Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 36341-TR
PROJECT APPRAISAL DOCUMENT
ON A Public Disclosure Authorized PROPOSED LOAN
IN THE AMOUNT OF EURO 205 MILLION
(US$269.4 MILLION EQUIVALENT)
TO THE
TURKIYE ELEKTRIK DAGITIM A.S. (TEDAS)
WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY Public Disclosure Authorized FOR AN
ELECTRICITY DISTRIBUTION REHABILITATION PROJECT
March 26, 2007
Sustainable Development Unit Europe and Central Asia Region
Public Disclosure Authorized (EC S S D)
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective February 28,2007)
Currency Unit = New Turkish Lira (YTL) YTL 1.4 = US$1 US$ 1.31 = €1
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan BOOS Build Own and Operate Power Plants BOTAS BORU HATLARI ILE PETROL TASIMA A.S. (Turkish Pipeline nd Petroleum Tran mission Company) BOTS Build Operate and Transfer Power Plants CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment DISCO(s) Distribution company(ies) formed by restructuring TEDAS DSI Devlet Su Ivleri (State Hydraulic Works) EA Environmental Assessment EC European Commission ECSEE Energy Community of South Eastern Europe EIA Environmental Impact Assessment EIB European Investment Bank EML Electricity Market Law, No. 4628, 2001 EMP Environmental Management Plan EMRA Energy Market Regulatory Authority EPDK Enerji Piyasasi Duzenleme Kurumu (EMRA in Turkish) ERP Enterprise Resource Planning program EU European Union EUAS Elektrik Uretim A,$. (Electricity Generation Corporation, Turkey) GENCO(s) Portfolio generating companies to be created from the restructuring of EUAS IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation LNG Liquefied Natural Gas MENR Ministry of Energy and Natural Resources MOEF Ministry of Environment & Forestry MOF Ministry of Finance PA Privatization Administration PPA Power Purchase Agreement PPIAF Public-Private Infrastructure Advisory Facility SEE State Economic Enterprise SIL Specific Investment Loan SPO State Planning Organization TEAS Turkiye Elektrik A,$. (Turkish Electricity Corporation, Predecessor of EUAS and TEIAS) TEDAS Turkiye Elektrik Dagitim A.S. (Turkish Electricity Distribution Corporation) TEK Turkiye Elektrik Kurumu (Turkish Electricity Corporation, Predecessor of existing Corporations) TEIAS Turkiye Elektrik Iletim A.S. (Turkish Electricity Transmission Corporation) UCTE Union for the Coordination ofTransmission of Electricity in Europe
Vice President: Shigeo Katsu Country Director: Ulrich Zachau Sector Manager: Charles Feinstein Task Team Leader: Sameer Shukla FOR OFFICIAL USE ONLY TURKEY Electricity Distribution Rehabilitation Project
CONTENTS
Page A . STRATEGIC CONTEXT AND RATIONALE ...... 5 1. Country and sector issues ...... 5 2 . Rationale for Bank involvement ...... 9 3 . Higher level objectives to which the project contributes ...... 10
B . PROJECT DESCRIPTION...... 10 1. Lending instrument ...... -10 2 . Project development objective and key indicators ...... 10 3 . Project components ...... 10 4 . Lessons learned and reflected in the project design ...... 11 5 . Alternatives considered and reasons for rejection ...... 12 C . IMPLEMENTATION ...... -13 1. Partnership arrangements (if applicable) ...... 13 2 . Institutional and implementation arrangements ...... 13 3 . Monitoring and evaluation of outcomes/results ...... 14 4 . Sustainability ...... 14 5 . Critical risks and possible controversial aspects ...... 14 6 . Loadcredit conditions and covenants ...... 16 D . APPRAISAL SUMMARY ...... 17 1. Economic and financial analysis ...... 17 2 . Technical ...... 19 3 . Fiduciary ...... 20 4 . Social ...... 20 5 . Environment ...... 21 6 . Safeguard policies ...... 21 7 . Policy Exceptions and Readiness ...... 21
This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not be otherwise disclosed without World Bank authorization . Annex 1: Country and Sector or Program Background...... 22 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 29 Annex 3: Results Framework and Monitoring...... 32 Annex 4: Detailed Project Description ...... 35 Annex 5: Project Costs ...... 46 Annex 6: Implementation Arrangements ...... 47 Annex 7: Financial Management and Disbursement Arrangements ...... 50 Annex 8: Procurement Arrangements ...... 57 Annex 9: Economic and Financial Analysis ...... 62 Annex 10: Safeguard Policy Issues...... 78 Annex 11: Project Preparation and Supervision ...... 81 Annex 12: Documents in the Project File ...... 82 Annex 13: Statement of Loans and Credits...... 83 Annex 14: Country at a Glance ...... 86 Annex 15: Map IBRD 34858 ...... 88 TURKEY
ELECTRICITY DISTRIBUTION REHABILITATION PROJECT
PROJECT APPRAISAL DOCUMENT
EUROPE AND CENTRAL ASIA
ECSSD
Date: March 26, 2007 Team Leader: Sameer Shukla Country Director: Ulrich Zachau Sectors: Power (100%) Sector ManagerDirector: Charles Feinstein Themes: Other urban development; Infrastructure services for private sector development Project ID: PO96801 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan Project Financing Data [XI Loan [ ] Credit [ 3 Grant [ ] Guarantee [ 3 Other:
Source Local Foreign Total Borrower 75.00 0.00 75.00 International Bank for Reconstruction and 126.90 142.50 269.40 Development Total: 20 1.90 142.50 344.40
Borrower: TURKIYE ELEKTRIK DAGITIM A.S. (TEDAS) Inonu Blv. No: 27, Bahqelievler Ankara Turkey Tel: (90-3 12) 2 13-7804 Fax: (90-3 12) 2 15-7275
Responsible Agency: TURKIYE ELEKTRIK DAGITIM A.S. (TEDAS) Inonu Blv. No: 27, Bahqelievler Ankara Turkey FY 2007 2008 2009 2010 2011 2012 2013 0 0 Annual 0.00 20.00 50.00 60.00 70.00 40.00 29.40 0.00 0.00 Cumulative 0.00 20.00 70.00 130.00 200.00 240.00 269.40 269.40 269.40 Project implementation period: Start September 3,2007 End: June 29,2012 Expected effectiveness date: April 30, 2007 Expected closing date: December 3 1, 20 12 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Ref: PAD A.3 Does the project require any exceptions from Bank policies? Ref: PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Ref: PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Ref: PAD D. 7 Project development objective Ref: PAD B.2, Technical Annex 3 To help improve the reliability of power supply to consumers in Turkey by supporting the implementation of the electricity distribution network rehabilitation and expansion program.
Project description [one-sentence summary of each component] Ref: PAD B.3.a, Technical Annex 4 The Electricity Distribution Rehabilitation Project consists of the following investments:
Distribution Network Rehabilitation and Expansion: This includes investment projects for distribution network rehabilitation and expansion in the TEDAS regional companies of Ayedav, Uludag, Meram, Gediz, Toroslar, Menderes, Osmangazi and Akdeniz. The investment components financed by the Loan include rehabilitation and upgrading of medium and low voltage distribution equipment and facilities, by: (i) replacing existing run-down and aged medium and low voltage overhead lines in densely populated areas with underground cables; and (ii) constructing new distribution substations and feeders. While rehabilitating the networks, effort would be made to eliminate nonstandard medium voltages (besides 34.5 kV) which are currently in operation at several locations. Investments financed by this loan will include the installation of performance monitoring systems in the provinces with investment projects financed by this loan to enable monitoring and recording of the distribution network’s performance and their compliance with the regulatory service reliability criteria.
Technical Assistance for supervision consultants: The project will also finance supervision consultants to assist TEDAS and the regional companies in managing and supervising the implementation of the investment projects. These consultants will support TEDAS and regional staff in the following: - provide monitoring support to the regional companies for the implementation of the investments, - ensure that the project activities are well coordinated between the TEDAS, regional companies and the contractors as will as with other relevant agencies (Le. municipalities, local infrastructure utilities), and - ensure that the supplied equipment and civil and installation works are in compliance with the Project design and work schedule.
Consultants/advisers will be used to assist TEDAS in the implementation of a system for monitoring and evaluation of performance indicators.
Which safeguard policies are triggered, if any? Re$ PAD 0.6, Technical Annex 10
Ref. PAD D.6, Technical Annex 10 Environmental Assessment (OP/BP/GP 4.0 1)
Significant, non-standard conditions, if any, for:
Re$ PAD C. 7
Board presentation: There are no conditions for Board Presentation.
Loadcredit effectiveness: There are no conditions for Loan Effectiveness.
Covenants applicable to project implementation:
The following covenants are included in the loan agreement, in addition to the standard covenants relating to audits, accounts, procurement plans, mid-term reviews etc.
I. Financial Covenants
(a) TEDAS will maintain its collection efficiency for sale of electricity to final consumers, expressed as a percentage of total electricity sold, at not less than 93% from 2007 onwards, at not less than 95% for 20 10 onwards, and at not less than 98% for 20 15 and thereafter. (b) TEDAS will achieve a self financing ratio (funds from internal resources as a proportion of the three-year average capital expenditure) of not less than 25% in every year starting from 2007.
11. Institutional Arrangements
(a) TEDAS shall, through the Project Management Team (PMT), oversee the overall implementation ofthe Project. To that end, the Borrower shall maintain the PMT throughout the implementation of the Project, under terms of reference acceptable to the Bank and with sufficient and suitable human, financial and technical resources.
(b) TEDAS shall enter into contractual relations, acceptable to the Bank, with the regional distribution companies, to ensure: (a) the annual debt service obligations of the Borrower, through an escrow account to be established in a manner satisfactory to the Borrower and the Guarantor, until the debt service payments are fully recovered by the Borrower; and (b) the satisfactory implementation ofthe investments supported under the Project.
(c) TEDAS shall implement the EMP and shall include in the quarterly progress reports to the Bank specific environmental reports, as required, providing results of any monitoring programs undertaken as part of the EMP.
111. Financial Management Covenants: TEDAS will maintain a financial management system acceptable to the Bank. A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues
Country Economic Overview 8 The Turkish economy has rebounded from the 2001 crisis which had serious economic and social impacts: by the end of 2001, the currency had devalued by 50 percent, nominal interest rates were about 100 percent, and the banking system had virtually collapsed. GNP growth has been strong since 2001 close to 8 percent on average during the last 4 years. Inflation was also brought under control, reaching single digits in 2004 for the first time in 35 years, although it is expected to be around 10 percent at end-2006. 8 Several factors contributed to the improved macroeconomic performance - key amongst them are: strong fiscal discipline which has allowed the maintenance of a large primary surplus in the order of 6.5 percent of GNP; on-going structural reform; and political stability since 2002. The EU’s decision to open accession negotiations with Turkey in October 2005 - has been an important signal to financial markets and has created a firm anchor for the country’s development and structural reforms in the years ahead, notwithstanding the fact that the process is expected to be long and difficult.
The Electricity Sector in Turkey: Transition to a Competitive, Privatized Market 8 Legislative basis - The Government has embarked upon a comprehensive reform and restructuring program of the electricity sector to create a liberalized, efficient and economic sector. This reform program was initiated by the Electricity Market Law (Law No. 4628) promulgated in February 2001 and reflected in the Strategy Paper accepted by the High Planning Council in March 2004, which accelerated the reform process. The principles and goals of the reform program defined by this Law are substantially in line with EC Directives (1 996/92/EC and 2003/54/EC) concerning rules for the internal market for electricity. ECSEE Treaty - Turkey is a signatory of the Athens Memoranda of 2002 and 2003 that the EC initiated to develop the regional electricity and gas market in South East Europe and eventually integrate it with the internal electricity and gas market of the European Union. The regional market development process commonly referred to as the “Athens process” was initiated by 2002 Athens Memorandum. The Athens Memorandum 2003 which superseded the 2002 document included provisions relating to natural gas market development. While other regional members signed the resulting Energy Community of South Eastern Europe (ECSEE) Treaty on October 25, 2005, Turkey did not, owing to reservations on some of the Treaty provisions. With the EU decision of October 3, 2005 to begin negotiations for full accession, some reservations on the Treaty now become intertwined with the negotiations on the Energy Chapter of the Acquis Communautaire. Turkey however remains committed to, and continues to implement the provisions of the 2003 Athens Memorandum. 8 Functional and corporate restructuring of the sector - Pursuant to the Electricity Market Law, TEAS, the former integrated generation and transmission corporation, was restructured into a generating corporation EUAS, a trading corporation TETAS and a transmission corporation TEIAS. TEDAS, the Government-owned distribution corporation had been earlier separated from TEAS’ predecessor, TEK. In 2004, TEDAS
5 was restructured into separate regional distribution companies (DISCOS) in preparation for their privatization. The generation sector is also in the process of being restructured into one holding company which will retain the major hydroelectric power plants, and six separate portfolios of generation assets that will be later formed into companies (portfolio companies) that would be privatized once distribution is substantially privatized. Independent Regulatory Framework - Turkey has set up an independent regulatory authority, the Energy Market Regulatory Authority (EMRA) with jurisdiction over electricity, gas, petroleum and LPG. EMRA has powers over licensing, tariff setting and customer service issues. Retail Competition in Electricity - Consumers whose annual consumption exceeds 6.0 GWh are considered eligible, Le., they can choose their own supplier - this represents more than 30% ofthe total Turkish electricity market. Competitive Market Structure - Market simulations are in progress to introduce a competitive bilateral contract market with a balancing and settlement system. Cash-based market operations began in August 2006, and it is expected that the final market structure will be in place once daily settlements supported by hourly metering is implemented. TEIAS, the transmission company is the independent system operator and the market operator. The market is expected to provide the necessary price signals for potential new generation.
The Electricity Distribution Business
1. The electricity distribution system in Turkey is owned by TEDAS (except Kayseri), a corporation created from the restructuring of TEK, an integrated electricity utility, in 1993, and operated by 20 regional distribution companies under transfer of operating rights (TOOR) contracts. TEDAS was shifted to the “privatization program ”’ of the Privatization Administration (PA) in April 2004 and was restructured into 20 regional companies in 2005. In addition to TEDAS, eligible consumers are supplied by IPPs, autoproducers, wholesalers and other private producers. One region, Kayseri, is operated by a separate company in which the municipality holds the largest stake. TEDAS sales made up about 75% of total consumption of electricity in Turkey in 2005, with the remaining attributable largely to autoproducers eligible consumers. TEDAS sold about 93 TWh in 2005 to about 28 million consumers. About 30% of total consumption was by industrial consumers in 2005, with residential consumers making up another 30%.
2. TEDAS estimates its system losses (technical and commercial, including theft of electricity) at about 17.8% in 2005. Losses rose consistently from about 10.7% in 1990 to 21.6% in 2000, but have declined gradually since then, as a result of several measures by TEDAS to improve metering and billing and curtailment of theft. In 2004 for instance, loss detection teams set up at headquarters and in the regions inspected about 6 million consumers and recorded 320,000 cases of theft - this resulted in a revenue assessment of US$ 230 million and cash collection of US$ 78 million. In several places, metering, billing and collections are outsourced,
I The term “privatization proguam” refers to the transfer of a state-owned enterprise to the ownership and financial oversight of the Privatization Administration in preparation for eventual privatization, Typically, State Owned Enterprises are owned and supervised by the Undersecretariat of Treasury.
6 and the outsourcing agencies are provided added incentives for theft prevention. TEDAS’ staff have also developed an internet-based system to improve retail services such as subscription, metering, billing and collections - for instance, the system enables bill payment through banks, and also facilitates consumption to be tracked to identify potential theft, remote disconnections and reconnections.
3. While TEDAS’ collection efficiency has been rising, to about 93% in 2005, arrears for sale of electricity stood at US$ 3.5 billion at the end of 2005. A significant part of the arrears, about 53% of the total, arise from non-payment by government agencies, particularly municipalities and particularly for street lighting. The Government is however, trying various options to deal with the problem of accumulated arrears (See Annex 9). For municipalities in particular, laws have been amended in order to enable the Government to allocate central tax devolutions through Iller Bank2, towards meeting electricity dues. The dues of about 2500 municipalities and 8 metropolitan municipalities were reconciled and rescheduled in June 2006, and it is expected that from July 2006, monthly deductions from central devolutions will commence. For street lighting bills, which have been a particularly serious problem since municipalities have by and large refused to accept these bills as their responsibility, the Government has prepared amendments in related legislation to allow the use of municipal taxes and additional electricity tax for recovery ofthese dues (and future bills) over time.
4. The electricity distribution network in Turkey is in poor condition and system reliability is declining. Investment in the distribution sector has been constrained for over a decade and the system is now showing signs of this lack of investment, with high system losses and system reliability declining over time. Between 1994 and 2003, TEDAS requested an investment budget of US$ 7.6 billion and was allocated less than half that amount3. In about the same period, the number of consumers increased by 9.5 million (a compounded annual growth of 5.1%); staff strength reduced from 38,351 to 32,140 in 2004; and system losses rose from about 15.5% to 19.9%. The distribution sector also went through a phase of poorly structured and failed privatization from 1997-2002 which exacerbated system inefficiencies, as the sector remained in limbo with very little attention being given to the physical condition of the system. Average annual interruption levels per consumer4 are much higher than EU countries with similar climate and geography, and the performance’ of the distribution networks in Turkey is also below average performance amongst other EU countries. The Bank’s Investment Climate Survey6 for Turkey shows that nearly 82% of the 1,300 firms surveyed experienced an average of 28 power outages in 2005, leading to a loss of more than 4% of annual revenues. 47% of the
Central tax and other devolutions to municipalities are routed through Iler Bank, a government-owned bank. Up to 20% of these monthly devolutions to any particular municipality will be deducted for payments to TEDAS. 3 Improvement of Operational Efficiency and Service Quality in the Electricity Distribution Grid - Feasibility Report by McKinsey for TEDAS General Directorate See footnote ## 3. A record of actual energy interruptions to consumers is not available. However, according to the distribution feeder outage records (number and durations), TEDAS approximate calculations show that unserved energy due to interruptions in some regional companies could be equivalent to as high as 8 days of the regional company’s annual energy sales.. Losses in the distribution networks vary from about 5.0% in Bursa province to as high as 71.6% in Mardin province. Voltage drops in the distribution network could be as high as 10% during peak demand. 6 The Bank conducts Investment Climate Surveys (ICs) in many countries on a regular basis, with the objective of assessing the main factors which constrain growth by manufacturing firms. The Turkey ICs covered 1,323 firms representing nearly every industry and ownership structure.
7 surveyed firms own a generator as a result. In comparison, 64% of firms in Brazil reported having faced outages, at an average of less than 5 outages per firm during 2005.
5. In many regional distribution companies, the urban distribution network poses a safety risk. Turkish towns and cities have urbanized rapidly, and in several places, urban housing and commercial developments have expanded with little regard for environmental or safety considerations vis-a-vis existing distribution networks. Rapid urbanization has thus come with poorly regulated construction, and clearances between distribution overhead lines and buildings are significantly below the levels prescribed in the electricity regulations and pose serious safety risks.
Turkey’s distribution privatization strategy
6. PA’s privatization strategy is a modified Transfer-of-Operating Rights (TOR) approach backed by a sale of shares to private investors. In this approach, TEDAS will continue to own the assets, and will transfer the right to operate the distribution networks in specific regions to the relevant regional distribution companies. These distribution companies will have all the rights that an owner would have, including the right to invest in network maintenance and expansion. These operating rights will be co-terminus with the distribution and retail licenses provided by EMRA. These distribution companies will then be privatized through a sale of a majority of the shares on a competitive basis.
7. After intense debate over the preferred privatization strategy and approach’, the relevant agencies have agreed to the strategy proposed by PA. Preparation for privatization has proceeded at a fast pace, and in September 2006, PA commenced the privatization transaction for three distribution companies - Ayedag, Bagkent and Sakarya. Key procedural and legislative requirements for commencing privatization have been completed: (i)significant amendments have been made in the Electricity Market Law (EML) No. 4628 and other relevant laws, (ii)5- year tariff profiles have been approved, and (iii)transition contracts between EUAS, portfolio gencos, TETAS and the distribution companies were signed in June 2006. The Law has been amended fairly significantly, most recently in May 2006. These amendments seek to reduce the perceived risks in the agreed privatization approach, and to make it consistent with the overall reform program. The changes include mainly provisions enabling (i)the transfer of operating rights, (ii)tariff equalization and 5-year tariff profiles, and (iii)transition contracts. Perhaps most significantly, the amendments further require that the 5-year transitional tariff profiles for each regional company can be changed only by the Government through a Council of Ministers’ decree.
8. The investor will be obliged to make a pre-defined level of investments in the network, and to demonstrate the achievement of pre-defined performance criteria such as loss reduction, improved collection efficiency, and improved customer service. The tender documentation for the privatization will reflect the availability of the Bank loan for the rehabilitation of distribution systems. Upon completion, it is expected that these investments will improve reliability and reduce energy disruptions.
7 The other main alternative, outright asset sale was seen to carry serious legal impediments and was hence not considered feasible. a 9. The tariff profiles are based on the Government’s decision to maintain uniform national tariffs and to achieve a degree of stability in the tariff level. However, future changes in either fuel prices or power purchase costs will be passed through. The tariffs also factor in the targeted performance criteria and investments required by the distribution companies.
10. Since different distribution companies have different cost structures, each distribution company will require a different tariff profile. In order to enable the implementation of uniform tariffs, a tariff equalization mechanism is being established. This mechanism will aim to equalize across distribution companies to ensure that they recover the revenues that they require to cover eligible costs, after factoring in performance targets. It is envisaged that this equalization will be done through TETAS (See Annex 9).
1 1. Prerequisites for privatization: The Government has agreed that privatization will be completed after the following elements of market and regulatory reforms have been tested and implemented: (i) the implementation of a balancing and settlement system on a cash-settlements basis with the multiple DISCOS and the transition contract arrangements; and (ii), the tariff equalization mechanism and 5-year tariff profiles for distribution companies. The balancing market was implemented in August 2006 and has been in operation since then. Transition contracts are in place, and are currently being fine-tuned. The tariff equalization mechanism has been finalized, and will be implemented over the next few months.
2. Rationale for Bank involvement
There are two main reasons for the Bank engaging in the Turkish electricity distribution sector:
(a) Ensuring completion of deferred rehabilitation and upgrades - The distribution sector in Turkey has postponed essential investments in upgrades and rehabilitation for several years. Two factors contributed to this. First, the distribution sector went through a five year hiatus from 1997-2002 during which attempts at privatization failed. Consequently, the expectation that the private sector would make the necessary investments was not realized. Second, the Government faced budget pressures during repeated fiscal crises and curtailed investments in the distribution sector. The government remains committed to privatizing the distribution sector, but is against continuing to defer important distribution system investments in anticipation of a rapid privatization. Bank engagement at this stage would assist in financing essential distribution system upgrades that can help the sector ensure reliable supply to a growing electricity demand in the country, reduce losses, meet performance criteria established by the regulator, and achieve compliance with safety regulations. Some of the regional companies that will utilize the Bank loan may be privatized over the life of the Project. It is expected that since the projects are technically and economically justified, the availability of financing for these projects will not adversely affect the privatization process.
(b) Consistency with the overall Bank support for electricity reforms in Turkey - The World Bank has played an important policy support role in the reform process. The Bank has, through PPIAF and the Spanish Trust Fund, established an expert panel that advises the Government on the adequacy of market rules, pre-privatization preparation, vesting contract arrangements, etc. In addition, through the National Transmission Grid
9 Project (2002) - the Bank financed consulting firms to assist the implementing agencies (TEIAS, TETAS, TEDAS, EMRA). By engaging directly with TEDAS which is currently in the portfolio of PA, the Bank can engage more directly in finding solutions to pre-privatization issues noted above.
3. Higher level objectives to which the project contributes
12. The project is part of the overall support currently being provided to the electricity sector in Turkey by the Bank. Through the project, the Bank will assist in improving the distribution system in critical areas, reduce interruptions in supply, expand capacity and assist in improving the potential for privatization. Moreover, the investments will enable the distribution network to become more compliant with safety regulations. A reliable and efficient electricity distribution system is important for Turkey’s economic growth.
13. The Project is consistent with the overall Country Assistance Strategy (CAS) for Turkey for the period FY 2004-07 (Report No. 33995-TU, dated November 8,2005).
B. PROJECT DESCRIPTION
1. Lending instrument
14. This project will use a Specific Investment Loan (SIL). The loan will be borrowed directly by TEDAS, under a sovereign guarantee from the Republic of Turkey. TEDAS is expected to use the variable spread loan (VSL) - the financial terms and arrangements will be finalized at negotiations.
2. Project development objective and key indicators
The Project Development Objective is:
To help improve the reliability of power supply to consumers in Turkey by supporting the implementation of the electricity distribution network rehabilitation and expansion program.
15. Achievement of this objective would be monitored through the following indicators:
Reduction in number and average duration of annual interruptions in power supply to consumers in the areas served by the nine regional distribution companies where investment projects are funded by the Bank project. New load served in the project areas of the eight regional distribution companies funded under the Project. Improvement in collection efficiency in the eight regional distribution companies.
3. Project components
The Electricity Distribution Rehabilitation Project consists ofthe following investments:
10 16. Distribution Network Rehabilitation and Expansion: This includes investment projects for distribution network rehabilitation and expansion in the TEDAS regional companies of Ayedav, Uludag, Meram, Gediz, Toroslar, Menderes, Osmangazi, and Akdeniz.
17. The investment components financed by the Loan include rehabilitation and upgrading of medium and low voltage distribution equipment and facilities, by: (i) replacing existing run- down and aged medium and low voltage overhead lines in densely populated areas with underground cables; and (ii) constructing new distribution substations and feeders. While rehabilitating the networks, effort would be made to eliminate non-standard medium voltages (besides 34.5 kV) which are currently in operation at several locations. Network rehabilitation will help reduce: distribution system losses; network operation and maintenance costs; and, supply interruptions caused by equipment and facilities outages. The conversion of overhead lines to underground cable would also improve the safety of the network by reducing the potential for faults and accidents - and the associated compensation payments made for material damage and loss of life. These investments will also ensure compliance with the Electricity Power Current Facilities Regulation of 2000 which has increased the minimum allowable distance between overhead power lines and buildings.
18. Technical Assistance for supervision consultants: The project will also finance supervision consultants to assist TEDAS and the regional companies in managing and supervising the implementation of the investment projects. These consultants will support TEDAS and regional staff in the following:
0 provide monitoring support to the regional companies for the implementation of the investments, 0 ensure that the project activities are well coordinated between the TEDAS, regional companies and the contractors as well as with other relevant agencies (Le. municipalities, local infrastructure utilities), and 0 ensure that the supplied equipment and civil and installation works are in compliance with the Project design and work schedule.
19. Under the project consultantdadvisers will be used to assist TEDAS in the implementation of a system for monitoring and evaluation of performance indicators.
A detailed description of the project components and their scope is presented in Annex 4,
4. Lessons learned and reflected in the project design
20. Project design, preparation and procurement have benefited from the extensive experience that the Bank has in developing large infrastructure investment operations, and specifically in rehabilitation of generating plants and power transmission and distribution networks. These include:
(a) Detailed technical review of project feasibility The project design and scope have been developed after a detailed feasibility study of each proposed investment. The review was supplemented by intensive field visits by Bank technical specialists to several
11 of the provinces, where investment projects are proposed to be financed by the loan’. The Bank team was supported by an experienced engineer from Turkey. The Bank’s review assisted in assessing overall project design and the scope, and resulted in the identification of eligibility criteria for future investments to be financed by the Bank loan. Where necessary, the Bank recommended changes in the project design and scope to meet established selection criteria.
(b) Project implementation based on Supply and Installation Contracts and Supervision of Implementation Given the large scale of the Distribution Network Rehabilitation Program, the Bank team and TEDAS agreed that the projects will be procured and implemented using mainly supply and installation contracts to minimize the risk of project non-completion due to any lack of coordination and implementation capacity of the regional companies. Furthermore, supervision of the project implementation by the regional companies will be assisted by hiring qualified consultants.
(c) Flexibility in policy dialogue and recognition of macroeconomic priorities The project will follow the overall philosophy of addressing key energy sector priorities through a combination of project based lending and advisory support. Lending focuses on addressing key bottlenecks (e.g. reliability, energy security, etc) and overall sector level policy dialogue on issues like electricity market implementation, sector restructuring and privatization is continued through specific advisory and policy review activities with the Government and implementation agencies. These activities include an international expert panel that reviews reform implementation on a regular basis. These activities are financed through World Bank budget and parallel trust funds (e.g. ESMAP, PPIAF, and CTFs). This approach has proved successful in several countries (e.g. China, Vietnam, and Turkey) where lending complements a portfolio of advisory activities that address government policy priorities and provide “how-to” implementation advice. In addition, given that Turkey is about to commence negotiations on the EU Acquis on Energy, separate Bank conditionality in this loan was kept at a minimum.
5. Alternatives considered and reasons for rejection
21. As discussed in Section A.2 the investments supported under the proposed project as priority upgrades to increase system reliability that are necessary to compensate for the years of deferred maintenance and investments in the distribution network. The Government and World Bank undertook an assessment of whether the proposed investments should be undertaken prior to privatization. It was determined that the investments should not await the completion of. privatization as much of the rehabilitation and expansion work is urgently needed to prevent the system from becoming progressively less efficient and there was no value in delaying these investments further. On this basis, the Government and TEDAS have chosen to carry out some of the rehabilitation works in advance of privatization. In addition, it was anticipated that the commencement of these investments, and the availability of financing for them from EIB and the
8 Bank staff visited, or met regional staff from, the following provinces: Avanos, Nigde and Nevqehir in Meram region; Adana, Mersin and Kozan in Toroslar region; Samsun, Ordu and Amasya in Yeqilirmak region; Balikesir, Bursa and Canakkale in Uludag region; Sakarya and Kocaeli in Sakarya region; Erdine in Trakya region and Istanbul (Anatolian side) in Ayeday region.
12 World Bank, will enhance the attractiveness of the beneficiary regions for their future privatization.
22. Another alternative considered was the co-financing of the total investments of YTL 900 million with EIB. Given the implementation and procurement difficulties associated with co- financing, it was decided that the World Bank supported investments should be undertaken in coordination with, but separately from the EIB funded investments.
23. Once the above decisions were made, the possibility of lending directly to the regional distribution companies was assessed. It was determined that the regional distribution companies as affiliates of TEDAS did not presently have the financial independence to be effective borrowers of the World Bank loan. The necessary financial independence would be achieved only when the regional distribution companies had been privatized. It was consequently decided to implement the project with the TEDAS holding company as the borrower ofthe World Bank loan with appropriate project implementation responsibilities assigned to the regional distribution companies.
C. IMPLEMENTATION
1. Partnership arrangements (if applicable)
24. The Bank is working closely with the European Investment Bank (EIB) which has prepared a parallel operation with the same broad objectives as this project. EIB’s project preparation and appraisal benefited from the Bank’s indepth work, and overall, the cooperation has been very productive for all the parties involved. It is envisaged that the Bank and EIB will continue to liaise during project implementation. In addition, PPIAF grants and the Spanish Trust Fund are being used to support the overall reform program, which also includes support for the initial work on restructuring of generation, and preparation of transition contracts between the generation and trading businesses.
2. Institutional and implementation arrangements
25. The project will be implemented by TEDAS and the regional companies. A Project Management Team (PMT) has been set up at TEDAS headquarters to oversee project implementation, and key staff have been identified within the regional companies to monitor the project on a more operational basis. The supervision effort will be supported through the use of qualified consulting firms/ individuals to be recruited by TEDAS through the Bank loan.
26. Onlending arrangements: TEDAS will remain the Borrower for the life of the loan. TEDAS will enter into contractual agreements with the regional distribution companies, to (a) ensure the annual debt service obligations of the Borrower, through an escrow account to be established in a manner satisfactory to the Borrower and the Guarantor, until the debt service payments are fully recovered by the Borrower; and (b) ensure the satisfactory implementation of the investments supported under the Project.
13 3. Monitoring and evaluation of outcomeshesults
27. The PMT and key staff from the regional companies, with the assistance of the implementation consultants, will monitor progress against the agreed performance indicators specified in Annex 3. Besides this other indicators shall be developed with TEDAS to capture the progress on project and institutional level. The PMT will provide, on a quarterly basis, 45 days after the end of each quarter, consolidated reports on project implementation progress in the Bank’s FMR format. The Bank will conduct regular supervision missions about once a quarter, during the initial years of the project implementation. The PMT will prepare a detailed mid-term report to serve as the basis for a project mid-term review. The PMT will also help prepare the Borrower’s contribution to an Implementation Completion Report (ICR), so that the Bank could complete the ICR within six months of the closing date of the Loan. The ICR would involve a complete assessment of project costs and benefits, project execution and performances of the parties involved.
4. Sustainability
The project is considered sustainable for the following reasons:
Intensive review of feasibility and strict criteria for eligibility - The overall project concept and design has been based on a very intensive appraisal of the existing network, the critical system requirements, and the feasibility studies prepared for specific projects. Detailed field trips with TEDAS team further refined the overall appraisal and implementation preparedness of the sub-projects. Candidate projects in the future will have to meet strict eligibility criteria, and adequate justifications will have to be submitted in order for the projects to be considered.
Detailed ongoing supervision of project implementation - TEDAS will recruit qualified engineering consultants/ firms to assist in supervising project implementation at field level on regular basis. The Bank will supplement the supervision effort with regular visits to the field by consultants recruited specially for the purpose.
Adequate tariff to recover cost of investments - The tariff profiles approved by EMRA in October 2006 are expected to provide adequate margin for TEDAS and the private operating companies to recover the cost of the rehabilitation and expansion investments. The rehabilitation investments under the project represent about 15% of total distribution investments over the 5-year tariff period.
5. Critical risks and possible controversial aspects
I Risk I Risk rating 1 Mitigation Measure 1 A. Project implementation issues M TEDAS is embarking on a large rehabilitation investment program for Issues due to which it needs to allocate adequate staff and resources to manage Inadequate implementation. At the same time, TEDAS itself is undergoing Institutional restructuring and privatization. The risk is proposed to be mitigated by Capacity use of qualified consultants at field to assist TEDAS and the regional companies in project supervision. Further, during project preparation, a detailed strategy for implementation has been drawn up, which includes:
14 Risk Risk rating Mitigation Measure I (1) the establishment of a team made up of TEDAS and regional staff, to ensure continuity in project management through the period of restructuring, (2) distribution network expansion and rehabilitation with the projects grouped into two to allow staggered procurement and implementation; and (3) the use of Supply and Installation contracts for project implementation to minimize delays.
A.2 Issues due to H TEDAS does not have experience of using the Bank’s procurement limited experience guidelines and procedures. This risk however, is likely to be at a high with World Bank level for the procurement of the first group of projects and medium level Procurement for the subsequent procurements. TEDAS staffs exposure to the EIB Guidelines procurement process, which has already started, is expected to assist in increased understanding of issues involved with international procurement. The Bank’s procurement staff have been providing training and significant guidance to TEDAS staff on bid preparation and tendering. Capabilities are expected to improve gradually as staff get progressively better acquainted and gain experience with procurement practices.
B. Financial issues B.l Lackof M-H TEDAS had about US$ 3.5 billion of outstanding receivables in 2005, of progress in which a large portion emanates from municipalities including street resolution of non- lighting. While it is difficult for this project to mitigate this risk entirely, the payment by Government is working towards clearing the arrears of municipalities municipalities and through various measures including legislative and budget transfer street lighting mechanisms. The related agencies are also working with MENR and the utilities to resolve the issue going forward. (See Annex 9).
Overall Project M Based on risks and the mitigation mechanisms discussed above, Risk the overall project risk is assessed to be “Moderate”.
C.l Privatization in H There is a risk that privatization of distribution companies may proceed the absence of without the other aspects of the market reforms being suitably prepared. adequate The privatization process has been managed by PA so far, while the preparation on other reform aspects are being implemented under the guidance of other market MENR. In addition, there are other significant stakeholders in the reform reform elements process, and it has not always been possible to ensure complete consistency or coordination. This may harm the market implementation process and create a negative perception with private investors. Through the expert panel’s advice and the Bank’s continued engagement at the highest levels of Government, the Bank has worked towards achieving agreement on a viable approach.
C.2 Ambitious M-H The privatization approach includes the establishment of 5-year tariff expectations of profiles for the distribution companies based on significant efficiency privatization and improvements (Le. increased collection efficiency, loss reduction etc.) efficiency resulting from the planned privatization. Given the fact that efficiency improvement improvements targets are aggressive, and that privatization may take longer than anticipated, there is a significant risk that cash flow problems may emerge.
15 6. Loadcredit conditions and covenants
Other than standard requirements, there are no conditions for presentation to the Board and Loan Effectiveness.
29. Covenants in the Loan Agreement The following covenants are included in the loan agreement, in addition to the standard covenants relating to audits, accounts, procurement plans, mid-term reviews etc.
I. Financial Covenants (a) TEDAS will maintain its collection efficiency for sale of electricity to final consumers, expressed as a percentage of total electricity sold, at not less than 93% from 2007 onwards, at not less than 95% for 2010 onwards, and at not less than 98% for 201 5 and thereafter. (b) TEDAS will achieve a self financing ratio (funds from internal resources as a proportion of the three-year average capital expenditure) of not less than 25% in every year starting from 2007.
11. Institutional Arrangements
TEDAS shall, through the Project Management Team (PMT), oversee the overall implementation of the Project, and take necessary actions to cause the distribution companies to implement the Project after their privatization. To that end, the Borrower shall maintain the PMT throughout the implementation of the Project, under terms of reference acceptable to the Bank and with sufficient and suitable human, financial and technical resources.
TEDAS shall enter into contractual relations, acceptable to the Bank, with the regional distribution companies, to (a) ensure the annual debt service obligations of the Borrower, through an escrow account to be established in a manner satisfactory to the Borrower and the Guarantor, until the debt service payments are fully recovered by the Borrower; and (b) ensure the satisfactory implementation of the investments supported under the Project.
TEDAS shall implement the EMP and shall include in the quarterly progress reports to the Bank specific environmental reports, as required, providing results of any monitoring programs undertaken as part ofthe EMP.
111. Financial Management Covenants TEDAS will maintain a financial management system acceptable to the Bank.
16 D. APPRAISAL SUMMARY
1. Economic and financial analysis
30. Economic analysis An economic analysis of the proposed rehabilitation and expansion program was undertaken by the Bank, based on the feasibility studies prepared by the regional distribution companies. The feasibility studies were for the Group 1 projects in four individual regional distribution companies. These companies are Gediz, Meram, Ayedag and Uludag. The economic analysis was done for the Group 1 projects only. Feasibility studies for most of Group 2 projects have been largely completed - the economic analyses of these projects will be reviewed using the same assessment framework.
31. There are five major economic benefits from the rehabilitation and expansion program for these regional distribution companies:
1. Reduction in accident risk through compliance with the new safety regulations as a result of the rehabilitation of distribution equipment and the replacement of overhead distribution lines with underground cables. Although an extremely important benefit, it cannot be fully quantified going forward. However, there have been serious accidents in the system for which compensation was paid. In the absence of better information on the risk levels these compensation benefits have been taken as a measure of the safety benefits of the project. Furthermore, replacement of overhead lines with underground cables is also expected to reduce the adverse impacts and supply disruption caused by ice storms and events like earthquakes. 2. Decrease in supply interruptions as a result of the rehabilitation and expansion program. The value of this decrease in interruptions varies among the distribution systems depending on the level of current interruptions. These range from the equivalent of 2 days of the annual electricity sales for Ayedag to around 8 days for Gediz and Uludag (Balikesir province). The value of a 1 kWh reduction in interrupted energy supply (unserved energy) is taken to be 0.65 YTL (equivalent to US 50 cents). 3. Ability to serve additional load growth. The expanded and rehabilitated systems will serve new urban developments that are being built and need to be supplied. This benefit has been assessed conservatively using only identified load growth. 4. Reduction in operating cost. The rehabilitation of the distribution systems will reduce costs since the new underground cables will require fewer repairs than the older overhead lines they replace. This benefit is estimated as the reduction in materials and hired labor costs. No reduction in TEDAS direct labor cost or staff is assumed. 5. Reduction in system technical losses and theft. The distribution systems being rehabilitated typically have significant losses ranging from around 5% to 12% of power supplied. As a result of the rehabilitation, both technical losses and theft will be reduced in the project areas. The reduction in technical losses is valued at the cost of power purchased by TEDAS of 0.082 YTL per kWh. The ERR calculation does not assign any economic value to the reduction in non-technical losses.
32. Taking into account these benefits and the net cost of the expansion and rehabilitation program in each regional company an economic rate of return (Em-) was calculated for each regional company program and for the four regional company programs together. The ERRSfor
17 the regional company programs varied between 13% real for Ayedag to 34% real for Gediz. The composite ERR for the four companies is 22% real. This indicates that given the benefits, especially the high cost of supply interruptions, the distribution rehabilitation and expansion program is quite attractive economically.
33. Financial analysis Financial models were constructed for both TEDAS and the seven out ofeight distribution companies which will use Bank funds’. TEDAS’ current and anticipated tariffs are sufficient to cover its operating costs and service any likely debt that will be procured for investments. The last tariff increase was in 2003, but TEDAS has been able to make modest profits on its books despite the lack of any revisions since then. In the last two years, TEDAS’ collection efficiency has improved to about 92.6% and its system losses have reduced to about 17.8% due to extraordinary efforts from TEDAS staff. TEDAS has traditionally not borrowed externally for its capital expenditures, and has no debt on its books. It has essentially deferred payments to electricity suppliers and used the credit to finance its activities.
34. TEDAS has however had a major problem with trade receivables from consumers, which stood at US$ 3.5 billion at the end of 2005, representing about 15 1 days of sale of electricity or about 41% of sales (total of trade and other receivables). The problem stems primarily from municipalities and government agencies which make up about 40% of total receivables. Poor collection from the public sector is the most significant risk in the cash flows of TEDAS. The Government is evaluating various options to address this problem, including legislation to enable deduction of central devolutions to municipalities. Some of these measures are expected to be enforced from July 2006 onwards.
35. The forecasts are based on conservative assumptions. Collections and system losses are expected to improve only gradually, at a more conservative pace than is currently assumed in the 5-year tariff profiles. Tariffs are forecast to remain stable except for passing through power purchase cost increases over the next 5 years, and thereafter increase marginally. The 5-year tariff profiles also provide for the agreed investment program (including the Bank-financed portions), and for the recovery ofdebt servicing and other liabilities associated with the program. As Annex 9 shows therefore, while profitability is forecast to remain robust, the cash flows remain particularly sensitive to risks of continued non-payment by government agencies.
36. The risk to cash flows is clearer from the forecasts for the 7 distribution companies”. In the case of 3 companies - Toroslar, Meram and Osmangazi - cash flows are likely to continue to be affected by poor collection efficiency. Sensitivities done to simulate the impact of improved collections however show that the three companies turn around in the medium term, and begin generating adequate levels of cash. The problem of collections arises mostly from street lighting in the case of most companies. In the case of Meram, Toroslar and Gediz, collections from agricultural consumers are an additional problem - in the case of Meram, agriculture dues are the more serious problem, accounting for about 40% oftotal receivables on the company’s books in 2005.
The regional companies of Akdeniz will be analyzed when the feasibility studies of these companies are made available to the Bank. IO The forecasts are based on assumptions made by Bank staff and past data till 2005 received from TEDAS, and do not represent official forecasts. For reasons of confidentiality, due to the ongoing privatization transaction, the detailed financial forecasts for the distribution companies are not being disclosed. The regional company of Akdeniz will be analyzed when the feasibility study and financial data ofthis company are made available to the Bank.
18 37. The other four companies are forecast to be able to manage their financial requirements reasonably comfortably with minimal increases in tariffs in the later years. Most of these companies are also forecast to begin paying down their accounts payable by the end of the forecast period.
3 8. In summary, it appears that under conservative assumptions on collection efficiency, some of the distribution companies may require continued cash support from the Government. As has happened in the past, most recently in March 2006, the Government has injected cash into TEDAS in order to enable payment of power purchase bills to TETAS. This may create some residual risk for the tariff equalization mechanism, which would in turn create cash flow problems for TETAS, which is expected to operate the equalization mechanism.
2. Technical
39. TEDAS has implemented investment projects of a similar nature with acceptable standards of quality. While there has been exposure and attempt to introduce modern technologies in the electricity distribution area to improve service standards and reduce losses, these efforts have been budget constrained. TEDAS companies have well-qualified staff to do the design engineering, planning and implementation of the investment components under the project. The project will employ modern technological practice in rehabilitating the distribution networks including (i) utilizing underground cabling technology to replace rundown overhead electric lines in urban areas, (ii) replacing old equipment with more efficient and standard equipment, and (iii)continuing the phasing out of non-standard medium voltages to provide more reliable and efficient operation of the distribution system and to minimize the costs of network maintenance and future expansion. The Bank team reviewed the feasibility reports for the identified investment projects in four regions (Ayedag, Uludag, Meram and Gediz) included in Group 1” of projects planned for procurement and implementation. The preparation of the feasibility reports for other projects proposed for financing by the Loan as part of project Group 2 is under way. The Bank team also carried out detailed technical field visits, supported by an experienced consultant and TEDAS’ design and planning team in some cases, and these visits assisted significantly in assessing the technical viability of the proposed projects. In several cases, the Bank team suggested, and TEDAS agreed, on changes to the project design and/or scope, to increase the viability and sustainability ofthe projects.
40. Criteria for future projects:TEDA$ and the Bank have reached agreement on the overall design philosophy for the investment components based on the reviews and completion of the feasibility studies for Group 1 projects. The agreed design philosophy will be applied to future projects in Group 2. TEDAS will have the flexibility to add or remove projects currently being prepared for Group 2, as long as proposed projects are economically justified and comply with the following eligibility criteria agreed during appraisal:
(a) Underground conversion and network expansion investment projects in large cities selected for safety reasons, because of the need for compliance with clearance regulations, or for increased load growth. Large cities with buildings and structures close to existing overhead lines, and where load growth is likely are ideal candidates for these investments.
II Annex 4 contains the detailed description of projects included in Group 1, and potential projects for Group 2.
19 (b) Investment to continue the ongoing replacement of non-standard medium-voltages by the standard medium voltage of 34.5 kV. (c) Investment projects aimed at improving system control and at reducing system losses and energy interruptions in provinces or distribution systems with high losses and energy interruptions.
41. The main technical issue anticipated by the team is the implementation capacity of TEDAS to simultaneously undertake investments at much larger levels than in the last five years. The team has agreed with TEDAS on several steps to mitigate risk on this account (also see Annex 6). These steps include:
(a) identification of key members at the regional level and at headquarters for implementation ofthe project, (b) supply and installation contract packaging to reduce the coordination responsibilities and risks ofproject non completion, and (c) recruitment ofqualified consultants to support TEDAS in implementation and monitoring ofthe projects.
3. Fiduciary
42. A procurement capacity assessment carried out by the Bank found that TEDAS staff have limited experience of the Bank’s procurement rules. Bank Staff have been working intensively with TEDAS staff training them in Bank procurement. Furthermore, TEDAS staff are preparing procurement documents according to Bank rules and these documents are expected to be ready by the time of Board presentation.
43. The Bank’s review of TEDAS’ financial management arrangements has also been undertaken and they were found to be generally satisfactory. The financial management arrangements of the project are therefore acceptable to the Bank, subject to the installation of a project budgeting and accounting system. The annual audited project and entity financial statements will be provided to the Bank within six months of the end of each fiscal year, and project financial statements will be provided also at the closing of the project. Financial statements for TEDAS and regional companies will be audited by an auditor acceptable to the Bank.
44. TEDAS and the regional companies will produce a full set of interim unaudited financial reports (IUFRs or Financial Monitoring Reports - FMRs) for each calendar quarter throughout the life of the project. The reporting is based on TEDAS’ own reporting systems. The project will use transaction based disbursements.
45. The designated account (DA) for administering the project funds will be opened in a commercial bank acceptable to the Bank.
4. Social
46. The population of each of the respective areas will benefit from these projects. Existing electricity users will experience fewer accidents and safety risks as well as more reliable electricity supply; and consumers in expansion areas will immediately gain from the reliable
20 distribution network. In several places, the existing overhead lines are hazardous and inconveniently located, due to inadequately planned investments. Three of the companies reported approximately 180 accidents during the last year, including one fatality, for which they paid more than 500,000 YTL in compensation. The incidence of accidents is expected to decrease markedly in project areas. There will be some temporary inconvenience as the overhead lines are buried in the streets but this should be minor. Underground cabling and rehabilitation of the network is expected to improve the reliability and safety of electricity supply in the areas during normal operation, but also during calamities like storms and earthquakes. These investments are also expected to enable the regional companies to serve more loads. Electricity tariffs may increase over time in order to cover rise in costs, and with better efficiency, bill collections should increase and illegal connections should decrease. Tariffs however are not expected to rise due to the project. No land acquisition is expected, as the underground cables will be located under public land (streets, sidewalks).
5. Environment
47. The environmental benefits significantly outweigh any potential environmental drawbacks. The environmental benefits consist of removing a large number of the wires on city streets which are unsightly and lead to accidents for people, birds and animals. The scrap material obtained from the removal of these wires and any distribution substations will be recycled. Environmental Management Plans have been prepared for each of the regional rehabilitation and expansion programs. The Project is classified as an Environment Category B, because of its limited environmental impact.
6. Safeguard policies
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revised as OP 4.1 1) [I [XI Involuntary Resettlement (OP/BP 4.12) [I [XI Indigenous Peoples (OD 4.20, being revised as OP 4. IO) 11 [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60) [I [XI Projects on International Waterways (OP/BP/GP 7.50) [I [XI
7. Policy Exceptions and Readiness
No policy exceptions are sought for the project.
21 Annex 1: Country and Sector or Program Background TURKEY: Electricity Distribution Rehabilitation Project
Country Economic Overview I The Turkish economy has rebounded from the 2001 crisis which had serious economic and social impacts: by the end of 2001, the currency had devalued by 50 percent, nominal interest rates were about 100 percent, and the banking system had virtually collapsed. I GNP growth has been strong since 2001 close to 8 percent on average during the last 4 years. Inflation was also brought under control, reaching single digits in 2004 for the first time in 35 years, and was 9.8 percent at end-2006. I Several factors contributed to the improved macroeconomic performance - key amongst them are: strong fiscal discipline which has allowed the maintenance of a large primary surplus in the order of 6.5 percent of GNP; on-going structural reform; and political stability since 2002. I The EU’s decision to open accession negotiations with Turkey in October 2005 - has been an important signal to financial markets and has created a firm anchor for the country’s development and structural reforms in the years ahead, notwithstanding the fact that the process is expected to be long and difficult.
The Electricity Sector in Turkey: Transition to Competitive, Privatized Market Legislative basis - The Government has embarked upon a comprehensive reform and restructuring program of the electricity sector to create a liberalized, efficient and economic sector. This was initiated by the Electricity Market Law (Law No. 4628) promulgated in February 2001 and reflected in the Strategy Paper accepted by the High Planning Council in March 2004, which accelerated the reform process. The principles and goals of the reform program defined by this Law are substantially in line with EC Directives (1 996/92/EC and 2003/54/EC) concerning rules for the internal market for electricity. I ECSEE Treaty - Turkey is a signatory ofthe Athens Memoranda of2002 and 2003 that the EC initiated to develop the regional electricity and gas market in South East Europe and eventually integrate it with the internal electricity and gas market of the European Union. The 2002 Athens Memorandum initiated the regional market development process commonly referred to as the “Athens process”. With the inclusion ofnatural gas, a more detailed version of the memorandum was signed, which is referred to as the Athens Memorandum 2003, and supersedes the 2002 document. While other regional members signed the Treaty on October 25, 2005, Turkey did not, owing to reservations on some of the Treaty provisions. With the EU decision of October 3, 2005 to begin negotiations for full accession, some reservations on the Treaty now become intertwined with the negotiations on the Energy Chapter of the Acquis Communautaire. Turkey however remains committed to, and continues to implement the provisions of the 2003 Athens Memorandum. I Functional and corporate restructuring of the sector - Pursuant to the Law, TEAS, the former integrated generation and transmission corporation, was restructured into a generating corporation EUAS, a trading corporation TETAS and a transmission corporation TEIAS. TEDAS, the Government-owned distribution corporation had been earlier separated from TEAS’ predecessor, TEK. In 2005, TEDAS was restructured into
22 separate companies (DISCOS) in preparation for their privatization. The generation sector is also in the process of being restructured into one holding company which will also retain the major hydroelectric power plants, and six separate portfolios of generation assets that will be later formed into companies (portfolio companies) that would be privatized once distribution is substantially privatized. See Figure 1.1 below on the currently planned transitional sector structure. I Independent Regulatory Framework - Turkey has set up an independent regulatory authority, the Energy Market Regulatory Authority (EMRA) with jurisdiction over electricity, gas, petroleum and LPG. EMRA has powers over licensing, tariff setting and customer service issues. EMRA is currently involved in setting multi-year tariff principles for the distribution business, and a tariff equalization mechanism across regions in order to enable national uniform retail tariffs. The Law was amended in May 2006 to allow uniform national tariffs and to enable an equalization mechanism. EMRA has also conducted the expansion of gas distribution reasonably successfully over the last few years, through tendering procedures run by itself. Privatization of Distribution and Generation - Turkey's plan is to privatize its distribution companies in phases over the next two years. The regional companies have been created in preparation for privatization, and in September 2006, PA commenced the privatization transaction for three distribution companies - Ayedag, Bagkent and Sakarya. This process has been delayed from the original timeline since Turkey is keen to avoid a repeat of earlier difficulties in privatization'2.Turkeyalso plans to privatize its existing generating assets, once a substantial part of the distribution business is privatized. The configuration of the generation portfolio companies has been decided, and EUAS will be restructured into 7 companies, one of which will be the holding company retaining the large hydroelectric projects and is not expected to be privatized in the medium term. I Retail Competition in Electricity - Consumers whose annual consumption exceeds 6.0 GWh can choose their own supplier - this represents more than 30% of the total Turkish electricity market. I Competitive Market Structure - Market simulations are in progress to introduce a competitive bilateral contract market with a balancing and settlement system. Cash-based market operations began in August 2006, and, when fully implemented, the Turkish electricity market will consist of an organized Day-Ahead market operated by TEIAS as Market Operator, a real-time system balancing and operational mechanism operated by TEIAS as the Transmission System Operator, and a bilateral contracts market. In addition, there will be one or more organized markets for procurement of ancillary services. The market is currently operating in a transition phase with day-ahead scheduling and real time balancing of energy. In December 2007, the final balancing market is expected to become operational. The current practice of monthly settlements with three metering periods is expected to move eventually to daily settlements supported by hourly metering. I TEIAS, the transmission corporation is the independent system operator and the market operator. The market is expected to provide the necessary price signals for potential new generation.
I2 Turkey attempted to privatize distribution in the 1998-2000, but the process was challenged in Court and the transactions resulted in being cancelled.
23 Turkey’s Regional Interconnection Efforts - Turkey first applied for UCTE (Union for the Coordination of Transmission of Electricity in Europe) membership in March 21, 2001. Since then several studies financed by the European Commission within the framework of the TEN (Trans-European Networks) Program, have assessed different scenarios for connecting the Turkish power system to the UCTE power system through Bulgaria and Greece. On September 28, 2005, a technical study was initiated by UCTE to complete transmission assessments including static, and stability analyses to determine the technical conditions under which the Turkish power system will be synchronized with the power system of the UCTE. Turkey already has two lines to Bulgaria, and will complete its section of the linkage to Greece [The Greek section has been delayed but is expected to be completed in 20071,
Figure 1.1 Transitional Electricity Sector Structure
Transitional Contracts
,______
The Electricity Distribution Business in Turkey 1. The electricity distribution system in Turkey is owned by TEDAS (except Kayseri), a corporation created from the restructuring of TEK, an integrated electricity utility, in 1993, and operated by 20 regional distribution companies under transfer of operating rights (TOOR) contracts. TEDAS was shifted to the “privatization program”l3 of the Privatization Administration (PA) in April 2004 and was restructured into 20 regional companies in 2005. In addition to TEDAS, eligible consumers are supplied by IPPs, autoproducers, wholesalers and other private producers. One region, Kayseri, is operated by a separate company in which the municipality holds the largest stake. TEDAS sales made up about 75% of total consumption of electricity in Turkey in 2005, with the remaining attributable largely to autoproducers eligible consumers. TEDAS sold about 93 TWh in 2005 to about 28 million consumers. About 30% of total consumption was by industrial consumers in 2005, with residential consumers making up another 30%.
13 The term “privatization program ” refers to the transfer of a state-owned enterprise to the ownership and financial oversight of the Privatization Administration in preparation for eventual privatization. Typically, State Owned Enterprises are owned and supervised by the Undersecretariat of Treasury.
24 2. TEDAS estimates its system losses (technical and commercial, including theft of electricity) at about 17.8% in 2005. Losses rose consistently from about 10.7% in 1990 to 21.6% in 2000, but have declined gradually since then. In the last few years, TEDAS has actively worked towards reducing losses by a variety of approaches, which have enabled reduction in losses to about 17.8% in 2005. In 2004 for instance, loss detection teams set up at headquarters and in the regions inspected about 6 million consumers and recorded 320,000 cases oftheft - this resulted in a revenue assessment of US$ 230 million and cash collection of US$ 78 million. In several places, metering, billing and collections are outsourced, and the outsourcing agencies are provided added incentives for theft prevention. TEDAS staff have also prepared an internet- based project to improve retail services such as subscription, metering, billing and collections - for instance, the system enables bill payment through banks, tracking of theft, remote disconnections and reconnections, etc.
3. While TEDAS’ collection efficiency has been rising, to about 93% in 2005, arrears for sale of electricity stood at US$ 3.5 billion at the end of 2005. A significant part of the arrears, about 53% of the total, arise from non-payment by government agencies, particularly municipalities and particularly for street lighting. The Government is however, trying several options to deal with the problem of accumulated arrears (See Annex 9). For municipalities in particular, several laws have been amended in order to enable the Government to allocate central tax devolutions through Iler Bank 14, towards meeting electricity dues. The dues of,about 2500 municipalities and 8 metropolitan municipalities were reconciled and rescheduled in June 2006, and it is expected that from July 2006, monthly deductions from central devolutions will commence. For street lighting bills, which have been a particularly serious problem since municipalities have by and large refused to accept these bills as their responsibility, the Government has prepared amendments in related legislation to allow the use of municipal taxes and additional electricity tax for recovery ofthese dues (and future bills) over time.
4. The regional companies differ in their size and system characteristics significantly. Bogazici for instance, consumes about 15% of total energy consumption in TEDAS areas, while companies in the east consume less than 5%. Consumer mix varies a lot too, with Ayedag for instance, having nearly 45% consumption by residential consumers with Osmangazi having only about 15% residential consumption. System loss levels and collection efficiency levels also vary radically - Meram for instance, reports a loss level of 8-9% while Dicle and Van Golii report losses of about 60% respectively. This wide disparity is because eastern and southeastern regions of the country have been subject to weaker utility governance and thus have tended to be less commercial. Unserved energy due to interruptions also varies from one province to another. Unserved energy in the provinces included in first project group range from an equivalent of 2 days ofthe annual electricity sales in Ayedag region to about 8 days in Gediz15. Voltage drops in the distribution network could be as high as 10% during peak demand.
5. The electricity distribution network is in poor condition and system reliability is declining - TEDAS has been investing about US$ 250 million on average every year over the past 5 years.
14 Central tax and other devolutions to municipalities are routed through Iler Bank, a government-owned bank. Up to 20% of these monthly devolutions to any particular municipality will be deducted for payments to TEDAS. 15 A record of actual energy interruptions to consumers is not available. However, according to the distribution feeder outage records (number and durations), TEDAS calculations show that energy interruptions in some regional companies could be as high as 11 days.
25 A majority of this investment, about 75% of the total, has been directed to urban areas with high growth in demand. TEDAS’ investments make up about 20-22% of total investments in the energy sector by the Government and state-owned utilities, but are still much lower than the requirements. Between 1994 and 2003, TEDAS requested an investment budget of US$ 7.6 billion and was allocated less than half that amount 16. In about the same period, the number of consumers increased by 9.5 million (a compounded annual growth of 5.1%); staff strength reduced from 38,351 to 32,140 in 2004; and system losses rose from about 15.5% to 19.9%. The distribution sector also went through a phase of poorly structured and failed privatization from 1997-2002 which exacerbated system inefficiencies, as the sector remained in limbo with very little attention being given to the physical condition of the system. Annual interruption levels per consumer are much higher than EU countries with similar climate and geography, and the performance of the distribution networks in Turkey are also below average performance amongst other EU countries. The Bank’s Investment Climate Survey17 for Turkey shows that nearly 82% of the 1,300 firms surveyed experienced an average of 28 power outages in 2005, leading to a loss of more than 4% of annual revenues. 47% of the surveyed firms own a generator as a result. In comparison, 64% of firms in Brazil reported having faced outages, at an average of less than 5 outages per firm during 2005. Only 26% of firms in Poland reported having experienced outages, at an average of 1.5 times per firm.
6. The urban distribution network poses a safety risk - Turkish towns and cities, especially Istanbul, Ankara and Izmir, have urbanized rapidly, and in several places, urban housing has developed around existing distribution networks, with little regard for environmental or safety considerations. Rapid urbanization has thus come with poorly regulated construction, and clearances between medium voltage overhead lines and buildings pose safety risks.
Turkey’s distribution privatization strategy
7. Earlier efforts at privatization in the mid-1990’s by the Government were unsuccessful due to poor design and unfavorable legal decisions. However, the regional distribution companies have now been transferred to the Privatization Administration (PA), and a detailed privatization strategy has been formulated. After intense debate over the strategy within the relevant agencies over the past year, a transfer of operating rights (TOOR) approach backed by a sale of majority shares in the operating distribution company has finally been agreedl8. In this approach, TEDAS will continue to own the assets, and will transfer the right to operate the distribution network in specific regions to the relevant regional distribution company. The distribution company will have all the rights that an owner would have, including the right to invest in network maintenance and expansion. The operating right will be co-terminus with the distribution and retail licenses provided by EMRA. This distribution company will be privatized through a sale of majority shares on a competitive basis. In the first phase which began in September 2006, three companies have been offered for sale. These companies existed as separate companies prior to being absorbed in TEDAS, and therefore these companies continue
16 Improvement of Operational Efficiency and Service Quality in the Electricity Distribution Grid - Feasibility Report by McKinsey 17 The Bank conducts Investment Climate Surveys (ICs) in many countries on a regular basis, with the objective of assessing the main factors which constrain growth by manufacturing firms. The Turkey ICs covered 1,323 firms representing nearly every industry and ownership structure. The other main alternative, outright asset sale was seen to carry serious legal impediments and was hence not considered feasible.
26 to have management .structures and organizational strength that are more developed than in other regions.
8. Legal amendments: Preparation for privatization has proceeded at a fast pace. Several key procedural and legislative requirements for commencing privatization have been completed: (i) significant amendments have been made in the Electricity Market Law (EML) No. 4628 and other relevant laws, (ii) 5-year tariff profiles have been approved, and (iii) transition contracts between EUAS, portfolio gencos, TETAS and the distribution companies were signed in June 2006. The Law has been amended fairly significantly, most recently in May 2006. These amendments seek to reduce the perceived risks in the agreed privatization approach, and to make it consistent with the overall reform program. The changes include mainly provisions enabling (i) the transfer of operating rights, (ii) tariff equalization and 5-year tariff profiles, and (iii) transition contracts. Perhaps most significantly, the amendments further require that the 5-year transitional tariff profiles for each regional company can be changed only by the Government through a Council ofMinisters’ decree.
9. 5-year transitional tariff profiles: The tariff profiles currently factor in the Government’s preference for stable tariffs. However, future changes in either fuel prices or power purchase costs will be passed through. The tariffs also factor in the targeted performance criteria and investments required by the distribution companies. These tariff profiles will be based on efficiency improvements that can be expected in different regional companies, and will ensure an adequate return on capital and recovery of investment expenditures. The tariffs will be made up of several components, some of which will be regulated and some, such as the retail sales tariff, which will not be regulated. The distribution tariff component will cover fixed and variable distribution operating expenses, the amortization for new investments, the cost of capital and the cost of energy losses.
10. Tariff equalization mechanism: The tariff profiles will also factor in the Government’s decision to maintain uniform national tariffs. However, since different distribution companies have different cost structures, each distribution company will require a different tariff profile. In order to enable the implementation of uniform tariffs, a tariff equalization mechanism is being established. This mechanism will aim to equalize across distribution companies to ensure that they recover the revenues that they require to cover eligible costs, after factoring in performance targets. It is envisaged that this equalization will be done through TETAS (See Annex 9).
11. Pre-defined investment requirement and the Bank-financed project: The investor will be obliged to make a pre-defined level of investments in the network, and to demonstrate the achievement of pre-defined performance criteria such as loss reduction, improved collection efficiency, and improved customer service. Tariffs will cover the cost of these investments along with appropriate returns on equity. The assets created in the private distribution company through these investments will remain on the company’s books in a special account, the ‘Special Cost Account’ (SCA), although the ownership will be retained by TEDAS. Relevant tax laws have been amended to allow the company to earn depreciation on the assets that it will finance, and at the time of the expiry of the license, the distribution company would be compensated for its investments based on the SCA (See Annex 9 for details).
27 12. The tender documentation for the privatization will reflect the availability of the Bank loan for the rehabilitation of distribution systems. Upon completion, it is expected that these investments will improve reliability and reduce energy disruptions.
13. Prerequisites for privatization: The Government has agreed that privatization will be completed once the following elements of market and regulatory reforms have been tested and implemented: (i) the implementation of a balancing and settlement system on a cash-settlements basis with the multiple DISCOS and the transition contract arrangements; and (ii), the tariff equalization mechanism and 5-year tariff profiles for distribution companies. The balancing market was implemented in August 2006 and has been in operation since then. Transition contracts are in place, and are currently being fine-tuned. The tariff equalization mechanism has been finalized, and will be implemented over the next few months.
28 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies TURKEY: Electricity Distribution Rehabilitation Project
An Overview of the World Bank Program in the Energy Sector
Advisory Support 1. The Bank has a strong advisory support program to help the Government and the utilities in the gas and electricity sector.
8 The Bank supported the government in structuring and establishing the Energy Market Regulatory Authority in 2001 and in defining the detailed electricity market design. A Bank technical assistance loan supports specific implementation tasks, such as distribution sector unbundling, definition of tariff review rules, and preparation of initial vesting contracts to prepare for privatization. 8 An independent expert panel of leading international specialists in market implementation, regulation and privatization provides the government guidance on challenging implementation trade-offs and choices. rn The Bank recently completed a report on the security of electricity supply in the medium term, which looks at the issues in this regard, and recommends possible ways of mitigating the risk of shortage. 8 In the gas sector a comprehensive gas development strategy was completed in 2004 to set a framework and process for introducing competition in wholesale supply, and in November 2006 the Bank completed a report on the experience with Greenfield gas distribution. 8 The Bank is also beginning its support to key energy utilities in achieving a credit quality and rating that will enable them to access capital markets without sovereign guarantees. Presently, financial advisors financed by PPIAF (Public Private Infrastructure Advisory Facility) are working with BOTAS in preparing for a credit review by a rating agency.
2. In addition to the continuing work on reform implementation, the Bank will continue its advisory work focusing on issues of energy supply security, EU market integration and helping the institutional development of various utilities in the energy sector.
Project Lending
3. The current program of lending in the energy sector aims to: (a) bridge gaps in gas and electricity service delivery needs during the reform transition; (b) meet EU integration challenges; and (c) ensure that essential infrastructure that can affect energy supply reliability is implemented. The projects include:
(a) National Transmission Grid Project (NTGP): This project loan of US$270 million was approved in 1998 to the then integrated transmission and generation corporation, TEAS. Project objectives are to: (i) develop adequate transmission grid capacity in a timely and environmentally sustainable manner; (ii) continue the reform of the power sector by establishing the independent operation of the transmission grid system; and (iii) maintain the financial viability of the state institution responsible for the grid development and operation.
29 The project was restructured in 2002, after TEAS was restructured into three corporations - TEIAS (transmission), EUAS (generation) and TETAS (trading and contracting). TEIAS is the successor and has taken on the obligations under NTGP, but US$ 20 Million of the loan was assigned to the Government for helping fund the implementation of the reform process. The project is rated satisfactory both on a Development Objectives (DO) and Implementation Progress (IP) basis. While construction of transmission lines has been slower than anticipated, capacity shortages have been avoided, TEIAS has been designated the independent operator of the transmission grid and TEIAS itself remains financially viable. In addition, the loan supports the creation of an electricity market and ongoing efforts to privatize distribution and generation, and capacity development within the independent regulatory agency.
(b) Renewable Energy Project: The project loan of US$ 202.3 million was approved in May 2004. The objective of the project is to increase privately owned and operated power generation from renewable sources without the need for government guarantees, and within the market-based framework of the Electricity Market Law. The Treasury has on-lent the funds to the Turkish Development Bank (TKB) and the Turkish Industrial Development Bank (TSKB). The two development banks in turn are on-lending the funds to private developers of renewable electricity generation projects. The PHRD grant was used to support the government in the preparation of the renewable energy law approved in June 2005.
(c) ECSEE APLZ: As Turkey gets closer to its negotiations with the EU for accession it is in the process of integrating its energy markets with those of Europe. Under the Athens Process, Turkey is liberalizing its electricity market and linking its market to the electricity markets of other countries in South East Europe. The World Bank established a regional adaptable program loan in FY05 to support the eight non-EU members in meeting their technical and institutional obligations. This regional program provides Bank investment support by using the adaptable program lending (APL) instrument. This loan of EUR 50.6 million is the first loan to Turkey under this program. The specific objectives of APL2 are to: (i)assist with the creation of a market management system for the electricity market; (ii)strengthen the SCADA system to enable TEIAS to operate more efficiently; and (iii) strengthen the transmission grid. This loan became effective in September 2005.
(d) The Gas Sector Development Project: This project loan of US$ 325 million to Turkish Gas Pipeline Corporation (BOTAS) finances a gas storage facility for Turkey as well as part of its transmission system expansion. In addition, the project will support the restructuring of BOTAS and help it achieve access to capital market financing in the future. This project results from the Gas Distribution Strategy and the Gas Sector Strategy Note completed by the Bank for the Turkish Government in July and September 2004. These studies indicated inter alia that peak demand for gas would increase rapidly with the expansion of gas distribution and therefore storage is increasingly needed. This storage would make gas supplies more reliable, thereby improving the investment climate for gas using companies. The system expansion and the storage would also assist with Turkey’s increasing role as a gas transit country. The loan became effective in March 2006.
30 (e) ECSEE-APL3: This loan is the second regional adaptable program loan to Turkey. Its objectives are to increase the safety, reliability, efficiency and capacity of the bulk power transmission system in Turkey and to improve market access for consumers and suppliers of electricity. The project will support the strengthening and expansion of the transmission network to reliably meet the growing electricity demand. It will also help upgrade the transmission network in dense urban areas to minimize the risk to public safety posed by urban encroachment on existing overhead lines. The loan became effective in May 2006.
(f) Energy Generation Rehabilitation and Restructuring Project: This project is aimed at improving the reliability and efficiency of one of the largest generating plants in Turkey, and to assist the Government in restructuring the existing generating company, EUAS, into separate portfolio generating companies. The project will result in a significant increase in plant capacity, availability, and efficiency, thus assisting in increasing supply security in the country. This project will also have a very significant positive environmental impact because it will assist in reducing dust emissions, which have been quoted as the major negative impact of the plant during public consultations. The loan became effective in November 2006.
31 Annex 3: Results Framework and Monitoring TURKEY: Electricity Distribution Rehabilitation Project
Project Development Objective Outcome Indicators Use of Outcome Information To improve the reliability of power The consumers served by the The regional distribution power supply to consumers in Turkey by power distribution networks in networks operate more reliably supporting the implementation of the the areas, funded under the with greater supply security to electricity distribution network Bank project will have better consumers. rehabilitation and expansion quality of supply, with much program. lower interruptions.
Intermed iate Resu Its Results Indicators Use of Results Monitoring
Distribution Network Expansion and (i) Percentage reduction in Widespread equipment outages Rehabilitation number and duration of and energy interruptions in the interruptions faced by the project areas are reduced. consumers in areas served by the eight regional companies funded under the Project.
(ii) New load served in the project areas of the eight regional companies funded under the Project
32 Ps
Annex 4: Detailed Project Description TURKEY: Electricity Distribution Rehabilitation Project
The Electricity Distribution Rehabilitation Project consists of Distribution Network Rehabilitation and Expansion. This includes investment projects for distribution network rehabilitation and expansion in the TEDAS regional companies of Ayedag, Uludag, Meram, Gediz, Toroslar, Menderes, Osmangazi and Akdeniz. The projects comprise medium and low voltage (34.5 kV, 0.4 kV) line replacements and extensions, substation upgrades, and include upgrading the network from nonstandard medium voltages and conversion to underground cables. The project will also finance the cost of supervision consultants to assist TEDAS and the regional companies in managing and supervising the implementation of the investment projects.
Background
1. Turkey, which is aspiring to become a member of the European Union (EU) is taking all necessary steps to bring its living standards of consumers at par with other EU countries. A key objective is to increase the reliability and safety of electricity supply in terms of quality and efficiency for households and businesses, thus contributing to the competitiveness of Turkey’s economy and the quality of life of its citizens. In addition to the adequacy of the generation and transmission resources, the supply of efficient electricity services also depends on the capacity, reliability and safety of the distribution network. During the period of 1994-2003, investments in the expansion and rehabilitation of the power distribution networks were lower than the requirements. In this 9 year period, TEDAS was authorized only 49% of the requested budget for investment needs, of which only 80% was actually spent. As a result of the lack of sufficient investments in improving and expanding the distribution networks, consumers in many areas of the country suffer from increased energy interruptions and inadequate network capacity. The distribution companies face inefficient levels of energy losses due to run-down and aged networks and loss of revenue due to unserved energy.
2. The Electricity Power Current Facilities Regulation, which was published in the Official Gazette No. 24246 dated November 30, 2000 increased the minimum horizontal distance between overhead lines and buildings by including in the horizontal distance the overhead line’s maximum flexure. According to the previous regulation, the minimum horizontal distance to buildings was 2 meters excluding oscillation, while the new regulation requires the inclusion of the overhead line’s maximum flexure in the 2 meter minimum horizontal distance. As a result of the new regulation, many buildings in city centers are in breach of the new mandated safety distances. At several city center locations, the overhead lines (low voltage as well as 34.5 kV) are touching tree and potential hazard to safety to lives and cause losses due to leakage current. In addition, for some land areas in city centers and in places of tourist interest, the construction of new overhead lines is prohibited even if they comply with the new safety distance.
3. The TEDAS system, which developed over the years through independent small networks, has several medium voltage levels ranging from 6 kV to 34.5 kV. To serve consumers efficiently and to save additional losses from avoidable double transformation at medium voltages (e.g. 34.5 to 15.8/10/6 kV and further from 15.8/10/6 to 0.4 kV), nonstandard voltage
35 networks need to be eliminated progressively over time. The elimination of nonstandard voltage networks would also increase flexibility in system interchange, reduce inventories, ease operation and maintenance as well as reduce interruptions in the ageing nonstandard medium voltage systems.
4. TEDAS performed a feasibility studyI9 to identify the investment needs required to improve the operational efficiency and service quality of the electricity distribution networks in Turkey. The study has identified five areas of investments with an estimated total cost of YTL 1.1 billion as shown in the following table: The actual investment needs now are higher than the estimates shown below, since the study is a bit dated.
Table 4.1: TEDAS Investment Needs for 2005-2008 Areas of Investment
Network Expansion and Rehabilitation 309,540 277,150 277,150 277,150 990,000 SCADA and Distribution Management 3,850 2,750 2,750 2,750 12,100 System (DMS) Remote Meters and Management System 15,400 11,000 11,000 11,000 48,400 Geographic Information System 19,250 7,7000 7,7000 7,7000 42,350 Consulting Services for Capacity Building 1,960 1,400 1,400 1,400 6,160 Total 350,000 250,000 250,000 250,000 1,100,000
5. Due to the large financing requirements and implementation challenges of the above investment program, TEDAS has decided to prioritize and focus its investments on the rehabilitation of the distribution networks in provinces that have the most limited and outdated distribution networks and which will not as a result be able to meet their rapidly growing electricity demand. TEDAS has requested that the World Bank finance a portion of the investment needed for the Network Expansion and Rehabilitation Program and the consulting services for TEDAS capacity building. TEDAS also has requested that the European Investment Bank (EIB) finance the portion of the Network Expansion and Rehabilitation Program that will not be financed by the Bank.
Network Expansion and Rehabilitation Projects
6. TEDAS has prepared a comprehensive network expansion and rehabilitation investment program for the period 2005-2008 for the 20 regional distribution companies, subject to availability of financing. The investment program includes; 1) rehabilitation and upgrading of the existing distribution equipment and facilities, 2) network expansion by constructing new substations and feeders, and 3) replacement of existing run-down and aged medium and low voltage transmission lines in densely populated areas with new underground cables. The preparation of the design and technical specifications for these projects has been done by the technical staff of the regional companies under guidance from the central planning and design directorate. The main objective of these various projects is to improve the reliability, efficiency and safety of the electricity supply to end users by:
~~~ ~ ____ 19 Improvement of Operational Efficiency and Service Quality in the Electricity Distribution Grid - McKinsey
36 Minimizing energy interruptions caused by equipment and facilities outages, Reducing the network technical and non-technical losses, Improving the safety of the network and reducing damages to the public, 0 Reducing the network operational costs, Minimizing compensation payments made for material damages, Ensuring compliance with the Electricity Market Law No. 4628 requirements on supply reliability2' and implementing the Electricity Power Current Facilities Regulation of 2000 which increases the minimum allowable distance between overhead power lines and buildings.
7. TEDAS has considered various alternative designs to prepare the least cost rehabilitation program. The alternatives included new overhead lines in replacement of the old overhead network; using aerial bunched cables; and underground cable network. Since old networks at several places are of non-standard voltage, the new network (at voltage level different than the existing network) would need to be constructed in parallel with the old network in order to keep serving the existing consumers during the construction period. The right of way is inadequate to run two medium voltage overhead networks in parallel, which makes the alternative of overhead lines technically infeasible. The alternative of aerial bunched cables also would require additional supports for which right of way doesn't exist at several locations. Besides, the aerial bunched cable would also impact the aesthetics of tourist places and city centers and breach the municipal regulations.
8. TEDAS has finally adopted underground cabling as the most optimal alternative for the expansion and rehabilitation of existing distribution networks. The utilization of cabling technology in the development and operation of distribution networks is common in most West European countries. One of the principal advantages of the underground cables in urban areas is that they improve safety of the electric facilities and reduce the environmental and aesthetic adverse impacts. In addition, network losses (technical and non-technical losses) are lower in cables than in aerial lines. Underground cables are also not susceptible to damage due to storms or earthquakes2' or failure due to accidents, and are far less likely to cause death or injury as usually happens in case of accidental contact with the overhead lines. Furthermore, local authorities in several settlement areas and city centers have requested from TEDAS an increased reliance on underground cabling for the expansion and rehabilitation of the distribution networks in their local areas.
9. In preparing the distribution network expansion and rehabilitation program, TEDAS has established the following criteria to determine where underground cables will be used:
20 The Electricity Market Law requires that the issue of compensation for losses and damages that may arise due to lack of quality and/or interruptions in power supply should be addressed in the licenses and the contracts of the legal entities providing these services to consumers. The procedures and principles concerning the implementation of these provisions shall be defined in regulations. In addition, the Law requires EMRA to establish the scope of the monitoring mechanism, the reports to be submitted by legal entities on service reliability, outages and other performance criteria and to ensure that these reports are regularly submitted to EMRA.
2' An earthquake in 1999 in Turkey with the epicenter about 55 miles east of Istanbul caused 14,000 fatalities and left about 200,000 people homeless.
37 In city centers and settlement areas where the distribution network has been expanded or existing overhead lines have inadequate capacity to supply electricity due to increased energy consumption or where existing overhead lines are not compliant with Electricity Power Current Facilities Regulation of2000. In areas where the construction of new overhead lines is prohibited and instead the construction of underground cables is necessitated. In areas where the cable route and the cable itself will not be damaged from incidental excavations or road expansions. In tourist areas where safety, public appearance and reliability of the electricity will improve the tourist industry.
TEDAS Project Assessment and Grouping
10. During the project preparation, the World Bank team worked closely with TEDAS headquarters staff as well as staff from the regional companies in the assessment of the scope, justifications and benefits from the proposed projects. In addition to the feasibility study prepared by TEDAS headquarters staff for the overall investment program, each regional company prepared a project feasibility report for all the projects proposed by that regional company for Bank financing.
11. Criteria for future projects: During project preparation, the Bank team along with TEDAS designs and planning team, undertook on-site visits to several regional distribution companies and to provinces where they have projects proposed for financing by the Bank22. During these field visits, the Bank team reviewed with TEDAS regional staff the scope and design of the projects, their feasibility reports and visited the sites of those project areas. Pursuant to these visits, feasibility reports where necessary, have been modified to incorporate suggestions by the Bank technical specialists. TEDAS will have the flexibility to add or remove projects currently being prepared for Group 2 as long as proposed projects are economically justified and comply with the following eligibility criteria agreed during appraisal:
(a) Underground conversion and network expansion investment projects in large cities selected for safety reasons, because of the need for compliance with clearance regulations, or for increased load growth. Large cities with buildings and structures close to existing overhead lines, and where load growth is likely are ideal candidates for these investments. (b) Investment to continue the ongoing replacement of non-standard medium-voltages by the standard medium voltage of 34.5 kV. (c) Investment projects aimed at improving system control and at reducing system losses and energy interruptions in provinces or distribution systems with high losses and energy interruptions.
22 The provinces where Bank Staff have visited or met regional staff are: Avanos, Nigde and Nevvehir in Meram region; Adana, Mersin and Kozan in Toroslar region; Samsun, Ordu and Amasya in Yesilirmak region; Balikesir, Bursa and Canakkale in Uludag region; Sakarya and Kocaeli in Sakarya region; Erdine in Trakya region and Istanbul (Anatolian side) in Ayeday region.
3% -- Fi EDAS Regional- Companies~ 13. TEDAS has also prepared a procurement and implementation plan for the projects in the eight regional distribution companies. Due to the large number of the projects included in the Network Rehabilitation and Expansion program, TEDAS has separated the projects into two groups, shown in Table 4.2 below, to allow staggered procurement and implementation of the projects.
Table 4.2: Project Grouping Group Region Projects Financed by the World Bank Group 1 Gediz Alagehir 1124, Manisa V Meram Konya II, Nigde II, Nevgehir II AyedaS AyedaS VI, AyedaS VII, Urnraniye II Uludaei Balikesir Ill Group 2 Toroslar Adana VIII, Hatay VI, Gaziantep XIV Osmanaazi Afvon Ill Uludag Bursa II, Akdeniz lsparta VI, lsparta VI1 Menderes Marmaris IV, Fethiye II
14. The following subsections include brief descriptions of the projects included in Group 1, their scope, justifications and benefits. Other project details would be available in the respective feasibility reports of the projects.
Project Description
Group 1 Projects 15. Group 1 includes investment projects financed by the World Bank that have highest priority for TEDAS and will be the first group of projects tendered and implemented. Feasibility reports and technical specifications for the distribution network rehabilitation programs of the regions with projects included in Group 1 have been completed and reviewed by the Bank team. Given the limited size of this proposed Loan to TEDAS and large size of the rehabilitation programs in TEDAS regions and depending on the size of each region investment program, the Loan will finance a limited number of projects in each region. The remaining projects in each region will be financed by a parallel EIB loan to TEDAS or by TEDAS own resources.
16. Ayedaq Projects Ayeda? is the regional distribution company serving the Anatolian side of Istanbul and is responsible for the operation, maintenance, planning and expansion of the distribution system in its service area. The total number of subscribers served by Ayedaq is 1,823,158 of which 1,542,336 residential, 269,177 commercial, 1,497 industrials and the remaining 10,148 are other types of consumers. In 2004, Ayedaq’ total energy sales and collection ratio were reported at 6,468,031 MWh and 96.5%. The region’s total losses are about 9.38% ofenergy supplied of which 6.0% is technical losses and 3.38% non-technical losses.
24 The numbering sequence is followed by TEDAS to link the investments with their approval from authorities.
40 17. Istanbul is the largest and fastest growing city in Turkey with respect to area, population, trade, financial and tourism activities. As a result, the increased electricity demand growth in the city requires investment in rehabilitation and expansion of the city distribution network. In addition, Istanbul is a coastal city with a windy, wet and salty environment that has corrosive effects on the city’s distribution network causing frequent equipment and line outages and unserved energy interruptions to consumers estimated at the equivalent of about 2 days of the annual electricity sales.
18. Ayedag prepared a project report describing the above projects and outlining their benefits. The projects will include: 1) rehabilitating existing medium voltage and low voltage overhead networks, 2) replacing overhead lines with underground cables, 3) installing new underground cables to expand the capacity of the new network and 4) replacement and installation of new distribution transformers. Table 4.3 lists the projects, and their locations, in Ayedag that will be financed by this Loan.
Table 4.3: Ayedaa Network Rehabilitation and Expansion Group 1 Projects Project Location
AYEDAS VI LV-MV Electricity Distribution Rehabilitation Project: - Vanikoy - Beykoz - Sarnandira - Iqneler - Dudullu
UMRANIYE II LV-MV Electricity Distribution Rehabilitation Project: - Urnraniye - Bostanci - Sarnandira - Kartal
AYEDAS VI1 LV-MV Electricity Distribution Rehabilitation Project - Sarnandira - Kurtkejy
19. Uludag/Balikesir Projects Uludag is the regional distribution company serving the provinces of Balikesir, Bursa and Canakkale. The rehabilitation projects in Balikesir province will be financed by the Loan and is included in Group 1 due to its high priority.
20. Uludag General Directorate of Balikesir province (Uludag/Balikesir) is responsible for the operation, maintenance, planning and expansion of the distribution system in the province of Bal.ikesir. The total number of subscribers served by Uludag/Balikesir is 654.136 of which 546.81 2 residential, 78,36lcommercial, 3,114 industrial and the remaining are other types of consumers. In 2004 Uludag/Balikesir total energy sales and collection ratio were 1,35 1,866 MWh and 91.5%. The province’s total losses are about 10.3% of which 6.5% is technical losses and 3.8% non-technical losses.
2 1. The Balikesir province is one of the main industrial provinces in Turkey with a high rate of growth of industrial and residential demand. The main problems of the distribution network in the province are the inadequate capacity of the network to supply growing demand and
41 frequent electricity interruptions to consumers (estimated at the equivalent of about an equivalent 8 days of the annual electricity sales) due to the age and run down condition of the network infrastructure. The new Loan will finance four network expansion and rehabilitation projects located in several towns and settlement areas served by Uludag/Balikesir. Uludag/Balikesir prepared a project feasibility report describing the four projects and assessing their justifications and benefits. Balikesir I11 project, the largest of the four projects, is of high priority as it would be necessary to serve new residential and industrial demand planned for construction in Balikesir city center. Therefore, TEDAS has included this project in Group 1, as shown in Table 4.4.
Table 4.4: UludaQlBalikesir Network Rehabilitation and Expansion Group 1 Project Project Location
Balikesir Ill LV-MV Electricity Distribution Rehabilitation Project Balikesir
22. Belikesir I11 project will include expansion of the existing medium and low voltage network in Balikesir city center by constructing new overhead lines and underground cables and upgrading existing transformer substations and installing new ones.
23. Gediz/Manisa Projects Gediz serves the provinces of Manisa and Izmir. The Loan will finance network rehabilitation and expansion projects in Manisa province only. Gediz General Directorate of Manisa province (GedidManisa) is responsible for the operation, maintenance, planning and expansion of the distribution system in the province of Manisa. The total number of subscribers served by Gediz/Manisa is 545,17 1 of which 443,634 residential, 65,462 commercial, 852 1 industrial, 17,020 agricultural and the remaining 10,534 are other types of consumers. In 2004 GedidManisa total energy sales and collection ratio were 1,269,552 MWh and 95.3%. The province’s total losses are about 10.8% of which 6.5% is technical losses and 3.8% non-technical losses. The new Loan will finance two projects in GedidManisa province located, as shown in Table 4.5, in Manisa and Alavehir city centers.
Table 4.5: GedizlManisa Network Rehabilitation and Expansion Group 1 Projects Project Location
Manisa Center V - MV-LV Electricity Distribution Network Rehabilitation Project Manisa
Manisa Alagehir II - MV-LV Electricity Distribution Network Rehabilitation Project Alagehir
24. The existing distribution networks in Manisa and Alagehir suffer from bad voltage performance, high energy interruptions to consumers (estimated at the equivalent of about an equivalent of 8 days of annual electricity sales) and inadequate capacity to meet growing demand in both cities. In addition, in many instances the clearance of the overhead lines from buildings and public places does not comply with safety and new clearance requirements.
25. The Manisa V project is planned to rehabilitate a portion of the distribution network in the Manisa City Center by replacing existing old and unsafe medium and low voltage overhead lines with underground cables and expanding the network transformer capacity. Rehabilitated
42 overhead lines and transformers operated at non-standard medium voltage (6.3 kV) will be replaced by cables and transformers operated at the standard 34.5 kV voltage.
26. The Alagehir I1 project is planned to rehabilitate a portion of the distribution network in Alagehir town served by Gedizhlanisa province. Similar to Manisa V project, the project consists of replacing existing old and unsafe medium and low voltage overhead lines with underground cables and expanding the network transformation capacity.
27. Meram Projects Meram serves towns, districts, and villages located in the provinces of Konya, Karaman, Nigde, Nevgehir, Kirgehir and Aksaray. The total number of subscribers served by Meram is 1,040,677 of which 844,205 residential, 1 12,475 commercial, 14,908 industrial and the remaining 10,148 are other types of consumers. In 2004 Meram’s total energy sales and collection ratio were 2,975,153 MWh and 62.9%. The region’s total losses are about 8.82% of which 7.5% is technical losses and 1.32% non-technical losses. Meram’s poor collection ratio is due to the very low collections from the agricultural consumers who consume about 20% of Meram’s electricity sales.
28. Out of eight projects included in Meram distribution network rehabilitation program, the Loan will finance only three projects in the Meram region located in cities and towns shown below:
Table 4.6: MeramlManisa Network Rehabilitation and Expansion Group 1 Projects Project Location
Konya center II LV-MV Electricity Distribution Rehabilitation Project Konya
Nigde center LV-MV Electricity Distribution Rehabilitation Project Nigde
Nevgehir center LV-MV Electricity Distribution Rehabilitation Project Nevgehir
29. The distribution networks in Meram region suffer from high energy interruptions to consumers (estimated at the equivalent of about 6.5 days of annual electricity sales) due to outages of distribution network facilities and overhead lines. The distribution networks in the region also suffer from poor voltage performance and overloaded facilities, especially in city centers, due to growing electricity demand. In addition, the Kaymakli and Avanos projects are planned in order to install new underground cables so as to replace the old overhead lines whose economic service life has expired and to protect the scenic beauty of the Kapadokya and Avanos historical areas.
30. Meram prepared a project feasibility report describing the projects included in its distribution network rehabilitation program and outlining their justifications and benefits. The projects will include rehabilitating existing medium voltage and low voltage overhead networks, replacing overhead lines with underground cables, construction of new underground cables, and expansion of the transformer capacity of the distribution networks where the projects are located.
43 Group 2 Projects
3 1. Proposed projects in Group 2 include network rehabilitation and expansion projects in the following regions and provinces:
0 Toroslar Regional Company: Projects will be located in Adana, Hatay and Gaziantep 0 Osmangazi Regional Company: Projects will be located in Afyon Akdeniz Regional Company: Projects will be located in Isparta 0 Uludag Regional Company: Projects will be located in Bursa 0 Menderes Regional Company: Projects will be located in Marmaris and Fethiye
32. Group 2 projects are among the identified priority investment projects for the rehabilitation of the distribution networks and which are proposed for financing by the World Bank. These provinces where the projects are located are preparing feasibility reports describing the projects and assessing their justifications, costs and benefits, as per the agreed design and planning criteria. The Bank team will complete the assessment of these projects after their feasibility reports are completed.
Technical Assistance for project implementation
33. The project will also support hiring of engineering consultants to assist the regional companies and HQ, if required, in project implementation. The objectives of this consultancy services are:
0 to provide monitoring and support to the regional companies for coordinating the implementation activities ofthe projects, to ensure that the project work activities are well coordinated between the TEDAS, regional companies and the contractors as well as with other relevant agencies (Le. municipalities, local infrastructure utilities), and to ensure that the supplied equipment and civil and installation works are in compliance with the Project design and work schedule.
Projects Cost Estimates
34. Table 4.7 shows the cost estimates and financing sources for the regional projects included in TEDAS distribution network rehabilitation program and their source of financing. The estimated total cost of the projects, including contingencies, financed by the World Bank Loan is about Euro 205 million, including the cost of hiring consultants for supervision of the project implementation. The project cost estimates where initially developed by TEDAS during the preparation of the Master Plans and feasibility studies of the projects and continuously revised based on further knowledge on market prices of such type of projects that TEDAS has acquired from its procurement ofthe distribution rehabilitation projects financed by EIB.
44 ...... ~~
x,"_,x x,- x,, ,, , ,," , ,
45 Annex 5: Project Costs TURKEY: Electricity Distribution Rehabilitation Project
Project Cost Local Foreign Total By Region Euro million Euro million Euro million Network Rehabilitation and Expansion 120 52 172 Projects I Consulting Services I 5.0 I 0 I 5.0 I
I Total Baseline Cost I 125 I 52 I 177 I 1 Physical Contingencies I 10 I 4 I 14 I 1 Price Contingencies I 10 I 4 I 14 I I Total Project Costs I 145 I 60 I 205 I I Total Financing Required I 145 I 60 I 205 I World Bank Financing 145 60 205
- Physical and price contingency are assumed at 5% each. - Cost estimates do not include VAT.
46 Annex 6: Implementation Arrangements TURKEY: Electricity Distribution Rehabilitation Project
1. The Project will be implemented by TEDAS and its affiliated regional distribution companies. Proposed project investments are presently located in nine regional distribution companies - ofthe total complement of 20 regional distribution companies affiliated to TEDAS.
2. The contract management, project supervision, disbursement arrangements are noted schematically in the figure 6.1 below. These arrangements below will remain applicable to all the regional distribution companies that are managed by TEDAS General Management i.e. as long as the regional distribution company is not privatized. Upon privatization of any of the regional distribution companies where Project investments are under implementation the arrangements will shift as noted in Figure 6.2.
Figure 6.1 Project Implementation Arrangements - For TEDAS Managed DistCos
HE BORROWER
. Progress Report to WB Invoice Approval 8 Payment authorization I; . Disbursement
I +I Designated Account I I Regional Distribution Company
Project Supervision Team 2 Fulltime Staff (Supported by Supervision Consultants) Supervision 8 Venfication of Works Change orders certification Contract for Supply . a Invoice certification 8 Installation
I I JI yment I I I I
I I * I Contractor
47 Figure 6.2 Project Implementation Arrangements - For Privatized DistCos
Loan Agreement
Loan Agree ent (Backto-Backf Loan)
Contract Reassigned to Private Concessionaire
Contract for Supply
Contractor
TEDAS Project Management Team
3. TEDAS has established a Project Management Team responsible for implementation of the projects. The team comprises staff from TEDAS General Manager Office, Design and Construction Department, System Operation Department and Research & Development and Foreign Affairs Department. The team’s main functions will be procurement, contracting and contract administration, managing disbursements. In addition, the team will coordinate with the regional companies to ensure effective supervision, implementation and completion of the projects. The team will also be responsible for the project information management and the preparation ofconsolidated progress reports on the project implementation.
4. The planning and design activities of new investment project are carried out by technical staff of the regional distribution companies and reviewed and approved by TEDAS General Directorate” staff, The investment projects proposed to be financed by the Loan have been included in the regional distribution companies Master Plans for the rehabilitation and expansion ofthe distribution networks.
25 Responsible for design and planning of the network rehabilitation and expansion plans.
48 Regional Project Supervision Teams
5. The regional distribution companies and their provinces with investment projects will also designate project supervision teams responsible for monitoring and supervision of the contractor to ensure adequate quality and timely project implementation and for direct coordination with the project contractors. It has been agreed that each Regional distribution company will assign 2-3 staff to manage the project. Given the amount of works to managed, the regional distribution companies will hire a small team of local consultant engineers and technicians to assist them. The regional supervision team will verify the quality and quantity of works completed, supervise line commissioning with the distribution operation staff, and verify invoices. Invoices will be cleared by the project supervision teams and sent to the TEDAS Project Management Team who will initiate payment action. The regional project supervision teams will also be responsible for the preparation of progress reports on the project implementation and submission of these reports to TEDAS General Directorate.
Procurement
6. The procurement of the project components will be on a “supply and installation” basis following the Bank’s ICB procurement guidelines, to reduce the coordination problem between multi suppliers/agencies. A procurement plan has been prepared (See Annex 8). The projects identified so far for financing under the Loan have been grouped into two groups and will be implemented in two phases as described in Annex 4. Each group includes several project packages, each of which will be procured in one contract. To assist the regional companies in managing and supervising the implementation of the projects, TED A’$ will hire engineering consultants as the Implementation Supervision Consultant for the project package. The objectives of this consultancy services are:
0 to provide monitoring and support to the regional companies for coordinating the implementation activities of the projects, to ensure that the project work activities are well coordinated between the TEDAS, regional companies and the contractors as well as with other relevant agencies (i.e. municipalities, local infrastructure utilities), and 0 to ensure that the supplied equipment and civil and installation works are in compliance with the Project design and work schedule.
49 Annex 7: Financial Management and Disbursement Arrangements TURKEY: Electricity Distribution Rehabilitation Project
A. Summary of Financial Management Arrangements
1. An assessment of the financial management arrangements for the project was undertaken in May 2006. Current financial management arrangements for the project are marginally satisfactory to the Bank and an action plan had been developed to bring these arrangements to an acceptable level for the Bank.
A summary of the conclusions for the project financial management purposes are as follows:
Risk Rating Risk Mitigating Measures INHERENTRISK
Country Level Modest Entity Level Modest Project Level Modest Overall Inherent Risk Modest CONTROLRISK
Budgeting Modest Accounting Substantial Procurement process of software for effective financial management of project transactions will be commenced before loan negotiations, and the software will be installed by May 15, 2007. In the meantime, the project transactions that are also going to be booked in TEDAS' legal accounts will be followed up in Excel spreadsheets as a transitional measure. Internal Controls Modest TEDAS does not have an internal control department which undertakes regular audits. TEDAS will document the internal control procedures for the project in the project financial management manual. Funds Flow Modest Financial Reporting Modest The reporting module will be integrated to the accounting software by May 15, 2007. Auditing Modest Overall Control Risk Modest
Country Issues
2. State Economic Enterprises in Turkey are subject to basic accounting and auditing obligations which apply to companies in Turkey. These are laid down in the Commercial Code, which was last revised in 1956. More detailed requirements were introduced in the Tax Procedures Law of 1950 (which has since been consolidated into the Tax Procedures Code). Under the powers granted to it by the Code, the Ministry of Finance (MOF) introduced a Uniform Chart of Accounts which became effective on January 1, 1994. This prescribes certain fundamental accounting concepts, a code of accounts, and a format for the presentation of financial statements. The main purpose of these requirements is to provide information to the
50 taxation authorities, there is no obligation to publish the financial statements, nor are they subject to a mandatory financial statement audit.
3. The electricity sector in Turkey is regulated by the Energy Market Regulatory Authority (EMRA) established by the Electricity Market Law no.4628 on March 3, 2001. The law aims at ensuring supply of good quality, low cost, environment friendly electricity to the users in required quantities. It also aims at establishing an electricity sector that is financially sound, transparent and competitive that is subject to independent audit and regulation of the market.
Strengths
4. The significant strength that provides the basis of reliance on the project financial management system is that TEDAS is a well-established State Economic Enterprise which is capable of handling the accounting of the project as well as preparing the financial reports as required by the Bank if provided with necessary tools in terms of information systems.
Weaknesses and Action Plan
5. The financial management environment of TEDAS includes some deficiencies relating to the financial management of the project and TEDAS should take action to address these deficiencies. The following action plan is proposed to address the deficiencies in the TEDAS financial management environment:
Action Responsibility Deadline The procurement of the accounting and reporting software for project will FOD and Upper April 30, 2007 be finalized. Management The accounting and reporting software will be installed and functional. FOD May 15,2007 Chart of accounts for project transactions in line with the reporting FOD May 15,2007 requirements will be prepared and uploaded to the accounting software. The draft project financial management manual will be revised to reflect FOD March 31, 2007 the latest arrangements put in place. Audit firm for the audit of entity IFRS financial statements will be FOD September 30, appointed. 2007
Implementing Entity
6. The project will be implemented by Turkish Electricity Distribution Company (TEDAS) and subsidiary regional distribution companies. TEDAS is a State Economic Enterprise (SEE) established in 1994 and has taken over the electricity distribution functions of TEK the former electricity company which had been split into two companies; TEDAS (Electricity Distribution) and TEAS (Electricity Generation and Transmission, which was further split into three companies). TEDAS is responsible for the distribution of electricity and the rendering of the electricity sales services. TEDAS had been taken into the privatization program with the decision no. 2004122 of the Privatization Higher Board.
7. TEDAS staff have had limited exposure to Bank projects in the past and therefore there is a need for capacity building activities to be undertaken for the project implementation group that is yet to be established. As presented in detail in Annex 6 Implementation Arrangements, the
51 regional distribution companies will establish project supervision teams that will be responsible for the monitoring and supervision of the contractors. The regional distribution team will verify the quality and quantity of works completed, supervise line commissioning with the distribution operation staff and verify invoices. Invoices will be cleared by the project supervision teams and sent to TEDAS Project Management Team who will initiate the payment action by sending the relevant documents to the Financial Operations Directorate (FOD) of TEDAS which will carry out the financial management functions under the project. The FOD consists of five departments but the financial management of the project will be the joint responsibility of the Budget and Reporting Department and the Distribution Companies and Fixed Assets Department which has been restructured to execute the financial management of loans from international financial institutions. The FOD established a project financial management team with staff with qualifications to respond to the accounting and reporting requirements of the project. These staffs started working on improving the existing financial management arrangements.
8. The FOD has prepared a financial management manual that describes the financial management arrangements of the project. This document will be further developed to fully cover (a) the financial and accounting policies and procedures for the project (b) organization of the financial management and job descriptions (c) the financial management information system (d) disbursements (e) budgeting and financial forecasting (0 project reporting and (g) project budgeting and planning procedures.
9. The risk associated with the implementing entity is assessed as modest. The action plan above lays out the roadmap to improve the implementing entity rating to a low level.
Budgeting
10. The investment budget of TEDAS is prepared by the Research and Development Directorate (RDD) in coordination with the Distribution Lines and Projects Preparation Directorate. Taking the investment requests of TEDAS’S distribution companies in the regions, the RDD prepares an investment plan. This plan is then sent to the State Planning Organization after the approval of the Board of Directors. The approved budget for 2007 for the Electricity Distribution Rehabilitation Project is in the investment program for 2007.
11. TEDAS has a separate budgeting software used by the RDD. This software is not integrated to the accounting software. Accordingly monthly financial information is provided by the FOD to the RDD, which prepares analytical budget reports on a monthly basis for the use of the management.
12. The accounting software (see section below for details) that will be bought for project accounting and reporting purposes will have an integrated budgeting module. Quarterly budgets will be entered into this module to facilitate making comparisons between actual and budgeted income and expenditures. The FOD will include these specifications into the TOR of the accounting software. Moreover, the FOD will ensure the coordination with technical unit for the timely preparation of the project budget and document these procedures in the Financial Management Manual.
The risk associated with the budgetingprocess is assessed as modest.
52 Accounting
13. Project accounting will be maintained by the FOD. The General Directorate of TEDAS is currently using accounting software purchased in 1996 (Logo 1996) which doesn’t have the inventories, fixed assets and budgeting modules integrated to the accounting module. TEDAS has contracted an IT company to develop an integrated management information system that will include modules for the accounting, inventory, budget, personnel, fixed assets and customer information. This system (BYS - Bilgi Yonetim sistemi) is finalized and ready to be installed.
14. The main transactions of the project will be in the legal books of TEDAS. However neither the current accounting system nor the BYS technically allow the FOD to do the accounting of the project in foreign currency and the production of the project financial statements. The modifications that are required to be made in the BYS will be costly and time consuming. Therefore TEDAS has agreed to purchase an accounting software that will enable it to account for the project in foreign currency. The software will also have integrated budgeting and reporting modules, tailored for the needs of the project. In the meantime, in case of occurrence of expenditures before the installation of the software, the FOD will use Excel spreadsheets as a transitional measure.
15. Accounting procedures for the project will be set out in the project financial management manual.
The risk associated with accounting is considered substantial. TEDAS will purchase and install an accounting software by April 30, 2007.
Internal Control and Internal Auditing
16. TEDAS does not have an internal control department which undertakes regular audits of the departments within TEDAS and therefore no reliance will be placed on internal audit.
17. TEDAS does not fall within the scope of the enacted Public Financial Management and Control Law which requires internal control departments to be established at Government institutions. However, since TEDAS is committed to modernizing its financial management systems it is important that the Organization considers the establishment of a modern Internal Audit Department.
18. TEDAS will document the internal control procedures for the project in the project financial management manual. To strengthen internal controls, TEDAS would minimize the risk of misuse or fraud with respect to financial management in the following ways:
The FOD will make the payments to contractors only after verifying that the invoices and other payment documents contain all technical approvals that are required and after verifying that the payment requests are line with the contracts. 0 The payments will be executed by a different person than the one who authorizes them.
53 The staff responsible for the project bank accounts will prepare and document bank reconciliations on a monthly basis. The reconciliation files will be supervised and signed by the Head of FOD on a quarterly basis. The project FM team will prepare checklists for required documentation for each type of transaction. These checklists will also be attached to the Financial Management Manual. The Head of FOD will supervise that full supporting documentation is provided for each transaction.
The risk associated with internal control is assessed as modest.
Funds Flow and Disbursement Arrangements
19. There will be one Designated Account (DA) for the project for disbursements. The DA will be in the currency of the loan and will be at an acceptable commercial bank. All payments to the contractors, suppliers and consultants will either be made directly from the loan account or from the Designated Account with the authorization of the responsible personnel. The Financial Operations Department of TEDAS will be responsible for making both these as well as counterpart fund payments. TEDAS will specify authorized signatories and payments from the designated account will be made with the approval of one of these authorized staff.
20. The project is in the investment program of the Government. TEDAS is a revenue earning entity and access to counterpart funds is not expected to pose any problems during the implementation.
The risk associated withfundsflow is considered as modest.
Financial Reporting
21. TEDAS will maintain records and will ensure appropriate accounting for the funds provided. Financial statements for the project will be prepared by TEDAS. The interim un- audited financial reports (IUFR-also referred to as the Financial Monitoring Reports - FMRs) will be prepared on a semi-annual basis and will be submitted to the Bank no later than 45 days after the end of the semester. Moreover, TEDAS FOD will ensure that these reports are automatically generated from the accounting software that will be bought for project accounting purposes.
The IUFR will include the following reports: Expenditure Tables, Special Account Statement, Procurement Tables, Output Monitoring Reports.
22. The IUFR templates have been prepared and agreed upon with the Bank. The financial management manual of the project will include a section on the IUFR and formats of these reports will be detailed there.
54 The risk associated with reporting and monitoring is assessed as modest. The reporting module will be integrated into the accounting software by May 15,2007.
Auditing
23. TEDAS does not have a legal obligation to have its accounts audited by independent auditors. However, as part of the Bank’s auditing requirements, TEDAS’S financial statements as well as the project financial statements will be subject to external auditing. The first set of audit reports will be submitted to the Bank before June 30 of the year following the calendar year in which the first disbursement from the loan has been made.
24. TEDAS financial statements will be audited by independent auditors acceptable to the Bank in accordance with International Financial Reporting Standards and International Auditing Standards. Annual project financial statements will be audited by the Treasury Controllers. TEDAS has prepared a draft Terms of Reference for the audit work mentioned above and will assign its auditors for the audit of its 2007 accounts no later than September 30, 2007.
25. State Owned enterprises in Turkey are subject to the audit of Higher Audit Board (YDK). YDK was established in 1938 to audit State Owned Enterprises (SOEs) on behalf of the Parliament. The YDK reports for the years 2004, 2003 and 2002 were reviewed. The main findings relating to financial management are:
The need for supporting the accounting units with qualified personnel. The need for improving the IT infrastructure. Weaknesses in terms of preparing the disclosures for the financial statements.
26. Given the facts that TEDAS financial statements have not been audited in accordance with IFRS and ISA before and the potential information gaps that might have been created during the split of the former electricity company (TEK) into two companies (TEDAS and TEAS), there is a high risk for the auditors to give a disclaimer opinion for the first years of the audit. The IFRS financial statements audited in accordance with ISA will be reviewed once they are received. If the results of the audits reveal any weaknesses in the financial management of TEDAS, an action plan will be agreed with the company to address the issues identified and progress will be monitored during supervision.
The risk associated with auditing is assessed as modest.
B. Disbursement Arrangements
Designated account
27. The DA will be used following procedures to be agreed with the Bank, and will have an authorized allocation of € 20 million. Two signatures indicated in the list of authorized signatures submitted by TEDAS will be required on the withdrawal applications. The minimum application size for payments directly from the Loan Account for issuance of Special
55 Commitments is € 4 million. Applications for replenishment of the DA will be submitted to the Bank on a monthly basis, or when the balance of the DA is equal to about half of the initial deposit or the authorized allocation, whichever comes first, and will include a reconciled bank statement as well as other appropriate supporting documents. Retroactive expenditures are allowed for payments made prior to the date of the Loan Agreement, but on or after February 28, 2007 for Eligible Expenditures under Category (1) and Category (2), up to an aggregate amount not to exceed € 11 million.
Use of statements of expenditure (SOEs)
28. Disbursements will be made against Statements of Expenditures for: (a) goods costing less than € 10 million equivalent per contract; (b) consulting contracts with firms, costing less than € 300,000 equivalent each; (c) consulting contracts with individuals, costing less than € 75,000 equivalent each. Full documentation in support of SOEs would be retained by TEDAS for at least two years after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made. This information will be made available for review during supervision by Bank staff and for annual audits which will be required to specifically comment on the propriety of SOE disbursements and the quality of the associated record-keeping.
I I I I Category % of Expenditure to be financed I Az:Ion I (EURO) 1. Goods (including supply and installation) 200,000,000 100% of foreign expenditures, 100% local expenditures (ex-factory cost) and 85% of other items procured locally
2. Consulting services 5,000,000 100%
Total 205,000,000
C. Supervision Plan
29. During project implementation, the Bank will supervise the project’s financial management arrangements as follows:
(i) During the Bank’s regular supervision missions financial management and disbursement arrangements will be reviewed to ensure compliance with the Bank’s minimum requirements; (ii) The project’s quarterly IUFRs as well as the project’s annual audited financial statements and auditor’s management letter will be reviewed; (iii) As required, a Bank-accredited Financial Management Specialist will assist in the supervision process.
56 Annex 8: Procurement Arrangements TURKEY: Electricity Distribution Rehabilitation Project
A. General
1. Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Legal Agreement. The general descriptions of various items under different expenditure categories are described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team and listed in the Procurement Plan. The Procurement Plan will be updated regularly to reflect the actual project implementation needs and improvements in institutional capacity.
Procurement of Works: No Works contracts are foreseen in the Project.
2. Procurement of Goods/Supply and Installation(S1) : Goods procured under this project would include: Expansion and rehabilitation of electricity distribution lines in the relevant city centers of the TEDAS regional companies of Ayedag, Uludag, Meram, Gediz, Toroslar, Menderes, Akdeniz and Osmangazi. The contracts comprise medium and low voltage line replacements and extensions, substation upgrades and upgrading of lines from non-standard medium voltages and their conversion to underground cables. It is estimated that the amount of the goods procurement will be in the rage of 50- 65% of the total contract cost. The contracts will be of Goods/Supply and Installation type which will include goods supply, dismantling and installation costs.
3. There will be two large Goods/Supply Installation bid groups (packages) in this Project and each bid group will include various contract packages (slices). They will be conducted through International Competitive Bidding (ICB) procedures with post qualification of the bidders in accordance with paragraph 2.58 of the Procurement Guidelines. The cost estimates of the contracts have been done by TEDAS and are updated on regular basis to reflect the changes in the market. It was envisaged by TEDAS that the contract durations will be 22 months and that price adjustment may be considered either at the pre-bid conference stage if bidders request such a provision or for the second group of contracts if experience during the first group of contracts suggest the requirement for such a provision. Price adjustment will apply only to cable prices which constitute about 35-45 % of the contract price. For any contract exceeding 24 months duration, price adjustment shall be included in the contract. The contracts will be procured depending on the priorities of the regional companies. The SI bidding documents will be issued in both English and Turkish languages in accordance with the paragraph 2.15 of the Procurement Guidelines. The protocols that will be arranged between the TEDAS Regional Companies and the relevant Municipalities will be disclosed to the prospective bidders.
4. The procurement will be conducted using the Bank’s latest Standard Bidding Documents for Supply and Installation of Plant and Equipment.
57 5. All Goods/Supply and Installation Contracts will be subject to prior review by the Bank.
6. Procurement of non-consulting services: No non-consulting services are foreseen in the Project.
7. Selection of Consultants: Consulting firms would be required for the site supervision of the SI contracts and assistance to TEDAS Project Management Team and Regional Companies, on monitoring and evaluation during the implementation ofthe project. Short lists of consultants for services estimated to cost less than €170,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Individual consultants and small specialized firms may also be required for highly specialized subjects and for support to the Project Management Team.
8. The envisaged procurement methods for the Selection of Consultants in this project are:
- Quality and Cost Based Selection (QCBS); - Least Cost Selection (LCS); - Selection Based on the Consultants Qualifications (CQS) for the services estimated to cost less than €1 70,000; - Individual Consultants.
9. Consultancy services estimated to cost above €300,000 per contract and Individual Consultants estimated to cost above €75,000 per contract will be subject to prior review by the Bank. Regardless ofthe estimated cost, the first two contracts for each selection method and the Terms of References ofall individual consultancy contracts will be subject to prior review by the Bank. The shortlist for any audit contracts financed by the project, including those that are below prior review threshold shall be sent to the Bank for review.
10. Operational Costs: The project will not finance any operational cost.
B. Assessment of the agency’s capacity to implement procurement
1 1. Procurement activities will be carried out by TEDAS.
12. Assessments of the capacity of the Implementing Agency to implement procurement actions for the project have been carried out by the Bank team between September 2005 and May 2006. The assessments reviewed the organizational structure and procedures for implementing the project.
13. TEDAS has established a Project Management Team (PMT) under the coordination of Deputy General Manager. The PMT comprises staff from Design and Construction Department, Materials and Procurement Department and Research & Development and Foreign Affairs Department. The Design and Construction Department will give the main support to PMT. The PMT will be supported by the procurement staff experienced in public procurement procedures during the procurement process. The advisor of the General Manager who has experience in the international procurement will also guide the PMT.
58 14. TEDAS as an institution has experience in the procurement and implementation of contracts only in national level. TEDAS neither has experience in international procurement nor in the Bank’s procurement procedures. TEDAS has not used site supervision consultants under their own financing. Few staff speaks English and they have difficulty in the understanding of the Bank’s procurement terminology. The overall project risk for the procurement aspects is high.
15. In order to mitigate the high procurement risk and considering that the TEDAS staff has no experience in the Bank’s procurement procedures, the Bank’s procurement and technical staff, and PMT agreed to work closely in the preparation of the bidding documents. It is also agreed that the Bank’s procurement staff will provide training to PMT on demand basis. The PMT agreed to provide a simple weekly report to the Bank’s procurement specialist every Monday indicating the status of the procurement activities, during the first year of the procurement plan coverage period. During the project preparation phase the Bank procurement specialist provided the Bank’s Procurement Guidelines and Standard Bidding Documents to PMT. Moreover, the important aspects of the bidding documents such as post qualification requirements, contract grouping, technical requirements etc. were discussed between the Bank’s team and PMT. For further reduction of the risks associated with implementation the PMT agreed to employ site supervision consultants and specialized individuals.
C. Procurement Plan
16. The Borrower has developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Bank on February 27,2007 and is available at the Project Management Team’s office in TEDAS. It will also be available in the Project’s database and in the Bank’s external website. The Procurement Plan will be updated annually in agreement with the Bank to reflect the actual project implementation needs and improvements in institutional capacity. The Plan includes procurement activities for projects in Group1 and Group 2. However, TEDAS will have the flexibility to add or remove projects in Groups 2 or establish a new Group, subject to compliance with selection criteria defined in Annex 4.
D. Frequency of Procurement Supervision
17. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended semi-annual supervision missions to visit the field to carry out post review of procurement actions.
18. The Project Management Team in TEDAS will keep a complete and up-to-date record of all procurement documentation and relevant correspondence in its files which will be reviewed by the Bank staff during supervision missions.
19. Monitoring reports and on procurement progress in the form of completed-ongoing- planned procurements will be submitted semi-annually as an integral part of the Financial Monitoring Report on Project implementation.
59 E. Other
20. TEDAS may initiate procurement of SI contracts and consulting services before the Loan effectiveness date in accordance with the Bank’s Procurement & Consultant Guidelines. The contracts which will have been reviewed by the Bank may retroactively be financed by the Bank as described in the Loan Agreement.
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E E Annex 9: Economic and Financial Analysis TURKEY: Electricity Distribution Rehabilitation Project
ECONOMIC ANALYSIS
Main economic benefits
1. There are five types of economic benefits produced by the rehabilitation and expansion of those parts of the TEDAS Distribution System which are in the worse shape or most in need of capacity expansion. These benefits are:
Increase in safety because the overhead lines which are too close to buildings or otherwise dangerous are replaced by underground cables;
Reduction in electric power interruptions since underground cables are much more reliable than overhead lines;
Expansion of capacity as the new cables can supply more power than the old distribution lines which in many cases are close to capacity;
Reduction in operating costs since the new underground cables will require fewer repairs;
Decrease in technical losses due to enhanced distribution capacity with underground cables.
2. Increase in Safety. Visual inspection of the various distribution systems indicates that there are a number of lines which are too close to buildings or which otherwise violate current regulations. TEDAS was only willing to quantify the safety benefits of replacing these overhead lines with cables for the two systems where they recently had had accidents. These are Ayedag (Asian Side of Istanbul) and Meram (Konya). In both cases significant payments had been made in 2004 to compensate victims which would not have been necessary if the particular lines involved had been underground. It is quite probable the safety benefit is considerably larger than indicated by TEDAS (less than 1% of total benefits). For example a study done by the Independent Pricing and Regulatory Tribunal of New South Wales26found that the main benefit from burying distribution cables is the reduction in accidents, accounting for about 40% of total benefits according to the Tribunal.
3. Reduction in Power Supply Interruptions For three of the four regions for which feasibility reports exist, the reduction in power supply interruptions is the main benefit from the rehabilitation and expansion program. This is because there are currently substantial interruptions in the power supply since: 1) the overhead lines or substations have undergone serious deterioration, 2) they are overloaded and tending to overheat or 3) they are exposed and
26 Electricity Underground in New South Wales, A Final Report to the Minister for Energy, May 2002
62 vulnerable to various types of accidents. Replacing the worn out equipment and installing new underground cables will lead to a considerable drop in such power interruptions.
4. For example the Meram Distribution System in 2004 had interruptions of feeder lines amounting to about 33,000 hours. Given the average capacity of the various feeder lines this amounted to about 72 Gwh of interruptions or equivalent to about 6.5 days of supply. This unserved energy is valued at about 50 US cents/kWh equivalent to 0.65 YTL per hour (the figure used in a recent Bank financed study of energy supply in the Balkans) minus the average cost of supply to TEDAS of about 0.082 YTL per kWh. If this value for unserved energy is applied to the 72 GWh of interruptions then the overall cost of this unserved energy would be about 41 Million YTL. The project would certainly not eliminate the problem of interruptions but it would be expected to reduce it roughly in proportion to the percentage of the distribution system that is being rehabilitated. In the case of Meram it is estimated that the project would reduce the value of unserved energy by about 3.2 Million YTL per year. Similar calculations were done for the other distribution systems for which feasibility studies exist.
5. Expansion of Capacity The project will expand capacity in those parts of the system which are experiencing rapid growth. For all of the 4 regions for which feasibility studies exist, there are certain identified new housing estates or factories which are under construction or planned to be constructed in the near future which cannot be supplied with the current distribution assets. The project will provide the new investments required to supply these loads. The economic value contributed by TEDAS in supplying these loads is assumed to be TEDAS’ average tariff of 0.044 YTL/kWh. (The overall economic value of supplying this new load is much higher. However, most of this is attributable to the new generation not TEDAS.) Also the project will allow currently unknown additional loads to be supplied. However, to be conservative no economic value was assigned to supplying unidentified future loads.
6. Reduction in Operating Costs There will be a substantial reduction in operating costs as new equipment which is purchased under the project replaces old and worn out equipment including replacing exposed overhead lines with underground cables. In estimating the reduction in operating costs it is conservatively assumed that there is no reduction in direct labor costs since no reduction in TEDAS staff is assumed. However, materials costs are reduced as well as hired labor costs. The percentage reduction in costs is assumed to be less than the proportion of the distribution network which is rehabilitated.
7. Reduction in technical losses and Theft The distribution systems being rehabilitated typically have significant losses ranging from around 5% to 12% of power supplied. Typically 50-70% of the losses in these systems to be rehabilitated are technical with the rest theft. As a result of the rehabilitation both technical losses and theft will be reduced less than in proportion to the percentage of the system that is being rehabilitated. The reduction in technical losses is valued at the cost of power purchased by TEDAS of .OS2 YTL per kWh. Conservatively, no economic value is attributed to the reduction in thefts. It is assumed that the economic value of the electricity supplied is the same whether it is paid for or stolen although of course there are a number of major draw backs to the theft including a worst financial condition for TEDAS and misallocation of resources due to the free electricity.
63 Net Cost
8. For each distribution system a net cost of the rehabilitation and expansion program for that system was calculated. This net cost is the gross cost (excluding taxes) minus the scrap value of the equipment taken out of service. Typically this scrap value reduces the gross cost by 4- 12%. This net cost was used in the economic analysis.
Economic Rates of Return
9. Based on the above information and assumptions an economic rate of return (ERR) was calculated for each of the four distribution systems and for the all four systems together. Also a net present value (at a 10% discount rate) was calculated for the investment in each system and for the four systems together. The results are as follows.
10. Ayeday This is the system serving the Asian Side of Istanbul and one of the larger distribution systems in Turkey. The cost of rehabilitation is estimated at about 73 Million YTL with about 16% ofthe system being rehabilitated. The scrap value ofthe existing poles and aerial lines is about 9 Million YTL. The main benefit from rehabilitation is the reduction in supply interruptions which are currently the equivalent of about two days of the company annual sales. Another major benefit is an increase in the capacity of the distribution system sufficient to supply the 14 MW of additional demand which is forecast for the near future based on building plans. Other benefits are a reduction in accidents (based on Ayedag recent experience), a reduction in expenses and a reduction in losses. The ERR on the rehabilitation ofAyedav is 1 1% real,
11. Uludag (Balikesir Province). This rehabilitation project covers the Balikesir Province part of the Uludag System, specifically the cities of Balikesir, Edremit, Zeytinli and Susurl~k~~. About 48% ofthis system will be rehabilitated. The cost ofrehabilitation is estimated at about 78 Million YTL with a scrap value for the current poles and aerial lines of about 4.7 Million YTL. The main benefit is the ability to serve a 30 MW increase in electricity demand which is coming from the construction of new housing estates and factories. The second major benefit is an anticipated reduction in supply interruptions which are currently estimated at about 8 days of the Uludag (Balikesir) annual electricity sales due to the poor condition of much of the system. Other benefits are a reduction in costs and a reduction in electricity losses. No benefit was assigned to any reduction in accidents since there was little information on the current level of accidents. The ERR on the rehabilitation of Uludag (Balikesir Province) is 21% real.
12. Gediz (Manisa Province). This rehabilitation project covers the rehabilitation ofthe part ofthe Gediz System in Manisa province, primarily the cities ofManisa and Alavehir. About 35% of the system will be rehabilitated at a cost estimated to be about 36 Million YTL. The scrap value of the exiting poles and aerial lines is estimated at about 1 Million YTL. The main benefit is again the reduction in interruptions of supply which are currently the equivalent of about 8 days ofthe annual electricity sales supply. However, Gediz (Manisa Province) has substantially higher electricity losses (12%) than the other three systems. These losses which amounted to 153
21 The Feasibility Study for Uludag includes four of the projects in the Uludag System (Balikesir, Edremit, Zeytinli and Susurluk) even though only Balikesir, 73% of the total, is in Group 1. The others will be financed by TEDAS’ own resources.
64 Gwh in 2004 are expected to be reduced by about 28 Gwh. Only 21.3 Gwh of this loss reduction was considered as a benefit since this is the anticipated reduction in technical losses. Other benefits are supplying an 8 Mw increase in demand and a reduction in costs. The ERR for the Gediz distribution rehabilitation is 27% real the highest among the systems primarily because of the anticipated loss reduction.
13. Meram This rehabilitation project primarily deals with the cities of Konya, Nigde and NevSehir. The cost of the rehabilitation is about 31 Million YTL with the scrap value of the existing poles and aerial lines being about 0.9 Million YTL. About 10% of the network will be improved. The main benefit is the reduction in supply interruptions, currently estimated at equivalent of 6.5 days of the annual electricity sales. The next most important benefit is the reduction in technical losses which are about 7.5 % of supply. Other benefits are the ability to serve a 5 Mw increase in demand, the reduction in operating costs and a decrease in accidents. The ERR for Meram is 21 % real.
14. These results are summarized in the table below. The ERRSare shown as well as NPV’s based on a 10% discount rate.
DISTRIBUTION SYSTEMS ERR NPV (YTL Mil.) AYEDAS (Istanbul Anatolian Side) 11% 2.57 ULUDAG (Balikesir Province) 21% 40.49 GEDIZ (Manisa Province) 27% 32.2 MERAM (Konya-NevSehir-Nigde Provinces) 21 % 17.5 Four Distribution Systems Combined 19% 92.8
Sensitivity Analysis
15. A brief sensitivity analysis was done to analyze the impact on the ERR for the four combined distribution systems of changes in the assumptions. This analysis was done for an increase in the capital costs for the rehabilitation and expansion programs in each of the distribution companies, for a decrease in the value of unserved energy, for shorter lengths for the project (currently assumed to be 20 years), for changes in the total benefits and for the elimination of any scrap value for the poles and lines which will be torn down. These results are shown below. They indicate that the ERR is quite robust and that even with major negative changes in the assumptions the ERR remains acceptable
65 Base Case 19%
~ Capital Costs of Rehabilitation and Expansion , +I0% 20% +20% 18% Value of Unserved Energy -20% 20% -40% 17% Project Life -20% 22% -4 0 % 20% Total Benefits -20% 19% -40% 14% Scrap Value -1 00% 21%
FINANCIAL ANALYSIS
Past and Current Financial Performance - TEDAS
16. TEDAS owns and operates 20 regional distribution companies which serve about 28 million consumers across Turkey. While the regional companies have been created, they operate currently as business units of TEDAS. Thus, while TEDAS intermediates between the wholesale suppliers and distribution companies and bills the regional companies, all the cash collected by the companies flows into accounts maintained and controlled by TEDAS centrally. TEDAS thereafter, transfers funds sufficient to meet their operating costs to the distribution companies. This financial assessment therefore considers TEDAS on a consolidated basis and projects the consolidated financial position. The team also separately reviewed the financial position of the distribution companies which will be beneficiaries of the Bank loan *'. The forecasts of the companies are based on the premise that after privatization the companies will be given control over their operations shortly - this translates into the following key assumptions:
(a) Distribution companies will enter into direct transition contracts with existing wholesale suppliers, EUAS generating companies and TETAS the trading company, with no intermediation by TEDAS; (b) The distribution companies will control the cash collected by them, and will be responsible for meeting all their costs; (c) Fixed assets will remain in TEDAS' books, with the distribution companies maintaining operating rights over the assets; and
28 For reasons of confidentiality, due to the ongoing privatization transaction, the detailed financial forecasts for the distribution companies are not being disclosed.
66 (d) New investments will be undertaken by the distribution companies, and upon their completion, will reside in a “special cost account” on their books as long as they retain operating rights on the assets.
17. TEDAS’ past and current financial performance is summarized in the below table. These numbers are based on TEDAS’ unaudited accounts. Inflation adjustment in 2004 and 2005 resulted in adjustments in fixed assets and shareholders’ equity, though this does not affect the overall financial situation.
Cost of Sales (3 166) (4 626) (6 134) (6 790) (7 436) Gross Profit 910 1,010 1,416 Operating Costs (796) (905) (1 085) Operating Income 142
Capital and Reserves 2,556 2,194 2,488 Debt
Net Profit Margin 0.6% 1.0% 0.7% -0.4% 8.0% Gross Profit Margin 12.4% 12.1% 12.9% 12.9% 16.0% Annual Electricity Purchase (GWh) 86,824 94,086 102,383 105,868 113,376 Energy Loss (%) 21.4% 20.9% 19.9% 18.6% 17.8% Annual Electricity Sales (GWh) 68,215 74,456 81,975 86,194 93,209 Average Sales Price (US$ cents/kWh) 5.68 7.64 9.15 9.62 10.06 Ave. Sales Price Change (%) NA 34.5% 19.7% 5.1% 4.6% Pre-Tax Return on Assets 2.2% 5.7% 4.0% 8.3% 36.0% Return on Equity 2.3% 3.0% 1.9% -1.6% 28.6% Return on Capital Employed 2.2% 2.9% 1.8% -1.3% 26.2% Debt Service Coverage Ratio NA NA NA NA NA Debt to Equity Ratio 0.04 0.00 0.00 0.00 0.09 Debt to Asset Ratio 0.03 0.00 0.00 0.00 0.06 Current Ratio 0.76 0.91 0.89 0.88 0.88 Collection Efficiency (%)’ NA 87.7% 91.5% 91 3% 92.6% Days Trade Receivables Outstanding 91.61 117.22 11981 150.24 151.51 Days Trade Payables Outstanding 116.63 140.91 150.80 208.78 270.42
18. Projtability and Cash Flow Gross profit margins have been steady in the past despite the rise in energy costs without commensurate increases in retail tariffs. The last tariff revision was in 2003 - changes in average tariff in the table above are due to fluctuations in the currency
67 in the earlier years and/or due to changes in consumer mix. In addition, personnel costs rose dramatically from 2001 to 2003 (average increase rate of 34%), leading to substantial lowering of profitability for the company. The personnel costs increases have now subsided at 3% in 2004 and 8% for 2005. The net loss in 2004 is a result of tax burden resulting from profits from inflation adjustments. The cash flow is mainly financed through high gross margins and trade payables.
19. CapitalStvucture TEDAS has not resorted to borrowings for its financing requirements, and does not have any debt on its books as a result (TEDAS has been able to use a build up of payables to TETAS as a means of financing its investments - see below); therefore debt ratios do not provide a good indicator of capital adequacy. All of the ratios indicate that TEDAS has room for additional financing, but that its debt servicing capacity will be affected by the status of its receivable and payable situation.
20. System Losses TEDAS estimates its system losses (technical and commercial, including theft of electricity) at about 17.8% in 2005. Losses rose consistently from about 10.7% in 1990 to 21.6% in 2000, but have declined gradually since then. In the last few years, TEDAS has focused on reducing losses by a variety of approaches:
Loss detection teams have been set up at the headquarters and provincial levels, which routinely inspect suspected high theft and loss areas. In 2004 for instance, these teams inspected about 6 million consumers and recorded 320,000 cases of theft. This resulted in a revenue assessment ofUS$230 million, and cash collection of US$78 million. In provinces of high theft, about 500 special personnel have been hired on a temporary basis with the express objective of identifying theft cases. Defective or tampered meters are routinely inspected and corrective measures are taken. In several cases, metering, billing and collections are outsourced, and the outsourcing agencies are provided added incentives for theft prevention. A special internet-based project has been prepared by TEDAS staff in order to improve retail services such as subscription, metering, billing and collections. It includes arrangements for bill payment in installations through banks, tracking of theft, remote disconnections and reconnections, etc.
Receivables for Sale of Electricity
21. The problem At the end of 2005, TEDAS had an estimated US$ 3.4 billion of outstanding trade receivables, representing about 5 months of electricity sales. The rate of accumulation of receivables has decreased significantly in the past two years on account of improvement in collection efficiency from about 87% in 2002 to 93% in 2005. In the past, TEDAS has not only financed these large receivables but all of its investments as well, by building up payables, which have accumulated to more than 7 months of annual energy purchases from TETAS. Currently the longer payable period allows TEDAS to generate sufficient cash flow, but also is a risk factor in the future cash flow and financial projections of entities dependent on TEDAS collections.
68 Table 9.2: Receivables details of TEDAS
Source TEDAS
22. TEDAS receivables have been growing, even though at a lower rate than earlier, due to the following reasons:
TEDAS’ collection efficiency, although improving over time, currently averages 92.6% of sales revenue. The public sector accounts for about 40% of total accumulated receivables - it has been very difficult for TEDAS to employ aggressive enforcement of collections from these customers, largely on account of political pressure. Municipalities (including General Lighting) are the chief defaulters for not paying their bills - they alone account for about US$ 1.3 billion of the accumulated receivables. General Lighting, Le., street lighting, was recognized as a consumer category only in 2002, and began to be billed thereafter. Municipalities have argued that street lighting was not part of their mandate, and that it was a government priority as part of their overall function of safety and maintenance of law and order (see below for more details). The economic crisis of 2001 led to a severe buildup of arrears - TEDAS was not able to collect because ofthe severe adverse impact on household incomes and commercial/industriaI businesses. Farmers have traditionally been supported by the Government through a variety of means, including electricity prices which are lower than for other consumers such as households. Largely as a result of political pressure, TEDAS has not been able to collect its bills from farmers. The Government has, in the past, announced amnesty schemes, which allow waiver of penal charges and payment in installments - this has had an adverse impact on a large majority of farmers who have avoided payments in the expectation of a future amnesty scheme.
Possible Solutions to the Problem of Arrears from the Public Sector Public sector entities such as State Economic Enterprises (SEES) are normally regular at paying their electricity bills. As discussed above, the main problem areas are (i)municipalities, (ii)street lighting, and (iii)public institutions such as schools, hospitals and other government offices.
69 24. Treasury, MENR and other related agencies such as the Ministry of Finance and the Ministry of Interior (which is responsible for the operations and budgeting of municipalities) - are evaluating solutions for addressing the issue of accumulated receivables and payment of ongoing bills from the public sector.
25. Municipalities Specifically with regard to municipalities, which are the largest concern in terms of nonpayment, the Government has begun implementing new legislation which aims to improve payment discipline. The Government has amended the main laws which govern municipalities - the Municipalities Law (Law No. 5393, ratified in July 2005) and the Metropolitan Municipalities Law (Law No. 5216, ratified in October 2004), to strengthen provisions for debt restructuring. The process for debt restructuring for municipalities is currently being implemented as discussed below:
(a) Establishment of a “Reconciliation Committee under the Undersecretariat of Treasury - this Committee has the mandate to restructure accumulated receivables and debts to 34 public institutions and authorities by municipalities, affiliates and companies owned by the municipalities. (b) Eligible receivables and debts - Debts that were accumulated till December 31, 2004 for metropolitan municipalities and December 3 1, 2005 for other municipalities are eligible to be restructured under this process. (c) Incentives for municipalities - While it is entirely up to the municipalities to choose to participate in this process, the Law provides incentives such as forgiveness of late fees and interest that is above the WPI during the period. This represents a substantial reduction in the payable amount for municipalities that has been accumulating them for a long period. The majority of the municipalities have agreed as a result; 8 out of 16 metropolitan municipalities and 2,500 out of 3,225 other municipalities have agreed to participate in this process. (d) Deduction from tax and other devolutions by Iller Bank - Up to 20%29of the monthly tax revenue transfers that are routed through Iller Bank will be deducted automatically starting from July 1, 2006. The funds will be allocated to the debtors accordingly to the seniority list provided by the Committee. TEDAS is the first priority on this list and will be one of the first and main beneficiaries from this new system (see Figure 9.3 below).
29 The Law originally required 40% deductions, but this proved to be too high in the case of a number of municipalities. Even at 20%, some of the smaller municipalities will require more than 100 years to clear their dues.
70 Fipure 9.3: Priority List from Municipality Reconciliation Committee
1 DSI (State Water Works) 2 Ministry of Finance 3 Treasury
26. Repayment schedules have been agreed among all parties for 484 municipalities, and the Council of Ministers’ approval of the restructuring and the payment schedule has been published in the official gazette (No. 2006/103 17). Since these are based on directives issued in the official gazette by the Council of Ministers, enforceability of the automatic intercept is expected to be high. The reconciliation process for the remaining municipalities was completed in June 2006. The automatic monthly deductions will begin in July 2006. The process is thus an important step in strengthening financial responsibility of the municipal sector.
27. In addition, the government is also working on payment of current bills. Among the options being studied is the establishment of separate budget allocations for municipal electricity dues. In addition to this, increases in budgetary allocations where necessary, are being considered.
28. Street LightingMENR, Treasury, State Planning Organization (SPO), PA and TEDAS have been in discussion on legal amendments aimed at dealing with the fast accumulation of street lighting arrears. As mentioned above, the municipalities have mainly defaulted on these payments due to a fundamental dispute about the responsibility over street lighting. This has been compounded by the fact that no budget increase was granted along with the allocation of responsibility for street lighting to the municipalities. Proposals considered to fund the cost of street lighting have included the following measures;
Allocation of municipal tax collections (if required, through the levy of additional taxes or the raising of tax levels) by the Government (Treasury or Ministry of Interior) towards payment of electricity dues, through an additional levy on electricity consumption, to be collected by the distribution companies.
71 29. Government institutions For institutions such as schools and hospitals, MENR is considering the feasibility of applying deductions at source from the budget for these institutions. The Ministry of Finance is the governing agency for these institutions, and is involved in the discussion.
30. The problem of high accounts receivables and poor ongoing collections is thus receiving a strong focus from relevant agencies in the Government. Coupled with the prospects of improved discipline as a result of privatization, the measures being considered and taken by the Government provide cause for optimism for an improvement in the situation on receivables over the short and medium terms.
Forecast Financial Performance - TEDAS
3 1. The financial projections for TEDAS are on a consolidated basis, and are summarized in Table 9.4 below. The forecasts are driven by conservative assumption^^^ with regard to (a) tariff increases are forecast to remain stable except for the pass-through of energy costs, (b) collection efficiency witness gradual improvements and no resolution of the arrears, and (c) trade payables decrease gradually to less than 5 months’ cost ofpurchase ofelectricity.
30 The forecasts are based on assumptions made by Bank staff and use past data till 2005 received from TEDAS, and do not represent official forecasts. For reasons of confidentiality, due to the ongoing privatization transaction, the detailed financial forecasts for the distribution companies are not being disclosed.
72 (US$ Million)
Projoctionr lnoomr Statrmrnt Summary
Revenues 9,645 10,332 11,172 12,165 13,253 14,454 15,860 17,604 19,288 21,300 23,549
Cost of Sales ti,i!2) (H.49!>) ($342) (l(1781) ill 34H) 112541) 113H58) (15315) (1607!,) 11H :04j (20671)
Gross Profit 1,893 1,837 1,830 1,883 1,904 1,914 2,002 2,289 2,363 2,595 2,878
Operating Costs (1 062 (1 104) (1 148) 11,194) (1,242) 11,737) (1,343) (1,:39'7) (1.453) (1,511) (1,5'72) Operating Income 665 557 497 501 474 433 467 695 707 875 1,091
Net Profit 558 455 391 384 355 317 338 520 528 664 840 Balance Shoot Surnmrry
Current Assets 5,280 6,276 7,377 8,301 9,245 10,128 10,937 11,658 12,448 13,321 14,049
3,857 3,929 3,989 4,044 4,098 4,153 4,206 4,253 4,292 4,323 4,346 Fl?ed-Asset? - - ~ - - - - . Io?alAsse!s------. 9,137 10,206 11,366 12,344 13,343 14.281 15,144 15,912 16,740 17,643 18,395 Capital and Reserves 3,350 3,806 4,197 4,580 4,935 5,252 5,590 6,110 6,638 7,302 8,142
Debt 226 539 934 1,174 1,328 1,466 1,605 1.708 1,761 1,788 1,799 we! l?abi!l!es - ~ - - -. ._5.ssl- - - - -5,86! ~ - - - 6,236- - - - -6,S!! - - - - 7-,0!0- - - - - !,563- - - - -!.849- - - - 8,094 - ~ - - !L33!- - ~ - -8,554- - - - 8,453 Total Equity and Liabilities
Cash Flow Sumnlary Net Cash Flow from Operations Net Cash Flow from Investments Net Cash Flow from
Fi??nw?g~ - - - - ~ - - - . Net Change in Cash andCash Egulvalen'5- .
289 348 490 493 499 502 506 508 510 513 515
Net Profit Margin 5 8% 4 4% 3 5% 3 2% 2 7% 2 2% 2 1% 3 0% 2 7% 3 1% 3 6%
Gross Profit Margin 196% 178% 164% 155% 144% 132% 126% 130% 123% 122% 122% Annual Electricity Purchase (GWh) 120199 126698 134030 141897 150660 160152 170242 180967 192368 204487 217369
Energy Loss (%) 172% 165% 160% 150% 145% 140% 130% 110% 100% 90% 90% Annual Electricity Sales (GWh) 99498 105792 112586 120612 128815 137731 148110 161 060 173131 186083 197806 Average Sales Pnce (US$ centsikwh) 010 010 011 011 011 011 011 012 012 012 013 Ave Sales Price Change (%) 1 6% 1 6% 1 6% 1 6% 2 0% 2 0% 2 0% 2 0% 2 0% 2 7% 4 0% Pre-Tax Return on Assels 250% 195% 163% 173% 174% 169% 195% 343% 374% 530% 762%
Return on Equity 167% 11 9% 93% 84% 72% 60% 6 1% 85% 80% 9 1% 103% Return on Capital Employed 149% 10 1% 74% 65% 55% 46% 46% 66% 62% 7 3% 84%
Self-Financing Ratio 26% 26% 26% 31% 57% 61% 61% 61% 61% 61% 61% Debt Service Coverage Ratio 181128 3107 1460 1109 917 520 358 394 367 999 1173
Debt to Equity Ratio 007 014 022 026 027 028 029 028 027 024 022
Debt to Asset Ratio 006 0 14 023 029 032 035 038 040 041 041 041
Current Ratio 098 110 122 129 134 137 140 145 150 156 167 Collection Efficiency (04' 930% 930% 93 5% 945% 950% 96 0% 970% 980% 980% 98 0% 990% Days Trade Receivables Outstanding' 171 91 193 34 20983 22008 22756 23054 22836 22033 21570 20993 20082 Days Trade Payables Outstanding, 23449 22800 22259 21491 21066 20500 19552 17931 16753 15508 13776
73 Assumptions The major assumptions made in the projections are summarized below:
Demand Growth - The demand growth assumption used are from the tariff study, which was projected based on the population growth and electricity needs. (see Table 9.5 below) Energy Loss - Loss reductions are deliberately kept conservative, and are based on the target of achieving 9% by 20 15. Collection Efficiency - The collection efficiency is assumed to improve gradually to 99% in 2016. No assumption is made on the recovery of the receivables stock. Payables - Accounts payable for purchase of electricity is assumed to decrease gradually to less than 5 months of cost of sales in 2016. Tariffs - The tariff level is set according to the profitability and cash flow needs of TEDAS. Tariffs are increased by a fraction (40%) of the inflation rate until 2010 and gradually increase thereafter. No assumptions are made about the Tariff Equalization Mechanism (see below). Energy and Operating Costs - Assumed to increase at the rate of inflation. Financing - The Bank and EIB are the main financial sources. It is also assumed that TEDAS will obtain additional external financing for amounts up to 40% of their investments during the projection period, for meeting cash requirements. The rest is assumed to be financed out of TEDAS' own funds.
Table 9.5: AssumDtions on Demand Growth 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Demand Growth(%) ' 602% 541% 579% 507% E'E% 630% 630% 630% 630% 630% 630'1~ 33. Projtability and Cash Flow Net profit margin gradually decreases to less than 3% as tariffs are assumed not to increase until 2010, at which they will stabilize. All other profitability ratios also show marginal decline in profitability until 2010, after which they show increase in line with the increases with tariffs.
34. The cash flow is projected to be sensitive to two major drivers; tariff and collection efficiency. TEDAS will be able to maintain adequate cash reserve to accommodate all the outflows and the ending cash balance remains above US$ 300 million throughout the projected period. The Self-Financing Ratio (SFR) shows adequate investing capacity, as it remains above 30% throughout the projection period.
35. The main risk to the projected cash flow will continue to be the collection efficiency, especially from government agencies. Despite the conservative assumptions of the projection, the cash flow may be at risk if collection efficiency fails to improve unless TEDAS is allowed to further accumulate payable or borrow more in the future for investment requirements.
36. Sensitivity analysis was conducted on this issue to measure the effect of lower than expected collection performance to the cash flow of TEDAS. Scenarios used were;
a) Scenario 1 - No improvement in collection efficiency from 2005, b) Scenario 2 - 5% reduction in projected collection efficiency.
74 The results (as seen in Table 9.6) indicate that the cash flow is sensitive and vulnerable to the changes in the collection performance.
Scenario 1 .Noimprovement 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2018 Net Change in Cash and Cash .-~Equivalents~ ______119 ___ 22______$6 _____ i??4!~~-13FJ ____ i!Kl-~-~F!!! ____i9!!i..i!?3?1____ P-l?9J---4!?9- Ending Balance 254 216 322 98 (2UB) (690; (1,379) (2 320) (3 3521 (44YOI (59861
Scenario 2 - 6% reduction Net Change in Cash and Cash
.__Equivalents WjJ- .!4-%! ~ -@J?L - .i?W ~ ~ !?CY)- il2??!ii. -L1-4?11- Jj??!l- ~!pY5)- !22(!4)- J2,(i731- Ending Balance (228) (723) (1.235) (2 067) (3,036) (4 241) (5 723) (i 544) (9 540) (11 744) (14 417) Self-Financing Ratio -102% -135% -164% -212% -227% -289% -367% -462% -509% -565% -696%
37. Investment Plan The investment plan in Table 9.7 below shows a stable investment plan over the foreseeable future. The reasonable level of the SFR in the future years indicates that cash flows continue to be able to support these enhanced investments.
Table 9.7: Investment Plan for TEDAS
I Investment Plan I 344 I 344 I 344 1 344 1 344 I 345 I 347 I 349 I 351 1 352 I 354 1 Source: TEDAS, World Bank estimate
38. Tariff Equalization Mechanism In Turkey, retail tariffs are kept at a uniform level across the nation and it is the plan of the Government to continue with uniform tariffs over the next 5 years. However, different distribution companies have different cost profiles as a result of different levels of efficiency, costs, load profiles, geography etc. At present, consumers in the same category in different parts of the country are charged the same tariff, and this “tariff equalization” is achieved by charging different distribution companies different wholesale electricity purchase prices. This approach however, is not preferred because it sends distorted price signals to consumers as well as to potential generators.
39. In order to enable the adoption of a different tariff equalization mechanism during the transition period of 5 years (till December 3 1, 20 lo), the Government has recently amended the Electricity Market Law. Pursuant to the amendment, EMRA has issued a communique regarding the new equalization mechanism.
40. Special Cost Account The privatization approach that has been selected will require that existing assets remain with TEDAS while the operating rights on those assets are vested in the regional distribution companies. New investments will be made by the distribution companies and, upon their capitalization, the investments will shift not to the fixed assets account or to TEDAS’ books but to a “special cost account” (SCA) in the distribution company’s books. The ownership of the new assets will however be retained by TEDAS. Pursuant to amendments in the Tax Procedure Law No. 213, the SCA will be amortized according to standard depreciation rates, and the distribution company will be allowed to charge this amortization (as well as financing costs associated with these investments) to tariffs. The recovery of amortization and other costs (relating to the new investments) from tariffs will be tracked separately in a “tracking account”. This approach will allow the investments made and financed by the private distribution company to be tracked separately, in order to provide the investor comfort that upon
75 the expiry of the license/ operating right, they will be compensated for their investments. The following figure demonstrates the accounting associated with this approach using indicative numbers .
Figure 9.8: Special Cost Account and ' racking Accounts 7834sBalS* Os1)BSaestret
"I Tdrl imI im
TA ~ ITA Tda 221 22
1 Tdrl 1181 118
Forecast Financial Performance - Distribution Companies (DISCOs)
4 1. There are eight distribution companies (DISCOs) in which the investments will be made in this project; Toroslar, Meram, Gediz, Uludag, AYEDAS, Osmangazi, Menderes, and Akdeniz. As part of the preparation for privatization, preparation of individual financial statements for each of the DISCOs has started from 2005. The assumptions used in the analysis were formulated by World Bank staff based on past data provided by TEDAS staff.
76 42. The analysis for the 7 distribution companies (excluding Akdeni~)~'highlighted the risks of continued poor collections. In the case of 3 companies - Toroslar, Meram and Osmangazi - cash flows are likely to continue to be affected by poor collection efficiencies. Sensitivities done to simulate the impact of improved collections however show that the three companies turn around in the medium term, and begin generating adequate levels of cash. The problem of collections arises mostly from street lighting in the case of most companies. In the case of Meram, Toroslar and Gediz, collections from agricultural consumers are an additional problem - in the case of Meram, agriculture dues are the more serious problem, accounting for about 40% of total receivables on the company's books in 2005.
43. The other four companies are forecast to be able to manage their financial requirements reasonably comfortably with minimal increases in tariffs in the later years. Most of these companies are also forecast to begin paying down their accounts payable by the end of the forecast period.
44. In summary, it appears that under conservative assumptions on collection efficiency, some of the distribution companies may require continued cash support from the Government, as has been the case in the past. Most recently in March 2006, the Government injected cash into TEDAS in order to enable payment of power purchase bills to TETAS. TETAS in turn paid EUAS, which paid the coal company and BOTAS, to enable them to meet their cash requirements. This situation may create some residual risk for the tariff equalization mechanism, which would in turn create cash flow problems for TETAS, which is expected to operate the equalization mechanism.
31 The detailed information for the regional companies is not being disclosed here at the request of PA, in order to maintain confidentiality because of the ongoing privatization process. The regional company of Akdeniz will be analyzed when the feasibility study and financial data of this company are made available to the Bank.
77 Annex 10: Safeguard Policy Issues TURKEY: Electricity Distribution Rehabilitation Project
Environmental Safeguards
1. In accordance with World Bank policies and procedures for Environmental Assessment (OP/BP/GP 4.0 l),the Electricity Distribution Rehabilitation Project is rated Category B. TEDAS has prepared very good quality draft Environmental Management Plans (EMPs) to mitigate and monitor potential environmental impacts of the distribution network projects financed by the Loan. TEDAS will complete the consultation and disclosure of the EMPs for the projects included in Group 1 before the appraisal mission. Consultation and disclosure of Group 2 projects will be completed after the completion of their feasibility reports and before issuance of their bidding documents.
2. The network rehabilitation projects financed by this Loan are not expected to have significant safeguard-related impacts. The projects will include works such as rehabilitation of existing equipment (transformers, capacitors etc.), replacement of low and medium overhead lines with underground cables and expansion of the network by construction of new underground cables and possibly overhead lines both at low and medium voltages. The potential impacts are considered to be minor of limited duration and limited area. They are primarily associated with construction activities. All impacts can be readily managed with standard procedures of good engineering and construction practice. During operation, the chief potential issues are effects on the public (if any) of exposure to electric and magnetic fields. The chief issues associated with construction and operation, and the manner in which they will be mitigated, are presented as follows:
Table 10.1: Summarized Environmental Impacts and Mitigation Mechanisms I Environmental ImDact I Mitiaation Mechanism Construction Phase Excavated Material 1 DisDosed at sites aDDroved bv the local MuniciDalitv Surface Water Pollution I No disposal of excavated material to surface waters permitted Access Roads 1 Onlv existina access roads will be used Air Pollution-Dust Delivery vehicles carrying construction materials shall be covered Air Pollution-machinery/ Regular maintenance of machineryhehicles will be required Vehicular emissions Noise Construction activities confined to davtime hours Public Safety Dangerous work areas will be fenced, in other areas appropriate signals will be 1 installed PCBS Prohibited from purchase or use Cultural Properties Areas with known official cultural assets will follow Turkish Law on "Protection of Cultural and Natural Assets" No. 2863 revised as No. 5226.
Areas with no known official cultural assets will follow Turkish chance find procedures. ODeration Health (Electromagnetic Cables will be buried to a level that would minimize surface levels of field 1 strenath.
78 3. A schedule summary for environmental assessment procedures is presented in the Table below for those project components that have had EMPs prepared. The EMP will be incorporated into the contractor bidding documents for all components.
Public Consultation Disclosure Subproject Designation Method of Date Location Date Location Announcement
Konya TV March Training Hall of June In TEDAS Web (March 29) 30,2006 MEDAS Gen. 19,2006 site Dir. (www.TEDA$.gov .tr Nigde TV March Training Hall of (March 28) 29,2006 MEDAS-Nigde Operations Dir.
Nevsehir Meeting Hall of Municipal March the Municipality Announcement 30,2006 System (March 29)
GEDIZ-I Alasehir January Meeting Hall of June In TEDAS Web Municipal 28,2006 the Municipality 19.2006 site Announcement (www.TEDA$.gov System .tr (January 27)
Manisa January Training Hall of Faxed and 30,2006 GEDIZ EDAS- written Manisa (December Operations Dir. 27,2005)
AYEDAS-I Radio 7 January General June In TEDAS Web (December 30, 02,2006 Directorate 19,2006 site 2005) Meeting Room (www.TEDA$ .gov .tr
AYE DA$-I I Radio 7 January General June In TEDAS Web (December 30, 02.2006 Directorate 19.2006 site 2005) Meeting Room (www.TEDA$.gov .tr uLU DAG-I Balikesir January Meeting Hall of June In TEDAS Web Brochures and 04,2006 UEDAS-Ball kesir 19,2006 site Nritten Provincial Dir. (www.TEDA$.gov :January .tr 3,2006)
79 Land Acquisition Safeguards
4. The project will not require the acquisition of private land. Underground cables will all be located under city streets owned by the Municipalities. The transformer substations upgrades or expansion will be carried out on existing substations or land that is owned by TEDAS or by the Municipalities. Therefore, the projects financed by this Loan will not entail any resettlement.
80 Annex 11: Project Preparation and Supervision TURKEY: Electricity Distribution Rehabilitation Project
Planned Acutal PCN review August 3, 2006 August 3,2996 Initial PID to PIC September 23,2005 September 13, 2005 Initial ISDS to PIC September 14,2005 September 14, 2005 Appraisal June 21,2006 June 21,2006 Negotiations December 22,2006 February 27,2007 Board/RVP approval April 19, 2007 Planned date of effectiveness April 30, 2007 Planned date of mid-term review December 31, 2008 Planned closing date December 31, 2012
Key institutions responsible for preparation of the project: TEDAS
Bank staff and consultants who worked on the project included: Name Title Unit Ranjit Lamech Task Team Leader ECSSD/ EASEG Sameer Shukla Task Team Leader ECSSD Gurhan Ozdora Senior Operations Officer ECSPF lftikhar Khalil Lead Energy Specialist ECSSD Husam Mohamed Beides Senior Power Engineer ECSSD Shinya Nishimura Financial Analyst ECSSD/ IFC Salih Kemal Kalyoncu Procurement Specialist ECSPS Sunil Kumar Khosla Senior Energy Specialist SASE1 James Moose Economist ECSSD Dilek Barlas Senior Counsel LEGEC Bernard Baratz Environment Specialist ECSSD Devesh Chandra Mishra Lead Procurement Specialist ECSPS Norval Stanley Peabody Social Scientist ECSSD Ayse Seda Aroymak Sr. Financial Mgt Specialist ECSPS Zeynep Lalik Mete Financial Mgt. Specialist ECSPS Andrina Ambrose Senior Finance Officer LOAG 1 Hannah Koilpillai Senior Finance Officer LOAGI Ergun Ergunes Power Engineer Consultant Selma Karaman Prog ra m Assistant ECCU6 Yukari Tsuchiya Program Assistant ECSSD
Bank funds expended to date on project preparation: 1. Bank resources: $232,000 2. Trust funds: $0 3. Total: $232,000
Estimated Approval and Supervision costs: 1. Remaining costs to approval: $146,000 2. Estimated annual supervision cost: $80,000 - $100,000
81 Annex 12: Documents in the Project File TURKEY: Electricity Distribution Rehabilitation Project
Feasibility Reports for Gediz, Meram, AyedaS and Uludag provinces - January-May 2006 Improvement of Operational Efficiency and Service Quality in the Electricity Distribution Grid - McKinsey Financial analysis of TEDAS and regional distribution companies - June 2006 Financial model for TEDAS and regional distribution companies - June 2006 Environmental Management Plans for provinces - June 2006
82 Annex 13: Statement of Loans and Credits TURKEY: Electricity Distribution Rehabilitation Project
Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d PO66149 2005 SEC EDUC 104.00 0.00 0.00 0.00 0.00 96.49 0.00 0.00 PO77328 2005 RAIL RESTRUCT 184.70 0.00 000 000 000 173.32 0.00 0.00 PO78359 2005 SEISMIC RISK MITIGATION 400.00 0.00 000 000 000 373.91 3.91 0.00 PO81880 2005 MUNICIPAL SERVICES 275.00 0.00 000 000 000 257.43 0.00 0.00 PO93568 2005 EFIL 3 (CRL) 305.00 0.00 000 000 000 298.04 I.67 0.00 PO94167 2005 PSSP 2 465.40 0.00 000 000 000 434.21 5.00 0.00 PO94176 2005 ECSEE APL #2 (TURKEY) (CRL) 66.00 0.00 000 000 000 61.03 0.00 0.00 PO82801 2004 EFlL 2 303.10 0.00 000 000 000 65.20 -159.07 0.00 PO82996 2004 PFPSAL 3 1,000.00 0.00 000 000 000 500.00 0.00 0.00 PO75094 2004 WATERSHED REHAB (GEF) 0.00 0.00 000 700 000 6.75 0.30 0.00 PO74053 2004 HEALTH TRANSIT (APL #I) 60.61 0.00 000 000 030 56.74 9.5s 0.00 PO70950 2004 ANATOLIA WATERSHED REHAB 20.00 0.00 000 000 010 19.55 0.32 0.00 PO72480 2004 RENEW ENERGY 202.03 0.00 000 000 101 190.83 5.15 0.00 PO59872 2003 BASIC ED 2 (APL #2) 300.00 0.00 000 000 000 291.46 283.75 97.13 PO74408 2002 SRMP 500.00 0.00 000 000 000 220.08 196.50 -3.79 PO70286 2002 ARlP 600.00 0.00 000 000 000 268.71 268.71 75.74 PO69894 2001 PRlV SOC SUPPRT 250.00 0.00 000 000 000 7.2 1 7.21 -22.79 PO68368 2000 MARMARA EARTHQUAKE EMG 505.00 0.00 000 000 000 279.82 279.82 45.60 RECON PO44175 2000 BlODlVMTRL RES MGMT (GEF) 0.00 0.00 000 8 19 000 4.12 3.61 0.28 PO09073 1999 INDUSTRIAL TECH 155.00 0.00 000 000 000 13.15 13.15 0.00 PO48852 1998 NAT’L TRNSM GRID 270.00 0.00 000 000 3448 105.99 140.47 80.3 I Total: 5,965.84 0.00 0.00 15.19 35 89 3,724.04 1,060.05 272.48
TURKEY STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars
Committed Disbursed IFC IFC FY Approval Company Loan Equiry Quasi Partic Loan Equity Quasi Partic 2005 Acibadem 20 00 0 00 0 00 0 00 IO 00 0 00 0 00 0.00 Alternatif Bank 0 25 0 00 0 00 0 00 0 25 0 00 0 00 0.00 I99610 1/03/05 Arcelik 96 87 0 00 0 00 96 87 96 87 0 00 0 00 96.87 2000 Arcelik LG Klima 7 77 0 00 0 00 0 00 7 77 0 00 0 00 0.00 2002105 Assan 20 00 0 00 10.00 0 00 0 00 0 00 0 00 0.00 2002 Atilim 6 50 0 00 0 00 0 00 6 50 0 00 0 00 0.00 2000 Banvit 8 33 5 00 0 00 0 00 8 33 5 00 0 00 0.00 Bayindirbank A.S 1.50 0 00 0 00 0.00 I50 0 00 0 00 0 00 2002 Beko 30.69 0 00 0.00 21.92 30 69 0 00 0 00 21 92 200 1 Bilgi 8.00 0 00 0.00 0.00 8 00 0 00 0 00 0 00 I994196197 Borcelik 8.18 3 21 0.00 0.00 8 18 3 21 0 00 0 00 2004 Borusan Holding 30.00 0 00 7.85 0.00 30 00 0 00 7 85 0 00 1994 CBS Holding 3.50 0 00 0.00 0.00 3 50 0 00 0 00 0 00 1990102 Conrad 2.80 0 00 0.00 0.00 2 80 0 00 0 00 0 00 2002 EKS 10.27 0 00 0.00 0.00 10 27 0 00 0 00 0 00 2004 Ege 10.00 0 00 0.00 8.00 10 00 0 00 0 00 8 00 1995 Entek 18.00 0 00 0.00 8.28 I8 00 0 00 0 00 8 28 I999 Finansbank 2.22 0 00 0.00 0.00 2 22 0 00 0 00 0 00 2004 Garanti Leasing 10.00 0 00 0.00 0.00 IO 00 0 00 0 00 0 00 I999 Gumussuyu Kap 4.00 0 00 3.43 0.00 4 00 0 00 3 43 0 00 200 I Gunkol 4.24 0 00 0.00 0.00 4 24 0 00 0 00 0 00 I998 Indorama Iplik 4.38 0 00 0 00 0.00 4 38 0 00 0 00 0 00 2005 Intercity 15.00 5 00 0.00 27.75 6 26 5 00 0 00 II 59 1998100102 lpek Paper 10.17 0 00 0.00 0.00 IO 17 0 00 0 00 0 00 1990 Kepez Elektrik 1.62 0 00 0.00 0.00 I62 0 00 0 00 0 00 I988190 Kiris 10.61 0 00 0.00 0.00 10 61 0 00 0 00 0 00 2004 Koclease 30.00 0 00 0.00 0.00 30 00 0 00 0 00 0 00 1991 Kula 5.05 0 00 0.00 0.00 5 05 0 00 0 00 0 00 2003 MESA Group 1 1 .oo 0 00 0.00 0.00 11 00 0 00 0 00 0 00 2004 Meteksan Sistem 0.00 0 00 8.50 0.00 0 00 0 00 8 50 0 00 2002 Milli Re 50.00 0 00 0.00 0.00 0 00 0 00 0 00 0 00 1998102 Modem Karton 8.33 0 00 0.00 0.00 8 33 0 00 0 00 0 00 1991 NASCO 3.95 0 00 0.00 1.38 3 95 0 00 0 00 138 2004 OPET 25.00 0 00 0.00 40.00 8 33 0 00 0 00 25 00 2004 Oyak Bank 50.00 0 00 0.00 0.00 50 00 0 00 0 00 0 00 2005 PALEN 2.00 0 00 0.00 0.00 0 00 0 00 0 00 0 00 2005 PALGAZ 10.00 0 00 0.00 0.00 0 00 0 00 0 00 0 00 2002 Pasabahce I.88 0 00 0.00 0.00 I88 0 00 0 00 0 00 I998 Pinar ET 3.14 0 00 0.00 0.00 3 14 0 00 0 00 0 00 2000 Pinar SUT 11.04 0 00 0.00 0.00 7 60 0 00 0 00 0 00 I999 SAKoSa 9.29 0 00 6.19 6.22 9 29 0 00 6 19 6 22 1990 Silkar Turizm I.63 0 00 0.00 1.86 I63 0 00 0 00 186 2002103 Sise ve Cam 41.17 0 00 18.18 34.93 41 17 0 00 18 I8 34 93 2002 Soktas 2.00 0 00 0.00 0.00 2 00 0 00 0 00 0 00 2005 TSKB 0.00 0 00 50.00 0.00 0 00 0 00 50 00 0 00 1982183189l91196199 Trakya Cam 0.00 0 20 0.00 0.00 0 00 0 20 0 00 0 00 2002105 Turk Ekon Bank 0.00 0 00 50.00 0.00 0 00 0 00 50 00 0 00 200 I Turkish PEF 0.00 9 59 0.00 0.00 0 00 2 25 0 00 0 00 I999 Unye Cement 5.13 0 00 0.00 0.00 5 13 0 00 0 00 0 00 1999 Uzel 8.40 0 00 0.00 4.95 8 40 0 00 0 00 4 95 1998 Viking 7.36 0 00 0.00 0.00 7 36 0 00 0 00 0 00 2005 YUCE 4.50 0 00 0.00 0.00 0 00 0 00 0 00 0 00 Total portfolio: 635.77 23.00 154.15 252.16 510.42 15.66 144.15 221.00
84 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 200 1 Akbank 0.03 0.00 0.00 0.00 2004 Akbank BLoan Inc 0.00 0.00 0.00 0.02 2005 Assan IV 0.00 0.00 0.00 0.03 2005 Avea 0.12 0.00 0.00 0.30 2005 Bandirma Dogalga 0.00 0.00 0.00 0.00 2005 Eren Expansion 0.00 0.00 0.00 0.02 2005 Gemlik Dogalgaz 0.00 0.00 0.00 0.00 2002 Milli Reasurans 0.00 0.0 1 0.00 0.00 2005 Sivas Dogalgaz 0.00 0.00 0.00 0.00 2002 TEB 111 0.00 0.00 0.00 0.05 Total pending commitment: 0.15 0.01 0.00 0.42
85 Annex 14: Country at a Glance TURKEY: Electricity Distribution Rehabilitation Project
Europe B Lower- POVERTY and SOCIAL Central mlddle- Turkey Asia Income Development diamond" 2003 Population. midyear (millions) 70.7 473 2,655 Life expectancy GNI per capita (Atlas method, US$) 2.800 2,570 1,480 GNI (Atlas method, US$ billions) 197.8 1,2l7 3,934
Average annual growth, 1997.03 Population (%) 1.7 0.0 0.9 Laborforce(%) 2.3 0.2 1.2 GNI Gross per primary Most recent estimate (latest year available, 1997-03) capita enrollment Poverty (% of population below national po verty line) Urban population (%of totalpopulation) 66 63 50 Life expectancy at birth (years) 70 69 69 infant mortality(per IOOOlive births) 35 31 32 I Child malnutrition (%ofchildren under5) 8 11 j Access to improved water source Access to an improvedwater source (%ofpopulation) 82 91 81 Illiteracy(%ofpopulationage a+) 14 3 tJ Gross primary enro llment (%of scho 01-age population) 94 103 12 - "--"- Turkey Male 98 tJ4 10 Lo wer-middle-income gro up Female 91 M2 111
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1983 1993 2002 2003 Economic ratios' GDP (US$ billions) 61.5 179.4 183.9 240.4 Gross domestic investment1GDP 16.3 27.6 21.3 22.6 Trade Ekports of goods and servicesiGDP 2.5 0.7 29.2 27.4 Gross domestic savings1GDP Q.2 21.9 19.8 19.5 Gross national savingsIGDP 15.3 24.8 20.8 19.5 T
Current account baianceIGDP -3.1 -3.6 -0.8 -2.8 Domestic Interest paymentsIGDP 2.9 2.2 3.8 3.2 savings Total debtlGDP 33.0 38.2 7 1.3 61.2 Total debt servicelekports 39.2 31.6 50.7 40.3 Present value of debtIGDP 73.1 Present value of debtiexports 234.2 Indebtedness 1983.93 1993-03 2002 2003 2003.07 (average annualgrovdh) ---Turkey GDP 5.0 2.7 7.9 5.8 5.6 GDP DercaDita 2.8 0.9 6.2 4.2 4.1 Lo wer-middle-income group
STRUCTURE of the ECONOMY 1983 1993 2002 2003 1 Growth of investment and GDP (Oh) (%of GDP) Agriculture 21.4 16.2 t3.0 0.4 Industry 25.0 29.8 23.7 21.9 Manufacturing 16.8 18.3 14.0 0.3 Services 53.6 54.0 63.3 64.7 Private consumption 78.4 65.0 66.2 66.9 General government consumption 9.4 t3.0 14.0 0 .6 Imports of goods and sewices 16.6 19.3 30.7 30.7 I -GDI -GDP I
1983-93 1993-03 2002 2003 i Growth of exports and imports (Oh) (average annual gro vdh) Agriculture 15 10 74 -2 4 LOT Industry 67 22 56 50 Manufacturing 69 30 62 84 Services 43 30 73 64 Private consumption 47 19 22 67 General government consumption 40 39 54 -2 4 Gross domestic investment 77 10 359 204 --oyx Exp or1s --o- Imports imports of goods and services 11 4 78 158 27 1 I
86 1993
66 4 27 8
80 31 20
$983 1893 Export and rmport IBYSIS 4VSS milt 1 5 90s 1331 BE! J 8dri 9 235 a3 969 3 851 3 903 2 311 7 498 69 92 '03 PM
BALANCE of PAYMENTS 1983 to G
4
b
7 782 11046 7
1993
Fir, 605 5 185 142 3 w3 b 664 274 183 4 7
96 403 327 740 UP 6 x.4 46 fill 0 P9
'0' 354 i 5.3
87 88 MAP SECTION
TURKEY ELECTRICITY DISTRIBUTION REHABILITATION PROJECT
PROVINCE CAPITALS* REGIONAL DISTRIBUTION COMPANIES WITH PROJECT INVESTMENT NATIONAL CAPITAL TURKEY REGIONAL DISTRIBUTION COMPANY HEADQUARTERS RIVERS REGIONAL DISTRIBUTION COMPANY BOUNDARIES PROVINCE BOUNDARIES* INTERNATIONAL BOUNDARIES
*Province names are the same as their capitals.
26°E28°E30°E32°E34°E36°E38°E RUSSIAN FEDERATION BULGARIA 0 50100 150 200 Kilometers Black Sea 0 50 100 150 Miles
42°N This map was produced by the Map Design Unit of The World Bank. 42°N The boundaries, colors, denominations and any other information GEORGIA shown on this map do not imply, on the part of The World Bank Edirne Group, any judgment on the legal status of any territory, or any Sinop BOGAZIÇI˘ endorsement or acceptance of such boundaries.
EDAS, rus po E os Zonguldak TRAKYA EDAS, B AYEDAS, a C Istanbul Kur Samsun Artvin E Tekirdag ˘ Kastamonou E Kocaeli Karabük Ardahan Sea of (Izmit) vrez Trabzon AZER- R Düzce De YESILIRMAK, EDAS, Ordu nell Marmara Bolu Rize G rda Yalova Da Giresun ÇORUH EDAS, BAIJAN Sakarya uh (Adapazari) SAKARYA EDAS, or Kars Bursa Amasya Ç ARMENIA Çorum Kel 40°N Çanakkale kit ¸ Gümüshane, 40°N Bilecik BASKENT EDAS s ˘ , , Tokat Bayburt Ara ULUDAG EDAS, Sakarya Eskisehir erek ARAS EDAS, ˘ ANKARA C, ek ˘ , Erzurum ÇAMLIBEL EDAS, Kütahya Yozgat Erzincan Sivas AZER.
OSMANGAZI EDAS, , Tunceli Manisa Afyon FIRAT EDAS, Bingöl , Izmir Tuz rat Mus Mu Usak, Kayseri GEDIZ EDAS, Gölü , Elazig Van , Nevsehir KAYSERI VE ISLAMIC 38°N Aksehir VANBitlis GÖLÜ EDAS, Gölü Aksaray CIVARI T.A.S., Hoyran Malatya REP. OF Denizli n Gölü MERAM EDAS, Nigde˘ a Siirt h Batman y Baysehir e Adiyaman Burdur Konya S Hakkari MENDERES EDAS, IspartaGölü GÖKSU EDAS, Tigris IRAN Mugla an Kahramanmaras DICLE EDAS, ,Sirnak yh ˘ Ce , tes Mardin hra GaziantepEup Lake G AKDENIZ EDAS, AdanaTOROSLAR EDAS,Osmaniye Karaman Icel Van R G , Antalya ök (Mersin) E su , Kilis E C E Gulf of Antalya Hatay IBRD 34858 MARCH 2007 36°N (Antakya) IRAQ SYRIAN ARAB Mediterranean Sea 28°E3230°E °E34°E REPUBLIC 42°E 44°E