Turkey - Istanbul Power Distribution Project

LJSJ-Es To FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 20a-TU APPRAISAL OF THE ISTANBUL POWER DISTRIBUTION PROJECT ISTANBUL ELECTRICITY,TRAMWAY AND TUNNEL COMPANY (IETT) TURKEY April 6, 1973 Europe, Middle East and North Afric'a Public Utilities Projects Division This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept respor sibility for the accuracy or completeness of the report.   CURRENCY EQUIVALENTS Turkish Lira (LT) 14 = us$a.OO Turkish Lira (LT) 1.00 - 100 kurus = USP7.1 Turkish Kurus 1.00 = US30.0?1 IETT's financial year ends December 31 WEIjGHTS AND MEASURES kW = kilowatt (1,000 W) F,.4 = megawatt (1,000 W) kWh = kilowatt hour m h = Gigawatt hour (1 million kWh) kV = kilovolt (1,000 V) Kilometers (km) 1.0 = 0.6214 miles (ni) Meters (m) 1.0 3.281 feet (ft) Cubic meter (m3)1.0 = 3.315 cubic feet (c) LIST OF LBBREVIATIONS TEK - Turkish Electricity Authority EdF - Electricite de France SOFRELEC - Societe Francaise d'Etudes et de Realisations dWEquipment Electrique IETT - Istanbul Electricity, Tramway and Tunnel Company  REPUBLIC OF TURKEY ISTANBUL ELECTRICITY, TRAMWAY AND TUNNEL COMPANY (IETT) APPRAISAL OF TVE ISTANBUL P01ER DISTRIBUTION PROJECT TABLE OF CONTENTS Page No. SU+MARY AND CONCLUSIONS .............. .......... i-ii 1. INTRODUCTION ................., I General ....... .................................... I Istanbul Urban D)evelopment - Strategy and Objectives 2 2. THE ECONOIY AND T13E POWER SECTOR ..................... 4 The Economy ........................................ 4 Energy Resources ................................... 4 The Power Sector ................................... 4 3. THE BORRO0TWFR AND THE BENEFICIARY ..................... 6 History and Fleld of Operations of IETT .... ........ 6 IETT's Leoa' Status ........ ........................ 7 IETT's Fn-tue ......... ............................. 8 IETT's Grganization ................................ 8 Existing Facilities - Electricity ..... ............. 10 Existing System Operation .......................... 10 4. TIE POWZR MARKET ..................................... 12 System Growth - Past and Forecast .................. 12 Actual Sales, 1967-1971 ............................ 13 Forecast Sa2Is, 1972-1976 .l. 14 5. TIIE PROJECT ............... 15 Project Description .-.. ..... 15 Cost Estimates ..................................... 16 Procurement and Disbursements ...................... 17 Consulting Services . ............................... 18 Environment ........................................ 19 6. JUSTIFICATION ........................................ 20 Ceneral ............................................ 20 System Outages ..................................... 20 Economic Rate of Return ........ ................... 20 This report was prepared by Messrs. E.A. Minnig, A.J.D. Hutchins and Y.P. Buphomene, and is based on information provided by IETT, and field mission of June/July 1972.  -2- Table of Contents (Continued) 7. FINANCIAL ASPECTS ....... ............................. 21 IETT's Financial Viability - General .... ........... 21 Present Accounts - Form ..... ....................... Accounting Methods ................................ 21 Auditors ................................... 22 Insurance ................................. 22 Past Earnings ......... ............................. 22 Past Balance Shiects ....... ......................... 23 Overall Forecast Trading Results .............. ..... 24 Electricity Department Forecast Operating Results .. 24 Other Departn-ental Forecast Operating and Trading Results .......... ..... 25 Financing Plan, 1972-1976 .......................... 26 rovernment/Municipal Assistance ..... ............... 27 Forecast Balance Sheets ............................ 28 Financial Covenants ................................ 28 8. RECO'MENDATIONS ...................................... 30 LIST OF ANI,EXES 1. Basic Economic Data - CNV, etc. 2. IETT's legislation and present de facto status. 3. Transport; Page 1 Description and statistics Page 5 Actual and forecast Balance Sheets Page 6 Actual and forecast Income Statements Page 7 Sources and Applications of Funds .iap 1014; IETT's Transport System 4. Cas: Pa-e 1 Description and statistics Page 4 Actual and forecast Balance Sheets Page 4 Sources and Applica.tions of Funds. Page ' Actual and forecast Income Statements Map 10145 Istanbut's Cas Systems  -3- 5. Map 10143 - IETT's Service Area 6. IETT - Gz.ganigram (7049(R)) 7. IETT - hlumber of employees B. Electricity - Existing Facilities 9. Electricity - Actual and forecast system statistics: Page 1 Statistics - actual and forecast 1967-1976 Page 2 Diagram - 1967-1976 10. Electricity - Maximum demant by area - Actual and forecast 1967-1976 11. Electricity - Sales and revenues by tariff classification: Page 1 Actual 1967-1971 Page 2 Forecast 1972-1976 12. Electricity - IETT's Tariffs 13. Elerctricity - Tariffs for purchased power from TEK 14. Map .1'1'6 - Lxisting and projected primary electricity distribution facilities 15. Quantities and cost estimates of the Project and loan portion 16. Disbursement Schedule 17. Electricity - Outage statistics 1967-1971 18. Electricity Estimated loss to industry in 1971 due to power outages 19. Actual Income Statements 1969-1971 - Consolidated and Departmental 20. Actual and Forecast Balance Sheets 1969-1976 - Consolidated and Departmental 21. IFTT Summary of Forecast Operating Results - 1972-1976 - Consolidated and Departmental 22. Electricity - Forecast Inccme Statements 1972-1976 23. lETT - Sources and Applicacions of Funds 1972-1976 24. Electricity - 3ources and Applications of Funds 1972-1976 25. Government/Mlunicipal Assistance for IETT and some suggested methods of providing this 26. Electricity - Actual and Forecast Balance Sheets 1972-1976 27. Ilead Office - Actual and Forecast Balance Sheets 1972-1976 28. Major assumptions used as the basis for the financial forecasts 29. Terms of Reference - Studies  REPUBLIC OF TURKEY ISTANBUL EIECTRICITY, TRAMWAY AND TUNNEL COMPANY (IETT) APPRAISAL OF THE ISTANBUL POAER DISTRIBUTION PROJECT SUMMARY AND CONTCLUSIONS i. This report covers the appraisal of a power distribution project of the Istanbul Electricity, Tramway and Tunnel Company (IETT). The Project comprises the last two years of IETT's construction program for 1972 through 1975, and the proposed loan would finance the foreign exchange cost of the Project together with certai-n consulting services. ii. IETT, created in 1939 by Law 3645, is a part of the Municipality of Istanbul but har a separate corporate legal status. It is responsible for all the transport services, for two of the three gas systems and for electricity distribution, all serving Istanbul and a number uf areas outside the Municipality of Istanbul. A major objective of the proposed loan is to encourage institutional changes, including the separation of organization, administration ard financing of the three services after completion of appropriate studies to be financed by the proposed loan and leading to the regior lization of the distribution of electricity through- out the Greater Istanbul Metropolitan Area. iii. The transport and gas activities of IETT have both been incurring increasinigly heavy losses over the past 20 years. These have so far been supported by the surpluses of the electricity department but at the expense of the expansion and rshabilitation of the electricity system, in which investment has been inadequate. This has resulted in periodic poor quality suppl;- with low voltage and an unacceptably high and increasing number of outages. The Project is designed to reduce these by meeting IETT's most urgent system requirements. A power market study, which will not be financed from the loan as it is to be undertaken by the Government, is included in the Project to deal with the period 1976-1985. This long-range planning stud, is to be coordinated with the other onlgoing urban development planning for Istanbul. iv. In its present form, with the increasing transport and gas losses expected to continue until these activities can be reorganized, IETT's financial situation, already precarious, is not viable in the future. By itself the electricity operation is viable and profitable at present tariff levels, which the loan would require to be maintained through 1976, and is expected to continue so during the forecast period pending reorganization. IETT's overall financing plan however needs substantial assistance .rom the Government which has agreed to provide the necessary ad hoc support to enable IETT to maintain transport and gas services at least at their present -evels, until these services can be reorganized on a self-supporting basis. By 1971  - ii - IETT's credit worthiness had become severely damaged because of its accumu- lated transport and gas losses and the Government has agreed to make appro- priate arrangements for the settlement of over-due 1971 accounts payable mainly to the Government and to the Municipality of Istanbul. V. IETT's organization is over-centralized, lack- sufficient competent qualified engirners at many leve]6, and has too high a )roportion of ancillary stafi not directly productive. However, these problems are already the sub- ject of a consultant's study and despite its * ,rtcoming IETT is the only effective power distribution entity presently available for the Istanbul area. Electrtcit- overall planning and operations are suffering because of a dispute between IE,T and the Turkish Electricity Authority (TEK) over jurisdiction in areas outside the municipal boundary. The Government has undertaken that, until a new organization for power distributton throughout the Greater Hetropolitan Area is established, the Government will cont:...ue to permit IETT to distribute electricity in the area presently served by it. This reorganization should be accomplished by not later than December 31, 1974. vi. Despite the serious financial and orgrnizational problems involved, the Project is worthwhile because of the metror,ol an area's urgent need for a more efficient and reliable power supply ant, in particular, for the coordinated expansion on a region-wide basis of the basic public services, several of which were dealt with under IDA Credit 24-TU. The Project, which is expected to correct some of the deficiencies of IETT, would be a continua- tion of the program started under the Credit and under Loan 844-TU for the Istanbul water supply project; to rationalize the urban development of the Istanbul Yetropolitan Area. vii. The Project would be suitable for a Bank loan of US$1J4 million equivalent for a term of 20 years, including a grace period of 3-1/2 yrars. *  REPUBLIC OF TURKEY ISTANBUL ELECTRICITY, TRAMWAY AND TUNNEL COMPANY (IETT) APPRAISAL OF THE ISTANBUL POWER DISTRIBUTION PROJECT 1. INTRODUCTION A. GENERAL 1.01 The Government of Turkey, on behalf of the Istanbul Electricity, Tramway and Tunmel Company (IETT), has requested a Bank loan of US$lh.( million equivalent to cover the foreign exchange cost of a Projet W cr. ering the last two years of IETT's 1972-1975 power distribution rpmgram. The Project i.s estimated to cost about US$ho million equivalent. 1.02 The Project is based on a feasibility study c' the 34.5-kV system prepared in 1969 by IETT's consultants, Societe Francaise d'Etudes et de IPealisations d'Equipnent Electrique (SOFRELEC) of Paris, which they updated in 1971 and which was then reviewed and approved by the Turkish Electricity Authority (TEK) and by the Ministrx of Energy and Natural Resources. The proposed loan is limited to the foreign exchange element cf IETT's elec- tricity construction program for 1974 and 1975 and of various studies to determrine the furm of the Istaabul Yetropolitan Area's longer-term elec- tricity, transport and gas organizations. The Project also includes a study, to be undertaken by the Government, of the area's future electricity expansion and rehabilitation needs for 1976-1985. The transport, electricity and gas studies are to be coordinated with the other ongoing urbar development programming, project preparation and investments. These preparatory studiics could fo..d the basis of future Bank operations. B. ISTANBUL URBAN DEVELOPMENT - STRATEGY AND OBJECTlVrS 1.03 The Project was identified in mid-1970 at the time of the investi- gation by the Bank of Istanbul's urban development problems, and the pro- posed loan is being considered in the context of the overall urban develop- ment planning for Istanbul, of which IDA Credit 32h-TU and Loan 844-TU are also a part. Credit 324-TU initiated a Bank/IDA strategy for assisting the Gover Dent in the improvement and expansion of Istanbul by initiating appropriate studies to determine priorities and to prepare an integrated urban development program covering selected high-priority projects. The broader objectives of the Bank group assistance in the Istanbul area are to assist the Government to: (i) improve institutional capabilities in the metropolitan area fo.^ integrated planning and the coordinated pre- par2tion and implementation of priority investments; (ii) provide guidance and means of control of future urban growth;  -2- (iii) improve levels of urban services, with special attention given to those who are very poorly served or not served at all; and (iv) provide financial and technical assistance to fill present gaps while encouraging longer run self-sufficiency. 1.04 The areas of development covered by Credit 324-TU include: (i) the provision of adequate infrastructure ir desi-gnated existing squatter settlements and sites and services projects for low-income population as an alternative to squatter settlement; (ii) developmrent of a new urban cluster for p>, .-ied urban expansion; (iii) relocation of the existing wholesale food markets; (iv) a trawfic engineering and control proJect to improve transport services in the existing networks; (v) development of procedures for improving ongoing land use and transport decisior making; and (vi) a wastewater disposal proJect. 1.05 The proposed power distribution loan, like the Istanbul Water Supply Project (844-TU), is directed at the rehabilitation of the existing distribution system and at meeting urgent short-term expansion requirements. At the same time, it lays the groundwork for longer-term investments in the metropolitan area for power distribution and for institutional reforms by including management and power planning studies. The timing of this Project permits early improvements (1974-75) to a ser:vusly deficient existing power distribution system and permits the studies of longer-term (1976-1985) power investments and organizational changes to be closely coordinated 'With overall studies being carried out under Credit 324-TU. 1.06 C;onsultants are to assist the Government in the preparation of a program of works which will directly serve or provide the prerequisite system for serving many of the highest priority areas and needs, as measured in terms of present deficiencies. As a part of this work TEK will under- take a tariff and power market study under terms acceptable to t'he Borrower and the Bank, which will take into account, inter alia, the needs of the low- income population, locational criteria for industry,the investment plans of other plan implementation agencies, and the plans of the Greater Istanbul Master Plan Bureau for the improvement and expansion of the metropolitan area.  1.07 The proposed loan includes studies by consultants of the organi- zational, adm-ainistrative and financial !aspects of all of IETT's operations. The transport study will be coordinated with the trafiic engineering and control study of Credit 324-TU, and will look into the transport operations of IETT and into the most appropriate organization and method of financ:ing public transport in Istanbul. However, until the consultants' recommendations can be implemented, it is expected that IETT will continue to operate public transport services at a loss. The Government has agreed (see 7.16) to provide the support needed to operate these services during this interim period so as to enable IETT to maintain it's transport operations at least at their present level. The transport study under the loan is to be completed by Jine 30, 1974 and there is to be established as soon as practical thereafter an ippropriate organization and arrangements fox the financ4ng of a public bus transpnrt system fcr the lstanbul urban area (see 5.12(iv)). 1.08 Istanbul has three gas systems under two authorities (see 2.OL4). A review of the gas sector, alio to be financed by the proposed loan, has as its objective the making of recommendations .egarding future operations. This review, to be completed by June 3'^, 1974, would include (i) a gas market survey for 1973 to 1987 to determine future requirements. (ii) s1.udies for the improvements in the present service including a possible integration of all 3 gas systems, (iii) the determination of 4.he investment requirements and justification of coal gas production . against liquifiet' propane gas or other sources of energy (see 5.12(iv)). 1.09 Without prejudging the results of the A spective studies, it aprears likely that the Government should, in consultation with the "unicipa2ity and as soon as possible after the review of the recommendations submitted, es- tablish three financially separate organizations, either indepandent or unider a municipal holding company, with respective resp.:-sibilities bor providing effective and adequate region-wide electricity, tr.-sport and gos services and with each organization provided with sound management and separate Boards. W'ith regard to the electricity sector, three organizational altcrnatives appear to be available to the Government. They are: (i) enlarging the field of IETT's activities to include the Greater Istanbul *ntropolitan Axea, which covers the entire Province of Istanbul and part of Kocoel province; (ii) transferring IETT's present responsibilities to TEK (the ultimate objective of the TEK Law); (iii) establishing a new regional electricit; distribution atithor4ty for the enlarged region independenit of both the Istanbul Municipality and TEK. 1.10 This appraisal report was prepared by Ikssrs. E.A. Minnig (Erigineer), A.J.D. Hutchins (Financial Analyst) and Y. P. Buohomene (Financial Analyst), and is based on information provided by IETT and its consultants, a field mission in June/July 1972, and assistance given by the Urban Projects Depart- ment.  4 2. TIE ECONOMY AND TIlE POIER SECTOR The Economy 2.01 The Republic of Turkey, about 780,000 km in area, has a popula- tion of about 37 million (1972), growing at about 2.6% annually. In 1950, some 4 million people lived in urban settlements of 10,00(i or more, but by 1971 the urban population had grown to nearly 14 million or nearly 37% of the total population. Between 1965 and 1970 the Istanbul ;-ctropolitan Area had an influx of some 500,000 immigrants, increasing its population by over 20% to about 2.8 million. Annex 1 shows the basic economic daLa --or Tnrkey. 2.02 GNP has been growing at about 7% per annum, .ut the growth rate ill the Istanbul Metropolitan Area, t'hich accounts for over 20- of GNP, has been about 11%.. GNP per capita nationwide in 1971 "as USS330, but for the Istanbul area alone it was aboLt four times as high. Manufacturing has more than doubled its percentage share of total GNP since the early 1950s, whereas the share of agriculture, which still provides cmplo -ent for most of the' working poptulation, has fallen by nearly half. Istanbul Is a major center of industrial activity, contributinig over 25% of total value added by the mnanufacturing, sector of the economy. It is also Tt'xkey's most importar.t center of international trade, accounting for nearly one-hF!lf of all import- cxporc actj.vity. 2.03 lTe rapid pace of economic development, however, hts had itL price for Istanbul. The heavy influx of population from rural areas has led to a proliferation of squatter settlements located near employment opportunities. As a result, urban planning and the imDlementation of projects have la-ged behind this rapid growth, mainly for financial reasons. In the Dover dis- tributiont sector, for instance, annual investments for expanding facilities have &.veraeed sore TL 50 million at 1971 values over the past iO years, wkich is considered to be only about 40%, of wiat should have been invested in order to maintain proper service (see paragraph 6.02). E.nergy Resources 2.04 Turkey has substantial energy resources in the form of coal, lignite, oil and hydro-power, but as yet is not self-sufficient In commercial enaery requirements, which in 1971 totaled about 14 million tons of petroleum equivalent. About 30% of all energy requirements had to be imported. The Power Sector 2.05 An estimated 15% of all primary energy requirements is sa.isfled in the form of electricity. Of this, about three-quarters iS Lhermally generated and about one-quarter is hydro. Total capacity of public generating plant in operation at thc end of 1971 was abort 2,260 'M, of which about 1,985 'W was operated by the Turkish Electricity Authority (TEK), a State  -5- Enterprise created in 1970. In 1971, TEK's interconnected system supplied about 90% of the 9,000 GWh consumd in Turkey, of which IETT, its largest single customer. bought slmost 25%. About 240 MW is owned and operateG by the private Cukuro-ia Electric Power Company serving the Adana area in tle south, and a ftxther 115 MW cf generation capacity is installed in bmall isolated municipalities, vrillages and inUt:strial plants. 2.06 Electricity consumption in D rkey has grown during Jhe past dlca0e at an average annual growth rate of about 11-12%, doubling about every six years. It is estimated that this growth rate will be sustained in the immediate future. Therefore, Turkey propo.'es to invest over US$1,700 million in generation and transmission facilities over the next five years. Tne relations' p between CGNP/capita and electricity production/capita indicates this to be icasonable, provided that past econoLic performance can be sustained. 2.07 The Eank in 1969 made a loan of US$25 million (5,8-TU) to ETIBANK (one of TEK's predecessors) for the construction of 380-kV ';ransmission lines from the 1,200-MW Keban hydroelectric plant, unier construction on the Euphrates, to Ankara and Istanbul.- A further loan of -SQ.L -~illion (763-TU) was made tt TEK in 1971 for 380-kV substations, 154-kV transmission lines and 34.5-kV secondary transmission lines. The recent Loan (Q83-TU) and Credit (360-TU) for an aggregate of ti;e equivalernt of US$74 million for the Ceyhan Aslantas multipurpose project include the financing of 138 MW of power generating capac.ity. The ff-r5t Keban construction phase (600 MW) is expected to be coLpleted in 1974 and the second plhase (300 MW) in 1976. Howrver, it is not anticipated that significant amounts of Keban energy will be available to the Istanbul aree before 1975. Future developments include a 140-MW lignite-fired steam unit at Tuncbilek, presently under construction; a 600-MW lignite-fired steam plant at Elbista>ij for which a preliminary dasign i-eport has been completed and for which Bank linance has been requested by the Government; amd an 1,800-MW hydro project at Karakaya downstream of 'Keban for which a feasibility report is now being prepared.  6 3. THE BORROWER AND THE BENEFICIARY 3.01 The Borrower would be the Republic of Turkey (the Government) and the Beneficiary would be IETT, with which a Loan and a Project Agreement, respectively, would be concluded. A subsidiary Loan Agreement between the Government and IETT will provide for the onlending of the proposed Bank loan to IETT under terms and conditions identical to the Loan Agreement. History and Field of Operations of IETT 3.02 The complex history of Istanbul's electricity supply dates from 1910, when a Hungarian company received a 50-year concession covering the European part of Istanbul and its suburbs. SOFINA, a Belgian company acquired the Hungarian company's shares and in 1931 the supply area was extended to include the Asiatic side of the Bosporus and the nearby Princes Islands, with a new concession terminating in 1993. In 1937 the Government repurchased this concession and assets by agreement with SOFINA. For 18 nonths the 'Ministry of Public Works operated the facilities until June 16, 1939, when under Law 3645 they were transferred to the Istanbul 4unicipality and IETT was established to operate them. Annex 2 gives furtiher information on IETT's legislation and present status. 3.03 IETT's public transportation service started operations in 1939 with the "Tunnel" (a short, 570-meter passenger cable-car service from Galata on the Golden Horn, to Beyoglu -- the business district some 60 meters above it), followed in 1942 by a bus and trolley bus service whose areas of operation extend beyond the municipal boundaries. Annex 3 gives further details of IETT's Transportation Department. 3.04 In 1944 the Government purchased the Yedikule (Istanbul) and the Kurbagalidere (Anatolia) gas plants from their owners at the end of their concession periods and transferred both to IETT. In 1962, wl1en the Beyoglu gas plant concession expired, this company's assets were taken over by the Mlunicipality, which has continued to operate them on a "temporary` basis ever since. IETT has no direct responsibility for the latter plant but is represented on its advisory operations committee. Annex 4 gives further details of IETT's Gas Department. 3.05 Thus, IETT's present operations cover electricity distribution, transport (tunnel, bus and trolley bus) and two of the three gas plants in and around Istanbul.  -7- IETT's Legal Status 3.06 IETT is an "autonomous" corporation incorporated under Law 36h5 and owned entirely by the Istanbul Municipality. It is operated on a com- mercial basis as a separate legal entity. Law 3645, however, placed it under the direct control of the Mayor of Istanbul, who at that time was also the Governor. The Mayor stiUl exercises certain controls and administrative restrictions over IETT on such matters as budgetary and financial control (see 7.02) and personnel and salary policy. 3.07 IETT's service area (see Annex 5, Map 10132) for electricity encompasses som 28 municipalities, in addition to the present Municipality of Istanbul, because when IETT took over operations in 1939 the boundaries of the then Istanbul Municipality were much larger than they are now and also covered an area even larger than the SOFINA concession. Post-Wbrld War II decentralization reduced the Istanbul municipal area and established the rew municipalities but made no changes in Law 3645. IETT is therefore still accountable to the Mayor of Istanbul but is at the same time responsible for distributing electricity to other municipalities. This is a major cause of dissension (see 3.08) and inhibits coherent planning. 3.08 On July' 15, ,970, the Turkish Electricity Authority (TEK) was estab- lished under Law 1312. This law gives TEK the right to generate, transmit and diistribute electrical enerQc in the whole of Turkey, but Article 27, permits "Municipalities, villages, and other legal entities within the public sector", who had constructed and were operating their own distribution net- works prior to the enactment of the law to continue to do so provided, amongs. other things, they paid their bills to TEK promptly and remained within their boundaries. They could request TEK to purchase and operate their installa- tions but TEK could only take them over unilaterally in the event of a deefault in payment for electricity supplied by TEK. The first effect of the 1EK Law on ErTT concerned its generating facilities which were transferred to TEK in 1971. Unfortunately, Article 27 of the TEK law failed to resolve an earlier dispute between ETIBANK and IETT over service area jurisdiction. IETT and TEK continue to dispute the interpretation of this article. 3.09 TEK's (forrerly also ETIBANK's) position is that IETT, as a municipal authority, has no right to serve any area outside the Municipal Area of Istanbul, whereas IETT, backed strongly by the Municipality, cites Law 3645 as its authority for supplying its present service areas, and as a "legal entity within the public sector" cites Article 27 of the TEK Law as its authority for continuing to serve these areas. ETIBANK, for instance, attracted some industrial consumers away from IETT on the outer fringes of the IETT supply area by offering lower tariffs. This resulted in several instances of duplication of facilities in areas where IETT serves the residential load and TEK now serves the industrial load. IETT has had some success in the courts when challenging TEK's right to serve some oi these consumers.  -8- 3.10 Even under Article 27 of the TEK Law, since the 28 "outside" municipalities concerned in the dispute are served by IETT and not TEK, it would seem that unless and until they apply to TEK Yor service, TEK will not be in a position to take over responsibility for distribution within their boundaries. IETT has 5-year supply contracts with these 28 munici- palities which are renewable and, according to IETT, canmot be legally broken without its consent. It is also probable that any municipality presently served by IETT and contemplating requesting TEK to take over this service would be subject t. strong pressure from the Municipality of Istanbul because IETT also provides such municipalities with public trans- port, which up to now, has been heavily subsidized from power revenues. IETT's Future 3.'1 The TEK/IETT dispute might best be resolved with the formation of a single regional power distribution authority responsible for the Greater Istanbul Mbtropolitan Area under the selected jurisdictTon 'see. 1.09). Until the precise format of such an organization can be determined and put into effect, however, the status quo should be maintained. This sta'us quo, although undesirable in the Iong term, is necessary for the present because any premature take over by TEK would result in litigation ard political resistance and, since IETT is currently the only effective supply-ing autho- rity for the area, such a dispute if prolonged would harni the interests of the consumers and would delay urgent and necessary improvements to the system. The Government has agreed to permit IETT to continue to distribute electricity in the area presently served by it until a new electricity distribution organization covering te Lireater Istanbui Mtropoiitan Area can be set up (see 1.09). IETT presently subsidizes transDort and gas out of electricity revenues (see 7.01) as both are incurring heavy losses. The proposed loan includes funds for a study to resolve the long-term organizational and financial problems inherent in operating Istanbul's urban public transport system (see 1.07 and 5.12(ii)) and a leview of the gas sector (see 1.8 anl 5.12(iii)). IETT will require substantial financial help until these two activities are, reorganized (see 7.16). Istanbul Electricity distribution areas will be mairtained urtil the above regional organization can be established. IETT's Organization 3.12 IETT is managed by a General Manager, who can hold this post until retirement age. He is assisted by advisors (3 "Counsellors" and 3 Assistant General Managers) who have no "line" responsibility and no vote in the Administrative Council (Board). "Line" responsibility theoretically lies with the 5 Vice-Presidents responsible for Electricity, fransport, Gas, Consumer Relations, and "Commercial". Together with the General Manager they e-onstitute the "Board". Annex 6 shown an organigram of IETT. 3.13 The General Manager, formerly a lawyer, was once Deputy Mayor of Istanbul. He took over his present post in 1966. Ile is competent and has a strong personality, but IETT's management functions are over-centralized -iith little delegation of responsibility. Few members of top management  -9- have any real authority and responsibility. Head Office senior activity tends to revolve around future "planning" rather than getting down to resolving the many pressing day-to-day managerent and operational problems. 3.14 IETT employed a total of 11,263 people in December 1971, spread over llead Office and its three services. The Head Office personnel are sub-allocated in IETT's statistics to the three service departments; Annex 7 shows the 1971 departmental groups divided into "staff" and hourly paid "labor" and totaling 6,878 for transport, 67fl for gas and 3,715 for electricity. Allocation of available staff between operational duties and auxilliarv services and within those categories thiemselves is out of balance. For example, TETT's Personnel D)epartment responsible for 1,810 "staff" totals 224, but the parallel department responsible for 9,453 "labor" totals 20. Its Purchasing Department employs a total of 594 and its Consumer Relations Departnent 205, but the Electricity, Transportation and Gas Departments have only 6 engineers directly involved in studies, project design, and preparation of tenders and specifications. The Electricity Department's entire field staff totals only about 1,500. 3.15 The Electricity Department's overall consumer/employee ratio of 180/1 is, on the face of it, not unreasonable; but there is over-staffing in the supporting services and under-staffing in operations, maintenance and construction. Since the services of IETT are limited to distrib'ition and it has always sub-contracted most of its limited construction program, this overall ratio cannot be directly compared with that of other utilities. The ratio of productive to auxilliary employees in the electricity field force is likewise out of balance in that, for example, about 1,450 or 94%' are designated 'labor" andl of these about one-third are non-productive (drivers, zuards, cleaners, etc.). In .ovenber 1970, 477 employees of the electrtcity department w