Turkey - Bati Raman Enhanced Oil Recovery Engineering Project

Document of The World Bank FILE > P FOR OFFICIAL USE ONLY Report No. P-2406-TU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO TURKIYE PETROLLERI ANONIM ORTAKLIGI WITH THE GUARANTEE OF THE REPUBLIC OF TURKEY FOR THE BATI RAMAN ENHANCED OIL RECOVERY ENGINEERING PROJECT November 8, 1978 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 Currency Unit - Turkish Lira US$ 1.00 - 25 TL (from March 1978) UNITS AND MEASURES 1 Metric Tonr (MT) - 1.1023 US Short Tons 1 Megawatt (MW) - 1000 Kilowatts ABBREVIATIONS API - American Petroleum Institute gravity classification CLA - Convertible Lira Accounts CO2 - Carbon Dioxide EOR - Enhanced Oil Recovery GDP - Gross Domestic Product MT - Metric Ton MTA - Mineral Research Institute MW - Megawatts SEE - State Economic Enterprise TOE - Tons of Oil Equivalent TPAO - Turkiye Petrolleri Anonim Ortakligi TPY - Tons Per Year FISCAL YEAR TPAO January .1 - December 31  FOR OFFICIAL USE ONLY TURKEY - BATI RAMAN ENHANCED OIL RECOVERY ENGINEERING PROJECT LOAN AND PROJECT SUMMARY Borrower: Turkiye Petrolleri Anonim Ortakligi (TPAO) Guarantor: Republic of Turkey Amount: $2.5 million equivalent, in various currencies Terms: Repayable in 10 years, including 2 years of grace, through semi-annual installments at 7.35 percent per annum. The loan would be refinanced under any future loan which the Bank might provide for the Bati Raman Pilot Project, resulting from the work financed by the proposed loan. Project Description: The project includes: (a) a comparative feasibility study of various possible enhanced oil recovery methods applicable to the Bati Raman reservoir, based on its geological structure, reservoir rock characteristics and fluid properties, to determine the most technically and economically appropriate enhanced recovery technology; (b) based on the findings of the comparative feasibility study, the development of design parameters and esti- mated capital cost of the recommended pilot plant, to be followed-up by detailed engineering thereof includ- ing the preparation of working drawings, technical specifications and tender documents; (c) obtaining additional core and fluid samples for the reservoir, including provision of specialized equipment and dtilling supervisory services, geological evalua- tion of reservoir on the basis of new core sampling; and (d) specialized training abroad in enhanced oil recovery techniques, geological evaluation and petroleum reservoir engineering techniques, including simulation of reservoir operations. [ This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  - 11. - Project Cost Estimates: The estimated cost of the project is as follows: --------US$ Million-------- Local Foreign Total (1) Comparative feasibility study 0.20 1.00 1.20 (2) Engineering design for pilot plant 0.15 0.65 0.80 (3) Core sampling equipment, materials and advisory services 0.05 0.50 0.55 (4) Overseas training 0.05 0.10 0.15 Subtotal 0.45 2.25 2.70 Contingencies 0.05 0.25 0.30 Total 0.50 2.50 3.00 Financing Plan: --------US$ Million------- IBRD - 2.50 2.50 TPAO 0.50 - 0.50 Total 0.50 2.50 3.00 Estimated Disbursements: ---------US$ Million------ Bank FY 1979 1980 Annual 1.1 1.4 Cumulative 1.1 2.5 Consultants: Proposals were received from 12 firms, having international experience in this specialized field and whose inclusion in the list was satisfactory to the Bank. Following evaluation of these proposals, with which the Bank concurred, a firm has been selected and contract negotiations are now in progress.  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO TURKIYE PETROLLERI ANONIM ORTAKLIGI FOR BATI RAMAN ENHANCED OIL RECOVERY ENGINEERING PROJECT 1. I submit the following report and recommendation on a proposed engineering loan of $2.5 million equivalent to Turkiye Petrolleri Anonim Ortakligi (TPAO), with the guarantee of the Republic of Turkey, to help finance the foreign exchange cost of a comparative evaluation study of enhanced oil recovery techniques to be applied to the Bati Raman oil field and detailed design and engineering of a pilot plant for testing the chosen method. The proposed loan would have a term of 10 years, including 2 years of grace, with interest at 7.35 percent per annum. PART I - THE ECONOMY 1/ 2. An economic report (No. 1272-TU) entitled "Country Economic Memo- randum - Turkey" dated October 21, 1976, was circulated to the Executive Directors on November 2, 1976. The economic situation subsequently deterio- rated, culminating in a serious balance-of-payments crisis and rapid infla- tion. This section analyzes these developments in the Turkish economy. (A fuller account may be found in the extended economic annex to the Report and Recommendation of the President on the Erdemir Stage II Steel Project, dated June 15, 1978.) It also describes the short and medium-term policy initia- tives of the new Ecevit Government, which assumed power in January 1978, and cautiously assesses future economic prospects. Structure and Performance 3. In most respects, the record of Turkish economic development over the last two decades has been good. As the result of a strong commitment to rapid growth and modernization, real output has grown, on average, by more than 6 percent per annum. Great strides have also been made towards meeting the basic needs of the population in such areas as education, health care, water supply, and rural roads. This impressive economic progress, however, has been punctuated (in 1958, 1970 and most recently in 1977) by severe balance-of-payments crises. The recent crisis has been the product partly of extraneous factors and partly of Turkish development strategy itself, which paid insufficient attention to the structural weaknesses of the economy and perhaps exacerbated some of them. 4. The emphasis which successive governments have laid on industrial- ization has been reflected in a doubling of the share of the industrial sector in total output between 1955 and 1977. It has also resulted in comparative neglect of agricultural development, which has, in addition, been hampered by inappropriate subsidy and pricing policies. Moreover, although some parts 1/ This Part is essentially the same as that in the President's Report No. P-2374a-TU dated October 19, 1978 in the Program Loan for Turkey.  - 2 - of Turkish industry are efficient, and more have the potential to become so, a strong emphasis so far on sophisticated capital-intensive technology has resulted in high-cost production in certain sectors. Unselective protection against competition from imports has also inhibited the development of an industrial structure well-suited to Turkey's comparative advantages in terms of location, natural resources and labor availability. One important consequence of this, in the context of a foreign trade strategy which has emphasized import-substitution, has been that Turkey has so far been unable to develop a strong industrial export base, and has relied mainly instead on its traditional agricultural exports (supplemented by workers' remittances) to finance the imports of materials and capital goods needed for its ambitious modernization effort. This pattern of trade has been a fundamental cause of the difficulty which Turkey has periodically experienced in reconciling rapid growth with a viable external payments position. Production and Employment 5. The rate of growth of production in Turkey, unlike that in many other countries, remained fairly high during the recent world recession. The average annual real rate of GDP growth in the period 1970-77 was 7.2 percent. Continued rapid growth was made possible by a rising public sector deficit, which provided a stimulus to aggregate demand that more than offset the depressing effect of sluggish exports and the increased outflow of pay- ments for oil and other imports. As a result, the growth of output was con- strained not by demand, but by supply. Favorable weather and improved inputs led to an average annual rate of growth of agricultural output of about 4.4 percent in the period 1970-77, while industrial output grew at about 10 percent--principally as a result of the sustained high level of industrial investment. The general pace of investment in Turkey did not slacken during the world recession. On the contrary, largely as the result of an intensified public investment drive from 1975 onwards, the share of fixed investment in GDP increased from under 19 percent in the period of the Second Plan (1968-72) to over 20 percent in the period of the Third Plan (1973-77). 6. The favorable performance of Turkish production during the 1970s was not matched by that of employment, which has never been at the forefront of the objectives of successive governments. Unemployment and underemployment were relatively high, and were about 12 percent of the labor force in 1970, and rose to over 13 percent in 1977. The underlying causes of this problem, which has been aggravated by a sharp reduction in the rate of emigration since 1973, are a high rate (2.5 percent per annum) of population growth, and the adoption of relatively capital-intensive methods of production in both the modern sectors of agriculture and industry. The comparatively slow rate of growth of productive employment has had an adverse effect on the distribution of income in Turkey, although basic needs are largely met. The two main causes of this inequality, however, are the large gap between agri- cultural and non-agricultural labor productivity, and the wide dispersion of farmers' incomes. 7. In 1977, the growth rate of real GDP declined to 4.4 percent. This was in part a reflection of a virtually zero growth rate of agricultural  -3 - output due to bad weather conditions and other sectoral problems. In addition, the growth of non-agricultural output was adversely affected by a decline in the rate of capacity utilization, due to difficulties in effecting the foreign exchange transfers necessary to purchase imported inputs, shortages of elec- tricity, shortages of domestically produced materials of adequate quality, and labor disputes. Balance of Payments 8. The most prominent feature of the balance of payments crisis of 1977 was the large resource gap, which amounted to almost $4 billion, or 9 percent of GDP. But this did not arise overnight; the resource gap had been widening steadily since 1973, when it was only $0.6 billion, or 3 percent of GDP. 9. One aspect of this marked deterioration in Turkey's external trading position was a very rapid increase in imports, which nearly tripled in value between 1973 and 1977, when they reached $5.8 billion. Approximately half this increase was due to rising world prices, including a four-fold rise in the price of oil, which currently accounts for about a quarter of the total import bill. The other half of the increase was due to a steep rise in the volume of imports, which grew at about 15 percent per annum, roughly double the growth rate of real GDP. 10. This high import propensity has been characteristic of Turkey in the 1970s, and may be seen partly as a "catching up" phenomenon. In 1970, after a decade of strict import rationing, the ratio of imports to GDP in Turkey was only 7 percent, about half the average for countries of its size and stage of development. By 1977, after several years of liberalization of import restric- tions, this ratio had reached 14 percent. In concrete terms, this process was associated with a great increase in the use of imported fertilizer in agricul- ture, and changes in industrial structure and technology, which increased the dependence of the rapidly growing industrial sector on imported inputs. After 1973, the rate of growth of imports was accelerated by: a fall in the local currency price of imported goods relative to domestic output due to a rate of inflation in Turkey which exceeded the international inflation rate by more than the rate of depreciation of the Turkish lira against other currencies; absolute shortages of domestically produced goods; an increase in the share of fixed investment in total expenditure; and possibly also a tendency at times to build up imported stocks in anticipation of devaluation. 11. From 1970 to 1973, the rising propensity to import was more or less offset by rapid expansion of exports--particularly manufactured exports such as cotton yarn and fabric, leather products and processed food--and worker's remittances. In value terms, total exports increased from $588.5 million in 1970 to $1,317 million in 1973, or by 31 percent per annum. Manufactured exports increased even faster--from $100.3 million in 1970 to $443.4 million in 1973, or by 64 percent per annum. In volume terms, total exports during 1970-1973 increased by an average annual rate of 22 percent, a very high rate indeed. The increase in worker's remittances was even more dramatic--up from $273 million in 1970 to $1,183 million in 1973, reaching a peak of $1.4 bil- lion in 1974. Since 1973, however, export performance has been weak and  - 4 - remittances also declined. The value of exports rose by 33 percent between 1974 and 1977, when it attained $1.8 billion, mainly due to rising world prices; in volume terms, exports showed no upward trend. Thus by 1977, merchandise exports were only one-third as large as imports, and the tourism balance was negative. 12. The poor showing of exports between 1974-77 is in part attribut- able to the world recession. This not only affected industrial exports; it also depressed Turkish agricultural exports such as hazelnuts, raisins and industrial raw materials (cotton and tobacco). The difficulties caused by the world recession were enhanced by two other factors: (a) agricultural support prices bore little relation to world prices, and thus failed to provide incentives to farmers to increase production of exportable commodi- ties; (b) this problem was compounded by a general neglect of agricultural development, buoyant domestic demand for agricultural produce, and ineffective administration of agricultural export sales. More importantly, the develop- ment of industrial exports, which at present account for only 7 percent of the value of industrial output, was stifled by a more rapid increase of production costs in Turkey than in her trading partners, which was not sufficiently offset by periodic small devaluations of the lira. As a result, exporting, which had been lucrative for a brief period in the early 1970s, became much less profitable, and potentially exportable production was diverted to the booming and highly profitable domestic market. 13. The current account balance moved from a surplus of $0.5 billion in 1973 to a deficit of $3.6 billion in 1977, because of a rapid deterioration in trade balance and a decline in workers' remittances from a peak of $1.4 billion in 1974 to around $1 billion in 1977. One important cause of this decline has been the restrictions on immigration imposed by Western European countries in the face of growing domestic unemployment caused by the world recession. The rate at which foreign earnings were remitted also fell sub- stantially. This was caused in part by changes in the composition of the Turkish emigrant population, including an increase in the proportion of workers allowed to bring their families to join them. In part, it also reflected overvaluation of the lira, which induced migrant workers either to hold their savings abroad or to remit them through unofficial channels. 14. The rapidly rising current account deficit was not matched by an increased inflow of medium and long-term external capital. Turkey has delib- erately kept both foreign private investment and private long-term borrowing to a minimum. The gross inflow from official long-term borrowing during 1970-75 stagnated at about $300 million per annum. Initially, this was due to a manageable need for foreign finance, given the tremendous increase in workers' remittances in the early 1970s. Subsequently, it was because of a lack of experience and initiative on the part of successive governments to develop and tap new sources of external borrowing, when faced with a decline in multilateral and bilateral lending on concessional terms. In 1976 and 1977, long-term loan commitments rose sharply, to over $1 billion per annum.  -5- Most of these loans were tied to specific purchases and projects, whose imple- mentation has been slow; thus the level of disbursements increased slowly. Consequently, the overall balance of payments moved from a surplus of $0.9 billion in 1973 to a deficit of $2.4 billion in 1977 and was in part financed by running down the foreign exchange reserves to the tune of $1.5 billion. By the end of 1977, reserves stood at $770 million, equivalent to only one and a half months' imports. A large part of the deficits was financed by various forms of short-term borrowing which by the end of 1977 stood at $6.5 billion. 15. An important source of short-term borrowing was the Convertible Lira Accounts (CLAs), which provided nearly $2 billion, mainly in 1975 and 1976. These are deposits placed with Turkish banks by foreign commercial banks and non-resident Turks, which were guaranteed until recently against exchange rate risk by the Central Bank. Another major source of finance was short-term sup- pliers' credits, partly covered by export credit insurance in the exporter's country. In addition, a swap facility was established with the Bank for International Settlements, and a scheme was implemented whereby the Dresdner Bank takes in time deposits from Turkish workers in Germany, offering high interest rates, and makes the Deutsche Mark proceeds available to the Turkish government, which also pays the interest charges. During 1977, however, foreign lenders became reluctant to roll over the outstanding stock of short- term debt, and even more reluctant to make further substantial loans. The Central Bank was thus driven to delaying foreign exchange transfers on a large scale leading to a substantial accumulation of arrears. This of course made it even harder to obtain credit by conventional means. Resource Mobilization and Monetary Developments 16. The deterioration in the balance of payments position can also be viewed partly as a reflection of inadequate efforts at demand management and domestic resource mobilization, especially in the public sector. The public sector deficit rose steadily from TL 6 billion (2 percent of GDP) in 1973 to TL 77 billion (9 percent of GDP) in 1977. This substantial increase, which occurred despite a creditable tax performance, was mainly due to a deteriora- tion in the financial position of the State Economic Enterprises (SEEs), and in particular of the operational SEEs, which dominate the transport and energy sectors and account for half the output of mining and manufacturing. Succes- sive governments, in an effort to slow inflation, held the price increases of operational SEEs below the rate at which their already high costs were rising, thus transforming a TL 5 billion profit in 1973 into a TL 20 billion loss in 1977. In addition, the scale of SEE investment was greatly escalated, further widening the gap between public sector savings and public sector investment. Moreover, most of the increased public sector deficit was financed by borrow- ing from the Central Bank, since administered ceilings on interest rates made it hard to attract sufficient purchasers for government bonds. As a result, and despite a large decline in the foreign exchange reserves, the money supply increased rapidly, at an average annual rate of about 30 percent between 1974 and 1977. This was paralleled by a high rate of credit expansion to the private sector.  - 6 - 17. The rate of inflation, as measured by the wholesale price index, declined from 30 percent in 1974 to 10 percent in 1975, but rose to 25 per- cent in 1976 and about 35 percent in 1977, and accelerated in early 1978. There are important cost-push influences on the price level in Turkey, includ- ing a powerful labor union movement and a farmer-oriented agricultural price support policy. But the recent trend has been the result principally of excess demand caused by the enlargement of the public sector deficit, financed by borrowing from the Central Bank, together with the private investment boom which it stimulated. The consequent upward pressure on the price level was aggravated in 1977 by a reduction in the growth rate of real output. The Government's Short and Medium-Term Program 18. The evolving solution to the present problems of the Turkish eco- nomy, both in the short and the medium term, contains three salient elements. First, restraint of domestic demand relative to domestic output, through an increase in domestic savings, public and private, relative to domestic invest- ment. Second, measures that directly boost exports substantially and restrain imports, including the maintenance of competitiveness. Third, increased availability of external finance especially through a substantial increase in the level of medium and long-term borrowing. To accomplish this, the outstanding stock of short-term debts is being rescheduled, converting them into medium-term obligations, and strict control is being exercised over future short-term borrowing. Ultimately there will have to be a considerable restructuring of the economy to rectify imbalances in Turkey's current foreign trade pattern. Recent Stabilization Measures and Short-Term Prospects 19. Certain preliminary steps in the direction of a stabilization policy were belatedly taken by the coalition government of Mr. Demirel towards the end of 1977. But these actions, in most instances, did not go far enough and in any case, came too late. In early 1978, a new government, with a small but working majority in the Parliament, came to power under Mr. Ecevit. It pur- posefully set about taking painful, but essential, economic steps to restore order in the chaotic economic house it inherited and build up the confidence of the international financial community in Turkey's future. It swiftly formulated a comprehensive package of stabilization measures as reflected in the 1978 Budget and the 1978 Annual Program, which formed the basis of a Standby Agreement with the IMF in April. Since then the Ecevit Government has followed up with a series of other measures as discussed below. 20. To raise domestic savings relative to domestic investment, in September 1977 the Demirel government substantially increased a wide range of SEE prices including air and electricity tariffs, as well as the prices of coal, iron and steel. The Ecevit government between March and May, 1978, further increased these and other tariffs and prices, including railroad and shipping tariffs and the prices of non-ferrous metals and petrochemicals. Irrigation charges were also raised. All these together are expected to add TL 23 billion to SEE revenues in a full year. In early September 1978, the  - 7 - Government further increased SEE prices for petroleum and petroleum products and sugar by 80 percent, which is expected to increase revenues by TL 31 billion annually. In addition to these increases, the Government substantially raised the stamp duty on imports, and has proposed to the Parliament, a number of other tax revenue measures, including a large increase in motor vehicle taxes, income and corporation taxes, municipal taxes, ancd other stamp duties as part of a broader set of measures designed to enhance the efficiency and equity of the fiscal system. It is committed to holding down the growth of current expenditures. Its short-term intention as regards public sector investment, is to concentrate on the completion of existing projects and to cut back on new projects, except in the bottleneck energy and ports sectors, and for exports and such basic imported commodities as steel and fertilizer. In these ways, the present Government intends to achieve a marked reduction in the public sector deficit, and in public sector borrowing from the Central Bank. This, in conjunction with other limits on Central Bank lending agreed with the IMF, should significantly reduce the rate of growth of the money supply and the availability of credit, which in turn will help to restrain investment and consumption. This should help significantly dampen domestic demand, especially of industrial goods, and stimulate manufacturers to turn increasingly to exports, which have been made attractive with several new measures announced by the Government (para 23). To reinforce all this, and to mobilize private savings, most interest rates, including those on government bonds and the repatriated savings of migrant workers, have been increased by about 2 percentage points. 21. The Government's efforts to control the public finances and credit expansion appear to be showing slow, but successful, results. In the first quarter of the current fiscal year, the consolidated budget was in surplus by TL 3 billion, as compared with a deficit of TL 11 billion in the corresponding quarter of last year. In the first six months of 1978, the money supply increased by 4 percent, compared with 12 percent in the corresponding period of last year. In the first seven months of 1978, total Central Bank credit increased by 15 percent as compared with 44 percent in the corresponding period of last year. Central Bank credit to the public sector increased by 22 percent, compared with 69 percent in the corresponding period of last year. This credit expansion is broadly within the parameters of the Standby Agree- ment. However the Government and the IMF propose to review these parameters in November. Despite these efforts, the price level (wholesale price index) rose very rapidly in the first quarter of 1978; but in the second quarter, there was a slowdown. Money wages have also been increasing at an annual rate of 40 to 50 percent. But the Government made a "social contract" with the largest trade union federation in July, whereby wage settlements will be no larger than is necessary to compensate for past price increases. This should help inhibit any wage-propelled acceleration of inflation. 22. To discourage imports, and stimulate exports further, the Turkish lira has been devalued against the dollar three times since March 1977, by a total of about 50 percent. In addition, it has drifted downwards with the dollar against other currencies. The effect of the devaluation on imports will be augmented by the increase in stamp duty, and in the short term, also  -8- by government decisions to reduce imports of investment goods. (by over 40 percent in 1978) and give priority to imports of materials and spare parts needed to maintain as far as possible, output from existing installed capacity. In this fashion, the Government's intention was to reduce merchandise imports from $5.8 billion in 1977 to $5.0 billion in 1978 (see para 27). 23. As regards exports, the effects of the recent devaluations were ini- tially partly offset by a reduction of export rebates. In July 1978, these rebates were increased again. As an additional financial incentive, the Gov- ernment has already begun, in various ways, to give priority to exporters in the allocation of foreign exchange for the purchase of imported inputs both for export production, and up to a prescribed limit, for the production of essential goods for domestic sale. Exporters have also been given special permission to finance their import requirements through acceptance credits. The degree of priority accorded to exporters in the allocation of domestic credit through the banking system has been increased and the interest rate rebates on domestic borrowing by exporters have been increased. This has also served as an incentive of particular importance in the current credit squeeze. An inter-ministerial Export Coordination Committee has been set up, to examine and resolve some of the problems faced by exporters. Its efforts have already led to some simplifications of export licensing and registration procedures, and to a decision to provide exporters with certain locally produced inputs, including cotton, at world prices. Export targets have been set for SEEs and Agricultural Sales Cooperatives, and the government has taken prompt steps to dispose of large existing stocks of exportable commodities, notably wheat. Further, as part of its short-term stabilization program, the Government has already taken steps to: (a) restrain domestic demand through its fiscal, monetary and price policies which should help prevent diversion of potential export goods for domestic use; and (b) improve competitiveness through exchange rate adjustments. All these are clearly demonstrative of the Gov- ernment's policy to make export-promotion the keystone in its efforts to restore Turkish creditworthiness. As a result of these efforts and policy measures, in the first seven months of 1978 value of exports increased by 12 percent, as compared with the same period in 1977. For the full year, in 1978 exports are expected to total about $2.1 billion as compared with $1.75 billion in 1977, representing about 12 percent increase in the volume. 24. As regards external financial assistance, the IMF Standby Agreement provided for the immediate withdrawal of about $89 million equivalent in com- pensatory financing. In addition, since the Witteveen facility is not in operation, Turkey was eligible to draw up to 150 percent of its quota, which amounts to about $360 million under the Exceptional Circumstances clause. This entitled Turkey to withdraw $60 million in May 1978. A further drawing of $48 million was made in September, following renewed discussions between the Government and the IMF concerning short-term economic developments and prospects. As *a measure of the Government's determination to restore inter- national confidence in the Turkish economy, it has recently decided to discuss with the IMF the fine tuning of the stabilization package in November with a view to improving further on its targets and achievements, prior to the release of the remaining tranches of about $252 million.  - 9 - 25. The Standby Agreement also put Turkey in a much better position to cope with its large stock of short-term debt, estimated at $6.5 billion at the end of 1977. The exchange rate guarantee on new CLAs with a maturity under one year has been removed, which should stem new inflow of these short-term deposits. Active negotiations are in progress with a consortium of commercial banks, to consolidate about $2.5 billion of outstanding short-term liabilities, including most of the CLAs, arrears on CLAs, and banker's credits, into obligations with a maturity of about six years, including three years of grace, at an interest rate somewhat above LIBOR. In view of the complexities involved, including the reconciliation of the interests of as many as 220 banking institutions who hold CLAs, the progress of this large rescheduling has been understandably slow. It is however expected that mutually satis- factory rescheduling of this amount will be finalized in the near future. To complement this, the Government also recently secured, from the members of the OECD Consortium for Turkey, a rescheduling of service payments due up to,June 1979, on public bilateral debt and private debt guaranteed by bila- teral export financing agencies. According to estimates made by the Consor- tium Secretariat, approximately $950 milli6n in interest and principal payments falling due between January 1977 and June 1979 would be resched- uled. The terms are two years' grace followed by four years to repay for short maturities, and three years grace with five years repayment for longer- term maturities. Interest rates for all maturities are to be negotiated bilaterally. These bilateral negotiations are in progress with all OECD creditor countries, and have been completed with some of them. However, nearly $1 billion of unguaranteed trade debts still remain to be resched- uled: The Government tabled proposals at the last Consortium meeting in June to resolve this matter, which is under the members' consideration. These various restructuring and rescheduling arrangements will substantially ease the debt servicing burden in 1978 and 1979, although of course they will tend to cause a subsequent bulge in debt service payments in the early 1980s. 26. In addition, the Government has pursued other potential sources of medium and long-term external finance, including new sources in the Middle East. In response to this initiative, Germany signed in 1978 program credits of $75 million and project credits of $65 million; Libya provided a program credit of $100 million, and another $300 million spread over five years, to finance oil imports; Iran provided a short-term credit of about $135 million for oil imports; trade agreements of about $320 million have been signed with Romania and Bulgaria, envisaging a positive trade balance; and, finally, a trade protocol has been signed with the U.S.S.R. Another indication of Turkey's change of direction in seeking external financing vigorously, is the engagement for the first time of a group of internationally-reputed invest- ment firms to assist in the rescheduling exercises as well as for tapping new sources of private capital in Europe and the United States. Preparations are far advanced towards the completion of borrowing arrangements for several hundred million dollars, from some of the same commercial banks concluding the rescheduling arrangements for the $2.5 billion of short-term debts. 27. In March 1978, the new Ecevit Government developed a balance of payments outlook for 1978, based on economic stabilization measures and the  - 10 - anticipated inflow of foreign funds, on which the IMF's Standby Agreement was predicated. However,' it now appears that the levels of exports, imports and workers' remittances will be lower than those envisaged at that time. While 1978 exports are likely to be some 20 percent above the 1977 level and should total $2.1 billion, they will still be below the $2.6 billion level envisaged at the time of the Standby Agreement. Similarly, workers' remittances have not shown the resurgence anticipated at that time, and are likely to amount to $800 million in 1978. Considering the projected inflows of capital, including the expected disbursements of medium-term funds from existing commitments (mostly project credits) and assuming that part of the new comercial bank credits now being arranged will be forthcoming before the end of 1978, it is estimated that 1978 imports can reach a maximum of only $4.4 billion, rather than $5 billion anticipated at the time of the Standby Agreement. Should new credits not materialize up to the anticipated levels, then this would be inevitably reflected in a lower level of imports in 1978. The balance of payments in 1979 is necessarily harder to project. However, based on cautiously optimistic assumptions concerning exports and workers' remittances, and reasonable expectations of the capital inflow, realization of a volume of imports 4 percent higher than in 1978, would entail a foreign exchange gap of $1 billion. Medium-Term Policies and Prospects 28. The Third Five Year Plan period ended in 1977. Preparation of the Fourth Plan was suspended for one year in view of the economic crisis, and now the Plan will accordingly cover the years 1979 through'1983. The Fourth.Plan Strategy document was approved by the Council of Ministers in mid-August after a month of intensive discussion and revision. The Plan itself should be final- ized by late 1978 and submitted to Parliament thereafter. 29. The most important feature of the strategy, which is in sharp con- trast to all three previous Plans, is the strong emphasis on the balance of payments, and in particular on 'the promotion of exports. The export thrust is one of the cornerstones of Government's medium-term development strategy, whose success will be crucial to the restoration and maintenance of Turkey's creditworthiness in the medium-term future. 30. The Government's objective is to increase the volume of merchandise exports by a factor of almost two and a half between 1979 and 1983. This implies a real growth rate averaging around 18 percent per annum during the Plan period. This is expected by the Government to be achieved broadly, in the following manner. The volume of agricultural exports is expected to grow at an annual rate of 5 percent, and-of mineral exports is expected to decrease. Most of the increase in exports, however, is expected to come from manufactured products, whose volume is expected to grow at an average annual rate of over 30 percent starting from an expected level of $650 million in 1978. About 40 percent of the planned increase in manufactured exports is expected to come from food and beverages, textiles and clothing, and leather products; another 40 percent from intermediate goods such as rubber and plastics products, chemicals, cement, glass and ceramics, and basic metals; the remaining 20 percent is expected to consist of consumer durables, capital goods, and other products of the metal-working industries.  - 11 - 31. To achieve these export targets, several measures are under active consideration. In recognition of the need to make exports both profitable and competitive on world markets, the Government intends to pursue a more rational exchange rate policy than its predecessors, including a more rapid response to differences between the rates of inflation in Turkey and in her trading partners. An export promotion scheme and an export promotion agency are being considered. In addition, it intends to study the effects on export incentives of the existing system of protection with a view to making appropriate changes when the balance of payments situation permits, and to bring the relative sup- port prices of different agricultural commodities more closely into line with relative world prices. There will also be a drive to increase invisible exports, particularly earnings from transportation, tourism, and civil engineering contracts abroad. 32. The other targets, as stated in the Fourth Plan Strategy document, include an average annual real GDP growth rate of 8 percent, based on a 5 percent growth rate in agriculture and a 12 percent growth rate in industry. The unemployment rate is expected to remain unchanged. Real fixed investment is expected to grow at an average annual rate of 12 percent; 44 percent will be allocated to industry, 44 percent to the service sector, and 12 percent to agriculture. Gross domestic savings are expected to rise from 16 to 21 per- cent of GDP during the Plan period, implying a marginal savings ratio of 35 percent. The main contributor to this rapid growth of savings is expected to be the public sector, whose revenues are expected to increase in real terms at an average annual rate of 13 percent, as compared with a real growth rate of 9 percent for public consumption. 33. If the export drive is successful and imports are appropriately restrained, and assuming modest growth of workers' remittances, it should be possible, despite an increasing burden of interest charges on rescheduled debts to keep the balance of payments current account deficit to below $2.0 billion dollars per year during the Plan period. To finance these deficits, and to meet the need to amortize considerable amounts of existing debt, it will also be necessary for the government to continue its efforts to achieve a much higher level of medium and long-term borrowing than in the past, as regards both commitments and disbursements. But this depends on the assess- ment of Turkey's creditworthiness, which in turn hinges on a successful export effort. 34. The extensive short-term borrowing of the past three years has greatly increased Turkey's external debt, has adversely affected its pre- viously rather attractive maturity structure, and has caused a sharp rise in debt service payments. At the end of 1977, the country's total external indebtedness amounted to approximately $11.2 billion, of which $0.5 billion was private unguaranteed medium and long-term debt, and $4.2 billion was public or publicly guaranteed medium and long-term debt. Of this, about one- third was held by international organizations, mainly the Bank ($0.7 billion, plus $0.6 billion committed but undisbursed) and the European Investment Bank; and about one-half by foreign governments and government agencies, notably those of the United States, West Germany, Canada and the Soviet Union.  - 12 - 35. The remaining $6.5 biilion of Turkey's total external debt at the end of 1977 consisted of short-term liabilities of various sorts. If the consolidation arrangements currently under negotiation with the consortium of commercial banks and creditor countries are successful, about $3.6 billion of this will be converted into medium and long-term debt. These consolidation arrangements consist of: (a) about $2.5 billion to be rescheduled by commer- cial banks (para. 25); (b) guaranteed suppliers credits of abo,: $400 million under the terms of the OECD sponsored agreement of May 1978 (para. 25); (c) another $100 million of short-term credits to be refinance' by CMEA countries; (d) refinancing of $350 million of oil credit owed to Iraq _or which agreement was recently concluded; and (e) possible commercial refinancing of another $250 million. 36. The external debt management initiatives of the Government already finalized, or well on their way to finalization, should help restore a more attractive maturity structure to the Turkish external debt by transforming a good portion of the short-term liabilities into medium-term obligations. How- ever, a relatively high but manageable debt service ratio over the medium-term must be anticipated as a result of the large short-term debts acquired in the last 2 to 3 years and the terms finalized or likely to be finalized for the above-mentioned reschedulings. In 1977, debt service payments, including interest on short-term debt, amounted to 20.2 percent of exports of goods and non-factor services plus workers' remittances. In 1978, after making allowance for the rescheduled service payments, this ratio is likely to ris? to around 28 percent. In subsequent years it will increase further, since Turkey will have to take on new borrowings to maintain sound economic growth. Taking this and the expected terms of the rescheduling into account, the debt service ratio is likely to peak in the early 1980s at a high level of about 40 percent. This, however, should represent the culmination of the financial consequences of the present crisis, and should be manageable before the ratio declines thereafter, provided the export drive is sustained. Thus although the balance of payments situation will remain tight in the medium-term future, given sound economic and fiscal policies and careful debt management which the new Government shows determination to pursue, Turkey continues to have a substantial borrowing capacity for medium and long-term funds, and remains creditworthy for Bank financing. PART II - BANK GROUP OPERATIONS IN TURKEY 37. Prior to 1970, Bank assistance to Turkey was small and intermittent. The 1970 stabilization program, and the consequent improvement in the economic position of Turkey, especially in the balance of payments, enabled Bank Group lending to be established at a higher level on a continuing basis. To date, the Bank and IDA have lent $1,811 million to Turkey through 53 lending opera- tions (or 47 projects, since both loans and credits were provided for some projects), including 14 IDA credits totalling $178 million. Sixteen of these operations have been in agriculture and rural development, including multi- purpose projects, nineteen in industry including DFCs, ten in power, and the  - 13 - rest in urban development, transportation, education and tourism. Agriculture and rural development account for 28 percent of the funds lent, industry and DFCs for about 37 percent and power for about 21 percent. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of September 30, 1978, with notes on the execution of ongoing projects. 38. Implementation of projects has been satisfactory in the private sec- tor, but much less so in the public sector where significant delays resulted from political uncertainty, limited coordination among agencies, staffing problems and related administrative delays. Disbursements have consequently been slower than expected. To improve this situation, the Government and the Bank in June 1975 initiated joint reviews to identify and resolve key bottle- necks impeding satisfactory project implementation. So far, six such reviews have taken place up to the end of 1977. The results have been mixed, with improvements having occurred in administrative areas, e.g., training programs and speeding-up of disbursement actions, but with modest impact on key policy problems, whose resolution has been considerably delayed or prevented up to now by frequent changes in previous coalition governments. Loan disbursements as of September 30, 1978, amounted to about 69 percent of appraisal estimates. 39. A comprehensive analysis of the main sector policy constraints which lay at the root of inadequate project implementation was carried out with the new Government in March 1978, and further discussed during my meetings with the Prime Minister and other key ministers in April 1978. It is anticipated that the new coordination mechanism for Bank projects being established in Turkey following these discussions, will be able to take effective steps to improve implementation of on-going projects, accelerate disbursements further, and thus provide a sound basis for expanding the Bank's future contribution to Turkey's development. Disbursement targets and changes in (or reasonable interpretations of) those loan covenants which are difficult to implement, given the country's laws and practices, were reviewed in June 1978 with the new Turkish coordination team. This team is also setting up monitoring proce- dures for achieving disbursement and implementation targets. The preparation work and analysis done by this team prior to the June discussions were thorough and realistic, unlike the past. They provide clear room for hope that the new Government will be gradually able to achieve improvements in performance. The sector policy perspectives outlined by the new Government, the actions already initiated since coming to power, followed by efforts on the part of the admin- istration and by Cabinet decisions to remove some of the bottlenecks, give room for cautious optimism that project performance will take a turn for the better and strengthen the Bank's activities in Turkey. 40. Bank lending has so far been mainly directed at supporting Turkish efforts to improve: (a) income distribution and the level of living stand- ards, through rural development efforts, urban planning, and increased employ- ment and income opportunities; (b) the long-term capacity to earn or save foreign exchange, through promotion of industrial and agro-industrial exports and tourism; (c) lagging public sector saving, through the encouragement of improved management and financing of the investments and operations of key  - 14 - SEEs; and (d) institution-building in key public services, through selective assistance for infrastructure. In the light of the Government's program, which will be progressively refined as the Fourth Five Year Plan (1979-83) takes shape by the end of this year, it will be necessary for the Bank to review jointly with the Turkish authorities how best its lending and technical assistance can meet the above objectives, without facing the policy and insti- tutional obstacles encountered in the past. Pending the outcome of this review, which will be carried out in the coming months, it is proposed to continue to devote the Bank's development efforts to certain key sectors, of which agriculture and industry are the most important. In agriculture, emphasis is being put on rural development, strengthening of agricultural credit mechanisms, and development of export-oriented production activities like fruits and vegetables, and livestock products. In industry (including DFCs), promotion of exports and employment, together with the gradual strength- ening of the SEEs are the key tasks; hence this sector will also receive significant support. This program is supplemented by projects in power, urban development and transportation. 41. An Imports Program Loan was approved by the Board earlier this month. Other loan proposals being processed for presentation to the Execu- tive Directors in this fiscal year, include Port Rehabilitation, a Second IGSAS Fertilizer project in Central Anatolia and a Grain Storage project. Projects under preparation, which should materialize in early FY80 and there- after, include in agriculture: rural development in Erzurum, fruit and vegetable exports, seed production and livestock development; in industry: further assistance to TSKB - including for exports and small scale industry, and modernization of the private and public sector textile production; in urban development: sites and services, as also sewerage development in Istanbul; and in power: hydroelectric facilities in Cukurova. 42. At the end of 1977, the Bank Group's share of Turkey's medium and long-term external debt (outstanding and disbursed) was 15 percent; its share of Turkey's estimated total external debt (including short-term obli- gations) was about 6.3 percent. The expected conversion of a large part of this short-term debt into medium and long-term debt will cause the Bank's share of medium and long-term debt to fall sharply, to around 10 percent by 1980. Thereafter, assuming the currently projected increase in Bank lending, the share would increase. The Bank's share of service payments on medium and long-term debt is expected to follow a similar path, dropping from 11.7 percent in 1977 to about 8 percent in 1980, but rising thereafter. 43. IFC has invested in the production of synthetic yarns, pulp and paper, glass, aluminum, iron .and steel products, and tourism, and has an investment in the largest private development finance company, TSKB. As of September 30, 1978, gross IFC commitments totalled $158 million, of which $73 million were still held by IFC. In October, IFC lent $2.15 million to help finance the production of motor bicycle engines. The Corporation is currently investigating additional investment opportunities in the industrial sector, including piston rings and cylinder liners, glass, and possibly aluminium products.  - 15 - PART III - THE OIL AND GAS SUB-SECTOR Background 44. The share of crude oil in Turkey's overall energy requirements has increased sharply since 1960 from 20 percent to 54 percent. Natural gas has not, as yet, formed any significant part of Turkey's total energy consump- tion. At the same time, the very limited domestic production of oil, which had increased in the early sixties, started to decline after 1969 from a peak annual production of 3.6 million tons to 2.7 millions tons by 1977, primarily because producing fields were being depleted. Domestic oil production cur- rently accounts for less than 20 percent of Turkey's overall crude oil requirements of 14.6 million tons. As a result, crude oil imports have increased rapidly to meet internal oil demand. The increased cost of these oil imports, after the 1973 and subsequent escalations in international oil prices, has had a severe and adverse impact on Turkey's balance of payments. In 1977, the oil import bill alone was about US$1.5 billion dollars, out of a total import bill of $5.8 billion. By contrast, the overall export earnings in 1977 were US$1.7 billion dollars, i.e. marginally over the cost of oil imports alone. 45. Following the rise in international prices of crude, the Government has generally striven to replace oil by other sources of energy, wherever technically and economically possible. It has stressed the need to substi- tute lignite and hydropower for oil, in power generation and to encourage the use of coal by industry. Since 1973, production of lignite and hydro- electricity has increased sharply and in part, helped stem the increasing share of petroleum in Turkey's overall energy requirements. However, the scope for replacing future petroleum consumption on a large scale by alterna- tive energy supplies is limited, and even then, can take place only gradually. The Government has also taken fiscal measures to restrain future oil consump- tion. While past rates of growth in oil consumption may have been due to inappropriate pricing policies, the Government increased oil prices sub- stantially, as much as 80 percent, in September 1978. This increase was on top of a large 50 percent increase decreed by the previous cabinet in September 1977. These price increases, in addition to helping mobilize finan- cial resources, should help in restraining the pace of increase in future oil consumption. However, despite these measures and the efforts made to develop indigenous energy resources, Turkey's dependence on imported oil is unlikely to diminish significantly, and will continue to have a significant impact on the country's balance of payments, which is expected to be very tight over the medium-term future. In this context, the Government's efforts to augment domestic oil production by all viable means, through exploration and intensive exploitation through secondary recovery methods, as the proposed project intends to do, make eminent sense. Energy Consumption and Supply 46. Total primary energy consumption in Turkey has increased from about 10.9 million tons of oil equivalent (TOE) in 1960 to about 29.4 million TOE in  - 16 - 1976. This reflects an annual average growth rate of 6.5 percent, while GNP increased at virtually the same rate during the same period. The increase in energy prices slowed down consumption rates in 1974, but growth rates picked up to almost 8 percent per annum since then, again in line with GNP growth rates. On the assumption that high economic growth rates will be sustained, the government has estimated that future demand for energy will continue to increase at an average annual rate of 8 percent per year until at least 1990. While the assumed high rate of economic growth is overoptimistic over the next few years, the increase in energy demand would be still substantial even on the basis of more modest growth targets. Per capita consumption of energy in Turkey in 1975 was approximately 720 kgs of oil equivalent, as compared with a world average of 1,360 kgs, an average for Western Europe of 2,700 kgs, and an average for developing countries of 270 kgs. 47. Four primary commercial energy sources - petroleum, coal, lignite and hydroelectricity - provide about three quarters of total energy supply, with the balance being contributed by two non-commercial sources, wood and animal/plant wastes. The energy supply pattern during 1960-1976 in percentage terms is shown in the table below. TURKEY: PRIMARY ENERGY SUPPLY 1960 1965 1970 1973 1974 1975 1976 -------------------Percentage----------------- Commercial Petroleum 17.8 28.1 41.1 50.8 49.5 50.5 51.5 Hard coal 20.7 18.5 14.6 11.0 11.5 10.0 8.5 Lignite 7.1 8.9 8.9 8.9 10.2 10.1 10.2 Asphaltite - - 0.1 0.5 0.6 0.7 0.6 Hydroelectricity 2.2 3.7 3.9 2.6 2.2 5.1 6.8 Subtotal 47.8 59.2 68.6 73.8 74.0 76.4 77.6 Non-commercial Wood 34.0 26.1 19.6 16.4 16.6 15.1 14.4 Wastes 18.2 14.7 11.9 9.8 9.4 8.5 8.0 Subtotal 52.2 40.8 31.4 26.2 26.0 23.6 22.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 48. The most important trends in the energy supply pattern since 1960 have been the decreasing share of coal and non-commercial energy sources and the increasing share of petroleum, which now accounts for over half of total energy consumption. Until the early 1960s, coal was Turkey's most important domestic commercial energy resource, representing 21 percent of total energy consumption in 1960. This share started declining during the 1960s, partly due to rising costs, which made coal uneconomic relative to crude oil prior to 1973. At the same time, coal reserves are substantial (some estimates indicate over 1.2 billion MT in place of which 0.3 billion MT  - 17 - are classified as proven) and the government plans to raise production sig- nificantly from the present level of 4.6 million MT, primarily to meet the steel industry's requirements. 49. While the share of hard coal in Turkey's energy supply has shown a declining trend since 1960, lignite has been making a gradual, but increasing contribution, particularly in thermal electric power generation. Lignite production in 1976 was 10.5 million MT, compared with an annual production of 2.9 MT in 1960. While the total lignite reserve potential is estimated to be about of 5 billion MT, the quality is low and commercial exploitation may not be economically viable for all of it. Besides such exploitation requires extensive investments and management capacity. Given the capacity of the SEE responsible for coal/lignite development, the development of this resource is likely to be slow at best. 50. Hydroelectric energy's contribution to total energy consumption has been small; in years 1975 and 1976, however, with the completion of large hydroelectric schemes its share has doubled. Turkey's hydroelectric energy potential will continue to be a significant factor in future energy supply. Calculations indicate that approximately 20,000 MW is economic to exploit; nearly 20 percent is developed or under construction. However, hydro poten- tial in Turkey requires massive investments and generation sources are far removed from consuming centers, requiring additional heavy transmission investments. Besides this, given the management and related long-term prob- lems of SEEs dealing with power, the development of this energy resource is likely to be rather gradual. Turkey's nuclear energy raw material reserves are very small, though reserve exploration studies are in progress. 51. Petroleum consumption in 1977 was approximately 14.6 million tons, equivalent to about 300,000 barrels/day of which only 2.7 million tons or 55,000 barrels/day were produced domestically. Amongst petroleum products, fuel oil, which is used primarily for thermoelectric power generation and in the industrial sector, accounts for more than 40 percent of total consumption; diesel oil, used principally in the transportation sector, accounts for a further 35 percent and gasoline for 18 percent. However, given the said prospects and difficulties facing the development of the other energy sources, Turkey's dependence on oil as an energy source must be expected to continue in the foreseeable future. 52. Finally, with increasing industrialization and migration of popula- tion away from the rural areas, wood and wastes sources which contributed more than half of Turkey's energy supply in 1960, have declined to less than a quarter by 1976, a trend that is expected to continue. Organization and Structure of the Oil Sub-Sector 53. The Ministry of Energy and Natural Resources, established in 1963, has official jurisdiction over the development of energy resources in Turkey including petroleum resources. The exploration, development, production, operation and legislative control of petroleum resources (as well as of water,  - 18 - mineral and other energy resources) come under the Ministry and is regulated by the Petroleum Law of 1954. The two most important public sector organiza- tions involved in the development of petroleum resources, and which fall under the jurisdication of that Ministry, are TPAO (see paragraphs under Borrower) and the Mineral Research Institute (MTA). TPAO deals with the exploration of petroleum and natural gas resources, and MTA with that of coal, lignite, asphaltite and radioactive minerals. The latter coordinates its exploration programs with TPAO. MTA's activities in oil exploration are confined to the undertaking and evaluation of geological and geophysical studies, and some drilling activities for TPAO, but it has no responsibility for development or production. 54. Domestic petroleum production is principally in the hands of three producing companies: two foreign oil companies, Shell and Mobil, and the Turkish Petroleum Corporation (TPAO); a fourth producing company, ERSAN, privately owned by Turkish investors, makes up the remainder. The aggregate production of both the Shell and Mobil producing fields, which are located in Siirt District of S.E. Turkey, has declined sharply since 1970. Despite this decline in production Shell and Mobil together still account for approximately 60 percent of domestic output. Shell continues to be the largest single producer with approximately 1.25 million tons in 1976 out of a total domestic production of 2.6 million tons; Mobil produced 0.24 million tons in 1976. TPAO accounts for about one million tons per annum and production from TPAO fields, most of which are also located in S.E. Turkey, has been virtually stable over the last decade. ERSAN exploits a small oil field located in the Gaziantep District of Southern Turkey which, in 1976, produced 13,200 tons i.e. less than 0.5 percent of domestic production. 55. TPAO group owns three of the four existing refineries in Turkey. It refined nearly 11 million tons of crude oil in 1977, accounting for over 70 percent of total crude oil refined in Turkey in that year. The other refinery is a private joint venture in which Mobil, Shell and British Petroleum account for the majority of the capital. The expansion of TPAO group's two existing refineries is well advanced and is expected to be completed in 1979 and 1981 respectively, while actions for setting up a new inland refinery are also in progress. These investments would increase the total refining capacity to 29 million tons by 1982, which is expected to take care of Turkey's refining needs till the middle 1980s. When these refinery capacity expansions are completed, product imports, which are presently needed due to lack of adequate refining capacity and their product mix, may be eliminated. Further expansion will be initiated only in early 1980s, for which TPAO is making preliminary studies for two new refineries, one at Adana (4 million TPY) and Samsun (10 million TPY capacity) on the Black Sea coast. TPAO also owns and operates two oil pipelines: (a) a 400 km pipeline from the oil fields around Batman (the principal TPAO producing region) to Dortyol on the Gulf of Iskerendun; (b) the Turkish portion of a 981 km pipeline system from Northern Iraq to the Turkish mediterranean coast which supplies crude from the Kirkuk field in Iraq. The marketing and distribution of petroleum products is carried out by public, domestic and foreign petroleum companies.  - 19 - Petroleum Exploration Activity 56. Turkey's hydrocarbon potential is considered reasonably favorable, especially in the Siirt Province in Southeastern Turkey, and in offshore coastal areas of the Black Sea and the Aegean Sea; but the probability of finding large accumulations which are commercially exploitable, is regarded as limited. On the basis of past exploration activity and combined geological basin and probability analyses, the country's potential has been variously estimated between 690 million metric tons of oil in place, to more optimistic estimates that have ranged up to 10-15 times this figure. Petroleum reserves, however, on the basis of currently known resources, have been estimated at only 57 million MT. This is well below the average world ratio of proven to ultimate resources (about 40 percent) showing the relative underdevelopment of this sector in comparison with its potential. 57. Petroleum exploration activity in Turkey in recent years has been undertaken almost exclusively by TPAO. Although seventeen companies were officially engaged in the exploration and production of oil in 1975 - fifteen of which were foreign companies - the level of activity undertaken by out- side companies has been small in comparison to TPAO's continuing exploration program. This state of affairs is attributable to two principal factors: (a) the likelihood that new discoveries will consist of small individual accumulations with relatively high development costs; (b) the impact of Decree 20, issued in 1974, which effectively reduced well-head prices of new crude oil discoveries well below import parity (see para 59). The exploration activities of important producing companies such as Shell (still the largest domestic producer) have been at a low level since 1960, partly for the above reasons, but also in part because TPAO holds most of the more favorable areas under license. Approximately 80 percent of oil exploration drilLing in 1976 was undertaken by TPAO. This proportion is likely to increase rather than decrease unless incentives are restored by increasing the price for crude from newly discovered oil fields to something approaching import parity. 58. TPAO's exploration program has recently been severely hindered by the country's critical shortage of foreign exchange. In 1977, the total investment in exploration amounted to over $60 million and 59 exploration wells were drilled; of these seven were reported to be oil discoveries. Though the 1978 exploration program will be reduced in scope (only 32 wells are planned) primarily as a result of the severe budget stringencies, TPAO is planning to increase its overall exploration effort in the upcom-ing 5 years. In the short-term, however, TPAO's ability to sustain an exploration program of this magnitude will be essentially determined by the availabiLity of budgeted financial resources, and especially the availability of foreign exchange for essential equipment and supplies. In the medium-term, if inroads are to be made in alleviating Turkey's increasing dependence on imported oil products, it is desirable that future exploration effort be at least shared between TPAO and foreign oil companies. There are already encouraging signs in this direction with discussions underway with the Soviet petroleum industry on new concession areas, and with North American companies also, the latter particularly in regard to offshore exploration. It is understood that TPAO is  - 20 - also discussing with Shell and Mobil the possibility of joint ventures on some of the licenses held by TPAO, for which it lacks the resources to explore. If such overtures lead to a more active participation of foreign oil companies in Turkey, the prospects for finding new resources of indigenous crude oil by 1985 could become promising. Oil Policy 59. The Government regulates the price of domestically produced crude and those of refined products. Until the world oil price increases in 1973, prices were determined on the basis of import parity. A price stabilization fund was used to eliminate day-to-day fluctuations in import prices. This fund was marginally in surplus until the end of 1973. However, following the increase in international prices, in January 1974, the Government, with a view to controlling inflation, abandoned the principle of import parity, and increased the domestic crude price from about $2.80 per barrel to about $5.20 per barrel,which remains the price today. This price was also used for determining prices of refined products. Since a large part of Turkey's oil consumption was met by imported oil at quadrupled world prices, the stabiliza- tion fund incurred large deficit (TL 14 billion in FY77/78) and these losses were met from the Government budget. But in September 1977 petroleum product prices were increased by about 50 percent and were further increased in September 1978 by about 80 percent, thus finally bringing them into line with prices in other countries. These increases are expected to yield TL 21 billion annually, which should eliminate the deficit of the oil price stabilization fund, and also help reduce the rate of future increase in oil consumption. 60. As mentioned earlier, following the rise in crude oil prices after 1973, Turkish policy has aimed at accelerating the development of known indigenous resources, primarily lignite, hydroelectricity and crude oil. It has generally endeavoured, as it should, to replace oil by other sources of energy, wherever technically and economically possible. However, although the production of lignite and hydroelectricity has increased sharply since 1973, and in part, helped stem the increasing share of petroleum in Turkey's overall energy requirements, there are substantial technical, investment and management constraints of a long-term nature, which will permit the develop- ment of these energy resources only over an extended period of time. In the foreseeable future, Turkey's dependence on oil will therefore continue to be significant. As a result, apart from measures to develop other indigenous energy resources as possible substitutes for oil, and to restrain the pace of oil consumption, through drastic price increases, the Government has basically adopted two approaches towards increasing domestic oil production: (a) the application of secondary recovery methods to existing oil fields; and (b) expansion of petroleum exploration activity by increasing the resources available to TPAO, by encouraging joint-venture exploration efforts in col- laboration with foreign oil companies and by providing increased incentives for offshore exploration activities. However, despite these combined policy elements for the oil sector, Turkey is unlikely to attain its stated objective  - 21 - in its Fourth Plan during the next decade of meeting a minimum of 60 percent of the anticipated demand for oil from domestic sources, unless sizeable indigenous crude oil or natural gas reserves are developed in the near future from known or newly discovered fields. Previous Bank Lending to Energy Sector 61. Bank group lending in the energy field has been concentrated on the power subsector, and related lignite mining development. This will be the Bank's first operation in the oil subsector. Since 1952 the Bank has made nine loans and a technical assistance grant (total US$356.65 million) and IDA has extended three credits (total US$55.7 million) for the development of the power sector. These comprised loans/credit for three hydropower projects, of which two are multi-purpose; two thermal power plants (oil-fueled and lignite); a lignite mine; and transmission and distribution network projects. The Technical Assistance Grant was for help in reorganizing Turkey's power sector. The first five loans/credits were for works in the service area of the Cukurova Electric Company (CEAS) and were re-lent in whole or in part to CEAS. PART IV - THE PROJECT Project Background and History 62. The application of enhanced oil recovery (EOR) methods 1/ has been given most serious consideration for the TPAO oil fields in southeastern Turkey, in particular to the Bati Raman field. Primary recovery from this field has been low, although the estimated oil in place is large. The Bati Raman field is the largest in Turkey, located in south Turkey, in Siirt Province, approximately 140 kilometers east of the city of Diyarbakir and 74 kilometers north of the Turkish Syrian frontier (see Map). The field, wholly owned and operated by TPAO, was discovered by TPAO in 1961. Oil production commenced in 1962. 63. The reserves of oil in place in the reservoir are estimated to be 1,850 million barrels. Of this, only 25.2 million barrels (or 1.36 percent) had been recovered by January 1978. The crude oil is a heavy, viscous, asphaltic type, having an average gravity of 130 API (American Petroleum Institute gravity classification). Ultimate recovery by primary methods is estimated to be only 1.5 percent of the oil in place. The reasons for this very low primary recovery, are to be found in the highly viscous character of the oil, the geological structure of the oil field and the absence of any effective natural drive mechanism. In view of the increasing oil demand in Turkey and the huge and increasing burden on the import bill for oil imports 1/ A short, technical annex summarizing the principles underlying the most common of enhanced oil recovery methods is provided in Annex IV.  - 22 - since 1974, the Government and TPAO have sought to increase oil extraction from this largest of Turkish oil fields, as a means of augmenting domestic crude production. To date, field testing has been limited only to water flooding operations, chiefly because a more extensive application of other enhanced recovery techniques was considered uneconomic prior to the 1973 increase in oil prices. Water flooding is expected to raise recovery to around 6 percent of the oil in the reservoir, which would still leave about 1,700 million barrels of oil in the reservoir. 64. In this context, TPAO approached the Bank informally in late 1977, regarding the possibility of obtaining Bank financing for a program of enhanced oil recovery (EOR) from the Bati Raman oil field. In April 1978, the govern- ment confirmed that high priority had been accorded the Bati Raman project in its overall investment plans and during my visit to Turkey, the Energy Minister specifically requested Bank financing for the initial preparative and engineer- ing studies leading to pilot plant testing in the field, for which UNDP funds were not available because of prior commitments to other projects. 65. Following a Bank mission in April/May 1978, it was agreed that it would be prudent to implement the actual enhanced recovery project in three distinct phases: (a) Phase One - A comparative evaluation study of the various possible EOR methods applicable to the geological structure of the Bati Raman reservoir. (b) Phase Two - A field pilot testing plant of the selected EOR method, or methods, in the reservoir itself. (c) Phase Three - If the pilot test phase proves successful, the pilot would become part of the full-scale EOR project and the tested EOR method would be applied to the entire field. The proposed engineering loan would cover the foreign exchange requirements for Phase One of the project as well as the design and detailed engineering of the Pilot Plant in Phase Two. 66. Thereafter, an appraisal mission visited Turkey in July 1978. It agreed with Government and TPAO on the draft terms of reference on which con- sultants would be invited to submit proposals for the above-mentioned items of work. A list of reputable and experienced consultants in this highly specialized field was drawn up by TPAO, which was acceptable to the Bank. Proposals were invited from these consultants. By mid-September proposals from 12 firms were received by TPAO. Against this background negotiations were held in Washington between October 18-20, 1978. The negotiating team led by Mr. A. Yoruk, Acting Financial Counsellor, Turkish Embassy, included Mr. Melih Genca, Deputy General Manager of TPAO. 67. During these negotiations, TPAO's evaluation of the technical pro- posals were received and its recommendations for selection were discussed  - 23 - and found to be satisfactory. The price proposal from the selected firm has been received and discussed preliminarily with TPAO. The price proposal is reasonable and offers sufficient basis to expect that the detailed nego- tiations with the selected firm could be finalized by TPAO around mid-November. The negotiated contract will be signed by TPAO after the proposed project has been considered by the Executive Directors, and work begun under the contract by early December 1978. The Borrower 68. TPAO falls within the jurisdiction of the Ministry of Energy and National Resources. TPAO was established in 1954 by the Government under the Petroleum law and is involved in all aspects of the oil business: exploration, production, refining and, through its subsidiaries, transportation and distri- bution; TPAO also has subsidiaries engaged in the production of petrochemicals and in the marketing of liquid petroleum gas. Currently, in terms of assets, TPAO is amongst the largest state petroleum corporations in Europe. It is owned 94 percent by the state (through the Turkish Treasury, state enterprises and pension fund), with the remaining 5 percent held by the Army Mutual Fund, and by private insurance companies and industries. As of December 31, 1977, TPAO had total assets of almost 12 billion TL ($450 million), a net worth of 4 billion TL ($160 million) and a reported net profit before tax of almost 350 million TL ($14 million). It had a debt equity ratio of 25:75. Its income has ranged between 10 percent and 25,percent of equity in the last four years. 69. Structured as a private joint stock company, TPAO operates under the Petroleum law, and its operations are subject to close regulation by the Gov- ernment; like all other petroleum companies operating in Turkey, its prices are controlled by the Government. Following approval by its own management, TPAO's annual budget is submitted to the state planning organization and its investment program is incorporated in the national budget. Although the Council of Ministers controls the majority of appointments to TPAO's board, it has autonomy in the day-to-day operations and remains relatively free of political pressure. Its board has recently been reconstituted and a new president, Mr. Ertan, appointed, who is a capable and experienced public administrator. TPAO is also not subject to Law 440 governing state economic enterprises and has freedom to set its own personnel regulations, and its salary structure is among the highest, amongst SEEs. The total number of employees in TPAO in 1977 was approximately 7,000, almost 60 percent of which were located in the Batman district, the principal oil producing area in Turkey. In general, TPAO's professional staff is experienced and capable, having extensive experience in all aspects of the oil industry. 70. TPAO has about 295 oil wells in production and the company's annual crude oil production is currently about 1 million tons, representing 40 per- cent of Turkey's annual crude oil production. There is one natural gas field currently in production in Thrace, producing about 2-2.5 million cubic feet per day which supplies a nearby cement factory. TPAO also undertakes the bulk of petroleum exploration activities in Turkey. During 1976, TPAO carried out 93,400 meters of exploration drilling on 50 new wells, as a result of which  - 24 - 5 small but commercial fields were added to the existing fields. While it plans to intensify its oil exploration program, both on and off-shore, it has been affected by lack of adequate equipment resulting from the country's pres- ent foreign exchange difficulties. The TPAO group has 3 refineries located at Izmit, Izmir, and Batman respectively, with a current total capacity of approximately 10 million tons per annum. This is about 70 percent of the country's refining capacity. TPAO also owns and operates a 499 km pipeline running from the oil fields around Batman to Dortyol on the Gulf of Iskenderun. Project Description 71. The proposed project comprises the following components: (a) Comparative Feasibility Study. A comparative study would be undertaken of the various possible EOR methods applicable to the Bati Raman reservoir, based on the physical properties of the oil and the reservoir rock. The principal objective of this study would be to determine the most suitable enhanced recovery technology applicable to the reservoir; the study would also include preparation of design parameters and of an estimate of the capital requirements for the pilot plant stage of the project (approximately 55 man-months plus specialized computer services). (b) Design engineering for Pilot Plant. Based on the findings of the comparative feasibility study and the agreed design parameters, the detailed design and engineering of the recommended pilot plant would be undertaken. The engineering services would cover the work up to the drawing up of tech- nical specifications and preparation of working drawings and tender documents (approximately 55 man-months). (c) Core Sampling of Reservoir Rock. The number and quality of the core samples of the reservoir rock obtained to date from the Bati Raman wells provide an inadequate data base to permit a detailed geological description of the Bati Raman reservoir. As a result, new core and fluid samples need to be taken and analyzed in laboratories for permeability and combustibility tesLs, since these will form a vital element in predicting the performance of the reservoir under any system of enhanced recovery. The proposed core sampling services would include the provision of specialized equipment and the services of a drilling supervisor. A minimum of 10 new wells would be drilled and cored through the entire thickness of the reservoir. 1/ An additional 4 man-months of consultant services may atso be required to assist TPAO in making a geological description of the reservoir on Lhe basis of the new 1/ Tthe drilling and coring of additional wells will be undertaken by TPAO. These wells will eventually be required as part of the overall enhanced cecovery program; tLhe r loCaL i0on would he selected so as to complement xistLtng core daLa.  - 25 - core-samples obtained with specialized core sampling equip- ment (core-barrels and diamond bits). (d) Overseas Training. Specialized training abroad in EOR tech- niques, geological evaluation and petroleum reservoir engineer- ing techniques, including inter alia, the development and application of computer models to simulate the operation of heavy oil reservoirs. The Loan and Project summary is attached. This President's Report is also intended to serve as a staff appraisal report for the proposed engineering loan. Project Costs 72 The total cost of the proposed project is estimated at $3.0 million equivalent. Its foreign exchange component is approximately $2.5 million (85 percent) to be fully covered by the proposed engineering loan. The local currency component of $0.5 million equivalent will be borne by TPAO. Contin- gencies included in the total cost estimate is $300,000 or about 10 percent of the base (1978) costs. The contingency element is relatively modest, since the cost estimates reflect the price proposal of the selected consultant firm on items (1), (2) and (4) of the total costs detailed below: Local Foreign Total -------- $ Million -------- (1) Comparative feasibility study 0.20 1.00 1.20 (2) Engineering design for pilot plant 0.15 0.65 0.80 (3) Core sampling equipment, materials and advisory services 0.05 0.50 0.55 (4) Overseas training 0.05 0.10 0.15 Subtotal 0.45 2.25 2.70 Contingencies 0.05 0.25 0.30 Total 0.50 2.50 3.00 73. The consultancy services for the comparative feasibility study and engineering design reflect the aggregate man-month requirements and unit costs indicated in the selected consultant's proposal. The comparative feasibility study would involve about 55 man-months at a unit cost of approximately $10,000 per man-month. For the design engineering services, about 55 man- months at a unit cost of $7,000 per man-month are likely to be involved. The estimates include a significant allocation of computer time and software royalty. These estimates based on actual price proposals received from selected consultants are comparable for similar consulting studies in the specialized field of enhanced oil recovery.  - 26 - Project Implementation 74. The comparative feasibility study would be carried out by the selected consultants, under the supervision of TPAO. The consultancy team would consist of several experienced geologists and petroleum engineers assisted by individual specialists with a background in computer techniques used in studying reservoir behavoir. It is desirable for the purposes of maintaining continuity, that the consulting firm selected to undertake the comparative feasibility study should also be responsible for the design engineering of the pilot plant. Accordingly, the selected firm may, with the approval of TPAO, undertake to acquire expertise outside of its organiza- tion, particularly to perform certain specialized engineering tasks. The consultants would continue to be employed under terms and conditions accept- able to the Bank and to the Borrower (Section 3.02 of the Draft Loan Agreement). 75. It is expected that this study will take about 8-9 months to com- plete. Assuming that the consultants can begin work by early December 1978, it should be completed by July/August 1979. Its recommendations will be jointly reviewed by TPAO and the Bank around August/September 1979, at which time, the decision on whether to proceed with pilot plant testing, and the method for doing so, would be made. It is anticipated that the design para- meters and the estimated capital cost of such a plant, sufficient for Bank appraisal would become available by October 1979. While the pilot plant project is then processed, assuming that the Bank finds the proposal viable, the detailed engineering work, including preparation of specifications and tender documents, will be pursued. Should such a pilot project be ultimately approved by the Executive Directors, the funds needed for consultants' assis- tance in the selection of equipment and supervision over construction of pilot plant and implementation of the pilot project could be included as part of such an eventual project. Hence, the proposed engineering loan includes financing of engineering services only up to the stage of preparation of technical specifications and tender documents. 76. The training services for TPAO personnel would be provided, in con- sultation with the Bank, through training overseas at academic institutions, in engineering companies and at the site of specific heavy oil recovery operations (Section 3.04 of Draft Loan Agreement). The core sampling equip- ment to be financed is of a highly specialized kind and does not lend itself to procurement through normal international competitive bidding. Since the amount of core and fluid sampling equipment to be purchased is relatively modest (approximately $400,000) it is recommended that the core barrels and diamond bits be procured through international shopping among a minimum of three specialized companies that supply these items (Section 2.03 of the Draft Loan Agreement). Financing and Disbursement 77. The proposed engineering loan of $2.5 million would be refinanced tinder any later loan Lhat the Bank might make for the pilot plant project. Disbursements from the proposed loan would be at the rate of 100 percent of  - 27 - foreign expenditures for consultants' services, goods and overseas training of TPAO's staff. The estimated schedule of disbursements from the proposed loan is shown in the loan and project summary. Project Justification and Benefits 78. The application of enhanced recovery techniques to the Bati Raman oil field provides the immediate possibility of increasing domestic oil production in Turkey, until exploration results in discovery and development of new commercially exploitable reserves. The Bati Raman field has been developed to a point where all the reserves, i.e. 1,850 million barrels can be classified in the "proven" category. Almost all enhanced oil recovery methods, will bring about an enhanced oil recovery as compared to primary recovery, which has been low because of the characteristics of Bati Raman crude. Thus no doubt exists concerning the potential for increased production from the field. The uncertainty therefore revolves only around which enhanced recovery method will lead to optimal recovery, taking into account the oil recovery factor and the size of the capital investment. 79. On the basis of: (a) a capital investment in 1978 prices for the carbon dioxide (C02) injection method of $300 million, $200 million of which is phased, equally over the first five years and the remaining $100 million over the final five years; (b) life-time (20 years) operating expenses of $200 million; tc) an incremental recovery factor of 7 percent in which annual production would rise gradually from its present level of 1.5 million barrels to a peak production of 14 million barrels p.a. after ten years, and would decline thereafter for ten years; (d) world market price of $10 per barrel (in 1978 prices) of equivalent crude oil of API 8-10 at the Batman refinery; the economic rate of return would be 20 percent. Only in the event that incremental recovery should fall below 5 percent of the initial oil in place does the full-scale enhanced recovery project become economically marginal. Because of surplus capacity in refining and transport facilities in the Batman area, Bati Raman crude oil production would have to increase substantially before it would be necessary to invest in further processing and transport facilities. The economic viability of any enhanced oil recovery method is therefore dependent solely on the volume of incremental crude oil which can be recovered from the reservoir as a result of the application of EOR techniques. 80. The proposed engineering project will enable TPAO to make a com- parative evaluation study of alternative enhanced recovery techniques to determine the technically and economically most viable method of enhanced oil recovery technique applicable to the Bati Raman oil field, and its application on a pilot basis, will help to confirm that the recommended method(s) can be economically applied to the whole field. The cost of the pilot plant is likely to be 10 percent of the total investment cost. If successful, the pilot project will be incorporated into the ultimate full-scale enhanced oil recovery project and its cost recovered. By working closely with TPAO staff in the preparation of the terms of reference for the comparative evalua- tion study, the Bank has been able to ensure that comprehensive consideration  - 28 - will be given to a full range of possible EOR technologies, rather than limiting consideration to a single enhanced recovery technology selected by TPAO primarily on the basis of theoretical and laboratory studies. As a result, the approach adopted should help ensure, both economically and technically, an optimal method for enhanced recovery of crude oil from the Bati Raman field and would be tested on a pilot basis before large scale investment is undertaken. Finally, the practical experience acquired by TPAO staff during the implementation of this project - which will include an important overseas training component in this specialized area of the petroleum industry - will have direct applicability in other nearby TPAO oil fields, the recovery from which could also be improved significantly by applying EOR methods. Project Risk 81. As the proposed project is a comparative evaluation study of alternative enhanced oil recovery techniques applicable to the Bati Raman oil field, to determine the optimal method, and thereafter to design a pilot project for field testing of the determined method, the project involves almost no risk. The investment in the engineering project could be unproduc- tive, only if the comparative evaluation study concludes that none of the presently available enhanced recovery techniques could be economically applied to the Bati Raman field. We do not consider this a realistic possibility. Moreover, the almost negligible risk incurred in this project will virtually eliminate the technical risks otherwise inherent in the much costlier full- scale EOR project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 82. The draft Loan Agreement between TPAO and the Bank, the draft Guarantee Agreement between the Republic of Turkey and the Bank, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed separately to the Executive Directors. 83. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 84. I recommend that the Executive Directors approve the proposed Loan and Guarantee Agreements. Robert S. McNamara President Attachments Washington, D.C. November 8, 1978  TAbLE 3A ANNEX I _ , TURKEY - SOCIAL INDICATORS DATA SHEET Page 1 of 4 LAND AREA (THOU KM2) TURKEY REFERENCE COUNTRIES (1970) TOTAL 780.6 MOST RECENT AGRIC. 558.4 1960 1970 ESTIMATE COLOMBIA IRAN ITALY** _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - -- - - -- - - - --_ _ - - - - - -- - - _ _ _ _ _ _ _ _ _ - -_ GNP PER CAPITA (USS) 270.0* soo.o*4 1110.0-*/i 350.0* 670.0* 1910.0* POPULATION AND VITAL STATISTICS _______________________________ POPULATION (MID-YR, MILLION) 27.8 35.6 42. 2 20.6 29.0 53.7 POPULATION DENSITY PER SQUARE KM. 35.0 46.0 53.0 18.0 18.0 178.0 PER SQ. KM. AGRICULTURAL LAND 52.0 65.0 74,0 93.0 107.0 266.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU. AV) 44.8 40.6 39.4 44.3/a 45.9 18.6 CRUDE DEATH RATE l/THOU.AV) 16.9 14.4 12.5 I1.0 18.5 9.7 INFANT MORTALITY RATE (/THOU) 187.0/ab 153.0/a *- 70.0/b 140.0 29.6 LIFE EXPECTANCY AT BIRTH (YRS) 49.3 54,4 56.9 58.5 48.8 71.9 GROSS REPRODUCTION RATE 2.9 2.8/b,c 2.3 3.2 3.4 1.3 POPULATION GROWTH RATE (X) TOTAL 3.0 2.5 2.5 2.9 3.1 0.8 URBAN 5.1/a 4.9/d 4.2 5.5 t 4.8 0.8 URBAN POPULATION C% OF TOTAL) 31.9 38.7 42.6 60.3 41.0 51.5 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 41.3 41.7 41.7 46.6 46.0/a 24.4 I5 TO 64 YEARS 55.2 54.0 53.9 50.4 50s.O 65.2 65 YEARS AND OVER 3.5 4.3 4.4 3.0 4.0Th 10.4 AGE DEPENDENCY RATIO 0.8 0.9 0.8 1.0 1.0/a 0.5 ECONOMIC DEPENDENCY RATIO 1.0 1.1/e 1.2 L 1.6/d I-9/a 0.9/a FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. .. ,, 306.9 662.4 USERS (% OF MARRIED WOMEN) 5.3 8.2 ,. .. 10.0 EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) 13000.0__14000 o/f16400.0/b 6200.0 6700.0 19600.o LABOR FORCE IN AGRICULTURE 1%) 71.7 63.4 52.5/c 39.0 43.0 19,0 UNEMPLOYED (% OF LABOR FORCE) 9.7/d 11.9& 13.37T 7.0 2.1 3.1 INCOME DISTRIBUTION X OF PRIVATE INCOME RECOD 8Y- HIGHEST 20X OF HOUSEHOLDS 33.0/e f 32.8A 28.0/e 3-.9/ 29.7 /b HIGHEST 20X OF HOUSEHOLDS 6.0/t 60.6- 56.7 60.1 7f 54.4 7 , LOWEST 20% OF HOUSEHOLDS 4.271i t 26.96 56 3.5 j 4.0 7 , LOWEST 40% OF HOUSEIJLDS 1o:Q9. 5 10- ' Te 12.7 W DISTRIBUTION OF LAND OWNERSHIP ______________________________ X OWNED BY TOP 10% OF OWNERS .. 39.0 /1 .. X OWNED BY SMALLEST 10X OWNERS .. 0. 7T .. ..i HEALTH AND NUTRITION POPULATION PER PHYSICIAN 3220.0!a 2250.0 1880.0 2110.0 3300.0 550.0 POPULATION PER NURSING PERSON 3260.00h 1770.0/1 1140.0 /f .. 3230.0 470.0/b POPULATION PER HOSPITAL BED 650.0 500.0 470.0 430.0 780.0 go.o PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) 110.0 112.0 113.0 92.0 90.0 126.0 PROTEIN (GRAMS PER DAY) 75*3 78.0 76.0 51.0 53.0 100.0 -OF WHICH ANIMAL AND PULSE . 22.0/k 24.7 29.0/f 14.0/c 42.0 DEATH RATE (/THOU) AGES 1-4 16.0/e 14.7/1 .. 8.4 .. 1.0 EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 75.0 109.0 108.0 100.0 83.0 110.0 SECONDARY SCHOOL 14.0 28.0 30.0 23.0 26.0 60.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 11.0 11.0 11.0 11.0 12.0 13.0 VOCATIONAL ENROLLMENT (X OF SECONDARY) 18.0 14.0 15.0 20.0 3.0 26.0 ADULT LITERACY RATE (X) 40.0/i 55.0/m . 73.0 .. 97.0 HOUSING PERSONS PER POOM (URBAN) 2.0 1.9 .. .. 2.2/a,d OCCUPIED DWELLINGS WITHOUT PIPED WATER (X) 81.0 66.0 52.0 .. B7.0/a,e ACCESS TO ELECTRICITY ({ OF ALL DWELLINGS) 29.0 40.0 57.0 .. 25.0/a RURAL DWELLINGS CONNECTED TO ELECTRICITY {X) 2.0 18.0 * 4.0/a CONSUMPTION RADIO RECEIVERS (PER THOU POP) 49.0 89.0 107.0 105.0 93.0 218.0 PASSENGER CARS (PER THOU POP) 2.0 4.0 8.0 11.0 10.0 190.0 ELECTRICITY (KWH/YR PER CAP) 102.0 247.0 400.0 414.0 246.0 2262.0 NEWSPRINT (KG/YR PER CAP) 0.8 0.7 2.3 2.7 0.4 5.3 SEE NOTES AND DEFINITIONS ON REVERSE  NMOES MIrSeS otherwise noted, data for 1960 refer to any year betwen 1959 and 1961, for 1970 between 1969 end 1971, ad for Moat Recen t Istimote between 19 73 ad 1976. oS CNP Per capita data are based on the world Book Atlas methodology (1974-76 boatis). .. The long-term strategy of Turkish planning corrently giv- the 1970 level of Italy .. its objeotiva. TURKEY 1960 Ia 1955-60; lb Derived from ample survey cetimatee (9,700 households), night be ondereatimated' Ic CIi"lian labor force (1965); /d 1965, iTolodiog peak eanagricoltural on.deremployset , Ia 1963; If Dieposable incme; /& 1962; lb Incloding esa istant morons and midivea, /1 Per.o.a six years and -ovr who tell the cenoc takers that they can, read and write.. 1970 / 1967, lb toclodes 17 eas tern provinces Ic 1965-67; /d 1965-70; /a Ratio of populetiom onder 15 and 65 and ovar to total labor force; /f Civilian labor force, / Including peak season `gricolturel ondereploymet; /b Disposable imoone (1968); It %gricoltura1 lend (1973), ignoring landless households; Li. Incloding assistant m.ore. end midwi-ee; lb 1964-66; /1 1967-689 In Persona ala yeare and wovr who tell tbe ceneas takers that they can read and write. MOST RECEMT ESTIKATE; Ia Ratio of populetion under 1) end 65 and over t-o total labor force, lb Civilian labor force (1977); /c 1977; /d Including peak seeon agriculturl ondereploymnt (1977) ; Is Diepo.able incom (1973), 77 Including eeaistart morass and niAivee.. COLOMBIA 1970 /a Official setimatee hesed on registretion, skat average crude birth rete for 1960-71 as 36; lb Rate based on banial permits; /c 196.4-70; /d Ratio of popolation onder 1) end 65 and over to total labor force; le Ecoanoically active popolation; 77 196.4-66. IceN 1970 /a 1966, /b urban only; Ic 1964-66; Id Enclodea omedic tribes; Is Inside only. ITALY 1970 /a Ratio of population under 15 and 65 and over to toatl labor force, lb Hoepita1 personnel. 1/ 1977 GNP' per capita October 12, 1978 DEPFINITIONS OP SOCIAL INDICATORS Land Area (thou -e) Poculetion par coric a oreo - Popolacim divdad by nombe of practicing Total1 Total arface araa coprIsing land area and inlend weters. mi andfemal graduate nurses, "trained" or "certified" mare...So ad Agric. -Ksot recemt aetiate of agricoltcorel arsea used temporarily or P.-n -aceIltacy parsons witb training or enperiscre. netly for rope, paturea, market 6 kitchen gardens or to lie failma. Population pear hossital bed - Population divded by comber of hospital bade available in public and private genera and sJpecislied hospital1 and IMPl ear Paita (USOl - GNP per capita astinatac Stccurrec narktc pricesa, rehbilitation centrs.; eaclode cnuring boase and aetablialoseta for cacaaed by em conversion method as World Back Atlas (1973-75 baste); costodial and prevetive care. 1960. 1910 and 1975 data. Per ...nit. sandy f calorisa f of rornct)-Compac-d Ore an-gy P.P.l.tion and :~~~~~~~~~~~~~~~qo:ivalast of oat food Supopliaa avilable to country par capita par day. Poueio n ital statistic'1 ailblespplies omprias domestic prodootios, iparts less Snports, sod poonlacion (ndva ilo) o f July first; if not available, -ovrage changee in Stock, cat Supplies culode animal feed, Seeds, quantities used of tw and-yasr estimates; 1'40" 1970 and 1975 data, in fond pronessing and losans in distribation; r-quirenanta were stimacad by PAD based on physiological neds for carna activity and heelth comid- Population damarf-toar sooare he - Mid-year population per quare kilascr ering nviroamta1 temperature, body wighta, age and an distributioms of (100 bactarso.o tota are. population, and allowing 1% for waste at houaebold lJ.-J. popuatin doair - or suavehe f asric land - Coopu red as above for Per cania sanely of crateic fere,a oar day) - Protein contact of per capits agricultural land onl.' ot supply f od per day; met Supply of fond is defined as above; require- mote for all caostrieseatabMiabed by USDA Econoic R...arch OSr-ices Viral raciatics provide for a siiisa alloec of 60 garoa of total protein per day, and Crude birth rae oa Vr thonand. avrage - Aonoal live hirtha per thouoac.d of 20 grom of animal and poles protein, of shich 10 gron Should be animal nid-ysar population; ra-year arit tic evSrages ending in 1960 and 1970, protein; chaos Standards era lose than those of 75 gnom of total protais and five-year eveagsenign 1975 for moat recent eSotimate, and 23 gras of animal protein as an -verge for the enrld, pespased by P._ Crude death rat a buad avrag - Annual deetha per thousand of nid-ysar in the Third World Pond Bunny. population; ten-year arithrstlc enrag-encding in 1960 and 1970 and five- Per centre cntain sanel frm nia and pulse - Protein Supply of fond year avar age ending in 1975 for moat rncent eatimata. derive from anImals and P.Se in gr-n per day. Inf:ant mortality rate f/thou) A-.Anua deatha of infants onder one year of age Death rats f/than) eages 1-4 - annual deaths per thousand in age group 1-4 per thued live hirtha. years, to childrmn in thie age group; Suggested as an indicator of Life S=n ..ctaScat birth fyrg)- Average -b-r of years of life ronining at malnutrition. birth; wsully five-year avrgsending in 1960, 1970 and 1971 far develop- ingcotriea Education iroo rerodctmn rte Avrag coberof ivedauhtes awomn wll ear Adjusted enrollmentrathio - arimar School - Enrol1oset of all ge ase Per- in her eanal rprodct i" peiod if Sheeparianco preaet age-specific cantag of pcit Scoolage.. population; includes children, aged 6-il years fertility ratee; usually firs-year average ending in 1960, 1970 and 1975 but adjuated for different lengthe of prinary education; for countries with for developing cautries. univers al eduction, enol -tmy nosed 10014 since am pupils Sare below Poonetim oeS, ere(1)- toal Copood annua growth rares of nM-year or show the official school gS.. pou atin for 1950-0 1960-0 end 1970-75. Adluaid emro1o,st ratio - secondary School - Computd as abov; Secondary populations thrc (1)l -rban - Computed lik. growth rate of total deducation requires at leaSt four years of approvd primary instrucciom; population; different definitiom of urban anus may affect comparability of provide geneal1, vocational or teaher training beatrution for pupils data'r =gtcoustriea. of 12 to 17 year of age; crspondecc cnrseas ar generally encldad. "rC meitimf of total) -Rtio of urban to total population; different Years of achoolioa strided (firet end second 1ev1l) - Total year of definitions of urban area may affec,t.coparability of data Somng coentriga. Schoaling; at ascmdary level, voctiona instruction may be partially or Me s.tructure fPercent) - Childre (0-14 years), woking-age (15-64 years), Voctina e-ro11n itf ..condaryl - Voactional inatitutiona include adretired (65 years end owe) aa percotages of mid-year population . technical, industrial or ether progrem which operate isdepemdscly or as dAs dpcandea-n ratio - catio of population under 15 and 65 and ovr to tho.. deparooso.te of seredary insatitutiona . o.:f age15 throuh 64. Adult literacy rate (%)t- literate adu1ta (able tc reed and nIce) as per- ecnoic dnendemy ratio - gatio of population under 1) and 65 and over to erg of total adult population aged 15 years ad over. the labo foc caagroup of 15-64 years. Pomly lamin - .ccPtor fc_alati-e thou) ;,-ICaltive comber of acceptors 1!us its of birth-control devia under .uapi... of atonal fonily ploning progra Persona o r non urban) - Avr-ge c-ombr of parsons par roo In oncupied ainc inception. cvetional d_clinga i ra re;delng sid o-omnn F17ily planning -users f4 of married womn) P-tPrentagee of married n. of Structures ad onoocpied parts. chld-hearin ag (1-46 yers) who use birth-control devices ta all mar-iad Occo. e dwe llings without nimad water ft) - Occu pied covcinldweltogS wio n m g group. touba-n.rrl ra without iL-id. or outaide Piped water facilities apecntage of all oncupied dwellings. nuploynet aceetc electricity ft of all dwellings) - Conventional dwellings with Total labor force (thousand) - Ecoomcal-ly active paersn, including armd leetriciry in living qarters aS percent of total dwellings in urban and forces end umeployed bot eaclding houseives, studants, etc , definitions rural areas. In verioua c"utriosa ar not comoparable. BRal1 del;licae connected to e1-trritiy Mt - Computed So above for rural Labor force in agicltre Cl) - Agricultural labor force (in farming, forsatry, dwelling only. booting and fishing) as percentage of total labor force. Snonolovd it of labor forte) - Unemployed are ususlly defined as pe.rson who Coneontio Stc able ad willing to cake a Job, ont of a Job on a given day, remasined out Radio receivers (oar thou peel - All typea ofreivs for radio broadcac o.f. aJob, and aeS in wrk fore S pecifisd minimu period cot e...endini ont to general public per thousand of population; secludes onliceeaedreivs wek ba o hscomparable bacuse countrisa due to different definitions in countries end in years ehen registration, of radio sets we in affect; of unemployedt and Source ofdata, e.g., *eplaytut office statitics, somple data fon recen.t years may not be comparable since mast countries aboiished survYs, *copulsory onemployn-t insurance, licensing. Peecenea cre fear thou eop) - Pa..eeager cars comprise macor car sea ting Incomedismtr~ibution - Percentage of privats intce, (both in ca.h and kind) las than sight Persona; -ecludes ebulances, hearses and military rcie byrichest 5%, richeat 20%, pooreec 201, end poorest 401 of house-veils holds. Electricity (kwh/yr ear can) - Annual coneomption of Industrial, cnril pulcand private electric ity in kilowatt hours per capita, generally Biatribation of land -s.-rhip - Perc...t.g.. of land owed by wealthiest lOt based on production data, withoutalo nc for losses is grids but allo-- and posret 10% of land ownrs. lug for imports snd soporta of a1sotricity Neasrint (kg/yr oar tee) - Per ..pite annual coneuption in kilagras Health and Mutrition aetinated from d-netic production plus net imports of newprint. Poeolation ear ehyaician - Population divided by c,obec of pracfticig physiiasquolified from a medical School at univ-roity leve.  ANNEX I Page 3 of 4 TURKEY - ECONOMIC DEVELOPMENT DATA SHEET -/ Actual Est. Projected Growth Rates Share of GDP 1970 1975 1976 1977 1978 1979 1980 70-77 77-80 1976 A. NATIONAL ACCOUNTS (TL Billion, 1976 Prices) Gross Domestic Product 423.5 607.7 659.0 688.0 700.6 723.7 763.9 7.2 3.6 100.0 Gain from Terms of Trade -2.3 -0.4 0.0 -0.3 -0.8 -1.5 -2.3 Gross Domestic Income 421.2 607.3 659.0 687.7 699.8 722.2 761.6 7.3 3,5 Exports (G + NFS) 21.8 29.6 36.1 32.0 35.8 40.1 46.7 5.6 13.4 5.5 Imports (G + NFS) 31.4 81.2 85.0 96.7 68.2 70.3 75.4 17.4 -8.6 12.9 Resource Balance -9.6 -51.6 -48.9 -64.7 -32.4 -30.2 -28.7 17.4 Investment 79.5 145.8 156.0 165.7 143.9 147.1 151.3 11.1 -3.1 23.7 Consumption 353.6 513.5 552.0 586.9 589-1 606-8 641-3 7.5 3.0 83.8 Domestic Savings 67.6 93.8 107.0 100.8 110-7 115-4 120-3 5.9 6-1 16.2 National Savings 73.8 114.0 118.0 109.3 111.0 116-6 122-3 5.9 3.8 17.9 B. SECTOR OUTPUT Share of GDP (Factor Cost) at 1976 Prices Agriculture 30.0 27.9 28.5 25.5 26.6 26.1 25.2 4.4 3.1 Industry 26.9 27.7 27.1 27.9 27.0 27.5 28.0 10.7 3.7 other 43.1 44.4 44.4 46.6 46.4 46.4 46.8 9.0 3.7 C. PRICES (1976 = 100) Export Prices (in dollars) 44.1 92.5 100.0 107.4 113.3 119.0 124.3 13.6 5.0 Impor-t Prices (in dollars) 51.1 93.7 100.0 108.3 116.4 124.6 132.7 11.3 7.0 Terms of Trade 86.3 98.7 100.0 99.1 97.3 95.5 93.7 GDP Deflator 34.4 85.4 100.0 125.2 175.3 227.9 273.5 20.2 29.8 Av. Exchange Rate ($1.00=TL) 11.5 14.4 16.1 18.0 D. PUBLIC FINANCE As percent of GDP Central Gov't. Revenue 19.9 20.5 21.4 22.4 Central Gov't. Expenditure 22.5 22.9 24.1 27.4 Public Sector Deficit 2/ n.a. 6.1 8.1 9.0 E. SELECTED INDICATORS 3/ ~~~~~~~~~~~~~~~~~~~~~~Est. E, SELECTED INDICATORS 1970-77 F. LABOR FORCE 1970 1975 1977 ICOR 3.19 Civilian Labor Force (millions) 13.8 15.6 16.4 Import Elasticity 2.41 Unemployment and Under- Average National Saving Rate 0.18 employment (% of CLF) 11.9 13.0 13.3 Marginal National Saving Rate 0.15 Civilian Employment (millions) 13.1 14.3 14.9 Investment/GDP 0.22 Of which (%) Imports/GDP 0.11 Agriculture 67.1 60.8 57.7 Industry 13.7 16.1 17.5 Other 19.2 23.1 24.8 1/ Totals may not add up because of rounding errors. 2/ Borrowing requirement of central government, state economic enterprises, and other public authorities. 3/ 1978, 1979 and 1980 are regarded as unrepresentative tranAltional years. EMENA CPIIA October 12, 1978  TURKEY: BALANCE OF PAYMENTS Page 4 of 4 (In Current 0S$ Millions) Actual/ Projected 1970 1975 1976 19-77 1978 1979 1980 A. S1JtIRY OF 1A1.ANCE OF PAYMENTS 1. Exports of Goods and NFS 760 2139 2742 2557 3000 3515 4250 2. Imports of Goods and NFS -1132 -5191 -5735 -6488 -4915 -5426 -6156 3. Resource Balance -372 -3052 -2993 -3931 -1915 -1911 -1906 4. Net Factor Service Income 193 1152 670 366 15 61 106 a. Interest (net) -47 -124 -217 -500 -700 -950 -1100 b. Workers' Remittances 273 1312 983 982 800 1100 1300 c. Profits -33 -36 -96 -116 -85 -89 -94 5. Transfers (net) 8 20 22 - - - - 6. Current Acount Ba:.ance -171 -1880 -2301 -3565 -1900 -1850 -1800 7. Foreign Private Capitall (net) 175 256 162 168 155 300 400 8. Public M&LT (gross) 337 322 491 502 830 1230 1440 a. Project Credits 245 317 485 499 500 800 1100 b. Program Credits 92 5 6 3 330 430 340 9. Amortization on Public ILLT -lS9R- -1 - 11-9 -214 -350 -590 -8BO 10. Public MALT (net) 140 205 372 288 480 640 560 11. Commercial Credits (net) 18 829 1633 1429 965 1070 1170 a. Acceptance Credlits - - - 710 400 300 300 b. Convertible Lirs Accounts-' - 846 790 279 - - - c. Dresdner Scheme - 53 54 100 150 160 d. Euroloans - 95 233 295/ 35 70 e. Others 6 18 -112 5574 357 115 -0 - 12. Commercial Arrears- - - 234 1478 10 -260 -190 13. IMP (net) 48 243 148 _ 220 100 -100 14. Changeal n.i.e.7/ 81 -24 -70 -3_0 -358 70 14. Capital in R r -186 417 112 560 - -40 B. LOAN COMMITMEN'rs Total Public M&LT 487 589 1206 1528 a. IBRD 40 158 237 144 b. Other Multilateral 132 3 54 19 c. Governments 266 180 574 378 d. Suppliers and Finarcial Institutions 47 219 316 643 e. Others - 29 26 544 C. MEDIUM AND LONG-TERN (MHLI) EXTERNAL DEBT 9' EXERIil DEBT Eat (Disbursed Only) Outgtanding 1. Total Debt Outstanding 1840 3282 4080 4670 Des.31,1977 (and of the period, DnOD) AMoutt Percent 2. Interest 42 104 123 223 3. Amortization 135 145 151 214 TOTAL MALT DEBT 4670 160.0 4. Total Debt Service ,BM6LT Debt 177 249 274 437 5. Debt Service Ratio - IBRD and IDA 706 15.1 a. Debt Service/Exports NFS 23.2 11.6 10.0 17.0 ether Multilateral 568 12.3 b. Debt Service/Exports NFS and Governents 2433 52.2 Workers' Remittances 17.1 7.2 7.4 12.3 Financial Institutions 449 9.6 Suppliers' Credits 273 5.6 6. Terms: Others 241 5.2 Interest D00D/Total DOD 2.3 3.2 3.0 4.8 Debt Service/Tltal D0D0 9.J 7.6 6.7 9.4 SHORT-TERM DgBT 6539 100.0 7, IBRD 0D00/Total (M&LT) DOAD 7.2 13.3 15.2 15.1 CIA's and Arrears 2267 34.7 IBRD Debt Service/Total D06D Supplieral Credits 1508 23.1 Debt Service 3.2 12.4 14.8 11.7 Dresdner, BIS & TpAO 713 10.9 Acceptance Credits 710 10.9 D. SNORT-TERM EXTERNAL DEBT Bankers' Credits 384 5.9 Outstandiog stock (end of period) Li n.a. 1144 2951 6539 Reimbursemetst Credits 204 3.1 Overdrafts 240 3.7 E. DEBT SERVICE (as a ratio of Exports NFS 40l9 6.2 and Workers' Remittances) 17.6 7.0 9.0 20.2 Otber 104 1.6 TOTAL DEBT 11209 1/ Totals may not add up because of rounding errors. a/ Gross of debt relief and refinancing; net amount as 7/ Includes imports with waivers. ahown in Section C. 3/ Includes CLA deposits originally mada,valuation adjustment, and arrears. 4/ Includes overdrafts, bankers' credits, and others. T, Includes oil import ftnancing of $350 million from Iraq. N/ Net amount outstanding at the end of the period. 7/ Net residual finance and errors and cLissionsl item o; Negative sign represents an inccease. 9/ For 1970-1976 based on Bank external debt estimates. Includes public and publicly guaranteed and private M&LT debt. 101 Represents debt service obligations only on M&LT DO&D, excluding debt service on short-term obligations. See also line E. 11/ Based on Central Bank analysis of stock of short-term liabilities. EMNA CPIIA October 12, 1978  ANNEX II Page 1 of 9 STATUS OF BANK GROUP OPERATIONS IN TURKEY STATEMENT OF BANK LOANS AND IDA CREDITS (As of September 30, 1978) Loan and Credit (Less Cancellations US$M) Number Bank IDA Undisbursed Fifteen loans and nine credits fully disbursed 255.1 96.8 748-TU 1971 Republic of Turkey Education 13.5 .4.1 762-TU 1971 Republic of Turkey Fruit and Vegetable 10.0 2.2 257-TU 1971 Republic of Turkey Fruit and Vegetable 15.0 0.1 281-TU 1972 Republic of Turkey Irrigation Rehab. 18.0 1.6 817-TU 1972 Republic of Turkey Steel Mill Expansion 76.0 3.7 844-TU 1972 Republic of Turkey Istanbul Water Supply 37.0 10.0 324-TU 1972 Republic of Turkey Istanbul Urban Dev. 2.3 0.7 845-TUa/ 1972 IGSAS Fertilizer Industry 42.0 0.1 330-TU 1972 Republic of Turkey Livestock II 16.0 4.4 883-TU 1973 Republic of Turkey Ceyhan Aslantas 44.0 35.3 360-TU 1973 Republic of Turkey Ceyhan Aslantas 30.0 0.2 892-TU 1973 Republic of Turkey Istanbul Power Dist. 14.0 3.3 893-TU 1973 Turkish State Railway Railway Project 46.7 11.7 957-TU 1974 Republic of Turkey Antalya Forestry 40.0 6.4 1023-TU 1974 TEK/TKI Elbistan Power 148.0 84.9 1024-TU 1974 DYB Industry 40.0 6.7 1078-TU 1975 TSKB Industry 65.0 7.2 1130-TU 1975 Republic of Turkey Rural Development 75.0 60.0 1248-TU 1976 Agriculture Bank of Turkey (TCZB) Agriculture Credit 54.3 43.6 1258-TU 1976 State Pulp and Paper Industry (SEKA) Newsprint 70.0 31.5 1265-TU 1976 Republic of Turkey Livestock III 21.5 21.0 1194-TU 1976 TEK Power Transmission II 56.0 49.2 1310-TU 1976 Republic of Turkey Tourism 26.0 25.1 1379-TU 1977 DYB Industry 70.0 69.7 1430-TU 1977 TSKB Industry 74.0 61.0 1585-TU 1978 Republic of Turkey Northern Forestry 86.0 86.0 1586-TU 1978 Republic of Turkey Livestock IV 24.0 24.0 1606-TU 1978 Republic of Turkey Erdemir Steel Stage II 95.0 95.0 Total l483.lc/ 178.1 748.7 of which has been repaid 135.0 4.2 Total now outstanding 1348.1 173.9 Amount sold 3.6 of which has been repaid 3.6 -0- -0- Total now held by Bank and IDA_ 1348.1 173.9 Total undisbursed 7.0 748.7 a/ Includes $18.0 million approved on April15, 1976 b/ Prior to exchange adjustments c/ In addition, a program loan of $150 Million was approved on November 7, 1978.  AN'NEX II Page 2 of 9 STATUS OF BVNK GROUP OPERATIONS IN TMTKEY B. STATEMENT OF IFC INVESTMENTS (As of September 30, 1978) Fiscal Amount in US$ Million Year Obligor Type of Business Loan Equity Total 1964 TSKB DFC - 0.92 0.92 1966 SIFAS I Nylon Yarn 0.90 0.47 1.37 1967 TSKB II DFC - 0.34 0.34 1969 TSKB III DFC - 0.41 0.41 1969 SIFAS II Nylon Yarn 1.50 0.43 1.93 1970 Viking I Pulp and Paper 2.50 0.62 3.12 1970 ACS Glass 10.00 1.58 11.58 1971 NASAS Aluminum 7.00 1.37 8.37 1971 SIFAS III Nylon Yarn 0.75 - 0.75 1971 Viking II Pulp and Paper - 0.05 0.05 1972 SIFAS IV Nvlon Yarn - 0.52 0.52 1972 TSKB IV DFC - 0.43 0.43 1973 TSKB V DFC 10.00 - 10.00 1973 Akdeniz Tourisn 0.33 0.27 0.60 1974 Borusan Steel Pipes 3.60 0.44 4.04 1974 AKSA Textiles 10.00 - 10.00 1975 Kartaltepe Textiles 1.30 - 1.30 1975 Sasa Nylon Yarn 15.00 - 15.00 1975 Aslan Cenment 10.60 - 10.60 1975 DOKTAS Steel 7.50 1.37 8.87 1975 TSKB DFC 25.00 1.22 26.22 1976 NASAS Aluminum 1.58 - 1.58 1976 TSKB DFC 25.00 - 25.00 1976 Asil Celik Steel 12.00 2.18 14.18 1977 BORUSAN Steel Pipes - 0.16 0.16 1978 DOKTAS Steel - 0.27 0.27 Total Gross Commitments 144.56 13.05 157.61 Less Cancellations, Terminations, exchand e adjustments, repayments 81.36 2.99 84.35 and saIes- Total Commitments now held by IFC 63.20 10.06 73.26 Total Undisbursed 1.59 2.61 4.20  ANNEX II Page 3 of 9 C. PROJECTS IN EXECUTION 1/ Ln. No. 748 Education Project: US$13.5 million loan of June 9, 1971. Effec- tive Date: September 29, 1971. Closing Date: March 31, 1980. The project was substantially delayed due mainly to initial diffi- culties in providing the project unit with adequate qualified staff and authority commensurate with its responsibilities. However, implementation is now proceeding well, with equipment procurement progressing satisfactorily. Training of teachers for technician schools, adult training centers and practical trade schools has made considerable progress. The Management Training Institute has been established on an interim basis pending passage of legislation formally establishing it, and its instructors are undergoing training. Sixty-seven local advisory committees for vocational and technical education have been established, one in each province. Ln. and Cr. Nos. 762/257 Fruit and Vegetable Export Project: US$10 million loan and US$15 million credit of June 22, 1971. Effective Date: May 19, 1972. Closing Date: June 30, 1979. The project is nearing completion, with three of its four com- ponents, including refrigerated trailer and towing units, marketing facili- ties and a roll-on roll-off ferryship, fully implemented. A fourth component, comprising credit and technical assistance for citrus development, underwent initial start-up delays, but is now well established and being implemented satisfactorily. Cr. No. 281 Irrigation Rehabilitation Project: US$18 million credit of January 25, 1972. Effective Date: April 27, 1972. Closing Date: April 30, 1979. Construction of irrigation and drainage channels and on-farm works at Silifke and Tokat is nearly complete, but on-farm works are still behind schedule at Koprucay because of the extremely short annual work season. Arrangements to ensure use of remaining loan funds before the revised closing date have been finalized by the implementing agencies, and project works not completed by the closing date would be carried out using Government funds. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution and in particular, to report any prob- lems which are being encountered and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  ANNEX II Page 4 of 9 Ln. No. 817 Steel Mill Expansion Project: US$76 million loan of April 28, 1972. Effective Date: August 4, 1972. Closing Date: December 31, 1978. The project is undergoing test trial runs and is expected to start commercial production at the end of the year, three years behind the original schedule, due to delays in beginning procurement stemming largely from ineffi- cient management. An additional $2.0 million in foreign exchange is required for completion of testing, and the Government is arranging this. Ln. No. 844 Istanbul Water Supply Project: US$37 million loan of June 30, 1972. Effective Date: January 4, 1973. Closing Date: December 31, 1979. Project construction was delayed about 2-1/2 years due mainly to problems in the use of ICB procurement procedures and inefficient management. However, construction moved swiftly in 1977 and the two major water resources development programs are expected to be completed by end-1978. Substantial improvements to the distribution system are required, however, to enable full utilization to be made of the new water sources. Although a tariff increase was implemented in March 1978, this was insufficient to enable ISI to generate sufficient funds for future ongoing investment in the distribution system, and the Government has been requested to explore ways to resolve the lack of ade- quate local and foreign currency. Cr. No. 324 Istanbul Urban Development Project: US$2.3 million credit of June 30, 1972. Effective Date: January 4, 1973. Closing Date: December 31, 1978. Consultants have completed Phase I of the general urban planning and urban transport/land use modelling studies as well as studies on wastewater and bus/traffic engineering and control. Terms of reference for Phase II studies have been agreed and consultants' proposals sought. Ln. No. 845 IGSAS (Istanbul Fertilizer Company) Project: US$42 million loan of June 30, 1972 as amended April 18, 1975. Effective Date: October 6, 1972. Closing Date: October 31, 1978. The project has been physically completed at a cost of $146 million, some $16 million above the original estimate, with the overrun being met by the Government, the State Investment Bank, and shareholders. Production com- menced in April 1977, but soon thereafter severe technical problems resulted in lengthy shutdowns which have prevented steady commercial operation at satisfactory levels. These problems have now been largely overcome, and final performance testing of the plant is scheduled for late October 1978.  ANNEX II Page 5 of 9 Cr. No. 330 Second Livestock Project: US$16 million credit of September 28, 1972. Effective Date: January 5, 1973. Closing Date: December 31, 1978. The Fattening Subproject is progressing satisfactorily and all funds have been committed. The Village Livestock Development Subproject, after resolution of initial difficulties in recruitment of technicians and gaining farmer confidence, is now progressing rapidly, with 95 percent of the funds committed. The project is expected to be completed on schedule. Ln. and Cr. Nos. 883/360, Ceyhan Aslantas Multipurpose Project: US$44 million loan and US$30 million credit of March 22, 1973. Effective Date: March 20, 1974. Closing Date: December 31, 1981. Construction of diversion tunnels has met with difficult rock condi- tions and several cave-ins, but diversion is now expected to be completed with revised tunnelling methods before the 1978-79 flood season, about two years behind the appraisal estimate. After some initial delays, progress in con- struction of the irrigation works has been satisfactory, and by the end of 1977 - the last work season for which detailed information is available - the system was ready to deliver water to about 36,500 ha. On-farm works were significantly behind schedule. However, construction of feeder roads has progressed faster than initially estimated. Although a permanent director has been appointed, the extension consultant has resigned and is now being replaced. Full-time subject matter specialists have been hired and recruit- ment of field staff is continuing. Ln. No. 892 Istanbul Power Distribution Project: US$14.0 million loan of May 25, 1973. Effective Date: September 28, 1973. Closing Date: December 31, 1978. The project has been delayed by about four years mainly by slow pro- curement action; however, this is now almost completed. Local costs have increased by nearly 300 percent over appraisal estimates, and foreign costs by 26 percent. Consultant studies of the Istanbul power market and of the proposed reorganization of the company's electricity and transport services have been completed; a study of its gas operations is under review. IETT's tariffs were raised twice following the countrywide tariff adjustments made in September 1977; additional steps are planned by the Government to help cover the increased project costs and revitalize the company's finances. Ln. No. 893 Turkish State Railways: US$47 million loan of May 25, 1973. Effective Date: August 28, 1973. Closing Date: December 31, 1978. After initial delays, physical progress, including track renewals, rolling stock, and locomotive production, the latter financed by the European Investment Bank, is satisfactory. Nearly 75 percent of the loan has been  ANNEX II Page 6 of 9 disbursed and procurement actions have been or are in the process of being completed for use of the remaining loan funds, although project completion will only be in mid-1980. Despite two tariff increases since the loan was made, the Railways have continued to fall short of the financial targets in the revised Plan of Action agreed with the Bank in mid-1975. However, it is hoped that further increases in passenger fares and freight tariffs averaging 70 to 80 percent, which became effective earlier this year, will improve the Railways' financial situation. While the dieselization program is making satisfactory progress, other measures to improve operational efficiency, such as appropriate manpower planning, have not been given sufficient attention. Ln. No. 957 Antalya/Akdeniz Forest Utilization Project: US$40 million loan of January 28, 1974. Effective Date: May 26, 1976. Closing Date: December 31, 1978. Following the approval by the Executive Directors of needed changes in the agreements arising from relocation of the site of the pulp and paper mill, the loan was declared effective. Construction at the new site is under- way, and the project is expected to be completed by mid-1981, two years behind the revised schedule. The cost overruns are being met by the Government and the State Investment Bank. Some cases of sub-standard civil works construc- tion have occurred, but a corrective program and strengthened supervision by SEKA have produced some improvement. The Government has recently been unable to authorize the foreign exchange transfers needed to permit continued pro- curement for the industrial part of the project, but hopes to make certain critically needed transfers shortly. Local currency payments for the Akdeniz establishment are also behind schedule, resulting in a high debt-equity ratio. Ln. No. 1023 Elbistan Lignite Mine and Power Project: US$148 million loan of June 28, 1974. Effective Date: June 1, 1976. Closing Date: July 30, 1982. Engineering and contracting are proceeding, but project implementa- tion has been delayed by critical problems, including insufficient staff, inefficient management, inadequate coordination among various agencies and unsatisfactory performance of civil contractors. Following Bank and co-lender reviews of the situation with the Turkish authorities in early 1977, the reme- dial measures initiated by Turkey have resulted in some improvement of project coordination and physical aspects of project implementation. Financing, both domestic and foreign, remains a serious problem. The Government is reviewing possible actions to overcome these and other remaining implementation problems. Ln. No. 1024 DYB (State Investment Bank of Turkey): US$40 million loan of June 28, 1974. Effective Date: September 30, 1974. Closing Date: December 31, 1978. The loan was fully committed in February 1977, with eleven sub- projects approved by the Bank. Project implementation is satisfactory.  ANNEX II Page 7 of 9 Ln. No. 1078 TSKB (Industrial Development Bank of Turkey): US$65 million loan of January 22, 1974. Effective Date: April 24, 1975. Closing Date: December 31, 1978. The loan is fully committed and project implementation is satis- factory. Disbursements are nearly complete, although somewhat behind original appraisal estimates, as a result of difficulties with a few subprojects. Ln. No. 1130 Corum-Cankiri Rural Development: US$75 million loan of June 23, 1975. Effective Date: January 2, 1976. Closing Date: December 31, 1981. The project is progressing satisfactorily. The project extension service and credit components are operating successfully and constLtants are being engaged. Corum dam is nearing completion. Kumbaba pumping station and the associated irrigation networks are nearly completed. Construction of the remaining village centers will be delayed until 1979 while a plan for the use and maintenance of the centers already built is being drawn up. Other civil works are well underway. Ln. No. 1194 Second TEK Power Transmission Project: US$56 million loan of June 14, 1976. Effective Date: April 21, 1978. Closing Date: December 31, 1979. Procurement action is somewhat behind schedule, but nearly three- fourths of the loan is committed. Some deliveries have also been delayed because of foreign exchange shortages, but this situation is expected to improve, and overall project implementation and the rate of disbursement should also improve in the coming period. Ln. No. 1248 Agricultural Credit and Agroindustries: US$54.2 million loan of May 5, 1976. Effective Date: May 11, 1977. Closing Date: September 30, 1981. The ferryship component has been implemented, and the two roll-on and roll-off ships purchased under this project and the Fruit and Vegetable Export project, are now operating a regularly scheduled service between ports in Turkey and two ports in Italy. The project marketing and processing facilities have been selected, and preparation of their feasibility studies is expected to begin shortly. The Agricultural Bank (TCZB) has, after some delays, recently introduced acceptable new lending conditions and procedures for its ongoing supervised credit program, and disbursements for this com- ponent are expected to begin shortly. TCZB has proposed to carry out itself a study of its structure and procedures, originally envisaged for consultants, and submitted details for review. It has also requested an 18-month extension in initiating a program of improving its operations, financial planning and resources. At the Borrower's request, a cattle-fattening component of the Project, and US$7.7 million of the original Loan amount of $63 million, allo- cated for this purpose, were cancelled on May 5, 1977. Also, as provided for in the Loan Agreement, $1.04 million for training was cancelled on December 22, 1977, following approval of UNDP funds for this purpose.  ANNEX II Page 8 of 9 Ln. No. 1258 Balikesir Newsprint: US$70 million loan of May 21, 1976. Effective Date: October 15, 1976. Closing Date: December 31, 1980. The project is now proceeding satisfactorily, but due to past delays in civil works and procurement is expected to start production in January 1980, one year behind appraisal schedule. Erection of machinery and equipment is expected to begin in fall 1978 and trial runs about one year later. Ln. No. 1265 Livestock III: US$21.5 million loan of May 26, 1976. Effective Date: February 25, 1977. Closing Date: March 31, 1982. After a slower than anticipated start-up, project implementation is now satisfactory. Project area offices have been established and are virtually fully staffed, with all three consultants on post. Preparation of farm devel- opment plans has been slower than expected; however, substantial numbers of sub-loan applications have been approved and include a higher proportion than expected of small farmers. Ln. No. 1310 South Antalya Tourism Infrastructure: US$26 million loan of July 9, 1976. Effective Date: March 1, 1978. Closing Date: December 31, 1982. Implementation of most project components is satisfactory, with progress being made in preparation of specifications and project design work. The Project Unit has now been established in the Project Area and appointment of key staff is being accelerated. Ln. No. 1379 DYB (State Investment Bank of Turkey): US$70 million loan of March 23, 1977. Effective Date: July 21, 1977. Closing Date: March 31, 1981. Loan commitments have now started but not yet disbursements, mainly due to changes in Government which led to delays in formulating the 1978 Annual Program. However, DYB has discussed with the Bank a pipeline suffi- cient to fully commit the loan by mid-1979. DYB has been experiencing severe staff constraints, which it has in part overcome by recruitment of additional junior staff. It hopes improved contract terms will enable it to fill more senior positions as needed. Ln. No. 1430 TSKB XII (Industrial Development Bank of Turkey): US$74.0 million loan of June 3, 1977. Effective Date: August 29, 1977. Closing Date: June 30, 1981. Progress is satisfactory and half of the loan has been committed. In 1977, TSKB essentially reached an agreed target by allocating 38 percent of its resources to projects in less developed regions, and exceeded another in its assistance to small and medium-scale labor-intensive enterprises. TSKB has so far been unable to raise resources in international capital markets as expected because of Turkey's economic difficulties, but the interest of several financing sources is anticipated once conditions permit renewed efforts.  ANNEX II Page 9 of 9 Ln. No. 1585 Northern Forestry: US$86.0 million loan of June 5, 1978. Effective Date: October 30, 1978. Closing Date: March 31, 1986. This loan has just become effective. Ln. No. 1586 Livestock IV: US$24.0 million loan of June 5, 1978. Effective Date: October 30, 1978. Closing Date: June 30, 1985. This loan has just become effective. Ln. No. 1606 Erdemir Stage II St?el; US$95.0 million loan of June 30, 1978. Effective Date: (original) Octobt!r 30, 1978. (Current) February 28, 1979. Closing Date: June 30, 1983. This loan is not yet effective.  ANNEX III SUPPLEMENTARY LOAN DATA SHEET Section I: Timetable of Key Events (a) Loan request made to the Bank: April 1978 (b) Appraisal mission: July 1978 (c) Completion of negotiations: October 20, 1978 (d) Planned Date of Effectiveness: February 28, 1979 Section II: Special Bank Implementation Actions Nil. Section III: Special Conditions (a) Employment of experts and other technical specialists whose qualifica- tions and experience and terms of employment are acceptable to the Bank for carrying out comparative evaluation study and design engineer- ing of pilot project (para 74). (b) Undertaking additional core samples of the Bati Raman reservoir, with such specialist assistance as may be necessary (paras 71 and 76). (c) Devise an appropriate program of training by September 30, 1979 and to arrange training after Bank approval of the training program (para 76).  ANNEX IV ENHANCED OIL RECOVERY (EOR) TECHNIQUES Of the thermal methods, those principally used are steam injection and underground combustion (also called in situ combustion or "fire-flood") and they are generally used for heavy oils like that at Bati Raman, in fields where the reservoirs occur at fairly shallow depths. The depth of the reservoir at Bati Raman is near the present-day limit for steam injection techniques because of the effect of heat losses through the walls of the injection well. Underground combustion methods are difficult to control in the reservoir and are generally applicable only in fairly homogeneous reservoirs at shallow depths where the cost of drilling new air injection and production wells is not excessive. Flooding techniques are also divided into two principal categories, miscible and non-miscible (that is, miscible with the oil in the reservoir). Miscible floods may utilize gases such as methane (natural gas) or carbon dioxide which dissolve in the oil, propane (LPG) where this is cheaply avail- able, or an aqueous solution of certain chemicals which will mix with the oil. Non-miscible floods are generally fresh or salt water. The division between the two methods is blurred by the fact that the rate and manner of application of the same injected fluids can often cause them to behave as either miscible or non-miscible. All the various methods of EOR have both advantages and disadvantages, and the choice of any method, or combination of methods is based on a detailed study of the characteristics of both the oil and the reservoir rock, and of the relative capital and operating costs of the installation compared with the amount of additional oil which it is believed may be recovered from the reservoir.   BULGARIA r \58 L A C K SEA E A U. S.S. R. ;G R E E C EJ\ USSR C ) <<C> *4ainoto Sea,_3J;> IZMITp % S >9~~~~~O ~saltsn RO.) X~~~~~~~~~~~~~~~~~~~~~*t*h /N BAThkE - -- 9~~~~~~~~~~~~~~~~~~~~~~~~~~/ -t - -O DOYBBXI K -mH.X9 KIRIKKALE ~ ~ ~ ~ ~ \RA g jag/ tSKEND(Ui 9 > . so ~~~~~~~~~~~~~~~~~~~~~~~~~S.E. TURKEY OiL FIELDS TU KS H' PT UROLEU SECTOR R AN AN A S Y R I A Csqn ,koos BkNn Toaigoo t at/ ~ ~~~~I IELDS TPA0OILILS - ~ ~ 5 V~( orx) * p TPAO PIPELINE * SHRELL N C Y P R U S I 1300 ,,D3nhas bee , elo.er d by to. ^&b ~ IRAD.TUJRKEY CRUDE OIL PIPELINE * MOBIL Ba %thcnws stffcfus.efy d tvo, zmn4f n frIn - - - OTHER PIPE LI NE R Te dr.mpalons cc wc It, trchod C ZN)I o - - INTE RNAT IO NA Laou NDAR IE S - osud.ues Sb,,., son th. s m p rJ iOtIbittOII PLANNED CRUDE OIL PIPELINE I O O do0 45 n,ply.n on Rhep10 1,,v of to. IAIM RAOA =/ PLANNED REFINERIES KjOETH , t n ttT to/y or any .ndo,som.o nt-oky7 _toc oLFEDgBg w AL KAS r a pn ss