Turkey - Izmir Water Supply and Sewerage Project

Docmt of The World Bank FOR OFFICIL USE ONLY Report No. 6656-TU STAFF APPRAISAL REPORT REPUBLIC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT May 1, 1987 Regional Projects Department Europe, Middle East and North Africa Regional Office 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.  CURRENCY EQUIVALENTS 100 Turkish Lira (TL) _ US$0.134 744 Turkish Lira (TL) US$1.00 (as of January 1, 1987) FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES ha Hectare (2.47 acres) km = Kilometer (0.621 miles) 1 = Liter (0.264 US gallons) m3 = Cubic meter (264 US gallons) Mgd = Million US gallons per day m3/sec = Cubic meters per second (22.8 Mgd) Mm3/year = Million cubic meters per year (0.723 Mgd) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED APK = Research and Planning Department DSI = State Hydraulic Works ESHOT = Izmir Municipality Gas and Transportation Authority GDRS = General Directorate of Rural Services IB = Iller Bank (Bank of the Provinces) ISKI = Istanbul Water Supply and Sewerage General Directorate IZSU = Izmir Water Supply and Sewerage General Directorate MAFRA = Ministry of Agriculture, Forestry and Village Affairs RWS = Rural Water Supply Department TEK = State Electric Power Authority  FOR 0FICIL US ONLY REPUBLIC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT STAFF APPRAISAL REPORT Table of Contents PaSe No. LOAN AND PROJECT SUMMARY .....................ii L. INTRODUCTION ...... .......................................... i II. THE WATER AND SUPPLY AND SEWERAGE SECTORo..o.R.......... .... 1 Sectoral Contextoo.o ........ Country Backgroud ......1 Water Supply...... .... *....................................... ... 2 Bewerag 2 Service Level Objectives .................. ...... . . 2 Sector Organization and Developmaent.o..o...................o., 3 Investments in the Sector. ..............4 Constraints to Development...... 4 Previous World Bank Involvement in the Sector .................... 4 Rationale for World Bank Involvement............... 5 ,III. THE B ORWR5 5 Organization and Staffing... ................................... 6 Accounting ........................7 Auditg.................................... oo ............... 8 Billing and Collection ............... 8 Insurance ................. This report was prepared by Messrs. Paul J. Bowron, Financial Analyst, Richard A. MacEwen, Engineer, and David A. Henley, Engineer; Ms. Marjory-Anne Bromhead, Economist; and Mr. Charles A. Todd, Financial Analyst Consultant. This document has a resticted distribution and may be used by mecipients only in the petfo_ae of their offcial duties. Its contents may not otherwise be disclosed without World Dank authodzaion.  Table of Contents (Conitd) Page No. IV. PROJECT AREA, SECTOR SERVICES AND DEMAND ..................... .... 9 Project Area .......... ................ ............... 9 Existing Facilities9................................... ...... 9 Water Consumption and Demand ..................................... 10 Population ......... ..... .............. ........ . ........ ....... 10 Population Served ......... 11 Per Capita Consumption..o......... ..... ..... ......... ....... 11 Unaccounted-for Wa ter............. . 12 V. THE PROJECT ................... 12 Background .............. 12 Project Oecie ...... 13 Rationale for World Bank Support for the Project ................ 13 Project Description ...... ....... ................. ... 14 Project Cost .................................................... 16 Execution of the Project .................................. ..... 18 Land Acquisition and Resettlement.............................. 19 Industtial Wastewater Management...... .............. ....... 21 Project-Related Training ............. ......... .. 21 Procurement ................... ... ...44444444.. 22 Di sbursements ............................... 24 Monitoring and Evaluation ....................................... 25 VI. ....................................................... 25 Past Performance and Current Financial Position................. 25 Financing Plan... .................................... ...... 26 Future Finances .............. ......... ..................... ............. 27 Tariff Structure and Adjustments................................ 28 Financial Reporting ........ ...... 29 VII. PROJECT BENEFITS ............... 29 Project Benefits . ..4.4....,.. ..................... .4...4......... * 29 Re-use of Effluent for Agriculture .............................. 30 Environmental Impact............................................ 30 Affordability of Project Services ............................... 30 Poverty Impac t . ....... ......................... 31 Rate of Return............................... ................... 32 Least-Cost Solution....... .............................. ... 32 Risks......... ......................... 44 444444440.44.4.44........ 33 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS .................... 33  Table of Contents (Cont'd) LIST OF ANMEXES Page No. 1 - IZSU Organirstion Chart .................. 35 2 - Historical and Projected Water Production and Related Indicators .... .........e........... .0........ 36 3 - Historical and Projected Sewerage Connections and Related Indicators ............................ . . . . . . . .* 0 3 7 4 - Water Demand Versus Safe Yield of Sources... .,.......... 38 5 - Project Cost Estimates ............6*0060660160*160........... 39 6 - Project Implementation Schedule.o........................ 43 7 - Contract Procurement Schedule..oo......................... 44 8 - Allocation of Loan Proceeds .............................. 45 9 - Loan Disbursement Schedule................................ 46 10 - Action Plan for Industrial Waste Management ............... 47 11 - Monitoring Indicatorso...............o........o............. 49 12 - Estimated Income Statements, l985-94oo*.o................. 50 13 - Estimated Sources and Applications of Funds Statements, 1985-94..8.5 - 94000.00**0. .. 00...0 .000..0 51 14 - Estimated Balance Sheets, 1985-94oo8 5 - 94.o........ooo..... 52 15 - Incremental Cost and Benefit Streams for Economic Analysis.......... .............o..............0000@0 53 16 - Selected Documents and Data in the Project File........o .............. oo...o... 000 54 MAP IBRD No. 20378R  REPUBLIC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT Loan and Prolt Borrower Izmir Water Supply and Sewerage General Directorate (IZSU). Guarant2n Republic of Turkey. Loan Amount: US$184 million equivalent. TerrN Seventeen years, including 4 years grace, at the standard variable interest rate. frgJg#.t The objectives of the Project are to: (a) assist in establishing an autonomous water and sewerage authority for Izmir; (b) encourage appropriate cost recovery policies; (c) correct deficiencies and expand the capacity of Ismir's water and sewerage systems; and (d) bring about environmental improvements and reduce health hazards by eliminating the discharge of untreated sewage to streams and Izmir bay. The Project includes water supply, water distribution, sewage treatment, and sewage collection components. A technical assistance component would provide advice and training for the newly formed autonomous water and sewerage authority, IZSU, which is the borrower. BEnefIcIaries The beneficiaries would be: (a) approximately 0.84 million and RBik:. people who would receive a piped water supply, and 1.17 million who would receive sewerage services as a result of the Project; (b) an additional 0.8 million people already connected to the water system who would receive improved service; (c) all residents and visitors to the Region who would no longer encounter the heavily polluted environment found today. Actions already initiated to minimize risks and ensure successful implementation of the Project include correction of design deficiencies in ongoing works, acquisition of land for the sewage treatment plant, and the creation of an autonomous operating agency and borrower. Experts would review safety considerations of the Project's dam, and an appropriate waste control policy would be adopted and enforced to minimize the risks of contamination of the sewage treatment process and Izmir bay by discharges of industrial wastes. There are no other unusual risks associated with the Project.  - {i - Estimated Froject Cost: Local Foreitn Total -US$ million Water Supply and Distribution 73.4 97.0 170.4 Sewage Collection and Treatment 151.9 85.1 237.0 Institutional Strengthening 1.9 11.2 13.1 land Acquisition 30.8 _ - 30.8 Base Cost 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 I/ 296.4 225.4 521.8 FEing Plan IBRD Loan - 184.0 184.0 DSI Budget 44.0 5.7 49.7 Iller Bank 52.8 24.5 77.3 Izmir Municipal Budget 96.6 11.2 107.8 IZSU Internal Cash Generation 103.0 - 103.0 Total Financing 296.4 225.4 521.8 Disbursements: World Bank Fiscal Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 -= = -US$ dllion 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 MR-P IBRD No. 20378R l/ Figures include an estimated US$48.0 million in value added taxes.  REPUBUC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT STAFF APPRASAL REPORT I. ITRODUCTION 1.01 The Izmir Metropolitan Municipality is the third largest in Turkey, with a population of 1.7 million growing at about 5 percent per year. Izmir is an industrial center, and 40 percent of the nation's exports pass through its port. There are serious deficiencies in its water supply and wastewater collection, and a lack of wastewater treatment causing extreme pollution of Izmir Bay, around which the City is situated. The proposed project addressee each of these deficiencies. 1.02 The Project includes water supply works; distribution facilities associated with already completed as well as new supply works; sewage treatment facilities; and sewage collection facilities, parts of which are under construction. The Project also includes a technical assistance component to provide advice and training for the Municipality's operating organization for the sector (IZSU), which would be the Project's owner and the Bank's borrower. 1.03 The Project was prepared over a period of one and a half years beginning with a World Bank mission to Izmir in July 1985. The Appraisal Mission took place in November 1986. IL THE WATER SUPPLY AND SEWERAGE SECTOR Seotota Context Country B d 2.01 The population of Turkey in 1986 was 52.8 million, with 53 percent living in urban areas. The population growth rate averaged about 2.8 percent per annum during 1981-1985 (4.6 percent for urban and 0.9 percent for rural areas). The rate is expected to decrease gradually, and the population by the year 2000 to reach about 66 million. Turkey is a middle income country with per capita GNP of approximately US$1,200. Following economic difficulties in the late 1970's, measures were introduced to liberalize the economy. The economy recovered, GDP growth averaged 51 per annum in the 1980-85 period, exports grew at an annual rate of 231, and inflation has been reduced. Despite these favorable trends, inflationary pressures persist, and exports declined by about 81 in 1986, due largely to reduced market demand in the Middle East. Also, the debt burden remains high. Nevertheless, with careful economic management, GDP is expected to continue to grow at about 5% per annum through 1990.  -2- Water Suor 2.02 Estimated public water service levels in 1979 (population served as a percentage of total population) are shown in the table below.I' The figures are believed to be approximately correct for today. Public Service Water Supply Percentages Urban Rural Total Adequate 63 63 63 Inadequate 14 23 18 None 23 14 19 Total Population 100 100 100 In the table, adequate supply is defined as supply available from a public piped system (house connection or standpipe) that is satisfactory both in quantity available and convenience of access. In the Izmir metropolitan area, 80 percent of the population have house and apartment connections, but only two thirds of those served have adequate supply. Sewage 2.03 Sewerage systems serve only 20 percent of the total urban population. None of the systems include treatment, and only a few have adequate disposal facilities. Precarious sanitary conditions prevail, particularly in high density, low income urban areas. In Izmir, about 60 percent of the population is connected to the sewerage system. The remaining 40 percent have cesspits, septic tanks or latrines, many of which are improperly constructed or inappropriate for local conditions. The sewerage syst.em discharges directly into the Bay of Izmir and into surface channels and streams flowing through the City to the Bay. 2.04 The insufficiency of sewerage and the indiscriminate disposal of domestic and industrial wastes have caused deterioration of rivers and coastal sea waters, and increased the danger of contaminating drinking water supplies. According to public health statistics, some 30-40 percent of untreated water samples tested are unsatisfactory from a bacteriological viewpoint. Water-related diseases are endemic, with outbreaks occurring annually in many communities. Service Level Objetives 2.05 Water supply and sewerage service objectives formulated in 1978 were: (i) by 1990, the total urban and rural populations should have adequate water supplies; (ii) by 1990, the total rural population should have satisfactory exereta disposal facilities; and (iii) by 2000, the total urban population 1' Source: Community Water Supply and Sanitation, Rapid Assessment of Current and Prospective Sector Development, WHO, 1979.  should be provided with satisfactory sewerage and sewage disposal facilities. The first objective has been revised by the Government, the target date being shifted to 1993. It is recognized that the objectives have been set largely for purposes of increasing public awareness and support, without strict implications for project implementation. SectorC Orwizatioa and Development 2.06 With the exception only of certain major water source operations, the provision of public water supply and sewcrage services in Turkey is a responsibility of municipalities and village councils. Local financial resources and technical capabilities, however, have not been sufficient to support system development (except recently in the cases of Istanbul and Izmir). Planning, design, and construction of new systems, therefore, have been carried out by three central government organizations, and still continue being carried out by them except for the majority of projects of the largest municipalities. The three organizations are: (a) The State Hydraulic Works (DSI) under the Ministry of Public Works, responsible for national water resources, major water source development and operation, and *water supply development for towns with a population exceeding 100,000, presently about 30, but excluding the largest municipalities. DSI has its headquarters in Ankara and operates 21 regional offices. (b) The Iller Bank (IB, meaning Bank of the Provinces), a semi- autonomous Government corporation responsible for water supply development for towns with a population of less than 100,000, and for major sewerage development in all urban areas except Istanbul and Izmir. IB has its headquarters in Ankara and operates 16 regional offices. Its shareholders are the municipalities. (c) The General Directorate of Rural Services (GDRS) under the Ministry of Agriculture, Forestry and Village Affairs (MAFRA). There are two departments within GDRS dealing with rural water supply programs, the Rural Water Supply Department (RWS) and the Research and Planning Department (APK). RWS has 17 regional offices which supervise 67 provincial offices. 2.07 In general, responsibilities for municipal water and sewerage operations have been embedded within operating departments which carry out a variety of other functions as well (e.g., transportation, gas service). Significant changes are, however, taking place. In 1981, national legislation defined Greater Municipal Areas, by which, inter alia, administrative responsibilities and organizations for water supply and sewerage services of many szm^;:er municipalities were taken over by a nearby large urban center. Also, in 1981, the Istanbul Water Supply and Sewerage General Directorate (ISKI) was created by law as an autonomous entity responsible for the planning, design, construction, operation and maintenance of all water stzpply and sewerage facilities in Greater Istanbul."' The Istanbul arrangement was intended to raise the level of and strengthen the sector Law No. 2560 approved November 20, 1981 (subsequently amended by Law No. 3009 approved May 23, 1985).  -4- organization and to enable an increasing share of sector investment for Istanbul to be financed with internally generated funds. Law 3305 of June 5, 1986 amended the ISKI law to authorize the establishment of similar organizations in other large municipalities, of which Izmir, Ankara and Adana are to be the next to proceed in this way. Investments In the Sector 2.08 Investment in water and sewerage has until recently lagged behind other infrastructural investment in Turkey. However, investment in the sector is increasing, and is expected to rise from 5 percent of public investment in 1984 to an average of 9 percent over the 1985-89 period. The World Bank supported this in3rease in its June 1986 Public Investment Review with the Government. Constraints to Development 2.09 Except in Istanbul, and, in the near future, in Ismir and Adana, responsibility for the construction of municipal water supply and sewerage systems has been held by DSI and IB, while the responsibility for operation and maintenance of the systems has been held by the municipalities. This has had several consequences. Firstly, supervision of construction has not always been adequate for widely scattered projects under the control of a central agency. Secondly, lobbying by municipalities for water supply and sewerage systems has put central organizations under pressure to start projects when funds may not be available to proceed at an efficient pace. Thirdly, municipalities, responsible for many other services in addition to water, have not always operated and maintained systems satisfactorily, and have set water charges at too low a level to provide for sufficient maintenance. The situation is, however, expected to improve given the Government's decentralization policy and the positive experience with the autonomous water/sewerage authority (ISKI) in Istanbul. The World Bank has agreed to undertake a water and sewerage sector study in Turkey, the focus of which will be sector organization and service delivery in smaller towns and villages, and which may help to form the basis for a future project. Previous World Bank hivolvement in th Setor 2.10 The Bank made a US$37 million loan to the Government in 1972 for the Istanbul Water Supply Project (Loan 844-TU), which was completed in 1981. The Project included exoansions of water treatment, transmission, pumping and distribution syste. ; for the Istanbul metropolitan area. Project Performance Audit Report No. 4bi5 of December 1983 on the Project concluded that the main project objectives were achieved: water production was increased to the levels anticipated at the time of appraisal, and a reorganization of the sector was achieved through the creation of the Istanbul Water Supply and Sewerage General Directorate. Lessons drawn from the Project included the need to address the problem of unaccounted for water and to pay more attention to institutional strengthening and training. 2.11 In 1982, a loan of US$88.1 million was made by the Bank for the Istanbul Sewerage Project (Loan 2159-TU) to provide adequate sewage disposal facilities and to increase from 52 percent to 61 percent the portion of the City's population to be served by sewerage connections. Delays occurred in the award of contracts, but project implementation now is proceeding rapidly,  and 602 of the loan has been disbursed. An Engineering Loan of US$9.2 million, including funds for water supply and sewerage studies for the Cukurova Region (Loan 2537-TU), was signed in 1985. Total lending for the sector in these loans is approximately US$128 million. 2.12 The Bank's support in Istanbul helped promote interest in creating autonomous water supply and sewerage organizations in other cities, and the acceptance of more satisfactory charges for their services. The Istanbul model, as noted above, is supported by the Government, and similar institutional arrangements are being implemented ln Izmir, Ankara, and Adana. Rationae for World Bank lnvolvment 2.13 The Bank's strategy for its activities in the sector is to continue to reinforce the establishment of autonomous, self-sustaining organizations in the municipalities; and to begin lending over the longer term for projects in medium-size and small cities where the greatest potential eventually will lie for increasing service levels and achieving autonomy and cost recovery. It is believed that lending by the Bank for the latter purpose would be accomplished best: (i) through an intermediary, specifically the Iller Bank if it can be strengthened and effectively organized for that purpose, and (ii) in support of local area authorities which would be established to serve selected groups of close but not necessarily contiguous communities. XL THE BUORROWER 3.01 The proposed borrower for the Project is IZSU, the Water Sutply and Sewerage General Directorate of the Izmir Metropolitan Municipality. ' IZSU was formed on April 1, 1987 by the decision of the Metropolitan Municipal Council to transfer water supply and sewerage staff and assets from existing service organizations of the Municipality and combine them into a new, separate, administratively self-sufficient organization. The change had been authorized by an amendment making a: licable to Izmir the national law by which the Turkish Parliament had autaorized Istanbul's water supply and sewerage organization, ISRI (para. 2.07). 3.02 IZSU is responsible for the development and operation of all public water supply and sewerage for the Metropolitan area except water sources outside the area which are developed and in some cases operated by DSI. IZSU operates six well fields and one surface water reservoir (total safe yield of 6.1 m3/sec.), and distributes the water to 339,000 connections (approximately 1,300,000 persons) in an area totalling approximately 420 km2 (paras. 4.02-4.07). L' The Metropolitan Municipality consists of three adjacent municipalities: Central Izsmir (1985 population of 995,000), Bornova (205,000) and Karstyaka (350,000). Most municipal services for the metropolitan area are administered by the elected Metropolitan Municipal Council and Mayor.  -6- 3.03 IZSU follows ISKI to become the second major application of the Government's strategy for water supply and sewerage in urban areas; (i) to shift responsibilities for sector development to municipalities; (ii) to create separate, autonomous municipal authorities; and (iii) to improve cost recovery and reduce tocal financial dependence on Central Government resources. Organization and Staffing 3.04 IZSU is administered by: (i) a General Assembly consisting of the Metropolitan Municipal Council and the Metropolitan Mayor as Chairman; (ii) a full-time, six-member Board of Directors which reports to the General Assembly; and (iii) a General Director who is the Board's Chairman and the chief executive officer responsible for day-to-day operations. The General Director is supported by Assistant General Directors for Operations, Engineering (including Planning and Project Management), and Finance and Administration, and by specialized departments including Legal and Internal Auditing (Annex 1). 3.05 IZSU's General Assembly approves, inter alia, IZSU's investment plans and annual budgets; staffing positions; tariffs; and borrowings. The Board of Directors approves operating principles and regulations; matters to be submitted for approval by the General Assembly; and appointments of senior officials and staff other than the General Director and Assistant General Directors. The General Director is appointed by the Central Government (Ministry of Interior) upon nomination by the Mayor; the Assistant General Directors are appointed by the General Director. 3.06 Board Members, the General Directors and the Assistants are required under the ISKI/IZSU law to have professional qualifications and experience in their fields. Neither the General Director (at present a temporary appointee) nor the Assistant General Director for Engineering, however, have had management experience on projects comparable to the proposed project. IZSU, therefore, agreed in the Loan Negotiations to obtain by December 31, 1987, the assistance of experienced project management specialists who would participate in its Project Management Unit during project implementation (Loan Agreement Section 3.01[b]). 3.07 Virtually all of IZSU's 1,550 employees were members of pre-IZSU operating and administrative staffs of the Municipality. They include 169 engineers and technicians, 1,170 technical service and maintenance workers, and 60 accounting and commercial operations staff. Although the public service scale for their compensation is low, their competence in most areas is adequate, as has been demonstrated by their performance with limited resources against rapidly growing demands. The exceptions, planning, design, and project management, are the result of the use of DSI, Iller Bank, contractors, and consultant engineering firms to perform these functions, according to normal practice throughout the Country other than in Istanbul. The total  - 7 - number of employees gives a ratio of approximately 219 water connections and 161 sewer connections per employee. The total number of employees is expected to increase by approximately 500 with the increase in operations during project implementation. T g 3.08 Training in IZSU's predecessor organizations was limited to informal, on the job training. Because of the rapid expansion of the sewerage system in the Project, and the introduction of new facilities with which IZSU's staff will be unfamiliar (e.g., sewage pumping; sewage treatment), IZSU intends to establish a formal training program with the help of technical assistance included in the Project (para. 5.31). A training unit will be formed to plan, coordinate, administer, and monitor training programs to be undertaken by the sewerage design consultant, and by training specialists to be engaged from established water supply and sewerage organizations in developed countries. 3.09 IZSU expects, in addition, to obtain assistance from ISKI, including training, in administration and financial management. Experience during the past four years in ISKI in developing accounting, financial reporting, and management information systems, with extensive computerization, may now be applied in IZSU with substantial savings in time and money (para. 3.11). ISKI will make available systems including computer programs, and will provide opportunities for selected IZSU staff to visit, work, and obtain first-hand advice and experience. Aocounting 3.10 IZSU's water supply predecessor organization in the Municipality'' maintained separate, commercially oriented accounts for revenue, capital expenses, assets, and most operating expenses, the exception being expenses incurred by administrative departments (Personnel, Budget and Finance) which supported other services in addition to water supply. IZSU's sewerage predecessor, the Engineering Department of the Municipality, used national standard accounts for municipalities. In the latter, expenses are organized by input type (e.g., wages and salaries) without recognition of output function (e.g., sewerage; street maintenance); capital and recurrent expenditures are not separated; there are no fixed asset accounts. 3.11 IZSU is expected, as a separate, administratively self-sufficient organization of the Municipality, to have separate, commercially oriented accounts along the lines of those of the public utility system designed for ISKI by the Institute for State Economic Enterprises at Istanbul University. The system, which includes budgeting and financial reporting as well as accounting, was established successfully in ISKI, in part with support under Loan 2159-TU, and should serve IZSU as well. IZSU agreed in the Loan Negotiations to adopt an accounting system satisfactory to the Bank (Loan Agreement Section 5.01[al). A department of the administrative branch of the Municipality called ESHOT, which also was, and still is, responsible for gas, bus, and trolley services.  -8- Auditing 3.12 In addition to its external audit by an auditor from the Treasury (Central Government), IZSU is required under the ISKI/IZSU law to be audited by an internal auditor who reports to its General Assembly (i.e., to the Mayor and-Metropolitan Municipal Council). The form of the external audit is prescribed by law directed essentially to the inspection of accounts to detect any deficiency or irregularity, and to the certification of the annual income statement. Although this may be done competently, it omits features considered essential by the Bank. The omissions are due largely to differences in accounting between the national standard accounting for municipalities, and the type of public utility accounting considered necessary by the Bank (para. 3.11 above). With IZSU's introduction of its new accounts, the scope of the audit by the Treasury auditor could be expanded, which would be sought as an addition to basic requirements of the law, and in accordance with the standard independent audit provision to which IUSU agreed in the Loan Negotiations (Loan Agreement Section 5.01(bl). Billg and Colection 3.13 IZSU's sales are fully metered; its billing is computerized and efficient. Bills are submitted on a quarterly basis, and non-Governmental customers with delinquencies exceeding eighteen days are subject to service cutoff. IZSU's accounts receivable for non-governmental customers average in the range of 60-65 days of billings, which is satisfactory. There are, however, serious arrears in payments to IZSU by certain Municipality organizations, which must be reduced substantially (para. 6.03). suRwrance 3.14 IZSU agreed in the toan Negotiations to maintain appropriate insurance against fire, other forms of damage, theft, and potential liabilities (Loan Agreement Section 4.03). In addition, IZSU agreed to require its suppliers and contractors to obtain insurance for assets of the Project, and against risks related to its implementation.  - 9 - rv. PROJECT ANR SECTOR SERVICES AND DEMAND Project Area 4.01 The Izmir Metropolitan Municipality is the third largest in Turkey, with a population of 1.7 million growing at five percent per year. The Municipality is the focal point of activities in the Aegean Region, one of the most attractive areas of the Country, favored by oatural beauty, a mild climate, many sites of historical interest, and a thriving economy depending mainly on agriculture and related industries. Although Izmir (formerly Smyrna) dates back more than 3,000 years, the present Municipality is relatively new, having been rebuilt and expanded substantially during the past 50 years. It is second only to Istanbul in the diversity and magnitude of its industrial development and has a large and active international port. Existing Facities 4.02 The water supply system has multiple sources and an extensive distribution network. Over 90 percent of the system's 6.1 m3/sec water supply (safe yield) is from groundwater sources. The balance is from a small surface impoundment (0.4 m3/sec; Table 4.1). Demand projections indicate that additional supply will be needed by 1991. The distribution network is a multi-zoned system with 33 pumping stations and 21 distribution storage reservoirs. At year-end 1986, 80 percent of the population were connected to the distribution network through 339,000 connections, of which Table 4.1: Yid of Eisting Water Supy Sources Safe a/ Average - M -m/sec - - - - Groundwater Sources Inside City Halkapinar 1.50 1.52 Bornova 0.10 0.28 Buca-Sarnickoy 0.10 0.15 Groundwater Sources North of City Menemen 0.57 0.79 Goksu 2.00 2.00 Sarikiz (under construction) 1.43 1.43 Surface Water Sources Inside CitY Balcova Reservoir 0.38 0.40 Total 6.08 6.57 a/ Estimated available capacity in the driest year in a 20-year period.  - 10 - 1,400 were public standpipes. Because 85 percent of the supply is from the north and transmission capacity through the City is not adequate, 30 percent of the connected population, mainly in southern parts of the City, experience intermittent supply and low pressure; and 10 percent at high elevations receive no supply and must be served by tank truck. These difficulties will be alleviated to a significant extent by a new transmission main scheduled to come into service in late 1987. 4.03 In the existing sewerage system, there is an extensive tertiary network that collects both sewage and stormwater, but there are no collectors, no interceptor and no treatment facilities. The tertiary network serves about 60 percent of the population through an estimated 250,000 connections.1' Untreated sewage from the tertiary network is discharged to the nearest open water course. Eventually, the untreated sewage reaches the Bay via surface channels and streams flowing through the City, causing odorous and unsightly conditions, especially during the summer. Construction of 21 km of an interceptor and a 12 km collector is underway. The present design of the interceptor is deficient both hydraulically and structurally and does not include provisions for the overflow of stormwater. However, the deficiencies are correctable (para. 5.20). The interceptor construction is being supervised by Iller Bank, who will complete it under the Project to a modified design acceptable to the Bank. The Municipality is supervising the collector construction. 4.04 An estimated 50 percent of Izmir Bay's pollution is caused by industry. The construction of privately owned treatment plants by polluting industries (e.g., tanneries, textile plants, food processors) mandated by the Municipality is expected to reduce industrial pollution significantly in the next two to three years (para. 5.28). At appraisal, there were five operating industrial treatment plants and 18 under construction. In all, about 200 firms are expected to build plants to treat their wastes. Water Cosm and Demand 4.05 Projections of water consumption are based on estimates of future population, population served, and per capita use. Water demand projections for use in determining water supply capacity requirements have been calculated by adding an allowance for unaccounted-for water to projections of consumption. Water demand is expected to exceed the safe yield capacity of existing sources (6.1 m3/sec) after 1991. Annex 2 includes a year by year projection of demand. A graphical presentation of projected demands compared with existing and future supply capacity is included in Annex 4. Population 4.06 The 1985 census reported the Metropolitan Municipality population at 1.5 million. The average annual growth rate between 1980 and 1985 based on l' The exact number is not known since property 3wners are not charged for sewerage service, and installation records are not kept.  - 11 - official census figures was 5.0 percent, the highest reported for Izmir in any census to date. The lowes- rate since 1960 was 4.0 percent between 1960 and 1965. The growth rate is expected to decline gradually until 2015 when the population within the existing Municipal boundaries is expected to reach saturation. Population projections used for water consumption estimates, and annual growth rates on which the projections are based, are as follows: Annual Year Growth Rate (2) Population 1985 5.1 1,574,000 /a 1990 4.9 2,013,000 1995 4.4 2,520,000 2000 3.8 3,078,000 2005 2.8 3,603,000 2010 2.0 4,028,000 2015 1.5 4,383,000 a/ The 1985 census population for the Izmir Metropolitan Municipality. Population Served 4.07 The year-end 1986 populations served by the Metropolitan Municipality's water supply and sewerage systems are estimated at 80 percent and 60 percent, respectively. Works programmed under the Project and beyond would increase system coverage so that the percentage of the total population served by both systems would reach 90 percent by 1997, and would remain at this percentage thereafter. Projections of population served between 1986 and 1997 assume gradual increases unti1 90 percent coverage is reached. The target for the end of the Project in 1994 is 89 percent for both systems. Projections of annual water and sewerage connections and population served are included in Annexes 2 and 3. Per Capita Consumption 4.08 Per capita consumption as measured by metered water sales averaged 126 1/cd between 1981 and 1985. A recent analysis of unaccounted-for water found that the existing water meters under-register on average by about 25 percent. Actual consumption could, therefore, be as high as 160 1/cd. (Metered consumption in Istanbul is 185 1/cd.) However, for purposes of projecting future consumption, historical water sales figures have been assumed to represent true consumption. In the future, per capita consumption as measured by water sales is expected to increase to 195 1/cd by the end of the Project in 1994, and ultimately to reach 220 1/cd by the end of the planning period in 2015. The increase would result mostly from: (a) improved service to the 40 percent of the connected population who now are served inadequately; (b) increased industrial consumption; (c) improved living standards; (d) installation of more accurate customer meters; and (e) an  - 12 - increase in the percentage of the population receiving sewerage service from 602 today to 89% in 1994. The per capita consumption projections are for all categories of consumption, and they allow for projected tariff increases (para. 6.09), which would not be expected to have an appreciable effect on demand because of the gradual program for their introduction, the relatively low present tariffs from which the increases start, and the modest proportions of household incomes which would be devotee to the services in question. The estimated domestic per capita consumption used in the affordability analysis (para. 7.07) is 150 1/cd at the completion of the Project in 1994. Unaccounted-for Water 4.09 Unaccounted-for water from 1981-45 averaged 32 percent of total production according to official records. Investigations carried out by consultants in 1986 indicated that production personnel were under-estimating production by approximately 15 percent. None of the existing sources had reliable production meters, and all reported production quantities were estimated. The consultants predicted that unaccounted-for water will increase in the near term as system pressures increase. IZSU's long-term objective for unaccounted-for water, which it hopes to achieve by 1998, is 25 percent, which is an acceptable target. In the short-term, unaccounted-for water is expected to increase to 45 percent in 1988 with the pressure increases resulting from new wells now being completed, and then gradually to decrease to 32 percent by 1994, the project completion date. Steps to be taken to bring about the reduction include accurate production and distribution metering, and an increased program of sonic detection of leaka, and of repairs and selective rehabilitation, in part with support under an existing loan from the Kuwait Fund, and with the proposed loan from the Bank. V. THE PROJECT 5.01 The Project was outlined ori-inally in a water supply and sewerage master plan prepared in 1971 by a consortium of U.S. and local consultants. The sewerage part of the plan was updated in 1980, and the water part in 1986. Both updates were carried out by local consultants who made changes to reflect work already completed and changes in distribution of water demand. 5.02 In 1982, DSI began work on new water supply sources with a loan obtained from the Kuwait Fund. When the DSI improvements are completed in 1988, Izmir will have water supply capacity to meet the projected 1991 demand. However, water shortages will persist due to distribution system deficiencies. In 1975, the Municipality began to implement distribution improvements based on the master plan, but work has been slow, and much more is needed to strengthen the network in existing areas and to expand it to supply the newly developing areas of the City. The Project would meet supply requirements for Izmir forecast after 1991, and would, by 1994, eliminate existing distribution system deficiencies. 5.03 The Municipality signed an agreement with Iller Bank in 1978 to implement its sewerage program. Iller Bank first engaged consultants to  - 13 - update the master plan of 1971. The result was an updated plan calling for 150 km of interceptors and collectors, 11 pumping stations and a treatment plant. In 1983, Iller Bank contracted the construction of 21 km of interceptor (Sections 2, 3 and 4), of which 5 km were completed at the time of project Appraisal. The Municipality has been installing secondary and tertiary sewer networks based on the original and updated versions of the master plan since 1972, but is 300 km short of meeting its goal of providing a waterborne sewerage connection for every property with a water connection. The proposed project would implement 70 percent of the master plan interceptor and collector system, provide a sewage treatment facility, and continue the installation of secondary and tertiary sewer networks. 5.04 World Bank missions in 1984 and 1985 identified several high priority needs for development in Izmir, including water supply and sewerage. Other needs were gecekondu upgrading, solid waste disposal, urban transport, housing, gas supply and land development. In July 1985, the Municipality and the Government indicated to the Bank that water supply and sewerage were Izmir's highest priority; that they were the areas where solutions were identified and preparations most advanced; and that Bank financing for them was desired. The Government confirmed the request in a telex dated July 23, 1985. On January 28, 1986, the Bank approved a US$1.0 million PPF advance (increased by amendment to US$1.5 million on September 8, 1986) to assist the Municipality in preparing the Project. ot Obi 5.05 The objectives of the Project are: (a) to help strengthen the institutional structure of the Municipality through assisting in the establishment of an autonomous water and sewerage authority (paras. 3.06, 3.08, and 5.15); (b) to encourage the establishment and implementation of appropriate cost recovery policies (paras. 6.09 and 6.10); (c) to enable the Municipality to correct existing deficiencies, and to provide adequately, at least cost, for expanding requirements for water and sewerage services (paras. 5.08 to 5.14); and (d) to bring about environmental improvements and reduce health hazards caused by the discharge of untreated sewage to streams and Izmir Bay (paras. 2.03 and 7.06). Objectives (c) and (d) would contribute indirectly to growth of industry. The Project also would provide employment during a period of increasing unemploymeat resulting from a diminishing demand for Turkish labor overseas. Ratonale for World Bank SuPot for th Pro-fet 5.06 The Project would support the Bank's strategy of promoting autonomous water supply and sewerage authorities in Turkey's larger municipalities. The Bank would help to ensure that the new agency (IZSU) to be formed with the Project would receive the assistance and support it needs to implement appropriate tariff policies, sound financial planning, least-cost solutions,  - 14 - control of unaccounted-for water, sound design and construction, effective maintenance, and monitoring and control of industrial wastes. At a time when the Government is attempting to reduce public investments, it is essential that the investments that are made are necessary and are carried out efficiently. Participation of the Bank should help to ensure this result. Proleet DesoriDtion 5.07 The Project is shown on IBRD Map No. 20378R, and consists of the following components: Part A: Water SuwPly and Distribution 1. Completion of the construction of the Tahtali Dam and Reservoir; 2. construction for the Tahtali System of an intake, water treatment plant, treated water storage, pumping station, 32 km of raw and treated water transmission main, and a terminal storage reservoir near the center of demand in the southern half of the distribution network; 3. expansion and reinforcement of the water distribution network, including the construction of 320 km of primary distribution,' 800 km of secondarT distribution,1' 23 pumping stations, and 179,000 m of distribution storage; 4. rehabilitation or replacement of: 77 km of distribution main; 50,000 customer meters; 50,000 service connections; 5 source meters; and 5. 200,000 new metered water connections. Part B: Sewage Collection and Treatment 1. Construction of interceptor Section 1 (5.0 km length; 4.0 m diameter); 2. completion of the construction of interceptor Sections 2,3 and 4 (21.0 km length; 2.0 - 3.6 m diameter); 3. construction of sewage treatment facilities comprising a series of stabilization ponds, capacity of 8 m3/sec, including influent and effluent pumping stations; 4. construction of seven interceptor and collector pumping stations and associated force mains; 5. construction of 69 km of collectors (1.0 - 2.5 m diameter); 6. construction of 431 km of secondary and tertiary sewers (0.2 - 0.8 m diameter); 7. rehabilitation or replacement of 77 km of secondary and tertiary sewers; and ~' Primary distribution mains include sizes of 300 mm to 1,000 m diameter, and secondary mains, 100 mm to 200 mm diameter.  - 15 - 8. 300,000 sewerage connections (using appropriate technologies for low income areas). Part C: ntitutional Improvement oR IZSU 1. Technical assistance in the areas of unaccounted-for water control, industrial waste management, and institutional strengthening of IZSU; 2. training in the operation and maintenance of facilities constructed under the Project; and 3. operation and maintenance vehicles and equipment, including equipment for the detection and repair of leaks, source meters, and laboratory equipment. 5.08 Water SupP1Y - The Tahtali Water Supply System, Parts Al and A2 of the Project, would provide supply capacity adequate to meet the year 2005 production requirement. The Tahtali works, in addition to providing added supply capacity, would also increase system reliability in the southern half of the distribution area where service has been deficient mainly due to lack of system capacity to convey water from northern sources. In the first few years of their operation, they would replace water now being provided from the northern sources; however, in the medium-term, the need for them is based on gross demand requirements for the entire system, and they are not merely a means for overcoming distribution deficiencies. Annex 2 indicates how existing and future sources of supply, including the Tahtali works, would satisfy projected water needs. 5.09 The water distribution network expansion, Part A3 of the Project, and the system rehabilitation, Parts A4 and AS, would continue the ongoing program to expand and upgrade the distribution network which began in 1975 based on the 1971 master plan, and now would continue based on the recent update of the plan. Over 600 km of pipe have been installed since 1975. On completion of the Project, the distribution network would be adequate to supply the 1995 demand, and properties connected to the system would have 24-hour-a-day service at adequate pressure. The installation of source meters would allow accurate accounting of water produced necessary for future planning and monitoring the results of an ongoing unaccounted-for water reduction program. 5.10 New water and sewer connections included under Parts A5 and B1 of the project would increase service coverage to 89 percent for both services. To meet this target, IZSU would install some 26,000 water connections and 38,000 sewer connections annually. This is feasible since ESHOT, IZSU's water supply predecessor, installed 60,000 connections in 1981. 5.11 Sewerage - Parts B1 through B6 of the Project would complete the sanitary sewage collection and treatment system, of which Part B2 was started in 1983 by Iller Bank, and would complete the secondary and tertiary sewage collection network expansion program of the Municipality. The system following completion of the Project would intercept and treat 70 percent of the domestic waste and 60 percent of the industrial waste which now enter Izmir Bay untreated. The other 40 percent of the industrial waste would be treated by privately owned plants.  - 16 - 5.12 The sewage treatment plant would consist of a stabilization pond syst-m designed to produce an effluent equivalent or superior to that from a conventional secondary treatment plant. The plant would be located on 2,870 ha. of undeveloped land northeast of the City (paras. 5.24 to 5.27). Construction under the Project will use approximately 1,000 ha, leaving an adequate area for future expansion. 5.13 The interceptor and the pumping stations would be designed for dry weather flows. The existing system, although originally intended as a sanitary system only, has many surface water connections which cannot be removed or modified economically. The proposed collector system would continue to carry surface water flows which will be discharged through stormwater overflows. 5.14 The rehabilitation and replacement component, Part B7 of the Project, would replace mostly undersized and improperly installed sewers and old sewers which have deteriorated with age. 5.15 Technical Assistance and Trainin8 - IZSU has incorporated: (a) the former water department of ESIOTs which has adequate operating capability, and (b) the sewerage division of the Engineering Department of the Municipality, which requires strengthening. Part Cl of the Project would provide technical assistance for strengthening, for which terms-of-reference have been agreed (available in the Project File). A program for the training of personnel for facilities to be constructed under the Project is included under Part C2 of the Project. The program is discussed further in paras. 5.31 and 5.32. Equipment would be provided under Part C3 of the Project to strengthen the new organization's operation and maintenance capability and its program for the reduction of unaccounted-for water, and to equip a laboratory for monitoring of industrial wastes. Source meters to measure service output would be procured to improve production statistics for the program to reduce unaccounted-for water. Pro*ect Cost 5.16 The Project's cost is estimated at US$521.8 million excluding interest during construction. Allowances for value added taxes totalling an estimated US$48.0 million are included in the estimated local costs of taxed items. IZSU must pay a ten percent value added tax on all local cost items except land. No allowances for duties and taxes on imported goods and foreign consultants are included in the estimate since IZSU is exempt. Enginering and technical assistance costs include the cost of consultants and the salaries of local agency staff participating in the Project. Consulting services for project coordination, design, construction supervision, technical assistance, and training are estimated at US$18.1 million (US$17.3 million in base costs). Man-month requirements for all consulting services are estimated at 4,500 man-months, of which 900 man-months would be for foreign consultants. Approximately 95800 man-months of engineering and administration with an estimated value of US$9.7 million would be provided by the staffs of IZSU, DSI and Iller Bank. 5.17 The estimated project cost by component is sununarized in Table 5.1. The total amount includes physical contingencies of US$39.4 million (nine  - 17 - percent of base cost for equipment, materials, and civil works) and price contingencies of US$31.2 million (about 6 percent of the US$ base cost plus physical contingencies calculated in January 1, 1987 prices; the assumed annual rates of inflation of US$ prices are 32 for 1987, 12 for 1988 through 1990, and 3.5% for 1991 through 1994). The estimated foreign exchange requirement is US$225.4 million (43 percent of the total cost). The bases for the cost estimates are outlined in Annex 5. Detailed estimates are in the Project File. Table 5.1: Summnary of Project Cost Estimate Foreign Local Foreign Total Local Foreign Total as % of - SL billion- -----Us$ milion- Total A. WATER SUPPLY AND DISTRIBUTION 1. Tahtali Dam and Reservoir 9.6 3.7 13.3 12.9 5.0 17.9 28 2. Tahtali Intake, Treatment Plant, and Transmission 13.3 16.5 29.8 17.8 22.2 40.0 55 3. Distribution 31.7 52.0 83.7 42.7 69.8 112.5 62 Sub-Total 54.6 72.2 126.8 73.4 97.0 170.4 57 B. SEWAGE COLLECTION AND TREAIMENT 1. Interceptor, Pumping Stations, and Treatment Plant 75.3 50.3 125.6 101.3 67.5 168.8 40 2. Collection 37.7 13.1 50.8 50.6 17.6 68.2 26 Sub-Total 113.0 63.4 176.4 151.9 85.1 237.0 36 C. INSTITUTIONAL STRENGTHENING OF IZSU 1.4 8.4 9.8 1.9 11.2 13.1 8S D. LAND ACQUISITION 1. Water Supply 7.7 - 7.7 10.4 - 10.4 - 2. Sewerage 15.2 15.2 20.4 20.4 Sub-Total 22.9 22.9 30.8 - A - BASE COST (01/87 Prices) 192.0 143.9 335.9 258.0 193.3 451.3 43 Physical Contingencies 15.7 13.6 29.3 21.0 18.4 39.4 47 Price Contingencies 218.9 176.7 395.6 17.4 13.7 31.1 44 TOTAL PROJECT COST a/ 426.6 334.2 760.8 296.4 225.4 521.8 43 m/ Includes TL 71.4 billion (USW.0 - al Includes TL 71.4 billion (US$48.0 million) of taxes.  - 18 - Exeoution of the Proeot 5.18 The Project would be implemented by IZSU and two Central Government agencies, DSI and Us under the overall coordination of the Project Management Unit established within IZSU (para.3.06). Even with the intended strengthening of its Project Management Unit, IZSU's administrative capacity to undertake a project of this scope would not be sufficient. Heavy reliance will, therefore, be placed on the Project's engineering consulting firms, and on DSI, for necessary administrative work (paras. 5.19 - 5.21). 5.19 DSI is implementing the Tahtali Dam, Water Treatment Plant, and Transmission System, Parts Al and A2 of the Project. The Dams which is being financed wholly by DSI, was designed by DSI engineers and is under construction. The water treatment plant and transmission system associated with the Dam would be designed by a joint venture of foreign and local consultants hired by rn. DSI would supervise the construction with its own staff. The Dam will be located in a seismically active region. The Government agreed in the Loan Negotiations to have the Dam inspected during and after its construction as an additional safety measure (Guarantee Agreement Section 3.02), recognizing that principal reliance for the soundness of the structure is placed upon DSI, which is an experienced, competent organization. 5.20 Turkish contractors hired by Iller Bank in 1983 (Guris; Celal Ece; Aryapi) will complete interceptor Sections 2, 3, and 4 (Part B2 of the Project). Because of serious deficiencies in the contractors' designs of Sections 3 and 4, special consulting engineers recently have been engaged by the Municipality to prepare analyses and criteria for design changes. The consulting engineers (Su Yapi Consultants, Turkey) will work with the cooperation of Iller Bank to supervise the engineers of the contractors who will prepare revised designs. The consulting engineers would assist Iller Bank in supervising construction to be carried out in accordance with the revised designs. IZSU agreed in the Loan Negotiations to provide revised designs acceptable to the Bank by September 30, 1987 (Loan Agreement Section 3.02[a]). 5.21 A joint venture of foreign and local consultants (Black & Veatch International, U.S., and Su Yapi Consultants) has been selected to design the major sewerage works included in Part B of the Project except those works being implemented by Iller Bank. It is intended that these or other consultants in due course will be engaged also to supervise construction of the non-Iller Bank works and operate them for one year. Final designs for the major water distribution works, Part A3 of the Project, are complete. IZSU's engineering staff would supervise the construction of these works. Secondary distribution mains with an estimated value of US$30 million would be installed by IZSU's construction department. IZSU would also implement all tertiary water distribution and sewerage works, including house connections, with its own engineering and construction staff. To assist its staff in assuring that design and construction standards for these works would be satisfactory, IZSU would engage specialists to be attached to its Project Management Unit who would monitor activities and advise when improvement is fou.id to be necessary.  - 19 - 5.22 IZSU's Project Management Unit would have responsibility for monitoring project expenditures, preparing requests for World Bank disbursements, and preparing consolidated reports on progress, in addition to its responsibilities for overall project management and coordination. 5.23 Approximately 45 percent of the Project is ready for bidding or at a more advanced stage (Annex 7). Final designs of the remaining works are expected to be completed by December 31, 1987. Terms-of-reference for technical assistance, Part C3 of the Project, are complete. The planned project completion date is December 31, 1994 (Annex 6). Land Acquistion and Resettlement 5.24 Land requirements for the various project components are substantial (Table 5.2). Approximately 45 percent of the land required for the Tahtali Dam and Reservoir has already been obtained. The expropriation process for land for the sewage treatment plant is well underway, and scheduled to be completed by end 1988. Approximately 40 percent of the land for sewage treatment will be used for treatment plant construction programmed under the Project. The other 60 percent is being obtained for future expansion. Land for sewage collector rights-of-way, water supply and sewage pumping stations, and distribu.ion reservoirs, will be acquired during the final design of these facilities. Table 5.2: Land Acquidtion Requirements Estimated Percent Number of Estimated Cost Acquired Persons Requirement Area (ha) (US$ million) a/ at Appraisal Displaced Sewage Treatment Plant 2,870 b/ 17.4 - - Tahtali Dam & Reservoir 2,300 9.9 45 3,600 Tahtali Treatment Plant & 60 0.4 - - Transmission Water Distribution 25 0.1 60 60 Sewage Collection 14 3.1 - 40 Total 5,269 30.9 3,700 a/ January 1, 1987 prices. Figures do not include cost of land already acquired. bt The total requirement for treatment of flows through the year 2015, of which approximately 1,000 ha. are needed for facilities to be constructed under the proposed project.  - 20 - 5.25 In the expropriation process by which the privately owned portions of the land needed are being obtained (Law No. 2942), the three most critical steps are: (i) formal determination of the need in the public interest, (ii) assessment of fair market value, and (iii) budgeting of the necessary funds. These steps have been completed for privately owned portions of the treatment plant land as well as the Tahtali land, accepting, in the case of the treatment plant land, that approximately one-half of the funds are formally budgeted for 1987, and the other half are programmed for 1988. From this point, private owners have the right to dispute the assessment of value in court, but once purchase funds have been deposited for them, they may not prevent the taking possession and use of the land for the intended public interest. Because of this and the fact that virtually all of the other portions of the land needed are publicly owned and to be provided by administrative transfer, the land needed for the Project may be considered already assured. IZSU agreed in the Loan Negotiations: (i) to complete by December 31, 1988, the acquisition of the land needed for sewage treatment plant construction under the Project (estimated to total 1,000 ha.); and (ii) to have disbursements from the loan begin for the major sewerage works to be financed by it (i.e., interceptor Section 1, pumping stations, treatment plant) only after this land acquisition is completed (Section 3.02(b) and para. 3 of Schedule 1 of the Loan Agreement). 5.26 The acquisition of land for the Tahtali Dam and Reserooir will displace 905 families totalling 3,600 persons, for whom DSI has prepared a preliminary resettlement plan. Detailed planning and implementation is the responsibility of the Ismir Department of the Ministry of Agriculture, Forestry and Village Affairs. The preliminary plan envisages that a site (at Pancar, approximately 15 km from the Tahtali reservoir) originally intended for resettlement of persons displaced by the Ataturk Dam and Reservoir in Eastern Turkey, will be offered to Tahtali resettlers. Preparation of 1,000 ha. for this purpose has begun, with land clearing, terracing, and planting of 150 ha. of olive trees. Additional land will be prepared during 1988. Most of the site is available, more than enough for all expected Tahtali resettlers, because the plan for the Ataturk resettlers overestimated the number who would be willing to move from Eastern Turkey to the Izmir Region. The Ministry of Agriculture, Forestry, and Village Affairs will be notified by DSI in 1988 of specific intentions of Tahtali resettlers, following which approximately 1-1/2 years will be needed to complete necessary construction and another six months will be spent in moving. Financial support will be provided to families, typically for about a year following the move, until income from farm production is restored. The resettlement, as prescribed by law, also will provide for the continuation of medical, educational, and other social services. 5.27 The sewage treatment plant site is uninhabite4 and will not involve resettlement. Very minor displacements in the City may be necessary for land acquisition for construction of pumping stations and storage tanks. Also there may be minor temporary displacements for construction of the sewerage collection system. The Government agreed in the Loan Negotiations that it will furnish to the Bank by December 31, 1987, a detailed plan of action satisfactory to the Bank for the resettlement of persons displaced as a consequence of works carried out under the Project, and that it will carry out the plan (Guarantee Agreement Section 3.01).  - 21 - strial Wastewater Management 5.28 Approximately 200 industries contribute 50 percent of the pollution of Izmir Bay. Two years ago, the Municipality established an Environmental Division to bring under control and reduce untreated discharges. The Municipality has begun to require industries to invest in treatment facilities, but the Environmental Division lacks adequate monitoring capability. Also, it operates without adeqitate rules and regulations. 5.29 The Division was transferred to IZSU upon IZSU's formation. Technical assistance is included in the Project to help to draft a sewer use ordinance and design a monitoring and enforcement system; to train IZSU personnel engaged in industrial waste management activities; to design a data management sy6tem; to design special tariffs for sewerage service to industries; to propose solutions for safe disposal of hazardous solid wastes; and to establish a training program for operators of small treatment plants. Establishment of a special fund to make low interest loans to industries for constructing treatment facilities is not included in the Project since a national fund for this purpose already exists. A description of the Environmental Division's activities is included in the Project File. 5.30 Because the Project's sewage treatment facility is designed to function using biological processes, its effectiveness can be reduced by certain industrial wastes if they should enter the sewerage system without adequate pretreatment. For this reason as well as the importance of industrial wastes in polluting Izmir Bayg an effective industrial waste management program is essential to the success of the sewerage component of the Project. IZSU agreed in the Loan Negotiations on an Action Plan (Annex 10) to help ensure that an effective program would be prepared and carried out (Loan Agreement Section 3.04). ProJect-Related 5.31 Technical assistance would be provided for the establishment of a permanent training unit and program in IZSU, and training of operators for the sewage treatment plant, the water treatment plant and the sewage pumping stations to be constructed under the Project. The training objective for operators would be to ensure proper operation and maintenance of facilities to be constructed under the Project. A long-term objective would be to ensure the availability of trained personnel for IZSU after completion of the Project. Establishment of the permanent unit and program is included in the scope of work to be carried out by consultants for the institutional strengthening of IZSU. 5.32 Operator training for most of the facilities to be constructed under the Project would be carried out by consultants who would design and supervise construction of the facilities, and who would have primary responsibility for system start-up and operation for 12 months. Equipment suppliers and specialists from established water supply and sewerage organizations in developed countries also would be called upon to provide training. Key IZSU personnel would be sent for one to three months training at overseas training  - 22 - centers. The cost of project-related training is included in the cost estimates under engineering services, technical assistance and equipment. The amount estimated for this training is US$2.4 million. Terms-of-reference for the establishment of a permanent training program and for operator training are included in the Project File. Procurement 5.33 Procurement arrangements are sunmarized in Table 5.3. An estimated 88 percent of materials and equipment would be procured through International Competitive Bidding (ICB) in accordance with the World Bank Guidelines. The The other 12 percent would be low cost items of operation and maintenance equipment to be procured through international and local shopping (contracts smaller than US$100,000), and materials and meters for service connections to be procured under Local Competitive Bidding (LCB) procedures. ' An estimated 40 percent of the civil works would be procured through ICB in accordance with the World Bank Guidelines. The other 60 percent would be: existing contracts which were procured under LCB; water distribution pipe installation, tertiary sewer construction and sewer system rehabilitation which would be procured under LCB; and service connection installation which would be by IZSU's own personnel. The proposed loan would finance contracts procured through ICB and cor.dultant contracts and other procurement using international and local shopping procedures acceptable to the Bank. LCB contracts which would be financed in part by the Bank would be small contracts for tertiary sewer construction and sewerage system rehabilitation. L/ LOB procedures in-Turkey are generally consistent with the need for economy and efficiency in the execution of the proposed Project. There are, however, a few procedurtis which are inconsistent with the Procurement Guidelines of the World Bank, and there are others which require clarification. The Government and IZSU agreed in the Loan Negotiations on the changes needed to make the procedures acceptable to the Bank.  - 23 - Table 5.3: Proje Cot Estmates by Prourement Method1' (Cument US$ millon) Procurement Method Project Element ICB LCB Other b/ N/A c/ 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) Consultants - - 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) ( ) 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. ci Force account, in-house staff, and expropriation settlement for land acquistion. 5.34 Project components already under contract include the Tahtali Dam and Reservoir and sewage interceptor Sections 2, 3 and 4. World Bank financing has not been requested for these existing civil works contracts, nor for water distribution pipe installation and new water and sewer service connections. New civil works contracts not to be financed by the Bank, about 25 percent of the civil works total, would be procured using local competitive bidding procedures, and would be too small to interest foreign bidders. 5.35 Contracts with an estimated aggregate value of US$113.3 million for the supply of water distribution pipes, pumping station equipment, water treatment plant equipment, PVC for sewer lining, large water meters, and 50 percent of the operating and maintenance equipment, are likely to be won by foreign manufacturers since these items are not presently manufactured in Turkey. Contracts for transmission main pipes, sewer pipes, water meters, and  - 24 - the remaining 50 percent of the operation and maintenance equipment with an estimated aggregate value of US$37.9 million are expected to be von by local manufacturers. Qualifying local manufacturers would receive a preference in bid evaluation of 15 percent of the CIF price or the prevailing import duty, whichever is less. Civil works contracts with an estimated value of US$216.2 million are likely to be won by local contractors, who, in recent years, have been difficult to underbid in ICB procurements in Turkey. Consulting contracts with an estimated total value of US$18.1 million are expected to be won by foreign consultants in joint ventures with local consultants. The remaining US$136.3 million of estimated project cost is for local salaries, land acquisition and civil works already under contract. 5.36 Draft tender documents and proposed awards for equipment and materials having an estimated contract value of more than US$500,000 equivalent and for civil works having an estimated value of more than US$1,000,000 equivalent would be subject to prior review by the Bank. Contracts for lesser amounts would be subject to ex-post review. These limits would result in prior review of contracts representing about 70 percent of all procurement not yet under contract. Disbusements 5.37 Disbursements for components of the Project to be financed by the proposed loanl' would be made for: (a) 100 percent of foreign expenditures and 27 percent of local expenditures for civil works including concrete pipes manufactured locally; (b) 100 percent of foreign expenditures and exfactory local expenditures, and 65 percent of other local expenditures, for materials, equipment, and pipes other than concrete; (c) 100 percent for consultants and overseas training. 5.38 An initial disbursement estimated at US$1.0 million would be made to repay the amount estimatLi to have been advanced to the Municipality from the PPF for project preparation prior to Loan Agreement Effectiveness. The proposed allocation of loan proceeds is shown in Annex 8. The Loan Closing Date would be December 31, 1995, twelve months following scheduled project completion. The disbursement profile period (Annex 9) from Board Approval would be nine years. 5.39 Because of IZSU's lack of experience with procurements of the scope and type (i.e., ICB) of the majority envisaged for the proposed project, IZSU agreed in the Loan Negotiations that the establishment of a Special Account for the disbursement of proceeds of the proposed loan would take place only after appropriate project management specialists have been assigned to its Project Management Unit (Loan Agreement Section 2.02(b); see also para. 3.06 of this report). to Components not proposed to be financed by the Bank are the Tahtali Dam and Reservoir (Part Al of the Project); Sections 2, 3, and 4 of the sewage interceptor (Part B2); service connections (Parts AS and B8); and civil works for water distribution (Parts A3 and A4).  - 25 - Monitoring and Evaluation 5.40 IZSU agreed in the Loan Negotiations to submit to the Bank semi-annual reports (due February 28 and August 31) on the progress of project implementation during the preceding semesters ending December 31 and June 30, respectively. The reports would measure performance against the monitoring indicators (Annex 11) and construction and procurement schedules (Annexes 6 and 7). Also IZSU would submit a Project Completion Report to the Bank six months following the Loan Closing Date. VL FINANCE Past Peformace and Curent Financi Postion 6.01 Consolidated figures from accounts and estimates of IZSU's predecessors (ESHOT and the Municipality Engineering Department) indicate a negative return on operating assets in 1985; a return of less than 4 percent in 1986; and minimal cash generation in these two years (Annexes 11, 12, and 13). Local currency portions of the Municipality's investment expenditures for the sector were met largely through budget provisions of Central Government agencies and the Municipality. Foreign currency requirements were met with a US$22 million equivalent loan from the Kuwait Fund, of which US$19 million were disbursed during the two years. 6.02 The lack of earnings is a consequence of relatively low user charges; of water services to numerous hillside customers requiring costly pumping; and of a relatively high proportion of unaccounted for water (para. 4.09). The average charge of approximately US$0.20-0.23 equivalent per cubic meter of water sold during the two years was low by developing as well as developed country standards, especially considering that no additional charge is imposed for sewerage service (para. 6.12). 6.03 IZSU's balance sheet includes substantial receivables from and payables to public agencies, accumulated by and inherited from ESHOT (Annex 14). Approximately US$16.5 million equivalent is owed by IZSU to the national power authority (TEK) for unpaid electricity in recent years. This amounts to more than two years of consumption at present rates. Approximately as$7.5 million equivalent for unpaid water is owed to IZSU by the Municipality and its bus, trolley, and gas operations of ESHOT. Each of these accounts now is being gradually reduced, and the Municipality and IZSU indicate that they intend that the accounts should eventually reach reasonable levels. IZSU agreed in the Loan Negotiations to prepare by end-1987 and thereafter carry out a program acceptable to the Bank for the settlement of its public agency accounts receivable and payable (Loan Agreement Section 5.05). As was noted earlier (para. 3.13), IZSU's collection performance for household, commercial, and industrial customers has been satisfactory. 6.04 Because of the lack of asset accounts and a fixed asset register for  - 26 - IZSU's sewerage predecessor, the asset figures presented for IZSU sewerage are estimates subject to revision once an appropriate inventory and valuation are made. IZSU agreed in the Loan Negotiations to revalue its assets, and revise its asset accounts accordingly by end 1988 (Loan Agreement Section 5.03[a]). 6.05 IZSU's debt to equity ratio, including IZSU's debt to TEK, is 41:59. This is satisfactory because of lack of pressure with respect to the debt to TEK (interest free and 40 percent of IZSU's total debt), and because of the favorable terms of the debt to DSI (interest free, 30-year term, and 8 percent of IZSU's total debt). Finwb Pim 6.06 IZSU's 1987-94 financial requirements consist of: (a) funds for the proposed project; (b) funds for other work in progress to be completed in 1988; (c) funds for the first three years of a major second stage of investment, not part of the proposed project, to begin in 1992 and continue through 1997; (d) debt service; and (e) increases in working capital. IZSU plans that approximately 36 percent of the estimated US$786 million equivalent needed would be generated within the sector through charges to customers; 18 percent would be direct appropriations from the Municipal budget; and 10 percent and 6 percent, respectively, would be provided by Iller Bank and DSI. The balance would be obtained through foreign borrowings, principally the proposed loan of US$184 million equivalent from the World Bank, and future foreign credit to be used beginning in 1992. The plan may be summarized as follows: Table 6.1: Fi=wncing Plan for IZSU, 1987-94 1987-94 US$ Million equiv. 2 Financial Requirements Proposed Project 521.8 66.4 Other Works in Progress Now /a 8.0 1.0 Stage II Works /b 107.3 13.7 Debt Service 139.1 17.7 Increase in Working Capital 9.5 1.2 Total 785.7 100.0 Sources Internal Cash Generation 284.0 36.2 Municipal Budget 141.9 18.1 Iller Bank 77.3 9.8 DSI Budget 49.7 6.3 Proposed World Bank Loan 184.0 23.4 Kuwait Fund Loan (Existing) 3.1 0.4 Future Foreign Credit /c 45.7 5.8 Total 785.7 100.0 a/ Works to be completed in 1988. bl Construction to begin in 1992 to continue extending the water distribution and sewage collection systems. c/ To be obtained in 1991 for the projected Stage II works.  - 27 - 6.07 Direct annual budget contributions from the Municipality (making up its eight-year direct contribution of US$142 million equivalent) would be at their largest, approximately US$24 million each, in the first two years, 1987 and 1988. Commitments at this level represent approximately one third of the Municipality's total investment budget, the proportion devoted to the sector by the Municipality in 1985 and 1986. The Municipality intends that the contributions should be equity. 6.08 The expenditures by DSI estimated at approximately US$49.7 million equivalent for the Tahtali dam and Reservoir and for local costs of other Tahtali works are to be funded through annual budget provisions of DSI. Upon completion of the Tahtali works, those works other than the dam and reservoir will be transferred to IZSU for operation. Upon the transfer, IZSU will incur debt to DSI in the amount of DSI's total expenditure for those transferred works. The terms of the debt of IZSU to DSI will be those terms defined by law as the standard DSI terms at the time of the transfer. (At present, DSI terms for debt of this kind are 30 years at zero interest.) The dam and reservoir will be retained and operated by DSI at no cost to IZSU. The expenditures by Iller Bank estimated at approximately US$77.3 million equivalent for sewerage interceptor Sections 2, 3 and 4 will be funded through loans from Iller Bank to the Municipality. A separate loan will be made each year for the expenditures during that year. The terms of each loan will be those terms defined by law as the standard Iller Bank terms at the time of the loan. (At present, Iller Bank terms for debt of this kind are five years at annual interest of 301.) Upon completion, the works will be transferred to IZSU ownership at no cost to IZSU. The debt to Iller Bank will be serviced by the Municipality. Future Finances 6.09 The projected cash generation in IZSU's financing plan is based on planned increases of IZSU's tariffs 10 percent in real terms semi-annually starting in July 1987 and continuing through mid-1990 (Annex 12). The semi-annual increases would by mid-1990 result in a cumulative increase of 95 percent in real terms, giving tariffs averaging about TL 345 (at January 1987 price levels) compared to today's average of TL 177. The plan would then maintain this level in real terms, although, as noted elsewhere (para. 7.15), further increases might be justified to approach marginal cost. 6.10 With the planned tariffs, IZSU's projected increase in self-financing (i.e., financing of its investment expenditures with cash generation from customers after fully covering cash operating expenses and debt service) would grow during the next four years to a level in the range of 30 percent (calculated as a two-year moving average1'; Annex 13). IZSU agreed in the Loan Negotiations to produce funds from internal sources by which its self-financing of investments, including the investments being executed for it by Iller Bank and DSI, would be assured, at a minimum, at the levels projected lo The ratio of the total net internal cash generation in the current year and the preceding year to the total of the investment expenditures in the two years.  - 28 - (i.e., two-year moving averages of 6 percent, 7 percent, 11 percent, and 19 percent, respectively, in 1987 through 1990, and 30 percent thereafter; Loan Agreement Section 5.02(aJ). IZSU agreed, in addition: (i) to review before May 1 and November 1 in each year the adequacy of its tariffs to produce the revenue required; and (ii) to promptly make the adjustments needed should any review indicate that IZSU would not otherwise obtain sufficient revenue (Loan Agreement Sections 5.021b] and tc]). 6.11 The investment program, borrowing and operating expenditures projected for IZSU have been balanced to allow for adequate maintenance of existing facilities as well as needed expansion of service. IZSU's future debt service coverage ratio (Annex 13) is expected to be 2.0 or above for the next five years, until principal payments would begin for debt to the World Bank, at which point the ratio would drop to 1.6. This would be satisfactory, and increases from 1.6 are projected for subsequent years. IZSU, however, agreed in the Loan Negotiations to consult with the Bank with respect to any long term borrowing which it would contract for purposes other than the Project which would aggregate to more than US$2 million equivalent in any year. It agreed also to consult with the Bank with respect to any investment not included in the Project which would aggregate to more than US$2 million equivalent in any year (Loan Agreement Section 3.04). Tariff Struture and Adluatments 6.12 IZSU's tariffs are the same for customers receiving both water and sewerage service as those for customers receiving water only: Percentage Customer Rate of Total Category Quantity Range (TL/m3) a/ Consumption Households - from 0 to 20 m3/month 140 732 above 20 m3/month 210 11l All Other 320 16% Average 177 1002 a/ For metered water consumption; all legal connections are metered. The importance of the inequity between the sewered and the unsewered customers will, however, become minimal during the next three years. During this time, the total number of sewer connections will approach the number of water connections, under the Municipality policy calling, in principle, for sewering every IZSU water customer. 6.13 A significant opportunity for improvement in the tariff structure is the 20m3/month limit between the two blocks for household customers. With this dividing point, approximately three quarters of the total water consumption of the Municipality is being sold at the lowest rate, while less than 10 percent of the total is being consumed by customers (mainly low income households) who, on average, use less than 7-8m' per month.  - 29 - 6.14 It will become especially important to modify the structure as tariff increases are introduced, so as to maintain an appropriate concessional rate for low income consumers. 12SU agreed in the Loan Negotiations to complete a tariff study by June 30, 1988, and, after consultation with the Bank on the study's recommendations, introduce appropriate modifications to the structure by end-1988 (Loan Agreement Section 5.03[bl). F ial RePo 6.15 IZSU agreed in the Loan Negotiations to provide to the Bank semi-annual financial reports (Loan Agreement Section 3.05). The reports would forecast and identify as early as possible significant variations from planned expenditures and financial performance objectives so that appropriate action may be taken. The reports would be provided at the same times as the reports on project implementation (para. 5.40). VIL PROJECT BENEFTrS Proiect Benefits 7.01 The Project would provide piped water facilities for approximately 0.84 million people, and sewerage for 1.17 million people by 1994. It would contribute to a,more reliable water supply for 0.8 million people presently served, through equipment for improved operation and maintenance and the rehabilitation of the existing water and sewerage networks. At present, these people experience low water pressure and intermittent service. The Project would also improve water supply to industrial and commercial enterprises, thereby improving their productivity. An additional benefit would be a saving of US$4.5 million per year in operating costs and delayed capital investment due to a reduction of unaccounted-for water. 7.02 There would be other benefits which are difficult to quantify. Financial strengthening of IZSU would reduce reliance on outside sources for financing future investments, and management strengthening and training would increase cost-effectiveness and reduce the need for costly technical assistance. Reduction of pollution in Izmir Bay through sewage treatment and control of industrial effluent would increase land values along the shore-front, and generate new comercial and recreational activities. It would improve the quality of life for the inhabitants of Izmir, permitting them to benefit from an amenity which has been of limited use in recent years, and would improve the tourist industry. 7.03 Deferral of the Project would entail increased expenditures by households and industries obliged to take measures to alleviate water shortages and inadequate waste disposal. These measures would include construction of water storage tanks above dwellings, drilling of private wells, and construction of septic tanks (some in areas unsuitable for these structures). Deferral of the Project would also result in the use of unsafe sources of water by some consumers. 7.04 The Project would have significant, though difficult to quantify, health benefits, particularly amongst lower-income groups which have not previously had access to sufficient clean water or water borne sewage  - 30 - disposal. Recorded working days lost to illness from water-borne diseases in Ismir increased through the late 1970'3 from about 25,000 man/days per year to 40,000 man/days per year. Without the Project, the increase would be likely to continue; with it, there should be a decline. Re-use of Effluent for Akiculture 7.05 Approximately 290 million cubic meters of treated sewage effluent per year are expected to be produced by 1995, and 480 million cubic meters by 2015. This would be sufficient to irrigate 21,000 ha by 1995, and 35,000 ha by 2015. The treatment plant site would be located 20 km from the Gediz River valley, an area extensively irrigated with water from the Gediz River, which is regulated by Marmara Lake and the Demirkoyru Reservoir about 100 km east of Ismir. The average annual flow in the Gediz River is 830 million cubic meters. In the future, as Izmir's water needs continue to expand, some of the Gediz River flow might be taken for drinking water for the City. The City's effluent could replace this for irrigation down-river if necessary; or the effluent could be used to expand irrigation beyond the limits of the Gediz's present capacity. IZSU intends to undertake a study to investigate the possibilities. Envomental Impact 7.06 The environmental impact of the Project would be positive. As already mentioned, pollution of the Bay of Izmir would be reduced by the collection and treatment of the City's sewage, at present discharged untreated into the Bay. Contamination of the water distribution network due to low system pressures allowing wastewater infiltration would be eliminated by the rehabilitation program; and incidence of water-borne diseases would be reduced. Affrdbiltyof Projeet Service 7.07 In the 1978 household expenditure survey for Izmir, the last known to have been conducted, mean household income was determined to be approximately TL 13,200. Assuming that incomes in Izmir have followed the national trend (a conservative assumption, since the Izmir economy has been more dynamic than the Turkish economy as a whole), mean household income at the end of 1986 would be TL 144,000.-'' Assuming monthly household water consumption of approximately 17.8 m3 (150 l/c/d and an average household size of 3.9), the projected average tariff of TL 385/m3 (TL 345/m3 plus the 121 VAT) combined with the present tariff structure-t' would imply an average monthly household expenditure of TL 5,410, approximately 3.8S of average household income. 7.08 The above analysis does not, however, take into account any revision to the current structure of tariffs. The advantages of a more appropriate block structure may be illustrated by taking the example of Istanbul, which has recently revised its structure while increasing tariffs to an average of TL 575/m3, 601 more than the average currently projected for Izmir. If the This assumes that household incomes have increased at the same rate as nominal wages since 1978, i.e. by a factor of 10.9. See para 6.12 for present rates and structure. The projected average rate of TL 345/m3 would imply a tariff of TL 272/m3 for households consuming 0-20 m3/month; TL 409 for households above 20 m3/month; and TL 624 for industrial and commercial users.  - 31 - Istanbul tariff structure and level were adopted in Izmir,1' monthly household expenditures on water and sewerage in Izmir would average only TL 6,930, 4.8X rather than 3.82 of household income. Revenues to IZSU, however, would be increased by nearly 602, and the finances of the organization greatly strengthened. If the Istanbul structure were introduced, but the average proposed tariff of TL 3451m3 retained, household monthly expenditure on water and sewerage would be only TL 4,090, 2.82 of household income. This indicates that there is substantial scope for increasing tariffs in Izmir,provided that this is combined with a revision to the block tariff structure. ' 7.09 The argument for introducing block tariffs with the Istanbul structure is strengthened if the impact of the proposed tariff increase on the lowest income groups is considered. The most recent estimate of the 'absolute poverty' urban income level is US$340 per capita per year, or a monthly household income of TL 82,000. Assuming that income distribution has not changed since the 1978 census, approximately 302 of the population of Izmir would be living at or below the poverty level, with a median monthly household income of TL 60,000. Assuming these lower income households consume an average of 8m3 of water per month and that the Istanbul tariffs and block tariff system were introduced, the average monthly household expenditure on water and sanitation would be only TL 1,912 or 3% of household income. Eof"I mp 7.10 A total of 0.84 million people would receive piped water under the Project, and 1.17 million sewerage. Household water connections will be provided to about 280,000 people who are today without piped water. Of these, at least 802, or 225,000 persons are estimated to have incomes below the poverty threshold. Similarly public sewerage would be provided to about 750,000 persons without this service. About 752 of these, or 560,000 persons are estimated to be living in poverty. 7.11 The majority of the new water and sewerage connections under the Project, however, and thus the bulk of the increased production, treatment and distribution capacity provided under the Project, would be provided to maintain service levels for the increasing population of the City. The total population is expected to increase by 760,000 over the project period. Of these, about 560,000 people would be proviJed with water and 400,000 with sewerage connections. Given that about half of this population increase would be made up of immigration, mostly from poorer rural areas, it is estimated that at least half of all these beneficiaries, or 230,000 persons receiving water and 200,000 rprsons receiving sewerage, would have incomes below the poverty threshold. / L' Domestic water and sewerage tariff of TL 225/m3 for the first 7.5 m3; TL 450/m3 thereafter; higher tariffs for commercial and industrial users. to It should be noted that these discussions assume no increase in real incomes over the project period. If real incomes increase, the proportion of income spent on water and sewerage would, of course, decrease correspondingly. On the assumption that half of the city's population increase (380,000) is made up of natural increase, whose social structure reflects that of the city (302 poor), and half of immigration, of whom 652 would be poor.  - 32 - 7.12 In summary, about 55% of the beneficiaries receiving water supply (455,000 people) and 651 of the beneficiaries receiving sewerage (760,000 people) would have incomes below the poverty threshold. A further 800,000 inhabitants of the existing population for whom current services are inadequat4. would have their services improved by the rehabilitation component. Their income structure is likely to reflect that of the city as a whole. Rate of Return 7.13 Quantification of the envirosmental and health benefits of the project was not possible. Incremental water sales due to the Project are, therefore, taken as a minimum indication of benefits. Capital and operating cost streams and revenues, excluding taxes and duties, are indicated in Annex 15 at prices of January, 1987. It has also been assumed that without the rehabilitation component of the Project, as operation and maintenance problems and water losses increase, there would be a gradual decline in water sales of about 32 per year. Based on this assumption and a gradual tariff increase to TL 345/m3 by 1990, the internal rate-of-return of the Project would be 6X. Sensitivity tests were carried out to test the IRR under less favorable conditions. If operating costs increase by 10%, the IRR is reduced to 5.51; if sales are reduced by 101 the IRR is 4.41; and if capital costs increase by 101 it is 5.31. None of these possibilities is, however, considered likely. Furthermore, if costs rise more rapidly than anticipated, this may be compensated for by upward tariff adjustment. 7.14 As indicated above, the projected tariff is well below the tariffs recently adopted for Istanbul, and the current tariff structure does not maximize the goal of revenue maximization with affordability of adequate service to all income groups. In addition, environment and health benefits are excluded. The projected tariffs therefore under-estimate the Project's benefits. The return of the Project was recalculated assuming that the current Istanbul tariffs are introduced for Izmir; the IRR increased substantially, to over 151. The long run average incremental cost of water, discounted at 101 is estimated at TL 440/m3, well in excess of the tariff of TL 345/m3 taken as an objective for 1990. This suggests that further tariff increases could be appropriate to permit IZSU to finance an increasing proportion of future investments from internal cash generation. Leat-Cost Soluton 7.15 The proposed project constitutes the least-cost solution for meeting Izmir's growing water and sewerage needs. Regarding sewerage, separation of storm drainage from sanitary flows was considered and rejected, given the existing network of city sewers and the cost.1' The selected sewage treatment alternative is the least-cost treatment solution both on first-cost and annual cost bases. It is also the alternative with the highest reliability and ease of operation, and the lowest energy requirement. Construction of the Tahtali Dam and Reservoir was found to be the least-cost next step alternative for meeting the Municipality's water supply requirements after 1991. As noted earlier (para. 5.13), the capacity of the interceptor is, however, set for dry weather flow, and excess flows during storms will go to the Bay through overflow structures at collector junctions with the interceptor.  - 33 - 7.16 Actions are underway to overcome the main obstacles to project Implementation. These include implementation of appropriate design and construction standards for the sewage interceptor sections currently under construction (para. 5.20); the acquisition of land for the sewage treatment plant (para. 5.24); and the creation of IZSU (para. 3.01). In addition, the Tabtali Dam will be given special inspections to ensure that it meets appropriate safety standards (para. 5.19). Finally, a program is being established for the treatment of industrial wastes and the control of industrial discharges to the sewerage system, thereby ensuring effective performance of the sewage treatment plant and maintaining acceptable effluent standards (para. 5.30). VIIL AGREEMETrS REACHED AND RECOMMENDATIONS 8.01 During the Loan Negotiations, IZSU agreed that it would: (a) obtain by December 31, 1987, the assistance of experienced project management specialists who would participate in its Project Management Unit (Loan Agreement Section 3.0l[bJ); (b) establish a Special Account for the disbursement of proceeds of the proposed loan only after appropriate project management specialists have been assigned to its Project Management Unit (Loan Agreement Section 2.02[b]); (c) complete by December 31, 1988, the acquisition of the land needed for sewage treatment plant construction under the Project (Loan Agreement Section 3.02tb]); (d) request disbursements for major sewerage works to be financed by the proposed loan (i.e., interceptor Section l, pumping stations, treatment plant) only after the above-mentioned land acquisition is completed (Loan Agreement Schedule 1, para. 3); (e) prepare and carry out a program for the treatment of industrial wastes and the control of industrial discharges to the sewerage system and Izmir Bay (Loan Agreement Section 3.04); (f) achieve prescribed levels of self-financing reaching at least 30X by 1991 (Loan Agreement Section 5.02(al); (g) undertake a tariff study, and, after consultation with the Bank, introduce appropriate modifications to the tariff structure (Loan Agreement Section 5.03[bJ). (h) consult with the Bank with respect to any long term borrowing and new investment other than for the Project, exceeding a prescribed threshold (Loan Agreement Section 3.04); and  - 34 - (i) prepare and carry out a program satisfactory to the Bank for settling its public agency accounts receivable and accounts payable (Loan Agreement Section 5.05); 8.02 In addition, the Government agreed during the Loan Negotiations that it 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 (Guarantee Agreement Section 3.01); and (b) have the Tahtali Dam inspected during and after its construction to ensure that it meets appropriate safety standards (Guarantee Agreement Section 3.02). 8.03 With the above assurances, agreements and conditions, the proposed project is suitable for a Bank loan of US$184 million to be repaid over a period of 17 years which includes four years of grace on principal repayments.  - 35 - REPUBLIC OF TURKEY ANNEX 1 IZIIR WATER SUPPLY AND SEWERAGE PROJECT IZSU Organization Chart LGenral Assembly Secretariat Board of Directors General Di Special Internal Audit Publc Legal |Assistants Assistant General Oirector Assistant General Director Assistant General Director Administration & Finance Engineering Operations & haintenance Personnel | Project _ Sage Collection | & Training m j Management f . ja Customer Planning. Studies _ Water Oistribution Service & Oesign _ |Budget a Finance Construction f -! Elctrical & l l l l | ~~~~~~~~~~~~~~Mechanical - Purchasing _ Computer Center - Water & Sewage 8 Stores Treatment Plants Environmental I Testing & Control  _36 - ANNEX 2 REPUBUC OF TUDCEY I1I WATER SUPPLY AND SEWR&_GE P_OJECT H!torical d Projected Water Deman/rodoction ad Reated i Vw 1o 19l9 192 193 199 I995 199 I7 1n 199 a. _ _ __._ _ _ _ _ _ . ._.. a _ _ _ YT ar populatim (361013) 3,233 1,293 1,5 3,426 1,49 1,574 1,654 1,78 13 1,918 Populatio chap (W 5.00 5.04 5.03 5.01 5.05 5.07 5.09 5.10 5.30 5.0 VW am poplatin ws 11101013) 72 t,017 1,069 1,121 1,192 1,254 1,323 1,410 I^,5 3,600 Yw powulation stid 1P 63.5 79.6 79.7 78.6 7.5 79.6 50.0 91.1 92.4 3.8 1w d cmctim 13.1013) 201 261 274 297 306 321 339 362 396 412 Conntimmcha IllO31 ) I 6a 13 13 1 16 1t 22 25 26 1w ad p oru er cnctim III 3.90 3.90 3.90 3.90 3.9 3.90 3.90 3.90 3.9 3.90 Cmntimnluesetia (d/i) 13.5 14.1 15.1 14.9 15.2 13.4 35. 17.6 19.0 20.2. Co optisnpwe (licE) 114 136 12 125 123 113 130 1o 1t 170 Total comutl 3103E ) 31,22 44,431 48,456 49,94 53,915 5,224 61,133 73,204 3,132 %9,9 RKctim (.01013) 43,271 65,69 67,09 69,5 84,4 77,62 ,609 125,125 154,95 166,533 Unac t eHw atr (Id10313 31,449 21,03D 13,643 19,76t 30,58 2,438 7,472 51,301 69,3 69944 Inacuted-fwr ater (I) 50.0 32.0 27.8 28.3 36.2 35.3 38O 41.0 45.0 42.0 industrial ulI mtw uls (d310113) 0 0 0 0 0 0 I,0tt 16,400 17,9 171,3 Dmutit nil atr e" 1*3Id1013) 0 0 0 0 0 0 S0 * 1,200 1,200 VW 1990 "1 1m IM 1994 19 2000 200 2010. 2015 1w adp latIo (p1ion) 2,013 2,109 2,200 2,310 2,414 2,5 3,079 3,603 4,02 4,31 olato chane 1) 4.90 4.90 4.70 4.40 4.50 4.40 Lb0 2.O 2Lo 1.50 VW ad popatio urted 131013) 1,715 1,924 1,94 2,042 2,10 2,25 2,770 3,242 3,62 3,94 Yw mI pouatio ura O II) 9.2 96.5 97.6 50.4 9.0 99.5 99.0 90., 99.0 990. Y1 .4 CmCtH 111413) 440 48 496 "5 324 St 5 718 931 ml 1,011 Cmttimcsdp (3.t1 3 27 23 29 20 2 27 26 23 t3 IS Yew ad puma p com o (N) 3.99 3.90 3.90 3.90 3.Ln 3.90 3tO L9 3. 3.90 Ca optlmifcmn tim IdJ1(J 21.0 21.9 22.4 22.9 231 233 2L3 24.6 25.3 2.1 Cuuib =/or I/t c) 177 18 l8t 1"3 I35 196 202 20 214 220 tOW cuoptln (d31013) 107,320 119,484 129,610 l40,0 149,115 IJ50 20 3 242,3137 m2,l 314,000 ountion (.10) 178,867 1922 202,5 22,204 219,219 225,12 267,07 323,09 ,133 413,967 Unacutud4f mitu (101 71,57 n,234 n,9 72,34 78,172 67,56 6,75 9M, 93,24 104,667 Um tudfw miter 2) 40.0 3110 36.0 34.0 32.0 30.0 5.8 20 2L0 2.0 ldhstrial all ater Wu 31013) 17,9100 17,800 17,900 17,9100 17,0 17,00 17,l0 37,O00 P,9A0 17,300 oetic adil tesa (3101) 1,200 1,200 1,200 1,200 200 1,20 1,20 1,208 1,2001 1,200  -37 -ANNEX 3 REPUBUC OF TURKEY IZNIIR WATER SUPPLY AND SEWERAGE PROJECT Historical and Proected Sew e CcUOIU and Related I;dicators W 1 1991 19 19 19 1m 16 9 1"9 193 YWad mi d1t1. ("t1oo) 1,231 1,2 1,t= 1,426 I,9 1,7 1,,5 lI3 1,32 1,919 Pquatlum diaup (1) 8.09 L04 5.03 5L01 5L0 5.07 L.0 1.10 5.10 5.0 VW No F tiputl. wvui 13103 449 40 2 5m in 319 974 1,130 1,279 1429 Tw ad puatiu zed to 34. 3.7 39.7 45.6 52.0 59.0 65.0 70.0 74.5 YWad cuuctih 111U13) 115 125 135 145 175 210 250 29 34 CfKtlm d 1p ) 1 10 10 10 30 3 0 40 33 39 Yrw ad wrw m em im 3.90 3.0" 3.90 3.90 3.90 3." 3.90 3.90 3.90 3.90 heap ct dimlu/tor cadis 0.7 0.4 0.49 0.51 0.5 0.4 0.74 0." 0.1 0.0 Y 190 19 1M 193 m 195 200 205 2010 2015 Tm .4 p.ltila (IP10I) 2,013 2,110 2, 2,310 2,414 2,520 3,073 3,403 4,023 4,383 P atiu dop O(V 4.90 4.80 4.70 4.60 4.30 4.40 3.80 2.80 2.00 1.50 Vow ad ppat (113) 1,5"9 I,75I 1l,t1 2,453 2,1N 2,255 2,770 3,242 3,64 3,944 VWr le ppuatius mvi to 79.0 33. '.s 33.o 39.0 3.5 90. 90.0 90.0 90.0 YW .4 cuuitin 1101t3 0 449 40" 521 3I 5u 7to 33 930 1,0o1 CumutiruSebaq (t.101) 41 41 41 31 30 2V 2 23 13 IS Tm .pe pm t c{uu fin 3.90 3.0 3.9O 3.90 3.90 .0 3.90 3.90 3.90 S." ump c ctinluutu cemucti 0.93 0.94 O." O." 1.00 1.00 1.0 1.0 1.0 1.00  - 38- ~ANNEX 4 REPUBLIC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT Water Demand versus Safe Yield of Sources 16 16 Unksw 43 . 13 42 - Projeeffont ~~~~~~~~~Akcopar, 112 12 _P u#1 PrOJeCtn _ o 1Turgut 10 I* T1 Ta htoll i0 95F 9 -- 0 Low 1 4 6 6 4 Goku 4 3 3~~* -1w~~~~~~~~~En 2 (1ahkU TahloU Tahhli (1984) 2 NeodedI Avkbd Fuly UIlzed 1 OM489 (4994) (4998) 0 0 | ' r 84 86 88 90 92 94 96 98 00 02 04 06 08 40 Years 'Protion of deCmd by eU and DBI (The State Hydroullc Works) IZSUs Ioernetng aogncy for the Proect1s TahtaU ooneso. Proction od emand bV the Aprpabal Mbsion used for revenue calculatons. Wod Bwk-34094  39 -_ANN 5 Page 1 of 4 REPUBLIC OF TlRKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT Proiect Cost Estimates 1. Summary cost estimates by expenditure category, year and financing source are included in Tables A5.1 through A5.4 of this Annex. Detailed estimates are included in the Project File. All cost estimates were prepared using January 1986 prices. The base costs are presented in January 1987 prices, updated from the original estimates to account for 1986 inflation. The updated estimates reflect an exchange rate o} TL 744 to 1. The exchange rate for the original estimates was TL 575 to 1. 2. Cost estimates for the Tahtali Dam and Interceptor Sections 2, 3 and 4 are based on the contract prices for these items increased by inflation. Civil works costs are based on preliminary quantity estimates and unit prices of similar work in Turkey and other countries in the Region. Pipe, equipment and material costs are based on supplier quotations and recent bid prices where available. Land cost estimates were prepared by the Municipality's land office based on the cost of similar land in Izmir. 3. The cost of consultants for project coordination, design, construction supervision, and technical assistance are based on man-month estimates and rates charged by foreign and local consultants in Turkey. Local staff costs are based on man-month estimates and current salaries paid by the Municipality. 4. Value added taxes on local equipment, materials and services are reflected in the local cost component of the affected components. Import duties are not included since IZSU is exempt. 5. Physical contingencies are 0 percent for consultants, staff salaries and land and 10 percent for equipment, materials and civil works.  Table A5.1: Projeet Cost by Comot and Expe.ditue Category ATIER SUPPtt Uo OISTRIWT1rto SE66E COIttECTKOU MID Tabtei Om Tebteli Intelt. ------------------------- INST7ITUtO1l1t ---------- --- Conti4gmn-fes snd MIP nd Intoroqpter. PS S?tKMNTtR"u OF vbter ------------- as"votel Tr_ ission bletribt1on , Vd STP collection ItZS Suppty Smwuap Total It _t s5aa5us8ages*&:*5sS S--lat s|t"g| :$stf:St*::XtZ:gS ta:t Xssts ***#a eggs saunas I. ttCtL N S 11.6 12.4 26. 3 10.0 39.2 - - - t9t.? tO.0 19.t S. 51TII3tS MU EWIUI_ETI _.___________..__.______ toet S.9 1.6 2. t7.1 1.5 - - 2J.1 tO.0 2.) _ s.tgd 7.- t 4. t.1 0.3 6, 4 - - TI.S 10.0 7.9 S"-Total MtItAS 0 EQUI _prS - t.S St.,5 u . I 7. 3 A 0 - - 10. a t0.0 10.2 C. UIUTMIS ___________ teasl 0:0 0.9 0.6 2.4 1.7 0.0 - - 1.6 0.0 0.0 ffieteI .1 2.1 0.4 1.6 1.2 1.1 - - 1.3 0.0 0.0 S1u-ITt NIP JANrTS 0.1 I.1 1.0 4.1 2.9 .? - - 12.9 0.0 0.0 S. LONt 6EPtV StIM ;U --------- 1.2 0.? 1.9 0.0 0.0 IM1 0.1 0.1 2.9 0.1 1.4 0.1 - 4.6 0.0 0.0 lil top -KA 0.2 - - _ - 0.2 0.0 0.0 ub-Tetal totn BUNS StAFF 1.3 0. 2.9 0.3 1.4 0.1 - - t. I 0.0 0.0 I. LOUI *NISITIIU - -- .7 15. 2 2L2. 0.0 0.0 .__________ ---------- _____________ _ ................. ----------_ --------- ----- -------- ,._.,.,, ----- --- , W -......__,__ ..__ ____.. ___ ..... ._.. Total 3uVisiUE Om57 . 12. 26.6 637 121.6 50. 9.6 7.? IS.) 2335.9 6.? 23. Totsl "fLMM USn M3.3 29.6 .? 12.6 1 9.6 7.7 1 t2 J3 9 67 29.3 P13910.Gem ut .so -s 1.2 2.6 6.0 it. 1 4.7 0.6 - - 29.3 0.0 0.0 Peiec Csntl P Mies 7.4 34.2 106.0 11. 2 73.7 9.9 4.1 1.9 391.6 6.5 33.1S0 o*tel P CT C9tOSTS 21.9 66 . 19L t 290.0 129.1 2t.5 11.6 21.1 70.8 IL 3 62.8 * _ 2.0 6.5 19.3 2W 0 it2.6 2.0 - - 1.4 6.6 63 Foreign I ebomuP 6 0 37.4 123.3 llt.3 32.9 1t.J - 334.2 6 8 29.3 ---____ --_ -_ -_____ --_ --_ ----_ -_ -_ -_ -__ -_ --__ -----_ -----------------_ -__ ----____ ----------------__ ---_ --------------_ ----____ --__ -__ -----_ ----------__ ------____ ------- .  ANNEX 5 -41- Page 3 of4 Tae ASl2 Projet Cost by Mee wCateg and YeaG ie Totals lftluditr Cmstinrpil Total, li1l4i Cots le Iturkish tirp 6411 1USw ItT l ................................................ ..................................................................... ....................... 1te teas 19.9: 1390 11, 13 13 1 total IS?7 lall IN 1190 1 t1 1903 1004 Tetal **aJ *to* *sea* o*t** $*as eggs Bass **Zt so*$ses *s*ees ses$| *sess goes sees goes sees w*ss A. CIVIL N01 2.? 43.a0 6.6 101.4 a.0 0.026. 26.446.6 26.4 44.6 64.0 69.1 44. 31.513.2 12.2 301.9 S. NattItlUS N11o 1qU.9 ........................ Local 2.1 4.6 S.8 14.3 6.0 6.0 6.3 8.1 11.2 24 4. 41.6 9.2 &.l 3.2 L 2.9 36.1 loWted 12.0 15.5 32.3 41.3 3t.3 20. 0 IS.? It. IISS.2 S &$ 14.2 24.4 2 t6 . 21.3 I0$ 6.8 .1 1I3I6 S*-1Ttal U111ATAtJS M0 E14UI09 T1W1 14.t 20.1 4&.0 16 462 20 e 20.0 . . 22 1.3, 16.4 3-1a 0 36.1. 26.2 *? 3-*. ' ." 1 6.I C. CONSULTANTS Lost l.2 1.8 . 1.5 t.r 1.6 1.2 &0. - to.e 2.4 1.6 1.1 0.9 0.? 0.1 o 1.3 .Foilp 2 .7 2. 2.2 2.5 1.8 0.T - - t$5 3.2 2.3 1.? I.? 1.0 0.4 - -10.2 .... .... ..... ..... ..... .... .... .... ..... .... ..... ..................... ..... ..... ......... ................ 5M-Total ON1S1T1t013S 4.6 4.3 3,? 4.3 3.4 1.9 0.3 22.1 5.6 3.3 2.8 2.1 1.9 1.0 0.t 6tat 0. t8OC*1 t 1N STAFF ................... DiI 0.1 0.? 0.8 1.0 0.3 - - - 3 0.6 .6 0. 6 0.6 O - - - 02 31S' 0.? 0.9 1.1 1.2 1.1 1.6 I. 1.9 Ic.y 0 0.6 0.8 0.8 0.6 0.8 0.9 0.3 6 . IIlop Usa 0.2 - - - - 0.2 0.2 0.3 . ... .... ..... ..... ..... .... ... .. ... .. ..... .... .... .....---........ .................... 5*-Total LOCAL NOW STAFF 1. 1.S6 1.9 2.3 1.8 1.6 C.T 1.9 14.J I? .j5 1. .5 . 1.0 O.8 0.9 0.3 S.7 .. tA0 *C ISITIUO 11:3 14.5 6.? 0.4 0.0 0.0 0.0 0.o 32.S I3 I13.2 I .I 0.2 0.0 0.0 0.0 0.0 31.? ................................ ............ ..... ..... ...... ... .... .... ..... ... ..... ..... ...... .... ........ ..... .... ..... .... ..... ..... Total MOJICT COSTS 54.3 63.1 138.0 t63.9 120.4 06.1 4.8 41.4 760.68 3.0 St.0 164.4 IN.3 I2.8 47.2 24. 1 22.1 51.8 are *a s* ** 00 * svses *as all sag $ses ga* as2* 02ON t$* TaMe AL3: Projet Cost by Conaomeat and Year Ildin Total. IncludteNg Costlspwbo Ttal. Includleg Coetlsgsol (Turkish Lfra 6111iem (115 111 Ibe ....................................... ...................................................... ............................................... 1IN? IM 1989 1960 19t1 1392 1993 1994 total INt 1961 St9 I"O 19t 1992 tf3I 1994 Total A. matER sSUpt M1U D0SISTUIWTIO11 ............................. I. Tabtall D ad kge.weor . 1.9 7.6 . - - - - 21.9 6 7.2 5.6 0.1 - - 20.1 2. tAbtall lntaiss. NIP SW Trammissione 0.6 1.3 14.1 30.1 14.2 - - - SS.6 1.1 . 10.7 19.3 S.I - - - 4.9 J. ODitribution 1.5 21.2 24.1 26.S 31.5 26.1 24.0 25.3 199. 20.2 19.4 16.2 14.3 17.9 14.1 11.9 12.3 132.3 ....~~~~~~~~~~~~~~~~~~~~~~ .... ..... ..... ..... ... ....... ..... ... ...................... S*-total MAtEl 513P. 6110 OISTRIUTION1 24.1 36.4 45.S 59.3 45.? t267 24.0 26. 3 2683 21.9 33.3 34.6 38.1 26. 1 14. t 11.9 12.3 19. 3 B. SEKtWA COLtILtttOU A 1I31611T ............................... 1. Intoro opt. PS ad StP 10.6 23.4 65.2 65.0 63.3 40.0 2.9 - 200.0 12.3 21.4 49.4 54.6 39. 1 21.1 1.3 - 196.0 2. CallectIon 6.? 12.1 t3.? 16t.I I.1 20.3 21.20.1 129. 1 7. 11.1 10.4 10.3 10.3 10.? 0.? 9.6 80.8 ..................... . .... .;. .i... ...... .... ........................................ .... .... ..... ..... .... .... .... .... ..... S**-Totel SEfhW COttECT1 0N AND t*AT1 1t 11.3 31.1 7 6 . 0 61.4 *6.3 24.220. 419.1 20.0 32. 5 5.? 7 4.9 46.4 31.8 11.3 9.6 216.9 t. IUSTJTIITU *I1t STU5 TI1 Of iSU I.? 3.2 6.5 3.I t .3 2.i 0.8 0.6 20.5 1.C 2.9 4.3 2.0 1.3 1.3 0.3 0.3 15.0 0t. 1tU0 111ACTISITI ................ t. IkterSwi* 2.9 3.9 4.? 0.2 0.0 0.0 0.0 0.0 11.8 3.4 3.6 38 0.1 0.0 0.0 0.0 0.0 10.7 2. Souosa 6.3 I0.69 2.0 0.2 - - - -21.1 6.? 1.? 1.1 0.1 .:- -21. 0 .~~~~~~~~~~~~~ *. .... ..... .... ..... .... ...- ... ... .... .... ..... ..... ... ........ .... ..... S*-Total tLoD CCUISITIt 11.3 4.S 67 0.4 0.0 0.0 0.0 0.0 32.3 13.1 132 1.1 0.2 0.0 0.0 0.0 0.0 31.1 .... .... ..... ..... ..... .... .... .... ..... .... .... ....................................... ..... ..... ..... ...................... Total PRECT COStS 54.3 6S.5 138.0 163.0 I2n.94 6.1 46.8 47.4 160.6 3. 0 62.0 104.4 101.3 73.6 47.2 24.1 22.1 521.8 ...................................................... ...........................................................................................  Table A5.4: Project Cost b~yCopet and Sowree of Funds lwold Bank World Bonk Custar IZSU and (IZSiI) (OS!) (siSI! tier Boak Contribution Ilmiclpality Total Local ----- ---- --- ---- -- - ----- ---- ---- ---- -- - ----- ---- ---- ---- -- - ----- ---- Fow.ant. tutaee A bount S Amount % - unmt S Amount I hount I Aomout I momt S luck. TeXas Tex A. WATER SUPPtY AND OISTRlSUITOM Ightali OGm end fwsvoir- - la.1I 100.0 - - - 0.0 0.0 It.1 3.5S 5.4 IO.S 1.8a Tebtall Treatment end Transmission - 22.7 Ss. I 17.8 43.9 - - - - 0.0 0.0 40.4 7.8& 22.7 13. 7 4.0 Distribution Pipa and Equipment 55.1 89.6 - -- - - - - 7.8 10.4 72. 5 14.1 55. 9 0. 3 7.4 Distribution Civil Nwors - - - - - - - 43.06 100.0 42.0 8. 2 11.1 27. 5 4.3 Rouse Connections - - - - 10. 3 100. 0 0.0 0.0 10.3 2.0 4.1 4.4 1.0 Sub~-Total MATE SUSPPLY AMM DISTRt31)ITOu 65.9 35. 6 22.7 12.2 35.8 19. 3 - - 10. 3 S. 5 50.6 27.3 181.3 35.5 109.9 I6ts6. 8. stow*0 COLECTIOIU No TRUTREUT Interceptor Sections 2.3 end 4 - - - - - - 77.1 100.0 - - 0.0 0.0 77.1 1 4. 24.5 44.8 7.7 Interceptor Section 1 10. 0 31. 3 - - - - - - - - 21.19 68. 7 31.9 S.1I 10.0 I& 8 3.2 Pw9ing Station Equpmpent 15. 3 90. 0 - - - - - - - - 1. 7 10.0 17.0 3.3 IS. 3 0.0 1.7 Pkwp1ng Station Civil Wlorks 2.5 42.1S - - - - - - - 3. 4 57.5 1. 9 I. I 2.1S 2.8 0. 6 Primary and Secondary Colletcts 17.0 25.4 - - - - - 50. ! 74.6 67.1 11.1 17. 0 43.4 S.7I House Connectios - - - - 7. 7 100.0 0.0 0.0 1.7 1.5S 2.0 5.0 0.8 Treatment Plant 23.6 40.8 - - 34.3i 59.2 57. 9 11.I 23.6 28. 5 5.6 a Su%-Total SEWAG COLLECTION A00 TREATIINT 66.5 25.9 - - - 77. 1 29.! 7.7 2.9 fit. 4 42.1 264.6 10.71 94.9 143.2 26.5 S C. ENGIN6EERING Project Coowonetion 1.7 90. 0 - - - - - - - 0.2 10.0 1.69 0.4 1.2 0. 5 0.2 Tabtali Om - - - - 2.7 100.0 - - - - - - 2.? 0.5 - 2.7 - Teahtai Treatwent an trcstission - - 3.8 90. 0 0. 4 to. 0 - - - - 0.0 0.0 4.2 0.8 2.8 1.0 0.4 Oater Distribution 0.5 90.0 - - - - - - - - 0.1 10.0 0.6a 0.1 0.1 0. 5 0.1 Sewee Ireetment and Collection 8.1 8l.5 - - 0.3 2.6 - - 0.9 2. ~ 9.3 1. 8 3.8 4.8 0.9 1350 Adainistration - - - - - - - - - - 8.?I 100.0 6.7I 1.5 S S.? - 5*-Total ENGINEERING 10.4 40.9 3.8 14.9 3.1 MI. 0.3 1.0 - - 7. 9 31.1 25. 4 4.9 7.9 16.0 1. 6 0. LAND *8951T716 Tabtall Hosevoir nd Transmission - - - - 10. 6 100.0 - - - - - 10. 6 2.0 - 10. 6 - Mater Distribution I . 100.0 0.1 0.0 - 0.1 - Sona" Collact ion - . 0 100.0 1.0 0.2 - 1.0 - $ewage Treatment - - - - - - - - - 20.0 100.0 20. 0 3.8 - 20.0 - S5b-Total LOND ACOUISTION - - - - 10.6a 33.4 - - - - 2!.1 Be6.8 31. 7 8. I - 31. 7- E. INSTITUTIOMAL 13545 Training and technical Assistance 2.1 90.0 - - - - - 0. 2 10.0 2.3 0.4 2.1 0.0 .0.2 spereation VAn "eiutnencme Eaulpmant t0.7 85&.2 - - - - 1. 8 14.8 12.1S 2.4 10.7 0. 6 1.3 Sub-Total IWSTITUTIOAL 12.7 816. 0 - - - 2.1 14M0 14. a 2.8 12.? 0.6 1. S CD Total Ddlsburinmmt 157.5 30.2 26.4 5.! 49.5 9. 5 7M.3 14.8 18.0 .3.4 193.1 37.0 521.3 100. 0 M2.5S 248.3 48.0 11 323222 3232 222233 Sas3 232mm3 22232 322222 2222t 322222222 22 22 22322tz *as 232332 222222232222 3233 0 --------------------------------------------------------------------------------------------------------------------------------------------------------------- ~ ~ ~ ~ ~ ~ ~I-,  -43- ANNEX 6 c r c g ! ' 1^ _ _ _ ch T r-_ ---| j j"f;; ___ e, I ^:~~ _ - -l - - - - _ - _- v--l |i rr __r-r 2| 8 1 i . . s r w Z - I. 5 -l _- SS D| l I -4 _ e - -q - A - |1~~~~~ ~ -I -X C - I r- - - -t - .91 1 12g a ] | t q X e w X t: 0 0 t -- 4 E Xt ''~~~~~~~~~~~~~  REPUBUC OF TURKEY IZNal WATER SUPPLY AND SEWERAGE PROJECT Contaet Proeurement Shbedtle Contract Frna"ned Prequal- Bids/ iprojoet ar fIj ilbfa* Typ of Procurmint Nusmer of Doctmmnts ificattons Proposals Contract Contract Contraet btimd tontraets eady h/ wnvited b/ 2nvited h/ Stoned b/Comoleted Tabtali am arn Reservoir (Al) 18.1 - Works LCB 1 0O/86 V/A 02/86 04/86 12/89 Tahtall Intake. PS & ITP CW (A2) 10.2 4.S Works lCo 1 06/87 06/87 08/87 12/87 12/91 Tabtal IIntake. PS 8 lTP EO (A) 12.0 10.8 Supply LC 1 06/87 */A 06/87 09/87 06/91 Tahtali Tranmission main (A2) 16.7 7.2 Works iCe 1 06/67 09/87 10/17 03/88 12/90 Tahtall Terminal Reservoir (2) 1.5 0.4 wats uCs 1 06/87 09/87 10/87 03/88 12/90 Primary ftins Installation (AS) 10.5 - Works LC8 1 12/86 */A 06/87 01/87 12/94 Tertiary Mans Installation (AS) 9.2 - Works LCB 4 12/86 N/A 06/87 01/87 12/94 System Rehabilitation CW (A4) 2.6 - Works LCD 4 12/86 N/14 06/57 01/87 12/94 Water Connection Installation (AS) 3.5 - works Other any 12/86 N/A 01/87 01/87 12/94 Supply of Pipes 8 Fittines (A3.A4.A5) 65.9 56.6 Supply LCB/LCB 4 12/86 /A 06/87 01/87 06/94 Supply of Customr Haters (A4) 4.7 0.8 Supply LCB 3 12/86 I/A 01/87 03/87 12/94 Sore Hter Installation (A4) 0.1 - wrks LCD 1 12/87 N/A 06/87 08/87 12/87 Source ter EQ (A4) 0.1 0.1 Supply Shopping 1 12/87 N/A 06/87 07/87 10/l7 > Distribution Reservoirs (A3) 16.9 - Works LCD 3 12/86 U/A 06/87 08/87 12/94 B- water Pump Station CW (A3) 3.9 - Works LCB 6 12/86 N/A 06/87 09/87 12/94 kater Pump Station EQ (A3) 9.3 8.4 Supply CDC 2 12/86 N/A 06/87 09/87 06/94 Tahtal Engineering (A2) 4.2 3.8 Service Guidelines 1 02/87 N/A 03/87 05/8t 06/94 Distribution Engineering (AS) 0.6 0.8 Service Guidelines 1 06/87 N/A 08/87 12/87 12/94 Sew"ae Treatment Plant C0 (B3) 48.8 15.4 Works CDC 1 03/88 12/87 04/88 10/88 12/92 Sewage Treatment Plant EU (83) 9.1 8.2 Supply IC8 1 03/88 */A 04/88 10/88 12/91 interceptor Section 1 (Bl) 31.9 10.0 Works CD 3 06/08 06/88 01/89 04/89 12/92 interceptor Sections 2,364 (82) 77.1 - Works LCD 3 06/82 N/A 07/82 01/83 12/90 See PU p Station C0 (34) 5.9 2.5 Works lDo 3 06/88 06/a8 08/g 02/89 12/93 Sebge Puip Station EO (34) 17.0 15.3 Supply CDB 1 06/88 N/A 07/J8 12/88 06/93 Prit_ry & Secowmnry Collectors (85) 22.6 6.1 works CDC 2 12/87 N1/88 03/88 06/S8 12/94 Tertiary Collectors (36) 26.7 5.8 wor*s LCD 4 06/87 */A 07/87 09/87 12/94 Sewer"ag Systom Rehabilitation (37) .7.1 1.3 Works LCD 4 06/87 a/A 07/37 09/37 12/94 Sewar Connwections (U) 7.7 - Wtfrs Other Many 06/87 */A 07/87 08/87 12/94 Supply of Sewer Pipes (35.36.57) 9.2 2.5 Works LCD 4 06/87 N/A 07/87 09/87 06/94 *Supply of PVC Linings (31.92*35) 1.5 1.4 Supply lCB 2 01/89 N/A 02/89 05/89 12/f89 Sewra Enineering (3(a11)) 9.3 8.1 Service Guidelines 2 06/J6 N/A 07/86 03/87 12/94 Project #ansgent (ABC(all)) 1.9 1.7 Service Guidelines 1 06/87 N/A 08/87 12/87 12/94 0 a Equi8 e t Supply (IC) 12.5 10.7 Supply LDC/ Nany 06/87 */A 07/87 08/87 06/94 Shopping Tednmical Assistance (Cl. C2) 2.2 2.1 Service Guidelines 1 11/86 */A 06/87 09/J7 12/90 Total 480.6 J/ 184.0 A/ Inluding contingencies. b/ Sates refer to first contract when there is more than one contract. C/ Dates refer to last contract when there is more than one contract. d/ Procurmnt costs only. Other project costs include land acquisition (US$31.7 million) and local staff (US$9.4 million).  - 45 - ANNEX 8 REPUBLIC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT AgLocio of Loan Proeeds Amount of the Loan Allocated S of (Expressed in Dollar Expenditures Category Equivalents) to be Financed (1) Works under 48,800,000 1002 of foreign expendi- Part A (2) and tures and 272 of local Part A (4) and expenditures Part B (except Part B (2) and Part B (8)) of the Project (2) Goods (except 100,700,000 100% of foreign expendi- for Part A (1) tures;1002 of local and Part A (5) expenditures (ex-factory and Part B (2) cost) and 652 of other and Part B (8) local expenditures of the Project) (3) Consultant' services 12,000,000 1001 and overseas training (4) Refunding of Project 1,500,000 Amount Due. Preparation Avance (5) Unallocated 21.000.000 TOTAL 184,000,000  - 46 - ANNEX 9 REPUBLIC OF TURKEY IZVI WATER SPLY AND SEWERAGE PROJECT Lean DsusntSohdule a/ kuarterly Cuuij)tlv iubesit Dak Fistal Yea hhabrtuent ula isamn a hww t ding 1,S$ sult) 1US$ , ll1)1 I o.f Total e. _ _.fe. _ _ _ _ee~~f.._ een FY19. Dapteebe 30, 13 1.0 bi 1.0 0.5 aI a_ dlo rut profile Decuber 3X 1W a 0.5 1.5 0.3 for nral laetemt typ luck 31 41.5 3.0 1.4 lan, for Tuwkey. luno 30, 1969 1.9 4.1 2.1 hi Dpynt of US.0 .1ll1 of F 301937 4 Atu fro the Projt Pro- swemer 31 193 3.? 22 44 patie.Facility. larch 31,19 5.5 11.7 9.4 une, 30,199 5.5 2332 12.4 30,1999 4 b.4 29.4 11 larch 3t,3 m 2 44.2 24.0 June 30, 9l0 3.2 52.4 29.5 septopher so,1990 3.2 40.4 32.9 leteb 31 1"90 9.2 8.9 37.4 Arch 31, 1191 3.2 77.0 41.8 Je 30, l" 9.2 95.2 44.3 September 30, 1991 3.2 93.4 503 Ibc r3l@31 19 301 1.2 June 30, 1992 3.2 1113.0 4.1 M 121993 A September 30, 1992 4.4 124.4 47.4 lecamber 31 192 .4 130.8 71.1 ah 31, I 644 137.2 74.4 Jul 30,1993 4~~.4 143.4 73.0 ~tzber 30, 19 5.5 149.1 31.0 31 193 5.5 154.4 84.0 larch 31, 144 4.4 159.2 94.5 J, 30, 1994 4.4 163.3 3.0 eptber 30, 1994 3.7 147.5 91.0 kink. 31 1994 3.7 171.2 . larc 31, 149 3.7 174.9 .1 Jue3019 3.7 173.4 971 September 30,1 i" 1.9 130. 93 Deceber3 IVY 1.3 132.2 99. larch 31, 1494 0.9 163.1 ".5 Jun. 30, 199 0.9 134.0 100.0  - 47- Annex 10 Page 1 of 2 REPUBLIC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT Action Plan for Industrial Waste Manament Completion Date 1. Appoint consultant under terms of reference satis- Dec 1987 factory to the Bank to provide technical assistance to the Environmental Division of IZSU. 2. Complete the master file of industrial firms within Dec 1987 the Metropolitan Municipality and develop a data management system. 3. Categorize each firm in the master file according Jun 1988 to compliance with pollution control laws and regulations and need for pretreatment if discharge to the sewerage system is an option. 4. Establish sewer use ordinance. Jun 1988 5. Establish monitoring and enforcement system Dec 1988 for implementing pollution control laws and regulations and the sewer use ordinance. 6. Estabilish and equip testing laboratory for the Dec 1988 analysis of industrial waste samples. 7. Develop and begin implementation of training Jun 1989 and certification program for operators of industrial waste treatment plants. 8. Prepare study and develop plan acceptable to the Dec 1989 Bank for the disposal of sludge from industrial waste treatment plants within the Metropolitan Municipality. 9. Develop and begin implementation of tariffs based Dec 1991 on flow and sewage concentration for industries discharging to the sewer system. 10. Establish, maintain and make available to local Mar 1988 industries a file of Turkish and foreign consultants capable of designing industrial waste treatment facilities.  -48 - Annex 10 Page 2 of 2 Monitoring Indicators 1. Number of wet Industries 2. Number of wet industries discharging to the nearest water course and in compliance with pollution control laws and regulations. 3. Number of wet industries discharging to the nearest water course and not in compliance with pollution control laws and regulations. 4. Number of wet industries with pretreatment plants connected to the sewer system. 4. Number of wet industries without pretreatmmt plants connected to the sewer system. 5. Number of wet industries connected to the sewer system that do not comply with the sewer use ordinance. 6. Number of fines imposed for non-compliance with pollution control laws and regulations and the sewer use ordinance. 7. Total amount of fines collected during the year. 8. Total number of samples tested during the year. 9. Number of staff employed in industrial waste amagement.  REPUBLUC OF TURKEY IZMIR WATER SUPPLY AND SEWERAGE PROJECT 9Um 1