Report No. 3472-TU ALE 9 D Turkey FILE uPY Public Sector Investment Review (In Three Volumes) Volume 1: Main Report December 7, 1981 Country Programs Department II Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TURKEY CURRENCY EQUIVALENTS Currency Unit Jan. 1980 /1 Oct. 1980 June 30, 1981 Sept. 1, 1981 US Dollar = TL 70.0 /2 TL 83.50 /2 TL 100.00 /2 TL 120.00 TL 1 = US$ 0.01 US$ 0.01 US$ 0.01 US$ 0.01 /1 Since January 1980, the rate is being adjusted for the differential inflation between Turkey and its major trading partners. TL 80/$1.00, the rate prevailing during the third quarter of 1980 when the 1981 Investment Program was prepared, was used for this report. /2 Except for imports of fertilizers and insecticides/pesticides, as well as raw materials and inputs for their manufacture, for which the rate was TL 55/$1.00 in January 1980, TL 70.0/$1.00 from October 1980, and TL 85.34/$1.00 from April 15, 1981. FISCAL YEAR- March 1 to February 28. FOR OFFICIAL USE ONLY This report is based on the findings of a Special Economic Mission that visited Turkey in October - November 1980. The Mission consisted of the following: Robert Sadove, Mission Chief Jayanta Roy, Deputy Mission Chief Robert Bonney Sawai Boonma Sudhir Chitale Luis Hennicke Jacques Kozub Andres Liebenthal Surinder Malik Turgut Ogmen (Consultant) Helena Ribe Bernard Russell (Consultant) Jivat Thadani Hendrik van Helden (Consultant) Fan Fan Walker Bertil Walstedt (Consultant) Victor Wouters This report also draws upon research and studies undertaken by the Bank Staff and Mr. Mete Durdag (Consultant) on related areas. This document has a restricted distribution and may be used by recipients only in the performance of I their ofTicial duties. Its contents may not otherwise be disclosed without World Bank authorization. TURKEY PUBLIC SECTOR INVESTMENT REVIEW Table of Contents Volume I: MAIN REPORT Page No. MAP COUNTRY DATA SUMMARY AND CONCLUSIONS i-xi Chapter 1: THE MACROECONOMIC PERSPECTIVE A. Introduction 1 B. Recent Economic Developments 1 C. Growth Strategy and Investment Perspective 1963-80 3 D. Macroeconomic Outlook for the 1980s 10 1. The Investment Program 12 2. Balance of Payments Implications of the Investment Program 13 3. Domestic Financing 16 4. Employment Needs 17 Chapter 2; THE 1981 PUBLIC INVESTMENT PROGRAM 19 A. An Overview 19 B. The Project Focus 23 C. Medium-Term Investment Levels Implied by the 1981 Program 30 Chapter 3: SUMMARY OF SECTOR SPECIFIC ANALYSES 33 A. Agriculture 33 B. Manufacturing 35 C. Transport 39 D. Energy 42 Chapter 4: SUMMARY OF RECOMMENDED APPROACH 48 Appendix 1; Summary Review of Priority Projects in Major Sectors 55 Appendix 2; List of Projects in Major Sectors 62 Appendix 3; Macroeconomic Model 81 Volume II; SECTOR ANALYSES Chapter 1: AGRICULTURE A. The Role and Performance of Agriculture 1 B. Public Investment and Growth and Exports Projections for 1981-85 5 1. Production and Export Potential 6 a. Import Substitution 8 b. Production Potential 9 C. The Public Sector Investment Program for 1981 and Implications for 1982-85 10 1. The Total Program 10 2. The 1981 Investment 11 3. Subsectoral Programs 13 a. Irrigation Infrastructure and Related Land Improvement 13 (i) Major Irrigation Project (DSI) 14 (ii) Small Irrigation and Land Improvement (TOPRAKSU) 16 (iii) Summary 16 b. Storage and Marketing 17 (i) Grain Storage and Marketing (TMO) 18 (ii) Sugar Beet Production and Marking (TSFC) 19 (iii) Farm Inputs (TZDK) 20 (iv) Other Marketing and Agro-Industrial Investment 20 c. Forestry 21 d. Indirectly Productive Investment of the Ministry of Agriculture 21 D. Summing-up; 1982 and Beyond 23 Chapter 2: PUBLIC MANUFACTURING SECTOR 25 A. Introduction 25 1. Industrial Objectives and Problems 25 2. Structural Features of Manufacturing Sector and Recent Developments 27 3. Government Industrial Strategy 29 B. The Public Investment Portfolio and the 1981 Annual Program 32 1. The Public Investment Portfolio 32 2. General Evaluation of the Portfolio 36 3. Comments on the 1981 Program 38 4. Long-range Implications of a Pared-Down 1981 Program 39 C. Individual Industries and Projects 41 1. Introduction 41 2. Steel 42 3. Special -Steel 50 ' Aluminium 5. Petrochemicals and Chemicals 54 6. Fertilizers 61 7. Pulp and Paper 65 8. Trucks and Tractors 67 9. Cement 70 10. Sugar 72 11. Textiles 74 D. Some Major Policy Issues 75 Chapter 3; EXPORT INDUSTRUES 79 A. Introduction 79 B. Potential Export Industries 80 C. Financial Resources 85 Chapter 4; ENERGY 89 A. Introduction 89 B. Indigenous Resources 90 C. Sectoral Supply and Demand Trends 91 D. Subsectoral Trends 95 E. The Government's Energy Program 102 1. Electric Power 106 2. Lignite 112 3. Petroleum 114 F. Organization and Management Issues 116 G. Demand Management and Conservation 120 H. Summary of Key Energy Problems and Issues 122 Chapter 5; TRANSPORT AND COMMUNICATIONS 125 A. Introduction 125 B. The 1981 Investment Program 127 C. Bulk Transport Needs and Services 131 1. Iron and Steel Industry 132 2. Coal and Lignite Transport Needs 132 D. Major Subsectors 133 1. Highways 133 2. Village Roads 137 3. Railways 139 4. Civil Aviation 142 5. Ports and Shipping 143 6. Telecommunications 145 Sector Tables: A. Agriculture 146 B. Energy 161 Volume III; STATISTICAL ANNEX LIST OF TEXT TABLES Volume I; MAIN REPORT Table I.1 Growth in Sectoral Output and Investment 1963-80 5 I.2 Fixed Investment by Economic Sector in Selected Years 1963-1980 7 I.3 Growth of GDP and Selected Sectors 1973-85 11 I.4 Total & Public Sector Fixed Investment by Sectors, 1980 and Projections 1981-85 13 I.5 Balance of Payments 14 I.6 Financing Public Sector Investment 1975-1985 _16 I.7 1981 Public Investment Program 19 I.8 Summary of Review of Selected Large Projects in 1981 Program 25 I.9 Estimated Cost of Selected Very Large Projects 29 I.10 Approved and Recommended Public Sector Invest- ment Program 31 I.11 Summary Status of Large Projects as Recommended by the Report 32 1.12 Primary Energy Balance, 1980-1990 43 Volume II: SECTOR ANALYSES Chapter 1: AGRICULTURE Table 1.1 Projections of Investment in Agriculture 5 1.2 Potential Annual Volume and Value of Major Agricultural Exports in 1985-90 8 1.3 Total and 1981 Public Investment Program for Agriculture 11 1.4 Comparison of 1980 and 1981 Public Investment Programs by Major Organizations 12 1.5 Comparative Investment by Purpose 13 1.6 DSI Completion and Investment Schedule Summary 14 1.7 Investment Program and Current Budget of the Ministry of Agriculture 22 1.8 Actual and Indicative Total and Annual Investment Programs 24 Chapter 2: PUBLIC MANUFACTURING SECTOR Table 2.1 Most Important Public Manufacturing Projects 33 2.2 Subsectoral Distribution of the Project Portfolio in the Public Manufacturing Sector 36 2.3 Projections of Public Manufacturing Investments 1981-1985 40 2.4 Demand Projections for Steel 43 2.5 Status of Steel Projects in Public Sector 44 2.6 Capacity Utilization in Turkish Steel Mills 1979 48 2.7 Demand Versus Capacities in Turkish Petro- chemicals Industries 56 2.8 Aliaga Petrochemicals Complex; Assumed Domestic and Export Prices for Petrochemical Products, November 1980 58 2.9 Economic Return Calculation for the Aliaga Complex Under Alternative Estimating Procedures 60 2.10 Planned Investments in Fertilizer Production 63 2.11 Status of Priority Public Sector Cement Projects 71 2.12 Sugar - Supply and Demand Balance 73 Chapter 4: ENERGY Table 4.1 Energy Reserves 90 4.2 Primary Energy Production 1970-1990 92 4.3 Energy Consumption 1970-1990 93 4.4 Petroleum, Coal and Lignite Consumption by Major Sectors 1970-1990 93 4.5 Forest Areas by Type and Productivity 99 4.6 Annual Fuelwood Production and Estimated =Consumption, 1950-2000 100 4.7 Energy Investment 1963-1985 103 4.8 Energy Sector Investment Allocations 1981 104 4.9 Proposed Electric Power Investment Program, 1981-1985 108 4.10 Capital and Generating Costs of New Power Stations 110 4.11 Projected Demand Capacity and Generation Capability 111 4.12 Refinery Projects for Reevaluation 115 Chapter 5; TRANSPORT AND COMMUNICATIONS Table 53.1 Distribution of 1981 Public Sector Investment Program 129 5.2 1981 Transport and Communications Investment Program 131 5.3 Investment in Main and Secondary Highways, 1981 SPO Allocations and Bank's Recommendations 136 LIST OF SECTOR TABLES Page No. A. Agriculture Table Al Investment Proposals of Major Agricultural Institutions 146 A2 Investment Proposals of General Directorate of Agriculture Affairs 147 A3 1981 Public Sector Investment for Agriculture Approved by SPO by Purpose and Source of Funds 148 A4 DSI Proposed Investment Schedule 149 A5 DSI Completion Schedule and Rates of Return 152 A6 TOPRAKSU Proposed Investment Schedule 155 A7 Planned Investment for Ongoing Projects by TOPRAKSU 156 A8 TOPRAKSU Completion Schedule 157 A9 Total Public Investment Program for Agro-Industrial SEEs and 1981 Allocation 158 A10 Proposed Increase in Sugar Production Capacity (1981-88) 159 All Area of Land Required to Produce Beet for Proposed Expansion Projects with Variable Agricultural Conditions 160 B. Energy Table B1 Energy Resources 161 B2 Interconnected Power System - Electricity and Supply, 1965-1980 162 B3 Fossil Fuel Consumption for Electricity Generation, 1970-1980 163 B4 Forecast of Fossil Fuel Consumption for Electricity Generation, 1981-1990 164 B5 Generating Capacity Reserve Margin 165 B6 Electric Power Subsector Investment, 1970-1979 167 B7 Electric Power Subsector Investment Program, 1980-1985 168 B8 Proposed Investment Program in Urban Distribution, 1981-1985 173 B9 Electric Power Subsector Investment Program, 1981-1985 174 B10 Trend of Electricity Prices 175 Bll Interconnected Power System - Forecast Electricity Sales, Generation and Capacity, 1981-1990 176 B12 Projected Electricity Requirements, 1981-2003 177 B13 Major Industrial Power Loads, 1980-1990 180 Table B14 1981 Investment Program Allocation By Project - Electric Power Subsector 182 B15 Capital and Generating Costs of Proposed New Power Stations 184 B16 Rural Electrification Program 185 B17 Prices of Lignite at Selected Mines 186 B18 Important Coal Reserves of Turkey 187 B19 Coal Consumption by Sectors 188 B20 Forecast Demand for Lignite and Hard Coal, 1980-1990 189 B21 Investment for TKI, 1981-1984 190 B22 Petroleum Products Consumption, 1970-1979 191 B23 Main Petroleum Products Demand by Sector End-Use, 1970-1979 192 B24 TPAO - 1981 Investment Program Allocations by Project 193 B25 Petrol Ofisi - 1981 Investment Program Allocations by Project 194 B26 Retail Prices of Petroleum Products (Ankara), 1974-1980 195 LIST OF STATISTICAL TABLES Table Number Section 1: Population and Employment 1.1; Demographic Characteristics 1.2: Labor Force, Employment and Unemployment 1.3: Employment in Manufacturing Industry 1.4: Annual Emigration and Workers Employed Abroad 1.5: Employment by SEEs Section 2: National Income Accounts 2.1 Gross Domestic Production at Current Prices by Sectoral Origin 2.2: Gross Domestic Product at 1968 Prices by Sectoral Origin 2.3; Expenditure on Gross National Product at Current Prices 2.4: Expenditure on Gross National Product at 1968 Prices 2.5: Sectoral Fixed Investment at Current Prices by Government and Private Sectors, 1963-71 2.6: Sectoral Fixed Investment at Current Prices by Government and Private Sectors, 1972-80 2.7: Sectoral Fixed Investment at 1976 Prices by Government and Private Sectors, 1963-71 2.8: Sectoral Fixed Investment at 1976 Prices by Government and Private Sectors, 1972-80 2.9: Annual Growth Rates of Sectoral Fixed Investment at 1976 Prices by Government and Private Sectors 2.10: Selected Periods of Average Annual Growth Rates of Sectoral Fixed Investment at 1976 Prices 2.11; Share of Sectoral Fixed Investment to Total Fixed Investment 2.12; Share of Sectoral Public Fixed Investment to Total Public Fixed Investment 2.13: Share of Sectoral Private Fixed Investment to Total Private Fixed Investment Section 3; Foreign Trade and Balance of Payments 3.1; Balance of Payments 3.2; Commodity Composition of Exports 3.3; Commodity Composition of Imports 3.4: Invisible Receipts and Payments 3.5; Geographic Distribution of Exports 3.6: Geographic Distribution of Imports Section 4; External Debt 4.1; Long-term Debt Outstanding 4.2; Disbursement Received from Long-term Loans 4.3; Long-term Loan Commitments Received 4.4; Average Terms of Long-Term Public Sector External Commitments Received Section 5; Public Finance 5.1; Consolidated Budget Summary 5.2; Consolidated Government Revenue 5.3: Internal Public Debt 5.4: Profit and Loss Account of SEEs 5.5; Financing of Investment by SEEs 5.6 Fixed Investment by SEEs Section 6; Money and Banking 6.1; Money and Banking 6.2; Distribution of Central Bank Credits 6.3; Consolidated Commercial Bank Credits 6.4: Composition of Bank Deposits 6.5: Lending and Deposit Interest Rates Section 7; Prices and Wages 7.1; Price Indices 7.2: Average Daily Wages of Workers by Economi'c Activity 7.3; Trends in Real and Nominal (Daily) Wages 7.4; Government Salaries by Grades, 1970-77 7.5; Public and Private Sector Wages 7.6; Collective Agreements and Coverage in Turkey Section 8; Agriculture 8.1; Principal Land Use 8.2 Land Areas for Cereals, Pulses, and Industrial Crops 8.3; Output of Cereals, Pulses and Industrial Crops 8.4: Yields of Cereals, Pulses and Industrial Crops 8.5; Output of Nuts and Fruits 8.6; Use of Major Agricultural Inputs 8.7: Agricultural Support Prices 8.8: Official Prices of Agricultural Inputs Section 9: Industry 9.1; Output of Selected Industrial Goods 9.2: Value of Manufacturing Production 9.3: Fixed Investment in Manufacturing 9.4; Sectoral Distribution of Establishments, Employment, Output, Value Added and Investment in Public Manufacturing Industry - 1979 9.5: Sectoral Distribution of Establishment, Employment, Output, Value Added and Investment in Private Manufacturing Industry - 1979 9.6: Production Figures for the first three months of 1979, 1980, 1981 9.7; Output of Petroleum, Coal and Major Minerals 9.8: Production of Electricity (Gross) Symbols Used in Statistical Tables Not available * Zero or negligible GLOSSARY OF ABBREVIATIONS AEK - Atomic Energy Commission BOTAS - Turkish Pipeline Corporation CHP - Combined heat and power CTC - Central Traffic Control DONATIM (TZDK) - Agricultural Supply Office DSI - State Hydraulic Works EEC - European Economic Community EIE - Electrical Survey Administration FFYP - Fourth Five Year Plan GDAA - General Directorate of Agricultural Affairs GDH - General Directorate of Highways ICOR - Incremental Capital Output Ratio IMF - International Monetary Fund IPRAS - Istanbul Petroleum Refinery Corporation LPG - Liquified petroleum gas MAF - Ministry of Agriculture and Forestry MENR - Ministry of Energy and Natural Resources MKEK - Mechanical and chemical industries M< - Medium and long-term MTA - Mining Research and Development Institute mtoe - Million tons oil equivalent NFS - Nonfactor services NPV - Net present value O&M - Operation and maintenance p.c.k. - Passenger car per kilometer PETKIM - Petrochemicals Corporation PTT - Post, Telegraph and Telephone General Directorate SEE - State Economic Enterprise SEKA - Paper Company SPO - State Planning Organization TCA - Transport Coordinating Agency TCDD - Turkish State Railways TCZB - Agricultural Bank of Turkey TEK - Turkish Electricity Authority TKI - Turkish Coal Enterprise TL - Turkish Lira TMO - Grain Storage and Marketing - Organization TPAO - Turkish Petroleum Company TRT - Turkish Radio and Television TSF, TSFC - Turkish Sugar Factories Corporation TSKB - Industrial Development Bank of Turkey TUMOSAN - Turkish Motors Industries TZDK (DONATIM) - Agricultural Supply Office WDR - World Development Report YEM - General Directorate of Feed Industry YSE - General Directorate for Infrastructure, Ministry of Village Affairs WEIGHTS AND MEASURES 1 ton (metric: 1,000 kilograms (kg)) 1,205 lbs m tons 1 million tons tpy = tons per year DWT = deadweight ton 1 kilocalorie (kcal) 3.968 British thermal units (BTU) tpe (toe) = ton petroleum oil equivalent = 10 million kcal mtoe = 1 million tons oil equivalent kW = kilowatt = 1,000 watts MW = Megawatt = 1,000 kW kWh = kilowatt hour GWh = Gigwatt hour = 1 million kWh kV = kilovolt 1,000 volts m = meter = 3.281 feet km = kilometer = 1,000 meters = 0.624 mile km2 = square kilometer 0.386 square mile ha = hectare = 2.471 acres '3 = cubic meter = 35.31 cubic feet SCF = standard cubic foot liter 0 .264 uS gallon b/d = barrells per day = 50 tons per year (approx.) 1z ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ JO~~~~~~~~~~~~~~~~~~~ LLJ~~~~~~~~~~~~~~~~~L TURKEY-COUNTRY DATA Population. 44.8 million (1980) GNP Per Capita; US$1460 (1980) Amount Average Annual Increase (%) Share of GDP at Market Prices (%) (million US$ (at constant 1980 prices) (at current prices) Indicator at current prices) 1980 1965-70 1970-75 1975-80 1965 1970 1975 1980 NATIONAL ACCOUNTS - Gross domestic product /a 56,617 6.6 7.5 2.8 100.0 100.0 100.0 100.0 Agriculture 12,112 3.1 4.4 2.7 30.7 26.4 26.2 21.4 Industry /b 13,529 9.5 9.5 2.9 16.6 17.2 18.0 23.9 Services 27,925 8.2 8.0 3.7 42.9 46.5 46.0 54.5 Consumption 47,918 5.8 7.0 2.5 84.6 82.8 84.8 82.4 Gross investment 13,022 11.7 12.9 1.8 16.7 20.1 23.7 25.4 Exports of goods and NFS 4,130 7.9 7.3 0.9 6.1 5.8 6.1 7.1 Imports of goods and NFS 8,453 11.2 13.8 -3.5 7.4 8.7 14.5 14.8 Gross national savings 9,764 11.6 11.9 3.3 15.8 18.8 18.4 20.1 Average Annual Increase (%) Composition of Merchandise Trade (%) (at constant 1980 prices) (at current prices) 1970-75 1975-80 1965 1970 1975 1980 MERCHANDISE TRADE Merchandise exports 2,910 -0.8 4.6 100.0 100.0 100.0 100.0 Primary /c 1,863 -4.3 4.6 80.0 83.0 64.1 64.0 Industrial products 1047 17.0 4.7 20.0 17.0 35.9 36.0 Merchandise imports 7,667 12.4 -4.7 100.0 100.0 100.0 100.0 Food 308 9.9 -17.6 6.0 9.3 8.3 4.0 Petroleum 3,620 18.5 9.9 10.0 7.0 17.0 47.2 Machinery & equipment /d 1,435 9.9 -16.2 39.9 39.8 38.5 18.7 Other 2,304 12.1 -6.4 44.1 43.9 36.2 30.1 1975 1976 1977 1978 1979 1980 PRICES AND TERMS OF TRADE GDP deflator 15.1 17.7 22.1 30.2 48.3 100.0 Exchange rate 14.4 16.1 18.0 24.3 3X\4 76.4 Export price index 60.4 62.8 68.9 73.0 85.9 100.0 Import price index 48.6 49.1 54.2 61.7 72.8 100.0 Terms of trade index 124.3 127.9 127.1 118.3 118.0 100.0 As % of GDP (at current prices) 1965 1970 1975 1980 PUBLIC FINANCE Current revenue 15.0 22.6 22.0 19.8 Current expenditure 10.0 11.8 12.6 11.5 Surplus (+) or deficit C-) -2.0 -2.3 -0.4 -4.8 Investment expenditure 4.7 5.7 4.2 3.9 Transfers 5.0 7.5 5.5 9.2 Foreign financing 1.8 1.6 0.3 0.2 1965-70 1970-75 1975-80 OTHER INDICATORS GNP growth rate (%) 6.8 7.7 2.6 GNP per capita growth rate (%) 4.1 5.0 0.3 ICOR 2.9 2.9 5.7 Marginal savings rate (%) 28.2 19.5 30.8 Import elasticity 1.7 1.8 -1.3 /a At market prices; components are expressed at factor cost and will not add due to exclusion of net indirect taxes and subsidies. /b .Includes mining and quarrying, manufacturing, and electricity, gas, and water. W . Includes agriculture and mining and quarrying. /d Includes metal products and machinery, electrical appliances, and transportation vehicles. TURKEY-BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (nillion US$ at current prices) Population: 44.8 million (1980) GNP Per Capita: US11460 (198' Ac to 1 1970 1975 1976 1977 1978 1979 1980 BALANCE OF PAYMENTS Net e-ports of goods & NFS 342 3067 2993 3880 1953 2442 4293 Exports of goods & NFS 754 2152 2742 2556 3106 3257 4102 Imports of goods & NFS 1096 5219 5735 6436 5059 5699 8396 Workers' Remittances 273 1312 983 982 983 1694 2071 Net traosfers 91 23 15 12 - - - Current account balance -58 -1892 -2295 -3572 -1710 -1771 -3196 Direct private investment 92 251 163 169 147 200 100 Public M6LT (gross) /a 271 334 720 997 1017 4321 /d 2489 Amortization on MNLT /a (cxcl. debt relief) -146 -175 -203 -234 -336 -414 -914 Public M< (set) /a 125 159 517 763 681 3907 1575 Debt Relief (amortization only) - - - - - - 814 Other capital /b 27 1065 1503 2074 1030 -2410 1099 Change in reserves (-= increase) -186 417 112 566 -148 74 -392 International reserves 612 1404 1292 726 874 800 1192 Reserves as nonths of imports 7 3 3 1 2 2 2 Actual 1972 1975 1976 1977 1978 1979 1980 GROSS DISBURSEMENTS Official grants Gross disbursements of M.LT loans 372 324 720 997 1017 4321 Ic 2489 Concess ional 261 100 167 193 227 596 909 Bilateral 139 69 81 130 192 510 849 IDA 4 18 21 19 8 3 - Other nultilateral 118 13 65 44 27 83 60 Non-concessional 11 224 553 804 790 3725 /c 1580 Official export credits 1 47 57 47 91 202 283 IBRD 25 91 117 146 165 277 313 Other multilateral .27 48 54 5 35 11 35 Private /c 58 38 325 606 499 3235 /c 949 EXTERNAL DEBT Debt outstanding and disbursed /d 2538 4475 6883 10943 14313 15791 18897 Official 2273 2980 3275 3648 5970 7198 8119 IBRD 92 288 391 512 648 890 1157 IDA 99 144 163 181 188 190 189 Other 2082 2548 2721 2955 5134 6118 6772 Private /a 246 340 558 1104 1144 4101 /e 5864 1980 Debt R.Tief - - - - - - 814 Short-terT 19 1155 3050 6191 7199 4492 4100 Debt outstanding including undisbursed (public and private) 3560 6086 9207 13736 17554 19794 22875 DEBT SERVICE Total debt service /e 224 291 368 418 532 689 712 Payments 161 175 203 234 336 414 100 Interest 63 116 165 184 196 275 612 Total debt service as % exports of goods + NPS + workers' remittances 11.8 8.4 9.9 11.8 13.0 13.9 11.5 Total debt service as X GNP 1.3 0.8 0.9 0.9 1.0 1.2 1.2 Average interest rate on new loans (X) 4.4 7.3 7.2 7.6 6.9 11.2 8.5 Official 4.5 6.4 7.1 7.6 6.3 4.4 Private 6.8 8.7 7.8 7.6 8.2 13.7 Average maturity of new loans (years) 22.1 13.1 12.7 11.7 13.2 11.1 8.2 Official 26.0 18.6 17.3 14.5 15.6 23.5 Private 11.0 5.1 10.2 8.9 7.6 7.1 BANK GROUP EXPOSURE (%) IBRD DOD/total DOD 3.7 8.7 10.2 10.8 9.5 7.7 6.1 IBRD disbursements/total gross disbursemento 6.7 27.2 16.3 14.6 16.2 6.4 12.5 IBRD debt service/total debt service 5.1 10.5 11.7 15.0 15.4 15.3 18.8 IDA DOD/total DOD 3.9 4.3 4.3 3.8 2.7 1.6 1.0 IDA disbursenents/total gr.o. disbursements 1.1 5.4 2.9 1.9 0.8 0.1 - IDA debt service/total debt service 0.4 0.6 0.6 0.5 0.4 0.4 0.4 As X of Debt Outstanding at End of Most Recent TERMS STRUCTURE Year (1980) Maturity structure of debt outstanding (X) Maturities due within 5 years 40.7 Maturities due within 10 years 60.3 Interest structure of debt outatanding tZ) Interest due within first year 5.7 /a Includes private guaranteed and non-guaranteed debt. 7W Includes errors and emissions, and for projected years it includes net IMF, and unidentified capital inflows. 7c Include. $2,638 million of consolidated short-term debt. /d Includes stock of short-term, and debt relief, but escludes IMF borrowing. 7e Takes account of debt relief due to debt rescheduling, and excludes interest on short-tern debt. - i - SUMMARY AND CONCLUSIONS 1. In early 1980, the Government of Turkey requested the Bank to review the country's public investment program in the context df its new economic policies and long term growth potential. This Report was prepared in response to that request. It summarizes the current state of the economy as well as the role that public sector investment is expected to play in the next several years. The 1981 public investment program provided the first real indication of the Government's approach to investment since the policy framework for a far-ranging reorientation of the Turkish economy was announced in January 1980. In real terms, the 1981 program of TL 667 billion was equivalent to the 1980 actual public investment which stood at TL 482 billion (over US$6 billion ) 1/, or 11 percent of Turkey's GDP, and encompassed over 9,000 projects. The decisions now being made for the 1982 program will indicate how successful the government is in building momentum in its program for rationalizing investment. 2. The new directions already taken by the Government in 1981 in this regard were quite encouraging. An important first step in the Government's economic reorientation strategy has been to tailor public investment more closely to scarce resources while starting a major reform of the institutions responsible for implementing the programs. In the 1981 program: (a) many public sector projects of doubtful economic viability were dropped or received only nominal allocations; (b) economic criteria were used more widely in the selection process; and (c) rehabilitation and modernization have become one of the top priorities. Nevertheless, vast resources are still tied up in incomplete and partially utilized public projects. This is a legacy of the last few years when planning activities ignored this situation, and focused on physical targets and started too many projects without having the necessary financial, institutional or human resources. Project selection, preparation and design have commonly been inadequate. Implementation has been the biggest problem and, to some extent, the result of these deficiencies. In addition, the State Economic Enterprises (SEEs), responsible for carrying out about half the public investment program, could not (i) complete these projects in time without substantial cost escalations; (ii) run them effectively; and (iii) generate cash to finance them, hampered as they were by the well known deficiencies affecting this sector, The financing of their projects and their operational losses have been responsible for a large part of the Government's budget deficits, Besides, public sector projects stressed import substitution in capital-intensive industries, in an economy where 15 percent of the domestic labor force was unemployed in 1980. 1/ Private investment in 1980 stood at TL 379 billion (US$4.7 billion at exchange rate prevailing during the third quarter of 1980 when the 1981 Investment Program was prepared). - ii - 3. The 1982 program, according to preliminary indications from government authorities, is expected to carry the process of rationalization of public investment further forward. The "inward orientation' of the past, is being gradually reversed; market forces are beginning to play an important role; and an "outward orientation" is reflected in rising exports. It appears that the Government has cut back many projects, and has continued to limit investment in manufacturing and to focus more on agriculture and infrastructure including energy. One hopes that the private sector will be further encouraged, in turn, to continue its focus on exports through larger investments in rationalising and increasing the productivity of existing capacity, and help turn the economy around. The indications so far in 1981, have been favorable. A. Issues Raised by the 1981 Investment Program 4. The level of investment approved in the 1981 program was more or less in line with that implied in the Report's view of project priorities. Actual expenditures, however, are now expected to be about 15 percent higher than the original program, or be about TL 770 billion. In terms of intersectoral allocation, shares of expenditure in manufacturing and energy turned out to be higher than anticipated, while agriculture received a lower share than programmed. 5. The short-term and medium-term macroeconomic outlook, however, strongly suggests that the 1982-85 investment program as implied by the projects actually in agency pipelines in 1981, cannot be sustained given Turkey's severe resource constraints. This analysis suggests that if the economic reorientation policies and measures are vigorously continued, it should be possible to attain a GDP growth averaging about 4 percent annually, between 1982-85. The domestic resource and balance of payments situation, on which this plausible growth scenario is based, could sustain, in 1981 prices, an annual public investment program very roughly of about the same size as that undertaken in 1981, around TL 700 billion - that is a level within 10 percent of the amount spent in 1981. However, if all the projects currently in agency pipelines are realistically scheduled for implementation, the public sector investments would total almost TL 5,000 billion, in 1981 prices between 1982 and 1985. The recommended level for 1982-85 on the basis of the Bank's analysis is about TL 2,700 billion (in 1981 prices). To implement a program of the size presently planned, while maintaining total investment at levels considered sustainable on the basis of the macroeconomic analysis, would enforce a significant reduction in private investment. It would undoubtedly also generate inflationary pressures, given the amount of Central Bank borrowing that will be necessary, and inhibit exports and reduce employment creation. However, it is reported that the Government has since publication of the 1981 Program cut back allocations on many projects, and has also stopped or deferred a number of projects thereby bringing down the implied investment required to complete the projects to TL 3,100 billion, a figure still somewhat higher than the level recommended in this Report. - iii - 6. In view of the large number of projects already in agency pipelines, the potential for a rapid expansion of public sector investment is great. In fact, it is only through substantial effort by the Government that the public investment during the past three years has been kept at a level below that in 1976-1977. The process of restraint has, however, not yet faced up to several aspects of weak program implementation. An examination of the portfolio of projects in the 1981 program clearly indicates that resources are being spread too thinly over too many projects. Budgetary cuts have tended to be made across the board, rather than by selecting the high priority activities and more fully funding them. Many projects have not yet been planned in the context of overall development programs. Neither domestic nor international market prospects for their projected output have received adequate study. Concommitant investments in other sectors have not been sufficiently integrated into a common framework before decisions were made. In fact, the long-term implications of project decisions do not appear to have received enough consideration in existing plans. 7. Very large projects, particularly those costing over TL 5 billion, appear to be causing the most difficult problems. The review summarized in this Report indicates tentatively that priority should be given to two-thirds of these very large projects over the next few years and that these projects should be as fully funded as possible. In recent months, the Government has carried out a serious re-examination of a number of very large projects, by considering either elimination or postponement. In fact, in the 1981 program, the Government has allocated only nominal amounts for roughly half of the projects that appear to be of doubtful economic viability. Few projects have, however, actually been eliminated from the program; hence, there continues to be a potentially large increase in expenditures implied for the next five to seven years. 8. Since tough decisions on the postponement or deletion of many major projects have still to be made, there is still a serious possibility that, available funds may be spread so thinly, that even "high priority" projects will not be adequately funded, or properly scheduled, or effectively implemented. As a result, the output that could otherwise emerge from an earlier completion of these higher priority projects, is being denied to Turkey. Besides, delays in completing them, will become even more costly than in the past. The investment/savings gap of the public sector reached over 10 percent of GDP in 1980. The gap was largely financed by domestic borrowing, mainly from the Central Bank, which was inflationary. While the Government has reaffirmed its intention to obtain a major reduction in both the financing requirement and in Central Bank borrowing, it will be difficult to realize this, without the adoption of a more rigorous approach to the selection and implementation of public investments. - iv - 9. Progress should be vigorously continued in redirecting the overall pattern of investment. The government has generally indicated that the pattern of investment should be concentrated more on infrastructure and less on directly productive sectors such as manufacturing industry. A sectoral reallocation in favor of agriculture has also been proposed. The historical record indicates promising shifts in direction in 1981. However, there is a need for additional study if a satisfactory balance is to be obtained between key infrastructural sectors such as energy and transport. B. Recommendations 10. To implement a national investment strategy which is realistic in the context of the medium-term macroeconomic outlook, the following recommendations appear worthy of urgent consideration- (i) The annual size of the public sector investment program should continue to be kept stable, in real terms, around the level attained during 1978-80 and programmed in 1981. The rationale for this conclusion rests on; (a) domestic and foreign resource availabilities as projected on reasonable assumptions; (b) the limited implementation and managerial capabilities as evidenced by past experience; (c) the need to be consistent with the policy of encouraging private sector investment in order to meet the objectives of export development and employment generation. (ii) In view of the tendency to spread resources too thinly over too many projects, with long costly delays in the completion of projects, there is a clear need to concentrate resources especially in the next 2 to 3 years, on completing a limited number of key projects. To accomplish this, it is recommended that an improved system for project preparation be introduced as soon as possible. This should encompass every stage of the project cycle from project identification and design to monitoring and evaluation. (iii) Closely related to determining priorities and concentrating resources on a limited number of key projects, it is recommended that a start be made for improving project implementation in such key areas as energy and bulk transport. This would likely start with institutional reforms and improved project management0 v (a) Role of Public Investment in the Long Term 11. The Government appears sympathetic to a major theme proposed in this Report that ultimately the public sector should specialize only in basic industries and infrastructure, leaving the remainder to the private sector. The rationale for this position is that maximum flexibility will be needed to take advantage of export opportunities. The rapid development of indigenous energy sources, solving such difficult problems as the shortage of bulk transport facilities, declining urban services, and the infrastructure required for basic industries, will themselves be a great burden on the Government's implementation and managerial resources. A true partnership will be required, incorporating higher levels of investment in agriculture, light and medium industry, housing construction and tourism, mostly in the private sector. There is a general agreement that private investment has yet to begin to increase because of a "wait and see" attitude that will probably continue for some time. This leads to the question of the length of time it will take before a significant change in the share of private investment materializes. A long term strategy for public investment, however, needs to be defined -- particularly, in deciding what should be accomplished through public investment, and what aspects of development goals can be more efficiently accomplished by the private sector. (b) Changing Agriculture Strategy 12. Agriculture has been undergoing substantial changes in recent years. The priority for agriculture has been raised and greater emphasis is being placed on increasing exports and raising productivity. In this context, the 1981 program for agriculture (TL 84 billion) is substantially larger than the investment levels of recent years. But it is disappointing to note that it introduced few changes from the past strategy for the sector, and that the actual expenditures are expected to be only TL 71 billion. The bulk of investment (TL 56 billion) is still devoted to slow-gestating irrigation projects, and hardly differentiates between projects which must be completed quickly to reap economic benefits from investments so far made and new or hardly started ones that will take years to complete. In a situation of resource constraints, this luxury of the past can be ill afforded. Priorities even among new irrigation projects are not well defined, because in many cases the projects are not supported by any economic evaluation; or if they are, the economic evaluation has not been used to determine budget allocations. 13. The Report stresses that although the increased public investment allocation to agriculture has been a step in the right direction, the deficiencies in project preparation and implementation must also be quickly removed, to be able to achieve a larger program. Moreover, export activities should receive much greater attention. Further, for the investment program to be successful, and agriculture to contribute its full - vi - potential, changes are needed in pricing policies. A vast imp:.ovement is required in marketing and transport facilities, plus a comprehensive institutional reform of the MAF and other public agencies in the sector. Above all, there is a need for increased support to Private farm activities, especially those related to export generation. Vegetables and citrus, for example, will be important crops for the future, but need a sound seed industry and good extension services, which do not yet exist. (c) Manufacturing 14. The main thrust of the industrial development strategy has been for capital-intensive import substitution in basic industries. The principal policy instruments have been large public sector investments combined with excessive central planning and control of SEEs and high levels of protection for private industry. 15. Recently, there has been a move towards more export-oriented and less capital-intensive activities in the sector. This has been emphasized in Government policy statements, which attach importance to consumer goods and other potential export industries, such as engineering products. In practice, however, over 60 percent of the 1981 allocation for public investment in manufacturing, is still primarily devoted to a relatively few heavy long-gestation on-going projects in steel, fertilizers, petrochemicals and pulp and paper. A drastic reduction in funds allocated to some of these schemes from earlier proposals indicate the Government's own doubts. Furthermore, there are the wide ranging affects of this heavy industry program that have not yet been fully studied. For example, a few of the heavy industrial plants planned, would if carried out, greatly increase the existing industrial demand for electricity by 1990; a few heavy industrial projects already under construction, will require a substantial investment in new transport capacity. Given Turkey's severe resource constraints, the economy cannot afford, much less provide such additional investments in the foreseeable future. Industrial projects such as these, therefore, need to be carefully reevaluated, particularly, in the light of their large energy and transport requirements. Furthermore, many public sector investments in light industries need to be reexamined from the point of view of overlap or duplication with comparable facilities in the private sector. -16. Completion all of the manufacturing projects approved for the 1981 program, would imply an average annual investment of at least TL 197 billion (in 1981 prices) between 1982 and 1985; this is far in excess of the current level allocated for the sector. The question is whether the private sector may become starved of investment funds, jeopardizing its ability to create export industries for which the market prospects are good. Behind this question is the feeling that the ultimate potential for expansion in exports lies in such industries as processed foods, textiles, - vii - leather, engineering products, castings and industrial equipment, for most of which capacity has already been developed in the private sector. The Report's evaluation suggests that as many as 40 percent of the manufacturing projects in the 1981 program, require reevaluation. A number of them, as well as those in related sectors, should be stopped immediately, especially, those that cannot demonstrate reasonable economic returns. (d) Transport Bottlenecks 17. In spite of the relatively good coverage of the transport network, serious bottlenecks have developed in the past few years. The ports have not been able to handle all the commodities available for export, although these bottlenecks could be greatly relieved by a quicker implementation of the Bank-financed Ports Rehabilitation Project covering several public ports in the country. Serious problems have developed in the transport of coal, iron ore, lignite and other heavy commities. Traffic congestion in many places throughout the country has become very severe. 18. On the side of investment in transport, there is a lack of an integrated view of the sector, as well as its integration with the investment plans of other sectors it must support. There is a need for additional technical and economic studies which would consider the relationship between existing transport capacity and the changes in demand that will take place as exports increase and less capital-intensive industries are developed. The 1981 program covering 829 projects at a total cost of TL 878 billion, and 1981 allocation of TL 119 billion is primarily a collection of relatively small projects, designed to alleviate urgent bottlenecks that have already appeared in the existing system. Current investments in transportation do not sufficiently focus on supporting exports, nor on the conservation of indigenous energy resources. The high cost of energy has already affected the use of transport facilities, lowering traffic levels somewhat, and increasing the use of public transport. Future changes, however, will undoubtedly be more drastic. The wider use of lignite, growing road transport, and the continued increase in urbanization will undoubtedly lead to more energy-intensive transport, unless careful planning is put into effect. The government has indicated that a new transport plan will be completed early in 1982. (e) The Long-Term Energy Crisis 19. The current economic difficulties are partly rooted in the increasingly large petroleum import burden, and its effect on the balance of payments. Few countries have become so dependent on imported petroleum in their economic development, as has Turkey. Consumption of petroleum products increased at 14 percent per annum from 1970-1977--among the - viii - highest rates in the world. In 1980, despite strict containing of consumption, 13.1 million tons were imported at a cost of US$3.6 billion, exceeding the total value of the country's earnings from export of goods and services. 20. Turkey is relatively well-endowed with conventional energy resources, except for oil and gas. The most important indigenous sources are hydropower and lignite. Only about 10 percent of the hydropower poten- tial has been developed. Lignite production in recent years amounted to less than 0.5 percent of proved reserves. Real investment levels in developing these resources have been increased two and a half times since 1973, yet the results have hardly been spectatular. Energy production grew slowly during the 1970's and remains at a relatively low level compared to consumption, which grew rapidly. Large power investments, the bulk of the program, have been greatly delayed and become increasingly costly. Lack of coordination between lignite production schemes, bulk transport infrastructure and electric power transmission have also caused substantial delays. Institutional weaknesses have affected every aspect of energy from hydro and lignite to fuelwood and petroleum projects. 21. Past trends of increasing petroleum imports are likely to continue, unless a more effective energy savings program can be initiated. A failure to reverse these trends by adoption of viable demand management policies, could be disastrous. Otherwise, Turkey would likely have to import at least 25 million tons of coal and oil by 1990, at a cost of nearly $7 billion (in 1980 prices). Avoidance of such an unsupportable import burden, requires substantial conservation and industrial retrofitting investments in addition to improved implementation in hydropower, lignite, fuelwood and petroleum projects. Investment in increasing production from indigenous energy sources will have to bear the major burden. Even though the Turkish projections of lignite production appear overly ambitious, there may be no other solution to the problem, and a crash program for lignite production appears vital. Even continuing the present inadequate program of developing domestic resources will require about one-third of total public investment through 1985. The 1981 allocation amounted to TL 213 billion of which TL 91 billion is in foreign exchange. The program is dominated by electric power which accounts for 68 percent of the total allocation. Coal/lignite and petroleum account for the balance of the program, with approximately equal shares; the share of other energy sources is negligible. Although priority for electric power is justified because the subsector provides the main scope for utilizing indigenous lignite and hydropower resources, there are good grounds for deferring many new generation projects, and instead concentrating financial and managerial resources in quickly completing those at a relatively advanced stage of completion. This would result in obtaining some of the much needed power by 1984/85, instead of getting none until 1987/88 on the basis of spreading resources too thinly over too many power projects. - ix - In addition, there is a serious danger of channelling scarce resources to untimely energy investments, not needed until after 1990, and of committing much larger expenditures between 1982-87 than what the macroeconomic outlook can realistically sustain. Difficult as they may be, hard decisions are specifically required in the energy sector as a whole to defer new projects, cancel some already under implementation, or at least stretch out their implementation over a very long period of time, in order that those at an advanced stage of implementation can be completed very rapidly so as to provide power or other energy inputs much earlier than would otherwise be possible. 22. The rate at which energy projects now in the program is implemented (total cost over TL 2,000 billion -- in 1981 prices) will determine how much energy can be produced between now and 1990. Production is roughly estimated to vary between 35 and 45 mtoe. The upper level of projected output, which would permit imports to be held at slightly above current levels, will only be achieved if the program is implemented effectively starting with full funding of priority projects in 1981. "Business as usual" -- spreading funds too thinly, inadequate funding for priority projects, under estimating the requirements for the most capital intensive power schemes, slow and inadequate improvement in the SEEs -- will likely result in an output level by 1990 of much closer to 35 mtoe. The gap between demand and production, which might be around 18 mtoe by 1990, could rise to 25 mtoe under a poorly executed program. Since the country could not sustain such a gap, the "energy crisis" would be even more severe than it is today. The success or failure of the Government's energy program may very well determine the country's economic future in the 1980's. (f) Institutional Reform 23. The general need for SEE reform, which are indicated widely in other Bank reports, should not delay the immediate actions so urgently required on those needed to prepare and execute projects. In some cases, the problem stems from the fact that skilled managerial talents are not being attracted to public sector enterprises. In many cases the problems vary from detailed and often conflicting central directions and interventions to lack of financial discipline and politically motivated choices. The Government has already indicated its intention to introduce actions such as imposing the financial accountability of SEEs by sharply restricting their access to the Central Bank and the Treasury. SEE hiring has been frozen and attrition will progressively reduce their overstaffing. More fundamental reforms of the SEEs to address the problem of efficiency, overstaffing and operational autonomy are now being considered. It is to be hoped that these proposals will boldly reflect a fresh outlook for curing the deep rooted malaise of the SEEs. -x - 24. In the meantime, this Report focuses on what specific reforms for individual SEEs might be possible, for particularly important investment programs. Selective reforms, e.g. for TKI and TCDD, should not have to wait for a general reform of all SEEs. Immediate action should be taken for several SEEs to strengthen management autonomy; improve management information systems; provide better accounting and auditing arrangements; provide better staff-training and improved incentives for increased professional competence; increase operational efficiency and profitability; reduce overstaffing; and grant greater pricing autonomy. 25. The task of reforming an SEE such as TKI is vital for the success of the energy program. TKI is subject to considerable Government control, which extends to hiring personnel, wages, planning of investment and pricing. Like other SEEs, TKI has suffered from problems of poor performance, associated with over-manning, low productivity, weak implementation capacity, large losses and inability to internally generate any investment funds. Draft legislation has been prepared proposing that small lignite mines supplying local household and industrial consumers be returned to the private sector. This presumably would enable TKI's management to focus on larger projects and improve its financial position. Consideration might also be given to setting up the lignite and hard coal operations, including for new projects, under separate entities. The problem is so serious, that resort to expedient palliatives is unlikely to succeed. Other such important cases which appear to require urgent attention are TEK, TPAO, or TCDD. (g) Sectoral Master Plans 26. A number of particulars have become so important during the current period of transition that a fresh look is needed at certain key problem areas on a sectoral or subsectoral basis: - the very large size of the steel expansion and related raw material and transport requirements; - the great uncertainty of future petroleum imports and the very large program for expanding refinery capacity; - the increasing requirement for transporting bulk commodities; - the effect of increasing exports on port capacities; - the need for reforestation and the related fuel wood problem; - xi - - the very large electric generating program faced with an uncertain future demand; - the increasing cost of energy and its effect on the transport system; - coal and lignite production. These and a number of similar problems have given rise to the series of proposals in this Report for sectoral "Master Plans". CHAPTER 1 THE MACROECONOMIC PERSPECTIVE A. Introduction 1.1 In 1980, the Government of Turkey requested the Bank to review the country's public investment program in the context of its new economic policies and long-term growth potential. This Report was prepared by a mission which visited Turkey in November 1980, in response to that request. The exercise was facilitated by the fact that the Bank had already mounted a series of economic and sectoral missions, as part of the economic and sector work program. This Report therefore brings together some of the analyses of the many experts who participated in those missions. B. Recent Economic Developments 1.2 The current economic situation is very much affected by the Government's continuing effort, since early 1980, to stabilize the economy and correct the structural disequilibria of increasing balance of payments deficit and inadequate domestic savings to finance large investments. To achieve its goal of reestablishing viable growth and increased efficiency of resource allocation, through greater reliance on market forces and the introduction of an outward orientation in economic policy, a series of measures has been adopted in the areas of exchange rates, export promotion, protection policy, interest rates, State Economic Enterprises (SEE) prices, taxes, investment criteria and incentives, and institutional reforms. A number of additional medium-term policies continue to be initiated, and it is clear that the Government is determined to follow through with its newly adopted development strategy. 1.3 The January 1980 reforms did not have immediate impact on the conditions existing in Turkey at the time. Until the change in Government on September 12, there was considerable political uncertainty and production was disrupted as a result of intensifying violence, declining labor discipline, and increasing strike activity. As a result 7.7 million workdays were lost in the first eight months of 1980 as compared to 1.1 million workdays in 1979. Exports hardly picked up in the first eight months of 1980 and overall production stagnated. However, since the last quarter of 1980, economic performance has improved and this seems to be continuing in 1981. 1.4 The latest estimates show that real GDP declined by 1.0 percent in 1980, mainly owing to a further fall in industrial production, and fixed investment fell sharply for the third consecutive year. Private investment was adversely affected by the continued low rate of capacity utilization (45 percent in 1980), while public investment was held back by budget - 2 - constraints. Economic activity appears to have strengthened in 1981 following a pick-up in the last quarter of 1980. Based on latest available information, a GDP growth of around 3.5 percent is estimated for 1981. 1.5 The annual average rate of inflation, as measured by the wholesale price index, was 107 percent in 1980, compared to 64 percent in 1979, reflecting a huge increase in previously administered prices and a large devaluation in January. However, it should be noted that during the second half of 1980, there was marked deceleration in the rate of inflation from a peak of 120 percent in March 1980 to 80 percent by December 1980. This trend appears to be continuing in 1981 and the annual rate of inflation is estimated to be less than 35 percent by August 1981. The slowing down of inflation was the result of a coordinated policy of budgetary restraints, agricultural support prices, monetary growth and interest rate. If this trend continues, it is likely that the inflation rate for 1981 could be about 40 percent. 1.6 The employment situation has deteriorated in the past two years. The current labor surplus is 2.6 million (15 percent of the labor force) as against 1.8 million in 1977 (11 percent of the labor force). The deterioration in labor market conditions was especially marked in 1980, with only an estimated 100,000 jobs created in that year, while at least 300,000 persons entered the labor force, an increase of over 2 percent. The slack in the market was taken up only to a modest extent by an increase in the number of workers sent abroad through the Government Employment Agency, not so much to European countries as in earlier years, but to Libya and Saudi Arabia in particular. 1.7 The fiscal situation remained difficult in 1980. Tax revenue growth lagged significantly behind inflation, and substantial arrears in tax collection accumulated, SEE debt repayments lagged, their operational losses in 1980 were TL 23 billion, and budgetary transfers to SEEs rose by TL 65 billion in 1980. As a result, the consolidated budget deficit in 1980 was TL 208 billion (about 4.5 percent of GNP) not including a further accumulation of Government arrears vis-a-vis the private sector. 1.8 In 1981, the authorities are determined to reverse the fiscal slippage that occurred in 1980. Towards this end, a major role is to be played by a substantial tax reform package, enacted in late 1980/early 1981, which is designed both to increase the immediate yield system and to remove the inequity arising from the payment of little or no tax by a large segments of the population. The principal elements include a restructuring of the tax rates and exemptions applicable to wage earners, increased taxation of professionals and self-employed, the taxation, for the first time on a systematic basis, of the earnings of farmers; and very sizable adjustments in fixed-rate taxes and duties. These measures are to be buttressed by stringent expenditure control, a central component of which is to be a freeze on budgetary transfers to the SEEs at the level of the previous fiscal year. -3- 1.9 The balance of payments position in 1980 remained tight. The dollar value of exports in the first eight months of 1980 hardly exceeded that for the corresponding period in 1979. The situation changed in the following months, and the dollar value of exports in the remainder of the year was 63 percent above that for the same period. Total merchandise exports were $2.9 billion in 1980 compared to $2.3 billion in 1979. Agricultural exports rose by 24 percent and industrial exports by 33 percent. Due to increases in import prices, especially for oil, the value of merchandise imports was also considerably higher than in 1979 - $7.7 billion (including $3.6 billion for oil) as against $5.1 billion. Influenced by the new exchange rate and interest rate policies, workers' remittances increased strongly after June to reach $2.1 billion in 1980 compared to $1.0 billion in 1978 and $1.7 billion in 1979. As a result of all these factors, the current account deficit in 1980 was $3.2 billion. As of end 1980, total external debt outstanding and disbursed, including IMF and short-term borrowing, stood at $19.9 billion, as against $16.4 billion at end 1979. The improvements reported since the beginning of 1981 have engendered increasing economic optimism. Particularly impressive has been the performance of exports, which in the first seven months of 1981 grew by 55 percent over the corresponding period in 1980, with industrial exports up 99 percent and agricultural exports up 28 percent. 1.10 A decline in the rate of inflation, new incentives and the capacity to operate more freely, are paying off. The private sector is widely reported to be more optimistic today than at any time in the past few years. The threat of terrorism is almost over and investors are more confident of continuity in economic policies. Generally they support Government policies of transition to a more market-oriented economy. But how investors view the prospects of the new economic program may well depend on what the Government does in the context of the public investment program. 1982 will obviously be critical. The Government faces the challenge of bringing the SEEs under reasonable financial control, increasing private investment and restoring growth in output while introducing a more rational public investment policy. C. Growth Strategy and Investment Perspective 1963-80 1.11 Turkish development planning for many years has focused primarily on achieving rapid growth and modernization through public sector industrial development. Agriculture played at best a secondary role, with its share of public investment of about 13 percent in 1968-1972 declining to 7 percent in 1980. The main thrust was on capital-intensive import substitution in state-run basic industries. There has been increasingly large public sector investment in manufacturing and mining along with related infrastructure, controlled through central planning and SEEs. Industries were protected against foreign competition. An overvalued exchange rate coupled with unpredictable fluctuations in the value of the lira have discouraged major export commitments. These overvalued exchange rates, subsidies on imported capital equipment, low interest rates and various forms of tax relief for investors have sirtiilarly encouraged capital intensive investments in the private sector. -4- 1.12 An important part of the Government's announced strategy since 1980, has been an attempt to tailor public sector investment to scarce resources while carrying out a major reform of the institutions responsible for implementing the programs. The Government has been reordering its investment priorities not only to fit the reduced resource availabilities and implementation capabilities but also to maximize export potential. These tasks will inevitably require drastic changes in longstanding economic traditions. Further, they are made more difficult by their urgency, given the severity of the resource constraint. 1.13 The public investment portfolio by 1980 has become huge by any standard, encompassing over 9,000 projects 1/, with an outlay of TL 482 billion in 1980 at 1980 prices. In 1981 the program, in 1981 prices, was fixed at TL 667 billion, which in real terms was about the same as the level attained in 1980. The actual expenditure on this program, however, is likely to total about TL 770 billion which is about 15 percent higher in real terms than the programmed level. The 1981 program consisted of about 8,000 projects with a total cost of approximately TL 6,000 billion. In 1980, the largest share of public investment went to manufacturing (29 percent), transport and communications (18 percent), and energy (including mining) (32 percent), while the share of agriculture was only 7 percent. Private sector investment meanwhile, had declined in 1980 and 1981 to a level of TL 379 billion despite Turkey's growth strategy emphasizing exports, most of which would be in private sector industry and agriculture. 1.14 The task of this Report is to review this program selectively, on a project-by-project basis. The Government's selection criteria as well as the extent to which its stated policy priorities have been used in formulating the program, have been evaluated. A macroeconomic model was used to check the consistency between the proposed investment program, macro and sectoral strategies and the key constraints which have been set forth by the Government. Problems of implementation as well as the capacity of various governmental agencies responsible for planning and executing the program have been subjected to considerable discussion, particularly because this involves one of the weakest aspects of Turkey's public investment decision-making, i.e. project selection, preparation and design. Several key issues emerging from this discussion form the focus of this Report; (i) the size of public sector investment and the role of the private sector; (ii) sectoral priorities and the need to channel scarce resources to fully fund priority projects, selected through a rigorous system of project preparation and evaluation; (iii) the needs for institutional reforms and master plans in selected sectors; and (iv) the role of the public sector in the long term. 1.15 With relatively few foreign exchange constraints during the course of planned economic development (1963-1977), the rigorous pursuit of import substitution produced significant apparent benefits. In terms of growth and structural change, the objectives of the Plans were largely achieved. 1/ "Projects" is used in Turkey to cover a number of activities, e.g. feasibility studies in addition to actual investments. The annual GDP growth rate averaged 6.4 percent during the First Plan (1963-1967), 6.5 percent during the Second (1968-1972), and 7.0 percent during the Third (1973-1977). In manufacturing, the leading sector, value added grew at an annual average rate of about 10 percent and its share of GDP increased from 13 to 18 percent. Agriculture decreased from 38 percent of GDP in 1963 to 23 percent in 1977, although it continued to be the main source of exports and employment. Substantial structural change took place within the manufacturing sector as the proportion of intermediate and investment goods in total value added increased steadily. Local production of basic commodities introduced new technologies and created valuable labor skills. Dispersal of SEEs and incentives for private firms to invest in less developed regions helped somewhat to mitigate regional disparities, as did a nationwide program of industrial estates. Table I.1; GROWTH IN SECTORAL OUTPUT AND INVESTMENT 1963-1980 (Percent per annum) GDP Investment Total Public Private 1963- 1977- 1963- 1977- 1963- 1977- 1963- 1977- 1977 1980 1977 1980 1977 1980 1977 1980 Agriculture 3.2 2.4 10.4 -21.7 8.4 -17.2 12.9 -25.6 Manufacturing 9.8 -2.4 10.8 -2.4 17.7 4.7 7.5 -10.2 Energy 9.7 1.6 12.8 9.1 13.5 9.1 2.4 6.7 Transport and Communications 9.4 -1.9 12.5 -16.k 10.4 -14.8 20.3 -20.0 Housing 5.3 4.0 7.1 8.5 8.2 -6.6 7.0 9.6 TOTAL 6.6 0.4 10.2 -5.2 11.1 -4.5 9.3 -6.0 Source: SIS, SPO. 1.16 The development strategy was based on rapid industrialization; this, together with a dominant role for state planning, has resulted in an economic structure which will take some time to change. The emphasis was on self-sufficiency and import substitution, the use of advanced technology, most often capital intensive, with priority for the production of basic and intermediate products, the carrying out of large public investments in SEEs, and the granting of generous incentives combined with high levels of protection for private investments. This "inward looking" orientation has resulted in a number of uncompetitive industries, waste of scarce capital and too much dependence on imported inputs, with low employment and limited export possibilities. An increasingly large share of savings and foreign borrowings were absorbed to finance these public investments. The results became fully apparent as a serious balance of payments situation emerged in 1977. - 6 - 1.17 The apparent economic prosperity concealed serious problems emanating mostly from this development strategy; First, while the investment/GDP ratio went up from 17 percent in 1967 to 26 percent in 1977, domestic savings lagged, with the savings/GDP ratio virtually constant at around 16.5 percent. Increasing proportion of investments were financed with foreign borrowing. Second, with exports growing slowly the rapid growth of output that incorporated a high import component was not sustainable in the face of an increasingly weak balance of payments. The imports/GDP ratio went up from 6.6 percent in 1967 to 13.5 percent in 1977, while the exports/GDP ratio decreased from 5.4 percent to 3.9 percent over the same period. Third, with a large portion of investment channelled to capital intensive industries, increasingly high and rising unemployment resulted. Fourth, a highly protected domestic market fostered widespread inefficiency in both the public and private sector. Fifth, uncompetitive and inefficient heavy industry frequently resulted in very low economic returns and financial deficits. 1.18 While total fixed investment in real terms increased at an annual average rate of about 10 percent during 1963-77, public investment grew even more rapidly -- at an annual rate of 10.7 percent during 1963-1973 and at 18 percent during 1973-1977. Public sector savings each year after 1973 financed a decreasing share of public investment, declining from 75 percent to less than 25 percent in 1979. 1.19 The gap was filled by foreign borrowing -- increasingly on a short-term basis. Short-term external debt increased from $ 216 million in 1974 to $ 7.5 billion in 1978. Medium and long-term debt, held mostly by public sector entities, doubled between 1973 and 1978, from $ 3.3 billion to $ 6.7 billion. The carrying cost of this debt added to the increasing financial burden of high-cost oil imports, and with a substantial decline in workers' remittances, resulted in growing balance of payments deficits. When the inflow of external capital slowed, the result was the economic crisis in mid-1977. The boom collapsed, leaving a host of domestic and external problems needing resolution. 1.20 The growth of total fixed investment slowed to 6.9 percent in 1977 and became negative in 1978. Investment by 1980 returned to a level around the moderately high level of 1975 (TL 132 billion (at 1976 prices)). Private investment in 1980 was TL 57.2 billion (in 1976 prices) which was barely larger than the level reached in 1974, TL 53.6 billion (in 1976 prices). Two principal causes for the decline deserve detailed evaluation. First, the high cost of oil imports forced a drastic reduction in non-oil imports vital for investment. Second, the extreme shortage of domestic resources, worsened by the Government's restrictive policies on credit and interest rate ceilings, made it necessary to ration investible funds. Inadequate tax revenues and the SEEs' inability to generate funds forced those enterprises to fall back on the Government for financial support. The private sector was thus particularly hurt by this shortfall in resources -- the more so for lack of a developed capital market. Table I.2; FIXED INVESTMENT BY ECONOMIC SECTOR IN SELECTED YEARS 1963-1980 (TL billions at 1980 prices) 1963 1973 1977 1980 Public Sector Agriculture 20.4 25.1 59.1 33.6 Manufacturing 28.5 64.9 121.6 139.7 Energy 1/ 20.5 57.2 118.7 154.3 Transport and Communications 39.0 75.9 142.3 87.9 Health and Education 24.7 28.6 38.9 24.3 Housing 4.1 4.6 12.2 9.9 Other 11.9 30.2 61.4 32.5 Sub-total Public 149.1 286.5 554.2 482.2 Private Sector Agriculture 16.0 44.8 75.4 31.0 Manufacturing 36.0 104.5 128.9 93.4 Energy 1/ 2.5 4.5 3.2 3.8 Transport and Communications 5.7 40.4 89.4 45.8 Health and Education 0.4 1.2 1.6 1.5 Housing 55.7 107.2 142.0 186.8 Other 2.6 20.1 16.6 16.8 Sub-total Private 118.9 322.7 457.0 379.1 TOTAL 268.0 609.2 1011.2 861.3 1/ Includes electricity and mining only; excludes petroleum refining. Source: SPO. - 8 - 1.21 After 1977, investment in the private sector declined in such key sectors as agriculture, manufacturing and transport and was only partly offset in housing, with an overall drop of 17 percent below 1977. (See Table I.2). The fall in public sector investment was more modest; the overall level in 1980 was 13 percent below very high peak reached in 1977, and the sectoral distribution had changed relatively little, except for a continued expansion in energy. 1.22 Particularly disturbing was the fact that public sector investment levels were reasonably well maintained, despite a great weakness in the ability of many SEEs to design and implement effective programs and projects. Vast investment resources were being tied up in incomplete and partially utilized projects. Most planning activities ignored this situation apparently by focusing on too many detailed projects on the one hand, and on physical targets that were sometimes applied too rigidly on the other hand, often in disregard of economic considerations in the pursuit of imports substitution. Realistic plan formulation and execution were not adequately designed to handle the continued large size and scale of the program. Clearly no organization could be centrally staffed to review effectively the details of a program of 9,000 project activities. But the problem was complicated by the fact that feasibility studies, project preparation, engineering designs, cost analyses, and market analyses have in many cases been inadequate. Implementation has been the biggest problem and, to some extent the result of these deficiencies. Construction periods have invariably been much longer than projected. The net result has been an economy saddled with many incomplete projects and numerous inefficient and economically costly import substitution-oriented investments. In addition, the SEEs responsible for carrying out at least half of the public investment programs were hampered by inefficient management, low staff salaries, lack of autonomy, low productivity, price controls adid wasteful use of raw materials, energy and intermediate goods. The financial losses that resulted have become a large part of the Government's budget deficits in recent years. 1.23 Economic policies, to the extent they were designed to foster investment, supported the relatively rigid targets set by the State Planning Organization (SPO) and the SEEs. An incentive system resulted in significant protection against imports, while fiscal and monetary instruments promoted the priorities set in the Government's plan. A comprehensive system of quotas and import rationing played a far more significant role than tariffs or other levies. Because the system had not been selective of industries with good economic potential, even very inefficient producers were shielded from competition. Lack of external competition and inadequate budgetary controls provided little or no incentive for improving efficiency. 1.24 Since the protection mechanism and exchange rate policies made production for the domestic market more profitable than exports, few real export industries developed. Most Turkish firms, when they did sell abroad, sold onl'y transitory surpluses over home market needs. At present only 4 percent of manufactured output is exported and it is concentrated in - 9 - a few products, such as textiles, leather and glass. Only five percent of agricultural output is exported, and this is dominated by a few crops such as cotton, tobacco and hazelnuts, plus wheat, exports of which fluctuate from year to year depending on the weather and storage capacity. Although the recent economic measures have started to correct this anti-trade bias resulting from protection and exchange rate policies and provide export incentives, there is still some way to go. Private entrepreneurs have shown a positive response to the new policy and indicated a strong willingness to invest in production for export. 1.25 Import substitution policies, meanwhile, did not lessen the country's reliance on imports. Imports of oil and petroleum products as well as raw materials and spare parts, upon which-much of domestic production depended, grew rapidly. While exports constituted only 6 percent of GDP in 1975 compared to a 20 percent average for 55 middle-income developing countries; 1/ imports exceeded 14 percent of GDP. This resulted in a resource gap equivalent to over 8 percent of GDP, one of the highest among all countries. 1.26 Turkey's high dependence on imported oil is a problem of particular importance. Oil as a share of total energy consumption (measured in tons oil equivalent) rose from 39 percent to 44 percent during 1973-1980. The cost of imported petroleum rose from US$o.2 billion in 1973 to an estimated $3.6 billion in 1980, accounting for 46 percent of merchandise imports and representing 122 percent of the value of all merchandise exports. This is one of the highest ratios in the world. Oil imports in terms of volume rose between 1970 and 1977 at a yearly rate of over 18 percent, from 4.4 million tons to 14.2 million tons. The impact of the rise in the volume and value of oil imports, together with the inflationary cost increase of Turkish imports from OECD countries during this period, on Turkey's balance of payments has been devastating. 1.27 There can be little doubt that energy imports have squeezed out other imports vital for investment and production. The squeeze was tighter because the prices of other imports had also increased. During 1976-1979, merchandise imports declined by 14.6 percent per year on average, and those of machinery and equipment were reduced by 23.8 percent per year while petroleum imports only declined by 1.8 percent. The resultant scarcity of imported raw materials and spare parts has been an important cause of the widespread low capacity utilization of the last two or three years. I/ IBRD: World Development Report, 1980, August 1980. - 10 - D. Macroeconomic Outlook for the 1980s 1.28 The prospects for the investments proposed, and particularly those of the larger projects, ultimately depend on macroeconomic growth patterns in the 1980s and beyond -- patterns which in turn will be shaped by the policy reforms of the next year or two. The starting point for projections, i.e. the negative GDP growth rates in 1979, and 1980, is a discouraging one, but the groundwork has been laid for stabilizing the economy and for growth to resume in the coming years. Dramatic reduction in inflation, high export growth and revival of production in 1981 indicate that policy reforms have begun to have the desired effects. 1.29 The adverse balance of payments situation in 1977, set in motion a chain of stabilization measures in 1978 and 1979, culminating in a series of policy reforms starting in January 1980. These reforms represent a basic departure from past economic policies. In addition to demand management policies, they focus on four main areas; (a) export promotion, through a rational exchange rate policy and financial and institutional incentives; (b) domestic resource mobilization, through an increased tax effort, gradual reform of the SEEs and interest rate liberalization; (c) rational public investment policies; and (d) improved external debt management. 1.30 On the basis of policy changes implemented so far and what the Government wants to pursue in the future, this Report attempts at assessing the growth prospects for the 1980s. The assessment began with an evaluation of sectoral potential, especially in terms of growth and export, and the investment required to realize such potential, taking into account the need for structural change and the role of the private sector. The investment requirements and their implications on domestic resource availability, balance of payments, external capital inflow, are put through a consistency check using a macroeconmic model which is described in Appendix 3. 1.31 Despite the hazards associated with such an exercise particularly in the present situation where a number of uncertainties, e.g. regarding the sustainability of export growth rates given the international environment, a number of simulations were conducted to arrive at a judgement on a viable target for growth and investment, within the constraints of domestic and external resources and debt servicing capacity. The projections presented below are based on a set of cautiously optimistic assumptions, and represent, in the Bank's view, the investment levels which appear to be sustainable. The economy could attain a growth rate of about 3.5 percent in 1981, increasing to about 4.5 percent in 1983-85, without unduly straining the balance of payments or domestic financial stability. 1.32 Projected growth rates and expenditure shares are presented in Table I.3. Sectoral growth rates, except that of agriculture, would be lower than what were achieved in 1973-77. This reflects not only the constraint placed on the economy by the balance of payments but also the shift of investment emphasis toward agriculture. These projections also emphasize the need to reduce the growth of domestic consumption so that its share to GDP declines from 84 percent in 1980 to about 80 percent in 1985. This is consistent with increase in GDP growth from 3.5 percent in 1981 to 4.5 percent in 1983-85, within sustainable levels of foreign borrowing. With policy changes introduced and to be pursued in the areas of demand management and resource mobilization, the Bank believes such reduction in the share of consumption should be possible. Table I.3; GROWTH OF GDP AND SELECTED SECTORS 1973-1985 (in percent) Average Actual Estimated Projections 1973-1977 1978 1979 1980 1981 1985 Agriculture 3.2 2.7 2.8 1.7 2.0 3.5 Industry 9.7 6.6 -5.6 -5.5 5.0 7.1 Manufacturing 8.8 0.8 -2.6 -5.2 4.7 6.9 Mining 15.7 26.7 -16.3 -9.4 5.0 8.0 Utilities 13.4 12.4 8.0 -3.2 6.0 9.0 Housing and construction 7.2 4.1 4.1 2.2 2.5 3.5 Transport, storage and communictions 8.9 2.5 -4.4 -3.6 2.9 3.5 Services 7.9 4.6 0.3 -0.1 3.3 3.5 GDP at factor cost 7.1 4.3 -0.6 -1.0 3.5 4.5 As Percent of GDP Total Consumption 83.9 81.0 82.1 84.6 83.1 80.3 Private 71.0 67.4 68.7 72.6 71.0 68.2 Public 12.9 13.6 13.4 12.1 12.1 12.1 Gross Investment 23.3 23.0 21.9 23.0 23.0 23.0 Fixed 21.2 21.0 19.0 19.9 20.0 20.5 Change in Stock 2.2 2.0 2.9 3.1 3.0 2.5 Deficit in Goods and NFS 7.2 4.0 4.0 7.7 6.2 4.0 Terms of Trade Loss - - - - -0.1 -0.8 Factor service income, net 2.5 1.3 0.1 2.0 2.0 0.7 - 12 - Average Actual Estimated Projections 1973-1977 1978 1979- 1980 1981 1985 Memo Items Current Account deficit (U.S.$million) -1605 -1710 -1771 -3198 -2634 -3287 Unemployment (% of labor force) /1 13.0 14.0 15.3 14.6 16.8 19.3 /1 Not including labor stock abroad. Source: SPO, SIS, Bank Projections. 1.33 The projections highlight several important points. First, it is clear that export growth is critical to recovery in the balance of payments. To attain this objective, policies need to be adopted that would enable the private sector to continue to regain confidence, and carry the burden of a substantial investment program. Second, Turkey's adjustment to self-sustained growth will be a slow and long process. Economic recovery and manageable external accounts are not expected to occur before the mid to late 1980's. Third, if Turkey is to sustain a reasonable rate of growth, substantial external funds will be required. If these are borrowed at commercial terms, the debt service position will remain difficult, underscoring the need for more concessional financing. Furthermore, it will be necessary that major institutional changes are carried out to increase productivity, particularly in basic industries and agriculture. Finally, on the financial front, it will be vital that public consumption is reduced, domestic savings increased and there be a continued net transfer of external resources into Turkey. Economic policies will need to promote appropriate levels of investment in both the public and private sectors. 1. The Investment Program 1.34 Consistent with the output growth rates presented above, the investment requirement for the period through 1985 was derived, on the basis of a review of each sector's past performance and future potential. These levels are represented in the investment breakdown shown in Table 1.4 below. Consistent with the policy adjustments being carried out, the public sector is expected to put greater emphasis on the development of energy and agriculture than in the past, with a reduced focus on manufacturing, transport and housing. The private sector would be encouraged through appropriate policies, to invest significantly in manufacturing (especially export-oriented), transport and housing. On the expenditure sides, even if an average 4.5 percent growth can be achieved through 1985, it could mean no significant increase in per capita consumption, and unemployment would still increase. - 13 - Table I.4; TOTAL & PUBLIC SECTOR FIXED INVESTMENT BY SECTORS, 1980, AND PROJECTIONS 1981-85 (TL billion at 1981 Prices) Actual Projections Annual Average Sector 1980 1981 1982-1985 1982-1985 Total Public Total Public Total Public Total Public Agriculture 81.2 47.1 123.6 84.6 633.6 352.8 143.1 84.9 Mining 48.3 51.0 62.9 60.2 287.2 271.2 70.3 66.9 Manufacturing 292.8 195.6 254.6 139.9 1473.6 542.0 318.7 133.8 Electricity 150.4 165.1 153.1 149.4 646.4 623.6 161.4 154.8 Transport 167.8 123.1 197.5 126.5 956.8 501.6 239.4 129.3 Tourism 6.0 3.3 9.9 5.3 42.8 16.4 13.0 5.3 Housing 247.2 13.8 202.2 13.6 1097.8 59.6 200.0 13.5 Education 22.7 24.2 34.5 33.3 105.3 100.0 34.9 33.3 Health 9.8 9.8 16.2 14.9 52.4 43.2 16.9 14.9 Other Services 55.9 42.1 70.5 49.9 326.9 200.0 63.8 40.9 TOTAL 1082.1 675.1 1125.0 677.6 5622.4 2710.4 1261.5 677.6 Source; SPO, Bank Projections. 2. Balance of Payments Implications of the Investment Program 1.35 The growth and investments envisaged have substantial implications for the external accounts. Table I.5 below, summarizes some of the results of the model relating to the foreign sector consistent with the growth scenario of Table I.3. The crucial assumption behind the projection is an annual average export growth of about 14 percent in real terms, during 1982-1985; this clearly reflects the strong export performance in 1980 and the first nine months of 1981. Exports in the first nine months of 1981 were 58 percent over the previous year in nominal dollar terms and there was a marked shift towards new commodities (manufactured goods) and new markets (Middle East). By end 1981, total merchandise exports should reach at least $4.2 billion (implying 38 percent growth in volume). For 1982-85, the projections suggest continued expansion of exports reflecting the favorable change of attitudes toward exporting evidenced in the business community and the strenuous efforts by the Government to promote exports. This is consistent with production and consumption levels anticipated during the period. The assessment of export is based on a strategy oriented towards rapidly increasing exports to Europe and the neighboring Middle Eastern countries. In view of the positive experience with exports during the past 12 months, the growth rate of around 14 percent during 1982-85 appears reasonable. Several structural factors also support this growth assumption; (i) the depressed base of industrial exports (US$1048 million in 1980); (ii) the low level of capacity utilization, 40-50 percent in 1980; and (iii) the fact that in 1980, total industrial exports - 14 - accounted for a historically low level of only 2 percent of GNP, 9 percent of manufacturing value added and about 3 percent of manufacturing gross output. A modest return to historical levels would result in impressive gains. Furthermore a sustained improvement in private fixed investment is expected as the result of current policy which would have substantial effects on exports, inasmuch as the private sector share of exports has been close to 90 percent in the last 15 years. Worker's remittances are expected to remain stable in real terms (growing at the rate of international inflation in nominal terms) since the substantially high increase in remittances in 1980-81 is unlikely to increase in real terms over the next four years. Table I.5; BALANCE OF PAYMENTS (Current US$ Billion) Actual Projections 1980 1981 1985 Exports (goods and NFS) 4.1 5.5 11.2 Agriculture (1.7) (2.2) (3.9) Mining (0.2) (0.2) (0.4) Manufacture (1.0) (1.8) (4.7) Imports (goods and NFS) 8.4 9.4 15.1 (petroleum) (3.6) (4.0) (6.6) Balance of goods and NFS -4.3 -3.9 -4.0 Factor service income, net 1.1 1.2 0.7 (interest payments, net) /1 (-1.0) (-1.3) (-2.6) (workers' remittances) 2.1 2.5 3.4 Current account balance -3.2 -2.6 -3.3 Direct Private Investment 0.1 0.1 0.2 MLT borrowing (net) /2 2.4 2.0 1.1 (Disbursement) /2 (2.5) (2.5) (3.5) (Amortization) /1 /2 (-0.1) (-0.4) (-2.5) Other Capital /3 1.1 0.8 2.3 Change in reserves (- = increase) -0.4 -0.2 -0.3 Memo Items Total debt outstanding 18.9 /4 20.6 31.3 Debt Service Ratio 11.5 17.6 34.4 /1 Includes debt relief /2 Includes public and private guaranteed and private non-guaranteed debt /3 Includes error and omissions, and in projected years gapfill (unidentified capital) /4 Including IMF comes to $19.9 billion Source; SPO, Bank Projections. - 15- 1.36 Import projections, although more difficult to evaluate, are based on the import elasticity of about 1.2 during 1981-85. This is viewed in the context of Government's effort to reduce non-oil imports to the bare minimum and the expectation that an ambitious energy program will successfully replace significant amounts of imported oil. With the expected improvement of capacity utilization and an increase in exports, it is reasonable,to expect that imports will grow at a level of slightly higher than the GDP growth during the next 5 years. 1.37 Increasing exports and limiting import growth is critical to achieving the projected level of output growth. The greater the success in exporting, whether it be light or heavy industrial products, irrigated or rainfed agricultural crops, the greater will be the chance to reach the growth rate. The prospects for increases in exports are favorable. an increase in private investment in manufacturing and agriculture is expected soon. These should lead to increased capacity to produce such exportable goods as processed foods, textiles and clothing, shoes and other leather products, metal castings, light engineering products and industrial equipment. Public sector investment will support these projects by developing infrastructure such as warehouses, ports and transportation facilities. 1.38 The current account deficit during 1981-85, though increasing slightly every year, is on average close to the 1980 level of $3.2 billion. This implies that although there is no further deterioration, the balance of payments situation could remain fairly tight till 1985. Gross capital inflows required to meet financing needs should, however, reach $6.0 billion in 1985, as against slightly over $3.0 billion in 1981. In fact recent trends provide a basis to argue that the balance of payments picture in the 1980s would be somewhat less severe. For example, if (a) workers remittances were to increase by 2-3 percent in real terms (instead of remaining constant as assumed); (b) profit remittances from construction income are assumed to average about $100-150 million per year during 1981-85; and (c) average import elasticity was around 1.0-1.1, the current account deficit in 1985 could be around 12 billion, with commensurate impact on gross capital inflow, bringing it down to $5 billion in 1985. 1.39 Debt service obligations are likely to remain high over the coming years. From a level of only about 12 percent in 1980, mainly a result of recent debt rescheduling exercises (without which the level would have been 29 percent), the debt service ratio continues to rise to a level of 34 percent in 1985. On more favorable assumption spelled out above it would still be around 30 percent. The high ratios in the mid to late 1980's, are partly the result of repayment of rescheduled debt which would amount to about $1.0 billion in 1985 alone. Despite the rapid increase the debt burden should remain manageable provided current policies are successfully implemented, the export drive is sustained, and Turkey continues to receive further international support from both private and official donors. - 16 - 3. Domestic Financing 1.40 In projecting the public accounts, the analysis is based on the understanding that the Government would try to keep the long-term growth of current expenditures of the public sector in real terms close to the current levels, as part of its intention to avoid any worsening of the public savings picture. The fiscal situation in Turkey has continuously deteriorated with the Government budget deficit constituting 4.5 percent of GNP in 1980 as against an average level of about 2.5 percent during 1974-1977. The increase in current expenditures reached TL 497 billin in 1980 (11 percent of GNP), which is about 90 percent above the level of the previous year. In terms of financing public sector investment the following picture emerges (Table I.6); Table I.6; FINANCING PUBLIC SECTOR INVESTMENT 1975-1985 (Current TL billion) Projected Historical (at 1981 prices) 1975 1978 1980 1981 1982-85 a/ Public Savings 48.0 70.5 227.8 575.9 1655.8 Public Investment 65.8 155.3 680.4 788.7 2796.0 Public Investment Savings Deficit 17.8 84.8 452.6 212.8 1140.2 Foreign borrowing (net) 1.5 28.1 158.5 92.4 478.8 Domestic borrowing (net) 16.3 56.7 294.1 120.4 661.4 Public Investment Savings deficit as percent of GNP 3.3 6.6 10.2 7.0 3.0 b/ a/ Four-year total. b/ Figure for 1985. Average for the four years is 4.0. Source; SPO, Bank projections. 1.41 The investment savings deficit of the entire public sector has increased tremendously in the last few-years with the gap increasing to over 10 percent of GNP in 1980. The gap is largely financed by domestic borrowing, the largest component of which is borrowing from the Central Bank. - 17 - 1.42 The inflationary impact of borrowing from the Central Bank is fully recognized by the authorities, and the Government has reaffirmed its intention to obtain a major reduction in both the financing requirement and in Central Bank borrowing. A marked tightening of fiscal policy -- as indicated by the 1981-1982 budget -- is required to make room for a desirable recovery of private productive investment. The expected rise in revenues as a result of the tax reform, is a crucial element in 1981-1982 as well as future budgets. On the expenditure side, the growth of transfer payments and public consumption must obviously be kept to a minimum. 1.43 Clearly, given the substantial debt service burden through 1985, an improved public savings performance is required to achieve the public investment programs discussed later in this Report. Previous Bank reports have emphasized the improvement needed in the SEE financial performance to permit them to eliminate their drain on the budget and make a positive contribution to financing their investment. If this objective is not met, other sources of financing for the public sector (either by appropriating domestic private savings or by borrowing abroad), will be required to reach public investment objectives. The growth strategy is based on the premise that necessary effort will be made to mobilize both public and private savings with the latter being earmarked as far as possible for the private sector itself. Given this outlook and the likely availability of external resources, the sustainable level of public investment during 1982-85 (at 1981 prices) is projected in real terms to be more or less around the level programmed in 1981. Private sector investment is envisaged to rise to about 52 percent of total investment during 1982-1985 from its 1980 level of 40 percent. The Government's policy package with emphasis on market forces, and export incentives will play a key role in restoring the private sector confidence and inducing such a level of investment. 4. Employment Needs 1.44 Employment, over the medium-term, will remain bleak even under the reasonably optimistic assumptions being used. Agriculture, traditionally the largest employer, is expected to have a significantly larger investment program but is still unlikely to absorb more labor. Substantial efforts will be made in other sectors of the economy, like energy, but they should have little effect on employment. Without major job creation programs, the unemployment rate is likely to rise significantly above its already high levels. Some of the policies adopted since January 1980 -- especially the liberalization of interest rates, the adoption of more flexible exchange rates and the reorientation of the economy towards export growth -- should help to correct the bias towards capital intensity and promote employment. The private sector, particularly in housing and construction, should help create jobs but it will take time before the changes induced by these policies have a significant impact on employment creation. - 18 - 1.45 In any case, additional employment creation will depend upon the type of programs fostered. Obviously, programs should consist of direct and specific actions to generate jobs in a short time with relatively small investments. Privately built mass housing, afforestation and forestry projects, and Government-sponsored infrastructure projects such as road construction may be the best short run alternatives. Expoit industries and privately owned medium and small scale enterprises provide good potential since they are likely to be more labor intensive than larger -- and in most cases public -- enterprises geared towards import substution. 1.46 Unemployment in the next few years will also be directly related to the success of macroeconomic policies, which will determine the demand for labor. Should the labor force grow at the recent historical level of 2.1 percent annually (about 372,000 persons a year on average), on the basis of the current macroeconomic scenario, the unemployment rate would rise from 15.6 percent in 1980 to 19.3 percent in 1985. This is obviously an untenable outlook. 1.47 Policies to stimulate employment creation, such as incentives for increased labor intensity in manufacturing or expansion in housing construction, may make an important contribution towards helping to solve this employment problem. If these policies are implemented successfully the number of new jobs in 1982 could be about 27,000 rising to about 105,000 in 1985. Construction could account for about 50 percent of the new employment. The unemployment rate, however, would only be reduced by about 0.6 percentage points in 1985 and the pool of unemployed would still increase by at least 70,000 persons a year (using a mid-range labor supply growth assumption). Consequently, even stronger employment creation policies will be needed within the next five years. 1.48 Agricultural job creation, although difficult, will be essential. It may be possible to reduce labor surplus in the sector -- which has been assumed constant in the projections -- through the increase in agricultural exports. Projects in the areas of integrated rural development and reforestation could add more jobs (at least 50,000 jobs per year). 1.49 In the context of the 1981 public investment program, there is no indication that most projects included will contribute to productive employment generation more than they have in the past -- that is, very little. Even if the current projects were designed to maximize employment possibilities, it could not change the situation significantly. It is only possible to increase job creation by shifting resources to projects with large employment components, such as construction of roads in rural areas or other infrastructure projects in urban areas, and deliberate adoption of more labour-intensive construction techniques than those so far being adopted. Considering the employment projections discussed above, projects such as these would have to generate at least 70,000 jobs a year, to reduce growth in unemployment. There can be little doubt that private sector growth may be the only path to making a substantial dent in solving the unemployment problem in the next decade. - 19 - CHAPTER 2 THE 1981 PUBLIC INVESTMENT PROGRAM A. An Overview 1.50 The Government's approved investment program for 1981 (TL 667 billion in 1981 prices) is in real terms approximately equal to the actual 1980 public sector investment (TL 482 billion in 1980 prices) /1. As outlined in Table I.7, there are relatively modest changes in the shares of the major sectors, with some increases for agriculture and energy and slight reductions for manufacturing and transport. There are, however, some significant changes in the subsectoral allocations. Substantial increases have been made in the shares allocated for irrigation, village electrification, highways and rural roads. Several industrial groups have received larger shares, e.g. cement, beverages and tobacco, while others such as iron and steel, fertilizers, petrochemicals, pulp and paper, machinery, transport equipment and food industries have received reduced shares. Railways, ports, shipping, health and education also received reduced shares of the allocation. The implications of these differences are quite modest will be as discussed later in the sectoral chapters of the Report. Table I.7: 1981 PUBLIC INVESTMENT PROGRAM (TL billions at 1981 prices) 1981 Allocation % of total % Distribution Total Cost Amount 1981 Program of 1980 Program Agriculture 692.7 84.2 12.6 10.0 Large Irrigation 529.0 37.5 5.6 4.3 Small Water and Farm Development 49.0 18.7 2.8 2.2 Forestry 46.0 14.9 2.2 1.7 Grain storage & Marketing 19.2 1.8 0.3 0.3 Agriculture Supply Organ. 0.8 0.4 0.1 0.3 Sugar Beet Program 1.6 0.6 0.1 0.3 Fisheries 1.3 0.5 0.1 ) Extension & Administration 23.7 4.4 0.7 ) Livestock Development 12.3 2.5 0.4 ) 0.9 Research 2.0 0.6 0.1 ) Others 7.8 2.2 0.3 ) /1 As mentioned earlier, the actual expenditure in 1981 is estimated to be about TL 770 billion. - 20 - 1981 Allocation % of total % Distribution Total Cost Amount 1981 Program of 1980 Program Manufacturing 1,637.6 122.1 18.3 19.3 Iron and Steel 654.7 16.0 2.4 3.3 Fertilizers 195.4 4.5 0.7 0.9 Petrochemicals 138.9 19.0 2.8 3.4 Pulp and Paper 86.8 7.5 1.1 1.6 Cement 41.0 10.0 1.5 0.7 Metal Manufacturing 77.8 2.8 0.4 0.5 Machinery 70.7 6.2 0.9 1.3 Electrical Machinery 42.0 1.4 0.2 0.3 Transport and Equipment 80.5 4.5 0.7 1.2 Textiles 17.7 5.1 0.8 0.6 Tire Factory 16.1 1.5 0.2 0.1 Food and Beverages 64.3 16.4 2.5 2.0 Tobacco 84.8 14.0 2.1 1.6 Others 66.9 13.2 2.0 1.8 Energy 2,095.2 213.2 31.9 30.1 Electric Power 1,513.7 147.5 22.1 20.5 Hydro 747.9 44.5 6.7 7.0 Thermal 619.3 80.4 12.0 12.0 Transmission 78.3 15.6 2.3 Village Elecrrification 3.3 2.0 0.3 0.4 Urban Distribution 64.9 5.0 0.7 0.9 Coal and Lignite 188.9 30.0 4.5 4.9 Petroleum Exploration and Development 68.9 13.0 1.9 2.3 Petroleum Refining 232.4 15.5 2.3 2.1 Pipelines 22.9 1.6 0.2 0.3 Others 67.9 5.6 0.8 Transport and Communications 877.7 119.3 17.9 18.8 Highways and Rural Roads 394.0 60.5 9.1 5.0 Railways 209.2 18.5 2.8 4.6 Ports and Shipping 75.1 11.0 1.6 6.4 Aviation and Airports 35.1 8.6 1.3 0.2 PT&T and TRT 164.3 20.7 3.1 2.6 - 21 - 1981 Allocation % of total % Distribution Total Cost Amount 1981 Program of 1980 Program Mining /a 130.3 13.5 2.0 2.7 Tourism 26.2 5.0 0.7 0.8 Housing 82.7 13.3 2.0 2.2 Education 82.0 33.1 5.0 5.8 Health 45.1 14.6 2.2 2.4 Services 292.2 48.9 7.3 100.0 TOTAL 5,961.6 667.3 100.0 100.0 /a Other than energy related activities. Source; 1981 Investment Program. 1.51 These changes in subsectoral composition give little indication of the direction of sectoral strategies or policy changes that are now being introduced. More telling is the treatment by the authorities of the larger projects that constitute a substantial portion of the budget. Hence, this Report concentrates on these projects. In manufacturing, for example, with 891 projects in the program, 61 projects mostly in iron and steel, fertilizers, refineries, 1/ petrochemicals and pulp and paper represent 87 percent of total project cost and change little from their position in 1980. In the electric power subsector, with nearly 1,200 projects, quite a small number of power generation projects account for 70 percent of the program; three lignite mine projects related to complementary power projects are responsible for nearly 50 percent of the program in the coal subsector; 2/ and TPAO's 5 large projects represent 90 percent of the allocation for petroleum, 3 of which are ongoing petroleum refinery projects. 3/ Later in this section (see Table I.8) a summary is shown of the largest projects reviewed. 1/ The Investment Program includes refineries in the manufacturing sector. In the discussions in sectoral chapters, these have been shifted to the energy sector. 2/ Elbistan A, Mugla Yatagan and Beypazari. 3/ Bati Raman production and the IPRAS' Izmir and Middle Anatolian refinery projects. - 22 - 1.52 The 1981 allocations for large projects are generally consistent with the Government's stated intention to rationalize the investment program. Resources have been allocated for the most part to projects which would quickly help overcome some of the serious problems faced by the economy, and to projects that have proceeded far along and can be completed relatively soon. The Government's project selection criteria as presented to the Mission also seem consistent with its approach to allocations for the large projects. The criteria can be paraphrased as follows; Projects to develop indigenous energy resources are to be given top priority because they are expected to solve bottlenecks and alleviate foreign exchange shortages. Many of these projects have been shown to have very high rates of return. The next priority is to be given to projects that can be completed within 24 months, where there is substantially high sunk capital and the return on the remaining investment is adequate. Projects that could be finished within two years if funds were available immediately, and have high rates of return, receive the next priority. The priorities that follow would be sectorally oriented with emphasis placed on projects that are labor intensive, have export potential and use domestic resources (e.g. agribusiness, textiles). New projects that would solve bottlenecks, provide infrastructure and inputs to exportable products receive the next priority since they are also expected to have high rates of return. For ongoing profitable projects that require resources which exceed the funds available to the public sector, the Government will seek the equity participation of the private sector (complete or partial, depending on the case). 1.53 It is, however, difficult to relate the 1981 allocations to a reorientation of the economy toward exports or even a strong orientation towards output growth. It is true that as compared to new projects, ongoing ones were given priority; but it is questionable how quickly many of them will actually reach the production stage. It is also not clear how many of the projects focus on badly needed rehabilitation and modernization. Programs which are designed to provide infrastructure to support production based on local resources apparently receive priority, but the costs of the projects are rarely compared to the lower-cost alternative of affecting production directly by providing badly needed spare parts or raw materials. - 23 - 1.54 There are encouraging signs that the Government is changing its attitude in this regard. In a number of cases, the Government now appears to be focusing on capacity in use and operational problems. For example, spare parts, equipment and raw materials are beginning to receive priority in obtaining foreign exchange allocations. The Government expects that bottlenecks on the railroads, in the ports, and in lignite, coal and iron ore production will soon be relieved. It is intended that quick supply of materials and spare parts will restore production in large unutilized industrial and agricultural capacity, e.g. fertilizer, power plants and railroads. A number of projects, e.g. cement and fertilizer, focus on quick yielding rehabilitation and modernization activities. If these approaches are effective, the impact on output in the next year or two could be significant. 1.55 One is, however, not equally encouraged by the Government's progress in defining a long-term strategy for public investments. Nor is it clear whether there will be a serious attempt to provide incentives under which private investments might play a larger role in meeting the needs of energy production and employment generation. In general, it is still unclear whether the Government has yet determined its policies regarding what should be accomplished through the public investment program as opposed to the private sector. Although attitudes towards individual projects discussed below give some indication, the signals are far from unclear at this point. B. The Project Focus 1.56 Individual projects and "project oriented" activities provide the clearest view of public investment policy. In the case of most of the responsible public agencies and SEEs, the relatively few major projects that loom large in the total budget allocation appear to be determining the actual level of the approved program. The large number of remaining projects somehow survive, with what is left over. The process of project review itself raises some serious planning issues. In the four main sectors: transport, agriculture, manufacturing, and energy, the 1981 program covers over 4,000 project activities. In principle, all projects are subject to the review of the SPO. In practice, this can only be done effectively for a relatively small number of large projects. Investment budgeting and implementation scheduling, to the extent they have been carried out in the past, has not been particularly successful and should be decentralized to the sector enterprises themselves. 1.57 The "large project problem" is most difficult to handle especially because of the numerous intersectoral and inter-agency implications that most of them confront. Many projects have received widespread public scrutiny for years. The review of the 1981 program therefore stressed such - 24 - large projects and their relation to sector policies. Since many of these projects have not yet been integrated into comprehensive sector programs, the sector analysis presented in this Report has a strong project orientation. Further, the presentation hardly gives a reasonable indication of what has been essentially an iterative process, one that is only partially completed. The sectoral balance of the programs presented in the 1981 budget is inevitably very tentative. The data base, on which judgements have been formed, is a rather unstable one at present. For example, recent cost estimates for several power projects being supervised as part of Bank loans show a 50 percent cost increase over estimates reported at the time this Report was prepared. A large number of studies on key projects are out of date and the updating process in many cases is only now underway. 1.58 This Report is based on project reviews, where possible, of indepth technical, economic and cost study. However, as not all projects are subject to rigorous reviews, the term projects "recommended for priority financing" should be interpreted as shorthand for promising projects whose economic viability in some cases may have to be established by further analyses. It also indicates projects which appear to have a strong prima facie economic justification. The results of a review of the larger projects as summarized in Table I.8, show the extent to which a de facto project selection process has already been started by the Government. The examination of the largest projects in the 1981 program indicates that the Government has, in practise, already selected priorities, allocating the largest part of the funds to a relatively small group of projects. - 25 - Table 1.8: SUMMARY OF REVIEIW OF SELECTED LARGE PROJECTS IN 1981 PROCRAM (TL billion at 1981 prices) Very large Projects All very large Recommended for All Selected Large Large Projects Recommended Projects /a Priority Funding /a Projects /b for Priority Funding /b Total Total Total Total No. of Project 1981 No. of Project 1981 No of Project 1981 No of Project 1981 Projects Cost Alloc. Projects Cost Alloc. Projects Cost Alloc. Projects Cost Alloc. Agriculture 20 381.4 10.6 14 118.6 8.5 69 506.1 20.0 49 273.7 16.8 Food, beverages, tobacco 9 95.9 17.3 4 31.0 10.8 17 109.9 19.1 12 45.0 12.6 Textiles, paper, tires, cement, clay products 6 106.1 8.6 4 80.5 7.1 18 148.1 13.0 16 122.6 11.4 Chemicals, fertilizer, petrochemicals 7 328.0 22.9 5 196.5 22.9 17 353.0 28.1 14 218.1 27.9 Iron, steel, nonferrous metals 7 650.6 13.3 2 68.4 12.0 14 671.1 14.4 6 79.6 12.6 Metal goods, machinery, vehicles 11 183.9 5.7 5 65.8 1.8 28 225.1 12.1 19 95.2 7.4 Power generation and transmission 29 1,201.2 79.9 19 531.9 69.0 67 1276.6 90.4 59 607.4 79.5 Oil refining and transport 5 222.6 10.5 - - - 9 231.0 11.3 4 8.4 0.8 Oil, geothemal and radioactive material development 4 50.3 4.0 4 50.3 4.0 10 63.6 6.0 10 62.6 6.0 Coal/lignite production 10 167.3 17.5 8 125.9 16.7 13 175.8 18.4 11 134.4 17.5 Coal/lignite exploration 4 44.7 1.5 4 44.7 1.5 4 44.7 1.5 4 44.7 1.5 Railways, maritime and air transport 11 200.1 10.5 8 80.7 8.1 39 261.3 19.3 31 129.6 16.9 Road transport 10 199.5 24.2 9 166.0 19.6 32 242.2 19.6 15 239.0 19.6 Communications 6 132.0 15.4 6 132.0 15.4 16 157.0 19.3 15 155.0 19.3 TOTAL 139 3,963.6 241.9 92 1,695.3 197.1 354 4,465.5 292.5 281 2,216.3 749.8 /a All projects in 1981 program with total project cost above TL 5 billion. /b All projects in 1981 program with total project cost above TL I billion and to be completed after end of 1981. Source: Mission's analyses of 1981 Investment Program. - 26 - 1.59 The problems are particularly acute in the largest projects as indicated in Table I.8. Of 139 largest projects, each with a total cost of over TL 5 billion (in 1981 prices), reviewed in terms of rates of return, preliminary feasibility studies, implementation capacity, market constraints and intersectoral coordination problems, only 92 projects appear to have reasonably assured viablility. In the Government's allocation process, these 92 projects have clearly been more fully funded than most other projects in the program, and cover about 30 percent of the 1981 allocations. The selection procedures used by the Government in these cases in general appear to have worked quite well. 1.60 For the remaining 47 projects in this group, the evaluation procedures have apparently been only partially successful. Many projects do not appear to have received more than lukewarm support. Nevertheless, they have continued to be included in the 1981 program, although they have received only about 7 percent of funds allocated. Thus, although doubtful projects are not now receiving large allocations of funds, they continue to be scheduled for implementation in future years. Hence, such projects may already be taking funds away from higher priority projects, and the resulting output from them is being further delayed. The present approach seems unwise and merits serious reconsideration. 1.61 In fact, the, 1981 allocations for the 92 higher priority projects cover only about 12 percent of the cost of completing these projects. Funds for implementation in many cases, are not sufficient and project scheduling appears overly optimistic. Numerous projects have been proceeding so slowly over the past years, at such a huge cost to the country that a number of these large projects appear to be of little benefit apart from providing construction jobs. Bank missions over the past several years have reviewed projects in several sectors and found it necessary to focus on implementation problems in most cases. In general, there is clearly no lack of competence in Turkey to prepare and execute projects; the experience with port projects has been good; fertilizer project implementation has been improving; Bank reviews have indicated good prospects for metallurgical products, agricultural processing, pulp and paper, and cement; many projects look extremely promising in the private sector and the Bank and IFC have been active in this direction. But serious management and institutional problems have been found throughout. Skilled personnel and managerial talents are not being attracted to public sector enterprises. Project problems are acute in steel, bulk chemicals, refineries, synthetic fibers and energy -- all areas involving very high capital intensity, little job creation, and little chance of making early contribution to exports. - 27 - 1.62 The emphasis now being placed on the economic evaluation of projects is certainly an important step forward. Apparently, all projects are, in the future, to be ranked by rates of return, selecting those that in principle could be financed from public sector resources, provided returns are above the opportunity cost of capital. But attempting to implement such a program as large as is now implied by the 1981 program all at once, when implementation capacity is already weak, will almost certainly mean that many projects earn less than expected, or even have negative, returns. Four areas need careful attention; First, projects have not yet been sufficiently placed in the context of their relevant overall programs. Second, neither domestic nor international market prospects for the projected output have received realistic study. Third, different sectoral components of the proposed investments are necessarily interrelated, but they have not been sufficiently integrated into a comprehensive framework before investment decisions were made. For example, decisions involving energy and steel projects have been made, without arranging for the capacity to transport coal, iron and lignite. Transport projects are being included when related industrial projects, like steel, etc. are being dropped or being subjected to reevaluation. Land acquisition for hydro sites and electric transmission lines, as well as the intersectoral coordination needed for large power projects, is not undertaken while investment allocations are included for such projects. Fourth, and may be the most difficult of all, the long-term implications of project decisions do not appear to enter sufficiently into the existing plans. The size and scale of many projects, plus their long gestation and multisectoral implications, involving numerous complex problems, have not yet been given sufficient attention. Energy projects are only the most obvious examples. 1.63 An important theme of this review is that the large public sector projects have, in many cases, taxed the country's implementation and financial capacity to the limit and the problem will get worse during the next several years if it is not confronted at once. Institutional problems, the capacity to implement projects, the shortage of adequate technical staff and related facilities, the size, scale, technical complexity and intersectoral relationships of many projects, make it most difficult to determine what is a reasonable approach for the near future. There is a danger that attempting to solve the problems at once will result in little being accomplished. - 28- 1.64 The large number of projects involved in the public sector not only is a problem in itself, but also places a difficult burden on the Government to include only those that deserve special economic prioriEy and then to assure that they are properly scheduled and efficiently implemented. In view of the preliminary nature of the evaluation in many cases, this Report indicates the reactions of the various Bank sector specialists to numerous projects and in some cases project ideas as well as relevant sector strategies. The large projects received an inordinate amount of attention, not because they are necessarily the most important but they have been absorbing an unusually large share of the country's investment. 1.65 Table I.9 below indicates the extent to which a handful of these projects can preempt massive resources, financial, physical and human. Table I.9; ESTIMATE COST'OF SELECTED VERY LARGE PROJECTS (TL billion at 1981 prices) Estimated Project Cost Elbistan A & B 286 Karakaya 110 Ataturk 366 Nuclear 1 103 Middle Anatolia Petroleum Refinery 101 Sivas Steel 192 Isdemir Steel II 391 Erdemir Steel III 364 Aliaga Petrochemical 132 Fourth Fertilizer 96 Anatolia Fertilizer 35 Soma Fertilizer 43 Arifiye Railroad 85 TOTAL 2314 (US$ 28.9 billion) Source: 1981 Investment Program. The multipurpose, multisectoral project is only the best known example with problems which involve balancing sectoral priorities, organizing project implementation and confronting the inevitable long-gestation period. The - 29 - Ataturk Dam has been studied and discussed for the past 40 years and is now estimated to require another 23 years to complete. It is attractive, in the sense that it would produce 2,400 MW of badly needed power as well as irrigate about 700,000 ha of land with potential for increasing cotton production. These benefits are especially important for Turkey's current development strategy. However, the latest feasib-ility study was prepared in 1978, with a benefit/cost ratio of 1.66 at a 9 percent discount rate, which in current circumstances is unrealistic. 1/ The estimates for the costing of this project is TL 366 billion, but it would likely be over TL 530 billion (1981 prices). Besides, delays in implementation, resolution of difficult international riparian issues, cost escalation, lack of intersectoral coordination, financial constraint and managerial problems that are likely to be inevitable, need to be taken into cognizance. They would cause a major reduction in economic rate of return; but in the case of such a large project, such a reduction could easily have disastrous effects on the entire Government budget. Yet, the alternatives do not make for an easy selection process. The choices involve other large hydropower, lignite fueled plants, or nuclear, properly combined into a "least cost" solution to meet future electric power requirements. The difficulties involved with each of the alternatives are compelling. In the case of the very large Elbistan lignite/power complex, it is now clear that not even the first two phases of a five stage development can be effectively implemented and operated with the existing organizational and staffing arrangements. The difficulty with nuclear power has been widely discussed and can hardly be considered an easy alternative. The Government's selection process, in any case, has so far avoided many of these hard choices, by including each of the alternative approaches in its program. This approach surely compounds serious implementation burden. Similar problems exist in other areas, e.g. steel, fertilizer, petroleum refineries, railroads, aluminium etc. Choices are not made specifically enough or early enough and a relatively small group of projects, perhaps not adequately appraised, can absorb a large part of the projected level of public investment sustainable through 1985. The country can no longer afford to avoid such a selection process or to view projects in isolation of realistic sector strategies. An approach must be devised immediately which is much more consistent with the difficult macroeconomic outlook for the next decade and suited to the resources that might be available for investment programs. 1/ A more reasonable shadow discount rate (e.g. 12 percent) or a proper shadow price for foreign exchange (e.g. TL 120 per US$) would not negate these results. - 30 - C. Medium-Term Investment Levels Implied by the 1981 Program 1.66 The macroeconomic scenario outlined in Chapter 1 suggests that to be consistent with the assumptions considered realistic, total fixed investment (public and private) for the period 1981-1985 could amount to around TL 6,747 billion (in 1981 prices), of which about TL 1100 billion is estimated for 1981. In other words, for the remainder of the period under consideration, an investment of somewhat over TL 5600 billion should be sustainable. The Bank's review from the "bottom-up" sector by sector indicates that both implementation and financial constraints would set an annual limit more or less around the level attained for public investments in 1981, in 1981 prices. The private sector, starting from a much lower base (i.e. TL 530 billion in 1980 at 1981 prices) could, and should be, stimulated to rapidly increase its contribution to total investment after 1981, and achieve an average for the period of TL around 730 billion per annum in 1981 prices. 1.67 The question is how does this maximum level of public investment sustainable within the constraints assumed, compare with the Government's current program? In the absence of an officially accepted statement of medium term investment policies, an implied investment for 1982-1985 on the basis of continuing the projects approved by the Government, has been calculated. Wherever possible, the actual program of individual sector agencies to complete the 1981 investments has been taken into account. (Table I.10.) In almost all sectors it is found that even though in 1981 the Government has slashed agency proposals and reduced allocations greatly for a large number of projects, it has so far shelved very few major projects. If all projects now included are actually implemented, on the basis of realistic scheduling, then public sector investment alone would amount to about TL 4,968 billion between 1982 and 1985 (an annual average in 1981 prices of TL 1242 billion). 1/ This level is almost twice the level that appears to be sustainable, even on the basis of the optimistic but plausible scenario discussed earlier However, it is reported that the Government since publication of the 1981 program cut back allocations on many projects, and has also stopped or deferred a number of projects thereby bringing down the implied investment required to complete the projects considerably though somewhat still higher than the level recommended in this Report (Table I.10). 1.68 Furthermore, since the Government's stated strategy implies a very substantial increase in investment in agriculture, light and medium industry and other direct employment-creating activities -- all sectors in which private investment predominates -- a public investment program much larger than that attained in 1981, would mean a substantial reduction in private sector investment. Alternatively, it implies an increase in total investment far above the sustainable level. If this approach is pursued, it could not only result in a lower growth in private sector investment than would appear desirable and plausible, but would also be inflationary, besides inhibiting exports and employment creation. 1/ This compares with actual expenditures of TL 483 billion in 1980 or TL 676 billion at 1981 prices, and expected public investment expenditures for 1981 of TL 770 billion. - 31 - Table I.10; APPROVED AND RECOMMENDED PUBLIC SECTOR INVESTMENT PROGRAM (TL billion at 1981 prices) Implied Invest- Implied Program Estimated ment Invest- Based on Govt. Actual Based on ment Bank Approved Expen- Current Based on Recomm- Bank Allocation ditures Govt. Projects ended Recommended for for /a Priorities /a in Pipeline Priorities Allocation 1981 1981 1982-85 1982-85 1981 /c 1982-85 /c Agriculture 84 71 420 552 87 351 Manufacturing 122 172 788 1011 138 350 Transport & Communications 119 121 488 651 119 500 Energy 213 242 1011 2242 224 896 Housing 13 12 81 54 15 60 Education & Health 48 32 21 216 48 143 Others 67 76 248 242 44 220 TOTAL 667 726 3093 /b 4968 675 2700 /a As indicated to September Review Mission. The recent estimate is TL770 billion /b Excludes TL550 million for maintenance and one-year projects /c Based on 1981 investment level adjusted by Mission breakdown of sector priorities derived from Vol. II Source; SPO; Bank estimates 1.69 The approach to medium-term investment scheduling is one of the weakest aspects of the Government's performance to date. In most sectors, there is a large increase in project expenditures implied for the next few years. An urgent reexamination of the project list ought to be required by the Government, as it formulates its investment policies for the next few years. The scope of the review will undoubtedly be too large for any single agency. Project feasibility studies and completion schedules need to be thoroughly reexamined by each responsible implementation agency. Resources are obviously being spread too thinly over too many projects. This implies that because of the long implementation periods that will result, none of them will yield the benefits that would flow, if the approach were more selective. For example, in the case of the large projects (Table I.8), only 6 percent of the total cost of the projects has been allocated even though they accounted for 36 percent of the 1981 program. Few of the projects have been allocated sufficient funds to expedite their completion. By not being selective among projects that -32 - should be implemented, and not funding such projects fully, or properly scheduling them for effective implementation, delays will be extremely costly. Since "doubtful" projects account for as much as 15 to 20 percent of the 1981 budget allocation, it seems reasonable to drop them from the public sector allocations during the next few years, and to fund more fully those projects that have clear economic priortiy and are capable to yielding an output at an earlier date. 1.70 If the public sector is allocated too large a share of investible resources, the private and the export sectors inevitably will be "squeezed out". This would then not be in line with the Government's basic economic premise of relying increasingly on the private sector and market forces, to turn the economy around. A number of public sector investments therefore should be dropped. The situation calls for immediately identifying those projects which are of high priority and should remain in the program. Such a selection process should relate priorities both to macro and sectoral strategies, as well as the capacity of the concerned agencies to implement projects. The review summarized in the Report identifies tentatively, those projects and sectors which appear most promising. The review also emphasizes the urgent need for further improvement in project preparation and implementation procedures. The 1981 Investment Program is the first real indication of the Government's approach to investment since the January 1980 reform. The sections that follow highlight the analysis on specific sectors, as well as a number of recommendations that might be considered in formulating the 1982 and future programs. A summary indicated in Table I.11 below, suggests tentative recommendations, with the names of each project indicated in Appendix 1. Table I.ll: SUMMARY STATUS OF LARGE PROJECTS /a AS RECOMMENDED BY THE REPORT (Number of Projects) Projects Recommended For Projects Requiring Total Major Priority Funding Reevaluation Projects Advanced Relatively Projects /b Less Advanced Total Very Total Very Projects Large /c Large Agriculture 29 20 20 6 69 20 Manufacturing 15 52 27 20 94 40 Energy 12 76 15 15 103 52 Transport & Communications 15 62 11 4 88 27 TOTAL 71 210 73 45 354 139 /a Projects with cost of over TL 1 billion. /b Projects with at least one-third completion. /c Projects with cost of over TL 5 billion. Source: Based on the analyses reflected in Appendix 1. - 33 - CHAPTER 3 SUMMARY OF SECTOR SPECIFIC ANALYSES A. Agriculture 1.71 Agricultural investment, despite the sector's great potential and its past performance as the country's major foreign exchange earner, has a particularly disappointing record. Investment has grown at nearly 10 percent per annum for two decades while output has increased at only 2.8 percent per annum. Some crops have done well -- wheat output, for example, increased from 10 million tons to approximately 15-17 million tons between 1973 and 1979; but others have not, e.g. cotton, an important export crop, declined from 513,000 tons to 500,000 tons. Pricing policies have caused some significant structural distortions. The maintenance of low cotton and high wheat prices compared to the world market prices has resulted in the substitution of wheat for cotton in some areas as well as a shift to the use of irrigated land for wheat production. Poorly executed and inconsistent intervention in input and product pricing, as well as the tight rationing of institutional credit for agriculture, has dampened the incentives of farmers. Research and extension services have been particularly weak in most areas. 1.72 The potential for exports of cereals, cotton, tobacco and hazelnuts in the short run, and of fruits, vegetables, oil seeds, meat and livestock in the longer term is substantial. The sector's indirect contributions to exports of textiles, food and beverages, leather and forestry products can also become significant. Yet investment alone will not suffice to achieve rapid growth of these exports. This will require, in addition to badly needed institutional reform, greater emphasis on marketing and production support through suitable policies such as pricing and other incentives to farmers. There needs to be a shift from investment in large-scale, slow-gestation irrigation schemes toward supplying services at the farm level, for example, a gradual move towards world market price relations for agricultural products and their major inputs, more effective credit, better extension services and making readily available a supply of improved seeds. Transport bottlenecks have also been a problem, particularly for exporting fruits, vegatables and livestock. Roads and ports have been inadequate and trucking facilities obsolete. 1.73 The 1981 public investment program for agriculture (TL 84.2 billion) is substantially larger than the investment levels of recent years. But it is quite disappointing in that it introduces few changes from the past strategy for this sector. The bulk of investment (TL 56 billion) is devoted to slow-gestation irrigation and drainage projects, and hardly differentiates between ongoing projects which must be completed quickly to reap economic benefits from investments so far made, from new or recently started ones that will take years to complete. In a situation of resource constraints this luxury of the past can be ill-afforded. Priorities even among new irrigation projects are not well defined, because in many cases they are not supported by any economic evaluation; or if they are, they have not been used to determine budget allocations. Current expenditures as related to investment projects are generally excessively - 34 - high and investment funds continue to be spread too thinly over many large irrigation projects. In addition, water charges have been too low; only 50 percent of irrigated land in DSI irrigation schemes is actually being cropped; and only about 30 percent is being used for water intensive crops such as vegetables and citrus. Further, investment in tertiary canals, on-farm improvements, and better seed and extension services is now very much needed to increase productivity from irrigated land, especially in the south and the Mediterranean coastal regions. 1.74 Although the 1981 allocation for agricultural support services is somewhat larger than in the past (about TL 12 billion), it is inadequate. As in the past, the Ministry of Agriculture and Forestry (MAF) will probably not be able to implement even this modest allocation effectively unless basic institutional and managerial problems are urgently resolved. The allocations for marketing and storage facilities (TL 18 billion) would not be adequate to support existing levels of agricultural exports; but they can hardly be increased without major institutional improvement in the Grain Storage and Marketing Organization (TMO). Agricultural research, extension and credit services to farmers, and distribution of inputs such as seeds and fertilizers (TL 5.1 billion) are important programs for any major improvement in agriculture; but currently they lack clear purpose and direction. An effective and expanded agricultural program can only be formulated and authorized by the Government; priorities and projects should be more clearly and specifically spelled out. For example, livestock is clearly an important part of agriculture and needs more support; village flocks, sheep and goats need investment in terms of integrated processing facilities for livestock products, because too many animals are being shipped live. Furthermore, as much as 2 million ha. of croplands, mostly wheat on slopes, are now subject to erosion and should be converted into grazing lands. 1.75 Forestry is an important subsector (receiving TL 15 billion in the 1981 program) with great potential. It could generate many new jobs as well as make major contributions to energy supplies. However, except for two major ongoing projects, additional forestry and afforestation projects, as well as a complementary road program, are not being funded adequately; neither are institutional and management arrangements being made to implement any of them effectively. 1.76 This Report cannot emphasize more strongly that, although the increased public investment allocation to agriculture is a step in the right direction, the deficiencies in past project preparation still hinder the execution of the current program. Moreover, export support activities should receive much greater attention while the large irrigation projects, especially new ones, should be reduced. Further, for the investment program to be successful, and agriculture to achieve its potential, there will need to be a gradual shift away from poor pricing policies, a vast improvement in marketing and transport facilities, plus a comprehensive institutional reform of the MAF and other public agencies in the sector. Above all, there is need for increased support of private farm activities, - 35 - especially those related to export generation. Vegetables and citrus will be important crops for the future but need an improved seed program, combined with good extension services which do not yet exist. Suitable packing facilities, equipment for freezing output and quickly shipping products to market will be required, mostly from the private sector. Diversification in the central plateau region will require a vastly improved extension service with more suitable price incentives for farmers. B. Manufacturing 1.77 Manufacturing, historically, has been the leading sector in economic growth. Public enterprise was intended to be the catalyst to create basic industries beyond the scope of the private sector. A wide range of industries was thus established. The proportion of intermediate and investment goods increased steadily. The public sector initiated large capital-intensive projects such as steel, aluminum reduction, petroleum refining, petrochemicals and fertilizers. In addition, the public sector entered numerous branches of light industry where its share in production in some cases is substantial, e.g. textiles (15 percent), footwear (35 percent), furniture (27 percent), pottery, china and earthenware (20 percent), and mechanical equipment (24 percent). The public sector now dominates manufacturing investment with a share approaching 60 percent compared to only 20 percent in 1960. Most of the development, however, focused on import substitution, under protective walls, with little orientation to exports or international competitiveness. 1.78 As discussed in several previous Bank reports, institutional weaknesses in SEEs are becoming a severe bottleneck. Their performance has deteriorated due to the effects of factors such as detailed and often conflicting central directives and interventions, lack of financial discipline, politically motivated choice, inadequate compensation of management and technicians, and excessive wage and employment levels for production workers. Areas needing attention are: strengthening management autonomy, improving management information systems, better accounting and auditing arrangements, staff training and incentives, increased professional compensation, increased operational efficiency and profitability, a reduction in overstaffing, and pricing autonomy. 1.79 The Government has indicated its intention to improve the financial accountability of SEEs through sharply restricting their access to the Central Bank and the Treasury. Their cadres and hiring have been frozen and attrition will progressively reduce their overstaffing. A more fundamental reforms of the SEEs is now engaging the Government's attention. It is to be hoped that these proposals will reflect a fresh outlook, and not resort to expedient palliatives that are unlikely to root out the malaise that is so deep seated in the SEE system. - 36 - 1.80 Recently, there has been a move towards more export-oriented and less capital-intensive activities in the industrial sector. This has been emphasized in Government policy statements which attach importance to the support of consumer goods industries and other potential export industries, such as selected engineering. Nevertheless, nearly 40 percent of the 1981 allocation for public investment in manufacturing, i.e. TL 47 billion out of a total of TL 122 billion, was still primarily devoted[to a relatively few heavy industries in steel, fertilizer, petrochemicals and pulp and paper; only TL 50 billion was allocated for light industries, and much of this was for textiles, tobacco, food and beverages. 1.81 The wide ranging effects of this heavy industry program have not yet been fully studied. Important consequences for other sectors, are being seriously underestimated. For example, a relatively few heavy industrial plants would by themselves, if carried out, greatly increase the existing industrial demand for electricity by 1990; a clear case in point is the Seydisehir Aluminium Project; a few heavy industrial projects, already under construction,-will require a substantial investment in new transport capacity. Given Turkey's severe resource constraints, can the economy afford, much less provide, such additional, power or transport investments in the foreseeable future? Industrial projects such as these, therefore, need to be carefully reevaluated, despite the contractual difficulties or political considerations which may be involved. On the other hand, many public sector light industries need to be reexamined from the point of view of overlap or duplication with comparable facilities in the private sector. 1.82 The long-run interest of the country requires that a number of these public sector projects be stopped immediately. Especially, those that cannot demonstrate reasonable economic returns. This Report's review suggests that further technical and economic analyses will show that perhaps as many as 50 percent or 20 of the large projects(costing over TL 5 billion) in the manufacturing sector require a reevaluation of their economic justification. For 12 of the large projects, SPO has already recognized the problem by allocating no funds or only nominal amounts for them in the 1981 program. In that event, would it not be prudent to drop them from the program and instead allocate even those nominal amounts to those projects having a clear priority? Would this not enable the country to benefit by obtaining output much earlier than would otherwise be possible from projects of clear priority? This Report has serious doubts about a number of projects, e.g. the proposed state tire factory, which has a substantial allocation in 1981. Furthermore, the aluminum and ferro-chrome smelters should be reevaluated, in view of new data on their effect on energy consumption and serious power shortages that Turkey faces. There are a number of similar projects which may have doubtful feasibility but should be approached with great caution in view of their advanced stage of execution, e.g. the Aliaga Petrochemicals Project, and Isdemir Steel. - 37 - 1.83 The proper level for public investment in manufacturing should be thoroughly reexamined. Completion of all projects approved for the 1981 program, would imply an average annual investment in the public sector for 1982-1985 of at least TL 197 billion (in 1981 prices). Because of financial and implementation constraints, it is suggested that the program for 1982-85 be limited to TL 132 billion in 1981 prices per year. The question is whether even the lower figure is not so large that it may starve the private sector of investment funds, jeopardizing its ability to create export industries for which the market prospects are good. Behind this question is the feeling that the ultimate potential for expansion in exports lies in such industries as processed foods, textiles, leather, engineering products, castings and industrial equipment, processed mining products, for most of which capacity has already been developed in the private sector. A review of large projects indicates that full funding of all priority projects could still take place within a level 10 to 15 percent below that allocated for manufacturing in 1981. 1.84 The recent policy changes strengthening export incentives, the end of labor disputes and expectations of continued weak domestic demand, have created a lot of interest in restructuring and/or starting new export-related activities. Given the economic uncertainties in Turkey and world markets, it is however doubtful that the private sector will be willing to commit itself quickly to substantial investment in the near future, without clear and significant encouragement. In spite of the various incentives, for many firms exporting apparently is only now becoming a profitable proposition. While in previous years, the key constraints were power failures and labor disputes, currently the major difficulties affecting the private sector include low domestic demand, high interest rates and a shortage of credit. 1.85 A lasting and successful export drive will need a change in entrepreneurs' attitudes toward foreign markets. For the first time in many years, there appears to be less of an anti-trade bias in the country. But much remains to be done. In particular, more selective incentives are needed to provide institutional support. Turkish enterprises require marketing, technical and financial assistance in order to achieve higher exports. The goal should be a reoriented strategy to increase efficiency in large public enterprises where the state has an advantage, and to encourage greater private sector participation in production of consumer and export goods. Decisions on the role of public sector projects will need to be made quickly, as they could have serious implications for investment in the private sector. 1.86 Particularly important under the new circumstances will be the introduction of better market analyses of projects and planning at the enterprise level. In addition, it will be necessary to maintain policies to remove the long-standing anti-trade bias, e.g. modification of exchange rate and tariff/subsidy policies. Of special importance would be the creation of a suitable framework for the engineering field as it has - 38 - substantial potential for export in addition to its sizeable domestic market and low labor costs, e.g. the production of castings, equipment for cement, sugar mills, oil refineries or chemical processing plants. Changes should be made in the pattern which involves regionally dispersed giant complexes in the state sector to produce trucks, tractors, locomotives, machine tools, construction equipment, textile machinery, etc. A more suitable approach would focus on areas of comparative advantage, perhaps with foreign participation to establish manufacturing in partnership with Turkish private investors. 1.87 There are certain heavy (i.e. capital-intensive) industries where private operations, at least at this time, would not be suitable; ordinary steel, fertilizer feedstocks such as ammonia and phosphoric acid, basic petrochemicals and primary aluminum. A specific time frame should be set to make these basic industrial materials competitive within world markets, at the end of which all protective barriers should be removed. Any remaining lack of competitiveness would have to be absorbed, as in other countries, by financial restructuring and downward cost adjustments. 1.88 As to the administration of industrial SEEs, the following reforms are long overdue; - A change in the system of management. The aims should be autonomy, responsibility for results and pay for management and qualified staff equal to the highest scale in the private sector. There should be no privileged access to funds. - A revaluation of the assets in line with their actual earning -power in a competitive market. - A new deal in labor-management relations whereby (a) the pay in these industries might initially bear a similar relationship to the income of other sectors of the economy, and (b) future wage increases would be related in some meaningful way to differential increases in labor productivity in Turkey as compared with international competitors. 1.89 Outside basic industries, continued growth of SEEs will likely have mainly negative effects. At the same time, it must be recognized that the Turkish private sector lacks the resources to acquire large plants in e.g. the paper industry, production of trucks and tractors or even in cement. The process of divesting will require very careful attention. Yet there are ways by which this process could be accelerated with benefit to the economy. Foreign investors could-play a key role in some industries in partnerships with Turkish private investors, particularly in those industries where new skills and technology are important. In the paper industry, such a joint venture could become responsible for paper mill operations in one of the major forest regions, providing competition with SEKA and become a measuring rod in terms of forest management, plant - 39 - operations and marketing. In the truck and tractor industries joint ventures could serve as vehicles for the transfer of technology and management know-how, and as international marketing outlets. It goes without saying that the hardest possible bargain should be struck with these foreign partners, since they, in their turn, would gain access to valuable natural resources (e.g in paper), or markets (e.g in trucks and tractors). But this solution will not be easy to implement given the continuing hesitation of foreign investors to venture into Turkey. 1.90 In cement, textiles, leather, shoes, meat packing, milk processing, or even sugar, there may no longer be a need for a giant SEE holding for each one of these industries. Instead they would thrive better under individual sponsorship and initiative. Decentralization would in no way preclude the establishment of, say, a meat institute, a cement institute or a textile institute, grouping all the enterprises in the field and dealing with matters such as technological development, quality control, or export promotion. Existing SEEs in these fields should be encouraged to sell to private interests, retaining some equity and/or advancing some of the purchase money as needed to close the deal. This may be an appropriate task for the State Investment Bank. 1.91 The Government is giving SEEs greater freedom in pricing; but the prices for many commodities are still under Government's influence: coal, electric power, aluminum, ferro-alloys, and fertilizers. Cement prices are free, but in practice are still being fixed; this seriously discourages expansion in the private sector of the industry. There do not appear to be sufficient reason for controlling the prices of these raw materials for industry and agriculture. In principle, imports should be free since the increased production made possible by the availability of these basic inputs could strengthen the economy and normally take precedence over imports of investment goods. With free imports, there would be no need for price control. Textiles represent a special case since these are consumer goods. It should be possible to replace import restrictions on textiles by a slowly declining rate of tariff protection. C. Transport 1.92 Investment in transport suffers greatly from the lack of an integrated view of the sector, as well as its integration with the investment flows of other sectors it must support. There are needs for specific technical and economic studies which would indicate the relationship between existing transport capacity and the structural changes in demand that will take place as exports increase and less capital-intensive industries are developed. The 1981 program is primarily a collection of relatively small projects, designed to alleviate urgent bottlenecks that have already appeared in the existing system. Current investments in transportation do not sufficiently focus on supporting exports, nor the conservation of indigenous energy resources. The high cost of energy has already affected the use of transport facilities, - 40 - lowering traffic levels somewhat, and increasing the use of public transport. Future changes, however, undoubtedly will be more drastic. The wider use of lignite, growing road transport, and the continued increase of urbanization will lead to more energy-intensive transport unless careful planning is put into effect. 1.93 The transport program covers some 829 projects (excluding pipelines) at a total cost of TL 878 billion, with a 1981 allocation of TL 119 billion. Many are part of large-scale ongoing programs for the rehabilitation of roads, railroads and telecommunications. Some are related to industrial, energy, and other investments, which have already been delayed by the Government in its investment program or may be dropped in the future. Half of the program is for highways and rural roads, 19 percent for telecommunications, 16 percent for railways, 7 percent for airports and 8 percent for ports and shipping. The Report focused on key bottlenecks affecting exports, e.g. poor trucking equipment, a shortage of port handling and storage capacity plus an urgent need for bulk cargo facilities. Sector policies and the capacity of existing institutions to plan and carry out new programs need much more attention than they have received in the past. The program is about all that can be accomplished during the interim period until the transport plan now being prepared can be fully evaluated by the Government. The 1981 allocation for transport represents less than 18 percent of the total allocation for public sector investments in 1981, compared to over 20 percent in the 1960's and about 25 percent during 1973-1977. In real terms, public investment in transport started to decline in 1978 and estimates for 1980 show a decline in real terms of more than 7 percent. The allocation and expected expenditure for 1981 remain at the same level in real terms as in 1980. 1.94 The highway program concentrates on preserving the existing system, in as much as a substantial portion of the road network is suffering from severe traffic congestation. Considering the weak structural strength and low geometric design of many roads, congestation is likely to lead to major road failures within the next five years, unless substantial rehabilitation is carried out. The existing problems are becoming more acute as some roads, e.g. Istanbul-Ankara, can only be adequately maintained at a large annual cost (i.e. $75,000 per km). Rapid urbanization is confronting the country with even more difficult problems in highway construction and maintenance as well as in road transport itself. Trucking has become a bottleneck in agriculture e.g. in developing exports of fruits, vegetables and livestock. Trucking has already been widely used as a substitute for scarce rail capacity, even for bulk commodities such as lignite and iron ore. 1.95 The railroads have serious problems which have resulted in limited and declining operations and inadequate handling of traffic demands. Many of their problems are not related to investment but to the poor quality of management. Railway planning has apparently been ad hoc and ineffectual. - 41 - The last few years have seen unsuccessful attempts to correct these failures through additional investment. In many instances, instead of increasing capacity, greater success would have been achieved by revising operating methods, recruiting skilled and experienced personnel, and providing needed spare parts and equipment. Various expert studies have 'indicated that operational improvements would not only increase service availability but also reduce the need for large investment in the existing network. 1.96 The most serious deficiency is the railroad's inability to handle bulk commodities. This affects many other important parts of Turkey's economy (e.g. iron ore, petroleum, coal and lignite). Insufficient knowlege is available to the railroads and the planning authorities concerning commodities, quantities, origins, destinations and phasing in major projects. Satisfactory solutions will take time, and in some cases, will be costly even if the industrial and energy programs are cut back substantially. Some of the most difficult problems resulting from the lack of coordination between agencies and projects in diverse sectors might, however, be handled more effectively through modest reforms in transport coordination. The role of coastal shipping could obviously be expanded. 1.97 Transport's most costly bottlenecks at this time relate to petroleum, coal and lignite on the one hand, and exports on the other. Road transport in tons/km increased by 80 percent during the 1970s. The number of passengers/km carried by the road system almost doubled between 1975 and 1979, while the loads carried by other modes remained stable or declined. Petroleum consumed in the transport sector in 1980 amounted to 5.5 million tons or about one-third of all petroleum consumed in Turkey despite the existence of relatively strict constraints placed on consumption. Increased urbanization based to some extent on private road transport is also increasing the use of petroleum. The next several years will be a critical transition period in which the increasing cost of using imported energy resources will have to be weighed against the options available for developing indigenous resources, locating population centers according to a less energy-intensive pattern and using transport facilities more efficiently. Large-scale investment may ultimately be required but should await the results of a wide-ranging reevaluation of the transport situation, and a greater effort at rehabilitating existing facilities. 1.98 Several important information gaps need to be filled quickly before adequate transport policy can be formulated. A review of the use of energy in transport is urgently required especially in the context of energy conservation. Greater focus would need to be placed, e.g. on the use of coastal shipping as a means of reducing the consumption of energy. The requirements of other sectors for transport need to be identified. Transport of exports will be an increasingly important problem. The overall transport survey recommended by the Bank since 1978 is soon to be completed. The new economic programs will make such an exercise even more - 42 - urgent and an evaluation of the new transport plan as well as a review of the pricing of transport services should be made by the Government as soon as possible. Transport charges apparently have lagged far behind costs during the inflation of recent years, for example, the rail services caused a serious drain on the Government's financial resources in 1980 with a deficit of TL 27.3 billion. D. Energy 1.99 Energy investment is the largest single component of the 1981 public sector program and, because of its long-term implications, probably the part that needs the most careful scrutiny at this time. Few countries have become so dependent on imported petroleum in their recent economic development as has Turkey. Consumption of petroleum products increased at 14 percent per annum from 1970-1977 -- among the highest rates in the world -- from 7.3 million tons to 16.9 million tons, while oil imports of 3.5 million tons soared to 14.2 million tons. By 1980 despite strict constraints on consumption, 13.2 million tons of oil and 500,000 tons of coal were imported at a cost of US$3.6 billion, by then exceeding the total value of the country's earnings from export of goods and services. 1.100 Real investment levels in developing indigenous energy resources have increased two and a half times since 1973, yet energy production remains at a relatively low level compared to consumption, whose levels have not been well controlled. Large power projects, the bulk of the program, have progressed slowly and become increasingly costly. Lack of coordination between lignite production schemes, bulk transport infrastructure and electric power transmission have also caused substantial delays. Serious institutional weaknesses have affected most aspects of energy from hydro and lignite to fuelwood and petroleum projects. 1.101 Past trends are likely to continue unless a more effective energy program can be initiated. A failure to turn the present program around and greatly strengthen the institutions involved, would be disastrous for Turkish economic development. The implications are shown in Table I.12. On the basis of recent projections discussed with the Government, Turkey would likely have to import as much as 25 million tons of coal and oil by 1990, at a cost of nearly $7 billion (in 1980 prices). To avoid such an unsupportable import burden would require, in addition to improved implementation in hydropower, lignite, fuelwood and petroleum projects, substantial conservation and industrial retrofitting investment, and most importantly, realistic and hardnosed demand management policies. There would also need to be improved lignite exploration and systematic coordination of all energy investments with related projects in other sectors. Coal and oil imports under the most favorable conditions could conceivably be held to 18 million tons at a cost of about $5 billion - 43 - Table I.12; PRIMARY ENERGY BALANCES, 1980 - 1990 (Million tons of oil equivalent) Continuation Present Efficient 1980 Trends 1990 Program 1990 Produc- Consump- Produc- Consump- Produc- Consump- Product tion tion tion tion tion tion Oil 2.3 15.3 3.0 23.8 6.0 22.0 Coal and Lignite 6.7 5.9 18.0 25.9 21.5 21.0 Hydro 2.9 2.9 6.0 8.5 8.5 6.5 Fuelwood and Other Biomass 6.6 6.6 8.0 9.0 9.0 8.5 Total Energy 18.5 31.7 35.0 68.0 45.0 58.0 Memo Items Coal & Oil Imports 13.7 25.0 18.0 Cost of Coal & Oil Imports (US$billion 1980 Prices) 3.8 7.3 5.3 Source; Bank Estimates. 1.102 These projections although rough and based on relatively unreliable data, imply the nature of the problems, the obvious directions required for improvement and the potential priorities in the energy investment program. Holding down oil consumption, and, in turn imports, will require both conservation and an effective coal, lignite and fuelwood program. A modest increase in the domestic production of petroleum may be possible. All the programs combined could probably not increase energy production by much more than 19-27 million tons/year oil equivalent. An ambitious conservation effort might hold the growth of energy consumption to 7 percent per annum or lower and thus keep petroleum consumption in 1990 several million tons/year lower than it otherwise would be. This theoretically could be done without compromising the growth in GDP, being cautiously projected at 4.5 percent per year. A realistic expectation might result in coal and oil imports in the range of 16 to 20 million tons at a cost of US$5 to 6 billion. 1.103 A substantial potential for conservation theoretically exists in Turkey, but a part of the savings would require not only a larger program of investment in industrial retrofitting but also improved demand management. Energy consumption in industries such as steel, paper and cement is greatly in excess of internationally acceptable standards. The - 44 - savings, e.g. in energy consumption in cement by converting from the wet process to the dry process (after scrapping outdated old plants), might be as much as 30 percent, but the cost of the conversion would be substantial and take some years to execute. Some savings may be possible with a low investment cost, but such potential projects are only now undergoing review in Turkey. A retrofitting investment program needs to be prepared as soon as possible. Transport, a large consumer of petroleum, clearly shows a potential for energy savings. Better pricing policies consistent with minimizing the use of private vehicles and maximizing the use of mass transport have already been partially introduced and are beginning to take effect. 1.104 The design of retrofitting programs and pricing policies to influence trends in petroleum consumption will also require a careful study of energy demand in households, transportation and manufacturing -- in particular, the responsiveness of demand to price changes and the possibilities and costs of substituting other fuels for petroleum. Such a study will be very time consuming and should thus be started as soon as possible. Rough estimates based on rules of thumb found valid under similar circumstances indicate that a retrofitting program, along with appropriate pricing policies, could reduce energy consumption in transport and manufacturing by over 4 mtoe by 1990 without affecting output and about 3 mtoe could be obtained in the domestic sector. Enough is now known to recognize conservation and demand management as an important potential source of energy for the 1980s, but what can realistically be expected by 1990 should be investigated much further. 1.105 Investment in increasing production from indigenous energy sources, by itself, will not and cannot completely do the job, but it will be the main means of solving the problem. Energy accounts for approximately 17 percent of the total number of projects in the 1981 program, 49 percent of the foreign exchange cost of these projects; and for 35 percent of their total cost. The cumulative expenditures on the projects to the end of 1980 represented 10.8 percent of their total cost, and the allocation for 1981 represents another 10.4 percent. The 1981 allocation amounts to TL 213 billion of which TL 91 billion is in foreign exchange. The program is dominated by electric power which accounts for 70 percent of the total allocation. Coal/lignite and petroleum account for the balance of the program, with approximately equal shares; the share of other energy sources is negligible. Although priority for electric power is justified because the subsector provides the main scope for utilizing indigenous lignite and hydropower resources, there are good grounds for temporarily deferring starts on many new generation projects. This Report has reviewed briefly the economic analyses of more than 20 power projects and found, in most cases, rates of return of 14-18 percent. Some of the power projects, however, have not yet been subject to complete economic evaluation (e.g., all the new lignite-fired projects except for Elbistan B and eight of the sixteen new hydro power projects). Project evaluations in most cases, were prepared several years ago and since then, reductions in demand growth, financial constraints, cost escalation, inter-sectoral coordination problems and delays in project completion, which are common - 45 - among these projects, may have caused substantial reductions in their rates of return. The government has already selected for an approved annual allocation of TL 24 billion 6 new hydro and 10 new thermal plants in its 1981 program. Excluded from the original TEK program, is TL 30 billion to cover an additional 8 new projects. It is recommended that most of the new power projects (TL 54 billion of a total of TL 140.5 allocated in 1981) be deferred, until their economic returns are reevaluated and TEK's demand projections can be revised. The money thus released from these new projects should be spread over the on-going projects in an advanced stage of completion. This should enable a power starved Turkey to actually receive additional power from these projects by around 1983/84, against the prospects of not receiving any additional power until 1986/87 if the available resources continue to be spread thinly over all these power projects. The Government's approved 1981 program for lignite includes practically all of the projects proposed by TKI and MTA; but the approved allocation totals only TL 32 billion or about 62 percent of the original requests. This Report supports this reduction in view of the results of a recent Bank project identification mission. Extensive exploration and lignite quality testing has been completed for the lignite projects under development. But, the existing organization of TKI is understaffed relative to the many new projects proposed or under construction and, since the majority of TKI's previous production has been in underground mining, TKI is also relatively inexperienced in the preparation and implementation of major new open pit mines. TKI'8 general approach to feasibility work and available documentation for some of the planned new mines, indicate that the project reports being prepared by TKI do not include all the necessary data and documentation generally required by international mining standards for full feasibility reports. For example, the TKI reports do not include lignite quality release studies, although there are wide variations in the quality of lignite in individual deposits. Instead, TKI plans to overcome problems in the variation of lignite quality by adjustment in mine plan. Given the characteristics of the Turkish lignite deposits, the TKI approach may lead to sub-optimum mine development and excessive operating costs. The virtual elimination of MTA's project to acquire new drilling rigs for its coal/lignite drilling program is a serious shortcoming and would add only TL 3.3 billion to the program. 1.106 All the refinery expansion projects are retained in the program, although several of them, especially the Izmir expansion and the Middle Anatolian refinery, appear premature and their capacity is unlikely to be used until the late 1990s. Eight refinery projects are included in the program, with 3 near completion (within 24 months), i.e. IPRAS debottlenecking, IPRAS Second Expansion and Izmir debottlenecking. Considering the advanced state of completion of these projects, as well as the fact that they will provide 7 million tpy of additional capacity at a cost of TL 5.2 billion, which is low in comparison with the costs of the other refinery expansion projects, they should'be completed as planned. Their completion will raise Turkey's refining capacity to 23.5 million tpy, a l'evel of capacity sufficient to meet Turkey's petroleum product requirements until 1988; and beyond, if an effective energy program is - 46 - implemented. The justification for the remaining refinery expansion projects, at a cost of TL 26 billion, especially-major ones at Izmir and Middle Anatolia, appear to be questionable with capacity that would be surplus to foreseeable requirements. This sizeable sum, if used to rapidly complete advanced power or other energy projects instead, could benefit Turkey by providing it with much needed power or energy inputs at a much earlier date than would otherwise be possible. 1.107 A very small proportion of the projects account for a large part of the total investment. In the electric power subsector, with nearly 1,200 projects, the vast majority are for small transmission, distribution, and village electrification, while generation with a much smaller number of projects, accounts for most of the program and is dominated by a handful of major hydro and thermal projects. Likewise, in the coal subsector three lignite-mines (Elbistan A, Mugla-Yatagan and Beypazari) are responsible for nearly 50 percent of the progam; and in TPAO's program, five 1/ out of the 58 projects account for nearly 75 percent of the total. 1.108 The rate at which the projects now in the program are implemented (total cost TL 2,100 billion - in 1981 prices.) will determine how much energy can be produced by 1990. Production of primary energy is roughly estimated to vary between 35 and 45 mtoe, half of which would be coal and lignite. The upper level of projected output will only be achieved if the program is implemented effectively starting with full funding of priority projects in 1981. "Business as usual" -- spreading funds over the many projects, inadequate funding for priority projects, underestimating the requirements for the most capital-intensive power schemes, slow and inadequate improvement in the SEEs -- will likely result in an output level by 1990 of much closer to 35 mtoe. The gap between the production level and demand could turn out to be enormous; rather than being around 20 mtoe by 1990, under a poorly executed program, it might rise to over 30 mtoe. Since the country could not sustain such a gap, the "energy crisis" could become even more severe than it has been during the past few years. The success or failure of the Government's program, based on the twin principles of energy resource development and the management of demand without penalizing economic growth, will determine the country's future in the 1980s. 1.109 Another primary task is to strengthen the institutions responsible for implementing the energy program. Without aiming at their complete overhaul in the short run, the decisions already taken by the Government will not be effective. A number of urgent steps needed immediately to cure the most serious problems: first and foremost, increasing the autonomy of SEEs and enabling them to assume the responsibilities; subjecting them to market forces to the extent possible; improving SEE management capability 1/ Exploration, Bati Raman production, and the IPRAS, Izmir and Middle Anatolian refinery projects. - 47 - by attaching more operating authority to them and to their operating units; ensuring the continuity and professionalism of SEE management; reducing the considerable overstaffing that exists in most SEEs; and improving physical and financial management through better cost accounting, performance standards and auditing systems. The Bank has tried to support such improvements -- under a number of projects. However, a stage has been reached where more fundamental actions on these critical issues must be taken in the sector at large by the Government. Palliatives or half measures, especially for SEEs in the energy sector, would not be well-advised. 1.110 There is a risk, on the other hand, that the priority attached to energy, plus the size and capital intensity of the energy programs themselves, could backfire and impede the rest of the economic development program. Within the energy sector, too, the particularly large requirements for power generation and petroleum refining have already squeezed out investments in other parts of the sector. For example, resources for electricity distribution have been lacking; resources have not been provided for badly needed spare parts to put power plants that are out of commission back into operation; drilling rigs have not been obtained, which would have been used for the exploration of lignite; programs for developing the country's fuelwood and biomass resources have been seriously neglected. Bank assistance in many of these fields is already underway, but cannot succeed without an immediate reform of practically all of the institutions responsible for energy development. - 48 - CHAPTER 4 SUMMARY OF RECOMMENDED APPROACH 1.111 To sum up, the approach recommended in this Report has three separate elements. The first is the macroeconomic strategy which has loomed large in other works of the Bank and is outlined in earlier sections of this Volume. It generally calls for the achievement of about 4 percent per annum growth in GDP through 1985. It is argued that such a growth will require a continuation of a public sector investment program at no greater than the level realized in 1980 and in real terms, attained in 1981, but with much greater emphasis on economic selection criteria and effective project implementation. It will also require higher levels of investment in agriculture, light and medium industry in order to relieve constraints on domestic and external resource availabilities, and to promote employment. The second element is the strategy to be pursued within sectors. For example, larger expenditures for agriculture is particularly important in view of 1980 and 1981 experiences., A reduction is needed in expenditures for some very large public sector industrial schemes, with greater stress on increasing private sector investment. A vast improvement is required for implementing energy projects; and because the size of the energy program is growing so rapidly, there needs to be an effort at greater selectivity and more full funding of a smaller number of advanced priority projects. Overall plans for transport need to be reevaluated upon the completion of a new master plan.. These issues are discussed in more detail in Volume II. Finally, there is the evaluation of the proposed projects not merely with regard to the adequacy of their rates of return, but also in terms of implementation capacity, market constraints and intersectoral implications. The focus is on very large projects most of which are discussed in sector chapters in relation to the overall sector strategy. 1.112 Another important concern is the need to attend to the efficiency of investments as well as the capacity of institutions to implement programs and projects. The breakdown between public and private investment would be partially determined by the economy's institutional structure but the size of public sector investment itself may, as noted earlier, be the determining factor. Energy, the largest component of investment is very much in the public sector. Agriculture, manufacturing and transport have large public components, but are also very much dependent on the private sector for an impact on output. Housing is almost entirely in the private sector, but very much dependent upon the Government's financial policies. - 49 - 1.113 The proposals put forth by the individual SEEs and the various Government departments indicate the extent to which Turkey now has a surplus of active projects proposed in the public sector. In fact, proposals add up to twice the levels approved by the Government in the 1981 investment program. In almost all sectors, the Government has slashed agencies' financial proposals, but in the process probably has not eliminated many major projects -- a number have received nominal allocations, a few have been eliminated and some important large projects have been put on the "back-burner", e.g. in electric power. Cuts have tended to be made across the board rather than by selecting the high priority activities and fully funding them. Even if resources could be found for all "high priority" projects in the next two or three years, it is the judgement of this Report that institutional implementation constraints will be the limiting factor, and to ignore this could result in a large number of incomplete and poorly utilized projects. The problem is compounded by the fact that project evaluations have often not been well executed and priorities have been poorly defined. The net result after several years of spreading resources too thinly over too many projects, is that the list of uncompleted projects is growing larger each year, the average length of time taken to complete projects is almost impossible to measure at this stage, and the benefit to the economy in terms of output from these projects, is being denied for inordinately long periods of time. The implied future investment program put together from the projects that appear to be under serious consideration by the Government would on average double the 1981 investment level during 1982-85. The foreign exchange component could nearly be tripled. The difference is particularly pronounced in the energy sector where agencies' scheduled investments are about triple the 1981 level. The SPO has anticipated this problem to a great extent in its 1981 program by only allocating nominal amounts for some 49 projects. The investment according to SPO latest estimates (TL 770 billion) would amount to a level of about 15 percent higher than that recommended by the Bank for 1982-85. - 50 - 1.114 This potentially large increase in project disbursements during the next few years if the Government relaxes its policies, indicates the urgent need for the Government to begin a process of reexamining the project list. The task calls for identifying priorities and setting strict limits. Such a selection process needs to be based both on macro and sectoral strategies, as well as the economic returns, which can be expected from the individual projects. A final determination would then need to be based on the capacity of the concerned agencies to implement projects as this appears to be one of the most pronounced bottlenecks at this time. 1.115 The Government has in its discussions, focussed on the very large "project oriented" activities of the various public agencies and SEEs. There are as indicated earlier some 139 projects with the total cost of TL 5 billion or over in the 1981 program. Some of these projects have received widespread public scrutiny for a number of years and are very much in the center of Government's thinking, e.g. the steel mills, the Karakaya and the Ataturk dams and the Aliaga Petrochemicals Project. It would be most advantageous that some of these very large projects be evaluated using better technical and economic procedures. Their scheduling and implementation must be more effective to avoid the huge cost to the country and to more quickly achieve the potential benefits. The selection criteria for some of these projects being used by the Government, stresses economic evaluation. Some, however, need better analyses. Obviously, the selection process has not yet been developed to the point where the Government can confidently feel that satisfactory rates of return are assured for all these 139 projects. This Report reccomends that 47 of the 139 "large projects", or about one-third, be reevaluated. An indication as to how this prognosis was made, is summarized in the following paragraph. 1.116 A large number of agricultural projects have been recommended for reevaluation. This reflects to some extent the unsatisfactory results from such projects in past years. Agricultural investment increased at a rate of about 10 percent per annum during 1963-1977 while output rose 2.8 percent per annum. The largest share of investment in the sector has been for irrigation, and benefits have been slow in materializing. Between 1972 and 1977, despite a tripling of investment (in constant prices) for irrigation, the area under irrigated crops increased by less than 1.5 percent of the total cropped acreage and the area equipped for irrigation increased by less than 20 percent. However, there were some benefits as output from irrigated land increased by two-thirds while non-irrigated agriculture stagnated. 1.117 The program for the coming years is much more ambitious. According to DSI's proposals, the present area equipped for irrigation would be almost doubled by 1990. This is to be accomplished by 85 large irrigation projects which were briefly reviewed by the Mission. According to readily available data, 32 of these projects would yield a rate of return of 10 percent per annum or more. Twenty-four others where benefit and cost information is available, show negative or low rates of return. - 51 - Sixteen projects have not yet started and cannot be evaluated for lack of data and 13 additional projects are part of hydro schemes where the agricultural data are inadequate for economic analyses. The total program is intended ultimately to bring irrigation to 1.7 million ha. (about equal to the existing irrigated area). Apparently 500,000 ha. will soon be completed and another 500,000 ha. is planned for completion by 1985. Plans for secondary and tertiary canals as well as on-farm developments seem to have lagged quite substantially. Of a program costing about TL 530 billion, the Mission was able to recommend full funding for about one-fourth of the projects at this time. 1.118 Given the sector's immediate and medium-term potential for securing increased export earnings and some employment creation, a larger investment program is recommended. However, such a program would have to rely on agricultural areas where yields and productivity can be more quickly increased, than through heavy reliance on slow gestating new irrigation projects or those commenced recently. In this context, although the 1981 allocation for agricultural support services is somewhat larger than in the past (about TL 12 billion), it is clearly inadequate. However, MAF would only be able to implement even this modest allocation effectively, if basic institutional and managerial problems are urgently resolved. The allocations for marketing and storage facilities (TL 18 billion) would not be adequate to support existing levels of agricultural exports; but they can be increased only with major institutional improvement in the TMO. Agricultural research, extension and credit services to farmers, and distribution of inputs such as seeds and fertilizers (TL 5.1 billion) are important programs for any major improvement in agriculture; but currently they lack clear purpose, direction and funding. Forestry investments (TL 15 billion) offer scope for employment and foreign exchange savings; but the 1981 allocation is sparse. Livestock is clearly an important part of ,agriculture and needs more support; but investments are now more needed for integrated processing facilities for livestock products, because too many animals are being shipped live. Nearly 2 million ha. of croplands, mostly wheat on slopes, are now subject to erosion; they could be converted into grazing lands. 1.119 Power is another area where a number of large projects are recommended for reevaluation. Of 24 new generating project proposed by TEK, only 16 are included in the 1981 program. A relatively modest allocation of TL 20 billion is included for these projects compared to the TL 72 requested by the SEE's involved. These projects are particularly long-gestating and capital intensive. In fact, many of the generating plants require $2500-3000 per KW, around $5 invested for each dollar of expected output and are almost twice as capital intensive as steel and petrochemicals plants. This Report recommends basically, a full funding of all "on-going" projects included in the 1981 program. Of the new projects, for example, some are large multipurpose projects, difficult to evaluate and yet most important for the long-term development strategy of the - 52 - country. However, the increasing number of such large power projects places a-difficult burden on the Government to select only those at this time that deserve special economic priority and then to assure their proper scheduling and efficient implementation. A similar problem exists for a series of power/lignite projects, the first of which is already recieving Bank assistance. Power is badly needed but the lignite market is very short of supplies. Nevertheless, it is now clear that the first of a group of five projects can be effectively implemented only with difficulty by the existing organizational and staffing arrangements. 1.120 The Government is already reconsidering its program for nuclear power in the 1990s. The first nuclear power plant (600 MW) according to the TEK schedule was to undergo construction in 1982 and be completed in 1987. Three additional plants (3200 MW) were scheduled for completion in the mid-1990's. The first plant was estimated to cost less than the equivalent of about $2400/KW (in 1981 prices). The likely cost would be considerably higher. The rate of return on the investment would undoubtedly be low compared to the alternative of developing hydro or lignite power. Nuclear power is considered important by the Government as other indigenous resources might be fully commi.tted by the turn of the century and the learning process for nuclear energy might be a slow process. The validity of this justification should be more carefully evaluated, particularly in view of the fact that most of the program will ultimately depend on imported uranium as well as technology. 1.121 The capital intensity and the mere size of the energy program warrants substantial reevaluation. The sector is already absorbing 33 percent of public invetment and could go higher. Delays in implementation, cost escalation, lack of inter-sectoral coordination, financial constraints, and managerial problems can cause a major reduction in economic rates of return and can easily have a disastrous effect on the entire Government budget. Selecting "special economic" priorities will undoubtedly require choices, e.g. between hydro, lignite and nuclear power projects. The review of the different power projects in terms of capital costs per kW installed, average and firm energy output per kW and generating cost per kWh, was inconclusive. Although it did show that most of the hydro power projects emerge fairly well from such a rough evaluation as do lignite power stations, there is doubt about the strict comparability of the figures available, particularly those for the hydro power projects. This Report recommends that most of the new power projects be deferred until TEK's demand projections can be reevaluated and in some cases more feasibility studies carried out. 1.122 Petroleum refining is another critical area of the program where a reevaluation of major projects is again recommended. Three refinery projects are being completed this year and would increase capacity by 6 million tons per year. Four additional projects have been included in the 1981 program to increase refining capacity another 10 million tons per - 53 - year. These latter projects involving TL 200 billion should be deferred at least until the petroleum demand can be reevaluated. The capacity of these plants might not be required even by 1990, and the rates of return at any realistic level of utilization, would be extremely low. 1.123 Reductions in the steel program recommended, are quite substantial. The largest, the new Sivas Fourth Steel Mill costing about TL 325 billion, has already been deferred by the Government. It would be more economical to expand existing mills to their ultimate capacities of at least 6 million tons each than to build an entirely new mill. The costs and methods of handling iron ore and coal need to be reexamined. A master plan for the development of the steel industry has been proposed and future expansion should be reexamined in that context. 1.124 Petrochemicals projects raise similar problems but the largest, Aliaga, is too far advanced to be deferred. The Aliaga petrochemicals project would achieve a 14 percent rate of return if sunk costs are ignored. Otherwise, the return is estimated by the Misison to be only 4.3 percent. The special steel project raises similarly difficult issues. The cost of steel from the special steel project is estimated at at least twice the world market price. 1.125 There are five large manufacturing projects representing 11 percent of the 1981 allocatin for manufacturing (about TL 20 billion) which need serious reevaluation because their preliminary economic returns appear low. For the most part, the expenditures to date on these projects are not large enough to preclude stopping them if the return on the remaining investment does not turn out to be satisfactory after they are reevaluated. There are ten additional questionable manufacturing projects in the program which in 1981 received either no funds or only a token allocation, and these projects should be reevaluated. 1.126 Many transport projects are part of large-scale ongoing programs for the rehabilitation of roads, railroads and telecommunications. Some are related to industrial energy, and other sectoral investments, which have already been dropped by the Government from its investment program, or are likely to be, in the near future. A re-examination of some investment will be necessary as projects are eliminated from other parts of the program. e.g. the Fourth Steel Mill. Half of the sector's program is for highways and rural roads where traffic analysis is in many cases incomplete. Nevertheless, priority for rehabilitation and maintenance is very high. The key bottlenecks affecting exports, e.g. poor trucking equipment, ports and storage capacity plus the bulk cargo facilities can not be alleviated quickly. A good start is already underway, but the need for a transport master plan is serious. The 1981 allocation for transport, represents only 17.7 percent of the total allocation for public sector investments in 1981, compared to over 20 percent in the 1960's and about 25 percent during 1973-1977. However, the program is about all that can be accomplished effectively during the interim period until an adequate transport plan has been prepared. - 54 - 1.127 As for major projects, the high speed railway between Ankara and Istanbul, which received a relatively small allocation in 1981 of TL 1.5 billion but has a total project cost of TL 95 billion, should be reexamined considering the cost of alternative modes to serve that route. Ship-building projects with a total cost of TL 3 billion should also be reevaluated. The current fleet capacity seems adequate to handle traffic and additional demand could be properly satisfied with leased equipment. 1.128 It is important to recognize that an iterative process is warranted leading to projects being reexamined not merely with regard to the adequacy of their rates of return, but also in terms of implementation capacity, market constraints and inter-sectoral implications. The discussions in the sector chapters in Volume II, indicate the rationale for focussing the limited resources available, among the projects commanding higher priority and gaining the benefits of their outputs than would otherwise be possible. - 55 - Volume I, Appendix 1 Page 1 Volume I, Appendix 1: SUMMARY REVIEW OF PRIORITY PROJECTS IN MAJOR SECTORS 1. AGRICULTURE Advanced Projects (29) Relatively Less Advanced Projects (20) Irrigation Irrigation Iznik I Merhale Gonen Demirtas Konya Cumra I Lower Gediz Konya Cumra II Gediz Alasehir Konya Karaman Middle Sakarya Pamukova Lower Sakarya I Tavasnli Lamas Yk. Sakarya I Develi Middle Sakarya I Uzunlu Eregli Ivriz III Finike Corum-Cankiri Lower Aksu II Duzce-Efteni I Van Engil II Lower Seyhan III Mus Aruncik Lower Seyhan Andirin Isilki Baklan Lower Seyhan Aslantas Repair Works Ceyhan-Sarikiz Flood Controls Amik-Tahtakopru I Flood and Sediment Controls Berdan II Ground Water Erzincan Small Dams Igdir (DSI & Topraksu) Uluova II Hayrabolu II Others Teke Building Erciz Kockopru Grain Storage Uluborlu Yk. Ceyhan Goksun Lower Buyuk Menderes Curuksu Esen-Konak Fethiye II -56- Volume I, Appendix I Page 2 2. MANUFACTURING Advanced Projects (15) Relatively Less Advanced Projects (50) Sugar (Konya) Meat and meat products Sugar (Ankara) Sugar (Balikeshir) Akdiniz Kraft Paper Sugar (Kastamonu) Small Stream Clearance (paper) Sugar (Agri) Kastamonu Integrated Paper Sugar (Nigde-bor) Saltmine (Izmir) Fruit Processing and Marketing HPB/HSB/HBD Raki/Suma (Diyarbaker) Cellophane Raki (Nevsehir) Gemlik Fertilizer Milk Center Etylene Expansion Tokat Cigarette Factorv Aliaga Petrochemicals Textile Rehabilitation and Cement (Siirt) Modernization Electric Insulator Samsun Integrated Paper Iskendrun Steel I Kraft Paper (Caycuma) Dockyard Saltmine (Ankara) Boric Acid Sulfuric Acid Hydrogen Peroxide Dynamite Oil Distillery (Tall) Soma Fertilizer Fertilizer Rehabilitation Cement (Diyarbaker) Cement (Denizli) Cement (Urfa) Coal Packing Mills Basic Refracting Materials Alumina Silicate Furnace Materials Magnesia Brick Ship Dismantling Coke Sinter Modernization Powerhouse Modernization Rolling Pin Modern Weapons II Motor Factory Milling and Drilling Machinery Grinding Tools Automatic Lathe Cog Wheel Tool Sets Textile Machinery Yari Ilitken Electronics - 57 - Volume I, Appendix I Page 3 Electronics Machinery . Aircraft Transmission Parts Safety Tools Rail Wagon SIDEMAS Wagon Repairs 58 - Volume I, Appendix I Page 4 3. ENERGY Advanced Projects (12) Relatively Less Advanced Projects (76) Hydro Hydro Lower Ceyhan Aslantas I Central Sakarya Yenice Hasan Ugurlu I, II Kapulukaya Suat Ugurlu Lamas Keban II Seyhan-Catalan Oymapinar Hasan Uruglu III, IV TEK Generation Kizildere Afsin-Elbistan A I-IV Tohma Cayirhan II Van-Engil Kangal I, II Lower Aksu II Transmission Susehri Mersin Grid Expansion Kilickaya-Camliyoze Petroleum Lower Buyuk Menderes Drilling Capacity Expansion Dogu Karadeniz Ditas Siya-Beyaz Product Karakaya Transport Kiral Kizi Coal Lignite TEK Generation Afsin-Elbistan A Yanicatalagazi Orhaneli Soma B, III Yenikoy III, IV Machinery and Eqipment Sevitomer IV Yatagan III Transmission 27 projects Petroleum Izmir Crude Receiving Facility Expansion Well Cementing Drilling Tower Transport and Assembly Drilling Equipment Modernization Drilling and Transport Base Bati Raman Enhanced Recovery Hamitabat Gas Field Development Petroleum Studies Iraq-Turkey Pipeline Izmit-Istanbul Pipeline Coal/Lignite Mugla-Yatagan Canakkale-Can Sivas-Kangal Beypazari - 59 - Volume I, Appendix I Page 5 EKI Mining Equipment Plant Zonguldak Expansion I Tuncbilek Bursa-Orhaneli Tekirdag-Saray Soma-Isiklar Hard Coal Exploration Coal Exploration Parts for Drilling Equipment Drilling Equipment Others Geothermal Exploration Radioactive Mineral Exploration - 60 - Volume I, Appendix I Page 6 4. TRANSPORT Advanced Projects (15) Relatively Less Advanced Projects (62) Railways Railways Switch Renovation Aliaga Menemen Maritime Transport Hanli-Bedirli Ship and Ferry Construction Track Renovation Izmir Transport Station Renovation and Addition 5500 DWT Ship Construction Balast Completion Firefighter Boats Sleeper Change & Reinforcement Road Transport Tunnel Construction Machinery Equipment and Spare and Renovation Part Acquisition Track Mechanization Istanbul Beltway Storehouse Construction Hayadarpasa-Izmit & Wagon Yard Surfacing Station Construction Bridge Construction & Equipment Air Transport Sebeka Study & Project Preparation Antalya Airport New Track Construction Mugla Airport Signal Establishing Istanbul Airport Electrification Communications Diesel Locomotive Acquisition Offices Electric Locomotive Acquisition Radio Transmission Maritime Transport Izmir Port Expansion Ports Renovation Ship and Steamer Work Port Equipment Development Road Transport Cigli-Cumaovasi Avrupa Otovolu II Izmit-Sakarya Tartsus Ayr.-Pozanti II Yesilkoy-Buyukcekmece Ormankoy-Akyazi-Dokurcan Gelibolu-Eceabat Macka-Gumushave Aksaray-Sereflickochisar Caldiran-Agri Lapseki-Canakkule-Ayvacik Sindirgi-Simav Tirebolu-Torul Balikesir-Dursunbey Cukurca Ayr-Uludere Asphalt & Aggregate Preparation Asphalt Standardization and Promotion Turkey Transit - 61 - Volume I, Appendix 1 Page 7 Aubara-Kirikkale-Cerikli Adiyaman-Yesilyurt Yuksekova Ayr.-Daglica Gulpiuar-Yalinca Village Road Construction Plant Construction Bridge Construction Air Transport Air Traffic Control System Air Transport Master Plan Ankara Airport Izmir Airport Communications Telecommunications Warehouses Telephone Exchanges Administrative Centers South Anatolia Telecommunications Telecommunication Administrative Center Rural Telephone Telephone Exchanges and Machines Telex Exchanges Telephones, Lines and Machinery Offices and Roads Long Distance Telecommunication West Anatolia 62 - Volume I, Appendix 2 Page 1 Volume I, Appendix 2: LIST OF PROJECTS IN MAJOR SECTORS (In million TL. at 1981 Prices) Project p Expenditure 1981 Schedule Project To End 1980 Allocation Cost I. AGRICULTUR~E (1132)!! 692,680 57,116 84,235 A. State Hydraulic Works (142) 529,170 32,617 37,500 a. Studies C 1) 2,241 --- 600 b. Ongoing Projects (133) 516,411 32,617 27,050 To be completed in 1981 ( 14)12 14,364 4,362 2,609 To be completed after 1981(119) - 502,047 28,256 24,441 1. Gonen 1976-87 18,270 93 155 2. Iznik I. Merhale 1976-83 1,874 124 80 3. Demirtas 1977-82 1,749 189 110 4. Bakircay Berggama I. 1970-83 2,983 67 75 5. Lower Gediz 1963-87 3,657 1,432 350 6. Gediz Alasehir 1974-83 1,803 692 467 7. Middle Sakarya Pamukava 1974-85 2,991 404 200 8. Tasvanli 1976-85 3,350 383 120 9. Orencik Cavdarhisar 1976-84 3,125 39 10 10. Lower Sakarya I. 1970-84 2,439 259 80 11. Yk. Sakarya I. 1964-87 4,810 251 350 1.. Seyitgazi 1977-87 4,496 129 95 13. Middle Sakarya I. 1977-84 1,727 64 300 14. Konya Cumra I. 1964-83 6,830 644 210 15. Konya Cumra II. 1974-87 2,545 194/3 16 16. Konya Cumra III. 1977-87 21,643 -9/ 30 17. Eregli Ivriz III. 1975-86 9,175 389 860 18. Konya-Karaman 1976-87 9,286 10 300 19. Aksaray Ulunmak II. 1976-86 2,498 33 13 20. Corum Cankiri 1974-83 3,993 346 550 21. Duzce Erteni I. 1964-83 1,024 582 160 22. Lamas 1976-84 1,320 141 157 23. Lower Seyhan III. 1975-83 3,151 395 410 24. Seyhan Catalan 1976-86 12,480 --- 10 25. Lower Ceyhan Andirin 1976-83 1,200 227 75 26. Lower Ceyhan Aslantas 1964-84 19,937 2,412 2,520 27. Ceyhan Sarikiz 1976-84 2,450 165 280 28. Amik Tahtakopru I. 1965-84 1,680 457 170 29. Berdem II. 1974-83 4,150 1,152 930 30. Zile 1976-83 2,815 102 280 31. Yedikir Suluova 1976-84 3,260 411 300 32. Erzincan 1964-87 8,350 568 530 33. Uluova II. 1974-85 5,732 218 410 34. Palu-Kovancilar 1977-84 3,738 102 70 35. Bingul II. 1976-84 2?714 61 100 36. Kralkizi 1976-88 55,242 8 --- 37. Derik-Dumlaca 1976-83 1,169 90 75 38. Hayrabolu 1974-83 2,289 778 330 39. Teke 1974-83 2,308 395 700 40. Develi 1976-86 29,117 537 395 41. Yahyasaray 1976-84 3,959 30 --- 42. Uzunlu 1976-84 3,728 77 220 43. Finike 1967-84 2,748 150 100 /1 Number in paranthesis indicates total number of projects. /C Only projects with cost over TL 1 billion are listed here. /3 "---" denotes amount smaller than 1 million after rounding. - 63 - Volume I, Appendix 2 Page v Project Total Expenditure 1981 Schedule roject To End 1980 Allocation Cost 44. South Anatolia 1977-87 66,843 1,007 1,900 45. Igdir 1966-86 21,259 583 800 46. Cildir II. 1976-84 2,035 100 30 47. Erciz Kockopril 1977-84 2,600 148 200 48. Hacihidir 1976-84 1,200 5 4 49. Van-Engil II. 1976-89 3,024 --- 90 50. Mus-Arincik 1968-83 1,193 177 60 51. Mus-Hinis Ulusu 1978-84 2,194 26 --- 52. Uluborlu 1976-83 1,724 78 300 53. Lower Aksu II. 1977-83 5,415 235 450 54. Eber-Aksehir 1977-87 19,018 34 --- 55. Susehri 1976-86 3,485 113 80 56. Yk. Ceyhan Goksun 1976-82 1,202 139 350 57. Middle Ceyhan Menzelet 1976-87 17,512 36 100 58. Lower Buyuk Menderes 1966-86 16,886 1,513 660 59. Isikli Baklan 1966-87 12,717 133 200 60. Curuksu 1966-85 2,439 163 200 61. Esen-Konak Fethiye II. 1976-86 2,782 170 120 62. Repair Works 1975-87 4,386 663 1,000 63. Flood Controls 1978-82 3,488 439 255 64. Flood and Sediment Control 1978-82 1,016 166 60 65. Ground Water 1978-82 1,045 112 160 66. Small Dams 1978-82 1,468 122 245 67. Buildings 1978-82 1,741 114 150 c. New Projects ( 8) 10,518 0 9,850 To be co!Mleted in 1981 ( 7) 9,700 o 9,700 To be completed after 1981( 1) 818 0 150 B. Topraksu (415) 49,069 5,342 18,700 a. Studies ( 4) 550 0 550 b. Ongoing Projects (378) 34,515 5,342 6,442 To be completed in 1981 (211) 3,681 1,504 2,123 To be completed after 1981(167) 30,834 3,838 4,319 l. Igdir 1977-91 8,330 14 26 c. New Projects ( 33) 14,047 0 11,708 To be completed in 1981 ( 22) 9,463 0 9,463 To be completed after 1981( 11) 4,585 0 2,246 C. Forestry Subsector ( 96)/1 45,954 11,039 14,910 General Directorate/Forestry ( 48)- 29,631 6,864 7,910 a. Studies 0 0 0 b. Ongoing Projects ( 48) 29,631 6,864 7,910 To be completed in 1981 0 0 0 To be completed after 1981( 48) 29,631 6,864 7,910 c. New Projects 0 0 0 D. TMO ( 15) 19,219 1,963 1,750 a. Studies ( 1) 6 0 6 b. Ongoing projects ( 10) 18,759 1,963 1,527 To be completed in 1981 ( 1) 18 15 3 To be completed after 1981( 9) 18,741 1,948 1,525 1. Grain Storage 1977-85 17,336 1,700 1,010 c. New projects ( 4) 454 0 217 To be completed in 1981 ( 2) 108 0 110 To be completed after 1981( 2) 347 0 110 C. Others (464) 49,268 6,155 11,375 1/ Includes both investment from the Annexed Budget and the Revolving Fund. - 64 - Volume I, Appendix 2 Page 3 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost II. MANUFACTURING (833)/- 1,637,602 186,553 122,079 A. Food and Beverages (335) 64,331 12,384 16,400 a. Studies ( 12' 1,126 0 1,126 b. Ongoing Projects (267) 60,175 12,384 14,007 To be completed in 1981 ( 59)/2 10,229 5,062 3,653 To be completed after 1981(208) - 49,946 7,322 10,354 1. Meat and meat products 1979-83 1,150 44 --- 2. Sugar (Konya) 1976-82 5,706 1,655 2,851 3. Sugar (Balikeshir) 1976-82 2,210 394 570 4. Sugar (Ankara) 1977-82 1,525 453 550 5. Sugar (Kastamonu) 1978-83 1,426 140 203 6. Sugar (Agri) 1976-82 5,235 719 1,600 7. Sugar (Nigde-bor) 1976-82 5,571 525 1,000 8. Fruit Processing & Marketing 1976-84 1,900 54 110 9. Raki/Suma (Diyarbakir) 1972-83 1,182 62 180 10. Raki (Nevsehir) 1976-83 2,450 160 200 c. New Projects ( 56) 3,978 0 1,267 To be completed in 1981 ( 47)/2 976 0 976 To be completed after 1981( 9) - 3,002 0 291 1. Milk Center 1981-85 2,172 0 86 B. Tobacco ( 43) 84,782 9,083 14,000 a. Studies ( 0) 0 0 0 b. Ongoing Projects ( 38) 84,629 9,083 13,847 To be completed in 1981 ( 21)12 2,162 885 1,277 To be completed after 1981 ( 17) - 82,467 8,198 12,570 1. Tokat Cigarette Factory 1973-82 14,500 2,800 5,360 2. Izmir Cigarette Factory 1976-84 17,112 744 100 3. Akhisar Cigarette Factory 1976-83 15,470 1,500 2,500 4. Erzurum Cigarette Factory 1976-84 9,032 632 400 5. Divarbakir Cigarette Factory 1976-83 8,667 767 500 6. Samsun Cigarette Factory 1976-83 14,570 1,100 3,000 c. New Projects ( 5) 153 0 153 To be completed in 1981 ( 5) 153 0 153 C. Textiles ( 28) 17,712 2,369 5,146 a. Studies ( 5) 1 0 1 b. Ongoing projects ( 17) 16,995 2,369 4,585 To be completed in 1981 ( 10) 3,648 1,813 1,835 To be completed after 1981 ( 7) 13,347 556 2,750 1. Textile Rehabilitation & Modernization 1980-83 12,360 421 2,694 c. New Projects ( 6) 716 0 560 To be completed in 1981 ( 5) 293 0 293 To be completed after 1981 ( 1) 423. 0 267 /1 Excluding 58 projects in petroleum sector. /2 Only projects with cost over TL 1 billion are listed here. - 65 - Volume I, Appendix 2 Page 4 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost D. Forestry Products ( 13) 3,663 1,725 1,160 a. Studies ( 3) 326 326 --- b. Ongoing Projects ( 7) 3,197 1,399 1,021 To be completed in 1981 ( 6) 2,227 1,369 858 To be completed after 1981 ( 1) 970 30 163 c. New Projects ( 3) 140 -139 To be completed in 1981 C 3) 140 0139 To be completed after 1981 ( 0) 0 0 0 E. Paper ( 24) 86,778 25,913 7,500 a. Studies ( 8) 77 9 68 b. Ongoing Projects ( 13) 85,168 25,905 6,518 To be completed in 1981 ( 2) 11,159 9,499 1,660 To be completed after 1981 ( 11) 74,010 16,406 4,858 1. Akdiniz Kraft Paper 1969-82 17,632 13,136 2,790 2. Small stream clearance 1973-82 1,058 505 353 3. Kastamonu Integrated 1975-82 5,530 2,537 1,092 4. Samsun Integrated 1977-84 45,000 15 500 5. Kraft (Caycuma) 1973-83 1,720 11 2 c. New Projects ( 4) 1,533 0 914 To be completed in 1981 ( 2) 813 0 813 To be completed after 1981 ( 2) 720 0 101 F. Printing ( 15) 1,417 396 350 a. Studies ( 8) 1,327 396 260 b. Ongoing Projects ( 0) 0 0 0 c. New Projects ( 7) 90 0 90 To be completed in 1981 ( 7) 90 0 90 C. Skin and Hides C 9) 1,731 920 216 a. Studies ( 1) --- 0 b. Ongoing Projects ( 7) 1I,76 920 201 To be completed in 1981 ( 4) 606 87 57 To be completed after 1981 ( 3) 1,110 833 144 c. New Projects ( 1) 15 0 15 To be completed in 1981 ( 1) 15 0 15 H. Plastics C 2) 1,171 1,071 100 a. Studies 0) 0 0 0 b. Ongoing Projects ( 2) 1,171 1,071 100 To be completed in 1981 ( 2) 1,171 1,071 100 c. New Projects ( 0) 0 0 0 I. Rubber and Tires ( 1) 16,144 522 1,500 * 1. Tires 1974-83 16,144 522 1,500 -66- Volume I, Appendix 2 Page 5 Project Total Expenditure 1981 Schedule Proect To End 1980 Allocation J. Chemicals ( 57) 33,512 8,257 8,000 a. Studies ( 19) 130 17 62 b. Ongoing Projects ( 23) 32,864 8,240 7,666 To be completed in 1981 ( 7) 2,303 1,643 660 To be completed after 1981( 16) 30,561 6,597 7,006 1. Saltmine (Ankara) 1978-82 1,724 124 500 2. Saltmine (Izmir) 1975-83 4,293 1,058 1,500 3. HPB/HSB/HBD 1972-82 3,612 1,405 889 4. Boric Acid 1975-82 2,400 160 600 5. Sulfuric Acid 1976-82 1,905 251 500 6. Hydrogen Peroxide 1976-83 5,889 297 1,600 7. Cellophane 1973-82 3,869 2,849 328 8. Dynamite 1979-83 1,364 0 85 9. 01 Distillery (Tell) 1979-82 1,275 9 249 c. New Projects ( 15) 518 0 272 To be completed in 1981 ( 9) 194 0 194 To be completed after 1981( 6) 324 0 78 K. Fertilizers ( 27) 195,382 7,578 4,500 a. Studies ( 4) 19 3 16 b. Ongoing Projects ( 19) 189,122 7,574 3,827 To be completed in 1981 ( 10) 2,360 2,010 350 To be completed after 1981( 9) 186,762 5,564 3,477 1. Gemlik 9,928 4,327 2,591 2. Fourth Fertilizer Complex 1976-86 96,311 104 10 3. Soma 1976-86 42,828 675 450 4. Anatolia Fertilizer Complex 1980-85 35,195 5 5 c. New Projects ( 4) 6,241 0 657 To be completed in 1981 ( 3) 241 0 241 To be completed after 1981( 1) 6,000 0 415 1. Rehabilitation 1981-84 6,000 0 415 L. Petrochemicals ( 20) 138,934 48,111 19,000 a. Studies ( 2) 19 2 1 b. Ongoing Projects ( 15) 137,839 48,109 18,723 To be cQmpleted in 1981 ( 9) 1,094 747 347 To be completed after 1981( 6) 136,745 47,361 18,376 1. Etylene Expansion 1976-82 1,130 337 334 2. Carbon Black Factory 1978-84 3,347 30 164 3. Aliaga Complex 1971-83 131,876 46,977 17,856 c. New Projects ( 3) 1,076 0 276 To be completed after 1981( 3) 1,076 0 276 M. Cement ( 37) 41,045 6,385 10,000 a. Studies (10) 8 --- 4 b. Ongoing Projects ( 18) 40,135 6,384 9,504 To be completed in 1981 ( 5) 8,246 2,792 5,454 To be completed after 1981( 13) 31,889 3,592 4,050 - 67 - Volume I, Appendix 2 Page 6 Project Total Expenditure 1981 Schedule PCojset To End 1980 Allocation 1. Diyarbakir 1976-82 3,931 698 1,000 2. Denizli 1976-83 4,677 475 300 3. Siirt 1976-82 4,633 1,066 900 4. Urfa 1976-83 4,800 436 650 * 5. Bartin 1979-84 9,389 10 60 6. Coal Packing Mills 1975-83 3,000 6 200 c. New Projects ( 9) 902 0 492 To be completed in 1981 ( 7) 421 0 421 To be completed after 1981( 2) 481 0 71 N. Ceramics C 7) 4,955 32 300 a. Studies ( 1) 1 --- --- b. Ongoing Projects ( 4) 4,917 32 262 To be completed in 1981 ( 2) 118 24 94 To be completed after 1981( 2) 4,799 8 168 1. Electric Insulator 1977-84 4,799 8 167 c. New Projects ( 2) 38 0 38 To be completed in 1981 ( 2) 38 0 38 0. Fired Clay ( 11) 14,872 580 1,400 a. Studies ( 3) --- --- --- b. Ongoing Projects ( 6) 12,991 539 1,143 To be completed in 1981 ( 1) 241 145 96 To be completed after 1981( 5) 12,750 394 1,047 1. Basic Refracting Materials 1977-83 3,534 4 305 2. Alumina Silicate 1978-83 4,773 16 159 3. Furnace Materials 1978-83 3,300 71 60 c. New Projects ( 2) 12 0 12 To be completed in 1981 ( 2) 12 0 12 P. Sand ( 1) 1,863 41 240 1. Magnesia Brick 1979-83 1,863 41 240 Q. Iron and Steel ( 45) 654,714 42,595 16,000 a. Studies ( 3) 504 3 51 b. Ongoing Projects ( 29) 653,352 42,593 15,236 To be completed in 1981 ( 7) 15,482 15,101 381 To be completed after 1981( 22) 637,870 27,492 14,855 1. Speoial Steel 1974-84 14,392 450 516 2. Kirikkale Modernization 1975-83 2,993 412 212 3. Ship Dismantling 1980-84 3,000 10 68 4. Karabuk Liquid Steel 1972-82 1,676 900 410 5. Karabuk Modernization 1974-84 16,500 102 100 6. Iskenderun 1974-83 63,000 24,987 12,000 7. Sivas Integrated Steel 1974-84 191,750 384 400 8. Iskenderun II. 1976-91 328,000 89 150 9. Coke 1976-83 1,742 0 200 10. Sinter Modernization 1979-83 1,533 0 100 11. Powerhouse Modernization 1979-84 4,966 0 150 12. Rolling Pin 1979-84 5,372 1 50 c. New Projects ( 13) 858 0 713 To be completed in 1981 ( 11) 693 0 693 To be completed after 1981( 2) 165 0 20 - 68 Volume 1, Appendix 2 Project Project Expenditure . 1981 Schedule Pojt To End 1980 Allocation Cost R. Nonferrous Metals ( 48) 38,327 1,110 800 a. Studies ( 8) 21 0 11 b. Ongoing Projects ( 21) 37,890 1,108 588 To be completed in 1981 ( 12) 558 246 312 To be completed after 1981( 9) 37,332 862 276 1. Aluminum 1972-85 31,627 82 52 2. Ferrochrome 1979-84 4,500 345 25 c. New Projects ( 19) 416 0 201 To be completed in 1981 ( 16) 347 0 199 To be completed after 1981( 3) 69 0 2 S. Metal Goods ( 10) 39,434 1,417 2,000 a. Studies ( 1) 1 0 1 b. Ongoing Projects ( 6) 39,114 1,417 1,680 To be completed in 1981 ( 2) 702 547 155 To be completed after 1981( 4) 38,412 870 1,525 1. Modern Weapons II. 1978-85 27,568 118 275 2. Steel Equipment 1976-84 10,078 584 1,020 c. New Projects ( 3) 319 0 319 To be completed in 1981 ( 3) 319 0 319 T. Non-electrical Machinery ( 42) 70,660 6,199 6,206 a. Studies (1) 1 --- 1 b. Ongoing Projects ( 27) 68,373 6,183 5,570 To be completed in 1981 ( 6) 1.136 927 209 To be completed after 1981( 21) 67,237 5,256 5,361 1. Tractor Factory 1977-89 30,842 805 1,000 2. Construction & Excavation Machinery 1972-82 4,922 692 500 3. Heavy Industry Equipment 1973-82 4,035 435 200 4. Industrial Equipment 1976-84 2,836 181 5 5. Motor Factory 1975-82 2,309 332 100 6. MillinR & Drilling Machinery 1977-83 2,750 490 770 7. Grinding Tools 1977-82 3,242 506 840 8. Automatic Lathe 1977-82 3,155 477 793 9. Cog Wheel 1977-83 5,063 571 900 10. Tool Sets 1978-82 1,118 137 10 11. Textile Machinery 1973-84 5,361 147 50 c. New Projects ( 14) 2,286 0 635 To be completed in 1981 ( 7) 152 0 152 To be completed after 1981( 7) 2,134 0 483 1. Muessese III. 1981-83 1,400 0 237 U. Professional and Scientific Equipment ( 2) 338 147 100 a. Studies ( 0) 0 0 0 b. Ongoing Pr6jects ( 2) 338 147 100 To be completed in 1981 ( 1) 126 82 45 To be completed after 1981 ( 1) 211 65 55 c. New Projects ( 0) 0 0 0 - 69 - Volume I, Appendix'2 Page 8 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation. Cost V. Electrical Machinery ( 7) 41,972 1,429 1,400 a. Studies ( 2) 14 10 2 b. Ongoing Projects ( 4) 41,953 1,418 1,393 To be completed in 1981 ( 1) 1,200 715 485 To be completed after 1981( 3) 40,754 703 908 1. Electromechanic Complex I. 1977-86 28,234 623 800 2. Electromechanic Complex II. 1977-84 5,955 18 80 3. Electromechanic Complex III. 1977-84 6,564 62 28 c. New Projects ( 1) 5 0 5 To be completed in 1981 ( 1) 5 0 5 W. Electronics ( 10) 5,190 1,314 1,500 a. Studies ( 0) 0 0 0 b. Ongoing Projects ( 10) 5,190 1,314 1,500 To be completed in 1981 ( 2) 445 177 268 To be completed after 1981( 8) 4,745 1,137 1,232 1. Yari Ilitken 1978-82 1,670 225 627 2. Machinery 1972-82 1,500 240 335 c. New Projects ( 0) 0 0 0 X. Vehicles and Repairs ( 40) 80,539 7,014 4,500 a. Studies ( 3) 117 39 14 b. Ongoing Projects ( 28) 80,219 6,975 4,391 To be completed in 1981 ( 5) 609 361 248 To be completed after 1981( 23) 79,610 6,614 4,143 1. Dockyard 1969-83 3,680 2,068 900 2. Aircraft 1977-86 16,596 346 596 3. Integrated Diesel Engines 1978-86 36,419 2,276 1,000 4. Tranumiusiou Parts 1979-85 11,243 795 0 5. Safety Tools 1973-83 1,102 206 165 6. Locomotives 1979-82 2,307 152 300 7. Rail Wagons 1978-83 1,163 10 100 8. SIDEMAS 1976-83 1,871 57 245 9. Wagon Repairs 1978-83 2,082 77 230 c. New Projects ( 9) 203 0 95 To be completed in 1981 ( 6) 74 0 74 To be completed after 1981( 3) 129 0 21 - 70 - Volume I, Appendix 2 Page Project Total Expenditure 1981 Schedule -Project To End 1980 Allocation Cost III. ENERGY (1375) 2,095,174 228,195 213,198 A. DSI (39) 747,942 35,176 .44,500 a. Studies ( 2) 1,475 350 1,075 b. Ongoing Projects (30) 730,162 34,826 36,263 To be completed in 1981 ( 2) 1,318 948 370 To be completed after 1981 (28) 728,844 33,878 35,893 1. Central Sakarya Yenice 1977-86 12,859 26 264 2. Kapulukaya 1977-85 4,135 296 475 3. Lamas 1977-83 1,955 95 30 4. Seyhan-Catalan 1977-88 3,763 36 304 5. Lower Ceyhan Aslantas I 1969-83 7,145 2,219 2,043 6. Gezende 1978-86 18,544 353 1,381 7. Derbent 1977-88 5,059 7 134 8. Hasan Ugurlu (I, II) 1968-83 4,000 3,649 136 9. Hasan Uruglu (III, IV) 1979-84 3,867 180 631 10. Suat Ugurlu 1975-82 3,150 1,172 1,140 11. Kizildere 1973-83 5,466 802 1,624 12. Altinkaya 1975-87 40,750 1,046 3,000 13. Erzincan 1974-83 2,068 182 63 14. Tohma 1975-84 2,166 50 50 15. Keban II 1976-82 6,670 3,920 1,660 16. Oymapinar 1971-83 23,375 5,405 5,834 17. South Anatolia 366,368 1,800 3,070 (Ataturk Dam 1975-92 354,353 700 500) (Urfa Tuneli 1977-87 12,015 1,100 2,570) 18. Van-Engil 1977-86 1,500 31 172 19. Lower Aksu II 1976-82 1,595 544 863 20. Susehri 1980-85 1,986 84 198 21. Kilickaya-Camliyoze 1976-86 25,467 350 3,538 22. Central Ceyhan Menzelet 1977-87 5,865 200 608 23. Lower Buyuk Menderes 1975-83 3,638 555 1,033 24. Dogu Karadeniz 1977-87 63,874 85 106 25. Karakaya 1971-87 109,555 10,303 6,503 c. New Projects ( 7) 16,305 0 7,162 To be completed in 1981 ( 6) 7,063 0 7,063 To be completed.after 1981 ( 1) 9,242 0 100 1. Kiral Kizi 1981-87 9,242 0 100 B. TEK (674) 697,594 111,267 96,000 a. Studies ( 3) 220 13 190 b. Ongoing Projects (545) 656,693 111,254 89,158 To be completed in 1981 (329) 80,752 45,454 26,086 To be completed after 1981 (216) 575,942 65,800 63,072 Generation C 13) 467,558 58,539 48,827 1. Afsin-Elbistan A I-IV 1972-83 91,929 36,213 15,000 2. Cayirhan II 1974-82 21,000 7,754 6,000 3. Kangal I, II 1974-83 21,000 4,217 4,800 4. Yenicatalagazi 1974-83 11,500 1,805 3,500 5. Nuclear Station 1975-87 102,629 298 2,577 6. Orhaneli 1977-82 14,000 1,308 3,000 7. Afsin-Elbistan B, I-IV 1977-86 115,000 90 --- 8. Soma B, III 1977-83 23,000 2,000 4,000 9. Yenikoy III, IV 1978-84 25,500 2,400 3,000 10. Machinery & Equipment 1978-82 2,000 53 300 11. Sevitomer IV 1979-83 14,000 1,000 2,000 12. Yatagan III 1980-83 11,000 1,200 4,500 *13. Keles 1980-83 15,000 200 150 -71- Volume I, Appendix 2 Page 10 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost 380kV Transmission ( 44) 42,519 2,634 8,104 1. Osmaniye-Seydisehir 1972-83 2,831 400 630 2. Osmanca-Bogazatlama II 1974-83 1,540 150 792 3. Sincan-Osmanca 1974-83 2,200 10 945 4. Elbistan-Sincan 1974-83 5,400 10 1,350 5. Yatagan-Izmir II 1976-82 1,320 200 630 6. Balikesir-Babaeski 1977-85 2,090 1 6 7. Balikesir-Bursa 1977-83 1,100 130 315 8. Kayabasi-Osmanca 1977-84 4,400 1 450 9. Keban-Kayabasi 1979-84 4,180 --- 9 10. Karakaya-Ataturk 1979-84 3,300 --- 9 Birecik-Osmaniye 154kV Transmission (159) 10,906 1,034 2,835 c. New Projects (126) 40,680 0 6,652 To be completed in 1981 ( 58) 3,332 0 3,332 To be completed after 1981 ( 68) 37,348 0 3,320 Generation ( 1) 15,000 0 100 1. Beysehir 1981-84 15,000 0 100 380kV Transmission 6,647 0 771 1. Yenikoy-Aliaga 1981-83 1,656 0 271 154kV Transmission 4,074 0 578 C. Iller Bank (422) 64,883 11,347 5,000 a. Studies ( 2) 50 0 35 b. Ongoing Projects (416) 0 11,347 4,705 To be completed in 1981 ( 82) 1,68V 1,205 484 To be completed after 1981 (334) 62.884 10.112 4,221 1. Adana Grid Expansion 1974-84 1,500 127 50 2. Antalya Grid Expansion 1975-84 3,000 55 100 3. Aydin Grid Expansion 1977-84 1,500 112 60 4. Balikesir Grid Expansion 1975-84 1,500 98 75 5. Bursa Grid Expansion 1973-84 2,500 20 25 6. Denizli Grid Expansion 1976-84 1,000 168 50 7. Eskisehir Grid Expansion 1973-84 2,000 36 125 8. Iskenderun Grid Expansion 1977-84 1,500 50 60 9. Isparta Grid Expansion 1973-84 1,500 22 60 10. Mersin Grid Expansion 1975-84 2,500 1,184 125 11. Kayseri Grid Expansion 1975-84 4,000 137 125 12. Kayseri Power House 1980-84 1,300 25 30 13. Konya Grid Expansion 1975-84 1,000 121 50 14. Manisa Grid Expansion 1978-84 1,500 1 60 15. Samsun Grid Expansion 1976-84 15,000 355 96 16. Trabzon Grid Expansion 1973-84 1,000 168 50 c. New Projects ( 4) 260 0 260 To be completed in 1981 ( 4) 260 0 260 D. Atomic Energy Commission ( 22)/' 14/A 410 600 a. Studies ( 4) 99 _ 9 b. Ongoing Projects ( 14)/' .L,128 405 334 To be completed in 1981 ( 4) 389 330 59 To be completed after 1981 ( 10) 709 75 36 c. New Projects ( 5) 184 5 168 To be completed in 1981 ( 3) 104 5 99 To be completed after 1981 ( 2) 80 0 69 /1 One project listed under mining. -72- Volume I, Appendix 2 Page 11 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost E. Aegean University ( 4) 184 35 40 a. Studies (1) 0 --- b. Ongoing Projects ( 2) 94 35 35 To be completed in 1981 C 1) 30 10 20 To be completed after 1981 ( 1) 64 25 15 c. New Projects ( 1) 54 0 5 To be completed after 1981 ( 1) 54 0 5 F. EIEI ( 19) 3,338 519 1.960 a. Studies ( 5) 1,542 0 1,542 b. Ongoing Projects ( 12) 1.536 519 328 To be completed in 1981 ( 2) 66 47 19 To be completed after 1981 ( 10) 1.470 472 309 c. New Projects ( 2) 310 0 90 To be completed after 1981 C 2) 310 0 90 G. TPAO ( 59) 320.806 42.774 29,570 Refinery (Manufacturing) Related Activities ( 28) 232,407 33,399 15,500 a. Studies ( 4) 29 0 29 b. Ongoing Projects ( 17) 231,842 33,399 15,055 To be completed in 1981 ( 6) 19.947 15,702 4,245 To be completed after 1981 ( 11) 211,895 17,697 10,810 1. Izmir Refinery Expansion 1978-84 36,797 2,840 3,700 2. Izmir Refinery Lub Oil Exp. 1979-86 50,511 11 5 3. Izmir Ref. Crude Receiving 1978-84 3,025 55 20 Facility Exp. 4. Calcine Petroleum Coke 1980-86 18,802 6 5 5. Middle Anatolia Refinery 1976-83 100,585 14,448 6,790 c. New Projects ( 7) 536 0 416 To be completed in 1981 C 6) 411 0 411 To be completed after 1981 ( 1) 125 0 5 Exploration (Mining) Related Activities ( 23) 68,933 8,035 13,000 a. Studies ( 2) 82 0 55 b. Ongoing Proiects C 13) 61,558 8,035 5,652 To be completed in 1981 ( 0) 0 0 0 To be completed after 1981 ( 13) 61,558 8,035 5,652 1. Drilling Capacity Exp. 1979-85 19,012 4,502 20 2. Wells Cementing 1979-85 1,296 170 40 3. Drilling Tower Trans- 1979-85 8,040 357 500 port & Assembly 4. Drilling Equip. Modern. 1979-85 11,452 651 170 5. Drilling & Transport Base 1978-83 3,150 50 10 6. Bati Raman Enhanced Rec. 1979-83 11,824 1,053 3,300 7. Hamitabat Gas Field Devel. 1980-82 1,068 341 250 c. New Projects ( 8) 7.293 0 7,293 To be completed in 1981 7,293 0 7,293 Pipeline (Tiansport) Related Activities ( 8) 19,466 1,340 1,250 a. Studies ( 3) 20 0 20 b. Ongoing Projects ( 3) 17,416 1.340 400 To be completed in 1981 ( 1) 423 333 90 To be completed after 1981 ( 2) 16,993 1,008 310 1. Ditas Siya-Beyaz 1979-82 1,090 665 300 Product Transport 2. Middle Anatolia Pipeline 1979-83 15,903 343 10 - 73 - Volume I, Appendix 2 Page 12 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost c. New Projects ( 2) 2,030 0 830 To be completed in 1981 ( 1) 330 0 330 To be completed after 1981 ( 1) 1,700 0 500 1. Iraq-Turkey Pipeline 1981-82 1,700 0 500 H. Petroleum Office ( 32) 7,429 1,306 1,580 Manufacturing Related Activities ( 30) 6,904 859 1,500 a. Studies ( 3) _ -- b. Ongoing Projects ( 17) 2,720 859 1,102 To be completed in 1981 ( 9) 719 295 424 To be completed after 1981 ( 8) 2,001 564 679 c. New Projects ( 10) 4,184 0 397 To be completed in 1981 ( 0) 0 0 0 To be completed after 1981 ( 10) 4,184 0 397 1. Katik 2,592 0 93 Tanker (Transport) Related 525 447 80 Activities ( 2) a. Studies ( 0) 0 0 0 b. Ongoing Projects ( 2) 525 447 80 To be completed in 1981 ( 2) 525 447 80 c. New Projects ( 0) 0 0 0 I. TKI ( 58) 188,941 18,859 30,000 a. Studies ( 5) 52 1 30 b. Ongoing Projects ( 39) 188,889 18,848 29,025 To be completed in 1981 ( 18) 10,847 -680 10,167 To be completed after 1981 ( 21) 178,042 18,6 18,858 1. Mugla-Yatagan 1979-84 10,130 100 2,800 2. Canakkale-Can 1979-84 13,635 100 600 3. Sivas-Kangal 1979-84 11,945 175 400 4. Beypazari 1974-84 12,959 325 2,500 5. EKI Mining Equipment Plant 1978-82 2,450 130 300 6. Afsin-Elbistan B 1978-84 34,338 0 20 7. Afsin-Elbistan A 1973-82 44,183 16,043 8,472 8. Zonguldak Expansion I 1978-82 3,578 229 376 9. Tuncbilek 1978-84 2,400 50 200 10. Bursa-Orhaneli 1980-84 5,801 194 600 11. Tekirdag-Saray 1980-85 15,923 80 300 12. Bursa-Keles 1980-84 7,067 181 850 13. Soma-Isiklar 1980-86 11,300 398 1,000 c. New Projects ( 14) 1,017 0 946 To be completed in 1981 ( 6) 168 0 168 To be completed after 1981 ( 8) 943 0 777 J. MTA ( 39) 59,230 6,027 3,458 a. Studies ( 0) 0 0 0 b. Ongoing Projects ( 35) 58,822 6,027 3,350 To be completed in 1981 ( 4) 680 489 191 To be completed after 1981 ( 31) 58,142 5,538 3,159 1. Petroleum Studies 1977-84 4,153 305 1,600 2. Geothemal Exploration 1977-84 1,951 154 33 3. Hard Coal Exploration 1976-85 11,361 1,214 889 4. Radioactive Mineral Expl. 1977-85 1,579 236 60 5. Coal Exploration 1978-85 13,921 544 476 6. Parts for Drilling Equip. 1978-85 12,670 569 100 7. Drilling Equipment 1978-83 6,733 207 1 c. New Projects ( 4) 408 0 108 To be completed in 1981 ( 1) 9 0 - 9 To be completed after 1981 ( 3) 399 0 99 - 74 - Volume I, Appendix 2 Page 13 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost K. Ministry of Energy and Natural Resources ( 2) 10 0 10 a. Studies ( 0) 0 0 0 b. Ongoing Projects ( 0) 0 0 0 c. New Projects ( 2) 10 0 10 To be completed in 1981 ( 2) 10 0 10 L. HMATT (Pipelines) ( 5) 3,406 475 300 a. Studies (.1) 2 0 2 b. Ongoing Projects ( 3) 3,354 475 248 To be completed in 1981 ( 1) 520 395 125 To be completed after 1981 ( 2) 2,834 80 123 1. Izmit-Istanbul Pipeline 1977-83 2,594 0 8 c. New Projects ( 1) 50 0 50 To be completed in 1981 ( 1) 50 0 50 - 75 - Volume I, Appendix 2 Page 14 Project PTotact Expenditure 1981 Schedule Crojst To End 1980 Allocation IV. TRANSPORT & COMMUNICATIONS (829)/! 877,654 125,994 119,320 A. Railways ( 79) 209.222 14,636 18,500 Directorate of Railways Construction ( 18) 112,711 5,060 3,500 a. Studies ( 4) 174 37 108 b. Ongoing Projects ( 8) 111,916 5,023 2,772 To be completed in 1981 ( 1) 12 3 9 To be completed after 1981( 7) 111,904 5,020 2,763 1. Arifiye-Sincan 1975-86 95,000 4,125 1,500 2. Aliaga Menemen 1980-83 3,000 38 360 3. Hanli-Bedirli 1980-84 10,000 4 100 c. New Projects ( 4) 620 0 620 To be completed in 1981 ( 4) 620 0 620 TCDD C 61) 96,911 9,576 15,000 a. Studies ( 12) 164 40 44 b. Ongoing Projects ( 41) 90,585 9,536 9,506 To be completed in 1981 ( 6) 5,236 2,859 2,377 To be completed after 1981( 35) 85,349 6,677 7,129 1. Track Renovation 1968-86 21,141 967 605 2. Station Renovation & Addition 1978-83 2,520 262 155 3. Switch Renovation 1978-83 1,438 366 265 4. Balast Completion 1978-83 2,200 202 250 5. Sleeper Change & Reinforcement 1978-83 1,199 110 100 6. Tunnel Construction & Renovation 1978-83 1,311 291 150 7. Track Mechanization 1973-83 3,124 718 570 8. Storehouse Construction & Wagon Yard 1978-83 1,369 117 150 9. Station Construction & Equipment 1978-83 1,856 486 200 10. Sebeke Study & Project Preparation 1978-83 8,708 708 1,000 11. New Track Construction 1980-82 3,018 160 400 12. Signal Establishing 1976-84 3,739 14 600 13. Electrification 1975-84 7,974 325 546 14. Diesel Locomotive Acquisition 1979-83 2,300 0 50 15. Electric Locomotive Acquisition 1980-83 6,026 6 50 c. New Projects ( 8) 6,162 0 5,450 To be completed in 1981 ( 5) 5,257 0 5,257 To be completed after 1985( 3) 905 0 193 /1 Fifteen projects relating to oil pipelines and tankers have been transferred to Energy. - 76 - Volume I, Appendix 2 Page 15 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost B. Maritime Transport (109)/- 75,054 9,733 11,000 Directorate of Port Construction ( 36) 11,315 1,842 3,000 a. Studies (1) 28 4 8 b. Ongoing Projects ( 29) 9,855 1,838 1,850 To be completed in 1981 ( 2) 51 33 18 To be completed after 1981( 27) 9,804 1,805 1,832 1. Izmir Port Expansion 1975-84 2,000 450 471 2. Ports Improvement 1980-83 1,000 10 160 c. New Projects ( 6) 1,432 0 1,142 To be completed in 1981 ( 5) 1,132 0 1,132 To be completed after 1981( 1) 300 0 10 Maritime Bank ( 34) 11,819 2,013 2,000 a. Studies ( 0) 0 0 0 b. Onggoing Projects ( 27) 11,797 2,013 1,983 To be completed in 1981 ( 9) 1,039 751 288 To be completed after 1981( 18) 10,759 1,263 1,695 1. Ship & Ferry Construction 1977-84 1,388 418 210 2. Ship & Steamer Work 1979-85 3,037 172 106 3. Port Equipment Development 1979-83 3,350 120 914 4. Izmir Transport 1977-83 1,166 281 159 c. New Projects ( 7) 22 0 17 To be completed in 1981 ( 5) 11 0 11 To be completed after 1981( 2) 11 0 6 Maritime Transport Company ( 16) 42,780 4,059 3,200 a. Studies ( 1) 5 3 2 b. Ongoing Projects ( 14) 42,725 4,056 3,168 To be completed in 1981 ( 4) 3,730 2,603 1,127 To be completed after 1981( 10) 38,995 1,453 2,041 1. 5500 DWT Ship Construction ( 6) 1974-83 5,400 1,238 800 2. 15000-20000 DWT Ship Construction ( 6) 1978-84 18,400 --- 450 3. 18000-22000 DWT LPG-Ammonia Tanker ( 1) 1980-83 3,000 0 0 4. 5000-7500 DWT Ships ( 2) 1980-83 2,000 0 0 5. 20000-30000 DWT Tankers( 4) 1980-84 6,000 0 500 6. 80000-120000 DWT Tankers ( 2) 1980-83 3,500 0 0 c. New Projects ( 1) 50 0 30 To be completed after 1981( 1) 50 0 30 TCDD ( 9) 7,088 1,056 2,500 a. Studies ( 0) 0 0 0 b. Ongoing Projects ( 8) 7,068 1,056 2,480 To be completed in 1981 ( 1) 150 49 101 To be completed after 1981( 7) 6,918 1,007 2,379 1. Port Modernization 1977-73 5,300 600 1,825 c. New Projects ( 1) 20 0 20 To be completed in 1981 ( 1) 20 0 20 /1 Exclude two oil tanker projects. _ 77 - Volume I, Appendix 2 Page 10 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost Ministry of Transport ( 15) 2,051 763 300 a. Studies ( 4) 166 36 31 b. Ongoing Projects ( 10) 1,877 727 261 To be completed in 1981 ( 5) 85 24 61 To be completed after 1981( 5) 1,792 703 200 1. Fire Fighter Boats 1974-83 1,217 682 103 c. New Projects ( 1) 8 0 8 To be completed in 1981 ( 1) 8 0 8 C. Road Transport (474) 393,986 71,028 60,450 General Directorate of Road Transport (443) 262,277 48,630 40,000 a. Studies ( 3) 5,481 538 237 b. Ongoing Projects (423) 204,953 48,092 20,539 To be completed in 1981 ( 79) 8.177 6,452 1,725 To be completed after 1981(344) 196,776 41,641 18,814 1. Machinery Equipment & Spare Parts Acquisition 1973-85 13,000 4,432 2,050 2. Istanbul Beltway 1968-82 1,497 1,226 200 3. Haydarpasa-Izmit 1968-83 7,410 2,493 1,700 4. Cigli-Cumaovasi 1968-84 1,500 95 1 5. Avrupa Otovolu II 1977-84 1,400 135 200 6. Izmit-Sakarya 1978-84 4,000 5 1 7. Tarsus Ayr.-Pozanti II. 1972-85 2,500 473 680 8. Yesilkoy-Buyukcekmece 1976-83 1,600 230 100 9. Ormankoy-Akyazi-Dokurcan 1974-84 1,000 28 --- 10. Gelibolu-Eceabat 1974-84 3,500 221 60 11. Macka-Gumushave 1974-84 2,771 189 200 12. Aksaray-Sereflikochisar 1974-84 1,250 144 108 13. Caldiran-Agri 1975-84 1,000 17 20 14. Lapseki-Canakkule-Ayvacik 1977-84 1.000 105 150 15. Sindirgi-Simav 1973-85 1,500 156 350 16. Tirebolu-Torul 1976-85 1,600 259 140 17. Balikesir-Dursunbey 1976-85 2,000 460 320 18. Cukureca Ayr-Uludere 1980-90 1,800 10 15 19. Asphalt & Aggregate Preparation 1974-84 5,000 424 4,001 20. Surfacing ( 7) 1975-84 19,100 9,573 1,125 21. Asphalt Standardization & Promotion ( 3) 1977-84 11,800 1,854 125 22. Aubara-Kirikkale-Cerikli 1976-83 1,000 208 250 23. Adiyaman-Yesilyurt 1969-85 1,500 42 20 24. Yuksekova Ayr-Daglica 1966-86 1,000 35 --- 25. Gulpiuar-Yalinca 1965-90 1,375 23 --- c. New Projects ( 17) 51,844 0 19,224 To be completed in 1981 ( 14) 18,474 0 18,474 To be completed after 1981( 3) 33,370 0 750 1. Turkey Transit 1981-88 33,000 0 650 -78- Volume I, Appendix 2 Page 17 Project Total Expenditure 1981 Schedule Project To End 1981 Allocation Schedule Cost YSE ( 13) 131,079 22,275 20,000 a. Studies ( 1) 463 240 0 b. Ongoing Projects ( 9) 118,416 22,035 7,800 To be completed in 1981 ( 0) 0 0 0 To be completed after 1981( 9) 118,416 22,035 7,800 1. Machinery & Equipment 1974-82 3,201 2,782 0 2. Village Snow Removal 1977-82 2,585 589 0 3. Village Road Construction 1978-83 54,030 14,780 6,432 4. Plant Construction 1978-82 6,240 1,480 800 5. Bridge Construction 1978-82 2,124 1,689 435 6. Bridge Construction 1980-85 19,460 460 105 7. Machinery & Equipment 1980-85 30,495 1 0 c. New Projects ( 3) 12,200 0 12,200 To be completed in 1981 ( 3) 12,200 0 12,200 General Directorate of Road Safety ( 18) 630 123 450 a. Studies (0) 0 0 0 b. Ongoing Projects ( 12) 307 123 127 To be completed in 1981 ( 4) 159 92 67 To be completed after 1981( 8) 148 32 60 c. New Projects ( 6) 323 0 323 To be completed in 1981 ( 6) 323 0 323 D. Air Transport ( 41) 35,067 6,700 8.630 Turkish Airways ( 9) 1,684 263 750 a. Studies ( 1) 4 2 2 b. Ongoing Projects C 6) 261 1,595 To be completed in 1981 ( 0) 0 0 0 To be completed after 1981( 6) 1,029 261 1,595 c. New Projects ( 2) 651 0 457 To be completed in 1981 ( 1) 451 0 451 To be completed after 1981( 1) 200 0 6 DHMI ( 11) 6,341 815 900 a. Studies ( 0) 0 0 0 b. Ongoing Projects ( 11) 6,341 815 900 To be completed in 1981 ( 0) 0 0 0 To be completed after 1981( 11) 6,341 815 900 1. Air Traffic Control System 1977-83 3,500 72 (1,750) 2. Air Transportation Master Plan 1978-83 1,906 33 88 c. New Projects ( 0) 0 0 0 Volume I, Appendix 2 Page18 Project Total Expenditure 1981 Schedule Project To End 1980 Allocation Cost General Directorate of Airport Construction ( 20) 26,772 5,665 6,800 a. Studies ( 1) 1 0 1 b. Ongoing Projects ( 13) 25,966 5,665 5,994 To be completed in 1981 ( 0) 0 0 0 To be completed after 1981( 13) 25,966 5,665 5,994 1. Istanbul Airport 1968-82 7,100 2,430 3,150 2. Ankara Airport 1973-85 3,650 200 180 3. Izmir Arport 1974-84 4,300 340 150 4. Antalya Airport 1971-81 2,040 695 664 5. Mugla Airport 1975-83 2,280 816 600 6. Irzincan Airport 1974-83 1,550 215 0 7. Kars Airport 1976-83 2,300 265 0 c. New Projects ( '6) 805 0 805 To be completed in 1981 ( 6) 805 0 805 State Meteorological Institute( 1) 180 0 180 a. Studies (0) 0 0 0 b. Ongoing Projects ( 0) 0 0 0 c. New Projects ( 1) 180 0 180 To be completed in 1981 ( 1) 180 0 180 E. Communications ( 47) l64,325 23,898 20,740 General Directorate of Post, Telephone & Telegraph ( 19) 159,050 23,080 19,817 a. Studies ( 0) 0 0 0 b. Ongoing Projects ( 16) 150,650 23,080 19,207 To be completed in 1981 ( 1) 400 130 100 To be completed after 1981( 15) 150,250 22,950 19,107 1. Offices 1969-82 4,650 1,090 650 2. Telecommunications 1973-82 3,300 705 170 3. Warehouses 1973-83 1,050 52 50 4. Telephone Exchanges 1974-83 2,100 500 300 5. Administrative Centers 1975-85 3,700 685 360 6. Radio Transmission 1976-82 1,000 345 340 7. South Anatolia Telecommunications 1976-82 1,450 265 737 8. Telecommunication Administrative Administrative Center 1976-83 2,250 385 550 9. Rural Telephone 1977-83 10,000 1,950 250 10. Telephone Exchanges & Machines 1977-85 55,000 9,150 7,200 11. Telex Exchanges 1977-83 5,000 310 120 12. Telephones, Lines, & Machinery 1978-84 50,000 6,400 5,700 13. Offices & Roads 1978-83 4,500 320 750 14. Long Distance Telecommunication 1978-82 6,000 740 1,890 - 80 - Volume I, Appendix 2 Page 19 Total Project Project Expenditure 1981 Schedule Cost To End 1980 Allocation c. New Projects ( 3) 8,400 0 610 To be completed in 1981 ( 1) 400- 0 400 To be completed after 1981( 2) 8,000 0 210 1. West Anatolia 1981-84 6,000 0 200 2. Postal Offices (Ankara & Istanbul) 2,000 0 10 TRT ( 26) 5,251 818 899 a.-Studies (2) 42 0 7 b. Ongoing Projects ( 20) 4,952 818 825 To be completed in 1981 ( 11) 1,681 655 254 To be completed after 1981( 9) 3,271 164 571 c. New Projects ( .4) 257 0 74 To be completed in 1981 ( 2) 42 0 42 To be completed after 1981( 2) 215 0 32 General Directorate of Press and Publication ( 2) 24 0 24 a. Studies 0) 0 0 0 b. Ongoing Projects ( 0) 0 0 0 c. New Projects ( 2) 24 0 24 To be completed in 1981 ( 2) 24 0 24 V. MINING 1/ (192) 130,359 21,564 13,523 VI. TOURISM (174) 26,165 3,361 5,000 VII. HOUSING (297) 82,710 1,263 13,287 VIII. EDUCATrON' (1392) 82,019 23,079 33,101 IX. HEALTH (225) 45,078 11,887 14,600 X. OTHER SERVICES (1578) 292,130 61,795 48,912 GRAND TOTAL (8027) 5,961,570 720,897 667,255 1/ Activities not related to energy. - 81 - Volume I, Appendix 3 Page 1 Volume I, Appendix 3: MACROECONOMIC MODEL The model used for Turkey's Investment Study is based on the IBRD's Revised Minimum Standard Model (RMSM) with more detailed sectors and emphasis on investment. It is essentially a disaggregated trade-gap model with an accounting framework of the National Accounts and Balance of Payments and debt analysis which thus grasps some of the essential features of the Turkish economy. However, the very intricate and delicate relations between inflation, the exchange rate, the interest rate have been treated in a very simple way. GDP is disaggregated into detailed sectors: agriculture, industry (mining, manufacturing, electricity, gas and water), and others. Manufacturing sector is then further broken down to food, textile, other consumer goods, intermediate and capital goods. The growth rate of these sectors are given exognously. The use of disaggregated sectors serves as a consistency check for the composition implications contained in a single overall growth rate, and changes in composition of growth can have different implications for other variables, such as imports and investment. Fixed Investment is divided into public and private sectors with its own disaggregated subsectors. Some other assumptions related to the use of ICORs for testing (as a first approximation) the investment levels which have been derived from the "bottom up" through identification of viable programs and projects in each of the subsectors. For the period 1981-1985 the ICORs obtained average 5.0 for the economy as a whole; the average is expected to fall to 4.1 between 1985 and 1990. This compares with the historically observed ICORs shown in Table 1. Stock changes and estimated separately as function of output. imports of 7 major commodities plus non-factor services are related to key macro variables through elasticities as shown in Table 2. The elasticities of these commodities are based on simple averages drawn from past data and econometric estimates. Exports are exogenously projected for several key commodities -- agriculture (cotton, tobacco, cereal, nuts and raisin, fruits, vegetables, other agriculture), mining, manufacturing (which are subdivided into the same sector as in GDP), and non-factor services. Table 1: ICORs 1963-67 1968-72 1973-77 1978-80 1981-85 Agriculture 2.5 2.4 3.2 3.9 3.3 Manufacturing 2.2 3.4 4.2 neg. 3.9 Mining and Energy 9.0 11.8 4.5 neg. 11.4 Overall 2.6 3.0 3.4 neg. 5.0 - 82 - Volume I, Appendix 3 Page 2 Table 2: GROWTH RATES ASSUMPTION FOR KEY VARIABLES IN THE BASE-RUN PROJECTION (In percentages) Constant 1980 Prices 1Q81-1985 Value Added Agriculture 3.1 Industry 6.4 Mining 7.0 Manufacturing 6.2 Electricity, gas and water 8.0 Other Services 3.3 GDP (m.p.) 4.1 Investment Total Gross Investment 4.1 Fixed Investment 4.5 Public Fixed Investment 0.0 Private Fixed Investment 9.7 Exports Agriculture 14.5 Cotton 16.4 Tobacco 3.8 Nuts and Raisins 8.6 Cereals 9.8 Fruits 39.2 Vegetables 37.0 Other Agriculture 21.4 Mining 10.4 Manufacturing 26.9 Non-factor Services 4.0 Elasticieies 1981-85 Imports Agriculture (w.r.t. private consumption) 0.2 Food (w.r.t. private consumption) 1.0 Petroleum (w.r.t. GDP) 1.3 Intermediate Goods (w.r.t. GDP) 1.2 Capital Goods (w.r.t. fixed investment) 0.5 1/ Other Consumer Goods (w.r.t. private consumption) 1.0 Textile (w.r.t. private consumption) 1.0 Non-factor services (w.r.t. GDP) 0.4 1/ 1982-1985. - 83 - Volume I, Appendix 3 Page 3 Glossary to Selected Projection Summary Tables Balance of Payments EXPORT = Current price exports of goods and non- factor services IMPORT = Current price imports of goods and non- factor services RESBAL = Resource Balance NETINT = Net interest DRLINT = 1980 Debt relief-interest NETDII = Net direct investment income WRKRMT = Worker's remittances OTHFSY = Other factor service income NETFSY = Net factor service income NETTRN = Net current transfers CURBAL = Current account balance NETDFI = Net direct foreign investment DBTPUB = Total disbursements (Public and private guaranteed loans) AMTPUB - Total amortization (Public and Private guaranteed loans) NETPUB = Net lending (Public and private guaranteed loans) DBTNGP = Disbursement (private non-guaranteed loans) AMTNGP - Amortization (private non-guaranteed loans) NETNGP = Net lending (private non-guaranteed loans) DRLAMT = 1980 debt relief (amortization) GAPFIL = Gapfiller (residual) AMTGAP = Amortization-gapfiller NETGAP = Net lending - gapfiller SHTERM = Net short-term capital flows NETIMF = Net use of IMF resources CAPNEI = Net capital not elsewhere included CHGRES Change in reserves RESLEV = Reserve level Terms of Trade XPRICE = Export price index MPRICE = Import price index TTINDX = Terms of trade index PIINTL = International price index IPD = GDP deflator - 84 - Volume I, Appendix 3 Page 4 Imports - constant and current prices MAGRIC = Constant price imports - agriculture MFOOD = Constant price imports - food MOCONG = Constant price imports - other consumer goods MPET = Constant price imports - petroleum MTEXTL = Constant price imports - textile MINT = Constant price imports - intermediate goods MCAP = Constant price imports - capital goods MNFS Constant price imports - non-factor services MGOODS =' Constant price imports of goods MNOPET = Constant price imports of non-petroleum M -Constant price of import of goods and NFS (in billion of Turkish Lira) MUSDOL 'Constant price of imports of goods and NFS in US Dollars IMPAGR - Current price imports - agriculture IMPFOD = Current price imports - food IMPOCG = Current price imports - other consumer goods IMPPET : Current price imports - petroleum TMPTEY - Current price imports - textile IMPINT - Current price imports - intermediate goods IMPCAP - Current price imports - capital goods IMPNFS = Current price imports - non-factor services IMPNPT = Current price imports - non-petroleum IMPGDS - Current price import of goods IMPORT = Current price imports of goods and NFS Exports - constant and current prices XCERAL = Constant price exports - cereals XNUTSR = Constant price exports - nuts and raisins XFRUIT Constant price exports - fruits XVEGET - Constant price exports - vegetables XTOBAC Constant price exports - tobacco XCOTON - Constant price exports - cotton XOTHAG - Constant price exports - other agriculture XTOTAG = Constant price exports - total agriculture XMINIG - Constant price exports - mining XFOODP = Constant price exports - food processing XTEXTL = Constant price exports - textile XOCGDS = Constant price exports - other consumer goods XINTGD = Constant price exports - intermediate goods XCAPGD = Constant price exports - capital goods XTOTMF = Constant price exports - total manufacturing - 85 - Volume I, Appendix 3 Page 5 XNFS = Constant price exports - non-factor services XGDSUS = Constant price exports of goods in US Dollars XGOODS = Constant price exports of goods in billion of TL X = Constant price exports of goods and NFS in billion of TL EXPCER = Current price exports - cereals EXPNUT = Current price exports - nuts and raisins EXPFRU = Current price exports - fruits EXPVEG = Current price exports - vegetables EXPTOB Current price exports - tobacco EXPOAG Current price exports - other agriculture EXPAGR = Current price exports - total agriculture EXPMNG = Current price exports - mining EXPFOD = Current price exports - food processing EXPTEX = Current price exports - textile EXPOCG = Current price exports - other consumer goods EXPINT Current price exports - intermediate goods EXPCAP = Current price exports - capital goods EXPMFG = Current price exports - manufacturing EXPNFS = Current price exports - NFS EXPGDS = Current price export of goods EPORT = Current price export of goods and NFS Summary on Total Debt Outstanding and Debt Service TOTDOD = Total debt outstanding and disbursed DODMLT = Debt outstanding and disbursed on medium and long-term debt DODOFF = Debt outstanding and disbursed on official debt DODPRV = Debt outstanding and disbused on private guaranteed and non-guaranteed debt DODGAP = Debt outstanding and disbursed on gapfiller DRLAMT = 1980 debt relief - amortization STKSHT = Short-term stock TOTINT = Total interest TOTAMT = Total amortization TOTDS = Total debt service National Accounts (constant billions of TL) GDP = Gross domestic product TTADJ = Terms of trade adjustment GDY = Gross domestic income M = Constant price import of goods and NFS - 86 - Volume I, Appendix 3 Page 6 X = Constant price export of goods and NFS XTTADJ = Exports adjusted for terms of trade (capacity to imports) RG = Resource gap C = Consumption GC = Government consumption PC = Private consumption I = Total gross investment IF = Total fixed investment CHGSTK = Change in stock RA = Resource availabilities GDS = Gross domestic savings FSY = Net factor service income GNS - Gross national savings GNP = Gross national product GNY = Gross national income GR = Government revenue SGOV = Public savings SPRV = Private savings Basic National Accounts Ratios M/GDP Import of goods and NFS/GDP X/GDP Export of goods and NFS/GDP XGD/GDP = Exports of goods/GDP C/GDP = Consumption/GDP I/GDP = Gross investment/GDP FIIGDP = Fixed investment/GDP DS/GDP = Gross domestic savings/GNP NS/GNP = Gross national savings/GNP XAGDYA = Exports of agriculture/value-added agriculture XINDYI Exports of industry/value-added industry Sectoral Output YAGR = Value-added - agriculture YMINIG = Value-added - mining YFOODP = Value-added - food processing YTEXTL = Value-added - textile YOCONS = Value-added - other consumer goods YINTMD = Value-added - intermediate goods YCAPGD = Value-added - capital goods YMANUF = Value-added - manufacturing - 87 - Volume I, Appendix 3 Page 7 YENRGY Value added - electricity, gas and water YIND = Value-added - industry YOTH = Value-added - other services GDPFC = Gross domestic product at factor cost INDTAX Indirect tax minus subsidies GDP = Gross domestic product at market price Investment Details IF = Fixed investment CHGSTK Change in stock I = Gross investment PUBFXI Public fixed investment PBFIAG Public fixed investment - agriculture PBFIMI Public fixed investment - mining PBFIMF Public fixed investment - manufacturing PBFIEL Public fixed investment - electricity, gas and water PBFITR Public fixed investment - transportation PBFITM = Public fixed investment - tourism PBFIED = Public fixed investment - education PBFIHL Public fixed investment - health PBFIHS = Public fixed investment - housing PBFIOT = Public fixed investment - others PBFIIN Public fixed investment - industry PRVFXI = Private fixed investment PVFIAG Private fixed investment - agriculture PVFIMI = Private fixed investment - mining PVFIMF = Private fixed investment - manufacturing PVFIEL = Private fixed investment - electricity, gas and water PVFITR = Private fixed investment - transportation PVFITM = Private fixed investment - tourism PVFIED = Private fixed investment - education PVFIHL Private fixed investment - health PVFIOT = Private fixed investment - other services PVFIHS = Private fixed investment - housing PVFIEN = Private fixed investment - energy PVFIIN = Private fixed investment - industry - 88 - Volume I, Appendix 3 Page 8 Key Macro Parameters GDPGR = Growth rate of GDP MELAS = Imports elasticity MPET/X = Imports of petroleum/exports of goods GNS/MR = Marginal savings rate ICORI = Incremental capital output ratio RESL/M = Reserve level/imports (goods and NFS) Creditworthiness Ratio DST/X = Total debt service/exports of goods and NFS DSRNEW = Total debt service/exports of goods and NFS and worker's remittances DST/GP = Total debt service/GDP DODDGP = Total debt outstanding/GDP INDDOD = Total interest/Debt outstanding and disbursed DSDDOD = Total debt service/Debt outstanding and disbursed BGDTDB = Bank group disbursement/Total Disbursement DSBDDS = Bank group debt service/Total debt service BDODDO = Bank group debt outstanding/Total debt outstanding - 89 - Volume I, Appendix 3 Page 9 bSIML PRnJECTIONI TURKEY-- BASE CASE SUMMARY TABLES 1981 1982 1983 1984 196.5 BALANCE OF PAYMENTS (MILLIONS UF DOLLARS AT CURRENT PRICES) 164 EXPnRT 5529,505 6648,305 7929.918 9428.980 11160,458 187 IMPnRT 9383.687 10495,412 11940,452 13465,466 15116,746 208 RESRAL *38540181 -3847,107 *4u10,534 .4036,487 .395S6288 204 NETTNT -1399,785 .1S53.184 w1647,117 -1806.903 .2129,369 371 DRLyNT 119,900 ,36,300 -240,000 *4060800 .435,100 191 NtTDII 0,000 .103.000 .108.000 *114,000 .120.000 192 WRKsMT 2500,000 2700,000 29160000 3134,700 3354,129 193 OTHFSY 0,000 0n000 o 000 0.000 0,000 205 NETFSY 1220,115 1007.51t 920,883 806.997 669,660 194 NETTRN 0,000 0,000 0,000 000
Groupe de la Banque mondiale · Pre-2003 Economic or Sector Report
Turkey - Public sector investment review (Vol. 1 of 3) : Main report
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Pre-2003 Economic or Sector Report
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Banque mondiale