World Bank Document

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

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