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World Bank Document RESTRICTED 'FILE torY Report No. TO-346b Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized CUKUROVA ELECTRIC COMPANY PROJECT TURKEY Public Disclosure Authorized January 9, 1963 Public Disclosure Authorized Department of Technical Operations CURRENCY EQUIVALENTS 1 US $ = 9 Turkish Lira (TL) 1 TL = 11 US cents 1 million TL = 111, 111 US $ TURKEY CUKUROVA ELECTRIC COMPANY PROJECT Table of Contents Page No. SUMMARY i I. INTRODUCTION II. THE ELECTRIC POWER IThDUSTRY IN TURKEY Ownership and Government Controls Capacity and Use 2 Transmission 2 Program for Expansion 2 III. ORGANIZATION OF THE CUKUROVA ELECTRIC COMPANY 3 Management 3 Facilities 3 IV. THE POWER MvARKET IN THE CUKUROVA AREA 4 Sales and Capacity of CEC 4 Post Project Needs 4 Expansion Program 5 V. THE PROJECT 5 The Hydroelectric Unit 5 Description 5 Engineering and Procurement 6 Construction Schedules 6 The Engineering Studies 6 Cost Estimates 6 Justification 7 VI. FINANCIAL ASPECTS 7 Present Financial Position 9 Financial History 9 Assets and Depreciation 11 Past Earnings 11 Financing Plan 12 Estimated Future Earnings and Financial Position 13 VII. CONCLUSIONS Ai\D RECOMMENDATIONS 11 A1NEXES 1. Forecast of Energy Sales. 2. Forecast of Peak Loads. 3. Estimated Load Curve and Available and Proposed Capacities. 4. Estimate of Cost. 5. Condensed and Adjusted Balance Sheets 1958-1966. 6. Condensed and Adjusted Income Statements 1958-1966. 7. Forecast Sources and Applications of Funds 1962-1966. Map - i - SUMMARY i. This report covers the appraisal of a project of the Cukurova Electric Company (CEC) of Adana, Turkey, consisting of the installation of a third 18 MW unit in the existing powerhouse at Seyhan Dam (financed in part by Bank Loan 63-TU) and of engineering studies by foreign consultants to plan additional steps in an expansion program. An IDA credit of $1.7 million equivalent has been requested to cover the foreign exchange cost of the project, the total cost of which is estimated at $2.3 million. ii. The borrower would be the Government of Turkey which would relend about $1.6 million to CEC for the 18 MW unit and use the balance for engineering studies. iii. CEC, with 56.5% of its stock privately held, is the only private power company in Turkey. It was created in 1953 after the Government agreed, in connection with Bank Loan 63-TU, to grant it a 49-year concession to operate the power facilities at Seyhan Dam. CEC is capable of installing and operating the 18 MW unit and has the funds necessary for local costs. iv. The project is technically sound and urgently needed to meet the energy demand in CEC's operating area. Further additions of generating capacity should be started soon and the proposed engineering studies are for the purpose of firming up plans for a new thermal station at Mersin and a new hydro-electric plant on the Kadincik River. v. CEO's financial nerformance has been unsatisfactory until 1961 when CEC and the Government agreed on realistic values of the power facil- ities and raised average revenues by 78%. Since then CEC has been able to meet all of its financial obligations and to produce a reasonable profit on its share capital. vi. It is not yet certain whether the Government will extend CEC's concession, nor is it certain that if the concession is extended it will be done in a manner which would allow the Company soundly to undertake the Mersin and Kadincik projects. vii. The proposed project would be suitable *foran IDA credit of $1.7 million. TURKEY CUKUROVA ELECTRIC COMPANY PROJECT I. INTRODUCTION 1. This report covers the appraisal of a project of the Cukurova Electric Company of Adana, Turkey consisting of the installation of a third 18 MW unit in the existing 36 14W powerhouse at Seyhan Dam near Adana (financed in part by Bank Loan 63-TU) and engineering studies by foreign consultants of additional steps in an expansion program. 2. The estimated cost of the project is TL 21 million, (US$2.3 million). IDA has been asked for a credit to cover the foreign exchange cost, excluding interest during construction, estimated to be equivalent to USW1.7 million. 3. The borrower would be the Government of Turkey and the bene- ficiary would be the Cukurova Electric Company (CEC), which was created and was granted a 49,-year Government concession in 1953 to operate the powerhouse at Seyhan Dam. 4. This report is based on information submitted to IDA by CEC and the Government, and on findings of an IDA mission which visited Turkey in June 1962. II. THE ELECTRIC POWER I3DUSTRY IiN TURKEY 5. The industry is characterized by its relatively recent begin- nings and its general inadequacy to keep up with the growing demands for energy. Electricity for industrial use was first introduced in 1930 and transmission along modern lines did not begin until 1952. Consumption at a per capita rate of 110 kwh/year is lower than any country in Europe. Only 30 of the population is supplied with electricity. Ownership and Government Controls 6. All of the electrical power industry is publicly owned except the facilities of the proposed beneficiary CEC, whose share capital is owned as to 56.5g by private interests and as to 43.5% by the Etibank. Other electric power enterprises are owned by one or more of the following: Municipalities; Etibank, a Government enterprise for the development of mining and electrical energy; Ellerbank, a Government bank to assist the financing of municipal projects; Devlet Su Isleri (DSI), a Government agency in the Ministry of Public Works for irrigation and flood control, which produces hydropower at multipurpose projects. - 2 - The Minister of Finance controls Government budgeting for electric power development with the aid of the State Planning Board. The Minister of Industry controls electric rates, which in the past, have been kept low in relation to costs. Proposals for the development of electric power must be technically approved by: "Elektrik Isleri Etut Idaresi" (EIEI), a technical group in the Ministry of Industry, which also makes general plane for national power programs and maintains statistics on the industry. Its general planning work is well done and it regularly employs consulting firms from the United States and Europe to accomplish more detailed plans. CaDacity and Use 7. The installed capacity of power plants operating for general consumption in 1960 (latest available data) was 1,260 MW of which 854 MW was thermal and 406 MW was hydro. In addition, industrial plants had a total capacity of 261 MN for their own use. Net production was 2,715 million kwh. Consumption may be classified as follows: Domestic 19% Public Services 6% Industry 73% Traction 2% The high proportion for industrial use is accompanied by a large pent-up demand for this purpose. The relatively low domestic use indicates the large part of the population not having access to electricity. Transmission 8. There are transmission lines as follows: High tension (154 Kv) 2,000 Km. Medium tension (66 & 33 Kv) 3,312 Km. Low tension distribution 10,850 Km. Most of the lines are concentrated in the north-western and western parts of the country. 9. Load growth has been about 12.55 per year in recent years. However, plants under construction in 1960 would add only about 15% to 1960 capacity in the following three years with consequent worsening of the system's ability to supply the demand. Program for Expansion 10. In an effort to meet the increasing need for electrical energy, the Government has prepared a statement of its five-year program (1963- 1967), intended to increase production on an average of 12.5% per year and to provide increased transmission facilities. The total capital cost is estimated at TL 5,000 million (US$ 556 million). The statement contains a discussion of need for substantial internal cash generation, which would call for a sharp revision of the past policy of low rates. I1I. ORGANIZATION OF THE CUKUROVA ELECTRIC COMPANY 11* CEO was formed in 1953, when the Government granted it a 49-year concession to operate the powerhouse at the Seyhan Dam, which was constructed partly for irrigation and flood control purposes. The concession area covers the Provinces of Seyhan and Icle, (see map) the larger part of the Cukurova alluvial plain, bounded on the north by the Taurus Mountains and on the south by the Mediterranean Sea. It is a rich agricultural area, the most prosperous region in Turkey. 12. The 36 MW power plant and other facilities were constructed for the Turkish Government and financed in part by the Bank's loan of $25.2 million (No. 63-TU) made in June 1952 to the Turkish Government, it having been agreed that the plant would be turned over to the CEC. 13. Operations began in 1956. Due to controversy within the Govern- ment about private ownership of utilities, an overrun in the cost of the powerhouse, and a devaluation of the currency, which complicated a settle- ment, a firm agreement on CEC ownership of the powerhouse was not reached until 1961 (see paragraph 39). Management 14. The Board of Directors consists of a Chairman and three other representatives of private stockholders and three directors representing Etibank, the holder of the Government's minority interest. 15. The General Manager is a capable engineer with experience in both hydroelectric and thermal power installations.
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