Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4407-TU STAFF APPRAISAL REPORT TURKEY TEK TRANSMISSION PROJECT III May 31, 1983 Projects Department Europe,-Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit Turkish Lira (TL) TL 1 100 Kurus (krs) US$1 TL 190 TL 1 US$.005 Currency equivalents are those effective January 1983. WEIGHTS AND MEASURES kW kilowatt MW 1,000 kW kWh kilowatt hour GWh (Gigawatt hour) 1,000,000 kWh kV (kilovolt) 1,000 volts One meter (m) 3.28 feet One kilometer (km) 0.624 miles One kilogram (kg) (1,000 grams) 2.2 pounds One ton (metric ton) (1,000 kg) 2,205 pounds One kilocalorie (kcal) (1,000 calories) 3.968 BTU GLOSSARY AND ABBREVIATIONS ACSR - Aluminum Cable Steel Reinforced CEAS - Cukurova Elektrik A. S. (Cukurova Power Company) DSI - Devlet Su Isleri (State Hydraulic Works) DYB - Devlet Yatirim Bankasi (State Investment Bank) ESF - European Settlements Fund EIE - Elektrik Isleri Etut Idaresi (Electric Studies Institute) EdF - Electricite de France EGO - Ankara Electricity, Gas and Transport Company ESHOT - Izmir Electricity and Transport Company HCB - High Control Board IETT - Istanbul Elektrik, Tramway, Tunnel Isletmeleri (Istanbul Electricity Tramway and Tunnel Company) KEPEZ A.S. - Kepez Electric Company KfW - Kreditanstalt fur Wiederaufbau MENR - Ministry of Energy and Natural Resources SAL - Structural Adjustment Loan SEE - State Economic Enterprise SPO - State Planning Organization TEK - Turkiye Elektrik Kurumu (Turkish Electricity Authority) TKI - Turkiye Komur Isletmeleri Kurumu (Turkish Coal Enterprises) TPAO - Turkiye Petrolleri Anonim Ortakligi (Turkish Petroleum Corporation) Fiscal Year = January 1 to December 31 TURKEY FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT TURKISH ELECTRICITY AUTHORITY (TEK) TRANSMISSION PROJECT III Table of Contents Page I. THE ENERGY SECTOR ............................................... 1 Energy Resources ................................................ 1 Energy Consumption .............................................. 2 Eniergy Supply ................................................... 3 Energy Balance .................................................. 3 Organization of the Energy Sector ............................... 3 Energy Sector Policies and Planning ............................. 4 II. THE POWER SUBSECTOR ............................................. 5 Existing Power Facilities ....................................... 5 System Planning ................................................. 5 Investment Program .............................................. 8 Electricity Tariffs ............................................. 8 Bank's Role in the Power Subsector .............................. 9 Power Subsector Report .......................................... 10 Strategy and Planned Assistance ................................. 11 III. THE PROJECT ................. 14 The Program and the Project ..................................... 14 Status of Engineering ........................................... 14 Cost Estimates .................................................. 15 Project Financing Plan .......................................... 17 Implementation .................................................. 17 Technical Assistance ............................................ 18 Procurement ..................................................... 19 Disbursements .................................... 19 Environmental Impact ............................................ 20 Project Risks .......................................... 20 IV. THE PROJECT ENTITY .............................................. 21 Background ...................................................... 21 Organization and Management ..................................... 21 Transfer of Electricity Distribution to TEK ..................... 22 Manpower Development ............................................ 23 Training ........................................................ 24 Following a mission to Turkey between January 31 and February 18, 1983, this report was prepared by: A. Roa (Power Engineer), L. Meek-Foote (Financial Analyst), I. Johnson (Economist) and J. Chassard (Consultant). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (cont'd) Page V. FINANCE . ......................................................... 26 Summary . ......................................................... 26 Recent Financial Performance .................................... 26 Financial Implications of Transfer of Municipal Distribution Assets ........................................... 28 Revenue Performance ............................................. 29 Financing Plan .................................................. 32 Accounting and Management Information Systems ................... 34 Revaluation .35 Audits .... 35 VI. BENEFITS AND JUSTIFICATION .36 Least-Cost Solution .36 Return on Investment .36 VII. RECOMMENDATIONS .38 ANNEXES 1.1 Energy Balance - 1980 1.2 Forecast Energy Balance - 1990 2.1 Power Subsector Statistical Data, 1972-1982 2.2 Forecast Balance of Capacities and Energy 2.3 Adjusted Electric Power Investment Program, 1983-1987 2.4 Fuel Costs, Average Revenue, and High Voltage Tariffs, 1979-1983 2.5 Technical Assistance Action Plan for TEK 3.1 Characteristics of 380-kV Transmission Lines 3.2 Detailed Project Cost Estimates by Nature and Purpose of Expenditure 3.3 Estimated Implementation Schedule 3.4 Construction Program for 380-kV Substations, 1983-1986 3.5 Articles of Agreement for the Establishment of "ELTEM-TEK" 3.6 Turkish Construction Firms Qualified for 380-kV Transmission Lines 3.7 Estimated Schedule of Disbursement 3.8 Comparison of Disbursement Profiles 4.1 Organization Chart of the Turkish Electricity Authority 4.2 Personnel Statistics for TEK as of December 31, 1982 4.3 Technlical Assistance in Training and Manpower Development: Outline Terms of Reference - lii - Table of Contents (cont'd) 5.1 Income Statements for TEK, 1980-1987 5.2 balance Sheets for TEK, 1980-1987 5.3 Statement of Sources and Applications of Funds for TEK, 1980-1987 5.4 Assumptions used in Financial Forecasts 5.5 Technical Assistance in Accounting and Management Information Systems; Outline Terms of Reference 6.1 Economic Rate of Return 6.2 Assumptions for the Calculation of Rate of Return 7.1 Selected Documents and Data Available in the Project File MAP IBRD 17075 May 1983 (118VP, p.40-42) I. THE ENERGY SECTOR Energy Resources 1.01 Turkey has substantial untapped lignite and hydropower resources, as well as more limited, but still important, oil, gas and coal resources and low-temperature geothermal potential. 1.02 Hydropower. Hydropower with potential economic viability is estimated at about 29,500 MW under average hydrological conditions and corresponds to an annual production of about 100,000 GWh. Only 10% has been developed so far, but this is projected to rise to about 30% over the next 10 years with the completion of hydropower generating plants under construction or planned. Detailed information is available on almost half of the potential (13,400 MW and 40,600 GWh), including feasibility studies on four large sites contributing some 6,500 MW (23,300 GWh). One issue which may hamper the development of the hydropower potential relates to the future of the riparian agreements between Turkey and its neighbors, particularly Iraq and Syria. There is also a large number of sites suitable for small and mini hydropower schemes of up to 20 MW. Studies are now underway to determine the potential for small hydropower schemes according to the Government's classification: micro (50 kW-l MW), mini (1-5 MW) and small (5-20 MW). There are presently about 150 existing micro hydro plants in operation. No estimates of the small and mini hydro potential are available. 1.03 Oil and Gas. Proven recoverable reserves of oil are about 16 million tons. However, potential reserves that may become economically recoverable using enhanced oil recovery techniques currently being tested could be as high as 30 million tons. Oil production has been declining over the last decade, as few discoveries have been made in recent years; in 1980 production was about 2.3 million tons, equivalent to 15% of total consumption. Proven recoverable gas reserves are about 450 billion standard cubic feet, equivalent to 10 million tons of oil. This gas is expected to be brought to major consumers by 1985. Production in 1980 was insignificant. 1.04 Coal, Lignite and Shale. Total known reserves of hard coal are estimated at about 1 billion tons, all located in the north of Turkey (Zonguldak). Coal production has been declining as operations move to deeper, less accessible seams; in 1980 production was 3.6 million tons (2.4 million toe). Proven and probable lignite reserves are about 7.5 billion tons, but about half of this is of extremely low quality (950-1,000 kcal/kg). Lignite production in 1980 was about 15 million tons, equivalent to about 3 million tons of oil. Proven reserves of economically recoverable and usable asphaltite and shale are insignificant. Asphaltite proven reserves are only 5 million tons. While the possible geological reserves of shale are quite large (5 billion tons), mineable reserves are less than 300 million tons. Furthermore, the low and variable quality of the shale makes it unlikely that this resource can be economically exploited. - 2 - 1.05 Geothermal. There is some potential for geothermal development, especially for space heating. No long-term development program has been organized to exploit it. However, a foreign company with extensive experience in geothermal power has recently undertaken a technical review of a number of promising geothermal sites, and discussions with the Government on possible terms and conditions for developing one of these sites are currently in progress. Energy Consumption 1.U6 Total gross energy consumption was about 33 million toe in 1980, of which commercial energy consumption amounted to 26 million toe. Petroleum made up the most significant share of primary commercial energy (60%) with lignite (18%), hydropower (11%), coal (10%) and imported electricity (1%) composing the remainder. Overall, 23% of final commercial energy consumption was in the form of electricity (see Annex 1.1). Non-commercial energy production (primarily fuelwood, but also other biomass) was an important energy source, accounting for 37% of total domestic energy production. While it represented less than one quarter of the energy consumed in the economy as a whole, it was the major energy source for the household sector, accounting for almost 60% of this sector's total consumption. 1.07 The most notable change in the pattern of energy consumption over the past two decades has been the decrease in the relative share of hard coal in total energy. This was accompanied by a rapid growth in consumption of petroleum until the mid-1970s, peaking at over 50% in 1977/78; and a rapid rise in the share of lignite (primarily for thermal power production) and hydroelectric power consumption starting in the second half of the 1970s. During this period, hard coal consumption stayed relatively constant in absolute terms, while traditional biomass energy sources increased slightly in absolute terms, but decreased steadily as a percentage of total energy consumed. 1.08 Per capita energy consumption is likely to rise rapidly in parallel with rising per capita income. Trends observed in the growth and pattern of energy consumption during the latter part of the 1970's are expected to continue during the 1980's. Demand for electricity would grow rapidly, primarily as a function of the growth of the industrial sector. The demand for lignite would also grow rapidly, both for direct consumption by households and industry and, even more importantly, by the power sector. The growth in the demand for petroleum would be moderate due to the much higher price of imported oil and petroleum products and its substitution by other energy sources. The most important factor in the growth of energy demand will be the growth rate of the economy as a whole and the growth of the relatively energy-intensive industrial sector of the economy. Bank estimates indicate that the growth rate of the economy would average about 5% per year during the 1980's and that the industrial sector would grow slightly faster, Under these projections, electricity demand is expected to grow by 200% between 1980 and 1990, to about 60,000 GWh; lignite demand for industries and households would grow by 160% to 27 million tons; lignite demand by thermal power plants would grow by almost tenfold to about 50 million tons; fuelwood and biomass demand would grow by 14% to 36 million tons; and petroleum demand would grow by 110% to 30 million tons. However, actual consumption may be lower due to supply constraints. -3- Energy Supply 1.09 To meet its energy requirements Turkey launched a massive program in the late 1970's to increase the domestic production of electricity and lignite. This program has tended to stretch the implementation capabilities of the State energy agencies, and spread resources too thinly over too many projects, with resulting long delays in completion schedules. 1.10 Almost all of the planned new thermal plants will be lignite-fired. This places a heavy burden on the Government-owned Turkish Coal Enterprise (TKI) to expand its lignite production facilities, and TKI has embarked upon an extremely ambitious program to meet this growing demand for lignite. From the 15 million tons produced in 1980, production is planned to rise to 70.7 million tons in 1990, a more than four-fold increase, to be accomplished through the development of eleven large open pit mines and two large mechanized underground mines. Energy Balance 1.11 The energy balance based on the above demand and supply projections is presented in Annex 1.2. Projections indicate that there would be shortfalls in lignite production of about 9 million tons in 1985 and 7 million tons in 1990; shortfalls that would have to be made up with additional fuel oil imports. Energy import levels needed to balance demand requirements would amount to about 28 million toe in 1990. A higher level of economic growth would, of course, lead to substantially higher levels of demand. An increase of an extra 1% in GDP growth per year until 1990, would, even with a relatively low elasticity of demand of 1.2, increase total annual energy consumption by about 5 million toe, all of which would have to come from imports. The need for such a high level of energy imports would put a severe strain on the Turkish economy. Furthermore, any slippages in the lignite investment program would result in even higher levels of energy imports. Organization of the Energy Sector 1.12 The energy sector in Turkey is characterized by the dominance of Government owned enterprises and agencies. The Ministry of Energy and Natural Resources (MENR) is responsible for the development of energy resources in Turkey. Under MENR, the Turkish Coal Enterprise (TKI), the Turkish Petroleum Company (TPAO), and the Mineral Research Institute (MTA) have responsibility for the extraction of fossil fuels and radioactive minerals. Identification, design and construction of hydro projects is entrusted to the State Hydraulics Authority (DSI). The Turkish Electricity Authority (TEK) is responsible for the generation, transmission and, since November 1982, the distribution of almost all the electricity sold in Turkey. TEK is also responsible for the implementation of the Government's program for rural electrification and the construction of all generating and transmission facilities, with the exception of hydroelectric plants for which DSI has responsibility (see Chapter IV). 1.13 Private sector participation in the supply of electricity is confined to two small private utilities (CEAS and KEPEZ) and industrial companies which generate power for their own use, often in conjunction with the production of steam for process heat. -4- Energy Sector Policies and Planning 1.14 Pricing. Throughout the 1970's the Government's failure to adjust domestic energy prices led to increasingly serious economic problems. The low wellhead prices set for domestic petroleum production became a major deterrent to exploration and development by international oil companies. At the same time, the policy of holding domestic petroleum product prices constant in local currency terms, in spite of accelerating domestic inflation and rising world prices for energy, led to the rapidly increasing demand for petroleum and imports. Similarly, prices for hard coal, lignite and to a lesser extent, electricity, the other major primary energy sources, were also held down, causing serious financial losses to TKI and marginal profits to TEK, and discouraging the adoption of effective conservation measures in both production and consumption (for discussion of electricity pricing, see paras 2.17-2.20). It was not until the financial and political crises of late 1979 and early 1980 that the policy of energy subsidies was largely abandoned and most prices raised to international levels. It is now the policy of the Government to allow energy prices to be high enough to provide adequate returns to the energy State Economic Enterprises (SEE's). 1.15 Conservation. The Government is also in the process of developing a program for the conservation of energy by encouraging efficient use in existing and new industrial enterprises. Energy efficiency programs and legislation are being evaluated by both the MENR and the State Planning Organization (SPO), and legislation has already been passed which allows for tax credits for various types of investments in energy efficiency improvements. The Government has initiated programs to assist industrial firms to learn how to improve their energy efficiency in existing operations. The Bank included technical assistance for energy audits in selected manufacturing facilities as part of the assistance to the Government of Turkey under Loan 1916-TU. 1.16 Planning. The Fourth five-year plan (1979-1983) was prepared during a period of exceptionally high growth expectations, which proved to be unachievable in the following years of economic difficulties. The rapidly changing economic circumstances made it necessary to switch to one-year plans that had limited relevance to the original five-year plan. These timely one year plan revisions served quite well during a period of great economic fluctuations and stress. 1.17 A new five-year plan (the Fifth) is now under preparation for 1984-1988. New energy demand and supply projections are being made, which will be consistent with the current projections for economic growth for the period, and supply alternatives are being reviewed to optimize the investment program. The Bank expects to review this new five-year plan as part of its continuing economic dialogue with the Government. The joint UNDP-World Bank energy assessment report 1/, the Electric Power Subsector study 2/ and the Energy Action plan to be incorporated in the proposed Structural Adjustment lending program (SAL IV), form an integral part of this ongoing dialogue. 1/ Turkey: Issues and Options in the Energy Sector, Report No. 3877-TU. 2/ Turkey: Electric Power Subsector Study, Report No. 3682-TU. - 5 - II. THE POWER SUBSECTOR Existing Power Facilities 2.01 Growth in sales averaged 12% per annum during the period 1965-1970, rose to a maximum of 19% in 1976, and subsequently declined sharply, reaching only 5% in 1980. In 1981 and 1982, however, sales have increased at an average annual rate of 8.5% and 7.2% respectively, amounting to 25,905 GWh in 1982. Between 1970 and 1979 the percentage of the population with access to public electricity supply rose from 51% to 75%. Gross consumption of electricity per capita rose from 240 kWh in 1970 to 540 kWh in 1980, representing a per annum increase of approximately 9%. However, the development of electricity supply has not kept pace with the growth in demand, resulting in frequent power shortages and increasing reliance on imports. Generating capacity and electricity production increased at average annual rates of 9.2X and 9% respectively over the 1972-82 period (Annex 2.1). 2.02 The present total installed capacity is 6,363 MW, of which 3,406 MW (54%) is thermal and the balance 2,957 MW (46%) hydro. Peak load in 1982 was 5,100 MW. Total gross generation amounted to 26,562 GWh in 1982, of which TEK accounted for 88% (23,240 GWh), the remainder being generated by self-producers (1,642 GWh, 6%), CEAS, KEPEZ and municipalities (1,680 GWh, 6%). Generation was below the effective demand, estimated at about 29,400 GWh for that year. The relatively high level of system losses contributed to the supply shortages. Overall losses in the system are about 20% including distribution. However, the shortages would have been even more severe but for imports from Bulgaria and the USSR, which amounted to almost 1,800 GWh in 1982. 2.03 The share of hydropower in total installed capacity has increased substantially in the past ten years, from 33% in 1972 to 46% in 1982. This change in the hydro/thermal plant mix was reflected by an increasing hydropower contribution to total generation. In 1982, half of the electricity generated in Turkey was produced by hydropower plants. On the thermal side, lignite has made an increasing contribution to the production of electricity and by 1981 was as important as fuel oil, which has shown a more modest increase over the past five years. The relative share of hard coal has shown a substantial decline, largely due to a deliberate policy of substitution by lignite. System Planning 2.04 TEK has the primary responsibility for formulating the program for the expansion of the generation, transmission and distribution systems. Generation expansion is planned with the help of a mathematical model, developed by TEK with Bank assistance, on the basis of demand forecasts prepared jointly between TEK, MENR and SPO. Transmission expansion is also planned with computer aided techniques. Distribution planning, however, is practically non-existent. Although a planning and coordination department has existed in TEK for several years, its activities have often been severely curtailed by the high turnover of trained staff. The major weaknesses in system planning are: - 6 - (a) inadequate analysis of future energy and electricity demand including collection and analysis of load duration data; (b) ineffective use of the planning models; while the present generation models are soundly conceived there are several shortcomings related to the assumptions and parameters used in the models, particularly in timing and production constraints related to new investments; (c) poor coordination between TEK, MENR, SPO, TKI and DSI; and (d) lack of trained and experienced planning staff. 2.05 Demand Forecast. The current medium and long-term forecasts, prepared in 1981 in connection with the 1982-86 power investment program and long-term power development plan (1984-2003), are based on the relationship between electricity consumption and industrial output. They show total energy demand (GWh) growing at an annual average rate of 10% between 1982 and 1990, with peak load (MW) increasing at 7.7% per annum. In line with this forecast, TEK's bulk electricity sales would increase at an annual average rate of 12%, from 22,782 GWh in 1982 to 57,419 GWh in 1990. However, due to supply constraints these targets will not be met. 2.06 TEK's demand forecast is justified on the basis of Turkey's medium-term prospects for economic growth, provided that the recent upward trend in the country's exports is sustained and that the monetary and fiscal policy slippages observed in 1982 do not seriously disrupt the economic stabilization process underway. Bank estimates indicate that, after a short period of austerity in 1983 and 1984, GDP growth is expected to pick up in 1985 and rise to an average of 6.1% for the 1985-1990 period, as compared with an average annual rate of growth of about 4.5% between 1972 and 1982. 2.07 However, the forecast of electricity sales in Turkey is unrealistic as it will be severely constrained by the availability of supply. Generating capacity is expected to fall short of meeting the forecast sales, and present operating policies do not allow for a higher level of imports. Therefore, an alternative sales forecast based on realistic generation projections has been prepared for appraisal purposes. Under this forecast, TEK's sales would increase at an annual average rate of 10.5% to reach 50,947 GWh in 1990. 2.08 Planned Generation. Annex 2.2 gives details of the forecast energy and capacity balances as appraised by the Bank on the basis of an updated implementation schedule and likely slippages in the commissioning of some hydro or thermal power plants. The installed capacity is expected to grow from 6,363 MW in 1982 to 15,050 MW in 1990, with the share of hydropower in the total rising from 46% to 53%. Assuming average water flows, the share of hydropower in total generation, however, would decline over the period, from 54% in 1982 to 42% in 1990. The capacity reserve margin (MW) is expected to remain at an adequate level of 20% for the next four years (1983-1986) and 7- rise further towards the end of the period (1983-1990). However, the projected generation expansion will not be able to meet the system's energy requirements (GWh), even under average hydrological conditions. The deficit will have to be met by continued imports of up to 2,000 GWh per annum from Bulgaria and the USSR. This situation, which would be exacerbated significantly in dry years, is caused primarily by the low capacity utilization factor (about 50%) for the majority of existing and future thermal power plants; and points out the need for TEK to improve energy supply through better maintenance and rehabilitation of its generating facilities. Furthermore, the fact that project implementation has been rather poor in the past has led to protracted delays in the commissioning of generating units and limited the margin available to compensate for poor operating efficiency. 2.09 Reduction of energy shortages and increased efficiency could also be attained through conservation measures aiming at restraining future demand and through improved load management. The attainment of these objectives, however, is constrained by the present lack of accurate data on the consumption patterns for the various consumers and the lack of knowledge about the reaction of the consumers to changes in the prices of electricity and/or curtailment of their supply of power (para 2.33). 2.10 All new thermal power plants, under construction or proposed, would use lignite for power generation, with the exception of a 60 MW combined-cycle diesel-fired unit and a coal-fired plant to replace an old unit at Catalagzi. Based on the projected expansion of electricity supply, the associated fuel requirements are expected to rise from 6 million tons of lignite in 1982 to about 15 million tons in 1985 and 40 million tons in 1990. The potential for use of gas in power generation would be determined once the size of the reserves is better known. 2.11 Transmission. The salient feature of the Turkish power system is that electricity loads are concentrated in the northwest of the country while the mLajor hydro and lignite resources are located in the east. Bulk transmission distances average 700-800 km. To cope with this situation, TEK's transmission expansion program includes construction of 4,433 km of 380-kV lines by 1990. Of these, 2,049 are in operation or under construction and 1,500 km more are planned for 1983-1986 under the proposed Project (para 3.02 (a)). Ongoing transmission construction includes also proportionate increases in 380-kV substations and 150-kV and 30-kV lines and substations. 2.12 Urban Distribution and Village Electrification. TEK recently took over responsibility for the urban distribution networks. To date it has taken over the 67 main cities in Turkey and 239 other municipalities, and expects to absorb the remaining 1,419 within a period of about two years (see para 4.07). TEK plans to carry out, with the assistance of consultants, a detailed survey of the urban networks in order to determine their condition and formulate an appropriate investment program (para 3.13). This would form the basis for a distribution master plan aimed at the rehabilitation of existing networks to reduce the present high losses, estimated at about 16%, to a more acceptable level (e.g. 7%-10%), and improving the quality of service, together with a plan for the expansion of the networks. -8- 2.13 A feature of TEK's supply program to the rural sector has been the ambitious plan to electrify all of Turkey's villages, totalling about 36,000. By the end of 1982, about 60% of the villages had been connected to the national system, and the target was to electrify the balance by the end of 1987. However, there have been increasing delays in adhering to TEK's original schedule because of the tendency to start too many new projects each year with the resources available. Investment Program 2.14 The appraisal mission assumed a realistic subsector investment program taking likely project completion dates into account. In addition, plausible assumptions were made regarding the requirements for the components of the program other than ganeration. Details of the investment program for 1983-1987 as assumed by the Bank are given in Annex 2.3. It should not be considered as a definitive program for adoption, but rather as the basis for discussion with the Turkish authorities to assist them in formulating such a program and improving their investment planning. 2.15 The coordination of the investment programs of TEK, DSI and TKI, remains a problem but the establishment, in response to a covenant under the Karakaya Loan Agreement (Loan 1844-TU), of a coordinator reporting to the Under Secretary of the Ministry of Energy is a step in the right direction. It is important that coordination, especially between TEK and TKI, be improved and monitored on a regular basis, so that potential bottlenecks can be identified at an early stage and actions taken to eliminate them. Serious problems appear to be looming in relation to several thermal power projects, since the lignite mines required to supply the fuel for these stations have been delayed for technical as well as financial reasons. Electricity tariffs 2.16 Prices for electricity supplied by TEK to its customers are set by TEK, subject to Government approval. TEK's present tariff schedule for sales at over 1,000 volts (bulk supply) provides the consumer with a choice between two pricing structures: (a) a two-part tariff, comprising a capacity charge per kW of contracted load plus an energy charge; or (b) a one-part tariff. Major industrial consumers, such as the aluminum and ferrochrome industries enjoy preferential rates. Low-voltage consumers, e.g. electrified villages, pay a single-term tariff rate. The tariff is uniform throughout the year and has no provision for time-of-day pricing differentials. 2.17 Changes in the tariff structure were recommended to TEK in a study carried out in 1975 by the Middle East Technical University, in accordance with a requirement under the Bank's TEK Transmission II project (Loan 1194-TU). However, the recommendations were not implemented and TEK has, at present, no plans to restructure its tariffs along the lines recommended in the study (para 2.33). 2.18 TEK has experienced difficulty and delay in the past in securing Government approval for proposed tariff increases beyond dire-ct fuel cost adjustments, even in the face of rising investment needs. High voltage tariffs increased in real terms during 1980 and 1981 (by about 40 and 60% respectively), and just kept pace with general inflation as measured by the wholesale price index in 1982. 1/ However, tariffs remain significantly below the long-run marginal cost of supply, estimated at about US$0.075/kWh (bulk supply), compared with an existing average tariff of US$0.040/kWh for bulk supply (i.e., 53Z) 2/; and do not yield sufficient revenue to contribute adequately to the future investment program (para 5.15). 2.19 Retail tariffs in the municipalities have been subject to the approval of MENR and the Ministry of Finance, and this procedure is likely to continue, even though TEK has taken over the responsibility of municipal distribution. Retail tariffs have the same basic structure as the bulk supply tariff, but vary according to end-use consumption. Customers have a choice between a two-part tariff and a single tariff, except for small industry which cannot contract for the two-part tariff. The tariff levels are uniform throughout the country even though operating and capital expenditures differ widely across regions. Present tariff levels are too low to finance a significant share of investments for distribution rehabilitation and extension, although inadequate investment historically has also been due to cross-subsidization of other municipal services. Retail tariffs have, in addition, failed to keep pace with inflation because of Government control. Bank's Role in the Power Subsector 2.20 The proposed Project would be the fifteenth Bank operation in the power subsector in Turkey. The Bank has made ten loans and a technical assistance grant (total US$476.7 million), and IDA has granted three credits (total US$55.7 million). These comprise loans/credits for four hydroelectric projects; two thermal power stations (oil- and lignite-fired); a lignite mine; and several transmission and distribution networks. The technical assistance grant helped reorganize Turkey's power subsector. The first five loans/credits were for projects in the CEAS concession area. All these projects were completed successfully, although often with long delays. The Bank has made three previous loans to TEK, for the First and Second Power Transmission Projects, and for the Elbistan Mine and Power Project. A supplementary loan, which is expected to be presented to the Board in FY84, will address the problems of cost overruns for the Elbistan lignite mine and power plant project. 2.21 A Project Performance Audit Report (PPAR), distributed to the Board in November, 1981, on the Keban Transmission (Loan 568-TU) and the first 1/ See schedule of tariffs compared with the wholesale price index in Annex 2.4. 2/ Following a 15% increase in tariffs from TL 6.99 to TL 8.03/kWh effective June 1, 1983. - 10 - TEK Power Transmission (Loan 763-TU) projects found that these projects had met their physical objectives despite implementation delays and cost overruns. A Project Completion Report on the Istanbul Power Distribution Project (Loan 892-TU), distributed to the Board in December 1982, also reported physical completion of the Project after considerable delay. Major constraints to timely project completion were identified as shortage of local counterpart finance and in the case of Loan 892-TU, late preparation of bidding documents. Both reports indicated that the Projects had been only partially successful in addressing sectoral and institutional problems such as financial and managerial autonomy, staffing and pricing. The completion report for TEK Transmission II is due to be submitted in the fall of 1983. 2.22 The Bank played a major role in the consolidation of the power sector and in the creation of TEK. The Bank has since then continued to advocate much needed institutional reform but has met with limited success in its endeavors to assist in strengthening the institutional capabilities of the subsector. Progress has, however, been made in some areas, e.g., improvements in TEK's accounting system, in system planning, and in procurement procedures. Furthermore, the Bank has assisted in attracting funds from other bilateral and international financing agencies (EIB, German Aid (KfW), US EXIMBANK). Power Subsector Report 2.23 The Bank has, more recently, stepped up its sector work program in the electricity subsector. A draft subsector report 1/ has been reviewed carefully by the MENR and TEK, agreement reached on its content, and the Bank will prepare the report in Grey Cover in FY84. This report identified several important issues facing the power subsector: institutional weaknesses, poor coordination and investment; inadequate planning procedures; and tariffs not reflecting long-run marginal costs. The report recommended that Government policy be urgently redirected towards achieving two interdependent objectives: (i) rationalizing the investment program, based upon more realistic planning, increasing attention to demand management, and refocusing resources on high priority activities within the subsector; and (ii) addressing the present institutional problems facing the subsector, in particular the severe shortage of experienced professional staff and TEK's lack of financial autonomy. 2.24 The Government is committed to action toward resolving some of these issues and has already initiated relevant legislation and debate, particularly on institutional reform. For example, the Government recently passed a law which will integrate TEK and the distribution activities formerly under the municipalities, a long-standing Bank recommendation included also in the 1/ TURKEY: Power Subsector Study, Report No. 3682-TU. - 11 - subsector report. MENR and TEK have also initiated other actions consistent with long standing Bank recommendations, and included in the subsector report, e.g., the creation of ELTEM-TEK (para 3.10), and the appointment of a coordinator of investment programs in MENR (para 2.15). Strategy and Planned Assistance 2.25 The subsector dialogue between the Bank and TEK has been constructive and a consensus has been reached on the problems facing the subsector. However, Bank experience to date suggests that progress toward resolving the subsectoral problems can be achieved only over a long and sustained period. The Bank strategy for dealing with these problems includes efforts within the framework of project lending, structural adjustment lending, technical assistance loans and further sector work. 2.26 TEK and the Bank have agreed that a coordinated and phased program of technical assistance will be necessary to upgrade the subsector and have identified the following high priority areas: (i) Management and organization of the distribution enterprises, and rehabilitation and extension of urban networks; (ii) Load research, demand management, conservation and tariffs; (iii) Manpower development and training; (iv) Management information systems; (v) Generation and transmission planning; and (vi) Thermal plant maintenance. The key areas for assistance are items (i) to (iv) above and they are included in the Project (para 3.02 (b)). The other items for assistance would be financed under future power loans. Annex 2.5 summarizes the immediate technical assistance program proposed by the Bank. 2.27 Manpower. To deal with the lack of trained manpower the Bank would assist TEK in developing its existing training centers, upgrading the quality of instructors and course content, and improving training of both technical operating staff and accounting staff. Recruitment and retention of staff would be enhanced by the high quality of in-service training offered by TEK. The Bank proposes to address the low civil service salaries issue through advocacy and legal reform in the context of the proposed Structural Adjustment Loan (SAL IV) as well as give support, in the Project, to the recent initiatives of TEK in assisting in the creation of ELTEM-TEK, the private sector consulting firm (para 3.10). ELTEM-TEK, since it remains outside the rigid SEE personnel laws, will be able to pay higher than civil service salaries and should attract highly qualified staff from the private sector. - 12 - 2.28 Management Systems. Inadequate corporate planning in TEK has, in part, been a function of the inadequate information system in existence. The system does not assist management in assessing the financial implications of long-term development plans. The Bank will finance, under the Project, technical assistance to improve the timeliness and usefulness of financial reports. 2.29 Distribution. The most immediate institutional challenge facing TEK is the organization and operation of the recently integrated distribution activities (para 2.12) and the creation of the regional enterprises (para 4.08). To follow up on an EdF diagnostic study to be completed in mid-1983 (para 4.10), TEK has agreed to engage consultancy services to: (i) provide overall guidance to the management of TEK on the organization and operation of distribution enterprises; and (ii) prepare specific detailed technical and economic feasibility studies on the rehabilitation of the urban networks. Given the complexity and diversity of the various consulting tasks the Bank also proposes that, under the FY84 sector work program, a review of the various studies and an action plan be prepared. Further technical assistance, as defined at that time, would be included in future project lending. 2.30 Planning. The Bank is currently preparing, in cooperation with the International Atomic Energy Agency, a report on planning and investment in the electricity subsector (including a detailed review of the current investment program) and will present its findings to the Turkish authorities for discussion and comment. The report will include a program of actions including technical assistance and training, especially for generation and transmission, which would be included in future Bank projects. However, a fundamental planning problem identified by the sector mission is the inadequate collection and analysis of load data. The first step in improving system planning is the development of realistic load and demand forecasts. Technical assistance to assist TEK's planning department to collect and analyze load data and develop a comprehensive load management program is included in the Project. 2.31 TEK is only in the preliminary stage of preparing a medium-term investment program for distribution. The technical assistance program for urban distribution will assist TEK in the preparation of a realistic investment program. The Bank has been a long standing advocate of increasing the share of investment for distribution network rehabilitation. Future project lending will be geared to redressing the imbalance in the investment program by concentrating on transmission, distribution and rehabilitation of existing generation. 2.32 Other issues which will have an impact on improved planning and investment decisions relate to the quality of maintenance, especially of thermal plants, which appear to have unusually low capacity utilization rates (para 2.08). The Bank plans to investigate this further during subsequent sector and supervision missions with a view to addressing the issue under future project lending. - 13 - 2.33 Pricing. The Bank-financed tariff study, prepared in 1975 (para 2.17) is now outdated and does not form an adequate basis for discussions regarding the economic cost of supplying electricity to consumers. A tariff study is included in the technical assistance for load research and load management (para 3.14). The tariff study will be carried out in two stages: a full diagnostic report to be completed by September 30, 1984 and the final report to be completed by July 31, 1985. TEK has agreed to furnish to the Bank the findings and recommendations of the reports promptly upon their completion; and, thereafter implement such recommendations as shall have been agreed upon between TEK and the Bank. The Bank will continue to press for an increase in level and improved structure of electricity tariffs so that prices may more adequately reflect the long run marginal cost as well as provide a reasonable level of internally generated cash to finance future investment costs. - 14 - III. THE PROJECT The Program and the Project 3.01 To provide adequate transmission capacity for TEK's widespread power system (para 2.11), TEK and consultants prepared a least-cost, long-term (10-15 years) bulk transmission construction program in 1974. The program is updated regularly to take account of changes in TEK's load growth and generation patterns. The most recent update in December 1982 (para 6.03) showed that the proposed Project is the least-cost means of interconnecting the next stage of generation coming on stream by 1986 (para 2.08). Construction of the lines in the Project will allow full utilization of generating capacity under construction to ensure a continued supply of electricity to the growing demand on TEK's interconnected network. 3.02 The Project is part of the Borrower's current 1982-1986 development plan and consists of the following parts: (a) The construction and placing into operation of about 1,500 km of 380-kV transmission lines, including series capacitors, to interconnect Karakaya, Oymapinar, Altinkaya, Yatagan and Yenikoy power stations to the Borrower's bulk supply system (see Map IBRD 17075). Annex 3.1 lists the specific lines and their characteristics. (b) Technical assistance for the Borrower to: (i) address organizational, financial, technical and operational problems posed by the recent transfer to TEK of municipal power distribution assets throughout Turkey, including feasibility studies on distribution rehabilitation and extension; (ii) prepare and implement a program of load research, tariff studies, demand management and energy conservation leading to utilization of the Borrower's existing and future assets; (iii) start the implementation of a long-term manpower development and training program; and (iv) improve TEK's existing accounting and billing systems and introduce the first stage of a management information system. Status of Engineering 3.03 TEK's 380-kV network has been planned in line with traditional contingency criteria for the system to withstand faults without system separation, line overloading, cascade tripping or loss of load. Possible disturbances and faults were classified as "lst contingencies" and "2nd contingencies". The 1st contingencies are the incidents most likely to occur. The 2nd contingencies are more serious incidents, but with lower probability of occurrence. In the Turkish system, the following planning criteria apply: - 15 - (a) 1st Contingencies--Three-phase faults in any one line followed by permanent trip-out of the faulty line. All lines in service prior to the fault. (b) 2nd Contingencies--Permanent faults, simultaneous or a short time apart, on two lines in the same right-of-way at peak load; a fault at one bus bar in a substation; a three-phase fault in line followed by successful reclosing, while another line in the same area is out of service. 3.04 To ascertain adequate design for each new extension of the 380-kV network, including the proposed Project, specific studies are carried out in the following areas: (a) Load flows for normal and emergency conditions; (b) Energization of long lines; (c) Transient and steady state stability; (d) Switching surges and dynamic overvoltages; (e) Short circuits; (f) Mechanical and electrical design; and (g) Optimum Line Routing. 3.05 Basic design for the Project is on hand, and equipment and materials have been standardized in accordance with criteria established during previous construction of 380-kV transmission lines in the Borrower's network. Following the mechanical failure of several 380-kV lines caused by ice and wind in 1975-1980, TEK has revised the mechanical design criteria for 380-kV lines to take into account the findings of extensive investigations conducted by TEK and consultants. Specifically the new specifications call for span lengths not to exceed 500 m, less sagging of center phase conductors, and ACSR conductors with a ratio of aluminum-to-steel sections of about 8/1. In addition, all lattice towers are to have square instead of the rectangular bases previously specified. Other minor modifications have also been included in the improved design. Rights-of-way have been obtained and bidding documents will be issued starting in July 1983. The Borrower's engineering department is capable of preparing detailed project design and requires only highly specialized outside technical assistance in a few areas. No difficulties are foreseen in maintaining adequate flow of construction drawings to the installation and erection contractors. Cost Estimates 3.U6 Annex 3.2 shows details of the project cost estimates. A summary is given in Table 3.1 below: - 16 - Table 3.1 Summary of Project Cost Foreign as % of Local Foreign Total Local Foreign Total Total ----- TL million ---- ---- US$ million ---- Transmission Lines Right-of-way 455 - 455 2.4 - 2.4 0 Steel Towers 6,128 6,829 12,957 32.3 35.9 68.2 53 Conductors - 9,933 9,933 - 52.3 52.3 100 Shield Wire - 679 679 - 3.6 3.6 100 Insulators - 2,616 2,616 - 13.8 13.8 100 Hardware - 2,331 2,331 - 12.3 12.3 100 Series Capacitors 100 750 850 0.5 3.9 4.4 89 Installation & Erection 1,730 668 2,398 9.1 3.5 12.6 28 Engineering & Administration 741 286 1,027 3.9 1.5 5.4 28 Technical Assistance Consultants 450 1,178 1,626 2.4 6.2 8.6 72 Computer Software/Hardware - 490 490 - 2.6 2.6 100 Training & Training Aids 150 560 710 0.8 2.9 3.7 78 Base Cost (early 1983 prices) 9,754 26,320 36,074 51.4 138.5 189.9 73 Physical Contingencies 915 2,409 3,324 4.8 12.7 17.5 73 Price Contingencies 4,728 5,100 9,828 24.9 26.8 51.7 52 Total Project Cost 15,397 33,829 49,226 81.1 178.0 259.1 69 Interest During Construction - 6,669 6,669 - 35.1 35.1 100 Front-end Fee on Bank Loan - 76 76 - 0.4 0.4 100 Total Financing Required 15,397 40,574 55,971 81.1 213.5 294.6 72 Note: 1. Total physical contingencies are about 10% of base cost; local price contingencies are about 44%, and foreign price contingencies are about 17% of the respective base costs plus physical contingencies. Specific annual increases in domestic and international prices were assumed as follows: 1983 1984 1985 1986 1987 Local 20% 17% 15% 12% 12% Foreign 8% 7.5% 7% 6% 6% 2. Under existing regulations, the Project would be exempt from import taxes and duties through 1983. TEK plans to apply for an extension to the end of the Project, December 1986, and expects little difficulty obtaining it. During negotiations, the Bank received Government assurances that the exemption will be extended. - 17 - Given the difficult terrain and climatic conditions in the project areas, the resulting unit cost of about $16(,000/km of 380-kV lines with bundled conductors appears reasonable. 3.07 The estimated cost of consultants include (i) man-month rate; (ii) reimbursable items; and (iii) subsistence and other allowances in Turkey. Uther expenses under technical assistance would be for computer hardware and software, audio-visual training aids and other didactic equipment and materials, as well as for overseas training of Turkish instructor-trainees. Project Financing Plan 3.08 The proposed loan of US$163 million would cover about 95% of the foreign cost of the Project, excluding interest during construction. For the balance, co-financing has been arranged for up to US$6.3 million and negotiations are in progress for an additional US$2.5 million. The local cost -- US$81.1 million equivalent -- and the rest of the foreign exchange required -- US$41.7 million /a -- would be financed by the Government and the Borrower as part of the planned 1983-1987 subsector investment program. To ensure timely availability of local currency funds TEK would establish a TL revolving fund (para 3.21). A summary of the Project financing plan is given in Table 3.2 below. Table 3.2 Project Financing Plan (uS$ Million Equivalent) Local Foreign Financing Source Currency Currency Total IBRD - 163.0 163.0 ESF 6.3 6.3 Bilateral Financing through Societe Generale (France) - 2.5 2.5 TEK and Government 81.1 41.7 122.8 81.1 213.5 294.6 Implementation 3.09 Construction would start in late 1983 and be completed in late 1986, in step with the commissioning dates of Karakaya, Oymapinar, Altinkaya, Yatagan and Yenikoy power stations. Implementation of the Project would also /a Including $35.1 million of interest during construction. - 18 - be coordinated with TEK's construction program for 380-kV substations. Annex 3.3 shows a composite implementation schedule. Although TEK is close to completing negotiations for several 380-kV substations under turnkey supplier-financed contracts, to avoid the possibility of slippages the award of contracts for all the substations related to the Project (see Annex 3.4), would be a coildition of loan effectiveness. 3.10 There is a need to strengthen TEK's project management capabilities to ensure efficient implementation of the Project. The engagement of project management consultants satisfactory to the Bank under terms and conditions satisfactory also to the Bank would be an additional condition of loan effectiveness. TEK plans to engage the services of ELTEM-TEK, a private local consulting firm owned jointly by TEK, Cukurova, Kepez and other power subsector enterprises (see Annex 3.5). This arrangement would be satisfactory, subject to Bank review of ELTEM-TEK's capabilities. ELTEM-TEK was established by TEK and the other partners in 1982 to attract and retain experienced power industry professionals without being constrained by the civil service and salary regulations applicable to TEK and other State Economic Enterprises. By statute, ELTEM-TEK is barred from recruiting civil servants in active duty, but intends instead to tap the private sector. ELTEM-TEK would also seek technical support from abroad as required. 3.11 Stringing of conductors and shield wires would be carried out as follows: one half by local contractors, and the other half by TEK's own crews (force account). Based on recent TEK experience, no adverse effect on project cost is anticipated. TEK and local transmision line contractors have ample 380-kV line construction capability (see Annex 3.6). Technical Assistance 3.12 To introduce improvements in the organization and operating procedures of the 18 recently formed electricity distribution enterprises, TEK has agreed to select and appoint consultants satisfactory to the Bank no later than December 31, 1983, under terms and conditions satisfactory to the Bank. This technical assistance component is estimated at 170 man-months. 3.13 TEK has also agreed to select and employ consultants satisfactory to the Bank no later than December 31, 1983, under terms and conditions satisfactory to the Bank, for about 50 man-months to conduct feasibility studies for rehabilitation and extension of the urban distribution networks. The studies would be carried out in close coordination with the work of the consultants in para 3.12 above. The studies would be completed by June 30, 1985 and the recommendations implemented in consultation with the Bank. 3.14 As the first stage in improving overall system planning, TEK has agreed to select and appoint consultants satisfactory to the Bank no later than December 31, 1983, under terms and conditions satisfactory to the Bank, to undertake a load research, demand management and energy conservation study, estimated to require about 300 man-months. This would include technical assistance for carrying out a tariff study aimed at estimating the long-run marginal costs of supply at the high, medium and low voltage levels. The tariff study would be completed in two stages (para 2.33). - 19 - 3.15 To strengthen manpower development at TEK, the Project will have a training component under which TEK has also agreed to engage training consultants no later than December 31, 1983 under terms and conditions satisfactory to the Bank. The consultants would assist TEK in preparing specifications for training equipment to be financed under the Project, and provide other assistance in manpower planning and training of both technical and accounting staff, estimated to require about 80 man-months. TEK has also agreed to submit an action plan for the training program by March 31, 1984 for the Bank's comment and approval. 3.16 To improve accounting and management information systems, TEK has also agreed to engage consultants (about 210 man-months) by December 31, 1983, under terms and conditions satisfactory to the Bank. Furthermore, TEK has agreed to submit an action plan by March 31, 1984, for the Bank's comment and approval, showing the steps to be taken by TEK management and staff in collaboration with the consultants. Procurement 3.17 Five separate contracts would be awarded for the supply of ACSR conductors (US$63.7 million), shield wire (US$4.7 million), insulators (US$17.9 million) hardware assemblies (US$15.9 million) and series capacitors (US$4 million) after ICB. The contract for the supply and erection of steel towers (US$94.6) would also be awarded under ICB procedures. Up to 15% domestic preference would be allowed for locally manufactured goods. Local firms are expected to be competitive for the ACSR contract and for the supply and erection of towers. Training manuals and other miscellaneous training aids and computer software packages would be purchased through limited international bidding for items of less than US$10,000 up to an aggregate limit of US$300,000, by shopping with at least three price quotations. The steel towers and conductors financed by ESF would be purchased in accordance with their regulations. Consultants for training and technical assistance would be selected in accordance with Bank guidelines and employed under terms and conditions satisfactory to the Bank. All works contracts and equipment and materials contracts financed by the Bank and costing over US$250,000 each would be subject to prior Bank review. Other Bank-financed contracts would be subject to post-award review. Disbursements 3.18 Disbursements from the loan supported by full documentation, would be made for: (a) 100% of the foreign cost of imported equipment and materials and 100% of the ex-factory cost of locally manufactured equipment and materials. (b) 15% of the total expenditures for erection of steel towers. (c) 100% of the total expenditures for foreign and local consultants and training experts engaged under the Project. (d) 100% of the foreign expenditures for overseas training, training aids, and computer hardware and software packages. - 20 - 3.19 Savings resulting from favorable prices would be cancelled from the loan amount. Disbursement should be completed by June 30, 1987. An estimated schedule of disbursement is given in Annex 3.7 and a comparison with the actual disbursement profile of TEK Transmission Project II (Loan 1194-TU) is shown in Annex 3.8. The approximately four years advantage shown for the proposed loan reflects the resolution of the land acquisition difficulties encountered during implementation of TEK Transmission Project II, and the better packaging of the contracts being financed out of the proposed loan. The prevailing disbursement profile for power projects in the entire EMENA Region is also shown in Annex 3.8 for reference. Environmental Impact 3.20 As in the case of TEK Transmission Project II, the impact of the Project on the environment is small. Visual effects and to a lesser extent noise are the principal adverse effects. Both would be kept at acceptable levels. Project Risks 3.21 Most of the Project is in mountainous areas difficult to reach. However, adequate construction technology is available to cope with the expected terrain and climatic conditions, and physical risks are manageable. In addition, the proposed use of consultants to assist TEK in supervising construction (para 3.10) would help offset TEK's weaknesses in project implementation, and provide improved coordination with construction of substations and power plants affecting the Project. Problems with land acquisition, which delayed implementation of TEK Transmission II (Loan 1194-TU), have been resolved (para 3.05). Availability of TL funds, however, could be a critical factor in ensuring timely completion of the Project. To prevent delays on account of TL shortages, TEK has agreed to establish a revolving fund adequate to carry out the Project in a timely manner. - 21 - IV. IHE PROJECT ENTITY Background 4.01 The borrower, the Turkish Electricity Authority (TEK), is a State Economic Enterprise established in October 1970, with a mandate to plan and construct thermal power plants, transmission networks and implement the rural electrification program; and to sell electricity at the bulk supply level. TEK has recently assumed responsibility for direct sales to all consumers, and for construction, operation and maintenance of urban distribution systems effective November 1, 1982. 4.02 TEK is subject to the SEE Law (No. 440) and the State Personnel Law (No. 637). Both laws have contributed to restricting TEK's financial and administrative autonomy. The reduction of the SEEs' financial dependence on the Government and improvement in the efficiency of these enterprises are major goals of the structural adjustment program in Turkey. The Bank has supported this program through SAL I, II and III. Modifications to the SEE laws, approved by the Government during May 1983, are expected to lead to reforms which would affect TEK as well as other SEE's, including the expansion of management autonomy and the liberalization of employment and salary practices. Organization and Management 4.03 The current organizational structure of TEK is shown in Annex 4.1. While there have been six General Managers appointed since 1970, the mnanagement of the company has consistently emphasized centralized operations and electricity generation in particular, with much less importance given to financial policy, demand management or training. The only significant organizational change since the establishment of TEK is the recent takeover of municipal electricity distribution, resulting in the merging of rural electrification with urban distribution under one Assistant General Manager, and the creation of semi-autonomous distribution companies (paras 4.07-4.11). This change, which is strongly supported by TEK officials, is expected to be favorable to TEK and the performance of the overall power subsector. 4.04 In the past, organizational flexibility has been limited and change has not come about easily. Soon after TEK was formed as a consolidation of a number of regional and functionally specialized agencies, TEK commissioned Electricite de France (EdF) to carry out a study to recommend improvements to TEK's organizational structure and operating procedures. A 1967 IBRD Technical Assistance Grant for US$1.95 million financed the EdF study as well as the introduction of improved accounting practices and training provided by Arthur Young & Co. The Bank encouraged the Government and TEK to implement fully the proposed new organization, with covenants to that effect being included in subsequent loans: Loan 1023-TU: Elbistan Power and Loan 1194-TU: TEK Transmission II. - 22 - 4.05 The recommendations of the 1973 study included: the delegation of more authority to the five Assistant General Managers, a restructuring of the departments of TEK, and the decentralization to six regional offices of most of the system operation and maintenance activities. While TEK's management approved these recommendations in principle in 1973, no comprehensive progress was made toward implementing them. A brief experiment between 1979 and 1982 with establishment of regional offices in Ankara, Istanbul and Izmir, has now been discontinued. Financial and human resource constraints have also tended to encourage continued centralization. 4.06 In the context of a less restrictive legal framework for SEE's, there would be room to introduce improvements to the organizational structure and management practices at TEK. Pending legal reform, it will still be useful for TEK management to analyze and communicate the costs of existing legal constraints to the Government. As a first step in this direction, an internal TEK task force prepared a paper in early 1983 for the Government commission reviewing the SEE Law. The paper contained some preliminary proposals on how TEK would operate in an environment of greater autonomy. Currently top managers, overwhelmed by the immediate problems of ambitious construction projects and coping with increasing system demand, do not have enough time to assess long-term prospects or actively try to shape the environment in which TEK operates. Changes in the role and composition of the Board of Directors would encourage a more outward looking top management, focused on relationships with TEK's major customers and with the Government. The Bank has discussed with TEK and TEK has indicated that the existing internal task force would continue to meet to evaluate this and other possible organizational changes. Transfer of Electricity Distribution to TEK 4.07 The staff, assets and the responsibility for operation and maintenance of municipal electricity distribution are being transferred to TEK incrementally as shown in the schedule below. Number of Municipalities Date of Transfer to TEK 67 November 1, 1982 239 February 1, 1983 300 June 1, 1983 1,119 Mid 1983 to Oct. 1984 1,725 Total The three largest municipalities which account for over 50% of municipal sales (Ankara, Istanbul, and Izmir), were among those absorbed by TEK in the first group in November 1982. Because the municipal agencies involved in electricity distribution had also been undertaking other activities such as urban transport and water supply, there are some disagreements arising over the designation of vehicles, buildings and staff which had been employed for - 23 - several activities. Committees consisting of three members -- representative of TEK, the municipality, and the Ministry of Energy -- are being established to resolve such disputes, and to determine the financial cost of the transfer. 4.08 To decentralize its electricity distribution operations, TEK has created eighteen semi-autonomous regional enterprises. TEK will deliver bulk electricity to these distribution companies. These companies, having 67 district subdivisions, will in turn serve all customers within their territory. Each distribution company is to have its own Board of Directors, and "coordinators" to manage each new company have been named. 4.09 In taking over responsibility for municipal distribution, TEK is faced with a number of organizational and operational problems. Fundamental questions about the actual degree of autonomy of the distribution companies and how their investments will be financed have not been resolved. Billing procedures and technical standards are not uniform among the municipalities. Data on existing facilities are lacking, and investment requirements for network expansion and rehabilitation have been largely ignored. Losses are high, due both to the poor physical condition of the networks and to the number of unbilled consumers of electricity. The staff transferred to TEK vary in the level of their technical and administrative skills. 4.10 Recognizing these difficulties, TEK has engaged Electricite de France (EdF) to provide a diagnosis of retail pricing, and urban distribution losses at the distribution level to be completed by September, 1983. Following up on this study, EdF will develop detailed recommendations and assist with implementation of new technical and administrative procedures, including engineering and materials standardization and inventory control, for the 18 distribution enterprises (para 3.12). 4.11 Although this component is not being financed by the Bank, the Bank will have the opportunity to comment on the detailed work plan to be developed for the consultants, and to receive and comment on all progress reports and detailed studies prepared by the consultants at the time they are submitted to TEK. It will be highly important that the distribution enterprises demonstrate the potential success of decentralization, possibly setting the stage for consideration of further steps in this direction in the future. Manpower Development 4.12 The rapid expansion of electricity supply in Turkey has been accompanied by an almost equally rapid increase in the number of people employed by TEK. The total number of staff as of April 1983, was about 55,000 including 35,000 recently transferred to TEK from the municipalities. Among its large number of employees, TEK benefits from the efforts and skills of a relatively small pool of dedicated and competent technical, management and administrative staff. TEK is highly vulnerable to the departure of key staff members who seek better salaries and a better professional environment in the private sector. Many of the staff are unskilled and others seem to be misallocated among TEK's different services and operations. Among those staff who do have university degrees, many lack the appropriate specialized - 24 - training. A detailed breakdown of TEK's staff, showing levels of education and areas of responsibility is provided in Annex 4.2. 4.13 Middle level technical and administrative staff at TEK are severely lacking, representing less than 10% of the total staff, and in many cases are too overburdened to carry out their responsibilities fully. In contrast a surplus number of lower level staff are attached to central administrative services. A disproportionately large number of staff are assigned to the operation of electricity generation and transmission facilities, representing as much as 50% of the number of staff involved in electricity distribution. A disproportionately small number of staff are assigned to maintenance of the system as compared with operation. 4.14 The Government has recognized the problem of overstaffing and has now placed constraints on the expansion of TEK's staff. Because of uncertainty of obtaining Government approval for personnel changes, manpower planning at TEK is not conducted as a serious long-term exercise. Manpower planning is presently conducted no more than a year in advance, and applications for increases in the number of staff do not reflect attempts to correct some of the imbalances mentioned above. Training 4.15 Presently training at TEK focuses primarily on development of technical operational staff, an orientation encouraged by the fact that it is the Assistant General Manager for Operations who supervises the Training Department and controls the budget for training. TEK is running three technical training facilities, the largest of which, adjacent to the Soma A thermal plant, has extensive laboratory capacity and models related to thermal electricity generation. However, much of the equipment is out of date. Courses have also been held at the Golbashi and Adapazari centers dealing with transmission, safety and topography. Instructional materials dealing with transmission, distribution and overall system reliability are lacking. For the operation and maintenance of hydroelectric power facilities, staff have been developed only through "on the job" observation, although a plan to create a hydro training facility at Oymapinar is under consideration. Training of the new staff joining TEK in the area of electricity distribution has now also become a priority. A previously closed training facility at Topkapi near Istanbul will be reopened, and there are plans to create two other centers at Ankara and Izmir. 4.16 All of the training centers are used at less than full capacity due largely to the shortage of instructors; only the Soma facility has permanent training staff. According to existing personnel guidelines, training staff do not receive the same compensation which would be available to the same individuals if they were holding operating or planning jobs. In the absence of more flexible personnel guidelines, expansion of training staff will be possible only if such staff are officially designated as holding other jobs. Under the Project, the technical training staff will need to be supplemented by at least 20 engineers or senior technicians, plus about 8 individuals who would receive instruction overseas to be developed as trainers of trainers. - 25 - 4.17 The Project will address the need to strengthen manpower development at TEK through upgrading technical training facilities, developing a stronger training staff, and supporting training for accounting and planning staff. An outline of the scope and objectives of this component is provided in Annex 4.3. The proposed program is also intended to solidify the position of the Training Department within the organization. Although TEK management is considering a scheme where each of TEK's various branches and services would have a separate training unit, this is not considered advisable because of the risk of dissipating the existing staff resources. Instead, the joining of the Training and the Personnel Departments under the same Assistant General Manager will be an objective of the Project, in order to strengthen the role of both activities and to improve coordination. A proposal by the Training Director to have the manpower development plan and training budget evaluated and approved by a committee with representatives from all the major parts of the organization, could, if implemented, extend the scope and effectiveness of training with TEK. - 26 - V. FINANCE Summary 5.01 The Yiggest obstacle to improvement in TEK's financial performance remains the difficulty in gaining Government approval of electricity tariff increases beyond direct fuel cost adjustment of tariffs, even in the face of rising investment needs. TEK's inability to raise adequate revenue, together with overall constraints on resources for public investment in Turkey, have combined to restrict directly the size of investments to expand the power system. Partly due to its lack of control over tariff setting, TEK management still treats financial planning as an ex-post exercise. Without giving full consideration to whether financing will be available for all the investments that are technically and economically viable, the formulation of the investment program is instead driven by the objectives of building capacity to eliminate power shortages and substituting hydropower and lignite for imported fuels as soon as possible. The necessity for closer coordination between financial and technical planning is only now being recognized by TEK. The importance of directing limited funds to those projects closest to a revenue-earning stage still needs to be further emphasized within the company. Recent Financial Performance 5.02 Trends in the economic environment in Turkey in the last several years have had a direct and significant impact on TEK's financial position. Both operating costs and investment costs have jumped due to high local inflation rates (105%, 37% and 23% per annum in 1980, 1981 and 1982 respectively) and to the corresponding depreciation of the Turkish Lira (about 40% per annum against the US dollar from 1980 to 1982). These economic trends have combined with problems in collecting revenues from municipal customers, who have diverted electricity revenues into other urban services, to erode TEK's liquidity and create some difficulties in meeting debt service obligations. TEK's working capital position as of December 31 for 1980-1982 is summarized in Table 5.1. Apparently, TEK's only way of financing working capital requirements, and in some cases investments, has been to delay payments to suppliers. TPAO, the supplier of fuel oil, is charging TEK a below market interest rate of 31.5% per annum for its delayed payments, which amounted to TL 86.1 billion at the end of 1982. 5.03 It is expected that TEK's liquidity will begin to improve in 1983. Because of the transfer of municipal distribution assets to TEK effective November 1982 (see paras 4.07-4.11 on reorganization of TEK), TEK is already benefitting from being able to collect directly from customers. Consequently, by an agreement reached between TEK, TPAO and the Ministry of Finance, TEK began to pay fuel bills received from TPAO after January 1, 1983, on a timely basis. - 27 - Table 5.1 TEK - Working Capital Position (As of December 31, 1980-1982 ) -------------Billions of TL----------- 1980 1981 1982 Cash 2 3 3 Accounts Receivable 31 53 102 Inventory & Prepayments 6 13 13 (A) Total Current Assets 39 69 118 Accounts Payable - TPAO 16 57 86 - Others 15 15 33 Taxes Accrued 9 12 19 Current Portion of LT Debt 5 11 11 Other Current Liabilities 3 7 7 (B)Total Current Liabilities 49 101 156 (A-B) Working Capital Deficit -10 -32 -38 (A/B) Current Ratio .8 .7 .7 5.04 As an indication that TEK's management will take all necessary steps to improve the company's working capital and avoid financing long-term investments with short-term credits, during negotiations it was agreed that TEK would maintain a current ratio (defined as current assets divided by current liabilities) of at least 0.7 by the end of 1983, and increase this ratio to 1.0 by the end of 1984. Thereafter, the current ratio should be kept above 1.0. 5.05 Although TEK is highly exposed to risk from foreign exchange fluctuations, increases in electricity tariffs have failed to take into account the impact of these fluctuations on TEK's costs, in particular on its investments (about 50% of which are in foreign exchange) and on its debt service. The depreciation of the Turkish Lira against the US Dollar averaged about 40% p.a. during the 1980-1982 period. As a result the TL value of existing foreign obligations has increased, as reflected in TEK's balance sheets. Foreign exchange losses in 1980-1982 added TL 102.7 billion altogether to the value of TEK's outstanding foreign borrowings, an amount equivalent to almost half the book value of fixed assets in service in 1982. 5.06 A further repercussion of the TL depreciation, with more immediate consequences, is that TEK has had increasing difficulty in meeting its foreign debt service obligations. Payments to external creditors for TEK's loans have been made on a timely basis by the Central Bank. The Treasury then reimburses the Central Bank on TEK's behalf. TEK's books reflect delays in reimbursing the full equivalent TL amounts to the Treasury, but TEK attributes this to delays in receiving transfers from the Treasury. The Bank has emphasized the importance of TEK keeping up with timely debt service payments in order to maintain its creditworthiness. - 28 - 5.07 The likely extent of foreign exchange losses and their impact on operating and capital costs is apparently never foreseen or allowed for in the annual capital budgeting procedures followed by TEK. This is of significant concern because required tariffs are underestimated as a result and because continued failure to allow adequately for the TL cost of its foreign debt service could detract from TEK's overall creditworthiness. It was agreed during negotiations that TEK will include in its annual budgets, as submitted to the Government, contingency amounts to cover the likely impact of exchange rate changes on operating and capital costs, starting with the fiscal year 1984 budget exercise. (To estimate expected TL depreciation, it would be possible to take the differential between the forecast international and domestic inflation rates, or alternatively the Central Bank would provide an appropriate estimate.) Financial Implications of Transfer of Municipal Distribution Assets 5.08 By gaining control over electricity distribution, TEK should benefit from an improved cash flow, as long as these additional revenues are adequate to cover operating expenses at the distribution level. In addition, a law was passed in early 1983 facilitating the procedures by which new electricity customers can apply for service. In Ankara alone, 30,000 new applications were received in one month, many from homes which had already been illegally connected to the network and had lacked the certification of land ownership which had previously been required. The new procedures should eventually lead to a reduction in the extent of losses due to unmetered consumption. 5.09 As of mid-1983, no data was available on the overall financial impact of the transfer. According to the terms of Law 2705, TEK owes to each municipality the book value of assets, less accumulated depreciation, less any unpaid bills for purchase of bulk electricity. Advance collections, made by some municipalities for estimated consumption after November 1, 1982, will also be subtracted from any amounts owed by TEK. The reconciliation of accounts between TEK and the larger municipalities is expected to be completed by December 31, 1984, and for the remaining municipalities by December 31, 1985. The Treasury intends to supply the funds either owed to TEK or owed by TEK as the case may be with each municipality. Although the accounts of the eighteen distribution enterprises will eventually be consolidated with those of TEK, the Bank has requested in the interim to receive these accounts separately for purposes of reviewing performance and compliance with financial covenants. 5.10 TEK agreed to submit to the Bank no later than June 30, 1984, a report defining the capital structure of the new distribution enterprises. This would include a description of the practices to be followed in financing capital expenditures in urban distribution, through internally generated funds, through borrowing, or through Government equity. 5.11 In the monitoring of TEK's financial performance, revenues, operating expenses, and capital expenditures associated with urban distribution would be excluded from the calculation of the cash generation ratio until December 31, 1984, or by another date to which the Bank and TEK agree, when there will be sufficient data to take into account both the operating results and the ongoing and planned investments of the distribution companies. In the interim, the ratios will be applied to TEK, as it operated previously, an entity supplying bulk electricity before consolidation of accounts. - 29 - Revenue Performance and Tariff Levels 5.12 Since the signing of the Loan Agreement for the Karakaya Hydropower Project (Loan No. 1844-TU) in May, 1980 the Bank has been monitoring the adequacy of TEK's tariff levels by looking at the share of investment costs coverea by internally generated funds. Accordingly, TEK is required to take any actions, not limited to changes in the structure or overall level of its electricity rates, as necessary to generate funds from internal sources equivalent to not less that 20% of annual capital expenditures of TEK and DSI for power projects in 1981, gradually increasing to 35% by 1986. In 1981, 19% of investment was funded from internally generated resources, and in 1982, a 16% cash generation ratio was achieved, according to preliminary results. (These estimates are based on the amount of debt service due rather than the lower amount of debt service actually paid.) Table 5.2 Internal Cash Generation for Power Subsector: 1981-1987 (Billions of TL in Current Prices) Actual Estimated Forecast Total 1981 1982 1983 1984 1985 1986 1987 1983/87 Capital Expenditures 1. Investments by TEK 140 113 210 207 246 281 292 1,238 2. Investments by DSI (in hydro generation) 30 46 70 202 252 289 353 1,167 Total Capital Expenditures 170 159 280 409 498 570 645 2,404 Internal Cash Generation Gross income plus depreciation 36 56 57 164 219 272 306 1,018 Less: TEK - debt service 15.5 19 18 43 50 61 73 245 DSI - debt service .5 .5 .5 2 5 6 7 20 Less: increase (decrease) in working capital (12) 11 5 32 2 6 1 44 Total Internal Cash Generation 32 26 34 87 162 199 226 708 Cash Generation Ratio /a 19% 16% 12% 21% 32% 35% 35% 29% /b 20% 22% 25% 29% 32% 35% 35% - /a Actual and mission forecast. /b As covenanted under Loan 1844-TU. - 30 - 5.13 Even though the definition of net funds from internal sources includes changes in working capital other than cash, 1/ TEK's compliance with the revenue covenant in 1981 should not obscure the fact that tariffs were not adequate to meet liquidity as well as investment requirements. In 1981, working capital was reduced from an already negative position. If, for this reason, these i,ductions are not counted as a source of internal cash available to finance new investments, the result for the cash generation ratio is instead 12% for 1981. 5.14 Some immediate problems are foreseen for TEK's financial position in the next two years. An increase in the average bulk supply tariff of about 30%, which was proposed in February, did not receive Government approval. Revenue needs are expected to be high in 1983, because poor hydrological conditions have necessitated operating expensive oil-fired thermal units, normally used only for peaking, at high levels to meet load demand. Delays in completing less expensive hydro and lignite-fired plants have constrained electricity supply. Furthermore, the cost of TEK's planned investments is almost twice that of 1982 (TL 210 billion as compared with TL 113 billion). 5.15 Based on the 15% increase in tariffs effective June 1, 1983, and a second 15. increase which the Government agreed would occur on or before December 1, 1983, it is estimated that in 1983 TEK would have internally generated funds sufficient to finance only about 12% of the planned investments in the power subsector. It would then be difficult to obtain the previously covenanted level of 29% internal cash generation in 1984, requiring over a 50% nominal or 33% real increase in tariffs. 5.16 In the light of these circumstances it was agreed that the Government would continue to take or cause TEK to take measures necessary to attain the following levels of internal cash generation: 1983 12% 1984 21% 1985 32% 1986 and afterwards 35% Since the targets agreed to during negotiations for 1983 and 1984 were lower than previously covenanted, the Karakaya Loan Agreement has been amended accordingly 2/. The revised internal cash generation target for 1984 will require that TEK obtain an average revenue during the year of TL 11.0 for each unit of electricity sold at the high voltage level. The specific level of nominal and real tariff increases needed to generate this average revenue will, of course, depend upon the timing of tariff increases during the 12-month period. If the increase occurs on May 1, 1984, tariffs would have to 1/ As defined in Loan Agreement for Loan 1844-TU, Section 4.08. 2/ Amendments were agreed to Supplemental Letter No. 3, referring to Section 4.08 of the Loan Agreement between the Republic of Turkey and the Bank, Loan 1844-TU. - 31 - go up 10% in real terms to obtain the required average revenue for 1984. 1/ If tariff increases are delayed, larger increases will be needed to obtain the same average revenue for the year. 5.17 After 1984, the extent of the required tariff increases is much less certain due to the possibility of further exchange rate fluctuations, higher than expected local intlation, and changes in the pattern of sales growth. Forecasts of TEK's financial performance in current prices and consistent with the agreed financial ratios are shown in Annexes 5.1, 5.2 and 5.3. The assumptions on which these forecasts are based are outlined in Annex 5.4. A summary of indicators of TEK's financial performance is shown in Table 5.3. The calculations have been based on the official power investment program, adjusted to take account of: expected delays in commissioning dates of some plants; expected local and foreign inflation during the forecast period; and additional amounts for unidentified projects toward the end of the period. Of course any forecast of TEK's performance is highly sensitive to assumptions made in forecasting sales. While sales may be expected to jump later in the 1980's when new plant commissionings enable TEK to satisfy demand previously unmet TEK's forecasts of sales growth appear too high, not taking supply constraints adequately into consideration (see para 2.07). Another uncertainty in the forecasts is the level of absorbtive capacity for planned capital expenditures, which will need to be monitored closely. 5.16 Extending the agreements reached under Loan 1844-TU, TEK and the Government will present to the Bank not later than December 31 of each year the power subsector investment plan for the following year, and the related financing plan. This would include a demonstration of how the agreed financial ratios will be met. The Bank will continue to emphasize that to improve TEK's financial performance, tariff adjustments will need to be combined with consolidating and trimming its investment program, reducing losses, and improving operating efficiency. 5.19 TEK and the Government have reconfirmed the automaticity of the fuel adjustment clause, establishing that TEK would continue to include in its electricity supply contracts and enforce a provision that its charges, including retail electricity tariffs, will be increased automatically to take account of increases in its fuel costs. An automatic fuel cost adjustment clause was agreed to in 1971 under Loan 763-TU and again in 1974 under Loan 1023-TU (Section 5.06). Although this practice was eliminated temporarily during 1976 and 1977 , in recent years TEK has received approval from the Ministry of Energy and Natural Resources to increase its tariffs effective immediately following increases in domestic fuel prices. Tariff increases have just about kept pace with the impact of rising domestic fuel prices on TEK's overall operating costs (Annex 5.5). 5.2U In addition, TEK and the Government confirmed that all future bulk (high voltage) tariff increases, not limited to fuel cost adjustments, would be at least fully reflected on the retail (low voltage) level. 1/ i.e., tariffs would be raised from the end-1983 level of TL 9.25/kWh to TL 11.90; assuming an increase of 17% in the wholesale price index for 1984, this will represent a 27% nominal or a 10% real increase. - 32 - Table 5.3 Summary of Indicators of Financial Performance of TEK Actual Estimated Forecast 1980 1981 1982 1983 1984 1985 1986 1987 Electricity Sales ('000 GWh) 18.6 20.1 22.7 23.8 27.1 29.6 33.4 36.7 Average Tariff (TL/kWh) 3.32 4.91 6.40 7.7 11.00 12.30 13.10 13.50 Billions of TL Net Income 8 11 23 17 75 96 118 114 Net Fixed Assets in Service 83 110 175 224 343 654 772 1,536 Work in Progress 130 254 361 542 682 597 774 510 Ratios Current Ratio .8 .6 .7 .7 1.0 1.1 1.1 1.1 Debt/Equity Ratio 47/53 45/55 45/55 46/54 40/60 39/51 38/52 31/59 Debt Service Coverage - 1.8x 2.2x 2.5x 2.6x 3.1x 3.2x 3.lx Financing Plan 5.21 The financing plan in Table 5.4 refers to the investments to be carried out by TEK in thermal power generation, transmission and rural electrification. During the five year forecast period, almost half of the total power subsector investments are expected to be for construction of hydroelectric facilities to be carried out by DSI, a non-revenue earning agency. Therefore, by raising its tariffs to levels sufficient to cover an increasing share of these total investments through internal cash generation, TEK will be financing an even greater share of its own investments through internally generated funds. After paying corporate income taxes, TEK is still expected to have overall during the five-year forecast period sufficient internal funds to finance 35% of its own capital expenditures, with the remainder of the financing coming primarily from foreign borrowing (33%), local borrowing (6%) and equity contributions from the Treasury (21%). - 33 - 5.22 Completed hydroelectric power plants are transferred from DSI to TEK in the form of equity only. The Bank requested under Loan 1844-TU (the Karakaya Project) that the Government consider a change in accounting procedures, such that the asset value of these hydro plants would be offset by a combination of both debt and equity. This change in accounting procedures, which would make TEK directly responsible for paying DSI's debt service, has not yet occurred, however, and the cash flow forecasts assume the present practice will continue. Table 5.4 Financing Plan for TEK 1983-1987 (in current prices) Millions Billions of US$ of TL % Investments TEK Transmission Project III 307 58 5 Thermal Power Generation 3,911 758 61 Other TEK Investments 2,300 422 34 TOTAL INVESTMENTS 6,518 1,238 100 Financing Internal Cash Generation 3,726 708 57 less: Taxes (1,474) (280) (22) Net Internal Cash Generation 2,252 428 35 Foreign Borrowings For TEK Trans. III: IBRD Loan 163 31 3 Cofinancing 9 2 - Other 1,968 374 30 Total Foreign Borrowings 2,140 407 33 Local Borrowings 416 79 6 Government Equity Contributions 1,342 255 21 Other Financing (net of other requirements) 363 69 6 TOTAL FINANCING 6,518 1,238 100 - 34 - 5.23 Government capital contributions are expected to account for progressively smaller shares of TEK's financing due to increases in expected retained earnings with Government equity going instead in much larger amounts to support DSI's investment program. In maintaining approximately the presently low debt/equity ratio of 40/60, TEK does not appear to have a risk of becoming t-oo highly leveraged. In fact, TEK's capacity for additional long-term borrowing actually appears greater than this, if problems in covering foreign exchange losses on debt service are resolved. Accounting and Management Information System 5.24 The Project includes assistance to TEK in improving its financial reporting system and introducing the first stage of a management information system. An outline of the scope and objectives of this assistance is provided in Annex 5.5. In order to build a management information system at TEK there will be several prerequisites. First, the supporting accounting system, on which any MIS would be based, will need to be strengthened. A standard utility chart of accounts was introduced successfully with the assistance of Stone and Webster in 1968-1970, supported by a Technical Assistance Grant from the World Bank. Subsequently, Arthur Young & Co. worked with TEK during 1972-1974 to set up reporting procedures, with statements of financial results (including balance sheets and income statements) to be prepared on a monthly basis for all of TEK's operations. Initially these procedures were followed, relying on manual preparation of all statements. However, the system is no longer fully implemented. A complete set of financial statements using actual results is now prepared only once a year, making the task of compilation and reconciliation more difficult and time consuming. Furthermore, starting in 1983, the consolidation of TEK's accounts has become more difficult because the eighteen newly formed distribution enterprises must be included, as well as the accounts of individual plants under construction, of the major generating plants and of the transmission network. 5.25 A second prerequisite for introducing a management information system at TEK is for managers and staff in the accounting department to become familiar with data processing concepts and techniques. Currently, the primary computer applications in TEK's central operations, other than engineering applications, have been limited following the installation of an IBM 370/138 computer in 1980. The computer is used to keep a personnel inventory and to process payroll for all civil servants and hourly workers. The end-of-fiscal year accounts are also totalled using the computer, but all the inputs are prepared manually. The existing computer facilities are not being used at full capacity for two major reasons: first, personnel guidelines impede the employment of programming staff to work additional shifts; and secondly, the core staff of programmers has not been encouraged to promote expanded applications for the Accounting Department or for other activities. 5.26 Further data processing capability exists in the Central Anatolia Electricity Distribution Enterprise, based in Ankara, where a computer system has been established for the billing of 700,000 customers on a bi-monthly basis, using a modern data base system, and benefitting from an innovative manager and skilled staff. Computer capacity is not adequate, however, to - 35 convert the present system into a full accounts receivable system for the enterprise, i.e. having the capability to calculate at any time the total sales revenue due from individual customers and for the region as a whole. Automation of billing, practiced only partially in two other regions (Istanbul and Izmir), appears to be a priority area. Any improvements in accounting procedures and information systems for the distribution enterprises would need to be introduced on a pilot basis in one or two enterprises, and ultimately several larger centers could be relied on to process accounts of other regions serving a smaller number of customers. Revaluation 5.27 The practice of revaluation of fixed assets in service was discontinued by TEK in 1979. According to Law 2791 of January, 1983, TEK and all other State Economic Enterprises must begin to revalue their assets. However, the price index stipulated in the law does not appear in line with historical trends, as this index suggests that inflation in Turkey has been 100l p.a. since 1972, which would result in overvaluing those assets acquired during 1979-1982 and undervaluing those acquired prior to 1979. At such time when TEK's fixed assets have been revalued adequately reflecting their replacement value, the rate of return on assets will become a meaningful indicator of adequacy of tariffs. Audits 5.28 As with other State Economic Enterprises, TEK's financial statements follow the Uniform Chart of Accounts, and are audited by the High Control Board connected with the Prime Ministry. There are shortcomings with both the timing and the scope of the present audit reports. The Bank received the 1981 audit report in February, 1983, although a period of no more than 5 months after the close of TEK's fiscal year had been agreed to previously. This delay was apparently due to a difference in views between TEK and its auditors about how to account for additions to the Rural Electrification Fund. Because audit reports are useful only if submitted on a timely basis, it was reconfirmed that TEK would submit its annual audited accounts to the Bank no later than five months after the close of the year. The time required to finalize each year's financial results should also be shortened by measures to improve financial reporting to be supported under the Project. 5.29 A second concern with the existing audit reports relates to their depth and approach. While the official audit provides a more detailed breakdown of the aggregated entries appearing in TEK's financial statements and shows variances between the current and the previous years, this report only rarely provides an independent assessment of practices or trends having an impact on how TEK's financial situation is presented. Measures to improve auditing and accountability of SEE's go beyond the scope of this Project and it is expected that this will be addressed in the context of reforms being implemented under the Structural Adjustment Loans. - 36 - VI. BENEFITS AND JUSTIFICATION Least-Cost Solution 6.01 The proposed Project is justified as being the least-coot means of interconnecting the new plants coming on line in the next stage of TEK's generation construction program as revised by the Bank (para 2.08). The Project is part of TEK's long-term (10-15 years) transmission expansion plan first formulated in 1974, on the basis of present worth comparison of investments and operating costs, including losses, for the following technically viable alternatives: (a) A 380-kV system throughout. (b) A combined 380-kV and 760-kV system. (c) A combined 380-kV and + 500-kV (DC) system. 6.02 Alternative (a)--380 kV alone--was shown to be the least cost solution at 12% discount rate, equal to the estimated opportunity cost of capital in Turkey. On that basis, TEK decided to build the present 380-kV transmission starting in 1975. 6.03 The 1974 evaluation of transmission expansion alternatives has been updated regularly to reflect experience with the initial group of lines, as well as changes in the development of TEK's interconnected system. The latest technical and economic evaluation in December 1982 confirmed that the lines included in the Project are the least cost means of extending the 380-kV network to interconnect the new plants acknowledged by the mission as being the next stage of generation expansion (para 3.01). The evaluation was reviewea by the Bank and found satisfactory. Return on Investment 6.04 Since the Project is an integral part of TEK's 1983-1987 expansion program it is not possible to calculate the economic rate of return for the Project alone. Therefore, the economic rate of return on the whole "timeslice" of TEK's investment program for 1983-1987 (covering the construction period of the proposed Project) was calculated. 6.05 Measurable benefits were limited to the incremental revenue attributable to the program, computed on the basis of projected tariffs. Nominal tariff adjustments were projected as follows: (i) Government stated increases of 15% each on June 1, 1983 and December 1, 1983; (ii) 27% increase in tariff levels effective May 1, 1984 required to meet the cash generation covenant under existing loans; and (iii) the increases necessary to maintain tariffs at a constant level in real terms thereafter. Real increases consistent with the above are approximately 12% for 1983 and 10% for 1984. In the absence of complete revenue data on all municipalities the estimated retail tariff for Ankara was used. It was assumed that the projected increases in high voltage supply would be passed on fully to the retail - 37 - level. However, given the large unmet demand (para 2.07) the willingness to pay for electricity is considerably higher than the current average tariff; unfortunately, it cannot be quantified. 6.06 The measurable costs encompass: (i) the capital cost of the program; (ii) the fuel cost; and (iii) the operation and maintenance costs. Full data was available for investment costs in generation and transmission. The available data on future investment costs for distribution is incomplete since it only extends to the end of 1983. The proposed Project would assist TEK in developing a longer term comprehensive investment program for the rehabilitation and expansion of the distribution system (paras 3.12 and 3.13). In the absence of adequate data it has been assumed that investment costs for distribution would increase from 10% of total subsector investment (1983) to 20% from 1984 onwards, and operation and maintenance costs would remain at 2% of annual investment costs. As a result of the increase in investment, distribution losses are assumed to fall progressively from the relatively high level of 16% to 10% over a 10-year period. Lignite was valued at its economic cost, equivalent to the estimated long-run marginal cost of production. No fuel escalation was assumed because increases in the price of fuel would be covered by the fuel adjustment clause incorporated in the tariff structure. 6.07 Under the above assumptions the return on the program (including distribution) was estimated at 8.4%. Although this is below the opportunity cost of capital (estimated at 12%), it understates the real return and is not a true measure of the economic merit of the Project because it excludes the consumers' surplus. It does, however, reflect the fact that tariffs are set below the marginal cost of supply. The rate of return on the bulk supply, i.e., high voltage, was also estimated using investment and operating costs for generation and transmission, and the projected bulk supply tariff was taken as the basis for measurable benefits. The rate of return was estimated at 9.4% which indicates that bulk tariffs are also set below the marginal cost of bulk supply. A further sensitivity analysis was undertaken in which only the 1983 increases referred to in para 6.05 and nominal increases required to maintain tariffs constant in real terms for 1984 and beyond were assumed. In this case the rate of return on bulk supply was estimated at 7%. Details of the calculation are given in Annex 6.2, and the assumptions used are shown in Annex 6.3. - 38 - VII. AGREEMENTS REACHED AND RECOMMENDATIONS 7.01 The Government will take or cause TEK to take all necessary actions, including changes in the level or structure of tariffs, to obtain internal cash generat(,,n, as defined under Loan 1844-TU of the following shares of capital expenditures in electric power by TEK and DSI: 1982, 16%; 1983, 12%, 1984, 21%; 1985, 32%, and 1986 and thereafter, 35%. 1/ Until December 31, 1984, or such other date as the Bank shall agree, all revenues, expenses and capital expenditures related to urban distribution of electricity will be excluded from the calculation of internal cash generation (paras 5.11 and 5.16). 7.02 Government and TEK will: (a) take actions necessary to enable TEK to bring its current ratio (defined as current assets divided by current liabilities) to 0.7 by the end of 1983, to 1.0 by the end of 1984, and to keep it above 1.0 thereafter (para 5.04); (b) take actions necessary to enable TEK to maintain a fuel adjustment clause in its electricity supply contracts and enforce a provision that its charges will be increased automatically to take account of increases in its fuel costs (para 5.19); (c) reflect all increases affecting bulk (high voltage) tariffs, including fuel cost adjustments, in retail (low voltage) tariffs (para 5.20); 7.03 TEK will: (a) appoint consultants no later than December 31, 1983, to develop detailed recommendations and to assist with implementation of technical and administrative improvements and procedures for the new distribution enterprises, and to conduct feasibility studies for investments in distribution to be completed by June 30, 1985 (paras 3.12 and 3.13); (b) appoint consultants no later than December 31, 1983, to undertake a load research, demand management and tariff study, which would include a tariff analysis and formulation component, the full diagnostic report of which would be completed by September 30, 1984, and the final report of which would be completed by July 31, 1985 (paras 2.33 and 3.14). (c) appoint training consultants no later than December 31, 1983, furnish an action plan for a training program to the Bank for its comments no later than March 31, 1984, and implement a training program satisfactory to the Bank (para 3.15); 1/ The levels for 1982-1984 have been reflected in an agreed amendment to Supplementary Letter No. 3 to the Loan Agreement for 1844-TU. - 39 - (d) appoint accounting and management information consultants no later than December 31, 1983, furnish an action plan for improvements in its accounting and management information systems to the Bank no later than March 31, 1984, and implement a program of such improvements satisfactory to the Bank (para 3.16); (e) establish a TL revolving fund adequate to carry out the Project in a timely manner (para 3.21); (f) submit to the Bank no later than June 30, 1984, a report explaining the capital structure of the new distribution enterprises (para 5.10); and (g) submit its audited annual accounts to the Bank no later than five months after the close of the year (para 5.28). 7.05 In addition to the standard conditions of loan effectiveness, TEK will: (a) award contracts for all substations related to the Project (para 3.09); and (b) engage Project management consultants (para 3.10). 7.06 Subject to the above, the proposed Project would be suitable for a BariK loan of US$163 million for a term of 17 years, including a 4-year grace period, to the Borrower, TEK, with the guarantee of the Republic of Turkey. May 1983 (1180P) TURKEY TEK TRANSMISSION PROJECT III Energy Balance - 1980 /1 (In millions of tons of oil equivalent) Total Petroleum Commercial Total Crude Oil Products Coal Lignite Electricity Energy Fuelwood Biomass Energy Supply Production 2.3 - 2.2 4.7 2.8 12.0 4.7 2.5 19.2 imports 10.6 2.9 0.3 - 0.3 14.1 - - 14.1 Exports - -0.2 - - -0.2 - -0.2 Total primary energy 12.9 2.7 2.5 4.7 3.1 25.9 4.7 2.5 33.1 Oil refineries (12.9) 12.5 - - - (0.4) - - (0.4) Electricity generation - (1.7) (0.3) (1.4) 3.0 (0.4) - - (0.4) Energy industries' own use + losses - (1.0) - - (0.9) (1.9) - _ (1.9) Total final use - 12.5 2.2 3.3 5.2 23.2 4.7 2.5 30.4 Final Demand Industry - 4.3 2.1 1.5 4.0 11.9 - - 11.9 Transport - 5.2 0.1 - - 5.3 - - 5.3 Household - 2.3 - 1.8 1.2 5.3 4.7 2.5 12.5 Agriculture - 0.7 - 0.7 0.7 Total - 12.5 2.2 3.3 5.2 23.2 4.7 2.5 30.4 /I BracKets show transfer or input to other sectors. Source. MENR and Bank estimates. April 1983 (1227p, p.7) t-1 TURKEY TEK TRANSMISSION PROJECT III Forecast Energy Balance - 1990 /1 (In millions of tons of oil equivalent) Total Petroleum Commercial Total Crude Oil Products Coal Lignite Electricity Energy Fuelwood Biomass Energy Supply Production 4.0 - 3.4 15.1 7.1 29.6 5.5 2.9 38.0 Imports 24.9 _ 1.6 - - 26.5 - - 26.5 Exports _ - - - - - - - Total primary energy 28.9 - 5.0 15.1 7.1 56.1 5.5 2.9 64.5 Oil refineries (28.9) 28.1 - - - (0.8) - _ (0.8) Electricity generation - (0.9) (0.9) (9.6) 9.7 (1.7) - - (1.7) Energy industries' own uses and losses - (2.0) - _ (1.7) (3.7) - - (3.7) Total final use - 25.2 4.1 5.5 15.1 49.9 5.5 2.9 58.3 Deficit - - - - - 1.9 - - 1.9 Final Demand Industry - 8.4 4.0 4.3 10.7 27.4 - _ 29.6 Transport - 8.7 - - - 8.7 - - 8.7 Agriculture - 2.3 - - - 2.3 - - 2.3 Housetiold - 5.8 0.1 3.1 4.4 13.4 5.5 2.9 21.8 Total - 25.2 4.1 7.4 15.1 51.8 5.5 2.9 60.2 /1 Brackets show transfer or input to other sectors. Source: Bank estimates. April 1983 (1227P, p.8) - 42 - ANNFX 7.1 Pa-ge 1 of 2 TURKEY TEK TRANSMISSION PROJECT III Power Subsector Statistical Data, 1972-1982 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 A. TEK Sales ( GWh) IETT 2,147 2,328 2,407 2,919 3,065 3,225 3,077 3,336 3,294 3,448 3,757 EGO 692 724 702 745 924 1,006 1,029 1,043 1,087 1,084 1,189 ESHOT 499 541 562 639 693 701 687 696 777 771 760 CEAS 20 58 105 126 229 203 239 517 604 449 895 KEPEZ 29 80 62 98 127 169 45 59 10 12 14 Other Municipalities 1,545 1,705 2,114 2,354 3,002 3,112 3,889 4,089 4,204 4,621 5,307 Industries 3,457 3,781 4,119 5,030 6,309 7,383 7,361 7,504 7,818 8,820 9,797 Villages 75 127 162 272 286 408 570 702 830 925 1,068 Bulgaria - - - 5 - - - - - - TOTAL SALES 8,464 9,344 10,233 12,183 14,640 16,213 16,897 17,956 18,624 20,080 272 Losses (GWh) Network Losses 483 600 588 606 747 841 923 1,033 1,700 1,150 1,080 Station Supply 507 541 639 696 796 985 1,060 1,117 1,074 1,111 1,300 TOTAL LOSSES 990 1,141 1,227 1,302 1,543 1,826 1,983 2,150 2,274 2,261 7,380 Total Supply (GWh) Purchases from: CEAS 323 223 276 542 390 260 204 51 94 76 80 KEPEZ 6 1 - - - - 39 53 43 49 50 Others 1 3 1 2 1 57 43 25 3 12 14 Import - - - 96 338 492 621 1,043 1,342 1,616 1,778 TOTAL PURCHASES 330 227 277 640 729 809 912 1,172 1,482 1,753 1,922 Own Generation 9,124 10,258 11,189 12,845 15,454 17,230 17,968 18,934 19,415 20,588 23,240 of which: Hydro 2,291 2,035 2,604 4,644 7,200 7,428 8,061 9,134 10,003 11,125 12,986 Thermal 6,833 8,223 8,585 8,201 8,254 9,802 9,907 9,800 9,382 9,463 10,254 X Hydro 25 20 23 36 47 43 45 48 52 54 56 B. CEAS Sales (tGWh) TEK 323 233 276 542 390 260 204 51 94 76 80 Municipalities & Villages 264 309 336 399 453 531 577 597 702 729 736 Industries 357 462 524 661 790 906 998 1,058 1,110 1,216 1,228 Others 67 64 46 41 42 52 54 84 60 61 58 TOTAL SALES 1,011 1,068 1,182 1,643 1,675 1,749 1,833 1,790 1,966 2,082 2,102 Losses (GWh) Network Losses 28 36 46 40 52 67 78 71 78 92 93 Station Supply 30 46 44 41 40 46 49 42 46 44 44 TOTAL LOSSES 58 82 90 81 92 113 127 113 124 136 137 Total Supply (GWh) 1,069 1,150 1,272 1,724 1,767 1,862 1,960 1,903 2,044 2,216 2,239 Purchases - 20 58 105 144 265 245 246 517 604 449 800 Own Generation 1,049 1,082 1,167 1,580 1,502 1,617 1,714 1,386 1,440 1,767 1,439 of which: Hydro 631 378 544 1,034 954 965 1,038 909 1,045 1,223 950 Thermal 418 704 623 546 548 652 676 477 395 544 489 ZHydro 60 35 47 65 64 60 61 66 73 69 66 Installed Capacity (MW) Hydro 136 136 192 192 192 192 192 192 193 192 192 Thermal 106 106 106 106 106 106 106 106 106 106 106 TOTAL 242 242 298 298 298 298 298 298 298 298 298 T Hydro 56 56 64 64 64 64 64 64 64 64 64 May 1983 (1i27P, p. 31) ~ 43 ~ ANNEX 2.1 Page 2 of 2 TEK TRANSMISSION PROJECT III Subsector Statistical Data, 1972-1982 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 C. KEPEZ Sales (GWh) TEK - - - - - - - 53 43 49 50 Others 197 204 197 233 247 249 191 170 126 122 133 TOTAL SALES 197 204 197 233 247 249 191 223 169 171 183 Total Losses (GWh) 7 7 10 11 13 15 10 11 11 11 12 Total Supply (GWh) 204 211 207 244 260 264 201 234 180 182 195 Purchases 29 80 62 98 127 169 45 69 10 12 13 Owrn Generation 175 131 145 146 133 95 156 165 170 170 182 lnst'alledCapacity (1W) (All hydro) 26 26 26 26 26 26 26 26 26 26 26 D. MUNICIPALITIES Generation (GWh) Hydro 66 32 34 31 61 59 74 55 51 46 10 Thermal 82 98 95 57 92 93 89 71 49 49 29 TOTAL TU 13U T2 8 T5 T5-2 TO T47 RE. AUTOPRODUCERS Generation (GWh) Hydro 41 27 29 32 27 37 31 41 49 53 41 Thermal 705 797 818 881 1,014 1,427 1,689 1.871 2,102 2,000 1.601 TOTAL 746 824 847 913 1,041 1,464 1,720 1,912 2,151 2,053 1,642 Installed-Capacity (M4W) Hydro 12 12 12 12 12 12 12 12 12 12 12 Thermal 409 415 415 465 496 559 585 585 585 614 614 TOTAL 421 427 427 477 508 571 597 597 597 626 626 F. SUMMARY FOR TURKEY Gross Generation (GWh) Hydro 3,204 2,603 3,356 5,887 8,375 8,592 9,365 10,304 11,348 12,616 14,189 Thermal 3 9,822 10,121 9,685 9,908 11,972 12,361 12,218 11,928 12,057 12,373 TOTAL 11,242 12,425 13,477 15,572 18,283 20,564 21,726 22,522 23,276 24,673 26,562 % Hydro 29 21 25 38 46 42 43 46 49 51 54 Installed Capacity (KW) Hydro 893 985 1,449 1,780 1,873 1,872 1,881 2,131 2,131 2,171 2,957 Thermal 1,818 2,207 2,283 2,395 2,491 2,855 2,988 2,988 2.988 3,017 3,406 TOTAL 2,711 3,192 3,732 4,175 4,364 4,747 4,868 5,119 5,119 5,188 6,363 % Hydro 33 31 39 43 43 40 39 42 42 42 45 Plant Factors Hydro 41 30 26 38 51 52 57 55 60 66 60 Thermal 50 51 51 46 49 48 47 47 46 46 36 Overall 47 44 41 43 45 50 51 50 52 54 47 May 1983 (l127P, p. 32) 44 - ANNEX 2.2 Page 1 of 4 TURKEY TEK TRANSMISSION PROJECT III Forecast Balance of Capacities and Energy 1982 1983 1984 1985 1986 1987 1988 1989 1990 Sales (GWh) TEK 22,782 23,800 27,070 29,611 33,431 38,774 42,452 46,497 50,947 Others 3,123 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300 Total Sales 25,905 27,100 30,370 32,911 36,731 42,074 45,752 49,797 54,247 Losses (GWh) Network 1,100 1,220 1,360 1,480 1,600 1,830 1,995 2,177 2,377 Station Supply 1,415 1,660 1,830 2,020 2,520 3,080 3,758 3,992 4,016 Total Losses 2,315 2,880 3,190 3,500 4,120 4,910 5,753 6,169 6,393 Required Generation (GWh) 28,420 29,980 33,560 36,411 40,851 46,984 51,505 55,966 60,640 of which: Import (GWh) 1,858 1,873 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Own Generation (GWh) 26,562 28,107 31,560 34,411 38,851 44,984 49,505 53,966 58,640 Maximum Demand (MW) 5,100 5,542 6,078 6,727 7,451 8,241 9,196 10,268 11,458 PLant Capacities (MW) Hyoro (a) ExistLng Plants TEK 2,109 2,109 2,109 2,109 2,109 2,109 2,109 2,109 2,109 Others 259 259 259 259 259 259 259 259 259 Subtotal 2,368 2,368 2,368 2,368 2,368 2,368 2,368 2,368 2,368 (b) New Plants Keban 6-8 543 543 543 543 543 543 543 543 843 S. Ugurlu 1-2 46 46 46 46 46 46 46 46 46 Hasan Ugurlu 3-4 - 250 250 250 250 250 250 250 250 Aslantas 1-3 - - 138 138 138 138 138 138 138 Oymapinar 1-4 - - 540 540 540 540 540 540 540 Karaca-dren 1 - - - 15 15 15 15 15 15 Karacaodren 2 - - - - 15 15 15 15 15 AdigUzel 1-2 - - - - 60 60 60 60 60 Kdkl5Uce 1-2 - - - - 80 80 80 80 80 Kapulukaya - - - - 51 51 51 51 51 Karakaya 1-2 - - - - - 600 600 600 600 Altinkaya 1 - - - - - 175 175 175 175 Gezende 1-3 - - - - - 150 150 150 150 Menzelet 1-4 - - - - - 120 120 120 120 Kilickaya 1-2 - - - - - 120 120 120 120 Altinkaya 2-4 - - - - - - 525 525 525 Karakaya 3-4 - - - - - - 600 600 600 Derbent - - - - - - 56 56 56 Tohma - - - - - - 15 15 15 Catalan - - - - - - 155 155 155 Yenice - - - - - - 37 37 37 Camligdze - - - - - - 16 16 16 fercan - - - - - 15 15 15 Karakaya 5-6 - - - - - - - 600 600 &pa - - - - - --9 9 Manavgat - - - - - - - 40 40 Hasanlar - - - - - - - 8 8 batman - - - - - - - - 130 Develi - - - - - - - - 7 May 1983 (1227P, p.42) - 45 - ANNEX 2.2 Page 2 of 4 TURKEY TEK TRANSMISSION PROJECT III Forecast Balance of Capacities and Energy 1982 1983 1984 1985 1986 1987 1988 1989 1990 (b) New Plants (Contd) Kralkizi - - - - - - - - 90 Akcay - - - - - - - - 21 BerOan - - - - - - - - 8 Gonen - - - - - - - - 11 lmamoglu - - - - - - - - 40 Ozk6y - - - - - - - - 150 Fethiye - - - - - - - - 15 KockoprU - - - - - - - - 3 Cildir 2 - - - - - - - - 7 Girlevik 2 - - - - - - - - 5 Torul - - - - - - - - 100 Mercan - - - - - - - - 19 Zernek -Hosap - - - 4 Subtotal 589 839 1,517 1,532 1,738 2,903 4,322 4,979 5,589 Total Hydro 2,959 3,207 3,885 3,900 4,106 5,271 6,690 7,347 7,957 Tnermal (a) Existing Plants TEK 2,029 2,060 1,996 1,668 1,539 1,495 1,495 1,495 1,495 Othiers 837 837 837 837 837 837 837 837 837 Subtotal 2,866 2,897 2,833 2,505 2,376 2,332 2,332 2,332 2,332 (b) New Plants Soma B 1-2 330 330 330 330 330 330 330 330 330 Cevrim - 60 60 60 60 60 60 60 60 Yatagan 1-2 210 420 420 420 420 420 420 420 420 Soma B 3-4 - - - 330 330 330 330 330 330 Yatagan 3 - - - -210 210 210 210 210 210 Elbistan Al - - - 340 340 340 340 340 340 Cayirhan I - - - 150 150 150 150 150 150 Elbistan A2 - - - - 340 340 340 340 340 Cayirhan 2 - - - - 150 150 150 150 150 Yenikoy 1 - - - - 210 210 210 210 210 Yeni Catalagzi - - - - - 150 150 150 150 SeyLt5mer 4 - - - - - 150 150 150 150 Kangal 1-2 - - - - - 300 300 300 300 Orhaneli - - - - - 200 200 200 200 Yenikoy 2 - - - - - 210 210 210 210 Keles - - - - - 200 200 200 200 Elbistan A3 - -- - 340 340 340. 340 Orta - - - - - - 100 100 100 Elbistan A4 - - - - - 340 340 340 Bingbl Karliova - - - - - - - 100 100 Self-producers - 140 140 140 140 140 140 140 140 Subtotal 540 950 950 1,980 2,680 4,230 4,670 4,770 4,770 Total Thermal 3,406 3,747 3,683 4,485 5,056 6,562 7,002 7,102 7,102 Total Installed Capacity (MW) 6,363 6,954 7,568 8,385 9,162 1,3 13,692 14,449 5,059 Capacity Margin MW 1,263 1,412 1,490 1,658 1,711 3,592 4,496 4,181 3,601 % 20% 20% 20% 20% 19% 30% 33% 29% 24% May 1983 (1227P, p.43) - 46 - ANNEX 2.2 Pa ge 3 ot 4 TURKEY TEK TRANSMISSION PROJECT III Forecast Balance of Capacities and Energy 1982 1983 1984 1985 1986 1987 1988 1989 1990 Available Generation (GWh) Hydr (Average Year) (a) Existing Plants TEK 12,986 9,273 9,273 9,273 9,273 9,273 9,273 9,273 9,273 Others 1,203 120 12 1,200 1,200 1 120 1 1,200 Subtotal 14,189 10,473 10,473 10,473 10,473 10,473 10,473 10,473 10,473 (b) New Plants Keban 6-8 - 1,094 1,094 1,094 1,094 1,094 1,094 1,094 1,094 S. Ugurlu 1-2 - 273 273 273 273 273 273 273 273 Hasan Ugurlu 3-4 - 251 380 397 397 397 397 397 397 Aslan' s 1-3 - - 152 493 569 569 569 569 569 Oymap-..ar 1-4 - - 810 1,498 1,620 1,620 1,620 1,620 1,620 Karaca-oren I - - - 7 59 71 71 71 71 Karacabren 2 - - - - 7 59 71 71 71 Adiguzel 1-2 - - - - 187 270 270 270 270 KoklUce 1-2 - - - - 470 588 588 588 588 Kapulu va - - - - 114 170 190 190 190 Karaka- 1-2 - - - - - 1,540 3,740 4,200 4,200 Altinkaya 1 - - - - - 135 574 675 675 Gezende 1-3 - - - - - 325 503 528 528 iAenzelet 1-4 - - - - - 187 314 334 334 Kilick a 1-2 - - - - - 188 313 332 332 Altink % 2-4 - - - - - - 681 936 957 Karakaya 3-4 - - - - - - 1,450 2,683 2,900 Derbent - - - - - - 206 257 257 Tohima - - - - - - 54 67 67 Catalan - - - - - - 407 509 509 Yenice - - - - - - 98 122 122 Camligdze - - - - - - 70 88 88 Tercan - - - - - 24 30 30 Karakaya 5-6 - - - - - - - 161 243 Apa - - - - - - - 19 24 Manavgat - - - - - - - 156 195 hasanlar - - - - - - - 28 35 Batman - - - - - - - - 367 Develi - - - - - - - - 20 Kralkizi - - - - - - - - 117 Akcay - - - - - - - - 80 Berdan - - - - - - - - 29 G-nen -- - 50 Imamoglu - - - - - - - - 118 Ozkoy - - - - - - - - 146 Fethiye - - - - - - - - 68 Kockoprii - - - - - - - - 8 Cildir 2 - - - - - - - - 12 Girlevik 2 - - - - - - - - 10 Torul - - - - - - - - 258 Mercan - - - - - - - - 35 Zernek - Hosap - - - - - - - - 11 Subtotal - 1,618 2,709 3,762 4,790 7,486 13,314 16,278 17,988 Total Hydro (Average Year) 14,189 12,091 13,182 14,235 15,263 17,959 2787 26,751 28,461 May 1983 (1227P, p.44) - 47 - ANNEX 2.2 Page 4 of 4 TURKEY rEK TRANSMISSION PROJECT III Forecast Balance of Capacities and Energy 1982 1983 1984 1985 1986 1987 1988 1989 1990 Thermal (a) Existing Plants TEK 9,814 10,184 10,257 10,250 9,770 9,470 9,470 9,470 9,470 Others 2,119 2,721 2,616 2,616 2,616 2,616 2,616 2,616 2,616 Subtotal 11,933 12,905 12,873 12,866 12,386 12,086 12,086 12,086 12,086 (b) New Plants Soma B 1-2 305 1,510 1,980 1,980 1,980 1,980 1,980 1,980 1,980 Cevrim - 90 180 180 180 180 180 180 180 Yatagan 1-2 135 1,600 2,436 2,520 2,520 2,520 2,520 2,520 2,520 Soma B 3-4 - - - 840 1,881 1,980 1,980 1,980 1,980 Yatagan 3 - - - 347 1,134 1,260 1,260 1,260 1,260 Elbistan Al - - - 365 1,560 1,950 1,950 1,950 1,950 Cayirhan 1 - - - 350 855 900 900 900 900 Elbistan A2 - - - - 875 1,755 1,950 1,950 1,950 Cayirhan 2 - - - - 473 855 900 900 900 YenikSy 1 - - - - 541 1,197 1,260 1,260 1,260 Yeni Catalagzi - - - - - 45 570 900 9)0 SeyitSimer 4 - - - - - 400 570 900 900 Kangal 1-2 - - - - - 395 1,410 1,800 1,8P0 Urhaneli - - - - - 660 1,200 1,200 1,200 YeniKdy 2 - - - - - 562 1,197 1,260 1,260 Keles - - - - - 520 1,200 1,200 1,200 Elbistan A3 - - - - - 775 1,755 1,950 1,950 Orta - - - - - - 360 600 600 Elbistan A4 - - - - - - 1,170 1,950 1,950 Sing-dl Karliova - - - - - - - 360 600 Self-producers - 504 840 840 840 840 840 840 840 Subtotal 440 3,704 5,436 7,422 12,839 18,774 25,482 27,840 28,080 Total Thermal 12,373 16,609 18,309 20,288 25,225 30,860 37,568 39,926 40,166 Total Available Generation (Average Hydro Year) Hydro 14,189 12,091 13,182 14,235 15,263 17,959 23,787 26,751 28,461 Tnermal 12,373 16,609 18,309 20,288 25,225 30,860 37,568 39,926 40,166 Total 26,562 28,700 31,491 34,523 40,488 48,819 61,355 66,677 68,627 Generation Margin GWh - 593 - 112 1,637 3,835 11,850 12,711 9,987 K - 2 - 0.3 4 8 19 19 15 kay 1963 (1227P, p.45) -h 5- .4 I- .4v.t - ft>p :x : n -I 1
Группа Всемирного банка · Staff Appraisal Report
Turkey - Third TEK Transmission Project
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