FILE COFY RESTRICTED Report No. TO-417b Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized THE SECOND CUKUROVA ELECTRIC COMPANY PROJECT TURKEY Public Disclosure Authorized July 1, 1964 Public Disclosure Authorized Department of Technical Operations CURRENCY EQUIVALENTS 1 U. S. $ = 9 Turkish Lira 1 TL = 11 U.S. cents 1 million TL = 111, 111 U.S. $ TURKEY THE SECOND CUKTJROVA ELECTRIC COMPANY PROJECT TABLE OF CONTENTS Page No, SUMDARY ± I. INTRODUCTION 1 II. ORGANIZATION OF THE CUK'URO'VA ELECTRIC COMPANY 1 Iana gement2 Facilities 2 III. THE POWER MARKET IN THE CUKUROVA AREA 3 Sales and Capacity of CEC 3 Expansion Program 3 IV. THE PROJECT 4 The Mersin Plant 4 The Kadincik Plant 4 The Transmission Lines 5 Engineering 5 Procurement 5 Operation 6 Construction Scheduiles 6 Cost Estimates 7 Justification 8 V. FINANCIAL ASPECTS 8 Tariffs 8 Financial History 9 Present Financial Position 10 Past Earnings 12 Financing Plan 12 Estimated Future Earnirgs 15 Future Financial Position 16 VI. CONCLUSIONS 16 List of Annexes 1. Energy Sales and Forecasts 2. Peakloads and Forecasts 3. Estimated Load Curve and Available and Proposed Capacities 4. Details of the Project 5. Cost Estimates 6. Condensed and Adjusted Balance Sheets 1959-1970 7. Condensed and Adjusted Income Statements 1959-1970 8. Forecast of Sources and Applications of Fumds 1964-1970 MAP TURKEY THE SECOND CUKUROIVA ELECTRIC T.MPANY PROJECT SUMiARlY The Government of Turkey has applied for an IDA credit to help finance a powJer expansion program for the Cukurova area and the Hatay province. The program consists of a 50 SW steam plant near Mersin, a 100 DU hydroelectric plant on the Kadincik river and 256 km of trans- mission lines. The estimated cost is about TL 390 million ($43.5 million). ii. An IDA credit of $24.0 million, of which $6.0 million for local currency expenditure, would be necessary to complete the financing plan prepared for this program by the Cukurova Electric Company (CEC) the utility serving the area to benefit from the program. iii. CEO, with over 56s, of its stock privately held, is the only power company in Turkey with a majority of private capital. It was created, in 1953 after the Government agreed, in connection with Bank Loan 63-TU, to grant it a 49-year concession to operate the power facilities at the Seyhan Dam. It was the main beneficiary of a '1.7 million IDA credit made in February 1963 to help complete the Seyhan powerhouse with a third 18 MW unit and to finance the foreign exchange cost of engineering studies for CEC's expansion program. The third unit is bein£ installed on schedule. The engineering studies have shomn the need and justifica- tion for the expansion program now proposed for IDA financing. iv. CECts operations are well managed. With the support of con- sultants it would be able to construct and operate the project. v. Financial performance has been good since CEC was reorganized and tariffs were raised in 1962. The Government has agreed to authorize a further rate increase in connection with the proposed expansion. The financing plan is reasonable, Financial forecasts show that the sound financial position of CEC would be maintained in future years. vi. The project would be suitable for an IDA credit of $24.0 million. TURKEY THE SECOND CUKIJROVA ELECTRTC (OMPANY PFOJECT I. INTRODUCTION 1. The Government of Turkey has applied for an TDA credit to help finance a power expansion program for the Cukurova area and the Hatay province. The program consists of: a 50 IW steam plant, 60 Ion southwest of Adana, near Mersin; a 100 ME hydroelectric plant, 50 km west of Adana on the Kadincik river; and 256 km of transmission lines. Its estimated cost is about TL 390 million (Si,43.5 million). 2. The Cukurova area is served by the Cukurova Electric Company (CEC). The Company owns and operates the poverhouse at the Seyhan Dam near Adana, which was financed in -kpart by a Bank loan of June 13, 1952 and by an IDA crectit of February 1, 1963. CEC's service area will be extended to include the Hatay province wJhen the necessary transmission facilities are completed in 1965 as part of the proposed program. 3. The Government request was prepared on the assumption that the Kadincik project wrould be built by a Government agency ith Government funds, while the balance of the prograrn woulld be carried out by CEC. The alternative whereby CEC would carry out the entire program had not been fully investigated as the Government believed CEC could not raise all of the necessary financing. CEC, however, was able to present a reasonable plan to assume this responsibility. This solution offers important advantages: financing by CEC from internal cash generation and sale of shares will release scarce Gorernment funds for other high priority investments; on the other hand, CEC will be able to operate Kadincik as part of its system without the special arrangements that would have been necessary had the plant been owned by another entity. The Government is in agreement wuith the present proposal and has agreed to approve the rate increase and provide financial assistance to enable CEC to carry out the entire program. To complete the plan,CEC requires an IDA credit of $24.0 million. Of this, 46.0 million ,Tould be used to finance locnl currency expenditure. 4. This appraisal report is based on the findings of an IDA mission which visited Turlkey in November-December 1963. II. ORGANIZATTOY 0F T {E CULJROVP :LECTT, C CO;?PANY 5. CEC was formed in 1953, when the Government granted it a 49-year concession to operate the powerhourse at the Seyhan Dam, which was constructed partly for irrigation and flood control purposes. The concession area covers the provinces of Seyhan and Icle (see map), the larger part of the Cikurova alluvial plain, bounded on the north by the Taurus Hountains and on the south by the Mediterranean Sea. It is a rich agricultural area, one of the most prosperous in Turkey. In connection with the proposed project CBC will extend its service area to the adjoining Hatay province. The Companr has agreed to obtain all necessary authorizations for this extension as a condition of effectiveness for the proposed credit. - 2 - 6. The 36 row power plant and other facilities iwere constructed by the State Water Works (DSI) and financed in part by the Bank's loan of $25.2 million (No. 63-TU) made in June 1952 to the Turkish Government. It was agreed at the time that the plant would be turned over to the CEC which is now the only public utility in Turkey with a majority of private capital. 7. Operations began in 1956. Due to controversy within the Government about private ownership of utilities, an overrun in the cost of the powerhouse, and a devaluation of the currency, which complicated a settlement, a firm agreement on CEC ownership of the powerhouse awas not reached until 1961. 8. In February 1963, IDA credit 34-TU for '11.7 million equivalent was granted to cover the foreign exchange cost of installing a third 18 MW unit in the powerhouse and to provide for engineering studies, by foreign consultants, to plan additional steps in the expansion program of the company. The third unit is now being i'nstalled on scheduile and the engineering studies have shown the need and justification for a program including a 50 MV thermal plant near Hersin and a 100 VW hydro plant on the Kadincik river. Management 9. The Board of Directors consists of a Chairman and three other representatives of private stockholders and three directors representing Etibank, the holder of the Government's minority interest. Etibank is a State enterprise which, among other things, owns and operates electric generating plants and makes the primary distribution of about one-half the electricity in Turkey. 10. The present Chairman of the Board has held his position for about three years. During that time agreements have been reached wTith the Government on all of the important relationships which affect the Company and which had been allowed to remain unsettled by the previous management. The general manager directs a force of about 200, of which the heads of the technical departments and some of their assistants, seven in all, are experienced engineers. The plant is efficiently managed and well maintained. Suitable training of staff has been instituted in view of the planned expansion steps. The general manager resigned recently after about three years in office. He w-as replaced by an experienced utility engineer, the former assistant general manager of Etibank. Facilities 11. The installed generating capacity of CEC consists of two 18 IVW hydro units in the Seyhan plant at Adana. In addition there are 15 ti of diesel capacity in the service area, owned by municipalities and pri.vate industries. These machines are expensive to operate and most of them are near the end of their useful life. A third 18 lTWT is now being installed in the Seyhan plant and will be completed in the second half of 1964. - 3 - 12. CEC owns 89 km. of 66 kv transmission lines connecting the Adana area with the cities of Tarsus and Mersin, and 14 step-down substations and distribution lines to industrial consumers with individual demands in excess of 500 kw.