Turkey - Ankara Sewerage Project

Document of The World Bank FOR OFFICIAL USE ONLY j/qiAv 3/57 _..- tL) Report No. 8088-TU STAFF APPRAISAL REPORT REPUBLIC OF TURKEY ANKARA SEWERAGE PROJECT NOVEMBER 30, 1989 Country Department I Europe, Middle East and North Africa Regional Office This document has a restricted distibution and may be used by ecipients only in the performance of their officiul duties. Its contents may not otherwise be disclosed without Word Bank authoization.  CURRENCY EQUIVALENTS 100 Turkish Lira (TL) = US$0.0545 1835 Turkish Lira (TL) = US$1.00 (as of January 1, 1989) 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) 1/cd = Liters per capita per day m3 = Cubic meter (264 US gallons) m3/sec = Cubic meters per second PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ASKI = Ankara Water and Sewerage Administration DSI = State Hydraulic Works 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 KfW = Kreditanstalt fUr Wiederaufbau MA.FRA = Min:istry of Agriculture, Forestry and Village Affairs RWS = Rural Water Supply Department  OR OFFICIAL USE ONLY REPUBLIC OF TURKEY ANKARA SEWERAGE PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. LOAN AND PROJECT SUMMARY .......................... ............ ..... . i I . INTRODUCTION ...................................... 4............. 1 II. SECTORAL CONTEXT ...... .. . . . .. .. ........ ... . 1 Country Background . ............................. ........ 1 Water and Sewerage Service Levels ...................... .......... 2 Future Urban Demand for Water and Sewerage .................. ... 3 Future Investment in the Sector .............. ................. 3 Sector Organization ................ .............. .............. 4 Constraints to Development ...... .............. . 5 Previous World Bank Involvement in the Sector ................... 6 Justification for orrld Bank Lending . . 7 III. THE BORROWER ................................. ................... 8 Introduction ....... ................... ... *........ . 8 Organization and Staffing ....... ..... . ...... .. . 8 Training ................................................................ 9 Accotnting and Auditing . .... ..................... ...... . 9 Billing and Collection ... . ...... ..................... . 10 Industrial Wastewater Management .. 10 Insurance ....................... .................... .................... 11 IV. PROJECT AREA, SECTOR SERVICES AND DEMAND ....................... 11 Project Area ......... ............... ....... ......44 11 Existing and Planned Water Supply Facilities ................. .. 12 Existing Sewerage ......... ....................andDainage. 13 Future Demand for Sewerage ...............4... . ..* ......... 14 This report was prepared by Messrs. Paul Bowron, Financial Analyst, and David Howarth, Engineer. 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.  Table of Contents (Cont'd) Page No. V. THE PROJECT . ..... ........................ . ................ . 17 Background ......................... ............................. 17 Project Objectives .......... *a..... ........ 18 Rationale for World Bank Support for the Project ............... 19 Project Description ....................... ........... 19 Project Cost ........... . ................................ . . 22 Project Implementation ...... ...... ...... ...... ... 24 Land Acquisition ........ ............. .. 25 Industrial Wastewater ....... .................. . 25 Maintenance . ......... .. ....... ................. 26 Project Related Training ........................ . 26 Procurement .0..*........ ........ ...... 0* 27 Disbursements ... ....................... . 29 VI. FINANCE ........... **,a ..* . . . . .o..#*.... 30 Past Performance and Current Financial Position ................ 30 Financing Plan ............................. .... . .............. 30 Future 7inances ...................................... 32 Tariff Structure ....................**.......*.****... . .... ... 33 Financial Reporting ................ ............................ 33 VII. ECONOMIC EVALUATION AND RISKS .............. ...................... . , 34 Project Benefits .................... ........................ 34 Rate of Return ............................................. 34 Affordability ........... .... ...........0................... 35 Poverty Impact ..... ........................................ 36 Environmental Impact ........ .................. ............ . . 36 Risks ....................*.......... 37 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS .......... ................... 37  Table of Contents (Cont'd) LIST OF ANNEXES Page No. 1 - ASKI Organization Chart .*.......*...... ..... ....... 39 2 - Historical and Projected Water Supply and Sewerage Data .. ....... ....... ....... . . 40 3 - Water Demand and Supply ...................... 41 4 - Selection of Sewage Treatment Process .............. o....... 42 5 - Operation and Maintenance Equipment for Project ................................ 44 6 - Project Cost Estimates *................................ 45 7 - Project Implementation Schedule ........... 40* ....... .... 50 8 - Contract Procurement Schedule ............... 51 9 - Allocation of Loan Proceeds ..................... .... 52 10 - Loan Disbursement Schedule ............................. 53 11 - Monitoring Indicators .. ....... .......................... 54 12 - Income Statements, 1987-96 .......... ........ 0..0 ... 55 13 - Sources and Applications of Funds Statements, 1987-96 ..... ... . . .......... .... ....... 56 14 - Balance Sheets, 1987-96 *.... .**.....0.0*000........ ........ 57 15 - Incremental Cost and Benefit Streams for Internal Rate of Return ..... .. ...... *...... 58 16 - Selected Documents and Data in the Project File . . ... 59 MAPS IBRD Nos. 21862, 21876 and 21905  REPUBLIC OF TURKEY ANKARA SEWERAGE PROJECT Loan and Projeet SummaM Borrower: Ankara Water Supply and Sewerage Administration (ASKI). Guarantor: Republic of Turkey. Loan Amount: US$173 million equivalent. Terms: Seventeen years, including 5 years grace, at the standard variable interest rate. Project The main objectives of the project are to provide Description: facilities to: (i) eliminate the discharge of untreated sewage to the Ankara River and its tributaries flowing through Ankara; (ii) extend sewerage to unserved persons and improve the present sewerage; (iii) reduce flooding in p"rts of the city that flood during heavy rainstorms. The sewerage and drainage would enclose otherwise open flows through the city, and thereby eliminate health hazards, odors, and flooding (including flooding now occurring from time to time with sewage-contaminated stormwater). The Project includes sewage collection and treatment components; drainage; and technical assistance and training for ASKI, the autonomous water and sewerage authority of Ankara. Beneficiaries The beneficiaries would be: (a) approximately 850,06O and Risks: persons in and around Ankara (of which 500,000 low income) who would receive sewerage service as a result of the Project; (b) an additional 500,000 persons (of which 300,000 low income) already connected to sewers who would receive improved service; (c) all residents of and visitors to Ankara wlho would no longer encounter the polluted environment found today. Also, the cleaning up of the Ankara River would make possible the use of its water by farmers outside the City, as had been done in the past up to about 20 years ago. By the end of the project implementation period (planned for end 1996), approximately 93% of the City's population would be sewered, virtually everyone but persons, usually very low income persons, living on steep hillsides in squatter ("gecekondu") areas which are inaccessible for sewerage. Actions initiated to minimize risks and ensure successful implementation of the Project include the identification of and agreement to correct design deficiencies in ongoing works; and the increasing of tariffs to enable self-financing by ASKI of the local currency requirements of its investment program including the proposed project.  - ii - Estimated Project Cost: Local US Total US$ 'million------ Sewage Collection 165.6 103.7 269.3 Sewage Treatment Civil Works (including Land) 44.8 _ 44.8 Equipment and Engineering - 73.0 73.0 Drainage 12.9 7.4 20.3 Engineering for Drainage and Sewage Collection 6.8 8.2 15.0 Institutional Strengthening 2.4 7.8 10.2 Base Cost 232.5 200.1 432.6 Physical Contingencies 36.5 32.7 69.2 Price Contingencies 31.4 23.6 55.0 Total Project Cost I/ Financing Plan IBRD Loan 8.5 164.5 173.0 KfW Credit - 91.9 91.9 ASKI Internal Cash Generation 291.9 - 291.9 Total Financing NZA 2S. lua Disbursements: World Bank Fiscal Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 US$ million Annual 4.5 17.3 27.4 30.8 30.8 24.0 19.0 14.0 5.2 Cumulative 4.5 21.8 49.2 80.0 110.8 :34.8 153.8 167.8 173.0 Internal Financial Rate of Return: 1lS MaRs: IBRD Nos. 21862, 21876 and 21905 1/ Figures include an estimated US$50.4 million equivalent in value added taxes. 882D  REPUBLIC OF TURKEY AYKARA SEWERAGE PROJECT STAFF APPRAISAL REPORT I. INTRODUCTION 1.01 The proposed project is for the Greater Ankara Metropolitan Area, the Country's second largest, with a population of 2.6 million growing 3.42 per year. Ankara is a cultural, commercial, t. financial center as well as the national capital, and has important medium scale and light industry, ranking third in industrial employment among tt2 Country's metropolitan areas. 1.02 Most of the area is supplied by piped water, but in many districts, sewe:cage is lacking or unsatisfactory, and there is no sewage treatment. Many of the water courses are open sewers, and many drainage works carry sewage and are subject to overflows, at times causing contaminated flooding. 1.03 Works to meet future growth in water needs are under construction, but solutions to major sewerage deficiencies have been held up because of limited finances. The proposed project addresses present sewerage deficiencies and projected new sewerage needs. 1.04 The Project consists of sewage collection and treatment facilities, drainage facilities, sewerage operational and maintenance equipment, and technical assistance and training. Ankara's water supply and sewerage authority, ASKI, would be the Project's implementing agency and owner and the Bank's borrower. 1.05 Detailed preparation of the pxoject began following an April 1988 request of the Government for an advance cf US$1.5 million equivalent from the Bank's Project Preparation Facility. The field appraisal of the Project was completed July 6, 1989. II. SECTORAL CONTEXT Country Background 2.01 The population of Turkey at the end of 1987 was 54 million, with 53S living in urban areas. Population growth averaged 2.52 per annum during 1980-85 (42 for urban areas and 0.92 for rural areas). The overall growth rate is expected to decrease gradually, and the population by the year 2000 to reach about 67 million. Movement from rural to urban areas is expected to continue and to constitute a major cause of growing demand for water and sewerage services in urban areas.  - 2- Water and Sewerage Service Levels 2.02 Nationwide data on urban service levels for water and sewerage are available from 1983 and indicated below with corresponding 1988 figures for the Ankara Municipality. Table 2.1: Urban Water and Sewerage Service Levels Greater Ankara Nationwide Municipality Service Levels (% served) (1983) (1988) Total Population ('000) 24,600 2,403 Piped Water (%) 80 93 Public Sewer Connection (X) 56 87 Water Production and Consumption Number of Connections ('000) 4,565 430 Persons per Connection 4.3 5.2 Water Produced (Million m3) 1,380 176 Water Sold (Million m3) 877 97 Quantity Sold as X of Quantity Produced 64 55 Water Sold per Connection (r3) 192 226 Per Capita Sales including 122 118 Industrial & Commercial (liters/day) Estimated Per Capita Household 85 64 Consumption (liters/dev) Sources: State Institute of Statistics 1983 Gas and Water Data; ASKI Statistics. 2.03 Approximately 80% of the Country's urban population in 1983 was served by piped water to residences, but in many cities including the three largest, widespread pressure drops and cutoffs were being, and still are, experienced from time to time because of source and distribution limitations. Less than two thirds of the national total amount of water produced arrived at residences and was registered in sales, but it is believed that a significant unregistered quantity was consumed through illegal connections and malfunctioning meters. Average daily per capita consumption (registered) was 122 liters, including users of all types, of which it is estimated that household consumption on average amounted to approximately 85 liters. 2.04 Consumption at this level ordinarily is sufficient for health requirements. Below average quantities and low pressures which occur, however, increase disease risk, particularly when low pressure allows infiltration of contaminated groundwater into water distribution pipes through openings which normally are points of outward leakage.  - 3 - 2.05 Approximately 562 of the urban population had at least some type of sewer pipe connection to their residences, but this must be interpreted with the understanding that many such pipes, or the street sewers to which some of them are connected, discharge into nearby creeks and open drainage channels, and that sewage treatment plants were, and still are, virtually non-existent. This remains the same today except in the case of IstanbuL where rapid progress has been made in recent years, and is continuing, in constructing up-to-date collection, treatment, and disposal works, and in Izmir where similar effort is beginning. 2.06 Average 1988 water and sewerage served population percentages in Ankara exceed the 1983 national averages, reflecting the national capital's high living standard (on average). The relatively low citywide household consumption average, is a combination of low values from the approximately 50% of the population who live in poor and unplanned ("gecekondu") areas, with the higher values enjoyed by the other 502 Future Urban Demand for Water and Sewerage 2.07 It is estimated that approximately six million of the Country's present urban population of 30 million do not have piped water; 13 million do not have adequate sewerage; and most except those living in Istanbul, Izmir, and Ankara neither have, nor soon plan to have, sewage treatment facilities for their communities. In addition, the urban population is expected to increase to about 42 million by the year 2000, and with continued rapid economic development and increasing living standards, most new city persons as well as those not adequately served at present will require expansion of public water, sewerage, and sewage treatment and disposal systems. It is estimated that water production for urban areas will have to increase to 3.5 billion m3/year by the year 2000 (compared to 1.4 billion m3/year in 1983), and that corresponding increases in water treatment and distribution facilities will be needed together with proportionately greater increases in sewerage, and sewage treatment and disposal facilities. Future Investment in the Sector 2.08 Although current national and local budget tightening are affecting investment in the water and sewerage sector along with other areas of public investment, it is expected that the sector will continue receiving priority emphasis so that present deficiencies will be eliminated and increasing proportions of the growing urban population will be served. The increasing degree of self-financing being achieved in the sector in economically strong, larger municipalities is expected to be a major contributing factor to future investment emphasis in the larger municipalities, and also in smaller communities. Furthermore, with the substantial reduction being achieved in the need for Government budgetary support for the sector in the larger municipalities, the limited budgetary resources which are available may then be concentrated by the Government on the smallest communities still needing it.  - 4 - 2.09 It is estimated that the capital cost of new and upgraded urban water, sewerage, and sewage treatment and disposal facilities in the Country during the 1990's could be approximately US$8.5 billion equivalent (in 1988 prices). Table 2.2: Estimated Urban Water Supply and Sewerage Investment 1990-2000 US$ Million Water Supply Equivalent New Source and Distribution Works 2,850 Rehabilitation of Existing Systems 450 Sewerage, Sewage Treatment and Disposal New Systems 4,550 Rehabilitation of Existing Systems 700 Total 8,550 In making the estimate, it was assumed that the level of residential piped water service would be increased to 90% of the urban population on average, that the average quantity of water sold would increase to 160 liters per capita per day (compared to the 1983 figure of 122); that 752 of the urban population would have a sewer connection (compared to 56% in 1983); and that 502 of the urban sewage would be treated (compared to 0% in 1983). Most of the sewage treatment facilities would be located in Istanbul, Ankara, and Izmir, which are projected to have approximately 39% of the total urban population by the year 2000, and which cities would account for about one half of the ten-year sector investment total. Sector Orga-ization 2.10 With the exception of certain major water source operations, the provision of public water supply and sewerage 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, Izmir, and Ankara. Planning, design, and construction of new systems, therefore, have been, and are being carried out virtually entirely by three central government organizations, except for projects in the mentioned largest municipalities. The State Hydraulic Works (DSI) under the Ministry of Public Works is responsible for national water resources management, major water source development and operation, and water supply development for the larger towns, excluding the largest municipalities. The Iller Bank (IB, meaning Bank of the Provinces), a semi-autonomous Government corporation, is responsible for water supply development for towns with a population of less than 500,000, and for major sewerage development in all urban areas except Istanbul, Ankara, and Izmir. The General Directorate of  Rural Services (GDRS) under the Ministry of Agriculture, Forestry and Village Affairs (MAFRA) is responsible for rural water supply programs, through its Rural Water Supply Department (RWS) and Research and Planning Department. 2.11 In all but the largest municipalities, responsibility for municipal water and sewerage operations is embedded within operating departments which carry out a variety of other functions as well (e.g., transportation, gas service). The first of the large municipality exceptions is Istanbul. In 1981, the Istanbul Water Supply and Sewerage General Directorate (ISKI) was created by Law No. 2560 (approved November 20, 1981 and amended by Law No. 3009, May 23, 1984) as an autonomous entity responsible for the planning, design, construction, operation and maintenance of all water supply and sewerage facilities in Greater Istanbul. This was intended also to strengthen the sector's organization, and to enable an increasing share of the sector's investment for Istanbul to be financed with internally generated funds. The experience has been successful (para. 2.17), and Law No. 3305 of June 5, 1986 authorized the establishment of similar organizations in Izmir, Ankara, and Adana. Also, national legislation in 1981 defined Greater Municipal Areas, by which administrative responsibilities and organizations for water supply and sewerage services of many smaller municipalities could be taken over by a nearby large urban center. In the case of Istanbul, 24 water supply organizations were merged into ISKI. 2.12 The ISKI-type water supply and sewerage organizations of Izmir, Ankara. and Adana now are established and functioning successfully, and those of Izmir and Adana are receiving major lending support from the Bank as is ISKI in Istanbul (paras. 2.18 to 2.21). It is expected that the ISKI organizational model, in due course, will be adopted by other cities seeing potential benefits in taking greater responsibility locally for their investment needs in the sector. Constraints to Development 2.13 Funds for development in the sector in most cities have been and continue to be insufficient, in part because of the lack of recognition by local administrations of the potential for local resource mobilization within the sector through charges to customers. With the exception of the largest municipalities, virtually all local authorities look to the Central Government as the primary and usually the only source for obtaining needed water and seiarage works. The charges for water and sewerage services in such localities typically cover no more than cash operating expenses at best; and, thus, they generate few or no funds which could be applied to expanding service and improving the quality of service. This and limitations on Central Government funds are one of the sector's most serious constraints. 2.14 The largest municipalities' demonstrations of ability to charge and collect amounts close to long run marginal costs of their water and sewerage services should be persuasive, eventually, to other municipalities to attempt to do the same. With a-rerage charges at such levels, the largest municipalities have means of self-financing their investments in the sector so that they may fully serve their citizene by the late 1990's.  -6- 2.15 A second constraint, which is related to funding limitations, is the practice of overprogramming and overcontracting by the sector's national agencies. Iller Bank and the DSI are compelled under widespread political pressure to program more projects for municipalities, and to award more contracts, than can be efficiently carried out within overall funding limitations. This causes significant economic losses through: (i) inefficiency due to work slowdowns and stopping and restarting after periods of inactivity because of insufficient funds; and (ii) the tying up of capital in delayed, unfinished work. Although the problem is recognized by the authorities, prospects for improvement appear so far to be poor. 2.16 The lack of local technical and administrative capability for development in the sector increasingly will become a third important constraint. Local authorities who in the past relied on the sector's two national agencies for sector planning and project administration (as well as funding) will have to build local capability as they take over responsibilities for their development needs in the sector. Valuable assistance in building capability should be available to local authorities from the two national agencies, the national technical universities, local consulting firms, and the water and sewerage administrations of the largest municipalities which already have made the change from reliance on the Central Government to self-reliance. Previous World Bank Involvement in the Sector 2.17 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 expansions of water treatment, transmission, pumping and distribution systems for the Istanbul metropolitan area. The Project Performance Audit Report (No. 4853, issued in 1983), 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 (ISKI). In 1982, a loan of US$88.1 million was made by the Bank for the Istanbul Sewerage Project (Loan 2159-TU) to improve sewerage and sewage disposal facilities, and to increase the proportion of the City's population to be served by sewerage. Project works implementation has been satisfactory, and 99% of the loan had been disbursed as of February 1989. The Project is eliminating discharges into the Golden Horn and Sea of Marmara amounting to about 30 percent of Istanbul's wastewater, and an industrial pollution control program has been put into operation. 2.18 Loan 2888-TU of US$218 million equivalent was approved in December 1987 for US$570 million equivalent of additional water supply, sewerage, and sewage treatment works for Istanbul. All of the Project's major sewerage and sewage treatment facilities have been designed, and construction contracts so far awarded amount to approximately 252 of the estimated total cost of the Project. 2.19 Loan 2818-TU of US$184 million was approved in May 1987 for a water and sewerage project for Izmir (estimated total cost of US$522 million). An authority, IZSU, similar to ISKI, was established to  implement the Project and manage water and sewerage operations. All of the Project's major works except the water treatment plant have finished designs, and equipment supply and works construction contracts awarded to date amount to approximately 34% of the estimated total cost of the Project. 2.20 ISKI and IZSU began experiencing severe financial difficulties during 1988 because their tariffs were not being adjusted to meet rising costs during a period of inflation exceeding 702 annually, and, in ISKI's case, because difficulties were experienced in billing and collection r operations during a transition from the use by ISKI of a contract service company for these operations to a system established within the ISKI organization. ISKI's billing problems now are largely solved, its collections are improving, and it increased its tariffs approximately 70? on average in December 1988 and 50% on average in June 1989. Its average tariff now is slightly more than its long run marginal cost. ISZU's tariff average increased approximately 110% effective July 1989, to a level of about 90% of its long run marginal cost. IZSU is, however, facing increasing difficulty in implementing the Izmir Project because of delay in the provision of funds committed to the Project by the Izmir Municipality. Also, components of the Project being implemented for IZSU by the Iller Bank and DSI have been delayed by Government funding limitations. 2.21 An Engineering Loan of US$9.2 million for water supply and sewerage studies for the Cukurova Region (Loan 2537-TU), was made in 1985. Thi.t was followed in May 1987 by Loan 2819-TU of US$120 million for a municipal infrastructure project for the Cukurova Region (estimated cost of US$467 million), 47 percent of which is for water and sewerage. An authority similar to ISKI has been established for the largesc city involved, Adana, and operationally autonomous water departments are being established in four other towns in the Region. The Cukurova Project also aimed to build up the capacity of Iller Bank as a financial intermediary, and to that end established a unit within Iller Bank to appraise and monitor municipal infrastructure works in the Cukurova Area. The Project is having a slow start, and at present is under review by the Government and the Bank regarding possibilities for improving its administrative arrangements and modifying various components. Total World Bank lending under the ongoing loans for the urban sector in Turkey including water supply and sanitation is US$522 million. Justification for World Bank Lending 2.22 The first of the three main elements of the Bank's lending strategy for the sector in Turkey is to support the Government's objectives of: (i) reducing inadequacies in water and sewerage infrastructure in the most cost-effective way possible, while also enabling the provision of affordable services to low income consumers; and (ii) protecting the environment against pollution from domestic and industrial wastes. The second element of the strategy is to support the Government's policies for sector decentralization, local resource mobilization, and cost recovery, through assistance to autonomous water and sewerage organizations in municipalities which have strong self-financing potential, including, eventually, in medium-size cities. The third element of the strategy is to support the Government's objective of providing critically needed water and  sewerage facilities in coastal locations which are important for the Country's tourism industry and for regional environmental interests. Lending for the proposed project is justified for reasons one and two above, and is of partict