Turkey - Ports Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2227c-TU STAFF APPRAISAL REPORT TURKEY PORTS REHABILITATION PROJECT April 12, 1979 Projects Department Europe, Middle East and North Africa Regional Office 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.  (As of April 5, 1979) Currency Unit = Turkish lira (TL) TL 1 = 100 kurus (krs) US$i = TL 25 TL T I US$0.04 'Pt ,OO0OOOf - US$40,000 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) 0.62 miles 1 kilogram (kg) = 2.20 pounds (lbs) GLOSSARY OF ABBREVIATIONS BB - (Denizcilik Bankasi) Turkish Maritime Bank DWT Deadweight Tonnage GDP - Gross Domestic Product GRT - Gross Registered Tonnage HP Horsepower ICB - International Competitive Bidding TLo International Labour Organisation LI - General Directorate of Harbour Construction (Limanlar Insaati General MD) in the Minis- try of Public Works M{LW - Mean Low Water NRT - Net Registered Tonnage PCC - Project Coordination Committee SEE - State Economic Enterprise SPO State Planning Organization TCA - Transport Coordination Agency TCDD Turkiye Cumhuriyeti Devlet Demir Yollari) Turkish State Railways TCL - Turkish Cargo Lines TEU - Twenty-foot Equivalent Units TFrf - (Turk Hava Yollari) Turkish Airlines INICTAD - Unted Nations Conference on Trade and Development ULBB United Nations Development Programme Fourth Plan T urkey's Fourth Five-Year Plan 1979-83 New Ports Institution - A national ports authority or any other viable institutional arrangement to be established to own and operate public ports in Turkey. FISCAL YEAR (of DB and TCDD) January 1 to December 31  FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT TURKEY PORTS REHABILITATION PROJECT Table of Contents Page No. I. THE TRANSPORT SECTOR ................................ 1 A. The Transport System ............1............... B. Transport Policy, Planning and Coordination .... 2 C. Previous Bank Group Transport Sector Operations in Turkey ...................................... 4 II. THE PORTS SUB-SECTOR AND PROJECT PORTS .... .......... 5 A. Ports Sub-Sector ............................... 5 B. Project Ports .................................. 17 III. THE INVESTMENT PLAN AND THE PROJECT .................. 21 A. Ports Sub-Sector Investment Program ............ 21 B. Project Objectives ...... ....................... 21 C. Project Description ...... ...................... 22 D. Cost Estimates ................................. 24 E. Financing Plan .................... 26 F. Project Execution, Supervision and Reporting ... 27 G. Procurement and Disbursement . . . 31 H. Retroactive Financing . ......................... 33 I. Environmental Impact . ................. 34 J. Impact on Employment . . .34 IV. ECONOMIC EVALUATION .34 A. Traffic Analysis and Projections . . .34 B. Project Benefits ...... . .. 37 C. Economic Costs of the Project . . .42 D. Economic Return and Sensitivity Analysis 43 This report is based on information provided by the Transport Coordina- tion Agency, the Turkish State Railways and the Turkish Maritime Bank, and on the findings of an appraisal mission in April-May 1978 composed of Messrs. T. Pankaj (Transport Economist), A. Krishnan (Financial Analyst) and R. Y. Scheiner (Port Engineer, Consultant). 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.  Table of Contents (Continued) Page No. V. FINANCIAL EVALUATION ................................ 44 A. General Objectives ............................. 44 B. Finances - Present and Projected .... ........... 45 VI. AGREEMENTS REACHED AND RECOMMENDATION ........ ....... 50 ANNEXES 1. Detailed Project Components and Cost Estimates ........... 52 2. Documents in Project File ................................. 54 MAPS 1. Turkey - Location of Main Ports and Transport Links, Map No. IBRD 13702 2. Turkey - Marmara Region Ports, Map No. IBRD 13703  I. THE TRANSPORT SECTOR A. The Transport System 1.01 Turkey, with an area of 777,000 sq. km., is a mountainous country with about 50 percent of the territory rising over 1,600 meters. Its large size and often rugged terrain have added greatly to the difficulty of con- structing the country's transportation system. This system, in the form of road, rail, sea, and air links or combination thereof, now extends to all major provincial centers. Transportation services are provided by both the state and private sectors, with road transport in the hands of generally small private entrepreneurs, rail and air transport services operated by State Economic Enterprises (SEEs), and ports and maritime transport being handled by both public and private enterprises. 1.02 During the early years of the Republic, major emphasis was placed on developing the railway network. However, for the last 25 years this net- work has remained essentially unchanged in size at around 8,000 km, although a small line extension was built in 1971 to connect Turkey with Iran; con- struction of a new high-speed line connecting Istanbul with Ankara was .recently initiated, but further work on it is now under review. This initial emphasis on rail development was replaced in the late 1940's and early 1950's by large-scale efforts to develop the country's road network, which today constitutes the main transport system. From 1950 to 1977, the length of all surfaced and provincial roads more than doubled from 24,000 km to over 59,000 km. The emphasis on road development has also been accompanied by an increase in the size of the motor vehicle fleet, which rose from less than 200,000 in 1965 to over 900,000 in 1977. With the main road network in place, Government efforts since the late 1960's have concentrated on improvement of the existing infrastructure and on development of a network of village roads. 1.03 In 1977, the Turkish merchant marine consisted of 347 ships of 300 gross tons and over, with a combined gross tonnage of 1,228,500; of this tonnage, general cargo vessels and ferries accounted for 35%, tankers 29%, bulk carriers 26% and other vessels 10%. Of the total ships 182 were pri- vately owned, constituting about 32% of total tonnage. The remaining 165 ships were publicly owned, making up 68% of total tonnage. The fleet is considered by the Government to be inadequate in size, being able to carry only about one-third of Turkey's imports and exports. The Turkish Maritime Bank (DB), which is a Government-owned company called State Economic Enter- prise (SEE), passenger shipping (both coastal and foreign), while the Turkish Cargo Lines (TCL), another SEE, handles cargo traffic (both coastal and foreign). Coastal traffic in cargo and passengers is reserved for Turkish ships. Turkey's private sector shipping competes in all these trades. 1.04 Turkey's large coastline and its rugged terrain have caused the growth of many ports in Turkey, though many of them are small jetties and landing places (see Chapter 2 below for more details on the ports sub-sector).  -2- 1.05 At the end of 1978, sixteen airports were in use for scheduled domestic traffic, including five airports (Istanbul, Ankara, Izmir, Adana and Antalya) which were also being used for international traffic. The civil airports are operated by the General Directorate of State Airports. Turkish Airlines (THY), an SEE, provides the domestic air services as well as service abroad. 1.06 The present overall pattern of transportation in the country reflects the rapid growth and dominance of road transport. The share of highway freight traffic in total transport increased from about 40% in 1960 to about 76% in 1977, the share of highway passenger traffic increasing in the same period from about 73% to about 96%. The total railway traffic, on the other hand, has remained fairly stable in absolute terms in recent years, with its relative share declining. In 1977, the railways carried about 14% of total goods traffic and less than 3% of total passenger traffic. The other modes carried even less; coastal sea transport accounted for about 10% of total goods traffic and 0.2% of passenger traffic, while air transport handled 0.9% of domestic passenger traffic and a very small portion of freight traffic. B. Transport Policy, Planning, and Coordination 1.07 Responsibility for transport sector planning, policy development, and investment is divided among a large number oif key ministries and agencies. The main agencies involved are: (a) the Ministry of Transportation, which significantly contributes to transport policy ancl also oversees the main SEEs in the transport sector - the Turkish Maritime Bank (DB), Turkish Cargo Lines (TCL), Turkish State Railways (TCDD), Turkish Airlines (THY); (b) the Ministry of Public Works primarily responsible for planning and execution of all transport infrastructure projects including planning, policy and construction of highways; (c) Ministry of Village Affairs responsible for village road development; and (d) the State Planning Organization (SPO) which coordinates and helps determine project priorities in conjunction with the Ministry of Finance. 1.08 The need for improved coordination of the sector and a system for ensuring an appropriate determination of modal, sector, and national priorities has been recognized by the Government for sometime and incorporated as a major goal in its development plans. With this objective, and in close cooperation with the Bank, the Government established a Transport Coordination Agency (TCA) in 1970. Initially attached to SPO, TCA was subsequently incor- porated in the Ministry of Transportation. During negotiations in 1972 for the First Railway Project (Loan 893-TU), an initial program of work for TCA was agreed upon which included several specific studies: the adequacy of user charges in all transport modes; the adequacy of the present management informa- tion system; a study of the impact of import restrictions on availability of transportation equipment and components; and formulation of a draft transport policy statement, all of which have been essentially completed, and have been used in support of preparatory studies for the Fourth Five-Year Plan (1979-83)  -3- and in preparation of proposals for recently implemented (1978) tariff in- creases in all public sector transport undertakings. To assist TCA in devel- oping its capacity to carry out transport coordination, a program of technical assistance, financed through the UNDP with the Bank as executing agency, was also agreed upon in 1972, the first phase of which has now been virtually completed. The TCA, which operated on an interim basis requiring annual renewal by Government decree until early 1978, has been incorporated from April 1978 as a regular part of the Ministry of Transportation with respon- sibility for transport planning and project coordination within the Ministry. 1.09 While TCA has by now built up considerable experience in transport planning and policy research, it does not yet have the authority to effec- tively coordinate transport planning and policy, since the Ministry of Trans- portation deals with only part of the transport sector. In addition, neither TCA nor other agencies concerned with transport (including SPO) have the trained staff or expertise needed to conduct sufficient financial and economic analyses of major transport investment decisions. As a result, inadequate coordination of transport planning and policies and a less than optimal in- vestment decision process remain as key problems facing the sector. To help remedy this situation, TCA's recently completed draft report on transportation sector development contains recommendations for strengthening transport sector planning and coordination, including a consolidation of agencies concerned with transport under the Ministry of Transportation; the Government is cur- rently reviewing these recommendations. The Government has indicated through the Fourth Five-Year Plan document, recently approved by the Parliament, that organizational changes and studies on needed infrastructure improvements will be speeded up. The proposed project includes technical assistance to complete a detailed port sector planning study which the Government has recently initiated through TCA. The Government is also considering preparation of a national transport plan for the country based on regional multimode studies, possibly with Bank or UNDP assistance. 1.10 Apart from deficiencies in coordination and planning, the other main sectoral issues facing the Government are the following: (a) capacity bottlenecks in the road system, both in urban centers and in non-urban areas, due to the increased transport demand created by urbanization and industriali- zation and an increase in international transit traffic. In particular, heavy use of the road system and an ineffective system of truck weight and traffic control have resulted in deterioration of road infrastructure combined with escalating maintenance needs and high accident rates; (b) operational and some physical constraints in the railway system, compounded by managerial and organizational difficulties, resulting in its failure to draw a larger share of industrial and transit goods traffic from the road system; (c) bottlenecks in port capacity (as discussed in detail in paras. 2.23 to 2.29); and (d) financial deficits of the SEEs in the transport sector and the need to modernize their management. As reflected through the Fourth Plan objectives and program, the Government is giving high priority in tackling these various issues. On the issue of tariff levels, tariff rates and charges levied by the SEEs in the transport sector were increased during 1978 by a range of 30% to 80%; the Fourth Plan states that efforts will be made to study the actual  -4- costs of various transport modes and to set tariEf levels in relation to such costs and other related factors. C. Previous Bank Group Transport Sector Operations in Turkey 1.11 The proposed loan would be the fourth Bank loan in the transport sector in Turkey. The three earlier loans were: (i) loan 28--TU dated July 7, 1950, for US$12.5 million for port development which included the following main components: extension of Salipazari, Haydarpasa and Izmir ports, con- struction of a new port at Samsun, mechanical equipment for loading/unloading grain, ore and coal at Iskenderun, essential repair and replacement of cargo-handling equip- ment in the above ports and some harbor construction equipmerLt for the Ministry of Public Works; (ii) a supplementary loan for port development No. 28-TU Supplement No. 1 dated February 28, 1954, which increased the original loan to US$16.3 million to meet increases in project cost estimates arising from agreed changes in the project and price increases after 1950; (iii) loan No. 893-TU dated May 25, 1973, for US$47 million for the rehabilitation of the Turkish State Railways (TCDD). The project covered by loans (i) and (ii) was expected to be completed in 1958 but was actually comnpleted only in 1962. Most of the construction was finished by 1959 and many of the assets were in use by that date, but due primarily to delays in completing equipment procurement, the loan was closed only in June 1962. The railway project under the third loan, expected to be completed in 1975, has been considerably delayed and disbursements for major remaining equipment items are now expected to be completed by mid-1980. Nevertheless, about 75% of the loan has been disbursed, and the physical improvement elements of the project, such as track renewal, have now been completed. Procurement actions have been or are in the process of being completed for use of the remaining loan funds. Despite two tariff increases since the loan was made, the Railways have continued to fall short of meeting the financial targets in the revised Plan of Action agreed with the Bank in mid-1975. However, it is hoped that the further increases in passenger and freight tariffs averaging about 70-80%, which became effective in early 1978, will improve the Railways' financial situation. While the dieselization program is making satisfactory progress, other agreed measures to improve operational efficiency and for conducting proper pre-investment studies have not been given sufficient attention. 1.12 In addition to the above, transport components have been incorporated as part of other Blank-supported projects. These include financing of a roll-on/ roll-off ferryboat and refrigerated trailers under the Fruit and Vegetable  - 5 - Export Project (Loan/Credit 762/257 signed June 22, 1971) which project is now substantially completed; a second roll-on/roll-off ferryboat already procured under the Agro-credit and Agroindustries Project (Loan 1248 signed May 5, 1976); construction and improvement of village roads as part of the on-going Corum Cankiri Rural Development Project (Loan 1130-TU signed June 23, 1975); and construction and improvement of forest and logging extraction roads including forest village access roads under the Northern Forestry Project (Loan 1585-TU signed June 5, 1978). II. THE PORTS SUB-SECTOR AND PROJECT PORTS A. Ports Sub-Sector a. General 2.01 Turkey has many seaports along its long coastline of about 7300 km. These include 10 major public ports, (i.e., operated by public agencies for general use by public), mainly handling international trade; about 30 small municipal and other public ports, mainly for domestic traffic; and some 35 specialized port facilities owned by industrial complexes which handle their own traffic. (See Map-IBRD No. 13702 for location of main ports.) These ports handle over 90% of the country's foreign trade volume. Total port traffic in cargo during 1977 was about 37 million tons, consisting of 20 million tons of oil traffic (8 million in coastal trade), 10 million tons of dry bulk (half in coastal trade), and 7 million tons in general cargo (1 million tons in coastal, and 0.6 million tons in transit traffic). Of the above, the public ports handled about 35% in oil cargo, 45% in dry bulk and over 90% in general cargo. Since most of the high-value imports and exports are handled as general cargo, the public ports, with such a large share of this traffic, occupy a crucial role in handling the country's foreign trade. 2.02 The main problems facing Turkey's ports are, in order of priority: (i) capacity and operational constraints, arising from inadequate facilities, obsolete equipment and inefficient methods; (ii) inadequate subsector planning to guide investments on a rational basis; and (iii) organizational, arising from fragmentation of responsibility. These issues are discussed in detail below, though in a different order. b. Organization Description 2.03 Port administration in Turkey is split among many agencies resulting in inadequate coordination in port planning and management. The port facili- ties in the private sector, most of which are for handling bulk cargo, are operated by private industries for their own use. The administration of public ports handling general cargo is divided between two SEEs: the ports  - 6- of Haydarpasa, Derince, Samsun, Mersin, Iskenderun, and Bandirma are admin- istered by the Turkish State Railways (TCDD), while Antalya, Salipazari, Izmir, Trabzon, and six smaller ports are administered by the Turkish Maritime Bank (DB) which operates, among other things, passenger shipping and shipyards. Though both agencies are under the Ministry of Transportation, each operates for the most part independently. Other main Government agencies dealing with the planning and administration of public ports are: (a) the General Directorate of Harbor Construction (LI) in the Public Works Ministry, which constructs new port infrastructure for Government and passes them on to the operating agencies, and also carries out the ports' maintenance dredging and other major civil works maintenance on a contractual basis for the operating agencies; (b) the Ministry of Industry, which cont:rols specialized industrial ports serving particular industrial units as in Isdemir, Izmir, Zonguldak and Eregli; (c) TCA, within the Ministry of Transportation, which partly assists in investment planning and has recently been assigned by Government to coor- dinate preparation and implementation of the proposed project between the concerned agencies and with the World Bank; and (d) the State Planning Orga- nization (SPO) and the Ministry of Finance, which together decide overall project priorities and investment allocation. The State Planning Organiza- tion, which is attached to the Prime Minister's Office, must approve all major public investments in the ports sub-sector and is playing an increasingly active role therein. While this ensures overall coordination in investment, the SPO has to depend on the related Ministries for sector and project plan- ning and feasibility studies. Present inadequacies in such planning studies adversely affect the quality of investment allocation made by SPO (see paras. 1.09 and 2.15c). 2.04 Since the ten project ports (see Sectioni B, page 17) constitute a major segment of the port sub-sector in Turkey, the basic organizational features and problems of the port sub-sector also apply to the project ports. TCDD and DB, which administer all the main public ports including the project ports, are both under the supervision of the Ministry of Transportation, which approves the annual budgets and investment prograrns of both organizations and decides on policy matters and the pricing of services. Subject to these controls both organizations operate as independent: enterprises; they are managed by Boards of Directors consisting of 6 mermbers each appointed by the Cabinet. The Director-General of TCDD and the General Manager of DB (the chief executives of the two organizations) are Chairmen of their respective boards. 2.05 In the headquarters of each organization there is a separate depart- ment of ports headed by a ports director who is responsible for the overall planning and functioning of the ports and their coordination. Each individual port is managed by a port director. The total staff employed in the two organizations for managing port activities is about 4800 in DB and 3900 in TCDD, the administrative staff being roughly 24% of the total. Salaries and wages in DB are generally higher than comparative levels in TCDD, and this disparity is observed also in the case of ports urnder the two agencies. 2.06 Cargo handling in the project ports is carried out both on ship and on shore by port staff working in two shifts with occasional overtime.  -7- Temporary labor is recruited as required by work loads. Port labor is paid on an incentive basis in the ports of DB, which leads to better output rates but higher cargo damage. The port labor under TCDD receive monthly wages, not based on outputs, resulting in lower throughputs. Government is presently negotiating with the unions to evolve a uniform and improved payment arrange- ment in preparation for the establishment of the proposed new ports organiza- tion (see para. 2.22). 2.07 All major investments in construction of port infrastructure for TCDD and DB are executed through the Ministry of Public Works, through funds allocated to that Ministry from Government's annual budgets. The Public Works Ministry (through its harbor construction wing, LI) undertakes these construc- tion works on force account or with the help of contractors. On completion of the construction projects, the assets are transferred to the ports (to TCDD or DB) and their values are then reflected in the TCDD or DB accounts as equity. Usually, such completed works also include the necessary complement of port equipment financed by Government through LI, but there are many exceptions to this when TCDD or DB try to buy equipment through their own budgets. The Public Works Ministry is responsible for maintenance of civil works for the first two years after construction. TCDD and DB are responsible for further maintenance of the facilities (both equipment and civil works), which they may do on a contractual basis through LI or private firms, or in the case of equipment, through their own workshops. TCDD and DB are also responsible for purchases of additional equipment and floating craft, and for small additional civil works met by provision in their respective budgets, and financed by either their own resources or through short-term loans from commercial banks. During 1976 and 1977,-such capital expenditure on new items financed by TCDD and DB respectively amounted to about 20-25 million TL per annum. 2.08 With minor exceptions, all cargo-handling equipment for handling general cargo in the project ports is owned, operated and maintained by TCDD or DB for their respective ports. The port workshops owned by TCDD and DB are by and large adequately equipped and would be able to cope with the main- tenance of the new proposed equipment with only minor additions, provided an adequate supply of spare parts is available, and provided the workshops' staff are trained to maintain the new equipment. Government's agreement has been obtained during negotiations that Government will allocate adequate foreign exchange yearly to meet the essential repair and maintenance require- ments of the existing port equipment and the new equipment to be provided under the project. Accounts 2.09 The financial transactions of the project ports are centralized in the head offices of TCDD and DB at Ankara and Istanbul respectively. Daily, monthly and quarterly statements are received at the head offices from the constituent units and are recorded in sufficient detail to identify the various items of income and expenditure portwise and to segregate the port transactions from the other activities of the two organizations. In view of the importance of treating the port finances on a separate footing, agreement of DB and TCDD was obtained during negotiations (i) to continue to maintain the port accounts separately; and (ii) henceforth to have them audited as separate accounts.  -8- 2.10 Depreciation rates, based on Government regulations, for the various categories of assets are adequate; but since the value of assets shown in the accounts is based on their original or historical costs and since most of the assets are fairly old and the costs shown in the accounts do not reflect the real current values, the total amount of depreciation adjusted annually is not sufficient to cover the replacement costs of the assets. It is therefore necessary to revalue the assets and to evolve a suitable procedure for their periodic revaluation. Provision has accordingly been made in the project for providing consultancy assistance for the revaluation of port assets. During negotiations, the Bank obtained Government's agreement to cause the assets of the ports to be revalued based on a review of the consultants' recommendations and to reflect the revised values in the financial statements from the year ending 1981, at least on a pro forma basis. Government's agreement was also obtained to undertake such revaluation and updat:ing of financial statements at least once in every three years thereafter. Audit 2.11 The annual accounts of the TCDD and DIB, which incorporate the port transactions, are audited by the High Control Board under the Prime Minister. The question of an independent audit of the port transactions of DB and TCDD was discussed during negotiations, and it was agreed that Inspectors or Accounting Auditors of the Ministry of Finance would undertake such audit, with the understanding that the Bank reserves the right to review at any time its decision to accept this arrangement. Insurance 2.12 Both TCDD and DB are insured with Ray Insurance, a Government insur- ance company (in which both TCDD and DB have shareholdings), against losses and damage to property and other assets. The present arrangements are satis- factory. During negotiations, agreement was obtained from TCDD and DB that they will continue to make arrangements, satisfactory to the Bank, for coverage of these and other risks in accordance with appropriate port practices. Tariffs 2.13 Port revenues of the project ports are comprised of (i) tariffs charged by DB and TCDD for port services (as charges on ship-owners and on importers/exporters), such tariffs accounting for about 56% of total port revenues, and (ii) an ad valorem duty called Dock Dues, of 5% of the value of imports handled by the ports, collected from importers. This duty is collected by the Customs Department and passed on to the port concerned. The rate of the duty was originally 1% in 1936, raised to 2-1/2% in 1957 and further raised to 5% in 1967. This ad valorem duty which contributes to such a large share of the ports' revenues (44%) is not related to any particular service rendered by the ports to cargo or to ships. The heavy dependence on this duty distorts the tariff structure of the ports because (i) it is col- lected from only one section of the port users (viz. importers), and (ii) it results in other sections of the port users, such as foreign ship owners, not paying the fair share of the cost of port services with loss to the country in  - 9 - potential foreign exchange earnings. Since this ad valorem duty is imposed only on port-based imports (this is not charged on foreign imports carried by road, rail or air ways), this is also likely to distort the transport pattern of imports by increasing the relative cost of shipping compared to overland transport costs. 2.14 The distortions in the present port tariff and revenue structure noted above highlight the need for proper costing studies to establish service- wise cost data and to help introduce a proper cost accounting system for the ports, in preparation for the eventual introduction of a cost-related tariff system. Provision has accordingly been made in the project under technical assistance for the services of a costing expert to prescribe a suitable cost- accounting system for the ports; Government's agreement was obtained during negotiations that the costing studies will be completed by October 31, 1980. Government has also agreed during negotiations to introduce a more rational, cost-related tariff structure for the ports before 1982, following these costing studies (this is discussed in greater detail in para. 5.11). Shortcomings in Sub-sector Organization 2.15 The main shortcomings of the present organizational arrangements for Turkey's ports subsector are: (a) There is no coordination between ports in many areas where such coordination can be very useful for the country: for organizing training, standardization of documentation including collection of port operational statistics, and in coordinating operations and resources between neighbor- ing ports. The fact that the main port facilities of Istanbul are divided between the two agencies (Haydarpasa under TCDD; Salipazari under DB) is a clear example of uneconomic bifurcation of management. (b) The two SEEs concerned with ports, TCDD and DB, have as their main activity, railways and shipping, respectively. They have therefore tended to regard ports as support facilities to their main activity, and even though they derive about 33% and 45%, respectively, of their revenue from ports, this revenue has flowed straight through-to support other activities to the detriment of ports (see para. 5.04). As a result, the top management dealing with ports is not port-oriented in outlook and experience. (c) Port project planning (including at times feasibility studies through local consultants) and design of facilities is done by the Public Works Ministry without any active involvement of the port operational agencies and without coordination with the limited sector planning studies undertaken by the TCA. 2.16 In addition to the above deficiencies in sector organization and coordination, there are problems related more to the policies adopted by the port agencies--for example, their financial and tariff policies--which are discussed together with the reforms agreed, in paras. 2.09 to 2.14 above.  - 10 - Immediate Remedies Proposed 2.17 The proposed project envisages a number of measures (see list below) to help coordination within the existing ports organizational structure, and generally to meet the main shortcomings listed under para. 2.15. In partic- ular, these measures aim at (a) coordinated and efficient implementation of the proposed project, and (b) going beyond the project horizon, improvement of the port sector organization in general. All these measures have been agreed to by Government during negotiations, and with regard to some items, Government have already initiated action. The main reforms proposed and agreed in this regard are listed below, with suitable cross-references to more detailed discussions occurring elsewhere in the report: (a) to set up and implement, not later than January 1, 1981, procedures for standardization of port equipment to be bought by TCDD and DB, and for pooling of their spare parts, on a continuing basis; this will be in continuation of the common specifications and procurement procedures initiated for implementing the proposed project, with suitable changes (see paras. 3.16 and 3.17); (b) to set up common training programs for TCDD and DB ports, covering training of port labor and management, on a regular basis, as a continuation of the joint training programs started under the proposed project (see also para. 3.18); (c) to introduce, not later than January 1, 1982, common costing and accounting procedures for both TCDD and DB ports; (d) to set apart sufficient funds from current port revenues of TCDD and DB to meet the ports' operating expenses, including adequate maintenance, debt-service and a reason- able annual contribution to future expansion (see para. 5.12); such allocation of funds to be reflected in sepa- rately maintained and audited port accounts (see para. 2.09); (e) to improve quality of and coordination in port sector planning and project design (i) by updating, on a con- tinuing basis, the port sector plan prepared under the proposed project, for which the TCA will be strengthened as needed by January 1, 1982; (ii) by setting up an interministerial committee on port sector planning con- sisting of the Ministries of Transportation, Public Works, Finance, SPO and other related agencies, to coordinate the port planning study under the proposed project and to oversee its future updating and implementation (see para. 3.18); and (iii) by arranging for training abroad of at least two port engineers from the LI in advanced programs on harbor design to be completed by January 1, 1982;  - 11 - (f) to set up by January 1, 1981 an administrative machinery, acceptable to the Bank, for the purpose of coordinating the cargo-handling operations and utilization of related facilities at the two Istanbul ports, viz. Haydarpasa and Salipazari. Although a unified organization would be pre- ferable, it is not practicable in the short run since fresh legislation would be required for the purpose; the short- term measures envisaged consist of setting up a committee of the two agencies to define areas of cooperation followed by regular meetings of the operational managers, for which a protocol would be signed by the two managements. There is already a precedent for this in the field of procurement; and (g) to coordinate collection and analysis of port operational and traffic statistics on a national basis, for which the Ministry of Transportation will set up within TCA, not later than September 30, 1979, a port statistics unit staffed by qualified statisticians (see also para. 2.35). 2.18 Of the measures listed above, all items with the exception of (g) (on collection of national port statistics) build on steps necessary for the success of the proposed project; the above provisions seek to institu- tionalize these measures on a long-term basis, beyond the immediate context of the project. Implementation of the measures under para. 2.17, along with the other reforms referred to under paras. 2.09 to 2.14 above, should ensure the minimum essential institutional reform in the Turkish port sector needed for the success of the proposed project and for streamlining the subsector in general. Jurisdiction to Implement Remedial Measures 2.19 All the above measures (para. 2.17) can be implemented without any change in existing legislation. Under the Turkish administrative structure, the responsibility for implementing the above steps, with the exception of items e(ii) and e(iii) (on interministerial planning committee and training of LI engineers), will be that of the Ministry of Transportation with the active involvement of both TCDD and DB, over whom this Ministry has super- visory powers. These agencies have sufficient powers to undertake such measures subject, in the matter of tariff revision and additional staff for TCA, to the concurrence of the Ministry of Finance. The training of LI engineers will be the responsibility of the Ministry of Public Works, with the approval of the Ministry of Finance. The setting up of the committee on port planning needs interministerial action, but the responsibility and initiative for this would be that of the Ministry of Transporation. Long-term Solution 2.20 As a more fundamental and long-term solution to the fragmentation of responsibility in the ports sub-sector, the Government is currently con- sidering a draft law, prepared by the Ministry of Transportation, to estab- lish a national port authority called the General Directorate of State Ports  - 12 - Operations (DEVLIM), to operate the ports presently under TCDD and DB as well as other ports assigned to the Directorate. DEVLIM would be attached to the Ministry of Transportation, would possess the status of a legal entity, and would operate through an annexed budget (i.e. a budget annexed to the Govern- ment's general budget). Under the proposed law, DEVLIM would be responsible for (i) the operation of all ports on an efficient and least-cost basis, with the establishment as needed of separate administrative entities to operate individual ports or groups of ports, such entities being given substantial administrative and financial autonomy; (ii) setting of port tariffs with approval of the Ministry of Transportation; and (iii) coordinating port planning and investments on a national basis. The proposed legislation has the following positive features: (i) the proposed reform would focus on ports only and provide a basically port-oriented organization to manage ports; (ii) it is in harmony with and would foster the interim reforms proposed above in para. 2.17; and (iii) it sets a single framework in which the main problems facing Turkish ports can be helped, and it is fair to assume that, as a conse- quence,-there. would be better coordination in port planning, and investments, in management of neighboring ports as in Istanbul, in training, procurement and pooling of spare parts. The draft legislatiLon in its present form, how- ever, is not an ideal prescription because it does not define the financial objectives of DEVLIM, or the extent of financiaL autonomy it would have and would be granted to the regional ports. Though sufficient financial autonomy is possible while operating with an annexed budget, the prevailing practice in Turkey with regard to such organizations would suggest that such autonomy may not be achieved in practice. There are also more fundamental questions like whether a national authority is the best or the only solution to the problems faced by the Turkish port sector, and whether other solutions such as regional authorities would not be more appropriate. 2.21 The above aspects were discussed during negotiations. The Govern- ment representatives indicated that the draft legislation is now under review by an inter-ministerial committee, and that the question of the form of the new organization is still under discussion. They are considering alternatives like an SEE-type organization, with autonomous regional units, and would also consider other solutions before taking a final decision in the matter. 2.22 In view of the above circumstances, and in order to facilitate and ensure the implementation of long-term organizational reform in the subsector, Government's agreement was obtained during negotiations on the- following steps: (i) that Government would furnish to the Bank, before March 31, 1980 for exchange of views, detailed draft proposals for the establishment of a new ports organization to own and manage public ports in Turkey (hereinafter referred to as the New Ports Institution), together with drafts of the legal instruments needed for the establishment of such institution; (ii) that after the Bank's review, the Government will promptly take all steps for finaliza- tion of such instruments, including presentation to Parliament; and (iii) that after the finalization of such documents including Parliamentary approval, they will cause the New Ports Institution to become fully operational within 36 months, for which Government will prepare within 18 months of the enabling legislation, and following exchange of views with the Bank, a detailed admin- istrative, financial and legal implementation plan. The proposed project includes 12 man-months of technical assistance to assist in preparation of such implementation plan.  - 13 - C. Port Capacity and Operational Constraints Assessment of the Problem 2.23 Port operations in Turkey's main public ports are severely hampered by: (i) old, obsolete, and inadequate cargo-handling equipment and floating craft; (ii) shortages in open and covered storage areas, and deficiencies in other quay facilities; and (iii) relatively untrained port labor and outdated port management techniques. These constraints contribute in many ways to low productivity, inefficient handling, high incidence of cargo damage and longer ship-time in ports. 2.24 The operational availability of existing cargo-handling equipment in Turkish ports remains very low (less than 50%) due to frequent breakdowns caused by age (more than half of the equipment is 20 years or older) and to some extent by the lack of spare parts, partly the result of inadequate allocation of foreign exchange by Government. Given the age-composition of ships visiting Turkish ports (with a large share of old ships lacking in suitable handling gear), such breakdowns considerably slow down port opera- tions. Further, since 50% of the existing port cranes have a nominal capacity of only 1-3 tons, and are actually downrated to 1-1/2 ton capacity, they are often unable to cope with the heavier parcels, thus requiring shifting of vessels to berths with heavier equipment, which causes further delays in the cargo-handling process. Lack of modern equipment, supported by trained staff, also prevents the proper use of palletization and containerization of general cargo to improve port efficiency and productivity. 2.25 The ports also lack suitable floating crafts, including tugboats and floating cranes. The existing fleet of tugboats is insufficient in numbers and inadequate, because of age and low pulling power, to cope with the increasing numbers and sizes of vessels visiting the Turkish ports and/or using the Bosphorus and Dardanelles straits (whose pilotage is handled by DB). The danger and frequency of accidents and oil spills is increasing. The operational capacity of the existing floating crafts is further limited by the absence of sufficient slipway facilities for their regular maintenance and repairs; some of these crafts have to travel about 500 miles to the nearest slipways in Izmir or Istanbul. 2.26 Turkey has only four floating cranes of up to 60 tons capacity, all of them about 25 years old. DB has recently ordered a 100-ton floating crane for its shipyard in Istanbul, in replacement of an old 100-ton crane presently downrated to about 60 tons. This new crane will be partly avail- able for general use in the Istanbul area. The country however badly needs a heavier floating crane, to handle the increasing number of heavy lifts now using specialized vessels equipped with heavy-lift handling gear, involving very high freight charges. 2.27 In addition, many ports, especially the two ports of Istanbul, lack sufficient storage facilities for cargo; and some ports, particularly Mersin and Iskenderun, lack suitable drafts to handle the increasing size of tankers and other bulk carriers visiting those ports. Many of the ports are also in need of substantial rehabilitation of the paving and other civil works com- ponents of their wharf facilities.  - 14 - 2.28 Only limited facilities are available in Turkey for training of port labor and operational staff. There are small training units in the ports of Izmir and Istanbul, and there is a training section in the head- quarters of DB, but the latter mainly deals with training for other activi- ties of DB, and gives only limited attention to port training. TCDD has a training institute in Istanbul for training railway staff but this institute does not impart any port training as yet. The absence of suitable training facilities and programs has contributed to deficiencies in the cargo-handling and storage management at the ports. Cargoes in many ports are stored badly, and abandoned or damaged cargoes occupy prime storage areas; aisles for equip- ment and vehicle passage are often used for storage and, with few exceptions, large portions of the wharves' aprons are stacked with cargo. The ports are therefore compelled to handle an increasing proportion of general cargo on a direct delivery basis, but because of blocked aprons, trucks cannot move freely, thus causing a decline in gang productivity. In addition, incidence of cargo-damage is high, value losses up to 2% being reported as common. Indeed, this overall situation reflects the compounding of the capacity constraints by the deficiencies in the management methods used. 2.29 These various problems faced by the Turkish ports at present result in low cargo throughput, delays to ships and cargo, and many other extra costs to the country. The throughput in handling general cargo in Turkish ports is only about 300-450 tons per ship-day (about 50% of generally accepted stand- ards). The prevailing conditions have led to excessive ship-waiting times, causing demurrage payments and congestion surcharges--amounting to an esti- mated US$10 million in the Istanbul ports alone in 1976, which was a year of peak general cargo traffic--the high congestion surcharges continuing towards the end of 1977. Though the recent slowdown in traffic has reduced port congestion, this problem would, in the absence of the proposed project, recur as traffic picks up again in the near future. Proposed Remedies 2.30 To overcome the capacity and operational constraints mentioned above, the proposed project provides for critically needed replacement of cargo-handling equipment, floating craft and spare parts, as well as some essential civil works, including slipways and dredging, and training of port labor and managerial staff. Since it is presently recognized by the port agencies and Government that even with the availability of sufficient equip- ment, training of labor and management staff is critical for improving effi- ciency and productivity in Turkish ports, the proposed project emphasizes the training component. Further details of the above-mentioned project elements are given under Chapter 3. 2.31 To increase storage capacity, Government issued a decree in August 1977 which permits the ports to auction off and remove cargoes which are con- sidered abandoned in ports or have not been cleared within a period of two months after import as specified by Customs Law. Its effective implementa- tion, however, has been delayed for administrative and some legal reasons. As a result, the storage situation is especially critical in the ports of Haydarpasa and Salipazari where at times ships cannot come alongside because of the lack of operational and storage areas to receive their cargo, and in many cases, for similar reasons, ships can work from one or two hatches only.  - 15 - To remedy the situation, the Government has issued a new decree in February 1979 which removes the inadequacies of the previous decree. During negotia- tions, Government agreed on an action program to promptly clear the old cargoes, with the support of the new decree. Progress in its implementation will be monitored by the Project Coordination Committee headed by the Under- secretary or Deputy Undersecretary in the Ministry of Transportation (see para. 3.17) and Bank will be kept informed on such progress. 2.32 Port management and operations must be improved in order to cope with the limited facilities. Forward planning to adequately plan storage, manpower and equipment deployment must be introduced, and port statistics which are inadequate have to be improved. Some of these objectives will be met with the help of the training programs for labor and management included under the project. Suggestions for improving port statistics are presented in para. 2.35 in the context of the discussion on port planning. d. Inadequacy of Port Sub-sector Planning 2.33 Owing to inadequate resources allocated for transport sector planning in general (see para. 1.09) and poor coordination in whatever studies are being done (see para. 2.15c), planning in the ports sub-sector has suffered from a lack of national perspective and inadequate economic and technical analysis of the investments. The Government has currently under consideration a number of major port investments for which priorities cannot be established without a proper national framework. This is particularly true in the Istanbul/Marmara region which accounts for a large share of shipping traffic and where existing ports are a major factor in urban congestion. In spite of the urgency attached by the Government to many of these projects, they are not included in the Fourth Five-Year Plan recently finalized. This is partly due to Government's recognition of the need for proper planning studies before deciding on priori- ties, and partly due to shortage of resources. Government's Fourth Five-Year Plan mainly concentrates on the rehabilitation of existing facilities as covered by the proposed Bank-financed project, and on the completion of on- going infrastructure projects which were started earlier and which appear generally justified. Priorities for subsequent major new port investments are yet to be determined. 2.34 In order to assist in preparing a well-coordinated national master plan for the ports sub-sector, indicating priorities over the next 10-year and 20-year horizons, the proposed project includes technical assistance for a port planning effort in three phases: (i) Phase I: Study of national port capacity requirements during the next five-, ten-, and twenty-year time spans, in terms of supply, demand and shortages in port capacity in different regions (already initiated by TCA); (ii) Phase II: Preparation of an optimal national ports master plan to meet projected needs in different regions, defin- ing preliminary projects and their priorities, and including a special study on the location, feasibility and priority  - 16 - for developing a Marmara regional port: to replace some of the present port facilities in the congested Istanbul city (since this is, prima facie, a high-priority potential project); and (iii) Phase III: Preliminary engineering and design of the Marmara regional port project (or any other project con- sidered to be of still higher priority based on Phase II findings). 2.35 To ensure that major port investment decisions to be taken within the near future would not conflict with or preempt the results of the proposed planning studies, agreement was obtained during negotiations that Government or the other project .agencies will not initiate major new ports investments outside the present Fourth Plan program, before reviewing with the Bank the results of the Phase II studies, expected to be completed by mid-1981 (see also para. 3.03). This provision would not have any adverse effect on port capacity since the proposed Fourth Plan programs including the Bank-financed project would produce sufficient port capacity up to at least 1985. As men- tioned in para. 2.17, Government's agreements have also been obtained during negotiations (i) ito establish an interministerial steering committee to coor- dinate sector planning studies and investments, and (ii) to strengthen TCA to enable updating of the ports sub-sector plan prepared under the proposed project. Further, in order to improve the collection and analysis of port studies which is essential for the rational planning and management of ports and for monitoring the impact of the proposed project, the following agree- ments have also been obtained from Government during negotiations: (a) that the ports should in future compile operational statistics on a uniform basis and set up adequate efficiency indicators in consultation with the Bank to monitor the improvements in operational efficiency; (b) that such organized data collection should start not later than January 1, 1980, and DB and TCDD should appoint quali- fied statisticians in their port departments before September 30, 1979 to carry out this work; and (c) that the Ministry of Transportation should set up a port statistics unit within TCA before September 30, 1979, to compile and analyze port statistics on a national basis, covering all Turkish ports. 2.36 The implementation of the proposed rehabilitation project cannot wait until the completion of the proposed ports sector planning study in view of the expected traffic growth in Turkish ports and the resulting imminent port congestion from about 1981, in the absence of the project (see Chapter 4). The study is unlikely to prove the proposed investments to be uneconomic since (a) the project covers critical investments which are essential to operate existing infrastructure more efficiently, resulting in a high economic return as shown in Chapter 4, (b) the project focuses on replacement of equip- ment which can be shifted to new locations if needed, and (c) the additional  - 17 - port capacity created in the project ports is justified by the projected traffic, on the reasonable assumption that port traffic distribution in Turkey will not undergo major shifts in the next 5-7 years. B. Project Ports a. General 2.37 The following presents a description of the project ports and and their main features. The organizational aspects of the project ports have already been discussed under Section A above dealing with the port sub-sector, in view of the overlapping of project port issues with those of the port sub- sector in general. b. Location and Main Facilities 2.38 The ten public ports to benefit from the proposed rehabilitation project are: Samsun, Haydarpasa, Derince, Bandirma, Mersin, and Iskenderun-- all under TCDD; and Trabzon, Salipazari, Izmir, and Antalya, under DB. Their general location and main features are as follows (see maps Nos. IBRD 13702 and IBRD 13703): Black Sea Region: Trabzon (administered by DB) - serves as major transit port to Iran some 600 km to the east. Samsun (administered by TCDD) is the main Black Sea port, has major dry bulk handling facilities and serves as domestic interchange port for ore and coal. Marmara Sea Region: Ports of Istanbul - Salipazari on the European and Haydarpasa on the Asian side are the city's twin ports at a distance of about three miles across the Bosphorus from one another. Together they are the largest entrance ports for general cargo in Turkey. Salipazari (DB port) is the country's main passenger port and handles a substantial part of Istanbul's general cargo traffic. The port's main constraints are its location in the city's central business district and shortage of cargo storage and operational areas. Haydarpasa (TCDD port) - is the country's main general cargo port; the port is linked by rail westward to Europe and eastward to Ankara and the interior. The port's expansion project (not Bank-financed) foresees the completion by 1984 of one new container berth and 4-5 general cargo berths with facilities for roll-on/roll-off vessels.  - 18 - Derince (TCDD port) - serves the highly industrialized Izmit area and handles mainly general cargo. Bandirma (TCDD port) - is Turkey's newest port. The port is now in the final phase of completion. Some ongoing limited cargo-handling operations - mainly dry bulk - are undertaken directly by importers and exporters using ship-gear. The port's basic cargo-handling equipment will be provided by the Bank project. Aegean Sea Region: Izmir (DB port) - on the Aegean Sea is Turkey's major export port for agricultural products. The country's first container ter- minal, under construction in Izmir, is expected to be completed by 1984; the terminal will include facilities for roll-on/roll- off vessels. Mediterranean Sea Region: Antalya (DB port) - on the Mediterranean Sea - was completed in 1973 but is only partially operative due to lack of equipment. The ongoing limited cargo-handling operations are undertaken directly by importers and exporters using ship-gear. The port's basic cargo-handling equipment will be provided by the Bank project. Mersin (TCDD port) - is the region's largest port serving also as a major transit port to Middle East countries. The proposed project foresees the deepening of the port's approach channel to its tank,er terminal to accommodate larger tankers. Iskenderun - (TCDD port) - exports substantial quantities of chromium and other minerals, and handles general cargo imports and part of the transit traffic to the Middle East. 2.39 All these ports (except the new ports Bandirma and Antalya) share the need for immediate rehabilitation of their cargo-handling equipment, floating craft and ancillary facilities, together with the introduction of modern port operations and improvement of management techniques. The ports of Bandirma and Anitalya need basic cargo-handling equipment to operate effec- tively their new infrastructure.  - 19 - 2.40 A summary of the main technical data of the existing and planned facilities at the project ports is presented in the following table: Existing main port facilities --------- Main new facilities ---------- Wharves Storage Ongoing Berth uses Cargo Bulk construction Gen- Liq- Cov- Silo description Civil works as Total Berth Draft eral Dry uid ered Open grain Other (Expected part of Bank Port length nos. MLW cargo bulk bulk (000) (000) (000) (000) completion Project m l/ m nos. nos. nos. Others m2 m2 tons tons year) Description Trabzon 400 3 10 3 Grain - Small 20 50 10 28 Minor marine Paving 60,000 m2, 70 - 5 & ore vessels bulk works (1982) dredging at gen. single (100,000 m3), cargo story misc. works. berth Samsun 180 1 8 1 - _ 13 12 34 - Paving 30,000 m2, 770 7 10 7 - - dredging 400* 3 10-12 - 3 - * Being completed (12,000 m3), (1979) misc. works. Salipazari 600 4 7 4 - - 78 30 - - Paving 36,000 m2 520 4 7-10 - - - Passengers in, & 120,000 m2 (Plus oil & outside port + new coal berths sheds 6,000 m2, outside misc. works. main port) Haydarpasa 154 - 3,5 - - - Not used 24 44 70 - 1 Container + 4-5 Paving 6,000 m2, 150 - 4.5 - - - Small vessels gen. cargo berths, misc. works. 220 2 6.5 - 2 - including Ro-Ro 1,113 8 10 8 - - terminal (1984) Derince 207 2 8 2 - _ 15 80 8 - Paving 80,000 m2, 400* 3 10-12 3 - - * Being completed dredging 220* - 4.5 - - _ * Being completed (5,000 s3) 117 - 4 - - - Small vessels (1979) misc. works. Bandirma 833 7 10-12 7 - _ 12 30 - Liquid Sheds and open 493 4 10 - 4 - bulk storage + 442 3 10 - 3 - utilities (1979) 414 3 8-10 3 - - Izmir 1,060 9 10.5 7 2 - 18 13 32 _ Containers & gen. Paving 60,000 m2 150 1 7.5 1 - - cargo facilities, new shed 500 m2. 800 - 3-5 - Old - Small vessels 6 berths 1,000 m port long, drafts 10-12 m; oper- ational areas 300,000 m2, incl. Ro-Ro terminal (1984) Antalya 60 - 6 - - - Small vessels 3 30 - 16 Transit shed Sheds 12,500 m2, 150 1 10 1 - - Alu- 3,000 m2 (1979) slipway 100 tons. 165 2 5.5 2 - - mina 290 2 8-10 2 - - 170 1 10 - 1 - Mersin 175 1 10 - - - Passengers 11 40 100 30 2 Heavy lifts & Paving 145,000 m2, 424 3 10 3 - - Ores container berths dredging 493 3 6-7 - Ore - and totaling 400 m, (300,000 m3 143 2 10 - Ore - coal drafts 10-12 m misc, works. 700 2 14 - - Crude (1982) 550 2 10 - Grain 915 8 6-8 8 - - Iskenderun 400 2 10 - Grain - 16 15 20 100 Paving 135,000 m2, 693 6 10 6 - - Ores dredging 48 1 10 - Ore - and 130,000 m3, slipway coal 300 t, misc. works. 1/ With reference to average ship sizes currently visiting these ports; shallow berths not counted. * See column "Ongoing construction."  - 20 - c. Traffic 2.41 In 1977, the project ports handled the following traffic: (in '000 tons) General cargo 5,710 Dry bulk 4,328 Liquid bulk 7,256 Total traffic 17,294 The above constituted about 85% of all general cargo, 38% of all dry bulk cargo and 30% of all liquid bulk cargo handled in Turkish ports. General cargo in- cluded about 570,000. tons of transit imports for Middle East. Two-thirds of the total general cargo traffic was foreign imports, consisting of machinery and appliances, steel products, chemicals and fertilizers, and industrial goods. General cargo exports were mainly agricultural products, textiles and other industrial products. Dry bulk traffic was equally divided between coastal trade (ores and coal) and foreign exports (ores and minerals). Liquid bulk traffic consisted mainly of imports of crude petroleum and some coastal traffic in crude oil and products. 2.42 During 1977 the ports of Izmir, Haydarpasa and Mersin handled container traffic of about 400,000 tons (56,000 TEU), of which 240,000 tons were transit cargo. Container traffic is expected to increase to about 900,000 tons by 11985, on completion of the new container berths in Izmir and Hlaydarpasa (outside the Bank-financed project). Roll-on/roll-off vessels are increasingly used in the handling of agricultural exports, and some 200 roll-on/roll-off vessels called at Izmir during 1977. 2.43 About 9,100 ships above 500 dwt called at the project ports during 1977. General cargo vessels averaged about 6,000 dwt, such small vessels being a feature in the Eastern Mediterranean and Black Sea trade; dry bulk cargo vessels ranged up to 20,000 dwt, and petroleum tankers were in the range of 30,000 to 60,000 dwt. 2.44 The volume and composition of traffic varies from port to port, and therefore the nature and extent of port facilities and services provided vary accordingly. General cargo handling is more labor-intensive, while dry bulk cargo handling is semi-mechanized. Bulk grain is generally handled through conveyor systems and silos operated by the National Grains Board (TMO), involving only limited services from the port administration. The ports also handle some passenger traffic, both coastal and foreign, the main concentration of this traffic being in Salipazari. Out of a total of about 2,000 vessels which visited Salipazari in 1977, about 850 were passenger ships, carrying mainly foreign tourists. The pilotage department of the Salipazari port also handles pilotage of vessels across the Bosphorus and the Dardanelles Straits. 2.45 The past: trends and future prospects of the traffic growth in the project ports are discussed in Chapter 4. According to preliminary estimates, traffic in 1978 was less than in 1977. It is expected that the present depres- sion in port traffic caused by Turkey's recent economic difficulties will soon  - 21 - pass, and traffic through Turkey's ports will substantially increase in the near future. In the important category of general cargo, as distinct from dry and liquid bulk cargo, traffic will slowly regain the 1977 level by 1981, rising further in the following years. III. THE INVESTMENT PLAN AND THE PROJECT A. Ports Sub-sector Investment Program 3.01 The investment program for the ports sub-sector included in Govern- ment's Fourth Five-Year Plan (1979-83), recently approved by the Parliament, mainly consist of: (a) all components of the ports rehabilitation project proposed to be financed by the Bank, and (b) an investment of about 2.8 billion-TL (about US$112 million) to be undertaken through the Ministry of Public Works for providing new port infrastructure, mainly through completion of ongoing projects in Mersin, Izmir, Haydarpasa, and a few other ports (see details given under para. 2.40). The main items under (b) appear generally justified, based on a rough analysis of the country's port capacity require- ments. The economic analysis and justification for the proposed project presented in Chapter 4 takes into account the additional capacity created on the completion of these ongoing projects. B. Project Objectives 3.02 The main objectives of the project are to: (i) substantially improve the efficiency of port operations in Turkey's main public ports, particularly in handling general cargo exports and imports, by replacing and modernizing old and obsolete cargo-handling equipment and floating craft and improving storage and cargo-handling areas; (ii) avoid a recurrence of severe congestion in Turkey's main ports experienced in 1975-76, which has only temporarily eased as a result of Turkey's economic difficulties; (iii) promote modern cargo-handling methods and port management techniques, mainly through provision of modern equipment and technical assistance for training; and (iv) assist in carrying out port sector planning to guide in optimal future invest- ments in the port sector. 3.03 The project addresses the most important priority of the Turkish ports sector, viz. rehabilitation of existing equipment in its main public ports which are also the country's main general cargo ports dealing with international trade. Some lesser ports are excluded so as to limit the proj- ect to manageable size; the Government is separately trying to meet their equipment needs. The project also excludes the requirements for improving the mechanized grain loading operations in Turkish ports since these needs are being considered under another Bank project for grain storage and handl- ing, which is under preparation. The project, along with other investments being separately undertaken by the Government (see para. 3.01), would provide sufficient port capacity to meet Turkey's port traffic requirements expected  - 22 - up to about 1985, especially in handling general cargo. The port sector plan- ning study under the project will further review future requirements, and will assist in deciding on future priorities and the choice of future projects. During negotiations, Government has agreed not to undertake new major port projects in the public sector (whose aggregate estimated cost shall exceed US$10 million equivalent in 1979 prices), other than those already referred to in the Government's Fourth Five-Year Plan, before reviewing with the Bank the findings of the Phase II of the Port Planning Study, which study is expected to be completed by mid-1981 (see also para. 2.35). C. Project Description. 3.04 The proposed project consists of the fcllowing items: Equipment (a) Cargo-Handling Equipment (see Annex I): 37 shore cranes, 93 mobile cranes, 110 forklift trucks, 21 tractors, 42 trailers, two tractors with dozers and four generators--for the ten project ports. (b) Floating Craft: One 200-ton lifting capacity floating crane for general use in ports; nine tugboats (one--2500 HP; two-- 1500 HP; three--1250 HP; three-1000 HP, all with fire fighting equipment) and 15 service boats for the. six TCDD project ports as well as three tugboats of 350 HP for use by LI. (c) Spare Parts: (i) for three years' operations of new equip- ment; (ii) to rehabilitate some of the existing equipment; and (iii) some minor workshop equipment. (d) Hydrographic Measurement - and Shore-tc,-Ship Communication Equipment for the ten project ports and. for LI. Civil Works (e) Paving and surfacing of about 670,000 m2 of open storage areas, construction of about 19,000 m2 storage sheds, minor dredging works totalling about 550,000 m3 in 5 ports, and general repair and rehabilitation works (see para. 2.40 for more details). (f) Construction of one slipway of 300 tons lifting capacity (in Iskenderun) and another slipway of 100 tons (in Antalya)--including all mechanical equipment for repair and maintenance of harbor craft.  - 23 - Technical Assistance (g) Training (i) Provision of port training experts and equipment for train- ing port labor and staff of TCDD and DB ports, at the TCDD Training Institute in Haydarpasa, Merchant Marine Academy in Instanbul and other training centres. Such training will emphasize the use and maintenance of modern cargo-handling equipment and improved methods of port operations and man- agement in general, and will include management training seminars to be organized by UNCTAD. (ii) Provision of training abroad (120 man-months) for personnel from the ten project ports and their head offices (in TCDD and DB), in modern cargo-handling methods, mechanical main- tenance management, port operations including safety aspects and pollution control, and general port management; some of these trained staff would later assist in providing local training to other staff and workers; and (iii) Provision of 60 man-months of fellowships for overseas train- ing in advanced harbor design and engineering for port engineers from LI. (Note: The above training program will be organized and financed by Government, UNDP (with ILO and UNCTAD participation), and the Bank; Bank will finance equipment under (i) and fellowships under ( iii ) ). (h) Management Studies. Consultancy Services for: (i) revaluation of ports' assets, (ii) a cost accounting study to help establish a cost-related tariff, and (iii) studies and assistance in making the proposed New Ports Institution operational (see para. 2.22). (i) Ports Sub-sector Master Planning. Provision of consultancy assis- tance for port sector master planning and engineering, comprised of three phases: Phase I: Study of national port capacity require- ments during the next five, ten and twenty year time spans, in terms of supply, demand and shortages in port capacity in different regions (already ini- tiated by TCA); Phase II: Preparation of an optimal national ports master plan to meet projected needs in different regions, defining preliminary projects and their priorities; this will include a special study on the location, feasibility and priority for developing a Marmara regional port to replace some of the  - 24 - present port facilities in the congested Istanbul city, taking into account Istanbul's long-term development needs and strategy (such a regional port being an obvious high-priority potential project for Turkey); and Phase III: Preliminary engineering and design of the Marmara regional port project (or any other project considered to be of still higher priority based on Phase II findings). 3.05 The project components have been prepared on the basis of detailed analysis of existing capacity constraints and immediate future requirements, on a port by port basis. The new equipment will be suitable for modern cargo- handling techniques and sufficient in numbers to permit the ports to dispose of most of their old, obsolete and run-down equipment and, at the same time, provide the basis to increase cargo-handling prodluctivity, mainly through increased unitization of cargoes. Of the new equipment, 8 shore cranes, 18 mobile cranes, and 22 forklift trucks are allocated to the new ports of Antalya and Bandirma to provide essential equipment to operate these ports efficiently. Similarly, two tugboats of 1,000 HI? are allocated for the new port of Bandirma. 3.06 In addition to the floating craft proviLded under the project, DB has contracted with a foreign supplier to purchase ten tugboat engines of 2,500 HP, at a cost of about US$5 million, for use in tugboats already built in Turkey; though this item is not included under the present project, it is an essential complementary investment for the project. Government's under- taking has been obtained to procure these engines before December 1980. 3.07 Apart from the technical assistance inc:luded under the project, the UNDP is financing the services of a procurement expert to assist the project agencies in drawing up specification and tender documents for procurement of equipment; an expert acceptable to the Government and the Bank has been nominated by UNDP, and his appointment is expected shortly (see para. 3.21). D. Cost Estimates 3.08 The total cost of the project is estimated at US$155.6 million. The foreign exchange component is US$75.0 million. (about 48 percent). Cost estimates have been reviewed and agreed upon with the representatives of the Turkish Government during negotiations. Price contingencies have been esti- mated in accordance with the project execution program. A summary of the cost estimates is given on page 25 (see Annex 1 for detailed cost estimates). In addition to the above project costs, UNDP has agreed to contribute US$0.93 million in foreign exchange for financing part of the training program, with Government contributing the corresponding local currency costs (estimated at US$0.9 million equ-ivalent).  - 25 - SUMMARY OF PROJECT COSTS Foreign Local Foreign Local Foreign exchange currency exchange Total currency exchange Total component Item - - - - TL (000,000) - - - - - - - - - US$ (000) - - - - -