Turkey - Pulp and Paper Rehabilitation Project

Docnmmt of The World Bank FOR OFFICLAL USE ONLY Rept No. 12594 PROJECT COMPLETION NOTE TURKEY PULP AND PAPER REKARILITATION PROJECT (LOAN 2545-TU) DECEMBER 10, 1993 MICROGRAPHICS Report No: 12594 Type: PCR Agriculture and Environment Operations Division Country Department II Africa Regional Office This document bas a resticted distnibution and may be used by recipients only in the performanee of their official dudes Its contents may not otherwse be diselsed without World Bank authorization.  CURRENCY EUI,ALENI Currency Unit = Turkish Lira (IL) A4erage Exchange Rates (per US dollars) 1985 US$1 TL 522 1986 US$1 = E h75 1987 US$1 = TL 857 1988 US$1 = TL1422 1989 US$1 = TL2122 1990 US$1 = TL2609 1991 US$1 TL4172 1992 US$1 TL6872 GOVERNMENT OF TUREY FISCAL YEAR January 1 - December 31  FOR OFFICUAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.SA office of Director-G4nere Operatlons Evaluation December 10, 1993 MEMORANDUM TO TEE EXECUTIvE DIRECTOR AND THE PRESIDENT SUBTECr: Project Completion Note on Turkey - Pulp and Parer Rehabilitation Proiect (Loan 2545-TU) Attached is the Project Completion Note on Turkey - Pulp and Paper Rehabilitation Project (Loan 2545-TU) prepared by the Europe and Central Asia Regional Office. This project was designed to assist the Government of Turkey in improving the operational efficiency of the state-owned pulp and paper plants through rehabilitation. The project also aimed at preparing the ground for the selective privatization of the subsectoral state enterprises. A disagreement between the Bank and Seka (Turkish Pulp and Paper Enterprise) on the selection of consultants for the preparation of detailed engineering design and project management stalled the project 11 months after the effective date. Subsequently, the Government of Turkey requested the Bank to cancel the loan and agreed to pre-pay the outstanding balance of US$973,215.00 (consisting of disbursements for project preparation under a project preparation facility and the interest and commitment charges). It appears that a reassessment of the need for further investments in Seka, combined with uncertainties about public enterprise management policies, might have prompted the Government of Turkey to ask for cancellation. The subsector study subcomponent of the project was carried out. It was, however, financed under Technical Assistance for State Economic E'nterprises Project (Loan 2400-TU). The project is not rated because there is insufficient information as to the impact of the Bank's technical and advisory involvement in Turkey's pulp and paper subsector. No audit is planned. Attachment Ibsdomeaha retriced dibution and may be used by recipients only in the performance of their official duies. Is contet may att otheise be disclosed without Wodd Back authodzation.  - i - PROJECT COMPLETION NOTE TURKEY PULP AND PAPER REHABILITATION (Ln. 2545-TU) PRFACE. This Project Completion Note (PCN) is for the Pulp and Paper Rehabilitation Project for which a Loan (Ln 2545-TU) in the amount US$55.1 million equivalent was made to the Government of Turkey (GOT), with SERA, a State Economic Enterprise (SEE), as the beneficiary. The Loan was approved by the Board on 5/23/85, signed on 5/29/85 and made effective on 9/17/85. The PCN has been prepared in lieu of a Project Completion Report, because the Loan, with an undisbursed balance of about US$54.1 million, was cancelled at the request of GOT on August 4, 1986, a year after it became effective. It is based on a review of the Staff Appraisal Report, internal Bank memoranda, minutes of the Board discussions, supervision reports and interviews with Bank staff who were associated with the Project.  - ii - PROJECT COMPLETION NOTE PULP AND PAPER REHABILITATION (Ln. 2545-TU) EVALUATrON SUMMARY Introduction The Project had its genesis in the outward-oriented strategy adopted by the Government in the early Bs and represented the first step toward the reform of the pulp and paper industry in Turkey. It was identified in 1980 on the basis of a study prepared by SEKA with the assistance of consultants, Rust Overseas Inc, financed under the Bank's Project Preparation Facility (PPF). However, because of mid-course changes in scope and delays in reaching agreement on the financial restructuring program for SEXA, on issues of pricing and interest rate policies and the possible privatization of SEKA, the Project could not be appraised until October 1983 and required a post-appraisal in May 1984. Proiect Obiectives and DescriDtion The Project was designed to assist GOT in rationalizing investments in the industrial sector through the rehabilitation of existing capacity, in improving the efficiency of SEEs in the pulp and paper sub-sector and in the selective privatization of sub-sectoral SEEs. Accordingly, provision was made under the Project for: (a) technical assistance to (i) GOT for a comprehensive study to identify, evaluate and recommend alternative strategies for the development of the pulp and paper subsector, including options for the privatization of SEKA and (ii) SEKA for strengthening its capabilities in the areas of operations and maintenance, environmental protection, finance and accounting, and manpower and training; and (b) imports of essential spare-parts and equipment needed for the rehabilitation and improvement in the energy efficiency of three SEKA mills. Implementation Start-up of the Project was stalled due to disagreements between the SEKA and the Bank on the selection of consultants for the preparation of the detailed engineering design and proje management. The issue was brought to the attention of the Bank by a number of _.3tential bidders, claiming that they had been accorded unequal treatment in the evaluation and selection process. The Bank, based on the findings of a mission sent to review the relevant documents, advised the GOT and SEKA to cancel the consultant selection process underway and invite new proposals, using a revised letter of invitation. Despite follow-up meetings with representatives of SEKA, the issue of consultant selection could not be resolved. In response, GOT requested the Bank to cancel the undisbursed amount of the Loan and agreed to pre-pay the outstanding balance of US$973,215, covering the PPr advance and interest and other charges. The Bank acceded to this request and, as noted, the Loan was cancelled on August 4, 1986.  - iii - At the time of cancellation, the State Planning Organization had awarded the consultancy contract and t,ie firm had initiated work on the Pulp and Paper Subsector Study, for which US$300,000 was allocated under the Loan. As the study was deemed important by GOT, at its behest, financing for the study was made available under the ongoing Technical Assistance for State Economic Enterprises Project (Ln. 2400-TU), which provided for, inter alia, studies to improve the efficiency of SEEs. lindinog and Lessons Learned GOT had cited the unresolved issue of consultant selection and SEKA's wish to not incur additional debt while the possibilities for privatization were being explored as reasons for requesting the cancellation. However, with hindsight, both appear problematic. The former could have been resolved easily by inviting new bids. This would have delayed the start-up of the Project, but not enough to compromise its objectives. As for the latter, there was no indication during the project processing cycle to suggest that the privatization of SEA was imminent. In fact, even after protra.ted discussions, agreement could niot be reached on modalities for and the scope of privatization. it was essentially for this reason that provision was made under the sub-sector study for identifying, inter alia, suitable arrangements for attracting local private sector and/or international pulp and paper companies to invest in SmKA. In retrospect, it may well have been a reassessment on the part of GOT of the need for further investments in SEKA that precipitated the decision to request cancellation of the Loan. This, clearly, was not the case with the subsector study for which financing was secured from the Bank under the ongoing TA operation. Consequently, the Bank's decision to accede to GOT's request was appropriate. Even if the Bank had persevered, it is unlikely that the objectives of the Project, as originally envisaged, would have been achieved, given that SEKA continues to function as a state economic enterprise.  - iv - PROJECT QO2PtETON NOTE PULP AND PapER REHABILI=TTION (Ln. 2545-TU) BASIC DATA SHEET A. KEY PROJECT DATA Total Project Cost (US $ million) 86.8 Total Project Cost (Turkish Lira) 28210.0 Loan Amount (US S million) 55.1 B. STAFFWEEK INPUT FY83 FY84 FY85 FY86 FY87 Total Identification/Prep 34.4 43.7 42.7 120.8 Appraisal 8.5 8.5 Negotiations 0.9 7.3 0.4 8.6 Supervision TOTAL 137.9 C. MISSION DATA Mission Nandays Dates Persons in Field Appraisal 05/19/84 3 Supervision I 10/12/85 2 26 Supervision 1I 03/10/86 2 10 D. OTHER PROJECT DATA Borrower: Government of Turkey Beneficiary: SERA, a State Economic Enterprise for Pulp and Paper Fiscal Year of Borrower: January 1 - December 31 Appraisal Year Average Exchange Rate: USD1 - 325 Turkish Lira TL 1 - USD .00308