Turkey - Technical Assistance Project For State Economic Enterprises

osI 'a~~~~~~~~~~~~~~z I i II\|  TURKEY CURRENCY EQUIVALENTS Currency Unit Jan. 1980 1/ Jan. 1981 Jan. 1982 Jan. 1983 Jan. 1984 US Dollar TL 70.00 TL 91.00 TL 139.60 TL 191.15 TL 309.20 TL 1 US$ 0.014 US$ 0.011 US$ 0.007 US$ 0.005 US$ 0.003 1/ Since January 1980, the rate is being adjusted for the differential inflation between Turkey and its major trading partners. FISCAL YEAR Republic of Turkey March 1 to February 28 (through 1981) March 1 to December 31 (1982) January 1 to December 31 (from 1983) LIST OF ABBREVIATIONS DYB Devlet Yatirim Bankasi (State Investment Bank) SAL Structural Adjustment Loan SEE State Economic Enterprise SPO State PLanning Organization TCDD Turkiye Cumhuriyeti Devlet Demiryollari (Turkish State Railways) TCDD-ADVAS Turkiye Cumhuriyeti Devlet Demiryollari- Adapazari Vagon Sanayii Nuessesesi (Adapazari Wagon Industry Establishment of the Turkish State Railways) TEK Turkiye Elektrik Kurumu (Turkish Electricity Authority) TKI Turkiye Komtrm Isletmeleri (Turkish Coal Enterprise) TL Turkish Lira  FOR OMCIAL USE ONLY TURREY TECHNICAL ASSISTANCE PROJECT FOR STATE ECONOMIC ENTERPRISES Loan and Project Summary Borrower: Republic of Turkey Beneficiaries: 1. Turkiye Komur Isletmeleri (TKI) (Turkish Coal Enterprise) 2. Sumerbank 3. Turkiye Cumhuriyeti Devlet Demiryollari - Adapazari Vagon Sanayii Muessesesi (TCDD-ADVAS) (Adapazari Wagon Industry Establishment of the Turkish State Railways) Amount: US$7.6 million (including capitalized front-end fee) Terms: Seventeen years including four years of grace, at the standard variable interest rate. Relending Terms: The Borrower would relend up to an estimated $7.3 million to Devlet Yatirim Bankasi (DYB) on the same terms as the Bank loan. DYB would onlend the equivalent of about $3.0 million to TKI, $2.4 million to Sumerbank and $1.0 million to TCDD-ADVAS, all for periods of seventeen years including four years of grace, at an interest rate equal to the Bank's standard variable rate plus an administration fee of 0.5 percent. The beneficiaries would bear the full foreign exchange risk. Allocation of about $0.9 million would be decided later by agreement between the Borrower, DYB and the Bank. Project This is a pilot project aimed principally at assisting Description: selected State Economic Enterprises (SEEs) to improve their operational efficiency. It provides for the financing of technical consultancy services in the areas of management information and control systems, productivity improvement, manpower planning and training. The project would also finance the procurement of related equipment for the SEEs and the training of staff in implementing new systems. The * project would, in addition, finance technical assistance to the Borrower to strengthen its external debt reporting system. Benefits and The project would enable the selected SEEs to increase the Risks efficiency of their operations through the improvement of specific and critical areas of management. Success of the project could serve as an example to other SEEs of the efficiency improvements that can be achieved. The project would also strengthen the Government's ability to compile and evaluate external debt data rapidly and accurately. 7b dou_t bu a resttncted disuibutioo sod may be wed by recipients only in the perrormtance of| |their otuirsl dutie. Its oDnteots may not otherwise be didsesd vnthout World Bank authorization.|  - ii - Benefits and The main risk the project may face would be a weakening of Risks: the Government's resolve to grant greater autonomy to the (contd.) SEEs, with a resultant loss of motivation on the part of the SEEs to improve performance. This risk is considered small in view of the fact that SEE reform is a major component of the Government's structural adjustment program. Estimated Project Costs: $ Million Equivalent Local Foreign Total 1. TKI Consultant Services 0.60 1.73 2.33 Training and Equipment (including software) - 0.52 0.52 0.60 2.25 2.85 2. Sumerbank Consultant Services 0.62 1.02 1.64 Training and Equipment (including software) _ 0.64 0.64 0.62 1.66 2.28 3. ADVAS Consultant Services 0.24 0.46 0.70 Training and Equipment (including software) - 0.23 0.23 0.24 0.69 0.93 4. External Debt Management Consultant Services 0.07 0.17 0.24 Equipment _ 0.05 0.05 0.07 0.22 0.29 5. Additional Studies (to be identified) - 0.75 0.75 Total Base Cost 1.53 5.57 7.10 Physical Contingencies 0.15 0.56 0.71 Price Contingencies 0.21 0.74 0.95 Total Proiect Cost 1.89 6.87 8.76 Front-end Fee - 0.02 0.02 Total Financing Required 1.89 6.89 8.78  - iii - Financing Plan: $ million Local Foreign Total IBRD 0.7 a/ 6.9 7.6 SEEs & Government 1.2 - 1.2 Total 1.9 6.9 8.8 a/ Represents 85 percent of costs of local consultants. Estimated Disbursements: $ million IBRD FY 1985 1986 1987 1988 Annual 2.4 3.5 1.6 0.1 Cumulative 2.4 5.9 7.5 7.6 Staff Appraisal Report: There is no separate appraisal report Map: No. 11656R  INTERNATIONAL BANK FOR RECONSTRUCTION AND dEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A TECHNICAL ASSISTANCE PROJECT FOR STATE ECONOMIC ENTERPRISES 1. I submit the following report and recommendation on a propcsed loan to the Republic of Turkey for the equivalent of US$7.6 million to help finance technical assistance to selected Etate Economic Enterprises for increasing operational efficiency and to the Covernment for strengthening its external debt reporting system. The loan would have a term of 17 years including 4 years of grace, with interest at the standard variable rate. The Government would onlend up to an estimated $7.3 million to Devlet Yatirim Bankasi (DYB - State Investment Bank) on the same terms as the Bank loan. The equivalent of about $3.0 million, $2.4 million and $1.0 million would be relent by DYB to Turkiye Komur Isletmeleri (TKI), Sumerbank and Turkiye Cumhuriyeti Devlet Demiryollari-Adapazari Vagon Sanayii Muessesesi (TCDD-ADVAS) respectively, all for periods of 17 years including 4 years of grace, at an interest rate equal to the Bank's standard variable rate plus a fee of 0.5 percent. Allocation of about $0.9 million would be decided later. PART I - THE ECONOMY 1/ 2. An economic mission visited Turkey in June 1982, and its report entitled "Turkey: Country Economic Memorandum, Recent Economic Developments and Medium-Term Prospects" (No. 4287-TU) was distributed to the Executive Directors in June 1983. The report, in addition to analyzing Turkey's medium-term prospects and overall creditworthiness, presents a synthesis of earlier special economic reports on aspects of Turkey's adjustment process. The report of the mission to review the financial system, entitled: "Turkey: Special Economic Report - Policies for the Financial Sector" (No. 4459-TU), was distributed in September 1983. An economic mission visited Turkey in January 1984 to review the economic developments of 1983, the 1984 Annual Program and selected structural adjustment issues. The findings of this mission are reflected in this section. 3. Turkey is about as large as France and Germany combined, with a population of around 46 million and an estimated GNP per capita of $1540 in 1981. The density of population is low (78 per square kilometer of agricultural land), and about 45 percent live in urban centers. Population growth (2.2 percent per annum) is below the median for middle-income countries. Despite rapid economic growth in the mid-1970s as well as substantial emigration of workers (to Western Europe and more recently, to the Middle East), the employment situation has deteriorated steadily with an unemployment rate currently estimated at about i8 percent. There is, however, little or no absolute poverty, although income distribution is skewed. There are considerable regional differences in income and large rural-urban disparities. Recent data indicate a probable worsening in income distribution, especially of wage and salary earners, and a sharp real decline in average earnings. Educational enrollments have expanded greatly but the level of adult literacy remains relatively low. 1/ Parts I and II are the same as Parts T and II of the President's Report on the Industrial Training Project (P-3660-TU), dated March 5, 1984. BEST C3PpY r MIU'93Ai-;L  -2- Backcground 4. During the 1970s Turkey did not make the necessary adjustments to the shocks caused by the steep rise in oil prices, stagflation in the OECD economies, and the consequent deterioration in the terms of external trade. Until 1977 Turkey maintained high rates of economic growth by raising the share of investment in GDP. This was financed initially by workers' remittances and, following the quadrupling of oil prices, increasingly by short-term borrowing. The rapid GNP growth came to an abrupt halt in 1977 as the massive external debt burden led to a sharp deterioration in creditworthiness, severe shortages of imports, and disruptions in industrial production with a rise in unemployment. By the end of 1979, domestic inflation had also become an issue of critical importance. 5. The Turkish authorities' response to the crisis of the late 1970s was a major shift in development strategy in 1980, moving towards outward orientation and giving an increased role to market forces. Policies were adopted to expand exports and increase workers' remittances which, together with liberalization of imports, encouragement of foreign investment and prudent external debt management, were aimed at alleviating the balance of payments constraint and import shortages. On the domestic front, the objectives were a reduction in the inflation rate, reform of the State Economic Enterprises (SEEs), a more efficient financial sector, improved resource mobilization and better selection of investments, especially in the public sector. 6. The adjustment program, which has been supported by the Bank through four structural adjustment loans so far, involves far-reaching changes in attitudes, institutions, and the legal and policy framework, all of which take time and are difficult to put in place. In view of the severity of the crisis in 1979, and the urgent need to bring down inflation and stabilize the balance of payments as quickly as possible, the Government accepted the need for a temporary sacrifice of growth and social objectives. Major structural changes were made in the operation of the exchange rate regime, the tax system, interest rate policy, export strategy, the SEE sector and public investment policy. 7. The implementation of the program was carried out by a military regime which assumed power in September 1980 following a period of sustained unrest. Subsequently a Consultative Assembly was set up to draft a new constitution, which was overwhelmingly endorsed in a nationwide referendum in November 1982. New election and party laws were then promulgated, and parliamentary elections completed in November 1983. A new Government assumed office in December 1983. The Structural Adjustment Process - 1980-83 8. The Turkish economy has shown an impressive response to the structural adjustment program and actual performance met or exceeded the Government's own targets through 1982. By contrast, results in 1983 proved to be mixed, due in part to adverse economic developments on the external front, slippages in the monetary program, and Government inertia in the face of upcoming elections.  9. Real GNP, after falling for two consecutive years, expanded by 4.2 percent in 1981 and 4.6 percent in 1982. Crowth was mainly export-led, with less than one-quarter of the growth in 1982 due to domestic demand. Demand for consumption increased by 3 percent while fixed investment grew at a modest 4.1 percent (both in real termis) in 1982, and depletion of inventories helped to expand supply. Public investment grew at a slower rate than private investment, thus reversing the trend of previous years. However, unemployment continued to grow as employment opportunities did not increase fast enough to absorb the expansion of the labor force. GNP growth slowed down in 1983 to about 3.2 percent as against the target of 4.8 percent, due in large part to the effect of adverse weather conditions on agricultural production. Industrial value added is estimated to have registered a growth of 6.6 percent as against the program target of 5.5 percent. Total fixed investment increased by about 4.2 percent. As in the previous two years, private fixed investment grew faster than public fixed investment (5.7 percent versus 3.2 percent). 10. The Government has been remarkably successful in reducing the rate of inflation through a combination of fiscal, monetary and income policies, although the downward trend was reversed in 1983. After peaking at 107 percent in 1980, the annual average rate of increase in the wholesale price index declined to 37 percent in 1981, and around 25 percent in 1982, which was the program target. In 1983, it rose to 31.4 percent, as against the program target of 20 percent. The rise was fueled by an expansion of Central Bank credits to firms and commercial banks in difficulty during the second half of 1983. The resulting liquidity expansion, in conjunction with a lowering of nominal deposit interest rates, encouraged consumption at the expense of savings (consumption increased by 4.2 percent). 11. Commercial bank interest rates which were deregulated in July 1980 have increased substantially and are now markedly positive in real terms. As a result, total bank deposits increased by 72 percent in 1980 over 1979, and in 1981 this trend accelerated, with total deposits growing by 104 percent and time deposits by 263 percent. Growth in deposits slowed somewhat in 1982 and 1983. The bankruptcy in late June 1982 of a major non-bank financial institution shook depositor confidence and was followed by a shift of funds into the larger banks. The Government averted an immediate crisis in the banking sector and undertook actions to reform and strengthen the financial sector as a whole. A new banking law was enacted in June 1983. It covered many of the recommendations made by the Bank's report on the financial sector 1/, including measures to reduce the undercapitlization of banks, place limits on the real assets and investments of banks, link the establishment of branches to the level of a bank's equity, reduce the interlocking between banks and corporations, introduce a deposit insurance scheme and increase the role of the Central Bank in the supervision of the banking sector. The Government also took a major step towards reducing the cost of intermediation and strengthening the inter-bank market by reducing the level of the financial transactions tax from 15 percent to 3 percent in December 1983. Separately, the Government has reduced the level of withholding tax applicable to interest payments on deposits and bonds from 20 percent to 10 percent. 1/ "Turkey: Special Economic Report - Policies for the Financial Sector" (No. 4459-TU), dated September 21, 1983. BEST MQPY P"!'^"E  12. While positive real interest rates have provided an incentive to save, they have also meant high borrowing costs. The current real interest rate for non-preferential credits is about 30 percent, and there is considerable disparity between the cost of preferential and non-preferential credits. The high interest rates, together with the limited availability of credit, have led to considerable liquidity problems for the private business sector, particularly Eor businesses supplying the domestic market. In order to reduce real interest rates, measures are also needed to lower the operating costs of banks which are well above prevailing levels in comparable countries, in addition to a reduction in the inflation rate. 13. In the fiscal area the most notable feature is a marked retrenchment of the public sector. The budget deficit to GNP ratio, which stood at 4.6 percent in 1980, decreased to 1.2 percent in 1982, while SEE transfers as a percentage of GNP showed a steady decline from 4.8 percent in 1980 to 2.8 percent in 1982. The public sector accounts continued to show improvement in 1983. Although there was a shortfall in tax revenues, this was more than offset by savings in expenditure, so that the ratio of budgetary deficit to GNP further declined to about 0.5 percent. Transfers to SEEs as a percentage of GNP also registered a decline to 2.6 percent in 1983. However, total profits of SEEs at TL 52 billion were somewhat lower than expected, implying a slight increase in the ratio of the SEE financing requirement to GNP. 14. On the external account, the flexible exchange rate policy under which the Turkish lira has been adjusted daily since May 1981, contributed to an unprecedented export growth in 1981 to $4.7 billion, or 63 percent higher in dollar terms than the 1980 level. The increases were concentrated in manufactured goods (a rise of nearly 120 percent). Product groups with the largest increases included textiles, clothing, cement, iron and steel, and non-electrical equipment. Exports in 1982 reached $5.75 billion, about 22 percent above 1981, despite a significant decline in export prices, particularly for agricultural products. Manufactured exports were the major source of expansion, as exporters continued to make inroads into markets in the Middle East. In 1983 exports grew by an estimated 13.6 percent in volume but their value remained unchanged compared with 1982 at $5.8 billion, because of a sharp downward movement in export prices. 15. A new and rapidly growing source of foreign exchange is income earned from construction contracts in the Middle East and North African countries (with a gross value of around $12 billion in 1983). These activities are expected to add to the normal flow of workers' remittances, which remained strong throughout 1981 but declined in 1982 and 1983, reflecting the appreciation of the US dollar vis-a-vis European currencies as well as the impact of the recession in Western Europe. 16. The shortfall in earnings from exports and workers' remittances in 1983 was partially offset by a less-than-expected increase in the value of imports, which reached $9.0 billion as compared to the programmed level of $9.7 billion. The net result was a substantial increase in the current account deficit to $1.8 billion in 1983 (3.5 percent of GNP) as against $1.0 billion in 1982 (1.9 percent of GNP).  -5- The New Economic Program 17. The new Government announced its economic program in December 1983. The major structural measures are in line with the objectives contained in the 1980 reform prograun. They are designed to push the structural adjustment process firmly forward, and to reaffirm the Government's will to pursue policies designed to open up the economy and reduce distortions. Export growth and inflation control remain central to the new program. The measures include: (i) a reorganization of the Government's administrative machinery, including a reduction in the number of ministries and the simplification of procedures; (ii) a substantial import liberalization which eliminates approximately 78 percent of quantitative restrictions in trade-weighted value terms, reduces significantly the tariffs on a large number of items, and imposes a levy on luxury goods imports aimed at feeding a low cost housing fund; (iii) a reaffirmation of the need to export; (iv) a substantial liberalization of the foreign exchange regime through simplification of procedures and freeing of restrictions; sv) an interest rate policy designed to provide a real rate of return thereby encouraging savings, while at the same time freeing the lendjzg rates set by the commercial banks with the exception of the rates on certain preferential credits; (vi) a major step towards reduction in the inordinately large spread between deposit and lending rates by lowering the withholding tax on interest payments from 20 percent to 10 percent and the financial transactions tax from 15 percent to 3 percent; and CVii) a reaffirmation that the State Economic Enterprises will, with some exceptions, be free to set their own prices according to the requirements of the market. Medium-term Prospects 18. Preliminary projections prepared by the recent Bank Economic Mission indicate the need for a continuation of the stabilization program until 1985, followed by a growth strategy aiming at about 5.5 percent per annum GDP growth consistent with a manageable balance of payments. 1/ Two basic assumptions on the sustainability of export growth and on fiscal discipline have guided the projections. The continued growth of exports is based on the view that the conditions that made possible the 1981-82 upsurge are not temporary. 1/ The Fifth Five Year Development Plan (1984-88) was postponed by one year until the new Government took office. According to the present schedule, the new Fifth Five Year Plan, which will cover the period 1985-89, will be ready in draft form by mid-1984.  - 6 - Specifically, the projections assume continuation of a flexible exchange rate policy, export incentives and import liberalization. They also assume that the monetary and fiscal policy restraints will not be relaxed to a point that will revive inflation, thus disrupting the basic shift in development strategy. 19. The projections of key economic variables for the period 1984-1990 are presented in Table 1. Merchandise exports are projected to continue to grow at 9 percent in real terms into the late 1980s, with manufactured exports projected to grow at 11 percent per annum. The scenacio assumes an improvement in the pace of import liberalization in order to reduce the profit bias against exports. Merchandise imports are projected to grow by 5 to 6 percent annually in real terms through 1984 and then to pick up to an average of a little over 7 percent for the 1985-90 period in line with the growth of demand. Table 1: Turkey - Selected Ecoiuic IndicLetor. 1981-90 1981 1982 19813 1985 1990 Aware^ Annual Real Growth Mate Units Actual A-tusl etiTste Projected 19DI l9rD2 1912D-I5 I GOP 1980 TL b 4500 4723 4U80 5334 6927 4.4 4.9 4.0 5.4 Consumption 3755 3836 4050 4299 5487 1.9 5.0 4.3 5.6 Fixed Inventmwnt 678 908 946 1083 1441 4.2 3.0 5.4 5.9 Exports of Goode Current S * 4703 5746 5800 8552 139P6 79.0 22.4 4.3 9.0 l ort. of Goode 8933 8s43 9000 12166 24932 10.2 -1.5 6.5 7.1 Trade Balance - 4230 -3097 -3200 -3614 -5946 Current Account Balance Current t e -2076 -1010 -1801 -1763 -2104 RetiD lnv etment/DP 2 24.1 22.1 22.4 22.3 22.8 Sewinge/GDP 2 18.9 18.6 19.0 19.5 20.6 Exports of GBodGD? 2 8.9 10.4 9.5 10.4 12.4 current Account Deficit/GDP z -3.5 -1.9 -3.5 -2.6 -1.7 Debt Service Ratio a/ 2 13.8 23.7 24.3 24.6 24.1 Public Fixed lasetuentl 2 60.9 60.6 60.3 57.5 50.0 Total Fixed Investent !/ Total Debt Service including Debt Relief f Exports of Coode and WS plus workers' emittancee. Source: State Planning Organization and t1RD Projections. 20. The current account balance, under these assumptions, would show a deficit for 1984-85 in the $1.6-1.8 billion range. As higher rates of growth are achieved, the trend would be reversed for the 1985-90 period, and Turkey's current account deficit would increase again. The terminal year 1990 would show a deficit of $2.1 billion (1.7 percent of GNP), as compared to a 1985 projected deficit of $1.8 billion (2.6 percent of GNP). BEST COPY AVAILABLE  - 7 - 21. The capital account would remin manageable throughout the projection period, in line with the need to restrain the growth of debt and maintain a reasonable debt service ratio. This would permit Turkey to meet the amortization and interest payments arising from the $9.2 billion of debt rescheduled between 1978-82 and maintain foreign exchange reserves equivalent to two months' imports. 22. The projections indicate a GDP growth of 4 percent per annum for 1982-85 (stabilization period), and a higher figure of 5.4 percent per annum for 1985-90 (growth period). The achievement of these growth rates will be necessarily dependent on the growth of the productive sectors, namely agriculture and manufacturing. Private investment is expected to grow at an average annual rate of 7.1 percent during 1982-85 and 11 percent during 1985-90. As a corollary, the growth of public investment is expected to slow down from a high of 7.8 percent per annum in real terms during 1980-82 to a more moderate 3.3 percent during 1982-85 and eventually to 3.1 percent per annum for 1985-90. This is consistent with the framework of achieving the medium-term goal of an approximately equal balance in private and public fixed investment by 1990. 23. Turkey's medium-term prospects, which are highly dependent on export sustainability, are linked partly to exogenous factors such as the world economic outlook and movements in world prices. For example, if the annual average export growth during 1985-90 reaches only 7 percent 1J rather than the assumed 9 percent, it will lead to a ore difficult but manageable balance of payments situation which may necessitate more external borrowing and may result in a lower growth rate of imports (between 5-6 percent per annum), as well as a lower growth path (GDP growth of 4.5 percent per annum) and a higher debt service ratio (26-27 percent per annum). Rather than projecting a stabilization period followed by a return to a normal growth path, this scenario suggests that lower growth rates will continue throughout the period. Under these conditions there would be very little chance of absorbing the unemployed. However, given the Government's emphasis on export promotion, there is presently good reason to support the more optimistic scenario described in paras. 18-22. External Debt and Creditworthiness 24. At the end of 1978, Turkey's debt reached $7.5 billion in short-term debt and $6.8 billion in medium- and long-term debt. Service payment obligations (mostly on short-term debt) were $5.1 billion icluding arrears), or nearly three times the value of merchandise exports in 1977. Between 1978 and 1980, Turkey rescheduled some $9.2 billion of outstanding obligations through a series of rescheduling arrangements concluded with official and commercial creditors. Approximately $6.0 billion of short-term debt, including $2.6 billion in convertible Turkish lira deposits and bankers credits and $1.2 billion of non-guaranteed suppliers credits, were consolidated into medium-term loans or partially converted into Turkish lira obligations. 1/ An average of the 5 percent historical growth rate (1960-1979) achieved prior to the adoption of an outward-oriented strategy and the 9 percent growth rate projected in para. 19.  25. Following the resolution of the debt crisis, inflows were mostly from official sources - major creditors being the OECD countries, the World Bank and the IMF. Of the total debt outstanding of $18 billion at end-1982, 87 percent constituted-medium- and long-term debt. Based on the growth scenario outlined earlier, debt outstanding and disbursed as a percent of GDP is projected to fall from 34 percent in 1982 to 31 percent in 1985 and 26 percent in 1990. Short-term debt as a percentage of total debt outstanding fell from 51 percent in 1978 to 13 percent in 1982. 26. Debt service obligations are likely to be high over the coming years. The debt service ratio increased to 23.7 percent in 1982 and about 24.3 percent in 1983 from about 14 percent in 1981, as a result of a large repayment of previously rescheduled debt under the earlier OECD agreements. The projections show a debt service ratio of 24.6 percent in 1985 and 24.1 percent in 1990. The debt burden should remain manageable provided current policies are successfully implemented, the export drive is sustained, and Turkey continues to receive further support from international commercial and official sources. There are some recent encouraging signs of Turkey's ability to enter the commercial market for medium-term loans. In July 1983 the Central Bank of Turkey received a $200 million five-year syndicated loan for balance of payments needs. Negotiations are under way to raise an additional $350 million medium-term loan this year from commercial banks with increased participation of European banks. 27. Turkey continues to be in good standing with the IMF. A three-year standby arrangement in an amount equivalent to SDR 1,250 million was approved by the IMF's Board and became effective on June 18, 1980. The Government purchased the full amount authorized under the arrangement. The Government also purchased SDR 56.25 million against the one-year standby arrangement for SDR 225 million approved by the Fund in June 1983. Negotiations are nearly completed on replacing the current arrangement by a new one-year standby arrangement to commence in April 1984. PART II - BANK GROUP OPERATIONS IN TUPKEY 28. Through September 30, 1983 the Bank and IDA have lent $4,595.8 million 1/ to Turkey, through 75 projects. Agriculture accounts for 18 percent of funds lent, industry and DFCs for 29 percent, power for 16 percent, structural adjustment and program loans for 29 percent, and urban development, transportation, education and tourism for the remaining 8 percent. As of September 30, 1983, IFC commitments to Turkey totalled about $240 million, of which about $81 million were still held by IFC. Annex II provides a summary statement of Bank loans, IDA credits and IFC investments as of September 30, 1983. 29. The execution of Bank-financed projects in the public sector has been slow, due in part to weak management, limited coordination amongst ministries, staffing problems, and the serious external and domestic financial crises from 1977 to 1979. There has been notable improvement since September 1980. Nevertheless, problems persist in many cases, reflecting difficulties in staffing the public sector at current salaries, over-centralized bureaucratic structures and continuing constraints on the availability of local funds. The 1/ Net of cancellations.  - 9 - high interest rates for working capital combined with depressed domestic demand and reluctance of investors to take the foreign exchange risk have affected the implementation of private sector projects and led to slow commitments under DFC lending. Disbursements for all sectors combined average 43 percent of appraisal estimates (excluding structural adjustment loans), as compared to 52 percent for Tunisia and 46 percent for Morocco. 30. Bank lending is aimed at supporting Turkey's medium-term objectives of restructuring the Turkish economy by placing more reliance on market forces and adopting a more outward-oriented strategy. These objectives also include increasing domestic savings and reorienting a restrained public investment program to reflect the Government's priorities of completing ongoing projects faster and emphasizing quick-yielding new investments with positive balance of payments impact. The main vehicle for the Bank's operational discussions with the Government has been the structural adjustment lending (SAL) program. Four SALs have so far been approved, the last on June 23, 1983. The success of the SAL program has highlighted the need to develop sector policy lending vehicles for continuing the policy dialogue at the sectoral level. 31. Agriculture, industry, energy and transportation will continue to be the key sectors for Bank lending with the accent being placed on improving the management of projects. In agriculture, the emphasis will be on irrigation, credit, and reform of the extension and research services. In industry (including DFCs), it will be on the promotion of exports, employment, and increasing operational efficiency. Energy projects under preparation will focus on power generation based on domestic hydro and lignite resources, as well as enhanced oil recovery and oil and gas exploration. Future projects will emphasize the power, coal/lignite and oil/gas sub-sectors. Lending for the transport sector will focus on developing the infrastructure necessary to facilitate exports and improve the efficiency of operations. Projects for industrial training, urban development and public utilities may supplement these efforts. 32. The close macroeconomic and sector dialogue established with the Government in recent years is expected to be pursued. The economic and sector work undertaken recently includes studies of the agricultural and financial sectors. Topics likely to be covered in the future include a review of the next five-year development plan, including a review of major public sector projects, a study focussing on the impact of structural adjustment, a review of transport investments and studies of the engineering and agro-industries. 33. This is the second loan to Turkey to be presented to the Executive Directors this fiscal year Other projects being processed include agricultural extension and applied research, highway rehabilitation and a proposed fifth SAL. 34. The Bank Group's share of the estimated total external debt was about 13 percent in 1982, and is expected to grow to about 15.4 percent by 1985; its share of total debt service payments is projected to increase from about 9 percent in 1982 to about 14 percent in 1985. 35. IFC has invested in synthetic yarns, textiles, pulp and paper, glass, aluminum, cement, iron and steel products, heavy diesel engines, motor bicycle engines, piston rings and tourism. It has also invested in the Industrial  - 10 - Development Bank of Turkey (TSKB) and provided guarantees for overseas contracting firms. In addition, IFC is currently providing technical assistance to the Government with respect to the development of the capital market and a regulatory framework for leasing. PART III - THE NEED FOR TECHNICAL ASSISTANCE The StaLe Economic Enterprise System 36. The State Economic Enterprises (SEEs) in Turkey were established starting 50 years ago to fulfill needs not adequately being served by the private sector, primarily in developing basic industries and infrastructure 1/. Over the years, they have coste to play a dominant role in the economy, in industry as well as in traditional public utilities, transport, and agricultural marketing and supply. The SEEs currently account for a substantial share of investment, GDP and non-agricultural employment. In industry, SEEs have a virtual monopoly in petroleum refining and basic metals, and have a large share in steel, fertilizers, pulp and paper, cement, coal, sugar, machinery and chemicals. Total fixed investment in the SEE sector during 1983 is estimated at TL 678 billion, and amounted to 52 percent of public sector fixed investment and 31 percent of total fixed investment. Broadly defined, in terms of the law as it stood until its recent amendment (para. 38), SEEs were enterprises which had more than one half of their capital owned by the Government, although within this definition they could assume several legal forms, including being set up as a private company. Those SEEs which were fully Government-owned were entitled to create separate legal entities called Establishments which were, in many cases, independent branch operations. Every SEE, along with its Establishments, was under the control of its related Ministry. Supervision of SEE operations was the general responsibility of the related Ministry and the specific responsibility of the High Control Board, an auditing organization, which reported directly to Parliament. Financial SEEs were also audited by a department of the Ministry of Finance. The Government provided the SEEs with the credit and capital needed to sustain operations and to m-ke new investments, within the framework of the Five Year Plan and the Annisal Programs. SEE project proposals were vetted by the State Planning. Organization (SPO) before being submitted for inclusion in the annual financial and investment programs, which were approved by the Council of Ministers. Although the respective roles of the SPO, the State Investment Bank (DYB) and the Treasury in the approval of SEE investments were not clearly demarcated, the Government decided in 1981 that budgetary funds for loans for invest-emut in profit making SEEs would in principle be channelled only through DYB, after scrutiny of the proposals by SPO and the Treasury. Non-profit making SEEs, on the other hand, would continue to receive funds directly from the budget to avoid compromising DYB's financial standing, but the funds would be transferred only after scrutiny of the project by DYB and under DYB's supervision during implementation. 1/ A detailed account of State Economic Enterprises in manufacturing may be seen in the report of a special Bank mission, entitled "Turkey: Industrialization and Trade Strategy" (No. 3641-TU, dated February 18, 1982), Chapter 6.  - 11 - Although this change in the system has not yet been fully implemented, there has been a significant reduction in direct budgetary transfers to the SEEs; direct transfers to manufacturing SEEs, for example, fell from about TL 61 Lillion in 1981 to TL 47 billion in 1982. 37. Since the late 1970s, the operating losses and growing investment demands of the SEEs have placed substantial burdens on the budget and added to inflationary pressures. While some SEEs were well run and profitable, in aggregate they showed increasing losses through 1980. Since then, as a result of certain measures taken by the Government, primarily relating to liberalization of output prices and holding down wage and salary increases below the rate of inflation, the financial picture has changed significantly, and the SEEs showed an overall net profit of nearly TL 67 billion in 1982. The financial results of the operational SEEs are provided in Annex VII and summarized in Table 2. However, while there has been some progress in reducing over-staffing through hiring freezes in some SEEs, there has been little overall improvement in SEE efficiency. Consequently, the burden of economic and technical inefficiency is in many cases merely being reallocated from the budget to consumers. Table 2: Turkey - SEE Accounts, 1980-83 (Current TL billions) 1980 1981 1982 1983 Program Actual Program Actual Program Actual Program Estimate Sales Revenue 1,223 1,146 1,981 1,767 2,601 2,650 3,386 3,403 Total Expenditure 1,197 1,169 2,135 1,759 2,554 2,583 3,318 3,351 Profit/Loss Before Taxes 26 -23 -154 8 47 67 68 52 Total Investment 205 459 433 616 540 684 706 809 Fixed Investment 168 281 316 406 472 533 611 678 Change in Stocks 37 178 117 210 68 151 95 131 Financing Requirement /a 179 482 687 608 493 617 639 757 Memorandum Items (in percent of GNP) Profit/Loss 0.5 -0.5 -2.3 0.1 0.5 0.8 0.6 0.5 Financing Requirement /a 4.0 10.9 10.5 9.3 5.6 7.1 5.9 6.7 /a Excludes depreciation. Source: Undersecretariat of Treasury and Foreign Trade.  - 12 - The majority of the problems afflicting the SEEs have arisen from the fact that while the enterprises have formally been organized as economic entities with the objectives of efficiency, productivity and profitability, they have been subject to constant intervention by the Government in pursuit of different and often conflicting objectives. The causes of poor performance in the past have included price controls, uneconomic investments, overstaffing, lack of autonomy, weak management, low operational efficiency, frequent changes of management, inadequate salaries for managerial and technical staff, internal organizational problems, excessive centralization of decision making and a confusion between economic, social and political goals. The present project is directed at securing improvements in managerial and operational efficiency in selected SEEs, and complements other measures being taken by the Government to improve SEE performance (para. 42). 38. SEE reform is a major goal of the Government's structural adjustment program. During 1980-82, the Government implemented a number of interim measures to improve short-term financial performance, redirect the SEEs' investment programs and finance them increasingly from non-budget sources, and undertake the necessary legal steps to institutionalize these changes. The Government realized, however, that a more systematic effort was needed to improve SEE performance on a permanent basis. Sustained improvement in the operations of the SEEs would, by reducing the claim on outside sources of funds for their investment, permit more resources to flow into the private sector. Basic structural reforms, with the overall objective of having a viable SEE sector more responsive to market forces, were expected to be introduced in 1982 through a comprehensive SEE reform decree. The passage of the legislation took longer than anticipated, and the reform decree was eventually enacted in May 1983. The decree was later formally replaced by a law (Law 2929) in October 1983. 39. The new law deals comprehensively with the organization, structure and operations of State enterprises. In some areas it essentially reiterates the existing provisions, e.g. in the procedures for approval of investment programs and in the freedom of SEEs generally to set their own product prices, while in other areas it introduces important changes. The law classifies State enterprises into essentially two categories, namely State Economic Enterprises, which will be operated on commercial principles, and Public Economic Establishments (PEEs), which include State monopolies as well as enterprises providing basic goods and services, with a preponderant public service aspect. The law places the existing enterprises in one or the other of the two categories. The SEEs and PEEs can set up fully owned, legally independent establishments as well as joint ventures with financial participations of twenty six percent or higher. The law lays down uniform principles relating to the composition, appointment and powers of Boards of Directors, the tenure of Directors and the qualifications required of Directors and top management. The Board of Directors will in particular have the power to appoint Assistant Directors General and other higher level managers; this is significant, since appointments of assistants to the General Manager were previously made by the Council of Ministers on the proposal of the Minister concerned. 40. The annual overall investment and financing programs of the SEEs will be decided by the Council of Ministers on the recommendation of SPO and the Treasury, and after taking into account the resources and capacities of the SEEs. Within this framework, the Board of Directors will have the power to  - 13 - approve operating budgets as well as certain categories of investments. The law reiterates that SEEs will be Eree to set their own product prices; if for any reason the Government establishes prices, the loss, if any, to the enterprise will be made up by the Government in accordance with a prescribed formula. SEEs will be required to allocate a specified percentage of their profits to build up reserves, before distribution of dividends. Employees of the SEEs and PEEs will no longer be subject to the employment regime applicable to Government employees (Law 657), but will be governed by a new personnel regime to be announced in the near future, which is expected to give greater flexibility to SEE managements in determining wages and salaries. In addition, as in the past, bonuses can be awarded to SEE personnel (including managers) generally, as well as to particular individuals, for meritorious performance. Audit of SEEs will be carried out by the Supreme Board of Audit of the Prime Ministry. In addition, the SEEs will be subject to the overall supervision of the concerned Ministries. Coordination among SEEs and PEEs and monitoring of their performance will be the responsibility of a Supreme Board of Coordination for Economic Affairs, chaired by the Prime Minister and including the Ministers concerned with the major enterprises, which will meet at least once every quarter. The setting up of a Supreme Board of Coordination under the Prime Minister formalizes the arrangements that have been in force since 1981. The new law, in effect, replaces the old laws relating to SEEs (principally Law 440 and Law 657), but until all its provisions are implemented, especially those relating to reorganization, capital structure and the personnel regime, the relevant previous law or regulation will continue to apply. The special laws relating to individual enterprises have since been reviewed and amended where necessary to be in harmony with the new law. 41. A comparison of the new law with Law 440 shows that while certain new provisions have been introduced, the legal framework under which the SEEs operate has not been changed significantly. It must be borne in mind, however, that Law 440 was by no means fully implemented in the past. A reaffirmation of its basic provisions is therefore of value in signalling the Government's strategy towards SEEs, which is to bring about greater efficiency in SEE performance through decentralization of responsibility, greater management autonomy and competition. The ultimate objective is to place the SEEs in an economic environment where they would compete with private sector firms, especially with regard to output prices, factor inputs and credit. The Government recognizes that the challenge is to change deep-rooted attitudes, not merely laws, and the test for the Government in the months and years ahead will be how the new law is used to grant a substantial measure of managerial autonomy to the SEEs and improve overall SEE efficiency. 42. The present project for technical assistance aimed at improving the performance of selected SEEs, through better management combined with improved manpower planning and training and productivity improvements, must be viewed as a part of this wider Government effort. It complements the initiatives and actions being taken as part of the Government's structural adjustment program, which is being supported by the Bank's Structural Adjustment Loans, as well as the organizational restructuring and management improvement measures at the  - 14 - level of individual SEEs being supported by Bank project lending. 1/ It must be emphasized that the present project is designed to address only a limited number of operational efficiency issues in the SEEs selected and is not intended to be a comprehensive reform exercise. The approach of selecting a sample of SEEs and focusing a project on efficiency improvements in the enterprises is being tried in Turkey for the first time. The aim of this pilot project is to develop and test at the enterprise level a number of important changes that would be replicable elsewhere. The project would thus be the first step in encouraging expansion of managerial responsibilities in the SEEs. With this in view, it has been agreed that starting in 1985, the Government and the Bank would carry out a joint annual review of the experience of this project so as to apply the experience gained to other SEEs (Loan Agreement, Section 3.04). Role of the State Investment Bank 43. The State Investment Bank (DYB) was established in 1964 under Special Law 441 to provide long-term cred:ts, guarantees and other services to SEEs. As a State Economic Enterprise itself, DYB is also subject to the provisions of the recent law (previously 440) regulating the constitution and operations of SEEs. DYB's parent ministry is the Prime Ministry (previously the Ministry of Finance). Its authorized capital was recently raised from TL 50 billion to TL 250 billion, of which about a fifth is paid in and held by the Treasury. In addition to its equity capital from the Government, DYB's resources are obtained mainly from the sale of bonds to the Social Security System and Pension and Retirement Funds, as well as from foreign borrowings and loans from the Government. DYB takes lending decisions under guidelines laid down in Law 441, which are basically indicative, and functions within the administrative procedures prescribed for provision of investment funds to SEEs. 2/ 44. The Bank has so far made three loans to DYB. The first two were DFC lines of credit for $50 million (Loan No. 1024-TU) and $70 million (Loan No. 1379-TU) respectively. The third loan, also for $70 million (Loan No. 1998-TU), was designed to enable DYB to finance the foreign currency costs of completing six specific, high priority SEE projects. In addition, DYB was the channel for a part ($7.9 million) of the loan of $44.1 million under the 1/ A series of actions to address structural issues facing the SEEs form part of the Government's program under SAL IV (Statement of Development Policies - 1983, Report No. P-3543-TU, Annex IV-A, pp. 9-10). As examples of technical assistance being provided as part of project lending may be mentioned the loans approved in FY 1983 for the Agricultural Bank of Turkey (Report No. P-3593-TU) and for the Turkish Electricity Authority (Report No. P-3542-TU). 2/ Under the State Industrial Enterprise Finance Project (Loan No. 1998-TU), the Government is to carry out a study of DYB's future role and provide a copy of the study to the Bank for its comments. The study is to address, in particular, DYB's role in the selection, financing and supervision of investment projects of SEEs, DYB's relationships with the Treasury and SPO, and its organizational, financial and staffing requirements to carry out its responsibilities. Commencement of the study, which was held up for the passage of the SEE decree, is expected shortly.  - 15 - Second Fertilizer Rationalization and Energy Saving Project (Loan No. 2131-TU), for financing investments for rehabilitation of a public sector plant providing raw materials for fertilizer production. After initial delays in signing of contracts with engineering firms and finalization of procurement under international competitive bidding, implementation of the ongoing projects is now proceeding satisfactorily. The Beneficiaries 45. Several considerations determined the choice of beneficiaries in this project. Foremost among these was the need to select SEEs whose managements were strongly committed to the objectives of the Government's SEE reform effort and saw the need to utilize technical assistance to improve their operational efficiency. It was also considered useful to identify SEEs covering a variety of situations obtaining in the Turkish public sector. The coal and lignite industry and the railways are characterized by weak financial performance and low productivity, and have been a drain on the budget. Two of the beneficiaries were chosen from these sectors. The overall performance of the third beneficiary, Sumerbank, has been comparatively better. It is playing a significant role in the export drive, and is an example of an industry in competition with the private sector. The effort here is to improve its efficiency further, particularly as the Government intends to devote less public sector resources to manufacturing (especially consumer goods) in the future. A further brief description of each of the SEEs is given below, with additional technical and financial details provided in Annex IV. 46. Turkive Komur Isletmeleri (TKI): TKI is responsible for about 90 percent of the lignite production in Turkey (16.2 million tons in 1982). 1/ TKI consists of a headquarters office with a staff of about 640 and twelve subsidiary operating establishments employing a total of about 21,000 people. While TKI's subsidiaries are directly responsible for exploiting their concession zones, certain functions are centralized in the headquarters office. Amongst these functions are the procurement of importetc goods, machinery and services, revenue collection and cash management, feasibility analysis and investment program formulation, decisions concerning the staffing levels of subsidiaries and the formulation of training programs. 47. TKI's lignite production has risen at an average rate of 11.5 percent per year over the last six years as a greater number of lignite-fired power stations have been commissioned. Current plans are to quadruple lignite output by 1990. Of this approximately 50 million tons per year (mt/y) increase in capacity, 20 mtly are expected to come from the Bank-financed Afsin-Elbistan open-pit mine. The rest of the increase is to come from completion of onguing projects and about thirteen new projects. 48. Attainment of the above production goals, on which much of the Government's energy development strategy rests, will be extremely difficult. TKI suffers from serious management and staffing deficiencies which have resulted in an inability to carry out its projects in a timely manner. TRI's 1/ Until 1983 TKI was also responsible for all hard coal production in Turkey through its subsidiary Eregli Coal Enterprise (EKI). As part of the SEE reform, EKI was constituted into a separate SEE, independent of TKI.  - 16 - subjection to the State Personnel Law and consequent low pay levels has led to high staff turnover and left the institution with a high proportion of inexperienced engineers; many of the employees who have remained in the company for longer periods of time need training to meet the new challenges TKI now faces. In addition to these problems, shortages of funds (until 1982 TKI received a net operating subsidy) have hampered project progress and, combined with lengthy procedures required for the procurement of spare parts and machinery, led to a history of production shortfalls. 49. To date, the Bank's relationship with TKI has concerned the Elbistan thermal power project and associated lignite mine, under which TKI and the Turkish Electric Authority (TEK) were the beneficiaries of a $148 million Bank loan (Loan No. 1023-TU). This project has been subject to serious delays. While some problems remain on the power side, it is expected that the first unit will be ready for start-up in mid-1984 and for commercial operation by the end of 1984. On the mining side, however, progress remains slow in establishing acceptable project management, an acceptable project scheduling and monitoring unit, and adequate arrangements for maintenance of the mining equipment. The Bank is currently discussing with TKI the remedial actions that would have to be taken by the company's management to improve performance and ensure an adequate supply of lignite for the power plant. The activities proposed under the present project would be supportive of the specific measures required at Elbistan. 50. In addition to a supplemental loan for Elbistan, Bank financing for a 2.3 million ton per year open-pit lignite mine near Izmir has been requested by the Government, and a project proposal is now under discussion between TKI and the Bank. 51. Sumerbank: Sumerbank was founded in 1933 as one of the original conglomerate SEEs with operations in banking, manufacturing and retailing. Sumerbank has set up a number of independent SEEs over the years. Until recently, it manufactured a variety of products including building materials, ceramics, leather goods, chemicals and vegetable oil, besides operating a small banking division. However, its main business has always been textiles, which typically accounted for about 80 percent of its total sales revenue (60 percent from cotton, 20 percent from wool). After the reorganization introduced under the new SEE law, Sumerbank's future operations will be limited to its banking and textile operations (in cotton, wool and garments), leather manufacturing and related retailing, while other existing operations (e.g. chemicals, ceramics) will be transferred to other SEEs. Sumerbank will also acquire a few existing public sector textile mills which are currently operating outside its management. The company's retail division, which also sells some private firms' products, has about 470 shops throughout Turkey, mostly in rural areas. Like other SEEs, Sumerbank has suffered from frequent management changes, inadequate compensation and incentive systems, shortage of competent managerial personnel, overstaffing, and overcentralization of operation and investment decision-making at the senior management and board levels. In addition, coordination between headquarters, the production units and the retail division is weak. While operational efficiency has shown some improvement as a result of Bank-financed technical assistance and supply of spare parts under the ongoing project (para. 52), it is still low and many mills suffer from unbalanced production capacities, outdated equipment and lack of spare parts.  - 17 - 52. The Bank made a loan of $83 million to the Government of Turkey in 1980 (Loan No. 1847-TU) for the first phase of Sumerbank's Cotton Textile Rationalization and Modernization Project. The main objective of the Phase I project is to increase the overall efficiency, capacity utilization and labor productivity in the cotton plants operated by Sumerbank's Cotton Textile Division, in order to achieve a significant increase in production volume, reduction of production costs, upgrading of the product mix and improvement in product quality. Under tCe project, Sumerbank's Cotton Textiles Division has assumed increased responsibility for marketing its production domestically and abroad, product development, and coordination between production and marketing. Project completion is now expected in mid-1985, one and a half years behind the appraisal estimate. Good progress has been achieved in increasing production as well as labor and machine productivity, and in the areas of procurement, maintenance practices, quality control, and introduction of components of an improved management information and control system (particularly cash management and costing). Other areas where technical assistance will be provided during the remaining period of the project include training of plant technical and management personnel, upgrading of Sumerbank's training facilities, production planning, inter-mill comparison systems, project cost control, and product rationalization. To the extent possible, local consultants are being recruited and are working closely with expatriate consultants. 53. In textiles, Sumerbank's priority task is to increase efficiency of its operations in the manufacturing of wool textiles, including wool garments. This would require rationalization and modernization of six wool textile mills and the headquarters organization, similar to the progress already being made in the cotton textile operations. 1/ Sumerbank has indicated keen interest in utilizing technical assistance under the proposed project to initiate this task, as well as to improve its sales and retail organization and to improve its management information and data processing systems. 54. Turkive Cbmhuriyeti Devlet Demiryollari - Adapazari Vazon Sanayii Muessesesi (TCDD-ADVAS): TCDD-ADVAS is one of three main workshops/manufacturing establishments belonging to the Turkish State Railways (TCDD) that are responsible for the manufacture, repair and maintenance of TCDD's rolling stock. TCDD-ADVAS, located at Adapazari, specializes in the manufacture, repair and maintenance of passenger coaches. (Two other establishments, at Eskisehir and Sivas, are responsible for locomotives and freight wagons respectively). TCDD-ADVAS was established in 1951 originally as a workshop for repair and maintenance of passenger coaches. In 1962, its operations were expanded to include manufacture of passenger coaches. Its current product mix consists mainly of pullman coaches, self-propelled electric motor trains for commuter traffic and postal coaches, with a capacity of about 70 units per year, depending on the specific product mix. In addition, it is responsible for the overhaul and repair of TCDD's fleet of about 1,300 passenger coaches. It currently employs about 2,700 persons. 1/ The Government has recently requested Bank assistance for a Phase II project following completion of the ongoing Rationalization and Modernization Project.  - 18 - 55. TCDD-ADVAS's production program and prices are determined by TCDD on an annual basis. TCDD-ADVAS's prices for sales to TCDD are based on estimates of the expected production and overhead costs plus an agreed margin. TCDD feels that there is substantial scope for improvements in TCDD-ADVAS's productivity and cost efficiency. However, TCDD-ADVAS's management does not as yet have an adequate basis on which to determine the standard costs of its various operations, based on appropriate underlying norms in terms of material and labor inputs. It also does not have any system at present which would enable it to monitor periodically the progress of various operations against budget and operational plans. TCDD-ADVAS carries a large inventory of raw materials, spare parts and components, but its present manual inventory control system is cumbersome and time-consuming and does not provide timely and accurate information for efficient inventory management and control. Its design and research capabilities also need to be strengthened to enable it to upgrade product quality. Further, the company's production and repair facilities have changed over the years in an ad hoc manner in response to changes in its activities and the management recognizes the need for streamlining operations with a better definition of roles and responsibilities between the different facilities. Similarly, the present plant layout is not optimal with regard to work flow and ease of operations. 56. The workshops at Adapazari, Eskisehir and Sivas are fully-owned establishments of TCDD, which acts through a management committee for each establishment. Although each establishment is a separate legal entity, its operations are subject to TCDD's review and approval. However, it is part of TCDD's objectives to give TCDD-ADVAS greater autonomy in its operations. Towards this end, TCDD and TCDD-ADVAS's management have indicated interest in utilizing technical assistance in the areas mentioned above with a view to improving operational efficiency. This would also help to prepare ADVAS for an envisaged expansion of its manufacturing capacity by 1990 to a level of about 120 units per year. The Government has agreed to cause TCDD to take all measures necessary to enable TCDD-ADVAS to fulfil its obligations under the Project Agreement (Loan Agreement, Section 3.01). Based on the experience at TCDD-ADVAS, the technical assistance to be provided is expected to have additional benefits through application in TCDD's other establishments at Eskisehir and Sivas. External Debt Management 57. Turkey's debt service obligations are likely to rise significantly in the mid- to late-1980s, largely on account of the repayments of debt rescheduled during 1978-81. At the same time, in light of anticipated reductions in concessional aid, Turkey would need greater access to medium- and long-term credits from commercial sources if its growth projections are to materialize. This in turn will be dependent on Turkey establishing her creditworthiness. For these reasons, there is a need to formulate a set of clearly defined debt management policies. Short of this, the recent encouraging performance on the external front may not restore adequate confidence among international lenders. 58. An essential prerequisite for formulating an overall external debt management policy is the establishment of a debt reporting system that can compile and evaluate debt data rapidly and accurately. The rapid upsurge in borrowing from 1973 onward had brought about a marked deterioration in the  - 19 - quality and coverage of 'jurkish debt statistics. This was exacerbated by the arrears buildup and subsequent implementation of successive rescheduling arrangements. The method followed by the Ministry of Finance and SEEs of recording debt service payments at the time of transfer of Turklsh lira counterpart funds worked well during periods of timely external payment, but broke down completely when the appropriate foreign exchange transfers were not being made. In order to facilitate data handling, the Bank supported a program under SAL I for the Ministry of Finance to undertake the computerization of Turkey's debt reporting system. Although a system was designed by the Ministry of Finance with the help of an external consultant, subsequent evaluation showed it did not deal adequately with the complexity of Turkey's debt structure. The Government has therefore approached the Bank and the Fund for assistance in designing an improved system. It is proposed under the project to provide technical assistance for this purpose to the External Debt Division of the Undersecretariat of Treasury and Foreign Trade, to complement the assistance separately being provided by the Fund. PART IV - THE PROJECT 59. The proposed project was identified in December 1982 following a request by the Government and appraised in March-April 1983. A sumnary is provided at the beginning of this report and Annex III contains supplementary project data. There is no separate Staff Appraisal Report. Negotiations were held in Washington on February 6-10, 1984. with a Turkish delegation led by Mr. Tunc Bilget, Chief Counselor for Fineicial and Economic Affairs, Embassy of the Republic of Turkey. Project Obiectives 60. The major objectives of the proposed project are as follows: (i) to assist a selected group of SEEs to improve their efficiency, through better management and operations combined with improved manpower planning and training; and (ii) to establish a coordinating committee in the Prime Ministry (Undersecretariat of Treasury and Foreign Trade), with suitable representation of the agencies involved, to oversee the project and serve as a focal point of contact with the Bank, so as to enable the experience gained from it to be transferred to other SEEs. The project has been conceived as a modest first step in the challenging task of demonstrating the economic potential of SEEs in Turkey and thereby helping to change deeply-ingrained attitudes towards their role and responsibilities. Project Description 61. Technical assistance would be provided under the project primarily to meet specific needs identified in the beneficiary SEEs. The project is expected to be implemented over approximately a three-year period. Its various components are described below.  - 20 - 62. Turkiye Komur Isletmeleri (TKI): The project would assist TKI in the several areas that are deemed most critical to the company's improving its performance. These are: (a) redesign and improvement of management information systems; (b) streamlining of procurement of equipment and spare parts; (c) training, including training of managers, and manpower planning; and td) lignite mine operations management. Two studies would be carried out by consultants, covering areas (a), (b) and (c) above; for (d), a small group of mine management consultants would provide operational assistance to the Western Lignite Establishment (GLI), the establishment responsible for TKI's largest mining districts, Seyitomer and Tuncbilek, which currently account for 56 percent of producLion. The object of this assistance is to demonstrate the productivity gains that may be achieved without significant investment in new facilities. 63. The management information system (MIS) and procurement study would address five main areas: (a) information systems for project construction, including cost monitoring, construction reporting, critical path method systems, capital expenditure budgeting, and equipment and material tracing systems; (b) information systems for operations, including cost accounting and control, purchasing and inventory control, analytical techniques related to production activities, and financial planning; sc) reports for top management; Cd) development of a strategy for MIS automation (TKI currently makes very little use of computers, and accounting at headquarters is completely manual); and (e) a review of the procedures used to procure equipment and spare parts with the object of determining where changes may be made that would shorten acquisition times (typically 6 months to 2 years), particularly for emergency spare parts that are required to maintain production levels. The study would concentrate on TKI's headquarters and the largest operating enterprises and would take into account TKI management's long-term plans for the decentralization of responsibilities to the enterprises. The resulting MIS would be able to provide proper and timely information to enable TKI's management to monitor the progress of new mines and projects under development, monitor operations and activities related to mines in commercial production, and perform its strategic planning function in an improved manner. Included in the technical assistance would be the training of TKI  - 21 - staff in the implementation and use of the improved MIS and procurement procedures, the design of instruction manuals, and the installation of a micro computer with appropriate software to improve TKI's financial planning abilities rapidly. The consultants would assist TKI in procuring the equipment necessary to implement the MIS. 64. The objectives of the second study would be to develop manpower planning and training proprams that would enable TKI to make its beat efforts to meet the Largets of th. lignite development program. The study would be split into two phases. During the first phase the consultants would study the current organization and nature of manpower planning and training activities and develop proposals for their restructuring and improvement. The second phase of the study would formulate details of manpower and training requirements in the medium-term future. Plans for the upgrading of TKI's mine training center at the Western Lignite Establishment would be developed and its equipment requirements specified. Internal and external (to TRI) training courses would be identified, and outlines drawn up for courses to be administered within TKI. The loan includes a provision for the purchase of training equipment. 65. While the older TKI operating establishments have a base of competent personnel and managers who combine to produre satisfactory performance, there are many untapped opportunities for improvement in all phases of operations. The objective of the mine operations management component is to assign a small team of management consultants to work with the management of the Western Lignite Establishment, the largest TKI subsidiary, in order to identify opportunities for improvement, define the costs and benefits of, and time required to implement, the recommended actions, and carry the recommendations through the implementation stage with the support of the enterprise management. It is expected that the technical assistance would be required for 21 months, of which six would require the consultants' full-time presence followed by about 15 months of part-time participation. 66. For the above tasks, it is estimated that a total of 219 man-months of consultancy services would be required including about 54 man-months of local consultancy services, together with the necessary equipment and training. About half of the consultancy man-months are expected to be required for the MIS Study. These services would be financed under the project, together with the necessary office and training equipment. Selection of consultants and negotiation of contracts are expected to be completed by December 1984. Draft reports recommending improvements in procurement practices and in the MIS, and on manpower planning and training, are expected to be available by the third quarter of 1985. Implementation of the ensuing recommendations on procurement and MIS would continue through the fourth quarter of 1986 after consultations between TKI and the Bank. Recommendations on improved mine operations managenvmnt are expected to be developed in mid-1985 and implemented thereafter over a period of about one year. More detailed schedules for all studies are provided in Annex V. 67. Sumerbank: The project would finance technical assistance in the areas of strengthening of management and management systems, organization planning, corporate and investment planning, and training. In particular, the technical assistance would cover:  - 22 - (i) reorganization and rationalization of Sumerbank's sales and retail organization including: (a) the preparation of a study to analyze Sumerbank's present sales and retail organization and activities and to recommend action programs-in this area to improve the organization and management structure, rationalize the distribution and retail network and transport facilities, develop appropriate incentive systems for management and sales personnel, develop guidelines for further development of the retail network, and prepare a training program for Sumerbank marketing and sales personnel in modern marketing and sales practices; and (b) implementation of the training program developed in the study. (ii) improvement of Sumerbank's management information and related data processing systems, through: (a) the preparation of a study which would analyze Sumerbank's current management information system (MIS), its organization and information needs in selected areas, and make recommendations for the design of an overall new MIS concept and organization; (b) the preparation of a detailed MIS design for selected pilot units in Sumerbank, including Sumerbank headquarters, the sales and retail organization with related selected district centers, warehouse and retail stores, selected banking branches, and three selected cotton and wool textil- plants; and (c) implementation of the detailed MIS concept in the pilot units, including establishment of a new MIS organization, procurement and installation of equipment, preparation of software, testing and start-up of the new system and training of system users and operators; (iii) preparation of a feasibility study foz the rationalization and modernization of Sumerbank's wool textile operations, including woolen and worsted yarn, fabrics and garments, blankets and carpet manufacturing, including strengthening of management systems, and capital investments required to modernize and rationalize the production facilities in light of the current and projected market for wool products in Turkey and abroad; and (iv) provision of selected data processing, comunuications and office equipment related to the implementation of the proposed new MIS. For the above tasks, it is estimated that a total of about 205 man-months of foreign and local consultancy services would be required, together with the necessary equipment. Specific training requirements and their implementation arrangements would be identified in the studies covering the first phase of items (i) and (ii). The feasibility study for the wool operations is expected to be started by early March 1984, while the studies under the other two components are cxpected to be initiated by August 1984. Completion of the wool study is expected by July 1984, while implementation of a training program for the sales and retail organization, and of the improvements in the management information systems, are expected to be completed by early 1986 and end-1986 respectively (Annex V).  - 23 - 68. TCDD-ADVAS: The technical assistance package for TCDD-ADVAS is designed to assist TCDD-ADVAS in increasing productivity and efficiency while providing TCDD-ADVAS's management with better instruments for planning and controlling-operations -more effectively through necessary improvements in areas with identified weaknesses, e.g. plant organization and layout, design and research, operations planning and control, cost estimation, and inventory management and control. The technical assistance package would include (a) consultant services to help TCDD-ADVAS to identify the necessary improvements, including training of TCDD-ADVAS personnel, and thereafter to implement them; and (b) supporting equipment including an appropriate computer system and associated software. Major elements in the package would be: (i) provision of an improved basis for cost estimation by extending and improving TCDD-ADVAS's current system by an appropriate breakdown of operations by activities and work stations; (ii) improvement of the existing operations planning and scheduling systems and provision of a management information system to enable monitoring and control of the progress of operations against plans; (iii) strengthening of TCDD-ADVAS's planning, design and research departments to undertake more advanced designs and to upgrade product quality; (iv) improvement of the efficiency of the current manual inventory management and control system by introduction of more automated systems; and (v) improvements in work organization and layout in the production and repair facilities. For the above tasks, provision has been made for an estimated total of 80 man-months of foreign and local consultancy services, together with the cost of support equipment and training. The first phase of the work consisting of studies for identifying tbe necessary improvements and determining the consultants' work plan for the implementation phase is expected to be initiated around August 1984 for completion in the second quarter of 1985. The implementation phase of the work, including procurement and installation of support equipment, is expected to commence soon thereafter with completion in the second half of 1986. Further details regarding the implementation schedule are given in Annex V. 69. The three SEEs described above have been identified in consultation with the Government for inclusion in the proposed project. It has also been agreed that the project would include a limited amount of contingency financing, to allow for financing of technical assistance for additional beneficiaries that may be identified as the project proceeds. The additional beneficiaries to be assisted and specific items of technical assistance to be financed would be approved by the Government, DYB and the Bank by June 30, 1985 (Loan Agreement, Schedule 2). 70. External Debt Management: It is proposed under the project to finance the services of an external consultant to the Undersecretariat of Treasury and Foreign Trade for a period of up to 18 months, to assist in  - 24 - defining user needs, establishing standards of data accuracy and setting up an operational data flow system. This work would cover all agencies utilizing external credits, including the SEEs. The services of a consultant are at present -being-financed by the. Fund in the first. phase of a project, which consists essentially of an assessment of the system of data flows and the development of input and output formats. The consultant to be financed under this project would join the consultant in the field as part of the second phase to set up and test an appropriate computerized debt system for Turkey. As part of their task, the consultants would be expected to make recommendations regarding the choice of hardware and software. The systematic training of counterparts would be a substantial component of the work programs of the consultants, and their selection would be based both on their expertise as advisers and on their suitability as trainers. Proiect Organization and Execution 71. Each SEE would be responsible for implementation of its own component of the project, including selection and recruitment of consultants. Terms of reference for the various studies to be undertaken under the project have also been agreed with the SEEs (Annex VI). Qualified project coordinators have been appointed in each SEE. In addition, each SEE would designate suitable staff, under the project coordinator, to work with the consultants in the study and implementation phases of the project. Where appropriate, foreign and local consultants would work together, but with a single firm carrying the prime responsibility. It is intended that consultants would be appointed only after the SEEs nave appointed the project coordinators and their project staff, and provided support staff and related office facilities. Assu.ances- have been obtained that these counterparts would be maintained in their places to work with the consultants to ensure continuity of effort (Project Agreement, Section 2.02). The consultants would be required to submit inception reports recommending any required changes to their work plans which would be jointly reviewed by the beneficiaries and the Bank. Final results of the studies leading to recommendations for implementation would also be jointly reviewed by the beneficiaries and the Bank prior to implementation (Project Agreement, Section 2.07). Proiect Costs and Financingt 72. The cost, net of taxes, of the proposed project is estimated at about $8.8 million, including a foreign exchange component of about $6.9 million. Costs are based on end-1983 prices. Physical contingencies of 10 percent of base cost have been provided. Price contingencies in US dollar terms have been calculated at 7.5 Dercent for 1984, 7.0 percent for 1985 and 6.0 percent for 1986 onwards. The proposed loan of $7.6 million would finance the foreign cost element, as well as 85 percent of the total costs of local consultants (para. 74). Assurances have been obtained from the SEEs and the Government on the availability of funds to cover other local costs and possible cost overruns (Loan Agreement, Section 3.01 and Project Agreement, Section 2.01). Onlending Arrangements 73. The loan would be made to the Government of Turkey, which would relend to DYB, under a Subsidiary Loan Agreement and on the same terms as the Bank loan, the amounts intended for the use of the beneficiary SEEs. DYB  - 25 - would in turn onlend the funds to the selected SEEs through Finance Agreements, under terms and conditions satisfactory to the Bank. The onlending rate would be the Bank's prevailing variable interest rate plus an administration fee of 0.5 percent (DYB Agreement, Section 2.01). Execution of the Subsidiary Loan Agreement between the Government and DYB, and Finance Agreements between DYB and the three beneficiary SEEs, is a condition of loan effectiveness (Loan Agreement, Section 6.01). The foreign exchange risk would be borne by the beneficiary SEEs for the respective amounts utilized by them. Withdrawal applications truld be channelled through DYB to the Bank by the SEEs and disbursements would also be made through DYB. Procurement and Disbursement 74. Consultants would be recruited in accordance with Bank guidelines. Detailed terms of reference for the consultants and their contracts would be approved by the Bank. Equipment would be procured through ti) international competitive bidding (ICB) for major packages over $100,000 (mainly computers); (ii) limited international bidding on the basis of quotations from at least three qualified suppliers for packages between $5,000 and $100,000; and (iii) local procurement procedures of the SEEs for packages below $5,000. All packages for equipment over $100,000 would be subject to the Bank's prior review of procurement documentation. Furthermore, the Bank would carry out a prior review of the initial bidding packages for each beneficiary to ensure that a satisfactory procurement process is established. The balance of the contracts would be subject to random post-review by the Bank after contract award. The Bank loan would be disbursed against 100 percent of the foreign exchange costs of foreign consultants, 85 percent of the total costs of local consultants, 100 percent of the foreign exchange costs or local costs (ex-factory) of equipment, and 100 percent of the foreign exchange costs of training. The disbursement percentage for local consultants is calculated to be approximately equivalent to the percentage resulting from covering the foreign exchange costs of foreign consultancy contracts. Supervision and Monitoring 75. To ensure high level supervision and monitoring of the project, a coordination committee of officials has been set up in the Prime Ministry (Undersecretariat of Treasury and Foreign Trade), with representation of SPO, DYB and the ministries responsible for the SEEs selected. Assurances have been obtained that the committee would be maintained during the life of the project (Loan Agreement, Section 3.03). The SEEs would furnish quarterly reports to the Bank and the committee on the progress of project implementation. The Bank would maintain regu'ar contact with the committee as well as with each beneficiary SEE during project supervision and carry out joint annual reviews of the experience of the project. Accounting and Audit 76. Under the provisions of the new SEE law the accounts of all the SEEs will be audited by the Supreme Board of Audit of the Prime Ministry. Such accounts, including separate accounts of expenditure under the project, would be submitted to the Bank annually within six months of the end of each fiscal year.  - 26 - Benefits and Risks 77. The proposed project would enable the selected SEEs to initiate steps to improve the efficiency of their operations through the improvement of specific and critical areas of management, and thereby enable them to adjust rapidly to the greater managerial autonomy that is the goal of the Government's strategy. Success of the project would serve as an example to other SEEs of the measures that can be taken and the efficiency improvements that can be achieved. Improved performance of the SEEs would reduce their dependence on external resources for financing investment, thereby permitting more resources to flow into the private sector. The project would also strengthen the Government's ability to compile and evaluate external debt data, including data relating to SEEs, rapidly and accurately. The main risk the project may face would be a weakening of the Government's resolve to grant greater autonomy to the SEEs, with a resultant loss of motivation on the part of the SEEs to improve performance. This risk is considered small in view of the fact that SEE reform is a major component of the Government's structural adjustment program, and that the beneficiary SEEs have been selected by the Government taking into account the commitment of their managements to the objectives of the project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 78. The draft Loan Agreement between the Republic of Turkey and the Bank, the draft agreement with Devlet Yatirim Bankasi, the draft Project Agreement with the three beneficiary SEEs and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Features of special interest are listed in Annex III of this Report. Execution of a Subsidiary Loan Agreement between the Government and DYB, and Finance Agreements between DYB and the three beneficiary SEEs, are special conditions of loan effectiveness (Loan Agreement, Section 6.01). 79. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 80. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments March 7, 1984 Washington, D. C.  TABLE SA Page 1 of 5 7ull! - 300. INlDICATORAS DATA BUST W1ES uumw csen cszeu avuum p 3NO1 (1O3T EIT ESTIMATE) lb b b r g~~~~~~~KDDL DINCOE 1SWBEL 1960L 1970tk- USI/HA AE CM S AIcuiD. Sq. m) tOTAL 780.1 780. 6 .10.6-. . ._ - ACGRCULTURAL 372.3 3U1.8 3S1.8 CIP ra CUhi (131) 300.0 550.0 1540.0 2453.6 11111.7 zauwi sDmmmIno a inuzn (KILOGRAMS OF MAL IQUIVALENT) 258.0 512.0 779.0 1530.5 7500.6 UMflO SM VTAL 0ISTUrIS POPULATION.MID-YEAR (THOUSMNDS) 27509.0 35321.0 45529.0 UIOAN POPULATION CZ OF TOTAL) 29.7 38.4 46.7 47.8 78.2 POPULATION PROJEONS POPULATION TX us 2000 lMILL) 64.3 STATICMRY POPULATION (HILL) 119.4 Y'EAR STATIONY POP. BLACKED 2110 POPULPTION DENSITY PER SQ. Km. 35.2 45.2 56.9 33.0 139.0 P1R SQ. NH. ARI1. LANDE 73.9 92.5 116.4 157.2 514.2 POPIATX AE STRUCTURE CZ) 0-14 YRS i1.2 61.0 38.6 31.9 22.4 15- YiRS 55.2 54.3 57.0 60.9 64.0 65 AID ABOVE 3.5 4.7 4.4 7.2 11.6 POPUMATION GROtII RATE CZ) TOTAL 2.8 2.5 2.3 1.6 0.8 URBAN 6.1 5.1 4.1 3.4 1.6 CR1UM BIRTH RATE (PER TODUS) 43.1 37.9 33.2 25.0 13.8 CRUDE DEATH RATE (PEN TDIUS) 15.8 1Z.Z 9.2 9.1 8.9 CROSS UPH00UCToN VATI 3.1 2.7 2.2 1.7 0.9 FAMILY PLANIING ACEEfRS. ANUAL (T10OS) .. 65.6 646. % USERS I Df 1N0ED 1 Oa 5H).3/d 3.0 33.0 . L#DCX OF FOOD PROD. mER CAPITA (196971-11U) 96.0 100.0 111.0 106.4 112.4 PER CAPITA SUPPLY OF CALORIES CZ OF RSQUIISWRTS) 115.0 111.0 122.0 19.6 134.4 PROTEINS (GRAMS PM DAY) 85.0 30.0 36.0 92.3 99.0 OF UWICH MItAL SM PULSE 25.0 23.0 25.0/f 34.6 61.4 CHILD (ACES 1-4) DEA7S RAE 50.0 31.Z 19.8 10.4 0.6 LIFE EPEC.T At B3 (MARS) 50.5 56.6 62.4 67.2 74.9 INFANT MOR. RA3E (PER TOWS) 139.5 167.5 119.2 71.4 10.7 ACCESS TO SAFE WATER (aPr) TOTAL .. 52.0 75.0/ URSAN 51.0 70.0.. RURAL ,, 53.0 80.0.. ACCESS U0 EXCRE DISPOSAL (Z OF POPULATIO) TOTAL .. .. URBAN .. .. 20.0. MURAL .. .. POPULATION PER PHYSICL 2800.0 2230.0 1630.0 1094.8 553.6 POP. PER NuRSING PERSON 16310.0/h 1830.0 1130.0 76Z.5 162.9 POP. PER HOSPITAL BED TOTAL 600.0 490.0 500.O/1 334.0 119.8 URBA 340.0/h 310.0 300.0W 216.0 143.2 RURA Lsoo.D7T 59o.o0. 6Z40.O0. AMISSONS PER HOSPIrAL BED .. 20.2 22.3/| 20.0 17.7 AVERSE SIzE OF EUSEBOLD TOTAL 5.7/1 5.9 URBN .. ... RURAL ,. .. AVERAGE NO. OF PERSOINSRfb1 TOAL 2.6/1 2.2 URBAN 2.D71 1.9 RURAL .r ...... ACCESS 0 ELECT. CZ OF DWELLN) TOTAL 29.0 61.1 57.0 URBAN .. 78.2 RURAL 2.0 18.0  - 28- ANNEX I T A 8 I 3A Page 2 of 5 TDw -TSOC. SNSATOS DATA SHEET TUaUt REREUNI SOPS (HEISTE AVERAS) Ia MOST (MOST RRCENT ZETNIATZ) /b RECENT NODLE INCOME IHOUSTRIAI 1960Cr 197%t CSTIMA,lSD EUROPE MAST ECONSIRS ADJUSTCD ENhlLLMENT RATrIS PRINARIt TOTAL 75.0 110.0 101.0 102.2 101.5 mEz 90.0 124.0 110.0 107.2 - 103.3 FEMALE 5J.0 95.0 93.0 97.9 103.3 SECONDARY: TOTAL 14.0 27.0 37.0 56.5 89.2 MALE 20.0 36.0 49.0 63.4 84.5 7J.LE 8.0 15.0 24.0 48.9 86.0 VoCATIOIAL (2 oP SICONDARY) 17.7 13.7 22.3 22.4 16.3 I1PIL-TEACIER RATIO PRDIARY 46.0 38.0 27.0 24.7 20.2 SEOONDANR 19.0 28.0 23.0 22.1 14.4 ADULT LITERACYt EATE (Z) 33.0 51.3 60.0 69.7 98.9 PASSENCR CAIRS/TROUSANO POP 1.7 3.9 11.3k 52.9 356.5 RADio RECEIVERS/TEOUSANIO M 49.1 87.7 96.4 165.5 1005.4 TV RICEIVERS/ITOUSAND POP 0.0 1.8 75.3 124.2 449.5 NEUSPAPER ("DAfLt CENERAL INTEIEST") CIRCOLATION PU TIOISAND POPULATION 51.3 40.6 89.1 96.3 331.3 CINIHA AINUAL ATTEHDANCE/CAPITA 1.1 7.0 1.91/ 2.9 3.5 TOTAL LAW? FORCE (TROS) 13782.0 15829.0 19737.0 FTllLE (PERCENT) 40.2 37.0 36.4 34.5 36.1 ARILTUME (PERCENT) 78.5 67.7 53.5 40.7 6.2 USMOTT (PECE 10.5 12.1 12.8 23.4 37.8 PARTICIPATION RATE (PERCENT) TOTiL 30.1 44.8 43.4 42.0 43.5 MALZ 58.7 53.7 54.4 55.2 39.0 PEELS 41.2 33.6 32.0 29.1 32.5 ECNOIC DEPEDNCY RATIO 0.9 1.0 1.0 0.9 0.8 DIRICOM DSBREr PERCET F PRIVATE NCONE RECEIVE T RIST 5S OP HouSeDS 33.0/d 32.8/k RICST 20C OF NDUSENU.DS 6010 G.OA .. .. 43.1 LUSET 202 OP H1OUSEUL.D 4.271 2.7E .. .. 5.5 LOWEST 402 OP RIISOU DS io.67id 9.47 * *- 16.5 ESTRIAT ASUTEr POERTY XINCMU LEM (CM PR CAPITA) UNBAR .. .. 342.0/rn RURDL .. .. 270.07. ESTIMATED RUATTVE PoVZR INCM LVE. (CM E CAPITA) lUNIAR .. . .. Ig .. .. 22e.0/a 409.0 ESTIMATD POP. BE0LW ASSSUTME POVETm INCUE LIV. (2) IOT AVAILABLE IOT A7PLICAILF FOTE S /- The group awmrqea for each indicator are populattoon-wighted aritb_tlc sati. Coerqe Of countrIes aecug the lndIcator. depend on avatetbIlty of data and IS not unlform. /b Unlma othberulme noted. 'Data for 1960D refer to any year between 1959 and 196; Dsta for 1970' bheten 1969 and 1971; ted data for -Must Recent E.tistC bettnt 1979 and 1981. /c 1974; /d 1963; le 1978; If 1977; jL :976; hb 1962; /t 1965; fl 1975; fk 1968. May 1983 BEST COPY AVAILAZLE  BEST COPY AVAILABLE 29 - ~~~~~~ANNEX I a.cnE d Lionse tin do... d.-ram - amen Se.-tlyU Je.50. in t-w at- o 1.d it sinmld .1- . i ted mint the - - ote E.meemti- j 3 oflp sepa.permhle h ieeor* tin 1eek .1 ttemdardLmd dmilstttsee mmd mesempta "mmc by diltise. t teettrlee io ceetlsten the dinte. The auts onW meei.tinl . * sesii L. dearth. r5.,. .1 tst . ledit'et. teed-..4 ted e -eretttt etrtcis Major dif Lenemm hetoma memtrism. W. rlrt a-P." me (II tb. -t -trt5tt Cree .1 tin abi-om nintry ad 12) sacontry, eRa, -ih moment higer scenesp memo. them tin esctrp aropfc tin mount emm'tr E(.-Ft 8 f. -1et *..m.to oft I5k. teeig Wee ~,*w..idlmlw lam. beth Metei. Med "fadl. et' mm tin... inmmon of etrmmeme atm'1ceeteral. mlatet ..). 1. h.tin mte..:. iep "Wt ti mytert.. -e pepmi .- molgtmd melmhnmit mm let moh IiSutett .cd tint -si tin. .m.-tty or tin serattle. t :..*p hem. ot .. e tinLt teditte. time tie --4S:m ml ettetertem co thn tedleutte. daleSd. me tel teesltebtlity ml dinEs mcdk Is t ulic.M. centL. mat i m-.Iome Em _emims E .. meree ml - tedttrate Es .mtir. TMm serqa mc. aslp omel.1t. ios pmrtq tin calm or -m ESltate.1 at tam ..Me tin qsmetry mmd ~~3ft Ititomosi aq.it. I frui!i!s.aL.S2h1i.EA - ~~~~~~~~~~Pspmltit iIeldmd bp te mlho por etilrms Tetwi ia moelurf esoo teesteoee SIlNditn 9Cmplsa rqatim teau _lmi metalt. mi ttemrlty iti se .165 am...C perew_loute _eT_-mt e_ es- mpeattm dtctdcd by mm- . iptetts tflt4tra l- ttet ml eet-ltre.3 memo moS tmmpmrarill or premometly motme ..1 .Aem me mmltt more., r.Leset Ltdsee OSd - i~pamm . mrket OS ittee imrdmee or t. It. ltllteij IND. merst.8 oMweiltstm. I't ted iua at.. Pmlt. ebetm md-ttl chm. ii twee I Pmptlmt.e (ttmi .&obin. tod eueaic) , dim id bytin emaoemte eta ineyltlis (li.pPE CalmT lIES) I pee -pit. mctisstte mE cereotI mcine. Prtemom .t mIt Ispht ie1cVkemot ed islI d imopital med mete. 'up.. s lmmm A.... hp em lame. ma Pp.peteta tshlmi.bstt prattles peletimlip atotdla., e.M me. met imedidW. Pe.r1 inmpItst.ls o hei5Wt Imelsd health tatemaeiinaemne t ceITA - mmmi apperac ctM pttse ml coaccsuct ot OSmiteem.r not percmeately tmir"d by m pipesitaL (AM by a mdddutl pelstry cm.,. M,emtmcttmc.mtmee saterm S.e .sd hyde. - 1-mod.. tcitmet mourm. stdotlee. etc .) tit mlar Ee-pmttmmt mtemamdmttmm mmd aSd eecem mterttplE ktleam.- or toca mimiclmet per isplta: proids . Iltited Fweet .1 OSitl iwtttm.Pr mtatlettem1 poepeosc EIitm iin t s tr jet.. ori. Cuettml lselede dISh eteImlpellasmcrs1lohipittla. ted mtis hetFttLtte imea me reml inpyttalt OS medica AS mota-Ity emeettet. PetPtEtATIEE - Ia flitCpmctilQ keeptlt mmte tstlsdtt alp tidr intl TMct M'.lc.. MEtee-esee1 t -bma.d) - As ml J.hlp INGt.iCi mdEs 1j!!U0. oultelis -htm mtabr or AtsEttma tee me diahermmu o- -0~~~~~~~~~~~~~~~~~~r miiiiit.ddttr. star. ci iS.. at m cit M-=Imermat pmpaimtlmm pc.]tjmcmo .rcie bmm ECU OS Rminr stem malt. A bm ee me ledger mop cw myp met he lmlmdmd Em tit. I pj' a- sy~ mm d am sS minkl mona t.ty 0is Icett1tip tin .emed Fo tMteIctI POrPem.. raa .PcJeemte purcceter lee mortality tete casrim ml them cuetciet o.eiperm -ttt ee.mdeelmte.main l-c.lttemi li meimpa ehteieu .4t emtep'e P.e orprm.ptrm eaEsit,O ws coldeemtm cali mm.te , OSf fpaslVt li .tb mlctt=ep m thlIetsm 1)dlts.epct.i alli eld apto taoaO _Pemt. Theo per-Is. line- tar.tll p rt alms WN 1.1fthe at 77l 5 esecoyled -pmrtm. a.toLI1.oekco ta Paemimt eclio I ee .tlttpecmetms twet lmrciOS stIel km... cm Iteett lses 1dwilrl-caa.ice. m . pim..lt. peIlemme. rich cscstry Em tin. cm.tgstd ma at ihums elm. Ceeneetle-l dm.llicte ciii .MtlmtieitpI LtcE q'. sr a smeemtal ceeMuciemila F -" srtelt OS FertlItty trOSm It.: Prmjm.ttmm peepe. el Cocma. wein. *d emes dmlllee5 mPmctimelp. -15j e9pta ltectloty -eemete the te o a-eot% mieiiiCiilietVCu.itt tea cm. ti - -Mt ate,.. a ims-ito ass Unalm mmctmec.c e.mtm cousetme. 2)1. It melmed Feelytite letilty "Me fl~fbe.ie dectim cc tin -Plt..-,t l.ee m mi .mtreptedecm -a. Who e- trld ,# .Rit.im!e-tecmd eml - Cease tta. al .a tm .d ls mock getratmeeme tnt eptae t C.l -teacu. the etutee-v arm11 imtelm a.c nwse me preti l oeete pepe -ttem cI -atmd a tin inte .1 ti pmmecdieretc Iet ehmleg pehlteM Yl oemll hest prhildem see P-tIl u t mlti ppolat lee Em tin par leW. mel t tb. 7tea ml atlm en Fee.= in djoets lee dltlar- leUtbe e pcleeep Some. s Io ee ler netmoec- cecmlt lam Es remeid - lTM pety eS motatlesmcp elme ma peptimm. helmeto e- inc tin ettiele ocisl see. .peplmttmo Eo clii in eccn. eesctmie - 1-lr It1tal mole OS lmle - Carets a mIaI caa fteecltteD.st mtw.mcl.e, e.qwtro m lea Eerpc 61 appe-ad petetep lctecmctlmm1 Fr!. -nZ Mlld-*sr ptgmlactme per pemee k1l-amt. CItt lnctee) ml prsidee mare-I umetima. er tcether trelelial IioutrutSoe Ice tiii ;meet lilt. ad lilt date. peptis -mmll ml 12 to 17 pout. ml apt. wteepmmdes emoemo- P.pm.ttim in Itmecme (cetee) Chilldcm (0-la pace.). moes-mi. (I)- li.Lodc tokinc.l. smtLe.wetrrse... ormIth1 Prspem Emdspeid- &Mit amed. OS ttee Spo Sela P-ectmgoc .1 sld-psee IFtl slmdcimone ci smmr teiletlemo. PPtpltE. ElM 1610, ..a loSE d.t.. ieElt-tsheim ettit ;- ctery medemaec- Tmtmt itodas -.tesIe Is par ppipslucc lin Is)40 Eut4. 5 70.51. Pmre "ue emlt G,elttt Adcult (.ctl-ece ea set s a ca ot lt.cc ae rCmm)-tisme mt (ek.m ree med ee1tc) m Imemletlm ler lS-et. 110-Il. O 3 -1i51i. s prcutm,as l tem -sEM t -rm ttl.ee )p .O et Edetfthiher peeeted WMtee tt le per temmed .1 .i rar Peplta" c5*1c.O lu1st mE..mPwo -ede hmh maetrcnea)- i.a dmatm Per thccomed F mid-JerPems.cCr q. .emm ft MecltMl - Pecumimtr .te carIL. occ.r CestlPed"culmo60 1Pate - bel~ Iee e d eeher Mmt.ml ta.E-lttee I.-hlcle. Ic-itkitty rsttE metly tlrt-yrc -morse eSIte Em muit. EDt. OS irmmdeeetc em Ueelpl P.r t ories elpepemlatlot mselde. me ou1. licoseed e Icclce EmetE. OSr, Er pac Fo ir . w rtgleieartlts or esdlt .8 blrth-cets dercmO. pice cc ttiasi tmlp plastes coutetteo binlle1nd lIce-cIo. - berm (.me-st ml ememied me.mmlTV berc.c (pe tincemed Perelme0tem - TV eecicem lee btm.dcmmt it reitIr PimL-1 - toerecemee.= cc eerid ee-n.t peetL 1r ciMed pc.mlice; eweldre emlle.eS TVL ittce cm et 'heid- ,Imsls.: t EIt par) Sc m trth-cetrt devlce ft Eu _etrima OS ic pare .do ceeetttme rl TV sem tt Ir effect. esemm tredsrcot e ma OS tmedi tee Pedettameecsdetad O W.t-in.. isil-t aI rt - ppreat- les tedar tl a- --L-- mea ts. Imma emim)mthm.eIleO mmt cecc c. teine mdc twee tin year ltlwd-tcs- edIt.me me d etmtlke e ell OS m- e meA eid. 15srMM mt predmttam - sI-mc sry Em .-t Cm-btir molt.. pt ' or-sto h ch.f date. '-iso~~~"bt od -~ -1 (7tUk.. demo.teI-offtuL.j r-1 1 emmp qealm m o te d miplIe Pcalithic Em weotep per, ce .l pee lete.4ptymdSmcelciemmeemts.ec.ccrs ap-e t. eM times.. C nat e meL-4-Ipptealt tIed bed. ammee eMspeslmc it.1 met MOS 1 daS. - u cattemo med le WO petmimiSe. OSd teao in diatrlbutiee. !a1A.sI-Pmi Isbtr lore -d pereuto.m t m tete lacto ff.-e. teqee"c"mts cet I..cltd by FAD MoSd -m phymtm1mgicsi roade e. emi~-t. ae Em lermlgu lmtry. bocIse OS oclhptd .inmc rsldre bclts. mee.w di7 msights. -isse t -Pec--t-eM tea lic fteectE 9. flit .,d ili dat.W tmOSm -'.Iuicltot. or PpiWtlatlm. OS lld cr .1 it persec eemt I.smc 1dter, (p.c-oxt -.AC DetoLee 1immc. .-teattla. mmuocclmstrt atheemminld I.L..et muim-eu. lilt0 OS lo5 ia. mm.d eoteftmeclip mte. mmd R- a peeemetse ci Cowl Lae ff--. eet per ckpt impLy ml ::mtet(trmo defl - Preel mmts of- Per esplt EfI OSKlt date. met iypl7L (md pe dsp mc oppl l LOS Is dallOSmd i. run.r=il cut.bc (P.rmt)-mmml ae OSteo. - vaselJ.petlts m taeemmimLn mu teacim eetailtiisd hy GMa pemeld. le am mettct re-M tetetdamcm.s ,OS -Las. Lbit item milmeoteca S 0 it ra ml mml Pemtls P. dspoSt sed20amc 1 almol sd eco.eemm or -et.L. mole eel Imo.l pmpeatecmc1 t al se repscttcelp' pci.. yr.i. mf Smith it art- imeIA it mat- P-I.at. limes let. Il7Um -ed XCI dat. 1mm- - bnad em lItoe p-.mertpete ree etedr r mw tho - tin. ol 75 sea . M1 tslPr-etei d OS 11- gra rllttit ege-ammr c tin pspolattee OS Ies ti-m. cee. A ml atel P-ecti em.-ceta Lee the mel. temdby rim Es tin isa cetimem ..m 8-s elemo momrcms. TlIed Soria tein 3eceyp: li6S-h. L970 mmd IW ae tmet n e at U-1- Pett lpeepsslm mmdc I) d OS is OSmei darers Ic. woel aS ptmaI 51m. pot dayP lCd1-S. 1970 OSl 197? IStid (etot 1.4) Dach Pace Cper ti-eed - A ee-. beth. pr ti.. cmeeelm l rsel..... (ith Is=esh mm klS) 1- 1-em by IE.-,s I se. MrP i-h pare, Wt bIide t. tnl e ei e etdclee remect rE.be 20 peeme *peeret itpme.md pett.tt it peremeet ml -teete.. dm dorIeS lee tILt U-le: EWO. lull med EII dais. hno'ubldc. embirth; IW. EIU'S VRE date eheida in .tecedtc teem ril [ic. Imtec. tat- lc matem (pr it d) - me-I dmt.mee mmc OSre ma-letl-ft, Itutlete Psccete leeca. mccl ems tim It re S ac pms m .- er mOSic hi-til IWO. lIDl OS 1981 dat. P-met ccry 1 lac-t C. tint Lems aEl nm ic ii inteim@s lf. am opee-meel ecceetims?-, cm!mee. S sel- etrtie-ml, ed.m . dc p1m meottlm m-ftOS .sL -ett It m ttrc pempi icetm.L.rt aSr aletchreeeei meco . cc t mai sicdml.. -mo.tesi (1mitmdc treted meets. -teurm me at_ms bet Satemed blsttCe P-o.te c. ae DI t ste mhmO ae emstmlmtd ottr clh m it f em pretmeted bmceinlo.. optIcs. -1O .ma rtoltte pasmep ime. iml1 utI 1s tcpecpt otmtmep wIe) m peetetsor ml hei r.Pectte pepUtlsem. mm a P---emm t temtam cit-mety. Va..i lind Em d-rtea rete Ch. cc stit cea ps,lle letotls or mtsiepeet -ttdats mo -m tine 200 m.tsr 1m! wIth edjammeot let kisnr curt ml 11cies U. mintam t b. ie eq it -caderd -e ittan sthle ramoahit melee. al mtht Ctet..twd Pceato lcAmlc.Pmec ea cl er.e - ocinee ine . -Ices etem meeeetil eae -idk Scyl mItt cit inmemmlff. mr OSemel-ettme elpaeMet. (M Lt srtl e e ecte lit day Ic l."cccif the Ime11'. mmcc mmdco. ewesi - ~~e r mc1 op-i pmai tmt rm~ OS c iore) ..cjb ..crcst l mop IstIeto tin elcitOSd dIem!,l wIth to ecthout teatemm. mlft keme oud PaCIsi lbum Urlao itmumre OSd ae-mots by -4cm-ir spts Me ti .1 'Lt tisi dolyl OS Prjemi pccm prEmIse OS eoltotl tuletltlame. M"ispu  _30 - Alilll I Page 4 of 5 TURKEY - COUN7IY DATA Population: 45.5 million (1981) CNP Per Capita: 5d1l540 (1981) Amount Average Annual Increase (Z1 Share of GDP at Market Price. (m) (million US$ C(t constant 1980 prices) (at current prices) Indicator at current prices) 1982 1965-70 1970-75 1975-80 1965 1970 1975 1980 NATIONAL ACCOUNTS rousa domestic product /a 52,o90 6.6 7.5 2.8 100.0 100.0 100.0 100.0 AgricuLture 10,324 3.1 4.4 2.7 30.7 26.4 Z6.2 21.4 Industry lb 13,527 9.5 9.5 2.8 16.6 17.2 11.0 28.6 Services 26,073 8.2 8.0 3.7 42.9 46.5 46.0 44.3 Lonsumption 44,345 5.8 7.0 2.7 84.6 82.1 85.2 81.8 Gross investmnt 10,7D5 11.7 12.9 0.6 16.7 20.1 23.3 26.4 Exports of goods and NF5 7,618 7.9 7.3 4.4 6.1 5.3 6.1 7.1 ImportO Ou goods and NFS 9,778 11.2 13.8 -3.1 7.4 8.7 14.5 15.2 Gross national savings 9,250 11.6 11.9 2.4 15.8 18.8 18.1 18.3 Average Annual Increase (Z) Composition of Merchandise Trade m (at constant 1980 prices) (at current prices) 1972-75 1975-80 1972 1975 1980 MERCNANDISE TRAME /c Merehendime exports 5,746 -6.1 2.3 100.0 100.0 100.0 Priary 2,317 -6.3 4.D 72.6 64.1 64.0 Industrial products 3,429 -5.8 0.9 27.4 35.9 36.0 Merchandise imports 8,734 11.2 1.2 100.0 100.0 100.0 Agriculture and livestock 176 27.9 -23.8 2.2 4.3 0.7 Mining and quarrying 212 17.4 6.8 1.2 1.6 1.8 PetroLeum 3,640 5.4 11.0 9.9 17.1 48.8 Machinery and equipment 2,352 14.0 -12.1 45.0 35.6 18.2 Other industrial products 2,354 9.9 4.5 41.7 41.4 30.5 1978 1979 1980 1981 1982 PRICES AND TURIS OF TRADE GDP deflator (l980 - 100) Z9.0 49.4 100.0 142.1 131.5 Exchange rate 24.3 31.1 76.0 111.2 162.6 Export price index 63.0 78.2 100.0 91.9 92.4 Import price index 61.2 71.9 100.0 101.8 102.6 Terms of trade index 102.9 108.8 100.0 90.3 90.1 "a Z of COP (at current prices) 1965 1970 1975 1980 1982 PUBLIC FINANCE Current revenue 15.0 22.6 22.0 19.8 17.0 Current expenditure 10.0 11.8 12.6 11.5 3.1 Surplus I+) or deficit C-) -2.0 -2.3 -0.4 -4.3 -1.0 Investment expenditure 4.7 5.7 4.2 3.9 3.9 Transfers 5.0 7.5 5.5 9.2 6.0 Foreign financing 1.8 1.6 0.3 0.2 -0.01 1965-70 1970-75 1975-80 OTHER INDICATORS GNP growth rate (Z) 6.8 7.7 2.6 CNP per capita growth rate (1) 4.1 5.0 0.3 ICOR 2.9 2.9 5.7 Marginal savings rate (Z) 28.2 19.5 30.8 Import elasticity 1.7 1.8 -1.3 /a At msrket prices; components are expressed at factor cost and vill not add due to exclusion of net indirect taxes and subsidies. 7ii Includes mining and quarrying, manufacturing, and electricity, gas, and water. /c In accordance with Turkish Covernment's specifications, which are not comptible vith SIM's.  - 31 ps If uTB - mim OP P813 . EZSI. Cuia2. ai nil Ic *unee3 t ansI" rie Poputatioan 45.5 mILlion (19B3) cGP erw Capitas U5*1340 Jl tl Astui sita 1tini "tS iT 1l7 199 1tw0 1931 195 3to 14 1956 1 "7 talAE OF O ANNT met sports @1 gods 4 UPS 342 19A 2442 4633 3416 1993 2032 2063 2363 2371 2764 Isports of good* iM 734 3073 327 4102 6416 374 7962 9527 13214 13073 31917 lmports et goads X NPS 1096 3039 "43 3760 9392 PU?7 9941 1112 13319 1354 17933 Workers' remittances 273 93 104 2071 2490 2137 1130 1932 2170 2F 2674 Net trsfes 91 - - _ _ _ _ _ _ _ Current account balance -33 -1141 -1771 -3207 -2076 -3010 -1105 -isI; -1763 -1976 -2051 Direct private isvstosnt 92 147 200 143 129 123 127 130 144 133 174 Public S&LT (gros 2U1 l017 4321 2234 2333 2071 1067 153 396 2315 2601 Lmertitatise - PLT 317 -144 -336 414 '434 -343 -1230 -1105 -1235 -153 4093 -2231 Publie SLL (ee) 1b 123 Got 3907 1930 1643 341 762 599 132 233 393 Other capital A 27 1041 -2410 1642 933 200 368 1039 1730 191N 1335 Change Ln rsserve- - Incrae) -136 -143 74 -303 -630 -162 550 -202 -293 -324 -353 Inrereatauot reservs 612 674 300 1303 1339 20 1300 1702 1995 2319 2473 lloer- va_nnscb -f iwerts 7 2 I 2 2 2 2 2 2 2 2 Actual 1912 19117 91 19 1 I9 193O 1931 I93 cots DaugStJUurg Cross disbnrseuests 372 759 157 4395 / u279 2114 2020 oalcial grants - - - - - 3M 15 CeoacasaInt 261 193 223 m5 312 322 351 Silat.e.l 139 1oo 139 40 749 96 213 10 4 19 B 3 _ _ Other multilateral 113 74 1 179 6 23 71 Sne-caslcessanea 111 56 629 3610 /d 1466 12 341 Official sxport Credits I 47 133 250 *2" 355 400 U13D 25 1" 163 277 313 454 665 Other intCila-tera 27 3 33 13 150 162 147 Private 3 368 296 3o id 713 323 253 XItAL MS3T Debt utstanding sad diabursad 2450 4293 6322 13942 13413 3330 14296 official 57 35 gm 7-Wu UT -gm 7 1338 92 312 648 a90 Il3 154 214 nD& 99 Ulo Ing 190 139 13 187 Other 2082 296 4653 6109 369 7172 7771 PriLvte 177 63 833 3753 3134 89 4192 Debt otstandnsg iecluding endisbursad 3530 7123 9379 14620 1I307 17093 19561 OsT SnvlCP Totl dabt sde-ice I- 224 363 423 627 1091 1231 2353 Paysents 161 196 254 403 403 36 1229 lItere t 63 167 I54 224 596 683 1153 Total dsbt services a 2 e _*s oa goads mY * workers' rmittances 11.3 30.3 10.6 12.7 16.2 13.6 23.7 Total dbt service as 2 CUp 1.3 0.3 0.9 0.9 1.7 2.0 8.4 Averags interest rate - asy loans CI) 4.4 7.7 6.9 11.3 6.1 7.6 7.3 official 6.3 7.7 53. 3.3 3.5 5.3 6.2 Prive 4.8 7.3 3.2 13.6 10.6 15.4 12.0 Average maturity of se lose (persl 22.1 11.6 13.3 11.1 17.4 15.0 33.4 Official 36.0 32.7 13.2 23.1 14.6 16.3 21.1 Privat- 11.0 9.2 7.6 7.1 6.4 4.3 8.0 C3 cUP tPOCUW (2) t D D0D/total DM 3.7 31.9 10.2 6.l 5.6 11.2 33.0 153 disbursNetA/total grwoa disbursements 6.7 19; 13.4 G.5 13.7 25.0 32.9 133D dsbt service/toa l dsbt aervics 1 5.1 37.2 19.2 34.8 13.3 14.0 9.0 1D D0D0total DOD 3.9 6.2 3.0 1.7 1.4 1.4 1.3 tOA dsburseesnta/totai grOss diebu snte 1.1 2.5 0.9 0.1 - - - IDA debt *-rvice/total dsbt service ts o.4 0.6 0.3 0.4 0.1 0.2 - As Z of Debt OutstaWing dt Rod of that Racent Veer (1952) TCUI STRlC * o Kt_ Maturity strcture of dsbt etatending (2) Maturiti*e des within 5 yeers 39.3 Matorities de within 10 years 79.3 Interest etrstce of debt out-tendie (2) Interest dus within first year 6.5 s All entries en external dsbt era defi as te cmee's Debtor msortLang system (oIdy public ad privats gura_tes D16LT debt). 7ii Includes private guarantee a*nd ntuarensteed debt and rants. ic Includeo errors and smissione. and for projoeted yers it includes net VW. short-to, end _nidentifiad capital inflos. 7;i Includes *2.635 eillie of conslidated ahort-tea debt. l Takas account of debt relief d_ to dabt resheduling. and *elude interet e- shrt-tere debt and private ona-gearsetesd debt. BEST COPY AVAILABLE'  - 32 - ANNEX II Page 1 of 2 STATUS OF BANK GROUP OPERATIONS IN TURKEY A. STATEMENT OF BANK LOANS AND IDA CREDITS /a (As of September 30, 1983) Loan Amount ($ millions) /e Number FY Borrower Purpose Bank IDA UndiLbursed Thirty-seven loans and fourteen credits fully disbursed 2079.0 177.4 883-TU 1973 Republic of Tu&xey Ceyhan Aslantas 44.0 8.0 1130-TU 1975 Republic of Turkey Rural Development 75.0 12.6 1248-TU 1976 Agriculture Bank of Turkey (TCZB) Agriculture Credit 54.3 26.8 1265-TU 1976 Republic of Turkey Livestock III 21.5 6.1 .1310-TU 1976 Republic of Turkey Tourism 26.0 14.6 1585-TU 1978 Republic of Turkey Northern Forestry 86.0 49.8 1586-TU 1978 Republic of Turkey Livestock IV 24.0 17.9 1606-TU 1978 Republic of Turkey Erdemir Steel Stage II 95.0 29.6 1741-TU 1979 Republic of Turkey Ports Rehabilitation 75.0 30.8 1742-TU 1979 Republic of Turkey Grain Storage 85.0 81.1 1748-TU 1979 TSKB Industry 60.0 9.2 1754-TU 1979 .TSKB Private Sector Textiles 65.0 38.3 1755-TU 1979 SYKB Private Sector Textiles 15.0 10.3 S-15-TU 1979 Republic of Turkey Ankara Air Pollution Control 6.0 5.1 1844-TU 1980 Republic of Turkey Karakaya Hydropower 120.0 83.3 1847-TU 1980 Republic of Turkey Sumerbank Cotton Textiles 83.0 65.4 1862-TU 1980 Republic of Turkey Livestock V 51.0 45.9 1916-TU 1980 Republic of Turkey Petroleum Exploration 25.0 22.3 1917-TU 1980 Republic of Turkey Oil Recovery 62.0 37.5 1952-TU 1981 Republic of Turkey Labor Intensive Industry 40.0 31.4 1967-TU 1981 Republic of Turkey Second Fruit and Vegetables 40.0 38.0 1985-TU 1981 Republic of Turkey Fertilizer Industry Rehabilitation 110.0 97.2 1998-TU 1981 Republic of Turkey State Industrial Enterprise Finance 70.0 62.5 2093-TU 1982 TSKB Export-Oriented Industries 100.0 99.1 2094-TU 1982 Republic of Turkey Erzurum Rural Development 40.0 36.0 2131-TU 1982 Republic of Turkey Second Fertilizer Rehabilitation 38.0 37.4 2137-TU 1982 Republic of Turkey Highway 71.1 61.0 2159-TU 1982 TSKI Istanbul Sewerage 88.1 86.4 2318-TU/b 1983 TCZB Second Agricultural Credit 150.4 150.4 2321-TU 1983 Republic of Turkey Fourth Structural Adjustment 300.8 300.0 2322-TU/c 1983 TEK Third TEK Transmission 163.0 163.0 2327-TU/c 1983 TPAO Thrace Gas Exploration 55.2 55.2 Total 4418.4 177.4 1812.2 of which has been repaid 439.8 11.0 Total now outstanding 3978.6 166.4 Amount sold 3.6 of which has been repaid 3.6 - 0 - - 0 - Total now held by Bank and IDA /d 3978.6 166.4 Total undisbursed 1812.2 - 0 - /a The status of the projects listed in Part A is described in a separate report on all Bank/IDA financial projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. /b Not yet effective. Ic Became effective in November 1983. 11 Prior to exchange adjustments. Ie Net of cancellations.  ANNEX I1 Page 2 of 2 STATUS OF BANK GROUP OPERATIONS IN TURKEY B. STATEMENT OF IFC INVESTMENTS (As of September 30, 1983) Fiocsl Amount ($ Millions) Year Obligor Type of Business Loan Equity Total 1964 TSKB DFC - 0.92 0.92 1966 SIFAS I Nylon Yarn 0.90 0.47 1.37 1967 TSKB II DFC - 0.34 0.34 1969 TSKB III DFC - 0.41 0.41 1969 SIFAS II Nylon Yarn 1.50 0.43 1.93 1970 Viking I Pulp and Paper 2.50 0.67 3.17 1970 ACS Glass . 10.00 1.58 11.58 1971 NASAS Aluminum 7.00 1.37 8.37 1971 SIFAS III Nylon Yarn 0.75 - 0.75 1971/83 Viking II Pulp and Paper - 0.15 0.15 1972 SIFAS IV Nylon Yarn - 0.52 0.52 1972 TSKB IV DFC - 0.43 0.43 1973 TSKB V DFC 10.00 - 10.00 1973 Akdeniz Tourism 0.33 0.27 0.60 1974 Borusan Steel Pipes 3.60 0.43 4.03 1974 AKSA Textiles 10.00 - 10.00 1975 Kartaltepe Textiles 1.30 - 1.30 1975 Sasa Nylon Yarn 15.00 - 15.00 1975 Aslan Cement 10.60 - 10.60 1975 DOKTAS Steel 7.50 1.37 8.87 1975 TSKB DFC 25.00 1.23 26.23 1976/83/ 84 NASAS Aluminum 1.58 0.09 1.67 1976 TSKB DFC 25.00 - 25.00 1976 Asil Celik Steel 12.00 2.20 14.20 1977 Borusan Steel Pipes - 0.06 0.06 1978 DOKTAS Steel - 0.16 0.16 1979 Ege Mosan Engines for Mopeds 2.15 - 2.15 1979 ISAS Motor Vehicles & Accessories 8.85 0.45 9.30 1979 Asil Celik Steel - 1.80 1.80 1979 Trakya Cam Glass 33.15 3.43 36.58 1980 TSKB DFC - 1.09 1.09 1980/82/ 84 ISAS Motor Vehicles & Accessories - 1.67 1.67 1980 MENSA Textiles and Fibers 4.0 4.0 1981 Kirklareli Cam Sanayii A.S. Glass Tableware 12.99 - 12.99 1982 M.A.N. Motors Motor Vehicles & Accessories 8.41 - 8.41 1982 TSKB DFC - 0.35 0.35 1984 Pinar Food and Food Processing 3.90 - 3.90 Total Gross Commitments 218.01 21.89 239.90 Less Cancellations, Terminations, Exchange Adjustments, Repayments and Sales 150.94 8.30 159.24 Total Commitments now held by IFC 67.07 13.59 80.66 Total Undisbursed 11.26 1.07 12.33  - 34 - ANNEX III TURKEY - TECHNICAL ASSISTANCE PROJECT FOR STATE ECONOMIC ENTERPRISES SUPPLEMENTARY PROJECT DATA SHEET I. Timetable of Kev Events (a) Time taken by Government to 4 months prepare project; (December 1982 - March 1983) (b) Agency which prepared the Ministry of Finance (SEE project: General Directorate) and beneficiary SEE. (c) Project first identified: December 1982 (d) Date of Bank Appraisal Mission: March-April 1983 (e) Follow-Up Missions August and November 1983 '.) Negotiationq completed: February 1984 (g) Planned date of effectiveness: June 1984 -1. Special Bank Implementation Actions None. III. Special Conditions A. Special Conditions of Effectiveness Execution of a Subsidiary Loan Agreement between the Government and DYB, and Finance Agreements between DYB and the beneficiary SEEs (pars. 73). B. Other Hain Conditions (a) Additional beneficiaries to be approved by the Government, DYB and the Bank by June 30, 1985 (para. 69); (b) Counterpart staff to be retained in their places to work with the consultants (para. 71); (c) Coordination committee to be maintained during the life of the project (para. 75); and (d) Joi,;t annual reviews of project experience to be carried out by the Government and the Ba.nk (para. 42).  - 35 - ANNEX IV Page 1 of 18 TURKEY - TECHNICAL ASSISTANCE PROJECT FOR STATE ECONOMIC ENTERPRISES ADDITIONAL INFORMATION ON THE PROJECT BENEFICIARIES I. TURKIYE KOMUR ISLETMELERI A. Background 1.01 Turkiye Komur Iletmelori Kurumu (TKI - Turkish Coal Enterprise) is responsible for about 902 of all lignite production ln Turkey, the remaining 10 being produced from numerous small privately-owned mines. TKI was set up in 1957 as a public limited company and expanded through the successive nationalization of lignite mines in the rrivate sector. Until 1983 TKI was also responsible for all hard coal production through its operating enterprise, the Eregli Coal Enterprise (EKI). In 1983 the five mining districts managed by EKI were constituted into a new state enterprise, Turkiye Taskomuru Kurumu (TTK--Turkish Hard Coal Enterprise), independent of TKI. In 1982 employment in hard coal operations, all in underground mines, was about 47,000 compared to 21,000 in the mainly open pit lignite mines; hard coal run-of-mine production In 1982 was 7.2 million tons while lignite production was 18.8 million tons. This financial and organizational separation of TKI and TTK should have a beneficial impact on TKI's ability to concentrate its resources, both human and financial, on accelerating the development nf the nation's lignite resources. All references to TKI In the succeeding sections are to the enterpriso as it exists after the reorganizat.on of 1983. B. Organization and Management 1.02 TKI consists of a headquarters staff in Ankara numbering about 640, ten mining enterprises scattered throughout the country, and a sales and distribution enterprise that manages all stockpiles and lignite sales. TKI's board of directors is chaired by TKI's Director General and consists of four members nominated by the Government. The functions of the headquarters are to assist and provide guidance to operating enterprises and to handle all contacts with the Government and financial institutions. In addition, the headquarters carries out project feasibility studies, formulates the TKI investment program for approval by the Ministry for Energy and Natural Resources (MENR) and SPO, >rocures all major equipment, sets budgets (for Government approval) and production targets, handles all funds management and approves the employment -f all professional staff in the enterprises. The headquarters also plays a direct role in project implementation in those cases where new operating enterprises lack sufficient competent personnel to operate in an efficient manner. Though there is logic in centralizing certain financial functions, investment planning and contacts with Government, the headquarters' excessive control of procurement and project implementation has contributed to overall slow progress in developing lignite deposits. 1.03 The environment in which TKI operates has a strong impact on the quality of its management. Low pay levels, in comparison to the private  - 36 - ANNEX IV Page 2 of 18 sector, and lack of an incentive system for professional and managerial staff, have resulted in high turnover and a concentration of inexperienced or insufficiently qualified staff within the Cumpany. Decision-making authority lies in the hands of a relatively few experienced managers with little delegation of authority. This situation is unlikely to change while TKI remains subject to civil service pay scales and structures. Overall management is weak and lacks a commercial approach as Government policy is to compensate TKI for any operating losses incurred under Government-administered lignite prices. C. Operations 1.04 TKI's ten mining enterprises cover a wide variety of operations, from the Western Lignite Enterprise (GLI) producing 9 million tons per year (Mtpy) of lignite with a workforce of 6,700, to the Southeast Anatolia Asphaltite and Lignite Enterprise (GAL) which prodtces about 0.8 Mtpy of asphaltite by using contractors. Only three enterprises--GLI, Aegean (ELI) and Bursa (BLI)-currently produce more than one million tons per year. GLI is the parent company in the lignite subsector and operates the two largest mines - Tuncbilek (4 Mtpy saleable) and Seyitomer (5 Mtpy saleable). ELI was created in 1978 to operate three mining districts that had been operated by GLI or by the private sector. In terms of economics the most attractive undeveloped lignite deposits lie within ELI's area of operations. Current ELI output is 2.6 Ktpy saleable. BLI produces about 1.4 Mtpy of saleable lignite using contractors. Total saleable (TKI) lignite production during 1978-1982 was as follows: ('000 tons per year) 1978 1979 1980 1981 1982 9,326 11,065 13,639 15,050 16,160 1.05 The mining enterprise which, potentially, could become the largest producer is the Afsin Elbistan Lignite Enterprise (AELI), established in the mid-1970s to develop a 20 Mtpy open pit mine which will feed a 1,360 MW power plant now under construction by the Turkish Electricity Authority (TEK). Mine and power plant are being partially financed by a Bank loan of US$148 million (Loan 1023-TU, June 1974). The joint power plant and mine project was originally conceived to provide base load generating capacity additions during 1978-1980; due to serious managerial and technical problems at both the mine and the power plant the project is now some seven years behind schedule. The lignite to be mined is of low quality (1050 Kcal/kg; 17% ash; 55% moisture). The main mining equipment consists of six large bucketwheel excavators and a system of cenveyor belts to deliver lignite to the power plant and dispose of overburden. Currently, five excavators are operable though AELI only has sufficient staff to run three. When operating at design capacity, each bucketwheel should excavate 1.5 million bank m3 per month but the maximum achieved to November 1983 was 0.8 Mbm3/month. The principal factors behind poor project performance are: (a) Unexpectedly large boulders in the overburden which have required blasting and removal using bulldozers and trucks; large rocks have also damaged conveyor belts.  - 37 - ANNEX IV Page 3 of 18 (b) Delays in workshop construction resulting in a lack of maintenance and repair facilities. No planned maintenance program has been implemented. (c) Absence of proper inventory control and procurement planning and consequent lick of spare parts. (d) Insufficient numbers of skilled workers and managers. (e) Inadequate project management, particularly in the areas of contracting, remedial action and scheduling and monitoring. (f) Centralization of project control in Ankara, where managers have not demonstrated the knowledge and interest necessary to formulate and implement effective solutions to Elbistan's problems. 1.06 Under current project management arrangements, it is highly unlikely that the mine will be able to meet power plant feed requirements. Provision of supplemental financing for both mine and power plant by two of the original project financiers (IBRD and KfW) has been made contingent primarily on exposure and monitoring of the layer of clay (gyttja) that overlays the lignite and on the establishment of acceptable arrangements for: (a) project management and implementation; (b) project scheduling and monitoring; and (c) equipment maintenance. 1.07 TKI's open pit mining operations are hampered by poor maintenance practices and by the use of equipment that is too small. Approximately one third of all major mining equipment and one quarter of the auxiliary equipment was out of order in 1982. The problem was particularly severe at the large GLI mines, where half the dump trucks were out of order- As a result, 60Z of all overburden removal in 1982 was carried out by contractors. Lower production costs could be achieved were TKI to divert some of the resources allocated to opening up new mines to the rehabilitation of existing ones. The closing of uneconomic underground mines would also help to improve TKI's overall viability. D. Financial Situation 1.08 Key data on TKI's financial situation are summarized in the following table: BEST COPY AVAILABLE  -38 - ANNEX IV Page 4 of 18 TKI: Key Financial Data a/ 1978 1979 1980 1981 1982 Sales ('000 tons) 9,750 11,113 13,537 14,844 15,959 Average Sales Revenue ($/ton) 14.4 18.8 18.8 19.2 18.4 Financial Data ($ million) Total Revenue 141 209 255 284 294 Net Income Before Subsidy (98) (130) (75) (16) 67 Subsidy 99 131 83 61 24 Debt 553 721 344 355 353 Net Equity (26) (17) 79 138 317 Assets 953 1,360 860 1,045 822 Net Fixed Assets and Inventories 259 419 332 511 564 Ratios Net Income Before Subsidy/Revenues (X) (70) (62) (29) (6) 23 Return on Net Fixed Assets CX): Excluding Subsidy -40 -29 -21 -3 11 Including Subsidy 0.1 0.2 2 8 15 Current Ratio 0.42 0.41 0.52 0.51 1.26 Receivables from Customers (days) n.a. 335 160 158 226 Debt/Equity (%/Z) 118/(18) 102/(2) 81/19 72/28 53/47 Debt/Assets (x) 58 53 40 34 43 a/ Though TKI was responsible for hard coal production during the period shown here, the data refers only to lignite operations. TKI's financial position was very poor during the mid- to late-1970s but has improved in recent years due to real increases in lignite prices, the covering of operating losses by Government subsidies since 1978, and Government equity contributions. Subsequent to the extensive nationalization of the subsector in 1978, TKI's average revenue rose to $18.4/ton in 1982 compared to $9.3/ton in 1977, with the result that TKI had a positive net income before subsidy of $67 million in 1982 compared to a loss of $114 million in 1977. Three of TKI's smaller enterprises that operate underground lignite mines, however, still showed a loss in 1982 and received subsidies totaling $24 million. TKI has severe problems in collecting payments from customers (226 days of receivables in 1982) and operating subsidy payments from the Government. In addition, TKI's cash flow has been used in large part to finance the operations of the hard coal operations (TTK), with which it was merged until 1983. Until 1979, TKI's equity was negative due to successive years of heavy losses and absence of significant Government contributions; by the end of 1982, due to the improved conditions described above, equity comprised 43% of total liabilities and the debt/equity ratio stood at 53X/47Z. 1.09 Historically, the major sources of financing for TKI's investments have been the State Investment Bank (DYB) and the Treasury,  - 39 - ANNEX IV Page 5 of 18 both providing subsidized credit. Recently, however, major sources of financing of foreign costs have been foreign loans related to the Afsin-Elbistan and Mugla Yatagan projects. At the end of 1982 outstanding debt stood at $354 million, mainly related to the Afsin-Elbistan project. TKI is currently contracting approximately US$218 million of suppliers' credits through the US Eximbank for the purchase of equipment for its major open pit projects. Given TKI's current financial situation, it will have to rely on Government-guaranteed loans for project financing at least in the medium term future. E. Investment Program 1.10 TKI's 1984-88 investment program includes expenditures on 15 major lignite projects totaling 51 Mtpy of run-of-mine production, of which 20 Mtpy will come from the Afsin Elbistan project. Most projects are associated with power plants under construction, or to be constructed, by TEK. The total estimated 5-year cost of the program is $2.1 billion (1983 prices, excluding escalation), of wlich 75% is for new mines and 25Z for equipment renewals in existing mines. The average expenditure rate of $429 million per year envisaged exceeds thv. investment rate of about $200 million (1983 prices) over the last three years. It is likely that project implementation will be slower than forecast by TKI and, consequently, that investment expenditures will not reach the levelp projected, mainly as a result of TKI's lack of project implementation experience and the difficulties it has in attracting qualified staff. In addition, shortage of local cost financing is likely to contribute to project delays. Whereas TKI foresees completion of all 15 projects by 1988, the likelihood is that at most half of the projects would have reached the production phase. 1.11 TKI's investment planning procedures and mechanisms for coordinating lignite mine development with TEK's associated power plants are weak. The lignite investment program contains a number of projects that are uneconomic when compared with the option of importing steam coal to fire coastally located power plants. However, lignite investment decisions are made on the basis of competitiveness with fuel oil-fired power stations, which are a more costly alternative than imported coal. Improvements in TKI's planning techniques are required in order to avoid investments in uneconomic mines. F. Lignite Prices 1.12 Lignite prices are regulated by the Ministry of Finance and HENR, in line with the designation of lignite as a 'basic commodity.' Currently, pithead prices are set for each grade of lignite by reference to its calorific value and its form (run-of-mine, washed/unwashed and lump size). Additional charges are levied for transportation to urban stockpiles and delivery to consumers' premiees. A two-tier price structure is in force, with lignite sold for domestic (heating) use priced about 40% below that sold to industry. 1.13 As noted above (para 1.08), there have been substantial increases in lignite prices subsequent to the nationalizations of the late-1970s. The Government's current policy is to eliminate the operating subsidies  - 40 - ANNEX IV Page 6 of 18 paid to TKI enterprises while protecting domestic consumers, which account for 36% of sales, from rapid price rises. In June 1983, lignite for industrial use was priced at about 55% of the estimated landed cost of imported steam coal, on a heat equivalent basic, while lignite for domestic use was priced at 332 of this cost. There are sound economic and financial reasons for raising lignite prices in real terms. However, this issue should be addressed in the context of a study of the opportunity cost of lignite in Turkey and a review of TKI's investment plans and planning procedures (para 1.11). G. Need for Technical Assistance 1.14 TKI needs technical assistance in several areas if it is to operate its mines eff'ciently and expand output rapidly to meet the lignite feed requirements of existing and planned power stations. The priority areas for such assistance are outlined below.-/ (a) Manpower Planning and Training. Given the restraints on its operations caused by insufficient numbers of qualified employees (para 1.10), a more structured approach to manpower planning and training is required. This would involve identifying manpower requirements based on long-term corporate plans, identifying the likely sources of manpower and developing training programs designed to meet the needs for skilled workers, staff and managers. (b) Operational Planning and Intra-Company Coordination. Both TKI headquarters and establishment mine managers lack the basic information and analyses that would help them in improving the planning and management of operations. The accounting system is not well suited for analytical and control purposes and no analysis of the financial implications of alternative production and investment strategies is carried out. A thorough review and upgrading of TKI's management information systems in all areas of its operations needs to be carried out. (c) Mine Operations Management. TKI could take advantage of modern management techniques to reduce operating costs and increase output to the maximum extent possible. Examples of areas which could benefit from expert assistance are: goal-setting and follow-up, scheduling of stripping operations, more effective use of contractors, better scheduling and control of auxiliary personnel, improved utilization of engineers, maintenance planning and control systems, and inventory control. Most of the changes require little investment and have potential for high payback. (d) Project Preparation and Investment Planning. Project feasibility work could be improved through consideration of a wider range of technical alternatives and analysis of their cost implications at 1/ Detailed terms of reference for the technical assistance are provided in Anrex VI.  - 41 - ANNEX IV Page 7 of 18 the design stage. In addition, overall Investment planning and selection procedures need improvement with the imported coal option being used as a benchmark where justified (para 1.11). (e) Project Implementation and Management. TKI's skills in this area are weak and insufficient to implement the large number of projects in the investment program within the time scale envisaged (para 1.10). More decentralization of decision-making and financial authority to the project implementing enterprises, including authority to contract external assistance, is required. Use of such assistance, in conjunction with improved project management structures, could augment TKI's project implementation capacity and lead to a transfer of know-how. (f) Pricing Policy. Lignite pricing policy is not based on firm economic and financial principles and, consequently, is not integrated into the investment decision process (para 1.13). TKI and the Government could use technical assistance in developing a sound pricing policy based on the opportunity cost of lignite, the financial requirements of TKI and the prices of other forms of energy. 1.15 The technical assistance to be provided under the proposed Project will cover items (a), (b) and (c) outlined above. The manner in which the needs of other areas identified (items (d) to (f)) should be addressed will be discussed with TKI and the Government in the context of further loans to TKI.  - 42 - ANNEX IV Page 8 of 18 II. SUMERBANK 2/ A. Background 2.01 Sumerbank (SB) was founded in 1933 as one of the original State Economic Enterprises (SEEs) in Turkey with operations in banking, manufacturing and retailing. Until recently it manufactured a variety of products including textiles, building materials, ceramics, leather goods, chemicals and vegetable oil, besides operating a small banking division. After the reorganization of SEEs in Turkey, Sumerbank's future operations will be limited to banking, textile operations (in cotton, wool and garments), leather manufacturing and related retailing. Apart from its headquarters in Ankara, the company operates some 19 cotton and 8 wool textile mills, 6 shoe and leather manufacturing mills, 44 banking branches, and a retail organization with 17 district centers with related warehouses and about 470 retail shops throughout Turkey; the company employs about 36,000 persons. 2.02 Like most other SEEs in Turkey, SB has had to satisfy a number of sometimes conflicting objectives. In addition to profit maximization, it has also been charged with social goals such as the provision of mass-consumption goods (mainly textiles) to the rural and urban poor segments of the population; stabilization of prices; provision of employment in underdeveloped regions; and training of industry personnel sometimes beyond its own requirements. The conflicting objectives have exacerbated management problems and have affected operating efficiency and financial performance adversely. Low salaries (less than half of those in the private sector), limited management autonomy and overstaffing have contributed further to these problems. Under the new framework of SEE reform, however, SB is expected to be more oriented toward its business objectives, including efficiency improvement and profit maximization. B. Organization and msnagement 2.03 SB is fully owned by the Government and operates under the framework of SEE laws and regulations described in the President's Report (para 38). It is subject to overall supervision by the Prime Minister's office and its activities and financial position are reviewed and audited by the Supreme Board of Audit. SB's investment and financing plans are approved yearly by the Council of Ministers, while SB's Board (para 2.05) makes recommendations regarding the company's operating budgets. 2.04 SB operates like a holding company with a headquarters organization in Ankara, which controls all operating enterprises (para 2.01), including 28 wholly owned and 3 majority owned companies. In addition, SB has minority participations in some 40 other companies. Its banking operations are placed directly under its headquarters organization and perform the holding function of SB, by holding a major portion of the 2/ Further details on Sumerbank are available in the Staff Appraisal Report on Sumerbank Cotton Textile Rationalization Project, April 1980 (Report No. 2887-TU) and in Industry Department files.  - 43 - ANNEX IV Page 9 of 18 company's equity and channeling most of the short- and long-term debt to the operating enterprises largely in the form of inter-company receivables. 2.05 Since the recent SEE reorganization, SB is headed by a five-member Board of Directors comprising a chairman, who is also the company's General Director, and four members, who are appointed by the Government. The new Board is intended to be more policy-oriented with less involvement in day-to-day operations than was previously the case. Three Assistant General Directors, who are appointed by the Board, report to the General Director. The operating enterprises are separate legal entities and profit centers and are governed by management committees which are appointed by the SB Board. 2.06 The new organizational structure of the company, which will reflect the provisions of the new SEE law, is still under review and should be finalized shortly. It is expected that the role of the headquarters organization (HQO) will be reduced somewhat with a delegation of authority to the operating enterprises. The HQO will be primarily involved in overall coordination of SB's operations, including policy formulation and overall planning and control. As a result, staffing of the HQO would be limited. The company's management has decided also to reorganize its marketing organization, including sales. In marketing, headquarters would have the authority for establishing the overall marketing strategy, sales planning and pricing, and overall coordination for such marketing functions as sales, sales promotion and product development. As part of the reorganization, SB's present Sales and Purchasing Division (ASH), which operates the company's retail network, would implement the company's marketing strategy and strengthen its present sales functions. ASK's purchasing function would be separated and transferred from Istanbul to Ankara HQO, and it would be responsible only for sales, including retail, export and public sales, sales promotion and market research as the company's new Sales and Retail Division (SRD). C. Recent Operations and Financial Situation 2.07 SB's main emphasis has always been on textile manufacturing, both cotton and wool. In the early 1980s, textiles accounted for about 80% of SB's sales revenue, and for 15-20% of the country's textile production. SB also accounted for about 19% of investment in the textile sector, 17% of value added and 13% of employment. Unlike the private sector, SB sells most of its textile production thro,-gh its own ASM retail network to low-income groups in urban and ruil areas. Consequently, there is little direct competition between SB and the private sector whose production is generally aimed at higher income groups. The other SB manufacturing operations, now limited to leather products, have had less impact on the Turkish economy. Likewise, SB's banking operations with some 44 branches throughout Turkey is comparatively small and serves essentially to provide banking facilities to SB personnel and to channel credits to SB manufacturing facilities (para 2.04). 2.08 Production of SB facilities was fairly stagnant during 1978-81 in most product groups, but improved in 1982 as can be seen from the following table:  - 44 - ANNEX IV Page 10 of 18 Sumerbank: Production of Selected Products 1978 1979 1980 1981 1982 1983 a/ Cotton Yarn ('000 tons) 37.9 44.5 41.4 42.4 47.1 50.1 Cotton Finished Fabrics (mln. m) 196 183 164 196 204 235 Cotton Garments ('000) n.a. n.a. n.a. 5,815 7,795 11,270 Wool Yarn ('000 tons) 4.2 3.7 3.6 4.0 4.5 5.1 Wool Finished Fabrics (mln. m) 6.k 5.4 3.5 5.0 5.2 6.5 Wool Garments ('000) n.r n.a. n.a. 63 75 285 Shoes (mln. pair) 2.5 2.8 2.5 2.8 2.6 2.4 a/ Estimate based on 10 months' production. 2.09 Key data on SB's financial performance and structure are summarized in the following table: Sumerbank: Key Financial Data (TL million) 1979 1980 1981 1982 1983 a/ Income Statement Items Sales Revenue b/ 29,626 52,961 79,293 115,859 100,442 Operating Profit 3,002 5,591 5,575 5,898 6,971 Profit Before Tax (PBT) 1,932 2,240 467 (2,305) 1,029 Profit After Tax (PAT) c/ 841 312 (918) (3,199) n.a. Balance Sheet Items Current Assets 20,158 36,673 49,297 63,695 91,133 Net Fixed Assets 8,563 15,194 22,961 32,680 38,280 Total Assets 29,081 51,867 72,258 96,375 129,413 Current Liabilities 15,625 27,746 39,649 55,895 91,147 Long-term Debt 4,215 10,707 12,040 18,259 11,181 Equity 9,241 13,414 20,569 22,221 27,085 Total Liabilities 29,081 51,867 72,258 96,375 129,413 Ratios Operating Profit/Sales (Z) 10.1 10.6 7.0 5.1 6.9 PBT/Sales (Z) 6.5 4.2 0.6 (2.0) 1.0 Current Ratio (times) 1.3 1.3 1.2 1.1 1.0 Long-term Debt/Equity (Z:X) 31:69 44:56 37:63 45:55 29:71 Inventory Turnover (days) n.a. 166 158 118 133 a/ Based on first 9 months. b/ Due to inadequate consolidation practices of financial statements resulting in double counting of inter-company accounts, sales figures are considerably overstated. The net sales are estimated at about two thirds of these amounts. The majority of inter-company transfers occur between individual plants and ASH. c/ Tax is levied on individual plants' profits.  ANNEX IV Page 1i of 18 2.10 Financial performance deteriorated between 1979 and 1982 as shown above. SB's cottonI operations were. the major reason for declining profitability. The mainl factors included a depressed textile market which forced SB to sell off its large inventories below cost, as well as the general level of sellLng prices lagging behind cost increases; increasing labor costs without accompanying productivity increases; and higher interest pavments dtue to increaseis in working capital and investment requirements. In 1983, however, SB's financial performance improved substantially due in large part to a favorable turnaround in cotton and wool operations (both in domestic and export markets) with a profit expected for the year.3/' The overall financial struccure of SB throughout the early 1980s has been quite satisfactory with current ratio above 1.0 and debt/equity ratio below 50:50. Further improvements are expected following the cutiversion of Treasury and Central Bank debt of about TL 45 billion into equity carried otut as part of the recent SEE restructuring, as well as a revaluation of assets recently carried out by SB. The Government also increased SB's nominal capital to TL 70 billion. Historically, SB financed much of its financial needs through low interest government funds mostly on a short-term basis. Following the Government's new policy, howeve., such funds will not be available and SB will require greater financial discipline. The new SEE framework should provide greater freedom for SB to achieve this, including the setting of its own selling prices and increased incentives for realizing efficiency improvements. D. Rationalization and Modernization Program 2.11 In 1983, SB with Bank assistance prepared a comprehensive Rationalization and Modernization Program (RMP) which included a physical rehabilitation program for its cotton textile operations and related organizational improvements of the company. The RH? was designed to: 'i) increase efficiency and capacity utilizaticn of existing cotton plant facilities; (ii) reduce production costs; (iii) improve product quality; and (iv) improve tne institutional and management framework of SB's cotton textile operations. The RMP will increase SB's cotEon production without engaging in any real capacity expansion, but rather by more economic use and modernization of existing facilities through provision of spare parts and modern machine assemblies, replacement of obsolete equipment, increase in standardization in certain plants, and improved maintenance practices through training. Furthermore, the RMP includes a technical assistance program to improve management effectiveness through improvements in operations, quality control, financial systems, incentive systems, the establishment of an autonomous Cotton Textile Division (CTD), and improvements in marketing and pricing. The Bank is financing through a $83 million lcan the first phase of the RMP whose total cost is about $131 million and which covers the period 1980-85. The project has been designed to provide a base for the second phase of RMP which would conclude the modernization of the remaining facilities; result in further production increases and improved labor and machine productivity; and would address longer term structural changes, notably in finishing and garment manufacturing. 3/ After 11 months, profits before tax for cotton and wool operations amounted to TL 2.3 billion, as against a loss of TL 1.2 billion in 1982. BEST COPY AVAILABLE  - 46 - ANNEX IV Page 12 of 18 2.12 The Phase I project is expected to be completed by mid-1985, which represents a delay of about one and a half years from appraisal estimates due to delays ir Bank loan effectiveness and staffing of the Project Implementation Unit. Progress under the project has been satisfactory; all engineering work has been completed and it is expected that all contracts for spares and equipment will be placed before mid-1984, with delivery stretching through the first quarter of 1985. Urgently required spare parts have already been delivered and appear to have had a beneficial effect on the quality and volume of production as well as export performance. No cost overrun in US dollar terms is expected, although local costs in Turkish Lira terms are substantially higher than appraisal estimates due to higher than estimated domestic inflation. 2.13 The technical assistance program under the project includes assistance in project management (mostly for engineering, scheduling, procurement and erection, and project cost control). Furthermore substantial operational technical assistance (OTA) is provided for training of plant technical and management personnel; upgrading of SB's training facilities; improved production planning; product development; the establishment of a system for inter-mill comparison; and a study of labor incentive systems. The financial technical assistance (PTA) provided under the project has focussed on the establishment of a cash management system for the company; the introduction of an improved cost accounting system in a pilot mill which is planned to be introduced in other mills as well; and an analysis of SB's budgeting systems. Overall implementation of technical assistance has been hampered by the lack of sufficient counterparts and qualified local consultants. Concerning the establishment of a Cotton Textile Division, foreseen under the project, its functions are now mainly included in a new Textile and Garment Industry Division in SB Headquarters. E. Areas for Further Technical Assistance 2.14 Further areas for technical assistance for SB which will be addressed under the Technical Assistance Project include (i) modernization and rationalization of sales and retail organization; (ii) improvement of management information systems; and (iii) a feasibility study for reorganization and modernization of wool operations.4/ 2.15 Inprovements in the organization and operation of SB's sales and retail functions are now required. Although the large retail network of SB's present retail and purchasing division (ASM) rhould, given its reach and its possibility to make use of economies of scale in warehousing and distribution, constitute a major advantage over the private sector textile industry, which sells mostly through independent wholesalers, the system has been costly and inflexible. This is the result of the lack of proper planning and control of shipments and inventories, an inadequate market information system, a poor organization of warehousing facilities and retail stores, inadequate geographical distribution of stores, and a lack of sales promotion. Furthermore, as a result of Sumerbank's policy as an SEE to provide its products at low prices to the poor, it is supporting 41 Detailed terms of reference for these three components are provided in Annex VI.  ANNEX IV Page 13 of 18 numerous retail shops in rural areas, many of which are operating at a loss, and is also contributing to logistical problems. The lack of an incentive system for its sales personnel has further contributed to these problems. As a result of the above deficiencies and an increased competition, Sumerbank's customer image has deteriorated, its market share for its main products has fallen (e.g., for cotton textiles from 30X in 1970 to 15% in 1982), leading to high inventory levels, low turnover, misshipments and increasing costs of distribution and retail. In order to address these deficiencies and Improve efficiency, the project includes technical assistance to modernize and rationalize SB's sales and retail organization. This task will also benefit from the introduction of an improved management information system (para 2.16). 2.16 To strengthen efforts for upgrading of management systems under the ongoing RMP (para 2.11), the project will include technical assistance to assist SB in identlfying and implementing necessary improvements in its management information and related data processing systems both at the headquarters level and in the manufacturing units, banking and retail operations. Presently, the development of appropriate Management Information Systems (MIS) is at an infant stage In Sumerbank and the present MIS operates almost totally on a manual basis. Furthermore, Sumerbank's existing management information system is not selective in the presentation of information and burdens higher level management with excessive data that is not geared to information requirements at the different levels in the organization to support decision-making and control. Finally, the organization for the development and management of a proper MIS in Sumerbank is inadequate. To address the above deficiencies, Sumerbank has decided to develop and implement an improved MIS. The overall improvement of SB's HIS will be carried out in two phases, including a first pilot phase and a second phase which will extend implementation of the MIS to other parts of the company. The project will cover work to be carried out in the pilot phase during 1984-86. 2.17 Following the modernization of SB's cotton operations under the RMP (para 2.11), SB's main priority in textiles is now the modernization of its woolen and worsted textile operations. Sumerbank accounts for about 12% of Turkey's production of wool products which are manufactured in 8 plants. Sumerbank employs about 7,200 persons in its wool plants. Sumerbank's present wool operations are constrained by outdated and worn-out equipment, poor maintenance and quality control, and inadequate management control systems, which has resulted in low productivity, underutilization of capacity and poor quality. The project includes technical assistance for the execution of a feasibility study to modernize SB's wool operations.  - 48 - ANNEX IV Page 14 of 18 III. TURKIYE CUMHURIYETI DEVLET DEMIRYOLLARI ADAPAZARI VAGON SANAYII MUESSESESI (TCDD-ADVAS) A. Background 3.01 TCDD-ADVAS, located at Adapazari, is one of three main workshops/manufacturing establishments belonging to the Turkish State Railways (TCDD) that are responsible for the manufacture, repair and maintenance of TCDD's rolling stock. It specializes in the manufacture, repair and maintenance of passenger coaches. Two other establishments, at Eskisehir and Sivas, are siiailarly responsible for locomotives and freight wagons, respectively. 3.02 TCDD-ADVAS was established In 1951 originally for the purpose of repair and maintenance of passenger coaches and freight wagons. In 1962, its activities were extended to include manufacture of passenger coaches. Subsequently, its repair activities for freight wagons were gradually phased out. Currently, TCDD-ADVAS's principal activities are the following: (a) manufacture of passenger and mail coaches; (b) periodic repair and maintenance of TCDD's entire fleet of passenger coaches, and (c) manufacture of spare parts and sub-assemblies needed for repairs of passenger coaches for supply to the various regional operating units. B. Organization and Management 3.03 TCDD-ADVAS is a fully owned establishment of TCDD. Under TCDD-ADVAS's statutes, it is a separate legal entity from TCDD. However, major aspects of its operations and management are subject to TCDD's review and control. Thus, TCDD determines TCDD-ADVAS's annual work program, budget and the prices of its products. TCDD's prior approval is also required for (i) any loans from individuals or financial institutions; (ii) hiring of any personnel other than temporary staff; and (iii) promotions and bonuses given to personnel. Purchases and sales of goods and services by the establishment are to be made in accordance with the appropriate laws, regulations, guidelines provided by TCDD and relevant decisions of TCDD's Board of Directors. TCDD's Directorate of Establishments supervises TCDD-ADVAS (along with the two other establishments at Eskisehir and Sivas). 3.04 TCDD-ADVAS is managed by a five-member Managing Committe.. The Director and two Assistant Directors (in charge of technical and financial/economic matters, respectively) are appointed by TCDD. The other two members include a senior officer of the Company and an elected labor representative. The Committee is responsible for the day-to-day operatio:-s of the Company within the relevant TCDD guidelines and regulations applicable in its case and for making recommendations to TCDD's Board of Directors in case of the major aspects indicated in para 3.03 above.  - 49 - AW%X IV Page 15 of 18 C. Operations and Financial Situation 3.05 TCDD-ADVAS's production facilities conslat of a main plant building (enclosed area about 52,500 22) divided Into areas for component manufacture, now pasonger coach manufacture, component repair and passenger coach repair. The main plant building is supported by auxiliary facilities including an adminimtration building, social facilities, power plant, material storehouses, compressed air plant, oxy-acetylans generator plant, wood mill and upholstery shop. The plant produces passenger coaches of welded construction with an annual capaclty of about 70 units depending upon the specific product mix. Since 1979, the Company has also been manufacturing self-propelled electric motor train units (EMU.) for commuter traffic under license rrom Alathom (France). Domestic content in its production varied from 65Z (EMUs) to 95X (passenger coaches). The construction of new passenger and other coaches is carried out concurrently with the construction and rehabilitation of component parts and the repair/malntenance of exiating passenger coaches (annual capacity around 1,200 coaches). The plant also provides new and repaired component parts for repairs to passenger coaches to various operating units of TCDD at other locations. Component manufacturing includes a variety of cutting, forming, machining and finishing operations on metals, wood, fabrics and plastics. Most of these operations are performed on manually operated machines and tools. Practically all products umade by the Company, including bogies, are fabricated. There are no facilities for forging and casting. Specialty items such as air brake controls, axle roller bearings, electrical equipment and buffers are purchased. The Company employs about 2,700 persons of whom about 120 are technicians. 3.06 Selected aspects of TCDD-ADVAS's performance since 1979 are summarized in the following table:  - 50 - ANNEX IV Page 16 of 18 TCDD-ADVAS: Selected Operational and Financial Data Unit 1979 1980 1981 1982 Passenger & other coaches manufactured Nos. 18 52 52 44 Passenger & other coaches repaired & maintained Nos. 1,003 967 1,026 1,051 Revenues TL million 879 2,480 3,585 3,253 Of which, from: Production 364 1,458 2,319 1,695 Repairs 511 1,017 1,258 1,548 Other 4 5 8 10 Net Income (Loss) TL million (10) (30) (9 ) (30) Net Fixed Assets TL million 118 122 142 168 Medium- and Long-Term Debt TL million - - - - Net Equity TL million 284 254 245 215 Ratios Current Ratio Times 1.3 1.1 1.1 1.0 Debt:Equity Ratio %:Z 0:100 0:100 0:100 0:100 Annual production of passenger and other coaches has generally varied between 44 to 52 units since 1980 (though, depending upon the product mix, the plant has an annual capacity of about 70 units). This has included production of between 24 (1982) to 42 (1980) units of EMUs. In addition, the Company has also been repairing, on average, about 1,000 passenger coaches per year. 3.07 The Company's revenues in 1982 were about TL 3,253 million (US$20 million equivalent), of which its manufacturing activities contributed about 52Z and its repair/maintenance activities about 48%, and were projected to reach about TL 4,662 million (US$21 million equivalent) in 1983. Net income was negative during the period 1979-82 with a small loss of about TL 30 million (US$0.2 million equivalent) in 1982. Prices of TCDD - ADVAS's products are determined by TCDD on the basis of projected production and overhead costs plus an agreed margin (currently, around 2%). D. Development Plans 3.08 TCDD - ADVAS's development plans include an expansion program to expand its manufacturing capacity to about 120 units per year by 1990 for which plans are currently being made to expand the area of the manufacturing/repair facilities by about one-third. Concurrent with the envisaged future expansion of its manufacturing activities, its repair/maintenance activities are expected to be gradually decreased as new facilities are created for this purpose. (A new facility for passenger coach repair is being constructed at Afyon with completion expected around 1987. A second facility was planned to be constructed at Malatya but its implementation is being reviewed and may be delayed).  - 51 - ANNEX IV Page 17 of 18 E. Need for Technical Assistance 3.09 TCDD - ADVAS's productivity and operating efficiency are being adversely affected by a number of constraiurs that are sought to be addressed through the technical assistance being provided under the Project.5/ (a) Facility Organization and Layout. The main plant building is generally divided into areas for component manufacture, new passenger coach manufacture, component repair and passenger coach repair/maintenance which a-tivities are all carried out concurrently. The work areas are congested and the flow of ope:ations can be considerably improved with improvements in layout and in operational techniques and procedures; (b) Operations Planning and Scheduling. Improvements are needed in (i) systematic planning and control of manufacturing and repair operations; e.g. repairs involve all types of passenger coaches and there is no attempt to run a program by repair stations nn a production basis and repair work appears to proceed on a random basis with essentially all types of repairs being performed at one location; and (ii) operations monitoring and control against plans that tuld permit the timely identification of deviations and their causes and the undertaking of appropriate remedial action; (c) Cost Estimation and Work Study. The operations planning and scheduling group is relatively new and is in the process of establishing work flow and job standards; consequently there is no reliable basis, at present, for cost estimation and operations planning/scheduling; such a basis needs to be urgently developed; (d) Planning, Design and Research. The planning, design and research group is mainly involved in the production of working drawings for passenger and other coaches and assemblies with little emphasis on more advanced design and research for future production; assistance is also required in determining measures to deal with certain persistent problems, e.g. corrosion of passenger and other coaches, difficulties in painting of coach bodies and in design of improved screen couplers; (e) Inventory Management and Control. Material inventory control is performed manually with a stockbook and card index system and there is scope to improve this by appropriate automation. The present system is cumbersome and time-consuming, and given the Company's large inventory of raw materials, spare parts and components, does not provide timely and accurate information for efficient inventory management and control; and 5/ Detailed terms of reference for the technical assistance are provided in Annex VI.  - 52 - ANNEX IV Page 18 of 18 (f) Training Facilities. Training of personnel is largely restricted to training of apprentices to skilled trades at a vocational school established by the Company but needs to be strengthened for other personnel. 3.10 At present, the Company does not have a computer system. The technical assistance to be provided is expected to determine an appropriate computer system and the associated training of the Company's personnel required to support the planned improvements in items (b), (c), (d) and (e) above.  TUKE TE(N1MAL. ASSISTANCE PROJECT r01 STATE ECONOMIC ENTERPRISE BEST COPY AVAILABLE IHPLE*ENTATION SCHEDULE FOR TKI! compowNEN 9 30 11 12 1 234 5 6 769 10 11 12 1 234 3 6 7 8 9 10 11 12 1 2 3 4 5 6 7 a 9 10 11 12 BOT STUDIES AND CONSULTING Sond draft TOR to TII Agree an TOE with TKIC Shortlist consultants and requget proposals- Receive proposals- Evaluate pro~oeaIo a d obtain IBID approval- Negotiate contracts antd obtain IBID approval- Sign contracts and inltiate studies o KANAENET INFORMATION SYSTEM AMD PIDoajIINIII STUDY Phase 1: investigate current HIS sayteme, procuresent practices. present findings and Ihase 2 plan.- phase 2: Procurement Development procurement recomindbeionss and related draft final report- Procurement report reviewed by TEl end IBILD- Procurement report fioalied by conaultents Procurement changes approved by TKIK sanagesent le:palementtlion of eparotcurement Changes U Consultants final status of procurementW implementation report presented Phase 2, N'I.S Develp HIS recomndations and draft final report MIS report reviawed and approved by TKI and tIBI HIS report finalized by consultants- HI$ ghangee approved by TKIK management- Phased HIS Imple.mJn.arion of new His Consultants final report on His Implementation presented HANPOUR PLANING AND TLAINING STUDY Phase Is Investigate current activities and develop propdoasl for their reorganisatimns present Initial report and Phase 2 plan. Develop 10-year manpower program and 5-year training programs presmnt draft final report Report reviewed and approved by TIKt and 1IBID0 Report finalized by coneultente OuPEMATIOS HNAENN CON7SIULTING Ila Pert-time consultant Input Consultant's final report presented - Final ruillort reviewed and approve4 by TX! and 111R1  TURKE?Y TECHNICAL ASSISTANCE PROJECT FOR STATE ECONMOIC ENTERPRISES IMLEHEHITATION SCHEDULE 703 SUNSUIANK COMPONENT - -----19-4