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DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized Not For Public Use

ReportNo. 20a-TU Public Disclosure Authorized

APPRAISAL OF THE ISTANBUL POWER DISTRIBUTION PROJECT

ISTANBUL ELECTRICITY,TRAMWAYAND TUNNEL COMPANY(IETT)

TURKEY Public Disclosure Authorized

April 6, 1973

Europe, Middle East and North Afric'a Public Utilities Projects Division Public Disclosure Authorized

This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept respor sibility for the accuracy or completeness of the report.

CURRENCYEQUIVALENTS

Turkish Lira (LT) 14 = us$a.OO Turkish Lira (LT) 1.00 - 100 kurus = USP7.1 Turkish Kurus 1.00 = US30.0?1

IETT's financial year ends December 31

WEIjGHTSAND MEASURES kW = kilowatt (1,000 W) F,.4 = megawatt (1,000 W) kWh = kilowatt hour m h = Gigawatt hour (1 million kWh) kV = kilovolt (1,000 V) Kilometers (km) 1.0 = 0.6214 miles (ni) Meters (m) 1.0 3.281 feet (ft) Cubic meter (m3)1.0 = 3.315 cubic feet (c)

LIST OF LBBREVIATIONS

TEK - Turkish ElectricityAuthority EdF - Electricitede France SOFRELEC - Societe Francaise d'Etudes et de RealisationsdWEquipment Electrique IETT - Istanbul Electricity,Tramway and Tunnel Company REPUBLIC OF TURKEY

ISTANBUL ELECTRICITY, TRAMWAYAND TUNNEL COMPANY(IETT)

APPRAISAL OF TVE ISTANBUL P01ER DISTRIBUTION PROJECT

TABLE OF CONTENTS

Page No.

SU+MARY AND CONCLUSIONS ...... i-ii

1. INTRODUCTION ...... , I

General ...... I Istanbul Urban D)evelopment- Strategy and Objectives 2

2. THE ECONOIY AND T13E POWER SECTOR ...... 4

The Economy ...... 4 Energy Resources ...... 4 The Power Sector ...... 4

3. THE BORRO0TWFRAND THE BENEFICIARY ...... 6

History and Fleld of Operations of IETT ...... 6 IETT's Leoa' Status ...... 7 IETT's Fn-tue ...... 8 IETT's Grganization ...... 8 Existing Facilities - Electricity ...... 10 Existing System Operation ...... 10

4. TIE POWZR MARKET ...... 12

System Growth - Past and Forecast ...... 12 Actual Sales, 1967-1971 ...... 13 Forecast Sa2Is, 1972-1976 .l. 14

5. TIIE PROJECT ...... 15

Project Description .-...... 15 Cost Estimates ...... 16 Procurement and Disbursements ...... 17 Consulting Services ...... 18 Environment ...... 19

6. JUSTIFICATION ...... 20

Ceneral ...... 20 System Outages ...... 20 Economic Rate of Return ...... 20

This report was prepared by Messrs. E.A. Minnig, A.J.D. Hutchins and Y.P. Buphomene, and is based on information provided by IETT, and field mission of June/July 1972. -2-

Table of Contents (Continued)

7. FINANCIAL ASPECTS ...... 21

IETT's Financial Viability - General ...... 21 Present Accounts - Form ...... Accounting Methods ...... 21 Auditors ...... 22 Insurance ...... 22 Past Earnings ...... 22 Past Balance Shiects ...... 23 Overall Forecast Trading Results ...... 24 Electricity Department Forecast Operating Results .. 24 Other Departn-ental Forecast Operating and Trading Results ...... 25 Financing Plan, 1972-1976 ...... 26 rovernment/Municipal Assistance ...... 27 Forecast Balance Sheets ...... 28 Financial Covenants ...... 28

8. RECO'MENDATIONS ...... 30

LIST OF ANI,EXES

1. Basic Economic Data - CNV, etc. 2. IETT's legislation and present de facto status. 3. Transport;

Page 1 Description and statistics Page 5 Actual and forecast Balance Sheets Page 6 Actual and forecast Income Statements Page 7 Sources and Applications of Funds

.iap 1014; IETT's Transport System

4. Cas:

Pa-e 1 Description and statistics Page 4 Actual and forecast Balance Sheets Page 4 Sources and Applica.tionsof Funds. Page ' Actual and forecast Income Statements

Map 10145 Istanbut's Cas Systems -3-

5. Map 10143 - IETT's Service Area 6. IETT - Gz.ganigram (7049(R)) 7. IETT - hlumberof employees B. Electricity- Existing Facilities 9. Electricity- Actual and forecast system statistics:

Page 1 Statistics- actual and forecast 1967-1976 Page 2 Diagram - 1967-1976

10. Electricity- Maximum demant by area - Actual and forecast 1967-1976 11. Electricity- Sales and revenues by tariff classification:

Page 1 Actual 1967-1971 Page 2 Forecast 1972-1976

12. Electricity- IETT's Tariffs 13. Elerctricity- Tariffs for purchased power from TEK 14. Map .1'1'6- Lxisting and projected primary electricitydistribution facilities 15. Quantities and cost estimates of the Project and loan portion 16. DisbursementSchedule 17. Electricity- Outage statistics 1967-1971 18. Electricity Estimated loss to industry in 1971 due to power outages 19. Actual Income Statements 1969-1971- Consolidatedand Departmental 20. Actual and Forecast Balance Sheets 1969-1976- Consolidatedand Departmental 21. IFTT Summary of Forecast Operating Results - 1972-1976- Consolidated and Departmental 22. Electricity- Forecast Inccme Statements 1972-1976 23. lETT - Sources and Applicacionsof Funds 1972-1976 24. Electricity- 3ources and Applicationsof Funds 1972-1976 25. Government/MlunicipalAssistance for IETT and some suggested methods of providing this 26. Electricity- Actual and Forecast Balance Sheets 1972-1976 27. IleadOffice - Actual and Forecast Balance Sheets 1972-1976 28. Major assumptions used as the basis for the financial forecasts 29. Terms of Reference- Studies REPUBLIC OF TURKEY

ISTANBULEIECTRICITY, TRAMWAYAND TUNNELCOMPANY (IETT)

APPRAISAL OF THE ISTANBULPOAER DISTRIBUTION PROJECT

SUMMARYAND CONTCLUSIONS i. This report covers the appraisal of a power distribution project of the Istanbul Electricity, Tramway and Tunnel Company (IETT). The Project comprises the last two years of IETT's constructionprogram for 1972 through 1975, and the proposed loan would finance the foreign exchange cost of the Project together with certai-n consulting services. ii. IETT, created in 1939 by Law 3645, is a part of the Municipality of Istanbul but har a separate corporate legal status. It is responsible for all the transport services, for two of the three gas systems and for electricity distribution, all serving Istanbul and a number uf areas outside the Municipality of Istanbul. A major objective of the proposed loan is to encourage institutional changes, including the separation of organization, administration ard financing of the three services after completion of appropriate studies to be financed by the proposed loan and leading to the regior lization of the distribution of electricity throughout the Greater Istanbul Metropolitan Area. iii. The transport and gas activities of IETT have both been incurring increasinigly heavy losses over the past 20 years. These have so far been supported by the surpluses of the electricity department but at the expense of the expansion and rshabilitation of the electricity system, in which investment has been inadequate. This has resulted in periodic poor quality suppl;- with low voltage and an unacceptably high and increasing number of outages. The Project is designed to reduce these by meeting IETT's most urgent system requirements. A power market study, which will not be financed from the loan as it is to be undertakenby the Government, is included in the Project to deal with the period 1976-1985. This long-rangeplanning stud, is to be coordinatedwith the other onlgoing urban developmentplanning for Istanbul. iv. In its present form, with the increasingtransport and gas losses expected to continue until these activities can be reorganized,IETT's financial situation, already precarious, is not viable in the future. By itself the electricity operation is viable and profitable at present tariff levels, which the loan would require to be maintained through 1976, and is expected to continue so during the forecast period pending reorganization. IETT's overall financing plan however needs substantial assistance .rom the Government which has agreed to provide the necessary ad hoc support to enable IETT to maintain transport and gas services at least at their present -evels, until these services can be reorganizedon a self-supporting basis. By 1971 - ii -

IETT's credit worthiness had become severely damaged because of its accumulated transport and gas losses and the Government has agreed to make appropriate arrangements for the settlement of over-due 1971 accounts payable mainly to the Government and to the Municipality of Istanbul. V. IETT's organization is over-centralized, lack- sufficient competent qualified engirners at many leve]6, and has too high a )roportion of ancillary stafi not directly productive. However, these problems are already the subject of a consultant's study and despite its * ,rtcoming IETT is the only effective power distribution entity presently available for the Istanbul area. Electrtcit- overall planning and operations are suffering because of a dispute between IE,T and the Turkish Electricity Authority (TEK) over jurisdiction in areas outside the municipal boundary. The Government has undertaken that, until a new organization for power distributton throughout the Greater Hetropolitan Area is established, the Government will cont:...ue to permit IETT to distribute electricity in the area presently served by it. This reorganization should be accomplished by not later than December 31, 1974. vi. Despite the serious financial and orgrnizational problems involved, the Project is worthwhile because of the metror,ol an area's urgent need for a more efficient and reliable power supply ant, in particular, for the coordinated expansion on a region-wide basis of the basic public services, several of which were dealt with under IDA Credit 24-TU. The Project, which is expected to correct some of the deficiencies of IETT, would be a continua- tion of the program started under the Credit and under Loan 844-TU for the Istanbul water supply project; to rationalize the urban development of the Istanbul Yetropolitan Area. vii. The Project would be suitable for a Bank loan of US$1J4 million equivalent for a term of 20 years, including a grace period of 3-1/2 yrars.

* REPUBLIC OF TURKEY

ISTANBULELECTRICITY, TRAMWAYAND TUNNELCOMPANY (IETT)

APPRAISALOF THE ISTANBULPOWER DISTRIBUTION PROJECT

1. INTRODUCTION

A. GENERAL

1.01 The Government of Turkey, on behalf of the Istanbul Electricity, Tramway and Tunmel Company (IETT), has requested a Bank loan of US$lh.( million equivalent to cover the foreign exchange cost of a Projet W cr.ering the last two years of IETT's 1972-1975 power distribution rpmgram. The Project i.s estimated to cost about US$ho million equivalent.

1.02 The Project is based on a feasibility study c' the 34.5-kV system prepared in 1969 by IETT's consultants, Societe Francaise d'Etudes et de IPealisations d'Equipnent Electrique (SOFRELEC) of Paris, which they updated in 1971 and which was then reviewed and approved by the Turkish Electricity Authority (TEK) and by the Ministrx of Energy and Natural Resources. The proposed loan is limited to the foreign exchange element cf IETT's electricity constructionprogram for 1974 and 1975 and of various studies to determrinethe furm of the IstaabulYetropolitan Area's longer-termelec- tricity, transport and gas organizations. The Project also includes a study, to be undertaken by the Government, of the area's future electricityexpansion and rehabilitation needs for 1976-1985. The transport, electricity and gas studies are to be coordinated with the other ongoing urbar development programming,project preparation and investments. These preparatorystudiics could fo..d the basis of future Bank operations.

B. ISTANBULURBAN DEVELOPMENT - STRATEGYAND OBJECTlVrS

1.03 The Project was identifiedin mid-1970 at the time of the investi- gation by the Bank of Istanbul'surban developmentproblems, and the proposed loan is being consideredin the context of the overall urban development planning for Istanbul,of which IDA Credit 32h-TU and Loan 844-TU are also a part. Credit 324-TU initiated a Bank/IDA strategy for assisting the Gover Dent in the improvement and expansion of Istanbul by initiating appropriate studies to determine priorities and to prepare an integrated urban development program covering selected high-priority projects. The broader objectives of the Bank group assistance in the Istanbul area are to assist the Government to:

(i) improve institutional capabilities in the metropolitan area fo.^integrated planning and the coordinated pre- par2tion and implementation of priority investments;

(ii) provide guidanceand means of control of future urban growth; -2-

(iii) improve levels of urban services, with special attention given to those who are very poorly served or not served at all; and

(iv) provide financial and technical assistance to fill present gaps while encouraging longer run self-sufficiency.

1.04 The areas of development covered by Credit 324-TU include:

(i) the provision of adequate infrastructure ir desi-gnated existing squatter settlements and sites and services projects for low-incomepopulation as an alternativeto squatter settlement;

(ii) developmrent of a new urban cluster for p>, .-ied urban expansion;

(iii) relocationof the existing wholesale food markets;

(iv) a trawfic engineeringand control proJect to improve transport services in the existing networks;

(v) development of procedures for improving ongoing land use and transport decisior making; and

(vi) a wastewater disposal proJect.

1.05 The proposed power distribution loan, like the Istanbul Water Supply Project (844-TU), is directed at the rehabilitation of the existing distribution system and at meeting urgent short-term expansion requirements. At the same time, it lays the groundwork for longer-term investments in the metropolitan area for power distribution and for institutional reforms by including management and power planning studies. The timing of this Project permits early improvements (1974-75) to a ser:vusly deficient existing power distribution system and permits the studies of longer-term (1976-1985) power investments and organizational changes to be closely coordinated 'With overall studies being carried out under Credit 324-TU.

1.06 C;onsultantsare to assist the Government in the preparation of a program of works which will directly serve or provide the prerequisite system for serving many of the highest priority areas and needs, as measured in terms of present deficiencies. As a part of this work TEK will under- take a tariff and power market study under terms acceptable to t'he Borrower and the Bank, which will take into account, inter alia, the needs of the low- income population, locational criteria for industry,the investment plans of other plan implementation agencies, and the plans of the Greater Istanbul Master Plan Bureau for the improvement and expansion of the metropolitan area. 1.07 The proposed loan includes studies by consultants of the organizational, adm-ainistrativeand financial !aspectsof all of IETT's operations. The transport study will be coordinated with the trafiic engineering and control study of Credit 324-TU,and will look into the transport operations of IETT and into the most appropriate organization and method of financ:ing public transport in Istanbul. However, until the consultants' recommendations can be implemented, it is expected that IETT will continue to operate public transport services at a loss. The Government has agreed (see 7.16) to provide the support needed to operate these services during this interim period so as to enable IETT to maintain it's transport operations at least at their present level. The transport study under the loan is to be completed by Jine 30, 1974 and there is to be established as soon as practical thereafter an ippropriate organization and arrangements fox the financ4ng of a public bus transpnrt system fcr the lstanbul urban area (see 5.12(iv)).

1.08 Istanbul has three gas systems under two authorities (see 2.OL4). A review of the gas sector, alio to be financed by the proposed loan, has as its objective the making of recommendations .egarding future operations. This review, to be completed by June 3'^, 1974, would include (i) a gas market survey for 1973 to 1987 to determine future requirements. (ii) s1.udies for the improvements in the present service including a possible integration of all 3 gas systems, (iii) the determination of 4.he investment requirements and justification of coal gas production . against liquifiet' propane gas or other sources of energy (see 5.12(iv)).

1.09 Without prejudging the results of the A spective studies, it aprears likely that the Government should, in consultation with the "unicipa2ity and as soon as possible after the review of the recommendations submitted, establish three financially separate organizations, either indepandent or unider a municipal holding company, with respective resp.:-sibilities bor providing effective and adequate region-wide electricity, tr.-sport and gos services and with each organization provided with sound management and separate Boards. W'ith regard to the electricity sector, three organizational altcrnatives appear to be available to the Government. They are: (i) enlarging the field of IETT's activitiesto include the Greater Istanbul *ntropolitan Axea, which covers the entire Province of Istanbul and part of Kocoel province; (ii) transferringIETT's present responsibilities to TEK (the ultimate objective of the TEK Law); (iii) establishing a new regional electricit; distribution atithor4ty for the enlarged region independenit of both the Istanbul Municipality and TEK.

1.10 This appraisal report was prepared by Ikssrs. E.A. Minnig (Erigineer), A.J.D. Hutchins (Financial Analyst) and Y. P. Buohomene (FinancialAnalyst), and is based on information provided by IETT and its consultants, a field mission in June/July 1972, and assistance given by the Urban Projects Depart- ment. 4

2. TIE ECONOMY AND TIlEPOIER SECTOR

The Economy

2.01 The Republic of Turkey, about 780,000 km in area, has a population of about 37 million (1972), growing at about 2.6% annually. In 1950, some 4 million people lived in urban settlements of 10,00(ior more, but by 1971 the urban population had grown to nearly 14 million or nearly 37% of the total population. Between 1965 and 1970 the Istanbul ;-ctropolitan Area had an influx of some 500,000 immigrants, increasing its population by over 20% to about 2.8 million. Annex 1 shows the basic economic daLa --or Tnrkey.

2.02 GNP has been growing at about 7% per annum, .ut the growth rate ill the Istanbul Metropolitan Area, t'hich accounts for over 20- of GNP, has been about 11%.. GNP per capita nationwide in 1971 "as USS330, but for the Istanbul area alone it was aboLt four times as high. Manufacturing has more than doubled its percentage share of total GNP since the early 1950s, whereas the share of agriculture, which still provides cmplo -ent for most of the' working poptulation,has fallen by nearly half. Istanbul Is a major center of industrial activity, contributinigover 25% of total value added by the mnanufacturing,sector of the economy. It is also Tt'xkey'smost importar.t center of international trade, accounting for nearly one-hF!lfof all import- cxporc actj.vity.

2.03 lTe rapid pace of economic development, however, hts had itL price for Istanbul. The heavy influx of population from rural areas has led to a proliferation of squatter settlements located near employment opportunities. As a result, urban planning and the imDlementation of projects have la-ged behind this rapid growth, mainly for financial reasons. In the Dover dis- tributiontsector, for instance, annual investments for expanding facilities have &.veraeedsore TL 50 million at 1971 values over the past iO years, wkich is considered to be only about 40%,of wiat should have been invested in order to maintain proper service (see paragraph 6.02).

E.nergyResources

2.04 Turkey has substantial energy resources in the form of coal, lignite, oil and hydro-power, but as yet is not self-sufficient In commercial enaery requirements, which in 1971 totaled about 14 million tons of petroleum equivalent. About 30% of all energy requirements had to be imported.

The Power Sector

2.05 An estimated 15% of all primary energy requirements is sa.isfled in the form of electricity. Of this, about three-quarters iS Lhermally generated and about one-quarter is hydro. Total capacity of public generating plant in operation at thc end of 1971 was abort 2,260 'M, of which about 1,985 'W was operated by the Turkish Electricity Authority (TEK), a State -5-

Enterprise created in 1970. In 1971, TEK's interconnected system supplied about 90% of the 9,000 GWh consumd in Turkey, of which IETT, its largest single customer. bought slmost 25%. About 2 40 MWis owned and operateG by the private Cukuro-ia Electric Power Company serving the Adana area in tle south, and a ftxther 115 MWcf generation capacity is installed in bmall isolated municipalities, vrillages and inUt:strial plants.

2.06 Electricity consumption in D rkey has grown during Jhe past dlca0e at an average annual growth rate of about 11-12%, doubling about every six years. It is estimated that this growth rate will be sustained in the immediate future. Therefore, Turkey propo.'es to invest over US$1,700 million in generation and transmission facilities over the next five years. Tne relations' p between CGNP/capita and electricity production/capita indicates this to be icasonable, provided that past econoLic performance can be sustained.

2.07 The Eank in 1969 made a loan of US$25million (5,8-TU) to ETIBANK (one of TEK's predecessors) for the construction of 380-kV ';ransmission lines from the 1,200-MW Keban hydroelectric plant, unier construction on the Euphrates, to Ankara and Istanbul.- A further loan of -SQ.L -~illion (763-TU) was made tt TEK in 1971 for 380-kV substations,154-kV transmissionlines and 34.5-kV secondarytransmission lines. The recent Loan (Q83-TU)and Credit (360-TU)for an aggregateof ti;eequivalernt of US$74 million for the Ceyhan Aslantas multipurpose project include the financingof 138 MW of power generating capac.ity. The ff-r5t Keban construction phase (600 MW)is expected to be coLpleted in 1974 and the second plhase (300 MW) in 1976. Howrver, it is not anticipated that significant amounts of Keban energy will be available to the Istanbul aree before 1975. Future developments include a 140-MWlignite-fired steam unit at Tuncbilek, presently under construction; a 600-MW lignite-fired steam plant at Elbista>ij for which a preliminary dasign i-eport has been completed and for which Bank linance has been requested by the Government; amd an 1,800-MW hydro project at Karakaya downstream of 'Kebanfor which a feasibilityreport is now being prepared. 6

3. THE BORROWERAND THE BENEFICIARY

3.01 The Borrower would be the Republic of Turkey (the Government)and the Beneficiarywould be IETT, with which a Loan and a Project Agreement, respectively,would be concluded. A subsidiaryLoan Agreement between the Government and IETT will provide for the onlending of the proposed Bank loan to IETT under terms and conditions identical to the Loan Agreement.

History and Field of Operations of IETT

3.02 The complex history of Istanbul's electricitysupply dates from 1910, when a Hungarian company received a 50-year concession covering the European part of Istanbul and its suburbs. SOFINA, a Belgian company acquired the Hungarian company's shares and in 1931 the supply area was extended to include the Asiatic side of the Bosporus and the nearby Princes Islands,with a new concession terminatingin 1993. In 1937 the Government repurchased this concession and assets by agreement with SOFINA. For 18 nonths the 'Ministryof Public Works operated the facilities until June 16, 1939, when under Law 3645 they were transferredto the Istanbul 4unicipality and IETT was establishedto operate them. Annex 2 gives furtiherinformation on IETT's legislationand present status.

3.03 IETT's public transportationservice started operations in 1939 with the "Tunnel" (a short, 570-meterpassenger cable-car service from Galata on the Golden Horn, to Beyoglu -- the business district some 60 meters above it), followed in 1942 by a bus and trolley bus service whose areas of operation extend beyond the municipal boundaries. Annex 3 gives further details of IETT's TransportationDepartment.

3.04 In 1944 the Government purchased the Yedikule (Istanbul)and the Kurbagalidere (Anatolia) gas plants from their owners at the end of their concessionperiods and transferredboth to IETT. In 1962, wl1enthe Beyoglu gas plant concessionexpired, this company's assets were taken over by the Mlunicipality,which has continued to operate them on a "temporary`basis ever since. IETT has no direct responsibilityfor the latter plant but is representedon its advisoryoperations committee. Annex 4 gives further details of IETT's Gas Department.

3.05 Thus, IETT's present operations cover electricitydistribution, transport (tunnel,bus and trolley bus) and two of the three gas plants in and around Istanbul. -7-

IETT's Legal Status

3.06 IETT is an "autonomous" corporation incorporated under Law 36h5 and owned entirely by the Istanbul Municipality. It is operated on a commercial basis as a separate legal entity. Law 3645, however, placed it under the direct control of the Mayor of Istanbul, who at that time was also the Governor. The Mayor stiUl exercises certain controls and administrative restrictions over IETT on such matters as budgetary and financial control (see 7.02) and personnel and salary policy.

3.07 IETT's service area (see Annex 5, Map 10132) for electricity encompasses som 28 municipalities, in addition to the present Municipality of Istanbul, because when IETT took over operations in 1939 the boundaries of the then Istanbul Municipality were much larger than they are now and also covered an area even larger than the SOFINA concession. Post-Wbrld War II decentralization reduced the Istanbul municipal area and established the rew municipalities but made no changes in Law 3645. IETT is therefore still accountable to the Mayor of Istanbul but is at the same time responsible for distributing electricity to other municipalities. This is a major cause of dissension (see 3.08) and inhibits coherent planning.

3.08 On July'15, ,970,the TurkishElectricity Authority (TEK) was established under Law 1312. This law gives TEK the right to generate, transmit and diistribute electrical enerQc in the whole of Turkey, but Article 27, permits "Municipalities, villages, and other legal entities within the public sector", who had constructed and were operating their own distribution networks prior to the enactment of the law to continue to do so provided, amongs. other things, they paid their bills to TEK promptly and remained within their boundaries. They could request TEK to purchase and operate their installations but TEK could only take them over unilaterally in the event of a deefault in payment for electricity supplied by TEK. The first effect of the 1EK Law on ErTT concernedits generatingfacilities which were transferred to TEK in 1971. Unfortunately, Article 27 of the TEK law failed to resolve an earlier dispute between ETIBANK and IETT over service area jurisdiction. IETT and TEK continue to dispute the interpretation of this article.

3.09 TEK's (forrerlyalso ETIBANK's)position is that IETT, as a municipal authority, has no right to serve any area outside the Municipal Area of Istanbul, whereas IETT, backed strongly by the Municipality, cites Law 3645 as its authority for supplying its present service areas, and as a "legal entity within the public sector" cites Article 27 of the TEK Law as its authority for continuing to serve these areas. ETIBANK, for instance, attracted some industrial consumers away from IETT on the outer fringes of the IETT supply area by offering lower tariffs. This resulted in several instances of duplication of facilities in areas where IETT serves the residential load and TEK now serves the industrial load. IETT has had some success in the courts when challenging TEK's right to serve some oi these consumers. -8-

3.10 Even under Article 27 of the TEK Law, since the 28 "outside" municipalities concerned in the dispute are served by IETT and not TEK, it would seem that unless and until they apply to TEK Yor service, TEK will not be in a position to take over responsibilityfor distributionwithin their boundaries. IETT has 5-year supply contracts with these 28 municipalities which are renewable and, according to IETT, canmot be legally broken without its consent. It is also probable that any municipality presently served by IETT and contemplating requesting TEK to take over this service would be subject t. strong pressure from the Municipality of Istanbul because IETT also provides such municipalities with public transport, which up to now, has been heavily subsidized from power revenues.

IETT'sFuture

3.'1 The TEK/IETT dispute might best be resolved with the formation of a single regional power distribution authority responsible for the Greater Istanbul Mbtropolitan Area under the selected jurisdictTon 'see. 1.09). Until the precise format of such an organization can be determined and put into effect, however, the status quo should be maintained. This sta'us quo, although undesirable in the Iong term, is necessary for the present because any premature take over by TEK would result in litigation ard political resistance and, since IETT is currently the only effective supply-ing authority for the area, such a dispute if prolonged would harni the interests of the consumers and would delay urgent and necessary improvements to the system. The Government has agreed to permit IETT to continue to distribute electricity in the area presently served by it until a new electricity distribution organization covering te Lireater Istanbui Mtropoiitan Area can be set up (see 1.09). IETT presently subsidizes transDort and gas out of electricity revenues (see 7.01) as both are incurring heavy losses. The proposed loan includes funds for a study to resolve the long-term organizational and financial problems inherent in operating Istanbul's urban public transport system (see 1.07 and 5.12(ii)) and a leview of the gas sector (see 1.8 anl 5.12(iii)). IETT will require substantial financial help until these two activities are, reorganized (see 7.16). Istanbul Electricitydistribution areas will be mairtained urtil the above regional organization can be established.

IETT's Organization

3.12 IETT is managed by a General Manager, who can hold this post until retirement age. He is assisted by advisors (3 "Counsellors" and 3 Assistant General Managers) who have no "line" responsibility and no vote in the Administrative Council (Board). "Line" responsibility theoretically lies with the 5 Vice-Presidents responsible for Electricity, fransport, Gas, Consumer Relations, and "Commercial". Together with the General Manager they e-onstitute the "Board". Annex 6 shown an organigram of IETT.

3.13 The General Manager, formerly a lawyer, was once Deputy Mayor of Istanbul. He took over his present post in 1966. Ileis competent and has a strong personality,but IETT's management functions are over-centralized -iith little delegation of responsibility. Few members of top management -9- have any real authority and responsibility. Head Office senior activity tends to revolve around future "planning" rather than getting down to resolving the many pressing day-to-day managerent and operational problems.

3.14 IETT employed a total of 11,263 people in December 1971, spread over lleadOffice and its three services. The Head Office personnel are sub-allocatedin IETT's statistics to the three service departments;Annex 7 shows the 1971 departmentalgroups divided into "staff" and hourly paid "labor" and totaling 6,878 for transport,67fl for gas and 3,715 for electricity. Allocation of available staff between operationalduties and auxilliarv services and within those categories thiemselvesis out of balance. For example, TETT's Personnel D)epartmentresponsible for 1,810 "staff" totals 224, but the parallel departmentresponsible for 9,453 "labor" totals 20. Its Purchasing Department employs a total of 594 and its Consumer Relations Departnent 205, but the Electricity,Transportation and Gas Departmentshave only 6 engineers directly involved in studies, project design, and preparation of tenders and specifications. The ElectricityDepartment's entire field staff totals only about 1,500.

3.15 The Electricity Department'soverall consumer/employeeratio of 180/1 is, on the face of it, not unreasonable;but there is over-staffingin the supporting services and under-staffingin operations,maintenance and construction. Since the services of IETT are limited to distrib'itionand it has always sub-contracted most of its limited construction program, this overall ratio cannot be directly compared with that of other utilities. The ratio of productive to auxilliary employees in the electricity field force is likewise out of balance in that, for example, about 1,450 or 94%' are designated 'labor" andlof these about one-third are non-productive (drivers, zuards, cleaners, etc.). In .ovenber 1970, 477 employees of the electrtcity department w¢ere taken over by TEK on thie transfer to TEK of the Silahtar power station, but as 93 employeeswere recruited or transferredto electricity from other departments in that year and a further 366 in 1971, IETT virtually replaced the Silahtar personnel by the end of 1971 despite having no generaLion responsibilities.

3.16 Law 3611 regulates pay scales for civil servartes in Turkey and equates technical professionalstaff (engineers,etc.) .mIployedby the Government, municipalities or their autonomoutsentities, with general civil servants. This has resulted in a serious shortage of qualified and competent engineers in these entities throughout Turkey. IETT, for example, is about 40% to 50% short in the number of qualified electrical engineers needed to carry out all the functions it should he carry'.ng out, yet it cannot attract competent professional staff because it is able to offer engineers only about half the rates paid by private industry for comparable skills and experience. These ceilings to professional pay scales have been a serious problem in several previous loans and the Bank has already suggested to the Government that professionally qualified technical staff should be excluded from the pay scale restrictions of Law 3611. During negotiations the Covernment were again urged to modify the application of this !Lw. - 10 -

In contrast, strong union representation has kept IITT's "labor" pay scales and fringe benefits competitive with those of private industry. This and the nat.iral industriou-ness of the Turkish worker, combined with an overall shortage of employment ..n Istanbul, have resulted in IETT's "labor" force being, in general, hard-working and capable.

3.17 Recognizing these problems, IETT had already engaged Electricite de France (EdF) to review its electricity and gas organizational structure and operations. A report in September 1971 analyzed the situation and made various proposals, but no progxess has been ulade since then. The proposed loan includes an amount for the implevientation of improved operating procedures, and assurances were obtained from IETT that the agreed recommendations of this study would be implemented and would be coordinated with a similar study now being undertaken by EdF for TEK, so that the systems proposed for both undertakings will be compatible. This will facilitate the integration of regional power distribution activities at a later date in whatever form may finally be decided.

Existing Facilities- Electricity

3.18 IETT purchasesall o" its power requirementsfrom TEK. TEK presently supplies IETT at 34.5 kV and 10 kV from its 120-MW Silahtar coal- fired thermal plant and from 154/34.5-kV substations at Davutpasa, Yildiztepe and Umraniye on the outskirts of Istanbul and at Tuzla in the south. IE-r distributes power at three voltage levels, 34.5 kV, 10 kV and LT (110/190 V or 200/380 V). Annex 8 shows details of its distribution system statistics.

Existing System Operation

3"19 In order to keep down the cost of purchased electricity, IETT operates its 34.5-kV system as a closed ring, thus permitting a transfer of energy between the various TEX 154/34.5-kV substations. This is because under TEK's tariffs each supply point is billed separately on the basis of a predicted maximum demand contracted for annually. Any increase above this demand incurs a price penalty which IETT attempts to minimize by transferring power between supply points on the 31.5-kV system. Although the use of the system in this way has operational anu reliability advantages, it also involves increased investment. The alterniative would be the operation of the system as a series of non-interconnected rings, thereby reducing investmentbut at the cost of a slight reduction in reliability.

3.20 The 10-kV system, designed as a radial system, also operates as a ring system but as an open one. Each 10-kV stepdown distribution sub- station can be fed from either of two adjecent 34o5/10-kV supply points. Since this requires heavier conductors it results in an over-investment of some 10-15%.

3.21 IETT's distribution system suffers from excessive voltage drops and a low power factor, resulting from high reactive power requirements. - '11 -

While voltage drops can be reduced by improved system design, the low power factor is mainly duie to industrial consumers operating induction motors at partial load. The tariffs of IETT and 'EK both include penalties for low power factor operation, but thxy are too low to induce consumers to improve their pomer factors by installing the necessary capacitors. The Government tariff study revie-r (see 4.07) should therefore pay particular attention to this question. - 12 -

4. THE POWER MtARKET

System Growth - Past and Forecast

4.01 A comparison between IETT's actual and forecast system statistics for 1967-1976 can be summarized as follows:

Annual Growth 1967 1971 1976 1967/71 1971/76

Consumers - Nu4ber 520,605 655,027 931,000 +6/. +7,

Maximum Demand - 282 412 663 +10;: +10,2

Purchased & Generated - GWh 1,360 1,910 3,150 +10,. +10.52 /1 Sales - Wh 1,200 1,650- 2,725 +3% +10.5%

Sales per Consumer - KWh 2,300 2,520 2,900 +2%, +3,.

DistributionLosses 12%. 14% 13.5,

/1 Adjusted for a meter reader strike and for illeg,alconnections (see 4.02).

Actual Sales, 1967-1971

4.02 IETT's nast systen statistics,shown in Annex 9, page 1, chow adjusted estimates for 1969, 1970 and 1971 to take into account a breakdown in IETT's billing machines (1969 and 1970), a meter reader strike (1971) and illegal squatter connections (see 2.03). Under the ConstructionLaw 6785, IETT -ay not supply power to dwellings constructedwithout building permits, but most of the squatter areas where buildings were constructedwithout permits prior to 1966 have since been designated "improvement" areas in which the Ministry of Reconstruction and Resettlement is authorized to finance the constructionof power distribution facilities. However, due to lack of funds, the level and quality of services provided by the Ministry have been inadequate and as a result illegal connections are frequently made in these areas. Similarly, illegal connections are frequent in the new squatter areas, which are increasing at a rate of about 10,000 dwelling units per year. Illegal connectionsin these areas have caused IETT an estimated loss of 25 GJh, 30 GWh and 35 GW4hannually in sales during 1969, 1970 and 1971, respectively,with a total loss in revenue for the three years of some TL 24 million. To resolve this serious problem, IETT's management has decided to connect all consumers applying for a supply, whether in - 13 - improvwmeit azLKs cr not, and to press for mole effective police and municipal ai-- iu detacting and dismantling illegal connections. It is thereby hoped t-at, by 1976, squatter illegal connections wil). no longer constitute a maj0or finar.cinl problem for IETT. 1X.03 In 1971, IETT's industrial sales accounted for about 60% of its total Falcs, rniAdential sales about 25%, and sales for cormercial and governmei:t use about 11%; public transport and street-lighting each accounted for about '2. F%-dly any electrical energy is used for domestic space- heating, hot-water preparation or cooking, because of the cheaper coal, coal-gas or bottled gas available. Air-conditioning use is virtually re- stricted to new notels.

4.05 Of rETT's 655,000 constrers, 209 are categorized as large industrial cons.merne(mainly in secondaryindustries) and in 1970 they had a total connectcd load of about 10. MW and a maximum demand of about 89 YM4. Of these, only the 27 largest have maxinum demand in the range of 600-8,000 kW. Maxinw.i demand by area is shown in Annex 10.

LL.06 in 1971 the average revenue per kWh of cnerj y sold on the residential twriA'U was about 26.7 krs (USe 2.1). While less than the tarilf± paid by Arftrican or European consumers, this is relatively expensive in relation to income leveis in Istanbul; consequntly, many prefer to use cheaper. though more inconvenient; fuiels. Annex 11 shows sales and revenues by taril''class-£ication.

4l.07 ITAT'It present tarifi schedule is shown at Annex 12 and the bulk supplj tar1i'f for its purchases from TEK at Annex 13. The main general commee.ton IETT's tiriils is that the charges do not appear to reilect thed variations ir tilecosts of'supply, due to seasonal and other factors. This leads to ,neconomic use oX electricity and misallocation of resources in the nowiar sect.or whinh the tariffs could help to alleviate throigh appropriate differenti.au. or.en1. Other defectE in the IETT tarilf include inadequate penalties ,or low power factor operation (see 3.21) and a minimum charge toc low ov,-n .;o_cover the cost of meter reading and billing. One result of the preserit l!-`!T tarif' iz that residential consumers (who pay 28.7 krstkWh on average) e-r protably being subsidized by commercial (47.2 krs/kkh) and industridi (3n.9 krs/k-& for small, .2.1 krs/kkh) consumers. IETT's electricity ^narges are also being used to subsidize transportand gas (see 7.01). The TEX tarLiffstudy should suggest improvementsin IETT's rate of structure (see 1.06). - 14 _

Forecast Sales, 1972-1976

4.08 IETT's forecast sales and cnergy requiremen..sfL..:Qn i:, cr;.oug:. 1976 (Annex 9) show an average overall amnual growth rate ot 1:.5%, compared with 3% in 1967-1971 (see 4.01). This estimate,based o0nthe Jreser&t pattern of usage, assumes the eliminationof the 35 GWk.of squatter illegal connectionsby 1976 (see 4.02), tiheneeting of the latent der.iandwhich IETT has not so far been able to satisfy for financial reasons (estimatedat some 25 CWh by 1973) and, in conpliancewith a recent court decision, the re- integratton into the IETT system of the }'artalCement Factory load tal.et1 over by TEK sor.eyears ago. rne growtlhestimate for 1972-1976is conserva- tive. Despite the limitationsof available control daLa and the difficulty of forecastingthe effects on future consumptionof tariff changes designed to correct past distortions(see 4.07), the short-tern forzcast is realistic. _ 15_-

5. THE PROJECT

Project Description

5.01 TheProject comprises all of the 1974 and 1975 investment progra-h of IETT's aect4ricity Departent. The proposed loan world finance the foreign exchange componentof required imported equipment, together with consulting services. Contracts would need to be awarded in mid-1973.

5.02 The Project con3Lista of the expansion of existing and establishment of new 34.5/10 kV primary and 10/0.4 kV secondary sub3tations by some 390 MVA and 160 MVArespectively and the erection and installation of about 110 km primary, 250 km secondary and 470 ka low-tension distribution lines and underground cables. In addition, 40 KVARof capacitatora would be procured and installed toizprove voltage regulation and the power factor. The Project also includes the procureent of (i) a telemeasuring and teleprint system to form the nucleus of a load dispatching center; (ii) radio and telephone equipment to ixprove comunications; (iii) service vehicles, cable fault locato,s and construction equipment; (iv) meters; and (v) consulting services. Details of the quantities and location of the facilities are given in Annex 15 and Map 10176 (Annex 14). IETT's own construction staff, assisted by local contractors, can successfully complete the construction of the Project by mid-1976. - t6 _

Cost Estimates

5.03 The cost estitWLtes ,or the Project are considered to be reasonable; they are shown in Annex 15, which is sumarized as follows:

SUMMARYCOST ESTIMATE 1974-1975

TL (thousards) US$ (millions) % of Foreign aty Local Total Foreign DuLtyLocal Total Total

34.5-kYSystem 35,252 24,605 33,090 92,947 2.52 1.76 2.36 6.64 16 10-kV System 53,300 41,000 26,675 120,975 3.80 2.93 1.91 8.64 21 LT System - - 66,500 66,500 - - 4.75 4.75 12 Auxiliary Equip- ment 53 060 4i,895 36,035 130,990 3.79 2.99 2.57 9.35 23 Sub-total 1 2162T i177i55162,300 411,4I2 J.3=T 7765 LJ.1 29.3B 77

Contingencies: Physical 7,078 5,380 8,160 20,618 0.51 0.38 0.59 1.48 3 Price 20,510 17,120 50,140 87,770 1.46 1.22 3.58 6.26 16

Transport, In- surance 10,200 - - 10,200 0.73 - - 0.73 2 Sub-total 179,400 130,000 220,6 530,00 18T TM l'17 37" 73

Consulting Services: Pro-ect 9,300 - 12,000 21,300 0.67 - o.36 1.53 4 M-aagement 1,400 - 1,500 2,900 0.10 - 0.1. 0.21 ) Transport 2,100 - 600 2,700 0.15 - O.C14 0.19 ) Gas 2,100 - 600 2,700 0.15 - 0.04 0.19 ) 2 Consulting Contingency 1,700 - 1,800 3,500 0.12 - 0.13 0.25 )

TOTAL 196,000 130,000 237,100 563,100 14.00 9.28 16.94 40.22 100.0% 35% 23% 42% 100.0% - 17 -

.5.C0 The cost estimates are based on prices ruling at the end of 197'. The physical contingency for unforeseen expenditures is equivalent to 5% of basic zosts. On the assumption that fixed price contracts are to be awarded one year ahead of schedulee delivery, an escalation contingency of 6% per annum was allowed on imported equipment and 8% per annum on locally produced equipment, erection, installationand civil works. An additional 6% of the total estimated FOB cost of imported equipment has been included for freight and insurance. No further adjustments has been made to the estimates of costs because of the 1973 devaluation of the US$ since it is too early to determine the effects of this devaluation on costs in TUrkey. Custzms duties are based on existing tariffs, which vary from 35% of the CIF costs for transformersto 100% for cables. The effect of all these additions is to increase basic costs by about 43% in total.

Procurement and Disbursements

5.05 All materials and equipment financed from the proceeds of the proposed loan (consulting services excepted) would be procured on the basis of international competitive bidding in accordance with the Bank's guidelines. Preferential trade agreements exist between Turkey and the Europpan Econouic Community but for items to be procured under the Project no preferential treatment will be granted to EEC suppliers.

5.06 During negotiations agreement was reached with the Goverrment that for purposes of bid evaluation all items under the proposed loan to be procured by international competitive bidding should be evaluated on the basis of the CIF landed cost, except that "preIerred" domestic manufacturers would have a preference equivalent to 15% or the customs duty, whichever is less.

5.07 Disbursements would be made for the CIF cost of imported materials and equipment, and for the foreign exchange costs of consulting services provided by foreign consulting firms or the local costs, if consulting services are provided by Turkish consultants. For goods and services procured locally under international competitive bidding, the Bank would disburse the ex-factory cost of goods 'excludingtaxes) awarded to successful bidders.

5.08 Retroactive financing of consulting services for expend5ture incurred after July 1, 1972, in an amount not exceeding US$100,000 equivalent is re':ommennded. - 18 -

5.09 No disbursements would be made for connunications equipment and relay equipment, or 1or rehabilitation,until studies vo determine the requirements, their location and justificationhave been carried out and approved by the Bank. In particular, the selection of communicationsequip- ment should be coordinated with the requirementsestablished under the 1976-1985 power study to enu.e compatibilitywith future development. During negotiations IETT agre_d to entrust its engineering consultants witn the relevant studies. A disbursement schedule is given in Annex 16. Should there be any savings in Bank-financeditems, it is r:commendedthat the equivalent amount be cancelled from the loan.

Consalting Services

5.10 IETT is expected to employ SOFRELEC, the French consultants responsible for the original feasibility study, possibly in conjumction with EIEI, a Turkish consulting organization, to provide the engineering services for the ?roject, including system design, feasibility studies, issue of invitationsto tender and, unless the Bank otherwise agrees, the evaluation of bids and physical supervisionof construction. During negotiations IETT agreed that these or other satiqfactory arrangements will be co-.pleted by May 31, 1973 and that the terms of reference for this assignment will be mutually agreed between IETT and the Bank.

5.11 IETT intends to retain EdF for the proposed managem3nt study since they have already reported on the managem3nt structure of IETT's electricity and gas operations (see 3.17). During negotiations IETT con- firmed that the terms of reference for this assignment would be mutually agreed between IETT and the Bank, and would include the training of seniors and accounting staff; the improverent of work methods with a view to reducing staff; a greater delegation of authority throughout IETT; a study of IETT's inventory reordering and accounting systemn and assistance in implementing the changes necessary to meet the requirements for separate departmental iccounting and compatibility with the TEK system (see 7.03 and 7.09). 5.12 In addition to the above, IETT will :equire constltants to carry out (i) the transport study (see 1.07) and (ii) the study on the Istan&wtL gas service (see 1.08). TEK will be responsible for the Power Market study (see 1.06 and 4.07). The Government has agreed:

(i) to cause a power study to be carried out and completed by DeLember 31, 1974, with the intermediate objective of providing sufficient information by the end of 1973 to determine the precise location of facilities foress-en in 1974 and 1975. This study has not been included for financing out of the loan, as it wiLl be carried out by TEK; - 19 -

(ii) in consultatien with the Municipality and/or IETT, to select by not later than August 31, 1973, consultants acceptable to the P-nk for a study, to be completed by June 30, 1974, of the most appropriate organization, administration and means of financing a public transport system serving the Greater Istanbul Metropolitan Area;

(i'.) in consultation with the Municipality and/or IETT, to select by not later than August 31, 1973, consultan'is acceptable to the Bank for a study of the gas sector to be completed by not later than June 30, 1974; and

(iv) to initiate, after exchange of views with the Bank, the necessary institutional, financial and organizational arrangerents at the earliest possible date and not later than December 31, 1974, or by such other date as may be agreed by the Bank, which will lead tz the establishnent of an organization or organizations serving the Greater Istanbul Yetropolitan Area with (i) the distribution of electricity, (ii) public transport services and (iii) the manufacture and supply of gas.

Summarized tezzaa of reference of the various studies are given in Annex 29.

Environment

5.13 Istanbul is an historis and beautiful city, witl,many antiquities. It is geographically convenient and climatically attractive to visitors from both Europe and the Middle East. In the past, li.ttle attention has been given to the siting of service and utility facilities so as to minimize their aesthetic impact on the city's architectural features. To avoid further interference with these valuable and interesting assets, it was agreed that the appropriate environmental department of the Master Plan Bureau will be consultedI with regard to the siting and design of the facilities comprising the Project. - 20 -

6. JUSTIFICATION

Ceneral

6.01 The rapid economic developmentof the Istanbul MetropolitanArea (see 2.02) has been accompaniedby a correspondingupsurge in the demand for power (see 4.08). Investmeat in the electricitydistribution system has failed to keep,pace with IETT's requirer.ents,to the detriment of service quality and reliability. Rehabilitationof the network is urgently needed to meet the present demand for electricitywith a reasDnable standard of supply. Additionally,system extensionswill be needed to meet the projected growLh of demand. The Project is designed to satisfy both of these objectives.

6.02 IETT's past investment in its distributionsystem has been inadequate. Over the period 1961 through 1971, when the demand increased by about 330 MVA, the annual investment averaged only some TL 50 million or US$3.6 million at present exchange rates. IETT has therefore invested an average of about US$108 per KVA during the past 10 years, whereas an investrentaver- age of some USS2SO per KVA could reasonably have been expected for such a system. The consequencesof thisiinadequate investment in renewal and expansion of IETT's system are apparenitin today's increLsed outages.

System Outages

6.03 As shown in Xnnex17, between 1967 and 1971 systen outages increased by 20%' annually in number and 24' in duration, compared with a 10%i growth rate in sales. In 1971 at least 70% of the outages were due to inadequate facilities. The cost to the economy cannot be measured with any precision but so.ieindicative figures may be given. Thus, according to a survey by the Istanbul Chamber of Incdustry, local industry on average lost 81 working hours in 1971 as a result of power outages. The value of the resultingloss in industrial output may be conservativelyestimated at TL 280 r,illion(see Annex 18). Implementationof the rroject would reduce the present excessive number of outages, with the beneficial effects on industrial output resulting in appreciable economic advantag-s.

Economic Rate of Return

6.04 It is not practicable to compute a meaningful r'u_g.ef return for this purely distributionProject; however, a 7invnC.u --e *.r reLurn has been computed and is likely to be lower than :L.ee o ct of return because no account has been taken of such additio.aa. berLoWc:' as reduced losses in industrialoutput, which are difficu.t to . precisely. The financial rate of return on the Project is 3G% at :, Z-,t tariff levels, ignoring benefita from. reduced outage.. E-ven w- ,-. levels resulting in a 20% reduction in revenues (the ;r-Lnspor.su Aii} element estimated to be included in the present tariffs), the cin rate of return would still be 14%. Tne methodlology for calcvlativw, :n- rates of return is described in Annex 18. - 21 -

7. FINANCIALASPECTS

IETT's FinancialViability - General

7.01 In its present form and with its present activities, IETT is not financially viable as a corporate entity. Its electricity activity is profitable, but its transportand, to a lesser extent, gas activities, have been incurring increasingly heavy losses over the past 20 years, which have been supported from electricity profits to the detriment of electricity system expansion. In 1971 the electricity surplus was abnormally low (see 7.o6) and IETT, being in overall deficit, financed its operations largely by increasing its accounts payable to the point where its local credit- worthiness has been severely damaged and its present financial position is highly precarious. This report accepts the de facto operating situation and assumes that no major change in IETT's legal iormor responsibility is likely to be made before 1976, by which time a future organization and means of financing the public transDortation and gas services of Istanbul should have been decided (see 1.07 and 1.08). In the interim, however, and irrespective of the proposed loan, IETT will need substantial and continuing assistance, first to regain an acceptable state of credit worthiness and then to meet the annual losses and equipment requirements of iis transportation and, to a much smaller degree, its gas activities (see 7.16).

Present Accounts - Form

7.02 IETT's present Balance Sheets, submitted annually to the Mayor and Istanbul Municipal Council for their acceptance and approval (see Annex 2), are for IETT as a whole and do not show any departmental breakdown of current assets or liabilities other than accounts receivable for electricity and gas. On the other hand, the Income Statements do show departmental income and expenditure and profit and loss, although the methods for allocation of inter- departmental charges require review. Accounting principles, however, have not always been consistently applied from year to year; therefore, complex and substantial adjustments have had to be made to the published accounts to arrive at the comparableaccounts in this report. For this reason, no accounte prior to 1969 have been included.

Accounting 1Iethods

7.03 During negotiations, IETT agreed to prepare complete annual departmental accounts, including separate Balance Sheets and to open separate departmental bank accounts for 1973 and onwards. The US$100,000 included in the proposed loan for management consulting services includes the necessary assistance to IETT to achieve this and to reorganize its accounting methods, including those for the allocation of charges to departments, in accordance with sound accounting principles and on lines similar - 22 - to and compatible with the recently reorganized TEK system. These changes will be of immediate benefit to IETT and will also facilitate any future changes in the organization.

Auditors

7.o4 The statutory 'auditors" appointed by the Municipal Council (Annex 2) are mainly concerr.ed with budget comparisons. IETT also has some permanent government auditors concerned with observance of fiscal laws, but no external or cornnrcial audit is carried out. During negotiations IETT agreed to have its accounts audited by independent auditors acceptable to the Bank.

Insurance

7.05 IETT is presently self-insured except for marine insurance covering assets in transit and one policy providing third party coverage for electricity (LT 500,000) and gas (LT 250,000) installations. An Insurance Reserve in the Balance Sheet covers sore 2-1/2% of the value of Net Fixed Assets excluding land and the tunnel, but this is not separately funded. In view of IETT's financial situation, the Government agreed to take or cause to be taken appropriate action to provide for the repair or replacement of facilities or equipment in the event of a loss not covered by outside insurance.

Past Earnings

7.o6 In 1969 and 19 7 0the disposable surpluses -- i.e., surplus after interest ard reserve for expansion required under Law 1312 -- on electricity (LT 102 million and LT 112 million) more or less equalled the combined losses on transport (LT 88 million and LT 96 million) and oni gas (LT 13 million and LT 15 million); but in 1971 the electricitydisposable su.-plusdropped to LT 85 million, mainly due to about LT 19 million of 1971 sales being billed in 1972 because of a meter readers' strike, excessive recruiting or transfers which increased the department staff by 11%, and the lag between receiving increases in TEK's charges for purchased electricity and passing on these increases to IETT's consumers. In 1971, therefore, this abnormal reduction in disposableelectricity surplts to LT 85 million, combined with increased transport and gas losses of LT 132 million and 20 million, respectively, resulted in an overall IETT loss of LT 67 million. Overall, IETT's electricity tariffs average krs 32.3 per kWi (US 2.3) and have not been increased since 1967 except to pass on TEK's increases. IETT's transport rates were belatedly increased by about 60% in July 1971 and gas rates by about 20% in October 1970. The new transport rates averaged krs 61.7 (US¢ 4h4) per passenger for 1971 and will average about krs 70.0 (use 5) per passenger for a full year. The gas rates averaged krs 70.0 (US¢ 5) per to. For neither transport nor gas however do these tariffs produce a sufficient gross revenue to cover even departmental personnel cost. The electricity - 23 - rates are, if anything, sonmwhat high and the department's rates o' return for 1969, 1970 and 1971 :ere 35.9%, 36.9% and 25.8%, but these are calculated on unrealistically low asset values. With an approximate revaluation basis at 1971 prices (see 8.08) the 1971 rate of return would have been about 5d, but this would have been more than doubled had the 1971 electricity surplus not been abnormally low. Annex 19 gives details of both actual and forecast Income Statements for 1969 through 1976, both consolidated and departmentally.

Past Balance Sheets

7.07 IETT's published Balance Sheets for 1969, 1970 and 1971 have had to be adjusted in many respects to arrive at the "actual" Balance Sheets shown in Annex 20 (see 7.02). Assets and liabilities have been allocated to departments where possible, but where this has been impracticable these have been shown under "Head Office". Each department is accordingly shown as having a "tcurrent account" with Head Office whose balance changes each year according to the department's cash flow (including operating results). 7.08 IETT's fixed asscts have been included at the published Balance Sheet values, which would have to be increased by about 2-1/2 times to reach the values at 1971 prices, arrived axLby applying to the recorded asset values the same annual indices as were accepted by the Government in 1971 for revaluation of TEK's assets in connection with Loan 763-TU. However, since the reliability of the basis of this calculation is denigrated by in- complete and possibly inaccurate information on dates and values of asset acquisitions, and since IETT's depreciation rates, averaging about 6.5% of gross asset value, are somewhat high, the 1971 values of Net FixedAssets arrived at in this way can only be regarded as very approximate. A realistic revaluation would entail a physical appraisal but this has not been suggested at this stage because of the uncertainties over the future format of IETT and the extent of its responsibility for its present three activities. 7.09 IETTts net current assets have been negative (Net Liabilities) throughout the past 3 years in spite oI abnormally high inventories. In 1971 this negative balance increased sharply by over LT 100 million to LT 129 million despite an increase of LT 27 million in inventories and LT 14 million in cash balarces. Accounts payable for taxes, supplies, etc., about doubled to LT 305 million, whereas consumers' accounts receivable for electricity increased by only 26% to LT 98 million, roughly in line with increased billings. Since consumers are billed at intervals varying from 1 month to 6 months depending on their category, this level of accounts receivable which average under three months' billings is acceptable, although on the high side. After the deduction of LT 30 million from the published balance sheet inventory value for obsolete, non-existent and suspense items, it still remained at LT 1314million in 1971, which is equivalent to 13% of gross fixed assets and may well still include a number of old or unsuitable items. The stores accounting procedures are comprehensive and physical - 24 - custody of the items is orderly, but there is little contact or cooperation between the engineering staff and the (non-technical) storekeepers; hence unnecessary items tend to be ordered to meet current needs despite the already high stock va2ue. EdF, in the course of its management study, should help IETT improve this situation and reduce the level oi its inventorics (see 5.11). This should be achievable quite quickly by tighter control ovor purchasing and stock holding levels, the identification and disposal of re- dundant or non-moving items, and a closer association between the en-,ineering and the storekeeping staff.

7.10 IETT's equity has been divided to show separately the initial equity (J.T500 million), equivalent to the value of the assets' gi-en to it by the Government, and the accumulated losses. The 1971 accziwulatPd net loss shown in Annex 20 is LT 330 million despite an accumulated surplus of LT 640 million for the Electricity Department alone. This LT 330 million loss is LT 128 million less than the loss shown in the publish3d Balance Sheet, which has been adjusted by the net excess of the liabilitiesalready "consolidated"into one "debt" by the Government over those assets of no practicable realizable value but still included in IETT's Balance Sheet. Long-term debt accordinglyexcludes this "consolidated"Government "debt" and in 1971 the debt was limited to LT 142 million, of which LT 113 million was for transport and LT 29 million for electricity. The debt/equityratio of 27:73 demonstrates a low level of long-term borrowing.

Overall Fbrecast Operating and Trading Results

7.11 IETT's overall forecast operating and trading resilts fur 1,tI through 1976 (summarized in Annex 21) show a total overall net Eu:Jplius for the 5 years of only LT 136 million (electricity LT 943 million, tr--;,sport LT 6h8 million (loss) and gas LT 160 million (loss). Annual surpluses range from LT 21 million in 1973 to LT 33 million in 1975. rne major assumptions used in all the departmental forecasts ol botn revenue and expenditure are shown after the financial annexes in Annex 28.

ElectricityDepartment Forecast Ooerating Results

7.12 The forecast income statements and operating results oi the Electric- ity Department from 1972 through 1976 (Annex22) assume an average annual growth rate in sales of about 10.5% (see 4.01), with no changes in TEK's or IElT's existing tariffs. Since IETT's charges are not under a block tariff system, the return per kWh sold ialls only gradually and remains close to krs 40 throughout the period despite the increased consumption. The 1972 revenue is untypical (see 7.06) and in each year's sales figure, an estimate has been included, both in kkh and in revenue at the domestic tariff rate, oi the expected illegal consumption in the squatter settlements (see 4.02). The iact that this win be unbilled by IETT is correspondingly reflected under expenses. The losses due to illegal connections are substantial, being - 25 - estimated at LT 64 million over the period, rising frao LT 10 million in 1971 to LT 17 miLlion in 1973 before declining to zero in 1976. IETT's billings to the Municipality for electricity consumption and for related works ale ir:cluded in the forecasts. but have not been included as accounts receivable in the Balance Sheets even though no payments have been assumed because oi the IETT/Municipal dispute over royalties (see Annex 24 note 1 and Annex 26 note 3). All the annual billings to the municipality during the forecast period totaling LT 137 million (rising from LT 32 million in 1972 to Lb million in 1976) have been "written off" directly in the Balance Sheet of the iollowing year as being "non recoverable" and the electricity accumulated surpluses have been reduced accordingly. A swumary of the Electricity Department's lowest and highest operating results achieved between 1972-1976 is as follows:

Lowest Year 1973 Highest '-'ear 1976 LT millions LT rrillions

Sales revenue 839 1,008 Other revenue 68 81

Total operating revenue 90r l,l6 Less operating expenses 717 959

Net operating income 190 210 Less interest p2yable 4 22

Net surplus 186 188

Rateof return 37.6% 19.2% 1972/76 average: 25%

Approximate rate of return on revalued assets (see 7.08) 13% 11% 1972/76 average: 12%

Other De?artmental Forecast Operating and Trading Results

7.13 IETT's Transportation and Gas Department are both expected to contirnue to run at increasing losses throughout the forecast period (see Annex 3, page 6, and Annex 4, page 5); again, no tariff increases have been assumed, althougn the Government and the Munic'ipality might well decide to increase all or any of the electricity, transport and gas tariffs as a means of providing or reducing the additional finance necessary to support the transport and gas operations, etc., pending any reorganization (see 7.16). In summary, the transport and gas results are expected to be as follows: - 26 -

1972 1976 LT millions LT millions Transport Gas Transport Gas

Operating income 213 15 278 12 Operating expenses 334 40 406 50 Net operating louses (211) ( ) (TMU) (8T) Interest payable ( 7) - ( 5) (L) Net deficit (1m (m (13) (3QJ

Financing Plan, 1972-1976

7.14 Although the Government has agreed to initiate actior. by December 30, 1971 leading to the reorganization of IETT's present activities (see 5.12(iv)), t.hspro- mulgation of any legislationWhich might be necessary and the completicnof tle appropriate ,nsTitu-i6ana1L cnangeb will ueCOMnipleI anu 1cn4wh. T; -i n Ing,p1we therefore assumes that, in practice, IETT will continue to operate throuphout tr.e forecast period through 1976 as one multi-purposelegal entity, so it is necess,ry to look at the sources and applicationsof funds of the er.tity,as a whole. In suimary, IETT's overall financing plan for 1972 through 1976 is as follows: LT millions Elec- Transport Gas Head IETT tricity Ofiice TOTAL %

Sources

Net cash Generation after debt service 1,168 (582) (128) - Governe nt/Municipal assistance (see 7.16) - - - 800 boo Wbrking capital (increase) or decrease (129) 3 (4) (287- (417) Transfer from (to) other depts. (198) 565 146 (513) Internal resources 841 66% Custoters'contributions 148 - - - 148 12% Long-term` rrowing: Propos, loan 196 Goverrms:ntloan (buses) (see7.l6) - 46 _ _ Balance of existing bus credit 31 _ 273 22p

TotaL Sources 1,185 6 3 lt, -1,262 Applications Construction,studies and additionalbuses 1,167 63 14 - 1,244 100% TEK deposits, etc. 18 - - 18

Total Applications 63 14 - 1,262 /iTAn acditionalLT 68 million has been assumed in respect of customs duLies, and LT 26 million debt repayment due on the existing loan for Leyland buses, both of which the Government is expected to waive or defer (see Annex 25). -27-

7.15 In view of IETT's overall credit position, long-term loans during the period have been limited to the proposed loan (LT 196 million), a Govern- ment lonn ior buses (LT 46 million) and the drawdown of the remaining LT 31 million of an existing credit for "Bussing"1/ buses, of which the last 83 (out of 130) buses mere due for delivery in 1972; additional Government funds may however be provided as loans subject to the debt limitation covenant (7.18(c)). In 1971 IETT's debt service was not covered by net cash generation, but from 1972 onwards it is expected to be covered from 2.3 times (1972)to over 4 times by 1976. IETT's sources ant. applications of funds for the forecast period through 1976 is shown in detail in Annex 23, which also shows the total contributions to and requirements from IETT's cash resources by eaclh department and by Head Office during the forecast period. The individual departmental "sources and applications of funds" statements are shown separately for electricity (Annex 24), transport (Annex 3, page 7), and Gas (Annex 4, page 4). Gcvernmrent/Municipal Assistance 7.16 Since IETT is unlikely to be &ble to negotiate commercial loans on acceptable terms, the LT 800 million required to complete the financing plan has been included in the above sources as "'Government and/or Munic- ipal assistance". Financing of LT 46 million (see 7.14) has also been assumed for another 155 new buses and spa;-s (in addition to the above 83 "Bussing" in 1972) needed to carry the assumed increased number of passengers by 1976. 2/ In addition, the LT 9h million more in Government financing of transport capital *nvestments has been assumed to be needed during the interim period before the reorganization of IETT or the formation of new arrangements for providing public transport (see 1.07). Thes'p arP included directly in the Transportation Departnmnt balance sheet forecasts (Annex 3, page 5), which reflect the rescheduling of the existing loan for Leyland buses and do not include any liability for customs duty on either these Leylands or the new buses and spares on the assumption that duty will be waived or deferred until new arrangements are made. On the various bases assumed in Annex 28. the supplementary financial help needed by IETT would therefore total some LT 910 million (about US$ 67 million) over the next 5 years, which roughly breaks down into transport LT 720 million, gas LT 130 million, and working capital LT 90 million (settlement of 1971 overdue accounts payable ma4.nly to the Government and to the Municipality of Istanbul of LT 80 million and an increase in cash of LT 10 million). Annex 25 provides further details and suggests a number of possible methods (including increasing tariffs) open to the Government or the Municipality for raising

1/ "Bussing" is the manufacturer's trade name.

2/ The need for new buses and spares during 1972-1976 is based on IETT's passenger forecasts. - 28 - much of this required finance. The Government is aware of the problems of transport financing for Istanbul, and has agreed to take or cause to be.taken all action necessary to enable IETT to maintain its transport and gas services at least at their present levels pending the long term arrangements for these activities.

Forecast Balance Sheets

7.17 IETT's future net fixed assets and work in progress for the 5 years 1972 through 1976 have been forecast on the assumption that depreciation rates will remain at present levels. Asset additions for electricity have been limited to the 1972-1975 program (LT!816 million) and the 1976 program (LT 350 million; 1/ for transport to the purchase of 238 new buses (includingthe 83 already on order) and spares (LT 63 million); and for gas to minor routine rehabilitationand connections (LT 1! million). Net current asset assumptions include the reduction of the excessive 1971 accounts payable of LT 173 million to a more reasonable level (LT 89 million in 1972), the maintenanceof the cash level at about one month's revenue, and the reduction of inventoriesover the period by LT 10.6 million (8%). Most of the above improvementin working capital is shown in the estimate for 1972, but in practice the remedial action will not be able to affect the position until at least 1973, since the improvement in working capital forms a part of the total LT 940 million of needed supplementa:-fassistance. All of this assistance has been shown in the forecast sheets luider"Head Office" as additional capital (i.e., as non-rerayableor interest-bearing). The manner in which the assistance is reflected in the actual future balance sheets will, of course, depend on the t- e oiL support selected ,see 7.16). Details of the Electricity Department and Head Office balance sheets are given in Annexes 26 and 27.

Financial Covenants

7.18 During negotiationsthe following additionalfinancial -onditions were accepted by the Government and DETT and were incorporated in the Pro- ject Agreement:

1/ The total 1975 construction expenditure (LT 249 million) incluies LT 50 million for the 1976 requirements,and the 1976 total constructionex- penditure (LT 307 million) includes almost LT 7 million in final payments for the Project. All studies included in the proposed loan have been retained in electricity work in progress. - 29 -

(a) In view of IETT's present financial situation and unreal- istic balance sheet values of its net fixed assets (see 7.08):

(i) c1l of IETT's tariffs will be maintained at least at the present levels throug' 1976; and

(ii) IETT's electricity tariffs will be maintained at a level high enough to provide a surolus (before charging depreciation but after deducting all operating expenses of the oepartrent, includ,ng a reasonable allocation ef Head Office or general overhead, and debt service on loans incurred for electricity purposes) equal to at least 40% of the average of the electricity construction expenditure for the previous year and the planned electricity program fozr the current year and, moreover, that a ahortfall in any one year will be made up in the following year.

(b) Except as the Bank may otherwise agree, IETT's electricity revenues shall not be used for any purpose not relating to its electricityactivities unless such revenues exceed the requirementsof the above rate covenant (7.18(a))and such additionalamounts as may be required, in the opinion of the Bank, to ensure the effective completion of the Project.

(c) IETT sill rnotincur any future.long-tem debt unless its net income before depreciationand interest for the year in which the proposed loan is to be incurred or for a later 12 months period ended prior to the incurrance of the debt, whichever is the greater, shall be not less than 1.5 times the maximum debt sernice requirementfor any succeeding fiscal year on all debt including the debt to be incurred. - 30 -

8. REC0MMENDATIOIJS

8.01 As a result of the negotiations the folpowing conditions were included in the appropriate loar.documents:

(a) The Government will permit IETT to continue to distribute electricity in the area presently served by it until a new organization, covering the Greater Istanbul Metropolitan Area can 'Deset up (see 3.11). (b) Arrangements acceptable to the Bank have or will be made for the engineering services of the Pro4ect b; May 31, 1973 (see 5.10).

(c) The terms of reference of EdF's management ttudy will be mutually agreed between IETT and the Bank; vill include a reorganization of IETT's inventory, reordering and accounting systems; will be coordinated with the similar study being undertaken by EdF for TEK, so that both IETT's and TEK's systems will be similar and cor-patible (ee 3.17 and 5.11).

(d) The Government will cause a power market study of the Istanbul Mstropolitan Area to be carried out and con)leted by December 31, 1974 under terms of reference mutually acceptable to the Government and to the Bank, which shall inter alia include a review of IETT's retail tariff structure; a power market study covering at least 1976 through 1985; and a preliminary survey to determine by December 31, 1973, the precise location cf the substations included in tle Project (see 1.06 and 5.12(i)). (e) The Government and/or IETT agreed to engage consultants acceptable to the Bank by not later than August 31, 1973, whose appointment, terms of reference and conditions will be mutuaUly acceptable to the Governwent and the Bank and whose objective will be to study and make recommendations by not later than June 30, 1974, unless otherwise agreed by the Bank, (i) as to the most appropriate organization, administration and means of financing the public transport system for the qreater Istanbul Metropolitan Area, including the separation of public transport from the distribution of alectricity (see 1.07 and 5.12(ii)), and (ii) as to the most appropriatemeasu:rs to be taken with regard to the manufacture and distribution of gas in Istanbul and including recommnda- tions as to the integration and most appropriate organization and meansof financing the present three separate gas ssrstems, including the separation of the gas utility from the distribution of electricity (see 1.08 and 5.12(iii)). - 31 -

(f) The Government will initiate by not later than December 31, 1974 or by such other date as may be agreed by the Bank and afte.- exchange of views with the Bank, the necessary institutional, financial and organizational arrangements, which wili lead to the establishmntof an organizationor organizations to be responsible for the distribution of electricity yrblic transport services and the manufacture and supply of gas throughout the Greater Metropolitan Area (see5.12(iv)).

(g) The appropriate environmental department of the Master Plan Bureau will be consulted with regard to the siting and design of the Pro-ect (see 5.13).

(h) IE.T will prepare separate and complete departmental accounts for fiscal year 1973 and will open separate departmental bank accounts with effect from July 1, 1973 (see 7.03). (i) IETT will erploy external auditors (see 7.04). (j) The Goverrment will take or cause to be taken, appropriate action to provide for the repai- or replacement of facilities or equipnent in the event of a loss not covered by outside insurance (see 7.05).

(k) The Gov rnment and/or Municipality will take or cause to be taker. such action as may be necessary to enable IETT to maintain its transport and gas operations at least at their present levels pending the long term arrangements for these activities (see 7.16).

(1) Electricity tariffs will not be reduced through 1976 and will, if necessary, be increased to a level h.gh enough to provide a surplus(before charging depreciation but afterdeducting all operating expenses of the department, including a reasonable allocation of Head Office or general overhead, and debt service on loansincurred for electricitypurposes) equal to at least 40% of the average of the actual electricity construction program for the previous year and planned electricity construction expenditurzfor the currentyear and,moreover, a shortfallin any one year willbe made up the followingyear (see 7.18(a)). (m) IETT's electricityrevenue shall not be used for any purposes not relatingto itu electricityactivities unless such revenues e"ceed the requirements of the rate covenant and such additional amounts as may, in the opinion of the Bank be requiredto ensure the effective completion of the Project (see 7.18(b)). - 32 -

(n) IETT's future borrowing will be sv.Wject to a debt limitation covenant requiring cash generation to b. 1.5 times any future annual debt service requirermiits (see 7.15(c)).

8.02 In view of the above conditions and assurances, the Pro2ect provides a suitable basis for a Bank loan of US$14 million equivalent for a term of 20 years, includinga grace period of J-1/2 years, and will be relent by the Governmentto IETT.on the same terms in accordance with a subsidiaryloan agreement to be concluded.

April 2, 1973 ANNEX1 REPUBLICOF TURKEY

ISTANBULELECT.IICITY, TRAMWAYAND TU NiEL COMPANY(IETT)

BASIC ECONOMICDATA (Figures are for 19?1 excpt as noted)

AREA 780,000 km2

POPULATIONl Total (1972) 37.5 million Density 48 per km2 Grow-th rate (1965-72) 2. 6 % p.a. Urbar. % oI total 36.8% U.-ban growth :-- e 4.1.% p.a.

GROSS NATIONALPRODUCT GNP at market prices US$11,955 million Growth rate ;1965-71, constant prices) 7.s% p.a. CN? per head US;B33O % o' 311P- agriculture 26.6 - industry 23.4 - services 50 Gross investment, %of GNiP 20.2 Imports of goods, %of GONP 11.4 Exports oi goods, %o' GN? 7.4 Government expenditure, I ol GNP 27.3 PRICES Rate of increase in consuner prices (1965^71) (Istarr 1l) 8.5% p.a. LABOR Total labor force 14.8 million % of total - agriculture 66.2 - industry 10.1 - services 23.7 Unemployment, % 6.0 BALANCEOF ?A.ENTS Exoorts o,' goods - value US$B85 million - growth ratF. (1965-70) h.7% p.m. Imports oi goods - value US$1,356 million - growth rate (1965-70) 8.8% p.a. Mlain exports, £-cf total - cotton 26.6 (avera; 1969-71) - hazeln-its 15.5 - tobacco 13.6

Energj consumption (coal equ_valent.) per capita (1970) L87 kg Electricity consumption per capita 266 kWh Population with access to elertricity (1970) 37: ANNEX2 Page 1 of 3

REPUBLICOF TURKEY

ISTANBULELECTRICITY, TRAMWAYAND TUNNELCOMPANY (IETT)

IETT LEGISLATIONAND DE FACTO STATUS

The regulations ruling IETT have been enacted by Law 3645.

Autonomy

1. According to Article 2 of the Law, IETT is a "General Management" of the Municipalityof Istanbulhaving legal authorityand independence of industrialand commercialPction in all matters concerningthe management of the assets bought back from the concessionairecompanies and transferred to the Municipalityof Istanbul.

2. According to Article 5 of the Law, IETT is not subject to the regulationswhich apply to the regular municipal departmentsconcerning public accounting,or the need for tenders for purchases. On the other hand, IETT does rnotenjoy the "special statL.;" provided by the Turkish law for "semi-governmentoffices".

Budgets,Balance Sheet, and OperatingAccounts

3. Article 6 of Law No. 3645 provides that budgets will be drawn up by the IETT and approved by the municipal council. The profit-and- loss accounts and the balance sheets must also be submitted to the municipal council for examination,approval and commentsafter which a copy is sent to the Ministry of Energy.

Although Article 5 does not require IETT to follow the general regulationsfor municipal accounting,Article 6 does contain an "auditing" requirementin that two "Auditors" (or controllers)appointed yearly by the municipal council,but not members of it, are responsiblefor examining the IETT procedures,budgets and accounts. The "Auditors"must review the draft budget balance sheet and the annial revenue account. They must in each case add their comments to these accounts before sending them to the Municipal Council for approval. The "Auditors"must also examine the receipt-and- expenditurevouchers to make sure that they were written at the correct time and in accordancewith the appropriateregulations. Their comments and a report of all inquiriesand inspectionsmade during the year must be sent to the Municipal Council.

Commitments

4. All commitmentsin excess of LT 250,000 must be approved by the Mayor, and all major expenditurebelow this level is approved by the General Manager. ANNEX 2 Page L ol 3

Staff and Appointments

5. (a) Staff regulations,organization charts and any amendments thereto are drawn up by the GeneralManager and submitted to the MunicipalCouncil for approval.

(b) The General Manager is appointedby the Ministryof Energy from candidatesproposed by the tayor of Istanbul.

(c) The Ministryappoints the vice-presidentsand other senior staff on tilerecommendation of the General Itanagersubmitted through the Mayor.

(d) MSonthlypaid staff (exceptsenior staff above) are appointed by the Mayor on the recommendationof the General Manager.

(e) All other labour and junior staff appointmentsare made by the General Manager,with the approvalof the Mayor.

(f) All contractsfor foreign specialistsmust be signed by the Mayor.

Professionaland Labour Pay Levels

6. Monthly paid staff are all subject to Law 3611 in the same wiy as other civil servants. Thus engineers,other professionalgrades and techniciansare limited to a pay scale, which providesabout half the equivalentsalaries paid by private industry for comparableskills. Thus in IETT, as in TEK, the level of professionalstaff is inadequateboth as to quality and to quantityof work achieved. This forces IETT (and TEK) to rely heavily on consultantsto organizeand carry out projectsand planning. Strong labour unions on the other hand result in pay for hourly paid operatingstaff and labour being ccmpetitivewith private industry.

Tariff Rates

7. All requestsfor increasesor changes in IETT's tariff structure are preparedby IETT and, after approvalby the Mayor and initialingby the Governorof Istanbul,are sent to the appropriateMinistry for agreementor amendmentby the Minister.

Other GovernmentApprovals

8. In addition to the staff appointments,pay levels and proposals for rate increasesmentioned above, the Governmentmust approve all foreign exchangeexpenditure and in general has the power to modify any operating, administrationor constructionprocedure or request submittedby IETT. The Government tas used these powers to object to the consultants'(SOFRELEC) original recommendationconcerning the location of some of the facilities to be suppliedunder this Project. ANNEX 2 Page 3 of 3

IETT's Actual Ope:atinR Status

9. IETT is theoreticallycomparatively free to do business as it chooses, and in fact Municipal supervisionis weak, and the municipal "auditors"reports, although often well prepared and relevant, are generally ignored and treated as a matter of form. Real pressure is applied to IETT only at government level, through the rate policies, foreign exchange authorizationsand investment help. The strong personalityand legal ability of the present General Manager,virtually an indefiniteappointmant, overshadows the vice-presidents and directors,so that the board tends to be ineffectiveas a policy-making bndy. ANNEX3 Page 1 of 7

REPUBLIC OF TURKEY

ISTANBULELECTRICITY, TRAWWAYAND TtNNEL COMPANY(IETT)

IETT'S TRANSPORTATIONDEPARTMENT

1. Public transportationin Istanbul comprises the "tunnel," the bus and trolley bus services of IETT, the ferryboatson the Bosporus Straits and Golden Horn, taxis, and the "dolmus," which are "jitney" taxis plying stated routes, picking up passengers en route according to their services ard operating on Istanbul'sancient pattern of narrow and winding streets. Traffic is further complicatedby the hilly topographyand the division of the city by the Bosporus and the Golden Horn. Inadequate traffic engineering and controls and ineffectiveenforcement of traffic regulationsadd to the problem. Bus maintenance problens are such that about one-third of IETT's equipment is not in operation on the average. IETT provides bus services both wit:iinand outside the Municipalityof Istanbul. The extent of its transport system can be seen from Map 10144 at the end of this Annex.

2. The TransportationDepartment of IETT has been in operation since 1939, when the Governmentpurchased the assets, rights and obligationsof the "Societe des Tramways d'Istanbul"and transferredthem to IETT in accordance with Law 3645. Until 1950 the Departmentoperated profitably. Since then, however, the organizationhas become top-heavywith managers and directors; with steady personnel increasesand wastage on unprofitableroutes, it has been operating at a progressivelyincreasing loss, largely supported from the profits of IETT's ElectricityDepartment. Buses started operating in 1942 and trolley busea in 1961. The cable railway was closed for electri- fication from Octuber 1968 through November 1971.

3. The following summarizes the equipment and operating statisticsof the Department as of December 31, 1971:

Age % of Average 1971 x in (Years) Nos. Fleet in Operation Operation

1) Equipment

a) "Bussing" Buses 1 47 6 47 100 b) "Leyland" Buses 2-3 300 ) 300 100 c) Trolley Buses 2-3 101 ) 70 69 d) Other Assorted Buses 10(+) 315 39 129 41 20(4-) 44 129 4 e) Cable Cars (Tunnel) 5 0.5 4- 100

811 100.0 550 68

/1 From November 1971 only. ATLNZ 3 Page 2 oi 7

Actual Forecast_/ 1972/4976 lTTz7-Ip70 197 1972 1973 1974 1975 1976 Total

2) 0peratin2 Statistics

a) Vaiicle Fleet

B3us ?leet at start 551 779 738 706 715 7t50 816 660 706 of Vear

Additionsor on 228 11 36 83 - - - - 83 2rder

Assumed 35 38 42 40 155

Scrapped (veryold - 52 68 44 - - - - 4h lenicles)

Bus Flget at End 779 735 706 765 76O 818 860 900 900 of Year Trolley Bus Fleet 101 101 101 101 101 101 101 101 101

Cable -ar (Tunuel) L 4 4 h4 4 4 4 4

Total 884 843 811 850 M65 923 965 1,005 1,cOj

b) Total Average Yehicles 526 5L49 550 590 630 670 720 770 in Ooeration during Year

, in Operation 59 65 67 69 71 73 75 76

c) Passengers (million) 211 244 253 270 288 308 329 351 per iear

Average Bassenger 4ol 444 463 458 457 460 457 456 (1,000)/Vehicle in Use/Year

d) km run (million)/year 44.9 47.1 46.9 50.4 53.8 57.6 61.7 65.9

SOURCS: IETT

1/ These forecasts of IgTTls vehicle fleet are based on IETT's estimates of the increase in demand for public transport, which do not necessarily take into account the expected growth in dolmus and private automobiles. These forecasts will be reviewed under the Traffic Engineering and Control Project, which is to be prepared under the Istanbul Urban Development Project (Cr 324-TU). ANNEX 3 Page 3 0° 7

Future Operations

4. A study included under the Istanbul Urban DevelopmentProject (Cr 324-TU) is to examine the traffic engineeringand control aspects of the Istanbul urban transport system, including the operations of IETT's bus systems. A complenmentarystudy of the organizational,administrative and financialaspects of IETT's bus services is included under the proposed loan, which will make recommendationsfor institutionalchanges in IETT's Trans- portation Department. This appraisal report deals only with the interim period until such reconmmendationscan be examined and acted upon in accordance with the conditions of the proposed loan. During this interim period it has been assumed that IETf will continue to operate much as in the past, with the existing transport tariffs, and will therefore continue to incur increasinglyheavy lcsses. Page 6 of this Annex shows the forecast of the expected transport losses, which should total some LT648 million during the 5 years through 1976. Naturally, such losses can be reduced by more efficieat operation of the system and by increased tariffs, which in 1971 averaged only krs 61.7 or USe 4.4 after a 60% increase in July 1971. For a full year this would average krs 75.5 or US4 5.4 per passenger and this latter rate has been used in the forecasts. Such a tariff does not even cover the forecast personnel costs of the Department. To the extent that losses are incurred in this interim perioe, it will be a condition of the proposed loan that the Government or the Municipalitywill take financial responsibility(see para. 5 below) for maintaining IETT's transport services if the financial support from the eJectricity operation is terminated.

Future Equipment

5. In '971, IETT was expecting delivery of the remaining 83 "Bussing" vehicles out of their original order of 130. These have already been financed by a supplier credit of LT 50 million at 15% over 5 years through the local '3ussing" agents, Standard-Belde. On the basis of an expected 7Z annual increase in passengers, IETT estimates that an additional 155 new buses will be needed to maintain the present average density of some /'0,?00 passengers per vehicle in operation per year. It r.y be assumed thiatthes'e vehicles will be financed by the Government at 5% and that the fire t rapayment of this loan and any customs duty will be deferred until after completion of the proposed transport recrganization. Alternatively,financing tor these vehicles may become available for external sGurces, such as the Bank or IDA, pending the outcome of the Traffic Engineering and Control Studies to be carried out under Credit 324-TU. The sources and applications of funds for the TransportationDepartment on page 7 of this Annex assumes that the Governmentwill also defer LT25.7 million, which is the whole of the "Five- Year credit" part of theLT 51.7 million loan for Leyland uuscs and which was due for repayment between 1970 and 1974.

6. The total financial assistance required by IETT for transport during the interin period through 1976 is estimated at LT 720 million, made up as follows: ANNEX 3 Page 4 ol 7

1972-1976 _(Tmillions)-

OperatingLosses 620.2 Debt Service 82.6 702.8

Less Depreciation 120.3

Net Cash Loss 1972-1976 582.5 Loans: New Buses 46.5) 72.2 Defermentof Leyland Loan 25.7)

DeferredCustoms Duty: Leyland and Spares 33.3) 65.3 New Buses and Spares 32.0)

720.0

Source: IETT and Mission Estimates.

7. Apart from reducingthe losses by better operatingand/or by in- creasingbus tariffs,Annex 25 makes other suggestionsas to how the funds needed by IETT can be found. To meet the total expectedcash deficitof LT 582.5 millionwithout other sourcesof additionalfunds, the transport tariffswould need to be increasedby some 50%. Should the cost of personnel, the largestcost element be over-estimatedby 10%, this would result in a reductionof only some LT 150 million in the estimatedadditional cash re- quirementsfor the per'.od1972 through 1976. 'EPUSLIC oF TURtMY

ISAUL ELERTtTCITY. 5TRAMWAYAnD T7aEL cO#ANY (IETT)

TRASSPORTDtPENlT

Actual wnd Forecast Balance Sheets 1972-1976

(LT dlhiom - LS14 * UsII)

126_9 17 1971 1972 1973 19714 gn?7

--.----.- Actual ------Foreoa-t _____-_____ -___-

r.-s !'ixei Usets in Operation 247.6 273.7 297.4 324.1 332.5 341.6 351.7 't. '.e' TepreMatios 99-1 120.9 46 177.5 2.1.4 2 40 .P 252.9 "It A353Inoers tro '"tloo.w51Zb15,T er W'ork-in-iro,Tress 0.9 0.4 ,4et -"iXpdk5sets 1.434 5 L15to7 15x 141e7r:T TO-8,

'jrrsnt Arsets 43.1 43.0 50.2 51.0 WI 49.4 L.g

turren.tC ,bij 11tter A .OA Sy L - Spp.Iers, etc. (3.8) (6.6) (6.7) (8.0) (8.0) (8.0) P.o) *:.ia1Jrft1 Taxes (1.5) (1.3j (1.8) (2.0) (2.0) t2.0) ' 7`b-total ',rrent *tsbil1ttles (M t§ 1) Ila) (137) IT.7! .r.- rrOrt' Aeset. j1 . r7 3 4T:7 r T 'jSj W3

iA: t's}- >187.0188.8 193. 187.6 i6l.2 140.2 37.7

* i,r;-l.tc s al : 171.8 171.8 xtn.8 171.8 171.8 171.8 i,1. ' -5s A-cr'ed :Assea (557.0) (645.o) (741.1) (873.1) (1,001.6) (1,137.5) !:,266.9 '5s o5s f!,r Yet 88.0) (96.1) (132.0) (128.5) (135.9) ;129.4) (12i.. a I.el apital Remainlng (473.2) (569.) (3 T) (t':.) (5T):,- . 5(1,09 . ) Cl,7'T ! Pd xenft Acquit 558.7 6781.4 904 i m8.6 t ,20

q;: TFPY ;).ERT N7 1 OANS 'Urssirg' A-ytr I 5 t-.ndard belde - 15.0 15.0 16.8 3.4 5yn"-ye&r S r overnnent 25.7 25.7 25.7 25.7 25.7 2' 25.7 "12ylndny-!ar -redit 7luding *vres r3s3 S nil 4iloverment 26.0 26.0 26.0 26.o 26.b ' 2'.o Sank iper red1t ee 16.5 14.8 13.0 11.2 9.4 7.6 5.8 . 5-year1rrs lrace f - -45 21.9 - -Z, tii _* *o1g-ters blorrnng; 737 31573 - X.stoltt .. y orn ta.yls.d - U'5paid 2J 33.3 33.3 33.3 } 33.3 333 33.3 Total :nr.g-tern Debt wnd credIF 1&35 71TU IT"3 1T11. 351 >.

FA.!FIrrT AII LONG-Tt2M ')EDT 187.0 1838 .1 187.6 161.2 14o..- 137.7 1V.4

1. t ueen, kelumd Tnot this loan of which so- LilO tklllion wesoverdue by 12-31-1971 will be allowd by the Govermwnt to be deferr-t .nti' tLh, Titantul Transport Sector haa been r,.rga&nhzed into a financially viable unit follorwirg the results of a study loclJded r. 1J Zatnnh.l Urban Dewelopwent Crdit 324-tu. Lbtil tbht tsm, the I? Transport tep&rtnent will need continuing eubetar.tl financear support from resoureee outside ETT.Interest onl the extended loan has been included in the Debt Service at LT1l4 zillion Per year. It l,as been asstumd that the Goverrsent will allow the cuatca duty outstanding on the leylend buses to remin unpaid and without S-. terest, since until the _athod of winding up ITlt present liabilities for transport is determined at the tie. of the reorgenization (:74e Note 1) wny payment of tusto. duty on buses or spaeres wld only increre the amount of interiu support needed.

Nove.ebr 24, 1972 6 o~f 7

REPUBLIC OF TURKEY

ISTANIBL EL=TRICITY, TRAWMAYAND TUNNEL COMPANY (IET)

TRANSPORTDEPARTMENT

Forecast. Incane Statements 1972 - 1976 (LTail-lions -- LT 14l US$)

Actual Total 1971 1972 1973 1974 1975 1976 1972!1976 eoo !hn Run - Buis 42,126 45,600 49,000 52,800 56,900 6;,loo - Trolley Bus 4,_,89 4,800 4,8o0 4,800 4,800 4,800 Sub-Total - Km° Rum 46,915 50,400 53,800 57,600 61,700 65,900

-Tunnel 6 50 50 50 50 50 0 Total KmO° Run 146,921 50 ,b50 5,52 57,650 61,750 65,950 Average Krs per passenger carried 61.7 75.5 75.3 75.6 75.4 75.5

No. of buses & ?rolley buses in service 546 586 626 670 718 766

Phssengers (million) bus & trolley bus 246.9 264 282 302 323 345 2nrel 6.3 6 6 6 6 6

Total 253.2 270 288 308 329 351

')perating Direct Income 156.2 2nf.0 21.0 233.0 248.0 265.0 1167.0 (Mther 7.7 9.1 1.0 13.0 15.0 17.0 65.1

7otal Income 163.9 213.1 228.0 246.o 263.0 282.0 1232.1

- x-perniiture

5:lariac, :a,es etc. 205.3 236.u 249.0 262.0 283.0 306.0 23.1 25.0 28.0 30.0 32.0 35.0 Flectricity 3.8 4.0 4.0 4.0 4.0 4.o %Taterials 25.7 28.6 30.6 32.6 34.6 37.6 nitnistrarion & Insurance 8.2 10.0 11.0 12.0 13.0 14.0 t4Mlcipal RP3yalty 0.3 - 1.0 - - 1.0 ieprecifttion 26.4 31.0 34.3 29.8 12.5 12.7

Total Operating Fxpenses 292.8 334.6 357.9 370.4 379.1 410.3 1852.3

'et 7peratirr Losses (128.9) (121.5) (129.9) (124.4) (116.1) (128.3) (620.2)

-nreres- on Longi-term debt 3.1 7.0 6.o 5.0 5.0 5.0 28.0

-,et rp';s (Deficit) (132.0) (128.5) (135.9) (129.4) (121.1) (133.3) (648.2)

Novernber 24, 1972 ANNEX3 Pace 7 ol 7

IERUBIC OF TUMitY ISTANiULEL?DTHICITY. T!LAJJUY AND TUNNELI COEANI (IoT) TRANSPORtrDEPWAMTN Forecast Seurces and Applicatiosi of Panda 1972 - 3975

(LT millions -LT14 * US$1)

Actual Yorecast i 1272 1973 F oree eet19? $ 1976 1972-1976 Lources of Funds A:.C cnd Electricity Dept. Orsh Zontribution 137.7 122.6 113.c 101.8 IOT.4 119.L 565.0

I.on-Term. Forrowvin Stznd.rd de - "Bassing, - 30.6 -- - - 30.6 Covernrent: New Puses 1 - 10.5 I1.4 12.6 12.0 666

total Long-Term Borrowing - 30.0 10.5 11.h 12.6 ;2.0 77.1 Decreea.e (Increrse) Working i'Spil (6.6) 0.7 0.9 0.7 0.5 0.6 3. ittal S.vurcee of Funds 13.2 "; 12. 132.0

Applicrtions of F inds Net Operating Losses 126.9 121.5 129.9 12b.L. 116.1 128.3 620.2 3 1 2 Lest Deprecietion 26.4 31.0 4.3 29.8 12.5 .7 Mal Net,Cach Lose 102.5 90.5 95.6 94.6 103.6 11$.6 }urchese of new Buses & Sparea 25.8 8.4 9.1 10.1 9.6 63.o Dett Ser-ice: J'o'rizaLinn 1.8 3;J.6 15.2 5.2 l.e 1.8 5h.6 Intereston Long-Toem Debt 3.1 7.0 6.0 5.0 50 5.0 28.0

Sub-tothl Debt Service L.9 21.2 10.2 6.8 6.8 82.6

TQTAI APFLIArIONS CelFuNDS 131.511 125.2 113.9 12C 1145.;

o- rib'.'icnFrom H.0. or Electricity it stert of year 6b3.' 781.4 90t.L 1,018.6 1,120.c 1,228.6 781.h nre2se (Decrease) in Cash 7 .cntribution in Year 137.7 122.6 113.8 101.8 10 .h 119.L; 565.0 Direct Depreciationcharged for HP0. Assets o.b 0 .4 o4O 00.I OA O.L 2.0 At Znd Year of 781. L 1Q.18.6 l.120.8. 1.228.66 .3L48A4 1,346.4

/ In addition t.c the atove Goverment loan of LT4Z6.5 million, for 155 additionalbuese, the forecasts envisage that duty of the order of TL30 million on the buses and "pares will be waived and that repayments of exieting loans for the purchase of Leyland buses totaling L725.7 million will also be deferred and 'hat LT33.3 million of outstanding duty on the Leyland vehicles and ypare will be waived or deferred without interest until a financially viable reorpanisation of the Istanbul Transportation sector has been carried out. (See note !/of Annex 3, page 5).

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* ,, ,, X / Y ,RTA ANNEX 4 Page 1 of 5

REPUBLIC OF TURKEY

ISTANBULELECTRICITY, TRAMWAYAND TUNNELCOMPANY (JEIT)

IETT'S GAS DEPARTMENT

IETTs Gas Systems

1. IETT's gas supply is produced in two plants originally purchased in 1944 from a French company. These are:

(a) Istanbul- The Yedikule plant, situated on the European shores of the Sea of Marmara, which produced 11.2 million m3 in 1971 and sold 8.8 million m3 to 11,137 consumers in the suburbs of Fatih, Eminonu, Eyup and Bakirkoy. These include several industrialconsumers.

(b) Anatolia - The Kurbagalidereplant, situated at Kadakoy, which produced 7.8 million m3 and sold 5.2 million m3 to 16,288 non-industrialconsumers in the suburbs of Uskudor, Kadikoy and Kurba Galidere.

Production and sales from both plants have been dropping consistently since 1965 at about 8% per annum, because of the low calorific values (often below 3,500 to 3,300 calories/m3) and low pressure (reachingthe consumer at only 50 mm). The forecasts have assumed that this t-,endwill continue at about ,% per annum. The two IETT gas systems have never operated at a profit since their acquisition. Gas sales are augmented by sales of bi-products-- coke, bitumen and ashes.

Municipal System

2. Istanbul's third gas plant, located at Pesa, belongs to and is Operated by the Municipalityof Istanbul, although IETT is representedon its advisory operations committee. The plant serves some 61,000 consumers in the C.ntral Beyoglu area of European Istanbul, east of the Golden Horn. Map 10145 at the end of this Annex shows the coverage of all three systems.

Operating Statistics

3. Operating statistics of the IETT systems combineA are: ANNEX 4 Page 2 of 5

ACTUAL PORECAST 1969 1970 1971 1972 1973 1974 1975 1976

Production (m3 million) 22.6 20.6 1t.O 15.4 14.7 14.0 13.2 12.5 Sales (m3 million) 21.0 18.4 14.0 13.2 12.6 12.0 11.3 10.7 Average prices krs/m3 53.8 55.4 70.0 70.0 70.0 70.0 70.0 70.0 Consumers (1,000) 37 35 33 31 30 28 27 26

Gas tariffs were increasedby about 20% in October 1970, and the forecasts assume the continuationof these present tcriffs.

Equipment Details

4. Equipment details of the two systems are:

Istanbul Anatolia

Generation: a) 4 Woodall-Duckham(1948) a) Bamag (1952) of 3,000 m 3 /day of 22,000 m31day (actual capacity

b) 3 Didier (1952) of 54,000 b) Picard (1956) of 10,000 m3/day m3 /day (theoretical capacity but partially out of service c) Didler (1963) of 54,000 m3/day (theoretitalcapacity but part- iall; out of service).

d) Bamal - used for peaking and standby only. Gasometers:

1 x 15,000 m3 1 x 6,000 m3 1 x 30,000 m 3 1 x 10,000 mn3 1 x 50,000 m 3 1 x 30,000 m3

Compressors:

4 x 5,000 m3/h each 1 x 7,500 m3 /h 2 x 2,500 m3/h each (standby)

Pipelines:

Medium Pressure 31-km steel pipe, serving 6 8 km steel pipe, serving distributionstations and 3 zubstationsand 1 spur 3 spurs

Low Pressure 197 km, about 90% steel 232 km, mainly cast-iron

Losses: 13% - 20% 20% ANNEX 4 Page 3 of 5

Future Operations

5. Sales revenue is forecast as continuing to decline at 5% per annum and, as can be seen on page 5 of this Annex, the departmentwill continue to incur increasinglyheavy losses each year and these will total about LT160 million from 1972 through 1976. As in the case of transport,the gross income from sales of gas and bi-products,which for gas normally account for about 1/3 of gross sales, does not cover even the personnel costs of the department. A gas sector study, included in the proposed loan, will examine the problem of the organizationof the gas services of Istanbul, their potential viability and future organization. Subject to this survey, it is likely that economies of scale and operationswould follow the merger of the present three systems. In any event, gas will be separated operationally from the activities of transportand electricity. Pending the outcome of the study, however, it would be a condition of the proposed loan that the Govern- ment and/or the 'funicipalitywill take responsibilityfor the Gas Department's cash losses, estimated at LT 1;0 million during this period (see page 4 of this Annex) and made up broad as follows:

LT Millions

Total Losses 160 Less Depreciation 30 LT 130 million

Future Plant

6. Pending the outcome of the survey, it has been assumed that no major investmentwill be made in the IETT gas systems. The Balance Sheets and Sources and Applications (page 4 of this Annex) include only LT 3 million per year to cover routine rehabilitationand connections.

Tariffs

7. To meet the cash deficit from 1972 through 1976 without additional sources of funds and assuming that the three systems are not merged into one to improve operations, gas tariffs would have to be increased by over 300% because of the fatling volume of sales assumed; even at the 1971 level of sales, the increase would have to be about 260%. Increases of this order would doubtless make the service non-competitive. ,~ ~~ ~ ~ ~ ~ ~~~~~~wu OF T

UPULIC 0? 7113 ISTIL MIC2MC17T.TRAIM ANDTUN OMWANr(=Tr)

,o ue ed ?o.atkiaebt 19X72-1976

e"es md faisatie of Itws ign-1976

(LT madlls.. LUli * IM.)

- BALANCESHtlS 2 1970 1S71 1R72 17 1974 1975 1975

Aotva-----l ------Forect ------ASSETS Gros6 Fixed AAsts 1a.2 66.Ia 954. 96.0 101.0 10j.0 107.0 110.0 Leo Deprecation 36.7 40 k2ku 1 56.1 62.5 69.0 $5.7 Net fixedAssets 47.5 E6.2 51.5 a8.l 1.9 14.5 36.0 31A.3 vork in Progress 3J6 13 1. 1.0 1.0 1.0 1.0 1.C rotal Fixed Assets 51.3 52.5 52.A h.q. 145.9 I2.5 39.0 35.3 Net Curet Isst ANe ut Rree.iv&bl: C mr. 2.8 6.5 5.2 2.3 2.2 2.1 2.0 1.9 a Other 0.2 0.A 1.6 1.0 1.0 1.0 1.0 1.C Inventories 11.6 1 3.1 lhj6 14 lS.0 9 16.0 16.9 Sub-total Currut Asset, lha.8 20.2 21A lB.0 lb.2 18.6 19.0 19.Ia Less Current Liabilitiess Accounts Pable Siippl (10.0) (10.0) (16.3) () (10.0) (10R.0) (100_) (10.0, Net Current Aseete M$ 102 5.1 8.0 8,2 8.6 9.0 9:§

TT0AL ASSS 62.? A; -. M.20IS i_

EQUIT! AID IONG MM 10? Equity Initial Capital 70.7 70.7 70.7 70.7 7'0.7 70.7 70.7 70.7 Le:: Aeccred Loseee y (53.9) (69.3) (83.7) (O24.3) (125.7) (158.7) (190.h) E225.L) Less Lose for Yver (1) (15.2) (20.6) (25 ()t31.7) 13 t ) t) Negative capital PAmaining . (1.9) (J1r(F3 MM) (55 2) Head Office Current Account 5 76.6 91.5 116.1 41 1o7Q. 202.7 2,37.2 Net Equity bIj 37 57. 77T 54L- 311 Uc.F

Long-ten. Debt -

TOTAL EQUITT AND LII 1 118T 6.1 62.7 57'9 5 51.1 6..D

SORMCLSAND APPLICATION 0YUM 1S71 Up M 1974 7 I976 1972/76h Sources or rends: IET!ElectF icity Iepartmnt 11j.9 2U 6 26.0 28.? 31.9 35.2 146.4a (Incre-ae) or Decrease in Ww*Ing Capital 6.0 (2.9) 10.2) (.I) (0.4) (ol) (4!.)

TOTAL SOURS 20.9 21.7 25.8 28.3 34.5 3 .8 142.1

ApplicJtion I 659Fr-Urn-4Lase 20.1 21.9 28.5 31.1 34.4 37.8 156.7 Less Depreciation 6.o 6.2 6.4 6 6 = 8 Net Cash Lose 11 in 0 21;7 24 3IT I2 Capital Conatruction 6.o 2.3 3.0 3.0 3.0 3.0 14.3 Interest on Current LiSbilitLem 0.5 0.5 0.5 0.6 0.6 0.7 2.9

TOTaL AP?LICATIONS i20. 21.? 25.S 283 3 5

NOTE s- I/ 1970 Accrved Losses have been incread by LT2.1 mdllion wd thoe for 1n nduced by LT0.9 Slilion respectivIY bcauCSI of *duStIMatA to the total of aults considered to be of no value end included as losses.

Novectar 2b, 1972 ANNEX 4 RaIJBLIC OF TUJkEY Page 5 of 5 ISTANBULh1ErCTRIC]TY, TIR4WkY AND TUNNE. COMPANY(IETT)

GAS DEPARTMENT

Forecast Income Statements 1972 - 1976

(LT millions -- LTa4 - US$1)

Actual Forecest Total .1971 192 1975 1972/1976

Scles in Kil ionsn 3 1h.0 13,2 12.6 12.0 11.3 10.7 SalesRetupn Krs3 70.0 70.0 70.0 70.0 70.0 70.0 Million m-Manufrctured 19.0 15.4 14.7 i14.0 13.2 12.5 Revenue Seles of Gas 9.8 9.3 8.E 8.4 7.9 7.5 la*9 Salesof Byprodicts 2::Z 5.0 4s.?7 4.5 25.1 Total Opermting Revenue 1 14.9 .143.412.6 12.0 67.0 Expenditures Salaries,Wagee & Perruisites 17,3 19.0 21.0 22.0 24.o 26.0 Coal 1L.1 12.3 12.9 13.6 14J.0 14.6 Materials 1.0 1.0 1.0 1.0 1.0 1.0 Administrative& Insuronce 1.5 1.5 1.5 1.5 1.5 1.5 Depreciation 5! 6.0 6.2 6.4 6.5 6.7

TotalOperating Expenses 39.6 8 42.6 44.5 47.0 49.6 223.7

Net OperatingLosses (20.1) (24.9) (28.5) (31.1) (3E.0) (37.e) (156.7)

Intereston OurrentLiabilIties 0.5 0.5 0.5 0.6 0.6 0.7 2.9 Net Surplus(Deficit) (20.6) (25d&) (9 0) (31.7) ((5.0) (159.6)

Norember24, 1972 ANNEX7 REPUBLICOF TURKE:Y ISTANBULELECTRICITY TRAMWAY AND TMNEL COMPANY(IETT)

Number of IETT Employees

% of Total % Increase 2h2lc,?es 1960 1969 1970 1971 1970 1971 1969 )P71

Electricity Staff 770 909 1,002 1,179 10% 18% Labor 2 581 2 82h 2 34s7 2 536 (17%) 8% Total Actual 57 .3379W f (10%) 11 32% 33 Add Silahtar transfers 477 477 Total ,726 Lr,-192 2%

I'ransport Staff 453 380 409 517 8% 26% Labor 6,517 6,792 6, 97 6 361 (5%) (2%) Total 6,970 7,172 6,906 (4%) (1%) 61,% 61%

Gas Staff- 109 126 99 l14 (21%) 15% La'oor 767 682 594 556 (13%) ( 6%) Total B7 69 706-a (14%) ( %) 7% 6%

TETT Total Staff 1,332 1,L15 1,510 1,810 7% 20% Labor 9,865 10,298 9 438 9(8) _ Total Actual 11,197 11, 713 eO,94811,263 ( 7%) 3% 100% 1Q00 Add Silahtar transfers 477 477 Total( 1l,b25 ll,7ia5

Number per employe: Electricity consumers: - ACtual 157 187 186 - Less Silahtar 157 164 156 Transport passengers 29,hOO 35,bOo 36,800 Per vehicle in service 13.2 13.1 12.6 Gas consurers 47 51 50 REPJBLIC OF TURKEY ISTANBULELECTRICITY, TRAMWAYAND TUNNEL CCPANY (IETT)

Existing Facilities

1967 1963 1969 1970 1971

Consumption kWh 1,197,1LI,618 1,338,994,134 1,40l,J52,631 1,497,254,C27 1,.55,972, 344

Number 3i customerrF 520,605 552,9638 5S,575 62 7,863 655,027

1) 33/10-kV transformerstations Number oi stations l 22 2j 25 27 Nur,iberof transfortmers 36 i2 46 58 58 Povw: oi-tran3formers KVA 390,000 L56,0o,o L8h8,o000 67, 000 673,000

2) .5/0.4, 10/). 4 , 10/0.2-kV Tr. Stations 'lumberol stations 997 1,059 1,135 1,232 , 3 Number of transformers 1,190 1,225 1,,L5 1,Ll 1,6,9 Power ol transiorrwrsKVA 567,945 565,Zl' 655,100 7C1,190 °5f,l!.2

N)Number oi 10-kV substations 63 76 P4 1o4

4) Number of 35-kV substations 11 1 E 23 2

5) Overhead lines (neter) 5,1k.V 13,1776 1je,994 145,727 152,j01 160,65) 10 kV 37,722 44,294 i4l4,294 47,855 52,E c 1 kV 1,236,96 1,412,l7 1,158,07 1,5,1 . ,,25

6) Cabl.es (im-ter) 35 k' 134,946 13,,705 1.6, 154 135,995 142,,612 10 kV 1,173,468 l,2l6,307 1,262,202 ,320,459 1,275,500 1 kV 1,952,591 2,022,17 2,104,860 2,177,704 2,2,7,97

7) Submarinezables (nmter) 35 kY 12-lc,352 12,_52 l2,352 l2,352 12,352 10 kV 29,952 22'J,9952 29,?52 29,952 &.9Wt 9

lSt6fIL 21ZCTICITT IIVMPAO AID IML I*XWAT (181?

Q...t0. 0... I~.- & coot of P00.

1~~ 1871 2367.~711. ~ ~ l 19'6 i' _ il .0

-- T.'L" ~~16.93S.0 - - 5 . ltr'? .e,atlo. 320.0 29. 1. 1,19.6 3'1.1 13.4 i 71M, '.. . 1.,- TU 9'1.' i 09.7).2. j I 0. N0,9o.00 5/. Y0'. I(. 'lob 3~~~ ~ ~~~~.8.1 ~ ~~~~~~3.020.0 oS.2 73.', 8.34 160.0 39*35 M.09 "..3 .71.). 1.1 2.04 4iJ.? 03.1. A.9 022 . 9V.21t. I ~~~~~~~~~~~~~~~~612.9 35A.2 3;oB. 357.9 41. 0.2% "10).? 11).t. 107.9 398.8 130.8 ku%7. W606. 20.0 0.10.0 010.0 10.IC

1 loOt; U=08.31 1.663 1.718g.' S11. '.% OLSO?~ 2, Al la",~~~~~JJ81.00.9 U=60 IjA l13' '35.X 'D 0 166.1 21.2.8s *9.o o- 30 1('80 100. 6r. * ~~~~~~~~~~~~~161. . .C I 1.~~~0.o.'1,o 8 of ~~11.91 11.04 39 it.C.1 .3 56 33.04

3'.. 050117~49.0,0 ~~-.0 4. ~ ~ ~ I. X'I 3i5 V ' "Is..' ,:~~~~~~~~~~~~~171 93.2 x100.7 - 1 10.0 6.0 7.: 1'.0 .. 3 1. 1 -oo Ijo IJ" lo .rc, . . - . . . ~ ~ ~ ~~ ~ ~~ ~ ~~~~~~~~~~~~~ 76. C 713. el.) eq.. 1.',.c 320 120 2 120 72 3.'.300t ~~~~~ ~~~~~~77*. ~~63.007.0 6. 1..2 ______1- -___: - 05 13' 1. 0 .2

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.2.5 99.9 . . - S 1.05 .C. 0L .73e2 Olo7 39.9 3 61. 8I . 33.1. 00.6 '0i380 3.-

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. ? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 ANNEX12 Page 1 of 2

REPUBLIC OF TURKEY

ISTANBULELECTRICITY, TRAW1AYAND TUNNEL COMPANY (IETT)

Tariffs

TARIFFS IN EFFECT SINCE APRIL 1, 1972. SUBSEQUEUTTEK TARIFF CHANGES(FUEL ESCALATION)PASSED ON TO CONSUMERS.

One-Part Tariff Two-Part Tariff krs per kWh krs per kW krs per kWh per month

Domestic /1 45.68 100 36.68 Commercial/2 62.68 200 42.68 Official Buildings 62.68 200 47.68

Small Industry /3 46.68 750 37.68 Large Industry /4 39.68 2,500 32.68

Street Lighting 37.68 - - Trolleybus 36.68 Railroad 30.70

IETT's consumersare required to pay a deposit equivalentto:

Domestic: One-Part: 3 LT x (numberof lamps plus power points) Two-Part: 2 LT x 3 TL x (numberof lamps plus power points)

Conmercial:One-Part: 35 LT x (numberof lamps plus power points) Two-Part: 24 LT x TL x (numberof lamps plus power points)

Industrial:One-Part:100 LT per kW installed Two-Part: 115 LT per kW installed

/1 Minimum monthly bill LI 5.0. 75 Minimum monthly bill LT 12.0. 73T Minimum energy billed based on 400 hrs usage per annum per HP installed. 7R Minimum energy billed based on 150 hrs usage per annum per HP installed.

A rebate of 5% is accorded consumers purchasingelectricity at 10 or 34.5 kW.

In addition to the above tariffs,a tax is levied amounting to 6 krs/kWh for domestic and commercialconsumers and 2 krs/kWh for industrialconsumers.

Industrialconsumers are penalized LI 30 per kW in excess of contracteddemand. ANNEX12 Page 2 of 2

The reactive energy charge (low power factorsis computed at one-quarterof the kWh price times (Reacti-'energy - 1/2 Active energy). Consumerswith an installedcapacity below J) kW are not subject to this penalty.

The cost of installingand maintainingmeters is added to the monthly bills. ANNEX 13 Page 1 of 2

REPUBLIC OF TURKEY

ISTANBULELECTRICITY. TRAMWAYANTD TUIRIEL COMPANY (IETT)

Cost of PurchasedPower TEK Tariffs

The tariffs quoted below have been in effect since July 16, 1971.

A. TWO-PART TARIFF

Demand Charge

ContractedPower is charged as follows:

0 - 3,000 kW LT/kW per year or LT/kW per ronth

3,001 - 10,000 kW 396 33

10,001 - 30,000 kW 372 31

30,001 - 60,000 kW 360 30

60,001 - 100,000 kW 348 29

100,001 - kW 336 28

If actual demand in any given month exceeds contracted demand, each kW in excess is billed at LT 40/month.

ENERGY CHARGE

The energy charge is computed on the followingbasis:

O - 5 GWh 20 kurus/kWh

5 - 30 GWh 19

30 - '00 GWh 18

100 - 200 GWh 17

200 - 350 GWh 16

350 - GWh 14 ANNEX 13 Page 2 of 2

B. ONE-PART TARIFF

Price per kWh 38 kurus.

C. REACTIVE POWER (Low Power Factor Penalty)

Of the reactive energy drawn by consumers purchasing electricity at the one or two-part tariff, a charge is billed as follows:

a) each kWh of reactive energy up to 0.75 times the

active energy 0.5 kurus/kWh;

b) each kWh of reactive energy between 0.75 to 1.000 times the

active energy 2.0 kurus/kWh;

c) each kWh of reactive energy in excess of 1.00 times the

active energy 5.0 kurus/kWh.

d) The reactive energy charge is not applied when installed transformercapacity is less than 250 KVA (villages, cooperativesand associations). In all other cases, the installationof measuring instruments,needed to measure reactive energy, have to be made by the consumer.

In applying the above tariffs, a rebate of 15% is made for customers paying the whole of their bill within one month of presentation. Customers paying their bills after one month are subject to a 1,.penalty.

0.1 kurus is automaticallyadded to each kWh for the price difference of 50 kurus in the cost of 1 million keal of fuel used by TEK. As of July 1, 1971, the fuel escalation provision amounted to 1.4 kurus/kWh. 1Norebate is given on this supplementarycharge. ; . Cn"lr ..'S..\, i,~~~~~......

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°. ! ' ? * ?~ TURKEY ISTANBULELECTRICITY, TRAMWAY . AND TUNNELCOMPANY t'IETT) 34.5 KV PRIMARY0 DISTRIBUTION SYSTEM

Er.,stAg 1972/73 F-rioned 1974/75 V,orrom by TEK progo,,,r$ 15i4/34 5 KV sobstol.ons

O 0 0 34.5110 KV su toIs _ _ _~~~~~~34 5 KV msehaod h,,es 34.5 l(Vwldeg9rounwd cables TURKEY_.. _ ISTANBUL.------ELECT..RICT ---- M ~po;>l boundoryTRAMWA of lslonbul ANDRoilwoysTUNNELCOMPANY(IETT)~~~~~~~a . 90ds ....--- oltwoy under construclion

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'LT Thousends -- LT14 X$1)

Qtarftitles 1<71L 197A 1974 197zl Fomelgn ^'ustau ',oc4T 10t&l Foreign atost Loc-l Total Costs !utle ot Costs Dutiee Cv.ts

All 34.5 kV 5f* 4 (Inilde Mmicipal .ndrary)

1.1 hiyot (No additins) 1.2 Lusalani (Airport) Civil works _ . 750 750 . . 3..5 kV Cell. 4 224 11.1. 120 km88 * * 10 kY Cells 2 . 70 45 50 165 . trwaeforwro 2/1 IA - 1,003 30 60 143.. Une Connectio40n* - 100 100

7.It?BU DTIC?

Civil works - T50 750 3b.5 kV Celae 221 I" 120 k8 lO k" Cells 10 - 350 225 250 825 . - Trantrorurs 2/15 UVA - 1,008 380 60 1.448 Cable Connection 1,000 a * 210 225 100 535

3. Y1UBOIWRUV7 3.1 lWit"e Civil works * - , 750 750 3h.5 kV Co1is 4 2 221 1;4 120 1k88 112 72 5° 244 10 kV Cells 10 . 350 225 250 825 - Trwatoruers 2/15 IVA - 1,008 380 60 1,1."8 . . Line Convectioo .00 . 200 200

3.2 Ulbt1ti Civil Works 34,5 kcV Cella . 10 kV Cells - Trmnormere 1/15 MVA _ 501. 190 30 72k . . Line Connectim -

*. rYoGLuDISTRICT 4.1 UEFO= Civil Work, a - - 750 T50 - - 34.5 kV Coils 6 1 336 216 18O 732 56 36 30 122 10 kv Cells 10 1 350 225 250 825 35 23 25 83 ranforuers 2/15 MVA /15 WVA 1,008 380 60 1,4v18 51 190 30 721 Line Connectit 4001 .00 - 100

2.. Arwotkoy Civil Works - - - - - . - * - - 34.5 kV Cella I 56 36 30 122 - - - 10 kV Cells - ' - ' ' Trraforuers 1/.1 MVA . 504 190 30 724 - . Line Connection - -

SUP-T=AL TO BE CARR3D F7CWA1D 7,434 3,5-9 5.170 16,133 707 321 11.5 1,173 F; AMIXT' OF TU'JPf we, 15 Fage ? a 6 LSTAKBU ELcBTrIrrM, TRAWIA.YAE TUFL ClTPAY (rETT)

Inveutnent Nogti 197 4 and 197S - as Price EIn 1971) (LT ThousadsM -- LT14 -X$I)

ntSties 1974 1975 rD17orein cCustom mm Total Foreig Custm Lol Total Costs Duties Costs Coets Duties Costs

707 321 .45 1.173 SUB-TOL CARlIFD FOJRARD PACE 1 7,434 3,529 5,170 16,133

4.3 ncirlUkuyu Civil works _12 _ 7 3b.5 kV Cells 2 1 112 72 60 24t__ 14 kV Calls ------_ Trwnifonwrs _ Lim Cicnctioc - - - - _ -

- 7S0 750 CivilWock------1 - - 2211 ll 120 186 34.5 kV Colls 225 23 825 lO kV CeLls 10 -- 350 190 2 T w f:rtr 1-1 WA - . - -

civil doks - - - 34.5 kV C]Sl 1 - 56 36 30 122 - _ _ _ 10 kV ClU 1 - 35 23 25 83 Trnsfovrr 1/15 MVA _ 504 190 30 724 llne C ctica - - -

5. AXATOLTADISTaIC? 5.1 seii Civil Yrks - _ _ _ _ , , _ _ kV C.Us 4 - 224 144 120 88 34.5 . . 10IkV Cls 2 - 70 45 50 165 115 tWA - 190 2724 Tansform -- Cable* Ccmwtion 400 a 84 90 CO214--

5.2 Vanikoy Civi works . . 31.5 XV COAl - - - _ - . _ 10 kV Cells - - - . . . ?rsnfwrs 1/15 WVA - 504 190 30 724 - Line/Cable Cacoctico -

5.3 Caddebotaxni - - - ' ' ' 750 750 Cv1i1 Works 14 124 4e 34.5 kV Cells 42422 4 350 225 1250 825 IOkV Cells 10 - ' 504 190 30 724 Tansforsers - 1/15 MVA . - Line/Cable ConDectim

5.4 Usylerbey - . * 750 750 Civil works - - _ 224 144 120 8 34.5 kV C.lls - 4 . . _ 10 kV Cells 10 350 225 250 1/15 VA - - - 504 190 30 Tranforiers 100o t :Je Caczecti. - 4 _ _ 3,941 1,998 3,795 9,734 SUB-TOTALTO BE CARRD:I FORWAID 9,5i7 4,509 5,585 i9,6-'

I _ iiEi'T3LIC OF T.RKEY C

T?TAN". F:U,FrTF.1:TrY. T'{AfWAY 3i'1 TIAMNFLcOWPAtr 2.;RT)

Tnvestment Progrsa 1974 and 1975 (^ase Pric- Fnd 1971)

(LT Tho san&t -- LT,14 - IE$1)

Quantities 1974 1 7j 1974 97 Foeg utu Lc Total Foreilg CuRt Local Total Coati Duties Coatc Costs Duties Costs

SUB-TOTAL CAFRiIED F0B*ARD PACE 2 9,527 4,509 5,585 19,621 3,941 1,998 3,795 9,734

A/2 34.5 kV Syuteo (Outside Xmicipml Bound&ry) S th35STATIWtS 1.0 VMRRM DIRRIC 1.01 Cungorsn (fo ZUtions required) 1.02 sarskoy Civil works * - _ 750 750 - 34.5 kV CeUu 6 2 336 216 180 732 112 72 60 244 10 kV Cells 16 - 560 360 40 10320 Trantformers 2/15 ¶'P. 1/15 MVA 1,008 380 60 1,448 504 190 30 724 Line Connection 1,000 a - - - 250 250

2.0 ISTANBUL DISTRTCT (No addtions required) EYUB DISTRICT 3.01 Alibekoy Civil Works * ' - ' 750 750 34.5 kV Cells 4 - 224 144 120 4888 _ _ _ 10 kV Cellc 10 - 350 225 250 825 - - - Tranformers 1/15 MVA - 504 190 30 724 Line Coomection 800o - - - 200 200

3.02 SgmelcilAr (No additiou required)

4.0 BEYOCGLUDISTRICT 4.01 CenTe re Civil Works ------34.5 kV Cells ------10 kV Cells - - - * - - Transformers 1/15 WVA 1/15 MVA 504 1°O 30 724 504 190 30 724 Line Connections ------

5.0 ANATOLIA DISTRICT 5.01 Pendik Civil Works - _- 750 750 34.5 kV Cells 6 - 336 216 180 732 - . . _ 10 kV Cells 124 490 315 350 1,155 - - - - Transformers 2/15 MVA - 1,008 380 60 1,448 Line Connections 1,000 a - - - 250 250

5.02 2Lltepe Civil Works - - - - 34.5 kV Cels - - ' ' ' ' - ' ' 10 kV Cells - - - Transfonmers - 1!15 MVA - - - - 504 190 30 724 Line Connections - - __

TOTAL 34.5 kv SUD-STATliSI 324..7 7,125 10,19S5 EA1(7 5.6455 3 45 12Ž50 AE : REPDLIC OF tIF ~** ISTANBUI ELECTRIcrTY, TMwAY AID IUNLEL C(4ANY (ErrT)

InveLtment Program 1974 knd 1975 kBs.se Price End 1971) (LT Thousands -- LT14 . w$1)

Quantltle 1974 CuntI. lcal Total 1974d Total Sn Costs Duties Coust Costs Duties costs

B. 34.5 kV OVESHEADLIDS . 5,000 5,000 1. Cendere-Levent 20 km - - 8 km - - - 2,000 2,000 2. Lanmiye-terdivenkoy - Selimlye 500 _- _ _ _ _ 500 3Cdebostani Spwr 2km 1,500 6 km - _ _ . 1,5Q0 VY-ikoy-eylerbei-SeCiy - ,000 1,000 - 4 km - _ 5. Yilditepe-Cendcre 3,650 3.650 - - - 6. Beysol-Savrakay-Gnoren 14.6 km _ 10.650 10.650 _ _ TYAL 34.5 kV OVEE&D LDES 42.6 km 12 -

C. 34,5 kV CABIES 5km _ 1,400 1,400 500 0 - 1. Seldye-Altiyol . 7 km - 1,900 1,960 700 4:620 o . 2. Altiyol-RrQniy% 3,360 1,200 7,920 _ 12 km - - - 3,360 3. Zincirlikuau-Aravutkoy 2,000 13,200 - 20 km - _ _ 5,600 5,600 4. Sag.1ciar-Silabtar _ _ 5 km - 1,400 1,400 500 3,300 _ 5. Ulubatli-Darutpaaa 1.120 400 2,640 - _ - - 6. Beyezit-Aleazr 4 km - 1.120 2.100 13.860 6, 10 3 21.120 TOTAr, 34.5 kV CABLES 21 km 32 kn 5,88880

D. 10 kV SYSTE 44,000 110 km 15,000 15,000 10,ooo 40,o0o 16,500 16,500 11,000 1. Cables 100 km 1,425 - 1,600 1,6oo - - 1,425 2. Oerhead lInes 20 km 17.5 km 3. Distribution Transforer Stations 4°O 5,600 80 3,150 1.400 350 4,900 3,600 1,600 0) Normi 70 200 4,60a 40 2,800 1,600 200 4,600 2,800 1,600 Ui) Copact 40 07.6ot HWA 41410 1,540 700 6.650 204 1,760 4. Transrorwers Z,&Wared size 630 KVA 70 MVA 80 19,540 5 22S ToTAL 10 kV SYSTEMM12 25,360

E. LT SYSTEM 27,800 27,800 k 140 km _ _ 214,000 24,- - 1. Cables 120 7.700 km _ - 7.0 7.000 * - 2. Overhead Lines 100 km 110 3_, 31,000 _ _ TOTAL LT YSYTM RE1-'BLIC OF TURKEY ANNEX 15 of 6 ISTAN'UL ELTrTRIITCY, TRA]AY AND TUNKEL CZMPANY (nrl) Investment ;Prn174n 1975 Base Pr1 e End 1971)

(Lr Thousmds -- LT14 * usW

1975 Quantities 19741 Ccutom L;ocn Total 1975 Foreipn Custoa Local Total Foreign 1974 Costs Costs Duties Costs Coots Duties

v HlSCELLAIIEOZS EQUIPM93T 825 165 1,760 1,540 1,650 330 3,520 770 (NVAR) 27 13 3t920 8,740 1. Capacitators - 2,730 2,090 3,920 8,740 2,730 2,090 2. RehabiWitation elditing 34.5 kV SystemL - 2,100 1,500 6,400 9 - - 2,800 3. Telemwesuring Systeom / 4,200 2,000 U S00 - - - 5.600 Syste 1 - 4. Teleprinter 3,160 2,380 700 6,240 - - Radio and TelephoneIquipnt L/, 2 5. - 4,500 3,3S0 1,500 9,380 6 eAy and Protective Fquip.int 1,260 - 3,350 2,500 1,000 6,850 7. Current and Rotential Transformers 2,900 _ _ 8,870 6,650 15,520 _ 8. Service Vehicles (Nlumber) 114 770 59D 1360 40 - 9. Construction Equiyant (item) 480 - - 8 - 2,240 2,240 . 4 10. Caible-Fault Locators 7,000 5,600 - 12,600 15,250 15,255 7,000 5,60o - 12,60o 11. 3-Phase I.'eter. - 11.000 11,000 70,000 - - lO.000 1l.OD0 - 12. Sirgle Phase Ieters 70,000 27,080 17.4150 783 l8,9 14.815 18.585 52,30 TOTrALMISCELLWZOU ErUIF'2R 34,160

/ Forafdisbursement ol ter coWletion of eupplementary studles. 100 tbbile Vehicles sets; 2 )Lin Stations, 10Telephone Statiocs 13 Traumitters; 50 Portable Trsnsmitter/Receivers; Total StJtMARYQtKES191, 4 75

34.5 kV SUBTkTINtS 10 -few 7 3 7 5 12 ErLmnion 59 34.5 kV Cells -42 17 10 kV Cell 75 31 106 26 Transformers 19!15 HWA 7/15 NVA 5,200 Connections Line (u) 4.4° 800 Cable (Un) 1,400 - 1,400

(45km) VOVRUDLIE 42.6 12 546 ~E¢21 32 53 210 Cables (kn) 100 110 overhead Lines (km) 20 17.5 37.5 230 Distributior Transformers stations 110 120 150 Distributioc TranSformers (MVA) 70 80

SYSTSM LT 210 (k,n) 120 11o Cbleea 210 Overhead TAnes lCO 110

.&t',.,!Xi ' 117~~~~~~~~~~~~~~: .. ,.&oy , 4 --j- ''- rf 1.4 -. 7 4'2 C 4.N ''

T - ',,* 2 oI

Un.?-ar. "tt- ;n72 -t ?

17L _ _T Tots ) I I

Cost, Dti C0et - Costs D.tes Cr ts Cot. Nt1.a 22dam

34.5 IV 8YSTII< 1Ž110' 20,.412 9,765 16.11.0 1A317 sM., ~~~~~~~~i4,9X'7 2 10,195 3,',167 ,,6 2,62. 1,4 - 97 13,650 13,650 0SubhwulttS es _- 1i 10,56000,65 3,000 3,4 CGblS. 5,10 5,31 0 2,00 13.860 8.960 &60 3?0 21,1?0 , o 1.820 si 35.252 2.4 605 ffi 92,97 TCTAL 34.5 kVBYT7D4?0.77 3O .,45 56.677 1I ,5 ,600 101.5 X6A.70

53,3C0 41,000 26,675 I20,97 10 kV SYSTDt 25,360 19.54.0 12,850 57.50 27,9.0 21.1,460 11,825 63,?25 35,500 , 66,s,0 66.50 LT 8707T12 - 31,300 31,00 - . 35,5sc 8L.58 5730 D.0 6 ilm10895 J 13 KlBCr______34,160 2",450E7,082 726,2 18,900 -LAt.5 47.875 78,05s .95 141612 107,500 162.3 4U1,%121 UBU-8^MAL (Priet oB"e 1t 1971) 80,274 59,62; F4,245 224,117 61,365 tFR7,

C Cll7lT:9!lCD 8,L60 20,618 F>T:il 4 4,01! 7..Os 4,1l5 11,213 3,1V15 2,395 3,945 9,.05 7,078 5,380 * 'O.-V 20,510 17.120 . 37,630 P Tho-lo. r.gor. f( V... 10.110 7,39c * 17,500 i'!,OO 9,730 - 3.140 ril P.4.. - 215402 1 28.000 6.0AO0 ?2.500O C 777A!.?WTTJCh : 2S lr l. 10.15o 5. 155 j50.753 14 ,0i 5 1.125 31.9' sn ?7,581

4.570 10,200 . _ 10.2t0 1AA1E7P?rAAD TrM1M 6p .,63o0 . 5,630 4,570 - , 250,000 179,400 130,000 7?,.600 530,0w 2-TOTCAL COC1'T7TION COlr 10eu,o 70,000 10.000 280,000 80.,0o 60,000 t1C,030

C CSULTI77M SERVIrs - 6,ooo 10,650 930 - L2,000 21,300 poJect 4,f.0 - ,000 10,650 4,650 1,450 1 400 1,500 2,900 Org..4"tionsd oN.c StSt.dy 70 - 750 1,450 700 750 100 . 6 0 2,700 * 2.:100 600 2,710 Tr.port S,Fy 600 2,70D los 11002 ?,100 600 2,700 . 2,100 . - 750 Ill- 1.700 _ 1,0 "5 Cmtioe..oc o _ 10 L 650 16,530 33,C 0 TO"ALCCftI72LTJ SEBVITC IS000 ?lo0 _19 600 _ 6 7 500 13.500 16-0

)6. U000 5. 3.100 TOTALPROJ1T 1100 70,000 U9,0 799.600 9600 60.000 117.500 26 3,500

16.90,03 ',270.Z 7OTAL P8OJFCT -N U95 7RtT6&,ZVC

Thl. *.tI1t do-- ,ot t.. Ito .,-oont F.b-r_y 1973 C-0,.ony f nt oh-h (t 7h. pebry 1973 -1.atloo of th. 40ol.-d.2. oM i'4 trt- 'teh boc.b ro' .. tlMte i tomjt.d, blt It 1. to. * rly to d.t,Mrir. '.40 *W-t If *r.y of It. *rf-. contS.

0 .7r.o7 16, 1971

_ ___ .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AINNEX16 REPUBLIC OF TIJRK-YT

ISTANBUL ELECTRICITY, TRA'IAY Al.D TU!r.NELCOKANT (ETrT)

Disburse?1nt Schedule

(LT 14.0 - UZt)

(LT Million) ralendpr IETT f1r.a'd i, :n-nced US$(000) Bank Fiscal ?7i7T <4murtter kore -n 1,c ca .. n Total Bank Loan LhJiisburscd YPar S,artt r

3972 1 25.6 - 1972 3 2 25.6 - 14 3 6.1 25.6 _ 1973 1 _4 6.2 25.6 _ 2

11.3 102.4 - 113.7

T7'v; i 33.5 - 3 ~2 33.6 _ 114000 4 3 33.5 34.8 2,486 1Y,3Ti 1974 1 33.6 L2.7 3,050 8,1.64 2

6.6 13J.2 77.5 218.3

3 1 - 147.0 43.9 3,136 5,328 3 2 - 47.0 26.L 1,31h L,O1L 14 3 - 47.0 25.B 1,8I 3 2,171 1975 1 4 _- L.0 2.14 171 2,000 2

_ 189.0 90.5 279.5

;t.7, - 444.5 1.0 71 1,929 3 2- 144.5 e.7 622 1 307 1 3 - 1414.5 10.9 779 5Žv 1976 1 4 _ L4.6 o.6 43 185 2

_* 178.1 21.2 199.3

:w (. 1 - - - - 145 3 2 - - 1.5 3. 164 4 2.3 I - 1977 1 _ - 6.8 6.8

LT lUl'.on 'c a.. LT.1'' )cn) '7.9 (';.7 196.i fl7.6 1L.0 0. REPUIILIC OF TUW.EY

Fiectrlclo 0* es ca~ses a

0$ DJ-nt:t fla-t I,. ,T Tfttio:, Durat iO ~-atg.- m Mr.ot-rn An Mite e rtv.oe in P-Inrtes In !.'1rites

1. D.A~ AD~:~:~I 15r; 121Y 2-

:1 ;1

77-~ ~ ~ ~ ~ ~ 2 -

r7 i!-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'0

Li. 8PUBIl!C or T?J8y.~

ISTL'dD"ELVX~R1ICTY, TVA1WAY AfM 'PJNNEcO4AMfy (rrr)

..- rwe N~er 7o- 1 A-sx Nu r Total Averw~e Number T'ot..1 Avnrg.e PG;7; Tot4a Average wartin of N,ratio, DIwation fr DuratL- Duration of L-r%t's- EoratInn of Duratlrm fluwtion X.I'4ntcs Out%ges in 'dn.tes in 1Mi1-tes OotOgex in "Miute. ir. Minu#es cutge. In Md-ten in iLnutes outages in Mintes in Mintes 15.5 171 24 1, 78P33 7'28 3, 3.

33 43. ~ 21 1712Ž I1'6 3 *3 4-e6 78.7 3'; 2479 82.6 - - - 124~~~~~~~~~~~~~~~45 65 13:7.C 4 ?7- 67.5 :I7 72.' 47 3&;1 P..9 42 17f83 .1 "3 4148 64.6

* ~~~~~~~~~~~~~.~~~~~~~23 3'.1 8 812 61.1- 7 217 31.'; 7 A . 11 17'. 1~1.3 5 52: ~ 11. 1. lb.' ~~~ . ~ ~~~~~~~~4.- 8.5 I- 35 - 35.9

.2.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~"' 2. 8.

7 '

* .. -. I~~~~~~~~~~'5l -,5 ? 3 . 11,', 'e~~~~~~~~; 31.4

.1 .~~~~~~~~17~ 5

-- I 274L-. 7.

* - .01: .-'s ~ ~ ~ ~ ~ ~ ~~~~: ANNEX 18 Page 1 of 3

REPUBLIC OF TURKEY

INSTANBUL ELECTRICITY, TRAMWAYAND TUNNEL COMPANY(IETT)

Calculation of the Financial Rate of Return on the Project

1. For the purpose of calculating the financial rate of return, the Project was assumed to consist of the whole of IETT's propored 1972-75 distribution program. The financial rate of return is defined as the discount rate at which the present worth of the ProJect's capital and operating costs over its life equals the present worth of the benefits in the form of attributable revenues.

Assumptions

2. The calculation was made on the following assumptions:

(i) Project life of 25 years;

(ii) for the main calculation, tariff levels for both the sales and purchase of energy were assumed tc remain as at present, but the effect on the rate of return of a 20%,reduction in sales tariffs was also calculated;

(iii) annual operating costs were taken as the estimated increases attributable to the exoansion of oDerations as a result of the Project, net of the sa-r1in2sresulting from the improved efficiencv of operations with the new equipment. Incremental maintenance costs were likewise calculated net of the savings in mainteran,e expenses through the replacement of old and dilanidatted p]ant, subject to high maintenance costs, by un- o-ratc equipment (this results in negative incremental raintenance costs after 1973, indicating net savings in system maintenance costs as a result of the Project). Annual costs were assumed to remain constant from 1976-77, when it is assumed that the Project facilities would be fullv utilized;

(iv) the annual benefits were calculated by multiplving incremental kWn sales attributable to the Project each year by the forecast average revenue per kVh for that year and deducting the cost of purchased power to give the net revenue. Because of the time lag in pfroect ANNEX 18 Page 2 of 3

implementation,no benefitswere attributed to 1972. Attributablesales were assumed to remaln constant at the 1976 level in subsequentyears but average net revenue per kWh was assumed to decline from the 1976 figure of 17.7 kurus to 16.4 kurus in 1983.

3. The ntreams of costs and benefits resulting frcm these assumptions are shown in the table below. The dis-.unt rate which equalizes the present worths of costs and benefits,assuming maintenanceof current tariff levels, is 30X. With tariff levels for power resulting in a *20xreduction in revenues (the transport subsidy element estimated to be included in the present tariffs), this becomes 14Z.

Costs, LI Millions Benefits, LTMillions Net Revenues Year Capital Operating Maintenance Total Costs (a) (h)

1972 115.3 4.0 7.0 126.3 - - 1973 180.1 L.0 3.2 191.3 119.n 60.3 1974 250. 11.6 - 8.4 25? S 153.0 76.8 1975 213.0 13.1 - 9.1 217 195.0 99.8 1976 5.0 17.1 - 8.1 14.0 238.0 122.9 1977 15.1 - 8.1 7.0 234.0 120.2 1978 15.1 - 8.1 7.0 234.0 120.2 1979 15.1 - 8.1 7.0 230.0 117.5 1980 15.1 - 8.1 7.0 227.n 114.8 1981 15.1 - 8.1 7.0 225.0 112.1 1982 15.1 - 8.1 7.C 223.0 110.7 1983-1996 15.1 - 8.1 7.n 221.0 109.4

Net revenues (a) assume present tariffs for sale and purchase of electricity. Net revenues (b) assume present tariff for purchasebut 20Z reduction in tariff for sale of electricity.

Other Benefits

4. The above calculationtakes no account of other benefits attributable to the Project. The most importantof these are likely to he reduced losses of industrialoutput through the improvementin svstem reliabilityand consequentreduction in power outages. These cannot be calculatedwi h any degree of precision,but some idea of their significance nay be derived from the results of a survey made by the Istanhul Chamber of Commerce. This concluded that in 1971 the power supply to industry in Istanbul failed for 81 hours during working hours. Industrialenterprises worked, on average, about 11-1/2 hours per day after allowing for three, two and single shift operation. The value added by industry in Turkey in 1971 is estimatedat about LI 41,000 million, of which some 30% or LT 12,000millfon may be attributed to the ANNEX 18 Page 3 of 3

Istanbul region. Assuming 300 working days in the year, average value added per hour was about LT 3.5 million. The cost to the economy of the loss of 81 hours productionwould thereforehave been LT'280million. This figure does not include indirect losses due to voltage drops not resulting in actual outages which could also result in:

(1) poor lighting,thus increasing the accident rate;

(ii) the need to renew or repair burnt-out motors; and

(iii) decrease of productivity. . OZTVIIIC or 17uwy '.5 ~ ~ ISTAWlu EL&-TTBC7Y. TWAJ.IYAEW rliWl 01303Y (111) kctma~l ln.ass Statemnots 1969-971 . AUl 0spts'tot WA ComaoudAted

gl8,731e1y TKANSFOUT 06822

1970 1971 1969 1970 1971 1969 1970 191n 1969 1970 1971 1A69

. - si. ot wait. 1,426.0 1.527.2 1,591.0 11.9 47.2 *6.9 21.0 10 . 14.0 V 0.00 0.035 0.033 - - WUtli of coss t. 587.6 627.9 655.0 211.2 2411.2 253.2 Purchase's In ctricty 0^ 1.21.1. 11418.4 1,914.1 - - . * 22.6 20.6 19.0 O.ertlo Ksotrleltys Ce L 419.6 371. 61.7 53.8 "5.1 70.0 * - ., vwt, hr. per malt 2/ 27.7 27.8 32.3 16.7 * 7.2 P" e Cost r per Sib 7 11.8 17.1

505.0 5i9.9 679.9 Tickets Us 395.1 4124.1 513.9 98.6 115.3 156.2 n1.1 10.2 9.8 m"ltctritcty, 5 60 9 , 72 0.8 Othe-r C9etlae e'e.6 98 61.5 * 3.6 1L?5.6 9 17.8 1 9. 682.7 20.Z Total artt1. l w. 4 99 577 3 103.2 U1.0 163.9

15.1 17.6 216.3 961.9 325.8 - 6 po 1dIts 75.9 86.1 102.9 128.3 142.7 205.3 12.1 65.7 59.7 - 11.5 18l.1 23.1 10.7 9.9 11.x 92.9 87.7 37.2 rust 1 118.7 170.7 331.) Nrc),.... otf f ctrlcit? 115.2 167.1 327.5 3.5 3.3 3.8 - . 8.8 9.0 7.1 13.8 20.7 25.7 1.3 1.2 1.0 239 30.9 34.1 *At :1I1s 1.2 12.7 13.9 16.7 A3 l trStlv* & lro. reo 5.6 6.1 6.5 6.0 6.7 8.2 1.1 0.8 0.7 0.7 0.7 I.; 0.3 0.3 I :. 1.0 1.0 pmdMipal Sa,lty 6.5 7.5 10.0 blimt4d loss dw to Ile1 Cactlors o 6.5 7.5 10.0 - . . 56 2L.5 58.52 lbrol.tl 23.0 21.8 27.2 21.9 22.1 26.1i 6 l66 5 5 0.606.1 811.6 Total C9eretlG uwsoae 131. 361.6 182.2 19 tIi 3.0 (20.1) 15.6 16.6 (53.9) Sot oprtao Cocos" 113.5 121.3 95.1 (85.1) (92.9) (1.269) (i*.6) (14.8) 0j5 _ 1_96 1.3.6 1 Iotr.eoSt as L2S9-T 3.1M 11.5 11.9 --- 1U L3 3 (11.3) (20.6) 0.7 1.0 (67.3) Sot !rplw or (Dtefcit) 102.0 112.1 85.3 (88.o) (96.1) (132.0) (13.3) - * n.8 % t..sa meia e for me1ost J * 25.0 - otwr AdJum tr _ - > 3}(U;J) (20.6) 0.7 1.0 (2 j) Wbz Tpmoelp srplu,o1 (DficIte) 1I02.0 112.1 (88.0) (2).) (1320) (1 501.3 551.8 587.1. Avs'ar U5 IKe4 Aeets 316.2 337.0 368.3 3.16 3.06 lWt. on A_rMt let rIked A.5. 35.9% 36.96 25.86-

Depr-eltio O S Oress P1*d Aps.t5 6.% 6.36 6.36

i/ A) 1at± tfr .ctriel it7M lls st o ifl,seter fo tfeurport Sod tIiots t3 for ts.. ha-*beeso .55 tltro.6 SAtorvis e4 coosecttos (S" n Bole 6). d L/T . rrof F3ectri lolon 5. 4. od aol.3564. In 1969, 1970nd 19n respetlyelY etiatetd to otrtrff s *a o 66 fr 7-971. rt s sle,, 10 krI per kWh. psa.ee asod Ml re"soetlely for nye2triclty. transport sd gU. "rmpWrt if PAY. ! rree l2b's. eto. Sales of Coe. ta?. sob &M Other S. bypbodootS, "A pmrft of loss 02 $&I" or so,.. ow assets Other Operating.°7om Poe.o.s Iocldes or retal.4ertimloc rental to m to late 1.971. Cost %MrkWh1 soermatd 1o 1969 sod 1970 1'ot.1 pesrtlos asopos,s for Slsktas for 1969, 1970 so4 19T71ersrL TI. Ilto 89.2. 75.9 sod oil rersoctlr.I? sIoO 811hert,tsW".sla ws-r Irs 21.2 and 20.1. respectively. Is - fund"d sod so prOwieS Do prot.etim is*15e of T/owo 1317 iosorso of LT?Willi-o* 1.6, 1.5 sod 6.2 in 1.969, 1970 e.d 1971 rsprct1..ly is .1lmm.t .otlrely' by Irasoifr to- . reserce ohtob SO 5M.1* So.4'IoOO .1 VA-5 been' &..raastd by like ssoWtC. 6]11. estlosted eels of the smsra lost thiouOh IleSmal connections to Moest1.st.d '1b0,Ot0 W,atortosd dee1.110451h.-I0Ik A *ss my olY be osed for oew dslirtbutlos oo.truotlou. souc 111 1.. 1319 of 19'O meq,,ses the allocatbos of at 1.5. 5% of voss. electottlty ed.1. to thIrd pertlee' 105 special reere. which ose - Is thsrefor -,osoabl.1 for so other PurPi5 o-to as tbe v.VP-., of tratm.ort of 5. sc'I"rties. t~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~wtn

AN 20

I2ymL Rum2m. "mMr 210 ?Uin 0Umm ( m)

S 1A2or t 21.a@. 84.'s 19691976 . All l D dt_aC..±±bt.4

(LT 32l11me - 1TI2. to")*

1969 191 1n 1972 1973 1971 197S 1976

___ ACTL_ - _- _ - -_ --- __-_----- A ------.------±021ETs

r.1-tr1R:t7ty;:1.9 SWA 563,7 6t.2 79h.3 1.0".7 1.321.0 1.623.% ra. part i6 7* 32.I 3 X 3943°1.? 325 3t1.6 3501.70 61.3 r.opt1 r4 o.. 397.1.w,95.1. 3*..298.0 33.5101.0 10,.0. 1D7.0>. 11.

'!.44 Office 22.1. 2392.22.a8.. 3. 316 3.

Trper-~ ~ ~ ~ ~ ~ ~ ~~9.1*20.^ 9 S .6.9 2177.v1 2811.1 22o3.S 232.9° 265.2 etsl tnS 3~~~ ~ ~~10.2 ~~6.7 1.3.9 1.9.9 36.1 67.5 69.0 75.

7otal 7.P,.cfllOOxr 313. 364 3V7962.6 53. 616.9 6c96.1. ',"1;j 32! . . 2ML .6 3h.9 75t.1.08j

9.. 'toer A..t. 531.7T 572.0 6*. 6+ I3k. gt 2,12V.5. 1,3ffi.3 rl3.8 .4 6.0 17.2 17. 10721.5 10. 3.t Trzn prlrt ~~~0.9 0.9 0. 9

.*t*. Wor '.l-Pr .*6 *3.5 13 6 .2 18.2 108.2 U0. l 1.1n8

^,-.1s F1..1 148*1 . 1r0 tn . 912 585.6 61S.0 6IT7.5 1. 2S.I 1,2Ut0 1,936.2 lnl.0v1'El.0 1. ooi ..1 - I1.z ofo. 2S.7 269..6 1. 2.7 23.0 21.8 20.6

To-*1 00,.p1e0te 68.1S L.60 .2 9626 52.3 63. S196 56.6 r toI r1.d A3..8, 5 6 73t.s 95.3 .103.6 2..1L!. t.517.7 W.' , -g. 25.5 39 tg 18.9 101.8 110.0 105.1 802.7

146-.t 'I1c* .)t# (71..1) t73.4) ('.58.0) (79.0) (83.5) (9y2.0) (99.3) (106.0' r:- ,rl1rl, 3.5 (30.1) (67.0j) 27.3 43.6 20.1 14.t3 62.7.. 37.8"ti t3 33.2 67 10 S.2.1 39S'.6 38.9 963 1.8-l i23.3)10. {1.26 A8.tŽ8.0nt 3..5)l 2 16.

o-y7tL A - r.sPs605.8 613- 526.6_ Ss.7__,3.___ ;

T_C1,0AtDL .07'~'7.lrt.1I1r 7M 8.8 2i-.- l8.. OttO. 25.

5necvrl-tty ~~~~~~309.X a.7 309.7 309.' 3097 3r9.7 309.7 7W09.7 D-P-It>- FCtr31.8 171. ln8 17S.8 17.5 37.0 17.3 21.8 4 7 70.7 .77 7 10.7 70.7 70.7 '3.70 r. 70.7

2710401 -$tX`8nt 641.112 S52.2 5522 50, 5s2.2 552 S52.? 526

Tot.1r .t,1A..= A.8t6* - I. 61 6tlo.- 70.03, 370.0 41500 56_.0 600.j C-'tr A..ontr1b.40I0lr - l02t.17ty 120.' 110,5 16t. . 214.0

*2. Il.1trtey 5 07.5 598.0 61.2.1 80So.7 9t7.3 1,3O0..3 1.2''.3 1,39S.3 -n.o.por'. (661.°) (711.1) (873.1) (10.)6 (1,.5) (12.0) (1.380) (1t263.

6 ,4. 1~ _ N. A7:cr.. F70f11* 1.088863g (200.1.) (273.1b) n.j)S..Ž (31A331..') (31.6.8) (353.5) (382.07

17107 s2q:1-r *72.2 4 n8.1 801SO.8 89tt.8 1,03'.0 1,28S.5

IV4 1.1.11 32.1 29,*2 29.2 23. 3 3.6 10. 1 202.6 207. 1 fr80T'~ 105.5 116.83 S13.01S13.0 W38.3 114.5 125.3 !50

Totol-; t- 11. V6 11.1.0 112.2 3.0.I *9.42.97 t8. r.t.rwar 1 4 3 7 n5 5 -l rtnnnnrt * 1192tr1*It?1t (603.67) C722.23) (80S3.3) (799.0) (81.3.3) (8S20.6) 1W.223) 810.1.)4 - .1 52.6 76.6 91.5 116.1 1 173.3 29 217 9 - . 8..tA or (7.6) 2.3 (67.6) L221.5) (317.4) (399.03 (52)13 (773.9

7 r y '.92 tDo ls mm V91,003.5 63 526.6 :.19.7 *,3609 1,634.1

L2 r,t 0.11. .r ~tCurron. A '.tt. a_. .. . 22 (g.et ±ty), 26 (,h.d rCtto.). 39965s (bwlpnut)8p1'in 1s.(t0s.) . 2' 3.. .ctr.0 no lo.IreoT 1971 1.8* 38* fl418. '. LS te.t11mn tZV.8 b.1 '.1,. cml1At.4 4.. eto. 08±11. .111 not t.o p±td to t4.s - Io,rn_r 11.1 2s96.3 .2.1l1to\ l_s. tict'.1181 08* (LS 168.3. st11O). 7gr I nOt n t rdnictlon tr .ec.w.1.d Ia.... Ia 1969 ,. . 191.9 sItllIa..

r,e,,.ry It. 1973 ANNEX 21

REPUBLICOF TURKEY

ISTAjBUL ELECTRICITYTRA?IAY AND TUNNEL COMPANY (IETT)

Suimaryof Forocast Operating Results

(LT Millions -- LT 14 = US$1)

1/ $ ~~~~~~~ ~~Actual______Forecast 1971 1972 1973 197)4 1975 1976

Electricity2/ Operatiig Revenue 577.3 845.0 907.5 996.7 1082.8 U169.2 OperatIngExpenditure 482.2 642.0 717.3 800.0 874.7 959.2

Net OperatingIncone 95.1 203.0 190.2 196.7 208.1 210.0 Transport3/ OperatingRevenue 163.9 213.1 228.0 246.0 263.0 278.0 OperatingExpenditure 292.8 334.6 357.9 370.4 379.1 406.3

NTetOperating (Loss) (128.9) (121.5) (129.9) (124.4) (116.1) (128.3)

Gas 4_1. 261. OperatingRevenue 19.5 14.9 14.1 13.4 12.6 12.0 Operating Expenditure 39.6 39.8 42.6 44.5 47.0 49.8

Net Operating (Loss) (20.1) (24.9) 28.5) (31.1) (34-4) (37.8) Total IletOperating Income or (Loss) (53-9) 56.6 31.8 41.2 57.6 43.9

Int.re st Electricity 9.8 .0 11.2 186 22.0 Transport 3.1 7.0 6.0 5.0 5.0 5.0 Gas 0.5 0.5 0.5 0.6 0.6 O.t

''otal lnterest 1,.4 15.5 11.1 16.8 24.4 27.7

Net Surplus or (Loss) E'ctric4ty 85., 19,0.o 185.6 185.5 189., 188.0 Transport (1,2. 0) (-28-5) (135-9) (129.4) (121.1) (13.3-) Gas (20.6). (25.4) (29.0) (31-7) (35.') (38.5)

Tc.al Net Surplusor (Loss) (67-3) 41.1 20.7 24.4 33.2 16.2

1/ For detailssee Annex 19. T/ For detailsoi Electricity Forecast Income Statemnnts, see Annex 22 / FoI' details of Transport Forecast Income Statements, see Annex 3, page 4/ For details of Gas Forecast Income Statements, see annex 4, page

February 1b, 1973 ANNEX 22

WIPRLC oF Twua

ISTAHWL £LKCTRXCIC TrAXA! AND IL c0uAMT (IZTT)

Electricity 1_partnt

toreat ineo_m $t&taemeto

(LT Ni1llcxw -- LTI1 * us)

Lotual Forecast Total Iva 191i -Y3 ±l 195 1776 197z77S76

lkes;IF.s 1/ 1,591.0 1,880 2,082 2,300 .,510 2,r25 ,-enaexS oT Eltctricity Ins 1,912s.1 2,200 2,s450 2,720 2,918 3,150 al,s return kr$s. pper kWb2/ 32.3) 1.5 40.j 40.2 L0.1 j9. Surlh.se cost krs. pr ksh 17.1 23.7 21.6 21.6 21.8 21.9

r v. r.ap - ori Liectrtcity - Hillel 50j.9 7°5.0 822.5 908.1 996.3 1,088.2 L,582.7 k.f'asted Illeg1 l Connections - tkbilled 10.0 15.0 17.0 15.0 7.5 54.5

* .,a' -lectricity Sales 513.9 780.0 839.5 923.7 1,005.8 1,088.2 1.6j7.2 *p,rx t- trting revsln 63.4 65.0 68.0 7,.O 77.0 81.0 . .D

iot(:AXeratlni sevenult s7t.> 8sxs.o Y07.5 996-7 1,a82.8 1,169.2 5.001.

L,s lrac,ages & perquisites 102.9 106.7 119.6 133.6 1S8.3 166.8 4rct j,-s cl Llectricity 327.5 476. 528.5 588.0 635.5 687.0 tl.aer t. 7.4 8.5 9.2 10.1. 12.2 16.6 AnaE? s'rative I, insurance 6.5 7.0 7.8 8.6 9.7 10.9 M$'..'c1 Sp1julty jI 0.7 1.0 1.0 1.0 1.0 1.0 :.;r.-ciation L/ 27.2 34.2 !3.1 60.5 76.9

i-4Atocal - Oxprating Expenme5 172.2 627.0 700.3 ?85.0 8C7.2 959.2 3,93& 7 't:tlltej. 'l0ss due to Illegal Conractiona 10.0 15.0 17.0 15.0 7.5 - 51-5

,cta. Ai2Jstedr Operating Eraes 1482.2 642.0 717.3 80.g $71.7 q,59.2 39.2.21

.t 0;-rtln lWnome 95.1 203.0 190.2 196.7 208.1 210.0 1,008.0

.nrr s: on Long-Term Debt 9.8 8.0 k U.2 18.8 22.0 6@.

t 'Ur;? us 85.3 195.0 135.6 185.5 189.3 188.0 913.4 5% oegal eserve lor Eapanwlon 7/ 25.0 38.0 10.6 45.2 h9.6 51.1 le !'Ax' Xsosable S-plus 60.3 157.0 14.J.8 1U0.3 139.7 133.9 Averageinrpergstio 14et fIxed Assets _=w__ terase eraR'e Net lixed J' se tn in Cp2r5tion 368.3 L19.8 505.5 671.6 M84.1 l,tv,-.5 793.4 'perating Neturn 25.8% 18.3% 37.6% 29.3% 23.5% 19.2g 25% operattr4 Expenses as %o Cper.ating Incom 82% 74h 77% 79% 80% 82%

~ r;ge;Nt i%xvd Assets In Operation (3s0alud)J/ 959.0 925.0 948.o 1,051.0 1,201.0 1,3L6.0 1,173.0 Cperating Ftiturn (on rsvalu.d aseete) 5CS 15% lUS 13.0% 12% 11% 12% Adjaiuztea Inpeciation an revalued assts {Approxlestliy) 6/ 72.0 89.0 96.o 105.0 122.0 1)7.0 Adjugted Net Opsratlne Ileom (Approx.) 19.0 11.0.0 127.0 135.0 1l7.0 150.0 WL.0

1j Co5 nsold include estijated Illegal conrnetion uage lor the years 1971 through 1975 of 35, 40, 15, .0 and 20 OWhJ oespectively. 2 / Sales return kra/kxh ae shown for eales including estimted 111gal connetions consumption at doteatic tariff rates. ;I Poyalties shown m re nd on ItlSTc interpretation, *nd the de facto acceptance cl this position by the mapr. How- ever, the munI'ipal1ty withholds payment of electricity bills In view of the nunicipal eontroller interpretation rb l[t7' liability for outatan4ing royalt:oe. L./ F ec^at depreciation for 1972 has been aJjuettd to exclude the depreciation on Silahtar sold to TEX in 1971. T/ i- &, ,x 26 ,srt aount el annual depreciation that would be charged on the revalumd aasets can only be approxi_ately estimated becaase the extant to which S.lahtar had ben retired by 1971 is not nowwn. The legal average rats of about 6.5% 5ss been aintairzd au lor ths foreosts at pr"eent book vluos. ' e Anrex 19 note 7.

erernary l0, 19(3 ' I r . T4 'N'1 1

Ae.t..... -.-.r.w-*...... _t...... rw IdlT s~~~W. 547^>'t % -;+ t Irtaet7tt ,~~~~~~~~~~~~,(;ner£'

QW-U.ett:X

;*r*t-o 1)CV-.:, 2s,WIt "I.. 16. 31 b,}|a67_

O- ~~~~~~~~~~~~~~5,7 _6 . 6 . 6 1 6 _.

7N1 Drtttgttw _ ;f j iS, 3 L-*71«,7 =.a->, x, > 8 M. . ,

in ir-KII-ty c -c rconriit"Wtl 22 Z 26 ?67 _9._ 239 he" 1Pa.3 0- tM.111PLI A.It..o _e G D-^ M-0 a .___4o O l_~twr b-1n41:

Mlstneotx .p"pL. -d tAA n-, tr. 1*., Jg .0 7b_e. .n o_- .% *2 * ID, 1. . 12.7. b.5 46.3 .bpll*r. Ctt4st _ 30o.}O6 _ _ _ __30,6 _ 0.

Stlb -A 30rt_z6 6d ls. 8F^SO1 7- _r_iPll t 1-..rc1y/(6ev.- w*) okI. Cz.2,1 36.: 9.3 :.3) 23.5 *.q u.7.0) M .O) ~- 7M7t ( 6.e) 1.7 -. T 3.. 1.6 0 o 6.o 2.91) ; .2)) 0.4\ ( 0.4 I 0.4) .)*J }t2) . IXztOff~~~~~~~~~~~~~~i= 6 e 2 -) cz 2<528C ( (ma___

(]L7 e aerO - (1-rtt loa s- 1-. (2-.26) .3) 1,81 ( 22)( U . l > )1

TOTALt WMS r- 2349 n .8 8.4 9.11 tl.,, I( 11| 63.

xl f'.,t ALll6OnAD. -bt a ?-rA".e 23. e. 3n l'4 4. 6.

itt Tmffm1 r_7s ,6t-r 5 5 _ 8___"t

rt .rtn..tiA- * s,6 22T. - . 6 81.*.1.

t, r.T*"sx . 1t-rtelry ~~~~~~~~8. ~~~~~9,i1 1.2 le.$ ".o 6h.6 *6a T. 3r.lot1, 7.C 6.0 5..o 5.. 80 216,0 _ _ 729 _ 7.9~~~~5 . 5 G.5 ,5 C55 :3 ',6 ; T

S.b. Se4-J lot... r-! C

bTbw Dw 3 e 2ee ,_- . i5.'. ,d:I.b_Il P.b.To%,l APP1tDi-eIcz . °7 4 *T, Zc-Aa -v N. rtt) 1. Clt Itw on ic. l 149i 8.;. (Y52 . .X f (146.4

STOTALAMISAtTJOK ; 1Z7R'_i- =3_

Cn. o UTtAr ; i49:d. *I X ;in :.'4..* C-b~ ~~ ~ ~ ~ ~ ~R.., ~ ~ ~~~XIqo c,I 'IO _ 2

I/Xg lgT 4-4CUh 1976 -d &Pe"tr¢t . .XI:s roeInrt b: nwtl_. .;.: D' rOr 'iteFTM. om- .* 2/ 1-1:rX1t, Ia I Cbt. Y ojo! = orll 6-.sbr . -:- 1. -h ~6 b n .1,e ts '! :t -Y '':tr ' ! ,,.f *j a-1 24 l tT,' t'.*it -1111-oTlrsl.s.8

W -,Y.':e Ann 2) N;IC or TTff=

?STHMJL ILMT=m . ?RAMATHSm TtL C 5Y (amn)

Forlast 9WArcG*4an AxL1catl of Pt.)

(LT r81lt. - LT. - 16s1)

Total

_7 I976 a9 72.1976 L

-)peract2. Tc 99.1 203.0 190.2 196.7 208.1 210.Z L1008.0 t.r-rp e lo:rn 27.2 27.7 3A.a ti 1 60.S 7{ 242.7 Wet Ca.). Generation 27 2 " A T A 2 1,F" C -r's Cr-trlT lti 22., 24 .3 26.7 291. 12. 3 I,, I 143.51 f C.." r'sb :.elt& 17.8 16.5 S .0 13.0 11.0 11.0 64.. TZr.cr"ae) or Decreas Inet Currt Afi44.1111 8%8, _ 10.5 (7. r) (61. 2; (lo3. Sub otloctl ESeI.rcu 2V 1 Lo - b orrOwdnl: 7 Lv r La rMsWV 9- .; _ . 77S iOc rotal !urcm of FurAd 181.7 160.7 33 3I.b5 127.L 282 1 ..

onRtetruct1on - . Other 62.7 .,3. . . S1 T. 0 )0 onttrecrton. ProJet cnd Studlz 113.7 218.3 279.S *9o. t.S lit- \tO '_ctr.1c'toV- ad S~*py_it.H:2f.;. 2.SProjt R7 - %bt.-ota1 - _ 20.0 220.0 292T 2ciT < I.

:>b1 Servi"Ve

.-D {D.t.F ) 5.6 7.7 2.5 - - &5.3 Pcptaadba«n - - - - 2.32 Snb-t tal Aaortloattmr _ - 27 lot --- I 0.62 0.5 0.2 . . . 0.7 l r e.t 9atasCe. 9. 7.5 1.7 1.S 3 7.6 23.n lmdPos_ Wi LO 113 I. .i lob-total Interet 35 1.6 11.2 lS __ __ 1 Totl 1,ebt Sarolce 9.8 13.6 12 13.7 8 '1 2 14 ; 7

_tttz pplicattoon 78.4 134.1 233.1 296.2 270. C 3614.281

:n rease or 'ldtcmaa)* In Cab 103.3 26.6 792. 97.3 f ('2. 0r177

T,th: Ap1liatlom .tofud 181.7 160.7 3L2.3 3M3. 327 ?2112 1.46f .0

- TRIB5TIMSTO R.O. M OTiEt ACTrVITIEB At ?ta, or Y- 2 805 799 0 613.3 892. n 7.9 805, 3 reases (e .ereae' In Ceeh larated 103.3 26.f 79.2 .73 St 8 '2.o) 197.9 :ep,rec1at1ceon HO0 .ueata . (1.2) (1.2) (1.2) (1.2) '1.21 1.?) 1 m=c2ipal Uh.paid Hills 3 (31 1) (31.7) (33.7) (36.8) (40.3) (44-1) (186.8) aImnco of Slletar 12.1 At Po of year 80.3 7993 9107.9 11 4 910 .

1/ Bills to tue iaielpaltty trr electricity and allied erlce eare not prswently being Paid. banese the wAIPcipa tra.s-r ca1,1 that thea are SWo than offat by additionAl royaltie" due ftr. JETT In accordnee with the term, of the orle'nal SIUa cceeoslm. JETT Aol. that the. tar., do not apply to 1r In Its pesent fr.. The e-tlante anset that the pr-esent ps.e dll contInu *o IH.t)pbl bIlls bar been wit ea oft accrued proft, each Year In tbe b amav Sheets (Annex26.) tIhrogh the !;O.d Ofice ccomt.

Febrry 16. l193 ANNEX 25 Page I of 3.

REPUBLIC OF TURKEY

ISTANBUL ELECTRICITY, TRAMWAYAND TUWNEL COMPANY (IFETT)

Government/Municipal-Assistance: A Suggested Financing Plan -- 1972-1976

1. This suggested financingplan calls for direct G~overnment/Municipal assistanceof som~eLT,5O0 million to IETr during the next five years to cover the estimated operatingexpenses for IETT's transportand gas services,&-d increasesIn working c.pital. The plan also Includes financing in the amount of LT46 million for 155 new buses estimated to be required by 1976 (83 "Bus- sing" vehiclesdue for delivery in 1972 are already financedby a supplier credit). The above requirementsare estimatesand could be effected either way by operating conditions,growth and policy decisions on the purchaseof new buses.

2. The actual Government/Municipalfinancing required for IETT's trans.- port and gas services during 1972-1976 is estimated to be on the order of LT 940 million if one includes an assumed deferment of repaymentsof existing Government loRns for Leyland buses and sn,aresbought in 1969 (LT 26 million) and the estimatedvalue of an assumed waiver or deferment of additionalbuses and spares bought during the period L2'6F million). The total requirements for Government/Municipalassistance during the period could be allocated roughly as follows: ANNEX25 Page 2 of 3

Transport Gas General Total * -____----… (LT million)------

Net Operating Loss and Debt Service 590 130

IncreasedWorking Capital: Payment of Overdue 1971 Account payable 80 Increase in Cash Balance to 1 month's sales _10 - 580 T3-0 -70 d¢X

Government Funds - New Buses 46 46

Sub-total (included in Finance Plan) 626 130 90 bh6

Not in Financing Plan Separatelybut Assumed in Transport Balance Sheets:

Deferred Repayment- Leyland Loan Overdue 12/31/71 15 Due 1972/1973 JI 26

"laivedCustom Duty: 7,eylandBuses Overdue 12/31/71 34 New Buses and Spares 34 68 94

Total Assistance 720 130 90 94C

3. Although the assistanceneedcd to support 1ITT transport and gas operations is large, the sum required need not necessarilyall be found in cash or from the Government'sor Municipality'sown resoucces. In addition to the LT94 million already shown as being found by waiver of duty or by deferment of capital repayments of the loan for buses and spares, part of the remaining LT 846 million might be, for example, financed from anv or all of the following resources:

(i) Increases in electricityand/or transportand/or gas tariffs or a temporarysurcharge or tax on electricity bills to support transportduring the interim period before reorganization. A 5% tax (or increase)on electricitysales would produce same LT 225 million in the period and a 10% increase in fares some LT115 million. A 50% transport tariff increase would be needed to produce the LI 583 million cash loss over the 5 vears (see Annex 3, page 4). ANNEX 25 Page 3 of 3

i4) Absorbing the Gas Department into the existing Muni- cipal Gas Department, thereby reducing IETT's require- mer.tsby some Lit130million of operating cash loss. Economies of scale could well result in the ultimate Cost of such a merger to the municipality treasury being materially less than LT 130 million estimated for IETT's operating cash losses.

(iii) The Municipality taking over the IETT gas assets and offsetting their value against funds required to nav existing debts and to support the transport operations. The Government might lend the Municipalityfunds for this acquisitionof assets to the extent that cash has to be provided.

(iv) TEK should not require its customary deposit for the purchase of power by IETT which is a munlcipal organi2a- tion whose power activities are sound ar,dprofitable. By 1976, the estimate for this deposit included in the forecasts is LT 36 million, which would be saved by TEK waiving its deposit requirementfrom IETT.

(v) Payment by the Hunicipalitvof its elec.:ricitvconsumption and other bills, presentlv being withheld because of a dispute over whether or not IETT is required to pay royalties to the Municipality in accordance with the original concession agreement of SOFI-X, the orifrinalBelgian concessionaire,would providi about LT 190 million more for IETT over the forecast period. The Municipalitywould, however, require the resources to pay these bills.

-(vi) Settlement of the squatter illegal connection problem, so as to enable IETT to bill for the electricityconsumed by the squatters, could provide up to Li' 150 million over the period.

(vii) Assistance from external financing agencies, such as the Bank/IDA, pending the outcome of the Traffic Engineeringand Control Studies to be carried out under the Istanbul Urban DevelopmentProject, Credit 324-TU.

4. These and other measures for assisting IETT should be consideredby the Government aad the Municipalityuntil the Transportationand Gas Depart- mientscan be reorganizedon a financiallyviable basis (see 1.08, 1.09 and 5.09 and Annexes 3 and 4). ABrr 26

RZPWLIC o0 TURJEY

ISTrAflUL VLCTRICITS. TRAMWAYANtD IUiNZL COGPAJY(Ir)l

Electricity Departrwnt BalAnce Sheets

{a.?Uias - Lsia - 9

139 1Y72 1971 1972 1'713 1). 1.-- I .. - -- Actual------rweas ---- ASSETS

.r;.s i-eed Assete' 4I73.9 5Y:. 563.7 666.2 '4 5 i :,rK Drr^ttn O71.7121.0 162J. itfl 6 nTwts 1Xt19 xX2; i ^ 2816 12,9 bl4%b t. tinxei Ausets in op.rstton 119.3 354.8 3t 1.8 i57.8° i.1 790.1 978.1 1204.9 W k ir lr' resu ! 3 817.58. . t.0 17 2 07.2 109' 113.C _t.l li,e.t Assets 323.1 3i3.2 307.8 h?S.D j0 897.6 1067.6 18.7 Intwacible Assets .T. 9.

Tostol r re.i }*ts t Investastts 362.5 t6 687.8~ 928.1 1120.6!E IY' ..rt Current Assete

kAcounts Ivevnatle- Cnoura 7b. ' 98.2 121.1 i..5 119.t 21. .Fi'' .' - Others S 662.6 .c 1;.o Inventortes :110 1.' 13. u 66.2 t1.1 69f S C 59 *C 5 Swb.Tot "acrrent Assets j '6 1659 Bl1.7 :3 '6'. Xv '13 .1 u-ren' 'ltoili'les - 7'ases & l'.ele (1.0 ; ) 2S82 o| 22Y 'u~ren! mte. IN" Leo I .lI '<|5 155t b. ( ' '621 1 3 .' 1 .cn'aus-rt u'curi'y ep.oslt ) (79.' ( T/.% ! J14 A 1. :'' Ih.b t_n, .rr-ert Lltabil.tle (144.1) O V ta.-l) ( L26.2) t.4. ! (2J) II ' . 5. T tali r:rX 7orrer.1 4 Aetl,r...... J2 t3. 1 _2-i?',. (7.) 7

TOTAL tT T 3-_...... 33 115 9 . 4 2 i 2 16.7 F.- ib.RRE:lT A-C or:,cInal E4lPy 3097 3- 4a.7 3t

Proposed 1loan - 77.5 1168.0 189.2 Due tn sv-rnugent 193.7 11.4 1.4 * i.4 13.4 ] .1 1_. 1.4 13.4 1SA-- AID n'.t . ) 7 ...... 1 - Totf arsj mX*3 7 93-.i PItL.4 2072.6 207.1 Ooh-7,tJ. 1 ulty b ir!ter h ,6q67 1077. :144.3 i3?t.3 157h.11r L13 23..J 2227.1 A.-rcucc.1el "ootrab,atinn fr hug.) cOffce A,sets atI fur 3tt.er Department .osses.(603.7 72.2 (<) .3) (1227.9) U4 (8S2.O) 907.9) i.d104.)

TOTA.'. 9401TF9rofm, & CUtthll? rt A/C ___ 3 527.3 731.4 onp ? L135.. Wi.16._ '-vajued AssetrsI

Net Fixed Asiet- n- erntio.a 92 994!t 918., =9 9f1." 138.0 126.0 1128.0 Aver.ge Net Ftse.d Assets in operation 950.0 961.0 959.10 9.P.0 946.C 1051.0 201i.0 1)46.0

NMesr 1 1971 saets exclude LT 13.8 million, the gross -sij of Sllabtar generating station taken over by 2t 1971, accu.eiaed tEKl In 1'7. deprec:ation excludea Lt 21."7illi-, the *:euwulated depreclation on ilbiar. Include. cost. of .11 studies included In propoteed lon. Ino eac year the 'Accrued S.rpl'as has been reduced tbythe aount of the KianvlSw.l tI 11 -rAlting unpati and has also been adjusted for any changes tn If tilile. subject to clncellatioma ln !?1e asd 1-'/1 the net Ie- creis.s were L' 21.9 mlil.on nd L' h0.9 million re.p cie)y. iron 19t2 ttrugr. r7ste Mnllelpel bills have been assumedto be the only adjustment necessary (see Anne 241) for the aanon. lie TIOl :Aw reserve -see AnneK.V note 7) to not ohown because tor 1972-1976 constructIon ade. xpendIt, e w4i _o te tly e.oeed the re-.rve The estimated revaluation of the Ele:trioal bepartment fixed assets can only be recorded or their 1-ae on as a rosgh ,-iication a 1971 basis.lhe revIsed values have been caleculated by .ing the cone am...l revall.,tion fi tors as tare 7 been previously used for the revaluatlon of Tls assets In l9 1.'7c rtcta,es bY EI and by 'he r,overnmnet were a.ceyted tn cennectlon slth L~on 7e3-r', but the determination of e *eait tic , ls., 01 1t2's present assets would requIre a ccsprehensive physical chect rt 5nAovaAatlon at catrent prices by a gal hsnt. Thi? has con- not been sugAested In slew of te -ncertatnties or TEr's f%tt.re peratIons. The deprectitlon rates sed by fElT sre those conplying with the Turkish Law, and result in an average overall annAl rate lf cane 6.5% of the electricity assets, ThIs Is high fo, a distribution compary, but the revauIcd teen deprecliaed et this asets hace a1so legal aversae rate end to thtr ^xtent their rev.luatIos2 #hoU4d alsen e sOnewhst under- stated. However, this could well be s-t off by the InclumIon of assets in pccw physlcal condition or rot still physicallyexisting. IhIs Is presently unkno., erd co,ld only bh dterained by physical 1loupection. The 1971 revaluatlon given agaln excludes tilahtarat its sale price to TEt of LT 132 uliliorn

fbruary 16. 197j ANNEX 27

REPUB1LCOF nn8Y

ISTAXIWLLECThXCIT'rY TRVY ANDTUXNNU COMPANY (QXT)

Actual and ?Meoaat 11M. he.t 1969-1976 - bad Ofice

(LT dnli4on -- LTSl, -D1)

ctual Forecast 196 1970 l97I 1_T 1973 17-3Y77174

ASSETS a Fixed Assets 39.0 40.1 4).2 44.2 44.2 414.2 L.2 LL.2 Less Depreciation 22.4 23.9 25.2 26.8 28.4 30.0 31.t' 33.2

Not Fixd Assets 16.6 16.2 19.0 17.4 15.8 14.2 12.h 11.-.

1oan to Coojer&tive and Lgal Depoalt 28.7 28.9 26.6 25.4 24.7 23.0 21.8 20.6

Cunrent Assets - Cash 25.5 34.9 49.0 116.9 101.8 110.0 105.L 102.7 Accounts Seceivable 9.7 9.0 lh.7 10.1 11.4 12.8 13.0 14.2 Subtotal Zurrnt Asests 35.2 43.9 63.7 129.0 3 124.4 118.4 116.9

CU-RAENTLIAB-1' IZS SuspenseAcccEints, Deposits and Provisions (47.8) (4h.h) (55.4) (5S-0) (64.0) (69.0) (74.0) (79.0) Gov rrwnt Taxis, isloyeeb, Stap Duty, atc. (8.1) 7.7) (55.6) (16.0) (17.0) (18.0) (19.0) (20.0, MInecpa1 Taxes, etc. (3.7) (2.1) (27.7) (5 O) (5-5) (6.0) (6.5) (7.0) Suppliers Accounts Payable (7.4) (4.5) (3.5) (3.0' (3.5) (40.) (4.5) (5.50 Staff Inaurance & Hia. 11amouw Funds (12.8) (19-5) (8.8) (6...) (6.9) (7-4) (8.o) (9.2) Bills of Exchange Outstanding (4.0) (4.2) (21.7) (.-) ( ) ( -) .t.z (.z

subtotal Current Liabilities (83.8n (82.L) (172-7) (89.1) (96.9) (104.4) (112.0) (120.2) Net Curnt Assets ( ) (.5) (109.0) 39.9 16.3 18.0 6.4 (3.3) TOTALASSETS (NET) (a; 6.6 (63.) 82.7 56.8 55.2 40.8 28.3 Eulty end c'urint Accounts soverr,jent-:Cr*1pa.i sMsetace (Equity) - - - 300.0 370.0 450.0 £60.0 8 . Acclu3ated Fieerve 4.3 4.3 4.2 4.2 4.2 4.2 h.2 L.2 Curreflt Accounts - Electricity 603.7 722.2 805.3 799.0 843.3 892.6 907.9 810.4 - Tranport (558.7) (643.3) (781.4) (9J4.4) (1,018.6) (;I120.8) (l,228.6)(1,3L8.L) - Gas (52.6) (76.6) (91.5) (116.1) (lL2.1) (170.8) (202.7) (237.9) TOTAL AD C U (,)QQjiTY 6.6 (63.4) 82.7 56.8 55.2 40.8 28.3

Jbbruary 16, 1973 A'IEX 28 Page I of 3

REPUBLICOF TURKEY

ISTANBULELECTRICITY, TRAMWAYAND TUNNELCOMPANY (IETT)

MAJOR ASSUMPTIONSUSED rOR FINAiCIAL FORECASTS

1. Revenue Accounts

(a) ElectricityDepartment (Annex 22)

(i) Revenue - Sales of GWh + approximately11% annually, Tariffs unchanged; Sales pattern unchanged.

(ii) Salaries & Wages - Number of staff unchanged,labor + 3% annually. Salariesand wagers per employee+ 10% annually.

(iii) Purchasesof Electricity- GWhs for increasedsales adjusted for distributionlosses, decliningto 13.52 by 1976; TEK tariff unchanged.

(iv) Depreciation- Rates unchangedper Law 213; e.g., Substations4%, Network 8%.

(v) Interest - USAID at 3-1/2%;Advance from Ministry of Urbar Developmentfor squatter electrificationat Nil %, Proposed Loan 7-1/4%, Short-terminterest at 10%, GovernmentDepartments at 1971 amount of LT 5.0 million for 1972.

(b) Transport Depart.:ent(Annex 3, page 6)

(i) Revenue - Forecast Passengers+ 7% annually, Tariff.1970 average plus 60% for 1971 increase - krs 75.5 per passenger. No further increase in tariff assumed.

(ii) Salaries & Wages - Labo- increase tota' of 500 to man new buses. Salaries and wages per employee + 10% annually.

A (iii) Materials- LT 47,000 per vehicle with the number of buses increased to carry forecast passengersat present average density of 450 passengersper vehicle. Price escalationof 5% annually.

(iv) Depreciation- At average of 20% per annum for 5 years. ANNEX 28 Page 2 °l 3

(v) Interest- "Is Bank" overdraft far lity at 10-1/2,Standard- Selde 5-year credit for "Bussing"at 15%, Govern- ment for "Leyland" LT 25.7 million 5 years at 5-1/2% (repaymentdeferred); remaining LT 26 million at Nil % over 25 years (repaymentdeferred). Government for new buses at 5-1i2Z - (repayment deferred). Duty deferredor cancelledat Nil interest. Governmentconsolidated debt at 1971 amount of LT 2.5 million per year.

(i) Revenue Sales - Sales in Million m3 decliriugannually at present rate of (-) 5%, Tariffs unchanged.

Biproducts- at 60% of Sales Revenue.

(ii) Salariesand Wages - No change in number, salaries and wages per employee+ 10% annually.

(iii) Coal - 117.65% Sales (i.e., losses) - gas manufacturedat 1971 price + 10% annually.

(iv) Depreciation- Continuingpresent average of 5% annually. 2. Balance Sheets

(a) ElectricityDepartment (Annex 26)

(i) Fixed Assets - 1971 + Project + 1976 constructionof LT 350 million (ii) Work-in-Progress- Includes all study costs under the loan. (iii) Consumersaccounts receivable- 3 months' sales, excluding municipality(4% of ElectricitySales). (iv) Inventories- Reduced in 1972 and maintainedat that level. (v) Taxes and Duties - IETT pays custom duty but with 2 years' credit, Taxes one month after due, Rural electri- fication contributiondue to TEK reduced progress- ively from 1971 80% to 33%. (vi) Accounts payable - Mtainlyone month TEK's bill, and reduction in 1970 coal outstandingsfully paid in 1976. (vii) Accrued Profit - Reduced each year by fMunicipalsales. (viii) Long-termdebt due Government - This comprisesLT 8 million imprest funds for electricityconstruction in squattersettlements plus LT 5.4 million mainly of "exchangerisk" of original SOFINA purchase Terms. NIorepayment is envisaged in ths3period and neither is interestbearing. ANNEX 28 Page 3 of 3

(b) Transport Department (Annex 3 page 5)

(i) Fixed Assets - Increasedover period by 238 buses at LT300,000 each. (ii) Inventories- Increased by 20X value of buses purchases for spares, less 10% per annum for usage and old stock. (iii) Accounts payable - 15;'of inventoriesfor fuel, etc. (iv) Long-term debt - Assumed determent of all existing "Leyland" debt repayment installmentsdue 1970 through 1975.

(i) Fixed Assete -iLT 3 million annually for general rehabilitation. (ii) Inventories - Haintained at 15% of Gross Fixed Assets. (iii) Consumers'accounts receivable- Improved to 3 months' billings from over 6 months. ANNEX 29 ?age 1 of 6

REPUBLIC OF TURKEY

ISTANBIJL ELECTRICITY, TRAflWAYAND TUNNEL COMPANY(IETT)

OUTLINE SCOPE OF WORK FOR CONSULTING SERVICES

Pror,ectImpireat.at-in

1. Pacaga&ph 3.16 of the Appraisal Report mentions that IETT is short of qualified elactrical engineers and that this is due to the effect of 'aw 36,1. by eq-iaU; the pay scales for ertgineerswitlh those of civil servants and settilkgtham botliat a relatively low level, this Law makes it impossifle for IEIT .o attract and employ qualified and experienced personnel. To alleviate tFe problem and to ensure timely execution of the Project, IETT, as menti.aed ii paragraph 5.07, Is arranging with SOFRELEC and EIEI to provide the necessary engineeringservices. These would include:

(i) feasibili_y studies to determine the requirements,locat'ion, jail"i.icPtion and priority of investments in:

a) com,unlcationequipment;

h) relay and protective equipment; and

c) renabilitationof the 34.5 kV, tO kV and "T distributionsystem;

(ii) system design, specificallyto achieve the greatest possible standardizationof substations,with a view to reducing design costi ir l-ter development and expansion phases;

(iii) prepara.:ionof tender documents and specifications;

(iv) isauance of bidding documents;

(v) analysis of bids; and

(vi) contract administrationand supervision.

Management Study

2. Paragranh 3.17 of the Appraisal Report stated that IETT had in 1970 engaged the services of EdF to review the organizationalstructure of its electricty and gas operations. A report prepared in September 1971 analyzed the existing strmcture and procedures and made alternative proposals for improvement. Since~this report was issued, discussions between IETT and EdF took place as to which cf the alternative pioposal best adapted for IETT's purposes should be selected for implementation. The EdF report, however, did ANNEX 29 Page 2 o1 6 not study the ie it was excluded from their TOrrm, r .: u_te orin of sep- W aration aof csi. ur.t of IETT's electricity, .. l sneeds to be made. Thi-s revie%ir s-c. . 's electricity operatizors are ;.:> .re out by EdF for TEK. T . est possible date, pro :

3. :-,v can be summarized ac .L .

W' ' K. . ' ' ' t.

Cr,,+ - .- e..

(ivil . 77c . f-.r T.

The mmedia . - -. C services at.:

Power Liarket .t-_ _

4. Wit: :: . . - ... K. , the distribution of power, it is :. - w'. sur.ey; be carried out, covering the ,vl 4 , _ --. ca coinrIdes prac- t ically w ti z-eI - -:~: .sdered economic- ally souz.dto rest .. ici'al Area, leaving out distribut4.-. - -. .. :snts required to meet the power . - - . e larger than the investment,- .e -integrated region. Paragraph 3.09'ot . In''cation of distribution f_ci 4 tie .. o-- a power market survey is Clat t 'z0 ,74 and 1975 could then be chec'ed 1 : . 19'5. It is also ANNEX 29 Page 3 of 6 importantthat the survey of the power market take into account tha short- and long-run urban developmentobjectives which are being supported by Credit 324-T'J,a "Project for the Preparationof an IntegratedUrban Program for Istanbul,Turkey". Among the objectiveswhich are relevant to the power market survey are, particularly:

(i) the provision of guidance and means of control for future urban growth; and

(ii) the improvementof urban services,with special attention given to those residentswho are poorly served or not served at all. In this connection,Credit 324-TU provides inter alia for

a) the preparationof projects to bring adequate in!rastructureto designatedexisting squatter settlementareas, and sites and services projects for low-incomepopulation as an alternativeto squatter settlement;

b) the developmentof a new urban cluster for planned urban expansionand the relocatiorof the existing wholesale food markets.

5. The Terms of Referencefor such a study can be summarizedas follows:

(i) to carry out a power market survey for the Greater Istanbul MetropolitanArea, covering the period 1976-1985. In particular,to analyze the power distributionrequirements in the period 1974-75 by areas and by type of consumer. This survey, in adequate detail, is to be coordinatedwith other relevant studies now under way and will contain a program of priorities,depending on criteria of need agreed upon by the Bank/IDAand the Government;

(ii) to analyze the existing criteriaand to establish reliability criteria consitent -ith the needs of specificareas to be served;

(iii) to establislhdesign and operatingcriteria to minimize, in combination*ith (ii) above, the investmentsneeded; and

(iv) on the basis of the results of the power market survey, to carry out Lhe preliminarydesign of a distributionsystem td meet the requirementsat minimum cost;

(v) on the basis of the preliminarydesign and the analysis of priorities in (i), to locate facilitiesrequired in 1974 and 1975 to ensure compatibilitywith present needs and future development; ANNEX29 Page 4 of 6

(vi) on the basis of the results achieved in the preliminary design, to prepare a program of de ail requirements and a feasibilityreport including cost estimates of the needs to cover the yea s 1976-1979,inclusive. This report t could form the basis of future lending operations;

(vii) to review IETT's present tariff structureand make recommendations as to any changes needed to improve operations and equity in the incidence of rates to consumers. Specifically,this review should cover the charges made for reactive power, the cost of supply to the various consumer categories,and the advisabilityof introducinga block tariff system. This tariff review should demonstrate the magnitude of indirect loading incorporated in the present tariffs offset the lossos of IETT's other operations.

The proposed power market survey will also benefit TEK in the design of the high-voltagetransmission system and the location of step-down transformer sub-statioovrequired to meet the projected load of the area.

Transport Study

6. Initially it was proposed to include under the Terms of Reference of the Traffic Engineering and Control Study financed by Credit 324-TU an investigationof the adm.,istrative,organizational and financial problems associatedwith IETT's transport system leading to the improvementof IETT's public transport services. At the request of the Turkish Authorities, consultantassistance for this aspect was excluded, because it was considered that Turkish Government personnel could carry out this work. Unfortunately, Turkish personnel with the necessary qualificationscould not be found to carry out the study of IETT's transportoperations. Because of IETT's precarious financial situation,resulting largely from its transport activities, provision to study the administration,organization and financing of IETT's bus services has been included in the proposed loan. The proposed loan will, be closely coordinated with the study of IETT's bus operations,which are included in the traffic engineeringand control study mentioned above.

7. The Terms of Reference of such a study can be summarizedas follows:

(i) to analyze IETT's present transportadmin'.dtration, organizationand financing procedures and to make recommendationsfor improvements;

(ii) to develop an accounting system and cost accounting principles related to the organization,methods and procedures recommended in (i); ANNEX 29 Page 5 of 6

(iii) to investigateand make recommendationsconcerning the tariff levels and structurewhich would enable .IETTto earn araacceptable return on its investment;(with or without subsidies)and to meet the demands of the various categoriesof consumerson an equitablebasis.

Gas Study

8. Paragraph 3.04 of the Appraisal Report mentions the existenceof three separategas plants and distributionsystems, two of which (the outside) systems)are operated by ITi'; tne central system is operated by the Municipality. Istanbul'sgas servicesmay benefit from consolidationunder one authority. The central municipal gas system serves nearly twice as many consumersas IETT's combined systems. A rationalizationof operationscould (a) reduce the two European gas plants from two to one; (b) result in reductions in operating,maintenance and general services costs; and (c) improve the quality of service to prevent a further loss of consumers to alternative fuel sources.

9. The Terms of Reference for such a study can be summarizedas follows:

(i) to carry out a gas iarket survey, 1973-1987,to determine future productionneeds and the level of investments required to meet forecast demand;

(ii) on the basis of the analysis of the EdF report dated Septewber 1971, to make recommendationsproviding for improvementsof IETT's present service area which would be compatiblewith the requirementsof a consolidatedgas sectcr;

Ciii) to determine the advantagesand disadvantages,if any, of consolidatingIstanbul's three gas systems into one;

(iv) to make recommendationson the organizationof an integrated gas system, to include managementprocedures, accounting system and cost accountingprinciples;

(v) to establish the investmentrequirements of a consolidated gas service in comparisonwith the investmentrequirements of the separate systems;

(vi) to determine the justificationof coal gas production vis-a-vis Liquified Propane Gas (LPG);

(vii) to determine the justificationof continuing the present gas supply service with considerationgiven to alternative sources of energy, including potential new sources of natural gas; ANNEX 29 Page 6 of 6

(viii) to determine the effect of completely or partially abandoning the gas services on the demand for electricity or bottled gas and to estimate the cost invclved to the consumerof changing from gas to electricityor LPG; and

(ix) to analyze the cost of production,distribution, operations and maintenance to determine the level of tariffs which would need to be charged to meet operating expenses (including depreciation).andprovide for a reasonable rate of return on investments. Included in this aspect should be a revaluation of the assets of all gas facilitiescurrently in service.