Turkey - Energy Sector Adjustment Loan Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4513-TU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON AN ENERGY SECTOR ADJUSTMENT LOAN IN AN AMOUNT EQUIVALENT TO US$325 MILLION TO THE REPUBLIC TURKEY June 1, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their ofilcba duties. Its contents may not otherwise be disclosed without World Bank authorization.  TURKEY ENERGY SECTOR ADJUSTMENT LOAN CURRENCY EQUIVALENTS Currency Unit Jan.1980 a/ Jan. 1982 Jan. 1983 Jan. 1984 Jan. 1985 Jan. 1986 Jan. 1987 US Dollar TL 70.00 TL 139.60 TL 191.15 TL 309.20 TL 451.00 TL 585.1 752.9 TL 100 US$1.43 US$0.72 US$0.52 US$0.32 US$0.22 US$0.17 US$0.13 a! Since January 1980, the rate is being adjusted for the differential inflation between Turkey and its major trading partners. In this report it is assumed that this policy will continue. FISCAL YEAR Republic of Turkey January 1 - December 31 WEIGHTS AND MEASURES kVA = kilovolt ampere kW = kilowatt kWh = kilowatt hour GWh (Gigawatt hour) 1,000,000 kWh kV (kilovolt) = 1,000 volts MSCT/day = million standard cubic feet/day MW (Megawatt) = 1,000 kW MVA (Megavolt-ampere) = 1,000 kVA MVAR (Megavolt-ampere) = 1,000 KVAR One meter (m) - 3.28 feet One kilometer (km) - 0.624 mile One kilogram (kg) (1,000 kg) = 2.2 pounds One ton (metric ton) (1,000 kg) _ 2,205 pounds One kilocalorie (kcal)(1,000 calories) = 3.968 BTU toe - tons of oil equivalent  Fo0 OMCIL USE ONLY TURKEY ENERGY SECTOR ADJUSTMENT LOAN List of Abbreviations BOT - Build, Operate, and Turnover BOTAS - Turkish Pipeline Corporation CEAS - -Cukurova Electric Company CuP - Combined Heat and Power DSI - State Hydraulics Authority DYB - State Investp'ent Bank EIE - Electricity Survey Administration GDE - General Directorate for the Environment GDPA - General Directorate for Petroleum Affairs IAEA - International Atomic Energy Agency IGDAS - Istanbul Gas Distribution Company KEPEZ - Kepes Electric Company LRMC - Long Run Marginal Cost MENR - Ministry of Energy and Natural Resources MTA - Mineral Research Institute POAS - Petrol Ofisi PSBR - Public Sector Borrowing Requirement SEE - State Economic Enterprise SPO - State Planning Organization TEK - Turkish Electricity Authority TKI - Turkish Coal (Lignite) Enterprises TTK - Turkish Hard Coal Enterprise TPAO - Turkish Petroleum Corporation TUPRAS - Turkish Refineries Corporation hi document has a restricted distribution and may be used by ecipients only in the perfonnrmn| of their oflci duties. Its contents may not otherwise be disclosed without World Bank authorzaion.  TURKEY ENERGY SECTOR ADJUSTMENT LOAN Borrower : Republic of Turkey Beneficiaries : Republic of Turkey and Energy Sector Agencies Amount : US$325 million equivalent Terms : 17 years including 4 years grace, with interest at the standard variable interest rate. Desc:iption : The proposed loan would support the continuation of the Government's reform program in the energy sector. The principal objectives of the program are to improve the efficiency of energy production in the public sector and to assist in Government efforts to facilitate private sector participation in the sector. Government policies are designed to further reduce the constraints that limited energy supplies have imposed on the Turkish economy. The loan in part would support policy measures to achieve these objectives and in part finance priority energy sector investments for the period 1987-19899 Benefits and Risks : Implementation of Government's energy sector adjustment program would result in several significant benefits to the economy. It would: ensure movement towards Government's objectives of liberalization as outlined in the structural adjustment program; increase the stock of trained manpower in the sector; lay the foundation for increasing the flows of private capital to the sector; and, reduce both recurrent and capital public expenditures through improved efficiency. The main risks relate to the uncertainties regarding the level and timing of private investment, volatility of demand forecasts and their impact on investment, and the pace of price adjustments necessary for implementing cost recovery policies. We believe that efforts to reduce these risks to an acceptable level have been taken. Estimated : Full disbursement of the loan would take place over Disbursements a two and a half year period. The loan would include US$175 million in direct support of the policy reform program to be disbursed in two tranches - US$75 million at effectiveness and US$100 million approximately one year after effectiveness. The balance (US$150 million) would be utilized to fund the foreign exchange costs of goods, equipment and technical assistance needed for the 1987-1989 energy investment program. Staff Appraisal Report : Not applicable : IBRD: 20412  TURKEY ENEERGY SECTOR ADJUSTMENT LOAN TABLE OF CONTMMEN Pate PART I. THE ECONOMY 1 Background 1 Recent Economic Developments 2 Medium Term Prospects and Policies 7 PART II. THE EWERGY SECTOR 8 Sector Profile 8 Energy Resources 8 Energy Balances 8 Institutional Arrangements 12 The Development of Energy Policy in Turkey 12 Energy Policy in the 19709 12 Energy Policy since 1984 13 PART III. THE SECTORAL ADJUSTMENT PROGRAM 15 Background 15 Energy and the Macro Framework 15 The Policy Framework and Government Objectives 15 The Program 17 The Institutional Framework 17 Economic Investment 23 Efficiency in the Supply and Consumption of Energy 29 Environmental Considerations 34 PART IV. THE PROPOSED LOAN 36 Background 36 Project Cost and Financing Plan 36 Procurement, Disbursement and Administration 40 Monitoring and Reporting 41 Benefits and Risks 42 PART V. BANK GROUP OPERATIONS IN TURKEY 44 PART VI. RECOMMENDATION 45  - ii - TABLE OF CONTENTSS (Cont.) Page Figures and Tables: Figure 1: Commercial Energy Demand and Supply, 1984-1995 11 Table 1: Net Firancial Contribution of Petroleum Products, 1985 33 Table 2: Project Cost Table 38 Teb]- 3: Tentative Financing Plan for the Project 39 Table 4: Financial Requirements for the 1987-1989 Program 39 Annexes 1. Economic Data Sheets 2. World Bank and IFC Operations 3. Statement of Energy Policy 4. Schedule of Actions 5. The Priority Energy Investment Program 1987-1989 6. Financing Gaps and Goods and Services to be Procured 7. Energy Balances, 1985 - 2010