Turkey - Second Tek Power Transmission Project : Loan 1194 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1194 TU Loan Agreement (Second TEK Power Transmission Project) BETWEEN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND TURKIYE ELEKTRIK KURUMU DATED JUNE 14, 1976 CONFORMED COPY LOAN NUMBER 1194 TU Loan Agreement (Second TEK Power Transmission Project) BETWEEN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND TURKIYE ELEKTRIK KURUMU DATED JUNE 14, 1976 LOAN AGREEMENT AGREEMENT. dated June 14. 1976. between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and TURKIYE ELEKTRIK KURUMU. a State Economic Enterprise established and operating under the Turkish Electricity Authority Law dated July 15. 1970 (hereinafter called the Borrower). WHEREAS (A) The Borrower has requested the Bank to assist in the financing of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) The Borrower has indicated that the Republic of Turkey (hereinafter called the Guarantor) has agreed to provide out of its own resources and out of external sources of financing made available to the Guarantor such additional funds as may be required to enable the Borrower to carry out the Project over and above the funds available to the Borrower out of its own funds and under the Loan provided hereunder; (C) The Bank has agreed on the basis, inter alia, of the foregoing, to make the Loan to the Borrower on the terms and conditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth, and the term "Lira" means Lira in the currency of the Guarantor. 4 ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to fifty-six million dollars ($56,000,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule I to this Agreement, as such Schedule may be amended from time to time, for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, the goods, works and services (other than consultants' services) for the Project to be financed out of the proceeds of the Loan, shall be procured in accordance with the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be December 31, 1979 or such other date as shall be agreed between the Bank and the Borrower. Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of eight and one-half per cent (8-1/2%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semi-annually on May I and November 1 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and 5 electric utility practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) Without limitation or restriction on the generality of the provisions of paragraph (a) of this Section the Borrower shall provide to the Bank no later than August 31, 1976 programs and timetables, all to be acceptable to the Bank, for the carrying out of Parts B and C of the Project. and shall thereafter carry out the said programs in accordance with such timetables. Section 3.02. In order to assist the Borrower in the preparation of designs, plans and specifications for, and in the supervision of the construction of, Parts A(1) and B of the Project, and in the carrying out of Parts E and F of the Project, the Borrower shall employ an engineering consultant, experts and specialists, whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Section 3.03. The Borrower specifically undertakes to complete, by no later than December 3 1, 1976, or such other date as the Bank may agree, the tariff study referred to under Part D of the Project which study is to be conducted, in consultation with the Bank, with the assistance of qualified and experienced experts. satisfactory to the Bank, to be employed under terms of reference and conditions of employment acceptable to the Bank. Section 3.04. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. Section 3.05. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans. specifications reports. contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Borrower: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Loan. and to disclose the use thereof in the Project: (ii) shall. without limitation upon the provisions of paragraph (c) 6 of this Section. enable the Bank's representatives to visit the facilities and construction sites included in the Project and to see the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. (c) The Borrower shall enable the Bank's representatives to visit all plants, installations, sites. works, buildings, property and equipment of the Borrower and any relevant records and documents. Section 3.06. The Borrower shall take all such action as shall be necessary to acquire as and when needed all such land, and rights in respect of land as shall be required for the construction (and operation) of the facilities included in the Project. Section 3.07. The Borrower shall take all reasonable measures necessary to ensure that the Project is carried out with due regard to ecological and environmentil factors. ARTICLE IV Management and Operations of the Borrower Section 4.01. The Borrower shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 4.02. The Borrower shall: (i) at all times manage its affairs, plan the development of its properties and facilities, and maintain its financial positions all in accordance with appropriate public utility principles and practices and under the supervision of experienced and competent personnel in adequate numbers: and (ii) cause its plants, equipment, properties and facilities to be maintained and all necessary renewals and repairs thereto to be made in accordance with appropriate public utility practices. Section 4.03. The Borrower shall not, without the consent of the Bank, sell, lease, transfer or otherwise dispose of any of its major assets which shall be required for the efficient carrying out of its business or undertaking, including the carrying out of the Project. Section 4.04. The Borrower shall at all times take all steps necessary to acquire, maintain and renew all rights, powers, privileges, licenses, concessions and franchises which are necessary or useful in the conduct of its business. 7 Section 4.05. Except as the Bank shall otherwise agree, the Borrower shall obtain title to all goods financed in whole or in part out of the proceeds of the Loan. free and clear of all encumbrances. Section 4.06. The Borrower undertakes (i) to complete the reorganization and staffing of its administrative and technical structure in accordance with a detailed implementation schedule, to be submitted to the Bank no later than July 3 1, 1976. or such other date as the Bank may agree, all to be acceptable to the Bank, (ii) to complete by September 30, 1976, or such other date as the Bank may agree, the detailed manpower study referred to in Part E of the Project, and (iii) to implement a program of staffing and recruitment each year based on the recommendations of the said manpower study, as updated from time to time. ARTICLE V Financial Covenants Section 5.01. The Borrower shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 5.02. The Borrower shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than five months after the end of each such year, (A) certified copies of its financial statements for such year as so audited, (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested. and tC) conformed copies of the said financial statements and auditors, report in English: and (iii) furnish to the Bank such other information concerning the accounts and financial statements of the Borrower and the audit thereof as the Bank shall from time to time reasonably request. Section 5.03. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets as security for any debt except as otherwise currently reported to the Bank or stated in writing. th1 The Borrower undertakes that. except as the Bank shall otherwise agree (i i1 the Borrower hlil crcate any lien on any of its assets as security for any debt. such lien will equally and ratably secure the payment of the principal of. and interest and other charges on. the Loan, and in the creation of any such lien express provision will be made to that effect. at no cost to the Bank, and 8 (ii) if any statutory lien shall be created on any assets of the Borrower as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien satisfactory to the Bank to secure the payment of the principal of, and interest and other charges on, the Loan; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property, or (B) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred. Section 5.04. Except as the Bank shall otherwise agree, the Borrower shall not incur any debt, other than for money borrowed for financing the Project, unless its net revenues for the fiscal year next preceding such incurrence or for a later twelve-month period ended prior to such incurrence, whichever is the greater, are at least 1.5 times the maximum debt service requirement for any succeeding fiscal year on all debt incurred by it, including the debt to be incurred. For the purposes of this Section: (a) The term "debt" shall mean all indebtedness maturing by its terms more than one year after the date on which it is originally incurred. (b) Debt shall be deemed to be incurred on the date of execution and delivery of a contract, loan agreement or other instrument providing for such debt. (c) The term "net revenues" shall mean gross revenues from all sources, adjusted to take account of the Borrower's electricity tariffs in effect at the time of the incurrence of debt even though they were not in effect during the fiscal year or twelve-month period to which such revenues relate. less all operating and administrative expenses adjusted to reflect the level of employment costs and fuel costs in effect at the time of the incurrence of the debt, including gratuities payable under the Turkish Electricity Authority Law and provision for taxes, if any, but before provision covering depreciation and interest and other charges on debt. (d) The term "debt service requirement" shall mean the aggregate amount of repayments of principal (including sinking fund payments, if any), interest and other charges on debt. (e) Whenever for the purposes of this Section it shall be necessary to value, in terms of Turkish Liras, debt payable in another currency, such valuation shall be made on the basis of the prevailing rate of exchange as determined by the T.C.Merkez Bankasi. I 9 Section 5.05. Except as the Bank shall otherwise agree, the Borrower shall take promptly as needed all such action as shall be required to provide in any fiscal year an annual return on the average of the realistic net value of its fixed assets in service at the beginning and at the end of such fiscal year at a rate of not less than eight per cent (8%), commencing with the fiscal year starting January 1, 1976. Except as the Bank shall otherwise agree, the said annual return shall be calculated in accordance with the method specified in Schedule 5 to this Agreement and to the extent that this method is inconsistent with the ones specified in Schedule 5 to the Loan Agreement dated June 22, 1971 (No. 763 TU) and in Schedule 5 to the Loan Agreement dated June 28, 1974 (No. 1023 TU), all between the Bank and the Borrower, the method specified in Schedule 5 to this Agreement shall govern. Section 5.06. The Borrower shall promptly, from time to time, revise its books, in accordance with the provisions set forth in Schedule 5 to this Agreement. Section 5.07. The Borrower shall notify the Bank prior to making any repayment in advance of maturity in respect of any debts as defined in paragraph (a) of Section 5.04 of this Agreement and shall not make any such repayment without the consent of the Bank unless a pro rata repayment in advance of maturity in respect of the Loan is made simultaneously with such other repayment. ARTICLE VI Termination Section 6.01. The date September 14, 1976 is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Addresses Section 7.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America 10 Cable address: INTBAFRAD Washington. D.C. For the Borrower: Turkiye Elektrik Kurumu Genel Mudurlugu Necatibey Caddesi 36 Sihhiye-Ankara Turkey Cable address: TEK Ankara IN WITNESS WHEREOF. the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia. United States of America. as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By s Willi A. Wapenhans Regional Vice Presidenlr Europe, M1iddle East and North .Afica TURKIYE ELEKTRIK KURUMU By s Muamner Akinci Authori:ed Representarihe 11 SCHEDULE I Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan. the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated (Expressed in Exceedir:>rr> Caregor- Dollar Equivalenr) rc oc Fbnac : (1) Substation equip- 51.600.000 100', of foreign ment. materials expenditures or for substations ex-factory cost and their instal- of locally manu- lation: insulators, factured equi- hardware and con- ment ductors for trans- mission lines (2) Training and train- 1.500.000 100 of foreign ing equipment expenditures (3) Consulting services 300.000 100-- of foreign e\penditures (4) Unallocated 2.(100.000 TOTAL 50.000.000 2. For the purposes of this Schedule the term "foreign expenditures" means expenditures for goods or services supplied from. the territory. and in the currency. of any country other than the Guarantor. 3. The disbursement percentages have been calculated in compliance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account 12 of payments for taxes levied by, or in the territory of, the Guarantor on goods or services. or on the importation, manufacture, procurement or supply thereof; to that end. if any event occurs which shall affect the amount of any such taxes included in the cost of any item to be financed out of the proceeds of the Loan, the Bank may, by notice to the Borrower, correspondingly adjust the disbursement percentage then applicable to such item. 4. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of expenditures prior to the date of this Agreement. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph I above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category to the extent required to meet the estimated shortfall proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. 13 SCHEDULE 2 Description of the Project The Project is part of the Borrower's current 1975-1979 development plan and consists of the following parts: Part A (1) The construction and placing into operation of 380/154 kV substations, having an aggregate capacity of about 2,550 MVA, principally at Kayseri, Babaeski, Istanbul II, Istanbul III, Bursa, Ankara II, Eregli, Keban, Osmaniye, Izmir and Adapazari comprising structures, switchgear, protective circuits and transformers, and related equipment; (2) The construction and placing into operation of 154/33 kV substations having an aggregate capacity of about 650 MVA, principally at Etiler. Ankara, Keban, Denizli, Bursa, Sivas, Kayseri, Orhangazi, Gaziantepe and Adapazari with structures and equipment including transformers and related equipment; Part B Construction and placing into operation, to serve the needs of the works referred to under Part A of the Project, of transmission lines at 380 kV between Keban and Elbistan (171 km), Elbistan and Osmaniye (174 km), Adapazari and Eregli (150 km), Babaeski and Istanbul II (200 km), and Istanbul II and Istanbul III (60 km) - (crossing the Bosporus); Part C The training of the Borrower's engineers in the design and operation of the EHV transmission system; Part D A tariff study embracing the whole electric power sector in the Guarantor's territory; Part E A medium- and long-term manpower study of the Borrower's annual professional staff requirements, in various professional categories, for each year during a five year period commencing January 1, 1977: and Part F Power system and transmission line studies. The Project is expected to be completed by June 30, 1979. 14 SCHEDULE 3 Amortization Schedule Payment of Principal Dac Pavment Due (expressed in dollars)* MaI 1. 1980 850.000 Novenber 1. 1980 890,000 May 1. 1981 930.000 November 1. 1981 965.000 May 1. 1982 1,010,000 November 1. 1982 1,050,060 May 1. 1983 1,095,000 November 1. 1983 1,140.000 Max 1. 1984 1.195.000 November 1, 1984 1,240.000 May 1. 1985 1.295,000 November 1. 1985 1.350.000 May 1. 198( 1.405.000 November 1, 1986 1.465,000 May 1. 1987 1,530,000 November 1, 1987 1,590,000 May 1. 1988 1.665,000 November 1, 1988 1,730,000 May 1. 1989 1,805,000 November 1, 1989 .1,885,000 May 1. 1990 1,960,000 November 1, 1990 2,045,000 May 1, 1991 2,135,000 November 1. 1991 2,220,000 May 1. 1992 2,320,000 November 1. 1992 2,415,000 May 1. 1993 2.520,000 Novmber 1. 1993 2,625,000 May 1. 1994 2,735,000 November 1. 1994 2.855.000 Mav 1, 1995 2,975,000 November 1, 1995 3.110,000 To thu uxten that any portion of the Loan is repayable in a currency other than dollar, (see General Conditions, Section 4.02). the figures in this column represent dollar equivalents determined as for purposes of withdrawal. 15 Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05(b) of the General Conditions: Time of Prepayment Premium Not more than three years 1-1/4% before maturity More than three years but 2-1/2% not more than six years before maturity More than six years but not 4-1/2% not more than eleven years before maturity More than eleven years but 6-3/4% not more than sixteen years before maturity More than sixteen years but 7-1/2% not more than eighteen years before maturity More than eighteen years 8-1/2% before maturity 16 SCHEDULE 4 Procurement A. General Procedures Pursuant to Section 2.03 of the Loan Agreement. contracts for goods. works and services (other than consultants' services) for the Project to be financed out of the proceeds of the Loan shall be let under procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in April 1972, as revised in October 1972 (hereinafter called the Guidelines), on the basis of international competitive bidding. B. Evaluation and Comparison of Bids fbr Goods; Preference fbr Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods. or the ex-factory price for domestically-manufactured goods: (ii) customs duties and other import taxes on imported goods. and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Turkey may be granted a margin of preference in accordance with, and subject to, the following provisions: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted. the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. (b) After evaluation. responsive bids will be classified in one of the following three groups: (I) Group A: bids offering goods manufactured in Turkey if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Turkey equal to at least 20% of the ex-factory price of such goods. (2) Group B: all other bids offering goods manufactured in Turkey. 17 (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. The lowest evaluated bid of each group shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid, or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the lowest evaluated bid from group C shall be selected. C. Review by Bank of Procurement Decisions 1. Review of invitation to bid and of proposed awards and final contracts: With respect to all contracts for equipment, spare parts and civil works estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding and in the case of contracts for works at 380 kV a technical report on the engineering of such works to be prepared by the consultant referred to in Section 3.02 of this Agreement, and shall make such modifications in the said documents or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Borrower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and the reasons for the intended award and shall furnish to the Bank, in sufficient time for its review, a detailed report, 18 on the evaluation and comparison of the bids received, together with the recommendation for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule. promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 2. With respect to each contract to be financed out of the proceeds of the Loan and not governed by the preceding paragraph. the Borrower shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. 19 SCHEDULE 5 Method of Calculating Annual Return 1. For the purposes of this Schedule: (a) The term "fixed power assets" means all electric power plants, substations, transmission lines and related facilities and assets owned by the Borrower, except those which are financed from the Village Electrification Fund referred to in Article 4 of the Turkish Electricity Authority Law. (b) The term "realistic net value" of the fixed power assets in service means the gross value of fixed power assets valued as provided in this Schedule, less accumulated depreciation on such value and the amount of customer contributions. (c) The term "operating income" shall mean the difference between all revenues from the generation, transmission, distribution or sale of electricity and other services incidental thereto performed by the Borrower and all operating and administrative expenses (including gratuities payable under the Turkish Electricity Authority Law or otherwise, adequate provision for maintenance and repairs, provision for the depreciation of all fixed power assets in service and for taxes). Other revenues or income (e.g. from security interests or from work as a contractor) and the expenses and taxes relating thereto shall be disregarded in determining the operating income. 2. The annual return specified in Section 5.05 of this Agreement shall be calculated, in respect of each fiscal year, by using as the denominator the average of the realistic net values of the fixed power assets in service at the beginning and at the end of each such year and as numerator the operating income of the Borrower for the same year. During the period of the construction of the Project the earnings and rate of return of the Borrower shall be calculated and reviewed at least semi-annually, once in April when the audited actuals of operating results of the completed fiscal year are available and again in September when the budget is in an advanced stage of preparation. The results of such review and the measures proposed, if necessary, to secure the required annual return shall be promptly communicated to the Bank. The calculation in respect of the completed fiscal year shall be based on actual values and income, and in respect of the current and subsequent fiscal years on realistic estimates. 3. Except as may be otherwise agreed between the Bank and the Borrower, any overrun in the required annual return for a fiscal year may be carried forward 20 and applied to offset any shortfall in any one or more of the next three fiscal years. and any shortfall in the required annual return for a fiscal year shall be made up within the next two fiscal years. The terms "overrun" and "shortfall" referred to herein mean the monetary value of such overrun or shortfall. 4. Pursuant to Section 5.06 of this Agreement, the Borrower shall revise its books to reflect the value of its fixed power assets in service and its accumulated provisions for depreciation of those assets, from time to time, whenever necessary in accordance with the recommendations on revaluation procedures and depreciation rates set forth in the reports dated November 1, 1971, April 1, 1972 and December 3, 1974, of the consultants appointed in the framework of the Technical Assistance Grant of May 1, 1967 with the following exceptions, namely: (a) the Borrower shall carry out such a revaluation whenever the price index used as basis of revaluation as of September in each year has risen more than 15%' since the last revaluation; (b) depreciation based on such revalued asset values will be used for computing the annual return specified in Section 5.05 of this Agreement; (c) Import duties and other import taxes on imported goods need riot be taken into account for purposes of revaluation of the Borrower's assets to the extent that the Borrower is exempt from such duties and taxes; (d) The foreign expenditure value of the Borrower's assets will be adjusted from time to time, to take into account the fluctuations in the rate of exchange between the Lira and the currency or currencies used for the purchase of the said assets, whether or not debts (as this term is defined in Section 5.04 of this Agreement) contracted for the purpose of financing the purchase of said assets are repaid in whole or in part; and (e) Customer's contributions paid prior to December 31, 1974 to the Borrower for electricity extensions need not be revalued.