Turkey - South Antalya Tourism Infrastructure Project

Documeat of The World Bank FOR OMCIAL USE ONLY Report No. 6415 PROJECT COMPLETION REPORT TURKEY SOUTH ANTALYA TOURISM INFRASTRUCTURE PROJECT (LOAN 1310-TU) September 24, 1986 Urban and Regional Development Projects Division Europe, Middle East, and North Africa Region This document has a restricted diutribution 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.  FOR OFFICIAL USE ONLY THE WORLD BANK WashmSton D.C.20433 U.S.A. Oft* of DiVd40.CUSWul September 24, 1986 NERANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Turkey South Antalya Tourism Infrastructure Project (Loan 1310-TU) Attached, for information, is a copy of a report entitled "Project Completion Report on Turkey South Antalya Tourism Infrastructure "roject (Loan 1310-TU)" prepared by the Europe, Middle East, and North Africa Regional Office. Under the modified system for project performance auditing, further evaluation of this project by the Operations Evaluation Department has not been made. Attachment This document has a resicted distribution and may be used by tecipients only in the perfonrance of their official duties. Its contents may not otherwise be discwsed without World Bank authoriztion.  FOR OFFMcL USE ONLY TURKEY: SOUTH ANTALYA TOURISM INFRASTRUCTURE PROJECT (Loan 1310-TU) Table of Contents Page No. Preface . * * . ........................................................ i Key Project Data ............. . ................. ii Mission Data ........ ........... ............. . ................. ii Country Exchange Rate .......... .................................. ii Acronyms and Abbreviations .... ..... ........ .... ..................... ii Highlights ............................................................. iii I. INTRODUCTION ....................................................... 1 II. PROJECT BACKGROUND AND PREPARATION ........ ............... 1 Identification, Preparation and Appraisal ................. I Project Objectives ........................... ............... 2 Project Description ........... . . .. ..................................... 2 III. IMPLEMENTATION . .............. ...................... ... *.......* , 3 Effectiveness ............... ... ....... 3 Implementation Schedule . ................. ... ............. . 3 Land Acquisition ..................................................... 4 Project Content and Revisions ............................ 4 Project Costs ....................................................... 5 Disbursements ................. ................ 5 Procurement and Contractor's Performance .................. 6 Performance of Consultants ............................... 6 Reporting .. ..................................... . ......... 6 IV. OPERATING PERFORMANCE .. ............................... .. 6 V. FINANCIAL PERFORMANCE .................... ............ . ... 8 VI. INSTITUTIONAL ASPECTS ... ................................. 9 VII. ECONOMIC RE-EVALUATION .................... 10 VIII. THE ROLE OF THE BANK ......... . ...... 12 IX. CONCLUSIONS .................. 13 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (Cont'd) Page No. ANNMES I. Visitor Arrivals in Turkey .............. ...........*e.e.. 14 II. Project Implementation, Actual and Expected ............. 15 III. Project Costs, Actual and Expected ....... ............... 17 IV. Loan Disbursements, Actual and Expected ................. 20 V. Economic Re-Evaluation ** * ............................... 21 VI. Couments from Borrower ........................ 25  TUREY:SOUTH ANTALYA TOURIS INRAYU~CTU~RE PROJECT (Loan 1310-TU) PREFACE This report presents the results of the review of the Turkey: South Antalya Tourism Infrastructure Project (14an 1310-TU) which was approved by the Executive Directors on July 6, 1976, and for which the last disbursement was made on July 29, 1986. The report was prepared by the SHEMA Urban Projects Division on the basis of a review of Bank files, reports prepared by the Borrower, and the findings of a Bank mission comprising Messrs. David B. Cook and J.A. 8immon which visited Turkey in August, 1985. The work of the Bank mission was greatly facilitated by the assistance provided by personnel of the Ministry of Culture and Tourism4', particularly the Project Directorate, and of the Tourism Bank, particularly the Antalya Investments Department. In accordance with the revised procedures for project performance audit reporting, this Project Completion Report was read by the Operations Evaluation Department (OED) but the project was not audited by OWD staff. The draft report was sent to the Borrower. the comments received are attached to the report as Annex VI. I/ Ministry of Tourism and Information until 1983, thereafter Ministry of Culture and Tourism.  - 1i - ,,Y SOUTh ANtALYA touRSM PROJECT - PROJECT CInPLETION REPORt (Loan 1310-tU) IEY P R O J E T T D A T A Appraisal Actual or 1km EaXectatiane Cstimts d Achpal Total Project Cost (US5 million) 66.0 43.0 Underrun or Overrun (1) 35.0S Loan/Credit AWunt (US$ Million) 26.0 26.0 Disbursed 18.7 Cancelled 7.3 Repaid to Outstanding to Cate PhtysiCal Coonents Completed Preport1ion Caleted by Above Oats (X) Proportion of Time Underrun or overrun (E EConomic Rate ot Return (M) '72X' Financial Performnc Satisfactory Satisfactory Institutional Performance Satisfactory Satistactory t HE R P I 0 8 E C T D A T A tts, Original Actual or Plan Revisions Ecti1mtad Actual First Mention in Files or Timetable 02-72 Governmrnt's AppliCation Ngotiations 05/26-OS/27/76 0S/07-06/03/76 05/07-06/03/76 Bard Approval 07/06/76 Loan Agre_nnt Date - - 07/09/76 affectiveness Oate 12/01/76 03/01/78 03/01/78 Closing Date 12/31/82 12/31/83 12/31/84 12/31/84 Final Disbursent 07/09/85 Berroer The Republic of Turkey txecut1ng Agecy Ministry of Tourism and Inforation/linistry of Culture and Tourism fiscal Year of lorrowe' March 1 - February 28 follow-on Proj3et Nam None 3 I 5 t a 11 A t A fto Month/Year bo. Of Wn eks Ng. of Persons Mreaek sate ot Rert Identification 02/74 1.3 3 3.9 02/27/74 Preparation 1 04/74 1 2 2 04/30/74 Prepration It 08/74 2 3 6 08/22/74 Preparation tIt 10/74 1.6 3 4.8 11/01/74 Preparation tV 02/7s 1 1 1 02/24/7S Preparation V 06/7s I I 1 06/19/75 Prepration VI 09/7S 2 4 8 10/14/75 Appraisal CoPleti0n 11/75 J 6 la 04/02/76 Sub-Total 12.9 44.7 Supervision t 11/76 2 2 4 12/09/76 Supervision It 02/77 1.2 2 2.4 03/01/77 Supervision ttt 07/77 1.2 2 2.4 08/02/77 Supervision IV 09/77 1 2 2 09/20/77 Supervision V OS/78 2 2 4 OS/lS/78 Supervision VI 10/78 1.2 2 2.4 10/09/78 Suoervision Vtt 02/79 1.2 1 1.2 02/26/79 Suoervision VIII 09/79 1.8 1 1.8 09/2'/79 Supervision IX 07/80 1.6 2 3.2 08/OS/8O Supervision X 09/80 1.4 1 1.4 11'26/80 Supervision XI 03/81 2 1 2 03/23.81 Supervision XII 02/82 2 1 2 03/26/82 supervision Xlt 08/82 2 2 4 08/10/82 Supervision XIV 12/82 2.6 2 5.2 01/11,83 Supervision XV 07/83 2 2 4 08/OS/83 Supervision XVI 12/83 2 2 ' 01/05/84 Supervision XVII OS/84 0.8 I 0.8 OS/31/84 Supervision XVIII 09/84 0.5 2 1.0 10/26/84 Completion 08/85 2 2 AA Sub-Total ILL Grand Total 44.4 98.5 c Q 11 R Y E X C H A N GE R A T E Name of Currency (Abbreviation) Turkish Lira ('L) Year Appraisal Year Average (1975) Exchange Rate: USSI * rL 15.00 Interventing Years Average (1976-1984) USS 1 TL114.6 Completion Year Average US$l TSLOo.0 ACRONYMS AMD ASREVIATIOUS tot Tourism Bank, Inc. PRO Project Directorate PT? Post. Telegrap ane Telephone OrganiXation UNOP United Nations Oevelopwnt Programme  - iii - TURKEY: SOUTH ANTALYA TOURISM INFRASTRUCTURE PROJECT (Loan 1310-TU) HIGHLIGHTS The objective of the South Antalya Tourism Infrastructure Project was to provide the infrastructure for a new resort area with a design capacity of some 6,000 rooms or 12,000 beds in hotels and holiday villages by 1990. The project was also designed to include infrastructure and other facilities needed to turn the village of Kemer into a service center for the project area, housing for hotel employees, hotel training facilities, rational improvements in the adjoining nationa, park and measures to preserve and make more accessible to visitors the Phaselis archaeological site. Although the project is .lot yet fully completed and is likely to take not less than four years longer to complete than the six years envisaged at appraisal, the objectives of the project have been largely realized. Most of the infrastructures ar' in place, and the project has attracted great interest among private investors who are developing hoteles and holiday villages on a scale which indicates that the capacity target will be achieved by 1990 or soon thereafter. Reflecting the high inflation rate in Turkey and the delays in project execution, project costs in Turkish Lira are expected to be more than eleven times greater than the appraisal estimate. In US dollars, total project costs are expected to be 352 below appraisal estimates. Despite the decline in project costs, delays in project implementation and in the development of visitor accommodations contribute to a re-estimated ERR of 10.5%, substatitially below the 17.2% estimated at appraisal. This lower ERR also reflects lower visitor expenditures in real terms than estimated at appraisal. The appraisal methodology does not take into account, however, benefits from the project flowing to the local population. These are substantial and, if included, would significantly increase the rate of return. The financial returns to the Government on its investment in the project are likely to be adequate, though the definitive charges for infrastructure services have yet to be determined. The financial returns to private investors in hotels and holiday villages appear attractive on the basis of the limited operating data available to date. The principal beneficiaries of the project have, however, been private landowners in Kemer and investors in holiday homes and condominiums, who have realized large capital gains. Ways for Government to share in these gains, which are a direct result of its investment, need to be considered.  - iv _ The Government is still considering the form and structure of the organization which will be responsible for operating and maintaining infrastructure services in the project area. The organization and staffing of the hotel training school have also still to be determined. A project component which has been largely overlooked in the course of project implementation is the providion of housing for hotel employees. With the fast growth of visitor accommodations, the lack of employee housing is becoming increasingly acute. The provision of employee housing is an obligation of the Government under the Loan Agreement (Section 3.08 (b)), and the means for providing housing on an equitable basis need to be agreed between the Government and private hotel investors.  I. INTRODUCTION 1.01 A Bank mission visited Turkey in 1970 to review with the Turkish authorities the possibility of Bank assistance for tourism development. At that time, the project which appeared to have the best prospects of implementation was one to create a new resort near the ancient city of Side on the Mediterranean coast, some 50 kms east of Antalya. In subsequent exchanges with the Turkish authorities, various alternatives were considered. and as Turkish tourism planning developed, it was agreed that a coastal area south of Antalya should be selected for further intensive study within the framework of plans to develop new beach tourism destinations on Turkey's Mediterranean and Aegean coasts. 1.02 Turkey possesses major tourist attractions, both natural and man-made. Its climate with long dry summers, the beauty and variety of its scenery, its extensive and largely unspoiled beaches on the Mediterranean, Aegean and Black Se:a coasts and its wealth of historical and archaeological sites, with remains of Hittite, Greek, Roman, Byzantine, Seljuk and Ottoman civilizations, offer a combination of tourist attractions comparable with any other Mediterranean country. Nevertheless, Turkey's share in Mediterranean tourism has for long been small (only 1-22 of international tourist arrivals in Mediterranean countries) and well below the country's potential. 1.03 In the decade ending in 1973, foreign visitor arrivals to Turkey grew from just under 200,000 in 1963 to 1,341,500 in 1973, at an;average growth rate of 21% annually. During the same period receipts from international tourism rose from US$7.7 million to US$171.5 million, and as a percentage of the value of merchandise exports rose from 2.1% to 13.0Z. This consistent growth of traffic appeared to provide a basis for projecting further growth if additional tourist facilities were provided, and while the energy crisis late in 1973 contributed to a fall in foreign visitor arrivals in the following year, there was a sharp rebound in 1975 when arrivals rose by nearly 39% to reach 1,540,900. These two years (1974 and 1975) were the time of most intensive preparation of the South Antalya praject. II. PROJECT BACKGROUND AND PREPARATION Identification, Preparation and Appraisal 2.01 Istanbul and its environs have been the principal tourist destination in Turkey for many years but the development of hotel accommodations and other tourist facilities, first on the Aegean and subsequently on the Mediterranean coasts has brought a diversification which the project was designed to support. The selection in 1973 of the 15 km coastal strip south of Antalya as the site for the development of a new resort area followed the preparation of a comprehensive master plan for the whole Antalya region by the Ministry of Tourism and Information. This was in turn followed by the preparation, with the assistance of experts financed by the UNDP, of a more detailed plan and  feasibility study for the proposed resort which was completed in 1975. The project was appraised in November, 1975 and the Bank's loar. for the project was approved on July 6, 1976. 2.02 The project area was selected because of the great natural beauty of the site, the existence of archeological remains in the area, of which the principal one was Phaselis, a colony of the Kingdom of Rhodes established in the 2nd century BC, favorable access from an airport at Antalya capable of receiving B727's and similar aircraft, limited agricultural development on which the resort would not encroach and good quality beaches safe for swimming. At the time of appraisal construction of a new runway, taxiways and parking spaces at Antalya airport was already underway. Other infrastructure services required for the resort, - electricity, telecommunications, water, sewerage, drainage and solid waste removal - were lacking. 2.03 Matters of particular concern during the preparation and appraisal of the project were the arrangements for project implementation, the acquisition of land needed for the project, the approval of detailed land use plans for Kemer and of the regulations for enforcing the regional master plan, and the need to provide training for hotel staff and housing for a portion of hotel workers in order to attract hotel investors. These concerns were reflected in the recommendations of the appraisal mission and subsequently in the terms of the Loan Agreement concluded between the Republic of Turkey and the Bank. Project Objectives 2.04 The project's objectives were to provide the basis for the development of a new resort with some 5750 rooms, south of Antalya, having due regard to preserving the beauty of the environment, to promote economic activities iia an area of limited development and to augment the country's foreign exchange earnings. Project Description 2.05 The project was to comprise the following components: (a) completion of the main highway from Antalya to the project area and construction of access roads to the tourism sites: (b) water supply, sewerage, solid waste disposal, electricity and telecommunications for the tourism sites; (c) water supply, sewerage, electricity, telephone, streets, sports accommodations, park, health clinic and service buildings for the tourism support center of Kemer; (d) hotel training facilities; (e) construction of housing for hotel employees; (f) construction of a small craft harbor at Kemer;  - 3 - (g) campgrounds, day-use beaches, beach and other facilities in the national park; (h) preservation works at the Phaselis archeological site; and (i) funds for project management, studies and consultants. III. IMPLEMENTATION Effectiveness 3.01 Among the conditions of effectiveness of the Loan were the conclusion of subsidiary loan a&reements between the borrower and the agencies responsible for implementing the electrical and telecommunications components of the project (Kepez and PTT respectively), the adoption of detailed land use plans and regulations with supporting maps for the tourism development area and for Kemer, initiation of expropriation procedures for the land required for the development of tourism facilities through 1981 at the principal tourism s8tes and for the infrastructure and support services in Kemer, and the appointment of the Director of the Project Directorate (PRD), responsible for co-ordinating project implementation. Difficulties were experienced in meeting all these conditions of loan effectiveness, as a result of which the loan did not become effective until March 1, 1978, nearly 20 months after the loan was signeu on July 9, 1976. In spite of delays in loan effectiveness, however, consulting services were organized by the PRD and design work on the water supply, sewerage, Kemer infrastructure and Kemer marina components began. The Tourism Bank was appointed to provide these services and in due course organized a special team to carry out the work. Furthermore work on the extension of the highway from Antalya to the project area by the Ministry of Public Works continued prior to Loan effectiveness, as did the construction by Kepez of a 31.5 kv electric power traaamission line from Antalya to service the project area. Work also proceeded on the design of a 154 kv transmission line from Antalya to Finike and of step-down transformer stations for Kemer and Finike. Implementation Schedule 3.02 The project at appraisal was expected to be completed by June 30, 1982. While most project components are completed, several, including the main access road to Kemer from the Antalya-Finike Highway, the hotel school and training hotel, the marina superstiuctures, the Kemer promenade, some streets in Kemer and staff housing, remain unfinished. The project was about 852 complete at the end of 1985. If adequate funding can be provided and the few remaining land acquisition problems resolved, the project with minor exceptions should be completed by December, 1987. In this event, the project would record a time over-run of about five and'a half years or 92%. The principal reasons for the delays in project execution included a reduced Government interest in the project during the later 970's, land acquisition (para. 3.03), the difficulties in establishing an effective Project Directorate which resulted in poor co-ordination in some instances of the work of different executing agencies, and difficulties in securing adequate lira financing during years of rapid inflation and cost escalation. (Wholesale prices have increased on average by over 40% annually in the past ten years).  -4- Land Acquisition 3.03 Despite the fact that most of the land allocated to the Project belonged to Government ministries, the acquisition of private land, sometimes by expropriation, and by the application of Article 42 of the Reconstruction law to the Kemer Urban Area proved time consuming and onerous. There are many reasons for this including: initial delays were caused because no approved master plan existed; because land owners successfully claimed that the Ministry of Tourism was not a competent authority to deal with land expropriation; it was not always clear who actually owned the land and in certain instances, after ownership was established, funds were not available to complete the purchase. By the time funds became available, land values had begun to rise, the original agreements to purchase were invalidated, and the whole protess had to start again; certain structural intrusions into roadways required action by the Supreme Court, which was extremely time consuming; and valuations of land did not take into account the dynamism which entered the land market in the Kemer region when urban development got under way. In the early years of the project (1976-81), tourism investment was accorded low priority by the Government and the Land Registry Office was slow in handling expropriations. Project implementation accelerated markedly after the change in Government in September, 1960 when greater priority was accorded to tourism as an earner uf foreign exchange. Procedures for land acquisition were accelerated and adequate budgetary provisions were made to finance land acquisitions and permit a smoother implementation of physical works. The pace of implementation has slowed in the past year, however, reflecting the difficult overall budgetary situation and continuing problems in acquiring the few remaining land parcels required for project completion. Project Content and Revisions 3.04 The implemented project when completed wili correspond quite closely with the project as appraised. At appraisal, the simultaneous provision of major infrastructure services, particularly electric power, water supply, sewerage, drainage and solid waste removal seemed an ambitious objective, but in the event these components have been completed satisfactorily. With the delays in project execution and the increase in costs in terms of Turkish lira, some relatively minor project elements have been deleted or deferred. Sports facilities, public parks, excursion boats, a bus terminal and small industrial facilities in Kemer are among such elements, as are some facilities planned for the aational park such as helicopters with fire-fighting equipment and two motorboats. However three fire-fighting trucks together with new fire control roads and look-out towers have been provided as well as new camping facilities though with smaller capacities than envisaged at appraisal. An element which has been significantly modified from the concept at appraisal is housing for hotel employees. At that time it was argued that the project should include low-cost housing for about 30% of the hotel employees expected to migrate to the project area by 1981: this was estimated to require 280 units in the first stage with a further 720 units to accommodate additional staff needed by 1)90. Construction of 126 family units is in progress and 150 sin-le quarters will also be provided, approximately the same number of units as envisaged at appraisal. However, these units will be used to house civil servants working in the Kemer administration and higher level staff working in the hotel training school and the Tourism Bank's planned hotel at Kemer. They will not be available for hotel staff generally as envisaged at appraisal, and  - 5 - solutions to the problem of housing hotel employees have not yet been devised. The study for promoting tourism in the project area was delayed following delays in project execution. A report on marketing strategy for the project area was completed in 1980. With the increased pace of project implementation in subsequent years, and the great increase in interest by private investors in the project area, further special efforts of promotion appeared unnecessary. The economic study of hotel profitability and tourism incentives was started by the Research Directorate of the Ministry of Tourism and Information in 1977; subsequently following personnel changes in the Directorate, the study was suspended. A decree providing for measures and incentives to promote investment in the tourism sector was published in 1980, but the study under the project was not carried far enough to affect the provisions of this decree. The technical assistance on hotel planning was provided by UJNPD/ILO in 1980, but with the delays in physical implementation of the project, this assistance did not prove timely and had no impact on the project. Project Costs 3.05 Project costs in Turkish lira have been affected by domestic inflation and the delays in project implementation. On the assumption that the project can be completed by 1987 and that the rate of domestic inflation will not accelerate, the project is estimated to cost TL 11,022 million as compared with the appraisal estimate of TL 990 million (Annex III). The cost estimate at appraisal excluding price contingencies was approximately TL 675 million. If this figure is compared dith the estimated cost at completion the difference is more than accounted for by price inflation over the implementation period, after adjusting for the marginal reductions effected in the scope of the project. Project costs measured in dollars show a substantial reduction as compared with the appraisal estimate. This reflects principally the rapid devaluation of the Turkish lira, particularly since 1980, which has more than offset domestic inflation. Thus the project cost at completion is estimated at almost US$43 million as compared with the appraisal estimate of US$66 million (Annex III). Disbursements 3.06 With the delays in loan effectiveness and project implementation, disbursements from the Bank's loan were much slower than estimated at appraisal. By the end of FY1980, less than US$3 million had been disbursed as compared with the appraisal estimate of more than US$17 million (Annex IV). Disbursements accelerated after 1980, but not sufficiently quickly to permit full disbursement by the original loan closing date: December 31, 1982. The closing date was postponed twice, the final date being December 31, 1984. At the time of the second postponement of the closing date in January 1984, it was realized that with the devaluation of the Turkish lira it would not be possible to utilize the whole loan, and the Government requested that an amount of US$3 million should be cancelled. Despite these measures and an acceleration of project implementation, it still proved impossible to disburse the whole of the reduced loan of US$23 million, and in the final outcome, almost US$7.262 million was cancelled (including the US$3 million mentioned above). In total, US$14.843 million was disbursed for expenditures on the project with the balance of US$3.895 million being capitalized interest and other charges during constructicn. Annex IV shows actual disbursements as compared with disbursements as estimated at appraisal.  - 6 - Procurement and Contractor's Performance 3.07 Despite efforts made to contract overseas civil works bidders, all the work was carried out by local firms, and no contracts were awarded to foreign firms. With one exception (para. 3.08), the local contractors performed well though they frequently had to slow down due to shortage of local counterpart funds. .7.08 The contractor building the Hotel Training School, adjoining practice hotel and the Municipality Building made a slow start, encountered difficulties and finally abandoned the work. This caused a year's delay. Subsequently a much larger package involving the Tourism Bank Hotel, Training Hotel, Marina Superstructure and Promenade was bidded and awarded in December 1983 to one of the largest construction firms in Turkey. Since that time progress, though hampered by shortage of local currency, has been satisfactory. 3.09 All the equipment bids pro^2eeded expeditiously and satisfactorily. Performance of Consultants 3.10 The Ministry of Tourism appointed the Tourism Bank to act as consultants for those aspects of the work not directly the responsibility of Government line agencies (i.e., for work other than Highways, Kepez and PTT). 3.11 The Tourism Bank's consultancy group performed well in all aspects except in its relationship with the Project Directorate. Unfortunately, the Chief Consultant and Project Director frequently had diverging views on implementation though each of them had the success of the project as their overall priority. It is to the credit of both officials that despite differences of approach and project difficulties, they managed to achieve so much. The Tourism Bank was successful in developing a group of pro.essionals capable of building and operating tourism infrastructure built to international standards. The consulting group visibly grew in stature, .apability and confidence during the course of the project and it will be most unfortunate if the unit is disbanded at the conclusion of the project. Reporting 3.12 Progress reports were prepared by the borrower rather intermittently, but they provided useful information on project implementation, commitments and expenditures. For a more comprehensive view of project status, major reliance was placed on IDA supervision mission findings. Audit reports have been received after considerable delays. IV. OPERATING PERFORMANCE 4.01 The operating performance of a project like the South Antalya Tourism Infrastructure Project is not simple to measure. The basic objective of the project was to provide the basis for an orderly development of tourism facilities to attract additional foreign tourists to Turkey and augment foreign exchange earnings, and to provide additional capacities for domestic tourism.  4.02 Despite the delays in project implementation: the provision of new tourist accommodation capacity is proceeding well. Private investors, with the support of the Tourism Bank, have moved rapidly in the past three years to construct tourist facilities including hotels, holiday villages and condominiums. The Tourism Bank is developing a new high category hotel overlooking the marina in Kemer and the Tourism Bank together with other Government agencies have added substantial capacity in new camp sites. The greater part of these investments is promoted by domestic private investors, though with financial support from the Tourism Bank. Only the marina hotel, the school hotel and two camp sites are being financed wholly by the public sector. Accommodations with approximately 3,300 beds are already in operation, construction is underway on projects with a further 2,800 beds, and construction is about to begin on projects with a further 1,400 beds. The demand for the remaining available sites is high, and there appear good prospects of achieving the target of 12,000 beds, described in the appraisal report, by 1990 or soon thereafter. 4.03 While the objective of constructing capacity with 12,000 beds by the early 1990's seems quite likely to be realized, there is a significant difference between the categories of accommodation projected at appraisal and those actually being provided. The appraisal foresaw 70% of beds in hotels and the balance in holiday villages. In fact, in response to changing market demand, it is now expected that 66% of capacity will be in holiday villages, only 16% in hotels, and the balance in camp sites (Annex V). 4.04 The strength of the demand from private investors for hotel/vacation village sites in the project area has been stimulated by the remarkable growth in foreign tourism to Turkey in the past three years. After years of stagnation and decline in foreign tourist arrivals during the second half of the 1970's, there has been a period of renewed growth since 1980. The growth rate has accelerated since 1982; arrivals increased by 162 in 1983 and by 302 in 1984. In the first five months of 1985, arrivals increased by 46.3% over the corresponding months of 1984. The fast growth in traffic has meant occupancy rates yielding favorable returns to investors in much existing capacity and has stimulated strong interest in developing new capacity. The Antalya Province has shared in this growth in tourism demand and investor interest. 4.05 A development which was not foreseen at appraisal has been the remarkable growth of the small town of Kemer. At appraisal it was envisaged that the provision of infrastructure and housing for hotel employees would make possible the development of Kemer as a service town for the hotels and vacation villages to be built in the area. In fact Kemer has attracted large private investments in vacation homes of a high standard, and property values have risen to a point where the provision of employee housing in Kemer, unless heavily subsidized, no longer appears feasible. As a consequence of its rapid growth and the influx of higher income residents and vacationers, Kemer is developing new commercial activities and is expected to fulfill part of its envisaged role as a service center for the neighboring resort areas. Nevertheless the problem of housing hotel employees remains and is becoming more acute with the rapid growth of accommodation capacity. It will require cooperation between the public authorities and private investors in finding appropriate solutions to avoid the unauthorized development of slums with their possible accompanying environmental degradation. In this context,  -8- consideration should be given by the Government to providing serviced sites, core units and construction loans, as a means of providing housing for employees who are not accommodated by their employers or are unable to find adequate rental units. V. FINANCIAL PERFORMANCE 5.01 The financial performance of the project should be evaluated under several heads: the financial returns to the Government from the provision of infrastructure services for which financial charges are made (directly or indirectly); the financial returns to investors in superstructures (hotels, holiday villages, etc.); and the financial returns to private citizens (e.g. property owners) who stand to benefit from the project. As the project is not yet complete and superstructure investments are still under way, definitive financial results could not be evaluated at this stage. 5.02 A draft statement of policy and criteria for establishing charges for infrastructure services was prepared by the Ministry of Tourism in 1977. A study of user charges proposed for utility networks was made in 1982. This was revised and elaborated by the Tourism Bank in mid-1985. The new study distinguishes in its analysis between investments in Kemer infrastructure (roads, streets, water, sewerage, drainage, etc.), the marina, and social housing, and calculates the financial returns on these three categories of investment. The practice hotel (part of the hotel school) is included in the first category; this might more appropriately be evaluated separately. While at present, given the level of demand for services, the charges are not sufficient to cover costs, on the basis of the assumptions made by the Tourism Bank, with the build-up of visitor capacity the charges proposed for infrastructure services would be adequate, and the NPV of the investments in Kemer infrastructure, the practice hotel, and the marina are positive, using a discount rate of 122 and an operating asset life of 20 years. The NPV of the investment in social housing is negative, reflecting the subsidized rents paid by the Government officials and other public sector staff to whom the housing will be assigned. The charges actually made for infrastructure services will need to be re-evaluated and adjusted in the light of the build-up of accommodation capacity and the future growth of the town of Kemer. 5.03 The financial evaluation of the Tourism Bank includes in receipts to the Government rents paid by hotel investors for sites leased by them. Annual rents are set at 5% of the value of the land; the land value is set at 102 of the hotel investment cost. The rents are low and are designed to provide an incentive for hotel investors. Given the amenities provided by the project, however, and the strength of demand for hotel sites by potential investors, further examination of the basis for determining rents for hotel sites is warranted. Such a study could be made in the context of a broader assessment of ways for Government to recapture a greater share of the benefits of the project which have accrued to the private sector (see para. 5.05). 5.04 As the new hotels and holiday villages are either still under construction or were opened for their first season only in the spring of 1985, definitive data on operating results are not yet available. Projections for the practice hotel and the marina hotel at Kemer, to be built and operated by the Tourism Bank, show highly satisfactory operating profits and a very  9- favorable return on investment. Though many facilities will be open for only six months in ea^h year (May to October), the preliminary results indicate that high occupancies during this period combined with favorable operating conditions (particularly in terms of low labor costs) would yield satisfactory returns to private investors in hotels and holiday villages. 5.05 Still greater returns have already accrued to some private landowners in the project area, particularly those owning land in the town of Kemer, where there has been a very rapid developmnent of holiday homes and condominiums. In 1978, land expropriation prices were set at TL 500 per square meter, which was five times greater than the value estimated at appraisal. By mid-1985, land values in Kemer had risen to TL 20,000 per square meter and even higher in some locations. Hence, the Government's investment in the project has greatly enriched some private citizens, and as most of the land in Kemer was not acquired by the Government at project inception, the Government has not been in a position to recover its investment from the sale of land at the enhanced prices now prevailing. In retrospect, it appears that it would have been desirable for Government to have acquired additIonal land in Kemer to sell at developed values. As a necessary alternat're, it is important that the Government enforces the collection of charges (e.g., user charges, connection fees, property taxes) to enable it to recoup its investment and earn an adequate return. VI. INSTITUTIONAL ASPECTS 6.01 At the time of project preparation and appraisal, it was recognized that the complexity of the project would require special measures to ensure the coordination of the implementation of the many different project components. Primary responsibility for project implementation rested with the Ministry of Tourism and Information, which was merged into the Ministry of Culture and Tourism in 1983, and at the Bank's urging a Project Directorate was established within the Ministry with responsibility for project coordination. In addition, the Coordinating Committees, one at the central government level in Ankara and the other at the regional level in Antalya, were set up to assist the Project Directorate in its coordination role. These components were helpful in project execution, though they did not work as well as expected, partly because the Project Directorav lacked the legal authority to require other agencies to perform according to agreed timetables or to accelerate procedures such as those involved in land acquisition. 6.02 As indicated above, the Tourism Bank was appointed by the Ministry of Tourism as engineering consultants for the project, and established a special unit to carry out that part of the work which was not clearly the responsibility of other agencies (e.g. the Grand Directorate of Highways, PTT, Kepez, etc.). This unit in the Tourism Bank worked effectively and deserves much credit for the successful implementation of the project. The implementation of other components (e.g. the main highway, electric power, and telecommunications components) was handled effectively by the responsible agencies. The Project Directorate also, despite the constraints under which it operated, has made an important contribution to project implementation.  - 10 - 6.03 In retrospect, the arrangements agreed between the government and the Bank for project implementation appear to have been broadly appropriate, though the powers and authority of the Coordinating Committee in Ankara seem to have been insufficient to overcome emerging problems as expeditiously as desirable. Experience with tourism projects in other countries has shown that effective coordination of a number of independent executing agencies requires a high-level coordinating body in the government structure, perhaps even at the ministerial level. 6.04 An organizational question which has still to be settled is the structure for operating and maintain4ng the tourism inDrastructure facilities, particularly the water, sewerage, drainage, and solid waste removal services in the project area. The Government envisages the creation of a municipality in the town of Kemer, with the election by the citizens of local officials. It is recognized that such a municipality would not be the appropriate body to operate infrastructure services in the wider tourism zone, and a law has been drafted providing for the creation of a special agency to do this. The services are at present being operated and maintained by the Tourism Bank, which is also collecting service charges, but the Bank lacks the legal authority for this, and the imposition of service charges by the Bank has already been legally challenged. Hence, it is important that the new organizational units with the necessary legal authority to set tariffs and collect service charges should be established expeditiously and be appropriately staffed. 6.05 A further organizational matter to be addressed is the management of the hotel school. The decision has been taken that the management of the school together with the school hotel will be the responsibility of the Tourism Bank. It was envisaged at appraisal that technical assistance in setting up the hotel school and designing training programs would be provided by ILO with UNDP support. In fact, ILO consultants have provided assistance during project implementation (from 1980-82 and again in 1983 and 1984), but with the long delay in constructing the hotel school, it was not possible to integrate fully this assistance with the development of the training facilities at Kemer. Construction of the hotel school complex is now expected to be completed in 1986, and it is desirable that training programs should be designed and key staff appointed prior to completion. The Ministry of Tourism and the Tourism Bank are considering what further assistance would be needed to establish the school, and both ILO and UNDP are willing in principle to provide further assistance. The timing of such assistance should be co-ordinated with the further progress of construction and the appointment of the key Turkish staff of the school and the school hotel. VII. ECONOMIC RE-EVALUATION 7.01 Since the Bank-supported project is not yet complete and superstructure facilities have either just begun operating or are still to be built, the re-evaluation has to be based largely on revised estimates rather than actual performance. The methodology for the re-evaluation is similar to that of the appraisal report. Benefits are tourist expenditures in the project area of visitors staying in the accommodation facilities (hotels, holiday villages, camping sites) supported by the project. The relevant costs are the capital and operating costs of the infrastructure provided under the  - 11 - project and of the related superstructure facilities. Operating costs of infrastructure services are reflected in the prices paid for these services by hotels and holiday villages. These costs are, therefore, included in the analysis in the operating costs of superstructures. Certain of the project facilities have and will continue to generate benefits for the local population. Following the methodology of the appraisal report, only the benefits flowing from social housing have been taken into account in the economic re-evaluation. Recorded investment and operating costs are assumed to reflect economic costs, while benefits flowing from tourist expenditures are assumed to be incremental. This assumption appears justified by the fast growth of foreign tourism to Turkey in the last three years and the shortage of accommodation capacity. 7.02 These assumptions yield a base ERR of 10.52, which compares with the SAR estimate of 17.2%. The main factors accounting for this difference are: (a) a construction period with negative net benefit flows much longer than projected at appraisal; (b) a real price (expenditure) per visitor day in hotels and holiday villages 35% below that assumed at appraisal. These factors more than offset the impact on the rate of return of the lower investment cost of the project as compared with the cost estimated at appraisal (Annex V). 7.03 In the appraisal, residual values for certain assets, namely superstructures, land and social housing were estimated and included in the economic evaluation. Because of the uncertainties attaching to such estimates, residual values have not been taken into account in calculating the ERR of 10.5%. If, however, residual values, estimated on approximately the same basis as at appraisal, are included, the ERR marginally improves to 10.8%. 7.04 The ERR as calculated above is conservative as the benefits of the project to the local population (except for social housing) have not been included. These benefits derive from different sources including improved infrastructure services (water, sewerage, electricity, solid waste removal) increased amenities (health clinic, public parks, etc.) and increased land values. As indicated in para. 5.05, the latter are substantial, though they are apparently very unevenly distributed. Were these benefits to be included in the economic evaluation, the ERR would bz substantially higher than that shown above. 7.05 The appraisal estimated the employment to be generated by the project as well as the net increase in foreign exchange earnings. Because of the somewhat slower build-up of accommodation capacity and the differences in types of accommodation being provided as compared with those foreseen at appraisal, the number of jobs now expected to be created (7,300 in 1990) is lower than projected at appraisal (12,400). With the fast growth of the town of Kemer, however, the number of jobs in construction is likely to have been substantially greater than projected at appraisal (which estimated an average of 1,000 over the years 1976-89), though quantitative data are lacking. Net foreign exchange earnings from the project (at 1985 prices) are now projected at about US$22 million in 1990 rising slowly thereafter. The appraisal  - 12 - projected net foreign exchange earnings of US$28 million in 1990 at 1975 prices. The reduction in real terms in estimated foreign exchange earnings reflects the slower build-up of capacity, a lower proportion of foreign guest-nights (631 compared with 80% estimated at appraisal) and lower real expenditures per visitor day (cf. para. 7.02). VIII. THE ROLE OF THE BANK 8.01 By providing financial support and technical inputs at different stages of project preparation and implementation, the Bank appears to have made a major contribution to realizing a project concept which is recognized by the Turkish authorities as unique in Turkey and one which sets the pattern for the future development of new tourist resort areas. Development on the basis of careful physical planning, with due regard to environmental safeguards, and of the simultaneous provision of all infrastructure services needed for the creation of a new resort had not occurred in Turkey prior to the project. 8.02 The initial delays in project execution reflected a variety of political, legal and economic factors in Turkey about which the Bank could do little. However, the Bank at appraisal appears to have been insufficiently aware of the administrative difficulties relating to land acquisition and of the time required to complete them. Delays in land acquisition have seriously delayed project execution and completion. Had the difficulties resulting from this factor been fully appreciated prior to appraisal, it is possible that another site where Government already owned the land might have been chosen as the project site. 8.03 The project concept appears in retrospect to have been appropriate and designs were modified where necessary without any basic changes in project scope. The project was not over-ambitious and despite the delays and some organizational problems, was within the borrower's capacity to implement it. In hindsight, the Bank could have given more attention during preparation and appraisal to the organisational arrangements for operating and monitoring project facilities; appropriate cost recovery policies; and housing arrangements for staff in the project area. The Bank's supervision missions contributed to the resolution of problems as they arose and the value of these contributions was recognized by the borrower. There were, nevertheless, extended intervals between supervision missions in some years, which appear to have reflected organizational changes within the Bank (e.g. the closing of the Tourism Projects Department in mid-1979), changing priorities and staff constraints. There were several discontinuities in the staffing of supervision missions, but during the most critical years of project implementation, the coverage of supervision missions was comprehensive and detailed. As the project neared completion, the intensity of the supervision effort declined.  - 13 - IX. CONCLUSIONS 9.01 While the project is nearing completion and the prospects for the development of hotels, holiday villages and other tourist facilities appear highly favorable, a final evaluation of the outcome of the project is not possible at this time. Nevertheless, the basic project concept was sound and the project objectives were realistic. The planning and environmental standards and regulations are appropriate though minor modifications may be required. The basis has been laid for deve'oping an attractive resort in a natural setting of exceptional beauty, catering to the needs of a wide spectrum of the tourist vacation markets. In this context, the continued enforcement of planning and environmental regulations to preserve the amenities of the area is vital to ensure the future of the project. It is important that funds be provided promptly to enable the project to be completed so that project benefits can be realized more fully with a minimum of further delay. It is also important that arrangements be made to ensure the efficient operation and maintenance of infrastructure services, and that attention be given to the problem of housing hotel staff. Although this aspect was addressed in the design of the project, it has been largely overlooked in project execution and a solution is now becoming increasingly urgent. 9.02 The project has provided a model of an integrated resort development which the Turkish authorities are following in developing similar coastal resorts at other locations. This was the first time in Turkey that all infrastructure services needed for resort development were planned and executed more or less simultaneously in the context of a carefully studied physical plan. In developing new projects, it is important that the experience gained by the tourism authorities, particularly in the Ministry of Culture and Tourism and the Tourism Bank, in the design and execution of the project should not be lost; conscious steps should be taken to enable this valuable experience to be utilized in developing similar projects in Turkey in the future.  - 14 - ANNE\ I TURKEY: SOUTH ANTALYA TOURISM INFRASTRTJCTURE PROJECT (Loan 1310-TU) FOREIGN VISITOR ARRIVALS: 1963-1985 /a Year Arrivals ('000) Variation (%) 1963 198.8 - 1964 229.3 15.3 1965 361.8 57.8 1966 440.4 21.7 1967 574.1 30.4 1968 603.0 5.0 1969 694.2 15.1 1970 724.8 4.4 1971 926.0 27.8 1972 1,035.0 11.6 1973 1,341.5 29.6 1974 1,110.3 (17.2) 1975 1,540.9 38.8 1976 1,675.8 8.8 1977 1,661.4 (0.9) 1978 1,664.2 0.2 1979 1,523.7 (8.4) 1980 1,288.0 (15.5) 1981 1,405.3 8.9 1982 1,391.7 (-1.0) 1983 1,625.1 16.8 1984 2,117.1 30.3 1984 (Jan.-May) 551.4 _ 1985 (Jan.-May) 806.8 46.3 /a Data from State Institute of Statistic until 1971 and from the General Directorate of Security - Section VI thereafter.  - 15 - ANNEX II Page 1 of 2 PROJECT IMPLEMENTATION: ACTUAL AND EXPECTED 1. The project was appraised on the basis of 1:25,000 scale plans and the level of engineering and cost estimates reflected the detail which could be considered at sucn an overall scale. As a result, a lot of survey and detailed engineering work was required before bidding documents could be prepared. This caused delays which were not fully appreciated at appraisal. 2. There were considerable delays in meeting the conditions for effectiveness and even though the loan was signed on July 9, 1976 it only became effective on March 1, 1978. The delay was caused mainly by difficulties in establishing the Project Directorate. Despite the difficulties, the Government pushed ahead with designs and construction by its line agencies (Highways Directorate and Kepez) and appointed the Tourism Bank to act as engineering consultants for the other infrastructure and building superstructures. Even when the designs were finished, there were further delays, mainly due to land organization problems. The result was that apart from the extension of the urban highway and 31.5 km electric power transmission line from Antalya to the project area, there was little construction activity on the actual tourism sites until 1981. Towards the end of 1980, progress was so unsatisfactory that the World Bank rated the project a real problem project and there was consideration given to cancelling the loan. Even when contracts were let the lack of local funds delayed progress. 3. Nineteen-eighty-one, however, became a turning point, the Tourism Bank designs were ready for bidding; a new Director was appointed and adequate local counterpart funds became available. Physical progress speeded up and the World Bank agreed to extend the loan period from December 3, 1982 to December 8, 1983. A revised action program was wLreed and following further progress on this (albeit delayed by land acquisitiou), a further extension to December 31, 1984 was agreed by the Bank. At the same zime, the Bank cancelled US$3 million from the loan and agreed to increase the disbursement percentage for civil works from 30 to 50 percent. 4. The discrepancies between forecast and actual project implementation schedules can be seen on the attached diagram.  tKPLuNKN?TATtOV SCHEDULE PO r C A S T AT AP P R A I S AL COMPARED TO ACTUAL Pet"RN3ANCI 77 78 79 80 S1 82 83 84 85 86 87 Declare Loon Effecttve x x Port A of the Preiect axx xxx xxx lofreatrecture water Supply Construction --- --- -- xx xxx xtxX xxx gxxx So11 Craft NFrbour - - - -