Turkey - Ports Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6213 PROJECT COMPLETION REPORT TURKEY PORTS REHABILITATION PROJECT - LOAN 1741-TU May 21, 1986 Europe, Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Ka OFFICAL Use ONLY TM WORLD BANK Wnshiston, D.C 20433 U.S.A 0lke NW OVtt"i*W Olg t~ br XtGeha Opwst.tww lvelutmn May 21, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Turkey Ports Rehabilitation Project (Loan 1741-TU) 4ttached, for information, is a copy of a report entitled "Project Completion Report on Turkey Ports Rehabilitation Project (Loan 1741-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. This document has a rstricted distribution and may be used by recipient, cltn ir. tht pe.=zmance of their official duties. Its contents may not otherwise be dis:xce it;thou: V orl L:nl . :ho:iutior.  FOR OMCIL USE ONLY TURKEY Loan 1741-TU: PORTS REHABILITATION PROJECT PROJECT COMPLETION REPORT Table of Contents Page No. Pref ace* ....................................................... Basic Data Sheet ................ ,ii Highlights .............. , a00#000 v I. Introduction ................................... 1 II. Project Identification, Preparation and Appraisal....... 2 III. Operational and Institutional Aspects................... 6 IV. Economic Evaluation,.......... ..... ................. , 14 V. Financial Evaluation....................... ............ 16 VI. Cnlsos.............................. 19 ANNEXES 1. Summary of Costs........................................ 21 2(a). Category Allocations of Funds from Loan Agreement (Forecast and Actual) ................................ 22 2(b). Schedule of Disbursements ...... ..... .. . *. . . . ............ 23 2(c). Comparison of Appraisal Estimate and Actual Loan 3(a). Revised List of Cargo-Handling Equipment................ 25 3(b). Investory of New Floating C:aft ......................... 26 4. Implementatiou Schedule.................... * . .... 27 5. Compliance with Loan Conditions ......................... 28 6. Variation of Turkish IRA in Relation to the US Dollar... 30 7. Total TCDD & DB Ports Traffic.........................., 31 8. Inventory of Port Handling Equipment by 1Jvpe and Age.... 32 9(a). TCDD Railways Organization Chart - Including Ports Operations ....... t ~~~~~~33 9(b). TDI Maritime Organization Chart - Including Port Operationso....................................... ...... 34 10(a). raining Courses for Port Workers....................... 35 10(b). Training Fellowships (MOC, TCCD & DB).. ..***..........* 36 Thb document h a rstictod disWtibution and may be used by recpients only in the perfonnme of thir oical dutis Its contents may not othwio be diclosetd without World lank authorason.  Table of Contents (cont'd.) Page No. 11. Table 1: Comparison of Actual and Forecast Itaffic 38 Table 2: Cargo Handling Performance 1983-General 39 Table 3: Cargo Handling Performance 1983-Dry Bulk ...... 40 Table 4: Costs and Benefits . ............. 41 12. Table 1: TCDD Ports Operations - Income Statement...... 42 Table 2: DB Ports Operations - Income Statement ........ 43 Table 3: TCDD Ports Operations - Balance Sheet 44 Table 4: DB Ports Operations - Balance Sheet Summary ... 45 13. Borrower Cbmments................***, ,* .......... 46 MAP IBRD 13702  -i- TURKEY Loan 1741-TU: PORTS REHABILITATION PROJECT PROJECT COMPLETION REPORT Preface The following is a Project Completion Report (PCR) for the Turkey Ports Rehabilitation Project (Loan 1741-TU), prepared by the Transportation Division, Europe, Middle East and North Africa Projects Department. The loan of US$75.0 million was approved on June 26, 1979, and became effective on January 31, 1980. Some delays were encountered during the start-up period of the project due to the longer periods required by the agencies to complete the required bid documents thrcugh to award of contract, and to some civil works taking longer to implement. The project content did not change substantially during implementation and the project was completed with only US$57.8 million of the loan utilized due to the increased strength of the US dollar, and the devaluation of the Turkish lira. The balance of US$17.2 million was cancelled. The closing date of the loan was extended from June 30, 1983 to June 30, 1984. This PCR is based on the findings of Bank missions which visited Turkey in the later part of 1984, and on subsequent data and comments provided by the Turkish State Railways (TCDD) and the Turkish Maritime Organization (TDI). It is also based on project correspondence and various reports prepared during appraisal and supervisions. In accordance with the revised project performance reporting procedures this report has been read In the Operations Evaluation Department (OED) but the project was not audited by OED staff. The draft Completion Report was aent to th'j Borrower for comments. The reply is shown as Annex 13.  -ii- Tumy PORTS REHABILITATION PROJECT - LOAN 1741-TU PROJECT COMPLETION REPORT Key Pro lect Data Original Actual (A) or Item Expectation Current Estimate (E) Total Project Cost (US$ Million) 155.6 80.2 (E) 1/ Overrun or Underrun (X) -48.02 Loan Amount (US$ Million) 75.0 75.0 Disbursed 57.8 Cancelled 17.2 Completion of Physical Components (dates) 12/82 06/86 (E) Time Overrun (2) 55.0S Economic Rate of Return (S) 37.0X 39.02 1/ Based on latest estimated local expenditures since some civil works and commissioning of floating crane not fully completed.  -iii- TURKEY PORTS REHABILITATION PROJECT - LOAN 1741-TU PROJECT COMPLETION REPORT Other Proiect Data Actual or Estimated Item Original Plan Revisions Actual First Mentioned in Files - 10/04/76 Government's Application - 04/04/77 Negotiations - - 03/02/79 Board Approval 06/26/79 - 06/26/79 Loan Agreement 07/02/79 - 07/02/79 Effectiveness Date 11/05/79 01/31/80 01/31/80 Closing Date 06/30/83 06/30/84 06/30/84 Borrower: Republic of Turkey Executing Agency: Turkish State Railways (TCDD) Maritime Bank (DB) - later renamed as Turkish Maritime Organization (TDI) Fiscal Year of Borrower: January 1 - December 31 Follow-up Project: Third Ports Project - Loan 2535-TU Exchange Rates: Turkish Lira to US$1.00 (as of December) Year Rate 1979 47.45 1980 88.83 1981 131.65 1982 188.26 1983 252.50 1984 427.90 (See Annex 6 for graphical representation of weekly variation in exchange rate.)  -iv- TURKEY PORTS REHABILITATION PROJECT - LOAN 1741-TU PROJECT COhPLETION REPORT Mission Dates No. of No. of Report Item Month/Year Weeks Persons Man-weeks Dace Identification/ Preappraisal 10/77 3 3 9 11/18/77 Appraisal 05/78 3 4 12 04/12/79 Supervision I 10/79 1.5 2 3 11/20/79 Supervision II 05/80 1.5 2 3 06/13/80 Supervision III 12/80 1.7 3 5 01/30/80 Supervision IV 06/81 1.5 2 3 07/27/81 Supervision V 04/82 2 2 4 05/21/82 Supervision VI 07/82 2 2 4 08/06/82 Supervision VII 10/82 1.5 2 3 11/04/82 Supervision VIII 03/83 2 3 6 04/14/83 Supervision IX 07/83 2 3 6 07/15/83 Supervision X 10/83 1.5 1 1.5 10/31/83 Supervision XI (Incl. Completion) 07/84 0.5 3 1.5 07/12/84 Supervision XI and Completion 03/85 0.5 1 0.5 03/28/85  TURKEY PORTS REHABILITATION PROJECT - LOAN 1741-TU PROJECT COMPLETION REPORT Project Highlights 1. The project was slow in the initial implementation with a delay of 18-23 months, but then followed fairly closely the estimated profile (para. 3.01 and Annex 2(c)). The original closing date of June 30, 1983 was extended to June 30, 1984. 2. The project content remained essentially as proposed in the SAR, except for a number of agreed revisions due to changing needs and circumstances (paras. 3.03 through 3.06, and Annexes 3(a) and 3(b)). 3. The total equivalent cost of the project is estimated at US$80.2 million (as compared with SAR estimate of US$155.6 million) due to the increased strength of the US dollar in relation to other major international currencies and the rapid devaluation of the Turkish Lira (para. 3.16 and Annexes 1, 2(a), 2(c) and 6). 4. Traffic has exceeded appraisal Forecasts since 1981 and was about 25% above the 1984 forecast. Since port tariffs are expressed in US dollars, revenue has not been seriously affected by devaluation and both agencies, TCDD and TDI, have shown substantial profits (paras. 3.17, 4.02 and 5.04). 5. The timing and objectives of the project were appropriate, and have led consecutively to increased productivity and to the preparation of the Third Ports Project, which concentrates on the introduction of modern container equipment and technology to specific ports serving the main hinterland areas (paras. 3.17 and 4.04). 6. The economic rate of return for the project is now assessed as 39Z as compared with the appraisal estimate of 37b (para. 4.08). 7. Following extensive discussions between the Government, the agencies and the Bank, the establishment of the proposed National Ports Institution (NPI) was not proceeded with, and significant institutional progress towards autonomy of the port establishments of TCDD and TDI has been made (para. 3.19).  TURKEY Loan 1741-TU: PORTS REHABILITATION PROJECT PROJECT COMPLETION REPORT I. INTRODUCTION The Transport Sector 1.01 Transport plays a vital role in the economy of Turkey by providing essential support for economic activity, foreign trade and transit traffic. The Turkish transport network is also a vital bridge between Europe and the Middle East. The country has an extensive and fairly well-developed transport system: about 60,000 km of state and provincial roads, 270,000 km of rural roads and 220,000 km of forestry roads; 8,200 km of railways; 12 major public ports handling a significant volume of cargo including coastal traffic; a system of civil and military pipelines; and Turkish Airlines, which serves several domestic and international routes (IBRD Map 13702). 1.02 Responsibility for transport sector planning, policy development, and investment is divided among a large number of key ministries and agencies. The main agencies involved are: (a) the Ministry of Transport, which signifi- cantly contributes to transport policy and also oversees the main agencies in the transport sector - the Turkish Maritime Organization (TDI),* Turkish Cargo Lines (TCL), Turkish State Railways (TCDD), Turkish Airlines (THY); (b) the Ministry of Public Works primarily responsible for planning and execution of all transport infrastructure of highways, new railway lines and ports; (c) Ministry of Agriculture and Rural Affairs is responsible for rural roads; and (d) the State Planning Organization (SPO) coordinates and ensures appropriate modal, sectoral, and national priorities. 1.03 Despite the importance of transport in the economy, investment in the sector during the 1970s did not keep pace with the development and require- ments of the economy, primarily due to inadequate attention to rehabilitation and modernization of transport facilities and equipment. Deficiencies in * During the duration of the project, the Maritime Bank (known as DB) changed its name to TUDEK, and then to the TurkisFh Maritime Organization (TDI). Similarly, the Harbours Directorate of the Ministry of Public lorks (known as LI) became known as the General Directorate of Railways, Ports and Air- ports Construction (DLH). For ease of reference in relation to Loan Docu- ments, the SAR, and project files, the acronyms DB & LI will continue to be used in the PCR where applicable in the time frame of the context of the report.  railway operations and maintenance, shifted additional bulk traffic to the roads. The new export oriented economic strategy introduced in 1980, including increased emphasis on Middle East markets, combined with sharp increases in transit traffic due to the Iran-Iraq war, placed significant additional burdens on the transport system. As a result, roads are below standard for existing traffic levels, major railway routes require rehabilitation and the railway4 lack adequate motive power and other facili- ties. These problems affecting roads - and railways are now being addressed by two on-going highway projects and in the preparation of a proposed railway project. While at appraisal of the second ports project the rapidity of growth of port traffic could not have been foreseen, even the then expected growth of Turkey's foreign trade required the introduction of modern port handling equipment to accommodate the growing volumes of traffic. The project therefore, included replacement and modernization of cargo-handling equipment, storage facilities and floating craft to improve the efficiency of operations at ten major ports, and to assist the port agencies in planning future investment programs and improving port management techniques. These investments became more cruical given the change to an export oriented economic strategy and the opportunities to profit from major increases in transit traffic. The Ports Subsector 1.04 The major ports function under two separate institutions, one group, i.e. the Ports of Samsun, Haydarpasa, Derince, Bandirma, Mersin and Iskenderun are under the ports establishment of the TCDD Railway Corporation and another group, i.e. the Ports of Trabzon, Giresun, Hopa, Salipazari (Istanbul), Ismir, Antalya and the recently added Rize under the ports estab- lishment of the Turkish Maritime Organization (TDI) (previously the Maritime Bank (DB)). Construction and maintenance of the ports infrastructure are the responsibility of the Directorate of Ports (DLH) in the Ministry of Public Works. Under Decree No. KHK 233 of June 8, 1984, both TCDD and TDI ports operations have been transformed, with effect from January 1, 1985, into new semi-autonomous en'ities to be named TCDD Limanlar Izletmesi Muessesesi or TCDD Ports Establishment (Demirliman), and TDI Liman Isletme ve Gemi Kurtama Muessesesi or TDI Ports and Vessel Salvage Establishment (Denizliman). Both Demirliman and Deriizliman will have separate identities, but they will be under the corporate control of their parent institutions, TCDD and TDI, as subsidiary units. II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL A. Ideatification Introduction 2.01 Port operations in Turkey's main public ports were severely hampered by: (i) old, obsolete, and inadequate cargo-handling equipment and floating craft; (ii) shortages of open and covered storage areas, and deficiencies in  other quay facilities; and (iii) relatively untrained port labor and outdated port management techniques. These constraints contributed to low producti- vity, inefficient handling, high incidence of cargo damage and longer ship- time in ports. The operational availability of existing cargo-handling equip- ment in Turkish ports was low (less than 50X), due to frequent breakdowns caused by age (more than half of the equipment being 20 years or older) and to some extent by a lack of spare parts, partly the result of inadequate alloca- tion of foreign exchange by Government. Further, since 5Ob of the existing port cranes had nominal capacities of only 1-3 tons, they were often unable to cope with the heavier parcels, thus requiring shifting of vessels to berths with heavier equipment, which caused further delays. Lack of modern equipment and trained staff also prevented the proper use of palletization and con- tainerization of general cargo to improve port efficiency and productivity. 2.02 The ports also lacked suitable floating craft, including tugboats and floating cranes. The existing fleet of tugboats was insufficient in numbers and inadequate, because of age and low towing power, to cope with the increas- ing numbers and sizes of vessels visiting the Turkish ports and/or using the Bosphorus and Dardanelles Straits (whose pilotage was handled by the then DB). The operational capacity of the existing floating craft was further limited by the absence of sufficient slipway facilities for their regular maintenance and repairs, some craft having to travel about 500 miles to the nearest slipways in Izmir or Istanbul. Turkey had only four floating cranes of up to 60 tons capacity, all of them over 25 years old. A new 100-ton floating crane had been ordered from the DB shipyard in Ihtanbul for general use in the Istanbul area, but a heavier floating crane was needed to handle the increasing number of heavy lifts. 2.03 In addition, many ports, especially the two ports of Istanbul, lacked sufficient cargo storage facilities, and were also in need of substantial rehabilitation of the paving and other infrastructure facilities. Only limited facilities were available in Turkey for training port labor and opera- tional staff, with small training units in the portd of Izmir and Istanbul, and a training section in the headquarters of DB; TCDD had a training insti- tute in Istanbul for training railway staff only. The absence of suitable training facilities and programs inhibited the removal of the deficiencies in the cargo-handling and storage management at the ports. Abandoned or damaged cargoes occupied prime storage areas; aisles intended for equipment and vehicle passage and large portions of the wharves' aprons were often used for storage of cargo. The ports were therefore compelled to handle an increasing proportion of general cargo on a direct delivery basis, but trucks were unable to move freely through the port due to congestion resulting in a decline in gang productivity, low cargo throughput, delays to ships and cargo, and exces-- sive ship-waiting times, resulting in demurrage and congestion surcharges. B. Preparation and Appraisal 2.04 The main objectives of the project were to: (i) improve substantially the efficiency of port operations in Turkey's main public ports, particularly in handling general cargo exports and imports, by replacing and modernizing  - 4 - old and obsolete cargo-handling equipment and floating craft, and improving storage and cargo-handling areas; (ii) avoid a recurrence of severe congestion in Turkey's main ports experienced in 1975-76, which had only temporarily eased as a result of Turkey's economic difficulties; (iii) promote modern cargo-handling methods and port management techniques, mainly through provi- sion of modern equipment and technical assistance for training; and (iv) assist in carrying out port sector planning for future investments. 2.05 The project was appraised in May 1978 and addressed the highest priority of the Turkish ports sector, viz. rehabilitation of existing equip- ment and replacemjnt of obsolete equipment in the main public ports, which were also the country's main general cargo ports dealing with international trade, to ensure sufficient port capacity to meet Turkey's traffic require- ments up to about 1985. A port sector planning study under the project would further review traffic and development trends and assist in determining likely future projects, and their relative priorities. C. Project Description 2.06 The project consisted of the following items: Equipment (a) Cargo-Handling Equipment: about 37 shore cranes, 93 mobile cranes, 110 forklift trucks, 21 tractors, 42 trailers, 2 tractors with dozer, and four generators--for the ten project ports. (b) Floating Craft: One 200-ton lifting capacity floating crane for general use in ports; six tugboats for TCDD and about 15 service boats for the six TCDD project ports as well as three tugboats of about 350 HP for use by LI. (c) Spare Parts: for: (i) three years' operation of new equipment; (ii) rehabilitation of some of the existing equipment; and (iii) some minor workshop equipment for equipment maintenance. (d) Hydrographic and other miscellaneous Equipment for LI. Civil Works (e) Paving and surfacing of about 670,000 m2 of open storage areas (Mersin, Trabzon, Izmir, Derince, Samsun, Iskenderun, Salipazari and Haydarpasa), construction of about 19,000 m2 storage sheds, minor dredging works totalling about 550,000 m3 in 5 ports, and general repair and rehabilitation works. (f) Construction of one slipway of 300 tons lifting capacity in Iskenderun and another slipway of 100 tons in Antalya, including all mechanical equipment for repair and maintenance of harbor craft.  -5- Technical Assistance (g) Training (i) Provision of experts and equipment for training port labor and staff of TCDD and DB ports. at the TCDD Training Institute in Haydarpasa, Merchant Marine Academy in Istanbul and other port training centers. (ii) Provision of training abroad for personnel from the ten project ports and their head offices (in TCDD and DB) in modern cargo- handling methods, mechanical maintenance management, port opera- tions, and general port management; and (iii) Provision of fellowships for overseas training in advanced harbor design and engineering for port engineers from LI. (h) Management Studies. Consultancy Services for: (i) revaluation of ports' assets, (ii) a cost accounting study to help establish a cost-related tariff, and (iii) assistance in preparations for a proposed New Ports Institution. (i) Ports Sub-sector Master Planning. Provision of consultancy assistance for port sector master planning and engineering, comprising three phases: Phase I: Study of national port capacity requirements during the next five, ten and twenty year time spans, in port capacity in different regions; Phase II: Preparation of a national ports master plan to meet projected needs in different regions, including a special study for developing a Marmara regional port to replace existing congested port facilities; Phase III: Preliminary engineering and design of the Marmara (or the necessary) regional port project. 2.07 Separate from the technical assistance included under the project, the UNDP financed the services of a procurement expert to assist the project agencies in drawing up specifications and tender documents for procurement of equipment. D. Cost Estimates 2.08 The total cost of the project was estimated at appraisal as US$155.6 million, the foreign exchange component being US$75.0 million (about 48 per- cent) with the balance financed from the agencies' own budgets. A summary of the cost estimates is given in Part A of Annex 1, and the Loan Agreement Category allocations are shown in Annex 2(a). In addition to the above  - 6 - project costs, UNDP agreed to contribute US$0.93 million in foreign exchange for financing part of the training program undertaken by ILO, with Government contributing the correspo%iding local currency costs. III. OPERATIONAL AND INSTITUTIONAL ASPECTS Implementation of the Project 3.01 After a delay in loan effectiveness (six months after signature of loan documents), implementation of the project was affected by two basic pro- blems. The MOT's Transport Coordination Agency (TCA), which had been intended to act as project coordinator, proved less effective than expected, since the agency was unable to retain its existing expert staff and to recruit adequate number of suitable replacements, due to the relatively low level of salaries offered. On account of the cotntry's economic problems, the Government placed an embargo on further recruitment and, furthermore, TCA was not delegated suf- ficient authority to meet its full obligations. The second problem was that the target dates set for preparation of the relevant documentation by the agencies staff, who were unused to Bank procedures and documents, had to be prepared first in Turkish and then translated into English. Preparation mis- sions had proposed to the agencies that some technical assistance in prepara- tion of bid documents would be prudent, but agencies were confident that they could carry this out satisfactorily themselves. In three specific cases where problems arose, the Bank called in specialist assistance to assist the agencies. In addition, some bid evaluations took much longer than forecast (in two cases, contracts were finally awarded about one year after receipt of bids - mobile cranes and floating crane). The delaying effect is demonstrated in the disbursement schedule (see Annex 2(b)) and in the graphical presenta- tion of the ad4usted disbursement rate as compared with the appraisal estimate (see Annex 2(c)), which shows disbursements followed a similar profile, but between 19 and 24 months later than forecast. As a result, delivery of some new equipment was delayed with a temporary loss of the increased benefit to cargo handling operations in some of the project ports. However, this loss was offset by higher traffic levels in other ports, particularly in transit traffic (para. 4.02). 3.02 During the first two years of the project, the Borrower proposed, and the Bank agreed to, a number of changes in the project components, due to changing needs and circumstances. 3.03 For TCDD, the modifications were: (a) deletion of four five-ton quay cranes and their replacement by three 35-ton quay cranes to increase the handling capacity for the heavier goods through certain ports and for containers; (b) addition of one 35-ton quay crane of the same type as in (a) above to replace an existing 25-ton crane damaged in Mersin which had been intended to work with the above 35-ton cranes;  - 7 - (c) replacement of eight crawler cranes by eight front-end loaders to provide greater flexibility for handling bulk commodities; (d) procurement of 20 of the 42 trailers in the project locally from TCDD's own resources; (e) addition of three 12-ton forklifts for handling empty containers and similar items; (f) upgrading three 1250 HP tugboats to 1500 HP for standardization, and the deletion of three 1000 HP tugboats; (g) increasing the capacity of the Iskenderun slipway from 300 to 500 tons to ensure its capability to service all TCDD floating craft; and (h) the upgrading of the floating crane from 200 to 250 tons to provide for handling likely import items of heavy machinery based on a market survey in Turkey. 3.04 For DB, the modifications were: (a) the upgrading of the Antalya slipway from 100 tons to 1,000 tons to cater for TDI's own vessels and for third parties; (b) the reduction of covered storage at Antalya from 12,000 m2 to 4,000 m2 and the increase of that for Sefakoy (Istanbul) by 8,000 mi2; and (c) the subsequent transfer of the intended development at Sefakoy to a larger site at Icerenkoy (Asian side of the Bosphorus and south-east of Haydarpasa) due to land acquisition problems at Sefakoy. 3.05 For LI (now DLH) the modification was: (a) deletion of the hydrographic equipment and its replacement by floating equipment spare parts which were to have been financed from LI's own budget, but for which the necessary foreign exchange was not available. 3.06 The revised lists of equipment for TCDD and TDI (ex-DB) are shown in Annex 3(a), and the revised list of floating equipment and the changes are shown in Annex 3(b). The above revisions (paras. 3.03 through 3.05) were implemented, and did not require supplementary funding, but merely some real- location of funds within the respective loan categories. Implementation Schedule 3.07 As mentioned in para. 3.01, delays of between 19 and 24 months occurred in the award of major contracts, due partly to an over-optimistic original implementation schedule and partly due to delays in document  preparation and in bid evaluation. Annex 4 shows, in bar chart form, the actual implementation periods relative to the original program. In financial terms, US$42.3 million, or 732 of total disbursements of US$57.8 million under the loan, was disbursed by the original closing date of June 30, 1983, the balance comprising mainly final payments to equipment manufacturers under awarded contracts. Compliance with Covenants 3.08 Generally, the Borrower complied with the covenants as set out in the Loan and Project Agreements. The list of covenants and the compliance status is set out in Annex 5. Some of the institutional arrangements, did not turn out precisely as laid down in the covenants (see paras. 3.19 and 3.20) but the alternatives are considered to be generally adequate. Procurement 3.09 At the start of the project, TCDD and DB entered into written agreements that TCDD would procure all equipment for both agencies, while DB would procure all floating craft. DB would be procuring agent for LI, since their loan allocation was small and they were not therefore named in the Loan Agreement as an executing agency; this agreement worked satisfactorily. 3.10 Likewise, LI were responsible for administration and supervision of most civil works (quay reconstruction, paving, dredging) for both TCDD and DB, except for certain specific works such as Mersin paving (TCDD), and Icerenkoy development (DB). Delays occurred due to staff limitations in LI, local con- tractor deficiencies, foundation problems due to poor ground conditions and budget limitations of LI, where some works such as dredging had to close down until the next fiscal year. This latter problem affected much of LIs total construction program, mainly in non-project works. 3.11 The main procurement problems arose in the procurement of the mobile cranes and the floating crane. Bid evaluation chrough to award of contract for the mobile cranes took 12 months, while TCDD and DB disagreed upon the acceptability of the lowest evaluated bid due to doubts on certain technical characteristics in relation to the specification of the floating crane. A supervision mission advised the Ministry of Transport and the agencies to in- vite the proposed floating crane manufacturer to Turkey to discuss and resolve these doubts - this was done and the necessary clarifications and written per- formance guarantees were provided by the manufacturer. Due to the long delay in preparing the documents (in which the UNDP-financed procurement specialist assisted), time lost in the bid evaluation process and in assembling the crane on its pontoon (constructed by DB in one of their shipyards), the floating crane is not yet operational, but is to be completed by end June 1985. 3.12 Consultants for the National Ports Master Plan (NPMP) study were chosen from five who submitted proposals. In retrospect, too few man-months were finally negotiated by the Borrower with the chosen consultants, and this did affect the depth of coverage of the final report. In addition, super- vision of the study by the MOT was not sufficiently close to ensure the neces- sary in-depth coverage for all ports. The report ascertained that the exist- ing general port capacity, including facilities under construction, would be  - 9 - adequate during the ensuing five years, and that construction of a new Marmara port was not justified. (Phase III of the study - detailed engineering - was not, therefore, implemented.) However, the study proposed an over-extended, and too broad-ranged developmenat of container facilities in seven ports within the proposed time frame. (The Government has subsequently agreed under the new project (Loan 2535-TU) to a first phase development of container handling facilities in four ports, given the uncertainties over the development of traffic, especially transit traffic.) 3.13 The Bank was asked to assist the Borrower by providing a list of port specialists and to act as executing agency for the tariff study financed by UNDP. The specialist selected proved to be an "individualist", who did not sufficiently involve h's counterparts, and his contribution towards the task of establishing a cost-related tariff structure was not as constructively effeczive as had been envisaged. It was established through the information derived from the cost analysis system set up earlier under the project (by a costing specialist financed by UNDP), that the existing tariff rates, which were expressed in U.S. dollars, amply covered costs. The Turkish authorities did not therefore consider that any significant changes to the existing tariffs were justified at this stage - with which the Bank acquiesced. How- ever, some rationalisation of tariffs including those relating to container handling may be required, and the new Third Ports Project provides for the review and introduction as necessary of special container tariffs before January 1987. Overall, the two consulting assignments (tariff and costing) proved to be less effective than envisaged, mainly due to the inability of both speci lists to establieh a good rapport and work effectively with Turkish agencies where relatively little English or other international languages are spoken, with consequent reduced effectiveness in the training of counterpart staff and personnel. The new ports project also provides for technical assistance for establishing and improving financial, accounting and management information systems, methods and procedures in the ports organizations through the use of local consultants. 3.14 In general, the choice of consultants by the Borrower is still based too much on cost rather than on the quality of the proposal. In retrospect, this affected the National Ports Master Plan Study, and the consultants over- all performance was less than satisfactory (para. 3.12). Reporting 3.15 TCDD and TDI completed their separate quarterly progress reports which were coordinated by the Ministry of Transport and sent to Washington. Reports were in line with the agreed format, but were frequently late by about three months. Costs 3.16 The total project cost assessed at appraisal was US$155.6 million equivalent, with foreign and local currency components of US$75 million and US$80.6 million, respectively. During the project period, the exchange rate deteriorated, with an average annual devaluation of about 57% since 1979 such  - 10 - that the US dollar equivalent of local costs is actually less than one-thrid of the total project cost (as compared with an estimate of 502 at appraisal). The variation in the Turkish Lira in relation to the US$ is shown diagramati- cally in Annex 6. In addition, with the increased strength of the US dollar in relation to other currencies, only US$57.8 million (77X) of the loan of US$75 million was utilized. The final total cost of the project is assessed as US$80.2 million (based on latest estimates since final local currenCy costs are not yet known due to some uncompleted project works at this time of writ- ing). However, the amount of equipment, civil works, and technical assistance actually provided under the project was essentially as set out in paras. 2.06 and 3.03 through 3.05, apart from the deletion of the second stage of paving at Trabzon, which will be implemented later by TDI and financed from their own resources. The revised cost summary table is shown in Part B of Annex 1, and the Loan Agreement category allocations and actual expenditures are shown in Annex 2(a), the schedule of disbursements in Annex 2(b). Achievement of Objectives - Physical 3.17 Overall, the project's physical objectives were achieved during a period of rapid traffic growth, as is shown diagrammatically in Annex 7. Since 1981, traffic growth exceeded forecasts in all three main commodity groups with the total traffic for 1984 exceeding appraisal forecasts by about 252. While part of this increase is due to increased transit traffic to Iran and Iraq and to an improvement in the economy, there is no doubt that the project raised productivity through the introduction of new equipment and by improving the availability of existing equipment through revised maintenance procedures and better supplies of spare parts, new and rehabilitated cargo storage areas, and by training ports staff and workers. Annex 8 shows an analysis by type and age of the various types of cargo-handling equipment. The very low replacement rates in some equipment categories, in the 15 years prior to the project, are readily apparent. Prior to the project, the ser- viceability of the older equipment was relatively low due to lack of spare parts, which, if not available ex-stock in Turkey, could take up to 12 months or more to obtain due to the long bureaucratic ordering procedures for over- seas goods. As stated above, the provision of spare parts for existing equip- ment and the replacement of obsolete equipment under the project had a signi- ficant effect upon the ports productivity, enabling the handling of the increased traffic during the period from 1982 onwards. Other measures being introduced include improved pre-planning of ships' arrivals, clearance of unwanted cargoes from berths and storage areas, and better traffic control and use of storage facilities when direct delivery is not available. The ports are also planning to introduce multiple shift working for container operations. The recent Third Ports Project (Loan 2535-TU for US$134.5 million), appraised in December 1984 and approved by the Board on May 9, 1985, will further pro- mote improvements by introducing modern container handling equipment and tech- nology into four Turkish ports, Haydarpasa, Izmir, Mersin and Trabzon under a first phase development, since there is the potential for containerising up to 50 of cargoes to Turkey in the next five years. As the new project progress- es, traffic trends will also be monitored so that provision for an additional facilities or other needs may be included in a second phase development (from 1988-90 onwards) which will be studied by the Government and the Bank during the implementation of the new project. Based on the latest assessments of  - 11 - transit traffic, volumes to Iran and Iraq through Turkey are unlikely to decrease within the next five years or thereabouts, since, even when the Gulf war ends, total traffic to Iran and Iraq will probably increase, particularly for materials needed for reconstruction. Even though the Gulf ports will re- open in the longer term, it can be expected that both countries will wish to maintain alternative routes for strategic reasons. In addition, present sea freight rates to Turkey are about US$75 per ton for Mediterranean route traffic as compared with about US$90 per ton to Jordan and over US$100 to the Gulf. 3.18 In retrospect, bearing in mind the growth of containerization throughout the world and that, at appraisal, container traffic through Turkey had reached 70,000 TEU per annum, it may be contended that more attention might have been paid to this traffic, by providing a limited amount of specialized container handling equipment. However, a review of the distribu- tion of such containers among the various ports in the 1978/80 period showed that, only at Mersin was the number of containers sufficient to consider the possible provision of a lightweight container crane, and that new equipment being provided under the project should be adequate in the short to medium term for both general cargo and containers. It was in the 1981/82 period that container traffic increased significantly mainly due to the upsurge in the Iran and Iraq transit traffic. The question was therefore raised in mid-1982 by the Bank with TCDD, who specifically indicated that they did not consider such specialized equipment to be justified at that time. As referred to in para. 3.17 above, specialized container handling equipment is being provided under the follow-up project (Loan 2335-TU). Achievement of Obiectives - Institutional 3.19 The Loan Agreement for the project had called (under Section 3.06 (a) and (b)) for the establishment of a new National Ports Institution (NPI) to take over the ports activities of the major ports. However, this proposal was not implemented as the Government as well as the Bank were no longer convinced that establishment of one Institute is the appropriate short-term approach to follow. Recent attempts to establish national institutions in other sectors of the economy in Turkey have not met with success. Furthermore, it is now clear that the immediate objective is to strengthen the basic functions of the existing ports organizations, including planning and accountability, and to provide for financial auto.iomy. As a result, a more gradual approach is being pursued by establishing the ports departments as semi-autonomous organizations, although still under the control of their parent organizations. This is a major step towards making the ports departments more responsible for estab- lishing accountability and financial autonomy, and for meeting the needs of the economy. During the implementation of the latest ports project (Loan 2535-TU), a dialogue will be maintained with the agencies and the Government upon the autonomy of the ports departments, and the desirability or otherwise of their ultimate amalgamation. At this stage, there is no clear-cut case for amalgamation. As discussed above (para. 1.04), TCDD ports operations will be structured as an establishment to be called Demirliman, with a Board of Directors, or Executive Committee of its own appointed by the TCDD Board of Directors, an Establishment Director who will be the chief executive, three  - 12 - Assistant Directors to be in charge of the central departments and six Port Directors in charge of each port. As far as the TDI ports are concerned, they will be functioning under a similar organizational pattern to that of TCDD ports. The new organizations of TCDD and TDI are shown on Charts 26971 and 26972 (see Annexes 9,a) and 9(b)). During the project, improved coordination between TCDD and TDI commenced with protocols signed between the agencies regarding responsibilities for specific procurement (para. 3.09), and joint cooperation upon training of staff and dock workers (para. 3.21). (Under the recently approved Third Ports Project (2535-TU), procurement of container handling equipment will be procured by TCDD for its own and for TDI ports, which will further promote standardization of equipment and of associated spare parts and components as set out in 1741-TU, Loan Agreement, Section 3.06 (c). In addition, a Project Coordination Committee has alho been set up under Loan 2535-TU, with representatives from all involved agencies with a Deputy Undersecretary of the Ministry of Transport as Chairman.) 3.20 In a similar administrative reorganization, the LI department in the MPW (Limanlar Insaati) has recently been reformed into a "General Directorate of Railways, Ports and Airports Construction" (DLH) It is understood at this stage that there will now be one Director General for DLR, whereas in the past each subsector had its own Director. 3.21 Because of the progressive loss of staff, (as referred to in para. 3.01), TCA was disbanded and its general responsibilities for coordina- tion were taken over by the Trade and tariffs Department (TTD) of the Ministry of Transport, but TTD suffered from the same serious staffing problems and was not as a result, as effective as intended. However, the demands for coordina- tion lessened as the project progressed so that the impact of the later defi- ciencies were less significant to the project. In addition, the State Plann- ing Organization (SPO) assumed greater responsibility for transport planning, and were responsible for the preparation of the National Transport Master Plan (NTMP) which includes planning for the ports subsector. Staff Recruitment and Training 3.22 TCDD, TDI and LI (now DLH) have found it difficult to attract new qualified staff owing to the relatively low salaries offered as compared with commercial firms (para. 3.01). Without an across-the-board increase in the salaries structure, recruitment will continue to be a problem. Staff training has been undertaken under the project for both port workers and staff. UNDP and ILO provided specialists (under UNDP funding) to organize and initiate training courses. A port operations training school was set up, first in the Merchant Marine Academy in Istanbul and subsequently in the TCDD Training Center at Haydarpasa. The recruitment of specialists by ILO proved more dif- ficult than expected and training in all desired disciplines (general cargo operations, container operations, maintenance) could only be undertaken on a better coordinated basis from mid-1981, when more specialists had been re- cruited and an extension of funding to the end of 1982 had been agreed by the Government with UNDP. The agencies felt, however, that they did not derive the expected benefits from such training due to the earlier lack of continuity of the training program. During the latter part of the port project, training  - 13 - has been taking place at Haydarpasa and Mersin, and at other ports, (after the ILO/UNDP contracts expired in December 1982). The TCDD and DB instructors have continued to run courses for dock workers and technicians; a list of such courses is included in Annex 10(a). The training school has also produced some useful illustrated technical booklets in Turkish, including one on container handling operations. 3.23 Nearly 100 management staff from the Ministry of Transport, TCDD, DB and LI also made visits overseas between mid-1980 and mid-1982 in connection with port operations (general cargo and containers), technical and operations instructors courses, and design and construction of port structures (see Annex 10(b)). The visits were of between one and two weeks duration to give exposure of staff to port operations and methods of working in other countries. 3.24 As a general conclusion, significant institutional progress has been made towards autonomy of the port establishments, particularly in the light of the recent legislation setting up the Demirliman and Denizliman establishments, and since the process of staff and worker training has been institutionalized. Role of the Bank 3.2a The project provided an important impetus to the rehabilitation of the ports agencies' cargo handling capacity at a time when such facilities and equipment were urgently needed, and the Country was short of the necessary foreign exchange to enable such action to be taken. As referred to in para. 3.17 and in Annex 8, the rate of replacement of obsolete and semi-obsolete equipment was slow and the poor availability of spare parts resulted in low equipment availability and hence low productivity. The procurement of the new equipment under the project (plus some new equipment financed by agencies' from their own resources) has improved productivity. 3.26 During preparation of various bid documents by the agencies problems arose which required additional specialist assistance, and the Bank arranged for specialists to visit Turkey to help to resolve them (e.g. Iskenderun slip- way design, container storage areas paving, 250-ton floating crane). In addi- tion, Bank staff advised agencies on other design and procurement questions, particularly relating to bid evaluation of forklift trucks, mobile cranes and the 250-ton floating crane where complete unanimity between the agencies was not achieved on the degree of compliance of some bids with the technical specifications. (In some respects, Bank missions performed thte equivalent tasks of the defunct TCA in helping to resolve inter-agency problems.) 3.27 Due to priority commitments in connection with new projects, and staff constraints, it was not always possible to carrj' out full supervision of the project to the desired program and frequeney. However, limited supervision missions were always arranged as and when necessary.  - 14 - IV. ECONOMIC EVALUATION Introduction 4.01 A similar economic evaluation has been undertaken as that made at appraisal. Since the main focus of the project has been on the rehabiliation of general cargo and to a lesser extent dry bulk facilities, the main focus of the analysis is on general cargo. The 12 main ports administered by TCDD and TDI handle about 85S of general cargo traffic and about 40S of dry bulk traffic. Other bulk commodity flows are handled mainly by private or indus- trial ports. The port agencies are currently completing their allocation of equipment among the ports according to current needs. As a result, the eco- nomic re-evaluation has been undertaken on a global basis for all ports for the main categories of traffic, rather than for each individual port. Traffic Forecasts 4.02 The appraisal traffic forecasts were established at a time of considerable uncertainty over future development of the economy and of foreign trade. In particular, the appraisal was unable to foresee the start of the Gulf War and the rapid growth in transit traffic through Turkey to Iran and Iraq. A period of slow growth in foreign trade in 1978 and 1979 was followed by the introduction of a stabilization program and structural adjustment process i.n 1980 designed to introduce greater reliance on market forces to achieve h-Agh export growth. Exports began to pack up during 1981 and 1982 and this upsurge has continued through 1984 with industrial exports leading the way. Total dry cargo traffic, excluding transit, has increased at just over 77 per year since 1978 compared with an appraisal forecast of 92 per year, mainly because of the unforeseen slowdown in foreign trade, during the early years of the project. Foreign dry bulk traffic has shown the main lag com- pared with the appraisal forecasts, this traffic increasing at only 6.5% per year compared with a forecast growth of about 11% per year. This reflects the slowdown in raw material imports during the period of the stabilization pro- gram. However, the main difference between forecast and actual traffic is the growth of the transit trade which increased from 460,000 tons in 1978 to over 4 million tons in 1984, compared with an appraisal forecast of less than 400,000 tons. As a whole, general cargo traffic, including transit, exceeded the appraisal forecasts by 47%, reaching 10.8 million tons compared to the appraisal estimate of 7.3 million tons (Annex 11, Table 1). The ports have been able to handle this major increase in traffic at reasonable cost and efficiency with equipment provided under the project as well as through improvements in productivity through increasing containerization of traffic, particularly for the transit trade. Project Benefits 4.03 The main benefits of the project were felt in imprnved productivity in the ports through the renewal and rehabilitation of pork equipment and handling facilities. These improvements in productivity a e reflected in savings in ship service time and to a certain extent ship waiting time, with  - 15 - most of the benefits accruing to general cargo traffic. Other benefits in- clude a net reduction in cargo damage, reduced waiting time through the use of modern tugboats, avoided accidents, and expected freight savings from the use of a 250-ton floating crane which obviates the need for specialized heavy-lift vessels. 4.04 Ship service time savings have been estimated on the basis of improvements in port productivity under the project. In the without project scenario, it is assumed that general cargo handling throughputs would have declined from their actual level of about 380 tons per ship day in 1977 by about 251 to 285 tons per ship day in 1982. With new equipment under the project, general cargo throughputs have increased to about 400 tons in 1982, between 450 and 500 tons in 1983, and are expected to reach a level of about 700 tons by 1988 (see Annex 11, Table 2, for productivity statistics in the main ports). The latter is much higher than the previously expected increase in productivity, but this throughput now appears likely according to recent trends and improvements in operating methods. For dry bulk traffic, through- puts without the project are assumed to remain at about 700 tons per ship day compared with actual rates of about 1,200 tons (Annex 11, Table 3). 4.05 Ship waiting time savings for general cargo traffic have not changed significantly from the appraisal estimates, the higher traffic levels being offset by higher throughputs. Average ship costs are still of the same order as at appraisal, namely about US$4,500 per ship day. Net reductions in cargo losses are estimated at 0.252 per ton of conventional general cargo, based on a cargo value of US$800 per ton. Ship waiting time savings resulting from the use of modern tugboats and freight savings from the floating crane represent a small proportion of total benefits and have not been taken into account. 4.06 In line with the appraisal estimates, it is assumed that 70% of general cargo ship service time savings will accrue to Turkey on the grounds that 402 of the traffic is handled by Turkish vessels or on charter terms while about half of the remaining benefits will accrue to Turkey through slower increases in freight rates. Although benefits to transit traffic will accrue mainly to Iran and Iraq, 70% of the ship service time savings have also been included as a surrogate for benefits accruing to Turkey in other forms such as foreign exchange earnings on transit traffic and increased foreign trade with its neighbors. Dry bulk traffic is handled either by Turkish vessels or on charter terms where rates generally reflect improvements in productivity, passing on an estimated 90% of benefits to Turkey. For ship waiting time savings, 90% of the benefits are assumed to accrue to Turkey through avoided congestion surcharges or reduced demurrage charges for charter traffic. In order to allow for a time lag in passing on benefits to Turkey, all project benefits accruing in 1983 have been ignored and only half of the benefits in 1984 have been included (Annex 11, Table 4). Benefits beyond 1984 are based on 1984 traffic levels, which correspond to full utilization of port equipment. Benefits are therefore held constant from 1985 onwards. As most port equipment has a useful life of 8 to 10 years, benefits have been ignored oeyond 1991. In addition, estimates of ship time have been based on the 1983 productivity levels; these are conservative estimates and exclude the impact of containerization on throughputs with conventional handling equipment.  - 16 - Project Costs 4.07 Project costs used in the economic re-evaluation relate to the total port rehabilitation program during the 1980-1984 Development Plan, including all components financed under the project. The reason for using the total rehabilitation program as a basis for the re-evaluation is that it is not possible to isolate the effects of the Bank-financed items on port producti- vity from those of other items included in the port rehabilitation program as a whole, in particular a number of complementary investments. The total cosc of the port rehabilitation program is estimated at about US$200 million over the five-year period 1980-84, or about US$160 million net of taxes and duties. At appraisal, allowance had been made for additional operating and maintenance costs due to the project. However, it is felt that most of these costs would have been incurred in any event without the project, in particular through increased operating and maintenance expenditures on worn-out equipment. Only half of the estimated incremental operating and maintenance costs of the equipment has therefore been included in the project cost stream (Annex 11, Table 4). Results 4.08 The ER for the total project based on actual costs and benefits is estimated at 392, which is comparable with the appraisal estimate of 37%. This result reflects the higher general cargo traffic levels and higher pro- ductivity levels for dry bulk traffic. Even when benefits to transit traffic are excluded from the analysis, the ER would be about 35%. These results emphasize the high returns on the port rehabilitation and equipment renewal program which was the primary focus of investmeot in ports during the 1980-84 Development Plan. V. FINANCIAL EVALUATION A. General 5.01 The project was carried out by 3 entities - the Ministry of Public Works, the TCDD Ports Department and the DB Ports Department. Of these, only the latter two directly earn the revenues generated by the project and the financial evaluation was therefore limited to these ertities. B. Compliance with Financial Covenants 5.02 The Loan and Project Agreements (L.A. and P.A.) provided three important financial covenants: (i) maintenance of separate accounts and preparation of separate annual financial statements by TCDD and DB for their ports operations (P.A. 4.02(b)); (ii) revaluation of fixed assets of the ports by end of 1981 and thereafter every three years by TCDD and DB (L.A. 3.08); and  - 17 - (iii) introduction by TCDD and DB for their ports, after carrying out the port operations costing study under the project, of a cost-- related tariff structure by January 1, 1982 designed to yield revenues sufficient to meet annually, working and administrative expenses of the ports, debt service requirements related to the ports, and at least 35% of the average annual cost of invest- ments during the following five years related to their ports (L.A. 3.09). A brief summary of compliance with loan conditions is given in Annex 5. 5.03 The actual performance of TCDD and DB in meeting the above three requirements are as follows: (i) both TCDD and DE have maintained separate accounts, which are also required by law since January 1, 1985, and prepared and submitted (although sometimes delayed) annual audited financial statements covering their ports operations; (ii) revaluation of fixed assets of the ports was carried out in 1982 and incorporated in the accounting books in 1983 by both TCDD and DB; and (iii) a costing study was carried out in 1980/81 and a tariff study in 1983. The tariff study did not recommend major structural changes. The present position is that tariffs are uniform for all ports, reasonably related to costs, and have, since 1981, been expressed in equivalent US dollars. In addition, the ports receive the 5% ad valorem dues on imports. However, the Govern- ment has not yet transferred the subsidiary loan amounts to TCDD and DB pending completion of the project, which in its opinion, is the appropriate time to determine the amounts of the indi- vidual subsidiary loans applicable to TCDD and DB. This is contrary to provisions of the subsidiary loan agreements between the Government and the agencies, but, in as much as the project is substantially completed, it was agreed during negotiations of the recently approved new ports project that they would be transferred shortly. The generation of funds to meet the annual investment contributions has been adequate to meet the stated 35% investment contribution requirement. However, the basic problem lies in the fact that the ports operations have been treated by the parent organizations as a vehicle for providing surpluses to meet losses sustained by their other operations such as the railways and passenger shipping lines. The sur- pluses of the ports operations have thus been drained away by their parent organizations. The new ports project provides for the retention of funds by the respective ports agencies for meeting their operating, maintenance and overhead costs, debt service obligations and an annual contribution of 35% of their future investment needs. Beyond this, whatever funds the parent  - 18 - organizations are allowed to appropriate by the Treasury would be clearly identifiable on the separate accounting records and financial statements of the two ports organizations. C. Financial Situation of TCDD and DB 5.04 Ports operations have been profitable since 1981 and are expected to continue to be so. As the income statement and balance sheet tables (Annex 12, Tables 1,2,3, and 4) show, the actual financial performance exceeded by far the appraisal estimates. For example, in real terms both for TCDD and DB operations the actual operating revenues were about four times the amount forecast in 1982 and 1985, while the working expenses remained more or less the same in these years. The reasons are as follows: (i) general cargo traffic increased by some 502 between 1981 and 1984; (ii) since 1981, tariffs have been expressed in US dollars, which in the context of escalating exchange rates has meant higher revenues in domestic currency for the ports agencies; and (iii) in the case of DD the revenues from the increased pilotage activity on the Bosphoros have been a substantial additional income which the appraisal forecasts do not appear to have taken into account. D. Accounting Activities 5.05 All organizations in the public sector are required to adhere to the national uniform accounting system. The accounting concepts, classifications, and definitions follow generally accepted principles of accounting and the system is, on the whole, adequate for basic financial accounting. It does not adequately cover, however, the analytical aspects of accounting which are necessary for the determination of costs and for use as management tools. Attempts under the project to introduce cost accounting in the TCDD and DB ports operations were not completely successful, but they did result in the introduction of procedures for activity-based costing, e.g. determining the time units of each major activity at each port such as loading, unloading and shifting of cargo, pilotage, berthing, etc. Based on these time units, cost and tariff revenue calculations are now made at each port for determining the financial contributions made by each major activity. 5.06 Both TCDD and DB's centralized accountii,g units produce quarterly income statements and annual income statements for each port, and for the TCDD's and DB's ports operations as a whole, as well as notional annual balance sheets for the ports operations extracted from the general accounts. In addition, they have been preparing approximate monthly operating results based on time allocations of the various activities at each port. In con- tinuation of the efforts under the project and in the context of setting up the new ports establishments, the recently approved ports project has included consultancy assistance for a diagnostic review to be followed by the introduc- tion of approved proposals for the improvement of the financial, accounting,  - 19 - costing, and management information systems, methods and procedures to serve the needs of management decision-making, budgetary control, accountability and tariff-setting. E. Audits 5.07 Annual audits have been conducted by the Financial Inspectors attached to the Ministry of Finance. Under the project, both TCDD and DB were required to submit annual audited financial statements for their respective port operations within six months after the end of each fiscal year. Submis- sions of these annual reports have been often delayed, reportedly due to in- sufficient numbers of MOF inspectors. This is expected to be corrected under the new project as the Government has increased the number of auditors avail- able for conducting the annual audits of Bank-financed projects. VI. CONCLUSIONS 6.01 The timing and objectives of the project were appropriate. It might have been more advantageous to the country had the project been undertaken earlier to cater for the rapid increases in traffic during the latter part of the project, but which could not have been foreseen at appraisal (paras. 1.03 and 3.17). 6.02 Although the appraisal could not foresee the rapid growth in transit traffic, it should perhaps have paid more attention to the likely growth in container traffic and the need to modernize selected ports for this traffic. At the time of the appraisal, container traffic had already reached 70,000 units, and based on trends in other world ports, might have been expected to develop fairly rapidly, although the increases in transit traffic due to the Iran-Iraq war could not been foreseen. However, during implementation of the project, the Turkish authorities and the Bank should perhaps have given greater consideration to .Ancluding a limited amount of specialized container handling equipment (para. 3.18). 6.03 In retrospect, it would have been better to have used more technical assistance in the preparation of bid specifications and documents. This had been impressed by the preparation missions upon the agencies, who, however, firmly believed that such preparation was within their capabilities. Sub- sequent experience showed that the agencies' capacity to produce bid documents could not meet the agreed project schedule, and the Bank had to provide in some instances additional specialist assistance to deal with specific problems. Mainly due to such delays in procurement, the project ran between 18 and 23 months behind schedule (as indicated on the disbursement chart, Annex 2(b). Language also created delays since bid documents were produced in Turkish and subsequently translated into English (para. 3.01). 6.04 Traffic developed during the second half of the project at a faster rate than forecast, largely due to transit traffic to Iran and Iraq. As a result, the financial status of both TCDD and DB was good. The review of port tariffs has shown them to cover costs satisfactorily, although some rationali- zation of container tariffs may be necessary as the traffic develops (paras. 4.08 and 3.13).  - 20 - 6.05 Following discussions with the Government and the project agencies, firm steps have now been taken setting up the TCDD and TDI port establishments as semi-autonomous bodies with separate financial accounts. This is an essen- tial step in the "commercial" development of the agencies and is more suitable for meeting immediate objectives of strengthening port operations than the earlier proposal to set up a national Ports Institution to administer all ports (paras. 1.04 and 3.18). 6.06 Although the Ports Master Plan provided general guidelines for port development of the next decade, it would have been more effective to have required the preparation of a realistic investment program for the plan period 1985-89. Although the study focussed on containerization, as the main thrust for port development, its recommendations in this respect were much too ambi- tious in that its proposed container port development on too broad a front (para. 3.12). 6.07 The economic rate of return for the project based on actual costs and benefits is estimated at 39%, which is comparable with the appraisal estimate of 37X (para. 4.08). 6.08 The financial status of both TCDD and DB (TDI) is good, with incomes far exceeding the appraisal estimates as a result of higher than forecast traffic and the fact that port tariffs are expressed in US dollars and benefit from dollar appreciation in value (para. 5.04). 6.09 The Third Ports Project (Loan 2535-TU), approved by the Board on May 8, 1985, for a loan of US$134.5 million, will continue with the next stage of port development by introducing modern container handling equipment and technology into four selected Turkish ports, each of which serves a main hinterland area and by providing a traffic monitoring system to ascertain development requirements from 1988-90 onwards (para. 3.17). 6.10 Finally, the project was completed at a total cost of about half of that estimated at appraisal (US$80.2 million as against US$155.6 million). This difference is due to: (a) the increased strength of the US dollar during the project period such that only US$57.7 million (77%) of the loan was utilized without any substantial changes in the project content; and (b) the reduction in the US$ equivalent of local costs (from US$80.6 million to about US$22.5 million) due to the devaluation of the Turkish Lira from TL 25 = US$1.00 at appraisal to TL 428 by the end of 1984 (para. 3.16). The remaining unutilized balance of US$17.3 million was therefore cancelled.  PORTS REHABILITATION PROJECT - LOAM 1741-TU PROJECT COMPLETION REPORT Sumarv of Costs Part A - Anoraisal Foreign Part B - Actual Foreign Local 1/ Foreign Exchange Local 2/ Foreign Exchange Item Currencz Efanle _Total iQnnt Currency tmchan Total Comega=t _____--- US$ (