Turkey - Ports Rehabilitation Project

Documem of The World Bank FOR OFFI('IAI, L'SE ONLY Report No. 9366 PROJECT PERFORMANCE AUDIT REPORT TURKEY PORTS REHABILITATION PROJECT (LOAN 174i-TU) HIGHWAY REHABILITATION PROJECT (LOAN 2137-TU) FEBRUARY 15, 1991 Operations Evaluation Department This document has a restricted distribution and ma% be used by recipients onl in the performance of their official duties. Its contents ma% not otherwisc be disclosed %*ithout WAorld Bank authorization. CURRENCY EQUIVALENTS (USsi.00-L) Pht Railway Porto Rehabilitation Highway Rehabilitation Economic R Frat Project cMemorandum 1 __K PR PCR PR PCR 2I (June 1985) (June 1979) (May 1986) (Apr.1982) (Jan.1990) 1972 14.15 1973 14.15 1974 13.93 1975 14.44 '976 16.05 1977 18.00 18.00 1978 24.28 24.28 1979 23.08 25.00 31 47.45 31.00 1980 76.:74 88.83 70.0 41 76.04 1981 111.22 131.65 91.0 111.00 i11.22 ,982 188.26 143.7 162.55 1983 252.50 209.0 225.46 1984 427.90 366.68 1985 576.00 521.98 1986 674.51 1987 852.00 827.20 1988 1389.30 ABBREVIATIONS BOR - Back-to-Office Report D8 - Turkish Maritime Bank 5I DLH - General Directorate of-Railways, Ports and Airport Construction EEC * European Economic Community DIENA - Europe. Middle East and North Africa Regional Office. World Bank ERR - Economic Rate of Return FRR - Financial Rate of Return ICB - International Competitive Bidding RFAED - Kuwait Fund for Arab Economic Development RGM - General Directorate of Highways lblyd - pounds per yard LI - Harboure Directorate. Ministry of Public Works LIB - Limited International Bidding KPW - Ministry of Public Works MTC - Ministry of Transport and Communi,ations NTP - Naticnal Transport Master Plan OED - Operations Evaluation Department. Vorld Bank ;a. r eoident's Report PCR Project Completion Report SAL - Structural Adjustment Loan SAR - Staff Appraisal Report SPO - State Planning Organization SR - Supervision Report TCA - Transport Coordinating Agency TCDD - Turkish State Railways TEN - Trans-Europe Motorway TED Twenty-foot Equivalent Units TTH - Trans-Turkey Highway FISCAL YEAR January 1 - December 31 I/ Exchange rates from Turkey -- Country Economic Memorandum Towards Sustainable Growth (World Bank. EIENA Region, October 12. 1988). 21 Exchange rates during June of the corresponding years. 3/ The PR and the SAR of the Porte Rehabilitation Project were prepared on the basis of an exchange rate of TL25-US$1.00. This prevailed until Turkey introduced a muitiple exchange rate system in April. which wea again modified on June 11, 1979 at which time the exchange rate became TL47.1.IS$1.00, except for oil and fertilizer imports and agricultural exports for which it was TL35-US$1.00. 41 Since January 1980. the rate was being adjusted for the differential inflation between Turkey and its major trading partners. The PR and the SAR for the Highway Rehabilitation Project used a rate of TL127-US$1.00. S/ During implementation of the Ports Rehabilitation Project, DB chanced its name to TUDER, and then to TD (Turkish Maritime Organization). Similarly. the Harbours Directorate of the Cinistry of Public Works (known as LI), was reorganized into the General Directorate of Railways. Ports and Airports Construction (DLH). For ease of reference, the acronyme DB and DLH will be used in this report. FOR OFFICIAL USE ONLY THE WORLD BANK Washington. DC 20433 U.S A Offce of D1rector-GeeraI Opeations Evaluatm February 15, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Turkey Ports Rehabilitation Project (Loan 1741-TU) and Highway Rehabilitation Project (Loan 2137-TU) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Turkey Ports Rehabilitation Project (Loan 1741- TU) Highway Rehabilitation Project (Loan 2137-TU) prepared by the Operations Evaluation Department. Attachment 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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT TURKE PORTS REHABILITATION PROJECT (Loan 1741-TU) HIGHWAY REHABILITATION PROJECT (Loan 2137-TU) TABLE OF CONTENTS Pafe No. Preface .............................................. Project Summaries ....................................1. 1 Evaluation Summary ................................. ix I. INTRODUCTION ................................... 1 II. THE PORTS REHABILITATION PROJECT ............... 3 A. BACKGROUND ....................................... 3 Geography ...................................... 4 Administration ................................. 4 Operations ......................... 4 Traffic information .................. 5 Planning ....................................... 6 B. PROJECT INCEPTION AND IMPLEMENTATION..............6 May-August 1977: Project inception..............8 August 1977-April 1978: Preparation.............10 May 1978-January 1980: From appraisal to approval................................13 Implementation experience: Main points ............................... 15 C. PROJECT EVALUATION ............................... 16 Documents and information sources .............. 17 Project objectives ............................. 17 Project components ............................. 18 Project results and sustainability of benefits ............................... 20 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. Page No. III. THE HIGHWAY REHABILITATION PROJECT .............. 21 A. BACKGROUND ........................................ 21 The highway network ............................. 21 Traffic ......................................... 21 Administration, planning and finances ........... 21 B. PROJECT INCEPTION AND PREPARATION ................. 22 February 1976: Highway sector loan .............. 22 April 1977: Trans-European Motorway and Trans-Turkey Highway ....................... 23 December 1977: Project brief .................... 23 April-June 1978: Highway Rehabilitation Project -- Inception .................. . 23 July 1981-September 1982: From preparation to effectiveness ........................... 24 C. PROJECT EVALUATION ............................... 24 Documents and information sources ............... 24 Project objectives .............................. 25 Project components .............................. 25 Project results and austainability of benefits .............................. 27 III. BANK ASSISTANCE TO TRANSPORT ................... 28 Overview and outstanding issues ................. 28 Conclusions and recommendations ................. 34 APPENDIX 1 Notes on macroeconomics in the 1980s ................. 40 Annex I KGM comments on the Project Completion Report on the Highway Rehabilitation Project ................ 41 Annex ICI Borrower Comments .................................... 48 i PROJECT PERFORMANCE AUDIT REPORT PORTS REHABILITATION PROJECT (Loan 1741-TU) HIGHWAY REHABILITATION PROJECT (Loan 2137-1U) PREFACE 1. This is the Project Performance Audit Report (PPAR) on the Ports Rehabilitation Project (Loan 1741-TU) and on the Highway Rehabilitation Project (Loan 2137-TU), respectively financed with Bank loans of US$75.0 and US$71.1 million. The Kuwait Fund for Arab Economic Development cofinanced the Highway Rehabilitation Project with a US$70.0 million loan. The Closing Date for the Port Project was extended from June 30, 1983 to June 30, 1984; that of the Highway Project was June 30, 1987. Because of the devaluation of the Turkish lira, the Port Project was completed with US$57.8 million of the loan, and US$17.2 million was cancelled. The loan for the Highway Project was fully disbursed. 2. In June 1989, the Bank's Operations Evaluation Department (OED) received the draft Project Completion Report (PCR) on the Highway Rehabilitation Project. The Ports Rehabilitation Project had not so far been audited and the decision was made to audit the two projects together so as to gain insights into the broader objectives of Bank assistance to the Turkish transport sector. The aim of the review would be to verify that the impact of resources channelled through the Ports and Highway Rehabilitation Projects corresponds to the account given in the published PCRs,k/ and to make any appropriate recommendations for future Bank assistance. 3. OED prepared the PPAR by studying the full set of files on the two projects, including Staff Appraisal Reports (SARs), President's Reports (PRs), Loan Agreements, Project Completion Reports (PCRs) by the Bank's Europe, Middle East and North Africa (EMENA) Regional Office, transcripts of the Executive Directors' meeting which considered the projects, and published material on the economy and the country. After discussing the project with Bank staff in Washington during September/October 1989, OED sought to conduct a field mission in order to visit project sites, and to secure the views of the Borrower on different aspects of project inception and implementation and, more generally, on Bank-Government collaboration in / Project Completion Report: Turkey -- Ports Rehabilitation Project (Loan 1741-TU), OED Report No. 6213 of May 21, 1986. Project Copletion Report: Turkey -- Highway Rehabilitation Project (Loan 2137-TU), OED Report No. 8433 of March 16, 1990. ii the transport sector. Citing heavy workloads in the executing agencies ar a principal constraint, the Treasury demanded an indefinite postponement of the audit mission. Regretfully, OED could not accommodate this request and the PPAR was drafted without the benefit of field visits or discussions with the different agencies of the Borrower. 4. The draft PPAR was sent for comments to the Borrower on September 21, 1990. Comments from the Treasury, the Turkish Ma:itime Organization, the General Directorate of Railways, Ports, and Airport Construction of the Ministry of Transport and Communications, and the Turkish State Railways were received on November 16, 1990, are attached as Annex II, and appropriate cross*references have been inserted in the PPAR text. As of February 7, 1991, comments from the General Directorate of Highways had not been received. tii PROJECT PERFORMANCE AUDIT REPORT PROJECT SUMMARIES 1. PORTS REHABILITATION PROJECT (Loan 1741-TU) 2. HIGHWAY REHABILITATION PROJECT (Loan 2137-TU) iv PROJECT SUMMARY COUNTRY Turkey PROJECT NAME Porte Rehabilitation LOAN/CREDIT NUMBER Loan 1741 APPRAISAL DATE May 1978 BOARD DATE 6/26/79 LOAN/CREDIT AMOUNT US$75.0 million COFINANCING BY N.A. AMOUNT N.A. BORROWER Republic of Turkey EXECUTING AGENCY Turkish State Railways (TCDD) Maritime Bank (DB) -- subsequently renamed as Turkish Maritime Organization (TDI) DATA SOURCES FOR EVALUATION President's Report Report No. P-2382-TU of June 13, 1979 Staff Appraisal Report Report No. 2227c-TU of April 12, 1979 Loan Agreement Conformed copy dated July 2, 1979 Project Completion Report OED Report No. 6213 of May 21, 1986 File Research/Interviews September 1989-March 1990 Audit Mission None PROJECT OBJECTIVES ASSETS: CREATION/MAINTENANCE Replace obsolete equipment and facilities RESULTS Attained OPERATIONAL I1PROVEMENTS Improve port efficiency/reduce congestion RESULTS Attained INSTITUTION-BUILDING Improve port sector planning RESULTS Minimal PROJECT COMPONENTS CONSTRUCTION Storage areas/Slipways/Dredging ESTIMATED/ACTUAL COST US$20.6 million/ US$12.5 million MAINTENANCE ----- ESTIMATED/ACTUAL COST ----- EQUIPMENT PROCUREMENT Cranes/cargo-handling eq./spare parts ESTIMATED/ACTUAL COST US$78.1 million/ US$66.9 million TECHNICAL ASSISTANCE For studies ESTIMATED/ACTUAL COST US$1.5 million/ US$0.6 million STAFF TRAINING Courses in Turkey and abroad ESTIMATEDIACTUAL COST US$0.5 million/ US$0.2 million V PROJECT COST ESTIMATED/ACTUAL US$155.6 million/ US$80.2 million VARIATION CAUSES Progressive depreciation of the local currency CLOSING DATE PLANNED/ACTUAL 6/30/83 -- 6/30/84 VARIATION CAUSES Slow pracurement ECONOMIC RATE OF RETURN ESTIMATED/ACTUAL 372 -- 392 VARIATION CAUSES n.a. FINDINGS AND CONCLUSIONS PROJECT PREPARATION The original objective (May 1977) was improvement of port planning and operations, but there was no agreement as to how this would be accomplished. The Bank felt that planning and operations would be improved through the establishment of a National Ports Authority but port concessionaires and port users were firmly against the idea. The Bank wanted project financing to be made conditional upon Borrower agreement that no major investments would be approved before suitable studies were done. The Borrower took strong exception to this suggestion. As appraised in May 1978, the project was heavily oriented towards equipment rehabilitation. The Bank suggested major technical assistance inputs but the Borrover felt that Turkish agencies would be equal to most of the tasks, including preparation of bid documents, that expatriates were supposed to perform. Throughout project preparation, no attention was given to container transport. PROJECT IMPLEMENTATION Attention of both the Borrower and the Bank shifted away from improvement of planning and operations, and towards works supervision and equipment procurement. Both sides had underestimated the complexities arising out of Bank procedures and Government practices, and neither side anticipated the need for time-consuming translation of official documents. PROJECT OPERATION Upon project completion all physical components had been done. Actual strengthening of planning and operations did not approximate the largely unquantified targets set at appraisal. vi PROJECT SUMMARY COUNTRY Turkey PROJECT NAME Highway Rehabilitation LOAN/CREDIT NUMBER Loan 2137 APPRAISAL DATE March 1982 BOARD DATE May 1982 LOAN/CREDIT AMOUNT US$71.1 million COFINANCING BY Kuwait Fund for Arab Economic Development AMOUNT US$70 million BORROWER Republic of Turkey EXECUTING AGENCY General Directorate of Highways (KGM) DATA SOURCES FOR EVALUATION President's Report Report No. P-3279-TU of April 20, 1982 Staff Appraisal Report Report No. 3793 of i. '1 22, 1982 Loan Agreement Conformed Copy dated ...7 13, 1982 Project Completion Report OED Report No. 8433 of March 16, 1990 File Research/Interviews September 1989-March 1990 Audit Mission None -------------------------------------------------------------- PROJECT OBJECTIVES ASSETS: CREATION/MAINTENANCE Improve priority sections of the network RESULTS Attained -- Lwu segments postponed OPERATIONAL IMPROVEMENTS Improve highway safety/Develop a vehicle loading control system RESULTS Minimal INSTITUTION-BUILDING Promote planning and control systems/ Support staff training RESULTS Minimal -------------------------------------------------------------- PROJECT COMPONENTS CONSTRUCTION Improve about 775 km ESTIMATED/ACTUAL COST US$217.3 million/ n.a. 7/ MAINTENANCE ---******* ESTIMATED/ACTUAL COST --------- EQUIPMENT PROCUREMENT For road works, for axle control systems, for the highway safety program ESTIMATED/ACTUAL COST US$10.9 million/ n.a. TECHNICAL ASSISTANCE For supplementary studies ESTIMATED/ACTUAL COST US$0.6 million/ n.a. STAFF TRAINING For KGM staff ESTIMATEDIACTUAL COST US$0.2 million/ n.a. 71 Notstren lu the PCI in a sanner which would allow comparison with estftate. The PCR says that actual project cost Of Dfinsaced compounts was US$123.5 million. vii PROJECT COST ESTIMATEDIACTUAL US$264 million I a.s. VARIATION CAUSES .....-..*** CLOSING DATE PLANNEDIACTUAL 6130187 -- 6/30187 VARIATION CAUSES ECONCHIC RATE Of RETURN ESTIMATEDIACTUAL 47-3495 -* 43.685 VARIATION CAUSES FINDINGS AND CONCLUSIONS PROJECT PREPARATION No agreement was reached regarding the long-term purpose of the ank's presence in the highway sub-sector. The Borrower was not fully familiar with the different lending instruments used by the Bank and asked, in 1976, for a Sector Loan without being prepared to satisfy the conditions for sector lending. In 1977 the Bank offered to finance sections of the Trans-Turkey Highway, provided that Trans-Europe Motorway standards would be used. The idea was subsquently abandoned. No exchanges took place between 1978 and 1981. Then Government invited the Bank to finance a rehabilitation project, including measures to Improve certain aspects of sub-sectoral formance (road safety, etc.). The Bank did so and arranged for co-financing from the iat Fund. OJECT THPLEMENTATION Except two road segments, completed under the follow-on project, physical work was done satisfactorily. PpOJECT OPERATION The Impact of "institution-buildingn measures incorporated into the project is hard to asseso but seems to be limited. ix PROJECT PERFORMANCE AUDIT REPORT TURKEY PORTS REHABILITATION PROJECT (Loan 1741-TU) HIGHWAY REHABILITATION PROJECT (Loan 2137-TU) EVALUATION SUMMARY A/ Iptroduction 1. In the forty years between 1950 and 1990, the Bank extended to Turkey 123 loans and credits with a total nominal value of US$10.3 billion. Only seven loans (with a total nominal value of US$663 million) went to transport (para 1). Why so few loans when, in many Member Countries, transport accounts for at least one-third of total Bank lending? Did the Bank find it hard to identify suitable projects, or was it difficult for the Borrower to do business with the Bank? (para 2). In reviewing the two projects, the Audit has attempted to explore Bank-Government collaboration in a difficult sector whose operation was made more complex by the macroeconomic difficulties of the 1970s and 1980s (paras 3-5). The Ports Rehabilitation Proiect Inception 2. Initial Bank assistance to the sub-sector was extended in 1950 but, although administration, operations and planning needed support, there were no further Bank loans until the Ports Rehabilitation Project (para 6). The long interval between the inception of this project (November 1976) and its date of effectiveness (January 1980), was caused by exchanges on centralization vs. decentralization, on the use of technical assistance, and on the extent to which the Bank would have a voice in port investments outside the project scope (paras 15-38). Preparation and implementation 3. In May 1977, it was agreed that the project's objective should be the nation-wide improvement of port planning and operations. There was 8/ In this summary, references to the PPAR are shown as (para ...) and references to the PCRs corresponding to the Ports Rehabilitation Project and to the Highway Rehabilitation Project are shown as (PCR. para ...). x no agreement on whether this would be achieved through greater or lesser autonomy of the individual ports. To further complicate matters, there was little consensus on this issue either within the Bank or among the Borrower's agencies. The official Bank position was that planning and operations should be be centralized, while individual Bank staff expressed reservations (para 23). 4. Although prnject preparation continued apace, Bank staff were disappointed with the qcality of technico-economic scrutiny provided by the Borrower (paras 25-26). Ba. staff suggested that project financing be conditional upon Borrower agreement that no major port investments be approved before suitable studies were done (para 28). The Borrower resisted, and made it plain that Bank "interference" in allocation of investments would not be countenanced and the Bank tacitly accommodated itself to the Borrower's position (para 32). 5. Appraisal in May 1978 led to a project which aimed to strengthen operations and efficiency (para 44), but project components were heavily oriented towards equipment rehabilitation (paras 47-48). Improvement of port planning and operations was to be entrusted to technical assistance staff under the supervision of the Transport Coordinating Agency (TCA) of the Ministry of Transport and Communications (MTC), despite the reservations expressed by Bank staff concerning TCA capacity (para 36). The Bank suggested that technical assistance would be needed for the procurement of the large quantities of equipment to be purchased under the project but the Borrower felt that Turkish agencies could handle this without any outside assistance. By December 1978, TCA displayed signs of weakness, largely due to staff losses which, in their turn, were due to the downturn in the country's economic activity (paras 40-41). Results 6. During project implementation, Borrower and Bank attention shifted away from planning and operations, and toward works supervision and equipment procurement. Both sides underestimated the complexities of Bank procedures and Government practices, and neither anticipated the need for extensive, and time-consuming, translations of official documents. Upon project completion, all "physical" components had been done but strengthening of planning and operations did not approximate the largely unquantified targets set at appraisal. When the project was completed, centralization of port operations had not come about, and the Bank acknowledged it would not have been a good idea if it had (para 45). 7. Estimated project completion was in December 1982. Actual completion is not given in the May 1986 PCR, which states that it would be June 1986. The planned Closing Date was June 30, 1983. The actual Closing Date was June 30, 1984. However, the project was not completed by its estimated completion date, nor by the Closing Date, nor even by the time the PCR was written. The PCR estimated that the project would be completed by June 1986 but this could not be confirmed by OED. 8. Of the approved Loan Amount of US$75.0 million. US$57.8 million was disbursed and US$17.2 million was cancelled. Estimated project cost xi was US$155.6 million. The PCR gave an estimated total cost of US$80.6 million but this could not be compared with the original because of extensive changes in the project scope (PCR, para 3.16). Estimated ERR was 37%. Re-estimated ERR is 39% (PCR, para 4.08). The Audit cautions regarding high rates of return as definitive proof of "success", especially when the rate of return applies only to physical components and substantial objectives regarding institution building have not been achieved. Except for para 3.19 (which concedes that the establishment a new National Ports Institution was not a good idea), the PCR does not elaborate on the extent to which the project contributed to institutional strengthening in the port sector. The HighwaX Rehabilitation Project Ince!tion and preparation 9. No consensus was reached regarding the long-term objective of Bank assistance to the highway sub-sector. In 1977, somewhat precipitously, the Bank offered to finance sections of the Trans-Turkey Highway, provided that these would be built to Trans-Europe Motorway standards. Preparatory work would have been enormous and this, combined with the country's deteriorating macroeconomic situation, aborted the idea. Meanwhile, there were long debates on sectoral and sub-sectoral masterplanning, but not much came out. No exchanges took place between 1978 and 1981 (para 66). In November 1981, Government invited a Bank mission which appraised a rehabilitation project that included studies to improve various aspects of subsectoral performance. By then, the highway network had deteriorated and, to supplement its own loan, the Bank arranged for cofinancing from the Kuwait Fund (paras 67-68). Results 10. Upon project completion, most of the works were done. The impact of "institution-building" measures incorporated into the project was hard to assess on the basis of information available at Headquarters, but seems to be limited. Like the Ports PCR, the Highway PCR contains no section discussing the extent to which project objectives have been achieved (para 71). 11. The estimated project cost was US$264 million, with about US$140 million representing foreign costs (SAR, para 3.17 and Table 3.1). Actual project cost is not given in the PCR in a manner which would allow comparisons with estimates (Para 14 and Table 5a). The PCR limits itself to saying that actual project cost of IBRD-financed components was US$123.5 million. Estimated project completion was in December 1986 (SAR, para 3.21). Actual project completion is not given in the PCR, which simply states that the Loan was closed on June 30, 1987. Calculated under a variety of assumptions, the estimated ERR for three road sections ranged from 47 to 349% (SAR, paras 4.01-4.09). Re-estimated ERRs for three completed sections yield from 43 to 68% (PCR, para 23). Except for para xii 26, the PCR does not contain any explicit observations on the extent to which the project contributed to institutional strengthening and para 19 might be interpreted as saying that the project had little impact. Sustainability of benefits 12. The Ports PCR does not explicitly discuss the extent to which project-generated benefits are sustainable. The implication of para 3.17 ("Achievement of Objectives -- Physical) is that physical components will continue to generate an acceptable benefit stream over their economic life. The Highway PCR states (paras 25-26) that project-generated benefits regarding both vehicle operating costs and institutional improvements are sustainable. Lack of information does not allow the Audit to confirm or reject the suggestions put forward in the two PCRs. Bank assistance to transport Overview and outstanding issues 13. During the thirty-nine years between 1950 and 1989, the Bank extended to Turkey loans with a total nominal value of US$663.0 million for seven projects in ports, highways and railways. Linguistic and cultural obstacles kept Bank-Government relations from being smooth and although physical targets were largely met -- no mean accomplishment in itself -- policy and institutional reforms were harder to achieve. Cultural, and institutional practices differ so much between Turkey and the Bank that poor communication was inevitable (paras 76, 91-92). Even so, until recently, the Bank seemed to discount difficulties of effecting policy change because "pipeline" considerations favored speedy prescription at the expense of thorough diagnosis of a complicated macroeconomic environment (paras 77-85). 14. The Audit believes that, in all sub-sectors, the need continues to be pressing for operational and institutional improvements (paras 87- 88), as well as for investments. However, none of the agencies under MPW or MTC seems to display much interest in a "sector approach" (i.e., one that would make achievement of their own objectives subject to actions in other agencies). Sub-sector projects seem to be preferred, possibly because they ensure greater participation of Bank staff in preparation. If this supposition is accurate, a major change has occurred in the attitude of Turkish officials who, twenty years ago, would never have admitted they could use technical inputs from the Bank in designing interventions to improve sectoral and sub-sectoral performance (para 88). Conclusions and recommendations 15. The Bank cannot be faulted for the broad directions it suggested for Turkish transport: increased competition would reduce costs for the user; financially healthy State Enterprises would be less of a drain on xiii public funds; modern management techniques would protect Turkish interests as association with the EEC progressed. The tone in which these suggestions were made was often inappropriate, but the message was sound and continues to be as valid today as it was twenty years ago. The transport sector offers considerable scope for more efficient use of resources through greater selectivity in investments; through savings in operating costs; and through enhanced cost recovery. The Audit feels that the Bank's general objective ought to be to assist Turkey with priority transport investments and, to the extent possible, with policy reform, institutional development, and training (para 94). 16. The Audit feels (para 96) that Bank assistance to transport ought to be continued through project lending, with suitable rewards for good performance, and with support for any worthwhile reforms undertaken by the Turkish agencies themselves. In the highway sub-sector, a project is under preparation to improve road safety and to upgrade state and provincial roads; the latter have a more localized impact than higher class facilities and their improvement will foster better service in disadvantaged areas. In the Lailway sub-sector, the Bank ought to continue pressing the Government and TCDD to define the future role of the railways, as well as the conditions under which railways will perform certain social services mandated by the Government. In the event that enough progress is made toward the necessary restructuring and reform of TCDD, the Bank might consider extending further assistance through a new railway project. In the ports sub-sector, the Bank ought to continue discussing necessary studies regarding planning and institutional reform (including possibilities for privatization. costing, financing, trade facilitation, and marketing). As with railways, when enough progress has become evident on policy and institutional reform, the Bank might consider further assistance through a new project. PROJECT PERFORMANCE AUDIT REPORT TURKEY PORTS REHABILITATION PROJECT (Loan 1741-TU) HIGHWAY REHABILITATION PROJECT (Loan 2137-TU) I. INTRODUCTION 1. Bank presence in Turkey has been uninterrupted since the late 1940s. Between 1950 and 1989, the Board of Executive Directors approved 123 loan and credit operations of a total nominal worth of about US$10.3 billion. Turkish territory is large, with many physical barriers, and efficient transport is indispensable for the modernization and growth of the national economy. Furthermore, the country constitutes the natural land bridge between Europe and the Middle East, and can gain much from good transit services. Nevertheless, and despite the need to improve infrastructure facilities, to replace and modernize equipment, and to fortify operational practices, the Bank financed only seven transport loans over a 36-year period. Loan Amount Year of Board Cloin Niiier (UST-f=.) Approval Year Port Development and Construction (1) 0028 12.5 1950 1954 Port Development and Construction (2) 0028 4.5 1954 1961 Railways I 0893 47.0 1973 1981 Ports Rehabilitation 1741 75.0 1979 1984 Highway Rehabilitation 2137 71.1 1982 1987 Highways I 2439 186.4 1984 1991 Ports III 2535 134.5 1985 1990 Railways II 2739 132.0 1986 1992 2. Over t1i years, OED has published PPARs on 34 Bank-financed operations in TurAey and, in terms of depth and coverage, some of these documents qualify as major studies.1/ OED reports to the Executive Directors on lessons that might improve the service offered by the Bank to Member Countries and, in the late 1980s, the time was ripe for a closer look at the transport sector. Why so few loans when, in many Member Countries, transport accounts for at least one-third of total Bank lending? Why a nineteen-year gap between the Port Project of 1954 and the Railway Project of 1973? Did the Bank find it hard to identify suitable projects, or was it difficult for the Borrower to do business with the Bank? How did Turkish practices and Bank procedures affect implementation of Bank- supported transport projects? ]/ See, for example, the April 13, 1988, Evaluation of Structural Adjustment Lending in Turkey -- Program Performance Audit Report of the Fourth and Fifth Structural Adjustment Loans (Loans 2321-Tu and 2441-TU). and Overview of SALs I-V, and the June 29, 1989 Program Performance Audit Report on Five DFC and Industrial Sector Proiects (Loans 1748-TU, 2093-TU, 1734-TU, 1755-TU and 1952-TU). 2 3. After the Port Development and Construction Projects of 1950 and 1954, the Bank extended no assistance to transport for nineteen years. In 1971, reduction of the bilateral aid Turkey had so far enjoyed, led Government to agree that a Bank-financed railway project could be instrumental in the reform of the entire transport sector. To this effect, two Memoranda of Understanding were signed in 1971: one dealt with the Turkish State Railways (TCDD), and the other with the transport sector as a whole. The First Railway Project of 1973 2/ was to transform TCDD into an efficient and commercially viable enterprise, and committed the Government to a series of actions that would improve all aspects of transport sector management. Unfortunately, implementation was not smooth. Investments showed cost a overrun of 100% and a time overrun of 220%. Procurement problems and violations of the Loan Agreement were numerous and procurement questions sidetracked attention from sector reform. Meanwhile, TCDD's freight traffic fell short of appraisal projections by some 50%. The project's central objective was railway and transport sector reform, neither of which materialized and, in this sense, the project was a failure. But it could not have been otherwise: reforms were too ambitious, tasks too wide, timetables too short. The project soured Government-Bank relations, because both sides had expected too much too soon and were disappointed with each other, though not necessarily with themselves. Six years passed between the railway project and the Ports Rehabilitation Project. In the meantime, the economy was approaching a major crisis. 4. In the 1960s, and like many other countries, Turkey was fully committed to central planning. The First and Second Plans (1963-72) predicated future prosperity upon a strategy of import substitution, and did generate annual growth rates averaging 6.6 percent. In the early 1970s, oil price increases and the subsequent slow-down in OECD countries had a powerful impact upon the Turkish economy. In order to maintain high levels of investment and consumption, Government drew down foreign exchange reserves, borrowed heavily abroad and actually managed to increase the annual growth rate to 7.7 percent during 1973-76. However, such growth could not be sustained. In mid-1977 external payments and creditworthiness deteriorated, import shortages emerged, industrial production was disrupted, and unemployment rose. In 1979, GNP growth became negative, inflation accelerated to 64 percent, exports could pay for less than half of imports, capital inflows declined, short-term debt grew from under US$300 million in 1974 to US$8.4 billion in 1978 and arrears mounted on payments for imports and debt service. Centrally-planned growth based on import-substitution was not working. Far worse, economic difficulties gave rise to, and were then aggravated by, political and social unrest of such a magnitude that martial law had to be imposed in 1979. /. For details on the objectives, implementation experience and results of this project, see Project Performance Audit Report -- Turkey: First Railway Project (Loan 893-TU), OED Report No. 5768, dated June 3G, 1985. 3 5. The Government, reacting courageously to the economic blows, introduced reforms3/ to strengthen market forces and exports, and to redefine the role of the private and public sectors. The former would concentrate on production, providing the impetus for industrial growth and exports, while the latter would focus on infrastructure. Steps were taken to reduce the dependence of the State Economic Entnrprises (SEEs) on the Exchequer and to eliminate excessive regulation over the trade regime. The reform program included demand restraint to quell inflation and deregulation of interest rates to encourage savings. A realistic exchange rate was combined with fiscal and credit incentives to accelerate exports. Imports were selectively liberalized to promote competition among domestic producers. In support of its reform program the Government negotiated a Stand-by Arrangement with the IMF for 1980-83, and this was renewed in December 1983. A First Structural Adjustment Loan (SAL) was approved by the Bank in 1980 and complemented the IMF stabilization program. Thus, starting in 1980, Government reduced its reliance upon the centrally- planned strategy. However, the Ports Rehabilitation Project had been under preparation since 1976 and, when approved in 1979, it was still anchored upon principles of central control that, one year later, would be declared invalid. II. THE PORTS REHABILITATION PROJECT 4/ A. BACKGROUND 6. Initial Bank assistance to the port sector was extended through Loan 28-TU (July 1950; US$12.5 million)./ In February 1954, a Supplementary Loan increased the original amount to US$16.3 million to cover the cost of changes in the project scope. Planned for completion in 1958, the project was actually completed in 1962, primarily because of delays in equipment procurement. The record does not explain why the Bank did not extend any further assistance to the port sector over the next fourteen years. The first reference in the file to the Ports Rehabilitation Project is dated October 1976. I/ For a brief account, please see Appendix 1: Notes on Macroeconomics in the 1980s. 4/ Comments from TCDD, the Turkish Maritime Organization, and DLH are in Annex II. / The project encompassed extension of Salipazari, Haydarpasa and Izmir ports; construction of a new port at Samsun; mechanical equipment for loading and unloading grain, ore and coal at Iskenderun; repair and replacement of cargo-handling equipment in the above ports; and some harbor construction equipment for the Ministry of Public Works (MPW). 4 Geography 7. Turkey has a coastline of 7,300 km. Topographical difficulties constrained the development of highway and railway networks and, for a long time, coastal shipping was the principal means of communication and accounted for the creation of numerous ports and unloading points (68 all told), many of which were open roadsteads handling no more than 10,000 tons per annum. In addition, there were many jetties (almost 200 in the Greater Istanbul area alone) for building materials, coal, timber, etc. Main ports can be grouped into four geographical zones. Black Sea: Hopa, Trabzon, Giresun, Samsun, Zonguldak, Eregli. Marmara Sea and Bosphorus: Salipazari, Haydarpasa, Derince, Bandirma, Mudanya. Aegean Sea: Izmir, Fethiye. Eastern Mediterranean: Antalya, Mersin, Iskenderun. In the late 1960s, international trade was served by eight major ports. Black Sea: Trabzon and Samsun. Istanbul area: Salipazari, Haydarpasa and Derince. Aegean Sea: Izmir. Eastern Mediterranean: Mersin and Iskenderun. Administration 8. In the 1970s, numerous ports were administered by local authorities and/or industrial complexes. Administration of major ports was split: the Turkish State Railways (TCDD) ran Haydarpasa, Derince, Samsun, Mersin and Iskenderun; the Maritime Bank (DB) ran Salipazari, Izmir and Trabzon. Both agencies came under the Ministry of Transport and Communications (MTC), and their imperfect cooperation, which was costly for the national economy (for example, ships might be waiting for a berth at Trabzon to unload transit cargo, while underutilized facilities would be available at Samsun), suggested the need for a mechanism which could direct vessels to call at alternative ports. Legislation to place all major ports under a central authority had been under consideration for years, but no decisions appeared to be imminent. Operations 9. In the mid-1970s, main ports suffered from traffic dispersion, insufficient specialization, small ships calling at several ports and discharging small quantities in each, considerable waiting time, and low through-put per ship-day. Shortage of storage areas was the main reason for low berth productivity, and the available storage capacity was not used efficiently. Levels of palletization were low; cargoes were frequently dispersed; abandoned cargoes occupied prime storage space. Aisles for equipment and vehicle passage were being used for storage and it was not infrequent for large portions of the wharves' aprons to be stacked with cargo. Ports had to handle a high proportion of general cargo on a direct delivery basis but because of blocked aprons, trucks could not move freely and contributed to further reductions in gang productivity. 10. Customs regulations did not permit management to remove cargo from the port area unless all customs charges had been paid. The November 1976 Bank mission reported that the situation was critical in Haydarpasa and Salipazari where ships often did not come alongside because of lack of 5 storage area.§,/ The limited storage space available was often used for long-term commercial rather than operational purposes. The average stay of cargo in port areas was more than 45 days but some cargoes had been in the ports' stores for 20 years. In the mid-1970s, legislation was under preparation to permit port management to remove cargoes that had not been cleared after two months to warehouses outside the port areas. This was not only a matter of storage areas and demurrage payments to vessels (which for the Istanbul ports alone amounted to some US$20 million); some 100,000 tons of cargo valued at US$50-60 million were permanently stored within the areas of Haydarpasa and Salipazari. However, pressure from various groups delayed passage of this law. 11. Most ports suffered from unsuitable layouts, from lack of equipment and shortage of trained personnel. In many ports, railway lines extended on the wharf apron, thus interfering with efficient operations and reducing berth productivity. Most ports (but, in particular, Haydarpasa, Izmir, Mersin and Iskenderun) had inadequate cargo handling equipment. Even when equipment was available, it was frequently obsolete, further contributing to unsatisfactory utilization and low cargo throughputs. Port management, stevedores, and operational staff were largely untrained and were organized and paid according to different schemes. 12. All stevedores and shore labor were on the payroll of the ports. Temporary labor was recruited as required. While laborers were paid on an incentive basis in the ports operated by DB, they received monthly wages (not based on output) in the TCDD ports. As a result, the take-home pay of the DB employees was almost double that of the TCDD workers. Consequently, DB employees could be counted upon to oppose any merger with TCDD, as they would presumably lose out under the new arrangement. Traffic information 13. In the mid-1970s, there was no comprehensive system for routinely compiling standardized sets of statistics on total cargo movements. There was no central or regional authority to aggregate data so as to give an overall picture. Two sets of statistics were kept for cargo movements in every port. One was put together by the regional marine and port administration, which kept statistics based on the length of coast under its jurisdiction. A second set was compiled by port managements on the basis of traffic activity within each port's boundaries. Aggregation of the two sets did not give a complete picture because certain categories of shipping were excluded from both. Ship service and waiting time statistics were also inadequate: ship arrivals and departures were recorded by the regional administration whereas statistics on the start of work and its completion were kept by port managements. Containerization was developing slowly. No proper terminals existed in the mid-1970s, and containers were handled by ships' gear, or arrived on Ro-Ro vessels. Izmir and Mersin handled some 8,000 Twenty-foot Equivalent Units (TEU) in 1976, §/ Specifically, when the mission visited Salipazari, 4 ships carrying some 10,000 tons of general cargo had been waiting for 3 days, despite the fact that berths were vacant. 6 followed by Iskenderun and Haydarpasa with some 3,000 TEU. Construction of the country's first container terminal had just begun at Izmir. 1/ Planning 14. The State Planning Organization (SPO) coordinated national planning. For transport, SPO established sub-sectoral committees to bring together the views of Government, and private and public sector agencies. Port planning came under the jurisdiction of the Transport Coordination Agency (TCA). TCA dealt mainly with demand and capacity analysis, without going into engineering, management or operational aspects. These were handled by the General Directorate of Railways, Ports and Airports Construction (DLH) of the Ministry of Public Works in Ankara. TCA did not agree with DLH's role and would have preferred the work to be done by experienced consulting engineers. Nevertheless, DLH was the only institution actually engaged in port design and construction. It had a number of highway engineers but lacked experienced staff for port planning, maritime construction, and port operations. All planning was done in Ankara, away from the ports, and Bank missions received the impression that it was carried out without much consideration of what would be needed for efficient cargo handling operations, and with little regard for the constantly improving technologies in shipping and cargo transfer.A/ B. PROJECT INCEPTION AND IMPLEMENTATION 15. Bank missions visiting Turkey in November 1976 and January 1977 felt that priority areas were physical rehabilitation of facilities and equipment, provision of technical assistance to improve management and coordination, and improvement of the port situation in the Marmara region. In its February 8, 1977 Back-to-Office Report (BOR) the January mission recommended that the Bank should send a letter to the Ministry of Finance expressing Bank willingness to work toward the preparation of a port project, suggesting that it might consist of the rehabilitation of Turkey's ports through provision of cargo handling equipment, and technical assistance to improve management, operations, and coordination. Technical assistance might help plan the 4 major regioral ports which were likely to be suggested by a study that was being carried out by TCA. The February 1977 BOR recommended that a project identification mission visit Turkey in May/June 1977 to review TCA's recommendation concerning port developments in the Marmara region, the status of legislation on cargo removal from ports, and the regional ports authorities. The Marmara region deserved special care because port services in the Greater Istanbul area affected Z/ For Borrower comments on this paragraph, please see Annex II, fourth paragraph of the covering letter. i/ DLH is of the opinion (Annex II, p.6, para 3) that this statement is not true. 7 the urban, industrial and trade sectors, and were complicated by jurisdictional, bureaucratic and political factors.9/ 16. Turkish authorities had long been concerned about the Greater Istanbul ports and, in 1974, DLH commissioned Bosphorus University to do a study on the Istanbul and Marmara Ports. The 3-volume study was completed in June 1976 and recommended a two-stage approach. The first stage involved investments to improve the capacity of Salipazari and Haydarpasa so as to enable them to meet traffic needs up to 1990. Investments included provision of additional handling equipment; construction of new warehouse facilities away from the ports so as to reduce congestion in the ports areas; and construction of an additional wharf at Haydarpasa. The second stage involved construction of a new port at Buyukcekmece that would go into operation in 1990. The proposed schedule required that studies and land acquisition ought to be initiated in 1977. In addition, the study concluded that a regional port on the southern shore of Marmara would be needed by 1980 to reduce overloading of the Istanbul facilities, and recommended that this be done through additions and improvements to the port of Derince on the Gulf of Izmit. 17, Turkish reactions to the Bosphorus University Study were not uniform. DLH had commissioned the study and supported its conclusions. So did TCDD (which wanted to expand its Haydarpasa port) and DB. By contrast, the Mayor's office, the Master Plan Bureau, and TCA had reservations, though the reasons varied by case. The Mayor's Office felt that Study proposals did not conform with the overall urban development strategy, that the Study did not look at the importance of the new port in terms of its impact on urban development, and that it did not correctly analyze the destination flows of goods unloaded in Istanbul. The new port should be built at Amberli rather than at Buyukcekmece. The overall urban strategy should be to move traffic away from the Bosphorus/Marmara area, and since further development of Haydarpasa ought to be restricted, the proposed expansion of Haydarpasa was unacceptable. Having thus rejected interim solutions to meet port needs to 1990, the Mayor's Office felt that a new port should be built immediately. The Master Plan Bureau objected to the location of the port proposed both by the Bosphorus University Study and by the Mayor's Office. According to the Bureau, location could not be decided until an urban strategy was agreed upon. More analysis was needed and a wider study of alternative port locations from Takirdag to Istanbul had to be done. Furthermore, rather than having a new port just for Istanbul, the new port should serve for all Thrace. The Bureau indicated that SPO might request Bosphorus University to do a revised version of the study to take into account the above issues. If this was not done, 9/ For the development of ports in the Greater Istanbul area (and in addition to SPO, DLH, and TCA, which had established a special Istanbul Port subcommittee), the Master Plan Bureau of Istanbul was also involved, and so was the Municipality (via an office, with a staff of about twenty, of special advisers to the Mayor). 8 the Bureau itself would have to carry out some studies of alternative port locations before finalizing its proposals on the urban development strategy. IQ took still another position. In late 1976, TCA was working on its own port master plans and was not ready to comment on the Bosphorus University Study which, nevertheless, it found to contain much useful data. However, TCA considered that the Study had not fully addressed the congestion problem. 18. Lack of consensus was fortified by differences in political orientation. The Municipality reflected the political preferences of the Republican Peoples' Party. The Master Plan Bureau was part of the Ministry of Reconstruction, and reflected the political preferences of the Justice Party. DLH was part of the Public Works Ministry, and reflected the political preferences of the National Salvation Party. Given the fluidity of the political situation prevailing at the time, it did not seem likely that agreement would be easily reached.1Q/ May - August 1977: Project Inception 19, After a third mission (in May 1977), the Bank had a clearer idea of the objectives, components, loan amount, and issues associated with a possible port project. Three issues (project scope and components; technical assistance; and institutional difficulties) required careful attention, because much information was missing. Of the three, institutional aspects were most problematic, particularly with regard to port coordination, customs regulations, and financial issues. 20. Port coordination. Ports were planned, built and equipped by the Central Government (through DLH) in Ankara and then handed over for operation to TCDD and BD, which acted as concessionaires. In itself, the system did not discourage adequate planning and coordination because nothing stopped the Government from coordinating its own agencies and from selecting the type of port policy it wanted to implement, before handing over a port to a concessionaire. A National Ports Authority had long been debated and a Bill had been pending before Parliament for seven years. The actual content of the Bill was not known to the Bank because the text was in Turkish. In May 1977, the Bank had no grounds to believe that efficiency and productivity would automatically derive from centralization of all decisions in Ankara; on the contrary, it felt that competent staff were present in a number of ports. Ankara had a small staff of engineers in DLH, and the new Authority would have to be built up from nothing. The May mission noted that the Bank's knowledge of the port sector in Turkey was limited and recommended that the Bank should not commit itself to the National Port Authority formula, because if it failed, blame would be I/ For Borrower comments on this paragraph, please see Annex II, fourth paragraph of the covering letter. For specific comments from DLH, please see Annex II, p.7, para 4. 9 assigned to the Bank.11/ This admonition was not heeded and, throughout project preparation, the Bank's formal position remained anchored upon the principle of centralized planning and control. Consequently, the Bank insisted upon the establishment of a National Port Authority, which, in subsequent years, came to be referred to as the "National Ports Institution" (NPI). 21. Customs regulations. The Bank knew that the stipulations of Customs Law resulted in cargoes being stored in ports for very long periods, and that this was detrimental to operations. Indeed, the May 1977 Bank mission verified that 51% of cargo stored in Salipazari (i.e., about 35,000 tons), was long-term stored cargo. The Bank also knew that this was another instance where legislation had been prepared but not passed. Nevertheless, the Bank chose to ignore the fact that for such a beneficial measure to be stalled, powerful interests must have been against it. Furthermore, there is little indication that Customs were asked to give their views during project design. 22. Finances. The State budget financed all facilities and equipment. If money was borrowed, interest and principal were paid from the budget. After completion, facilities and equipment were transferred to the concessionaires as fixed assets, equity being adjusted accordingly. At the time that the project was being prepared the Bank mistakenly thought that three reasons led DB to lose money on port operations: because tariffs were inadequate; because dock labor uniins had obtained contracts at favorable terms; and because retirement bonuses and pensions were not funded but were paid out of current revenue. In fact, DB (and TCDD), far from losing, were actually making money from port operations and proceeds were used to subsidize other port activities. Curiously enough, the Turkish authorities also thought that port operations were losing money. In this connection, MOF and SPO officials told a Bank mission visiting Turkey in May 1977 that financial losses in port operations were offset by unspecified macro-economic benefits. Government officials also insisted that financial aspects should not be allowed to obstruct project processing. In their opinion, the Bank should not demand tariff increases, insist upon rate of return and cash flow covenants, or appraise the operations of concessionaires. Rather, officials felt that the Bank should deal exclusively with the Government who, after all, would be the borrower. The mission pointed out that this approach would be contrary to Bank policy and would probably perpetuate inefficient port management. 23. The May 1977 mission also recommended that a TCA team that was scheduled to visit Washington 2 months hence be strengthened with officials 11/ In this connection, the mission noted that bitter opinions had been expressed about a recent UNDP-sponsored, Bank-financed port management seminar, during which "lecturers seemed to be more eager to sell the port administration system in their own countries and boast their merits rather than indicating whizh system would be best adapted to the Turkish environment." The mission felt that even if such opinions should be somewhat discounted (since the Bank had not been represented at the seminar), the reaction, coming from port staff, nor from Ankara civil servants, was significant. 10 from DLH and the Ministry of Finance. In anticipation of the Turkish visit, the mission recommended that tae Bank adopt the following posture with regard to the port sector: Unification of port facilities in Istanbul. It was not economical to have two different concessionaires operating ports in the same area. DB seemed to be better equipped than TCDD to operate ports and was clearly more efficient. Passage of legislation regarding long-term cargo storage. The presence of such cargo was probably the most important obstacle to the efficient operation of Turkish ports. Not support malor changes to the port administration system pending a better knowledge of Turkish Ports. If regional port authorities, rather than a National Port Authority, were to be the solution, unification of the Istanbul ports could serve as the test case. With regard to port management: either (a) unify Istanbul port management prior to appraisal; or (b) eliminate the port administered by TCDD from the project. None of these four points was ever observed. Port facilities in Istanbul were not unified. Cargo legislation was not passed. The Bank committed itself to the establishment of the National Port Authority, which ultimately did not materialize. The port administered by TCDD was included in the project. August 1977 - April 1978: Preparation 24. Officials from TCA and TCD1) in Ankara and from the Financial Counsellor's Office of the Turkish Ymbassy in Washington visited the Bank on August 4 and 5, 1977. The Turkish delegation outlined the proposed project (equipment for ten ports, a;d technical assistance for operations improvement and planning studies), ard suggested that TCA act as the project coordinator. In response to -he Bank's concern, they stated that RTC was considering unifying the admii 3tration of Salipazari and Haydarpasa ports in Istanbul under TCLL, that there was no progress on legislation to set up a new national/re. .ional port authority; and that a decree to facilitate removal of long-tel.; cargo stored in the ports was under consideration. 25. The Bank found that its request for economic and financial data, had elicited rather scanty material. Despite earlier promises, the Turkish delegation did not bring any of the information requested on port operations; on available equipment and their capacity; on current and proposed investments in the port subsector; and on revenue, expenditure, tariff and other financial data relating to port enterprises. Consistent with the Borrower's stance on-the matter, the visiting Turkish team questioned the request for such background information, particularly on investments outside the proposed project. They also questioued the need to do detailed economic and financial analyses. In their view, only minimum justification was required since equipment to be purchased under the loan 11 would replace equipment which already had been justified, or which was in any case clearly needed to replace worn out and obsolete items. Bank staff reiterated that the data was required by Management and the Executive Directors, and the Turkish team agreed to provide what was missing. A new list of data was drawn up and reviewed with the Turkish team which agreed to provide them during the pre-appraisal mission in September 1977. The Bank explained that as many as possible of the major ports would have to be visited by the mission and that arrangements ought to be made for visits to the Istanbul and Marmara ports, as well as to Izmir, Antalya, Mersin and Iskenderun. The TCA representative questioned the need for such visits on the grounds that all information was available in Ankara. The Bank insisted that on-the-spot studies of port operations and discussions with the local port management were indispensable. 26. The project was pre-appraised as scheduled. Nevertheless, material prepared by TCA still lacked information on traffic, cargo handling output, ship turnaround, existing cargo handling equipment, financial details, the overall port investment program, and the bases for traffic projections. TCA agreed to provide the missing material by end January 1978. Meanwhile, the pre-appraisal mission identified five major unresolved issues: port planning; port investment policy; size of Bank loan; costing of port services; and project implementation. 27. Of these issues, investment policy was the most contentious. The pre-appraisal mission was informally told that the Government did not want any interference in their freedom to invest as they pleased, but the Bank felt that coming back into the port sector after 23 years was a good opportunity to encourage some badly needed rationalization of investments. Although TCA was conducting a master plan study of Turkish ports with the help of consultants and UNDP finance, the study had yet to be completed and reviewed. Under the project, the proposed technical assistance could help finish the study; could review its conclusions regarding the location and timing of future port development; and could conduct preliminary engineering work. 28. At the end of pre-appraisal, the Bank felt that Government should agree to postpone major port developments (apart from ongoing works) costing more than US$5.0 million until the TCA study was completed. This would involve postponement of the proposed US$30.0 million wharf in Haydarpasa, for which there seemed to be no justification. 12I However, in its October 21, 1977, BOR, the pre-appraisal mission pointed out that Government was opposed to any investment restriction being imposed on them, and strongly resented the Bank's suggestion that the Haydarpasa investment be postponed. All the same, the pre-appraisal mission felt that the Bank should insist that Government accept, first inclusion of a planning study in the project, and second an investment limitation condition on the proposed loan. 29. A fresh problem arose in November 1977. The Government reneged on the informal agreement that had been reached in Washington with the 1_2 This point was extensively elaborated upon in an August 22, 1977 letter from the Bank to the Government. 12 TCA/TCDD team that the project would include technical assistance for the preparation of several regional ports, including that of Marmara/Istanbul. The initiative seemed to come from the MPW, and the Loan Officer for Turkey, during his visit to Ankara in October 1977, vainly attempted to arrange, through TCA, an appointment with either the Minister, or the Director General of Ports, Harbors and Airfields. What he did gather from other sources was that MPW was convinced that the 1976 Bosphorus University Study showed that, pending the completion of the proposed regional port, the expected traffic increase in the Greater Istanbul area could be handled only by constructing an additional wharf at Haydarpasa. MPW held to this view despite the opposition of other ministries, of the Municipality of Istanbul, and of Bank missions. 30. A November 7, 1977 internal Bank memo noted that these other agencies and the Bank interpreted the Bosphorus University Study as showing a very low rate of return for the $30 million Haydarpasa wharf since (a) limited space would prevent its full capacity utilization; (b) its period of availability to meet peak demand before readiness of the new port would be only 4-6 years, and (c) this added demand could be handled by better port management at Haydarpasa without a new wharf. However, a later paragraph of the same memo said that in view of the technical reliance of MPW, as well as of the Master Plan Bureau and even SPO, on the Bosphorus University Study, which was available in the Bank only in Turkish and had not been studied, it would be useful to arrange for translation and a careful review of it. Whereupon a question emerges: if the Study was available only in Turkish, and if the Bank had not studied it, how could it "interpret" its recommendations in any way at all? 31. Closer reading of the files reveals there was more to the MPW position than simple loyalty to the recommendations of a study that the Ministry had commissioned. In March and August 1977, the Bank had written the Government to urge deferral of the Haydarpasa wharf construction and the MPW was apprehensive that a possible confrontation might again take place, similar to the one which occurred five years earlier regarding the Tecer-Kengal railway short-cut on the central Turkey iron ore route. Consequently, according to informal communications from TCA and SPO, MN feared that including technical assistance in the proposed project might result in recommendations against the Haydarpasa wharf. Therefore, MPW was holding out for a straightforward equipment rehabilitation project which would leave them free to construct the Haydarpasa wharf and make any other additional port investments they felt were justified. Matters were complicated because the Mayor of Istanbul, together with the mayors of a number of Marmara municipalities, representing both the Justice and the Republican Parties, were strongly opposed to the construction of the Haydarpasa wharf. 32. On January 6, 1978, the Government wrote to the Bank expressing interest in planning studies, provided the Bank would be prepared to finance projects resulting from such studies. The Government's position was plain: "... Due to the fact that this project mainly covers equipment rehabilitation, the Turkish Government maintains that the subject of new port investments should not be considered within the scope of the subject project..." This position was analyzed in a February 6, 1978 Bank memorandum (Turkey -- Problem Project Discussions) which noted that 13 Government unwillingness to discuss future investments in the port sector and to agree to postpone new general cargo port projects until the completion of the planning studies, would make the proposed project ineffective in rationalizing port investments. These sentiments were echoed in the Bank's response to the Government, dated February 27, 1978. By May 1978, when appraisal took place, the Government had agreed that a port sector master plan study be included in the project. It had not, however, agreed to postpone port investments pending the completion of the study.12V May 1978 - January 1980: From apraisal to aRroval 33. In September 1978, Bank staff reviewed the port legislation proposed by Government, and concluded that it seemed to be aimed at less, rather than more, autonomy. Bank staff found the proposed legislation to be obscure with regard to financial objectives, port planning, port construction, financial structure, board of management, budgets, and relations with other government agencies operating in the ports. It could not, consequently, be regarded as a document reflecting Bank views of what port management should be. Bank staff therefore urged that this opinion be communicated to Government and that the Government's reply be studied before negotiations. 34. Paradoxically, none of these reservations is reflected under "Main Issues" of the September 25, 1978 covering note on Turkey -- Ports Rehabilitation Project -- Staff Appraisal Report. On the contrary, the note says that in view of the lack of coordination among various agencies in charge of port operations and planning, it was essential to push the Government to speed up the legislation for a national port authority. Presentation of the necessary draft legislation to Parliament ought to be a condition of Board presentation, and Government should undertake to implement the legislation within 18 months after its enactment. The note said that whereas the proposed legislation might not have been ideal, it was a step forward. A subsequent paragraph of the same note reveals that the Bank had now discovered that ports were not losing money: the port departments of both TCDD and DB produced large revenue surpluses because of a 5% ad valorem levy on imports, and this constituted about 40% of total annual port revenue. The note felt that since this large levy, which was not related to any port service, distorted port finances and its rate structure, it was essential to introduce a more logical cost-based tariff policy at the earliest. 35. Interestingly, the note revealed that disagreements had emerged on the cost-based tariff and in import/export projections between the Bank's Programs and Projects Departments responsible for lending operations in Turkey. By October 1978, differences of opinion necessitated a formal memorandum from the Director of the former to the Director of the latter. The memorandum said that given the planned changes in port organization, the emphasis ought to be on ensuring that the proposed port organization was established on a sound basis, rather than introducing specific 1~/ A Port Master Plan Study was finally commissioned and was completed in August 1983 by a joint venture of Turkish and US consultants. 14 financial targets and principles to a "lame duck" port administration, Specifically, the Programs Department recommended that the SAR be modified by a more "step-by-step" approach which, upon closer scrutiny, appears to be a radical departure from the line adopted during appraisal. 36. By December 1978, and while the creation of the NPI continued to be uncertain, doubts emerged concerning the effectiveness of TCA. The December 21, 1978 BOR of a November Bank mission reveals that "because of very severe staff constraints", TCA, the Coordinating Agency, had been unable to prepare Terms of Reference (TOR) for the Port Sector Study, and that the Bank mission prepared in the field a first draft of TOR. Even so, and despite the Turkish failure to outline the framework against which the Turkish port sector ought to be reviewed, TCA and MTC insisted that the Project Manager for the study ought to be an MTC official. The mission did not agree because TCA and MTC lacked suitable staff and because it was doubtful that such staff would be engaged in the near future; however, it was diplomatically agreed that differences of opinion would be ironed out during negotiations. While in the field, the mission reviewed the recommendations of an ILO expert commissioned to prepare a report on training requirements for port labor and management, and was not reassured by what it discovered. The main thrust of the ILO report reflected TCA views on the training program: i.e., to set up a directorate at Ankara from which all training activities would be controlled and monitored, while playing down the importance of training centers in the individual ports. According to the ILO expert, it was TCA who had insisted on these arrangements even though he did not favor them. 37. Drafts of the President's Report (PR), of the Staff Appraisal Report (SAR), and of the Loan and Project Agreements for a proposed loan of US$75.0 million were submitted to the EMENA Vice President on February 6, 1979. The covering note explains that project submission to the Board would hinge upon the results of an IMF mission that visited Turkey in December 1978 with the dual objective of Article XIV consultations and discussions on revising the Standby Agreement negotiated in April 1978, prior to the release of the Third Tranche. Nevertheless, the Programs Department felt that the Bank ought to proceed with negotiations despite the fact that two major issues ("Port Institutions" and "Port Financing") remained wide open. In support of this suggestion, the note resorted to an intricate phraseology that may not be perfectly transparentl4 but which 14/ Consider, for example, the following excerpt (from para 5) on "Port Institutions": "... While the Government wants to establish a new national port authority, there are still issues to be settled amongst the relevant Turkish decision makers regarding the detailed nature and functions of the authority, to ensure its efficient operation in the Turkish environment. In view of the complexity of the issues, and the long-term nature of the reform involved, the Government now intends to carry out a more profound examination of the authority before initiating legislation; we agree to this approach." Please note that the record does not contain any communication from the Government to the effect that a "more profound" examination had been decided upon. 15 must have been effectiveL5J since the Loan Committee approved, on March 14, 1978, the recommendation to invite negotiations. 38. Thanks to the Bank's willingness to modify its position on a number of points, project negotiations (which took place in Washington between March 2 and 10, 1979), resulted in agreement on all recommendations contained in the Green Cover SAR. The project was approved on June 26, 1979. Implementation experience: Main Points 39. Loan 1741 became effective on January 30, 1980, and was closed on June 30, 1984. The first Supervision Report (SR), dated November 20, 1979, noted that preparation of lists of equipment, specifications and tender documents was making excellent progress. The last paragraph of the SR noted that the main problem was related to the port sector planning Consider also the following statement (para 8 in its entirety) on "Port Financing": "The port activities of TCDD and DB .... are subsidiary to the main operations ... which are railways and shipping respectively. These are two of the four SEEs which operate with the largest deficits ... imposing a heavy burden on the central budget. Nevertheless, the port revenues of both these SEEs are in surplus, but are funnelled away to cover the large deficits arising from the main operations ... Thus, in the short-term, there is a need to ensure that the port departments of both these SEEs retain sufficient funds to cover the port investments made by them. This can be accomplished by requiring the Government to ensure that (a) both TCDD and DB will maintain separate accounts for their respective port departments and have these audited and submitted to the Bank each year besides continuing to produce the overall accounts of TCDD and DB; and (b) their respective port departments will generate and retain sufficient funds from their port revenues ... to meet the above mentioned port needs. However, these SEEs may not be able to implement this covenant, unless they can otherwise cover their substantial deficits for their primary railway and shipping operations. This matter goes well beyond the port subsector and is one which has been the subject of repeated Bank initiative (sic). The above solution has been discussed specifically by a Bank mission in December. Although the Government and the SEEs appreciate the dilemma, they felt there would be many practical difficulties in accepting the proposed solution; however, they agreed to discuss this during negotiations with a view to finding a suitable solution. We will press for the above solution during negotiations and would refer the issue to the Loan Committee should it not be possible to reach agreement along the above lines." 15/ The PR and the SAR had been reviewed in the EMENA Vice President's Office and an internal note (dated February 8, 1978), says that this "seems to be a very good project and the reports are well done". The reviewer felt that the memorandum from the Program's Director was "especially clear on the issues". 16 study. Though TCA, the implementing agency, had recently been upgraded by Government decree as a "General Directorate", and though Government had sanctioned new positions for a project unit in TCA, TCA could not attract experienced candidates because of relatively low salaries; in fact, many TCA experts had resigned. 40. Implementation of the physical components continued satisfactorily but, as time went on, staffing and organizational problems multiplied. Supervision Missions seemed to focus more on procurement of "hardware" just as difficulties with "software" continued to mount. A March 12, 1981, letter to the Bank from the UNDP Resident Representative's office in Ankara, commenting on the preparation of the cost-accounting study, noted that particularly worrisome was the lack of counterpart personnel in DB and TCDD, as well as the lack of timely decisions by Government on acceptance of a revised cost accounting system and the provision of the initially modest communication facilities this system entailed. In repeated communications to the Government, the Bank voiced concern regarding project staffing, procurement delays, civil works delays, difficulties in recruiting training specialists, finances, delays in the submission of progress reports, delays in the submission to the Bank of the legislation for the NPI, and continuing delays in removal of old cargo from the ports. 41. By March 1982, the Bank noted that project execution was affected by delays in procurement, difficulties with consultants, and ineffective coordination. One year later, the April 1983 SM took special pains to describe the persisting problems of port congestion. In sum, by mid-1983, Bank staff were reporting that implementation was being affected by two main factor. First: TCA was not effective as project coordinator, partly because of its inability to offer competitive salaries and partly because Government did not endow it with sufficient authority; and second: preparation of bid documents took far too long, partly because TCDD and DB were unused to Bank procedures and partly because the documents had to be translated into English. More technical assistance ought to have been used in the preparation of bid specifications and documents. This had been impressed by the preparation missions upon DB and TCDD who, however, firmly believed that such preparation was within their capabilities. Subsequent experience showed that the agencies' capacity to produce bid documents did not match the agreed project schedule, and the Bank had to provide additional specialist assistance. Mainly because of procurement delays, the project ran between 18 and 23 months behind schedule. C. PROJECT EVALUATION Documents and information sources 42. The socio-economic setting against which the project was identified and prepared is discussed in paras 2-35 of the June 13, 1979, President's Report (PR). The PR contained a number of what, in retrospect, were almost prophetic warnings. On Bank Group Operations in Turkey: the limited 17 coordination among agencies, plus staffing problems, result in uneven and delayed project implementation. Turkish laws and practices constrained effective project performance. Lack of consistent and reliable port statistics and operating information hinders effective management and makes it difficult to identify inefficiencies and take corrective action. Port plannina and investment decisions are fragmented among several ministries and agencies. TCA lacks authority to effectively coordinate sector planning and neither TCA nor operating agencies have sufficient staff to conduct sub-sector and project planning and feasibility studies of major port investment proposals. Planning in the ports sub-sector has suffered from a lack of national perspective and inadequate economic analysis of investments. Future port investments have not yet been selected due to recognition of need for proper planning. No meaningful financial projections can be made because of uncertainties regarding the timing and structure of the new port authority. Ris: The core of project, the rehabilitation of the ports, is free from any significant risk, although projected increases in efficiency depend largely on the effectiveness of the proposed training and managerial improvements which may not fully materialize. 43. Paras 2.01-2.36 of the April 12, 1979, Staff Appraisal Report (SAR) describe the status and prospects of the port subsector in the late 1970s-early 1980s. The Project Completion Report, published on May 21, 1986, is a satisfactory document but it does contain a number of gaps, and these are discussed in the following paragraphs. Project objectives 44. According to the SAR (para 3.02), the project's intended objectives were to: (a) substantially improve the efficiency of port operations in Turkey's main public ports, particularly in handling general cargo exports and imports, by replacing and modernizing old and obsolete cargo-handling equipment and floating craft and improving storage and cargo-handling areas; (b) avoid a recurrence of severe congestion in Turkey's main ports experienced in 1975-76, which has only temporarily eased as a result of Turkey's economic difficulties; (c) promote modern cargo-handling methods and port management techniques, mainly through provision of modern equipment and technical assistance for training; and (d) assist in carrying out port sector planning to guide in optimal future investments in the port sector. 45. The PCR does not contain an explicit treatment of achieved objectives. Possibly, the fault lies with the description of SAR objectives, which is rich in adjectives and adverbs ("substantial", "severe", "temporarily", "modern", "optimal"), but deficient in yardsticks against which results could be objectively measured. The PCR does make a valid observation in para 3.18 where it states that appraisal might have paid more attention to the likely growth in container traffic and the need to equip selected ports accordingly. In this connection, the PCR correctly notes that, even during project implementation, the Turkish authorities and the Bank might have consider.ed the provision of some specialized container handling equipment. 18 Project components 46. During the first two years, a number of items financed under the loan were modified. Experience with the implementation of the different components constituting the appraised project (SAR, para 3.04 and PCR, paras 2.06 and 3.03-3.04) car. be summarized as follows: 47. Egipjment (a) Cargo-handling equipment for the 10 project ports (SAR, Annex I and PCR, para 2.06a). Original scope modified (PCR, para 3.03). Some difficulties were experienced in the procurement of mobile cranes and the floating crane (PCR, para 3.11) but, on the whole, procurement, notwithstanding the delays, was done satisfactorily (PCR, para 3.09). (b) Floating craft (SAR, para 3.04b and PCR, para 2.06b). The original scope was modified (PCR, para 3.03) but procurement was satisfactory. (c) Snare parts for the new equipment, to rehabilitate some of the existing equipment, and some minor workshop equipment (SAR, para 3.04c and PCR, para 2.06c). This item was not explicitly discussed in the PCR which notes (in para 3.17) that "provision of spare parts had a significant effect upon the ports' productivity", without however going into specifics. (d) Hydrographic measurement and shore-to-ship communication equipment (SAR, para 3.04d and PCR, para 2.06d). The hydrographic equipment was deleted and replaced by floating equipment spare parts which were to have been financed from DLH's own budget but for which the necessary foreign exchange was not available (PCR, para 3.05). The PCR does not specifically discuss procurement of shore-to-ship communication equipment. 48. Civil works (a) Paving and surfacing of about 640,000 m2 of open storage areas, construction of about 19.000 m2 of storage sheds, minor dredging works totalling about 550,000 m3 in 5 ports, and general repair and rehabilitation works (SAR, para 2.40 and PCR, para 2.06e). This item was not explicitly discussed in the PCR which notes (in para 3.17) that new and rehabilitated storage areas were provided under the project, without going into specifics. (b) 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 (SAR, para 3.04 and PCR, para 2.06f). The original scope was modified (PCR, para 3.03). 19 49. Technical assistance -- Training Provision of port training experts and equipment for training port labor and staff of TCDD and DB ports (SAR, para 30.4g(i) and PCR, para 2.06g(i)). Provision of training abroad (120 man-months) for personnel from the ten project ports and their head offices (in TCDD and DB) (SAR, para 3.04g(ii) and PCR, para 2.06g(ii)). Provision of 60 man-months of fellowships for overseas training in advanced harbor design and engineering for port engineers from DLH (SAR, para 3.04g(iii) and PCR, para 2.06g(iii)). Training was conducted for three agencies (TCDD, DB and DLH) which encountered difficulties in attracting new qualified staff because of the uncompetitive salaries they offered. Two port operations training schools were set up by recruitment of ILO specialists was problematic and training really began from mid-1981, TCDD and DB instructors continue to run courses for dock workers and technicians and the training school has produced illustrated technical booklets in Turkish (PCR, para 3.22). Nearly 100 management staff from MTC, TCDD, DB and DLH benefited from 1-2 week overseas visits (PCR, para 3.23). 50. Technical assistance -- Management studies (SAR, para 2.22 and PCR, para 2.06h) -- Consultancy services for: (a) revaluation of port assets. Revaluation of fixed assets of the ports was done in 1982 and incorporated in the accounting books in 1983 by both TCDD and DB (PCR, para 5.02ii and 5.03ii). (b) a cost accounting study to help establish a cost-related tariff; The two consulting assignments for tariffs and costing were not fully successful. The main reason was the inability of both specialists to work effectively with Turkish agencies where relatively little English, or other international languages are spoken (PCR, para 3.13). In general, the PCR noted that the choice of consultants by the Borrower is still influenced primarily by the cost rather than by the quality of the proposal (PCR, para 3.14). (c) studies and assistance to make the proposed National Ports Institution operational. Under Sections 3.06(a) and (b), the Loan Agreement had called for the establishment of a New Ports Institution (NPI) to take over the activities of the major ports. This was not implemented because "the Government as well as the Bank were no longer convinced that establishment of one Institute is the appropriate short-term approach to follow" (PCR, para 3.19). 51. Technical assistance -- Port subsector master Planning (SAR, para 3.041 and PCR, para 2.061) -- Provision of consultancy assistance for port sector master planning and engineering. Results were indifferent. The Borrower negotiated too few man-months with the Consultant, and this limited the depth of coverage of the final report. Study supervision by MTC was not sufficiently close to ensure the necessary coverage for all ports. The report ascertained that port capacity would be adequate during the next following years, and that construction of the new Marmara port was not justified (PCR, para 3.12). 20 Project resu1ts and Sustainability of benefits 52. Estimated project cost was US$155.6 million, with about US$75.0 million representing foreign costs (SAR, para 3.08). Actual project cost is not given in the PCR in a manner which would allow comparisons with estimates (PCR, para 3.16). At the time when the PCR was written, some project works were still uncompleted and the PCR gives an estimated total of US$80.6 million. 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 the strength of the US dollar during the project period (only US$57.7 million (77%) of the loan was utilized without any substantial changes in the project scope), and to the reduction in the US$ equivalent of local costs (from US$80.6 million to about US$22.5 million) due to the devaluation of the Turkish Lira (para. 3.16). The approved Loan Amount was US$75.0 million. Total disbursements amounted to US$57.8 million, and the balance of US$17.2 million was cancelled. Estimated project completion was in December 1982 (SAR, para 3.21). Actual project completion is not given in the May 1986 PCR, which states (under Key Project Data) that the estimated completion would be in June 1986. The planned Closing Date of the loan was June 30, 1983 (SAR, para 3.22). The actual Closing Date was June 30, 1984. 53. The estimated ERR was 37% (SAR, para 4.16). The re-estimated ERR is 39% (PCR, Dara 4.08) and, according to the PCR, reflects the higher general cargo traffic levels and higher productivity levels for dry bulk traffic. According to the PCR, traffic developed during the second half of the project at a faster rate than forecast, largely due to the Iran-Iraq war. As a result, the financial status of both TCDD and DB was good. Review of port tariffs has shown them to cover costs satisfactorily, although some rationalization of container tariffs may be necessary in the future (paras. 4.08 and 3.13). The Audit feels that such high rates of return should be treated with caution and not be taken as definitive proof of a project's "success", especially when a project was intended to start major institutional changes and the rate of return applies only to physical components. Except for para 3.19 (which concedes that the establishment a new National Ports Institution was not a good idea), the PCR does rot elaborate on the extent to which the project contributed to institutional strengthening in the port sector. 54. The PCR does not specifically discuss the extent to which project-generated benefits are sustainable. The implication of para 3.17 ("Achievement of Objectives -- Physical) is that physical components will continue to generate an acceptable benefit stream over their economic life. The PCR does not contain a specific section on findings and lessons. However, paras 3.17, 6.02-6.03, and 6.05-6.06 suggest that project experience has been internalized and that lessons have been applied in the design of the follow-on Third Ports Project (Loan 2535, US$134.5 million of May 1985). 21 III. THE HIGHWAY REHABILITATION PROJECT A. BACKGROUND The highway network 55. In the late 1970s, Turkey had about 330,000 km of roads: 30,000 km State Roads, 28,000 km Provincial Roads, and the rest Village Roads. Most of the network was built in the 1950s and 1960q and, despite good maintenance, many State Roads deteriorated because traffic volumes exceeded structural capacity. Strengthening and reconstruction were urgently needed, especially on the approximately 3,200 km of the Trans-Turkey Highway (TTH), the country's main transport artery. Traffic 56. In 1980, there were about 1.1 million registered vehicles, of which about 250,000 were small and large trucks. Between 1977 and 1980, the annual rate of increase for all registered vehiclis was 8.6%, and the annual rate of traffic growth was about 5%. Transit traffic, due to the Iran-Iraq war, grew much faster and caused considerable damage to the TTH. In the heavily-laden direction, loads were about 2.5 standard axles per commercial vehicle, aud about 1.7 standard axles in the back-haul direction. Road transport was in the hands of private operators, entry into the industry was practically free, and only the large municipal bus services in Ankara and Istanbul were publicly owned. Tariffs were set for routes and commodities by MTC, but it was common practice to negotiate rates with customers, and charges compared reasonably well with vehicle operating costs. Administration. planninz and finances 57. The General Directorate of Highways (KGM) of MPW was responsible for design, construction and maintenance of the highways and bridges forming the State and Provincial highway network. For construction and maintenance, KGM relied upon both force account and contractors, and supervision was carried out by KGM staff. In the early 1980s, KGM had a staff of about 1,300 professional engineers, 600 sub-professionals, 32,000 non-professionals, and a seasonal work force of about 15,000. Though salaries were low, staff quality was high. Excluding Village Roads (which came under the Ministry of Village Affairs), planning in the highway subsector was done by KGM, SPO and MOF. KGM prepared a basic program according to its technical and economic assessment of needs. The program was reviewed by SPO for consistency with general planning objectives, and by MOF for financial constraints and conformity with fiscal policies. Resource limitations in the early 1980s led to the postponement of some large new projects so that funds could be diverted to strengthening and rehabilitation of priority sections of the existing network. Road maintenance, rehabilitation and new construction were financed by allocations from the Government's general revenues, by earmarked revenues 22 from toll roads, bridges and tunnels, and by duties on fuel sales. Road user charges were sufficiently large to cover road expenditures but their incidence favored heavy vehicles. B. PROJECT INCEPTION AND PREPARATION February 1976: Hiahway Sector Loan 58. In the 1970s, reduction of the bilateral assistance for roadbuilding that Turkey had so far enjoyed, prompted the Government to seek a Sector Loan from the Bank. Exploratory talks were held in February 1976, when the Under Secretary of MTC discussed the matter with a Bank mission that happened to be in Ankara for a review of a UNDP-financed project. Bank staff indicated that a Sector Loan would require preparation of a national transport sector master plan as well as of a highway sector plan. The Under Secretary asked about the time required for loan processing, and said that the loan for the First Railway Project had taken "years". Bank staff replied that a Sector Loan would take less than a year once it was in the lending program and once the technical requirements were met. The Under Secretary asked how much of the project costs the Bank would finance. Bank staff replied that the Bank generally financed foreign costs which generally ran between 30 and 70 percent of total costs. The Under Secretary felt that the Bank should finance all local costs, since Turkey had a balance of payments problem, as well as an employment problem, and the funds would be useful in terms of helping the national economy. Bank staff replied that this was a matter which should be discussed with Bank management. 59. It is clear that Government wanted the Bank to finance some large part of an unspecified highway investment program, that it wanted the money to come faster than it had done under the First Railway Project, and that it wanted financing of local as well as of foreign expenditures. It is equally clear that the Bank wanted to help. However, Bank staff knew that sector lending was a new instrument of as yet unproven efficacy, and pointed out that financing would be conditional on activities and procedures which Government feared would take too long.16/ In brief, the Government wanted to move fast and to answer few questions, whereas the Bank wanted to ask questions that required much effort and a long time to answer. Fourteen months later, not much progress had been made with the preparation of a Sector Loan and, in the meantime, the Bank had realized that, despite the centralized planning and control approach it had advocated for the First Railway Project, its financial and technical j1j/ In retrospect, Bank staff insistence upon the conditions which ought to govern highway sector lending was fully justified. See the PPAR on Mexico: First Highway Sector (OED Report No. 6896 of July 20, 1987), and paras 5.17-5.22 of the Annual Review of Project Performance Results for 1987 (OED Report No. 7404 of August 17, 1988). 23 assistance were reforming neither the transport sector as a whole, nor TCDD itself. April 1977: Trans-European Motorway and Trans-Turkey Highway 60. Disenchanted that the Railway Project was making so little progress, the Bank wrote to the Government on April 22, 1977, that if adequate steps could not be taken to resolve problems, it might be advisable to replace further support to railways with assistance to highways, possibly to the priority segments that would eventually form part of the Trans-European Highway. In the same letter, the Bank expressed willingness to send a reconnaissance mission in June/July 1977. 61. The record does not explain why and how the Bank decided to associate itself with the complicated Trans-Europe Motorway (TEM) concept.1./ Since Turkey was a member of the TEM project, TEM standards were expected to apply to any road sections in Turkey that would be part of the TEM. The possibility that Bank-financed road projects in Turkey might be multi-lane, controlled access facilities suggested that technical assistance, training programs, and additional studies would be warranted. However, Turkey's road construction industry had not yet developed to the point where it could undertake complete construction of high-standard roadworks. This alone was bound to create problems because the Government's position was expected to be that, in order to qualify for bidding, foreign firms would have to form joint ventures with local firms. Government had not responded to earlier Bank queries whether they would allow international competitive bidding in road construction. 62. Complexities and unknowns notwithstanding, a reconnaissance mission did visit Turkey in June 1977, and the mission's findings were summarized in an August 2, 1977, letter to the Director General of the Treasury. While in Turkey, the mission discussed draft terms of reference (TOR) of an extraordinary detail for a Prefeasibility Study on the Trans- Turkey Highway. In addition, the mission prepared an aide-memoire listing, also in extraordinary detail, all the decisions and actions that Government would have to take for the project to proceed. Both the Prefeasibility Study and the actions by Government were expected to be completed within the following ten months so that the project could be appraised by late summer 1978. It is not possible to say what led the mission to conclude that the work they outlined, which would have taken years anywhere else, could be done in months 4n Turkey but such was the mission's conclusion. 11/ This was a joint UNDP-ECE venture for the study, design and construction of a multi-lane, controlled access facility to serve as the primary transportation corridor of 10 countries. It was intended to provide a high standard land connection between northern Europe and the Middle East and, for this reason, all studies on TTH sections were to be coordinated and harmonized with the TEM concept. The overall TEM system study was scheduled for completion in 1981 and included the standardization of design, construction and operation criteria. 24 63. As things turned out, nothing at all happened. To begin with, there were problems with consultant selection for the studies. Turkish law dictated that Government had to select the lowest bidder from the short list of firms submitting proposals. The Bank's formula of selecting firms on the basis of technical qualifications followed by price negotiations was unacceptable. The possibility that UNDP might finance the study, whereby the Bank would enter into a contract directly with the consultants, was discarded because Government did not wish UNDP to finance studies. December 1977: Proiect Brief 64. Despite these difficulties, the Bank proceeded to draft a Project Brief in December 1977,8/ but further preparation did not proceed expeditiously. By April 1978, Government was reported to be reviewing its general transportation policy with a view to develop further the railway system. The decision to proceed with the feasibility study of the Kinali- Istanbul, Izmit-Adapazari, and Tarsus-Posanti road sections was reported to be under consideration by the Minister of Public Works. The Government wanted to have a multi-modal transport feasibility study for the whole of Turkey. By June 1978, the Minister of Public Works had requested the President of the World Bank that the Bank consider assisting Turkey to prepare "needed intermodal studies of its entire transport system with a view to developing a well founded master plan for transport in Turkey." 65. What this amounted to was that the proposed integration of the TTH into the TEM would be scrapped and that, notwithstanding the Bank's disenchantment with TCDD, further assistance to railways would not be ruled out. Nevertheless, the Bank's Programs Department counseled flexibility and urged that, since the Bank had for many years been involved in supporting coordinated intermodal transport planning, it would be appropriate to convey to the Government support of their proposal for the development of a master transport plan. Bank support was expected to take the form of financing additional technical assistance under the Port Rehabilitation Project. However, as already shown, no technical assistance was included for masterplanning the entire transport sector. 66. The project file does not say how and why the project described in the December 1977 PB was aborted. Indeed, there is a gap in the file documentation between 1978 and 1981. The March 16, 1990 PCR states under "Comments" on Table 2 ("Project Timetable") that "during this period Government and KGM were undergoing major change, and were unable to commit to borrowing". Perhaps what is really meant is that the socio-economic crisis had assumed such proportions that Martial Law was declared in 1979, that a Military Government took over on September 12, 1980, and that, under the circumstances, discussions on harmonization of highway design standards could not possibly attract any serious attention. If that is the explanation, the PCR would not have harmed Bank-Government relations by acknowledging facts that are common knowledge. 12/ See Turkey -- Project Brief: Proposed First Highway Project, dated December 7, 1977. 25 April-June 1981: Highway Rehabilitation Prolect -- Inception 67. On March 19, 1981, Government requested inclusion into the Bank's FY92 lending program of a "Trans-Turkey Rehabilitation Project" with an estimated foreign exchange component of $180 million.1/ The Bank responded by dispatching in June a reconnaissance mission2-Q/ which returned with two principal findings. First: Government had made an impressive effort during the past few months in preparing this project so that appraisal in September-October, with a loan in FY82, became a distinct possibility; and secnd, the road between Iskenderun and the Iraqi border was breaking up fast and its reconstruction ought to be undertaken without delay, especially since truck operations were an important source of foreign exchange earnings for Turkey. From this point on, project preparation proceeded speedily. July 1981 - September 1982: From preparation to effectiveness 68. In July 1981, the Bank prepared a Project Brief (PB). A revised version was circulated on August 20, 1981, describing a proposed US$70.0 million project. Appraisal took place in November 1981.21/ It was based on preparation work done by Government and on the August 1981 PB, and the project remained substantially as described in the PB. Queries and issues outstanding at the time when the PB was written (PB, paras 21-22), were resolved during appraisal. The appraisal mission arranged for co-financing by the Kuwait Fund (US$70.0 million). No formal Decision Meeting took place. Negotiations took place in February 1982, and the Board of Executive Directors approved a loan of US$71.1 million on May 11, 1982. The loan became effective in August 1982. C. PROJECT EVALUATION Documents and information sources 69. The socio-economic setting against which the project was identified and prepared is discussed in paras 3-25 of the April 20, 1982 President's Report (PR). Paras 2.01-2.27 of the April 22, 1982 Staff Appraisal Report (SAR) describe the status and prospects of the highway subsector in the early 1980s. The salient feature was that most of the I/ See the April 27, 1981 note to files on Turkey -- Proposed First Highway Project. 2/ See the June 23, 1981 Turkey -- Proposed Trans-Turkey Highway Project: Back-to-Office and Full Report. 21/ See Turkey -- Appraisal of a Highway Rehabilitation Project: Issues PaperlDecision Memorandum, dated December 3, 1981. 26 roads had not been designed to meet the growing traffic and that despite extensive maintenance programs, the road network was deteriorating. The project was to support Government efforts to rehabilitate and strengthen the network, with emphasis on highways which played an important part in foreign exchange earning. 70. In June 1989, a draft PCR on the Highway Rehabilitation Project (Loan 2137-TU) was submitted by EMENA to OED. The loan had been officially closed two years earlier (on June 30, 1987), but as two of its civil works contracts were to be completed under the follow-on Second Highway Project (Loan 2939-TU), the Borrower suggested that these be finished before writing a PCR. EMENA agreed but, when completion of the two contracts began to take far longer than anticipated, the Borrower was asked to submit a PCR by March 1989, giving estimated costs for any work that might still be outstanding. In February 1989, EMENA supplied the Turkish Highway Authority (KGM) with Parts I ("Project Review from the Bank's Perspective"), and III ("Statistical Information"). By June 1989, KGM did supply final cost data and recalculated Economic Rates of Return (ERRs), but did not offer Part II on "Project Review from the Borrower's Perspective". OED sent the incomplete PCR to the Borrower on January 5, 1990, with the request that the missing section be drafted, and that comments on the sections prepared by EMENA be submitted by February 23, 1990. No response was received by that date and, insofar as it goes, the incomplete PCR, published on March 16, 1990,22/ is a satisfactory document. The gaps it does contain are discussed in the following paragraphs. Project objectives 71. According to the SAR (para 3.02) and the PCR (para 5), intended objectives were to: improve through rehabilitation and strengthening priority sections of the network; promote improved planning and control systems; support Government efforts to improve highway safety and develop a suitable vehicle loading control system; and provide training for highway staff.2,1/ The PCR contains no section discussing the extent to which each objective has been achieved. Project components 72. Experience with the implementation of the different components constituting the appraised project (SAR, para 3.03) was as follows: 2/ While this PPAR was being drafted, KGM did send comments (via a letter dated March 30, 1990), and these are appended as Annex I. 2./ Please note that planning for increased capacity in the transport of bulk commodities, and the study of the domestic civil construction industry (both proposed in para 7 of the August 1971 PB) were dropped from the appraised project for reasons which the record does not make clear. 27 (a) A three-year time slice of the highway rehabilitation and strengtheniny program (about 775 knO to be compIeted by 1986. The body of the PCR does not say how many km were done under the project. The Evaluation Summary says (page iii) that a total of 965 km were rehabilitated, and that of these 337 km were financed by the Kuwait Fund and 628 km by the IBRD Loan.2_/ (b) Procurement of specialized equipment for highway rehabilitation works. The PCR contains no detailed discussion of this component. It does say (para 14) that 80% cf the equipment were delivered within 14 months after the loan became effective. (c) Equipment and materials for (i) the preparation of future programs of highway rehabilitation; (ii) a vehicle axle loading and control system, and a program to evaluate pavement performance and related road user charges; and (iii) a highway safety program. The PCR contains no detailed discussion of this component. The Evaluation Summary notes that the equipment was procured; that the pavement management system is not yet in place; that the road user charge study was not completed until two years after loan closure; and that the highway safety program is ongoing and successful.25/ (d) Consultancy services for supplementary studies. The PCR discusses consultancy services in general under para 31 and says that, on the whole, and despite the earlier reluctance of the Executing Agency to use consultants, these were satisfactory.2-/ Study results took a long time to come (PCR, para 17) but have been of moderate use. The Highway Safety Study contributed to the implementation of an effective and well-monitored safety program. The Axle Load Study, which was still not finished in April 1989 because data for the related analysis of user charges has iot been forthcoming from other 24/ However, KGM's comments on the PCR (appended as Annex I) state on page 3 (para 8) that the IBRD loan financed 594.3 km. 25_/ In its comments on the PCR, KGM reports that the pavement research project was satisfactorily completed (Annex I, para 14). g/ KGM takes exception (Annex I, para 15) to the comments on consultancy services both in the body of the PCR and in its Evaluation Summary, and states its position as follows: "... KGM constructs, maintains and operates all state roads, provincial roads as well as motorways in Turkey. Being aware of the above mentioned responsibility, KGM has employed well-educated and experienced technical staff on different engineering branches since the beginning of its establishment. Even, many of these engineers have been sent abroad with a view to upgrading their experience as well as obtaining information on the recent developments of different engineering subjects. Therefore, it is KGM policy to make use of its own staff before all else, in dealing with the engineering problems to be solved. Of course, foreign consultancy services are also used for the subjects in which supplementary information and experience are considered indispensable..." 27 (a) A three-year time slice of the highway rehabilitation and strenthenina program (about 775 km) to be completed by 1986. The body of the PCR does not say how many km were done under the project. The Evaluation Summary says (page iii) that a total of 965 km were rehabilitated, and that of these 337 km were financed by the Kuwait Fund and 628 km by the IBRD Loan.24/ (b) Procurement of specialized equipment for hipghway rehabilitation works. The PCR contains no detailed discussion of this component. It does say (para 14) that 80% of the equipment were delivered within 14 months after the loan became effective. (c) Equipment and materials for (i) the preparation of future programs oi highway rehabilitation; (ii) a vehicle axle loading and control system, and a program to evaluate pavement performance and related road user charges; and (iii) a highway safety program. The PCR contains no detailed discussion of this component. The Evaluation Summary notes that the equipment was procured; that the pavement management system is not yet in place; that the road user charge study was not completed until two years after loan closure; and that the highway safety program is ongoing and successful.25/ (d) Consultancy services for suplementary studies. The PCR discusses consultancy services in general under para 31 and says that, on the whole, and despite the earlier reluctance of the Executing Agency to use consultants, these were satisfactory.2-/ Study results took a long time to come (PCR, para 17) but have been of moderate use. The Highway Safety Study contributed to the implementation of an effective and well-monitored safety program. The Axle Load Study, which was still not finished in April 1989 because data for the related analysis of user charges has not been forthcoming from other / However, KGM's comments on the PCR (appended as Annex I) state on page 3 (para 8) that the IBRD loan financed 594.3 km. 2/ In its comments on the PCR, KGM reports that the pavement research project was satisfactorily completed (Annex I, para 14). 2_/ KGM takes exception (Annex I, para 15) to the comments on consultancy services both in the body of the PCR and in its Evaluation Summary, and states its position as follows: "... KGM constructs, maintains and operates all state roads, provincial roads as well as motorways in Turkey. Being aware of the above mentioned responsibility, KGM has employed well-educated and experienced technical staff on different engineering branches since the beginning of its establishment. Even, many of these engineers have been sent abroad with a view to upgrading their experience as well as obtaining information on the recent developments of different engineering subjects. Therefore, it is KGM policy to make use of its own staff before all else, in dealing with the engineering problems to be solved. Of course, foreign consultancy services are also used for the subjects in which supplementary information and experience are considered indispensable..." 29 attention.a/ The PCR states (paras 25-26) that project-generated benefits regarding both vehicle operating costs and institutional improvements are sustainable. IV. BANK ASSISTANCE TO TRANSPORT Overview and outstanding issues 76. Seventeen years passed from inception of the Railway Project, through implementation of the Ports Project, to closing of the Highway Rehabilitation Project. In all three projects, loan funds were for works, equipment, technical assistance and staff training, but the end objective was to strengthen sectoral planning and operation. The three projects did meet their physical targets -- no mean accomplishment in itself -- but policy and institutional reforms were not achieved because their scope was vast, and vested interests in no change were huge. Economic justification could not be reconciled with political and administrative tensions, the Government and the Bank continued to subscribe to different definitions of "best practice" and, in the case of port planning, this led to vacillation between centralized and decentralized approaches, with no firm stand taken on either. Cultural, linguistic and institutional practices differed so greatly between Turkey and the Bank that poor communication was inevitable. On this last point, the evidence is overwhelming: disagreement over principles of finance for different transport modes; disagreement over advisability of planning exercises; disagreement over procurement practices. 22/ 77. Until the early 1980s, the Bank saw its lending operations as major interventions for development. The presumption was that before granting a loan, Bank staff would assess the borrower's economy as a whole, and individual sectors separately, in order to determine the costs and benefits of different strategies. Detailed study would allow the Bank to offer investment capital and policy advice that would be most appropriate for time and place. Unfortunately, the advice offered to Turkey via zhe three transport projects left much to be desired. Bank knowledge of the railroad sector was skimpy, but the Railway Project proposed to reform 21/ KGM's planning department, for instance, has always been eager to discuss analytical methods with Bank staff during supervision missions, and to obtain the latest Bank publications and models. In the early 1980s they used the Bank's RAM model and as soon as the PC version of the HDM model became available, they quickly installed it on their computers. Worksheets developed by Bank staff in late 1987 to analyze the economic and financial feasibility of motorway sections was taken over, expanded upon, and is now a standard feature of KGM internal feasibility reports. Similar instances could be cited with the other departments of KGM. 29/ For Borrower comments on this paragraph, please see Annex II, fourth paragraph of the covering letter. 30 TCDD.12/ Maritime statistics were unreliable, but the Ports Project would be instrumental in planning nation-wide port development. The scope of the Highways Project turned out to be more pragmatic but not before the Bank had urged that Trans-Europe Motorway standards be adopted, in record time, for the Trans-Turkey Highway. It may therefore be argued that the difficulties of effecting policy and institutional change were glossed over by Bank management because "pipeline" considerations favored speedy prescription at the expense of thorough diagnosis. 78. When project and policy implementation run into problems, course corrections are called for. In Turkey, a combination of economic, cultural, linguistic, and political factors made it hard to say which would be the right direction. Should financing of works and equipment be cancelled if procurement takes too long? If some policy measures encounter resistance, should all policy objectives be discarded? Should they be modified? To what extent? How can abstruse debates on regulation, pricing and competition be conducted across a language chasm? What about day-to- day exchanges, when bidding documents cannot be reviewed in Washington because they are in Turkish? These were causes enough for complication and delay, but they were not the only ones. Over the past thirty years, Turkey has been going through major changes and Bank reactions, slowed down by an expanding bureaucracy, were not what they should have been. 79. In the early 1980s, Turkey was in serious trouble. The Government, under pressure to show results, was impatient with Bank procedures. Bank staff continued to insist on studies and detailed preparation before approving any further assistance, and this reinforced the reservations that Government had entertained for some time about the Bank's modus operandi. The Bank had insisted that the National Ports Authority was indispensable for port development, that the Trans-Turkey Highway ought to follow Trans-European Motorway standards, and that the future of the railway was dim. On all three counts, events went counter to the Bank's position and, looking back, Turkish authorities may have concluded that the Bank could perhaps be tapped for loans but any policy advice ought to be handled with care. In brief, Turkey may have come to believe that when it came to devising socioeconomic remedies, the only people to do it were Turks. 80. On the face of it, the belief was not without foundation. Turkey did not hesitate in taking drastic steps against the economic, 12/ Disappointing experience with railway projects is not limited to Turkey. As the PPAR on the First Railway Project notes, Bank railway projects have generally tended to be trouble prone, and railway problems have been difficult to diagnose and cure. Several PCRs and PPARs analyzed Bank railway projects (e.g., Indonesia: First Railway Project, Pakistan: Tenth Railway Project), which had far-reaching and comprehensive objectives but fell short of expectations. Experience suggests that overly ambitious designs were partly responsible. The PPAR felt that both Bank staff and Turkish officials felt that any further Bank lending ought to be confined to limited objectives, such as improving TCDD's operations, rather than addressing all major problems facing the railway sub-sector. 31 financial and political problems of the late 1970s. The Military Government of September 1980 established a Consultative Assembly to draft a new constitution, subsequently endorsed by a November 1982 referendum. Parliamentary elections in November 1983 led to a new Government which assumed office in December 1983. Meanwhile, pursuit continued of the 1980 reforms to strengthen market forces so as to ease balance of payments constraints and import shortages. On the domestic front, Turkey intended to reduce the inflation rate, to reform of the State Economic Enterprises (SEEs), to create a more efficient financial sector, to improve mobilization of resources, and to devise methods for a better selection of investments, especially in the public sector. 81. Seeing pragmatism in the macro reforms, the Bank offered powerful support by approving five Structural Adjustment Loans between 1980 and 1985. Over the same period, Bank lending for transport adopted modest objectives: strengthen infrastructure to facilitate exports, and improve efficiency of sector-wide operations. Nevertheless, modest though these aims might have been, and no matter how well the lessons of the Railway Project were taken into account, sectoral and macroeconomic imperfections created serious obstacles for their achievement. 82. It is true that, in the final analysis, only Turks can strengthen their economy, and that the Bank should only respond to requests for assistance. However, before a thoughtful request can be formulated, one must know where one stands. In the early 1980s, Turkish transport authorities had still not confronted basic issues in pricing, investment and operational efficiency. Road user charges for heavy trucks did not adequately reflect the damage done to the network. The railroad operated at a loss. Port tariffs, while generating an adequate level of revenues, were not related to the cost of specific services. Government liked to believe that all such metters would be resolved through the National Transport Master Plan (NTMP), approved in 1983, and covering the 1983-1993 period. 83. The record does not show whether the Bank ever communicated to the Government any formal reservations about the NTMP, but does reveal that Bank staff entertained misgivings about it. For example, the October 21, 1982, Turkey: National Transport Master Plan -- Lending Strategy Considerations -- Back-to-Office Report questioned the Turkish belief that the NTMP represented the ultimate in transport planning, and therefore constituted an adequate basis for Bank approval of large-scale lending. NTMP had failed to address weaknesses in planning and monitoring capabilities at the sub-sector level and this would have to be corrected as quickly as possible. The BOR noted however that, in view of complicated preparation and supervision procedures and of the need to build up sub- sector strengths first, Bank-financed, multi-agency projects would not be ideal instruments for this purpose.31/ Other Bank staff who reviewed the 11/ In time, these strong views were softened. The May 16, 1984 President's Report on the Second Highway Project merely says (para 42) that "... although the NTMP has certain limitations, it is a valuable component in the planning process for the sector in that it provides a first comprehensive long-term forecast of transport 32 NTMP also concluded it could have been better. The Plan did show a logically developed investment program for 1983-1993, based on major transport links, and related to transport mode capacity and cost, but its investment strategy paid little attention to how demand might change, and to how realistic or unrealistic traffic assignment might have been. Bank staff felt that issues deserving deeper examination had been treated too casually and wondered whether the NTMP should not have built into it some insurance against shortage of port capacity, or expensive and ineffective railway over-investment. Bank staff also felt that NTMP addressed in too limited a fashion the policy and institutional dimensions necessary to support investment decisions. Plans for specific actions were missing, and so were clear answers to admittedly difficult, but nevertheless unavoidable questions. EirA Railways and ports were run by revenue-earning agencies. Would Government accept economic and commercial criteria in judging operational practices and decisions in such agencies? Secon Depending on the transport services they had to perform, different modes deserved different treatment. Would clear indications be given from senior Government level on the priority to be assigned to each mode? 22/ Third Some public sector agencies had too many people on the payroll and not enough experienced staff. Would Government institute personnel reviews related to operational needs, and would it adopt the necessary steps to meet deficiencies through recruitment, training or technical assistance? garth All modes could benefit from greater freedom in managerial decisions, from amendment of outdated budgetary conventions, and from strengthening of financial accountability. Wculd Government risk showing the necessary flexibility, and would it accept the introduction of private sector practices in public sector activities? 84. These and all other questions boiled down to two unknowns. First, would Government allow freedom enough to the transport agencies? demand... The Government intends to update the NTMP every three years, the first time in 1985..." The record contains no evidence that such updating work has taken place. Significantly, the June 11, 1986 President's Report for the Second Railway Project says (para 41): "... the Government intends to update the NTMP every three years, the first revision being scheduled for 1986...". In sum, the NTHP was never updated. An attempt to do so in 1986 by SPO was aborted for political reasons preceding the 1987 elections, as different opinions could not be reconciled regarding the scope and size of the motorway program. ,U/ Government had accepted this at the time of the 1980 Public Sector Investment Review but, with minor exceptions, only lip service was being paid to the principle. 33 And, second, would these agencies have the motivation and the staff to act responsibly? Where staff shortages were the major constraint, the Bank felt that Government should use technical assistance, and although Government attitude towards technical assistance had never been enthusiastic, the Bank persisted. It also prepared a draft Transport Sector Memorandum -- a comprehensive agenda on transport-related issues -- and discussed it with Government in July 1983. This was right in the middle of the 1980-85 SAL Program, and Turkish authorities were responsive in principle: they agreed that tariffs should be based on costs, though they qualified their position by saying that specific programs to reach this goal would have to be prepared for each mode separately. They also agreed that approval of major investments had to be based on feasibility studies, and that transport agencies had to be strengthened before their performance could improve. 85. By August 1983, the Bank had learned that agreement in principle was one thing and decisive action quite another. Specifically, the Bank knew that cost-based tariffs, not to mention investment criteria limiting the power for politically-inspired interventions, would touch sensitive nerves and that, consequently, such matters had to be confirmed by the Government which assumed office in December 1983. Still, to demonstrate its good faith, the Bank followed up on the 1982 Highway Rehabilitation Project with three more loans: the Second Highway Project was approved in 1984,1/ the Third Ports Project in 1985,2/ and the Second Railway Project in 1986.31/ All three are ongoing in early 1990 and Supervision Reports I/ See, the May 16, 1984, President's Report (Report No. P-3761-TU), and the May 18, 1984 Staff Appraisal Report (Report No. 4978-TU). The US$186.4 million loan consisted of elements selected from the 1985-88 investment program of KGM. The loan provided financing for (a) highway civil works; (b) procurement of equipment; (c) consultancy services and training. 14/ See, the April 22, 1985 President's Report (Report No. P-3995-TU), and the April 24, 1985, Staff Appraisal report (Report No. 5463-TU). The US$134.5 million loan was designed to assist in introducing modern container handling technology. The loan provided financing for (a) container equipment for the ports of Izmir, Haydarpasa, Mersin and Teabzon; (b) renewal of floating equipment required for construction and maintenance of port facilities; (c) civil works for container berth facilities; and (d) technical assistance. 21/ See the June 11, 1986 President's Report (Report No. P-4223-TU), and the June 2, 1986 Staff Appraisal Report (Report No. 5898-TU). The US$197 million loan was to increase the operational efficiency of railways and to assist in their financial recovery. The project consists of a maintenance and management program of the locomotive fleet; overhaul of about 740 km of main line track, and provision of track overhaul equipment; modernization of about 700 km of main line signalling; construction of about 65 km of track; and technical assistance and training. 34 reveal that none is problem free. / Procurement difficulties, staff constraints, and fund shortages, continue to be valid explanations, but more substantive reasons can be found in the macroeconomic setting where these projects were prepared and are being implemented.2y/ 86. One seemingly minor point deserves mention. In mid-1982, the State Planning Office (SPO, the agency which had coordinated the preparation of the NTMP), was relocated to the Prime Ministry. The move promised that SPO might acquire more authority over sub-sector agencies, and that it might secure more staff and resources. Neither promise materialized and the Bank found itself in the delicate position of having the Undersecretariat of Treasury and Foreign Trade as its official contact, while dealing with SPO on transport. Preserving smooth relations with two agencies that did not always see eye-to-eye was a challenge for the Bank, whose efforts, in this respect, do not seem to have been consistently successful. 87. Information available in Washington suggests that in early 1990, the transport sector keeps pace with demand, but several sub-sectoral imperfections prevent it from doing so in the most economic way. First Traffic which would be better carried by rail or sea appears to be using roads, because maritime and rail transport are not well organized and equipped, and the road system is obliged to carry loads beyond its structural capacity. Secon Private road transport, civil aviation and ports are commercially viable, but TCDD continues to suffer from management and operational problems. Thirg The phasing of road and rail investment deserves careful scrutiny, even though this might lead to modifications in the longer-term strategy, which seems to assume an important role for railway transport. 88. In all sub-sectors, the need is pressing for operational and institutional improvements, as well as for investments. However, none of the agencies under MPW or MTC display much interest for a "sector approach" (i.e.. one that would make achievement of their own objectives subject to actions in other agencies). Sub-sector projects seem to be preferred, possibly because they ensure greater participation of Bank staff in preparation. If this supposition is accurate, a major change has occurred in the attitude of Turkish officials who, twenty years ago, would never have admitted they could use technical inputs from the Bank in designing interventions to improve sectoral and sub-sectoral performance. At any event, there is little doubt that much technical input is required because 16/ Indeed, the December 29, 1989, Supervision Report on Ports III (Loan 2535-TU), gives the project an overall rating of 3, which indicates major problems. V/ For a brief summary, please see Appendix 1: Notes on Macroeconomics in the 1980s. 35 a summary "status report" reveals that policy pronouncements alone would never resolve the problems summarized in the following list: First A genuine "sector loan" might be possible for KGM which has a relatively robust planning department, but KGM gives the impression that they wish to continue with road rehabilitation along the lines of Loans 2137 and 2439.W./ Second MTC and the ports agencies of TCDD and DB seem to believe that while that a new "Marmara type" port, combined with the rundown of the Salipazari port, will eventually be desirable, major port infrastructure investments are unlikely to be needed until after 1990. Still, there is a clear need for improvement of existing ports, through reorganization and specialization of operations and modernization of equipment. Third A special set of issues arises out of the expansion of container terminals and the associated mechanics for land-transport handling of containers. Fourth TCDD operations remain the least tractable problem in the sector There are urgent needs for operational and institutional reforms, improvement of maintenance and investments in equipment and infrastructure. TCDD lacks the resources for the necessary planning work and technical assistance would be required for several years. Fifth The Village Road sub-sector (under the Ministry of Village Affairs) covers about 200,000 km of tertiary roads and tracks. Any outside involvement in this politically sensitive subsector would require much preparation, because in-house planning and implementation resources seem to be limited. Sixth Extremely high road accident rates have received much attention without being visibly reduced. The principal reason is that Turkish-built trucks, especially the smaller ones, have less than 10hp per ton and operate below specifications acceptable in Europe. Local motor industry producers say that trucks normally carry loads far in excess of those for which they are designed.12/ 3a/ KGM's response has been eloquently silent to the October 13, 1989 Bank letter to Treasury proposing a "Highway Subsector Development Loan". 32/ See "Booming business drives motorists to the edge", by David Burchard, in The Financial Times, October 22, 1987. 36 It remains an open question as to whether or not Turkey will accept outside participation in any attempt to confront systematically problems such as these. Conclusions and recommendations 89. During the thirty-nine years between 1950 and 1989, the Bank extended to Turkey loans with a total nominal value of US$663.0 million for seven transport projects in ports, highways and railways.Q/ All seven encountered difficulties but the work got done, and the money was not wasted. Nevertheless, for almost forty years, Bank-Government relations were not smooth, which made it hard for the Bank to assist in strengthening and reforming the sector as a whole, and the sub-sectors separately. 90. What differentiates the Bank from commercial sources of financing is a reservoir of technical expertise placed at the disposal of Member Countries; but Turkey did not tap it. Also, whenever a project requires more capital than the Bank can provide, Bank staff go to great lengths in order to secure co-financing; but again, Turkey did not really use this valuable service. Bank staff believe they have helped KGM adopt more rigorous methods for project preparation and this may indeed be an important contribution. Still, the sense is palpable that, after forty years, the two sides have not reached the level of frictionless collaboration which alone ensures effective transfer of technology and genuine institution-building. Two barriers have prevented this from happening. 91. Language is the first. The vast majority of Bank staff do not know Turkish, and the vast majority of Turkish officials do not know English. Bank staff and former Turkish officials attribute to difficulties in communication many of the misunderstandings that cropped up over the years. Communicating through interpreters does not work in Turkey because the official interpreters know little English themselves A1/ and, often, Ag/ For comparison purposes, it is interesting to recall that, for Cameroon, during the fifteen years between 1970 and 1985, the Executive Directors approved a total of US$474.1 million equivalent for fourteen transport projects. A1 The following excerpts from page 26 of the official comments sent to the Bank by TCDD on the PPAR of the First Railway Project demonstrate that communication is difficult if one side believes it commands a language when, in fact, it does not: 5.3 Much more trustable and much more better 44 G-M diesel locomotives planned to put into service in 1985 and the transportation of most of the jewel will be done with these locomotives. This way will make a direct jewel train from Divrigi to Karabuk and this would decrease the wagon rotation. The same type good train management will be expanding. 37 senior officers of the Government decline to meet with Bank staff because they know it will be a waste of time. at/ 92. The second barrier is higher. The Republic of Turkey is the successor state of the Ottoman Empire which, for over five hundred years, was a formidable superpower. Over the centuries, Turkish leaders have occupied the thrones of Loyang, Samarkand, Bokhara, Herat, Delhi, Baghdad, Damascus, Cairo and Constantinoupolis. Turkish admirals led Chinese fleets to Ceylon and Arabia, Turkish statesmen were prime ministers of the Byzantine Empire, and Turkish artists produced world-class architectural masterpieces. The Turkish nation lives in the area which saw the flourish, and decline, of the Hittite, Assyrian, Lydian, Phrygian, Hellenic, Hellenistic, Roman, and Byzantine civilizations. Turkish museums preserve, and Turkish scholars study, the surviving remnants of cultures that affected all of humanity. Such accomplishments justify pride, and the Turkish nation expects reciprocation of the refined politeness it traditionally extends to outsiders. Unfortunately, some Bank staff assigned to work in Turkey did not take pains either to reflect upon its history, or to learn its language. Thus handicapped, they saw the country through tables of unimpressive statistics, and concluded that Turkey could be confronted as all other countries with unimpressive statistics. Their attitude may have wounded the pride of Turkish officials who might have then chosen to believe that the whole Bank subscribes to the views of some few of its staff. A2/ 93. Issues outstanding in the transport sector were summarized in paras 83, 87 and 88 above. If the summary corresponds to reality, sector improvements will require much technical and financial support. Government has made it clear that it does not welcome Bank "interference" in investment decisions, and that it does not share the Bank's confidence in the efficacy of technical assistance. Indeed, as late as in mid-1989, Government may have entertained the thought that other sources of financing, mostly commercial, were available to support transport investments, and that Turkey could probably dispense altogether with both capital and technical assistance from the Bank. From the Turkish viewpoint, this would be desirable for two reasons: (a) the domestic construction capacity was fairly well developed (and this reduced the foreign exchange component of transport projects), and (b) local contruction activities are appreciated by Turkish politicians (who can 5.4 To make easy side maneuvers and increase making direct trains two of (Marshalling yard) triaj gar has been projected. It has been studied on these two triaj gar. 5.5 Also TCDD is believes in necessity of modernization of signalization of lines and electrification to make decrease rotation. 4g/ For Borrower comments on this paragraph, please see Annex II, fourth paragraph of the covering letter. 42/ For Borrower comments on this paragraph, please see Annex II, fourth paragraph of the covering letter. 38 generate jobs for low-grade labor). On the other hand, the transformation of Eastern Europe begun in December 1989 suggests that Turkey should not count too much on the availability of plentiful commercial capital. Over the next five to ten years, Eastern Europe will absorb an inordinate amount of the attention, capital and technical expertise available in the Western world. Turkey may therefore reflect on the advantages of coming closer to, rather than drifting away from the Bank. 94. For the last twenty years, starting with the First Railway Project, the Bank cannot be faulted for the broad directions it suggested for Turkish transport: increased competition, because it would reduce costs for the user; financially healthy State Enterprises, because they would be less of a drain on public funds; modern management techniques, because they would protect Turkish interests as association with the EEC progressed. The tone in which these suggestions were made was often inappropriate, but the message was sound and continues to be as valid today as it was twenty years ago. The transport sector offers considerable scope for more efficient use of resources through greater selectivity in investments; through savings in operating costs; and through enhanced cost recovery. Considering the absolute size of operating costs and of transport investments, which in recent years have accounted for about 30% of total public investment, savings could be large and have a pronounced effect on macroeconomic balances. Consequently, the Bank's general objective ought to be to assist Turkey with priority transport investments and, to the extent possible, with policy reform, institutional development, and training. 95. Policy dialogue was never easy and should not be expected to become easier soon. KGM is well organized and politically powerful. The MTC is not as strong, and the SEEs under its jurisdiction (railways, ports and civil aviation) not particularly keen to modernize their structure and operations. Experience has shown that Turkish transport agencies would rather not show that any steps they take have been mandated by the Bank. Even so, experience also shows that reforms can be quietly effected.4/ 96. The Audit feels that Bank assistance to transport ought to be continued through project lending, with suitable rewards for good performance and with support for any worthwhile reforms undertaken by the Turkish agencies themselves. In the highway sub-sector, a project is under preparation to improve road safety and to upgrade state and provincial roads; the latter have a more localized impact than higher class facilities and their improvement will foster better service in disadvantaged areas. In the railway sub-sector, the Bank ought to continue pressing the Government and TCDD to define the future role of the railways, as well as the conditions under which railways will perform certain L/ For example, TCDD recently cancelled some 20 passenger trains, closed over 200 stations, and made sizeable staff reductions. All these measures had been advocated in a proposed transport sector loan which was not pursued because of lack of response on the Government side. 39 social services mandated by the Government. In the event that enough progress is made toward the necessary restructuring and reform of TCDD, the Bank might consider extending further assistance through a new railway project. In the ports sub-sector, the Bank ought to continue discussing necessary studies regarding planning and institutional reform (including possibilities for privatization, costing, financing, trade facilitation, and marketing). As with railways, when enough progress has become evident on policy and institutional reform, the Bank might consider further assistance through a new project. 40 APPENDIX_1 NOTES ON MACROECONOMICS IN THE 1980's 1/ An earlier section of the PPAR summarized what led to the 1980 reform program stressing incentives and institutional arrangements in support of exports; improving external debt management; eliminating the overall public deficit in 1980; reviewing measures to encourage private savings and time deposits; harmonizing public investment and adjusting its composition to the new priorities. These were daunting tasks and the March 1980 SAL I was to make quick disbursing funds available in support of reforms that had already been initiated. Unfortunately, such was the urgency to approve the loan that the detailed economic work which preceded similar operations in other countries was not done. Quantitative objectives were few, and reliance was placed on policy change which the borrower undertook to effect and discuss with the Bank before tranches of the loan were released. Preparation of SALs II-V, the last of which was approved in 1985, was better and SAL implementation taught much both to Turkey and to the Bank. Although Government did not falter in its resolve to proceed with corrective measures, implementation difficulties were similar to those encountered by the transport projects, and they all arose out of institutional, organizational, or attitudinal problems. First, several laws had to be passed in an exceedingly short period, but their passage did not do away with counterproductive practices. Seog, an overworked bureaucracy that was actually losing staff, had to cope with the intricacies of policy change. Thir , preoccupation with short-term financial results for the SEEs clouded the longer-term objective of achieving improvements in management and operational efficiency. Fourth, some measures were hastily prepared and had to be postponed till their potential impact was assessed. 1/ For much greater detail, please see Turkey's Structural Adjustment -- A Proaram Performance Audit Report -- First Structural Adiustment Loan (No. 1818-TU) and Suoplement (No. 1915-TU), OED Report No. 4015 of June 30, 1982; Program Performance Audit Report -- Turkey -- Second and Third Structural Adiustment Loans (Loans 1987-TU and 2158- 12, OED Report No. 5763 of June 28, 1985; Evaluation of Structural Adiustment Lending in Turkey -- Program Performance Audit Renort of the Fourth and Fifth Structural Adiustment Loans (Loans 2321-TU and 2441-TU) and Overview of SALS I-V, OED Report No. 7205 of April 13, 1988; and Proiect Performance Audit Report -- Turkey -- Five DFC and Industrial Sector Projects (Loans 1748-TU 2093-TU. 1754-TU. 1755-T) and 1952-1, OED Report No. 7883 of June 29, 1989. 41 Once again, concern with results was not matched by concern for process and, for SALs as well as for transport projects, the central lesson is that policy and institutional targets are never met as quickly as one might wish. The cost of failure was quite real because, halfway through the program, with SAL III fully disbursed, inflation and serious unemployment persisted. High interest rates, combined with stringent monetary management, were curtailing investment needed for long-run growth. Exports were propped up by subsidies and preferential credits. The future of some newly-won markets remained uncertain. By the end of SAL V, a fuller comparison could be made between intentions and results, and it became obvious that efforts to institute policy reform, while in general successful, remained uneven. As shown by the creation of Extra-Budgetary Funds (EBFs), the passage of a new law embodying a reform element was frequently countered by the creation of some mechanism for protecting the interests of those who had a stake in the preceding arrangements.2/ But EBFs were not the only instance. Other parts of the reform program displayed similar patterns of progression and retrogression. Up to 1985, when the SAL program was over, public investment was curtailed; in 1985, it skyrocketed. Steady and successful steps to reduce credit and input subsidies in agriculture remained in force until 1986; they were partially reversed in 1987. The gradual reduction in export subsidies begun in 1984 was reversed in late 1986 because export earnings fell. Chronology suggests that these revisions were tactics in anticipation of elections, that they were political expedients, not permanent changes in development strategy. This is not to say that politics must be excluded from the economic calculus. Governments represent groups with conflicting interests, some of which are bound to resist reform and, consequently, the cycle of progress and retrenchment has to be accepted. The point is that a well-prepared program or project will seek to minimize resistance. In Turkey this was not always the case, despite the fact that the reasons for resistance were usually known.2/ Experience also revealed that, both with respect to SALs and to transport projects, it is of paramount importance to devote special attention to the relationships among 2/ Designed to improve, through decentralization, the provision of governmental services, EBFs contributed not only to circumventing fiscal reform but, also, to limiting import liberalization. Since they were outside normal budgetary procedures, they escaped much of the pressure to reduce the central government deficit. At the same time, by raising revenues via specific dollar levies on imports, they offered a new channel for establishing protection for domestic firms in a period when quantitative restrictions and tariffs were being either eliminated or reduced. At least in part, the EBFs provided a vehicle whereby those standing to lose from the reforms could safeguard their interests and slow the structural adjustment effort. 2/ For example, later SALs were aware of counterproductive activities by EBFs but did not attempt to control their detrimental effects on the trade regime. Similarly, it did not require any in-depth research to discover why cargos remained for years in the port areas. 42 the elements constituting a program or project, and that the more complicated the relationships, the greater the need for vigilance./ It therefore seems that many of the problems which subsequently emerged at the sector and subsector level can be viewed as reactions of individual agencies, or interests, to reforms that ran contrary to their interest. These reactions might have been anticipated in the design stage, and corrective measures might have been built in. / Consider, for example, the objective of reducing public investment, a crucial target of the SAL program. The reform program had been anchored upon a belief on freedom from undue central control: EBFs, municipalities and SEEs were given decision-making atl:hority to improve the quality of their operations. The sudden spurt in public investment in 1985 was due to EBFs, to municipalities, and to SEEs, rather than to the central government. What happened was that all of these agencies did make decisions on their own but, in the absence of policy-oriented monitoring instruments, virtually all controls were swept aside, and a flurry of investments followed, though few of them could be economically justified. Similarly, the SEE reform policy, consisting of a long series of measures directly affecting the operation of the port and railway subsectors in particular, dictated that SEEs set prices to maximize profits. Rather than increasing efficiency in the SEEs, the combination of the reform policy and the EBF levies created protected monopolies of both the SEEs producing tradeables and those producing non-tradeables. More specifically: appraisal of the First Railways Project was based on an unduly broad economic analysis which simply assumed that project investments were an integral part of a long-term railway investment program. Unfortunately, there were no separate analyses of major project components, and this prevented an effective economic judgment of the merits of the project. Annex 1 43 Page 1 of 7 KGM Comments on the Project Completion Report on the Highway Rehabilitation Project THE REPUBLIC OF TURKEY PRIME MINISTRY THE UNDERSECRETARIAT OF TREASURY AND FOREIGN TRADE Ref: DEI-IV-3-84 1768 31 MART IN Mr. Graham DONALDSON Chief, Agriculture, Infrastructure and Human Resources Division Operations Evaluation Department World Bank Washington, D.C. U.S.A. Re: Our letter dated March 19,1990 concerning the Highway Rehabilitation Project (Loan 2137-TU) Project Completion Report. Dear Mr. DONALDSON, Thank you for your letter of March 20,1990. Althougyh, we regretfully learnt that you have already proceeded tu print the above-mentioned report, we are attaching a copy of the comments of General Directorate of Highways on the repr:rt f;r the Audit Report and your other stidies. Thanking you for your kind interrst, we remain, Sincere'ly Yoirs, e- IBalent (3ZG a& & Annex I 44 Page 2 of 7 TJRKiYE CUMHURIYETi REPUBLIC OF TURKEY BAYINDIRLIK VE ISKAN BAKANLI6l MINISTRY OF PUBLIC WORKS AND SETTLEMENT KARAYOLLARI GENEL MODORL000 GENERAL DIRECTORATE OF HIGHWAYS Ankara,. TURKEY PROJECT COMPLETION REPORT (PART II) PROJECT REVIEW FROM THE PERSPECTIVE OF THE GENERAL DIRECTORATE OF HIGHWAYS 1- First of all, KGM wishes to thank deeply all members in each level of th-e World Bank who have been working now in Washington and in Ankara, the retired staff and the ones who have been working now for other countries since they had been appointed to other duties, as they have cooperated with us closely for the success of the TEYEK Project. 2- General Directorate of Highways will always remember especially Mr:.Morag Van Praag who has changed the image and working mechanism of the Division, imidiately after she had become the responsible person of the Disbursement Division of the World Bank. KGM, considers thanking Mrs.Pra.tg here, as an unavoidable task. Incredibly long durations in !-ite of our continous requests, (sometimes even exceeding 1,5 monti5) for the payment of withdrawal applications, have been decreased by Her not to weeks but even to days. The flow of carefully prepared, inf-rmative various computer outputs have been provided to our Administration by Her punctually and continously. 3- Fiscal year of the Turkish Republic commences on 1 January and closes on 31 December, of each year. Mal Addre-s: KarayoHare Getel MidOrWill. 06 100 baeelepe. %akara. ITUkhEY Tel: (40) (4) 119 14 30. Telex: 46270 TR. Cables: KUMMERKEE, Ankara, FacbImle ! (90) (4) 117 8 I 125 47 38 Annex I 45 Page 3 of 7 TURKIYE CUMHURiYETi REPUBLIC OF TURKEY BAYINDIRLIK VE ISKAN BAKANLIGI MINISTRY OF PUBLIC WORKS AND SETTLEMENT KARAYOLLARI GENEL MUDORL060 GENERAL DIRECTORATE OF HIGHWAYS Ankara, TURKBY 4- The Project was completed on August 1986, four months before the planned project completion date. The last withdrawal application form prepared in compliance with Procedure 1 (and whose demanded value was big enough to make the undisbursed loan balance zero), was sent to the World Bank on August 22, 1986, ten months before the planned, original closing date of the loan, stated in the Loan Agreement. 5- Unfinished works of the road sections KbmUrler-Gaziantep and Saklan- Habur, as of August 1986, can be considered as the additional works, corresponding to th6 increase in pavement thicknesses. These unfinished works have been completed using funds from the follow-on project due to the fact that Loan 2137-TU funds had been exhausted. 6- The increase in pavement thickness is the result of the two seperate legislations raising the maximum load for a single axle; first, from 8,2 tons to 10 tons and thenfrom 10 tons to 13 tons which is the value also valid in the countries of Europe and Asia as Belgium, France, Syria, Persia Israet etc. 7- Kuwait Fund has disbursed an equivalent amount of US $ 14,9 Million for the Loan No.?40 which expired on the date of 31.3.1988 and an equivalent amount of US 14,8 Million for the Loan No.68 whose loan closing date was 31.12.1988. 8- A total of 922,9 Km. of TETEK Road sections werc rehabilitated of which 594,3 Km. were financed partly by the IBRD Loan No.2137-TU E Mail Addre,.: Karayollart Genel Mhiiduiii. 06100 1ucetepe, Ankara, It.RKEY STei: (90 (4) 1t9 14 30, lelex: 46170 TR. Cable: KUMMERKEZ, Ankara, Facsimile: (96) (4) 117 8 51-1 4738 ik' . Annex I 46 Page 4 of 7 TU)RKIYE CUMHURiYETi J. REPUBLIC OF TURKEY BAYINDIRLIK VE ISKAN BAKANLIGI MINISTRY OF PUBLIC WORKS AND SETTLEMENT KARAYOLLARI GENEL MODURLOOO GENERAL DIRECTORATE OF HIGHWAYS Ankas. TURJBY 9- Software Program for "critical" road sections and "Black Spot" analysis has been delivered to KGM by the Middle East Technical University and now, this study is being monitored by Maintenance Department of KGM. 10- 224 traffic staff graduated from technical schools who had been educated in traffic matters, have started to work with 224 specially equiped vehicles. All these vehicles which are equiped by 224 new electronic mobile 'abalances are in service now, for extensive control of weight. 160 maintenance technical staff graduated rom technical schools which are above high school, were recently recruited by KGM and they are carring out the control on roads in special double cab pick-ups. i1- All the obstructions for the bid of 54 electronic static weighing stations which will be furnished by weigh-in-motion system, were removed. These stations will be installed at 49 points. Preparations to receive bids for the contract of operation and installation have been continuing. 12- In the topic of vehicle inspection; the project of establishment of 100 vehicle inspection stations with one or more channels in 71 cities and 20 towns is almost at the stage of realization. These inspection stations will be equiped with infra-red data transmission system and fully automated. 13- Improvement of technical specifications for the quality of material to be used in horizontal and vertical traffic signs has been realized. New technology experiments have been tried and KGM has applied to Turkish Institute of Standards to make this Institution to renew these standarts. Mall Addreis: Karayolari Genel MUdUrldiO, 06 100 Yucelpe, 1 URKEY Tel: (90) (4) 31914 30. T.ex: 46270 TR. Cables t KUMMERKEZ, Ankara, Facsinoile: (90) (4) 117 28 $ 135 4738 Annex I 47 Page 5 of 7 TURKIYE CUMHURIYETI REPUBLIC OF TURKEr PAYINDIRLIK VE ISKAN BAKANLI0I . e MINISTRY OF PUBLIC WORKS AND SETTLEMENT KARAYOLLARI GENEL MODURLOOO W GENERAL DIRECTORATE OF HIGHWAYS Ankara. TURKEY n !eptember 1983, KGM prepared a draft report )n the pavement r'11 u -.h project, outlining objectives and describing a preliminary delign for the experimental sections. In this report, technical assistance t'r the Transportation and Road Research Laboratory (TiHRL-UK) for ihe detaited planning of the research project including experimental desiign and methods of the performance monitoring was also requested As a result of this request, the staff of the TRRL and KGM worked together in March 1984 to determine the objectives and research methods. Later, TRRL prepared a report according to the contract signed with KGM. This report prepared by TRRL has been used as a guide during the planning and design stages of experimental road. b- The construction of the experimental road sections was completed in September 1989. c- 25 test sections of 100 m each having different structural composition have Deen oonstructed. d- Behaviour of all sections are currently being monitored by KGM's Technical Research Department from viewpoint of performance under traffic. .11 Addres- :Karayollaro Genel Miidditlis. 06 100 N ucclepe. Lkara. I L KKF.1I el (90) (41 119 14 30, Telez : 46270 TR. Cabes : KUMMERKEZ. Ankars, Facstmle :901 (4) 11728 5 125 47 38 Annex I 48 Page 6 of 7 15-a) Subjects on consul tancy services of General Directorate of Turkish Highwauys (KGM) rientioned in parag IV (d) on page (iii), parag (11) on page 5, parag (17) on page 7, parag (28) on page 11, parag (29) on page (11), parag (30) on page 12 and pat,ag (32) on page 12 seem not acceptable. KGM constructs, nuintains and operates all state roads, provincial roads as well as niot orwaciys in Turkey. Boelng aware of the above nent i oned responsibil I ty, KGM has enployed well educated and experienced technical staff on different engineering branches since the begining of its establishment. Even, many of these engineers have been sent abroad with a view to upgrading their experience as well as obtaining inforarution on the recent developments of different engineering subjects. Therefore it is KGM policy to make use of its own staff before all else, in deali ing with the engineering problems to be solved. Of course, foreign consultancy services are also used for the subjects in which supplementary inforn-ation and experience are considered indi spensibl e. In view of the above explanation, KGM would appreciate that the paragraphs on consultancy services given above, be redrafted by the World Bank. b) Parag (19) on page 8 states that there is not major change took place in KGM planning procedures as a result of TETEK project. This is not fair, because the experience gained on planning and project evaluation techniques flowing fron TETEK has been widely used by the Planning Departrment in economic and financial evaluation of about 1350 km. rotorway network which is under construction as well as monitoring of KGM annual investment progranmes of state and provincial roads. c) Inforiution given about Road User Costs and Charges study (parag (IV- c-d) on page iii, parag (18) on page 7, parag (21) on page 9, Table (6) on page 19) is not updated as in these paragraphs it is said that the study is not conpleted yet. The first part of the study, Road User Costs, wes con-pleted and sent to the Treasury to be transfered to the World Bank in Decerber 1988. The second part of the study dealing with Road User Charges required information on revenues to be collected under the responsibilities of different organizations. At a meeting in Treasury it was decided that all the necessary information be collected by the relevant organizations and submitted to KGM to be uncorporated in the Report. Under these general infomntion sent by relevant organizations, second part of the study was coipletea on .'uly 1989 and sent to Treasury to be transfered to the World Bank. d) Concerning the "Pavement Nlnagement System" rrentioned in parag.(IV-C); ve would like to reiterate that KCM has not yet been fully furnished for the inlementation of this system. However, due consideration is given to this subject during the course of reorganization studies. Annex I 49 Page 7 of 7 a) We would suggest that the last sentence of parag. I on page (ii) should read as follows : Highways is not played an inportant part in international transport of goods to Middle Eastern and West Asian countries. f) Parag (VI) on page IV, results of refeasibility studies for 3 sect ions of TETEK project are between IRR 427 and 59% not 4770 - 349% 51 Annex I1 Page 1 of 7 THE REPUBLIC OF TURKEY PRIME MINISTRY THE UNDERSECRETARIAT OF TREASURY AND FOREIGN TRADE Alf Dt-IV-3-95 Ankara, Mr. G. DONALDSON CHIEF Agriculture, Infrastructure and Human Resources Division Operations Evaluation Department The World Bank Washington D.C. U.S.A. Re: Your letter dated September 21,1990 concerning the Port Rehabilitation Project (Loan 1741-TU) and Highway Rehabilitation Project (Loan 2137-TU) Project Performance Audit Report. Dear Mr. DONALDSON, With reference to your letter of September 21,1990, we would like to express our appreciation for your efforts to prepare Project Performance Audit Report related with the above referred Projects. However, it is surprising to note that an unfortunate evaluation .concerning the linguistic and cultural obstacles the missions had in Turkey, have taken place in this well prepared Report. Furthermore, we strongly believe that the crosa-cultural frictions do not have an impact on our communications with the Bank staff. We have al6o difficulties in understanding why the so called political conflicts among the executives of related Institutions have been reported in such a detail. In addition, we are of the opion that political preferences had a negligible effect on the implementation of the Project. We therefore kindly request the deletion of the Paragraphs 13, 18 26,913ra.92from the Report completely. On the other hand, you will find enclosed herewith the copies of the comments of Turkish Maritime Organization. General Directorate of Railways, Ports and Airports Construction and Turkish State Railways on the Report. We have been informed by the General Directorate of Highways that their evaluation has not been completed yet. We hope that we will be able to provide their comments to you shortly. With best regards, Sincerely Yours, Encl. Ibtoha RSBROOLU p toy Detor Ccneral of FWoresa Ecoeus Asiaqees 52 Annex II Page 2 of 7 The Canwvnts of T2OD an the Draft Project Perforwance Audit Report of the World Bank Regarding the Ports Rehbi II tati an Project (Loan 1741-TU). The nain target of the project Vs to Increase the vessel traffic observed in Turkish ports, to inprove the nagemnt perfomance and to reduce the turn araamd tme of the vessels in the ports. After the capletln of the project; - Ship witing was eliminated In nny of the TCOD ports. - The per hour productivity In general cargo ware inproved to the wrld standards. - With training activities, the port personnel gained modern handl ing tediquaes - Both in total traffic and general ango traffic of TCD ports, the targets foreseen in the project are exceeded. - In the project Implemntation period the financial results attained weare better then the project forecasts. - Fran 1.1.1983 warrds, the tariff rates ware started to be spressed In US dollars and thus the financial result of the ports ware protected from the effects of the Inflation. The draft report as also eIned by our organisation and our canmts an sam of the Itno of PPAR are as folIom; in the rqprt, it is stated that a coaprat ion -ii ports should be provided and there Is a need for a madoeian to place all najor ports sWier a central authori ty in order to direct the vessel s to call at al ternat ive port s. One inportant feature of Turkih ports Is that each port has a hinterland peculiar to itself and it is aluest lapossible to direct the carg fran a part to another port having different hinterland. The most Inportant factor which port users take into account while selectIng a port, is the total cost and tine betwen the origin and destination points. The aniple given in the report as "ships night be miting for a berth at Trubam to uload transit cargo while underutilized facilites wuld be avalable at Smaun", does not arise fran the lack of coordination ad the situation Is also valid for the present tine due to the above muentioned reasons.ln transit cargo trwuaprts to Iran through Black See ports, the $ 15/ta cost difference between Samsaun ad Trazon causes the ohift of the cargo to Trazon and Hkpa. 53 Annex II Page 3 of 7 With the legislation dated 22.10.1983 and no, 2929, the Ports Departaunt of TCO vas envisaged to be converted to an independent estabi Isheunt rader TCOD. From 1.1.1985 award TCOD Ports Operation Establish ant was faudad. But during the activities of the Estabislhmnt, it was understood that; a) The staff recruitnent permission needed in the ports could not be otained, b) The staff in quest ion would Increase the nagevent mpenses, especially When passed to the contracted personnel application, this iould reach higher amounts, Wwereas the services to be given by the additioral staff within the Integrated structure of the TCD could be not more econaically, c) The EstabtIshvint appiIcat Ion brought additIonal epenses with the taxes and duties such as corporate tax with VAT, d) With the savings <btained in case of the abol I he,nt of the Estabi I shnent statute, the profitability of TCD would increase, Due to the above mentioned reasons# The Ports Operation EstabtIiwant was abolished by the decision of the TCOD Sard of Directors dated 17.10.1985 and no. 42/391 and the TCDD Ports Department has been astabiihed being valid fran the date that the Estabtiswent lost It* legal entity. In order not to contradict to the world Bank Aggreenent I .e. to be in canp Iace with the aggremaent, due attention was given during the transition fran Establi lent structure to Department structure. As a net ter of fact, the powers of the newly estabil ahed TCD Ports Departant wre increased rearkably caspared to the previous Establ islnt appi lcat ion and the parts were directly placed under the TCQD Ports Departnant. In effecting the above natined statute: change due attention as given in order that the said chwage does not affect the fulfl Inant of our undertakings specifled in the world Bink Loan and Project Aggreemnt (Lean 2535 1U) ltgm101The stay of the goods in part areas for long periods Is the nost Important obstacle to the efficient operation of ports. A concrete result could not be achieved from the studies concerning the sloplification of the Custcm regulatlons and zhortening the shed saiting tine. In fact, In the railway traport neasures of the Decree of the Caucil I of Ministers for the Inplumnta- tin, Coordination and Folloup of the pragranam for the year 1991, it is envisaged that the natter regarding apenchants in the custam legislation abowld be taken up in hand within a short tine, especially to prevent the lng stay of the containers In port areas. The reallstIn of the neasure In question will ease the port services rark*ably. Annex II 54 Page-4 of 7 Iten :12 Prior to the project the ton/preniuma pplication in the parts operated by DB, fond Inapplicable in the ports operated by TCD shen the safety and health of the labourers and the danage to the goods were taken into conside- ration. On the other hand it is not possible to asBree with the statimnt "They received nanthly wages (not based on output) in TCID Ports". Because the actual work of the labourers wre being appraised partly with the collective aggreemnts which were applied at that tine. As a result of the arranganents nade In the public orgmizations. The parts which were operated by 01 at that tiw, are now operated by TDI and the age differences of the labourcms In Mhl asJ TCQ ports were eliminated to a lrwat extent oy the collective aggrean ts. The ton/preniutn appl icat ion in TDI ports has been converted to dally fee application. The ton/prenan system wAs also started to be appiled in TCDD ports. iten 1 13 Though the statistics prior to the project were adequate, fran 1980 owards, internationally accepted UICTAD Port Perforwance Indicators were started to be kept for use in the three nmths progress reports to be sent to the Bank during the project Ifpieentat ion. It is natural that there are sare differences between the traffic statistics of Harbournasters and Port Adinistrations. Because, while Port Adinistrat Ions are recording the traffic activities within their own amopoly baudaries, Harbourmasters are interested in the total traffic of the private and public parts and piers. Ite 23 In the project preparation and Inplantation period, a full cooperation and coordination was provided between th' parts and part cperating organization- s. Espectally Haydarpage and Salspamrs in Istanbul vwrked in an hanny by the protocol nade between the two Organization in 1979. For the clearance of goods staying in the ports for a long period, the Decree of the Council of Ministers dated 10.11.1983 and no, 83/7385 regarding the clearance of the goods left at the Custorm, Considered as to have been left at the custom and conf Iscated, mae put into InplanetatIon. Clearance procedur- es of the said goods are carried out according to the provisions of the said regulat ion. Acceleration of the clearance procahres by the custom directorate for the goods that exceed the walting periods, will reduce the ocapat ion of port areas. Item t 40 The purposes of the cost accounting studies were that the system to be establihed, %hould be based on real costs and stould be applicable In the ....- - *---- ---- --** OaUUC Ve tne9 me systeM to be establihed, should be based on real costs and should be applicable In the coatry's ports. The epert who was assigned for the studies by the (JN0P, has not taken into consideration these two purposes and has preposed the eact inplaentation of a proposal for Suder which he ade three years before He com to Turkey. Due to the fact that a positive reait has not not been achieved, an assesmont neeting was held an 21.8.1981 with the participation of the financial arelyst of the Wird Bank, TC and TDI representatives and the preposed systan of the expert has been decided as Inappliceble in Tuky's canditons. 55 Annex II - 55L Page 5 of 7 TORKlVE ENIZCIL1C J$LiTfrELERt oatL MOUNALO4 .. ., ............... ....... s s ta n b ai S ayp ....... ................... .... .... .. . . ............., 198... on .... .. . . I ........ ... . RE: Your letter of June 30,1986 and enclosure of "1741-TO Project Coopletion Report" Having reviewed thet aboveentic.ted Project Cor-ppletion Report, TDl is considering appropriate that the productivity of Port operations, particularly in handling general cargo exports and imports has been incresed and the congestions have been avoided with replacing and modernizing old and obsolote cdrgo-handling equipment and floating craft; inproving storage and cargo-haodling mthods and port manageeAnt techniques through training of dock workers and port staff as stated in the Part Rehabilitation ?ro,ect (Loan 1741-TU) so the objectives of the said project has been fullfilled. However, we would like to update. the 4.01111points. To meet changing needs of circumtances, The Salipazari Port has been Qlose6. to ship rafftc since the date of April 1,1986 and to truck tT.1,2) trAtie 4.ine% Septemoer 19,1988. And the equipment of this port provided by the project was shifted to Port of Trabon aM Port of izmit. lqerer0y storage area has been delivered to clearanc- General Directorate reporting to Ministry of rirance and Custom. 56 Annex 11 Pa'e.6 of 7 nacruoone~ut (URKEY MINISTRY OF TRANSPORT ANID COMMUNICATION GOnest DiectOratO of Rliwaya. tiarb(us and Airp-rta Co,1nctIon FILi No. DATE: 11 SUBJECT ANKARA. TURKEY tLH COMMENTS RELATED TO PPAR ON PORTS REHABILITATION PROJECT (LOAN 1741.-TU) ddi URMUT tu c%htq " gj na' V pRoor trl ashthion waqs inevitable". If this approach of logic was valid there comes the conclusion chat the Bank could never establish good communiiations with the other member countries, since the existance of cultural differences is inevitable between bank and the developing member countries. So it is hard to agree with the Bank that the outcome of chis difference, brought negative effects on the communication in between. 2. In general throughout the. report, it is pointed out that poor communication had been estab)ushed between the Turkish Agencies and World Bank due to, - Lack of foreign language speaking staff at Turkioh Agen0jest - Unwillingness of Turkish burocrates for fixing appointments with the Bank staff, We have to msation here chat this wasnot the casep. ac Least for DLR,and DLH had no problem in communicating with the hank staff throughout the performance of the said project,being even eager to meer the Bank mission whenever they visited Turkey. 3. ta PPAR, Port I icem 14, the meaning comes out as "DLH lacked euperienced staff for port pLanuing, construction and all the work was done in Ankara, away from pores and coastline." This is not true. Especially after 1970's, in addition to the existing expetienced staff, a lot of port engineers specialised in Coastal enginaering Branch had been employed by DLH. DLX executed work by means of Co4stal RegioaL Directorates which were located at samoun, tstanbul, aandirma, Izmir, Antalya, Mersin. All decisions are finlised in Ankara referring to inputs obtained from Regional Directorates while applications are performed by means of the Regional components. 57 Annex II Page 7 of 7 General Directorats of Pailways Habos and Al.ona Conctruction FILE No. :DATE s .....J e.. SUBJECI * ANKARA. TUNKE i -2- 4. PPAA part 1. item 18 staceae eua DLH and the Master Plan bureau didnot agree on the reselts of the report prepared by Boaphorus University, since their Ministere belonged to different political parties. We could not understand how the bunk arrived to such d zoucusion. When the outcomes of the study vonducced by the University was negotiated, political preft-nces had tio offfet. All comments raised were supported by technical and reasonable justifi- cacions'which were within the scope of responsibilities of every agency. Regards. Dr. Aycekin AKAGUN General Director ceneral Directorace of Railways, Ports and Airports Constructions