Turkey - Antalya Forest Utilization Project (Vol. 2 of 2) : Annexes

FIr. Copey DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 240a-TU APPRAISAL OF ANTALYA FOREST UTILIZATION PROJECT TURKEY (in two volumes) VOLUME II ANNEXES December 17, 1973 Industrial Projects Department This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS WEIGHTS AND MEASURES TL 1.0 = US$ 0.714 All weights and measures are in metric units TL 14.0 = US$ 1.00 1 Metric Ton (t) = 1,000,Kilograms (kg) 1 EIB Unit of Account = US$ 1.20 1 Metric Ton (t) = 2,206 Pounds 1 Kilometer (km) = 0.62 Miles 1 Hectare (ha) = 2.47 Acres Volumes of logs and sawnwood refer to Solid Wood Measure PRINCIPAL ABREVIATIONS AND ACRONYMS USED EIB European Investment Bank GDF General Directorate of Forestry MF Ministry of Forestry SEKA Seluloz ve Kagit Sanayii - The State Pulp and.Paper Industry SIB State Investment Bank SPO State Planning Organization Fiscal Year January 1 - December 31  ANTALYA FOREST UTILIZATION PROJECT VOLUME II ANNEXES TABLE OF CONTENTS ANNEX 1 - GLOSSARY OF TERMS ANNEX 2 - PLACE OF ANTALYA PROJECT IN THE DEVELOPMENT OF TURKEY'S FORESTS ANNEX 3 - INSTITUTIONAL BACKGROUND A. Ministry of Forests B. SEKA C. Organization of the Sawmill Industry ANNEX 4 - THE FORESTRY PROJECT ANNEX 5 - THE INDUSTRIAL PROJECT ANNEX 6 - FUTURE STUDIES ANNEX 7 - TRANSPORTATION ANNEX 8 - PLANT SITE AND ENVIRONMENTAL IMPACT ANNEX 9 - MARKETS AND MARKETING A. Market Situation for Paper and Lumber in Turkey B. Market Situation for Antalya Products C. Marketing for Antalya Products ANNEX 10 -CAPITAL COSTS AND FINANCIAL PLAN - FORESTRY PART ANNFX 11- CAPITAL COSTS AND FINANCIAL PLAN - INDUSTRIAL PART A. Capital Cost Estimates B. Working Capital Estimates C. Phasing of Expenditures and Financial Plan D. Schedule of Repayments and Interest on Long-Term Debt ANNEX 12 -STATE INVESTMENT BANK, TURKEY ANNEX 13 -FINANCIAL ANALYSIS - FORESTRY PART ANNEX 14 - FINANCIAL ANALYSIS - INDUSTRIAL PART  - 2- ANNEX 15 - ECONOMIC ANALYSIS A. Methodology B. Project Benefits Sackkraft and Linerboard Lumber C. Project Costs ANNEX 16 - SOCIO-ECONOMIC STRUCTURE OF ANTALYA REGION MAP 1: Forest Map of Turkey (IBRD 10502R) MAP 2: Site Layout, (IBRD 10789)  ANEX 1 Page 1 GLOSSARY OF TERMS A annum AAC annual allowable cut: the maximum annual amount of wood wnich may be harvested on a certain area on the basis of sustained yield i2 perpetuity ADT air dry tons afforestation the planting of trees in unforested areas asl above sea level basmudurluk regional forest management entity bolge forest ranger district BDT bone dry tons cm centimeter CIF cargo, insurance and freight DCF discounted cash flow EEC European Economic Community EIB European Investment Bank FAO Food and Agriculture Organization of the United Nations FOB Free on board FT Finished tons FTPA Finished tons per annum FTPD Finished tons per day g Gram g/m2 Grams per square meter GDA General Directorate of Afforestation and Brosion Control GDF General Directorate of Forestry GNP Gross National ?roduct ha hectare  ANEX I - orse rower Page 2 i2S-e.iiarisnl a deliberately set fire ';2' S;.J Lntr@ernat-oiaal Bank for Reconstruction and Development Forest district intermediate in size between basmudurluk and bolge kilogram, kilo-neter scuare kilometer milimeter m meter M 3 cub-ie meter m /A cubic meter per annum m square meter mh manr,hour MFry Ministry of Forests MPM LMeters per minute net r,merchant- stem and branch under bark; volume to a minimum able under- diameter of 8 cm ub; stump volume is excluded bark volumne No. number NSSC Neutral Sulphite Semi-Chemical PTT state postal, telegraph and telephone organization pinus brutia Latin name for the principal pine native to Antalya: kililcam in Turkish, red pine in English reforestation The replacement oif trees in cut over forest areas sackkraft kralt paper for manufacture of multiwall sacks sawniwood cut wood; lumber SEE Staze 1conomic Enterprise  A NN I Page 3 SEYA Seluloz ve Kagit Sanayii - The State Pulp and Paper Company SIB State Investment Bank silviculture a phase of forestry dealing with the development and care of forests SPO State Planning Organizatior- stand a group of trees Stere measure of stacked wood; one cubic meter of wood plus bark plus air (1 fuelwood stere - approximately 0.5 m3 solid wood) T ton (1,000 kilograms) TL Turkish Lira ($1.00 = 14.00 TL) TL/FT Turkish Lira per finished ton TL/kg Turkish Lira per kilogram TtLm3 Turkish Lira per cubic meter TL/m3 Turkish Lira per cubic meter TL/T Turkish Lira per ton TL/T/km Turkish Lira per ton per kilometer TRY Turk Hava Yollari, Turkish Airline TPA Tons per annum UNDP United Nations Development Programme ub under bark Uniform the opening of the canopy of a mature forest on a Shelterwood uniform basis for iregeneration purposes to obtain System an even-aged crop yr year   Page 1 PLACE GF ANTALYA PROJECT IN THE DEVELOPMENT OF TURKEY 'S FOREST Background Although 'Turkey's forests are amoong the largest in Europe - with an estimated 19.2 million ha, they are in fourth place after Spain (26.7 million ha), Sweden (23.4 million ha) and Finland (21.7 million ha) - they continue to be managed, as they 'have been for the past century, for conservation rather than production goals. The annual cut of commercial wood from the Turkish forests in 1970 amounted to 0.22 m3/ha, whereas in Spain, Sweden ar,d Finland it was 0.3 m3/ha, 2,4 m3/ha and 1.7 m3/ha respectively, even though growth rates in the Scandinavian countries tend to be lower. 1/ Turkish forestry officials reinforce the conservationist tradition by administering both the economic and social life of persons living in forest areas. Reasons why the forest system is reluctant to change its administration and management are: - Forest dweller's rights to grazing - Forest products and material assistance are guaranteed by law - even, in part, by the constitution - Forest dwellers make up over 35% of the population (some 13 million). Turkey has 15,000 small, weak and scattered separate forest indus- try establishments. A few new plants including three pulp and paper plants use up-to-date technology and produce quality products which meet world standards. Yet, the mills are too small by world standards and will have difficulty in meeting foreign competition. Secondly, the new mills lack positive control over wood supplies. In order to achieve economies in production costs it has now become essential to buiLd plants with higher outputs. The average size of particle board plants establ.ished in Turkey since 1970 has been 14,000 tons of product capacity while each of the pulip and paper plawnts are of Ness than 100,000 tons of paper and paperboarc6 capac_ty per annunm. . n. contrasts new particle board mills ara beinz, built in Europe and iNorth America of 100,000 tons to 250,000 tons per anmim. Similarly, most new pulp and paper mills are in the range of 200,000 to 350,000 tons per year. 1 / m3 Gt wood refers to solid measure uncer bark throughout the report unless otherzwise noted.  ANNEX 2 Page 2 The small size of forest-based industrial plants is due mainly to: - A lack of guaranteed raw material supply - A lack of capital - A lack of foreign competition Previously, the high prices of wood in Turkey as compared with world prices of wood were a major concern. Wood prices were loaded with "'social c:, )ss" because the Ministry of Forestry had to install infrastructure (roads, co r,uancations) in non-productive forest areas. This situation is not so serious today, and wood prices are not burdened with high costs, but prices rema,in high in view of the strong demand and limited supply (see also Chapter 8). The need for change is importantly emphasized in looking at the mirzor contribution of forestry to the economy. In 1972, the forestty sector con$ributed about TL 5,700 million or 3.7% to GN'P._J About 20% of the net value of production was unprocessed, a further 54% was processed and the rema.nder was converted into paper products. The net values of production are estimated as follows: Net Values of Production - 1972 Millions of TL Forestry 1,228 Wood Products 3,037 Paper and Paperboard _Lp400 Total 5,665 ln the I950's, USA.ID missions begarn identifying the changes necessary e Antalya forest region and other forestry sectOrs, Jn order to encoar- age development. These were substantiated and furthered by UND?/FAO projects _r. the '6%Cs and the Bank missions in the '70's. I ' X 14% and 1 2% in Finland- and Sweden respectively.  ANNEX 2 Page 3 From 1961 to 1965, the UNDP/FAO "Pre-Investment Survey of the Antalya Region" included a survey and inventory of the Antalya/Isparta forests. it identified a forest industrial project capable of producing 50,000 m3 of sawnwood and 100,000 tons of kraft pulp annually, and recommended a more rational approach to forest management, clear felling and reforestation. In 1969, a Finnish firm of forest industrial consuItants . (Jaako Poyry and Co.) did a pre-Investment study on f"orestry and forest industries development in the Antalya area. Based on a given wood susply of one amiLlion m3 year, the consultants concluded that a feasibility study was needed on a complex producing 100,000 tons/a of kraft liner, 100,000 tons/'a of kraft sack and wrapping paper and 150,000 m3/a of sawnwood situated near Manavgat on the Antalya coast. Bank Role The Bank became involved in the Antalya Project first by preparing detailed worklists for forestry activities whnen the FAO/I3RD cooperative pro- gram began project preparation work in 1969. This was after completion of the Poyry feasibility report which was later termed invalid because no de- tailed worklists were contained in the terms of reference, Despite follow-up work, several factors preceding 1969, a main one being major organizational changes going on in SEKA and the Ministry of Forestry, were detrimental to any progress in forestry work. - The Ministry of Forestry saw no need for the work (but assurances for only 600,000 m3/yr were given) - SEKA felt Poyry study was sufficient - Lack of coordination as observed by two Bank missions in 1971, who came in response to Government requests for Bank financing. The second Bank mission revealed past errors and was the pivot upon which a fresh, realistic approach was made. To help solve one of the largest problems, lack of coordination, a Turkish Project Preparation Team comprised of staff seconded from both SEKA and the Ministry of Forestry was set up to rework the feasibility study, with the widest terms of refer- ence. The insistence was that the 'Turkish Team be solidly backed up by a team of foreign experts from a company well reputed for its work in inte- grated forest utilization projects. An initial resistance was turned into enthusiasm when the Turkish Team went to W.iqshington to discuss its terms of reference and then visited modern forestry operations in British Columbia, It was made clear how obsolete Turkey's systems were.  AUTNEX 2 Page 4 The Teamn persuaded the Government to apply for UNDP financing for the consultants and insisted that the Bank be the executing agency. By ciexplanation of the role of the new study, especially by showing the -.ee of-