being there is water in oil get the head pressure checked for cracks and get the oil out of the engine coolant is caustic and eats the main and rod bearings never reuse old head bolts and if you do rings the rod bolts are also torque to yield which requires rod sizing after you remove and replace bolts caps wont line up properly I have a 1.6 diesel that has been well ventilated in the garage if you need proof  BOLTS ARE CRITICAL

   Sean Fleener

80 porchagon
81 GL 230.000 miles and counting
81 P/U diesel
82 Diesel westy
96 jetta tu fast

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