Turkey - Berke Hydropower Project

Document of The World Bank FOR OFFICIAL USE ONLY M l crtEl N (CHE 0 4I X Re-port No. 1(41W PU ru 'I'ype: I A1 Ku(IC, A. , X3229b / H. 1 ECKE STAFF APPRAISAL REPORT TURKEY BERKE HYDROPOWER PROJECT MAY 5, 1992 Industry and Energy Operations Division Country Department I Europe and Central Asia Region 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 Currency Unit Turkish Lira (TL) TL 1.00 100 Kurus (KRS) US$1.00 e TL 6585 (April 24, 1992) TL 1.00 US$0.0002 MEASURES AND EQUIVALENTS k (kilo) - lo0 Ws (Watt second) - Joule (J) M (mega) _ 106 J - 0.239 cal G (giga) - lo0 kcal = 3.968BTU T (tera) - 1012 kWh - 3.8 MJ A - ampere TOE - 10.2 Gcal V - volt TCE - 7.1 Gcal W -watt Meter (m) - 3.28 feet J = Joule Kilometer (km) - 0.6214 miles cal - calorie Kilogram (kg) - 2.2 pounds TOE = ton of oil equivalent Metric ton (t) - 2,205 pounds TCE - ton of coal equivalent BTU - British thermal unit PRINCIPAL ABBREVIATIONS AND ACRONYMS CEAS - Gukurova Elektrik A.S. (Cukurova Electric Company) C&B - Coyna et Bellier (engineering consultants) DSI - Devlet Su Isleri (State Hydraulic Works) ICB - International Competitive 3idding KEPEZ A.S. - Kepez ve Antalya Havalisi Electrik Santrallari (Kepez Electric Co.) LCB - Local Competitive Bidding LRMC - Long-Run Marginal Cost MENR - Ministry ef Energy and Natural Resources PEE - Public Economic Establishment PPAR - Project Performance Audit Report SEE - State Economic Enterprise SPO - State Planning Organization SPK - Sermaye Piyasi Kurulu (Capital Markets Board) TEK - Turkey Electrik Kurumu (Turkish Electricity Authority) TKI - Turkey Komur Isletmeleri Kurumu (Turkish Brown Coal Ent.) TPAO - Turkey Petrollerei Anonim Ortakligi (Turkish Petroleum Corp) VAT - Value Added Tax Turkey - Fiscal Year January 1 to December 31  FOR OFFICIAL USE ONLY TURKEY BERKE lYDROPOWER PROJECT STAFF APPRAISAL REPORT Table of Contents page Ng. Loan and Project Summary ............. ...................... i I. THE ENERGY SECTOR AND POWER SUBSECTOR ........................ 1 A. Energy Sector. 1 Overview. 1 Energy Resources. 1 Ene-gy Sector Prices. 3 Institutions of the Energy Sector. 5 Investment Financing ....................r.......... 6 Input-Substitution Strategy/Environmental Constraint 7 B. Power Subsector. 8 Overview. 8 Power Subsector Strategy. 8 Power System Expansion. 9 Plan and the Role of Private Sector Investment .... ..... 10 Bank Role in the Power Subsector ....................... 12 II. THE PROJECT ENTITY - CUKUROVA ELECTRIC A.S.... .............. 13 A. Corporate Background ..................................... 13 Introduction ........................................... 13 Existing Power Facilities .............................. 14 B. Rezulatory Environment ................................... 14 C. Organization and Management .............................. 15 Personnel and Staffing ................................. 15 Long-Term Planning and Investment Program .... ........... 16 Project Implementation Capacity ........................ 17 Operation and Maintenance .............................. 17 Load Dispatch and Management ........................... 17 D. Commercial and Financial Management ...................... 18 Electricity Demand and Supply .......................... 18 Tariffs ................................................ 19 Sales, Billing and Collections ......... . .............. 19 Taxes ................................ 20 Insurance ................................ 20 Financial Organization ................................. 20 Accounting Systems and Practices .......... ............. 20 Audit ................................ 21 This report is based upon the findings of an appraisal mission that visited Turkey in January 1992. The mission comprised Messrs. Antanasije Kocic (Mission Leader), Franco Batzella (Division Chief), Varada-ajan Atur (Financial Analyst), C. Tufarelli (Economist), P.N. Gupta (Principal Dam Specialist), E. Crousillat (Energy Economis:) and R. Zwolak (Environmental Specialist Consultant). Secretarial Assistance was provided by Mmes. Hannah Thomas and Young Ok Hong. 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.  III. THE PROJECT .................................................. 21 A. Prolect Setting ................ .......................... 21 Overview ....... 21 Rationale for BankIvolvement ............ .................... 22 Project Objectives ........... .......................... 22 Project Description .......... .......................... 22 Project Origin . ........................................ 23 B. JTechiJca Evaluation ........... .......................... 24 The Dam and the Powerhouse ....... ...................... 24 Transmission . .......................................... 24 Technical Assistance ......... .......................... 24 Status of Project Preparation .......................... 25 C. Proiect Costs and Financing .............................. 26 Project Costs . ......................................... 26 Project Financing Plan ......... ........................ 26 Retroactive Financing .................................. 27 D. Procurement and Disbursement ........... .................. 27 Procurement Aspects .................................... 27 Bank-Financed Procurement ............ .................. 27 Non-Bank Einanced Procurement ......... ................. 28 Disbursement Aspects ................................... 29 Special Account ....................................... 30 E. Proiect Implementation Aspects .......... ................. 30 Engineering Consultants . ................................ 30 Organization and Management .......... .................. 30 Implementation Schedules and Project Completion Date.... 31 Progress Reports .................................. 31 Development of Ceyhan River Basin and Water Management.. 31 Land Acquisition and Resettlement ....... ............... 32 F. Environmental Aspects .................................... 34 Physical Environment .................................... 34 Biological Environment .................... ....... .... 34 Socio-economic Environment ........ ..................... 35 Mitigation and Monitoring Plans ....... ................. 35 Transmission Lines Environmental Review ..... ........... 35 G. Dam Safety AsRects ........................................ 35 Engineering ............................................ 35 International Panel of Experts .................. 36 Instrumentation . ....................................... 36 Dam Safety Inspections during Operation ..... ........... 36 H. Benefits and Risks . ....................................... 36 IV. FINANCIAL ASPECTS ..................... 37 A. Introduction ..................... 37 B. Past Performance and Present Condition ................... 37 C. Tariff Agreements ........................................ 40 D. Proposed Tariff Policy and Implications for CEAS .. . ..... 41 Energy Exchange Price with TEK ... 41 Implications for CEAS ... 42 E. Investments and Financing ... 42 Cofinancing ... 43 Proposed Bank Loan ... 43 Dividend Policy and Equity Financing ... 43  F. Financial Forecasts ...................................... 44 Financial Results .......... ............................ 45 VEAS' Creditworthiness ........ ......................... 46 G. Prospective Take-Over of Distribution Operations .... ..... 47 V. ECONOMIC JUSTIFICATION .......... ............................. 47 The Project as a Least-Cost Generation Alternative .... ..... 48 Benefits of the Berke Project ....... ....................... 49 VI. AGREEMENTS REACHED AND RECOMMENDATION ...... .................. 50 ANNEXES: 1.1 Energy Balance 1990 1.2 Installed Capacity, Electricity Generation and Sales in the Power Sector 1.3 Transmission and Distribution System CharacterJ.stics 1.4 Status of Distribution Facilities and Substation Composition 1.5 Least-Cost Generation Expansion Program 2.1 List of Shareholders as of December 1991 2.2 Organization Chart of Vukurova Elektrik A.S. 2.3 Actual Demand-Supply Balance, 1977-1990 and Forecast Demand-Supply Balance, 1991-2000 2.4 Average Revenue Computation, CEAS Submissio to MENR, 1991 2.5 VEAS Electricity Sales by Customer Groups, 1986 and 1990 3.1 Technical Assessment of the Dam and the Powerhouse 3.2 Transmission Lines and Substations 3.3 Technical Assistance 3.4 Project Cost 3.5 Disbursement Schedule 3.6 Construction Schedule 3.7 List of Mitigation Activities 3.8 Project Monitoring Guidelines 4.1 Notes to Financial Forecasts 4.2 Demand, Supply, Average Costs and Revenues 4.3 Investment Phasing and Financing Plan 1992-96 4.4 Simulation of Hydrology and Hydro Generation 4.5 Investments and Financing Plan 5.1 Comparison of the Least-Cost Expansion Plans With and Without Berke 5.2 Comparative Analysis of System Costs 5.3 Estimation of the Internal Economic Rate of Return for the Berke Hydropower Project 5.4 Economic Analysis of Transmission Expansion 5.5 Economic Analysis of Transmission Expansion Sensitivity Analysis Map No. IBRD-23671 IBRD-23672  TRE DERKE HYDROPOWER PRQJECT Loan and Project Summary Borrower: The Republic of Turkey Beneficiary: Qukurova Elektrik A.S. (CEAS) Amount: US$270 Million Equivalent Term: Seventeen years, including a five-year grace period, at the Bank's standard variable interest rate. Onlending Terms: The Government would charge VEAS an onlending fee equivalent to 35 basis points p.a. on the outstanding balance of the Loan. gEAS would bear the foreign exchange risk, as well as the interest risk on the Bank Loan. Project Description: The proposed Project would provide for the installation of 510 MW hydroelectric generating capacity comprising three units of 170 MW located betwe.t the Sir and Aslantas Hydropower Plants and expansion, transmission system. The hydro plant would comprise tv-. onstruction of a double curvature thin arch dam with & height of 201 m, an energy tunnel of 2.05 km length and an inside diameter of 9.30 m, and an undezground power plant. The reservoir active volume would be about 300 million m3. When completed the complex will provide 1,600 GWh p.a. of electric energy. The transmission component would comprise construction of 737 km 154 kV transmission lines and 12 substations with installed transformer capacity of 1,350 MVA and a modern load dispatch center. Benefit and Risks: The measurable benefits attributable to the proposed Project include incremental generation of electricity by the private sector with no claims on GOT's budget for the domestic financing of the project, and for the share of the financing plan to be covered by IFC. An additional important benefit is the demonstration effect expected to derive from the success of the expansion of QEAS's scope of activities as an integrated, privately owned, regional power utility, effectively cooperating with TEK in Turkey's power subsector. The main risks envisaged are the possibility of construction delays derived from construction site conditions as well as the size of the project, which is large in relation to the implementation capacity of CEAS. This risk is substantially reduced since CEAS has appointed consultants of proven competence, to assist in design and engineering as well as implementation.  - ii - ..- US$ Million------ Prolect Coste: Local Eagegn Total A. BERKE HYDRO POWER PROJECT 1. Land Acquisation 0.5 0.0 0.5 2. Preliminary Works 40.5 0.0 40.5 3. Civil Works 122.2 159.2 281.3 4. Electro-Mechanical Eq. 4.2 38.0 42.2 5. Eleatrical Equipment 3.4 14.0 17.4 6: Engineering/Supervision 7.4 0.1 7.5 7. General Expenditures 26.2 0.0 26.2 Sub-Total 204.3 211.2 415.5 B. TRANSMISSION NETWORK 1. Transmission Lines 22.4 10.0 32.4 2. Substations 13.5 7.9 21.4 3. Dispatch Center 2.5 12.5 15.0 ,,,- -- - ..... Sub-Total 38.4 30.4 68.8 C. TECHNICAL ASSISTANCE 1. Staff Training 0.1 0.3 0.4 2. Load Dispatch Center St. 0.1 0.4 0.5 3. Special Equipment 0.0 0.3 0.3 .... ..... ---- Sub-Total 0.2 1.0 1.2 Total Base-Line Costs 242.9 242.6 485.5 Physical Contingencies 24.8 26.1 50.9 Price Contingencies 25.4 30.3 55.7 Total Project Costs 293.0 299.0 592.1 IDC - Bank Loan 0.0 48.0 48.0 - Other 0.0 23.2 23.2 Less Expenditures 1989-91 -39.6 0.0 -39.6 Total Financing Required 253.5 370.2 623.7 Financing PlanM Proposed Bank Loan - 270.0 270.0 Cofinancing - 100.2 100.2 CEAS 253.5 - 253.5 253.5 370.2 623.7 Estimated Disbursements: Bank El 1993 1994 1995 1996 1997 Annual 46.9 66.4 82.4 56.5 17.8 Cumulative 46.9 113.3 195.7 252.2 270.0 Economic Rate of Return: 15.2X  TURgKEY BERKE HYDROPOWER PROJECT STAFF APEPlISAL REPORT I. THE ENERGY SEO D THE POWER SUBSECTOR A. Energ SLector Overvie 1.01 Turkey has made remarkable progress in developing its commercial energy base over the last two decades. Net primary energy supply increased threefold since 1970, reaching 58.8 million TOE in 1990. Lignite is the most important commercial source of domestic energy (with an output of 11.4 million TOE, representing 19 percent of the totel energy supplied) followed by about 7.1 million TOE of hydroelectric generation (providing 12 percent of total primary energy supply). The volume of non-commercial energy consumed in Turkey has halved since 1980, but it still represents the second largest domestic source of energy supply, with 131 of total net primary energy. The importance of natural gas (of which 89 percent is imported) is slowly increasing (from 11 in 1987 to 71 in 1990) w.inly as a result of its increased competitiveness as an industrial fuel and iti.