Turkey - Commodities Market Development Project

Document of The World Bank Report No: 17585-TU PROJECT APPRAISAL DOCUMENT ONA PROPOSED LEARNING AND INNOVATION LOAN IN THE AMOUNT OF US$4.0 MILLION EQUIVALENT TO THE REPUBLIC OF TURKEY FOR A COMMODITIES MARKET DEVELOPMENT PROJECT June 22, 1998 Sector Departnent Rural Development and Environment Country Department for Turkey and Macedonia Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 14, 1998) Currency Unit = Turkish Lira (TL) TL 1000 = US$0.0038 US$1.00 TL261,050 FISCAL YEAR January I to December 31 ABBREVIATIONS AND ACRONYMS ASCU Agriculture Sales Cooperatives Unions CBOT Chicago Board of Trade CMDP Commodities Market Development Project CFTC Conmmodity Futures Trading Commission FAO Food and Agriculture Organization GOT Govermnent of the Republic of Turkey ICE Izmir Commodity Exchange LIL Learning and Innovation Loan MARA Ministry of Agriculture and Rural Affairs MIT Ministry of Industry and Trade PAT Project Administration Team (under TOBB) PIU Project Implementation Unit (under MIT) SA Special Account SEE State Economic Enterprises SPO State Planning Organization SOE Statement of Expenditures TMO Turkish Grain Board TOBB Union of Chambers of Commerce and Industry, Maritime Conmmerce and Commodity Exchanges of Turkey USDA US Departnent of Agriculture Vice President :Johannes F. Linn Country Manager/Director: Ajay Chhibber Sector Manager/Director :Kevin M. Cleaver Task Team LeaderJTask Manager :Severin Kodderitzsch  Republic Of Turkey Commodities Market Development Project Learning and Innovation Loan CONTENTS A. Project Development Objective ........................................................... 2 1. Sector background 2. Project development objective and key performance indicators B. Strategic Context ..........................................................3 1. Sector-related CAS goal supported by the project 2. Main sector issues and Govermnent strategy 3. Sector issues to be addressed by the project and strategic choices C. Project Description Summary ........................................................... 6 1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements D. Project Rationale ............................................... 12 1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank and/or other development agencies 3. Lessons learned and reflected in proposed project design 4. Indications of borrower commitmnent and ownership 5. Value added of Bank support in this project E. Summary Project Analysis ...................................... .................... 15 1. Economic 2. Financial 3. Technical 4. Institutional 5. Social 6. Environmental assessment 7. Participatory approach F. Sustainability and Risks ................................. .......................... 17 1. Sustainability 2. Critical risks 3. Possible controversial aspects  CONTENTS (cont'd) G. Main Loan Conditions ....................... O 18 1. Effectiveness conditions 2. Other H. Readiness for Implementation ...................... -19 I. Compliance with Bank Policies .19 Annexes Annex 1. Project Design Summary 20 Annex 2. Detailed Project Description 22 Annex 3. Estimated Project Costs 24 Annex 4. Financial Summary 25 Annex 5. Procurement and Disbursement Arrangements 26 Table A Procurement Arrangements, Consultant Selection Arrangements; Thresholds for Procurement Methods and Prior Review Table B Allocation of Loan Proceeds Annex 6. Project Processing Budget and Schedule 32 Annex 7. Documents in Project File 33 Annex 8. Statement of Loans and Credits 34 Annex 9. Country at a Glance 37 Annex 10. Environmental Data Sheet 39 Annex 11. Draft Subsidiary Loan Agreement 41  Republic of Turkey Commodities Market Development Project Learning and Innovation Loan Project Appraisal Document Europe and Central Asia Regional Office Country Department for Turkey and Macedonia Rural Development and Environment Date: June 22, 1998 Task Team Leader/Task Manager: Severin Kodderitzsch Country Manager/Director: Ajay Chhibber Sector Manager/Director: Kevin Cleaver Project ID: 48851 Sector: Agriculture Program Objective Category: Economic Management Lending Instrument: Learning and Innovation Loan Program of Targeted Intervention: [X] Yes [ ] No Project Financing Data [XI Loan [] Credit [ Guarantee [I Other [Specify] For Loans/Credits/Others: Amount (US$m/SDRm): 4.0 million Proposed terms: [] Multicurrency [X1 Single currency, specify: US Dollar Grace period (years): 3 years [] Standard Variable [XI Fixed [ LIBOR-based Years to maturity: 12 - 15 years Commitment fee: 0.75 % Service charge: N/A Financing plan (US$m): Source Local Foreign Total Government 0.4 0 0.4 Participating Exchanges 1.3 0 1.3 IBRD 0 4.0 4.0 Total 1.7 4.0 5.7 Borrower: Republic of Turkey, Treasury Guarantor: N/A Responsible agency(ies): Ministry of Industry and Trade (MIT), Union of Chambers of Commerce and Industry, Maritime Commerce and Commodity Exchanges of Turkey (TOBB), participating Commodity Exchanges Estimated disbursements (Bank FY/US$M): 1999 2000 2001 Annual 1.2 1.7 1.1 Cumulative 1.2 2.9 4.0 Project implementation period: 2 1/2 year Expected effectiveness date: 9/30/98 Expected closing date: 3/31/01 OSD PAD Form: July 30, 1997  Page 2 A: Project Development Objective 1. Sector background Most observers agree that Turkey has tremendous potential for rural growth, but this has gone largely unrealized. In the 20-year period 1975-96, while overall GNP was growing at around 3.4 percent per year, agriculture grew at a rate of about a third that figure. As a result, the sector shrank as a share of the whole economy from 36 percent to 15 percent over that period. The importance of rural development is amplified by the relative poverty of the sector as a whole and the fact that many of the poorest live in rural areas. Development of rural areas and agriculture in particular has been impeded by heavy government intervention in the sector. While not all government initiatives have been counterproductive, many have. Trade controls, government procurement, heavy government involvement in marketing, and input subsidies (especially credit and fertilizer) have had many negative effects on the sector and the economy at large. They have discouraged production of products in which Turkey has a comparative advantage, squeezed out private sector marketers, and encouraged inefficient production technologies. The benefits of the subsidies have gone mainly to larger, wealthier farmers. In addition, the subsidies have serious fiscal effects. Some of these policies also create barriers to Turkey's closer integration with the EU. While previous governments have recognized some of the problems created by these policies, reform has proven difficult. Earlier plans to move away from the current system of price support were never implemented, except for some livestock products, cotton, and tobacco. Even for these products, domestic prices continue to be supported, but not by direct purchases. Significant public procurement by State Economic Enterprises (SEEs) continues for the most important crops. One of the reasons for the unwillingness of governments to disengage from direct price support through public procurement is the perception that the private sector is not able to adequately fill this role. This perception is enhanced by the underdeveloped state of the commodity exchanges. Commodities exchanges are a key element in the marketing system in Turkey: some 90 commodities exchanges covering a broad range of commodities provide trading services. In most cases these consist of basic assembly markets; while a minority of commodity exchanges provide more sophisticated services. While only an estimated 10 percent of all grains are in aggregate traded through commodities exchanges, at the regional level within thecatchment area of individual commodities exchanges, trade can be significant (over 50 percent of regional grain trade), while overall, private trade off exchanges dominates. 2. Project development objective and key performance indicators (see Annex 1): The overall strategic objective of developing commodity-based marketing infrastructure (including but not limited to exchanges) is to increase the marketing efficiency of two major agricultural commodities - cotton and grains - by assisting Government in disengaging from a broad scope of intervention policy, and in supporting the private sector in taking on the full spectrum of marketing functions for these commodities. The objective of the CMDP (LIL) is to support the transition from an intervention-based agriculture policy to a liberal market; and to demonstrate the benefits resulting from increased private commodity marketing through modernizing selected commodity exchanges resulting in improved price discovery, introduction of dematerialized trade; an improved regulatory and institutional framework; and a better definition of the public / private sector interface. Subject to progress made on the agriculture policy agenda and to satisfactory implementation of this operation, the Bank could envisage to support the implementation of a follow-up operation aiming at modernizing commodity marketing possibly on a substantially larger scale. The project development objective is to (a) increase the marketing efficiency of grains and cotton through selected commodities exchanges by introducing improved systems of price discovery, dematerialized trade, and regulatory oversight; (b) demonstrate the benefits resulting from increased private commodity  Page 3 marketing; and (c) provide a model for development of other private exchanges, and impetus for government to withdraw from its intervention in the marketing of other commodities Key performance indicators. Project performance will be measured at three levels: (a) for trade taking place at exchanges participating under this project; (b) for off-exchange trade taking place within the catchment area of participating exchanges; and (c) in terms of market integration and price convergence between participating exchanges. A baseline study will be undertaken during the first months of project implementation. Key performance indicators will be tracked throughout the implementation period and results presented in three annual reports: the baseline survey in late 1998, a mid-term report in late 1999 and a final report in late 2000. (a) Performance indicators for trade taking place at participating exchanges: one important justification for supporting investments by the exchanges is that they will become more attractive to farmers, traders, brokers and the processing industry. Hence, volume traded at the exchanges will be monitored in both absolute terms as well as the relative share of regional production and trading channeled through participating exchanges. Monitoring of laboratory usage and warehouses at the exchanges, will also be important indicators for the project. Another quantitative indicator will be the development of the financial position of participating exchanges. Finally, an annual customer survey, covering farmers, traders and industry users will be carried out; perception of improved contract performance will be one important element covered under the customer survey. (b) Performance indicators for off-exchange trade taking place within the catchment area ofparticipating exchanges: increased trading efficiency will also be generated through improved price discovery generated at the exchanges which will be used by market participants in off-exchange transactions. The scope and relevance of improved price discovery off-the-exchange will be assessed under the annual customer survey which would include non-exchange participants. (c) Performance indicators in terms of market integration and price convergence between participating exchanges: based on daily price and trade data, econometric work will be carried out to evaluate the extent that linkages between exchanges and the dissemination of market information has improved arbitrage and contributed to narrowing of price disparities. Changes in marketing margins would also be evaluated. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: 16992 Date of latest CAS discussion: September 4, 1997 The CAS stresses the following areas of focus, related to the assistance priority area of economic management: 1) privatization and closure of state-owned enterprises; 2) restoring financial viability to the social security system; 3) reducing fiscal cost and distortionary impact of agricultural subsidies; 4) improving public financial management; and 5) strengthening the banking system. The central theme identified for Bank assistance for agriculture is related to the objective of poverty reduction and social development: to help raise the productivity, incomes, and living standards of small farmers in poorer regions. The Commodities Market Development Project is an explicitly mentioned element of the Bank's strategy in support of the rural sector (though not under its current design as a LIL). Given previous set-backs and difficulty in carrying out major reforms in the context of lending operations, the current Bank strategy in the agricultural sector is a two-track approach: 1) continue  Page 4 lending only to small operations (such as the Commodities Market Development Project) with direct impact on rural poverty and subsectors where the policy framework is sufficiently supportive; and 2) carry out technical and advisory work to demonstrate the costs of the counterproductive policies and to help the Govemrnment find acceptable alternatives. This project would directly support CAS goals (1) and (3) above, and would contribute to raising incomes of small farmers trading within the catchment area of participating commodity exchanges. The project would enhance the development of private market alternatives to state procurement agents (e.g., TMO and the ASCUs). Government procurement has had the goals of supporting farmers' incomes and providing them with stable prices and reliable sales outlets in the perceived absence of private sector alternatives. By demonstrating the viability of a private sector approach to marketing and helping develop market institutions (both in the private sector and the public domain) that will have the effect of providing more predictable prices, the project would allow the government to disengage from its direct role in procurement. In parallel, the Bank's technical and advisory work on agricultural support services is suggesting more efficient alternatives to provide income support, such as targeted income transfer. The project would increase competition and efficiency in commodity markets, and the consequent reduced margins and increased liquidity would help farmers get higher prices for their products. 2. Main sector issues and Government strategy: Main Sector Issues. By world standards, Turkey is a major producer of grains and cotton. In terms of grains, Turkey is the eleventh largest producer in the world and in cotton, Turkey accounts for 3% of the world's output which ranks it as the sixth largest producer. Cotton and cereals are Turkey's most important crops. Wheat, barley and maize account for some 16%, 5.4% and 2% of the value of all crops in Turkey. Wheat is grown in over 50 of Turkey's 73 provinces. The three largest wheat provinces which produce more than one million tons are Konya in Central Anatolia, Ankara in Central North Region (including Polatli and Eskisehir) and Adana in the Mediterranean Region. Turkey is both an importer and an exporter of wheat and barley and a net importer of maize. Cotton production has been increasing in Turkey since the early 1980s and it is likely to expand furither under the Eastem Anatolia Irrigation (GAP) Project. By 2010 production from this area is projected to increase the total Turkish production by over 80%. GAP will shift cotton production eastward. Cotton is grown in two main regions. Cukurova and South-Eastem Anatolia (includes Adana and Sanliurfa) produce 50% of the national output and the Aegean region produces about 46%. Turkey has a large domestic textile and ready-made garments industry. There are several alternatives in grain marketing. Farmers can sell directy to mills and to traders or use the exchanges. In addition, TMO makes direct purchases from farmers. Traders act both on their own account or as agents of millers. There is usually a degree of competition in the grain market. In cotton, cooperatives play a role in purchasing cotton from the farmers in addition to traders and direct purchases by private ginners. Unlike grains, cotton is sold at exchanges as a processed product, lint. Commodity exchanges play a role in grain and cotton marketing. There are about 19 exchanges engaged in trading in wheat but only four of them account for most of the trades. These are located in Edime, Eskisehir, Konya and Polatli. Edirne, Eskisehir and Polatli trade about 200,000 tons of wheat annually, while Konya trades close to 400,000 tons. Approximately 10% of the total grain production is traded at exchanges. However, in the immediate regions around exchanges, up to 50% of the grain produced is traded through these exchanges. An inportant drawback for using the exchanges is that the grain needs to physically move in order to be traded. Some exchanges use branch offices in order to capture a larger area. This is mainly because the existing system of standards/grading does not provide adequate quality information to trade commodities without physical inspection at the trading floor. In cotton, there is a very active trading in lint. About 45-50% of the national lint production is traded at exchanges. The  Page 5 main exchange in cotton is located in Izmir. Adana and Sanliurfa are the other cotton exchanges. Given the increase of cotton production from the GAP project, the importance of the Sanliurfa exchange in cotton trading will likely increase significantly. Agriculture price policy. Turkey has a long history of government intervention in the domestic markets for agricultural commodities. This intervention has aimed to support and stabilize farm incomes by raising producer prices and lowering price volatility within but also between crop years. Domestic producer prices have been supported through two main mechanisms, government support purchasing and border protection. Support procurement is implemented through two types of intervention agencies: state economic enterprises (SEEs) and agriculture sector cooperative unions (ASCUs). The main SEE involved in grains is TMO, while TARIS is the ASCU involved in cotton marketing in the Aegean region. The price support levels are set by the Council of Ministers. The government provides the intervention agencies with financing, and losses due to support procurement are met by the Treasury. These losses rose significantly during the 1990s. As the Government moves towards direct income support for producers as part of the package of refonrs in agricultural support policies, the rationale for the existence of SEEs will cease to exist and these enterprises need to be privatized or liquidated. ASCUs on the other hand, could maintain a role in commodity marketing but should be autonomous and operate under a "hard" budget. Government Strategy. Thus, the inefficiencies and the high cost of government intervention have led the government to signal its intentions to move away from price support. For the government to be able to abandon its intervention in commodity marketing there is a need to enhance existing private sector channels for marketing commodities. Commodity exchanges provide for such viable channels. In the context of reduced government intervention, the govermnent needs to create an enabling environment for the private sector to operate. Thus, there is a need for the government to develop adequate capacity to supervise the markets and provide the necessary legal and regulatory framework within which commodity markets should operate. The Government of Turkey is considering the development of commodity exchanges as an important element in its strategy towards reducing its intervention policies in agriculture. In parallel, GOT is reviewing its agriculture support policies with assistance of the Bank. In preparation of more far-reaching reforms, GOT is gradually reducing public involvement in agriculture marketing and price support; for instance, a law making the ASCUs fully autonomous commercial entities has been drafted and sent to Parliament for review. This would remove the Govemnment's role in the markets in which the ASCUs have been the main implementation agencies for intervention, including cotton. 3. Sector issues to be addressed by the project and strategic choices: Commodity exchanges serve the function of price discovery, dissemination of price information, and risk sharing and contribute to a more efficient and transparent commodity marketing system. Reducing government involvement in commodity marketing will only be achieved if private sector alternatives (marketing channels) evolve. By strengthening the development of commodity exchanges in Turkey, as well as promoting activities that would improve the efficiency of private trading (such as warehouse receipts, quality standards, trade contract enforcement, and regulatory oversight) the project will support the evolution of such private marketing channels. Through on-going impact evaluation, the project will provide policy makers in Turkey with a demonstration of improved efficiency of commodity marketing which should establish a further compelling reason for reduced government involvement in agricultural marketing. Hence, the project would assist GOT in defining an appropriate role for the public sector in agricultural marketing, which in essence consists in the provision of a supportive regulatory environment.  Page 6 C: Project Description Summary 1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown): The following three components would be implemented under the project: (a) modernization support to selected commodity exchanges; (b) development of trading institutions (quality standards/grades for wheat and cotton, warehouse receipts) and strengthening of MIT's oversight capabilities; and (c) project impact evaluation. Final preparation arrangements as well as initial project start-up are being supported under an action program during the upcoming 6 months funded under a Japanese Grant. This program will carry out the following activities agreed with MIT: (a) study tour to commodities exchanges in Central Europe; (b) design common platform at selected exchanges for an information network; (c) finalizing business and investment plans (d) initiate a consultative process of formulating cotton and grain quality grades; (e) initiate a consultative process of reviewing and preparing relevant regulations for a functioning warehouse receipt system; and (f) train the PIU in procurement and disbursement and prepare bidding documents for TA program under the project. Modernization Support to Exchanges (estimated component cost: US$4.3 million) would facilitate the financing of a range of eligible investments on a cost recovery basis at selected exchanges dealing with grain or cotton. The selected exchanges are located at Adana, Edirne, Eskisehir, Izmir, Konya, Polatli and Sanliurfa. Eligible investment categories are: (i) training and technical assistance; (ii) goods: laboratory and information technology equipment, weighbridges, and (iii) civil works for trading floors and storage facilities (the latter, if adequately justified). Financial support to participating commodity exchanges is conditional upon presentation by the exchange of a business plan, an investment and procurement plan as well as financial statements. The investments supported under the project will enhance the commodity trade related business opportunities of the exchanges and allow them to provide enhanced services in the future. These investments are anticipated to improve and expand current trading practices including price discovery and dissemination, allow exchanges to apply newly adopted quality standards for wheat and cotton, and introduce the use of warehouse receipts. The decision on the part of selected exchanges to borrow under the project for these investrnents is, of course, voluntary. Eligibility criteria for financial support will be established in the Implementation Agreement between Treasury and TOBB (see also Section C.4.) Development of Trading Institutions and Strengthening of Oversight Capabilities (estimated component cost: US$0.95 million plus US$0.22 million for operating a PIU) would consist of training and technical assistance to (a) introduce nationally accepted, and internationally compatible quality grades for wheat and cotton; (b) revise regulations and initiate the implementation of a warehouse receipt system; (c) improve market surveillance and supervision of commodity exchanges; and (d) assist in the establishment of a communication network linking commodity exchanges. A broad and systematic consultation process of all relevant private and public sector participants will be carried out to ensure relevance of new quality standards acceptable to the industry; the introduction of a warehouse receipt system acceptable by the private sector; and the development of a meaningful electronic network. A task force approach has been agreed upon which would bring together the interests of the various private and public sector stakeholders. Managing this process will require leadership skills within Turkey as well as considerable international expertise, both of which would be mobilized under the project. All activities related to this institutional development are being initiated and launched under a Japanese Grant amounting to US$0.4 million. Project Impact Evaluation (estimated component cost: US$0.20 million) will be an on-going process essential to learn the lessons critical for further market development and policy reform. Key performance  Page 7 indicators will be tracked throughout the implementation period and results presented in three annual reports: the baseline survey in late 1998, a mid-term report in late 1999 and a final report in late 2000. It would also contribute to the on-going sector dialogue between the Government and the Bank. Evaluation activities will cover performance indicators related to (a) trade taking place at exchanges participating under this project (and for selected exchanges not supported under this operation); (b) for off-exchange trade taking place within the catchment area of participating exchanges; and (c) in terms of market integration and price convergence between participating exchanges. A baseline study will be undertaken during the first months of project implementation. Implementation progress - separate from the ongoing project evaluation - will be monitored by the PIU. Table 1: Project Components, Cost and World Bank Financing Component Category Cost Incl. % of Bank- % of Contingencies Total Financing Bank- (US$M) (US$M) Financing Modernization Support to Private 4.30 76% 3.0 75% Selected Commodity Exchanges Sector Dev. Development of Trading and Institution 0.95 17% 0.71 18% Regulatory Institutions Building Project Impact Evaluation Institution 0.20 3% 0.14 3% Building PIU Implemen- 0.22 4% 0.15 4% tation I _I_I Total 5.67 100% 4.0 100% Note: excludes costs andfundingfor activities carried out under Japanese Grant 2. Key policy and institutional reforms supported by the project: Policy Reforms. No policy reforms are explicitly expected or made as condition of this project. However, it is anticipated that this operation would have a catalytic function in supporting the agriculture policy reform agenda in Turkey. This Learning and Innovation Loan (LIL) is partly in response to Government's suggestion of a phased transition in market intervention in which developing and learning the benefits of exchange-based marketing would be instrumental in supporting the policy reform agenda. Institutional Reforms. The project would strengthen the regulatory capacities of MIT which has recently been mandated with overseeing trading on commodity exchanges. In addition, the project would aim at introducing key institutions for commodities trading such as new quality grades for cotton and grains, the establishment of a warehouse receipt system, and an electronic network aiming at improved price discovery. 3. Benefits and target population: Benefits. The project will support the business development of participating exchanges, as well as the trading community (farmers and traders) associated with the commodities exchanges. By establishing new quality grades for cotton and wheat, and by establishing the regulatory and institutional framework for warehouse receipts it will also directly benefit operators of public warehouses, as well as farmers and banks associated with inventory-based credit.  Page 8 Target Population. The target population consists of commodity traders but also agricultural producers and related processing industry, and ultimately consumers of cotton and grain based products. Benefits will accrue both for transactions carried out on as well as off exchanges. Demonstration benefits are intended for the policy decision community to assess merits and feasibility of further market liberalization. 4. Institutional and implementation arrangements: Overall responsibility for project coordination and implementation lies with the Ministry of Industry and Trade which will establish a small Project Implementation Unit for that purpose. Implementation of Component I: Modernization Support to Commodities Exchanges will be carried out by participating commodities exchanges and the Union of Chambers of Commerce and Exchanges (TOBB) through a small Project Administration Team. Implementation of Component II: Development of Trading institutions and Strengthening of Oversight Capabilities will be under the responsibility of MIT's PIU. Finally, implementation of Component III: Project Impact Evaluation will be carried out by an institution (and under TORs) acceptable to the Bank to be determined by a formal selection procedure. A Steering Committee with the purpose of providing policy guidance and to monitor project implementation on a semi-annual basis will be established no later than March 31, 1999 (dated covenant). This Steering Committee will include representatives from the Undersecretariat of Treasury, the State Planning Organization, the Undersecretariat of Foreign Trade, the Ministry of Industry and Trade, the Ministry of Agriculture and Rural Affairs, the Turkish Grain Board, and TOBB. Component I: Modernization Support to Commodities Exchanges US$3.0 million out of US$4.0 million under the Learning and Innovation Loan provided by the Bank to Turkey through Treasury would be made available to selected exchanges through TOBB. The relationship between Treasury and TOBB would be governed through a Subsidiary Loan Agreement. Amongst others, TOBB has agreed (a) to establish a Project Administration Team which will be responsible for concluding subproject agreements, disbursements, administration of loan repayments and financial management under this component and (b) to guarantee Treasury loans made to participating exchanges. The Project Administration Team will consist of one project coordinator, an accountant, and a procurement specialist. The exchanges participating under this program would finance eligible investments on credit, based on business and investment plans (including fnancial statements and a procurement plan). Eligible investment categories are: (i) training and technical assistance; (ii) goods: laboratory and information technology equipment, weighbridges, and (iii) civil works for trading floors and storage facilities (the latter, if adequately justified). Financial support to participating commodity exchanges is conditional upon presentation by the exchange of a business plan, an investment and procurement plan as well as financial statements. The investments supported under the project will enhance the commodity trade related business opportunities of the exchanges and allow them to provide enhanced services in the future. These investments are anticipated to improve and expand current trading practices including price discovery and dissemination, allow exchanges to trade on the basis of newly adopted quality standards for wheat and cotton, and gradually introduce the use of warehouse receipts. Eligibility criteria for financial support along the lines described above will be reflected in the Implementation Agreement between Treasury and TOBB. Disbursement would be made by TOBB to suppliers against presentation of relevant documentation (suppliers bills etc.) provided by the exchange. TOBB would enter into Subloan Agreements with the individual exchange; key on-lending conditions to participating commodities exchanges are as follows:  Page 9 Loan Amount: up to US$1.0 million equivalent per exchange with aggregate amount of lending to all exchanges not to exceed US$3.0 million; maximum loan amount up to 70 percent of investment costs; minimum of 30 percent to be financed by exchange; Maturity and Grace Period: total Maturity: 8 years; Grace Period: 2 years; Repayment Period: 6 years; Interest Rate and Payment: US Dollar denominated loan at a fixed interest rate equivalent to the cost of borrowing to Treasury under the IBRD Fixed-Rate Single Currency Loan plus 0.5 percent (Treasury Guarantee fee); debt payment (principal and interest) on quarterly basis; interest payment during grace period on disbursed balance; Additional Provisions: commitment fee on undisbursed balance: 0.5 percent; and prepayment option: prepayment premium of 1.0 percent of loan balance. Investment and Financing. During appraisal, commodity exchanges (with the exception of Adana and Konya) indicated interest in a broad and varied scope of investments to develop their commodity trading business. The suggested approaches to business development envisaged by the individual exchanges would result in major improvements of trading practices allowing exchanges in the medium term to gradually move from cash or spot markets to forward trading. Currently, trading practices are relatively simple with ample scope for improvement. The investment areas are closely associated with improved quality standards, warehouse receipts, improved price discovery and dissemination through modem information technology. The following areas of investments programs are being considered by exchanges: (a) Edirne --- inspection laboratory development, development of new site for exchange, capitalizing on area high quality wheat production, information systems development; (b) Eskisehir --- exchange branch development, inspection lab improvement, information systems development, training, development of trade in warehouse receipts; (c) Izmir --- development of cotton warehouse facility, trading in warehouse receipts through electronic trading system; (d) Polatli --- information systems development, inspection lab improvement, training for staff and exchange users, development of cash forward contracts; (e) Sanliurfa --- all facets of exchange development including, but not limited to lab, training, communications, warehousing. Adana and Konya, both, indicated to currently having no interest in borrowing under this project; Adana's reluctance is due to a perceived lack of business development opportunities, while Konya has indicated development plans of a scope (running into several million dollars to develop forward trading) that cannot be accommodated with the funding provided under this operation. It has been agreed with Government to maintain these two exchanges on the list of eligible exchanges allowing them to reconsider their participation during project implementation. The mechanism for financial support under this component is sufficiently flexible to accommodate for this and reflects the pilot nature of this operation. Table 2: Summary Table of Indicative Investments and Financing of Participating Exchanges Exchange Total Investment Loan Exchange Contribution Adana $0 $0 $0 Edime $840,000 $588,000 $252,000 Eskisehir $820,000 $574,000 $246,000 Izmir $800,000 $560,000 $240,000 Konya $0 $0 $0 Polatli $900,000 $630,000 $270,000 Sanliurfa $850,000 $595,000 $255,000 Total $4,210,000 $2,947,000 $1,263,000 Table 2 summarizes investment costs as indicated by exchanges in the course of this visit, as well as anticipated borrowing (around US$3.0 million) on the basis of a 30 percent financing of investments by the exchanges. Note that this does not necessarily imply a firm commitnent on  Page 10 the part of exchanges to eventually carry out their business plans and to borrow under the project (in particular, the indications received from the Izmir Commodity Exchange are seen as being somewhat tentative). Overall, there is currently sufficient demand for funding by the exchanges to justify support up to US$3.0 million. Component II: Development of Trading Institutions and Strengthening of Oversight Capabilities Implementation of Component IT: Development of Trading Institutions and Strengthening of Oversight Capabilities will be under the responsibility of MIT's PIU. Under this component (estimated cost: US$950,000) the following areas would be developed and implemented: (a) quality standards for wheat and cotton; (b) warehouse receipts; and (c) MIT's capacity to oversee commodity exchanges. Activities will be prepared and initiated under Japanese Grant Funding (see further below). Quality Standards/Grades for Wheat and Cotton. A consultative process involving relevant private sector entities and public institutions through Advisory Groups will define quality standards/grades for wheat and cotton with the technical assistance of international and national expertise, eventually resulting in the adoption of new standard/grade legislation for these two commodities. The process would be initiated under the Japanese Grant (US$130,000) and finalized under the project. During project implementation MIT would establish a Licensing Department for grain and cotton inspectors (through redeployment of current personnel). The Department and newly licensed inspectors would be provided with training provided by international expertise (US$22,000). Warehouse Receipts. Similarly, a consultative process involving relevant private sector entities and public institutions through Advisory Groups will define regulations required for operating licensed 'public' warehouses and issuing warehouse receipts with the assistance of international and national legal and technical expertise, eventually resulting in the adoption of operational regulations. The process would again be initiated under the Japanese Grant (US$53,000) and finalized under the project. During project implementation MIT would establish and staff (again, through redeployment of current personnel) a warehouse licensing department for grain and cotton warehouses. The warehouse licensing inspectors of this new department would be trained in the USA (US$50,000). Training and expertise would equally be provided to the interested public (insurance and banking industry, commodities exchanges, flour millers; US$50,000). Two small pilot projects (total cost: US$400,000), one for cotton in the Aegean and one for grains in Central Anatolia would implement one full cycle with a limited number of selected warehouses. This cycle would consist of warehouse inspection, licensing, bonding, warehouse receipt issuing, and credit and trading against warehouse receipts; participating warehousemen would be trained, for instance, in the USA. Insurance and banking sectors would be involved in these pilot projects. MIT's Commodity Exchange Oversight. Under the project, senior staff from MIT would receive training in exchange oversight in the USA through the US Commodity Futures Trading Commission (CFTC) and USDA; (US$15,000). The selected exchange inspectors located throughout Turkey as well as staff of the new Oversight Department (to be established at MIT) would be trained in Turkey with international expertise (US$50,000). It was agreed that a full time resident international commodity marketing advisor be recruited under the project for a period of 12 months during the first year of implementation (estimated cost: US$200,000); this resident advisor would have broad and applied experience in commodity exchange operations, warehouse receipt systems, and quality standards. This resident advisor would be located in the PIU but also be available to MIT. The advisor's function would be to guide exchanges and public institutions (as  Page 1 1 well as incoming technical assistance) on implementation. This advisor should be recruited from a reputable frm as part of the single TA contract for this component. Component III: Project Impact Evaluation Implementation of Component III, Project Impact Evaluation (estimated cost: US$220,000) will be carried out by an institution and under TORs acceptable to the Bank to be determined by a formal selection procedure. This agency needs to have staff experienced in commodity marketing both in Turkey and internationally, with good analytical skills and ability to evaluate the impact of government policies on the project's progress, as well as to coordinate surveys. Key performance indicators will be tracked throughout the implementation period and results presented in three annual reports: the baseline survey in late 1998, a mid-term report in late 1999 and a final report in late 2000. Implementation progress - separate from the ongoing project evaluation - will be monitored by the PIU. Project Implementation Unit (PIU) and Project Administration Team (PAT) Project Implementation Unit under MIT. The PIU will be responsible for overall project coordination including disbursement, procurement, financial management; direct implementation of Component II; and oversight of Component III. The PIU would consist of a national project manager, an advisory group coordinator, a procurement specialist, and an accountant. The project advisor should be appointed prior to Loan negotiations. MIT intends to recruit staff for the PIU from outside the Ministry in accordance with Government regulations and based on TORs satisfactory to the Bank. This will result in recurrent costs, part of which will be financed under the Loan. However, in order to avoid delays in project implementation, (a) the responsibility and leadership for overall project implementation will remain with MIT; and (b) MIT will provide a full time liaison person who can maintain communications between MIT senior management and the PIU. Project Administration Team under TOBB. Implementation of Component I: Modernization Support will be carried out by TOBB through a temporary Project Administration Team (PAT), consisting of a project coordinator, an accountant and a procurement specialist. Establishment of this PAT is a Condition of Disbursement under Component I: Modernization Support to Exchanges. Procurement. See Annex 5 for procurement arrangements. Under Component I: Modernization Support to Exchanges, the individual commodity exchange will be responsible for carrying out procurement with the guidance of the PAT under TOBB. Given the many smaller TA and training activities foreseen under Component II: Development of Trading institutions and Strengthening of Oversight Capabilities, it has been agreed that these would be procured and implemented under a single TA and training contract. This approach will considerably simplify implementation, in particular with regard to procurement and contract handling. Preparation of tender documents for this larger TA contract will be prepared under the Japanese Grant program. Disbursements. The Loan would be disbursed over a period of around 2 1/2 years. Disbursements would be made against eligible expenditures according to percentages of expenditures indicated in Annex 5. Under Component I (Modernization Support to Commodity Exchanges), TOBB would be authorized by Treasury (i) to disburse from the Special Account (SA) for eligible expenditures below the SOE threshold under agreed subprojects directly to suppliers; and (ii) for expenditures above the SOE threshold, to submit payment applications directly to the Bank. Under Component II (Development of Trading and Regulatory Institutions) and III (Project Impact Evaluation) MIT would have the authority to disburse  Page 12 from the SA, as well as to submit direct payment instructions to the Bank for payments above the SOE threshold. A Special Account (SA) would be opened on terms and conditions acceptable to the Bank. The authorized allocation has been established at US$400,000. This amount can be drawn by submitting the relevant Application of Withdrawal. SOEs. All disbursements against contracts exceeding US$1,000,000 equivalent for goods; US$1,500,000 equivalent for works; US$200,000 equivalent for services from frmns and US$50,000 from individual consultants; and incremental operating costs above US$50,000 equivalent would be fully documented. For expenditures below that level, disbursements would be made against Statement of Expenditures for which detailed documents evidencing expenditures would be kept by the PAT under TOBB and reviewed by the PIU under MIT for Component I; and the PIJ under MIT for Component II and III; these documents would be made available for the required audits as well as to the Bank, upon request. Financial Reporting and Accounting. Overall responsibility for all financial reporting and accounting would be with MIT through the PIU. The financial reporting would be based on an accounting and auditing system which would record and retrieve all financial transactions associated with the project and comply with internationally accepted accounting standards. Financial reporting would include all sources of funding under the project, i.e. Bank Loan (including the SA), GOT project budget contribution and fnancing provided by participating exchanges. For Component I: Modernization Support detailed financial accounts would be maintained at TOBB's Project Administration Team. For Component H and III MIT's PIU would maintain financial accounts which it would consolidate with those provided by TOBB for auditing purposes. A financial management system will be established under the PIU no later than November 30, 1998. The financial management system will be developed with assistance from a financial management specialist funded under the Japanese Grant. Audits. Project Accounts (including GOT budget counterpart contributions) and the SA would be audited by an independent auditor acceptable to the Bank in accordance with the Guidelines for Financial Reporting and Auditing of Projects Financed by the World Bank (March 1982). The Borrower through MIT will provide the Bank (within six months of the end of each fiscal year), an audit report of such scope and detail as the Bank may reasonably request, including a separate opinion, by the auditor on disbursements against certified Statements of Expenditures (SOEs). Project Reporting. The PIU will prepare the following periodic project reports and submit them to the Bank in a timely fashion: (a) semi-annual project status reports; (b) semi-annual procurement reports; (c) semi-annual disbursement reports; (d) an annual audit report; (e) an annual report prepared under the Project Impact Evaluation Component tracking agreed Performance Indicators; and (f) an Implementation Completion Report six months prior to the Loan closing date. D: Project Rationale 1. Project alternatives considered and reasons for rejection: This project has gone through a long gestation period. The initial project design prepared by FAO and MARA in 1994/95 envisaged a large project ($80 million) that would be focused exclusively on investmnent in hardware for a large number of commodity exchanges (16) and slaughterhouses across a broad range of commodities (8) - with little or no consideration of the institutional, regulatory, and policy framework in which commodity exchanges operate. Subsequent Bank involvement (May 1996) and a FAO/CP preparation mission (September 1996) resulted in a design with considerably more emphasis on the introduction of institutional and marketing systems,  Page 13 i.e. quality standards, warehouse receipts, and electronic networking as opposed to a focus limited to physical infrastructure. The number of selected exchanges was reduced to seven and the commodity coverage limited to grains and cotton. However, the policy framework was judged to be insufficiently conducive, the implementation arrangements too vague and the participation of selected exchanges insufficiently assured to recommend appraisal given the size of the project suggested by the FAO team ($56 million). In late 1996, the regulatory authority for commodities exchanges was moved from MARA to MIT; the latter has since been instrumental in finalizing project design. In May 1997, a small Bank mission revisited the project, reduced the scope of investments ($10 - 20 million) and clearly outlined the policy pre-conditions for both the cotton and the grain marketing components. In September 1997 it became clear that GOT could not commit to the policy framework required for a meaningful implementation of an investment project of such size. GOT's view was, and is, that the Commodities Market Development Project should assist in aphased transition in public market intervention in which developing and learning the benefits of exchange-based marketing would be instrumental in supporting the policy reform agenda in Turkey - without requiring major ex ante policy reforms. Adoption by the Board of new lending instruments in September 1997 allowed the Bank to offer to GOT in November 1997 to process this operation under a Learning and Innovation Loan (LIL). The approach taken under the LIL now allows the integration of several objectives on the part of the Borrower and the Bank. In line with the criteria established for a LIL, (1) project design allows for a smaller operation that can relatively quickly build up institutional capacities in terms of regulatory requirements to oversee commodity based trading, introduce new quality grades for cotton and grains, and review regulations for public warehousing. It will also (2) pilot and test the use of warehouse receipts at a regional level; as well as introduce electronic networks between a limited number of exchanges, prior to using these systems on a national level. The proposed project will (3) allow participating exchanges, regulatory institutions, but in particular policy makers to test the transition from an intervention policy to a more liberalized framework. (4) The Impact Evaluation Component will ensure that key implementation and policy lessons can be drawn. While the policy environment is not considered without risk, (5) the overall policy framework is sufficiently conducive to support (modest) investment activities proposed under this operation, as demonstrated by (a) the willingness of the selected exchanges to participate and invest equity; by (b) CBOT entering in a joint venture-type collaboration with the Izmir Commodity Exchange to develop a cotton futures contract. The modest size of investments protects now against risk of gross misallocation of resources, yet allows participating commodities exchanges to (6) pilot promising development efforts. As exchange-based marketing develops and the policy constraints become increasingly binding on further business expansion of commodities exchanges and trading, it is anticipated that this project would contribute to the formation of an increasingly vocal constituency arguing in favor of more market liberalization. This operation would support a learning and innovation process at three levels: (a) allowing Government to test and learn from market-based approaches as alternative to public intervention in commodity marketing with the aim to reduce policy interventions for grains and cotton, but also for other commodities; (b) to develop new quality standards for wheat and cotton and develop a warehouse receipt system through joint private and public sector collaboration; and (c) to demonstrate the scope for efficiency gains in commodity trading through modernizing the operations (price discovery and dissemination, introduction of new quality standards and use of warehouse receipts) of seven selected commodities exchanges amongst some ninety exchanges in Turkey.  Page 14 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned): No Bank or other development financed project relates to this operation. The Chicago Board of Trade (CBOT) is currently implementing a cooperation agreement with the Izmir Commodity Exchange (ICE) to strengthen ICE's trading operations in view of the upcoming introduction of a cotton futures contract. 3. Lessons learned and reflected in the project design: The warehouse receipt component draws on the lessons learned from the limited Bank involvement in the introduction of such documents under a USAID supported pilot project in Poland. 4. Indications of borrower commitment and ownership: The Borrower, through Treasury and in particular MIT, is committed to the objectives, project design and implementation arrangements. GOT, through SPO, has committed to providing the required budget resources for this project, starting in 1999. Five out of the seven selected comrnodities exchanges are equally committed in terms of modernizing their operations under this project (and to contribute from their equity to the investments). Private sector entities are welcoming and willing to support the opportunity to revising quality standards and regulations for public warehousing under a consultative process. The Borrower considers this operation to be small in terms of the assumed investment needs at the level of the exchanges, yet is committed to carrying out the institutional development activities as well as supporting the exchange modernization program. Both Treasury and MIT have repeatedly made clear that GOT could envisage a second, larger follow-up operation subsequent to implementation of the LIL. T he Borrower presented the Bank with a request for a commodities market development project as early as 1993. Turkish authorities have collaborated with several missions over the years. Relevant regulatory changes have been introduced in 1996 and 1997 (such as assigning MIT as oversight body). S. Value added of Bank support in this project: In a first instance, the Bank has been instrumental in refocusing project design and the development of commodity marketing from an exclusively hardware investment orientation to a more institution and market systems based approach, stressing the importance of price discovery and information, reduction of transaction costs through improved quality grades, public warehousing and contract enforcement. In addition, the Bank has highlighted the interaction between (a) investments in market infrastructure and systems and (b) the policy environment in which trading takes place. While this project directly supports the former aspect, it is an integral part of an overall agriculture policy reform strategy in Turkey supported by the Bank Secondly, the Bank has been instrumental in assisting with the design of an operational approach that ensures close collaboration between private sector entities and public sector institutions. The development of new trading grades and warehousing regulations can only be established in a meaningful way through joint pnvate and public sector collaboration and investments. Throughout project implementation, the Bank will continue to assist with maintaining an appropriate integration and balance between the need for private sector development and public sector policy and regulations. Thirdly the Bank, through its numerous international public (UNCTAD, FAO, ICC, IFTC, USDA) and private contacts (CBOT and other exchanges, specialized consulting finns), has and will continue to provide Turkey under this operation with exposure to international developments, technical expertise and training in the field of commodity marketing. For instance, the Bank brokered a working relationship between the Izmir Conmmodity Exchange and the CBOT that has become instrumental for the  Page 15 development of a cotton futures contract anticipated to be launched in the near future (the first commodity futures contract in Turkey). E: Summary Project Analysis 1. Economic: Because of the nature of the LIL, including its size and emphasis on testing and innovation, the monetary benefits have not been analyzed in the comprehensive way normally associated with more traditional Bank investment projects. The main economic benefit consists in improvements to the efficiency of trading commodities, in particular grains and cotton, in Turkey and enhanced private sector alternatives to government involvement in these markets. The key economic benefits are related to (a) market information, (b) quality standards/grades, (c) warehouse receipts (dematerialization of trade), and (d) improved trade practices. Overall a reduction in transaction costs in cotton and grain trading would be a main benefit. Increased accessibility to relevant market information will enhance opportunities for arbitrage amnong exchanges/regions which will lead to higher volume of trade and more competition. Market information will also contribute to higher transparency in the market which will increase attractiveness to trade at the exchanges. Overall competition in the market both on and off the exchanges will be enhanced; resulting, inter alia, in reduced marketing margins. Defning nationally accepted and internationally compatible quality grades will (a) enhance overall quality in grains and cotton; and (b) allow for better determination of quality premium in the system which will improve the transmission of signals related to price-quality to farmers, traders and processors. Dematerialization of trade through warehouse receipts will provide credit using inventories as collateral by reducing the risk in inventory lending. It will also allow farmers to store and sell later, as long as incentives provided for price seasonality are adequate. By ensuring storage under improved conditions in licensed warehouses, lower post-harvest losses are anticipated. Through de-materialization of trade the efficiency of transactions could improve. In addition, warehouse receipts provide for an efficient system of physical delivery in the futures markets. Improved trading practices (including contract enforcement, arbitration) will allow for more efficient execution of transactions and reduce transaction risks and costs in trading grains and cotton. 2. Financial Since the LWL is effectively a pilot, the project will test a variety of investment approaches to developing commodities exchanges and experimenting with potentially profitable income-generating activities. Indicative draft business and investment plans prepared by some of the participating exchanges show positive returns on investments ranging from 17 and 44 percent, as well as the ability of exchanges to repay advances on the basis of conditions outlined above. All participating exchanges will be required to develop and finalize formal business and investment plans (including financial statements) in order to qualify for support under the project. Fiscal impact: In a first round overall project impact should be fiscally neutral: GOT budget contributions to the project (US$0.4 million) are off-set by indirect tax revenues associated with the investments at the level of the exchanges. Exchanges becoming more profitable provide a larger income tax base, as well as increased trade registration fees.  Page 16 3. Technical: Participating exchanges as well as regulatory agencies will receive training in technical areas associated with new quality standards, warehouse receipts, and the installation and operation of electronic networks. Technical aspects (quality standards, electronic networks) will be further prepared under a Japanese Grant prior to project effectiveness. 4. Institutional: a. Executing agencies: MIT is the main executing agency; while relatively inexperienced in implementing Bank procedures, it is anticipated that MIT will become well acquainted in the course of preparation work carried out under a Japanese Grant. b. Project management: A small PITJ would be established (consisting of one professional and an administrative assistant) to carry out project coordination and procurement. The intermediary will be responsible for allocating project resources to exchanges as well as administrating repayment by exchanges. 5. Social: See 7. Participatory Approach (below). 6. Environmental assessment: Environmental Category []A [ X] B [] C No major environmental issues are anticipated under this project. Warehouse receipts will generate environmental benefits by reducing road transport of commodities. Should exchanges choose to invest in the construction of warehouses (i.e. civil works) adequate safety measures regarding fire hazard, traffic, and rodent and pest control need to be ensured. Exchanges will be required to comply with Turkish laws and regulations pertaining to environmental review and the construction code for commodity warehouses to ensure adequate control of fire hazard, traffic control and fumigant applied for rodent control. Turkish regulations are deemed adequate in light of the limited scope of anticipated investments in civil works under this project. 7. Participatory approach a. Primary beneficiaries and other affected groups: Throughout the preparation and in particular the appraisal process the management of the exchanges have been consulted with regard to their future business and investments plans, participation under the modernization support component as well as their involvement in the consultative process for developing new quality grades/standards and warehouse receipts. Their views and comments (including those of member-traders as well as farmers transacting at the exchanges) have influenced project design and scope. In addition, the management of commodities exchanges have been actively involved in the preparation of draft business and investment plans. During appraisal, representatives from commodities exchanges and other private sector entities, as well as from a range of public sector institutions, attended a workshop on project design and implementation together with MIT and TOBB. b. Other key stakeholders: Numerous representatives from Government agencies, including Treasury, MIT, MARA, the Turkish Standards Institute but also TOBB have been consulted and have actively participated in designing the project.  Page 17 F: Sustainability and Risks 1. Sustainability: Given the limited size for overall investments, in particular at the level of the exchanges no major issues regarding sustainability of this project is anticipated at the operational level. However, sustainability of project impact will be a function of GOT willingness to reform and liberalize agriculture support policies. In order to ensure sustainability, this project is part of a broader strategy aiming at supporting agriculture policy reform, through sector dialogue and possibly an Agriculture Sector Adjustment Operation. 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk Risk Rating Risk Minimization Measure Annex 1, cell 'from Outputs to Purpose" MIT to develop exchange oversight S TA and training provided for staff department; and to establish Grades Inspection development. Dated covenant for Department as well as Warehouse Licensing staffing respective departments and Inspection Department within through staff redeployment Annex 1, cell 'from Activities to Outputs" Signing of Implementation Agreement between M Condition of Effectiveness Treasury and TOBB Signing of Subproject Agreements between M Preparation of Business Plans w/ TOBB and Participating Exchanges TA provided under Japanese Grant Technical Assistance contracted under M Single TA contract for Component Component II and III II will be prepared under Japanese Grant TA contract for Component III to be contracted as Condition of Effectiveness GOT to provide counterpart funds S GOT commitment (reaffirmed during negotiations) to provide counterpart funding starting CY99. Component I (75% project cost) does not require budget funding Limited funding provided under Selected Exchanges will Borrow under Project S LIL to support relatively small investment programs at level of individual exchanges. Strong interest expressed by most exchanges during Appraisal. Study tour to Central Europe and assistance to prepare business plans under Japanese Grant.  Page 18 Launching of consultative process Consultative process for (a) new trading grades S prior to Effectiveness with TA (cotton and wheat), and (b) review and adoption provided under Japanese Grant of new warehouse receipt regulations Establishment of PIU as Condition M1T and TOBB Implementation Capacity S of Effectiveness and of PAT as Disbursement Condition. Training and preparation of procurement packages under Japanese Grant. Appointment of Project Manager prior to Negotiations Overall Risk Rating S LIL approach Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 3. Possible Controversial Aspects: No controversial aspects are currently anticipated. G: Main Loan Conditions 1. Effectiveness Conditions: Treasury and TOBB will have signed a Subsidiary Loan Agreement (which would also reflect the final standardized Subloan Agreement to be used during implementation) satisfactory to the Bank. MIT will have contracted, established and staffed the PIU with individuals of adequate experience and qualifications. MIT will have entered into an agreement with an agency to carry out the project impact evaluation, satisfactory to the Bank. 2. Other /classify according to covenant types used in the Legal Agreements.]: Condition of Disbursement (Component I: Modernization Support to Selected Exchanges): TOBB will have established an operating project administration unit. Dated Covenant: A Steering Committee to provide guidance on policy and implementation will be established by March 31, 1999. MIT will establish and staff with a sufficient number of personnel with adequate education and training the following departments: (a) Exchange Oversight; (b) Quality Grades Inspection; and (c) Warehouse Licensing and Inspection by October 31, 1999. The Borrower will provide a mid-term report by October 31, 1999 and carry out a project mid-term review jointly with the Bank by December 31, 1999.  Page 19 H. Readiness for Implementation [N/A ] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ ] The procurement documents for the fIrst year's of activities are complete and ready for the start of project implementation. [ X] A draft Project Implementation Plan has been prepared and will be finalized using TA under the Japanese Grant. I. Compliance with Bank Policies [X] This project complies with all applicable Bank policies. 'Y.D Task Team Leader/Task Manager: Severin Kodderitzsch Sector M rDirector: Kevi Cleaver Country Manager/Director: Ajay Chhibber  20 Annex 1 Project Design Summary Logical Framework Narrative Summary Verifiable Indicators Means of Verification Important Assumptions Goal: (Goal to Supergoal): Nationwide 1. Private sector leasing 1.1. Market prices of commodity warehouses selected commodities marketing closely linked to world dominated by prices private sector and strongly reduced 2. TMO buying only 2.1. Annually determined goverrunent strategic stocks official strategic stock intervention levels. 3. Integration of smaller 3.1. Branch agreements exchanges to developed between small and large ones exchanges 4. ACSUs financially 4.1. Audited financial viable. reports of ACSUs. Purpose: (Purpose to Goal) Selected exchanges 1. Increased volume of 1.1. Annual reports under 1. Project demonstrates trading targeted trade of 20% by end Project Impact Evaluation viability of alternative commodities CY2000 in the targeted component marketing mechanisms to operating commodities at government purchases efficiently under participating exchanges regulated at transparent and conditions realistic, market determined prices 2. Exchange generated 2.1. Survey farmers and 2. GOT reduces scope of prices used regionally for traders dealing off the commodity price supports trade off the exchange exchange 3. All B/S and 3.1. Customer Trust 3. Exchanges repay warehouse receipt-based surveys (traders and individual loans contracts enforced farmers) 4. Increased market 4.1. Econometric analysis integration in the target of data generated at the commodities (interactive selected exchanges price change effects)  21 Narrative Summary Verifiable Indicators Means of Verification Important Assumptions Outputs: (Output to Purpose): 1. Exchanges modernized: 1.1. Information 1.1.1. Exchanges are 1. MIT to develop oversight equipped, staff developed network system is able to share real time department, and to establish and facilities rehabilitated operational by and on-line price grades inspection department CY1999 development and as well as public warehouse trading information licensing and inspection department 2. MIT regulatory system 2.1. Number of 2.1.1. Trained staff at established, upgraded, e.g. transactions at MIT certify warehouses trading standards, warehouse exchanges increased and laboratories in regulations, MIT exchange by 25% by end accordance with new oversight CY2000 regulations Activities: Input: (Activity to Output): 1.1. Design of information Exchanges 1.1.1. Advisory groups 1. Implementation Agreement and networking systems and contribution established to develop signed between MIT and laboratories at selected US$1.3 M equivalent wheat and cotton TOBB exchanges standards and World Bank credits warehousing licensing Subproject agreements signed Development of grading and US$4.0 M equivalent system between TOBB and selected standards for cotton and exchanges wheat GOT contribution US$0.4 M equivalent 2. Technical assistance and Development of legislative training is contracted mechanisms to enforce (Component II) standards 3 Project impact evaluation Design and development of a agency is contracted WHR system (Component III) 2.1. Conduct pilot WEIR 2.1.1 Surveys on 4. GOT provides counterpart processing cycle in two farmer and trader TUL funds on time selected regions for cotton assessment of exchange and wheat performance Selected Exchanges will borrow under project 2.2. Design, procure and Baseline surveys at install information selected exchanges' Consultative process technology systems and catchment areas. established for (i) new trading laboratories at selected grades and (ii) review and exchanges 2.2.1. Business and adoption of warehouse receipt investment plans of regulations selected exchanges finalized and approved Disbursement and procurement records at MIT, TOBB and exchanges  22 Annex 2 Commodity Market Development Project Description Project Component 1 - Modernization Support to Commodities Exchanges US$4.3 million (total cost of component) This component would facilitate the financing of a range of eligible investmnents on a cost recovery basis at selected exchanges dealing with grain or cotton. The selected exchanges are located atAdana, Edirne, Eskisehir, Izmir, Konya, Polatli and Sanliurfa. Eligible investment categories are: (i) training and technical assistance; (ii) goods: laboratory and information technology equipment,weighbridges, and (iii) civil works for trading floors and storage facilities (the latter, if adequately justified). The decision on the part of selected exchanges to borrow under the project for these investments is, of course, voluntary based. The investments supported under the project should enhance the business opportunities of the exchanges and allow them to provide enhanced services in the future. US$3.0 million out of US$4.0 million under the Learning and Innovation Loan provided by the Ban k to Turkey through Treasury would be made available to selected exchanges through TOBB. The relationship between Treasury and TOBB would be governed through an Implementation Agreement. Amongst others, TOBB has agreed (a) to guarantee Treasury loans made to participating exchanges and (b) to establish a Project Administration Unit which will be responsible for concluding subproject agreements, disbursements, administration of loan repayments and financial management under this component. The participating exchanges participating under this program would finance eligible investments on credit, based on business and investment plans (including financial statements). Eligible investment categories are: (i) training and technical assistance; (ii) goods: laboratory and information technology equipment, weighbridges, and (iii) civil works for trading floors and storage facilities (the latter, if adequately justified). Disbursement would be made by TOBB to suppliers against presentation of relevant documentation (suppliers bills etc.) provided by the exchange. TOBB would enter into a Subproject Agreement with the individual exchange; key on-lending conditions to participating commodities exchanges are as follows: Project Component 2 - Development of Trading institutions and Strengthening of Oversight Capabilities US$0.95 million (total cost of component) This component would consist of training and technical assistance to (a) introduce nationally accepted, and internationally compatible quality grades for wheat and cotton; (b) design and initiate the implementation of a warehouse receipt system; (c) improve market surveillance and supervision of commodity exchanges; and (d) assist in the establishment of a communication network linking commodity exchanges. The development of new quality standards acceptable to the industry; the introduction of a warehouse receipt system acceptable by the private sector; and the development of a meaningful electronic network will require a broad and systematic consultation process of all relevant private and public sector participants. A task force approach has been agreed upon which would bring together the interests of the various private and public sector stakeholders. Managing this process will require leadership skills within Turkey as well as considerable international expertise, both of which would be mobilized under the project. All activities related to this institutional development are being initiated and launched under a Japanese Grant amounting to US$0.4 million.  23 Quality Standards/Grades for Wheat and Cotton. A consultative process involving relevant private sector entities and public institutions through Advisory Groups will define quality standards/grades for wheat and cotton with the technical assistance of international and national expertise, eventually resulting in the adoption of new standard/grade legislation for these two commodities. The process would be initiated under the Japanese Grant (US$130,000) and finalized under the project. During project implementation MIT would establish a Licensing Department for grain and cotton inspectors. The Department and newly licensed inspectors would be provided with training provided by international expertise (US$22,000). Warehouse Receipts. Similarly, a consultative process involving relevant private sector entities and public institutions through Advisory Groups will define regulations required for operating licensed 'public' warehouses and issuing warehouse receipts with the assistance of international and national legal and technical expertise, eventually resulting in the adoption of operational regulations. The process would again be initiated under the Japanese Grant (US$53,000) and finalized under the project. During project implementation MIT would establish and staff a warehouse licensing department for grain and cotton warehouses. The warehouse licensing inspectors of this new department would be trained in the USA (US$50,000). Training and expertise would equally be provided to the interested public (insurance and banking industry, commodities exchanges, flour millers; US$50,000). Two small pilot projects (total cost: US$400,000), one for cotton in the Aegean and one for grains in Central Anatolia would implement one full cycle with a limited number of selected warehouses. This cycle would consist of warehouse inspection, licensing, bonding, warehouse receipt issuing, and credit and trading against warehouse receipts; participating warehousemen would be training, again in the USA. Insurance and banking sectors would be involved in these pilot projects. MiT's Commodity Exchange Oversight. Under the project, senior staff from MIT would receive training in exchange oversight in the USA (through the US Commodity Futures Trading Commission and USDA; (US$15,000). The selected exchange inspectors located throughout Turkey as well as staff of the new Oversight Department (to be established at MIT) would be trained in Turkey with international expertise (US$50,000). Project Component 3-Project Impact Evaluation US$0.20 million (total cost of component) This component will be essential to learn the lessons critical for further market development and policy reform. It would also contribute to the on-going sector dialogue between the Government and the Bank. Evaluation activities will cover performance indicator related to (a) trade taking place at exchanges participating under this project (and for selected exchanges not supported under this operation); (b) for off-exchange trade taking place within the catchment area of participating exchanges; and (c) in terms of market integration and price convergence between participating exchanges. A baseline study will be undertaken during the first months of project implementation. Project impact evaluation will be carried out by an institution acceptable to the Bank to be determined by a formal selection procedure. This agency needs to have staff experienced in commodity marketing both in Turkey and internationally, with good analytical skills and ability to evaluate the impact of government policies on the project's progress, as well as to coordinate surveys. The retained agency needs to be selected based on terms of reference acceptable. A Project Implementation Unit (total cost of operation: US$220,000) will be established under the Ministry of Industry and Trade.  24 Annex 3 Commodity Market Development Estimated Project Costs Local Foreign Total ----------------US$ million--------------- Modernization Support to Selected Commodity 1.15 2.78 3.93 Exchanges Development of Trading and Regulatory Institutions 0.26 0.62 0.88 Project Impact Evaluation 0.04 0.12 0.16 PIU 0.06 0.14 0.20 Total 1.51 3.66 5.17 Total Baseline Cost Physical Contingencies 0.09 0.19 0.28 Price Contingencies 0.09 0.13 0.22 Total Project Cost 1.67 4.00 5.67 Note: Discrepancies due to rounding.  25 Annex 4 Commodity Market Development Financial Summary Years Ending 12/31 (US$ million, base year 1998) Implementation Period CY98 CY99 CYOO CYOl Project Costs Investment Costs 0.38 2.50 2.01 0.54 Recurrent Costs 0.02 0.10 0.08 0.02 Total 0.40 2.61 2.10 0.57 Financing Sources (% of total project costs) IBRD/IDA (700%) 0.31 1.83 1.46 0.40 Commodity Exchanges (23%) 0.09 0.60 0.48 0.13 Government (7%) 0.00 0.18 0.15 0.03 Total 0.40 2.61 2.10 0.57 Main assumptions: The project becomes effective by September 1998; GOT project budget contribution becomes available as of January 1999 onwards. Note: Discrepancies due to rounding  26 Annex 5 Commodities Market Development Procurement and Disbursement Arrangements Procurement See Table A. Procurement methods Procurement of goods would be done in accordance with World Bank Guidelines: Procurement under IBRD Loans and IDA Credits (issued in January 1995, revised January and August 1996, and September 1997). Consulting services, technical assistance Ead training would be procured in accordance with the Guidelines - Selection and Employment of Consultants by World Bank Borrowers, January 1997, revised September 1997. The Bank's Standard Bidding Documents, Request for Proposals and Forms of Consultants' Contract would be used. Since it is not intended to conduct subproject appraisal in advance, a table showing procurement arrangements has not been prepared. A General Procurement Notice (GPN) will be published in the Development Business in July 1998. Responsibility: Procurement under Component I will be the responsibility of the individual participating commodity exchange with the guidance of the PAT' in TOBB. The TOBB itself will have a trained procurement person. Procurement under Component II and m will be the responsibility of the PIU under MIT. This PIU will be staffed with a procurement specialist. Procurement training will be provided by Bank staff, especially by the Resident Mission procurement specialist to the purchasing staff of the exchanges. In addition, under Japanese Grant funds procurement support will be made available to train procurement staff under PAT and PIU. Component I: Exchange Modernization Support: for goods estimated to cost less than US$0.5 million equivalent per contract and for services (TA and training) to cost less than US$0.5 million per contract, procurement will be undertaken by the individual exchanges using commercial practices. International shopping would be applied for goods estimated to cost more than US$0.5 million but less than US$1.0 million equivalent per contract. National Competitive Bidding would be applied for works estimated to cost more than US$0.25 million but less than US$1.5 million equivalent per contract. The procurement method applicable to minor works will be used for civil works contracts estimated to cost less than US$0.25 million equivalent per contract. Participating exchanges are privately operated associations with exclusively private sector membership. The exchange's General Assembly approves the annual budget (including investment budget) which is implemented by management under the supervision of the Board. Commercial practices currently applied by individual exchanges in Turkey generally are based on: at least three separate price quotations and prior contract approval by the Board up to around U$$10,000 per contract; and formal tender procedures for contracts above US$10,000 requiring contract approval of the General Assembly. Component II: Development of Trading Institutions and Strengthening of Oversight Regulations: One major QCBS-based contract (estimated to cost US$950,000) will be concluded to hire all TA and training services under the component. No goods and works are procured under this component.  27 Component m: Project Inpact Monitoring: One single QCBS contract (estimated to cost US$200,000) based on a National Shortlist will be concluded for the TA to carry out this component. No goods and works are procured under this component. Recurrent Costs: MIT intends to recruit staff for the PIU from outside in accordance with Government regulations and based on TORs satisfactory to the Bank. This will result in recurrent costs, part of which will be financed under the Loan. Expenditures associated with incremental operating costs would be incurred according to procedures satisfactory to the Bank and in accordance with an annual budget acceptable to the Bank. Prior and post review Prior review thresholds are shown in Table A, Annex 5 "Procurement Arrangements. Prior review and ex-post review will be carried out in accordance to Bank Procurement Guidelines. Disbursement Allocation of loan proceeds See Table B The Loan would be disbursed over a period of around 2 1/2 years. Use of statements of expenses (SOEs): Thresholds: US$1.0 million for goods US$1.5 million for works US$0.2 million for services US$0.05 million for incremental recurrent costs Special account: Maximum Allocation: US$400,000  Annex 5, Table A: Procurement Arrangements1, and *__________ __________Thresholds for Procurement Methods and Prior Review2 = =_ _ _ _ _ _ o . c t __'__________IT Goods and ICB NCB IS NS Minor Works Other methods Percentage of loan Civil Works (commercial amount subject to _____ practice) prior review Procurement Goods: Goods: N/A Goods: Goods: Goods: N/A Goods: <US$0.5 thresholds: >US$1.0 m. <US$1.0 m N/A m N/A individual and Works: Works: Works: NA Works: Works: Works: N/A see Footnote I aggregate >US$1.5 m <US$1.5 m N/A <US$0.25 m Prior Review All First First N/A first N/A Consultants QCBS QBS Fixed Budget LCS Qualifi- Other Individuals See Footnote 2 cations methods Procurement method > US$0.1 m N/A N/A N/A N/A CP <$50,000 >US$50,000 thresholds See Footnote 3 1 1 1 1 1 Prior Review All N/A N/A N/A N/A All Ex-post Explain briefly the ex-post review mechanism: Review Prior review and ex-post review will be carried out in accordance to Bank Procurement Guidelines. Brief statement The capacity of the PIU to carry out procurement is limited. in order to facilitate procurement, two major T A contracts will be prepared with TA under a Japanese Grant and tendered prior to project start-up. Procurement of goods, works and TA under the Exchange Modernization component will be carried out by exchanges using commercial practices at which the exchanges are well versed. Country Procurement Assessment Report or Country Procurement Are the bidding documents for the procurement actions of the first year Strategy Paper status: ready by negotiations Yes 13 No X under preparation vwith Japanese Grant, likely to be May 1997 finalized prior to Effectiveness 1 For details on presentation of Procurement Methods refer to OD1 1.02, "Procurement Arrangements for Investment Operations." Details on Consultant Services can be shown more easily in the Table Al format (additional to Table A, where applicable). 2 Thresholdsgenerally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance.  ____________________________ _ .E a Estimated date of Estimated date of Indicate if there is Domestic Preference for Domestic Preference for Project Launch publication of General procurement subject to Goods Works, if applicable Workshop Procurement Notice mandatory SPN in Yes O No X 9/15/98 06/1/98 Development Business Yes X No a Yes 03 ______________No_ X Retroactive financing Epan Explain briefly the Procurement Monitoring System: Semi-annual Project Report to be prepared by PIU will include a section on procurement. Assistance by the Bank's Resident Mission Procurement Speciaiist will be sought in conducting training and procurement monitoring; and carrying out periodic reviews. Co-financing: Explain briefly the procurement arrangements under co-financing: N/A Indicate name of Procurement Staff or Bank's staff part of Task Team responsible for the procurement in the Project: Name: Naushad Khan (ECSRE) Ext: 32699 Explain briefly the expected role of the Field Office in procurement: The Resident Mission procurement advisor will be actively involved in (a) procurement training for Borrower staff; (b) procurement monitoring; and (c) on-going procurement support. Footnote 1: This operation provides financial support to eligible exchanges to carry out eligible investments (subprojects) under acceptable business plans (which will include a procurement plan). These business and investments subprojects are currently not finalized. Hence, the aggregate amount for each procurement method, and the percentage of Loan subject to Bank's prior review cannot be determined at this stage. The first non-ICB procurement package under each subproject agreement will be subject to prior review. Inclusion of a procurement plan for each subproject agreement under an agreed format will be a requirement. Two of these business plans will be subject to Bank's prior review. Footnote 2: QCBS will be carried out for the single TA package under Component II: Institutional Development (US$950,000) QCBS using a National Short List will be carried out for the TA carrying out Component IlIl Project Impact Assessment (US$200,000) Footnote 3: As per Loan Agreement, Schedule 4, Section II, Part D; 2(b)  30 Annex 5, Table B: Allocation of Loan Proceeds Expenditure Amount Financing Category (US$ million) Percentage Subprojects under Component I 2.80 70 percent of all invoiced expenditures under approved subproject amount Consultant Services and 0.62 70 percent Training under Component II Consultant Services under 0.12 70 percent Component III Recurrent Cost under PIU 0.14 70 percent Unallocated 0.32 Total 4.00 The number of subprojects is limited to seven. The relevant Disbursement Category (Subprojects under Component I) is designed to track disbursements amounts in aggregate for individual subprojects, not to track types of expenditures (services, goods, works) within each subproject. The latter is not known ex- ante and will be established only as participating exchanges finalize and present their business, investment and procurement plans in the course of project implementation. A Special Account (SA) would be opened on terms and conditions acceptable to the Bank. The authorized allocation has been established at US$400,000. This amount can be drawn by submitting the relevant Application of Withdrawal. MIT would be authorized to submit the relevant Application of Withdrawal. SOEs. All disbursements against contracts exceeding US$1,000,000 equivalent for goods; US$1,500,000 equivalent for works; and US$200,000 equivalent for services from firms and US$50,000 from individual consultants; and US$50,000 for incremental operating cost would be fully documented. For expenditures below that level, disbursements would be made against Statement of Expenditures for which detailed documents evidencing expenditures would be kept by the PAT under TOBB and reviewed by the PIU under MIT for Component I; and the PIU under MIT for Component lI and III; these documents would be made available for the required audits as well as to the Bank, upon request. Loan disbursements would be carried out as follows. Under Component I: (i) TOBB would be authorized by Treasury to disburse from the Special Account (SA) for eligible expenditures below the SOE threshold under agreed subprojects directly to suppliers; (ii) TOBB would provide MIT with relevant documentation on the basis of which MIT will process withdrawal applications to the Bank for replenishment of the SA; and (iii) under the SA held with the Central Bank Treasury would establish upper limits for withdrawal by disbursement category; such as US$300,000 for use by TOBB under Disbursement Category 1 (which reflects disbursements under Component I); and US$100,000 for use of MIT for Disbursement Category 2, 3, and 4 (which reflects disbursements under Component II and III); and (iv) for expenditures above the SOE threshold, TOBB would be authorized to submit payment applications directly to the Bank. Under Component H and m MIT would have the authority to  31 disburse from the SA and to make replenishment requests, as well as to submit direct payment instructions to the Bank for payments above the SOE threshold. In submitting direct payment instructions to the Bank, a unique application number by implementing agency would be provided to facilitate Loan administration (i.e. MIT would prefix their direct payment instructions with 'MIT-'; and TOBB would prefix theirs with 'TOBB-').  32 Annex 6 Commodities Market Development Project - Learning and Innovation Loan Processing Budget and Schedule A. Project Budget (US$'000) Planned Actual (At final PCD stage) $45,000 BB + $40,000 $70,000 BB + FAO/CP $30,000 FAO/CP B. Project Schedule Planned Actual (At final PCD stage) Time taken to prepare the project (months) 2 months 7 months First Bank mission (identification) 11/23/97 11/23/97 Appraisal mission departure 1/5/98 2/26/98 Negotiations 5/18/98 6/10/98 Planned Date of Effectiveness 9/30/98 Prepared by: Ministry of Industry and Trade; and Bank team Preparation assistance: FAO/CP consultants: Si Matfties (grain trading specialist) and Keith Kramer (information technology specialist) Bank staff who worked on the project included: Namne Specialtv Severin Kodderitzsch Task Team Leader, Economist Panos Varangis Commodity Trade Specialist, Economist Cuneyt Okan Operations Specialist Nedret Durutan Agriculture Specialist John Nash Policy Analyst, Principal Economist Naushad Khan Senior Procurement Specialist Ziad Allahad Deputy Chief of Mission, Turkey Dilek Barlas Counsel Rohit Mehta Senior Disbursement Officer Michel Debatisse Peer Reviewer E. Gail Lee Team Assistant  33 Annex 7 Commodities Market Development Documents in the Project File* A. Project Implementation Plan Draft B. Bank Staff Assessments Bank Staff Mission Aide-Memoire: May 1996; May 1997; September 1997; November 1997; March 1998 C. Other Planning Commodity Exchanges - Turkey. FAO. December 1994 Turkey - Agriculture Commodities Market Development Project - Initial Preparation Report. FAO/CP. October 1996 *-Including electronic files.  MOP Schedule D Genearted 06/26/98 Status of Bank Group Operations in Turkey IBRD Loans and IDA Credits in the Operations Portfolio Difference Between expected Original Amount in US$ Millions and actual Loan or Fiscal disbursements a/ Project ID Credit Year Borrower Purpose No. IrBRD IDA Cancellations Undisbursed Orig Frm Rev'd Number of Closed Loans/credits: 203 Active Loans TR-PE-48852 IBRD43440 1998 TEAS NAT'L. TRNSM. GRID 270.00 0.00 0.00 270.00 0.00 0.00 TR-PE-8985 IBRD43150 1998 CESME - ALACATI UNION CESME W.S. & SEWER. 13.10 0.00 0.00 13.10 0.00 0.00 TR-PE-9072 IBRD42350 1998 REP. OF TURKEY PRIV. OF IRRIGATION 20.00 0.00 0.00 19.50 1.97 0.00 TR-PE-45073 IBRD40890 1997 GOVERNMENT OF TURKEY OIL PIPELINE ENG. 5.00 0.00 0.00 4.00 3.17 0.00 TR-PE-9095 IBRD42010 1997 REPUBLIC OF TURKEY PRIM HEALTH CARE SER 14.50 0.00 0.00 14.50 2.77 0.00 TR-PE-35759 IBRD39420 1996 GOVERNMENT OF TURKEY PUBLIC FINAN. MGT. 62.00 0.00 0.00 59.47 23.71 -.05 TR-PE-38091 IBRD4048A 1996 GOVERNMENT OF TURKEY ROAD IMPR. C SAFETY 150.00 0.00 0.00 144.78 18.62 0.00 TR-PE-38091 IBRD40490 1996 GOVERNMENT OF TURKEY ROAD IMPR. & SAFETY 100.00 0.00 0.00 53.64 18.62 0.00 TR-PE-9076 IBRD3802A 1995 GOVERNMENT HEALTH II 136.17 0.00 0.00 111.67 62.12 0.00 TR-PE-9093 IBRD38936 1995 ANTALYA WATER SUPPLY AND ANTALYA WATER SUPPLY 100.00 0.00 0.00 88.18 18.19 0.00 TR-PE-9102 IBRD3728A 1994 GOT PRIVATIZATION IMPLEM 82.81 0.00 27.25 50.73 77.14 7.66 TR-PE-9023 IBRD3567A 1993 REPUBLIC OF TURKEY E. ANATOLIA WATERSHE 62.48 0.00 0.00 55.31 47.25 0.00 TR-PE-9064 IBRD3541A 1993 GOVERMNT EMPLOYMENT & TRAININ 48.82 0.00 0.00 42.44 28.24 0.00 TR-PE-9064 IBRD3541S 1993 GOVERNMENT EMPLOYMENT 6 TRAININ 18.18 0.00 0.00 .05 28.24 0.00 TR-PE-9065 IBRD3565A 1993 HUN. OF BURSA/BUSKI BURSA WATER a SANITA 85.61 0.00 20.00 48.44 20.92 2.55 TR-PE-9065 IBRD3565S 1993 HUN. OF BURSA/BUSKI BURSA WATER & SANITA 31.39 0.00 0.00 .01 20.92 2.55 TR-PE-9065 IBRD3566A 1993 MUN. OF BURSA/BUSKI BURSA WATER * SANITA 7.84 0.00 0.00 6.91 20.92 2.55 TR-PE-9099 IBRD3511A 1993 GOVT. OF TURKEY EARTHQUAKE RECONSTRU 58.90 0.00 0.00 53.77 62.43 33.63 TR-PE-9044 IBRD3472A 1992 REPUBLIC OF TURKEY AGRIC. RESEARCH 34.70 0.00 0.00 24.86 28.84 .17 TR-PE-9044 IBRD3472S 1992 REPUBLIC OF TURKEY AGRIC. RESEARCH 14.30 0.00 0.00 .16 28.84 .17 TR-PE-9097 IBRD3477A 1992 GOT TA FOR TREASURY DATA 2.12 0.00 0.00 1.41 1.42 0.00 TR-PE-9058 IBRD3296A 1991 GOV. OF TURKEY TECHNOLOGY DEVELOPME 42.30 0.00 0.00 17.62 17.60 0.00 TR-PE-9071 IBRD3345A 1991 TEAS/TEDAS TEK RESTRUCT. 69.88 0.00 0.00 44.85 82.02 0.00 TR-PE-9071 IBRD33451 1991 TEAS/TEDAS TEK RESTRUCT. 40.00 0.00 0.00 37.18 82.02 0.00 TR-PE-8974 IBRD3177S 1990 REPUBLIC OF TURKEY AG.EXTN. II 40.50 0.00 0.00 1.40 13.39 .91 TR-PE-9029 IBRD3192A 1990 GOVERNMENT OF TURKEY NATIONAL EDUCATION D 57.28 0.00 0.00 47.20 47.46 0.00 TR-PE-9029 IBRD31925 1990 GOVERNKSNT OF TURKEY NATIONAL EDUCATION D 17.88 0.00 0.00 .22 47.46 0.00 TR-PE-9061 IBRD3151A 1990 ANKARA WS6S GEN. DIRECTOR ANKARA SEWERAGE 25.13 0.00 0.00 6.30 72.04 4.46 TR-PE-9030 IBRD3057A 1989 GOVERNMENT HEALTH I 26.77 0.00 0.00 10.82 11.57 0.00 TR-PE-8988 IPRD2922S 1988 GOVT. OF TURKEY IND. TRAIN. II 71.25 0.00 0.00 3.07 3.11 0.00 Total 1,708.91 0.00 47.25 1,231.65 891.00 54.60 Active Loans Closed Loans Total Total Disbursed (IBRD and IDA): -425. 99 9,894.38 10,320.37 of which has been repaid: 16.14 6,967.41 6,983.55 Total now held by IBRD and IDA: 1,665.68 2,935.72 4,601.40 Amount sold : 0.00 3.55 3.55 Of which repaid : 0.00 3.55 3.55 Total Undiabursed : 1,231.65 7.21 1,238.86 a. Intended disbursements to date minus actual disbur ements to date as projected at appraisal. b. Rating of 1-4: see 00 13.05. Annex D2. Preparation Of Implementation Suary (Form 590). Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system will be uaed (HS - highly Satisfactory, S - satiafactory, U - unsatisfactory, MU - highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994. Note: Disbursement data is updated at the end of the first week of the month.  35 MOP Schedule D Turkey STATEMENT OF IFC's Committed and Disbursed Portfolio As of 3 1-May-98 (In US Dollar Millions) Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 0/97 Rant Leasing 4.76 0.00 0.00 0.00 4.76 0.00 0.00 0.00 1970/71/82/83/98 Viking 12.05 0.00 0.00 0.00 12.05 0.00 0.00 0.00 1979/82/83/89191/96 Trakya Cam 0.00 0.00 5.06 0.00 0.00 0.00 5.06 0.00 1983/94/98 Pinar ET 13.92 0.00 0.00 0.00 13.92 0.00 0.00 0.00 1986/90 Silkar Turizm 4.70 0.00 0.00 5.36 4.70 0.00 0.00 5.36 1988/90 Kiris 21.51 0.00 0.00 0.00 21.51 0.00 0.00 0.00 1988/90/93 IGFK .92 0.00 0.00 0.00 .92 0.00 0.00 0.00 1988/93/96 Elginkan 21,01 0.00 0.00 1.87 21.01 0.00 0.00 1.87 1989 Edirne 3.40 0.00 0.00 0.00 3.40 0.00 0.00 0.00 1990 Kepez Elektrik 16.60 0.00 0.00 0.00 16.60 0.00 0.00 0.00 1990/92 Koy-Tur 3.91 4.00 .13 0.00 3.91 4.00 .13 0.00 1990/93 Conrad 19.53 4.00 .29 3.06 18.18 4.00 .29 3.06 1991 ELBO 2.95 0.00 0.00 0.00 2.95 0.00 0.00 0.00 1991 Kula 8.31 0.00 0.00 0.00 8.31 0.00 0.00 0.00 1991 NASCO 13.14 2.50 0.00 4.44 13.14 2.50 0.00 4.44 1992 Cayeli Bakir 25.80 0.00 0.00 22.95 25.80 0.00 0.00 22.95 1992/97 Korfezbank 15.00 0.00 0.00 35.00 13.50 0.00 0.00 31.50 1993/96 Eldor 6.00 0.00 0.00 0.00 3.00 0.00 0.00 0.00 1993/96 Medya 5.67 0.00 4.99 0.00 5.67 0.00 4.99 0.00 1993/96 Sise Ve Cam 27.90 0.00 0.00 34.99 27.90 0.00 0.00 34.99 1993/98 Turkiye Garanti 40.00 0.00 0.00 95.00 40.00 0.00 0.00 95.00 1994 AYTAC 6.67 0.00 0.00 8.33 6.67 0.00 0.00 8.33 1994 Cerrahogullari 2.25 0.00 0.00 0.00 2.25 0.00 0.00 0.00 1994 CBS Holding 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 1994 Pinar SUT 3.13 0.00 0.00 0.00 3.13 0.00 0.00 0.00 1994 Tekfen 3.57 0.00 0.00 0.00 3.57 0.00 0.00 0.00 1994/95/96 Global Security 0.00 2.50 0.00 0.00 0.00 2.50 0.00 0.00 1994/96 Demirbank 17.14 0.00 0.00 25.00 17.14 0.00 0.00 25.00 1994/96/97 Borcelik 30.00 12.06 0.00 0.00 30.00 12.06 0.00 0.00 1994/97 Assan 21.23 0.00 5.00 10.00 21.23 0.00 5.00 10.00 1994/98 Garanti Leasing 10.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1994/98 Isvicre Hayat 0.00 .49 0.00 0.00 0.00 .49 0.00 0.00 1995 Ekspres Bank 7.14 0.00 0.00 0.00 7.14 0.00 0.00 0.00 1995 Entek 25.00 0.00 0.00 26.50 0.00 0.00 0.00 0.00 1995 Turk Ekon Bank 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1995 TDD 1.60 0.00 0.00 0.00 1.60 0.00 0.00 0.00 1995 Yalova Acrylic 11.25 0.00 0.00 6.00 11.25 0.00 0.00 6.00 1995/96 Arcelik 46.40 0.00 0.00 40.00 46.40 0.00 0.00 40.00 1995/96 CBS Boya Kimya 0.00 3.65 0.00 0.00 0.00 3.65 0.00 0.00 1996 CBS Printas 0.00 .62 0.00 0.00 0.00 .62 0.00 0.00 1996 Kocbank 10.00 0.00 0.00 60.00 10.00 0.00 0.00 60.00 1996 Koclease 15.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 1996 TCRA 0.00 .10 0.00 0.00 0.00 .05 0.00 0.00 1997 Oyak Bank 15.00 0.00 0.00 25.00 12.58 0.00 0.00 20.43 Generated by the Operations Information System (OIS) on June 13, 1998  36 MOP Schedule D Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1997 Toprak Leasing 6.22 0.00 0.00 0.00 6.22 0.00 0.00 0.00 1997/98 Demir Leasing 15.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 1997/98 Finans Leasing 11.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 1997/98 Yapi Kredi Lease 10.80 0.00 0.00 0.00 5.70 0.00 0.00 0.00 1998 Modem Karton 20.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00 1998 Soktas 12.92 0.00 0.00 0.(0 10.09 0.00 0.00 0.00 Total Portfolio: 577.90 29.92 15.47 413.50 506.70 29.87 15.47 368.93 Approvals Pending Commitment Loan Eiuitv Quasi Partic 1998 ADANA/0YAK 15.00 0.00 0.00 10.00 1998 ALTERNATIF BANK 10.00 0.00 . 5.00 25.00 1998 BANDIRMA H. P. 9.00 0.00 0.00 15.50 1998 BAYINDIR 26.00 0.00 0.00 10.00 1995 ENTEK - KOC 0.00 0.00 0.00 15.00 1998 INDORAMA 10.00 .66 0.00 0.00 1998 IPEK PAPER 32.27 0.00 0.00 18.00 1997 KORFEZBNK BLINC 0.00 0.00 0.00 5.00 1998 OTTOMAN 20.00 0.00 0.00 80.00 1998 PASABAHCE- 16.43 0.00 0.00 16.43 SCHOTT Total Pending Commitment: 138.70 .66 5.00 194.93 Generated by the Operations Infonnation System (OIS) on June 13, 1998  37 Turkey at a glance Europe & Lower- POVERTY and SOCIAL Central middle- Turkey Asia zegovina Development diamond Population mid-1996 (millions) 62.7 479 1,125 GNP per capita 1996 (US$) 2,890 2,180 1,750 Life expectancy GNP 1996 (billions US$) 184.6 1,043 1,967 Average annual growth, 1990-96 Population (YO) 1.7 0.3 1.4 Labor force (Y) 2.1 0.5 1.8 GNP Gros per primar Moat recent estimate (latest year available since 1989) capita enrolimen Poverty: headcount index (% of population) Urban population (% of total population) 69 65 56 Life expectancy at birth (years) 67 68 67 Infant mortality (per 1, 000 live births) 48 26 41 Access to safe water Child malnutrition (% of children under 5) Access to safe water (% of population) 92 Illiteracy (7t of population age 1S+) 18 ..r.. Gross primary enrollment (% of school-age population) 97 97 104 -Jurkey Male 101 97 105 -Lower-middle-income group Female 94 97 101 KEY ECONOMtC RATIOS and LONG-TERM TRENDS 1975 1985 1995 1996 GOP (billions US$) 46.7 67.2 169.3 182.1 Economic ratios' Gross domestic investment/GOP 17.9 16.5 25.5 23.8 Exports of goods & non factor services/GDF 4.2 15.9 19.9 21.5 Openness oi economy Gross domestic savings/GDP 11.4 13.4 21.0 17.8 Gross national savings/GDP 17.0 17.1 22.0 18.8 Current account balancelGDP -3.5 -1.5 -1.4 -2.6 Interest payments/GOP 0.3 2.0 2.5 2.3 Savings Inv Total debt/GDP 10.8 38.7 43.6 43.8 Total debt servicelexports 11.3 35.0 31.3 25.7 Present value of debt/GDP .. .. 40.8 Present value of debt/exportE .. .. 164.8 Indebtedness 1975-45 1986-96 1996 1996 1997.00 (average annual growth) GDP 3.1 3.9 7.2 6.8 4.5 -Turkey GNPpercapita 0.4 2.1 5.9 5.1 2.5 Exports of goods and services 17.5 8.4 8.0 21.7 10.4 -Lower-middle-incomegroup STRUCTURE of the ECONOMY 1975 1986 1995 1996 (% of GDP) Agriculture 35.8 20.4 16.4 17.4 Growth rates of output and investment (%) Industry 19.9 27.1 30.5 27.9 T Manufacturing 12.5 17.7 21.0 18.0 20_ 2 . /. Services 44.3 52.5 53.2 54.7 o -20 - 1 92 92 \ 9 9 Private consumption 79.1 79.8 68.2 70.6 .40 General govemment consumption 9.5 6.8 10.8 11.6 8GDI - DO--GDP Imports of goods & non factor serviceE 10.7 19.0 24.4 27.5 197545 1986-96 1996 1996 (average annual growth) Agrculture 0.9 1.3 1.0 4.8 Growth rates of exports and irnports (%) Industry 3.2 4.7 7.4 6.4 40 Manufacturng 3.7 5.3 11.7 6.4 20 Services 4.2 3.9 6.2 7.2 Private consumption 2.3 4.1 6.4 9.3 92 93 9g5o General govemment consumption 3.7 3.9 5.3 5.4 - Grass domestic investment 0.2 4.4 31.8 0.2 -4 Imports of goods and services 2.6 9.5 29.6 19.0 - Eprs ---tmportcs Grass national product 2.7 4.0 8.2 6.9 Note: 1996 data are preliminary estimates. Figures in italics are for years other than those specified. I the diamonds snow tour Yey indicators in the country tin botd) compared witn its income-group average. it data are missing, the diamondrtwil be tncomptete. Turkey  38 PRICES and GOVERNMENT FINANCE __ - 1975 1985 1996 1996 _ Domeostic price. Inflatbon (%) Consumer prices 19.2 45.7 93.6 78.8 Implicit G DP deflator 20.5 52.1 87.0 78.3 100 Govemmtentfin nce's (X of GDP) o 0 Current revenue 20.8 21.8 91 9z 03 94 ss go Current budget balance 0.1 -2J7 -GDP def. C PI Overaml surplus/deficii -4.8 -9.2 TRADE I ~~~~~~~1975 1985 1996 1996 (mililons US$) Expert and import levels (mill. USS) Total exports (fob: 21,637 23,123 Textiles 8,404 8,570 50.00) Processed agricultural products 3,407 3,687 4co,Oo Machinery and equipment 2,346 2,966 Total imports (cif) .. .. 35,709 42,734 30.-o* Food (processed agricultural products) 2,282 2,531 200 Fuel and energy 4,812 6,089 1001 Capital goods 11,437 14.969 Export price index(1987=100) , 121 115 90 92 93 9 9Os so Import price index (1987=100) .. .. 116 116 ra Exports * Imports Terms of trade (1987=100) .. .. 104 99 BALANCE of PAYMENTS 1975 1985 1996 1996 (millions US$) Exports of goods and services 2,018 11,119 36,581 42,496 Current account balance to GDP ratio (/) Imports of goods and services 4,979 12,661 40,601 49,070 Resource balance ' -2,961 -1,542 -4,020 46,574 Net income -123 -1,455 -2,815 -2,639 z- Net current transfers 1,437 1,984 4,496 4,447 0. Current account balance, o1 before official capital transfern -1,647 -1,013 -2,339 -4,766 - inancing items (net) 970 1,137 6,997 9,311 Changes in net reserves 677 -124 -4,658 -4,545 Memo: Reserves including gold (mill. US$) 1,444 2,322 13,754 17,614 Conversion rate flocaUVS$) 14.4 522.0 45,845 81,137 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1995 1996 (millions US$) Composition of total debt, 1996 Total debt outstanding and disbursed 5,059 25,998 73,779 79,789 (mill. USS) IBRD 288 3,432 4,939 4,260 IDA 144 178 130 124 A 8C Total debt service 377 4,600 11,448 10,940 G 4124 D IBRD 31 400 1,278 1,147 20092 5077 IDA 2 5 7 7 E Composition of net resource towv 8113 Official grants 18 115 439 400 Official creditors 165 424 -1,180 -840 Pnvate creditors -11 -14 46 1,080 Foreign direct investment 114 99 772 612 Portfolio equity 0 0 1,108 -983 F World Bank program Commitments 158 838 162 255 A- IRD E - Bilateral Disbursements 108 636 422 489 B-IDA D- Other mutWbateral F- Private Principal repayments 12 159 882 815 C-IMF G- Short-term Net flows 97 477 -460 -326 _ Interest payments 21 246 396 339 Net transfers 76 231 -856 -665 Development Economics antas 'Non-finencial Pubic Secror  -39 - ENVIRONMENTAL DATA SHEET FOR PROJECTS in the IBRD/IDA Lending Program Country: TURKEY Project ID No: TR-PE-48851 Project Name: Commodities Market Total Project Cost: Development Project US$7.0 million (LIL) Appraisal Date: 2/23/1998 Board Date: 6/15/1998 Task Team Leader: S. Kodderitzsch Managing Division ECSRE Sector Rural Development Est. date for receipt of EA by Bank: N/A EA Category (A/B/C): B Date Assigned: 1/29/1998 Date Sheet Prepared/Updated 2/2/1998 (Please do not leave any items blank: use "N/A" or "To be developed" when appropriate) Major Project Components: (presents description of project components) Investment suuport to exchanges would be provided by facilitating the financing of a range ('menu') of investments on a cost recovery basis ranging from installation of electronic communication network, over laboratory equipment to monitor the use of new quality standards, to limited investments in civil work for warehouses (if justified); and training and technical assistance to acquire the skills and knowledge to operate, and benefit from, systems of improved price discovery and dematerialized trade. The decision on the part of selected exchanges (i.e. Izmir, Adana, Sanliurfa, Polatli, Konya, Eskishir, and Edirne) to borrow under the project for these investments is, of course, voluntary based on the choice of investments provided within a framework or 'menu' of investments. The investments supported under the project should enhance the business opportunities of the exchanges and allow them to provide enhanced services in the future. Strengthening of the remu1atov institutions would consist of training and technical assistance to (a) introduce uniform, internationally compatible quality standards for cotton and grains; (b) design and initiate the implementation of a warehouse receipt system; (c) improve market surveillance and supervision of commodity exchanges; and (d) assist in the establishment of a communication network linking commodity exchanges; (e) increase the general awareness of the opportunities and limits of exchange-based marketing; and (f) the establishment of a small PIU. The development of new quality standards acceptable to the industry; the introduction of a warehouse receipt system acceptable by the private sector; and the development of a meaningfuil electronic network will require a broad and systematic consultation process of all relevant private and public participants. A task force approach has been suggested that would bring together the interests of the various stakeholders. Managing this process will require leadership skills within Turkey as well as considerable international expertise, both of which would be mobilized under the project. Monitoring and evaluation of project implementation and impact will be essential to learn the lessons critical for further market development and policy reform. It would also contribute to the on-going sector dialogue between the Government and the Bank. Monitoring activities would cover for instance (a) baseline and ex-post survey of major existing users of exchange services, including indicators of increased usage and improved efficiency of operation at the level of the exchanges; and (b) monitoring of market integration amongst participating exchanges and between participating and non-participating exchanges. While the responsibility for these activities would be with the MIT, it is suggested that these monitoring functions be outsourced to university departments, consulting firms, or other qualified institutions. MUor Enwromnental Issues: (describes major environmental issues identified or suspected in project)  -40 - No major environmental issues are anticipated under this project. Warehouse receipts will generate environmental benefits by reducing road transport of commodities. Other Enironmental Issues: (describes environmental issues of lesser scope associated with project) Should exchanges choose to invest in the construction of warehouses (i.e. civil works) adequate safety measures regarding fire hazard, traffic, and rodent and pest control need to be ensured. ProposedAdions: (describes actions proposed to mitigate enviromnental issues described in project) Exchanges will be required to comply with Turkish laws and regulations pertaining to environrmental review and the construction code for commodity warehouses to ensure adequate control of fire hazard, traffic control and fiumigant applied for rodent control. Turkish regulations are deemed adequate in light of the limited scope of anticipated investments in civil works under this project. JustiflicatoRationdie for Envronmental Category: (reasons for env. category selected & explanation of any changes from initial classification) Limited civil works are likely to be carried out under this project. Category and Actions are designed to ensure adequate safety and environmental standards m the construction and operation of commodity warehouses. Stats of CategoryA EnvronmentalAssessment: (presents EA start-up date, EA first draft, and current status) N/A Remarks: (gives status of any other environmental studies, lists local groups and local NGOs consulted, tells whether borrower has given permission to release EA, etc) N/A Signed by: z- Signe byA: < / Severin Kodderitzsch /Michele D 7evers 1 Y / { \ February 2, 1998 _ ,J' j - \/  41 Annex 11 (Draft) Subsidiary Loan Agreement between Treasury and TOBB The following provides some critical elements of an Implementation Agreement between Treasury and TOBB. While this is not necessarily an exhaustive list, it should provide some guidance on the aspects that the Bank would expect to see covered. 1. The Subsidiary Loan Agreement is subject to the Loan Agreement between the World Bank and Treasury. 2. Treasury will make available [US$3.0 million] under a Loan provided by the World Bank to finance eligible modernization investments at individual commodities exchanges at the following exchanges: Adana, Edirne, Eskisehir, Izmir, Konya, Polatli and Sanliurfa. Terms and conditions of financial support are subject to agreement between the World Bank and Treasury; tentative terms and conditions are provided in Attachment III. 3. Eligible investment categories are: (i) training and technical assistance; (ii) goods: laboratory and information technology equipment, weighbridges, and (iii) civil works for trading floors and storage facilities (the latter, if adequately justified). Eligibility criteria for support will also be elaborated. 4. Should exchanges choose to invest in the construction of warehouses (i.e. civil works) adequate safety measures regarding fire hazard, traffic, and rodent and pest control need to be ensured. To that effect, participating exchanges will be required to comply with Turkish laws and regulations pertaining to environmental review and the construction code for commodity warehouses to ensure adequate control of fire hazard, traffic control and fumigant applied for rodent control. Turkish regulations are deemed adequate in light of the limited scope of anticipated investments in civil works under this project. TOBB will ensure compliance with such regulations. 5. Financial support to participating exchanges will be subject to preparation and presentation by the participating exchanges of business plans, investment plans, and financial statements of sufficient quality. 6. TOBB, jointly with MIT will review credit applications including business plans, investment plans, and financial statements. If necessary, TOBB will request participating exchanges to revise these plans. The first and the third credit application will equally be reviewed by the World Bank on a no objection basis. 7. The standardized credit application form as well as standardized subproject agreement are attached to the Implementation Agreement. 8. TOBB will sign subproject agreements with individual exchanges based on terms and conditions agreed between the World Bank and Treasury. By signing the subproject agreement, TOBB guarantees to Treasury the compliance (in particular debt service) of the participating exchange with the terms and conditions under the individual subproject agreement.  42 9. Treasury will authorize TOBB to and TOBB will disburse directly to suppliers contracted by the exchanges against invoices prepared by suppliers and presented by the exchanges for eligible expenditures as agreed in the subproject agreement from the Special Account (for expenditures below the SOE limit) or through requesting the World Bank to make direct payments (for expenditures above the SOE limit). 10. Exchanges will undertake debt service (interest and principal) to TOBB under the terms and conditions of the subproject agreement at the prevailing exchange rate. 10. TOBB will reimburse Treasury within [one week] of receipt of individual debt service from the exchanges. In the event of delayed payment by the exchanges TOBB will have three months to follow-up with the exchanges; should the exchanges have not satisfied debt service subsequent to this three month period, TOBB will be liable for immediate payment of these arrears. 11. TOBB will maintain separate financial records under this project, of sufficient detail and reasonably accessible to outside auditors. TOBB will provided Treasury and MIT with detailed financial information on a semi-annual basis. Outside auditors would audit the financial records annually. 12. In order to carry out the above activities, TOBB will establish a small Project Administration Unit consisting as a minimum of one Senior Project Manager and one accountant. TOBB agrees to make the staff and financial statements accessible to the World Bank, as the latter may reasonably request from time to time. 13. TOBB agrees to provide the above services free of charge.