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LJSJ-Es To FILE COPY 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 It may not be published, quoted or cited without Bank Group authorization.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 through- out 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 accumu- lated transport and gas losses and the Government has agreed to make appro- priate 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 sub- ject of a consultant's study and despite its * ,rtcoming IETT is the only effective