World Bank Document

Document of The World Bank4

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 2848-TU Public Disclosure Authorized STAFF APPRAISAL OF

THE KARAKAYAHYDROPOWER PROJECT

TURKEY Public Disclosure Authorized

April 25, 1980 Public Disclosure Authorized 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 Lira (LT) LT 1 100 Kurus (krs) US$1 LT 70 LT 1 US$0.014

Currency equivalents are those effective March 1980.

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 tone (metric ton) (1,000 kg) 2,205 pounds One kilocalorie (kcal) (1,000 calories) 3.968 BTU Cumecs (m3 /second) 35.31 cubic feet per second

GLOSSARY AND ABBREVIATIONS

AY - Arthur Young & Company CEAS - Cukurova Elektrik A.S. (Cukurova Power Company) DSI - Devlet Su Isleri (State Hydraulic Works) EIB - European Investment Bank EIE - Elektrik Isleri Etut Idaresi (Electric Studies Institute) EGO - Ankara Electricity, Gas and Transport Company ELECTROWATT - Electrowatt Engineering Services LTD ESHOT - Izmir Electricity and Transport Company HCB - High Control Board IETT - Istanbul Elektrik, Tramway, Tunel Isletmeleri (Istanbul Electricity Tramway and Tunnel Company) KfW - Kreditanstalt fur Wiederaufbau MOE - Ministry of Energy and Natural Resources MTA - Mineral Research Institute SGI - Societe Generale pour l'Industrie SEE - State Economic Enterprise SIB - State Investment Bank SPO - State Planning Organization SWOCI - Stone and Webster Overseas Consultants TAMS - Tippetts-Abbett-McCarthy-Stratton 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 FOR OFFICIAL USE ONLY TURKEY

KARAKAYA HYDROPOWER PROJECT

Table of Contents

Page No.

I. THE POWER AND ENERGY SECTOR ...... 1

A. Energy Resources ...... 1 Indigenous Resources ...... 1 Consumption Trends ...... 1 Organization of the Energy Sector ...... 2 Energy Policy ...... , 2

B. The Power Subsector ...... 3 General ...... 3 The Turkish Electricity Authority (TEK) ...... 3 The State Hydraulic Works (DSI) ...... 4 The Electric Studies Institute (EIE) ...... 4 Concessionary Power Companies ...... 4 Municipal Power Distribution Enterprises ...... 4 Historical Development ...... 5 Development Program ...... 7 Generation ...... 8 Transmission Network ...... 9 Rural Electrification ...... 9 Development Program Costs ...... , 9 Tariffs ...... 11

C. The Project Entities ...... 12

II. THE PROJECT ...... 12

Objectives ...... 12 Description ...... 13 Status of Engineering ...... 14 Project Cost Estimate ...... 15 Project Financing Plan ...... 16 Implementation ...... 17 Procurement ...... 18 Disbursements ...... 19 Insurance ...... 19 Environmental Impact ...... 20 International Aspects ...... 22 Project Risks ...... 25

This report was prepared by Messrs. V. Mastilovic (Engineer), W.G. Hamlet (Financial Analyst) and V.N. Rajagopalan (Loan Officer).

III. FINANCE ...... 26

Accounting and Auditing ...... 26 Transfer of Karakaya Assets to TEK ...... 26 TEK's Financial Performance ...... 27 Substitution of a Cash Generation Covenant for the Existing Rate of Return Covenant ...... 28 Municipal Overdues and TEK's Liquidity ...... 30 Power Subsector Financing ...... 31 Proposed Comprehensive Review of Power Subsector Financing ...... 33

IV. PROJECT JUSTIFICATION ...... 33

Power Market Growth ...... 33 Alternative Development Strategies ...... 34 Comparison of Alternatives ...... 34 Return on Investment ...... 34

V. AGREEMENTS REACHED AND RECOMMENDATION ...... 35

ANNEXES

1.1 National Power Sector Statistical Data (1965-1978) 1.2 Interconnected Power System Statistical Data (1971-1978) 1.3 Thermal Power Plant Characteristics and Operation Costs 1.4 Hydropower Plant Characteristics and Operation Costs 1.5 Transmission Network Data 1.6 Forecast Balances of Capacities and Energy 1.7 Forecast of TEK's Electricity Sales 1.8 Existing and Projected Major Industrial Loads 1.9 Rural Electrification Program, Performance and Plans 1.10 Development Program Costs 1.11 DSI's Organization Chart 1.12 TEK's Organization Chart 2.1 Description of the Project 2.2 Project Cost Estimate 2.3 Construction Works Schedule (CPM Network) 2.4 Central Coordinating Committee 2.5 Disbursement Schedule 2.6 Studies of Reservoir Filling and Operation for Projects on the Euphrates River 3.1 TEK's Income Statements for the Years Ended December 31, 1973-79 3.2 Objectives and Method of Monitoring TEK's Cash Generation 3.3 TEK's Cash Generation and Power Subsector Investments of TEK and DSI for the Years Ended December 31, 1980-86 3.4 Terms of Reference for the Comprehensive Review of the Power Subsector Financing 4. Justification of the Project 5. Selected Documents Available in the Project File

MAPS

IBRD - 14798 IBRD - 12793R1 I. THE POWER AND ENERGY SECTOR

A. Energy Resources

Indigenous Resources

1.01 Turkey's main indigenous energy resources are hydropower and lignite. Other resources consist of coal, oil shale, oil, uranium and geothermal energy. The total hydropower potential is estimated at 100,000 GWh p.a. with a corresponding installed capacity of 25,000 MW; of which nearly 30% is developed or under construction. The major part of the estimated usable hydropower potential (31,000 GWh) is concentrated in the Euphrates River (called the Firat in Turkey) basin, where the Keban (6,278 GWh; 1,260 MW) and Karakaya hydropower plants (7,762 GWh; 1,800 MW) are now being developed. The first four out of eight generating units of the Keban hydropower plant are already in operation. Lignite reserves are estimated at 5,500 million tons. The largest deposits are at Afsin-Elbistan, where a 1,200 MW thermal power plant is now under construction. Based on the lignite reserves it would be possible to build additionally about 10,000 MW of thermal power plant. The estimated oil reserves are in the order of 60 million tons, but intensive prospecting for oil and gas has not yet been done. The known reserves of uranium total 4,500 tons of uranium oxide (U308). Geothermal energy resources, though of wide occurrence, have not been adequately evaluated so far. The first geothermal power plant (15 MW) is currently under construction to test feasibility and economic viability of geothermal fields for electricity generation. Non- commercial energy sources, wood and wastes, which contributed more than half of Turkey's energy supply in 1960 have declined to less than 20% by 1978. The rural energy supply is a serious issue which calls for more active consideration in planning and policy decisions. This will be followed-up as part of the Bank's economic and sector work program.

Consumption Trends

1.02 Total primary commercial energy consumption in Turkey has increased from about 11 million in 1960 to 30 million tons of oil equivalent in 1976 (the latest year for which data are available). This reflects an annual growth rate of 6.5%. The per capita consumption of commercial energy in Turkey reached 780 kgs of oil equivalent in 1976, compared with 2200 kgs for Yugoslavia and an average for all developing countries of 298 kgs. The most important trends in the energy supply pattern have been the decreasing share of coal and non-commercial sources of energy and the increasing share of petroleum, which now accounts for more than half of total energy consumption. While the share of coal in energy supply has shown a declining trend in the last twenty years, lignite utilization, particularly in power generation, has significantly increased. Petroleum consumption in 1978 was about 17 million tons of which about 3 million tons, or 18%, were produced domestically. Amongst the petroleum products, fuel oil, which is used primarily for power generation and in industry, accounts for nearly half of the total petroleum - 2- products consumption. The cost of imported oil, which will reach US$3.2 billion in 1980, is nearly equal to the country's entire annual export income. The country's economy is currently almost paralyzed by the oil supply shortages, which are expected to continue in the foreseeable future.

Organization of the Energy Sector

1.03 The Ministry of Energy and Natural Resources (MOE), established in 1963, has official jurisdiction over the development of energy resources in Turkey. The main organizations in the energy sector dealing with power generation and supply are described below (para. 1.06). The public sector organizations involved in development of fossil fuels and radioactive minerals are the Turkish Coal Enterprises (TKI), the Turkish Petroleum Corporation (TPAO) and the Mineral Research Institute (MTA). TKI is a State Economic Enterprise (SEE) responsible for developing Turkey's coal and lignite resources and for selling its production of coal, lignite and by-products. TKI's development plans are closely interrelated to coal and lignite requirements for power generation. TPAO deals with the exploration of petroleum and natural gas resources and owns three of the four existing oil refineries in Turkey. TPAO also owns and operates about 1,500 km of oil pipelines. The marketing and distribution of petroleum products is carried out by domestic and foreign petroleum companies. MTA is involved in the exploration of coal, lignite, geothermal energy and uranium ore. MTA coordinates its exploration programs with TPAO and carries out geological and geophysical studies for TKI, TPAO and other institutions.

Energy Policy

1.04 A major objective of the Government's energy policy is optimum utilization of indigenous resources to restrain the growing dependence on imported oil. As a part of such policy Turkey is trying to develop its own energy resources, particularly hydropotential of the Euphrates River and lignite deposits at Afsin-Elbistan. These resources are located in the eastern part of the country while consumption is predominately in the urban- ized western Turkey. The hydropower potential and lignite reserves could cover power generation needs almost to the end of this century. In late 1990s, power sector development is expected to rely on nuclear energy. Although not economically justified before 1994, the first nuclear power plant is planned for 1988 in order to obtain required experience in the construction and operation of nuclear power plants.

1.05 Apart from measures to develop indigenous energy resources and to restrain the pace of oil consumption through price increases and restricted supply, the Government plans to expand petroleum exploration activities by increasing the financial resources available to TPAO, encouraging joint- ventured exploration efforts in collaboration with foreign oil companies, providing increased incentives for offshore explorations and application of enhanced recovery methods to existing oil fields. However, despite all these measures, Turkey is unlikely to accomplish its objectives of meeting 60% of the demand from domestic production during this decade, unless sizeable new reserves are discovered in the near future. Specific features of the national -3- energy policy are: effective energy conservation; development of oil shale, geothermal and solar energy and other resources; and long-range energy planning encompassing viable supply options, demand and utilization patterns. The cost of imported oil, and prolonged fuel oil and power shortages make energy supplies one of the most critical factors constraining Turkey's economy growth. Therefore, the Bank's continuing involvement in assisting Turkey to develop its own energy resources, particularly hydro and geothermal, would help Turkey to alleviate the dependence on imported crude oil and reduce the risk of energy supply interruptions.

B. The Power Subsector

General

1.06 Main organizations involved in power generation, transmission and distribution, including other activities of interest for the power subsector, are the Turkish Electricity Authority (TEK), the State Hydraulic Works (DSI), the Electric Studies Institute (EIE), concessionary power companies--the Cukurova Electric Company (CEAS) and the Kepez Electric Company (Kepez AS), and municipal power distribution enterprises.

The Turkish Electricity Authority (TEK)

1.07 TEK is an SEE with headquarters in Ankara. According to Law 1312, which established TEK in 1970, the main responsibilities of TEK are: to prepare the plans and programs for the general electrification of Turkey; to construct thermal power plants, transmission and distribution networks; to carry out rural electrification and to manage the Rural Electrification Fund; and to generate, transport, distribute and sell electricity to municipal power distribution enterprises and to large customers. It may borrow in its own name with the Ministry of .Finance as guarantor. SEEs, such as TEK, are required to run on commercial lines, and are subject to taxation (e.g. income taxes of 41.7%) like private joint stock companies. However, SEEs are still subject to close Governmental supervision and their autonomy has been severely limited by their lack of freedom in setting personnel policies and structuring salary scales and the Government's active role in determining pricing of their goods and services. TEK's ability to recruit and retain competent personnel, especially experienced engineers with senior level management capabilities, has long been affected by the Personnel Law governing SEEs. Attempts to overcome management and staffing problems through special authority to hire outside personnel on contract did not prove to be effective. Under the TEK II loan, TEK's consultants have prepared a detailed manpower study and TEK has agreed to furnish a program of action to implement the recommendations of the study. The manpower problems can only be resolved by a basic SEE reform. The new economic policy package, announced by the Govern- ment on January 25, 1980, envisages substantial changes in SEEs. SEEs will be allowed to set their own prices and their deficits will no longer be met from the budget. -4-

The State Hydraulic Works (DSI)

1.08 DSI, with a central office in Ankara, is a state agency (created by Law 6200 in 1953) with the principal responsibility for developing water projects for the three sectors of:

(1) Agriculture - including primary irrigation, draining of marshy lands, and flood control;

(2) Power - identification, design, and construction of hydropower plants to generate electricity; and

(3) Public Service - supply of domestic and industrial water for cities over 100,000 population and assisting these cities in planning, designing and constructing sewerage networks and treatment facilities.

The TEK law requires that, while preparing its five-year plan and annual investment programs, DSI shall take into consideration TEK's requirements of hydropower facilities. The law further provides for continuous collaboration between DSI and TEK in the areas of identifying, planning, constructing and operating hydropower installations and also stipulates that coordination between the two authorities will be ensured by MOE.

The Electric Studies Institute (EIE)

1.09 EIE is a study and research institute mainly involved in geological investigations and hydrological studies, including the collection of hydrological data. This institute also acts as a quasi-consulting agency for power organizations, TEK, DSI and MOE.

Concessionary Power Companies

1.10 While TEK is responsible for electricity generation and transmission in 63 of the 67 provinces of Turkey, power operations in the other four provinces are delegated to the concessionary companies; CEAS and Kepez AS. CEAS takes responsibility for the three provinces of Adana, Icel and Hatay. Its power system is connected to the Turkish interconnected network by 154-kV transmission lines. Kepez AS has the concession for the province of Antalya. The power system in this area is also linked to the Turkish interconnected network and part of its power requirement is met by purchases from TEK. In both concessionary companies TEK is the largest individual shareholder. These companies, allowed to operate but not to expand, may in time be nationalized.

Municipal Power Distribution Enterprises

1.11 Turkey has over a hundred municipal power distribution organizations, of which the largest are in Istanbul, Ankara and Izmir. Electricity sales of - 5 - these three large distribution companies represent about 63% of the total municipal sales. Most municipal organizations are also involved in other municipal activities, such as public transportation and gas supply.

Historical Development

1.12 National power subsector statistical data for the period 1965-1978 are shown in Annex 1.1. Total generation increased from 4,953 GWh in 1965 to 21,726 GWh in 1978 (trend growth rate 11.5% p.a.). Total installed capacity rose from 1,491 MW in 1965 to 4,869 MW in 1978. Hydro generation averaged about 37% of the total generation during the period. The development structure of electricity sales, in total and by customer categories, is summarized below:

Sales (GWh) 1965 % 1978 %

Residential 560 13 2,796 15 Commercial 264 6 1,198 6 Industrial 3,080 73 13,885 73 Government 163 4 685 3 Public lighting 116 3 323 2 Transport 54 1 133 1

Total 4,237 100 19,020 100

Total electricity sales increased at a trend rate of 10% 1/ annually. Indus- trial consumption was predominant and its share in total electricity consumption (73%) remained unchanged. This also indicates that domestic consumption is still undeveloped and that about a half of the population has no access to public electricity supply. Electricity losses increased from 16.9% in 1965 to 17.5% in 1978 of total electricity,sales. Such very high losses are mostly caused by inefficient power plant operation, old generation and distribution facilities, and inadequate electricity meter readings and customers' billings.

1.13 Power subsector statistical data for the interconnected system are shown in detail in Annex 1.2. The installed capacity of the public utilities generating plants in Turkey at the end of 1978 was 4,125 MW (85% of Turkey's total), consisting of 3,801 MW (92%) in the system operated by TEK, 298 MW (7%) in CEAS' system and 26 MW (1%) in Kepez's system. In addition, municipalities' installed capacity was 145 MW and self-producers' 597 MW. In 1978 power generation of the three power utility companies amounted to 91% of the total power generation in Turkey, municipalities 1% and self-producers 8%.

1/ Annual increases fluctuated widely; from 7.9% in 1974 to 19.2% in 1976 and to 6% in stagnant 1978. Years 1977 and 1978 were characterized by severe power supply restrictions. The maximum demand of the interconnected system reached 3,641 MW in 1978. Specific electricity consumption increased from 229 kWh/capita in 1971 to 441 kWh/capita in 1978, the level achieved by Portugal in 1956.

1.14 The power system at present contains a large number of small, inefficient generating plants (up to 100 MW). Combustion turbine plants represent about 20% of the total thermal capacities. These plants are not only used for covering peaking demand but also for prolonged base load requirements. Three larger hydropower plants are Gokcekaya (278 MW), Sariyar (160 MW) and Keban (1,260 MW), half of which is now in operation. All other hydropower plants have installed capacities less than 100 MW. Basic data and main characteristics of the thermal and hydropower generating plant (existing, under construction and proposed) are given in Annexes 1.3 and 1.4. These annexes indicate that the majority of TEK's existing power generation plants are old and very expensive for power generation.

1.15 The transmission network consists of overhead transmission lines and substations operated at 34.5, 154 and 380-kV, which interconnect almost the entire country. Details of the transmission network are given in Annex 1.5 and Map (IBRD 14798). The 380-kV transmission network has been in operation since 1974. This network, which is of the predominantly radial configuration, has been proven as rather stable; voltage and reactive power control were satisfactory, as were energization conditions and insulation coordination.

1.16 The operation of the generating plants and the transmission facilities is coordinated by TEK with full cooperation of CEAS and Kepez. The Turkish power system is interconnected with the Bulgarian and Russian power systems through 154-kV transmission links. These links permit power import and emergency supplies. Since 1975 Turkey has been importing electricity, which reached an amount of 621 GWh in 1978 (about 4% of TEK's sales). A possible interconnection with Syria is under consideration. Turkey is an active member of the group of the Balkan power organizations which has the objective to promoting interconnection and joint operation of the power systems by studying and proposing solutions for various power system operational problems. Due to the lack of fuel-oil for thermal power plants, inadequacy of generating capacities and operational problems, Turkey is forced to shed load and impose frequency and voltage reductions. Power cuts in duration of 5 hours a day or more are a regular practice. No systematic attempts have been made to evaluate the losses to the national economy caused by the power cuts. It is believed an undelivered kWh costs the national economy five to ten times that of its tariff value. There is no automatic load-frequency control and the teletransmission data system is undeveloped. TEK is presently studying these matters so that necessary improvements may be expected in the next few years.

1.17 Since 1952 the Bank has made nine loans and a technical assistance grant (total US$356.65 million) and IDA has extended three credits (total US$55.7 million) for the development of the power subsector in Turkey. These comprise loans/credits for three hydropower projects, of which two are multipurpose; two thermal power plants (oil-fuelled and lignite); a lignite mine; and transmission and distribution network projects. The Technical Assistance - 7 -

Grant was for help in reorganizing the Turkey's power subsector. The first five loans/credits were for works in the service area of CEAS. All the projects in the CEAS' area were successfully completed and are now in operation. The project performance audit report on two loans to CEAS (623-TU and 775-TU) concluded that the key objectives of these loans were largely met. The Istanbul Power Distribution Project is about three years behind schedule. The Elbistan Lignite Mine and Power Project, which is being co-financed by the Bank, KfW and EIB, has been delayed more than two years mainly because the Borrowers, TEK and TKI, are chronically short of qualified and experienced staff and project coordination is ineffective. The last loan was made for the TEK Transmission,II project in 1975. Although Bank's lending to TEK and TKI has not shown the expected results it was instrumental in their institutional building and introduction of modern planning, managerial and financial methods and practices.

Development Program

1.18 The national load forecasts, prepared by TEK, for the period 1979- 1986 (Annex 1.6) show sales increasing from 21,805 GWh in 1979 to 56,857 GWh in 1986, with a trend growth rate of 13.9% p.a. The maximum demand would increase from 4,060 MW in 1979 to 11,240 MW in 1986. TEK's electricity sales forecasts are shown in Annex 1.7. Sales to municipalities would represent 48% of TEK's total sales in 1980 and 36% in 1986. A relatively rapid increase is expected in large industrial sales, whose share in TEK's total sales will increase from 42% in 1980 to 50% in 1986. According to contract arrangements with Bulgaria and the USSR, Turkey will import during the period 1979-1982 up to 2,000 GWh annually. The forecast also implies that per capita consumption would rise from about 441 kWh/capita in 1978 to some 1,600 kWh in 1992, i.e. to about the level attained by Yugoslavia in 1972 or Italy in 1966.

1.19 While the previous TEK load forecasts, though seldom fully realized, have been found to be within a reasonable range of divergence, TEK's current projection looks optimistic in relation to Turkey's present stage of development and near-term prospects. Projected major new industrial loads are shown in Annex 1.8. TEK's forecast of industrial consumption does not appear to be realistic in spite of the fact that an increase of industrial consumption is expected when major power plants (Elbistan, etc.) enter into operation. Therefore, an alternative load forecast has been prepared for appraisal purposes, which shows an annual load trend growth rate of 11.2%. It is always possible that some of the industrial loads may be late or fail to materialize and also changes in other customer categories might occur. Therefore, for the sensitivity analysis of the power subsector development TEK uses annual growth rates +10% of the basic forecast, which are judged to cover the likely range of possibilities.

1.20 TEK's Planning Department, in association with the design and construction department of TEK, DSI, and foreign consultants, prepares long- term development studies (up to the year 2000) and medium-term investment programs. The medium-term investment programs are usually revised at least once a year. The Bank has played an active role in introduction of modern planning methods in the Turkish power system. Power system planning methods -8- in Turkey are soundly based for the purpose of determiningthe least-cost developmentprograms, using computer models incorporatinglinear programming and mathematicalsimulation techniquesand testing the results over a reasonable range of discount rates (up to 16%). All developmentalternatives envisage the constructionof the Karakaya hydropowerproject as part of the least-costmeans of meeting the projected growth of power demand in Turkey.

1.21 While the power system planning methods appear to be generally adequate, the present procedures for power subsector planning, especially hydropower planning, should be further improved. In order to develop the available hydropower potential about 540 hydro sites have been identifiedfor possible development,of which only 40 have been studied in detail. TEK is not always fully involved at the identification,selection and design stage of new hydropower plants as it should be, in order to ensure preparationof the most appropriatehydro projects for construction. MOE does not fulfill properly its coordinationfunction between DSI and TEK in power subsector planning. There is insufficientcoordination also between TEK and TKI in formulatingdevelopment programs for coal and lignite mining construction. MOE, State Planning Organization(SPO), DSI, TEK, TKI and other concerned agencies charged with the responsibilityof formulatinglong-term and medium- term plans for power subsector developmentshould improve their mutual coordinationin the hydropower planning and coal and lignite development programs. During negotiations,the Government has agreed: (i) to complete, by December 31, 1981, a review of existing arrangementsfor the coordination of the developmentand investment plans in the power subsector,particularly hydroelectricplanning and the developmentprograms of TEK and TKI; (ii) to make recommendationson strengtheningintegrated investmentplanning and coordinatingprocedures to be used for its power subsector and on measures to be taken to ensure the timely execution of investmentplans; and (iii) after the Bank's comments, to implement promptly the proposed recommendationsand measures.

Generation

1.22 Details of forecast national energy and capacity balances and proposed generation facilitiesare given in Annex 1.6. They show that the installed capacity is expected to grow from 5,134 MW (41% hydro) in 1979 to 15,976 MW (51% hydro) by 1986. The plant margin is very low in the period 1980-1983. In this period, the generating plants would not be capable of meeting, without restrictions,the required power system needs in the case of average and low hydraulicity. According to the preliminaryresults the hydrologicalconditions in 1979 were favorable and hydro generation achieved its expectations. In the period 1984-1986the plant margin looks appropriate taking into account likely delays in the new power plants' commissioning, changeable hydrologicalconditions, generation and transmissionfacility outages, and unexpected changes in electricityconsumption.

1.23 Thermal power plants, under constructionor proposed, would use lignite for power generation. Among these twelve thermal power plants special attention and priority would be given to the completion of the Elbistan, Soma and Yatagan thermal power plants. Installing the remaining four generating - 9 - units at Keban and construction of the Karakaya and Oymapinar hydropower projects are of the highest priority in the Turkish power system. The progress of the construction of the power plants is dependent on available financial resources, both local and foreign. The Turkish authorities have confirmed that the available financing would be used primarily for these high priority power plants. DSI has secured the preparation of feasibility studies and basic designs, some of which detailed, for several economically attractive hydropower projects, but financial constraints still prevent their construction. DSI's capability to undertake multiple projects, once a constraint, is now considered to be adequate.

Transmission Network

1.24 Major power generation will be concentrated in eastern/central Turkey and has to be transferred to the consumption centers located in the western part of the country over a distance of about 700-800 km. Transmission network construction until 1986 will include 5,669 km of 380-kV, 45,000 km of 154-kV and 30-kV lines and 22,363 MVA in substation capacities. Several transmission network alternatives, including superimposition of an 800-kV network or of a high voltage direct current link, have been studied by TEK and its consultants. The selected alternative calls for further extension of the 380-kV transmission network. The preliminary plan of the 380-kV transmission network at the stage when all the hydropotential of the Eurphates River basin and the lignite fields at Afsin-Elbistan are fully developed has been prepared.

Rural Electrification

1.25 At the beginning of 1979 about 70% of the population in rural areas still had no access to public electricity supply. The Government plans to provide in the period 1979-1986 electricity to some 19,000 villages having populations ranging from 50 to 2,000. Prior to 1964, only 268 villages had been electrified but since then the number of villages electrified each year has gradually increased, reaching about 1,750 in 1978. In the future it is hoped that the rate can be about 2,500 villages per year. By the end of 1978 about 12,500 villages had been electrified (Annex 1.9). Standardization of equipment and improved construction and contracting procedures have accele- rated the rate of rural-area electrification. The rural electrification program is financed by contributions from the Government budgets, village contributions (which will be abandoned), a levy of one krs/kWh on non-village consumers of electricity excluding large industrial consumers and various public authorities. The Rural Electrification Fund is managed by TEK and construction of rural electrification networks is done by various state agencies and local contractors.

Development Program Costs

1.26 Details of the development program and its costs are given in Annex 1.10. The total estimated investment costs during the period 1980-1986, based on early 1980 prices, are summarized below: - 10 -

US$ Million

Hydropower Plants (DSI) 4,107 Thermal Plants, Transmission and Rural Electrification (TEK) 14,164 Distribution (Main Municipalities) 1,637 Lignite Mines for Power Generation (TKI) 2,185

Total 22,093

of which the Project 919 (4% of total)

An intensive construction program is required to meet power requirements after several years of severe power shortages due to delays in power generating plant construction. The development program costs appear large and it would not be reasonable to expect that the whole development program would be completed in the studied period. It is traditional for Turkey's development plans and the state economic enterprises to overstate their investment programs. These programs are usually scaled down on an annual basis to comply with financial resources availability. Therefore, this program has been analyzed taking into account the lower growth demand. The results have shown that the proposed construction program hardly covers power requirements up to 1984, as estimated by the appraisal mission. The physical power subsector investment program is unrelated to available financial resources. Changes in the Fourth 5-Year Plan will, therefore, be made in the annual programs and the SPO has promised to notify the Bank of any changes.

1.27 It was not possible to study in sufficient depth as part of the Project's appraisal the financial implications for Turkey to find the needed capital resources. However, given present serious resource constraints, it is obvious that Turkey would have many difficulties in securing financing of some of their projects. Furthermore, TEK's investment program contains more than US$4 billion for future thermal power projects yet to be indentified. These projects are planned to be commissioned after 1986. It would be reasonable to expect that investments for the above projects will be postponed by 2-3 years due to difficulties in securing their financing. Therefore, actual investments in the power subsector are estimated to be about 75% of TEK's investment plans. This estimate corresponds to the recent Turkish experience in power subsector investments (para. 3.18). In the past, the subsector's development has been funded primarily from the national budget and only to a slight extent from its own cash generation capability. Extensive foreign borrowings have also been necessary. Government's ability to sustain the forecast rates of growth has not been demonstrated. From the viewpoint of project execution, the public sector institutions suffer from an acute shortage of experienced staff at all levels and this both hampers the physical execution of works and makes virtually impossible the application of modern management practices even when there is a willingness to adopt these. The result has been that projects are substantially delayed and the power subsector has for the past several years been unable to meet the demands for electricity. - 11 -

Tariffs

1.28 TEK is, by law, free to determine the prices of its goods and services. By a decree of 1967, this freedom was circumscribed when prices of basic goods and services such as electricity, coal, cement, steel, rail transport, etc. became subject to the approval of the Council of Ministers. Though this decree provided for Government's compensation of any loss resulting from its price fixation, in practice, decisions were reached through informal consultations between TEK and the Government, to avoid mandatory Government subsidies. This blurred responsibilities in the matter of meeting tariffs and left TEK unable to fix tariffs in relation to its costs and to secure its financial objectives. However, in January 1980 this situation was changed when the Government removed most of the goods and services provided by SEEs from the purview of basic goods, thus restoring the freedom of the enterprises to determine prices, except for electricity tariffs for aluminum and ferrochrome production and for coal and lignite; in the case of these items, the Government would reimburse the SEEs for any losses incurred by them.

1.29 TEK's present electricity tariffs are established on the basis of double-term tariff rates, for load demand (kW) and energy (kWh), and a single-term tariff rate for energy only; included is an automatic fuel adjustment clause, and penalties for excessive reactive energy consumption. With certain exceptions, the consumer may choose between the double and single-term tariff rates. The tariff structure does not reflect directly the costs to the economy of meeting the demand for electricity supply. TEK has completed a comprehensive tariff study covering the whole country with a view to establishing appropriate pricing policies and tariff structures at the bulk supply level and at retail distribution level. The Government appointed a committee of experts (para. 3.21) to establish pricing policies and would incorporate the tariff study in making its recommendations for pricing policies for electricity.

1.30 Retail tariffs are set by each municipality subject to the approval of MOE. A revision of TEK's tariffs would normally necessitate corresponding revision of municipal tariffs in order to maintain a viable financial position of municipalities. However, in the past, revision of municipal tariffs was sometimes delayed causing severe financial problems for the municipalities. The Government agreed under Loan 1194-TU to ensure that municipal retail tariffs are adjusted promptly and in a manner and amounts commensurate with adjustments TEK may make from time to time. In keeping with this undertaking, the Government has taken action to increase municipal retail tariffs following TEK's tariff increases in 1978, 1979 and 1980. Istanbul's sales are 20% of TEK's total sales, and Istanbul's retail tariffs were increased nearly 135% from September 1, 1979 to April 1, 1979; and the increase in 1980 is expected to average about 150%. TEK's tariffs and the problems of municipalities diverting electricity revenues for other municipal purposes are discussed in para. 3.13. - 12 -

C. The Project Entities

1.31 DSI is responsible, in coordination with TEK, for planning, designing, constructing and putting the Project into effective operation. TEK will be responsible for operation of power facilities, after the assets are transferred to it as Government equity. Agencies responsible for the relocation of installations and services within the Project area will also actively contribute to the realization of the Project. These include the general directorates for State Highways; Railroads, Harbors and Airports; PTT and Settlement.

1.32 DSI's functions and legal responsibilities are described in para 1.08. The existing organization of DSI is shown in Annex 1.11. It is admin- istered by a Director General and has a field organization consisting of 21 Regional Directorates and Operating Groups. DSI runs on the line management principle by suitable delegation of authority. It has about 30,000 employees, some 2,000 of which are engineers. Over 2,000 of the total staff are located in the central office in Ankara. Under the DSI law, Government finances expenditures of nearly all DSI activities from its annual budget allocations. DSI has long experience in hydropower plant construction, management, procurement, and environment protection matters. With the assistance of the selected consultants and improved Project site management (para. 2.15) DSI will be capable of ensuring proper construction management of the Karakaya hydropower project.

1.33 As the ultimate beneficiary TEK will have the responsibility of operating the Project. TEK employs about 18,000 of which 1,500 are engineers and technicians. The organizational structure of TEK is shown in Annex 1.12. In spite of the current staffing problems, it is expected that TEK will be able to operate the Project satisfactorily. The required operating personnel will be trained in the Keban hydropower plant and then transferred to the Karakaya hydropower plant to take over its operation and maintenance. TEK also plans to arrange with DSI additional training for the Karakaya operating staff during construction of the Project. The planned arrangements for recruitment and training of the Project operating staff are considered satisfactory.

II. THE PROJECT

Objectives

2.01 The principal objectives of the physical facilities of the Project will be to provide additional capacity for the Turkish power system (1,800 MW and 7,353 GWh yearly average) and to enable better utilization of the upstream Keban hydropower plant (the output of Keban will increase by about 400 GWh in an average hydro year), thus saving on foreign expenditures by substituting less expensive hydropower energy for imported oil. Further benefits would be increased job opportunities for the local construction sector and additional employment possibilities during the construction period. Also, some benefits - 13 - for future projects are expected from the Project, as a result of the more regulated Euphrates River flows downstream of the Project dam site, but these have not been quantified so far. The Karakaya project area is one of the most backward regions in Turkey, both socially and economically. The Project is expected to have a positive influence on social and economic development and to contribute to reducing poverty in this part of Turkey. Additional objectives would be the continuation of the institution-building effort started with the establishment of TEK, improvement of coordination in power sector planning, the development of appropriate policies for power sector financing, including energy pricing, and possible contribution toward riparian coordination in the use of the Euphrates waters.

Description

2.02 The Project is described in detail in Annex 2.1. It consists of the Karakaya dam and hydropower plant with a reservoir of 5.6 km3 of useful storage on the Euphrates River, located about 160 km downstream of the Keban hydropower plant, comprising a concrete arch-gravity dam 173 m high with an overflow spillway, intakes, penstocks, a power house at the toe of the dam containing six 3Q0-MW turbogenerator units, appropriate accessory equipment and a switchyard located 2.5 km from the dam, relocation of 33 km of railway line, construction of 35 km of new roads, and resettlement of about 17,000 people living in 34 villages.

2.03 Transmission lines (380-kV) from the Karakaya switchyard to the interconnected power system, not a part of the Project, having a total length of 1,300 km and estimated to cost about US$120 million, of which US$75 million is in foreign exchange, would be constructed by TEK taking into account not only the transmission of the Project's capacity but the strengthening of the national transmission network. The construction of these lines could start in 1982 to be completed in line with the commissioning of the Project's generating units. During negotiations, the Government has agreed to: (i) make arrangements satisfactory to the Bank for securing the financing needed to ensure completion by TEK of the 380-kV lines connecting the Project with the power system in Turkey not later than October 31, 1984; and (ii) provide the Bank with a construction schedule and a financing plan acceptable to the Bank by June 30, 1981.

2.04 The Karakaya hydropower plant would, chronologically, constitute the second step in the long-range development of the power resources of the Euphrates River in Turkey. The first step in the development of the Euphrates River basin was the Keban scheme, which utilizes a 152 m head, and provides the basic regulation of the Euphrates River. Ultimately, Keban will attain an installed capacity of 1,260 MW, with an annual generation of 6,252 GWh. The total capacity of the Keban reservoir is 30.7 km3, of which useful storage is 16.3 km3 or about 75% of the mean annual flow of the river. The total storage of the Karakaya reservoir would be 9.6 km3 and its useful storage 5.6 km3, i.e. about one-third the magnitude of the upstream Keban reservoir. Karakaya, a single purpose hydropower project, is conceived for power generation alone. In order to obtain its maximum power generation benefits, Karakaya must be operated in conjunction with Keban. The gain in power generation - 14 - due to Karakaya would be 7,762 GWh annually, of which 83% is firm power generation. The regulation effect of the Karakaya reservoir would be useful at future downstream dams, but would not substantially influence the Euphrates River flows, which are basically regulated by the much larger Keban reservoir. Therefore, the Karakaya hydropower project would, in essence, process water discharged through Keban turbines and additional inflows between the Keban and Karakaya dams.

Status of Engineering

2.05 The development of the water resources of the Euphrates River in Turkey has been actively investigated since 1962. In 1968, DSI engaged a group of consulting engineers to study the development of the Lower Euphrates basin in Turkey for the purpose of hydropower production and irrigation of arable lands. Geological and site investigations of the Project have been very thorough and found adequate for the type of dam to be constructed (Annex 2.1). A joint venture of Electrowatt Engineering Services Ltd. (Switzerland), TAMS (USA), Societe Generale pour l'Industrie (Switzerland) and Dolsar Engineer- ing Limited (Turkey) has been engaged for the project design and to assist DSI in the supervision of construction and in procurement, manufacturing control, erection and inspection of permanent equipment. The consultants will also assist DSI and TEK during the initial operation of the Project. The assistance will include making recommendations in solving technical problems, in establishing operating rules of the plant and reservoir, and in making reservoir operating studies for optimum power generation. The contract for engineering services has been reviewed by Bank staff and found satisfactory. During negotiations, the Government has agreed to continue to employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank for engineering services, procurement and supervision of construction of the Project.

2.06 DSI usually employs a board of consultants on an ad hoc basis if the necessity arises for any of its projects under construction. Although, well known and experienced consultants have been engaged for engineering designs and supervision of construction, in view of the size of the Project and the potential risks, DSI has agreed to establish a board of experts independent of the designers of the Project to familiarize themselves with the designs and to advise it in the event of unforeseen problems arising during construction. The establishment of such a board, whose members and terms of reference shall be acceptable to the Bank, is a condition of loan effectiveness.

2.07 In the Bank's initial review of the proposed plant design, the adequacy of certain design features was questioned, especially the bottom outlet facilities. DSI has revised its original design and prepared more reliable solutions for the Project water handling facilities in order to avoid problems such as those experienced with the upstream Keban project. It is now reasonably certain that the Project is well designed. An undertaking has been obtained from the Government that the Project hydro works, including the dam, will be inspected regularly in accordance with sound engineering practices. - 15 -

Furthermore, the Government has agreed to inform the Bank, not later than December 31, 1980, about the nature and frequency of, and monitoring procedures for, the inspection of hydro works and dams in its territory.

Project Cost Estimate

2.08 The estimated cost of the Project, excluding interest during construction, is US$1,160 million equivalent, of which US$602 million would be in foreign exchange based on the exchange rate at the beginning of 1980 of US$1 = LT 70. Annex 2.2 shows in detail the estimated costs of the Project, which are summarized as follows:

------US$ Millions------Local Foreign Total

Preliminary and Related Works 32.07 12.43 44.50 Civil and Hydraulic Works (Contract No. 1) 81.10 205.59 286.69 Turbines and Generators (Contract No. 2) 2.28 119.46 121.74 Electromechanical Equipment (Contract No. 3) 1.60 55.92 57.52 Engineering Services 6.00 9.50 15.50 Land Appropriations 59.92 - 59.92 Resettlement 113.66 - 113.66

Subtotal 296.63 402.90 699.53

Physical Contingencies 47.57 52.22 99.79 Price Contingencies 94.31 25.27 119.58

Total 438.51 480.39 918.90

Sunk Costs (1979 and before) 120.00 121.48 241.48

TOTAL PROJECT COSTS 558.51 601.87 1,160.38

2.09 Cost estimates are based on the cost of the signed contracts and early 1980 prices (para. 2.17). Physical contingencies for civil works have been estimated at about 20% on average to take into account technical difficulties which may be encounterea during construction of such a large project with difficult access to site, adverse weather conditions and unusually large generating units. Physical contingencies of 5% have been assumed for generating units and electromechanical equipment. For remaining related works, land appropriation and resettlement physical contingencies have been estimated about 15% on average. Price contingencies were applied in accordance with the following annual rates, which are considered reasonable for Turkey: - 16 -

Year(s) Percentage

1980 10.5 1981 9 1982 8 1983-85 7 1986-87 6

Price contingencies were calculated in dollar terms for both local and foreign costs since the present exchange rates cannot be used for converting future local costs into dollar values. The foreign costs quoted represent the total foreign exchange cost and include the foreign exchange costs of goods and services purchased both from abroad and locally. On the basis of these estimates the cost of the hydropower plant would be about US$640/kW installed, which is very favorable for a hydropower project having a capacity factor of almost 50%.

Project Financing Plan

2.10 Including financial charges on loans, which are estimated at US$138.2 million, the total remaining foreign exchange requirements of the Project are US$618.59 million. The remaining Project costs are expected to be financed as follows:

…------…US$ Millions------Local Foreign Total

A. Project Costs

(a) Borrowings

(i) Swiss Financing 192.22 192.22 (ii) Proposed Bank Loan - 120.00 120.00 (iii) European Investment Bank - 110.00 110.00 (iv) Italian Financing - 20.00 20.00 (v) Abu Dhabi Fund 26.00 26.00

(b) Turkey 438.51 12.17 450.68

Subtotal 438.51 480.39 918.90

B. Financial Charges During Construction

Turkey - 138.20 138.20

TOTAL 438.51 618.59 1057.10

2.11 The Government and DSI have made arrangements with Swiss banking institutions, manufacturers and consultants for financing foreign exchange costs of the contracts for generating units, electromechanical equipment and consulting services awarded to Swiss manufacturers and consultants. The total amount of the secured Swiss financing is SFr. 508.9 million, which can cover - 17 -

all foreign exchange costs of these contracts with an average interest of about 7.7 percent and repayable in about 13 years including 5 years grace. Out of this financing about SFr. 173.9 million have already been paid for Swiss procured equipment and services. The Italian authorities have confirmed to Turkey that Italy would provide a loan of US$20 million toward partial financing of the Project, at 4% interest, with repayment in 12 years and 2 years of grace. Furthermore, the Abu Dhabi Fund has indicated to Turkey its intention to participate in the financing of the Project with a US$26 million loan. The proposed Bank loan of US$120 million and the provision of a US$ 10 million loan agreed to in principle by the European Investment Bank (EIB) would leave for financing by Turkey only US$12.17 million of the remaining US$480.39 million in foreign exchange cost of the Project. The Turkish Government has agreed to open a letter of Credit in the amount of US$7 million which would be used to finance the Project's construction works before other foreign exchange financing becomes available. The financial charges on loans of the Project would normally come through the Turkish general foreign exchange reserves. The total foreign exchange cost of the Project includes US$29.62 million in foreign exchange for goods to be purchased in Turkey.

2.12 The above financing arrangements are satisfactory. The signing of the financing arrangements with Italy and the Abu Dhabi Fund is a condition of the Bank loan effectiveness. Since the Project financing plan requires joint financing with EIB, appropriate arangements have been agreed upon to cover disbursement and supervision aspects. The proposed Bank loan of US$120 million would be made to the Government on standard Bank terms applicable to Turkey--17 years, including 4 years' grace period.

2.13 The local financing would be secured through annual governmental budget allocations and arranged to be fully in accordance with the Project implementation schedule. To ensure timely availability of local funds, a special revolving fund account would need to be established. During negotiations, the Government has agreed to make arrangements, satisfactory to the Bank, for financing the remaining foreign exchange costs of the Project and to provide, in its annual budgets, local funds needed for the prompt execution of the Project and to establish a special account with an initial amount not less than LT 500 million, to be replenished monthly, with a balance equal to at least three months' local expenditure requirements of the Project as determined from time to time by the consultants and from which DSI may draw without restriction on funds to meet local expenditures. Furthermore, the Government has agreed to cover all Project cost overruns that may arise in carrying out the Project and to assume the foreign exchange risks.

,Implementation

2.14 The Project construction officially started on October 24, 1976, and is expected to be completed by 1987. The first three generating units are scheduled to be commissioned in 1985 and the remaining units in 1986. Basic preparatory works have been completed and construction of the diversion tunnels is nearing completion. The construction equipment has been brought to the Project site and all necessary facilities to main construction works have - 18 - been secured. Main hydro and electrical equipment is being manufactured and its deliveries started in March 1980. A big storage facility is under construction at the railroad station about 30 km from the Project site for temporary storing of the main equipment. The Italian-Turkish joint venture contractor for main civil and hydraulic works had slowed down activities at the site because of delays in advance and progress payments and concern about future Project financing, that led to disputes between DSI and the contractor. After a period of considerable tension and low morale at the site, both contract parties met at a high level in November 1979 and agreed on ways to resolve the disputes and speed up construction activities. During these negotiations, DSI has resolved basic disputes with the main civil works contractor concerning progress payments and penalties for delayed works. A new Project construction schedule (Annex 2.03) has been agreed and opening a letter of credit (para. 2.11) would facilitate prompt payments for works carried out. It is expected the agreements reached would enable the contractor to achieve the planned level of construction activities.

2.15 DSI's headquarters services have substantial experience in carrying out large hydropower projects. These services have all responsibilities concerning the Project execution and financing. The Project consultants at the site can only advise and assist DSI in various Project's matters but have no direct responsibility for directing the contractor or approving its proposals. Communications between the site and DSI's headquarters in Ankara are inadequate; flights from Ankara to Diyarbakir (nearest airport) are irregular and telephone connections overloaded. The existing DSI's site management is not well struc- tured and organized so that substantial improvements are needed. Since a sound project management is essential to the successful execution of the Project, the Government has agreed to establish effective Project mangement, and to appoint a Project site manager by December 31, 1980 with such responsibilities, qualifications and experience as shall be satisfactory to the Bank along with adequate authority for solving site problems as they arise, within specified limits, without having to seek DSI's headquarters approval. Furthermore, the Government has agreed to inform the Bank of the qualifications and experience of the person(s) considered for any new appointment to the position of the Project site manager.

2.16 A Central Coordinating Committee for the Project has been established by the Government with the Under Secretary in MOE as the chairman to secure coordination of the various engineering and administrative functions. The members of the Committee are representatives of the concerned ministries and other interested agencies (Annex 2.4). The Government has agreed to maintain in MOE the Central Project Coordinating Committee with such powers, functions, responsibilities, composition, and terms of reference as shall be satisfactory to the Bank.

Procurement

2.17 The proceeds of the proposed loan would finance part of the foreign exchange costs of the main construction (civil and hydraulic) works and relocation of railways and roads. The contract base amount for the main construction works (Contract No. 1) including some related permanent equipment - 19 - is US$208 million plus LT 3,207 million. The contract specifies fixed direct foreign exchange unit prices for works and materials but allows for physical contingencies and price escalation in local costs. Bidding documents for this contract were reviewed by the Bank staff before their issuance and found in accordance with the Bank Group Guidelines for Procurement. International competitive bidding was carried out in 1976 in a manner satisfactory to the Bank. Bids were received from joint-ventures, including German, French, Italian, Austrian and Turkish firms. Advanced contracting of the main civil and hydraulic works has been agreed since it was justified in terms of the Project construction schedule and the Bank's earlier involvement since 1975. The Project was initially appraised in November 1975, post-appraised and updated in March 1976 and November 1977, and re-appraised in November 1979. The contract for turbines, generators, inlet valves and accessories was awarded in October 1977 to Swiss manufacturers for the amount of SFr. 316.64 million plus LT 40.9 million. Electromechanical equipment (Contract No. 3) in the amount of SFr. 148 million plus LT 1,092 million has also been awarded to Swiss manufacturers in order to use their offered equipment financing. A few small contracts for the preliminary works have been awarded to local contractors. Relocation of railways and roads within the Project's reservoir would cost about US$15 million in foreign exchange. These works would be carried out with the assistance of the Turkish Railways and Roads and the procurement of materials related to them would be made through ICB in accordance with the Bank Group Guidelines for Procurement. DSI is exempt from paying import duties, except stamp duties on imported equipment, which were reduced in January 1980 from 25% to 1% of equipment costs.

Disbursements

2.18 The proposed loan would be disbursed against 45% of foreign expenditures of civil works and 100% of foreign expenditures for materials and equipment related to the relocation of railways and roads in a joint financing arrangement with EIB. Retroactive financing has been agreed for the main civil works from February 1, 1980 in an aggregate amount not exceeding the equivalent of US$10 million subject to EIB agreeing in principle to its retroactive financing in an equal amount. The expected disbursements from the proposed loan are shown in Annex 2.5. The closing date would be December 31, 1988, to allow for final payment of retention money.

Insurance

2.19 The contractor for the main construction work has agreed to provide insurance from an insurance company acceptable to the DSI for transportation, handling, storage, and installation of equipment and plant given by the DSI as the main protection against physical loss, accidents, damages and injuries to the Project works in the amount determined by the DSI. The insurance firm is a Turkish firm approved by the DSI. Under normal conditions this insurance must be in force from the time of delivery to the contractor until the return- ing to the DSI of the equipment and related documents. The insurance policies - 20 - have been delivered to the DSI, as evidence that the insurance requested by the DSI has been made. The insurance premiums paid by the contractor shall be reimbursed as specified in the contract to the contractor with the exception of contractor's profit and overhead expenses. Premiums and insurance beyond the requirements of the DSI will be paid by the contractor. All conflicts pertaining to the insurance and compensations due to contractor's or subcon- tractor's activities, whether or not covered by insurance policy, will be under the responsibility of the contractor, and the contractor shall protect the DSI and his representative from all liabilities. The contracted Project insurance arrangements have been reviewed and found satisfactory. The Govern- ment has agreed to maintain the insurance against Project's risks in such amounts as shall be consistent with appropriate public utility practice.

Environmental Impact

2.20 Although Turkey does not have a state institution responsible for ensuring that environmental factors are taken into account before projects, including hydropower projects, are approved, DSI has taken account of these factors in accordance with its normal practice, especially resettlement of population. The Project area has a low population density and the total number of persons who will require resettlement is about 17,000. At present they live in 34 villages, of which only 3 have populations of over 1,000 persons. Within and around the Project area, there is a low-level economy based almost exclusively on primitive subsistence agriculture. It is expected that fair agreements on indemnification will be reached with the present property owners. The aim of this indemnification is to provide the former owners with at least the same economic situation they had prior to flooding of their properties. The acquisition of land for hydropower projects in Turkey is carried out in accordance with the General Expropriation Law. This Act gives DSI the right to expropriate reservoir lands after permission is obtained from the Ministry of Public Works. Under the law, a committee, composed of local people representatives, land experts and members of the administration, inspects and evaluates the property of each affected owner, then prepares a land value report. Unit land prices, for each of the various classes of land, are determined according to the American Land Capability Classification. If the owner and DSI agree upon the value, the owner signs over the property and collects the money due to him from DSI. If there is disagreement, it becomes a matter for settlement by the courts.

2.21 The Ministry of Village Affairs has established a comprehensive resettlement methodology for resolving problems arising due to dam construction. It specifies that dam construction and resettlement should be carried out in a coordinated manner and that urgent consideration should be given to the resettlement of people whose land will be flooded by the dam. In view of the very delicate and sensitive nature of the human population resettlement various institutions involved in resettlement operations are obliged by the Prime Minister's order to assist the Ministry of Village Affairs in finding an appropriate solution to resettlement problems and to perform necessary duties requested by the Ministry. In connection with the previous - 21 -

Keban hydropower project, no significant difficulties were experienced in the resettlement of about 30,000 people in the four year period. DSI's commission for the Keban resettlement has resolved about 95% of land and property indemnification cases, without going to court.

2.22 DSI has just started solving the Karakaya resettlement problems and the persons living on and around the dam site have already been resettled without any problems. The local population expects that construction of the Karakaya hydropower project will offer additional employment opportunities and will contribute to the improvement of their living standards. As to the matter of the human population resettlement policy, the affected population have employment priorities on the Project and in the new cement factory being built to meet Project cement requirements. The Government has started to build schools and health centers to serve the population around the Project area. Plans and provisions related to the resettlement of population appear to be adequate, financially as well as otherwise; resettled persons will also have employment priority in the area and abroad, neighboring villages will be electrified, and new access road to isolated, larger, villages will be built. The Government has arranged to prepare an inventory of the property which would be submerged by the Project, and is initiating action for their valuation to make compensation payments. A census of the families requiring Government assistance in resettlement has been completed and indicated that only a small proportion (about 6%) of the population had expressed a preference for Government assistance in agricultural resettlement. At least 8 hectares of suitable land would be provided for each resettled agricultural household. Resettlement sites have been identified, and the Government plans to provide those who will be relocated with accommodation and support services to enable them to rebuild their livelihood. During negotiations, details of a population resettlement plan and a program for its implementation were discussed and the further course of actions was clarified. The Government has agreed to make appropriate arrangements to relocate residents on land required for the construction and operation of the Project's facilities in accordance with a comprehensive plan of resettlement action and its implementation program satisfactory to the Bank, which shall be prepared and furnished to the Bank by February 28, 1981. The Bank will continue to monitor closely all further developments in connection with the human population resettlement and offer the assistance of its specialized services.

2.23 The ecological effects of the Project are not expected to be adverse. The project area and surrounding countryside are treeless, an almost bare land with practically no wildlife. Intensive archaeological investigations, with the assistance of numerous foreign scientific institutions which have taken place throughout Turkey during the last ten years, have not indicated the presence of any artifacts or sites of archaeological or historic signifi- cance in the area which would be flooded. The construction history of the upstream Keban hydropower project has not shown any significant elements which might have adverse environmental effects. DSI has engaged the consultants (Electrowatt Engineering Services Ltd. et al) to study, based on the terms of reference suggested by the Bank, the ecological consequences of the Project, including human ecology, biotic, environmental and other points having an environmental impact. The draft report of the study was received in - 22 -

October 1977 and the Bank's comments on the report have been sent to DSI. Although this study was not considered entirely satisfactory, it was agreed that rather than requiring further studies, the Bank would try to arrange an ecological reconnaissance by its environmental staff to identify problems, if any, and help the Government in formulating solutions.

International Aspects

2.24 The Euphrates River originates in Turkey and flows through Syria and Iraq. The utilization and sharing of its water resources have been the subject of long-continuing studies and discussions, involving all three riparian countries, in an attempt to reach an agreement. In October 1974, the Bank submitted to Turkey, Syria and Iraq an outline of a proposed work program, in three stages, which would provide the technical information and background studies necessary to evaluate interim and long-term options for the coordinated utilization and development of the water resources of the Tigris and Euphrates. Stage I of the proposed work program consisted of the preparation and testing of a computer simulation model for the Euphrates River, which investigated different project operating principles, in order to determine their effects on reservoir filling under different hydrological conditions, at the same time satisfying the existing and expected water consumption demands in the ten-year period (1974/75-1983/84). The model was used to investigate different principles of water management during the period of construction, filling and initial operation of the Turkish, Syrian and Iraqi water storage projects. The nature of the model and the details of the input data used to test the model are described in a draft report "Preliminary Study of Reservoir Filling and Operation for Projects on the Euphrates River" dated January 24, 1975. This report was transmitted to the Governments of Turkey, Syria and Iraq in February 1975. The Bank has also expressed to all three riparians its readiness to assist in the second and third stages of the work program, if so requested. Moreover, the Bank would be prepared to assist in extending the study to cover the period after 1983/84, provided that required data are furnished by the riparians.

2.25 The study revealed that if the various interests of the riparians are to be materially satisfied under all conditions which may be reasonably anticipated, the major developments on the Euphrates River cannot proceed without some basic principles governing their operation and a common understanding of these principles and their importance among the riparians. The simulation method conforms to the current understanding of the various interests of each riparian during the ten-year period. Thus, for Turkey, it is understood that the objective is to maximize power generation for the sequence of projects along the main stem of the Euphrates River, until diversion for the Lower Firat (Euphrates) irrigation programs begins; for Syria, it is essential to meet irrigation demand and at the same time generate maximum hydroelectric energy for replacement of more costly thermal generation within the Syrian power system; and for Iraq, the essential interest is to obtain sufficient flows distributed over the year in a pattern which will satisfy its irrigation demands. On the basis of data and assumptions used, the study has demonstrated that it is possible, by following certain operating principles, to meet all these various objectives without adversely affecting the interests - 23 - of any of the riparian countries. Details of this study 1/ are summarized in Annex 2.6. Map IBRD 12793R indicates the major projects on the Euphrates River.

2.26 As a part of the evaluation of the Karakaya hydropower project, a more detailed assessment was required of the effects of alternative reservoir filling schedules and operation of the Karakaya reservoir on the downstream riparians. Based on the simulation method developed in the "Preliminary Study of Reservoir Filling and Operation on the Euphrates River", and using all newly available information, particularly the hydrological data presented in the Aide-Memoire entitled "Plan of Karakaya Reservoir Filling Operation" prepared by the Government of Turkey, which was submitted to the Bank in September 1975, a special report "Study of Reservoir Filling for Karakaya Hydropower Project" has been prepared by Bank staff and consultants. This study revealed that, without detriment to the interests of Turkey and of the downstream riparians, the Karakaya reservoir can be filled within a period of three to seven months, depending on actual water flows, and the operation of the Turkish power plants could also be effected for maximum energy output while maintaining an average discharge of 500 m3/sec at the Turkey-Syrian border. This operating rule, called the "Rule of 500", would also ensure that the existing requirements of the downstream riparians for irrigation and power generation, as well as the anticipated growth in these requirements during the period 1974/75-1983/84 would be met.

2.27 The study also developed operating principles for the reservoirs in Syria and Iraq which would be expected to optimize benefits in those countries. These operating principles are explained in Annex 2.6 and summarized below:

(a) The Keban and Karakaya reservoirs in Turkey would be operated during construction and filling of Karakaya, as well as thereafter, in such a manner as to ensure a minimum average flow of 500 m3/sec as the Euphrates River leaves Turkey, with shortfalls in any averaging period, not greater than one month, being made up in the next period. This rule would apply until modified, if required, by an agreement among the riparians in connection with the implementation of the next large water-consuming project on the Euphrates River.

(b) The Syrian Euphrates reservoir would have to be operated to pass sufficient water to meet downstream irrigation requirements in both Syria and Iraq, modified on a semi-annual basis, to the extent of + 60 m3/sec, mainly to allow for variations in rainfall, and Iraq's irrigation demand patterns and present storage capacity.

1/ The study does not include the new Ataturk multipurpose project, which replaces the previous Golkoy and Karababa projects. Since the total storage capacity would be increased from 16.27 km3 to 48.5 km3 the proposed Ataturk scheme has to be tested in the simulation model to determine effects of project operating principles on reservoir filling under various hydrological conditions at given water consumption demands. - 24 -

(c) Flows from upstream reaching Ramadi reservoir in Iraq in excess of downstream irrigation requirements, would be diverted and stored in the Habbaniyah reservoir to the extent possible and the maximum reservoir level maintained at all times.

2.28 Turkey informed Syria and Iraq in January 1975 of its intention to construct Karakaya, assured them it had taken special care that the initial filling of the Karakaya reservoir would not adversely affect the normal river flow downstream of the dam site, and offered to discuss these assurances. Following agreement with the Bank on filling and operating criteria for Karakaya, Turkey informed Syria and Iraq that during the construction, initial filling and operation of Karakaya it will ensure that the flow of the Euphrates River as it leaves Turkey at Birecik will average not less than 500 m3/sec, and that the averaging period would not be greater than one month and any shortfalls in one period would be made up in the immediately succeeding period. Furthermore, Turkey invited discussions for evolving a tripartite monitoring arrangement, which would extend the existing hydrometereological network and exchange of information concerning the hydrological and hydro- metrical data collected in the Euphrates basin, and for the better use of common waters.

2.29 After receiving Turkish agreement on the operational criterion and monitoring arrangements, the Bank invited the comments of the lower riparians on the Turkish proposals and the suggested operating principles for the existing reservoirs on the Euphrates River. Syria expressed its readiness to cooperate fully in seeking a quick and final solution to all problems concerning Euphrates waters' use, but pointed out some differences between assumptions used in the study works and its current plan, and objected to the construction of the Project until agreement has been reached between all the riparians. The Syrian comments have been studied by the Bank's staff and consultants and the analysis made it clear that these comments do not represent quantified and substantiated objections to the proposed basic operational criteria for reservoirs on the Euphrates River. The Syrian comments and their analysis are given in detail in Annex 2.6. Iraq has not communicated its comments on the proposed operational criteria and, though recognizing that Karakaya is not a water consuming project and could help to improve regulation of the Euphrates waters, has opposed the Project until an agreement is reached on the long-term sharing of the Euphrates waters. Iraq is also concerned with adverse operation of the Euphrates Dam by Syria - a danger which exists irrespective of Karakaya. In connection with the Balikh project (Loan No. 975 SYR) the Syrian Government stated in a letter to the Bank that it intends to operate the Euphrates Dam (Assad reservoir) in a manner which would assure that the requirements of Iraq are reasonably covered, provided that adequate releases are made from the Keban reservoir in Turkey. Moreover, Iraq will be able to protect itself against such risk through the operation of the Haditha Dam project, which has been started and which would be completed about the same time as Karakaya. In the meantime no information has been received that either the Syrian and Iraqi attitude toward the Project riparian issue has changed.

2.30 Based on detailed analyses, it is considered that the proposed arrangements for the filling and operation of the Karakaya hydropower project - 25 -

would not adversely affect the lower riparians. Turkey has agreed to follow the operational criteria for Karakaya and has already communicated this assur- ance to the lower riparians. It has also invited them to discuss tripartite monitoring arrangements. In view of the above and the absence of quantified and substantiated objections by lower riparians, the Bank made the unilateral determination that the Project would not adversely affect the lower riparians. Furthermore, the Turkish Energy Minister made a statement in the Turkish Parliament (see Annex 2.6, Attachment 3) that Turkey would fill and operate the Karakaya reservoir according to the Rule of 500, and the Government confirmed that the Bank could rely on this statement as Turkey's representation for making the loan. However, to satisfy the Bank, and, if necessary, the lower riparians that Turkey is filling and operating Karakaya in line with the Rule of 500 an appropriate reporting system on the actual operation of the Project and the Euphrates River flows needs to be established so that records are promptly sent to the Bank. During negotiations, the Government has agreed to prepare and submit to the Bank by March 31, 1981 a reporting system satisfactory to the Bank for providing river flows, including criteria and methods of measurement to be used to determine periodic mean river flows. The Euphrates River flow data and related information would be furnished to the Bank regularly.

Project Risks

2.31 Construction of the Project is a high risk job due to the steep slopes and the instability, especially upon disturbance of the highly jointed and faulted rock. The risks are manageable providing constant expert geological supervision is given to the construction process. The Project consultants at site provide the required expert supervision. During the first years of Project construction, geological conditions of the rock formation have been found better than expected at the Project design stages. The conducted tests of modulus of elasticity were found satisfactory for the selected type of dam. The designs for the Project structures incorporate adequate provision for earthquake accelerations or ground motion. Despite a high cofferdam and large by-pass tunnels the recurrence interval of the construction period flood of 25 years is not conservative. This can be accepted if the large upstream Keban reservoir is operated during the construction period to help prevent floods which normally have a return period of once in fifty to one hundred years. DSI is aware of this and plans to undertake the required precautionary measures during the construction period. While geophysical construction risks are within reasonable limits, other risks are more uncertain, such as availability of cement, construction steel, fuel, etc. The contract for the main construction works provides that basic materials (cement and steel) can be imported if they are not locally available. In the present difficult Turkish economic situation shortages of construction materials, goods and financial resources are likely. These matters have been discussed with the relevant Turkish authorities and assurances were obtained that top priority would be given to the Project in view of its importance to the national economy. Reasonable precautions would be taken to ensure the flow of resources and to establish effective Project site management. - 26 -

III. FINANCE

Accounting and Auditing

3.01 DSI uses "appropriation accounting"; a budgetary type of accounting that identifies appropriation of funds by projects. Expenses incurred during the construction period are charged against the appropriation with the balance reflecting the funds remaining during the construction period. This accounting system is similar to the accounting system used by the U.S. Bureau of Reclamation. Technical assistance and training were provided to DSI by the U.S. Bureau of Reclamation financed by the U.S. Agency for International Development. Separate accounts for the Karakaya project are maintained for budgetary control purposes and will facilitate transfer of assets on completion to TEK. DSI's accounts are audited annually by the Government's High Control Board acceptable to the Bank.

3.02 TEK has a satisfactory utility accounting system. In 1965, the Bank made a technical assistance grant of US$1.95 million to meet the foreign exchange costs of studies and the implementation of recommendations for the reorganization of the Turkish power subsector. In 1969, Stone & Webster Overseas Consultants (SWOCI) devised for TEK a new system of accounts, budget- ing and reporting, purchasing and stores procedures. In Phase II during 1970-1972, Arthur 'Young & Co. (AY) worked as consultants to introduce and implement the proposed utility accounting system and to recommend a scheme for revaluation of assets. Several key accounting staff were trained in utilities in the U.S. in 1974-75. TEK's accounting system has improved significantly though the system has yet to be used adequately for management decisions. The audit provisions for TEK's accounts in the Loan Agreements of Loans 1023-TU and 1194-TU are satisfactory to the Bank.

Transfer of Karakaya Assets to TEK

3.03 The TEK law provides for the transfer of the value of hydroelectric assets constructed by DSI to TEK on their being brought into service; transfer regulations provide for determination of transfer values by ad hoc transfer committees. The first three generating units of Karakaya are expected to be operating in 1985 and the full Project output of 7,762 GWh will be reached in 1987. The assets of Keban were not transferred to TEK until two years after operation; TEK benefitted from the revenues from the sales of power but did not provide for depreciation, thus distorting its financial position. To facilitate the prompt transfer of the Karakaya assets to TEK it was agreed that DSI would transfer one-sixth the cost of the Project to TEK for each successive 1,200 GWh generated by the Project in any year, until the assets are completely transferred. The present policy of transferring hydroelectric assets to TEK as government equity holdings in TEK would be reviewed by the proposed committee of experts (para. 3.21) to determine the effects of the present policy on TEK's income tax liability and on TEK's capital structure discussed in para. 3.16, in establishing recommended policies governing the transfer of these assets. - 27 -

TEK's Financial Performance

3.04 TEK is the ultimate project beneficiary, when the Project's assets will be transferred to it by DSI, on completion several years from now; thus TEK is not immediately concerned with the Project. However, as TEK is the Project beneficiary and the only source of revenue for financing generation and transmission facilities, its financial performance is of direct and immediate concern.

3.05 In the past lending operations, the Bank has endeavoured to promote the concept of "user paying for service" and of securing for TEK an appropriate degree of financial autonomy, through a focus on rate of return which would generate funds internally to finance a reasonable share of TEK's investments. The loan agreements require TEK to earn a return of 8% on revalued assets. This is in line with the TEK Law, which requires TEK to earn an 8% return on net fixed asset after meeting its expenses. However, as the manner of computing the return and what constitutes expenses were not spelled out either in the TEK Law or any subsidiary regulations issued under it, these matters have been covered by provisions in the Loan Agreements with the Bank. While the Government has accepted the principle of recovering from power users sufficient resources to finance a portion of the investments in the power subsector, as reflected in the 8% rate of return on revalued assets, it has repeatedly urged that this objective should be achieved gradually over a period of time so that tariff adjustments needed to achieve the agreed return do not have a disruptive impact on an economy beset with high inflation.

3.06 As a result, ever since its creation in October 1970, TEK's financial operations have been marked by two features: (i) failure, by a wide margin except in 1972, to earn the minimum 8% return on net fixed assets required by the existing loan covenants; and (ii) a chronic shortage of cash on account of continuing inability to collect its bills for electricity, mainly from municipalities. The reasons for this state of affairs are explained below:

(a) the reluctance of the Government to increase tariffs adequately and in time, even to keep pace with increasing costs. After a 50% increase in July 1971 apart from the operation of adjust- ing the tariffs for fuel costs increases in 1973 and 1974, the next increase was only for 20% in June 1976. Substantial increases were made in September 1977 (42%) and again in April 1979 (66%) and January 1980 (128%); these increases were mostly offset by simultaneous fuel increases, significant increases in wages and salaries, and the devaluation of the Turkish lira;

(b) the expensive generation mix of TEK, with a large dependence on small, inefficient and fuel-fired plants, distant hydro resources, and the delay in implementation of projects to harness domestic energy resources. Owing to the tight power supply situation, which prevailed during the 1970s, TEK has to resort to large scale combustion turbine generation and generation from old, inefficient steam plants; - 28 -

(c) significantincreases in wages and salaries,which have risen from about 11% of operating expenses in the period through 1975 to 16% in 1978 (see Annex 3.1); and

(d) the high level of income taxes payable by TEK (41.7% of taxable income). Since the return is calculated after income taxes, TEK did not get the full benefit of tariff increases, and only 58.3% of TEK's revenues are available for computing the rate of return, the rest being siphoned off by Governmentas income taxes.

For reasons explained above, despite substantialperiodic tariff increases, TEK's earnings in 1977 and 1978 resulted in returns of less than 4% for 1977 and 1978. The Bank waived in April 1978 the covenant requiring TEK to earn the 8% on revalued assets, and agreed that this objective be met gradually over time. It was agreed that the Governmentwould increase TEK's tariffs by January 1, 1980 to enable TEK to earn a 5 1/2% rate of return on revalued assets for 1980 and increase tariffs thereafter to achieve the 8% rate of return by 1982. On January 25, Government approved increases in TEK's electricitytariffs, effective February 1, 1980, to an average of 280 kurus per kWh which is acceptable to achieve the agreed 5 1/2% rate of return for 1980.

3.07 As the high inflation in Turkey and periodic substantialexchange rate changes affect the revaluationof net fixed assets, and consequently the extent of tariff increases,the Governmentrequested the Bank to sub- stitute a cash generation covenant for the rate of return covenant in Loans 1023-TU and 1194-TU. In conjunctionwith the Bank's considerationof the Karakaya project, the Bank agreed in October 1979 to consider the request, provided the Governmenttake action to increase tariffs to achieve the agreed 5 1/2% return on revalued assets for 1980, and adequate levels of cash generation could be agreed upon.

Substitutionof a Cash Generation Covenant for the Existing Rate of Return Covenant

3.08 Both the rate of return and the cash generation covenantshave as their objective adequate cost recovery and generationof internal resources for meeting a part of resourcesneeded for future investments. In principle, either of these covenants is acceptable. The rate of return concept has been more commonly used as (i) it provides a standard measure of financial performance, (ii) it reflects generally accepted principles of costing utility services, (iii) provides an effectivemeans, with proper revaluationof assets, for compensationfor inflation, (iv) it mirrors the concepts of tariff regulationwhich are used in many parts of the world; and (v) it is an accurate and objective test. The alternativeinternal cash generation covenant deals directly with providing cash for financing the investment program and is easily understood,particularly in terms of the financingplan for the approved investmentprogram. The major disadvantagesof the cash generation covenant are the normal "lumps" of annual investmentsthat sometimes arise in the investmentsof large power plant projects which offers incentive to defer expendituresand could delay needed construction;and the - 29 - cash generation covenant does not reflect the capital structure to produce realistic depreciation to replace plants in the future because inflation has caused much higher replacement costs. In actual practice, when one type of revenue covenant is used in the loan agreements the other is also used to check the adequacy of the covenant and to measure the borrower's performance, although this practice is not in the covenanted terms.

3.09 The rate of return covenant, as applied in Turkey, has led to many difficulties. While the principles for revaluation of assets have been incorporated in the loan documents, the application of these principles has created problems in regard to the asset base for computing the rate of return. As tariff adjustments are proposed ex ante, the difficulties of projecting inflation, and actual events, have led to an ex-post lower rate of return. Moreover, the legal validity of revaluation has not been accepted by Turkey, and the TEK law contemplates valuation of DSI assets transferred to TEK only at the time of commissioning. TEK does not adjust its books as a result of revaluation since the TEK law does not recognize revaluation; the calculation of rate of return on revalued assets is only a pro forma exercise. Revalua- tion of assets would still be necessary to ensure proper annual depreciation charges under a cash generation covenant. The cash generation covenant would focus attention on TEK's financial performance measuring directly the internal resource generation for the expansion of the power facilities.

3.10 During the Karakaya loan negotiations, agreement with the Government was reached on the principles governing TEK's cash generation. Since TEK's cash generation is derived from assets constructed by DSI, the cash generation objective would be applied to the total generation and transmission investments in the power subsector. In addition, in computing TEK's cash generation, the total debt service on TEK's loans, as well as the debt service on loans incurred by the Government for DSI's power subsector investments would be deducted. TEK's income tax payment to the Government in theory is a source of financing power subsector investments, therefore it was agreed to compute TEK's cash generation before income taxes. An initial level of TEK's cash generation of not less than 20% of the total investments of TEK and DSI in power projects has been agreed for 1981, and increasing to about 35% in 1986 and thereafter.

3.11 TEK is required under the existing Loan Agreement to furnish its financial statements in April, and to submit financial forecasts in November for the purpose of determining and agreeing on tariff actions to be taken to meet the rate of return covenants. The forecasts to be submitted to the Bank each November have not always been forthcoming. For the purpose of monitoring performance under the cash generation covenant, it was agreed that TEK would make a forecast of its internal cash generation and the investments of TEK and DSI and submit the forecast to the Bank by December 31 of each year. The Government presents its budget in November along with the annual plan to the Parliament in the same month. Parliamentary approvals are generally completed by February of the following year. This would enable the Government and TEK to review the adequacy of the existing tariffs to meet the cash generation amounts in relation to the planned investments of TEK and DSI in the power subsector, and to propose and complete needed tariff actions by May 31 of each year for achieving the financial results in that year. The procedures for monitoring the cash generation covenant are described in Annex 3.2. - 30 -

3.12 TEK's tariff increases effective February 1980 are estimated to provide a return of 5 1/2% on TEK's revalued assets for 1980; if DSI's debt service is included in the calculations,the rate of return is estimated at 6.2% because the interest on the DSI loans would reduce TEK's income tax liability. The internal cash generationby TEK is estimatedto provide 18% of the planned investmentsof TEK and DSI for 1980. An analysis has been made of the relationshipbetween the rate of return and cash generationratios, and the levels of tariffs required to accomplisheither objectivefor the years 1980-1986in Annex 3.3. Annual tariff increasesof about 8% would be required to increase the internal cash generationof TEK from 20% in 1981 to 35% in 1986, based on the projected investmentsof TEK and DSI presented in Annex 1.10 and the forecast of TEK's sales in Annex 1.6. In the past, the actual levels of investmentswere lower than the approved investments in the annual program and, as stated in para 1.27, the investmentplan for 1979-1986may be reduced. Tariff adjustmentsmade to yield a desired level of cash generation could in fact yield a slightly higher level of cash generation if the actual investmentsare less than the planned investments. TEK's internal cash generationis estimated to provide an acceptable27% of the total planned investmentsof TEK and DSI for the years 1980-1986.

Municipal Overdues and TEK's Liquidity

3.13 In addition to TEK's problem of internal cash generation being inadequate to finance invetments,TEK has also not been able to collect for electricitysold to the municipalitiesamounting to about 35% of TEK's total sales. Municipal overdues were the result of two inter-related problems. As municipal retail tariffs were subject to Governmentalregula- tion, delay in increasingretail tariffs, consequentupon TEK's tariff revision, created a problem for municipalities. In connectionwith Loan 1194-TU, the Governmentagreed to adjust municipal tariffs promptly in amounts commensuratewith TEK's tariff increases. In the past few years, the Governmenthas fulfilledthis commitment. The increasedretail tariffs were expected to enable the municipalitiesto pay TEK its dues and also allow sufficient funds for their distributioninvestments. However, as municipalitiesalso provide other public services like water supply, transportand gas distribution,the municipalitieshave diverted their electricityrevenues for meeting the deficits in respect of their other public services. With only limited resources,municipalities are in turn dependenton the Government for much of their financing. The Governmenthas had periodicallyto consolidateintrapublic sector debts, under which debts and receivablesof TEK were consolidated. Under Loan 1194-TU, the Govern- ment also agreed to cause its agencies and municipalitiesto pay the debts for power and services outstanding to TEK in excess of three months in accordance with a timetableand a plan of action acceptable to the Bank and TEK. In line with this undertaking,the Government took over municipal overdues to TEK, more than three months old, in 1977 and 1978, and under powers granted to it under the budget law, reimbursedTEK its municipal dues outstanding for over three months from the taxes which the Government collects on behalf of municipalities. The Government recognized that this arrangementcould be only a temporaryexpedient, and the long term solution was to increase municipal revenues. A law enacted by Parliament in 1979 to increase municipal revenues was vetoed by the President. Pending further legislativemeasures, this problem will continue to be dealt with under the - 31 -

Budget Law every year. During negotiations the Government agreed to explore administrative measures to expedite its payment of dues to TEK on behalf of municipalities to provide a timely flow of funds to TEK for the implementation of on-going power projects.

Power Subsector Financing

3.14 The financing of investments for generation and transmission facilities in the power subsector is characterized by a lack of coordinated policies and clear financial goals for the many financial institutions involved. As is natural in a planned economy like Turkey's, the Government determines the magnitude of all investments, including power subsector investments, in its Five-Year Plans. The phasing of the investments and the flow of resources are again determined by the Government in the annual plans and programs. Apart from approving all investment plans, the Government has to mobilize the foreign exchange resources needed, and even local funds, entirely in the case of DSI and to a large extent in the case of TEK. Until recently, it regulated the resources generated in the subsector, by controlling wholesale and retail electricity tariffs. The amount of cash generation in the power subsector is the end product of a large number of pricing policies and other decisions of Government covering many institutions and operations. The extent to which the power subsector really generates internal funds for expansion and is effectively dependent on the Government budget cannot be precisely determined amidst the existing welter of price controls, subsidies and taxes.

3.15 The Government also determines to a large extent TEK's expenses, through its control of fuel prices (coal, lignite, fuel oil, etc.) used in power generation. Until recently, there were no clear policies to guide the Government in fixing the controlled prices of coal, lignite, fuel oil and gas oil. TKI, the SEE responsible for production of coal and lignite, has operated at a loss for several years. In fixing fuel prices at uneconomical levels in the past, the Government provided a hidden subsidy to TEK, and therefore to electricity consumers in the country. Consequently, TEK's cash generation overstated the internally generated resources. Under the agreements in Loan 1023-TU prices of fuel used in power generation were to be established at levels adequate to provide an 8% rate of return for TKI's investments in the Elbistan Project.

3.16 Another matter which blurs the real extent of cash generation in the subsector is the transfer of hydroelectric facilities completed by DSI to TEK as Government's equity (now about 50% of TEK's net assets) without transferring also the debts associated with these facilities. The Government remains responsible for the debt service associated with hydroelectric investments. This benefit is partly counterbalanced by TEK's liability to pay higher income taxes because TEK does not get the benefit of the associated interest charges on these debts for computing income taxes.

3.17 Rapid economic growth during 1960-77 resulted in a structural trans- formation of the economy and the combination of rapid industrialization and urbanization led to a rapid increase in demand for commercial energy and electricity. Electricity consumption grew at the rate of over 10% per annum, and the growth would have been even higher, if supply had not been constrained. - 32 -

Since 1975, Turkey has suffered serious shortagesof electricity,which have hampered production,despite importationof electricity from Bulgaria and more recently from USSR. While a part of the reason for this situationwas the absence of measures for energy conservation,and in particular the policy of keeping domestic prices low, the situation is serious because of slippages in the constructionof generating stations. Presently,though the slowdown in economic activity has mitigated the electricityshortages this has been more than offset by the inabilityto use a third of existing generating capacity which is based on oil, because of Turkey's inabilityto meet the soaring oil bill.

3.18 Actual investments in the power subsector compared with planned investmentsamounted to 63% and 92% in the first two 5-Year Plans, and 90% in the Third 5-Year Plan. However, in recent years, due to high inflationthe achievementat the monetary level has not been equalled on the physical level. Most of the problems that this sector faces are concernedwith investmentsto change the adverse mix of its generating capacity. The slippages in investments have been the result of not being able to secure the necessary local and foreign resources.

3.19 The broad lines of the Fourth Plan's strategywith regard to energy are sensible, and the measures taken to switch demand to domestic sources appear appropriate. The power subsector'sinvestments are being accorded higher priority in the allocationof resources than was the case in the past. While the Fourth Plan visualizedthat 18% of all investmentswould be in the power subsector, in the first two years, the actual investmentswere more than 20%. The Plan targets for electricityproduction call for a 14.4% increase in consumptionannually. The current economic crisis and the steep rise in internationaloil prices makes it unlikely that Turkey can sustain the high growth it witnessed in the past. The Government recognizesthat the Fourth Plan macro-economictargets, and consequentlythe electricityconsumption targets are unrealistic,and will need to be significantlymodified. It has in fact done so, through its annual programs for 1979 and 1980. Consequently, the projected investmentprogram for TEK and DSI for 1980-86, estimated at US$20 billion, including $2 billion for interest charged to construction, will be scaled down. However, as the power subsector affects the economy vitally, and has a profound impact on Turkey's balance of payments, the power subsectorwill call for sustained large investments,to augment capacity based on domestic hydro and lignite resources,not only to meet projected demand, but also to change the existing generating-mix,heavily dependent on imported oil. The accomplishmentof this objectivewill be crucially dependent on mobilizing needed resources to complete speedily on-going priority projects in the subsector.

3.20 Recognizingthe need for the SEEs to generate resources, and not to be a drain on the Governmentbudget, the Governmenthas made a drastic change in policy. It has removed many items from the list of "basic goods", whose prices and services could be increasedonly by Cabinet approval. The SEEs are now free to set their own prices depending on market forces, except for fertilizer,coal/lignite, cargo rates of railways and shipping lines, and electricityrates only for ferrochromeand aluminum production. Budgetary support for operating deficits and recourse to Central Bank credits - 33 - for investments have been eliminated. The investment projects of the SEEs would in future be reviewed by SPO for viability and conformity to plan objectives, and the SEEs are expected to generate their own resources for investments, even though some budgetary support will be required for investments in basic infrastructure like power.

Proposed Comprehensive Review of Power Subsector Financing

3.21 These measures are in the right direction and mark a significant turning point in Turkish economic policy. Together with improvements in their productivity, they should allow the SEEs to undertake effective resource generation. However, as many agencies are involved in the power sector, and their operations and financial policies interact and affect each other's financial performance, it is appropriate to review the investment program in the energy and power subsector, its financial needs, the relationship between various agencies and their pricing policies, so that an integrated view of subsector financing and policies could emerge. The Government appointed a committee of experts, satisfactory to the Bank, to review the electricity supply and demand forecasts, the investment programs of DSI and TEK, the investment requirements for distribution, fuel pricing policies (including economic costs of fuels) used in generating electricity, treatment of TEK's income tax liability, the debt service requirements for hydroelectric projects, and other related matters. The committee, after reviewing these issues, would recommend fuel pricing policies and electricity tariff levels sufficient to provide internal cash generation for financing a reasonable portion of future investments in the power subsector. During negotiations, agreement was reached on the committee's terms of reference and that an internationally known pricing expert would be retained, on terms and conditions satisfactory to the Bank, to assist the committee in reviewing the methodology and analysis of its work. The committee would complete its work by June 30, 1981; and the Government would furnish its recommendations to the Bank by December 31, 1981, and after taking into account Bank's comments, would furnish to the Bank by December 31, 1982 a timetable of actions, acceptable to the Bank, for implementation of the recommendations no later than December 31, 1983. The terms of reference for the committee's study are presented in Annex 3.4.

IV. PROJECT JUSTIFICATION

Power Market Growth

4.01 The Karakaya hydropower project will form part of the power development program which is designed to meet the continued growth of demand on the interconnected power system in Turkey. The trend growth rate of sales since 1965 has been 10% p.a., which is projected for appraisal purposes to increase to 11.2% until 1986 and decline to about 9% thereafter (para. 1.19). The methods used for the load growth forecast are described in Annex 4. To allow for the possibility that the load growth might be slower, an alternative forecast was also made assuming that all the figures in the main forecast are 10% lower. - 34 -

Alternative Development Strategies

4.02 Even if completed on schedule generatingcapacity existing or under constructionwill not suffice to meet the forecast requirementsbased on the main projection through 1983. The analysis of forecast balances of capacities and energy indicates that new generatingcapacity will have to be installed to meet the continued growth of demand after 1984. Turkey's long term development strategy is based on progressiveexploitation of the country's hydropower and lignite resources for meeting future power requirements. The studies by TEK and consultantsof the identifiedindigenous energy resources in Turkey have led to the conclusion that the Karakaya hydropower project is the most promising new power generation development. The alternativesof lignite-fired, oil-fired and nuclear-fuelledgenerating plants for base load, combined with gas turbines for peak loads, were also considered.

Comparison of Alternatives

4.03 Given that Karakaya was the most preferred new power generating development,the power system developmentcosts of meeting load demand with and without Karakaya were compared (see Annex 4). Three alternativesto Karakaya were considered,based respectivelyon substitutionof Karakaya by the equivalent lignite-fired,oil-fired and nuclear base-load power plants, supplementedby appropriategas-turbine peaking units. The economicvalues of the cost streams associatedwith Karakaya and each of the three development alternativeswere derived, the main variables being equipment,materials and labor costs, fuel costs and load growth. The developmentprogram with Karakaya was found to have the lowest present value of costs up to a discount rate of 53.5%. Since the opportunitycost of capital in Turkey is believed to be around 11%, this indicates that Karakaya represents the least-costmeans of meeting requirementson the main assumptionsused for the comparison. This conclusionwas tested for sensitivityto the assumed changes in the main variables and the obtained results indicated that the choice of the Karakaya project is not affected by these changes.

Return on Investment

4.04 The internal economic rate of return (IER) on the Project was estimated by comparing the Project benefits with the costs. The costs are the attributablefinancial costs of the Project adjusted for taxes, internal transfers, and sunk costs and converted into their economic values as shown in Annex 4. The benefits have been taken as the economic value of TEK's forecast revenues from incrementalpower sales attributableto the Project assuming tariff rates as of April 1980. The IER correspondingto this tariff rates is estimated to be at least 15.1%. However, the incrementalrevenues understate the Project benefits since electricityprices in Turkey have failed to keep pace with the rate of general inflation and it is considered that they could be increased significantlywithout reducing demand. The tariff rate increase to reach the TEK's 8% rate of return (FinancialCovenant under Loan 1194-TU) would result in an IER of 24.65%. Sensitivitytests showed that the rate would be about one and one-half percentage points lower if capital costs of the Project are valued 15% higher. - 35 -

V. AGREEMENTS REACHED AND RECOMMENDATION

5.01 During negotiations, the Government has agreed:

(a) (i) to complete, by December 31, 1981, a review of existing arrangements for the coordination of the development and investment plans in the power subsector, particularly hydroelectric planning and the development programs of TEK and TKI, (ii) to make recommendations on strengthening integrated investment planning and coordinating procedures to be used for its power subsector and on measures to be taken to ensure the timely execution of investment plans, and (iii) after the Bank's comments, to implement promptly the proposed recommendations and measures (para. 1.21);

(b) (i) to make arrangements satisfactory to the Bank for securing the financing needed to ensure completion by TEK of the 380-kV lines connecting the Project with the power system in Turkey not later than October 31, 1989, and (ii) to provide the Bank with a construction schedule and a financing plan acceptable to the Bank by June 30, 1981 (para. 2.03);

(c) to ensure that DSI continues to employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank for engineering services, procurement and supervision of construction of the Project (para. 2.05);

(d) to establish a board of experts, whose members and terms of reference shall be acceptable to the Bank, to advise DSI in the event of any unforeseen problems arising during construction of the Project (para 2.06);

(e) to ensure that the Project hydro works, including the dam, shall be inspected regularly in accordance with sound engineering practices, and to inform the Bank, not later than December 31, 1980, about the nature and frequency of, and monitoring procedures for, the inspection of hydro works and dams in its territory (para 2.07);

(f) to make arrangements, satisfactory to the Bank, for financing the remaining foreign exchange costs of the Project and to provide, in its annual budgets, local funds needed for the prompt execution of the Project and to establish a special account with an initial amount not less than LT 500 million, to be replenished monthly, with a balance equal to at least three months' local expenditure requirements of the Project as determined from time to time by the consultants and from which DSI may draw without restriction on funds to meet local expenditures. Furthermore, the Government has agreed to cover all Project cost overruns that may arise in carrying out the Project and to assume the foreign exchange risks (paras. 2.12 and 2.13); - 36 -

(g) to establish effective Project management, and to appoint a Project site manager by December 31, 1980 with such responsibilities, qualifications, experience and adequate authority for resolving site problems as shall be satisfactory to the Bank. Furthermore, the Government has agreed to inform the Bank of the qualifications and experience of the person(s) considered for any new appointment to the position of Project site manager (para. 2.15);

(h) to maintain in MOE the Central Project Coordinating Committee with such powers, functions, responsibilities, composition, and terms of reference as shall be satisfactory to the Bank (para. 2.16);

(i) to make appropriate arrangements to relocate residents on land required for the construction and operation of the Project's facilities in accordance with a comprehensive plan of resettlement action and its implementation program satisfactory to the Bank to be prepared and furnished to the Bank by February 28, 1981 (para. 2.22);

(j) to prepare and submit to the Bank by March 31, 1981 a reporting system satisfactory to the Bank for providing river flows, including criteria and methods of measurements to be used to determine periodic mean river flows. Furthermore, the Government has agreed to furnish regularly to the Bank Euphrates River flow data as measured at the Birecik gauging station (para. 2.30);

(k) that DSI would transfer to TEK one sixth of the cost of the Project for each successive 1,200 GWh generated by the Project in any year, until the assets are completely transferred (para. 3.03);

(1) on the principles governing cash generation and on the initial level of TEK's cash generation of not less than 20% of the total investments of TEK and DSI in power projects beginning in 1981 and increasing to about 35% in 1986, and thereafter (para. 3.10);

(m) that Government would furnish to the Bank TEK's forecast of its internal cash generation and the investments of TEK and DSI for the coming year and complete tariff actions by May 31 of each year for achieving agreed levels of internal cash generation in that year (para. 3.11); and

(n) on the terms of reference of the committee of experts to recommend fuel pricing policies and electricity tariff levels sufficient to provide internal cash generation for financing a reasonable portion of future investments in the power subsector, and that an internationally known pricing expert would be retained on terms and conditions satisfactory to the Bank, to assist the committee in reviewing the methodology of its work. The committee would furnish its recommendations to the Bank by December 31, 1981, and after taking into account the Bank's comments, would furnish to the Bank by December 31, 1982 a timetable of actions and implement the recommendations not later than December 31, 1983 (para. 3.21). - 37 -

5.02 With these agreements the Project is suitable for a Bank loan of US$120 million equivalent to the Government of Turkey for a term of 17 years with 4 years grace. Retroactive financing from February 1, 1980 is proposed in an aggregate amount not exceeding US$10 million equivalent. Special conditions of loan effectiveness are: (i) the establishment of a board of experts whose members and terms of reference are acceptable to the Bank (para. 5.01(d)); and (ii) the signing of financial arrangements with Italy and the Abu Dhabi Fund and the establishment of a special account to meet local expenditures (para. 5.01(f)). The loan is expected to become effective within three months of its signing.

April 1980 TURKEY

KARAKAYAHYDROPOWER PROJECT

National Power Sector Statistical Data (1965-1978)

CONSUMERCATEGORY 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

Sales (GWh)

Residential 560 618 722 820 937 1,010 1,127 1,286 1,390 1,602 1,882 2,353 2,631 2,791 Commercial 264 281 302 324 364 39( 4e7 5l,7 621 713 86o 1,015 1,129 1,198 Industrial 3,080 3,470 3,834 4,273 4,860 5,327 6,070 7,005 7,721 8,200 9,781 11,693 13,075 13,885 -overnment 163 174 206 230 259 302 342 393 491 525 566 616 655 685 Street Lighting 116 131 147 163 188 193 200 208 217 222 251 296 325 323 Transport 54 55 58 60 78 80 83 88 90 97 101 112 117 133 Total Sales 4,237 4,729 339 5,2870 6,6386 730 9,527 10,530 11,359 13,441 16,085 17,932 19,015

Losses (GWh) 716 822 948 1,066 1,152 1,315 1,492 1,7'5 1,895 2,118 2,227 2,536 3,118 3,327 (96) (338) (492) (621 Net Interchange (GWh)

Generation 1'GWh) 4,953 5,551 6,217 6,936 7,838 8,623 9,781 11,242 12,425 13,477 15,572 18,283 20,558 21,721

Hydro 2,179 2,338 2,382 3,175 3,445 3,033 2,610 3,204 2,603 3,356 5,887 8,375 8,584 9,360 Thermal 2,774 3,213 3,835 3,761 4,393 5,590 7,171 8,038 9,822 10,121 9,685 9,908 u,974 12,361

Installed Capacity (MW) 1,491 1,645 1,959 1,967 1,967 2,235 2,578 2,711 3,192 3,732 4,175 4,364 4,725 4,867

Hydro 50, (g17 702 723 723 725 872 893 985 1,443 1,780 1,873 1,871 1,879 Thermal 986 1,028 1,257 1,244 1,244 1,510 1,706 1,818 2,207 2,289 2,395 2,491 2,854 2,988

1 ' )1 Tmport.

December 1979 - 39 - ANNEX1.2 Page 1 of 2

TURKEY

KARAKAYAHYDROPOWER PROJECT

Interconnected Power System Statistical Data (1971-1978)

19 71 1972 1973 1974 1975 1976 1977 1978

A. TEE

Sales (0GWh) IETT 1,914 2,147 2,328 2,407 2,919 3,065 3,225 3,077 E°O 569 692 724 702 745 924 i,oo6 1,029 ESHCT 391 499 541 562 639 693 701 687 CEAS - 20 58 105 126 229 203 239 KEPE7: - 29 80 62 98 ;27 169 45 Other Municipalities 1,197 1,545 1,705 2,114 2,354 3,002 3,112 3,889 Induc'ries 2,881 3,457 3,781 4,L19 5,OO 6,309 7,389 7,361 Vi' lages 60 75 127 162 272 286 408 570 Export - - - - - 3 - - Total Sales 7,012 T1j,W 93 0,233 1283 14,b 14,213 16,597

Losses (!GWh) Network Tossas 434 483 600 588 606 747 841 923 Station Supply 449 507 541 639 696 796 985 1,o6o Total Losses 83 990 1,141 1,227 1,302 1,543 1,826 193

,eneratiori (GWh) Total Supply 7,895 9,454 l0,485 11,466 1R.485 16,183 18,039 18,880

Purohases from: CRAS 22' 323 223 276 542 390 26o _J4 KEPEZ 3 6 1 - - - - 39 Oth-rs 16 1 3 1 2 1 57 48 Import - - - - i6 338 49C 62i Total Purchases 240080 330 22977 6 729 912

Own ene'ntivl 7.655 ,1S24 10,258 11,189 12,845 15,454 17,2,0 17,)68 of whioh: Hlydro 1,-69 2,291 2,035 2,6o4 4,644 7,200 7,428 8,o0t The-ma 5,890 6,833 8,223 8,585 8,201 8,254 9,802 9,9C' I Hydro S3 25 20 23 36 47 43 41

Insta' led Capacit, (¶Wf) Hvdro 670 690 782 1,190 1,521 1,6l4 1,614 1,622 Thermal 1 094 1,188 1,568 : 644 1,706 1,771 2,071 2.179 Total 11 1,78 2,350 2,834 3,227 3,385 3,685 3,801 , Hydro 38 37 33 42 47 48 44 41

B. CEAG

Sal es ( V015 TFK 221 323 233 276 542 390 260 204 Municipalities and 'illages 226 264 309 336 399 453 531 577 Ir.istry 270 357 462 524 6,,i 790 90] 998 Ct-ers 50 67 64 46 41 42 5, 54 Total Saes 77 1,01 1 1,068 1,182 1,763 _,675 ,833 l.osses ' Wh) Network 'osses 24 28 36 46 4o 52 67 78 Station -apply 25 30 46 44 41 40 46 49 Total Losses 4 9 58 c2 90 92 71<13_ 27

;eneratien llSs) Total Supply 816 1,Y9 1,10 1,272 1,724 1,767 1,862 1, Co

Purchases - 20 58 105 144 265 245 2 6

Own leneration 816 1,049 1,082 1,167 l,580 1,502 1,617 1,7 4 of .'Wish: hydro 392 631 378 544 1,034 954 965 1,0 8 Then al 424 418 704 623 546 548 652 6 '6 % Hyd"o 48 60 35 47 65 64 6o

Installed Copacit'- (MWl) Hydro 130 13. 136 192 192 192 192 1 2- Thermal 106 1o6 io6 106 010 1o6 1o6 1o6 Total 23' 242 242 ""2"998 29829 T298F "97 * Pydro 55 56 5f 64 (4 64 -4 64

;/ From TEK and Tzi'ender,n Steel Plant TISD). 2' Include; TEK't luregir Fyiro Plant whicl' is operated by CTAS.

December 1979 _ 40 - .AmI2 1.2 Page 2 of 2

TEYM

KARAXAYAHMDROPWER PROJECT

Interconnected Power System Statistical Data (1971-1978)

1971 1972 1973 1974 1975 1976 1977 1978

C. XEPEZ

Sales (GWh) 161 197 204 197 233 247 249 191 lotal Losses (h) 7 7 7 10 11 13 15 10

,eneration (0Wh) Total Supply 168 204 211 207 244 260 264 201

Purchases - 29 80 62 98 127 169 45

Own ceneration 168 175 131 145 146 133 95 156

Installed Capacity (MW) (Al' Hydro) 26 26 26 26 26 26 26 26

D. MUNICIPALITIES

^eneration 'GWh) Hydro 242 66 32 34 31 61 59 74 Thermal 176 82 98 95 57 92 93 89 Total 418 *47 130 129 88 153 152 **73

Installed Capacity (MW) Hydro 34 29 29 29 29 29 27 27 Therma) 116 115 118 118 118 118 118 118 Total 150 144 1-7 17 117 147 145 145

E. SELF-PRODUCERS

^-eneration (GWh) .fydro 43 41 27 29 32 27 37 31 Thermal 681 705 797 818 881 1,014 1,427 1,68? Total 724 746 - 83, o47 9 T ,01 4 1,720

-n.stalled Capacity (MW) 'Hydro 12 12 1 12 12 12 12 12 Thermal 390 4o' '415 415 465 496 559 585 Total 402 421 4 27 4 27 077 571 597

SUMARY FOR TURKEY

.reneration (GWh) Hydro 2,610 3,204 2,603 3,356 5,887 8,375 8,584 9,360 Thermal 7,171 8,038 9,822 10,121 9,685 9,908 11 974 12,361 Total 9,781 11 242 12,425 13,477 15,572 18,23 20,558 21,721 %Hydro 27 29 21 25 38 46 42 43

Installed Capacity MW) Hydro 872 893 985 1,449 1,780 1,873 1,871 1,879 Thermal 1,706 1,818 2,207 2,283 2,395 2,491 2,854 2,988 Total 2,711 3,192 3,732 4,1754, 364,725 4,867 % Hydro 34 33 31 39 43 43 4z 39

mlart Factors Hydro 34 41 30 26 38 51 52 57 Thermal 48 50 51 51 46 45 48 47 Overall 43 47 44 41 43 48 50 51

Maximum Demand Interconnected System) 1,684 1,950 2,169 2,366 2,729 3,135 3,290 3,641

Installed Capacity Margin MWl 894 761 1,023 1,366 1,446 1,229 1,435 1,226 3 35 28 32 37 35 28 30 25

Specific Consumption 'kWh/capita) 299 257 276 292 331 389 426 441

December 1979 KARKAY%A OPy< lE3WpI2 E1C

Thcrmal Rower P a,tt Ch-racteris'i-s and Operationa-' C-ts

Ira olled Energy Capacity Fuel Heat Hate Plant's Heat Rate Operational Conta. (Hen/kim) Csnmiaaioning lopanity It1I .iWh lear) Type of Fuel (kcal/kg) l,ral/kWh) Fuel Other Total Mo_th/Year

A. LI I T7_l MIIIy

TEK |3 iozii 40 30o1 13') Lignite 3,686 4,28i 94.80 57.60 152.40 l956 Si/ht-ar 60 350 Coal 6,639 3,998 073.05 74.6i 347.66 I956 Cytrlogei 129) 300 ('o1a ,819. 3,39( '?9.65 4.20 133.85 1956 Soa-A 44 300 Lignite 3,345 2,874 45.30 28.94 74.24 1957 t T-nc lei-A i29 83o Lignite 3,658 2,607 52.02 Ž5.71 77.73 1956-65 Amnar i 63o 4,200 Fmlel Oil G,(6.5 2,203 169.40 22.13 191.53 1967-71 Hopa 50 35( Fuel Oil 9.452 2,-07 '74.32 39.48 213.80 1973 torso-Ts ) IJ5 135 ,as )11 0, 300 4,215 405.06 22.94 428.o0 19'72-75 Seolisehlr iT) 3'0 360 no 011 J,3D0 3,851 424.36 40.09 466.45 1972-75 Seyt-omer -2 300 1,800 l,gnite 1,380 2,453 40,52 61.91 102.43 1974 Alia 9-T) 120 36O ian Oil 10,30D0 3,430 330.80 14.90 347.70 1974 Hazar .T) 30 90 Gas Oil 10, 300 3,59T) 420.00 59.06 479.06 1974 Other T' 6 IC ,as Oil 10,30 3,959 _- - - Tunobilik B -' 3"C 1,8o0 I ignt e -,'70 2,349 60.53 25.71 86.24 1977-78 Seyitomer 3 50 900 t.igrite ',8o0 2,453 40o52 61.91 102.43 1978 Tote' TRK 2,153(2,143) 12,421

CEA0 Iersot 106 700 FPo Oil '0,000 2,529 170.30 21.80 192.10 1966

'.l1NT3'TPA-.ITlR:S 10 Con'-'li

SRLF-PHCD;'CERS g38 ,791 FIr. Oil

T8TA1 T 'KE 3,01q 3.00 15,02'

TP.I,n)rR C0SoNTRTJCTTONANT) FUTURe'PLANT32

Soon 21_- 331 305 Aignite 2,40o 2,359 68.88 2'.52 98.40 12/8o-4/81 Eibistan A-1 341 *,950 Lignl e t,O50 2,408 69.72 29.88 99.6o 11/81 Yatagan A 1-2 420 ,020 Lignite 2,100 2,350 68.88 29.52 98.40 6-9/81 Ieother-r 90go - - - _- 12/81 Aliaga '' >`C 6o 0 io Uas Oil 10,000 - - - - 9/81 Flhbintn A 2-3 So0 3,30 S Lignite 1,050 2,4o8 69.72 29.88 99.60 5-11/81 Cayirhan 1-2 300 1,800 lignite 2,800 2,350 85.68 36.72 12?.40 9-12/82 Orhanei 1 200 1,200 Lignite 2,550 2,350 68.88 29.52 98.40 7/82 F'bistan A-4 340 1,950 lignite 1,050 2,408 69.72 29.88 99.60 5/83 Kangal 1-2 300 _,800 l.ignite 1,300 2,350 68.88 29.52 98.40 6-11/83 Y. Catalagni n go00 loa 3,300 2,390 68.83 29.52 98.40 6/83 Yatagan A-3 '10 3,060 Lignite 2,100 2,350 68.88 29.52 98.40 1/83 Somn B 3-4 330 1,980 Lignite 2,400 2,359 68.88 29.52 98.40 7-10/83 Yatagan 2 1-2 420 3,531 Lign ite 2,100 2,350 68.88 ?9.52 98.40 6-12/83 Seyitomer B 5°0 g0! Lignite 1,800 2,453 52.92 22.68 75.60 12/83 Orhaneli 2 200 1,200 .ignite 2,550 2,350 68.88 29.52 98.40 12/83 Can 1-3 6oo 3,OO lTgnitc 2,700 2,350 68.88 29.52 98.40 1-7-12/84 Saray 1 150 900 Lignite 2,500 2,400 68.88 29.52 98.40 i/85 E'bistan B 1 340 1,950 Lignite 1,050 2,408 69.72 29.88 99.6o 7/86 Subtatan 5,53' 32,580

Self-Produners 149 84o Fuel Oal 10,OO0 - - - - 19-iC

TITA T- 072 33,423

%/ As ofrDecember 1979. 2/ Available. 3/ 1956 or before. Reduced from 86 to 60 M11'. 53 MWadded in 1979. Source of Information: TEK and Mtinistry of Energy and Natural Resources.

GT . Gas (Combustion) Turbine ITC = Combined Oycle

April 1980 -42 - ANEx 1. 4

KARKAYA HYDROPOWE}PROJICT

Hydropower Plant Characteristics and Operational Costa

Installed Annaul Production (G Type of Operaticnal Commissioning Capacity (MW) Average Firm Plant Cost (Krs/kWh) Month/Year

A. EXISTING PLANTS

TEK Almus 27 80 40 S 55.32 1966 Demirkopru 69 190 100 S 23.77 1960 flokcekaya 278 650 430 S 28.82 1973-76 Hirfanli 96 300 180 S 43.31 1960 Keban 1-4 630 4,600 3,800 S 21.99 1971 Kemer 48 135 65 s 34.32 1958 Kesikkopru 76 180 110 S 25.49 1967 Sariyar 160 500 330 5 37.80 1956-66 Hazar 1-2 30 188 130 S 130.88 1967 Kovada 1-2 60 261 190 S 30.00 1971 Tortum 25 85 68 5 35.75 1972 Cildir 15 30 30 S 181.93 1975 Dogankent 33 152 115 R 38.97 1971-78 Caq-Caq 14 42 42 R 42.06 1968 Ooksu 11 65 55 R 42.14 1963 Ikizdere 15 100 80 R 26.51 1969 Small Plants 35 64 53 - Total TEK 1,622 7,622 5,616

CEAS Seyhan 60 350 343 5 - 1964 Kadincik 1-2 126 622 390 R - 1971 Yuregir 6 21 - S - Total CEAS 192 993 733

KEPEZ Kepez 26 160 130 S MUNICIPALITIES Iaterconnected 27 35 17 SELF-PRODUCERS Interconnected 12 30 20

TOTALTURIEY 1,879 8,840 6,718

B. UNDERCONSTRUCTION AND FUTUREPLANTS Hasan Ugurlu 1-2 250 900 820 S | 9-12/1979 Dogankant B 40 157 - R 12/1980 Suat USurlu 46 273 206 S 1-3/1981 Keban 5 2' 157.5 621.5 305 5 10/1981 Keban 6 157.5 621.5 306 5 1/1982 Yokluce 1-2 90 584 576 5 1-4/1982 Keban 7-8 315 435 - S 4-7/1982 Adiguzel 1-2 60 280 150 S 1-4/1982 Aslantas 1-3 138 569 360 S 1-3-7/1982 Oymapinar 1-4 540 1,620 412 5 1-10/1982 Hasan Ugurlu 3-4 250 300 - 5 1/1983 Karacaoren 30 142 84 S 1/1983 Tohma 12 67 50 S 1/1985 Kapulukaya 51 190 100 S 1/1985 Catalan 150 484 300 S 1/1985 Karakaya 1-6 1,800 7,353 6,060 S 1-4-9/1985&2-7-12/1986 Altinkaya 700 1,632 1,236 S 1-10/1986 Ataturk 1-4 1,200 8,010 6,800 S 1-10/1986 Camligoze 16 88 60 S 1/1986 Derbert 56 257 200 S 1/1986 Gezende 150 28 130 S 11/1986 TOTAL 6,209 25,3 1,1-55

As of December 1979. 2/ Assmed operation costs: 0.3% of civil works and 1.5% of equipment. Keban units 5-8 would be capable of delivering up to 180 MW. ; Exluding gain due to Karakaya (409 Gwh) in Keban generation

S - Storage hydropower plant. R = Rune-of-River hydropower plant.

April 1980 - 43 - ANNEX 1.5

TURKEY

KARAKAYAHYDROPOWER PROJECT

Transmission Network Data

Additionsby: Existing 1979-1984 1985-1986

A. TRANSMISSIONLINES (km)

Voltage (kV)

30 20,277 29,126 10,066

154 (and 60) 14,103 4,768 868

380 2,855 4,551 1,118 Total 37,235 38,445 12,052

B. SUBSTATION CAPACITIES (MVA)

Voltage Ratio (kV/kV)

154/30 6,453 7,283 5,400

380/154 1,890 6,380 3,300 (220/154) Total 8,343 13,663 8,700

December 1979 Isge 1 f 3

TURKEY

KARAKAYAHYDROPOWER FROJECT

Forecast Balances of Capacities and EnrgY

1979 198C 1981 1982 1983 1984 1985 1986

Sales (Wl) TEK 18,282 19,500 23,o86 30,000 36,ooo 4o,966 46,4172 52,518 CFA. and Others 3,523 3,583 4,339 4,339 4,339 4,339 4,339 4,339 Total Sales 21,80~/ 23,D83 27,4257 1 9 U4-0,339 45,305 50,511 56,857 tosses '1GWh) Network looses 1,000 1,083 1,313 1,677 2,075 2,385 2,674 2,993 Station Supply 1,015 1,108 4,400 1,783 2,196 2,510 2 815 3,150 Tota' Losses 2,015 2 ,191 2,713 3 4,2718 7955 T5t97 6,143

Import (sWh) 1,05 '1,600) '2,000) (2,000)

Required Beneration (12h5)- 22,765 23,674 28,138 35,799 44,61o 50,200 56,300 63,000

Macio De-and (MW) 4,o60 5,280 5,96o 6,960 7,960 8,950 1O,040 11,240

Plant Capacities (MW) Hydro aT7xisting Plants TEK 1,622 -,622 1,622 ' ,622 1,622 i_622 1,622 1,622 others 257 257 257 257 257 257 257 257 Subtotal I,879 1,879 1,879 1,879 1,879 l,879 1, 8799

s(5 Fut-ure Plonto HSsan lJgurlu 1-2 250 250 250 250 250 250 250 250 Dog-nkent 3 - 40 4o 40 40 40 Lo 40 S-at Jgarl - _ 46 46 46 46 48 46 Keban 5 - - 157.5 157.5 157.5 157.5 157.5 157.5 Keban 6 - - - 157.5 157.5 157.5 157.5 157.5 Kokluce 1-2 - - - 90 90 90 90 90 Keban 7-8 - - - 315 315 315 315 315 Adiguzel 1-2 - - - 60 60 60 6o 60 Aslantas 1-3 - - - 138 138 138 138 138 Oymapinar 1-4 _ _ - 54o 540 540 540 54o Hasan Ugurlu 3-4 - - - - 250 250 250 250 Karacsoren - _ _ - 30 30 30 30 Tohma ------12 12 KapuluXaya - - 51 51 Catalan - - - - 150 150 Karakaya 1-3 ------900 90o Karakaya 4-6 ------_ 9oo Altinkaya ------700 Ataturk 1-4 ------1,200 Ca=ligoze ------16 Debrent ------56 Gezende ------150 Subtotal 250 290 493.5 179 2,074 2,074 3,187 6,0 Total Bydro 2,129 2,169 2,372.5 3,673 3,953 3,953 5,o66 8,o88

Thermal Exhisting Plants TEK 2,143 2,143 2,143 2,143 2,143 2,143 2,143 2,143 Others 862 862 862 862 862 862 862 862 Subtotal 3,005 3,005 3,005 3,005 3,005 3,005 3,025 3,005

b) Future Plants Sca B 1-2 - 165 330 330 330 330 330 330 Elbistan A-1 - 34- 340 340 340 340 340 Yatagan A 1-2 - - 420 420 420 420 420 420 Geothermal - - 15 15 15 15 15 15 Aliaga, GTC - - 60 6o 6o 63 60 6o Elbistan A 2-3 - - - 680 680 683 680 680 Cayirhan 1-2 - - - 300 300 300 300 300 Orhaneli 1 - - - 200 200 200 200 200 Elbistan A-4 _- - 340 340 340 340 Kangal 1-2 _ _ _ - 300 300 300 300 Y. Catalagzi B - - - - 150 150 450 150 Yatagen A-3 - - - - 210 210 210 210 Soma B 3-4 - - - - 330 330 330 330 Yatagan B 1_2 - - - - 420 420 420 420 Seyitoser B _- - 150 150 150 150 Orhane'i 2 - - - - 200 200 200 200 Can l-2 - - - - - 600 60o 600 Saray 1 ------150 150 Elbistan S-1 ------340 Self-Producers - - 140 140 140 14 14o 140 Subtotal 1435_- ,4,55 W5,15 5 W7 Retired Thermal _ _ _ - (189)3/ (792) (792) (792) Total Thermal 3,005 3,170 4,310 5,490 7,401 7,398 7,548 7,888

Total Installed Capacity (MW) 5,134 5,339 6,682 9,163 11,354 11,351 L2,614 15,976

Installed Capacity Margin PB l,074 50 772 2,203 3,394 2,401 2,574 4,736 21 1 11 24 30 21 20 30

1/ Sales and losses reflect actual values for the first nine month. of 1979. 7' Required energy for the years 1979, 1980 and 1981 are 25,320 GWh, 27,120 GWh and 33,400 GWh respectively (TEK's estimates). 3/ Petired Plants: Catalag2i 129 Kg 1j/1983 Tlntbilclr A 64 MW l/1984 Silahtar 6o MW 1/2983 {'s Tirbineo 32 MW 1/1984 1Tmir 60 lw 1/L984 Mmnloipalities 1l8 MW 1/2984 Self-lyoducers 329 121 1/1984 Dc--bter 1979 2 000010 or-0000000Y 000000-00000000000000.-..-o coo' 0 cc..o.z 00.'. oocom..-oamo'oo.o..00 0- 000

'100 001.100 001'0O00O00Oo 00CoOo 0000000,000- - 00-00-0000 .,0 -- 0.000- -. 0-000..,,'. 0044000000000-00>0'.! 00 '000 0-0' 0' 000.00 00' 0-014 00 '$0 .. 0000(00 04000000000 tOO,.0 .40000'.0 -> 000 000'0- 00 .0.-.0-0 .-. 0.0 fL 0.00&00-50000000

000010 00-000.00>0000000 0004'0.00-0' ('00 00flbC 000.Z.or 000-' 00040- 0000000000 0,0 004 0000-0000000000000M000.000000. OJO 0-0000.'0- 0000.. 000.40 0000 000 404> 0'.- 000-000040000- H 0000 0000000000000000-00000000010>0- K .'.0, 'K> 00 -< K

0000010 000-000000400.0000000 0'0- 00014 0 .0.00.0000 0000. 00 (.0000 CC 000 000 00000000040000 000' 00.114 000.0-00000000000000-JO 00000000 00014 0000..0- 000'-c00 00000000000 .00004 00.0' 0'00 000000000,00040000>, 0 0--. 0017 00 0-o00L0000J00000- fl 000017 0000000 00 K < K

0 00000 00-00,0.-.000000000 000-0 I 0t 0000 00000'- '-0-40- 0 >0 .of . 21?92Z20#t00>00.0Q 0000 0.4 0000. 000001 0000 00 -'00 oO 0000000000400- 000 00 0004 -- 0000 .. cfr r{L...K'-.o.i0.ot'.o>.,o00 000 000 I" 0 .0 00 000 0-. 00000-000000000-000000000 000000 00 -.00 040000 000 0000000000-7 .00.0000400. 0 0 0o.000'00 00 00 I.-0.000 ' L 00 000000' ..0- 00 I

0 00000000 .00-0.0. 100.- - - 0 0-0 00000 10-00 0000 00000000000.00000, 00000000000 00 00 000. 000 00000 00-00000-000000000 22 000V0 '000000 0000 0000000 000- 00-00-0-0-0000 00000000 00 C00 0 000 00 0000 00.000 010000000, 0000 j7.1 90017 0-000.00 -'000 0 0000000 L. 2 I 10 0 10 00

00000 00004 22. 22 2.72 V 00- 0 00 000000000000000000- 000000000000000000000000 00000000000000

000 00"00" K 0000017.04 0-00 2 4 000010 0 2>2. .-. oo.--.-o ooooooooooooooooo 00000000000000000 0 0000 0 00000000000000000 00 00000- 00000- 0 01 000 00t 00 L 0000001700 K 00-00 IA fl I 0' 0001

10 000

001 001 o 00000 &SI2 100 0 2 00 0 000 00 0000 14 00000000000000000000 .000000000000 000000000000 00000000 0000000000000 010 2.1 t [00 000400- - 1000 000 0000 100 OOf-0) 0- '0 j& 6 0 0-o-4oo 00 00 410

(.00

00 00 -0 000 . 00 00 00 00 00 0000000 00 -0-0000 00 ('0000 00 010 .000 .00000 0-000000 0022 .0 00 00000- 0 0000 - '"' 00 0 0000 000 00 0 00000 0- 00.000 2 > ooJ-+' , .0100000000 2 1 00 000000 00000., 00 1. 0000 00,000 0- 00-- 000. 0000000 00000-0.0000 1000o.0000 000.00 0000000000000100000000-0000000 0-001000. .0000.004.10 100. 0 00000000000-00100004.00-004. 00001000000 00 000- 00 0' 00-01 00 0000.00 10001010400 0 0 0001 0 000000000 00000000000.00000000000 0 0000000100000 1000-.4.0 00- 000 00 010101000001000000000 00o-.0000000 ''000 ooo0000000o00 0.0 00 101000100010101000 00001000> 10 00 1000000001o.010000000000 0000000-0000 0-00 '.'00 00.'.000o1000000000 00- 000400 0010001040000.0.000010010,000000000001 0100104. 100000-0000000.400100000400.000-000 0 0 00004 0... 000001000000000 .- 0000.00000 010.00 00000000000000•00 00000-0009000000 0- 0000000000 .00000o.000 0 >00000-00-00 00000 00001000000000012>001000000000000 [00 00000000002.00100000000 01- 000 -0000 00.00000-000000 0000 0- 01'(.2' 0 ANC 1. 6 - 46 ~~~~~~~~~~~~~~Page3 of 3

TURKEY

KARAKAYAHYDROPOWER PROJECT

Forecast Balances of Capacities and Energy

1979 1980 1981 1982 1983 1984 1985 1986

.verage Hydro Year ('Wh) Hydro 8,840 9,495 10,192 13,179 15,055 15,343 18,709 30,931 Thermal 15,022 15,072 17,024 21,924 29,083 36,319 4, 436 43,061 Total 23,862 24,567 27,216 35,103 441937 51,662 o,15 73,992

'."agin '4Wh 1,097 893 (922) (696) (472) 1,462 3,845 10,992 5 4 (3) (2) (1) 3 6 15

--y Year ''i'm) Hydro 6,718 7,2(5 7,752 9,201 9,890 9,974 13,076 21,947 Thermal 15 022 15,072 17 024 21,924 29,083 36,319 L1,436 43 061 Total 21,740 22,337 52776 31,125 3,973 46,293 54,512 6

'argin C.Wh !1,025) (1,337) (3,362) (4,674) '5,637) (3,907) 1,788) 2,008 (5) (6) (14) '15) p14) (8) (3) 3

-AR's Estimates - TEK's sales 18,282 19,500 22,164 26,400 30,800 34,500 38,300 42,500

-, r1ns, Average Year '(4h 1,097 893 ( 0) 2,904 4,728 7,928 12,017 21,010 <0 5 4 (0) 8 11 15 20 28

2ry Year 4Wh '1,025) '1,337) (2,440) (1,074) ( 437) 2,559 6,384 12,026 5, '5) '6) (10) (3) (1) 6 12 18

Staff Appraisal Report (SAR) estimates in view of the current Turkish economy situation and its near-term prospects.

-,nember 1979 TURKEY

KARAKAYAHYDROPOWER PROJECT

Forecast of TEK's Electricity Sales

1979 1980 1981 1982 1983 1984 1985 1986

MUNICIPALITIES 9,092 9,326 11,782 13,400 14,900 16,100 17,500 18,900

IETT 4,000 4,100 4,700 5,350 5,900 6,400 6,900 7,400 EGO 1,100 1,150 1,250 1,450 1,600 1,750 1,900 2,100 ESHOT 90o 950 1,100 1,200 1,350 1,450 1,550 1,650 Others 3,092 3,126 4,732 5,400 6,050 6,500 7,150 7,750

VILLAGES 600 724 1,043 1,320 1,660 2,030 2,450 2,940

I/ 2 INDUSTRY - 7,500 8,150 8,800 13,483-/ 16,900 19,696 22,802 26,348

Small 850 900 1,000 1,200 1,500 1,700 i,850 2,040 Large 6,650 7,250 7,800 12,283 15,400 17,996 20,952 24,308

IRRIGATION 190 200 261 297 340 390 440 480

CONCESSIONARYPOWER COMPANIES 9oo 1,100 1,200 1,500 2,200 2,750 3,280 3,850

TOTAL 18,282 19,500 23,086 30,000 36,ooo 40,966 46,472 52,518

/ The appraisalmission estimatedlower increasesin municipaland industrialconsumption after 1980 (see Annex 1.6, page 3). | Expectedindustrial production recovery.

SOURCE: TEK's PlanningDepartment

December1979 '!'URKI

KARAKAYA HYDROPOWERPROJECT

Existing and Projected Major Industrial Loads

1980 1981 1982 1983 1984 1985 1986

A, EXISTING MAJOR INDUSTRIAL LOADS (in GWh)

Nuh Cimento (Cement Plant),Istanbul 50 50 50 50 50 50 50 Metallurli (Metal Industry), Izmir 125 125 125 125 125 125 125 MKE t Heavy Machine Plant), Krikkale 150 250 835 835 835 835 835 Alsan 'Aluminum), Seyclisehir 500 500 500 1,000 1,200 1,200 1,200 TKI 'Coal), Zonguldak 50 50 50 50 50 50 50 Erdemir !Iron Works), Zonguldak 325 325 325 325 325 325 325 T.D.C. (Iron and Steel), Zonguldak 270 270 560 560 560 560 560 '.L.I. 'Lignite), Tuncbilek 80 80 80 80 80 80 80 Azotsan 'Fertilizer), Kutahya 160 16o 565 565 565 565 565 T. Cimento San (Cement Plant), Ankara 60 115 115 115 115 115 115 Dogu Insaat 'Tunnel Construction), Urfa 50 50 50 50 50 50 50 Aliaga (Petrochemical), Izmir 200 200 200 200 200 200 200 Cinkur 'Zinc and Lead), Kayseri 183 183 183 183 183 183 183 Ferro-Crom (Ferro-Chrome), Elazig 150 150 150 150 150 150 150 Cimento (Cement), Canakkale 40 4o 40 40 40 40 40 Others 850 850 850 850 850 850 850s Total 3,243 34,367 5,176 57B 5,378 5,378

B. PROJECTED MAJOR INDUSTRIAL LOADS (in CWh)

Pendik 'Ship Yard), Istanbul 361 397 427 436 441 445 450 D. Palet (Construction Equip.), Elazig 80 160 160 160 160 160 160 D.A. Celik (Steel), Ankara 280 300 380 45o 450 450 450 Filyos (Ferro-Silicone), Zanguldak 90 90 90 90 90 go 90 Tumosan (Motor industry) 70 70 70 70 70 70 70 Ferrokrom((Ferro-Chrome), Elazig 400 400 400 600 6oo 600 600 Igsas (Fertilizer), Istanbul 55 55 55 55 55 55 55 Peteter (Chemical), Canakkale 110 110 110 110 110 110 110 Temsan (Electromechanic), Aak 30 120 120 120 120 120 120 Cimento (Cement), Canakkale 56 56 56 56 56 56 56 Petlas (Plastic) 70 70 70 70 70 70 70 Cukuroua Lesikend AS (Steel), Aliaga - 210 240 300 420 48o 48o Bilecik Organize San - - 200 200 200 200 200 Aksaz 'Military,NATO), Mugla - - 20 40 50 50 50 Taksan 'Takimtergablars), Kayseri - - 4o 60 go 90 go Temsan 'Electromechanic), Diyarbakii - - 30 120 120 120 120 Aliaca 'Petrochemical), Izmir 240 610 770 770 770 770 770 Adiyaman Cimento 'Cement) 20 20 40 50 80 80 80 Sandeli Dogmefab 'Iron Plant) - - 6o 60 120 180 200 Keskin Kalip Fab _ _ 20 40 60 60 100 Corun Agirmak FB (Heavy Machinery) - - l' 30 60 60 120 Kayseri Kesici Takim FB - - 10 20 50 50 60 qaziantep Macina (Machines) - - 10 20 40 40 60 Kulu is Makinalari 'Machine Construction) - - 30 60 120 120 150 Total 1,662 3,43268 3,987 0 4,526 4,711

De- m,.-a&-1972 TURKEY

KARAKAYAHYDROPOWER PROJECT

Rural Electrification Program, Performanceand Plans

Actual Number of Villages Estimated Cost Funds Provided Expenditure Number of Villages Approximate Cost Year Programmed LT million LT million LT milliDn Connected oer village LT lOOOs

1964 147 16.60 14.039 8.16 2 _ 1965 165 20.30 22.005 14.70 105 138.8 1966 250 23.10 30.266 23.06 123 187.4 1967 261 32.40 30,266 28.27 161 175.7 1968 1,112 202.32 200.406 72.29 315 229.4 1969 1,442 302.20 126.000 143.24 374 382.9 1970 227 45.4o 115.406 222.17 667 330.0 1971 319 60.70 150.778 127.00 510 249.o 1972 1,646 398.87 237.393 229.10 965 237.4 1973 1,747 466.06 270.304 332.98 880 378.3 1974 1,507 500.05 421.488 403.70 1,237 326.3 1975 1,515 935.00 895.957 843.13 1,515 556.5 1976 2,734 1.568.00 1.484.416 1.591.30 1,632 975.0 1977 2,669 2.289.33 2.152.662 1.575.06 1,980 795.4 1978 3,664 3,169.00 2.000.000 2.062.00 1,747 1,177.0

SOURCES OF FUNDS (in 1979 LT millions)

Village Cost Year Numberof Villages EstimatedCost StateBudget Contribution 1 Krs. SalesTax Other Sources per Village 1979 3,049 4.ooo 4.ooo - 150.00 - 1.311 1980 2,500 5.000 4.830 - 170.00 - 2.000 1981 2,500 6.225 5.975 - 250.00 - 2.500 1982 2,500 6.225 5.925 - 300.00 _ 2.500 1983 2,500 7.500 7.150 - 350.00 - 3.000 1984 2,500 8.750 8.350 - 400.00 - 3.500 1985 1,151 4.028 3.528 - 500.00 - 3.500

December1979 K-NOBSm10 -22-~~~~~~~~~~~~~~~~~~~~ Pge l oP TURBIS

KMAKAYAHYDROPOWER PROJECT

Developsent Progr-T Costs (LT Million)

Total 1979 1980 1981 1982 1983 1984 1985 1986 1979-1986

DSI - HydropooOO ProjeCts

Hason UOrol1 1-0 LC 700 FC 80 - - - - 7C 00 -m - 5-F j8c 79 1,0 - - -

Dganket B LC 15 1o0 - - 25 FC 95 95 -g - - _ 190 T 110 l15 - - _ _- o25 Soot Ugurl LC 300 175 100 - - - FC 88 588 189 -- 5

T -7-3 2139~~~~~~~~~~~~- - . rba- 5-8 LC 20 20 - 40 FC 18_0 994,0 - --

Kokl... l-2 LC 220 500 710 235 _ - _ FC - :.6' 400 235 500 - - :1,35 T -900;-~ 945 735 - - - 2,830 Adigoorl 1-2 LC 2 10 35 200 103 - - - 35° FC _- 329 470 141 lo _5 _ 33" T9 2 739 503 3790 1 0

Aslanta- 1-3 LC 120 140 100 100 - -4 FC 470 800 470 470 - - - _213 T 590 940 570 570 - _ _ _ 27^ Oysapi-ar 1-4- LC 1,090 840 840 180 - - - Pa 520 - 2,950 1,790 2,165 860 - - - - 5,333 T 1,610 2,630 3,005 -. 0o - - - H,285

Hssat Ugurlo 3-4 LC - 10 45 45 - Pa - 95 615 330 370 1,410 T 95 _7~~25- 3757 O9 - - 131

KaracaorenoLC 10 32 20 10 - - FC - 70 _ - 8888 :89 189 - _ 565 1 _!0 235210 2088 199 - - _

Tohmo C 10 10 20 35 25 7b- 30 - _ 130 FC 27 43 35 25 10 - 140 79 381 37 -l :g63 -- 89 73to Th9~~~~~~~~~~~~~-50 '91.84 -2 770 Kapulkaya LC 6 14 120 40 30 90 - - 330 PC - - 45 190 190 50 -T - 473 41 5 230 220 140 - 775 Ctols- 1C 25 30 so 80 60 50 - Pa - 925 235 470 470 - ,175 T9 89 30 59 315 Th9520 - 1,5300

Altinkaya LC 310 529 600 650 700 778 800 230 P'C 4,568 - - 940 1 410 1,830 2,350 1,410 1,4 0 9,403 T ;i3 500 1,500 7t8 ,50 3,1260 2,210 1,64778 At.tOk LC 400 1,000 3,690 3,690 4,500 6,200 12,257 8,762 40,499 PC _ 1,000 2,360 2,300 4,240 4,240 4,710 3,335 28,248 T 4 9002 O3 79799 0,749 10,119 16979,090 13,100 5817 Ca=ligoze 0IC 5 15 200 350 350 950 240 2,o FC - - _ 236 23e. 707 471 - 1,653 T 5 2 5860C '7 9 399 1,657 - 3,723 Debr-nt 1C 2 100 -40 365 48 26o 135 - 1,050 e FC - -105 135 370 140 100 - 85C T 2 100 24865. 500 418 403 235 - 1,302 O-desed l,C 150 300 500 6oc 28o - - _ 1,830 PC T - 95 235 470 470 - - - 1,270 79 '.899~~~~~~-53$ 8 ,00 70 - ,0

Subtotal IC 3,375 3,684 7,210 6,590 6,1o6 8,358 13,432 (Mass 3,992 57,747 Cost -ad PFsoieal Co-t.) FC 3,628 6,279 7,775 7,600 8,080 7 967 6,691 'O,748 7T 58,768 7, 03 11 985 14,190 9,740 5 In U0$ illioba LC 71.66 78.22 153.08 139.92 129.64 177.45 285.18 590.91 1,226.06 FC 77.03 133.31 165.07 161.36 171.55 169.13 142.o6 228.20 1,247.73 T '512179 211.53 318.5 301.0 321.19 T1376.60 427.24 s19.11 2, 473.79 Sobtotal ost$ millio . LC 7,1.66 82.37 176.81 175.32 174.50 255.71 439.46 313.28 isoloding Physical and FC 1,689.11 77.03 14.38 66 202.18 832 62 24375 2138.9 374.48 1,680 01 Pales Costisg-nols) . 8.9 "''-t 67'7 3750 "'1 99.48 65837 '35577 3,369.12

KOs-aky IsC 2-1.62 54.85 80.10 93.21 82.83 83.36 45.29 15.58 466.84 'us$ oiillon - F_ 70.37 111.39 41.50 95.52 94.9 34.73 28.48 2 502.02 total cost) -T 15f6i. "" 521775 "1573 177.12 118.18 ".77 77 Totol DSI LC . 83.58 037.22 256.91 263.53 257.33 339,.07 4894.75 328.66 2,155.95 Hyd02 p-il o14),4o PC 252.27 232.16 3269 illi- 1 278.53 247 39 399.67 2,182.03 u T30.~ 230.68 -- 7 99..07 566.23 52 617.6 7 1 718.53 4,337.93

1/ Costs d eosge rates as of Decetber 1979. A] Direst9oreIgn6oats. Apr81 1930 - 51 - AIOCT 1.10 Page 2 cf 3

KARAXAYAEYDHOPOWER PROJECT

L-erelor-ent Pro-rs Costs (LT Million)

Total 1979 1980 1981 1982 1983 1984 1985 1986 1979-1986

TEX Projects

a) Thermal Po-er Planta

Soia B 1-2 LC 1,100 427 50 _ _ _ _ 1,577 FC 1779 980 50 - - - - - 2 929 T 975 1,407 120 _ _ - _ _

Elbistan 1-4 LC 2,272 3,415 500 155 200 - - - 6,542 FC 10,417 4,780 3,624 2,327 500 - - - 21,648 T87588 57195 57755 ¶25,4 0 70 - - - 23,130

Yatagan A 1-2 LC 1,034 608 472 - _ - _ - 2,114 90 2,976 1,137 1,445 ----- 5 8s8 T 4,010 2,245 1,917 _--77

'leotlernal LC 50 118 30 - - - - - 198 PC 256 299 20 - - - - - 575 T 306 417 50 - - - - - 773

Alinga O,TC) LC 131 123 20 - - - - - 274 FC 247 474 50 - - - - - 771 T 378m 597 -70 ____ -1,045

Coyirhan 1-2 1C 600 900 255 2002 - - - ,955 FtC 1,312 2249 1,89 300 - -3951 1,912 2,43 700 - _ _ _ 7,96

Orha-eli LC 150 900 482 200 - - - - 1,732 FC 750 1,875 1 363 300 - _ _ - 4,288 T 900 2,775 14,5 500 - _- ,

K.nga1 LC 500 810 700 423 200 - - - 2,633 FC 935 1 815 687? 1,233 300 - - - 3970 T 1,135 2t 1625 38500 _

Y. Catalagoi LC 350 400 300 215 100 _ _ 1,36S- FC 748 937 750 793 100 _ - _ 3328 T 1 ,7 0 1,337 1,050 1200 - - -

Yatagan A-3 LC 50 500 1,000 500 450 _ _ _ 2,500 FC 50 1,000 1,000 1,000 950 - - - 4 Oo_ 1T0 1,504 2,000 1,502 1,400 - - - 6`500

Son B 3-4 LC 30 251 1,170 449 700 200 - - 2,800 FC 37 300 2,587 1 500 2,031 200 - - 6,655 T 67 591 3,757 2,731 00 - - 9,15

Yatngas B 1-2 1C 50 350 1,200 1,100 500 - - _ 3,200 FC 94 937 3 280 2,749 1,0009 _ _ _ 9,60 -- 71 l T 4 4 77F:18 717448 1,500 - - - 11,260

seyitoner B 4.010 130 500 750 380 200 - - 2,00 FC - 206 1,406 1,875 1,100 100 _ 4, 687 Tr 40 336 T1,0 2,6295 1,482 300 - 6.6

C-n 1-3 LC 50 600 1,900 1,142 950 210 i6o - 4,610 FC 94 262 1,749 4,299 41675 902 90 - 12,069 T 144 862 3,249 5,739 5,625 1,110 250 _ 1,79

Snary 1 LC 10 200 420 650 90 200 200 - 1,750 FC 2 19 75 637 1.375 545 700 400 3,751 29 073 17,037 2,925 08r5- 90-0 358 - 57,521

Elbiot-n P LC 10 1,000 4,890 4,450 3,000 500 400 400 i4,650 FC 75 686 5,579 12,247 il 498 500 300 300 36 185 T 85-F55 78=1,8 10,469 16,697 1948 3385 1000 70 l700 7008 5:57

Other The-nol & LC 775 627 1,750 1,449 3,600 17,268 13,270 25,850 64,589 Re..calo FC 1,363 2,586 4,623 7,666 16,183 25,632 35 o8o 35 250 128,383 2,139 3,213 6,373 9,115 19,793 42:900 48,350 61,100 192,972

Totol Thercl LC 7,202 11,359 15,219 11,680 10,170 18,578 14,030 26,250 11n,489 FC 21,152 20,898 31,740 37,864 43,882 28 032 35,870 35 5S0 254 988 T 29,354 32,257 46,959 19,345 46,610 T19,00 8r

b) T -noi-ion nod LC 3,479 2,750 3,574 4,o89 4,761 5,500 6,CO 7,000 37,153 DiOtribotion FC 2,188 4,740 5,o61 5,624 6,092 7,500 9,000 10,500 50 703 5,667 7,190 8,635 9,713 10,653 13,000 15,000 17,500 59595

o) Villago Fl-trlifio-tion LC 127 3,802 1,725 4,725 5,750 6,750 2,928 3,750 32,537 FC 323 1,198 1 500 1 500 1,750 2 000 1 100 1,250 10 621 .- 50 5,000 6t225 6.22 7,500 9,750 4 02 5,000 43,178

d) Other I-yestn-nt3 TC 1,285 1,147 1,514 1,614 1,774 1,850 2,000 2,202 13,384 FC 6oo 2 538 656 750 750 900 1,002 1,172 8,294 T1,885 3,685 2,170 45 0,521 0,750 3,000 3,300 21,678

(Sobtotal TOK LC 12,093 19,058 25,032 22,109 22,455 32,678 24,958 39,200 097,583 B(ane Coot and FC 24,263 29 374 38 957 45 738 52,474 38,432 46,970 48 4oo 324 608 Thynical Coot.) T 36,356 48432 6 *7 , 84 7 74 929 71,110 71,928 87,600 322,191

in us$ cillioo LC 256.75 104.63 531.46 469.41i 476.75 693.80 529.89 832.27 4,194.96 PC 51s1.4 623.65 827.11 971.28 1 1141 1 815.97 997.24 1,027.60 6,891.80 T771.90 1,228.29 1,359.57 1,4 O 1,590.85 1,509.77 7.3 1,c59.97 11,08685

Total TEl 1C 256.75 426,08 613.84 588.17 641.71 921.55 816.56 1,365.76 5.630.42 nrlading ontinngencieo, FC 515.1411.499.58 720.32 955.31 1.216.76 1 17.81 1,536.75 1.686.29196 .5679530 in us9nillion) T 771.89 1,146.40 t3589.15 15804.93 2,141.29 2,097.36 2,353.31 3,052.05 14,936338

April 1980 AXiEX 1. 10

- 52-page 3 ni'3

KARAKAYAHYDROPOWER R0J30JCT

Development Progr- m Costs (LT Million)

Total 9579 1980 1981 1982 1983 1984 1985 1986 1979-1986

Elbiitan A LC 1,345 1,197 3,415 - - - - - 5,950 Ft 3,296 6 2 19 - - - T-r3 T , ~ T79 -- - - 14,329

Beynzr-i LC 100 -6 200 010 100 30 20 - 736 Fc 569 579 690 1,496 1,000 500 400 -5226 T 6 q _ 7 '35 1 3 0,596 0,000 530 4 - 2 0 5,932

vatogmo .. 1.0 163 330 463 - - - - 1,056 Ft - 692 692 - i ,384 T 150 '005 1,022 - -

K-ngal Lt co :17 289 577 - _ - 1,062 Fr - 273 1,346 85 - _ - _ 2 204 T0 '100 374 1,630C 1,-7'2 - - 3

Orh-neli LC 100 22 287 292 - - - - 701 FC 146 26? 266 - T 00 755iOO T191667 ~~~~~~~~~~93~55545 5510--558 _ -_ -_ -l,_ 679F Can LC 100 45 294 452 413 199 20 - 1,693 FC - 385 578 803 395 101 -2,262 T0 !00 432 272 1,255 793 0 200 - 3,955

Milas LC 50 20C 200 400 850 181 200 -2,0 FC _- lC 253 600 650 103 - - T 50 300 45C ,0050 ,500 2 2009,79 -

2]bistan 0 - 40 50 1,200 2,300 1,000 1,200 1,4100 ,coo -- -___ 0- 50 400 2 500 5,000 6,000 1,0.s0 T - 5 0 100 T793o ,6 007384 7,000 2 7,57 22,00C

eoyitoer LC -5 100 100 260 81 210 -86 FC - 300 200 40 39 - - T - DI 4005 3 00 300 120 210 i,43-

esa toLC - 1^ 1507 157 150 20 155 13 J.S 2C - 401 2C0 200 3C 45 23 6 35 T - 150 ?50 357 310 50 2000 2^ 5>

r-nno TC - 250 300 300 soc 60 50 - rC _ 50 123 300 300 90 _ - 21> T5 _ ~ ~ "~35300 0Lo 00 oOO T150 50 _0 Hussolas oLC _ 170 150 10 100 Bo 87 07 Ft - 30 150 10O 100 12100 -8 T _ 207 30 O 200 ; 075 T 7026

Oto oLC _ - 3CC 2C0 502 200 565 }11 1,8,5 FC - - 100 300 500 500 135 _ 1,335 T- - 400 500 1,000 700 700 120

nIbiotno. 7 LC - _ _ - 40 300 3,500 2,500 6,340 FC - _ _ _ 10 200 2,500 4,022 6,710 T - - - - 50 500 000 6,50C 13.-5)

Sobtotal tC 1,895 2,482 6,_60 4,334 5,003 2,151 9,987 4,?22 32,132 (PEasoCoot anc FC 3,357 6,634 7.4L2 53250 5,695 6,663 9,180 5,060 49,781 Phyosial Cost.) 0T 5,752 9,126 13,502 9, L08 7'814 156 9,232

In 0S$ Million 1C 40.23 2.70 128..66 92.02 126.22 45.67 127.11 89.60 682.21 FC 6'.89 240.86 '58.00 101.46 120.91 14i.46 194.90 107.43 1,256.90 T 122.02 193.55 286,F6 203.19 027.13 197.13 322.01 197.03 1,735.0l Totol TKI LC 4o.23 55.49 148.60 115.30 142.97 65.81 195.88 147.03 911.31 i a_lrhysionl FC 81.89 148.33 182.49 139.66 162.74 2o3.84 300.34 176.29 1 395.58 nA losng Coot.)y T122.12 203.92 331.09 254.96 305.7i 2 4962 323.32 2,306.89

Grand Total IC 8,697.68 (DSI, TK and TKT' Ft 2 in u0$ailliot T 21,5

Distribution 2/ ,Totals TOly)

IETT <10t1mb0l FOoo 1,565 1,000 1,0021,D,O 1,000 1,000 89,o 185 E00 'Ankara) 313 025 350 375 40o 430 460 500 3,155 ESHOT(1TirS '7" 195 210 230 250 275 300 330 1,965 TIler Bsokami 2,0C2, 0 F3 3,602 1,950 6,000 7 200 8,500 9,6c0 44,300 Total_ 3,20 4,775 5,160 6,125 97,650 0590 11,260 11,437 57,605

ITn 00.0 MOilionC 65.61 99. 179.55 135.59 162.42 189.07 217.83 242.68 1,223.04

Total Tlotribnti-n 65.61 115.18 126.53 170.40 2i8.62 272.45 335.68 398.24 1,702.71 2inoluding contingonci-s) in us$ nillioo

Total Power Sobosotor 23,283.96

1/ Caste eDd emchng*e rates me o Dfeber 1979. ' Direct TereBlg ocet. |/ Cly ajer dittrtibhtin areas, fteige e-dge -aste in oride of 40%.

April 1980 (DSI) GENERAL DIRECTORATEOF STATE HYDRAULIC WORKSOF TURKEY ORGANIZATION CHART

CSST. DIRECTOR GENERAL ASST. DIRECTOR GENERAL ASST DIRECTOR GENERAL ASSI. DIRECTOR GENERAL

- Ge-IepErteIDCeWan dO wtet dPTI -DRIgr anE Cd c AntutoepEODams and -Ope o ad ,,IPT eae EAEO -IneA'IIgOIaTonnd pOTIltTg dOD. -Cene Ia e RHy'dCIICe E COriepDeTS eRs - AAdrs ICEE DrErEP dePt M= -h-reryend eupply dept -Planr I d ,eId ed- Orge--rTt- rddrrndrttrtn,lAltpEl deer -Rrr-_d drv-lEpr en drr. -Lold,Are.eeLrro AIArrt dellrr D,IeE, BoardPREne,APAePAA.SISPempAoIEEC -C mtEAeP,MrdCAEttI sCAECEeAre

-AtEErrE ETtEse.a HerRepdAofDSIGIle -A--rE PfP--IC ons AtIREBANGAM

5 CRIER OFROARD LEATRF ALCREAIS AE IS OEG RDT RAXNIGATION PRITATE A-SIOROF PROJECT DIRECTOS ACCODNTING OlECIC SECRETARY OF OP AD11ORISOSAD AOSTCIFAOSR CIPCANANDTENRALSE SR ADFRINTAN ENEALl C-CL DEFENSE SAPERVISORS RELATIONS COIEF AlCTNOOGYCE DIRECTORATEO D EIRECTRATEL ADVISOR 'oFCO T IETRT

INSESTIGATION AND DESIGN AND EARS AND R.E. POWER GOENCLMACEINERE AND OPERATION AND GRESEARCII AND.LNIGADAMNSRTS LAIING E 1RT.NT _ CONSTRUCION DEPT WATER SO ILY AND PLANTS DEPARTMENT SERVSDPP LI DEPT _ M EANORIAION DEPT. GERVICES OEPT NEWAGO DISPOSAL Pet,rdAAAt-- CrEC-AE.r t-Er DEPT De--t &EE EPA ATER DEPT -MCEeoerprrrODOrIEd--o -GeiIeE,r GO.IWdEEIE - d-ErIA -NP,tTErt,Ar -eneere,A'pre MI,IAEOES .PArrrsrd,rrrrrrr erEA AE -NIEDDttrSdAtErrtr11 -S,rI,'5CTeErC eCEE_rer derIp,r IEEO...... E&pl _trM--Malrt Apr-E A,,-AoIu,Eeltt.A, -dAGGEt dAt,=-rtrtEE F--EErPDAPbErA tCCIDtP IEoadEE.II-- ,r AErAA dAtEEr_ -F..AtOtIdEt. -,PEAIE,OeOE -- hCCArI,,rt G--AI -E-C.E......

- Energy~~~~~~~~~~~~~~~~~~I.-di-d- E 1 d-h-SEIEr,ECAAee -AdrERrAeCAD

WAtIA Derrk-IYy3yA| 16 TURKEY THE KARAKAYA HYDROPOWERPROJECT TEK's OrganizationChart

BOARD OF DIRECTORS

l I ~~~~~~~Purchasingandllllj Technical Advisers AdjudicationCornesigation Legal Department Comittee un il

OFDEFENSE | | ASSISTANTGENERAL MANAGER| ASSISTANTGENERAL MANAGER ASSISTANTGENERAL MANAGER ASSISTANTGENERAL MANAGER| ASSISTANTGENERAL MANAGER REGIONAL | SECRETARIAT| L PLANNING AND FINANCE DESIGNAND CONSTRUCTION VILLAGE ELECTRIFICATION OPERATIONS ADMINISTRATION HEAD OFFICE

- Planningand Coordination - TransmissionLines Project Village Electrification - TransmissionNetworks PersonnelDivision Division Division Group Head Operation Dinision Administration Division - Accounting Division _ Sub-StationsProject - PowerPlants Survey Training Division - ParticipationsDivision Division - Surveyand Project Division Machinery Supply Division - ResearchDivinion - Network Construction Division - PowerPlants Project _ PurchasingDivision NuclearPower Plants Division Construction Control and Division Land Acquisition, Mappingand Division Civil Engineering Division Operations Division - Thermal Power Plants Survey Department _.. Supply Operation Division Equipment SupplY - Hydraulic Power Planes Dinision Operations Division -System Operanion and Distribution Networks Customers Division Project Division - Load Dinpotchirt y Centers Distribution Networks Project Department Operations Division Fuel Supply Departmentn

World Bank -21215 - 55 - ANNEX 2.1 Page 1 of 10

TURKEY

THE KARAKAYA HYDROPOWER PROJECT

Description of the Project

Background

1. Studies of the Karakaya dam and power plant were begun in 1962. This was one of the first steps towards the development of the water resources of the Lower Firat basin. These studies have continued ever since, as the Karakaya project assumed the first priority, after Keban, as a major hydro power source in Turkey. Complying with the objectives of the overall river basin planning criteria, Karakaya has taken its present form and status as the result of the extensive studies. The development of the 310 m of available head between the Keban and Karababa dam sites over the stretch of the river known as the Lower Firat has been the subject of many investigations. The studies that have covered various schemes were incorporated by Stone and Webster Inc. in a Power Resources Priority study, dated December 1967. In 1968, further studies of the Lower Firat basin, at the feasibility level, were promoted by DSI who engaged the group of consulting engineers comprising Electrowatt Engineering Services Ltd., Tipton and Kalmbach Inc., Societe Generale Pour l'Industrie and Gizbili Consulting Engineers to carry them out. This work was completed in 1970 and a firm recommendation was submitted to DSI for realization of one particular development named the Karakaya-Golkoy- Karababa scheme. The results of the studies showed that the Lower Firat project is more economical for power generation than alternative programs featuring oil-fired thermal plants or nuclear plants of the same capacity and that it offers a satisfactory internal rate of return. In 1970, a feasibility report on the Karakaya project alone was prepared by the same group of consulting engineers on request of DSI. Karakaya lies immediately downstream of Keban, and, from the point of view of size and cost of power and energy production, it is the most attractive hydroelectric project not only on the Firat River but in Turkey as a whole. In 1972, DSI engaged the joint venture of Electrowatt Engineering Services Ltd., Tippetts-Abbett-McCarthy-Stratton, Societe Generale pour l'Industrie and Dolsar Engineering Ltd. to prepare the final plant design. This work is now being completed.

2. The results of the Karakaya studies were presented in the following reports:

(i) Lower Firat (Euphrates) Project, Feasibility Report, April 1970;

(ii) Karakaya Dam and Hydroelectric Project, Feasibility Report, June 1970;

(iii) Karakaya Hydroelectric Power Development, Loan Application Report, July 1974; - 56 - ANNEX 2.1 Page 2 of 10

(iv) Karakaya Dam and Hydroelectric Plant, Design Report, Novem- ber 1975; and

(v) Karakaya Hydroelectric Development, Supplementary Informa- tion, May 1976.

Several other studies and documents are available, particularly those dealing with the reservoir filling and operation for projects on the Euphrates River, prepared either by the Bank's consulEants and/or DSI consultants.

3. Karakaya would chronologically, constitute the second step in the long range development of the Euphrates River power resources in Turkey. The first step in the development of the Euphrates River basin was the Keban scheme, which utilizes a 152 m head. This scheme provides the basic regulation of the Euphrates River. Ultimately, Keban will attain an installed capacity of 1,260 MW, with an average annual generation of 6,252 GWh. The total capacity of the Keban reservoir is 30.7 km3. The rated discharge of Keban is 1,080 m3/sec and spillway discharge capability 16,200 m3/sec.

4. Downstream from Karakaya two other power plants are planned for future development; Karababa (Ataturk) and Findikli. The hydropower plant Karababa will be a multipurpose power plant with an installed capacity of 2,400 MW and an average annual generation of 8,800 GWh before irrigation development. The total storage of the Karababa reservoir will be 48.5 km3; its useful part 12.0 km3. The Findikli hydropower project is at the preliminary design stage. Its installed capacity would be about 1,000 MW. Con- struction of Karababa is planned to start soon.

5. Karakaya is conceived for power generation only and in order to obtain its maximum benefits, it must be operated in conjunction with Keban. All the hydro plants on the Euphrates will operate in cascade. For the optimum operation of the chain, the river system as a whole was studied by DSI and its consultants. A computer model has been developed to simulate the operation of the Euphrates River chain of hydro plants. An additional study has been prepared for the Keban and Karakaya plants, as a special case of the overall model which looks at all the Euphrates River plants. Being non-water consuming plants Keban and Karakaya were considered to achieve the optimum energy output. The aim of the optimization was to maximize the firm energy produced in the critical dry period with a given pattern of energy generation. This can be accomplished by keeping the water levels behind both dams at a maximum and reducing spillage to a minimum. The results of the operational study which were obtained from an analysis of the river flow data for the period July 1938 to June 1973 are summarized below: - 57 - ANNEX 2.1 Page 3 of 10

Average Annual Generation Installed Firm Secondary Total Scheme Capacity (MW) (GWh) (GWh) (GWh)

Keban (with Karakaya) 1,260 4,770 1,482 6,252

Karakaya 1,800 6,060 1,293 7,353 3,060 10,830 2,775 13,605

Keban (alone) (1,260) (4,411) (1,432) (5,843)

Gain due to Karakaya Project 1,800 6,419 1,343 7,762

DSI and the consultants have concluded that Karakaya should have an installed capacity of 1,800 MW. Several installed capacities were considered but 1,800 MW was found as the most appropriate solution taking into consideration future Turkish power demand and available energy resources. The change of the installed capacity of the Project from 1,500 MW to 1,800 MW (i.e. 20%) has increased the total capital costs of the Project by only 4%. The Project feasibility report contains comparison of costs and benefits for the alternative installed capacities. The results indicate that the 1,800 MW solution is the most favorable even if its advantage over the smaller installations is almost marginal. System stability and reserve considerations also have led to the conclusion that 300 MW is a reasonable unit size for the Karakaya installation. Furthermore, DSI has adopted the principle to develop the available project site to the full economically permissible capacity. The generating unit size of 300 MW would be among the largest ever built. The Project designs and technical specifications have been prepared assuming an installed capacity of 1,800 MW.

Site Selection

6. Karakaya will be located 160 km downstream from the recently completed Keban Project. Like Keban it is a single-purpose power project although the regulation effect on the flow of the river will be useful at future downstream dams which are planned for irrigation in addition to power. The site location was selected because: (i) of a superior rock foundation and (ii) a dam of reasonable height (173 m) would back water up to the Keban tailwater. The site selection was made in 1969 by a Turkish government bureau, EIE, assisted by Stone and Webster of the U.S.A. Five sites were investigated here and the one with the best rock was selected. Downstream of the site there is karstic (cavernous) limestone which caused so many problems at Keban and upstream the rock is mica gneiss which is weak in shear on account of the lubricating qualities of the mica. Unfortunately the better hornblende gneiss at the site occurs at the narrowest reach of the river which illus- trates the problems which arise at a narrow (often considered the most economical) dam site. In this case much sound rock must be excavated to make room for the power house, a cofferdam 38 m high and two fully lined diversion - 58 - ANNEX 2.1 Page 4 of 10 tunnels with an excavated diameter of 13.5 m must be constructed to pass a construction-period flood of 3,500 m3/sec with a return occurrence of 25 years, and the spillway must discharge over the roof of the powerhouse. Despite these disadvantages it is concluded that the best site for the Karakaya Project has been selected.

Geological Investigations

7. Investigations at the dam site and in the reservoir area have been unusually thorough. Borings with water and grout tests therein have been made at the dam site by both EIE (1962-1970) and DSI (1970-1974). Borings in the past in Turkey have not been the best, but these have been well logged in great detail and appear to represent conditions accurately. In addition, 27 adits (2 m high and 1.8 m wide) were excavated deep into the abutments. These are much better for geological explorations than borings and they demonstrate good rock quality; they all have stood several years without support except the portals, and without deterioration. They also served for six in situ tests for moduli of elasticity and deformation - essential parameters for arch dam design. Despite good quality the rock is seriously jointed and faulted. It is significant that when the consultants reviewed the choice of the type of dam they asked for further site explorations which were carried out; these were principally to explore further the joint and fault patterns. The total exploratory program shows convincingly that the dam will be founded nearly 100% on hornblende gneiss and that the tunnels will be mostly in hornblende but partly in mica gneiss; and that the explorations are adequate for the design of the structures involved.

8. The geology of the reservoir area is significant as regards leakage and landslides. Both phenomena have been investigated by EIE assisted by many consultants. Karstic formations which created leakage problems at Keban have been located and examined. In all cases they were found to be backed up by impervious formations and leakage would consist of filling a limited number of cavities with no continuous flow into them. No faults have been found which could cause leakage to other watersheds. The risk of significant leakage from the reservoir area may be considered small.

9. There are likely to be landslides or perhaps more properly termed rockslides since there is normally little overburden. The possibilities have been located and studied. There is little possiblity of large massive slides on account of the extensive jointing and faulting of the rock. Small slides are to be expected - most of them in tributary valleys where their effect will be negligible. In one instance a few families will be moved from an area which may move as the reservoir is filled and in another area survey markers will be set to check on movement. There is no way to prevent slides since much of the topography is on the verge of instability now, but the circumstances indicate they will not be of great consequence. It is concluded that the geological exploration of the dam and reservoir sites are adequate. The experience from the first years of Project construction has also confirmed this conclusion. - 59 -

ANNEX 2.1 Page 5 of 10

Geology of the Dam Site

10. The river is 50 m wide without banks; the valley walls rise from stream bed: on a 1:1 slope on the left side for 110 m with some vertical cliffs and then flattening to 1:2 slopes; and on a 2:1 slope on the right side for 110 m with vertical cliffs and overhangs and flattening to 1:1 above that. Ravines drain both abutments upstream and downstream of the site. There is little or no vegetation and erosion may occur on the recently cleared 1:2 slopes high on the left side.

11. The dam and powerhouse will be located almost entirely in hornblende gneiss - a rock which is mineralogically massive with the gneissic foliations discernable, but indicating little movement upon themselves (schistosity), e.g. even though the predominate dip of the foliations is 200 to 300 toward the river in the left abutment, the latter still shows steep to vertical walls indicating little development of foliation or schistosity. There are faults up to 50 cm thick which will have to be excavated and backfilled with concrete along the thrust line of the arch dam and the many joints will dictate the use of many rock anchors. Many of the joints and faults are clean and will con- solidate with grouting. The other major rock type at the site is mica gneiss which is a weaker rock. It occurs above a fault 1 to 3 m thick about 15 m below the crest of the dam on the left side. The fault is filled with rock fragments, sand and silty clay. This material and the mica gneiss above it will be removed and replaced with a concrete thrust block. The mica gneiss occurs at the upstream end of the diversion tunnels but in this location it will not be important.

12. The tests for modulus of elasticity in the abutments were satisfactory for an arch dam; they averaged 298 tons/cm2 and 228 tons/cm2 in the right and left abutments respectively.

Earthquakes

13. Since 1936 six earthquakes have occurred within 150 km of the site varying in intensity from 5.5 to 8 on the Richter scale. There is a record of a severe earthquake within 45 km in 1893 which levelled towns and caused many deaths. The designs for the Karakaya structures therefore, incorporate provisions for earthquake accelerations or ground motion. Computations on generally accepted bases indicate that static coefficients expressed as a fraction of the force of gravity, of 0.15 g for the dam and 0.10 g for the powerhouse should be applied and this has been done.

Dam Design

14. During the long period of study by Turkish Government entities and consulting firms many types of dams have been considered; according to the - 60 - ANNEX 2.1 Page 6 of 10 reports available final selection was on the basis of lowest cost. Upon review it appears that the final selection perhaps would be the only type of dam that could be built in this geological environment. Types considered are:

(a) Arch gravity dam with spillway over powerhouse.

(b) Thin arch dams with spillway tunnels or spillway chutes. The site is too jointed and faulted for these types; and a tunnel spillway is hydraulically undesirable.

(d) Underground powerhouse. The span of the underground openings would be long and in this jointed rock it is not a prudent choice.

15. The arch-gravity dam in the selected design is 173 m high with a fixed radius of curvature of 225 m. The crest length is 462 m and thickness vary from 10 m to 52 m. The design has also been put through the U.S. Bureau of Reclamation computer program in order to verify obtained results. The dam contains the intakes and penstocks leading to the powerhouse. The powerhouse is approximately fitted to the curvature of the dam, the maximum space between them at the highest part of the dam is 5 m - a desirable feature to avoid at least some transfer of foundation deformations between the structures and provide flexibility space for penstock connections. The powerhouse will have three principal spaces: for main valves, for six 300-MW turbine/generator units, and for main transformers.

16. The gated spillway at the top of the arch-gravity dam has nine 14.5 x 15.5 m tainter gates. The spillway flow converges between training walls and discharges from a flip bucket about 110 m wide on the powerhouse roof and plunges into the river about 150 m downstream. This type of spillway is not unique; there is one in Japan and several in France, but none of the existing ones discharge as large a volume of water as is required here. The final plans of this feature have been model tested and satisfactory results have been obtained.

17. Where the spillway discharge plunges back into the river it will dig a hole in the rock of the river bed. The extent of the hole cannot be reliably model tested and consequently the effect on the stability of the steep side slopes of the gorge is difficult to predict. The geologists have decided that the close jointing and faulting of the rock will in this case be advantageous in that rock will fall into the plunge pool in small pieces and possibly be washed away. There is likely to be more to it than this, but it is unpredictable and therefore reasonable to defer any stabilizing measures until some experience develops. - 61 -

ANNEX 2.1 Page 7 of 10

Construction Risks

18. This is a high risk job on account of the high steep slopes and the instability, especially upon disturbance of the highly jointed and faulted rock. The risks are manageable providing constant expert supervision including expert geological supervision is given to the construction process. The level of expertise required for this is not available in Turkey and was obtained through consultants selected for construction supervision.

19. A large amount of difficult excavation is required. There are several reasons: to reach acceptable rock 25 to 30 m of weathered rock or containing weathered joints and faults may have to be excavated; to make room for the powerhouse sound rock must also be excavated; and access roads on tortuous alignments must be excavated from elevations up to some 800 m above river bed. The excavations at the dam site will be in steep hillsides; the road excavations will be in somewhat flatter average slopes (except on the dam site itself) but even with present progress still 300 m above river bed the risks of falling rock are abundantly evident. The plunge pool of the spillway may cause rock falls but this is likely to be a deferred risk.

20. The excavations for the dam, powerhouse, and tunnel portal structures will have to be done from the top down. As the work progresses much of the rock will have to be anchored with rods estimated to be 20 to 30 m long and stressed to 100 tons each. In general the pattern of excavation for the powerhouse is foreseen to be with slopes in the valley walls of 5 vertical to I horizontal with terraces 5 m wide at intervals with wire fences to catch falling rocks. There will be faults in the excavated trenches for the ends of the dam; these are usually of the order of 10 cm thick but they go up to 50 cm and they will have to be cleaned out and backfilled with concrete. It is to be expected that some negative slopes will be produced inadvertently and these will be backfilled with concrete and anchored. It is significant that the consultants review resulted in a shift of the dam deeper into the left abutment since any difficulties in the end-of-dam trench on this side would be minimized by flatter ground at a lower elevation. Some loose rock on the road cuts can be tolerated and DSI is planning to erect barriers to catch falling rock at some locations. There are small rock masses high on the hills above the dam site which have been known to slide or roll into the valley during heavy rains (and possibly during earthquakes) and these will be searched for and blown up, anchored or otherwise supported.

21. Despite a high cofferdam and large bypass tunnels the return period of the construction period flood of 25 years is not conservative. It can be accepted if Keban is operated during the construction period to help prevent floods which normally have a return period of say once in 50 to 100 years.

22. The diversion tunnel design was considered to have some deficien- cies. DSI and its consultants reconsidered the Bank comments on the diversion - 62 - ANNEX 2.1 Page 8 of 10 tunnel design and adopted suggested modifications. One suggestion was to use shotcrete, wire mesh and anchor bolts for initial support, provided that shotcrete will be used immediately after shooting in the arch. Special equipment to safeguard personnel will be secured. The portals will be stabilized with pre-stressed anchors. The portal sections will be of thick concrete with relatively light reinforcing steel; for conservative design they will contain supporting beams at least for the crown section. The tunnel has a cast in place lining throughout which is desirable both for support and efficient passage of water.

Outlet Facilities

23. The diversion outlets are two concrete lined tunnels with a diamater of 11.5 m. The length of the tunnels is 568 and 698 m and the tunnel nearest the river will be used as a bottom outlet after the completion of the Project. The proposed cofferdam at elevation 575 will put a head of 29.5 m (allowing for freeboard) on the center line of the tunnels and the outlet capacity of both will be 3,500 m3/sec. The shorter of these tunnels is to be completely plugged and the other is to be plugged with a gated opening of about 5 m square in the plug. When completed the intake of this tunnel will be at elevation 575 m.a.s.l. and it could pass 600 m3/sec with an elevation of 589 m.a.s.l. and 760 m3/sec, or somewhat above average river flow of 738 m3/sec, with a pool elevation of 600 m.a.s.l. At minimum operating pool for the powerhouse at elevation 670 m.a.s.l. the gated opening could pass 1,250 m3/sec.

24. Since the proposed gated opening is about 5 m square in a tunnel with a diameter of 11.5 m it could be enlarged substantially to pass more water. The passage of water through the gated outlet at and considerably below minimum operating heads raised questions of cavitation. These questions were studied by consultants and a more reliable design solution has been adopted.

25. The outlet capacity appears adequate and adjustable upward if needed. The plans for plugging the tunnels when diversion requirements are satisfactory; they can be accomplished so that sufficient water can be passed at any time without powerhouse operation. Most of the plugging operations must be done in the low water seasons and that will be arranged.

Power Facilities

26. The powerhouse will be statically independent of the dam itself and will contain six Francis-type turbines, arranged vertically, with unit capacity of 300 MW under 144.5 m head rated discharge of 233 m3/sec and speed of 136.4 rpm. One penstock for each turbine will be located in the dam between the intake structure and the turbine spiral case. Each penstock will have an upper bend, a vertical section approximately 61 m in length, a lower bend and a horizontal section about 15 m in length. Inside diameter of the penstocks is 7 m between intake and lower bend and reduces from 7 to 6 m at - 63 - ANNEX 2.1 Page 9 of 10 the lower bend. Intakes will be provided with trash racks. Stoplogs will be installed for maintenance and repair. The powerhouse structure will be divided into six independent unit blocks each containing one turbine/generator unit together with the main transformer and auxilliary equipment. The generators will be rated 315 MVA, 50 Hz, 15.75 kV and 0.95 power factor. They will be unit-connected to banks of three monophase main transformers, each rated 105 MVA. The generators and main transformers will be connected with a set of screened conductors, having a length of about 35 m and operating under rated voltage of 24 kV. The transformers will be located in the transformer hall, which is a part of the powerhouse. A set of three monophase underground cables, oil insulated, rated at 380 kV and 480 A/phase, will be installed between the main transformers and the cable terminal on the dam crest. The average length of this cable connection will be about 260 m.

27. Electric energy will be transferred from the cable terminal to the switchyard through three 380-kV overhead lines covering a distance of about 2.5 km. The switchyard will occupy an area of 389 x 147 m2 and consist of 380 kV, 154 kv and 31.5 kV sections. The 380-kV section will include two main and one transfer bus. The 154-kV section of the switchyard will be fed from the 380-kV section through one 380/154 kV, 120 MVA autotransformer. A service bulding in the switchyard will provide the necessary control and relay protection.

28. The 380-kV transmission lines which will be required for the connection of Karakaya to the interconnected power system of Turkey are not included in the Project. They will be constructed separately by TEK. These lines will have a route length of about 1,300 km and will connect Karakaya with substations in Keban, Osmaniye and Ankara (via Kayabasi).

Environmental Impact

29. The Euphrates River Valley between Keban and Karakaya has three dis- tinct topographical sections. First, the narrow, sinuous section over 40 km downstream of Keban; this steep sided valley trends to south-west and is bounded by mountains which rise to over 1,500 m. This section is followed by a great sweep of the river to the south-east, here the left bank remains steep but to the west the flat Malatya Plain extends up to 50 km to the foot of the Taurus mountains. Fifty kilometers east of Malatya, the river enters its deep and forbidding gorge through the Taurus, which extends for about 120 km. It is in this narrow cleft that the Karakaya dam will be situated. The Karakaya reservoir will be formed in this valley, with the surface area about 300 km2 and the total volume of 9.6 km3.

30. The number of people to be relocated from villages which wil be submerged has been estimated to be 17,000. At present they live in 34 villages of which only three have a population of more than 1,000 persons. The Karakaya project area is one of the most conservative regions in Turkey, both socially - 64 - ANNEX 2.1 Page 10 of 10 and economically. Within and around the project area there is a low level economy based almost on primitive subsistence agriculture. This area has a low population density and local people are moving to other parts of Turkey or abroad.

31. The legal basis for expropriation of land of relocated families are the Turkish Expropriation laws. The aim of fair indemnification is to provide a former owner with about the same (or better) economic situation he had prior to flooding of his property. DSI just started solving resettlement problems.

32. The section of roads and railways, which will be flooded by the Karakaya reservoir, will be relocated. About 35 km of new roads and two bridges have to be constructed to replace the existing roads and bridges. The railway line in the length of 33 km has to also be relocated. The State Highway Administration and State Railways are responsible for the relocation of their facilities.

April 1980 TURKEY

KARAKAYAHYDROPOWER PROJECT

Project Cost Estimate (in '000O

1979 & Total 'efore 1980 1981 1982 1983 1984 1985 1986 1987 1980-1987

1. Preliminary and LT 1,648,196 477,661 477,661 477,661 477,661 477,662 2,388,306 Related Works US$ - 2,075 2,075 2,075 2,075 2,082 - - - 10,382

2. Civil & Hydraulic LT 1,058,729 1,201,599 1,201,599 1,201,599 757,765 757,765 757,765 541,261 420,503 6,839,856 Works (Contract 1)1t u5s$ 19,077 35,438 27,169 24,806 24,425 22,444 20,081 19,898 14,766 188,977

3. Turbines & Cenerators LT 4,ooo 8,000 62,462 84,237 5,500 2,500 2,500 2,500 - 167,699 (Contract I 2) SFR 114,120 71,325 3,170 64,985 63,400 - - - - 202,880

4, Electromechanical LT - 5,400 35,834 41,386 13,400 10,000 10,000 7,500 2,500 126,020 Equipment (Contract 1/3) SFR 53,280 33,300 1,480 30,340 29,600 - - - - 94,720

5. Engineering Services LT 113,407 52,556 52,556 52,556 52,557 52,556 52,556 52,556 52,557 420,450 us$ 100 185 185 i15 185 ,85 185 185 190 1,485 SFR 6,523 1,702 1,702 1,702 1,702 1,702 1,702 1,702 1,706 13,620

6. Land Appropriation IT 72,509 1,391,312 1,391,312 695,656 463,771 252,714 - - - 4,194,765 0

7. HumanResettlement LT - - 994,500 1,089,000 1,989,000 1,989,000 994,500 - 7,956,000

Base Costs LT 2,716,836 3,136,528 4,215,924 4,542,095 3,759,654 3,542,197 1,817,321 603,817 475,560 22,093,096 Us$ 19,177 37,698 29,429 27,066 26,685 24,711 20,266 20,033 14,956 200,844 SFR 173,923 106,327 6,352 97,027 94,702 1,702 1,702 1,702 1,706 311,220 1' Physical Contingencies- LT - 523,964 677,384 723,576 594,691 562,712 303,981 111,380 86,8S4 3,584,542 US$ - 7,908 5,754 5,281 5,205 4,810 4,025 3,979 2,963 39,425 SFR - 5,316 318 4,851 4,735 85 85 85 85 15,560 Subtotals Local'US$ eq.) 120,000 52,293 69,904 75,224 62,205 58,642 30,304 10,217 8,o34 366,823 Foreign (us$) 19,177 45,106 35,183 32,347 31,890 29,521 24,291 24,012 17,919 240,269 Foreign (SFR) 173,923 111,643 6,670 101,878 99,437 1,787 1,787 1,787 1,791 326,780

Price Cont'n- Local(US$ eq.) - 2,552 10,195 17,989 20,625 24,716 14,989 5,359 4,879 101,304 gencies 2/ Foreign (us$) - 1,114 2,389 3,243 3,912 4,212 3,141 124 144 18,279 Foreign (SFR) ------

TOTALS Local(UJS$ eq.) 120,000 54,845 80,099 93,213 82,830 83,358 45,293 15,576 12,913 468,127 Foreign (us$) 19,177 46,220 37,572 35,590 35,802 33,733 27,432 24,136 18,063 258,548 Foreign (SFR) 173,923 111,643 6,670 101,878 99,435 1,787 1,787 1,787 1,791 326,780

TOTAL PROJCFrT Local 120,000 54,845 80,099 93,213 82,830 83,358 45,293 15,576 12,913 468,127 COSTS 'in US$) Foreign 121 484 111 892 41,496 95 513- 94,294 34 784 28 483 25 187 19 117 450 771 Total 2 T4 4 1 84667 121,595 177,124 1t7k7l 730,7763 32,930

1' Physical contingencies assumed are: 20fo for item 2; 158 for items 1, 6 and 7; 5% for items 3, 4 and 5. Price contingencies were applied in accordance with the following annual rates: 1980 - 10.5%; 1981 - 9%; 1982 - PK;1983/85 - 7% and 1986/87 - 6_. Due to contract terms only 80% of Contract (Jo.1 local costs ° are subject to priceincrease. Furthermore, this contract specifies fixed foreign exchange unit prices H and includes in its base costs 6% annual cost increases. Therefore, price contingencies were calculated as a difference between the expected price increases and the included 6%. Prices in SFP are fixed. 0 Local costs in LT and foreign costs in SFR are converted in US$ equivalents using the following exchange rates: us$1 = LT 70 and US$1 = SFR 1.70.

April 1980 - 66 - ANNEX 2.2 Page 2 of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Project Cost Summary (US$ Thousand Equivalent)

-LOCAL------FOREIGN------TOTAL- Direct Indirect Total

1. Preliminary and Related Works 32,072 10,382 2,047 12,429 44,501

2. Civil & Hydraulic Works (Contract # 1) 81,101 188,977 16,611 205,588 286,689

3. Turbines & Generators (Contract # 2) 2,280 119,341 116 119,457 121,737

4. Electromechanical Equip- ment (Contract # 3) 1,600 55,718 200 55,918 57,518

5. Engineering Services 6,oo6 9,497 - 9,497 15,503

6. Land Appropriation 59,925 _ - - 59,925

7. Resettlement 113,657 - - - 113,657

Base Costs 296,641 383,915 18,974 402,889 699,530

Physical Contingencies 47,563 48,577 3,645 52,222 99,785

Price Contingencies 94,305 18,279 6,999 25,278 119,583

TOTAL 438,509 450,771 29,618 480,389 918,898

Sunk Costs (1979 & before) 120,000 121,484 - 121,484 241,484

TOTAL PLUS SUNK COSTS 558,509 572,255 29,618 601,873 1,160,382

April 1980 5-__-T_ [JiZi=

CI ------

- 68 - ANNEX 2.4

TURKEY

KARAKAYA HYDROPOWER PROJECT

Central Coordinating Committee

1. A Central Coordinating Committee for the Karakaya project was established in 1974 by the Government to secure coordination between various engineering and administrative functions. The Chairman of the Committee is the Under Secretary of the Ministry of Power and Natural Resources which has jurisdiction over DSI and TEK.

2. The following Ministries are permanent members of the Committee:

(a) Ministry of Power and Natural Resources

(b) Ministry of Transportation and Communication

(d) Ministry of Finance

(e) Ministry of Village (Rural) Affairs

(f) Ministry of Industry

(g) Ministry of Customs

(h) State Planning Organization of Prime Ministers Office

3. The following agencies or organizations are also permanent members of the Committee:

(a) DSI

(b) TEK

(d) Turkish State Railways

(e) State Highways

(f) Iller Bank

(g) Mapping Administration

When necessary, the Chairman of the Committee may invite other Government agencies as temporary members.

December 1979

ANNEX 2.5 - 69 - Page l of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Estimated Schedule of Disbursement

Bank Fiscal Year CumulativeDisbursement and Quarter at end of Quarter -----US$ Million------

1981

September 30, 1980 December 31, 1980 12 March 31, 1981 17 June 30, 1981 23

1982

September 30, 1981 27 December 31, 1981 31 March 31, 1982 35 June 30, 1982 39

1983

September 30, 1982 44 December 31, 1982 49 March 31, 1983 53 June 30, 1983 57

1984

September 30, 1983 62 December 31, 1983 66 March 31, 1984 70 June 30, 1984 74

1985

September 30, 1984 78 December 31, 1984 82 March 31, 1985 85 June 30, 1985 89

1986

September 30, 1985 93 December 31, 1985 96 March 31, 1986 99 June 30, 1986 102

April 1980 ANNEX 2.5 -70 - Page 2 of 2

TURKEY

KARAKAYA HYDROPOWERPROJECT

Estimated Schedule of Disbursement

Bank Fiscal Year CumulativeDisbursement and Quarter at end of Quarter -----US$ Million--

1987

September 30, 1986 104 December 31, 1986 108 March 31, 1987 111 June 30, 1987 114

1988

September 30, 1987 117 December 31, 1987 120

April 1980 - 71 -

ANNEX 2.6 Page 1 of 18

TURKEY

THE KARAKAYAHYDROPOWER PROJECT

Studies of Reservoir Filling and Operation For Projects on the Euphrates River

Introduction

1. The use of the Euphrates River waters is a vital factor in the life and economy of the riparian states of Turkey, Syria and Iraq, whether the waters are used for domestic purposes, irrigation, power generation or the abatement of salinity. Discussions between the three riparians on the sharing of the Euphrates River waters have taken place intermittently since 1962. The Bank has actively encouraged the riparians to discuss a long-term water sharing agreement. At the request of a number of financing institutions interested in the Keban hydropower project, which created a very large reservoir on the Euphrates River in Turkey, the Bank undertook, in 1965, a study of international water problems of the Euphrates River. The aim of the study was to reach an independent and objective determination of acceptable passing water rates during reservoir filling, also to identify long-term problems and suggest means of solving them. In order to resolve the numerous problems already identified and due to the continuing need for riparian cooperation, the establishment of an international tripartite commission for the Euphrates River was proposed; however, this commission has never been established. In 1974 the Bank Group made the loan/credit for the Balikh Irrigation Project, which would require at its full development in 1986 the total net diversion of about 0.5 km3 of water from the Euphrates River, equivalent to two percent of the average river flow at the Syrian-Iraq boundary. The Bank was satisfied that this project was not harmful to the interests of the other riparians, since the volume of water used by the Project was small and well within the allot- ment to Syria under any equitable apportionment of the Euphrates waters, if ever achieved. At that time, the Syrian Government advised the Bank Group that it intends to operate the reservoir at Thawra in such a manner as to assure that Iraq's requirements are reasonably covered, provided that needed releases are made from the Keban reservoir.

2. In late 1974, Bank Group staff, assisted by consultants, designed and tested a simulation model of the Euphrates River which incorporated major existing water storage structures in the Euphrates River system (Keban, Thawra and Habbaniyah reservoirs) and the possibility of including major planned projects (Karakaya, Karababa and Haditha). The purpose of the model was to provide an instrument for investigating the operation of the various water control facilities under different hydrological and water demand conditions in the three riparian countries. - 72 -

ANNEX 2.6 Page 2 of 18

3. For the purpose of designing and testing the model, the input data available to the Bank was used and where no informationwas available, reasonable assumptionswere made. The nature of the model and the details of the input data used to test it are described in a draft report "PreliminaryStudy of Reservoir Filling and Operation for Projects on the EuphratesRiver" dated January 24, 1975. This report was transmittedto the Governmentsof Turkey, Syria and Iraq in February 1975.

4. In its present form, the simulationmodel is a useful tool for investigatingoptions for the management of the differentwater control facilities in the river system. With more detailed input data and more developmentwork on the model, it could be of value in assisting in the developmentof optimum rule curves for reservoirswithin the river system and for the real time operationof projects. The achievementof this longer term aim would require detailed field investigationsto provide the necessary input data.

A. PreliminaryStudy of Reservoir Filling and Operation for Projects on the Euphrates River

Basic Data and Assumptions

1. The data base for this preliminary study has been derived from informationavailable and much of the informationis indicative,rather than precisely representativeof actual conditions. However, the simulationmodel developed in the study has been designed to accept revised or updated information if and when it becomes available. Basic informationcontains hydrological data, water demands for power and irrigation,projects data and related assumptions. The schematic layout of developmentsin the Euphrates River basin is given in Attachment 1 to this Annex.

HydrologicalData

2. The Euphrates River drains portions of Turkey, Syria and Iraq. The principal gauging stations on the Euphrates River are Keban and Birecik in Turkey, Thawra (formerlyTabqa) in Syria and Hit in Iraq. Average annual recorded flow volumes at these stations are summarizedbelow: - 73 -

ANNEX 2.6 Page 3 of 18

Average Annual Recorded Flow Volume 31 Year Average Gauging Catchment Period of 1938 - 1968 Station Area km2 Record km3

Keban, Turkey 69,100 From August 1936 20.9 Birecik, Turkey 108,000 From March 1959 28.4 Thawra, Syria 120,650 From 1958 28.1 Hit, Iraq 264,100 From 1924 30.9

The average recorded flow data do not take account of any irrigation abstractions. For the purposes of the study, natural flows were estimated by making allowances for historical irrigation uses of water. The estimated rates of gross demand and return flow, indicative of present condition, used in the analyses were as follows:

Turkey Syria Return Return Gross Flow Net Gross Flow Net Month Demand (m3/sec) Demand Demand (m3/sec) Demand

October 38 53 -15 73 70 3 November - 30 -30 48 48 - December - 11 -11 29 22 7 January - - - 29 14 15 February - - - 42 9 33 March - - - 130 9 121 April 39 - 39 134 13 121 May 90 - 90 197 39 158 June 168 12 156 256 40 216 July 198 27 171 278 59 219 August 176 50 126 235 77 158 September 101 59 42 161 83 78

Totals km3 2.14 0.64 1.50 4.25 1.25 3.00

Return flows were assumed to be at the rate of 30% delayed by two months.

3. To assist in the selection of suitable periods of flow data, a residual mass analysis was made of the natural flows at Keban for the period 1937 to 1968, from which the following hydrological sequences were selected for simulation: - 74 -

ANNEX 2.6 Page 4 of 18

Mean Annual Discharge - km3 Sequence Keban Birecik "Khabour" Hit

i) Driest 10-year period 18.21 24.46 6.35 30.81 ii) Driest 8-year period 16.76 22.80 5.63 28.43 iii) Driest 5-year period 15.85 21.59 5.87 27.46 iv) Driest year 11.46 16.26 4.35 20.61 v) 10-year "average" sequences - a) 21.56 28.69 3.97 32.66 b) 21.14 28.86 5.23 34.09

Long-term mean (1937-1968) 21.91 29.39 4.78 34.17

4. Estimated average reservoir evaporations were taken into account; but the introduction of other factors (valley and reservoir bank storages) was not considered necessary at this stage of the study.

Power Demand

5. A series of four hydropowerplants were planned in Turkey for development on the Euphrates River. The most upstream of them, Keban, is in operation with the first four generating units, while the remaining four units are under construction. Each of these generating units has an output capacity of 157.5 MW, making a total plant output of 1,260 MW. The next plant downstream, Karakaya, is currently under construction, with an installed capacity of 1,800 MW in six units. The Golkoy project, next downstream of Karakaya, was proposed as a 700 MW scheme, but in view of its insignificant storage it has not been included in these evaluations, which have been developed primarily to establish the effects of storage and regulation on water use patterns. Downstream of Golkoy, the last projected Turkish hydropower project was Karababa. This project was proposed as a multipurpose development with an 800 MW installed capacity and provision for pumping of irrigation water from the reservoir to the plains of the Southeastern Anatolian Region. In the simulations it has been assumed that all the Turkish projects will be operated, as far as possible, to provide long-term firm energy both during initial filling and in subsequent operation. Secondary energy is generated whenever the reservoirs would otherwise be spilling. The Preliminary Study of Reservoir Filling and operation for projects on the Euphrates river does not include the new Ataturk multipurpose hydropower project, which would replace the previous Golkoy and Karababa projects. The total and useful storage capacity of the Ataturk reservoir would be much larger than capacities of Golkoy and Karababa; combined total and useful storage capacities of Golkoy and Karababa were 16.27 km3 and 3.64 km3 -- respectively, the newly proposed Ataturk reservoir would have the total storage capacity of 48.5 km3 with its useful storage of 12.0 km3. Therefore, it would be necessary to test the new Ataturk scheme in the computer simulation model, which investigates different project operating principles in order to determine their effects on reservoir filling under different hydrological situations, while satisfying the existing and expected water consumption demands. - 75 -

ANNEX 2.6 Page 5 of 18

6. The Euphrates Dam project (Thawra) in Syria is intended to provide additional regulation capacity to meet the requirements for irrigation and supplement those for the Syrian power system. Simulation runs considered the proposed installation of eight units, each having a 103 MW capacity, making a total plant output of 823 IP. In the simulation runs, the Euphrates Dam project was operated to guarantee at least irrigation demand, both in Syria and Iraq, and to maximize the generation output without specific constraints requiring the plant to provide any minimum firm capacity.

7. The Haditha project in Iraq, currently under construction, was not simulated in detail, due to lack of project details. Therefore, the simulation runs have assessed the energy portential of the project in terms of the actual flows released to meet the selected irrigation demands and assumed that the discharges, plus any spill flows, could be passed through turbines. Lake Habbaniyah was operated in accordance with the irrigation requirements.

Irrigation Demand

8. The current levels of extraction for irrigation and plans for development in the riparian countries, are not precisely known. However, for the purposes of the study, various assumptions were made on the basis of available information. For assumptions used on current extractions for irrigation in Turkey and Syria, estimates of area under irrigation, cropping intensities and water diversion per hectare have been consolidated into the two variables of area and depth of irrigation; for Iraq, actual intensities have been introduced. The simulation model developed has been designed to illustrate any constraints likely to arise through growth in irrigation abstraction, con- current with the development of the series of 5 or 6 major storage regulation projects along the main stem of the Euphrates River, over a period of ten years. For this purpose, two rates of irrigation growth in each country have been utilized in the simulations, representing full commissioning rates of irrigated perimeters. The first, referred to as Rate 1, was proposed as one estimate representative of a "probable" level of activity. Rate 2, irrigation growth, proposed as "possible" level of activity, involves a doubli g of the incremental irrigation in each of the riparian countries from that assumed in Rate 1 throughout the simulation period. These rates of development have been introduced solely for the purpose of testing the sensitivity of the simulation runs to irrigation abstractions. In addition, subsequent tests have been made at other rates of irrigation growth.

9. The irrigation demands for each of the riparians for years one, ten and twelve of simulations were as follows: - 76 -

ANNEX 2.6 Page 6 of 13

in km3 1974/75 1983/84 1985/86 Rate 1 Rate 2 Rate 1 Rate 2 Rate 1 Rate 2

Turkey /1 1.50 1.50 1.72 1.95 1.77 2.04

Syria /2

U/S Euphrates Dam 0.0 0.0 1.57 2.39/3 1.75 2.39 D/S Euphrates Dam 3.03 /4 3.03 2.44 2.39 2.51 3.05 TOTAL 3.03 3.03 4.01 4.78 4.26 5.44

Iraq /1 14.00 14.00 14.80 15.60 15.00 16.00

Euphrates Basin /2 18.53 18.53 20.53 22.24 21.03 23.48

/1 Demands in Turkey and Syria are net requirements: demands in Iraq are gross. /2 For LTA /5 available flow of 34.17 km3 (natural flow) at Hit, allowing for evaporation losses of 4.5 km3 (Keban + Karakaya + Karababa + Euphrates + Haditha = 4.5 km3/year; in Habbaniyah loss accounted for in irrigation demand) water utilization is 75% by 1985/86 at Rate 1 growth and 82% at Rate 2 growth. /3 At Rate 2, ultimate development up-stream (U/S) of Euphrates Dam achieved in year 9 of simulation. /4 It may be noted that the apparent anomalies in irrigation demand downstream (D/S) of the Euphrates Dam arise from assumptions regarding the transfer of demand from the lower Balikh basin, in year 2 of the simulation, and the concentration of development U/S until Phase I of the Balikh project has been completed. As a consequence, U/S abstractions continue to increase (at gross rates) until ultimate development is achieved, and return flows from this area are taken into account in determining net D/S demands. /5 LTA = long term average natural flows estimated from records covering the period 1937/1968.

It may be noted that total irrigation abstractions from the basin would have grown by 2.5 km3 for Rate 1 development and by some 5 km3 under Rate 2 by 1986/87. The riparian plans in some cases exceeded the assumptions for irrigation requirements used in this study.

Project Data

10. The program logic was prepared, using available data, to concen- trate only on those factors of importance to the filling schedules. As detailed rating of the turbine capacity and discharge under varying head - 77 -

ANNEX 2.6 Page 7 of 18

were1ngt available for projlces, simplifying assumptions that capacity varies by H and discharges by H were adopted for all developments. For the purpose of these studies, these assumptions do not affect the conclusions regarding water distribution throughout the system. With respect to energy generation, although moderately underestimated for lower test conditions, the differences between the various simulations would be little affected.

Operational Studies

11. A mathematical model of the Euphrates River system with its installed and proposed develpment has been set up. In essence, the model permits the simulated operation of all developments on the river, in accordance with predetermined rules, under the influence of a variety of selected hydrological sequences. Since the study has been aimed at a review of potential filling constraints, the model keeps a careful check of flow volume movements, irrigation uses, evaporation losses and spilled water, but provides only an approximate assessment of power generation from the hydropower developments. The model simulates one year at a time, thus facilitating the input of physical and procedural changes on an annual basis and allowing for the introduction of any .equenceof historical or synthetic hydrological data that may be generated fur analysis.

12. The several sequences of years from the historic record which were selected from simulation in the mathematical model are specified in para 3. Testing of the model was initiated with a sequence of synthetic average years in order to gain insight into the modification of the natural flow regimen accomplished by each addition to the system storage capacity. Attention was focussed upon system constraints during the initial years of filling of each of the major storage developments.

13. The sequences represented a series of refinements made to the model to enable a detailed investigation of system operation options. For power operations, it has been assumed that the Turkish hydropower developments would be operated to maximize energy generation, since this would be in accordance with the known requirements of the Turkish power system. This model is also satisfactory for the downstream riparians, since generation results in release of water downstream. For Syria, operation under both firm capacity and maximum energy modes have been simulated, since it was not known which mode would be preferred. The most critical period for the river system was found to be the initial years of reservoir filling. On the basis of the data used, it was found that downstream demands were satisfied if the flow passing Birecik was not allowed to fall below 350 m.3/sec in any one month, unless the average inflows to Keban during the month were less than 350 m3/sec. In that instance, releases in addition to those for power generation would be needed, so that the total monthly release from the Turkish power plants would not be less than the actual inflows for the month. In practice, this mode of operation would have tc be acb;-ved through a series of supplemental releases in the month following, to make up any deficits. - 78 - ANNEX 2.6 Page 8 of 18

14. For the Syrian Euphrates Dam, a number of operational modes were studied. It has been found that the most suitable operation of this project is if reservoir releases meet irrigation demands downstream in Syria and Iraq, reduced by the Khabour River flows and the return flows from upstream irrigation, as well as adjustments for the filling and drafting of Habbaniyah Reservoir. The Habbaniyah Reservoir has a limited available storage (2.9 km3) and this is required to accomplish its necessary re-regulation; it appeared that the Euphrates Dam project could assist in this re-regulation. In order to supplement re-regulation at Habbaniyah, it was necessary to store 60 m3/sec of the required outflows in the Euphrates Dam project during the first six months of the water year, and to release an additional 60 m3/sec during the second six months. This adjustment to the operational mode for the Euphrates River project was referred to as the "Rule of + 60".

15. On the basis of data used in this study, the simulation has demonstrated that it is possible to sustain the current level of abstractions for irrigation in each of the riparian countries, as well as meet an increase in these demands during the studied ten years, while concurrently meeting Turkish and Syrian requirements for power generation, provided certain principles of operation are adhered to. It has been found that during the ten years, the storage projects Karakaya and Karababa in Turkey and the Haditha project in Iraq could proceed without constraint upon growth in irrigation demands. Syria would benefit in most years, both in terms of increased power generatior.and through flood abatement, from the regulation imposed upon the flows in Turkey by the storage projects on the Euphrates River.

16. The study revealed that, if the various interests of the riparians are to be satisfied materially under all conditons which can reasonably be anticipated, these major developments cannot proceed without some basic principles governing their operation, with a common understanding of these principles and their importance among the riparians. The simulation model has been made to conform to current understanding of the various interests of each of the riparians during the ten year period. Thus, for Turkey, it is understood that the objective is to maximize energy generation for the sequence of the projects along the main stem of the Firat River, until diversion for the Lower Firat irrigation program begins; for Syria, it is essential to meet irrigation demands and at the same time generate maximum hydroelectric energy, to replace more costly thermal energy within the Syrian power system; and for Iraq, the essential interest is to obtain sufficient flows, distributed over the year, in a pattern which will satisfy extensive irrigation demands.

17. It is apparent from the various conditions simulated that the first years will be the most difficult, should unusually low flow conditions occur. Nevertheless, in this event, provided appropriate minimum releases are made from the Turkish projects, in combination with specific arrangements for maximum energy operation under prescribed minimum plant load factors, sufficient flows will be provided to meet the needs of the downstream riparians. In addition, Turkey will obtain the maximum energy contribution possible under the prevailing conditions. Similarly, a predetermined mode for the - 79 -

ANNEX 2.6 Page 9 of 18 opration of the Syrian Euphrates project needs to be established. Several possible modes of operation have been assessed and it would appear to be possible to approach yearly averaged releases to meet downstream demands relying on Habbaniyah, in Iraq, for re-regulation. On this basis, Syria can adopt either a maximum-energy mode or a firm-capacity mode, whichever better suits her system power requirements, and Iraq will continue to receive adequate water supplies to meet its irrigation demands. The Habbaniyah Reservoir in Iraq, supported by a semi-annual re-regulation at the Assad Reservoir in Syria, appears to provide adequate re-regulation capacity to meet Iraq's irrigation requirements, except under conditions relating to extreme low yield from the Khabour tributaries. It has been found that during the initial years of the studied decade, should the Khabour tributaries yield less than 60% of their long-term average, Iraq would need to obtain, on an ad hoc basis, supplemental releases from storage in Syria. Several simulations runs have been made which included the proposed Haditha project. These indicated that the project would provide Iraq with a substantial energy generation capability, although, at the same time, it would increase the total annual evaporation losses from the Euphrates system. The projected storage re-regulation capability does not appear to be necessary to support irrigation during the period covered, as is borne out by the simulation of the Habbaniyah capacity to achieve this purpose.

18. Tentative principles for operation of the Turkish, Syrian and Iraqi reservoir storage projects were developed, using the model, to overcome failure of the system, simulated by the model. They have been simulated to meet operational requirements and demonstrate the practical application of the model, and are formulated on the basis of data input described pre- viously. The operation of the Turkish projects would need to conform to a schedule of minimum load factors and planned installation schedules which, in combination with minimum releases rule, will ensure that adequate water supplies are passed to the downstream riparians. At present Iraq has a limited re-regulation capability in the existing Habbaniyah Reservoir. Nevertheless, except under abnormally low yields from the "Khabour" tributaries, it has been found adequate for re-regulation of the flows passed by Syria through the Euphrates Dam, in accordance with certain operating principles, which at the same time ensure that Syria will obtain maximum energy benefits as well as meeting downstream irrigation requirements.

B. Study of Reservoir Filling of the Karakaya Hydropower Project

Scope of Study

1. As a part of the evaluation of the Karakaya hydropower project, a more detailed assessment is required of the effects on the downstream riparians of alternative reservoir filling schedules at Karakaya. In this study, appropriate analyses have been completed and procedures to be followed by both Turkey and Syria during the filling period of the Karakaya reservoir have been recommended. The simulation model, as developed for the - 8O -

ANNEX 2.6 Page 10 of 18 previous study, was also used in this study. Changes to the model were limited to those essential to the specific requirements of the study. All newly available information has been incorporated into this study, particularly the hydrological data presented in the Aide-Memoire entitled "Plan of Karakaya Reservoir Filling Operation" prepared by the Government of Turkey and submitted to the Bank in September 1975.

Study Assumptions

2. The main assumptions examined in the study were:

(a) The minimum monthly mean flow at Birecik should not fall below 500 m3/sec;

(b) Assessments should consider both low and average water years;

(c) The study should consider both the intended closure dates for Karakaya, in March and September, to allow for possible slippage in the construction schedule;

(d) Assessment should be made of the effects of regulating discharges for Keban at both 600 and 900 m3/sec; and

(e) Initial reservoir conditions at both Keban and Assad should be based upon interpretations of available data.

In the study, specific determination of the following has been made:

(a) The effect on Syria if releases from the Euphrates Dam were maintained to meet the indicated needs in Iraq;

(b) The effects on Iraq if Syria operate normally for power and energy;

(d) Suggested operating criteria modification that would be required to mitigate undesirable effects of (a), (b) and (c) above.

Operational Studies

3. In accordance with the information provided in the Aide-Memoire, all Turkish hydrological data for the period 1936/37 to 1971/72 have been amended to conform with the newly prepared data base. No changes in power and irrigation demand data have been made with the exeption that, for Turkey, no growth has been assumed beyond the status estimated for 1974/75. The analysis has demonstrated that, without detriment to the overall interest of Turkey or either of the downstream riparians, Karakaya can be filled to minimum generating level (670 m.a.s.l.), in accordance with the rules - 81 -

ANNEX 2.6 Page 11 of 18 recommended, within a period of three to seven months. Thereafter, without significantly affecting the downstream riparians, Turkey could operate Karakaya either to fill as rapidly as possible or for maximum energy output, as best suits her interests, provided such operation is effected subject to the limit of a minimum discharge of 500 m3/sec at Birecik. During the filling of the Karakaya reservoir, monthly flows entering the Euphrates Dam reservoir in Syria will be less than would otherwise occur. While this retention of water by Turkey is taking place, a drawdown of the Euphrates Dam reservoir should occur if Syria continues to meet the needs of Iraq, as well as her own requirements for irrigation and power. Nevertheless, on the basis of the comparisons made, it was estimated that the maximum drawdown of the Euphrates Dam reservoir during this period would be less than 1.5 km3 and would depend on the specific option selected by Turkey for operation at Karakaya after the level in that reservoir has risen above the minimum generating elevation. If Syria attempts to retain water in her reservoir while Karakaya is filling, she will forego power generation benefits that are available without risk to her future interests. Once Karakaya has been filled, it will be in Turkey's best interests to operate both Keban and Karakaya for maximum power generation. The Euphrates Dam reservoir would then be filled rapidly, as a consequence of the improved regulation of all upstream flows. During the somewhat increased drawdown period, Syria will benefit from normal energy output by continuing to release water according to the maximum energy "Rule of + 60 m3/sec". If Syria operates her Euphrates project in accordance with this rule, Iraq's interests would be safeguarded. Retaining water because of temporarily reduced inflows from Turkey would only reduce Syria's immediate energy benefits and result in larger volumes of spill once Karakaya has been filled.

Operating Rules

4. Using the estimates available to the Bank (which could not be veri- fied) of present water diversions and their projected growth, described in the January 1975 Report, the model has been used to investigate different options for water management during the period of construction, filling and operation of the proposed Karakaya hydropower dam in Turkey between 1975/76 and 1984/85. On the basis of the investigation, tentative principles for the operation of the Turkish, Syrian and Iraqi reservoir storage projects were developed and tested, which would ensure that the interests of each of the riparians were safeguarded. Basically, the operation of the Turkish projects was tested according to the schedule of planned power units' installation and operating schedules which, in combination with minimum release arrangements, would ensure adequate water supplies being passed to the downstream riparians. This was done in conjunction with the assumption of specific operational procedures in Syria and Iraq during the construction, initial filling and operation of the Karakaya Dam. The operating principles developed using the model are summarized below.

5. Turkey. During construction, filling and operation of the Karakaya Dam, the Keban and Karakaya projects would need to be operated in such a - 82 -

ANNEX 2.6 Page 12 of 18 manner as to ensure that the flow of the Euphrates River as it leaves Turkey at Birecik will average not less than 500 cubic meter per second. The averaging period would be not greater than one month and any shortfalls in one period would be made up in the immediately succeeding period. This criterion has been called the "Rule of 500".

6. Syria. On the basis of the assumptions of present irrigation diversion demands, of hydrological data and the January 1975 Report, water availability downstream of the Thawra Dam would consistently exceed demand in Syria and Iraq over the ten-year period covered by the model. In order to guarantee such availability, during the months October through March, the average outflow from the Thawra Dam in any one month would need to be equal to, or greater than, the result of (a) the predetermined average net irrigation demand for the water year in Syria below the Thawra Dam, plus (b) the predetermined average gross irrigation demand for the water year in Iraq, less (c) the long-term mean natural "Khabour" flow, which is estimated at 140 cubic meters per second, less (d) 60 cubic meter per second. During the months April through September, the average outflow from the Thawra Dam in any one month would need to be equal to, or greater than, the result of (a) the predetermined average net irrigation demand for the water year in Syria below the Thawra Dam, plus (b) the predetermined average gross irrigation demand for the water year in Iraq, less (c) the long term natural "Khabour" flow plus (d) 60 cubic meters per second.

7. On the basis of the assumptions used in the January 1975 Report, the minimum monthly releases required from the Thawra Dam in 1976/77 would be as follows:

October through March 310 m3 /sec April through September 430 m3/sec

These minimum releases would need to be increased over time to take account of the actual growth in water use in Syria and Iraq downstream of the Syrian Euphrates Project. Typical projected values for required minimum flows in 1984/85 would be as follows:

October through March 360 m3/sec April through September 480 m3 /sec

These flows would be augmented by inflows from tributaries to the Euphrates River joining the river downstream of the Syrian Euphrates Project (such as the Khabour River).

8. Actual average flows at Hit over the period covered are shown by the model to be substantially in excess of the above discharges, except during the four to seven months initial filling period of Karakaya, when the minima are required to be applied in successive months. - 83 -

ANNEX 2.6 Page 13 of 18

9. Iraq. Flows reaching Ramadi Barrage from upstream which are in excess of downstream irrigation requirements, would need to be diverted into the Habbaniyah reservoir to the extent such excess flows can be stored there. This reservoir should at all times be maintained as full as possible. Water would be drafted from the Habbaniyah reservoir via the Dibban Canal only in such amounts as are needed whenever the flows passing the Ramadi Barrage are less than the irrigation requirements.

Monitoring Arrangements

10. In order to ensure that the operating principles described above are effectively coordinated, it would be essential for river flows at critical points in the river system, as well as reservoir levels and discharges, to be continuously monitored and for the recorded information to be made available to each of the riparian countries. Such an exchange of data is, to a large extent, already allowed for under existing arrangements between the three countries. Monthly Euphrates River flows in 1977-1979 are given in Attachment 2 to this Annex.

Applicability of the "Rule of 500"

11. The time period that has been simulated by the model is the ten year period 1975/76 through 1984/85. The expected increases in water demands, due to the expansion of irrigation in all countries, and the filling and operation of the Karakaya Dam, have been allowed for and are adequately covered by the application of the proposed operating principles. However, the implementation of any new large consumptive projects on the river system, such as the Haditha Dam in Iraq, the Khabour Dam in Syria or the Karababa (Ataturk) Dam and irrigation system in Turkey, may require an amendment to the principles in order to take account of the new situation created by such new projects. These amendments would have to be the subject of further discussions and agreement between the riparian countries.

C. Syrian Comments on the Proposed Operating Rules for Projects on the Euphrates River

After receiving Turkish agreement on the operational criteria and monitoring arrangements, the Bank informed the lower riparians of the Turkish proposal and invited their comments. Syria, in a letter dated October 16, 1976, made in essence the following remarks on the proposed operating rules of the Karakaya hydropower project:

1. The proposed "Rule of 500" and the related conditions may signify that out of the 28 km3 average yearly flow of the Euphrates River reaching the Syrian boundaries during construction and after operation of the Karakaya Dam, only 15.7 km3 (or nearly only 55%) of the flow will be for the use of the two downstream (Syria and Iraq), and the rest, or 45%, of the flow will be for the exclusive use of Turkey. Taking into consideration all relevant factors on the subject and remembering that rainfall in the Turkish region - 84 -

ANNEX 2.6 Page 14 of 18 is more than double that in the Syrian and Iraq regions, Syria believes that any rule involvingsuch highly unfair rates of distributioncannot be considered acceptable.

2. The filling period of the Karakaya reservoirto the operating level should be studied on the basis of one or more flood seasons, dependingon the prevailing conditionsof the hydrologicalyears, and not on the basis of three to seven months during one single season, as proposed. Syria believes that agreement on a special time filling program should be reached between the three riparian countriesbefore allowing any storage in the Karakaya Reservoir, to ensure that no harm is caused to any side during the filling period.

3. The need for maximum power generation from the Thawra power station has, strangely,been overlooked in the analysis of the proposal submittedand in the Bank's draft report. While admitting that priority in the use of the Euphrates River waters should be given to irrigation,Syria cannot see why her right to utilize fully the available flow of the River in maximum power generation,until the land reclamationprojects of Turkey and those of the upstream areas of Syria are completed, should be overlooked.

4. Syria finds that many of the assumptionsand data used in the analysis of the proposal and the draft report, need to be reconsideredand corrected. As examples,Syria cited the followingpoints:

(a) The long term mean natural flow of the Khabour River was estimated in the Aide-Memoireto be 140 m3/sec. This figure is highly exaggeratedand is nearly three times the actual mean discharge of the River. It should be remembered also that this dischargewill be greatly reduced in the future, when the Turks will gradually exploit some of the water resources in their region.

(b) It is assumed in the Bank's report that the return flow in Turkey and Syria will be taken as 30%, and in Iraq as 0%. Such an assumed percentage in the Syrian reach is unreasonablyhigh, taking into considerationthat irrigation canals will all be lined with concrete and that special measures for raising efficiency in the use of irrigationwaters on farm levels would be sought and adopted.

(c) In the estimate of the volume of flow of tributariesin the Syrian reach of the Euphrates Basin, the surface runoff of Wadi Hauran (which is in the range of nearly 1 km3/year) is wrongly added to Syrian water resources; it should be added to Iraqi resources and deleted from Syrian. - 85 -

ANNEX 2.6 Page 15 of 18

(d) The assumption that the average areas to be reclaimed annually in Syria until 1986 shall run between the limits of 10,000-20,000 hectares, seems to contradict greatly the present state policies in Syria. The current five-year plan requires the reclamation of 240,000 hectares. Even if practical difficulties and obstruc- tions make this goal hard to attain, with the great importance and priority given by the state to land reclamation projects, Syria feels that the rate of land development realized will be higher than the low rates assumed in the Bank's analysis, and the consequent water requirements will, therefore, be much higher.

5. With the proposal presented in the Bank's letter of July 12, and the attached Aide-Memoire, two further obligations on the Syrian side were implied:

(a) That Syria should store in the Assad reservoir about 1 km3/year for the exclusive benefit of Iraq.

(b) That no modification of the criteria proposed in the "Rule of 500", necessitated by projects to be implemented in the Euphrates Basin, could be made, nor could any such projects be started, until agreement of all riparian countries was attained.

6. The Syrian side considers the imposition of such unilateral obligations, before reaching full agreement between the three riparian countries on all matters concerning the long range distribution of water rights in the river, unacceptable. Syria expressed its readiness to cooperate fully with all sides in seeking a quick and final solution to all problems concerning the Euphrates waters, with due consideration to the interests and welfare of all people of the riparian countries. Furthermore, Syria indicated that no fair and equitable solution could ever be reached unless specialists from the three riparian countries could meet to establish the coordinated data, the agreed upon assumptions, and methods of approach on the basis of which a scientific study of the subject is to be made. They further believe that only after such essential data and basic assumptions are agreed upon among the specialists of the riparians, will the assistance and the valuable efforts of the Bank be of real value, and may yield positive results.

7. Finally, Syria pointed out that the degree of dependence of the future growth of the Syrian national economy on the proper and full utilization of her legitimate share of the Euphrates waters is, in fact, by far higher in Syria than in the other riparian countries. It would be difficult for Syria, therefore, to tolerate the exposure of all her future development to any probable uncertainties. - 86 -

ANNEX 2.6 Page 16 of 18

D. Analysis of Concerns Expressed by Syria Related to the Proposed Operating Rules for Projects on the Euphrates River

Syria's comments on the operating rules for projects on the Euphrates River were analyzed in detail by the Bank staff and consultants. The Bank's observations on these remarks were forwarded to Syria and no further responses have been received. The analysis of the Syrian comments has revealed the following:

1. "Rule of 500". Apparently, Syria did not realize fully the real meaning of the "Rule of 500". The proposed "Rule of 500" and the suggested operating rules do not imply any long-term water sharing agreement between riparians of the average yearly flow reaching the Turkish-Syrian border, as indicated in the Syrian comments. Although Karakaya is not a water consumptive project, its filling and operation under the "Rule of 500" is designed to assure the lower riparians that, at any time during construction, filling and operation of this project, the flows of the Euphrates River as it leaves Turkey at Birecik - whether in dry or wet water years - will average no less than 500 m3/sec. Thus, it will ensure that present and forecast irrigation needs in Syria and Iraq are fully met, and benefit from the regulation provided by the upstream Turkish reservoirs. Water consumptive requirements in the three riparian countries over the coming decade do not reflect the longer-term needs at full development of the economically irrigable area. This is also the reason why the "Rule of 500" would have to be renegotiated by the riparians before the start of any new large water consumptive projects on the Euphrates River.

2. Filling of Karakaya Reservoir. With regard to Syria's proposal that an agreement on a filling program be reached among the riparians before allowing any storage in the Karakaya reservoir, attention again must be drawn to the fact that under the "Rule of 500", Turkey would be obligated to ensure that the flow at Birecik would average no less than 500 m3/sec. The filling time for Karakaya to reach an operating level has been estimated at 3 to 7 months, depending on actual water flows at the time of closure. The obliga- tion under the "Rule of 500" to release no less than 500 m3/sec at Birecik clearly implies that, if actual conditions would not permit filling within this time period, the necessary adjustments must be made and the filling period extended as required.

3. Thawra Power Plant Generation. The need for maximum power generation from the Thawra power plant has not been overlooked, as stated in Syria's comments. In the analysis it has been assumed that the Thawra (the Euphrates Dam Project) would be operated to generate maximum energy, which is consistent with the needs of the Syrian power system. Operations of Thawra have been studied in order to achieve maximum power generation, but it has been found that the "maximum energy" criterion was a more conservative assumption, and this was therefore adopted for the model runs. - 87 -

ANNEX 2.6 Page 17 of 18

4. Assumptions and Data Used in Studies

(a) Khabour River Flows. Hydrological data regarding the Khabour river at Sour are not comparable to what the January 1975 Report called the "natural Khabour flows". The latter, as explained in paras 2.10 and 2.11 of that report, have been derived, because of lack of data on the inflows between Thawra and Hit, from the historical data at the Birecik and Hit stations. Thus, the "natural Khabour flows", as used in the report, include not only the Khabour proper, but also all other tributary flows between Thawra and Hit, including the runoff from the Balikh River as well as other minor perennial and ephemeral streams - such as the Wadi Hauran - or resurgent inflows between Thawra and Hit. They also include estimates of historical net irrigation abstractions that have been added to the recorded discharges. It is not implied in the model that these flows should be added to Syrian water resources, but merely that they should be taken into account for the purposes of evaluating water balance within the Euphrates System. Until better data are available, especially clarification of the poor correlation of the recorded monthly discharges at Birecik and Hit, it is believed that these "natural Khabour flows" are reasonable estimates for the purposes of the simulation model.

(b) Return Flows. Regarding Syria's comment that the assumed return flows at a rate of 30%, delayed by two months, are unreasonably high in view of the proposed concrete lining of irrigation canals and measures to improve water efficiency at the farm level in Syria. In the absence of specific data on return flows, the original assumption of a 30% return flow, which is consistent with the data collected in connection with the Balikh project, is still considered realistic. From experience elsewhere, it has been concluded that rates of much less than the assumed 30% would indicate either an ex- tremely efficient utilization or a water deficiency situation. Any reasonable changes in the return flow data are likely to show only a marginal change in the resulting flow, since in deriving the "Khabour flows" used in the model, the return flow assumption is used on both sides of the equation - that is, if a lower return flow is used, then the derived Khabour flow would also be reduced. For example, the change in the resulting downstream flow by assuming, say, a 15% return flow (instead of 30%), would be something less than 20 m3/ sec, which is negligible considering the quality of the input data.

(c) Rate of Land Development. The model in the preliminary study had assumed a rate of land development of 10,000 ha per year as "possible" in the Euphrates Valley in Syria. Although development of about 240,000 by the end of 1980, as indicated in the Syrian comments, would be difficult to achieve given the existing constraints, it certainly would be possible to review in the model the possible effects of higher land development rates than had been assumed, if details of the proposed Project 5 for the development of 240,000 ha can be made available. A Bank mission to Syria was informed that the target for the Plan period would be reduced to 120,000 ha, and that irrigated land in the Euphrates area was going out of cultivation because of the increasing rate of salinity. - 88 -

ANNEX 2.6 Page 18 of 18

5. "Unilateral Obligations". Syria has expressed concern that new obligations would be unilaterally imposed on her side if the proposed rule is applied. These are basically related to the operational mode of the Assad reservoir in Syria. With the release of water from the Karakaya reservoir by Turkey in accordance with the "Rule of 500", water availability downstream of the Thawra dam is expected consistently to exceed demand in Syria and Iraq over the ten-year period covered by the model, provided the Assad reservoir is operated in accordance with the proposed "Rule of + 60". As long as Turkey releases an average discharge of 500 m3/sec at Birecik (which it would be obligated to do under the proposed "Rule of 500"), Syria would not have to meet a flow deficiency from its Assad Reservoir storage resources. On the other hand, Syria would be expected, under the proposed rules, to utilize its storage reservoir to re-regulate the available water supply in its own interests and those of Iraq. The need for storage in the Assad reservoir under the proposed rules would cause Syria to reduce neither energy production nor water use for irrigation, and in fact, appears to be an optimum or near optimumnoperating rule for the reservoir. Under the proposed "Rule of 500" and related proposals (including the "Rule of + 60"), it is believed that Syria would have ample water availability and more flexibility than either of its riparian neighbors to meet unusual situations and still operate within the rules.

6. In summary, the analysis of Syria's comments has revealed that the operating rules for Karakaya meet the needs of the riparians without adversely affecting the interests of any of them, although there would always be scope for further optimization. Since Turkey has formally conveyed to Syria and Iraq its proposal to operate Karakaya under the "Rule of 500", and also invited both Governments to initiate tripartite discussions on monitoring arrangements and on the better use of common waters, it is expected that Syria will also clarify her comments with Turkey. Therefore, in view of the above explanations, it is clear that Syria's comments do not contain valid quantified or substantiated objections to the proposed operational rules. - 89 - ANNEX 2.6 Attachment 1

TURKEY THE KARAKAYA HYDROPOWERPROJECT SchematicLayout of Developmentsin the EuphratesRiver Basin

KEBAN RESERVOIR & POWER PLANT

G* < ATATURK RESERVOIRK Y & POWER PLANT KARAKAYA RESERVOIR DAN & POWER PLANT POWEREPHTS\

t ^ * *KOMURHANG . S KEBANG . S ...... ~~~~~~.....

THAWRAG.s. ~ ~ ~ K KEANG..:: I NFUTURE IRRIGATION SR IRRIGATION

HADITHA RASSAD RESERVOIR EUPHRATES DAM & POWER PLANT

J THEWRAGPS. IRRIGATION S

TIGABOUR" INFLOWS

SYIRIA D I GATION IRAQ 2

jXHADITHA RESERVOIR LEGEND: / \& POWER PI-ANT / \ h ~~~~~~~~~~~~EXISTINGPROJECTS

LAE HIT G.S. DFUTURE PROJECTS HABBANIYAH ; ; * ~~~~~~~~~~~~~~GAUGINGSTATIONS (G.S.)

L*- TIGRIS LINK CANAL

IRRIGATION DEMANDS IN IRAQ

World Bank -21 216 ANNEX 2.6

90- - Attachment 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Recorded Monthly Euphrates River Flows (m3 /sec.)

1977 1978 1979

GAUGING STATION

Keban

October 475 464 518 November 492 478 545 December 508 477 561 January 635 483 533 February 644 498 531 March 787 502 563 April 1,201 906 549 May 1,412 1,974 546 June 1,368 1,146 July 517 413 August 343 633 September 371 522

Birecik

October 771 639 696 November 794 680 707 December 1,032 788 832 January 1,060 1,015 1,114 February 1,175 1,272 988 March 1,477 1,137 980 April 1,839 1,410 953 May 2,145 2,598 794 June 1,843 1,603 July 737 677 August 499 792 September 507 682

December 1979 - 91 - ANNEX 2.6 Attachment 3

TURKEY

KARAKAYA HYDROPOWER PROJECT

Verbatim Excerpt of Proceedings of the Budgetary Session of General Assembly of the Parliament During Which His Excellency the Minister of Energy and Natural Resources Mr. Deniz Baykal Made a Speech in Connection with Karakaya Project on February 23, 1979

"As you know, the Karakaya Project is an energy-purpose project, capable of producing 1,800 MW, and it will contribute considerably both in our country and other riparian countries and increase the welfare of our countries by further regulating the Euphrates River as was the case in the realization of the Keban Dam. Undoubtedly, the initial filling stage of the reservoir has significant important in the construction of dams of this size. Being conscious of this phenomenon, regulating of Euphrates River waters during the initial filling in accordance with the needs has been decided. Therefore, during the construction, initial filling and operation stages of the Karakaya Project, the monthly average amount of flow of the Euphrates River waters will not fall below 500 cubic meters of water per second as measured at the city of Birecik; any shortfall in such flow, will be made up during the next following month by releasing an additional volume of water. The above measures will be applied unless very abnormal hydrometeorological conditions exist and as long as Turkey has not developed a project causing a level of consumptive use of the River's waters in its territories."

January 1980 TURKEY

KARAKAYAHYDROPOWER PROJECT

TFK's Tncome Statements for the Vears

Ended December 31, 1973-1979

(LT Millions) A C T U A L ESTIMATED 1973 1974 1975 1976 1977 1978 1979 TEK'S SALES __ 18,282 Sales - GWh 9,344 10,239 12,183 14,640 16,213 16,897 Average Revenue per kWh (kurus) 26.05 39.39 40.07 42.19 56.39 83.12 123.42

OPERATING REVENUES Sales 2,435 4,033 4,882 6,178 9,144 14,044 22,564 Other - - - 459 873 1,472 1,757 TOTAL REVENUES 2.435 4,033 4.882 6,637 10.017 15 516 24,321

OPERATING EXPENSES Fuel - Coal 187 193 207 219 400 769 819 - Lignite 102 101 206 151 225 784 3,141 - Fuel Oil 588 1,377 1,203 1,142 1,622 2,429 5,880 - Gas Oil 233 562 550 460 1,542 1,474 1,380 Purchased Power 71 221 519 480 376 997 1,795 Materials 34 39 49 185 139 247 267 3,063 Wages and Salaries 220 357 486 851 1,197 1,980 Miscellaneous Expenses 50 66 74 59 102 146 256 1 Depreciation 590 668 1,059 1,251 1,581 3,045 5,000 Taxes other than Income Taxes 5 6 8 38 13 14 19 % Income Taxes 63 54 35 510 825 495 - TOTAL OPERATING EXPENSES 2,143 3,644 4,346 8,022 12,380 21, 620

NET OPERATING INCOME 292 389 486 1,291 1,995 3,136 2,701 OTHER INCOME (LOSS) 9 (55) (67) (91) (520) (1,345) (888) GROSS INCOME 301 334 419 1,200 1.475 1,791 1,813

INCOME DEDUCTIONS Total Interest Expense 295 470 708 980 1,323 1,886 2,715 Less Interest Charged to Construction 82 212 337 492 735 787 1,365 NET INTEREST EXPENSE 213 258 371 488 588 1 099 1.350

NET INCOME (LOSS) 88 76 48 712 887 692 463 LO

AVERAGE REVALUED NET FIXED ASSETS IN SERVICE 10,645 17,132 20,817 31,465 56,116 80,766 103,500 RATE OF RETURN 2.7 2.3 2.3 4.1 3.6 3.9 2.6

January 1980 - 93 -

ANNEX 3.2 Page 1 of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Objectives and Method of Monitoring TEK's Cash Generation

Objectives of a Cash Generation Covenant

Electric utilities require very large investments in plant for the generation, transmission, and distribution of electricity. In order to achieve the desired financing of investments in the electric power subsector of Turkey the investments of DSI for hydroelectric power should be added to TEK's investments to obtain the total power subsector investments in generation facilities. During discussions with the negotiations for Loan 1194-TU the policy of transferring assets from DSI to TEK was discussed including the transfer of the associated debts for the assets transferred from DSI to TEK. It would therefore be necessary to transfer the associated debts with the assets to TEK.

The objectives of attaining, in a given time, the desired 35% of the total electric investments of TEK and DSI could be achieved through the application of a cash generation covenant. However, the achievement of the desired investment mix would require realistic financial planning and close coordination between the Ministry of Finance, SPO, TEK, and DSI to establish annual investment programs of TEK and DSI based on the planned financial performance of TEK. TEK should have the overall responsibility of preparing the proposed investment program for the next fiscal year, and should prepare a statement for the proposal and recommendations to Government exhibiting in a financial format TEK's sales, revenues, and operating expenses to produce the agreed cash generation required to meet the investment needs for the fiscal year.

Method of Monitoring the Cash Generation Covenant

To monitor TEK's financial performance under a cash generation covenant it would be necessary for Government to:

1. Submit to the Bank by December 31, 1980 (and by December 31 each year thereafter) the following:

(a) the total planned power subsector investments, including interest charged during construction, for TEK and DSI for the next year;

(b) TEK's financial forecasts for the next year; and

(c) proposals of actions required for meeting the agreed amounts of the internal cash generation requirement based on the above investment program and the financial forecasts of TEK. - 94 - ANNEX 3.2 Page lof 2

2. After the end of TEK's fiscal year, but not later than May 31 of 1981 (and each subsequent year) submit to the Bank TEK's actual financialperformance as compared to the plan in 1. above in achieving the internal cash generationas agreed. Any shortfallwould be required to be made up within the next fiscal year; or any surplus would be applied to the next fiscal year. The 1980-1986 investment plan as presented indicatesa rather level investmentplan. But should the annual investmentsbecome "lumpy" (excessivelyhigh) in a given year, then an averagingmethod of calculatingthe investments over three years would be consideredto prevent very high tariff increases in a given year to meet the desired cash generationamount.

April 1980 - 95 - T U R K E Y

KARAKAYAHYDROPOWER PROJECT ANNF- ,.

TEK'S CASHGENERATION AND POWER

SUBSECTORINVESTMENTS OF TEK AND DSI US$ Millions

Exchange Rate TL70=US$1.00

E S T I M A T E D TOTAL 1980 1981 1982 1983 1984 1985 1986 1980-1986 TEK's SALES Sales - Gl- 19,500 2 22,164 26,400 30,800 34,500 38,300 42,500 Average Sales Price per kWh c 4.0 - 6.0 7.0 7.5 7.8 8.0 8.0 TEK's INCOMEAND EXPENSES Operating Revenues Sales 780 1,330 1,848 2,300 2,690 3,064 3,400 Other 30 35 40 45 45 45 45 Total Revenues 810 1,365 1,888 2,345 2,735 3,109 3,445 Operating Expenses Fuel 318 429 500 700 685 595 410 Purchased Power 32 68 75 - - - - Materials 8 21 35 64 95 141 148 Wages and Salaries 60 120 P55 225 307 360 375 Misceelaneous a7d Other 8 23 55 92 125 165 180 Depreciation 3 145 195 285 390 500 680 800 Total Operating Expenses 571 856 1.105 1.471 1,71 1,94i 1,913

Operating Income 239 509 783 874 1,023 1,168 1,532 Incooe Tao 53 150 300 275 220 185 212 Net Operating Income 186 359 483 599 803 983 1,320

AVERAGENET FIXED ASSETS Al 3,300 4,700 6,100 8,200 10,500 13,500 16,500 RATE OF RETURN- After Iscome T.a 5.6 7.6 7.9 7.3 7.4 7.3 8.0 - Before Insome Tas 7.2 10.8 12.8 10.7 9.7 8.7 9.3

INVESTMENTS TEK 1,146 1,569 1,805 2,141 2,097 2,353 3,052 14,163 DSI 389 489 566 584 618 732 729 4,107 Total Invest-ests 1,535 2,058 2,371 2,725 2,715 3,085 3,781 18,270 INTERESTCHARGED TO CONSTRUCTION 60 120 243 315 360 425 500 2.023 Total 1,595 2,178 2,614 3,040 3,075 3,510 4,281 20,293

TEg'S CASHGENERATION Operating Incoe / 239 509 783 874 1,023 1,168 1,532 6,128 Depreciation 145 195 285 390 500 680 800 2.995 Total 384 704 1,068 1,264 1,523 1,848 2,332 9,123 Less: Debt Service 7/ 97 269 493 504 631 725 834 3553 TOTALCASH GENERATION 8/287 435 575 760 892 1,123 1,498 5,570 CASHGENERATION AS 7 OF INVESTMENT_ 18 20 22 25 29 32 35 27

1/ Eales estimate Annex 1.6. 2/ Tariff increase effective February 1, 1980. 3/ Depreciation caleualted on revalued assets. 4/ Average revalued net fined assets is service. 5/ Investments estimate Annex 1.10. / Operating income before TEE's income tax liability. / Includes DSI's debt service for all loans associated with power projects. 8/ Inclsdes interest charged to construction.

April 1980 - 96 - ANNEX 3.4 Page 1 of 4

TURKEY

KARAKAYA HYDROPOWER PROJECT

Terms of Reference for the Comprehensive Review of the Power Subsector Financing

A. Background

Power System Facilities

The electric power subsector in Turkey is controlled by the Ministry of Energy and Natural Resources. Under Law 1312 establishing the Turkish Electricity Authority (TEK) in 1970, TEK is responsible for planning the general electrification of Turkey and for constructing thermal power plants and transmission facilities. The State Hydraulic Works (DSI) is responsible for the development of the hydro potential of the country taking into consideration TEK's power demands. The hydropower installations constructed by DSI are transferred to TEK as Government's equity contribution on their being brought into service without the transfer of the associated debts; transfer regulations provide for determination of transfer values by ad hoc transfer committees.

At present TEK owns about 90% of the generating facilities of the country, the balance being owned by concessionary companies, municipalities and private industrial interests. Among the private utility companies, by far the largest is the Cukurova Electric Company which operates in the Adana area and provides 9% of the interconnected system's generating capacity. TEK is the main supplier of electrical energy in bulk to the distributors, villages and major industrial users not served by the distributors.

The distributors are municipal authorities and concessionary companies. The largest municipal distributors are Istanbul, Ankara and Izmir; Istanbul and Izmir buy energy from TEK but Ankara still generates part of its requirements. Except for a small and dwindling number of municipalities isolated from the interconnected system, other municipal authorities buy energy from TEK or Cukurova.

Village electrification is financed from the Village Electrification Fund managed by TEK separately from its other activities and built up from village contributions (25% of capital costs), a levy of 1 krs/kWh on non- village consumers of electricity excluding large industrial consumers and contributions from the Government budget. The capital and other costs not funded by direct village contributions are recoverable by way of tariffs over a period of 30 years. - 97 -

ANNEX 3.4 Page 2 of 4

Tariffs

Under the TEK law, TEK's tariffs are to be so fixed as to enable it to earn, after meeting its expenses, an 8% rate of return on net fixed assets. However, neither the manner of computing the return nor what constitutes expenses has been spelled out in the law or in any regulations issued there- under. TEK's covenants with the Bank under existing loans require TEK to earn a rate of return of 8% on realistically valued assets. The method of calculating the return and the principles for revaluation of assets have also been spelled out clearly in the loan covenants. TEK has consistently failed to earn the required return by a wide margin except in 1972. TEK's tariffs are established by the Government under a 1967 decree, the latest revision being effective from February 1, 1980. These tariffs provide for a fuel cost surcharge, to be applied each time with the approval of the Ministry of Energy and Natural Resources, in order to recover fuel cost increases occurring after October 1, 1977. A revision of TEK's tariffs would normally necessitate corresponding revision of municipal tariffs in order to maintain the financial position of municipalities. In view of this and with a view to avoiding a recurrence of the problem of non-payment of TEK's bills by municipalities, Government has agreed to ensure that municipal retail tariffs are promptly adjusted in a manner and in amounts commensurate with adjustments TEK makes from time to time in its tariffs.

TEK's tariff structure does not reflect directly the cost to the economy of meeting the demand for electricity supply. The same is true of other tariff systems in the country. Therefore in connection with Loan 1194-TU, TEK has prepared a comprehensive tariff study covering the whole country with a view to establishing appropriate pricing policies and tariff structures at the bulk supply level and at the distribution level, including the financing needs of the power sector. Government had undertaken to review the results of the study with the Bank and to propPse measures for revised tariff systems in the country.

Fuel Prices

No clear guidelines exist for determining the prices of fuel charged by the Turkish Coal Authority (TKI) for its coal and lignite supplies to TEK. These prices were traditionally fixed by Government with reference to prices of oil, the competing energy resource, and not related to costs. But even this method of fixing coal and lignite prices was not followed by Government after the world oil price increases in 1973-74 nor were prices adjusted for increases in TKI's operating costs with the result that TKI's operating losses rose continuously in the years through 1977. However, revised coal and lignite prices have been fixed by Government with effect from October 1, 1979 until January 1980, the effect of these prices on TKI's earnings is not known at present. By fixing fuel prices at uneconomical levels in the past, Govern- ment has provided a hidden subsidy to TEK and electricity consumers in the country. - 98 -

ANNEX 3.4 Page 3 of 4

TEK's Liability for Income Taxes

TEK pays income taxes at 41.7% of taxable income which is computed after interest expenses. TEK's loan capitalization therefore directly affects its income tax liabilities. The Tax Law recognizes only the normal depreciation charges and not depreciation based on revalued assets.

B. Objective of Proposed Comprehensive Review

The committee of experts appointed to conduct the proposed comprehensive review of power subsector financing would:

1. (a) prepare a comprehensive review of the financing requirements of the electric power sub-sector in Turkey, including retail municipal distribution until 1988; and

(b) a review of the extent of internal resource generation, taking into account:

(i) the present electricity pricing policies;

(ii) the impact of pricing policies for fuel used in power generation on electricity prices and internal resources in the electric power sub-sector;

(iii) taxation policies on TEK's internal resource generation;

(iv) impact of present methods of financing hydro investment and their transfer to TEK as equity; and

(v) the implications on TEK's financial situation of the terms on which loans are made to TEK; and

2. make recommendations for:

(a) appropriate level of capitalization required for TEK;

(b) policies for internal resource generation by the institutions concerned with a view to finance a reasonable portion of the investment requirements for future expansion; and

(c) measures to ensure that resources generated are in fact available to the institutions concerned, particularly with reference to prompt payments by municipalities to TEK;

3. In making its recommendations, the Committee will have regard to:

(i) recommendations of the overall tariff study done under Loan 1194-TU; - 99 -

ANNEX 3.4 Page 4 of 4

(ii) the investment requirements of the electric power sub-sector and their impact on the budget;

(iii) economic costs of fuel; and

(iv) a reasonable return on capital.

C. Scope and Timing of the Review

In order to achieve the above objectives, the committee should carry out a comprehensive review of the entire power subsector including related institutions such as TKI and the Government agencies supplying fuel and gas oil, and municipalities, the financing needs of the subsector and the financial relationship between the various agencies operating in the subsector. The committee would complete its work by June 30, 1981. - 100 - ANNEX 4 Page 1 of 11

TURKEY

KARAKAYA HYDROPOWER PROJECT

Justification of the Project

Load Forecast

1. The Karakaya hydropower project forms part of the 1980-1986 power development program, which is designed to meet the continued growth of demand on the interconnected power system in Turkey. The trend growth rate of sales since 1965 has been 10% p.a. (para. 1.12). For forecasting purposes, TEK has used various techniques of forecasting including simple extrapolation and econometric methods. Its present method is based on establishing the past trend of kWh sales to each customer served (excluding major industrial consumers) and making ten-year projections for each customer based on these trends. Customers are grouped by substations and the substations by geo- graphical regions. The resulting figures are aggregated for each region. Separate projections are made for major industrial consumers including projected new industries, using information supplied by the Ministries on State Economic Enterprises concerned, supplemented by TEK's own contacts with industry. To the resulting projection of total TEK sales are added projected sales by the two concessionary companies (CEAS and KEPEZ), municipal under- takings and auto-producers to give a forecast of total sales for Turkey. The corresponding projection of total production is obtained by adding estimated own consumption by power stations and transmission losses. The projected totals are finally checked, and revised as necessary, in the light of other Government plans and projections related to the development of the various sectors of the economy and the regions.

2. TEK's current projection of the load growth to 1986, covering the period of the two five-year economic plans for Turkey, is shown in Annex 1.7. For the subsequent six years, covering the long-term plan of economic development, an indicative (Appraisal mission's estimate) is as follows:

1987 1988 1989 1990 1991 1992

Required electricity generation, GWh 59,300 65,500 73,300 77,700 84,600 92,200

3. The forecast implies an average annual growth rate of 11.2% up to 1986, falling to 9% in 1987-92. This relatively high rate of increase of power demand assumes the recovery of the Turkish economy and its projected future growth. Given the expected fairly rapid rate of population increase of about 2.4% p.a., it implies a rise in electricity consumption per capita from the 1978 level of 441 kWh to 1,600 kWh in 1992. This would mean that at the latter date Turkey would reach the level achieved by Italy in 1966, which does not seem unreasonable. - 101 - ANNEX 4 Page 2 of 11

4. There are clearly many uncertainties in making projection for long- term periods. To allow for these, TEK makes alternative projections for the purpose of the economic analysis, assuming future demand 10% higher and 10% lower than that used for the basic forecast.

Power System Planning

5. TEK has qualified staff with appropriate experience in power system planning. Starting from 1972 TEK has been using a computer model based on the linear programming technique for the optimum development of the electric power sector in Turkey. The model uses linear programming to search for an optimum investment program over a 20-30 year period and the associated optimum load dispatching schedules of the plant during this period. The output of the model therefore includes the least-cost investment program, the load dispatching schedules and present worth of total capital and operating costs. The search for the optimum investment program has to satisfy a number of constraints which need to be stated explicitly in the model. The more important constraints are:

(a) the available capacity must be sufficient to meet the expected peak demand plus a reserve for contingency;

(b) the total instantaneous power output of all plants must be sufficient to meet the instantaneous power demand at all times;

(d) the energy output of a hydro plant cannot be greater than the potential energy corrected for losses;

(e) the capacity installed of a given type of plant, particularly hydro and lignite, must not be greater than resources permit; and

(f) the plant initially on the system is fixed to certain planned capacity levels.

There are also a number of special purpose constraints in the model:

(g) the hydro-thermal balance must not exceed a certain ratio; and

(h) the total capacity of a certain type of plant must not be above (or below) a certain maximum (or minimum).

Other appropriate constraints can be incorporated in the model. Furthermore, the model is very suitable for various sensitivity tests of all input data. The main limitation of the model is its inabilty to examine discrete alternatives. This problem can be overcome by additional use of the standard - 102 - ANNEX 4 Page 3 of 11

least-cost evaluation methods. TEK has also started to use new computer models for the power system development planning based on mathematical simulation methods.

6. Generally, it may be concluded that the power system planning methods and procedures in Turkey provide a sound basis for determining the least-cost development program for the sector using a reasonable range of discount rates (up to 16%).

Alternative Development Strategies

7. Generating capacity existing or under construction can hardly meet the forecast requirements on the main projection through 1983. The total installed capacity at that time will amount to 11,354 MW, comprising 3,953 MW hydro and 7,401 MW thermal. Firm hydro capacity assuming 85% availability for all existing hydropower plants (as confirmed by past experience) will be 3,360 MW, and firm thermal capacity, assuming 70% availability, 5,181 MW. System firm capacity, therefore, will be 8,541 MW, compared with forecast peak demand in 1983 of 7,960 MW. The corresponding hydro generation capability is 15,055 GWh, assuming an average hydrological year, or 9,890 GWh in the critical dry year. For the thermal plant, the corresponding figure is 29,083 GWh. This gives a total firm system capability of 38,973 GWh, which is not sufficient to cover the TEK forecast requirement of 40,710 GWh.

8. Between 1983 and 1986, the additional generation reouirement is 14,242 GWh and the corresponding increase in peak demand is 3,280 MW. New generating capacity will have to be installed to meet these additional power system requirements. The feasible technical options for this purpose cover hydro plants, conventional steam plants (lignite and oil-fired), nuclear plants ( only hypothetically due to the long lead times) and gas-turbines.

9. Past power development in Turkey has been based primarily on the utilization of the country's resources of hydropower and lignite. Only 30% of the hydropower potential of Turkey has been developed or is under construction. The Euphrates River basin with usable hydropower potential of 31,000 GWh is the most promising part of the country's remaining hydropower resources. Lignite reserves, particularly those at Elbistan, offer the greatest possibility for the construction of new thermal power plants. Since domestic oil fuel reserves are very small, Turkey is trying to reduce its dependence on imported fuel oil, especially in the power sector, where the utilization of hydropower and lignite reserves could be further developed.

10. Turkey's long-term development strategy is based on progressive exploitation of the country's hydropower and lignite resources, supplemented by the introduction of the first nuclear power plant after 1987 and further nuclear power capacity on a growing scale from 1990 onwards. The development programs envisage that the economic hydropower potential will be developed by the year 2000 and that to meet the projected growth of demand of installed capacity and power generation, the system will grow as follows: -103 - ANNEX 4 Page 4 of 11

Hydro Thermal Total Year MW GWh MW GWh MW GWh

1983 3,953 15,055 7,401 29,083 11,354 44,138 1986 8,088 30,931 7,888 43,061 15,976 73,992 1988 9,996 35,885 9,224 53,179 19,220 89,064 1990 13,488 47,469 10,424 60,919 23,912 108,388 1992 14,544 51,798 13,824 79,924 28,368 131,722

10. The TEK studies confirmed that, on the basic load forecast adopted, further generating capacities would be needed after 1983. The TEK study 1/ investigated least-cost investments in the power sector for the period 1982-2002. All hydropower potential grouped in 26 basins and available fossil fuel resources were considered. The study evaluated the alternative investment programs using the linear programming method. The objective of this study was to choose an investment program and its associated optimum load dispatching schedule by minimizing the discounted total of capital and operation costs over the specified period. In this study particular attention was given to a balanced use of hydro and thermal resources. In addition to the constraints regularly used in the previous studies two other constraints (or criteria) common to all the alternatives considered were the assumptions that (i) Turkey will utilize firstly her main domestic indigenous energy resources (hydropower and lignite) before turning to imported resources (fuel oil and nuclear) and (ii) the first nuclear power plant (600 MW) will be commissioned in 1988 regardless of its economy. In regard to hydro and thermal balance two cases were studied: (a) when the ratio of hydro/thermal capacity is restricted to 50% hydro and 50% thermal; and (b) when this restriction is not applied. The plant installed capacity was assumed to be on average about 33% over peak demand (but not less than 30%) in order to cover all unexpected conditions, such as dry seasons, delays in commissioning, forced and scheduled outages in generating and transmission facilities and uncertainties in the applied assumptions. In the sensitivity analysis the discount rates of 11.5%, 14% and 16% were used. The discount rate of 11.5% is the officially used rate in Turkey for public utilities projects. This rate is determined by the State Planning Organization and recommended to be used for economic evaluation of various public projects. Capital costs and fuel costs were also increased by 15% in order to test the sensitivity of the study results. Furthermore, the results were tested in the case of reduced load demand values by 10%. The study divided investments over the whole period 1982-2002 into five sub- periods, using as average representative years: 1983, 1985, 1987, 1990, 1991 and 1997. The plant already in operation and under construction is expected to meet requirements through 1982. Existing and future power generating plants were classified into nine groups according to their capital costs and load factors. Practically all identified hydro and thermal plants were included, although it is obvious that they have not all been elaborated

1/ "Long-Term Optimum Investment Program using Linear Programming (1982-2002)". - 104 - ANNEX 4 Page 5 of 11 to the same extent, and many of them lack essential technical documentation, feasibility studies, engineering designs, etc. The Karakaya hydropower plant was treated individually in order to indicate its specific merits and justify its choice. In all cases considered, including the sensitivity tests, the Karakaya project was found to be a part of the least-cost investment program for the power sector. In the studies the Karakaya project was shown to be the most promising new hydropower generation development. The consultant's studies, based on the same data, confirmed this conclusion.

11. The TEK study (para 10) gave the following results regarding the Karakaya project: (i) in the case based on non-restricted hydro/thermal balance, discount rates of 11.5-16%, and the basic load forecast, capital costs and fuel costs, 716 MW of the Karakaya capacity would need to be commissioned in 1984, followed by the remaining 1,084 MW in 1986; (ii) assuming the reduced load forecast, with the other assumptions unchanged, 738 MW of the Project installed capacity would be required in 1985 and the remaining 1,062 MW in 1987. The latter case indicates the postponement of the required plant commissioning by two years.

12. The TEK study justifies the proposed installed capacity (1,800 MW) of the Project by comparing it with other available hydro and thermal resources. A detailed load allocation analysis was carried out for the Turkish system for the period up to the year 2000 with and without Karakaya. As shown in Attachment 1 to this annex, the analysis indicated that the output from Karakaya can be divided into base and peak components. The base component is 907 MW and 7,629 GWh (including the extra production of Keban due to the regulating effect of Karakaya). These are the amounts of base power and energy that must be replaced when Karakaya is not included in the system. The equivalent thermal capacity required (nuclear, oil or lignite), assuming an average annual plant factor of 73% (which is considered appropriate for these plants) is about 1,200 MW. The peak component is 813 MW and 133 GWh (2% average annual plant factor). These again represent the amount of peak power and energy that must be replaced when Karakaya is not included in the system. The gas-turbine units were selected as the most suitable to replace the corresponding Karakaya peak component in the alternatives considered. Therefore each alternative contains 1,200 MW of base-load plant (lignite, oil or nuclear) and 840-MW of gas-turbine plant for peaking purposes. For each alternative 1/ the length of transmission lines needed to connect the plant with the interconnected power system was estimated by considering the probable location of the alternative plant. In each case single circuit lines were used as TEK's plans do not envisage double circuit lines. The length of transmission lines for the alternative programs are the following:

1/ The length of transmission lines needed for Karakaya - 1,300 km. - 105 - ANNEX 4 Page 6 of 11

(a) lignite program 1,100 km (b) oil-fired program 300 km (c) nuclear program 500 km

The existing transmission network was considered adequate for the additional gas-turbine plants.

Comparison of Alternatives

A. Assumptions

13. Given that the Karakaya Project was the preferred hydropower choice to meet the forecast load growth, the next step was to compare the program including Karakaya with the alternative developments if Karakaya is excluded from the plant program. As indicated above, the feasible technical options available for replacing Karakaya would be lignite, oil-fired, nuclear-fueled and gas-turbine plants. Since the basic assumption is that the power system development is the same for all alternatives up to the first commissioning of Karakaya (i.e. up to 1985), the economic justification is, therefore, concerned only with the analysis of differences between these alternatives. In the lignite-fired, oil-fired and nuclear-fueled programs the base energy component of Karakaya is always replaced by base-load plant (lignite, oil or nuclear) and the peaking component by gas-turbine peaking plant to provide the same quality of energy as Karakaya. As indicated above, this would require 1,200 MW of base-load thermal capacity and 840 MW of gas-turbine peaking plant. For the alternative thermal programs, the following assumptions were made:

(a) Unit Sizes

14. For the lignite-fired alternative it was assumed that additional capacity would be installed at the Elbistan site in view of the economic advantages and adequate reserves of lignite deposits. The four units now under construction there are each 300 MW and it was assumed that further units would be of the same size, since the advantages of replication were thought to outweigh any possible economies of scale through going to larger unit sizes in the later part of the period considered. There is no experience with larger lignite-fired generating units in Turkey; furthermore, larger steam generators could be technically complicated and the Turkish power system cannot yet easily accept generating units larger than 300 MW. For the oil- fired alternative 300-MW generating units were also assumed. For the nuclear alternative, 600-MW size was assumed for the purpose of comparison since it is the smallest unit size commercially available. With somewhat increased operational efforts this size (5% of peak demand in 1986) could be acceptable for the power system. Therefore, in the alternatives considered, the Karakaya base-load component was replaced by the following equivalent thermal plants: - 106 - ANNEX 4 Page 7 of 11

a lignite installation of 4 x 300 MW an oil-fired installation of 4 x 300 MW a nuclear installation of 2 x 600 MW

Furthermore, the Karakaya peak component was replaced by 60-MW gas-turbines, since this size was considered appropriate for the Turkish power system.

(b) Technical Assumptions

15. The annual plant factor for the base-load component of Karakaya was found to be 96% (allowing for 4% non-availability of this plant). The Karakaya peak-load component average annual plant factor was calculated to be 2% in a detailed computer study of the system. For the alternative nuclear, lignite and oil-fired power plants the annual load factor was assumed to be 73%. Shut-down time for annual maintenance, in accordance with the current practice in Turkey, has been three weeks for hydropower plant in each of the first three years and six weeks in the fourth year. For thermal power plants these values were four and six weeks, respectively. The force outage rate was assumed to be one week per year.

16. A 52-year life for civil works and a 25-year life for equipment was assumed for hydropower plants. A 25-year life was assumed for nuclear, lignite and oil-fired plants and 20-year life for gas-turbine plants. Transmission line life was assumed to be 25 years.

17. Specific consumption of fuel-oil (calorific value 9,652 kcal/kg) was assumed as 0.230 kg/kWh (the figure for the existing plants at Ambarli) for oil-fired plants. Specific fuel consumption of 2.4 kg/kWh was taken for the lignite power plant, assuming a calorific value for lignite of 1,050 kcal/kg. Gas-turbine plants were assumed to use gas-oil fuel, locally called "motorin" (calorific value about 10,000 kcal/kg), and to have a specific consumption of 0.35 kg/kWh, corresponding to the figure for the existing gas-turbine station at Aliaga.

18. A system load factor of 63% was assumed throughout the forecast period.

19. The required reserve of installed generating capacity on the system was assumed not less than 30% of peak load demand (para 10).

20. The estimated capital costs in March 1980 (including physical contingencies) were used for the basic comparison. For the Karakaya hydropower plant detailed cost data are given in Annex 2.2. The consultant's estimate of LT 61,600/kW (US$880/kW) installed was adopted for the lignite alternative. This corresponds with the cost of the Elbistan B lignite power plant with four 300-MW units. The consultant's estimate of LT 51,800/kW (US$740/kW) was adopted for the oil-fueled power plant consisting of four 300-MW units. The estimate for the nuclear power plant, consisting of two 600-MW units, was LT 119,000/kW (US$1,700/kW). The capital cost for the gas-turbine plants was taken as LT 21,000/kW (US$300/kW). The specific costs of 380-kV transmission lines were assumed to be LT 6.3 million/km - 107 - ANNEX 4 Page 8 of 11

(US$90,000/km). The above capital costs are within the range of costs recently obtained from suppliers and Project designs. They are also consistent with the cost data for similar power projects in other countries. To allow for uncertainty, the comparison of alternatives was also made assuming capital costs for all alternatives 15% higher and 10% lower than in the base case.

(d) Fuel Costs

21. The current lignite selling price in Turkey of LT 320/t (US$4.6/t) or LT 293.2/million kcal (US$4.2/million kcal) was adopted as the basis for the evaluation of the lignite alternative. This price is thought to be below the marginal cost of supply to additional lignite-fired generating capacity, but it was used since no precise estimate of the marginal cost could be obtained.

22. The present c.i.f. value of fuel-oil of LT 11,970/t (US$171/t) was adopted as a reasonable estimate of the economic cost of fuel-oil for the purpose of the comparison.

23. A levelized nuclear fuel cost (at 14% discount rate) of 0.63 LT/kWh (9 US mills/kWh) was calculated for the purpose of the comparison. These values reflect the consultants current experience with nuclear power plants. The annual nuclear fuel costs were also adjusted for the assumed average annual running period of the nuclear plants, 4% less than that of large oil-fired plants.

24. The present c.i.f. value of gas-oil (motorin) for the gas-turbine plants was adopted i.e. LT 20,020/t (US$286/t). This results in a fuel cost for the gas-turbine plants of LT 7.01/kWh.

25. In view of the uncertainties, the effect on the comparison of fuel costs 20% higher and 10% lower than the figures quoted was also tested.

(e) Operating and Maintenance Costs

26. The annual fixed 0 & M costs were assumed to approximate the following percentages of total capital costs:

Hydro Plant: Civil works 0.30 Equipment 1.50

Lignite Plant 1.61 Oil-fired Plant 1.14 Nuclear 1.78 Gas-Turbines 0.18 Transmission Lines 1.50 - 108 - ANNEX 4 Page 9 of 11

(f) Load Growth

27. The main load forecast for Turkey was used for the base-case comparison of alternatives (Annex 1.6). To allow for uncertainty, comparison of the alternatives was also made assuming annual load growth 10% less than the values given in the main load forecast.

(g) Foreign Exchange

28. The Turkish currency is floating. The exchange rate effective March 1980 was LT 70 = US$1. This rate has been adopted here for conversion of foreign costs to domestic currency for the comparison of the alternatives.

(h) Unskilled Labor

29. There is a surplus of unskilled labor in Turkey and this is expected to persist over the foreseeable future. About 75% of the unskilled labor required for Project construction is expected to come from the Project area, the remainder from north-east Turkey.

(i) Secondary Benefits

30. Some secondary benefits for future power and irrigation projects are expected from the Karakaya project, especially in the case of the Ataturk multipurpose power project, as a result of the more regulated Euphrates River flows downstream of the Project dam site. However, since these have not been quantified, they have not been taken into account in the comparison of the alternatives.

B. Adjustment of Costs for Economic Evaluation

31. For the economic evaluation of the alternatives it was necessary to express the various inputs in terms of their economic values, requiring the use of efficiency rather than market prices. These efficiency prices measure the opportunity cost to the economy of the inputs in terms of their value in their best alternative use. Moreover, since all the alternatives involve both foreign exchange costs for "tradeable" goods and services (i.e. either imported or, if supplied locally, exportable) and domestic costs for non-traded inputs (such as land and unskilled labor), it is necessary to bring these to a common basis for the purposes of the economic analysis. This was done by deriving economic values for all inputs, as measured by international (or "border") prices, as follows:

(a) Capital Costs

32. A detailed list of the individual items of equipment, materials and services comprising the Project's capital costs was prepared. Similar lists were made for all alternatives with which the Project was compared for the least-cost evaluation. The items in these lists were then classified by categories as follows: - 109 - ANNEX 4 Page 10 of 11

(i) Items expected to be supplied from abroad. These were valued at their c.i.f. costs.

(ii) Items expected to be supplied locally but which could be exported if not required for the Project or its alternatives. The only such item identified was cement, which was accordingly valued at its f.o.b. price of US$51/t.

(iii) Other items (including internal transport) supplied locally but which are not exportable. Where these embodied identi- fiable imported items, the latter were valued at their c.i.f. costs. The residual local costs (except unskilled labor) were then converted to their border price equivalents using a "standard conversion factor" (SCF), which represents the ratio of the value of border prices of all exports and imports to their value at domestic prices. For Turkey the SCF has been estimated at 0.59, implying a shadow exchange rate of LT 119 per US$1.

(iv) The efficiency price for unskilled labor in Turkey is estimated to be 0.57% of the market wage rate. The unskilled labor costs associated with each alternative were therefore adjusted to their economic values using this factor.

(v) The market cost of land was converted to its economic value by application of the SCF.

(b) Fuel Costs

33. The c.i.f. prices as indicated above, for fuel-oil, gas-oil and nuclear fuel were used for the comparison of alternatives, since it is assumed that these would have to be imported. Lignite was valued at its current selling price (para 21), multiplied by the SCF of 0.59. Only the incremental fuel costs of each alternative were considered in the economic analysis.

34. The various items comprising operation and maintenance costs were treated similarly to the capital and fuel costs.

C. Results of Comparison

35. The economic values of the cost streams associated with each of the four development alternatives, on the basic assumptions regarding the values of the main variables, are shown in Attachment 2. The net present values were calculated over a range of discount rates from 10 to 55% and the results were shown in Attachment 2. The results indicate that the - 110 - ANNEX 4 Page 11 of 11

Karakaya hydropower program has the lowest present worth up to a discount rate of 53.5%. Since the estimated opportunity cost of capital in Turkey is around 11%, this indicates that the Karakaya project is part of the least- cost means of meeting future power requirements on the main assumptions used. The conclusion was tested for sensitivity to the different values for the variables given above. The results, which are summarized in Attachment 3, indicate that the choice of the Karakaya Project is not affected by these changes.

Return on Investment

36. The internal economic rate of return (IRR) on the Project is the discount rate which equalizes the present values of the time-streams of the costs and benefits over the life of the Project. The costs are the attributable financial costs of the Project adjusted for taxes, internal transfers and sunk costs, and converted to their economic values as described above (para 31). The benefits comprise the revenues from incremental power sales attributable to the Project, adjusted to their economic values by application of the SCF of 0.59. The detailed figures are shown in Attachment 4.

37. The simulation studies carried out by the consultant using hydrological data for the period 1937-75 indicated that the average annual generation and sales attributable to the Project would be as follows:

------…GWh------1985 1986 1987-2035

Generation 2,773 6,378 7,762 Losses and Station Use 300 700 852

Sales 2,473 5,678 6,910

38. The resulting internal economic rate of return (IER) on the Project is estimated to be at least 15.1%, assuming current electricity rates (April 1980), which give an average revenue of LT 2.8/kWh. Sensitivity tests showed that tariff rate increases to achieve TEK's 8% financial rate of return would result which in an IER of 24.65%.

April 1980 ANNEX 4 - 111 - ~~~~~~~Attachment1

TURKEY APPRAISAL OF THE KARAKAYA HYDROPOWER PROJECT System Load Diagram

LOAD(%)

100 . PEAK. THERMAL

> ~~KARAKAYA(peak energy ) 90

80\

60_

OTHER HYDRO

40i

NUCLEAYAR......

301-0 3 0 5 0 7 0 9 0

THERMAL~an ~ coal) ~ ~~~~Wol(linik TURKEY

KARAKAYAHYDROPOWER PROJECT

Cost Streams and Present Values, Karakaya Hydro ( LT Mi lli ons )

------CAPITAL COSTS_------______------OPERATION AND MAINTENANCE-_------______TOTAL COSTS (Eeon. Value)

------Equipment, Mterials & Land------…------labo ------Total Capital Costs-- -Equip. & Materials…- - L---abor…------~~~~(REcosoicVatlue) Year EndIng Direct Local Indirect Local Non- Lcl local Local Un- Direct Local Noe- Un- December 31, Foreige Tradeable Foreign Tredeabta Tranolort Foreigr. Skilled Skilled Porei Lal Total5 F7reig Tradeable Skilled Sklled Total P.se Case (3X~2 T2& 9&0 (E57.value) 5&7&8) (1) (2) (3) ! (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17)

1980 7,148 132 281 2,309 183 612 485 232 8,041 2,021 10,062 - - - - - 10,062 1981 2,305 132 282 3,1453 185 433 485 232 3,020 2,697 5,717 - - - _ _ 5,717 1982 6,213 132 282 3,935 211 471 617 264 6,966 3,093 10,059 - - _ _ - 10,059 1983 6,870 83 192 3,989 272 465 954 329 7,527 3,347 10,874 - - - _ - 10,874 4,320 357 370 i,405 442 4,o84 3,864 7,948 - - - _ _ 7,948 1984 3 , 5 2 t 83 190 1985 1,590 83 157 1,537 88 340 338 114 2,087 1,306 3,393 6 50 175 47 136 3,529 1986 1,417 59 113 210 50 337 179 65 1,867 355 2,222 7 55 21.0 55 162 2,384 1987 1,o54 46 86 163 35 274 i42 50 1,414 275 1,689 8 64 241 68 189 1,878 1988-2001 ------8 64 241 68 189 189 2005 706 - _ _ _ 20 _ - 726 - 726 8 64 241 68 189 915 2006 859 - 2 14 2 23 3 0 884 11 895 8 64 241 68 189 1,084 2007 2,184 - - 136 21 64 114 28 2,248 176 2,424 8 64 241 68 189 2,613 2008 3,140 - 5 578 93 110 515 129 3,255 773 4,o28 8 64 241 68 189 4,217 2009 4,503 - 9 1,0911 177 169 983 246 4,681 1,470 6,151 8 64 241 68 189 6,340 a 2010 3,156 - 15 684 104 107 494 n6 3,278 823 4,101 8 64 241 68 189 4,290 o 2011 3,153 _ 10 795 126 117 680 165 3,280 945 4 225 8 64 241 68 189 4,414 2012 1,252 - 7 i68 24 37 78 15 1,296 168 1,464 8 64 241 68 189 1,653 2013 411 - 2 24 3 11 4 41l 424 42 466 8 64 241 68 189 655 2014-2036 _- - - - - 8 64 241 68 189 189

------TOMAL COSTS------15% Higher 10% Lower % Base Case Capital Costs Capital Costa

Present Values at: 10 44,162 50,786 39,746 15 38,724 44 533 34,852 16 37,899 43,580 34,1o6 18 36,398 41,857 32,758 20 35,o68 40,328 31,561 22 33,870 38,951 30,483 24 32,780 37,697 29,502 26 31,800 36,547 28,602 28 30,857 35,485 27,771 . o 30 30,001 34,501 27,001 32 29,205 33,586 26,285 34 28,463 32,732 25,617 35 28,110 32,326 25,299 4o 26,507 30,483 23,856 45 25,132 28,902 22,619 50 23,942 27 534 21,548 55 22,904 26,340 20,614

April 1980 TUKEKY

KARAKAYAHYDRO011POOW PROJECT

Cost Streets and Present Values. Lignite Alternative (LT Minions'

------CAPITAL COSTS------OPERATION AND MAINTENANCE ------FUEL COSTS------_-_----__ TOTALCOT ------

------Equipment and ter-i6 -- L^br-e------a------_ q.ip-.nte -nd Wterias ------Lrbor------Limite Coat ------Ga. Oil------1Cepitel- -(O- -Fel- -TTtel- Year Elding Dire-t local Indirect Local Nen- Internal LocAl Locnl Uo- Direct Indirect LocAl Eon- loca(1 (ca1 Ua- Indirect locl Nle- Direct Local Non- Deceober 31, Foreign Tr-deable Foreign Tnssleetble Tr-n-po-t Foreign Skilled Skilled Foreign Foreign Tradeoble Sl li kE.d Feign Tdeable Ftig T-radeatble

1980 1981 1,879 50 i4i 1,030 90 215 382 142 ------3,252 - - 3,252 1982 9,449 251 706 1,183 453 1,077 1,995 718 ------16,395 - - 16,395 1983 15,475 402 1,130 8,506 760 1 747 3,399 1,199 ------26,910 - - 26 910 9s84 9,721 226 647 4,945 459 1,011 2,040 703 - _ _ _ - - 1 - _ 16,398 - - 16,398 1985 7,416 50 271 1,432 i86 330 612 178 7 18 252 250 120 3,2501 2,580 - - 9,484 241 4,772 14,497 1986 9,456 25 131 1,128 192 286 530 126 19 35 50o 508 240 890 5,058 125 7 1i,o61 790 4,003 15,854 1987-2003 ------23 35 512 516 24o 877 4,982 930 56 - BO1 4,779 5s580 2G04 857 - 11 64 15 18 36 6 23 35 512 516 240 877 4,982 930 56 957 801 4 779 6,537 2105 5,567 - 129 418 99 118 236 40 23 35 512 516 240 877 4,982 930 56 6,278 801 4 779 11,858 2006 10,445 50 201 1,672 242 397 754 204 23 35 512 516 240 877 14,982 930 56 12,783 801 4,779 18,363 2007 9,449 251 706 5,183 453 1,077 1,995 718 23 35 512 516 24o 877 4,982 930 56 16,395 801 4,779 21,975 2008 15,475 402 1,130 8,506 760 1,747 3,399 1,199 23 35 512 516 240 877 4,982 930 56 26,912 8oi 4,779 32,4190 2009 8,864 226 636 4 881 444 993 2,0o4 697 23 35 512 516 24o 877 4,982 930 56 1,44o 801 4,779 21,020 2010 1,849 50 142 1,041 87 212 376 138 23 35 512 516 240 877 4,982 930 56 3,219 801 4,779 8,799 2011 899 25 71 486 4ho i0 168 64 23 35 512 S16 24o 877 4,982 930 56 1,536 801 4, 779 7,116 2012-2023 - - - - - 23 35 512 516 240 877 4,982 930 56 - 801 4,779 5,580 2024 857 - 11 64 15 18 36 6 23 35 512 516 240 877 4,982 930 56 957 801 4,779 6,537 2025 5,567 - 129 4i8 99 118 236 40 23 35 512 516 240 877 4,982 930 56 6,278 801 4,779 11,857 2026 8,566 - 60 642 152 182 362 62 23 35 512 516 240 877 4,982 930 56 9,425 801 4,779 15,00S 2027-2036 ------23 35 512 516 240 877 4,982 930 56 - 801 4,779 5,580

lapitnl costs Capital Coats Fuel Cotos FPol Costo Capita1 Conts 15% Nigh-e Load F-oroo.st EBase - e 15% 10% Lower 20% Higher 10% L-or % Fucl Coats 20% Higher 10% Lawer t Present lues of 10 103,171 113,884 96,030 109,522 99,996 120,235 101,855 - TotAl Costc ot 15 74,241 82,701 68,6do 77,810 72,457 86,269 72,752 16 70,435 78,577 65,007 73,666 68,82o 8,1808 68,878 18 63,959 71,543 58,902 66,638 62,619 74,222 62,64o 20 58,625 65,730 53,889 60,878 57,500 67,982 57,800 22 54,131 60,815 49,065 56,044 53,174 62,728 53,342 24 50,271 56,581 46,o65 51,913 49,451 58,222 49,621 26 46,908 52,880 42,9e7 48,328 46,199 54,299 46,315 28 43,942 49,606 40,166 45,178 43,324 50,842 43,48o 30 41,300 46,683 37,712 42,383 40,759 47,766 40,810 32 38,928 44,052 35,513 39,883 38,452 45,007 38,501 34 36,785 41,669 33,529 37,629 36,363 42,514 36,400 35 35,788 40,560 32,600 36,585 35,390 41,356 35,441 40 31,425 35,689 28,584 32,027 31,125 36,290 31,210 45 27,882 31,717 25,326 28,346 27,651 32,181 27,712 50 24,9549 28,419 22,636 25,313 24,767 20,783 24,810 55 22,485 25,641 20,382 22,775 22,341 25,931 22,402

1/ Includen direct foreign fuel -cot fFor Aborl.2

April 1980 to TURKEY

KARAKAYA IrYDROPGIE8 PROJECT

Cost Strea and Preset Values, Duel Oil Alterntive ILT Million5c!

------_ CAPITAL EI.CSTJ_D-DOPERATIODN _-----______------& MNTENCE------______FUEL CESTS------TOTAL COSTS------

-__ul__---_ -- Fquiprent d MtriAls------LbEquip. & terial- Lab-Fuel i - GA - capital- -O -Fuel- -ot Year Ending Direct Local Indirect Local con- Dolorool LOCAl Local Vn- DirUet Local VU- Local Local VP- Direst Lo-al Non- Direct Local Nan- IDeceber 31, Foreign Tr-deAble F-reign Tradeable T-sport Foreign Skilled Skilled Foreign Tradeable Stilled Skifled Foreign TrAdeable Foreign TIadeable

1980 1981 53 32 5 4 31 8 ------i02 - - 102 1982 2,237 43 81 1,524 124 147 1,015 197 - _ _ _ _ _ - _ 4,191 - - 4,191 1983 7,479 187 350 5,273 417 3,113 510987 ------13,990 - - 13,990 1984 11,802 288 549 7,839 6oi 724 4,500 721 ------21,499 - - 213409 1985 11,897 172 452 4,939 426 526 2,776 433 17 47 248 71 l5,502 779 - - 18,097 232 15,962 34,291 1986 9,616 28 114 1,391 205 250 782 127 37 101 502 142 21,267 575 125 7 11 483 474 21,735 33,692 198720031 ------41 105 510 142 20,948 566 930 56 - 485 22,215 22,730 2D0. 857 - 1 64 15 18 36 6 41 105 510 142 20,948 566 930 56 952 485 22,245 23,687 2005 5,567 _ 129 418 99 118 P36 40 41 105 510 142 20,948 566 930 56 6,281 485 22,245 29,o11 2006 8,619 - 6o 674, 157 186 393 70 41 105 510 142 20,948 566 930 56 9,627 485 22,245 32,357 2007 1,867 43 81 1,302 110 122 800 141 41 105 510 142 20,948 566 930 56 3,498 485 22,245 26,228 2008 7,479 187 350 5,273 417 484 3,113 520 41 105 510 142 20,948 566 930 56 13,990 485 22,245 36,720 2009 10,945 288 538 7,775 586 706 4,464 715 41 105 510 142 20,948 566 930 56 15,518 485 22,245 38,2158 2010 6,330 172 323 14,521 327 4o8 2,540 393 4] 105 510 142 20,948 566 930 56 11,816 485 22,245 34,546 2011 1,050 28 54 749 53 68 420 65 41 105 510 142 20,948 566 930 56 1,958 485 22,245 24,688 2112-2043 ------41 105 510 142 20,948 566 930 56 - 485 22,245 22,730 2024 857 - 11 64 15 18 36 6 41 105 910 142 20,948 566 930 56 957 485 22,245 23,687 2025 5,567 _ 129 418 99 118 236 4D 4i 105 510 142 20,948 566 930 56 6,281 485 22,245 29,011 2026 8,566 - 60 602 152 182 362 62 41 105 510 142 20,948 566 930 i6 9,525 485 22,245 90,255 2027-2036 ------41 105 510 142 20,948 566 930 56 - 485 22,245 22,730

CFpital Costs Capital Costs Fpnl Costs Fuel CDets Capital Coats 15% Higher BDi-c Case 15% Highser 10% Lover 20% Highbr 10 Looer- 4 Fuel Dsata 20% HUgher

Present Vsloes of Total Costs at: 10 199,874 208,006 194,453 229,007 185,308 237,139 15 123,004 129,261 118,833 139,262 114,875 145,520 16 113,408 119,396 109,416 128,106 106,G59 134,093 18 97,518 103,030 93,848 199,672 91,441 i1,184 20 84,938 90,040 81,537 95,124 79,846 100,225 22 74,763 79,504 71,602 83.394 70,447 88,135 24 66,384 70,804 63,437 73,768 62,692 78,187 26 59,380 63,512 56,626 65,748 56,197 69,880 28 53,453 57,323 50,872 58,982 50,687 62,853 30 48,380 52,013 45,959 53,214 45,964 56,846 32 44,8O1 47,417 41,725 48,248 41,878 51,663 34 40,189 43,405 38,045 43,939 38,314 47,155 35 38,465 41,587 36,383 141,995 36,699 45,117 4o 31,286 33,993 29,482 33,934 29,962 36,61 45 25,908 28,271 24,332 27,937 24,893 30,301 50 21,770 23,868 20,385 23,354 20,979 25,432 55 18,519 20,357 17,294 19,773 17,893 21,611

April 1980 :iMKEY

K2RA0AYA HYDROPOWER PRTO.ECT

Cost Streana and Present Values, Nuclear Alternative 'LVT Icnlicaa)

-I CTP-A-A------_------DCOSTST------TOPERATION ------AND INThDANCE0------_FU--TAL 0-TCAPITAL COSTS ------

------Equlpn.t aad Usterisls__---a----___a__N ------I-b-or------_------Egu1p. & Bt-nala------L-b-Nuclear 1 Faue-----iFl_ _ ------Oil------CpitI- -04M- l- -Tstal- Yesr Eding Direct L-al Indirect Local Nun- Intern.l Direct Lucal local-U- Direct Indirect local Nan- L-an L-ai Un- Direat Local Nun- Direct Local Non- Dece-ber 31, FVrelgn Tradeable F-reign Tradesble Tranaport Foreign killed Skilled Fureige F-reiga Tradeable Skilled Skilled Foreign Tradeable Foreign Tradeable

1980 1981 3,078 44 19 739 54 592 337 95 ------4,454 - - 4,454 1982 9,718 139 60 2,348 174 1,873 1,16o 305 ------14,136 - - 14,136 1983 22,233 316 136 5,425 41ii 4,299 2,779 7]5 - - _ - _ _ _ _ _ 32,474 - - 32,474 1984 26,94ol 379 163 6,667 519 5,237 3,427 997 - - - - _ _ - _ _ 39,492 - - 39,492 1915 17.522 234 112 4,201 34o 3,261 2,164 565 ------4,500 180 29,407 - 4,606 301013 1986 13,513 114 178 21337 242 1,648 1,256 288 369 37 54° 325 27 4,7o0 150 460 23 17 880 932 5,262 24,074 1987 11,204 38 76 1,275 198 668 725 143 739 73 1,o84 656 S3 4,662 143 930 56 13,364 1,869 5,709 2o,942 1988R2004 ------743 73 1,088 664 53 4,662 1143 930 56 - 1,880 5,709 7,589 2005 857 - Vl (4 15 18 36 6 743 73 1,088 664 53 4,662 143 930 56 957 1,880 5,709 8,546 2006 8 645 44 148 1,157 153 710 573 135 743 73 1,088 664 53 4,662 143 930 56 10,735 1,880 5,709 18,324 I 2007 189284 139 120 2,990 326 2,055 1,522 367 743 73 1,088 664 53 4,662 143 930 56 23,662 1, 80 5,709 31,251 2008 22,233 316 136 5,425 411 4,299 2,779 715 743 73. 1,088 664 53 4,662 143 930 56 32,474 1,880 5,709 409,63 2009 26,940 379 163 6,667 519 5,2137 3,427 897 743 73 1,038 664 53 4,662 l43 930 S6 39,492 1,880 5,709 47,581 2010 16,655 234 101 4,137 325 3,243 2,128 559 743 73 1,088 664 53 4,662 143 939 56 24,440 1,880 5,709 32,029 2011 7,946 114 49 1,919 143 1,530 1,9026 248 743 73 l,o88 664 53 4,662 143 939 56 11,602 1,880 5,799 19,191 2012 2,638 38 16 633 46 5C6 363 81 743 73 1,o88 664 53 4,662 143 930 s6 3,859 1,880 5,709 11,448 2013-2024 ------743 73 1,088 664 53 4,662 143 930 56 - 1,880 5,709 7,589 2025 857 _ 11 64 1S 18 36 6 743 73 i,i08 664 53 4,662 143 930 56 957 1 880 5,709 8 546 1026 5,567 - 129 418 99 'iS 136 40 743 73 1,999 664 53 4,661 143 939 96 6,281 1,890 5,:709 13,879 102807 8,566 60 642 152 182 362 62 743 73 1,088 664 53 4,662 143 930 56 9,515 1 880 5,709 17,114 1028-2036 _ ------743 73 1,088 664 53 4,662 143 930 56 - 1,880 5,709 7,589

Capital Costs Capital Costa Fuel Casts Fuel Casti Capital COsts 15% 11g1cr I Base Cane 15% High.r 10% Lacer 20% Higher 10% Loose & Peel CTsts 20% Higher

Preocat Values of Total Cost5 at: 10 158,231 176,337 146,159 165,735 154,478 183,841 15 113,444 127,314 164,198 117,649 111,347 131,510 16 107,465 120,739 98,616 111,260 105,568 124,534 18 97,233 19,463 89,080 102,374 95,663 112,603 20 88,751 1009088 81,193 91.395 87,434 102,722 22 81,565 92,124 74,525 83,799 80,448 94,3598 21 75,371 85,243 68,799 77,294 74,415 87,155 26 69,961 79,217 63,790 71,611 69,135 90,867 28 65,182 73,884 59,381 66,617 64,465 75,319 30 60,926 69,124 55,461 62,181 60,299 70,379 32 57,107 64 946 51,948 58 211 56,556 65,949 34 53,661 60,979 48,782 54,636 53,173 61,954 35 52,61 59,181 47,313 52,979 51,602 60,099 40 45,o84 51,329 40,929 45,774 44,739 52,018 4S 39,463 44,985 35,782 39,993 39,198 45,515 50 34,856 39,774 31,578 35,271 34,649 40,188 55 31,028 35,435 28,089 31,356 30,863 35,764

April 1980 - 116 - ANNEX 4 Attachment 3

TURKEY

KARAKAYA HYDROPOWER PROJECT

Sensitivity Analysis of Alternative Developments

Discount Rate up to which the Karakaya Project is the Lease Cost Development

Base Case 53.5%

Capital Costs 15% Higher 52.6%

Project's Capital Costs 15% Higher and Lignite Costs 10% Lower 38.0%

Project's Capital Costs 15% Higher and Lignite Costs 20% Higher 43.5%

Project's Capital Costs 15% Higher and Fuel Oil Base Case 42%

Project's Capital Costs 15% Higher and Load Forecast 10% Lower 42%

Project's Base Costs and Fuel Oil Alternative Base Case 48%

April 1980 - 117 - ANNEX 4 Attachment 4

TURKEY

KARAKAYA HYDROPCWER PROJECT

Costs, Benefits and Rate of Return on the Project (EconomicValues) (LT Millions)

Year ending ------COSTS ------BENEFITS--- December 31, Capital Costs 0 & M Costs Total Costs (Current Rates)

1980 10,062 - 10,062 - 1981 5,717 _ 5,717 _ 1982 10,059 - 10,059 1983 10,874 - 10,874 1984 7,948 - 7,948 1985 3,393 136 3,529 4,085 1986 2,222 162 2,384 9,380 1987 1,689 189 1,878 11,415 1988-2004 - 189 189 11,415 2005 726 189 915 11,415 2006 895 189 1,084 11,415 2007 2,424 189 2,013 11,415 2008 4,o28 189 4,217 11,415 2009 6,151 189 6,340 11,415 2010 4,101 189 4,290 11,415 2011 4,225 189 4,414 11,415 2012 1,464 189 1,653 11,415 2013 466 189 655 11,415 2014-2036 - 189 189 11,415

InternationalEcono=ic Rates of Retu )

a) Base Rates as of January 1980 15.05% b) Base Rates 34% higher g/ 18.75% c) Base Rates 100% higher 3/ 24.65% d) Capital Cost 15% higher 13.45% e) Capital Costs 15% lower 16.35% f) Capital Costs 15% and Rates 34% higher 16.95% g) Capital Costs 10% lower and Rates 100% higher 26.35%t

1/ Standard conversion factor (0.59). 2/ Conversion factor for consumption goods (0.79). 3/ Rates expected to be in effect over the Project period.

April 1980 - 118 - ANNEX 5 Page 1 of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Selected Documents Available in the Project File

1. Engineering and Economic Feasibility of Keban Dam and Hydroelectric Project of the Firat River Development, Ebasco Services, USA, 1963.

2. International Water Problems, Keban Dam - Euphrates River, Hathaway et al, 1965.

3. Lower Firat Project Feasibility Report, Electro-Watt et al, 1970.

4. Karakaya Dam and Hydroelectric Project, Electro-Watt et al, 1970.

5. Karakaya Hydroelectric Power Development, Supplementary Information, Electro-Watt et al, 1976.

6. Optimum Development of the Electric Power Sector in Turkey, a case study using Linear Programming, IBRD, 1972.

7. Karakaya Dam and Hydroelectric Power Plan Main Civil Works Contract, DSI, 1976.

8. Studies of Reservoir Filling for Projects on the Euphrates River, R.L. Walker & Partners, 1974.

9. Karakaya Dam and Power Plant, Design Report, Electro-Watt et al, 1974.

10. Karakaya Dam and Hydro-Electric Power Plant, Bidding Documents, DSI, 1974.

11. Project Cost Data, DSI/Dolsar 1979.

12. Power Sector Development Data, 1979-1986, TEK/DSI.

13. Karakaya Dam and Power Plant, Drawings, Electro-Watt et al, 1975.

14. Karakaya Project and Its Environment, Electro-Watt et al, 1977.

15. General Directorate of State Hydraulic Works, DSI, 1977.

16. Ic Iskan Hizmetlerinde Karsilasilan Sorunlarin Cozumu Hakkida Yapilar Calismalar, Koy Isleri Bakanligi, 1976.

17. Studies of Reservoir Filling for Karakaya Project, Euphrates River, Turkey, R.L. Walker & Partners, 1976. - 119 -

ANNEX 5 Page 2 of 2

18. PreliminaryStudy of Reservoir Filling and Operation for Projects in the Euphrates River, Tigris and EuphratesRiver Basins Work Program, Stage 1, IBRD 1975.

19. TEK's Wholesale and IETT's Retail Tariffs.

20. Lower EuphratesBasin 1977 Survey, Middle East TechnicalUniversity, Istanbul, 1977.

21. Surveys in the Lower Euphrates Basin, O.D.T.U.,Ankara, 1977.

22. Appraisal Working papers and Computer printouts.

23. Karakaya Dam and HydroelectricPower Plant Collected Conditions of Contract - J.V. Italstrade Torno-ERC,December 1976

April 1980

IBRD 14798

BULGARIA *- A \ AM j 4 444 OAKLAROAS

S.^ S X~~~~~~~~~~~~~~ ~~~~~~~~~~~',./' ~ ~~~~~~~~~~~~~~~ ;R

§I A GREECE ~ / C0A4AAA X \ i AA s R ~MM 7 sor \t; L v ; H ( J u s~~~~~~~~~~~~~~u h D sDlj > : ;f 1morh

t -4AAf 'A 0i 4A,- \ MR t ;

j ~A\ ~-- Aooo~ A~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~I

0 v-A,0/0A T4oo~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,o~~~~~~~bioS~~~~~I R

c ' /RAat '" . ,, ~ : 5~ WoRs ' 404,' 0-" 4 , ......

J /d TTUURRKkEEY W .2Ee*Xsysrc+'s'6d;tZbel F p_ f/ ;/2 wYo ermens_ fiezende go -d7

i ( g/ __; \ TglYk=,/g g / < ~~~KARAKAYAHYDROPOWER PROJECT _ ep,>oongto>Fic¢aJl/sddomfhed ~~~~~~~~~~~~MANGENERATIONAND TRANSMISSION SYSTEM WhsgaRnttwisls;xh!k=r- tS e. 99umy _AioXv2 C f, ;1hky enj_K.,.k.,.Hyd--pwe PrulecF onvS-w t~~~~~~~Es 0 n ff E ' k eRANF A N

IHERMAt KYDR~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~OWERPLAHITS _ , f _

A '$SAN 'A\ - A - A,OA A , S Y R I A

SATON MED/iEREAA/EA/'. SEM b 5 t: J t P A N 3f ).~~~~~~~~~~~~~~~~~~~~~~~~~TRNSO'ME

I. REA DC < 1 5 0 a t. i90 KlLO.MRTERb 29D 2,D0 2do y LEBANON ) _._InternpelonalboTnd*r>e-

M3d' 3; F' R A

IBRD 12793RI APRIL 1980- 360 39' 420 450 48' B L A CK SEA U S S. R.

o Amosyo / T U R K S Yt 0 Sivas /4./ 4, 9

39, KEBA~ o Kayseri DuSE

> Asod%_ 0 Siirt0

F1ATTRK DAM Oardin > J Adana Go iantep -UrfaM_ _-

0 0 irecik~ Ceyl-anpin r X Nei y

Cut )\*> ~ r < Oo°\/ \~ 00~~~~~~~~~~ 36- 9 . O~~~Halab d%e5e,ir0 Al Mawsil 1/<

0~~~~~~~~~~~~ t EUP&t~~~~~PH A t0 A N

BEI . \ ~~~~~~~~~~~~~~~~~~~~~~~Rese,voirldya ,-

J OR D A N >

TURKEY *'*> | L THEKARAKAYA HYDROPOWER PROJECT - AnNasiy HydropowerDevelopments in the EuphratesRiver Basin Hydropower Projects

Project __ 30' = Under Construction or Planned _ Ex,st,ng 0 50 100 150 200 N Rivers~I 1 KILOMETERS I Intermittent Lakes -.E.ECNEUTRAL - Internationol Boundaries ZONE_,,,' of thar. of the-repor tow hihitishdateha. Th. d.-sti-tlS -ookanwdth. tfilhgtes,ssy_og nthtonth le.galstatoh any S A U D I A R A BtI Ayr opoe.tne of 00h boo-ndar-o.4 39° 42- 1 45° 48° 1 1 1 A