Document of

The World Bank 4

FOR OFFICIAL USE ONLY

Report No. 2848-TU

STAFF APPRAISAL OF

THE KARAKAYA HYDROPOWER PROJECT

TURKEY

April 25, 1980

Projects DepartmentEurope, Middle East and North AfricaRegional Office

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

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CURRENCY EQUIVALENTS

Currency Unit Lira (LT)LT 1 100 Kurus (krs)US$1 LT 70LT 1 US$0.014

Currency equivalents are those effective March 1980.

WEIGHTS AND MEASURES

kW kilowattMW 1,000 kWkWh kilowatt hourGWh (Gigawatt hour) 1,000,000 kWhkV (kilovolt) 1,000 voltsOne meter (m) 3.28 feet

One kilometer (km) 0.624 milesOne kilogram (kg)

(1,000 grams) 2.2 poundsOne tone (metric ton)

(1,000 kg) 2,205 poundsOne kilocalorie (kcal)

(1,000 calories) 3.968 BTUCumecs (m3/second) 35.31 cubic feet

per second

GLOSSARY AND ABBREVIATIONS

AY - Arthur Young & Company

CEAS - Cukurova Elektrik A.S. (Cukurova Power Company)DSI - Devlet Su Isleri (State Hydraulic Works)EIB - European Investment BankEIE - Elektrik Isleri Etut Idaresi (Electric Studies Institute)EGO - Ankara Electricity, Gas and Transport CompanyELECTROWATT - Electrowatt Engineering Services LTDESHOT - Izmir Electricity and Transport CompanyHCB - High Control Board

IETT - Istanbul Elektrik, Tramway, Tunel Isletmeleri (IstanbulElectricity Tramway and Tunnel Company)

KfW - Kreditanstalt fur Wiederaufbau

MOE - Ministry of Energy and Natural Resources

MTA - Mineral Research InstituteSGI - Societe Generale pour l'IndustrieSEE - State Economic EnterpriseSIB - State Investment Bank

SPO - State Planning OrganizationSWOCI - Stone and Webster Overseas ConsultantsTAMS - Tippetts-Abbett-McCarthy-StrattonTEK - Turkiye Elektrik Kurumu (Turkish Electricity Authority)TKI - Turkiye Komur Isletmeleri Kurumu (Turkish Coal Enterprises)TPAO > - Turkiye Petrolleri Anonim Ortakligi (Turkish Petroleum Corporation)

Fiscal Year = January 1 to December 31

FOR OFFICIAL USE ONLY

TURKEY

KARAKAYA HYDROPOWER PROJECT

Table of Contents

Page No.

I. THE POWER AND ENERGY SECTOR .................................. 1

A. Energy Resources ......................................... 1Indigenous Resources ..................................... 1Consumption Trends ....................................... 1Organization of the Energy Sector ........................ 2Energy Policy ............................. , 2

B. The Power Subsector ...................................... 3General .................................................. 3The Turkish Electricity Authority (TEK) .................. 3The State Hydraulic Works (DSI) .......................... 4The Electric Studies Institute (EIE) ..................... 4Concessionary Power Companies ............................ 4Municipal Power Distribution Enterprises .... ............. 4Historical Development ................................... 5Development Program ...................................... 7Generation ............................................... 8Transmission Network ..................................... 9Rural Electrification .................................... 9Development Program Costs ........................... , 9Tariffs .................................................. 11

C. The Project Entities ..................................... 12

II. THE PROJECT .................................................. 12

Objectives ............................................... 12Description .............................................. 13Status of Engineering .................................... 14Project Cost Estimate .................................... 15Project Financing Plan ................................... 16Implementation ........................................... 17Procurement .............................................. 18Disbursements ............................................ 19Insurance ................................................ 19Environmental Impact ..................................... 20International Aspects .................................... 22Project Risks ............................................. 25

This report was prepared by Messrs. V. Mastilovic (Engineer), W.G. Hamlet(Financial Analyst) and V.N. Rajagopalan (Loan Officer).

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 Contents (Continued) Page No.

III. FINANCE ...................................................... 26

Accounting and Auditing ................................. 26Transfer of Karakaya Assets to TEK ...................... 26TEK's Financial Performance ............................. 27Substitution of a Cash Generation Covenant for theExisting Rate of Return Covenant ...................... 28

Municipal Overdues and TEK's Liquidity .... .............. 30Power Subsector Financing ............................... 31Proposed Comprehensive Review of Power SubsectorFinancing ............................................. 33

IV. PROJECT JUSTIFICATION ........................................ 33

Power Market Growth ..................................... 33Alternative Development Strategies ...................... 34Comparison of Alternatives .............................. 34Return on Investment .................................... 34

V. AGREEMENTS REACHED AND RECOMMENDATION ........................ 35

ANNEXES

1.1 National Power Sector Statistical Data (1965-1978)1.2 Interconnected Power System Statistical Data (1971-1978)1.3 Thermal Power Plant Characteristics and Operation Costs1.4 Hydropower Plant Characteristics and Operation Costs1.5 Transmission Network Data1.6 Forecast Balances of Capacities and Energy1.7 Forecast of TEK's Electricity Sales1.8 Existing and Projected Major Industrial Loads1.9 Rural Electrification Program, Performance and Plans1.10 Development Program Costs1.11 DSI's Organization Chart1.12 TEK's Organization Chart2.1 Description of the Project2.2 Project Cost Estimate2.3 Construction Works Schedule (CPM Network)2.4 Central Coordinating Committee2.5 Disbursement Schedule2.6 Studies of Reservoir Filling and Operation for Projects

on the Euphrates River3.1 TEK's Income Statements for the Years Ended December 31, 1973-793.2 Objectives and Method of Monitoring TEK's Cash Generation3.3 TEK's Cash Generation and Power Subsector Investments of TEK

and DSI for the Years Ended December 31, 1980-863.4 Terms of Reference for the Comprehensive Review of the

Power Subsector Financing4. Justification of the Project5. Selected Documents Available in the Project File

MAPS

IBRD - 14798IBRD - 12793R1

I. THE POWER AND ENERGY SECTOR

A. Energy Resources

Indigenous Resources

1.01 Turkey's main indigenous energy resources are hydropower and lignite.Other resources consist of coal, oil shale, oil, uranium and geothermal energy.The total hydropower potential is estimated at 100,000 GWh p.a. with a corres-ponding installed capacity of 25,000 MW; of which nearly 30% is developed orunder construction. The major part of the estimated usable hydropower potential(31,000 GWh) is concentrated in the Euphrates River (called the Firat in Turkey)basin, where the Keban (6,278 GWh; 1,260 MW) and Karakaya hydropower plants(7,762 GWh; 1,800 MW) are now being developed. The first four out of eightgenerating units of the Keban hydropower plant are already in operation.Lignite reserves are estimated at 5,500 million tons. The largest depositsare at Afsin-Elbistan, where a 1,200 MW thermal power plant is now underconstruction. Based on the lignite reserves it would be possible to buildadditionally about 10,000 MW of thermal power plant. The estimated oilreserves are in the order of 60 million tons, but intensive prospecting foroil and gas has not yet been done. The known reserves of uranium total 4,500tons of uranium oxide (U308). Geothermal energy resources, though of wideoccurrence, have not been adequately evaluated so far. The first geothermalpower plant (15 MW) is currently under construction to test feasibility andeconomic viability of geothermal fields for electricity generation. Non-commercial energy sources, wood and wastes, which contributed more than halfof Turkey's energy supply in 1960 have declined to less than 20% by 1978. Therural energy supply is a serious issue which calls for more active considera-tion in planning and policy decisions. This will be followed-up as part of theBank's economic and sector work program.

Consumption Trends

1.02 Total primary commercial energy consumption in Turkey has increasedfrom about 11 million in 1960 to 30 million tons of oil equivalent in 1976(the latest year for which data are available). This reflects an annualgrowth rate of 6.5%. The per capita consumption of commercial energy inTurkey reached 780 kgs of oil equivalent in 1976, compared with 2200 kgs forYugoslavia and an average for all developing countries of 298 kgs. The mostimportant trends in the energy supply pattern have been the decreasing shareof coal and non-commercial sources of energy and the increasing share ofpetroleum, which now accounts for more than half of total energy consumption.While the share of coal in energy supply has shown a declining trend in thelast twenty years, lignite utilization, particularly in power generation, hassignificantly increased. Petroleum consumption in 1978 was about 17 milliontons of which about 3 million tons, or 18%, were produced domestically.Amongst the petroleum products, fuel oil, which is used primarily for powergeneration and in industry, accounts for nearly half of the total petroleum

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products consumption. The cost of imported oil, which will reach US$3.2billion in 1980, is nearly equal to the country's entire annual exportincome. The country's economy is currently almost paralyzed by the oil supplyshortages, which are expected to continue in the foreseeable future.

Organization of the Energy Sector

1.03 The Ministry of Energy and Natural Resources (MOE), established in1963, has official jurisdiction over the development of energy resources inTurkey. The main organizations in the energy sector dealing with powergeneration and supply are described below (para. 1.06). The public sectororganizations involved in development of fossil fuels and radioactive mineralsare the Turkish Coal Enterprises (TKI), the Turkish Petroleum Corporation(TPAO) and the Mineral Research Institute (MTA). TKI is a State EconomicEnterprise (SEE) responsible for developing Turkey's coal and lignite resourcesand for selling its production of coal, lignite and by-products. TKI'sdevelopment plans are closely interrelated to coal and lignite requirementsfor power generation. TPAO deals with the exploration of petroleum andnatural gas resources and owns three of the four existing oil refineries inTurkey. TPAO also owns and operates about 1,500 km of oil pipelines. Themarketing and distribution of petroleum products is carried out by domesticand foreign petroleum companies. MTA is involved in the exploration of coal,lignite, geothermal energy and uranium ore. MTA coordinates its explorationprograms with TPAO and carries out geological and geophysical studies for TKI,TPAO and other institutions.

Energy Policy

1.04 A major objective of the Government's energy policy is optimumutilization of indigenous resources to restrain the growing dependence onimported oil. As a part of such policy Turkey is trying to develop its ownenergy resources, particularly hydropotential of the Euphrates River andlignite deposits at Afsin-Elbistan. These resources are located in theeastern part of the country while consumption is predominately in the urban-ized western Turkey. The hydropower potential and lignite reserves couldcover power generation needs almost to the end of this century. In late1990s, power sector development is expected to rely on nuclear energy.Although not economically justified before 1994, the first nuclear power plantis planned for 1988 in order to obtain required experience in the constructionand operation of nuclear power plants.

1.05 Apart from measures to develop indigenous energy resources and torestrain the pace of oil consumption through price increases and restrictedsupply, the Government plans to expand petroleum exploration activities byincreasing the financial resources available to TPAO, encouraging joint-ventured exploration efforts in collaboration with foreign oil companies,providing increased incentives for offshore explorations and application ofenhanced recovery methods to existing oil fields. However, despite all thesemeasures, Turkey is unlikely to accomplish its objectives of meeting 60% ofthe demand from domestic production during this decade, unless sizeable newreserves are discovered in the near future. Specific features of the national

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energy policy are: effective energy conservation; development of oil shale,geothermal and solar energy and other resources; and long-range energyplanning encompassing viable supply options, demand and utilization patterns.The cost of imported oil, and prolonged fuel oil and power shortages makeenergy supplies one of the most critical factors constraining Turkey's economygrowth. Therefore, the Bank's continuing involvement in assisting Turkey todevelop its own energy resources, particularly hydro and geothermal, wouldhelp Turkey to alleviate the dependence on imported crude oil and reduce therisk of energy supply interruptions.

B. The Power Subsector

General

1.06 Main organizations involved in power generation, transmission anddistribution, including other activities of interest for the power subsector,are the Turkish Electricity Authority (TEK), the State Hydraulic Works (DSI),the Electric Studies Institute (EIE), concessionary power companies--theCukurova Electric Company (CEAS) and the Kepez Electric Company (Kepez AS),and municipal power distribution enterprises.

The Turkish Electricity Authority (TEK)

1.07 TEK is an SEE with headquarters in Ankara. According to Law 1312,which established TEK in 1970, the main responsibilities of TEK are: toprepare the plans and programs for the general electrification of Turkey; toconstruct thermal power plants, transmission and distribution networks; tocarry out rural electrification and to manage the Rural Electrification Fund;and to generate, transport, distribute and sell electricity to municipal powerdistribution enterprises and to large customers. It may borrow in its ownname with the Ministry of .Finance as guarantor. SEEs, such as TEK, arerequired to run on commercial lines, and are subject to taxation (e.g. incometaxes of 41.7%) like private joint stock companies. However, SEEs arestill subject to close Governmental supervision and their autonomy has beenseverely limited by their lack of freedom in setting personnel policies andstructuring salary scales and the Government's active role in determiningpricing of their goods and services. TEK's ability to recruit and retaincompetent personnel, especially experienced engineers with senior levelmanagement capabilities, has long been affected by the Personnel Law governingSEEs. Attempts to overcome management and staffing problems through specialauthority to hire outside personnel on contract did not prove to be effective.Under the TEK II loan, TEK's consultants have prepared a detailed manpowerstudy and TEK has agreed to furnish a program of action to implement therecommendations of the study. The manpower problems can only be resolved by abasic SEE reform. The new economic policy package, announced by the Govern-ment on January 25, 1980, envisages substantial changes in SEEs. SEEs will beallowed to set their own prices and their deficits will no longer be met fromthe budget.

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The State Hydraulic Works (DSI)

1.08 DSI, with a central office in Ankara, is a state agency (created byLaw 6200 in 1953) with the principal responsibility for developing waterprojects for the three sectors of:

(1) Agriculture - including primary irrigation, draining of marshylands, and flood control;

(2) Power - identification, design, and construction of hydropowerplants to generate electricity; and

(3) Public Service - supply of domestic and industrial water forcities over 100,000 population and assisting these cities in plan-ning, designing and constructing sewerage networks and treatmentfacilities.

The TEK law requires that, while preparing its five-year plan and annualinvestment programs, DSI shall take into consideration TEK's requirements ofhydropower facilities. The law further provides for continuous collaborationbetween DSI and TEK in the areas of identifying, planning, constructing andoperating hydropower installations and also stipulates that coordinationbetween the two authorities will be ensured by MOE.

The Electric Studies Institute (EIE)

1.09 EIE is a study and research institute mainly involved in geologicalinvestigations and hydrological studies, including the collection of hydro-logical data. This institute also acts as a quasi-consulting agency for powerorganizations, TEK, DSI and MOE.

Concessionary Power Companies

1.10 While TEK is responsible for electricity generation and transmissionin 63 of the 67 provinces of Turkey, power operations in the other four prov-inces are delegated to the concessionary companies; CEAS and Kepez AS. CEAStakes responsibility for the three provinces of Adana, Icel and Hatay. Itspower system is connected to the Turkish interconnected network by 154-kVtransmission lines. Kepez AS has the concession for the province of Antalya.The power system in this area is also linked to the Turkish interconnectednetwork and part of its power requirement is met by purchases from TEK. Inboth concessionary companies TEK is the largest individual shareholder. Thesecompanies, allowed to operate but not to expand, may in time be nationalized.

Municipal Power Distribution Enterprises

1.11 Turkey has over a hundred municipal power distribution organizations,of which the largest are in Istanbul, Ankara and Izmir. Electricity sales of

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these three large distribution companies represent about 63% of the totalmunicipal sales. Most municipal organizations are also involved in othermunicipal activities, such as public transportation and gas supply.

Historical Development

1.12 National power subsector statistical data for the period 1965-1978are shown in Annex 1.1. Total generation increased from 4,953 GWh in 1965 to21,726 GWh in 1978 (trend growth rate 11.5% p.a.). Total installed capacityrose from 1,491 MW in 1965 to 4,869 MW in 1978. Hydro generation averagedabout 37% of the total generation during the period. The development struc-ture of electricity sales, in total and by customer categories, is summarizedbelow:

Sales (GWh) 1965 % 1978 %

Residential 560 13 2,796 15Commercial 264 6 1,198 6Industrial 3,080 73 13,885 73Government 163 4 685 3Public lighting 116 3 323 2Transport 54 1 133 1

Total 4,237 100 19,020 100

Total electricity sales increased at a trend rate of 10% 1/ annually. Indus-trial consumption was predominant and its share in total electricity consump-tion (73%) remained unchanged. This also indicates that domestic consumptionis still undeveloped and that about a half of the population has no access topublic electricity supply. Electricity losses increased from 16.9% in 1965 to17.5% in 1978 of total electricity,sales. Such very high losses are mostlycaused by inefficient power plant operation, old generation and distributionfacilities, and inadequate electricity meter readings and customers' billings.

1.13 Power subsector statistical data for the interconnected system areshown in detail in Annex 1.2. The installed capacity of the public utilitiesgenerating plants in Turkey at the end of 1978 was 4,125 MW (85% of Turkey'stotal), consisting of 3,801 MW (92%) in the system operated by TEK, 298 MW(7%) in CEAS' system and 26 MW (1%) in Kepez's system. In addition, munici-palities' installed capacity was 145 MW and self-producers' 597 MW. In 1978power generation of the three power utility companies amounted to 91% of thetotal power generation in Turkey, municipalities 1% and self-producers 8%.

1/ Annual increases fluctuated widely; from 7.9% in 1974 to 19.2% in 1976and to 6% in stagnant 1978. Years 1977 and 1978 were characterized bysevere power supply restrictions.

The maximum demand of the interconnected system reached 3,641 MW in 1978.Specific electricity consumption increased from 229 kWh/capita in 1971 to 441kWh/capita in 1978, the level achieved by Portugal in 1956.

1.14 The power system at present contains a large number of small,inefficient generating plants (up to 100 MW). Combustion turbine plantsrepresent about 20% of the total thermal capacities. These plants are notonly used for covering peaking demand but also for prolonged base loadrequirements. Three larger hydropower plants are Gokcekaya (278 MW), Sariyar(160 MW) and Keban (1,260 MW), half of which is now in operation. All otherhydropower plants have installed capacities less than 100 MW. Basic data andmain characteristics of the thermal and hydropower generating plant (existing,under construction and proposed) are given in Annexes 1.3 and 1.4. Theseannexes indicate that the majority of TEK's existing power generation plantsare old and very expensive for power generation.

1.15 The transmission network consists of overhead transmission lines andsubstations operated at 34.5, 154 and 380-kV, which interconnect almost theentire country. Details of the transmission network are given in Annex 1.5and Map (IBRD 14798). The 380-kV transmission network has been in operationsince 1974. This network, which is of the predominantly radial configuration,has been proven as rather stable; voltage and reactive power control weresatisfactory, as were energization conditions and insulation coordination.

1.16 The operation of the generating plants and the transmission facili-ties is coordinated by TEK with full cooperation of CEAS and Kepez. TheTurkish power system is interconnected with the Bulgarian and Russian powersystems through 154-kV transmission links. These links permit power importand emergency supplies. Since 1975 Turkey has been importing electricity,which reached an amount of 621 GWh in 1978 (about 4% of TEK's sales). Apossible interconnection with Syria is under consideration. Turkey is anactive member of the group of the Balkan power organizations which has theobjective to promoting interconnection and joint operation of the powersystems by studying and proposing solutions for various power system opera-tional problems. Due to the lack of fuel-oil for thermal power plants,inadequacy of generating capacities and operational problems, Turkey is forcedto shed load and impose frequency and voltage reductions. Power cuts induration of 5 hours a day or more are a regular practice. No systematicattempts have been made to evaluate the losses to the national economy causedby the power cuts. It is believed an undelivered kWh costs the nationaleconomy five to ten times that of its tariff value. There is no automaticload-frequency control and the teletransmission data system is undeveloped.TEK is presently studying these matters so that necessary improvements may beexpected in the next few years.

1.17 Since 1952 the Bank has made nine loans and a technical assistancegrant (total US$356.65 million) and IDA has extended three credits (totalUS$55.7 million) for the development of the power subsector in Turkey. Thesecomprise loans/credits for three hydropower projects, of which two are multi-purpose; two thermal power plants (oil-fuelled and lignite); a lignite mine;and transmission and distribution network projects. The Technical Assistance

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Grant was for help in reorganizing the Turkey's power subsector. The firstfive loans/credits were for works in the service area of CEAS. All theprojects in the CEAS' area were successfully completed and are now in operation.The project performance audit report on two loans to CEAS (623-TU and 775-TU)concluded that the key objectives of these loans were largely met. TheIstanbul Power Distribution Project is about three years behind schedule.The Elbistan Lignite Mine and Power Project, which is being co-financed by theBank, KfW and EIB, has been delayed more than two years mainly because theBorrowers, TEK and TKI, are chronically short of qualified and experiencedstaff and project coordination is ineffective. The last loan was made for theTEK Transmission,II project in 1975. Although Bank's lending to TEK and TKIhas not shown the expected results it was instrumental in their institutionalbuilding and introduction of modern planning, managerial and financial methodsand practices.

Development Program

1.18 The national load forecasts, prepared by TEK, for the period 1979-1986 (Annex 1.6) show sales increasing from 21,805 GWh in 1979 to 56,857 GWhin 1986, with a trend growth rate of 13.9% p.a. The maximum demand wouldincrease from 4,060 MW in 1979 to 11,240 MW in 1986. TEK's electricity salesforecasts are shown in Annex 1.7. Sales to municipalities would represent 48%of TEK's total sales in 1980 and 36% in 1986. A relatively rapid increase isexpected in large industrial sales, whose share in TEK's total sales willincrease from 42% in 1980 to 50% in 1986. According to contract arrangementswith Bulgaria and the USSR, Turkey will import during the period 1979-1982 upto 2,000 GWh annually. The forecast also implies that per capita consumptionwould rise from about 441 kWh/capita in 1978 to some 1,600 kWh in 1992, i.e.to about the level attained by Yugoslavia in 1972 or Italy in 1966.

1.19 While the previous TEK load forecasts, though seldom fully realized,have been found to be within a reasonable range of divergence, TEK's currentprojection looks optimistic in relation to Turkey's present stage of develop-ment and near-term prospects. Projected major new industrial loads are shownin Annex 1.8. TEK's forecast of industrial consumption does not appear to berealistic in spite of the fact that an increase of industrial consumption isexpected when major power plants (Elbistan, etc.) enter into operation.Therefore, an alternative load forecast has been prepared for appraisalpurposes, which shows an annual load trend growth rate of 11.2%. It is alwayspossible that some of the industrial loads may be late or fail to materializeand also changes in other customer categories might occur. Therefore, for thesensitivity analysis of the power subsector development TEK uses annual growthrates +10% of the basic forecast, which are judged to cover the likely rangeof possibilities.

1.20 TEK's Planning Department, in association with the design andconstruction department of TEK, DSI, and foreign consultants, prepares long-term development studies (up to the year 2000) and medium-term investmentprograms. The medium-term investment programs are usually revised at leastonce a year. The Bank has played an active role in introduction of modernplanning methods in the Turkish power system. Power system planning methods

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in Turkey are soundly based for the purpose of determining the least-costdevelopment programs, using computer models incorporating linear programmingand mathematical simulation techniques and testing the results over a reason-able range of discount rates (up to 16%). All development alternativesenvisage the construction of the Karakaya hydropower project as part of theleast-cost means of meeting the projected growth of power demand in Turkey.

1.21 While the power system planning methods appear to be generallyadequate, the present procedures for power subsector planning, especiallyhydropower planning, should be further improved. In order to develop theavailable hydropower potential about 540 hydro sites have been identified forpossible development, of which only 40 have been studied in detail. TEK isnot always fully involved at the identification, selection and design stage ofnew hydropower plants as it should be, in order to ensure preparation of themost appropriate hydro projects for construction. MOE does not fulfillproperly its coordination function between DSI and TEK in power subsectorplanning. There is insufficient coordination also between TEK and TKI informulating development programs for coal and lignite mining construction.MOE, State Planning Organization (SPO), DSI, TEK, TKI and other concernedagencies charged with the responsibility of formulating long-term and medium-term plans for power subsector development should improve their mutualcoordination in the hydropower planning and coal and lignite developmentprograms. During negotiations, the Government has agreed: (i) to complete,by December 31, 1981, a review of existing arrangements for the coordinationof the development and investment plans in the power subsector, particularlyhydroelectric planning and the development programs of TEK and TKI; (ii) tomake recommendations on strengthening integrated investment planning andcoordinating procedures to be used for its power subsector and on measures tobe taken to ensure the timely execution of investment plans; and (iii) afterthe Bank's comments, to implement promptly the proposed recommendations andmeasures.

Generation

1.22 Details of forecast national energy and capacity balances and pro-posed generation facilities are given in Annex 1.6. They show that theinstalled capacity is expected to grow from 5,134 MW (41% hydro) in 1979to 15,976 MW (51% hydro) by 1986. The plant margin is very low in the period1980-1983. In this period, the generating plants would not be capable ofmeeting, without restrictions, the required power system needs in the caseof average and low hydraulicity. According to the preliminary results thehydrological conditions in 1979 were favorable and hydro generation achievedits expectations. In the period 1984-1986 the plant margin looks appropriatetaking into account likely delays in the new power plants' commissioning,changeable hydrological conditions, generation and transmission facilityoutages, and unexpected changes in electricity consumption.

1.23 Thermal power plants, under construction or proposed, would uselignite for power generation. Among these twelve thermal power plants specialattention and priority would be given to the completion of the Elbistan, Somaand Yatagan thermal power plants. Installing the remaining four generating

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units at Keban and construction of the Karakaya and Oymapinar hydropowerprojects are of the highest priority in the Turkish power system. The progressof the construction of the power plants is dependent on available financialresources, both local and foreign. The Turkish authorities have confirmedthat the available financing would be used primarily for these high prioritypower plants. DSI has secured the preparation of feasibility studies and basicdesigns, some of which detailed, for several economically attractive hydropowerprojects, but financial constraints still prevent their construction. DSI'scapability to undertake multiple projects, once a constraint, is now con-sidered to be adequate.

Transmission Network

1.24 Major power generation will be concentrated in eastern/centralTurkey and has to be transferred to the consumption centers located in thewestern part of the country over a distance of about 700-800 km. Transmissionnetwork construction until 1986 will include 5,669 km of 380-kV, 45,000 km of154-kV and 30-kV lines and 22,363 MVA in substation capacities. Severaltransmission network alternatives, including superimposition of an 800-kVnetwork or of a high voltage direct current link, have been studied by TEK andits consultants. The selected alternative calls for further extension of the380-kV transmission network. The preliminary plan of the 380-kV transmissionnetwork at the stage when all the hydropotential of the Eurphates River basinand the lignite fields at Afsin-Elbistan are fully developed has been prepared.

Rural Electrification

1.25 At the beginning of 1979 about 70% of the population in ruralareas still had no access to public electricity supply. The Government plansto provide in the period 1979-1986 electricity to some 19,000 villages havingpopulations ranging from 50 to 2,000. Prior to 1964, only 268 villages hadbeen electrified but since then the number of villages electrified each yearhas gradually increased, reaching about 1,750 in 1978. In the future it ishoped that the rate can be about 2,500 villages per year. By the end of 1978about 12,500 villages had been electrified (Annex 1.9). Standardization ofequipment and improved construction and contracting procedures have accele-rated the rate of rural-area electrification. The rural electrificationprogram is financed by contributions from the Government budgets, villagecontributions (which will be abandoned), a levy of one krs/kWh on non-villageconsumers of electricity excluding large industrial consumers and variouspublic authorities. The Rural Electrification Fund is managed by TEK andconstruction of rural electrification networks is done by various stateagencies and local contractors.

Development Program Costs

1.26 Details of the development program and its costs are given inAnnex 1.10. The total estimated investment costs during the period 1980-1986,based on early 1980 prices, are summarized below:

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US$ Million

Hydropower Plants (DSI) 4,107Thermal Plants, Transmission and

Rural Electrification (TEK) 14,164Distribution (Main Municipalities) 1,637Lignite Mines for Power Generation (TKI) 2,185

Total 22,093

of which the Project 919 (4% of total)

An intensive construction program is required to meet power requirements afterseveral years of severe power shortages due to delays in power generatingplant construction. The development program costs appear large and it wouldnot be reasonable to expect that the whole development program would becompleted in the studied period. It is traditional for Turkey's developmentplans and the state economic enterprises to overstate their investment pro-grams. These programs are usually scaled down on an annual basis to complywith financial resources availability. Therefore, this program has beenanalyzed taking into account the lower growth demand. The results have shownthat the proposed construction program hardly covers power requirements upto 1984, as estimated by the appraisal mission. The physical power subsectorinvestment program is unrelated to available financial resources. Changesin the Fourth 5-Year Plan will, therefore, be made in the annual programs andthe SPO has promised to notify the Bank of any changes.

1.27 It was not possible to study in sufficient depth as part of theProject's appraisal the financial implications for Turkey to find the neededcapital resources. However, given present serious resource constraints, it isobvious that Turkey would have many difficulties in securing financing of someof their projects. Furthermore, TEK's investment program contains more thanUS$4 billion for future thermal power projects yet to be indentified. Theseprojects are planned to be commissioned after 1986. It would be reasonable toexpect that investments for the above projects will be postponed by 2-3 yearsdue to difficulties in securing their financing. Therefore, actual investmentsin the power subsector are estimated to be about 75% of TEK's investmentplans. This estimate corresponds to the recent Turkish experience in powersubsector investments (para. 3.18). In the past, the subsector's developmenthas been funded primarily from the national budget and only to a slight extentfrom its own cash generation capability. Extensive foreign borrowings havealso been necessary. Government's ability to sustain the forecast rates ofgrowth has not been demonstrated. From the viewpoint of project execution,the public sector institutions suffer from an acute shortage of experiencedstaff at all levels and this both hampers the physical execution of works andmakes virtually impossible the application of modern management practices evenwhen there is a willingness to adopt these. The result has been that projectsare substantially delayed and the power subsector has for the past severalyears been unable to meet the demands for electricity.

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Tariffs

1.28 TEK is, by law, free to determine the prices of its goods andservices. By a decree of 1967, this freedom was circumscribed when pricesof basic goods and services such as electricity, coal, cement, steel, railtransport, etc. became subject to the approval of the Council of Ministers.Though this decree provided for Government's compensation of any loss result-ing from its price fixation, in practice, decisions were reached throughinformal consultations between TEK and the Government, to avoid mandatoryGovernment subsidies. This blurred responsibilities in the matter of meetingtariffs and left TEK unable to fix tariffs in relation to its costs and tosecure its financial objectives. However, in January 1980 this situationwas changed when the Government removed most of the goods and servicesprovided by SEEs from the purview of basic goods, thus restoring the freedomof the enterprises to determine prices, except for electricity tariffs foraluminum and ferrochrome production and for coal and lignite; in the case ofthese items, the Government would reimburse the SEEs for any losses incurredby them.

1.29 TEK's present electricity tariffs are established on the basisof double-term tariff rates, for load demand (kW) and energy (kWh), and asingle-term tariff rate for energy only; included is an automatic fuel adjust-ment clause, and penalties for excessive reactive energy consumption. Withcertain exceptions, the consumer may choose between the double and single-termtariff rates. The tariff structure does not reflect directly the costs to theeconomy of meeting the demand for electricity supply. TEK has completed acomprehensive tariff study covering the whole country with a view to estab-lishing appropriate pricing policies and tariff structures at the bulk supplylevel and at retail distribution level. The Government appointed a committeeof experts (para. 3.21) to establish pricing policies and would incorporatethe tariff study in making its recommendations for pricing policies forelectricity.

1.30 Retail tariffs are set by each municipality subject to the approvalof MOE. A revision of TEK's tariffs would normally necessitate correspondingrevision of municipal tariffs in order to maintain a viable financial positionof municipalities. However, in the past, revision of municipal tariffs wassometimes delayed causing severe financial problems for the municipalities.The Government agreed under Loan 1194-TU to ensure that municipal retailtariffs are adjusted promptly and in a manner and amounts commensurate withadjustments TEK may make from time to time. In keeping with this undertaking,the Government has taken action to increase municipal retail tariffs follow-ing TEK's tariff increases in 1978, 1979 and 1980. Istanbul's sales are 20%of TEK's total sales, and Istanbul's retail tariffs were increased nearly135% from September 1, 1979 to April 1, 1979; and the increase in 1980 isexpected to average about 150%. TEK's tariffs and the problems of munici-palities diverting electricity revenues for other municipal purposes arediscussed in para. 3.13.

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C. The Project Entities

1.31 DSI is responsible, in coordination with TEK, for planning, design-ing, constructing and putting the Project into effective operation. TEK willbe responsible for operation of power facilities, after the assets are trans-ferred to it as Government equity. Agencies responsible for the relocation ofinstallations and services within the Project area will also actively contri-bute to the realization of the Project. These include the general directoratesfor State Highways; Railroads, Harbors and Airports; PTT and Settlement.

1.32 DSI's functions and legal responsibilities are described in para1.08. The existing organization of DSI is shown in Annex 1.11. It is admin-istered by a Director General and has a field organization consisting of21 Regional Directorates and Operating Groups. DSI runs on the line manage-ment principle by suitable delegation of authority. It has about 30,000employees, some 2,000 of which are engineers. Over 2,000 of the total staffare located in the central office in Ankara. Under the DSI law, Governmentfinances expenditures of nearly all DSI activities from its annual budgetallocations. DSI has long experience in hydropower plant construction,management, procurement, and environment protection matters. With the assis-tance of the selected consultants and improved Project site management (para.2.15) DSI will be capable of ensuring proper construction management of theKarakaya hydropower project.

1.33 As the ultimate beneficiary TEK will have the responsibility ofoperating the Project. TEK employs about 18,000 of which 1,500 are engineersand technicians. The organizational structure of TEK is shown in Annex 1.12.In spite of the current staffing problems, it is expected that TEK will be ableto operate the Project satisfactorily. The required operating personnel willbe trained in the Keban hydropower plant and then transferred to the Karakayahydropower plant to take over its operation and maintenance. TEK also plansto arrange with DSI additional training for the Karakaya operating staffduring construction of the Project. The planned arrangements for recruitmentand training of the Project operating staff are considered satisfactory.

II. THE PROJECT

Objectives

2.01 The principal objectives of the physical facilities of the Projectwill be to provide additional capacity for the Turkish power system (1,800 MWand 7,353 GWh yearly average) and to enable better utilization of the upstreamKeban hydropower plant (the output of Keban will increase by about 400 GWhin an average hydro year), thus saving on foreign expenditures by substitutingless expensive hydropower energy for imported oil. Further benefits would beincreased job opportunities for the local construction sector and additionalemployment possibilities during the construction period. Also, some benefits

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for future projects are expected from the Project, as a result of the moreregulated Euphrates River flows downstream of the Project dam site, but thesehave not been quantified so far. The Karakaya project area is one of the mostbackward regions in Turkey, both socially and economically. The Project isexpected to have a positive influence on social and economic development andto contribute to reducing poverty in this part of Turkey. Additional objec-tives would be the continuation of the institution-building effort startedwith the establishment of TEK, improvement of coordination in power sectorplanning, the development of appropriate policies for power sector financing,including energy pricing, and possible contribution toward riparian coordina-tion in the use of the Euphrates waters.

Description

2.02 The Project is described in detail in Annex 2.1. It consists ofthe Karakaya dam and hydropower plant with a reservoir of 5.6 km3 of usefulstorage on the Euphrates River, located about 160 km downstream of the Kebanhydropower plant, comprising a concrete arch-gravity dam 173 m high with anoverflow spillway, intakes, penstocks, a power house at the toe of the damcontaining six 3Q0-MW turbogenerator units, appropriate accessory equipmentand a switchyard located 2.5 km from the dam, relocation of 33 km of railwayline, construction of 35 km of new roads, and resettlement of about 17,000people living in 34 villages.

2.03 Transmission lines (380-kV) from the Karakaya switchyard to theinterconnected power system, not a part of the Project, having a total lengthof 1,300 km and estimated to cost about US$120 million, of which US$75 millionis in foreign exchange, would be constructed by TEK taking into account notonly the transmission of the Project's capacity but the strengthening of thenational transmission network. The construction of these lines could start in1982 to be completed in line with the commissioning of the Project's generatingunits. During negotiations, the Government has agreed to: (i) make arrange-ments satisfactory to the Bank for securing the financing needed to ensurecompletion by TEK of the 380-kV lines connecting the Project with the powersystem in Turkey not later than October 31, 1984; and (ii) provide the Bankwith a construction schedule and a financing plan acceptable to the Bank byJune 30, 1981.

2.04 The Karakaya hydropower plant would, chronologically, constitutethe second step in the long-range development of the power resources of theEuphrates River in Turkey. The first step in the development of the EuphratesRiver basin was the Keban scheme, which utilizes a 152 m head, and providesthe basic regulation of the Euphrates River. Ultimately, Keban will attain aninstalled capacity of 1,260 MW, with an annual generation of 6,252 GWh. Thetotal capacity of the Keban reservoir is 30.7 km3, of which useful storage is16.3 km3 or about 75% of the mean annual flow of the river. The total storageof the Karakaya reservoir would be 9.6 km3 and its useful storage 5.6 km3,i.e. about one-third the magnitude of the upstream Keban reservoir. Karakaya,a single purpose hydropower project, is conceived for power generationalone. In order to obtain its maximum power generation benefits, Karakayamust be operated in conjunction with Keban. The gain in power generation

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due to Karakaya would be 7,762 GWh annually, of which 83% is firm powergeneration. The regulation effect of the Karakaya reservoir would be usefulat future downstream dams, but would not substantially influence the EuphratesRiver flows, which are basically regulated by the much larger Keban reservoir.Therefore, the Karakaya hydropower project would, in essence, process waterdischarged through Keban turbines and additional inflows between the Keban andKarakaya dams.

Status of Engineering

2.05 The development of the water resources of the Euphrates River inTurkey has been actively investigated since 1962. In 1968, DSI engaged agroup of consulting engineers to study the development of the Lower Euphratesbasin in Turkey for the purpose of hydropower production and irrigation ofarable lands. Geological and site investigations of the Project have beenvery thorough and found adequate for the type of dam to be constructed (Annex2.1). A joint venture of Electrowatt Engineering Services Ltd. (Switzerland),TAMS (USA), Societe Generale pour l'Industrie (Switzerland) and Dolsar Engineer-ing Limited (Turkey) has been engaged for the project design and to assist DSIin the supervision of construction and in procurement, manufacturing control,erection and inspection of permanent equipment. The consultants will alsoassist DSI and TEK during the initial operation of the Project. The assis-tance will include making recommendations in solving technical problems,in establishing operating rules of the plant and reservoir, and in makingreservoir operating studies for optimum power generation. The contract forengineering services has been reviewed by Bank staff and found satisfactory.During negotiations, the Government has agreed to continue to employ consul-tants whose qualifications, experience and terms and conditions of employmentshall be satisfactory to the Bank for engineering services, procurement andsupervision of construction of the Project.

2.06 DSI usually employs a board of consultants on an ad hoc basis if thenecessity arises for any of its projects under construction. Although, wellknown and experienced consultants have been engaged for engineering designsand supervision of construction, in view of the size of the Project and thepotential risks, DSI has agreed to establish a board of experts independent ofthe designers of the Project to familiarize themselves with the designs and toadvise it in the event of unforeseen problems arising during construction.The establishment of such a board, whose members and terms of reference shallbe acceptable to the Bank, is a condition of loan effectiveness.

2.07 In the Bank's initial review of the proposed plant design, theadequacy of certain design features was questioned, especially the bottomoutlet facilities. DSI has revised its original design and prepared morereliable solutions for the Project water handling facilities in order to avoidproblems such as those experienced with the upstream Keban project. It is nowreasonably certain that the Project is well designed. An undertaking hasbeen obtained from the Government that the Project hydro works, including thedam, will be inspected regularly in accordance with sound engineering practices.

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Furthermore, the Government has agreed to inform the Bank, not later thanDecember 31, 1980, about the nature and frequency of, and monitoringprocedures for, the inspection of hydro works and dams in its territory.

Project Cost Estimate

2.08 The estimated cost of the Project, excluding interest during con-struction, is US$1,160 million equivalent, of which US$602 million would bein foreign exchange based on the exchange rate at the beginning of 1980 ofUS$1 = LT 70. Annex 2.2 shows in detail the estimated costs of the Project,which are summarized as follows:

-----------US$ Millions----------Local Foreign Total

Preliminary and Related Works 32.07 12.43 44.50Civil and Hydraulic Works

(Contract No. 1) 81.10 205.59 286.69Turbines and Generators

(Contract No. 2) 2.28 119.46 121.74Electromechanical Equipment

(Contract No. 3) 1.60 55.92 57.52Engineering Services 6.00 9.50 15.50Land Appropriations 59.92 - 59.92Resettlement 113.66 - 113.66

Subtotal 296.63 402.90 699.53

Physical Contingencies 47.57 52.22 99.79Price Contingencies 94.31 25.27 119.58

Total 438.51 480.39 918.90

Sunk Costs (1979 and before) 120.00 121.48 241.48

TOTAL PROJECT COSTS 558.51 601.87 1,160.38

2.09 Cost estimates are based on the cost of the signed contracts andearly 1980 prices (para. 2.17). Physical contingencies for civil works havebeen estimated at about 20% on average to take into account technical difficul-ties which may be encounterea during construction of such a large project withdifficult access to site, adverse weather conditions and unusually large gene-rating units. Physical contingencies of 5% have been assumed for generatingunits and electromechanical equipment. For remaining related works, landappropriation and resettlement physical contingencies have been estimatedabout 15% on average. Price contingencies were applied in accordance with thefollowing annual rates, which are considered reasonable for Turkey:

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Year(s) Percentage

1980 10.51981 91982 81983-85 71986-87 6

Price contingencies were calculated in dollar terms for both local and foreigncosts since the present exchange rates cannot be used for converting futurelocal costs into dollar values. The foreign costs quoted represent the totalforeign exchange cost and include the foreign exchange costs of goods andservices purchased both from abroad and locally. On the basis of theseestimates the cost of the hydropower plant would be about US$640/kW installed,which is very favorable for a hydropower project having a capacity factor ofalmost 50%.

Project Financing Plan

2.10 Including financial charges on loans, which are estimated at US$138.2million, the total remaining foreign exchange requirements of the Project areUS$618.59 million. The remaining Project costs are expected to be financed asfollows:

…-------…US$ Millions----------

Local Foreign Total

A. Project Costs

(a) Borrowings

(i) Swiss Financing 192.22 192.22(ii) Proposed Bank Loan - 120.00 120.00(iii) European Investment Bank - 110.00 110.00(iv) Italian Financing - 20.00 20.00(v) Abu Dhabi Fund 26.00 26.00

(b) Turkey 438.51 12.17 450.68

Subtotal 438.51 480.39 918.90

B. Financial Charges During Construction

Turkey - 138.20 138.20

TOTAL 438.51 618.59 1057.10

2.11 The Government and DSI have made arrangements with Swiss bankinginstitutions, manufacturers and consultants for financing foreign exchangecosts of the contracts for generating units, electromechanical equipment andconsulting services awarded to Swiss manufacturers and consultants. The totalamount of the secured Swiss financing is SFr. 508.9 million, which can cover

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all foreign exchange costs of these contracts with an average interestof about 7.7 percent and repayable in about 13 years including 5 yearsgrace. Out of this financing about SFr. 173.9 million have already beenpaid for Swiss procured equipment and services. The Italian authoritieshave confirmed to Turkey that Italy would provide a loan of US$20 milliontoward partial financing of the Project, at 4% interest, with repayment in12 years and 2 years of grace. Furthermore, the Abu Dhabi Fund has indicatedto Turkey its intention to participate in the financing of the Project witha US$26 million loan. The proposed Bank loan of US$120 million and theprovision of a US$ 10 million loan agreed to in principle by the EuropeanInvestment Bank (EIB) would leave for financing by Turkey only US$12.17million of the remaining US$480.39 million in foreign exchange cost of theProject. The Turkish Government has agreed to open a letter of Credit inthe amount of US$7 million which would be used to finance the Project'sconstruction works before other foreign exchange financing becomes avail-able. The financial charges on loans of the Project would normally comethrough the Turkish general foreign exchange reserves. The total foreignexchange cost of the Project includes US$29.62 million in foreign exchangefor goods to be purchased in Turkey.

2.12 The above financing arrangements are satisfactory. The signing ofthe financing arrangements with Italy and the Abu Dhabi Fund is a conditionof the Bank loan effectiveness. Since the Project financing plan requiresjoint financing with EIB, appropriate arangements have been agreed upon tocover disbursement and supervision aspects. The proposed Bank loan of US$120million would be made to the Government on standard Bank terms applicable toTurkey--17 years, including 4 years' grace period.

2.13 The local financing would be secured through annual governmentalbudget allocations and arranged to be fully in accordance with the Projectimplementation schedule. To ensure timely availability of local funds, aspecial revolving fund account would need to be established. During negotia-tions, the Government has agreed to make arrangements, satisfactory to theBank, for financing the remaining foreign exchange costs of the Project andto provide, in its annual budgets, local funds needed for the prompt executionof the Project and to establish a special account with an initial amount notless than LT 500 million, to be replenished monthly, with a balance equal toat least three months' local expenditure requirements of the Project as deter-mined from time to time by the consultants and from which DSI may draw withoutrestriction on funds to meet local expenditures. Furthermore, the Governmenthas agreed to cover all Project cost overruns that may arise in carrying outthe Project and to assume the foreign exchange risks.

,Implementation

2.14 The Project construction officially started on October 24, 1976,and is expected to be completed by 1987. The first three generating unitsare scheduled to be commissioned in 1985 and the remaining units in 1986.Basic preparatory works have been completed and construction of the diversiontunnels is nearing completion. The construction equipment has been brought tothe Project site and all necessary facilities to main construction works have

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been secured. Main hydro and electrical equipment is being manufactured andits deliveries started in March 1980. A big storage facility is under construc-tion at the railroad station about 30 km from the Project site for temporarystoring of the main equipment. The Italian-Turkish joint venture contractorfor main civil and hydraulic works had slowed down activities at the sitebecause of delays in advance and progress payments and concern about futureProject financing, that led to disputes between DSI and the contractor. Aftera period of considerable tension and low morale at the site, both contractparties met at a high level in November 1979 and agreed on ways to resolvethe disputes and speed up construction activities. During these negotiations,DSI has resolved basic disputes with the main civil works contractor concerningprogress payments and penalties for delayed works. A new Project constructionschedule (Annex 2.03) has been agreed and opening a letter of credit (para.2.11) would facilitate prompt payments for works carried out. It is expectedthe agreements reached would enable the contractor to achieve the plannedlevel of construction activities.

2.15 DSI's headquarters services have substantial experience in carryingout large hydropower projects. These services have all responsibilities con-cerning the Project execution and financing. The Project consultants at thesite can only advise and assist DSI in various Project's matters but have nodirect responsibility for directing the contractor or approving its proposals.Communications between the site and DSI's headquarters in Ankara are inadequate;flights from Ankara to Diyarbakir (nearest airport) are irregular and telephoneconnections overloaded. The existing DSI's site management is not well struc-tured and organized so that substantial improvements are needed. Since a soundproject management is essential to the successful execution of the Project, theGovernment has agreed to establish effective Project mangement, and to appointa Project site manager by December 31, 1980 with such responsibilities, quali-fications and experience as shall be satisfactory to the Bank along withadequate authority for solving site problems as they arise, within specifiedlimits, without having to seek DSI's headquarters approval. Furthermore, theGovernment has agreed to inform the Bank of the qualifications and experienceof the person(s) considered for any new appointment to the position of theProject site manager.

2.16 A Central Coordinating Committee for the Project has been estab-lished by the Government with the Under Secretary in MOE as the chairman tosecure coordination of the various engineering and administrative functions.The members of the Committee are representatives of the concerned ministriesand other interested agencies (Annex 2.4). The Government has agreed tomaintain in MOE the Central Project Coordinating Committee with such powers,functions, responsibilities, composition, and terms of reference as shall besatisfactory to the Bank.

Procurement

2.17 The proceeds of the proposed loan would finance part of the foreignexchange costs of the main construction (civil and hydraulic) works andrelocation of railways and roads. The contract base amount for the mainconstruction works (Contract No. 1) including some related permanent equipment

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is US$208 million plus LT 3,207 million. The contract specifies fixed directforeign exchange unit prices for works and materials but allows for physicalcontingencies and price escalation in local costs. Bidding documents for thiscontract were reviewed by the Bank staff before their issuance and found inaccordance with the Bank Group Guidelines for Procurement. Internationalcompetitive bidding was carried out in 1976 in a manner satisfactory to theBank. Bids were received from joint-ventures, including German, French,Italian, Austrian and Turkish firms. Advanced contracting of the main civiland hydraulic works has been agreed since it was justified in terms of theProject construction schedule and the Bank's earlier involvement since 1975.The Project was initially appraised in November 1975, post-appraised andupdated in March 1976 and November 1977, and re-appraised in November 1979.The contract for turbines, generators, inlet valves and accessories wasawarded in October 1977 to Swiss manufacturers for the amount of SFr. 316.64million plus LT 40.9 million. Electromechanical equipment (Contract No. 3) inthe amount of SFr. 148 million plus LT 1,092 million has also been awarded toSwiss manufacturers in order to use their offered equipment financing. A fewsmall contracts for the preliminary works have been awarded to local contractors.Relocation of railways and roads within the Project's reservoir would costabout US$15 million in foreign exchange. These works would be carried outwith the assistance of the Turkish Railways and Roads and the procurement ofmaterials related to them would be made through ICB in accordance with theBank Group Guidelines for Procurement. DSI is exempt from paying import duties,except stamp duties on imported equipment, which were reduced in January 1980from 25% to 1% of equipment costs.

Disbursements

2.18 The proposed loan would be disbursed against 45% of foreign expendi-tures of civil works and 100% of foreign expenditures for materials and equip-ment related to the relocation of railways and roads in a joint financingarrangement with EIB. Retroactive financing has been agreed for the maincivil works from February 1, 1980 in an aggregate amount not exceeding theequivalent of US$10 million subject to EIB agreeing in principle to itsretroactive financing in an equal amount. The expected disbursements from theproposed loan are shown in Annex 2.5. The closing date would be December 31,1988, to allow for final payment of retention money.

Insurance

2.19 The contractor for the main construction work has agreed to provideinsurance from an insurance company acceptable to the DSI for transportation,handling, storage, and installation of equipment and plant given by the DSI asthe main protection against physical loss, accidents, damages and injuries tothe Project works in the amount determined by the DSI. The insurance firm isa Turkish firm approved by the DSI. Under normal conditions this insurancemust be in force from the time of delivery to the contractor until the return-ing to the DSI of the equipment and related documents. The insurance policies

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have been delivered to the DSI, as evidence that the insurance requested bythe DSI has been made. The insurance premiums paid by the contractor shall bereimbursed as specified in the contract to the contractor with the exceptionof contractor's profit and overhead expenses. Premiums and insurance beyondthe requirements of the DSI will be paid by the contractor. All conflictspertaining to the insurance and compensations due to contractor's or subcon-tractor's activities, whether or not covered by insurance policy, will beunder the responsibility of the contractor, and the contractor shall protectthe DSI and his representative from all liabilities. The contracted Projectinsurance arrangements have been reviewed and found satisfactory. The Govern-ment has agreed to maintain the insurance against Project's risks in suchamounts as shall be consistent with appropriate public utility practice.

Environmental Impact

2.20 Although Turkey does not have a state institution responsible forensuring that environmental factors are taken into account before projects,including hydropower projects, are approved, DSI has taken account of thesefactors in accordance with its normal practice, especially resettlement ofpopulation. The Project area has a low population density and the totalnumber of persons who will require resettlement is about 17,000. At presentthey live in 34 villages, of which only 3 have populations of over 1,000persons. Within and around the Project area, there is a low-level economybased almost exclusively on primitive subsistence agriculture. It is expectedthat fair agreements on indemnification will be reached with the presentproperty owners. The aim of this indemnification is to provide the formerowners with at least the same economic situation they had prior to flooding oftheir properties. The acquisition of land for hydropower projects in Turkeyis carried out in accordance with the General Expropriation Law. This Actgives DSI the right to expropriate reservoir lands after permission is obtainedfrom the Ministry of Public Works. Under the law, a committee, composed oflocal people representatives, land experts and members of the administration,inspects and evaluates the property of each affected owner, then prepares aland value report. Unit land prices, for each of the various classes of land,are determined according to the American Land Capability Classification. Ifthe owner and DSI agree upon the value, the owner signs over the property andcollects the money due to him from DSI. If there is disagreement, it becomesa matter for settlement by the courts.

2.21 The Ministry of Village Affairs has established a comprehensiveresettlement methodology for resolving problems arising due to dam construc-tion. It specifies that dam construction and resettlement should be carriedout in a coordinated manner and that urgent consideration should be given tothe resettlement of people whose land will be flooded by the dam. In view ofthe very delicate and sensitive nature of the human population resettle-ment various institutions involved in resettlement operations are obligedby the Prime Minister's order to assist the Ministry of Village Affairs infinding an appropriate solution to resettlement problems and to performnecessary duties requested by the Ministry. In connection with the previous

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Keban hydropower project, no significant difficulties were experienced in theresettlement of about 30,000 people in the four year period. DSI's commissionfor the Keban resettlement has resolved about 95% of land and property indemni-fication cases, without going to court.

2.22 DSI has just started solving the Karakaya resettlement problems andthe persons living on and around the dam site have already been resettledwithout any problems. The local population expects that construction of theKarakaya hydropower project will offer additional employment opportunities andwill contribute to the improvement of their living standards. As to thematter of the human population resettlement policy, the affected populationhave employment priorities on the Project and in the new cement factory beingbuilt to meet Project cement requirements. The Government has started tobuild schools and health centers to serve the population around the Projectarea. Plans and provisions related to the resettlement of population appearto be adequate, financially as well as otherwise; resettled persons will alsohave employment priority in the area and abroad, neighboring villages will beelectrified, and new access road to isolated, larger, villages will be built.The Government has arranged to prepare an inventory of the property whichwould be submerged by the Project, and is initiating action for their valuationto make compensation payments. A census of the families requiring Governmentassistance in resettlement has been completed and indicated that only asmall proportion (about 6%) of the population had expressed a preference forGovernment assistance in agricultural resettlement. At least 8 hectares ofsuitable land would be provided for each resettled agricultural household.Resettlement sites have been identified, and the Government plans to providethose who will be relocated with accommodation and support services to enablethem to rebuild their livelihood. During negotiations, details of a popula-tion resettlement plan and a program for its implementation were discussedand the further course of actions was clarified. The Government has agreedto make appropriate arrangements to relocate residents on land required forthe construction and operation of the Project's facilities in accordancewith a comprehensive plan of resettlement action and its implementationprogram satisfactory to the Bank, which shall be prepared and furnished tothe Bank by February 28, 1981. The Bank will continue to monitor closely allfurther developments in connection with the human population resettlementand offer the assistance of its specialized services.

2.23 The ecological effects of the Project are not expected to be adverse.The project area and surrounding countryside are treeless, an almost bareland with practically no wildlife. Intensive archaeological investigations,with the assistance of numerous foreign scientific institutions which havetaken place throughout Turkey during the last ten years, have not indicatedthe presence of any artifacts or sites of archaeological or historic signifi-cance in the area which would be flooded. The construction history ofthe upstream Keban hydropower project has not shown any significant elementswhich might have adverse environmental effects. DSI has engaged the consul-tants (Electrowatt Engineering Services Ltd. et al) to study, based on theterms of reference suggested by the Bank, the ecological consequences of theProject, including human ecology, biotic, environmental and other pointshaving an environmental impact. The draft report of the study was received in

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October 1977 and the Bank's comments on the report have been sent to DSI.Although this study was not considered entirely satisfactory, it was agreedthat rather than requiring further studies, the Bank would try to arrange anecological reconnaissance by its environmental staff to identify problems, ifany, and help the Government in formulating solutions.

International Aspects

2.24 The Euphrates River originates in Turkey and flows through Syriaand Iraq. The utilization and sharing of its water resources have beenthe subject of long-continuing studies and discussions, involving all threeriparian countries, in an attempt to reach an agreement. In October 1974,the Bank submitted to Turkey, Syria and Iraq an outline of a proposed workprogram, in three stages, which would provide the technical informationand background studies necessary to evaluate interim and long-term optionsfor the coordinated utilization and development of the water resources ofthe Tigris and Euphrates. Stage I of the proposed work program consistedof the preparation and testing of a computer simulation model for the EuphratesRiver, which investigated different project operating principles, in order todetermine their effects on reservoir filling under different hydrologicalconditions, at the same time satisfying the existing and expected waterconsumption demands in the ten-year period (1974/75-1983/84). The model wasused to investigate different principles of water management during the periodof construction, filling and initial operation of the Turkish, Syrian andIraqi water storage projects. The nature of the model and the details of theinput data used to test the model are described in a draft report "PreliminaryStudy of Reservoir Filling and Operation for Projects on the Euphrates River"dated January 24, 1975. This report was transmitted to the Governments ofTurkey, Syria and Iraq in February 1975. The Bank has also expressed to allthree riparians its readiness to assist in the second and third stages of thework program, if so requested. Moreover, the Bank would be prepared to assistin extending the study to cover the period after 1983/84, provided thatrequired data are furnished by the riparians.

2.25 The study revealed that if the various interests of the ripariansare to be materially satisfied under all conditions which may be reasonablyanticipated, the major developments on the Euphrates River cannot proceedwithout some basic principles governing their operation and a common under-standing of these principles and their importance among the riparians. Thesimulation method conforms to the current understanding of the various inter-ests of each riparian during the ten-year period. Thus, for Turkey, it isunderstood that the objective is to maximize power generation for the sequenceof projects along the main stem of the Euphrates River, until diversionfor the Lower Firat (Euphrates) irrigation programs begins; for Syria, it isessential to meet irrigation demand and at the same time generate maximumhydroelectric energy for replacement of more costly thermal generation withinthe Syrian power system; and for Iraq, the essential interest is to obtainsufficient flows distributed over the year in a pattern which will satisfy itsirrigation demands. On the basis of data and assumptions used, the study hasdemonstrated that it is possible, by following certain operating principles,to meet all these various objectives without adversely affecting the interests

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of any of the riparian countries. Details of this study 1/ are summarized inAnnex 2.6. Map IBRD 12793R indicates the major projects on the EuphratesRiver.

2.26 As a part of the evaluation of the Karakaya hydropower project,a more detailed assessment was required of the effects of alternative reservoirfilling schedules and operation of the Karakaya reservoir on the downstreamriparians. Based on the simulation method developed in the "Preliminary Studyof Reservoir Filling and Operation on the Euphrates River", and using allnewly available information, particularly the hydrological data presentedin the Aide-Memoire entitled "Plan of Karakaya Reservoir Filling Operation"prepared by the Government of Turkey, which was submitted to the Bank inSeptember 1975, a special report "Study of Reservoir Filling for KarakayaHydropower Project" has been prepared by Bank staff and consultants. Thisstudy revealed that, without detriment to the interests of Turkey and of thedownstream riparians, the Karakaya reservoir can be filled within a period ofthree to seven months, depending on actual water flows, and the operation ofthe Turkish power plants could also be effected for maximum energy outputwhile maintaining an average discharge of 500 m3/sec at the Turkey-Syrianborder. This operating rule, called the "Rule of 500", would also ensure thatthe existing requirements of the downstream riparians for irrigation and powergeneration, as well as the anticipated growth in these requirements during theperiod 1974/75-1983/84 would be met.

2.27 The study also developed operating principles for the reservoirs inSyria and Iraq which would be expected to optimize benefits in those countries.These operating principles are explained in Annex 2.6 and summarized below:

(a) The Keban and Karakaya reservoirs in Turkey would be operatedduring construction and filling of Karakaya, as well as there-after, in such a manner as to ensure a minimum average flow of500 m3/sec as the Euphrates River leaves Turkey, with shortfallsin any averaging period, not greater than one month, being madeup in the next period. This rule would apply until modified, ifrequired, by an agreement among the riparians in connection withthe implementation of the next large water-consuming project onthe Euphrates River.

(b) The Syrian Euphrates reservoir would have to be operated to passsufficient water to meet downstream irrigation requirements inboth Syria and Iraq, modified on a semi-annual basis, to theextent of + 60 m3/sec, mainly to allow for variations in rainfall,and Iraq's irrigation demand patterns and present storage capacity.

1/ The study does not include the new Ataturk multipurpose project, whichreplaces the previous Golkoy and Karababa projects. Since the totalstorage capacity would be increased from 16.27 km3 to 48.5 km3 the pro-posed Ataturk scheme has to be tested in the simulation model to deter-mine effects of project operating principles on reservoir filling undervarious hydrological conditions at given water consumption demands.

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(c) Flows from upstream reaching Ramadi reservoir in Iraq in excess ofdownstream irrigation requirements, would be diverted and storedin the Habbaniyah reservoir to the extent possible and the maximumreservoir level maintained at all times.

2.28 Turkey informed Syria and Iraq in January 1975 of its intention toconstruct Karakaya, assured them it had taken special care that the initialfilling of the Karakaya reservoir would not adversely affect the normal riverflow downstream of the dam site, and offered to discuss these assurances.Following agreement with the Bank on filling and operating criteria forKarakaya, Turkey informed Syria and Iraq that during the construction, initialfilling and operation of Karakaya it will ensure that the flow of the EuphratesRiver as it leaves Turkey at Birecik will average not less than 500 m3/sec,and that the averaging period would not be greater than one month and anyshortfalls in one period would be made up in the immediately succeedingperiod. Furthermore, Turkey invited discussions for evolving a tripartitemonitoring arrangement, which would extend the existing hydrometereologicalnetwork and exchange of information concerning the hydrological and hydro-metrical data collected in the Euphrates basin, and for the better use ofcommon waters.

2.29 After receiving Turkish agreement on the operational criterion andmonitoring arrangements, the Bank invited the comments of the lower riparianson the Turkish proposals and the suggested operating principles for the exist-ing reservoirs on the Euphrates River. Syria expressed its readiness tocooperate fully in seeking a quick and final solution to all problems concern-ing Euphrates waters' use, but pointed out some differences between assumptionsused in the study works and its current plan, and objected to the constructionof the Project until agreement has been reached between all the riparians.The Syrian comments have been studied by the Bank's staff and consultants andthe analysis made it clear that these comments do not represent quantified andsubstantiated objections to the proposed basic operational criteria forreservoirs on the Euphrates River. The Syrian comments and their analysis aregiven in detail in Annex 2.6. Iraq has not communicated its comments on theproposed operational criteria and, though recognizing that Karakaya is not awater consuming project and could help to improve regulation of the Euphrateswaters, has opposed the Project until an agreement is reached on the long-termsharing of the Euphrates waters. Iraq is also concerned with adverse operationof the Euphrates Dam by Syria - a danger which exists irrespective of Karakaya.In connection with the Balikh project (Loan No. 975 SYR) the Syrian Governmentstated in a letter to the Bank that it intends to operate the Euphrates Dam(Assad reservoir) in a manner which would assure that the requirements of Iraqare reasonably covered, provided that adequate releases are made from theKeban reservoir in Turkey. Moreover, Iraq will be able to protect itselfagainst such risk through the operation of the Haditha Dam project, which hasbeen started and which would be completed about the same time as Karakaya. Inthe meantime no information has been received that either the Syrian and Iraqiattitude toward the Project riparian issue has changed.

2.30 Based on detailed analyses, it is considered that the proposedarrangements for the filling and operation of the Karakaya hydropower project

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would not adversely affect the lower riparians. Turkey has agreed to followthe operational criteria for Karakaya and has already communicated this assur-ance to the lower riparians. It has also invited them to discuss tripartitemonitoring arrangements. In view of the above and the absence of quantifiedand substantiated objections by lower riparians, the Bank made the unilateraldetermination that the Project would not adversely affect the lower riparians.Furthermore, the Turkish Energy Minister made a statement in the TurkishParliament (see Annex 2.6, Attachment 3) that Turkey would fill and operatethe Karakaya reservoir according to the Rule of 500, and the Government con-firmed that the Bank could rely on this statement as Turkey's representationfor making the loan. However, to satisfy the Bank, and, if necessary, thelower riparians that Turkey is filling and operating Karakaya in line with theRule of 500 an appropriate reporting system on the actual operation of theProject and the Euphrates River flows needs to be established so that recordsare promptly sent to the Bank. During negotiations, the Government hasagreed to prepare and submit to the Bank by March 31, 1981 a reporting systemsatisfactory to the Bank for providing river flows, including criteria andmethods of measurement to be used to determine periodic mean river flows. TheEuphrates River flow data and related information would be furnished to theBank regularly.

Project Risks

2.31 Construction of the Project is a high risk job due to the steepslopes and the instability, especially upon disturbance of the highly jointedand faulted rock. The risks are manageable providing constant expert geo-logical supervision is given to the construction process. The Project consul-tants at site provide the required expert supervision. During the first yearsof Project construction, geological conditions of the rock formation have beenfound better than expected at the Project design stages. The conducted testsof modulus of elasticity were found satisfactory for the selected type ofdam. The designs for the Project structures incorporate adequate provisionfor earthquake accelerations or ground motion. Despite a high cofferdam andlarge by-pass tunnels the recurrence interval of the construction periodflood of 25 years is not conservative. This can be accepted if the largeupstream Keban reservoir is operated during the construction period to helpprevent floods which normally have a return period of once in fifty to onehundred years. DSI is aware of this and plans to undertake the requiredprecautionary measures during the construction period. While geophysicalconstruction risks are within reasonable limits, other risks are moreuncertain, such as availability of cement, construction steel, fuel, etc.The contract for the main construction works provides that basic materials(cement and steel) can be imported if they are not locally available. Inthe present difficult Turkish economic situation shortages of constructionmaterials, goods and financial resources are likely. These matters havebeen discussed with the relevant Turkish authorities and assurances wereobtained that top priority would be given to the Project in view of itsimportance to the national economy. Reasonable precautions would be takento ensure the flow of resources and to establish effective Project sitemanagement.

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III. FINANCE

Accounting and Auditing

3.01 DSI uses "appropriation accounting"; a budgetary type of accountingthat identifies appropriation of funds by projects. Expenses incurred duringthe construction period are charged against the appropriation with the balancereflecting the funds remaining during the construction period. This account-ing system is similar to the accounting system used by the U.S. Bureau ofReclamation. Technical assistance and training were provided to DSI by theU.S. Bureau of Reclamation financed by the U.S. Agency for InternationalDevelopment. Separate accounts for the Karakaya project are maintainedfor budgetary control purposes and will facilitate transfer of assets oncompletion to TEK. DSI's accounts are audited annually by the Government'sHigh Control Board acceptable to the Bank.

3.02 TEK has a satisfactory utility accounting system. In 1965, the Bankmade a technical assistance grant of US$1.95 million to meet the foreignexchange costs of studies and the implementation of recommendations for thereorganization of the Turkish power subsector. In 1969, Stone & WebsterOverseas Consultants (SWOCI) devised for TEK a new system of accounts, budget-ing and reporting, purchasing and stores procedures. In Phase II during1970-1972, Arthur 'Young & Co. (AY) worked as consultants to introduce andimplement the proposed utility accounting system and to recommend a scheme forrevaluation of assets. Several key accounting staff were trained in utilitiesin the U.S. in 1974-75. TEK's accounting system has improved significantlythough the system has yet to be used adequately for management decisions. Theaudit provisions for TEK's accounts in the Loan Agreements of Loans 1023-TUand 1194-TU are satisfactory to the Bank.

Transfer of Karakaya Assets to TEK

3.03 The TEK law provides for the transfer of the value of hydroelectricassets constructed by DSI to TEK on their being brought into service; transferregulations provide for determination of transfer values by ad hoc transfercommittees. The first three generating units of Karakaya are expected tobe operating in 1985 and the full Project output of 7,762 GWh will be reachedin 1987. The assets of Keban were not transferred to TEK until two yearsafter operation; TEK benefitted from the revenues from the sales of power butdid not provide for depreciation, thus distorting its financial position. Tofacilitate the prompt transfer of the Karakaya assets to TEK it was agreedthat DSI would transfer one-sixth the cost of the Project to TEK for eachsuccessive 1,200 GWh generated by the Project in any year, until the assetsare completely transferred. The present policy of transferring hydroelectricassets to TEK as government equity holdings in TEK would be reviewed by theproposed committee of experts (para. 3.21) to determine the effects ofthe present policy on TEK's income tax liability and on TEK's capital structurediscussed in para. 3.16, in establishing recommended policies governing thetransfer of these assets.

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TEK's Financial Performance

3.04 TEK is the ultimate project beneficiary, when the Project's assetswill be transferred to it by DSI, on completion several years from now; thusTEK is not immediately concerned with the Project. However, as TEK is theProject beneficiary and the only source of revenue for financing generationand transmission facilities, its financial performance is of direct and imme-diate concern.

3.05 In the past lending operations, the Bank has endeavoured to promotethe concept of "user paying for service" and of securing for TEK an appro-priate degree of financial autonomy, through a focus on rate of return whichwould generate funds internally to finance a reasonable share of TEK's invest-ments. The loan agreements require TEK to earn a return of 8% on revaluedassets. This is in line with the TEK Law, which requires TEK to earn an 8%return on net fixed asset after meeting its expenses. However, as the mannerof computing the return and what constitutes expenses were not spelled outeither in the TEK Law or any subsidiary regulations issued under it, thesematters have been covered by provisions in the Loan Agreements with the Bank.While the Government has accepted the principle of recovering from power userssufficient resources to finance a portion of the investments in the powersubsector, as reflected in the 8% rate of return on revalued assets, it hasrepeatedly urged that this objective should be achieved gradually over aperiod of time so that tariff adjustments needed to achieve the agreed returndo not have a disruptive impact on an economy beset with high inflation.

3.06 As a result, ever since its creation in October 1970, TEK's finan-cial operations have been marked by two features: (i) failure, by a widemargin except in 1972, to earn the minimum 8% return on net fixed assetsrequired by the existing loan covenants; and (ii) a chronic shortage of cashon account of continuing inability to collect its bills for electricity,mainly from municipalities. The reasons for this state of affairs areexplained below:

(a) the reluctance of the Government to increase tariffs adequatelyand in time, even to keep pace with increasing costs. Aftera 50% increase in July 1971 apart from the operation of adjust-ing the tariffs for fuel costs increases in 1973 and 1974, thenext increase was only for 20% in June 1976. Substantialincreases were made in September 1977 (42%) and again in April1979 (66%) and January 1980 (128%); these increases were mostlyoffset by simultaneous fuel increases, significant increasesin wages and salaries, and the devaluation of the Turkishlira;

(b) the expensive generation mix of TEK, with a large dependence onsmall, inefficient and fuel-fired plants, distant hydro resources,and the delay in implementation of projects to harness domesticenergy resources. Owing to the tight power supply situation, whichprevailed during the 1970s, TEK has to resort to large scale combus-tion turbine generation and generation from old, inefficient steam

plants;

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(c) significant increases in wages and salaries, which have risen fromabout 11% of operating expenses in the period through 1975 to 16%in 1978 (see Annex 3.1); and

(d) the high level of income taxes payable by TEK (41.7% of taxableincome). Since the return is calculated after income taxes, TEK didnot get the full benefit of tariff increases, and only 58.3% ofTEK's revenues are available for computing the rate of return, therest being siphoned off by Government as income taxes.

For reasons explained above, despite substantial periodic tariff increases,TEK's earnings in 1977 and 1978 resulted in returns of less than 4% for 1977and 1978. The Bank waived in April 1978 the covenant requiring TEK to earnthe 8% on revalued assets, and agreed that this objective be met graduallyover time. It was agreed that the Government would increase TEK's tariffsby January 1, 1980 to enable TEK to earn a 5 1/2% rate of return on revaluedassets for 1980 and increase tariffs thereafter to achieve the 8% rateof return by 1982. On January 25, Government approved increases in TEK'selectricity tariffs, effective February 1, 1980, to an average of 280 kurusper kWh which is acceptable to achieve the agreed 5 1/2% rate of return for1980.

3.07 As the high inflation in Turkey and periodic substantial exchangerate changes affect the revaluation of net fixed assets, and consequentlythe extent of tariff increases, the Government requested the Bank to sub-stitute a cash generation covenant for the rate of return covenant in Loans1023-TU and 1194-TU. In conjunction with the Bank's consideration of theKarakaya project, the Bank agreed in October 1979 to consider the request,provided the Government take action to increase tariffs to achieve theagreed 5 1/2% return on revalued assets for 1980, and adequate levels ofcash generation could be agreed upon.

Substitution of a Cash Generation Covenant for the Existing Rate of ReturnCovenant

3.08 Both the rate of return and the cash generation covenants have astheir objective adequate cost recovery and generation of internal resourcesfor meeting a part of resources needed for future investments. In principle,either of these covenants is acceptable. The rate of return concept hasbeen more commonly used as (i) it provides a standard measure of financialperformance, (ii) it reflects generally accepted principles of costing utilityservices, (iii) provides an effective means, with proper revaluation ofassets, for compensation for inflation, (iv) it mirrors the concepts oftariff regulation which are used in many parts of the world; and (v) it isan accurate and objective test. The alternative internal cash generationcovenant deals directly with providing cash for financing the investmentprogram and is easily understood, particularly in terms of the financing planfor the approved investment program. The major disadvantages of the cashgeneration covenant are the normal "lumps" of annual investments that some-times arise in the investments of large power plant projects which offersincentive to defer expenditures and could delay needed construction; and the

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cash generation covenant does not reflect the capital structure to producerealistic depreciation to replace plants in the future because inflation hascaused much higher replacement costs. In actual practice, when one type ofrevenue covenant is used in the loan agreements the other is also used tocheck the adequacy of the covenant and to measure the borrower's performance,although this practice is not in the covenanted terms.

3.09 The rate of return covenant, as applied in Turkey, has led to manydifficulties. While the principles for revaluation of assets have beenincorporated in the loan documents, the application of these principles hascreated problems in regard to the asset base for computing the rate of return.As tariff adjustments are proposed ex ante, the difficulties of projectinginflation, and actual events, have led to an ex-post lower rate of return.Moreover, the legal validity of revaluation has not been accepted by Turkey,and the TEK law contemplates valuation of DSI assets transferred to TEK onlyat the time of commissioning. TEK does not adjust its books as a result ofrevaluation since the TEK law does not recognize revaluation; the calculationof rate of return on revalued assets is only a pro forma exercise. Revalua-tion of assets would still be necessary to ensure proper annual depreciationcharges under a cash generation covenant. The cash generation covenant wouldfocus attention on TEK's financial performance measuring directly the internalresource generation for the expansion of the power facilities.

3.10 During the Karakaya loan negotiations, agreement with the Governmentwas reached on the principles governing TEK's cash generation. Since TEK'scash generation is derived from assets constructed by DSI, the cash generationobjective would be applied to the total generation and transmission investmentsin the power subsector. In addition, in computing TEK's cash generation, thetotal debt service on TEK's loans, as well as the debt service on loansincurred by the Government for DSI's power subsector investments would bededucted. TEK's income tax payment to the Government in theory is a source offinancing power subsector investments, therefore it was agreed to compute TEK'scash generation before income taxes. An initial level of TEK's cash genera-tion of not less than 20% of the total investments of TEK and DSI in powerprojects has been agreed for 1981, and increasing to about 35% in 1986 andthereafter.

3.11 TEK is required under the existing Loan Agreement to furnish itsfinancial statements in April, and to submit financial forecasts in Novemberfor the purpose of determining and agreeing on tariff actions to be taken tomeet the rate of return covenants. The forecasts to be submitted to the Bankeach November have not always been forthcoming. For the purpose of monitoringperformance under the cash generation covenant, it was agreed that TEK wouldmake a forecast of its internal cash generation and the investments of TEK andDSI and submit the forecast to the Bank by December 31 of each year. TheGovernment presents its budget in November along with the annual plan to theParliament in the same month. Parliamentary approvals are generally completedby February of the following year. This would enable the Government and TEKto review the adequacy of the existing tariffs to meet the cash generationamounts in relation to the planned investments of TEK and DSI in the powersubsector, and to propose and complete needed tariff actions by May 31 of eachyear for achieving the financial results in that year. The procedures formonitoring the cash generation covenant are described in Annex 3.2.

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3.12 TEK's tariff increases effective February 1980 are estimated toprovide a return of 5 1/2% on TEK's revalued assets for 1980; if DSI's debtservice is included in the calculations, the rate of return is estimated at6.2% because the interest on the DSI loans would reduce TEK's income taxliability. The internal cash generation by TEK is estimated to provide 18% ofthe planned investments of TEK and DSI for 1980. An analysis has been made ofthe relationship between the rate of return and cash generation ratios, andthe levels of tariffs required to accomplish either objective for the years1980-1986 in Annex 3.3. Annual tariff increases of about 8% would be requiredto increase the internal cash generation of TEK from 20% in 1981 to 35% in1986, based on the projected investments of TEK and DSI presented in Annex1.10 and the forecast of TEK's sales in Annex 1.6. In the past, the actuallevels of investments were lower than the approved investments in the annualprogram and, as stated in para 1.27, the investment plan for 1979-1986 may bereduced. Tariff adjustments made to yield a desired level of cash generationcould in fact yield a slightly higher level of cash generation if the actualinvestments are less than the planned investments. TEK's internal cashgeneration is estimated to provide an acceptable 27% of the total plannedinvestments of TEK and DSI for the years 1980-1986.

Municipal Overdues and TEK's Liquidity

3.13 In addition to TEK's problem of internal cash generation beinginadequate to finance invetments, TEK has also not been able to collectfor electricity sold to the municipalities amounting to about 35% of TEK'stotal sales. Municipal overdues were the result of two inter-relatedproblems. As municipal retail tariffs were subject to Governmental regula-tion, delay in increasing retail tariffs, consequent upon TEK's tariffrevision, created a problem for municipalities. In connection with Loan1194-TU, the Government agreed to adjust municipal tariffs promptly inamounts commensurate with TEK's tariff increases. In the past few years,the Government has fulfilled this commitment. The increased retail tariffswere expected to enable the municipalities to pay TEK its dues and alsoallow sufficient funds for their distribution investments. However, asmunicipalities also provide other public services like water supply,transport and gas distribution, the municipalities have diverted theirelectricity revenues for meeting the deficits in respect of their otherpublic services. With only limited resources, municipalities are in turndependent on the Government for much of their financing. The Government hashad periodically to consolidate intrapublic sector debts, under which debtsand receivables of TEK were consolidated. Under Loan 1194-TU, the Govern-ment also agreed to cause its agencies and municipalities to pay the debtsfor power and services outstanding to TEK in excess of three months inaccordance with a timetable and a plan of action acceptable to the Bank andTEK. In line with this undertaking, the Government took over municipaloverdues to TEK, more than three months old, in 1977 and 1978, and underpowers granted to it under the budget law, reimbursed TEK its municipaldues outstanding for over three months from the taxes which the Governmentcollects on behalf of municipalities. The Government recognized that thisarrangement could be only a temporary expedient, and the long term solutionwas to increase municipal revenues. A law enacted by Parliament in 1979 toincrease municipal revenues was vetoed by the President. Pending furtherlegislative measures, this problem will continue to be dealt with under the

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Budget Law every year. During negotiations the Government agreed to exploreadministrative measures to expedite its payment of dues to TEK on behalf ofmunicipalities to provide a timely flow of funds to TEK for the implemen-tation of on-going power projects.

Power Subsector Financing

3.14 The financing of investments for generation and transmission facili-ties in the power subsector is characterized by a lack of coordinated policiesand clear financial goals for the many financial institutions involved. Asis natural in a planned economy like Turkey's, the Government determines themagnitude of all investments, including power subsector investments, in itsFive-Year Plans. The phasing of the investments and the flow of resources areagain determined by the Government in the annual plans and programs. Apartfrom approving all investment plans, the Government has to mobilize theforeign exchange resources needed, and even local funds, entirely in the caseof DSI and to a large extent in the case of TEK. Until recently, it regulatedthe resources generated in the subsector, by controlling wholesale and retailelectricity tariffs. The amount of cash generation in the power subsectoris the end product of a large number of pricing policies and other decisionsof Government covering many institutions and operations. The extent to whichthe power subsector really generates internal funds for expansion and iseffectively dependent on the Government budget cannot be precisely determinedamidst the existing welter of price controls, subsidies and taxes.

3.15 The Government also determines to a large extent TEK's expenses,through its control of fuel prices (coal, lignite, fuel oil, etc.) usedin power generation. Until recently, there were no clear policies toguide the Government in fixing the controlled prices of coal, lignite, fueloil and gas oil. TKI, the SEE responsible for production of coal andlignite, has operated at a loss for several years. In fixing fuel prices atuneconomical levels in the past, the Government provided a hidden subsidy toTEK, and therefore to electricity consumers in the country. Consequently,TEK's cash generation overstated the internally generated resources. Underthe agreements in Loan 1023-TU prices of fuel used in power generation wereto be established at levels adequate to provide an 8% rate of return forTKI's investments in the Elbistan Project.

3.16 Another matter which blurs the real extent of cash generation inthe subsector is the transfer of hydroelectric facilities completed by DSIto TEK as Government's equity (now about 50% of TEK's net assets) withouttransferring also the debts associated with these facilities. The Governmentremains responsible for the debt service associated with hydroelectric invest-ments. This benefit is partly counterbalanced by TEK's liability to payhigher income taxes because TEK does not get the benefit of the associatedinterest charges on these debts for computing income taxes.

3.17 Rapid economic growth during 1960-77 resulted in a structural trans-formation of the economy and the combination of rapid industrialization andurbanization led to a rapid increase in demand for commercial energy andelectricity. Electricity consumption grew at the rate of over 10% per annum,

and the growth would have been even higher, if supply had not been constrained.

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Since 1975, Turkey has suffered serious shortages of electricity, whichhave hampered production, despite importation of electricity from Bulgaria andmore recently from USSR. While a part of the reason for this situation wasthe absence of measures for energy conservation, and in particular the policyof keeping domestic prices low, the situation is serious because of slippagesin the construction of generating stations. Presently, though the slowdown ineconomic activity has mitigated the electricity shortages this has been morethan offset by the inability to use a third of existing generating capacitywhich is based on oil, because of Turkey's inability to meet the soaring oilbill.

3.18 Actual investments in the power subsector compared with plannedinvestments amounted to 63% and 92% in the first two 5-Year Plans, and 90% inthe Third 5-Year Plan. However, in recent years, due to high inflation theachievement at the monetary level has not been equalled on the physical level.Most of the problems that this sector faces are concerned with investments tochange the adverse mix of its generating capacity. The slippages in invest-ments have been the result of not being able to secure the necessary local andforeign resources.

3.19 The broad lines of the Fourth Plan's strategy with regard to energyare sensible, and the measures taken to switch demand to domestic sourcesappear appropriate. The power subsector's investments are being accordedhigher priority in the allocation of resources than was the case in the past.While the Fourth Plan visualized that 18% of all investments would be in thepower subsector, in the first two years, the actual investments were more than20%. The Plan targets for electricity production call for a 14.4% increase inconsumption annually. The current economic crisis and the steep rise ininternational oil prices makes it unlikely that Turkey can sustain the highgrowth it witnessed in the past. The Government recognizes that the FourthPlan macro-economic targets, and consequently the electricity consumptiontargets are unrealistic, and will need to be significantly modified. It hasin fact done so, through its annual programs for 1979 and 1980. Consequently,the projected investment program for TEK and DSI for 1980-86, estimated atUS$20 billion, including $2 billion for interest charged to construction,will be scaled down. However, as the power subsector affects the economyvitally, and has a profound impact on Turkey's balance of payments, the powersubsector will call for sustained large investments, to augment capacity basedon domestic hydro and lignite resources, not only to meet projected demand,but also to change the existing generating-mix, heavily dependent on importedoil. The accomplishment of this objective will be crucially dependent onmobilizing needed resources to complete speedily on-going priority projects inthe subsector.

3.20 Recognizing the need for the SEEs to generate resources, and notto be a drain on the Government budget, the Government has made a drasticchange in policy. It has removed many items from the list of "basicgoods", whose prices and services could be increased only by Cabinet approval.The SEEs are now free to set their own prices depending on market forces,except for fertilizer, coal/lignite, cargo rates of railways and shippinglines, and electricity rates only for ferrochrome and aluminum production.Budgetary support for operating deficits and recourse to Central Bank credits

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for investments have been eliminated. The investment projects of the SEEswould in future be reviewed by SPO for viability and conformity to planobjectives, and the SEEs are expected to generate their own resources forinvestments, even though some budgetary support will be required for invest-ments in basic infrastructure like power.

Proposed Comprehensive Review of Power Subsector Financing

3.21 These measures are in the right direction and mark a significantturning point in Turkish economic policy. Together with improvements in theirproductivity, they should allow the SEEs to undertake effective resourcegeneration. However, as many agencies are involved in the power sector, andtheir operations and financial policies interact and affect each other'sfinancial performance, it is appropriate to review the investment program inthe energy and power subsector, its financial needs, the relationship betweenvarious agencies and their pricing policies, so that an integrated view ofsubsector financing and policies could emerge. The Government appointed acommittee of experts, satisfactory to the Bank, to review the electricitysupply and demand forecasts, the investment programs of DSI and TEK, theinvestment requirements for distribution, fuel pricing policies (includingeconomic costs of fuels) used in generating electricity, treatment of TEK'sincome tax liability, the debt service requirements for hydroelectric proj-ects, and other related matters. The committee, after reviewing these issues,would recommend fuel pricing policies and electricity tariff levels sufficientto provide internal cash generation for financing a reasonable portion offuture investments in the power subsector. During negotiations, agreement wasreached on the committee's terms of reference and that an internationallyknown pricing expert would be retained, on terms and conditions satisfactoryto the Bank, to assist the committee in reviewing the methodology and analysisof its work. The committee would complete its work by June 30, 1981; and theGovernment would furnish its recommendations to the Bank by December 31, 1981,and after taking into account Bank's comments, would furnish to the Bank byDecember 31, 1982 a timetable of actions, acceptable to the Bank, for imple-mentation of the recommendations no later than December 31, 1983. The termsof reference for the committee's study are presented in Annex 3.4.

IV. PROJECT JUSTIFICATION

Power Market Growth

4.01 The Karakaya hydropower project will form part of the power develop-ment program which is designed to meet the continued growth of demand on theinterconnected power system in Turkey. The trend growth rate of sales since1965 has been 10% p.a., which is projected for appraisal purposes to increaseto 11.2% until 1986 and decline to about 9% thereafter (para. 1.19). Themethods used for the load growth forecast are described in Annex 4. To allowfor the possibility that the load growth might be slower, an alternativeforecast was also made assuming that all the figures in the main forecast are10% lower.

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Alternative Development Strategies

4.02 Even if completed on schedule generating capacity existing or underconstruction will not suffice to meet the forecast requirements based on themain projection through 1983. The analysis of forecast balances of capacitiesand energy indicates that new generating capacity will have to be installedto meet the continued growth of demand after 1984. Turkey's long term devel-opment strategy is based on progressive exploitation of the country's hydro-power and lignite resources for meeting future power requirements. The studiesby TEK and consultants of the identified indigenous energy resources in Turkeyhave led to the conclusion that the Karakaya hydropower project is the mostpromising new power generation development. The alternatives of lignite-fired,oil-fired and nuclear-fuelled generating plants for base load, combined withgas turbines for peak loads, were also considered.

Comparison of Alternatives

4.03 Given that Karakaya was the most preferred new power generatingdevelopment, the power system development costs of meeting load demand withand without Karakaya were compared (see Annex 4). Three alternatives toKarakaya were considered, based respectively on substitution of Karakaya bythe equivalent lignite-fired, oil-fired and nuclear base-load power plants,supplemented by appropriate gas-turbine peaking units. The economic valuesof the cost streams associated with Karakaya and each of the three develop-ment alternatives were derived, the main variables being equipment, materialsand labor costs, fuel costs and load growth. The development program withKarakaya was found to have the lowest present value of costs up to a discountrate of 53.5%. Since the opportunity cost of capital in Turkey is believedto be around 11%, this indicates that Karakaya represents the least-cost meansof meeting requirements on the main assumptions used for the comparison.This conclusion was tested for sensitivity to the assumed changes in the mainvariables and the obtained results indicated that the choice of the Karakayaproject is not affected by these changes.

Return on Investment

4.04 The internal economic rate of return (IER) on the Project was esti-mated by comparing the Project benefits with the costs. The costs are theattributable financial costs of the Project adjusted for taxes, internaltransfers, and sunk costs and converted into their economic values as shown inAnnex 4. The benefits have been taken as the economic value of TEK's forecastrevenues from incremental power sales attributable to the Project assumingtariff rates as of April 1980. The IER corresponding to this tariff rates isestimated to be at least 15.1%. However, the incremental revenues understatethe Project benefits since electricity prices in Turkey have failed to keeppace with the rate of general inflation and it is considered that they couldbe increased significantly without reducing demand. The tariff rate increaseto reach the TEK's 8% rate of return (Financial Covenant under Loan 1194-TU)would result in an IER of 24.65%. Sensitivity tests showed that the ratewould be about one and one-half percentage points lower if capital costs ofthe Project are valued 15% higher.

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V. AGREEMENTS REACHED AND RECOMMENDATION

5.01 During negotiations, the Government has agreed:

(a) (i) to complete, by December 31, 1981, a review of existing arrange-ments for the coordination of the development and investment plansin the power subsector, particularly hydroelectric planning and thedevelopment programs of TEK and TKI, (ii) to make recommendations onstrengthening integrated investment planning and coordinating proce-dures to be used for its power subsector and on measures to be takento ensure the timely execution of investment plans, and (iii) afterthe Bank's comments, to implement promptly the proposed recommenda-tions and measures (para. 1.21);

(b) (i) to make arrangements satisfactory to the Bank for securing thefinancing needed to ensure completion by TEK of the 380-kV linesconnecting the Project with the power system in Turkey not laterthan October 31, 1989, and (ii) to provide the Bank with a construc-tion schedule and a financing plan acceptable to the Bank by June 30,1981 (para. 2.03);

(c) to ensure that DSI continues to employ consultants whose qualifica-tions, experience and terms and conditions of employment shall besatisfactory to the Bank for engineering services, procurement andsupervision of construction of the Project (para. 2.05);

(d) to establish a board of experts, whose members and terms of refer-ence shall be acceptable to the Bank, to advise DSI in the event ofany unforeseen problems arising during construction of the Project(para 2.06);

(e) to ensure that the Project hydro works, including the dam, shall beinspected regularly in accordance with sound engineering practices,and to inform the Bank, not later than December 31, 1980, about thenature and frequency of, and monitoring procedures for, theinspection of hydro works and dams in its territory (para 2.07);

(f) to make arrangements, satisfactory to the Bank, for financing theremaining foreign exchange costs of the Project and to provide, inits annual budgets, local funds needed for the prompt execution ofthe Project and to establish a special account with an initial amountnot less than LT 500 million, to be replenished monthly, with abalance equal to at least three months' local expenditure require-ments of the Project as determined from time to time by the consul-tants and from which DSI may draw without restriction on funds tomeet local expenditures. Furthermore, the Government has agreed tocover all Project cost overruns that may arise in carrying out theProject and to assume the foreign exchange risks (paras. 2.12 and2.13);

- 36 -

(g) to establish effective Project management, and to appoint a Projectsite manager by December 31, 1980 with such responsibilities,qualifications, experience and adequate authority for resolving siteproblems as shall be satisfactory to the Bank. Furthermore, theGovernment has agreed to inform the Bank of the qualifications andexperience of the person(s) considered for any new appointment tothe position of Project site manager (para. 2.15);

(h) to maintain in MOE the Central Project Coordinating Committee withsuch powers, functions, responsibilities, composition, and terms ofreference as shall be satisfactory to the Bank (para. 2.16);

(i) to make appropriate arrangements to relocate residents on landrequired for the construction and operation of the Project's facili-ties in accordance with a comprehensive plan of resettlement actionand its implementation program satisfactory to the Bank to beprepared and furnished to the Bank by February 28, 1981 (para.2.22);

(j) to prepare and submit to the Bank by March 31, 1981 a reportingsystem satisfactory to the Bank for providing river flows, includ-ing criteria and methods of measurements to be used to determineperiodic mean river flows. Furthermore, the Government has agreedto furnish regularly to the Bank Euphrates River flow data asmeasured at the Birecik gauging station (para. 2.30);

(k) that DSI would transfer to TEK one sixth of the cost of the Projectfor each successive 1,200 GWh generated by the Project in any year,until the assets are completely transferred (para. 3.03);

(1) on the principles governing cash generation and on the initiallevel of TEK's cash generation of not less than 20% of the totalinvestments of TEK and DSI in power projects beginning in 1981 andincreasing to about 35% in 1986, and thereafter (para. 3.10);

(m) that Government would furnish to the Bank TEK's forecast of itsinternal cash generation and the investments of TEK and DSI for thecoming year and complete tariff actions by May 31 of each year forachieving agreed levels of internal cash generation in that year (para.3.11); and

(n) on the terms of reference of the committee of experts to recommendfuel pricing policies and electricity tariff levels sufficient toprovide internal cash generation for financing a reasonable portionof future investments in the power subsector, and that an inter-nationally known pricing expert would be retained on terms andconditions satisfactory to the Bank, to assist the committee inreviewing the methodology of its work. The committee would furnishits recommendations to the Bank by December 31, 1981, and aftertaking into account the Bank's comments, would furnish to theBank by December 31, 1982 a timetable of actions and implementthe recommendations not later than December 31, 1983 (para. 3.21).

- 37 -

5.02 With these agreements the Project is suitable for a Bank loan ofUS$120 million equivalent to the Government of Turkey for a term of 17 yearswith 4 years grace. Retroactive financing from February 1, 1980 is proposedin an aggregate amount not exceeding US$10 million equivalent. Specialconditions of loan effectiveness are: (i) the establishment of a board ofexperts whose members and terms of reference are acceptable to the Bank (para.5.01(d)); and (ii) the signing of financial arrangements with Italy and theAbu Dhabi Fund and the establishment of a special account to meet localexpenditures (para. 5.01(f)). The loan is expected to become effective withinthree months of its signing.

April 1980

TURKEY

KARAKAYA HYDROPOWER PROJECT

National Power Sector Statistical Data (1965-1978)

CONSUMER CATEGORY 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

Sales (GWh)

Residential 560 618 722 820 937 1,010 1,127 1,286 1,390 1,602 1,882 2,353 2,631 2,791

Commercial 264 281 302 324 364 39( 4e7 5l,7 621 713 86o 1,015 1,129 1,198Industrial 3,080 3,470 3,834 4,273 4,860 5,327 6,070 7,005 7,721 8,200 9,781 11,693 13,075 13,885-overnment 163 174 206 230 259 302 342 393 491 525 566 616 655 685Street Lighting 116 131 147 163 188 193 200 208 217 222 251 296 325 323

Transport 54 55 58 60 78 80 83 88 90 97 101 112 117 133

Total Sales 4,237 4,729 339 5,2870 6,6386 730 9,527 10,530 11,359 13,441 16,085 17,932 19,015

Losses (GWh) 716 822 948 1,066 1,152 1,315 1,492 1,7'5 1,895 2,118 2,227 2,536 3,118 3,327

(96) (338) (492) (621Net Interchange (GWh)

Generation 1'GWh) 4,953 5,551 6,217 6,936 7,838 8,623 9,781 11,242 12,425 13,477 15,572 18,283 20,558 21,721

Hydro 2,179 2,338 2,382 3,175 3,445 3,033 2,610 3,204 2,603 3,356 5,887 8,375 8,584 9,360Thermal 2,774 3,213 3,835 3,761 4,393 5,590 7,171 8,038 9,822 10,121 9,685 9,908 u,974 12,361

Installed Capacity (MW) 1,491 1,645 1,959 1,967 1,967 2,235 2,578 2,711 3,192 3,732 4,175 4,364 4,725 4,867

Hydro 50, (g17 702 723 723 725 872 893 985 1,443 1,780 1,873 1,871 1,879

Thermal 986 1,028 1,257 1,244 1,244 1,510 1,706 1,818 2,207 2,289 2,395 2,491 2,854 2,988

1 ' 1 ) Tmport.

December 1979

- 39 - ANNEX 1.2Page 1 of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Interconnected Power System Statistical Data (1971-1978)

19 71 1972 1973 1974 1975 1976 1977 1978

A. TEE

Sales (0GWh)IETT 1,914 2,147 2,328 2,407 2,919 3,065 3,225 3,077E°O 569 692 724 702 745 924 i,oo6 1,029ESHCT 391 499 541 562 639 693 701 687CEAS - 20 58 105 126 229 203 239KEPE7: - 29 80 62 98 ;27 169 45Other Municipalities 1,197 1,545 1,705 2,114 2,354 3,002 3,112 3,889Induc'ries 2,881 3,457 3,781 4,L19 5,OO 6,309 7,389 7,361Vi' lages 60 75 127 162 272 286 408 570Export - - - - - 3 - -

Total Sales 7,012 T1j,W 93 0,233 1283 14,b 14,21 3 16,597

Losses (!GWh)Network Tossas 434 483 600 588 606 747 841 923Station Supply 449 507 541 639 696 796 985 1,o6o

Total Losses 83 990 1,141 1,227 1,302 1,543 1,826 193

,eneratiori (GWh)Total Supply 7,895 9,454 l0,485 11,466 1R.485 16,183 18,039 18,880

Purohases from:CRAS 22' 323 223 276 542 390 26o _J4KEPEZ 3 6 1 - - - - 39

Oth-rs 16 1 3 1 2 1 57 48Import - - - - i6 338 49C 62i

Total Purchases 240 330 22977 6 729 080 912

Own ene'ntivl 7.655 ,1S24 10,258 11,189 12,845 15,454 17,2,0 17,)68of whioh:Hlydro 1,-69 2,291 2,035 2,6o4 4,644 7,200 7,428 8,o0tThe-ma 5,890 6,833 8,223 8,585 8,201 8,254 9,802 9,9C'I Hydro S3 25 20 23 36 47 43 41

Insta' led Capacit, (¶Wf)Hvdro 670 690 782 1,190 1,521 1,6l4 1,614 1,622Thermal 1 094 1,188 1,568 : 644 1,706 1,771 2,071 2.179

Total 11 1,78 2,350 2,834 3,227 3,385 3,685 3,801, Hydro 38 37 33 42 47 48 44 41

B. CEAG

Sal es ( V015TFK 221 323 233 276 542 390 260 204Municipalities and 'illages 226 264 309 336 399 453 531 577Ir.istry 270 357 462 524 6,,i 790 90] 998Ct-ers 50 67 64 46 41 42 5, 54

Total Saes 77 1,01 1 1,068 1,182 1,763 _,675 ,833

l.osses ' Wh)Network 'osses 24 28 36 46 4o 52 67 78Station -apply 25 30 46 44 41 40 46 49

Total Losses 4 9 58 c2 90 92 71<13 _ 27

;eneratien llSs)Total Supply 816 1,Y9 1,10 1,272 1,724 1,767 1,862 1, Co

Purchases - 20 58 105 144 265 245 2 6

Own leneration 816 1,049 1,082 1,167 l,580 1,502 1,617 1,7 4of .'Wish:hydro 392 631 378 544 1,034 954 965 1,0 8Then al 424 418 704 623 546 548 652 6 '6% Hyd "o 48 60 35 47 65 64 6o

Installed Copacit'- (MWl)Hydro 130 13. 136 192 192 192 192 1 2-Thermal 106 1o6 io6 106 010 1o6 1o6 1o6

Total 23' 242 242 ""2"998 29829 T 298F "97* Pydro 55 56 5f 64 ( 4 64 -4 64

;/ From TEK and Tzi'ender,n Steel Plant TISD).2' Include; TEK't luregir Fyiro Plant whicl' is operated by CTAS.

December 1979

_ 40 -

.AmI2 1.2Page 2 of 2

TEYM

KARAXAYA HMDROPWER PROJECT

Interconnected Power System Statistical Data (1971-1978)

1971 1972 1973 1974 1975 1976 1977 1978

C. XEPEZ

Sales (GWh) 161 197 204 197 233 247 249 191

lotal Losses (h) 7 7 7 10 11 13 15 10

,eneration (0Wh)Total Supply 168 204 211 207 244 260 264 201

Purchases - 29 80 62 98 127 169 45

Own ceneration 168 175 131 145 146 133 95 156

Installed Capacity (MW)(Al' Hydro) 26 26 26 26 26 26 26 26

D. MUNICIPALITIES

^eneration 'GWh)Hydro 242 66 32 34 31 61 59 74Thermal 176 82 98 95 57 92 93 89

Total 418 *47 130 129 88 153 152 **73

Installed Capacity (MW)Hydro 34 29 29 29 29 29 27 27Therma) 116 115 118 118 118 118 118 118

Total 150 144 1-7 17 117 147 145 145

E. SELF-PRODUCERS

^-eneration (GWh).fydro 43 41 27 29 32 27 37 31Thermal 681 705 797 818 881 1,014 1,427 1,68?

Total 724 746 - 83, o47 9 T ,01 4 1,720

-n.stalled Capacity (MW)'Hydro 12 12 1 12 12 12 12 12Thermal 390 4o' '415 415 465 496 559 585

Total 402 421 4 27 4 27 077 571 597

SUMARY FOR TURKEY

.reneration ( GWh)Hydro 2,610 3,204 2,603 3,356 5,887 8,375 8,584 9,360Thermal 7,171 8,038 9,822 10,121 9,685 9,908 11 974 12,361

Total 9,781 11 242 12,425 13,477 15,572 18,23 20,558 21,721%Hydro 27 29 21 25 38 46 42 43

Installed Capacity MW)Hydro 872 893 985 1,449 1,780 1,873 1,871 1,879Thermal 1,706 1,818 2,207 2,283 2,395 2,491 2,854 2,988

Total 2,711 3,192 3,732 4,17 5 4, 36 4,725 4,867% Hydro 34 33 31 39 43 43 4z 39

mlart FactorsHydro 34 41 30 26 38 51 52 57Thermal 48 50 51 51 46 45 48 47Overall 43 47 44 41 43 48 50 51

Maximum DemandInterconnected System) 1,684 1,950 2,169 2,366 2,729 3,135 3,290 3,641

Installed Capacity MarginMWl 894 761 1,023 1,366 1,446 1,229 1,435 1,2263 35 28 32 37 35 28 30 25

Specific Consumption'kWh/capita) 299 257 276 292 331 389 426 441

December 1979

KARKAY%A OPy< lE3WpI 2 E1 C

Thcrmal Rower P a,tt Ch-racteris'i-s and Operationa-' C-ts

Ira olled Energy Capacity Fuel Heat Hate Plant's Heat Rate Operational Conta (Hen/kim) . Csnmiaaioninglopanity It1I .iWh lear) Type of Fuel (kcal/kg) l,ral/kWh) Fuel Other Total Mo_th/Year

A. LI I T7_ l MIIIy

TEK |3iozii 40 30o1 13') Lignite 3,686 4,28i 94.80 57.60 152.40 l956Si/ht-ar 60 350 Coal 6,639 3,998 073.05 74.6i 347.66 I956Cytrlogei 129) 300 ('o1a ,819. 3,39( '?9.65 4.20 133.85 1956Soa-A 44 300 Lignite 3,345 2,874 45.30 28.94 74.24 1957T-nc

tlei-A i29 83o Lignite 3,658 2,6 07 52.02 Ž5.71 77.73 1956-65

Amnar i 63o 4,200 Fmlel Oil G,(6.5 2,203 169.40 22.13 191.53 1967-71Hopa 50 35( Fuel Oil 9.452 2,-07 '74.32 39.48 213.80 1973torso-Ts ) IJ5 135 ,as )11 0, 300 4,215 405.06 22.94 428.o0 19'72-75Seolisehlr iT) 3'0 360 no 011 J,3D0 3,851 424.36 40.09 466.45 1972-75Seyt-omer -2 300 1,800 l,gnite 1,380 2,453 40,52 61.91 102.43 1974Alia 9-T) 120 36O ian Oil 10,30D0 3,430 330.80 14.90 347.70 1974Hazar .T) 30 90 Gas Oil 10, 300 3,59T) 420.00 59.06 479.06 1974Other T' 6 IC ,as Oil 10, 30 3,959 _- - -Tunobilik B -' 3"C 1,8o0 I ignt e -,'70 2,349 60.53 25.71 86.24 1977-78Seyitomer 3 50 900 t.igrite ',8o0 2,453 40o52 61.91 102.43 1978

Tote' TRK 2,153(2,143) 12,421

CEA0Iersot 106 700 FPo Oil '0,000 2,529 170.30 21.80 192.10 1966

'.l1NT3'TPA-.ITlR :S 10 Con' -'li

SRLF- PHCD;'CERS g38 ,791 FIr. Oil

T8TA1 T 'KE 3,01q 3.00 15,02'

TP.I,n)r R C0SoNTRTJCTTON ANT) FUTURe' PLANT32

Soon 21_- 331 305 Aignite 2,40o 2,359 68.88 2'.52 98.40 12/8o-4/81Eibistan A-1 341 *,950 Lignl e t,O50 2,408 69.72 29.88 99.6o 11/81Yatagan A 1-2 420 ,020 Lignite 2,100 2,350 68.88 29.52 98.40 6-9/81Ieother-r go 90 - - - -_ 12/81

Aliaga '' >`C 6o 0 io Uas Oil 10,000 - - - - 9/81Flhbintn A 2-3 So0 3,30 S Lignite 1,050 2,4o8 69.72 29.88 99.60 5-11/81Cayirhan 1-2 300 1,800 lignite 2,800 2,350 85.68 36.72 12?.40 9-12/82Orhanei 1 200 1,200 Lignite 2,550 2,350 68.88 29.52 98.40 7/82F'bistan A-4 340 1,950 lignite 1,050 2,408 69.72 29.88 99.60 5/83Kangal 1-2 300 _,800 l.ignite 1,300 2,350 68.88 29.52 98.40 6-11/83Y. Catalagni n go00 loa 3,300 2,390 68.83 29.52 98.40 6/83Yatagan A-3 '10 3,060 Lignite 2,100 2,350 68.88 29.52 98.40 1/83Somn B 3-4 330 1,980 Lignite 2,400 2,359 68.88 29.52 98.40 7-10/83Yatagan 2 1-2 420 3,531 Lign ite 2,100 2,350 68.88 ?9.52 98.40 6-12/83Seyitomer B 5°0 g0! Lignite 1,800 2,453 52.92 22.68 75.60 12/83Orhaneli 2 200 1,200 .ignite 2,550 2,350 68.88 29.52 98.40 12/83Can 1-3 6oo 3,OO lTgnitc 2,700 2,350 68.88 29.52 98.40 1-7-12/84Saray 1 150 900 Lignite 2,500 2,400 68.88 29.52 98.40 i/85E'bistan B 1 340 1,950 Lignite 1,050 2,408 69.72 29.88 99.6o 7/86

Subtatan 5,53' 32,580

Self-Produners 149 84o Fuel Oal 10,OO0 - - - - 19-iC

TITA T- 072 33,423

%/ As of rDecember 1979.2/ Available.3/ 1956 or before.

Reduced from 86 to 60 M11'.53 MW added in 1979.Source of Information: TEK and Mtinistry of Energy and Natural Resources.

GT . Gas (Combustion) TurbineITC = Combined Oycle

April 1980

-42 - ANEx 1. 4

KARKAYA HYDROPOWE} PROJICT

Hydropower Plant Characteristics and Operational Costa

Installed Annaul Production (G Type of Operaticnal CommissioningCapacity (MW) Average Firm Plant Cost (Krs/kWh) Month/Year

A. EXISTING PLANTS

TEKAlmus 27 80 40 S 55.32 1966Demirkopru 69 190 100 S 23.77 1960flokcekaya 278 650 430 S 28.82 1973-76Hirfanli 96 300 180 S 43.31 1960Keban 1-4 630 4,600 3,800 S 21.99 1971Kemer 48 135 65 s 34.32 1958Kesikkopru 76 180 110 S 25.49 1967Sariyar 160 500 330 5 37.80 1956-66Hazar 1-2 30 188 130 S 130.88 1967Kovada 1-2 60 261 190 S 30.00 1971Tortum 25 85 68 5 35.75 1972Cildir 15 30 30 S 181.93 1975Dogankent 33 152 115 R 38.97 1971-78Caq-Caq 14 42 42 R 42.06 1968Ooksu 11 65 55 R 42.14 1963Ikizdere 15 100 80 R 26.51 1969Small Plants 35 64 53 -

Total TEK 1,622 7,622 5,616

CEASSeyhan 60 350 343 5 - 1964Kadincik 1-2 126 622 390 R - 1971Yuregir 6 21 - S -

Total CEAS 192 993 733

KEPEZKepez 26 160 130 S

MUNICIPALITIESIaterconnected 27 35 17

SELF-PRODUCERSInterconnected 12 30 20

TOTAL TURIEY 1,879 8,840 6,718

B. UNDER CONSTRUCTION ANDFUTURE PLANTS

Hasan Ugurlu 1-2 250 900 820 S | 9-12/1979Dogankant B 40 157 - R 12/1980Suat USurlu 46 273 206 S 1-3/1981Keban 5 2' 157.5 621.5 305 5 10/1981Keban 6 157.5 621.5 306 5 1/1982Yokluce 1-2 90 584 576 5 1-4/1982Keban 7-8 315 435 - S 4-7/1982Adiguzel 1-2 60 280 150 S 1-4/1982Aslantas 1-3 138 569 360 S 1-3-7/1982Oymapinar 1-4 540 1,620 412 5 1-10/1982Hasan Ugurlu 3-4 250 300 - 5 1/1983Karacaoren 30 142 84 S 1/1983Tohma 12 67 50 S 1/1985Kapulukaya 51 190 100 S 1/1985Catalan 150 484 300 S 1/1985Karakaya 1-6 1,800 7,353 6,060 S 1-4-9/1985&2-7-12/1986Altinkaya 700 1,632 1,236 S 1-10/1986Ataturk 1-4 1,200 8,010 6,800 S 1-10/1986Camligoze 16 88 60 S 1/1986Derbert 56 257 200 S 1/1986

Gezende 150 28 130 S 11/1986TOTAL 6,209 25,3 1,1-55

As of December 1979.2/ Assmed operation costs: 0.3% of civil works and 1.5% of equipment.

Keban units 5-8 would be capable of delivering up to 180 MW.; Exluding gain due to Karakaya (409 Gwh) in Keban generation

S - Storage hydropower plant. R = Rune-of-River hydropower plant.

April 1980

- 43 - ANNEX 1.5

TURKEY

KARAKAYA HYDROPOWER PROJECT

Transmission Network Data

Additions by:Existing 1979-1984 1985-1986

A. TRANSMISSION LINES (km)

Voltage (kV)

30 20,277 29,126 10,066

154 (and 60) 14,103 4,768 868

380 2,855 4,551 1,118Total 37,235 38,445 12,052

B. SUBSTATION CAPACITIES (MVA)

Voltage Ratio (kV/kV)

154/30 6,453 7,283 5,400

380/154 1,890 6,380 3,300(220/154)

Total 8,343 13,663 8,700

December 1979

Isge 1 f 3

TURKEY

KARAKAYA HYDROPOWER FROJECT

Forecast Balances of Capacities and EnrgY

1979 198C 1981 1982 1983 1984 1985 1986

Sales (Wl)TEK 18,282 19,500 23,o86 30,000 36,ooo 4o,966 46,4172 52,518CFA. and Others 3,523 3,583 4,339 4,339 4,339 4,339 4,339 4,339

Total Sales 21,80~/ 23,D83 27,4257 1 9 U 4-0,339 45,305 50,511 56,857

tosses '1GWh)Network looses 1,000 1,083 1,313 1,677 2,075 2,385 2,674 2,993Station Supply 1,015 1,108 4,400 1,783 2,196 2,510 2 815 3,150

Tota' Losses 2,015 2 ,191 2,713 3 4,2718 7955 T5t97 6,143

Import (sWh) 1,05 '1,600) '2,000) (2,000)

Required Beneration (12h5)- 22,765 23,674 28,138 35,799 44,61o 50,200 56,300 63,000

Macio De-and (MW) 4,o60 5,280 5,96o 6,960 7,960 8,950 1O,040 11,240

Plant Capacities (MW)HydroaT7xisting Plants

TEK 1,622 -,622 1,622 ' ,622 1,622 i_622 1,622 1,622others 257 257 257 257 257 257 257 257

Subtotal I,879 1,879 1,879 1,879 1,879 l,879 1, 8799

s(5 Fut-ure PlontoHSsan lJgurlu 1-2 250 250 250 250 250 250 250 250Dog-nkent 3 - 40 4o 40 40 40 Lo 40S-at Jgarl - _ 46 46 46 46 48 46Keban 5 - - 157.5 157.5 157.5 157.5 157.5 157.5Keban 6 - - - 157.5 157.5 157.5 157.5 157.5Kokluce 1-2 - - - 90 90 90 90 90Keban 7-8 - - - 315 315 315 315 315Adiguzel 1-2 - - - 60 60 60 6o 60Aslantas 1-3 - - - 138 138 138 138 138Oymapinar 1-4 _ _ - 54o 540 540 540 54o

Hasan Ugurlu 3-4 - - - - 250 250 250 250Karacsoren - _ _ - 30 30 30 30Tohma - - - - - - 12 12KapuluXaya - - 51 51Catalan - - - - 150 150Karakaya 1-3 - - - - - - 900 90oKarakaya 4-6 - - - - - - _ 9ooAltinkaya - - - - - - - 700Ataturk 1-4 - - - - - - 1,200Ca=ligoze - - - - - - - 16Debrent - - - - - - -56Gezende - - - - - - 150

Subtotal 250 290 493.5 179 2,074 2,074 3,187 6,0Total Bydro 2,129 2,169 2,372.5 3,673 3,953 3,953 5,o66 8,o88

ThermalExhisting Plants

TEK 2,143 2,143 2,143 2,143 2,143 2,143 2,143 2,143Others 862 862 862 862 862 862 862 862

Subtotal 3,005 3,005 3,005 3,005 3,005 3,005 3,025 3,005

b) Future PlantsSca B 1-2 - 165 330 330 330 330 330 330Elbistan A-1 - 34- 340 340 340 340 340Yatagan A 1-2 - - 420 420 420 420 420 420Geothermal - - 15 15 15 15 15 15Aliaga, GTC - - 60 6o 6o 63 60 6oElbistan A 2-3 - - - 680 680 683 680 680Cayirhan 1-2 - - - 300 300 300 300 300Orhaneli 1 - - - 200 200 200 200 200Elbistan A-4 _- - 340 340 340 340Kangal 1-2 _ _ _ - 300 300 300 300Y. Catalagzi B - - - - 150 150 450 150Yatagen A-3 - - - - 210 210 210 210Soma B 3-4 - - - - 330 330 330 330Yatagan B 1_2 - - - - 420 420 420 420Seyitoser B _- - 150 150 150 150Orhane'i 2 - - - - 200 200 200 200Can l-2 - - - - - 600 60o 600Saray 1 - - - - - - 150 150Elbistan S-1 - - - - - - - 340Self-Producers - - 140 140 140 14 14o 140

Subtotal _- 1435 5 ,4,55 W5,15 W7Retired Thermal _ _ _ - (189)3/ (792) (792) (792)

Total Thermal 3,005 3,170 4,310 5,490 7,401 7,398 7,548 7,888

Total Installed Capacity (MW) 5,134 5,339 6,682 9,163 11,354 11,351 L2,614 15,976

Installed Capacity MarginPB l,074 50 772 2,203 3,394 2,401 2,574 4,736

21 1 11 24 30 21 20 30

1/ Sales and losses reflect actual values for the first nine month. of 1979.7' Required energy for the years 1979, 1980 and 1981 are 25,320 GWh, 27,120 GWh and 33,400 GWh respectively (TEK's estimates).3/ Petired Plants: Catalag2i 129 Kg 1j/1983 Tlntbilclr A 64 MW l/1984

Silahtar 6o MW 1/2983 {'s Tirbineo 32 MW 1/19841Tmir 60 lw 1/L984 Mmnloipalities 1l8 MW 1/2984

Self-lyoducers 329 121 1/1984Dc--bter 1979

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ANC 1. 6- 46 ~~~~~~~~~~~~~~Page 3 of 3

TURKEY

KARAKAYA HYDROPOWER PROJECT

Forecast Balances of Capacities and Energy

1979 1980 1981 1982 1983 1984 1985 1986

.verage Hydro Year ('Wh)Hydro 8,840 9,495 10,192 13,179 15,055 15,343 18,709 30,931Thermal 15,022 15,072 17,024 21,924 29,083 36,319 4, 436 43,061

Total 23,862 24,567 27,216 35,103 441937 51,662 o,15 73,992

'."agin'4Wh 1,097 893 (922) (696) (472) 1,462 3,845 10,992

5 4 (3) (2) (1) 3 6 15

--y Year ''i'm)Hydro 6,718 7,2(5 7,752 9,201 9,890 9,974 13,076 21,947Thermal 15 022 15,072 17 024 21,924 29,083 36,319 L1,436 43 061

Total 21,740 22,337 52776 31,125 3,973 46,293 54,512 6

'arginC.Wh !1,025) (1,337) (3,362) (4,674) '5,637) (3,907) 1,788) 2,008

(5) (6) (14) '15) p14) (8) (3) 3

-AR's Estimates -

TEK's sales 18,282 19,500 22,164 26,400 30,800 34,500 38,300 42,500

-, , r1nsAverage Year

'(4h 1,097 893 ( 0) 2,904 4,728 7,928 12,017 21,010<0 5 4 (0) 8 11 15 20 28

2ry Year

4Wh '1,025) '1,337) (2,440) (1,074) ( 437) 2,559 6,384 12,0265, '5) '6) (10) (3) (1) 6 12 18

Staff Appraisal Report (SAR) estimates in view of the current Turkish economy situation and itsnear-term prospects.

-,nember 1979

TURKEY

KARAKAYA HYDROPOWER PROJECT

Forecast of TEK's Electricity Sales

1979 1980 1981 1982 1983 1984 1985 1986

MUNICIPALITIES 9,092 9,326 11,782 13,400 14,900 16,100 17,500 18,900

IETT 4,000 4,100 4,700 5,350 5,900 6,400 6,900 7,400EGO 1,100 1,150 1,250 1,450 1,600 1,750 1,900 2,100ESHOT 90o 950 1,100 1,200 1,350 1,450 1,550 1,650Others 3,092 3,126 4,732 5,400 6,050 6,500 7,150 7,750

VILLAG ES 600 724 1,043 1,320 1,660 2,030 2,450 2,940

I/ 2INDUSTRY - 7,500 8,150 8,800 13,483-/ 16,900 19,696 22,802 26,348

Small 850 900 1,000 1,200 1,500 1,700 i,850 2,040Large 6,650 7,250 7,800 12,283 15,400 17,996 20,952 24,308

IRRIGATION 190 200 261 297 340 390 440 480

CONCESSIONARY POWERCOMPANIES 9oo 1,100 1,200 1,500 2,200 2,750 3,280 3,850

TOTAL 18,282 19,500 23,086 30,000 36,ooo 40,966 46,472 52,518

/ The appraisal mission estimated lower increases in municipal and industrial consumptionafter 1980 (see Annex 1.6, page 3).

| Expected industrial production recovery.

SOURCE: TEK's Planning Department

December 1979

'!'URKI

KARAKAYA HYDROPOWER PROJECT

Existing and Projected Major Industrial Loads

1980 1981 1982 1983 1984 1985 1986

A, EXISTING MAJOR INDUSTRIALLOADS (in GWh)

Nuh Cimento (Cement Plant), Istanbul 50 50 50 50 50 50 50Metallurli (Metal Industry), Izmir 125 125 125 125 125 125 125

MKE t Heavy Machine Plant), Krikkale 150 250 835 835 835 835 835

Alsan 'Aluminum), Seyclisehir 500 500 500 1,000 1,200 1,200 1,200

TKI 'Coal), Zonguldak 50 50 50 50 50 50 50

Erdemir !Iron Works), Zonguldak 325 325 325 325 325 325 325

T.D.C. (Iron and Steel), Zonguldak 270 270 560 560 560 560 560

'.L.I. 'Lignite), Tuncbilek 80 80 80 80 80 80 80

Azotsan 'Fertilizer), Kutahya 160 16o 565 565 565 565 565T. Cimento San (Cement Plant), Ankara 60 115 115 115 115 115 115

Dogu Insaat 'Tunnel Construction), Urfa 50 50 50 50 50 50 50

Aliaga (Petrochemical), Izmir 200 200 200 200 200 200 200

Cinkur 'Zinc and Lead), Kayseri 183 183 183 183 183 183 183

Ferro-Crom (Ferro-Chrome), Elazig 150 150 150 150 150 150 150

Cimento (Cement), Canakkale 40 4o 40 40 40 40 40

Others 850 850 850 850 850 850 850 sTotal 3,243 34,367 5,176 57B 5,378 5,378

B. PROJECTED MAJOR INDUSTRIALLOADS (in CWh)

Pendik 'Ship Yard), Istanbul 361 397 427 436 441 445 450

D. Palet (Construction Equip.), Elazig 80 160 160 160 160 160 160

D.A. Celik (Steel), Ankara 280 300 380 45o 450 450 450Filyos (Ferro-Silicone), Zanguldak 90 90 90 90 90 go 90

Tumosan (Motor industry) 70 70 70 70 70 70 70

Ferrokrom((Ferro-Chrome), Elazig 400 400 400 600 6oo 600 600Igsas (Fertilizer), Istanbul 55 55 55 55 55 55 55Peteter (Chemical), Canakkale 110 110 110 110 110 110 110

Temsan (Electromechanic), Aak 30 120 120 120 120 120 120

Cimento (Cement), Canakkale 56 56 56 56 56 56 56Petlas (Plastic) 70 70 70 70 70 70 70

Cukuroua Lesikend AS (Steel), Aliaga - 210 240 300 420 48o 48o

Bilecik Organize San - - 200 200 200 200 200Aksaz 'Military, NATO), Mugla - - 20 40 50 50 50Taksan 'Takimtergablars), Kayseri - - 4o 60 go 90 goTemsan 'Electromechanic), Diyarbakii - - 30 120 120 120 120Aliaca 'Petrochemical), Izmir 240 610 770 770 770 770 770

Adiyaman Cimento 'Cement) 20 20 40 50 80 80 80Sandeli Dogmefab 'Iron Plant) - - 6o 60 120 180 200Keskin Kalip Fab _ _ 20 40 60 60 100

Corun Agirmak FB (Heavy Machinery) - - l' 30 60 60 120Kayseri Kesici Takim FB - - 10 20 50 50 60qaziantep Macina (Machines) - - 10 20 40 40 60Kulu is Makinalari 'Machine Construction) - - 30 60 120 120 150

Total 1,662 268 3,43 3,987 0 4,526 4,711

De- m,.-a&- 1972

TURKEY

KARAKAYA HYDROPOWER PROJECT

Rural Electrification Program, Performance and Plans

Actual

Number of Villages Estimated Cost Funds Provided Expenditure Number of Villages Approximate Cost

Year Programmed LT million LT million LT milliDn Connected oer village LT lOOOs

1964 147 16.60 14.039 8.16 2 _1965 165 20.30 22.005 14.70 105 138.81966 250 23.10 30.266 23.06 123 187.41967 261 32.40 30,266 28.27 161 175.71968 1,112 202.32 200.406 72.29 315 229.41969 1,442 302.20 126.000 143.24 374 382.91970 227 45.4o 115.406 222.17 667 330.01971 319 60.70 150.778 127.00 510 249.o1972 1,646 398.87 237.393 229.10 965 237.41973 1,747 466.06 270.304 332.98 880 378.31974 1,507 500.05 421.488 403.70 1,237 326.31975 1,515 935.00 895.957 843.13 1,515 556.51976 2,734 1.568.00 1.484.416 1.591.30 1,632 975.01977 2,669 2.289.33 2.152.662 1.575.06 1,980 795.41978 3,664 3,169.00 2.000.000 2.062.00 1,747 1,177.0

SOURCES OF FUNDS(in 1979 LT millions)

Village Cost

Year Number of Villages Estimated Cost State Budget Contribution 1 Krs. Sales Tax Other Sources per Village

1979 3,049 4.ooo 4. ooo - 150.00 - 1.3111980 2,500 5.000 4.830 - 170.00 - 2.0001981 2,500 6.225 5.975 - 250.00 - 2.5001982 2,500 6.225 5.925 - 300.00 _ 2.5001983 2,500 7.500 7.150 - 350.00 - 3.0001984 2,500 8.750 8.350 - 400.00 - 3.5001985 1,151 4.028 3.528 - 500.00 - 3.500

December 1979

K-NOBSm 10-22-~~~~~~~~~~~~~~~~~~~~ Pge l oP

TURBIS

KMAKAYA HYDROPOWER PROJECT

Developsent Progr-T Costs (LT Million)

Total1979 1980 1981 1982 1983 1984 1985 1986 1979-1986

DSI - HydropooOO ProjeCts

Hason UOrol1 1-0 LC 700 - - - - 7CFC 80 j8c00 -m - 5-F79 1,0 - - -

Dganket B LC 15 1o0 - - 25FC 95 95 -g - - _ 190T 110 l15 - - _ -_ o25

Soot Ugurl LC 300 175 100 - - -FC 88 588 189 -- 5

T -7-3 2139~~~~~~~~~~~~- - .rba- 5-8 LC 20 20 - 40FC 18_0 94,0 - --9

Kokl... l-2 LC 220 500 710 235 _ - _ :.6' FC - 400 235 500 - - :1,35T ;-~ -900 945 735 - - - 2,830

Adigoorl 1-2 LC 2 10 35 200 103 - - - 35°FC _ - 329 470 141 lo _5 _ 33"T9 2 739 503 3790 1 0

Aslanta- 1-3 LC 120 140 100 100 - -4FC 470 800 470 470 - - - _213T 590 940 570 570 - _ _ _ 27^

Oysapi-ar 1-4- LC 1,090 840 840 180 - - - - 2,950Pa 520 1,790 2,165 860 - - - - 5,333T 1,610 2,630 3,005 -. 0o - - - H,285

Hssat Ugurlo 3-4 LC - 10 45 45 - -Pa 95 615 330 370 1,410T 95 _7~~25- 3757 O9 - - 131

KaracaorenoLC 10 32 20 10 - - - 70FC _ - 8888 :89 189 - _ 5651 _!0 210 2088 199 - - _ 235

Tohmo C 10 10 20 35 25 30 - _ 1307b- FC 27 43 35 25 10 - 14079 381 37 89 to Th9~~~~~~~~~~~~~- '91.8 -2 70-l -- :g63 73 50 4 7

Kapulkaya LC 6 14 120 40 30 90 - - 330PC - - 45 190 190 50 - 473-T 4 1 5 230 220 140 - 775

Ctols- 1C 25 30 so 80 60 50 - - 925Pa 235 470 470 - ,1 75T9 89 30 59 315 Th9 - 1,5300 520

Altinkaya LC 310 529 600 650 700 778 800 230 4,568P'C - - 940 1 410 1,830 2,350 1,410 1,4 0 9,403

T ;i3 500 1,500 7t8 ,50 3,1260 2,210 1,647 78

At.tOk LC 400 1,000 3,690 3,690 4,500 6,200 12,257 8,762 40,499PC _ 1,000 2,360 2,300 4,240 4,240 4,710 3,335 28,248T 4 O3 9002 79799 9,090 0,749 10,119 1697 13,100 5817

Ca=ligoze 0IC 5 15 200 350 350 950 240 2,oFC - - _ 236 23e. 707 471 - 1,653

T 5 2 0C 586 '7 9 399 1,657 - 3,723

Debr-nt 1C 2 100 -40 365 48 26o 135 - 1,050e FC - -105 135 370 140 100 - 85CT 2 100 24865 . 500 418 403 235 - 1,302

O-desed l,C 150 300 500 6oc 28o - - _ 1,830PC T - 95 235 470 470 - - - 1,27079 '.899~~~~~~-5 3$ 8 ,00 70 - ,0

Subtotal IC 3,375 3,684 7,210 6,590 6,1o6 8,358 13,432 3,992 57,747(Mass Cost -ad PFsoieal Co-t.) FC 3,628 6,279 7,775 7,600 8,080 7 967 6,691 'O,748 58,7687T 7, 03 11 985 14,190 9,740 5

In U0$ illioba LC 71.66 78.22 153.08 139.92 129.64 177.45 285.18 590.91 1,226.06FC 77.03 133.31 165.07 161.36 171.55 169.13 142.o6 228.20 1,247.73T '512179 211.53 318.5 301.0 321.19 T1376.60 427.24 s19.11 2, 473.79

Sobtotal ost$ millio . LC 7,1.66 82.37 176.81 175.32 174.50 255.71 439.46 313.28 1,689.11isoloding Physical and FC 77.03 14.38 66 202.18 832 62 24375 2138.9 374.48 1,680 01Pales Costisg-nols) . 8.9 "''-t 67'7 3750 "'1 99.48 65837 '35577 3,369.12

KOs-aky IsC 2-1.62 54.85 80.10 93.21 82.83 83.36 45.29 15.58 466.84'us$ oiillon - F_ 70.37 111.39 41.50 95.52 94.9 34.73 28.48 2 502.02total cost) -T 15f6 i. "" 521775 "1573 177.12 118.18 ".77 77

Totol DSI LC . 83.58 037.22 256.91 263.53 257.33 339,.07 4894.75 328.66 2,155.95Hyd02 p-il PC o14),4o 252.27 232.16 3269 1 278.53 247 39 399.67 2,182.03u illi- T30.~ -- 7 230.68 99..07 566.23 52 617.6 7 1 718.53 4,337.93

1/ Costs d eosge rates as of Decetber 1979.A] Direst 9oreIgn 6oats.

Apr81 1930

- 51 - AIOCT 1.10

Page 2 cf 3

KARAXAYA EYDHOPOWER PROJECT

L-erelor-ent Pro-rs Costs (LT Million)

Total

1979 1980 1981 1982 1983 1984 1985 1986 1979-1986

TEX Projects

a) Thermal Po-er Planta

Soia B 1-2 LC 1,100 427 50 _ _ _ _ 1,577FC 1779 980 50 - - - - - 2 929

T 975 1,407 120 _ _ - _ _

Elbistan 1-4 LC 2,272 3,415 500 155 200 - - - 6,542FC 10,417 4,780 3,624 2,327 500 - - - 21,648

T87588 57195 57755 ¶25,4 70 0 - - - 23,130

Yatagan A 1-2 LC 1,034 608 472 - _ - _ - 2,11490 2,976 1,137 1,445 ----- 5 8s8

T 4,010 2,245 1,917 _--77

'leotlernal LC 50 118 30 - - - - - 198PC 256 299 20 - - - - - 575T 306 417 50 - - - - - 773

Alinga O,TC) LC 131 123 20 - - - - - 274FC 247 474 50 - - - - - 771T 378m 597 -70 ____ -1,045

Coyirhan 1-2 1C 600 900 255 200 2 - - - ,955FtC 1,312 2249 1,89 300 - -3951

1,912 2,43 700 - _ _ _ 7,96

Orha-eli LC 150 900 482 200 - - - - 1,732FC 750 1,875 1 363 300 - _ _ - 4,288

T 900 2,775 14,5 500 - -_ ,

K.nga1 LC 500 810 700 423 200 - - - 2,633FC 935 1 815 ? 687 1,233 300 - - - 3970

T 1,135 2t 1625 38500 _

Y. Catalagoi LC 350 400 300 215 100 -_ _ 1,36SFC 748 937 750 793 100 _ - _ 3328

T 1 ,7 0 1,337 1,050 1200 - - -

Yatagan A-3 LC 50 500 1,000 500 450 _ _ _ 2,500FC 50 1,000 1,000 1,000 950 - - - 4 Oo_

1T0 1,504 2,000 1,502 1,400 - - - 6`500

Son B 3-4 LC 30 251 1,170 449 700 200 - - 2,800FC 37 300 2,587 1 500 2,031 200 - - 6,655

T 67 591 3,757 2,731 00 - - 9,15

Yatngas B 1-2 1C 50 350 1,200 1,100 500 - - _ 3,200FC 94 937 3 280 2,749 1,0009 _ _ _ 9,60

-- 71 T l 4 4 77F:18 717448 1,500 - - - 11,260

seyitoner B 4.0 10 130 500 750 380 200 - - 2,00FC - 206 1,406 1,875 1,100 100 4 _ , 687

Tr 40 336 T1,0 2,6295 1,482 300 - 6.6

C-n 1-3 LC 50 600 1,900 1,142 950 210 i6o - 4,610FC 94 262 1,749 4,299 41675 902 90 - 12,069T 144 862 3,249 5,739 5,625 1,110 250 _ 1,79

Snary 1 LC 10 200 420 650 90 200 200 - 1,750FC 2 19 75 637 1.375 545 700 400 3,751

29 073 17,037 2,925 08r5- 90-0 358 - 57, 521

Elbiot-n P LC 10 1,000 4,890 4,450 3,000 500 400 400 i4,650FC 75 686 5,579 12,247 il 498 500 300 300 36 185T 85 =1,8 1948 l700 700-F55 78 10,469 16,697 3385 1000 70 8 5:57

Other The-nol & LC 775 627 1,750 1,449 3,600 17,268 13,270 25,850 64,589Re..calo FC 1,363 2,586 4,623 7,666 16,183 25,632 35 o8o 35 250 128,383

2,139 3,213 6,373 9,115 19,793 42:900 48,350 61,100 192,972

Totol Thercl LC 7,202 11,359 15,219 11,680 10,170 18,578 14,030 26,250 11n,489FC 21,152 20,898 31,740 37,864 43,882 28 032 35,870 35 5S0 254 988

T 29,354 32,257 46,959 19,345 46,610 T19,00 8r

b) T -noi-ion nod LC 3,479 2,750 3,574 4,o89 4,761 5,500 6,CO 7,000 37,153DiOtribotion FC 2,188 4,740 5,o61 5,624 6,092 7,500 9,000 10,500 50 703

5,667 7,190 8,635 9,713 10,653 13,000 15,000 17,500 59595

o) Villago Fl-trlifio-tion LC 127 3,802 1,725 4,725 5,750 6,750 2,928 3,750 32,537FC 323 1,198 1 500 1 500 1,750 2 000 1 100 1,250 10 621

-. 50 5,000 6t225 6.22 7,500 9,750 4 02 5,000 43,178

d) Other I-yestn-nt3 TC 1,285 1,147 1,514 1,614 1,774 1,850 2,000 2,202 13,384FC 6oo 2 538 656 750 750 900 1,002 1,172 8,294

T 1,885 3,685 2,170 45 0,521 0,750 3,000 3,300 21,678

(Sobtotal TOK LC 12,093 19,058 25,032 22,109 22,455 32,678 24,958 39,200 097,583B(ane Coot and FC 24,263 29 374 38 957 45 738 52,474 38,432 46,970 48 4oo 324 608

Thynical Coot.) T 36,356 48432 6 *7 , 84 7 74 929 71,110 71,928 87,600 322,191

in us$ cillioo LC 256.75 104.63 531.46 469.41i 476.75 693.80 529.89 832.27 4,194.96PC 51s1.4 623.65 827.11 971.28 1 1141 1 815.97 997.24 1,027.60 6,891.80

T 771.90 1,228.29 1,359.57 1,4 O 1,590.85 1,509.77 7.3 1,c59.97 11,08685

Total TEl 1C 256.75 426,08 613.84 588.17 641.71 921.55 816.56 1,365.76 5.630.42nrlading ontinngencieo, FC 515.14 720.32 955.31 1.216.76 11.499.58 1 17.81 1,536.75 1.686.29 .5679530 196

in us9 nillion) T 771.89 1,146.40 t3589.15 15804.93 2,141.29 2,097.36 2,353.31 3,052.05 14,936338

April 1980

AXiEX 1. 10

- 52-page 3 ni'3

KARAKAYA HYDROPOWER R0J30JCT

Development Progr- m Costs (LT Million)

Total9579 1980 1981 1982 1983 1984 1985 1986 1979-1986

Elbiitan A LC 1,345 1,197 3,415 - - - - - 5,950Ft 3,296 6 2 19 - - -

T- T r3 T79 -- - -, ~ 14,329

Beynzr-i LC 100 -6 200 010 100 30 20 - 736Fc 569 579 690 1,496 1,000 500 400 -5226

T 6 q _ 7 '35 1 3 0,596 0,000 530 4 2 0 - 5,932

vatogmo .. 1.0 163 330 463 - - - - 1,056Ft - 692 692 - i ,384

T 150 '005 1,022 - -

K-ngal Lt co :17 289 577 - _ - 1,062Fr - 273 1,346 85 - _ - _ 2 204

T0 '100 374 1,630C 1,-7'2 - 3 -

Orh-neli LC 100 22 287 292 - - - - 701FC 146 26? 266 -

T iOO 16 554 558 _ _ _ _ 67 67900 755 T19 ~~~~~~~~~~93~5 5 10-- 55 - - -l, F

Can LC 100 45 294 452 413 199 20 - 1,693FC - 385 578 803 395 101 -2,262

T0 !00 432 272 1,255 793 0 200 - 3,955

Milas LC 50 20C 200 400 850 181 200 -2,0FC _- lC 253 600 650 103 - -T 50 300 45C ,0050 ,500 2 200 -9,79

2]bistan 0 - 40 50 1,200 2,300 1,000 1,200 1,4100 ,coo-- -___ 0- 50 400 2 500 5,000 6,000 1,0.s0 T - 5 0 100 T793o ,6 007384 7,000 2 7,57 22,00C

eoyitoer LC -5 100 100 260 81 210 -86FC - 300 200 40 39 - -

T - DI 4005 3 00 300 120 210 i,43-

esa toLC - 1^ 1507 157 150 20 155 13 J.S2C - 40 1 2C0 200 3C 45 23 6 35

T - 150 ?50 357 310 50 2000 2^ 5>

r-nno TC - 250 300 300 soc 60 50 -rC _ 50 123 300 300 90 _ - 21>

T5 _ ~ ~ "~35300 0Lo 00 oOO T150 50 _0

Hussolas oLC _ 170 150 10 100 Bo 87 07Ft - 30 150 10O 100 100 12 -8

T _ 207 30 O 200 ; 075 T 70 26

Oto oLC _ - 3CC 2C0 502 200 565 }11 1,8,5FC - - 100 300 500 500 135 _ 1,335

T - - 400 500 1,000 700 700 120

nIbiotno. 7 LC - _ _ - 40 300 3,500 2,500 6,340FC - _ _ _ 10 200 2,500 4,022 6,710

T - - - - 50 500 000 6,50C 13.-5)

Sobtotal tC 1,895 2,482 6,_60 4,334 5,003 2,151 9,987 4,?22 32,132(PEaso Coot anc FC 3,357 6,634 7.4L2 53250 5,695 6,663 9,180 5,060 49,781Phyosial Cost.) 0T 5,752 9,126 13,502 9, L08 814 156 9,232 7'

In 0S$ Million 1C 40.23 2.70 128..66 92.02 126.22 45.67 127.11 89.60 682.21FC 6'.89 240.86 '58.00 101.46 120.91 14i.46 194.90 107.43 1,256.90T 122.02 193.55 286,F6 203.19 027.13 197.13 322.01 197.03 1,735.0l

Totol TKI LC 4o.23 55.49 148.60 115.30 142.97 65.81 195.88 147.03 911.31a_lr i hysionl FC 81.89 148.33 182.49 139.66 162.74 2o3.84 300.34 176.29 1 395.58

nA los Coot.) ng y T122.12 203.92 331.09 254.96 305.7i 2 4962 323.32 2,306.89

Grand Total IC 8,697.68(DSI, TK and TKT' Ft 2

in u0$ ailliot T 21,5

Distribution 2/,Totals TOly)

IETT <10t1mb0l FOoo 1,565 1,000 1,D,O 1,002 1,000 1,000 9,o 8 185E00 'Ankara) 313 025 350 375 40o 430 460 500 3,155ESHOT (1TirS '7" 195 210 230 250 275 300 330 1,965TIler Bsokami 2,0C 0 2, F3 3,602 1,950 6,000 7 200 8,500 9,6c0 44,300

Total_ 3,20 4,775 5,160 6,125 97,650 0590 11,260 11,437 57,605

I Tn 00.0 MOilionC 65.61 99. 179.55 135.59 162.42 189.07 217.83 242.68 1,223.04

Total Tlotribnti-n 65.61 115.18 126.53 170.40 2i8.62 272.45 335.68 398.24 1,702.712 inoluding contingonci-s)

in us$ nillioo

Total Power Sobosotor 23,283.96

1/ Caste eDd emchng*e rates me o Dfeber 1979.' Direct TereBlg ocet.

|/ Cly ajer dittrtibhtin areas, fteige e-dge -aste in oride of 40%.

April 1980

(DSI) GENERAL DIRECTORATE OF STATE HYDRAULIC WORKS OF TURKEYORGANIZATION CHART

CSST. DIRECTOR GENERAL ASST. DIRECTOR GENERAL ASST DIRECTOR GENERAL ASSI. DIRECTOR GENERAL

- Ge-IepErteIDCeWan dO w tet dPTI

-DRIgr E C an d c AntutoepEO Dams and -Ope o ad T eae ,,IP EAEO -IneA'IIgOIaTonnd pOTIltTg dOD. -Cene Ia e

RHy'dCIIC e E COrie DeTS p eRs - Adrs ICEE DrErEP dePt A M= -h-rery end eupply dept-Planr I d ,eId ed- Orge--rTt- rddrrn drttrtn,lAltpEl deer -Rrr-_d drv-lEpr en drr.

-Lold,Are.eeLrro AIArrt dellrr D,IeE, BoardPRE ne,APAePAA.SISPempAoIEEC -C mtEAeP,Mrd CAEttI sCAECEeAre

-AtEErrE ETtEse.a HerRepdAofDSIGIle -A--rE Pf P--IC ons AtIREBANGAM

CRIER OFROARD LEATRF ALCREAIS AE IS5

OEG RDT RAXNIGATION PRITATE A-SIOROF PROJECT DIRECTOS ACCODNTING OlECIC SECRETARY OF

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ADVISOR 'oFCO T IETRT

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TURKEYTHE KARAKAYA HYDROPOWER PROJECT

TEK's Organization Chart

BOARD OF DIRECTORS

l I ~~~~~~~Purchasing andlllljTechnical Advisers Adjudication Cornesigation Legal Department

Comittee un il

OFDEFENSE | | ASSISTANT GENERAL MANAGER| ASSISTANT GENERAL MANAGER ASSISTANT GENERAL MANAGER ASSISTANT GENERAL MANAGER| ASSISTANT GENERAL MANAGER REGIONAL| SECRETARIAT | L PLANNING AND FINANCE DESIGN AND CONSTRUCTION VILLAGE ELECTRIFICATION OPERATIONS ADMINISTRATION HEAD OFFICE

- Planning and Coordination - Transmission Lines Project Village Electrification - Transmission Networks Personnel DivisionDivision Division Group Head Operation Dinision Administration Division

- Accounting Division _ Sub-Stations Project - Power Plants Survey Training Division- Participations Division Division - Survey and Project Division Machinery Supply Division- Research Divinion - Network Construction Division - Power Plants Project _ Purchasing Division

Nuclear Power Plants Division Construction Control and Division Land Acquisition, Mapping andDivision Civil Engineering Division Operations Division - Thermal Power Plants Survey Department

_.. Supply Operation DivisionEquipment SupplY - Hydraulic Power Planes

Dinision Operations Division

-System Operanion andDistribution Networks Customers Division

Project Division - Load Dinpotchirt y CentersDistribution Networks Project Department

Operations Division Fuel Supply Departmentn

World Bank -21215

- 55 - ANNEX 2.1Page 1 of 10

TURKEY

THE KARAKAYA HYDROPOWER PROJECT

Description of the Project

Background

1. Studies of the Karakaya dam and power plant were begun in 1962.This was one of the first steps towards the development of the water resourcesof the Lower Firat basin. These studies have continued ever since, as theKarakaya project assumed the first priority, after Keban, as a major hydropower source in Turkey. Complying with the objectives of the overall riverbasin planning criteria, Karakaya has taken its present form and status as theresult of the extensive studies. The development of the 310 m of availablehead between the Keban and Karababa dam sites over the stretch of the riverknown as the Lower Firat has been the subject of many investigations. Thestudies that have covered various schemes were incorporated by Stone andWebster Inc. in a Power Resources Priority study, dated December 1967. In1968, further studies of the Lower Firat basin, at the feasibility level,were promoted by DSI who engaged the group of consulting engineers comprisingElectrowatt Engineering Services Ltd., Tipton and Kalmbach Inc., SocieteGenerale Pour l'Industrie and Gizbili Consulting Engineers to carry them out.This work was completed in 1970 and a firm recommendation was submitted toDSI for realization of one particular development named the Karakaya-Golkoy-Karababa scheme. The results of the studies showed that the Lower Firatproject is more economical for power generation than alternative programsfeaturing oil-fired thermal plants or nuclear plants of the same capacity andthat it offers a satisfactory internal rate of return. In 1970, a feasibilityreport on the Karakaya project alone was prepared by the same group of con-sulting engineers on request of DSI. Karakaya lies immediately downstream ofKeban, and, from the point of view of size and cost of power and energy pro-duction, it is the most attractive hydroelectric project not only on the FiratRiver but in Turkey as a whole. In 1972, DSI engaged the joint venture ofElectrowatt Engineering Services Ltd., Tippetts-Abbett-McCarthy-Stratton,Societe Generale pour l'Industrie and Dolsar Engineering Ltd. to prepare thefinal plant design. This work is now being completed.

2. The results of the Karakaya studies were presented in the followingreports:

(i) Lower Firat (Euphrates) Project, Feasibility Report, April1970;

(ii) Karakaya Dam and Hydroelectric Project, Feasibility Report,June 1970;

(iii) Karakaya Hydroelectric Power Development, Loan ApplicationReport, July 1974;

- 56 - ANNEX 2.1Page 2 of 10

(iv) Karakaya Dam and Hydroelectric Plant, Design Report, Novem-ber 1975; and

(v) Karakaya Hydroelectric Development, Supplementary Informa-tion, May 1976.

Several other studies and documents are available, particularly those dealingwith the reservoir filling and operation for projects on the Euphrates River,prepared either by the Bank's consulEants and/or DSI consultants.

3. Karakaya would chronologically, constitute the second step in thelong range development of the Euphrates River power resources in Turkey. Thefirst step in the development of the Euphrates River basin was the Kebanscheme, which utilizes a 152 m head. This scheme provides the basic regula-tion of the Euphrates River. Ultimately, Keban will attain an installedcapacity of 1,260 MW, with an average annual generation of 6,252 GWh. Thetotal capacity of the Keban reservoir is 30.7 km3. The rated discharge ofKeban is 1,080 m3/sec and spillway discharge capability 16,200 m3/sec.

4. Downstream from Karakaya two other power plants are planned forfuture development; Karababa (Ataturk) and Findikli. The hydropower plantKarababa will be a multipurpose power plant with an installed capacity of2,400 MW and an average annual generation of 8,800 GWh before irrigationdevelopment. The total storage of the Karababa reservoir will be 48.5 km3;its useful part 12.0 km3. The Findikli hydropower project is at the prelim-inary design stage. Its installed capacity would be about 1,000 MW. Con-struction of Karababa is planned to start soon.

5. Karakaya is conceived for power generation only and in order toobtain its maximum benefits, it must be operated in conjunction with Keban.All the hydro plants on the Euphrates will operate in cascade. For theoptimum operation of the chain, the river system as a whole was studied byDSI and its consultants. A computer model has been developed to simulatethe operation of the Euphrates River chain of hydro plants. An additionalstudy has been prepared for the Keban and Karakaya plants, as a special caseof the overall model which looks at all the Euphrates River plants. Beingnon-water consuming plants Keban and Karakaya were considered to achieve theoptimum energy output. The aim of the optimization was to maximize the firmenergy produced in the critical dry period with a given pattern of energy gen-eration. This can be accomplished by keeping the water levels behind bothdams at a maximum and reducing spillage to a minimum. The results of theoperational study which were obtained from an analysis of the river flowdata for the period July 1938 to June 1973 are summarized below:

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Page 3 of 10

Average Annual GenerationInstalled Firm Secondary Total

Scheme Capacity (MW) (GWh) (GWh) (GWh)

Keban (withKarakaya) 1,260 4,770 1,482 6,252

Karakaya 1,800 6,060 1,293 7,3533,060 10,830 2,775 13,605

Keban (alone) (1,260) (4,411) (1,432) (5,843)

Gain due toKarakaya Project 1,800 6,419 1,343 7,762

DSI and the consultants have concluded that Karakaya should have an installedcapacity of 1,800 MW. Several installed capacities were considered but 1,800MW was found as the most appropriate solution taking into consideration futureTurkish power demand and available energy resources. The change of the in-stalled capacity of the Project from 1,500 MW to 1,800 MW (i.e. 20%) hasincreased the total capital costs of the Project by only 4%. The Projectfeasibility report contains comparison of costs and benefits for the alterna-tive installed capacities. The results indicate that the 1,800 MW solutionis the most favorable even if its advantage over the smaller installationsis almost marginal. System stability and reserve considerations also haveled to the conclusion that 300 MW is a reasonable unit size for the Karakayainstallation. Furthermore, DSI has adopted the principle to develop theavailable project site to the full economically permissible capacity. Thegenerating unit size of 300 MW would be among the largest ever built. TheProject designs and technical specifications have been prepared assuming aninstalled capacity of 1,800 MW.

Site Selection

6. Karakaya will be located 160 km downstream from the recently com-pleted Keban Project. Like Keban it is a single-purpose power projectalthough the regulation effect on the flow of the river will be useful atfuture downstream dams which are planned for irrigation in addition to power.The site location was selected because: (i) of a superior rock foundationand (ii) a dam of reasonable height (173 m) would back water up to the Kebantailwater. The site selection was made in 1969 by a Turkish government bureau,EIE, assisted by Stone and Webster of the U.S.A. Five sites were investi-gated here and the one with the best rock was selected. Downstream of thesite there is karstic (cavernous) limestone which caused so many problems atKeban and upstream the rock is mica gneiss which is weak in shear on accountof the lubricating qualities of the mica. Unfortunately the better hornblendegneiss at the site occurs at the narrowest reach of the river which illus-trates the problems which arise at a narrow (often considered the most eco-nomical) dam site. In this case much sound rock must be excavated to makeroom for the power house, a cofferdam 38 m high and two fully lined diversion

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Page 4 of 10

tunnels with an excavated diameter of 13.5 m must be constructed to pass aconstruction-period flood of 3,500 m3/sec with a return occurrence of 25years, and the spillway must discharge over the roof of the powerhouse.Despite these disadvantages it is concluded that the best site for theKarakaya Project has been selected.

Geological Investigations

7. Investigations at the dam site and in the reservoir area have beenunusually thorough. Borings with water and grout tests therein have been madeat the dam site by both EIE (1962-1970) and DSI (1970-1974). Borings in thepast in Turkey have not been the best, but these have been well logged in greatdetail and appear to represent conditions accurately. In addition, 27 adits(2 m high and 1.8 m wide) were excavated deep into the abutments. These aremuch better for geological explorations than borings and they demonstrate goodrock quality; they all have stood several years without support except theportals, and without deterioration. They also served for six in situ testsfor moduli of elasticity and deformation - essential parameters for arch damdesign. Despite good quality the rock is seriously jointed and faulted. Itis significant that when the consultants reviewed the choice of the type ofdam they asked for further site explorations which were carried out; thesewere principally to explore further the joint and fault patterns. The totalexploratory program shows convincingly that the dam will be founded nearly100% on hornblende gneiss and that the tunnels will be mostly in hornblendebut partly in mica gneiss; and that the explorations are adequate for thedesign of the structures involved.

8. The geology of the reservoir area is significant as regards leakageand landslides. Both phenomena have been investigated by EIE assisted bymany consultants. Karstic formations which created leakage problems at Kebanhave been located and examined. In all cases they were found to be backed upby impervious formations and leakage would consist of filling a limited numberof cavities with no continuous flow into them. No faults have been foundwhich could cause leakage to other watersheds. The risk of significant leak-age from the reservoir area may be considered small.

9. There are likely to be landslides or perhaps more properly termedrockslides since there is normally little overburden. The possibilitieshave been located and studied. There is little possiblity of large massiveslides on account of the extensive jointing and faulting of the rock. Smallslides are to be expected - most of them in tributary valleys where theireffect will be negligible. In one instance a few families will be moved froman area which may move as the reservoir is filled and in another area surveymarkers will be set to check on movement. There is no way to prevent slidessince much of the topography is on the verge of instability now, but thecircumstances indicate they will not be of great consequence. It is concludedthat the geological exploration of the dam and reservoir sites are adequate.The experience from the first years of Project construction has also confirmedthis conclusion.

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ANNEX 2.1Page 5 of 10

Geology of the Dam Site

10. The river is 50 m wide without banks; the valley walls rise fromstream bed: on a 1:1 slope on the left side for 110 m with some verticalcliffs and then flattening to 1:2 slopes; and on a 2:1 slope on the right sidefor 110 m with vertical cliffs and overhangs and flattening to 1:1 above that.Ravines drain both abutments upstream and downstream of the site. There islittle or no vegetation and erosion may occur on the recently cleared 1:2slopes high on the left side.

11. The dam and powerhouse will be located almost entirely in hornblendegneiss - a rock which is mineralogically massive with the gneissic foliationsdiscernable, but indicating little movement upon themselves (schistosity), e.g.even though the predominate dip of the foliations is 200 to 300 toward theriver in the left abutment, the latter still shows steep to vertical wallsindicating little development of foliation or schistosity. There are faultsup to 50 cm thick which will have to be excavated and backfilled with concretealong the thrust line of the arch dam and the many joints will dictate the useof many rock anchors. Many of the joints and faults are clean and will con-solidate with grouting. The other major rock type at the site is mica gneisswhich is a weaker rock. It occurs above a fault 1 to 3 m thick about 15 mbelow the crest of the dam on the left side. The fault is filled with rockfragments, sand and silty clay. This material and the mica gneiss above itwill be removed and replaced with a concrete thrust block. The mica gneissoccurs at the upstream end of the diversion tunnels but in this location itwill not be important.

12. The tests for modulus of elasticity in the abutments were satisfac-tory for an arch dam; they averaged 298 tons/cm2 and 228 tons/cm2 in the rightand left abutments respectively.

Earthquakes

13. Since 1936 six earthquakes have occurred within 150 km of the sitevarying in intensity from 5.5 to 8 on the Richter scale. There is a recordof a severe earthquake within 45 km in 1893 which levelled towns and causedmany deaths. The designs for the Karakaya structures therefore, incorporateprovisions for earthquake accelerations or ground motion. Computations ongenerally accepted bases indicate that static coefficients expressed as afraction of the force of gravity, of 0.15 g for the dam and 0.10 g for thepowerhouse should be applied and this has been done.

Dam Design

14. During the long period of study by Turkish Government entities andconsulting firms many types of dams have been considered; according to the

- 60 - ANNEX 2.1

Page 6 of 10

reports available final selection was on the basis of lowest cost. Uponreview it appears that the final selection perhaps would be the only type ofdam that could be built in this geological environment. Types consideredare:

(a) Arch gravity dam with spillway over powerhouse.

(b) Thin arch dams with spillway tunnels or spillway chutes.The site is too jointed and faulted for these types; anda tunnel spillway is hydraulically undesirable.

(c) Rockfill dam. This would required a chute spillway.

(d) Underground powerhouse. The span of the underground openingswould be long and in this jointed rock it is not a prudent choice.

15. The arch-gravity dam in the selected design is 173 m high with afixed radius of curvature of 225 m. The crest length is 462 m and thicknessvary from 10 m to 52 m. The design has also been put through the U.S. Bureauof Reclamation computer program in order to verify obtained results. The damcontains the intakes and penstocks leading to the powerhouse. The powerhouseis approximately fitted to the curvature of the dam, the maximum space betweenthem at the highest part of the dam is 5 m - a desirable feature to avoid atleast some transfer of foundation deformations between the structures and pro-vide flexibility space for penstock connections. The powerhouse will havethree principal spaces: for main valves, for six 300-MW turbine/generatorunits, and for main transformers.

16. The gated spillway at the top of the arch-gravity dam has nine14.5 x 15.5 m tainter gates. The spillway flow converges between trainingwalls and discharges from a flip bucket about 110 m wide on the powerhouseroof and plunges into the river about 150 m downstream. This type of spillwayis not unique; there is one in Japan and several in France, but none of theexisting ones discharge as large a volume of water as is required here. Thefinal plans of this feature have been model tested and satisfactory resultshave been obtained.

17. Where the spillway discharge plunges back into the river it willdig a hole in the rock of the river bed. The extent of the hole cannot bereliably model tested and consequently the effect on the stability of thesteep side slopes of the gorge is difficult to predict. The geologists havedecided that the close jointing and faulting of the rock will in this casebe advantageous in that rock will fall into the plunge pool in small piecesand possibly be washed away. There is likely to be more to it than this, butit is unpredictable and therefore reasonable to defer any stabilizing measuresuntil some experience develops.

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ANNEX 2.1Page 7 of 10

Construction Risks

18. This is a high risk job on account of the high steep slopes and theinstability, especially upon disturbance of the highly jointed and faultedrock. The risks are manageable providing constant expert supervision in-cluding expert geological supervision is given to the construction process.The level of expertise required for this is not available in Turkey and wasobtained through consultants selected for construction supervision.

19. A large amount of difficult excavation is required. There areseveral reasons: to reach acceptable rock 25 to 30 m of weathered rock orcontaining weathered joints and faults may have to be excavated; to make roomfor the powerhouse sound rock must also be excavated; and access roads ontortuous alignments must be excavated from elevations up to some 800 m aboveriver bed. The excavations at the dam site will be in steep hillsides; theroad excavations will be in somewhat flatter average slopes (except on the damsite itself) but even with present progress still 300 m above river bed therisks of falling rock are abundantly evident. The plunge pool of the spillwaymay cause rock falls but this is likely to be a deferred risk.

20. The excavations for the dam, powerhouse, and tunnel portal structureswill have to be done from the top down. As the work progresses much of the rockwill have to be anchored with rods estimated to be 20 to 30 m long and stressedto 100 tons each. In general the pattern of excavation for the powerhouse isforeseen to be with slopes in the valley walls of 5 vertical to I horizontalwith terraces 5 m wide at intervals with wire fences to catch falling rocks.There will be faults in the excavated trenches for the ends of the dam; theseare usually of the order of 10 cm thick but they go up to 50 cm and they willhave to be cleaned out and backfilled with concrete. It is to be expectedthat some negative slopes will be produced inadvertently and these will bebackfilled with concrete and anchored. It is significant that the consultantsreview resulted in a shift of the dam deeper into the left abutment since anydifficulties in the end-of-dam trench on this side would be minimized byflatter ground at a lower elevation. Some loose rock on the road cuts can betolerated and DSI is planning to erect barriers to catch falling rock at somelocations. There are small rock masses high on the hills above the dam sitewhich have been known to slide or roll into the valley during heavy rains (andpossibly during earthquakes) and these will be searched for and blown up,anchored or otherwise supported.

21. Despite a high cofferdam and large bypass tunnels the return periodof the construction period flood of 25 years is not conservative. It can beaccepted if Keban is operated during the construction period to help preventfloods which normally have a return period of say once in 50 to 100 years.

22. The diversion tunnel design was considered to have some deficien-cies. DSI and its consultants reconsidered the Bank comments on the diversion

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tunnel design and adopted suggested modifications. One suggestion was to useshotcrete, wire mesh and anchor bolts for initial support, provided that shot-crete will be used immediately after shooting in the arch. Special equipmentto safeguard personnel will be secured. The portals will be stabilized withpre-stressed anchors. The portal sections will be of thick concrete withrelatively light reinforcing steel; for conservative design they will containsupporting beams at least for the crown section. The tunnel has a castin place lining throughout which is desirable both for support and efficientpassage of water.

Outlet Facilities

23. The diversion outlets are two concrete lined tunnels with a diamaterof 11.5 m. The length of the tunnels is 568 and 698 m and the tunnel nearestthe river will be used as a bottom outlet after the completion of the Project.The proposed cofferdam at elevation 575 will put a head of 29.5 m (allowingfor freeboard) on the center line of the tunnels and the outlet capacity ofboth will be 3,500 m3/sec. The shorter of these tunnels is to be completelyplugged and the other is to be plugged with a gated opening of about 5 msquare in the plug. When completed the intake of this tunnel will be atelevation 575 m.a.s.l. and it could pass 600 m3/sec with an elevation of 589m.a.s.l. and 760 m3/sec, or somewhat above average river flow of 738 m3/sec,with a pool elevation of 600 m.a.s.l. At minimum operating pool for the power-house at elevation 670 m.a.s.l. the gated opening could pass 1,250 m3/sec.

24. Since the proposed gated opening is about 5 m square in a tunnel witha diameter of 11.5 m it could be enlarged substantially to pass more water.The passage of water through the gated outlet at and considerably below minimumoperating heads raised questions of cavitation. These questions were studiedby consultants and a more reliable design solution has been adopted.

25. The outlet capacity appears adequate and adjustable upward if needed.The plans for plugging the tunnels when diversion requirements are satisfac-tory; they can be accomplished so that sufficient water can be passed at anytime without powerhouse operation. Most of the plugging operations must bedone in the low water seasons and that will be arranged.

Power Facilities

26. The powerhouse will be statically independent of the dam itselfand will contain six Francis-type turbines, arranged vertically, with unitcapacity of 300 MW under 144.5 m head rated discharge of 233 m3/sec and speedof 136.4 rpm. One penstock for each turbine will be located in the dam be-tween the intake structure and the turbine spiral case. Each penstock willhave an upper bend, a vertical section approximately 61 m in length, a lowerbend and a horizontal section about 15 m in length. Inside diameter of thepenstocks is 7 m between intake and lower bend and reduces from 7 to 6 m at

- 63 - ANNEX 2.1Page 9 of 10

the lower bend. Intakes will be provided with trash racks. Stoplogs will beinstalled for maintenance and repair. The powerhouse structure will be dividedinto six independent unit blocks each containing one turbine/generator unittogether with the main transformer and auxilliary equipment. The generatorswill be rated 315 MVA, 50 Hz, 15.75 kV and 0.95 power factor. They will beunit-connected to banks of three monophase main transformers, each rated 105MVA. The generators and main transformers will be connected with a set ofscreened conductors, having a length of about 35 m and operating under ratedvoltage of 24 kV. The transformers will be located in the transformer hall,which is a part of the powerhouse. A set of three monophase undergroundcables, oil insulated, rated at 380 kV and 480 A/phase, will be installedbetween the main transformers and the cable terminal on the dam crest. Theaverage length of this cable connection will be about 260 m.

27. Electric energy will be transferred from the cable terminal to theswitchyard through three 380-kV overhead lines covering a distance of about2.5 km. The switchyard will occupy an area of 389 x 147 m2 and consist of 380kV, 154 kv and 31.5 kV sections. The 380-kV section will include two main andone transfer bus. The 154-kV section of the switchyard will be fed from the380-kV section through one 380/154 kV, 120 MVA autotransformer. A servicebulding in the switchyard will provide the necessary control and relay pro-tection.

28. The 380-kV transmission lines which will be required for the connec-tion of Karakaya to the interconnected power system of Turkey are not includedin the Project. They will be constructed separately by TEK. These lineswill have a route length of about 1,300 km and will connect Karakaya withsubstations in Keban, Osmaniye and Ankara (via Kayabasi).

Environmental Impact

29. The Euphrates River Valley between Keban and Karakaya has three dis-tinct topographical sections. First, the narrow, sinuous section over 40 kmdownstream of Keban; this steep sided valley trends to south-west and isbounded by mountains which rise to over 1,500 m. This section is followed bya great sweep of the river to the south-east, here the left bank remainssteep but to the west the flat Malatya Plain extends up to 50 km to the footof the Taurus mountains. Fifty kilometers east of Malatya, the river entersits deep and forbidding gorge through the Taurus, which extends for about120 km. It is in this narrow cleft that the Karakaya dam will be situated.The Karakaya reservoir will be formed in this valley, with the surface areaabout 300 km2 and the total volume of 9.6 km3.

30. The number of people to be relocated from villages which wil be sub-merged has been estimated to be 17,000. At present they live in 34 villagesof which only three have a population of more than 1,000 persons. The Karakayaproject area is one of the most conservative regions in Turkey, both socially

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Page 10 of 10

and economically. Within and around the project area there is a low leveleconomy based almost on primitive subsistence agriculture. This area has alow population density and local people are moving to other parts of Turkeyor abroad.

31. The legal basis for expropriation of land of relocated families arethe Turkish Expropriation laws. The aim of fair indemnification is to providea former owner with about the same (or better) economic situation he had priorto flooding of his property. DSI just started solving resettlement problems.

32. The section of roads and railways, which will be flooded by theKarakaya reservoir, will be relocated. About 35 km of new roads and twobridges have to be constructed to replace the existing roads and bridges.The railway line in the length of 33 km has to also be relocated. The StateHighway Administration and State Railways are responsible for the relocationof their facilities.

April 1980

TURKEY

KARAKAYA HYDROPOWER PROJECT

Project Cost Estimate(in '000O

1979 & Total

'efore 1980 1981 1982 1983 1984 1985 1986 1987 1980-1987

1. Preliminary and LT 1,648,196 477,661 477,661 477,661 477,661 477,662 2,388,306

Related Works US$ - 2,075 2,075 2,075 2,075 2,082 - - - 10,382

2. Civil & Hydraulic LT 1,058,729 1,201,599 1,201,599 1,201,599 757,765 757,765 757,765 541,261 420,503 6,839,856

Works (Contract 1t 1) u5s$ 19,077 35,438 27,169 24,806 24,425 22,444 20,081 19,898 14,766 188,977

3. Turbines & Cenerators LT 4,ooo 8,000 62,462 84,237 5,500 2,500 2,500 2,500 - 167,699(Contract I 2) SFR 114,120 71,325 3,170 64,985 63,400 - - - - 202,880

4, Electromechanical LT - 5,400 35,834 41,386 13,400 10,000 10,000 7,500 2,500 126,020Equipment (Contract 1/ 3) SFR 53,280 33,300 1,480 30,340 29,600 - - - - 94,720

5. Engineering Services LT 113,407 52,556 52,556 52,556 52,557 52,556 52,556 52,556 52,557 420,450us$ 100 185 185 i15 185 ,85 185 185 190 1,485SFR 6,523 1,702 1,702 1,702 1,702 1,702 1,702 1,702 1,706 13,620

6. Land Appropriation IT 72,509 1,391,312 1,391,312 695,656 463,771 252,714 - - - 4,194,765 0

7. Human Resettlement LT - - 994,500 1,089,000 1,989,000 1,989,000 994,500 - 7,956,000

Base Costs LT 2,716,836 3,136,528 4,215,924 4,542,095 3,759,654 3,542,197 1,817,321 603,817 475,560 22,093,096Us$ 19,177 37,698 29,429 27,066 26,685 24,711 20,266 20,033 14,956 200,844SFR 173,923 106,327 6,352 97,027 94,702 1,702 1,702 1,702 1,706 311,220

1'Physical Contingencies- LT - 523,964 677,384 723,576 594,691 562,712 303,981 111,380 86,8S4 3,584,542

US$ - 7,908 5,754 5,281 5,205 4,810 4,025 3,979 2,963 39,425SFR - 5,316 318 4,851 4,735 85 85 85 85 15,560

Subtotals Local'US$ eq.) 120,000 52,293 69,904 75,224 62,205 58,642 30,304 10,217 8,o34 366,823Foreign (us$) 19,177 45,106 35,183 32,347 31,890 29,521 24,291 24,012 17,919 240,269Foreign (SFR) 173,923 111,643 6,670 101,878 99,437 1,787 1,787 1,787 1,791 326,780

Price Cont'n- Local(US$ eq.) - 2,552 10,195 17,989 20,625 24,716 14,989 5,359 4,879 101,304gencies 2/ Foreign (us$) - 1,114 2,389 3,243 3,912 4,212 3,141 124 144 18,279

Foreign (SFR) - - - - - - - - -

TOTALS Local(UJS$ eq.) 120,000 54,845 80,099 93,213 82,830 83,358 45,293 15,576 12,913 468,127Foreign (us$) 19,177 46,220 37,572 35,590 35,802 33,733 27,432 24,136 18,063 258,548Foreign (SFR) 173,923 111,643 6,670 101,878 99,435 1,787 1,787 1,787 1,791 326,780

TOTAL PROJCFrT Local 120,000 54,845 80,099 93,213 82,830 83,358 45,293 15,576 12,913 468,127COSTS 'in US$) Foreign 121 484 111 892 41,496 95 513- 94,294 34 784 28 483 25 187 19 117 450 771

Total 2 T4 4 84 1 667 121,595 177,124 1t7k7l 730,7763 32,930

1' Physical contingencies assumed are: 20fo for item 2; 158 for items 1, 6 and 7; 5% for items 3, 4 and 5.Price contingencies were applied in accordance with the following annual rates: 1980 - 10.5%; 1981 - 9%;1982 - PK; 1983/85 - 7% and 1986/87 - 6_. Due to contract terms only 80% of Contract (Jo. 1 local costs ° are subject to priceincrease. Furthermore, this contract specifies fixed foreign exchange unit prices H

and includes in its base costs 6% annual cost increases. Therefore, price contingencies were calculated asa difference between the expected price increases and the included 6%. Prices in SFP are fixed. 0

Local costs in LT and foreign costs in SFR are converted in US$ equivalents using the following exchange rates:us$1 = LT 70 and US$1 = SFR 1.70.

April 1980

- 66 - ANNEX 2.2

Page 2 of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Project Cost Summary

(US$ Thousand Equivalent)

-LOCAL- ------------- FOREIGN------------ -TOTAL-Direct Indirect Total

1. Preliminary and

Related Works 32,072 10,382 2,047 12,429 44,501

2. Civil & HydraulicWorks (Contract # 1) 81,101 188,977 16,611 205,588 286,689

3. Turbines & Generators(Contract # 2) 2,280 119,341 116 119,457 121,737

4. Electromechanical Equip-

ment (Contract # 3) 1,600 55,718 200 55,918 57,518

5. Engineering Services 6,oo6 9,497 - 9,497 15,503

6. Land Appropriation 59,925 _ - - 59,925

7. Resettlement 113,657 - - - 113,657

Base Costs 296,641 383,915 18,974 402,889 699,530

Physical

Contingencies 47,563 48,577 3,645 52,222 99,785

PriceContingencies 94,305 18,279 6,999 25,278 119,583

TOTAL 438,509 450,771 29,618 480,389 918,898

Sunk Costs (1979 & before) 120,000 121,484 - 121,484 241,484

TOTAL PLUS SUNK COSTS 558,509 572,255 29,618 601,873 1,160,382

April 1980

5- __-T_ [JiZi=

CI -- - - - - - - -

- 68 - ANNEX 2.4

TURKEY

KARAKAYA HYDROPOWER PROJECT

Central Coordinating Committee

1. A Central Coordinating Committee for the Karakaya project wasestablished in 1974 by the Government to secure coordination betweenvarious engineering and administrative functions. The Chairman of theCommittee is the Under Secretary of the Ministry of Power and NaturalResources which has jurisdiction over DSI and TEK.

2. The following Ministries are permanent members of the Committee:

(a) Ministry of Power and Natural Resources

(b) Ministry of Transportation and Communication

(c) Ministry of Public Works

(d) Ministry of Finance

(e) Ministry of Village (Rural) Affairs

(f) Ministry of Industry

(g) Ministry of Customs

(h) State Planning Organization of Prime Ministers Office

3. The following agencies or organizations are also permanent membersof the Committee:

(a) DSI

(b) TEK

(c) EIE

(d) Turkish State Railways

(e) State Highways

(f) Iller Bank

(g) Mapping Administration

When necessary, the Chairman of the Committee may invite other Governmentagencies as temporary members.

December 1979

ANNEX 2.5- 69 - Page l of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Estimated Schedule of Disbursement

Bank Fiscal Year Cumulative Disbursementand Quarter at end of Quarter

-----US$ Million-------

1981

September 30, 1980December 31, 1980 12March 31, 1981 17June 30, 1981 23

1982

September 30, 1981 27December 31, 1981 31March 31, 1982 35June 30, 1982 39

1983

September 30, 1982 44December 31, 1982 49March 31, 1983 53June 30, 1983 57

1984

September 30, 1983 62December 31, 1983 66March 31, 1984 70June 30, 1984 74

1985

September 30, 1984 78December 31, 1984 82March 31, 1985 85June 30, 1985 89

1986

September 30, 1985 93December 31, 1985 96March 31, 1986 99June 30, 1986 102

April 1980

ANNEX 2.5-70 - Page 2 of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Estimated Schedule of Disbursement

Bank Fiscal Year Cumulative Disbursementand Quarter at end of Quarter

-----US$ Million--

1987

September 30, 1986 104December 31, 1986 108March 31, 1987 111June 30, 1987 114

1988

September 30, 1987 117December 31, 1987 120

April 1980

- 71 -

ANNEX 2.6Page 1 of 18

TURKEY

THE KARAKAYA HYDROPOWER PROJECT

Studies of Reservoir Filling and OperationFor Projects on the Euphrates River

Introduction

1. The use of the Euphrates River waters is a vital factor in the lifeand economy of the riparian states of Turkey, Syria and Iraq, whether thewaters are used for domestic purposes, irrigation, power generation or theabatement of salinity. Discussions between the three riparians on the sharingof the Euphrates River waters have taken place intermittently since 1962. TheBank has actively encouraged the riparians to discuss a long-term water sharingagreement. At the request of a number of financing institutions interested inthe Keban hydropower project, which created a very large reservoir on theEuphrates River in Turkey, the Bank undertook, in 1965, a study of interna-tional water problems of the Euphrates River. The aim of the study was toreach an independent and objective determination of acceptable passing waterrates during reservoir filling, also to identify long-term problems and suggestmeans of solving them. In order to resolve the numerous problems alreadyidentified and due to the continuing need for riparian cooperation, the estab-lishment of an international tripartite commission for the Euphrates River wasproposed; however, this commission has never been established. In 1974 theBank Group made the loan/credit for the Balikh Irrigation Project, whichwould require at its full development in 1986 the total net diversion of about0.5 km3 of water from the Euphrates River, equivalent to two percent of theaverage river flow at the Syrian-Iraq boundary. The Bank was satisfied thatthis project was not harmful to the interests of the other riparians, sincethe volume of water used by the Project was small and well within the allot-ment to Syria under any equitable apportionment of the Euphrates waters, ifever achieved. At that time, the Syrian Government advised the Bank Groupthat it intends to operate the reservoir at Thawra in such a manner as toassure that Iraq's requirements are reasonably covered, provided that neededreleases are made from the Keban reservoir.

2. In late 1974, Bank Group staff, assisted by consultants, designedand tested a simulation model of the Euphrates River which incorporated majorexisting water storage structures in the Euphrates River system (Keban,Thawra and Habbaniyah reservoirs) and the possibility of including majorplanned projects (Karakaya, Karababa and Haditha). The purpose of themodel was to provide an instrument for investigating the operation of thevarious water control facilities under different hydrological and waterdemand conditions in the three riparian countries.

- 72 -

ANNEX 2.6Page 2 of 18

3. For the purpose of designing and testing the model, the input dataavailable to the Bank was used and where no information was available, reason-able assumptions were made. The nature of the model and the details of theinput data used to test it are described in a draft report "Preliminary Studyof Reservoir Filling and Operation for Projects on the Euphrates River" datedJanuary 24, 1975. This report was transmitted to the Governments of Turkey,Syria and Iraq in February 1975.

4. In its present form, the simulation model is a useful tool forinvestigating options for the management of the different water controlfacilities in the river system. With more detailed input data and moredevelopment work on the model, it could be of value in assisting in thedevelopment of optimum rule curves for reservoirs within the river systemand for the real time operation of projects. The achievement of this longerterm aim would require detailed field investigations to provide the necessaryinput data.

A. Preliminary Study of Reservoir Filling and Operationfor Projects on the Euphrates River

Basic Data and Assumptions

1. The data base for this preliminary study has been derived frominformation available and much of the information is indicative, rather thanprecisely representative of actual conditions. However, the simulation modeldeveloped in the study has been designed to accept revised or updated informa-tion if and when it becomes available. Basic information contains hydro-logical data, water demands for power and irrigation, projects data andrelated assumptions. The schematic layout of developments in the EuphratesRiver basin is given in Attachment 1 to this Annex.

Hydrological Data

2. The Euphrates River drains portions of Turkey, Syria and Iraq. Theprincipal gauging stations on the Euphrates River are Keban and Birecik inTurkey, Thawra (formerly Tabqa) in Syria and Hit in Iraq. Average annualrecorded flow volumes at these stations are summarized below:

- 73 -

ANNEX 2.6Page 3 of 18

AverageAnnual RecordedFlow Volume

31 Year AverageGauging Catchment Period of 1938 - 1968Station Area km2 Record km3

Keban, Turkey 69,100 From August 1936 20.9Birecik, Turkey 108,000 From March 1959 28.4Thawra, Syria 120,650 From 1958 28.1Hit, Iraq 264,100 From 1924 30.9

The average recorded flow data do not take account of any irrigation abstrac-tions. For the purposes of the study, natural flows were estimated by makingallowances for historical irrigation uses of water. The estimated rates ofgross demand and return flow, indicative of present condition, used in theanalyses were as follows:

Turkey SyriaReturn Return

Gross Flow Net Gross Flow NetMonth Demand (m3/sec) Demand Demand (m3/sec) Demand

October 38 53 -15 73 70 3November - 30 -30 48 48 -December - 11 -11 29 22 7January - - - 29 14 15February - - - 42 9 33March - - - 130 9 121April 39 - 39 134 13 121May 90 - 90 197 39 158June 168 12 156 256 40 216July 198 27 171 278 59 219August 176 50 126 235 77 158September 101 59 42 161 83 78

Totals km3 2.14 0.64 1.50 4.25 1.25 3.00

Return flows were assumed to be at the rate of 30% delayed by two months.

3. To assist in the selection of suitable periods of flow data, aresidual mass analysis was made of the natural flows at Keban for the period1937 to 1968, from which the following hydrological sequences were selectedfor simulation:

- 74 -

ANNEX 2.6Page 4 of 18

Mean Annual Discharge - km3

Sequence Keban Birecik "Khabour" Hit

i) Driest 10-year period 18.21 24.46 6.35 30.81ii) Driest 8-year period 16.76 22.80 5.63 28.43

iii) Driest 5-year period 15.85 21.59 5.87 27.46iv) Driest year 11.46 16.26 4.35 20.61v) 10-year "average"

sequences - a) 21.56 28.69 3.97 32.66b) 21.14 28.86 5.23 34.09

Long-term mean (1937-1968) 21.91 29.39 4.78 34.17

4. Estimated average reservoir evaporations were taken into account;but the introduction of other factors (valley and reservoir bank storages)was not considered necessary at this stage of the study.

Power Demand

5. A series of four hydropowerplants were planned in Turkey for devel-opment on the Euphrates River. The most upstream of them, Keban, is inoperation with the first four generating units, while the remaining four unitsare under construction. Each of these generating units has an output capacityof 157.5 MW, making a total plant output of 1,260 MW. The next plant down-stream, Karakaya, is currently under construction, with an installed capacityof 1,800 MW in six units. The Golkoy project, next downstream of Karakaya,was proposed as a 700 MW scheme, but in view of its insignificant storageit has not been included in these evaluations, which have been developedprimarily to establish the effects of storage and regulation on water usepatterns. Downstream of Golkoy, the last projected Turkish hydropower projectwas Karababa. This project was proposed as a multipurpose development withan 800 MW installed capacity and provision for pumping of irrigation waterfrom the reservoir to the plains of the Southeastern Anatolian Region. Inthe simulations it has been assumed that all the Turkish projects will beoperated, as far as possible, to provide long-term firm energy both duringinitial filling and in subsequent operation. Secondary energy is generatedwhenever the reservoirs would otherwise be spilling. The Preliminary Studyof Reservoir Filling and operation for projects on the Euphrates river doesnot include the new Ataturk multipurpose hydropower project, which wouldreplace the previous Golkoy and Karababa projects. The total and usefulstorage capacity of the Ataturk reservoir would be much larger than capacitiesof Golkoy and Karababa; combined total and useful storage capacities of Golkoyand Karababa were 16.27 km3 and 3.64 km3 -- respectively, the newly proposedAtaturk reservoir would have the total storage capacity of 48.5 km3 with itsuseful storage of 12.0 km3. Therefore, it would be necessary to test the newAtaturk scheme in the computer simulation model, which investigates differentproject operating principles in order to determine their effects on reservoirfilling under different hydrological situations, while satisfying the existingand expected water consumption demands.

- 75 -

ANNEX 2.6Page 5 of 18

6. The Euphrates Dam project (Thawra) in Syria is intended to provideadditional regulation capacity to meet the requirements for irrigation andsupplement those for the Syrian power system. Simulation runs consideredthe proposed installation of eight units, each having a 103 MW capacity,making a total plant output of 823 IP. In the simulation runs, the EuphratesDam project was operated to guarantee at least irrigation demand, both inSyria and Iraq, and to maximize the generation output without specific con-straints requiring the plant to provide any minimum firm capacity.

7. The Haditha project in Iraq, currently under construction, was notsimulated in detail, due to lack of project details. Therefore, the simula-tion runs have assessed the energy portential of the project in terms of theactual flows released to meet the selected irrigation demands and assumedthat the discharges, plus any spill flows, could be passed through turbines.Lake Habbaniyah was operated in accordance with the irrigation requirements.

Irrigation Demand

8. The current levels of extraction for irrigation and plans for devel-opment in the riparian countries, are not precisely known. However, for thepurposes of the study, various assumptions were made on the basis of availableinformation. For assumptions used on current extractions for irrigation inTurkey and Syria, estimates of area under irrigation, cropping intensities andwater diversion per hectare have been consolidated into the two variables ofarea and depth of irrigation; for Iraq, actual intensities have been intro-duced. The simulation model developed has been designed to illustrate anyconstraints likely to arise through growth in irrigation abstraction, con-current with the development of the series of 5 or 6 major storage regulationprojects along the main stem of the Euphrates River, over a period of tenyears. For this purpose, two rates of irrigation growth in each country havebeen utilized in the simulations, representing full commissioning rates ofirrigated perimeters. The first, referred to as Rate 1, was proposed as oneestimate representative of a "probable" level of activity. Rate 2, irrigationgrowth, proposed as "possible" level of activity, involves a doubli g of theincremental irrigation in each of the riparian countries from that assumed inRate 1 throughout the simulation period. These rates of development have beenintroduced solely for the purpose of testing the sensitivity of the simulationruns to irrigation abstractions. In addition, subsequent tests have been madeat other rates of irrigation growth.

9. The irrigation demands for each of the riparians for years one, tenand twelve of simulations were as follows:

- 76 -

ANNEX 2.6Page 6 of 13

in km31974/75 1983/84 1985/86

Rate 1 Rate 2 Rate 1 Rate 2 Rate 1 Rate 2

Turkey /1 1.50 1.50 1.72 1.95 1.77 2.04

Syria /2

U/S Euphrates Dam 0.0 0.0 1.57 2.39/3 1.75 2.39D/S Euphrates Dam 3.03 /4 3.03 2.44 2.39 2.51 3.05

TOTAL 3.03 3.03 4.01 4.78 4.26 5.44

Iraq /1 14.00 14.00 14.80 15.60 15.00 16.00

Euphrates Basin /2 18.53 18.53 20.53 22.24 21.03 23.48

/1 Demands in Turkey and Syria are net requirements: demands in Iraq aregross.

/2 For LTA /5 available flow of 34.17 km3 (natural flow) at Hit, allowingfor evaporation losses of 4.5 km3 (Keban + Karakaya + Karababa + Euphrates+ Haditha = 4.5 km3/year; in Habbaniyah loss accounted for in irrigationdemand) water utilization is 75% by 1985/86 at Rate 1 growth and 82% atRate 2 growth.

/3 At Rate 2, ultimate development up-stream (U/S) of Euphrates Dam achievedin year 9 of simulation.

/4 It may be noted that the apparent anomalies in irrigation demand down-stream (D/S) of the Euphrates Dam arise from assumptions regarding thetransfer of demand from the lower Balikh basin, in year 2 of the simula-tion, and the concentration of development U/S until Phase I of theBalikh project has been completed. As a consequence, U/S abstractionscontinue to increase (at gross rates) until ultimate development isachieved, and return flows from this area are taken into account indetermining net D/S demands.

/5 LTA = long term average natural flows estimated from records coveringthe period 1937/1968.

It may be noted that total irrigation abstractions from the basin would havegrown by 2.5 km3 for Rate 1 development and by some 5 km3 under Rate 2 by1986/87. The riparian plans in some cases exceeded the assumptions forirrigation requirements used in this study.

Project Data

10. The program logic was prepared, using available data, to concen-trate only on those factors of importance to the filling schedules. Asdetailed rating of the turbine capacity and discharge under varying head

- 77 -

ANNEX 2.6Page 7 of 18

were1ngt available for projlces, simplifying assumptions that capacity variesby H and discharges by H were adopted for all developments. For thepurpose of these studies, these assumptions do not affect the conclusionsregarding water distribution throughout the system. With respect to energygeneration, although moderately underestimated for lower test conditions, thedifferences between the various simulations would be little affected.

Operational Studies

11. A mathematical model of the Euphrates River system with its in-stalled and proposed develpment has been set up. In essence, the modelpermits the simulated operation of all developments on the river, in accord-ance with predetermined rules, under the influence of a variety of selectedhydrological sequences. Since the study has been aimed at a review of poten-tial filling constraints, the model keeps a careful check of flow volumemovements, irrigation uses, evaporation losses and spilled water, but pro-vides only an approximate assessment of power generation from the hydropowerdevelopments. The model simulates one year at a time, thus facilitating theinput of physical and procedural changes on an annual basis and allowing forthe introduction of any .equence of historical or synthetic hydrological datathat may be generated fur analysis.

12. The several sequences of years from the historic record which wereselected from simulation in the mathematical model are specified in para 3.Testing of the model was initiated with a sequence of synthetic average yearsin order to gain insight into the modification of the natural flow regimenaccomplished by each addition to the system storage capacity. Attention wasfocussed upon system constraints during the initial years of filling of eachof the major storage developments.

13. The sequences represented a series of refinements made to the modelto enable a detailed investigation of system operation options. For poweroperations, it has been assumed that the Turkish hydropower developments wouldbe operated to maximize energy generation, since this would be in accordancewith the known requirements of the Turkish power system. This model is alsosatisfactory for the downstream riparians, since generation results in releaseof water downstream. For Syria, operation under both firm capacity and maximumenergy modes have been simulated, since it was not known which mode would bepreferred. The most critical period for the river system was found to be theinitial years of reservoir filling. On the basis of the data used, it wasfound that downstream demands were satisfied if the flow passing Birecikwas not allowed to fall below 350 m.3/sec in any one month, unless the averageinflows to Keban during the month were less than 350 m3/sec. In that instance,releases in addition to those for power generation would be needed, so thatthe total monthly release from the Turkish power plants would not be lessthan the actual inflows for the month. In practice, this mode of operationwould have tc be acb;-ved through a series of supplemental releases in themonth following, to make up any deficits.

- 78 -

ANNEX 2.6Page 8 of 18

14. For the Syrian Euphrates Dam, a number of operational modes werestudied. It has been found that the most suitable operation of this projectis if reservoir releases meet irrigation demands downstream in Syria and Iraq,reduced by the Khabour River flows and the return flows from upstream irriga-tion, as well as adjustments for the filling and drafting of HabbaniyahReservoir. The Habbaniyah Reservoir has a limited available storage (2.9 km3)and this is required to accomplish its necessary re-regulation; it appearedthat the Euphrates Dam project could assist in this re-regulation. In orderto supplement re-regulation at Habbaniyah, it was necessary to store 60 m3/secof the required outflows in the Euphrates Dam project during the first sixmonths of the water year, and to release an additional 60 m3/sec during thesecond six months. This adjustment to the operational mode for the EuphratesRiver project was referred to as the "Rule of + 60".

15. On the basis of data used in this study, the simulation has demon-strated that it is possible to sustain the current level of abstractions forirrigation in each of the riparian countries, as well as meet an increase in

these demands during the studied ten years, while concurrently meeting Turkishand Syrian requirements for power generation, provided certain principles ofoperation are adhered to. It has been found that during the ten years, thestorage projects Karakaya and Karababa in Turkey and the Haditha project inIraq could proceed without constraint upon growth in irrigation demands. Syriawould benefit in most years, both in terms of increased power generatior. andthrough flood abatement, from the regulation imposed upon the flows in Turkeyby the storage projects on the Euphrates River.

16. The study revealed that, if the various interests of the ripariansare to be satisfied materially under all conditons which can reasonably beanticipated, these major developments cannot proceed without some basicprinciples governing their operation, with a common understanding of theseprinciples and their importance among the riparians. The simulation model hasbeen made to conform to current understanding of the various interests of eachof the riparians during the ten year period. Thus, for Turkey, it is under-stood that the objective is to maximize energy generation for the sequence ofthe projects along the main stem of the Firat River, until diversion for theLower Firat irrigation program begins; for Syria, it is essential to meetirrigation demands and at the same time generate maximum hydroelectric energy,to replace more costly thermal energy within the Syrian power system; and forIraq, the essential interest is to obtain sufficient flows, distributed overthe year, in a pattern which will satisfy extensive irrigation demands.

17. It is apparent from the various conditions simulated that the firstyears will be the most difficult, should unusually low flow conditions occur.Nevertheless, in this event, provided appropriate minimum releases are madefrom the Turkish projects, in combination with specific arrangements formaximum energy operation under prescribed minimum plant load factors, suffi-cient flows will be provided to meet the needs of the downstream riparians.In addition, Turkey will obtain the maximum energy contribution possibleunder the prevailing conditions. Similarly, a predetermined mode for the

- 79 -

ANNEX 2.6Page 9 of 18

opration of the Syrian Euphrates project needs to be established. Severalpossible modes of operation have been assessed and it would appear to bepossible to approach yearly averaged releases to meet downstream demandsrelying on Habbaniyah, in Iraq, for re-regulation. On this basis, Syria canadopt either a maximum-energy mode or a firm-capacity mode, whichever bettersuits her system power requirements, and Iraq will continue to receive ade-quate water supplies to meet its irrigation demands. The Habbaniyah Reservoirin Iraq, supported by a semi-annual re-regulation at the Assad Reservoir inSyria, appears to provide adequate re-regulation capacity to meet Iraq's irri-gation requirements, except under conditions relating to extreme low yieldfrom the Khabour tributaries. It has been found that during the initial yearsof the studied decade, should the Khabour tributaries yield less than 60%of their long-term average, Iraq would need to obtain, on an ad hoc basis,supplemental releases from storage in Syria. Several simulations runs havebeen made which included the proposed Haditha project. These indicated thatthe project would provide Iraq with a substantial energy generation capability,although, at the same time, it would increase the total annual evaporationlosses from the Euphrates system. The projected storage re-regulation capab-ility does not appear to be necessary to support irrigation during the periodcovered, as is borne out by the simulation of the Habbaniyah capacity toachieve this purpose.

18. Tentative principles for operation of the Turkish, Syrian and Iraqireservoir storage projects were developed, using the model, to overcomefailure of the system, simulated by the model. They have been simulatedto meet operational requirements and demonstrate the practical applicationof the model, and are formulated on the basis of data input described pre-viously. The operation of the Turkish projects would need to conform to aschedule of minimum load factors and planned installation schedules which,in combination with minimum releases rule, will ensure that adequate watersupplies are passed to the downstream riparians. At present Iraq has alimited re-regulation capability in the existing Habbaniyah Reservoir.Nevertheless, except under abnormally low yields from the "Khabour" tribu-taries, it has been found adequate for re-regulation of the flows passedby Syria through the Euphrates Dam, in accordance with certain operatingprinciples, which at the same time ensure that Syria will obtain maximumenergy benefits as well as meeting downstream irrigation requirements.

B. Study of Reservoir Filling of the Karakaya Hydropower Project

Scope of Study

1. As a part of the evaluation of the Karakaya hydropower project,a more detailed assessment is required of the effects on the downstreamriparians of alternative reservoir filling schedules at Karakaya. In thisstudy, appropriate analyses have been completed and procedures to be fol-lowed by both Turkey and Syria during the filling period of the Karakayareservoir have been recommended. The simulation model, as developed for the

- 8O -

ANNEX 2.6Page 10 of 18

previous study, was also used in this study. Changes to the model werelimited to those essential to the specific requirements of the study. Allnewly available information has been incorporated into this study, particu-larly the hydrological data presented in the Aide-Memoire entitled "Planof Karakaya Reservoir Filling Operation" prepared by the Government ofTurkey and submitted to the Bank in September 1975.

Study Assumptions

2. The main assumptions examined in the study were:

(a) The minimum monthly mean flow at Birecik should not fall below500 m3/sec;

(b) Assessments should consider both low and average water years;

(c) The study should consider both the intended closure datesfor Karakaya, in March and September, to allow for possibleslippage in the construction schedule;

(d) Assessment should be made of the effects of regulatingdischarges for Keban at both 600 and 900 m3/sec; and

(e) Initial reservoir conditions at both Keban and Assad shouldbe based upon interpretations of available data.

In the study, specific determination of the following has been made:

(a) The effect on Syria if releases from the Euphrates Dam weremaintained to meet the indicated needs in Iraq;

(b) The effects on Iraq if Syria operate normally for powerand energy;

(c) The time required to fill the Karakaya reservoir; and

(d) Suggested operating criteria modification that would berequired to mitigate undesirable effects of (a), (b) and(c) above.

Operational Studies

3. In accordance with the information provided in the Aide-Memoire,all Turkish hydrological data for the period 1936/37 to 1971/72 have beenamended to conform with the newly prepared data base. No changes in powerand irrigation demand data have been made with the exeption that, for Turkey,no growth has been assumed beyond the status estimated for 1974/75. Theanalysis has demonstrated that, without detriment to the overall interestof Turkey or either of the downstream riparians, Karakaya can be filledto minimum generating level (670 m.a.s.l.), in accordance with the rules

- 81 -

ANNEX 2.6Page 11 of 18

recommended, within a period of three to seven months. Thereafter, withoutsignificantly affecting the downstream riparians, Turkey could operateKarakaya either to fill as rapidly as possible or for maximum energy output,as best suits her interests, provided such operation is effected subject tothe limit of a minimum discharge of 500 m3/sec at Birecik. During the fillingof the Karakaya reservoir, monthly flows entering the Euphrates Dam reservoirin Syria will be less than would otherwise occur. While this retention ofwater by Turkey is taking place, a drawdown of the Euphrates Dam reservoirshould occur if Syria continues to meet the needs of Iraq, as well as her ownrequirements for irrigation and power. Nevertheless, on the basis of thecomparisons made, it was estimated that the maximum drawdown of the EuphratesDam reservoir during this period would be less than 1.5 km3 and would dependon the specific option selected by Turkey for operation at Karakaya after thelevel in that reservoir has risen above the minimum generating elevation. IfSyria attempts to retain water in her reservoir while Karakaya is filling,she will forego power generation benefits that are available without risk toher future interests. Once Karakaya has been filled, it will be in Turkey'sbest interests to operate both Keban and Karakaya for maximum power generation.The Euphrates Dam reservoir would then be filled rapidly, as a consequence ofthe improved regulation of all upstream flows. During the somewhat increaseddrawdown period, Syria will benefit from normal energy output by continuingto release water according to the maximum energy "Rule of + 60 m3/sec". IfSyria operates her Euphrates project in accordance with this rule, Iraq'sinterests would be safeguarded. Retaining water because of temporarilyreduced inflows from Turkey would only reduce Syria's immediate energybenefits and result in larger volumes of spill once Karakaya has been filled.

Operating Rules

4. Using the estimates available to the Bank (which could not be veri-fied) of present water diversions and their projected growth, described inthe January 1975 Report, the model has been used to investigate differentoptions for water management during the period of construction, filling andoperation of the proposed Karakaya hydropower dam in Turkey between 1975/76and 1984/85. On the basis of the investigation, tentative principles forthe operation of the Turkish, Syrian and Iraqi reservoir storage projectswere developed and tested, which would ensure that the interests of eachof the riparians were safeguarded. Basically, the operation of the Turkishprojects was tested according to the schedule of planned power units' in-stallation and operating schedules which, in combination with minimum releasearrangements, would ensure adequate water supplies being passed to the down-stream riparians. This was done in conjunction with the assumption ofspecific operational procedures in Syria and Iraq during the construction,initial filling and operation of the Karakaya Dam. The operating principlesdeveloped using the model are summarized below.

5. Turkey. During construction, filling and operation of the KarakayaDam, the Keban and Karakaya projects would need to be operated in such a

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ANNEX 2.6Page 12 of 18

manner as to ensure that the flow of the Euphrates River as it leaves Turkeyat Birecik will average not less than 500 cubic meter per second. The aver-aging period would be not greater than one month and any shortfalls in oneperiod would be made up in the immediately succeeding period. This criterionhas been called the "Rule of 500".

6. Syria. On the basis of the assumptions of present irrigationdiversion demands, of hydrological data and the January 1975 Report, wateravailability downstream of the Thawra Dam would consistently exceed demand inSyria and Iraq over the ten-year period covered by the model. In order toguarantee such availability, during the months October through March, theaverage outflow from the Thawra Dam in any one month would need to be equalto, or greater than, the result of (a) the predetermined average net irriga-tion demand for the water year in Syria below the Thawra Dam, plus (b) thepredetermined average gross irrigation demand for the water year in Iraq,less (c) the long-term mean natural "Khabour" flow, which is estimated at140 cubic meters per second, less (d) 60 cubic meter per second. Duringthe months April through September, the average outflow from the Thawra Damin any one month would need to be equal to, or greater than, the result of(a) the predetermined average net irrigation demand for the water year inSyria below the Thawra Dam, plus (b) the predetermined average gross irriga-tion demand for the water year in Iraq, less (c) the long term natural"Khabour" flow plus (d) 60 cubic meters per second.

7. On the basis of the assumptions used in the January 1975 Report,the minimum monthly releases required from the Thawra Dam in 1976/77 wouldbe as follows:

October through March 310 m3/secApril through September 430 m3/sec

These minimum releases would need to be increased over time to take accountof the actual growth in water use in Syria and Iraq downstream of the SyrianEuphrates Project. Typical projected values for required minimum flows in1984/85 would be as follows:

October through March 360 m3/secApril through September 480 m3/sec

These flows would be augmented by inflows from tributaries to the EuphratesRiver joining the river downstream of the Syrian Euphrates Project (such asthe Khabour River).

8. Actual average flows at Hit over the period covered are shown bythe model to be substantially in excess of the above discharges, exceptduring the four to seven months initial filling period of Karakaya, whenthe minima are required to be applied in successive months.

- 83 -

ANNEX 2.6Page 13 of 18

9. Iraq. Flows reaching Ramadi Barrage from upstream which are inexcess of downstream irrigation requirements, would need to be diverted intothe Habbaniyah reservoir to the extent such excess flows can be stored there.This reservoir should at all times be maintained as full as possible. Waterwould be drafted from the Habbaniyah reservoir via the Dibban Canal only insuch amounts as are needed whenever the flows passing the Ramadi Barrage areless than the irrigation requirements.

Monitoring Arrangements

10. In order to ensure that the operating principles described aboveare effectively coordinated, it would be essential for river flows atcritical points in the river system, as well as reservoir levels and dis-charges, to be continuously monitored and for the recorded information tobe made available to each of the riparian countries. Such an exchange ofdata is, to a large extent, already allowed for under existing arrangementsbetween the three countries. Monthly Euphrates River flows in 1977-1979 aregiven in Attachment 2 to this Annex.

Applicability of the "Rule of 500"

11. The time period that has been simulated by the model is the ten yearperiod 1975/76 through 1984/85. The expected increases in water demands, dueto the expansion of irrigation in all countries, and the filling and operationof the Karakaya Dam, have been allowed for and are adequately covered by theapplication of the proposed operating principles. However, the implementationof any new large consumptive projects on the river system, such as the HadithaDam in Iraq, the Khabour Dam in Syria or the Karababa (Ataturk) Dam and irri-gation system in Turkey, may require an amendment to the principles in orderto take account of the new situation created by such new projects. Theseamendments would have to be the subject of further discussions and agreementbetween the riparian countries.

C. Syrian Comments on the Proposed Operating Rulesfor Projects on the Euphrates River

After receiving Turkish agreement on the operational criteriaand monitoring arrangements, the Bank informed the lower riparians of theTurkish proposal and invited their comments. Syria, in a letter datedOctober 16, 1976, made in essence the following remarks on the proposedoperating rules of the Karakaya hydropower project:

1. The proposed "Rule of 500" and the related conditions may signifythat out of the 28 km3 average yearly flow of the Euphrates River reachingthe Syrian boundaries during construction and after operation of the KarakayaDam, only 15.7 km3 (or nearly only 55%) of the flow will be for the use ofthe two downstream (Syria and Iraq), and the rest, or 45%, of the flow willbe for the exclusive use of Turkey. Taking into consideration all relevantfactors on the subject and remembering that rainfall in the Turkish region

- 84 -

ANNEX 2.6Page 14 of 18

is more than double that in the Syrian and Iraq regions, Syria believes thatany rule involving such highly unfair rates of distribution cannot be consid-ered acceptable.

2. The filling period of the Karakaya reservoir to the operating levelshould be studied on the basis of one or more flood seasons, depending on theprevailing conditions of the hydrological years, and not on the basis of threeto seven months during one single season, as proposed. Syria believes thatagreement on a special time filling program should be reached between thethree riparian countries before allowing any storage in the Karakaya Reservoir,to ensure that no harm is caused to any side during the filling period.

3. The need for maximum power generation from the Thawra power stationhas, strangely, been overlooked in the analysis of the proposal submitted andin the Bank's draft report. While admitting that priority in the use of theEuphrates River waters should be given to irrigation, Syria cannot see whyher right to utilize fully the available flow of the River in maximum powergeneration, until the land reclamation projects of Turkey and those of theupstream areas of Syria are completed, should be overlooked.

4. Syria finds that many of the assumptions and data used in theanalysis of the proposal and the draft report, need to be reconsidered andcorrected. As examples, Syria cited the following points:

(a) The long term mean natural flow of the Khabour River wasestimated in the Aide-Memoire to be 140 m3/sec. Thisfigure is highly exaggerated and is nearly three timesthe actual mean discharge of the River. It should beremembered also that this discharge will be greatlyreduced in the future, when the Turks will graduallyexploit some of the water resources in their region.

(b) It is assumed in the Bank's report that the return flowin Turkey and Syria will be taken as 30%, and in Iraqas 0%. Such an assumed percentage in the Syrian reachis unreasonably high, taking into consideration thatirrigation canals will all be lined with concrete andthat special measures for raising efficiency in the useof irrigation waters on farm levels would be sought andadopted.

(c) In the estimate of the volume of flow of tributaries inthe Syrian reach of the Euphrates Basin, the surfacerunoff of Wadi Hauran (which is in the range of nearly1 km3/year) is wrongly added to Syrian water resources;it should be added to Iraqi resources and deleted fromSyrian.

- 85 -

ANNEX 2.6Page 15 of 18

(d) The assumption that the average areas to be reclaimed annuallyin Syria until 1986 shall run between the limits of 10,000-20,000hectares, seems to contradict greatly the present state policiesin Syria. The current five-year plan requires the reclamation of240,000 hectares. Even if practical difficulties and obstruc-tions make this goal hard to attain, with the great importanceand priority given by the state to land reclamation projects,Syria feels that the rate of land development realized will behigher than the low rates assumed in the Bank's analysis, andthe consequent water requirements will, therefore, be muchhigher.

5. With the proposal presented in the Bank's letter of July 12, andthe attached Aide-Memoire, two further obligations on the Syrian side wereimplied:

(a) That Syria should store in the Assad reservoir about 1 km3/yearfor the exclusive benefit of Iraq.

(b) That no modification of the criteria proposed in the "Rule of 500",necessitated by projects to be implemented in the Euphrates Basin,could be made, nor could any such projects be started, untilagreement of all riparian countries was attained.

6. The Syrian side considers the imposition of such unilateral obliga-tions, before reaching full agreement between the three riparian countrieson all matters concerning the long range distribution of water rights in theriver, unacceptable. Syria expressed its readiness to cooperate fully withall sides in seeking a quick and final solution to all problems concerningthe Euphrates waters, with due consideration to the interests and welfare ofall people of the riparian countries. Furthermore, Syria indicated that nofair and equitable solution could ever be reached unless specialists fromthe three riparian countries could meet to establish the coordinated data,the agreed upon assumptions, and methods of approach on the basis of whicha scientific study of the subject is to be made. They further believe thatonly after such essential data and basic assumptions are agreed upon amongthe specialists of the riparians, will the assistance and the valuableefforts of the Bank be of real value, and may yield positive results.

7. Finally, Syria pointed out that the degree of dependence of thefuture growth of the Syrian national economy on the proper and full utiliza-tion of her legitimate share of the Euphrates waters is, in fact, by farhigher in Syria than in the other riparian countries. It would be difficultfor Syria, therefore, to tolerate the exposure of all her future developmentto any probable uncertainties.

- 86 -

ANNEX 2.6Page 16 of 18

D. Analysis of Concerns Expressed by Syria Related to the ProposedOperating Rules for Projects on the Euphrates River

Syria's comments on the operating rules for projects on the EuphratesRiver were analyzed in detail by the Bank staff and consultants. The Bank'sobservations on these remarks were forwarded to Syria and no further responseshave been received. The analysis of the Syrian comments has revealed thefollowing:

1. "Rule of 500". Apparently, Syria did not realize fully the realmeaning of the "Rule of 500". The proposed "Rule of 500" and the suggestedoperating rules do not imply any long-term water sharing agreement betweenriparians of the average yearly flow reaching the Turkish-Syrian border, asindicated in the Syrian comments. Although Karakaya is not a water consump-tive project, its filling and operation under the "Rule of 500" is designedto assure the lower riparians that, at any time during construction, fillingand operation of this project, the flows of the Euphrates River as it leavesTurkey at Birecik - whether in dry or wet water years - will average no lessthan 500 m3/sec. Thus, it will ensure that present and forecast irrigationneeds in Syria and Iraq are fully met, and benefit from the regulation pro-vided by the upstream Turkish reservoirs. Water consumptive requirementsin the three riparian countries over the coming decade do not reflect thelonger-term needs at full development of the economically irrigable area.This is also the reason why the "Rule of 500" would have to be renegotiatedby the riparians before the start of any new large water consumptive projectson the Euphrates River.

2. Filling of Karakaya Reservoir. With regard to Syria's proposal thatan agreement on a filling program be reached among the riparians before allow-ing any storage in the Karakaya reservoir, attention again must be drawn tothe fact that under the "Rule of 500", Turkey would be obligated to ensurethat the flow at Birecik would average no less than 500 m3/sec. The fillingtime for Karakaya to reach an operating level has been estimated at 3 to 7months, depending on actual water flows at the time of closure. The obliga-tion under the "Rule of 500" to release no less than 500 m3/sec at Birecikclearly implies that, if actual conditions would not permit filling withinthis time period, the necessary adjustments must be made and the fillingperiod extended as required.

3. Thawra Power Plant Generation. The need for maximum power genera-tion from the Thawra power plant has not been overlooked, as stated in Syria'scomments. In the analysis it has been assumed that the Thawra (the EuphratesDam Project) would be operated to generate maximum energy, which is consis-tent with the needs of the Syrian power system. Operations of Thawra havebeen studied in order to achieve maximum power generation, but it has beenfound that the "maximum energy" criterion was a more conservative assumption,and this was therefore adopted for the model runs.

- 87 -

ANNEX 2.6Page 17 of 18

4. Assumptions and Data Used in Studies

(a) Khabour River Flows. Hydrological data regarding the Khabour riverat Sour are not comparable to what the January 1975 Report called the "naturalKhabour flows". The latter, as explained in paras 2.10 and 2.11 of thatreport, have been derived, because of lack of data on the inflows betweenThawra and Hit, from the historical data at the Birecik and Hit stations.Thus, the "natural Khabour flows", as used in the report, include not onlythe Khabour proper, but also all other tributary flows between Thawra and Hit,including the runoff from the Balikh River as well as other minor perennialand ephemeral streams - such as the Wadi Hauran - or resurgent inflows betweenThawra and Hit. They also include estimates of historical net irrigation ab-stractions that have been added to the recorded discharges. It is not impliedin the model that these flows should be added to Syrian water resources, butmerely that they should be taken into account for the purposes of evaluatingwater balance within the Euphrates System. Until better data are available,especially clarification of the poor correlation of the recorded monthly dis-charges at Birecik and Hit, it is believed that these "natural Khabour flows"are reasonable estimates for the purposes of the simulation model.

(b) Return Flows. Regarding Syria's comment that the assumed returnflows at a rate of 30%, delayed by two months, are unreasonably high in viewof the proposed concrete lining of irrigation canals and measures to improvewater efficiency at the farm level in Syria. In the absence of specific dataon return flows, the original assumption of a 30% return flow, which is con-sistent with the data collected in connection with the Balikh project, isstill considered realistic. From experience elsewhere, it has been concludedthat rates of much less than the assumed 30% would indicate either an ex-tremely efficient utilization or a water deficiency situation. Any reasonablechanges in the return flow data are likely to show only a marginal change inthe resulting flow, since in deriving the "Khabour flows" used in the model,the return flow assumption is used on both sides of the equation - that is,if a lower return flow is used, then the derived Khabour flow would also bereduced. For example, the change in the resulting downstream flow by assuming,say, a 15% return flow (instead of 30%), would be something less than 20 m3/sec, which is negligible considering the quality of the input data.

(c) Rate of Land Development. The model in the preliminary study hadassumed a rate of land development of 10,000 ha per year as "possible" inthe Euphrates Valley in Syria. Although development of about 240,000 bythe end of 1980, as indicated in the Syrian comments, would be difficultto achieve given the existing constraints, it certainly would be possibleto review in the model the possible effects of higher land development ratesthan had been assumed, if details of the proposed Project 5 for the devel-opment of 240,000 ha can be made available. A Bankmission to Syria was informed that the target for the Plan period would bereduced to 120,000 ha, and that irrigated land in the Euphrates area wasgoing out of cultivation because of the increasing rate of salinity.

- 88 -

ANNEX 2.6Page 18 of 18

5. "Unilateral Obligations". Syria has expressed concern that newobligations would be unilaterally imposed on her side if the proposed ruleis applied. These are basically related to the operational mode of the Assadreservoir in Syria. With the release of water from the Karakaya reservoir byTurkey in accordance with the "Rule of 500", water availability downstream ofthe Thawra dam is expected consistently to exceed demand in Syria and Iraqover the ten-year period covered by the model, provided the Assad reservoiris operated in accordance with the proposed "Rule of + 60". As long as Turkeyreleases an average discharge of 500 m3/sec at Birecik (which it would be ob-ligated to do under the proposed "Rule of 500"), Syria would not have to meeta flow deficiency from its Assad Reservoir storage resources. On the otherhand, Syria would be expected, under the proposed rules, to utilize its storagereservoir to re-regulate the available water supply in its own interests andthose of Iraq. The need for storage in the Assad reservoir under the proposedrules would cause Syria to reduce neither energy production nor water use forirrigation, and in fact, appears to be an optimum or near optimumn operatingrule for the reservoir. Under the proposed "Rule of 500" and related pro-posals (including the "Rule of + 60"), it is believed that Syria would haveample water availability and more flexibility than either of its riparianneighbors to meet unusual situations and still operate within the rules.

6. In summary, the analysis of Syria's comments has revealed that theoperating rules for Karakaya meet the needs of the riparians without adverselyaffecting the interests of any of them, although there would always be scopefor further optimization. Since Turkey has formally conveyed to Syria andIraq its proposal to operate Karakaya under the "Rule of 500", and alsoinvited both Governments to initiate tripartite discussions on monitoringarrangements and on the better use of common waters, it is expected thatSyria will also clarify her comments with Turkey. Therefore, in view of theabove explanations, it is clear that Syria's comments do not contain validquantified or substantiated objections to the proposed operational rules.

- 89 - ANNEX 2.6Attachment 1

TURKEYTHE KARAKAYA HYDROPOWER PROJECT

Schematic Layout of Developments in the Euphrates River Basin

KEBAN RESERVOIR &

POWER PLANT

G* < ATATURK RESERVOIRKY & POWER PLANT KARAKAYA RESERVOIR

POWEREPHTS\ DAN & POWER PLANT

t ^ * *KOMURHAN G . S KEBAN G . S ...............................~~~~~~. ................ ....

THAWRA G.s. ~ ~ ~ K KEANG..::

I NFUTURE IRRIGATION

SR IRRIGATION

HADITHA RASSAD RESERVOIREUPHRATES DAM & POWER PLANT

J THEWRA GPS.

S IRRIGATION

TIGABOUR" INFLOWS

SYIRIA D I GATION

IRAQ 2

jXHADITHA RESERVOIR LEGEND:/ \& POWER PI-ANT

/ \ h ~~~~~~~~~~~~EXISTING PROJECTS

LAE HIT G.S. D FUTURE PROJECTS

HABBANIYAH; ; * ~~~~~~~~~~~~~~GAUGING STATIONS (G.S.)

L*- TIGRIS LINK CANAL

IRRIGATION DEMANDS IN IRAQ

World Bank -21 216

ANNEX 2.6-90 - Attachment 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Recorded Monthly Euphrates River Flows(m3/sec.)

1977 1978 1979

GAUGING STATION

Keban

October 475 464 518November 492 478 545December 508 477 561January 635 483 533February 644 498 531March 787 502 563April 1,201 906 549May 1,412 1,974 546June 1,368 1,146July 517 413August 343 633September 371 522

Birecik

October 771 639 696November 794 680 707December 1,032 788 832January 1,060 1,015 1,114February 1,175 1,272 988March 1,477 1,137 980April 1,839 1,410 953May 2,145 2,598 794June 1,843 1,603July 737 677August 499 792September 507 682

December 1979

- 91 - ANNEX 2.6Attachment 3

TURKEY

KARAKAYA HYDROPOWER PROJECT

Verbatim Excerpt of Proceedings of the Budgetary Session ofGeneral Assembly of the Parliament During Which

His Excellency the Minister of Energy and Natural ResourcesMr. Deniz Baykal Made a Speech in Connection with Karakaya Project

on February 23, 1979

"As you know, the Karakaya Project is an energy-purpose project,capable of producing 1,800 MW, and it will contribute considerably both inour country and other riparian countries and increase the welfare of ourcountries by further regulating the Euphrates River as was the case in therealization of the Keban Dam. Undoubtedly, the initial filling stage ofthe reservoir has significant important in the construction of dams of thissize. Being conscious of this phenomenon, regulating of Euphrates Riverwaters during the initial filling in accordance with the needs has beendecided. Therefore, during the construction, initial filling and operationstages of the Karakaya Project, the monthly average amount of flow of theEuphrates River waters will not fall below 500 cubic meters of water persecond as measured at the city of Birecik; any shortfall in such flow,will be made up during the next following month by releasing an additionalvolume of water. The above measures will be applied unless very abnormalhydrometeorological conditions exist and as long as Turkey has not developeda project causing a level of consumptive use of the River's waters in itsterritories."

January 1980

TURKEY

KARAKAYA HYDROPOWER PROJECT

TFK's Tncome Statements for the Vears

Ended December 31, 1973-1979

(LT Millions)

A C T U A L ESTIMATED

1973 1974 1975 1976 1977 1978 1979

TEK'S SALES __

Sales - GWh 9,344 10,239 12,183 14,640 16,213 16,897 18,282

Average Revenue per kWh (kurus) 26.05 39.39 40.07 42.19 56.39 83.12 123.42

OPERATING REVENUESSales 2,435 4,033 4,882 6,178 9,144 14,044 22,564

Other - - - 459 873 1,472 1,757

TOTAL REVENUES 2.435 4,033 4.882 6,637 10.017 15 516 24,321

OPERATING EXPENSESFuel - Coal 187 193 207 219 400 769 819

- Lignite 102 101 206 151 225 784 3,141

- Fuel Oil 588 1,377 1,203 1,142 1,622 2,429 5,880

- Gas Oil 233 562 550 460 1,542 1,474 1,380

Purchased Power 71 221 519 480 376 997 1,795

Materials 34 39 49 185 139 247 267

Wages and Salaries 220 357 486 851 1,197 1,980 3,063

Miscellaneous Expenses 50 66 74 59 102 146 256

Depreciation 590 668 1,059 1,251 1,581 3,045 5,000 1

Taxes other than Income Taxes 5 6 8 38 13 14 19 %

Income Taxes 63 54 35 510 825 495 -

TOTAL OPERATING EXPENSES 2,143 3,644 4,346 8,022 12,380 21, 620

NET OPERATING INCOME 292 389 486 1,291 1,995 3,136 2,701

OTHER INCOME (LOSS) 9 (55) (67) (91) (520) (1,345) (888)

GROSS INCOME 301 334 419 1,200 1.475 1,791 1,813

INCOME DEDUCTIONSTotal Interest Expense 295 470 708 980 1,323 1,886 2,715

Less Interest Charged to Construction 82 212 337 492 735 787 1,365

NET INTEREST EXPENSE 213 258 371 488 588 1 099 1.350

NET INCOME (LOSS) 88 76 48 712 887 692 463 LO

AVERAGE REVALUED NET FIXED ASSETS IN SERVICE 10,645 17,132 20,817 31,465 56,116 80,766 103,500

RATE OF RETURN 2.7 2.3 2.3 4.1 3.6 3.9 2.6

January 1980

- 93 -

ANNEX 3.2Page 1 of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Objectives and Method of Monitoring TEK's Cash Generation

Objectives of a Cash Generation Covenant

Electric utilities require very large investments in plant for thegeneration, transmission, and distribution of electricity. In order toachieve the desired financing of investments in the electric power subsectorof Turkey the investments of DSI for hydroelectric power should be added toTEK's investments to obtain the total power subsector investments in generationfacilities. During discussions with the negotiations for Loan 1194-TU thepolicy of transferring assets from DSI to TEK was discussed including thetransfer of the associated debts for the assets transferred from DSI toTEK. It would therefore be necessary to transfer the associated debts withthe assets to TEK.

The objectives of attaining, in a given time, the desired 35% ofthe total electric investments of TEK and DSI could be achieved through theapplication of a cash generation covenant. However, the achievement of thedesired investment mix would require realistic financial planning and closecoordination between the Ministry of Finance, SPO, TEK, and DSI to establishannual investment programs of TEK and DSI based on the planned financialperformance of TEK. TEK should have the overall responsibility of preparingthe proposed investment program for the next fiscal year, and should preparea statement for the proposal and recommendations to Government exhibiting ina financial format TEK's sales, revenues, and operating expenses to producethe agreed cash generation required to meet the investment needs for thefiscal year.

Method of Monitoring the Cash Generation Covenant

To monitor TEK's financial performance under a cash generationcovenant it would be necessary for Government to:

1. Submit to the Bank by December 31, 1980 (and by December 31 eachyear thereafter) the following:

(a) the total planned power subsector investments, includinginterest charged during construction, for TEK and DSI for thenext year;

(b) TEK's financial forecasts for the next year; and

(c) proposals of actions required for meeting the agreed amounts ofthe internal cash generation requirement based on the aboveinvestment program and the financial forecasts of TEK.

- 94 -

ANNEX 3.2Page lof 2

2. After the end of TEK's fiscal year, but not later than May 31 of1981 (and each subsequent year) submit to the Bank TEK's actualfinancial performance as compared to the plan in 1. above in achiev-ing the internal cash generation as agreed. Any shortfall would berequired to be made up within the next fiscal year; or any surpluswould be applied to the next fiscal year. The 1980-1986 investmentplan as presented indicates a rather level investment plan. Butshould the annual investments become "lumpy" (excessively high) in agiven year, then an averaging method of calculating the investmentsover three years would be considered to prevent very high tariffincreases in a given year to meet the desired cash generation amount.

April 1980

- 95 -

T U R K E Y

KARAKAYA HYDROPOWER PROJECT ANNF- ,.

TEK'S CASH GENERATION AND POWER

SUBSECTOR INVESTMENTS OF TEK AND DSI

US$ Millions

Exchange Rate TL70=US$1.00

E S T I M A T E D TOTAL1980 1981 1982 1983 1984 1985 1986 1980-1986

TEK's SALESSales - Gl- 19,500 2 22,164 26,400 30,800 34,500 38,300 42,500Average Sales Price per kWh c 4.0 - 6.0 7.0 7.5 7.8 8.0 8.0

TEK's INCOME AND EXPENSESOperating Revenues

Sales 780 1,330 1,848 2,300 2,690 3,064 3,400Other 30 35 40 45 45 45 45

Total Revenues 810 1,365 1,888 2,345 2,735 3,109 3,445Operating Expenses

Fuel 318 429 500 700 685 595 410Purchased Power 32 68 75 - - - -Materials 8 21 35 64 95 141 148Wages and Salaries 60 120 P55 225 307 360 375Misceelaneous a7d Other 8 23 55 92 125 165 180Depreciation 3 145 195 285 390 500 680 800

Total Operating Expenses 571 856 1.105 1.471 1,71 1,94i 1,913

Operating Income 239 509 783 874 1,023 1,168 1,532Incooe Tao 53 150 300 275 220 185 212

Net Operating Income 186 359 483 599 803 983 1,320

AVERAGE NET FIXED ASSETS Al 3,300 4,700 6,100 8,200 10,500 13,500 16,500RATE OF RETURN - After Iscome T.a 5.6 7.6 7.9 7.3 7.4 7.3 8.0

- Before Insome Tas 7.2 10.8 12.8 10.7 9.7 8.7 9.3

INVESTMENTSTEK 1,146 1,569 1,805 2,141 2,097 2,353 3,052 14,163DSI 389 489 566 584 618 732 729 4,107

Total Invest-ests 1,535 2,058 2,371 2,725 2,715 3,085 3,781 18,270INTEREST CHARGED TO CONSTRUCTION 60 120 243 315 360 425 500 2.023

Total 1,595 2,178 2,614 3,040 3,075 3,510 4,281 20,293

TEg'S CASH GENERATIONOperating Incoe / 239 509 783 874 1,023 1,168 1,532 6,128Depreciation 145 195 285 390 500 680 800 2.995

Total 384 704 1,068 1,264 1,523 1,848 2,332 9,123Less: Debt Service 7/ 97 269 493 504 631 725 834 3553

TOTAL CASH GENERATION 8/287 435 575 760 892 1,123 1,498 5,570CASH GENERATION AS 7 OF INVESTMENT _ 18 20 22 25 29 32 35 27

1/ Eales estimate Annex 1.6.2/ Tariff increase effective February 1, 1980.3/ Depreciation caleualted on revalued assets.4/ Average revalued net fined assets is service.5/ Investments estimate Annex 1.10.

/ Operating income before TEE's income tax liability./ Includes DSI's debt service for all loans associated with power projects.

8/ Inclsdes interest charged to construction.

April 1980

- 96 - ANNEX 3.4Page 1 of 4

TURKEY

KARAKAYA HYDROPOWER PROJECT

Terms of Reference for the Comprehensive Review

of the Power Subsector Financing

A. Background

Power System Facilities

The electric power subsector in Turkey is controlled by the Ministryof Energy and Natural Resources. Under Law 1312 establishing the TurkishElectricity Authority (TEK) in 1970, TEK is responsible for planning thegeneral electrification of Turkey and for constructing thermal power plantsand transmission facilities. The State Hydraulic Works (DSI) is responsiblefor the development of the hydro potential of the country taking into con-sideration TEK's power demands. The hydropower installations constructedby DSI are transferred to TEK as Government's equity contribution on theirbeing brought into service without the transfer of the associated debts;transfer regulations provide for determination of transfer values by ad hoctransfer committees.

At present TEK owns about 90% of the generating facilities of thecountry, the balance being owned by concessionary companies, municipalitiesand private industrial interests. Among the private utility companies, byfar the largest is the Cukurova Electric Company which operates in the Adanaarea and provides 9% of the interconnected system's generating capacity.TEK is the main supplier of electrical energy in bulk to the distributors,villages and major industrial users not served by the distributors.

The distributors are municipal authorities and concessionary com-panies. The largest municipal distributors are Istanbul, Ankara and Izmir;Istanbul and Izmir buy energy from TEK but Ankara still generates part ofits requirements. Except for a small and dwindling number of municipalitiesisolated from the interconnected system, other municipal authorities buyenergy from TEK or Cukurova.

Village electrification is financed from the Village ElectrificationFund managed by TEK separately from its other activities and built up fromvillage contributions (25% of capital costs), a levy of 1 krs/kWh on non-village consumers of electricity excluding large industrial consumers andcontributions from the Government budget. The capital and other costs notfunded by direct village contributions are recoverable by way of tariffs overa period of 30 years.

- 97 -

ANNEX 3.4Page 2 of 4

Tariffs

Under the TEK law, TEK's tariffs are to be so fixed as to enable itto earn, after meeting its expenses, an 8% rate of return on net fixed assets.However, neither the manner of computing the return nor what constitutesexpenses has been spelled out in the law or in any regulations issued there-under. TEK's covenants with the Bank under existing loans require TEK toearn a rate of return of 8% on realistically valued assets. The method ofcalculating the return and the principles for revaluation of assets have alsobeen spelled out clearly in the loan covenants. TEK has consistently failedto earn the required return by a wide margin except in 1972. TEK's tariffsare established by the Government under a 1967 decree, the latest revisionbeing effective from February 1, 1980. These tariffs provide for a fuel costsurcharge, to be applied each time with the approval of the Ministry of Energyand Natural Resources, in order to recover fuel cost increases occurring afterOctober 1, 1977. A revision of TEK's tariffs would normally necessitatecorresponding revision of municipal tariffs in order to maintain the financialposition of municipalities. In view of this and with a view to avoiding arecurrence of the problem of non-payment of TEK's bills by municipalities,Government has agreed to ensure that municipal retail tariffs are promptlyadjusted in a manner and in amounts commensurate with adjustments TEK makesfrom time to time in its tariffs.

TEK's tariff structure does not reflect directly the cost to theeconomy of meeting the demand for electricity supply. The same is trueof other tariff systems in the country. Therefore in connection with Loan1194-TU, TEK has prepared a comprehensive tariff study covering the wholecountry with a view to establishing appropriate pricing policies and tariffstructures at the bulk supply level and at the distribution level, includingthe financing needs of the power sector. Government had undertaken to reviewthe results of the study with the Bank and to propPse measures for revisedtariff systems in the country.

Fuel Prices

No clear guidelines exist for determining the prices of fuel chargedby the Turkish Coal Authority (TKI) for its coal and lignite supplies to TEK.These prices were traditionally fixed by Government with reference to pricesof oil, the competing energy resource, and not related to costs. But eventhis method of fixing coal and lignite prices was not followed by Governmentafter the world oil price increases in 1973-74 nor were prices adjusted forincreases in TKI's operating costs with the result that TKI's operating lossesrose continuously in the years through 1977. However, revised coal andlignite prices have been fixed by Government with effect from October 1, 1979until January 1980, the effect of these prices on TKI's earnings is not knownat present. By fixing fuel prices at uneconomical levels in the past, Govern-ment has provided a hidden subsidy to TEK and electricity consumers in thecountry.

- 98 -

ANNEX 3.4Page 3 of 4

TEK's Liability for Income Taxes

TEK pays income taxes at 41.7% of taxable income which is computedafter interest expenses. TEK's loan capitalization therefore directly affectsits income tax liabilities. The Tax Law recognizes only the normal deprecia-tion charges and not depreciation based on revalued assets.

B. Objective of Proposed Comprehensive Review

The committee of experts appointed to conduct the proposed compre-hensive review of power subsector financing would:

1. (a) prepare a comprehensive review of the financing requirementsof the electric power sub-sector in Turkey, including retailmunicipal distribution until 1988; and

(b) a review of the extent of internal resource generation, takinginto account:

(i) the present electricity pricing policies;

(ii) the impact of pricing policies for fuel used in powergeneration on electricity prices and internal resourcesin the electric power sub-sector;

(iii) taxation policies on TEK's internal resource generation;

(iv) impact of present methods of financing hydro investmentand their transfer to TEK as equity; and

(v) the implications on TEK's financial situation of the termson which loans are made to TEK; and

2. make recommendations for:

(a) appropriate level of capitalization required for TEK;

(b) policies for internal resource generation by the institutionsconcerned with a view to finance a reasonable portion of theinvestment requirements for future expansion; and

(c) measures to ensure that resources generated are in fact avail-able to the institutions concerned, particularly with referenceto prompt payments by municipalities to TEK;

3. In making its recommendations, the Committee will have regard to:

(i) recommendations of the overall tariff study done under Loan1194-TU;

- 99 -

ANNEX 3.4Page 4 of 4

(ii) the investment requirements of the electric power sub-sectorand their impact on the budget;

(iii) economic costs of fuel; and

(iv) a reasonable return on capital.

C. Scope and Timing of the Review

In order to achieve the above objectives, the committee shouldcarry out a comprehensive review of the entire power subsector includingrelated institutions such as TKI and the Government agencies supplying fueland gas oil, and municipalities, the financing needs of the subsector and thefinancial relationship between the various agencies operating in the subsector.The committee would complete its work by June 30, 1981.

- 100 - ANNEX 4Page 1 of 11

TURKEY

KARAKAYA HYDROPOWER PROJECT

Justification of the Project

Load Forecast

1. The Karakaya hydropower project forms part of the 1980-1986 powerdevelopment program, which is designed to meet the continued growth of demandon the interconnected power system in Turkey. The trend growth rate of salessince 1965 has been 10% p.a. (para. 1.12). For forecasting purposes, TEK hasused various techniques of forecasting including simple extrapolation andeconometric methods. Its present method is based on establishing the pasttrend of kWh sales to each customer served (excluding major industrial con-sumers) and making ten-year projections for each customer based on thesetrends. Customers are grouped by substations and the substations by geo-graphical regions. The resulting figures are aggregated for each region.Separate projections are made for major industrial consumers includingprojected new industries, using information supplied by the Ministries onState Economic Enterprises concerned, supplemented by TEK's own contacts withindustry. To the resulting projection of total TEK sales are added projectedsales by the two concessionary companies (CEAS and KEPEZ), municipal under-takings and auto-producers to give a forecast of total sales for Turkey. Thecorresponding projection of total production is obtained by adding estimatedown consumption by power stations and transmission losses. The projectedtotals are finally checked, and revised as necessary, in the light of otherGovernment plans and projections related to the development of the varioussectors of the economy and the regions.

2. TEK's current projection of the load growth to 1986, covering theperiod of the two five-year economic plans for Turkey, is shown in Annex1.7. For the subsequent six years, covering the long-term plan of economicdevelopment, an indicative (Appraisal mission's estimate) is as follows:

1987 1988 1989 1990 1991 1992

Required electricitygeneration, GWh 59,300 65,500 73,300 77,700 84,600 92,200

3. The forecast implies an average annual growth rate of 11.2% upto 1986, falling to 9% in 1987-92. This relatively high rate of increase ofpower demand assumes the recovery of the Turkish economy and its projectedfuture growth. Given the expected fairly rapid rate of population increase ofabout 2.4% p.a., it implies a rise in electricity consumption per capita fromthe 1978 level of 441 kWh to 1,600 kWh in 1992. This would mean that at thelatter date Turkey would reach the level achieved by Italy in 1966, which doesnot seem unreasonable.

- 101 - ANNEX 4Page 2 of 11

4. There are clearly many uncertainties in making projection for long-term periods. To allow for these, TEK makes alternative projections for thepurpose of the economic analysis, assuming future demand 10% higher and 10%lower than that used for the basic forecast.

Power System Planning

5. TEK has qualified staff with appropriate experience in power systemplanning. Starting from 1972 TEK has been using a computer model based on thelinear programming technique for the optimum development of the electric powersector in Turkey. The model uses linear programming to search for an optimuminvestment program over a 20-30 year period and the associated optimum loaddispatching schedules of the plant during this period. The output of themodel therefore includes the least-cost investment program, the load dispatch-ing schedules and present worth of total capital and operating costs. Thesearch for the optimum investment program has to satisfy a number of con-straints which need to be stated explicitly in the model. The more importantconstraints are:

(a) the available capacity must be sufficient to meet theexpected peak demand plus a reserve for contingency;

(b) the total instantaneous power output of all plants mustbe sufficient to meet the instantaneous power demand atall times;

(c) the instantaneous power output of each plant must notbe greater than its available capacity;

(d) the energy output of a hydro plant cannot be greaterthan the potential energy corrected for losses;

(e) the capacity installed of a given type of plant,particularly hydro and lignite, must not be greaterthan resources permit; and

(f) the plant initially on the system is fixed to certainplanned capacity levels.

There are also a number of special purpose constraints in the model:

(g) the hydro-thermal balance must not exceed a certain ratio;and

(h) the total capacity of a certain type of plant must notbe above (or below) a certain maximum (or minimum).

Other appropriate constraints can be incorporated in the model. Furthermore,the model is very suitable for various sensitivity tests of all input data.The main limitation of the model is its inabilty to examine discrete alter-natives. This problem can be overcome by additional use of the standard

- 102 - ANNEX 4Page 3 of 11

least-cost evaluation methods. TEK has also started to use new computermodels for the power system development planning based on mathematicalsimulation methods.

6. Generally, it may be concluded that the power system planningmethods and procedures in Turkey provide a sound basis for determining theleast-cost development program for the sector using a reasonable range ofdiscount rates (up to 16%).

Alternative Development Strategies

7. Generating capacity existing or under construction can hardly meetthe forecast requirements on the main projection through 1983. The totalinstalled capacity at that time will amount to 11,354 MW, comprising 3,953 MWhydro and 7,401 MW thermal. Firm hydro capacity assuming 85% availability forall existing hydropower plants (as confirmed by past experience) will be 3,360MW, and firm thermal capacity, assuming 70% availability, 5,181 MW. Systemfirm capacity, therefore, will be 8,541 MW, compared with forecast peak demandin 1983 of 7,960 MW. The corresponding hydro generation capability is 15,055GWh, assuming an average hydrological year, or 9,890 GWh in the critical dryyear. For the thermal plant, the corresponding figure is 29,083 GWh. Thisgives a total firm system capability of 38,973 GWh, which is not sufficient tocover the TEK forecast requirement of 40,710 GWh.

8. Between 1983 and 1986, the additional generation reouirement is14,242 GWh and the corresponding increase in peak demand is 3,280 MW. Newgenerating capacity will have to be installed to meet these additional powersystem requirements. The feasible technical options for this purpose coverhydro plants, conventional steam plants (lignite and oil-fired), nuclearplants ( only hypothetically due to the long lead times) and gas-turbines.

9. Past power development in Turkey has been based primarily on theutilization of the country's resources of hydropower and lignite. Only 30%of the hydropower potential of Turkey has been developed or is under con-struction. The Euphrates River basin with usable hydropower potential of31,000 GWh is the most promising part of the country's remaining hydropowerresources. Lignite reserves, particularly those at Elbistan, offer thegreatest possibility for the construction of new thermal power plants.Since domestic oil fuel reserves are very small, Turkey is trying to reduceits dependence on imported fuel oil, especially in the power sector, wherethe utilization of hydropower and lignite reserves could be further developed.

10. Turkey's long-term development strategy is based on progressiveexploitation of the country's hydropower and lignite resources, supplementedby the introduction of the first nuclear power plant after 1987 and furthernuclear power capacity on a growing scale from 1990 onwards. The developmentprograms envisage that the economic hydropower potential will be developedby the year 2000 and that to meet the projected growth of demand of installedcapacity and power generation, the system will grow as follows:

-103 - ANNEX 4Page 4 of 11

Hydro Thermal TotalYear MW GWh MW GWh MW GWh

1983 3,953 15,055 7,401 29,083 11,354 44,1381986 8,088 30,931 7,888 43,061 15,976 73,9921988 9,996 35,885 9,224 53,179 19,220 89,0641990 13,488 47,469 10,424 60,919 23,912 108,3881992 14,544 51,798 13,824 79,924 28,368 131,722

10. The TEK studies confirmed that, on the basic load forecast adopted,further generating capacities would be needed after 1983. The TEK study 1/investigated least-cost investments in the power sector for the period1982-2002. All hydropower potential grouped in 26 basins and availablefossil fuel resources were considered. The study evaluated the alternativeinvestment programs using the linear programming method. The objective ofthis study was to choose an investment program and its associated optimum loaddispatching schedule by minimizing the discounted total of capital and opera-tion costs over the specified period. In this study particular attention wasgiven to a balanced use of hydro and thermal resources. In addition to theconstraints regularly used in the previous studies two other constraints (orcriteria) common to all the alternatives considered were the assumptions that(i) Turkey will utilize firstly her main domestic indigenous energy resources(hydropower and lignite) before turning to imported resources (fuel oil andnuclear) and (ii) the first nuclear power plant (600 MW) will be commissionedin 1988 regardless of its economy. In regard to hydro and thermal balance twocases were studied: (a) when the ratio of hydro/thermal capacity is restrictedto 50% hydro and 50% thermal; and (b) when this restriction is not applied.The plant installed capacity was assumed to be on average about 33% over peakdemand (but not less than 30%) in order to cover all unexpected conditions,such as dry seasons, delays in commissioning, forced and scheduled outagesin generating and transmission facilities and uncertainties in the appliedassumptions. In the sensitivity analysis the discount rates of 11.5%, 14%and 16% were used. The discount rate of 11.5% is the officially used ratein Turkey for public utilities projects. This rate is determined by the StatePlanning Organization and recommended to be used for economic evaluation ofvarious public projects. Capital costs and fuel costs were also increased by15% in order to test the sensitivity of the study results. Furthermore, theresults were tested in the case of reduced load demand values by 10%. Thestudy divided investments over the whole period 1982-2002 into five sub-periods, using as average representative years: 1983, 1985, 1987, 1990, 1991and 1997. The plant already in operation and under construction is expectedto meet requirements through 1982. Existing and future power generatingplants were classified into nine groups according to their capital costs andload factors. Practically all identified hydro and thermal plants wereincluded, although it is obvious that they have not all been elaborated

1/ "Long-Term Optimum Investment Program using Linear Programming(1982-2002)".

- 104 - ANNEX 4Page 5 of 11

to the same extent, and many of them lack essential technical documentation,feasibility studies, engineering designs, etc. The Karakaya hydropower plantwas treated individually in order to indicate its specific merits and justifyits choice. In all cases considered, including the sensitivity tests, theKarakaya project was found to be a part of the least-cost investment programfor the power sector. In the studies the Karakaya project was shown to bethe most promising new hydropower generation development. The consultant'sstudies, based on the same data, confirmed this conclusion.

11. The TEK study (para 10) gave the following results regarding theKarakaya project: (i) in the case based on non-restricted hydro/thermalbalance, discount rates of 11.5-16%, and the basic load forecast, capitalcosts and fuel costs, 716 MW of the Karakaya capacity would need to be com-missioned in 1984, followed by the remaining 1,084 MW in 1986; (ii) assumingthe reduced load forecast, with the other assumptions unchanged, 738 MW of theProject installed capacity would be required in 1985 and the remaining 1,062MW in 1987. The latter case indicates the postponement of the required plantcommissioning by two years.

12. The TEK study justifies the proposed installed capacity (1,800 MW)of the Project by comparing it with other available hydro and thermal re-sources. A detailed load allocation analysis was carried out for the Turkishsystem for the period up to the year 2000 with and without Karakaya. As shownin Attachment 1 to this annex, the analysis indicated that the output fromKarakaya can be divided into base and peak components. The base componentis 907 MW and 7,629 GWh (including the extra production of Keban due to theregulating effect of Karakaya). These are the amounts of base power andenergy that must be replaced when Karakaya is not included in the system.The equivalent thermal capacity required (nuclear, oil or lignite), assumingan average annual plant factor of 73% (which is considered appropriate forthese plants) is about 1,200 MW. The peak component is 813 MW and 133 GWh(2% average annual plant factor). These again represent the amount of peakpower and energy that must be replaced when Karakaya is not included in thesystem. The gas-turbine units were selected as the most suitable to replacethe corresponding Karakaya peak component in the alternatives considered.Therefore each alternative contains 1,200 MW of base-load plant (lignite,oil or nuclear) and 840-MW of gas-turbine plant for peaking purposes. Foreach alternative 1/ the length of transmission lines needed to connect theplant with the interconnected power system was estimated by considering theprobable location of the alternative plant. In each case single circuit lineswere used as TEK's plans do not envisage double circuit lines. The length oftransmission lines for the alternative programs are the following:

1/ The length of transmission lines needed for Karakaya - 1,300 km.

- 105 - ANNEX 4

Page 6 of 11

(a) lignite program 1,100 km(b) oil-fired program 300 km(c) nuclear program 500 km

The existing transmission network was considered adequate for the additionalgas-turbine plants.

Comparison of Alternatives

A. Assumptions

13. Given that the Karakaya Project was the preferred hydropower choiceto meet the forecast load growth, the next step was to compare the programincluding Karakaya with the alternative developments if Karakaya is excludedfrom the plant program. As indicated above, the feasible technical optionsavailable for replacing Karakaya would be lignite, oil-fired, nuclear-fueledand gas-turbine plants. Since the basic assumption is that the power systemdevelopment is the same for all alternatives up to the first commissioningof Karakaya (i.e. up to 1985), the economic justification is, therefore,concerned only with the analysis of differences between these alternatives.In the lignite-fired, oil-fired and nuclear-fueled programs the base energycomponent of Karakaya is always replaced by base-load plant (lignite, oil ornuclear) and the peaking component by gas-turbine peaking plant to provide thesame quality of energy as Karakaya. As indicated above, this would require1,200 MW of base-load thermal capacity and 840 MW of gas-turbine peakingplant. For the alternative thermal programs, the following assumptions weremade:

(a) Unit Sizes

14. For the lignite-fired alternative it was assumed that additionalcapacity would be installed at the Elbistan site in view of the economicadvantages and adequate reserves of lignite deposits. The four units nowunder construction there are each 300 MW and it was assumed that further unitswould be of the same size, since the advantages of replication were thoughtto outweigh any possible economies of scale through going to larger unitsizes in the later part of the period considered. There is no experiencewith larger lignite-fired generating units in Turkey; furthermore, largersteam generators could be technically complicated and the Turkish power systemcannot yet easily accept generating units larger than 300 MW. For the oil-fired alternative 300-MW generating units were also assumed. For the nuclearalternative, 600-MW size was assumed for the purpose of comparison since itis the smallest unit size commercially available. With somewhat increasedoperational efforts this size (5% of peak demand in 1986) could be accept-able for the power system. Therefore, in the alternatives considered, theKarakaya base-load component was replaced by the following equivalent thermalplants:

- 106 - ANNEX 4Page 7 of 11

a lignite installation of 4 x 300 MWan oil-fired installation of 4 x 300 MWa nuclear installation of 2 x 600 MW

Furthermore, the Karakaya peak component was replaced by 60-MW gas-turbines,since this size was considered appropriate for the Turkish power system.

(b) Technical Assumptions

15. The annual plant factor for the base-load component of Karakayawas found to be 96% (allowing for 4% non-availability of this plant). TheKarakaya peak-load component average annual plant factor was calculatedto be 2% in a detailed computer study of the system. For the alternativenuclear, lignite and oil-fired power plants the annual load factor wasassumed to be 73%. Shut-down time for annual maintenance, in accordancewith the current practice in Turkey, has been three weeks for hydropowerplant in each of the first three years and six weeks in the fourth year.For thermal power plants these values were four and six weeks, respectively.The force outage rate was assumed to be one week per year.

16. A 52-year life for civil works and a 25-year life for equipmentwas assumed for hydropower plants. A 25-year life was assumed for nuclear,lignite and oil-fired plants and 20-year life for gas-turbine plants.Transmission line life was assumed to be 25 years.

17. Specific consumption of fuel-oil (calorific value 9,652 kcal/kg)was assumed as 0.230 kg/kWh (the figure for the existing plants at Ambarli)for oil-fired plants. Specific fuel consumption of 2.4 kg/kWh was takenfor the lignite power plant, assuming a calorific value for lignite of1,050 kcal/kg. Gas-turbine plants were assumed to use gas-oil fuel,locally called "motorin" (calorific value about 10,000 kcal/kg), and tohave a specific consumption of 0.35 kg/kWh, corresponding to the figurefor the existing gas-turbine station at Aliaga.

18. A system load factor of 63% was assumed throughout the forecastperiod.

19. The required reserve of installed generating capacity on thesystem was assumed not less than 30% of peak load demand (para 10).

(c) Capital Costs

20. The estimated capital costs in March 1980 (including physicalcontingencies) were used for the basic comparison. For the Karakaya hydro-power plant detailed cost data are given in Annex 2.2. The consultant'sestimate of LT 61,600/kW (US$880/kW) installed was adopted for the lignitealternative. This corresponds with the cost of the Elbistan B lignite powerplant with four 300-MW units. The consultant's estimate of LT 51,800/kW(US$740/kW) was adopted for the oil-fueled power plant consisting of four300-MW units. The estimate for the nuclear power plant, consisting of two600-MW units, was LT 119,000/kW (US$1,700/kW). The capital cost for thegas-turbine plants was taken as LT 21,000/kW (US$300/kW). The specificcosts of 380-kV transmission lines were assumed to be LT 6.3 million/km

- 107 - ANNEX 4

Page 8 of 11

(US$90,000/km). The above capital costs are within the range of costsrecently obtained from suppliers and Project designs. They are also con-sistent with the cost data for similar power projects in other countries. Toallow for uncertainty, the comparison of alternatives was also made assumingcapital costs for all alternatives 15% higher and 10% lower than in the basecase.

(d) Fuel Costs

21. The current lignite selling price in Turkey of LT 320/t (US$4.6/t)or LT 293.2/million kcal (US$4.2/million kcal) was adopted as the basisfor the evaluation of the lignite alternative. This price is thought to bebelow the marginal cost of supply to additional lignite-fired generatingcapacity, but it was used since no precise estimate of the marginal cost couldbe obtained.

22. The present c.i.f. value of fuel-oil of LT 11,970/t (US$171/t)was adopted as a reasonable estimate of the economic cost of fuel-oil forthe purpose of the comparison.

23. A levelized nuclear fuel cost (at 14% discount rate) of 0.63 LT/kWh(9 US mills/kWh) was calculated for the purpose of the comparison. Thesevalues reflect the consultants current experience with nuclear power plants.The annual nuclear fuel costs were also adjusted for the assumed averageannual running period of the nuclear plants, 4% less than that of largeoil-fired plants.

24. The present c.i.f. value of gas-oil (motorin) for the gas-turbineplants was adopted i.e. LT 20,020/t (US$286/t). This results in a fuel costfor the gas-turbine plants of LT 7.01/kWh.

25. In view of the uncertainties, the effect on the comparison of fuelcosts 20% higher and 10% lower than the figures quoted was also tested.

(e) Operating and Maintenance Costs

26. The annual fixed 0 & M costs were assumed to approximate thefollowing percentages of total capital costs:

Hydro Plant:Civil works 0.30Equipment 1.50

Lignite Plant 1.61Oil-fired Plant 1.14Nuclear 1.78Gas-Turbines 0.18Transmission Lines 1.50

- 108 - ANNEX 4

Page 9 of 11

(f) Load Growth

27. The main load forecast for Turkey was used for the base-case com-parison of alternatives (Annex 1.6). To allow for uncertainty, comparisonof the alternatives was also made assuming annual load growth 10% less thanthe values given in the main load forecast.

(g) Foreign Exchange

28. The Turkish currency is floating. The exchange rate effectiveMarch 1980 was LT 70 = US$1. This rate has been adopted here for conversionof foreign costs to domestic currency for the comparison of the alternatives.

(h) Unskilled Labor

29. There is a surplus of unskilled labor in Turkey and this is expectedto persist over the foreseeable future. About 75% of the unskilled laborrequired for Project construction is expected to come from the Project area,the remainder from north-east Turkey.

(i) Secondary Benefits

30. Some secondary benefits for future power and irrigation projects areexpected from the Karakaya project, especially in the case of the Ataturkmultipurpose power project, as a result of the more regulated Euphrates Riverflows downstream of the Project dam site. However, since these have not beenquantified, they have not been taken into account in the comparison of thealternatives.

B. Adjustment of Costs for Economic Evaluation

31. For the economic evaluation of the alternatives it was necessary toexpress the various inputs in terms of their economic values, requiring theuse of efficiency rather than market prices. These efficiency prices measurethe opportunity cost to the economy of the inputs in terms of their value intheir best alternative use. Moreover, since all the alternatives involve bothforeign exchange costs for "tradeable" goods and services (i.e. either importedor, if supplied locally, exportable) and domestic costs for non-traded inputs(such as land and unskilled labor), it is necessary to bring these to a commonbasis for the purposes of the economic analysis. This was done by derivingeconomic values for all inputs, as measured by international (or "border")prices, as follows:

(a) Capital Costs

32. A detailed list of the individual items of equipment, materials andservices comprising the Project's capital costs was prepared. Similar listswere made for all alternatives with which the Project was compared for theleast-cost evaluation. The items in these lists were then classified bycategories as follows:

- 109 - ANNEX 4

Page 10 of 11

(i) Items expected to be supplied from abroad. These werevalued at their c.i.f. costs.

(ii) Items expected to be supplied locally but which could beexported if not required for the Project or its alterna-tives. The only such item identified was cement, whichwas accordingly valued at its f.o.b. price of US$51/t.

(iii) Other items (including internal transport) supplied locallybut which are not exportable. Where these embodied identi-fiable imported items, the latter were valued at theirc.i.f. costs. The residual local costs (except unskilledlabor) were then converted to their border price equivalentsusing a "standard conversion factor" (SCF), which representsthe ratio of the value of border prices of all exports andimports to their value at domestic prices. For Turkey theSCF has been estimated at 0.59, implying a shadow exchangerate of LT 119 per US$1.

(iv) The efficiency price for unskilled labor in Turkey is esti-mated to be 0.57% of the market wage rate. The unskilledlabor costs associated with each alternative were thereforeadjusted to their economic values using this factor.

(v) The market cost of land was converted to its economic valueby application of the SCF.

(b) Fuel Costs

33. The c.i.f. prices as indicated above, for fuel-oil, gas-oil andnuclear fuel were used for the comparison of alternatives, since it isassumed that these would have to be imported. Lignite was valued at itscurrent selling price (para 21), multiplied by the SCF of 0.59. Onlythe incremental fuel costs of each alternative were considered in theeconomic analysis.

(c) Operating and Maintenance Costs

34. The various items comprising operation and maintenance costswere treated similarly to the capital and fuel costs.

C. Results of Comparison

35. The economic values of the cost streams associated with each ofthe four development alternatives, on the basic assumptions regarding thevalues of the main variables, are shown in Attachment 2. The net presentvalues were calculated over a range of discount rates from 10 to 55% andthe results were shown in Attachment 2. The results indicate that the

- 110 -

ANNEX 4Page 11 of 11

Karakaya hydropower program has the lowest present worth up to a discountrate of 53.5%. Since the estimated opportunity cost of capital in Turkeyis around 11%, this indicates that the Karakaya project is part of the least-cost means of meeting future power requirements on the main assumptions used.The conclusion was tested for sensitivity to the different values for thevariables given above. The results, which are summarized in Attachment 3,indicate that the choice of the Karakaya Project is not affected by thesechanges.

Return on Investment

36. The internal economic rate of return (IRR) on the Project is thediscount rate which equalizes the present values of the time-streams of thecosts and benefits over the life of the Project. The costs are the attri-butable financial costs of the Project adjusted for taxes, internal transfersand sunk costs, and converted to their economic values as described above(para 31). The benefits comprise the revenues from incremental power salesattributable to the Project, adjusted to their economic values by applicationof the SCF of 0.59. The detailed figures are shown in Attachment 4.

37. The simulation studies carried out by the consultant using hydro-logical data for the period 1937-75 indicated that the average annual genera-tion and sales attributable to the Project would be as follows:

-------------…GWh--------------1985 1986 1987-2035

Generation 2,773 6,378 7,762Losses and Station Use 300 700 852

Sales 2,473 5,678 6,910

38. The resulting internal economic rate of return (IER) on the Projectis estimated to be at least 15.1%, assuming current electricity rates (April1980), which give an average revenue of LT 2.8/kWh. Sensitivity tests showedthat tariff rate increases to achieve TEK's 8% financial rate of return wouldresult which in an IER of 24.65%.

April 1980

ANNEX 4- 111 - ~~~~~~~Attachment1

TURKEYAPPRAISAL OF THE KARAKAYA HYDROPOWER PROJECT

System Load Diagram

LOAD(%)

100 . .PEAK THERMAL

> ~~KARAKAYA (pea k energy )90

80\

60_

OTHER HYDRO

40i

40

NUCLEAYAR......

301 -0 3 0 5 0 7 0 9 0

THERMAL~ ~ ~ ~~~~Wol (linik an coal)

TURKEY

KARAKAYA HYDROPOWER PROJECT

Cost Streams and Present Values, Karakaya Hydro( LT Mi lli ons )

---------------------------------------- CAPITAL COSTS_- - - ---- ____________________________ _ ________________________ ------------- OPERATION AND MAINTENANCE-_-------- TOTAL COSTS(Eeon. Value)

--------------- Equipment, Mterials & Land----------------- ----…--------labo ------------ Total Capital Costs-- -Equip. & Materials…- - L---abor…-------~~~~(REcosoic Vatlue)Year EndIng Direct Local Indirect Local Non- Lcl local Local Un- Direct Local Noe- Un-

December 31, Foreige Tradeable Foreign Tredeabta Tranolort Foreigr. Skilled Skilled Porei Lal Total5 F7reig Tradeable Skilled Sklled Total P.se Case(3X~2 T2& 9&0 (E57.value)

5&7&8)(1) (2) (3) ! (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17)

1980 7,148 132 281 2,309 183 612 485 232 8,041 2,021 10,062 - - - - - 10,0621981 2,305 132 282 3,1453 185 433 485 232 3,020 2,697 5,717 - - - _ _ 5,717

1982 6,213 132 282 3,935 211 471 617 264 6,966 3,093 10,059 - - _ _ - 10,0591983 6,870 83 192 3,989 272 465 954 329 7,527 3,347 10,874 - - - _ - 10,874

1984 3 , 5 2 t 83 190 4,320 357 370 i,405 442 4,o84 3,864 7,948 - - - _ _ 7,948

1985 1,590 83 157 1,537 88 340 338 114 2,087 1,306 3,393 6 50 175 47 136 3,5291986 1,417 59 113 210 50 337 179 65 1,867 355 2,222 7 55 21.0 55 162 2,384

1987 1,o54 46 86 163 35 274 i42 50 1,414 275 1,689 8 64 241 68 189 1,8781988-2001 - - - - - - - - - - - 8 64 241 68 189 189

2005 706 - _ _ _ 20 _ - 726 - 726 8 64 241 68 189 9152006 859 - 2 14 2 23 3 0 884 11 895 8 64 241 68 189 1,0842007 2,184 - - 136 21 64 114 28 2,248 176 2,424 8 64 241 68 189 2,613

2008 3,140 - 5 578 93 110 515 129 3,255 773 4,o28 8 64 241 68 189 4,2172009 4,503 - 9 1,0911 177 169 983 246 4,681 1,470 6,151 8 64 241 68 189 6,340 a

2010 3,156 - 15 684 104 107 494 n6 3,278 823 4,101 8 64 241 68 189 4,290 o2011 3,153 _ 10 795 126 117 680 165 3,280 945 4 225 8 64 241 68 189 4,414

2012 1,252 - 7 i68 24 37 78 15 1,296 168 1,464 8 64 241 68 189 1,653

2013 411 - 2 24 3 11 4 41l 424 42 466 8 64 241 68 189 6552014-2036 _- - - - - 8 64 241 68 189 189

---------- TOMAL COSTS-----------15% Higher 10% Lower

% Base Case Capital Costs Capital Costa

Present Values at: 10 44,162 50,786 39,74615 38,724 44 533 34,85216 37,899 43,580 34,1o618 36,398 41,857 32,75820 35,o68 40,328 31,56122 33,870 38,951 30,48324 32,780 37,697 29,50226 31,800 36,547 28,602

28 30,857 35,485 27,771 . o30 30,001 34,501 27,00132 29,205 33,586 26,28534 28,463 32,732 25,61735 28,110 32,326 25,2994o 26,507 30,483 23,85645 25,132 28,902 22,61950 23,942 27 534 21,54855 22,904 26,340 20,614

April 1980

TUKEKY

KARAKAYA HYDRO011POOW PROJECT

Cost Streets and Present Values. Lignite Alternative(LT Minions'

------------------------------------- CAPITAL COSTS- ------------------------------------- -------------- OPERATION AND MAINTENANCE -------------- ---------------- FUEL COSTS------------------ - ---_-_----__ TOTALCOT -------------

---------------- Equipment and ter-i6 -e----------------- -- a---------- L^br ------- e _ q.ip-.nt -nd Wterias ----- ------ Lrbor------- ---- Limite Coat ----- ------ Ga. Oil------- 1Cepitel- -(O- -Fel- -TTtel-Year Elding Dire-t local Indirect Local Nen- Internal LocAl Locnl Uo- Direct Indirect LocAl Eon- loca(1 (ca1 Ua- Indirect locl Nle- Direct Local Non-Deceober 31, Foreign Tr-deable Foreign Tnssleetble Tr-n-po-t Foreign Skilled Skilled Foreign Foreign Tradeoble Sl li kE.d Feign Tdeable Ftig T-radeatble

19801981 1,879 50 i4i 1,030 90 215 382 142 - - - - - - - - - 3,252 - - 3,2521982 9,449 251 706 1,183 453 1,077 1,995 718 - - - - - - - - 16,395 - - 16,3951983 15,475 402 1,130 8,506 760 1 747 3,399 1,199 - - - - - - - - - 26,910 - - 26 9109s84 9,721 226 647 4,945 459 1,011 2,040 703 - _ _ _ - - 1 - _ 16,398 - - 16,398

1985 7,416 50 271 1,432 i86 330 612 178 7 18 252 250 120 3,2501 2,580 - - 9,484 241 4,772 14,4971986 9,456 25 131 1,128 192 286 530 126 19 35 50o 508 240 890 5,058 125 7 1i,o61 790 4,003 15,854

1987-2003 - - - - - - - - 23 35 512 516 24o 877 4,982 930 56 - BO1 4,779 5s5802G04 857 - 11 64 15 18 36 6 23 35 512 516 240 877 4,982 930 56 957 801 4 779 6,5372105 5,567 - 129 418 99 118 236 40 23 35 512 516 240 877 4,982 930 56 6,278 801 4 779 11,8582006 10,445 50 201 1,672 242 397 754 204 23 35 512 516 240 877 14,982 930 56 12,783 801 4,779 18,3632007 9,449 251 706 5,183 453 1,077 1,995 718 23 35 512 516 24o 877 4,982 930 56 16,395 801 4,779 21,9752008 15,475 402 1,130 8,506 760 1,747 3,399 1,199 23 35 512 516 240 877 4,982 930 56 26,912 8oi 4,779 32,41902009 8,864 226 636 4 881 444 993 2,0o4 697 23 35 512 516 24o 877 4,982 930 56 1,44o 801 4,779 21,0202010 1,849 50 142 1,041 87 212 376 138 23 35 512 516 240 877 4,982 930 56 3,219 801 4,779 8,7992011 899 25 71 486 4ho i0 168 64 23 35 512 S16 24o 877 4,982 930 56 1,536 801 4, 779 7,116

2012-2023 - - - - - 23 35 512 516 240 877 4,982 930 56 - 801 4,779 5,5802024 857 - 11 64 15 18 36 6 23 35 512 516 240 877 4,982 930 56 957 801 4,779 6,5372025 5,567 - 129 4i8 99 118 236 40 23 35 512 516 240 877 4,982 930 56 6,278 801 4,779 11,8572026 8,566 - 60 642 152 182 362 62 23 35 512 516 240 877 4,982 930 56 9,425 801 4,779 15,00S

2027-2036 - - - - - - - 23 35 512 516 240 877 4,982 930 56 - 801 4,779 5,580

lapitnl costs Capital Coats Fuel Cotos FPol Costo Capita1 Conts 15% Nigh-e Load F-oroo.stE Base - e 15% 10% Lower 20% Higher 10% L-or % Fucl Coats 20% Higher 10% Lawer

Present t

lues of 10 103,171 113,884 96,030 109,522 99,996 120,235 101,855 -TotAl Costc ot 15 74,241 82,701 68,6do 77,810 72,457 86,269 72,752

16 70,435 78,577 65,007 73,666 68,82o 8,1808 68,87818 63,959 71,543 58,902 66,638 62,619 74,222 62,64o20 58,625 65,730 53,889 60,878 57,500 67,982 57,80022 54,131 60,815 49,065 56,044 53,174 62,728 53,34224 50,271 56,581 46,o65 51,913 49,451 58,222 49,62126 46,908 52,880 42,9e7 48,328 46,199 54,299 46,31528 43,942 49,606 40,166 45,178 43,324 50,842 43,48o30 41,300 46,683 37,712 42,383 40,759 47,766 40,81032 38,928 44,052 35,513 39,883 38,452 45,007 38,50134 36,785 41,669 33,529 37,629 36,363 42,514 36,40035 35,788 40,560 32,600 36,585 35,390 41,356 35,44140 31,425 35,689 28,584 32,027 31,125 36,290 31,21045 27,882 31,717 25,326 28,346 27,651 32,181 27,71250 24,9549 28,419 22,636 25,313 24,767 20,783 24,81055 22,485 25,641 20,382 22,775 22,341 25,931 22,402

1/ Includen direct foreign fuel -cot fFor Aborl.2

April 1980 to

TURKEY

KARAKAYA IrYDROPGIE8 PROJECT

Cost Strea and Preset Values, Duel Oil AlterntiveILT Million5c!

----------------------------------- _ CAPITAL EI.CSTJ_D- _-----___________________________ ---------DOPERATIODN & MNTENCE--------- ____________ FUEL CESTS------------------ ------------- TOTAL COSTS------------

-__ul__---_ -- Fquiprent d MtriAls---------------- ----------- LbEquip. & terial- Lab-Fuel i - GA - capital- -O -Fuel- -otYear Ending Direct Local Indirect Local con- Dolorool LOCAl Local Vn- DirUet Local VU- Local Local VP- Direst Lo-al Non- Direct Local Nan-

IDeceber 31, Foreign Tr-deAble F-reign Tradeable T-sport Foreign Skilled Skilled Foreign Tradeable Stilled Skifled Foreign TrAdeable Foreign TIadeable

19801981 53 32 5 4 31 8 - - - - - - - - i02 - - 1021982 2,237 43 81 1,524 124 147 1,015 197 - _ _ _ _ _ - _ 4,191 - - 4,1911983 7,479 187 350 5,273 417 987 3,113 510 - - - - - - - - 13,990 - - 13,9901984 11,802 288 549 7,839 6oi 724 4,500 721 - - - - - - - - 21,499 - - 2134091985 11,897 172 452 4,939 426 526 2,776 433 17 47 248 71 l5,502 779 - - 18,097 232 15,962 34,2911986 9,616 28 114 1,391 205 250 782 127 37 101 502 142 21,267 575 125 7 11 483 474 21,735 33,692

19872003 - - - - - - - 41 105 510 142 20,948 566 930 56 - 485 22,215 22,7302D0

1. 857 - 1 64 15 18 36 6 41 105 510 142 20,948 566 930 56 952 485 22,245 23,687

2005 5,567 _ 129 418 99 118 P36 40 41 105 510 142 20,948 566 930 56 6,281 485 22,245 29,o11

2006 8,619 - 6o 674, 157 186 393 70 41 105 510 142 20,948 566 930 56 9,627 485 22,245 32,3572007 1,867 43 81 1,302 110 122 800 141 41 105 510 142 20,948 566 930 56 3,498 485 22,245 26,2282008 7,479 187 350 5,273 417 484 3,113 520 41 105 510 142 20,948 566 930 56 13,990 485 22,245 36,7202009 10,945 288 538 7,775 586 706 4,464 715 41 105 510 142 20,948 566 930 56 15,518 485 22,245 38,21582010 6,330 172 323 14,521 327 4o8 2,540 393 4] 105 510 142 20,948 566 930 56 11,816 485 22,245 34,5462011 1,050 28 54 749 53 68 420 65 41 105 510 142 20,948 566 930 56 1,958 485 22,245 24,688

2112-2043 - - - - - - - - 41 105 510 142 20,948 566 930 56 - 485 22,245 22,7302024 857 - 11 64 15 18 36 6 41 105 910 142 20,948 566 930 56 957 485 22,245 23,6872025 5,567 _ 129 418 99 118 236 4D 4i 105 510 142 20,948 566 930 56 6,281 485 22,245 29,0112026 8,566 - 60 602 152 182 362 62 41 105 510 142 20,948 566 930 i6 9,525 485 22,245 90,255

2027-2036 - - - - - - - - 41 105 510 142 20,948 566 930 56 - 485 22,245 22,730

CFpital Costs Capital Costs Fpnl Costs Fuel CDets Capital Coats 15% HigherB Di-c Case 15% Highser 10% Lover 20% Highbr 10 -Looer 4 Fuel Dsata 20% HUgher

Present Vsloes ofTotal Costs at: 10 199,874 208,006 194,453 229,007 185,308 237,139

15 123,004 129,261 118,833 139,262 114,875 145,52016 113,408 119,396 109,416 128,106 106,G59 134,09318 97,518 103,030 93,848 199,672 91,441 i1,18420 84,938 90,040 81,537 95,124 79,846 100,22522 74,763 79,504 71,602 83.394 70,447 88,13524 66,384 70,804 63,437 73,768 62,692 78,18726 59,380 63,512 56,626 65,748 56,197 69,88028 53,453 57,323 50,872 58,982 50,687 62,85330 48,380 52,013 45,959 53,214 45,964 56,84632 44,8O1 47,417 41,725 48,248 41,878 51,66334 40,189 43,405 38,045 43,939 38,314 47,15535 38,465 41,587 36,383 141,995 36,699 45,1174o 31,286 33,993 29,482 33,934 29,962 36,6145 25,908 28,271 24,332 27,937 24,893 30,30150 21,770 23,868 20,385 23,354 20,979 25,43255 18,519 20,357 17,294 19,773 17,893 21,611

April 1980

:iMKEY

K2RA0AYA HYDROPOWER PRTO.ECT

Cost Streana and Present Values, Nuclear Alternative

'LVT Icnlicaa)

-I CTP-A-A-------_-----------------D 0-TCAPITAL COSTST------------------------------------- ---------------TOPERATION AND INThDANCE0------------- ---------------- _FU--TAL COSTS -------------

----------------- Equlpn.t aad Usterisls__---a----___a__N ------------ I-b-or------_----- ------ Egu1p. & Bt-nala------- --- L-b-Nuclear Faue-----i --- 1 Fl_ _ -------- Oil------- -CpitI- -04M- l- -Tstal-Yesr Eding Direct L-al Indirect Local Nun- Intern.l Direct Lucal local -U- Direct Indirect local Nan- L-an L-ai Un- Direat Local Nun- Direct Local Non-Dece-ber 31, FVrelgn Tradeable F-reign Tradesble Tranaport Foreign killed Skilled Fureige F-reiga Tradeable Skilled Skilled Foreign Tradeable Foreign Tradeable

19801981 3,078 44 19 739 54 592 337 95 - - - - - - - - - 4,454 - - 4,4541982 9,718 139 60 2,348 174 1,873 1,16o 305 - - - - - - - - - 14,136 - - 14,1361983 22,233 316 136 5,425 41ii 4,299 2,779 7]5 - - _ - _ _ _ _ _ 32,474 - - 32,4741984 26,94ol 379 163 6,667 519 5,237 3,427 997 - - - - _ _ - _ _ 39,492 - - 39,4921915 17.522 234 112 4,201 34o 3,261 2,164 565 - - - - - - - 4,500 180 29,407 - 4,606 3010131986 13,513 114 178 21337 242 1,648 1,256 288 369 37 54° 325 27 4,7o0 150 460 23 17 880 932 5,262 24,0741987 11,204 38 76 1,275 198 668 725 143 739 73 1,o84 656 S3 4,662 143 930 56 13,364 1,869 5,709 2o,942

1988R2004 - - - - - - - - 743 73 1,088 664 53 4,662 1143 930 56 - 1,880 5,709 7,5892005 857 - Vl (4 15 18 36 6 743 73 1,088 664 53 4,662 143 930 56 957 1,880 5,709 8,5462006 8 645 44 148 1,157 153 710 573 135 743 73 1,088 664 53 4,662 143 930 56 10,735 1,880 5,709 18,324 I2007 189284 139 120 2,990 326 2,055 1,522 367 743 73 1,088 664 53 4,662 143 930 56 23,662 1, 80 5,709 31,2512008 22,233 316 136 5,425 411 4,299 2,779 715 743 73. 1,088 664 53 4,662 143 930 56 32,474 1,880 5,709 409,632009 26,940 379 163 6,667 519 5,2137 3,427 897 743 73 1,038 664 53 4,662 l43 930 S6 39,492 1,880 5,709 47,5812010 16,655 234 101 4,137 325 3,243 2,128 559 743 73 1,088 664 53 4,662 143 939 56 24,440 1,880 5,709 32,0292011 7,946 114 49 1,919 143 1,530 1,9026 248 743 73 l,o88 664 53 4,662 143 939 56 11,602 1,880 5,799 19,1912012 2,638 38 16 633 46 5C6 363 81 743 73 1,o88 664 53 4,662 143 930 s6 3,859 1,880 5,709 11,448

2013-2024 - - - - - - - - 743 73 1,088 664 53 4,662 143 930 56 - 1,880 5,709 7,5892025 857 _ 11 64 1S 18 36 6 743 73 i,i08 664 53 4,662 143 930 56 957 1 880 5,709 8 5461026 5,567 - 129 418 99 'iS 136 40 743 73 1,999 664 53 4,661 143 939 96 6,281 1,890 5,:709 13,879102807 8,566 60 642 152 182 362 62 743 73 1,088 664 53 4,662 143 930 56 9,515 1 880 5,709 17,114

1028-2036 _ - - - - - - 743 73 1,088 664 53 4,662 143 930 56 - 1,880 5,709 7,589

Capital Costs Capital Costa Fuel Casts Fuel Casti Capital COsts 15% 11g1crI Base Cane 15% High.r 10% Lacer 20% Higher 10% Loose & Peel CTsts 20% Higher

Preocat Values ofTotal Cost5 at: 10 158,231 176,337 146,159 165,735 154,478 183,841

15 113,444 127,314 164,198 117,649 111,347 131,51016 107,465 120,739 98,616 111,260 105,568 124,53418 97,233 19,463 89,080 102,374 95,663 112,60320 88,751 1009088 81,193 91.395 87,434 102,72222 81,565 92,124 74,525 83,799 80,448 94,359821 75,371 85,243 68,799 77,294 74,415 87,15526 69,961 79,217 63,790 71,611 69,135 90,86728 65,182 73,884 59,381 66,617 64,465 75,31930 60,926 69,124 55,461 62,181 60,299 70,37932 57,107 64 946 51,948 58 211 56,556 65,94934 53,661 60,979 48,782 54,636 53,173 61,95435 52,61 59,181 47,313 52,979 51,602 60,09940 45,o84 51,329 40,929 45,774 44,739 52,0184S 39,463 44,985 35,782 39,993 39,198 45,51550 34,856 39,774 31,578 35,271 34,649 40,188

55 31,028 35,435 28,089 31,356 30,863 35,764

April 1980

- 116 -

ANNEX 4Attachment 3

TURKEY

KARAKAYA HYDROPOWER PROJECT

Sensitivity Analysis of Alternative Developments

Discount Rate up to which theKarakaya Project is theLease Cost Development

Base Case 53.5%

Capital Costs 15% Higher 52.6%

Project's Capital Costs 15%Higher and Lignite Costs10% Lower 38.0%

Project's Capital Costs15% Higher and LigniteCosts 20% Higher 43.5%

Project's Capital Costs15% Higher and FuelOil Base Case 42%

Project's Capital Costs15% Higher and LoadForecast 10% Lower 42%

Project's Base Costs andFuel Oil AlternativeBase Case 48%

April 1980

- 117 - ANNEX 4Attachment 4

TURKEY

KARAKAYA HYDROPCWER PROJECT

Costs, Benefits and Rate of Return on the Project (Economic Values)(LT Millions)

Year ending -----------------------COSTS --------------------- ---- BENEFITS---December 31, Capital Costs 0 & M Costs Total Costs (Current Rates)

1980 10,062 - 10,062 -1981 5,717 _ 5,717 _1982 10,059 - 10,0591983 10,874 - 10,8741984 7,948 - 7,9481985 3,393 136 3,529 4,0851986 2,222 162 2,384 9,3801987 1,689 189 1,878 11,415

1988-2004 - 189 189 11,4152005 726 189 915 11,4152006 895 189 1,084 11,4152007 2,424 189 2,013 11,4152008 4,o28 189 4,217 11,4152009 6,151 189 6,340 11,4152010 4,101 189 4,290 11,4152011 4,225 189 4,414 11,4152012 1,464 189 1,653 11,4152013 466 189 655 11,415

2014-2036 - 189 189 11,415

International Econo=ic Rates of Retu )

a) Base Rates as of January 1980 15.05%b) Base Rates 34% higher g/ 18.75%c) Base Rates 100% higher 3/ 24.65%d) Capital Cost 15% higher 13.45%e) Capital Costs 15% lower 16.35%f) Capital Costs 15% and Rates 34% higher 16.95%g) Capital Costs 10% lower and

Rates 100% higher 26.35%t

1/ Standard conversion factor (0.59).2/ Conversion factor for consumption goods (0.79).3/ Rates expected to be in effect over the

Project period.

April 1980

- 118 - ANNEX 5Page 1 of 2

TURKEY

KARAKAYA HYDROPOWER PROJECT

Selected Documents Available in the Project File

1. Engineering and Economic Feasibility of Keban Dam and HydroelectricProject of the Firat River Development, Ebasco Services, USA, 1963.

2. International Water Problems, Keban Dam - Euphrates River, Hathaway et al,1965.

3. Lower Firat Project Feasibility Report, Electro-Watt et al, 1970.

4. Karakaya Dam and Hydroelectric Project, Electro-Watt et al, 1970.

5. Karakaya Hydroelectric Power Development, Supplementary Information,Electro-Watt et al, 1976.

6. Optimum Development of the Electric Power Sector in Turkey, a case studyusing Linear Programming, IBRD, 1972.

7. Karakaya Dam and Hydroelectric Power Plan Main Civil Works Contract, DSI,1976.

8. Studies of Reservoir Filling for Projects on the Euphrates River, R.L.Walker & Partners, 1974.

9. Karakaya Dam and Power Plant, Design Report, Electro-Watt et al, 1974.

10. Karakaya Dam and Hydro-Electric Power Plant, Bidding Documents, DSI,1974.

11. Project Cost Data, DSI/Dolsar 1979.

12. Power Sector Development Data, 1979-1986, TEK/DSI.

13. Karakaya Dam and Power Plant, Drawings, Electro-Watt et al, 1975.

14. Karakaya Project and Its Environment, Electro-Watt et al, 1977.

15. General Directorate of State Hydraulic Works, DSI, 1977.

16. Ic Iskan Hizmetlerinde Karsilasilan Sorunlarin Cozumu Hakkida YapilarCalismalar, Koy Isleri Bakanligi, 1976.

17. Studies of Reservoir Filling for Karakaya Project, Euphrates River,Turkey, R.L. Walker & Partners, 1976.

- 119 -

ANNEX 5Page 2 of 2

18. Preliminary Study of Reservoir Filling and Operation for Projects in theEuphrates River, Tigris and Euphrates River Basins Work Program, Stage 1,IBRD 1975.

19. TEK's Wholesale and IETT's Retail Tariffs.

20. Lower Euphrates Basin 1977 Survey, Middle East Technical University,Istanbul, 1977.

21. Surveys in the Lower Euphrates Basin, O.D.T.U., Ankara, 1977.

22. Appraisal Working papers and Computer printouts.

23. Karakaya Dam and Hydroelectric Power Plant Collected Conditions ofContract - J.V. Italstrade Torno-ERC, December 1976

April 1980

IBRD 14798

BULGARIA *- A \ j AM 4 444 OAKLARO AS

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_ ep,>oongto>Fic¢aJl/sddomfhed ( g/ __; \ TglYk=,/g g / < ~~~KARAKAYA HYDROPOWER PROJECT i

WhsgaRnttwisls;xh!k=r tS e - . 99umy _AioXv2 C f, ~~~~~~~~~~~~MAN GENERATION AND TRANSMISSION SYSTEM

onvS-w t~~~~~~~Es n 0 ff E ' eR k A NF A N ;1hky enj_K.,.k.,. Hyd--pwe PrulecF

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J O R D A N ><i

TURKEY *'*> | LTHE KARAKAYA HYDROPOWER PROJECT - AnNasiy

Hydropower Developments in the Euphrates River BasinHydropower Projects

Project __

30' = Under Construction or Planned_ Ex,st,ng 0 50 100 150 200 N

Rivers~I 1 KILOMETERS

I Intermittent Lakes -.E.EC NEUTRAL- Internationol Boundaries ZONE_,,,'

of thar. of the-repor tow hihit ishdateha. Th. d.-sti-tlS -ookanwd th.tfilhgtes, ssy_og nthton th le.galstatoh any S A U D I A R A BtI Ayr

opoe.tne of 00h boo-ndar-o.439° 42- 45° 48° 1 1 1 1 A