Turkey - Istanbul Water Supply Project

ofzTs ~~~~~~~~R4STRICTED WI-T_AA Report No. PU-97 This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be pu'blished, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE ISTANBUL WATER SUPPLY PROJECT TURKEY June 14, 1972 Public Utilities Projects Department  CURRENCY EQUIVALENTS Currency Unit = Turkish Lira (TL) US$ 1 = TL 14.0 US$ 1 million = TL lh,OOO,OOO TL 1 = US$ 0.071 TL 1 million US$ 71,429 ABBREVIATIONS AND ACRONYMS mm = millimeter (1 millimeter = 0.039 inches) m = meter (1 meter = 3.28 feet) km = kilometer (1 kilometer = 0.62 miles) km2 square kilometer j(l km2 2h7.1 acres) m2 = square meter (l m= 10.76 sq ft) m3 = cubic meter (1 m3 = 26h.2 US gallons) m3/sec = cubic meters per second (1 m3/sec 22.8 million US gallons per day) -m3/day a cubic meters per day (100,000 m3/day = 26.4 million US gallons per day) m3/year = cubic meters per year (1 million m3/year = 723,753 US gallons per day) lcd = liters per capita per day (1 lcd - 0.26 US gallons per capita per day) DSI = State Hydraulic Works SI = Istanbul Water Administration YSE = General Directorate for Roads, Water and Electricity EEC = European Economic Community IETT = Istanbul Electricity, Tunnel and Transport Company UNDP = United Nations Development Program WHO = Wbrld Health Organization DAMOC = A consortium of consulting engineers, comprising: Daniel, Mann, Johnson & Mendenhall (USA) Alvord, Burdick & Howson (USA) Motor-Colombus (Switzerland) Checchi & Company (USA) FISCAL YEARS Government of Turkey (includin DSI) = March 1 to February 28 Istanbul Water Administration (ISI) = January 1 to December 31  TURKEY APPRAISAL OF THE ISTANBUL WATER SUPPLY PROJECT TABLE OF CONTENTS Page No. SUMMARY ATD CONCLUSIONS ............................... i-ii I. INTRODUCTION . .......................................... 1 II. THE WATER SUPPLY SECTOR AND TlE URBAN REGION OF ISTANBUL ............................................ 1 Sector Organization .............................. 1 The Urban Region of Istanbul ..................... 3 (i) Water Supply ................................ 3 (ii) Sewerage ......... ........................... 4 III. THE BORROWER AND THE BENEFICIARY ..................... . 4 The Borrower ......... ............................ 4 The Beneficiary - ISI ......t........... 4 (i) Organization and Management .... ............. 4 (ii) Future Organization ......................... 7 The Role of DSI .................................. 8 IV. THE PROGRAM AND THE PROJECT .................. 9 The Program .......................... 9 The Project ...................................... 10 Project Cost Estimates .......... .. ............... 13 Procurement .................. .................... 14 Amount of Loan ................ ................... 16 Disbursement ................. .................... 16 Project Administration .......... .. ............... 17 (i) L)ST component .............. ................. 17 (ii) ISI component .............. ................. 17 (iii) Coordination Between ISI and DSI ..... ....... 18 (iv) Operation and Maintenance of Dams .... ....... 18 Environmental Aspects ........... .. ............... 18 V. ECONOMIC JUSTIFICATION ................................ 19 This report is based on the findings of Bank missions consisting of Messrs. Grover, Hlayden, Bargholtz and Callejas and Messrs. Grover and Hayden which visited Turkey in October-November 1971 and March 1972 respectively.  Table of contents continued VI. FINANCIAL ASPECTS ..................................... 20 Past Record and Present Position of ISI .... ........... 20 (i) Tariffs .......................................... 20 (ii) Billing and Collection of Accounts .... ........... 21 (iii) Audit ......... ................................... 21 Financing Plan 1972-76 ................................ 22 Future Finances of ISI ................................ 23 VII. AGREEMENTS REACHED AND RECOMMENDATIONS .... ............ 24 A LIST OF ANNEXES Annexes 1 Water Supply Sector in the Istanbul Urban Region 2 Existing Water Supply Facilities in the Istanbul Urban Region 3 The Program and the Project 4 Cost Estimates for DSI and ISI Project Components 5 Construction Schedule 6 Estimated Schedule of Disbursements 7 Projected Water Demand and Water Sales 8 Economic Justification 9 Organization of ISI 10 Estimated Annual Expenditures on DSI Program 1967-1977 11 DSI (Region XIV) Cash Flow Statements 1967-1981 12 Estimated Annual Expenditures of ISI Program 1972-1976 13 ISI Income Statements, 1968-1980 14 ISI Cash Flow Statements, 1968-1980 15 ISI Balance Sheets, 1968-1980 16 Notes on ISI Financial Statements Maps 1 Istanbul Province 2 Istanbul Urban Region  TURKEY APPRAISAL OF THE ISTANBUL WATER SUPPLY PROJECT SUMMARY AND CONCLUSIONS i. Istanbul is thirsty. The population of the urban region of Istan- bul has grown from about one million in 1950 to about three million today but its water supply has not expanded to meet this growth. A continuous shortage of water now makes life unpleasant and impedes development in Turkey` slargest city. ii. A master plan for water and sewerage in_the region has been pre- pared by congii1r>tsL under a WOUNDproSSject. Based on this plan a major investment program which will alleviate the water shortages and cater for demand in the future has already been started. Initially, it consists of the development of t+,bMajor sources of er, n treatment, pumping and distribution facilities. Bank assistaiwe has been requested by the Government of Turkey to help finance these works, and for this purpose a project has been defined which consists of those works in the program which can be initiated and substantially completed by DSI and ISI in the period 1972-76. The project includes treatment plants, pumping stations and major pipelines to transmit water from the new sources to populated areas on both sides of the Bosphorus, and a pipeline underneath the Bosphorus to connect the independent water systems in Europe and Asia. The distribution system in Istanbul would be substantially strengthened and extended as part of the project. iii. Responsibility for d4,jqU_ gvter rests with local agencies, mainly the hich serves the 75% of the region's population who live in Istanbul Municipality. The State Hydraulic Works S(.DS14,-a national agency, Jis responsible for constructing all facili- ties required to deliver treated water to the urban area.- bSv will pay for and operate these facilities when they are completed. iv. Major objectives of the project are the rationalization of the water supply sector in the Istanbul region and institutional improvements in IS1. The Government has agreed to establish a water supply authority with ISI as its basis to serve the metropolitan area. ISI is to be strengthened and made more efficient with the assistance of consultants. Pending the creation of this regional authority, ISI will sell water by contract to water agencies outside Istanbul Municipality. v. The total cost of the project is estimated at TL 1,192 million (US$85.1 million), of which the DSI component would be 59% or TL 700 million (US$50.0 million). Total program expenditures in the five year period 1972- 76 are estimated at TL 1,424 million (US$101.7 million).  - ii - vi. The proposed Bank loan of US$37.0 million would be lent to the Gov- ernment and relent to ISI on Bank terms. These funds would finance 38% of the project costs, consisting of estimated foreign exchange costs of IS$20.5 million and US$5.0 million for interest charges of the Bank loan, plus US$11.5 million of local currency costs. Bank funds would provide 32% of the capital requirements for the total water supply program during 1972-76. A government loan would provide 48% and the balance (20%) would be provided by ISI's inter- nal cash generation and capital contributions. vii. As a result of the program water sales by ISI are expected to double in the next five years. Water rates will be set to enable ISI to earn a 7% return on the net fixed assets from 1974 through 1976 and 8% thereafter. viii. The internal economic rate of return of the total investment pro- gram, of which the project is an integral part, is conservatively estimated at 10.6%. ix. On the basis of agreement reached during negotiations, the project is suitable for a Bank loan of US$37.0 million for a period of 25 years in- cluding a five year grace period.  tj"RKEY APPRAISAL OF THE ISTANBUL WATER STUPLY PROJECT I. INTRODUCTTON 1.01 The Government of Turkey has asked the Bank Group to help finance development in the istanbul urban region. A Bank loan of US$37.0 million is proposed for a water supply project and an IDA credit of US$2.3 million for a project to prepare an integrated urban program for Istanbul. The proposed package of lending combines financial assistance for a high priority project plus direct assistance to the Turkish authorities for urban planning and the preparation of subsequent projects. This report appraises thR water supply project: the urban program preparation is the subject of a separate ap- praisal report. This would be the Bank Group's first lending to Turkey for either purpose. 1.02 The water supply project is part of a major program now underway to eliminate water shortages throughout the Istanbul urban region, withouti which development in Turkey's most important city will be seriously retarded. The Government of Turkey will be the borrower of the proposed loan and will relend it to the Istanbul Water Administration (ISI), the agency now respon- sible for water supply in Istanbul Municipality. A second agency, the State Hydraulic Works (DSI), is responsible for designing and constructing a major part of the water supply project on behalf of ISI. 1.03 Master plans for water supply, sewerage and storm drainage for the Istanbul region were completed in 1971 under a UNDP/WHO project. A Bank reconnaissance mission reviewed progress on the preparation of this master plan in October 1969. Several pre-appraisal missions visited Turkey in con- nection with a possible water supply project in 1970 and 1971. The Govern- ment submitted a formal request for a loan for water supply in October 1971 along with a proposal which was prepared with the assistance of three UNDP advisers. A Bank consultant (Van Hlouten Associates) visited Istanbul in January 1972 to examine proposals for a pipeline underneath the Bosphorus. 1.04 Appraisal missions visited Turkey in October/November 1971 (Messrs. Grover, Hlayden, Callejas and Bargholtz) and in March 1972 (Messrs. Grover and Hiayden). This appraisal report is based on the UNDP/WHO master plan, the report of the Bank consultant, on iniformation received from the water supply agencies involved and on the findings of the missions. IT. ThE WATER SUPPLY SECTOR AND THE URBAN REGION OF ISTANBUL Sector Organization 2.01 Development of water supply in the Istanbul urban region has not kept pace with the growth of population, and the region is currently going through a period of crisis due to shortages of water. Today's acute water  -2- shortage has been caused principally by the lack of capital available in past years to finance new schemes. A related problem, however, is that the sector has been fragmented and uncoordinated, with nogregional organization. In Turkey the responsibility for providing water rest eE verl=ent at the municipal level. The provincial administrations have very limited authority over infrastructure investments. The public works departments of most local authorities deal with water supply, although larger municipalities may have a special agency for this function. 2.02 Lack of finance and technical expertise at the local level have resulted generally in inadequate water supplies. Accordingly, the Central Government provides assistance - both technical and financial - to local government by means of three different agencies as follows: Agency of Ministry to Communities to Number of Communities Central Government which Agency which Assistance in Turkey (according is Attached is Provided to 1970 Census) State Hydraulic Energy and Municipalities 24 Works (DSI) Natural greater than Resources 100,000 population Bank of the Provinces Reconstruc- Municipalities 669 (Iller Bankasi) tion and greater than Resettlement 2,000 population General Directorate Village Villages Less n.a. for Roads, Water and Affairs than 2,000 Electricity (YSE) population The involvement of DSI in water supply for large cities is rather recent. Law 1053 of 1968 enables DSI to assist all communities larger than 100,000 and provides specifically for DSI to assist the two most important cities in Turkey, Istanbul and Ankara. This law is reproduced on page 7 of Annex 1. DSI is presently constructing major facilities to meet the Istanbul region's water demands. Although definite arrangements have not yet been made to en- sure that their benefits will be shared by the entire region, appropriate arrangements are expected to be made during the project period (paras 3.10 and 3.11). 2.03 The Central Government does not operate and maintain water systems. Its three agencies help local communities by planning, financing and build- ing projects, but responsibility for operation of each scheme rests with the local authority. Most financial assistance is in the form of loans, but with the prevailing inadequate charges for water supply, municipalities do not always repay these loans. The organization of the sector is described further in the first part of Annex 1.  3- The Urban Region of Istanbul (i) Water Supply 2.04 Istanbul, Turkey's largest and most important city, has a history which extends over twenty-six centuries. Parts of its ancient water systems are in use today (see Maps and Annex 2). When new and larger sources were required near the end of the 19th century, the Government granted concessions to private water companies to develop the original Terkos and Elmali systems (Annex 2). In 1933 the Government passed legislation creating the Istanbul Water Administration (Istanbul Sular Idaresi, or ISI) as the public water supply agency of Istanbul Municipality. Facilities of the private companies were purchased and handed over to ISI. Thus ISI inherits a long tradition of service. 2.05 Istanbul Municipality, with a 1971 population of about 2.2 million and an area of 1,558 sq km, is only one of a number of municipalities in the Istanbul urban region. The urban region extends along the Bosphorus and Marmara coast from Kucukcekmece Lake to Gebze, and includes twenty-one muni- cipalities and numerous villages (Annex 3, para 1). The population of the region was about one million in 1950, and almost three million in 1971. 2.06 Although each community is responsible for its own water supply, several communities can form a "union of municipalities" to develop a re- gional water system. Two of these unions exist in the Istanbul urban region, both of which are independent of ISI. The Kartal Union in Asia consists of nine municipalities and ten villages with a 1970 population of some 140,000. The Mahmutbey Union in Europe, with four municipalities and ten villages, has about the same population. They are described in Annex 1. 2.07 1ST o ates Lsystemso_each ideof theBoshr.s, each supplied mainly by the surface water sources originally developed by the private water companies. In Europe the principal source is Terkos Lake, whose water is treated at Kagithane (Map 1). In Asia the two Elmali dams provlde the basic supply. The transmission and distribution systems are inadequate. 2.08 Up to 40X of the population of Istanbul Municipality relies on some 1800 public hydrants for its supply. In 1971 the estimated demand for water in the Municipality was 149 lcd (Annex 7) but total water sales are estimated to have provided only 93 lcd, 1/ of which some 90% came from ISI sources 1/ For comparison, per capita consumption figures for other cities are as follows: Baltimore, USA - 526 lcd (1969) Hamburg, Germany - 167 lcd (1963) Sao Paulo, Brazil - 200 lcd (1969) Lahore, Pakistan - 90 lcd (1970)  - 4 - (annex 2). Sales through the 242,235 connections (including public hydrants) account for only 64% of the water pumped from sources. Much water is lost through leaks in the system and an undetermined proportion is unaccounted for due to faulty metering. Major efforts have been made to reduce losses, from 45% ten years ago to an estimated 34% in 1971 but they remain high. Due to the shorta e pies arejre~g9ently empty, particularly in vendors do a ing water of question- at prices up to 2 times higher than s metered rate. ISI also operates water tankers to augment the supply in certain residential areas. Details of the ISI system are in Annex 2. 2.09 All other municipalities in the urban region rely on groundwater. The water table is falling throughout most of the region and salinity is in- creasing near the coast due to overpumping. Shortages exist in every system. Generally, industries are not supplied from the public system, and have been forced to develop their own wells and/or transport water by truck. Many in- dustries are unable to set up in the region because of water shortages. (ii) Sewerage 2.10 Responsibility for sewerage rests with the local authorities. These wasteatel systems are zgnerally nee worse condition than the water supplies. DSI is authorized to help large municipalities on sewerage and drainage problems (but is not currently doing so) and the Bank of the Provinces is providing some support for smaller municipalities. Only about one-third of the population in the region is served by a water-borne waste disposal system. Wastewater from the rest is carried by surface drains, emptied into septic tanks or removed by tank trucks. The UNDP/WHO master plan for the region provides a good basis for construction of a regional system, but there is as yet neither organization nor funds to carry it out. The Government has agreed to take appropriate steps to solve these problems (para 4.29). III. THE BORROWER AND THE BENEFICIARY The Borrower 3.01 The Government of Turkey will be the borrower, and will relend Bank funds to ISI on Bank terms by means of a subsidiary loan agreement. ISI will be responsible for all repayments, and will make Bank Group funds available to DSI for project components built by DSI. The Beneficiary - ISI (i) Organization and Management 3.02 ISI is a semi-autonomous water agency attached to Istanbul Munici- pality. Its organization is described in Annex 9. While financially autono- mous and relatively free from interference from the Municipality in day to day  - 5 - operations, ISI has been subject to control by the Municipality in three Principal respects: (i) three of the four board members of ISI, including the General Director, are nominated by the Mayor; 1/ (ii) all budgets and annual accounts of ISI must be reviewed and approved by the Municipality; and (iii) new water rates have had to be approved by the M4unici- pality (para 6.05). 3.03 ISI is controlled by a four-man Board under the chairmanship of the General Director. The Board works full time and is intimately involved in routine operations, giving the General Director extremely little Iztitude for independent executive action. 3.04 The management of ISI, which consists generally of competent and experienced engineers, has operated the authority reasonably well. Their per-- formance could be substantially increased with improvements in the organiza- tion structure and the elimination of inefficient management practices. Under the General Director there are three Assistant General Directors who are no- minally responsible for the 20 separate departments, approximately half tech- nical and half administrative (Annex 9). However, in practice all department heads report directly to the General Director and the control exercised by the Assistant General Directors is quite limited. Responsibility for new construc- tion is split between several departments and operation of existing facilities is similarly uncoordlinated. 3.05 The impending major expansion provides an opportune time to make ifnprovements in ISI's organization. The new General Director, appointed in mid-1971, is anxious to improve the performance of the agency. Extensive recommendations concerning institutional changes, which are more a matter of streamlining and overcoming inertia than of drastic reforms, were made both in the imiaster plan prepared by DAMOC (consultants for the UNDP/WHO project) and by the UNDP acdvisers who helped prepare the 1971 proposal for Bank fi- nancing (para 1.03). IST agrees in principle on the desirability of imnprov- ing the organization and is taking steps, as recommended by the UNDP ad- visers, to create and staff a new department to review organization and man- agement proce(lures and to assist the General Director to implement changes. During negotiations progress on this matter was discussed with ISI and agree- ment was reached on the desirability of improving the organization, with particular emphasis on: (i) redefining the role of the Board so that it can better concentrate on policy matters; (ii) :;reater dele-ation of autlhority throughout the organization; 1/ And approved by the Ministry of the Interior. The fourth board member is nominated by the staff of ISI.  - 6 - (iii) achieving better control over operating departments, for example by grouping appropriate departments on a func- tional basis under Assistant General Directors: (iv) improving coordination, especially between planning, design and construction departments and between operat- ing and maintenance departments; and (v) improving work methods in the operating and maintenance departments to reduce water losses and decrease operating costs. The services of management consultants are required to assist ISI in: (i) determining and implementing the appropriate organiza- tional changes, drawing on the recommendations of the DAMOC consultants and the UNDP advisers; (ii) examining work methods throughout ISI; and (iii) providing training for senior staff in modern management techniques. ISI has agreed to engage management consultants acceptable to the Bank by October, 1972 to assist in these matters, and to submit general proposals for improving its organization to the Bank for review and comment by the end of 1972. 3.06 The historical accounting system used by ISI is ineffective as a management tool. Basic information on assets and liabilities is produced in semi-annual statements which are not available until about six months after the end of the fiscal period. No further reports are provided to the manage- ment. A government-type budgeting system is used, the principal objective of which is to ensure that the necessary administrative procedures are followed whenever it is necessary to exceed the authorized budget expenditure. The DAMOC report outlined in detail proposals for improving ISI's accounting system. In order to improve the accounting procedures and provide better fi- nancial information to management, ISI has agreed to: (i) develop its accounting system in the light of the recommenda- tions made by DAMOC; (ii) employ accounting consultants acceptable to the Bank by October, 1972 to assist in the adoption and implementation of accounting changes and improvements; (iii) appoint a budget and management director by October, 1972 to control the finances of ISI and to employ adequate account- ing personnel; (iv) provide training for accounting staff in modern accouinting techniques; and  - 7 - (v) prepare promptly quarterly financial statements for ISI's management and review by the Bank. 3.07 ISI employs about 34 engineers, mostly in senior management posi- tions. There is a shortage of qualified technical staff and the limited number available devote a considerable amount of time to routine tasks. Sala- ries for engineers are low, in line witlh Government levels, and were adversely affected by the 1970 Personnel Law. This law lowered salary scales and re- duced opportunities for promotion for professional staff (Annex 9). ISI in- tends to augment its technical staff to implement the project and engiaeering consultants will be engaged to supplement ISI staff (paras 4.10 and 4.25). 3.08 Some 80% of the total ISI staff of 2,750 are hourly-paid workers, almost entirely unionized. These workers received substantial increases in benefits in accordance with the 1970 Personnel Law. Wages and salaries of ISI staff increased by 60% in 1971 (para 6.04). Partly because it is lo- cated in Turkey's most important city, ISI is an attractive employer with a low staff turnover. The organization is further discussed in Annex 9. (ii) Future Organization 3.09 IST's primary obligation is to provide water for Istanbul Munici- pality an(d before it can provide facilities to distribute water to outside municipalities it must conclude a special contract with such municipalities (para 3.11). No such contracts presently exist. However, ISI will own and operate all the new source facilities intended to serve the twenty-one muni- cipalities in the urban region. As the program will provide the only practi- cal sources of additional water for the outside municipalities, they have no alternative to obtaining water from TSI. 3.10 There is general agreement that some form of regional organization is required in the near future to plan and implement water supply throughout the urban region. The Government has agreed to c t we ithnrity3r f1 r the region durin theproject . egislation will be required to create tr1_SoMraizatio ichwi llave the following characteristics: (i) ST as its basiL (ii) a policy-making board with representation from all parts of the region; (iii) responsibility for coordinating the planning, construction and operation of major water supply facilities and for allocating available water resources throughout the region; (iv) resDonsibility for operating distribution systems and selling water directly to consumers within the service area, and for selling water on a wholesale basis to other water agencies within the rep,on; and (v) autlhority to establish water rates in accordance with criteria requiring the authority to finance a reasonable proportion of its Euture expansion program.  - 8 - The Government has agree to furnish to the Bank for comment draft 1.e;_islation for the creation of this authority by the end of 1972. 3.11 In the interim before the creation of the re-ional water authority, specific arrangements are required to enable the muanicipalities outside Istanbul to benefit from the program. Since these iiunicipalities have water shortages and no alternative sources are available, they are expected to be anxious to purchase water from ISI. ISI has agreed to sell available water on a wholesale basis to any municipality or group of utinicipalities willing to enter into a contract for this purpose. Among other things such conitracts will specify: (i) the minimum amount of water to be sold, the basis for estab- lishing the wholesale unit price, and arrangemients for prompt payment of accounts to ISI; (ii) the basis for determining retail rates at which the water would be sold to consumers; and (iii) arrangements for constructing and financing connections between the systems of ISI and the outside municipality. A prototype contract will be furnished to the Bank for review and comment not later than April, 1974. If outside municipalities wish ISI to be re- sponsible for their distribution systems, ISI would enter into appropriate contracts and would take over such systems and sell water to customers on a retail basis. The Role of DSI 3.12 DSI, the Government's principal water resources agency, is develop- ing new sources for the Istanbul water supply program under Law 1053 (para 2.02 and Annex 1). DSI is acting as a consulting engineer and contrac- tor for ISI and, except for dams which a1ve-!TooC t-ontrot-gSFlTeII~a-water supply functions, will hand over the facilities to ISI to operate and main- tain when construction is finished. 3.13 DSI is a strong technical organization with a total staff of 16,900 including 1,190 engineers. It has considerable experience with irri- gation and hydroelectric projects, including the Seyhan irrigation project and the irrigation rehabilitation project which the Bank Group has helped to finance, but is inexperienced in water supply. DSI has set up a regional office in Istanbul, with a staff of 300 including 40 engineers, for the pur- pose of implementing the water supply program there. The Regional Director is a senior engineer who manages his organization effectively and has good communications with the Ankara head office, where most designs and contracts are prepared and where all important decisions are finalized. As a result of the 1970 Personnel Law (para 3.07) morale is low and DSI presently finds it difficult to retain experienced engineers. The Government is aware of the situation but has not yet taken steps to rectify the problem. If the situa- tion does not improve, DSI may have to rely more on consulting engineers than is indicated in para 4.23.  - 9 - IV. THE PROGRAM AND THE PROJECT The Program 4.01 Under the UNDP/WHO project, consultants (DAMOC) worked from '966 to 1971 to prepare a master plan for water supply and sewerage in the Istanbul urban region, with DSI as the government counterpart organization. After es- timating the long-term demand for water, DAMOC analyzed alternative souirces of water and made recommendations for the most economic phased development of these sources. Plans were prepared for the associated pumping stations, treatment plants, transmission lines and distribution facilities. All plan- ning was on a regional basis, ignoring administrative boundaries. DAMOC completed preliminary engineering for improvements needed to meet the pro- jected demand in 1985. Construction of the Alibey dam began in 1966. 4.02 DSI is responsible for building dams, pumping stations, treatment plants and transmission mains to deliver treated water to the urban region. On completion of construction, these works are handed over to ISI. ISI is responsible for constructing the distribution system in Istanbul Munici- pality. Total program expenditure during the period 1966-1984, expressed in current prices, is expected to be of the order of TL 3,500 million (US$ 251 million), of which construction carried out from 1966 to 1971 has accounted for about TL 440 million (US$ 31 million). During the project period, 1972-76, expenditure on the program by DSI and ISI is expected to total TL 1,424 million (US$ 101.7 million: Annexes 10 and 12). ISI's net fixed assets in 1977 are projected at nine times the 1971 value. 4.03 The rogram will more t triple th lf or the snbul urban reon. Two new sources will be developed: Alibey reser- voir in Europe and Omerli reservoir in Asia. The traditional major source for European Istanbul, Terkos Lake, will be raised and its yield doubled by diverting water to Istanbul through the Alibey reservoir (Map 1). The partly constructed Alibey dam has already begun to augment the traditional sources and the program will begin to make major additions to the system later in 1972, as shown below:  - 10 - Capacity of Sources Ye_ Individual Sources Total