Document of The World Bank

FOR OFFICIAL USE ONLY

/v "'--/- Public Disclosure Authorized

Report No.5919-llJ Public Disclosure Authorized STAFF APPRAISAL REPORT

TURKEY

SIR HYDROPOWER PROJECT Public Disclosure Authorized August 1, 1986 Public Disclosure Authorized

Projects Department Europc, Middle East and North Africa Regional Office

This documept has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

Currency Unit = Turkish Lira (TL) TL I = 100 Kurus (krs) US$1 = TL 700 TL 1 US$.001

Currency equivalents are those effective June 1986, unless otherwise indicated.

WEIGHTS AND MEASURES

kVA = kilovolt ampere kVARh = reactive kilovolt-ampere-hour

kW - kilowatt

kWh - kilowatt hour GWh (Gigawatt hour) = 1,000,000 kWh UV HHigh Voltage kV (kilovolt) = 1,000 volts

MW (Megawatt) - 1,000 kW

MVA (Megavolt-ampere) - 1,000 kVA MVAR (Megavolt-ampere reactive) = 1,000 kVAR One meter (m) = 3.28 feet

One kilometer (km) - 0.6214 miles One kilogram (kg) (1,000 grams) = 2.2 pounds One ton (metric ton) (1,000 kg) = 2,205 pounds One kilocalorie (kcal) (1,000 calories) = 3.968 BTU toe tons of oil equivalent

GLOSSARY AND ABBREVIATIONS

C&B - Coyne et Bellier (engineering consultants) CEAS - Cukurova Elektrik A.S. (Cukurova Electric Company) DSI - Devlet Su Isleri (State Hydraulic Works) EIE - Elektrik Isleri Etut Idaresi Genel Mudur,lugu (Electric Power Resources Survey Administration) ELTEM-TEK - Elektrik Tesisleri Mishen Dislik Hizmetteri ve Ticaret Anonim Sirketi (Electrical Installation Engineering Services Co.) EdF - Electricite de France ICB - International Competitive Bidding IDA - International Development Association KEPEZ A.S. - Kepez ve Antalya Havalisi Elektrik Santrallari (Kepez Electric Co.) LCB - Local Competitive Bidding LRMC - Long-Run Marginal Cost MAFRA - Ministry of Agriculture, Forestry and Rural Affairs MENR - Ministry of Energy and Natural Resources MTA - Mineral Research Institute PEE - Public Economic Establishment PPAR - Project Performance Audit Report PPF - Public Participation Fund SEE - State Economic Enterprise SPO - State Planning Organization SPK - Sermaye Piyasi Kurulu (Capital Markets Board) TEK - Turkiye Elektrik Kurumu (Turkish Electricity Authority) TKI - Turkiye Komur Isletmeleri Kurumu (Turkish Brown Coal Ent.) TPAO - Turkiye Petrollerei Anonim Ortakligi (Turkish Petroleum Corp.) TTK - Turkish Hard Coal Enterprise VAT - Value Added Tax

Fiscal Year - January 1 to December 31 FM OWVCIAL Uta ONLY

TURKEY

STAFFAPPBAISAL REPORT

SIR HYDROPOWERPROJECT

Table of Contents

Palle No.

I. THE ENERGYSECTOR ANDEHE POWER SUBSECTOR ...... 1

A. ENERBGY SECTOR ... *...... I

The Role of the Energy Sector in the Economy ...... 1 The ResourceBase ...... 1 Main Agencies ...... 2 Supplyand Demand ...... 2 EnergyPolicy ...... 4 Bank Strategy ...... 55...... B. POWRE SUBSECTOR 55......

National Power System Characteristics...... @S...... CoE 5 Performanceof the Power Subsectorand Government'sStrategy . 7 LegalChanges Affecting Investmentin Electric Power ...... 8 ElectricityPricing ...... 9 Electricity Planning ...... 9 Bank'sRole in the Power Subsector ... 10 PreviousLending to CEAS ...... 10

II. THE PROJECTENTITY: CukurovaElectrik A.S. (CEAS) ...... 12

Present Legal Status of CEAS and Scope of Activities ...... 12 System Characteristics...... 12 CEAS InvestmentProgram for 1986-1994 ... 15 Organization and Manpower ...... 16

III.TEE PROJECT18...... 0* .. 00..00.0000 .... 00 *000 18

Objectivesand Rationale for Bank Financing ...... 18 Project Description ...... 18 Project Origin ...... *..*** 19 Design Modification ...... *...... 19 Technical Evaluation ...... o...... o 20

This reportwas prepared by L. Meek Foote (Financial Analyst/Mission Leader), K. Sheorey (Power Engineer) and J. Chassard-Manibog(Energy EconouistlConsultant). followirig appraisal mission in June 1985.

ThI.documut hina reuwictd dutri wmommdamybe uud by rclpiuls ulpin thepefonnac of thir ocial duuu 1 eonteal moy ot ederwi. be d001d wihu WoM Duk authedol. - {i -

TAKLE OF CONTENTS (CONT'D) Page No.

Status of Project Preparation ...... 6*....66...... *6***..* 21 Cost Estimates...... 21 Project Financing Plai *6 *****...... 24 RetroactiveFinancing ...... 24 Procurement ...... 25 Disburseuentand Special Account ...... 28 Project Implementation...... 28 ImplementationSchedule and Project Completion Date ...... 29 Land Acquisition and Resettlement ...... 30 Nonitoring and Evaluation ...... 31 Inspection of the Dam During Operation . 0...... 31 Environmental Impact of the Project . 666 66666****** ...... 32 Project Risks ...... 32

IV. FINANCIAL ASPECTS ...... 33

Recent Performance ...... 33 Capital Structure ...... 33 Tariffs ...... 34 Accounting Policies, Asset Valuation, and Audit ...... 9...... 35 Taxes ...... 36 FinancialForecasts 666666666666 **..** 6666666...... 6... 36 Potential Financial Implications of Changes in Legal Status of CEAS...... 37 FinancialCovenants ...... 38

V. PROJECT JUSTIFICATION ...... *..*. 666666666.66 39

LeastCost Analysis ...... 39 Return on InvestmentProgram ...... 39

VI. AGRE32EETSREMACED AND RECOMMENDATIONS 6666 66 6666666 ...... 41 - iii-

1.1 National Energy Balance (1978-1984) 1.2 Balanceof Enerprand Capaciti*s(1984-1995)

2.1 Suuiaryof Laws AffectingCEAS 2.2 Shareholders of CEAS (December 1985) 2.3 Fuel Utilizationof MersinThermal Plant (1974-1985) 2.4 Total Generation,Losses and Sales of CEAS (1975-1985) 2.5 CEAS Salesby CustomerGroup, 1978 and 1985 2.6 ForecastGeneration and Sales of CEAS (1986-1994) 2.7 InstalledCapacity and MaximumDemand of CEAS (1983-1994) 2.8 OrganizationChart

3.1 TechnicalCharacteristics of the Dam and Powerhouse 3.2 List of Transmdssion Lines and Substations 3.3 Definition of Technical Assistance Components 3.4 Project Cost Tables 3.5 Disbursement Schedule 3.6 ImplementationSchedule 3.7 Project Monitoring Guidelines 4.1 AverageElectricity Tariffs, 1982-1986 4.2 Summaryof CEAS TariffScbedule, 1982-1986 4.3 CEAS Submissionin Supportof TariffIncrease (1/1/85) 4.4 Historicaland ForecastIncome Statements of CEAS, 1981-1994 4.5 Historicaland ForecastBalance Sheets of CEAS, 1981-1994 4.6 Hitorical and ForecastSources and Applicationsof Funds of CEAS, 1981-1994 4.7 Financial Ratios 4.8 Assumptions Used in Financial Forecasts 4.9 SupplyTariff of TEK's Generationand Transmission Enterprise 5.1 ComparativeGeneration Costs 5.2 Rate of Return

6.1 Documentsin ProjectFile

NAP

IBRD 19443 & 19444 TuRKEY

STAFF APPRAISALREPORT

SIR KYDROPOIIERPOEC

I. THE ENERGYSECTOR AND THE POWE SUBSECTOR

A. THE ENERGYSECTOR

The Role of the Enerwy Sector in the Economy

1.01 rn 1977, four yers after the first of the major oil price Increases. Turkey's oil iport bill was equivalent to 84% of its mercbhadise eport earning. By 1980, the situatio was even more precarious: oil imports stood at 124 of total merchandise ezport earnings. Based on remedil actions iu line with thi Go nt's structural adjustmnt progrm the situatio had. by 1984, impoved and the above ratio bad delined to 511. The improvement was a result of both strong perfor_ance of merchandise exports as well as a policy of bolding the growth in imports of crude oil and oil products to a more moderate level (oil imports grew by an average anual rate of 3.61 between 1981 and 1984). Nowever, despite this improve ent the need to move away from an excessive reliance on oil imports remains crucial to Turkey's medium-term development strategy, as the latter is dependent on the economy'a ability to mobilize foreign echange.

1.0 High priority was assigned to the energy sector by governm nt during the 1980-83 period of structural adjustment. Energy policy was geared to increasIng the domestic supply of energy, primarily through inezeased capital investment to about 351 of total public investment compared to about 201 during the 1970s. In parallel, greater attention was given by government to energy pricing policy as a means of restraining demand and moblizing resources. In particular Governmnt has ensured that petroleum products reflect economic costs as indicated by world prices, and electricity tariffs have increased in real terms over the period (para. 1.29). Although lignite prices declined slightly in real terms between 1981484, they have gradually increased in real ters since 1984.

The Resource Base

1.03 Turkey has substantial untapped lignite and hydropower resources, as well as more limited, but still important, oil, gas and coal resources and geothermal potential. !zdkopwerwith potential economic viability is estimated at about 29,500 MW under average hydrologiL31 conditions and corresponds to an annual production of about 100,000 GVh. Only 151 has been developed so far, but this is projected to rise to about 301 by 1990. Proven recoverable reserves of oil are about 16 million tons. However. potential reserves that my becoam econoically recoverable using enhanced oil recovery - 2 -

techniques currently being tested could be as high as 30 million tons. Oil production has been declining over the last decade, as few discoveries have been made in recent years; in 1984 production was about 2.2 million tons. Proven recoverable &sE reserves are about 400 billion standard cubic feet. Hovever, beginning 1987, domestic gas is ezpected to be supplemented by large scale imports of natural gas from the USSR. Total known reserves of hard coal are estimated at about 1 billion tons, all located in the north of Turkey (Zonguldak). Coal production has been declining as operations move to deeper, less accessible seams; in 1984 production was about 3.5 million tons, representing 2.2 million tons of oil equivalent (toe). Proven and probable lignite reserves are about 8 billion tons, but about half of this is of extremely low quality (950-1,000 kcal/kg). Lignite production in 1984 was about 25 million tons, equivalent to about 6.9 million toe. There is potential for geothermal development,for both space heating and electricity generation.

Main Agencies

1.04 The energy sector in Turkey is characterized by the dominance of government-owned enterprises and agencies. Under the Ministry of Energy and Natural Resources (MENR), the Turkish Lignite Enterprise (TKI), the Turkish Hard Coal Enterprise (TTK), and the Mineral Research Institute (MTM) have respcnsibility,respectively, for the extractionof lignite, hard coal and radioactive minerals, while identification, design and construction of hydropower projects is entrusted to the State Hydraulics Authority (DSI). The Turkish Electricity Authority (TEK) is responsible for the generation, transmission and, since November 1982, the distribution of almost all the electricity sold in Turkey. TEK in also responsible for the implementation of the Government's program for rural electrification and for construction of thermal generation projects and transmission facilities.

1.05 Private sector participation in the supply of electricity was until 1983, confined by law to two semiprivate utilities (CEAS and KEPEZ) and industrial companies which generated power for their own use, often in conjunction with the production of steam for process heat.^' However, recent shifts in government energy policy now give greater encouragement to private sector participation in the development and production of energy (para. 1.27).

Supply and Demand

1.06 Total gross energy consumption was about 40.5 million toe in 1984, of which commercialenergy consumption amounted to about 32 million toe. Petroleum made up the most significant share of primary commercial energy (571) with the balance made up of lignite (201), hydropower (11), coal (111). asphaltite,and imported electricity (1S). About 231 of final commercial

1/ CEAS, which will implement the proposed Project, is described in detail in Chapter 1I. - 3 -

energy consumption was in the form of electricity. Noncommercial energy production (primarily fuelvood, but also other biomass) was an important energy source, accounting for 29Z of total energy consumption. Imported energy (petroleum, hard coal and electricity) represents about 461 of total energy supply. Annex 1.1 presents energy balances for the 1978-1984 period.

1.07 The most notable change in the pattern of energy consumption over the past two decades has been the decrease in the relative share of bard coal in total energy. This was accompanied by a rapid growth in consumption of petroleum until the mid-1970s, and a rapid rise in the share of lignite (primarily for thermal power production) and hydroelectric power consumption starting in the second half of the 1970s. During this period, hard coal consumption stayed relatively constant in absolute terms, while traditional biomass energy sources increased slightly in absolute terms, but decreased steadily as a percentage of total energy consumed.

1.08 The most important factors in the growth of energy demand will be the growth rate of the economy as a whole, the growth rate of the energy-intensive industrial sector of the economy, and the extent to which Government implements an energy conservation and demand management program. Bank estimates indicate that the growth rate of the economy would average about 5.61 per annum during the 1980. and that the industrial sector would gror slightly faster at about 7S. Under these projections and in the absence of a vigorous demand management program, electricity demand is expected to grow by over 2001 between 1980 and 1990 to about 60,000 GWh; lignite demand for thermal power plants would grow by Almost tenfold to about 50 million tons; and petroleu. products demand would grow by 1101 to 30 million tons of oil equivalent. In total this would represent approximately 58 million toe. an increase of over 61 per annum from 1984 (40.5 million toe). However supply constraints8 especially in the lignite sector and in the power sector (para. 1.19), are likely to result in demand not being met, at least to 1990.

1.09 There is, however. considerable scope for conservation of energy, particularly in the industrial sector which currently accounts for 401 of total energy consumption and this is expected to rise to 45% by 1990. The industrial sector also consumes 641 of total electricity supplied. Furthermore eight industries-' account for 401 of total industrial energy consumption, from which it has been estimated that almost 1 million toe could be saved through investment in conservation. The total estimated potential energy savings in the industrial sector, including a large number of energy-inefficient small industries, is about 2.4 million toe. There is therefore an urgent requirement for an energy conservation program in Turkey.

1.10 The Government is in the process of developing a program for the conservation of energy by encouraging efficient use in existing and new industrial enterprises. Energy efficiency programs and legislation have been

1/ Iron and steel, cement, fertilizer, pulp and paper, glass, brick, aluminum, copper. - 4 -

evaluated by both MENRand the State Plaiming Organization (SPO), and legislation has already been passed which allows for tax credits for various types of investments in energy efficiency improvements. The Government has initiated programs to assist industrial firm to learn how to improve their energy efficiency in existing operations. The Bank included technical assistance for energy audits in selected manufacturing facilities as part of the assistance to the Government under Loan 1916-TU. These audits are to be followed by conservation activities. The findings of the energy audit of the Anbarli electric power plant have been used as the basis for preparing a subcomponent of the Power System Operations Assistance Project (Loan 2602-TU). TEK has also hired consultants to assist in the development of an energy conservation and load management program (Loan 2322-TU).

Energy Policy

1.11 To meet its energy requirements, Turkey launched a massive program in the late 1970s to increase the domestic production of electricity and lignite. This program tended to stretch the implementation capabilities of the state energy agencies, and spread resources available too thinly over too many projects, with resulting long delays in completion schedules. This has, in turn, resulted in an energy deficit which is likely to remain a feature of the Turkish economy through the 1980s (para. 1.08). NENMand TEK are currently in the process of improving their energy planning capabilities (para. 1.30). The present Five-Year Development Plnaw contains the following energy sector objectives:

- priority is to be given to domestic sources of energy, especially. hydropower and lignite, provided that they are economically justified;

- imported energy including, but not limited to oil, will be considered;

- renewable and nonconventional resources such as geothermal, solar and biogas are to be supported; and

- private sector financing, both local and foreign, will be sought for participation in energy development.

1.12 One feature of government policy which represents a departure from previous energy policy concerns the expanded role of the private sector in the development and production of energy. Goverment policy is now to encourage private sector participation in the energy sector (para. 1.27). It is now possible for the private sector to participate in electricity generation, and private utilities (REPEZ and CEAS) have plans to increase their capacities (e.g., proposed Project for CEAS). In addition, SPO is currently pursuing negotiations with private consortia who would assemble financing, and construct and operate hydropower and thermal plants based upon imported fuels.

1/ V. Bes Tillik Kalkinma Plani 1985-1989, State Planning Organization, June 1984 -5-

Bank StrategY

1.13 The Bank has prepared and discussed with Government an Energy Assessment Study as well as subsector studies on electricity and lignite. As an ongoing part of our policy dialogue the Bank prepared an energy sector strategy paper On actions required in the energy sector. In discussions of this paper agreement was reached with the Government and related energy institutions on the content, analysis and scope of the issues facing the energy sector.

1.14 The strategy for Bank lending and operational work in the energy sector is to focus on selected key issues in the medium-term in order that projects way be brought on stream as rapidly as possible and the efficiency of existing energy-producing facilities be maximized. Priority should be accorded to projects aimed at reducing the energy deficit as soon as possible. Projects with relatively short gestation periods such as improvement of efficiency within existing facilities, industrial conservation, (reduction of energy leakages). and economic utilization of energy resources which can be brought on stream rapidly, should have priority.

1.15 In conjunction with the strategy to address the key medium-term issues the Bank is also emphasizing the strengthening of various energy institutions through technical assistance in training, manpower development, technical, economic and financial planning and project management. The policy discussions between Government and the Bank will be continued on a regular and sustained basis and should provide a continuing policy framework within which both project lending and the development of a robust project pipeline can proceed.

B. THE POWERSUBSECTOR

National Power SYstem Characteristics

1.16 The installed power capacity in Turkey (as of 1985) is about 8,500 MW of which about 4,500 MW (53X) is thermal and the balance hydro. TEK plants make up about 7,400 MW of this total. The share of hydropower has increased over the past ten years from 33Z in 1972 to about 471 in 1985. On che thermal side lignite has made an increasing contribution to the production of electricity. Total net generation in 1985 was about 27,500 GWh, of which TEK accounted for almost 90S, and this was supplemented by about 3,000 GWh of imported electricity from Bulgaria and the USSR. The system is characterized by a high level of losses which, in total (technical losses plus unaccounted for energy), amount to about 201.1'

1/ This compares with losses of about 101 in a well designed and operated transmission and distribution network. - 6 -

1.17 Trends in National Electricity Demand. Growth in demand bas averaged about 9S per annum over the period 1965-1985. Between 1970 and 1983 the percentage of population with public electricity supply rose from 511 to 781. Per capita annual consumption of electricity in currently about 550 kWh. The current medium- and long-term forecasts, prepared in connection with TEl's long-term generation plan (1987-2005) are based upon the relationship between electricity consumption and industrial output. They show total demand growing at about 101 per annum to 1990. Beyond 1990. TEK projects a growth in demand of about 81 per annum. This implies a continuation of the high (1.6-1.8) elasticities with respect to GDP and sectoral (primarily industrial) growth rates. These are higher than in many other industrializing countries (e.g., Korea, Hungary, Singapore) which have been able to reduce electricity demand significantly by implementing a program of demand management. Given the difficulty Turkey has faced in expanding electricity supply it is critical that efforts be made to bring about lower demand elasticities. This may be achieved in part by the series of real electricity price increases implemented since early-1984. A program of demand management implemented in parallel with a program to improve efficiency and plant availability within the electricity subsector could produce significant savings in investment over the medium to long term.

1.18 Given the constraints in bringing additional supply facilities on stream, the national forecast of electricity sales has been derived from the Bank's projections of available generation. Under this forecast, TEK's sales would increase at an annual average rate of about 101 to reach about 45,000 GWh by 1990 (Annex 1.2).

1.19 Generation. National installed capacity is expected to grow from about 8,500 MW in 1985 to almost 14,000 NW by 1990, with the share of hydropower increasing to about 501. Assuming average water flows, the share of hydropower in total generation is expected to be about 421 over the period. This estimate is, however, dependent on the extent to which lignite supply constrains the availability of thermal generation. Any improvement in the lignite mines' abilities to supply lignite would have a major impact upon increasing generation from the thermal plants.

1.20 All new thermal power plants presently identified, either under construction or proposed in the investment program, would use lignite for power generation, with the exception of a coal-fired plant to replace an old unit at Catalagzi, a small pilot (18 M1) geothermal plant, and a new 600-MS combined cycle plant located in Thrace to utilize domestic gas (amitabat) and imported gas (USSR). Furthermore, the State Planning Organization (SPO) and MENRare carrying out discussions with several private international consortia which have made bids to construct and operate thermal stations based on imported coal.

1.21 Transmission. The salient feature of the Turkish transmission system is that the largest load centers are located at considerable distances from the existing and/or committed major power plants, most of which are to be located in the far east or south west of the country. For technical reasons of system stability and reliability, there is a need for a more geographically - 7 -

balanced system, especially in European Turkey (Thrace) where the system is particularly vulnerable. TEK's bulk transport system consists of a 380-kV National Grid System that feeds into 154-kV grids. These 154-kV grids supply major power users and feed into 66-kV subtransmission grids. In 1984 there was a total of 22,852 km of transmission and subtransmission lines. TEK's substation plant in the transmission grids consisted of 492 transformer substations, having an aggregated capacity of 15,230 MVA.

1.22 Distribution and Village Electrification. Primary distribution voltages are 35kV, 15kV, 6kV and 3kV. In 1982 TEK took over responsibility for urban distributionfrom the municipalities. In the 18 regional distribution enterprises under TEK, the distributionsystems consisted in 1984 of: 103,490 km of distribution lines at 34.5 kV or below and 20,708 distribution substations with an aggregated capacity of 12,219 MVA. During the 1970s there had been a sharp decline in the share of investment in urban distribution, from 14X of total subsector investment in 1975, to 6S in 1979 despite an urban population growth rate of almost twice the national average. Problems of underinvestment were compounded by the fact that many municipalities practiced cross-subsidization of services, utilizing revenues from urban electricity sales to finance other services. This resulted in a deteriorationin the physical condition of the urban networks and high losses. The level of technical losses in distribution is between 12Z and 15., which is high by modern standards. Recent estimates by TEK place losses at 1,500 GWh/year, of which pilferage and illegal connections account for about 500 GWh and technical losses the balance. Almost 1,000 GWh of total losses occur in the three largest urban areas, Istanbul, Ankara and Izuir. Rehabilitating the urban networks should be accorded greater priority than hitherto, since it would provide a cost-effective and rapid way to increase the capacity of the system. TEK hired consultants in 1983 (EdF, France) to assist in identifying losses and to prepare an investmentprogram for the urban networks. The consultants have prepared the first comprehensive investment masterplan (Izmir).

1.23 The village electrificationprogram forms part of the Government's social policy of providing basic services to rural areas, especially to those provinces designated as least developed and most impoverished. As such, government objectives are geared to regional development, equity considerations and poverty alleviation rather than either financial cost recovery or economic efficiency. By the end of 1984, about 70% of the villages had been connected to the national system, and the target is to electrify the balance by the end o' 1990.

Performanceof Power Subsector and Government's Strategy

1.24 The Turkish power subsector has been confronted with problems of major proportions. Electricity supply had been insufficient to meet demand, resulting in high costs to the economy, as imports increased and supply interruptionsbecame more frequent. The shortfalls in supply are attributed maiuly to institutional problems, especially the shortage of qualified staff in the public sector agencies responsible for planuing and implementing the development of the electricity subsector, and shortages of local funding - 8 -

resources. This has resulted in project delays, consequent Substantial cost *ecalations, chronic power shortages, frequent and protracted power plant breakdowms due to inadequate maintenance, and high system losses. The shortages of qualified staff in TEK has resulted In resources, spread too thinly over too many projects in the investment prograr.

1.25 Mseting electricity demend in Turkey will require a major coordinated effort on behalf of the agencies in the subsector since it will require that the country bring on strea three times more capacity in the 1980. than in the 1970s and sutain that momentumthroughout most of the 1990s. 1.26 The Government is, however. coinitted to a progrm to deal with the issues faced by the power subsector and plans to focus particularly on the medium-term issues of expanding output, maximizing efficincy and, in line with the Government's structural adjustment progrm, curtailing the country's oil import bill. MMNIhas instructed all the individual emrgy institutions to address the following priority issues:

(a) omanaeritl and institutional impro emts, In particular the strengthening of planning, project selection and project manamt_ capabilities through increaed training and tecbnical aistance; (b) the coa letion of ongoing Priority orolects In the electricity subsector and In lignite mines to supply key thermal plants;

(c) the u4aradina of existing faciliti s with special reference to improving operational efficiency, retrofitting of plant and provision of adequate spare parts;

(d) evaluation and imDlmentation of a broader range of alternatlve energy supplies including natural gas and imported coal;

Ce) energy conservation, including the identification of investments and pricing policies to increase the effLciency with which energy is both produced and consumed; and

(f) an increased role for the Drivate sector, particularly in the construction and operation of power plants and operation of lignite mines.

Legal Changes Affecting Investment in Electric Power

1.27 The objectives of encouraging a greater role for the private sector are to ease the manpowerand staffing problems in the public sector. improve project e t, and mobilize private financing. A law issued in December, 1984 (Law 3096) allows utilities and other compnies, designated as regional utilities, to construct and operate generating facilities and to have full responsibility for electricity distribution and sales within a designated service area. The full set of regulations explaining bow the principles set out in this law would be implemented is under preparation. 1' -9-

Electricity Pricing

1.28 Bulk electricity tariff levels are close to the long-run marginal costs of bulk supply (LRMC) but do not yet fully reflect the structure of LRMJ. TEK has hired consultants (EdF, France) to assist them in a study of the long-run marginal cost of supplying electricity at both the bulk and retail levels. The counultant's report was submitted to TEKand the Bank in July, 1985. It was agreed under Loan 2322-TU (1983) that TEK will review the recommendations of this report and implement them according to an agreement to be reached between TEK and the Bank.

1.29 In line with government policy to price energy products closer to their respective economic costs, bulk rates were increased by an average of about 13S in real terms from 1982 to 1984. Further increases since the beginning of 1985 (on January 1. March 1, April 1, December 1 of 1985, and February 1 of 1986, respectively) have resulted in a real adjustment of bulk rates of about 50S. By April 1986 the average bulk supply tariff was estimated at about 90S of the LBHCof electricity supply at high voltage (paras. 4.07-4.08). Despite significant increases over the past two years, retail tariffs are not yet as close to the long-run marginal cost of supply at low voltage (701 on the average). Electricity Planning

1.30 TEK is, and has been since its creation, overwhelmeu by the immediate problems of coping with increasing demand, problems that have preoccupied senior managemt to the detriment of forward-looking strategies. As a consequencelittle effort has, in the past, been made to upgradeTEK's planning skills. aowever, agreement bas been reachedon a comprehensive sstem planning training program for MENRand TEK. Training is being given in sstem plasning using the 96

1/ Two regulations, which clarify to some extent certain aspects of Law 3096, were issued on September 4, 1985. The first one pertains to companies other than TEK and DSI which are interested irsconstructing and operating power plants in Turkey, to the exclusion of transmission and distribution. The second regulation defines the service areas within which co_mpnies could be entrusted with generation, transmission, distribution and sale of electricity.

2/ WASP- Wien Automatic System Planaing Modei.

3/ MMID- Model for Analysis of Energy Lvzvmd. - 10 -

long-termleast-cost expansion program for the subsector. TEK is to prepare a report by end-1986 of the proposed long-term generation plan.

1.31 One area of system planning where technical and cost data could be significantly improved is in the hydropower subsector. System planning is hampered by the lack of a systematic inventory of hydroelectric resources and a ranking of these resources based upon uniform technical criteria and comparable economic and cost criteria. The Kayraktepe Hydropower Project (Loan 2655-TU) provides technical assistance to prepare this inventory of hydropower resources on the basis of a uniform methodology. Once completed. the hydro inventoryand ranking study will allow the optimal design and development,scheduling and constructionof hydropower plants with consequent major savings in investment. The results of the study will also provide additional informationto a subsequent round of expansion planning exercises.

1.32 To ensure the rational design of the medium-term investment program, it has been agreed under the Fourth TEK Transmission Project (Loan 2586-TU) that Bank and Government would undertake, by October 31 of each year, a joint review of the electric power investment program and related financing plans, with a view to identifyingproject priorities, realistic completion dates and adequacy of electric power investment levels and finance.

Bank's Role in the Power Subsector

1.33 The proposed Project would be the twentieth Bank operation in the power subsector in Turkey. The Bank has made fifteen loans and a technical assistancegrant, and IDA has granted three credits. These comprise loans/credits for hydroelectric projects; thermal power stations (oil- and lignite-fired); transmission and distributionnetworks; and assistance in improving TEK's system operations. The technical assistance grant helped reorganize Turkey's power subsector.

Previous Lending to CEAS

1.34 CEAS has not received any Bank financial assistance since 1971, given the restrictionsagainst CEAS undertaking new investments in power generation. Previously the Bank/IDA made four credits/loansto the Government of Turkey which were onlent to CEAS, financingalmost all of the generating facilities presentlyoperate%d by CEAS: (1) in 1963, Credit 34-TU of US$1.7 million for a third 18-MW unit at Seyhan HydroelectricPower Plant; (2) in 1964, Credit 59-TU of US$24.0 million for the constructionof the Mersin Steam Power Stationand the Kadincik I ;-AroelectricPower plant; (3) in 1969, Loan 623-TU of US$11.5 million for the constructionof the Kadincik II Hydroelectric Power Plant; and (4) in 1971, Loan 775-TU of US$17.0 million for transmission lines and cost overruns related to the Kadincik II power plant.

1.35 A final ConstructionReport, issued in May 1972 on the Second Cukurova Power Project (Credit 59-TU), reported that the project had been executed with no major delay or cost overrun. A Project Completion Report for the Third and Fourth Cukurova Power Projects (Loans 623-TU and 775-TU) was issued in August 1975 and indicated that some difficulties due to unexpected - 11 -

conditions had been encountered and caused some delay at the construction stage. Tlis delay, coupled with exchange rate fluctuations, had resulted in a 301 cost owerru. Nowever.the major conclusion of the report vas that the capability of the project _mangmentteam and CEAS' efficient organization had been crucial to the success of the projects and to obtaining full project benefits. - 12 -

II. THE PROJECT ENTITY: Cukurova Electrik A.S. (CEAS)

Present Legal Status of CEAS and Scope of Activities

2.01 CEAS, a limited liability company which is subject to the provisions of the Turkish Commercial Code, was granted a concession in 1953 for the supply of electricity in the Cukurova Region in Southern Turkey, which includes the fertile and highly developed Cilician plain. Initially formed to operate the power portion of the multipurpose Seyhan Project, which was completedin 1956 with the help of Bank Loan 63-TU, CEAS presently operates five generatingplants. In 1983 CEAS received the approval of SPO and MENR to build the Sir Hydropower Project and the Duzkesme-BerkeHydropower Project downstream. Under its present charter, all fixed assets operated by CEAS would revert free to the Government at the end of the concession period which runs to 2002.

2.02 CEAS has applied to become a "regional utility," as provided for under Law 3096 of 1984 (para. 1.27). If the Government grants regional utility status to CEAS, new arrangementswould be made between CEAS and the Government which would replace the existing concession agreement. CEAS would become a fully integrated regional utility, possibly taking over all generation, transmission and distribution facilities within the Cukurova Region. This likely change and its related financial implications are discussed in Chapter IV (para. 4.17). The laws currently applicable to CEAS are sumarized in Annex 2.1. The Government has confirmed to the Bank that subject to a satisfactory outcome to the ongoing negotiations between MENRand CEAS, it is expected that CEAS will become a regional utility as provided for under Law 3096.

2.03 CEAS presently has an authorized (registered) share capital of TL 15 billion of which TL 3.6 billion is paid in. While the Government, through TEK, is the largest single shareholder, TEK's shares account for only one quarter of the total capital. Individual investors, trade associations, banks and insurance companies, and other private firms own the majority of the stock. Shareholdersare listed in Annex 2 =

System Characteristics

2.04 Existing Power Facilities. CEAS' present installed capacity is 298 MW, of which 192 MW (64X) is hydro. The generating facilities consist of: (i) the 60-MS Seyhan hydroelectricpower plant; (ii) the 70-MS Kadincik I hydroelectricplant; (iii) the 56-MW Kadincik II hydroelectricplant; and (iv) a 106-MS oil-fired steam plant at Mersin. In addition, CEAS operates a 6-MW hydropower station at Yuregir for which it pays an annual rental fee to DSI. Operationof these facilities has been constrained by various difficulties, ranging from problems with the runner of a turbine at Kadincik II to insufficient capacity to utilize completely the water released for irrigation at Seyban, and to high fuel cost at the Mersin thermal plant (details are given in Annex 2.3 on Mersin fuel consumption and decreasing efficiency). Under the proposed Project, technical assistance would be provided to carry - 13 -

out consultants' studies with a view to reconeuding remedial actions (para. 3.07 and Annex 3.3).

2.05 There are several power generating facilities in the Cukurova region, presentlyunder constructionor recently completed,which are neither owned nor operated by CEAS (Table 2.1). In the event that CEAS becomes a regional utility, considerationwill have to be given as to whether any of these facilities would be transferred to CEAS. In connection with the appraisal of the Kayraktepe Hydropower Project, the Government has already indicated to the Bank that this particular plant would be constructed by DSI and operated by TE.

Table 2.1 GeneratinR Plants in the Cukurova Region Not Controlled by CEAS

Coummissioning Plant MW GWh Date Comments a) Ceyhan-Aslantas 138 569 1984 Downstream of HPP Sir, operated by TEK b) Catalan EPP 156 508 1988 Under construc- tion by DSI, north of Seyhan Reservoir c) Gezende IPP 150 528 1989 Under construc- tion by DSI on GiSku River d) Kayraktepe HPP 420 991 1993 Construction by DSI on Gkcsu River to start 1986

2.06 In 1985 total net generation by CEAS amounted to 1,394 GWh compared to a regional electricity consumption of 2,800 GWh (representing about 101 of the national electricity consumption) and a peak demand of 502 NW. Because of the restrictions placed on its ability to construct new generating facilities, CEAS has had to resort increasingly to purchases of electricity from TEK to try to meet demand in its concesaioL area. Since 1978 CEAS has been a net purchaser of electricity and in 195, TEK's supply accounted for 571 of the energy supplied to the regional network (Annex 2.4 presents historical developments of electricity generation and consumption in the Cukurova region).

2.07 Peak load and electricity consumption in CEAS' concession area increased at an average rate of 9.11 over the past ten years, mainly as a - 14 -

result of the region's rapid economic growth. However, actual consumption has been consistently lower than potential effective demand, estimated to be about 10 higher. Power shortages at the regionallevel are a reflectionof the pervasiveenergy deficit observed at the national level as TEX has been unable to supplyall the electricityneeded by CEAS to complementits own generation (pars.2.06).

2.08 Industrial customers, numbering in total about 200, account for over half of the regional electricity consumption (nearly 601 in 1985). The largest industrial customer in the region is the Iron and Steel Works at Iskenderun (Isdemir), accounting for over 161 of regional industrial consumption. This plant has its own generation capability, but no longer has surplus energy to sell to CEAS. Other major industrial consumers include textile, cement, and food processing plants (Annex 2.5). The remining share of available bulk supply is then sold by CEAS to TEK's Toroslar Distribution Enterprise for retail distribution. On TEK's behalf,CEAS preparesbills for electricitysales to about 200 villagesand municipalities,but TEK itself collectsfrom these retailcustomers. Despite the region'srapid industrial developmentand accompanyingurbanization, about half of the populationis still classified as rural, and of these, almost 902 are connected to the electricitygrid as comparedwith only 501 in 1975. Overallfor the region, almost951 of the populationhas accessto electricity, which is high compared to some other regionsin Turkey.

2.09 Demand Forecast. CEAS' planning department prepared a 10-year forecastof electricitydemand in the Cukurovaregion and carriedout an extensivesensitivity analysis. The forecastwas determinedby breakingdown sales into major consumercategories and by takinginto accountprojected growthin the nationalGNP and in the regionalpopulation. The methodology and forecasts were reviewed in detail by the mission and found to be satisfactory. According to the forecast, electricity demand would grow at an average rate of 101 per annum over the 1986-1994 period, with industry's share in the total remaining constant at about 601. Net sales to the Cukurova regionwould reach6,312 GWhby 1994 (as compared to 2,800 GWhin 1985) and maximum demand 1,102 NW.

2.10 Planned Generation and Supply. The proposed Sir hydropower plant, to be conmissionedin 1991,would be CEAS'only new generatingcapacity over the 1986-1994period, in additionto the possiblerehabilitation of the Mersin plant and its conversionto combinedcycle (paras.2.04 and 3.07 and Annex 3 .3 ).V Generationfrom Sir (projectedat 725 GWh per annum without irrigationdevelopment at the Meazeletdam upstream)would partiallymeet the increasein electricitydemand and the deficitwould have to be met by additionaltransfers from TEK throughthe nationalgrid. By 1990, purchases from TER are expectedto represent731 of the energysupplied to the regional

1/ Given the uncertaintyregarding the resultsof the feasibilitystudy for such conversion,the associatedcapacity addition (estimated at about 160 NW) was not taken into accountto deriveCEAS' plannedgeneration. - 15 - network,this share decreasingslightly afterwards once Sir is coimissioned. CEAS' ten-year forecast balance of energy and capacity for the Cukurova region has been communicated to MENRand TEK for use in the preparation of the national forecast balance of energy and capacity. However, there is no formal contract between TEK and CEASconcerning their annual exchanges of electricity. Instead, MENRcollects information from both utilitieson the expected available supply and then issues instruction to CEAS and TEK on the amount of electricity which in principle should be exchanged between them during the year. However, in the event of power shortages at the national level, CEASremains subject to load-shedding measures to the same extcet as other regions in Turkey. Forecasts of electricity generation by CEASand of regional electricity sales are given in Annex 2.6 and the projected installed capacity and maximum demand are presented in Annex 2.7.

2.11 Transmission and Distribution. Primarily a wholesaler of power, CEAS operates the regional network down to the 15-kV voltage, plus some of the 6-kV lines in the region. Altogether CEAS owns and operates about 2,200 km of subtransmission lines at 154kV, 66kV, 30kV, 15kV and 6kV. The operation of the CEASpower system is controlled from a telephone-operated dispatch center at Seyban. However, there is no proper coordination with TEK regarding optimization of the generation scheduling and the plant outages. Under the proposed Project, technical assistance would be provided to improve CEAS' load dispatch operations [para. 3.07 (b)]. Subtransmission losses on CEAS' network are reasonable, amounting to about 4S of the electricitysupplied.-?

2.12 The 380-kVsubstations and lines within the Cukurova region are part of the national power grid owned and operated by TEK. CEAS interconnects with this 380-kV grid at TEK's 380/154-kV Erzin substation. Two additional interconnection points at 154-kV exist at the Toroslar and Osmaniye substations. TEK will construct an additional 380/154-kV substation at Adana, which is being financed under the Fourth TEK TransmissionProject (Loan 2586-TU).The distribution system within the CEAS concession area is owned and operatedby TEK, throughthe ToroslarDistribution Enterprise, which is one of eighteenregional distribution enterprises formed in 1982 when the responsibilityfor retailsales was transferredfrom the municipalitiesto TEK.

CEAS InvestmentProgram for 1986-1994

2.13 Generation.In addiifunto the Sir HydropowerPlant, to be financed by the proposed loan (Chapter III), construction is expected to begin on another generating scheme: the Duzkesme dam, located 7 km downstream of Sir, and the associated Berke hydropower plant (168 KWwith an average annual generation of 916 GWh). The siting of both hydropower plants was evaluated together in the original feasibility studies of the Ceyhan-Berke Scheme (para. 3.03). Further studies are still required before the technical specifications

V/ These exclude losses on the distribution network which does not fall under CEAS' scope of activities. - 16 -

of the Duzkesme-Berke Project can be finalized. The construction starting date has been tentatively set for 1989, making possible cocmissioning by 1995.

2.14 Transmission. The investment plan for the transmission line and substation facilities presumes that the distribution network does not fall under CEAS' scope of activities and that its existing service area is not extended. During the period 1986-1989, CEASwould be adding about 350 km of transmission and subtransmission lines and 570 MVA of transformer capacities at existing and planned substations. In addition, during this period TEK would be investing in the 380-kV transmission lines and 380-kVI154-kV substations required in the CEAS region to meet the system demand of the national grid which is owned and operated by TEK (para. 1.21).

Organization and Manpower

2.15 The present organization of CEAS is shown in Annex 2.8. The Board of nine directors includes: a chairman; five directors representing private stockholders, who have two-year terms; and, three directors representing TEK, who have one-year terms. These appointments are often renewed. The present Chairman of the Board Ls also chairman of ELTEN-TEK,an engineering consulting firm, partially owned by CEASand TEX.

N2.16 CEAS is able to pay higher salaries than those permitted for public enterprises such as TEK, and attention is also paid by the mangeDnt to ting the training needs of the staff, 1 ' improving their living conditions, and providing other benefits. As a result,CEAS has experienced less than 1S turnover of staff annually, mostly due to retirement. The total number of employees at the end of 1985 was 889, classified by educational level and technical area as shown in Table 2.3.

Table 2.3 Profile of Staff of CEAS - 1985

By Educational Level X By Activity S Number

Higher Education 14 Generation 36 322 High School 47 Transmission 22 192 Secondary School 7 Investment & Construction 7 61 Primary School 32 Administration 35 314

Total 100 Total 100 889

1/ mmprovements in training facilities are planned by CEAS to keep up with the expansion of its construction and operating facilities and $Ill be supported by the technical assistance component of the proposed Project. (para. 3.07 and Amnex 3.3). - 17 -

2.17 CEAS has investments in a number of other companies, including: about 272 of the shares of the Kepez Electric Company, which is building the Asagi Manavgat Hydropower Project (48 MW). and 11 of the shares of ELTEM-TER. In addition, CEAS has a 40X share in CESTAS, which manufactures principally electrical equipment, including surge protectors and circuit breakers. - 18 -

III. TME PROJECT

Objectivesand Rationale for Bank Financing

3.01 In order to overcome the chronic power shortages facing the Turkish economy, the Government is encouraging greater participation of the private sector in the power investments (para. 1.27). Through involvement in this Project, the Bank could serve as a catalyst to enable one of the first power plants in Turkey to be constructedand financed without public funds under the new legislation. Given the present uncertainty about the timing of legislation defining the legal status of CEAS as a regional utility, CEAS is unlikely to obtain the required foreign exchange for the Project from other sources. The Bank's involvement in the Project, in addition, would assist the country in: (a) developing indigenous hydroelectric resources; (b) reducing the country's dependence on imported oil; (c) encouraging involvement of the private sector to supplement public investment in expanding Turkey's generation capacity to meet the demand; and (d) creating job opportunities in a less developed region (Kabramanmaras) during the project construction period.

Project Description

3.02 The Project consists of the following components:

(a) construction of a thin concrete double curvature arch dam (120 m high above the foundation and with a crest length of 32.5 m) at Sir on the Ceyhan River to form a gross storage reservoir capacity of 1,120 million m3, spillway, bottom outlet, and intake structures, a powerhouse with three 94.5-MW vertical Francis turbine generator units, and a switchyard with SF6 switchgear and gas insulated busbars, including necessary consultancy services and the carrying out of a resettlement program, or provision of indemnification, as required, for about 7,000 people currently living in areas to be affected by the project, including provision of alternative adequate housing and other comminity and infrastructure facilities;

(b) transmissionline facilities to interconnect the Sir powerhouse with TEK's 380-kV grid, and subtransmission lines and substation facilities to efficiently transmit the Sir generation to the load centers in the CEAS service area; and

(c) technical assistance for studies to improve the existing facilities of CEAS (Mersin, Seyhan, and Kadincik II power stations), a regional power transmission study including "wheeling" of power over the National Grid System, training, procurement of training equipment, and upgrading of existing computer facilities.

A full description of the three project components is provided in Annexes 3.1, 3.2 and 3.3, respectively. - 19 -

Project Origin

3.03 The proposed Sir Dam on the Ceyhan River in south-central Turkey is in Kabramanmaras province and is about 36 km by road from the provincial capital of Sahrauaras.The Sir Dam, the first phase of the Ceyhan-Berke scheme, is one of the components of the long-term development of the lower basin of the Ceyhan River (Annex 3.1, para. l and Attachment 1). The Ceyhan River Basin Master Plan studies were started by DSI in the year 1966, and the feasibilitystudy for the Ceyhan-Berke scheme was initiated by EIE in 1975. The feasibilitystudy (completed by EIE in 1979) considered various alternativesbefore arriving at the optimum solution for the scheme consisting of the Sir Dam with its powerhouse located at the toe of the dam and the Duzkesme dam connected by a power tunnel with its underground powerhouse (at Berke), about 11 km downstream of the dam. Based on the conclusions of the feasibility study, EIE completed the final design documents and technical specification for the bidding documents in 1983 (Annex 3.1, para. 2). CEAS applied for and received government authorization to construct both the Sir and Duzkesme Projects, and applied to the Bank in 1984 for a loan for the Sir Hydropower Project. The preappraisal mission reviewed the design prepared by EIE. While the Sir Dam and powerhouse were in an advanced stage of preparation, the second phase of the scheme (Duzkesme/Berke) needed further investigations (Annex 3.1. para. 2). It was, therefore, decided to proceed with the appraisal of the Sir Hydropower Project which is independentof the second phase and also financially and economically, a viable project. During negotiations, it was agreed that CEAS could proceed with their plans to invest in the Duzkesme-Berke project.

Design Modification

3.04 The configuration of the Ceyhan River Valley at Sir and the type of bedrock was found to be appropriate for the construction of a thin arch dam. However, during preappraisal the Bank's consultants suggested further refining of the layout to reduce the cost of civil works. CEAS, therefore,appointed engineeringconsultants, Coyne et Bellier of France (C&B), according to the Bank's Guidelines, to review the final design and to carry out the engineering and supervisionof the Project. The redesign of the dam was reviewed by a Bank follow-upmission (August 1985). The design modifications (Aznex 3.1, para. 3) reduced the estimated cost of the civil works by about 201; improved the foundationstability of the left bank; reduced the head loss; increased the net head available for the turbines; and facilitated operation and maintenanceof the dam and the powerhouse. The main layout and characteristics of the Sir Dam and the powerhouse as modified are given in Annex 3.1, Attachments 2 and 3. The Bank's consultants commented that the redesigned arch dam is a well balanced double curvature shell, however, they made suggestions for: (a) further refining of the dam arch; (b) the limit.ng of tensile stress in the dam; (c) method to be used for cooling of concrete during construction;and (d) care to be taken while carrying out consolidation grouting of the excavation in the left bank. C&B took account of these during final detailed design. Based on the final design CEAS intends to carry out the hydraulic model test by October 1986. - 20 -

Technical Evaluation

3.05 The Dam and the Powerhouse: The Bank's consultants reviewed the available information on: (a) geology of the dam site; (b) the slope and stabilityaround the reservoirarea; (c) reservoir watertightness; (d) foundation treatment; (e) drainage and grout curtains; (f) seismicity; (g) hydrology; (h) availabilityof suitable constructionmaterials; and (i) instrumentationand safety of the dam (Annex 3.1, paras. 4-15). The Bank's consultantsagreed that on the basis of the available information there is a high degree of integrityof the reservoir. The Bank's consultants also agreed that, in general, adequate quantities of cement and aggregates are locally available.

3.06 Transmission: The Sir Dam powerhouse switchyard will be connected to the National Grid System. During negotiations, the Government and CEAS agreed to have CEAS complete, not later than January 15, 1987, a study, to be carried out by consultants (acceptable to the lank), under terms and conditions satisfactory to the Bank, to determine the optimum arrangements for the transmission of power in the Cukurova region, including if necessary, the "wheeling" of CEAS power on TEK transmission lines. The Government and CEAS also agreed to have TEK and CEAS implement the recommendations of the study in a manner satisfactoryto the Bank. The Project includes about 350 km of transmission and subtransmission lines, and 570 KVA of transformer capacities at CEAS' substations (existing and pLanned). The attachment to Annex 3.2 gives the breakdown of these facilities. This would adequately meet CEAS' requirementsup to 1995.

3.07 Technical Assistance: The Bank considered CEAS' technical assistance proposals (Annex 3.3) and agreed to include:

(a) studies for rehabilitation of Hersin thermal power station, additional generation capacity at Seyban hydropower station, the runner problem at Kadincik II hydropower station, and a regional power transmission study including "wheeling" of power over the National Grid System;

(b) training for CEAS staff in the areas of load dispatch, load management, computer system applications, project planning, financial management, and manpower planning including training; and

(c) training and computer equipment which would include audiovisual training equipment, personal computer (hardware and software) and upgrading of CEAS' existing IBM 4300 computer facilities.

CEAS has finalized and submitted to the Bank for its review draft terms of reference for: (a) studies; and (b) technical specifications and cost estimates for the upgrading of its existing computer facilities. CEAS would submit in advance for the Bank's review, proposals for the training programs and curriculum vitae of the staff it intends to send abroad for the above training. - 21 -

Status of Proiect Preparation

3.08 The following suumarizes the status of project preparation:

(a) Proiect Management: CEAS has already appointed the Project Manager and the essential support staff at its headquarters for the dam and the powerhouse (para. 3.24).

(b) Engineering Consultants: In consultation with the Bank, CEAS has appointed engineering consultants (paras. 3.04 and 3.22) and formed the International Boerd of Experts for the dam and the powerhouse (para. 3.23).

(c) Proiect Desixn: C&B has completed the detailed engineering and design for the dam and the powerhouse (para. 3.05). The transmission lines and substations component of the Project will be finalized after review by the Bank of the study and the agreed proposal from CEAS/TEK (para. 3.06).

(d) Procurement: In order to provide basic infrastructure facilities at the dam site, CEAS has already awarded contracts for construction of a temporary bridge and improvements to the main access road to the site, in July 1985. The contracts for additional boreholes for site investigation, surveying, mapping and the diversion tunnel works have also been awarded. In addition, CEAS, in consultation with the Bank, has prequalified the firms who have submitted offers for the main civil works contract. Bid evaluation is in progress and recommendation for award is expected by the end of August 1986.

(e) Land Acquisition: CEAS has agreed to a schedule for land acquisition and the land required for the start-up of the project has already been acquired (paras. 3.28 and 3.30).

Cost Estimates

3.09 A sumary of the cost estimates for the Project is given below in Table 3.1 and is detailed in Annex 3.4. - 22 -

Table 3.1 Sum arv of the Project Cost

Foreign TL Million USS Million as S of Local Foreign Total Local Foreign Total Total A. Dam& Powerhouse

Land Acquisition 14,000 - 14,000 20.0 - 20.0 - Preliminary Works 10,344 - 10,344 14.8 - 14.8 - Civil Works 25,553 15,919 41,472 36.5 22.7 59.2 38 Hydraulic Eqpt. 428 2,860 3,288 0.6 4.1 4.7 87 Electromech.Eqpt. 6,346 14,907 21,253 9.1 21.3 30.4 70 Switchyard Eqpt. 555 4,957 5,512 0.8 7.1 7.9 90 Eng'g. L.Spv'n. 5.s09 3.847 9.556 8.2 5.5 13.7 40 Base Cost 62,935 42,490 105,425 90.0 60.7 150.7 40 Physical Contingencies 8.141 5.045 13.186 11.6 7.2 U .8 38

Subtotal 71,076 47,535 118,611 101.6 67.9 169.5 40

Price Contin- gencies 45.661 44.424 90.085 15.8 14.9 30.7 49

Total A 116.737 91.959 208.696 117.4 82.8 200.2 41

B. Transission Lines & Substations

Base Cost 5,122 15,120 20,242 7.3 21.6 28.9 75 Physical Contingencies 512 1.512 2,024 0.7 2.2 2.9 76

Subtotal 5,634 16,632 22,266 8.0 23.8 31.8 75

Price Contin- gencies 4.701 16.260 20.961 1.6 5.5 7.1 77

Total B 10.335 32.892 43.227 9.6 29.3 38.9 75

C. Tech. Assistance

Base Cost 102 1,019 1,121 0.1 1.5 1.6 94 Physical Contingencies 10 102 112 0.0 0.1 0.1 100

Subtotal 112 1,121 1,233 0.1 1.6 1.7 94

Price Contin- gencies 49 486 535 0.0 0.2 0.2 100

Total C 161 1.607 1.768 0.1 1.8 1.9 95 - 23 -

Table 3.1 Summary of the Proiect Cost (Cont'd.)

Foreign TL Million USS Million as S of Local Foreign Total Local Foreign Total Total

D. Project Cost (A+B+C)

Base Cost 68,159 58,629 126,788 97.4 83.8 181.2 46 Physical Contin- gencies 8.663 6.659 15.322 12.3 9.5 21.8 44

Subtotal 76,822 65,288 142,110 109.7 93.3 203.0 46

Price Contin- gencies 50.411 61.170 111.581 17.4 20.6 38.0 54

Total Proi. Cost 127.233 126.458 253,691 127.1 113.9 241.0 47

E. Interest During Construction

IBRD Loan - 18.059 18.059 - 18.1 18.1 100

F. Total Financing Required (D.E) 127.233 144,517 271.750 127.1 132.0 259.1 51

The base project cost is in July 1. 1986 prices, as estimated by C&B and CEAS and reviewed by the Bank. The cost estimates do not include import duties and taxes as CEAS will be exempt from such duties and taxes on this Project. Although CEAS will pay Value Added Tax (VAT) on the expenditures for the Project, the amounts paid would subsequentlybe recoveredby CEAS (para. 4.13) and therefore,VAT is not included in the project cost in Table 3.1. Overall physical contingencies of about lCZ have been added except for the items of land acquisition, preliminary works and civil works of component A for which about 151 physical contingencies have been included. These overall contingencies are in addition to the specific allowances of 25X (excavation) and 51 (concreting)included in estimates of quantities for the dam and upstream coffer dam. Similarly, specific allowauces of 51 have been included for the hydraulic and electromechanical equipment. These overall contingencies and specific allowances are considered adequate. An exchange rate of US$1 = 700 TL (July 1, 1986) has been used for converting base costs and pbysical contingencies from one currency to another. Price contingencies have been added to the baae cost plus physical contingencies on the basis of the following annual inflation rate projections: - 24 -

Costs expressed in: 1986 1987 1988 1989 1990 1991 1992

TL (X) 30 25 20 20 18 18 16 US$ (S) 7.2 6.8 6.8 7.0 7.1 4.0 4.0

It is estimated that 102 man-months of consultants are required for completing the studies included in the technical assistance component.

Proiect Financing Plan

3.10 The financing plan for the Project is siumarized in Table 3.2. The total foreign cost of the Project including interest during construction, US$132 million, is proposed to be covered by a Bank loan to the Republic of Turkey on standard country lending terms. Funds would be onlent to CEAS under a Subsidiary Loan Agreement on at least the same terms as the Bank's, with CEAS bearing the foreign exchange risk. The Bank loan would finance (a) the foreign cost of civil works, the engineering consultants and experts required for engineering and supervision of the Project, and technical assistance (studies, training, and equipment); and (b) foreign cost and local ex-factory cost of supply and installation of material and equipment. In addition, in view of the considerable foreign exchange cash flow needs during the construction period of the Project (para. 4.15), the loan amount would also cover the interest during construction on the Bank loan.

3.11 For financing of local costs (US$127.1 million equivalent) CEAS will rely on internal cash generation and new share capital issues. Agreement was reached during negotiations that CEAS would review the project financing plan anually with the Bank and the Borrower (para. 4.19).

Table 3.2 Proiect Financing Plan

USS Million Local Foreign Total S

Bank Loan - 132.0 132.0 51 CEAS Internal Cash Generation 98.3 - 98.3 38 CEAS Share Capital 28.8 - 28.8 11

127.1 132.0 259.1 100

RetroactiveFinancing

3.12 In order to maintain the time schedule of the Project, it was essential to appoint the engineering consultants early to review the EIE design (para. 3.04). In addition, CEAS plan to award the main civil works contract by end-August 1986 to avoid delaying reservoir filling by one flood - 25 -

season. Therefore, retroactive financing of about US$5,000,000 would be allowed to cover expenditures incurred since appraisal in June 1985 for engineering services and advance payment to the civil works contractor. Procurement

3.13 All Bank-financed procurement for civil works, and supply and installation of material and equipment would be according to the Bank's ProcurementGuidelines. Hiring of consultants'services would be done according to the Bank's Guidelines for the Use of Consultants.

3.14 Bank-Financed Procurement. International Competitive Bidding (ICB) according to the Bank's procurement guidelines would be followed for the following:

(a) civil works (excluding river diversion tunnel); (b) supplyand installationof hydraulicequipment; (c) supply and installation of electromechanical equipment; Cd) supply and installation of powerhouse switchyard equipment; Ce) supplyof and erectiontowers and erectionof transmissionlines; (f) supplyof transmissionline conductorsand accessories; (g) supply of insulators and hardware; (h) supplyand installationof substationswitchgear equipment including cables;and ii) supplyand installationof transformers.

It is likelythat doestic manufacturerswill submitbids againstitems (b) and (e) through(i). In case a contractis awardedto domesticmanufacturers, the Bank would financethe ex-factoryamount of the contract. Qualifying domesticmanufacturers will receivepreference in bid evaluationof 15X or the prevailingimport duty, whicheveris lower. For electromechanicalequipment, the domesticcontent of each bid will be given preferenceby adding the applicabletariff or 15X, whicheveris less, to the CIF componentrepresenting the importedelements in the package.

3.15 Internationalshopping according to the Bank'sGuidelines would be used for procurementof: (a) trainingequipment; and (b) miscellaneoustools, instruments,and relaysfor substationsand transmissionlines. Procurement followingthe internationalshopping method would involveobtaining offers from at least three foreignsuppliers-such procurement being limitedto US$20,000per contractand US$200,000in the aggregate.

3.16 Directcontracting following the Bank'sProcurement Guidelines would be used for upgradingof CEAS' existingcomputer facilities. Total foreign expenditureunder this procedurewould be limitedto about US$500,000. 3.17 CEAS has alreadyappointed the engineeringconsultant (C&B) for the da and the powerhousefollowing the Bank'sGuidelines (para. 3.04) and appointedan InternationalBoard of Experts(para. 3.23), in consultationwith the Bank, to reviewthe dam designand associatedproblems during construction,and to reviewthe progressof constructionworks. CEAS would - 26 -

also appoint engineering consultants for engineering and supervision during construction of the transmission lines, and for studies under the technical assistance component according to the Bank's Guidelines (para. 3.25).

3.18 Non-Bank Financed Procurement. The Bank would not finance the cost of the civil works and supply and installation of material and equipment procured according to Local Competitive Bidding procedures for the following: (a) river diversion tunnel; (b) the owners camp; and (c) materials and equipment for transmission lines and substations. Local shopping procedures would be used for: (a) miscellaneour civil works; (b) temporary bridge and site access roads; (c) miscellaneous boring and drilling required for the site investigation; and (d) engineering consultants for the engineering and supervision during construction of the substations. land for the Project would be acquired according to the laws of the country. Considering the amount involved (about 13X of the project cost), the above proposals for procurement following local competitive bidding and local shopping procedures are economical and efficient. Further, to ensure maintenance of the project time schedule, CEAS would appropriately coordinate the Bank financed and non-Bank financed procurement activities.

3.19 The procurement arrangements are summarized in Table 3.3. - 27 -

Table 3.3 Summaryof ProcurementArrangements

USS Million (ProcurementMethod) Total ICB LCB Other N.A.' Cost

1. Land Acquisition - - - 25.9 25.9

2. Preliminary Works - 13.0 4.0 17.0 (-) (-) (-) (-) 3. CivilWorks 76.3 5.0 - 81.3 (31.0) (-) (-) (31.0) 4. HydraulicEquipment&& 6.3 - - 6.3 (5.5) (-) (-) (5.5) 5. Electromechanical Equipment/- 41.6 - - 41.6 (29.4) C-) (-) (29.4) 6. SwitchyardEquipment4k 11.3 - 11.3 (10.2) (-) C-) (10.2) 7. Ingineeriagand Supervision - - 10.0 6.8 16.8 C-) (-) (6.8) (-) (6.8) 8. Transission Lines & Substations 32.0 5.1 1.4 < 0.4 38.9 (28.9) C-) (O.3)e5 (Y) (29.2) 9. Technical Ass. & Training Eqpt. - - 1.9 - 1.9 _ L- (1.8) (-) (1.8) Total 167.5 23.1 17.3 33.1 241.0 (105.0) t-) (8.9) (-) (113.9)

/a Includes installation and erection of the equipment.

/b Includes engineering and supervision for substations.

/c Includes engineering and supervision for transmission lines.

/d The colua. "N.A." indicates the costs of land acquisition, engineering and supervision to be carried out directly by CEAS.

Notes: 1. Figures in parentheses are the amounts to be financed by the Bank

2. US$5.0 million provided under the column "LCB" for civil works is for the river diversion tunnel contract. - 28 -

Disbursement and Special Account

3.20 The proceeds of the loan would be disbursed over seven years (1986-1992)on the following basis:

(a) 10O1 of the foreign costs of the civil works;

(b) 10OZ of the foreign cost and 100% of local ex-factory cost of supply and installation of electromechanical, powerhouse and switchyard equipment, hydraulic equipment, and supply of material and equipment for the transmission lines and substations;

(c) 1001 of the foreign cost of the engineering consultants for the dam and the powerhouse, and transmission lines;

(d) 1001 of the foreign cost of the International Board of Consultants;

(e) 1001 of the foreign cost of the consultants appointed for studies;

(f) 1001 of the foreign cost of training for CEAS staff;

(g) 1001 of the foreign cost of training equipment; and

(i) 1001 of the foreign cost of upgrading of the CEAS computer facilities.

3.21 The disbursement schedule (Annex 3.5) follows the Bank's standard disbursement profile for EMENApower projects. A special account of US$10.0 million will be established for disbursement of the Bank loan proceeds. The Bank would also permit the use of statements of expenditure on contracts valued at US$20,000 or less to assist CEAS in making timely payments to the contractors. CEAS would retain the supporting documents and make them available for inspection by Bank supervision missions and by external auditors. Except in cases of direct payments, no reimbursement applications for less than US$20,000 would be accepted. Retroactive financing of up to US$5 million would be allowed (para. 3.12). The Loan Closing Date would be December 31, 1992.

Project Implementation

3.22 Engineering Consultants. Based on a contract with CEAS signed May 23, 1985, C W is responsible for: (i) preparation of the bid documents; (ii) assisting CEAS in examination and evaluation of the bids received; and (iii) inspection of equipment during manufacture; and (iv) providing advice to CEAS' project team on engineering, and technical supervision during construction and comfissioning. CUB has completed the detailed design of the project. Agreement was reached during negotiations that CEAS would continue to employ engineering consultants acceptable to the Bank throughout the period of construction and commissioning.

3.23 International Board of Experts. The International Board of Experts which CEAS has already established would: (a) advise CEAS on the design - 29 -

problems arising during construction and commissioning; (b) review construction progress by visits to the dam site at regular intervals; and (c) monitor during construction the safety of the dam and associated structures, diversion and access tunnels., and the reservoir. The Board would be constituted of internationally known experts in the fields of rock mechanics, engineering geology, design and construction of thin concrete arch dams, and powerhouse equipmeat. Agreement was reached during negotiations that CEAS would continue to maintain an International Board of Experts acceptable to the Bank during the construction and comaissioning period of the Project.

3.24 The Dam and the Powerhouse. CEAS has already appointed the Project Manager and the essent al support staff at its headquarters. In addition, CEAS would also have site organization consisting of a chief site engineer assisted by civil, electrical, mechanical engineers and surveyors. The CEAS project team vould be assisted by the engineering consultants in inspection of the equipment during manufacture and in supervision of the dam and the powerhouse during construction, and commissioning. CEAS would establish a laboratory at site for testing of the civil construction materials, an essential requirement for the quality control during construction of the thin arch concrete dams.

3.25 Transmission Lines and Substations and Technical Assistance. Implementation of these components would be the responsibility of CEAS' Project Planning and Construction Divisions under the assistant General Manager for Investment. CEAS already has experience in procuring materials and equipment for its subtransmission lines and substations. It also has adequate experience in engineering and supervision during construction and comiissioning for transmission facilities. However, considering the extent of work involved, it proposes to appoint engineering consultants for the transission and subtranuo$ssion lines according to the Bank's guidelines.

Implemetation Schedule and Proiect Completion Date

3.26 The construction schedule for the Project (shown by major bid packages in Annex 3.6) foresees project completion by January 31, 1991. The impounding of the reservoir would be started in the flood season in 1990 s0 as to commission units 1, 2 and 3 by end of July 1990, October 1990, and January 1991, respectively. The activities connected with transmission lines and substations would be coordinated to enable power generated at the Sir Dam to be effectively utilized by the load centers in CEAS service area. The Project Completion Date, therefore, would be January 31, 1991. However, on the basis of the experience reflected in the Bank's disbursement profile of the power projects, the disbursementwould be completed about two years later. The loan closing date, therefore, would be December 31, 1992 (para. 3.21). To maintain this time schedule, it is essential that the diversion tunnel be excavated by end of December 1986 and concretinj,of the tunnel be completed by May 1987. Similarly, the main civil works contract would be awarded by end-August 1986 and field mubilization started as soon as possible thereafter. - 30 -

Land Acquisition and Resettlement

3.27 The laws and procedures relating to resettlement have been reviewed and are considered to contain adequate provisions to protect the rights of the population to be resettled. Land needed for public purposes may be acquired compulsorily in Turkey in accordaace with the Expropriation Law of 1983. This is a three-step procedure. Firstly, the project agency offers to purchase the land from the landowner through normal negotiations for the sale and purchase of land. In the event the landowner does not wish to sell, a notice is filed for compulsory acquisition in the public interest pursuant to the 1983 Expropriation Lav. Under the Law, a permanent committee in each province-consisting of local representatives, land experts and members of the administration-determines the value of land in such cases. Land values are determined at market value. In the event there is disagreement, the third step is to take the matter to the courts. There are, in addition, procedures for resettlement of displaced populations. Landowners are given the option either to be resettled or to take cash compensation. Usually, it is the Resettlement Department of the Ministry of Agriculture, Forestry, and Rural Affairs (MAFRA) that makes available other land for displaced populations. The cost of resettlement is borne by the project agency. Current resettlement procedures specify that dam construction and resettlement should be carried out in a coordinated manner and that priority should be given to the resettlement of people whose land would be submerged due to dam construction. In view of the delicate and sensitive issues associated with the resettlement operations, the Prime Minister has ordered the various agencies involved to fully cooperate with MAFRAin finalizing resettlement issues quickly.

3.28 The Sir Dam reservoir covers about 48 km2 of surface area and would affect nine villages having about 7,000 inhabitants (about 1,800 families) in houses which are mostly built with sun-dried bricks, stones, and briquettes. The farms in the reservoir area consist of small scattered pieces of land, and their produce is mostly for their own consumption. About 5,000 hectares of land will need to be acquired for the Project. CEAS has agreed to acquire the necessary land in accordance with a timetable agreed with the Bank. CEAS has been preparing detailed surveys of the many smallholdings in the project area for the last year and this work is continuing. This land includes 1,400 hectares of arable flat land, mostly devoted to maize and cotton, and 1,900 hectares of arid land or steep slopes. Forest covers around 600 hectares and vineyards and gardens a further 400 hectares. The balance comprises rivers (400 ha), villages (100 ha) and unregistered land (200 ha).

3.29 In the most recently constructedhydroelectric project financed by the Bank, impounding of the reservoir has just begun. All the property affected has already been acquired and the measures taken by the Government to resettle the affected population are considered satisfactory. For the proposed Project, the Government has agreed to carry out with CEAS a resettlement program for the affected inhabitants, including provision of alternative adequate housing and other commmity and infrastructure facilities. There is adequate suitable land within the province and landownersopting for relocation would first be offered this government-owned land. If this is not acceptable to them, they would then be offered land in - 31 -

other provinces. New agricultural land is currently being developed in the region through irrigation projects. Land wn_rs who opt for indemification rather than resettlement vill be compensated is cash. The overall program has been drawn up by the provincial Directorate of Real Estate and Expropriation. It involves expenditures totalling 14,000 million TL (US$20 million) for purchase of the above lands and the buildings thereon. We estimate that this will be disbursed in accordance with the following timescale:

Year Up to 1986 1987 1988 1989

Expenditure (Million TL) 2,800 2,800 4,200 4,200

All costs are 1986 values and are subject to escalation.

3.30 The detailed resettlement program will be in three parts. The first part covers all the population (between 300 and 400 families) which will be affected in the first year. These landholdings cover a 100-hectare area required ftr the construction of the dam, access roads, and construction camp. Negotiations with these landonners have already been concluded. All opted for the cash compensation proposed by the provincial expropriation comittee rather than resettlement. None appealed to the courts. CEAS has already signed contracts for the construction of a replacement school, health center and police station. The second part of the program will cover the land affected during the second and third years by the completion of the diversion works and the third part will cover the land to be flooded on completion of the dam in 1990. For these parts, CEAS bas agreed to furnish to the Bank, not later than March 31, 1987, a detailed plan of action satisfactory to the Bank for the areas affected during the first three years of project execution and a similar comprehensive plan for the remaining affected areas by December 31, 1987, and to promptly carry out the resettlement program in accordance with those plans. .In view of the satisfactory record of the Government in handling resettlement issues, these proposals are considered acceptable. The resettlement, program will be closely monitored by the Bank during project implementation. A sociologistwill be included in supervision missions to provide technical assistance to the implementingagencies.

Monitoring and Evaluation

3.31 To monitor the progress of the Project and permit its evaluition on completion,CEAS would maintain records on the matters shown in the Project Monitoring Guidelines in Annex 3.7 and submit a quarterly progress report to the Bank. On completion of the Project CEAS would prepare a project completionreport.

Inspectionof the Dam During Operation

3.32 DSI conducts regular inspections of all the dams in the country and generally follows the practices of the US Bureau of Reclamation in this respect. Annual inspectionsare conducted by the DSI's regional division in - 32 -

whose territory the dam is located. To ensure proper coordination, CEAS included a DSI representative in the meetings with the Bank's experts in August 1985 to review the engineering redesign of the project. CEAS has confirmed the details of the arrangement with DSI for inspection of the dam during operation. The inspection and maintenance of the dam during operation by an independent agency acceptable to the Bank were agreed during negotiations. DSI would be acceptable to the Bank as the independent agency.

Environmental Impact of the Project

3.33 Cukurova University,Adana, conducted a study (September1984) of the environmentalimpact of the Sir and Duzkesme dams . The report states that the forests in the project area have been depleted by fires, cutting of trees for lumber and firewood, and clearing the area for habitation; the Sir and Duzkesme dam reservoirs would have beneficial effects on the climate of the region due to the resulting increase in relative humidity, and would assist the plant life and reforestation. There are no endangered plant species or plant types that need preservation in the areas to be flooded by the two dams. The geology and mineralogy of the reservoir area are such that no significant changes in water quality are anticipated. The formation of the new shoreline around the reservoir would create a new ecosystem with milder climatic conditions. Presently the fishing potential in the river and streams in the project area has not been developed. The report, therefore, suggests introducing productive fish species in the reservoir area. The report also recommends recreational places to be provided in the reservoir area. The report indicates the existence of six sites-two man-made hills, three bridges of the Ottoman period, and one hot spring -which could have archaelogical/ historical value. Of these sites, the report suggests that the lopaz man-made hill (prehistoric to Roman period), and Ceyhan and Gene bridges should be given priority for investigation. During negotiations, an agreement was reached with the Borrower and CEAS to ensure appropriate and timely action by the concerned agencies-" on the environmental issues.

Project Risks

3.34 The geological investigation carried out in the foundation area of the dam and other structures was generally adequate. Results of additional investigations carried out at the suggestion of the Bank's consultants have been taken into account in the final design. There is a risk that unexpected geological difficulties during construction might cause unexpected delays and increase the project cost. This risk, however, will be mitigated by providing expert geological supervision during excavation of foundation and foundation grouting. C&B and the InternationalBoard of Consultants will provide the required expertise. Furthermore, where it is difficult to assess the quantities of work with accuracy, sufficient contingency allowances have been included (para. 3.09) in the project cost.

1 Responsibilitiesare as follows: Ministry of Culture and Tourism for the historical monuments; Ministry of Agriculture, Forestry and Rural Affairs for fisheries and picnic grounds; and Ministry of Energy and Natural Resources for protection 3f the lake shores. - 33 -

IV. FINANCIAL ASPECTS

Recent Performance

4.01 CEAS has enjoyed a very healthy financial position in recent years, due largely to government pricing policy and the regulatory environment. While electricity tariffs increased steadily in real terms from the beginning of 1984 to February 1986, the operating costs of CEAS' existing hydropower stations remained low. Given that between 1970 and 1983 CEAS had not been authorized to begin construction of new generating facilities, and distribution investments were also outside its realm, CEAS had been incurring minimal annual capital expenditures before beginning investments on the Sir hydropower plant in 1985. As a result of these factors, CEAS has been able to accumulate substantial reserves in recent years. The estimated return on net revalued assets in service in 1984 was llS. Net income in 1985 was 19Z of gross revenues of TL 86 billion (approximatelyUS$150 million equivalent) on sales of 2,800 GWh.

4.02 CEAS has exercised cautious cash manment practices. It has no major customers in arrears; receivables over three months old amount to less than 1S of total sales. CEAS collects from its largest customer, the TEK Toroslar Distribution Enterprise, by offsetting these sales against payments from CEAS to TEK for bulk purchases. CEAS has maintained a current ratio of over 1.2 since 1980.

4.03 Debt service coverage to date has been more than adequate given that CEAS has contracted no new borrowings, other than limited medium-term local debt, since 1971. In 1985 cash generation covered debt service obligations about 8 times. Under previous Bank loans, a minimum debt service coverage of 1.75 had been agreed to. Although coverage sometimes fell below this level during the 1970's, it has been over 1.7 since 1981. CEAS continues to be responsiblefor principal and interest payments including foreign exchange risk, on two Bank loans and one IDA credit which were previously onlent to CEAS by the Government (para. 1.36), and which constitute nearly the entirety of CEAS' present long-term debt.

Capital Structure

4.04 Since CEAS is adequately capitalized and not highly leveraged and is in a healthy financial condition, it is presently in a strong position to undertake the proposed Project. The debt/equity ratio for CEAS at the end of 1985 was about 10/90, when equity is restated to reflect estimated asset revaluation (para. 4.10). CEAS presently has an authorized share capital of TL 15 billion of which TL 3.6 billion (about US$6 million in book value) has been paid in, following an issue of new shares in 1983 and again in 1985. CEAS is subject to the provisions of the Capital Markets Law, issued in 1981, and to the Capital Markets Board (SPK), which was established to carry out the Government'spolicy of strengthening the regulation of capital markets and protecting the rights of shareholders. For any new issues of shares up to the authorized level, CEAS must obtain clearance from the SPK, the application - 34 -

being accompanied by a three-year financial forecast, which will allow the SPK to determine whether the company is likely to be in a strong enough financial position to pay an adequate return to its shareholders. To date CEAS has had no difficulty in obtaining permission for new share issues.

4.05 An increase in the authorized share capital requires a meeting of shareholders representing at least 75S of existing capital, obtaining a two-thirds vote in favor of such an increase and then applying to the Capital Markets Board for authorization. An increase in the authorized share capital of CEAS is not expected to occur until 1989, following increases in the paid-in capital within the present limit of authorized capital (TL 15 billion) each year through 1988.

4.06 CEAS stock is widely held, as discussed in para. 2.03. TEK's shares account for one quarter of the total paid-in capital, and individuals, trade associations, banks, insurance companies and other private firms own the balance of the shares.

Tariffs

4.07 For the past two years, CEAS has been allowed to charge its own consumers the same electricity tariffs as those applied by TEK in other regions. The timing and level of tariff increases on the national level to date have normally been determined by power subsector financing requirements and by fuel cost adjustments, and usually occur in response to an application frm TEK to the Government. As mentioned previously (para. 1.29), by April 1986 bulk electricity tariffs had reached approximately 901 of the level of LI.C. Additional adjustments will be needed in the future in the overall level .as well as the structure of tariffs to assure that they reflect the economic cost of supply to different customer groups. Average purchase and sales tariffs and the bulk tariff schedule for recent years are shown in Annexes 4.1 and 4.2.

4.08 Under the Bank loans made to TEK in recent years, a number of agreements were reached regarding the level and structure of electricity tariffs and the overall financial performance of the power subsector. These covenants are suuumarized as follows: '

(a) the internal cash generation of TEK is to be sufficient to finance at least 35S of the subsector public investment program (TEK and DSI electric power investments) in 1986 and thereafter;

(b) electricity tariffs are to be adjusted automatically to reflect increases in TEK's fuel costs;

1/ See Loan Agreements for: Third and Fourth TEK Transmission Projects (Loans 2322 and 2586-TU), and Power System Operations Assistance Project (Loan 2602-TU). - 35 -

(c) retail electricity tariffs are to be adjusted to reflect increases in bulk tariffs;

(d) TEK and the Government will discuss with the Bank the recomendations of a study of the LRMC of electricity supply, and then agree with the Bank on a timetable to implement these recomiendations to reflect these costs in its tariffs (para. 1.28); and

(e) the Governmentwill review with the Bank by October 31 of each year the detailed pover subsector investment program and related financing plan for the next year, as well as the general requirements and related financing plan for the next five years.

4.09 Subsequent to each announced tariff increase, CEAS is required to submit a statement to the Government showing the effect of the new tariff on its financial situation (Annex 4.3). In particular, increases in the rate paid by CEAS to TEK for supply at the 154-kV level occur in parallel with the changes in wholesale tariffs; the latter changes being reflected simultaneously in the retail electricity rates. On average over the last three years, supply from TEK has been priced at 85S of CEAS' average sales revenue. Since CEAS relies on purchases from TEK for over half of its power supply, the cost of purchased power is its largest single operating expense.

AccountinR Policies, Asset Valuation, and Audit

4.10 CEAS maintains its accounts in accordance with the Turkish Commercial Code. Until recently, exchange losses relating to outstanding foreign debt were capitalized by adding an equivalent amount to fixed assets. As a result, the part of fixed assets financed by foreign Aebt has been revalued, while the local component is still stated at the historical value. On the basis of a pro forma asset revaluation carried out by the mission, the end-1984 value of net assets in service was adjusted from TL 9.5 billion (appearing on the corporate balance sheet) to TL 63.9 billion. Starting in 1984, CEAS bcgan to charge foreign exchange losses on long-term debt for completed capital projects against income, as had been recommended by its auditors.

4.11 No part of the cost of the Seyhan Dam is reflected on CEAS balance sheet. This dam is owned by DSI and was completed in 1956 for purposes of irrigation and flood control as well as power generation. The Seyhan power plant is however included on the CEAS balance sheet at its historical v:'ue less depreciation. CEAS does pay water charges to DSI as a users' fee for the dam: TL 0.02 per kWh of electricity generated by the Seyhan power plant.

4.12 CEAS' financial statements are prepared on a timely basis and axe reviewed regularly during the year, by a board of internal auditors. The Turkish Commercial Code requires that the annual financial report be submitted by mid-March, two weeks prior to the annual shareholders meeting. An external audit is then carried out by qualified independent Turkish auditors acceptable to the Bank, and which in recent years have been associated with international audit firms. However, due to the limited availability of qualified independent auditors in Turkey, CEAS has had difficulty in completing the - 36 -

audit of its accounts before July or August of each year. Therefore, it was agreed during negotiations that CEAS would submit its internally audited annual financial statements to the Bank not later than five months after the close of each year and that it would forward to the Bank, not later than nine months after the close of each year, its annual financial statements audited by external auditors.

Taxes

4.13 CEAS collocts, as does TEK, a number of taxes from its customers including a 3.5S tax for the Turkish Radio and Television (TRT) Agency and a Value Added Tax (VAT) of 101 on its sales including the TRT. After deducting the VAT paid on its own purchases from the VAT billed to its customers, CEAS transfers the net amount collected to the Government. The VAT paid on purchases to be incorporated in fixed assets is similarly recovered. Corporaticn tax and other levies on profits are assessed at the rate of 47.381 of the tamable income base. The taxable base is arrived at by taking net income after interest and depreciation, and subtracting from it expenditures made for specially approved investment projects such as Sir.

Financial Forecasts

4.14 The financing plan for the Project is summarized in para. 3.11 and Table 3.2. The total foreign cost of the Project, including interest during construction on the Bank loan, would be covered by a Bank loan to CEAS. The local cost of the Project is expected to be financed through internal cash generation (771) and new share capital issues (23S).

4.15 In view of the considerable foreign exchange cash flow needs during the construction period of the project, it is proposed that the Bank finance interest during construction on the proposed Bank loan.

4.16 The forecast financial statements and resulting ratios are shown in Annexes 4.4 to 4.7. The corporate funds flow for the 1986-94 period is suimmarized in Table 4.1. It has been assumed that the Sir hydropower plant will start commercial operation in 1991 and will produce 501 of expected average gross generation in 1991, and 1001 (or 725 GWh) from 1992 onwards. Other assumptions relied upon for the financial forecasts are given in Arnnex 4.8. - 37 -

Table 4.1 CEAS: Proiected Financing of Capital Expenditures 1986-1994

Billions of TL 2 (Current Prices)

FINANCING SOURCES

Gross Internal Cash Generation 892 100 Less: Debt Service - Principal (128) (15) - Interest (81) (9) Dividend Payments (82) (9) Inc. in Working Cap. Other than Cash (100) (_11)

Net Internal Cash Generation 501 56

IBRD Loan: Sir Project 145 16 Credit for Duzkesme/Berke 25 3 Foreign Exchange Adjustments-Outstanding Loans 129 15 Total Borrowing 299 34

New Share Capital 86 10

TOTAL SOURCES

APPLICATIONS

Capital Expenditure: Sir (including Transmission & TA) Total 272 Less: 1985 Expenditure 4 268 30 Duzkesme-Berke 463 52 Other 139 16 Total CaPital Expenditure 870 98

Increase in Cash 16 2

TOTAL APPLICATIONS au 1Q2

Potential Financial Implications of Cbanges in Legal Status of CEAS

4.17 If CEAS becomes a regional utility (para. 2.02), its operating revenues would increase through direct electricity sales to retail customers. On the other hand, CEAS would incur increased operating and maintenance expenditures related to the distribution network, which would also require major investments for rehabilitation and expansion. The possible terms for transferring to CEAS other generating plants in the region (all hydroelectric) have not been determined. Agreement was reached during negotiations that CEAS - 38 -

and the Government will exchange views with the Bank in respect of any proposals leading to the restructuring or reorganization of CRAS.

Financial Covenants

4.18 It is recommended that the Bank rely on the framework of the existing covenants agreed to under other power subsector loans in Turkey (para. 4.08). and on the ongoing energy sector discussions for the establisimh t of acceptable electricity pricing levels, rather than introducing additional revenue covenants under the Sir Hydropower Project which could require different tariff levels for the Cukurova region. As mentioned in the preceding paragraphs. CEAS has enjoyed a very healthy financial position in recent years, and an important factor has been that CRAB has benefitted from substantial rate increases under the existing covenants (paras. 4.01, 4.07). In order to ensure the continued finnncial viability of CRAS, agreement was reached during negotiations with the Govern et and CEAS that, unless the Bank shall otherwise agree, the existing £rrngemets for setting CRABStariffs will be maintained.

4.19 Agreement was also reached during negotiations that CRAS will supply to the Bank and the Government for their review by December 31 of each year starting in 1986. an updated financing plan for the entire imple eation perio-i of the Project, showing projections for local and foreign ezpenditures, disbursement of the proposed Bank loan, expected use of local financing sources and the cost of those sources. Planned share capital issus and dividend payments would also be reviewed at the same time. The project financing plan will be accompanied by a financial forecast for all of the activities of CRAS -mtil 1992. the first year of full operation of the Project or later if project completion is delayed.

4.20 Moreover, agreement was reached during negotiations that CRAS will obtain the Bank's consent prior to carrying out (i) any major investment ($25 million or more equivalent) in power generation facilities, other than the facilities included in the Project, or (ii) detailed egineering and design for any such investment. However, the Bank has consented to CRAS' plans to invest in the Duzkesime-Berke Hydropower Project (para. 3.03).

4.21 Furthermore, agreement was reached durii- negotiations that CLAS will not incur additional debt, except with the Bank's prior approval unless a reasonable forecast of internal cash generation for each year during the term of the debt to be incurred is estimated to be at least 1.5 times the total debt service due in that year on all outstanding debt including that to be incurred. - 39 -

V. PROJECT JUSTIFICATION

Least-Cost Analysis

5.01 In addition to promoting the role of the private sector in all aspects of the electricity subsector activities (para. 1.27), an important component of the Government's energy strategy is the economic and least-cost development of indigenous resources, especially hydropower (para. 1.11). The role and importance of hydropower resource development has been reviewed in a Bank sector study. The absence of a detailed hydropower project ranking and inventory makes it difficult to estimate exactly how the proposed Project compares in cost with all other major potential hydropower sites inlTurkey. Under the Kayraktepe Hydropower Project (Loan 2655-TU), the Government will undertake a systematic review of all hydropower projects within Turkey and rank them on a comparable cost basis. This will be of major assistance to DSI and the Government in planning the optimal development of the hydropower subsector.

5.02 In connection with the preparation of the proposed Project, the Bank reviewed a number of available studies on hydropower projects and concluded that the Sir Hydropower Project fell well within the range of economically viable hydropower projects in Turkey. In addition, as part of the appraisal of the Elbistan Operation & Maintenance Assistance Project (Loan 2650-TU), an extensive review of the cost of thermal alternatives was carried out (Annez 5.1), which shows that the proposed Sir Hydropower Project would generate electricity at lower cost than any other baseload thermal plant included in the expansion program for the power subsector and most of the hydropower planta. It is estimated that the proposed Project, which would be for peaking and sub-peaking supply and would have a load factor of about 301, would have a kWh cost of about 4 US cents (1986 prices).

Return on Investment Program

5.03 Since the Project forms a part of the national 1985-1995 expansion program, the economic rate of return on the whole timeslice power investment program 'or 1985-1995 was calculated (Annex 5.2, Attachment 1).

5.04 The measurable costs comprise: (a) the capital cost of the estimated expansion program for 1985-1995 (generation, transmission and distribution); (b) operating costs; and (c) the fuel cost of incremental thermal generation excluding fuel savings. No fuel escalation was assumed since increases in the price of fuels are covered by the fuel adjustment clause incorporatedin the tariff structure. Detailed assumptions as well as results of the analysis are presented in Annex 5.2.

5.05 Measurable benefits were limited to the incremental revenue attributable to the program computed on the basis of: (a) TEg's and CEAS' projected sales to industrial customers supplied directly at the high-voltage level and to low-voltage consumers supplied through TEK's distribution enterprises; (b) projected tariffs at the high- and low-voltage levels; and - 40 -

(c) net fuel savings resulting from investment in improved efficiency in the thermal plants not included in the costs of meeting incremental output. Since the tariff used in the calculation were estimated as a proxy for consumers' willingness to pay, all taxes were included. Given the large unmet demand (para. 1.19), the willingness to pay for electricity is likely to be higher than the current average tariff; but it cannot be readily quantified. The rate of return analysis thus indicates the adequacy of tariffs (including taxes) rather than the economic viability of the Project, which in determined in the least-cost analysis.

5.06 Under the above assumptions, the return on the program is estimated at just over 11.5Scompared to an estimated opportunity cost of capital of 12Z; reflecting the fact that tariffs are slightly below the economic cost of supply as measured by the long-run marginal cost. mowever, it understates the real economic return since the easurement of benefits underestimates the willingness to pay for electricity. - 41 -

VI. AGREEMENTSREACHED AND RECOMHENDATIONS

6.01 During negotiations, agreement was reached with the Borrower and CEAS:

(a) to have CEAS furnish to the Bank, not later than January 15, 1987, a power transmission study to be completed by consultants (acceptable to the Bank) under terms and conditions satisfactory to the Bank (para. 3.06);

(b) to have TEK and CEAS implement the recommendations of the transmissionstudy in manner satisfactoryto the Bank (para. 3.06);

(c) to carry out a resettlement program, or provision of indemnification as required, for the people currently living in areas to be submerged by the Sir reservoir, including provision of alternative adequate housing and other cosmunity and infrastructure facilities (para. 3.29);

(d) that, unless the Bank shall otherwise agree, the existing arrangementsfor setting CEAS' tariffs will be maintained (paras. 4.07 and 4.18);

(e) that CEAS and the Borrower will exchange views with the Bank in respect of any proposals leading to the restructuring or reorganizationof 'EAS (para. 4.17);

(f) to have CEAS submit to the Government and the Bank by December 31 of each year, starting in 1986, an updated financing plan for the entire implementation period of the Project, and review this plan with the Bank and the Borrower (para. 4.19).

6.02 During negotiations, agreement was reached with the Borrower to:

(a) operate a Special Account for the Project out of which payments to CEAS' suppliers could be made (para. 3.21);

(b) cause the dam constructedunder the Project to be periodically inspected by DSI or another acceptable agency in accordance with sound engineering practices, in order to determine whether there are any deficiencies in the condition of such a structure, or in the quality and adequacy of maintenance or methods of operation of the same, which might endanger its safety (para. 3.32).

6.03 During negotiations, agreement was reached with CEAS to:

(a) employ engineering consultants whose qualifications,experience and terms and conditions of employment shall be satisfactory to the Bank, to assist CEAS in carrying out the detailed engineering, procurement (preparationof bid specifications,bid evaluation and inspectionof materials and equipment during manufacture)of materials and - 42 -

equipment required for the Sir Dam and the powerhouse, and carrying out engineering supervision during construction and commissioning of the Sir Dam and the powerhouse facilities (para. 3.22);

(b) maintain during project implementationan International Board of Experts with qualificationssatisfactory tc the Bank, to advise CEAS on technical matters during the design and constructionand comaissioningof the Project (para. 3.23);

(c) furnish to the Bank, in accordance with a timetable agreed during negotiations,evidence satisfactory to the Bank that land and rights in respect of land required for the Project have been acquired (para. 3.28);

(d) furnish to the Bank, in accordance with a timetable agreed during negotiations,a detailed plan of action satisfactory to the Bank for the second and third parts of the resettlementprogram for the areas to be affected by the project, and promptly carry out the resettlementprogram in accordance with these plans (para. 3.30);

(e) furnish to the Bank its audited annual financial statements and audit report not later than nine months after the close of the year (para. 4.12);

(f) obtain the Bank's approval prior to signing contracts for constructionof new power generation facilitiesother than Sir and Duzkesme-Berkeor for engineering services for other projects (para. 4.20);

(g) maintain a minimum debt service coverage ratio of 1.5 times (para. 4.21).

6.04 Subject to the above, the proposed Project is recommended for a Bank loan of US$132 million equivalent for seventeen years, including a four-year grace period, at the standard variable interest rate, to the Borrower, the Republic of Turkey.

July 1986 (2745P) - 43 - ANNEX 1.1

TURUSY

SIR HYDROPOWERPROJECT

National Enern Balance (1978-1984) (Million tons of oil equivalent, HT08)

1978 1980 1982 1984 /a NTOE S MTOE ME S MTME Z Consumption Petroleum 18.0 51.6 16.2 46.3 17.1 45.2 18.1 44.7 Lignite 4.0 11.4 4.6 13.1 5.2 13.8 6.6 16.3 lard coal 2.8 8.0 2.7 7.7 3.0 7.9 3.5 8.7 Asphaltite 0.1 0.3 0.2 0.6 0.3 0.8 0.1 0._ Hydroelectric 2.3 6.6 2.8 8.0 3.5 9.3 3.4 8.4 ImportedElectricity 0.2 0.6 0.3 0.9 0.1 0.3 0.2 0.5 wood 4.6 13.2 4.8 13.7 5.0 13.2 5.2 12.8 Wastes 2.9 8.3 3.4 9.7 3.6 9.5 3.4 8.4 Total Consusmtion 34.9 100.0 35.0 100.0 3.0 100.0 40.5 100.0

Damatic Production Petrolem 2.; 8.3 2.4 6.9 2.5 6.6 2.2 5.5 Lignite 4.6 13.2 4.3 12.3 5.3 14.0 6.9 17.0 lard coal 2.6 7.4 2.2 6.3 2.5 6.6 2.2 5.4 Aspbaltite 0.1 0.3 0.2 0.5 0.4 1.1 0.1 0.2 Hydroelectric 2.3 6.6 2.8 8.0 3.5 9.3 3.4 8.4 Wood 2.3 6.6 2.7 7.7 2.3 6.1 2.6 6.4 Wstes 2.9 8.3 3.4 9.7 3.6 9.5 3.4 8.4 Subtotal 17.7 50.7 18.0 51.4 20.1 53.2 20.8 51.4

Illicit Deforestation 2.3 6.6 2.1 6.0 2.7 7.1 2.6 6.4 Net Stock Changes j0.7) (2.0) 0.1 0.3 (0.2) (0.5) (0.1) (0.2) Total Daoe tic SuvPlD 19.3 55.3 20.2 57.7 22.6 59.8 23.5 58.0

I ports Petroeim 15.2 43.5 14.3 40.9 16.0 42.3 17.4 43.0 lard Coal 0.3 0.9 0.5 1.4 0.6 1.6 1.2 2.9 Electricity 0.2 0.6 0.3 0.9 0.2 0.5 0.2 0.5 Total Imports 15.7 45.0 15.1 43.2 16.8 44.4 18.8 46.4

Petrolei Exports (0.1) (0.3) (0.3) (0.9) (1.6) (4.2) (1.8) (4.4) Total SUPpl 34.9 100.0 35.0 100.0 37.8 100.0 40.5 100.0

la Preliminaryestimtes.

Source: Ministry of Energy and Natural Resources. ii S *uSvmhNml"Ru 11 22mRRRRmR33mm.uuau3,RmmUhhllU 3333*2:28WS 5 - |8 ! I| SONwREhRA! se"t"*^Rs""ag"sMMu 3hh2..N9999S'u' * "u5 * 1 -I- -- - H R-R----I------RR RR- RR|lRsug------S S 3W99 - 5 -

ii 5 33333"|lfl:hRR1 ""R1R3RRm3ASmuim*'"'"'e''" "''''':'''s'''" |s

3 i ve mm33Esm| s|~ asw|s| mesa ems....,. sees. aseamema eameame 15 Sllll

#1s9Sll"""|##fll##RRRRR"3 § Aft d " "00 "'t"t"W a" @st"aw1@oftf

ffi O 1115 eels,,..,, 555111 isa s, images sss, 5,5553 *ggSSggsmg ases i

a -~ ca- - -%------

I ,,e,Cea,a,aaaaasaasasaaaslaagas

3 imjjaaagasggisssgalaegasaagsmeeeeaagme 0 ------iiZU7W it --s

|31" 3W|33gglRRgR3Utt3UU33RR333flh*1111UgABIRhRhh3ll0fj3333W3 5 -45 - ANNE 1.2 Page 2 of 5

------_.----

ffi RRRR°|sissiS°g!WngRs88R8888I l. 1 g s SonI

Ro22o2^iRR°gRg''282E88818 - I

3 RR"3g5ASl8°8 B88~§8 -8fiS

i! I U, ' ~

#4 ". -~~~..

.9 I& on d".0 " ft - t - " -0 ------0~"0v X 0_-e<_<*__^_^""__z""8z00,i 0

j]. .______

i 211 **i - ---- C~~O@llI88808t8o0°o80lCESI9|------

------U,----- ii-|-26g6§-}.,------;}}}@3a= ______sI ~ ~ ---- a"wwb^"_"_"Z"- Zjii g1l":alj}glilSii8 l ------II ~ 5~ ~~~~~~~~~~~~~Iol$1~ IIIIIII 'u3vE2inio

I I 5 t"^ffB.kk^99""R""22" " A*" PI*"R ^mo ' * "* " ' 'O" 3 ' ' ' ' "t4

soI S - - I

ii5 *|b||4""|"|l"||"gwgeegaeaegges*gg eeeeeeeeee sea aeeeasgsegges ese e II o r F .n*",*sgss a s^ r*ra...... g...... eae e g a a b t g g t ef s a g g g e e e e s .F r 360*

i WggIhEiaamm,mA,3Ra1s.Kmm.m3m.""g..SSgNhhK3,,vv7wagRR!! .1 iiJ . lll ll1111lllllflIIluuilfluJinifU IIlllllllllsss -47- ANNE 1.2 Page of 5

~~~~ ~~~~~4l !1~~ ------@g@@88§1- ! RE

-_____ - _- - - ." ii P

- -~~~~~~~~9 A 1 ~~~ 8882@--- @X- - -|-8§g1 -- U

_ ------_E ms

Ia Sta%

1~~ - -gsagaR ' in3}8s|s-s,2;

i- | l- ll ' .3'''''''''B' RB'''|g g 3 R f I g 8pt 1 I

Ii, _ _ _ 3Ssb83RU33ass *°

a1'''''''''' ffi 1 - i- 0

Nbas~~~~~~rj 0~~~~Con 4* -O- ~f-t.4 Oh.C414¢>~^ (-" ~ d"((.q.~#4.-- - ~"-4 .#4 #4( .044 " (4" %

1h~~~~~~~~~~~~~~~~*( II.d------p------a~~~~~~~~~~~~~~~~21_____,i!__ |J______In;"3.,. __ _ __ Xq__ii __ 33ii |$|__Ji ______- 48 -

ANNEX1.2 Page 5 of 5

SUMMARYTABLE

TEK ElectricityGeneration and Sales

1984-1995 (in GWh) nim: b

A. m0 15K 1S55 11 1!10 1911 1309 130D 151 1532 1531 159 15915

hiueI~~~~ 5.~65 5.X13 51,5 25,350 D,O ID3.10001 30100 3D,010 ;s,1iD0 3.0,1 3D,00 3.01 12,55 12.000 12,95 12.00 10,000 10.,11 0,0 100,M 10.0 1o.m io. 10.0 1443 I14.13 13s,90. 13,90 AOMO 10.0D= lkO=O 10.m 10O. 1%0.0 1,Ohs 10,OCD ai ke_ ! 1.639 1.56 1.3% 1356 1,00D 101 1.0100 900 g0 0 we 700 k adis a im 25.0 21.574 25,533992%,t 19.0 19.1 19, 19,1 19.0 19.2 19,3 19. NW1 -i 0 3,0 6,914 14.3 24.55 30,216 33,721 3.60 41,M 456.13 95 31.15 0 0 14 956 6,415 10,.40 12,7 123 125 16.47 21.M5 2,3 I - i10 3,22D 6.9D0 13.17 1s,110 19,476 2n1,3 6,11 3. 30jo1 31.760 31,70 sti vwbn ' 0 3 o 6m 1,32 1al 1,9U 2.1 2,174 2A6 2,415 2,51 2,2n NM _ C-otim 0 2.31 6.6 13.OW 21.714 M.5 31.51 345 39.1 4%21 30.51t ,53

InalG mti 2.U6 29,33 33,9 40.33 44s55 50.26 53.72 16.68 61,745 6,6 73.5 76.15 -9;t 159 12.000 12,5M 1256 16.41 3.740 ZnZ1 226 22*6 5.43 31.7M 34M6 wi-R 144 17,33 2,O V737 23.11 2F36 31.0O 34.13 38.93 40.11 4. 41.780 -im u b. 1 1.639 1.56 2.M0 2,733 2,51 2.5 3.1 3,04 3.3 3.a1 3,31 2,59 U 1 1 25.5 1 1.76 317,65 41,714 47.58 057 53,533 .!351 63,U 70.3 73.13 Jqmu.t 2,931 3.1 2,730 70D 0 0 0 0 0 0 0 0

I=l AUNL 2B,1 30.6V S,5D 3MA 41,74 4P.5 5057 53.9 . 21 63.44 7018 73.13 _. _ (CZ) 1.578 1.5 1,75 1,95 2.16 2,363 2.5 2.677 2,912 3.12 3.M 369 uw.XL =smi 5.4 29,14 32,73 36.3q 39.69 45 41.D 30.5 5A329 60,6 66.75 65.5 IL AIZAMM 3I1I -Diut V uply (SW 13,.7 14.X 16,M4 1915 19,.4 22.452 2%05 Z54 27, 30.13 33.W 34,762 -Wa_ati at. (CM) 13,637 14.55 16,39 1.195 19,54 22,4 21,5 25,4 7,84 30133 33.2W 34.2 1hdb" 1,09 10m 700 730 0 90D0 g 1.30 1.00 1,20 1.30 1.20 *nkk-m. g 2,OM 2,570 2,64 2,64 3,5 3,5M 3,739 3.99 4k.3 4.75 5,j 5,39* Nt d& atimm .Wly 11.635 13,1 14.530 16.10 1.52 19., 21,15 Z65 2495 26,637 29.3 30,367 U S 25,432 27,51 30.93 34. .33? U,31 45,211 43,04 52,159 ,75 86 65,32

1/ lI f 1915to 1950,9 i 191& 1IM, 3 in 1993& 15. im 72 in 1935. if 11 fi 1915to 1950.14S in 1911 1, 133 fwm 5M =mem. - 49 - ANNEX2.1 Page 1 of 2

TURKEY

SIR HYDROPOWERPROJECT

Sumuary of Laws Applicable to CEAS

Law Date Name Maior Features/Changes

Regn. No. 12/24152 Charter of Cukurova - Defines the organization, 16/1835 Elektrik A.S. (CEAS) management, and capital (Adana) structure of CEAS. - Gives CEAS a 50-year life. - Amended in 1957, 1961.

_ 8/26/53 Concession Agree- - Authorizes CEAS to produce ment between CEAS transmit and sell electri- and the Government city within its concession of Turkey area. (representedby - Expires in 2002. MENEW.

Specification - CEAS tariffs are set accord- anrneed to Con- ing to the provisions of cession Agreement. Art. 10 of the Specification

6762 1/1/57 Turkish Commercial Code

Regn. No. 6/17/60 Electricity Tariff - Sets out principles on basis 10528 Regulations of which tariffs are estab- lished & applied for all entities in Turkey. - Amended in 3/9/61 & 10/27/67

2499 2/1/81 Capital Markets Law - Regulates issue and sale of commen stock shares.

- Published Principal Statute - Defines TEK as a Public 11/9/84; of the Turkish Elec- Economic Establishment under effective tricity Authority Law 233 and under the juris- 1/1/85 diction of the Ministry of Energy and Natural Resources (MHE). - Provides for TEK to cooper- ate with other entities and corporations in establishing electricity production and distribution facilities. - 50 - AWNEX2.1 Page 2 of 2

Summary of Laws ApDlicable to CEAS

Law Date Name MNaor Features/Chantes

3096 12/19/84 Law conzerning the - Perzits Turkish and foreign entrusting of elec- companies to (a) operate tricity generation, as fully integrated electri- transmission, distri- city utilities within a bution and cc'sce service area, (b) form a to entities otber joint stock company only for than TEK. electricity generation, or (c) take over TEK's opera- ting right for particular facilities. - The above rights would be valid for up to 99 years. Article 9 sets out tariff principles.

Regulation 9/4/85 ServiceArea - Defines15 areas in Turkey Of Lay Regulation to be served by regional 3096 utilities. Area No. 1 in- cludesIcel, Adana and Hatay provinces, plus Sir project site in Kabraanmaras pro- vince.

Regulation 9/4/85 Regulation for Private - Explains procedures to be of Law Entitiesplanning to followed by entities apply- 3096 build electricity ing to build and operate generationfacilities. power plants,the criteria for reviewof applications by MENR,and the guidelines for settingsales tariffs. - 51 -

-~ - V0 I.E 2

Tb of

1Ubic Sector

Ic. _A awa i LI3

FcUa Fimwci-1 OffM AdmaNmicipslity u.w5

FOURiR.icipsiTy Lie CqIm Nadeipslity 2.766

T.qpebw BE&5D2 nmm9 26.1 bniw

T. Is * ll.iS,

T. Cncial Rk 19503 Rubm& 72,554 T. Is n 1-16w 174.K2 Abu I 72 SD.O59 16.3 hPmim lbml aitutio uti

Pwuaml Nuiam pIinmrs- m im 35,61 Zero P Il 35,I1

Aid IY1i0 22518 CD P~s 1SO,79Q T. Iria lwIp.t1 -f Pemmm1 Pmk 60 Ahok P1ometua P~ima 5S1.66S - -_t intia Sdrer ThmowicePJom ll.W Fookhtin ~~~~~~~~5,450 TI. _e PWmae1 ?.Psins 1= tktimla Xrmmzice Pearndw 2.M0 re Ib1digB 1aaI P aimi 16 32.S2D g9.0 Cobaers of Vimrce hA Crcial bu,r S.91 Ad Twuhtral (3 iNr 9.000 Hbri oxmtdal Mw 2.0Wulch6w9 Cejbm Qinocial NailDt 5

21,W6 0.6 - 52 -

hECK! Arumrh2.2 Pe- 2 of 2

Shn-ebo1ders of CAS

(As of Deo 1985)

uoof nmaraimc xpanies ('1000IL) a-~~~~ Z

Aksigcwta 109778 Alaln hAmm Tar Tnmsu3ce 35,150 Effeternlm rmemm 8,1w Tm Tam 4,m50 T. Gal lmue 4,42 _ddiuzr 1,022 lauk laurnie 14,342 1DigaTlMawae 8,613 Titus 129695 blk 1 ourance 738 Birlk Tnouuwe 1a

100,536 2.8 ln&euial md Obr Co p es

Yarn F =nancialIbi 20 okbirli 62a0 Bumss 2,768 13ibva c t- ort 248 AMmaIndustry ml Trade 225 Se3bonTzxutzy ad Trad ;GadSn 10 Kayir CoUativew 2Qu6 TA-fted Liable Cooperaive of mlniczafta 1 Moilve 9zlem DirNO COllective Cot. 49 Q _uv InuTwS 510228 lerda Temile Indstry 5,454 Kqez E c 44* Iitry Ebldirg 1,800 H Ozgz0h lD1dizg 3,485 Bac| Sdumci 2,7(5 DdIb liport mndEport 92 Nhsa Food Industry ad Trade 60D Vde OEiet Pre 64 S_mz Holdizg AJ. 29B hdmcel Cttu, Treed, Ol TnduuT 34,3

210,714 5.9

Private lidividnls 1,417,454 39.4

1C3X;L 3,600,000 100 - 53 - AM= 21.3

TURKEY

SIR HYDROPOWERPROJECT

Gross Generation and Fuel-Oil Consumption at Mersin Thermal Power Plant (1974-1985)

Total Fuel-Oil Gross Specific Year Consumed Generation Consumption (tons) (GWh) (gr/Wkb)

1974 190,127 623.1 305.1 1975 162,146 546.4 296.8 1976 169,555 548.1 309.4 1977 200,118 651.5 307.2 1978 207,089 676.6 306.1 1979 146,358 476.5 307.2 1980 126,781 394.4 321.5 1981 173,093 544.2 318.1 1982 151,839 483.1 314.3 1983 156,989 492.4 318.8 1984 174,701 550.2 317.5 1985 174,030 551.3 315.7

Fuel Oil Prices for Mersin (12/31/85)

From Shell - 85,841.74 TL/Ton From Mobil - 85,841.70 TL/Ton

(04/10/85)

From Shell - 86,984.10 TL/Ton From Mobil - 86,984.10 TL/Ton From TPAO - 87,234.10 TL/Ton

(12/31/85)

From Shell - 114,531.40 TL/Ton From Mobil - 114,531.40 TL/Ton From TPAO - No purchase since April 1985 - 54 - AME 2.4

TmL5i m, m- A m 11_-195) (in Gb)

1917 1918 1919 190 91 1 193 190 19 5

61.5 676.6 476.5 39 A 541.2 43.1 42.3 550.2 551.3 se*= 410.8 423. 376.2 440.1 482 370.0 371.0 383.8 31A4 adinc I 300.5 336.1 2989 335.3 40.0 2A 36.1 3118 315.9 Ka=c' I 237.9 275.9 24. 270.6 338L2 26.7 2W.8 25.1 27.0 lwir 16.0 122 9.5 12.2 16.3 1 11.0 10.6 9.1

C-s (kD 1o6,tima11,616.7 1,71 1,35.5 1,4.5L6 1,76J.9 1,6 1,447.2 1,56.5 1,434.7 statim The 45.5 42.8 41.7 39.7 44.0 40A 42.0 44.3 40.5

illerl m G1,57n.2 1,6I I1,343.8. 1.412.9 1,722.9 1,362.2 1,05.2 1,42.2 1,394.2 BM nt fIm MR 206.5 239.5 S17i 60.5 451.0 19.0 1,174.5 1,40.0 1,53.9 Otbia 35.7_ - _ _- _ _ _

poem %pmlid to: a(vuwn 1iqml J 1,815.4 1,910.9 1,851.1 2,06.4 2,172.9 2,59.2 2,579.7 2,955.2 3,2481 -;1b8dseimL~ 66.5 77.9 71 .4 90.6 92.9 1M.1 125.7 144.3 mm ZLEI= g cNC 1,748.9 1,33.01,789.7 1,93.0 2,012.3 2,1663 2,6 2,929.5 3,103.8 to ouKm 1,490.7 1,630.9 1,739.2 1,94.5 2,009A 2,092.1 2,25.4 2,552.8 2,799.5 to MX 258.2 2.1 50.6 785 72 74.2 25.2 256.7 301.3

Ttal le 112.0 1207 113.1 12.1 1346 1333 143. 169.0 176.0 Net Pbrdms(Saks) fzu TX (49.7) 37.4 446.7 55.0 377.2 On. 949.3 1,216.3 1,549.6

IBEm 1Sles QAd 0.2 9.42 6.61 6.61 8.4 4.1 7.71 13.72 9.2

Z of 111mm SRI sVpied C OQua dja 86.3 817.5 72.Z1 70.1Z 793X 60.1 5S4. 49. 4L91 - 55 - ANNEX2.5

TURKEY

SIR HYDROPOWERPROJECT

CEAS Electricity Sales BY Customer Group. 1978 and 1985

1978 1985 X of S of Z of S of Industrial Total Industrial Total GWH Sales Sales GWM Sales Sales rNDUsrY Textiles 519 54 742 11 Cement 222 23 266 16 Iron and Steel 61 6 306 18 Food Processing 64 7 139 8 Glass, Paper & Plastic -7 5 96 6 Fertilizers 36 4 76 5 Other 12 1 45 3

Total Industrial Sales 961 100 52 1670 100 54

MUNICIPALITIES 581 31 948 30

VILLAGES 32 2 69 2

GOVERUIENT DEPARTMENTS 34 2 62 2

AGRICULTURE-IRRIGATION 11 1 22 1

MISCELLANEOUS 12 1 29 1

Total Cukurova Region 1631 89 2800 90

Gross RV Sales to TEK 202 11 304 10

TOTALCEAS sALEs f30 - 56 - ANEX 2.6

CtMoM ur3 AS.

FaMMGNE AShU M (191-9S (in GI1 )

1986 19ff 1988 199 1990 1991 1992 1993 199%

- a n - a- - - - - IIIr.i 5,44.0 544. 544.0 544.0 544.0 544. 54. 544. 544.0 Se,Iin 385.0 385.0 385.0 385.0 395.0 395.0 395.0 395.0 385.0 ImKinCi 1 314.0 314.0 314.0 314.0 31q.0 314.0 314.0 314. 314.0 MKIfm&3ik 247.0 247.0 247.0 247.0 247.0 247.0 247.0 247.0 247.0 y1gmar 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0

CaS Giog Gain 1,5M4.0 1,50.0 1548.0 1,50.0 1,58.0 2,25.0 2250 50 2s44.0 Statimi U. 43.0 43.0 43.0 43.0 43.0 51.0 51.0 51.0 51.0 cm8 1 G TMw 1,450.0 1,460.0 1.460.0 1,60.0 1.460. 2,177.0 2,377.0 2,T1.0 2,177.0 132,5.02,643.0 3,1M.0 3,569.0 3,962.0 3,98L.0 44400 14933.051,34.0

Thezg Mwplied to: (hbAva Degioil Nditwk 3,725.0 4,108.0 49561.0 5,029.0 5,422.0 6,158.0 6,617.0 7,110.0 7,617.0 frammimsCo1bse 149.0 164.0 1. 231.0 17.0 246.0 265.0 294.0 305.0

TMIA SW9(1Er (Vh 3,576.0 3, 4.0,39.0 4,38.0 5,235.0 5,T.0 6,35.M2.06,8.0=. 7,312.0 to l xau 3,15.0 3,439.0 3,779.0 4u12.0 4,505.0 4 o912.05,352. 5s85.0 631l.O to 7TK 450.0 500.0 600.0 700.0 700.0 1,D00.0 1,000.0 1,000.0 1,000.0

Total bums 192.0 207.0 225.0 235.0 260.0 291.0 316.0 335.0 356.0 ]let N"r*ausI. ($ales) IX111C 1,815.0 2,143.0 2,501.0 2,869.0 35,2.0 2,981.0 3,440.0 3,933.0 4,440.0

Di1491 sale.sG 15.22 10.2Z 11.22 10.3 7.3 13.6 7.4 7.52 7.12

Z of Rqimis Sales Suppisi by CMS ola (o?eetim 39.2- 35A.Z 32.01 29.01 26.91 35.4 32.91 30.61 28.61 - 57 -

ANNE 2.7

rnr am -famonPIMM

-UA m xvm m (196-15%)

19191 1S 1915 19£6 l91D 19111 19119 390 159 1592 1593 1994

m1 106 1IN 106 10 1 106 306 106 106 16 16 106

S,lm 6D 60 60 so Go a 60 60 60 60 a 60 Yaiiucik 70 70 70 70 70 70 70 70 70 70 70 70 1AMOdl 56X 6 56 56 S6 S6 S6 56 S6 56 S6 56 -rqir 6 6 6 6 6 6 6 6 6 6 6 6 Sir ------283 283 283 283 _hEllk 192 192 192 192 192 l92 192 192 475 475 475 475

Ind 4 yho 79 7296 296 296 296 29 36 6SB 581 58 581 581

Rq 1 *i 1_ 414 41 50 Sl 635fin 700 763 911 911D 103 1148

2 oEfUqimi - b by OXO -atu1d Cb.et 72.U 61*S 59AZ 51. 46.6 42. 39.11 35. 64.4Z 59.3Z 54.7Z 50.6Y -58- ANN 2.8

TURKEY SIRHYDROPOWER PROJECT Ogankbonl Chartd Culk Ekidk AS.

0 1

1fwnifv& Rhg W

Cw|GMawm(3)

Other~SiI thanukeu-ek

vw X. I H | T& ~~~~~~~VJf2 - 59 - ANNEX3.1 Page 1 of 7

TURKEY

SIR HYDROPOWERPROJECT

Technical Assessment of the Dam and the Powerhouse (Component A)

General

1. Origin of the Prolect Component: The proposed Sir dam on the Ceyhan River is in arumnucaras Province and is about 36 km by road from the provincial capital of Rahram ras The Ceyhan River is in the south-central part of Turkey and flowing in a southerly direction joins the Mediterranean Sea. The initial Ceyhan River Basin Mbater PLan Studies were started by DSI in the year 1966. The Master Plan divided the Ceyhan River Basin into Upper, Central, and Lower partx (Attachment 1). The Upper Basin Development Plan consists of the Karakus and Adatepe irrigation dams (under design) and the Kandil dam (under planning) for power generation. The Central Basin Development Plan consists of the Kartalkaya irrigation dam (in operation), the Menzelet multi-purpose (irrigation and power) dam (under construction) and a small run of the river Ceyban hydropower plant (in operation). The Lower Basin Development Plan consists of: (a) the Rozan and Kesiksuyu irrigation dams (in operation); (b) the Ceyban-Aslantas multipurpose dm (in operation, Bank Loan/Credit 883/360-Tr); (c) the Savrun and Sarikiz irrigation dams (under planning); and (d) the Sir and Duzkesme dams for power generation (under Ceyhan-Berke scheme). EIE started the Ceyhan-Berke feasibility study in the year 1975 for the development of the upper portion of the lower basin lying between the Nen elet dm and the Ceyhan-Aslantas dam. The study, completed in the year 1979, considered thirteen alternatives at seven dam sites and found that the combination of the Sir and Duskesme dams was the most economical solution. A further optimization, fixed the storage level of the Sir dam at 440 m and that of Duzkesme dam at 345 m. The feasibility study also considered the reservoir operation to determine: (a) the installed capacity at the Sir and Duzkesme (Berke) powerhouses; and (b) the most economical diameter of the Duzkesme tunnel. Further, three alternatives were considered for the size and the number of units to be installed at the Sir dam powerhouse; and three units each of 91 NW capacity (revised to 94.5 after completion of the detailed design) were found to be the optimum solution. Since the water releases from the upstream Nenzelet dam (under construction) considerably affect the Ceyhan-Berke scheme, eight variations on the quantity of water released and timing of completion of irrigation facilities of the Menzelet dam were considered for optimizing the above [(a) and (b)] parameters.

2. The Bank's Review of the Scheme: Based on the conclusions of the feasibility study, EIE completed the final design documents and technical specification for the bidding documents in the year 1983. The-final design divided the Ceyhan-Berke scheme in two phases:

(a) Phase I - the Sir dam and the powerhouse; and (b) Phase 2 - the Duxkesme dam and the powerhouse at Berke. - 60 - ANNEX 3.1 Page 2 of 7

The final design proposed thin arch concrete dams at Sir and Duzkesme (located about 7 km downstream of the Sir dam). The powerhouse for the Sir dam was an outdoor type located near the toe of the dam, while that for the Duzkesme dam was an underground type located at Berke and connected to the dam with a seven-meter diameter tunnel about 11 km in length. The installed capacities propcsed at Sir and Duzkesme (Berke) were 273 MW (3 x 91 NW) and 168 MW (3 x 56 MW), respectively. The Bank's consultants of the preappraisal team reviewed the final design prepared by EIE. The Bank's consultants commented that the second phase of the scheme (the Duzkesme dam and the Berke powerhouse) needed further investigations-especially the areas of the tunnel and the powerhouse-for proper estimation of its costs. This phase is not included in the present project.

3. The Redesign of the Project Component: The Bank's consultants,while agreeing that the first phase of the scheme (the Sir dam and the powerhouse) was in an advanced stage for appraisal and that the site conditions (a narrow valley with very hard rock) were ideal for locating a thin arch concrete dam, suggested certain modifications to the design and layout-specially of the dam and the powerhouse-to bring down the costs for the component. CEAS, therefore, appointed (contract signed on May 23, 1985) engineering consultants, Coyne et Bellier (C&B), France according to the Bank's Guidelines to: (i) review the final design of EIE for the first phase; (ii) to carry out the dam redesign based on the suggestionsof the Bank's consultants; (iii) assist CEAS in inspectionof the Equipment during manufacture;and (iv) to assist CEAS in engineering and supervision of the project component during construction and commissioning. The redesign carried out by C&B was reviewed by the experts of the Bank follow-up mission in August 1985. The Bank's consultants confirmed that the proposed redesign was technically and economically superior to the previous design and reduced the estimated cost of the civil works by 20X. The volume of concrete in the dam was reduced from 420,000 m3 to 310,000 m3, and the volume of the excavation was reduced from 410,000 mi3 to 320,000 m3. The crest length of the arch was reduced from 357 m to 325 m. By locating the switchyard at the top of the powerhouse, it was possible to locate the turbines closer to the toe of the dam, and the length and diameter of the penstock was reduced from 155.7 m and 5.3 m to 65.5 m and 4.8 m, respectively. The penstock redesign also reduced the head loss and, therefore, increased the net head for the turbines by about 3 a which resulted in increased installed capacity of each unit from 91 MW to 94.5 MW and total annual generation by 18 million kWh. The spillway is now better located, and the volum of excavation for the spillway has been reduced from 360,000 m3 to 95,000 mi'. The dam shape-decrease in the central angle at the crest and at lower levels from 120- to 84e-improved thne foundation stability conditions (especiallythose of the left bank). Redesign made other improvements, such as relocation of the bottom outlet gate, elimination of the lift attached to the downstream face of the dam, equipping spillway with stop logs, and provision of ring gates for the turbines, which would assist in better operation and maintenance of the dam and the powerhouse. Attachment 2 gives the general layout of the redesigned dam. - 61 - ANNME3.1 Page 3 of 7

GeologY

4. Dam Site. The Sir dam's axis is located in the narrow asymmetrical "V" shaped section of the Ceyhan River which rung north-south at the dam site. The arch dam, intakes, penstock supports, powerhouse, and spillway are to be founded on the bedrock which consists of light colored, medium grained, quartz veined, well-cemented and interlocked grains of quartzite and quartzose sandstone of Cambrian age. The major geological structures are a strongly-marked stratification and faults. Stratification is the primary direction of weakness. It strikesdiagonally across the site and dips upstream and towards the right bank at moderate angles (30--500 below the horizontal). The quartzite is limited by the major Sir gopru reverse fault (generallydipping 701-80 upstrea) crossingthe river about lCO m upstream from the dam. The upstream part of the fault is composedof dark gray, fine-grained foliated phyllite overlaid with quartzite of Cambrian age. There is no obvious indication of recent movement of this fault, and it is considered inactive; as are all other lesser secondary faults in the east-west direction at the site. Detailed geological investigations were carried out at the dam site. Nine adits with a total length of about 720 u were driven at different elevations, and seven vertical and 15 inclined core-drill holes with a total length of about 3,500 m were drilled for investigation of the geological properties of the rock. Lugeon permeability tests were performed in all the drill holes at two-meter intervals. Geological and related investigations also included geological mapping, seismic refraction, geophysical profiling, and testing of rock in situ and in the laboratory. These investigations indicate that in the right abutment the line of arch in plan would be parallel to the strike of the bedding, whereas in the left abutment the thrust is roughly at right angles to the strike. It in clear from the geologicalconditions that, in general, the stability of the left bank is determined by the dip of the strata, and some of the interbedding which has a silty clay infilling (30- angle of friction). Therefore, care must be taken to keep excavations on the left bank to the minimum and to take suitable precautions (such as rock bolting and anchoring) to stabilize the quartzite beds in the left bank. The dip of the quartzite on the right bank is towards the mountain and does not pose problems indicated for the left bank. The Bank's consultants (preappraisal and follow-up mission) reviewed the investigations carried out and concluded that the rock at site is adequate (or could be made adequate with suitable treatment) for the structures proposed at the dam site. The experts also suggested additional site iuvestigations which have been carried out by CEAS.

5. Reservoir Watertightness. The Sir dam reservoir area consists of (i) Cambrian quartzite; (i) Silurian phyllite; (ii) Triassic calc-schist and limestone; (iv) Jurassic-Cretaceous limestone; (v) Eocene conglomerate, (vi) Miocene molasse mudstone, sandstone, conglomerate and shale; and (vii) Quaternary terrace conglomerate and alluvium. EIE carried out geological investigations and concluded that it does not expect water leakages from the Sir reservoirbecause:

(a) the Ceyhan valley is the deepest drainage axis of the region and is surrounded by high mountains forming very wide divides between the reservoir and the adjacent lower drainage areas; - 62 - ANNEX3.1 Page 4 of 7

(b) a significant part of the reservoir is within hydro-geologically impervious lithologiessuch as phyllites, calc-schist,and molasse;

(c) the karstic Jurassic-Cretaceous limestone outcrop, which is in contact with the reservoir (in very limited sections), is surrounded by impervious formations of Silurian and Triassic ages;

(d) the northern part of the pervious Eocene conglomerateis overlaid by the thick Miocene sedimentary rocks and western and southern parts of the Eocene conglomerate (up to an elevation of about 1,000 m) is surrounded by the impervious basement and triassic rocks;

(e) there is no water-bearing fault line on a regional scale;

(f) ground water levels at both banks of the dam site are above the river level; and

(g) the grout curtain at the Sir dam site would effectively prevent possible leakages through the quartzite around the dam.

6. Slope Stability Around the Reservoir. EIE have carried out the geological survey of the reservoir area, and the engineering consultants have also visited the area and specially considered the following two types of sliding from the reservoir banks which would affect the safety of the Sir dam:

(a) large volumes of rock mass suddenly plunging into the reservoir and creating a shock-wave against the dam and

(b) large volumes of loose material sliding into the narrower parts of the valley and creating a temporary barrier that could store a large quantity of water which, on sudden release, could create a shock-wave similar to (a) above.

On the basis of the field data gathered, C&B concluded that the landslides described in (a) and (b) are not anticipated in the vicinity of the dam site, and any upstream landslides further away from the dam site would not affect the safety of the dam. The Bank's consultants reviewed the available information on the watertightnessand slope stability. While accepting that there is a high degree of confidence in the integrity of the reservoir, the Bank's consultants recommended that further data on the reservoir area be gathered. This information was collected and has been taken into consideration in the detailed project design.

7. Foundation Treatment. The redesign allows for the necessary classes of excavation, including controlled blasting and final exposure of rock surface without blasting. Protection of excavated surfaces (including high and steep walls of dam foundation excavation) is by rock bolting, anchoring, shotorete and other methods. Specific allowances of 25X in the quantity estimates for excavations and 5S for concrete have been included by the C&B and are reasonable. - 63 - ANNEX3.1 Page 5 of 7

8. Subsurface Treatment. The Bank's consultants reviewed the redesign proposal of grout and drainage curtains and considered the proposals to be satisfactory. C&Bproposed locating the grouting curtain at the toe of the dam inclined upstream at about 300 to the vertical so that the curtain crosses the zone of compressed rock. This would substantially prevent cracking of grout curtain which normally in the case with the vertical grout curtain. The Bank's consultants,accepting the advantage of the proposed system, suggested that the possibleuplift forces beneath the foundationsdue to the water betweenthe upstreamface of the dam and the row of the inclinedgrout curtains at the toe of the dam, shouldbe consideredfor the designof the dam. The Bank's consultants reviewed and accepted the drainage curtain layout proposed by C&B. Seismicity

9. The Bank'sconsultants reviewed the available data and recomnended updating of the study of ambient seismicity carried out by EIE so as to include any earthquake event that might have occurred since 1978. The Bank's consultants further recommended that the faults in the vicinity of the dam and the reservoir area should be examined to determine whether they might still be active. These studies have been carried out and the results have been taken into account in the detailed dam design. Microseismic measurements in the vicinity of the dam site are also being made in accordance with the recommendationsof the Bank'sconsultants. C&B completedthe preliminary staticanalysis of the dam based on peak horizontal ground acceleration of 190 cm/s7 (normal earthquake) and 300 cm/s2 (maximum earthquake). The Bank's consultants felt that the method adopted for static analysis, though conservative, is acceptable. Dynamic analysis of the dam under seismic conditions has also been carried out satisfactorily by C&B.

Hydrologr 10. The catchmentarea of the Sir and Duakesmedams coversthe whole Upper and MiddleCeyban River basins (para.2 of Annex 3.1). Maximum elevationof the catchmentarea is 3,090m and the minimumis 288 m at Duzkesmedam profile. Averageannual precipitation (snow and rain) for the catchmentarea is about 612 um--50Xfrom Decemberto February,30S from March to May, 5% from June to August and 15S from September to November. Majority of flood occurs in March-April from concurrent snowmelt and rainfall. The catchment area for the Sir dam is about 13,000 km2 and the average annual runoff is between about 4,500 to 3,700 million m3 depending on the releases from the Menzelet multipurpose dam under construction. The dam is scheduled for completionin the year 1986, however,completion of irrigationfacilities could take another 9 to 10 years. Analysis of sedimentation in the reservoir area indicates an operating lifetime well in excess of 50 years. The completion of the upstream Menzelet dam will further assist in the reduction of sedimentation in the reservoir.

11. For the design of the dam and its spillway, EIE had used peak inflow flood of 7,876m3/s(without the Menzelet dam) and 6,630 m3 /s (with the Menzelet dam). C&Breviewed the calculations (based on the maximum probable - 64 - ANNM 3.1 Page 6 of 7

flood method)and recommended to use, instead, the figures of 10,888 and 9,220,respectively. This revisionhas the effectof raisingthe maximum reservoirlevel from 442 m to about444 a. For calculatingpeak outflow from the diversiontunnel, the redesignused a ten-yearperiod return flood of 1,727m3/s insteadof 1,648*3/S assumed in the EIE design. The Bank's consultantsreviewed and acceptedthe figuresproposed by C&B.

Construction Materials

12. CEASand the engineering consultants supplemented the previous investigation carried out by EIE. The Bank's consultants reviewed the available information and observed that, in general, adequate quantities of suitable concrete aggregates from areas 5 to 25 km from the dam site are available; however, the Bank's consultarts recommended that additional investigationsto be carriedout before issuingthe bid documentsfor the civil works. The Bank'sconsultants also reviewedthe availableinformation on cement from Gaziantep, Iskenderun and Adana cement factories and concluded that Gaziantep cement factory, which is the nearest to the dam site, can furnish pozzolan cement suitable for the arch dam. Safetyof the Dam

13. Instrumentation: The instruments proposed in the EIE study for the observation of the structural behavior at the dam and hydraulic performance of the dam foundations (including proposed modifications by C&B) were reviewed by the Bank's consultants. The Bank's consultants agreed with the instruments provided. However, the Bank's consultants strongly recommended that the data from the instruments provided for controlling the dam behavior and those measuring various effects (including the plumb-line displacements, filtration flows and pore pressures), should be converted into electrical signals for automatic measurements. Such measurements should be frequent and a computer should be used for calculating, interpreting and storing the results. C&Bare incorporating the experts' recommendations in the final dam design.

14. Inspection of the Dam During Construction: CEAShave appointed an International Board of Experts, acceptable to the Bank, to advise CEAS on the problems arising during construction (including those connected with the safety of the dam and associated structures) and to review the project's construction progress by visit to the dam site at regular intervals. The International Board of Experts will specially monitor the safety of: (a) the dm and associated structures; (b) the diversion and access tunnels; and (c) the dam reservoir area.

15. Inspection of the Dam DuringODeration. DSI conducts regular inspections of all the dams in the country and mostly follows practices of the U.S. Bureau of Reclamation. Annualinspections are conductedby the DSI regional division in whose territory the dam is located. To ensure proper coordination, CEAS has associated DSI representativeswith the project component during the review of the redesign by the Bank'sexperts. - 65 - ANNEX 3.1 Page 7 of 7

HydraulicModel Test

16. The redesigncarried out by C&B modifiedthe spillway. To minimize excavationin the left bank, the spillwayis now displacedby about25 m towardsthe valleyso that half the spillwayid supportedon the dam concrete superstructure.The ski-jumpis made wider 33.4 m against 26 m of EIE design, and is designed with a variable angle to the bucket so that the impact zone at full flow is elongated along the axis of the river. C&Band CEASwill carry out the hydraulicmodel test of the spillwayby October1986 to check its properfunctioning and will modify the spillway if necessary.

Generation

17. The generationat the Sir das powerhouse is affected by the water released for agricultural purposes from the upstrem Menzelet multipurpose dam under construction. The Menzelet dam is scheduled to be completed in the year 1986. It is estimated that it would take at least 9 to 10 years to complete the irrigation facilities to be provided from the Menzelet dam. Without the provisionof irrigationfacilities at the Menzeletdam, the annual generation of electricityat Sir dam is estimated at about 725 GWh; and with the full irrigation development at the Menzelet dam, the generation would be reduced, on an average, to 550 GWh. Land Acquisition

18. The reservoirfor the Sir dam covers48 kma of surfacearea and would affectnine villageshaving about 7,000 inhabitants.Houses in the locality are mostly built with sun-dried bricks, stones and briquettes and farms consist of small scattered pieces of land with produce mostly for self consumption. Most of the affected land is govervneAt-owned. About 5,000 hectares will need to be acquired under the provisions of the Expropriation Law of 1983. CEAS has already acquired the 100 hectares which will be affectedby the accessroad, constructioncamp and dam construction.Mapping and documentationof remaininglandholdings is in progressand a p.. -s. of land acquisition is being prepared. CEAS has agreed to acquire the * .essary land in accordance with a timescale agreed with the Bank.

General Characteristics 19. The generalcharacteristics of the projectcomponent are given in Attachment 1 through 3 to the Annex 3.1. Annex 3.1 *1 ~~~66~ Ata _ ~ ~~ U IF I -

:;_jlim' I 'a

II AU1 .

.q I ,| g . | | . Ja~~~~~~,l -XW~~~~~~~~~~I

| ' ~~~~~i,! -J I -e - E

25~~~~~~~~ L III\;N

:' .4. % 041 I %~~~~ I.l aI

I.'..~~S&M wrI A 7 fI

Ca?~~*

4- I /~~~~~"rA

am Nmissm~~~~~~PM * /SI

m~~~mM1w.E1.~~~~~~A

.0 OFILLWAI**2 h~~~~ ~ .,P 40axwm~~~~~~~~~~~~~~~121 SI4 AA flwcu o ATA

-0. 110DAM A#10 IITLR".B6'fRk; NX.VER FLA op~~~~~~~*~4I/*

11 jo~~~~~~~~~~~~~~~~~~~~~~~~~~~~1~

ol. a rw so. - 68 - AM=l 3.1 Attachment 3 Page 1 of 4

TURKEY

SIR HYDROPOWERPROJECT

General Characteristics of the Proiect Comnwonent

Unit Description

1. Location - On the Ceyhan River

2. Catchment Area k2 12,950

3. Average Annual Discharge 10IM3 4,580 (without Menzelet irrigation developmnt)

4. Peak Inflow Design Flood a'/s 9,220 for the Dam Spillway Design

5. Construction Peak Inflow 3/S 1,727 Flood (on 10-year return period)

Reservoir

6. Maxi=j. Flood Level X 443.9

7. Full Supply Level a 440.0

8. Reservoir Area km2 48 (at fully supply level)

9. Gross Storage Capacity 10o.6 1,120

10. Effective Storage Capacity 10s" 720

Diversion Tunnel

1. Location Left Bank

2. Length m 431

3. Diameter m 10.78

4. Excavation m3 65,000 - 69 - AMU 3.1 Attacheent3 Pag 2 of 4

Unit Description The Dam

1. Type DoubleCurvature Arch

2. Crest Elevation m 445

3. Height m 120 (aboe.the feamdations) 4. Crest Length o 325

5. UpstreamRadii at Center (a) Crest m 120 (b) Middle m 70

6. UpstreamRadii at Left and Right Abutment (a) Crest m 388 (b) Middle m 247

7. Central Angle degrees 84

8. Thicknessof Crown Cantilever (a) Crest m 5.0 (b) Middle m 14.6 (c) Bottom m 17.5

9. Excavation m3 320,000

10. Concrete m3 310,000

11. IntakeLevels (a) Top m 384.5 (b) Bottom m 339.0

12. Spillway (a) Type Gated SurfaceSpillway + Chut and Flip Bucket (b) MDaximzmDischarge m3/s 7,460 (c) Length m 140 (d) Excavation m3 95,000 (e) Concrete m' 82,000 (f) No. of Gates unit 3 (g) Type Radial (h) System of Energy SSki-jump Dissipation (i) Width of the Ski-jump u 33.4 - 70 - ANNEX3.1 Attachment 3 Page 3 of 4

Unit Description

13. Power Intakes (a) Power Intake Gate m 384.5 Sill Level (b) Bottom Level m 339 (turbine end) (c) Length of the Penstock m 65.5 (d) Diameter m 4.8

14. Bottom Outlet (a) Height x Width m x m 4.0 x 5.0 (b) Maximum Discharge m3l' 700

The Powerhouse

1. Type 2 outdoor 2. Excavation m Included in the Dam Excavation 3. Concrete m' 60,000 4. Number of Units unit 3 5. Type of turbine - Vertical Shaft Francis

6. Headwater Elevations (a) Maximum flood m 443.90 (b) Normal m 440.00 (c) Yearly average h 438.40 (d) Yearly mdinmum a 434.91 (e) Absolute minimum a 418.80

7. Tailrace Elevations (a) Maximum normal m 345.38 (3 sets' full discharge and Duzkesme reser- voir full)

{b) Minimums 342.75 (1 sets' full discharge with Duzkesme reser- voir empty)

8. Net head (a) Maximum m 96.25 (b) Nominal m 93.62 (c) Design m 92.42 (d) Yearly minimum m 88.52 (e) Absolute minimum m 72.42 - 71 - ASNEX 3.1 Attachment 3 Page 4 of 4

Unit Description

9. Rated discharge!turbine (a) At maximum head m3/ 114.25 (b) At design head m*/s 113.50 (c) At absolute m3/s 100.50 minimum head

10. Output/turbine MW 94.5 11. Rated speed rpm 200

12. Expected Efficiency (a) At maximum head Z 91.5 (b) At design head 2 92.0 (c) At absolute 2 86.6 minimum head

13. Generator (a) Rated power Factor unit 0.9 lagging (b) Type Vertical shaft, Three- Phase, Synchronous (c) Rated Voltage kV 15.75 (d) Frequency HZ 50

14. Generator Step-up Transformers (a) Numbers Unit 3 (b) Rated Capacity/ MVA 105 Transformer (c) Rated Secondary kV 154 Voltage

15. Switchyard (a) Voltage kV 154 (b) Type SF6 with Gas Insulated Busbar System.

16. Annual Energy Production (a) Firm Output (before GWh 408.4 upstream development) (b) Firm Output (with GWh 311.8 upstream development) (c) Normal Output (before GWh 724.9 upstream development) (d) Normal Output (with GWh 550 (average) upstream development) - 72 - ANNMX3. 2

TRKE

SIR N!DROPOIER-PROJECT

Transmission Lines and Substations (Prolect component B)

1. The projectcomponent includes:

(a) about30 km of transoissionlines to connectthe Sir dam powerhouse switchyardwith TER's existingNational Grid System;

(b) about 320 km of sub-tranmissionlines (154kVand below)and about 570 KVA of transformercapacities at its CEAS (existingand planned) substationrequired for meetingthe CEAS regionalsystem's demand up to the year 1995.

2. The list of the sub-transmission lines and substations included in the project component are given in Attachment to this Annez. - 73 - AIEU 3.2 Attacb nt

nEET

SIR IEOPOIE ?ROJKCT

List of SubtranswissiouLines and Substations

I. Subtrans-issionLines Lengthin km

1. hdaa-Ceyban 24.0 2. Payaa-Iskenderun-2 7.0 3. Antakya-Iskendurn-2 57.0 4. Catalan-Dikili 30.0 5. Akkuyu-Tasucu 34.5 6. Adana-Incirlik 32.0 7. Ersin-Iskenderun-2 74.2 S. Admna-Misis 14.0 9. Mkbelen-Tarsus-2 25.0 10. Zediucik2 - Tarsus-2 19.0 316.7

II. Substations Additional Transformer Canacity in MA

1. Iskeuderun-2 100 2. Timutalik 3. Kurzey Adna 64 4. ffarasiali 16 5. Antakya - 6. Kadincik-2 - 7. DNW1, - 8. Payas 32 9. Incirlik 32 10. Zeytiuli 50 11. Akbelen 50 12. Ceyban 48 13. Seyban 80 14. HiAts 50 15. Trsus-2 50 572 - 74 - ANNEX 3.3 Page 1 of 2

TURKEY

SIR HYDROPOWERPROJECT

Technical Assistance (Project Component C)

I. Studies

1. Hersin Thermal Power Plant Rehabilitation Study. The Nersin thermal power plant is located on the Mediterranean coast near the Atas refinery at Mersin. The power station, with an installed capacity of 106 NW (four 26.5-MW units), annually generates about 550 GWh of electricity and consumes about 175,000 tones of fuel oil. The power station was commissioned prior to the world oil crisis of the year 1974 (Units 1 and 2 in the year 1966 and Units 3 and 4 in the year 1969) and did not include energy efficient design of the equip ent. Further, the specific fuel oil consumption has gradually deteriorated from 305 gms/kWh (gross) in the year 1974 to 317.5 gms/kWh (gross) in the year 1984. The aim of the study is to examine ways and means to economically generate (net) maxismm electricity from the quantity of fuel presently being consumed in the power station. The study will be completed in two phases. The first phase would examine: (a) suitability of the existing equipent for rehabilitation; (b) suitability for combining the present equipment (partly or wholly) with additional equipment such as combustion turbines,and slow speed diesel engines to improve the performance of the power station; and (c) the economics of the various possible alternatives to arrive at the least-last solution for the power station. The second phase of the study will be taken up after review of the first phase proposals by the Bank. The second phase of the study will provide for:

a) the engineering design; b) preparation of the technical specifications for the bid packages, and c) assistance to CEAS in bid invitation and bid evaluation process.

The project component includes cost of about 30 expert-man-months(for both the phases), and the study is estimated to be completed in a period of about six months from the award of the consultancy contract.

2. Additional Generation Study for Serhan Hydropower Station. Seyhan hydropower station has an installed capacity of 60 NW (three 20-MW units). The first two units were commissioned in the year 1956 and the third unit was commissioned in the year 1964. The existing units are not able to utilize completely the water released for irrigation, and additional generation is possible by installation of a bulb turbine unit (of about 20 NW) in the power station. The study will be completed in two phases. The first phase will examine: (a) the quantity of water available for additional generation; (b) the existing layout of the power station; (c) the appropriate type and size of the proposed additioralunit, (d) the economics of various alternati-es to arrive at the least-cost solution for the power station. The second phase of the study will be taken up after review of the first phase proposal by the Bank. The second phase of the study will provide for: (a) the engineering - 75 - ANNEX3.3 Page 2 of 2

design; (b) preparation of technical specifications for the bid packages; and (c) assistance to CEAS in bid invitation and bid evaluation process. The project component includes cost of about 10 expert man-months (for both the phases) and is expected to be completed in four months after the award of the consultancy contract.

3. Study of Runner Problems at Kadincik II Hydropower Station. The power station consists of a Francis turbine of 56-MWcapacity. The power station is experiencing problems regarding the runner of the turbine. A study, therefore, will be undertaken to: (a) identify the runner problems (b) suggest various possible solutions (c) compare economics of various solutions; and (d) recommend the least-cost solution for the problem. The study would require about six expert-man-months and would be completed in about three to four months after award of the consultancy contract.

4. Study for Transmission of Power Over the National Grid System. The study will determine the most economic way of transmitting Sir (and later Berke) power generation taking into consideration: (i) the CEASfuture requirements of additional subtransmission lines and substation facilities in the service region to meet its demand up to the year 1995; (ii) TEK's existing and planned transmission facilities in the vicinity of CEAS service region; and (iii) the possibility of "wheeling" power from the Project over TEK's transmission lines. CEAS and TEK have agreed to implement the recommendations of the study. CEASwill appoint consultants for the study, acceptable to the Dank and on terms and conditions satisfactory to the Bank. The study is estimated to require about 35 expert man-months and is estimated to be completed in about four months from the award of the consultancy contract.

II. Training

5. CEASwill be ezpanding its construction and operational facilities in the near future. rt in therefore essential that proper training facilities are provided to ensure timely availability of trAined personnel in the administrative, technical, and financial disciplines of the organization. It is accordingly proposed to update the technical expertise in: (a) load dispatch; (b) load met; (c) computer system applications; (d) project planning; (e) financial e t; and (f) manpower planning and training. About 21 man-months for training abroad of CEAS' staff in the above fields is provided. CiAS will submit to the Bank for its reviewbio-data of staff proposed for the traiaing.

III. Training and Computer Equipment

6. To augment CEAS' existing training equipment the component provides about US$450,000 for procurement of: (a) audio-visual training equipment, (b) personal computers including hardware and software; and (c) hardware and software required for upgrading of CEAS' existing IBM 4300 computer facilities. m - a -- ~~~~~~~~~~~ -

6~~~~~ - - - m - - m ------M m - - - - m - m .

t.~~~~nr S Rm, S i." 6" ,II S S,* S 6 S ______

5. 4I_ au S I61 i.ig 5.56g 1w ?s .. me5U~im~gjn i,* i.n, *.mM U .,m MiQ A |,,* _~~~~~~~~~~~~~~~~~s u_/m mm,a.m. aw ---

& i.a *am.,. uj.w .me ~~U.m4.ua.in n*~ ~WgmIS.~ sawim sum ~ea.m sumi i.e.- .m.m am.m uem m=.....

*. _iu ,._

14.~zin. I-' - S S m. *gm iU,ni MISUM t.1U Z 1,559.3~^C "A a... MM 0e1. am. "t ao mm

n- g g ~~~~~~~~~~~WXi^M Sa: ,M' 's,e Alm. 54= =. I= 'ji'm Pin.u wn emao US.sNJ, ai

L._. 5 * m. mm USESvmimns awa,. am.. sum *.... a.m.m a.m.a uu.m . l a. uWl 1 a..w u.n..m. i Imu uab 5 5 i ,8 mm 3n. - amI 3.e aF n.m . .W aS 3.8 UI. 1 .33 D S As mm a , Ii= m _-*-m g It:

#~~~~ i.e mm su m. u,,r 1u Jm ,-u as am a * a_ em iiu.

mm. . n.m in.. in.. ups em| m,m ins ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3Mn. D.W sa ~ jt *@m UtR * 40116 0,lJS ^1" iJ@ M tN us..# [email protected] 1

* mm 3.5MW 1 ,1mm101,m,m 5.e. ?.m.inT,. W,

K __~~~~~~~~~~~~~~~~~~~~~

/a Differencebetween 1985 expenditure expressed in July 1986prices and expenditureactually Incurred a. (basedon 1985 Inflationrates for T* and US$ costsof. respectively.43.22 and 1.32). I.~ mm ~ ~ ~ ~ ~ ~ i V. L

A.VXAID~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ u nga

IL1i .C941ti 1" 0 $,05 0 4,05 0 5,93 0 4,m 0 0 0 a 0 0 0 3,43 0 3.05 2: n. I W*.. 3,8" 0 loom a 0 a a a a a a a a a a 0 14,3 114,Am 3. CvIl *AN 6"I 0 193 3,570 Gm1 3,411 10,011 5,5s 6,61 4,730 5,6s3 3,m 3,03 1,01 1,465 15 5,5m u,iu nows 6- 1*4m a it m0 I5 14 in 71 Xs mu IN rn 3Mt 4 0 W wl 4,in ,A 5. 13mbwthm alm69dpwa 0 0 0 0 05 2,35 2.05 3,1W s,0 s.m% 2,n 5,1W 57 2,3 a 1.315 Os"5 now 3,52 6. &At*-d Eqafwt 0 0 0 0 0 0 79 M0 Xs6 1.739 VA , I, isI'm a.1 VI MI 1,4 7,85 7. fti-ff Mi W4visj 2.113 0 6O5 2,54 1,110 M4 1,05 MI 1,W 4w 1.0W 5n S0 NI 0 73 V6.1 5. N 3 0, 6.Medtal 6V69 0o 16.3 6,392 1,4-31 _6.1ito-du -AlM5 £9-AV 53,31 9.73 12,364 4,j30 S.V46 5,043 2.15 3.4 6070 9APInel Ck LagmIm a 0 2,400 so 1,746 6VA 2,7 1,01W261 1,52 1,3V 1,39 61 746 M 31 in ?,3117.5 6lwu 10.AMeAt 6,61 0 £1,641 7,672 14,091 7,33 3,430 13305 0,112 14,90 10,4U 32.1M ),M ?o73 1 ,053 5, MM,3 6,36 59,4 353dcemr om (6WLa 0 395 11 l,Ox SR 3,33 3,97 5,0 3,4% 3,315 4,35 J0WA 2,69 1M le5s 15,09 A4M3 36,M4 12A05LA 6.1W 0 19,035 71,3 13,141 6,165 5,75 15.W2 V,05 116,5 Ulm371 6,114 I'm1 10,315 2,45 5.037WI N 3.ow 1.55 3. lm1s Wm A mUin 33.TisadimL 0~ 0 0 0 0 0 66 14m so1 3 5 6On ' 10 10sa as low52low 14.Mk~. Umn & Mutw&in 0 0 M6 36 "I 2,101 1,16 4,673 1.464 4,W7 93 3.33 15 I.=0 133M 63 AM330 NO6W 15AWk1 1 M3 93 2,921 2,63 4,3 1,0 5 13 4,672 so 2,52 U3 93 7,317 X.43 AM3 * miktl a16hmi 0 0 a so 94 M1 M6 43 190 1 125 43 so ni U M913some son I7.&i1 0 0GM463 1,'M 33 3,n6 5.311 2,09 5,W 131 ,3 M4 2436 16WA360 3,14 Ulm4 mbiftim 0okod 0 10 53 so 9 14 U 45 1,3M M 361 so rO a5 45 JAN6 VA4 I,= 0 0 54 647~~G1,112 3,3 2,02 ,3 2,32 7,59 1.51 6,4 1 ,5 l 1M1961 .6 3 3.~~~~~~~m~~~0 0 3 M3 a 315 35 54 0 0 0 0 0 0 01 0 ii 73 a nl.Tabft 0 0 0 0 4 40 4 40 4 40 4 35 0 0 0 0 6 to 17n I2. mm0 0 2 M 70 3m a no a 0 0 0 a 0 0 0 1 go 57 D.A1 Al 0 24 241 60 M3 14 14 4 40 4 35 0 0 0 0 141,431,45 26.*guM1anhmm0 0 2 14 6 60 5 54 0 4 0 4 0 0 0 0 13 is i36 SdnenIm 0 0 a6 a5 a 655 59 S9 4 44 39 0 0 0M0a35l69 x.2 5.h1 mbLmmi 0 0 £ 6 5 Si 9 90 3 t0 I 12 0 0 0 0 No36 M4

21A1S. Ir=L 6,643 0 30,014 6,711 11,31 12,33 v,95 2ow,65 5,7798,614 5.3 4,02 6,110 33,1W 2,643 6,61 Iis,j ul,=3 51

39.3431 0 313 2,01 3.05 5, 71 0 to,05 i36,0 3Q.U0 11i 6.646 0 3.05 9,134 16,36 14,343 V,94 25,333 29,716 30,a4 13j53 32,092 6,1I0 U3o ,43 665731 3,5a,39

/a Differencebetween 1985 expenditure expressed in July 1956prices and expenditureactually incurred (basedon 1985 inflationrates for TL and US$costs of. respectively,43.2Z and 1.32). - 78 - AMNEX3.5

TURKEY

SIR HYDROPOWERPROJECT

Disbursement Schedule (US$ million)

IBRD FiscalYear Quarter Ending Quarterly Disbursement CumulativeDisbursement

1987 December31, 1986 9.1 9.1 March 31, 1987 2.8 11.9 June 30, 1987 3.0 14.9

1988 September30, 1987 4.0 18.9 December31, 1987 4.5 23.4 March 31, 1988 5.7 29.1 June 30, 1988 6.3 35.4

1989 September30, 1988 6.3 41.7 December31, 1988 7.0 48.7 March 31, 1989 7.2 55.9 June 30, 1989 7.5 63.4

1990 September309 1089 7.7 71.1 December 31. 1989 8.4 79.5 March 31, 1990 8.4 87.9 June 30, 1990 8.2 96.1

1991 September30. 1990 7.9 104.0 December31, 1990 7.6 111.6 March 31, 1991 4.2 115.8 June 30, 1991 3.5 119.3

1992 September30. 1991 3.1 122.4 December31, 1991 2.9 125.3 March 31, 1992 2.2 127.5 June 30, 1992 2.1 129.6

1993 September 30. 1992 1.4 131.0 December31, 1992 1.0 132.0 TURKEY

SIR HYDRIPOWERPROJECT

Proiect ffalaentation Schedule ~.

_ -- ~~~~ ~ ~~~Yearles i_= = lolSl = 192 to a!LS_ I lsse I IS I* DESCRIPT20N Yuertar x I II I IV J_ _hiI I _L_ - _L I_ ! IL A. The p. and the Pawerhousa u 1. PraliminaryiIorks 1. Temporary Roads & Bridges - Award of Contract - Complete Works /P-PT1-/-T2------3__ 2. aworsCamp oI -AwUard of Contract /-PT1-/ /PT2 - Complte Works /| I- I. miscellaneousInvestigatiansI - Awardof Contract I - CoepleteWorks ------II. flivercianTumiail/4~ -In 1 wite Bids -Award Contract -Grout/- I I I C.Plu| - CamplteWorks f-a-11eon: |--- | T| |------III, Civil Works A Hydrauilc out.. -IZnvite Olids - - - - - AwardContract ------CompleteMobilization - CompleteCatm S facilities I/- - Install0iver'n Tunnel Gate I /-/ I | -Complete0/S andU/S Coffer Dam /--- (a)Mlain Dam | - CoMpleteMain DamnlExn. ------CompleateUpentoci Penstonk Leve - ConcreteUp to PenstockLevel /------CompleteConcreting Er------| ||… - - Camplete Drainage/GroutCurtains

Installation and Erection PTI - PartOne Erl - Installationand Erectionof Unit I Equiwment Cl - CommissionUnit 1 Equipment 1 PT2 - Part Two Er2 - Installationand Erectionof untt I Equipment C2 - CommissionUnit 2 Equipment P4 PT3 - PartThree Er3 - Installationand Erectionof Unit 3 Equipment C3 - CommissionUnit 3 Equipment LI The schedule reflectsthe Borrower'sestimatis steepara. 1.6 Of the report) 099cg July 1986 2?46P - CompleteJloint Grouting - InstallIntake Equipont ... - InstallBottom Outlet Equi pmnt

- Comoleto Excavation - - CuoleteConcreting ------InstallGates

- C|olets PwrheuseAccess Turnal ... -Cumipte Excavation - Coneretingto DraftTube Level ...... / - CaouletoSuperstructure Concrete I / / I

Completemisc. Concreting . ...

- Inviteaids ,--/ I - AwardContract /…/ I InErnErr3 - InstallDraft Tube Cone r|/--r.a Deliver to Site-/--/--/--/ - InstallSpecial Casing & Staying /---ifr , Deliverto Site----Irl/Ir2/Ir3/ I-nstall lnlet Ext. & Pit Liner I I I I I I & RingGate |/----Ifr. & Deliverto Site----/El-/1r2--/IrI-/ - InstallWicket Gate/Oper. Ring ----- r 4 Deliverefr to Site------/Ir/rl/EIr/ I InstallRunner and Shaft /----- fr. & Deliverto Site------/Erl/ErI/Ir/M - InstallThrust *earino/Governor I …/------fr.L Deliverto Site------…Irl/ErV/r3lI | InstallGenerator /Gej--- ir to ite ….---In…- -/Er2I/r3/1 - Comiisstoningof units litIIl Il /9/Cf /Cf/ July 1986 2746P

1N olo IUREY

SIR HYDvOPaaaPPl6OECT

V.Cieet I tandan tt

- InviteBids _V. rae an L1dgiHoist _ II11111 I III - Award Contract /-- -/ - Complete Installation /-Man.bOelto Site Er/ VI. witehvard EauinnLnt

- Install Transformers C-&Oel. to Ste- - Cl-IC2-/C3-// - Install Switchgear /------Man.I Oel. to Site------/Cl /CZ / C3 / - Install Common A Hisc Equipment ------Man.& Del t Site--/-C--Cois ioni--/ VL-. Reservoir ------/ Flood Season (Jan. through May) ///I /p" ' STIranAission Lines £ Substat1ins | | Lal Conductar and Accessories - Invite Bids _____- ___-| | | ||-| | | | -Award Contract II -- -- / - Manufacture& Delivery ii---/ (hiIns1latar1s & Hardware | | - InviteBids ……I - AwardContraCts - - - / - Manufacture£ Delivery 1II- (a) Towers I Misc.Hatarial - Invitelids /------/- - - Award Contract | - ManufactureA Delivery/… -/--- / IdlEnnineerina Consultants LTJS | I I -InviteOffers ------Appoint Consultants I Ill… _ - Codplete Bidding Doe I Design | /------~--~------| | | | 0 | |

July 1916 2746P

0M6 lua SIR NDMYEPOIJI PROJECT

Preimet ?Avi1ntattan eaai

Year ess I lead = = 1 laL 1 1641

_ s Lint Eraction [ Invite Bids ------Award ContractI--- CompleteErection ------i--i---l--l---l------I I---

-Invite lids/ I I - AwardContract _------/ Manufactureand Delivery _---…------( aSditchd t and Cablesoar /| I - InviteBids / ……… Ill -Award Contract - --- | Manfacture Celiver ------1hi Ena11erin.consultants ISIS) c 1te s ------Appoin Consultants I I i / -Comlete Bidding Doc& Design ------

- Inlite liudsy _ Appoihnt Catineultants I I I I I L-L------

3. KadncinbHaydropater Study --AwurdAppoinit ContrlcConsultants ant ------/-- 24Co6ete rtin…

- Cowlete study I

July1986 2746P~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a TURK[ SIRHYDROJPOAR PROJECT

Praiuct 1 l1l nt!tinn Sehadula

4. Power1 lAeling"ud10w1sua1 Equ1 StLudy lots lanl1111 losl4l los

PpacCodntrctInstall -qu-Pi-nt I-_------

2. Upgrad1ngComputer Facilities I I I I _-Plc - ObtainOrt1QdeoraOuctations Install Equ1ant ---- -Gl_joj...._ .___/= ...... ____C

July 19"6 2746P - 84 - AMUI 3.7 Page 1 of 2

MRKY

SIR IYDROPOWIIPROJECT

Prolect Monitoring Guidelines

1. The monitoring guidelines given below indicate the broad requirements and supplemnt the Borrower's obligations according to the Loan Agreement. These requirements could be modified if circumstances so require. General

2. Records will be maintained giving planned against actual achievements, to be reviewed annually or at agreed intervals, for the following:

(a) Installed and derated generation capacity In MI for each of the power stations and according to types (suech as hydro, thermal);

(b) Energy capability in Gib by station;

(c) Units generated in Glh by station;

(d) Station use in 6Gb by station;

(e) Purchase in Gih from TEK and other sources;

(f) Sales in Gih to TEK and other utilities; (g) Transmission and distribution losses;

(h) Planned and forced outages (by classification) in power stations. and in transaission and distribution networks; (i) Sales in Gib to consumers (by categories);

(j) Number of consumers (by categories);

(k) Quality of supply to the consumers (number of interruptions. durations classified according to causes, and voltage conditions at the consumer end);

(1) Annual system load duration curve;

(a) Plant and load factors and plant availability;

(n) Fuel consumption for each of the units in the power stations; and - 85 - ANNEX3.7 Page 2 of 2

(o) Average tariff for purchase from TEK and average sales tariff to customers.

Proiect luplementation

3. Records vill be maintained, shoving original schedule against actual achievements and supplied to the Bank at agreed intervals on the following aspects:

(a) Procurement action by bid packages (bid specifications, bid invitation, opening of bids, bid evaluation reports, award of contracts and signing of contract documents);

(b) Physical progress according to project components and contracts (highlightingcritical activities);

(c) Actualproject costs and expenditures(local and foreign)and estimated remainingexpenditures (local and foreign);projected on an annualbasis throughproject completion;

(d) Disbursement schedule (for Bank loan and any other loans); (e) Information on problems encountered during implementation (including major mishaps), and expected impact on comuissioning schedule;

(f) Minutes of the meetings and reports of the International Board of Consultants;

(g) Progress report on land acquisitionand resettlementof those affectedby the project;and

(h) Progress report on the environmentalissues connected vith the project. - 86 - AM 4.1

TURY

SIR YDPOWIR PROC

Average Electricity Tariffs. 1962-1986 (TL/kUb)

Average Sales Ixebane Tariff Tariff to Jetvee CEAS Differeoce CEAS Customers sadTEK (A-B) 1982 March 6.05 5.50 .55 June 6.42 5.63 .79 September 6.58 5.87 .71 November 6.79 6.67 .1

Yearly Average 6.43 5.90 .53 1983 June 9.29 7.70 1.59

Yearly Average 8.44 7.31 1.13 1984 January 11.88 11.00 0.88 June 15.42 12.00 3.42 August 15.68 12.65 3.03 November 19.20 13.60 5.60

Yearly Average 15.35 12.35 3.00 1985 January 21.11 16.00 5.11 March 26.90 18.504L 8.40 May 33.734L 22.154L 11.58 June 29.14$L 22.154L 6.99 December 32.41L 25.65zz 6.76

Yearly Averag 30.73 .59 10.14

1986 February 40.41L 29.60" 10.81

/a Including 3.52 TRT tax; excluding 10' VAT. - 87 - AMNEX4.2

TURKEY

SIR HYDROPOWERPROJECT

Summiary of CEAS Tariff Schedule - 1982-1986

Two-Part One-Part Tariff Tariff Eneray Reactive Rnerwy Tariff Date Excess Over Effective Demand Demand Energv Villages Others 0-60S 0-801 801-100% 100I -(TL/kW/Mo)- (TL/IWh) (TLIkVAIJr) -

01-03-82 350 460 4.87 4.12 6.02 - 1.25 2.00 3.50 01-06-82 350 460 5.00 4.25 6.15 - 1.25 2.00 3.50 01-09-82 350 460 5.24 4.49 6.39 - 1.25 2.00 3.50 22-11-82 350 460 6.04 5.29 7.19 - 1.25 2.00 3.50

Over 50S 0.50S payable on all

01-06-83 420 600 6.95 6.60 8.35 - 3.50

01-01-84 609 800 9.80 8.00 11.80 - 4.00 01-02-84 609 800 10.30 8.50 12.30 - 4.00 01-06-84 700 900 13.40 10.00 15.70 - 4.50 22-08-84 700 900 14.05 10.65 16.35 - 4.50 01-10-84 700 900 14.50 11.10 16.80 - 4.50 01-11-84 900 1,200 17.00 12.10 19.30 - 6.00

01-01-85 1,000 1.200 21.00 13.00 23.00 - 6.00 17-02-85 1,000 1,200 21.80 13.80 23.80 - 6.00 01-03-85 1,250 1,450 25.00 15.00 26.50 - 7.00 01-03-85 1,250 1,450 25.80 15.80 27.30 - 7.00 01-04-85 1,550 1,880 29.20 25.30 32.80 - 9.00 02-05-85 1,550 1,880 29.70 25.80 33.30 - 9.00 12-01-85 1,620 1,965 33.20 25.80 36.90 - 12.50 02-01-86 1,782 2,245 37.95 36.90 42.10 - 17.20 - 88 - AlIEa 4.3

TURKEY

SIR HYDROPOWERPROJECT

Example of Submission Made by Cukurora Elektrik A.S. In Support of Application of Tariff Increase (January 1, 1985)

TL MILLION

ESTIMNLED SALES 2,905.00 Gvh

AVERAGE SALE PRICE 20.90 TL/kWh

Sales Revenues 60,714.00

Fuel oil 14,724.00 Purchased energy 20,866.00 Depreciation 2,020.00 Personnelexpenses 2,036.00 Materials & Spare parts 78.00 Maintenance 117.00 Insurance 50.00 Miscellaneous 423.00 Property tax 12.00 Water charges 20.00 Interest 1,560.00 Corporation taz 7,340.00 Required Profit to pay dividends & related taxes 3,666.00 Non-operatingrevenue (500.00)* Foreign exchange loss on principal payments 457.00

TOTAT. 52,869.00

InvestmentFund 7,845.00

TOTAL COSTS RECOVERED FROM REVENUES 6071.0

* Principallylate payment penalties - 89 ANNEX4.4

- UK_e - 1~ - 133

,nunu .1M 0w I=li im I,oSno- nok 1932 1901 155 133 15 1 11 m 1 1 193 1151U

a aid )* 2,.2 2092. 2,.0 2,.0 2UM 311.0 3,4. 3,719. 41. 4, 5504,30 5.W. 3sW GM" A-W ah0^ -) (395 4A4 6.4 .4 153 3L 0 3.3 46. M0 O9AS W1. UW 13 O

- -I 6.3 13.461 19.016 39,3 56CS 12=5 166.792 29,2 236M 311,22 4"7, 63,15 762,1 *1,1

L 011OU 4,6 5AM 7?.312, 16,5I1 1 67, 313 346 4S,5 Ws.= 65,9 V.99 3,1 IN 1,561 4.8 6,12 15,11 3135 MM5 2D 1 3,3 13M103 5,a13 1JI gram ragn_-m 77m 3 1,151 1,3I 2, 3.15 3,. 4,613 5, 6,617 ,2 9.753 13 16F I_wb~svtb 316 3Z 4AN 23 go I, 1.190 1w32 ,1 2W s,2 4,51 5,u 57 _w~f _XXfI a a a 6 a 8 a a 6 1,011 2wW 2,63 2.9 35 55 56 62 79 1 12 i5 1 29 33 438 3 59 4 11 7 11,1 . 1 4 ,15 11,132 179 26 25,51627 4w 5,3 1is ;1ffi_~~~~~~i ,SDx6 I&169 O,IU sd 12W1 M%1ge X%M 3W, Svas :164,11 1.M ,l,D 1,5 9,15 32.6 3k= 46J1 5,6 6 3 &W MM12 11,3 2,1m 2.79 .bm- m 466 _ 533 113 2,3 ,419 _ -_ _ - _ - - unit. Aj. im - - - (5,35 33) (36) C3231) (237) (22 075 (135 (1,95) (.25 as 9a 1,1.43 1.6 2,6 6,433 31.,S 2 1 4.510 So= a,3m 1.o 1 , M16, 1,7 M, k.-.a (mdiw 451 71 7s 1 N 1,1 1,3 1,315 1,3I 1,1 19,37 19,3 11 17.1 hetm1 1,013 915 1,313 5,46 36 3,5 40,W 51.92 D5,1 3,76 U,3 11,30 M, 31,0 _inin~e ~m 53 3539 Gli 2. 142 4,34 5,37M O 0 0 0 5,30 79.43 3F 31- 4-% G-s9 -&, -U9 MaM Z uns 516 1,W 3.38 16, 22,719 4l,6a 65,3 16,0 1,3M 14J1,95 Oiv~ 2116 413 53 1,55 2, 3,W2 4, D SA, 7.65 9.01 12,65 160 216 3,150 313 1M 2S 1,741 3,112 19.=9 A5,= 41,=3 ,IV rW.7= 6f3 13,0 U m 11.9 gmof Ulm 'I - 90 - AN=NC4.5

U-:

a~ DAJ. A -

19K-

03m or L, airn zut pdm) 155 DE 1 Ila ISO I= 10 13 33 130 191 192 111 19m

Findi Am ian%utim 7,11 9,M 12,072 14,366 15,71 1,435 2),32 5,107 3,61 34.145 179,W 330519 34,8 363,4 3m: Lcc.FsdMti 1,563 2' 3,41 4,5 6210 7.5U % 10,MS 32,9% ,W a,u 30,3 3km .. m at Fn ANN in C w. S,61 6,13 9,45 9,514 8,1D7 9,83 U1,336 13,24 15,72 11,69Q 15,630 310,3D3 33.195 32, MaS in 1m i7 3% AM 16 2,5 29,36 59, 73117,313 21S,61 3 10 33,291 45,53 0 516,ef 0.;. Wm hmM 13 D3s 2 5z 1,15 1,M 1,62 1391 2,3 2,7 3,221 3,731 4,9 mm Vl AM= 5,3W4 7,4 10,4 9,5 X32 41W 72,491 132,2 M 33,6 646.9 79,3 61,4

Ocat Amao iSb 6435 39 46 4 29. 32, 45,169 543 42,4 296 13,52= 161 ,46M 45, Ama.t hl.ibble 2,760 3,30 4,01 7,50 345 23,21 313.9 42U,3 3. 71,191 91n1 115779 1,4 13,4 1mmda so0 617 66 1,65 2.249 2,9 3,6S 4C31 5.30 6,210 7,33 310 km U1 * 5 US 346 4U0 2,3 3,456 4, 5,292 6,o2 7,3 SA62 3,6 11,96 13,31 ML a13, 4,4 5,59 33,775 4,31 61,9 7 13,73 157 ,3l 113,712 12,10 15,15O 13,161 O0, L. 9,5 12,1t0 3742 D,763 60,919 1119 15,=36 23%,03232,7W 4^73 66,315 79.31 3,31 - ~ ------

ld-b aoilp1 400 AN 1,2 1,M 3,3W 7,0 32,0 15,01 , 310, 40,6 60,6 75,0 0," 490 no0 2 1,136 3,37 1, 31,41 63,30 10,413 1,0 23,61 35 1 46 ,36 35 asm es 36 1,1G6 3, 36,3 22,m79 30,2 46D 65,9z 3J,70 3,9 1, 35, 34191

ta biq 1.411 1,319 2,30 5,662 23,915 47,63 w6,00 12,3 1wow 25,3 3,1 1 3W3,3 6 S 7I,5

Ibauo SM5 6,JU 9,M 13,517 15,2 5,3 425 7129 2,33 3 1,7, 19,94 1915 11,510 1om1 30 74 7%3 340 22 DI 336 35 50 0 2,%=01110 0 @ Me.* 5,315 7,3 IO,W 13,71 15,96o 21,07 42,73 n,3v 132,3 337 2,6715 5914 14 11 31,5 1_: A Pti0 46 U 1,29 ,=2 1,4 261 3,5 3,3 3.79 18,36 30,634 3133 2O6M25 amtmw a0|_bdiom St 60 ------_ _ _

Rl zq-tom mt4,950 6,760 9,512 12,6 3,5 342 39,7C5 67,912 1,9 3,3 1,7 6 3,

a . Ii1,13 3,04 0 3,On 18,61 23,40 3,231 35,3 42, 49,75 53,650 665 73,19 U, m 1mt of LT 1ik 416 31. 1,'3 1.2 1,46 2,616 3,3 34 3,s 18,1 30,3 333 2,M1 5 -m & Odw 1.30 1,679 1, 647 3, 4,5W 563 6,7 ,1133 9,573 11.21 13,1 15,l15 3,31 Ind ir. bilidtin 3,59 3.51 3,310 6.6 21,112 30,52L 37,54 45,2 5 707.7,512 10 119,D0 119,652 0 IML MUMT4 37A5m 935__ 32,14_ 15.74- 23,763-_- 36,91_-- 192,54 35.VG6_- 26,0O2 352,50 454,7_ 631._ 7;95,-_ 93,35 1,03,43- 1W- -

IU - 19% OgIlim of UL, Le amW plem) la"

19N IOU 191 165 S 136 11W 11W I9 1980 199 11m 19 131 comm (D) on= m (Iin mp.t) 167 1,3 1131 4,317 1,23 24,252 32,015 4,OX 07,m21 82,90 101,90 162,99 171,517 159,117 OS0 G7I isloto nebta 45 7M1 1,140 1,15S 1,552 1,302 1,512 1,M 2,111 2,513 8.552 6.37s 84 8IS U42 2

Own IrmaCu t 1,415 2,05 3,011 5,43 1,W7 3554 33,52 40,781 60,332 1,453 110.460 169,0 179.1 118.3 U ?a

bact)1MUS OmitAmtrb. t(U) (31) 469 (58) 0 0 0 0 0 0 0 0 0 0 0 a NWOm cjp_i* 0 0 No 0 2,1 3.80 4,1o 3,000 3.S8l 1o0.1 10.0 20.6 35.10 IS,IIIO s n 1mi (IL) endue 3l80 Ns a2 0 0 0 0 0 a 0 s.ma 0s a fe im 8fit 0 0 0 0 0 7I'm 1O M 53.3 37.3 18W779 1116 0 0 145 2In 0 to ". Uj. - km JJ46 2,331 3.On 5,19 3,403 64,46S S.6 0."I 11,10 0,306 u2, ns.m 252,W 1,DM 13 to - _ _ _ .1 ------

2,41S 4,749 &,9S 9,09 85, 42,0U 596.5 5,1 11.7M 1W,.256 16,00 221,31 214, M0,32 127 INS _

66

sit vja(all cm ) 0 0 0 0 3,5S 2A1R1 :8,509 52,06 66,194 56,979 30,0 14,W20 0 0 2U2 D11mim twoject 0 0 0 0 0 0 0 0 32,769 60,650 97,730 107,3 91,S5 72,774 463 3X thr S347 498 737 1.291 93 6.449 3,735 4,594 5,478 9.615 15,00 17.53 20.351 23,3 107 91 h"rop c. Aj. - km 1,461 2,231 3,021 0 0 798 2.575 4,612 8,671 I2,25 0 0 0 0 2 9 2 t Tb*al 2,003 2,729 3,758 5,21 3,619 2z,4 32,a9 61,80 113,312 539,457 14,741 139,161 112.56 96,162 57 6C

r. MS.tUA u (405) (107) (27) - - ._0 _ Tnr. LaOtr A56 - 149 5 592 256 277 277 332 359 42 444 5S 5D 3 4K *i Senic Frimlpl 249 50N 350 1,81 1,334 2,176 2,616 3,016 3,405 3,716 18,336 30,G34 3.133 25,04 1 1 lanot 40 716 73 "99 957 1,473 ,413 1,375 1,2% 1,110 19,917 19,40 17,115 17,198 a 42 T71a Met 8s.ice 650 1,222 1,131 2,65 2,291 3,649 4,119 4,3M 4.6" 4,975 30,153 50., 55,32 42,m 211 L1z D(v1d{ Pi a 1a9 248 41 589 I,5' 2,45S 3,240 4,600 5,410 7,000 9,000 12.600 16,010 21,400 82 n InM(Dec) In WIC 317 83 1,517 1,I45 (6,464) 3,961 3,311 4.,13 6,624 8,961 12,14U IS,5S 20,358 24,184 100 a iac(Dh) ian O 113 152 129 4,317 2.341 3,250 12,75 8,656 (11,5W) (13,496) (15,423) 3,174 12,77 15,9U1 16 IS _ _ - ______.___ TOMLAFMUCJM; 3,415 4,749 6,996 9,959 25,934 4U,670 56,56 8,399 118,781 147.56 16I 4C 25,202 1',244 0,3111 1277 lX: 5 14-_ _* - _ - 92 -

ANNEX4.7

Sm -vm PXU

cmmm iMMS.

#Atmi 19m z98 ur Dr 155 I9SP 195 198 1980 1991 19g92 1993 1599 awroa *1tio 1.2 1.3 I7 2.3 2.1 2.0 2.2 2.3 2.0 1. 1.2 1.3 1.6 L Dsk Sowim n1P 7.3 1J 2.7 1.9 82 7.0 3 1.3 16. 17.2 LS9 3. 3.3 3.9 J_cenul Gob 16mrsti IAS -9JZ 0.1! 66. 592. 52.11 69.5 5L. 66.4 4L3 35.E 65.4 78N 5.6 _I1Vk~.IqdtyCu.~ zuiMlo 17.d 7. 76.3 66.1 3631 33.5 332X 353 363Z 34.3 33.3 253 2. 1La. 14-5 - 93 - ANNEX4.8 Page 1 of 2

TURKEY

SIR HYDROPOWERPROJECT

Assumptions used in Financial Forecasts

1. The forecasts were made in Turkish Lira (TL) in current prices applying the following annual inflation rates:

1986 1987 1988 1989 1990 1991 1992/93 1994

Local () 30 25 20 20 18 18 16 14 Foreign (X) 7.2 6.8 6.8 7.0 7.1 4.0 4.0 4.0

The exchange rate for june 1986 (TL 700 = US$1) was used as a base rate. In order not to understate the TL equivalent of foreign expenditures and debt Service payments, it was assumed that depreciation of the TL wou:ld occur in line with the ratio between forecast local and international inflation rates.

2. Changes in the legal status of CEAS which would involve an increase in its scope of activities (such as the transfer to CEAS of regional electricity distribution assets) have not been taken into account.

3. The sales forecast, developed by CEAS, shows a growth in demand averaging 10i/year over the 1986-1994 period.

4. The average revenue earned by CEAS on electr4 city sales would remain at the February 1986 level in real terms (TL 38.80/kWh, excluding Value Added Tax).

5. CEAS would be able to purchase from TEK as bulk supply adequate electricityto make up the residual between CEAS own generationand the regional sales forecast. The tariff for exchange of bulk supply between CEAS and TEK would be 85% of the CEAS sales tariff.

6. Gross generation of Sir would be 363 GWh in 1991 and 725 GWh from 1992 to 1994.

7. Other operating expenses would increase with inflation. Additional operating expenses attributable to the Sir HydropowerPlant starting in 1991, are estimatedas follows (millions of TL, in mid-1986 prices):

Personnel 495 Maintenance 290 Insurance 50 - 94 - ANNEX 4.8 Page 2 of 2

Only 501 of these operating expenses are included in 1991, the first year of Sir conmmercial operation.

8. Fuel expenses are based on gross annual generation of 544 GWh of the Mersin Thermal plant, requiring 173,000 tons of fuel oil/year (assuming specific consumptionof 318 g/kWh). Since the results of the feasibility study for rehabilitationand/or conversion of Mersin are not yet known, no allowance has been made for related investments,or for changes in Mersin fuel efficiency.

9. Interest during constructionon the Sir Hydropower project will be capitalizedup to March 1991.

10. Dividends would be paid out at twice the level of annual inflation (i.e., if inflation is 20Z, declared dividends would be equivalelitto 401 of the mid-year book value of paid-in share capital).

11. The interest rate for the proposed World Bank loan for the Sir project is assumed to average 8.5Z.

12. Principal and interest payments on foreign currency denominated loans are converted into TL at the anticipated exchange rate (see para. 1 above). - 95 - AINE1 4.9 Page 1 of 2

TURKEY

SIR HYDROPOWERPROJECT

Supply Tariff of TEK's Generation and Transmission Enterprise as of 02101/86 (Summary of Sections I, II and IV)

The following tariffs exclude aniy tax or dutv that TEK must collect as intermediary.

1. Active EnerRy

(a) Two-Part Tariff

(i) Demand Charge:

a. TL 21,3841kW/yr or TL 1,782/kW/month of contracted power.

b. TL 2,160/kW/month for power consumed in excess of the contracted power.

c. Section (b) above does not apply to TEK's Distribution enterprises, nor to the concessionary companies (e.g., CEAS, KEPEZ).

(ii) Energy Charge:

a. Uniform tariff: TL 37.95/kWh

b. Time-of-day tariff (applicable to customers with a contracted power greater than 0.7 MW):

TL 49.25/kWh during peak hours TL 37.95/kWh during day hours TL 28.15/kWh during night hours

(b) Single-Term Tariff

(i) TL 42.10/kWh for all customers except villages.

(ii) TL 26.80/kWh for villages.

2. Reactive Enermy

(a) No charge for the consumption of reactive energy below 50% of tte active energy consumed.

(b) TL 17.20/kVARh of react±4 nergy above 50X of the active energy consumed. -96 - ANNEX 4.9 Page 2 of 2

3. General Conditions

(a) The above tariffs will be applied by TEK's Generation and Transmission Enterprise to its direct customers.

(b) The above tariffs will be applied to TEK's distribution enterprises as follows: (i) with a lOX discount by the concessionary companies (e.g., CEAS, KEPEZ); and (ii) at a rate to be determined by TEK's Board of Directors by TEK's Generation and Transmission Enterprise.

Special tariffs are to be applied to certain industrial development zones. -97 - ANNEX5.1

TURKEY

SIR HYDROPOWERPROJECT

Comparative generation costs (US cents /kWh)

Plant Factor 90% 801 75Z 70% 65% 601 50Z 401 301 20%

Combustion turbine 7.2 7.3 7.4 7.4 7.5 7.6 7.7 8.0 8.5 9.4 Combined cycle 5.5 5.6 5.7 5.7 5.8 5.9 6.2 6.6 7.2 8.5 Fuel Oil 8.0 8.2 8.3 8.5 8.6 8.8 9.3 10.1 11.3 13.7 Hard Coal 6.9 7.2 7.4 7.6 7.8 8.1 8.8 9.9 11.7 15.2 Lignite 6.1 6.4 6.6 6.9 7.2 7.5 8.3 9.6 11.7 16.0 Nuclear 5.3 5.9 6.3 6.7 7.1 7.7 9.1 11.2 14.7 21.8

Assumptions: Discount rate: 12S

Plant life : Fuel Oil, Coal, Lignite, Nuclear = 30 years Combined Cycle = 25 years Combustion Turbine = 20 years

Plant Investment Cost (including interest during construction):

(US$/kW)

Combustion turbine 337 Combined cycle 491 Fuel oil 1026 Hard coal 1355 Lignite 1625 Nuclear 2654

Bank projections for oil and coal price escalationwere taken for calculation of the average incrementalcost of fuel.

Source: Bank Reports 5021-TU, 5431-TU, 5572-TU and 5774-TU 9-98- ANNEX 5.2 Page 1 of 3

TURKEY

SIR HYDROPOWER PROJECT

Rate of Return Analysis

Return on the National Investment Program

1. The rate of return analysis in page 3 of this annex was carried out on the basis that the project forms an integral part of the national 1985-1995 expansion program for the power subsector. The program is estimated to have an economic rate of return of 11.5Z, compared to an opportunity cost of capital of 12Z. Key assumptions are presented below.

2. Benefits. Incremental revenues plus net fuel savings derived from investment in improved efficiency of thermal plants were taken as the benefits of the program. Electricity tariffs were assumed to increase at regular intervals to reach and maintain LRMC, and to ensure an adequate level of self-financing for the power subsector, reflecting the Government's commitment to reduce public expendf.tures. Tariffs include taxes to reflect the prices faced by consumers.-' The average revenue (in 1985 prices) would be as follows:

1985 1986 1987 1988 1989 1990 & Onwards

TL/kWh 30.55 31.04 31.88 32.58 33.36 33.82

Net fuel savings were calculated on the basis that investment in improved efficiency of existing therml plants (TuncbilekA and B, Anbarli, Seyitomer, Soma B and Yatagan) would increase their average efficiency by one percentage point as a minimum and result in an annual net fuel savings of TL 5.9 billion starting in 1991. Given the fact that these plants would be retired at different dates, net fuel savings would progressively diminish over the entire 30-year period considered for the life of the entire program.

1/ This includes VAT (10X) and a telecommunicationstax going to the TRT (3.5X). VAT presents some difficultiesfor economic analysis since for industries (which use electricity as an intermediategood) a tax rebate will be given. However, since such rebates may take upwards of one year, the "effective price" faced by these consumers is estimated to include VAT. Excluding VAT in the analysis results in a rate of return of 10.341. - 99 - ANNEX5.2 Page 2 of 3

3. Capital and OPerating Costs. The capital costs of the national expansion program were estimated on the basis of discussions in connection with a joint Bank-Government power subsector investment review carried out in ea ly-1985. Operation and maintenance costs were estimated at 1X of cumulative capital costs for generation and transmission, and at 2% for distribution.

4. Fuel Costs. The incremental generation from thermal plants was taken from the projected balance of energy and capacity for TEK (Annex 2.1). The cost of fuel was estimated on the basis of the following assumptions:

(a) Specific consumption (ton/GWh):

- lignite-fired steam plants: 1,450 (for a lignite with an average calorific value of 1,725 kcal/kg);

- coal-fired steam plants: 730 (for a coal with an average calorific value of 4,200 kcal/kg);

- gas-fired combustion turbines: 302;

- gas-fired combined cycle plants: 226.

(b) Economic cost of fuels (US$/ton):

- lignite: 20 (equal to the weighted average long-run marginal cost of lignite in Turkey); - coal: 60 (equal to the estimated CIF price of imported coal); - natural gas: 180 (equal to 90X of the border price of fuel oil).

5. All benefits and costs were expressed in January 1985 prices, with an exchange rate of TL 450/US$. The life of the program was taken at 30 years. - 100 _

AME 5.2 - Page 3 of 3

h.aE 3 h _ hiz Raso litmCa Tu.) Po

- . }T - - - c - r T -

1993 37,30 0.0 37.30 451.S80 201.656 93.12 49.00 4,53 1.017 1,963 21A8 MM,9 (693,621) 195 192.691 0.0 192.696 560,962 140,6? 118.750 59,091 10,127 2,423 2.169 91,901 9.008t7 (79.391) 1917 426.433 0.0 46;,433 517.817 128.38 143.750 64.773 15.306 3.707 3.606 172,55 1,069.69 (63,2W1) Isis 697,178 O.D 6971 524.7B8 144,011 181.Z5 48,D 2D,54 5,14B 5,419 26,455 1.175.964 (473,7861 1989 93.466 0.0 933.466 49622 180055 2Zb00 51.35 25.516 7.028 7,669 275,65. 1.276,329 (462,863) 1990 916,319 0.0 916,319 521.142 19.94 237,375 53.968 30,72B 9.08 10,03 215,40 1.355.65 (439.3) 1991 1,051,269 58941 1.0579.162 5M273 195.170 237.00 50,000 36.403 10,977 2413 353.002 1,418.$ (361.776) 1992 1.192.47B 5,893.11.198.31 515,427 196,3 237.WD 50.00 42,010 12.90 14,73 414 1,412,5 (28,44) 1993 1.33.618 5.893.1 1,389.511 505.474 19i.0O 237.000 50,OOD 47U64 14,90 17,153 45131 1,518,939 (129.428) 1994 1.59.476 5.83.1 1.605369 499.516 19.0 237.000 50,0 52,0 16.50 19-5 458946159,5 75,44 1995 1.719.411 5.8934 1.725,304 490.0c 195,000 231.0M 5D,000 56,960 1,83s 21,393 45946 1.529,618 195,68 1996 1,765,532 5,8 .1,771,.425 0 0 0 0 56.960 13,52D 21,393 468,566 55.618 1,224.W7 1997 1.761,751 5,736.410.413 0 0 0 0 56,960 13.D 21., 458,946 556.6181,213170 199 1,763,942 5,736.4 1,769.679 0 0 0 0 56,60 MM 21.9 48946 556,18 1213,061 1999 I.7S3,16I 5,736.4 1,768,398 0 0 0 0 56,960 13,.0 21,33 45946 556.618 1212,281 21M 1,762,409 5,736.4 1,768,145 0 0 0 0 56,50O 18,8Z0 21693 458.9M 55.618 1,211,527 2001 1,761.628 3,67.4 1764.95 0 0 0 0 56.960 18.50 21,3 458,946 5566181,23377 m02 1,760,347 3,3.4 1.764,214 0 0 0 0 56,960 18,580 21,893 58.966 556,6181217,596 2103 1.760.096 3,367A1763,461 0 0 0 0 56,960 18,50 21.39 458,946 556,6181,21,343 2104 1,759,3n 3,367.41,762,738 0 0 0 0 56,960 1s8,5 21.893 458,s9 551.618 1,6.120 2105 1.756,590 3,367.41,761,957 0 0 0 0 56,960 18,s5 21,893 458946 556.618 1.5s,339 2M6 1.75765 2,247.2 1760,112 0 0 0 0 5,9S60 18s.0 219 4C58,946 556,618 1,23,49 207 1,757865 2,2S7.2 1.760,112 0 0 0 0 56,960 18,50 21,893 458,.96 556,6181.203,49 2108 1.757,s5 2,W.2 1,760,112 0 0 0 0 56,960 18,50 21,893 458.946 55,618 1,213494 2109 1,757,65 2,247.2 1,760,112 0 0 0 0 56,960 13.,5 21,895 458,946 556.618 1,213.49 211 1.757855 2,247.2 1,760,112 0 0 0 0 56.960 18,20 21,893 458966 556,618 1,03,494 2D1 1.757,865 1,566.01,759,411 0 0 0 0 %56.0 18,50 21.8 458.9546 556.618 1,al2,793 21D2 1,757,565 1566.0 1,759,411 0 0 0 0 56,96 18.0 21.393 458.966 55S16181,32,793 2013 1.757.565 1.546.0 1.759,411 0 0 0 0 56960 18,820 21,393 458,946 556,6111,212,793 2D14 1,757,55 1,5(6.0 1,759,411 0 0 0 0 56.960 1s8= 21,893 458,966 556,618 1,212,793

Fi_: zorine Rseof C*: U.5 19 -S5 - 101 - AN.-FX6.1 Page 1 of 2

TURKEY

SIR HYDROPOWER PROJECT

Selected Documents and Data Available in the Proiect File

A. Sir Hydroelectric Power Proiect

A.1 Feasibility Studies and Preliminary Design, Energoproject (20 volumes)

A.2 Revised Loan Application Report (May 1984)

A.3 Reports by Mr. L. Wolofsky, Consulting Geologist - July 1984 and September 1985

A.4 Reports by Prof. Eng. J.L. Serafim Civil Engineering Consultant - October 30, 1984 and September 1985

A.5 EnvironmentalReport on Sir and Dukesme Dam Projects, Cukurova University Faculty of Agriculture (September 1984)

A.6 Consulting Engineer and Construction Supervisor Services of the Sir Dam and HPP, Contract with Coyne et Bellier (5/23185)

A.7 Sir Dam and Hydroelectric Power Plant - Engineering Report (July 1985), Coyne et Bellier and Akai.

A.8 Future Development of CEAS Network and Related Investment Scheduling (June 1985)

B. Economic Aspects

B.1 Description Report about the Electrification of Adana City, Counties, and Village (Toroslar Region)

B.2 Load Forecasts by CEAS

C. Financial Aspects and Legal AsDects

C.1 CEAS Annual Reports, 1983 and 1984 (English and Turkish)

C.2 Report on Financial and Legal Situation of CEAS, by Robert Smith- Consultant, 2/6/85.

C.3 Letter from CEAS to the MENR, Giving Justification for Making CEAS an Entrusted Company( 3/26/85

C.4 Letter from CEAS to the Prime Minister, Giving Justification for Making CEAS an Entrusted Company, 3/22/85 - 102 - ANNEX 6.1 Page 2 of 2

C.5 Law No. 3096, Concerning the Entrusting of Electrical Generation, Transmission, and Distribution and Co merce to Institutions Other Than TEK

C.6 Working Papers for Financial Forecasts.

July 1986 (2746P) BULGARIA ,-N 32

~~~~~~- h CcehOIa -- - GREECE U * ,-' -

~~~~~~~~~~0~ ~ ~ 4L t y@a <__ 'S--- ~~~~~~~~----9

I tc. ' ~~~~n ,,, \ sS 's . ., .~~0.00 *1

3.2' - - 3 -- I I ~~~~~~~~~~~t ., ------y

So. ,. . S .,D..

-36 j _ ^; r~~~ _

; o m;: ~~2.- )~~~~~~~~~ ma -6D ~ ~~~~~~~~-' 9e, ot 2 \.....v.

K~~~~~~~~~~~~ Y P R U n____* ~ ~ ~ I-- .,m . "__._~ _ * 0. ~ ___.t_~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 1 __e___~~~~~~~~~~~~~~~~~~ _6_,~~~~~~~~~~~~~~~~~~~~~~~~~~~~ _

36_ _ D _~~~~~~~~~~~~~~~~~~~~~~~~~~~~*". ___~~~~~~~~~~~~~~~~~~~~~~~ __ ___w~~~~~~~~~~~~~~~~~~~~~~~~~_~~~0 De_l_e BO 94

_,____~~~ ~~ ~ ~YP U *e -tOES5)X02CROCsbn

_-_.eI . - 28--- IBRD 19443

- ^~~~--- ~~~- ~~,' U 5 S R

4~~~~~~~04 -

O..wI~~~~~~~~~~~~~~~G- U 5 5 R |

E- bo..O ¢

% ~~~~D-mrdop %9.-- \ S iit4-a._ e-.\ L ISLAMIC \7REPUBLIC OF IRAN

C"h-~~~~~~~~~~~~~~~~~~~~~~~~~~~-

if0wHosao w.i. / Ad-m~~

F- I/

-~~~~~~~ (~~~~~~~~~~~~TURKEY 36L SIR HYDROPOWER PROJECT MAIN GENERATION AND TRANSMISSION SYSTEM AS OF JANUARY 1985 SYRIAN ARAB REPUBLIC POWER PLA5NTS TRANSFORMERSTATIONS r.-ERMAL -0RO *. In operolion * In operaton * Underconstruct-on ond future * Urnder construction and future - Project TRANSMISSIONLINES 380kW '34 kV - - In operotion - nternational boundaries

- - ~~Underconstruction and fvture ON-- Project

36W J* 440 JUNE 1986 OTHER POWERCOMPANIES C. E A S. UNDERPLAMNNG UNDER PLANMNG IN OR 0N OR OPERATON CONSWRUCT1ON OFERAMO cONSlRUCnON PROJECr Power Plants: * Thermal : Cuk ,J O HdryOm Proii Nuclear - Inter Transmission Lines: 380 kV : .0 *n .- ~~~~~~~~~~~~154kV

See Abte *66-5 kV Other voltages Substafions: A A Existing A A New

06kv-ov ond omrer wvopg excVt 38kV T,orwms.an Iines Wfo Power Cofm7rdes o.ter marn CEAS ore not shoV*w-on Ihasmoo >. -=

^,'A -G, e

7O~~AV

. -i tw A.. -

.7 -~~~~~~~~~~~~~~~

~t~-Dm~,> - =f =dge ;on .h _ ctSlA in th r~7eo ~ . 4>s. ** golik- =:'OA"~10: ;,23 - A0 40 50 60 70 80 90 100A - , * * b , ,, aa VW S s IBRD19 TURKEY SIR HYDROPOWERPROJECT TRANSMISSIONSYSTEM Cukurova Region

~~/2

5 I1103

SolmDe?~~~~/ */ 3 A, -' Kxm I/

A ri Iw *A L A-- T ~~ ~~/AL -. ,V2A lX f\|

t r~~~~a *-/ - .co

tX w 9 2a.5B,t_w/Nt

\ ( Z r--- iFevu AceYh />B

; -- -- / V U1r

- P / A 0" - < 5R !1;_z 2 xmi/ /^ (_ A

- -D t. r. _- .- -~~~~~v -kC RIAN ARABSb% REPUBLIC

> 4:S ' e ;>\ / - /~~~~~ ~~ ~ ' \ A zo t rr SYRIANARAB REPUBLIC~~EPMI

.ck -; ; @ / _^ rJv>e \>>_9 -- -'> Sa I H

/~ ( . , ^ xg 5>E -. -~~~( ROA~~~MA~ ~ ~ ~ ~ v-'cO

OFR4N '-dF t ~~~~~~~~~b,,,,.,,ic C-OVD--SSAi ~~~~ ~~~~~~ TURKEY~~~~~~~~~~~~~~~LL 1986~~ * ? -C |-RPSC