Document of

The World Bank

FOR OFFICIAL USE ONLY

I-N #2rf-7L)

Report No. 6985-TU

STAFF APPRAISAL REPORT

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

November 2, 1987

Country Department IEurope, Middle East and North Africa Region

This document has a resticted distibution and may be used by recipiens only In the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank autorization.

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CURRENCY EQUIVALENTS

Currency Unit = Turkish Lira (TL)TL850 = US$1.00 (June 30, 1987)

FISCAL YEAR

January 1 - December 31

WEIGHTS AND MEASURES

km = Kilometer (0.621 miles)1 = Liter (0.264 US gallons)m3 = Cubic meter (264 US gallons)m3/sec = Cubic meter per second (22.8 Mgd)

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

DSI = State Hydraulic WorksGDRS = General Directorate of Rural ServicesIB = Iller Bank (Bank of the Provinces)ISKI = Istanbul Water Supply and Sewerage

General DirectorateMAFRA = Ministry of Agriculture, Forestry and

Village AffairsRWS = Rural Water Supply DepartmentSPO = State Planning Organization

FOR OMCIAL USE ONLYREPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

LOAN AND PROJECT SUMMARY ... .. ................................ . i-i

I . INTRODUCTION ...............................................

II. SECTORAL CONTEXT ............................................. 1

Country Background ...... ................................. ......... . 1

Water Supply Service Levels .................................................... . 1

Sewerage Service Levels ......................... -.......... ..... 3Future Demand for Water and Sewerage .............*# ........... 3Sector Organization and Development ............ ......a........ 0 ....O......... 4

Investments in the Sector ...................................... . 5

Constraints to Development .................................................... . 6Previous World Bank Involvement in the Sector ................... 6World Bank Lending Justification .......................... ...... 7

III. THE BORROWER ......................... .... ....... 7

Introduction ............................................................. 7Organization and Staffing ....................................... 8Training . . . . . . . . . . . .. . . . . . . . . . . ...... . . . .#. .. . . .. ... . 8Accounting and Auditing .................. ... .............. 9Billing and Collection .......................................... 10Industrial Waste Management ...................... .............. 10

Insurance ..... ......... ...... . ................... 11

IV. SECTOR SERVICES, DEMAND, AND PROPOSED INVESTMENTS ....6........... 11

Project Area ..................................................... 11Sector Services ..................................... 11Demand for Water ........................ .. ......... ..*... 13

Demand for Sewerage ............................................. 15ISKI's Investment Program.................. ........... # 15

This report was prepared by Mr. Paul J. Bowron, Financial Analyst; Mr. RichardA. MacEwen, Engineer; Mr. David A. Henley, Engineer; and Mrs. Marjory-AnneBromhead, Economist.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Content3 (Cont'd)

Page No.

V. THE PROJECT .................... 16

Introduction .................... .... t...e. . 16Project Objectives ........... ................. 16Project Description ............................ 16Project Cost and Financing . ............. 19Project Implementation ........................ 21Procurement ........................ 22Disbursements .................................. 25Monitoring and Evaluation ... ..... ......... .... 26

VL.FNNE............ 26

Past Performance and Current Financial Position ................. 26Financing Plan ............................. 27Future Finances .................................... 28Tariff Structure and Special Charges ............................ 29Financial Reotn .........................30

VII. ECONOMIC EVALUATION AND RISKS ......... ..... ........ .. 30

Benefits .............................................. 30Rate of Return .............................................. 31Affordability of Services .......... ......... .. 31poverty Impact ........................... 32Environmental Impact ...................................... ..... 32Risks R..C.... ... 33

VIII. AGREEMENTS REACHED AND RECOKMdEATIONS ............................ 33

Table of Contents (Cont'd)

LIST OF ANNEXESPage No.

1 - ISKI Organization Chart ..................................... 35

2 - Black Sea Disposal of Sewage ............................. 36

3 - Historical and Projected Water Productionand Related Iniaos...............................37

4 - Historical and Projected Sewerage Connections and RelatedIndicators ....... ........ 38

5 - ISKI Investment ............. ............................ 39

6 - Project Cost Estimates ........... ......................... .44

7 - Contract Procurement Schedule ............................. 51

8 - Project Implementation Schedule .......................... 52

9 - Allocation of Loan Proceeds. ..... ,..., .. ...... 53

10 - Loan Disbursement Schedule ...........................,... 54

11 - Monitoring Indicators .................................... *. 55

12 - Income Statements, 1985-94................................. 56

13 - Sources and Applications of Funds Statements, 1985-94 ..... 57

14 - Balance Sheets, 1985-94... ........................... 58

15 - Incremental Cost and Benefit Streams for InternalRate of Return .............................. 60

16 - Selected Documents and Datain the Project File ............... ........ 61

MAPS

IBRD Nos. 20401 and 20405

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REPUBL1C OF TURKEY

ISTANBUL WATER SUPP'LY AND SEWERAGE PROJECT

Loan and Project Sum nm

Borrower: Istanbul Water Supply and Sewerage General Directorate(ISKI).

Guarantor: Republic of Turkey.

Loan Amount: US$218 million equivalent.

Terms: Seventeen years, including 4 years grace, at the standardvariable interest rate.

Project The Project consists of high priority components inDescription: ISKI's 1987-94 investment pregram. The objectives of the

Project are: (a) to improve and extend sewerage service to70 of the population of Istanbul by the end of 1994;(b) to provide for appropriate disposal of sewage toprotect the waters and shorelines of the Sea of Marmara andthe Bosphorus; (c) to reduce unaccounted-for water; (d) tostrengthen ISKI's operation and maintenance and industrialwaste management capabilities. The Project includesrehabilitation of parts of the water distribution system;installation of a system for water supply monitoring andcontrol; and construction of sewage collection and sewagetreatment facilities. A technical assistance component ofthe Project would provide advice and training to strengthenISKI institutionally.

Benefits The proposed loan will finance 90% of the estimatedand Risks: foreign exchange cost of the Project. Project components

not to be financed by the loan include land acquisition,local staff engineering, sewer networks and sewerconnections. The beneficiaries of the Project would be:(a) 2.3 million people who would receive sewerage service;(b) 1.0 million people already connected to the waterdistribution system who would receive improved service; and(c) residents and visitors who now encounter pollutedwaters and shorelines along the Sea of Marmara and theBosphorus. The Project's financial risk that ISKI wouldnot adjust its tariffs to compensate for inflation is smallsince ISKI has shown willingness to raise tariffs whenneeded in the past. The Project's environmental risk isassociated with the Black Sea disposal method planned forapproximately half of Istanbul's sewage. The method usesthe bottom current of the Bosphorus to transport partlytreated sewage to the Black Sea, where it will be dispersedand treated naturally. Although the method is untried, itis theoretically sound and the risk is considered to beinsignificant. If the method should not prove to be fullysatisfactory, ISKI would be expected to take correctivemeasures.

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Estimated Ptolect Cost: Local ForeiRn Total-- ~US, million

Water Distribution 28.8 44.8 73.6Sewage Collection and Treatment 252.5 155.9 408.4Institutional Strengthening 3.3 9.8 13.1

Base Cost 284.6 210.5 495.1

Physical Contingencies 26.6 19.5 46.1Price Contingencies 17.3 11.4 28.7

Total Project Cost /a L1 5fi2

Financing Plan Sources:

IBRD Loan - 218.0 218.0ISKI Revenue from Sales 264.3 1.6 265.9Customer Contributions 64.2 21.8 86.0

Total Financing 322..2

Estimated Lplsbw,sements:

World Bank Fiscal Year1988 1989 1990 1991 1992 1993 1994 1995 1996

-- -US$ million-

Annual 24.4 21.8 34.8 39.2 39.2 30.4 16.2 8.8 3.2Cumulative 24.4 46.2 81.0 120.2 159.4 189.8 206.0 214.8 218.0

Economic Rate of Retum 13.6S. /b

a/ Figures include an estimated US$59.9 million equivalent in value addedtaxes.

b/ The internal financial rate of return for ISKI's investment program.

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

STAFF APPRAISAL REPORT

L iNTRODUCTION

1.01 The proposed project is for the Istanbul Metropolitan Municipality,which has a population of 5.7 million growing 4.3S per year. Istanbul isTurkey's principal commercial and cultural center and its most active port.It is also the gateway to Turkey and the center of Turkey's growing touristindustry.

1.02 The Project includes rehabilitation of water distribution facilities,and construction of new sewerage facilities needed to keep pace withIstanbul's rapid growth and to provide for the safe and environmentally sounddisposal of its wastewater. The sewerage components of the Project would con-tinue the pollution abatement program initiated under the first IstanbulSewerage Project (Loan 2159-TU). The water components would eliminate watershortages now affecting 18X of the population. Approximately 2.3 million pre-sent and future residents of Istanbul are expected to benefit directly fromthe Project. In addition, the population at large should benefit from animproved quality of life resulting from a cleaner environment.

1.03 Preparation of the Project began during 1985 and expanded during 1986with engineering financed in part by Loan 2159-TU. The field appraisal beganwith a mission in March 1987 which was interrupted by work on another project;it was completed during a missl-4i in May 1987.

IL SECTORAL CONTEXT

Country Bd

2.01 The population of Turkey at the end of 1986 was 52 million, with 53percent living in urban areas. The population growth rate averaged 2.5 per-cent per annum during 1981-1985 (4 percent for urban and 0.9 percent for ruralareas). The rate is expected to decrease gradually, and the population by theyear 2000 to reach about 66 million. Turkey is a middle income country withper capita GNP of approximately US$1,200. Following economic difficulties inthe late 1970s, measures were introduced to liberalize the economy. Theeconomy recovered, GDP growth averaged 5 percent per annum in the 1980-85period, exports grew at an annual rate of 23 percent, and inflation has beenreduced. Despite these favorable trends, inflationary pressures persist, and,while exports declined by about 8 percent in 1986, largely due to reducedmarket demand in the Middle East, export performance in 1987 has beensatisfactory. Also, the debt burden remains high. Nevertheless, with carefuleconomic management, GDP is expected to continue to grow at about 5 percentper annum through 1990.

Water SUPPlY Service Levels

2.02 Nationwide water and sewerage figures for urban areas in 1983 aresummarized in Table 2.1. Although approximately 80 percent of urban

households had piped water connections, a substantial proportion of them didnot have reliable service because of inadequacies in water production, treat-ment and distribution systems. Water losses were estimated at 36 percent.Daily per capita consumption for connected urban households was 85 liters fordomestic users, or 122 liters including commercial and industrialconsumption. Although adequate to meet minimum health requirements, theseconsumption levels are substantially below those in richer industrializedcountries-' and are below potential demand, which is suppressed by systeminadequacies. In the Istanbul metropolitan area, 93 percent of the populationhad house and apartment connections, but only two thirds of those served hadadequate supply. The most serious problem was, and still is, that inadequateand aging distribution systems lead to low pressure and intermittent supply inelevated and fringe areas.

Table 2.1: 1983 Water and Sewerage Sector in Urban Areas

NationwideService Levels (% served) Urban Istanbul

Total Population ('000) 24,600 5,038

Piped Water 80 93

Public Sewer Connection 56 54Cesspit 24 22Other/Unknown/None 20 24

Water Production and Consumption

Number of Connections ('000) 4,565 779Persons per Connection 4.3 6.0Quantity of Water Produced (million m3) 1,380 332Quantity of Water Sold (million m3) 877 200Losses (%) 36 40Water Sold per Connection (m3) 192 264Per Capita Sales includingIndustrial and Commercial (liters/day) 122 120

Estimate of per Capita DailyDomestic Consumption (liters/day) 85 84

Municipal Water and Sewerage Establishments

Total Number of Municipal Water Establishments 850 1Employees 19,600 4,660Wages and Salaries (TL million) 11,700 3,545"I to it (US$ million) (52) (15.7)

Goods & Services Purchased (TL million) 6,485 3,807"q of of to (US$ million) (28.8) (16.9)

Sources: State Institute of Statistics: Gas and Water Statistics 1983, Popu-lation Census 1985, Census of Buildings 1984, ISKI Statistics.

Per capita consv.nption is over twice this level in EEC countries.2a Since 1983, new *-onnections have not kept pace with population growth

in the Istanbul ared so that now the estimated population served isonly 89 percent.

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Sewerage Service Levels

2.03 Ac-ording to the 1984 Buildings Census, 56 percent of urban dwellingshave a sewer pipe. This figure may, however, be misleading since many sewerpipes connected to buildings discharge into a nearby creek or open drain.None of the sewerage systems include treatment, and only a few have adequatedisposal facilities, Precarious sanitary conditions prevail, parti ]Jarly inhigh density, low income urban areas. The insufficiency of sewerage and theindiscriminate disposal of domestic and industrial wastes have caused deteri-oration of rivers and coastal waters, and have increased the danger of contam-inating drinking water supplies. According to ISKI's figures, only about 54percent of Istanbul's population is connected to the public sewerage system,much of which is archaic and leaking. Discharge of sewage into the GoldenHorn will soon Le controlled as a result of the first Istanbul SewerageProject (L n 2159-TU), but untreated sewage is still discharged into theBosphorus d.id Sea of Marmara, causing severe pollution in some areas.

Future Demand for Water and Sewerage

2.04 It is estimated that 6 million of the present urban population ofapproximat%ly 28 million do not have piped water, and 12 million do not haveadequate sewerage. Substantial investment will be necessary to make up forthese deficiencieg. Furthermore, with the continuing urban growth accompany-ing Turkey's rapid economic development and industrialization, there will beeven greater demand for water and sewerage infrastruzture. The urban popula-tion is expected to increase from 28 million in 1986 to about 45 million bythe year 2000.

2.05 Water supply and sewerage objectives formulated by the Government in1978 were: (i) by 1990, the total urban and rural population should have ade-quate water supplies; (ii) by 1990, the total rural population should havesatisfactory exereta disposal facilities; and (iii) by 2000, the total urbanpopulation should have satisfactory sewerage and sewage disposal facilities.It is now expected that more time will be needed to achieve these goals, andthat by the year 2000, perhaps 90 percent of the population will have adequatewater and 75 percent of the urban population will have sewerage. This willrequire provision of water for an additional 26 million people-i-', and sewer-age for 19 million people. Water production for urban areas would have toincrease to 3.5 billion m3/year!/ (compared to 1.4 billion m3/year in1983), with corresponding increases in treatment and distribution facilities,in sewerage networks, and in sewage treatment and disposal facilities.

T- 18 million urban and 8 million rural inhabitants; about 63 perce.at ofrural households have access to a piped water system.

t' Assuming that unaccounted-for water will be reduced from 36 percent to 20percent; that the serviced urban population will be 40.5 million; andthat overall consumption will increase from 120 1/cd to 190 1/cd.

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Sector OrEanization and Development

2.06 With the exception only of certain major water source operations, theprovision of public water supply and sewerage services in Turkey is a respon-sibility of municipalities and village councils. Local financial resourcesand technical capabilities, however, have not been sufficient to support sys-tem development (except recently in the cases of Istanbul and Izmir).Planning, design, and construction of new systems, therefore, have been, andare being carried out by three central government organizations, except forprojects in the largest municipalities. The three organizations are:

(a) The State Hydraulic Works (DSI) under the Ministry of PublicWorks, responsible for national water recources management,major water source development and operation, and water supplydevelopment for the larger towns, but excluding the four largestmunicipalities. DSI has its headquarters in Ankara and operates21 regional offices.

(b) The Iller Bank (IB, meaning Bank of the Provinces), a semi-autonomous Government corporation responsible for water supplydevelopment for towns with a population of less than 100,000,and for major sewerage development in all urban areas exceptIstanbul and Izmir. IB has its headquarters in Ankara andoperates 16 regional offices. Its shareholders are themunicipalities.

(c) The General Directorate of Rural Services (GDRS) under theMinistry of Agriculture, Forestry and Village Affairs (MAFRA).There are two departments within GDRS dealing with rural watersupply programs, the Rural Water Supply Department (RWS) and theResearch and Planning Department. The RWS has 17 regionaloffices which supervise 67 provincial offices.

2.07 In all but the four largest municipalities, responsibility formunicipal water and sewerage operations is embedded within operating depart-ments which carry out a variety of other functions as well (e.g., transporta-tion, gas service). The first of the four exceptions is the IstanbulMunicipality. In 1981, the Istanbul Water Supply and Sewerage GeneralDirectorate (ISKI) was created by Law No. 2560 as an autonomous entity respon-sible for the planning, design, construction, operation and maintenance of allwater supply and sewerage facilities in Greater Istanbul. This was intendedto strengthen the sector's organization, and to enable an increasing share ofthe sector's investment for Istanbul to be financed with internally generatedfunds. The experience has been successful, and Law No. 3305 of June 5, 1986has amended the first ISKI law (No. 2560) to authorize the establishment ofsimilar organizations in Izmir, Ankara and Adana. Also, national legislationin 1981 defined Greater Municipal Areas, by which administrative responsibili-ties and organizations for water supply and sewerage services of many smallermunicipalities could be taken over by a nearby large urban center. In thecase of Istanbul, 24 water supply organizations were merged into ISKI.

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Investments in the Sector

2.08 In 1985-86, the total of all public investment grew about 15 percentper year in real terms, with the energy and transport sectors and expendituresby municipalities accounting for the majority of the increase. This rate ofgrowth has been considered excessive, but at the same time it has been recog-nized that increases in municipal expenditures may be appropriate in manycases to make up for service deficiencies that developed as a result of under-funding in previous years. Accordingly, it has been the Government's objec-tive to have investment in water and sanitation increase from 5 percent oftotal public investment in 1984 to an average of 9 percent over 1985-89,within a public investment total increasing at an average rate of about 42 peryear. The World Bank supported this in its March 1987 Public InvestmentReview with the Government.

2.09 The 1987 public investment budget for the Greater Istanbul metropoli-tan area may be summarized as follows:

Table 2.2: Budgeted Public Investment in 1987 for the GreaterIstanbul Area, by Source of Financing

TL billion

Metropolitan Municipal Budget 251Local Municipality Budgets 174Foreign Borrowing 130Build, Operate, andTransfer Investments (BOT) 80

ISKI 101 iPublic Enterprises and CentralGovernment Departments 195

Other 5

Total 936

' Includes foreign borrowing by ISKI.

Investments financed in the municipal budget are planned to continue at aboutthe 1987 level in real terms through the rest of the 1980s. It is plannedthat foreign borrowing will decline from TL 130 billion equivalent in 1987 toTL 80 billion in 1988, and to lower amounts later. Major projects to befinanced in part with future foreign borrowing include the Golden HornImprovement Project, a third Bosphorus Bridge, and an urban road artery,together costing an estimated US$400 million; and a first stage rapid transitsystem costing US$300 million. Build, Operate, and Transfer (BOT) Projectsunder consideration include four hotels, a car park, a lorry park, aDisneyland and, possibly, a hospital. A principal reason for growing interestin this form of development is its minimal impact on the Municipality's budget.

2.10 ISKI's 1987 budgeted investment expenditures represent about 11% ofthe Istanbul total. They will grow rapidly during the next few years, butwill be financed mainly (88X) by revenue from sales (para 6.08), the balancebeing obtained through borrowing, and with no requirement for a budgetaryprovision from the Municipality or the Government.

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Constraints to Development

2.11 Except in Istanbul and, in the near future, in Izmir, Ankara andAdana, responsibility for the construction of municipal water supply and sew-erage systems has been held by DSI and IB. This has had several conse-quences. Firstly, central agency supervision of construction of widelyscattered projects has not always been adequate. Secondly, lobbying by munic-ipalities for water supply and sewerage systems has put central organizationsunder pressure to start projects when funds may not have been available toproceed at an efficient pace. Thirdly, municipalities responsible for manyother services' in addition to water, have not always operated and maintainedsystems satisfactorily, and have set charges at too low a level to provide forsufficient maintenance. The situation is, however, expected to improve giventhe Government's decentralization policy (para. 2.07) ana the example of thepositive experience with ISKI.

Previous World Bank Involvement in the Sector

2.12 The Bank made a US$37 million loan to the Government in 1972 for theIstanbul Water Supply Project (Loan 844-TU), which was completed in 1981. TheProject included expansions of water treatment, transmission, pumping and dis-tribution systems for the Istanbul metropolitan area. The Project PerformanceAudit Report (No. 4853, issued in 1983), concluded that the main orojectobjectives were achieved: water production was increased to the levels antic-ipated at the time of appraisal, and a reorganization of the sector wasachieved through the creation of the Istanbul Water Supply and SewerageGeneral Directorate. In 1982, a loan of US$88.1 million was made by the Bankfor the Istanbul Sewerage Project (Loan 2159-TU) to improve sewage disposalfacilities and to increase the proportion of the City's population to beserved by sewerage. Project implementation is proceeding satisfactorily, with81 percent of the loan disbursed as of October 1987. The Project willeliminate discharges into the Golden Horn today amounting to about 30 percentof Istanbul's effluent, and an industrial pollution control program alreadyhas been put into operation.

2.13 Loan 2818-TU or US$184 million was approved in May 1987 for a waterand sewerage project for Izmir (estimated total cost of US$522 million). Anauthority similar to .SKI has been established to implement the Project andmanage water and seweiage operations. An engineering loan of US$9.2 million,including funds for water supply and sewerage studies for the Cukurova Region(Loan 2537-TU), was approved in 1985. This was followed in May 1987 by Loan2819-TU of US$120 million for a municipal infrastructure project for theCukurova Region (estimated cost of US$467 million), 47 percent of which wouldbe for water and sewerage. An authority similar to ISKI has been establishedfor the largest city involved, Adana, and operationally autonomous waterdepartments are to be established in four other towns in the Region. TheCukurova Project also aims to build up the capacity of Iller Bank as a finan-cial intermediary. A unit is to be established within Iller Bank to appraiseand monitor municipal infrastructure projects and investment programs in theCukurova area. Total lending for the urban and water sector under ongoingloans is US$401 million.

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World Bank Lending Justification

2.14 The Bank's strategy for the sector is to continue to support theGovernment's objective of reducing inadequacies in water and sewerage infra-structure in the most cost-effective and environmentally sound way possible.The strategy is also to support the decentralization and cost recovery poli-cies of the Government through assistance in the near and medium term to thenew autonomous water and sewerage organizations in the municipalities. Inaddition, the Bank would begin lending for projects in medium-size cities,where considerable potential lies for improving service levels and achievingefficiency improvements and full cost recovery and autonomy. Lending by theBank for medium-size cities may be accomplished best through an intermediary,specifically the Iller Bank if it can be further strengthened for the purpose.

2.15 Addi.ional financial assistance from the World Bank for water andsewerage development in Istanbul is justified for the following reasons:

(i) Istanbul is the industrial center and largest city of Turkey,with a rapily growing population and a need for substantialfurther expansion in water and sewerage capacity to meetexpanding industrial and domestic requirements;

(ii) the proposed assistance would further strengthen institutionallythe autonomous water and sewerage organization of Istanbul,which already is recongized as a successiful model for sectororganization in Turkey's municipalities;

(iii) the Project would contribute to badly needed environmentalimprovement t :h in the city and in its surrounding waters; and

(iv) support for Istanbul's strong cost recovery policy for thesector would be reaffirmed^

III. THE BORROWER

Introduction

3.01 The proposed borrower, implementing agency, and operating organiza-tion for the Project is the Istanbul Water Supply and Sewerage GeneralDirectorate (ISKI) of the Istanbul Metropolitan Municipality. ISKI was formedby combining water supply and sewerage staff and assets from existing serviceorganizations within the Greater Municipal Area into a separate, autonomous,administratively self-sufficient organization specified by Law No. 2560approved by the Turkish Parliament November 20, 1981, and amended by Law No.3009, May 23, 1984.

3.02 ISKI is responsible for the development and operation of all publicwater supply and sewerage for the metropolitan area except its water sourcesoutside the area which are developed and in some cases operated by DSI. ISKIoperates surface water reservoirs and well fields with a safe yield of 1.06million m3 per day. In 1986, it distributed water through 835,000 connectionsto approximately 5.1 million persons in an area totalling about 600 km2, andhandled the collection and disposal of sewage from 520,000 connections.

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Organization and Stafing

3.03 ISXI is administered by:

(i) a General Assembly consisting of the Metropolitan MunicipalCouncil;

(ii) a full-time, six-member Board of Directors with the Mayor asChairman, which reports to the General Assembly; and

(iii) a General Director who is the Board's Vice Chairman and thechief executive officer responsible for day-to-day operations.

The General Director is supported by Assistant General Directors for Operations(water transmission, water and sewage treatment, and electrical and mechanicaloperations); Networks (all water distribution and sewage collection); Planningand Construction; and Finance and Administration. He also has a staff ofadvisors and small, specialized departments (e.g., Legal Department; Annex 1).

3.04 The General Assembly approves ISKI's investment plans and annual bud-gets, staffing, tariffs and borrowings. The Board of Directors approvesoperating principles and regulations, matters to be submitted for finalapproval by the General Assembly, and appointments of senior officials andstaff other than the General Director and Assistant General Directors. TheGeneral Director is appointed by the Central Government (Ministry of Interior)upon nomination by the Mayor. The Assistant General Directors are appointedby the General Director.

3.05 Board Members, the General Director, and the Assistants are requiredunder the ISKI Law to have professional qualifications and experience in theirfields. One of the most significant developments realized in the formation ofISKI as an independent entity has been the strengthening of its management,which now is a model for the sector in Turkey.

3.06 ISKI's 5,680 employees include 159 management and senior advisorystaff, 364 engineers and technicians, 759 accounting and commercial operationsstaff, 245 other office workers, and 4,153 unskilled and semi-skilled serviceand maintenance workers. The total number of employees gives ratios ofapproximately 7 employees per 1,000 water connections (one employee for every890 persons served), and 11 employees per 1,000 sewerage connections.l/These ratios are satisfactory for public utility organizations of this type.The number of employees has risen by about 200 per year since 1982, and fur-ther growth at kbout the same rate will be necessary as the networks expand.Staffing plans Are prepared annually, and recruitment procedures are satis-factory. Turnover is low.

3.07 ISKI provides training for its employees in operations and mainte-nance, more advanced technical subjects, management and administration,and a variety of other subjects. The program is satisfactory. Among areas

¢' ISKI also provides a cesspit emptying service to households not connectedto the sewerage system.

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currently receiving emphasis are vehicle operation and maintenance, networkmaintenance, administration and billing procedures, English Language training,and computer training.

3.08 Training consists mainly of short, in-house courses of one to fourweeks spread throughout the year. Limited overseas training through coursesof short duration in specialized technical areas also is provided. In 1987,1,300 employees, nearly 25 of ISKI's staff, will attend courses totallingapproximately 95 staffyears.

1987 TrainingStaffyears

In-House TrainingConstruction, Operations, Maintenance 33Management and Administration 48Other 5

Sub-total 86

Local Training Outside ISKIConstruction, Operations, Maintenance 1Other 6

Sub-total 7

Training AbroadAdvanced Technical .4Operations and Maintenance 1.4

Sub-total 1.8

Acounting and Auditing

3.09 ISKI maintains separate, commercially oriented accounts which weredesigned for ISKI by the Institute for State Economic Enterprises at IstanbulUniversity with support under Loan 2159-TU. Accounting operations were fullycomputerized starting from January 1987, and ongoing manual bookkeeping on atransitional basis will be discontinued by early 1988.

3.10 In addition to its external audit by an auditor from the Treasury(Central Government), ISKI is required under the ISKI Law to be audited by aninternal auditor who reports to its General Assembly. The form of the exter-nal audit is prescribed by law and limited essentially to the inspection ofaccounts to detect any deficiency or irregularity, and to the certification ofthe annual income statement. Although this may be done competently, it omitsfeatures considered essential by the Bank. ISKI plans to address the matterin two ways. The first will be to obtain a commercial, independent auditaccording to international standards and the Bank's Guidelines. A proposalfor this service from the Institute for State Economic Enterprises is underconsideration by ISKI for the years 1987 and 1988. Also, there are competentaccounting and auditing firms in Istanbul which could be engaged to do thework. In addition, ISKI is requesting that the Treasury audit be revised toincorporate international standards, a matter on which assurance has beenreceived from the Treasury that sericus consideration will be given. ISKIagreed in the Loan Negotiations to hbve its accounts audited annually byindependent auditors acceptable to the Bank, and to submit their report to theBank by June 30 of the following year.

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Bilhing and CoUection

3.11 ISKI's sales are fully metered and its billing has been computerizedfor several years. Meters are read two times a year for most customers.Bimonthly bills are sent, two per year on the basis of the meter readings, andthe other four per year on an estimated basis. (High quantity customers areread and billed every month.) Billing prior to 1987 was done for ISKI by anoutside data processing firm, and for a variety of reasons, including metermalfunctions and incorrect records on ISKI's part, overbillings totalling TL12.9 billion had accumulated by the end of 1986. These were then cancelled,but because of customer resistance and inadequate effort devoted by ISKI tocollections, customer arrears amounting to the equivalent of six months of1986 billings still remained. ISKI was able to address only 50,000 of approx-imately 300,000 delinquent accounts in 1986.

3.12 ISKI now has fully taken over its billing operations, and is using anewly acquired computer for the function. In addition, a private firm isbeing engaged to augment ISKI's capacity for payment enforcement operations,principally closing and reopening connections. Because of the large backlog,ISKI does not expect to bring its accounts receivable within desired limitsuntil well into 1988. ISKI agreed in the Loan Negotiations to reduce itsaccounts receivable to the equivalent of no more than five months of currentbillings by the end of March 1988, four months by the end of June 1988, threemonths by the end of September 1988, and two months by the end of December1988.

Industrial Waste Management

3.13 ISKI's industrial waste management program is making significantprogress in monitoring and controlling waste discharges to Istanbul's sewersystem and aquatic environment. Implementation of the program began inNovember 1986 with the establishment of ISKI's Department of Industrial WasteManagement. At present, the Department has a staff of 35, of which 18 areengiueers and scientists with university degrees. The Depart,aent is autho-rized 70 positions, including 35 professionals, and is searching for qualifiedpersons to fill vacancies. The Department has a laboratory for sampie analy-sis and has promulgated industrial waste discharge regulations. It has inven-toried 2,000 firms with liquid waste discharges, and has issued discharge per-mits to 250 firms for the safe discharge of their liquid waste. Detailedinvestigations and issuing of permits to all of the 2,000 firms inventoried isscheduled to be completed by the end of 1989, assuming that all of theDepartment's positions are filled throughout 1988 and 1989.

3.14 ISKI's industrial wastewater regulations place restrictions on thetypes of wastes that may be discharged to the sewer system, and they establishsurcharges based on types and concentrations of discharges. The regulationsare consistent with the national environmental law, and with national indus-trial waste discharge regulations now in draft form. The basic unit charge isfor wastewater equivalent to domestic wastewater. Surcharges increase withthe types and coneentrations of the contaminants in the wastewater. Thesurcharges are sufficiently high to encourage the undertaking of on-sitetreatment. At present, 350 firms are being required to pay surcharges.

3.15 In general, industry in the Metropolitan area is cooperating in theeffort to eliminate pollution from industrial wastes. So far, there are 45industrial waste treatment plants in operation. Two large plants are under

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construction to serve industrial )arks established in Tuzla and Ikitelli byindustrial associations for the tanning and textile industries, respectively.Each of these parks will have wastewater collection and a treatment plantdesigned to handle wastes peculiar to its industry. The park and treatmentplant in Tuzla is scheduled for completion by mid-1988, and 150 tanneries haveagreed to relocate to this site. The park and treatment plant in Ikitelliwill be ready for occupancy by the end of 1988.

3.16 To date, all of the industrial waste treatment plants have beenfinanced by the firms involved. Private finance is expected to continue to bethe main source of funding. A limited amount of support is available throughloans from the Ministry of Industry for construction of facilities, mainlyindustrial parks. Also, the national environmental law established a smallfund for financing waste treatment plant construction using fines and penal-ties for non-compliance collected from industries and municipalities.

3.17 ISKI's program for industrial waste management is well designed andis being implemented successfully. Because of the results already beingobtained, technical assistance for industrial waste management under theProject would be limited to training abroad for managers and key technicalstaff (para. 5.10). Progress in the program would be monitored by the Bankduring project implementation (Annex 11).

Insurance

3.18 ISKI agreed in the Loan Negotiations to maintain appropriateinsurance against fire, other forms of damage, theft, and potentielliabilities. ISKI agreed also to continue to require its suppliers andcontractors to obtain insurance for assets of the Project, and against risksrelated to its implementation.

IV. SECTOR SERVICES, DEMAND AND PROPOSED MVESTMENTS

Projeet Area

4.01 The Istanbul metropolitan area is Turkey's largest in population,area, and economic activity. The population in 1986 was 5.7 million, and thearea inside the municipal boundaries was 600 sq. km., of which about 60 pert-cent was developed. An estimated 60 percent of the Country's industrialcapacity is located in the area. The City is of unique historic interest. Itis a major tourist and commercial center, and the Country's principal port.

4.02 The City is divided by the Bosphorus, a strait 30 km long and one toeight km wide separating Asia from Europe and linking the Black Sea with theSea of Marmara, which in turn leads to the Dardanelles, the Aegean Sea, andthe Mediterranean. The European side of the City is divided by a narrow inletknown as the Golden Horn. The Bosphorus, the Sea of Marmara, and the GoldenHorn have provided convenient means for disposal of the City's wastewater,which has been and is discharged untreated causing extreme pollution.

Sector Services

4.03 WaterSuwly. The City's main existing sources of water are foursurface reservoirs with a combined safe yield of approximately 1.0million m3 per day (see IBRD Map 20401). Two reservoirs currently under

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construction will add another 0.5 million m3/day. Sources of supply andtheir safe yield capacities are as follows:

Safe YieldSource (thousand m3/day)

Omerli Reservoir 493Terkos Lake 356Darlik Reservoir ' 266Buyukcekmece Reservoir 1' 219Alibey Reservoir 107Elmali Reservoir 40Ottoman Reservoirs 13Groundwater 46

Total 1,540

4.04 Treated water production capacity, including plants under construc-tion and groundwater sources, totals 1.5 million m3/day. The plants, supplysources, and their rated capacities are as follows:

RatedTreatment Supply CapacityPlant Source (thousand m3/dag)

Kagithane Terkos Lake & Alibey 560Reservoir

Omerli Omerli & Darlik 550Reservoirs

Omerli Addition 2' Omerli & Darlik 200Reservoirs

Buyukcekmece 3' Buyukcekmece Reservoir 300Elmali Elmali Reservoir 40Four Small Plants Ottoman Reservoirs 54(Chlorine addition only) Groundwater 46

Total 1,500

1' Under construction.

A' The Darlik Dam and Reservoir will be completed in mid-1988. Initially,water from the Darlik Reservoir will be transferred to the OmerliReservoir, where it will be withdrawn and treated at an addition to theexisting Omerli treatment plant. The addition will be completed on thesame date as the dam and reservoir.

~' The Buyukeekmece Dam and Reservoir will be completed by year end 1987.ISKI plans limited withdrawals in 1988, with chlorination as the onlytreatment. A rapid sand filter plant with flocculation and settling isunder construction and scheduled for completion by December 1988. Atransmission main and pumping station are already completed.

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With one exception, the treatment at all of the plants consists of floccula-tion, settling, and rapid sand filtration followee by chlorination. Theexception is the Kagithane Plant, which has a slow sand filter unit. Thetreatment for groundwater consists of chlorine addition only.

4.05 When the source works currently under construction are completed, thetotal supply capacity will be adequate to meet the projected demand for 1991,but the treatment capacity will still be deficient. Treatment capacity isneeded to meet the maximum day demand for Istanbul, which is estimated at 120percent of the average day demand. The 1987 maximum day requirement exceedsthe total of the existing treatment capacity and the capacity under con-struction. As a result, shortages during periods of maximum demand will per-sist until new treatment works have been designed and constructed (Annex 5).

4.06 The water distribution system consists of two networks separated bythe Bosphorus and connected since 1981 by two parallel 1.0 meter diameterunderwater mains. The system is complex, and in many places is antiquated andin need of rehabilitation. There are insufficient pressure and intermittentsupply to areas of higher elevation and to fringe areas of the City, causedmostly by lack of production capacity, and aggravated in some areas by under-size pipes. In 1986, there were 835,000 connections serving 5.1 millionpeople, or 89 percent of the service area population, but not all of thesepeople were adequately served.

4.07 Sewerage. Istanbul's sewerage system is incomplete. In manyareas, it consists only of street sewers that discharge to the nearest watercourse. Its sewers installed before 1960 were designed to carry stormwaterand wastewater together. Since 1960, separate stormwater and wastewatersewers have been constructed for newly urbanized areas. The system comprises1,000 km of collectors, 2,600 km of street sewers, and 520,000 connectionsserving 55 percent of the population. The remainder of the population havelatrines, septic tanks, or cesspits, many of which are inappropriate becausethey are in areas of high population density.

4.08 The service area is divided into 11 drainage zones, each having inde-pendent sewage collection systems (Map 20405). Most of the effluent eventu-ally reaches the Sea of Marmara. Because there is little flow in the GoldenHorn, pollution there is at its most extreme. The Sea of Marmara is severelypolluted along the shoreline causing bathing beaches close to the City to beclosed. The Bosphorus has remained somewhat less polluted due to the largevolume of its flow. The pollution in the Golden Horn and a small part of theSea of Marmara will be eliminated by facilities being constructed in the on-going Istanbul Sewerage Project (Loan 2159-TU), which will intercept and treatthe sewage from two of Istanbul's most populous drainage zones. Facilitiesbeing constructed consist of 40 km of interceptors, two preliminary treatmentplants, and two sea outfalls. Effluent from the treatment plants will be dis-charged to the bottom current in the Bosphorus, which in turn will dilute andtransport the effluent to the Black Sea, where it will be further diluted,dispersed, and treated naturally (Annex 2).

Demand for Water

4.09 The city's future demand for water has been calculated based on esti-mates of future population and per capita water requirements, and on goals forthe percentage of the population to be served and for the proportion of the

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total amount of water produced which actually will reach the customer. Apercentage allowance for "unaccounted-for water" is added to the projectedconsumption by customers to obtain the projected water supply capacityrequirement. The calculation indicates an average demand of 2.5 millionm3/day in the year 2000, compared to 1.8 millioa m3/day in 1984 (Annex 3).

4.10 Population. The population of Istanbul grew at annual rates aver-aging 4.3 percent between 1980-1985, &nd 4.1 percent for 1975-1980. Theaverage annual growth rate in 1980-1985 for the total urban population ofTurkey was 4.0 percent. Istanbul's growth rate is expected to declitie to 3.8percent by 1995, and to 3.6 percent by the year 2000 as shown below:

Istanbul AnnualPopulation Growth Rate

Year (million) (2)

1986 5.7 4.2199') 6.7 4.11995 8.1 3.82000 9.7 3.6

These figures are the appraisal mission's projections and are slightly lowerthan the projections by ISKI's Planning Department and the Municipality. Theyimply an increase of 1.8 million in the City's population over 1987-1994, theproject period, and an increase of 4.0 million by the year 2000.

4.11 Population Served. ISKI plans to increase water service levels from89 percent in 1986 to 92 percent by 1994, and to improve the quality ofservice for the population already served. With the projected growth in popu-lation, 285,000 new connections would be needed by 1994 (Annex 3).

4.12 Consumption by Customers. Consumption is expected to increasebecause of growth in per capita consumption as well as growth in population.It is projected that consumption in Istanbul will increase from 0.9 million m3per day in 1986 to 1.4 million m3 per day by 1994, and to 2.0 million m3 perday by 2000. Per capita water consumption is expected to increase from 1751/cd in 1986 to 200 1/cd by 1994, and to 210 1/cd by 2000, an increase of.about 1.3 percent per year.'- The tendency for per capita consumption toincrease is the result of: (a) improvements in living standards; (b) elimina-tion of supply shortages that have suppressed per capita consumption in therecent past; and (c) increased industrial activity. Factors that sometimesare cited as causes for decreasing per capita consumption--tariff increasesand a tendency of new customers to be poorer and more conservative in theirwater use than existing customers--are not expected to be significant. ISKI'stariffs are affordable to low income consumers as well as to higher income

'1/ These figures include industrial and commercial uses, about 35 pe.:cent oftotal consumption.

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consumers because of the block tariff structure introduced with the lasttariff increase. Expenditure on water and sewerage currently accounts, onaverage, for about 3.4 percent of total household expenditures (para 7.08).Since tariffs are expected to remain approximately constant in real terms overthe project period, the effect of future changes in prices on waterconsumption is not expected to be significant.

4.13 Unaccounted-for Water and Production Capacity. ISKI's unaccounted-for water is currently 30 percent of the total amount of water produced, downsignificantly from 1980's 40 percent. The improvement is the result of anon-going leak detection and repair program using equipment provided under theIstanbul Sewerage Project. The program would be continued under the proposedproject, with unaccounted-for water targets of 22 percent by 1994, and 20 per-cent by the yeur 2000. Reduction below 20 percent is unreal1stic, given theantiquated nature of parts of the system, many of which cannot be rehabili-tated in the foreseeable future.

Demand for Sewerage

4.14 The projected demand for sewerage in Istanbul is based in part onprojected increases in the connected population from today's level of 55 per-cent to 70 percent by 1994. With the projected population growth, 330,000 newconnections and 2,500 km of new street sewers would be needed by 1994. Theannual volume of sewage to be treated and disposed of by 1994 is estimated at1.2 million m3/day, assuming that 80 percent of the water consumed by theconnected population reaches the system (see Annex 4). Facilities currentlyunder construction will intercept and dispose of 0.4 million m3/day by 1994.This, therefore, calls for additional capacity to handle 1994's balance of 0.8million m3/day.

ISKIrs Investment Program

4.15 The investments projected for ISKI for 1987-94 would total anestimated US$2.6 billion (see Annex 5). The program was reviewed by theappraisal mission and found to be feasible and sound, with all major com-ponents being the least-cost solution for the problems addressed. The overallobjectives of the program are: (i) to provide a safe supply of water inadequate quantities for the City's growing population; and (ii) to provide forthe collection and environmentally sound disposal of wastewater. The programconsists of: (i) the completion of works in progress, principally the Darlikand Buyukcekmece Dams and Reservoirs, and the facilities being constructed inthe Istanbul Sewerage Project; (ii) construction of the Isakoy Dam andReservoir; (iii) water treatment and transmission facilities; (iv) waterdistribution system reinforcement, expansion, and rehabilitation; (v) sewagecollection facilities; (vi) seven preliminary and eight secondary sewagetreatment plants; (vii) a water supply monitoring and control system; and(viii) purchases of maintenance equipment. The engineering feasibility andeconomic justification of the program were outlined in the 1971 DAMOC Master

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Plan Study1-', and were updated by subsequent studies in 19751' and19771/. ISKI agreed in the Loan Negotiations that by the end of Februaryeach year, it would submit to the Bank for review and comment a report on theimplementation of the investment program, including up to date plans as wellas current accomplishments.

V. THE PROJECT

Introduction

5.01 The proposed project is approximately one fourth of the investmentprogram projected for ISKI for 1987-94. The selection of components for theproposed project was made using the following criteria: (i) priority in theinvestment program; (ii' stage of preparation; and (iii) need for foreignexchange financing. The initial selection was made by ISKI and was presentedto the Bank in a May 30, 1986 letter from the Government requestingfinancing. Changes since then were made in consultation with the Bank. Thehigh priority of the sewerage components in the Project was foreseen by theBank and ISKI in 1982 during the appraisal of the Istanbul Sewerage Project,and, as a result, financing for project preparation was included in Loan2159-TU. Preparatica by ISKI began in 1985, and discussions then began withthe Bank on project timing. ISKI engaged consultants in 1986 to prepare finaldesigns and bidding documents.

Proiect Objectives

5.02 The project objectives are: (i) to improve and extend sewerage ser-vice to 70% of the population of Istanbul by the end of 1994; (ii) to providefor appropriate disposal of sewage to protect the waters and shorelines of theSea of Marmara and the Bosphorus; (iii) to reduce unaccounted-for water; and(iv) to strengthen ISKI's operation and maintenance and industrial waste man-agement capabilities.

Project Desception

5.03 The Project consists of the following components (see also IBRD MapsNos. 20401 and 20405):

Part A: Water DiLstribution

1. Implementation of a program to reduce unaccounted-for waterincluding training of personnel, system mapping, district meter-ing, repair of leaks, and replacement of deficient customermeters;

1-' A consortium sponsored by Daniel, Mann, Johnson and Mendenhall, LosAngeles, Ca, and including Alvord, Burdick, and Howson, Chicago, Ill;Motor-Columbus, Baden, Switzerland; and Checchi & Co., Washington, D.C.

to Istanbul Sewerage Project - Master Plan Revision, February 1975, CampTek-Ser Consulting Engineers.

~' Istanbul Water Supply Distribution Project - February 1977, Binnie Taylor.

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2. replacement of 1,200 km of old, defective pipe in the Asiandistribution network;

3. rehabilitation of 20 network pumping stations; and

4. installation of a supervisory control and data acquisition(SCADA) system.

Part B: SewaaZe Coleetion and Treatment

1. Construction of the Atakoy pumping station, the Sahil Yolu pump-ing station, and the Atakoy collector; rehabilitation of theZeytinburnu pumping station in the Atakoy Drainage Zone;

2. construction of the Kucukcekmece pumping station, secondarytreatment plant, and submarine outfall, and 14 km of collectorsin the Kucukcekmece Drainage Zone;

3. construction of the Tuzla pumping station, secondary treatmentplant, and submarine outfall; a collection pumping station; and27 km of collectors in the Tuzla Drainage Zone;

4. construction of the Kadikoy pretreatment plant, pumping stationand submarine outfall; the 21 km Kadikoy-Pendik Interceptor; andthe Dragos pumping station in the Kadikoy-Pendik Drainage Zone;

5. construction of the Uskudar preliminary treatment plant and sub-marine outfall;

6. construction of 2,500 km of street sewers; and

7. installation of 330,000 customer service connections.

Part C: Initutional Improvement of ]SKI

1. Training in the operation and maintenance of sewage treatmentplants, pumping stations, and the SCADA system constructed underthe Project;

2. training in industrial waste management; and

3. acquisition of operation and maintenance vebicles and equirment,including equipment for the detection and repair of leaks.

5.04 Water Distribution. The program to reduce unaccounted-for water,Part Al of the Project, consists of analysis, design, training provided byconsultants, and field operations by ISKI staff. Parts A2 and A3 of theProject consist of continuation of the water pipe replacement program begununder Loan 2159-TU, pumping station rehabilitation, and repairs identified inPart Al of the Project, the program to reduce unaccounted-for water. Pipereplacement would be limited under the Project to the Asian distributionnetwork since KfW plans to finance pipe replacement in the European network.European as well as Asian pumping stations would be eligible for rehabili-tation under the Project. Pumping station work would consist of rebuilding of

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pumps, motors, and other mechanical equipment when feasible, and replacementwhen the existing equipment is under-capacity or not reparable.

5.05 The SCADA system, Part A4 of the Project, would make it possible todirectly monitor and control the operation of the city's water supply systemfrom a central location. In addition, SCADA computers would store and analyzedata such as source flows, storage tank levels, flows and pressures at criti-cal locations in the distribution network, pump operating times, and energyconsumption. The data would enable ISKI to minimize operating costs by opti-mizing water system operation and maintenance.

5.06 Sewage Colection and Treatment. Part Bl of the Project comprisesfacilities for pumping Atakoy sewage to the Yenikapi Zone for treatment at theYenikapi plant being constructed under the already ongoing sewerage project.This would be an interim solution intended to last unti) the Yenikapi Zonefacilities are loaded to capacity in about eight years. A force main wouldthen be constructed to permit the Atakoy Zone sewage to be pumped to anexpansion of the Kucukcekmece treatment plant included in Part B3 of theProject.

5.07 Parts B2, B3, B4, and B5 of the Project would intercept and treatuntreated sewage from the Kucukcekmece, Tuzla, Kadikoy-Pendik and UskudarDrainage Zones, respectively. Treatment plants included in Parts B2 and B3 ofthe Project for the Kucukcekmece and Tuzla Drainage Zones would be biologicalplants that would produce a high quality secondary effluent for disposal tothe Sea of Marmara through relatively short submarine outfalls. The Kadikoyand Uskudar treatment plants included in Parts B4 and B5 of the Project wouldprovide preliminary treatment to remove grit and floatables. The effluentwould be discharged through submarine outfalls extending to the Bosphorusbottom current. The current would dilute and transport the effluent to cheBlack Sea where it would be dispersed and treated naturally (Annex 2).

5.08 This use of the Bosphorus bottom current for sewage disposal was pro-posed originally in the DAMOC Master Plan in 1971, and again in the Camp-Tek-Ser Master Plan update in 1975. The collection and disposal systems cur-rently under construction for the Yenikapi and Kabatas-Baltalimani DrainageZones, which are being financed in part by Loan 2159-TU, are based on thismethod. Analysis of the Bosphorus currents indicates that effluent disposalin the bottom current is theoretically sound, but this has not been demon-strated in practice. The risk that the method might prove not to be fullysuccessful is considered to be very low (para. 7.14).

5.09 Parts B6 and B7 of the Project would extend sewerage service to anexisting population of approximately 0.9 million persons, and to another1.4 million person3 representing 70% the projected population increase duringthe project period. ISKI would construct 50 percent of the street sewers andconnections. The other 50 percent would be constructed by public and privatedevelopers under ISKI's supervision.

5.10 Institutional Improvement. Technical assistance and training underPart C of the Project would assist in improving ISKI's capabilities in opera-tions, maintenance, and industrial waste management. Under Part Cl, opera-tions and maintenance personnel to be assigned to new facilities constructedin the Project would be trained in a program designed and administered by theconsultants responsible for the construction supervision and start-up of the

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facilities. Contractor and equipment representatives would be used in theeffort also. Under Part C2, overseas training would be provided for key per-sonnel responsible tur implementing the industrial waste management program.The training would consist of assigning selected staff to operating water andsewerage authorities in Europe for periods up to two months. Trainees wouldwork side by side with counterparts. The purpose of the training would be tofamiliarize key staff with alternative approaches which may be applicable inIstanbul. The cost of all training is estimated at US$1.8 million, includingUS$0.1 million for overseas training. Under Part C3, operations and mainte-nance capabilities would be strengthened through the purchase of vehicles andconstruction equipment.

Project Cost and Financig

5.11 The cost of the Project is estimated at US$569.9 million equivalentexcluding interest during construction. Allowances for value added taxestotalling an estimated US$59.9 million are included. ISKI must pay a twelvepercent value added Lax on its purchases other than land. No allowances forduties and import taxes are included in the estimate because ISKI is exempt.Engineering and technical assistance costs include the salaries of ISKI staffparticipating in the Project, as well as the costs of the Project consultants.Consulting services for design, construction supervision, and technicalassistance are estimated at US$12.0 million (US$10.1 million in base costs).This does not include US$3.0 million in consulting costs for design workcarried out under the Istanbul Sewerage Project financed in part by Loan2159-TU. Man-month requirements for the consulting services are estimated at1,830 man-months, of which 550 man-months would be for internationallyselected consultants. ISKI staff are to contribute approximately 13,600man-months for engineering and administration having an estimated cost ofUS$7.2 million equivalent (US$6.8 million in base costs).

5.12 The project cost estimate is summarized in Table 5.1. Base costs arein July 1, 1987 prices, updated from January 1, 1987 prices which were used toprepare the original estimates. The total amount includes physical contin-gencies of US$46.2 million (10 percent of base costs for equipment, materials,and civil works) and price contingencies of US$28.4 million (about 5 percentof the US$ base cost plus physical contingencies; the assumed annual rates ofinflation of US$ prices are 32 for 1987, 12 for 1988 through 1990, and 3.5%for 1991 through 1994). The estimated foreign exchange requirement isUS$241.4 million (42 percent of the total cost). The bases for the costestimate and further breakdowns of costs are presented in Annex 6. Moredetailed figures are in the Project File.

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Table 5.1: Summary of Project Cost Estimate

ForeignLocal FEreign ITtal LgA1 Foreign Total as % of

TL Billion ---- ---- US$ Million ---- Total

A. MTER DISTRIBUTION

1. Program to Reduce Losses 0.4 0.9 1.3 0.5 1.1 1.6 682. Replacement of Pipe 17.8 24.4 42.2 21.2 29.1 50.3 S83. Rehabilitation of Pumping Stations 3.5 4.5 8.0 4.1 5.3 9.4 564. SCADA System 2.5 IOA 10. 3.0 9.3 12.3 76

Sub-Total 24.2 37.6 61.8 28.8 44.8 73.6 61

B. SEWAGE COLLECTION AND TREATMENT

1. Atakoy Drainage Zone 3.9 2.0 5.9 4.6 2.3 6.9 342. Kucukeekmece Drainage Zone 32.6 26.0 58.6 38.8 30.9 69.7 443. Kadikoy-Pendik Drainage Zone 59.6 46.2 105.8 70.9 55.0 125.9 444. Tuzia Drainage Zone 48.5 33.4 81.9 57.7 39.8 97.5 415. Uskudar Drainage Zone 4.8 2.3 7.1 5.7 2.7 8.4 326. Street Sewers 33.4 11.2 44.6 39.7 13.3 53.0 257. Custoner Connections _29.5 10.0 3.5L 35.1 11.9 _47.0 25

Sub-Total 212.3 131.1 343.4 252.5 155.9 408.4 38

C. INSTITUTIOA STRENGTHENING OF I=

1. Operation and Maintenance Training 0.5 0.5 1.0 0.6 0.6 1.2 502. Industrial Waste Management Training - 0.1 0.1 - 0.1 0.1 1003. Equipment z1 7.7.Z 10 i,Z .2A.1 I. 77

Sub-Total 2.8 L.3 11.1 3.3 9.8 13.1 75

Base Cost 239.3 177.0 416.3 284.6 210.5 495.1 43

Physical Contingencies 22.2 16.5 38.7 26.6 19.5 46.1 42Price Contingencies 177.7 122.0 292.7 17.3 11.4 28.7 39

TOTAL PROJECT COST /a 439.2 315.5 754.7 328.5 241.4 569.9 42- F~ - ..-

a/ Includes TL 79.4 billion (US$59.9 million) of taxes.

5.13 The proposed loan of US$218.0 million equivalent would finance anestimated 38 percent of the cost of the Project. The balance of the Project'scost, estimated at US$351.9 million, would be financed from charges tocustomers. The proposed project finances are summarized in Table 5.2.

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Table 5.2: Project Finanochg

Local Foreign Total Percent_ -- US$ Million - of Total

IBRD Loan - 218.0 218.0 38ISKI Revenue from Sales 264.3 1.6 265.9 47Customer Contributions a/ 64.2 21.8 86.0 15

Total Sources 328.5 241.4 569.9 100

a/ Payments for connections made by ISKI, and costs of connections made forISKI by developers.

Project Ipl ementation

5.14 Project Cr>adzation and Mai.ment. The Project would be managed byISKI's Construction and Maintenance Department under the overall responsi-bility of the Department Head (Annex 1). Project managers from the Water andSewer Construction Departments would be assigned responsibility for componentsof the Project. A Project Coordinator has been appointed from the Planningand Research Department to monitor project implementation and expenditures; toprepare requests for loan disbursements; and to prepare consolidated reportsfor the Bank on project implementation.

5.15 Design, bidding, and construction supervision of the larger compo-nents of the Project would be carried out by consultants. These componentsinclude the SCADA system, Part A4 of the Project, and the sewerage works inthe the five drainage zones, Parts Bl through B5. The distribution networkand pumping station rehabilitation (Parts Al and A2), the street sewers (PartB6), and the sewer connections (Part B7) would be designed and supervised byISKI without the assistance of consultants; about 302 of the construction workon these items would be performed by the Construction and MaintenanceDepartment, and most of the remaining 70 would be contracted out, with thebalance to be implemented by outside developers.

5.16 Installation of the SCADA system, Part A4 of the Project, would besupervised by SOGREAH, French consultants who were responsible for the designof the system and the preparation of the bidding documents. Bidding admini-stration and construction supervision for the sewerage works in three of thefour drainage zones, Atakoy, Kucukcekmece, and Tuzla, Parts Bl, B2 and B3 ofthe Project, would be carried out by the joint venture of firms which wasresponsible for the designs: Watson-Hawkesly Engineers (UK), Motor Columbus(Switzerland) and Temel Engineers (Turkey). Construction supervision of thesewerage works in the Kadikoy-Pendik Drainage Zones, Parts B4 and E5 of theProject, would be carried out by the joint venture of Taylor Binnie (UK) andUBM Engineers (Turkey) which prepared the designs and bidding documents. Allconsultants under contract are satisfactory to the Bank.

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5.17 The Project works have been organized into 30 bidding and contractinggroups or packages (Annex 7). Except for continuing water pipe rehabilitationand street sewer installation, all contracts will be bid by the end of 1988.The estimated completion date for the contract planned to be completed last isDecember 1994 (Annex 8). Eight of the packages, representing 12% of totalprocurement, have already been awarded (para. 5.21). Bids have beenadvertised for another 23% and bid documents for another 34% are expected tobe ready by January 1988. The remaining 30% of the procurement consists ofequipment purchases, water main replacement, street sewers and customerconnections to be implemented on a continuing basis throughout the projectperiod. Terms of reference for technical assistance consultants have beenprepared.

5.18 Land Acquisition. Approximately 30 hectares of land and 12 km ofeasements are required to implement the sewage collection and treatment com-ponents of the Project. Sites for the Kucukcekmece and Tuzla sewage treatmentplants are already owned by ISKI., The sites are unoccupied, and Do resettle-ment will be involved in the Project. The Kadikoy sewage treatment plant willbe constructed on an offshore fill area to be constructed as part of theProject. Both the Metropolitan and Kadikoy Municipalities have approved thesite and have authorized ISKI to proceed. Most of the easements needed havenot yet been obtained. Significant problems are not expected since there isflexibility for selecting locations of the interceptors and collectors requir-ing easements.

Procurement

5.19 Procurement arrangements are summarized in Table 5.2. An estimated98 percent of goods would be procured through International CompetitiveBidding (ICB) in accordance with the World Bank Guidelines. The other twopercent would be low cost items of operation and maintenance equipment to beprocured through Local Competative Bidding (LCB) and international and localshopping (contracts smaller than US$200,000). An estimated 64 percent of theCivil works would be procured through ICB in accordance with the World BankGuidelines. The other 36 percent would be for water distribution pipe instal-lation, street sewer construction, water system rehabilitation and serviceconnections. LCB procedures acceptable to the Bank1' would be used forabout 50 percent of the street sewer construction, and all of the installationwork for the rehabilitation of the water system. Service connections and theconstruction of the balance of the street sewers would be carried out byprivate developers and by ISKI's own construction force; the proposed loanwould not finance these works. Consultants already under contract and addi-tional consultants needed for design, construction supervision, and technicalassistance have been/would be engaged in accordance with the Bank's Guidelinesfor the Use of Consultants.

LCB procedures in Turkey are generally consistent with the need foreconomy and efficiency in the execution of the proposed Project. Thereare, however, a few procedures which are inconsistent with theProcurement Guidelines of the World Bank, and there are others whichrequire clarification. The Government and ISKI agreed in the LoanNegotiations on the changes needed to make the procedures acceptable tothe Bank.

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Table 5.3: Project Cost Estimate by Procurement Method a/

(Current US$ million equivalent)

Procurement MethodProject Element ICB LCB Other b/ N/A c/ Total

Goods 141.4 1.0 1.5 - 143.9(108.6) (0.6) (1.1) - (110.3)

Civil Works 257.8 59.3 - 86.1 403.2(88.9) (7.3) - (0.0) (96.2)

Consultants - 12.8 - 12.8-- (11.4) - (11.4)

Overseas Training - - 0.1 - 0.1= _ (0.1) - (0.1)

Land Acquisition - - 2.7 2.7- - (0.0) (0.0)

Local Administrative - - - 7.2 7.2and Technical Staff - - - (0.0) (0.0)

TOTAL 399.2 60.3 14.4 96.0 569.9(197.5) (7.9) (12.6) (0.0) (218.0)

a/ Figures in parentheses are the estimated amounts for financing from the pro-posed World Bank loan.

b/ International and local slhopping, and World Bank Guidelines for selection ofconsultants.

c/ Developers, in-house staff, and negotiation for land acquisition.

5.20 Prequalification of contractors would be used for large or complexcivil works contracts not already bid. Bidding now underway for five civilworks contracts is being conducted using a postqualification procedureproposed by ISKI and agreed by the Bank for these cases in order to shortenthe time to be taken in contracting. ISKI agreed in the Loan Negotiationsthat for all future procurement in the Project of large or complex civilworks, ISKI would use prequalification according to the Bank's Guidelines.

5.21 The estimated total value of all procurement under the project isUS$473.9 million. As was mentioned above, contracts for an estimated US$59.1million (121 of the estimated total) have been awarded. Contracts for anestimated US$105.7 million (231 of the estimated total) have been bid but willnot be awarded until after Board Presentation. The remaining procurement,totalling an estimated US$309.1 million, will not be advertised until afterBoard Presentation.

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5.22 Approval of advance contracting and US$6.0 million in retroactivefinancing (para. 5.30) is recommended for high priority contracts totalling anestimated US$54.1 million for the supply and installation of the SCADA system(US$12.3 million), an interceptor (US$11.4 million), pipe supply (US$26.4million), and four consultant engineering assignments."' The procurementprocedures were in accordance with the Bank's Guidelines. Three of the fourconsultant contracts were awarded under Loan 2159-TU. They cover design workbeing financed by Loan 2159-TU, but also cover future construction supervisionwork which it would be reasonable to finance with the proposed loan.

5.23 An estimated US$202.0 million in contracts (43 percent of the esti-mated total of all procurement) is expected to be won by foreign contractors,suppliers, and consultants (see Table 5.4). Goods contracts totalling anestimated US$121.6 million for the supply of water distribution pipes, sewagetreatment plant equipment, large pumping equipment, electromechanical equip-ment, and 70 percent of the operation and maintenance vehicles and construc-tion equipment have been or are likely to be won by a foreign supplier. Theseinclude a US$12.3 million contract won by a Swiss contractor to supply andinstall the SCADA system. Contracts for small pumping equipment and 30percent of the operation and maintenance vehicles and construction equipmentare likely to be won by local manufacturers. Qualifying local manufacturerswould receive a preference in bid evaluation of 15 percent of the CIF price orthe prevailing import duty, whichever is less.

Table 5.4: Actual and Expected Contract Awards by Type ofProcurement anJ Location of Supplier/Contractor

(Current US$ million equivaient)

Location of Supplier/ContractorType of Procurement Foreign Local Total

Goods 121.6 22.3 143.9

Civil Works 68.8 248.3 317.1

Consultants 10.5 2.3 12.8

Overseas Training 0.1 - 0.1

N/A - 96.0 96.0

Total 202.0 368.9 569.9

LX' Consultant for supervision of the SCADA System installation (US$1.5 mil-lion), and three consultants for sewerage construction supervision(US$7.5 million).

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5.24 Most of the civil works contracts have been or are expected to be wonby local contractors who, in recent years, have been difficult to underbid inTurkey. An Italian contractor in a joint venture with a local contractor,however, won the Project's already awarded sewage interceptor contract(US$11.4 million). The already awarded contract for the supply of large diam-eter concrete sewer pipe was won by a local contractor (US$26.4 million).

5.25 Two consultant contracts with estimated values totalling US$3.8 mil-lion remain to be awarded, one for technical assistance and one for the super-vision of street sewer construction. The technical assistance contract wouldmost likely be won by a foreign consultant. The street sewer constructionsupervision contract would most likely be won by a local firm. The fourconsultant contracts which have already been awarded were won by two UK firms,a French firm and a Turkish firm. The three foreign firms have Tu.rkishpartners.

5.26 Draft tender documents and proposed awards for goods having an esti-mated contract value of more than Us$500,000 equivalent and for civil workshaving an estimated value of more than US$1,000,000 equivalent would be sub-ject to prior review by the Bank. Contracts for lesser amounts would be sub-ject to ex-post review. These limits would result in prior review of con-tracts representing about 90 percent of all procurement not yet under contractto be financed by the proposed loan.

Disbursements

5.27 Disbursements from the proposed loan would be made for:

(a) 100 percent of foreign expenditures and 26 percent of localexpenditures for civil works;

(b) 100 percent of foreign expenditures and exfactory local expendi-tures, and 65 percent of other local expenditures, for goods; and

(c) 100 percent for consultants and overseas training.

5.28 Withdrawal applications would be supported by standard docuzuentationwith the exception of applications for local expenditures and expendituresagainst contracts valued at less than US$200,000 equivalent, which will besubmitted on the basis of Statements of Expenditure (SOE). Use of the SOEprocedure is justified based on the appraisal mission's evaluation of ISKI'saccounting and administrative procedures, which were found to be satisfactory,and on the Bank's experience with ISKI's administration of funds from Loan2159-TU. ISKI agreed in the Loan Negotiations that the SOE accounts would beaudited annually by an independent auditor satisfactory to the Bank, and wouldbe submitted to the Bank with the report on the audit at the time of sub-mission of the audit reports on ISKI's annual financial statements.

5.29 A Special Account would be opened for ISKI at the Central Bank ofTurkey with an initial deposit of US$20.0 million from the proposed loan.ISKI would .aake withdrawals for the Project from the Account based upon appro-priate documentation. When disbursements from the Account would total about

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one-third of the initial deposit, ISKI would apply to the Bank for replenish-ment of the Account. ISKI agreed in the Loan Negotiations that the SpecialAccount would be audited annually by independent auditors acceptable to theBank, and would be submitted with the report on the audit to the Bank togetherwith the audit reports mentioned above.

5.30 Retroactive financing up to a total of US$6.0 million equivalent isproposed for expenditures incurred on contracts signed after April 1, 1987(para. 5.22). The proposed allocation of loan proceeds is shown in Annex 9.The loan Closing Date would be December 31, 1995, 12 months following projectcompletion. The disbursement period would be 9 years, which is the same asthe disbursement period for general investment type loans in Turkey.

Monitoring and Evaluation

5.31 ISKI agreed in the Loan Negotiations to submit to the Bank semi-annual reports (due February 28 and August 31) on the progress of projectimplementation during the preceding semesters ending December 31 and June 30,respectively. The reports would measure performance against the constructionand procurement schedules (Annexes 7 and 8), and the monitoring indicators(Annex 11). Also, ISKI agreed that it would submit a Project CompletionReport to the Bank six months after the Loan Closing Date.

VL FINANCE

Past Performance and Current Financial Position

6.01 ISKI's financial performance fell during 1985 and 1986 because of lowtariffs and large arrears in customer accounts. Tariffs were frozen fromJanuary 1985 while general price levels increased more than 80X. Approxi-mately 300,000 of a total of 835,000 customer accounts were substantially inarrears, and accounts receivable at the end of 1986 amounted to the equivalentof six months of 1986 billings. ISKI's self-financing of its investments forthe year was 14X, the balance being funded from Loan 2159 and two loans fromthe Government's Public Participation Fund (Annexes 12, 13, and 14).

6.02 ISKI raised its tariffs in January 1987 by amounts averaging close to300Z because of increases planned in capital spending during 1987-89, andbecause financing from the Government was expected eventually to be reduced,or possibly discontinued entirely. The tariff increase was intended toestablish in a single step a level of tariffs which '2 maintained in realterms by periodic adjustment should be sufficient for the foreseeable f!,ture.ISKI also began recently to increase its effort to collect from customers inarrears, following its shift of billing operations from an outside dataprocessing firm to a new, in house computer (para. 3.12). Effects on ISKI'sbalance sheet have been apparent in increases both in cash and in accountsreceivable. The latter are increasing despite the strengthened collectioneffort, and will coatinue to do so for some time, because of ttne exceptionalmagnitude of the tariff increase, and the difficulty of addressing so manyaccounts in arrears.

6.03 ISKI's debt to equity ratio at the end of 1986 was 34:66. About twothirds of the debt was World Bank Loans 844 and 2159 (US$62.2 million

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equivalent owed, with US$51.6 million of Loan 2159 still remaining to be dis-bursed). ISKI also had received disbursements from the Public ParticipationFund totalling approximately US$29.4 million equivalent, and it owed US$7.1million equivalent to the Kuwait Fund.

Financing Pla

6.04 ISKI's 1987-94 financial requirements consist of: (a) funds for worksalready in process, principally the Istanbul Sewerage Project f-nanced in partby Loan 2159; (b) funds for the proposed project; (c) funds for other newworks comprising, principally, expansion of water source and distributionworks; (d) debt service; and (e) increases in working capital. The proposedfinancing plan calls for obtaining approximately 862 of the US$3.1 billionequivalent needed through charges to customers, and for the balance of thefunds to be borrowed. Seven percent of the total would be the proposed loanof US$218 million equivalent from the World Bank. The plan may be summarizedas follows (annual figures are presented in Annex 13):

Table 6.1: Financing Plan for ISKI, 1987-94

1987-94US$ millionEquivalent X

Financial RequirementsOn Going Works a' 105.4 3.4Proposed Project 569.9 k 18.4Other Works 1,892.5 61.2Debt Service 417.5 13.5Increase in Working Capital 106.6 3.5

Total 3,091.9 100.0

SourcesRevenue from Sales 2,520.1 81.5Customer Contributions 136.2 4.4Non-Operating Income 11.4 .4Existing Loans co 145.1 4.7Proposed World Bank Loan 218.0 7.0Proposed KfW Credit 61.1 2.0

Total 3,091.9 100.0

A' Principally the Istanbul Sewerage Project financed in part by Loan 2159.k' The source breakdown for the estimated cost of $569.9 million is: $218.0

million, World Bank (38X); $265.9 million, revenue from sales (472);$86.0 million, customer contributions (15X).

C/ Loan 2159, three loans from the Public Participation Fund, and a loanfrom the European Resettlement Fund.

6.05 Approximately US$42 million equivalent will be disbursed from thethree loans from the Public Participation Fund during 1987-88. ISKI's termsfor repayment to the Fund are formulas based on incremental revenue which willbe obtained by ISKI from the works financed. For each loan a fraction of theincremental revenue will be paid each year for ten years following completion

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of the works. There are to be no payments of interest per se, ISKI's onlyobligation being the single annual payment for each loan calculated accordingto the respective formula. The estimated payments imply in imputed interest,however, highly concessional terms for several years after works completion.The European Resettlement Fund is to disburse approximately US$51.5 millionequivalent to ISKI through the Istanbul Municipality during 1987-89. ISKI'sdebt to the Municipality is to be denominated in Turkish Lira and repaid over13 years at 22.5% interest.

6.06 The proposed KfW credit would be for DM110 million (estimated atUS$61.1 million equivalent) for the supply of pipe to rehabilitate portions ofthe water distribution network in the European part of Istanbul. The termswould be twenty years including ten years grace, level payments of principal,and 4.752 interest.

Future Finances

6.07 The cash generation projected in the financing plan is based on theassumption that at the beginning of each year tariffs would be adjusted forprior year inflation, so that annual average tariffs during 1988-94 wouldremain unchanged in real terms (Annex 12). Because this cash generation com-bined with the planned foreign borrowing would be more than needed during1987-89 for the projected levels of investment, there would be a large accumu-lation of cash by 1989 (Annex 14). This would be drawn down after 1989 asdecreasing borrowing and increasing debt service then would dictate. (It mustbe noted that ISKI expects its investment program to progress more rapidly,ana its temporary accumulation of cash to be less, than the figures indicatedin Annexes 13 and 14).

6.08 With the financing plan's projections, ISKI's annual self-financingratio (the percentage of the year's investment total financed with cash gener-ated from customers, including their contributions, after covering cash oper-ating expenses and debt service) would average approximately 88% during 1987-94, and would be no less than 70Z in any year. ISKI's annual self-financingof the lroposed project would range from 56% to 78X, and would average 62X.As noted above (para. 6.07), ISKI would achieve these percentages by maintain-ing its tariffs' annual averages unchanged in real termsL. Implementation ofthe investment program would, however, require in addition: (i) that foreigncurrency be available for purchase by ISKI for foreign costs other than thosefinanced by the Bank and KfW, and (ii) that ISKI succeed in tightening itsbilling and collection.

6.09 ISKI has reaffirmed the intention to maintain in real terms on aver-age its tariffs and other charges to customers at no less than the 1987 aver-ages, and, accordingly, to-achieve annual self financing of its investments atlevels of 70% and upwards. ISKI and the Government, however, consider selffinancing this high to be inappropriate for formal commitment. It was agreedin the Loan Negotiations, therefore, that ISKI's commitment in the LoanAgreement would be to annual self financing covering: (i) all expendituresfor the Project which are not covered by the proposed loan, plus (ii) not lessthan 452 of ISKI's other capital expenditures during the year. Inasmuch asthe proposed loan would cover an estimated 38% of the Project's cost, therebyleaving 62% to be covered by ISKI, the formal commitment of ISKI to selffinancing overall is equivalent to no less than approximately 48S (theweighted combination of the 62% for the Project and the 45% for all othercapital expenditures).

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6.10 This commitment is considered a satisfactory one even though thefinancing plan calls for higher self financing, principally for threereasons. Firstly, self financing in the 452-502 range is a standard whichassures financially sound operation, and which, moreover, is high bycomparison with self-financing objectives set in connection with lending bythe Bank for other water and sewerage authorities. The second reason is thatif local funds difficulties should arise, ISKI would be able, and wod'4 beexpected, to respond within the framework of the Loan Agreement first bydeferring investments other than the Project. The third reason is that ISKIagreed in the Loan Negotiations that in any case: (i) it would consult inadvance with the Bank with respect to future long term borrowing which itwould contract, if any, which would aggregate to more than US$5 millionequivalent in any year, and (ii) it would obtain the agreement of the Bankprior to contracting any new long term debt in excess of the total amotant ofUS$250 million equivalent until the completion of the Project. Thus, anyfuture shortfall in revenue or intention to further expand ISKI's investmentsneed not lead to unduly burdensome debt, a matter of importance nationallywith respect to foreign exchange requirements, as well as to ISKI itself.

Tariff Structure and Specia Charges

6.11 ISKI introduced a new tariff structure while increasing tariffs inJanuary 1987. The structure's basic rates are the same for customers receiv-ing both water and sewerage services as those for customers receiving wateronly.

Table 6.2: SKI Tariffs

PercentageBasic Rate1' of Total

Customer Category (TL/m3) Consumption

Households- from 0 to 7.5 m3/month 225 4S- above 7.5 m3/month 450 45%

Offices 750 12S

Industry 1,050 38%

Other X/ 225 lb

Average 574 100%

& Rates for customers on islands (less than 12 of total consumption) are

the basic rates plus a surcharge of TL 400/m 3 .

Bulk sales to communities outside ISKI's service area.

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6.12 ISKI also imposes surcharges for industrial effluent entering thesewerage system in concentrations exceeding prescribed limits (para. 3.14).In addition, ISKI charges private well owners for water which they draw fromtheir wells; it charges customers for maintenance services; and it chargesseptic tank owners for emptying their tanks. Revenue from these chargesapproaches, in total, approximately 30% of the revenue from basic water supplyand sewerage services (Annex 12).

6.13 The rate structure provides significant subsidization of householdconsumption, as is apparent in Table 6.2, by charging above average rates tocommercial and industrial customers (the average cost to ISKI per m3 for thelatter is well below ISKI's overall average cost). The incentive for indus-trial customers to develop private wells and avoid the basic rate of TL1,050/m3 is limited by ISKI's charge of Tl 525/m3 on private well water.Most commercial customers have no private well option because of location andother limitations. The first block rate for households (TL 225/m3 for 0 to7.5 m3/month) provides affordable service to lowest income customers(para. 7.08).

Financial Reportin,

6.14 ISKI agreed in the Loan Negotiations to provide to the Bank semi-annual financial reports. The reports are to forecast and identify as earlyas possible significant variations from planned expenditures and financialperformance objectives so that appropriate action may be taken. The reportsare to be provided at the same times as the reports on project implementation(para. 5.31).

VII. ECONOMIC EVALUATION AND RISKS

Benefits

1.01 Sewerage and sewage treatment account for the major part of theinvestment under the Project. An additional 2.3 million people would beserved by the end of 1994, and facilities for appropriate disposal of most ofIstanbul's sewage would be obtained.

7.02 Reduction of pollution in the Bosphorus and Sea of Marmara would be amajor benefit. Without the Project, environmental conditions would continueto deteriorate in many parts of the city, especially along its shorelines, andrecreational uses of the Sea of Marmara would be substantially reduced.Pollution reduction in the Bosphorus and Sea of Marmara would increase landvalues along the shoreline and promote Greater development of tourism andrecreation.

7.03 Deferral of the Project would necessitate continued use of septictanks and cesspits in densely populated areas. These combined with inadequatewater distribution networks increase the risk of sewage leakage into the watersystem. Replacement of septic tanks with sewerage systems would, therefore,reduce risks to health. Without the Project, the incidence of waterbornediseases would be likely to increase; with it, there should be a reduction.

7.04 The Project's network rehabilitation would improve the water supplyfor inhabitants of the city's Asian section who at present are experiencing

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intermittent supply and low water pressure. Also, the Project would improvewater supply to industrial and commercial customers, thereby increasing theirproductivity. An additional benefit would be a water saving estimated to be130,000 m3 per day by 1994 from reductions in unaccounted-for water.

Rate of Retur

7.05 The benefits of the proposed project cannot be practically separatedfrom those of ISKI's other 1987-94 investments. A rate of return assessmentof a combination of the proposed project and other 1987-94 investments of ISKIhas, therefore, been made.

7.06 Because quantification of all of the benefits of the investment pro-gram is not practical, incremental sales resulting from the program have beentaken as a minimum indicator of benefits for the rate of return calculation.About 2.1 million persons not now served would be provided with water as aresult of the program, and annual sales by 1994 would be 213 million m3 peryear higher than the 1986 level. The program's full benefits would be real-ized in 1997 when the Isakoy Reservoir would be used to full capacity. Atthat point, annual sales would be 300 million m3 per year above the 1986level. An additional 3.0 million people would be provided with water, and 3.5million with sewerage (Annexes 3 and 4). Incremental revenue and incrementalcapital and operating costs, are indicated in Annex 15 in January 1987 prices,including physical contingencies. The sales are calculated at current tariffsin January 1987 prices. Based on these assumptions, the internal financialrate of return is 13.6%, which is satisfactory. The program's long run aver-age incremental cost of water and sewerage with annual discounting of 10 isestimated at TL 492/m3, compared to the tariff average of TL 510 per m3.

7.07 The additional benefits which would be taken into account to calcu-late the program's internal economic rate of return include: (i) propertyvalue increases which would result from the program's improvements in theenvironment and (ii) most of the consequences of health improvements (reduc-tions in healthcare expenditures, and increases in worker productivity). Thevalue of these additional benefits is significant but difficult to quantify.

Affordability of Services

7.08 Average monthly disposable household income in Istanbul is currentlyestimated at TL 170,000.-' It is expected to grow at about 2% p.a.&'inreal terms through the project period, and would, therefore, be equivalent toabout TL 195,000 in 1994 in 1987 prices. Assuming average monthly householdwater consumption in 1994 of approximately 16.8 m3,O' the average monthly

1/ This figure based on the household expenditure survey conducted in late1978. At that time the average household income was TL 14,300. It isassumed to have increased by a factor of 12 since then. Wages increasedby a factor 10.9 to late 1986, and an additional 10% has been added toaccount for inflation during 1987.

-' This is a reasonable assumption given GDP growth of 5% per annum andpopulation growth of 2.52 per annum.Domestic consumption of 144 l/c/d; average household size 3.9.

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household expenditure on water and sewerage would be TL 6,575 (TL 5,870 atcurrent tariffs plus VAT), about 3.4S of household income. The mostrecent estimate of the 'absolute poverty' income level in Istanbul is US$340per capita per year (1987 TL280,000). Based on the 1978 household expendituresurvey, approximately 18% of the population of Istanbul are living at or belowthe poverty level, with a median monthly disposable household income ofapproximately TL 60,900.-' Assuming that these lower income households con-sume an average of 8.5 m3 per month, their average monthly expenditure onwater and sewerage would be TL 3,100 (TL 2,800 excluding VAT), 2.71 of theaverage monthly income.

Poverty Impact

7.09 A total of 2.1 million people would receive piped water, and 2.3 mil-lion people sewerage under the overall investment program. Household connec-tions would be provided to 275,000 people who are today without piped water.Of these, it may be assumed that virtually all would have incomes below thepoverty threshold, given the present relatively high proportion of peoplealready served (892). Similarly, sewerage would be provided to nearly 1 mil-lion people presently without the service. Of these, it is estimated thatabout two-thirds, or 660,000 people, would be in the lowest income group.

7.10 The great majority of new water connections, however, and nearly halfof the new sewerage connections, would be provided to maintain service levelsfor the added population of the city, expected to be about 2.1 million overthe project period. Of these, about 1.8 million people would be provided withwater and 1.4 million with sewerage. It is estimated that about one-third ofthese beneficiaries, ' or 600,000 people receiving water and 460,000 peoplereceiving sewerage, would have income below the poverty threshold.

7.11 In summary, about 431 of those receiving wate. supply (875,000people), and 50% of those receiving sewerage (1.1 million people) would haveincomes below the poverty threshold.

Environnental Impact

7.12 The environmental impact of the Project would be positive. Asmentioned above, pollution would be substantially reduced in the upper levelsof the Bosphorus and in the Sea of Marmara.

7.13 The Project includes treatment facilities for approximately 801 ofthe sewage now being discharged into the Sea of Marmara. Some of the facili-ties are secondary treatment plants, which are for sewage which is to continuebeing disposed of in the sea of Marmara. The other facilities are to

No increase in real incomes of the poor is assumed over the projectperiod given that many of the poor will be new arrivals from rural areas.On the assumption that half the population increase is made up of naturalincrease, with income distribution representing that of Istanbul (181poor), and half of immigrants, mostly from rural areas, of whom 50% wouldbe poor, at least in the initial years.

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provide preliminary treatment (removal of grit and floatables) before dis-charge into the bottom current of the Bosphorus. The effluent there would bediluted and transported to the Black Sea. Once in the Black Sea, it would befurther diluted and treated naturally (Annex 2). This method is consideredsatisfactory given: (i) the expected dilution in the Bosphorus (in the orderof 1,000 times on average); and (ii) that ISKI has an effective industrialwaste program to control the discharge of toxic substances. Disposal ofIstanbul's sewage to the Bosphorus bottom current was proposed by the DAMOCmaster plan study in 1971 and confirmed as technically feasible and environ-mentally sound by the Camp-Tek-Ser master plan update in 1975. The two con-sulting firms now implementing the program also have confirmed the feasibilityof the method. Secondary treatment of all sewage would provide low marginalbenefit at high marginal cost. In addition, the acquisition of land areasneeded for secondary treatment plants would be difficult and require resettle-ment of a large number of persons.

Risks

7.14 There is a risk that because of change in the the Bosphorus current,some sewage might flow into the Sea of Marmara rather than into the BlackSea. This risk is not considered to be a significant one because of: (i) therarity and brevity of flow stoppage of the bottom current; (ii) the degree ofdilution obtained in the Bosphorus; and (iii) the assimilative capacity of theSea of Marmara, which, while insufficient for the continual loading of theentire city's sewage experienced today, is adequate to receive and treatnaturally the small fraction, if any at all, which might arrive on a rareoccasion in the future.

7.15 The Technical University of Istanbul monitors the water quality ofthe Black Sea, Bosphorus, and Sea of Marmara under contract to ISKI, and ISKIrecently extended the contract to December 1991. ISKI and the Government givehigh priority to pollution abatement in the waters surrounding Istanbul, and%ould be expected to take further measures if-.he monitoring program shouldindicate that the solution being implemented is not fully satisfactory.

7.16 The Project also has financial risks, principally possibilities offailure to adjust tariffs upward with inflation, and of cost overruns in pro-gram implementation. These risks are minimal because of the organizationaland financial strength of ISKI, and the economic strength of Istanbul.Sensitivity tests were carried out to estimate the return of the project underless favorable assumptions. If capital costs should increase by 10%, the IRRwould be reduced from 13.61 to 12.1%. If operating costs should increase by101, it would be 13.41. If revenue should be 101 lower than expected, itwould be 11.61.

VIIL AGREEMENTS REACHED AND RECOMMENDATIONS

8.01 ISKI agreed during the Loan Negotiations that it would:

(a) establish and carry out a program of collection from custome,rsin arrears to reduce ISKI's accounts receivable to the equiva-lent of no more than five months of current billings by

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the end of March 1988, four months by the end of June 1988,three months by the end of September 1988, and two months by theend of December 1988 (para. 3.12);

(b) submit to the Bank by the end of February each year for reviewand comment a report on the status of the ISKI investment pro-gram, including up to date plans and current accomplishments(para. 4.15);

(c) generate funds from charges to customers so that annual self-financing by ISKI would cover: (i) all expenditures during theyear for the Project which are not covered by the proposed loan,plus (ii) not less than 45% of ISKI's other capital expendituresduring the year (para. 6.09);

(d) consult in advance with the Bank with respect to future longterm borrowings if these aggregate to more than US$5 millionequivalent in any year (para. 6.10); and

(e) obtain the agreement of the Bank priur to contracting any long-term dett in excess of the total amount of US$250 million equi-valent until the completion of the Project (para. 6.10).

8.02 In addition, ISKI agreed during the Loan Negotiations on standardrequirements for: progress reports on the Project (para. 5.31); annual audits(para. 3.10); financial reporting to the Bank (para. 6.14); administration ofa Special Account (para. 5.29); use of Statements of Expenditures(para. 5.28); preparation of a Project Completion Report (para. 5.31); andprequalification of bidders for civil works (para. 5.20).

8.03 With the above agreements and conditions, the proposed project wouldbe suitable for a Bank loan of US$218.0 million equivalent to the IstanbulWater Supply and Sewerage General Directorate for a period of 17 years,including four years of grace, at the standard variable interest rate.

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ANNEX 1

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

ISKI Organization Chart

-- neral Al aly

Inttrnal AuditOr 1Board of oirtctors |-

Secrttariat

|Oe ral Director

Legal _ Secreaiat -

Control Board f j PubliC Pelations

Inspctors | | Controlles |_| Civil ef euse

|inistration & Finan | Planning & Construction | | SUply Operations [ Notetwrk Operations

Personnel Planning Research water Trn ssion - Watr Networks

Custemr Service L| _ Appropriation T _ reatment Plants |SeWg Network- s

I Construction & Electrcal I I oa etectionData Processing Maintenance - Mchnical n& Control

tndustr101 wast-iFinance _ Sewer Construction _ Zndwaent 1j Ground Water

Purchasing & Stores | Water Construction

Medical

- 36 -

ANNEX 2

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Black Sea Disposal of Sewage

1. Istanbul is located on the Bosphorus end of the Turkish Straits,which extend approximately 300 km from the Aegean Sea through the Dardanelles(60 km), Sea of Marmara (210 km) and the Bosphorus (31 Km) to the Black Sea.There is a two-layer current system in the Straits, resulting from thedifference in salinity between the less saline and therefore lighter Black Seawater and the more saline and therefore heavier Aegean oater.

2. The surface flow in the Straits is from the Black Sea to the Aegean.At lower levels, however, a "bottom" current of more saline water flows fromthe Aegean to the bottom portion of the Black Sea. This portion of the BlackSea has been anerobic for centuries, and presently amounts to 88% of the Sea'stotal volume.

3. The two currents are most pronounced in the narrowest sections of theBocphorus where the velocity averages 1.0 m/sec in the upper current and 1.5m/sec in the lower current. Flow rates average 12,600 m3/sec in the uppercurrent and 6,100 m3/sec in the lower current.

4. Studies indicate that sewage discharged to the Bosphorus bottomcurrent will be transported to the bottom portion of the Black Sea, where itwill be treated through natural processes. Sewage disposed of in this mannerwould require only preliminary treatment to remove grit and floatables.

5. Although the two-layer current exists in the Sea of Marmara, it movesvery slowly there and is not sufficiently defined to be used for sewagedisposal. Treatment plants serving drainage basins bordering the Sea ofMarmara, therefore, have been designed for secondary level treatment.

6. The sewe-age master plan for Istanbul includes 18 sewage treatmentplants. Seven plants are close enough to the Bosphorus to take advantage ofits bottom current for effluent disposal and will, therefore, providepreliminary treatment only. Eleven other plants will discharge to the Sea ofMarmara, and will be designed to provide secondary treatment. Plantsproviding preliminary treatment would treat 60% of the expected sewage flow in1995, and 50% in the year 2000.

1 787W(3 )

- 37 -ANNEX 3

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Historical and Projected Water Production and Related Indicators

Year 1900 1901 1992 193 1954 1905 196 1907 190 1989..... ....... ......... ............ .......... ... ..... . _........ . ... . .... . _...... ......... ..... ............ . .. .... ................... *.. .

Year end population INSIOE1) 4,446 4,635 4,032 S,O38 5,252 5,476 5,709 5,940 6,195 6,449Population changoe (NIOEP) 182 169 197 206 214 224 233 240 247 254Population change (2) 4.26 4.26 4.26 4.26 4.26 4.26 4.25 4.20 4.15 4.10Year end population served (NS1OE3) 2,447 3,301 4,491 4,674 4,009 4,910 5,053 5,276 5,567 5,960Year end population served 12) 5S.0 71.2 92.9 92.0 91.5 09.7 6.5 66.7 t 9.9 90.9

Population served change N$100E3) lto 854 1190 103 134 102 143 225 269 293Population served change (t) 4.6 34.9 36.1 4.1 2.9 2.1 2.9 4.4 5.5 5.3Year end connections (NtlOES) 400 550 749 779 801 010 835 665 905 945Connections change (NlOES) 10 142 19 30 22 17 17 30 40 40Connections change (M) 4.6 34.9 36.1 4.1 2.9 2.1 2.1 3.6 4.6 4.4

Average population (NS1OE3) 4,355 4,540 4,734 4,935 3,145 5,364 5,592 5,29 6,072 6,322Average population served (It1003) 2,393 2,674 3,096 4,582 4,741 4,059 4,982 5,165 5,422 5,714Average connections I(310S3) 39 479 649 764 790 010 627 650 605 925Year end persons per connection (Nt 6.00 6.00 6.00 6.00 6.00 6.00 6.05 6.10 6.15 6.20Consumption per connKction (1eZI n) 36 36 17 22 26 20 32 30 34 35

Consumption per person (I/cd) 190 197 91 120 144 152 176 162 193 107Total consumption (.3810H6) 173 207 129 200 250 269 320 306 362 39Production (03810E6) 301 326 216 332 32 314 457 437 510 541Unaccounted-for water (@3810EQ6 127 120 07 132 122 115 137 131 146 151Unaccounted-for water (2) 42.3 36.6 40.3 39.7 32.8 30.0 30.0 30.0 29.0 28.0

-- .. ----------- - ----- - -- -_ - - ------- . _.... . . _.__..

Year 1990 1991 1992 1993 1994 1995 2000 2005 2010 2015

Yter end population (N81003) 6,711 6,979 7,255 7,538 7,028 8,125 9,720 11,406 13,063 14,600Population change (Il10031 261 260 276 283 29 297 333 338 325 293Population change M2) 4.05 4.00 3.95 3.90 3.65 3.00 3.55 3.05 2.S5 2.05Year end population servod (N8103) 6,126 6,396 6,669 6,95 7,225 7,509 9,148 10,86 12,441 14,036Year end population srved (1) 91.3 91.6 91.9 92.1 92.3 92. 94.1 95.4 95.4 96.1

Population served change (Il10E3) 266 270 273 277 280 284 336 356 315 315Population served change (1) 4.5 4.4 4.3 4.1 4.0 3.9 3.8 3.4 2.6 2.3Year end connections (N810E31 980 1,015 1,050 1,065 1,120 1,155 1,3S5 1,555 1,780 2,005Connections change (MIND10) 35 33 35 35 35 35 0 40 45 45Connections change (1) 3.7 3.6 3.4 3.3 3.2 3.! 3.0 2.6 2.6 2.3

Average population MIN80D5) 6,500 6,945 7,117 7,396 7,693 7,976 9,554 11,237 12,900 14,453Avrage population served (N810E3) 5,993 6,261 6,532 6,807 7,085 7,367 8,9t0 10,709 12,304 13,079Average connections (381003) 963 99 1,033 1,060 1,103 1,130 1,335 1,535 1,750 1,983Yar end persons per connection (3) 6.2! 6.30 6.35 6.40 6.45 6.50 6.75 7.00 7.00 7.00Consuption per connection (m3ln) 36 37 38 39 40 41 45 4 49 50

Consption pr prsen (lI/cd) 190 194 198 202 206 208 219 224 230 236Total consmption (l3110E6) 416 444 472 502 533 560 717 977 1,033 1,194Production (et1OEQ6) 571 600 630 661 692 718 096 1,096 1,291 1,493Unaccounted-for watr W3H10) 154 156 157 159 1S9 158 179 219 258 299Unaccounted-for Dater (S) 27.0 26.0 25.0 24.0 23.0 22.0 20.0 20.0 20.0 20.0

- 38 -ANNEX 4

REPUBUC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Historical and Projected SeweraMe Connection and Related Indicators

Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1M_- ... …----.---- - .----.-.-..-.-.------.--.------------------....----..-.-----.------- _---_.-----_---…-----------

Year end population (NOIOE3) 4,446 4,635 4,932 5,038 5,252 5,476 5,709 5,948 6,195 6,449Population change (N'IOE3P 182 189 197 206 214 224 233 240 247 254Population change 1Z) 4.26 4.26 4.26 4.26 4.26 4.26 4.25 4.20 4.15 4.10Year end popn. served (N#IOE3) 2,364 2,484 2,604 2,730 2,856 2,908 3,140 3,349 3,622 3,100Tear end population served 1%) 53.2 53.6 53.9 54.2 54.4 54.6 55.0 56.3 58.5 60.5

Population served change (N*IOE3) 120 120 120 126 126 132 152 209 273 277Population served change (1i 5.3 5.1 4.8 4.8 4.6 4.6 S.1 6.7 8.2 7.7Year end connections (N*IOE3) 394 414 434 455 476 498 519 549 589 629Connections change INtOE3) 20 20 20 21 21 22 21 30 40 40Connections change 4.) 5.3 S.1 ,.8 4.8 4.6 4.6 4.2 5.8 7.3 6.8

Average population fNIIOE3) 4,355 4,540 4,734 4,935 5,145 5,364 5,592 5,829 6,072 6,322Average population served MIND1E3) 2,304 2,424 2,544 2,667 2,793 2,922 3,064 3,244 3,486 3,761Averago connections 4N*1OE3) 384 404 424 445 466 487 509 534 569 609Year end persons per connection (N) 6.00 6.00 6.00 6.00 6.00 6.00 6.05 6.10 6.15 6.20Sewage connections/water connection 0.97 0.75 0.58 0.58 0.59 0.61 0.62 0.63 0.65 0.67

---- - --- …--------- -- …- ----- --------- -- ------------- -- - ----- --- …

Year 1990 1991 1992 1993 1994 1995 2000 2005 2010 2015

Year end population MNOIOED) 6,711 6,979 7,255 7,530 7,828 8,125 9,720 11,406 13,063 14,600Population thange IN*10E31 261 268 276 283 290 297 333 338 325 293Population change 17) 4.05 4.00 3.?5 3.90 3.85 3.80 3.55 3.05 2.55 2.05Year end popn. served (N#1OE3) 4,181 4,467 4,788 5,114 5,476 5,843 7,756 9,793 11,543 13,293Year end population served (2) 62.3 64.0 66.0 67.8 70.0 71.9 79.8 85.9 88.4 91.0

Population served change (N.10E3) 281 285 321 326 362 367 392 417 350 350Population served change (1) 7.2 6.8 7.2 6.8 7.1 6.7 5.3 4.5 3.1 2.7Year end connections (N 1OE3) 669 709 754 799 849 899 1,149 1,399 1,649 1,899Connections change (0hlOE3) 40 40 45 45 50 50 50 50 50 50Connections change () 6,4 6.0 6.3 6.0 6.3 5.9 4.5 3.7 3.1 2.7

Average population (N'10E3) 6,580 6,845 7,117 7,396 7,683 7,976 9,S54 l1,237 12,900 14,453Average population served MN5IOE3) 4,041 4,324 4,627 4,951 5,295 5,660 7,560 9,584 11,38 13,118Average connections (N1OE3) 649 689 732 777 924 874 1,124 1,374 1,624 1,974Year end persons per connection (N) 6.25 6.30 6.35 6.40 6.45 6.50 6.75 7.00 7.00 7.00Sewage connections/water connection 0.68 0.70 0.72 0.74 0.76 0.78 0.85 0.90 0.93 0.95

- 39 -

ANNEX 5Page 1 of 5

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

ISKI Investment Program

Background

1. The original basis for ISKI's investment program is the 1971DAMOC't master plan report. The program has undergone modifications since1971 in later planning and final design studies i', but the main principlesand features of the DAMOC recommendations are still being followed. After 15years, the only significant changes have been in the growth and location ofthe demand for services; i.e., the current population size served by ISKI wasnot expected to be reached until the year 2000, according to the DAMOC report.

Implementation Period

2. The implementation period addressed in the appraisal is 1987-94.Included in the program presented, however, are works already underconstruction, and works started near the end of the period which would requireadditional time to complete.

Water SUPP1Y

3. The water supply part of the program would correct existing servicedeficiencies and provide productioi capacity to meet the vrojected demand fqr1997. Although the city's water supply'coverage is high '89% of thepopulation is presently served), the quality of the service is poor because ofinsufficient source capacity and undersize distribution pipes.

4. The development of new surface water sources has been influencedgreatly by the division of the city by the Bosphorus. ISKI's current strategyis to develop sources on both sides of the Bosphorus, the European side andthe Asian side, to meet the demand of each side in order to minimize the needfor costly Bosphorus crossings. This strategy will be increasingly difficultto follow in the future because most of the identified future sources arelocated on the Asian side. The first crossing of the Bosphorus consisting oftwo 1.0 meter pipes was constructed in 1982. A second crossing consisting ofa third pipe paralleling the first two is in the investment program.

' A consortium sponsored by Daniel, Mann, Johnson and Mendenhall, LosAngeles, CA and including Alvard Burdick and Howson, Chicago, Ill;Motor-Columbus, Baden Switzerland; and Checchi & Co, Washington, D.C.

2/ Istanbul Sewerage Project - Master Plan Revision, February 1975 -Camp-Tek-Ser Consulting Engineers; Istanbul Water Supply DistributionProject - February 1977 - Binnie & Partners

- 40 -

ANNEX 5Page 2 of 5

5. The program includes the development of three new sources. Two ofthem, the Buyukcekmece Dam and Reservoir and the Darlik Dam and Reservoir andthree associated treatment plants now under construction will increase averagesupply capacity from 1.1 to 1.6 million m3/day. The Buyukcekmece Reservoirand Treatment Plant to the west of Istanbul is now almost completed, and isexpected to begin operation in early 1988. The Darlik Reservoir, 70kilometers to the east, should be completed by 1988. The Isakoy Reservoir,the third source, is currently in the preliminary design stage. The IsakoyReservoir is 16 km east of Darlik, and will increase the average supplycapacity by 0.6 million m3/year. The Buyukeekmece Treatment Plant will havea capacity of 0.3 million m3/day, and will treat only Buyukeelkmece Reservoirwater. Water from the Darlik and Isakoy Reservoirs would be conveyed by pipeto the Omerli treatment plant complex, whose capacity will be expanded totreat the additional water. A 0.2 million m3/day expansion of the Omerli IPlant is being designed, and should be constructed by 1988. An additionalplant, Omerli III, sized for 1.0 million m3/day, is planned for completionby 1991. Production capacities will thus total 2.2 million m3/day by 1994,compared with projected requirements of 1.9 million m3/day by 1994 and 2.5million m3/day by the year 2000 (see Figure A5.1). The long-termdevelopment of water sources for the Istanbul area is currently under study,and a revised master plan prepared with the assistance of a consulting firm,is scheduled to be completed in early 1988.

6. Substantial improvements to the distribution system are also includedin the program. Additional transmission capacity from the Omerli watertreatment plants would carry water from the Darlik and Isakoy Reservoirs.Expansion of the distribution system would provide 285,000 new connectionsbetween 1987-1994. A network rehabilitation program would improve service toexisting customers by increasing system pressure and reducing leakage. ASupervisory Control and Data Acquisition (SCADA) system would centralize andautomate the operation of pumping stations and control valves, transmit realtime data on the status of the system for central display and analysis, andstore data useful for maintenance of the system. All proposed expansions oftransmission and distribution capabilities are being reviewed by consultantsto ISKI as part of the water master plan revision study.

Sewerage

7. The sewerage part of the program has two main objectives:(i) rehabilitation of local streams, and (ii) pollution elimination/preventionin the Golden Horn, the Sea of Marmara, and the Bosphorus. Streamrehabilitation is needed because many existing street sewers and collectorsdischarge to the nearest stream or drairnage channel. The rehabilitationincludes channel improvement works and the construction of parallel

- 41 -

ANNEX 5Page 3 of 5

collectors. The pollution prevention program consists of 15 treatment plantsand associated interceptors, giving priority to improving water quality in theGolden Horn first, the Sea of Marmara second, and the Bosphorus third.Progress in meeting the sewerage program objectives has been slow. Since theprogram's inception in 1980, 40 km out of a total stream length of 450 km havebeen rehabilitated, and designs have been completed for four of the 15 sewagetreatment plants. Significant benefits are expected from these initial works,however, because they are located in the three most populous andindustrialized drainage zones, Yenikapi, Kabatas and Uskudar, and will arhievethe first priority objective of the program, pollution prevention in theGolden Horn.

8. Completion of the program's remaining eleven treatment plants, thestream rehabilitation program, 330,000 new connections, and 2,000 km of streetsewers and collectors, would eliminate pollution of the area's waters, andwould Increase service levels from 552 to 681.

Status of Progam FPreparation

9. Preparation of most components of the program is well advanced.Components representing 20% of the total cost of the program are already underconstruction, and components representing another 50S are being designed.Distribution components representing 20% of program cost are the leastprepared. Components representing the remaining 101 of the program cost arebeing prepared by ISKI's own engineering staff, and are in various stages ofpreparation.

Cost

10. The estimated cost of the program in current prices is US$2.7 billionequivalent, including expenditures already made on components of the programwhich began before 1987. A breakdown of the program's cost by component ispresented in Table A5.1.

1787W

- 42 -

ANNEX 5Page 4 of 5

Figr A5.1: Istanbul Metropolitan Area Average WaterDemand Versus Safe Yield of Sourcesso _ 7

3.5 -

2.5 -

2.0- I _ _ o - /Isakoy (540)/a

1.5. -P ., == Darlik (266)

= | _ _e. Buyukeekmece (219)

Existing (1,055)

190 190990 1995 2000 2005 2010 2015

Yir

a/ Safe yield capacity in thousand m3/day.

_ 43 _ ~~~ANNEX SPage 5 of 5

Table A5.1: ISKI's Investment Program in Current Prices (1987-94)

(US$ MliUion Equivalent)

_.__ ___._ _ _ ......-----------... _. ._ ............. . ._. ..................... . ..... _.

Pre-1987 1997 1988 599 190 1991 12 993 I94 Total

Vater Supp1e and 0istributim

Suyokc2ksece Das end Resrvoir 91,2 8.6 2.2 102.0Darlik Das and Revoir 9.7 15.5 17.8 43.0lukey Do and Resvoir 21.0 33.0 13.3 67.3arlilk-Corli Rio NIter Tranesission 12.3 12.4 24.7

lsak-errlik Ra later transeass,oa 13.9 13.9 27.7owrl It Raw lttr Trunsossion and PS 3.7 1.6 5.3Tsrkos-Kagithn RV Transession 7.4 15.4 15.1 38,6Future Sourtce O"vlopmt 30.0 30.0 60.0huykctkaecs VIP 6t0 4.1 4*2 14.3Kaqithas nIP Rehabilitation 2.3 2.4 4.7Eali tP Roehbilitation 0.5 0.6 1.10wrli I lTP Expansion 0.7 0.3 1.0Ceerli III NIP 2.9 5.2 12.0 9.3 29.4Future Iater treatent 20.0 20.0 40.0Netvork Rehabilitation 2.9 46.1 59.9 24.1 10.8 13,1 11.6 10.5 179.0Pedik-Darica TO Traeission 2.1 Li 4.2Oarli-Dudlulelak TV Transaissdon1 1. 1.7 0.9 4.3Second ihefPOr Crosing 14.5 15.0 29.5later Network Eapasnen and Connetions 19.5 19.3 19.9 19.1 19.6 20.2 21.1 21.7 157.9lter Storap tanks 2.8 2.6 2.0 2.9 2.9 3.0 3.2 3.3 23.7Prince Islands later Supply 3.5 3.6 7.1M Syste 3.6 4.9 3.7 12.2

Sihli-Pelit-ltucukyali TV Transossion 1.0 1.1 2.1Catalc TO Trannission 7.1 7.9 15.6Network Renforcent 67.0 165.0 191.0 64.0 35.0 542.0Equipmnt 0.6 2.5 2.5 2.5 4.7 3.8 3.7 3.9 24.2Land kquisition 3.3 3.4 3.4 3.5 3.6 3.7 3.9 3.9 28.7

Total lter Supply and Distribution 106.9 59.9 143.3 157.5 193.1 220.8 243.1 201.4 173.6 1,*49.6

Sege Collcion and Trewatmnt

Swth Halic Outfall 8.6 5.1 13.7alutalAai Outfall 1.6 5.5 1.9 9.2Suth Hdic StP 9.4 4.3 1.9 15.6aitaliei SP 2.3 6.9 2.3 11.5

Uskudar SP 1,5 6.3 1.3 9.1Kucukcekaece Collects and STP 0.5 1U.7 23.7 17.7 11.2 3.1 1,1 76.0Kadikoy-Pedik Intercepter and StP 1.7 41.6 53.8 23.9 11.5 4.9 137.4TulaS Collectors ad STP 25.2 31.4 23.0 15.6 7.4 4.9 101.7Futare SI Ia 46.4 71.7 118.1Seuth Iblic Soldn Horn Interceptor 81 6.4 2.8 17.3South Hlic SUs of larse Interceptor 11,9 3.6 1.4 16.9North Heic Interceptor 4.3 6.7 6.6 2.2 21.8Ialtalieni Tnel Interceptor 8.4 11.3 5.7 2.9 26.3Sewer Pipe ly (North alic) 1.2 1.2Atakey Ps and Collector 3.9 3.6 1.5Stret eWes eN Conction 6.5 11.0 15.5 15.7 I6.0 16.6 17.4 17.8 116.5Area Sewp Colectors 10.0 10.2 10.3 40.5 40.7 41.1 41.5 41.3 236.1Strs Reabilitation 3.3 3.4 3.4 20.0 20.0 20.0 20.0 20.0 110.1Eui"et 0.2 1.0 1.0 1.0 2.0 2.0 2.0 2.0 15.2Land kcQsitie 5.0 5.1 5.2 5.2 5.3 5.5 5J. 5.9 43.0

Total e Collction and Treatmt 39.0 50.9 150.1 184.5 160.4 125.4 100.6 139.1 159.2 1,108.2

Enginering, tI and Iraining

Training 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.7Consultants 8.9 11.1 9L1 14.4 13.6 I5.0 15.5 18.0 104.61511 Staff 0.8 1.0 1.3 1.4 1.5 1.7 1.9 0.1 9.6

Total Enginwring, TA and Training 0.0 9.7 12,2 9.5 15.9 15.2 16.8 17.4 18.2 114.9

a8m20 TOTAL 144.9 120.5 305.6 351.5 359.4 361.4 360.5 357.9 351.0 2,712.7

_ __ ___

- 44 -

ANNEX 6Page 1 of 7

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Proiect Cost Estimates

1. Summary cost estimates by expenditure category, year and financingsource are included in Tables A6.1 through A6.4 of this Annex. Detailedestimates are included in the Project File. All cost estimates were preparedusing January 1987 prices and an exchange rate of TL 758 to 1. The base costsare presented in average 1987 prices, updated to account for inflation and anexchange rate of TL 840 to 1.

2. Bid prices have been used where available. The civil works costestimates are based on preliminary quantity estimates and unit prices ofsimilar work in Turkey and other countries in the Region. Pipe, equipment,and material costs are based on supplier quotations. Land costs are based onrecent sales data obtained from the Municipality for similar types of land.

3. The cost of consultants for design, construction supervision, andtechnical assistance are based on man-month estimates and rates charged byforeign and local consultants in Turkey. Local staff costs are based onman-month estimates and current salaries paid by ISKI.

4. A 12Z value added tax on all goods and services is reflected in thelocal cost component of the affected components. Import duties are notincluded since ISKI has obtained an exemption from the SPO for all projects inits investment program.

5. Physical contingencies are 0 percent for consultants, staff salariesand land and 10 percent for equipments materials and civil works. Pricecontingency factors and factors for updating base costs estimates assumec2nstant purchasing parity exchange rates and the following inflation rates:

Foreign LocalYear Inflation (2) Inflation (1)

1987 3.0 25.01988 1.0 20.01989 1.0 18.01990 1.0 16.01991 3.5 13.01992 3.5 11.01993 3.5 9.01994 3.5 9.01995 3.5 9.0

1787W

- 45 -

ANNEX 6Page 2 of 7

Table A6.1: Water Distribution Cost by Componentand Expenditure Category

(TL Billion)

Progrm to plcesnt et Rehabtlltat0on o .SCAVAReduce Losses Pipe Ptuw1r Stattons System

A. CIVIL VOMS 16.9 3.4 -3. MATERIALS AND EQUIPMENT

Local - - -

Iworwte- 25.2 4.5 9.2

Sub-Total IATERIALS AND EWUIPMT - 25.2 4.5 9.2C. CONSULTANTS

Local 0.2 - 0.3Fore1sn 1.0 _ 0.4

Sub-Total CONSLTANTS 1.2 - - 0.60. SORROER STAFF - 0.2 0.0 0.2E. TRAINING

Local 0.1s_ Foreign 0.1

Sub-Total RAtNING 0;-P. LAND ACQUISITION I

=____.._._____..

Sub-Total LAND ACQUISITION

Total 6SASLINE COSTS 1.4 42.3 . 7.9 10.3Physical Continganc-1 4.2 0.6 0.9Price Contingancl. 0.9 47.7 7.3 3.5

..... .~~....... -- -- -- -- -- -- -- -- ,- - - - - - - ,

Total PROJECT COSTS 2.2 94.1 16.0 13.1wuseS*"*an. ssuSUgasuauUss *s.ssuea-- swes**,

TFom 0.2 10.1 1.7 1.4Fwe1w1 Ixuq 1.5 154. 5 8.6 10.4

-.- _---------_-_-----_--------_-.--_----------_-.-----__------.---____------.__----_----------_---.-

- 46 -

ANNEX 6Page 3 of 7

Table A6.2: Sewage Colletion and Treatment Costby Component and Expenditure Category

(TL Billion)

Atakoy Tuxia UskudaerDrainago Kucukcekaeo Kadikoy-Pendik Draanage Drainage Street Customer

Zone Drainage Zone Drainage Zone 2one Zone Severe Connect tons

A. CIVIL WORKS 4.6 34.3 88.7 59.2 5.7 42.8 29.4B. MATERIALS AND EQUIPMENT

Local 0.2 6.9 4.6 6.9 0.3 -Imported 0.6 13.7 11.1 t37 0. 7

Sub-Total MATERIALS AND EQUIPMENT 1.0 19.6 15.6 19.6 1.0C. CONSULtANTS

Local 0.1 0.9 1.1 1.1 0.2 1.8 -Foreign 0.0 0.3 1.0 0.5 0.1 - -

Sub-Total CONSULtANTS 0.1 1.2 2.1 1.6 0.3 1.60. BORROWER STAFF 0.1 1.2 2.1 1.6 0.1 0.0 0.1E. TRAINING

LocalForeign

Sub-Total TRAINING _P. LAND ACQUISITION

Sewerag 2...... ____

Sub-Total LAND ACOUISITION 2.3 - - - - -

Total BASELtNE COSTS 6.8 686.6 105.8 81.9 7.1 44.6 39.SPhysIcal Contingencies 0.6 5.4 10.1 7.9 0.7 4.3 3.aPrice Contingencies 2.1 36.0 66.6 64.5 3.5 43.9 39.0

TotAl PROJECT COSTS 8.9 1O0.0 172.6 144.3 11.3 92.6 82.4..u..aftausnsue:0 607a0... u...sw...c.. ss.ss..uss.

i Taxes 0.9 10.2 16 1 16.2 1.2 0.0 6.6. Foreign Exchange 2.9 44.6 74.7 68.0 3.6 23.3 20.8

…---_--------------------------------- -----------------------------------------------------------------------------------

- 47 -

ANNE 6Page 4 of 7

Table A6.3: Institutional Strengthening Cost byComponent and Expenditure Category

(TL Billion)

IndustrialOperat1on and WasteMaintenance ManagementTraining Training Equipment

A. CIVIL WORKS _B. MATERIALS AND EQUIPMENT

Local 1.2Imported - - 8.7

Sub-Totol MATERIALS AND EQUIPMENT - - 9.9C. C0NSULTANTS

Local 0.5 - -

Foreign 0.8 S

Sub-Total CONSULTARTS 0.9 _ _0. BORROWER STAFF - 0.E. TRAINING

,.ocal 0.1 - _Foreign 0.0 0.0

Sub-Total TRAINING 0.1 0.0F. LAND ACQUISITION

sewerage

Sub-Total LAND ACQUISITION - -

Total BASELINE COSTS t.0 0.0 tO.0Physical Contingencies - - -Price Contingencies 0.9 0.0 5.3

Total PROJECT COSTS 1.8 0.; 18.2

Taxes . 0.2 - 1.6Foteign Exchange 0.8 0.1 11.7

…-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Table A6.4: Project Cost by Expenditure Category and Year Including Contingencies

Tota9s Inc luding Contingenc es Totals Includint Contingac Sea(Turkish Lire Billion) (US$ Million)

1967 8t 60 1969. t990 1991 1992 1993 t994 totat 1987 198a 1989 1990 199S 1992 1993 1994 lotal... W... .... .... ..... .... *.... ..... .... . we .. s... S.... ... .... .... .... .*-....

A. CIVIL WORKS 6.8 84.6 134.9 85.0 72.4 61.4 49.6 41.1 536.3 8.1 64.0 113.8 62.0 47.2 37.0 26.6 22.5 403.1S. MATERIALS AND EQUIPhENT

Local - 5. t 8.8 9.4 7.3 0.5 - - 31.2 - 5.0 7.5 6.9 4.6 0.3 - - 24 SImported 3.0 22.1 35.0 40.1 22.6 13.S tJ.1 10.0 158.3 3.6 22.0 29.6 29.2 14.7 6.t 6.4 5.8 t19.5

Sub-Total MATERIALS 4N0 EQUIPMENT 3.0 27.2 43.9 49.5 29.9 14.0 tt.1 tO.8 t89.1 3.6 27.0 37.0 36.1 19.5 6.4 6.4 5.9 143.9C. CONSULTANtS

Local 1.0 1.3 *.8 1.7 1.4 1.4 1.2 0.7 10.4 1.1 1.3 1.5 1.2 0.9 0.9 0.7 0.4 8.0foreign 0.5 0.7 1.4 *.2 1.0 0.5 0.3 - 5.7 0.6 0.7 1.2 0.9 0.7 0.3 0.2 - 4.6

Sub-Totat CONSULTANTS t.5 2.0 3.2 2.9 2.4 1.9 1.S 0.7 16.2 1.8 2.0 2.7 2.1 1.6 1.2 0.9 0.4 12.60. WOR3OWER STAFF t.1 1.0 1.2 1.3 1.4 1.6 1.7 0.0 9.4 1.3 1.0 1.0 1.0 0.9 1.0 ° .0 0.0 7.2E. TRAINING

Local - 0.0 0.1 0.1 0.0 _0.2 - 00 0.1 0.0 0.0 - - 0.2Foreign - 0.0 0.1 0.0 0.0 - - - 0.2 - 0 0 0.1 0.0 0.0 - - - 0.2tor-10n~ ~ ~ ~- --- ---- ---- ---- ---- --- --- --- ---- -- - --- --- --- ---- 0.0-- --- -----

Sub-Total TRAINING - 0.0 0.2 0.1 O.1 - - 0.4 - 0.0 0.2 0.1 0.0 - - - 0.3F. LAND ACQUISITION

Sewerage 0 5 .t 1.3 - - - - 2.9 0.5 .1 1. - - - - - 2.7

Sub-Total LAND ACQUISITION O.S 1.1 1.3 - - _ _ 2.9 O.S 1.1 1.1 2.7_,,_ ----- ----- ----- ----- ---- ---- r-- --~- ---- ----- ----- ----- ---- ---- ---- ---- ~-----

Total PROJECT COSTS 12.9 116.0 184.7 *38.9 106.2 78.9 68.9 53.2 754.7 15.3 115.2 155.8 101.3 69.2 47.5 36.8 28.7 569.9

a t

O0dFI

Table A6.5: Project Cost by Component and Year Including Contingencies

Totals Including Contingencies Totals Including Contingenctes(Turkish Lore 8illionl (USS million)

1987 1988 1989 t990 1991 1992 1993 1994 Total $987 1988 1989 1990 199$ 1992 1993 1994 Total.... ..... ..... ..... ..... .... .... .... ......... ..... ..... ......... ..... .... .... .....

A. WATER DISTRIEUTION

1. Progr_ to duce LOSses - 0.2 0.6 0.7 0.8 - - - 2.2 - 0.2 O.S 0.5 O.S - - - .72. Replacement of Pipe 0.2 - 1t.4 13.4 15.3 $7.1 18.6 $8.1 94.1 0.2 - 9.6 9.7 10.0 10.3 $0.7 9.7 60.43. Rehabilitation of Pumping Stations 0.0 1.8 0.9 4.4 1.2 4.6 1.5 1.5 $6.0 0.0 1.8 0.8 3.2 0.8 2.8 0.9 0.8 *t.14. SCADA System 3.5 5.4 4.7 0.2 - - - - t3.7 4.1 5.3 4.0 0.1 t - - t3.6

Sub-Total WATER DISTRIBUTION 3.7 7.3 17.7 $8.7 17.3 2$.7 20.1 $9.6 $26.1 4.4 7.3 14.9 $3.6 1t.3 t3.1 11.6 10.5 86.78. SEWAGE COLLECTION AND TREATMENT

_______________________________

1. Ataloy Drainage Zon 0.0 4.0 4.4 0.1 - - - - 8.5 0.0 4.0 3.7 0.0 - 7.82. Kucukeicauce Drainage Zone 0.9 19.4 20.5 24.8 17.8 S.9 2.6 - $00.0 1.0 19.2 24.1 18.1 11.6 3.6 1.5 79.t3. Kadikoy-Pendik Drainage Zone 2.1 42.8 64.6 33.7 18.8 9.4 1.t - 172.5 2.6 42.5 54.S 24.6 12.2 5.6 0.7 - 142.74. Tuzla Drasnange Zone 0.5 26.1 37.8 32.3 25.0 13.3 9.3 - 144.3 0.6 25.9 31.9 23.6 $6.3 8.0 5.3 - ill.75. Uskudar Drainage Zone 0.0 1.6 7.7 2.0 - - - - $1.3 0.0 1.6 6.S 1.4 - - - - 9.66. Street Severs 2.9 6.0 9.9 11.6 13.3 14.9 16.3 $7.8 92.8 3.5 5.9 8.4 8.5 8.7 9.0 9.4 9.6 62.97. Customer Connections 2.6 5.3 8.8 1O.3 11.8 t3.2 14.5 15.8 82.4 3.1 5.3 7.4 7.5 7.7 8.0 8.3 8.5 55.9

Sub-Total SEWAGE COLLECTION AND TREATMENT 9.2 $05.1 t61.8 114.9 86.7 56.6 43.8 33.7 611.8 $O.9 104.4 136.5 83.7 56.S 34.1 2S.2 18.1 469.6C. INSTITUTIONAL STRENGTHENING OF ISKI

-----------------------------------

t. Operatlon and Maintenance Training - - 1.0 0.5 - - - - 1.5 - - 0.9 0.4 - - - - 1.22. Industrial Waste Management Training - 0.0 0.0 - - - - - Ot - 0.0 0.0 - - - - - O.13. Equipment 0.0 3.5 4.2 4.9 2.2 0.6 - - 15.2 0.0 3.5 3.5 3.5 1.4 0.3 - 12.3

Sub-Total INSTITUTIONAL STRENGTHENING OF ISKi 0.0 3.5 5.2 S.4 2.2 0.6 - - t6.8 0.0 3.S 4.4 3.9 t.4 0.3 - - 13.6

Total PROJECT COSTS 12.9 116.0 t84.7 138.9 106.2 78.9 63.9 53.2 754.7 15.3 $15.2 155.8 101.3 69.2 47.5 36.8 28.7 569.9

0it0

Table A6.6: Project Cost by Component and Source of Funds

(US$ Million Equivalent)

CustomerWorld Bank Contribution ISKt Total Local------------ ------------ ----------- ------------ For. (Excl. Duties SAnount % Amount % Amount % Amount % Exch. Taxes) TaxessI*5t,n nest. ssssss 5=555 5,355 =5s. am=... s... sa.. a n. == =ss=

A. WATER DISTRIBUTION-_________________

l. Program to Reduce Losses i.5 89.7 - 0.2 10.3 1.7 0.3 1.1 0.4 0.22. Repl_cement of Pipe 34.9 57.8 _ - - 25.5 42.2 60.4 1o.6 34.9 t9.0 6.43. Rehabilitation of pumping Stations 6.2 55.8 - - 4.9 44.2 11.1 1.9 6.2 3.7 1.2- 4. SCADA System to.7 79.t - - 2.8 20.9 13.6 2.4 10.3 1.8 1.4

Sub-Total WATER DISTRIBUTION s3.3 61.5 - - 33.4 38.s 86.7 1S.2 52.5 25.0 9.2B. SEWAGE COLLECTION AND TREATMENT

1. Atakoy Drainage Zone 2.7 34.6 - - 5.1 65.4 7.8 1.4 2.6 4.3 0.8 02. Kucukcekmece Drainage Zone 36.1 45.6 - - 43.1 54.4 79.1 13.9 35.3 35.9 8.03. Kadikoy-Pendik Drainage Zone 63.4 44.5 - - 79.3 55.5 t42.7 25.0 62.3 65.4 ts.04. Tuz'a Drainage Zone 46.5 41.6 - - 65.2 58.4 iii.7 19.6 45.5 54.5 11.7S. Uskudar Drainage Zone 3.3 34.7 - - 6.2 65.3 9.6 1.7 3.1 5.5 1.06. Street Sewers 2.1 3.3 30.3 48.1 30.6 48.6 62.9 1i.O 15.8 40.4 6.77. Customer Connactlons - - 55.8 99.8 0.1 0.2 5s.9 9.8 14.1 35.8 6.0

Sub-Total SEWAGE COLLECTION AND TREATMENT 154.1 32.8 86.0 18.3 229.5 48.9 469.6 82.4 178.7 241.7 49.3C. INSTITUTIONAL STRENGTHENING OF ISKI-----------------------------------

1. Operation and Maintenance Training 1.1 89.8 - - 0.1 10.2 1.2 0.2 0.6 0.5 0.12. Industrial Waste Management Training 0.1 100.0 - - - - 0.1 0.0 0.1 - -3. Equipment 9.5 77.0 - - 2.8 23.0 12.3 2.2 9.S t.5 1.3

Sub-Total INSTITUTIONAL STRENGTHENING OF ISKI 10.6 78.3 - - 2.9 21.7 13.6 2.4 10t. 2.0 1.4…,.____ ----- ------ ---- ------ ____ ----- _____ --------Total Disbursement 218.0 38.3 86.0 18.1 265.8 46.6 569.9 100.0 241.4 268.6 59.9

=u-S=o-w. amfr:aw =Us* *San&*n=*.= mamasre *.sau U. nw= wan ... a=s =sX X===

00*19%J

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Contract Procurement Schedule

AmountContract Financed BidsValue J by Bank A/ Type of Procurement Number of Documents Proposals Contract Contract

Contract lProlect Coamonentl IUSf'million)---- Contract Method Contracts Ready h/ Invited hl Sianed b/ Completed c/

TABTrg for Reducing Water Loss (Al) 1.5 1.4 Service Guidelines g/ 1 06/J8 07/88 12/88 12/90Water Main Rehabilitation tA2) 24.2 6.1 Works LCB 20 01/88 02/88 04/88 12/94Pump Station Rehabilitation (AS) 4.8 1.2 Works LCB 5 04/88 05/88 07/88 12/94Pipe & PS Equipment Purchases (A2.A3) 42.1 33.8 Goods ICB 3 10/87 11/87 02/88 12/92SCAMA System (A4) 12.3 9.8 Goods ICB 1 11/86 12/86 09/87 S/ 12/89

SCADA System SpntTrg (A4,Ct) 1.5 1.3 Service Guidelines " 1 12/86 01/87 03/87 g/ 03/90Large Diameter Sewer Pipe (B1-84) 26.4 8.5 Works ICB 1 01/87 02/87 09/87 a/ 12/93Atakoy Drainage Area PSs EQ (81) 1.4 1.0 Goods ICe 1 11/87 12/87 04/88 12/89Atakoy Drainage Area PSs CW (81) 3.9 1.9-- Works iCe V 11/87 12/87 04/88 06/92Ayealidere Trunk Sewer (81) 1.S 0.4 Works ICe 1 01/88 02/J8 06/J8 12/89

Kucukcekmece SP EQ (82) 26.6 19.7 Goods ICe 1 10/87 11/87 04/8U 06/92Kucukcekmece STP CW (82) 17.9 4.5 Works ICe V 10/87 11/87 04/88 06/92Kucukcekmece Outfall (B2) 21.8 8.7 Works ICB 1 10/87 11/87 04/88 12/90Avcilar Collector (52) 4.6 1.1 WorkS ICe 1 05/87 06/87 10/87 10/89Tuala STP EQ (83) 26.6 19.7 Goods ICe 1 01/88 02/88 06/88 06/92 1

Turla STP CW (83) 20.S 5.2 Works ICB f/ O1J/U 02/88 06/88 06/92 -Tuala Outfall (83) 30.6 12.2 Works ICe 1 01/88 02/88 06/88 12/90Tuzla Collectors 8 PSs (83) 19.3 4.9 Works ICe 3 01/88 02/88 06/88 12/93Kadikoy Sm EQ (54) 19.5 14.4 Goods ICe 1 OS/87 06/87 11/57 11/92Kadikey STP CW (84) 12.5 3.2 Works ICe 1 05/87 06/87 11/87 11/92

Kadikoy Outfall (B4) 57.4 23.0 Works ICe 1 05/87 06/87 12/87 12/90Kadikoy-Moda Tunnel (54) 11.4 5.4 Works ICe 1 02/87 03/87 07/87 g/ 12/89Moda-Fenerbache In6PS EQ (14) 1.8 1.4 Goods ICe 1 03/87 04/87 10/87 12/92Moda-Fenerbache IntPS CW (84) 14.4 s.7 Works ICB fV 03/87 04/87 10/87 12/92Fenerbache-Pendik Interceptor (84) 7.9 3.1 WorkS iCe 1 07/87 08/87 02/88 12/92

Uskudar SIP EQ (85) 1.4 1.0 Goods ICe 1 05/87 06/87 12/87 12/90Uskudar STP CW (85) 2.8 0.7 Works 1C8 fJ 05S87 * 06/87 12/87 12/90Uskudar Outfall (85) S.0 1.3 WorkS ICD 1 os/87 06/87 12/87 12/90Sewerage Const. SpnBTrg (Bl-85.Cl) 7.s 6.6 Service Guidelines 3 W0/85 11/85 02/86 s/ 06/94Street Sewers (ISKI) (86) 30.3 - Works LCD "any 10/86 11/86 01/87 12/94

Street Sewers (Customer) (86) 30.3 - Works N/A N/A U/A N/A */A U/ASewerage Service Connection (87) 5S.7 - works N/A */A N/A N/A N/A */AStreet Sewer Construction Spn (86) 2.3 2.1 Service Guidelines 4 01/88 02/88 08/88 12/94Trg for Industrial Waste Mgt. (C2) 0.1 0.1 Training Guidelines 1 12/87 01/88 OS/8s 06/890 S N Equipment Purchases (C3) 12.2 g.s Goods ICB.LCO.Shopping Many 08/87 09/87 10/87 12/92

Total A60.0 d/ 21A.0 IA/ Including contingencies.Vi Dates refer to first contract when there is more than one contract.s/ Dates refer to last contract when there is more than one contract.4d Procurement costs only. Other project costs include land acquisition (US$2.7 million) and local staff (US$7.2 million).a/ "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency."V Included in the equipment contract.g/ Contracts awarded prior to Board presentat nn for which approval of advance contracting is being requested.

- 52 -

ANE 8

0i -i , 10W

.0 - _ tT _T__ -L14C4 ~~.C l___ C______--JC!C

_ __T _____I)l cc

_ ^ _ _ _ _ _ _ _ T _ cl _ _ _ _ _ _ t q r g r _0

-I - __ a_ II.g9_

Nt tt- I 4T a_aw tc tMq

} _ u . _ _ v _ c T ._ i ._ _e c _ 1 t _ ¢ *

1 81 _ f < r _ _ S _ _ c T e _ s q ~- r r _ Z t < t < S _ B31 1 r _ 9 r _ _ qc _ _ g T q _ r r _-r q- ~~I 1 -3- 81 81 _ C i __ _C 4r rl_ Ze $ r_ _ d

al Q1 .,1 ; q e ~ _ e_ _ _ T r r c r-~ -t| ;| -r _ CcDl zq1 X1 ; t rt < r4 _ _ C T _ M < < _ e_ _ q FL!Le _ 0 _ 1 *

=| >| 71 r zQ t 8 r c r r r s T _ * ¢ ¢ ¢ e q _ < ; j i 4 1~~Xt~~~ I

|II r 0 ̂ r e e g 1 * e4 7

- 53 -

ANNEX 9

REPUBLIC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Alloation of Loan Proceeds

Amount of theLoan Allocated S of

(Expressed in Dollar ExpendituresCategory Equivalents) to be Financed

(1) Works except for 86,000,000 100X of foreign expendi-Parts B6 and B7 tures and 261 of localof the Project expenditures

(2) Goods except for 100,000,000 1001 of foreign expendi-Parts B6 and B7 tures; 1001 of localof the Project expenditures (ex-factory

cost) and 651 of otherlocal expenditures

(3) Consultants' services 10,000,000 1001and overseas training

(4) Unallocated 22,000,000

TOTAL 218,000,000

54 ANNEX 10

REPUBLC OF TURXEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Loan Disbursement Schedule

lwterly Cmantive IlObwsmentlank Fiscal VIii Dsburumit - - '-- - -Mt limte Idia; (89 mUtion) (U$ udllimnl I of Ttal

FYI,Wlitch 31, MI 2.2n2 22.2 10.2 a/ Based on disbursesent profileJAne 311 2.2 22.4 14.2 for general investent typeJuaii 30, IWP 2.2 24*4 112 *loans for Turkey.

Septebr s30 16 4.4 28.8 13.2 bl Paysent of US$20 sillion tolecefber 31 1996 4.4 332 15.2 establish Special Akcount.ch It~ ~ 1: I:FY1990Septeber 30, 1939 7.4 53.8 24.7

December 31 199 7.4 41.4 29.2Hath 31, 149 9.8 71.2 32.7June 30, 1990 9.3 81.0 37.2

F1991Septembe.r 30,190 9.8 90.8 41.7Deceber 331 1990 9.8 10.4 46.1

Nat ~~~~9.8 110.4 50.6amc 31, 191 9.8 120.2 55.1

June 30,1991 I§^ 7pteM r 30, 1991 9.8 130.0 5.4December 31 1991 9.8 139.9 80.1Hrtch 31, 492 T9.8 149.4 8.4June 30, 199 79.8 159,4 73.1FY199September 30,19I2 7.6 147.0 74.4kSeeabr 31 199 7. 174.4 30.1HAtCh 31, 149 7.4 182.2 N3.June 30, 199 7.6 189.3 57.1

ptembe 30, 193 b.5 194.3 90.0bDtember 31 193 4.3 200.4 92.0Hrch 31, 1494 2.7 203.3 93.3June 30, 199 2.7 204.0 94.5F1995

ptaber S0,, 1m 2.2 201.2 95.531 194 2.2 210.4 9S.5Rih31, 149 2.2 212.4 97.5

Jun 30, I95 2.2 214.0 99.5FY1994Septber 30, 1995 1.1 215.9 99.0Deemober 31 1995 1.1 217.0 ".5Natch 31, 1494 0.5 217.5 9.0Jm 30,1 94 0.5 218.0 100.0

e n_ _ _ _ _ _n a _fl

REPUBUC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Monitoring bidicators

Water and Rewerane Om.ratmnns

Water Produced ("MS3yr) 437 S10 541 571 600 630 661 693Total water Sales (1%3/yr) 306 362 389 417 444 473 502 533Ooistic Water Sales (low tariff) 12 14 16 17 18 19 20 21Domestic Water Sales (high tariff) (Mm3/yr) 138 163 175 1" 200 211 226 240Industrial Water Sales (Nh3/yr) 37 43 47 SO Ss 57 60 64

Commercial Water Sales (NK3/yr) 116 138 148 158 169 180 191 203Other Water Sales 3 4 4 4 4 5 5 5Unaccounted-for Water (X) 30 29 28 27 26 25 24 23Year End Water Connections ('000) 665 905 945 980 1,015 1.050 1.085 1.120 1Year End Sewerae Connecttens ('000) S49 589 629 669 709 754 799 U49

Year End Employees (Nr) S.00 6.000 6,200 6.400 6.600 6.800 - 7.000 7.200 LO

industrial Waste _ am nt ODeratins A/

Rev Discharge Petmits Issued (Rr/yr) 250 880 990 90 90 100 100 100Existing Discharge Penrits Renewed (nr/yr) - - 270 790 890 1.100 1,600 2.000Year End Discharge Permits in Force (ar) 300 1.100 2.000 2.080 2.160 2.250 2.340 2.430Firms monitored (lr) 360 1.320 2.400 2.500 2.600 2.700 2.800 2.900Samples Tested ('000) 5 20 36 38 39 41 42 43

Year End Employees (Or) 40 60 70 73 76 79 82 85

Fnao h/

Overall Average Tariff MTL/3) 476 S10 510 510 510 510 510 510Domestic Low Tariff (TnLm3) 187 200 200 200 200 200 200 200Domestic Nigh Taritff MT/n 3) 373 400 400 400 400 400 400 400Comercial Tariff MTLIm3) 622 666 666 666 666 666 666 666Industrial Tariff (TLh/3) 871 933 933 933 933 933 933 933

Operating Expenses (TI billion) 45.9 52.4 60.2 68.1 77.2 U.2 98.6 108.4Ret Operating Income (TL billion) 147.9 184.0 190.7 197.2 202.0 208.1 213.3 221.0Rate of Return on Revalued Assets (Z) 132 70 43 31 23 18 15 13Total Investment (TL billion) 90.0 223.7 254.8 258.0 2S3.7 244.4 234.4 222.2Annual Contribution to Investment (X) 160 79 72 73 9 83 93 106

Debt Service Coverage Ratti 10.2 8.1 6.2 5.7 5.8 4.9 5.4 6.0

&/ Additional indices to be meantained include:(1) Numer of firms not In compliance with regulations or permit requirements;(2) Number of fines imposed for non-compliance with rewlations or permit requirements;(3) Total aount of fines collected during the year; and(4) Nuwer of industrial waste treatment plants in operation.

bI January 1987 Tn.

REPUBUC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

income Statements 1985-94 (US$ Million Equivalent)

1965 Ie 19mM M 1/a 7 195 1969 199 191 12 19 19Opertie buse

laer UIu Vema l. uillle) 219 320 301 362 339 417 444 473 502 133 ot k=! reai f operating

rewe Tariff (440.1**t 4-. - UQ ** ** a* 51 bater ad sese0nS1 is aet1 h~~~~~~~~~~~~~~~~~~~~~i f igure adested Is ref Kut Deceehr M90I fre Sle (las. IW IL III l) 50.2 1b 43.5 lb 145.7 164.7 196.5 212.3 226.6 241.4 256.2 m.0 cascllatios of werr s bills.

Eacis ate (am. 19 TLnrrt Ml44 623 714 747 3 m 71 72 67U 655 6 cl Special car for man withcucetratis of isltrial st"

!W_tn*Xlz kVD Ilion 11.0 1:2 Inj 2s2.X 2y:1 2N.1 3z2. 11:. 11 4ZB.t ukIcb I pvt riblisibb;c 3.1 11.9 16.2 16.3 15.5 17.5 1.1 19.9 dI crw fr fw r drm fre private

Priwtr 11*1 C Id 22.5 J.7 15.5 15.1 16.0 16.1 16.5 17.1 17.7 16.3 sells wsith the 1K1t srvice a. reOther perati l It 1.7 1.6 13.1 14.3 15.5 16.6 16.3 20.2 22.2 24.4

_ e3 a3 _ *-rt _ - - - ec C-e fer t of c tiamttotal perating te 72. 5.3 259.3 322.9 34.1 3. . 43.0 47.2 520.4 PT;" Opti ttic tass *sraetr

miscellaneoss its.Speratial Expmnes ft laud revaed net.

lasentice hr_l l4.7 14.5 19.0 20.1 21.0 22.0 23.2 24.0 21.5 20.2 Vo re n n n

itrlictitv JM fzl 14.6 16.4 22.0 24.0 26.1 211.2 30.8 3.9 $t.2 0.9 q *cta btoflft = atin rev_.fIatuwmc* A llttwirls 3.3 4.0 5.3 5.11 6.3 .9 M7.5 3.0 .5 9.1Aiistratie 2.1 1.5 2.0 2.1 2.2 2.3 2.4 2.6 2.6 3.0 hi Ust iwe fre ewatim a abpreciatls If 1.3 3.1 2.2 5.9 10.9 15.6 22.5 29.7 35.4 40.5 percentageof sae aet fied asts

_ _ _ _ _ - - -~~~~~~~~7 ~ - Is " w tim.Tsal Ibter E ns 3.5 3. 50.5 .9 6.5 75.2 61.4 9.o 11.4 121.7

ati! Parsal 2.2 21 2.6 3.0 3.2 3.4 3.6 3.9 4.2 4.6ElectriIty d t Fuel 1.1 2.9 3.9 4.4 5.0 5.4 6.1 6.9 7.6 6.6

lalte e ad laterials 1.0 1.4 1.6 2.1 2.4 2.5 2.9 3.2 3.7 4.1Admiuistratiorn 0.6 0.4 0.1 0.b 0.6 0.7 0.7 0.8 0.6 0.9hWrCiaUtIN If 1.0 2.3 1.9 3.6 5.3 7.7 11.3 16.3 23.7 31.2

To"l UW P Eapse 6.4 9.1 11.0 1V.7 11.5 19.7 24.6 V1.1 I 0.2 49.1Total Iperatieg E s 42.9 4.6 6.5 71. .0 ".9 111.0 10.1 150.6 171.3

8t lcr free heatus 30.0 16.7 197.6 251.3 23.1 24.7 J237. 306.9 325.6 .1

Intest 3.1 13.0 10.6 23.1 35.7 41.3 40.6 33.3 34.7 31.2

st aos 26.9 3.7 187.2 221.2 227.4 232.9 246.9 218.6 20.9 317.9

ratin btio tt) 59 74 24 v 24 2 20 30 32 33Averaep tt FLe hsss S peraUm 9.2 104.4 150.3 356.7 615.0 W.3 1,23.6 1704.8 2,169.9 2,595.2

bte ofbter( lb 32 16 132 70 4 31 23 1to U 13

-- REPUBLIC OF TURKEY

LSANBUL WATER SUPPLY AND SEWERAGE PROJECT

Sources and Apilications of Funds Statements 1985-94 (US$ Million Equivalent)

1965/a 1996 /b 197 1963 190 199 199 199 1993 1996w.vce of Funds m/ 16 6I m M M "

l1W t t_r- Operation 30.0 16.7 197.6 251.3 263.1 274.7 297.7 306.9 325.6 349.1 el .0wrei Oti po 2.3 5.4 4.1 9.5 16.2 23.5 3.6 46.8 59.1 71.7Depecaton-. - - - -- -- - -- -- b/ Eeroa RstleenSt Fon (aprouiotelySross latral Cash 32.3 22.1 201.9 260.9 2.3 9.2 321.5 352.9 4.7 420.8 am.5 iio ivale t tirm thw

luiiaiyof Istabul), PIuNbo-Operating Ine 5.7 0.S 1.0 1.2 1.3 1.3 1.4 1.6 1.7 1.9 v_ Its Public Particiption Fund(taloans totli approsilatelyCuser Cutribetios 4.7 5.4 ;I.7 14.2 17.4 17.7 18.0 11.6 19.5 20.1 W47.4 *illionI.

lorld Bak Loa 21-VJ 6.9 29.6 14.8 14.6 15.0 6.0 1.2 - - - cl 11 iO Billion.Oter Existing Lan and Credits /b - 29.4 49.3 35.6 6.4 - - - - - dl Priacipllr the Istowl lerag

Pro tst flerd in War by LProposed lwId Bak Loa - - 5.2 49.4 65.6 44.4 25.0 13.4 8.6 6.2 21'T .NtPrposdW Credit I e - 28.2 32.9 - _ _ _ -i Princllh.utvr supply eup>a,

-- - ---- - … … --- -- - --- ~~~~~~iclud:n usDrlib and Ise"o hiesMTOL gowS 49.6 87. 292.9 404.2 419.9 37.6 367.1 366.5 --414.7 4T4.0 d eso, d soiated tretmt,trainsa ad di tribution capacitypplicatios of Funs epnio.

OD bDin forts Id 24.6 89.4 27.6 31.2 31.0 12.6 3.0 - - - 91 Fiwgr includ comitent fee.Propoed Projectt 91 Brace ied of t y.lbrid S fl -Fnne - 5.2 49.4 63.6 44.4 25.0 13.4 8.t 6.2131 Cas - - 5. 7.6 78.6 45.4 32.4 22.0 15.4 9.5 hl Brs inteal cash pln catorCutmer Contributions - 4.8 6.2 11.4 11.6 11.1 12.2 12.6 13.2 contributions le" dbt service s a- ~ - --- - ~ - -~ - -- percentagte of total iavetet.To tl PrItt - - 15.0 115.2 155.6 101.4 69.2 4/.6 37.0 29.9

il 6ns internal cash dividd by det svie.Other letmnts - - 77.9 159.2 164.9 245.4 209.2 312.9 320.9 322.1lotal laetats 24. 89.4 120.5 305.6 351. 359.4 361.4 30.5 357.9 1.0

NeU hrvice,Esistig Leas Credit 5.2 15.2 1I.? 27. 34.9 3t.2 36.2 37.2 36.0 36.0Pri lrd fank Loas ntert f - - - 3.6 7.9 11.9 14.3 15.1 14.5 13.7Pritipal - - 16. 16. 16.Po Kd Crdit: lntest - 0.7 2.1 2.9 2.9 2.9 2.9 2.9Principl I- - - - - - - - - -

Total hOt evice 5.2 15.2 19. 32.3 4.9 52.0 55.4 2.0 71.0 70.2Chn is ating Capital 19.8 (17.31 142.? 66.3 23.5 (443.1 14.71 (46.0) (14.2) 27.8

TTL APFLICTIU 4.6 67.3 262.9 404.2 419.9 3T. 36.1 336.5 414.7 44.0 WliMANcINe til) /h lb 129 14 160 n 2 73 79 U3 93 106kbt rvic CaVerp Ratio /i 6.2 1.4 10.2 6.1 6.2 5.7 5.6 4.9 5.4 6.0

REPUBLIC OF TURKEY

E;TANBUL WATER SUPPLY AND SEWERAGE PROJECT

Balanee Sheets 1985-94 (US$ Mlion Equivalent)

1995 Is 199 la 193I 1M 19" I9 1M 19 m

Fined Guesots1 Opede of storIkal 57.2 38.6 91.3 a. 3. 470g 714.9 966.0 1,219.4 1,3S 1,320.0 h0 Itl or s of fied ass etW

bialoetis lA 3. 10.9 13. 30.1 34.1 41.6 75.4 114.3 163.0 220.8 oat. eplv S sariwroer is "stie"t.

Total Iron 0.9 9.5 iOS.3 363.4 50i.5 7.7 1,041.4 1,33.7 1,49.5 1,740.6 bI Rwalnatuit 193 ad e 1dAn m~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~r calculated am u "iog prJete lolar

4 .tret slt Historkcl 13: 3:9 T 4 : I:I M t 111: 11:1 'a2.; ML= "amtt5 6.5 6.- - - - - - - - reftflK ti # otf rlUti= foroaM

foul Ibmistif" S.9 6.5 8.9 14. 25. 42.0 6.0 .0 36.6 12.1 presrl by law.

ht is Opatl. 54.9 63.0 %.4 348.5 47.6 714.7 9.4 ,235.1 1,362.7 1,516.1 cl Figr for 1W3 ictu th I3M a srA ow ir, for ebitba slse

bit ia Progress. 69091 uilliam .et prior b 13 byailstrical 14.4 14.4 136.7 4.1 5. 24.9 3.4 7.4 101.3 100.0 t1.Rwlulatim - 1.7 13.6 0.3 0.7 0.4 0.2 0.2 2.1 3.6

- -- …- - …-- - - - - di Llt dvaces to cutractws aTotal za Protress 14.4 16.1 152.3 49. 6.6 25.3 3.6 7.6 103.4 1i3.6 deposits fw Lettrs of Credit.

Total latr Suply Fixed Ists 69.3 19.1 246.7 3.9 56.2 740. 91.0 1,243.3 1,466.1 1,662.3 O

Sewap Fined uetn peatiuss ims histoical 42.6 43.7 V.0 172.3 217.9 357.6 474.5 M1 979.6 1,195

Revaluation lb 2.7 6.1 11.0 16.5 16.7 22.5 36.7 69.6 119.3 16.3

Tetbl kiss 45.3 $1.- 96.0 136.6 236.6 3-0.3 513.2 11.4 1,099.1 1,359.3

m. ciatom istorical 2.6 2.9 4.5 7.7 12.6 1t.6 3.2 44.9 65.9 93.1RewafUtu 0.2 0.4 0.6 1.3 1.8 2.4 4.1 6.9 11.4 1t.1

Total r iatum 3.0 3.3 5.3 9.0 14.4 22.2 3.3 51.6 7.3 111.2

lat i iOperation 42.3 46.5 92.1 119.6 m.2 3#1.1 416.9 119.6 1,021.8 1,247.1

listerical 5.1 35.t 50.2 116.6 260.2 266.6 2".7 17.7 46.4Isalotios - 0.6 3.9 0.7 2.5 4.5 14.0 13.6 0.6 -

Tal i Prores 5.1 3. 54.1 119.3 262.7 291.1 313.t 191.5 4.0 -

Total esrae fied ke 47.4 64.6 146.1 29.1 484.9 64.2 M.6 911.1 l,06.6 1,241.1

Toabl later Sp1 Sederap Fied bets 116.1 16.9 3".5 697.0 IO41.1 1,369.2 1,111.6 2,154.4 2,94.9 2,90.4

oter Long tor ab id 10.1 36.6 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

ctnb 16.6 6.0 62. 10.3 210.7 164.6 10.0 56.7 35.6 56.9cemnts lsivaU 34.1 32.5 103.4 63.1 45.2 47.3 53.1 59.7 ".. 13.5 OQ z

Investory ~~~~ ~~~~~5.1 6.6 6.1 9.1 10.6 11.5 12.7 13.7 14.9 16.1 t 4.3 1.5 2.0 2.2 2.4 2.6 2.9 3.1 3.4 3. x

tal COrt b 62.1 4I.6 116.9 24.3 26.9 2.0 M11.7 130.2 120.7 150.2 0 P.-

Total bdts 166.9 247.3 I24 95.3 1,320.0 1,65.2 1,95.3 2,9.6 2,66.6 3,00.6s ~ awssw nuag*u -ne mange Banna mas* m on-m - atm

Balance Sheets 1985-94 (US$ Million Equivalent)

(Continued)

1985 I18 1987 9m 199 190 1S 192 193 1I9Equity and Liabilities

Equit al and Mistorical Surplus 110.4 119.1 368.3 622.5 979.1 1,138 8 1,406 7 1,700 5 2,016 1 2,361.2 et Lnes current materities.Asset Revaluation Surplus 5.8 20.2 40.0 44.4 51.9 62.6 115.0 179.3 254.8 341.2

--- -- --- --- --- …--- -------------- i; ?M1arily custowmer poits.Total Equity 116.2 139.3 406.3 666.9 931.0 1,201.4 1,523.7 1,i79.6 2,270.9 2,702.4 Tot al , UI

Long Tore Debt it g t ilqn perow de6tt17inld arEuisting Vorld Dank Leans (844-TU & 2159-TV! 32.6 53.7 59.9 65.7 71.0 69.7 60.9 51.5 41.9 32.1 other Existing Loans and Credits 1.2 8.1 72.4 94.5 86.1 71.8 38.3 44.5 29.7 20.9Propod or1ld 2Bnk Loan 5.2 120.2 164.6 172.8 169.4 161.4 150.8Proposed KfM Credit - - 282 61.1 61.1 61.1 61.1 61.1 61.1

total Long tore Debt 33.9 61.0 137.5 243.0 341.2 3U6.2 353.1 326.3 294.1 264.9

Other Long Term Liabilitle' It 16.0 14.3 17.0 20.6 25.0 29.4 33.9 38.6 43.5 46.5

Current LiabilitieAcconts Payable 18.7 5.7 7.6 8.4 9.2 9.9 10.9 12.0 13.2 14.5Current Portion of Long Term Det 1.9 .1 9.2 9.3 10.2 14.7 33.7 36.3 39.0 34.0Short Tero Loas and Credits 1.6 15.0 - - - - - - -Other 0.7 2.1 2.8 3.1 3.4 3.6 4.0 4.4 4.9 5.3

Total Current Liabilitie 22.9 31.9 19.4 20.8 22.8 29.2 48,6 52.7 57.1 53.8

total Equity and Liabilities 168.9 247.3 562.4 951.3 1,320.0 1,625.2 1,959.3 2,297.6 2,645.6 3,069.6

Ratio of Debt to Equity /9 24,76 3466 26:74 27t73 27:73 2476 20t80 16:84 13:87 10,90

0 Z

o *i>

- 60 -

ANNEX 15

REPUBLIC OF TURKEY

ISTANB3UL WATI'ER SUPPLY AND SEWERAGE PROJECT

Irleremental Cost and Benefit Streams for Internal Rate of Return

..................... _.., . I................. I-- --.---------------------------------------------- -------------------------------------------------

lncreuental Total Incr@sntal OtherCapital Operating Incresental Sales Sales Incremental Iater Operating Total Net

Costs Costs Costs o/o Progran with Progras Sales Revenue Revnue BSefits 0enefitsYear ((USIRn (USINnI (USI"nI INn o3) (Hn n3) ("An 31 (USSHn) (US(I5n) (US$%)n) (USub)

1986 - - 320 320 - - -

1987 84.1 10.6 94.7 306 306 - - 11.7 11.7 (83.0)190 237.9 14.0 251.5 310 362 52 35.0 21.0 56.0 (195.91199 273.2 17.9 291.2 301 399 e8 59.2 24.2 83.5 (207.7)1990 234.2 21.6 255.8 292 417 125 84.1 26.5 110.6 (145.2)

I11 195.3 25.5 220.8 283 444 161 100.3 29.3 137.6 (03.2)I12 176.4 29.3 205.7 275 473 19" 133.2 33.0 166.3 (39.5)1993 233.9 33.1 267.1 266 502 236 158.8 35.7 194.5 (72.611994 235.3 37.2 272.5 258 533 275 185.0 39.2 224.3 148.2)1995 - 40.8 40.8 251 560 309 207.9 24.8 232.7 191.0

996 - 44.7 44.7 243 589 346 232.8 27.0 259.0 215.11997 - 44.1 44.7 235 589 354 238.2 27.6 265.8 221.11991 - 44.7 44.7 229 589 361 242.9 28.2 271.1 226.3199 44.7 44.7 221 589 368 247.6 28.7 276.3 231.62000 44.7 44.7 215 589 374 251.6 29.2 280.8 236.1

2001-16 - 44,7 44.7 215 509 374 251.6 29.2 280.8 236.1

- ------------ ------------------ - ------- -----.---------------------------

Assusptimns 1. The exchange rate equals 758 IL/USt. Rmelts: Rate of returns 13.62Opportunity cost of capital asusds 10.02

2. The tariff equals 476 TL/gd in 1987 and 510 TL/e3 in WY of incrental costst US81,261 sillioan1988 and later rears. Discounted volue of ater: 1,941 edilion *3

Average mncreaental cost of water: 0.65 (S#le33. Capital costs are net of taxes and include all costs 492 TLte3

shom in Table A5.1 of Annex 5 except:(a) The costs of cospitting the investments financed

undef Loan 2159, The Istanbul Semerage Project:i.e., South Halic Sevage Treatoent Plant, SouthHalic Outfall, South Halic Interceptors, NorthHalic Interceptors, Kabatas-Daltaliaani Tunnel Inter-ceptors, Baltalis"ni Sewage Treatment Plant andBaltalaani Outfall and

(b) Tw-thirds of the network reinforceant and streaorehabilitation costs, the bnefits of which depedon future invsteets beyond the prgfr Wpiodto further expand water production.

4. Increental operiting costs are cash operating castincreases above the level of 19.

5. Other operating revenue exclude revnut froe privatowell charges, and includes connection charges and thatportion of the industrial seap surcharge and ainten-ance *renue which is attributable to incrental waterconsueption resulting froo the inveteett progras. Thepercentage of thee revenue each year included in thecalculation is the percentage of incr.etal consuptiomto total consuaption.

- 61 -

ANNEX 16Page 1 of 2

REPUBLUC OF TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

Selected Documents and Data in the Project Fie

1. Detailed cost estimates.

2. Calculations for economic analysis.

3. Terms of Reference for Reduction of Unaccounted-for WaterTechnical Ass.1stance.

4. Draft Regulations for the Discharge of Industrial Wastes in Turkey,1987, Ankara (in Turkish).

5. Federal Environmental Regulations -- Law No. 2872, August 9, 1983 (inTurkish).

6. ISKI Regulations for the discharge of Wastewater into the SewageNetwork.

7. Laws Numbers 2560 and 3009 on the establishment of ISKI.

8. Agreement with the Istanbul Technical University dated November 1986for the Monitoring of Water Quality in the Sea of Marmara, GoldenHorn, the Bosphorus, and the Black Sea.

9. Master Plan and Feasibility Report for Water Supply and Sewerage forthe Istanbul Region (DAMOC, 1971).

10. World Bank 1986 Draft Strategy Paper for the Water Supply andSewerage Sector in Turkey.

11. Staff Appraisal Report No. 3836a-TU, Loan 2159-TU Istanbul SewerageProject, May 3, 1982.

12. Master Plan Revision Report-Istanbul Sewerage Project, Camp-Tek-SerConsulting Engineers, February 1975.

- 62 -

ANNEX 16Page 2 of 2

13. Istanbul Water Supply Distribution Project Report, Binnie &Partners, February 1975.

14. Outline Design for Pretreatment Works Kabatas, Uskudar andKadikoy, Istanbul Sewerage Project, Stage 2, Volume 3 Report andVolume 4 Drawings, Taylor Binnie & Partners and UBM ConsultingEngineers, November 1985.

15. Outline Design Report for Outfalls at Kabatas, Uskudar andKadikoy, Istanbul Sewerage Project, Stage 2, Volume 5, TaylorBinnie & Partners and UBM Consulting Engineers, November 1985.

16. Istanbul Sewerage Project-Stage 2, Feasibility Study andPreliminary Engineering Report, Watson Motor Temel, September andOctober 1986 (in two volumes).

17. Istanbul Sewerage Project--Stage 2, Kucukcekmece Sewage TreatmentPlant--Preliminary Treatment Technical Specifications, WatsonMotor Temel, March 1987 (in two volumes).

18. Istanbul Sewerage Project--Stage 2, Avcilar Intrerceptor SewerEngineering Report, Watson Motor Temel, October 1986.

19. Istanbul Sewerage Project--Stage 2, Atakoy Sewerage and SewageTreatment Feasibility Study and Preliminary Engineering Report,Watson Motor Temel, October 1986.

20. Istanbul Sewerage Project-Stage 2, Tuzla Sewage Treatment PlantFeasibility Sttudy and Preliminary Engineering Report, Watson MotorTemel, October 1986.

21. Istanbul Sewerage Project-Stage 2, Tuzla Sewerage FeasibilityStudy and Preliminary Engineering Report, Watson Motor Temel,November 1986.

22. ISKI Annual Reports for 1985 (in English) and 1986 (in Turkish).

295' % w3'26245

A ~ ~ ~ ~ O

'- ' t- 8 W~~~~~~~~~~~~~~~9STINGOltamUNDER CONSTRUCTION£\\\\X\i ~~~~~~SwWc. Areo Expondon

<> y ~~~~~~~~~Center of Rehobilitotion AmeI SCADA^Control Center

........ *-.---.*-- Raw Wotr WinsTreated Wafer Mahns

i Water Ta t t Pl * 4

N X -~~~~~~ O o0 Wfter TanksX @~~~~~~~4 Pwmping Stotions

Tunnels~~~~~Cartal

~~~ 0 | ~~~~~Dams and Reserirs~~~~w4s' r ~~~~~~~~~~~~~~~~~~Service Area

_ hi~~Mtropolitan Bowidry

- . 5 28 a ' l~~~~~~~~~~~~~~~~kenstional BoiwdciestZ MANIAj

j _,5<~~ Areo of Matp . _

,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. *.A4.

-REP. r u R K EYi. OF

u~ ~ ~~~~cpts ARA REP *3r4 , , ,,28,45-,

_ItR 2042A5' rn30' 2 30

TURKEY

ISTANBUL WATER SU ?PLY AND SEWERAGE PROJECTISTANBUL METROPOLITAN MUNICIPALITY

WATER SUPPLY SYSTEM

41600

............. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ .....

Re0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ \pKLMTR

. ~ ~ ~

k~~ ~ ~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ is MILES*

Dudullu Tank Omerli WT ~ ~ ~ ~ ~ ~ ~ ~ rs Whe ee ,"dby7e Ol SA SM Oc4"fW O~;n"""o

29\15' 29'30' 2945' 30'003

O, ,-~x' 1,0 ,Z'J 2Ct 19\

Princes~~~ ~ ~ ~ ~ SIIC15nttE

2rf~~~~~ ~~~~~~~~~~ tS' 20 2f4S ETER

-- ~~~~~~~~~~~~~~~~~~~~~~ -0 1 JULY 1

- 28o15 |2

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*~ ~~~~~~~it I _!w t- I--itn4t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4

Se CyM Jy1 - r o I£/;,- ' s\

/ b I''.,'. io; Ac, !ini

Tin mw hee been PWaw by Th' w43 &&**, mS avkov* tSr Dam-t of exifthe SW' s we for NiWi , 1t we of Th.w hP&* so 9t mwfO WI *I f\

F.oane Geq,bmao The denew"wfti wed &-d 97 banx%Me dlpe an Om n~ do nOt nMiVan on IhD of10 7178 VWwidBi end the hVtntoe Fwiene CdOhrdhp&a N MAdoiWittr

Vn (h Vl stead of Mny te'AtOY of WVy osdMorsm" or' aco,5taeOf *PAeA boadbVe

281l 5' ' 03 0~~~~~~~ ~~~~~~0 secci

BULOARIA-

Areo Of MOP - Dams~~~ ~Drain

Ankwta- ~~Meft

TURKEY RE.Ier

C"RU"I

rns ew~~~~~. hS YRdIA nw s- SediSCn fWt'

7 RO^^NiA -, ~~~~~~~~~ . ' s § S@t2893' 2

IBRD 2Q428D45' 29fO'

TURKEY

ISTANBUL WATER SUPPLY AND SEWERAGE PROJECT

ISTANBUL METROPOLITAN MUNICIPALITYSEWERAGE SYSTEM

O 5 10 15 KItOMETERS

o 5 10MILES

Tor0byo STP

V~~~~~~~~~~N l-lob eL ST

STP g~~~~~ST

fKiJ5uksu STP

Yenikopi ST udar STP 41P00

t \ i } ~~~~~ISTANBUL |

At okoy Zeytinburnu KodikEy STP

teceptors artd Collectors PS

reriminary Treotment Plantsmcondary Treatment Plants

bping StOtionsJlkmanine Outfalls Prince tsls I

roinge Zone Boundaries Tu / J

o.ropolitan Boundary

teciotitol Boundaries

r45' 29°00' 291-'JULY 1987