Turkey - State Industrial Enterprise Finance Project

Document of The World Bank E COPY FOR OFFICIAL USE ONLY Report No. P-3051-TU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON THE PROPOSED LOAN TO DEVLET YATIRIM BANKASI WITH GUARANTEE OF THE REPUBLIC OF TURKEY FOR A STATE INDUSTRIAL ENTERPRISE FINANCE PROJECT May 4, 1981 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  TURKEY CURRENCY EQUIVALENTS Currency Unit July 1979 Jan. 1980 /1 Oct. 1980 Jan. 31, 1981 UtS Dollar TL 47.10 /2 TL 70.0 /3 TL 83.50 /3 IL 98.20 /3 TL 1 US$ 0.02 US$ 0.01 US$ 0.01 US$ 0.01 /1 Since January 1980, the rate is being adjusted for the differential inflation between Turkey and ics major trading partners. TL 91/$1.00 was used for this report. /2 Except for imports of crude oil, petroleum products and fertilizer raw materials, and exports of agricultural products benefitting from official prices supports, for which it was TL 35 = $1.00. /3 Except for imports of fertilizers and insecticides/pesticides, as well as raw materials and inputs for their manufacture, for which the rate was TL 55/$1.00 in January 1980, and is TL 70.0/$1.00 from October 1980, and TL 85.34/$1.00 from April 15, 1981. FISCAL YEAR Republic of Turkey : March 1 to February 28 Turkiye Seker Fabrikalari A.S. January 1 to December 31 Karabuk Demir ve Celik Fabrikalari: January 1 to December 31 Karadeniz Bakir Isletmeleri A.S. ; January 1 to December 31 ABBREVIATIONS AND ACRONYMS DYB Devlet Yatirim Bankasi (State Investment Bank) Karabuk Karabuk Demir ve Celik Fabrikalari (Karabulk Iron and Steel Works) KBI Karadeniz Bakir Isletmeleri A.S. (Black Sea Copper Corporation) SEE State Economic Enterprise SEKER Turkiye Seker Fabrikalari A.S. (Turkish Sugar Factories Corporation) SPO State Planning Organization tpd Tons per day tpy Tons per year  FOR OFFICIAL USE ONLY TURKEY STATE INDUSTRIAL ENTERPRISE FINANCE PROJECT Loan and Project Summary Borrower: Devlet Yatirim Bankasi (DYB) (State Investment Bank) Guarantor: Republic of Turkey Beneficiaries: 1. Turkiye Seker Fabrikalari A.S. (SEKER) (Turkish Sugar Factories Corporation) 2. Karabuk Demir ve Celik Fabrikalari (Karabuk) (Karabuk Iron and Steel Works) 3. Karadeniz Bakir Isletmeleri A.S. (KBI) (Black Sea Copper Corporation) Amount; US$70.0 million equivalent in various currencies. Terms: Substantially in conformity with the aggregate amortization schedule for subloans, with interest at 9.6 percent per annum. Relending Terms: The Borrower is expected to on-lend the equivalent of about $22.7 million to SEKER, about $22.3 million to Karabuk, and $25.0 million to KBI, all for periods not to exceed 15 years including an appropriate period of grace not to exceed 5 years, with interest at 13.1 percent per annum plus applicable taxes (resulting in an estimated interest rate of about 18.5 percent per annum). The beneficiaries will bear the foreign exchange risk. Project Description: The project has three interrelated objectives: (a) the completion of six high priority ongoing rationalization/ modernization industrial projects of three beneficiary State Economic Enterprises (SEEs); (b) support of government initiatives to contribute to an improvement in the operation and productivity of the SEE sector, through specific improvements in these beneficiary SEEs; and (c) the further strengthening and broadening of DYB's capacity to serve the SEE sector. The project consists of financing through DYB, of the following high priority SEE projects: (a) the provision and installation of machinery and equipment for SEKER to complete: the expansion of its Ankara and 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.  - 11 - Susurluk sugar factories and construction of a new sugar factory at Ilgin; (b) the provision and installation of machinery and equipment at Karabuk to improve raw material handling and preparation and the replacement of equipment and refractories to increase iron production for the foundry industry; (c) provision of machinery and equipment to KBI to remove bottlenecks and complete the modernization and expansion program of its copper mining and concentration complex at Murgul; and (d) technical assistance to the beneficiaries for project implementation and improving plant operation and maintenance, developing appropriate workers incentive systems, and budget control and cost accounting systems. In addition, DYB will employ consultants to assist in project supervision and the Government wil] undertake a study of the future role of DYB in the SEE system. The major benefits of the proposed project are a substantial increase in the production of essential basic products from the rationalized facilities, at lower energy costs and more efficient operations. By project completion, an estimated 169,000 tons per year (tpy) of sugar, 300,000 tpy of iron, 20,700 tpy of blister copper, 180,000 tpy of sulphuric acid and 118,000 tpy of pyrite concentrate will be produced and an estimated $240 million per year of foreign exchange saved. In addition, DYB's appraisal and supervision capacity is expected to be augmented, and its impact on the development of the SEE sector enhanced in furtherance of the Government's structural adjustment program. Technical risks are considered reasonable, since the project deals with existing plants and uses commercially proven technology. The major risks are delays in implementation and increased costs, both of which have been mitigated by providing, where necessary, specialized technical expertise.  - 111 - Estimated Cost: Local Foreign Total __________ Million---------- I. Sugar (SEKER) Plant expansion and completion 102.2 23.0 125.2 Contingencies 24.6 5.4 30.0 Technical assistance 0.5 1.0 1.5 Project cost 127.3 29.4 156.7 Interest during constuction 14.4 3.4 17.8 Working capital 12.9 - 12.9 Financing required 154.6 32.8 187.4 II. Iron (Karabuk) Plant rationalization 18.3 20.8 39.1 Contingencies 3.8 4.8 8.6 Technical assistance 0.3 0.8 1.1 Project cost 22.4 26.4 48.8 Interest during construction 12.3 3.9 16.2 Working capital 6.7 - 6.7 Financing required 41.4 30.3 71.7 III. Copper (KBI) Plant rationalization 4.8 18.0 22.8 Contingencies 1.5 5.5 7.0 Technical assistance 0.3 1.2 1.5 Project cost 6.6 24.7 31.3 Interest during construction 4.2 3.0 7.2 Working capital 1.8 0.3 2.1 Financing required 12.6 28.0 40.6 Total Project Costs 156.3 80.5 236.8 Total Interest during construction 30.9 10.3 41.2 Total Working capital 21.4 0.3 21.7 Total Financing Required 208.6 91.1 299.7 Financing Plan: Local Foreign Total --------- Million--------- I. Sugar (SEKER) Bank Loan - 22.7 22.7 DYB Loan 30.0 0.2 30.2 SEKER: internal funds 111.6 8.7 120.3 Commercial banks and supplier's credits 13.0 1.2 14.2 Total 154.6 32.8 187.4  - iv - Local Foreign Total II. Iron (Karabuk) ----- $ Million--------- Bank Loan - 22.3 22.3 DYB loan 25.8 2.2 28.0 Karabuk: internal funds 15.6 5.8 21.4 Total 41.4 30.3 71.7 III. Copper (KBI) Bank Loan - 25.0 25.0 DYB loan 5.3 - 5.3 KBI: internal funds 7.3 3.0 10.3 Total 12.6 28.0 40.6 TOTAL FINANCING 208.6 91.1 299.7 Estimated Disbursements: ---------- $ Million