Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-3029-TU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECT April 15, 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 Jan. 1980 Oct. 1980 Jan. 27, 1981 Mar. 22, 1981 US Dollar /1 = TL 70.0 /3 TL 83.50 /3 TL 91.0 /3 TL 95.95 TL 1 = US$ 0.01 US$ 0.01 us$ 0.01 US$ 0.01 /1 Since January 1980, the rate has been adjusted for the differential inflation between Turkey and its 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 price 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 from January 1980, TL 70.0/$1.00 from October 1980, TL 78.6/$1.00 from January 31, 1981, and TL 83.1/$1.00 from February 2, 1981. FISCAL YEAR Republic of Turkey : March 1 to February 28 Azot Sanayii T.A.S : January 1 to December 31 Istanbul Gubre Sanayii A.S. ; January 1 to December 31 Gubre Fabrikalari T.A.S. ; January 1 to December 31 ABBREVIATIONS AND ACRONYMS Azot Azot Sanayii T.A.S. (Nitrogen Industries) CAN Calcium ammonium nitrate DAP Di-ammonium phosphate DONATIM Turkiye Zirai Donatim Kurumu (Turkish Agriculture Supply Agency) Gubre Gubre Fabrikalari T.A.S. (Fertilizer Manufacturing Company) ha hectare IGSAS Istanbul Gubre Sanayii A.S. (Istanbul Fertilizer Company) IPRAS Istanbul Petrol Rafinerisi A.S. PPF Project Preparation Facility SEE State Economic Enterprise SEKER Turkiye Seker Fabrikalari (Turkish Sugar Co.) SPO State Planning Organization TEK Turkish Electricity Authority TKI Turkish Coal Authority TPAO Turkish Petroleum Corporation tpd Tons per day tpy Tons per year TSP Triple super phosphate FOR OFFICIAL USE ONLY TURKEY FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECT LOAN AND PROJECT SUMMARY Borrowves Republic of Turkey. Beneficiaries; 1. Azot Sanayii T.A.S. (Azot) 2. Istanbul Gubre Sanayii A.S. (IGSAS) 3. Gubre Fabrikalari T.A.S. (Gubre) Amount: US$110.0 million equivalent in various currencies. T!t""l Seventeen years, including four years of grace with interest at 9.6 percent per annum. Relending Terms; The Borrower will on lend the equivalent of $69.0 million to Azot, $20.6 million to IGSAS, and $20.0 million to Gubre, all for twelve years including four years of grace, with interest at 10.6 percent per annum. The Borrower will retain $0.4 million for the marketing study. Beneficiaries will bear the foreign exchange risk. Project Description: The project aims at increasing production, productivity and energy efficiency in selected fertilizer facilities in Turkey through energy saving, rehabilitation and rationalization investments supported by appropriate technical assistance and institutional improvements. The project consists of; (a) the rehabilitation of Azot's 340,000 tons per year (tpy) lignite-based Kutahya II calcium ammonium nitrate fertilizer plant; (b) rehabilitation and modernization of Azot's 220,000 tpy triple superphosphate and 230,000 tpy di-ammonium phosphate fertilizer complex at Samsun; (c) modifications and conversion to use lower cost refinery gas to replace part of the naptha feedstock and fuel for the IGSAS 511,500 tpy urea fertilizer plant; (d) rehabilitation and modernization of Gubre's Yarimca 200,000 tpy triple superphosphate and 200,000 tpy complex fertilizer plants, and the construction of a new 250,000 tpy sulphuric acid plant at this facility to balance production; (e) training of fertilizer subsector personnel; and (f) provision of about 1,500 man-months of technical assistance and engineering services to design and implement plant improvements, operate the Azot plants, prepare and implement financial management and organizational 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. - ii - improvements in Azot, and undertake a fertilizer marketing and pricing study. The major benefits of the proposed project are substantially increased production from the rationalized facilities, lower energy costs, and more cost-efficient operations. By project completion, an estimated 623,000 tpy additional nitrogen and phosphate fertilizer will be produced at lower unit cost, and $118 million per year of foreign exchange saved. Technical risks are considered moderate, as the project is dealing with existing plants and commercially proven technology. The main risks are delays in implementation and increased costs. These have been mitigated by providing, where necessary, expatriate specialists to strengthen the operational staff and by the involvement of experienced engineering firms. Estimated Cost; Local Foreign Total ----------$ Million-------- I. Rehabilitation and Energy Savingl/ Azot-Kutahya II 27.9 34.9 62.8 Azot-Samsun 35.9 19.9 55.8 IGSAS 8.5 20.2 28.7 Gubre-Yarimca 24.4 20.0 44.4 Project Preparation (PPF) 0.0 0.6 0.6 Sub-total 96.7 95.6 192.3/1 II. Training 0.5 1.5 2.0 III. Management Improvement Program 1.0 2.5 3.5 IV. Marketing Study 0.3 0.4 0.7 V. Incremental Working Capital 1.6 3.0 4.6 Total Project Cost 100.1 103.0 203.1 Of which: Physical Contingency (6.9) (6.8) (13.7) Price Contingency (20.7) (21.0) (41 ..7) Financial charges during construction 5.5 28.0 33.5 Total Financing Required 105.6 131.0 236.6 2/ 1/ Including 27 percent price and 10 percent physical contingencies and $600,000 of advances under the Project Preparation Facility (P-027-TU). 2/ Includes taxes of about $2 million. - iii - Financing Plan Local Foreign Total --------- Million--------- Bank 0.0 110.0 110.0 Internally genrte t4U Ajot 390 0.0 39,0 IGSAS 9.7 5.3 15.0 Gubre 25.9 6.7 32.6 Government 31.0 9.0 40.0 Total 105.6 131.0 236.6 Estimated Disbursement: ----------US$ Million----------- BY 1982 1983 1984 1985 1986 Annual 21.0 58.0 14.5 14.0 2.5 Cumulative 21.0 79.0 93.5 107.5 110.0 Economic Rate of Return: 43 percent. Appraisal Report: Report No. 3377-TU, dated April 9, 1981. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TURKEY FOR A FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Turkey for the equivalent of US$110 million to help finance the foreign exchange costs of a Fertilizer Rationalization and Energy Saving Project. The loan would have a term of 17 years including 4 years of grace, with interest at 9.6 percent per annum. The equivalent of about $69.0 million, $20.6 million and $20.0 million, respectively, would be onlent to Azot Sanayii, Istanbul Gubre Sanayii, and Gubre Fabrikalari for 12 years including 4 years of grace, at 10.6 percent per annum. PART I - THE ECONOMY _/ 2. A Special Economic Mission visited Turkey in April/May 1979 to evaluate the Fourth Five-Year Plan (1979-1983). Its report entitled "Turkey; Policies and Prospects for Growth" (No. 2657a-TU dated December 12, 1979) was distributed to the Executive Directors on December 26, 1979 and its Postscript on March 24, 1980. A small mission visited Turkey in May 1980 to update information and Bank analysis of the country's economic prospects. Its findings are reflected below. Annex I contains the Basic Country Data. Development Trends and Policies 3. As the result of a strong commitment to rapid growth and moderni- zation, GDP increased at an average annual rate of 6.4 percent, 6.7 percent and 7.2 percent respectively, during the First Plan (1963-67), Second Plan (1968-1972), and Third Plan (1973-1977) periods. This compares favorably with the experience of 55 "middle income" developing countries, whose GDP growth averaged a little under 6.0 percent per annum between 1960-1978. Moreover, the relatively high growth rate in Turkey was achieved without significant deposits of oil or other important natural resources. 4. Growth was accompanied by significant social changes. Although population grew annually at 2.5 percent, rapid GDP growth allowed substantial advances in per capita income. However, rising income levels were not accom- panied by better income distribution. Although basic needs have been met, significant sectoral and regional inequalities in income continue. 1/ This Part is identical to Part I of the President's Reports on the Labor Intensive Industry Project (P-2956-TU) dated February 11, 1981, and on the Second Fruit and Vegetable Project (P-2985-TU) dated March 10, 1981. - 2 - 5. The public sector has played a key role in Turkey's development. Between 1963-1977, its share in total fixed investment fluctuated around 50 percent, and its share of fixed investment in manufacturing increased from 21 to nearly 49 percent. The public sector dominates basic industries. Never- theless, the private sector has emerged as an increasingly important and dynamic element in the economy and is beginning to shift its orientation from consumer goods to intermediate and investment goods, and from the domestic market to exports. Private sector investment increased at nearly 11.5 percent per year in real terms during 1967-1977 compared to an average annual increase of only 4.8 percent between 1963 and 1967. 6. Turkish development between 1963-1977, however, exhibited a number of structural characteristics which are of considerable relevance for future development policy. First, for a country of Turkey's size and per capita income, it has a very low level of exports relative to GDP--about 4 percent in 1977--as against a more or less "normal" import level of around 20 percent for middle income countries; this highlights the vulnerability of the balance of payments and the importance of export development to sustain the needed inflow of foreign exchange resources. Second, while the level of investment relative to GDP increased rapidly and compares favorably with other developing countries, mobilization of domestic savings has lagged; the ratio of domestic savings to GDP, is well below the average for middle income countries; the growing gap between domestic savings and investment led in the mid-1970s to a relatively high level of external borrowing, and domestic inflationary pressures emanating from excess demand and deficit financing. Third, a relatively high proportion of the labor force is still in agriculture, reflec- ting significant disguised unemployment and the need for accelerated job creation in non-agricultural activities; that in industry is low compared to other large middle income countries; furthermore, the relatively inadequate generation of additional employment has become more serious following the near cessation of workers' migration to Europe since 1974. Fourth, despite the growing dynamism of the private sector, the industrial scene is dominated by inefficient State Economic Enterprises (SEEs) which have not been exposed to market forces and serve not only economic but social goals; their growing deficits have imposed an inflationary burden on the budget, while their ambi- tious investment programs were financed through Central Bank borrowings, since their controlled prices have, until recently not enabled most of them to generate sufficient cash to cover costs or investment expenditures. Fifth, due to the successes achieved since the early sixties through economic planning, there has been an increasing tendency to plan to a micro-level and seek to achieve changes through administrative fiat; however, the economy has reached a stage where such excessive reliance on this becomes counter produc- tive; planning needs to be increasingly geared towards setting a framework in which market forces could secure the desired economic results in both the public and private sectors. The Economic Crisis and Stabilization Efforts 7. These institutional and structural characteristics of the economy made it particularly vulnerable to the sharp increase in import prices (inclu- ding oil) in 1974 and the simultaneous occurence of recession, inflation and - 3 - rising unemployment in the industrial countries. These factors played a key part in the deterioration of the economy. However, the politically weak governments, their policies in response to these factors and their efforts to pursue a high growth policy despite the worsening international environment through increasing reliance on short-term external financing, together created forces that brought about the economic crisis in mid-1977 which is still con- tinuing. The detailed analysis of this crisis, and of Turkey's attempts to stabilize the economy in the short-run up to late 1979, is provided in the abovementioned Special Economic Report and Postscript, as well as in paras. 8 to 15 of the President's Report (dated February 29, 1980) for the Structural Adjustment Loan approved by the Board on March 25, 1980. 8. Despite domestic and international efforts, 1979 was another diffi- cult year for the economy; production stagnated, unemployment increased, inflation accelerated, the balance of payments position remained tight, export performance was poor, severe import rationing continued and the external debt position remained precarious. Policy initiatives taken till then proved inadequate to reverse the tide, as political and economic uncertainties con- tinued to erode the impact of the measures taken. 9. Compared to a growth of 3 percent in 1978, GDP stagnated in 1979. Value added in agriculture increased by 2.5 percent, and in services by about 1 percent, but in industry value added declined by about 2 percent. In agri- culture, further growth was held back by a sizeable decline in production of industrial crops, mainly cotton, and a bad olive crop; the area cultivated declined, due to shortages of fuel and fertilizers. In industry, worsening shortages of imported raw materials and energy, especially oil, led to a decline in production of about 3.5 percent. Production of manufacturing SEEs declined by about 2 percent, and was manifested by decreases of 28 percent in cement production, 9 percent in steel production and 51 percent in certain petroleum production and processing operations. In contrast, the construction and transport sectors grew modestly, but insufficiently to overcome the decline in other sectors. This stagnation was accompanied by unprecedented inflation of about 65 percent in 1979. 10. The overall public sector deficit increased from TL 80 billion in 1978 to TL 132 billion in 1979. It was financed mainly by borrowing from the Central Bank (TL 70 billion). The consolidated budget and the operations of the SEEs were almost equally responsible for the enlarged deficit. The deterioration in the consolidated budget was caused mainly by a sharp increase in transfers to the SEEs, which in 1979 amounted to TL 89 billion. 11. On the external account, there was a marginal decline in the value of recorded exports of goods to $2.3 billion, although in volume terms, exports actually declined by an estimated 17 percent. The value of merchandise imports was about 10 percent higher than the previous year at $5.1 billion; but due to substantial price increases, the volume is estimated to have declined by 19 percent. The current account deficit in 1979 was the same as in 1978, i.e. around $1.7 billion. - 4 - 12. Turkey achieved some success in diversifying the sources, and increasing the level, of M< commitments, including $250 million in project credits from the Saudi Fund. Perhaps the most important arrangement arrived at was the May 1979 OECD sponsored pledging of $1.45 billion in special assis- tance, including about $900 million in M< bilateral credits and export credits, besides $407 million of medium-term credits from commercial banks (finalized in September 1979). However, actual capital inflows were about the same as the previous year (see para. 18 for rescheduling in 1980). 13. Also, throughout 1979, Turkey made a major effort to alleviate the critical burden of external debt through: (a) slowing the growth of shortterm liabilities; (b) debt relief arrangements; and (c) efforts to pursue new sources of credits, especially M< credits. The first debt relief operation, arranged through the OECD Consortium for Turkey in May 1978, involved consoli- dation of $1.14 billion in arrears on guaranteed short-term and bilateral M< debt, as well as amounts due over the thirteen month period May 21, 1978 to June 30, 1979. A second major rescheduling took place in July 1979, involving payments of about $1.02 billion on official bilateral and private guaranteed credits due between July 1, 1979 and June 30, 1980. A third major arrange- ment, finalized in July and August 1979 with commercial banks, rescheduled convertible lira deposits ($2.3 billion), banker's credits ($429 million) and third party reimbursement credits ($300 million). About $317 million in oil debt was also rescheduled. The total amount thus rescheduled was about $5.5 billion. This was perhaps the largest debt rescheduling operation anywhere. Even so, net arrears of about $500 million emerged given the remaining high debt service burden in 1979. January 1980 Structural Adjustment Program and Policy Objectives 14. Against this background, it was quite clear that drastic and painful stabilization measures were not enough to reverse the adverse economic tide. What was needed, was a major program of long-term structural adjustments, if the economy was first to be nursed back to normalcy and then to resume viable growth. Such a bold and far-reaching program of policies to effect structural adjustments in the economy over the medium term was announced on January 25, 1980, accompanied by initial measures to implement adjustments in certain critical areas. These were described and discussed in detail in the Presi- dent's Report (No. P-2725-TU dated February 29, 1980) for the Structural Adjustment Loan. The policy objectives underlying, the program, and the measures it initiated, represent a basic departure from past planning objec- tives. Turkey has undertaken, through it, the essential first steps to foster major structural and institutional changes in the key economic areas. 15. The program's stated goal of "bringing about a major reorientation of the economy" calls for: (i) greater reliance on market mechanisms and forces, by both the public and private sectors; (ii) reduction in the rate of infla- tion; (iii) improved management of the balance of payments and external debts; (iv) policies to encourage the public and private sectors to be efficient and internationally competitive; (v) the implementation of rational exchange rate policies and of measures encouraging exports; (vi) domestic resource mobiliza- tion efforts to be substantially augmented through increased tax efforts, realistic SEE pricing, and increased private savings via the banking system and the development of financial markets; (vii) an investment policy aimed at fuller utilization of existing productive capacity and completion of ongoing projects requiring modest inputs, and tailored to scarce resources; and (viii) conditions to stimulate foreign investments in oil, industry and agri- culture. 16. Successful implementation of this program over the medium-term, will require persistence and courageous action on the part of the Government. It will also call for substantial support from the international community, with- out which it is unlikely to succeed. However, if Turkey implements it vigor- ously, and periodically makes critical in-depth reviews as to the impact of the measures and what further modifications and adjustments are needed to achieve the program's economic goals, it will strengthen the basis for Turkey's creditworthiness and re-establish a path of stable economic growth. 17. Following the announcement of this program, the IMF approved a modi- fication of the terms of the July 1979 Standby Arrangement and the release of larger second and third tranches on February 21 and March 24, 1980. In addi- tion, SDR 71.6 million ($93 million) in compensatory financing for export shortfalls was provided on February 21, 1980, together with the modification of the Standby. Together, this resulted in the provision of $301 million (SDR 231.6 million), with the remaining $26 million (SDR 20 million) to be provided in June. However, on June 18, this Standby was cancelled. Instead, the IMF Board approved a new three-year Standby Arrangement involving SDR 1.25 billion ($1.63 billion), with SDR 460 million ($600 million) in the first year, SDR 400 million ($522 million) in the second year and SDR 390 million ($509 million) in the third year. The key conditions of the new Standby are that; (i) exchange rate policy is to be kept more flexible; (ii) the financial position of the public sector is to be improved, mainly as a result of the restructuring of the operational policies of the SEEs; (iii) monetary condi- tions are to be kept extremely tight, as a result of the observance of limits on Central Bank lending; and (iv) interest rates are to be adjusted to reflect market conditions. 18. In addition, Germany took the lead in organizing the provision of sizeable external assistance, as well as a further debt relief operation. In meetings under OECD auspices in March and April, $1.16 billion of bilateral aid was pledged, with much more rapid disbursements than in 1979. The Bank also supported OECD's and IMF's efforts through a $200 million Structural Adjustment Loan in March 1980. Furthermore, about $2.5 billion in service payments to OECD countries on public and publicly-guaranteed debts falling due prior to June 1983 were rescheduled, again under OECD auspices, in July 1980. This included all arrears up to June 30, 1980, payments due prior to June 1983 on debt not previously rescheduled, and payments due up to June 1981 on debt already rescheduled in 1978 or 1979. Ninety percent of these sums were rescheduled over 8 to 10 years, including 4 to 5 years of grace. With these developments, Turkey secured debt relief estimated at $1.1 billion in 1980 and another $0.8 billion in 1981, with smaller amounts thereafter. The only size- able new commitment in recent months has been a $250 million cash loan on 15 - 6 - year low-interest terms from Saudi Arabia, of which $100 million has been dis- bursed, with another $100 million scheduled for December and the balance for March 1981. Turkey has approached leading commercial banks to secure a softening of the terms of the August 1979 rescheduling agreement. After con- siderable delay due to wariness on the part of banks both of a new reschedu- ling and, to some extent, of extending new credit to Turkey, a modest syndi- cated loan is under discussion. The Government will try to reduce to the extent possible the current and prospective large net outflow of funds to the commercial banks. Economic Developments in 1980 and Outlook for 1981 19. As expected, the initial impact of the January 1980 package has been to exacerbate many of the economic pressures. Uncertainty about the course of future policies and about the timing and pace of economic recovery, as well as tight monetary conditions aimed at reducing aggregate demand, have slowed investments and economic growth. Devaluation and the removal of price con- trols on both private business and SEEs, while necessary to alleviate allo- cative distortions in the economy, contributed to a large initial upsurge in the rate of inflation. Also as expected, the financial rehabilitation of the SEEs and their reorientation to market conditions has only begun, and will require more fundamental changes than price liberalization alone over the medium term. Budgetary transfers to the SEEs to cover remaining operating subsidies and investment expenditures have continued to rise. The budget position as a whole continues to be weak. It is still too early to say whether the initial adjustment phase is over. However, preliminary data suggest that the worst may be past. Inflation has come down sharply, and indeed more rapidly than expected (next paragraph); the impact of higher import prices (especially for oil) has been alleviated (though so far only for 1980) by a commensurate increase in capital inflows; and 1980 saw a very modest resumption of economic growth. 20. For the full year, GDP growth is likely to be between zero and 2 per- cent, with growth in agriculture of about 2.5 percent, but stagnation in industry. Public investment has continued to fall in real terms for lack of financial resources, and private investment remains depressed. Unemployment is still rising, and real disposable incomes are falling. As mentioned above, inflation--which averaged over 100 percent on an annual basis in early 1980--has since slowed considerably, and expectations are that over the remainder of the year it will be about 2 percent per month. The fiscal and monetary situation remains difficult. There has been a substantial increase in Government expenditures over previous forecasts, in line with inflation. However, there is evidence of tax revenues lagging behind inflation, and sub- stantial arrears have built up in tax collection. SEE operations will show a small profit this year after several years of mounting deficits. However, to finance their investments and debt repayments, budgetary transfers to SEEs will rise again to TL 138 billion. As a result, the budget deficit is likely to be TL 155 billion in spite of a further accumulation of Government arrears vis-a-vis the private sector. Pressures have therefore built up to expand Central Bank credit, which is strictly limited under the IMF Standby Arrange- ment. Nevertheless, the first discussions under the Standby were satisfac- torily concluded at the end of August, and the second drawing was made avail- able on schedule on September 29. However, IMF Board agreed to a small increase in the ceilings on Central Bank net domestic assets and credit to the public sector to accommodate crop purchases by the Soil Products Office (particularly of wheat) without impinging on the availability of financing for the private sector, especially for exports. 21. The balance of payments position remains quite tight. Over the first eight months of 1980, the value of merchandise exports was only 6 percent higher than in the corresponding period of 1979. However, taking into account the seasonal rise in agricultural exports, the end of various labor disputes in industry, and the rising trend in production, and provided markets recently established in the Middle East are not long disrupted by the Iran-Iraq war, the Government projects exports of $2.8 billion for the year as a whole, com- pared to $2.3 billion last year. While the value of merchandise imports is expected to be considerably higher than in 1979--$6.7 billion (including $3.2 billion for oil) as against $5.1 billion, the volume increase will be negli- gible due to increases in import prices, especially for oil. As a result, fairly severe import rationing continues. Workers' remittances have increased strongly this summer and should reach $1.8 billion for the year as a whole. Even so, it is estimated that the current account deficit will increase from $1.7 billion in 1978 and 1979 to $3.1 billion in 1980. Capital inflows will also be higher than last year, with gross public M< disbursements expected to be about $2.2 billion, given the Government's concerted effort to disburse the pipeline of OECD sponsored external assistance pledged in May 1979 and April 1980. Moreover, the massive July rescheduling (para. 18) has eased the external debt position considerably. 22. The outlook for 1981 is slightly more promising, although the balance of payments position is likely to remain extremely difficult. It is too early to predict the impact the Iran-Iraq war may have, given that these two countries normally provide nearly 55 percent of Turkey's oil imports on favor- able terms. Assuming the impact can be mitigated, the growth rate of real GDP is projected to be about 3 percent, with value added in agriculture and industry growing on the order of 3 and 4 percent respectively. Investment is likely to grow only by about 1 percent, after real falls in recent years. The Government hopes to reduce the rate of inflation substantially again. The external position is expected to remain tight. Exports should grow by about 20 percent to $3.4 billion, and imports by about 16 percent to $7.8 billion, in nominal terms. As in 1980, the volume increase in imports is likely to be negligible due to increases in import prices, especially for oil, and hence import rationing will have to continue. With only a modest rise in service receipts and workers' remittances, the current account deficit in 1981 is expected to be $3.6 billion, or $500 million more than in 1980. Turkey has already begun to make preparations to meet the very large financing gap in 1981, and hopes to secure considerably higher capital inflows than in 1980, particularly gross public M< disbursements which need to be around $3.5 billion. Apart from the Bank, IMF and commercial bank loans arranged or being processed, the Government intends to seek further special aid from OECD members in 1981. - 8- Turkey's Medium-Term Economic Prospects 23. The international oil situation, following the substantial end-1979 price increases, has a major impact on future prospects. Even if Turkey allows only a marginal increase in oil imports during 1980-1985 to sustain a gradual resumption of growth, the oil import bill is estimated to increase from $3.2 billion in 1980 to $6.1 billion by 1985; as a percentage of merchan- dise exports and non-factor services, this is equivalent to about 83 percent in 1980 and is likely to remain at about 70 percent until 1985. The pressure this will exert on Turkey's already difficult balance of payments position is obvious. The projected current account deficit as a percent of GNP in current dollars increased from 3 percent in 1979 to about 8 percent in 1980 and is projected to remain at or above 5 percent until 1984. Considering the limita- tion on available external assistance and given the need for continued sound external debt management, Turkey can sustain the projected annual current account deficits of the order of $3-3.5 billion annually in the short run, given further quick-disbursing assistance in 1981; the deficits are projected to decline to a sustainable $2.5 billion annually in the next few years. 24. Taking into account international inflation and the substantial obli- gations for debt amortization, despite the July 1980 debt rescheduling, this situation necessitates a large and sharply increasing annual average gross inflow of foreign capital, rising to $4 to 5 billion during the next five years. Such major inflows of foreign capital can only be sustained on the basis of prudent external debt management. In any case, debt service obliga- tions are likely to remain high over the coming 5 years. In 1979, total debt service payments were 26 percent of exports of goods, non-factor services and workers' remittances after rescheduling payments. The ratio is projected to rise to around 45 percent in 1984, taking account of the July 1980 debt rescheduling. This, however, should represent the culmination of the finan- cial consequences of the present crisis and the debt burden should remain manageable, provided the structural adjustment policies are successfully implemented and the export drive is sustained. 25. Given the accumulation of economic problems of the last three years, the political difficulties, the significantly increased cost of oil imports, and the difficulty of significantly increasing the net inflow of capital, Bank projections suggest that GDP growth in real terms may average around 4 percent p.a. with a real growth of exports about 9 percent p.a. during 1980-1985. These growth rates appear attainable, assuming continuation of appropriate economic measures (including those announced in January 1980), and taking into account the low export base and present underutilization of capacity. 26. The recent political changes do not change these expectations regar- ding economic developments. The military government which assumed power on September 12 is determined to pursue the program of structural adjustments announced in January 1980, as well as economic policies and commitments agreed with the Bank, IMF and members of the OECD Consortium for Turkey. Indeed, two days after the takeover, both the Bank and the IMF were officially informed of this decision. A civilian Cabinet, responsible to the military's new National - 9 - Security Council, has been named, with the principal architect of the recent economic policy reforms, Mr. Ozal, assuming the position of Deputy Prime Minister for economic affairs. Its program confirms the commitment to con- tinue implementing the January 1980 program, and the intention to introduce those portions of it which have been blocked hitherto by deadlock in Parliament. PART II - BANK GROUP OPERATIONS IN TURKEY 27. A large lending program for Turkey was begun following the intro- duction of its 1970 Stabilization Program. Despite the slowdown caused by the 1977-78 crisis, the Bank/IDA have lent to date $2,815 million, through 65 projects. Agriculture accounts for 22 percent of funds lent, industry and DFCs for 35 percent, power for 13 percent and urban development, transportation, education and tourism for the rest. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of March 31, 1981, with notes on the execution of ongoing projects. 28. The implementation of private sector projects has been satisfactory. Political instability, limited coordination amongst ministries, staffing problems and the serious external and domestic financial crisis since 1977 have seriously affected project implementation in the public sector. A system of joint project reviews between Turkey and the Bank was instituted in June 1975. This has resulted in distinct, but modest, improvements. As of June 1980, disbursements increased to 70 percent of appraisal estimates against 51 percent in June 1975. The broad reform of the public sector launched in January 1980, and pursued with new measures since, allows cautious optimism that performance can be gradually improved further, provided it is not eroded by new factors, including shortages of resources. 29. Bank lending is aimed at supporting the economic policies initiated in January 1980, especially; (a) the pursuit of an export oriented develop- ment strategy; and (b) domestic economic policies aimed at establishing a macro-economic balance, increasing domestic savings, restraining public investment and reorienting it to reflect the new Government priorities (completion of ongoing projects, emphasis on quick-yielding new investments, and balance of payments impact). The Bank has discussed with the Government how its overall lending can best contribute to the latter's medium-term objectives, and help remove past policy and institutional constraints. A series of structural adjustment loans are envisaged, at the Government's request, to support its program of structural adjustments to be implemented in the medium-term. Agriculture, industry and energy will be the key sectors for project lending. In agriculture, projects emphasize livestock, exports, and rural development; in industry (including DFCs), the emphasis is on promotion of exports and employment, and the gradual strengthening of the SEEs. Energy projects underway are in power generation based on domestic hydro and lignite resources; future projects will emphasize the oil/gas sub-sector and - 10 - coal/lignite. Projects for urban development and public utilities may supplement these efforts. The close macroeconomic and sector dialogue established with the Government in recent years is expected to be pursued on key issues. The economic and sector work planned over the next several months includes special studies of the public investment program, of industrialization and foreign trade strategy, and of the energy sector, and completion of sector memoranda on agriculture and industry. In addition, the progress made in fostering structural adjustment will be monitored in the context of each future structural adjustment loan. 30. A supplement to the first Structural Adjustment Loan, the Bati Raman Enhanced Oil Recovery Field Demonstration Project and the Petroleum Exploration Project, were approved by the Executive Directors in November 1980, and the Labor Intensive Industry and Second Fruit and Vegetable Projects in March 1981. Other loans being presented this fiscal year are for state industrial enterprise finance and a second structural adjustment loan. Projects being processed for later consideration include: sewerage disposal in Istanbul, rural development, seed production, promotion of export oriented industries, and paper and cement modernization. 31. The Bank Group's share of the estimated total external debt (including short-term obligations) was 8.0 percent in 1979, and is expected to grow to 10.0 percent by 1981 and 12.5 percent by 1985. Its share of service payments is projected to fall slightly from 8.8 percent in 1979 to 6.4 percent in 1981, thereafter increasing to 7.6 percent by 1985. 32. IFC has invested in synthetic yarns, pulp and paper, glass, aluminum, iron and steel products, motor bicycle engines, piston rings and cylinder liners, and tourism. It has also invested in the Turkish Industrial Develop- ment Bank (Turkiye Sinai Kalkinma Bankasi--TSKB). As of March 31, 1981, gross IFC commitments totalled about $212 million, of which $91 million were still held by IFC. New investment opportunities are being pursued. PART III - THE FERTILIZER SUBSECTOR AND THE BENEFICIARIES Introduction 33. The fertilizer industry underpins Turkey's agricultural sector, which in turn, is a major source of employment and foreign exchange earnings. Starting from modest beginnings as a byproduct to steel production in 1939, the industry now includes 10 public, private, and mixed sector companies with 18 plants, 6 of them built in the last five years. The installed capacity of the industry is about five million product tons, equivalent to about one million nutrient tons of nitrogen and 845,000 nutrient tons of phosphate fertilizers. For reasons noted in para. 36, capacity utilization has been poor in recent years (around 30-40 percent) and domestic production does not meet demand, a cause for serious concern since fertilizer imports are substantial (an estimated $450 million in 1980, was for finished products and - 11 - $230 million for inputs). Since the import cost of inputs is about 40-60 percent of the import cost of the finished product, increased and more efficient use of installed capacity is of high priority. 34. Fertilizer is produced in Turkey from a wide variety of inputs ranging from import-based petroleum feedstocks to domestic lignite; Turkey has substantial lignite reserves and two of the world's limited number of lignite-based fertilizer plants. Turkey also has large deposits of pyrites (iron sulphite) suitable for the production of sulphuric acid, a key intermediate, much of which is still imported. Extensive deposits of phosphate rock are known to exist but are of low quality and in difficult locations. Hence, except for lignite and pyrites, Turkey does not possess substantial proven raw material resources for fertilizer production and most of the basic inputs (oil for naptha and fueloil feedstocks, rock phosphate, and sulphur) and some intermediates (ammonia, sulphuric acid and phosphoric acid) are imported. Altogether, Turkey depends on imported materials directly or indirectly for 80 percent of its fertilizer needs. 35. In the long-term, prospects are good for Turkey to maximize the use of local materials such as lignite, pyrites and possibly natural gas in the production of fertilizer. In the medium-term, besides increasing production and productivity, lower energy consumption per unit of production can be obtained from existing capacity by the substitution of locally available lower cost feedstocks such as refinery gas for high-value naptha. Considerable foreign exchange can also be saved by increased production of intermediates such as sulphuric acid based on domestic pyrites or imported sulphur. Because of the changed economics of fertilizer production, availability of alternative feedstocks and improvements in the technology for using lignite, expansion plans for the next few years are focused on developing a third lignite-based plant and a plant based on gas resources in Thrace which might prove suitable for fertilizer production. 36. Production improved in 1980 and reached an estimated 460,000 nutrient tons of nitrogen and 352,000 nutrient tons of phosphatic fertilizers, about 50 percent of capacity. The deficit in 1980, about 145,000 tons of nitrogen and about 94,000 tons of phosphatic nutrients, was covered by imports. Low capacity utilization is due to several factors including; structural and technical bottlenecks arising from poor maintenance, inadequate spare parts, or design deficiencies; poor and uneven quality and unreliable supply of local raw materials (lignite, pyrites, rock phosphate etc.); weak organization and management; lack of trained manpower, working capital diffiuulties; inadequate foreign exchange for raw material inputs and spare parts; power shortages; and inadequate water supply. Steps to correct some of these probl-ms have already been taken. The Government is giving priority in the allocation of foreign exchange to fertilizer inputs rather than finished product imports, and a considerable proportion of these imports of inputs are being financed out of the structural adjustment loans. Some of the other major Droblems wiil be addressed directly by the proposed project. The Market and Marketing 37. Agriculture is an important sector, accounting for about 60 percenr of export earnings, of particular significance in the current balance of - 12 - payments crisis. While the performance of agriculture has been reasonably good by international standards, and Turkey is self-sufficient in food, there is scope for increasing the area under cultivation and the use of more intensive methods, such as fertilizers. Fertilizer consumption, almost nonexistent in the early 1960's, has increased dramatically (by 15 percent per annum since 1972) and reached 780,000 nutrient tons of nitrogen and 660,000 nutirient tons of phosphate nutrients in 1979. It declined in 1980, in response to substantial price increases. Although the increases in use have been significant, it is still low, about 47 kg/ha of arable land in 1977. The Bank projects consumption to resume an upward trend in 1981, increase thereafter at about 6.5 percent per annum and by 1987 reach about 1.2 million nutrient tons of nitrogen and 0.9 million nutrient tons of phosphatic fertilizers. The projections assume retail prices rise to world levels but that the ratio of fertilizer prices to crop prices will continue to be favorable. Assuming restoration of reasonable capacity utilization levels, domestic production should reach about 842,000 tpy of nitrogen and 716,000 tpy of phosphlate nutrients by 1987, still significantly below demand. 38. Fertilizer distribution used to involve a number of public and private firms. However, to ensure an orderly and broad distribution of fertilizers during a period of foreign exchange shortages, DONATIM, the State Economic Enterprise (SEE) responsible for supplying inputs to farmers, was made responsible for distribution. A small amount, less than 10 percent, is distributed by the Turkish Sugar Company (SEKER). These two SEEs are also the only authorized fertilizer importers. Fertilizers account for a substantial proportion (as much as 50 percent) of DONATIM's sales and it has done a reasonable job in the physical distribution of fertilizers through its network of outlets throughout the country. A fertilizer marketing study focusing on the introduction of urea was undertaken in the early 1970s, in connection with the Bank-financed IGSAS Project (Ln. 845-TU of June 1972), and resulted in improvements to the system. However, with the increased consumption of fertilizers, there is a need to update this study and examine whether the present dealer network, warehousing system and transport network are adequate for the increasing volume of fertilizers, as well as whether, in line with the Government's market oriented policies, producers should be allowed to distribute part or all of their products directly. The proposed project therefore includes a marketing and pricing study. Assurances were obtained that the marketing and pricing study will be carried out before December 31, 1982 under agreed terms of reference. Consultants, acceptable to the Bank, to carry out the study will be employed by October 31, 1981. The Government has a4so agreed that after an exchange of views with the Bank, changes, based on the study's recommendations, will be implemented by June 30, 1984 (Loan AgreemeDt, Section 3.01). lcsrtal~"i iZ( ic ing i9. W-dtt, ex-factory and retail fertilizer prices are controlled by the Governmuit. Yoth were substantially increased in 1980; retail prices by over f-ive tiiUwf (ice. to $i)60/ton for urea), and ex-factory prices by about four times (i e. to about 4330/ton for urea). Despite this, retail prices are 5t1l1 -bovli ou(h iiholf world market levels. The subsidies are partly financed - 13 - by the agriculture sector through a Price Stabilization Fund which derives its resources from a levy on the margin betwen the price received by exporters and the price paid to farmers. These arrangements are relatively new and it is not yet clear that the Fund is a reliable source of funds for the fertilizer producers. During 1980, all fertilizer producers experienced substantial accounts receivable problems, which impeded their ability to produce. The Government has recently taken steps to rectify this situation, including providing additional funds to DONATIM and SEKER. Receivables for all three beneficiary companies had been reduced to acceptable levels by March 1981. Nevertheless, an assurance was obtained that satisfactory arrangements will be made by government to ensure payments by DONATIM and SEKER for fertilizers purchased from local producers are made within four months of date of delivery (Loan Agreement, Section 3.05). In connection with the proposed Second Structural Adjustment Loan, the Government has indicated its intent to phase out subsidies on fertilizers within the next five years. The marketing and pricing study will facilitate this change by examining such issues as the impact on farmers' incentives of deregulation, problems of the present financing arrangements, etc. 40. Under a new system established in January 1980, ex-factory fertilizer prices are established every six months by a formula based upon the average cif dollar price of comparable products imported by DONATIM. The formula is designed to provide an incentive for local fertilizer producers to increase domestic value-added since those with higher value-added receive a higher TL price. By providing an international reference point, it also encourages more economic investment decisions by producers and facilitates the planned transition to a market price system. Under the formula, ex-factory prices are equivalent to a range from $246/ton to $332/ton, depending on the product, or 8-17 percent above cif prices, which are currently below projected long-term equilibrium levels. Most producers are now profitable and generating sufficient cash for their operations. The Beneficiary Companies 41. Azot Sanayii. Azot, an SEE formed in 1954, is the major government fertilizer company and the largest fertilizer company in Turkey, accounting for 34 percent of the nitrogen and 30 percent of the phosphate capacity. It operates six plants, including the two lignite-based plants at Kutahya. Like other SEEs, Azot is under the direction of a permanent five-man board including its General Manager, a capable and experienced administrator. Despite a conscientious and relatively efficient management and staff, Azot faces many of the general problems of the SEEs: inadequate management and professional compensation and incentives, overcentralization, overstaffing and inadequate financial management systems. 42. While some of the general SEE problems are being addressed by the Government's ongoing efforts on SEE reform, implementation of these decisions will require adjustments within the company. In addition, Azot's management wishes to address a number of management issues: production and process planning; maintenance planning; inventory control and management; organizational structure; incentives; standard costing; energy management; - 14 - financial management including management information systems, capital budgeting and financial planning; and training. The project provides consultants to help Azot do this. Assurances were obtained that the consultants will be engaged by no later than December 31, 1981, that an action program will be prepared by December 31, 1982, and that the program will be implemented after consultation with the Bank by December 31, 1983 (Azot Project Agreement, Sections 2.03 and 2.04). In addition, an assurance was obtained that the Government will take all measures necessary and within its powers to enable Azot to implement this program and grant Azot sufficient autonomy to carry out its operations (Loan Agreement, Section 3.04). To increase operational flexibility, an informal understanding was also obtained that Azot's Board will delegate greater authority over personnel, minor investment, and purchasing to its General Manager and staff. To help stimulate more efficient SEE operations and provide a clearer measure of performance, the Government has agreed, that a control and monitoring system will be established in coordination with Azot by December 31, 1981, to review Azot's performance against efficiency criteria and monthly production targets, including unit costs (Loan Agreement, Section 3.03). 43. Azot's installed capacity, including the new Gemlik plant (still being run in), is 1.7 million product tons per year (300,000 nutrient tons of nitrogen, and 240,000 nutrient tons of phosphate). Except for the small 50,000 tpy Kutahya I lignite-based plant operating above designed capacity, all its plants are operating at low capacity utilization rates. Total production in 1980 was 531,000 product tons or 34 percent of capacity. Three of the plants, the 340,000 tpy Kutahya II lignite-based nitrogen plant, the 220,000 tpy triple superphosphate (TSP) plant and the 230,000 tpy di-ammonium (DAP) phosphate complex (both at Samsun), show the most promising opportunities for rationalization and increased production, and are included in the proposed project. 44. The Kutahya II plant is of great interest to Turkey because of its use of domestic lignite as a raw material and fuel. This plant, commissioned in 1968, uses the Koppers-Totzek process for gasification of lignite from the nearby Turkish Coal Authority (TKI) mine at Seyitomer. It has never reached its design capacity and has suffered from its inception from uneven quality in the lignite supplied (consistency, not quality, being essential in fertilizer production). Poor operation and maintenance practices at the plant, and power failures have also caused problems. A debottlenecking plan was prepared by the plant's original engineering firm, Krupp-Koppers from Germany, and is supported by the project. The Samsun complex includes, besides the finished product facilities, a 214,000 tpy sulphuric acid plant using pyrites from a local copper smelter (the smelter is expected to be modernized under the proposed State Industrial Finance Project also scheduled for Board consideration in FY81), a 72,000 tpy and a 109,000 tpy phosphoric acid plants. Inadequate water supply, poor quality, insufficient and wet pyrites and inadequate handling facilities are the major bottlenecks which the project will address. 45. In addition to the rehabilitation of the Kutahya and Samsun plants, which are included in the project, Azot is completing a naptha based 330,000 tpy ammonia plant as part of the Gemlik plant, financed by bilateral credits. - 15 - At the suggestion of the Bank, Azot is re-examining the economic justification of completing the investment in view of higher naptha prices as well as the feasibility of converting this plant to an alternative feedstock. In any case, because of sunk costs and tied credits, the additional investment to complete this facility is likely to be justified, even if based on naptha. 46. Azot's financial results have been mixed. From 1977 to 1979 it showed substantial losses, partly due to low capacity utilization and partly to low ex-factory prices. However, during 1980, due to increases in ex-factory prices, the company showed a substantial profit, an estimated TL 1.9 billion ($21 million) after taxes, reflecting the profitability under the price formula of domestic based lignite fertilizer production. During 1980, Azot's equity base, which had significantly eroded, was also restored by the profits and an additional TL 5.1 billion ($56 million) increase in equity from the Government. As a result, the debt/equity ratio improved from 98;2 to 50:50 and the current ratio to 1.7;1. 47. Istanbul Gubre Sanayii. IGSAS, established in March 1971 under the Commercial Code, is a wholely owned subsidiary of the Turkish Petroleum Corporation (TPAO) and IPRAS, a fully owned subsidiary of TPAO. IGSAS operates a Bank-financed 511,500 tpy urea plant, including a 330,000 tpy ammonia unit, on the Marmara coast utilizing naptha from the adjacent IPRAS refinery (Lns. 845 and 845-2-TU). Commissioned at the end of 1977, after some mechanical problems during start-up, production from the plant has increased gradually, reaching in 1980 a total of 265,000 tons of ammonia and 430,000 tons of urea, or 84 percent of capacity, one of the highest rates in the country . The company is well managed with a competent and efficient staff reflecting in part the relative flexibility allowed under the private statutes. IGSAS has, nevertheless, been subject to some political interference in its activities and its general manager was changed twice during the last three years. The current General Manager and senior staff are experienced and competent. Nevertheless, assurances were obtained that qualified management and staff will be retained (IGSAS Project Agreement, Section 3.01). 48. The company first became profitable in 1979 and, under the new ex-factory price regime and relatively high level of capacity utilization, realized TL 2.8 billion ($31 million) of profits after taxes in 1980. The general financial situation as a result is satisfactory with a current ratio of 1.3:1 and a debt/equity ratio of 45:55. 49. Although production is satisfactory, the economics of fertilizer production have been adversely affected by the sharp increases in naphtha prices, i.e. from $20/ton at project appraisal in 1971 to $350/ton at present. Substantial savings can be realized by converting the plant to use platformer gas from the adjacent IPRAS refinery as feedstock and excess refinery gas, otherwise flared, as fuel. 50. Gubre Fabrikalari. Gubre is a joint sector company established in 1953. Its ownership is divided among; three SEEs, including Azot, holding 34 percent of the shares; agricultural cooperatives and insurance companies with 35 percent of the shares; and private shareholders holding 31 percent. It - 16 - operates two 200,000 tpy triple superphosphate plants, one at Yarimca and the other at Sariseki, and a 200,000 tpy complex fertilizer plant also at Yarimca. Production at these plants in recent years has been reasonably good--385,000 product tons in 1980, about 64 percent of capacity. Nevertheless, substantial improvement can be obtained through rationalization. Moreover, the plants presently depend on the importation of sulphuric acid, uneconomic because of high transport costs. The addition of a new sulphuric acid plant would reduce production costs, balance the production system and also reduce energy needs. Gubre has shown a profit over the last four years and earned about TL 580 million ($6 million) in 1980, after taxes. The company has a very sound debt/equity ratio of 33:67 and a current ratio of 1.1:1 which while low, is acceptable. Bank Assistance in the Sector 51. The Bank has financed one fertilizer project in Turkey, the IGSAS Ammonia/Urea Project (Ln. 845-TU of June 1972, and Ln. 845-2-TU of April 1975). The Bank's operations in the industrial sector have been reviewed by the Operations Evaluation Department in its report entitled "Sector Operations Review: Industries and DFC's Program in Turkey" (Report No. 3077 dated July 18, 1980). This report and a separate Project Performance Audit Report on the IGSAS Project (Report No. 3037 dated June 17, 1980), noted that the IGSAS project had faced a number of financial, managerial and technical problems, particularly during start up including frequent management changes and difficulty in maintaining adequate debt/equity and current ratios. As pointed out in the section on the company, these problems have been resolved. The IGSAS report also noted the contribution of the project to Turkey's agricultural development and remarked on the high level of competence of middle-level technical and managerial personnel in the country. 52. More generally, the sector report commented on the relative lack of success the Bank's industrial lending had realized in stimulating greater export orientation or less capital intensive investments and the limited achievements in solving the major institutional problems facing the SEE sectors. The report also highlighted the limitations on solving sector problems through individual projects. It concluded, however, that more recent Bank operations have supported broader socio-economic objectives, that the Bank's long and consistent association with TSKB (the Turkish Industrial Investment Bank) resulted in a viable and effective institution, and that the Bank Group has transferred much needed foreign exchange resources and contributed substantially to the country's industrial development. As has been noted above, the export and SEE reform issues are being addressed at the policy level in the context of structural adjustment lending. In addition, projects specifically focused on less capital intensive development and exports have recently been approved or are under preparation. The proposed project will indirectly support agricultural exports and directly improve operations of Azot, the only SEE involved. - 17 - PART IV - THE PROJECT Project History 53. The proposed project grew out of the recognition that Turkey was not obtaining reasonable results from its existing fertilizer capacity, in part due to foreign exchange shortages, but primarily because of technical and operational problems. Encouraged by the Bank, the Government and the major fertilizer producers identified and prepared a rationalization and energy saving project designed to increase capacity utilization, save energy and reduce major bottlenecks existing among selected major fertilizer producers. Seven of the eighteen plants in the country were identified as having high economic priority for rehabilitation. Because of status of preparation and local and foreign resource constraints, these were then separated into two phases. The first phase, encompassing four plants identified as having the highest priority, is supported by the proposed project. 54. Project preparation was carried out by the sponsoring companies, coordinated by Azot and assisted by a number of specialized foreign consultants financed by a $600,000 advance under the Bank's Project Preparation Facility (PPF)(P-027-TU). The project was appraised in December 1980. Negotiations were held in Washington between April 1 and 3, 1981, with a delegation headed by the Chief Financial Counselor of the Turkish Embassy and representatives of the Treasury and the three beneficiary companies. Project Objectives and Scope 55. The project's objectives are to; increase fertilizer production and productivity in existing facilities by rationalizing them; save energy and decrease costs through debottlenecking; increase the domestic production of key intermediates, especially sulphuric acid; and reduce the foreign exchange burden of imports. Besides providing equipment and engineering services to rationalize the selected plants, the project provides assistance for: training, a marketing study, and plant operations and management improvements for Azot. The project covers three companies, Azot, IGSAS, and Gubre, and four plants: (a) Azot's 340,000 tpy Kutahya II lignite-based calcium ammonium nitrate (CAN) plant; (b) Azot's 220,000 tpy triple superphosphate (TSP) and 230,000 tpy di-ammonium phosphate (DAP) plant at Samsun; (c) IGSAS's 511,500 tpy urea plant; and (d) Gubre Fabrikalari's 200,000 tpy TSP and 200,000 tpy complex fertilizer plant, both at Yarimca. Details of the project are provided below, in the Loan and Project Summary, in Annex III and in the Staff Appraisal Report (No. 3377-TU dated April 9, 1981) distributed separately to the Executive Directors. The project includes specifically: (a) Kutahya II. Provision of equipment, materials and spare parts to increase production of CAN to about 290,000 tpy by: (i) improving lignite processing (including mixing, grinding, and cleaning facilities); (ii) modifying and repairing badly eroded or corroded equipment and machinery including gasifiers, gas compressors and waste heat and steam boilers; (iii) strengthening the utility and power supply systems; and (iv) improving the - 18 - process and operation and control systems. Engineering services to design and carry out the improvements and about 145 man-months of expatriate production specialist assistance are also included. (b) Samsun; Provision of materials and equipment to increase production of TSP to about 198,000 tpy and DAP to about 204,000 tpy by; (i) modernizing the existing 214,000 tpy sulphuric acid plant, including installation of a sulphur burner, a pyrite crushing and grinding system, blowers and economizers; (ii) modifying the phosphoric acid concentration units and constructing two new phosphoric acid tanks; and (iii) modernizing bagging, handling and storage systems. Construction of a new fresh water system, including a 25 kilometer pipeline, and engineering services to design and carry out the improvements are also included. (c) IGSAS: Provision of equipment and spare parts to increase urea production to about 486,000 tpy and improve energy efficiency by: (i) modifying the existing 330,000 tpy ammonia plant to replace part of the high cost naptha feedstock and fuel with platformer gas and refinery fuel gas from the neighboring IPRAS refinery; (ii) replacing ammonia condensers, modifying the ammonia converters and installation of a new purge gas recovery system to increase ammonia production; (iii) modifying the refrigeration system to reduce excessive corrosion and clogging problems related to sea water cooling; (iv) rehabilitating the urea desorption system and installing a C02 purification system to improve efficiency and safety and reduce pollution; and (v) improving utility systems and product storage, handling and shipping systems. Engineering services to design and carry out these improvements are also included. (d) Yarimca: Construction and equipping a new 250,000 tpy sulphur-based sulphuric acid plant to replace imports, including a 4.5 MVA by- product steam generator to provide 50 percent of the power needs of the complex. Provision of equipment and spare parts to increase production of TSP and complex fertilizer to about 180,000 tpy each by: Ci) equipping the existing 90,000 tpy phosphoric acid plant with a new rock grinding unit and pumping facilities, heat exchanger, and storage tanks; (ii) installing a mixer, and granulator and drying section, including a dedusting unit in the existing TSP plant; (iii) improve the utility systems and the process operation and control systems; and (iv) providing a new 500 ton gypsum barge and additional loading facilities to improve storage and handling. Engineering services to design and carry out the improvements are also included. (e) Training: Provision of about 24 man-months of technical assistance to strengthen training programs for professional and technical staff of Azot, IGSAS and Gubre in operations, maintenance and financial management. Equipment and training aids and expanding of training facilities of Azot at Ankara, Kutahya, and Samsun, and of IGSAS at Tutunciftlik as well as about 75 man-months of overseas training for selected staff. (f) Management Improvement Component: Provision of 260 man-months of technical expertise to undertake a comprehensive study of the management and organization of Azot and prepare and implement operations, organization and financial management improvement program including steps to increase efficiency through increased delegation of authority (para. 42). - 19 - (g) Fertilizer Marketing and Pricing Study: Provision of about 30 man-months of technical assistance to help the Government undertake a study of the fertilizer marketing, transport, storage and distribution system, and its pricing. In total about 1,500 man-months of technical assistance are provided, at a cost of $13,000 per man-month, inclusive of salaries, travel and subsistence. The largest part, 990 man-months, are for the engineering services needed to design and implement the improvements and the remainder, as noted above, are for plant operations, training, management assistance, and study programs under the project. A list of the major items of equipment under the project was agreed during negotiations. Project Costs and Financing 56. The total cost of the proposed project (including an average 27 percent price, and 10 percent physical contingency on base cost but excluding interest and other charges during construction), is estimated at about $203 million. International escalation rates have been used for local costs, as well as for foreign costs, on the assumption that differences between local and international inflation will result in corresponding exchange rate adjustments. The estimated foreign exchange cost is $103 million excluding interest and other charges during construction. However, if these are included, then the total financial requirements would be about $237 million, and the foreign exchange resources $131 million. The cost estimates assume sufficient power for the Kutahya II plant will be provided at a modest cost by a direct line from the Seyitomer Power Plant (Loan Agreement, Section 3.08). However, the Turkish Electric Authority (TEK) has recently questioned whether this solution would be sufficient to avoid fluctuation in power supply. Assurances have therefore been obtained that Azot will carry out a study working with TEK to develop a plan of action by September 30, 1981 for meeting the power requirements of the plant (Azot Project Agreement, Section 2.10). Because of its importance, the completion of satisfactory arrangements for financing and constructing the needed power facilities is a condition of disbursement for the equipment for the Kutahya II component (Loan Agreement, Schedule 1, Para. 4(c)). 57. The proposed Bank loan of $110 million will finance 84 percent of the foreign exchange requirements and 46 percent of the total financing requirements. This includes about $7 million of interest during construction for Azot, justified by the cash flow needs of the company. In the event that additional foreign funds are required to ensure adequate power for the Kutahya II plant, based on the study mentioned above, the allocation to interest during construction could be reduced. The remaining foreign exchange requirements for working capital and financial charges during construction, i.e. $21 million, will be met as follows; IGSAS $5.3 million, Gubre $6.7 million, and the Government $9 million. 58. The $105.6 million equivalent required for local costs, including financial charges in TLs during construction, and the local component of working capital will be financed as follows: about $39.0 million equivalent will be provided by Azot; about $9.7 million equivalent will be provided by - 20 - IGSAS; and about $25.9 million will be provided by Gubre; all from internal cash generation. The remaining local currency requirements, $31.0 million equivalent, required for Azot, will be provided or arranged by the Government. The total Government contribution, including foreign exchange requirements, is expected to be about $40.0 million equivalent, part in equity in order to maintain Azot's debt/equity ratio at 60:40, on revalued assets. Agreement was obtained that the Government will provide, or cause to be provided funds, on appropriate terms, and will ensure funds are available in case there is a shortfall in any of the components (Loan Agreement, Section 3.01). Agreement was also obtained from the companies, that they will not undertake nonproject investments costing more than $7 million per year for Azot and $5 million per year for IGSAS and Gubre (Project Agreements, Section 4.06). An understanding was reached that Azot's Gemlik expansion, referred to in para. 45, is exempted from this limit, subject to confirmation of its justification and to financial arrangements being made for completing it which do not impair Azot's ability to carry out the proposed project. 59. The Bank loan will be to the Government for 17 years including 4 years of grace. It will be onlent to the beneficiaries at 10.6 percent p.a. for 12 years including 4 years of grace. The beneficiaries will bear the foreign exchange risk. Inflation was 50 percent in 1978, 65 percent in 1979, and 105 percent in 1980. Because of uncertainties associated with changes in economic structure expected in response to Government policy initiatives, it is difficult to forecast the rate of inflation. It is tentatively projected to decline to 60 percent in 1981, 40 percent in 1982 and 30 percent in 1983, if government policies are effectively implemented. Interest rates of domestic lending institutions for foreign currency lending, which are adjusted every six months, range from 11.5 to 16.6 percent inclusive of taxes, charges and rebates extended to foster inter alia exports and regional development, and borrowers also bear the foreign exchange risk. Under current policies, exchange rate adjustments are expected to offset the inflation differential between Turkey and its major trading partners. Project Execution 60. Each company will be responsible for implementing the components in its plants and project teams have been formed for this purpose. The project teams in IGSAS and Gubre will supervise the activities of the engineering consultants and subcontractors and with their assistance, handle procurement of equipment and materials. Because of the limited inhouse expertise in Azot, as a condition of disbursement for the equipment for the Kutahya II and Samsun components, services of at least 4 specialists to supplement Azot's staff will be hired under terms and conditions acceptable to the Bank (Loan Agreement, Schedule 1, para. 4(b)). In addition, Azot has agreed to develop a staffing plan by March 31, 1982 and implement it by June 30, 1982 (Azot Project Agreement, Section 3.01). Because of specialized technology and licensing agreements, the firms which built the plants, and prepared the rehabilitation programs, will also be the lead firms for rehabilitation. The firms are Krupp Koppers from Germany for Kutahya II; Uhde from Germany for IGSAS; and Davy International from Germany for Samsun and Yarimca. All are technically competent. 61. Overall project coordination will be the responsibility of the coordination unit in Azot, which was established to prepare the project. This - 21 - group will supervise the training activities and the management improvement component. The fertilizer marketing and pricing study will be carried out under the direction of a steering committee with representatives from the State Planning Organization (SPO), the Ministry of Agriculture, the fertilizer industry, the fertilizer marketing organizations (DONATIM and SEKER), and the Agriculture Bank. Because of the importance of reliable local raw material supply, a fertilizer industry working group with representatives of the producers and raw material suppliers, and SPO, will be established to review and formulate plans for ensuring smooth production (Loan Agreement, Sections 3.01(a) and 3.07). The foreign exchange requirements for operations will increase after rehabilitation. The Government has agreed to make available the amounts of foreign exchange needed for fertilizer inputs and spare parts needed to ensure efficient operation of the companies' plants, and to ensure prompt licensing of such imports (Loan Agreement, Section 3.06). 62. Existing environmental standards for industrial effluents in Turkey, are generally less stringent than current Bank guidelines. Thus, agreement was obtained that the company's plants will meet acceptable environmental guidelines for fertilizer plants (Project Agreements, Sections 3.01(f) or (g)). Because of its location in a built-up area, the new sulphuric acid plant at Yarimca will use a technology designed to minimize particulate emissions. Procurement and Disbursement 63. Machinery and equipment totalling about $69 million will be procured under international competitive bidding in accordance with Bank guidelines. Proprietary items procured on a negotiated basis, and time or process critical equipment and spares, procured under limited international tendering, will be permitted up to a total of $24.5 million, which is justified by the rehabili- tation requirements. Small items costing $100,000 or less, totalling about $3 million, will also be procured under limited international tendering. All such items will be on the basis of a list of goods satisfactory to the Bank (Project Agreements, Schedule 1, para. Cl and 2). Domestic manufacturers will be allowed a preferential margin under international competitive bidding of 15 percent or the actual customs duty, whichever is lower. The qualifications, experience, terms and conditions of employment and selection of the engineering consultants for the new sulphuric acid plant for Yarimca and the new purge gas recovery unit at IGSAS will be satisfactory to the Bank. Because of the urgency of commencing rehabilitation, retroactive financing is proposed for up to $4 million for downpayments to engineering firms and equipment suppliers for contracts awarded in accordance with Bank guidelines entered into after January 1, 1981 (Loan Agreement, Schedule 1, para. 4(a)). 64. The Bank loan will be disbursed as follows: 100 percent of the foreign expenditure for imported equipment and spare parts, foreign consultants (including repayment of advances under the PPF), and training, 100 percent of the ex-factory costs of contracts won by local suppliers under international competitive bidding (excluding local taxes), and 100 percent of the foreign expenditure or 60 percent of the total expenditure for the marketing consultants. Disbursements are expected to be completed by December 31, 1985. - 22 - Financial Analysis 65. Financial projections for the four plants have been prepared assuming production build-up will begin in 1984/85, and reach the capacity utilization targets as follows; (i) Kutahya II, 85 percent from 1986; (ii) Samsun, 90 percent from 1986; (iii) IGSAS, 95 percent from 1985; and (iv) Yarimca, 90 percent from 1986. The projections assume that without the project, Kutahya II's capacity utilization could increase to about 28 percent and Samsun's to about 55 percent if raw material supplies improved. While current ex-factory prices are slightly above landed cif prices for similar products, current international prices are depressed below long-term trends. The Bank expects cif prices to rise in real terms over the next four years close to or above the current level of Turkish ex-factory prices. 66. The projections show substantially improved results may be expected as early as 1985 as spare parts, components, and technical assistance begin to yield substantial improvements in efficiency. Total incremental sales are projected at $243 million in 1985 rising to $310 million in 1987. Profits and internal cash generation are also expected to be substantially improved, although the projections are sensitive to pricing policies. The estimated incremental financial rates of returns before taxes, the estimated improvements in net profits after tax as a percentage of sales for the plants and internal cash generation are shown below. Because of the importance of internal cash generation, and the current Government control over ex-factory prices, assurances were obtained that so long as the Government continues to set ex-factory prices, they will be not less than cif equivalent levels (Loan Agreement, Section 3.02). The overall project financial rate of return is 49 percent. A one year delay in project implementation, combined with a 10 percent capital cost increase and the eventual attainment of 10 percent less capacity utilization will reduce the returns to 41 percent (26 percent for Gubre, the worst case). Incremental After Tax Internal Financial Profits/Sales Cash Rate of Return 1987 Generation Before Tax (%) (%) 1985 ($ million) Azot - Kutahya II 42% 18% $24 - Samsun 52% 11% $28 IGSAS 69% 15% $45 Gubre 33% 14% $25 67. The current ratio of the companies is expected to be at or above 1.1:1; and the debt/equity ratios below 60:40. Assurances were obtained that the companies will maintain a current ratio of at least 1.3:1 (1.1:1 for Azot during project implementation); a debt/equity ratio of 60:40; that they will not encourage additional debt if by so doing the projected debt service coverage would fall below 1.5 times; and that without Bank consent, they will not declare dividends if after such payments, the current ratio would fall below 1.4:1 (Project Agreements, Sections 4.04, 4.05, and - 23 - 4.07). While present accounting practices are reasonably satisfactory in IGSAS and Gubre, Azot will be provided assistance under the project to modernize its accounting systems and practices. Benefits and Risks 68. The incremental economic rate of return is estimated at 43 percent, reflecting the high value gained by restoring capacity with modest amounts of capital investment. The subprojects show economic rates of returns as follows: 36 percent for Kutahya II; 35 percent for Samsun; 68 percent for IGSAS; and 39 percent for Yarimca. The project returns are most sensitive to delays. A 10 percent increase in operating costs would reduce the return to 39 percent. However, even under very adverse assumptions of capital costs increased by 10 percent, capacity utilization 10 percent below levels assumed, and a one year delay, the rate of return would still be 35 percent (27 percent for Samsun, the worst case). Overall rates of return of the plants being rehabilitated using salvage values for existing facilities, have also been calculated to ensure that the project supports economic production. The results are; 37 percent for Kutahya II; 25 percent for Samsun; 17 percent for IGSAS; and 23 percent for Yarimca, all of which are satisfactory. 69. The main benefits of the project are increased output at lower cost and substantial energy savings. By project completion in 1987, an additional 623,000 product tpy of fertilizers will be produced, valued at $168 million in 1980 cif prices. The net foreign exchange savings, after debt service and cost of inputs, is expected to be $118 million per year in 1980 dollars. In addition, the production of intermediates will increase including an additional 126,000 tpy of ammonia, 151,600 tpy of sulphuric acid and 98,450 tpy of phosphoric acid. At targeted capacity rates, about 88,000 tpy of naphtha (worth $31 million) will be saved at IGSAS and about 56,000 tpy of fueloil (worth $12 million) will be saved at Samsun, IGSAS, and Yarimca. This will be partially offset at IGSAS by a 76 million m3/year increase in the use of platformer gas and 46 million m3/year increase in the use of refinery off gas, worth in total about $18 million if valued at fuel oil equivalent prices. Thus, the net energy savings are expected to be about $25 million/year. Moreover, since part of the refinery off gas is normally flared, this understates the real savings to the economy. 70. The main technical risks facing the project are delays in implementation and inadequate cost controls due to management inefficiency. These risks have been mitigated by the involvement of experienced engineering firms for project design and implementation and the strengthening of the project team of Azot with expatriate specialists. Risks also arise from the general economic situation, particularly the severe inflation which will require frequent price adjustments to maintain cash flow and provide the substantial internally generated funds required for financing and operating the projects. The Government's very tight budget position could delay the provision of the TL funds required to Azot. The pricing and cash flow risk has been mitigated by the formula linking ex-factory prices to international prices which over the long run - 24 - are expected to increase, as well as by the undertaking of the Government to ensure adequate funds flow into the marketing organization for payments to the companies. The budget risk is minimized by the high priority the Government gives to the development of fertilizer production in view of its impact on agriculture and the balance of payments. PART V - LEGAL INSTRUMENTS AND AUTHORITY 71. The draft Loan Agreement between the Republic of Turkey and the Bank, the draft Project Agreements between the Bank and Azot Sanayii, between the Bank and IGSAS, and between the Bank and Gubre Fabrikalari, and the report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. The special features of the Loan and Project Agreements are referred to in the text and listed in Section III of Annex III. 72. Special conditions of loan effectiveness include execution of the Subsidiary Loan Agreements between the Republic of Turkey and the three beneficiaries (Loan Agreement, Section 6.01). Special conditions of disbursement include; (i) for the equipment for the Kutahya II and Samsun components, the employment by Azot of four operational experts; and (ii) for the equipment for the Kutahya II component, the completion of adequate arrangements for power supply to the plant (Loan Agreement, Schedule 1, Para. 4). 73. I am satisfied the proposed loan will comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 74. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachment April 15, 1981 Washington, D.C. - 25 - ANNEX I Page 1 of 5 TABLE 3A TURKEY - SOCIAL INDICATORS DATA SHEET TURKEY REFetENCE CROUPS (WEICRHTD AVIBACES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)L' TOTAL 780. 6 MOST RECENT HIDDLE INCOME INDUSTRIALIZED AGRICULTURAL 553.8 1960 /b 1970 /b ESTIMATE jb EUROPE COUNTPIES GNP PER CAPITA (USS) 300.0 550. 0 1330.0 2749.5 9499. 2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 245.0 479.0 798.0 1641.4 7021.1 POPULATION AND VITAL STATISTICS POPULATION. MID-YEAR (MILLIONS) 27.5 35.3 43.1 URBAN POPULATION (PERCENT OF TOTAL) 29.7 38.4 45.6 53.9 76.0 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 65.0 STATIONARY POPULATION (MILLIONS) 100.0 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. KM. 35.0 45.0 55.0 77.2 142.8 PER SQ. RM. ArRICULTURAL LAND 51.0 64.0 78.0 129.5 523.3 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 41.3 41.7 39.1 30.6 23.5 15-64 YRS. 55.2 54.0 56.4 61.1 65.1 65 YRS. AND ABOVE 3.5 4.3 4.5 8.2 11.4 POPULATION GROWTH RATE (PERCENT) TOTAL 2.8 2.5 2.5 1.6 0.7 URBAN 5. 1jc 5.1 4.8 3.3 1. 3 CRUDE BIRTH RATE (PER THOUSAND) 44.0 38.0 32.0 22.8 13.8 CRUDE DEATH RATE (PER THOUSAND) 17.0 12.0 10.0 8.9 9.1 GROSS REPRODUCTION RATE 2.9 2.6 2.1 1.5 0.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 65.6 66.6 USERS (PERCENT OF MARRIED WOMEN) 5. 3 8.2 38.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 96.0 100.0 110.0 113.1 110.8 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 110.0 110.0 115.0 125.3 131.6 PROTEINS (GRAMS PER DAY) 81.0 80.0 82.0 91.0 98.0 OF WHICH ANIMAL AND PULSE 24.0 26.0 24.0 39.6 62. 1 CHILD (AGES 1-4) MORTALITY RATE 24.0 16.0 10.0 4.3 0.8 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 51.0 57.0 61.0 67.8 73.5 INFANT MORTALITY RATE (PER THOUSAND) 187.0/c 153.0/d 118.0 55.9 13.2 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL * 52.0 75.0 URBAN .. 51.0 70.0 RURAL *- 53.D 80.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. URBAN .. .. 19.5 RURAL .. .. POPULATION PER PHYS ICIAN 3000. 0L 2250.0 1772.0 1030. 1 624.8 POPULATION PER NURSING PERSON .. 1880.0 1403.0 929.4 218.9 POPULATION PER HOSPITAL BED TOTAL 590.O/e 490.0 506.0 289.7 121.2 URBAN 190. O/e 200.0 RURAL .. 5890.0 ADMISSIONS PER HOSPITAL BED .. 20.0 20.0 17.0 17.0 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5. 7 5.9 URBAN .. .. RURAL .. .. AVERAGE NUMBER OF PERSONS PER ROCM TOTAL .. 2.2 URBAN 2.0 1.9 RURAL .. .. ACCESS f0 ELECTRICITY (PERCENT Of DWELLINGS) TOTAL 29.0 40.0 57.0 URBAN .. .. RURAL 2.0 18.0 - 26 - ANNEX I Page 2 of 5 TABLE 3A TURKEY - SOCIAL INDICATORS DATA SHEET TURKEY REFERENCE GROUPS (WEIGHTED AVT AGES - MDST RECENT ESTIMATE MOST RECENT MIDDLE INCOME INDUSTRIALIZED 1960 Lb 1970 Lb ESTIMATE fb EUROPE COUNTRIES EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 75.0 109.0 98.0 105.9 100.1 MALE 90.0 124.0 106.0 109.3 102.2 FIMALE 58.0 94.0 90. 0 103.0 102.3 SECONDARY: TOTAL 14.0 28.0 43.0 64.0 87. 1 MALE 20.0 39.0 59.0 71. 1 84.4 FEMALE 8.0 16.0 27.0 56.9 84.3 VOCATIONAL ENROL. (% OF SECONDARY) 18.0 14.0 15.0 28.8 19.0 PUPIL-TEACHER RATIO PRIMARY 46.0 38.0 34.0 29.4 21. 3 SECONDARY 19.0 28.0 27.0 26.1 16.4 ADULT LITERACY RATE (PERCENT) 38.0 55. 5Lf 60.0 ..98.9 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 2.0 4.0 11. 5 84.6 339.? RADIO RECEIVERS PER THOUSAND POPULATION 49.0 89. 0 103.0 192.2 932.9 TV RECEIVERS PER THOUSAND POPULATION .. 1.8 43.0 118.5 354.S NEWSPAPER ("DAILY CENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 51.0 *- *- 93.0 327.4 CINEMA ANNUAL ATTENDANCE PER CAPITA 1. 1 6. 7 .. 5. 7 3. 3 ILABOR FORCE TOTAL LABOR FORCE (THOUSANDS' 13782.1 15829.6 18858.8 FEMALE (PERCENT) 40.2 37.2 36.0 3C.4 36.1 AGRICULTURE (PERCENT) 78.5 67.7 60.0 37.0 7.6 INDUSTRY (PERCENT) 10.5 12.1 14.0 29.3 38.8 PARTICIPATION RATE (PERCENT) TOTAL 50.1 44.3 42.8 40.9 44.6 MALE 58.7 54.9 53.2 55.9 58.1 FEMALE 41.2 33.4 32.1 26.2 31. 7 ECONCMIC DEPENDENCY RATIO 0. 9 1. 0 1. 0 1. 0 0. 8 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 33. OA 32.8/h HIGHEST 20 PERCENT OF HOUSEHOLDS 61.0]g 60. 6/h . LOWEST 20 PERCENT OF HOUSEHOLDS 4. 2g 2. 9/h LOWEST 40 PERCENT OF HOUSEHOLDS 10. 6jg 9. 4h . POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 342.0 RURAL .. .. 270.0 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. RURAL .. .. 220.0 385.8 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. RUkAL .. .. Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1978. /c 1955-60; /d 1967; /e 1962; /f six years and over; /R 1963, /h 1968. Most recent estimate of GNP per capita is for 1979, all other data are as of April, 1980. October, 1980 - 27- ANNEX I Page 3 Qf 5 WINZTZS 0r SQ00.A. 3U0CAIORS ~5a Altbo.boh. dotb - do.. to..7 .ooto g.ooll -IYJodd oh. .0t s.thoOitto -O sd oaILtblo. It *hm14 I-. ha -.Od thot th.y aa 0t ho 000.-- ..t.aoly topw..obi. boo.. of oh. lo t of *0dord.= dofaittoa. -d oNpt* -ad by diff.- .-trooat L.o to 1ilcttag oh. dat. lb. data v. tha.l... sfid to doacob. r. of a Wat.d, stcst- 0 .. s.d -hr.ota eti. -J.00 ditff-.o bt... o.-atra- lb. ot rfso. Brocp -0 (1) thoa. ABNA .-oy soon of tho a.,Jot o.-toy s.d (2) A -tooo poap dlth ahat h0.oo oa... J-.. ohm th. -astry p.w of h.otj.t o0s.t (mo't far 0Ca,tt..l b b.- 001 fp.otaoa" P.o" to.- `MIdd1. SO North Motto .0d ff1.4. 9toa L. oh.. hat.. .t ".0.a .ooo-ctAIo off"taitt). to tha oat- B...*sot do." oh. aoor. - r. Pooti-tc votbtad -Ltbti..t so - o f.osb WIdt.ta -4 Bh_ .p b a 0.0t half of oh. osottaL. to ERow haS do. tf- that Wl.....o. Stat. 0th. o.ooA. of Ocotric -a oh. todtot-o d.ps.da - tha -L..hLttey . da._ -d I. t -alfo-a, -.0.00 -.t ho -.1aold L. raUtto -orso of -0 t.dtt-c to -ath.,. Thasa -v.a.a .r. s.ly .a. 1. to c0.0, She 0.1 of -o Itooto At A t00 .. oh. OsatRy s.d 0- roe 5o. (th.".d..a)Ln&1if.~ZM spsOP-tto dOldad By 0b at P-.090086 vk0 - 001 coo. or..oa.ptota toad At.. oat OL.m ot.o. "lO. olto o.a~oL. .ch.o At oatraoaty 1.-i. ~ L - Eat.ot. a oaotoloavol r.. o.4 t~coo01, cvPa.aaotty P..1 !ato m. o01."~0 - walatOs. A0,0d.d by _da0 ad pmattotas 0or Pa. tp.000. .00t oAd ktt.hm Soo... -0 to 1L. tol.; 0077 dAta. aalad-. 50 0 0Oa. Pvacttao .0vn. aa ."ats. aB. PUCAITA (US - mi p.o ..p000 ..tit-o. At .-,-t. ..kat sotto. toO- Poalots. ao Ia.2tta1 Nat 't.Oo0 aNhm. vs.al-. bims4 be".1 0... y -n s..ot atbod -. 00-1d 00 RAtla (1071-79 hbot.); 1960, avatoa. L. pablO. p000.0_ $. -I00 otIIa b"t0o1 1970, 0d 979do.". bhaltttoato t-atr.- No"I.0101 00 s.tah.t. ptlyI =adta _________ FEE______ ITA_ A-1.tt. O -y( I Ovo o. - t toLadd. NARRE boNrIt010. bso-ar. 0s.I.d h.al& mdiloal i00. aoIc. 00000. g00 .d h.4d-. soclaa sd aaotho.-l 010- o.oroat p.oa tO y RAtfftd by a piB1atots (bat by a .0ddal 8.19owt. ttty tokiloo.- cf .001 q.1-tolt sco 00i.0; 1060. 1070. sod liN oa.. t0.5 .a.) th.c ffta ta-,atts. oodtO. d iv ..i 0 0.1 (-.01.40 t pototpl Sr s-.d aptad aha mi n. wal POPOdIt 03 ITL STATISTICS h.ap'tt.a icro 00 00.1 h..talc .0d Ioa s.d .00.0.00 oatat. I.o c.tOR. MU-Tao wallto ) - Ac of Joly 1; 1060. 1970, 00d 19798 t.ts,oa 8att td- TOtAl tb,.of ct iaats t.a- dtahaa.a A."5. to.hato.4044b h. ttah.r cf bad.. robfP.. 00tL000 (.0 .00o total Ltt ct cob.- to total PoIlottm; do ...at dfattotta cf ors.coo .7 f tor o.acp-hiltty afdt.4000 n.-a .00.000; 1906, 1970. .0d 1978 dot.. W INs. Sti. of lasoahld faaa aaU .0.ah. Nl !i p0ti.!C0jt1ArnA b-..a u ooaatot ot A sr." at tattdaa 0 RA 10.0.5 poOta b1twa I., 7 9zouu- CorOs.0 popap0100 pociatots - baad s. 10040 d tbalo -.ot -I.. 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Za. od- C-otad -0 obov for..11 ...Olt00 100 l0.17 f o17 0506; 0000p.a0t 0.0000 aaa Oolatoa As. Stot...a (00.0)t CIlro(-byra. okc-ot. (15- toLo1." toohoro1. tod-taor. 00obo og kttb apao." t0409s. 06 yoora) .04 00000 (05 loov 0.4.vW a .oo oaof aid-y-o polO- 400011 ooA. dp.ort-R. of aody -tot.ttoi- (.t1. 090. 107.od190dt. Poo-aoa 00 rso. 0 ocdo oa 04.. s.oall to 0000001.ti G000tk tot -t00.) - 00001 A-100a 000h -t000 of tt0l 014- 50.0 .400040 aoO 0 00 y .0o ofIohoat yBAr p00000 oo1500.1907. 00 1970-70. oo.odalal. PoaclsOtot Gtrovot to 00=00) "- ob..- A-1oo Soo-h rat.. of -rko p.p.- Aolt .Iitto,= rota (pqroat) - tOOcrt. sdo1ta (ohio 00 0.04 - OOi.) 1000i. f 0 1950-60. 1960-70. a0d 1970-78.a .o00oc fOt01 041 Pc.lot000 o04 19 Y-ao ova Cr0. SBoth 1t. (000 th' ) - AaaOli000 bioth. p.o tbocoO0 of 0470 poPoItottoLt1960 1970, aa 1970 dt.0.. CMnsOuT"o Cr4 .0k50 c-o thooood - A-o.0 d-th1. P.o Ohac..d of .0d-... C.cao a. (coo tbo.--d PaOlatoO) - P::-M..aoor pO. 00 popcotioo; 1960. 1970. and 1978 4.0.. Oo atios 1... ohm gtoh P.o.-; oOOd01 oo00 h.oa- -Aa Cr0. .rod..tL- . to-Aa0.ahoof da.Oatar. at.011 hm- I0 011000 -ba-Olo boo .-I0. -.ptod-cti p.00d 00 h1. ..oOoo . po ot -pc f 0000- 000 otto.00 Oca0 0.100) - Alltyon. af r-La,o.. too -.4 0000 00. 1.011 t0-Y.o 00000 1oto 00 970, 004 1977. bo4c.ato -oor pbhlto p.r thooooad of popolctoc; AR.o104 -ab- 5s.il 010000-AcaOoa.Ono (ocod) - Asoo1 olb- of ..ccoptor. rn.droc _t. o00000. 004 00I 00 h. Y- t att9.tootI of .040. -0 ';At btrt-= -tot4.00.- .aa ...00a o.. 00t0.l. mOO p10.00 p,fos. A0 oofat d'ta tf- -.0t Y-000 000 ho oorhl 01- flat Ps1r00.0 oo 0000of _oot v..f - a0050Of arotad co000ahtbd10.t. Of Obild-b-.oro oa. (15-44 yoco.) A.1.-0 blrOh-.otoolI4001... 00 TV Sc-1.... (00- th-.aoc ooocl.ttc) - TV a.0r to- b.04."- 00 011arta o 0 O..ot 000. B.0001 pobll, p. tkoo.-d popoloto.; 0010.. -Iit.aaod TV cOaa 700 0 ANDUlITION to 0000.. Rod I. Y.o;. cha- oat.000000 Of TV ao. v .at af-t0. I04dt of Ioo P0400.. ra C.00t0 (1969-71-100) - 00.d0 of p-.o 00000 -ooI 00t0. of""'a,oo soat....a' ofta 00p.t40lp p004,000 of.1f idto ti... frod-toOc 1.000.. 0.04d .0d f.. Rodtto .0000 prto-ily to .--odi.& S-.000 .I It t* .ooA-idoa 0:. a olo ya- b.ao.. Cosd00t000000 Pti-ao .004. (ot9. OOINOOOO tob oO f0 p.o t t fc"0000 0 00.4of aooor) hkrh -o odibla and cto -ort-0 (0.5. -otf.. .o COos. AooolAtt-nOaO Co Iat,o 000f.0-t00 0 h .0 ta . .0 100d) . Ah-.t.tt p-od-tiro Of ... h cootry 0. baad 0000..soddon A-70,-I14. t.00 0dOv-toa. ti0o00 --000. 700d0c P0i00 -i0b-; 191.1-65. 1970. .04 097 400.Zad tkt lo1 000..I h - . t- par dOy Sa-11obl. apla ro00 do-..tOrroooon aor Ta -100 b.1.0 V.o- (tO ....d.) - Oo- -.OalO .000. rcro-. Ot.d axporot. ho,,,,,ja I0 to0. 900 appOa., 00004. 00d 0 :.4 04, aodfrc 04o.roa o 004o koct..*ooO,c 9c50000. Oac to ood ootocto. 0040.O dtaotbotoo.0.9000- rfOoOOoo ooor-o.. oooo.a.oo -btal.; 1960. 1970 0. 00~0~vao aO.a.dby 740 b... d -n phy.tioOOool dc04 000 -oo 0000- 0970 4000. 007"0'Y 011 -1L.d-iohnoos.ntltsP.-oOt. body ocishta. 050 lntlc(aroat - Y-I.0 lobor torso... p.rotalos of tota1l tboo tot. 0400dtaoboOtio of pop01t00. and 0110000 10 p--tco too 0-000At ototo.0000) - Lobor tEoo I0 ftaratot ... t "oao. h-tOaS - 1.0.0004 0d.00:1;I1900-OS 0970, 'Id 0977., t00. fiabtog - p..rtgao. of t0000 taboo fso; 0900 0070 "' 0070 data. P.r t.000 lm of 000.0 t.(so... ocr 4) - 000.00 --oao of P.OapOOIf ot.o(00.) - abofr 00.0.OtstOOOt, mOOO Oat *opply Of food pa- doy. N.t aoPply Of food .4000 I a ahi y.. 0.- d..t. cloo -tro Ly .0 f... L0.0 p.i00a0a of001l ot. 90 90i-0at. too cli_rtotot. r..bliabhd by USDA p-ovd. foraI. R90od 07 dot.r da.A Otw b. 190 01.0c.o 00sn,o 00 P otaio P00 day .04 20 Bra.. Of acoo 00d OartisotiaO Rto. (-_cot) total. .010. Rod tmalc - PottOOl0 polo. pr-t.s., oJ 01hithf10 sos. h.b d ba aota1 p-t0.00. Th... ota0 d ot.it 000 -:oc Ato O.M. .. to otl. . 0.. cad tf-1 0.0 IRA rof0.. orda 00lov-,o. o1toa.of75 Sma of 000.0 0000 i0 3is. od:Tf p.-taOOOo of00.1. -1l Rod ft 1..l popalotO of .10.40. t.ayrOOYly; i..01 s000 . 0000 too 01.0 ooo4d tp-otp.d by 001 .to h Tird 1900 90 9540.T.. o 10 .top00 oarfoo. 00014 Yood 5oooa; 0900-05 1970 004 1977 data..17.W17dt.T... LO .tipt- tRtaft P..000000.001 fO.ota o o.-ooao.ro t ~ 00a -t-c ofa th 0. popollioto, .d4 000g 000 t-d. A fs 0t01 0000 fod a, .tt.O.. .dPl..O500p. 4.; 91.0I- 5, 1970 .0d 1977 4000. t.oooaj Dsoond-yc 0.00. - Rotic Of pp.ol.ttoo 0040 05 at0) 654 otd ChIld (a. 0-_) 0000 t10 000. (co Obo..d) -Aoo 46.1.th p.O tho-od I0 to 01.0 00001 lohoo too... OEO 300-0 1-4 t00. 0ohildos I. hiO. g. oop for ata d ..alpiat 0000 000. dat.d4.-d0 to. 100. tabOo.; 1960. 0970 tot 0977 4000. INCOME DISTRIBUTION BULTI ~~~~~~~~~~~~~~~~~~~Pca.-RAt. or ' 0000 100.0 (b.0h0I. ..tok.0h 004 Aod by . ot-th LI!, R, - tj1'1'10t1 lit. -i.i.8 .~~~~~5fp.-"ootic000. 20 p.00.0t, poo-ot 20 pt.00.0 0.4 p--.tO 40 p.rcs. tfaOooaooa 00.(oar.) - hors ...oo ycoo 00 ..008 o bo h.1odo. Oftao 00000100, 000. (Z0 thooa:d1) - 0A000 40.0.th0 f acft. -04. 0~OY..r PoRTT TARGET GROUPS Afta, poo- B II-0 00 bOrObo OtiOaatd Ab010 7000 Lo . Lo)(0 0 ot SIo.fs s.d -I00- Aco:a, 0St ftr(.oo fcolOo. -001 oa.04rrl-0 .1010 poyat. torn.y Oao.1 .0. on oa .. kcc to oo'00) 000 rko 0 oo) 0hrsoki r.00 .f0000011!hqoa400p . 0010.-od00000..0 0 vo tr.spi (or _da 0000 Of f 0ti_ coar or.l tboraoo b -IocctsOrt0 tfOrdot parrooooca o 00.0 r..pooOoo 00010000.. 0 00 sb.. o... opbtc 0.t0 itlotor00,0 pioo . 1.a . attr fmos .rop Acca Ato h. tocat Oaoaatoo-tcfcoltt.to1 oo 0 p.... t - f hAir ..p.( ptotalP. .01.00-. co .rl o.obyso o I.cl.0 000 dp . ollt to 1- .4 th..ol 201000-t 001-0p- -00000000. th 000-00 .%soyt 004 iP0d-i00f O tpcrn.o of ..so.00.0 040a00vo.ob t i.f1.00 a-yaths.a crf-01..-...l OfN00I.010 ..0.. obl. .. .od .toldo topOly t. on. - 28 - ANNEX I Page 4 of 5 ECONOMIC INDICATORS PopulatLon: 44.2 million (mid-1979) GNP Per Capita: US$1330 (1979) Amount Average Annual Increase (t) Share of GDP at Market Prices (x) (million us$ (at constant 1978 prices) (at current prices) Inaccator at current prices) 1979 1965-70 1970-75 1975-80 1980-85 1965 1970 1975 1980 Ia NATIONAL ACCOUNTS Gross domestic product lb 58,647 6.6 7.5 3.4 4.2 100.0 100.0 100.0 100.0 Agriculture 12,766 3.1 4.4 2.9 3.8 30.7 26.4 26.2 24.7 Industry /c 13,310 9.5 9.5 4.5 5.2 16.6 17.2 18.0 2b.5 bervLces 28,808 8.2 8.0 4.0 4.0 42.9 46.5 46.0 47.3 Consumption 47,907 5.8 7.0 3.2 3.6 84.6 82.8 84.8 82.0 Gross investment 13,140 11.7 12.9 -0.2 4.2 16.7 20.1 23.7 21.2 Exports of goods and NFs 2,977 7.9 7.3 1.5 10.7 6.1 5.8 6.1 5.4 Imports of goods and NFb 5,378 11.2 13.8 -6.6 3.7 7.4 8.7 14.5 8.8 Gross national savings - 11,938 11.6 -11.2 2.1 4.7 15.8 18.8 18.4 18.5 Average Annual Increase (t) Composition of Merchandise Trade (t) (at constant 1978 prices) (at current prices) 1972-75 1976-79 1965 1970 1975 1980 /e MEhChANDISE ThADE Merchandise exports 2,261 -1.0 -1.5 100.0 100.0 100.0 100.0 Primary /d 1,476 -5.0 -3.6 80.0 83.0 64.1 61.7 Manutactures 785 8.3 2.9 20.0 17.0 35.9 38.3 Merchandise imports 5,069 10.6 -14.6 100.0 100.0 100.0 100.0 Food 114 46.0 -35.0 6.0 9.3 8.3 2.6 Petroleum 1,759 9.2 -1.8 10.0 7.0 17.0 47.8 Machinery & equipment 1/ 1,502 8.0 -23.8 39.9 39.8 38.5 21.1 Other 1,694 9.1 -12.4 44.1 43.9 36.2 28.6 1975 1976 1977 1978 1979 1980 /e pklCE. AND TEaMb OF TRADE GDP deflator 50.0 58.6 73.1 100.0 160.0 320.0 Exchange rate 14.4 16.1 18.0 24.3 36.4 76.4 Export price index 84.0 87.4 95.6 100.0 105.6 128.1 Import price index 84.2 87.6 96.0 100.0 125.6 165.2 Terms of trade index 99.7 99.8 99.6 100.0 84.1 77.5 As t of GDP (at current prices) 1965 1970 1975 1980 Ie PUbLIC FINANCE Current revenue 15.0 22.6 22.0 20.1 Current expenditure 10.0 11.8 12.6 11.8 burplus (-) or deficit (-) -2.0 -2.3 -0.4 -5.1 Investment expenditure 4.7 5.7 4.2 4.2 Transfers 5.0 7.5 5.5 9.3 Foreign financing 1.8 1.6 0.3 0.2 1965-70 1970-75 1975-80 1981-85 OTHEx INDICAT0Rb GNP growth rate (4) 6.8 7.7 3.2 3.9 GNP per capita growth rate 17) 4.1 5.0 0.7 1.4 ICOK 2.9 2.9 5.7 5.1 Marginal savings rate (t) 28.2 19.5 16.7 25.8 Import elasticity 1.7 1.8 -1.9 0.9 Is At cosatant 1978 prices. 16 At market prices; components are expressed at factor cost and will not add due to exclusion of net indirect taxes and subsidies. /c Includes mining and quarrying, manufacturing, and electricity, gas, and water. /d Includes agriculture and mining and quarrying. Ia Estimate. If Includes metal products and machinery, electrical appliances, and transportation vehicles. EM2DA 3/16/81 - 29 - ANNEX I Page 5 of S BAL4NCE OF PAYMENTS, EXTEItNAL CAPITAL AND DEBT (million 01* at current prices) PopolacioO: 44.2 million (mid-1979) GNP Per Capita: UsA1330 (1979) Actual Projected 1970 1975 1976 1977 1978 1979 1980 IT 1981 1982 1983 1984 1985 bALANCE OP PAYlENTH N8l exports ot gouda6 s ervices 342 3067 2993 3880 1953 2442 3990 4365 4706 4858 4889 4771 Eaportn of goods 6 O.toces 754 2752 2742 2556 3106 3257 3700 4332 5183 6340 7762 9511 Imparts of gooda 4 sorvices 1096 5219 5735 6436 5059 5699 7690 8696 9889 11197 12651 14281 Net trausters 91 23 IS 12 - - - - - - - - Lurret account bIalac. -58 -1892 -2295 -3572 -1710 -1771 -2788 -3207 -3667 -3916 -4054 -4115 Direct private -noent-ent 92 251 163 169 147 200 175 200 220 244 273 299 P-oc-c HbLT Igros-) 271 334 720 997 1017 4321 1c 0957 2165 2585 2862 2978 3118 A-ortit-io on MIsLT -146 -175 -203 -234 -336 -414 -925 -9O7 -1245 -1934 -2058 -2102 Poosic M< (bet) 125 159 517 763 681 3907 1032 1168 1341 928 920 1016 Debt elilef Asnetit-tion - - - - - - 814 533 608 811 282 -284 Olcor capita: /D 27 955 1503 2074 1030 -2410 1159 1424 1682 2137 2806 3340 Cboogtc cv roserves 1- c increasee -186 417 112 566 -148 74 -392 -118 -184 -203 -726 -255 Ioteroocioooc resorve. 612 1404 1292 726 874 800 1192 1310 1495 1698 1924 2180 -e-srveso oethis t itports 7 3 3 1 2 2 2 2 2 2 7 2 1972 1975 1976 1977 1978 1979 1980 uttIciol grout: Grois ocsb-rsemontu of MILT leave 372 334 720 997 1017 4321 /c 1957 -o-cesso.. 1 261 100 167 193 227 596 446 BOaLcor-l 139 69 81 130 192 510 389 IDA 4 18 21 19 8 3 1 occer oolscl ..eral 118 13 65 44 27 83 56 .o.-cooce..io.a1 111 224 553 804 790 3725 Jc 1512 OteicIal -oport credits 1 47 57 47 91 202 247 llith 25 91 117 146 165 277 365 Ot-or soltiloteral 27 48 54 5 35 11 26 Pr-vote dl 58 38 325 606 499 3235 /c 879 EXTEkNAL DEBT Dear oo-tcadcog aed ocbcorund /I 2519 3320 3833 4752 6842 11621 12818 oir ccai 2273 2980 3275 3648 5454 7212 8476 IBED 92 288 391 512 648 890 1215 IDA 99 144 163 181 188 190 190 Other 2082 2548 2721 2955 4618 6132 7071 Private t 0 246 340 558 1104 1388 4409 /c 4342 Doot oltut..di.g -oclidiog oodisnoosed (pLblic sod private) 3541 4931 6157 7545 10355 15302 17934 DEBT bEgVICE - 1ta daebt servico /r 224 291 368 418 532 689 112 Paymnnin 161 175 203 234 336 414 598 ocerec-t 63 116 165 184 196 275 710 Total oebt service as 2 sop-rts of Soode o NFS * rorkers' remittaucec 11.8 8.4 9.9 11.8 13.0 13.9 12.2 Tocal debt service as 2 GNP 1.3 0.8 0.9 0.9 1.0 1.2 1.3 Aver-ge icte-e-c rate ou ceo loans .() 4.4 7.3 7.2 7.6 6.9 11.2 6.1 Official 4.5 6.4 7.1 7.6 6.3 4.4 Private 6.8 8.7 7.8 7.6 8.2 13.7 Average matcnty of 0ev locus (years) 22.1 13.1 12.7 11.7 13.2 11.1 20.3 otioc-al 26.0 16.6 13.3 14.5 15.6 23.5 PriLate 11.0 5.1 10.2 8,9 7.6 7.1 BANK Gh?UP EXYPOoUE (X) IBD D0D/totol DOD 3.7 8.7 10.2 10.8 9.5 7.7 7.5 lBAD disbarc-mectu/total gross disosreeee-tn 6.7 27.2 16.3 14.6 16.2 6.4 18.7 1B801 debt service/total debt service 5.1 10.5 11.7 15.0 15.4 15.3 9.4 IDA DOD/tortl DOD 3.9 4.3 4.3 3.8 2.7 1.6 1.3 IDA di-borsements/totl coons ocsburaescoss 11 5.4 2.9 1.9 0.8 0.1 IDA debt aereice/total debt service 0.4 0.b 0.6 0.5 0.4 0.4 0.4 At 2 of Debt Oatstsodiug at Eod of Most -eceot Year (1979) TEtkM STBOCTUhE Maturity structore of debt outstssdiog (II Mattrities doe -thin 5 yearn 46.0 M-turities due withis 10 years 75.5 Iocotoct t-t-rcrc of debt outstaoding (%J Ilterest due -ithic f-rst year 12.8 is Estimae /D Ln.lucdloan ror- and issions opto 1979, ssd for prejeotud years it i.cludes net IMF, gspfill sod private M!L. borrowing botb on * Oet basis. Jc lo ol .en $2,638 silli.o of consolidated hort-ter debt, ehich is ..w repynble over _ years. /0 Iluol..s private guaranteed sed privats oun-guaranteed debt. /e Dote not include stunk of ahort-term, includes debt relief. 7f Tacos ac.c.ut of dent reiof doa to dect rehoeduliog, sod e.cludes iheereste cc short-tce debt. RM.2DA 4/12/81 - 30 - ANNEX II Page l of 9 STATUS OF BANK GROUP OPERATIONS IN TURKEY STATEMENT OF BANK LOANS AND IDA CREDITS (As of March 31, 1981) Loan Number Year Borrower Purpose Bank IDA Undisbursed Twenty-four loans and fourteen credits fully disbursed 814.5 177.4 748-TU 1971 Republic of Turkey Education 13.5 0.2 844-TU 1972 Republic of Turkey Istanbul Water Supply 37.0 9.2 883-TU 1973 Republic of Turkey Ceyhan Aslantas 44.0 18.0 893-TU 1973 Turkish State Railway Railway Project 46.7 1.1 957-TU 1974 Republic of Turkey Antalya Forestry 40.0 0.2 1023-TU 1974 TEK/TKI Elbistan Power 148.0 44.0 1024-TU 1974 DYB Industry 40.0 0.5 1130-TU 1975 Republic of Turkey Rural Development 75.0 39.1 1248-TU 1976 Agriculture Bank of Turkey (TCZB) Agriculture Credit 54.3 31.1 1258-TU 1976 State Pulp and Paper Industry (SEKA) Newsprint 70.0 8.3 1265-TU 1976 Republic of Turkey Livestock III 21.5 11.2 1194-TU 1976 TEK Power Transmission II 56.0 9.2 1310-TU 1976 Republic of Turkey Tourism 26.0 22.5 1379-TU 1977 DYB Industry 70.0 19.7 1430-TU 1977 TSKB Industry 74.0 9.0 1585-TU 1978 Republic of Turkey Northern Forestry 86.0 67.4 1586-TU 1978 Republic of Turkey Livestock IV 24.0 22.2 1606-TU 1978 Republic of Turkey Erdemir Steel Stage II 95.0 80.2 1741-TU 1979 Republic of Turkey Ports Rehabilitation 75.0 75.0 1742-TU 1979 Republic of Turkey Grain Storage 85.0 85.0 1748-TU 1979 TSKB Industry 60.0 53.3 1754-TU 1979 TSKB Private Sector Textiles 65.0 62.4 1755-TU 1979 SYKB Private Sector Textiles 15.0 15.0 S-15-TU 1979 Republic of Turkey Ankara Air Pollution Control 6.0 5.7 1844-TU 1980 Republic of Turkey Karakaya Hydropower 120.0 120.0 1847-TU 1980 Republic of Turkey Sumerbank Cotton Textiles 83.0 81.9 1862-TU 1980 Republic of Turkey Livestock V 51.0 51.0 1915-TU 1980 Republic of Turkey Structural Adjustment Supplement 75.0 52.9 1916-TU 1980 Republic of Turkey Petroleum Exploration 25.0 25.0 1917-TU 1980 Republic of Turkey Oil Recovery 62.0 62.0 1952-TU 1981 Republic of Turkey Labor Intensive Industry 40.0 40.0 Total 2597.5 /b 177.4 1205.3 of which has been repaid 230.9 6.4 Total now outstanding 2326.6 171.0 Amount sold 3.6 of which has been repaid 3.6 - 0 - - 0 - Total now held by Bank and IDA /a 2326.6 171.0 Total undisbursed 1205.3 0 1205.3 /a Prior to exchange adjustments. /b Excludes $40 million loan for the Second Fruit and Vegetable Project approved by the Board on March 31, 1981. - 31 - ANNEX II Page 2 of 9 STATUS OF BANK GROUP OPERATIONS IN TURKEY STATEMENT OF IFC INVESTMENTS (as of March 31. 1981) Fiscal Amount in US$ 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 Nylon Yarn - 0.52 0.52 1972 TSKB IV DFC - 0.43 0.43 1973 TSKB V DFC 10.00 - 10.00 1973 Akdeniz Tourism 0.33 0.27 0.60 1974 Borusan Steel Pipes 3.60 0.43 4.03 1974 AKSA Textiles 10.00 - 10.00 1975 Kartaltepe Textiles 1.30 - 1.30 1975 Sasa Nylon Yarn 15.00 - 15.00 1975 Aslan Cement 10.60 - 10.60 1975 DORTAS Steel 7.50 1.37 8.87 1975 TSKB DFC 25.00 1.23 26.23 1976 NASAS Aluminum 1.58 - 1.58 1976 TSKB DFC 25.00 - 25.00 1976 Asil Celik Steel 12.00 2.20 14.20 1977 Borusan Steel Pipes - 0.06 0.06 1978 DOKTAS Steel - 0.09 0.09 1979 Ege Mosan Engines for Mopeds 2.15 - 2.15 1979 ISAS Motor Vehicles & Accessories 8.62 0.68 9.30 1979 Asil Celik Steel - 1.80 1.80 1979 Trakya Cam Glass 33.17 2.25 35.42 1980 TSKB DFC - 1.09 1.09 1980 ISAS Motor Vehicles & Accessories - 0.95 0.95 1980 MENSA Textile and Fibers 4.00 - 4.00 Total Gross Commitments 192.50 19.56 212.06 Less Cancellations, Terminations, Exchange Adjustments, Repayments and Sales 117.63 3.49 121.12 Total Commitments now held by IFC 74.87 16.07 90.94 Total Undisbursed .77 0.23 1.00 - 32 - ANNEX II Page 3 of 9 C. PROJECTS IN EXECUTION 1/ Ln. No. 844 Istanbul Water Supply Project; US$37 million loan of June 30, 1972. Effective Date; January 4, 1973. Closing Date; June 30, 1981. 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 were completed in early 1979. Substantial improvements to the distribution system, required to enable full utilization to be made of the new water sources, are under implementation. Tariff increases have been implemented recently, and a reorganization of the management, accounting and financial systems is under consideration. 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. Following delays due to difficult rock conditions and inappropriate tunnelling methods, two diversion tunnels have been completed, about two years behind appraisal estimate. The upstream coffer dam has also been completed. Progress in 1980 was in general satisfactory. The pace of construction of the power-house was lower than forecast, but is not expected to delay completion. The construction of the irrigation system is progressing, with the system now ready to transport irrigation water to about 30,000 ha, one third of the target. On-farm works are progressing steadily, with about 50 percent completed. Tile drainage is being delayed until the main drains are located. Staffing of the extension service is satisfactory except as regards consul- tants; the Government is taking steps to hire the latter. Project is expected to be completed by end 1983. Ln. No. 893 Turkish State Railways; US$47 million loan of May 25, 1973. Effective Date: August 28, 1973. Closing Date; June 30, 1981. After initial delays, physical progress, including track renewals, rolling stock, and locomotive production, the latter financed by the European Investment Bank, is satisfactory. Over 95 percent of the loan has been disbursed and procurement action has been completed for use of the remaining loan funds. Despite several tariff increases since the loan was made, the Railways have continued to fall short of the financial targets in the revised 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems 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. - 33 - ANNEX II Page 4 of 9 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 170 percent, which became effective in January 1980, 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. Project is expected to be closed on schedule. Ln. No. 957 Antalya/Akdeniz Forest Utilization Project; US$40 million loan of January 28, 1974. Effective Date: May 26, 1976. Closing Date: June 30, 1982. Construction is substantially completed. Most of the main ancillary process equipment is in place, but construction is hindered by material shortages. The project is expected to be completed by January 1982 and production commence in mid-year, two and a half years behind the revised schedule. Sufficient foreign currency is available to complete the project. Local currency payments for the Akdeniz establishment are now being made. Substantial price increases in 1980 should enable the company to meet most of the local currency requirements. 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. Project implementation had been delayed by critical problems, including insufficient staff, inefficient management, inadequate coordination among various agencies and unsatisfactory performance of civil contractors. Following continuous Bank and co-lender reviews of the situation with the Turkish authorities from early 1977, the remedial measures initiated by Turkey resulted in some improvement of project execution, until mid-1979. However, continuing and serious shortage of local funds has affected project progress, which has been aggravated by staff and management deficiencies. The Govern- ment's expected timely provision of adequate local funds for this high priority project from the Structural Adjustment Loan Counterpart Funds has helped resume momentum. The colenders and the Government agreed in November 1980 on a detailed program of action to overcome remaining implementation problems; this program is now being implemented. Ln. No. 1130 Corum-Cankiri Rural Development; US$75 million loan of June 23, 1975. Effective Date; January 22, 1976. Closing Date; December 31, 1981. The project is in general progressing satisfactorily though because of disruptions in construction it is probable that the irrigation works will be completed only by end 1983. Corum dam has been completed as also the works to divert run-off from 5 nearby watersheds. Kumbaba pumping station is ready, - 34 - ANNEX II Page 5 of 9 and irrigation has started. Alaca dam is expected to be completed by end 1981. Damage to the Alaca diversion tunnel, because of rock slides, has been repaired and the tunnel lining is almost finished. Contracts for the irri- gation system of the Guldercek area has been awarded and work is in progress. The project extension service is operating successfully and its impact on agriculture is promising. The Government has replaced one of the two vacant consultant posts. Further construction of village centers is being delayed until agreement is reached on satisfactory plan for using and maintaining existing centers and plans for additional centers are revised. 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, 1981. Procurement action is almost complete, somewhat behind schedule, and almost the entire loan is committed. Ln. No. 1248 Agricultural Credit and Agroindustries: US$54.3 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 implementation of agro-industries component is delayed, mainly due to investors' reluctance to assume the foreign exchange risk. Government is reviewing possible measures to overcome this problem. The Agricultural Bank (TCZB) has introduced improved lending procedures for its ongoing supervised credit program, and this component is being implemented satisfactorily. After considerable delay, consultants have begun the study of TCZB's structure and procedures. 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 allocated 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. Ln. No. 1258 Balikesir Newsprint; US$70 million loan of May 21, 1976. Effective Date: October 15, 1976. Closing Date: December 31, 1981. The project is nearing physical completion. The sawmill has begun operations, although wood supply and marketing problems now must be resolved. Recent price increases have helped to correct the local currency shortage situation and the project is expected to start production in early 1981, 2 years behind the appraisal schedule. Trial production runs have already begun. - 35 - ANNEX II Page 6 of 9 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 improved but has recently deteriorated due to resource constraints affecting field staff travel. This has adversely affected the preparation of farm development plans. Though project area offices have been established, they are not fully staffed. Government has taken some measures, and is reviewing others to correct the situation. A higher than expected proportion of sub-loans has been made to small farmers. The Governmental budget required for 1981 has been approved in its entirety. 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 underway, with progress being made in preparation of specifications and project design work, although the pace of overall project implementation is somewhat slower than expected due to staffing constraints and difficulties in ensuring adequate inter-ministerial and inter-agency coordination. However, measures to strengthen the Project Unit and its consultants, the Tourism Bank, are being taken. 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, 1982. The loan is expected to be fully committed in the next few months. DYB still has 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: December 31, 1981. Progress is satisfactory and the loan has been fully committed. TSKB has essentially reached its agreed targets for allocation of its resources to projects in less developed regions and export-oriented industries. It 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. - 36 - ANNEX II Page 7 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. Industrial wood production for 1979 was close to forecasts but there were significant shortfalls in some other targets, principally as a result of Government budget cuts. Continuing local resource constraints have adversely affected all targets during 1980, causing delays in preparation of forest management plans over about 22 percent of the project area and timely payment by SEEs' for timber delivery. Foreign procurement is effectively up to date but local state enterprises have been unable to supply much of the locally produced equipment (principally vehicles to replace existing stocks). Consideration is being given to procuring them internationally. Ln. No. 1586 Livestock IV: US$24.0 million loan of June 5, 1978. Effective Date; October 31, 1978. Closing Date; June 30, 1985. The supervised credit program for farm development has been initiated. The milk industry study has been satisfactorily completed. International recruitment of technical specialists, considerably delayed, is underway, and the staffing requirements agreed upon with the Bank have been met. The 1981 budget has been approved in its entirety. Ln. No. 1606 Erdemir Stage II Steel; US$95.0 million loan of June 30, 1978. Effective Date: July 30, 1979. Closing Date: June 30, 1983. Procurement for the phenol treatment plant, the raw material handling system and the hot rolled shear line are completed. Product selling prices have been substantially increased in January 1981. Production from existing facilities has been severely restricted from time to time because of the lack of raw materials due to the limited availability of foreign exchange. Ln. No. 1741 Ports Rehabilitation: US$75 million of July 2, 1979. Effective Date; January 22, 1980. Closing Date; June 30, 1983. The project coordinating committee is in place and functioning effectively. Procurement is making good progress. UNDP has appointed a project manager to implement the project related training programs. The port sector planning studies have been delayed by lack of staff, but steps are being taken to correct this. Ln. No. 1742 Grain Storage; US$85 million of July 2, 1979. Effective Date; January 21, 1980. Closing Date; June 30, 1985. Project implementation has begun. Proposals from prequalified consultants for engineering design and supervision of construction are under evaluation. - 37 - ANNEX II Page 8 of 9 Ln. No. 1748 TSKB XIII (Industrial Development Bank of Turkey): US$60 million of July 12, 1979. Effective Date: October 25, 1979. Closing Date; December 31, 1982. After initial delays, the progress is now satisfactory with over 75 percent of the loan committed. TSKB and ITC finalized in November the technical assistance program for training and export development is under implementation. Lns. Nos. 1754 TSKB (US$65 million) and 1755 SYKB (US$15 million) Private Sector Textiles loans of September 17, 1979. Effective Date: February 29, 1980. Closing Date: December 31, 1984. Consultants have prepared the preliminary program for local training. The additional consultants for technical services and for the extension services are in place. Revised Action Plans are being prepared. Approval of sub-projects has begun, and about 25 percent of the loan has been committed. Ln. No. S-15 Ankara Air Pollution Engineering: US$6 million loan of December 12, 1979. Effective Date: April 4, 1980. Closing Date: December 31, 1983. Consultants being selected for project studies. Ln. No. 1844 Karakaya Hydropower: US$120 million loan of May 21, 1980. Effective Date: August 15, 1980. Closing Date: December 31, 1988. Project implementation is making progress. Ln. No. 1847 Sumerbank Textiles Modernization and Rationalization: US$83 million loan of May 28, 1980. Effective Date: February 27, 1981. Closing Date: June 30, 1984. Project implementation has begun. Arrangements for consultants are nearly finalized and procurement actions have commenced. Ln. No. 1862 Livestock V: US$51 million loan of June 6, 1980. Effective Date: October 22, 1980. Closing Date; June 30, 1987. Project implementation has begun. Consultants are being selected. - 38 - ANNEX II Page 9 of 9 Ln. No. 1915 Structural Adjustment Loan Supplement: US$75 million loan of November 24, 1980. Effective Date: January 7, 1981. Closing Date; August 31, 1981. The loan disbursements were $29.2 million as of April 7, 1981. Ln. No. 1916 Petroleum Exploration Project: US$25 million loan of November 24, 1980. Effective Date: June 30, 1981. Closing Date: December 31, 1984. The loan is not yet effective, but actions are under way to initiate project implementation. Ln. No. 1917 Bati Raman Enhanced Oil Recovery Field Demonstration Project; US$62 million loan of November 24, 1980. Effective Date; June 30, 1981. Closing Date; December 31, 1984. The loan is not yet effective, but actions are under way to initiate project implementation. Ln. No. 1952 Labor Intensive Industry Project; US$40 million loan of March 13, 1981. Effective Date: June 12, 1981. Closing Date: June 30, 1986. The loan is not yet effective. - 39 - ANNEX III Page 1 of 2 TURKEY - FERTILIZER REHABILITATION AND ENERGY SAVING PROJECT SUPPLEMENTARY PROJECT DATA SHEET I; Timetable of key events (a) Time taken by country to prepare project: 12 months (November 1979 - November 1980) (b) Agency which prepared the project; Government and beneficiary companies assisted by consultants financed by a PPF (c) First presentation to the Bank: March 1980. (d) Departure of Appraisal Mission: December 1980. (e) Negotiations completed: April 1981. (f) Planned date of effectiveness: September 1981. II. Special Bank Implementation Actions; None III. Special Conditions A. Special conditions of effectiveness; (i) Execution of Subsidiary Loan Agreements between the Republic of Turkey and the beneficiaries (para. 72). B. Special conditions of disbursement: (i) For Kutahya II and Samsun; Employment by Azot of four operational experts (para. 60). (ii) For Kutahya II; Completion of adequate arrangements to ensure the power requirements of the plant (para. 56). C. Other Main Conditions: (i) A study of fertilizer marketing and prices to be carried out by December 31, 1982, an implementation plan prepared by June 30, 1983 and changes implemented by June 30, 1984 after an exchange of views with the Bank (paras. 38 and 40); - 40 - ANNEX III Page 2 of 2 (ii) The Government to ensure producers are paid within four months of delivery to the marketing companies (para. 39); (iii) A management and operations improvement action program for Azot to be submitted to the Bank by December 31, 1982 and implemented by December 31, 1983 (para. 42); (iv) The Government to enable Azot to carry out the action program to improve management and operations and to grant Azot sufficient autonomy to do this (para. 42); (v) Beneficiaries to limit nonproject investments during project implementation to $7 million per year for Azot and $5 million per year for IGSAS and Gubre except as Bank shall otherwise agree (para. 58); (vi) Beneficiaries to maintain appropriate financial ratios (para. 67); (vii) The Government and Azot to establish production efficiency monitoring and control systems by December 31, 1981 (para. 42); and (viii) The Government to make available the foreign exchange needed for importing fertilizer raw materials and spare parts (para. 61). 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Группа Всемирного банка · Memorandum & Recommendation of the President
Turkey - Fertilizer Rationalization and Energy Saving Project
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