Turkey - Ankara Sewerage Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 19429 IMPLEMENTATION COMPLETION REPORT TURKEY ANKARA SEWERAGE PROJECT (LOAN 3151-TU) June 15, 1999 Infrastructure Sector Unit 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 (Yearly Averages) Currency Unit = Turkish Lira 1988 - 1,421 = US$ 1.00 1989 - 2,120 = US$ 1.00 1990 - 2,606 = US$ 1.00 1991 - 4,168 = US$ 1.00 1992 - 6,864 = US$ 1.00 1993 - 10,965 = US$ 1.00 1994 - 29,668 = US$ 1.00 1995 - 45,731 = US$ 1.00 1996 - 80,785 = US$ 1.00 1997 - 150,000 = US$ 1.00 1998 - 306,846 = US$ 1.00 2/28/99 Closing Date 341,316 = US$ 1.00 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS IBRD - International Bank for Reconstruction and Development PCU - Project Coordination Unit ASKI - Ankara Water and Sewerage Administration KfW - Kreditanstalt fur Wiederaufbau EIB - European Investment Bank UFW - Unaccounted for Water MIS - Management Information System FISCAL YEAR OF BORROWER January 1 to December 1 Vice President: Johannes F. Linn, ECAVP Country Director: Ajay Chhibber, ECCO6 Sector Director Ricardo Halperin, ECSIN Sector Leader: Walter A. Stottmann, ECSIN Team Leader: Bernardo Gomez, ECSIN  IMPLEMENTATION COMPLETION REPORT TURKEY FOR OFFICLAL USE ONLY ANKARA SEWERAGE PROJECT LOAN 3151-TU Table of Contents PREFACE .......................................................i EVALUATION SUMMARY .......................................................i PART I: PROJECT IMPLEMENTATION ASSESSMENT . ........................1 A. Introduction ......................................................1l B. Project Objectives .......................................................1 C. Implementation Experience and Results ....................................................... 2 D. Bank Performance .......................................................4 E. Borrower Performance .......................................................5 F. Assessment of Outcome .......................................................6 G. Operations and Sustainability ...................................................... 10 H. Key Lessons Learned ...................................................... 10 PART II: STATISTICAL TABLES Table 1: Summary of Assessments ...................................................... 12 Table 2: Related Bank Loans/Credits ...................................................... 14 Table 3: Project Timetable ...................................................... 15 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual ......... 16 Table 5A: Project Component Results ...................................................... 17 Table 5B: Status of Completion ...................................................... 19 Table 5C: Project Implementation Schedule ...................................................... 20 Table 6: Key Indicators for Project Performance ............................................... 21 Table 7A: Project Costs ...................................................... 22 Table 7B: Project Financing ...................................................... 22 Table 7C: Project Costs by Component and Source of Funds .............................. 23 Table 8: Status of Legal Covenants ...................................................... 24 Table 9: Bank Resources: Staff Inputs ...................................................... 25 Table 10: Bank Resources: Missions ...................................................... 26 Table 11: Income Statements ...................................................... 27 Table 12: Balance Sheets ...................................................... 28 Appendices: A. Mission's aide-memoire B. Borrower contribution to the ICR C. Cofinancier contribution to the ICR D. Map (IBRD 21862) 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.  IMPLEMENTATION COMPLETION REPORT TURKEY ANKARA SEWERAGE PROJECT (LOAN 3151-TU) PREFACE This is the Implementation Completion Report (ICR) for the Ankara Sewerage Project in Turkey, for which Loan 3151-TU in the amount of US $173.0 million equivalent was approved on December 21, 1989 and made effective on January 23, 1991. The loan was closed on February 28, 1999, compared with the original closing date of December 31, 1998. It was fully disbursed, and the last disbursement took place on May 25, 1999. The ICR was prepared by Mr. Bemardo Gomez, Infrastructure Unit Group, Europe and Central Asia Region, with the assistance of Messrs. Nissenbaum (Consultant), Orhon and Sirer, and Ms. Noel and reviewed by Messrs. Stottmann and Halperin. Preparation of this ICR was begun during the Bank's final supervision/completion mission in October 19, 1998, which was supplemented by an additional mission in November 1998. It is based on material obtained during these. missions and contained in the project file. The Borrower contributed to the preparation of the ICR by providing views that are reflected in the initial mission's Aide-Memoire and by preparing an evaluation of the project's implementation. This ICR has also benefited from the comments submitted by Kreditanstalt fur Wiederaufbau (KfW), the principal co-financing institution, which are contained in Appendix C to this Report.  i IMPLEMENTATION COMPLETION REPORT TURKEY ANKARA SEWERAGE PROJECT (LOAN 3151-TU) EVALUATION SUMMARY Introduction and Project Objectives 1. In the early 1 980s, the Turkish Government undertook to reduce the relatively high national deaths caused by water-borne diseases and sewage-based pollution, and to meet the demands of high population growth on urban water and sewer facilities. The latter's aging infrastructure was increasingly unreliable, many consumers lacked access to sewer connections, and there were few sewage municipal treatment plants. Consequently in 1981, the Government began to create water and sewerage authorities in the main cities for developing and operating local sector systems, which were to become self-sustaining. 2. The Project aimed at helping the Ankara Water and Sewerage Administration (ASKI) reduce health hazards and stimulate environmental improvements by eliminating the discharge of untreated sewage into the Ankara River; improving sewerage services for some 500,000 customers and extending them to about 850,000 more persons; and reducing flooding in heavily affected parts of the city. It consisted mainly of the construction of network and collector sewers, two northern interceptors, and a sewage treatment plant, along with mapping ASKI's service area and institutional improvements. Implementation Experience and Results 3. The Project was scheduled over a 9-year period, partly to stretch out ASKI's funding of the costly activity, and it took that long to actually complete the operation. Its final cost (US$597.2 million) was only about 7.3 percent above the appraisal estimate. The funding plan changed significantly, mainly because of ASKI's repeated inabilities to mobilize the required local funds. To compensate, the company obtained an EIB loan and an additional KfW credit plus substantial increases in the Bank's portion of civil works financing. At the end, the IBRD's share amounted to 17 percent of expenditures, somewhat over half of the planned portion of total costs. 4. Loan disbursements lagged behind schedule throughout. Loan effectiveness was delayed by 14 months because of difficulties in tying down KfW's cofinancing. Moreover, operations were not properly launched for several years, with slow progress in organizing the project coordination unit (PCU) and the main civil works consortium. It encountered difficulties in obtaining Municipal Council approvals for adequate tariffs,  ii which ASKI only became able to adjust independently to compensate for inflation after several years. The company accordingly engaged in short-termn commercial bank loans and did not fully service its debts. 5. Project implementation was also adversely affected by the unsatisfactory performance of the first civil works contractors under the Project and the ensuing cancellation of the contracts. This failure was due to a large extent to inadequate prequalification criteria. Based on this unsatisfactory experience the Bank requested ASKI to reconsider the prequalification criteria for further contracts. Reaching agreement on adequate criteria proved to be difficult because ASKI wished to engage many small contractors and feared that setting the qualifying bar too high would rule out many of them. Ultimately, effective supervision work led to a solution of the qualification issues by agreement on the division of large procurement packages into several smaller contracts. In addition, the Bank sought to facilitate tendering by accepting post-qualification for some of the large works contracts, which also helped meet ASKI's concerns. 6. Once the works got fully underway, largely after the 1994 change in ASKI's management team, project implementation became considerably more effective and eventually was judged satisfactory because of improved performance. In the final tally, ASKI successfully completed the sewage treatment plant and concluded all the other contracted works save for Macun collector, which was declared misprocurement by the Bank and cancelled by ASKI at a later stage because of the contractor's poor performance. 7. All the works finished were accomplished within the planned implementation period. This was commendable in view of the expanded scope of several components because of the enlarged Municipal area, as well as the numerous project execution problems. Some important institutional components were not promptly tackled and the Management Information System (MIS) was not even initiated when the Project terminated. Just before then, ASKI finally arranged to procure part of the scheduled 0 and M equipment. 8. Project execution was also hurt by the lack of effective arrangements for settlement of Ankaran public entities' debts to one another. There has long been a messy situation in which numerous agencies routinely fail to pay one another for services or goods rendered. The Central Government in year 8 of project implementation authorized agencies to use their budget allocations to offset their respective delinquent bills--but the problem still exists. National officials aptly see it as a local government financial issue, for which they have persistently sought remedial legislation, so far in vain. This circumstance has produced some lack of discipline and transparency in public finances. Meanwhile, the delinquent public agencies still rank high in ASKI's continued large accounts receivables.  iii Bank and Borrower Performance 9. The Bank's performance in project preparation was inadequate. By current standards, the operation could exemplify "poor quality at entry". Several significant problems were identified during project preparation but no viable solutions for them were then defined. There was perhaps excessive haste in processing the Project, especially with a first time borrower. 10. The appraisal failed to adequately assess whether the Project might exceed ASKI's financial capabilities. It did not identify, let alone make suitable provisions for overcoming, ASKI's lack of preparedness for carrying out large scale works under international procurement, financial control or auditing standards. Moreover, there was virtually no appreciation of ASKI's restricted autonomy for mobilizing financial resources and applying efficient incentives and personnel management under its limited independence from the Ankara Municipality. To exacerbate these shortcomings, ASKI's institutional problems surfaced early on and could have been addressed while the Project was still getting off the ground in 1991-94. Yet there seems to be little indication of any Bank remedial initiatives at this juncture or any consideration of a midterm review. 11. Nonetheless, ASKI today is a much more able, modem organization than when the Project began, thanks partly to the Bank's and KfW's norms and persistence in addressing problem areas. These clearly set standards for which some of the more successful aspects of ASKI's development are credited. The Project therefore successfully transmitted significant knowledge. ASKI also commended the Bank's flexibility on the increased civil works financing and the understandings achieved on procurement. 12. The Borrower's performance was uneven. Although slow, the company's progress under the Project was ultimately successful and the sewerage improvements scored are salutary. Conversely, ASKI fell short of satisfactory financial and managerial administration. It did pursue the Project with considerable determination but its direction of the activity was not altogether effective. It failed to set up and to staff the PCU suitably. It also focused the Unit too narrowly on civil works and it delayed unduly in hiring competent persons for annual financial audits. Government support was deficient in failing to provide a suitable policy environment for the desired decentralization. Ankara's Mayors were closely engaged in tariff and procurement decisions, at times reversing ASKI's intentions, and some electoral changes caused turnover in ASKI's top executives. Assessment of Outcome and Sustainability 13. The Project met the objectives of eliminating the discharge of untreated sewage into the Ankara River, increasing the population served by the main sewer pipes, and reducing flooding. ASKI achieved the targets for population served (3.1 million served  iv with water in 1997 vis-a-vis 3.0 million estimated at appraisal; and 3.0 million served with sewerage vis-a-vis 2.0 estimated). 14. The SAR projections for ASKI's overall operations in 1988-96 foresaw its mobilizing over US$ 1.1 billion of sales revenues and customer contributions. However, these assumptions proved to be optimistic. The 1989-96 figures compared to the projections show that: (a) the volume of water produced steadily surpassed its target but total water sales were slightly less than forecast; (b) total operating revenues were 24 percent below the projected sum; (c) operating costs were almost 20 percent greater than forecast; and (d) net operating income was 43 percent below the projection. 15. The above reflect ASKI's persistent failures to comply with the Loan's tariff provisions. Charges averaged 35 percent below targets in 1996-97 and 32 percent below in 1998. Accounts receivables averaged 4.7 months of current billings in 1989-97 compared to the two-month goal. Further, the volume of UFW has been consistently excessive, especially through 1993. ASKI's annual net losses in 1989-93 only once exceeded US$20 million but rose to US$50-119 million in 1994-97. Its foreign exchange losses averaged US$136 million p.a. in 1994-97 (without which ASKI would have obtained net profits rather than losses in 1989-97). As a consequence, ASKI only generated internally somewhat over half of the targeted cash for contributions to annual investment, with a US$488 million shortfall. The Central Govermment therefore is effectively subsidizing its investments through the Treasury servicing its foreign debt. 16. To its credit though, ASKI's management recently succeeded with several constructive measures. To improve collections, ASKI began cutting off service to tardy private billpayers and installed 2,549 meters in a pilot pre-paid system focused on high consumption customers. It also bears noting that, although UFW remains greater than desirable, the company has steadily reduced its volume by almost a third since 1993. 17. ASKI's income will likely improve and it could yet come closer to being reasonably self-sufficient-but much of this depends on forces beyond its control. The large buildup of foreign exchange losses demonstrates a need for the company's dealing better with currency uncertainty. Some external assistance in the development of a better debt management strategy could help. Also, Government action to instill greater public sector financial discipline appears necessary for solving the inter-agency arrears problem. In addition, greater ASKI autonomy could help bolster its financial performance. 18. Some of the Project's shortcomings suggest that its design and execution differed from the Borrower's attitude towards the project. The Bank and the Central Government had concentrated on the goal of developing an independent and financially viable entity. ASKI however saw the project more as a major expansion of its physical infrastructure. The differences between these views resulted in somewhat conflicting objectives with negative effects. One was that ASKI appeared to wish to implement the project with virtually no involvement from the Bank and consultants. Perhaps this stemmed from its limited involvement in designing the envisioned reforms. Another troubling factor was  v that the well intended decentralization aims were not accompanied by actions devoted to how to manage that change. Consequently, ASKI's inadequate independence in financial policies, employment and procurement deterred the intended efficiency gains. ASKI believes that training for the staff during project preparation would facilitate implementation. 19. The project outturn thus constitutes at least partial failure in the Government's and Bank's efforts to achieve financially autonomous municipal water companies. The new model served as a vehicle for building institutional capacity but only relatively slowly and ineffectually. The project outcome is accordingly judged unsatisfactorily on the basis of the slow progress on institutional reform. The accomplishments in terms of physical implementation of the project and of service coverage were satisfactory. ASKI concurs with the Bank's judgement on institutional reform but considers that the Project should be rated satisfactorily because of the completion of the investments. 20. The treatment plant is being suitably run by Belka, a local company, under the supervision of the construction contractor. Belka is expected to continue managing the plant management although there appear to have been discussions about privatization possibilities. For the other works, there are chances of their deterioration unless ASKI carries out its O&M plan and sustains an effective maintenance program. There are now no plans for new Bank lending. Lessons Learned 21. It is imperative to have a few, clear and fully consistent objectives in efforts to pioneer a sector change, particularly through activity with a novice institution. Particularly important is to achieve early on a full understanding on project objectives that is shared by all key stakeholders, and one that reflects a thorough understanding of the root causes of the Borrower's problems. Project design should insulate the utilities from inappropriate political interference and strongly upgrade their managerial capabilities. Perhaps this is just another way of restating the importance of "quality at entry." 22. Another lesson is the importance of not going ahead with projects prematurely, which includes resolving disagreements on procurement procedures before submitting a project for Board approval. 23. Finally, the outcome of this project calls into question the merits of financial covenants when the implementing agency does not have de facto full authority to take all the actions needed to assure full compliance.  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TURKEY ANKARA SEWERAGE PROJECT (LOAN 3151-TU) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Introduction 1. In the early 1980s, the Turkish Government undertook to reduce the relatively high national deaths caused by water-borne diseases and sewage-based pollution, and to meet the demands of high population growth on urban water and sewer facilities. City water service levels were reasonably high then. However, sewerage service levels were low as the aging infrastructure was increasingly unreliable, 44 percent of consumers lacked access to sewer connections and there were few municipal sewerage treatment plants. The Government thus sought substantially greater sewerage investments but it was reluctant to have these made in traditional ways. This was because the authorities considered that past expenditures largely produced incomplete works and wastage, mainly due to the weak planning and supervision by Iller Bank. On this account as well as to limit national budget expenditures, the Government decided to vest greater responsibility in and to mobilize larger investment resources from local levels. 2. Consequently in 1981, the Government began to create water and sewerage authorities in the main cities as separate, autonomous entities for developing and operating sector systems. The objective was to have these become financially self- supporting, thereby replacing the previous dependence on central government funding. This model was first launched in Istanbul and extended to Izmir and other metropolitan areas. Subsequently, the Government concluded that this approach was working well in those cases and requested assistance for a project in Ankara on this basis. 3. Many of the capital's residents were then being served by an extensive water distribution network and an estimated 79 percent of the population had access to some piped sewerage. However, there was excessive unaccounted-for water (UFW) in transmission and distribution, no sewage was treated and most sewers were just idly discharged, eventually into the Ankara River. B. Project Objectives 4. The planned Bank assistance was intended to help bring about better investment planning, more rigorous controls over contracting and improved construction activity, increased managerial and financial autonomy, and improved cost recovery, billing and  2 collections. The Project sought to advance these in the course of assisting the Ankara Water and Sewerage Administration (ASKI) to provide new facilities and to rehabilitate existing ones so as to stimulate environmental improvements and reduce health hazards. The Project's physical goals were: (a) eliminating the discharge of untreated sewage into the Ankara River; (b) improving services for some 500,000 customers already connected to sewers; (c) providing about 850,000 other residents access to these services; and (d) reducing flooding in heavily affected parts of the city. 5. The project's works consisted mainly of the construction of network sewers for existing and new city development areas; five major collector sewers and two pumping stations; southern and northern interceptors; and a sewage treatment plant (with KfW support), along with drainage works. The scheme also called for computerized mapping of ASKI's service area and treatment plant site, expanding operation and maintenance equipment, and improving its management systems. C. Implementation Experience and Results 6. The Project was scheduled over a 9-year period in recognition of ASKI's financial constraints so as to facilitate its funding of the investments, and it actually took that long to complete them. While their final cost was close to the appraisal estimate (US$597.2 million actual vis a vis US$556.8 million), there were considerable disparities between the planned and actual expenses for some components, and several others were dropped. The largest activity, the sewage treatment plant, had an about 33 percent cost overrun with the addition of a belt filter press, sludge digesters and biogas generators. A large service area expansion caused by population growth raised costs for sewer-related works, collectors and mapping. Conversely, less than 20 percent of the funds scheduled for maintenance equipment and technical assistance were spent, and other reductions followed the Lira's lagged devaluations vis a vis other currencies. 7. The Bank expected to finance 31 percent of total costs, ASKI 52 percent and KfW 17 percent but this plan changed significantly, mainly because of ASKI's repeated inability to mobilize the required local funds. To compensate, it obtained an EIB loan and additional KfW credit, more than doubling the non-IBRD foreign financing portion. At the end, the Bank's share amounted to 17 percent of expenditures, ASKI 48, KfW 27 and EIB 8. This followed the Borrower's cancellation of over a third of Loan 3151's principal in 1996-97 after acquiring the incremental KfW and EIB funds. The partial cancellation of unused Loan funds was mutually agreed after the grace period had expired, at which time the Bank loan ceased to be financially attractive. 8. Loan disbursements lagged behind schedule throughout: 57 percent of their final total occurred in the last two years. The Loan was only declared effective 14 months after its approval because of difficulties in tying down KfW's cofinancing. Moreover, project activity was not fully begun for several years. ASKI was dilatory in organizing itself for the task and the terms of reference for its project coordination unit (PCU) were only settled in the fourth year. Not all the firms who ultimately formed the main civil  3 works consortium were in place three and one half years after Loan approval. In addition, the action plan for ASKI's technical assistance was still not ready in year 2 although the need for this help was evident from the start. 9. ASKI's funds were almost continuously too limited to meet investment requirements, largely due to insufficient tariffs and poor billings and collections. As detailed below, ASKI's tariff levels increased quite substantially during the project period but they were generally tardy. The company encountered difficulties in obtaining Municipal Council tariff approvals and it was only able to independently adjust tariffs for inflation beginning in 1996. The company accordingly repeatedly resorted to short-term borrowings from commercial banks, not servicing its debts and postponing contractor payments, employment of required personnel and other needed actions. 10. Project implementation was also adversely affected by the unsatisfactory performance of the first four civil works contracts under the Project and these contracts had to be cancelled. This failure was due to a large extent to inadequate prequalification criteria. Based on this unsatisfactory experience the Bank requested ASKI to reconsider the prequalification criteria for further contracts. Reaching agreement on adequate criteria proved to be difficult because ASKI wished to engage many small contractors and feared that setting the qualifying bar too high would rule out many of them. Ultimately, effective supervision work led to a solution of the qualifications issues by agreement on the division of large procurement packages into several smaller contracts. In addition, the Bank sought to facilitate tendering by accepting post-qualification for some of the large works contracts, which also helped meet ASKI' s concerns. 11. Once the works got fully underway, largely after the 1994 change in ASKI's management team, project implementation became considerably more effective and eventually was judged satisfactory because of improved performance. In the final tally, ASKI successfully completed the sewage treatment plant and concluded all the other contracted works save for Macun collector, which was declared misprocurement by the Bank and then cancelled by ASKI at a later stage because of the builder's poor performance. 12. All the works finished were accomplished within the planned implementation period. This was commendable in view of the expanded scope of several components because of the enlarged Municipal area, as well as the numerous project execution problems. However, the latter had their costs. All but one of the 12 Bank-financed contracts were only completed in 1997-98, and all of the EIB/KfW-assisted works were finished in 1998 (ref. Table 5C). At the same time, the final Bank missions which reviewed the works accomplished identified no deficiencies and only a need for relatively minor connections with the treatment plant. ASKI is scheduled to complete these in 1999. Furthermore, supervision teams concurred with ASKI's conclusion that the procurement practices ultimately agreed upon produced significant competition and  4 resulted in satisfactory quality and prices. It was also agreed that all the contractors who completed their civil works and consultants generally performed well. 13. There was tardy implementation too of some other important components, several of which were not addressed in the first years of project execution, e.g., digital base mapping of ASKI's service area. The most delayed was establishing the management information (MIS) system, which was not even initiated when the Project terminated. Further, it became clear in 1997 that ASKI lacked the essentials for a fully adequate operations and maintenance (O&M) capability, far more than the planned assistance would provide. A late start was made with US Government help in defining a plan for strengthening the company in this capacity; this still remains to be pursued. Towards the conclusion of project execution, ASKI finally arranged to procure part of the O&M equipment. 14. Project execution was also hurt by the lack of effective arrangements for settlement of Ankaran public entities' debts to one another. There has long been a messy situation in which public sector agencies routinely fail to pay one another for services or goods rendered. At appraisal, ASKI's receivables from these constituted the bulk of the high level of payments it was then owed. This issue was raised in negotiations where the Central Government promised to intervene. In 1997, it authorized public agencies to use their budget allocations to offset their respective delinquent bills. This brought some relief but the problem still exists. National officials have demonstrated appreciation of a better solution for the problem, which they see as a local government financial issue. They have persistently sought legislation for this but so far in vain. This circumstance has produced a lack of discipline and transparency in public finances: it is difficult to know who are the winners and the losers. Meanwhile, the delinquent public agencies still rank high in ASKI's continued large accounts receivables, which the company has been offsetting by not fully servicing its external debts. D. Bank Performance 15. The Bank's performance in project preparation was not fully satisfactory. On the positive side, the planned physical investments were satisfactory and its main issue-the treatment plant's concept-was satisfactorily settled after extensive discussion among the Bank, KfW and ASKI. On the negative side, the appraisal attached excessive attention to narrow engineering and financial concerns (not unusual Bank practice in the late 1980s, when sector organizational changes were not always examined by staff skilled in public management). Consequently, by current standards, the Project could exemplify "poor quality at entry." This was particularly true for a potential activity with a first-time borrower being asked to undergo a major role change and to undertake substantially increased investment tasks. Several of ASKI's latent problems were identified during project preparation review but no viable solutions were defined for them. For that matter, before the Loan was negotiated, there were signs of serious deficiencies in the comparable prior projects in Istanbul and Izmir. There seems to be no evidence though of any Bank actions being taken then to try to avert or limit their repetition with ASKI.  5 There was perhaps excessive haste in processing the Project, as well as in obtaining Loan approval without firm assurances of KfW's cofinancing. 16. The appraisal failed to adequately assess whether the Project might exceed ASKI's financial capabilities. It did not produce a sound financing strategy, notwithstanding the stretching out of the implementation period to mitigate the annual financial burden of providing counterpart for the project. As demonstrated in paras. 26- 30, the financial projections were unrealistic. 17. Nor did the appraisal identify, let alone make suitable provisions for overcoming, ASKI's lack of preparedness for carrying out large scale works under international standards for procurement, financial controls or auditing. 18. Moreover, there was virtually no appreciation of ASKI's restricted autonomy for mobilizing financial resources and applying efficient incentives and personnel management under its limited independence from the Ankara Municipality. Finally, the appraisal erred in conveying the impression that the company's main weaknesses were in billing and collections, contract administration and management systems without addressing their institutional root causes. These had to do with the inability of ASKI's management to run the utility as a commercially oriented entity, free from political constraints. Furthermore, the project plan was unduly optimistic in assuming that the TA needed for ASKI's basic ills would come from local sources under Kuwaiti aid. 19. The Bank's supervision was of mixed quality but better than appraisal. ASKI's institutional problems surfaced early on and could have been addressed while the Project was still getting off the ground in 1991-94. In addition, the Bank does not appear to have applied successful stimuli to getting ASKI adequately organized for and actively advancing the Project, as the problems discussed in para. 8 demonstrate. And, there seems to be little indication of any Bank remedial initiatives at this juncture (e.g., the first systematic attempt to address the procurement problem appears to have begun in 1994) or any consideration of a midterm review. 20. Conversely, the Bank's supervision was quite helpful in resolving the procurement problem and in the persistent requests to the Central Government for settling the inter-agency accounts receivable issue. In addition, company officers have expressed appreciation for the Bank's influence during supervision, which they say helped trigger more aggressive actions on bill collection, water loss reductions and financial practices. The Bank's involvement therefore successfully transmitted significant knowledge. On these accounts, the Bank can take credit for having handled reasonably well a project that had high chances of becoming a total failure. E. Borrower Performance 21. The Borrower's performance was poor in several respects. ASKI pursued the Project with considerable determination, especially after 1994, but its direction of the  6 activity was not altogether effective. Apart from the problems of its slow mobilization for carrying out the Project noted in para. 8, the company failed to set up and to staff the PCU suitably early on. It also focused the Unit too narrowly on civil works and required it to also carry out unrelated routine company tasks for some time. It delayed unduly in hiring competent persons for annual financial audits and to furnish the data and controls they required. 22. These shortcomings however should not obscure the fact that the company's progress under the Project was ultimately important. Also, ASKI's collaboration with KfW outside the Project led to useful measures in expanding Ankara's water distribution system, metering almost all connections and replacing meters (13,114 were purchased in 1988-90). 23. Government support was deficient in failing to provide a suitable policy environment for the desired decentralization. Ankara's Mayors were closely engaged in tariff and procurement decisions, at times reversing ASKI's intentions, and some city electoral changes caused turnover in ASKI's top executives. Following the 1994 managerial change, the new team suspended project works for some six months, took the same to appoint a new general manager, and subsequently cancelled and amended several contracts. F. Assessment of Outcome 24. The Project met the physical objectives of eliminating the discharge of untreated sewage into the Ankara River, increasing the population served by the main sewer pipes, and reducing flooding. ASKI achieved the targets for population served (3.1 million served with water in 1997 vis-a-vis 3.0 million estimated at appraisal for the same year; and 3.0 million served with sewerage vis-a-vis 2.9 estimated at appraisal). On a number of connections basis, the achievements far exceeded appraisal expectations: water connections by 1998 were 865,000 vis-a-vis 580,000 anticipated at appraisal and sewerage connections 848,000 vis-a-vis 550,000. It is not clear how reliable are the estimates of population density by connection to explain the striking difference between the planned and the actual number of connections and the close to target population coverage. 25. ASKI also issued effluent discharge regulations and has been monitoring industrial firms' discharges. In the aggregate, these results are not negligible achievements. 26. The SAR projections for ASKI's overall operations in 1988-96 foresaw it mobilizing over US$ 1.1 billion of sales revenues and customer contributions. However, these assumptions proved to be overly optimistic as ASKI fell far short of attaining the envisaged financial self-sufficiency. The 1989-96 figures compared to the SAR projections (ref. Tables 11-12) show that:  7 - Total operating revenues were 24 percent (US$312 million) below the projected sum. Total water produced (1,887 m3 million) surpassed its target (1,599 m3 million). Total water sold (1,012 m3 million) was close to the forecast (1,038 m3 million). - Operating costs were almost 20 percent (US$75 million) greater than forecast. - As a result of the above, the net operating income over this period was 43 percent (US$388 million) below the projection. 27. The deficiency in revenues reflects ASKI's persistent difficulties to fully comply with the Loan's tariff provisions. On average during 1989-96, the actual operating revenues per m3 sold (US$0.96 per m3 sold at current prices) while close to the marginal cost ($0.91/ m3) was 22.6 percent below the SAR projection (US$1.24 m3). This shortfall highlights the optimism about cash generation expected from ASKI. This fact should not however obscure ASKI' s positive efforts in consistently raising tariffs and ultimate success in winning the authority to index them. Total operating revenues per m3 sold (US$0.52 in 1989) increased to $1.14 in 1993 and declined to $1.09 in 1996. 28. Bill collection was poorer than projected, e.g., as late as 1997, bill collection was a less than satisfactory 81 percent. Accounts receivables averaged 4.7 months of current billings in 1989-97 compared to the covenanted two-month. Finally, the volume of UFW has been consistently excessive, especially through 1993 when it was close to and sometimes above 50 percent, which partly underlies the higher than expected operating costs. 29. These forces have contributed to ASKI's peaking annual net losses. The latter were only once greater than US$20 million/year and generally lower during 1989-93. But these losses increased to a range of US$50-119 million/year in 1994-97 as foreign exchange losses averaged US$136 million p.a. in 1994-97. In the absence of foreign exchange loses, ASKI would have in fact had net profits rather than the losses it suffered in 1989-97. There were also over US$21 million penalty interest costs yearly (on average). 30. As a result of the above, ASKI only generated internally somewhat over half of the targeted US$ 1.1 billion cash for contributions to investment (covenanted cash contribution was 53 percent of project cost), with a shortfall of US$488 million. It was only able to meet its investment obligations with the support of the Central Government through the Treasury partially covering ASKI's foreign debt. The company's payables to Treasury more than doubled over the project period, totaling US$69 million in August 1998. ASKI's overall accounts payable have soared in recent years, from US$37 million at the end of 1994 to US$88 million at the end of 1997.  8 31. The internal financial rate of return was not reevaluated for the ICR because the lack of information in the SAR about the basic assumptions make it difficult to do a comparable calculation. Nevertheless, the rate of return is likely to be somewhat below appraisal estimates of 11 percent for sewerage. The lower rate would be the result of water sales slightly below appraisal estimates, higher operating costs and lower tariff levels. The project benefits, however, are substantial as the project achieved the targeted service coverage and the expected environmental improvements (para. 24). 32. Some of the Project's several shortcomings were partly due to ASKI's unfamiliarity with Bank policies. There were many instances of distinctly differing interpretations as to what was needed to conform to IBRD procurement guidelines and the Loan-specified procedures, which often led to disagreements on how to conduct procurement. But the problems that emerged suggest that, more basically, the design and supervision of the scheme differed from the Borrower's views and expectations towards the Project. This implies a very poor initial understanding between all the key stakeholders. The Bank and the government had the goal of developing an independent entity, as reflected in the Loan covenants' stress on self-financing ratios, accounts receivables' levels and borrowing limits. During supervision, the Bank also stressed this position. ASKI's view however was shaped more by an emphasis on expanding its physical infrastructure rather than on improving system operation and maintenance. Admittedly, these views were not contradictory but they nonetheless resulted in conflicting perspectives with negative effects. ASKI believes that staff training during project preparation would have facilitated implementation. 33. One negative effect of the contradictory views was that ASKI appeared to wish to implement the project with virtually no involvement from the Bank and consultants. It seemed frustrated that it had to cope with the Bank's involvement. In part, this stemmed from ASKI's limited involvement in designing the intended reforms. Also, the company had little appreciation of the potential benefits of employing technical assistance and the reasons for its inclusion in the Project; it therefore eschewed outside experts' involvement. This caused the PCU problems and the tardy actions on the MIS and operations and maintenance components. These factors may also help explain the somewhat testy Bank-Borrower project dialogue, especially on how to conduct procurement, and ASKI's several failures to consult with the Bank on possible large borrowings and other covenanted matters. 34. Another troubling factor was that the well intended decentralization aims were not accompanied by actions devoted to managing that change. Consequently, ASKI's inadequate independence in financial policies and employment and procurement actions deterred the intended efficiency gains. 35. In addition, at the time of appraisal, the Government and the Bank clearly had high expectations of ASKI's revenue-generating capability. A Loan covenant called for the company to first generate 45 percent of capital expenditures in 1990-91, and 60  9 percent thereafter. These figures are high by any standards and, by themselves, raise questions about the realism of the financing plan. Meanwhile, the Guarantee Agreement did not obligate the Government to assist in any way, and the Municipality (which has a major say on key matters, including tariff approvals) was not party to a separate legal agreement. 36. To its credit though, ASKI's management recently succeeded with several constructive measures. To improve collections, ASKI began cutting off service to tardy private billpayers and installed 2,549 meters in a pilot pre-paid system focused on high consumption customers. It also bears noting that, although UFW remains greater than desirable, the company has steadily reduced its volume by almost a third since 1993. 37. Also, it is expected that ASKI's income will improve. The project's physical accomplishments have not yet reached their full capacity utilization or potential profitability. There should be revenue increases from the increases in the number of water and sewerage connections, as well as the fuill impact of the aforementioned metering expansion. Maintenance improvements should meanwhile save costs. Moreover, ASKI today is a much more able, modem organization than when the Project began, thanks partly to the Bank's (and KfW's) presence and persistence in addressing problems. These sparked advances in ASKI's project management and financial administration which should improve its bottom line. 38. On the above accounts, ASKI could yet come closer to being reasonably self- sufficient-but much of this depends on forces beyond its control. Government action is needed to instill public sector financial discipline and solve the inter-agency arrears problem. In addition, more adequate autonomy would help bolster ASKI's financial performance. So too would further upgrading of the company's internal controls, commercial and accounting systems. Its external auditors have progressively reduced their qualifications on the company's financial statements, which were deficient throughout the project period, but there remains scope for improvement. 39. Ultimately however, there is a question as to whether a utility owned by the Municipality will ever be removed from political interference and will have appropriate incentives to operate efficiently. In more recent loans to Turkey, the Bank has been advocating private sector participation, and that seems to represent a more promising strategy for better operation of the utility. 40. Therefore, the project outturn constitutes a partial failure in the Government's and Bank's efforts to achieve financially autonomous municipal water companies. The new model served as a vehicle for building institutional capacity but only relatively slowly and ineffectually. The Project outcome is accordingly judged unsatisfactory on the basis of the slow progress in institutional reform. The accomplishments in terms of physical implementation of the project and of service coverage were satisfactory. ASKI concurs  10 with the Bank's judgement on institutional reform but considers that the project should be rated satisfactory because of the completion of the investments. G. Operations and Sustainability 41. Operation of the Project facilities is considered satisfactory. The treatment plant is being suitably run by Belka, a local company (of which ASKI is the majority shareholder), under the supervision of the construction contractor. On termination of the latter's guarantee period, BELKA is expected to continue managing the plant although there appear to have been discussions about privatization possibilities. For the other works, there are chances of their deterioration unless ASKI solves its root institutional problems, carries out the O&M plan, and sustains an effective maintenance program. With KfW assistance, ASKI is overseeing the development of a feasibility study for expansion of water supply in its service area. This is linked to the preparation of a revised Ankara water supply master plan, scheduled to be completed soon. ASKI also intends to begin planning the expansion of the treatment plant for meeting post-2005 requirements. There are now no plans for new Bank lending. H. Key Lessons Learned 42. It is imperative to have a few, clear and fully consistent objectives in efforts to pioneer a sector change, particularly through activity with a novice institution. Particularly important is to achieve early on a full understanding on project objectives that is shared by all key stakeholders, and one that reflects a thorough understanding of the root causes of the Borrower's problems. Project design should insulate the utilities from inappropriate political interference and strongly upgrade their managerial capabilities. Perhaps this is just another way of restating the importance of "quality at entry." 43. Another lesson is the importance of not going ahead with projects prematurely, which includes resolving disagreements on procurement procedures before submitting a project for Board approval. 44. Finally, the outcome of this project calls into question the merits of financial covenants when the implementing agency does not have de facto full authority to take all the actions needed to assure full compliance.  11 Part II. Statistical Tables Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual Table 5A: Project Component Results Table 5B: Status of Completion Table 5C: Project Implementation Schedule Table 6: Key Indicators for Project Performance Table 7A: Project Costs Table 7B: Project Financing Table 7C: Project Costs by Component and Source of Funds Table 8: Status of Legal Covenants Table 9: Bank Resources: Staff Inputs Table 10: Bank Resources: Missions Table 11: Income Statements Table 12: Balance Sheets  12 Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not applicable Macro Policies Sector Policies Cl LI IZI Financial Objectives l Institutional Development L Ig L L Physical Objectives LI 0 0 Poverty Reduction I [] 5 Gender Issues LI L IZI Other Social Objectives [1 [] LE Environmental Objectives 0 [] 5 5 Public Sector Management [ ED n Private Sector Development a 5 5 Other (specify) 5 5 5 5 B. Project Sustainability Likely Unlikely Uncertain C. Bank Perfornance Highly satisfactory Satisfactory Deficient Identification [ E Preparation Assistance 0 Appraisal FaI Supervision Ic  13 Highly D. Borrower Performnance satisfactory Satisfactory Deficient Preparation D FLi Implementation L D I Covenant Compliance gI j: 2 Operation (if applicable) i M Highly Highly E. Assessment of Outcome satisfactory Satisfactory Unsatisfactory unsatisfactory (L) (Li ( L O M  14 Table 2: Related Bank Loans/Credits Loan/credit title P_Upo Year of Status Approval Preceding operations Credit 324-TU To provide assistance for the preparation 1972 Closed Istanbul Urban of an urban development program and Development Project urban transportation/land model 844-TU Expansion of Istanbul water supply 1972 Closed Istanbul Water Supply system; establishment regional Authority 2159-TU Expansion of sewerage system and 1982 Closed Istanbul Sewerage I strengthening of water and sewerage authority (ISKI) 2537-TU Cukurova Preparation studies for Cukurova Urban 1985 Closed Region Engineering Development Project Project 2818-TU Water supply, sewerage and sewage 1987 Closed Izmir Water Supply treatment facilities for Izmir and Sewerage Project 2819-TU Urban infrastructure, improvement of 1987 Closed Cukurova Urban policies, institutional and financing Development Project arrangements got Cukurova Region Following operations 3565-TU Water supply and sewerage 1993 Active Bursa Water and Sanitation Project 3893-TU Expansion of water supply, wastewater 1995 Active Antalya Water Supply and drainage systems; institutional and Sanitation Project strengthening; changes in municipal financial policies for Antalya 4315-TU Water supply and sewerage, including 1998 Active Cesme-Alacati Water wastewater pre-treatment plant Supply and Sewerage Project 43880-TU Restoration of basic infrastructure in 1998 Active Emergency Flood municipalities and rural areas affected by Recovery Project flood; and reducing of vulnerability to future floods and earthquakes  15 Table 3: Project Timetable Steps in Project Cycle Date Planned Actual Date Identification (Executive N.A June 1988 Project Summary) Preparation Appraisal N.A February 1989 Negotiations N.A October 1989 Board Presentation December 1989 December 21, 1989 Signing February 1990 August 16, 1990 Effectiveness May 1990 January 23, 1991 Project Completion November 1998 November 1998 Loan Closing December 31, 1998 February 28, 1999  16 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ millions) Fiscal Year Appraisal Estimate Actual Actual as % of Estimate FY90 4.50 0.00 0 FY91 21.80 1.59 7.3 FY92 49.20 6.45 13.0 FY93 80.00 9.17 11.5 FY94 110.80 15.11 13.6 FY95 134.80 21.94 16.3 FY96 153.80 44.56 29.0 FY97* 101.80 81.87 80.8 FY98* 107.00 100.70 94.2 Note: * US$66 million cancelled (US$46 million January 1996, US$20 million, June 1997). "Appraisal Estimate" and "Actual as % of Estimate" figures therefore reflect the reduction in Loan amount. Date of last disbursement: October 27, 1998  17 Table 5A: Project Component Results Part A: Sewage Collection Part A: Sewage Collection I-a- Construction of network sewers (0,2-0,5 m dia). i) to provide a I-a- All works planned within the existing city boundary, outside new system in the planned areas within the existing city boundary the boundary and , in the squatter areas were completed. 593.4 km length. ii) to provide a new system in neighboring areas Although 1,978 km. of sewer collection was planned, actually outside of the boundary 169.3 km length. !n) to provide a new and to 2,058 km. were constructed in line with the extension of the replace a part of the existing, system in the gecekondu areas 318.2 km metropolitan municipal boundary. of new sewers and 342.7 km of replacement sewers IV) change of the existing combined system to a separate system (377.7 km length) V) replacement of parts of the existing system in planned areas 178.7 km length. b- About 7.100 new manholes would be provided and 2700 manhole b- 2,700 manholes were reconstructed. 40,350 new manholes would be reconstructed. were constructed instead of 7,100. The number incorporates manholes for the sewer and drainage and the increase was due to expansion of the total length of the pipes and culverts. 2- Construction of five major collectors (incesu, hatip, baglum, 2- Incesu and Hatip collectors were constructed as planned. macun, yenikent/saray) 102.7km length 0.5-2.02m dia. And two Macun collector was tendered under 100% ASKI finance and pumping stations (incesu ,ova creek) to pump sewage from the 68% completed by the end of 1998. ASKI cancelled the contract outlying areas of G6lba5i (0.25 cu/m/sec. Pumping capacity) and due to contractor's inefficiency and default. ASKI is planning to Yenikent (0.18 cu m/sec. Pumping capacity). tender the remaining 32% of works in 1999. Baglum and Saray collectors were not implemented because they were outside the boundaries of the extended metropolitan municipal area. Part of the sewage from these zones is being collected by means of connections to the nearby passing collectors. 3- Construction of two major interceptors one to the north (the 3- All works planned were completed. northern interceptor 6.6 km length;-0,5-1,4 m dia) and the other to the south (the southern interceptor 27.0 km length 2.4-4.0 m.dia) of the Ankara river. Part B: Sewage Treatment: Part B: Sewage Treatment: 1- Construction of bar screens and grit tanks on the Southern 1- Bar screens and grit tanks on the southern interceptor were Interceptor. not implemented because of change in design. These units were constructed at the inlet of the sewerage treatment plant. 2- Construction of and provision of equipment for a biological sewage 2- All works and equipment planned were constructed and treatment plant to treat a flow up to 8.9 cu.m./sec. Using the activated provided. The plant capacity was reduced from 8,9 to 7,5 cu.m sludge process, the plant would comprise tanks and equipment for per sec due to final design criteria without affecting the targeted primary sedimentation, aeration, settling and sludge digestion year 2002 requirements (equivalent to 3,900,000 inhabitants). The original plant cost was increased due to incorporation of belt filter press, sludge digesters and biogas generators to the scope of works. Part C: Drainage: Part C: Drainage 1- Construction of collectors drains (41.0 km of 0.5-2.0 m. dia 1- All works planned were implemented. Although 45.8 km. of pipelines and 4.8 km of 2m*2m box culverts). collectors were foreseen, actually 500 km. of drainage system was constructed.  18 Part D: Mapping: Part D: Mapping: 1- 1 to 1000 scale digital (computerized) mapping of ASKI's service 1- Digital maps for the planned service area were completed. area and sewage treatment plant site, including data collection and Additional digital maps due to increase of municipal area of recording of the existing sewerage and drainage systems; about 55,000 ha are still under preparation and scheduled for completion by July, 1999. Data collection and recording of the existing sewerage and drainage systems were implemented as planned. Part E: Operation and Maintenance: Part E: Operation and Maintenance Provision of operation and maintenance (O&M) vehicles and Vehicles and machinery were contracted and scheduled for equipment for television inspection of sewers. delivery by the end of Feb 1999. Equipment for TV inspection of sewers were not provided due to the cancellation of the tender by ASKI originating from the technical non-responsiveness of the bids. ASKI is not intending to re-tender these items, intending to perform this inspection through private contractors whenever necessary. Part F: Technical Assistance and Training: Part F: Technical Assistance and Training Provision of technical assistance and training to strengthen the Training provided for ASKI personnel to strengthen O&M borrower in O&M, billing and collection, management controls and functions. Billing is done with computers. An effective systems and contract administration. management information system is still lacking in ASKI.  19 Table SB: Status of Completion CON. CONTRACT | Contract Contract Price Scheduled Extended Actual NO TITLE Signed $ Completon Completlon Completion I___________________ DatD Date Date WB Financed Components . . 1 Southern Interceptor Sewer,Dikmen Terminated Collector& Y0kseltepe Area Sewers 02120/92 9,706,068 on 1012711993 | Incesu Collctor and Tunus & Terminated Bsahqeevler Sewers 12/117/92 19,503,151 on 0W117/1994 3' Hatip Colector and 8attalgazi & Terminated Onder Area Sewers 1 230192 17,909,334 _ _ on MI1711994 SS* Lower OutfaY Interceptor Terminated 10114i93 27,983,401 on 04t1311995 1A Southem Interceptor Sewer 02/27/95 12,911,986 11/30/9 06/10/97 06/10/97 | 3A Natip Collector 09/29/95 11,455,713 10/17198 10117/98 3B iskitler Colector & Battalgazi & Onder Area Sewers 09/29195 17,104,577 101118/98 10118198 5A Upper Outfall Interceptor 10122/93 23.995,294 1i107(96 12/31/97 12t31/97 SBI Lower Outfall Interceptor I 11124/95 14,457,130 06109/97 06/24197 06/24/97 Sall Lower Outfall Interceptor 11 11/24/95 14,677,710 06W10/97 W0610197 6 Qubuk Cotec. & Krrkkonaklar Area Sewers 08/06/93 12.816,925 08(22/97 04/04/98 04/04/98 7 North-Eastem Collec. & Ekin Area Sewers 10/14/93 20,653,514 11/07/97 11/07/97 IIA Osmaniye & Ovai;ayt Collec. 09129/95 9,020,698 10/13/98 10113/98 11B YalYncakdzu & AlUncioglu Collec. 09/29/95 8,759,422 10/14/98 10/23/98 13 Existing Southem Interceptor 08/09196 2,302,405 08/31/97 10(02/97 10/02/97 14 Sincan (S.C.A) Foul-Stormwater _ Sewers and Potable Water Network 05(29/97 2.724,630 08/15/98 06/198 EIB Financed Components 2A lncesu Collector 09/29/95 16.829,726 10/15/98 10/1S/98 SA Upper Northem Interceptor 09129/95 8,211,857 10/10198 10(10/98 9B Lower Northem Interceptor 09129/95 8,684,528 10111198 10/11/98 10 Northem Collectors 09/29/95 19,235.793 10(11/98 10/16/98 12 Mogangliu and Imrahor Colectors 09129/95 7,793,082 1012V98 10tt2V98 15 Sincan-EUlmesgut Area Southem I_ nterceptor (111 07/07/97 4,376,873 11/02/98 11/02(98 KfW Financed Components = (Construction of Ankara Wastewatbr& 0/05/92 176,442.917 12/05/961 02t01(9t 02/01/8 ITreatment Plant I _ _._.________ Power Station 07105/96 10,651t,660 1 02/01l981 1 i 0 Contracts 1, 2. 3. and 5B were terminated by ASKI due to; a) the opinion that the contract prices were higher than the curent local pries, b) the increase in scope because of the munidpal coverage area. These contracts were retendered under the contracts IA, 3A. 36, and 581 and 582. - Contractual date means the date set in the contract signed.  20 Table 5C: Project Implementation Schedule- Cumulative Physical Completion (%) Contract 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 No Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual WB LOAN=. 1 Southem Interceptor Sewer.Dtmen Collector& Yukseltepe Area Sewers 26 55 2 Incesu Collector and Tunus & _ Bahcelievler Sewers 6 6 3 Hatip Collector and Battalgazi & Onder Area Sewers_ 1 5B Lower Outfal Interceptor 2 1 A Southem Interceptor Sewer 30 97 100 3A Hatip Codector ~~~_ 30 78 100 3B Iskitler Collector & Battagazi & Onder Area Sewers _ 36 89 100 5A Upper Ouffall Interceptor 3 39 93 100 581 Lower OutfaUl Interceptor I 87 100 5B2 Lower Outfall Interceptor II 100 6 ;ubuk Collec. & Kirkkonaldar Area Sewers 0 9 48 90 100 7 North-Eastem Collec. & Elin Area Sewers 11 41 84 100 11 A Osmaniye & Ovar,ayi Collec. 49 84 100 11 B Yalincakozu & Altinc,oolu Couec. 34 72 100 13 Existing Southem Interceptor .__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 100 14 Sincan (S.CA) Foul-Stormwater -__==_ Sewers and Potable Water Network 41 100 EIB LOAN* 2A lncesu Collector ______.__ 50 78 100 9A Upper Northern Interceptor 42 84 100 9B Lower Northrm Interceptor 47 92 100 10 Northem Colectors 58 98 100 12 Mogangoll and Imrahor Codlectors 52 86 100 15 Sincan-Etimesgut Area Southem Interceptor (II) _ _ 68 100 KflN | 1 Sewage Tr.Plant-Civil Works 0 |25 35 |43 74 j 97 1100 ________ &quipmentT- *Six World Bank-financed contracts are replaced by EIB.  Table 6: SELECTED KEY INDICATORS FOR PROJECT PERFORMANCE (1988-1997) Monitoring Indicators 19S8 1989 1990 1991 1992 1993 1994 1995 1996 1997 Water Supply SAR ACTUAL SAR ACTUAL SAR ACTUAL SAR ACTUAL SAR ACTUAL SAR ACTUAL SAR ACTUAL SAR ACTUAL SAR ACTUAL SAR ACTUAL Population Served (million) 2.234 2.440 2.305 2.500 2.378 2.584 2.453 2.643 2.641 2.704 2.716 2.766 2.78 2.830 2.91 2.895 2.974 2.962 3.039 3.110 Number ofconnectons(thou-andO) 429.7 426.43 440 4d6.60 454 532.59 468 577.94 504 642 518.5 675.4 530.7 725.8 555.3 775.1 567.7 818.8 580.1 865.01 Sewemge Populabon Coonedtd(mdlions) 2.09 2.07 2.16 2.25 2.23 2.40 2.30 2.51 2.49 2.57 2.58 2.63 2.64 2.72 2.76 2.78 2.82 2.90 2.88 3.05 Number of Connedons(thousands) 402.0 362.5 411.9 437.4 425.2 495.3 439 549.0 475.3 609.9 491.7 641.6 503.3 696.8 526.7 744.1 538.4 802.4 550.2 847.7 Peronmance parameters Collection Ratio(%) - 57.00 - 59.00 . 68.08 - 72.00 - 79.00 - 76.00 - 86.00 - 78.00 - 77.00 - 81.00 Total openrating revenues Per m3 sold 0.36 0.39 0.68 0.52 0.95 0.82 1.10 0.90 1.25 1.12 1.29 1.14 1.37 0.98 1.44 0.99 1.51 1.09 0.91 Total operating Cost Per m3 sotd 0.27 0.25 0.27 0.28 0.30 0.51 0.33 0.49 0.34 0.66 0.40 0.58 0.41 0.34 0.42 0.36 0.43 0.41 0.36 Operaong Raio 70.85 63.39 40.17 54.85 31.47 62.65 29.85 55.02 26.65 58.66 30.58 51.26 30.05 34.83 28.91 36.57 28.15 37.41 39.65 Unacaounted-for Water 0.45 0.51 0.42 0.49 0.40 0.56 0.39 0.48 0.38 0.51 0.35 0.47 0.33 0.44 0.30 0.40 0.27 0.37 0.25 0.34 Other Operattonalt Indicator. I I I Water Produced(mil m3) 175.60 166.61 174.10 202.37 176.50 234.06 185.08 234.28 203.70 238.12 206.00 252.92 212.10 252.67 220.10 235.15 221.60 239.74 226.00 248.37 Water Sold(mil m3) 986.60 92.14 101.00 103.82 105.90 103.24 112.80 122.39 126.30 116.27 133.90 134.03 142.10 140.59 154.00 140.95 161.60 150.70 169.80 183.41 Total operating Revenues(US$ million) 36.40 36.01 68.70 53.61 100.10 84.90 123.60 109.94 157.90 129.86 173.30 152.89 194.00 137.53 222.10 139.62 244.80 163.7g8 149.41 Total operatig Cost(US$ migion) 25.79 22.83 27.60 29.41 31.50 53.13 36.90 60.49 42.40 76.17 53.00 78.37 58.30 47.90 64.20 51.06 68.90 61.26 59.24 Debt Senrvce(USS million)' 9.90 5.57 12.80 7.03 15.20 8.64 22.40 9.15 25.90 11.34 30.20 14.34 32.80 14.60 47.60 20.65 43.40 30.15 35.39 Cash Available for Investments(US$millio)- 10.77 1.43 - 32.13 53.37 51.76 - 33.66 - 30.67 - 46.51 - 37.23 56.93 ) Total investment(US$ million) 28.50 13.47 47A40 37.54 105.80 47.18 195.40 56.37 200.30 98.44 177.00 93.39 123.70 34.31 79.90 78.47 63.20 178.03 161.59 Contdbution to Total lnvestmonlsluS$milljool' 10.90 19.31 36.54 39.02 42.06 56.67 24.72 50.34 53.87 69.15 *Debt service requirement :,Cash basis  22 Table7A: Project Costs I PROJECT COMPONENTS C % of total I % of total l l _____________________________ Sar cost Actual 1 cost A. Sewers (Network,Collector, Interceptors) includes Drainage Sub-Total:Sewers 376.00 67.53 362.08 60.63 B. Sewage Treatment Treatment Plant a/ 146.40 186.18 Land 2.60 11.41 Sub-Totai:Sewage Treatment Plant 149.00 26.76 197.59 33.09 C. Related Inputs Mapping 3.00 10.87 Eng.for Sew.+Dr. 18.80 22.26 Maint.Eqiupment 7.20 3.66 TA&Training 2.80 0.71 Sub-Total:Related Inputs 31.80 5.711 37.50 6.28 TOTAL PROJECT COST - 556.8 100.001 597.21 100.00 Table 7B:Project Financing Source I IBRO Loan 173.0 31.1 100.9 16.9 EIB - - 50.4 8.4 KfW Credit 91.9 16.5 160.0 26.8 ASKI intemal cash generation 291.9 52.4 285.9 47.9 Total financing 1 556.81 100.01 . 597.21 100.0 1 /1: Figures include an estimated US$ 50.40 million equivalent in value added taxes. The actual cost of WWTP and stormwater drainage exceeded the estimated cost in SAR due to changelincrease in the scope of works. The total cost of sewers decreased due to cost savings in spite of the increase in scope. On the whole, the total project cost has increased about 7.3%.  23 Table 7C: Project Cost by Component and Source of Funds World Bank EIB KfW ASKI Total Amount Amount Amount Amount Amount Sar I Actual Sar Actual Sar | Actual Sar Actual Sar I Actual A. Sewers (Network,Collector, Interceptors) includes Drainage Sub-Total:Sewers 1144.50 78.36 50.42 231.50 233.30 376.00 362.08 B. Sewage Treatment Treatment Plant al 91.90 159.88 54.501 26.30 146.40 186.18 Land 0.00 0.00 2.601 11.41 2.601 11.41 Sub-Tota[:Sew.+Tr. 91.90 159.88 57.10 37.71 149.00 197.59 C. Related Inputs Mapping 2.70 0.62 0.30j 10.25 3.00 10.87 Eng.for Sew.+Dr. 17.10 17.47 1.70 4.79 18.80 22.26 Maint.Eqiupment 6.20 3.66 1.00 0.00 7.201 3.66 TA&Training 2.50 0.71 0.30 0.00 2.801 0.71 Sub-Total:Rel.lnputs 28.501 22.46 _ 3.301 15.04 31.801 37.50 TOTAL PROJECT COST 173.01 100.8 0.0 SOA5 91.91 159.9 291.91 286.1 556.81 597.2 a/ Includes Engineering  24 Table 8: Status of Legal Covenants LA 2.02(b) 2 C Establishment of Special None Account LA 3.01(a) 5 C Borrower commitment to None Project LA 3.01(b) 5 C Borrower execution of the None Project LA 3.03 6 C Maintenance waste None management standards LA 4.02 5 CP Maintenance of Borrower's None plant and equipment LA 5.01 (b) 1 C Maintenance of project None records and accounts LA 5.01(c) 1 CP Auditing of accounts None LA 5.02 4 NC Self-financing ratio ASKI failed to reach targeted levels. LA 5.03 2 CP Reduction of accounts Accounts receivables receivable consistently exceeded the covenanted target. LA 5.04(a) 2 C Reporting of investments None LA 5.04(b) 2 CP Agreement on external None borrowing LA 5.05(a) 2 CD Revaluation of assets Only late in project period. LA 5.05(b) 1 CP Maintenance appropriate None accounting system Covenant types: Present Status: 1. = Accounts/audits 8. = Indigenous people 2. = Financial performance/revenue 9. = Monitoring, review, and reporting C = covenant complied with generation from beneficiaries 10.= Project implementation not CD = complied with after 3. = Flow and utilization of project covered by categories 1-9 delay funds 11.= Sectoral or cross-sectoral CP = complied with 4. = Counterpart funding budgetary or other resource partially 5. = Management aspects of the allocation NC = not complied with project or executing agency 12.= Sectoral or cross-sectoral policy/ 6. = Environmental covenants regulatory/institutional action 7. = Involuntary resettlement 13. = Other  25 Table 9: Bank Resources: Staff Inputs Stage of Project Cycle Planned Actual Weeki US$ Weeks| US$ Preparation to Appraisal Not available Not available Appraisal-Board Not available Not available Negotiations through Board Approval 18.0 0 5.6 Not available Supervision 278.7 233.6 215.9 184.8 Completion 23.0 37.7 5.2 7.9 TOTAL 319.7 271.4 221.11 192.7  26 Table 10: Bank Resources: Missions Perfommance Rating Number Specialized Implementation Development Stage of Month/ of Days in Staff Skills Status Objectives Project Cycle Year Persons Field Through Appraisal I I Appraisal through Apr-88-Nov- 2 F, E I I Board Approval 89 Supervision 1 I May-91 0 1 I 2 Oct-91 2 F, E I I 3 May-92 3 F, F, E 1 4 Mar-93 3 2 2 5 Dec-93 2 F,E 2 1 6 Jun-94 3 2 2 7 Oct-94 2 F,E U S 8 May-96 2 F, E U U 9 Sep-96 2 F, E U S 10 Feb-97 2 F, E S S 1 1 Dec-97 2 F, E S S Completion Oct-Nov-98 3 F, E, C S S C = Consultant F = Financial Analyst E = Engineer  Table 11: Income Statements (1988-1997) (US$ million) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 actual actual actual actual actual actual actual actual actual actual SALES REVENUE Water sales Revenue 36.01 54.34 83.27 104.73 125.36 148.94 138.85 142.53 173.68 153.55 Service Revenue 1.92 2.25 4.95 9.24 7.20 10.09 5.51 7.43 7.52 7.54 deduction -1.92 -2.99 -3.42 -4.03 -2.70 -6.15 -6.84 -10.34 -17.43 -11.68 NET SALES AND SERVICE REVENUE 36.01 53.61 84.80 109.94 129.86 152.89 137.53 139.62 163.78 149.41 OPERATING EXPENSES Equipment/Meteral Expenses 2.81 3.75 5.27 4.82 8.85 8.07 5.87 7.38 6.42 5.57 Personnel Expenses 8.67 12.08 29.17 36.94 49.10 52.12 30.63 28.40 32.33 30.88 Electrcrty Expenses 5.99 6.59 9.94 10.61 9.54 10.65 6.41 6.42 10.92 14.96 Dam other Expenses 3.74 3.56 3.47 2.39 2.87 2.19 2.69 6.51 3.68 Amortisation 1.61 3.42 5.28 5,73 5.81 5.34 2.31 2.36 7.91 7.83 Total Operating Expenses -22.83 -29.41 -53.13 -60.49 -76.17 -78.37 -47.90 -51.06 -61.26 -59.24 OPERATING PROFIT 13.18 24.20 31.67 49.45 53.69 74.52 89.62 88.56 102.51 90.17 OTHER OPERATING INCOME Interest from notes receivable(bonds) 0.08 0.06 0.13 0.17 0.23 0.28 0.23 0.27 0.26 0.16 Interest from Banks 0.12 0.08 0.08 0.21 0.89 0.46 0.10 1.22 0.17 0.15 penalty Interest icome 0.74 0.55 1.03 1.27 2.05 2.39 2.41 5.85 6.01 6.06 other 0.00 0.00 0.00 1.38 0.00 0.02 0.00 0.00 0.00 0.00 Total 0.94 0.70 1.24 3.03 3.17 3.15 2.74 7.34 6.43 6.37 OTHER OPERATING EXPENSES/ LOSSES interest and commission expenses 2.52 8.43 12.42 5.69 8.21 14.78 12.48 12.99 14.24 14.48 foreign exchange loses 18.03 24.10 28.15 43.44 51.69 81.10 152.77 95.22 130.24 166.14 Penialty interest Expense 0.00 17.86 0.00 1.92 0.93 8.37 10.47 22.52 23.11 29.16 Provision expense for doubtful reev.other 0.00 0.00 0.00 3.11 7.48 2.93 5.47 Total -20.56 -50.39 -40.57 -58.05 -60.84 .104.25 -178.83 -138.21 -170.58 -215.26 NON-OPERATING INCOME 7.33 5.41 7.94 8.58 10.89 26.98 8.65 11 .06 12.13 13.99 NON-OPERATING EXPENSE -0.93 -0.15 -0.56 -2.25 -3.77 -6.05 -1.19 -5.24 -3.46 -3.06 Retirewent pay provision expenses 0.00 0.00 -9.40 -11.76 -10.90 -5.07 -13.17 -8.86 -11.54 LOSSI FOR THE YEAR -0.03 -20.23 -0.28 .8.64 -8.63 -16.50 -84.07 -49.66 -61.83 -119.32 1991-1997 ASKI financial statements are audited by private independent external auditors. 1988-1990 financial statements are unaudited.  28 Table 12: Balance Sheets (1988-1997) (USS million) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Assets Current assets Cash and banks 2.20 2.54 2.82 3.82 5.00 6.06 7.18 6.27 7.08 9.16 Trade Receivables 8.53 17.06 19.17 33.98 31.91 30.94 39.28 54.09 59.34 28.56 Other Receivables 4.51 9.35 17.61 0.15 0.42 0.26 0.13 0.11 1.12 0.92 Unbilled Revenue - - - 16.36 21.18 20.94 22.00 10.65 26.08 22.72 Advances 1.76 2.06 2.54 1.27 21.48 25.06 15.14 15.83 5.99 6.96 Stocks 24.24 19.74 12.59 13.08 19.70 17.29 16.87 11.85 21.36 18.13 Other Current Assets 3.81 - - 1.87 2.51 3.71 2.14 7.39 10.68 0.69 Total Current Assets 45.04 50.75 54.73 70.53 102.20 104.26 102.74 106.19 131.64 87.14 Long-term Assets Securities 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Participations(net) - 0.02 0.02 0.01 0.01 0.03 0.01 0.01 0.14 0.49 Tangible Fixed Assets(net) 18.43 53.00 82.97 91.18 105.15 115.70 73.75 99.54 266.55 285.15 Other Investments 24.94 35.40 38.19 19.09 12.51 7.41 2.79 2.79 - - Other Long-term Assets 1,69 1.99 3.54 2.90 3.32 1.80 1.08 2.03 4.76 13.84 Total long-term assets 45.08 90.40 124.74 113.18 120.99 124.93 77.63 104.37 271.47 299.48 Total assets 90.12 141.15 179.47 183.72 223.20 229.20 180.36 210.56 403.11 386.62 Liabilities and Equity Short-term liabilities Loans 7.99 - 32.35 1.74 - 19.02 19.29 24.18 25.44 19.59 Trade Payables 6.76 26.01 11.16 13.44 10.65 12.09 3.87 10.39 33.96 5.01 Other Payables 10.43 22.22 24.75 42.27 37.89 29.77 32.65 55.18 62.57 83.43 Advances Received 0.01 0.11 0.37 0.54 0.61 0.64 0.40 0.64 0.38 0.30 Taxes, dues, other charges payable 1.02 1.82 5.77 7.36 16.30 6.01 3.05 5.02 7.47 1.74 Accruals 0.23 0.29 0.81 0.95 1.05 0.65 2.26 1.16 0.38 0.32 Totalshort-term liabilities 26.45 50.44 75.21 66.29 66.51 68.18 61.52 96.56 130.20 110.39 Long-term liabilities Loans 60.59 106.23 115.35 102.31 145.21 152.79 164.99 173.17 268.60 309.22 Retirement Pay Provision - - - 15.04 18.36 19.13 11.11 16.85 16.23 17.04 Total Long-term Liabilities 60.59 106.23 115.35 117.35 163.56 171.92 176.10 190.02 284.82 326.26 Total Liabilities 87.04 156.66 190.56 183.65 230.08 240.10 237.62 286.58 415.02 436.65 Shareholders' Equity Paid-up Capital 2.21 1.73 1.37 0.79 0.47 0.28 0.10 0.07 0.04 0.02 Reserves 0.90 1.36 2.48 1.43 0.85 8.93 15.14 6.69 80.13 86.25 Accumulated Losses(-) (0.03) (18.60) (14.94) (2.15) (8.20) (20.11) (72.50) (82.77) (92.08) (136.29) Total Shareholders' Equity 3.08 (15.51) (11.09) 0.07 (6.88) (10.90) (57.26) (76.01) (11.91) (50.03) Total Liabilities and Shareholders' Equity 90.12 141.15 179.47 183.72 223.20 229.20 180.36 210.56 403.11 386.62 Note: 1991-1997 ASKI financial statements are audited by pnvate independent extemal auditors. 1988-1990 ASKI financial statements are unaudited.  Appendix A Page 1 of 6 October 26, 1998 Ankara Sewerage Project (Loan 3151-TU) World Bank Supervision and Implementation Completion Mission Aide-Memoire 1. This draft Aide Memoire summarizes the discussions in Ankara between Treasury, ASKIt's management and the World Bank mission comprising Alptekin Orhon, and Ibrahim Sirer. The mission visited ASKI offices and the recently completed sewerage treatment plant, and some of the construction sites. The mission took place between October 19 and 26, 1998. 2. The mission thanks Treasury and ASKI's management and officials for the assistance and the courtesies received. Loan Closing Date 3. The Bank with its letters dated April 23, 1998 and July 27, 1998 informed ASKI of the closing date of December 31, 1998 as established in the Loan Agreement, and that the delivery of all goods and services to be financed with the loan proceeds should be completed by that date. 4. As the loan closing date is less than three months away, ASKI management and the mission discussed the actions to be taken by ASKI to: (i) make the best possible use of the loan proceeds between now and the loan closing date; and (ii) prepare ASKI's evaluation report on project implementation. Using the Proceeds of the Bank Loan 5. ASKI needs to ensure that its contractors and suppliers under the Project promptly submit their invoices for goods, works, and services provided until the loan closing date. The mission, however, reminded ASKI that the Bank would be able to process withdrawal applications received at the Bank's Headquarters by close of business April 30, 1999 in respect of eligible expenditures made before December 31, 1998. Issuing the Project Evaluation Report 6. ASKI has agreed to make available to the Bank not later than February 2, 1999 its final evaluation report on the project. ASKI also agreed to assist the Bank in gathering the necessary information to complete the Bank's evaluation report of the project. ASKI has agreed to send its comments on the Bank's draft Implementation Completion Report (ICR) within one month of receiving it.  Appendix A Page 2 of 6 7. ASKI's evaluation report is expected to be ten pages or less. It will be incorporated in full and unedited to the ICR. If the report is longer than ten pages, ASKI has agreed to prepare a summary of less than ten pages to be incorporated in the ICR. The mission provided ASKI with guidelines for the evaluation report, and with examples of ICRs, including the borrowers evaluation reports. 8. ASKI management informed the mission that the Deputy General Manager and Project Manager will be in charge of preparing ASKI's evaluation, of providing to the Bank the information required to complete its own report, and preparing ASKI's comments to the draft ICR to be submitted by the Bank. 9. The ICR comprises the Bank and ASKI's evaluation reports, which should address primarily: (i) the assessment of project objectives, design, implementation and operation experience; (ii) the evaluation of ASKI's own performance, during the preparation, appraisal and implementation stages of the project with special emphasis on lessons learned; (iii) the evaluation of the performance of the Bank's during the preparation, appraisal and implementation of the project with special emphasis on lessons learned; (iv) the assessment of the project outcome and sustainability; and (v) the plans for the future operation of the facilities constructed under the project. 10. ASKI has agreed to assist the Bank in the preparation of the ICR. This support will generally consist of providing the Bank with all necessary information on the economic, financial, social, institutional, and environmental conditions in which the project was implemented, and on implementation and operation results. Construction of Civil Works 11. During January-October 1998, ASKI made significant progress in the implementation of sewerage civil works contracts. 100% of the civil works under the project (12 contracts financed by the Bank and 6 contracts financed by EIB) are completed or scheduled to be completed by the end of November 1998. The physical progress of the Bank, and EIB financed contracts is shown in Annex 2. It is expected that the project would be completed by the loan closing date (December 31, 1998). As of October 18, 1998, the undisbursed amount from the loan is US 6.3 million. Operation of the Wastewater Treatment Plant 12. The test operation of the Wastewater Treatmnent Plant (WWTP) started in August 1997. The WWTP is now being operated by BELKA, a municipal company, under the supervision of the contractor according to the guarantee conditions of the contract. ASKI  Appendix A Page 3 of 6 ASKI is planning to entrust the operation and maintenance of the plant to BELKA once the guarantee period expires in February 1999. 1998 Financial Situation 13. During January-August 1998, ASKI's cash generation for investments (US$38.4 million) and the cash period available at the beginning of the period (US$6.3 million) were sufficient to finance its contribution to investments (US$39.8 million) (Annex 1). ASKI, however, is still not fully paying its debt to KfW and Kuwait Fund. Treasury is servicing these debts and ASKI is reimbursing the Treasury in installments. ASKI would have difficulties in financing its contribution to investments if it serviced its debts fully. ASKI, on the other hand, is experiencing difficulties in collecting the delinquent water bills from the public agencies. The issue of overdue account receivables from public agencies and ASKI's payables to Treasury has remained without change over the years. 14. As of October 15,1998, ASKI owed about TL 1,8 trillion (US$6.4 million) to contractors. However, ASKI pays its contractors within two months, which is within tolerable limits according to the contract articles. 15. Tariffs: In 1998, except in January, ASKI continued the monthly adjustment of water and sewerage tariffs on the basis of the wholesale price index. ASKI did not comply with the tariff covenant in 1998 under the Amendment of the Loan Agreement which requires maintaining an average water and sewerage tariff of TL 75,647 per m3 sold at January 1996 prices. ASKI's compliance improved in 1998 and reached to 68% of the covenanted tariff level (Annex 1). In January-August 1998, the average water and sewerage tariff is about US$0.70 per m3 of water sold (Annex 1). 16. Collection Ratio: ASKI's January-August 1998 monthly provisional figures show a collection ratio of 92% which does not reflect reality, because ASKI still has problems in billing and recording the monthly figures. A more realistic estimate by ASKI for 1998 is 81%. 17. Accounts Receivable: The accounts receivable in terms of months billings (4.0 months) deteriorated in January-August 1998 compared to that of 1997 (3.1 months). ASKI's collection of water bills from public agencies continue being unsatisfactory. In 1998, as in previous years, ASKI continued offsetting its tax payable to the Ministry of Finance against its receivable arising from the water bills of the public agencies. 18. As of August 21, 1998, ASKI owes to Treasury about TL 19.1 trillion (US$ 69 million) including the interest and the penalties. As of August 31, 1998, ASKI's delinquent water bills from the public agencies is about TL 16.3 trillion (IJS$ 59 million) including penalties for late payment.  Appendix A Page 4 of 6 19. Financial Relations with Municipalities: As of August 31, 1998, Ankara Municipality and the Municipal Bus Company (EGO), owe to ASKI US$6.2 million, excluding the water bills. 20. Ankara Metropolitan Municipality owes ASKI (TL 1.8 trillion equivalent of US$6.8), and the district municipalities owe (TL 975 billion equivalent of US$3.5 million) which adds up to US$ 10.3 million. These debts are cancelled at the end of each year with the amounts due by ASKI to the municipalities for asphalt breaking for ASKI' s repair works. 21. Debt Service: As mentioned in para 13, ASKI continued not to service its debt to KfW, and Kuwait Fund. In addition, as in 1996 and 1997, in 1998 Treasury serviced the ASKI debt (US$4.9 million) to the Bank. ASKI is reimbursing Treasury in six monthly installments. Institutional Development Program 22. Operation and Maintenance: ASKI received the bids for operations and maintenance equipment on September 17, 1998 and agreed to submit the bid evaluation report to the Bank by October 30, 1998. 23. Management Information Systems: ASKI received the bids for the MIS study on August 3, 1998. Three firms out of six short-listed firms submitted bids. ASKI is still at the stage of evaluating the technical proposals. ASKI management agreed to submit the bid evaluation report to the Bank by October 30, 1998. 24. SCADA System: The first phase of the SCADA System financed by the Kuwait Fund is fully under operation. The Kuwait Fund agreed to finance the second stage of the SCADA system from the balances (US$4.5 million) of the existing loan, and also to extend the loan closing date. The estimated cost of the second stage of the SCADA system is US$6.5 million. ASKI will finance the remaining amount of US$2.0 million. On August 27, 1998, ASKI signed a 20 months contract with a Turkish/German/Kuwait consortium for the design, preparation of bid documents, and supervision of the installation of the SCADA system in the amount of US$468, 950. 25. Unaccounted-for Water (UFW): ASKI estimates for 1998 concerning unaccounted for water is about 35.5% which is higher than the figure for 1997 (34%). ASKI has yet to decrease the unaccounted-for water to the levels of efficient water companies (20-25%). 26. Master Plan Update for Storm Water and Wastewater: ASKI will finance from its own funds the revision of the master plan for storm and wastewater and the preparation of related feasibility studies. The contract is scheduled to be signed in December 1998.  Appendix A Page 5 of 6 27. Digital Mapping: The preparation of digital maps of 1/1000 (ea.4188), and 1/5000 (ea.289) scale covering an area of ha. 154,913 was completed on February 25, 1998 financed by ASKI sources. In addition, ASKI extended the contract to cover 55,000 hectares out of the total additional urban area of 85, 000 hectares. The services are provided by the Technology Research Department of Hacettepe University. ASKI is progressively plotting the coordinates of the water and wastewater networks constructed by local contractors on the digital maps. 28. ASKI signed a contract on September 23, 1997 in the amount of DM1.9 million with a Turkish\German consortium for the revision of the water supply master plan to cover ha. 210,000, financed by a Kf(W grant. The feasibility study of the above- mentioned extension of 55,000 ha and the preparation of a pilot hydraulic model are also part of the scope of this contract which is scheduled to be completed by February 2, 1999. Audits 29. ASKI submitted, before the due date of June 30, 1998, the audit report prepared by the private external auditors regarding its 1997 financial statements. The auditors were unable to express and did not express an opinion on ASKI's 1997 financial statements due to deficiencies in ASKI's internal control, and commercial and accounting systems. However, since 1992, ASKI management has made efforts to correct accounting deficiencies with the result that of qualifications decreased from 22 in 1992 to 3 in 1997. Loan Covenants 30. ASKI is out of compliance with Section 5.03, under the Loan Agreement. Section 5.03 is about reducing the accounts receivable to no more than 2 months. Accounts receivable in terms of months billing in January-August 1998 is about 4.0 months. 31. ASKI did not comply with Section 5.02 under the Loan Amendments of March 14, 1996 which requires maintaining a minimum average water and sewerage tariff level of TL 75,647 at January 1996 prices. ASKI achieved 68% of the covenanted tariff level during January-August 1998.  Appendix A Page 6 of 6 ASKI agreed to a. submit to the Bank the bid evaluation report concerning the MIS study by October 30, 1998. b. submit to the Bank the bid evaluation report concerning the procurement of machinery and equipment by October 30, 1998. c. make available to the Bank not later than February 2, 1999 its final evaluation report on the project. d. assist the Bank in ICR preparation. e. to comment on the Bank's draft Implementation Completion Report (ICR) within one month of receiving it.  Appendix B Page 1 of 8 ASKI'S CONTRIBUTION TO THE ICR A- ASKI GENERAL DIRECTORATE Ankara Water and Sewerage Administration is founded as Public Corporate Entity with an independent budget and is connected to Ankara Metropolitan Municipality by decision of the Board of Ministry dated 13.03.1987 with reference No. 87/11594, Item I and additional 4th Amendment which was added to the 2560 code of laws. Goal: To render the services related with Water, Sewerage and Stormwater of Ankara Metropolitan Municipality, to take the necessary measures in order to reduce water losses and pollution of the water sources; to establish plants and to take over the existing treatment plants and operate them in the frame of this goal. ASKI successfully completed major projects in scope of BAKAY Project in the last ten years such as Wastewater Treatment Plant, Wastewater collectors (main collectors), creek rehabilitation, drinking water renovation works and SCADA System for prevention of water leakage. In addition ASKI's target for the next years is to improve SCADA System, to investigate new water sources for demand of Ankara in the future, to solve the infrastructural problems for the new residence areas and to rehabilitate Ankara Creek which has vital importance for Ankara. ASKI current currently employs 3757 personnel. ASKI provides services for 98% of the inhabitant area of Ankara Metropolitan Municipality. The existing resident area has been increased to 210.000 ha together with the new services as required. The targets have been realized beyond the scheduled. A. I - FORMER SEWAGE SYSTEM BEFORE ASKI ASKI has been rendering the services related with planning, investment and operation works of sewerage system of Ankara City since early 1988. The above mentioned services were rendered by Technical Section (Fen Isleri) of Ankara Metropolitan Municipality, State Water Works (DSI), Iller Bank and District Municipalities before ASKI was established. The sewerage system of Ankara which was built in 1940-1950 could not be improved and upgraded in parallel with the population increase. Master Plans and Feasibility Studies were prepared by DSI in 1969 and by Iller Bank in 1979. Only a small portion of the investments foreseen in scope of the Master Plans was realized. Therefore the sewerage problem of Ankara continuously increased. When the Sewerage services was  Appendix B Page 2 of 8 the services for sewerage implementation and operation, studies were expedited to rehabilitate these creeks and channels with closed structures. Main creeks (Chubuk Cayi, Hatip Cayi, Incesu Deresi, Dikmen Deresi, etc.) passing through the municipal area were rehabilitated as partly open and closed by DSI. However, in rainy season (even if medium rate) flood disasters occurred causing great damage and loss of fife due to unavailability of the stormwater channels to convey the rainfall to the main creeks. ASKI has considered special importance for the construction of stormwater channels since 1998. The need for construction stornwater channels together with sewage channels occurred especially for creek beds and streets. It was estimated that the existing channel served 85% of population in 1998. The size of constructed channel was totally 1414 km as 899 km sewage and 515 km stormwater channels before ASKI was established. B - GREATER ANKARA SEWERAGE PROJECT (BAKAY) - Wastewater / Stormwater Collection System - Wastewater Treatmnent Plant Financial Summary of Ankara Sewerage Project Source of Fund Estimated Cost (Mill.) ASKI's source 291,9 World Bank __173,9 KfW 91,9 European Investment Bank TOTAL 556,8 B. 1 - Wastewater / Stormwater Collection System The sewerage system of Ankara must be renovated due to the fact that an important part of the system is obsolete. Especially in suburb areas the sewerage systems constructed with the support of inhabitants are insufficient as capacity and quality are causing clogging and damage problems as well as resulting in great operation costs. In 1988 the water supply to municipal area was increased by 40% from Camlidere Dam and therefore the amount of wastewater production also increased sewage system and  Appendix B Page 3 of 8 environmental problems. In addition new housing areas need sewerage and stormwater systems due to the population increase. In 1989 a new feasibility study was expedited for sewage and stormwater collection system in the scope of Greater Ankara Sewerage Project and the loan was supplied for realization of lids project by World Rank. The loan agreement of 173 Million US$ was signed and became effective after issued in the official paper. The portion of 66 Million US$ of this amount was cancelled with the aim of easy refunding of ASKI and in order to supply loan from European Investment Bank with a better condition as well as to decrease the construction costs. In 1995 a new loan in the amount of 58.8 Million US$ (45 Million ECU) was supplied from European Investment Bank due to the easier terms and to improve the implementation performance in the construction phase. World Bank loan's time-frame is based on 17 years with refunding of the last 12 years of the term. And European Investment Bank loan's time-frame is 20 years with refunding of the last 16 years of term. The projects designed were tendered with phased implementation. The contract agreements of Ankara Sewerage Project were divided in less portions due to the number of contractors qualified for this project; and the pre-qualification time was shortened as well as the tender submission time was put into same period with pre-qualification. In this case a) close-relation between contractors was prevented b) construction costs were decreased by having decreased tenders and c) implementations and then operations were commenced as soon as possible. Financial problems were easy resolved in the construction sector since loan amount from World Bank was increased. ASKI realised 2670,4 km of Sewerage & Stormwater channels above his target of 2162,1 km. The above mentioned project was successfully completed and is currently in operation. B.2 - Ankara Central Wastewater Treatment Plant Ankara, presently has about 3.0 million inhabitants and approximately 6.0 million are estimated for 2025. Ankara is the Capital of Turkey as well as a great important administration centre and has various sized industries. About 98% of the population is considered to be connected to the public sewerage network in the future. A feasibility study was expedited to determine dimensions and estimated cost in 1988 and 1989. The Wastewater Treatment Plant is scheduled for improving environmental conditions, especially to improve water quality of Sanyar and Gokcekaya Dams located beyond  Appendix B Page 4 of 8 Sanyar catchment area with the aim of usage of drinking water, fishing, recreation and farm irrigation. Wastewater concept for Ankara is as follows: The domestic industrial wastewater is conveyed via an interceptor channel by gravity to Wastewater Treatment Plant located near Ankara Creek distanced 40 km from the city. The treatment plant is to be constructed in two phases and is based on biological treatment and has future extension for the target year of 2025 including nitrification and phosphor elimination. The plant is designed for the treatinent capacity of 30 mg/i BOD and 30 mg/l SS and these values are currently below the relevant values as specified in Turkish Regulations. The Contract Agreement of Ankara Central Wastewater Treatment Plant in the scope of Greater Ankara Sewerage Project was signed by the parties on June 5t, 1991 and construction works was commenced on August I't, 1992. Construction and installation works were completed on 01.08.1997; the 6 months commissioning term was completed on 31.01.1998 as specified in the contract agreement. B.3 - Consulting Services B.3.1 - Sewage / Stormwater Collection System Consulting Services for Ankara Sewerage Project and Sewage Collection as well as Stormwater, Final Design and Construction Supervision was tendered by Ankara Water and Sewerage Administration consistent with the Method of International Bidding on 27.11.1989 in the scope of World Bank Loan in accordance with the Loan- Agreement dated August 16' 1990, and the agreement comprises two works as "Final Design" and "Construction Supervision". The services were commenced as of September 26', 1990. In the scope of Engineering and Consulting Services it was foreseen that the following services to be rendered: design works for sewage interceptor channels, sewage collector, stormwater network and collector and wastewater networks; Manhole Record Drawings and Evaluation Studies Bar State of Channel; Geo-technical Surveys for the %in Lines, Topographic Surveys, Technical Progress Reports in certain periods, Qualification and Tender Evaluations and Computer Modeling. In addition to the work scope stated in the agreement some correction was made in the existing work program and an Amendment was approved with acceptance of the relevant Bank considering the changes of project foresights stated in the feasibility study expedited in 1989 and the sewerage works expedited with ASKI's own sources as of 1990.  Appendix B Page 5 of 8 After amendments of the project scope, Application Drawings were prepared for 63.7 km Stormwater Collector, 664 km Sewage Network and 118.8 km stormwater network lines and these design works were divided as 13 individual contracts parts (In the tender period these contracts were divided in their respective scope). In addition to the 13534 km design work prepared the following services in the scope of the project have been completed for the target year of 2025 and 6.500.000 population: Topographic Surveys, Evaluation works of Manhole Record and Channel Status, Geo- technical Surveys, Periodic Progress Reports, Assistance to International Tender Evaluations and Computer Modeling. For the construction supervision: a) to explain the lines and points to the Contractors and check them, b) determine the compliance of implementation works which were applied as specified contract specification and to instruct the contractors for the deficiencies, c) test and control the quality of the materials and equipment installed at the site, d) to investigate unusual status which may be occurred during construction, e) to render final inspection after termination of the construction contracts, f) to amend application drawings when required and to prepare operation drawings, and g) to check and approve the disbursements of the contractors. ASKI started supervision of sewerage and stormwater works after completion of detailed designs. Supervising comprises the control of 1) construction of collectors and networks in detail, 2) construction of drainage channels, 3) constructions of new manholes of existing sewerage system, new manholes and renovation of existing manholes. The whole construction works were implemented with a high standard of workmanship and under the control of ASKI and Consultant. The Consultant Contract related with construction supervision was completed on September 25th 1998. In addition ASKI employed local consultants during 17.07.1995 - 31.12.1998 as Surveyor for the projects funded by foreign credit and as Engineer and Technician for the projects funded by ASKI's sources. B.3.2- Ankara Central Wastewater Treatment Plant ASKI has been started, to operate the Wastewater Treatment Plant since 07.10.1993, which was constructed under the supervision of a Consultant. The Consultant are still currently employed for the plant. B.3.3- Mapping The digital map producing was realised with ASKI's own sources. 4228 nos of digital maps with the scale of 1/1000 as produced to contain 156.000 ha for the IST phase are to be used for the designs of town planning management, public works, landscaping, road, electricity, water, sewerage and so on. The 2ND phase will contain 55000 ha according to the new residence borders.  Appendix B Page 6 of 8 B.4- Operation B. 4. 1 - Wastewater / Stormwater Collection System An operation and maintenance manual was prepared for the sewerage systems constructed in the scope of BAKAY-project and submitted for the usage of ASKI The works implemented are a high professional standard and velocities of the pipes are sufficient for self-cleaning. The system only needs for periodical maintenance. It is required to keep the manholes in function, to apply specifications for control of rats, to clean the large pipelines with flash water of portable equipment and the small pipelines with pressure water periodically, to check the main interceptor channels with a safe rubber both connected to an overhead steel-wire between two manholes with 150 m distance Stormwater system should be cleaned before rainy season and the grates must be clean against clogging. A competent team with appropriate equipment is provided. B.4.2- Ankara Central Wastewater Treatment Plant The Central Wastewater Treatment Plant was commenced to operate as of August I' 1997. Wastewater conveyed to the plant is treated with biologic system. It was designed for 1001000 people for the 1st phase. It is considered two more phases up to the year of 2025. The estimated population of Ankara is 6.5 Million for 2025. The Consortium's obligation is to provide 30 mg/i BOD and 30 mg/l SS and the plant inlet flow was 419.883m3/day at the end of November compliance with the a.m. values. The portion of approx. 70% electrical power consumed in the plant is produced by gas generators. The sludge cake is currently tested for the usage on farm applications by TIJBITAK and Ankara University Faculty of Agriculture. The provisional taking over was certified on C01.02.1998 and the plant was operated by BEL-KA (Operation Contractor) and the Consortium for I year of operation period. The I year operation period of Consortium was completed on 01.02.1999. The plant is currently operated by BEL-KA with ASKI's supervision. BEL-KA is an incorporated municipal owned company with a capital 10.000.000.000 TL. The company agreed to operate the Plant for 3 years. 170 personnel awe employed with three (3) shifts for plant operation. C-Wastewater Management Studies Regulation for Wastewater Discharge to Sewerage Network of ASKI was issued in Tasvir Newspaper on 27.01.1994. The wastewater management studies was started with inventory studies in the summer mrnonths of 1994.  Appendix B Page 7 of 8 The investigations on industrial wastewater were applied on 479 industries between 1994 - 1998 comprising 107 Petrol Station 138 Car Wash 80 Metal, marble, concrete 64 good, glass, furniture 90 Official institute cleaning, oil change 269 industries of these provided their in-house treatment system and have discharge certificates. 48 companies which less flow have accepted the relevant payment are considered that they do not need in-house treatment. In the city border all industries are periodically controlled on the basis of wastewater sampling. The Tatlar Wastewater Treatment Plant was commenced to operate as of August I" 1997. The sampling works are periodically applied on different points of Ankara Creek (AO1Q, TMO Bridge, Eryaman, Sincan, Tatlar). It is monitored that a certain improvement of the water quality after completion of the project implementation is recorded. In addition Sakarya River has been monitored since add 1995. The samples received from tow different points before and after mixing Ankara Creek to Sakarya River) are analysed each month. According to the obtained values there is no change in the quality of Sakarya River after mixing the water from Ankara Creek and it has no negative effect on Sakarya River. D- Payments ASKI finds difficulty in paying the World Bank Loans which is guaranteed and are not similar to the other loans (KfW and Kuwait) especially as from 1995, the first year of payment for principle amount. However, ASKI has solved this payment problem by applying a new financial method that TC Treasury Department pays at tenm (principal amount and interest) in case of ASKI, and ASKI repays this amount to Treasury with 6 equal installments. The World Bank deducts the interest as 1/4% if paid in time. ASKI has paid its debts in time and had applied this deduction on each payment period. We can stated with pleasure that ASKI has a good performance on payments. In addition we pay the debts to Treasure in time. The payments comprise 35.000.000 US$ as principle amount and 17.000.000 US$ as interest, totally 52.000.000 US$.  Appendix B Page 8 of 8 E- Conclusion With regard to the Greater Ankara Sewerage Project (BAKAY) constructions of Sewage and Stormwater Collectors, Sewage and Stormwater Network and Wastewater Treatment Plant have been completed excluding additional works with the aim. of forming a clean and healthy environment in the capital. The water supplied for the city is used and discharged and conveyed by the collectors to the Wastewater Treatment Plant for the aim of irrigation usage after treatment; creeks and open channels located in the municipal area have been rehabilitated; flood disasters causing great damage and loss of life have been decreased to a minimum level; water accumulation on the streets has been prevented and inadequate sewerage system has been renovated and arranged to the need of Ankara. Pollution of Ankara Creek by conveying this pollution to Sakarya River have been decreased and its environmental affects dangerous for the people health has been decreased to a minimum level. The targets have been realized beyond the scheduled one. The costs of consulting related to project costs in spite of the contract prices were low comparing with the contracts realized with ASKI own sources. However, the projects realized with both Consultants and Financial Institutes are of a professionally high standards and they provided minimum time losses in the project administration. ASKI has gained important expertise and knowledge on completion of this magnitude project related with infrastructural services, and these expertise and knowledge have been transferred to the related institutes likewise ASKI. We believe that we have establish dose and a very special cooperation with the Personnel of World Bank. All departments of the World Bank, especially with regard to Loan-Payment provided the necessary cooperation, information and portions of credit in time during this term. We are thankful that all authorities of World Bank and especially their representatives of 'rurkey have provided professional assistance and close cooperation for realization of the project of such a magnitude.  Appendix C KfItl( Pag& lof 2 TEL EFAX - TELEFAX - TELEFAX - TELEFAX Telefax numbr 001 - 2a2 - 447 1386 omtlrIn cow: Mr, lCoster a"ou Mi. KaCs The Wortd Bank _,u 3476 ECSIN am iardn.klJosterak.de Attn Mr. Semardo Gomez d: January 5, 1999 Program Team Leader Washington D.C. I U.SA .llof"*s 2 L I a / 2 -German Financial Cooperatlon with Turkey Ankam Sewerage Project (World Bank Loan 3151-TU) - Implementation Completon Report I Your lettr dated July 16, 1q98 - Dear Sirs, Thank you fr your a.m. letter L.and the invitacn to contiibuts tt your ICR r the Ankara Sewerage Project by giving yot a statemeat an ourpxpesdence with the Sewage Treatment Plant f3roject We have conducted owr final follow-up miscn in November 1698. We thank you again far the opportwntty tdlascss the project wiAh your Mr. Niseanbaum and collegues frm your Ankara Office which we had during that mIlton. In our statement which yos fnd attached wrhave concentUated on the lessOns to be drawn from the project experience as pVu suggested. however, we wish to menton thac since inital operation of the sewage treatment plant is stfll continuing and the operation responsibility has not fully been handed over from the contractor to ASKI lesaons drawn from the project expeience at this point are still of a preliminary character. We wish to thank you very much for the good collaboration which persistAd during the years of project implementaton. Yours incemly, KREDITANSTALT FOR WIElER.AU FBAU degKloster Encicsure (1 page) \lI\DATA\L\L1A'LA1A.O3W1 661 9z41SERICiWBa8122sLOOC KRTrA4SALT P.iMWtQ*n*r4tMd0 5-4 Po,r.h 11 11 41 Tweftn: MM 744 31-4 ZWJJF.T. 1IDICEFP FOR WIEDRUFUAU N2 Flrwktr am Mdn 60046 fevk*urt wn Main Nauf PM 74 31 2 44 IUn.mt hlwAJ*M  Appendix C Page 2 of 2 EncLosure Lessgns to be drawn from the oroleMerfence T4akng into consideration that inifial *%iaton of the sewage treatent plant is still ongoing and th operation responsibility has not i4j be trnsfrred from te contractor to ASK the following lesons are still of a scmewhat preflminaty characten Under the pravailing insttfutal frme coniditions for water supply and sewerage administrtcns in Turlay the pehformance of ASKt could be substandally improved through donor-initiated incentves and through supplementary technical assistance. The covenants applied to the loans and the fact that they were closely harmonized between the Worid Bank and KIW mpresented an important it not always welcome Incentive for taking steps towards improvements cf the financial situation 4uch as tariff adjLstmnents. This triggered a prcess of paying more attention to financial matters and lead to a rethinking of previous positions so that e.g. the prndple of cost recovering tarffs and regular adjustments to inmlatfcn is generally accepted nowadays, Cn ths other hand the improvements in the field of financlal management as well as in the fields of project implementation and O&M were supported through comprehensive adviscry and training services to ASKI. 2. While the institutInal frame conditions left considerable scopa for improvement of AS3I's performance they also represented a limit to further improvements at a certain point In the and, in accordance with the lega rmgulatons ASKs majcr antrepreneurial decisions ars taken by political representaves who dominate ASKI's decision makWng badys. A proper fnnandal management is undermined by the inapprcrfate system of municipal finance in Turkey which encouraGes unscund flnancial practicas and a free-rider behavior towards the central govemment The limits set by the institutional frame conditions pose a certain risk for the sustainability of the improvements reached. While there is a general understanding in Turcey that changes ot the frame conditions and in particular af the municipal finance system are pending it is open when and to which degree they will be implemented.  MAP SECTION  IBRD 21862 TURKEY~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- '^'=. 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