Turkey - Istanbul Water Supply and Sewerage Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4666-TU MEMORANDlM AND RECOMMENDATION OF TOR PRESIDENT OF THE INTERATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO TEE EXECUTVE DIRECTORS ON A PROPOSED LOAN IN AN AMDUNT EQUIVALENT TO US$ 218.0 MILLION TO THE ISTANBUL WATER SUPPLY AND SERAGE GENERAL DIRECTORATE WITT TRE GUARANTEE OF THE REPUBLIC OF TURKEY FOR AN ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT November 2, 1987 Ths doc_nnt has a resucd ist and may be used by o*dp u In the peufoma.. of thi oicdI dute Ib conteuls my lit oSthie be disdodWit od lank 1.  CURRENCY EQUIVALENTS Currency Unit = Turkish Lira (TL) TL850 = US$1.00 (June 30, 1987) FISCAL YEAR January 1 - December 31 WEIGHTIS AND MEASURES km = Kilometer (0.621 miles) I = Liter (0.264 US gallons) m3 = Cubic meter (264 US gallons) .3/sec = Cubic meter per second (22.8 Mgd) PRINCIPAL ABBREVIAIONS AND ACRONYM USED DSI a State Hydraulic Works GDRS - General Directorate of Rural Services IB = Iller Bank (Bank of the Provinces) ISKI - Istanbul Water Supply and Sewerage General Directorate MAFRA = Ministry of Agriculture, Forestry and Village Affairs RWS = Rural Water Supply Department SPO = State Planning Organization 8224D  FOR OFFMCIAL USE ONLY REPUBLIC OF TURKEY ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT LOAN AND PROJECT SUMMARY Borrower: Istanbul Water Supply and Sewerage General Directorate (ISKI). Guawentor: Republic of Turkey. Aanount: US$218 million equivalent. Terms: Seventeen years, including 4 years of grace, at the standard variable interest rate. Financing Plan: IBRD US$218.0 million ISKI Revenue from Sales US$265.9 million Customer Contributions US$ 86.0 milliop TOTAL US$569.9 million Economic Rate of Return 13.62 Staff ADRraisAl RPoft: 6985-TU This document has a restricted distribution and may be used by recipients only in the performanc,t e of their official duties. Its contents may not otherwise be disclosed without World Bank authorizati :  p 4~~~~~~~~~~ M  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN FOR A WATER SUPPLY AND SEWERAGE PROJECT OF THE ISTANBUL MtUNICIPALITY IN THE REPUBLIC OF TURKEY 1. The following report on a proposed loan of US$218.0 million equivalent to the Istanbul Water Supply and Sewerage General Directorate, ISKI, is submitted for approval. The proposed loan would be for a term of seventeen years, including four years grace, at the Bank's standard variable interest rate, and would help finance a water supply and sewerage project. 2. Background. The proposed project will serve the Istanbul Metropolitan Municipality, Turkey's largest in population, area, and economic activity. The population in 1986 was 5.7 million, growing at 4.3% per year, and the area inside the municipal boundaries was 600 sq. km., of which about 60 percent was developed. An estimated 60 percent of the Country's industrial capacity is located in the area. The City is of unique historic interest, and it is a major tourist and commercial center, and the Country's principal port. 3. The City is divided by the Bosphorus, a strait 30 km long aid one to eight km wide separating Asia from Europe and linking the Black Set with the Sea of Marmara, which in turn leads to the Dardanelles, the Aegean Sea, and the Mediterranean. The European side of the City is divided by a narrow inlet known as the Golden Horn. The Bosphorus, the Sea of Marmara, and the Golden Horn have provided convenient means for disposal of the City's wastewater, which has been and is discharged untreated causing extreme pollution. 4. The water supply system at year-end 1986 had 835,000 water connec- tions in the area serving 5.1 million people, or 89 percent of the area popu- lation, but not all of these people were adequately served. This is because the water distribution system in many places is antiquated and in need of rehabilitation. There are insufficient pressure and intermittent supply to areas of higher elevation and to fringe areas of the City, caused by a growing lack of production capacity and increasing losses, and aggravated in some areas by undersize pipas. Also, the water treatment capacity is deficient, and -water shortages during periods of maximum demand will persist until new treatment works have been designed and constructed. 5. The sewerage system serves only 55% of the population, and in marny areas consists only of street sewers that discharge to the nearest water course. The remainder of the population have latrines, septic tanks, or cesspits, many of which are inappropriate because they are in areas of high population density. There are no treatment plants in the system, and as mentioned above, pollution of Istanbul's water courses is extreme. 6. ISKI already is constructing works, including the sewerage project financed by Loan 2159-TU, which address parts of these problems. The bulk of Lhe City's needs in the sector would, however, be filled through additional  - 2 - investments, of which the proposed project would account for approximately one fourth during the planned project period, 1987-94. The large scale of the need has created unprecedented financial and administrative burdens. This in turn has called for a new Government strategy for the City's water supply and sewerage sector. Since the needs are widespread in urban areas throughout the Country, and not confined to Istanbul, the Government has established the strategy: (i) to begin shifting responsibilities for sector development from Central Government agercies to municipalities; (ii) to create separate, auton- omous municipal authorities; and (iii) to improve cost recovery and reduce local financial dependence on Central Government resources. The strategy is proving to be highly successful in Istanbul, as evidenced by ISKI's recently developed administrative and financial strengths, which enable it to undertake such an ambitious program. 7. Project Objectives. The objectives of the Project are: (a) to improve and extend sewerage service to 70% of the population of Istanbul by the end of 1994; (b) to provide for appropriate disposal of sewage to protect the waters and shorelines of the Sea of Marmara and the Bosphorus; (c) to reduce unaccounted-for water; (d) to strengthen ISKI's operation and maintenance and industrial waste management capabilities. 8. Project Description. The Project, to be carried out during 1987-94, would help to provide ISKI with facilities to continue the pollution abatement program started under Loan 2159-TU, to reduce water shortages, and to operate its systems more efficiently. Each investment of the 1987-94 program projected for ISKI, of which the Project forms a part, has been reviewed by the appraisal mission and found to be feasible and sound, with all major components providing the least cost solution for the problems addressed. The principal components of the Project would be: a telemetered and computerized system for water supply monitoring and control; a program to reduce unaccounted-for water; rehabilitation of a part of the water distri- bution network; construction of sewage collection, preliminary treatment, and marine disposal facilities '-or five drainage zones of the city; installation of 330,000 customer sewerage connections; training in operations, maintenance, and industiial waste management; and acquisition of operation and maintenance vehicles and equipment, including equipment for the detection and repair of leaks. 9. The total cost of the Project is estimated at US$569.9 million equivalent, with a foreign exchange component of US$241.4 million equivalent (42b). A breakdown of costs and the financing plan are shown in schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Turkey are given in Schedules C and D, respectively. Two maps also are attached. The Staff Appraisal Report, No. 6985-TU dated November 2, 1987 is being distributed separately. 10. Rationale for World Bank Involvement. The proposed loan would support the Government and Muncipality objectives of providing adequate water and sewerage facilities and reducing pollution in the Bosphorous and Sea of  -3- Marmara. The environment is increasingly a high priority concern in Bank lending, and the proposed project would bring major environmental improvement. The proposed loan also would follow the Bank's strategy to continue to support the decentralization and cost recovery policies of the Government for municipal organizations. Continued Bank assistance would demonstrate our support of ISKI as the model for large-city water and sewerage authorities in Turkey, which already is being emulated in connection with the recently approved Bank project in Izmir. Finally, the proposed loan would broadly support continued economic development in Istanbul through assisting in the provision of essential infrastructure. 11. Agreed Actions. Agreements have been reached that ISKI would: (a) establish and implement a program of collection from customers in arrears to reduce ISKI's accounts receivable by the end of 1988 to the equivalent of no more than two months of current billings; (b) submit to the Bank by the end of February each year for review and comment a report on the status of the ISKI investment program, including up-to-date plans and current accomplishments; (c) generate funds from charges to customers so that annual self- financing by ISKI would cover: (i) all expenditures during the year for the Project which are not covered by the proposed loan, plus (ii) not less than 45% of ISKI's other capital expenditures during the year; (d) consult in advance with the Bank with respect to future long term borrowings if these aggregate to more than US$5 million equivalent in any year; and (e) obtain the agreement of the Bank prior to contracting any long term debt in excess of the total amount of US$250 million equivalent until the completion of the Project. 12. Justification. As a result of the proposed project, an additional 2.3 million people would have sewerage service by the end of 1994, and facilities for appropriate disposal of most of Istanbul's sewage would be obtained. The Project would improve the water supply for inhabitants of the City's Asian section who at present are experiencing intermittent supply and low water pressure. Also, the Project would improve water supply to industrial and commercial customers, thereby increasing their productivity. An additional benefit would be a water saving estimated to be 130,000 m3 per day by 1994 from reductions in unaccounted-for water. Deferral of the Project would require continued use of septic tanks and cesspits in densely populated areas. This combined with inadequate water distribution networks would increase the risk of sewage leakage into the water system. Replacement of septic tanks and cesspits with sewerage systems would, therefore, reduce risks to health. Without the Project, the incidence of waterborne diseases would be likely to increase; with it, there should be a decrease. Reduction of pollution in the Bosphorus and Sea of Marmara would be a futher major benefit. Without the Project, environmental conditions would continue to deteriorate in many parts of the City, especially along its shorelines, and recreational uses of the Sea of Marmara would be substantially reduced.  - 4 - Pollution reduction in the Bosphorus and Sea of Marmara would increase land values along the shoreline and promote greater development of recreation and tourism. 13. The Project's affordability is assured by the exist.ig tariffs established by ISKI at the beginning of 1987. These tariffs approximate, on average, the incremental cost of water and sewerage under the projected investment program, and in the future need only be adjusted for iniflation to maintain their value in real terms. At this level, charges for household consumption average less than 42 of disposable income of households overall, and less than 3% for households in the "absolute poverty" range. 14. Risks. The Project has financial and environmental risks. The financial risks include possible failure to adjust tariffs upward with inflation, and cost overruns in program implementation. The financial risks are minimal because of the organizational and financial strength of ISKI, and the economic strength of Istanbul. The environmental risk is the possibility that the Black Sea disposal method selected for part of the city's sewage might prove not to be fully satisfactory. The method consists of preliminary treatment of the sewage (removal of grit and floatables), and discharge of the effluent to the bottom current of the Bosphorus, which flows to the Black Sea. The effluent would be diluted and carried by he current to the Black Sea where it (i) would be further diluted and dispersed, and (ii) would under- go natural treatment. The risk is that on occasion, because of change in the Bosphorus current, some sewage might flow into the Sea of Marmara rather than into the Black Sea. This risk is not considered to be a significant one because of: (i) the rarity and brevity of flow stoppage of the bottom current; (ii) the degree of dilution obtained in the Bosphorus; and (iii) the assimi- lative capacity of the Sea of Marmara, which, while insufficient for the continual loading of the entire city's sewage experienced today, would be able to receive and treat naturally the small fraction, if any at all, which migh- arrive on a rare occasion in the future. 15. ISKI has in place a monitoring program to detect changes in water quality resulting from the program. ISKI and the Government give high priority to pollution abatement in the waters surrounding Istanbul, and would be expected to take further measures if the monitoring program should indicate that the method being implemented is not fully satisfactory. 16. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber B. Conable President Attachments Washington, D.C. November 2, 1987  Sehedule A Local Foreig Total Estimated Costs - (US$ million) -- A. WATER DISTRIBUTION 1. Program to Reduce Losses 0.5 1.1 1.6 2. Replacement of Pipe 21.2 29.1 50.3 3. Rehabilitation of Pumping Stations 4.1 5.3 9.4 4. SCADA System 3.0 9.3 12.3 Sub-Total 28.8 44.8 73.6 B. SEWAGE COLLECTION AND TREATMENT 1. Atakoy Drainage Zone 4.6 2.3 6.9 2. Kucukcekmece Drainage Zone 38.8 30.9 69.7 3. Kadikoy-Pendik Drainage Zone 70.9 55.0 125.9 4. Tuzla Drainage Zone 57.7 39.8 97.5 5. Uskudar Drainage Zone 5.7 2.7 8.4 6. Street Sewers 39.7 13.3 53.0 7. Customer Connections 35.1 11.9 47.0 Sub-Total 252.5 155.9 408.4 C. INSTITUTIONAL STRENGTHENING OF ISKI 1. Operation and Maintenance Training 0.6 0.6 1.2 2. Industrial Waste Management Training - 0.1 0.1 3. Equipment 2.7 9.1 11.8 Sub-Total 3.3 9.8 13.1 Base Cost 284.6 210.5 495.1 Physical Contingencies 26.6 19.5 46.1 Price Contingencies 17.3 11.4 28.7 TOTAL PROJECT COST a/ 3L2A la i.2 a/ Figures include US$59.9 million equivalent of taxes. Local Foreixn Total Financing Plan - US$ million- IBRD Loan - 218.0 218.0 ISKI Revenue from Sales 264.3 1.6 265.9 Customer Contributions 64.2 21.8 86.0 Total Financing 3  Schedule B Procurement Procurement Method a/ Project Element ICB LCB Other b/ N/A cl Total Goods 141.4 1.0 1.5 - 143.9 (108.6) (0.6) (1.1) - (110.3) Civil Works 257.8 59.3 - 86.1 403.2 (88.9) (7.3) - (0.0) (96.2) Consultants - - 12.8 - 12.8 - - (11.4) _ (11.4) Overseas Training - - 0.1 - 0.1 - - (0.1) - (0.1) Land Acquisition - - - 2.7 2.7 _ _ - (0.0) (0.0) Local Administrative - - - 7.2 7.2 and Technical Staff - - - (0.0) (0.0) TOTAL 399.2 60.3 14.4 96.0 569.9 (197.5) (7.9) (12.6) (0.0) (218.0) at Figures in parentheses are the estimated amounts for financing from the proposed World Bank loan. b/ International and local shopping, and World Bank Guidelines for selection of consultants. c/ Developers, iu-house staff, and negotiation for land acquisition. Disbursements Amount Category (US$ million) X Civil Works 86.0 100% of foreign expenditures and 26% of local expenditures Goods 100.0 1001 of foreign expenditures; 100% of local expenditures (exfactory); and 65% of other local expenditures Consultants' Services and 10.0 100% of expenditures. Overseas Training Unallocated 22.0 218.0 Estimated Disbursements World Bank Fiscal Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 -