altinkaya-Carsamba December 31, 1987 November 1, 1990 - Hamitabat-Alibeykoy December 31, 1987 May 29, 1988 - Karakaya-Diyarbakir December 31, 1988 January 29, 1991  - 10 - - Substations - 380 kV - Adapazari (Extension) December 1991 - Balikesir (Extension) March 1992* - Adana (New) March 1992* - Diyarbakir (New) September 1991 - Gaziantep (New) December 1991 - Uzundere (New) March 1992* *Date to be confirmed by TEK  - 11 - 5. Proiect Costs and Financing A. PROJECT COSTS (USS MILLIONS) APPRAISAL ESTIMATE ACTUAL Local For. Total Local For. Total A. 380-kV Transmission Lines Karakaya-Osmaniye 7.6 21.1 28.7 15.4 36.4 51.8 Altinkaya-Carsamba 1.7 4.2 5.9 4.1 9.6 13.7 Hamitabat-Alibeykoy 3.1 8.8 11.9 6.6 15.0 21.6 Karakaya-Diyarbakir 1.5 6.0 7.5 4.3 9.5 13.8 Other Connections for New 380-kV Substations 0.7 2.0 2.7 0.9 0.9 1.8 Tower Testing Station 2.0 2.5 4.5 --- --- --- Line Stringing Equipment - 4.5 4.5 Total - Component A 16.6 49.1 65.7 31.3 71.4 102.7 B. Substations Component 380/154-kV Substations 4.0 20.5 24.5 3.7 14.6 18.3 154/30-kV Substations 10.7 26.7 37.4 44.3 72.4 116.7 Total - Component B 14.7 47.2 61.9 48.0 87.0 135.0 C. Other Computer Hardware/Software 0.1 2.2 2.3 --- --- --- TEK Eng/Adm for A+B 1.7 - 1.7 15.0 --- 15.0 Consulting Services for A+B 0.2 0.3 0.5 0.6 1.9 2.5 Training 0.3 0.7 1.Q - --- Total - Component C 2.3 3.2 5.5 15.6 1.9 17.5 D. TOTAL PROJECT COST Base Cost: Components A+B+C 33.6 99.5 133.1 94.9 160.3 255.2 Physical Contingencies 3.4 9.9 13.3 0.0 0.0 0.0 Price Contingencies 12.0 36,6 48.6 0.O O.0 O.O TOTAL PROJECT COST 49.0 146.0 195.0 94.9 160.3 255.2 Interest During Construction --- 13.0 13.0 --- 13.0 13.0 TOTAL FINANCING 49.0 1590. 208.0 94.9 173.3 268.2  - 12 - B. PROJECT FINANCING (US$ MILLION) Planned - Loan Agreement Final - As Implemented Local Foreign Total Local Foreign Total IBRD --- 142.0 142.0 --- 136.8 136.8 TEK/Covt 49.0 17.0 66.0 94.9 36.5 131.4 Total 49.0 159.0 208. 94.9 173.3 2682. 6. Project Results A. Direct Benefits New physical facilities enabled TEK to evacuate power from new generating plants to the areas of ever increasing demand. Over 800 km of 380-kV transmission lines were added to the TEK system. The increase in substation capacity supported power transmission and provided more reliable interconnection capability. B. Economic Impact Appraisal Actual Estimate (At Final Development) Economic Rate of Return 11.2% 6.14% Underlying Assumptions Capital Expenditure Actual expenditures for the 1986-91 period for the power system (DSI and TEK). Deflators Based on wholesale price index from the International Financial Statistics (IMF). Electricity Sales Actual for 1986-91 period; estimated for 1992 and TEK's forecast from 1993 onwards. Electricity Prices Actual for 1986-92 period with the 1992 price expressed in 1991 prices and maintained thereafter. Revenues and Costs Incremental revenues based on electricity sales compared with 1986 base sales at prices shown above. Incremental fuel costs based on actual costs with 1986 base. O&M costs assumed at 2% of capital expenditure.  T U R K E Y TEK TRANSMISSION IV PROJECT I I I ~ ISALES IINCREMEN.IELECTRIC.IINCREMEN.I FUEL INC.FUEL O&H INC.O&M TOTAL INCIPV OF NET |YEAR |POUER SYSTEM INVESTMT.(TL b) IDEFLATORSI (NET) SALE I PRICE REVENUE COST . COST . COST . COST . COST BENEFIT I I DSI I TEK . TOTAL I I (GWh) I (GWh) I(TL/kWh) I (TL b) I (TL b) . (TL b) . (TL b) . (TL b) . (TL b) I (TL b) 1 1986 384.4 . 683.2 . 1067.6 0.11602 30051.0 0.0 43.0 0.00 365.00 . 0.0 . 21.4 . 0.0 . 0.0 -9201.5 2 1987 648.8 . 1126.6 . 1775.3 0.15319 33917.0 3866.0 47.6 184.18 353.00 . -12.0 . 35.5 . 14.2 . 2.2 -10401.2 3 1988 922.2 . 2454.2 . 3376.4 0.257m 36787.0 6736.0 71.4 481.09 395.00 . 30.0 . 67.5 . 46.2 . 76.2 -11529.3 4 1989 1170.0 . 2832.0 4002.0 0.42265 41058.0 11007.0 100.3 1104.11 1118.00 . 753.0 . 80.0 . 58.7 . 811.7 -8776.9 5 1990 1537.7 . 2776.4 . 4314.1 0.64392 43997.0 13946.0 151.5 2112.82 1198.03 . 833.0 . 86.3 . 64.9 . 898.0 -4813.1 6 1991 2832.8 . 4636.8 . 7469.6 1.00000 47852.0 17801.0 254.6 4532.13 1303.00 . 938.0 . 149.4 . 128.0 . 1066.0 -4003.5 7 1992 . . 1.00000 52943.0 22892.0 291.2 6666.15 1441.63 . 1076.6 . 160.1 . 138.7 . 1215.4 5450.8 8 1993 . . 1.00000 58576.0 22892.0 291.2 6666.15 1595.01 . 1076.6 . 174.1 . 138.7 . 1215.4 5450.8 9 1994 . . 1.00000 64809.0 22892.0 291.2 6666.15 1764.73 . 1076.6 . 192.6 . 138.7 . 1215.4 5450.8 10 1995 . . 1.00000 71705.0 22892.0 291.2 6666.15 1952.51 . 1076.6 . 213.1 . 138.7 . 1215.4 5450.8 11 1996 . . 1.00000 79334.0 22892.0 291.2 6666.15 2160.25 . 1076.6 . 235.8 . 138.7 . 1215.4 5450.8 12 1997 . . 1.00000 87775.0 22892.0 291.2 6666.15 2390.09 . 1076.6 . 260.9 . 138.7 . 1215.4 5450.8 13 1998 . . 1.00000 97114.0 22892.0 291.2 6666.15 2644.39 . 1076.6 . 288.7 . 138.7 . 1215.4 5450.8 14 1999 1.00000 107447.0 22892.0 291.2 6666.15 2925.76 . 1076.6 . 319.4 . 138.7 . 1215.4 5450.8 15 2000 . . 1.00000 118879.4 22892.0 291.2 6666.15 3237.06 . 1076.6 . 353.4 . 138.7 . 1215.4 5450.8 16 2001 . . 1.00000 131528.3 22892.0 291.2 6666.15 3581.49 . 1076.6 . 391.0 . 138.7 . 1215.4 5450.8 17 2002 . 1.00000 145523.0 22892.0 291.2 6666.15 3962.56 . 1076.6 . 432.5 . 138.7 . 1215.4 5450.8 18 2003 . . 1.00000 161006.8 22892.0 291.2 6666.15 4384.18 . 1076.6 . 478.6 . 138.7 . 1215.4 5450.8 19 2004 . . 1.00000 178138.0 22892.0 291.2 6666.15 4850.66 . 1076.6 . 529.5 . 138.7 . 1215.4 5450.8 20 2005 . . 1.00000 197092.0 22892.0 291.2 6666.15 5366.77 . 1076.6 . 585.8 . 138.7 . 1215.4 5450.8 21 2006 . . 1.00000 218062.7 22892.0 291.2 6666.15 5937.80 . 1076.6 . 648.2 . 138.7 . 1215.4 5450.8 22 2007 . . 1.00000 241264.8 22892.0 291.2 6666.15 6569.58 . 1076.6 . 717.1 . 138.7 . 1215.4 5450.8 23 2008 . . 1.00000 266935.5 22892.0 291.2 6666.15 7268.59 . 1076.6 . 793.4 . 138.7 . 1215.4 5450.8 24 2009 . . 1.00000 295337.6 22892.0 291.2 6666.15 8041.98 . 1076.6 . 877.9 . 138.7 . 1215.4 5450.8 ERR = 6.14X  - 14 - 7. Status of Covenants Loan Deadline Agreement Subiect for Compliance Status 3.01 Submit to the Bank a detailed staff June 30, 1986 Program received training program, and implement this in March 1987. program in accordance with an Trainrng program implementation schedule satisfactory never to the Bank. implemented. 3.04 Review with the Bank the proposed October 31 Compliedwith. annual investment program for the each year. power subsector for the next succeeding year and the related financing plan, and the required investments and related financing plans for the next succeeding five years. 3.05 Completion of land acquisition Sept. 30, 1986 Deadline mt met proceedings for the new 380-kV but delay did transmission lines and 154-kV not affect over- substations. all project schedule. 4.01 Implement a Financial Action Plan Bill collection: including: necessary steps to improve improved, but collection of customer bills and targets not met. foreign debt service recording and Foreign debt: management. compliedwith. 5.01 Submit its audited annual financial Auditedstate- statements to the Bank no later than ments received, ten months after the close of FY85, but not within eight months after FY86, and five the specified months thereafter. time period. 5.02 Maintain a ratio of current assets to Ratio not met current liabilities of not less than 1.0. during life of loan. 5.03 Produce funds from internal sources Not achieved equivalent to not less than 35% of the during life of annual average of the incurred capital loan. expenditures for each Fiscal Year. 5.04 Maintain a fuel adjustment clause in its Partially electricity supply contacts and enforce compliedwith. a provision that its charges will be increased automatically to take account of increases in its fuel costs.  - 15 - 5.04 Reflect all increases affecting bulk Partially (high voltage) tariffs, including fuel compliedwith. cost adjustments, in retail (low voltage) tariffs. 8. Use of Bank Resources A. Staff Inputs (Staff Weeks) Stage of Planned Revised Final Prolect Cycle HO Field HO Field HO + Field Comments Thru Appraisal 36.3 Post-Appraisal 9.7 thru Bd Approval Bd Approval 4.9 thru Effectiveness Supervision 62.6 Total 113.5 B. Missions Performance Stage of No. of Days in Specialization Rating Types of Proiect Cycle Month/Year Persons Field Reference a/ Status b/ Problems Identification May 1980 Preparation Appraisal Jan/Feb 1985 4 24 Power EGR (2) ECON, FNA Supervision I. October 1985 3 24 Power ECR, FNA 1 - Power EGR (PT) II. March 1986 3 18 Power EGR, FNA (2) 1 III. Jun/Jul 1986 2 24 Power EGR, FNA 1 - IV. Oct/Nov 1986 4 33 Power EGR (2) 1 - FNA (2) V. Mar/Apr 1987 2 27 Power EGR, FNA 1 - VI. December 1987 5 13 Power ECR (2) 1 - FNA (2), ECON  - 16 - VII. Jun/Jul 1988 4 24 Power EGR (2) 1 FNA (2) VIII. November 1988 1 10 FNA IX. December 1988 3 20 Power EGR (2), FNA 2 M, F X. September 1989 2 16 Power EGR (2) 2 M, F XI. August 1990 2 18 Power EGR (2) 2 M, F XII. July 1991 2 17 Power EGR, ECON a/ Power EGR - Power Engineer k/ 1 - Problem-free ECON - Economist 2 - Moderate problems FNA - Financial Analyst 3 - Major problems NI - Not Indicated c/ M - Managerial T - Technical F - Financial NI - Not Indicated