Turkey - Northern Forestry Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 8274 PROJECT COMPLETION REPORT TU!>KEY NORTHERN FORESTRY PROJECT (LOAN 1585-TU) JLA'UA2xj jl qqb Agriculture Operations Division Country Department I Europe, Middle East and North Africa Regional Office Tsis doonment has a restied dsbuibon and way be used by rcipiet only in the pefomance of thbir ofile duoi Its contents may not oherwie be dscosed witout Wodd DBnk audKrIton.  CurreneY Eauivalents Currency Unit - Turkish Lira (TI) Appraisal 1977 US$1.00 - TL 25.OO 1986 US$1.00 - TL 674.50 1987 US$1.00 - TL 857.21 Government of Turkey Fiscal Year March 1 - February 28 (through 1981) March 1 - December 31 (1982) January 1 - December 31 (from 1983 Abbreviations CP - World Bank Cooperative Programe FAO - Food and Agriculture Organization of the United Nations FPMU - Forest Project Monitoring Unit MOF - Ministry of Forests O/M - Operations and Maintence OGM - General Directorate of Logging Production and Forest Management ORKOY - Directorate of Forest Village Development SAR - Staff Appraisal Report UNDP - United Nations Development Prograsme  FOR OMCIAL USE ONLY THE WORLD BANK Washtngton. D C 20433 U.S.A. Ofice of ODwecta-Gewal opwat..m h,aat'w' December 22, 1989 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Turkey Northern Forestry Proiect (Loan 1585-TU) Attached, for information, is a copy of a report entitled Projeci: Completion Report on Turkey Northern Forestry Project (Loan 1585-TU)" prepared by the Europe, Middle East North Africa Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a estriced 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.  FOR OmCaL USE ONLY PROJECT COMPLETION REPORT TURE NORTHERN FORESTRY PROJECT (LOAN 1585-TU) Table of Contents Preface .............. . ................... .......... i Evaluation S-mmary ................................. . ........ . ii PART I: PROJECT REVIEW FROM BANK'S OPERATION 1. Project Identity ........................ 2. Background ........................ ... 1o.o .. 3. Project Objectives and Description .....t..... ...... 2 4. Project Design and Organization . 3 5. Project Implementation .4.... ............ 4 6. Project Results ............... 6 7. Project Sustainability.. ...................... 7 8. Bank Performance.. 7 9. Borrower Performance. ........... .. ....... ........ 8 10. Project Relationship t .. .......................... 10 11. Consulting Services ..... .... . o ............................ ...... 11 12. Project Documentation and Data ...... .................... too. 11 13. Summary and Conclusions ............... ............ 11 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. Project ObSectives ..... ................... ....... 15 2. Introduction of Project .................................. 16 3. Project Organization ............... . .................. 16 4. Important Forest Targets and Achievements of the Project ...... 17 5. Appreciation of the Project . .................................. 17 6. Reasons for Proposed Revised Targets in 1982 ............. 20 7. Steps Which Were Taken to Try to Resolve the Difficulties ..... 22 8. Other Subjects with Related to the Project .. .............. 23 9. Conclusion ........... ................... ...................... 23 PART III: STATISTICAL INFORMATION 1. Related Bank Loans ..... . . ....... ............................... 43 2. Project Timetable ............................................... .#..** 43 3. Loan Disbursements .......... ................... . .....46 4. Project Implementation ....................... .................... 48 5. Project Costs and Financing ... to ............... 50 A. Project Costs ..... .................... .*# .................. 50 B. Project Financing ........................ .. ........ 50 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (continued) 6. Project Results . . . . . . . . . . . 51 A. Direct Benefits ....................... 51 Be Economic Impact . .............. 52 C. Financial Impact ........................... .......,..... 52 D. Studties ...................... ...... 53 7. Status of Covenants ...... ........ ... 53 8. Use of Bank Resources ....................... 55 A. Staff Inputs ....................... 55 B. Missions ....................... 56 C* Costs .......... 57 Attachments 1. Value of equipment and vehicles financed out of the Loan 2. Procurement of equipment and vehicles - number of units, by source of financing 3. Financial and economic analysis Annex 1s Comments by the Ministry of Agriculture, Forestry and Rural Affairs ........... 65 M;aps IBRD 13330R1  -i- TURKEY NORTHERN FORESTRY PROJECT (Loan 1585-TU) PROJECT COMPLETION REPORT Preface ii. This project completiont report (PCR) reviews performance under Loan 1585-TU (US$86.0 million) for the Northern Forestry Project, which was made in June 1978. The final disbursement took place on April 13, 1988, and the undisbursed balance of US$800,000 was cancelled as of that date. ii. The completion report was prepared by the AO/World Bank Cooperative Program, with the exception of this preface, the Evaluation Summary and part of paras 8, 25 ancd 26, paras 10, 31, 34 and 35, and Part II, Tables 3a and 8A, which are the responsibility of Bank staff. iii. The Final Report on the project prepared by the Government was submitted to the Bank in July 1988. A copy is included as Part II of the PCR. The entire PCR was sent to the borrower for comment, and the borrower's response is attached as an annex.  -ii- TURKEY NORTHERN FORESTRY PROJECT (Loan 1585-TU) PROJECT COMPLETION REPORT Evaluation Summary Prosect Background and Obiectives 1. About a quarter of Turkey's land area is classified as forest land. The northern forest region represents 60X of Turkey's forest resources and is considered to have the greatest potential to contribute to economic development. At the time of project preparation, Turkey was a net importer of forest products although it had major reserves of unutilized wood. A long- term integrated forestry and forest industry development program for the northern region covering the period 1975-1995, prepared with UNDP/FAO assistance, was the basis for the Government's request for the Bank to finance this project. Survey results reported that the region's industrial roundwood output could be tripled by 1995 through improved forest management systems including conversion of natural forests to faster growing industrial forest plantations, improvement and expansion of the forest access road network, reforestation and provision of equipment to permit exploitation of steep inaccessible areas. The project comprised the 1979-85 time slice of the longer term forestry development program and aimed at (i) increasing industrial roundwood production, (ii) improving forest management planning, (iii) creating additional employment for forest villagers and (iv) strengthening development of forest villages. Total project costs were estimated at $915 million of which the foreign exchange component (about 10) was to be financed from the Bank loan ($86 million equivalent). Implementation ExRerience 2. Implementation of this project was affected by the following factors: (i) the identification report substantial'ly overestimated forest resources available in the area, did not sufficiently anticipate the technical problems involved in regenerating beech/spruce forests in the region and was  too ambitious in its other project targets; (ii) forestry staff reluctance to change traditional forest management practices was intensified by the problems in (i) above; (iii) wood demand was reduced due to depressed economic conditions at the beginning of the project period provided a convenient excuse for not achieving production targets; (iv) lack of good dialogue precluded frank discussion, until late in the project period, of the issues causing forestry staff resistance to the forest management practices the project intended to introduce; (v) the implementing agency lacked experience with Bank procurement procedures, leading to delays in procurement of machinery and equipment critical to implementation of project targets; and (--i) inadequate consideration was made in the project design of socioeconomic conditions, such as the competition for resources between forestry officials and villagers wishing to use the areas for grazing. Results 3. The factors listed above led to substantial shortfalls in meeting project targets. In particular, annual roundwood production, which was expected to increase from 5 million m to 10 million i3, remained at pre- project levels. The project had only minor impact on improving forest management practices, which had been one of the projects main aims. Nevertheless, since the project financed the replacement of overaged equipment and production would have decreased without such equipment replacement, the project still had an acceptable economic rate of return of 27% (as compared to the anticipated 76% ERR in the appraisal report). However, since wood prices in Turkey are held substantially below world market prices, the financial rate of return of the project was negative. Sustainabili tY 4. Over the longer run, the most significant effect of the project is likely to be the institutionalization of management plans for annual forestry operations. The plans prepared, if implemented satisfactorily, should provide a basis for substantial increases in forest I-Arvests (estimated at about a one-third to one-half increase in the present cut). Impressive gains were also achieved in plantation establishment, which are expected to be continued. A start has been made in improving the understanding of the importance of obtaining the cooperation of village communities, but continued efforts in this regard are essential. Greater importance must also be given to mechanisms for transferring the successful findings of the forestry research institutions so that they can be introduced on a field trial basis. Lessons Learned 5. The project demonstrates the critical importance of realistic project preparation, including adequate surveys of resources available, appropriate consideration of technical and socioeconomic problems, and careful assessment of institutional capabilities. It also indicates that new  -iv- technologies being introduced from other countries should be tested first on a pilot scale. The project also shows that sometimes project financed investments may still be worthwhile in spite of failure to achieve important institutional and technical goals which the project aimed at addressing. It would, of course, have been much better to have identified the real issues impeding project performance much earlier in the implementation period, permitting an appropriate restructuring of the project. The delay in identifying the real technical problems in the project design, which increased the reluctance of forestry staff to adopt changed practices, illustrates the importance of creating a spirit of trust between the implementing agency and Bank staff, permitting problems and disagreements to be addressed frankly and openly so that appropriate remedies can be devised while there is still time for their implementation.  NORTHERN FORESTRY P dJECT (LOAN 1585-TU) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM BANR'S PERSPECTIVE 1. Proiect Identity. Project Name: Northern Forestry Project Loan No: 1585-TU RVP Unit: EMIAG Country: Turkey Sector: Agriculture Subsector: Forestry 2. 9ackaround 1. Some 20 million hectares or one quarter of Turkey's land area is *lassified a, forestland. About half of this is considered as high forest located mainly in the mountain ranges and hills near the Black, Aegean and Mediterranean seas. Management of Turkey's forests has always been difficult due to the scattered nature of small forest areas, degraded forests, steep slopes. rocky soils, and the rights of the villagers to work in the forest and to be supplied with forest products. Some of the least accessible forest areas have had little disturbance from their natural state, but most forest areas have had the better trees continually cut from them, for many centuries. The remaining areas of forests which were considered to have the greatest potential to contribute to economic development are those of the North Turkey region, which contain some 10 million hectares of forest land of which half is classified as productive forest. 2. In the 1970's Government efforts to develop the forestry sector have been directed towards: (i) carrying out of a series of forest resources and exploitation studies with UNDP/FAO assistance; (ii) encouraging development of integrated forest industries to maximize use of forest resources, and (iii) raising living standards of forest villagers. On the completion of three major studies, about eighty percent of Turkey's forest area had been surveyed and feasibility studies for integral forestry and forest industry development prepared for about two-thirds of the surveyed areas. One of the studies which surveyed the northern forests resulted in preparation of a long-term integrated forestry and forest industry development programme which aimed at bringing these forests into full production in the period 1975-1995. Preliminary findings from the study provided the basis for the Balikesir Newsprint Project, an integrated sawmill and newsprint manufacturing complex in Western Turkey for which the Bank provided a loan of US$ 70 million in 1976 (Loan 1258-TU). The detailed forest development programme resulting from the study, which the Government had accepted in full and requested Bank assistance in implementing, formed the basis for the Northern Forestry Project, which was to extend modern systems of forest management, initiated under the Ardeniz (Mediterranean) Forest Utilization Project (Loan 957-TU) and UNDP/FAO technical assistance proi, < to Turk, 's or fora4t ar, .  -2- 3. Suirvey results had indicated that the 1976 national industrial roundwood output of about 6.6 million m3 could be more than tripled by 1995 with the introduction of an integrated forest management system involving: stabilization of the existing forest-road systems to lengthen the logging season; const.uction of new forest access roads; reforestation: and more intensified management of forest areas. In addition, conversion of natural forest to fast-growing industrial forest, plantations would ensure future self-sufficiency in industrial roundwood by the end of this century. As a consequence, the forestry subsector would be able to contribute significantly more to the country's development than it had in the past. Since 1973, there hae been a gradual deterioration in the external trading position of Turkey which culminated in a serious balance of payment crisis in 1977. 3. Project Objectives and Descrintion 4. The project comprised a seven-year 1979-85 time slice of the long- term (1975-95) forestry development programme for Turkey's northern forest region which represents about 60% of the national forest resources. With the principal aim of preventing Turkey from becoming a massive net importer of forest products by the mid-1980s, the project was to: (i) increase industrial roundwood production in the undertilized northern forests from the estimated level of6.5million m3 in 1978 to 10 million m in 1985. thereby providing additional raw material to help meet market demand elsewhere in the country, as well as in the project area which incorporated 16 of the country's 26 forest conservancies; (ii) improve forest management planning on some 5 million ha of these forests: (iii) create additional employmient for forest villagers; and (ivl strengthen an onaoing programme for development of forest villages. 5. The project provided for: (a) implementation of an intensified forest production and management programme, including reforestation; (b) the construction of about 26,000 km of forest and logging extraction roads, including about 400 km of village access roads; (c) stabilization of 25,000 km of existing and newly constructed roads, including about 2,000 km of village access roads; (d) fixed and mobile mechanical workshops for equipment maintenance; (e) logging equipment needed for extraction of logs from steep inaccessible areas which cannot be harvested by manual methods (comprising about 10 to 15% of the project area); (f) establishment and planting of industrial plantations of about 76,000 ha of currently non- productive lands with fast-growing tree species and of 86,000 ha of conventional afforestation; (g) erosion control works in about 57,000 ha of forests which form part of critical water catchment areas; (h) range improvement in about 64,000 ha of potential grazing areas, with special emphasi. on pasture improvement and the initiation of pilot rotational grazing schemes for forest villages; (i) construction of seven new forest nurseries for seedling production with an aggregate capacity of about 25 million plants; (j) intensification of forestry research and revision of current management plans; (k) forest protection and conservation works including construction of additional fire towers: (1) fencing of forest regeneration areas to prevent browsing by livestock; (m) pilot wildlife and environmental protection programmes in forest areas and national parks; (n) training of Ministry of Forestry (MOF) personnel in forestry management and log extraction techniques through 144 man-months of training fellowships abroad; and (o) on-the-job training of MOF personnel in the fields of management planning, machinery operation, and industrial plantations, and training of villagers in forestry operations.  - 3- 6. Total project costs were estimated at USS 915 million of which ahout 10% represented foreign exchange requirements. Almost 60% of total base costs were to be generated by civil wor.s, equipment and machinery for road construction. Project implementation was to be carried out by MOf through four of its General Directorates as follows: OGM, the General Directorate of Logging Production and Forest Management, was to implement the project road construction and log extraction programmes and those reforestation operations relating to regeneration of natural forest in logged-over areas; AGM, the General Directorate of Afforestation and Erosion Control, was to implement the project forestry works related to establishment of industrial plantations, afforestation of degraded forest. erosion control, forest maintenance, protection and range improvement; ORKOY, the General Directorate of Forest Village Affairs, was to be responsible for planning the project village road component and range improvement works and; MPG, the General Directorate of National Parks and Environmental Protection, was to implement environmental protection and wildlife breeding programmes in the project area. Project coordination was to be carried out by the Forestry Planning and Project Monitoring Unit (FPMU) to be formed by strengthening MOF's existing Planning Unit. To ensure achievement of project production targets, the existing management plans for Project Area Forests were to be revised to introduce intensive management techniques, including shorter rotations and reforestation with fast-growing species. 4. Proiect Design and Organization 7. The overall concept to satisfy domestic demand for forest products from national forest resources rather than through imports was sound. At the time of project preparation, Turkey was a net imiporter of forest products, although it had major reserves of unutilized wood. It was believed that if access into the forest areas was not improved and additional log production thereby increased, the country could become a massive net importer of forest products by the mid-1980s. Considering that the country's external trading position was already structurally weak. there was a good rationale for a project that would help increase the supply of wood from national resources. 8. The idea of extending the more dynamic forest systems being introduced through the Bank-financed Akdeniz Forestry Project into the underutilized forests of the Northern region, thereby improving their productivity and ensuring that Turkey would remain self-sufficient in forest products, at least until the end of the century, had been fully accepted by Government and Bank assistance had been requesteo for its realization. Whether the Northern Forestry Project was the appropriate vehicle to bring about the proposed changes is open to question because ot the time the Turkish foresters were not ready to implement a project that involved profound changes in forest management on a large-scale. The physical targets set during preparation and appraisal - particularly in terms of industrial roundwood production, road construction, revision of management plans and clearfelling - were too ambitious, and the technical problems associated with introducing the project concept in all parts of the project area were not sufficiently anticipated. 9. The approach to leave project execution to the existing management of MOF was justified. The main directorates concerned were considered to be well organized and had an existing administrative network spread throughout the forest area; they had prove.: their ability to implement large-scale forestry production and conservation programmes, and their training programmes provided assurance of a steady supply of both professional and technical grade foresters for future expansion. The difficulties, however, of achieving effective coordination and improved forest management planning,  - 4 - have been underestimated. The attempt to ensure integrated forward planning of field operations by the participating directorates through the strengthening of MOF's Planning Unit failed. The location of the emerging Forestry Planning and Project Monitoring Unit (FPMU) in the Ministry made sense, but to pla% its role properly it would have required a senior Director armed with suitable authority. 10. Seen ir, retrospect, the project as designed and appraised was irpossible to implement successfully at the time. rhe tiqnificant increase in industrial roundwood production - the project's major objective - largely through providing equipment and improving road access to the apparently underutilized forests of the north, was unlikely to be achieved for the following reasons: r) The -esource base turned out to be much smaller than expected at appraisil, a fact that became evident in the latter part of 1983, and estimated demand did not materialize. ii) Technical problems were encountered with regenerating the beech/spruce forests of the Black Sea region. J iii) The resistance of senior forestry officials to changes in management planning (the reasons for which will be explained below) were underestimated. 5. Proiect Implementation 11. The most critical variance between planned and actual project implementation was the shortfall in project targets, particularly industrial roundwood production, clearfelling and artificial regeneration, revision of forest management plans and road construction improvement. 12. Industrial Roundwood Production. There are a number of factors which could not have been foreseen and that have accounted for the level of production remaining essentially similar to what it was during the six year prior to project start-up. During the early project years (1981-mid 1983) Turkey's poor economic situation depressed timber sales, log depots filled up and OGM was forced to reduce its annual allowable cut. It was therefore acceptable at the time to assume project target shortfalls were due almost entirely to depressed demand for logs. However, when the economic situation improved in the latter part of 1983 and 1984, but did not result in increased log production, it was clear that other factors were at work which had been overshadowed by depressed log demand. namely a reduced resource base and technical problems associated with regeneration of forests in tlle Black Sea Region. 13. Due to the fact that no aerial photographs were taken between 1979 and 1981, the first new inventories did not become available until 1982. This meant that the first revised forest management plans for the project area did not appear until the latter part of 1983 and it was not until the February 1984 Supervision Mission that the Bank was informed that the re- inventoried areas were showing some 25% less productive high forests than had been asumed in the inventories used for project preparation. On turther investigation it was also found that OGM was experiencing serious  difficulties in regenerating (naturally or artificially) their beech/spruce forests which constituted a significant part of the project area's resource base. 14. Faced with (i) reduced areas of productive high forest, difficulties over regeneration of the beech/spruce forests (the pine forest areas which made up the remainder of the project area are relatively free of regeneration problems and (ii) a far from buoyant demand for logs in the early eighties, OGM decided it was prudent to keep their production of industrial roundwood at levels which turned out to be at about the pre- project levels. However, even to maintain production at pre-project levels an ever increasing proportion of the allowablt annual cut had to come from maintenance or 'bakim" thinnings in the younger aged class stands, rather than from the oldest stands which were prescribed for regeneration over the 20-years plan (regeneration) period. 15. Clearfelling and Artificial Regeneration. The data indicate that the project logged nearly twice the area proposed by SAR to remove considerably less volume. The reason is the project's reluctance to enter into a large clearfelling programme, which would achieve high logging volumes per hectare. Instead, the project increased its operations in shelterwood and "bakim" fellings. This change in plan was a forest management decision. The logging and road cost advantages offered by a clearfelling operation were not realized. Artificial regeneration of cut over forests remained below SAR target because a decision had been taken in 1980 by OGM to rely as far as possible on natural regeneration in order to cut costs; this, however. has not helped much as difficulties have been experienced in the natural regeneration of spruce and beech. OGM had also found it difficult to raise .ifficient seedlings to match requirements, particularly in the spruce and beech areas. 16. Revision of Forest Management Plans. The SAR estimated that all 16 conservancies which comprised the project area and amount to some 5 million hectares would have revised plans by the end of 1985. This has proven unrealistic given the short period available for taking aerial photographs in the Black Sea Area (July 15 - August 15), lack of aerial photos for the first three years (1979-81), difficulties of retaining trained staff in the management areas (due to tough working conditions and lack of any financial incentive) and differing v;ews on the extent to which the new revised plans should differ from the old plans and the models that had been established in the Garzipasa and Mut Isletmes (District) located in Antalya. 17. Road construction. Road activities in the project have not met SAR targets. OGM chose to not acquire all the machinery allocated early in the project, and therefore mobilized a programme much smaller than planned. The reason stated for this was that the conservancies did not demand the scale of road programme expected in the SAR and this in turn was the result of the decision to implement a reduced logging programme. Therefore, the reduced road programme was a result and not the cause of the shortfall in logging. A factor affecting road activities later in the project was the transfer of the road construction unit from OGM to the Directorate of Rural Services. This resulted from the reorganization of the Ministry of Agriculture and Forestry and became effective in January 1985. Since then OGM staff expressed unhappiness with the slow progress in forest road construction. 18. During the initial years project implementation suffered from a weak project management. This was compounded by an adverse economic climate. OGM's decision to keep production of industrial roundwood production at pre- project levels rather than increase it, is a reflection of the depressed for -'i t' ^ly ^Y O t ^s It- isi - in 1 tn l IV  -6- as far as possible on natural regeneration instead of promoting artificial regeneration of cutover forest was an attempt to cut costs in a period of local funds shortage. Delays in the procurement of equipment and in implementing the fellowship and consultancy programmes as well as a slow adoption of innovative management systems were major factors responsible for not achieving SAR targets. 6. Prniect Resujt 19. Principal project objectives were only partially achieved: (i) The increase in annual roundwood production (from 5 million m , to a sustainable 10 million m 3) in the underutilized forests of North Turkey, did not take place as was intended. The project has only helped to maintain production at about the pre-project level; (ii) The project has had only little impact on improving silvicultural, management and nursery practices or on resolving regeneration problems which it was hoped would be one of the project's major achievements. Although a start has been made by reducing rotations, increasing the area covered by one management plan and improving inventory methods, the revised management plans are still too detailed, lengthy and rigid and thus lack the flexibility needed to respond to new research findings, and/or changing markets; (iii) The creation of additional employment for forest villagers was limited because project works undertaken were much smaller than anticipated at appraisal: (iv) Since the output of industrial roundwood remained at the pre-project level, no additional raw material was generated by the project for small private sector village sawmills, for major forest industries located in the region and for several large-scale state-owned forest industries: (v) The intention to save forest imports was not fulfilled. The value of forest imports rose from US$ 6.4 million in 1982 to US$ 168.8 million in 1987. DVring the same period the volume of imports increased from 10,300 m to 1.4 million m : (vi) Achievements in erosion control, range improvement, amenity planting, protection forest improvement and the village roads programme remained also below target largely because these activities were considered less important than the project's key components. 20. At appraisal the financial viability and economic justification of the project were based principally on the following two assumptions, namely: (i) that the project would generate large quantifiable benefits in the form of incremental industrial roundwood production and (ii) that in the absence of the project MOF would not undertake significant alternative investments, in which case all forestry operations would cease by 1982 since their existing equipment had been planned to be scrapped by that date. The basic financial and economic rates of return then were 70% and 76% respectively. At completion, the value of production attributable to the project turned out to be much lower than anticipated because the annual production of industrial roundwood had remained below the pre-project level of 5 million m throughout the disbursement period. The higher than expected output of fuelwood was too small to compensate for the shortfalls in roundwood. In retr-ospect, the above assumption that in.the absence of the project forestry operations would cease by 1982 (or scaled down gradually as under alternative assumptions for the economic analysis) is not valid anymore because of the considerable delays in the procurement of equipment and vehicles. In reassessing the financial viability it was assumed therefore that the production without project would continue at the SAR-assumed level for 1981. With that assumption the financial rate of return at completion is negative; the economic rate of return is estimated at about 27% which reflects the large differences in financial and economic wood prices (see Table 1 of Attachment 3).  - 7- 7. Proiect Sustainabilitv 21. Sustained benefits from project actions can be expected only about half way thrQugh the economic life of the project because it was only during the latter part of the disbursement period that there was a slow acceptance by the MOF staff of the importance of management plans, two samples of which had been prepared in the mid-seventies as guidelines. These plans take into account, at'ong other variables, shorter rotation ages, new silvicultural criteria, development of plantations and their management, a combination of harvesting systems, interaction of villagers with the forest, erosion control as well as range management and protection of the forest ecosystems. These plans will allow an increased harvest of between one-third and one- half the present cut, providing a determined effort is made to construct roads into the presently inaccessible remaining high forest areas which would allow the increased cut under the improved management plans. The Impressive gains with plantation establishment should continue provided enthusiasm is not dampened by a reduction of funds and managerial direction. A start has been made in the understanding of interaction with the village communities, but continued efforts are required to assure village cooperation. 8. Bank Performance 22. The momentum the Bank had displayed during the early stages of the project cycle wps not maintained during implementation. The im)rovement of forest management planning was one of the principal objectives of the project, yet the Bank did not place sufficient emphasis on policy changes through the project. In 1982, when Government revised the physical implementation targets, the Bank missed an opportunity to reformulate the project. In the same year, when aerial photographs became available, a chance was missed to verify the resource base although it was known that the original surveys had been made between 1962 and 1972. At this time the Turkish foresters had little experience of inventory work and in their own words were 'feeling their way". The forest type classification included no category of unmanageable high fore$ts although it was later realized that considerable areas of high forest would have to be reclassified as .protection" forest. 23. The potential for increasing production from the forests by intensifying the current network of forest access roads, by adopting more modern extraction systems (cableways) and reforestation with fast growing species had. been highlighted by earlier UNDP-financed studies.- Since there were indications that Government was receptive to adoption of these new techniques (the Bank had already played a role in introducing these techniques in South Turkey through the Akderiz project), it was felt within the Bank that there was obviously scope for further assistance to Government in adopting more productive forest management systems in the north of the country. Through an identification mission in April 1977 the Bank assisted Government in dafining the scope of the project and making arrangements for its further preparation. By joining part-time the FAO-CP preparation mission of June 1978, the Bank showed its continued interest in the project and their report was issued as Preparation/Preappraisal Report. The appraisal mission in September of that year endorsed project objectives and components. The implementation period was extended from five to seven years. but the earlier estimates on wood resources in the project area and the physical implementation targets set earlier in the project cycle were accepted. The only major issues that were discussed in the Bank prior to finalization of the SAR were (i) the need to strengthen MOF's Forest Project Monitoring Unit (FPMU) and (ii) the financing and budgetary implications from the Bank's point of view.  -8- 24. Through periodic supervision missions the Bank was kept well informed about the shortcomings in project implementation. The major issues were repeatedly highlighted but the resolutio.Q of key problems was left to the fulfilment of Government promises with unfortunately little action being taken on solutions suggested by the Bank or consultants. Disbursement, which had been almost entirely dependent upon equipment procurement, continued to lag behind SAR forecasts throughout the project. The USS 86 million loan had been approved in June 1978, with 31 March 1986 Closing Date, yet by 31 December 1982 actual disbursement was USS 32.1 million compared with the SAR figure of USS 57.9 million. As of 31 July 1985, only about USS 43.5 million had been disbursed. Following Government request that funds under the loan be made available for the financing of spare parts for existing machinery to be used for purposes of the project, the Bank agreed that an amount not exceedinJ US$ 6 million may be utilized for the financing of such spare parts the para 2(a) of the Loan Agreement was revised accordingly. 25. Drawing on the experience gained from the project, it would seem in retrospect that policy changes required were too important as that they could have been achieved through a single project, or, more specifically. through the provision of foreign exchange for the purchase of vehicles and equipment for an amount less than 10% of project costs. A focus on two or three representative areas and to have solved the critical silvicultural and forest management problems before embarking on an ambitious project covering 10 million hectares of forest land would have shown more satisfactory results. The support of a Government programme and project implementation through the existing Government structure has many advantdges. A clear distinction between project and ongoing Government programme, however. may become quite difficult, particularly if the field staff is not in the position to differentiate between project and non-project activities. More account s4ould have been taken of the deeply rooted objections on the part of the forett villagers to any interference with what they regard as their inviolable rights. The idea of establishing a strong monitoring unit for this type of forest was well accepted by the Bank but it should have been pursued more vigorously. The dual role that the Bank required FPMU to play, namely liaison with the Bank on behalf of the Ministry and strict monitoring to provide executing management with analytical data may have been incompatible. Located in the Ministry until 1984 it could do the first but not the second. In 1985, a Bank review mission noted the many technical flaws in project design referred to elsewhere in this report. However, it was decided to complete the procurement of project equipment since replacing over-aged equipment had high economic benefit, even without the other technological improvements envisaged under the project. The mission also recommended that improvements in forest methodology be first tested on a pilot scale before trying to introduce them on the scale attempted under this project. The suggestion for such a pilot operation was not taken up by the Government. 9. Borrower Performance 26. It seems that OGM has never been 'eally convinced that the northern forests could support the annual allowable cut (AAC) recommended at preparation and appraisal. However, in order to obtain the foreign exchange to purchase equipment for road construction and logging, OGM did not raise objections during project formulation to the proposed increases in the AAC nor to the proposed improvements in forest management and silvicultural practices. A lack of commitment on the part of OGM throughout  implementation is exemplified by the fact that hardly any measures have been taken to t.nd solutions to the beech/spruce regeneration problem. The unwillingness to change forest management practices through a combination of increasing clearfelling and artificial regeneration (in overmature areas where natural regeneration is unsuccessful) and reducing selection felling and natural regeneration to those areas where natural regeneration can be successful, resulted from the unresolved regeneration problem (natural or artificial) and reaction to forest villagers concern over loss of employment in the face of less than buoyant demand for logs. The SAR's overoptimistic estimates of forest resources and inadequate appreciation of the technical problems involved reinforced the overly cautious attitude to change shown by the foresters. Lack of collaboration between field staff and the Borrower's own Research Institute also contributed to reluctance to change. Meanwhile, the current practice, a combination of "bakim" thinning and natural regeneration, is believed to slowly destroy the country's forest estate. If the project had been properly implemented, it could have at least provided some direction as to the means of containing this destruction, but the opportunity was lost through the default of the concerned authorities.  - 10 - 27. Project management suffered from FPMU's poor performance and its inability to undertake effectively the functions for which it was created. Most cri*ical of all was its failure to establish a monitoring and evaluati. system so essential for providing the raw data needed by the management to take decisions and introduce the change expected to come about as a result of project actions. The SAR called for consultants being taken on from the beginning of the project but the first consultant was not engaged until early 1983. By the end of the project only 38 man-months of consultancy had been achieved out of a planr.ed 144 man-months. The first fellowship took place three years after start-up, a disappointing record considering that at time of negotiations these inputs were believed to be vital to the success of the project. Problems to project implementation were also posed by procurement issues largely because OGM was not organizationally equipped to handle procurement in accordance with the Bank's guidelines and often selected equipment whose high price could not be justified. As a result, not only the type and quantities of equipment purchased was different from what was foreseen during appraisal but also the phasing of purchases and the source of finance utilized. Less loan funds were used to procure SAR equipment and the "savings" were used to import items such as trucks and other vehicles which, according to the SAR, were to be purchased with Government funds on the local market (see Attachments 1 and 2). 28. The seeming lack of coordi-nation between OGM, and the forest village communities made it very difficult to establish a fully integrated approach to developing the forestry. and forest industries sector along lines mutually beneficial to the parties concerned, and to the country as a whole. For example, it appears that inability to regulate grazing was having a detrimental effect on the regeneration of beech and spruce and in the same areas animosity between villages competing for resources made it difficult for territorial staff to enter their forests. There is also room for much closer coordination between the research wing and territorial staff. For example, although altitude research trials of Sitka spruce, Douglas fir and Pinus contorta have been undertaken in Macka Isletme for almost 20 years, none of the successful species have been introduced on a field trial basis. Mechanisms for transfer of successful research findings to the territorial foresters should be devised and stronger links established with both the Ankara Forestry Research Institute and appropriate Isletmes that would benefit from these findings. 10. Proiect Relationshig 29. Almost two decades after the Bank first became involved in the forestry sector and after substantial investment, OGM still seems somewhat reluctant to modernize its approach to forest management and silvicultural practices and thereby improve the production of industrial roundwood. The reasons for this reluctance include: (i) conservatism of Turkey's present forest policy makers; (ii) a notion that clearfelling. even if it is done in small blocks and planted up straight away is environmentally undesirable; (iii) a view that as the cost of natural regeneration is minimal compared to artificial regeneration. it is financially preferable even though it may take years to achieve: and (iv) limited financial control from the Treasury or policy guidance from SPO because 95% of OGM's budgeting requirements comes from its own revolving and annex budgets derived from sales of timber or other produce from the forest estate.  - 11 - il. Consulting Services 30. The SAR called for consultants to be employed by the eno of 1978. The fact that the first consultant arrived only in early 1983 was due largely to a lack of qualified Englisn speaking counterparts during the early project years and a reluctance on the part of the Turkish foresters to use foreign expertise. Because of their late arrival, the consultants' impact on the project was limited. The performance of the contractors and the quality of their work can be rated as quite satisfactory. 12. Project Documentation and Data 31. Most of the covenants agreed at negotiations have not been fully complied with (see Part III, 7). Annual work programs were rarely sent to the Bank as required. Audit reports were often submitted late, but with one exception the auditor's opinion was clean and unqualified. 32. The SAR provided a useful framework for the Bank as it contained the phasing of physical development targets by year, the type and phasing of vehicle and equipment purchases by number of unit%, and an estimated schedule of disbursements. These key tables were used as benchmarks during the supervision phase. Most relevant to the Borrower were the annual targets of project works. A breakdown of these targets by sub-areas would have been of help. 33. rhe data relevant for the preparation of the PCR were not readily available. Most of them were incomplete or could not be traced at all, largely because of organizational changes during project implementation. To avoid this situation in future projects, the Borrower should be provided with forms specifying the type of data required and ageeement should be sought at negotiations as to who would be responsible for their collection on a regular basis throughout the life of the project. 13. Summary and Conclusions 34. The project did not fully meet its objectives and targets for several reasons, including: (a) unrealistically optimistic assumptions relating to production targets, availability of management skills, adoption of new technology and project scope; (b) delay in procurement of machinery and equipment which were critical to implementation of project targets; (c) inadequate consideration of socioeconomic and geographical distribution of forest villages as well as difficult terrain in project design; and (d) insufficient critical path planning between staff training and equipment procurement (project input) on one hand and implementation of project targets (project output) on the other. These design problems were compounded by an unfavorable macroeconomic climate which  - 12 - persisted durirg the entire period of project implementation. In addition, there appears never to have been a full meeting of minds between Forestry Department officials and the Bank on the desirability of the project's proposed changes in forestry practices. Forestry is an important resource for Turkey and efforts to modernize methods employed continue to have nigh priority in order to allow for increased productivity without depleting the growing stock or endangering the environment. However, the development and testing of improved methods should proceed on a pilot scale before efforts are made to introduce them on a broader basis. 35. While the project did not achieve its intended and rather ambitious objectives of increasing forest production and improving forestry methods, it still had a number of benefits which made the investment worthwhile. By replacing over-aged equipment, the project prevented a sharp drop in production which would have occurred without this action. Another significant positive result is the institutionalization of management plans for annual forestry operations. Afforestation far exceeded the SAR estimates and the results, particularly in the pine growing regions, are impressive. In fact Turkey is ahead of many other Mediterranean countries in its mechanical afforestation techniques. rhe fire protection program has also gone very well. Fuelwood production over the 1979-1987 period exceeded SAR estimates by over 11 million steres. The 27% economic rate of return for the project, while substantially less than projected, is still respectable and reflects the inherent profitability of Turkish wood production even with current technology. Judged against such standards, the project should not be considered a total failure, even though the more ambitious production and technical objectives were not achieved.  - 13 - PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE The "Final Report of Turkey Northern Forest Project (Loan 15B5 Tu)" prepared by the Government was submitted to the Bank in July 1988. A copy is attached.  - 15 - INTRODUCTION Turkey Northern Forest Project (loan 1585 Tu) has been financed by Word Bank. O,.ir Government decided to establish SEKA Newsprint-timber integreted factory in Balikesir according to results of pre-studies forest resources w'hich has been made for M