Turkey - Technical Assistance Project For State Economic Enterprises

DOC_NIt of The World Bank FOR OMCAL USE ONLY MICROFICHE COPY Report No. 10326 Report No. 10326-TU Type: (PCR) ANDERSON, / X31676 / T9 111/ OEDD2 PROJECT COMPLETION REPORT TURKEY TECHNICAL ASSISTANCE PROJECT FOR STATE ECONOMIC ENTERPRISES (LOAN 2400-TU) FEBRUARY 11, 1992 Industry, Trade and Finance Division Country Department I Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS Currency Unit - Turkish Lira (TL) (annual average) 1981 US$1 - TL 110.24 1982 US$1 - TL 160.94 1983 US$1 - TL 224.03 1984 US$1 - TL 364.85 1985 US$1 - TL 518.34 1986 US$1 - TL 669.39 1987 US$1 - TL 855.69 1988 US$1 - TL 1420.76 1989 US$1 - TL 2120.78 1990 US$1 - TL 2607.62 1991 US$1 - TL 4100.00 ABBREVIATIONS BCG - Boston Consulting Group EDM - External Debt Hanagement GOT - Government of Turkey PCR - Project Completion Report PPF - Project Preparation_Facility SEE - State Economic Enterprises SPO - State Planning Organization SAL - Structural Adjustment Loan TOR - Term of Reference TKI - Turkiye Komur Isletmeleri TCDD/ ADVAS - Turkish Railways FISCAL YEAR January 1 - December 31  THE WOR'LD BANKE FOR OMCIAL USE ONLY Washington, DC. 2043. US.A Office of Drectom-Genieal Op.atmnk tvaluAs1kn February 11, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Turkey - Technical Assistance Project For State Economic Enterprises (Loan 2400-TU) Attached, for information, is a copy of a report entitled "Project Completion Report on Turkey - Technical Assistance Project For State Economic Enterprises (Loan 2400-TU)" prepared by the Industry, Trade and Finance Division of Country Department 1 in the Europe and Central Asia Region with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT mY TECHNICAL ASSISTANCE PROJECT FOR STATE ECONOMIC ENTERPRISES (Loan 2400-TU) TABLE OF CONTENTS Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evaluation Summary. .. . . . . . . . . . . . . . . . . . iii PART I. PROJECT REVIEW FROM BANK'S PERSPECTIVE. . . . . . . . 1 Project Identity. . . . . . . . . . . . . . . . . . . . . . . . Background. . . . . . . . . . . . . . . . . . . . . . . . . . 1 Prolect Obiectives and Descri2tion. . . . . . . . . . . . . . 2 Objectives. . . . . . . . . . . . . I . . . . 2 Project Components. . . . . . . . . . . . . . . . 2 Project Design and Organization . . . . . . . . . . . . . . . . 3 Prolect Implementation. . . . . . . . . . . . . . . . 4 Major Revisions. . . . . . . . . . . . . . . . . 5 The June 1984 Decree . . . . ...... . ........ 5 Prolect Results . . . . . . . . . . . . . . . . . 6 Transfer of Responsibility for Project . . . . . . . . . . . 6 ZDM Component.. . . . . . . . . . . . . . . . 7 Overall Assessment . . . . . . .... . ......... . 7 Prolect Sustainabilit .. . . . . . . . . . . . . . . 7 Bank's Requirements. . . . . . . . . . . . . . . ... 8 Role of Bank Staff ... . .... ........... 8 Coordinating Committee .... . . . . . . ............ . 8 Focus on Restructuring/Privatization . . . . . . . . . . . 8 Sup.rvision. . ... ... . . . . . . . . ... . . . . . . . 9 Use of Loan Funds. . . . . . . . . . . . . . . . . . . . . . 9 Lessons of Experience for Bank . . . . . . . .... . .. 9 Borrower Performance . . . . . . . . . . . . . . . . . . . . 11 Lessons of Experience for Borrower . . . . . . . . . . . . . 11 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Proiect Relationship. . . . . . . . . . . . . . . 12 Consultinzt Senrvices . . . . . . . . s. . . . . . . . .. 12 Proiect Documentation and Data ................ . 13 PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE. . . . . . 14 PART III. STATISTICAL INFORMATION . . . . . . . . . . . . . . . 17  PROJECT COMPLETION REPORT TURKEY TECHNICAL ASSISTANCE PROJECT FOR STATE ECOtIOMIC ENTERPRISES (Loan 2400-TU) PREFACE (i) This is the Project Completion Report (PCR) for the Technical Assistance Project for State Economic Enterprises, for which Loan 2400-TU in the amount of US$7.6 million was approved on March 27, 1984. During implementation, $3.9 million of the loan was cancelled and $2.4 million was reallocated from one of the intended beneficiaries to a broader category. Total disbursements at project closing amounted to $2.5 million, and the balance of $1.2 million was cancelled. (ii) The PCR was prepared by the Industry, Trade and Finance Division of Country Department 1 in the Europe and Central Asia Region (Preface, Evaluation Summary, Parts I and III), and the Borrower (Part II). (iii) Discussions concerning the preparation of this PCR were held with the Borrower during a mission to review progress of the ongoing SMI project (Loan 3067-TU). The PCR is based, inter alia, on the Report and Recommendation of the President; the Loan and Project Agreements; Supervision Reports; correspondence between the Bank and the Borrower; internal Bank memoranda; and interviews with various Bank staff who were actively involved in the project during its identification/preparation/appraisal and various stages of implementation.  _ lit _ PROJECT COMPLETION REPORT TECHNICAL ASSISTANCE PROJECT FOR STATE ECONOMIC ENTERPRISES (Loan 2400-TU) EVALUATION SUMMARY (i) The Bank approved the Loan (2400.-TU) tor the above Technical Assistance project on March 27, 1984. The project was intended to assist three selected State Economic Enterprises (SEEs) in improving their performance through a comprehensive program aimed at raising their operational efficiency. It also included a component to improve the country's external debt management (EDM) system. Futds were also provided for assisting at a later stage other eligible SEEs which had not yet been identified. (ii) Loan 2400-TU was processed in the context of a program of structural adjustment which tha Govertment (GOT) began to undertake in 1980 and which was supported by the Bank through a series of structural adjustment loans (SALs) during FY81-85. The reform of SEEs whose operational deficiencies and consequent losses had led to substantial claims on scarce budgetary resources was the centerpiece of a GOT Statement on Development Policies in the context of SAL III. A TA operation focussed on selected SEEs was a requirement for SAL IV. (iii) While SALs III and Iv' provided an appropriate setting for the project, the processing of Loan 2400-TU was unavoidably linked to that of SAL IV. While this firmed up the timetable for Loan 2400-TU, it also pushed the Bank to play a stronger role in project identification and preparation. In order to assist prompt implementation, the Bank was also required to play an active role in preparing terms of reference for consultants who were to recommend specific actions for SEE improvemene. Because of the very active role of the Bank, the involvement of the SEEs was somewhat limited. Within the Bank, there were also some disagreements about the rationale of the project, and on its suitability to serve as an instrument for SEE reform. (iv) With the exception of the EDM component, which was successfully executed, the project as originally designed did not become operational. The project's limited objectives - specifically the demonstration effect for other SEEs - were overtaken by a sweeping Decree pertaitiing to SEEs enacted in June 1984 by a new government which assumed power at the end of 1983. While the theme of the 1984 Decree (SEE reform) was similar to an earlier decree enacted in 1983, the former aimed at a drastic restructuring of SEEs including streamlined management, immediate closure or phasing out of inefficient SEEs with no prospects for improvement, sales of shares in SEEs to the -eneral public and, possibly, privatization of some SEEs. The timing as well as the strong commitment which characterized the new decree came as somewhat of a surprise, but the Bank regarded this essentially as a strong affirmation of the new government's interest in addressing SEE issues on a high priority basis. Nevertheless, the 1984 Decree created much uncertainty for the selected SEEs concerning their own future. There was little or no activity before the Loan became effective in December 1984 or in the following six months. During an eleven month period between May 1985 and April 1986 GOT  - iv - requested tho cancellation of the three SEE components, and concurrently requested that the amount originally allocated to one SEE (Sumerbark) be reallocated to another category to finance studies on restructuring and px .zation. (v) rjhile the original projaot was virtually at a standstill following the June 1984 Decree, the focus on restructuring and privatization brought new parties both in GOT and the Bank into an active relation. SPO was now vested with the responsibility to oversee the restructuring/privatization studies, while the initiative within the Bank now passed to a new unit of IND (a department operating on a Bank-wide and non-regional basis), where expertise on industrial restructuring had now been established. Staff of IND liaised for several months with ministers and senior officials of GOT. As a result of a massive and fairly continuous offort by IND staff in a receptive environment, a program was agre',d with GOT for restructuring/privatization studies to be undertaken by internationally reputablp con-u'Lancs, and financed out of Loan 2400nTUl by agreement with the Bank. Based on TOR prepazed with the assistance of Bank Staff, GOT invited consultant proposals for undertaking the studies. Three consultants were selected to undertake the restructuring studies on the textiles, fertilizer and cement subsecrors respectively, and a fourth on privatization, and the studies were completed more or less within the original timeframes. (vi) The conclusions and recommendations of the studies were presented to a joint audience of GOT officials, SEE representatives and Bank staff, and were generally well received. When the studies were launched, it had been expected both by the Bank and GOT that they would provide a basis for four or five restructuring projects, each costing about $250 million, and would be supported by the Bank and other cofinanciers. However, this expectation did not materialize as planned and, while GOT continues to be interested in SEE reforms and privatization, few concrete actions have emerged. (vii) Loan 2400-TU offers several lessons of experience for the Bank and the Borrower. The major part of the original project (TA to three SEEs) was no-t implemented because it was superseded by the June 1984 Decree. Even if there had been no Decree, the prospects for implementation would have been significantly better if the beneficiary SEEs had been more closely involved in project conceptualization/identification/preparation, and if the processing of the project had not been linked to that of SAL IV. When the project had a new focus following the June 1984 Decree, the Bank responded with considerable enthusiasm because of the growing emphasis in the Bank at this time on restructuring inefficient public enterprises and/or their possible privatization; there was therefore a coincidence of interest between the Bank staff and GOT representatives most closely involved in these discussions. The massive effort of Bank staff in getting the consultant studies underway did not eventually bear fruit. It is probable that the enormous interest shown by certain quarters of GOT in restructuring/privatization were not shared more generally within the country, and hence the major new initiatives did not have adequate backing at the time of decision. In retrospect, the Bank could have been somewhat more circumspect before committing its staff to this exercise on such a vast scale, particularly sihce it had the benefit of a longstanding relation with the Borrower and had observed the process by which major  -v - decisions were made, and also because expectations concerning the substantial restrueuring investments which would follow were not fully shared by all concerned Bank staff. (viii) The lessons for the Borrower are the need to "-volve intended beneficiaries fully in any discussion of programs in- dded for their benefit, to establish more effective coordinating mechanisms to clear implementation roadblocks and facilitate smoother project execution, and promptly recognize signs when a project begins to falter and hence has little prospects for implementation as planned. (ix) Both GOT and the Bank should have given serious consideration to closing the oroiect when it became clear that it was no longer imnlementable in its originAl fom By retaining the Loan, but also by using funds available under it virtually as a line of credit (except for the funds intended for the external debt management component, which proceeded as planned), the focus and integrity of the original project was lost and replaced by ad hoc decisions concerning fund use. The result was that there were few tangible results attributable to the $2.5 million disbursed although the Loan had been in effect for almost reven years.  PROJECT REVIEW FRON BANK'I PERSPECTIVE Proiect Idenaity Project Name: Technical Assistance Project for State Economic Enterprises Locn No: 2400-TU RVP Unit: EHENA Country: Turkey Sector: Industry Backg,roMsd 1. A period of high economic growth in Turkey from 1970 through 1977, which was maintained by raising tho share of investment in. GDP, and financetd initially by workers' remittances and later by short-term borrowing, came to a halt towards the end of 1977. The principal reasons for the rather abrupt halt were the massive external debt burden (with a consequent decline in creditworthiness), a severe shortage of imports, disruption in industrial production and growing unemployment. High domestic inflation had also become a critical factor. Faced with an acute crisis, the Government of Turkey (GOT) undertook a major revision of its development strategy beginning in 1980, the principal themes of which were a.. external orientation to development, an increased reliance on market forces, augmentation of domestic savings, and restraining public investment as well as directing it towards priority objectives such as quick gestation and positive balance of payment impact. An adjustment program which reflected the new strategy was supported by the Bank through five Structural Adjustment Loans (SALs) in each of FY81 through FY85 for a total amount of $1.556 billion. 2. Among the various key measures which were to be promoted under SAL III (FY82), the reform of State Economic Enterprises (SEEs) was deemed to have special significance. The SEEs, some of which were established in the 1930s, had assumed considerable importance in the Turkish economy, in varied fields ranging from manufacturing, public utilities, transport and agricultural marketing. In 1983, SEEs accounted for 52X of public investment (31% of all fixed investment), 8X of GDP and 10 of non-agricultural employment. While some SEEs were both well managed and profitable, several others were not, and hence SEEs as a whole had vast accumulated losses through 1980. 3. While it was GOT's objective that SEEs should operate efficiently and profitably, this was often compromised by a lack of consistency in the measures and directives governing their operations, and also a lack of clarity between the economic, social and political goals which they were expected to pursue. Because of the massive financial requirements of the SEEs and the heavy demands they were making on scarce budgetary resources, it was vital that they become self-reliant, and that all constraints to their efficient functioning be removed. During 1980- 82, GOT began to take steps to deal with the major longstanding problems of the  - 2 - SEEs, particularly government imposed price controls, uneconomic and sometimes excessive investments, overstaffing, lack of autonomy, frequent changes in management, inadequate salaries for managerial and technical staff,-and excessive centralization of decision-making. While not all of these measures were pursued with equal vigor, GOT's policy of allowing SEEs to set output prices began to have a positive effect on their profitability. However, this was the result more of charginS prices well above competitive levels, often in a monopolistic setting, rather than any marked productivity er'--ncement. Thus the burden of technical and econouiic inefficiency was merely tr. :red from the budget to the consumers and the private sector generally. At an), ate, the profitability of the SEEs was short lived, and SEE deficits became a major concern in the latter half of the 80s. 4. The reform of SEFs through new legislation was to be the centerpiece of GOT's program for SEEs in SAL III. The Statement on Development policies which GOT forwarded to the Bank in the context of SAL III noted that the operations of all energy and manufacturing units would henceforth be profit-oriented, a High Planning Council would provide operational and personnel guidelines to SEEs, direct control over SEEs by individual ministries would end, there would be greater continuity in the boards and senior management of SEEs, and that SEE would WeA expected to mobilize their own financial resources (to supplement GOT's equity contribution), in part through sales of shares to the public. These and other related provisions were to be incorporated into a comprehensive SEE reform decree which was originally expected to be introduced in 1982. Following some delays, the Decree Law was finally enacted in May 1983. The Bank considered the SEE reforms as a major step not only in improving the operational efficiency and profitability of the enterprises but also as an important means of dealing with growing budget deficits, a longstanding policy of import substitution which not only caused allocative inefficiency but militated against a free market mechanism, and distorted factor aneA product pricing. Thus SEE reform was expected to be responsive both to sectoral and macroeconomic objectives which the Bank was supporting in Turkey. Proiect Qbiectives and Description 5. Objectives. The SEE reform decree provided a framework for improving the financial, managerial and operational efficiency of SEEs. However, C-T recognized that its operationalization depended on how readily the SEEs would avail of their new managerial autonomy and take steps to change the deep-rooted attitudes of their manag and boards. Against this background, GOT and the Bank had agreed in the context of SAL III that a project for technical assistance aimed at improving the* operational efficiency of selected SEEs would have an important demoastration effect for other SEEs. The criteria for the selection of participating SELs were: (i) receptivity of the SEE management to the objectives of technical assistance; (li) ongoing direct or indirect relation between the Bank and the SEE; and (iii) possibly the role of the SEE in expanding exports. The proposed project was to complement ongoing Bank efforts to assist some SEEs in their rationalization/modernization programs. 6. Project Com2onents. Over a three-year period, the project, for which the Bank provided a loan of $7.60 million, was to finrnce technical assistance in support of  3 - the identified programs of three SEEs selected by GOT' as noted below: (i) TKI (Turkiye Komur Islatmeleri or Turkish Coal Corporation - $2.95 million) for improved management information system, streamlining of procurement of equipment/spares, training and manpower planning, and improved management of lignite mines; (LL) Sumerbank (a conglomerate with operations in banking, manufacturing and retailing - $2.45 million) - for reorganization and rationalization of sales and retail organization, improvement of management and data processing systems, feasibility study for the rationalization and modernization of Sumerbank's wool textile operations; and (iii) TCDD/ADVAS (one of the three main workshops/manufacturing establishments of Turkish Railways - $0.98 million) - for improved cost estimation through appropriate breakdown of operations, improvement of operations planning and scheduling, including a management information system to facilitate monitoring, strengthening, planning, design and research to improve product quality, improving manual inventory management and control through the introduction of automated systems, and improved work organization and layout in production and repair facilities. Among the three selected SEEs, the Bank was assisting ongoing operacions for TKI, TCDD and Sumerbank, but had no direct relation with ADVAS. In addition to the three SEEs noted above, the project provided funds for technical assistance ($0.93 million) for other potential beneficiaries. The project also included an External Debt Management (EDM) component ($0.26 million) which provided for the services of consultants and equipment to better define user needs, establisn standards of data accuracy, set up an operational data flow system, and undertake a substantial amount of training of local counterparts. The Bank loan was to be channelled to the SEEs chrough DYB (State Investment Bank), which had previously been supported by the Bank. Proiect Desij and Ortanization 7. The project was designed to demonstrate that by fully availing of the powers and flexibility within the prevailing GOT rules and procedures, and concurrently seeking assistance to enhance their operational efficiency, SEEs could significantly improve their overall performance. Whereas several SEEs, particularly those with which the Bank had an ongoing relationship, recognized the need for operational improvements, the precise nature of the additional changes to be promoted under the proposed project, and their scope and timing may not have been the subject of a fully participatory discussion within Turkey. Within the Bank also there was less than full agreement among the various units involved in the project concerning its objectives and scope, particularly on the question whether a project based on three SEEs was an effective means of addressing the whole range of issues and problems facing SEEs in general. 8. The initiative for the project was taken largely by the Programs Division responsible for Bank operacions in Turkey, not only because it was a prevailing practice in the Bank that Programs Divisions process freestanding TA operations, but GOT initially nominated fiv. SEEL- Apart froe the three SEEs which were finally selected, the list also included TEX (Turkish Electric Company), and TY? (Wool and Mohair Company). There were suggestionS in the Bank that an SEE f:=m the agriculturs sector should be considered. The final decLsion of GOT was to the select three SEEs based on crLteria agreed with the Bank.  -4. in this case also because the proposed TA was in support of a policy initiative agreed with GOT as part of SAL III, and a requirement for SAL IV. The Programs Division viewed tha project as a limited operation, with a particular focus on its demonstration effect, whereas Regional Projects as well as IND (Industry Department in the Central Operations Complex which was assigned responsibility for project supervision) staff felt that the project was too circumscribed, and would therefore have a rather limited impact. Moreover, some staff felt that by focussing on three SEEs which had already initiated substantial rehabilitation/modernization efforts, the Bank might give some new and possibly confusing signals as to the purpose of the proposed operation. It was also their view that, in order to start implementation promptly, TORs for consultants should be finalized and agreed with GOT and its agencies, and consultants should also be selected, where feasible, ahead of, and not following, Board ap;roval. There were also questions about the precise role of DYB (the State Investment Bank, and financial intermediary for the project) in "managing' the project, and whether it should be appraised separately by Regional Projects staff. While these matters were the subject of continuing discussion within the Bank, the need to link the processing of the project with SALs imposed a deadline for its presentation to the Board. SAL III, whose second tranche release was conditional upon the enactment of the SEE reform decree, had already been fully committed after the Decree Law was passed in May 1983, and work on SAL IV had begun. This may have precluded a fuller discussion within the Bank to reach a consensus. 9. On the GOT side, while Bank staff (both Programs and Projects staff) made a strong effort to keep the selected SEEs involved, the latter probably perceived that in view of GOT's commitment to t' e Bank in the context of SAL III, their participation in the project was a requirement rather than a voluntary decision. Nevertheless, Sumerbank was already involved in active and productive discussion with Bank staff. While the Bank had not previously dealt with ADVAS, it had an ongoing relation with TCDD, ADVAS' parent organization. The TKI component, while being eminently sensible, was being promoted in a not too congenial setting because of disagreement between the Bank and TKI over technical issues in the context of other projects.2 However, TKI was not averse to participating in the project. While it is moot whether the three selected SEEs would have volunteered to subject themselves to major reform without the project, it is also clear that they had no major misgivings about the project either, and they cooperated with Bank staff in project preparation. However, because of the Bank's desire to finalize the SEE Reform project ahead of SAL IV, which was being processed as a FY84 project, the Bank's role in the conceptualization, desigr and preparation of the SEE project became unavoidably dominant, and may have contributed to the SEEs' somewhat passive role. PgoJect Implementation 10. The project (Loan 2400-TU) was approved by the Executive Directors in March 1984, and was signed about three weeks later. This was about a year later than was originally planned because of the delay in enacting the Decree law (initially 2 Disagroment between TKI and the Bank centered on three Ltes. The first pertained to tho use of bucket wheal excavators being promoted by consultants in the Elbistan Lignite mine despite TIXI's reservations concerning their suitability. Tb. *scond related to the Bank s position that individual coal mine oporations should be a*Weated from TKV s day-to-day control. and that TKI should be free to est the day-to-day price of coal; TKI contended that thase matters were decided by GOT and not TIC. Finally. TI:S did not accept the Bank's position that the Soma-aiklar mine shouLd not be expanded through further investmnt.  . 5 - expected about March/April 1983), which delayed negotiations. The original date of effectiveness was July 16, 1984, but this was extended three times before the Loan became effective in December 1984 in order to secure SEE compliancef with the legal agreement on matters such as obtaining a legal opinion and finalizing TOR for the studies. 11. With the exception of the EDM component (see para. 17) the implementation of the project encountered delays and serious problems from the outset, and there was little or no activity pertaining to the three SEEs for several months ( see para. 14). There were delays in finalizing consultant short lists and letters of invitation (TCDD-ADVAS and Sumerbank), and terms of reference for studies (TKI). The problem concerning TKI (para. 9) proved particularly intractable since it suspended any action regarding its TA component pending resolution of issues in ongoing Bank-assisted projects. 12. The Coordination Committee (CC), a vehicle designed to monitor the progress of the project and resolve any problems which surfaced proved ineffective because it was never built up to full strength, replacements were not promptly found for departing members, and the first Chairman was preoccupied with other pressing matters. Efforts by the Bank to invoke the assistance of the CC to restore momentum to the project were not productive. 13. Maior Revisions. Starting about the middle of 1985 the project began to undergo a major transformation. In May 1985, GOT (Treasury) proposed that, following a request from Sumerbank, the amount of $2.45 million originally allocated in the project to Sumerbank be cancelled since the latter had arranged with a local consultant to conduct the studies which were to be financed by the Loan. The GOT also requested that the sum of $2.45 million intended for Sumerbank be reallocated to category E (unidentified SEEs) to finance the industrial restructuring studies, which had now become the subject of active discussion between the Bank and GOT. in July 1985, GOT advised the Bank that TKI had decided to finance its component from its internal sources and requested that the sum of $2.95 million originally allocated for TKI be cancelled. While both Sumerbank and TKI undertook studies, the scope of the studies was much narrower than was planned under the project, and there was no follow up. In April 1986, GOT also advised the Bank that it had decided to include ADVAS in a list of enterprises for possible privatization, and requested cancellation of the $0.98 million originally allocated for TCDD/ADVAS. Thus during an eleven month period between May 1985 and April 1986, $3.93 million of the original loan of $7.60 million had been cancelled and a major reallocation effected. Of the remaining loan amount of $3.70 million, about $3.40 million (the original amount of $0.93 million in category E and the amount of $2.45 million reallocated from Sumerbank) was now earmarked for industrial restructuring and privatization studies. 14. The June 1984 Decree. In retrospect, the drastic changes affecting the project should be viewed in the context of a major new Decree dated June 8, 1984. The new Decree (KHK/233) which superseded the May 1983 Decree provided for sweeping administrative, legal and organizational changes affecting SEEs. The timing as well as the strong commitment which characterized the new decree had not been anticipated  6- at the time; whlle the thrust of the June 1984 Decree was not substantially dlfferent from the May 1983 Decree, the scope of the former was broader and Lt was clearly intended to bring about major changes ln the structure, ownership and operational orlentation of SEEs. The new Decree also envisaged a reduced role for the State in the management of SEEs. The Decree was the handiwork of a new government which came to power at the end of 1983, and which clearly wanted to put its own stamp on the SEE reform issue. The Decree aimed at a major overhaul of the bureaucracy to enhance the efficiency of the civil service and the SEEs. Among other provisions, the Decree shifted responsibility for the major energy and industry SEEs to the Prime Minister's office and reduced the authority of the Ministry of Industry and Trade and other ministries in the oversight of SEEs. The Decree also provided for increased public participation in SEEs and placed a new emphasis on privatization. In this radically transformed environment, the significance of Loan 2400-TU based on three SEEs for the purpose of a demonstration effect was significantly diluted. In the months following the Decree, there was much uncertainty among SEEs, including those being supported by the project, concerning their own future. On the other hand, there was feverish activity within the governmen- in furtherance of the changes proposed in the new Decree, and this had the unavoidable result of shelving ongoing plans for any limited SEE reform pending a clearer understanding of the scale and scope of the reforms being promoted under the new Decree. Project Results 15. The scope of the transformation proposed in the June 1984 Decree could not have been ernvisaged in 1982 when project preparation started. It turned out to be broader than the May 1983 Decree which essentially provided a basis for completing SAL III and also for the TA project which was a requirement for SAL IV. During the 12-18 months following the June 1984 Decree, when the three SEE components were cancelled from Loan 2400-TU at GOT's request, and funds for the Sumerbank component were reallocated to restructuring studies, there was little or no action pertaining to the original project components. However, there was considerable activity involving both high-level GOT personnel and Bank staff directed towards operationalizing the philosophy and program of the new Government, particularly with regard to industrial restructuring and privatization. At this time, the initiative for concinuing the dialogue with GOT shifted within the Bank to staff in a different unit within IND; on the Turkish side SPO became a major factor, and pushed hard for sweeping changes - particularly privatization - although there were some indications that GOT's overall position concerning privatization had not fully crystalized. However, because of SPO's very activist role, the Bank had to take cognizance of the important new directions which the former was promoting. 16. Transfer of ResDonsibility for Project. At this stage, barring the EDM component, the project ceased to exist in its original form, and the responsibility both at the Bank and Turkish ends shifted to new personnel. SPO assumed responsibility for promoting studies on the textile, fertilizer and cement subsectors, and Bank staff (principally from IND) worked closely with SPO staff in designing the studies, drawing up TOR for consultants who would undertake the study, and providing a timetable for completing the studies. SPO also promoted a study on privatization which, along with the restructuring studies, were undertaken by  - 7 reputable international consultants. Bank staff were actively involved in a review of the studies at all stages from inception to final reporting. It was the expectation both of GOT and the Bank that, based on the findings and recommendations of the studies, large investments aimed at drastically restructuring the three subsectors would be promoted by GOT, with possible substantial Bank participation. When the studies wore completed, albeit with some delay, their conclusions were presented to a joint audience of GOT/SEE/Bank personnel, and were generally well received. Implementing the conclusions and recommendations of the studies and, in particular, launching specific subsector restructuring projects has, however, proved slow and elusive, and the expectation of fast and sweeping changes in the industrial structure has not materialized. 17.