FILE COFY RESTRICTEDReport No. TO-417b

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

THE SECOND

CUKUROVA ELECTRIC COMPANY PROJECT

TURKEY

July 1, 1964

Department of Technical Operations

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

1 U. S. $ = 9 Turkish Lira1 TL = 11 U.S. cents

1 million TL = 111, 111 U.S. $

TURKEY

THE SECOND CUKTJROVA ELECTRIC COMPANY PROJECT

TABLE OF CONTENTS

Page No,

SUMDARY ±

I. INTRODUCTION 1

II. ORGANIZATION OF THE CUK'URO'VA ELECTRIC COMPANY 1Iana gement2Facilities 2

III. THE POWER MARKET IN THE CUKUROVA AREA 3Sales and Capacity of CEC 3Expansion Program 3

IV. THE PROJECT 4The Mersin Plant 4The Kadincik Plant 4The Transmission Lines 5Engineering 5Procurement 5Operation 6Construction Scheduiles 6Cost Estimates 7Justification 8

V. FINANCIAL ASPECTS 8Tariffs 8Financial History 9Present Financial Position 10Past Earnings 12Financing Plan 12Estimated Future Earnirgs 15Future Financial Position 16

VI. CONCLUSIONS 16

List of Annexes

1. Energy Sales and Forecasts2. Peakloads and Forecasts3. Estimated Load Curve and Available and Proposed Capacities4. Details of the Project5. Cost Estimates6. Condensed and Adjusted Balance Sheets 1959-19707. Condensed and Adjusted Income Statements 1959-19708. Forecast of Sources and Applications of Fumds 1964-1970

MAP

TURKEY

THE SECOND CUKUROIVA ELECTRIC T.MPANY PROJECT

SUMiARlY

The Government of Turkey has applied for an IDA credit tohelp finance a powJer expansion program for the Cukurova area and theHatay province. The program consists of a 50 SW steam plant near Mersin,a 100 DU hydroelectric plant on the Kadincik river and 256 km of trans-mission lines. The estimated cost is about TL 390 million ($43.5 million).

ii. An IDA credit of $24.0 million, of which $6.0 million for localcurrency expenditure, would be necessary to complete the financing planprepared for this program by the Cukurova Electric Company (CEC) theutility serving the area to benefit from the program.

iii. CEO, with over 56s, of its stock privately held, is the onlypower company in Turkey with a majority of private capital. It was created,in 1953 after the Government agreed, in connection with Bank Loan 63-TU,to grant it a 49-year concession to operate the power facilities at theSeyhan Dam. It was the main beneficiary of a '1.7 million IDA creditmade in February 1963 to help complete the Seyhan powerhouse with athird 18 MW unit and to finance the foreign exchange cost of engineeringstudies for CEC's expansion program. The third unit is bein£ installedon schedule. The engineering studies have shomn the need and justifica-tion for the expansion program now proposed for IDA financing.

iv. CECts operations are well managed. With the support of con-sultants it would be able to construct and operate the project.

v. Financial performance has been good since CEC was reorganizedand tariffs were raised in 1962. The Government has agreed to authorizea further rate increase in connection with the proposed expansion. Thefinancing plan is reasonable, Financial forecasts show that the soundfinancial position of CEC would be maintained in future years.

vi. The project would be suitable for an IDA credit of $24.0 million.

TURKEY

THE SECOND CUKIJROVA ELECTRTC (OMPANY PFOJECT

I. INTRODUCTION

1. The Government of Turkey has applied for an TDA credit to helpfinance a power expansion program for the Cukurova area and the Hatayprovince. The program consists of: a 50 IW steam plant, 60 Ion southwestof Adana, near Mersin; a 100 ME hydroelectric plant, 50 km west of Adanaon the Kadincik river; and 256 km of transmission lines. Its estimatedcost is about TL 390 million (Si,43.5 million).

2. The Cukurova area is served by the Cukurova Electric Company(CEC). The Company owns and operates the poverhouse at the Seyhan Damnear Adana, which was financed in -kpart by a Bank loan of June 13, 1952and by an IDA crectit of February 1, 1963. CEC's service area will beextended to include the Hatay province wJhen the necessary transmissionfacilities are completed in 1965 as part of the proposed program.

3. The Government request was prepared on the assumption that theKadincik project wrould be built by a Government agency ith Governmentfunds, while the balance of the prograrn woulld be carried out by CEC. Thealternative whereby CEC would carry out the entire program had not beenfully investigated as the Government believed CEC could not raise all ofthe necessary financing. CEC, however, was able to present a reasonableplan to assume this responsibility. This solution offers importantadvantages: financing by CEC from internal cash generation and sale ofshares will release scarce Gorernment funds for other high priorityinvestments; on the other hand, CEC will be able to operate Kadincik aspart of its system without the special arrangements that would have beennecessary had the plant been owned by another entity. The Government isin agreement wuith the present proposal and has agreed to approve therate increase and provide financial assistance to enable CEC to carry outthe entire program. To complete the plan,CEC requires an IDA credit of$24.0 million. Of this, 46.0 million ,Tould be used to finance locnlcurrency expenditure.

4. This appraisal report is based on the findings of an IDA missionwhich visited Turlkey in November-December 1963.

II. ORGANIZATTOY 0F T {E CULJROVP :LECTT, C CO;?PANY

5. CEC was formed in 1953, when the Government granted it a 49-yearconcession to operate the powerhourse at the Seyhan Dam, which was constructedpartly for irrigation and flood control purposes. The concession areacovers the provinces of Seyhan and Icle (see map), the larger part of theCikurova alluvial plain, bounded on the north by the Taurus Hountains andon the south by the Mediterranean Sea. It is a rich agricultural area, oneof the most prosperous in Turkey. In connection with the proposed projectCBC will extend its service area to the adjoining Hatay province. TheCompanr has agreed to obtain all necessary authorizations for this extensionas a condition of effectiveness for the proposed credit.

- 2 -

6. The 36 row power plant and other facilities iwere constructed bythe State Water Works (DSI) and financed in part by the Bank's loan of$25.2 million (No. 63-TU) made in June 1952 to the Turkish Government.It was agreed at the time that the plant would be turned over to the CECwhich is now the only public utility in Turkey with a majority of privatecapital.

7. Operations began in 1956. Due to controversy within theGovernment about private ownership of utilities, an overrun in the costof the powerhouse, and a devaluation of the currency, which complicateda settlement, a firm agreement on CEC ownership of the powerhouse awas notreached until 1961.

8. In February 1963, IDA credit 34-TU for '11.7 million equivalentwas granted to cover the foreign exchange cost of installing a third 18 MWunit in the powerhouse and to provide for engineering studies, by foreignconsultants, to plan additional steps in the expansion program of thecompany. The third unit is now being i 'nstalled on scheduile and theengineering studies have shown the need and justification for a programincluding a 50 MV thermal plant near Hersin and a 100 VW hydro plant onthe Kadincik river.

Management

9. The Board of Directors consists of a Chairman and three otherrepresentatives of private stockholders and three directors representingEtibank, the holder of the Government's minority interest. Etibank is aState enterprise which, among other things, owns and operates electricgenerating plants and makes the primary distribution of about one-halfthe electricity in Turkey.

10. The present Chairman of the Board has held his position forabout three years. During that time agreements have been reached wTiththe Government on all of the important relationships which affect theCompany and which had been allowed to remain unsettled by the previousmanagement. The general manager directs a force of about 200, of whichthe heads of the technical departments and some of their assistants,seven in all, are experienced engineers. The plant is efficiently managedand well maintained. Suitable training of staff has been instituted inview of the planned expansion steps. The general manager resignedrecently after about three years in office. He w-as replaced by anexperienced utility engineer, the former assistant general manager ofEtibank.

Facilities

11. The installed generating capacity of CEC consists of two 18 IVWhydro units in the Seyhan plant at Adana. In addition there are 15 ti ofdiesel capacity in the service area, owned by municipalities and pri.vateindustries. These machines are expensive to operate and most of them arenear the end of their useful life. A third 18 lTWT is now being installedin the Seyhan plant and will be completed in the second half of 1964.

- 3 -

12. CEC owns 89 km. of 66 kv transmission lines connecting the Adanaarea with the cities of Tarsus and Mersin, and 14 step-down substationsand distribution lines to industrial consumers with individual demands inexcess of 500 kw. (See map.) Distribution to other consumers is overlines built and operated by municipalities. Four additional step-downsubstations are now being installed in Adana and Mersin to provide for theincreased output of the third generating unit. The system is isolatedfrom other systems in Turkeyr and it is not likely that interconnections willbe feasible for many years.

III. THE P1ThER KARKET DI THE CUKUPROVA AREA

Sales and Capacity of CEC

13. The region is characterized by a vigorous and rapidly expandingagricultural economy. It produces 30$% of Turkey's cotton crop which isprocessed locally in many yarn, textile, and oil mills. Over 70% ofenergy sales are to these and other agricultural processing industries.Peak load occurs regularly -n December in connection with the processing ofharvests. The growth of sales of CEC which had been at a rate of about8% per year (see Annex 1) rose to 11% in 1962 as a number of new industrialfacilities were completed. Precautions had to be taken in 1963 to defer newloads which would have resulted in an excessive peak load (see Annex 2).As a result sales are expected to increase only 8% in 1963, but to increasesharply thereafter as new generating and transmission facilities come intooperation. The completion of the third unit in the Seylian powerhouse inthe fall of 1964 will make it possible to meet the 1964 peak and therebyalso make it practical to service new loads during this year.

14. The peaking capacity of the Seyhan plant when completed will be54 MW in average water years and 45 YTNJ in dry years. It should be able tomeet the 1965 peal; of about 60 IViW,in the Adana-Mersin area possibly withsome help from municipal diesel facilities. Beyond that, however, newcapacity would be needed.

Expansion Program

15. Plans for the expansion of the electric power industry in Turkeyare normally prepared by the Electric Power Resources Survey and DevelopmentAdministration (EIE) of the Government. This group has made a study ofthe needs in the Cukurova area. The study also covers the problem ofalleviating a serious energy shortage in the adjacent province of Hatay.This province contains part of the Cukurova plain and Iskenderun, the mostimportant Turkish port on the :rediterranean. Energy consumption ispredominantly industrial by plants for agricultural processing and portactivities. The area is now served by a 3 Ng hydro plant and 12 MW ofdiesel plants in poor condition. There are serious power shortages andfrequent load shedding. Prices per kwh vary from 3 US cents to over 10 UScents. There are no possibilities for additional hydro capacity in the Hatayarea. The EIE study showed that a thermal plant was needed and, after allow-ing for transmission costs, it would be more economical to locate the plant in

Mersin adjacent to an existing oil refinery, rather than in Iskenderunwhere fuel handling facilities would have to be pro-vided. The studyconcluded that CEC should extend its operating area to include the HatayProvince and the Government has approved this proposal. The conclusionsof the study are sound.

16. It is estimate that scrvicing this additional area would increaseCEC's peak load to 97 MW by the end of 1966. The estimate isbased an an adlitionaldemand of the new area of 21 YW as compared with the 15 1ill of presentdiesel and hydro capacity accompanied by severe conditions of loadshedding, low voltage, and part time supply. Therefore the estimate maybe somewhat low.

17. This program, in addition to the proposed Mersin thermal plant,will require the construction of a second circuit for the existing 66 kvtransmission line from Iersin to Adana and a new 154 kv line from Adanato Iskenderun.

18. The completion of Mersin would temporarily end the need to relyin part on diesel operation. The more reliable and less expensive servicethen provided can be expected to result in substantially increased demandthereafter and additional capacity will be cesirable by 1968.With a view to providing this, the area has been explored by DIE foranother hydro source and a 100 7tb% project (with four units) on the KadincikRiver near Tarsus has been developed. This plant would provide for theexpected needs of the area through 1971 keeping one unit of Mersin inreserve.

!V. THE PROJECT

19. The proposed project consists of the construction of all of thefacilities contained in the present expansion program, i.e. the '!Tersinthermal plant, the Kadincik hydro plant, and transmission lines. Theprincipal features are described below. Further details may be found inAnnex 4 and locations may be noted on the 'Iap.

The Mersin Plant

20. This will be a 50 2l1J oil-fired steam plant of two units on theshore of the Mediterranean Sea near the town of ~Iersin, and adjacent toan oil refinery which will supply the fuel by pumping through a shortpipe line. The plant will be a low-cost outdoor type using sea water forcooling. Steam conditions will be R50 psi and 900OF and the turbines willbe the single cylinder non-reheat type appropriate to the intermittentpeaking service the plant will provide during most of its service life.

The Kadincik Plant

21. This will be a 100 NMT hydro plant capable of being expanded to150 MET. Its principal elements include an arch dam 90 meters highimpounding 107 million cubic meters of live storage, a tunnel and canalsystem 16 km. long developing a gross head of 300 meters, and an above.-

ground paoerhouse containing, initially, four 25 MW units. The reservoirwill provide seasonal regulation of flows and increase the minimum flowof 6.6 m3/sec to 14.3 m37sec. This will justify an ultimate installationof 150 'W if the plant is adequately supported by base load generationelsewhere. The design of the plant is based on a 27-yeanr record of flowsat the site and on extensive geological explorations. Borings have beenmade at the proposed location of the important structures and a system ofexploratory adits has been placed in the abutments of the proposed archdam site. Alternative layouts of the project have been studied to assurethat the optimum composition and size of the project has been selected.

The Transmission Lines

22. There will be three transmission lines with a total length of256 km. One will be a second 66 kv circuit 66 km. long from lHersin toAd,na. Another will be a 154 kv line 55 km. long frc ICadincik to Aidana.The third w-ll be a 154 kv line 135 km. lone fromi Adana to Takenderun toserve the new territory in the Hatay Province. There will be substatiorsin Adana, Ceyhan ard Iskenderun.

aigineering

23. General planning for thc project has been done by EIE. At thesuggestion of IDA, foreign consultants wTere employed to review the generaldesigns of the Miersin and Kadincik plants and the consultants have prepFaredsuitable engineering renorts on them. In an effort to expedite the startof construction CEC has entered a contract, with the aoproval of IDA, -ithforeign consultants to prepare detailed plans and specifications for theMersin plant ank to superviseits construction. They would enter asimilar contract for Kadincik when tle proposed credit becomes available.Plans and specifications for the transmission lines would be preoared byEtibank which has done much of this work in the past.

Procurement

24. All major equipment needed will be procured under internationalcompetitive bidding procedures. The equipment for the Mersin plant willbe erected by the manufacturers and the relatively simple civil works willbe done by CEC's own forces or by Turkish contractors. The civil works

for the Kadinclik plant, involving an arch dam and long tunnels, requiresconstruction contractors with large experience in these specialized fields.Since these do not exist in Turkey, it is intended to select the contractorsby internaticnal bidding procedures. The transm1ssion lines will beerected by TuLrkish contractors since there are many with experience inthis type of work. Additional distribution facilities needed will not bea part of the project, but will be provided byr the municipalities withthe assistance of Illerbank or Etibank as required.

-6-

Operation

25. CEC is already taking steps to train stoff in the operation ofthe new facilities. One of its engineers has spent six months in Francestudying the operation of thermal plants. An operating team is now beingorganized to train in a foreign thermal plant under the supervision of theequipment manufacturer to be selected. The specifications will alsorequire that the equipment manufacturer train this team in the IHersin plantthroughout the trial run period. CEC has personnel with hydro plantexperience sufficient to operate Kadincik. Training in load dispatchingwill be needed since up to now only one plant has been operated. Etibankwill take the responsibility for this training.

Construction Schedules

26. Plans and specifications have been prepared for the N4ersin thermalplant in order to achieve completion of the plant at the earliest possibledate, now estimated to be July 1966. Since it is highly desirable toprovide the Hatay area with whatever additional service rmay be available,plans are to complete the transmission line from Adana to Hatay at anearlier date, presently expected to be in the fall of 1965.

27. CEC has begun negotiations with consultants for the preparationof plans and specifications for Kadincik. Construction is expected tostart in the first half of 1965; the first two units wouild be commissionedin 1968 and the remaining two in 1969. Seyhan and Niersin wlll be able tomeet the 1967 peak but without any reserve. Timing is most critical forthe first hadincik unit; it will be desirable to install the remainingthree on a normal schedule at about four-month intervals in order to:(i) provide some reserves in the system at the earliest possible tine, and(ii) place the Mersin plant on a standby and peaking basis as soon aspos ible on account of its higher operating costs.

28. The transmission lines to Mersin and Kadincik can easily be com-pleted by the time the associated generating plants are ready to operate.

-7-

Cost Estimates

29. The estimated cost of the project is as follows: (see Annex 5 formore detail)

Foreign Total CostsExchange Local Costs in US ,$ in TL

US$ million US$ rmillion million million

Mersin Thermal Plant

Civil Works .09 .29 / .38 3.42Plant Equipment 4.76 2.62-i 7.38 66.42Engineering and ConstructionSupervision .60 .27 .87 7.83

Cortingencies .55 .32 .87 7.83

Total for Mersin 6.oo 3.50 9.50 85.50

Kadincik Hydro Plant

Civil Works 2.26 14.74 17.00 153.C0Electrical &, 'echanicalEquipment h.38 1.531/ 5.91 53.19

Engineering and ConstructionSupervision 1.01 .42 1.43 12.87Contingencies 1.35 3.31 4.66 hl.94

Total for Fadincik 9.00 20.00 29.00 261.00

Transmission Lines

mersin-Adana 66 km 66-kv circuit .12 .13 .25 2.25Adana-Iskenderun 135 Ian 154-kv 1.93 1.21 3.14 28.26Kadincik-Adana 55 km 154-kv .95 .66 1.61 14.49

Total for Transmission 3.00 2.00 5.00 45.00

Total for the Project 18.00 25.50 43.50 391.50

1/ Includes import duties.

The estimates for the Mersin and Kadincik plants have been prepared byconsultants thoroughly familiar with these types of work. The estimatescontain import duties on equipment varying from 25 to 40%. The contingencyitem in the consultants' estimate for Kadincik has been increased to provideabout 25% on civil w-rks because of the large amount of tunneling involvedand because of the6 -serious consequences of an overrun in costs to the smallCukurova Compay.-- The estimates as presented above should be adequate.The installed unit kilowatt cost for i-ersin is ',190 which is low consideringthat it includ-es import duties. The unit cost for Kadincik is $290 whichis satisfactory considering that the project provides seasonal storageand that it can be expanded to 150 1,11z at low cost when needed in the future.

Justification

30. The Mersin plant will, at the earliest possible date, bring to anend a critical shortage of energy in the Hatay Province and the importantport of Iskenderun and at the same time firm up the energy supply of theentire Cukurova area. The Kandincik plant will be needed by the time itcan get into operation and it represents the cheapest remaining source ofpower in the Cukurova area. Both plants are parts of a five-year expansionprogram for Turkey which has been formulated b, the Government with theassistance of consultants.

V. FINANCTAL ASP-CTS

Tariffs

31. Tariffs are subject to approval by the Ministry of Industry.The Government and CEC agreed to a rate covenant in connection wjith IDAcredit 34-TU which generally paraphrased the existing concession, asamended by agreement of November 8, 1961, and required that CEC's revenuesshould be sufficient:

(a) to cover operating expenses, including taxes, adequatemaintenance and depreciation and interest;

(b) to meet repayments on long-term indebtednessto the extent thatsuch repayments shall exceed provision for depreciaion;

(c) to meet payments to the Government on account of exchange losses;and

(d) to provide a reasonable profit.

The Government and CIC have agreed to the inclusion of a similar covenantin the proposed credit agreements. In a side letter, thev fkarther aEreedthat in order to meet the obligations of this covenant, pa 'er rates woilldbe set at a level that would permit, during the years 1964 through 19609,a minimum of 16% of new investments in pos3er facilities, estimated at$43.5 million, to be financed by the Company from its own funds. Theseinclude draw downs from existing cash reserves not to exceed t1.5 million,and internal cash generation, net of amortization, interest and cashdividendc . The proportion of future expenditure on investment to befinanced from CEC's own resources after 1970 would be determined afterconsultation with IDA.

32. In connection w.ith CEC ts present expansion program and as acondition of effectiveness for the proposed cred-t, the Government andCEC agreed to increase the average rate in the Cukurova area by 1 Kurusper kwh, or about 8.5% above the existing level of 11.8 Kurus per kwh.

- 9 -

The rates to be apolicable in the Hatay province, Then connected next year,have been already set by contracts with the municipalities concerned atabout 17 Kurus per kwh, including provision for the cost of transmittingpower to the region. These contracts provide that futrre adjustments inthe power rates charged in the Cukurova area would be fully reflected inthe Hatay rates.

Financial History

33. The initial capital of CEC was TL 16 million subscribed by thepublic, of which TL 14 million were paid to the Government as constructionadvances, and TL 2 million were reserved for working capital. The finalcapital was to be equal to the value of the power facilities taken over,originally estimated at TL 28 million, plus TL 2 million for working capital.Accordingly, share capital was to be increased from TL 16 million to TL 30million at the end of the construction period, by the issve of TL 14 millionto Etibank as repayment for Government expenditure on the project. However,increased costs and the currency devaulLation made these arrangementsinadequate.

34. For several years CEO operated without an agreed value for itsassets and with an unrealistic capitalization. Water charges paid to DSI,the Government agency operating the dam and irrigation facilities, wereassessed on an understated cost of the dam and power rates were maintainedat low initial levels.

35. In late 1960 a new Board and Chairman were elected and a newGeneral h'anager wyas appointed. Negotiations with the Government resultedin the issue to Etibank, as originally provided, of TL 14 million of shares.It was further provided by agreement of November 8, 1961 that:

(a) CEC would reimburse the TL 13 million difference between theoriginal TL 28 million estimated cost and the TL 41 millionfinal cost of the power facilities taken over;

(b) CEC would collect from the consumers the amounts necessary tocompensate the TL 50.4 million exchange loss incurred on theportion of the Bank lopn allocated to the power installationsof the Seyhan multipurpose project as a result of the 1958devaluation;

(c) CEC would reimburse about TL 14.8 million for interest paid bythe Government to the Bank until the end of 1961;

(d) the amounts under (a), (b) and (c) would be paid to DSI over a16-year period, the remaining life of the Bank loan, in 32approximately equal semi-annual installments including interestat 4-3/4% on outstanding balances of (a) and (b);

(e) the water charges payable to DSI, would be raised to 1.5 Kurus/kwh, reflecting the actual cost of the Seyhan dam;

- 10 -

(f) in case of anr further devaluation of the currency, paymentsdue on the Bank loan wzould be increased proporti-onately;

(g) in case of delays, the Company would be charged 6% annualinterest on payments overdue.

36. This agreement provided a satisfactory financial basis for theCompany's operations; in connection with credit 34-TU, the Governmentagreed that no changes would be made in it without the approval of IDA.

Present Financial Position

37. The financial statements of CEC are certified by three individualaccountants; two appointed by the private shareholders and one by Etibark.In view of the relatively large expansion contemplated CEC has agreedto retain a firm of accountants satisfac-tory to the Association to auditits accounts.

38. Condensed and adjusted balance sheets as of December 31, 1959through 1963 are shown in Annex 6. The December 31, 1963 capitalization,excluding current liabilities and net profit before taxes was TL 118.55 mil-lion. It consisted of TL 45.53 million share capital, reserves and surplusand TL 73.02 million long-term debt resulting in a 62/48 debt/equity ratio.Details are shown below:

In millions

TL $ equiv.Share capital:

A shares, issued 1954, par value TL 100 16.00 1.78B shares, issued 1961, par value TL 500 14.00 1.55C shares, issued 1961, par value TL 500 5.00 .56

35.00 3.89Reserves and Surplus 10.53 1.17

Sub-total: Equity 45.53 5.06

Debt to DS':Unpaid balance of Seyhan final costs 45.82 5.09Deferred 1957-61 interest on IBRD Loan 63-TU 12.35 1.37Revaluation of IBRD Loan 63-TU to TL 9 = $1 11.46 1.27

69.63 7.73Drawn down under IDA credit 34-TU 3.39 .38

Sub-total: Long-term debt 73.02 8.11Sub-total: Capitalization 118.55 13.17

Current liabilities (including current portion oflong-term debt) 12.75 1.42

Net profit before taxes for 1963 8.54 .95139.84 15.54

- 11 -

39. Share capital was TL 35 million, including the latest issue ofTL 5 million, for financing the third unit at Seyhan, which was subscribedlate in 1961 and fully paid in by December 1963. All shares are ordinarybearer shares carrying one vote per share, irrespective of per value. Theyare quoted in the Istanbul market but trading, usually at par, is insig-nificant.

40. Etibank, which holds the minority Government interest, may ow-nup to 49% of the share capital. Its policy, however, is to limit itsparticipation and encourage private ownership in the Company. It may alsosell portions of its holdings to the public. Etibank took slightly lessthan 47% of the first TL 30 million capital is-ued and only about 24% ofthe last TL 5 million. It owns presently about TL 15.2 million, or 43.4%of CBC's share capital. The balance of the shares are held mostly by powierconsumers in the area including cotton cooperatives, textile manufacturers,municipalities, banks, etc. The following is a breakdown of cwnershipaccording to size of holdings (in thousands of TL);

TL %

Etibank 15,184 43.4Private shareholders (including municipalities):Two, holding TL 1 million or more 4,052 11.632, holding from TL 50,000 to TL 1 million 6,118 17.5About 1,500 with less than TL 50,000 9,6h6 27.5

Sub-total 39,816 56.6

Total 35,000 100.0

41. Long-term debt to DSI was TL 69.6 million, net of amortizationpayments for two years and of the current portion. About TL 3.4 millionhad been drawn by CEC under its share of IDA crecit 34-TU, amounting to$1.62 million (TL 1h.6 million). The Company's obligations as beneficiaryof this credit are defined in the Proiect and the Subsidiary Loan Agreements.The latter provides for interest at 5 % and a term of 20 years, includinga two year grace period. The incurrence of new debt is limited by anearnings test (in the Project Agreement), which provides that actual netincome for a recent twelve months period should be at least 1-3/4 timesthe interest on all debt outstanding and proposed.

42. Gross fixed assets in service were TL 94.9 million consisting ofTL 44.5 million, the original cost plus TL 50.4 million, the exchange lossincurred on the power portion of the Bank loan for Seyhan as a result ofthe 1958 devaluation. Accrued depreciation was TL 13.2 million consistirgof TL 8.8 million ordinary depreciation on the book value of assets, andof TL 4.4 million, the exchange loss amortized in the last two 'years inaccordance with the 1961 agreement. Net fixed assets in service wereTL 81.6 million and work in progress, on Seyhan Unit 3, was TL 5.1 million.

- 12 -

43. Current assets totalled TL 40.1 million, more than three timesthe current liabilities of about TL 12.8 million. They include aboutTL 27 million in cash and other liquid assets set aside by CEC forfinancing the expansion now proposed,

Past Earnings

44. Condensed and adjusted income statements for the years 1959through 1963 are shown in Annex 7. These statements became significantof CEC's true earning power only in 1962, when realistic values of assets,capitalization, water charges and power rates agreed upon with theGovernment were implemented and reflected in CEC's accounts. Net income,after depreciation charges equivalent to 4.5% straightline on the adjustedvalue of gross fixed assets in service, was TL 9.1 million in 1962 andTL 12.3 million in 1963, giving returns on net fixed assets in serviceof 10.6% and 15% respectively. Net profit after interest but beforecorporate taxes, of about 20%, was TL 5.9 million in 1962 and TL 8.5 millionin 1963. Dividends of 13% and 15% were paid for 1962 and 1963 respectively.The dividends for the first four years of operation through 1961, at ratesof 11%, 13%, 18% and 14.5% respectively, were paid on a share capital ofonly TL 16 million since, as indicated earlier, the issue of TL 14 millionshares to Etibank did not take place until late 1961.

Financing Plan

45. A forecast of sources and applications of funds for the sevenyears through 1970 is shown in Annex 8. This forecast is based on CECtsplan to carry out the Kadincik hydro plant, as well as the Mersin thermalplant and transmission line to Hatay, a program totalling $43.5 million

equivalent, excluding interest capitalized, over the ne.t six years,or about four times the existing fixed assets of $11.1 million equivalent.

.In addition, CEO will complete this year the installation of thethird unit at Seyhan at an estlimated cost of TL 1L.8 million ($1.6 million),of which TL 11.2 million ($1.2 million) will be financed from funds avail-able in the existing IDA credit, the TL 3.6 million ($0.4 million)balance being provided from existing cash reserves. Details of the cashrequirements of the new project are shown below (in millions):

1964 1965 1966 1967 1968 1969 Total 5 years-------------------- TL----------------- TL $ equiv,

Mersin thermal 14.08 45h77 21.36 4.29 85.50 9.50Kadincik hydro 4.58 51.52 56.88 71.80 56h41 19.81 261.00 29.00Transmission 7.58 37.42 45.00 5.00

Total 26.24 134.71 78.24 76.09 56.41 19.81 391.50 43.50

47. Whlile the Government initially planned to have DSI constructand own Kadincik, the Company was able to present a reasonable plan forassuming this responsibility. This solution has the major advantage that,

- 13 -

through sale of shares and cash generated from operations, the Companywould be able to raise an important part of the funds required. Thiswould release scarce Government funds for other high priority investments.Furthermore, arrangements would have been necessary in any case for theCompany to operate the plant after completion as part of its system. TheGovernment has agreed to the present proposalj to the necessary rateincrease, and to the provision of financial assistance as described below.To complete the plan the Company requires an IDA credit of $24.0 million,of which $6.0 million would be used to finance local currency expenditures.

48. Under the piopoted plan, CEC would finance about 33% of itsrequirements from its own resources and sales of new shares; the balancewould be from borrowings, as shown below (in millions)t

1964 1965 1966 1967 1968 1969 Total 5 years

TL $ eouiv. %

Internal cashgeneration 17.80 26.39 30.93 33-90 43.66 53.50 206.18 22.91

Less: interest 3.77 7.46 10.39 12.44 13.63 14.36 62.05 6.89amortization 3.52 4.30 4.42 4.61 4,79 5.00 26.64 2.96dividends,taxes, etc ... 10.67 6.61 9.92 11.38 12.21 16.P6 67.65 7.52

17.96 18.37 24.73 28.43 30.63 36.22 156.34 17.37

Net internal cashgeneration (.16) 8.02 6.20 5.47 13.03 17.28 49.84 5.5L 12.7

Share capitalpaid in 16.25 16.25 16.25 16.25 65.00 7.22 16.6

Sub-total:own resources 16.09 24.27 22.45 21.72 13.03 17.28 114.84 12.76 29.3

Proposed IDA credit 18.00 82.00 53.00 28.00 22.00 13600 216.00 2L.00 55.2Deferred payments toGovernment .68 21.30 2.23 4.16 17.35 2.i6 47-88 5.32 12.2

Sub-total:borrowings 18.68 103,30 55.23 32.16 39.35 15.16 263.88 29.32 67.4

Total sources 34.77 127.57 77.68 53.88 52.38 32.44 378.72 42.08 96.7Cash (surplus) or

deficit (3.53) 7.14 .56 22.21 4.03 (12i63) 12.78 1.42 3.3Total applications 26.24 134.71 78.24 76.09 56.41 19.P1 391.50 43.50 100.0

Alternative assumption (share issue in 1968 to replenish working capital):Additional share capital 7.50 7650 15.00 1.67 3.8Resulting cash (surplus) (3.47)(20.13) (2.22) (.25) (.5)

49. The Company has taken steps to increase its share capital byTL 65 million, or $7.2 million equivalent, representing about 17% of theproject's cost. This will almost double the existing share capital ofTL 35 million. The issue is to be paid in four equal annual installments,starting towards the end of this year. The new shares are being solddirectly and through the facilities of the Company's banks, without anydiscount or commission. Based on its dividend record and the favorableresponse by provincial and municipal authorities in the area, by Etibankand by a number of the large shareholders in the private sector, CEC isconfident that the issue will be fully subscribed this year.

50. About TL 26 million have already been subscribed by Etibank. Salesto large shareholders in the private sector, which are expected to subscribeabout TL 20 million, are proceeding satisfactorily. Raising the balance ofslightly under TL 20 million may take several months since CEO intends, asa matter of policy, to place the largest possible amount with the generalpublic rather than relying on further sales to Etibank and large powxerconsumers (Itibank will, if necessary, subscribe about TL 8 million moreto bring its contribution to the permissible maximum of 49% of CECtsshare capital. Large power consumers may alTo be reasonably expected tosubscribe further if necessary). Urnder the proposed Credit Agreement,the Company may not withdraw more than $3 million from the proposed credit,its maximum estimated withdrawals for 1964, until it has provided evidencesatisfactory to the Association that the new share capital has been fullysubscribed.

51. Internal cash generation, net of interest, amortization, cashdividends and taxes, would amount to 55.5 million equivalent, about 13%of the estimated cost of the present project. In addition, the Compar.ywould draw on its existing cash reserves to finance the project. Thesereserves, of TL 27 million at Decemaber 31, 1963, would build up toTL 35.5 million at the end of 1964, reflecting a cash surplus of TL 9.5 mil-lion generated during the year. From this amount, TL 3.6 million arecommitted for completion of the Seyhan third unit, as already indicated,leaving a net cash surplus of TL 31.9 million available for the new project.This amount would be gradually dramn down in the "our years through 1968,during which requirements wTill exceed resources by a cumulative TL 33.9 mil-lion. As a result, 1968 would end with a cumulative cash deficit ofTL 2 million, which could be easily met out of short term credits. In1969, however, after most of the capital expenditures have been incurredand the last units of Kadincik are commissioned, a cash surplus of aboutTL 12.5 million is expected, which would restore part of the initial cashreserves. About TL 12.8 million, or 1.4 million equivalent, of the cashnow existing would have thus been used on the projcct by the end of the1964-1969 period, or about 3% of the cost of the project. As already indi-cated, the Government and the Company have undertaken to adjust rateswhenever necessary to achieve financing of at least 16% of the project'scost over the 196h-1969 period, including not more than $l1.5 million(TL 13.5 million) from existing cash reserves.

- 15 -

52. The Company, which expects to achieve savings on the cost of theproject and to sell more power over the period than was estimated in thisreport, does not believe that it would have to draw on its cash reservesas much as indicated above. Should these savings or higher revenues notmaterialize, it agrees that a further share capital increase should takeplace by 1968 to provide working capital by the end of 1969 in anticipationof the relatively large debt service paymnents in 1970. The forecasts inthis report reflect this assumption and provide for a new share capitalincrease of TL 15 million in 1968 to be paid half in 1968, half in 1969(see alternative assumption in paragraph 47 above).

53. The proposed IDA credit of 624 million would represent about55% of the cost of the project, exclusive of interest during construction.The proposed Subsidiary Loan Agreement provides that the proceeds of thecredit will be relent by the Government at an interest rate of 52,0 and witha 25-year term, including a six-year grace period.

54. Based on the present estimates of cost, the financing planproposed is reasonable. The possibility of an overrun in cost estimatescannot, howiever, be completely discarded. Should this eventualit:,r mater-ialize, the Company has undertaken to sell more shares after the presentissue has been fully, paid in at the end of 1967. The Government, thoughprohibited by law from providing any funds directly to the Company, hasagreed to take all measures -4ithin its power to assist and enable theCompany to obtain the additional funds necessary to complete the project.Such measures could include, for example, the subscription for additionalshares of the Company by htibank, the deferment of amounts payable by theCompany to the Government and appropriate rate adjustments.

Estimated Future Earnings

55. Forecast income statements for the years 1964 through 1970 areshown in Annex 7. Operating revenues would increase more than three timesin the next six. years, from TL 22.4 million in 1963 to TL 68.5 million in1969, reflecting increased sales and a 12.7% increase in average revenueper kwh sold resulting from the higher rates. These rates are requiredto help finance the project and to meet the higher operating costs of newplant, including conservative depreciation at average rates of 4% for thethermal and 2.5% for the transmission and hydro facilities in the project;also, to earn the higher interest charges and profit needed in connectionwith the substantial increase in the Company's capitalization.

56. Satisfactory earnings would be achieved in the period as illus-trated by the tabulation of earnings' ratios and debt coverages shown inAnnex 7. Year end returns on depreciated fixed assets would range between13% in 1964 and 6.4% in 1968, rising to 7.9% in 1969 and about 9% in 1970.The temporarily lower retuirns are indic2tive cf the fact that whenKadincik begins operating in 1968 and 1969 capacity will not be fullyutilized. The coverage of interest by net income of the same year woulddeteriorate gradually from 3.3 times in 1964 to a still adequate minimum

- 16 -

of 1.9 times in 1967, quickly improving to 2.1 times in 1968 and 2.7 timesin 1970. Debt service coverages would follow a similar though lessaccentuated pattern, starting with 2.4 times in 1964, decreasing to 1.6times in 1966 and 1967 and increasing again to slightly under 2 times inthe three following years. The temporary deterioration of the coverages,despite the sound earnings expected, is a reflection of the large size,relative to existing plant, of the expansion undertaken, partly to servea greater area, and of the large debt incurred relative to present earningcapacity.

57. For the same reasons, the earnings test in the existing ProjectAgreement - a 1.75 coverage of maximum interest charges by actual netincome - would not be met when the borrowings contemplated in the programare incurred. An exception is thus required for the proposed credit.The same covenant is, however, included in the Project Agreement for theproposed credit to govern future borrowings, The following computation,which relates annual interest charges with the income of the year nextpreceding, shows that new borrowings would be permiitted under the testonly after the present program is over:

1964 1965 1966 1967 1968 1969 1970

Interest coverage test 3.26 1.68 2.02 1.85 1.72 1.99 2.42

58. The net profits forecasted would be sufficient on the averageto provide for oayment of annual cash dividends of 10% through 1967 and of12.5% thereafter.

Future Financial Position

59. Estimated balance sheets as of the end of 1964 through 1970are shown in Annex 6. They show debt increasinlg from 62% of totalcapitalization at the end of 1963 to a maximum of 70% in 1965 and 1966.The position would improve to 65% in 1970 reflecting partly the assurmiedTL 15 million share capital increase, and partly scheduled amortizationpayments on long-term debt.

VI. COICCLUSTCNS

60. The project, consisting of the Mersin thermal plant, transmissionline to Hatay province, the Kadincik hAydro plant and transmission, istechnically sound. Its estimated cost and construction schedule arereasonable.

61. CECts operations are well managed. The Company is preparing toexpand staff to cope with increased operations. Consultants have beenretained for the Mersin thermal plant and would be retained for theKadincik plant. W!Jith their support, CEC should have no difficulty inconstructing and operating the project.

- 17 -

62. Financial performance has been good since the Company was reor-ganized and tariffs were raised in 1962. The Government and the Companyhave agreed to a further tariff increase prior to effectiveness of theproposed credit. They have also agreed to a satisfactory rate covenantand have undertaken to finance from internally generated cash, includingnot more than $1.5 million equivalent from ample existing cash reserves,at least 16% of the cost of the new project (paragraphs 31 and 32).

63. The financing plan is reasonable. It involves, in addition to theproposed IDtA credit, a $7.2 million share capital increase this year,internal cash generation of $5.5 million, deferred payments to theGovernment totalling $5.3 million and the use of slightly under $1.5 millionof existing cash reserves. In the absence of any savings on the cost ofthe project, the Company would replenish these reserves with a $i1.7 millionshare capital increase towards the end of the construction period andrestore an adequate working capital position. The Company has agreedto sell more shares should there be insufficient funds to complete theproject. The Government, on the other hand, has agreed to assist theCompany in this eventuality with all measures within its powers includingproviding Etibank with funds to subscribe additional shares of the Company,allowing payments by the Company to be deferred and authorizing necessaryrate increases (paragraph 54).

64. The project is suitable for an IDA credit of 424 million. TheGovernment has agreed to relend the proceeds of this credit to the Companyat an interest rate of 54% and for a term of 25 years including 6 yearsgrace.

TURKEY

CIJKUROVA ELECritIC COIPANY

Energy Sales and Forecasts(in millions of kwh)

1958 1959 19W0 1961 1962 1963 196L 1965 1966 1967 1966 1969 1970

Municipal Sales

Adana 25.4 30.5 35.3 38.8 41.0 id,0 51.5 66.0 75.0 85.0 96.0 108.0 123.0Mersin 6.5 8.6 10.A 11.7 12.0 12.5 14.2 20.0 23.0 26.8 30.8 35.6 41.0Tarsus 4.2 4.9 6.7 7.2 8.0 8.5 8.8 12.0 13.5 15.1 17.0 19.2 21.7Ceyhan 2.0 5.9 8.3 11.0 13.5 16.4Iskenderun 24.6 41.3 46.5 53.0 60.5 69.5Antakya 4.0 11.6 13.5 16.5 18.0 21.0Others 7.7 8.8 10.1 11.7 13.3 15.3

Sub-total I 36.1 4k.0 52.4 57.7 61.0 65.0 74.5 136.3 179.1 205.3 236.0 268.1 307.9

Industrial Sales (Above 500 kw)

Adana 68.0 68.3 72.2 76.0 82.8 90.0 85.5 96.0 100.0 104.5 109.5 115.0 120.0Mersin 11.0 11.2 11.8 14.6 12.9 13.0 14.3 16.5 17.4 18.2 19.1 20.1 21.2Tarsus 10.0 9.8 9.1 8.5 9.5 9.5 10.0 11.5 12.0 12.5 13.0 13.6 14.2Ceyhan 1.0 1.6 1.7 1.8 1.9 2.0Iskenderun 3.0 5.7 6.5 7.0 7.5 8.0Antakya 3.0 7.6 8.1 9.0 9.5 10.0

Sub-total II 89.0 89.3 93.1 99.1 105.2 112.5 109.8 131.0 144.3 151.5 159.4 167.6 175.4

New Industries

Mersin Grain Elevator 0.1 0.2 0.9 1.5 1.7 2.0 2.2 2.5 2.8Mersin Refinery 0.5 0.1 0.9 1.7 2.0 2.3 2.5 2.7 3.0Mersin Port Facilities 0.1 0.3 1.8 5.0 6.0 7.0 8.0 9.0 10.0Mersin Other Facilities 0.1 1.6 2.5 3.0 3.5 4.0 4.5 5.1Adana Incirlik Air Base 7.4 10.0 9.6 11.0 13.0 14.0 15.0 16.0 17.0Tarsus 0.3 0.9 1.0 1.1 1.2 1.3 1.4 1.5Sub-total 8.1 10.9 15.7 22.7 26.9 30.0 33.0 36.1 39.4Unknown 12.7 28.2 37.6 43.2 48.3

Sub-total III 8.1 10.9 15.7 22.7 39.6 58.2 70.6 79.3 87.7

Total (I+II+III) 125.1 133.3 185.5 156.8 17h.3 188.4 20C.0 290.0 363.0 415.0 466.0 515.0 571.0

Annual increase % 6.6 9.2 7.8 11.2 8.1 6.2 45.0 25.2 14.3 12.3 11.8 10.9

a These figures do not include losses on the transformers ana transmisslon lnes.

June 15, 1968

TURKEY

CUYUROVA ELECTRtIC COFiA1PY

Peakloacs and Forecasts (MW)

1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970

Muicipal Loads

Adana 8.8 9.3 10.7 12.0 12.0 12.8 17.3 20.0 22.5 25.7 29.2 33.0 37.0Mersin 1.2 2.3 2.9 3.0 3.4 3.8 4.8 6.0 7.0 8.1 9.3 10.4 12.0Tarsus 1.2 1.h 2.0 2.2 1.7 1.8 3.2 3.7 4.1 4.6 5.2 5.9 6.3Ceyhan 1.2 1.7 2.h 3.2 3.9 4.7Iskenderun 4.0 11.8 13.3 15.2 17.3 20.0Antakya 1.0 3.8 4.4 5.3 5.9 6.6Others 1.0 3.6 4.1 4.8 5.4 6.4

Sub-total I 11.2 13.0 15.6 17.2 17.1 18.4 25.3 36.9 54.5 62.6 72.2 81.8 93.0

Industrial Loads (Above 500 kw)

Adana 11.0 11.4 11.6 13.0 13.5 1h.4 14.8 16.0 16.6 17.4 18.2 19.2 20.0MersBn 2.4 2.3 2.4 2.7 2.9 3.3 3.2 3.4 3.6 3.7 3.9 4.1 4.3Tarsus 1.8 1.8 1.3 1.6 1.9 2.1 2.0 2.1 2.2 2.3 2.4 2.5 2.6Ceyhan 0.6 0.7 0.8 0.8 0.9 1.0Iskenderun 1.0 1.7 1.9 2.1 2.2 2.3Antakya O.5 1.1 1.2 1.3 1.4 1.5

Sub-total II 15.2 15.5 15.3 17.3 18.3 19.8 20.0 23.6 25.9 27.3 28.7 30.3 31.7

New Industries

Mersan Grain Elevator 0.1 0.1 2.5 2.5 2.6 2.8 2.9 3.1 3.2Mersin Refinery 0.7 0.8 1.0 1.1 1.3 1.h 1.5

Mersin Port Facilities 0.1 0.1 1.5 2.5 3.5 4.5 5.5 7.0 9.0Mersin Other Facilities 0.1 0.1 0.7 0.9 1.0 1.1 1.3 1.4 1.7Adana Incirlak Air Base 1.8 2.0 1.5 1.9 2.2 2.3 2.4 2.5 2.6Tarsus 0.7 0.8 0.9 1.0 1.0 1.1 1.2Sub-total 2.1 2.3 7.6 9.4 11.2 12.8 14.4 16.5 19.2

Unknown 0.1 0.2 5.0 8.0 10.0 11.0 12.0

Sub-total I1I 2.2 2.5 7.6 9.4 16.2 20.8 24.4 27.5 31.2

Total (I+II+III) 26.6 28.5 30.9 36.5 37.6 40.7 52.9 69.9 96.6 110.7 125.3 139.6 155.9

Annual increase % 8.0 8.4 11.7 9.0 8.2 30.0 32.1 38.2 16.6 13.2 11.4 11.7

June 15, 1964

220 I 1 KADINCIK Plant Completed

(100 MW aodded)

200 __ __ _ - --

180 _ r_ _ _

160 _ _ _ _ _ _ _ __ _ _ _

140 _ _ _ __ _ _ _

120 _ _ _ __ _ _ _ _ _ _ _ _ _ _ _

n S H 3 tMERSIN Thermal Plant completed (50 MW addedI- ~~~~~~~~~and HATAY Hydro (3 MW).

10 ______ _____. ____ _. -_ __ TURKE

With Diesels ovailable in SEKYHAN ondHA7AYareas, plus3 MWof Hydro in HA rA Y

80

ZOTA .P o COnne cnece

60 __________ SEYHAN 3rd Unit inetalled (18 MW added) I_ _ _ _ __ _ _ _ _ __ _ _ _ _ _

60 6 191 192 16 194 16 196 16 198 16 190 17 172 93

TURKEY

SEHA___ nis)_6M CUKUROVA POWER SYSTEMESTIMATED LOAD CURVE

ANDAVAILABLE AND PROPOSED CAPACITIES>

20 22

1960 1961 1962 1963 1964 1965 1966 (967 (968 1969 1970 1971 19 72 1973

Y *A PC

ANNEX 4

TURKEY Page 1

CUKUROVA ELECTRIC COMPANY

Details of the Project

The Mersin Plant

Nominal rating 50,000 kw in 2 equal unitsThrottle steam pressure 850 psigThrottle steam temperature 900°FTurbine operating exhaust

pressure 1.5 in. HgaTurbine type Single cylinder, nonreheatGenerator capability 31,200 kva each at 0.85 pf and 30 psig

of hydrogen coolant pressure.Generator voltage 13,800 volts at 50 cyclesNet station heat rate at

maximum load 11,780 Btu/kwhrInstallation Outdoor type with equipment weather-proofingBoilers 2 heavy-fuel-oil firedCondensers 2 with 17,500 sq. ft. of steam surface

each.Cooling Seawater circulated by 3 one-third

capacity pumps.

The Kadincik Plant

Drainage area 428 sq. km.Stream flow records 27 yearsMinimum flow 6.6 m3/secMaximum flow 2130 m0/secFirm power potential 150 MwInstallation 100 MI initially with space for 150 IWStorage Dam

Type Concrete ArchHeight 90 m.Thickness at base 18.5 m.Crest length 48.0 m.Storage capacity 107 million m3 live

Diversion DamType Concrete gravityHeight 20.0 m.Crest length 30.0 m.

Length of tunnels 9.6 km.Length of canals 4.1 km.Capacity of system 28.4 m3/secPower plant average head 295 m.

AiiNEX 4Page 2

The Transmdssion Lines

Mersin-AdanaLength 66 km.Voltage 66 kv.Type 2nd circuit on existing towersSubstations 66/15, 6.3 kv at Mersin and Adana

Adana-IskenderuiLength 135 km.Voltage 154 kvType Single-circuit on steel towersSubstations 154/66, 33, 15 of 6.3 kv at Adana, Ceyhan

and Iskenderun.Kadcincik-AdanaLen-th 55 kia.Voltage 154 kvType Single-circuit on steel towersSubstation 154/66 at Adana.

June 15, 1964

ANNEX 5

TURKEY Page 1

CUKUPOVA ELECTPIC COMPANY

COST ESTII4ATES

Foreign Total CostsExchange Local Costs in US$ in TL

US$ million US$ million million million

Mersin Thermal PlantCivil Works .09 .29 .38 3.42Boiler Plant Equipment 1.60 .83 2.43 21.87Turbine Generator Units 2.22 1.07 3.29 29.61Accessory Plant Equipment .56 .41 .97 8073Substation Equipment 38 .21 .59 5.31Plant start-up - .10 .10 .90Engineering, Design, and

Construction SuDervision .60 .27 .87 7.83Contingencies .55 .32 .87 7.83

Total for viersin 600 3.0 J9.50 85.0

Kadincik Hydro PlantLands, roads and camps - 1.56 1.56 14.04Archdani, spillways, intake 1.19 2.22 3.41 30.69Tunnel .30 5.90 6.20 55.80Samlar Siphon - .33 .33 2.97Canal .09 .38 .47 4.23Regulating Pool - .60 .60 5.40Kristan Conduit .11 .11 .99Kristan Tunnel .19 .19 1.71Storage Canal - 1.04 1.04 9.36Forebay Headworks .04 .06 .10 .90Inclined Railway .12 .08 .20 1.80Penstocks .52 .35 .87 7.83Power Plant - 1.92 1.92 17,28Generating and PSchanical Equipment 4.38 1.53 5.91 53.19Engineering, Design & Supervision 1.01 .42 1.43 12.87Contingencies 1.35 3.31 4.66 41.94

Total for Kadincik 9.00 20.00 29.00 261.00

Transmission LinesMersin-Adarna 66km Second 66 kv

circuitConductors, Insulators Hardware .12 .13 .25 2.25

AiNNEX 5Page 2

Foreign TotalExchange Local Costs in rJS$ in TL

US$ million US$ million million million

Transmission Lines (contd)Adana-Iskenderun 135 km 154 kv

Land and rights of way - ,08 .08 .72Towers .55 .26 .81 7.29Conductors, Insulators

Hardware .78 .53 1.31 11.79SubstationsAdana .13 e05 .18 1.62Seyhan .09 .04 .13 1.17Iskenderun .19 .10 .29 2.61

Engineering, Design andSupervision .02 04 o06 .54

Contingencies .17 .11 .28 2.52Sub-total 1.93 121 3.14 28.26

Kadincik-Adana 55 km 154 kvLand and rights of way - .02 .02 .18Towers .25 .16 .41 3.69Conductors, InsulatorsHardware .33 .25 .58 5.22

Substation Equipment, Adana .10 .03 .13 1.17Transformer, Adana .19 .12 .31 2,79Engineering, Design and

Supervision .01 .02 .03 .27Contingencies .07 .06 .13 1.17

Sub-total .95 .66 1.61 14.49

Total for Transmission 3.00 2.00 5.00 45.00

Total for the Project 18.00 25.50 43.50 391,50

June 15, 1964

TUXUEr In millions of Turkish Liras_____ ~~~~~~~~~~~~~~~~TL9 - $1

CUKIROVA ELTRIC COMPANY

Condensed and Adjusted Balance Sheets 1959-1970

-- A- -,ctual--------- - ------------------------ ___________ _____- --- Forecast - ------------ ~ --

Fiscal year ending December 31: 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970

ASSETS

Fixed assets in operation 41 42.90 43.43 94.10 94.51 94.88 113.94 115.38 228.93 233.22 50o.08 528.46 53142

lees: depreciation reserve / .26 2.86 h.81 8.99 13.25 18.55 23.96 31.85 42.36 57.49 75.75 94.15

Net fixed assets in operation 42.64 40.57 89.29 85.52 81.63 95,39 9l4h2 197.08 190.86 447.59 452.71 437.27

Work in progress- - _ 5.13 26.46 16h.41 133.40 209.73 2.96

Net fixed assets h2.6h 40.57 89.29 85.52 86.76 121.85 255.83 330.I8 400.59 447.59 455.67 437.27

Current assets / 19.60 20A6 24.63 32.45 40.08 45.22 37.86 37.30 15.09 18.56 38.69 44.12

Deferred interest due to DSI - - li-09 13.61 13.00 12.35 11.67 10.86 10.01 9.13 8.21 7.26

62.24 61.03 128.01 131.58 139.84 179.42 305.36 378.6h 425.69 475.28 502.57 488.65

LIABILITIES

Paid in share capital 16.00 16.00 31.25 32.35 35.00 51.25 67.50 83.75 100.00 107.50 115.00 115.00

Reserves & surplus 10.29 9.80 10.03 9.98 10.53 12.Q3 IL.29 20.45 25.21 27.63 30.51 37.42

Sub-total: equity 26.29 25.80 41.28 42.33 45.53 63.28 81.79 104.20 125.21 135.13 145.51 152.42

Debt to DSI 27.00 27.00 76.51 73.15 69.63 65.33 60.91 56.30 51.51 46.51 41.30 35.87

IDA Credit 34 TU 3.39 13.36 14.58 14.58 14.58 I".58 14.08 13.58

Proposed IDA Credit 18.00 100.00 153.00 181.00 203.00 209.54 202.72

Interest to Government deferred .68 4.14 10.83 19.45 29.26 36.56 33.24

Custcm duties deferred 13.38 8.92 4.46 8.00 5.00 2.00

Sub-total: debt 27.00 27.00 76.51 73.15 73.02 97.37 193.01 2143.63 271.00 301.35 306.48 287.413

Current liabilities and provisions i/ 5.85 4.16 6.65 10.16 12.75 9.90 14.,8 l1.67 14.85 19.06 24.09 24.67

Net profit for year 3.10 4.07 3.57 5.94 8.54 8.87 16Ah 163l 1j-j 3s.7h V 24.15

62,24 61.03 128.01 131.58 139.84 179.12 305.36 378.64 425.69 b75.28 502.57 488.65

Starting 1961 fired assets in operation include TL 50.36 million, the deferred exchange loss which arose from revaluation in Turkish currency of the Bank loan

financing the Seyhan power house.

Consists of (a) ordinary depreciation accumalating at rates averaging about b.6% for the Seyhan power station, b% for the Mersin thernal plant and 2.5% for the

Kadincik hydro plant and transmission facilities, and of (b) the writing off over 16 years, starting 1961, of the deferred exchange loss cited above.

31 Includes in 1963: TL 20.5 million mah, TL 15.1 mlion receivables, over o0% of which in notes, TL 3.3 million inventories and TL 1.2 million securities.

Interest paid by DSI until the end of 1961 on the portion of the Bank loan used in financing the Conpany's original assets; the Company agreed to pay it

back in 16 years, st4rting 1961.

InJoIdes the crnuTt portion of long-tenm debt.

June 15, 1964

TURKEY

CULi;CRVA EIZTCTRI COmFAZTY In millions of Turkish Lirasanless otherwise stated

'cldensad and AiJustel Incai,e otatemenr,s 1959-1970 TL9 - S1

-------- - ---- --- -Actual…---------------Forecast s-- ------------- …Fiscal year ending December 31: 1959 1960 o 961 1962 1S63 1964 1965 1966 1967 1968 1969 1970

Sales, in eiillions of kwh 133.3 145.5 156.8 174.3 188.4 200.0 290.0 363.0 415.0 466.o 515.0 571.0Average revenue per kwh sold kuras/kwh 6.7 6.6 6.5 li.0 11.5 12.2 13.3 13.3 13.3 13.5 13.3 13.3

Operataig reveiucs 0.92 9.50 10.20 19.20 22.36 24.40 38.57 48.28 55.20 62.91 68.50 75.94

Operating costsOperations and maintenaaxce 2.11 2.92 3.89 3.33 3.85 4.40 8.03 12.40 16.35 12.90 8.65 11.55Real estate and other taxes .03 .59 1.59 1.87 .55 .55 .55 1.05 1.05 2.05 2.05 2.05Insurance .32 .28 .30 .31 .32 .40 .40 .70 .70 1.10 1.10 1.10Water charges .67 .73 .79 2.30 2.83 3.00 3.20 3.20 3.20 3.20 3.20 3.20Ordinary depreciation 3.21 2.64 1.96 2.01 2.06 3.00 3.00 5.00 7.50 12.00 15.00 15.00Deferred exchange loss written off 2.21 2.21 2.30 2.41 2.89 3.01 3.13 3.26 3.00

Sub-total: operating costs 6.3, 7.16 8.53 12.03 11.82 13.65 17.59 25.24 31.81 34.38 33.26 36.30

Net receipts from operations 2.58 2.38 1.67 7.17 10.54 10.75 20.98 23.04 23.39 28.53 35.24 39.64Other income .52 1.71 1.90 1.90 1.74 1.7t5 - - - - _Net income before interest 3.10 4.09 3.57 9.07 12.28 12.50 20.93 23.04 23.39 28.53 35.24 39.64

Income deductionsInterest payable - - 2.54 3.23 3.77 7.46 10.39 12.44 13.63 14.36 14.54Interest during construction (credit) - - - - (.10) (.79) (3.24) (4.30) (4.53) (5.72) (6.53) -Deferred interest written off - - - .59 .61 .65 .68 .81 .85 .88 .92 .95

Sub-total - - - 3.13 3.74 3.63 4.90 6.90 8.76 8.79 8.75 15.49

Net profit 3.10 4.09 3.57 5.94 °.54 8.57 16.08 16.14 14.63 19.74 26.49 24.15Disposition of profitCorporate and other taxes 1.0h .7J .66 1.13 1.64 1.96 3.59 3.23 2.1t8 3.36 5.14 4.23Legal and other reserves .12 .16 .31 .60 1.50 2.26 6.16 4.76 2.,2 2.88 6.91 4.55Bonus to personnel .15 .21 .23 .27 .30 .35 .40 .60 .60 1.00 1.00 1.00Cash dividend 1.79 2.97 2.37 3.94 5.10 4.30 5.93 7.55 9.13 12.50 13.44 14.37

RatiosReturn on net fixed assets in operation,

year end - - 40o 10.6 15.0 13.1 22.9 11.7 12.3 6.4 7.8 9.1Return on net fixed assets in operation,average - - - 10.0 1l.7 14.1 22.5 16.0 12.1 8.9 7.8 8.9Times interest payable covered by netincome - _ _ 3.6 3.8 3.3 2.8 2.2 1.9 2.1 2.5 2.7Times debt service covered by cashgenerated _ - - 2.5 2.5 2.4 2.2 1.6 1.6 1.9 1.9 1.8Net profit after taxes as percantage ofstlare capital at year end 12.9 20.9 9.3 14.9 19.7 13.5 18.5 15.4 12.2 15.2 18.6 17.3Debt as percentage of capitalization 5° 51 65 63 62 61 70 70 68 69 68 65

June 15, 1964

ANNEX 8

TURKEY

CU4UROVA ELECTRIC COMPANY In millions Of Turkish LirMTL9 = S1

Forecast of Sourees and Applications of Funds 1964-1970

Sub-total TotalFiscal Year endinr December 31: i2§4 1965 1966 22 1968 1969 1970 1964-1969 1964-197

SOURCES OF FUNDS

Internal cash generation

Net income 12.50 20.98 23.04 23.39 28.53 35.24 39.64 143.68 183.32Depreciation 5.50 5.41 7.89 10.51 1i.l3 18.26 18.40 62.50 80.90

17.80 26.39 30.93 33.90 43.66 53.50 58.04 206.18 264.22

Sale of new shares 16.25 16.25 16.25 16.25 7.50 7.50 80.00 80.00

BorrowingsIDA Credit 34 TU 9.97 1.22 11.19 11.19Proposed IDA credit 18.00 82.00 53.00 28.00 22.00 13.00 216.00 216.00Interest to Government deferred:

IDA credit 34 TU .49 .66 .69 .69 .69 .69 3.91 3.91Proposed IDA credit .19 2.80 6.0o 7.93 9.12 9.93 35.97 35.97

Customs duties deferred 17.84 12.00 29. 29.8428.65 104.52 59.69 36.62 43.81 23.62 296.91 296.91

TOTAL SOURCES 62.70 147.16 106.87 86.77 94.97 84.62 58.04 583.09 641.13

APPLICATIONS OF FUNDS

Additions to plant

Seyhan Hydro third unit 13.36 1.44 14.80 14.80Mersin Thermal 14.08 45.77 21.36 4.29 85.50 85.50Kadincik Hydro 4.58 51.52 56.88 71.80 56.41 19.81 261.00 261.00Transmission 7.58 37.42 45.00 45

39.60 136.15 78.24 76.09 56.41 19.81 406.30 406.30

Interest

DSI debt 2.98 3.45 2.64 2.46 2.27 2.06 1.86 15.86 17.72IDA credit 34 TU .57 .77 .80 .80 .80 .80 .80 4.54 5.34Proposed IDA credit .22 _ 6.4 9.18 10.56 11.50 11.88 41.65 53.53

3.77 7.46 10.39 12.44 13.63 14.36 14.54 62.05 76.59

Amortization

DSI debt 3.52 4.30 4.42 4.61 4.79 5.00 5.21 26.64 31.85Customs duties deferred 4.46 4.46 4.46 8.46 3.00 21.84 24.84IDA credit 34 TU .50 .50Proposed IDA credit 6.46 6.46Deferred interest on IDA credits 3 _1.12 3.32

3.52 4.30 8.88 9.07 9.25 13.46 18.49 48.48 66.97

Other expenditures

Corporate and other taxes 1.64 1.96 3.59 3.23 2.48 3.36 5.14 16.26 21.40Dividend and bonus 5.40 4.65 6.33 8.15 9.73 13.50 14.44 47.76 62.20Other .322 - 3

10.67 6.61 9.92 11.38 12.21 16.86 19.58 67.65 87.23

TOTAL APPLICATIONS 57.56 154.52 107.43 108.98 91.50 64.49 52.61 584.48 637.09

Cash surplus or (deficit) for year 5.14 (7.36) (.56) (22.21) 3.47 20.13 5.43 (1.39) 4.04Cash at begining of year 27.00 32.14 24.78 24.22 2.01 5.48 25.61 27.00 27.00Cash at end of year 32.14 24.78 24.22 2.01 5.48 25.61 31.04 25.11 31.04

June 15, 1962

TURKEY

CUKUROVA POWER SYSTEM - -

ProposedExisting Project 0 20 40 60 80 100 Km. /

l4ydro plants U I

Thermal plant A |

154KV transmvssion lines )-

66KV transmission lines __ -'

33KV transmisson lines,

BULrAR;IA d1 c ,e,. s, ; E Y H A N /PROV I N C E

W EECS' -.4,-. u s s R Kozan -

v 0 >ANKARA E - Kadirli a

iU -SA_h a ___

-- - -- -he

Ado PROJECT AR,A j Osmaniye

AIi\ _- ' M.2A( Vj S.|PROVINCE !

\) WN I C L E P R O V /E S 1 -S X IshIeR KllhNi

ey ona Itnz

CY PRU, A / , ,%,,, , ee

*f-or*r;,r --5 E' R' A* Q f'. DATArtyo r*l

s: ' MEDI TERMRANEA N SEAHATAY

JANUARY 1964 IBRD-I038RI