Turkey - Privatization Implementation

 ICRR 10665 Report Number : ICRR10665 ICR Review Operations Evaluation Department 1. Project Data : Date Posted : 08/10/2000 PROJ ID : P009102 OEDID: OEDID : L3728 Appraisal Actual Project Name : Privatization US$M ) Project Costs (US$M) 129 34.4 Implementation Country : Turkey Loan/ US$M ) Loan /Credit (US$M) 100 30.0 Sector, Major Sect .: Privatization , Public US$M ) Cofinancing (US$M) 0 0 Sector Management L/C Number : L3728 FY ) Board Approval (FY) 94 Partners involved : Closing Date 06/30/1998 12/31/1999 Prepared by : Reviewed by : Group Manager : Group : Elliott Hurwitz Luis Ramirez Ruben Lamdany OEDCR 2. Project Objectives and Components a. Objectives Objectives were to: promote efficiency and enhance productivity and further development in Turkey's private sector by providing assistance to accelerate privatization, and build institutional privatization capacity in conjunction with the accelerated program; and mitigate the impact of SOE downsizing on displaced workers and their families . b. Components (1) Technical and financial support for privatization, including management of SOE liabilities pursuant to privatization; (2) development of a social safety net, including labor adjustment programs and studies to underpin policy reform on social security and pensions; (3) preparation of a regional development program for the Zonguldak region (where a high concentration of layoffs was expected ); (4) analytical work to facilitate further privatization, including regulatory frameworks for telecommunications and private provision of infrastructure . c. Comments on Project Cost, Financing and Dates Of the envisioned loan of US$100 million, $30 million was disbursed, and US$70 million was canceled. The project closed on December 31, 1999 (although most activity was completed well before this date ), compared with an original closing date of June 30, 1998. The loan was amended 3 times: in 1997, 1998, and 1999. 3. Achievement of Relevant Objectives : The main objectives of the loan were not achieved, and little of value was actually realized . While a few small enterprises were privatized, no large enterprises were privatized as planned. Privatization transactions , although prepared, were not consummated. Efforts to build popular support for privatization were not well timed, and became submerged in a general election campaign . Treasury staff were trained in enterprise financial restructuring , but with few actual transactions it was not clear how effective this training was . Although significant analytical work was performed on the Zonguldak Regional Plan and for private participation in infrastructure, these efforts were never completed. 4. Significant Outcomes /Impacts : There were no significant outcomes or impacts . 5. Significant Shortcomings (including non -compliance with safeguard policies ): Main shortcomings were the failure to achieve all major objectives (see section 3, above). The major reasons for lack of progress were overly -ambitious and overly-complex project design, ineffective institutions, and lack of sufficient government commitment. Available technical assistance that might have somewhat facilitated privatization was not used effectively. In addition, the Government was expected to develop a policy for settling the environmental liabilities of the SOEs privatized, but this was not done . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev .: Partial Modest Ratings are substantially equivalent .  Sustainability : Unlikely Unlikely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Deficient Unsatisfactory Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : Privatization is a highly political process; the project did not take sufficient account of the political economy of change. Before undertaking an ambitious project such as this, the Bank should assure that implementing agencies have the required technical, financial, and legal capabilities . A successful privatization agency should also have adequate access to decision -making processes concerning large SOEs, and also needs to have (or should contract for) requisite transactional skills . Loan covenants should not be designed to be dependent on changes in legislation or other measures beyond the control of the implementing agencies . 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : ICR is frank, provides good evidence to document assessments, and tells the project's story effectively .