Turkey - Istanbul Urban Development and Water Supply Projects

RESTRICTED Report No. P-1104 FILE COPYir This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization.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 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT AND LOAN TO THE REPUBLIC OF TURKEY FOR AN URBAN DEVELOPMENT PROJECT AND A WATER SUPPLY PROJECT BOTH IN ISTANBUL June 14, 1972  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPIMNT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT AND LOAN TO THE REPUBLIC OF TURKEY FOR AN URBAN DEVELOPMENT PROJECT AND A WATER SUPPLY PROJECT BOTH IN ISTANBUL 1. I submit the following report and recommendation on a proposed development credit to the Republic of Turkey for the equivalent of $2.3 mil- lion on standard IDA terms to help finance a project for the preparation of an integrated development program for the Istanbul metropolitan area, and on a proposed loan to the Republic of Turkey for the equivalent of $37 million to help finance a project for the extension and improvement of the water supply system of the same area. The loan would have a term of 25 years, including five years of grace, with interest at 7.25 percent per annum. The proceeds of the loan would be relent on the same terms to the Istanbul Water Administration (ISI). PART I - THE ECONOMY 2. A report entitled "The Development Prospects of Turkey" (EMA-30a) dated February 1, 1971, was distributed to the Executive Directors on February 4, 1971. This was updated by a memorandum entitled "Current Economic Position and Prospects of Turkey" (EMA-4Oa) dated July 19, 1971, which was distributed on July 26, 1971. A Bank economic mission visited Turkey in April 1972 and a new report will be distributed in the fall of 1972. Preliminary findings of the economic mission are included in the discussion below. A country data sheet is attached as Annex II. 3. Following a long period of stability, internal political tensions have appeared in the last two years. Student disturbances and unrest among workers occurred in 1970 and early 1971, and the armed forces called in March 1971 for the resignation of the Demirel cabinet and for the imple- mentation of the reforms prescribed by the 1961 Constitution. An "above-party and reformist" government was formed under Prime Minister Erim, and martial law was introduced. In its eight months in office, the Government largely re- established law and order, and introduced some administrative changes. It also raised prices of several State Economic Enterprises (SEE's) and presented several reform bills to Parliament. However, it was not able to translate its long-range economic policies into detailed measures and decrees. Growing opposition from Parliament and the private sector to some administrative changes and reform proposals brought about the resignation of a large group of ministers in December 1971, and a new coalition government, headed again by Prime Minister Erim, was then formed. - 2 - 4. The second Erim government took a more positive attitude towards the private sector, and by having greater political party representation in the cabinet, it was more conciliatory to Parliament. However, in its attempt to push through modified reform measures it again met with opposition in Parliament. A mining reform bill and a moderate land reform bill have been introduced in Parliament, but little has been done to further educational reform, reorganize the State Economic Enterprises (SEE's), or pass the pro- posed direct tax bills. Prime Minister Erim resigned in mid-April, after his request for "government by decree", intended to speed up the process of reforms, was turned down by the political parties. A new government drawn from three parties and non-parliamentarians and headed by Prime Minister Mv1elen was formed in iay 1972. 5. While long-term economic policy issues have recently become a major cause of political tensions, growth in Gross National Product in the last decade has been rapid and continuous, averaging about 6.6 percent per year in the period 1962-71. In the same period, gross investment increased sub- stantially, with its share in GNP rising from 15 to 20 percent. Although total consumption increased considerably, gross national savings increased at a much faster rate, their share in GNP rising from 11 to 19 percent. However, since 1968, the growth of savings as well as of investments slowed down and their shares in GNP have leveled off, dropping slightly in 1971. 6. The main growth sectors in the last decade have been industry, power and construction. This reflected the development strategy during the first and second five-year plans (1962-67, 1968-72), which gave highest priority to industrialization. Industrial output grew by about 10 percent per annum with textiles, machinery and equipment, steel and chemicals pro- viding the main impetus for growth. But this rapid growth, mainly to meet domestic demand and replace imports, was strongly insulated from inter- national competition. Other rapidly growing sectors were transport, trade and financial services. The impact of large investments in agriculture was slow however, and agricultural production increased by about 4 percent per annum, with large fluctuations from year to year depending on weather condi- tions. As a result of the relative growth rates, the share of industry, trade and services in GDP rose, and that of agriculture dropped. In 1971 GNP increased by 9 percent in real terms, thanks largely to an excellent harvest, a continued industrial growth and a sharp rise in emigrant worker remittances, and output in 1972 promises also to be above average. 7. The balance of payments situation has been characterized in 1967-71 by increasing trade deficits, and a strict system of import controls leading to delays and shortages of essential imports and, consequently, to underutilization of production capacity. Finally, the unrealistic official exchange rate was changed in August 1970 (from TL 9 to - 3- TL 15 per US$, revised to TL 14 in December 1971). This, together with associated stabilization measures and a rapid rise in workers' remittances helped to improve the situation rather dramatically. Workers' remittances increased sharply, from about $140 million in 1969 to $470 million in 1971. Commodity exports and tourism receipts also increased markedly. The overall result has been a substantial rise in gross foreign exchange reserves, which stood at $955 million at the end of March 1972. Net foreign assets, which were negative in 1966-68, rose to $410 million by the end of 1971, the equivalent of four months' imports. These improvements have led improved availability of essential imports of investment goods, raw materials and parts, and to rebuilding of stocks. 8. The budgetary situation has been dominated in the last decade by the need to control the rapid growth of public expenditures. Tax revenues have grown faster than GNP, their share rising from 12.9 percent in 1962 to 17.6 percent of GNP in 1971, but the increases in tax revenues have been more than offset by the rise in current expenditures and transfers. The overall budget deficit has grown since 1968 and was particularly large in 1971 when the full impact on current expenditures of public salary increases under the 1970 Personnel Reform Law was felt. The financial results of the State Economic Enterprises, though slightly improving, have been consist- ently less than targeted. With little change in net external financing and long-term domestic borrowing, the Treasury had to have growing recourse to the Central Bank for short-term advances and to other short-term borrowing. The difficulties facing public mobilization of resources have led to public investment expenditures falling short of targets, and to an actual decline in public investment in real terms in 1971. The pressure on public resources is likely to continue in 1972, and the growth of public develop- ment expenditure will probably suffer as a result. 9. While available resources increased, a more rapid growth of expenditures led to inflationary pressures in the economy in the period 1967-70, resulting in an average increase in wholesale prices of about 6 percent per annum. Inflationary pressure was particularly strong in 1971 when wholesale prices rose 16 percent. The pressures came mainly from the demand side due to substantial increases in public salaries and industrial wages and larger agricultural incomes in a year of record output. At the same time controlled prices of public industrial enterprises and support prices of major agricultural products were also raised, and prices of imported goods increased sharply as a result of both devaluation and the rise in world export prices. The pressure on prices is likely to continue in 1972, though at a lower level than 1971. The effects of the large price adjustments of 1971 have now been absorbed, and high output and imports should also help to contain Thflation in 1972. However, the resumed growth of demand for investment, both by the private and public sectors will add to the demand pressure. In these circumstances, better mobilization of resources by the public sector and a balance between the claims of public and private sectors on investment funds are needed to avoid excessive pressure on prices. 10. For the longer term, the continued political uncertainties have meant that the planned reforms, e.g. administrative, educational and land reforms, and reorganization of SEE's have not yet been initiated. Adminis- trative reform of the SEE's and upgrading their executive and labor skills have still to be achieved. This is particularly important to prepare Turkish industry for competition that will arise from association with the EEC. In agriculture, although substantial irrigation investments have been made in the past and the government rightly gives high priority to completing on- going projects, several long-term problems remain. The Anatolian plateau and the eastern part of Turkey are considerably less developed than the coastal regions and land tenure problems are serious in some regions. Sur- plus stocks of tobacco, sugar, tea and hazelnuts have accumulated and there is need to modify price support and other policies to divert resources from these surplus crops. Some progress has already been made in shifting land from sugarbeets to sunflower, feedgrains and other crops. 11. The problem of domestic resource mobilization will remain a major constraint and will restrain the real growth of public investment in the Third Plan period (1973-77), especially if the savings strategy continues to be heavily dependent on public savings. The Third Plan targets (1973-77) have not yet been approved, but the proposed growth targets imply excessively high marginal savings rates. If substantial increases in public savings are to be realized, then planned changes in the tax structure should be imple- mented at an early stage and the failure of State Economic Enterprises to generate sufficient surpluses should be a major concern of economic policy. In addition, it is essential to develop a capital market in Turkey to supplement the existing sources of long-term domestic borrowing. Proposals for a capital market bill are now being considered. 12. The employment situation is also a matter of growing concern. The policy of industrialization followed in the last ten years has not led to the absorption of the increasing labor supply. Preliminary estimates based on the 1970 population census indicate that the labor force has grown by about 420,000 a year between 1965 and 1970, of whom about 60,000 have emi- grated, 250,000 have found employment on the domestic market, mostly in services and industry, leaving about 110,000 more unemployed each year. Total unemployment is estimated at about 9 percent of the labor supply in 1971, and there are signs of widespread underemployment in agriculture and services. Urban unemployment, while not severe at present, seems to be growing at a high rate. 13. If the country remains politically stable and if the government effectively carries out structural reforms in the areas mentioned above and promotes exports, Turkey may be able to maintain or even exceed a growth rate of 7 percent per annum. However, in spite of the recently improved balance of payments and exchange reserve positions, Turkey will continue to need substantial amounts of external assistance to be able to maintain a high level of investment as well as meet its financial obligations. The growth of foreign exchange reserves is unlikely to continue at the same rate, particularly as short-term debts are repaid (e.g. $79 million repaid to the I1M1F in April 1972). Reserves are also needed to cushion any sudden drop in workers' remittances which are vulnerable to changes in economic conditions in the host countries, and to insure continued availability of essential imports of parts and raw materials and support further import liberalization. Larger project assistance will also be needed to offset the decline in program assistance. In these circumstances, it would seem advisable for Turkey to continue for the time being its restraint in using suppliers' credits. 14. Total debt outstanding and disbursed is estimated at $2,200 million at the end of 1971, of which all but 2 percent is public or publicly guar- anteed. The average terms have been hardening in recent years and this trend is expected to continue. Of the total gross official external assistance, estimated at about $390 million in 1971, the Consortium members provided about $300 million. Of this $83 million came from the United States, $52 mil- lion from the European Fund, $30 million from the European Investment Bank, $28 million from Germany, and $23 million from the World Bank Group. The USSR disbursed about $38 million. As a result of successive debt resched- ulings and arrangements for debt relief together with substantially increased workers' remittances, the debt service ratio has fallen considerably since 1965 and is provisionally estimated at about 14 percent of total foreign exchange earnings (including workers' remittances) in 1971. Preliminary estimates indicate little change in the debt service ratio in the next five years. However, since the improvements in the balance of payments have occurred relatively recently only and are based to a considerable extent on factors which depend on external developments, Turkey's borrowing capacity will need to be kept under review and the Government should continue to seek a part of future external aid on concessionary terms. PART II - BANK GROUP OPERATIONS IN TURKEY 15. The level of Bank Group operations in Turkey in past years has been largely influenced by the almost chronic balance of payments diffi- culties and the heavy external debt service burden, the limited IDA resources which could be made available to Turkey and, to some extent, difficulties in project preparation. In 1968 the Bank and the Turkish authorities began dis- cussions to establish a basis for a major increase in the level of lending and greater continuity in the flow of operations. This called for actions that would increase Turkey's capacity to borrow on Bank terms, in particular, im- pro-ed external debt management, reforms in the system of trade and payments, - 6 - and resources and incentives for export-oriented projects. It also called for a significant improvement in the Government's capacity to identify and prepare projects. 16. By the end of 1970, the Government had set itself the goal of external viability within a reasonable period and the promotion of exports as the principal means of achieving it. In August 1970, a stabilization program was initiated and the Turkish Lira was devalued. Parallel with these developments, the Bank Group stepped up its assistance in project preparation, notably with advice on project selection criteria and instit- ution building. All this made possible Bank/IDA lending in an amount of $114 million in FY 1971, thus exceeding the total lent in the five preceding years. If the two projects covered by this Report are approved, lending will amount in FY 1972 to $173.3 million. For subsequent years, lending is expected to remain at a high level and it is hoped that Turkey's economic policies and project management will lead to Bank Group lending at a more regular pace than in the past. 17. Bank Group lending to Turkey aims at assisting the country in three major tasks: (a) improving the foreign exchange position partic- ularly through export promotion, (b) institution building and reform in key sectors including improved financial viability of the major State Economic Enterprises, and (c) the achievement of a better balance in rural and urban development. Several projects financed by the Bank Group in recent years or presently under discussion focus on the first task. For instance, emphasis was placed on export-oriented sub-projects in the last loan (713-TU) made to the Industrial Development Bank of Turkey (TSKB) and in the loan and credit (762/257-TU) for the Fruit and Vegetable Export Project. Other projects for which lending is contemplated in coming years, especially for livestock, forestry and irrigation, are expected to enhance Turkey's ability to earn foreign exchange. On the other hand, attempts to assist the expansion of tourism have not borne fruit, indicating some Government hesitation as to the importance to be given to tourism in Turkey's develop- ment strategy; as a result tourism projects suitable for Bank consideration have not yet been put in shape although an IFC investment in the sector is likely to be presented soon to the Executive Directors. The objective of institution building has been pursued chiefly in agriculture (including agricultural credit), power and transportation. The Bank has been instru- mental in bringing about a comprehensive reorganization of the power sector culminating in the establishment of the Turkish power authority (TEK) to which a loan (763-TU) was made in 1971. The Bank has also acted as executing agency for UNDP technical assistance studies on transport coordin- ation and on a railway investment program, and a first railway project has been appraised. Finally, the two-pronged approach to agricultural develop- ment of the poorest parts of Central and Eastern Turkey and to urban development has been started with the Second Livestock Project and with the proposed projects in Istanbul. Bank agricultural and industrial project missions recently visited Turkey to identify future projects consonant with the above objectives. - 7 - 18. Bank Group financial assistance in the urban sector will necess- arily be modest in terms of the order of magnitude of public investments required. The long term objective, however, is not only to provide financing but, perhaps more importantly, to assist Turkey to establish machinery for planning and project preparation which will provide decisin makers with a rational basis for allocating the vast resources required for urban development, and to set up effective institutions. Prospective projects combine technical assistance to the planning and project prepar- ation process with financial assistance for high priority projects which are themselves a vehicle to achieve the long term institutional objective. At present, Bank efforts are being centered on Istanbul, but it is expected that any progress towards the orderly development of Istanbul, because of its importance and weight in the nation, will soon spread to other areas, and in particular to the contemplated urban development poles in Eastern Turkey, such as Samsun and Elazig. 19. Five Bank/IDA operations were planned for FY 1972. A $18 million credit for the Irrigatim Rehabilitation and Completion Project was signed on January 25, 1972; a $76 million loan for the Erdemir Steel Expansion Project was signed on April 28, 1972; a $16 million credit for the Second Livestock Development Project (the signing of which is contingent on IDA replenishment), and a $24 million loan for a Fertilizer Project were approved on April 4 and May 16, 1972, respectively. Annex I contains a summary of Bank loans, IDA credits and IFC investments as of April 31, 1972, and comments on the execution of ongoing projects. If the Fertilizer and Second Livestock Projects, approved but not signed, are included, total Bank/IDA lending in Turkey to date amounts to $338.7 million in loans and $145.8 million in credits. Projects in preparation for Bank Group lending in FY 1973 include the Ceyhan-Aslantas multipurpose power and irrigation project (which was appraised in April 1972), a further loan to TSKB, the first Bank-financed operation proposed in the transportation sector for a railway modernization project, and a power distribution project in Istanbul. 20. IFC has been active in Turkey, having participated in industrial investments for nylon yarn, pulp and paper, glass, and aluminum. Total commitments so far amount to about $29 million. IFC is currently investi- gating new investment opportunities in various sectors including special steel and tourism. PART III - THE URBAN SECTOR 21. The development of the Turkish economy since World War II led to a dramatic pace of urbanization, which created complex problems. The structure of the economy changed significantly. While agriculture still accounts for about two-thirds of the working population and 75 percent of the value of all exports, its contribution to GNP declined from about 50 per- cent in the early 1950's to just under 30 percent in 1970. During the same period, the contribution of manufacturing increased from 11 percent to about 20 percent. The rapid population growth, the employment pull of fast developing urban sectors such as manufacturing and construction, the exhaus- tion of good agricultural land, and the mechanization of agriculture led to high levels of rural-urban migration. Large public investment programs to improve intercity transport lines appear to have also contributed to the high migration rate. 22. In 1950, some 4 million people lived in urban settlements of 10,000 or more. By 1970, the urban population had grown to more than 12 million, about 35 percent of a total estimated population of 35 million. Roughly half this growth was due to the rural-to-urban migration, for the overall natural increase in Turkey (2.6 percent) has declined slightly in recent years and birth rates in urban areas are generally lower than in rural areas. In the 1965-1970 period alone, the populations of the Metropolitan Areas of Istanbul, Ankara, and Izmir grew by 945,0o0 accounting for 52 per- cent of the total growth in cities with 50,000 people or more. The Istanbul Metropolitan Area bore the brunt of this migration with some 500,000 immi- grants,reaching a population of 2.8 million. Due to this rapid urbanization, the metropolitan areas now suffer from inadequate infrastructure and municipal facilities, proliferation of squatter settlements, poor location of industrial sites, and numerous environmental problems. Problems of urbanization are likely to be accentuated in the coming years as it is estimated that towards 1985 about half of total population, or 22 million, will live in urban areas. 23. The Government only recently gave explicit recognition to the role of urbanization in the development process. During the First Plan period 1963-1967, the official policy favored "balanced urbanization", with urban population growing at the speed of new jobs creation. In the Second Five- Year Plan 1968-72, the role of urbanization as a factor of growth and modern- ization was explicitly recognized, with the objectives of (i) treating urbanization as an inseparable part of the overall development process along with modernization in agriculture and industry, and (ii) encouraging large- scale urban development to take advantage of the role of large urban centers in accelerating economic and social progress. Concentration of efforts and investment in twelve development centers is foreshadowed. 24. Agencies at the national level have unusually wide responsibilities for urban and regional development. Between 1961 and 1971, the Department of Economic and Social Planning within the State Planning Organization was effectively responsible for establishing and coordinating regional economic and social policies. Since then, this responsibility has been transferred to the Ministry of Reconstruction and Resettlement. Within the Ministry, the Planning and Construction General Directorate is responsible for metro- politan and city planning. It is assisted by the Iller Bank, which carries out infrastructural investment in the municipal areas, by the Property and - 9 - Credit Bank, which is one of the main public sources of loans for housing construction, and by the Land Office, recently established to acquire land for the Ministry. The municipal governments are mainly responsible for planning and investment in local roads, water, sewerage and other utility systems. 25. The policy reactions of the Government to rapid urbanization left many problems unsolved. The strategy of rapid industrialization did not provide enough employment. The public sector and the sector of services had to take up part of the slack labor supply, the rest emigrating to Europe or being unemployed. The Government started a program of family planning in 1966, but insufficient efforts have been made to follow up the initial measures; the present modest program of expenditure (the target for 1972 is TL 17 million), even if it were more effective, cannot be expected to have an early effect on population growth. Despite its pervasive responsibilities, the Central Government machinery had little impact on the pattern of urban development. The question of responsibility for planning, formulating and implementing urban investment has not yet been solved satisfactorily. Urban planning has been focusing excessively on physical planning, and not enough attention has been given to the problem of magnitude and sources of financial resources and to the preparation of economic and financial programs and proj- ects. The planning process is very complex, since decision powers of many administrations and agencies at the central, provincial and municipal level have to be coordinated. 26. The Istanbul metropolitan area, which is the object of the two projects proposed, has a central role in the process of urbanization, because of its importance in the Turkish economy. Population growth alone did not transform Istanbul into a large urban area. Situated at the strategic cross- roads of historic land routes between Europe and Asia, the capital of the Ottoman Empire after 1453 remains by far Turkey's most important center of international trade, accounting for nearly ho-50 percent of all import-export activity, and nearly 70 percent of the national imports. It is also the most important single tourist attraction in the country, accounting for 50 percent of all tourists. More recently, it has become the center of Turkey's indus- trialization and manufacturing. Between 1960-1965, the industrial sector grew at an annual rate of 7.4 percent; the city generated nearly 21 percent of all new jobs in Turkey; about 80 percent of these new jobs were in manu- facturing and commerce. In 1965, about 15 percent of the total value added to GDP and 25 percent of the total value added by industry originated in Istanbul. In 1968, Istanbul's share in Turkey's GNP was estimated at 20 per- cent and growing at about 11 percent per year. - 10 - PART IV - THE PROJECTS 27. The proposed urban development and water supply projects, presented here together, respond to two aspects of the same problem: how to provide for efficient urban growth. Detailed descriptions of the projects are given in the reports entitled "Appraisal of a Project for the Preparation of an Integrated Urban Program for Istanbul" (PS-12a) and "Appraisal of the Istan- bul Water Supply Project" (PU-97), which are being distributed separately. A Loan, Credit and Projects Summary is attached as Annex III. 28. The proposed projects were appraised in October/November 1971 and a mission visited the country again in March 1972 to complete the appraisal of the water supply project. During negotiations, in Washington, from May 23 to May 26, 1972, the Government of Turkey was represented by Mr. Ahmet Tufan Gil, Chief Commercial and Economic Counselor, Mr. Teoman Koprululer, Counselor, and Mr. Alaeddin Yoruk, Financial Attach&, all of the Turkish Embassy in Washington. The Ministry of Reconstruction and Resettlement and the Istanbul Master Plan Bureau were represented by Mr. Dogan, Director for Metropolitan Planning. ISI was represented by Messrs. Evirgen, Hitat and Isiki, and the Directorate of State Hydraulic Works (DSI) was represented by its Istanbul Regional Director, Mr. Talha Ermis. General 29. Metropolitan growth in Istanbul has been rapid, unplanned, and uncontrolled. The provision of urban services and amenities has not kept pace with growing demands. Installed water systems lack capacity to meet present demands and service is intermittent. Only one third of the city is served by a water-borne waste disposal system. Contamination of surface and groundwater eventually used for domestic purposes is widespread and was directly linked to a cholera outbreak in 1970. Storm sewers are lacking and standing water is a problem in certain parts of the city. The centuries-old street sytem is choked by traffic, while public transport patronage is declining. Squatter settlements (gecekondus) pose a particularly serious problem. Growing by some 10,000 housing units each year, they now occupy half of the built-up area of Istanbul and house 35-40 percent of the popula- tion, most of them in lower income groups. Two-thirds of the gecekondu population surveyed in 1966 were without adequate water supply, sewerage, electric power or surfaced streets. 30. With the completion in 1974 of the new Bosporus Bridge and periph- eral highway, linking Europe and Asia, the Anatolian side of Istanbul will be opened for new development. To date, only skeletal programs have been prepared to guide residential and industrial development and to provide for - 11 - the extension of public services and facilities to the area. In addition, major arterial improvements to connect the commercial, business and indus- trial areas on the European sidewith the Bosporus Bridge and peripheral highwm,ay have yet to be initiated. 31. Istanbul's urban problems are aggravated by the diffusion of responsibility for local administration among multiple agencies of the central and local governments and the absence of a single unit with overall metro- politan authority. The Central Government operates extensively at the provincial and district levels through the regional and specialized agencies of its various ministries and directorates; among those, the Greater Istan- bul Master Plan Bureau, an agency of the Ministry of Reconstruction and Resettlement, can provide the nucleus for integrated metropolitan planning. Moreover, the Metropolitan Area includes 30 municipalities with specific local government powers and functions which further complicate planning and plan ; implementation on an area-wide basis. Efforts to deal with the multitude of problems are further handicapped by lack of financial resources, ineffective' land use controls, a shortage of technical and administrative personnel, and inadequate planning which has not yet provided a framework for sound invest- ment decisions. Without a major effort to coordinate the urban projects now planned and executed on a piecemeal basis, more severe problems can be expected to develop. 32. The nature and complexity of Istanbul's problems make it unrealistic to expect that full comprehensiveness and coordination of policies, plans and programs can be quickly attained. This is the direction, however, in which planning must move, accompanied by improvements in decision-making and executing capabilities of implementing agencies. The situation therefore calls for a step-by-step approach, beginning with an examination of existing plans and leading to the formulation and implementation of a sound metro- politan development program. Concurrently preparations must be made and projects carried out in areas where existing needs are critical. The Bank Group involvement in Istanbul is designed to assist these different require- ments in parallel. 33. In response to the Government's request, a Bank/IDA mission visited Turkey in mid-1970 to investigate the urbanization problem of Istanbul, review the plan prepared by the Master Plan Bureau, and examine the status of exist- ing and proposed studies and projects of the Government. The mission reported that the Bureau's plan was essentially an indicative physical plan of future settlement patterns and urban infrastructure required for the city's growth. The plan's strategy appeared conceptually sound, e.g. to encourage urban growth on the Anatolian side through development of urban clusters and planned low-cost/low-income settlements, while attending to the continuing needs of the already built-up areas on the European side. The plan lacked, however, the support of certain basic studies, particularly in urban transport and land use and price controls, a clear definition of Government policies regarding urban growth, and measures and institutions for implementing the plan. - 12 - Moreover, the Bureau's staff and resources were limited and it had little authority to enforce its decisions and coordinate the multiple agencies responsible for plan implementation. 34. Consideration of the mission's report led to the conclusion that Istanbul merited inclusion among the cities in which the Bank/IDA should concentrate its urbanization program, and that an urban development project should be prepared that would provide the basis to combine on-going Bank lending for water supply, wastewater, and power projects with the planning for urban cluster development, basic infrastructure for squatter and low-cost/ low-income settlements, and urban transport improvements. The mission was satisfied that the preparation of these projects, as well as the proposal to relocate Istanbul's wholesale market complex (a major traffic bottleneck in the central business district), need not be deferred until refinement of the Bureau's plan, as they would be high priority projects in any case. Two subsequent missions built upon this basic approach. 35. The urban development project would lead to new types of inter- linked urban projects, some of which would be considered for Bank Group financing. The project for urban cluster development, for example, which is at the core of the Bureau's strategy, would be planned in conjunction with the proposed Istanbul-Imnit Highway, and would involve industrial estates and all types of urban infrastructure. The preparation of the wholesale market relocation project would be coordinated with proposed investments in the port and ground transport system. The Istanbul power distribution project to be appraised this month is expected to pave the way for a review of the pub- lic transportation facilities for-which the power distribution authority (IETT is also responsible. And major urban transport projects, which play a large' part in determining urban growth patterns, would be prepared with consider- ation for the urban transport system as a whole and land use decisions which make up the Bureau's plan. Assistance would also be given through the Master Plan Bureau to a variety of institutions, particularly those concerned with urban expansion, including land purchase and controls, basic infrastructure programming and execution of urban cluster development. 36. Thus, the approach taken combines project preparation with improve- ments in the institutions for broad development planning and plan implement- ation. The approach is expected to provide: (a) in the short run, projects addressing the most urgent problems confronting the Istanbul Area and which are formulated with a clearer understanding of their inter- linkages; and (b) in the longer run, a policy framework and improved planning and implementation capabilities which will permit a more comprehensive, coordinated and effective approach to urban development. - 13 - Urban Development Project 37. The Project. The project consists of consultant services to provide assistance in: (a) the preparation of an integrated urban develop- ment program for Istanbul; (b) development of institutions and improvement of regulations and policies to enable the institutions to coordinate and implement the program; (c) the preparation of high priority investment projects which aim at alleviating the most pressing needs and could ratio- nally be carried out before the integrated program is completed; and (d) the preparation of an urban transport/land use model to provide a basis for future investment decision making. The projects to be prepared under (c) will include (i) a project to provide basic infrastructure for existing squatter settlements and future low cost residential areas, (ii) an urban cluster to form the nucleus for planned urban expansion along the proposed Istanbul-Izmit Highway, (iii) a wholesale market relocation project to re- lieve congestion in the center of the city and to improve the efficiency of operations in the market, (iv) a wastewater disposal project, and (v) a traffic engineering and control project to improve at low cost the use of the existing urban transport system; these projects may eventually be considered for financing by the Bank Group or other lending or development agencies. In addition, the project provides for fellowships and seminars to train Turkish staff in the above fields and the necessary equipment to carry out the studies. 38. Execution. Execution of the project will be the responsibility of the Ministry of Reconstruction and Resettlement through its various direc- torates and agencies with the cooperation of other ministries. The work will be centered in the Istanbul Master Plan Bureau where outside consultants will work with the Bureau's staff for the purpose of the project. The con- sultants will provide an experienced Chief Consultant responsible to the Director of the Bureau and a small group of highly qualified specialists for the duration of the project. Other specialists will be assigned from the consulting firm, or by sub-contract with other firms or individuals where appropriate, as needed from time to time for specific tasks. Further measures to strengthen the institutional framework for planning and imple- menting the development of Istanbul metropolitan area are described in paras. 55 to 57 below. 39. Costs and Financing. The total cost of the project, including taxes and duties, is estimated at $3.3 million of which $2.3 million in foreign exchange. This estimate also includes contingency and price esca- lation allowances amounting to $0.70 million. A summary analysis of project costs is given in Annex III. 40. The proposed credit will finance the foreign exchange cost of the project. The local currency cost will be met by budgetary allocations. Alternative sources of funds for this project were explored but without any positive outcome. UNDP funds, in particular, were already committed or requested for other high priority projects. - 14 - 4l. Justification. The Master Plan Bureau for Istanbul has prepared a list of project investments to be carried out over a four-year period in the Istanbul Metropolitan Area. Although only a partial inventory, proposed investments exceed available resources, and project priorities, as well as their timing and phasing, are not indicated. Moreover, no feasibility studies have been undertaken, nor have the means for implementing the projects been worked out. The assistance to be provided under this first Urban Devel- opment Project would help to remedy these deficiencies. It would establish an overall planning framework, develop investment priorities, prepare a phased program including institutional measures for project implementation, and would bring with it, as a result, the benefits attributable to planned urban development. Water Supply Project 42. The Project. The water supply project is the major part of the Istanbul water supply expansion program for 1972-76, which is based on the Water Supply Master Plan recently prepared by consultants under the auspices of UNDP/WHO. The project includes expansion of the water treatment, trans- mission, pumping and distribution systems for the whole metropolitan area. The project also includes consulting services for design and supervision of some specialized works (Bosporus pipeline crossing, main transmission pipe- lines and water treatment plants) as well as consulting services to analyze the distribution system and to assist in establishing a sound organization and accounting system in ISI. 43. Execution. By law, the Directorate for State Hydraulic Works (DSI) is responsible for source development and construction of water treatment plants, pumping stations and transmission facilities up to the distribution reservoirs and, therefore, would execute the respective project items. Upon completion of these facilities, most will be transferred to the Istanbul Water Administration (ISI), which is responsible for construction of the distribu- tion system to utilize the treated water, as well as for operation of the system. The Bank, ISI and DSI would enter into a Project Agreement which will make provision for proper coordination between ISI and DSI and efficient execution of the proposed project. 44. Costs and Financing. Total cost of the project, including taxes and duties, is estimated at $85.1 million, of which $26.5 million (31 per- cent) in foreign exchange. These estimates include physical and price con- tingencies totaling $18.8 million. A summary analysis of project costs, which shows also the project items to be carried out by DSI and ISI, respectively, is given in Annex III. Of the $26.5 million foreign exchange component only $20.5 million will be eligible for financing from the proposed loan, since some 25 percent of project expenditures (including $6.0 million of foreign exchange costs) would not be subject to international competitive bidding. In addition, the Bank loan would finance $5.0 million of interest on the loan during construction and $11.5 million of local currency costs. - 15 - 45. The financial requirements of the water supply program of DSI and ISI in the period 1972-76, including the project, total $117.0 million. The proposed Bank loan would provide 32 percent of these requirements, with Turkish sources providing the balance of $80.0 million equivalent. Internal cash generation by ISI would provide 17 percent of the required funds, capital contributions by consumers 3 percent and the remaining 48 percent ($56.2 mil- lion equivalent) would be provided by Government funds. 46. The Government's contribution of $56.2 million equivalent is sub- stantial given its available resources. Reference is made to paras. 8 and 11 above which point out that despite an overall satisfactory savings per- formance, public investment growth, and hence investment in some priority projects, may suffer in the next four years. In view of the high priority which the Turkish authorities have rightly attached to the project here pro- posed, the insufficient domestic resources available to the Government, and the relatively small foreign exchange component of this project, I consider that for the Bank Group to cover part of the local currency expenditures is fully justified. 47. Procurement. All goods and services financed out of the proceeds of the loan will be procured after international competitive bidding in accordance with usual Bank Group procedures. Such procedures have already been initiated in agreement with the Bank for certain critical items (treat- ment plants and pumping stations). Retroactive financing is proposed up to an amount of $150,000 in respect of advance payments made for pumps for which contracts were signed after the field appraisal and following international competitive bidding. 48. For all equipment contracts subject to international competitive bidding, a margin of preference for local manufacturers of 15 percent or the actual duty, whichever is lower, is proposed. Turkey is an associate member of the European Economic Community (EEC) and would normally grant EEC sup- pliers reductions of up to 10 percent of the relevant customs duty on the types of equipment required for the project. However, DSI is exempt from all customs duties and ISI is exempt from customs duties on pipes, so the question of preferentail duties would not arise for most imports forthe project. ISI would pay duty on pumps motors, valves and water meters (approximately 25 percent, 50 percent and 75 percent respectively); EEC suppliers would receive preferential treatment for any such equipment not supplied by Turkish firms. The total value of contracts on which such preference could be applied would not exceed $1.0 million equivalent. 49. Relending and Disbursement Arrangements. The proposed loan would be made to the Government, who would relend the total amount of the loan to ISI. The relending terms which will be set forth in a subsidiary loan agree- ment, to be approved by the Bank, would be the same as for the loan to the Government, i.e. interest at 7-1/4 percent per annum and a 25-year repayment period including 5 years of grace. - 16 - 50. Disbursements will be made against: (a) C.I.F. costs of equipment and supply-cum-erection contracts won by foreign firms or the ex-factory costs of such contracts if won by local manufacturers; (b) 50 percent of civil work contracts; (c) total costs of foreign consultants and 50 percent of cost of local consultants; (d) foreign exchange costs of training and (e) interest on the loan during the construction period. Disbursements for the part of the project to be carried out by DSI will be made through ISI on receipt of disbursement applications initiated by DSI and submitted to the Bank by ISI. 51. The Beneficiary. ISI, the beneficiary of the proposed Bank lending operation, is a semi-autonomous agency attached to the Istanbul Municipality. Three of its four Board members, including the General Director, are nominated by the Mayor of Istanbul. ISI is at present responsible for the distribution of water within the borders of the municipality only. As the new source facilities are designed to serve the whole Istanbul region, it has been agreed that a regional water authority, with ISI as its basis, will be established during the project period. In the interim, before the creation of the new authority, specific arrangements will be made by ISI to sell water an a wholesale basis to outside municipalities. 52. ISI has a generally competent staff, but serious organizational weaknesses have reduced the quality of its performance. Unsatisfactory distribution of functions and poor coordination among departments, in- sufficient competence and experience in long-term system planning and a poor accounting system are the major deficiencies. ISI management is con- scious of these shortcomings and anxious to improve performance in order to undertake the major expansion program which lies ahead. As mentioned in paragraph 42 consulting services to advise on the needed reorganization of ISI and on the establisIent of an effective accounting system are included in the project. 53. ISI's financial position is sound. It has been consistently a profitable organization and is virtually free from debt at present. The rate of return on net fixed assets was 18 percent in 1968, falling, despite a tariff increase of about 25 percent in January 1971, to 9.3 percent in 1971, due to rapidly rising costs. Financial projections for ISI in- dicate that ISI will be able to pay interest on Bank funds upon completion of the project and repay the principal of all funds borrowed for the proposed project; ISI's debt service is covered at least twice by internal cash generation through the period 1972-1980 and the draft Project Agreement requires the Bank's approval for any further borrowing which would increase debt service to a level not covered at least 1.5 times by net revenue. In order to assure a sound cash generation policy for this and future expansion programs, it has been agreed that ISI's tariffs should be such as to yield a rate of return on net fixed assets of at least 7 percent from 1974 through 1976 and of 8 percent thereafter. The Government and ISI - 17 - will review ISI's financial position in September 1973 to determine the tariff increase required in January 1974 to meet this rate of return test; on the basis of present projections, it will be of the order of 30 percent. 54. Justification. Water supply development is absolutely vital to the future development of the Istanbul region. Presently, demand for water greatly exceeds supply. The measurable benefits such as revenues from in- creased sales and estimates of likely cost savings provide an economic rate of return estimated at 10.6 percent. Reasonable variations in key assump- tions for the calculation of this return do not change the results more than marginally. Waterborne diseases have a high incidence in the area and contaminated water was responsible for a cholera epidemic in 1970 which resulted in 52 deaths. The project will also have health and other important non-quantifiable benefits. Institutional Development 55. An important feature of both projects is the impact on the develop- ment of institutions in the metropolitan area by strengthening the planning mechanism at the metropolitan level across traditional municipal boundaries, within which the problems of the present urban agglomeration cannot be solved. 56. A significant step towards the improvement of the institutional framework to deal with metropolitan problems, and a direct result of the Bank Group involvement in Istanbul, is the establishment by decree on May 9, 1972, of an interministerial committee responsible for the coordination of planning, investment decisions and implementation measures related to urban development and to the preservation of natural and man-made assets in Ankara, Istanbul, Izmir and in other cities which shall be designated as metro- politan areas in the future. The committee will also prepare legislation to set out the necessary policies and the institutions in the field of metropolitan development. 57. Also, in connection with the proposed projects, the Government has undertaken to establish regional water and wastewater authorities and to prepare specific proposals by the end of 1972 for Bank Group review and comment. These arrangements to resolve specific regional projects are expected to set precedents which i4ll be of considerable significance for the Istanbul metropolitan area and other urban areas in Turkey. - 18 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 58. The draft Development Credit Agreement between the Republic of Turkey and the Association, the draft Loan Agreement between the Republic of Turkey and the Bank, the draft Project Agreement between the Bank, Istan- bul Water Administration and the State Hydraulic Works, the Recommendation of the Committee provided for in Article V, Section I (d), and in Article III, Section 4 (iii) of the Articles of Agreement of the Association and the Bank, respectively, and the text of Resolutions approving the proposed Development Credit and Loan, are being distributed separately to the Executive Directors. The relending of the loans to the Istanbul Water Administration under a Sub- sidiary Loan Agreement, to be approved by the Bank, is provided for in Section 3.01 (b) of the Loan Agreement. 59. The draft agreements conform to the normal pattern for loans or credits for each type of project except for the link established between the two projects by the cross - default clauses (Section 7.02 (b) of the draft Loan Agreement and 7.02 of the draft Development Credit Agreement) and the simultaneous effectiveness provided for in Section 8.01 (a) and 8.02 of the draft Loan and Development Credit Agreements, respectively. The Executive Directors' attention is also drawn to: (a) Section 4.05 of the Loan Agree- ment and Section 4.02 of the Development Credit Agreement which provide for the coordination of water supply and wastewater facilities in the Istanbul metropolitan area; (b) Section 4.04 of the Loan Agreement which contains pro- visions relating to the sale of water by ISI to municipalities outside Istanbul; and (c) to Section 4.04 of the Project Agreement and Schedule 2 thereto which relate to the rates for water charged by ISI. 60. I am satisfied that the proposed Credit and Loan would comply with the Articles of Agreement of the Association and the Bank. PART VI - RECOMMENDATION 61. I recommend that the Executive Directors approve the proposed Credit and Loan. Robert S. McNamara Attachments President June 14, 1972 ANNEX I THE STATUS OF BANK GROUP OPERATIONS IN TURKEY Page 1 of 2 A. STATEMENT OF BANK LOANS AND IDA CREDITS (as at April 30, 1972)* Loan or US$million Credit Amount (less cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Seven loans and seven credits fully disbursed 70.7 80.3 - 568-TU 1968 Republic of Turkey Keban Transmission Lines 25.0 - 6.2 587-TU 1969 Republic of Turkey Seyhan Irrigation Stage II 12.0 - 11.7 143-TU 1969 Republic of Turkey Seyhan Irrigation Stage II - 12.0 2.8 589-TU 1969 T.S.K.B. Industry 25.0 - 1.0 623-TU 1969 Republic.of Turkey Third Cukurova Power 11.5 - 4.2 13-TU 1970 T.S.K.B. I Industry 40.0 - 34.1 236-TU 1971 Republic of Turkey Livestock I - 4.5 4.5 748-TU 1971 Republic of Turkey Education 13.5 - 13.4 257-TU 1971 Republic of Turkey Fruit and Vegetable - 15.0 15.0 762-TU 1971 Republic of Turkey Fruit and Vegetable 10.0 - 10.0 763-TU 1971 T.E.K. Power Transmission 24.0 - 23.8 775-TU 1971 Republic of Turkey Fourth Cukurova Power 7.0 - 7.0 281-TU 1972 Republic of Turkey Irrigation Rehabilitation - 18.0 18.0 817-TUR* 1972 Republic of Turkey Steel Mill Expansion 76.0 76.0 Total 314.7 129.8 of which has been repaid 50.8 Total now outstanding 263.9 Amount sold 1.2 of which has been repaid 0.7 0.5 Total now held by Bank and IDA 263.4 129.8 Total undisbursed 187.4 40.3 227.7 * A $24 million loan for an Ammonia Urea Manufacturing project and a $16 million credit for a Second Livestock project were approved in May 16, 1972, and April 4, 1972, respectively, but not yet signed. They are not included in this table. ** Not yet effective. ANNEX I Page 2 of 2 THE STATUS OF BANK GROUP OPERATIONS IN TURKEY B. STATEMENT OF IFC INVESTMENTS (as at April 30, 1972) Amount in US$ Millions Year Obligor Type of Business Loan Equity Total 1963 TSKB DFC - 0.92 0.92 1966 SIFAS .1 Nylon yarn 0.90 0.47 1.87 1967 TSKB DFC - 0.34 0.34 1969 TSKB DFC - 0.41 0.41 1969 SIFAS II Nylon yarn 1.50 0.43 1.93 1969 Viking I Pulp and paper 2.50 0.62 3.52 1970 A.C.S. Glass 10.00 1.58 11.58 1970 NASAS Aluminum 7.00 1.37 8.37 1970 SIFAS III Nylon yarn 0.75 - 0.75 1971 Viking II Pulp and paper - 0.05 0.05 1971 SIFAS IV Nylon yarn - 0.52 0.52 1972 TSKB DFC - 0.42 0.42 Total commitments 22.65 7.13 29.78 Less cancellations, sales terminations and repayments 5.14 0.37 5.51 Total commitments now held by IFC 17.51 6.77 24.28 Total Undisbursed 11.29 C. PROJECTS IN EXECUTION Execution of Bank Group-financed projects in Turkey has been generally satisfactory, but disbursements on some loans and credits have been considerably behind schedule. This has been due, in certain cases, to delays experienced in achieving effectiveness, but more generally to the effects on project implementation caused by the changes in Government since March 1971, and the absence of a body responsible for coordination and control of project implementation since these functions were removed in 1971 from the State Planning Organization. A trend towards more expeditious execution of projects has appeared recently, though, and except for the loan to Erdemir Steel Company signed on April 28, 1972, all other loans and credits are now effective and the pace of disbursements is expected to accelerate. ANNEX II CWUNTRY DATA C019TRY: TURKEY POPULATION: 37.5 miltion (1972) DENSITY: 48 per km2 AREA: 780,000 km2 Reta of Crowth: 2.6% (1965 to 1972) 58 per km2 of tle land POPUATION CHARACTERISTICS: Cr-de blrth rate (per 1,000) 39.6 <1967) DISTRIBUTION OF LAND 0WN1RSHIP: <1963> trude death rate (per ,000) 14.6 (1967) % of land oed by larget 5% onars 16 Infatr ortlitty rate (per 1,0 l[ve bIrths) 153.0 (1967) % af land awned by allear 10% oser. 2 litanbul Antaly. Ordo INCOME DISTRIBUTION: (1965-66) (1966-67) (1966-67) ACCESS TO ELECTIrCITY: (L of popul.etion) of inoe, loeat 20% 7 4 3 Urban ) hLghr 20% 42 42 5 Rural 377. <1970) Avrage monthIy ncom prt h~oehold (lin TL) 1,230 986 733 ACCESS TO POTABLE WATER (1 af popuion) oEALT i "rh-n -- Populatton per phytet 2,760 (1967) Rurn1 -- Population per haspital hed: 560 (1967) NUTR)iDON. GNP PER CAPITAr 319 US (1971) EDUCATION: talar>' utak /d'1y/captta 2.760 (1964-66 Adlt lita.y ate. 46.0% (1965) Pr pt preteln intak4/Iay (grammeo) ?.9 (1964-662 Pitarty school enrollent. 77.01 (1968) GR000 NATt09INP0IC1 (1971) A hNAL RATE OF GROWTH (. conatae t prto" ) (~alue in Uj 2 mhllton) 1962-1965 1965-1970 1971 >,NP it marker pr>cnr 11.955 .0 ~5.0 .1 9.0 trots nvsenta 2,4)) 20.2 10. 10.72 3.4 trons Nat4onnl Sbolna1 2,296 193 14,3 9.6 f0.7 Lter _t Accent> -.nc 1 15 0.9 mpnrts ofreod. tFS 1,356 11.4 -- Expert af oori, NFS as5 7.4 -- 4.7 n. DUTPUT, LABOR IORCE AND PODUCTIVITY IN 1971: V'aua dded Labar Pore Valu. Added Per W-rker (US $ illion) % millionm % (US .) 7 of nattowa m verage Ag-Irlture 3,093 27.9 9.8 66.2 316 40 I ndutry 2,710 23.4 1.5 10.1 2,683 243 Serv-1, 5, 797 50.0 3.5 23.7 1,656 211 T.o/Aer-me 1,590 100.0 14.8 100.0 783 100 PUMLIC FINANCE IN 7971- Central Govenment % ef CDP average in TL Billion % of DP last threa years rrent Recle 36.6 21.1 19.8 Ctrrent E,xpenditur (tncludlng tranfer) 33.2 19.1 15.a Curret surplu, 2/ 3.4 2.0 4.0 Capital Exp.ndLtere 3 14.2 8.2 8.6 Eo trtI A.alat.i.e (net) 0.8 0,5 .a. PRCES AND CREDr- wholeale Ptce Inde. (19b3-t00) Bank Credit to Public Soetor Bank Credit to Privata Sector Averag Yerly AvernRe Inr- % ChRae e T mill ter Avere Yorly in TL millt.o Aerage Yearly .ad of year % Changa nd af year % Chancg 1965 109,4 5,518 15,398 1970 145.7 5.9 11,297 15.4 40,923 21.5 1971 148,9 15.9 n.. February 1971 i59.8 February 1972 195.2 22.2 BALANCE OF PAYMENT R (millon 02 $) MEBCHANDISE EXPORTS (AVERACE OF 1969-1971): 1969 190 19/1 (omilo UIS $) 2 of lotal Enporet fGoda andG NS 675, 76 681 Cotton 062 24 6 Imprts of Goed ene NF'S 940 -1,132 -1,356 4alnuts 93 . Id.5 Reaourcr p, -265 -372 -47> T -baccn 92 73.6 Taxtuies 27 4.5 l e 'ret t Payment ( et) -414 -4 6 .47 RaOsima 22 3.7 Worker Remit tance- 141 273 471 Other 227 36,1 Other F-ctor P-yn1111 (ne) -37 -31 -16 Total 601 100.0 Bet Trasfero 6 8 Il arne on tuerent Accounta -272 -1/2 -109 EXTERNAL DEBT ON DECMBER 31. 1971*: .Irert .orei 5e n - 2ent 74 59 45 Modi and long-tar m eredt , public 2,167 iednut ndLon-Ieter l,.n,n 164 161 19> N-aa.rante.d privata deht 39 DI)bTrtsenri t79 314 ['.u0 Amortloät-Ee -15 -173 -141* Tetat Sutsesnding and Dlsbersed 2,206 1>11le) Iterimt 4> 63 5 >ther lpttul (n.t) 270 14 29 DCBT SXRVCE PAID (1971)' t88* Incrha-,s 0nt LcInl Resere- 22 14 041 Rr~r an d Hm6so n s 97 1 4 * 4 § X /ID A 4 WI IN G , D E C E M B R 3 1 , 19 7 1 : (1o UD A r e v- O25 4I 72Dtsotnding and Dtabursed dL.S 102.9 Be>t Foreign A7aele -20 1 1 Udiburfted 107.4 9.9 Penr 2utstanding inclding Undtebur .d 189.2 112,8 l ed le--Ia 2/ lncl'.d>ng debt repny,.nr ond eplital trrn I Ent IsIrs 1.11 Bl II. n I. ner korrowaing by~ ' ote Etierepr nes, guaranteod by g ~vrnume 0. ler Un 1010 1Ie" 6/ 1Fnd t, venr oa of Tehane 120 91.00 14 TL1 Date: Jam 1972 1/ IS *p lo Ikreer 1971. 14 the.eatler TL 1.00 • .97)4 0S $ Department. EMENA ANNEX III page 1 of 5 TURKEY ISTANBUL URBAN DEVELOPMENT PROJECT I. Credit and Project Summary Borrower Republic of Turkey Amount $2.3 million equivalent in various currencies. The proposed Credit would cover the foreign exchange component of the project, estimated at 71 percent of the project cost. Terms Standard Description The proposed project would provide assistance in the preparation of an integrated program designed to meet the urban development needs of the Istanbul Metro- politan Area. It would include the preparation of priority projects: (a) a project to provide basic urban infrastructure for existing squatter settlements and future low-cost residential areas, (b) an urban cluster to form the nucleus for planned urban expansion along the proposed Istanbul-Izmit Highway, (c) a whole- sale market relocation project to relieve congestion in the central city and to improve market efficiency, (d) a wastewater disposal project, (e) a traffic engi- neering and control project to improve at low cost the use of the existing urban transport system, and (f) an urban transport/land use model to be used by Turkish authorities in future years as an investment decision- making tool. The preparation of the proposed project has been coordinated with a project to alleviate the existing water supply need of Istanbul. Execution The Ministry of Reconstruction and Resettlement will be responsible for the execution of the project, in coordi- nation with other Government agencies. Work will be centered in the Istanbul Master Plan Bureau. ANNEX III page 2 of 5 Project Cost The project cost is estimated at US$3.3 million equivalent and is summarized as fotlows: US$ ?1illion Local Foreign Total Consultant Advisory Services 0.05 0.31 0.36 Project and Model Preparation 0.43 1.34 1.77 Computer Time and Programming 0.15 - 0.15 Training, Fellowships, Seminars - 0.08 0.08 Equipment and Vehicles - 0.07 0.07 Local Support of Consultants 0.14 - 0.1h Contingencies 0.19 0.51 0.70 Total 0.96 2.31 3.27 Procurement Consultants would be engaged upon terms and conditions satisfactory to the Association. Equipment and vehicles would be procured under procedures consistent with the Association Guidelines for Procurement. Estimated Disbursements US$ Million FY1973 FY1974 FY1975 0.71 0.99 0.61 Appraisal Report Report Number PS-12a, dated June 5, 1972, Special Projects Department. ANNEX III page 3 of 5 ISTANBUL WATER SUPPLY PROJECT Loan and Project Summary Borrower Republic of Turkey Beneficiary Istanbul Water Works Administration (ISI) Amount $37 million equivalent in various currencies Terms 25 years of which 5 years of grace, 7V per annum Relending Terms Same as above Project Description Treatment, pumping, transmission and distribution facilities and consultant services for major expansion of Istanbul water supply system. Estimated Cost DSI Component US$ Million Local Foreign Total Treatment Plants 5.4 6.h 11.8 Pumping Stations 1.3 1.3 2.6 Pipelines and Reservoirs 12.3 6.2 18.5 Land 1.8 - 1.8 Project Design, Supervision and Training 2.2 0.4 2.6 Physical and Price Contingencies 8.9 3.8 12.7 Total 31.9 18.1 50.0 ANNEX III page 4 of 5 ISI Component US$ Million Local Foreign Total Distribution Pipelines 15.1 4.1 19.2 Reservoirs, Pumping and Pressure Reducing Stations 1.3 0.3 1.6 Water Meters and Service Connections 3.6 1.6 5.2 Renovations to Transmission Conduits 0.8 0.5 1.3 Operation and Maintenance Equipment 0.1 .0.1 0.2 Engineering Charges, Consultants and Training 1.0 0.5 1.5 Price Contingencies 4.8 1 6.1 ISI Total 26.7 8.4 35.1 Total Project Costs 58.6 26.5 .1 Financing Plan In addition to the above project costs to be incurred between 1972 and 1976, DSI and ISI have ongoing expenditures on items begun prior to 1972 and will commit expenditures for items to be completed after 1976. The total of ISI/ DSI investment expenditures 1972-76 is estimated at $117 million, which will be financed as follows:- US$ Million Proposed Bank Loan 37.0 Government Loan 56.2 Total Borrowings 93.2 Capital Contributions 3.5 Internal Cash Generation 20.3 Total 117.0 Estimated Disbursements US$ Million FY 73 FY 74 FY 75 FY 76 FY 77 2.7 6.9 10.9 10.2 6.3 ANNEX III page 5 of 5 Procurement Arrangements International competitive bidding for all contracts to be financed by the Bank. Consultants The project provides for (a) engineering consultants to assist DSI in the design of the transmission systems from the Omerli scheme and in procurement and construction supervision of treatment plants and the Bosporus crossing, (b) engineering consul- tants to assist ISI in the analysis and future design of the distribution system, (c) management and accounting consultants for ISI. Tahal, of Israel, is being engaged as consultant by DSI for (a) above. Economic Rate of Return 10.6 percent Appraisal Report Number PU-97, dated June 14, 1972, Public Utilities Projects Department. June 14, 1972  ＿少：  R M 3ti. 3- gæc No-\ - C m cIO å Z - --- 2N. - c 4-4 8Ø-- I,