Turkey - Third Ports Project

Document of The World Bank FOR OFFICIAL USE ONLY /' j*{ -8 .3 z-_ 1-T/ Report No. 5463-TU REPUBLIC OF TURKEY STAFF APPRAISAL REPORT OF A THIRD PORTS PROJECT April 24, 1985 Projects Department Europe, Middle East ane. North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as ot January 1, 1985) Currency Unit = Turkish Lira (TL) TL 1 = 100 kurus (krs) US$1 = TL 428 TLI = US$ 0.002336 TL 1,000,000 = US$ 2,336.4 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles 1 kilogram (kg) = 2.20 pounds (lbs) FISCAL YEAR (of TCDD and TDI) January 1 to December 31 GLOSSARY OF ABBREVIATIONS DB - Turkish Maritime Bank (Denizcilik Bankasi) DLH - General Directorate of Railways, Ports and Airports Construction, Ministry of Public Works. (Demir Yollari Limanlar Hava Meydanlari) I)WT - Deadweight Tonnage GDP - Gross Domestic Product IG3 - International Competitive Bidding ILO - International Labour Organisation I'AFRA - Ministry of Agriculture, Forestry and Rural Affairs MUF - Ministry of Finance M-OT - Ministry of Transport iPI - National Ports Institution NPMP - National Ports Master Plan NTMP - National Transport Master Plan PCC - Project Coordination Committee SPO - State Planning Organization TCDD - Turkish State Railways (Turkiye Cumhuriyeti Devlet Demir Yollari) TCL - Turkish Cargo Lines TDI - Turkish Maritime Organization 1'EU - Twenty-foot Equivalent Units THY - Turkish Airlines (Turk hava Yollari) TSM - Transport Sector Memorandum UJNDP - United Nations Development Programme Demirliman - TCDD Ports Establishment (Limanlar Izmetmesi Muessesesi) Denizliman - TDI Ports and Vessel Salvage Establishment (Liman Isletme ve Gemi Kurtama Muessesesi)  FOR OMCIAL USE ONLY TURKEY THIRD PORTS PROJECT Loan and Project Summary Borrower; Republic of Turkey Amount: US$134.5 million Terms: Seventeen years including four years of grace, with standard variable interest rate Project Objectives and Description: The proposed project is designed to assist the Government in introducing modern container handling technology to the ports system to accommodate the forecasted rapid growth in container traffic at a time of increasing uncertainties affecting port planning and development. The project could cover a first plhase of container port development designed to meet traffic growth up to 1990. The loan would provide financing for: (i) specialized equipment for handling con- tainers at four selected ports (Izmir, Haydarpasa, Mersin and Trabzon); (ii) renewal of high priority items of float- ing equipment required for the maintenance and construction of port facilities; (iii) civil works for container berth facilities; (iv) technical assistance for introducing con- tainer handling technology including documentation, operating procedures, maintenance and training. Benefits and Risks; The project would lead to savings in ship service time and to reductions in cargo handling costs which will be felt in slower increases in sea freight rates and port tariffs. Benefits would also include savings from avoided damage to goods, reduction in potential congestion and reduced need for general cargo facilities. The project would generate foreign exchange earnings by providing support to Turkey's foreign trade and by facilitating internationrl transit traffic. Adverse developments in transit traffic represent the major risk for the project. Should conditions in the Gulf area return to normal in the next two to three years, Gulf ports could again handle the major traffic to Iran and Iraq by the early l990s. In the event that transit traffic to Iraq should decline, container capacity at the Mersin port would be taken up through growth in exports from S.E. Turkey. As the transit trade to Iran provides the only container traffic in the Black Sea, a minimum development has been proposed for the port of Trabzon. Should transit traffic fall substantially in the Black Sea, the equipment at Trabzon could be relocated in other ports. Risk analysis suggests that the project would remain economic even if major reduction in transit traffic should occur. This document has a restricted distinbution and may be used by recpients only in the perfor_ance of their offrcial duties. Its contents may not othenvwse be disclosed without World Bank authorization.  - ii - Staff Appraisal Report; Republic of Turkey; Third Ports Project US$ million equivalent Estimated Project Costs: Local Foreign Total Equipment (a) TCDD 5.0 45.3 50.3 (b) TDI 2.9 25.9 28.8 (c) DLH 4.4 25.4 29.8 C() customs 0.9 8.0 8.9 Subtotal 13.2 104.6 117.8 Civil Works (a) Izmir Dredging 2.2 12.2 14.4 (b) Izmir Berth/ Reclamation 4.0 1.7 5.7 (c) Mersin Berth 2.3 1.0 3.3 (d) Trabzon Berth 1.3 0.6 1.9 (e) Hayaarpasa Berth 0.6 0.3 0.9 Ct) Supporting Infrastructure 3.6 -- 3.6 Subtotal 14.0 15.8 29.8 Technical Assistance/Training 1.7 1.7 Total Base Cost 1/ 27.2 122.3 149.5 Plhysical Contingencies 0.3 1.8 2.1 Price Contingencies 3.5 18.9 22.4 Total Project Cost 31.1 143.0 174.0 Financing Plan: US$ million equivalent Local Foreign Total Government 31.0 8.5 39.5 Proposed Bank Loan -- 134.5 134.5 Total 31.0 143.0 174.0 Estimated Disbursements: US$ million Bank FY 1986 1987 1988 1989 1990 1991 Annual 12.8 36.9 38.3 31.0 12.5 3.0 Cumulative 12.8 49.7 88.0 119.0 131.5 134.5 Estimated Economic Rate of Return: 18% I/ Equipment purchases under the project are exempt from custom duties and sales tax.  REPUBLIC OF TURKEY STAFF APPRAISAL REPORT OF A THIRD PORTS PROJECT Table of Contents Page No. I. THE TRANSPORT SECTOR ...... ............................. 1 A. The Transport System ..... .......................... I B. Transport Policy, Planning and Coordination ........ 1 C. The Ports Subsector ..... ........................... 3 D. Previous Bank Experience in the Transport Sector .... 3 11. THE PROJECT PORTS ...... ................................ 6 A. General ............................................ 6 B. Port Operations .................................... 6 C. Port Facilities .................................... 7 D. Ports Administration ..... .......................... 10 E. Budgets, Accounts, Audits, Insurance ............ ... 11 III. THE INVESTMENT PLAN AND THE PROJECT .................... 14 A. Port Investment Program ..... ....................... 14 B. Project Objectives ................................. 15 C. Description of the Project ......................... 16 D. Cost Estimates . . .. ........ 21 E. Financing Plan ..................................... 23 F. Project Implementation ..... ........................ 23 G. Procurement and Disbursement . ...................... 25 Ii. Environmental Impact ..... .......................... 28 I. Impact on Employment ..... .......................... 28 IV. ECONOMIC EVALUATION . ................................... 29 A. Introduction ....................................... 29 B. Existing Traffic ................................... 29 C. Traffic Forecasts 1988-92 ..... ..................... 31 D. Project Benefits .... 35 E. Project Costs ...................................... 37 F. Results of Evaluation ..... ......................... 37 G. Project Risk ...... ................................. 38 This report is based on the findings of an Appraisal Mission to Turkey in December 1984 composed of Denis Perfrement (Port Engineer), P.O. Cheryan and Davis Elliott (Financial Analysts), Roy Knighton (Transport Economist) and Suzanne Morris (Research Assistant). Assistance was provided during project preparation by Consultants Messrs. Arthur Moon (Port Operations Specialist), Colin Dale (Transport Economist) and William Feely (Documentation Specialist).  - ii - Page No. V. FINANCIAL EVALUATION. . .40 A. General ..40 B. Past Financial Performance under Previous Project (Loan 1741-TU) ................. . 40 C. Financial Situation of TCDD and TDI ................ 41 D. Financial Requirements .................... 46 VI. RECOMMENDATIONS.48 ANNEXES 1. Existing Port Facilities and Equipment ............. 50 2. Traffic Forecasts ....... ........................... 53 3. EconomiL Evaluation ...... .......................... 66 4. Financial Evaluation .... 84 5. Action Plan .............. .......................... 93 6. Technical Assistance tor Container Operations; Outline Terms of Reference . . . . 115 7. Project Coordination Committee: Outline Terms of Reference .............................. 120 8. Documents in Project File ................. .... 122 CHARTS World Bank 26972 - TDI Maritime Organization Chart - Including Ports Operations World Bank 26971 - TCDD Railways Organization Chart - Including Ports Operations IBRD 18676 - Port of Izmir iBRD 18677 - Port of Trabzon IBRD 18678 - Port of Mersin IBRD 18679 - Port of Haydarpasa Port of Izmir - Areas to be Dredged MAPS IBRD 18675 - Turkey: Transport Network IBRD 18778 - Main Transit Routes to Iraq and the Islamic Republic of Iran  I. THE TRANSPORT SECTOR A. Introduction 1.01 Transport plays a vital role in the economy of Turkey by providing essential support for economic activity, foreign trade and transit traffic. The widespread distribution of population and economic activity and the difficult terrain over much of the country calls for efficient road, rail, air and maritime transport services. The Turkish transport network is also a vital bridge between Europe and the Middle East. Transport contributes about 10% of GDP and 12% of employment outside agriculture, and the sector generates majcr indirect effects which are felt throughout all sectors of the economy. 1.02 Turkey has an extensive and fairly well-developed transport system: about 60,000 km of state and provincial roads, 270,000 km of rural roads and 220,000 km of forestry roads; 8,200 km of railways; 12 major pubLic ports handling a significant volume of cargo including coastal traffic; a system of civil and military pipelines; and Turkish Airlines, which serves several domestic and international routes (Map IBRD 18675). Road transport currently carries over 75% of freight traffic and 95% of domestic passenger traffic. Since 1976, rail freight traffic has declined from a 20% share of the market, mainly due to an acute shortage of motive power and low opera- tional efficiency. Although coastal shipping has only increased at about 2% per year since 1979, there is considerable scope for future growth. 1.03 Despite the importance of transport in the economy, investment in the sector during the 1970s did not keep pace with the development and present requirements of the economy. Inadequate attention to rehabilitation and modernization of transport facilities and equipment now constitutes a major bottleneck to economic growth. Roads are currently below standard for present traffic levels, some major railway routes require rehabilitation and the railways lack adequate motive power and other facilities. Moreover, because of an imbalance between overall economic growth and the level of transport investment, the modal pattern of investments must now shift in order to accommodate changes in demand and technology. For instance, the current emphasis on the development of mining and the iron and steel industry as well as the development of the agricultural sector, particularly cereals, will lead ta new bulk transport requirements, primarily on the railways. At the same time, the continued growth of Turkey's foreign trade as well as transit traffic to the Middle East requires the introduction of modern port handling equipment to accommodate the growing volumes of container traffic, expected to increase at up to 20% per year through 1990. B. Transport Policy, Planning, and Coordination 1.04 Responsibility for transport sector planning, policy development, and investment is divided among a large number of key ministries and agencies. The main agencies involved are: (a) the Ministry of Transport, which significantly contributes to transport policy and also oversees the  -2- main agencies in the transport sector - Turkish State Railways (TCDD), the Turkish Maritime Organization (TDI), Turkish Cargo Lines (TCL), Turkish Airlines (THY); (b) the Ministry of Public Works which is primarily respon- sible for execution of all transport infrastructure projects including planning, policy and construction of state and provincial highways and execution of port and railway infrastructure; (c) the Ministry of Agriculture, Forestry and Rural Affairs (MAFRA) which is responsible for the vast network of local and forestry roads; and (d) the State Planning Organization (SPO) which coordinates and helps to determine project priori- ties in conjunction with the Ministry of Finance. 1.05 The need for improved coordination in the transport sector and a system for ensuring an appropriate determination of modal, sector, and national priorities had been recognized by the Government and was incorpora- ted as a major goal in its development plans. The Government's plans for the development of the sector are embodied principally in the stabilization programs pursued since 1980 and, especially, in the National Transport Master Plan (NTMP) for the period 1983-1993. Although there have been some changes in the economy since preparation of the NTMP, the basic targets still remain valid and the plan provides a valuable general framework and general directions for the development of the sector. The Government intends to update the NTMP every three years, the first revision being scheduled for 1985. The NTMP is supported by five-year programs for each transport agency, which are now being established as a rplling-plan for the period 1985-89. Long-term guidelines for the development of: the ports subsector are provided by a National Ports Master Plan (NPMP) prepared by consultants in 1983. This study determined that, in the medium-term, existing port capacity is generally adequate and that the main needs are to develop specialized facilities for container traffic and to provide additional capacity by the early 1990s in the Istanbul-Mamara Region (para. 3.04). 1.06 The Bank has been involved in detailed policy discussions and institutional issues in the transport sector and on modal investment plans through preparation of a Transport Sector Memorandum (TSM) in 1983 and more recently through a T..ansport Investment Plan Review in October 1984. Through its involvement in the sector, the Bank has reached a broad consensus with the Turkish authorities on the main issues and goals of the transport sector. In particular, the authorities now see a need to establish cost-based tariffs to increase operational efficiency, to reduce railway deficits and to remedy deficiencies in project preparation and implementation. At the same time, the Bank has assisted the authorities in addressing a wide range of sector issues through its involvement in project preparation and implementation in highways, railways and ports (para. 3.06). Under the proposed project, for instance, assistance will be provided to the Government for the introduction of a modern system for handling containers, related improved documentation and customs procedures, greater autonomy for ports, and comprehensive training programs (para. 3.07). Similarly, improved planning and better selection of highway projects as well as a shift from force account work to construction by private contractors are being achieved under two existing Highway Projects. Under a proposed Agricultural Sector Loan, one of the objectives is to achieve improved  -3- planning and subproject selection for rural roads. A railway project under preparation would attempt to remedy major deficiencies in railway operations including arrangements to reduce deficits. C. The Ports Subsector 1.07 Turkey's long coastline of 7,300 km has many ports and landing facilities, including 12 major public ports, about 30 small municipal and other public ports, and about 35 specialized ports owned by industrial complexes. The large number of ports results from the country being surrounded on three sides by the sea while land transport links are diff cult because of adverse inland topography (Map IBRD 18675). Altogether, the ports handled about 22 million tons of cargo in 1983, including 5 million tons of coastal traffic and about 10 million tons of general cargo and transit traffic. The major public ports served the bulk of the country's foreign trade handled by ship. Since 1979, foreign cargo has been growing at a high rate of almost 11% per year, while coastal traffic has increased at only 2% per year. In addition, transit traffic to Iraq and Iran has developed dramatically over the past five years, increasing from only 600,000 tons in 1979 to over 4 million tons in 1983 (Map IBRD 18778). Container traffic has increased from 77,000 TEUs in 1979 to a current level of around 200,000 TEUs (paras. 4.03 to 4.06). 1.08 Turkish ports generally have aIequate capacity and ship waiting time is tolerable. The main emphasis of the Bank-s previous Ports Rehabili- tation Project (Loan 1741-TU) was on a program of rehabilitation which is scheduled for completion during 1985. Following this program, no major needs are expected in terms of infrastructure requirements and general cargo handling equipment during the remainder of this decade (para. 2.01). However, container operations, throughput and traffic control need to be improved. The growth of foreign trade and the country's emphasis on exports, combined with major increases in international containerized transit traffic, require the introduction of modern container handling systems. In view of the specialized nature of container operations, this traffic is tending to be concentrated in a limited number of ports and considerable benefits in ship service time, ship waiting time, reduced handling costs as well as reduced losses on cargo could be achieved by introducing specialized container handling equipment and techniques in these ports. These developments are being addressed by a major part of the port investment program under the Fifth Development Plan 1985-89, which would assist foreign trade flows and assist in Turkey's foreign exchange earnings (para. 3.04). D. Previous Bank Experience in the Transport Sector 1.09 The Bank has participated in five projects in the transport sector including two ports projects, of which one (Loan 1741-TU) is nearing comple- tion, one railway project (Loan 893-TU--completed) and two highway projects (Loans 2137-TU and 2439-TU), both of which are ongoing and scheduled for completion in June 1987 and December 1990, respectively. Details of these projects and their status are included in the Project File (see item B.8 in Annex 8). Project implementation, although experiencing delays, has  -4- generally been satisfactory in achieving physical targets. Most problems have occurred in implementing policy decisions and with procurement delays. However, the Government has now adopted a more coordinated and realistic approach towards transport sector policy. This has been reflected in the quality of preparation of the proposed project and in Government's willing- ness to discuss the important sectorial issues raised in the TSM. 1.10 Only the Railway Project (Loan 893-TU of US$47 million) which covered the first three-year tranche of the Railways 1972-1977 Investment Plan and closed June 30, 1981, has been the subject of a Project Completion Report (PCR). This PCR is currently under review by the Operations Evaluation Department, which is preparing a report on the project. The main conclusions of the PCR were that the project was largely successful in meeting its physical objectives, especially track rcnewal. However, it was less than successful in achieving institutional and policy objectives, particularly relating to improved productivity and financial viability. These issues are being addressed through preparation of a proposed Second Railway Project. 1.11 The proposed loan would be the third Bank loan in the ports subsector. The earlier loans for ports were: (i) Loan 28-TU dated July 7, 1950, for US$12.5 million for port development which included the exteision of Salipazari, Haydarpasa and Izmir ports, construction of a new port at Samsun, mechanical equipment for loading/unloading grain, ore and coal at Iskenderun, essential repair and replacement of cargo-handling equipment in the above ports and some harbor construction equipment for the Ministry of Public Works; (ii) a supplementary loan for port development No. 28-TU, Supplement No. 1 dated February 28, 1954, which increased the original loan to US$16.3 million to meet increases in project cost estimates arising from agreed changes in the project and price increases after 1950; and (iii) Loan 1741-TU, dated July 2, 1979, for US$75 million for ports rehabilitation, which included replacement and modernization of cargo-handling equipment, storage facilities and floating craft to improve efficiency of port operations at ten major ports, and to assist the Borrower in port subsector planning for future investment programs and improvement in port management techniques. 1.12 The project covered by Loan 28-TU was expected to be completed in 1958 but was actually completed only in L9t2. The project covered by Loan 1741-TO was somewhat slow in being implemented but speeded up latterly. rt fell about 18 months behind schedule based upon disbursements, and although the closing date was June 30, 1984, the Turkish Government does not expect all components of the project to be fully completed until mid-1985.  -5- 1.13 Through Bank assistance, Turkish ports have been able to handle increasing traffic in recent years at reasonable cost and efficiency, in particularly the major expansion of transit traffic. However, with the rapid development of containerized traffic in recent years, it has now become vital to introduce modern handling techniques and procedures to support exports and transit trade and to reduce costs on imported goods.  -6- II. THE FROJECT PORTS A. General 2.01 In view of the major program of equipment renewal pursued by the Government in recent years, assisted by the Bank's Ports Rehabilitation Project (Loan 1741-TU), requirements for conventional port equipment are expected to be minimal during the period of the Fifth Development Plan, 1985-89. In effect, the rapid growth of container traffic will gradually relieve pressure on existing general cargo handling equipment and facili- ties. Similarly, a review by the mission of bulk traffic requirements during the Fifth Plan period has indicated that no major new investments are required in this area, except for the possible development of coal handling facilities serving thermal power plants. The main focus of the port invest- ments and development program would therefore be on the introduction of modern container handling technology (paras. 1.08 and 3.01). 2.02 The National Ports Master Plan (NPMP), prepared by consultants in 1983 for the Ministry of Transport, proposed the development of seven container ports during the period through 1990 while the separate plans of TCDD and TDI proposed a total of nine ports. Given the specialized nature of container facilities as well as uncertainties over the development of traffic, especially transit traffic, the Government subsequently determined that a firmer basis for development would be provided by focussing in a first phase on only four ports over a three-year period (paras. 2.05 and 4.01). This approach would minimize risks and provide flexibility in that it would enable the port authorities to gain experience in container opera- tions and to monitor and analyze changes in traffic patterns following the introduction of modern facilities in the selected ports. The preparation of a second phase of container port development would be included under the proposed project (para. 3.23). B. Port Operations 2.03 Although conditions vary from port to port, c'rgo handling perform- ance in Turkish ports in 1983 was reasonably satisfactory. Throughputs for general cargo range from about 270 tons to 720 tons per ship day with an average rate of between 450 and 500 tons. Container handling with conven- tional equipment or ships' gear showed throughputs of 7 TEU per crane hour and general cargo throughputs ranging from 500 tons to 1,750 tons per day. Detailed port performance indicators are given in Annex 3, Tables 1 and 2. While the present maintenance capability of the ports is generally adequate for conventional types of handling equipment, there is currently a backlog of routine dredging work because of inadequate dredging capacity (para. 3.11). Dredging work is particularly critical for continued access to the ports by some of the larger container ships and bulk carriers. 2.04 Since 1983, improvements in port efficiency are being achieved through the introduction of new equipment, revised maintenance procedures, newly completed storage areas, and ports staff and workers training, all of which were provided under the Ports Rehabilitation Project (Loan 1741-TU). Other measures which are being introduced include better overall control, particularly where agents are handling port operations, improved  -7- pre-planning of ships' arrivals, clearance of unwanted cargoes from berth and storage areas, better traffic control as well as greater use of storage facilities when direct delivery is not available. The ports are also planning to introduce multiple shift working, which will be a requirement for specialized container operations. To ensure the serviceability of the new container handling equipment being provided under the proposed project, a specialist technical review will be made to ascertain any areas where maintenance systems, arrangements or procedures need to be modified to cater for the new equipment including ready availability of spare parts and components. Any necessary improvements will be implemented with technical assistance to be provided under the project (para. 3.16). In addition, improvements in routine infrastructure maintenance, particularly dredging, will be possible following renewal of high priority floating equipment under the project (para. 3.11). These various measures are summarized in an Action Plan for the project (para. 3.23 and Annex 5, Table 1). C. Port Facilities 2.05 Following a detailed traffic analysis and a review of port layout plans and other operational considerations, agreement was reached with the authorities that the first phase of container port development should focus on one port in each major hinterland area. The four ports-Haydarpasa, Izmir, Mersin and Trabzon-currently handle about 60Z of total general cargo traffic. However, it is anticipated that the share of container traffic would amount to -at least 85X of the total due to diversion from other ports within the traffic shadow zone of the proposed ports (para. 4.02). A summary of the main technical data of existing and planned facilities at the main public ports is presented in Annex I. Marmara/Thrace Area 2.06 In view of its importance for general cargo traffic and its posi- tion on the Asian side of the Bosphorus, the port of Haydarpasa is a clear candidate for the first stage of container development in the Istanbul area. The port, which is approached from the main Bosphorus channel where water depth exceeds 27 m, has a general depth of 10.5 m and is protected by two breakwaters, 1760 m and 600 m long. There are some 14 berths totalling about 2,650 m of which 9 handle general cargo, 3 dry bulk, and 2 will handle containers. The main general cargo berths have a depth of water alongside of 10 m and the container berths 12 m. Haydarpasa is the country's main general cargo port and has rail and road links westwards to Europe and eastwards to Ankara and the interior. Because of limitations of space as well as urban congestion, the second stage of container port development in the Marmara/Thrace area would probably be located in an alternative port, possibly at Derince, about 45 km from Haydarpasa. Other ports in the Marmara Region include Salipazari, a port on the European side of the Bosphorus which serves as the main passenger port but which suffers from limited space and its location in Istanbul's business district, and Bandirma, a new port handling mainly bulk traffic. 2.07 In 1983, the total number of commercial vessels calling at Haydarpasa was 666, of which 520 were general cargo liners, 108 container  -8- ships and multi-purpose vessels and 38 bulk carriers. Total traffic in 1983 was 2.1 million tons of dry cargo, of which 1.4 million tons were general cargo traffic. Although current container trafEic is only 12,000 TEU, there is considerable scope for growth, Haydarpasa being the main port for import traffic. There is currently -o ship waiting time at Haydarpasa, but there is congestion on the quays and in the storage areas because of unclaimed cargo. Although, performance of general cargo handling, about 500 tons per ship day, is above average for Turkish ports, this could be improved through more efficient handling of cargoes on the berths and in storage areas, and training courses for dockworkers are currently run at the Haydarpasa training school (para. 3.25). There are currently 1,050 permanent dockers on the labor register at Haydarpasa. Aegean Sea 2.08 The port of Izmir already handles a substantial volume of container traffic, in the range of 50-60,000 TEU per year, primarily required to support agricultural exports. The development of specialized container facilities at Izmir is therefore a logical step. Izmir is located at the head of a large protected bay soine 60 km long on the Aegean Sea and is Turkey's main export port for agricultural products. There are presently about 1,000 m of general cargo quays and one RoRo terminal with water depths alongside of 10.5 m and 8.0 m respectively. A new terminal area is under oqnstruction and will provide a further 1,300 m of berths, of which 450 m will be 'or container ships and the remainder for multipurpose ships. Con.-petion of the new facilities is sch'_duled for November 1986. 2.09 A total of 829 ships visited Izmir in 1983, of which 438 were cargo liners, 274 container and multi-purpose ships and 117 bulk carriers. Total dry cargo traffic in 1983 was 1.5 million tons of which 934,000 tons of general cargo, including 340,000 tons in containers, and 526,000 tons of dry bulk, mainly cereals. There was no ship waiting time in 1983 and through- puts of around 480 tons per ship day for break bulk and 1,445 tons for container traffic are satisfactory given the type of traffic, which is mainly agricultural exports. The port has a total labor force of 1,080 workers. Mediterranean Sea 2.10 There are two ports in the eastern Mediterranean, Mersin and Iskenderun, both of which serve the development of transit traffic to the Middle East. About one-third of existing traffic is containerized, and total container movements in both ports have a7v'eraged about 105.fl00 TEU in the past three years. As the area's largest port with good laiud transport links, the port of Mersin provides the logi.al choice for container traffic development. The port of Iskenderun would be developed primarily as a support facility using heavy duty conventional equipment as it becomes redundant at Mersin and Haydarpasa. Facilities at Mersin include 23 berths with a total length of 3,800 m, two-thirds of which have a depth alongside of lO m; 9 berths handle bulk cargo and the remainder general cargo. Two of the berths totalling 400 m in length are designed for container handling and a third berth of 250 m is to be constructed under the proposed project. The  -9- only other facility on the Mediterranean coast is the small port of Antalya, some 700 km west of Mersin, but which offers little scope for future developments. 2.11 Mersin accommodated a total of 2,454 ships during 1983, including 1,444 general cargo liners, 494 container and multi-purpose Ro-Ro vessels and 516 bulk carriers. Ship waiting time exceeded 48,000 hours or 24 hours per ship in 1983, this being due mainly to construction work on the new 400 m berth completed in 1984. Total traffic reached 3.3 million tons of dry cargo including 2.1 million tons of break-bulk general cargo, 637,000 tons of container and Ro-Ro traffic and 516,000 tons of dry bulk. Cargo handling performance at Mersin is lower than average for Turkish ports, being only 286 tons per ship day for general cargo in 1983. Although there have been improvements during 1984 with the introduction of new equipment, the low productivity is due to poor overall control by the port with many operations being handled directly by agents using inadequate equipment. Rates per day for container and Ro-Ro traffic reached 1,114 tons and 1,380 tons respectively. Productivity is expected to improve farther as a result of additional training provided under the project (paras. 3.15-3.18). The ports of Mersin and Iskenderun currently employ about 2,100 workers. Black Sea 2.12 The present container traffic in the Black Sea is about 13,000 TEU and the potential for future growth is limited mainly to transit traffic to Iran. Of four public ports on the Black Sea Coast, two have some claim for development as container ports, namely Samsun and Trabzon, both of which cater to transit traffic. The other ports, Giresun located between Samsun and Trabzon, and Hopa near the Russian Border, are minor ports which have also begun to handle some transit traffic to Iran. As the area's main port serving much of central Turkey, including Ankara via a relatively good road link, development of the port of Samsun was considered under the first stage of container port development. On the other hand, although it serves the less well-developed hinterland of Eastern Turkey, the port of Trabzon provides clear advantages over Samsun for transit traffic. The ongoing berth construction program at Trabzon is well advanced and road links to Iran are about 400 km shorter than from Samsun. Consequently, it has been decided that Trabzon should be developed in the first phase and that development of Samsun in the second phase will depend on further growth of transit and domestic traffic. 2.13 Trabzon has three existing berths, totalling about 400 m in length, one of which carries a grain facility and silo. The depth alongside the berths is 10.0 m. Construction of a new quay about 580 m long at right angles to the existing berths is in progress, 280 m of which will handle containers with the remainder available for general cargo. Completion of the container quay is scheduled for November 1986. 2.14 A total of 293 ships visited Trabzon in 1983, including 176 general cargo liners and 33 container ships. Total waiting time was about 33,000 hours, or 113 hours per ship, this being due to disruption caused by a major berth construction program as well as a substantial increase in Iran's  -1.0- transit traffic from 260,000 tons to 433,000 tons as a result of problems on the competing Russian overland route (para. 4.11). Total traffic in 1983 was 730,000 tons of which 373,000 tons were general cargo traffic. General cargo throughput reached an acceptable level of about 420 tons per ship day. Total employment in TDI ports in the Black Sea is about 500 workers. D. Ports Administration General 2.15 The 12 major ports function under two separate institutions, one group, i.e. the Ports of Samsun, Haydarpasa, Derince, Bandirma, Mersin and Iskenderun are under the ports establishment of the TCDD Railway Corporation and another group, i.e. the Ports of Trabzon, Giresun, Hopa, Salipazari (Istanbul), Izmir, Antalya and the recently added Rize under the ports establishment of the Turkish Maritime Organization (previously the Maritime Bank (DB), and now known as TDI). Construction and maintenance of port infrastructure are tk'o responsibility of the Directorate of Ports (DLH) in the Ministry of Publi Works. The Loan Agreement for the ongoing port project (Loan 1741-TU) c'led (under Section 3.06 (a) and (b)) for the establishment of a new National Ports Institution (NPI) to take over the ports activities of the above major ports. However, the Government as well as the Bank are now no longer convinced that establishment of one institu- tion is the appropriate short-term approach to follow. First, recent attempts to establish national institutions in other sectors of the economy in Turkey have not met with success. Secondly, it is now clear that the main objectives are to strengthen the basic administrative functions of the ports organizations, including planning and accountability, and to provide for financial autonomy. As a result, a more gradual approach is being pursued by establishing the ports departments as semi-autonomous organiza- tions although still under the control of each Board of TCDD and TDI (para. 2.16). This is a major step towards making the ports departments more responsible for establishing accountability and financial autonomy, and for meeting the needs of the economy. TCDD and TDI Ports Establishments 2.16 Under Decree No. KHK 233 of June 8, 1984, both TCDD and TDE ports operations have been transformed, with effect from January 1, 1985, into new semi-autonomous entities to be named TCDD Limanlar Izletmesi Muessesesi or TCDD Ports Establishment (Demirliman), and TDI Liman Isletme ve Gemi Kurtama Muessesesi or TDI Ports and Vessel Salvage Establishment (Denizliman). Both Demirliman and Denizliman will have separate ident-ties, but they will be under the corporate control of their parent institutions as subsidiary units. In order to ensure the operational and financial well-being of these establishments, there is a need for them to set up, in addition to the existing operations and technical functions, fully competent departments in planning, project preparation and implementation, marketing, and accounting as well as to retain funds for the adequate maintenance of port facilities and equipmeat, debt service, capital projects and other essential require- ments before their surpluses are distributed. A general understanding has been reached on these principles which are included in the Action Plan  -11- (para. 3.23). In addition, the financial viability along the above lines of the port organizations is assured by specific financial covenants discussed in Chapter V, paras. 5.10 and 5.11. Ports Organizations 2.17 The attached chart (Chart 26971) shows the proposed organizational structure of TCDD and the position of ports operations within it. As discussed above, TCDD ports operations will be structured as an establish- ment to be called Demirliman (para. 2.16). It has a Board of Directors or Executive Committee of its own appointed by the TCDD Board of Directors, an Establishment Director who will be the chief executive, three Assistant Directors who rill be in charge of the central departments and six Port Directors in charge of each port. Demirliman will prepare in advance its operating, investment and cash budgets, a projected balance sheet and a staffing plan for each year for approval bv the TCDD Board of Directors. The Demirliman Board will have authority to approve expenditures up to TL 10 million (US$20,000 equivalent) per contract or activity, beyond which the authority rests with the TCDD board. 2.18 As far as the TDI ports are concerned, they will be functioning under a similar organizational pattern to that of TCDD ports. The attached chart (Chart 26972) shows the proposed organizational structure of TDI, and the position of ports operations (Denizliman) within it. 7 2.19 The staffing in Demirliman number some 5,000 and Denizliman some 4,300 as of January 1985. Each port agency has concentrated during recent years on training of port workers and staff, and assistance was given under the previous port project (Loan 1741-TU) and by ILO and UNDP by providing specialists who organized and initiated training courses. A ports opera- tions training school was set up at Haydarpasa, and over 30 different types of courses have been run for dockworkers, supervisors, plant operators and maintenance technicians (para. 3.25). E. Budgets, Accounts, Audits, Insurance Budgets 2.20 Under their respective charters, both Demirliman and Denizliman are subject to the budget preparation, execution and controls of the state-owned establishments and enterprises. Annual operating and capital budgets are prepared and approved by the Board of Directors of the parent companies subject to annual overview by the Ministry of Transport, the State Planning Organization and the Ministry of Finance. The budget system itself is well conceived. All transactions are to be pre-checked with budget provisions before commitments are made. However, comparisons of actual expenditures with budget allocations are not prepared and circulated in a timely manner to help management review actual performance. The proposed project includes arrangements to effect improvements (para. 2.22). Both Demirliman and Denizliman are expected to improve their budgetary controls as self- accounting units.  -12- Accounts 2.21 All organizations in the public sector are required to adhere to the national uniform accounting system. The accounting concepts, classifi- cations, and definitions follow generally accepted principles of accounting and the system is, on the whole, adequate for basic financial accounting. It does not adequately cover, however, tbe analytical aspects of accounting which are necessary for the determination of costs and use as management tools. Attempts under the previous project (Loan 1741-TU) to introduce cost accounting in the TCDD and TDI ports operations were not completely success- ful, but they did result in the introduction of procedures for activity- based costing, e.g. determining the time units of each major activity at each port such as loading, unloading and shifting of cargo, pilotage, berthing, etc. Based on these time units, cost and tariff revenue calcula- tions are made for determining the financial contributions made by each major activity at each port. 2.22 Both TCDD and TDI's centralized accounting units produce quarterly income statements for each port, and annual income statements for each port and for the TCDD and TDI's ports department as a whole, as well as notional annual balance sheets for the ports operations extracted from the general accounts. In addition, they prepare approximate monthly operating results based on time allocations of the various activities at each port. In conti- nuation of the efforts under the previous project and in the context of setting up the new ports establishments, the proposed project will include consultancy assistance for a diagnostic review to be followed by the intro- duction of approved proposals for the improvement of the financial, account- ing and costing, and management information systems, methods and procedures to serve the needs of management decision-making, budgetary control, accoun- tability and tariff-setting (para. 3.18). During negotiations, agreement was reached that TCDD and TDI will introduce the approved proposals no later than January 1, 1988 (para. 5.10). Audits 2.23 Annual audits are conducted by the Financial Inspectors attached to the Ministry of Finance, and Controllers and Sworn Banking Auditors attached to the Treasury Department. Under the previous project (Loan 1741-TU), both TCDD and TDI were required to submit annual audited financial statements for their respective port operations within six months after the end of each fiscal year. Submissions of these annual reports have been delayed in the past, reportedly due to insufficient numbers of MOF inspectors. These problems were discussed with the inspectors and understandings r-ached on the timing and format of future audit reports. During negotiations, assurances were obtained on the annual audit of the financial statements of the port operations of each of TCDD and TDI. Directorate of Ports, Public Works Ministry (DLH) and Customs Department - Budgets, Accounts and Audit 2.24 DLH, which is a part of the Ministry of Public Works, and Customs Department, which is a part of the Ministry of Finance (MOF), prepare their own annual budgets for the recurrent and capital expenditures. The approved  -13- budgets are closely controlled by the agencies and the ministries concerned, and their accounts are audited by MOF inspectors. During negotiations, assurances were obtained that DLH and the Customs Department each will main- tain detailed accounts by sources, currencies and dates on a current and cumulative basis, of project expenditures incurred for equipment, facili- ties, training and technical assistance for items financed under the project. Assurances were also obtained that DLH and the Customs Department each will have the project accounts audited annually and submit the audited statements to the Bank not later than six months after the end of each fiscal year. Insurance 2.25 TCDD, TDI, and DLH each maintain adequate insurance for their equipment. During negotiations, assurances were obtained that adequate insurance coverage will be provided for equipment and facilities financed under the project.  -14- III. THE INVESTMENT PLAN AND THE PROJECT A. Port Investment Program 3.01 The Government has just completed the Fourth Five-Year Development Plan, 1980-84, and has now embarked on a rolling plan basis for the five-year period 1985-89. The plan will be reviewed annually, thereby introducing much needed flexibility in the planning process. Total investment in the transport sector during 1985-89 is expected to remain at about the same level as under the earlier plan (1980-84), namely at about 18-20% of the public investment program. 3.02 Investments in ports during the Fourth Development Plan 1980-84 averaged about TL 18.8 billion annually (US$54 million) in 1984 prices. The main emphasis during this period was on the rehabilitation of the ports, particularly of conventional cargo handling equipment and storage facili- ties. However, during the latter part of the plan, construction of new berth facilities began in several ports in order to cater for expected increases in general cargo and container traffic (para. 3.13). Investments in these facilities as well as the balance of the equipment renewal program represent the bulk of the current spillover of ongoing investments into the Fifth Development Plan 1985-89, equivalent to about TL 25 billion (US$70 million) in 1984 prices. 3.03 Table 3.1 shows the outline port investment program for 1985-89 based on the 1985 budget figures recently approved by Parliament: Table 3.1: Outline Port Investment Program: 1985-89 (TL million 1984 prices) Expected Average Annual Budget Expenditures Expenditures -1985 1986-89 1985-89 TCDD Ongoing Investments 2,195 New Projects 2,305 24,980 Total TCDD 4,500 24,980 5,896 (US$16.8 m) TDI Ongoing Investments 5,254 2,174 New Projects 1,700 16.463 Total TDI 6,954 18,637 5,118 (US$14.6 m) DLH Ongoing Investments 6,506 8,622 New Projects 6,494 38,403 Total DLH 13,000 47,025 12,005 (US$34.3 m) TOTAL 924,454 0,642 23,019 (US$65.7 m)  -15- 3.04 It is expected that investment levels in ports during 1985-89 will average about TL 23 billion annually (US$66 million) in 1984 prices, a slight increase in real terms over levels during 1980-84. However, this level is well below the initial proposals of the port agencies. These proposals were based on continued investment in general cargo handling facilities and equipment while at the same time providing for the develop- ment of container handling facilities on a relatively broad front. Detailed discussions on the port investment program were held with the Bank during preparation of the proposed project as well as during a Transport Investment Review Mission in October 1984. The Bank's views were subsequently consi- dered by the port agencies and the State Planning Organization (SPO) in finalizing the 1985 Budget. The latter essentially limited the new projects introduced into the 1985-89 Plan to the proposed container port development program and to the essential renewal of conventional cargo handling equip- ment and high priority floating equipment for DLH. In view of the uncer- tainties over container traffic flows, especially in international transit, a phased approach has now been adopted for the development of container port facilities (para. 2.02). This program, which covers the years 1985-88, is expected to account for about 60% of the 1985-89 port investment plan. The remainder concerns mainly equipment renewal, particularly for DLH, ongoing bulk berth construction, and provision for new facilities in the Istanbul- Marmara Region towards the latter part of the plan. In general, all items in the plan appear justified except that the development of bulk mineral facilities at Izmir should possibly be deferred or reconsidered. Assurances were obtained at negotiations that the Government will provide the Bank with draft annual programs and budgets for the ports subsector during the period of project implementation (para. 3.26) and that any proposed new investments will be supported by adequate feasibility studies. B. Project Objectives 3.05 Bank lending to Turkey aims to support the country's current economic policies with specific emphasis on an export-oriented development strategy, quick-yielding new investments, restraint on public investment levels and improvements in the balance of payments. Assistance in the country's port development program will provide direct support for export development of both industrial and agricultural products and will ensure foreign exchange savings on sea freight rates for both exports and imports. Moreover, the development of modern container handling facilities serving a growing demand for international transit traffic will provide Turkey with valuable foreign exchange earnings accruing to Turkish shippers, road transport companies and port agencies. A Banik-assisted port development project will therefore provide substantial suppo-t for increased foreign exchange earnings and positive effects on the balance of payments situation. At the same time, the introduction of improved planning in the ports sector will enable the port agencies to direct scarce investment resources to current priorities and to improve port operations. 3.06 The basic rationale for Bank lending to Turkey's transport sector is to support the development of an efficient transport system capable of meeting the needs of the economy and to continue institution-building  -16- efforts. Particular emphasis is being placed on improvements in organiza- tional and operational efficiency, the implementation of balanced investment plans and the introduction of cost-based tariffs. These goals are being pursued primarily through ongoing project implementation and preparation in highways, railways and ports. Additional assistance is being provided through a proposed Agricultural Sector Loan, which provides for the intro- duction of improved planning procedures for Turkey's vast rural road network. In the ports subsector, the following specific goals are of importance: (i) the introduction of improved cargo handling methods, specifi- cally through the provision of specialized container handling facilities in a number of selected ports; (ii) agreement with the Government and the port agencies on a realistic investment program for the Fifth Development Plan covering the period 1985-89; (iii) implementation of a comprehensive action plan for the introduc- tion of container handling technology, including operational procedures, equipment maintenance, and modified customs regula- tions; and (iv) the, introduction of institutional reforms which would include, as a first -phase, the strengthening of planning capabilities and the separation of port accounts from those of other activi- ties managed by TCDD and TDI, and the introduction of a cost-related tariff structure at commercially feasible levels for container traffic. C. Description of the Project 3.07 The components of the proposed project are: (i) specialized equipment for handling and clearing container traffic at four selected ports--Izmir, Haydarpasa, Mersin and Trabzon--including nine standard container gantries, five lightweight gantries, and appropriate supporting equipment; (ii) renewal of high priority items of floating equipment necessary for the maintenance and construction of port facilities; (iii) civil works for container berth facilities at the ports of Izmir, Mersin and Trabzon; and (iv) technical assistance for the introduction of container handling technology including documentation and operational procedures, maintenance and training, the establishment of improved accounting, financial, costing and management information systems, meLhods and procedures, and the development of a series of inland container depots.  -17- Equipment and Materials 3.08 The proposed container port development program to be implemented during thc period 1985-88 provides a least-cost solution for meeting antici- pated container traffic demands up to 1989/90. The proposed program takes into account overall traffic patterns, hinterland linkages, ongoing port development schemes and the suitability of existing ports for development in the medium term. The list of container handling equipment for the four ports has been established based on detailed traffic forecasts for national and transit traffic and the expected productivity of new equipment. Details of traffic forecasts are given in Chapter IV. The proposed equipment program is summarized below for each port: Izmir. The development program at Izmir calls for a three-crane operation to cater for a forecast of 88,000 TEU in 1989. The project will finance two standard container cranes which will work the main 450 m berth currently under construction, delivery being scheduled for May-June 1987. In addition, because of the current throughput of 50-60,000 TEU, TDI is providing for early procurement of two lightweight cranes using its own resources. These cranes will operate a multi-purpose berth beginning in mid-1986. In line with an overall Action Plan for the project (para. 3.23), TDI will assess the need for four cranes at Izmir in 1988 with a view to relocating one lightweight crane at that time to another facility. In addition. to the two standard cranes, the project will finance support equipment for a three-crane operation, including six transtainers, 15 towing units, 18 trailers and two Belotti-type container mobile cranes. Haydarpasa. Expected traffic developments in the Istanbul area call for the establishment of a three-crane operation capable of handling 88,000 TEU in 1989, a major increase over the present level of 12,000 TEU. The project will finance two standard cranes for use of the recently completed 300 m berth and one lightweight crane which will work on an adjacent multi-purpose Ro-Ro berth. Support equipment to be financed by the project includes six transtainers, 15 towing units, 18 trailers and two Belotti-type cranes. Mersin. As the main transit port for Iraq as well as serving a major export demand from southeastern Turkey, the proposed container development program at Mersin calls for a five-crane operation. Forecast traffic for 1989 is 200,000 TEU, compared with a current level of about 105,000 TEU through the ports of Mersin and Iskenderun. The proposed project will finance five standard container cranes, 11 transtainers, 21 towing units, 23 trailers and two Belotti-type cranes. Trabzon. Forecast traffic in the Black Sea is limited essentially to transit traffic to Iran and is expected to increase from about 13,000 TEU at present to about 40,000 TEU in 1989. Because of uncertainties over the level of transit traffic and the rate of container penetration, a minimum container operat-vn based on two lightweight cranes is proposed for Trabzon. In addition to the two quay-side cranes, support equipment to be financed by the proposed project includes four transtainers, seven towing units, ten trailers, and one Belotti-type crane.  -18- 3.09 Assessment of the balance between the numbers of gantry cranes and support equipment was made on a basis of five tractor/trailer units and two transtainers per gantry crane. The assumptions made and method used is set out in Annex 5, Table 6. Other support equipment to be financed by the proposed project includes 41 forklift trucks, including seven of 10/12 ton capacity and 34 of 2 ton capacity. Additional support equipment is already available in TCDD and TDI ports and includes 12 ton, 28 ton and 42 ton forklift trucks, and some container tow tractors and trailers purchased recently either under the Ports Rehabilitation Project (Loan 1741-TU) or from the agencies' own resources (see Annex 1, Table 2). The project would also finance crane rails for the gantry cranes as well as miscellaneous itemis such as special temporary storage facilities which will free planned container areas. 3.10 With the substantial increase in numbers of containers to be handled through the project ports during the coming years, customs will need to review closely and modify their existing procedures for clearance of containers as well as increase staff, since the expeditious clearance of containers will be of paramount importance to the effectiveness of the project as a whole. This may be achieved through improved clearance methods in the ports by use of specialized surveillance equipment and systems, and by the use of inland container depots established at strategic points in the ports hinterland where sealed import traffic containers are transported directly from ship to depot at which location they are opened, unloaded and cleared by Customs officers (para. 3.18). The simplification of Customs procedures including the ratification of a 1972 Customs Convention for Containers, which allows for duty-free import and export of container boxes, the need to recruit and train additional Customs officers, and equipment required to facilitate clearance of containers have already been discussed with Customs and the agencies. A list of equipment for Customs, and an Action Plan for implementing revised Customs procedures and recruitment and training of additional officers were discussed and confirmed at negotia- tions. Initially, about 25% of the proposed equipment will be obtained to enable field tests to be carried out at specific locations to verify that the equipment as designed will meet all customs requirements. It is intended that the system would be installed at the four project ports as well as at the four main land borders handling container traffic. 3.11 DLH has carried out a study of its new equipment needs for the period of the Fifth Development Plan 1985-89. DLH's current floating equip- ment fleet includes some 115 items with a total replacement value of about US$200 million (Annex 1, Table 3). With over 100 items over ten years old and 60 items are over 20 years old, much of the fleet is beyond its useful economic life and a backlog of esselntial maintenance work, especially dredging, has built up over the years. The equipment needs have been established based on a detailed program of maintenance and construction for the period 1985-89. During this period, DLH will concentrate its resources increasingly on maintenance operations, with construction activities allocated mainly to contractors. From these equipment requirements, a list of high priority items has been selected for financing under the proposed Bank loan up to a total CIF cost of about US$26 million. The list of equip- ment includes two 90-ton floating cranes, three bucket dredgers, six  -19- back-hoe dredgers, as well as diesel engines for tugboats and dredging barges. Details of the DLH equipment fleet and proposed work program are in the Project File (Document No. B.2 and B.3). 3.12 Detailed lists oF equipment for TCDD, TDI and DLH are included in Annex 5. The lists were discussed and confirmed at negotiations. The project will allow for possible revision of support equipment requirements during implementation depending on operational experience and traffic developments. Civil Works 3.13 The new container quays, and storage areas at each of the project ports have been financed from the agencies' own resources, and has been constructed either by DLH or under DLH's supervision. At Haydarpasa, the new container area has been completed apart from some regrading of areas designated for storage of containers (see Chart 18679). At Mersin, two berths are already available and a third berth is to be constructed by extending an existing berth and reclaiming the area behind the new quay (see Chart 18678). At Izmir, construction of the main container quay is nearing completion but reclamation of the main container storage area behind the quay will not be completed until 1986 (see Chart 18676). At Trabzon, construction of the new container quay as well as a new general cargo quay is in progress and will be completed in 1986 (see Chart 18677). 3.14 Dredging alongside the quays where necessary at Haydarpasa, Mersin and Trabzon has been or will be carried out by DLH dredgers as part of routine maintenance requirements within the ongoing works, but that at Izmir will be undertaken by contract awarded through International Competitive Bidding (see para. 3.27). This tzmir dredging will be the only civil works financed from the proposed loan and was orig .ally to have been carried out by DLH under the ongoing Izmir port development financed from the agencies' own resources. However, completion of the dredging (estimated at about 5 million mi3) within the requisite time frame is beyond the resource capacity of DLH, and it has therefore been included in the project for Bank financing to ensure timely completion in accordance with the overall program. The depth of water in the existing port varies between 10.5 and 11.0 meters at the existing general cargo berths and about 6 meters to the north and west of the new berths. Dredging off the new 450 m container berths will be to a depth of 13 meters consistent with the design depth of the berths, and suitable for container ships in the forecast capacity range with drafts of up to about 12 meters (para. 4.18). The area off the adjacent 600 m multi-purpose berths will be dredged to 12 meters consistent with the berth design and rorecast shipping. About 1.5 km of channel from the port will require dredging to 13 m depth to reach natural deep water. Additional dredging to achieve a 13 m deep channel will be required near Yenikale some 11 km downstrean from the port where the channel narrows and shoals. The general limits of dredging are shown on the chart at the end of the report. Material unsuitable for reclamation purposes will be deposited at the designated spoil dumping ground some 15 km from Izmir (para. 3.30).  -20- Technical Assistance 3.15 To assist the Turkish authorities in setting up modern container port operations, about 172 man-months of specialized consulting services have been included under the proposed project (see Annex 5. Table 7). This program is critical to the establishment of satisfactory modern container handling methods and is carefully phased to maximize on-the-job training in line with the planned delivery schedule for equipment. Although considera- tion was given during discussions with the agencies to the possibility of a management contract for handling containers, specialist technical assistance was deemed to provide the best alternative, bearing in mind staff training already undertaken (para. 2.19). the likely increased adverse impact of a management contract on the port labor force (para. 3.31), and the desirabi- lity of achieving early commercial orientation and expertise of port staff (para. 2.02). 3.16 Technical assistance for container operations will cover three principal areas: (i) container documentation and control; (ii) physical container handling on ship and shore; and (iii) establishment of procedures for engineering operations, maintenance and repairs, and stores inventories. Port personnel from TCDD, TDI and Customs will be trained in these areas through a series of pilot schemes. The initial pilot scheme in documenta- tion and control systems would require a specialist for about 8 months commencing at Izmir in about January 1986 in anticipation of the deliveFy of TDI's own-resource financed equipment in April 1986. The documentation specialist would then transfer in about September 1986 for a further period of 8 months to Mersin to run a second pilot scheme there, so that trained staff would be available at both Izmir and Mersin to assist in implementing the operations pilot schemes which would follow consecutively at each port and be run by operations specialists. These operations pilot schemes would commence prior to the start-up of container operations, and would each run for about 8 months, first at Izmir from about May through December 1986, and then at Mersin from January through September 1987. An estimated 72 man- months of operations specialists would be required for the two operational pilot schemes, including four man-months for review of the documentation and operations systems set up at Trabzon and Haydarpasa by staff trained earlier at Izmir. Finally, specialists in repair and maintenance of container handling equipment will establish a training scheme for maintenance proce- dures at Izmir, beginning in April 1986, for a period of about eight months. The maintenance team will then transfer to Mersin in about November 1986. About 55 man-months of equipment maintenance specialists would be required for the pilot maintenance schemes. The details of target dates and man-months r--uired for the pilot schemes (documentation, operations and maintenance) are set out in Tables 7 and 8 of Annex 5. A further 10 man-months of foreign consultant time would be required for general supervision and to organize and supervise a series of overseas technical visits for key personnel from the various agencies involved with port operations (para. 3.17). 3.17 The proposed project would finance about 80 man-months of overseas technical visits for port staff, customs officials and DLH personnel to provide training in container operations and in container terminals design  -21- and layout. A preliminary series of visits would be made prior tc implemen- tation of the pilot schemes with a further program for management staff during the operational phase (para. 3.25). 3.18 Additional technical assistance would be included under the project for further improvements to accounting procedures and analyses. About 15 man-months of local consultants would be required for this purpose. The project would also finance a study which would assess the need for inland container depots to be used in the collection and distribution of container traffic and for customs clearance of goods. This would include a review of the use of an existing area at Icerenkoy near Istanbul which is presently operated by TDI. An estimated 20 man-months are required for this study. 3.19 It is expected that technical assistance for container operations will be provided by a single specialized firm. Draft Terms of Reference are shown in Annex 6 and these were discussed and confirmed at negotiations. Outline terms of reference for the financial study and the container depot study (3.07(iv)) are in the Project File (Document Nos. C4 and C5). These terms of reference as well as the organization of overseas training visits were discussed and confirmed at negotiations and will be carried out in accordance with a schedule agreed in the Action Plan for the project (para. 3.23). D. Cost Estimates 3.20 The total cost of the project is estimated at US$174 million with a foreign exchange component of US$143 million (82%), the balance comprising local costs, taxes and duties. The proposed Bank loan of US$134.5 million would cover 96% of the foreign exchange cost of equipment, the foreign cost of the Izmir dredging contract, and 99% of the cost of technical assistance. The costs of civil works and of two lightweight cranes which are being financed by the agencies are included in the project cost, since it is essential to the project that these works and items of equipment are under- taken and provided by the requisite time. Cost estimates have been adjusted to reflect January 1985 prices. A detailed project cost table is shown in Annex 5 and is summarized below:  -22- Table 3.2: Summary of Project Cost Estimates Bank TL Million US$ Mil,ion Loan Local Foreign Total Local Foreign Total US$ mill. A. Equipment (a) TCOD 2,155.84 19,402.52 21,558.36 5.04 45.33 50.37 45.33 (b) TDI 1/ 1,230.07 11,070.65 12,300.72 2.87 25.87 28.74 21.88 (c) DLH 1,885.77 10,860.07 12,745.84 4.41 25.37 29.78 25.37 (d) Customs 380.92 3,428.28 3,809.20 0.89 8.01 8.90 8.01 Subtotal 5,625.60 44,761.52 50,414.12 13.21 104.58 117.79 100.59 B. Civil Works (a) Izmir Dredging 918.06 5,202.34 6,120.40 2.15 12.16 14.30 12.16 (b) Izmir Berth/ Rcclamation 2/ 1,715.00 735.00 2,450.00 4.01 1.72 5.72 -- (c) Mersin Berth 1,000.70 428.87 1,429.58 2.34 1.00 3.34 -- (d) Trabzon Berth 2/ 574.53 246.23 820.75 1.34 0.58 1.92 -- (e) Haydarpasa Berth 2,' 257.25 110.25 367.50 0.60 0.26 0.86 -- (f) Supporting Infra- structure 1,549.36 -- 1,549.36 3.62 -- 3.62 -- Subtotal 6,014.90 6,722.69 12,737.59 14.06 15.72 29.76 12.16 C. Technical Assistance/ Training 5.78 821.55 827.32 0.01 1.92 1.93 1.92 Tztal Base Costs 11,673.27 52,305.76 63,979.03 27.27 122.21 149.48 114.67 D. Contingencies (a) Physical 137.71 780.35 918.06 0.32 1.82 2.15 1.82 (b) Price 7,008.35 37,293.15 44,301.50 3.46 18.85 22.31 17.98 Subtotal Contingencies 7,146.06 38,073.50 45,219.56 3.78 20.67 24.46 19.80 TOTAL PROJECT COST 18,819.33 90,379.26 109,198.59 31.05 142.88 173.94 134.48 I/ Includes two lightweight cranes to be procured independently by TDI. 2/ Ongoing works. (4214D)  -23- 3.21 Equipment costs are based on recent price experience for similar types of equipment provided by foreign manufacturers. Dredging costs are derived from preliminary estimates which will be updated based on detailed investigations, which will be available prior to negotiations. Because dredging costs depend upon the availability of suitable contractors, an additional contingency of 15% has been allowed. A provision of 10% has been made for most spare parts with 15% for equipment which will be subject to heavy wear and tear. Technical assistance costs for expatriates include salaries, fees, international travel and subsistence. The average man-month rate for local consultants includes the cost of logistic support. For costs expressed in Turkish Lira, price contingencies have been estimated assuming annual price increases of 30% in 1985, 25% in 1986, 20% in 1987, 15% in 1988, and 10% in 1989 and 1990 and when expressed in US Dollars, 5% in 1985, 7.5% in 1986 and 8% for 1987 through 1990. During negotiations, the project costs estimates were discussed and confirmed. E. Financing Plan 3.22 The proposed Bank loan of US$134.5 million would cover 94% of the total foreign exchange cost (para. 3.20). The remaining foreign exchange costs relate to the indirect foreign costs of ongoing berth construction programs which are being met under DLH's investment program and the CIF costs of two lightweight container cranes currently being procured by TDI with their own resources. All local costs will be met from the budgets of the respective agencies. All- items related to the proposed project are included in the 1985 Budget and rolling plan documents recently approved by Parliament. During the period of project implementation, the Government will discuss the annual budget estimates with the Bank in order to ensure adequate budgetary allocations to cover planned expenditures (para. 3.04). During negotiations, assurances were obtained that all local costs as well as all cost overruns would be met by: (i) the Government in the case of the components to be implemented by DLH (Ministry of the Public Works), and by the Customs Department of the Ministry of Finance and Customs, and (ii) by the TCDD and TDI Ports Establishments for their respective share of the components to be implemented by them. F. Project Implementation 3.23 With the involvement of four different agencies in the project, close coordination of efforts will be essential and the Government has already set up a Project Coordination Committee (PCC) chaired by a Deputy Undersecretary of the Ministry of Transport. This Committee includes senior representatives of each agency and technical staff will also be recruited by MOT. The PCC will be responsible for implementing and monitoring the project in line with the comprehensive Action Plan shown in Annex 5. The PCC will also ensure that civil works at the project ports are completed as scheduled in line with the main implementation program. The PCC will be specifically responsible inter alia for overall coordination of project activities, and of implementing the technical assistance component and coordinating the preparation of a draft second phase container port develop- ment program. Specific Terms of Reference for the FCC (Annex 7) were discussed and confirmed at negotiations. In addition, assurances were  -24- obtained at negotiations that the Action Plan (Annex 5) will be implemented as agreed with the Bank and updated from time to time. 3.24 Procurement of container handling equipment will be undertaken on a consolidated basis by TCDD on behalf of TCDD and TDI in accordance with a signed protocol. DLH and Customs will each be separately responsible for the procurement of their equipment to be financed from the loan. Assuming that all bid documents for equipment are prepared promptly and cleared by the Bank, orders for some equipment would be placed by the end of 1985. Based on estimated manufacture periods from date of ordering of 12 months for container cranes and 8 months for transtainers and other support equip- ment, and a commissioning and testing period of 3 months, the equipment should become operational starting in March 1987 and all be available by October 1987. The timetable for project implementation as agreed with the Government and project agencies (Chart, Annex 5) set targets for which the agencies should aim to enable the new facilities to become operational as soon as possible. The implementation period has been extended by six months to allow for start-up delays, and also one year has been added to allow for unforeseen delays giving a total implementation period of 4-1/2 years (from the date of Board presentation). 3.25 To enable the technical assistance pilot schemes for setting up container documentation, operations and engineering maintenance and subse- quent training to be completed in time to coincide with forecast equipment deliveries, a specialist firm will need to be recruited and appointed as soon after the date of effectiveness of the loan as possible so that the main assignment may be completed by mid-1987 in accordance with the schedule shown in the Action Plan (Annex 5, Tables 1 and 8). The target dates for supply of equipment, completion of civil works and provision of assisted technical assistance have been detailed in Table 8 of Annex 5 to demonstrate the need for close coordination between these three components, and to act as a checklist for updating or modifying as found necessary during project implementation. TDI will be responsible for technical assistance to be provided for both TCDD and TDI, and implementation will be organized by a small joint TDI/TCDD executive committee. Additional operational training for port workers will be given at the existing port training school at Haydarpasa where courses for port workers and technicians have been running since its inauguration during the previous Ports Project (Loan 1741-TU) and at other ports (para. 2.19). Overseas operational training will be planned in two phases, a first phase to be implemented in late 1985 prior to start-up of the pilot training scheme in Turkey. However, the main part of the overseas training program will be implemented from April 1987 through 1988 so that it does not conflict with the training schemes i-: the project ports (Chart, Annex 5). 3.26 The PCC will submit to the Bank quarterly progress reports on overall project implementation which will include progress of construction, manufacture and delivery of equipment, technical assistance and training, traffic statistics, financial statements and disbursement schedule, and port performance indicators. The format was discussed and agreed at negotia- tions. The PCC will be responsible for submitting annual investment programs ard budgets to the Bank (para. 3.04). In addition, during project  -25- implementation, the PCC will ensure that the necessary records of relevant data are kept for the preparation of the PCR. The PCR should be submitted not later than six months after the closing date. G. Procurement and Disbursement Procurement 3.27 Procurement of equipment and dredging works at Izmir to be financed by the Bank will be carried out on the basis of ICB in accordance with current Bank Guidelines for Procurement (August 1984). The equipment will be tendered for in separate packages as appropriate for: (i) standard container cranes; (ii) lightweight container cranes; (iii) transtainers; (iv) trailers and towing units; (v) forklift trucks; (vi) Belotti-type cranes; (vii) crane rails and fasteners; (viii) dredgers; (ix) diesel engines for tugboats; (x) outboard propulsion units; and (xii) specialized customs inspection and examination equipment. Contracts for each type of equipment will be large enough to attract foreign suppliers and to ensure standardization of the equipment concerned. Consideration will be given to including an item in equipment bid documents for price quotations by manu- facturers for maintenance contract engineers on a year-to-year basis. Smaller items of equipment of a specialized nature may be procured under limited international bidding contracts of less than US$50,000 up to a total of US$1.0 million for the whole project. The dredging work at Izmir will be tendered under one contract on the basis of international competitive bidding in accordance with Bank Guidelines. In evaluating international bids for equipment contracts, domestic manufacturers will be allowed a preferential margin of 15% of the CIF landed price of competing imports, or the prevailing customs duties, whichever is lower. Specialist consultants will be recruited in accordance with the Bank's Guidelines. Table 3.3 shows procurement methods for the project elements. Disbursement 3.28 Disbursements tmder the proposed loan will cover 100% of the foreign exchange costs of equipment procurement, equivalent to the CIF cost, and the foreign costs of the Izmir dredging contracts estimated at 85% of total costs. Disbursements against technical assistance will cover 85% of local and 100% of foreign expenditures. The disbursement schedule has been developed from the implementation schedule shown in Annex 5 and assumes the project will be effective in September 1985. Much of the civil works has been completed or is under construction with completion expected by mid- to late-1987, and the capital dredging at Izmir by the end of 1987. Most of the equipment will be procured within the first three years of the project. Hence a disbursement period of 5-1/2 years is reasonable, and the period corresponds to about 80% disbursement under the Regional sector profile. Table 3.4 reflects the corresponding rates of disbursement. The disburse- ment schedule was discussed and confirmed at negotiations.  -26- Table 3.3: Procurement Method (US$ millions) Procurement Method Total Project Element ICB LCB Other N.A. Cost Civil Works 18.70 16.87 1/ -- -- 35.57 (16.02) (_) C--) (--) (16.02) Equipment 136.11 - 0.10 -- 136.21 (116.22) (--) (0.10) (--) (116.32) Technical Assistance 2.16 - -- -- 2.16 (2.14) (-}() - (2.14) Total 156.97 16.87 0.10 -- 173.94 (134.38) (-) (0.10) (--) (134.48) Figures in parenthesis are for the proposed Bank loan. 1/ Financed from agencies' own resources - all contracts except for berth extension at Mersin-are already ongoing.  -27- Table 3.4: Schedule of Disbursements Fiscal Year and US$ million Quarter Ending Amount Cumulative FY1986 December 31, 1985 2.8 2.8 March 31, 1986 4.3 7.1 June 30, 1986 5.7 12.8 FY1987 September 30, 1986 7.8 20.6 December 31, 1986 8.5 29.1 March 31, 1987 9.2 38.3 June 30, 1987 11.4 49.7 FY1988 September 30, 1987 10.6 60.3 December 31, 1987 9.6 69.9 March 31, 1988 10.3 80.2 June 30, 1988 7.8 88.0 FY1989 September 30, 1988 10.0 98.0 December 31, 1988 8.5 106.5 March 31, 1989 6.4 112.9 June 30, 1989 6.1 119.0 FY1990 September 30, 1989 4.5 123.5 December 31, 1989 4.3 127.8 March 31, 1990 2.2 130.0 June 30, 1990 1.5 131.5 FY1991 September 30, 1990 1.5 133.0 December 31, 1990 1.5 134.5 l  -28- 3.29 The Goverrnment of Turkey would be the borrower of the Bank loan for the whole project. For the portion of the loan pertaining to DLH and the Customs Department, there would be no relending arrangements since their respective ministries are parts of the Government and are not revenue- earning entities. However, the portions of the loan covering the components pertaining to TCDD and TDI Ports Establishments would be relent by the Government to these agencies respectively under the same terms and condi- tions as the proposed Bank loan to the Government, with the foreign exchange risk on interest charges and loan repayments being the responsibility of the borrowing agencies. Signing of the subsidiary loan agreements, acceptable to the Bank, would be a condition of loan effectiveness. H. Environmental Impact 3.30 The development of container handling facilities will reduce the need for majcr expansion of port facilities which would normally be necessary for general cargo operations. In addition, berth occupancy tor container facilities generally does not exceed 30%, thereby reducing the amount of time spent by ships in port and the related dangers of pollution and oil spills. No environmental problems are expected from the Izmir dredging operations as unsuitable materials will be deposited in a desi- gnated spoil area some 15 km from Izmir (para. 3.14). I. Impact on Employment 3.31 The introduction of modern container handling facilities will reduce the need for labor in the project ports. The port agencies are already anticipating the reductions in labor and they do not foresee any problems with the introduction of multiple-shift operations. It is expected that the savings in labour will be achieved partly through attrition and partly through redeployment in other port activities or in other sectors of the economy. The overall program would require a reduction in the labor force of about 1,000 workers (paras. 2.19 and 3.15). The estimated reduc- tion in labor range from about 11% at Izmir to about 30% at Haydarpasa with the transit ports in the Eastern Mediterranean and the Black Sea requiring reductions of about 20%. It is essential that agencies should start planning as soon as possible how any excess labour may be transferred to other tasks to minimize adverse effects. However, following expansion of port traffic, additional employment may be created in such activities as trucking, storage and freight forwarding.  -29- IV. ECONOMIC EVALUATION A. Introduction 4.01 This chapter summarizes the economic evaluation of the proposed investment in container handling facilities in Turkish ports. As discussed in Chapter II (paras. 2.02 and 2.05), TCDD and TDI had originally proposed container port development on a broad front involving as many as nine ports. However, taking into account present traffic patterns, it was subsequently decided that a sounder basis for container port development would be to limit container handling facilities under a first phase to essentially one port in each major hinterland area. The first phase, to be implemented during the period 1985-88, would provide an opportunity for traffic developments to be monitored and appropriate adjustments to be made under a second phase of development during the period 1988-91 (para. 3.23). Equipment requirements have been established in order to meet the forecast container throughput for 1989/90 through to 1992, taking into account minimum operational requirements in each of the project ports. Details of the methodology used in establishing traffic forecasts and in the economic evaluation are given respectively in Annexes 2 and 3. 4.02 As the proposed project is concerned with the introduction of modern container handling technology in Turkish ports, the focus of the traffic analysis and economic evaluation is on general cargo traffic and the impact of containerization on this traffic. Although the four project ports currently handle only about 60% of total general cargo traffic, their share of container traffic is expected to be about 85Z of total traffic due to diversion from other ports within the traffic shadow area of the project ports. Detailed forecasts of general cargo and .-ontainer traffic have been prepared for all ports. Forecasts of other traffic have been prepared on a more global basis in order to obtain a complete traffic picture for Turkish ports for the period through 1992. B. ExistinR Traffic 4.03 Turkey's foreign trade has increased sharply during the 1970s in line with a GDP growth rate of about 7% per year. However, Turkey's economic structure and growth process proved to be exceedingly vulnerable to various external factors during the late 1970s, including increases in oil prices, stagnation in western Europe and a deterioration in the terms of trade. A period of stagnation in foreign trade during 1978 and 1979 was followed by the introduction of a stabilization program and structural adjustment process in 1980 designed to introduce greater reliance on market forces and policies to achieve high export growth rates. Since tthe intro- duction of this process, foreign trade has picked up and the upsurge in exports in 1981 has continued through 1984, with industrial exports leading the way. In addition, the removal of restrictions on imports during 1984 has lead to growth in import demand, particularly for raw materials required by export-oriented industries. This growth in imports is expected to continue at a moderate rate in the medium term.  -30- 4.04 During 1983, the 12 TCDD and TDI ports handled a total of some 22 million tons of cargo. Dry cargo amounted to 15.3 million tons, includ- ing 8.5 million tons of foreign trade, 4.1 million tons of transit traffic and 2.7 million tons of coastal traffic. Table 4.1: Traffic at TCDD and TDI Ports 1979-83 ('000 tons) Annual Growth Z 1979 1980 1981 1982 1983 1979-83 Dry Cargo Foreign 6,336 6,179 6,901 7,641 8,477 7.5 Transit 627 1,242 2,365 3,496 4,051 59.4 Coastal 2,702 2,881 2,644 3,065 2,771 0.6 Total 9,665 10,302 11,910 14,202 15,299 12.2 Liquid Bulk Foreign 2,341 3,291 3,696 4,314 4,539 18.0 Coastal 2,354 2,484 2,415 2,841 2,721 3.7 Total 4,695 5,775 6,111 7,155 7,260 11.5 Grand Total 14,360 16,077 18,021 21,358 22,558 12.0 4.05 Since 1979, foreign dry cargo traffic in Turkish ports, excluding transit traffic, has increased from 6.3 million tons to 8.5 million tons in 1983, an average increase of about 7.5% per year. Much of this growth has been made up of exports of general cargo, particularly iron and steel and manufactured goods. Total general cargo traffic increased from 4.5 million tons in 1979 to 6.1 million tons in 1983, an annual increase of about 8%. During the same period, transit traffic to Iran and Iraq increased dramatic- ally from 630,000 tons in 1979 to just over 4 million tons in 1983. Coastal traffic, mainly bulk commodities, is currently at about 5 million tons having increased at a low rate of just over 2% per year since 1979. 4.06 Despite Lhe 1-ck of appropriate handling technology, container traffic has shown rapid growth in Turkish ports. Actual container movements increased from 77,000 TEU in 1979 to a little over 200,000 TEU in 1982, but then declined to 160,000 TEU in 1983, partly in response to inadequate handling facilities. Estimates of potential containerizable cargo have been made for each year of the period 1979-83 based on an assessment of the physical chara_teristics of the major cargo categories (Annex 2). Containe- rizable cargoes at the 12 ports are estimated to have increased from 2.2 million tons in 1979 to 4.9 million tons in 1983, largely due to the development of transit trade.  -31- Table 4.2: Estimated Containerizable Cargo at TCDD and TDI Ports 1979-83 ('000 tons) Annual Growth X 1979 1980 1981 1982 1983 1979-83 Turkish Trade Imports 1,052 1,163 1,332 1,215 1,271 4.8 Exports 775 822 1,206 1,313 1,395 15.8 1,827 1,985 2,538 2,529 2,666 9.9 Transit Trade Discharged 302 649 1,270 1,775 2,043 61.3 Loaded 31 52 98 101 161 51.0 333 701 1,368 1,876 2,204 60.4 Total Discharged 1,354 1,812 2,602 2,990 3,314 25.1 Loaded 806 874 1,304 1,414 1,556 17.9 2,160 2,686 3,906 4,404 4,870 22.5 4.07 On average,. penetration of containerizable cargo has reached about 20% in 1983, the highest level of around 50% being at the port of Izmir where a large share of the agricultural exports is already containerized. Izmir is currently the only port handling a significant volume of container traffic related to Turkish foreign trade, namely some 50-60,000 TEU per year. Most of the remaining container traffic is transit traffic through the Mediterranean ports of Mersin and Iskenderun with a combined total of about 105,000 TEU per year. C. Traffic Forecasts 1988-1992 General 4.08 The main focus of the analysis is on establishing forecasts of containerizable cargo, for both Turkish foreign trade and transit traffic, and estimating the penetration of this traffic by containers following the introduction of modern container handling methods. No attempt has been made to make separate estimates of Ro-Ro traffic through the project ports. All ports include Ro-Ro ramp facilities and at least one container crane in each port will be located adjacent to the ramp in order to provide for simulta- neous handling of containers and Ro-Ro trailers carried by multi-purpose vessels. Ro-Ro traffic has not developed to a great extent in the Eastern Mediterranean because of the long haul distances from Western European ports and it is expected that there would be little further development once specialized container handling facilities are established. Traffic fore- casts have been prepared for each of the years during the period 1988-1992. Detailed traffic forecasts are given in Annex 2.  -32- Turkish National Traffic 4.09 Forecasts of national general cargo traffic are based on a conti- nuation of the stabilization program through 1985, followed by a strategy aimed at a 5 to 6% per year growth in GDP through the period of the Fifth Development Plan, 1985-89. Central to this strategy is a sustained growth in exports of about 8% per year with the main increases coming from non-traditional exports such as machinery, intermediate goods and processed foods. Industrial goods are forecast to increase at 10% per year and agricultural exports at 5% per year. Import growth is expected to increase at about 8% per year during the period 1985-90. These growth rates have been applied to the existing general cargo traffic for each port. The average share of containerizable cargo over the three-year period 1981-83 was used as a basis to forecast containerizable cargo traffic (para. 4.06). Transit Traffic 4.10 Any accurate assessment of the likely future development of transit traffic through Turkey is hardly possible in view of the changes which could occur in the physical, political and economic situation in the Middle East. Although transit traffic to Iran and Iraq has currently reached some 4 million tons, there have been considerable fluctuations in recent years reflecting changing demand for imports and the competing effects of alter- native rputes (Annex 2, paras. 6 and 7). Average transit traffic volumes during the 1981-83 period amounted to about 3.2 million tons of which 2.4 million tons transited through the Mediterranean ports of Mersin and Iskenderun, primarily to Iraq, and 800,000 tons of traffic to Iran through the Black Sea ports of Trabzon, Sansun, Giresun and Hopa. These flows represent about 30% and 10% of the foreign trade of Iraq and Iran, respectively. 4.11 The Mediterranean route through Mersin and Iskenderun to Iraq competes with the route through Jordan using the port of Aqaba. Both these routes handle comparable volumes of traffic in the range of 2.5 million tons of general cargo. The Black Sea route to Iran competes mainly with the Russian overland route using the Volga River system and the Caspian Sea. The Russian route currently handles some 3.5 to 4 million tons of transit traffic to Iran, but in the past two years this route has experienced diffi- culties which have resulted in diversion of traffic through the Turkish ports on the Black Sea. Clearly, improved services in the Black Sea ports will encourage some of this traffic to continue using the Turkish route. 4.12 A comprehensive assessment of transit traffic to Iran and Iraa :nd the role and position of alternative routes is given in Annex 2 (Map IBRD 18778). The Turkish routes are now well established with relatively efficient port operations and well organized road transport services. Sea freight rates via Turkey are lower than via Aqaba or the Gulf ports. Moreover, land transport distances to the main centers of population and economic activity in Iran and Iraq are comparable for all the major routes, including through the Gulf ports. Following the end of the Gulf War, it can be expected that total traffic to Iran and Iraq will increase, particularly for materials needed for reconstruction. Subsequently, it can be expected  -33- that Iran and Iraq would wish to develop their.own ports but the rehabilita- tion of these facilities would probably take several years. This would also be true for Beirut, should this port reopen for traffic. In addition, both Iran and Iraq would probably wish to maintain alternative routes through Turkey for strategic reasons. Under such a scenario, these routes might account for 10 to 20% of total foreign trade in the longer term with traffic volumes possibly at substantially the same level as at the present time. 4.13 Although the natural advantages of the Turkish transit routes could be made more attractive with the provision of modern container handling facilities, an accurate assessment of traffic prospects is not possible. Under these circumstances, a simple approach has been adopted to establish transit traffic levels for the first phase of container port development. This involves simply taking the average traffic levels for the three-year period 1981-83, of 2.4 million tons for the Mediterranean route and 800,000 tons for the Black Sea route, and assuming that they will remain unchanged. The transit traffic flows represent about half of the container traffic potential in the Mediterranean ports and almost all of the container traffic potential in the Black Sea. While a fall in traffic to Iraq in the longer term would be offset by rapidly increasing export traffic from Southeastern Turkey, the Black Sea coast offers very little potential for growth of local traffic. Port development in the Black Sea represents, therefore, the major risk element in the project (para. 4.26). During project implementation, traffic levels would be monitored with a view to adjustment of the container port program during a second phase, as required by traffic developments (para. 3.23). Container Traffic Forecasts 4.14 It is assumed that without the development of modern facilities, container penetration would not increase above its present level in each of the project ports (Annex 2, Table 4). Under this assumption, it is antici- pated that although total containerized cargo would increase from about 900,000 tons to 1.3 million tons, container movements would remain at about 200,000 TEU. However, with the provision of specialized facilities, con- tainer penetration is expected to increase rapidly. Based on previous experience in container port development, the level of penetration is assumed to follow an "S" curve, the details of which are given in Annex 2 (para. 13). The number of TEU has been estimated using a standard load of 12 tons per TEU. Calculations were made separately for national and transit traffic based on the dominant flow patterns. Detailed forecasts are shown in Annex 2, Table 5, port by port, while Table 4.3 below summarizes the estimated containerized cargo and number of containers for the principal types of traffic:  -34- Table 4.3: Estimated Containerised Cargo at Project Ports: 1990 Turkish Trade Transit Trade Total General Cargo ('000 tons) 10,980 3,200 14,180 Containerizable Cargo ('000 tons) 3,900 1,770 5,670 Without Project Containerized Cargo (X) 201 29Z 23Z '000 tons 800 508 1,308 '000 TEU 110 86 196 Residual Containerizable Cargo ('000 ton) 3,100 1,262 4,362 With Project Containerized Cargo (S) 63X 64Z 63Z '000 tons 2,460 1,133 3,593 '000 TEU 328 186 514 Residual Containerizable Cargo ('000 tons) 1,440 637 2,077 4.15 The individual port forecasts for container movements are summa- rized in Table 4.4 below for the "with" project scenario: Table 4.4: Container Traffic Forecasts 1988-1992 ('000 TEU) Mersin 1/ Trabzon 2/ Haydarpasa 3/ Izmir Total Actual 1981 97 10 12 36 154 1982 138 11 14 38 201 1983 78 13 12 57 160 Forecast 1988 162 31 58 78 329 1989 201 40 88 88 417 1990 242 50 123 99 514 1991 287 59 163 112 621 1992 335 70 209 126 740 L/ Includes Iskenderun traffic. 2/ Transit traffic for all Black Sea ports; export traffic for Trabzon, Hopa and Giresun. 3/ Includes Salipazari (Istanbul) traffic.  -35- 4.16 The traffic forecasts show that containerization would increase its share of general cargo traffic, rising from the present 8% of traffic to 25% in 1990. Total container movements would increase from 200,000 TEU at present to about 420,000 TEU in 1989 and 740,000 TEU in 1992, an annual increase of about 181. The detailed port by port traffic forecasts shown in Annex 2, Table 5 indicate that after the introduction of the new facilities in 1988, residual general cargo would cease to increase in most ports, remaining at about 10.5 million tons annually. D. Project Benefits General 4.17 The main benefits accruing to port users following the introduction of container handling facilities include savings in ship service time and reductions in cargo handling costs. Similarly, dredging of the Izmir port will provide access for larger and more economical vessels thereby providing further reductions in ship demurrage costs. These savings are ultimately passed onI to producers and consumers through lower sea freight rates and port handling charges. The project would have a marked effect on cargo handling rates on cargoes otherwise handled as gen.eral cargo, with major reductions in the average time vessels spend at the berth and savings in port labor costs. Other benefits might include reductions in potential congestion in the ports, with benefits accruing either in the form of savings- in ship waiting time or avoided construction of additional general cargo facilities. Port operating statistics for 1983 indicate that ship waiting time reached high levels at three ports--Mersin, Iskenderun and Trabzon-but this was due to a combination of inadequate pre-planning of ship arrivals and berthing, unusual peaks in transit traffic, and ongoing berth construction programs (Annex 3, Table 1). Moreover, with improvements in productivity following the major equipment renewal program under the 1980-84 Fourth Development Plan and the recent construction of berth facili- ties at the four projects ports, originally for general cargo purposes, it is anticipated that ship waiting time would remain at acceptable levels during the next five to seven years. Benefits related to reduced port congestion have not therefore been included in the analysis. Similarly, other benefits such as net reductions on cargo losses, savings in packaging costs, reductions in transit times and the value of increased security, have not been assessed. By limiting therefore the quantification of benefits to ship service time and handling cost savings, the evaluation has understated total benefits and, therefore, the rate of return. Main Assumptions 4.18 The following describes the main parameters and assumptions used in the economic evaluation: further details on each of the parameters used in the analyses are shown in Annex 3. (a) Ship Costs. Two ship types bave been selected as representative of those normally employed on general cargo traffic to and from Turkish ports. Currently ships on the Mediterranean routes are in the 3,000-7,000 DWT category, while smaller ships may be employed in the Black Sea and sometimes  -36- larger ocean-going vessels are engaged for long distaa;ce traffic. On balance a 5,000 DWT ship has been taken as representative, with an estimated opportunity cost at port of US$4,660 per day. For container ships, it is expected that most will be multi-purpose vessels in the 300 to 800 TEU range, handling both containers and Ro-Ro trailers. Again, smaller vessels are expected in the Black Sea while large third generation vessels may appear at Mersin. A 400 TEU capacity ship has been chosen as representative with an opportunity cost at port of US$7,170 per day. (b) Cargo Handling Rates - Ships' Time. The main basis of the economic analysis lies in estimating the time taken to load and unload cargoes in the "with" and "without"t project scenarios and the corresponding savings in ships time. Calculations of ship service time are based on an analysis of conventional cargo handling rates in Turkish ports as well as expected rates with modern facilities. Conventional general cargo handling rates currently range from 270 to 720 tons per day in the project ports. However, some improvements in these rates are expected following the implementation of the Second Port Project (Loan 1741-TU) and a rate of 800 tons per day has been adopted as a conservative assumption for the economic evaluation. Container handling rates are assumed to be 7 TEU per hour using ships' gear or conven- tional facilities, 20 TEU per hour for a standard container crane and 15 TEU per hour for a lightweight container crane, with modern container cranes usually working in pairs. (c) Labor Costs. Cargo handling costs have been estimated based on actual labor costs provided by TCDD, taking into account typical gang sizes required for various operations. Handling costs for break-bulk general cargo are estimated at US$2.70 per ton, while containers handled with conventional equipment would provide an equivalent cost of US 80 cents per ton. Handling costs with modern facilities would be on the order of US 30 to 40 cents per ton. Because of uncertainties as to whether labor savings will be achieved in full through redeployment to other port activities or other sectors of the economy and through attrition, only half of the labor cost savings have been included in the evaluation. Distribution of Benefits 4.19 About two-thirds of the forecast container traffic in 1990 will be related to Turkish foreign trade, with the remainder concerned with transit traffic. Currently about 40% of Turkish foreign trade, excluding petroleum, is handled by Turkish vessels, but plan targets call for this share to increase to about 60% by the end of the Fifth Development Plan in 1989. It is expected therefore that about half of the savings in ship service time related to Turkish foreign trade will accrue directly to Turkey. Of the savings accruing to foreign ship owners, it is expected that a large share of these savings will ultimately accrue to Turkey through much slower increases in sea freight rates than would have otherwise occurred. These savings would be reflected in the lower cost of imports and the increased competitiveness of exports. Although some of the savings in ships' service time would be retained by foreign shipping lines, these benefits have been included in the evaluation as a surrogate for benefits accruing to Turkey in other forms. These benefits would include foreign exchange earnings on  CURRENCY EQUIVALENTS (as ot January 1, 1985) Currency Unit = Turkish Lira (TL) TL 1 = 100 kurus (krs) US$1 = TL 428 TLI = US$ 0.002336 TL 1,000,000 = US$ 2,336.4 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles 1 kilogram (kg) = 2.20 pounds (lbs) FISCAL YEAR (of TCDD and TDI) January 1 to December 31 GLOSSARY OF ABBREVIATIONS DB - Turkish Maritime Bank (Denizcilik Bankasi) DLH - General Directorate of Railways, Ports and Airports Construction, Ministry of Public Works. (Demir Yollari Limanlar Hava Meydanlari) I)WT - Deadweight Tonnage GDP - Gross Domestic Product IG3 - International Competitive Bidding ILO - International Labour Organisation I'AFRA - Ministry of Agriculture, Forestry and Rural Affairs MUF - Ministry of Finance M-OT - Ministry of Transport iPI - National Ports Institution NPMP - National Ports Master Plan NTMP - National Transport Master Plan PCC - Project Coordination Committee SPO - State Planning Organization TCDD - Turkish State Railways (Turkiye Cumhuriyeti Devlet Demir Yollari) TCL - Turkish Cargo Lines TDI - Turkish Maritime Organization 1'EU - Twenty-foot Equivalent Units THY - Turkish Airlines (Turk hava Yollari) TSM - Transport Sector Memorandum UJNDP - United Nations Development Programme Demirliman - TCDD Ports Establishment (Limanlar Izmetmesi Muessesesi) Denizliman - TDI Ports and Vessel Salvage Establishment (Liman Isletme ve Gemi Kurtama Muessesesi)