Berke Hydropower Project
Report No: ; Type: Report/Evaluation Memorandum ; Country: Turkey; Region: Europe And Central Asia; Sector: Hydro; Major Sector: Electric Power
                                                    & Other Energy; ProjectID: P009019


       Turkey: Berke Hydropower Project (Loan 3476-TU)

The Project Completion Note (PCN) on the Turkey Berke Hydropower Project (Loan 3426-TU,
approved in FY92), prepared by the Europe and Central Asia Regional Office, was reviewed by the
Operations Evaluation Department (OED). The Bank loan for US$270 million equivalent, was
approved on May 29, 1992. The Borrower was the Republic of Turkey, which onlent the funds to
Cukurova Electric A.S. (CEAS), a privately-owned power company, and charged an onlending fee
equivalent to 35 basis points per annum on the outstanding balance of the loan. The Bank canceled the
loan on March 3, 1995, about three years before the original closing date. Only US$42.5 million were
disbursed, and the balance of US$227.5 million was canceled when the loan was closed. Neither the
PCN nor the Staff Appraisal Report identify the cofinanciers of the project. There are no comments
from the borrower.

The principal project objectives were: (i) to meet the growing demand for power in Turkey in the least
cost manner; and (ii) to expand the role of the private sector in power generation. The project consisted
of the following components to be implemented by CEAS: (a) the construction of the 510 MW Berke
hydroelectric dam and related structures; (b) the construction of transmission lines (737 km) and
substations (1,350 MVA); and (c) technical assistance to €EAS for studies related to a regional
dispatch center.

The loan was closed prematurely because of non-compliance by CEAS with procurement procedures
agreed with the Bank. The bulk of the loan was canceled. Project implementation had proceeded in a
satisfactory manner until about May 1993, when CEAS was taken over by new owners. Over the next
year, escalating technical disputes between the main civil works contractor and the international panel
of experts (POE) on one hand, and CEAS on the other, over changes in project design and concerns
about the safety of the works led to the resignation of the POE and the termination of the main civil
works contract by the contractor. In seeking new bids, CEAS ignored the Bank's procurement
guidelines and contracted the remaining works with a new contractor without Bank approval. After
providing several opportunities for CEAS to reconsider the course it was following, the Bank decided
to cancel the loan. At that time, the project was about one year behind schedule and less than 30
percent complete. The PCN provides no information on the outlook for the eventual completion and
sustainability of the project. OED has rated the outcome of the project as highly unsatisfactory, the
sustainability as uncertain, the institutional development impact as negligible, and the Bank's
performance as satisfactory. These ratings are in agreement with those in the PCN.

It is clear from the record that EAS's new owners did not agree with the Bank's dam safety and
procurement guidelines, and that these disagreements led to the Bank's cancellation of the project. The
Government was aware of the Bank's concerns but was unwilling to intervene. A key lesson from this
experience is that, as the Bank increases its involvement with the private sector, it needs to ensure that
the national regulatory framework is strong and able to deal effectively with Bank policy requirements,
especially with respect to dam safety and social aspects.

The Project Completion Note is satisfactory. However, it would have been strengthened with a more
detailed discussion of the outlook for eventual completion and sustainability of the project.