Document of

The World Bank

FOR OMCIAL USE ONLY

~2 AL- S-gj5K -7V

Rqlrt No. P-4031--iu

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK OF RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO USt142.0 MIlLION

TO THE TURKISH ELECTRICITY AUTHORITY

WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY

FOR A

FOURTH TEK TRANSMISSION PROJECT

May 28, 1985

This documet hm a resftitd distibuton .d may be used by redplents only ih the perfornmace ofther official dut.lbs couteub my not othewise be diselo_ed witout World Bank authorluton.

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CURRENCY EQUIVALENTS

CurrencyUnit Jan. 1980 /1 Jan. 1981 Jan. 1982 Jan. 1983 Jan. 1984 Mar. 1985

US Dollar - TL 70.00 TL 91.00 TL 139.60 TL 191.15 TL 309.20 TL 490.40TL 1 - US$ 0.014 US$ 0.011 US$ 0.007 US$ 0.005 US$ 0.003 US$ 0.002

{l Since January 1981, the rate is being adjusted for the differentialinflation between Turkey and its major trading partners.

Fiscal YearJanuary 1 to December 31

WEIGHTS AND MEASURES

kVA = kilovolt amperekW = kilowattkWh = kilowatt hourGWh (Gigawatt Lour) = 1,000,000 kWhHV = High VoltagekV (kilovolt) = 1,000 voltsMW (Megawatt) = 1,000 kWMVA (Megavolt-ampere) = 1,000 kVAMVAR (Megavolt-ampere reactive) 1,000 kVAROne meter (m) = 3.28 feetOne kilometer (km) = 0.624 milesOne kilogram (kg) (1,000 grams) = 2.2 poundsOne ton (metric ton) (1,000 kg) = 2,205 poundsOne kilocalorie (kcal) (1,000 calories) = 3.968 BTUtoe = tons of oil equivalent

GLOSSARY AND ABBREVIATIONS

CEAS - Cukurova Elektrik A.S. (Cukurova Power Company)DSI - Devlet Su Isleri (State Hydraulic Authority)EdF - Electricite de FranceEIB - European Investment BankKEPEZ A-S. - Kepez Electric CompanyKfW - Kreditanstalt fur WiederaufbauLRMC - Long-Run Marginal CostMENR - Ministry of Energy and Natural ResourcesMTA - Mineral Research InstitutePEE - Public Economic EstablishmentPPAR - Project Performance Audit ReportEPF - Public Participation FundSAL - Structural Adjustment LoanSEE - State Economic EnterpriseSPO - State Planning OrganizationTEK - Turkiye Electrik Kurumu (Turkish Electricity Authority)TKI - Turkiye Komur Isletmeleri Kurumu (Turkish Coal

Enterprise)TPAO - Turkiye Petrolleri Anonim Ortakligi (Turkish Petroleum

Corporation)

FOR OMCIAL USE ONLY

TURKEY

FOURTH TEX TRANSHISSION PROJECT

Loan and Project Summary

Borrower: Turkish Electricity Authority (TEK)

Guarantor: RepubLic of Turkey

Amount: US$142 million equivalent

Terms: Seventeen years including four years of grace, withinterest at the standard variable rate.

Project The project would support the further expansion of Turkey'sDescription: transmission grid to acconmodate increased load and

generation capacity. It would support the construction ofabout 800 km of 380-kV transmission lines an,d transformersubstations at the 380-kV and 154-kV voltage levels with atotal installed capacity of about 5400 MVA. The projectwould also include a tower testing facility, line stringingequipment, consulting services and training.

Proiect Benefits The project would be an important component of TEK's systemand Risks: development program for electricity supply. Construction

of transmission lines and transformer substations under theproject would allow full utilization of several largegeneration plants now under construction. Technicalassistance would be focussed on improving TEK'scapabilities in network engineering and the design oftransmission lines and substations. A physical projectrisk would be the possibility that adverse climate andterrain conditions would delay construction during thewinter. Adequate construction technology is available andwould be used. The engagement of consultants to assist TEKin project implementation would be a condition of loaneffectiveness.

Tho document hua nstioad disbutim and maybe usedby reipintsonly in theperformnace|ofthiofficial *duties.Itscontents maynot othwwiebedisclosed wkout WorldBank authodzwon |

Estimated Proiect Costs: US$ Million EquivalentLocal Foreisn Total

380 kV Transmission Lines

Karakaya-Osnaniye 7.6 21.1 28.7Altinkaya-Carsamba 1.7 4.2 5.9Hamitabat-Alibeyhoy 3.1 8.8 11.9Karakaya-Diyarbakir 1.5 6.0 7.5Other Connections for 380-kV Substations 0.7 2.0 2.7Tower Testing Station 2.0 2.5 4.5Line Stringing Equipment - 4.5 4.5

Total 16.6 49.1 65.7

Substations

380/154-kV Substations 4.0 20.5 24.5154/30-kV Substations 10.7 26.7 37.4

Total 14.7 47.2 61.9

Computer Hardware/Software .1 2.2 2.3Engineering/Training 2.2 1.0 3.2

Total 2.3 3.2 5.5

Total Base Cost 33.6 99.5 133.1

Physical Contingencies 3.4 9.9 13.3Price Contingencies 12.0 36.6 48.6

Total Project Cost 49.0 146.0 195.0

Interest During Construction - 13.0 13.0

Total Financing Required 49.0 159.0 208.0

Financing Plan

IBRD - 142.0 142.0TEK/Government 49.0 17.0 66.0

Total 49.0 159.0 208.0

Estimated Bank Disbursements USS Million Equivalent -

IBRD FY 1986 1987 19E. 1989 1990 1991

Annual 4.4 21.1 34.1 32.7 24.1 25.6Cumulative 4.4 25.5 59.6 92.3 116.4 142.0

Economic Rate of Return: 11.2 percent

Appraisal Report: No. 5571-TU, dated May 20, 1985

Map: No. 18845

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

TO THE TURKISH ELECTRICITY AUTHORITY FOR AFOURTH TEK TRANSMISSION PROJECT

1. I submit the following report and recommendation on a proposed loanto the Turkish Electricity Authority (TEK) with the guarantee of the Republicof Turkey for the equivalent of US$142.00 million to help finance the foreignexchange cost of a Fourth TEK Transmission Project. The loan would have aterm of seventeen years including four years of grace, with interest at thestandard variable rate.

PART I - THE ECONOMY 1/

2. An economic mission visited Turkey in June 1982, and its reportentitled "Turkey: Country Economic Memorandum, Recent Economic Developmentsand Medium-Term Prospects" (No. 4287-TU) was distributed to the ExecutiveDirectors in June 1983. The report of a mission to review the financialsector, entitled: "Turkey: Special Economic Report - Policies for theFinancial Sector" (No. 4459-TU). was distributed in September 1983. A Bankmission reviewed the Government's Fifth Five-Year Plan (1985-89) inAugust/September 1984 and its findings are reflected in this section.

3. Turkey is about as large as France and Germany combined, with apopulation of around 48 million and an estimated GNP per capita of $1230 in1983. The density of population is low (78 per square kilometer ofagricultural land), and about 47 percent live in urban centers. Populationgrowth (2.2 percent per annum) is below the median for middle-incomecountries. Despite rapid economic growth in the mid-1970s as well assubstantial emigration of workers (to Western Europe and more recently, to theMiddle East), the employment situation has deteriorated steadily with anunemployment rate currently estimated at about 19 percent. There is, however,little or no absolute poverty, although income distribution ir skewed. Thereare considerable regional differences in income and large rural-urbandisparities. Recent data indicate a probable worsening in incomedistribution, especially of wage and salary earners, and a sharp real declinein average earnings. Educational enrollments have expanded greatly, but thelevel of adult literacy remains relatively low.

Background

4. During the 1970s Turkey did not make the necessary adjustments to theshocks caused by the steep rise in oil prices, stagflation in the OECDeconomies, and the consequent deterioration of its terms of external trade.

1/ Parts I and II are substantially the same as Parts I and II of thePresident's Report on the Industrial Schools Project (P-3956-TU), datedApril 18, 1985.

Until 1977 Turkey maintained high rates of economic growth by raising theshare of public investment in GDP. This was financed initially by workers'remittances and, following the quadrupling of oil prices, increasingly byshort-term borrowings. The rapid GNP growth came to an abrupt halt in 1977 asthe massive external debt burden led to a sharp deterioration increditworthiness, severe shortages of imports, and disruptions in industrialproduction with a rise in unemployment. By the end of 1979, domesticinflation had also become an issue of critical importance.

5. The Turkish authorities' response to the crisis of the late 1970s wasa major shift in development strategy in 1980, moving towards outwardorientation and giving an increased role to market forces. Policies wereadopted to expand exports and increase workers' remittances whiclh, togetherwith liberalization of imports, encouragement of foreign investment andprudent external debt management, were aimed at alleviating the balance ofpayments constraint and import shortages. On the domestic front, theobjectives were a reduction in the inflation rate, reform of the StateEconomic Enterprises (SEEs), a more efficient financial sector, improvedresource mobilization and better selection of investments, especially in thepublic sector.

6. The adjustment program, which has been supported by the Bank throughfive structural adjustment loans, involves far-reaching changes in attitudes,institutions, and the legal and policy framework, all of which require time toput in place. Major structural changes have been made in the exchange ratesystem, the export and import regimes, the tax system, interest rate andselective credit policies and the public investment program. Implementationof the adjustment program was carried out under a military regime duringSeptember 1980 - November 1983 and since then by an elected government.

The Structural Adjustment Program - 1980-84

7. The Turkish economy has shown an impressive response to thestructural adjustment program and actual performance met or exceeded theGovernment's own targets through 1982. By contrast, results in 1983 and 1984proved to be mixed, due in part to adverse economic developments on theexternal front, slippages in the monetary program, a persistent shortfall inGovernment revenues and the renewal of inflationary pressures.

8. Real GNP expanded by 4.1 percent in 1981 and 4.6 percent in 1982. In1983, GNP growth slowed down to 3.2 percent, due in large part to the effectsof a bad harvest and a decline in the contribution of the foreign balance.The growth rate rebounded in 1984 to an estimated 5.7 percent, supported byfavorable performance in the productive sectors with agricultural value addedgrowing at 3.6 percent and industrial value added at 9.6 percent. Capacityutilization rates in private industry in 1984 are estimated to bave risen byabout 5 percent to an average rate of 72 percent. On the expenditure side,the average annual real rate of growth of public fixed investment has beencontained to 3.1 percent over the 1980-84 period while the growth rate ofprivate investment has improved systematically from -17.3 percent in 1980 to4.8 percent in 1983 and an estimated 5.4 percent in 1984. Privateconsumption, which had actually fallen by 5 percent in 1980, grew at4.9 percent in 1983 and an estimated 5.0 percent in 1984. On the other hand,helped by strict budgetary discipline, the rate of growth of publicconsumption declined from 8.4 percent in 1980 to 1.8 percent in 1983.Estimates for 1984 suggest a modest growth of 2.4 percent.

9. Through 1982, the Government met with considerable success inreducing the rate of inflation through a combination of fiscal, monetary andincomes policies. After peaking at 107 percent in 1980, the anrual averagerate of increase in the wholesale price index declined to 37 percent in 1981and 27 percent in 1982. In 1983 the downward trend was reversed and theinflation rate rose to 30 percent. This rise was fueled by an expansion ofCentral Bank credits to firms and commercial banks in difficulty during thesecond half of 1983 as well as an unexpected increase in the budget deficit.The resulting liquidity expansion, in conjunction with a lowering of nominaldeposit interest rates, encouraged consumption at the expense of savings.

10. Inflation accelerated further in the first half of 1984, although itmoderated in the second half. The average inflation for 1984 is estimated ata little over 50 percent. The major factors that contributed to the worseningof the inflationary situation were the lagged impact of the expansionarymonetary policy pursued during the second half of 1983, and a significantincrease in agriculture product prices, especially of fresh fruits andvegetables, as a consequence of export liberalization and higher export marketprices. Other important inflationary factors included substantial "catch up"increases of SEE prices and higher import prices resulting from the nominaldepreciation of the Turkish lira. In addition, inflationary pressures stemmedfrom a larger than anticipated budget deficit in 1984 as a result of aslowdown in the growth of revenues.

11. Commercial bank interest rates, which were deregulated in July 1980,have increased substantially and are now positive in real terms. As a result,total bank deposits increased by 72 percent in 1980 over 1979, and in 1981this trend accelerated, with total deposits growing by 103 percent and timedeposits by 274 percent. Growth in total deposits slowed after 1982, and in1983 and 1984 they grew at 53 percent and 42 percent respectively. Thebankruptcy in late June 1982 of a major non-bank financial institution shookdepositor confidence and was followed by a shift of funds into the largerbanks. The Government averted ar. immediate crisis in the banking sector andundertook actions to reform and strengthen the financial sector as a whole. Anew banking law was enacted in June 1983 which covered many of therecoumendations made in the Bank's report on the Financial Sector(No. 4459-TU). These included measures to reduce the undercapitalization ofbanks, place limits on the real assets and investments of banks, link theestablishment of branches to the level of a bank's equity, reduce theinterlocking between banks and corporations, introduce a deposit insurancescheme, and increase the role of the Central Bank in the supervision of thebanking sector. A new law is currently before Parliament which will furtherthe banking reform process by introducing standardized accounting for banksand improved procedures for handling non-performing loans. The Governmentalso took a major step towards reducing the cost of intermediation by reducingthe financial transactions tax from 15 percent to 3 percent. Separately, theGovernment has reduced the level of withholding tax applicable to interestpayments on deposits and bonds from 20 percent to 10 percent. Other importantdevelopments in the financial sector include measures undertaken to revitalizethe capital markets, for which IFC has provided technical assistance, and thesale of revenue-sharing certificates linked to the income from selected publicfacilities (e.g. the Bosphorus bridge).

12. The Government is committed to maintaining an interest rate structurefor deposits which is positive in real terms. Time deposits have beenyielding more or less positive real returns since end-1983, with interestrates ranging from 45 to 53 percent depending upon the term of the deposit.While positive real interest rates have provided an incentive to save, theyhave also meant high borrowing costs. Nominal interest rates range from 60 to80 percent on non-preferential credits, in part because of the highintermediation costs of the commercial banks and their widely prevalentpractice of requiring compensating balances. The interest rate differentialsbetween preferential and non-preferential credits and among preferentialcredits are large and need to be reduced. The Government has reaffirmed itsdetermination to achieve positive real rates on all lending by a combinationof bringing down inflation and phasing out interest rate subsidies onpreferential credits. In January 1985, it eliminated preferential interestrates on short-term export credits. High market interest rates, together withthe limited availability of credit, have led to considerable liquidityproblems for the private business sector, particularly for businessessupplying the domestic market. Measures are also needed to lower theoperating costs of banks, which are well above prevailing levels in comparablecountries.

13. In the fiscal area, progress was evident from 1980 to 1982 but therehave been slippages in 1983 and 1984. The budget deficit to GNP ratio wasreduced from 5.3 percent in 1980 to 2.1 percent in 1982, and the Public SectorBorrowing Requirement (PSBR) dropped sharply from 12.6 percent of GNP to6.9 percent over the same period. However, the revenue to GNP ratio has beendeclining over the past three years. From a high of 20.3 percent in 1981, ithas fallen sharply to an estimated 15.6 percent in 1984. Largely because ofthis significant shortfall in revenues, overall fiscal performance hasworsened since 1983 even though government expenditures have been considerablycurtailed (from 24.2 percent of GNP in 1980 to an estimated 20.8 percent in1984) and budgetary transfers to SEEs as a percentage of GNP have fallensteadily (from 4.8 percent in 1980 to an estimated 1.6 percent in 1984). Thebudget deficit is estimated at 5.2 percent of GNP in 1984 and the PSBR at8.8 percent. The downward trend in the Government revenue to GNP ratiohighlights the urgency of mobilizing additional public resources. As a stepin this direction, the Government introduced a Value Added Tax (VAT) inJanuary 1985.

14. Improvements in the balance of payments were systematic through 1982with the current account deficit decreasing from $3.3 billion (5.7 percent ofGNP) in 1980 to $1.2 billion (2.2 percent of GNP) in 1982. However, in 1983the current account deficit widened to about $2.1 billion (4.2 percent of GNP)as merchandise exports and workers' remittances fell short of targets.Exports rebounded strongly in 1984, growing by 25 percent in dollar terms to$7.1 billion. Remittances, too, registered a higher than expected increase,reaching $1.9 billion (up by 24 percent). Concurrently, there was a continuedlarge inflow of deposits through the Dresdner scheme ($550 million in 1984).Under this scheme the Dresdner Bank collects deposits from Turkish workers inGermany and automatically places these funds at the disposition of the CentralBank of Turkey, which guarantees the deposits and pays an interest ratecommensurate with the Euro-market rate. However, these increases were offsetby a sharp rise in merchandise imports to $10.8 billion (up by 16 percent indollar terms). As a result, the current account deficit in 1984 wasconsiderably higher than projected, reaching $2.1 billion (4.3 percent ofGNP), or about the same level as in 1983.

15. On balance, merchandise export performance has been impressive overthe 1980-84 period, growing at an average anni''l rate of about 26 percent indollar terms. This growth has been led by t'he manufacturing sector and hasinvolved a rise in the share of exports to the Middle Eastern countries.Industrial exports, comprised primarily of p.rocessed foods and textiles, haverisen from 36 percent of total exports in 19&' t3 72 percent in 1984. Theseresults were acuieved by a combination of indirect (flexible exchange ratepolicy and import liberalization) and direct (tax rebates, preferentialcredits) measures to enhance the relative profitability of exports and offsetthe traditional bias towards producing for the domestic market. The flexibleexchange rate policy was one of the most important factors cortributing to thegrowth of exports, together with the penetration of Turkish products in MiddleEast markets.

16. On the import side, the 1982-83 period was marked by a relativestability in the growth of merchandise imports, mostly due to exogenousfactors. Imports fell by 1.0 percent in dollar terms in 1982 and rose by only4.4 percent in 1983. This reflected price decreases in both oil and non-oilimports. Merchandise imports, however, increased substantially in value in.1984. The increase has been most significant in some of the groups (e.g. rawmaterials and consumer goods) that have been subjected to major liberalizationin terms of both a lowering of tariff rates and a significant removal ofquantitative restrictions.

Medium-Term Prospects

17. The Government's Fifth Five Year Plan (1985-89) was approved by theGrand National Assembly in July 1984. The Plan reaffirms the Government'sdetermination to pursue an outward-oriented development strategy and toliberalize the economy by relying increasingly on market forces for allocationdecisions. The public sector is targeted to play a supportive role byconcentrating its investments in infrastructure rather than manufacturing,while the private sector is to be encouraged to play a leading role in thegrowth of manufacturing and exports. Some of the key targets are:

(i) an average annual GNP growth rate of 6.3 percent;

(ii) an average annual real rate of growth of merchandise exports of10.6 percent;

(iii) an average annual real rate of growth of merchandise imports of8.2 percent;

(iv) an average annual real rate of growth of 10.9 percent in privateinvestment and 6.8 percent in public investment; and

(v) a declining external debt service ratio, from 26 percent in 1984to around 18 percent in 1989.

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18. While the overall thrust of the Plan is in accord with the goals ofthe structural adjustment program, certain targets seem optimistic in view ofboth past performance end the immediate prospects for the economy. The Bank'sprojections indicate the need for a continuation of the stabilisation programwell into 1987, implying a lower grovth rate in GDP for the early years of thePlan and a return to a higher growth path only in 1988. Key economicvariables in the Bank's latest projections for the period 1985-89 arepresented in Table 1:

Table 1: TURKEY - SELECTED ECONOMIC INDICATORS, 1983-89

Av1srge Annual1033 1934 1935 1939 Dal roeth note Real Growth IoatUnit. Aitl gt. Projeted li1

(S) (S)

COP /a TL Do at 1933 Pricee 11463 12122 12700 199 3.7 5.7 5.6AriLcultu 2058 2132 2202 2411 -0.3 3.6 3.0Industry 3096 3393 358 4732 7.3 9.3 7.0Services 5631 5929 6179 7771 3.0 5.3 5.7

canemnptiea 9533 10034 10539 290 4.5 . 5 1Fixed incLvta et 211 2220 2400 3180 3.0 1.3 7.5

Ezport. of goods Curr_t u 5728 7100 8541 L7574 13.9 23.1 9.4Laporte of goods 9235 10756 11500 21307 12.0 15.3 7.2

Tred. balanes -3507 -3656 -2959 -3733

Curtnt account balanc Currant S * -2122 -2135 -1750 -2003

RatiosInsta It/GDP Z 19.0 18.3 13.9 20.0Saviangsal S 16.5 17.1 17.4 19.5Reports of goodmIGUP S 11.3 14.6 13.9 15.9Currant account deficit/ S 4.Z '4.3 -2.8 -1.8

Debt service ratio / S 2S.0 25.0 23.7 19.8PublLc fi"d ivetaat/ S 60.3 58.9 57.6 52.6

total fi sd irae_t

No ite_:

Cross capital required /d trreat S u 3687 4290 334 5905

/a At market prices; components are expressed at factor cost and will not addup due to exclusion of indirect taxes and subsidies.

/b Based on constant TL./c Total Debt Service (excluding short-term) /Exports of Goods and NFS plus

Workers' Remittances./d Includes net IMF.

Source: State Planning Organization for actuals and IBRD projections.

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19. Bank projections indicate a GDP growth of 5.6 percent per annum onaverage for the Plan period, with a low of 4.9 percent in the initial year ofthe Plan (stabilization period) and a high of 6.3 percent for the final year(growth period). Achievement of these growth rates will depend on theperformance of the productive sectors, namely agriculture and manufacturing.This in turn will depend to a large extent on the Government's determinationto constrain the growth of the public sector in line with public resources andto create a more favorable investment climate for the private sector. Thistranslates itself into a projected real growth per annum in public fixedinvestment of about 5.0 percent on average for the Plan period, starting witha modest increase in the early years. The comparable figure for private fixedinvestment is 10.6 percent or a little more than twice the growth rate forpublic fixed investment. These figures are consistent with the need to meetthe infrastructure requirements of the economy through the public investmentprogram, while providing for the capacity expansion of the private sectornecessary to meet the export and growth targets.

20. Merchandise exports are projected to grow at an average 9.4 percentper annum in real terms. Merchandise imports, on the other hand, areprojected to grow more slowly in real terms through 1986 and then pick up toan average 7.5 percent per annum in the terminal years of the Plan. On theseassumptions, the current account deficit is projected to decrease through 1986as stabilization policies act to contain import growth while encouragingexports. As higher growth rates set in during the middle of the Plan period,the trend would reverse and the current account deficit would rise moderatelythrough the end of the Plan. The terminal year 1989 would show a deficit ofapproximately $2.0 billion as compared to a 1985 figure of $1.7 billion. Theprojected capital account is seen to remain manageable throughout the periodeven in the face of some sharp increases in the amortization payments int985-87 arising from the debts rescheduled during the 1978-80 period and animposed constraint on foreign exchange reserves equivalent to at least twomonths' imports. Consistent with the above is an average debt service ratiofor medium and long-term credits for the Plan period of 21.7 percent.Including short-term debt the average debt service ratio for the Plan periodis 23.7 percent. Gross capital inflows required in 1989, on theseassumptions, would be about $5.9 billion, or about 38 percent higher than theamount in 1984. Such an inflow is consistent with a decreasing debt serviceratio from 1986 onwards.

21. The medium-term scenario presented above is, of course, only one ofmany possibilities and is used specifically to illustrate Turkey's potentialin the light of the Government's own development strategy. Given Turkey'sprogress in the structural adjustment program, the favorable response whichthis has evoked from the international financial community and the presentview of future resources and export market possibilities, the Government'ssomewhat more ambitious Plan targets would be feasible provided they aresupported by slightly higher export growth rates and greater success in themobilization of public resources. This may be more difficult to achieve inthe early (stabilization) phase of the Plan.

22. In view of the sensitivity of the projections to the assumptions ofexport and import growth rates, a downside risk case has also been developed.With Turkey's export performance heavily dependent on exogenous factors such

as the world economic outlook and movements in international prices, a slowergrowth of merchandise exports (an average of 6.9 percent over the Plan period)would lead to a more difficult but still manageable balance of paymentssituation, more external borrowing, a lower GDP growth (averaging about4.8 percent per annum) and a higher debt service ratio (22-24 percent perannum). In such a situation the Government would have little chance ofabsorbing the unemployed and improving tangibly the average standard ofliving. However, given the Government's emphasis on export promotion and thedetermined efforts to counter the bias towards producing for the domesticmarket, there is good reason to support the perspective set out in themedium-term scenario presented in paragraphs 18 to 21.

External Debt and Creditworthiness

23. At the end of 1978, Turkey had $7.2 billion in short-term debt and$7.0 billion in medium and long-term debt. Between 1978 and 1980, Turkeyrescheduled some $9.2 billion of outstanding obligations through a series ofrescheduling arrangements concluded with official and commercial creditors.Approximately $6.0 billion of short-term debt, including $2.6 billion inconvertible Turkish lira deposits and bankers' credits and $1.2 billion ofnon-guaranteed suppliers' credits, were consolidated into medium-term loans orpartially converted into Turkish lira obligations. Following the resolutionof the debt crisis, inflows were mostly from official sou.rces - majorcreditors being the OECD countries, the World Bank and Lhe IMF. Of theestimated total debt outstanding of $22.7 billion at end-1984, 81 percentconstituted medium and long-term debt (including IMF). Short-term debt as apercentage of total debt outstanding fell from 51 percent in 1978 to about11 percent in 1982, then increased to 14 percent in 1983 and to an estimated18 percent in 1984. Much of this growth in the stock of short-term debt isdue to the inflows associated with the Dresdner Bank scheme (para. 14). Atend-1984 the outstanding liabilities associated with the Dresdner scheme areestimated to amount to $1.8 billion, which would represent about 45 percent ofTurkey's short-term external obligations and 8 percent of its totaloutstanding debt. Based on the growth scenArio outlined earlier, debtoutstanding and disbursed as a percentage of GDP is projected to fall from anestimated 41 percent in 1984 to 32 percent in 1989. This translates into atotal debt outstanding forecast for 1989 of $30.6 billion, with short-termdebt constituting about 23 percent of that total. Dresdner scheme inflows areprojected to be around $600 million per annum throughout this period and toaccount for a large part of the rise in the ratio of short-term debt to totaldebt outstanding.

24. The debt service ratio for medium and long-term credits (in relationto exports of goods and non-factor services and workers' remittances)increased from about 14.6 percent in 1981 to a peak of 28 percent in 1983 as aresult of a large repayment of previously rescheduled debt under the earlierOECD agreements. Debt service obligations are likely to be high over thecoming years and would average about $3.8 billion per year in 1985-89.However, the debt service ratio is seen to decrease from an estimated25 percent in 1984 to 19.8 percent in 1989. The debt burden should remainmanageable provided current policies are successfully implemented, the exportdrive is sustained, and Turkey continues to receive further support frominternational commercial and official sources. There have been encouraging

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signs of Turkey's ability to enter the market for commercial borrowings. FromDecember 1983 to November 1984, Turkey had secured a little over $500 millionfrom commercial credits, constituting about 23 percent of the total externalcredits received during this period. The Central Bank of Turkey recentlycompleted the syndication of a $500 million multi-component medium-term(seven years) facility involving a large number of U.S., European, Japaneseand Middle Eastern commercial banks as lead managers.

25. Turkey's economic program has been supported by the IMF through aseries of standby arrangements. A three-year standby arrangement in an amountequivalent to SDR 1250 million was approved by the IMF's Board and becameeffective an June 18, 1980. The Government purchased the full amountauthorized under the arrangement. The Government also purchasedthree-quarters of a SDR 225 million one-year standby arrangement which wasapproved by the IMF in April 1984 and replaced an earlier one-year arrangementterminated at the request of the Government.

PART II - BANK GROUP OPERATIONS IN TURKEY

26. Through March 31, 1985 the Bank and IDA have lent $5383.5 million 1/to Turkey, through 81 projects. Agriculture accounts for 19 percent of fundslent, industry and DFCs for 24 percent, power for 13 percent, structuraladjustment and program loans for 32 percent, and urban development,transportation, education, tourism and technical assistance for the remaining12 percent. Disbursements for all sectors combined (excluding structuraladjustment loans) average 49 percent of appraisal estimates, as compared to51 percent for Tunisia and 48 percent for Morocco. As of March 31, 1985, IFCcommitments to Turkey totalled about $239 million, of which about $64 millionwere still held by IFC. Annex II provides a summary statement of Bank loans,IDA credits and IFC investments as of March 31, 1985.

27. Bank lending is aimed at supporting Turkey's medium-term objectivesof restructuring the Turkish economy by placing more reliance on market forcesand adopting a more outward-oriented strategy. The main vehicle for theBank's operational discussions with the Government has been the structturaladjustment lending (SAL) program. SAL V, which was approved in June 1984,completed the series of five loans which the Bank had indicated would be themaximum to a country. Significant progress has been achieved in the :astfive years, but the task of restructuring is by no means over. The !t: phasewill involve the broadening and deepening of the adjustment process a- thesectoral level. Recent economic developments have underlined the need for acontinuation of the stabilization program without giving up the goals of

1/ Net of cancellations.

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sectoral adjustment. Hence the emphasis of Bank lending in the post-SALperiod would be on striking an appropriate balance between sectoral adjustmentlending designed to be quick disbursing and supportive of policy reforms inthe major sectors, and carefully formulated project lending focussing on highpriority projects principally in the agriculture, energy and transport sectors.

28. Efforts have already been initiated to develop a series of sectoraladjustment loans for the major sectors over the next few years, starting withagriculture. The loans for the agriculture sector would help to support amedium-term action program aimed at increasing the growth of primaryproduction and exports, rationalizing public investment and strengtheningsectoral institutions. Sectoral adjustment lending would also supportmeasures to address the structural problems of the financial sector andenhance the utilization of industrial capacity in the public and privatesectors, keeping in view the scope for the "privatization" of publicly-heldassets in the manufacturing subsectors. Other sectors where sectoraladjustment loans could be developed include energy and transport.

29. Project lending, which will continue to make up the majority of thelending operations, will be designed to support and strengthen the adjustmentprocess. A portion of project lending would be earmarked for the constructionor rehabilitation of key projects in the energy sector. Other projects wouldbe guided by the maior policy objectives of the Government, which includegeneration of foreign exchange (including improving productivity in exportindustries and providing essential infrastructure for exports), improvement ofinstitutional efficiency, non-inflationary output growth and amelioration ofthe social costs of adjustment (including provision of social infrastructureand employment generation, with some emphasis on the least developed provincesin Eastern Turkey).

30. The close macroeconomic and sector dialogue established with theGovernment in recent years is expected to be pursued. The economic and sectorwork currently being undertaken includes a review of the five-year developmentplan and studies of housing finance, telecommunications and electronics.Topics to be covered in the future include a review of the puDlic investmentprogram, a study focussing on the impact of structural adjustment, a review oftransport investments and studies of engineering and agro-industries.

31. This would be the sixth loan to Turkey presented to the ExecutiveDirectors this fiscal year. Other projects being processed include theKayraktepe and Sir Hydropower Projects.

32. Turkey's debt burden is projected to remain manageable throughout1985-89 (paras. 23 and 24). The Bank Group's share of Turkey's total externaldebt was 12.4 percent in 1983, is estimated at 13 percent in 1984, and isexpected to grow to about 17 percent by 1989. Official debt outstanding isprojected to increase from $11.4 billion in 1984 to $14.4 billion in 1989 andprivate medium and long-term debt outstanding is projected to increase from$5.7 billion in 1984 to $8.8 billion in 1989. The Bank group's share of totaldebt service payments is projected to increase from about 12 percent in 1983tu an estimated 13 percent in 1984, and to about 17 percent in 1989.

j w -11-

33. IFC has invested in synthetic yarns, textiles, pulp and paper, glass,aluminum, cement, iron and steel products, heavy diesel engines, motor bicycleengines, piston rings, food processing and tourism. It has also invested inthe Industrial Development Bank of Turkey (TSKB) and provided guarantees foroverseas contracting firms. In addition, IFC is currently providing technicalassistance to the Government with respect to the development of the capitalmarket and a regulatory framework for leasing.

PART III - THE ENERGY SECTOR AND THE POWER SUBSECTOR

Energy Resources

34. Turkey has substantial untapped lignite and hydropower resources, aswell as more limited, but still important, oil, gas and coal resources andgeothermal potential. Hydropower with potential economic viability isestimated at about 29,500 MW under average hydrological conditions andcorresponds to an annual production of about 100,000 GWh. Only 15 percent hasbeen developed so far, but this is projected to rise to about 30 percent by1990. Proven recoverable reserves of oil are about 16 million tons; however,potential reserves that may become economically recoverable, using enhancedoil recovery techniques currently being tested, could be as high as 30 milliontons. Oil production has been declining over the last decade, as fewdiscoveries have been made in recent years; in 1983 production was about17 million tons, equivalent to 45 percent of total consumption. Provenrecoverable gas reserves are about 400 billion standard cubic feet. Domesticgas will, however, be supplemented, beginning in 1987, by large scale importsof natural gas from the U.S.S.R.

35. Total known reserves of hard coal are estimated at about 1 billiontons, all located in the north of Turkey. Coal production has been decliningas operations move to deeper, less accessible seams; in 1983 production was3.5 million tons (2.2 million toe). Proven and probable lignite reserves areabout 8 billion tons, but about half of this is of extremely low quality(950-1,000 kcal/kg). Lignite production in 1983 was about 20 million tons,equivalent to about 4.6 million tons of oil. There is potential forgeothermal development, for both space heating and electricity generation, anda review of promising geothermal sites is under way.

Energy Consumption and Supply

36. Total gross energy consumption was about 38 million toe in 1983, ofwhich commercial energy consumption amounted to 30 million toe. Petroleummade up the most significant share of primary commercial energy (58 percent),with lignite (20 percent), hydropower (9 percent), coal (11 percent),asphaltite and imported electricity making up the balance. Overall, about23 percent of final commercial energy consumption was in the form ofelectricity. Non-commercial energy production (primarily fuelwood, but alsoother biomass) was an important energy source, accounting for 37 percent oftotal domestic energy production. The most notable change in the pattern ofenergy consumption over the past two decades has been the decrease in therelative share of hard coal in the total. This was accompanied by a rapidgrowth in consumption of petroleum until the mid-1970s, peaking at over

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50 percent in 19771/78; and a rapid rise in the share of lignite (primarily forthermal power production) and hydroelectric power consumption starting in thesecond half of the 1970s. During this period, hard coal consumption stayedrelatively constant in absolute terms, while traditional biomass energysources increased slightly in absolute terms but decreased steadily as apercentage of total energy consumed.

37. Trends observed in the growth and pattern of energy consumptionduring the latter part of the 1970s are expected to continue during the 1980sand 1990s. The most important factor in the growth of energy demand will bethe growth rate of the economy as a whole and the growth of the relativelyenergy-intensive industrial sector. The demand for lignite is expected togrow rapidly, both for direct consumption by households and industry and, evenmore importantly, for the power sector. The growth in demand for petroleumwill be moderate due to the much higher price of imported oil and petroleumproducts and its substitution by other energy sources.

Organization of the Energy Sector

38. The energy sector :n Turkey is characterized by the dominance ofGovernment owned enterprises and agencies. The Ministry of Energy and NaturalResources (MENR) is responsible for the development of energy resources inTurkey. The Turkish Hard Coal Enterprise (TTK). the Turkish LigniteEnterprise (TKI), the Turkish Petroleum Company (TPAO), and the MineralResearch Institute (MTA) have responsibility for the extraction of fossil.uels and radioactive minerals. Identification, design and construction ofhydroelectric projects is entrusted to the State Hydraulics Authority (DSI).The Turkish Electricity Authority (TEK) is responsible for the generation,transmission and, since November 1982, the distribution of almost all theelectricity sold in Turkey. TEK is also responsible for the implementation ofthe Government's program for rural electrification and the construction of allgenerating and transmission facilities, with the exception of hydroelectricplants for which DSI has responsibility.

39. Private sector participation in the supply of electricity was, until1983, confined to two small private utilities (CEAS and KEPEZ) and industrialcompanies which generated power for their own use. However, recent changes _-Government energy policy now give greater encouragement to private sectorparticipation in the development and production of energy (para. 41). TheGovernment is actively seeking ways to encourage both local and foreignprivate sector participation in geothermal development, lignite mining,hydroelectric projects and the construction and operation of power plantsfired by imported fuels.

Energy Sector Policy

40. To meet its energy requirements, Turkey launched a massive program inthe late 1970s to increase the domestic production of electricity andlignite. This program tended to stretch the implementation capabilities ofthe State energy agencies, and spread resources too thinly over too manyprojects, with resulting long delays in completion schedules. This has, inturn, resulted in an energy deficit which is likely to remain a feature of theTurkish economy at least through the 1980s. MENR and TEK are in the process

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of improving their energy planning capabilities; and MENR has producedTurkey's first energy policy paper. Furthermore, the recent Five YearDevelopment Plan (1985-89) contains some broad objectives relevant to theenergy sector including the following:

- Priority is to be given to domestic sources of energy, especiallyhydra and lignite, provided that they are economically justified;

- Imported energy including, but not limited to, oil will beconsidered;

- Renewable and nonconventional resources such as geothermal, solarand biogas are to be supported; and

- Private sector financing, both local and foreign, will be soughtfor participation in energy development.

41. Two features of Government policy appear to represent a departurefrom previous energy policy. The first is that Government policy is now quiteclearly to encourage private sector participation in the energy sector. Thereare now no legal constraints to private sector electricity generation, andexisting private utilities like KEPEZ and CEAS have plans to increase theircapacities. In addition, the State Planning Organization (SPO) is currentlyundertaking, with assistance from consultants, preliminary studies to assesswhether private finance could be sought for the construction and operation ofthermal plants based upon imported fuels (coal, nuclear) and geothermalsources. The second shift in policy focus is increased concern thatindigenous resources be developed only when economically justified. Improvingefficiency in the lignite mining subsector at least to levels at whichmarginal production costs are competitive with imported coal, or converselyabandoning such mining ventures if such economies cannot realistically be met,will thus be a major energy policy concern for the Government.

42. A less explicit but no less important component of the Government'senergy policy relates to the pricing of energy products. Regular increases inthe prices of petroleum products to maintain prices at economic levels hasbeen a feature of the Government's pricing policy for the past five years.Electricity tariffs have been increased sharply since early 1984. As ofApril 1, 1985 bulk power tariffs are roughly at the level of long run marginalcost. Prices of petroleum products are being maintained at internationallevels. Lignite prices, which had shown a threefold increase in real terms inthe seven years preceding 1983, declined slightly in in real terms in 1984.

43. The Government is also in the process of developing a program for theconservation of energy by encouraging more efficient use in existing and newindustrial enterprises. Energy efficiency programs and legislation have beenevaluated by both the MENR and SPO, and legislation has been passed whichallows for tax credits for various types of investments in energy efficiencyimprovements. The Bank included financing of energy audits in selectedmanufacturing facilities under Loan 1916-TU. These audits have been completedand are under review. TEK has engaged consultants to assist in thedevelopment of an energy conservation and load management program.

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Electricity Supply and Demand

44. The present installed power capacity in Turkey im about 7,600 MW ofwhich 3,500 MW (50 percent) is thermal and the balance hydro. The share ofhydroelectric power has increased over the past ten years from 33 percent in1972 to about 50 per cent in 1984. On the thermal side, lignite has made anincreasing contribution to the production of electricity. Total grossgeneration in 1984 was about 30,000 GWh. of which TEK accounted for almost90 percent. Imported electricity from Bulgaria and the U.S.S.R. accounted fora further 2,500 GWh. Total availability was less than the potential effectivedemand. estimated at 35,000 GWh. There is considerable evidence that powershortages have caused cutbacks in production in industries such as cement,textiles and paper. In addition to the capacity constraint, the high level oftotal system losses (technical losses plus energy unaccounted for), estimatedat about 20 percent, contributed to the supply shortages.

45. Growth in demand for electricity averaged about 9 percent per annumover the period 1965-1983. Between 1970 and 1983, the percentage ofpopulation with public electricity supply rose from 51 percent to 78 percent.Per capita consumption of electricity is currently about 550 kWh. TEK'slatest long-term generation plan (1987-2005) is based upon a projected overallgrowth in energy demand of about 11 percent per annum, with peak demandincreasing at about 9 percent per annum. This represents a considerablesustained annual increase in demand, particularly as the base from which thedemand is extrapolated (1987) appears to be high.

46. For more than two decades the Turkish power subsector has beenconfronted with major problems. Electricity supply has been insufficient tomeet demand in every year since 1971, resulting in high costs to the economyas imports increased and supply interruptions continued. Many of the issuesfacing the subsector can be traced to institutional problems in the publicsector agencies responsible for planning and implementing the subsector'sinvestment program. This has resulted in project delays, consequentsubstantial cost escalations, power shortages, frequent and protracted plantbreakdowns due to inadequate maintenance, and relatively high system losses,especially in the urban networks. The shortage of qualified staff in TEKresulted in resources, human and financial, spread too thinly over too manyprojects in the investment program.

47. The Government agrees that closing the supply gap will require a majorcoordinated effort by the major agencies in the subsector. It plans toemphasize increased supply in parallel with managing demand and improvingefficiency of existing facilities. To illustrate the magnitude of the task,it should be noted that Turkey would have to bring ou stream three times morecapacity in the 1980s than in the 1970s and that the momentum would have to besustained throughout most of the 1990s. Also, scarce resources will be tiedup in technologies new to the country, such as nuclear, and in projects of anunprecedented size. TEI and DSI will have to meet their respective productiontargets commensurate with TEK's plans. Even if a lower growth rate inelectricity demand is assumed, and optimistic assumptions are made about thesector's implementation capacity, some power shortages are likely to continuethroughout the 1980s.

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Bank's Role in the Power Subsector and Experience with Past Lending

48. The proposed project would be the sixteenth Bank operation in thepower subsector in Turkey. The Bank has made eleven loans and a technicalassistance grant (total $639.7 million), and IDA has granted three credits(total $55.7 million) for four hydroelectric projects, two thermal powerstations (oil- and lignite-fired), a lignite mine, and several transmissionand distribution networks. The technical assistance grant helped reorganizeTurkey's power subsector. The first five loans/credits were for projects inthe CEAS coacession area. All these projects were completed successfully,although often with long delays. The Bank has made four previous loans toTEK, for the First, Second and Third Power Tr.nsmission Projects, and for theElbistan Mine and Power Project.

49. A Project Performance Audit Report (PPAR) distributed to the Board inNovember 1981, 1/ on the Keban Transmission (Loan 568-TU) and the first TEKPower Transmission (Loan 763-TU) projects, found that these projects had mettheir physical objectives despite implementation delays and cost overruns. AProject Completion Report on the Istanbul Power Distribution Project (Loan892-TU), distributed to the Board in December 1982, 2/ also reported physicalcompletion of the project after considerable delay. Major constraints totimely project completion were identified as shortage of local counterpartfinance and, in the case of Loan 892-TU, late preparation of biddingdocuments. A major conclusion of the TEK II (Loan 1194-TU) Project CompletionReport was the need for improvement in the monitoring and coordination of theproject. The report recommended the establishment of a single unit within TEKto be accountable for project implementation. Such units are now regularlyused in Bank financed power projects in Turkey. Implementation of the ThirdTEK Transmission Project (Loan 2322-TU) is satisfactory.

50. The Bank has been able to assist the Government in the consolidationof the power sector and in the creation of TEK. The Bank has also supportedefforts to bring about other institutional reforms. Considerable progress hasbeen made in areas such as TEK's accounting system, system planning, andprocurement procedures. The Bank has also assisted in attracting funds fromother bilateral and international financing agencies (e.g. EIB, German Aid(KfW), US EXIMBANK).

Planned Strategy for Assistance to the Subsector

51. Sector policy discussions, which recently have been held twice a yearwith the Government and energy sector agencies, have provided a useful forumto discuss the issues and constraints facing the subsector. The Bank isgenerally in agreement with the Government's strategy for the energysubsector. Detailed agency by agency action programs have been prepared andwill be discussed with the Bank in 1985. Current and future Bank lendingwould be based on these action programs. For the electric power subsector, it

1/ No. 3695, dated November 23, 1981.

2I No. 4264, dated December 29, 1982.

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has been agreed that attention would be given to a selected number of highpriority issues. The strategy includes focus on (a) investments which yieldquick returns, such as completion of priority ongoing investments, upgradingof existing facilities, reduction in losses and improvements in maintenanceprocedures and efficiency; (b) programs to ensure a balanced electric powerdevelopment program with respect to adequate investment in generation,transmission, distribution and general plant; (c) technical assistance tostrengthen capabilities in planning, financial management and manpowerdevelopment; (d) investment in new generation options such as those based uponimported coal and natural gas; and (e) an increase the role of the privatesector in the production of electricity.

52. The Government and the Bank have jointly identified a series ofinvestments which would address the above medium-term issues, in addition tothe two proposed operations. The Bank agrees with the size and structure ofTurkey's 1985 power sector investment program and with the investment strategyproposed for subsequent years. Detailed future investment programs will bereviewed with the Bank.

PART IV - THE PROJECT

Project History

53. The proposed project is part of a comprehensive transmissiondevelopment program designed to meet TEK's needs up to the early 1990s. Theproject was identified in September, 1984 and appraised in February 1985.Loan negotiations were held in Washington from April 30 to May 2, 1985. TheTurkish delegation was led by Mr. Tunc Bilget, Chief Financial and EconomicCounselor in the Turkish Embassy in Washington and included representatives ofthe Ministry of Energy and Natural Resources, the Treasury and TEK. A reportentitled "Staff Appraisal Report of a Fourth TEK Transmission Project",(No. 5571-TU) dated May 20, 1985 is being circulated separately to theExecutive Directors. The main features of the loan and project are given inthe Loan and Project Summary and in Annex III.

Project Setting and Objectives

54. The proposed project conforms to the Government's strategy forincreasing domestic production of energy economically and improving thebalance between investments in generation and investments in transmission anddistribution facilities. Since the main indigenous energy resources (hydroand lignite) are typically far removed from the main load centers, TEK has hadto pay special attention to the construction of a least cost, long-termtransmission grid at the 380-kV level. Implementation of this grid started in1974 and the related long-term construction program is being updated regularlyto take account of growth and changes in TEK's load and generationrequirements. The latest update in January 1985 covers the requirementsthrough the early 1990s.

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Project Description

55. The proposed project would be a continuation of the ongoing ThirdTransmission Project (Loan 2322-TU) and would constitute the fourtb phase ofdevelopment of the 380-kV transmission network, covering 1986-1990. It wouldinclude the following components:

(i) construction of about 800 km of 380-kV transmission lines tointerconnect the Altinkaya and Hamitabat power stations to TEK'sbulk supply system and provide two additional links for theKarakaya power station;

(ii) construction and/or extension of 380/154-kV transformersubstations with total installed capacity of about 2,100 MVA;

(iii) supply, installation and commissioning of equipment for theconstruction and extension of 154-kV substations with about 3,300MVA of new installed capacity;

(iv) construction of a tower testing station for towers fortransmission lines up to 380-kV, with possibility of extension tothe 800-kV range;

(v) supply of specialized line stringing equipment and vehicles to beused in the installation of transmission lines;

(vi) training and supply of devices, such as computerha-rdware/software to strengthen TEK's capabilities in networkengineering, planning and in transmission lines and substationdesign; and

(vii) consulting services to assist TEK in the implementation of theproject.

56. The project would also include a training component which aims atcontinuing the improvements under way in TEK's capabilities in networkplanning and in transmission lines and substation design. Training would beprovided for about 90 specialized and experienced personnel in variousdepartments. TEK has agreed to submit a detailed staff training prograo tothe Bank not later than June 30, 1986 and to implement the agreed program inaccordance with a schedule satisfactory to the Bank. (Loan Agreement, Section3.03). The continuing problems of maintenance of the transmission grid wouldbe addressed under the Power System Operations Assistance Project which isbeing processed in parallel with the proposed project.

Project Implementation

57. TEK would be responsible for execution of the project. Preparationof tender documents for procurement of goods is under way and would becompleted by March 30, 1986. Construction of the transmission lines andsubstations is scheduled to start in mid-1986 and to be completed by June 30,1990. The engagement of project management consultants to assist TEK in theimplementation of the Project under terms and conditions satisfactory to theBank would be a condition of loan effectiveness (Loan Agreement,Section 7.01).

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58. Acquisition of rights-of-way for the lines is under way, and theimplementation schedule has been estimated on the basis of TEK's experiencewith the Third Transmission Project. Land acquisition for the new 380-kV and154-kV substations has not started yet. Therefore, to avoid delays on accountof land acquisition, an action plan has been agreed which provides for landacquisition by TEK to be completed by September 30, 1986. The plan alsoprovides for acquiring land for at least 10 substations by March 31, 1986, andfor 50 percent of the total sites by June 30, 1986 (Loan Agreement, Section3.05).

Environmental Impact

59. The project would not have major adverse effects on the environment.Aesthetic effects and, to a lesser extent, noise would be the principaladverse effects and both would be kept at acceptable levels.

Project Cost and Financing

60. The total cost of the proposed project, including physical and priceccvntingencies but excluding the interest during construction, would be about$195 million, of which $146 million would be in foreign exchange. The projectcost estimates are based on January 1985 prices derived from quotationsreceived recently by the Borrower for equipment and material similar to thoseincluded in the project. Total physical contingencies have been kept at about10 percent of base cost, taking into account the advanced state of the designfor the lines and the repetitive and routine nature of the work for thesubstations. Price contingencies have been computed assuming animplementation period consistent with Bank experience and projected annualincreases in domestic and international prices.

61. The proposed Bank loan of $142 million would finance 89 percent ofthe foreign cost including $13 million to finance interest duringconstruction. TEK's current tight cash flow situation, caused inter alia byits heavy investment program would ,ustify finance of interest duringconstruction. The remaining $66 million of the total cost would be covered byTEK's internal cash generation, materials from stock, and Governmentcontributions. The balance of $17.0 million of foreign exchange costs to beborne by the Government and TEK would cover the cost of materials andequipment to be supplied by TEK from inventory and the indirect foreignexchange cost for installation and erection which would be undertaken by TEKor local contractors.

62. TEK is currently exempt from import taxes and customs duties for theprojects under construction. Therefore, taxes and import duties are notincluded in the project cost. The Government has confirmed that thisexemption would extend to the proposed project.

Financial Position of TEK

63. TEK's financial position improved markedly over the last year. TEKhad suffered a net operating loss in 1983, due to a combination of poorhydrological conditions, high costs and insufficient tariff increases. Thesituation improved sharply in 1984, due to a substantial upward adjustment in

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tariff levels and sharply improved hydrological conditions. In 1984 thecombined investments of TEK and DSI amounted to TL522 billion ($1.5 billionequivalent). The principal sources of financing for the two entities combinedwere estimated as follows: internal cash generation (16 percent); Governmentequity (41 percent); foreign borrowing (42 percent); and local borrowing(1 percent).

64. The approved subsector investment program for 1985 is TL600 billion($1.13 billion equivalent), including TL400 billion for TEK and TL200 billionfor DSI. While this is below the investment level required for the sector, itis more in line with existing implementation and financing capacity. TheGovernment proposes to finance the program as follows: Government equity(21 percent); foreign borrowing (41 percent); local borrowing (2 percent); andinternal cash generation (36 percent) 1/. TEK would contribute at least32 percent in 1985 and 35 percent thereafter of the cost of TEK's and DSI'selectrical power investment program (Loan Agreement, Section 5.03). It hasbeen agreed that TEK and DSI's draft annual investment programs and budgetsfor the next five years, and related financing planning, would be discussed bythe Government with the Bank by October 31 of each year. (GuaranteeAgreement, Section 3.01 and Loan Agreement, Section 3.04).

65. Bulk electricity tariffs increased by about 40 percent in real termsin 1984, which more than made up for real decreases in the previous twoyears. Following further real increases in bulk power tariffs in 1985, as ofApril 1, 1985 they were roughly equivalent to long run marginal cost. Retailtariffs have also been increased in parallel since 1983. TEK confirmed thatincreases in bulk power tariffs would continue to be passed through to theretail level and that tariffs would continue to be adjusted automatically forincreases in TEK's fuel costs (Loan Agreement, Section 5.04).

66. Given TEK's new authority to collect sales revenues directly fromretail customers instead of the municipalities, the deterioration in TEK'sworking capital situation through 1982 should normally have been reversed in1983. However, because of the significant real decrease in tariffs in 1983,serious cash flow problems continued in 1983. TEK's accounts receivable atthe end of 1983 were equivalent to 267 days of sales revenue. Deferringpayments to its fuel suppliers in 1983, TEK used its available funds forcapital expenditures, rather than operating expenses, in order to avoid delaysin the implementation of its investment program. This, combined with pastaccumulated arrears, increased TEK's accounts payable to TL283 billion by theend of 1983, exceeding one year's gross operating revenues. To stop risingindebtedness among public enterprises, the Government in 1984 convertedTL230 billion in TEK's net overdue accounts payable to eqtuity. The Governmentdoes not expect to repeat the role of a financial clearing house for debtsbetween public enterprises. Since mid-1984, TEK has been paying its fuel

1/ This number understates TEK's actual cash contribution, as it doesnot include the net Value Added Tax (10 percent) and the radio andtelevision tax (3.5 percent) which are collected by TEK and passed onto the Treasury.

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suppliers on schedule. The current ratio improved from a level of about 0.8in 1983 to an estimated level of 1.2 in 1984. It has been agreed that infuture TEK would maintain a current ratio of at least 1.0. (Loan Agreement,Section 5.02). It has also been agreed that TEK would implement a FinancialAction Plan, covering a reduction of accounts receivables (excluding arrearsfrom municipalities) to the equivalent of 90 days of sales by the end of 1988,improvement of foreign debt service management improvement of financialplanning and engagement of consultants to assist with improvements in costaccounting (Loan Agreement, Schedule 5).

Audits

67. TEK's financial statements are audited by the High Control Board inthe Prime Ministry. TEK is required by law to submit its balance sheets andfinal accounts to the Prime Ministry for auditing no later than the thirdmonth following the year they pertain to. TEK is then required to submit itsannual audited accounts to the Bank no later than five months after the closeof the year. However, there are shortcomings in both the scope and the timingof the present audit reports. The auditors rarely comment on the reliabilityof the presentation of the accounts, or on significant events which occurredduring the year. The audit reports concerning 1981 and 1982 were receivedmore than a year after the close of the fiscal year. Similarly, the auditreport for 1983 had not yet been received as of April 1985. Most likely itwill not be possible to meet the five month target for submission of auditreports until the 1987 report. TEK's consultants are giving priority tohelping TEK improve the timeliness and accuracy of the financial statements.Furthermore, an upgrading of TEK's computer center, presently being studied,should improve TEK's ability to prepare and correct the annual financialreports. It is expected that the quality and timely submission of auditreports will improve gradually. The 1985 and 1986 reports are expected withinten and eight months, respectively, after the end of the given fiscal year,and within five months for 1987 and afterwards.

Procurement and Disbursements

68. The goods and services to be procured for the proposed project havebeen grouped into 10 contracts for the transmission lines and 11 contracts forthe substations to ensure effective international competition. Proposedcontract packages with IBRD financing for the transmission lines are:

Foreign Cost andProposed Bank Financing

(In $ Million)

(a) Steel Towers 3.0(b) Conductors and Shieldwire 36.6(c) Insulators 4.0(d) Hardware 3.3(e) Tower Erection 2.2(f) Tower Testing Station 3.7(g) Line Stringing Equipment and Vehicles 6.5(h) Computer Hardware/Software 3.2Ci) Training 0.8(j) Consulting Services 0.2

Total 63.5

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Proposed contract packages with IBRD financing for the substations would be:

Foreign Cost andProposed Bank FinancinR

(In $ Million)

(a) Power Transformers 34.3(b) Circuit Breakers 380 kV

and 154 kV 13.5(c) Circuit Breakers 35 kV 1.2(d) Disconnecting Switches and

Earthing Blades 4.2(e) Lightning Arresters 1.5(f) Measurement Transformers 4.4(g) Measuring, Protection

and Auxiliary Equipment 4.2(h) Bus Bars and Hardware 1.0Ci) Insulators 0.7(j) Training 0.3(k) Consulting Services 0.2

Total 65.5

All items financed by the Bank would be procured in accordance with the Bank'sprocurement guidelines. Items (a) through (h) for the transmission lines and(a) through (i) for the substations would be procured through internationalcompetitive bidding (ICB). For procurement through ICB, local firms would beallowed a margin of preference equal to the existing rate of customs dutiesapplicable to nonexempt importers or 15 percent of the c.i.f. price of suchgoods, whichever is lower. Sixty man-months of consulting services for bothcomponents would be procured in accordance with the provisions of the Bank'sGuidelines for Use of Consultants. Training manuals and other miscellaneoustraining aids and computer software/hardware packages would be purchasedthrough limited international shopping for items of less than $10,000 up to anaggregate limit of $300,000; for such contracts the Borrower would obtainwritten price quotations from at least three reputable suppliers. To completethe project, TEK would provide the following goods and services which wouldnot he financed by the Bank: (i) towers (material and fabrication) for threelines: Karakaya-Osmaniye, Altinkaya-Carsamba and Hamitabat-Alibeykoy and allthe remaining equipment for the substations (line traps, panels, steelstructures, etc.); and (ii) line stringing, and civil works and installationand erection of the substations which would be carried out by TEK's forceaccount or local contractors. All the contracts for works, and equipment andmaterials to be financed by the Bank and costing over $250,000 each would besubject to prior Bank review. Other Bank-financed contracts would be subjectto post-award review. The proposed procurement plans are susmmarized in thetable below:

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Summary of Procurement Arranxements for the Project(US$ Million)

Procurement MethodProiect Element ICB LCB Other Total Cost

Transmission Lines- 8 Contract Packages 74.3 74.3

(62.5) (62.5)- Towers 16.6 /a 16.6- Line Stringing 4.4 4.5 lb 8.9

Substations- 9 Contract Packages 65.0 65.0

(65.0) (65.0)- Other Equipment 2.6 /a 2.6

- Civil Works 11.2 /b 11.2

- Installation & Erection 11.7 /b 11.7Others

- Training 1.6 1.6(1.1) (1.1)

- Consulting Services 0.6 0.6(0.4) (0.4)

- TEK Project EngineeringAdministration 2.5 /b 2.5

TOTAL PROJECT COST 139.3 4.4 51.3 195.0(127.5) (1.5) (129.0)

Note: Figures in parentheses are the amounts to be financed by the Bank.The total does not include interest during construction.

/a Equipment and material provided by TEK from its stock.

/b Force account.

69. Disbursements from the proceeds of the proposed Bank loan would bemade for:

(i) 100 percent of the foreign expenditures of directly importedequipment and materials or 100 percent of local ex-factory pricesof equipment and materials manufactured in Turkey;

(ii) 20 percent of total expenditures for erection of steel towers;

(iii) 100 percent of foreign expenditures for overseas training andtraining experts engaged under the project; and

(iv) 100 percent of the foreign expenditures of foreign consultantsand 85 percent of total expenditures for local consultingservices.

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70. It has been agreed that a special account would be established forthe project to finance expenditures with a minimum of administrative delay.The initial deposit would be $8 million (Loan Agreement, Schedule 6).

Proiect Justification

71. The proposed project is the least-cost means of interconnecting newgeneration plants and is part of TEK's long-term transmission expansion plan.The evaluation of transmission expansion alternatives is updated regularly toreflect experience with the initial network of lines, as well as changes inthe development of TEK's interconnected system. The latest technical andeconomic evaluation in January 1985, which was discussed with the Bank,confirmed that the lines included in the project would be the least-cost meansof extending the 380-kV network to interconnect new plants coming on line.

72. Since the project would form an integral part of TEK/DSI's 1985-1990expansion program, the economic rate of return was calculated for TEK'sinvestment program for 1985-90, the construction period of the proposedproject. Measurable benefits were limited to the incremental revenueattributable to the program, computed on the basis of: (a) TEK's projectedsales to industrial customers supplied directly at the high-voltage level andto low-voltage consumers supplied through TEK's distribution enterprises;(b) projected tariffs at the high- and low-voltage levels; and any net fuelsavings resulting from investment in improved efficiency in the thermalplants. Tariff adjustments were projected in line with the financialprojections. On this basis the return on the program is estimated at11.2 percent.

Project Risks

73. Most of the 380 kV lines are in mountainous areas difficult toreach. However, adequate construction technology is available to cope withthe expected terrain and climatic conditions.

74. An action plan for the acquisition of land for the new 380 kV and154 kV substations has been agreed (para.58). The proposed use of consultantsto assist TEK in project implementation would provide improve coordinationwith construction of lines, substations and power plants affecting the projectand would assist TEK in preventing delays in project implementation.

75. There is some possibility of a shortfall in available funds to meetoverall investment requirements for the medium-term. However, even at thesuggested lowest range of investment, the components which would be served bythe proposed project represent a set of core high priority investments whichare expected to remain unaffected.

- 24 -

PART V - LEGAL INSTRUMIENTS AND AUTHORITY

76. The draft Loan Agreement between the Bank and the Turkish ElectricityAuthority, the draft Guarantee Agreement between the Republic of Turkey andthe Bank and the Report of the Committee provided for in Article III,Section 4(iii) of the Articles of Agreement are being distributed to theExecutive Directors separately. Features of special interest are listed inAnnex III of this report. Engagement of consultants to assist TEK withproject implementation would be a special condition of effectiveness (LoanAgreement, Section 7.01).

77. r am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

PART VI - RECOMMENDATION

78. I recommend that the Executive Directors approve the proposed loan.

A. W. ClausenPresident

AttachmentsMay 28, 1985Washington D.C.

- 25 - ANEX IPage 1 of 5

T A L 3 X

Tmmc - SOCIAL INDICATORS DATA UIQmmcl rUamin CROON (NEIUIU AVERNm) is.

NOMT (HAlT EC? ERTNATE) lb

13001k l,ia& ~RECENT~ HIDURitINCUW HAM? accAm1,.6A 197aL riSITiWii CUOP HAMT

A Tm (IunsaNi sq. R)TOTAL 710.6 750.0 780.6ACRICULTURAL 3. 7 311 380.9

Cw P CAPITA (3}6) 240.0 440.0 1370.0 2143.3 11071.0

13mcxcvwmurrinu PFR CAPITA(KILOCRANS OF OIL EQUIVALEUT) 170.0 362.0 506.0 1I22.5 4996.9

POIUYATI A1W VITAL SAUEnCPOPULATION.HID-YTAR (THOUSANS) 27509.0 35321.0 46459.0URBAN FOPULATION (Z OF TOTAL) 29.7 32.9 43.9 40.0 70.3

POPULATION PROJECTHOISPOrULATION 1N YEAR 2000 (HILL) 65.4STATIONARY POPULATION (KILL) 110.6POPULATION HONZTUE 1.

POPULATION eNSflTPER SQ. 11. 35.2 45.2 53.2 82.9 13.3PER SQ. M. ACRI. LAZD 70.6 92.5 119.3 153.9 519.2

POPULATION AGE STRUCTURE (I)0-14 TiS 41.2 41.0 36.2 31.6 22.1

15-64 YRS 55.2 54.3 57.3 61.1 66.165 AND ABE 3.5 4.7 4.4 7.1 11.7 N

POPULATION CROWTH RATE (%)TOrAL 2.0 2.3 Z.3 1.6 0.6URBAN 6.1 3.6 4.0 3.7 1.3

CRUDM BIRTH RATE (FI TOUS) 43.1 37.9 30.9 23.4 13.6CRUDE DEATH RATE (PER THCuS) 15.5 12.2 0.8 8.8 9.2GROSS RePRODUCTION RATE 2.9 2.6 2.2 1.6 0.9

FAMILY PLANNINGACCEPTORS. ANNUAL (THOUS) 65.6USERS (Z OF MARRUED INEI) 5.3 /c 32.0 /d.- 30.0 / ...

FOOD SA MTRITIORINDEX OF FOOD PRDD. PER CAPITA(1969-71-100) 96.0 100.0 115.0 114.5 114.1

PER CAPITA SUPPLY OFCALORIES CZ OF REQUIREPMNTS) 115.0 111.0 122.0 1206. 132.3PROTEINS (CROAS PER DAT) 85.0 80.0 86.0 89.7 98.5

OF WHICH ANIMAL AND PULCS 25.0 23.0 25.0 ! 34.5 61.3

CILD (ACES 1-4) IEATH RATE 47.0 23.0 9.0 5.2 0.4

LIFE EXPECr. AT BIRTH (TCAR5 50.5 55.9 62.7 07.4 74.9INFANT IDRT. RATE (PER TRO0S) IB4.0 127.0 83.0 54.2 10.3

ACCESS TO SAE MATER (IPOP)TOTAL 52.0 75.0 lhURBAN ,, 51.0 70.0 7RURAL 53.0 o. 0 W

ACCESS TO EERErA DISPOSAL(Z OF POPULATION)

TOTAL .. ..

-URBAN 20.0 /hRURAL

POPULATION PER PHTSCUAN 2600.0 2230.0 1630.0 1065.8 553.7POP. PER IURSING PERSON 16300.0 /S 1880.0 1130.0 764.4 164.9POP. PER HOSPITAL RED

TOTAL 600.0 490.0 490.0 /f 326.3 120.6URBN 340.0 A1 270.0 /k 270.0 7W 201.5 143.1RUIAL 5100o0 71 50oo0 7W 5650.0 A

ADHISSIONS PER HOSPITAL BED 20.2 2z.3 L 20.0 17.6

tSllCAVERSJE SIZE OF HOUSEHOLD

TOTAL 5.7 11 5.9URBAN .. ..

RURAL

AVER1 E NO. OF PERSONS/ROWTOTAL 2.4 /1 2.2URBAN 2.0 7f 1.9RURAL 2. 7 7ir

ACCESS TO ELECT. (Z OF NILLNGCS)TUOAL 29.0 41.1 57.0 InURBA . 76.2RURAL 2.0 18.0

- 26 - ANNEX I

TAIL!LI 3A, Page 2 of 5

TU? - SOIAL IND IcAOE DATA SHUTTUU3?Y hu1 uh 0am03 (WIONCD £514013) a

IDST (NlUT UCUI OUMTt^)

lintk 197(tk I1is3_ NXMt! INCOM=EUNTK&T 311301 HARKT KC0NCKIK

ADJUSTED ENRDOLUT RATIOSPRI1Y. TOTL 75.0 110.0 102.0 101.L 101.3

KALE 90.0 124.0 110.0 105.5 103.0FIL! 56.0 95.0 95.0 96.7 102.7

IICONDTUYa TOTAL 14.0 27.0 42.0 39.1 90.3HALE 20.0 36.0 57.0 6B.9 64.6FDULC 8.0 13.0 28.0 30.6 87.6

VOCATIONAL (Z or SEC0ND) 17.7 13.7 22.3 21.6 17.9

PUPIL-TLACNER RATIOPRIMARY 46.0 38.0 28.0 25.1 20.2SECoNDaRY 19.0 26.0 20.0 20.5 15.0

ADUT LITERACT RATE (Z) 38.1 51.3 68.8 h. 75.6 99.1

PASSENU CARS/TROUSAND POP 1.7 3.9 11.5 A 54.7 367.2RADIO RCIVwRS/mOUSAND POP 49.1 67.7 96.4 164.9 1090.7TV RCEIVERSITEOUSAND POP 0.0 1.8 75.3 123.8 451.0NEUSPAPER (-AILT GEEA

Nrussr) CIcuLATIONPER TUOUSAND POPULATIO 51.3 40.6 9.1 I 96.3 331.2

CINEMA AN5tLL ATTEJIIACK/CAIITA 1.1 7.0 1.9 X 2.9 3.6

TOTAL LUOR FORCE (THOUS) 13762.0 I5629.0 20137.0PEIULE (PERCENT) 40.2 37.0 36.4 34.5 36.2AQRICULTURE (PERCENT) 782.5 67.7 53.3 40.7 6.2IDUSTRY (PERCENT) 10.5 12.1 12.6 23.3 37.7

PARTICIPATION RATE (PERCENT)TOTAL 50.1 44.8 43.3 42.9 45.7MAL 56.7 55.7 54.3 54.7 59.3FEIU1 41.2 33.6 32.0 31.0 32.7

ECONOMIC DMENDEECY RATIO 0.9 1.0 1.0 0.9 0.7

INCUS DSUISDTIONPERCET OtF PRIVATE DINCMERECEIVED BY

RICUEST 52 OF EOUSEOLDS 33.0 Ac 32.3 /.EIGIEST 20S OP HOUSEODS 61.0 7 60.5 74 .. .. 43.1LOUES? 200 OF USEUIOLDS 4.2 7i 2.9 774 .- *- 5.4LOEST 40 oF EOUSEEOLDS 10.6 7r 9.4 .. .. 15.4

s nns-ESTIMATZD ABSOLUTE POVERTY INCOMELEVEL tUSS PER CAPITA)

URCAN .. .. 342.0 ].RURAL .. .. 270.0

ESTSMCD RELUATIE POVERTY INCOMCLEEL CIUS PER CAPITA)

ensA ........RURAL .. .. 220.0 /f

ESTIMATED POP. mELON AISOLUTEPOVERTY INICO LZVEL CZ)

urIUN ........

RIAL ........

NOT AVAILABLENOT APPLICABLE

/a Toe srcp enrage for each Indicator arm population-MIghted aritlmtic _ma. Coverage of ceuntrime afong theindicators depends on avaflability of data and is not uniform.

/b Unless otbhrwise noted. "Data for 1960o refer to ea jeer betwen 1959 and 1961; 'Data for 1970- betwmen 1909 and1971; and data for Most Recent ZEtiate" between 1960 end 1982.

Ic 1963; /d 1968; /s Ages 15-44; /f 1978; k 1977; lb 1976; /i 962; L 1979; /k 1972; 1 1965; /a11975; /a Arm 11and over.

JUIN. 1934

-27- ANNE Iflits 4AE~it. a. - dn Sec ~ .l~ ~. .~..Page 3 of S

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.. Ist IDD ....no 3.7 W.1 .0 7.0 MA 12 5la d4jbm32*3 553 - 0.7 I1. &A D3. 21.D 2L9no dCt r,Asml S* l 3.1 1LA9 20.7 2. 32A IL.9 UL7ML 3MD-I 3.9 2U L.7 L2 L.2 L2 2.2ML _ Sm di LI 0.9 .1 - - - -MIn d2* mm1 02* edt _ic 1 0.4 0.3 0A 02 0.2 0.2 03

A. Z of oft 1 2,

Taw .4m

i 5 37.4_ ]Dii 6 ves 3 a3a.

lgme_m *0 CXGiamm 02 .i0d Sim pm 0.1

AU ozza amc- c1pu 2* .f .-="a e54sa a 1 f.0 bp* Dta Jr- y 1107 415ad d-v=llW ad3.

bcWwmm m anw.d 024 pujimid ymsitu (iwo e. W2 . dwrt-uw. mid onidAnd hai I U604

(09. m- ._ -_ r.2i.f _ 231431m_X _ ,tvw"(mll J_n.3S _ -

- 30 -

EAI W Elk m U D DD ma I/

A. EAThEW SilBK lawi AID in ~ La%a of Hh 31, 1965)

Lo Fimi is millions) kBUW YW BVA room am* U Ibliimninl

Vmty u lns and foitwt rerdits fully dimum 2569.95 196.15

1S-W l976 4 ri Bz -B ofmwkay (mm) hgpicuru ;dit 54.3 26.79

130-0 1977 kpbLic of Tuah Ti_ 23.0 5.70L155-11 198 Ipubic of Turkey N1rm Frczy 86.0 43.061561311978 2 bpubl of 1ky Limtak LV Z6.0 15.27160HU 1938 iquiblir of Tny Ev r Se1l St_p It 95.0 25.821741-111 1979 %Uuli: of T1dky Pod : rdbiltatimi 75.0 17.291742-1 1979 Repblic of Taey (kain 5wr 79.0 74AB1754-U 1960 Idtrial Dlop-

itinof1awq cm) Pcivat Setor Tatilm 65.0 15.15

1S5511 L9D lorinal _maatman Cdit BDk(cm ) Private Sinc Tuztil lS.0 6.26

Uw*m 1980 ftpmi= of nqkay 1scAka Hydzpw 12D.0 38.3318D-' 16 lapablie of Tkny Sumbmi Cotm Textili 83.0 3D.49ISQ-0 1960 kpulic of Tumy Livntnok V 51.0 37.261916(1r 1981 kjxublic of Tukey PetroleumEiAtim 25.0 l L951917-'J L981 -kphlic of Tuday Oil 1osier 62.0 IM319521- 1981 hpblic of Tukky Lw Inn.me laduI:zy 40.0 17.51967-0 18 Sepilie of Tuaa Sac ruikt ad Vptlm 40.0 30.92985-' 19111 hpiblic of They Fectiliow _xzstry

: zbliuo 110.0 64.611998- 1l Sca iWX zC State lmanrtinl Fatatpria

B.k DU) Firmcm 70.0 46.12293-V 1962 EVort-ftiented Iniatries 10.0 65.212&-9 1962 ipui9blic of nikny E nzc Iral wml De1umt 40.0 29.9D2131:-U 1962 pic of MucIq Smn Fctilimr

Rdiiliratim 38.0 52137-M I92 1 Mie of TurEy Hi_uy 71.1 40.072159-m 1982 Ia-tl o ply

ad SFwp c.ma1DiEECA (Im) Ibal 88.1 83.50

231-TU 1983 T1M Secud hpimlt l 5 4t 150.4 110123-IU 1983 nhkim Elec:cicity

h,diity (m) Thind 1 Tra .imm 163.0 145AS2327-ZLU 1963 Thidjh Petolam

oation (T1) Torm Gons Eploratim 55.2 51.242399'lU 1984 kpd,lic oT Twray 1nustrial Tmini;n 36.8 36.662MD11U 198 hpblic of Tkay Terbm1 Aautnw Srx 9i 7.6 7.512W 5-0U 98. kpuiu of TIkaky ApqJacc m wic Rhlh - 72.2 67A.a33-M 1K Rtpblic of key mmZE Tigati; 115.3 lU.m

29-'W 1964 alpiic of Tair Sead HiW*. 1E6.4 175.782141d-W 19 Rqpulic of Tuarey Fifth Stx.gnwa Adlj.nbn 376.0 125.96

Total 5187.3 196.15 1619.96of -hiid b been repaid 65I37 15.59

Total amutsdi- 4535.96D0.56At sold 3.5of Wlidba beo nxpaid 3.55 -0- -0-

Tal nor MUd by 1 md M /c 4535.96 18D.56Total uxtimegmd 16..9

la Me at-Ab of tim rajwcu listed in Pt A is dscrie in a seuraa rercm mu Bh*/ID fimi imo in moatima, %mih is uqbad bon yeeayad c iatd to the F.,meve Dizrts an April 30 ad October 31.

lb Not of eamoalatins.rC Prio tD GNhaW 4 4 UOts.

. 0962t

_ 31 -

ANl IIPage 2 of 2

Sl= OF BAOU? GIP tTEATTNS IN MlREY

B. SE GMsi CF lFC NESSIIWS(As of Much 31, 1985)

Fiscal hMDMt $ MillionsYear Type of Busines lan Eqtr Total

19+6/67/69/ TSKB DEC 60.00 4.77 64.7772/73/75/76/77/80/8V1966/69/ SIPAS I Nylon Yarn 3.15 1.42 4.5771/721970/71/ Viking I Pulp and Paper 2.50 0.82 3.3282/831970 ACS Glass ID.O) 1.58 11.581971/76/ NASAS Alkiinn 8.58 1.46 10.0483/841973 Akdeniz Touria 0.33 0.27 0.601974/77 Bcrusma Steel Pipes 3.60 0.49 4.09194 AMSA Textiles 10.00 - 10.001975 Kartaltepe Textiles 1.30 - 1.301975 Sasa Nylon Yarn 15.00 - 15.001975 Aslan Cement 10.60 - 10.601975/78183 DOMS Steel 7.50 1.53 9.031976/79 Asil Celik Steel 12.0U 4.00 16.001979 Ege mtsan iEnines for Mpeds 2.15 - 2.151979/80/82/ ISAS MDtr Veiicles & Access. 8.85 2.34 11.1984/851979/81/ Trakya Cam Glass 33.15 3.23 36.3883/&41980 HI& Textiles and Fibers 4.00 - 4.001981 Kirklareli

Cm SanayiiA.S. Glass Tableware 12.95 - 12.95

1982 M.LN.lbtors MktDr Vehicles & Access. 7.87 - 7.87

1984 Pinar Food and Food Processing 3.90 _ 3.90

Total Gross Ccuitmeats 217.43 21.91 239.34Less Cancellations, Teminations,

Exchae Adjustments, Repayments

aid Sales 167.24 8.31 175.55

Total Camiuents now held by IFC 50.19 13.60 63.79

Total lUdisbtrsed 1.69 - 1.69

09821April 15. 1985

l

- 32 -

Annex IIIPage 1 of 2

TURKEY

Fourth TEK Transmission Proiect

Supplemental Project Data Sheet

I. Timetable of Key Events

(a) Time taken by country to prepare September 1984 -

project: February 1985

(b) Project preparation agency: TEK

(c) First Bank mission to consider theProject: March 1984

(d) Appraisal mission departure January 1985

(e) Negotiations completed: May 1985

(f) Planned date of effectiveness: September 1985

II. Special Bank Implementation Actions

None

III. Special Conditions

A. Loan Effectiveness

Employment of engineering consultants (para. 57).

B. Other

(a) TEK to submit to the Bank no later than June 30, 1986 adetailed staff training program and to implement the program inaccordance with a schedule satisfactory to the Bank (para.56).

(b) Acquisition of at least 50 percent of the land needed for allsubstations to be completed by June 30, 1986 (para. 58).

(c) The Government and TEK to review with the Bank the medium-terminvestment program and related budgets of TEK and DSI (para.64).

- 33 -

Annex IIIPage 2 of 2

(d) TEK to take necessary actions to ensure that internal cashgeneration is at least equal to 32 percent of TEK and DSI'scapital expenditures in 1985 and 35 percent thereafter (para.64).

(e) Increase in bulk power tariffs to continue to be passed throughto the retail level and power tariffs to continue to beautomatically adjusted to reflect increases in TEK's fuel cost(para. 65).

(f) TEK to maintain a current ratio of at least 1.0 (para. 66).

(g) TEK to improve collection of payments from customers to reduceaccounts receivable to the equivalent of 90 days average salesrevenue by the end of 1988 (para. 66).

SUI.OA21A E184

.~~~~~~~~~~~~' ~ ~ ~ ~ 7 ~ oK

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