Document of

The World Bank |'u,

FOR OFFICIAL USE ONLY

Report No. P-3581-TU

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$115.3 MILLION

TO THE REPUBLIC OF TURKEY

FOR THE

IGDIR-AKSU-EREGLI-ERCIS (EAEE) IRRIGATION PROJECT

May 17, 1983

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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TURKEY

CURRENCY EQUIVALENTS

Currency Unit Jan. 1980 /1 Jan. 1981 January 1982 March 1983

US Dollar - TL 70.0 TL 91.00 TL 127.00 TL 195.00

TL 1 - US$ 0.014 US$ 0.011 US$ 0.008 US$ 0.005

/1 Since January 1980, the rate is being adjusted for the differential

inflation between Turkey and its major trading partners. TL 195/$1was used for Parts III and IV of this report.

FISCAL YEAR

Republic of Turkey March 1 to February 28 (through 1981)

March 1 to December 31 (1982)January 1 to December 31 (from Jan. 1, 1983)

LIST OF ABBREVIATIONS

ha - hectare.DSI - General Directorate of State Hydraulic Works of the Ministry of

Power and Natural Resources.IAEE - Igdir-Aksu-Eregli-Ercis.ICB - International Competitive Bidding.O&M - Operation and Maintenance.PPAR - Project Performance Audit Report.SAL - Structural Adjustment Loan.SEE - State Economic Enterprise.TCZB - Agricultural Bank of Turkey.TOPRAKSU - General Directorate of Land and Water Conservation of the

Ministry of Village Affairs.

FOR OFFICIAL USE ONLY

TURKEY

IGDIR-AKSU-EREGLI-ERCIS(IAEE) IRRIGATION PROJECT

Borrower: Republic of Turkey.

Beneficiaries: General Directorate of State Hydraulic Works (DSI).General Directorate of Land and Water Conservation

(TOPRAKSU).General Directorate of Agricultural Affairs.

Amount: US$115.3 million (including capitalized front-end fee).

Terms: Fifteen years including five years of grace, with standardvariable interest rate.

Project The project supports the Government's efforts to accelerateDescription: completion of priority irrigation schemes. Four subprojects

have been selected: Igdir, Aksu, Eregli and Ercis (IAEE) andfor each the project would assist in financing (i)completion of irrigation and drainage infrastructure; (ii)on-farm development works; (iii) strengthening of theextension system; (iv) operation and maintenance equipment;and (v) staff training. The project would also includepreparation of an irrigation investment master plan andstrategy review.

Benefits and At full development, about 113,000 hectares (net) willRisks benefit from new or more efficient and secure irrigation,

and improved extension services. About 25,000 farm familieswill have their average net incomes increased to about 2.5times their income without the project. About 20,000 morepeople will find temporary employment during the threemonths of peak farm labor. Incremental annual agriculturalproduction is estimated at about $107 million equivalent in1982 prices. The irrigation strategy review is expected tolead to a significant improvement in the Government'sinvestment priorities and implementation capabilities inthis subsector. There are no unusual technical risks. Themajor risk is that inadequate budgetary support could delayproject implementation. Arrangements for an annual reviewof the local currency budget should give the Bank an earlyopportunity to press for additional funding, if necessary,and the establishment of a revolving fund for payments oncivil works contracts should facilitate timely payments tocontractors.

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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----- $Million Equivalent ----Estimated Project Costs: Local Foreign Total

Main irrigation & drainage works 54.5 36.5 91.0On-farm development works 33.6 19.1 52.7Machinery & equipment 7.3 28.3 35.6Engineering 14.4 - 14.4Land acquisition 15.7 - 15.7Buildings 1.0 0.3 1.3Training and consultants - 0.6 0.6O & M main works 8.1 2.7 10.8Extension services (operation) 1.3 1.1 2.4

Total Base Cost 135.9 88.6 224.5

Physical contingencies 16.5 11.4 27.9Price contingencies 24.3 15.0 39.3

Total Project Cost 176.7 /1 115.0 291.7/1Front-end fee - 0.3 0.3

Total Financing Required 176.7 115.3 292.0

Financing Plan: Local Foreign Total

Bank - 115.3 115.3

Government 176.7 - 176.7

Total 176.7 115.3 292.0

Estimated Bank Disbursements: --------------$Million--------------

Bank FY 1984 1985 1986 1987 1988 1989

Annual 9.8 11.5 40.8 23.6 18.6 11.0Cumulative 9.8 21.3 62.1 85.7 104.3 115.3

Economic Rate of Return: 20 percent.

Appraisal Report: 4299-TU dated May 13, 1983.

/1 Includes about $6.6 million equivalent of taxes and duties.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO

THE REPUBLIC OF TURKEY

FOR THE IGDIR-AKSU-EREGLI-ERCIS (IAEE) IRRIGATION PROJECT

1. I submit the following report and recommendation on a proposed loanto the Republic of Turkey for the equivalent of US$115.3 million (includingcapitalized front-end fee) to help finance completion of four irrigation

subprojects. The loan would have a term of 15 years including 5 years graceat the standard variable interest rate.

PART I - THE ECONOMY

2. A report entitled "Turkey: Policies and Prospects for Growth"(No. 2657a-TU) and the Postscript thereto, were distributed to the ExecutiveDirectors in December 1979 and March 1980, respectively. Updating of economicprospects has since been undertaken through the continuing work on structuraladjustment loans (SALs) to Turkey and several special economic missions. Thereport of a mission to evaluate the investment program and entitled "Turkey:Public Sector Investment Review" (No. 3472-TU) was distributed to theExecutive Directors in December 1981. The report of a mission to reviewTurkey's industrialization and trade strategy entitled "Turkey:Industrialization and Trade Strategy" (No. 3641-TU), was distributed to theExecutive Directors in March 1982. The report of a mission to review energysector policies entitled "Turkey: Issues and Options in the Energy Sector"(No. 3877-TU) was distributed to the Executive Directors in March 1983.Missions to review recent economic developments and analyse the medium-termprospects, to study the agricultural sector and the financial system visitedTurkey at various times in 1982. Their findings are reflected in this section.

3. Turkey is about as big as France and Germany combined, with apopulation of around 46 million and an estimated GNP per capita of US$1540.The density of population is low (78 per square kilometer of agriculturalland), and about 45 percent live in urban centres. Although population growthis below the median for middle-income countries (2.2 percent per annum), anddespite rapid economic growth in the mid-1970s as well as substantialemigration of workers (to Western Europe and more recently, to the MiddleEast), the employment situation has deteriorated steadily with an unemploymentrate currently about 16 percent. There is, however, little or no absolute

poverty, although income distribution is relatively skewed. There are alsoconsiderable regional differences and large rural-urban disparities. Recentdata indicate a probable worsening in income distribution, especially of wageand salary earners, and a sharp real decline in the minimum wage. Educationalenrollments have expanded greatly but the rate of adult literacy remains

relative low (60 percent in 1975).

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Development Strategy Prior to 1980

4s. Turkish development strategy during the 1960s and 1970s aimed atrapid growth through high rates of investment with the main emphasis onindustrialization. Import substitution was favored over exports, with StateEconomic Enterprises (SEEs) playing an important role in the industrializationstrategy as well as in regional development. These policies, supported byagricultural expansion and growing workers' remittances, helped to bringabout a favorable growth record throughout the First and Second Plan periods(1963-72). A continuation of these policies in the face of the variousexogenous shocks of the 1970s, including the rise in world oil prices andstagflation in the OECD economies, helpted to maintain growth well into the1970s, but finally proved unsustainable.

5. To maintain its growth momentum in the Third Plan (1973-77), Turkeyfinanced a large part of its investment and import requirements throughreserve decumulation and heavy external borrowing, particularly short-term.The rapid GNP growth, averaging around 7.7 percent per year in 1973-76, cameto an abrupt halt in mid-1977 as the massive external debt burden led to asharp deterioration in credit-worthiness, severe shortages of imports anddisruptions in industrial production with a rise in urban unemployment; GNPgrowth slowed down sharply to 4.0 percent in 1977 and to a negative figure in1979. At the same time, domestic inflation accelerated from 24 percent in1977 to an average of 64 percent in 1979.

6. By the end of 1979, the rate of domestic inflation had reached over100 percent and had become an issue of critical importance. Althoughinternational price increases and domestic cost-push factors influenced theinflationary process, as substantial monetary expansion was the main cause.The monetary imbalances originated mainly from the Government's budgetdeficits and the huge financing requirements of the SEEs. Political andsocial unrest aggravated the economic difficulties. It was in theseexceptional circumstances that the January 1980 reform measures were adopted.

The Government's New Policy Priorities and Actions

7. The Government's program for stabilization and restructuring of theTurkish economy was initiated in January 1980 and is now entering its fourthyear. The program has involved policy measures which have effects both in theshort- and medium-term. In an effort to stabilize the crisis situation, aseries of urgent measures were introduced to restrict domestic demand. Thesemeasures included enforcing tight credit ceilings by the Central Bank,reducing the budget deficit through expenditure control and increasedtaxation, and restraining growth of wages and salaries. Over the medium-term,the program is designed to restore a better balance between the public andprivate sectors of the economy and achieve sustainable growth. The keyelements of this program are: the adoption of a realistic and flexibleexchange rate and incentives to encourage producers to export; deregulation ofinterest rates to reflect market conditions and encourage private savings; thestrengthening of public finances through tax reform; measures to improveinstitutional efficiency in key sectors; a rationalization of the publicinvestment program; and a reform of the SEEs designed to reduce their burdenon the budget and improve their efficiency.

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8. The adjustment program, which has been supported by the Bank throughthree structural adjustment loans, involves far-reaching changes affecting allfacets of the Turkish economy. It entails substantial changes in attitudes,institutions, and the legal and policy framework, all of which take time andface considerable resistance. In view of the severity of the crisis, and theurgent need to bring down inflation and stabilize the balance of payments asquickly as possible, the Government accepted the need for a temporarysacrifice of growth and social objectives. Drastic structural changes weremade in the operation of the exchange rate regime, the tax system, interestrate policy, export strategy, the SEE sector and public investment policy.

9. The implementation of the program is being carried out by a militaryregime which assumed power in September 1980 following a period of sustainedunrest, terrorism and deterioration in the parliamentary process. ThisGovernment, like previous military regimes in 1960-61 and 1971-73, hasemphasized its commitment to restore civilian rule. A Consultative Assemblywas set up to draft a new constitution, which was overwhelmingly endorsed in anationwide referendum in November 1982. New election and party laws areexpected to be promulgated soon, and parliamentary elections are scheduled forOctober 1983.

Effects of the Structural Adjustment Process -- 1980-83

10. The Turkish economy has shown an impressive response to the programlaunched in 1980, and in many cases actual performance has met or exceeded theGovernment's own targets. Real GNP, after falling for two consecutive years,expanded by 4.2 percent in 1981 and 4.4 percent in 1982. Growth has beenmainly export-led, with less than one quarter of the growth in 1982 due todomestic demand. Demand for consumption increased by 3 percent while fixedinvestment grew at a modest 4.1 percent (both in real terms) in 1982, anddepletion of inventories helped to expand supply. Public investment grewsignificantly slower than private investment, thus reversing the trend ofprevious years. However, unemployment continued to grow in 1981 and 1982, asemployment opportunities did not increase fast enough to absorb the expansionof the labor force.

11. Through a combination of fiscal, monetary and income policies, the

Government has been remarkably successful in reducing the rate of inflation.After peaking at 107 percent in 1980, the annual average rate of increase inthe wholesale price index declined to 37 percent in 1981 and around 25 percentin 1982, which was the program target. However, the degree of creditrestraint needed to reduce inflation this rapidly, has had a marked effect onliquidity in the economy and has helped to maintain interest rates at highreal levels.

12. Commercial bank interest rates which were deregulated in July 1980have increased substantially; with inflation gradually coming down, they arenow markedly positive in real terms. As a result, total bank depositsincreased by 72 percent in 1980 over 1979, and in 1981 this trend accelerated,with total deposits growing by 104 percent and time deposits by 263 percent.Growth in deposits slowed somewhat in 1982, and the bankruptcy in late June1982 of a major non-bank financial institution shook depositor confidence and

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was followed by a shift of funds into the larger banks. While the Government

has averted an immediate crisis in the banking sector, additional actions toreform and strengthen the financial sector as a whole are urgently required.Tbe Government is at present preparing a new banking law which aims tostrengthen the equity position and management of banks.

13. While positive real interest rates have provided an incentive tosave, they have also meant high borrowing costs. The current real interestrate for non-preferential credits is about 28 percent. These high interestrates, together with the limited availability of credit, have led toconsiderable liquidity problems for the private business sector, particularlyfor businesses supplying the domestic market. The banks have taken steps tolower rates on deposits and reduce the tax on interest received by banks withthe aim of reducing interest on credit. But the liquidity problem of theprivate business sector is compounded by under-capitalization which had beenerncouraged by easy access to cheap bank credit in the past. Tax changes andother measures are under preparation to encourage the corporate sector toraise paid-up capital to levels commensurate with those in other countries.

14. There has been encouraging progress in the fiscal area. The budgetdeficit was reduced from 4.6 percent of GNP in 1980 to 1.2 percent in 1982.Government expenditures as a percentage of GNP declined from 22.6 percent in1981 to 21.5 percent in 1982, but the impact on the deficit was offset by aslower growth in revenues than programmed. The SEE accounts showed a markedimprovement, with net profits climbing to 0.5 percent of GNP in 1982 from 0.1percent in 1981 and their financing requirements falling from 8.8 percent ofGNP in 1981 to 5.7 percent in 1982. Moreover, supplementary appropriationswere cancelled. Public sector borrowing requirements dropped from a level of6.,5 percent of GNP in 1981 to 5.2 percent in 1982.

15. On the external account, the flexible exchange rate policy under

which the Turkish lira has been adjusted daily since May 1981, together withthe new export-oriented policies, led to an unprecedented export growth in1981 when exports amounted to US$4.7 billion, or 63 percent higher in dollarterms than the 1980 level. Increases were concentrated in manufactured goodswhich experienced a rise of nearly 120 percent; product groups with thelargest increases included textiles, clothing, cement, iron/steel, andnon-electrical equipment, with the Middle East becoming an increasinglyimportant market. Exports in 1982 reached US$5.75 billion, about 22 percentincrease over 1981, despite a significant decline in export prices,particularly prices of agricultural products. As in the previous year,manufactured exports were the major source of expansion, as exporterscontinued to make inroads into the Middle East.

115. A new and rapidly growing source of foreign exchange is income earnedfrom construction contracts (with a gross value of around US$11 billion in1982) in the Middle East and North African countries. These activities arealso expected to add to the normal flow of worker remittances, which remainedstrong throughout 1981, although declining slightly in 1982, reflecting theappreciation of the US dollar vis-a-vis European currencies as well as theiimpact of the recession in Western Europe.

17. Imports declined in dollar terms by 2.3 percent in 1982 compared to

1981, due mainly to weaker prices of oil and raw material imports, a strongerUS dollar, a reduction in stocks and the elimination of a risk premiumpreviously paid by Turkish importers. As a result of these developments, thecurrent account balance showed a significant improvement in 1981 and 1982,with the deficit reduced from 5.6 percent of GNP in 1980 to 3.5 percent in1981 and about 1.7 percent in 1982, well below program targets. By the end of1981, outstanding external disbursed debt amounted to US$17.5 billionequivalent or about 30 percent of GNP. Multilateral agencies and officialbilateral sources accounted for about two-thirds of the total outstanding. Ofthe total, only 12 percent constituted short-term debt, a marked contrast tothe position in 1978 when short-term debt accounted for half of totaloutstanding debt.

18. A modest pickup of growth (4.8 percent) is anticipated in 1983

concurrent with a slowdown of inflation (to about 20 percent), based on aslight recovery in private investment and higher capacity utilization rates.The current account deficit is expected to decrease to US$870 million in 1983from US$1 billion in 1982, representing a slight fall in relation to GNP(1.5 percent as against 1.7 percent). These results are based on a 17 percentprojected growth in exports, a marginal improvement in workers' remittances,(both predicated on a revival of growth in the industrial economies) and a13 percent growth in imports (required by the upturn in domestic demand).

Medium-term Prospects

19. It is expected that the draft Fifth Five Year Development Plan

(1984-1988) will be completed by mid-1983. Projections prepared by the recentEconomic Mission indicate the need for a continuation of the stabilizationprogram until 1985, which can be followed by a growth strategy aiming at about6-6.5 percent per annum GDP growth consistent with a manageable balance ofpayments.

20. Two basic assumptions on the sustainability of export growth and onfiscal discipline have guided the projections. The continued growth ofexports is based on the view that conditions that have made possible the

1981-82 upsurge are not temporary. Specifically, it assumes continuation of aflexible exchange rate policy, export incentives and import liberalization.Secondly, it also assumes that the monetary and fiscal policy restraints willnot be relaxed to a point that will revive inflation, thus disrupting thebasic shift in development strategy.

21. The projections of key economic variables for the period 1983-1990

are presented in Table below. Merchandise exports are projected to continueto grow at 9.5 percent in real terms into the late 1980s on the basis of acontinuation of present policies for export promotion. Such a scenario wouldalso require improvement in the pace of import liberalization in order toreduce the profit bias against exports.

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Table 1: Turkey - Projection of Selected Economic Indicators

1981 1982 1983 1985 1990 Average Annual Real Growth RateUnits Actual Estimte Program- Projected 1981 1982 1982-85 1985-90

GDP 1980 TL b 4518 4717 4943 5455 7349 4.4 4.4 5.0 6.1

Consumption " 3611 3757 3943 4310 5716 1.9 4.1 4.7 5.8Fixed Investment " 898 924 977 1129 1617 4.2 3.0 4.9 7.4

Exports of Goods Current $ m 4703 5746 6800 9811 21505 79.0 23.0 8.6 9.5Imports of Goods " 8933 8735 9697 12825 27433 10.2 -4.1 7.7 9.1

Trade Balance " -4230 -2989 -2897 -3014 -5928

Current Account Balance Current a m -2089 -1035 -870 -485 -1757

RatiosInvestment/GDP S 24.7 22.3 22.2 22.7 24.0Savings/GDP S 18.9 19.0 19.4 20.7 21.9Exports of Goods/GDP S 8.9 10.5 10.6 11.6 13.5Current Account Deficit/GDP S -3.5 -1.7 -1.5 -0.8 -1.8Debt Service Ratio a/ S 13.8 24.2 20.6 20.6 18.1Public Fixed Investment/ S 60.9 60.6 60.3 57.5 50.0

Total Fixed Investment

a/ Total Debt Service including Debt Relief - Exports of Goods and NFS plus Workers' Remittances.

Source: State Planning Organization and IBRD Projections.

22. Merchandise imports are projected to grow slowly in real terms

through 1984 and then to pick up from 7-8 percent to an average of a littleover 9 percent for the 1985-90 period in line with the growth of demand.

23. The current account balance, under these assumptions, would show a

decreasing deficit for 1982-85 as stabilization curtails imports while

encouraging exports. As growth sets in, the trend would be reversed for the1985-90 period, and Turkey's current account deficit would increase again.

The terminal year 1990 would show a deficit of US$1.8 billion as compared to a1985 projected deficit of US$485 million.

24. The projected capital account would remain manageable throughout theprojection period given the need to restrain the growth of debt and maintain a

reasonable debt service ratio. This would permit Turkey to meet theamortization and interest payments arising from the US$9.6 billion of debts

rescheduled between 1978-82 and maintain an exchange reserve equivalent to twomonths' imports.

25. Consistent with this scenario, the projections indicate a GDP growth

of 5 percent per annum for 1982-85 (stabilization period), and a higher figureof 6.1 percent per annum for 1985-90 (growth period). Achievement of these

growth rates will be necessarily dependent on the growth of the productivesectors, namely agriculture and manufacturing. The achievement of sectoral

growth will depend to a large extent on the Government's determination to

render the public sector more efficient and to create a more favorableinvestment climate for the private sector.

26. The medium-term scenario presented above assumes an increasinglyimportant role for private sector investment in line with the policy ofrationalizing public sector investment in the manufacturing sector.Accordingly, private investment is expected to grow at an average annual rateof 9.6 percent during 1982-85 and 11 percent during 1985-90. As a corollary,the real growth of public investment will slow down from a high of 7.8 percentper annum during 1980-82 to a more moderate 5.0 percent during 1982-85 andeventually to 4.4 percent per annum for 1985-90. This is consistent with theframework of achieving the medium-term goal of an equal balance in the ratioof private and public fixed investment by 1990.

Creditworthiness

27. At the end of 1978, Turkey faced an overwhelming debt burden of

US$7.5 billion in short-term debt and US$6.8 billion of medium- and long-termdebt. Turkey was faced with service payment ohligations (mostly on short-termdebt) of US$5.1 billion (including arrears), or nearly three times the valueof merchandise exports in 1977. Following the resolution of the 1978 debtcrisis, Turkey pursued a very conservative policy of external borrowing which

was restricted almost entirely to long-term borrowing. Much of this wasarranged through the OECD Consortium for Turkey and was extended on

concessional terms. Also, between 1978-1980 Turkey rescheduled someUS$9.6 billion of outstanding obligations through a series of reschedulingarrangements concluded with official and commercial creditors. ApproximatelyUS$6.0 billion of short-term debt, including US$2.6 billion in convertibleTurkish lira deposits and bankers credits and US$1.2 billion of non-guaranteedsuppliers credits, were consolidated into medium-term loans or partiallyconverted into Turkish lira obligations. As a result of the these measures,short-term debt as a percentage of total debt outstanding fell from 51 percentin 1978 to 12.5 percent in 1981. Inflows were mostly from official sources --major creditors being the OECD countries, the World Bank and the IMF. Of thetotal debt outstanding at end-1981, 87 percent constituted medium- and

long-term debt. Based on the growth scenario outlined earlier, debtoutstanding and disbursed as a percent of GDP is projected to rise from 28percent in 1981 to 31 percent in 1982 and then fall to 29 percent in 1985 and26 percent in 1990.

28. Debt service obligations are likely to be high over the comingyears. Accordingly, the debt service ratio is projected to increase to24.2 percent in 1982 from about 14 percent in 1981 as a result of a largerepayment of previously rescheduled debt under the earlier OECD agreements.Projections beyond 1982 show a decline of the debt service ratio to19.4 percent in 1984, an increase to 20.6 percent in 1985 (again on account ofrepayments of rescheduled debt), and then a fall to 18.1 percent in 1990. Thedebt burden should remain manageable, provided current policies aresuccessfully implemented, the export drive is sustained, and Turkey continuesto receive further international support from private and official donors.

29. On all aspects of economic analysis, the IMF and the Bank havecoordinated closely with each other, and Turkey continues to be in goodstanding with the IMF. A three-year standby arrangement in an amountequivalent to SDR 1,250 million was approved by the IMF's Board and becameeffective on June 18, 1980. Under the arrangement, Turkey has thus far madeten purchases totalling SDR 1,060 million. The present standby is to expireon June 17, 1983 and a one year extention is being sought by the Turkishauthorities.

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PART II - BANK GROUP OPERATIONS IN TURKEY

30. Through May 31, 1983 the Bank/IDA have lent US$3,939 million toTurkey, through 71 projects. Agriculture accounts for 18 percent of fundslent, industry and DFCs for 34 percent, power for 13 percent, structuraladjustment and program loans for 26 percent, and urban development,transportation, education and tourism for the remaining 9 percent. As ofMarch 31, 1983, IFC commitments to Turkey totalled about US$236 million, ofwhich about $82 million were still held by IFC. Annex II provides a summarystatement of Bank loans, IDA credits and IFC investments as of March 31, 1983,with notes on the status of ongoing projects.

31. The execution of Bank-financed projects in the public sector has beenslow, due in part to weak management, limited coordination amongst ministries,staffing problems, and the serious external and domestic financial crisis from1977 to 1979. There has been notable improvement since September 1980.Nevertheless, problems persist in many cases, reflecting difficulties instaffing the public sector at current salaries, over-centralized bureaucraticstructures, and continuing constraints on the availability of local funds.The implementation of private sector projects has generally been moresatisfactory. Recently, however, the high interest rates for working capitalcombined with depressed domestic demand and reluctance of investors to takethe foreign exchange risk, have led to slow commitments under DFC lending.Disbursements average 53 percent of appraisal estimates (excluding structuraladjustment loans) as compared to 55 percent for Tunisia and 45 percent forMorocco.

32. Bank lending is aimed at supporting Turkey's medium-term objectivesof redirecting the Turkish economy towards a development path placing morereliance on market forces and adopting a more outward-oriented strategy.These objectives also include increasing domestic savings and reorienting arestrained public investment program to reflect the Government's priorities ofcompleting ongoing projects faster and emphasizing quick-yielding newinvestments with positive balance of payments impact. The main vehicle forthe Bank's operational discussions with the Government has been the structuraladjustment lending (SAL) program. Three SALs have so far been approved and afourth is expected to be ready for Board presentation shortly.

33. Agriculture, industry, transportation and energy will continue to bethe key sectors for project lending. In agriculture, projects are expected toemphasize irrigation, credit, and reform of the extension and researchservices. In industry (including DFCs), the emphasis will he on the promotionof exports, employment, and increasing operational efficiency. Energyprojects underway are for power generation based on domestic hydro and ligniteresources, as well as enhanced oil recovery and oil and gas exploration.Future projects will emphasize both the oil/gas and coal/lignite sub-sectors.In addition, transportation projects will focus on developing theinfrastructure to facilitate exports and improve the efficiency ofoperations. Projects for industrial training, urban and regional developmentand public utilities may supplement these efforts.

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34. The close macroeconomic and sector dialogue established with theGovernment in recent years is expected to be pursued. The economic and sectorwork undertaken recently includes studies of the agricultural and financial

sectors. Topics likely to be covered in the future include a review of thenext five-year development plan, employment, SEEs, transportation and theagro-industrial subsector.

35. This is the first loan to Turkey to be presented to the Executive

Directors this fiscal year. Loans for agricultural credit, powertransmission, development of the Thrace gas field, and a fourth loan forstructural adjustment are also expected to be ready for Board presentationshortly. Other projects being processed include: technical assistance toSEEs, industrial training, agricultural extension, gas utilization andrehabilitation of the paper industry.

36. The Bank Group's share of the estimated total external debt was9 percent in 1981, and is expected to grow to about 17 percent by 1985; itsshare of total debt service payments is projected to increase from about13 percent in 1981 to about 14 percent in 1985.

37. IFC has invested in synthetic yarns, pulp and paper, glass, aluminum,

iron and steel products, meat processing, motor bicycle engines, truckmanufacture, piston rings and cylinder liners, and tourism. It has alsoinvested in the Turkish Industrial Development Bank (TSKB). New investmentopportunities are being pursued.

PART III - THE AGRICULTURAL SECTOR

38. While the importance of the agricultural sector in the economy is

declining, it still represents about 20 percent of GDP, about half of exportearnings and about 60 percent of civilian employment. The growth rates of

agricultural GDP and exports are projected to remain below those for the restof the economy. Nevertheless, agricultural growth has a significant role toplay in providing foreign exchange earnings and employment.

39. Through the 1970s, Turkey's agricultural policies were

inward-looking, stressing food self-sufficiency through subsidized inputs andproducer prices. This led to relatively rapid growth of production initially,but this could not be maintained due to the strain placed upon the budget andcompeting demands for resources from the manufacturing sector. An over-valuedexchange rate discouraged exporting and exports in 1979 amounted to less thanone percent of production. The foreign exchange crisis in the late seventiesled to the adoption of new policies in 1980 featuring the maintenance of arealistic exchange rate and reduction of agricultural subsidies. Thesepolicies, combined with improved export incentives, led to an increase inagricultural export earnings in 1980 and 1981 at an annual average rate of 29

percent. This trend is expected to continue, although at a less rapid rate,over the next few years. The rate of growth of agricultural production fell

initially with the reduction of subsidies, but has rebounded in 1982 due togood weather and an adjustment by farmers to a more market-oriented farmingenvironment.

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4-0. The possibilities for growth through expansion of the cultivable areawere largely exhausted by the mid-1970s. Growth must now come primarily fromincreased productivity and changing the crop mixture to reflect betterrurkey's comparative advantage. The demands of an export oriented approachimply a change of emphasis from food self-sufficiency to increased netagricultural contribution to the balance of trade, and thus food imports mustincrease if food consumers are not to be penalized. Increased productivitywill require expansion in the irrigated area through increased efficiency ofThe implementing agencies, better extension and research programs, andi:ncreased imports of improved seeds and appropriately-sized equipment. Otherimportant issues in the sector include improved sector planning, continuedprogress in reduction of subsidies, increased availability of credit(particularly for small and medium scale farmers), and reform of agriculturalSEEs and marketing agencies. With adequate progress on these issues andcontinued adherence to policies designed to encourage exports, it should bepossible for agricultural sector GDP to grow at about 3 percent per year overthe next decade.

The Irrigation Subsector

4F1. One of the most important opportunities available for increasingagricultural production and employment is through expansion of irrigation.Out of a total cultivated area of about 27.7 million hectares (ha) only about3 million ha are irrigated and substantial potential exists for increasing theirrigated area. Most of the currently irrigated area is not used veryintensively. Most of about 1 million ha of private irrigation schemes ishandicapped by unreliable sources of water, use of traditional irrigationmethods, lack of land levelling and suboptimal cropping patterns. Of the 2.0million ha under the command of public irrigation infrastructure, about 0.3 -0.4 million ha have not yet been fully equipped with on-farm works to makeefficient use of the water provided. Finally, part of the area with adequatefacilities is inadequately operated leading to low water efficiency and lessthan optimal yields.

42. Two public agencies are responsible for construction of irrigationfacilities. The General Directorate of State Hydraulic Works (DSI) of theMinistry of Power and Natural Resources is responsible for the construction ofthe basic irrigation infrastructure of large scale projects (requiring watersupply of more than 500 liters/second). The General Directorate of Land andWater Conservation (TOPRAKSU) of the Ministry of Village Affairs handles thedevelopment of small-scale projects and the construction of on-farmdevelopment works on DSI's schemes. These agencies have not been able tocontribute fully to agricultural productivity increases because of budgetconstraints, attempts to work on too many projects, excessive reliance uponforce account work, and poor supporting services resulting in slow projectcompletion and limited agricultural benefits. Whereas about 50-60,000 ha werebeing completed annually by DSI in the early 1970s, this has declined to lessthan 30,000 ha per year in the last 3-4 years. Similarly TOPRAKSU hasrecently been able to complete only 20,000 ha per year of small-scaleprojects, as compared to 45-50,000 ha annually in the early 1970s. TOPRAKSU'sbacklog of work for on-farm development on DSI's schemes is now about300-400,000 ha.

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43. To meet the 3 percent per year growth target for agricultural GDP,sufficient budgetary allocations will have to be made to these two publicconstruction agencies, and their capability to complete irrigation projectswill have to be increased. This particularly applies to TOPRAKSU, consideringthe magnitude of its work backlog. TOPRAKSU has a theoretical capability toirrigate only 30-50,000 ha/year by force account. Therefore, much moreextensive use of contractors under TOPRAKSU's supervision is essential, and

could increase the capability to about 100,000 ha/year. To support a publicinvestment program of this magnitude, the following will also be required:

(i) a continuation of the emphasis given since 1980 to quickly gestatingirrigation investments and completion/rehabilitation of areaspresently under the command of existing or nearly completedinfrastructure;

(ii) the preparation by DSI and TOPRAKSU of a detailed medium-term

investment program to establish investment priorities among thevarious partially completed projects and to develop implementationplans, taking account of financing constraints and availability of

staff and equipment;

(iii) in parallel with a rapid expansion of the agencies' construction

capacity (in particular through a marked increase in the use ofprivate contractors by TOPRAKSU), a corresponding expansion of theagencies' technical and engineering staff to refine their longer termscheduling and planning as well as project identification andevaluation capabilities, accelerate the rate of project prepa-ration and finalization of designs, and expand their construction andoperation and maintenance (O & M) training capabilities;

(iv) improved measures for recovery of construction and 0 & M costs andcollection of on-farm development costs so as to generate additionalresources for sustaining further public investments in the subsectorand foster more intensive and efficient land use in irrigated areas;and

(v) the development of effective agricultural extension services able to

introduce irrigated techniques to first time users and to forge alink between applied research and the farmers for the disseminationof improved technology.

44. In accordance with the recommendations of the Public SectorInvestment Review (para 2), the Government has reoriented its annualirrigation investment budgets to concentrate on projects close to completion.It has also agreed (see para. 58) to complete a detailed irrigation investmentmaster plan embodying the above objectives. In an effort to intensify the useof existing irrigated areas, the Ministry of Agriculture has started a projectin 1981 in 15 provinces in the southern and western parts of the country,which aims at introducing a second crop and providing agricultural supportingservices in irrigated areas. The Ministry of Agriculture has also started ageneral reorganization of its extension services which will include anemphasis on improving services to irrigated areas.

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Water Charges

45. With regard to DSI major irrigation works, legal provision exists forrecovery of investment and 0 & M costs. These charges have to be approved bythe Council of Ministers. In practice DSI computes the capital charges forcompleted irrigation works on the basis of recovery over 50 years withoutinterest and without any adjustment for inflation. Moreover, the 0 & Mcharges approved by the Cabinet have normally been significantly below actualcosts. Collection averages less than two-thirds of assessed charges. Aone-time 10 percent late penalty surcharge for delinquency of over one yearhas been insufficient to induce adequate recovery. With respect to TOPRAKSUminor irrigation and on-farm development works, there is currently nolegislation permitting cost recovery.

46. The Government has recently taken measures to improve cost recovery.Thle Government has agreed to increase 0 & M charges for DSI worksprogressively to 100 percent of the previous year's actual 0 & M charges(]oan Agreement, Section 4.05 (a)(i)). For 1983, charges have been increasedto cover 37.5 percent of 0 & M costs, and coverage would be increased to 50percent in 1984, 75 percent in 1985 and 100 percent in 1986. The Governmenthas also agreed, to adjust its capital recovery charge to include interest(loan Agreement, Section 4.05 (a)(ii)) and to institute appropriate legalprocedures in cases of delinquency of over 12 months (Loan Agreement, Section4.05 (b)). In addition, the Government has indicated its intention to seeklegislation to increase substantially the penalties for delinquency in paymentof such charges. With respect to TOPRAKSU, the Government has agreed (LoanAgreement, Section 4.06) to take necessary action, not later than September 1,1]984, to cause TOPRAKSU to assess and collect from farmers receiving on-farmdevelopment investments under the project, charges sufficient to recover thecost of such investments, including interest, amortized over a period not toexceed 20 years from the completion of such investment. Completion of sucbaction is a condition of disbursement for DSI or TOPRAKSU force account workafter September 1, 1984, for DSI or TOPRAKSU contracts entered into afterSeptember 1, 1984, or for disbursements exceeding $30 million equivalent onDSI contracts (Loan Agreement, Schedule 1, para 4). Since most operation andmaintenance for TOPRAKSU investments is carried out by the farmers concerned,no 0 & M charge is considered necessary.

47. In 1981 the Government adopted a sales tax of 5 percent onagricultural products. This is intended to compensate for the difficulty incollection of income taxes on agricultural income. The increase in sales taxcollection due to irrigation is estimated to be about equal to current 0 & Mcosts for DSI works.

Performance under Previous Irrigation Projects

48. The Bank and IDA have provided financing for five irrigation projectsin Turkey through loans and credits totalling about $159 million. Some ofthese projects also included power components. All but one have beencompleted, with the last one (Ceyhan Aslantas - Loan 883-TU and Credit 360-TUof 1973) expected to be completed by December 1983. Aside from componentsunder rural development projects, no irrigation lending has taken place since1973 due to failure hitherto to agree on adequate measures regarding costrecovery (see paras. 45 and 46). Project Performance Audit Reports (PPARs) on

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the two projects completed most recently found them to have been generallysuccessful and to have high economic benefits. But, in addition to the issueof cost recovery, the PPARs noted inadequate extension support, initial delaysin establishing project implementing units and periodic delays in providingadequate local cost financing as major problems. The proposed project hasbeen designed to take full account of these lessons. In the areas served bythe Ceyhan-Aslantas project and the Corum-Cankiri Rural Development Project(Loan 1130-TU, 1975) the extension service is performing well using animproved approach pioneered under several Bank projects. The Government hasrecognised the need to reorganize and strengthen its extension activities andis developing a plan to introduce the new extension system on a nationwidebasis. A first phase extension project is expected to be ready for appraisalthis calendar year. Since the proposed project is accelerating on-goingworks, most of the implementation units already exist. Arrangements areproposed for Bank review of proposed project budget provisions (para 59) whichwould provide an early warning system and facilitate compliance withGovernment undertakings to provide adequate financial support for the project.

PART IV - THE PROJECT

Project History

49. The proposed project originated with the Government's request to theJune 1980 Agricultural Sector Identification Mission for Bank financing toassist completion of irrigation schemes under construction. Consideration ofthe project was made possible by changes in Government investment policy forthe irrigation subsector to concentrate resources on a few priority projectsto accelerate their completion and by measures taken to improve costrecovery. The proposed project was prepared under the leadership of DSI whichcoordinated its input with contributions from TOPRAKSU and the Ministry ofAgriculture and Forestry, with the assistance of the FAO/World BankCooperative Program. The project was appraised in September 1982. A StaffAppraisal Report entitled "Turkey - Igdir-Aksu-Eregli-Ercis (IAEE) IrrigationProject" (No. 4299-TU dated May 13, 1983) is being distributed separately tothe Executive Directors. The key features of the proposed project are listedin the Loan and Project Summary and in Annex III. Negotiations took place inWashington in March 1983, with a delegation headed by Mr. Tunc Bilget, ChiefFinancial and Economic Counselor of the Turkish Embassy in Washington, andincluding representatives of Treasury, DSI, TOPRAKSU, the Ministry of VillageAffairs and the State Planning Office. Final agreement was reached in May1983.

The Project Objectives and Loan Features

50. The proposed project conforms to the Government's strategy foraccelerating growth of production through giving priority to completion ofirrigation schemes which will bring about quick returns. Government agencies

are presently attempting to complete construction of some 79 irrigationschemes involving in excess of 900,000 hectares. Due to budgetary constraintsand the attempt to handle too many projects simultaneously, constructionperiods and project benefits have been delayed. Contractor constructioncapacity and staff capacity of administering agencies are considered adequateto permit an acceleration of construction if sufficient finance can be madeavailable. The project objective is to accelerate completion of several of

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those schemes which are nearest to completion, have no technical difficultiesto delay completion, do not have a significant energy requirement and arefinancially attractive and economically viable. Four such irrigation schemeshiave been selected which meet the above criteria and which would bring about113,000 ha (net) under improved irrigation (from dryland or inadequatelyirrigated areas) and affect about 25,000 farm families. In addition anirrigation strategy review (para 58) would assist Turkey to design its futureirrigation investment program so as to achieve a more rapid increase in.irrigated area.

51. In the selected subprojects all dam construction is either completedor close to completion. The Government has committed itself to provide allrequired funds and facilities to ensure completion of the remaining work in atimely manner (Loan Agreement, Section 3.01 (b) and (c)(i)). However,additional investments are required to use the available water efficiently.The project would include the construction of additional irrigation canals,intakes, drainage networks, rehabilitation and improvement of existingirrigation and drainage systems, and provision of on-farm developments in theform of land levelling, surface and subsurface drainage, correction ofsalinity and alkalinity problems, and feeder roads. It would also includestrengthening of extension services, equipment for operation and maintenanceof the irrigation scbemes, staff training, and preparation of an irrigationstrategy review. Independent qualified experts, acceptable to the Bank, wouldbe employed to periodically inspect on an agreed schedule the construction,operation and maintenance of the dams, in accordance with sound engineeringpractice (Loan Agreement Section 4.03 (b)).

Project Components

52. The Igdir Irrigation Scheme would benefit a net area of about 53,000ha (net) in Eastern Turkey in a valley along the border with USSR. Presently23,000 ha are irrigated using the Serdarabat Dam which was jointly constructedin 1927 by Turkey and the USSR. The proposed subproject would rehabilitatethe existing irrigation system and expand the system by about 30,000 ha,making use of additional water from the Arpacay Storage Dam upstream (alsojointly built by Turkey and the USSR). The subproject would also includeon-farm development work, feeder roads, and reclamation of about 12,500 ha ofsaline and alkaline soils. About 14,300 farm families are expected tobenefit. Increased production of cereals, sugarbeets, cotton, alfalfa andfruits and vegetables is expected to result from the project.

53. The Aksu Irrigation Scheme would benefit an area of about 23,000 hain the Mediterranean region near the city of Antalya. About 9,000 ha arecurrently irrigated using the Aksu Dam (constructed in 1961) but littleon-farm work (land leveling or surface drainage) has been carried out. Anadditional 3,000 ha are currently irrigated using pumps or through theremnants of an old irrigation scheme. The proposed project wTould extend thearea irrigated from the Aksu Dam by about 14,000 ha, rehabilitate the existingirrigation system, and provide on-farm works and feeder roads. It would alsoprovide flood protection, since flooded areas of up to 7,000 ha are common.About 5,800 farm families are expected to benefit. Increases in production ofwheat, cotton, and fruit and vegetables are expected.

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54. The Eregli Irrigation Scheme would benefit an area of about 32,000 hain Konya province in Central Anatolia. About 14,000 ha are currentlyirrigated, although inadequately. The Irviz Dam (begun in 1979) is abouttwo-thirds completed and should be in operation in time for the 1985irrigation season. This will permit expansion of the irrigated area by about18,000 ha and improvement in the areas currently inadequately irrigated. Thesubproject would not finance any head or canal works since these are alreadycontracted and construction is already underway. The subproject would includeabout 17,000 ha of land leveling and drainage works, feeder roads andreclamation of about 4,000 ha of saline and alkaline soils. About 4,360 farmfamilies are expected to benefit. Increased production of fruit, wheat,sugarbeets, and vegetables is expected.

55. The Ercis Irrigation Scheme would benefit an area of about 7,000 haalong side Lake Van in Southeastern Turkey. The subproject area, currentlyfarmed under rainfed conditions, would be irrigated from the Kockopru Dam,which was started in 1979 and is scheduled for completion in 1984. Thesubproject would include irrigation canals, drainage networks, on farmdevelopment, and feeder roads. About 850 farm families are expected tobenefit. Increased production of alfalfa, cereals, sugarbeets, and vegetablesis expected.

Agricultural Extension

56. An agreed extension system would be introduced in the subproject

areas (Loan Agreement Section 3.06). Under this system one day of training bydistrict engineers and subject matter specialists would be given to theagricultural technicians every two weeks, to be followed by nine days of fieldextension work. The training would outline, in accordance with the season,the cropping pattern, and specific agricultural practices to be promoted. Theextension services would be strengthened by three or four subject matterspecialists for each irrigation scheme and a county agricultural engineer forthree of the schemes. A ratio of at least one agricultural technician per 400farm households would be maintained. The project would include theconstruction of offices and staff accommodation where appropriate and theprovision of field demonstration equipment and vehicles.

57. Training: In order to tailor extension skills to project objectives,the Ministry of Agriculture would, by February 29, 1984, carry out a survey oftraining needs of extension staff to be assigned in the four irrigation schemeareas. Tbereafter, the Ministry would prepare and submit to the Bank by June30, 1984 a program for training of extension staff to be assigned to theproject areas, and carry out a program acceptable to the Bank for trainingsuch staff (Loan Agreement Section 3.07 (b)). Short-term consultingassistance would be provided for analysis of training needs and design ofproject training programs. In addition about 170 man-months of Bank-approvedoverseas training would be financed under the project for appropriate staff ofDSI, TOPRAKSU and the extension services.

58. Irrigation Strategy Review. Over the past two years the Government'sannual investment programs have concentrated resources on those priorityprojects nearest completion. This policy is being continued under the 1983investment program. Nevertheless, a further planning exercise is required to

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establish future investment priorities among the various partially completed

projects and to develop implementation plans taking account of financing andimplementation constraints. The Government would therefore, by July 31, 1984,prepare under agreed terms of reference, a ten-year irrigation master plandesigned to bring the average annual increase in irrigated area during thenext 10 years to about 100,000 ha per year, (Loan Agreement, Section 4.04),and would employ specialist consultants to assist its staff in this work (LoanAgreement, Section 3.02). The master plan would be based on a detailedinventory and assessment on a project-by-project basis of existing andprojected DSI irrigation and TOPRAKSU on-farm development investments and offinancial and implementation constraints. It would include detailedimplementation plans for the first five years including additional worksrequired, cost and timing. The master plan is expected to serve as a basisfor selection and preparation of future irrigation projects suitable for Bankassistance.

Cost Estimates and Financing

59. The estimated total cost of the proposed project is $292 millionincluding $115 million in foreign exchange and about $6.6 million of taxes andduties. The above estimates include an average of about 12 percent physicalcontingencies and about 16 percent price escalation. (While local costs areexpected to increase at a faster rate, the floating TL automaticallyaccommodates the difference between local and foreign inflation.) Theproposed Bank Loan of $115.3 million would finance 100% of the foreignexchange costs of the project (about 40% of total costs) plus the front-endfee. The remaining 60% of costs would be provided by the Government. TheBank has reviewed at negotiations the allocations for the various projectcomponents included in the 1983 budget and found them to be adequate. For

later years the Government would, by September 30 each year, provide to theBank for comment, an annual updated financing plan giving the proposed budgetallocations for the project (and associated dams and facilities), and updatedproject schedules and cost.estimates (Loan Agreement, Section 3.01 (c)).Consultants services are to be provided for assistance in preparation of theirrigation master plan (about eight man-months) and of project trainingprograms (about one man-month), at an estimated average cost of $12,000 perman-month (including salary, costs, fees, international travel andsubsistence). Fellowship costs are estimated at $2,500 per man-month toEurope and $4,000 per man-month to the USA. In order not to interruptprogress on the project, up to $4 million of retroactive financing would beprovided for expenditures after January 1, 1983 under contracts which wereawarded in accordance with approved procedures.

60. The above cost estimates exclude additional agricultural credit thefarmers would require to take full advantage of the irrigation facilities tobe provided. This incremental credit required is estimated at about $42.5million equivalent including about $15 million in foreign exchange and isexpected to be provided by the Agricultural Bank of Turkey (TCZB), eitherdirectly or through cooperatives. The proposed Second Agricultural CreditProject, expected to be ready for Board presentation shortly, would includefunds for financing the estimated foreign excbange component of such creditover a period of four years. The proposed credit project would also include

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measures to strengthen TCZB's organization and procedures which wouldfacilitate provision of this credit. The Government has agreed to guaranteethat agricultural credit would be provided in adequate amounts to meet theincremental requirements of farmers for efficient cultivation of the landreceiving new or improved irrigation under the project (Loan AgreementSection 4.07).

Implementation

61. Implementation of project components would he the responsibility ofthe Government agencies concerned, namely DSI, TOPRAKSU, and the Ministry ofAgriculture. Since each irrigation scheme represents an acceleration of anon-going program, most of the required implementation organization is alreadyin place. The increased use of private contractors by TOPRAKSU and theproject financed training programs would help to improve the implementationcapacity of the involved agencies. A coordination committee would be formedby December 31, 1983 in each province served by the project (Loan AgreementSection 3.08 (a)), to be chaired by the provincial Governor and includingrepresentatives of DSI, TOPRAKSU, the extension service, and TCZB. Thesecommittees would meet at least monthly. Preliminary designs and costestimates have been prepared by DSI and TOPRAKSU with some assistance from theFAO/World Bank Cooperative Program. DSI and TOPRAKSU would have theresponsibility of preparing final designs, cost estimates and biddingdocuments and have done so for the first year's contracts. These agencies areadequately staffed to prepare the remaining final designs and to superviseconstruction, operation and maintenance, except for TOPRAKSU staff for theIgdir subproject area, which requires strengthening. A suitably staffedTOPRAKSU project section would be established for the Igdir subproject byDecember 31, 1983 (Loan Agreement Section 3.08 (b)).

Contracting and Procurement

62. All DSI new construction (estimated at $86.9 million equivalent,including price and physical contingencies) and all building construction forthe extension service ($1.8 million) would be performed by privatecontractors. DSI work in rehabilitation of existing irrigation networks($33.2 million equivalent) would be carried out by force account, since suchwork can only be accomplished during periods when irrigation services can heinterrupted. With respect to TOPRAKSU, at least 75 percent of civil works forland leveling, surface drainage and farms roads would be performed by privatecontractors, representing a significant change from prior TOPRAKSU practicesunder which most of such work was done by force account. While privatecontractors have up until now not been used for TOPRAKSU subsurface drainagework due to the need for specialized equipment, at least 10% of such civilworks under the Project would be carried out by private contractors.Contractors would he given special assistance to enter this field throughbeing allowed to use less specialized equipment. In total, about $43.2million equivalent of TOPRAKSU works would be carried out by contractors andabout $30.3 million eauivalent bv force account. About $33.0 million of DSIcivil works contracts, including all of such contracts except for the Igdirsubproject and one small ($4 million) contract under the Ercis subprojectwould be awarded through international competitive bidding (ICB). Because ofthe remoteness and inaccessibility of the area, DSI construction contracts for

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the Igdir subproject (estimated at about $49.9 million) would be awardedthrough local bidding procedures acceptable to the Bank. TOPRAKSU andMinistry of Agriculture construction contracts ($44.8 million), which are forsmall works unlikely to be of interest to international firms, would beawarded through appropriate local bidding procedures. Contracts for vehiclesand equipment ($42.0 million) would he awarded through ICB. Equipment tenderswould provide for adequate servicing capacity and spare parts within Turkey.Purchases of small items of equipment of value less than $50,000 and not toexceed $250,000 in total for the Project, may be procured off-the-shelf on thebasis of at least three offers.

63. The project is expected to be implemented within five years. This is

faster than previous irrigation projects in Turkey, but is considered to be areasonable schedule since the project consists of acceleration of on-goingworks, the implementation units already exist and the arrangements for priorreview of proposed project budget provisions (para. 59) and the establishmentof a revolving fund for civil works contracts (para. 64) are expected tofacilitate timely provision of adequate financial support for the project.

Disbursement and Audit

64. The Bank loan would be disbursed against (i) 50 percent of the costs

of civil works executed by contract; (ii) 25 percent of the costs of civilworks executed by force account; (iii) 100 percent of foreign expenditure andlocal expenditure ex-factory and 60 percent of other local expenditure forvehicles and equipment; (iv) 100 percent of foreign expenditure for overseastraining, and (v) 100 percent of foreign expenditure for foreign consultantsor 75 percent of total expenditure for local consultants. A revolving fund of$4 million equivalent would be established for civil works contracts to avoidthe need for the Government to first provide the funds for the full cost ofcontractor services and then await Bank reimbursement (Loan Agreement,Schedule 5). Completion of necessary action to cause TOPRAKSU to assess andcollect water charges on farmers receiving on-farm development investmentsunder the project (para 46) would be a condition of disbursement for DSI orTOPRAKSU force account work after September 1, 1984, for DSI or TOPRAKSUcontracts signed after September 1, 1984, or for disbursements exceeding $30million equivalent on DSI contracts (Loan Agreement, Schedule 1, para 4).

65. DSI, TOPRAKSU and the Ministry of Agriculture would each maintainseparate accounts for the project. Staff of the three agencies involved wouldprepare at the end of each quarter a detailed statement of projectexpenditures during the period and submit such statement to the Bank within 45days after the end of each quarter. Such statements would, inter alia, beuised as the basis for Bank review of progress and supervision of costs offorce account works. An annual audit would be carried out by the AuditorGeneral's office and submitted to the Bank within nine months of the end ofeach fiscal year (Loan Agreement, Section 4.02)).

O)ther Special Project Features

66. Government Owned Land: Of the 56,300 ha (gross) to be irrigated inthe Igdir subproject area, 10,200 ha are Government or village owned land.The prior land reform legislation in Turkey has been repealed, and replacementLegislation has not yet been proposed to the Assembly. Therefore, for the

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time being, there is no legal provision for the sale of Government land tofarmers. The Government intends to have the Government and village owmed landin Igdir Subproject area become the property of the Treasury Department afterTOPRAKSU has completed the on-farm development works. The Treasury plans tolease this land for three to five years to, in order of priority, farmers withno land, small landholders, farmers renting or sharecropping, and otherfarmers in the immediate vicinity of the project area. Most of this land willnot be available until 1985 by which time new land reform legislation may bavebeen passed. The Government has agreed that it would (a) submit to the Bank,by July 1, 1984, a detailed plan for disposition of such land, and (b) leaseor sell Government and village owned land irrigated under the Project tofarmers under arrangements acceptable to the Bank (Loan Agreement, Section3.05 (b)). No significant amount of Government owned land is included in theareas of the three other subprojects.

International Water Rights

67. No issues of international water rights affect the Aksu, Ercis or

Eregli subprojects. However, the Aras River, which provides water for theIgdir subproject, forms the border between Turkey and the USSR, and furtherdownstream the border between Iran and the USSR. There is an internationalagreement between Turkey and the USSR on the use of the Aras River, whichprovides that each country has a right to a 50% share of the river flows.Pursuant to this, both countries jointly built in 1927 the SerderabatDiversion Dam, with two intakes dividing the Aras River flows between Turkeyand USSR. The countries' representatives meet monthly to discuss operationsand maintenance. Recently the two countries jointly built the Arpacay StorageDam upstream, but it has not yet been put in operation. A supplementaryagreement was signed in 1973 governing the use of this water. The Arpacay Damwill store water during winter and spring months to permit increased riverflows during the summer, which will be diverted through the SerderabatDiversion Dam. This treaty between Turkey and the USSR satisfactorily dealswith the water rights issues for the Igdir subproject. The arrangements ineffect since 1960 have led to full utilization of all available water by USSRand Turkey during the growing season. No such treaty exists between Turkeyand Iran. But the storage of additional water during the winter (8 percent ofthe total flow) for release during the growing season appears not to have anysignificant adverse effects on Iran. These findings were conveyed to Iran andno objections have been received.

Benefits and Risks

68. The project, at full development, would lead to improved agriculturalpractices on 119,000 ha gross of land (112,700 ha net) which will benefit fromnew or better irrigation. The project is expected to benefit directly over25,000 farm families. Of these about 23,000 presently own and cultivate landin the project areas, and about 2,000 are expected to start cultivation onGovernment-owned land to be reclaimed and redistributed or leased in the Igdirscheme. The net disposable farm incomes of these farmers at full developmentwill average about 2.5 times higher than without the project, after takinginto account increased water charges (see para. 46). In addition, as a result

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of the intensification of cropping patterns and practices under the project,the annual demand for seasonal labor will increase; it is estimated that atfull development, about 20,000 more people will find temporary employment onfarms in the project area during the 3 months of peak farm labor.

69. Full development would be achieved in year 12 of the project (1994).At that time total incremental benefits would amount to about $107 millionequivalent in 1982 economic prices. Of this, about 49% would be derived fromincreased production of fruit and vegetables, 13% from cotton, 12% fromsugarbeet, and the remainder from cereals, fodder, oil seeds, tubers andpoplar wood. No problem is anticipated in the domestic marketing of most ofthe additional output. However, at full development the total production offruit and vegetables from the project area would be quadrupled. During thelast decade, the national production of vegetables has increased by about 4%per year, and the production of citrus, apple and apricot by about 5-6% peryear. This increase has been partially absorbed by the growing nationaldemand, as well as by rapidly rising exports during the last 2-3 years, mostlytowards Middle-Eastern and European countries. Part of the incrementalproject output would be exported, particularly most of the citrus and earlyvegetables from the Aksu scheme in the Antalya province, where the WorldBank-supported Fruit and Vegetable Project (Loan 1967-TU) is currentlyassisting in improving production and marketing of these commodities. In thisprovince during recent years the growth in fruit and vegetable production hasbeen matched by private investment in marketing and storage facilities, andincreased trucking capacity has permitted a surge in exports, particularly ofcitrus to the Persian Gulf and Libya. In the medium term however, furtherexpansion of export markets would require improvements in marketingefficiency, packaging and quality control. The marketing organizations to beset up under Loan 1967-TU are intended to assist in bringing about suchimprovements.

70. Economic rates of return have been calculated for each of the

subprojects. Rates of return vary from about 15% for the Ercis subproject toabout 30 percent for the Eregli subproject, and average about 20% for theproject as a whole. These estimates assume rather conservative rates ofprogress in introducing improved practices and changing cropping patternsafter the introduction of irrigation. If benefits were delayed by two yearsdue to delays in completion of construction, rates of return would still besatisfactory, ranging from about 12 percent for Ercis to about 22 percent forEregli, and averaging about 16 percent for the project as a whole.

Project Risks

71. There are no unusual technical risks associated with the project, andthose normally associated with project benefits, costs, development period andimplementation delays have been taken into account in sensitivity analyses

which demonstrate project viability in the face of any reasonable combinationof such risks. On the organizational side, collaboration and cooperationbetween DSI and TOPRAKSU is already quite satisfactory. The fact that theproject would accelerate implementation of on-going subprojects means that theinitial delays in setting up implementation units have already been overcome.The only organizational risk is that delays may take place in strengthening

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the extension service, which would delay adoption of improved farmingpractices. While this has been a problem in some of the earlier Bank financed

irrigation projects, experience under our ongoing projects has been reasonablygood and the Government's attitude to the new extension system has moved from

acceptance for Bank projects only to endorsement as the intended nationwideextension model. One risk which could reduce project returns and which otherBank-assisted projects in Turkey have faced periodically would be inadequate

local budgetary support resulting in delays in construction schedules. Tominimize this risk, assurances have been received (see para 59) that thenecessary budget will be provided on time and that the Government would, foreach year of the implementation period, give the Bank an opportunity tocomment on the proposed allocations for the project prior to finalization ofthe budget.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

72. The draft Loan Agreement between the Republic of Turkey and the Bank

and the report of the Committee provided for in Article III, Section 4(iii) ofthe Articles of Agreement are being distributed to the Executive Directorsseparately. The special features of the Loan Agreement are referred to in thetext and listed in Section III of Annex III. There are no special conditionsof loan effectiveness. Completion of necessary action to cause TOPRAKSU toassess and collect water charges from farmers receiving on-farm developmentworks under the project would be a condition of disbursement on somecomponents (para. 46).

73. I am satisfied the proposed loan would comply with the Articles ofAgreement of the Bank.

PART VI - RECOMMENDATION

74. I recommend that the Executive Directors approve the proposed loan.

A.W.Clausen

President

AttachmentMay 17, 1983Washington D.C.

-22- ANNEX 1PagelI o f 5

TABLE 3ATURKEY - SOCIAL INDICATORS DATA SHEET

TURKEY REFERENCE GROUPS (WEIGHTED AVlRAGESAREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)-

TOTAL 80.6 MOST RECENT MIDDLE INCOME INDUSTRIALIZEDAGRICULTURAL 377.4 1960 /b 1970 /b ESTIMATE /b EUROPE MARKET ECONOMIES

GNP PER CAPITA (US$) 320.0 580.0 1470.0 2323.9 10328.2

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 249.6 488.4 770.9 2107.4 7277.7

POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (THOUSANDS) 27509.0 35321.0 44858.0URBAN POPULATION (PERCENT OF TOTAL) 29.7 38.4 47.4 47.9 78.0

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 67.1STATIONARY POPULATION (MILLIONS) 108.5YEAR STATIONARY POPULATION IS REACHED 2075

POPULATION DENSITYPER SQ. KM. 35.2 45.2 56.2 83.3 138.6PER SQ. KM. AGRICULTURAL LAND 73.9 92.0 116.2 155.4 509.7

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 41.2 41.0 39.0 31.1 22.7

15-64 YRS. 55.2 54.3 56.5 61.2 65.765 YRS. AND ABOVE 3.5 4.7 4.5 7.7 11.6

POPULATION GROWTH RATE (PERCENT)TOTAL 2.8 2.5 2.4 1.6 0.8URBAN 6.1 5.1 4.5 3.5 1.4

CRUDE BIRTH RATE (PER THOUSAND) 42.8 38.3 32.2 23.6 14.5CRUDE DEATH RATE (PER THOUSAND) 15.6 12.7 9.6 9.2 9.3GROSS REPRODUCTION RATE 3.1 2.7 2.1 1.6 0.9FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. 65.6 66.6/cUSERS (PERCENT OF MARRIED WOMEN) 5.3/d 8.2 38.0/e

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71-100) 96.0 100.0 110.0 116.0 111.1

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 115.1 110.5 115.8/f 125.1 130.8PROTEINS (GRAMS PER DAY) 85.1 80.2 82.7/f 92.7 97.1

OF WHICH ANIMAL AND PULSE 25.0 22.9 24.9/f 35.9 61.3

CHILD (AGES 1-4) MORTALITY RATE 50.0 31.2 21.0 9.2 0.5

HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 50.5 56.6 61.8 67.6 73.8INFANT MORTALITY RATE (PERTHOUSAND) 189.5 147.5 122.6 65.1 11.3

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL .. 52.0 75.0/SURBAN .. 51.0 70.0/jRURAL .. 53.0 80.0/.

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. ..URBAN .. .. 20.0RURAL .. ..

POPULATION PER PHYSICIAN 2799.6 2227.6 1762.5/f 1105.4 620.7POPULATION PER NURSING PERSON 7492.4/d 1883.8 922.6/f 634.4 246.9POPULATION PER HOSPITAL BED

TOTAL 600.5/h 490.3 503.6/f 286.8 122.0URBAN 340.8/Ei 313.4 311.07? 192.0 140.6RURAL 5098.571i 5912.2

ADMISSIONS PER HOSPITAL BED .. 20.2 22.3/f 20.0 17.7

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 5.7/i 5.9URBAN .. ..RURAL .. ..

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL 2.4/i 2.2URBAN 2.0/i 1.9RURAL 2.7/i ..

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL 29.0 41.1 57.0/1URBAN .. 78.2 ..RURAL 2.0 18.0 ..

-23-ANNEX 1Page 2 of 5

TABLE 3ATURKEY -SOCIAL INDICATORS DATA SHEET

TURKEY REFERENCE GROUPS (WEIGHTED AVSRAGES- MOST RECENT ESTIMATE)8-

MOST RECENT MIDDLE INCOME INDUSTRIALIZED1960 lb 1970 /b ESTIMATE /b EUROPE MARKET ECONOMIES

EDUCATIONADJLSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 75.0 110.0 105.0 102.4 101.7MALE 90.0 124.0 115.0 107.1 103.9FEMALE 58.0 94.0 96.0 99.0 103.6

SECONDARY: TOTAL 14.0 27.0 34.0 60.2 88.4MALE 20.0 38.0 46.0 66.4 83.4FEMALE 8.0 15.0 22.0 54.0 84.2

VOCATIONAL ENROL. (Z OF SECONDARY) 17.7 13.7 17.5/f 31.6 18.2

PUPIL-TEACHER RATIOPRIMARY 45.8 37.8 29.6/f 25.8 20.3SECONDARY 19.3 27.6 22.8 22.2 16.1

ADULT LITERACY RATE (PERCENT) 38.0 51.3 60.3/1 75.9 98.9

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 1.7 3.9 11.5/j 51.0 338.4RADIO RECEIVERS PER THOUSAND

POPULATION 49.1 87.7 97.6 157.2 1021.7TV RECEIVERS PER THOL'SANDPOPULATION 0.0 1.8 70.7 123.7 403.6

NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 51.3 41.0 88.5 112.3 331.2CINEMA ANNUAL ATTENDANCE PER CAPITA 1.1 6.7 1.9 4.0 3.6

LABOR IORCETOTAL LABOR FORCE (THOUSANDS) 13782.1 15828.8 19400.5

FEMALE (PERCENT) 40.2 37.0 36.4 36.6 36.0AGRICULEURE (PERCENT) 78.5 67.7 53.5 38.7 6.2INDUSTRY (PERCENT) 11.5 12.1 12.8 25.9 37.8

PARTICIPATION RATE (PERCENT)TOTAL 50.1 44.8 43.2 44.5 45.4MALE 58.7 55.7 54.3 56.3 58.9FEMALE 41.2 33.6 31.9 32.8 32.4

ECONOMIC DEPENDENCY RATIO 0.9 1.0 1.0 0.9 0.8

INCOME DISTRIBUTIuNPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDS 33.0/d 32.8/kHIGHEST 20 PERCENT OF HOUSEHOLDS 61.077 60.67r 56.5/e *- 43.0LOWEST 20 PERCENT OF HOUSEHOLDS 4.271 2.9Th 3.57 .. 5.5LOWEST 40 PERCENT OF HOUSEHOLDS 10.67a 9.47T 11.57i .. 16.5

POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN .. .. 342.0RURAL .. .. 270.0

ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)

URBAN ..

RURAL .. .. 220.0 406.6

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)URBAN ..RU'RAL .... .

Not availableNot applicable.

NOTES

/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countriesaong the indicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent''svtcite, between 1978 and 1980.

/c 1974; /d 1963; /s 1973; /f 1977; /. 1976; /h 1962; /i 1965; . 1975; k 1968.

May, 1982

-24- ANNEX IPase. 3of 5

DEFINtTIONS OP SOCAL. INDICATOIS

ENem; although the dta ar draw fro Sure generally judged the mest anthoritative aad reliable, It hboild .e he rad that they may net hr inter-netinaily comparable h. a.s. of the lack of tnadardleod definittona and concpts seed by different notsites In collecting the data. The datar. sanethemes, safol to docrlbe orders of magitado, indictet t-ods. and caacei -etain majort dif esf--h t.-eem oatie

Th' roforonce Sroops are (I) tho san canatcy Stop of dhn nobject coantry sod (2) a Ic.antry Stop wIth ansanhat higher a-erge Iscom than rha cn..ntry goapat the sobjoicootr..yt (eace.yn f. on Eigh Inco- Ol op-rtars" gooopwh.t. "MIddle Income N-rtb Africa aed MidAir taat" Is chosen.. hnaoef etrosger

ni-ctraaffinities). In the -nferenco grony dana the avanges ac poplation weighted arithmetic acts for each aicaton ad show only whenmajoity of the t Itta in a-feo ban data f on that indicator, line. oh a -ovrge of cesotrire amog rhe edicaror depends as tb availability nf dataand Is not atto. ostiac mast bo etr-i-nd in ralatlag a-eage of non indlcatn tn another. These -veges ce only asfal to tempering the wise aSone indi.taro at a tier asce the ... atry and inference gaps.

AREA (tbhaaand sq.a.) Panalanio.noa Onnnitat SeA - tona.1 a-ha,tcd ntl-Pepalatien (total,Total - Total-f. aa ...e see coPriei. land area and inlad eater; 1979 data-b- ara. ad cara) dividd by the ir ra Itv smeat ofhoapita1 bedsAgeiaaItltu - Estimstr of arcltrlaea .and tmepra-ily or peemntly available In pablic asiA private generload specialiod haspitm1 end re-

for acepa, p -trs aket and kitchen ga-dee or to lIe tallow; 1979 data. habilitation cetr . Spitls ace esteblishmeat peremstly ettffedby atlea ose paoto. Satblishmeta providing pri-oipally -tuet-

GNP PSR CAPtTA (US$) - GNP Per capita -iestat at Icaceatmaket prices. c1- dia caeI remt isIded. gsR1 hospitals. ho-ve, imalade healthcalated by -emcnesinmthod as World Sank Atlaa (1978-Si basia); 1960. and medicat nnt1 st permnetly staffed by a physician (bat hy 19yt an' d;190 data, medical amaiteotan. nara., midwife. eta.) hicb offer is-patient accem-

dation end provide a limited range of medicali faclties Par etatia-ENERGYT CONSUMPTION PER CAPITA - dAnol conoamption of -9aatlenry (cosi tital pneposee arba haspitals teldseos princpaI/grmea hospitals.

and ligeite.,ptare natan1 gao and hydn-, lalrend geatherma elc- and nata hespinle. a-a or earsI haspitale and medita1 seA mteiterytr icity) In kilogran of col qivlePan .apit.a; 1960. 1910,..ad 1979 tener. Speialined ha-pita1n are i-ded only ondar ftatl.data. Omsis a pietta Sad - Total e,-hae of edmioios te a- diacharge

fto hopitals divde by the na.te of hede.POPUIATION A15D VITAL. STATISTICS

Tonal Popolation. Mid-Year (thensada) - A. of JaIy 1; 1960, 1970,. ad 1980 5000Sftidat., Averag ilso of.Saeeol If.p-ro en aaha-ld - a bl.noa, cad aa-I

Urban op iato (pretof total) - Ratia of arha to total Popaation; A aehl eeseo en tidinini aserliving qanterediftfrntdetinit Ion of han ae- may effete -apanaility at data and their main meal. A haa-d- orldger may or -y not he inlded Inameg catre; 1960. 1910, and 1960 date. the heam.ahald foe statietical parposes

Porniat!ti.on Ocojonrinne A-etno nnte at "erson pet- ro- total, urban, sad natl - averge ew.P.nlto inya 000 - torren popalaronprjorinac boned on 1900 her of Peneom Per roo In all aba, =n ua ceidcnetional

total popa1atian by ago and inc end them motality and fetilityrae.dligs traetively. ein reclde a-emnn atr are andProjeto paamten f metl ty _atr _omyino of htheelvl semen- cacpied p-tn..

in -lte eP'tac at b%irth increasing eithcory' Per capita tanne Aomma to rlectnility (percet at dee11ing)-ttl rbn n oalevel, end female lif.e.rpoct .a.y -bailielag at 77.5 year. The para- tov_tioaa.l dnIlieg. wish eleonraity in llivin qantere as percetagemeters far fertility rare alc hoe three lI.-I. senaing declise In ef total, urban, and nata dwellings renpoeively.fertility according to incm levelI and past family planning perfermnc..Each -otry Is than aeoiged foe tthe e nine cboslations of -artatY EDfICATIOIOcd fertility tr-de f c projection parpoee. adjatd Enrollment Ratioa

Otat -n papalaion -I In. a stationary poPulation thno Is no grothein Pcir aced- total, mole and female - G-na total, ale amd femalthe birthtInt Is eqal to the dooth -ete and alan the ege tratare c- seI=en of llagst th primary - Ie an peretages nf rnpentive_ai_cnsat ThIa inahiev-d only after forttiity Ltae detlime to primay eche-ags. pgepulatian; normlly inllden ahild- aged 6-ilrho roplacemet lo-n of colt not -eprd-cio rate, nhe. each g-nortio yearn. hot ndjseted tat diff-rant lengtb o at c ..r tdeion; farof seme rePlaces iteelf -natly. Tho etatinnary popultion n-eewa tatnie withatena ednotine enrolmet any eaned 100 pectoetestimated on the basic of the projected charateristicsof thepopulaion since som papils are below or abor the fotL1 school age.... "

inthe yea 2000 and tbe rtet of delinehof fertility rtet to reyl.c.- irnadary7 thn-I ntal., male and femle - Compated an ahev;nendrmont lecel. edocat~~~~~ ~~ionrqaie t leat tour year at apn-ed primery in -tnaton;

Yearts-t nory po a Ic is ..achad - The yea when steti-nay ppala-ioe provides gennl venaiaa, or teacher trining intentione far pepileniar will ho couched. sanally of 12 tc 17 years of ago; norms. pandaace cetsea ace generally

Pooltin arit eocldod.Par en. ha.- Mid-yea .poya-atla pen qa... kilometer (100 h-ctarm) of va..atiose enrelant (rerloant secondary) - Veta tiosa inetiturto..

.totlar; 1960, 170 and 1979 data, include toohoica, ind-stial, orether pegram eihie operet iodepend-Per s.: ha.aiclturl land - Compatod on bhov tar agrialtocsl land entlyats depantants of -oo,day inatiet'IonF

ony l90 970 an 1979 data, yPpll-teanhc coi piay, and Meoodary - Total at-doote earlld Inporlaic MeSeucar (prnci -Children (0-14 years). woking-age (15- polesryenecndrlvlsiiedbnarsotehem nte

64 ysnrm), n 'etin (65 yearn and a-e) an pencenrages at aid-peon papa- carnoding rvol.-latina; lOh6. 19d'79, and 1900 data..odlt lipteracy rate (perct) - Literate du1te (able to read ed s-ite)

P,~Po.dstion troh ha,te (percent) - total - Aosna grawh taceof a .t.tta mid- aspe-etagoa totl sdalt population, aged 15 yearn an. atyeryplttat tI_ 1950-60. 1960-7i. and 1970-a0.

Panoletion iGeth Sat (peccant) -arbea - hAsel g-hwe -ate of orban ypo- COtaOlOf0TIOtlotions f no 1950-60, 1960-7i, and 19 70-S0 snne Cars (pe thoed population) - Paasengec .. car cepise meta

trade Bttrh Sate .(per' ...on.d) A- hnl Ine birtha Per iho.o.and of mid-year care matig ea tthan eigt perman; encledasatlcn h.an.m aedpapalatis 190 D17. an180dana. militay vehicl.-

trade Death Sata (par ibae-d) - Ansel dotha Pen thna-and at aid-yea Sadi Recevrelsttoa d eanaitian) - ALll types nof roonier fat rsdlopepuaris; 960,19. ed 1999 data. broadoa..te in general pablic per thenosd at popelatioe; enlsdeaan

irn oerdacIns Oat-Atge -ab-t at dangbteeacmn ill hea In licensedr ive In -nmttieg and inyear -hen -egiatntan af radiohe -ana r-pradoativo penind if she ropo-l.ca. pramsa. tgs-opscifte f-t sets was In Io; data f- or-eon years may net ho tmParabia ai..

riutty rates; a-nlly five-Ayearl.. a,ragr ending in 1960. 1970. ed1950 mast contiam: al=hd licesigi'_niy Pl_sin - ce Pt.ra has (thac:.nds) - A-.osI nanho of acce:ptors TV gae=vt(per teasad Pepolati= ) - TV toreive- far bradeat te

of irt-notro deic -adon soepi... cf nat innl amlyPlanin p-ns- gensrn1 pablit Per thanuand population; aldas anlicensd TV -eri-efail Plran - On- (peccant of maridA sca) - Peretg of -ma Ai cas tries and In yeara wh- r-giteati-of a TV sets -m In affect.

woe at child-hearing age (15-44 y-ar) h. seaitth-...ette1 devices to .see Cialation (Par th,-an enralti- - Shows the avcmg cII-all married _oco Is sane ago grup. . cnliai of "dail genera interest newpaper", defined as R periodical

PebliCatias deveLad priascily te recording genra -aa It Is nenideredPOOP AND0 HUMTIONS nob he daily" if It appeae atleant four time a mesh.

Inex of Food Prodoci par C.oe (9971-400) - lodea of pet capite -- Ine Cinem AselI Attendac per Capita on Tea - Based en the asbte atp-ad-tiocatal fnd cownditis.. Peodcio ...cloden need and fond aed tiehats .. Id duriog the year incladig admisian te delv-ha. cieLeIs as Iabadar yea basin. C-mditi.. cove primary gooda (e.g. agarcan. and -bile seine..Insto. of angst) which son dibit and contain cotrina- (e.g. c-fte andtincaroe-olded). Agg-egat prod-ctinof atoah costry In base.d noLABOR PORItss-ti-ra avrge producer pric eight,; .1961-65. 1970. and 1900 dora. Total Labo Force (thoseads) - Ocanainally atire Perso.-. innlding

Pe apt nny at _alate (pencentofcatreimasta - apated ftra armed tortes and seemlayed hot enclding hoswvn tadests, ettenertgy eqaivalont at ar tood npplia avilable-In cetry pen capita coeig Poplation of all ages. D.efiitio.. In v-io c-mt.i areper day. Available epplies coepriae dcantic prdodatic, impette less net -amparle 1960. 1970 and 1990 dana

onpots.sadchogen e aoch no aeplio enlad snial ood erde,femal (earcoot) - Pemle labor facce ss p.eretage at totl labe foene.q=aitien serd infod ronin.g and Icea.. In dintnibhatin. Raqairotgiatr arot Labor forc Is farmig. fo-etay. h-ets andmania veto esim _tediby PFA0 bh..ed an physiological nnde f. an -onml -ct- fighigS an pteretage at total leba fare; 1960. 19.70 nsA1980tdata.vity and helh toadetieg -nit.oanosta tempa_a-, body noights. age indnsery (percent) - Iaboo forte is mining. catrratin mnfacotriagand us dietribasian of ppolatiac, and alb-onig 10 percent tar san tad electricity, mater and gas as p-eretage at tata1 lahor fame;bannehald level; 1961-61. 1970 and 1977 data. 1960, 19 70 and 1080 .data.-

Per capita napoy a t proei (gran pe day) -Protein cntnt at pan caPite P-tricipati. Sate (Poret - ai, le, and temale - Participationaoa -opply of fond Per da. a n lyc food Is detod as above. Se- activtty rtes are competed en tatel, male anftmle lebectee asqoiremasta f. oral contale, established by U00A provide f0 atisim perctage of totl, ale and temole popalatios of all ages -eseptivly;

ala ofesa 60 gRam of total protein pea day ad 20 grU f sima and 1960, 19g70, and1980' data. Thes ato base.d an ILO's PaniciPaiow rtonpalen. pn.oeen of which 17 gnm ahoold heanmletein.mea tand- rnflsctag ag-a tnotarn at tie yapatien, and long time tread. Aa-d see lase than those of75 g-am of t-t1l pootin and 23 fram of ton t.to ses fran notional n e..a-ina pn -i no -an aeao ta the -1ci, ponp....d by PAO Ie the Third tEoomi Opeadey Satia -RStin of ppelation anda 15 and 65 and a

Worl Pad brry 191-6, 1970 ad1977 dat, oh total laborCoaPer caPita p-ctineapl f a1aialad - Pro tom nayply tf facd do-

rivd fomaImle and poceIn Reco Per day; 1961-65, 1970 and 1977 data. INfCOMEt DISTRIBUTIONChild (anon"1-4) OnbOt foot -ccnad) - MAcal denh 11,pan thanoad In Perceoncoc of Priv-ta tt (bath is -ch and kind) - Recaiv-d by riches

050 Stoop I~ your, ra children is thm. age grcy; ft or at daveaping aa- 5 Percent, richest 20;percet , p..c..un 20 percet, nod peoest 60 per-anttotem data derived fro life tablee; 1960. l970 cod 1980 data, of h.osebhlda.

HEAL.TH POVERTY TAdGEf GOUSOOU!, aEtaetency.at Birth (year) d- boa-.e onabet of Toots of lif e raining TheIfloigetmteaereyapataemaae f povry levels.

atbirth; 1960 1970 and 1900 dat.adaol ritrrtdwt ondrbensisIntant ifartlirSaenc thanond) - Ansoal drache ot icfantn eder coo yea Sativ d Abmlcint Povat lace Levl (TOO per -ta.r) - urban sad toal-I

of age pe hocdlr its 90 90ad16 aa bauepvryiom ee tthtinn =eelhlowic ini_al

aemto Safe Wate (pecnofppltic t oa,uban, sod rura - Nc- atItnaly adqante diet PI.: esetial sa-facd esqaitrats in mathe tpepe(ttl Pebe ..an toal with reanonbhi aces to safe affedable.

maeta eapl (P...d tratd .orac wtesor atI ted bat anttainated ttimated Rliatie Pover ty mamee (US$ per raine) - urban an card-mater eah aathat foa prtece-d b-nehalo, spig,ed acitry wall) em_.ta re-i-nv povecty inome levelis n-third fa aveag Pet capitaperceatages at the it rapootive rpaPlatiane. In an enaneb o public personal Incta ad the -ontry. lehan leve Le derived from the -- rafountain, on standpat loca.ted not mar than 200 mtotec fmabo- a h ra with odjantant for highen cost of living in, arenaceto-idered es being wirhi reasonble. access of that Ion . I rura areas Satimted Popalatian Below Absels.. Povety Intem Level (percet) -ur,ban

I.msel access woulId imply then the ha.-e.if. ce meers at the haneheld and nata P-oPet of papsiation (-ca and tar1

) wh ee5

bsltda not bane to eped a diepr-p-tninete part at the day in fetching the peat.tamdly's art- erode.

-Sea E' tstretaDi-rr ieos atpLnain)-ntal, noba, end tota -Nanbe- of peopl (totl than co rr) merved by eacrote diepomal mapercentges at the it ep_ttl_ popaint_na ttoet diposal Ymay inldethe an-ienin anddipsl with cc wiaUt tratet, aS hs_ mnrtand masi-wete by wate-batn mYstem or the aa of pit peivico and mIm

PasainecPvIctI Paplta dvddbyewe of pratIiae physi- Unemaic sad Satia atta giel.ini

agana qanlta :fre a.m= Ill arhol. tl oninersiy leve. OmmcAnelysia end Projections OmpatatPessatanee g Ras Pees- Pepetion divided by -sshe at petisgeg Kay 1982

ala ad female gred-eeetn a-ienlongnea patica1 enem and

-25- ~~~~~~~~~~~ANNEX 1- 25 -Page 4 of 5

TURKEY - COUNTRY DATA

Population: 45.5 million (1981)

GNP Per Capita: US$1540 (1981)

Amount Average Annual Increase (Z) Share of GDP at Market Prices (%)

(million US$ (at constant 1980 prices) (at current prices)

Indicator at current prices)1981 1965-70 1970-75 1975-80 1965 1970 1975 1980

NATIONAL ACCOUNTS

Gross domestic product /a 57,655 6.6 7.5 2.8 100.0 100.0 100.0 100.0

Agriculture 11,903 3.1 4.4 2.7 30.7 26.4 26.2 21.4

Industry /b 14,218 9.5 9.5 2.8 16.6 17.2 18.0 28.6

Services 28,130 8.2 8.0 3.7 42.9 46.5 46.0 44.3

Consumption 46,717 5.8 7.0 2.7 84.6 82.8 85.2 81.8

Gross investment 14,392 11.7 12.9 0.6 16.7 20.1 23.3 26.4

Exports of goods and NFS 6,372 7.9 7.3 4.4 6.1 5.8 6.1 7.1

Imports of goods and NFS 9,826 11.2 13.8 -3.1 7.4 8.7 14.5 15.2

Gross national savings 12,317 11.6 11.9 2.4 15.8 18.8 18.1 18.3

Average Annual Increase (Z) Composition of Merchandise Trade (%)(at constant 1980 prices) (at current prices)1972-75 1975-80 1972 1975 1980

MERCHANDISE TRADE /c

Merchandise exports 4,703 -6.1 2.8 100.0 100.0 100.0Primary 2,413 -6.3 4.0 72.6 64.1 64.0Industrial products 2,290 -5.8 0.9 27.4 35.9 36.0

Merchandise imports 8,933 11.2 1.2 100.0 100.0 100.0Agriculture and livestock 125 27.9 -23.8 2.2 4.3 0.7Mining and quarrying 221 17.4 6.8 1.2 1.6 1.8Petroleum 3,878 5.4 11.0 9.9 17.1 48.8

Machinery and equipment 1,996 14.0 -12.1 45.0 35.6 18.2

Other industrial products 2,713 9.9 4.5 41.7 41.4 30.5

1977 1978 1979 1980 1981

PRICES AND TERMS OF TRADE

GDP deflator (1980 - 100) 20.2 29.0 49.4 100.0 141.9Exchange rate 18.0 24.3 31.1 76.0 111.2

Export price index 63.8 63.0 78.2 100.0 99.3Import price index 61.2 61.2 71.9 100.0 109.3Terms of trade index 104.3 102.9 108.8 100.0 90.6

As X of GDP

(at current prices)1965 1970 1975 1980

PUBLIC FINANCE

Current revenue 15.0 22.6 22.0 19.8Current expenditure 10.0 11.8 12.6 11.5

Surplus (+) or deficit (-) -2.0 -2.3 -0.4 -4.8Investment expenditure 4.7 5.7 4.2 3.9Transfers 5.0 7.5 5.5 9.2

Foreign financing 1.8 1.6 0.3 0.2

1965-70 1970-75 1975-80

OTHER INDICATORS

GNP growth rate (Z) 6.8 7.7 2.6GNP per capita growth rate (X) 4.1 5.0 0.3

ICOR 2.9 2.9 5.7Marginal savings rate (X) 28.2 19.5 30.8Import elasticity 1.7 1.8 -1.3

/a At market prices; components are expressed at factor cost and will not add due to exclusion of net indirect taxes and subsidies.7W Includes mining and quarrying, manufacturing, and electricity, gas, and water.7W In accordance with Turkish Government's specifications, which are not compatible with SITC's.

EM2DA2/22/83(0184I)

ANNEX I-26- Page 5 of S

TURKEY - BALANCE OF PAYMENTS, EXf RALCPInTAL. AND DEET /a(million USS at current prices)

Population: 45.5 million (1981)GNP Per Capita: US*1540 (1981)

Actual Estimate Pro ected1970 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

BALANCE OF PAYMENTS

Net exports of goods & NFS 342 3880 1984 2442 4658 3476 -2021 -1960 -1788 -1771 -1956Exports of goods & NFS 754 2556 3075 3247 4102 6416 7620 8894 10613 12523 14545Imports of goods 6 NFS 1096 6436 5059 5689 8760 9892 9641 10853 12402 14293 16501

Workers' remittances 273 982 983 1694 2071 2490 2187 2350 2450 2622 2779Net transfers 91 12 - - - - - - - - -Current account balance -58 -3572 -1741 -1771 -3207 -2089 -1035 -870 -693 -485 -602

Direct private investment 92 169 147 200 148 129 125 127 131 144 158

Public M&LT (gross) /b 271 997 1017 4321 2354 2188 2076 1690 1593 1487 1671Amortization on X&LT7b -146 -234 -336 -414 -434 -545 -1230 *1105 -1258 -1783 -2040Public M6LT (net) /b 125 763 681 3907 1920 1643 846 585 335 -296 -369Other capital /c 27 2074 1061 -2410 1642 983 264 130 29 924 1151Change in reserves (- - increase) -186 566 -148 74 -503 -667 -200 28 199 -288 -339

International reserves 612 726 874 800 1303 1970 2076 2049 1850 2138 2477Reserves as months of imports 7 1 2 2 2 2 2 2 2 2 2

Actual1972 1977 1978 1979 1980 1981

GROSS DISBURSEMENTS

Gross disbursements of M6LT loans 372 759 857 4198 /d 2279 2116Official grants - - - - 300

Concessional 261 193 228 588 812 522Bilateral 139 100 129 406 749 499IDA 4 19 8 3 - -Other multilateral 118 74 91 179 63 23

Non-concessional 111 566 629 3610 /d 1466 1294Official export credits 1 47 133 250 288 355IBRD 25 146 165 277 313 454Other multilateral 27 5 35 15 150 162Private /d 58 368 296 3068 /d 715 323

EXTERNAL iEBT

Debt outstanding and disbursed 2450 4293 6322 10942 13415 13804Official 2273 3657 3Si 7189 828 8

IBRD 92 512 648 890 1158 1546IDA 99 181 188 190 189 188Other 2082 2964 4653 6109 6934 7172

Private 177 636 833 3753 /e 5134 4898Debt outstanding including undisbursed 3560 7128 9879 14620 16807 17093

DEBT SERVICE

Total debt service /e 224 363 428 627 1001 1168Payments 161 196 264 403 405 510Interest 63 167 164 224 596 658

Total debt service as X exports of goods * NFSI workers' remittances 11.8 10.3 10.6 12.7 16.2 13.1

Total debt service as 2 GNP 1.3 0.8 0.9 0.9 1.7 2.0

Average interest rate on ne. loans (Z) 4.4 7.7 6.9 11.3 6.5 7.9Official 4.5 7.7 5.6 3.5 5.5 5.3Private 6.8 7.8 8.2 13.6 10.6 15.4

Average maturity of new loans (years) 22.1 11.6 13.3 11.1 17.4 15.0Official 26.0 12.7 15.2 25.1 16.6 16.3Private 11.0 9.2 7.6 7.1 6.4 4.5

BANK GROUP EXPOSURE (Z)

IBRD DOD/total DOD 3.7 11.9 10.2 8.1 8.6 11.2IBRD disbursements/total gross disbursements 6.7 19.1 18.4 6.5 13.7 25.0IBRD debt service/total debt service /e 5.1 17.2 19.2 16.8 13.3 14.0IDA DOD/total DOD 3.9 4.2 3.0 1.7 1.4 1.4IDA disbursements/total gross disbursements 1.1 2.5 0.9 0.1 - -IDA debt service/total debt service /e 0.4 0.6 0.5 0.4 0.3 0.2

As Z of Debt Outstandingat End of Most Recent

Year (1981)TERMS STRUCTURE

Maturity structure of debt outstanding (Z)Maturities due within 5 years 37.4Maturities due within 10 years 76.4

Interest structure of debt outstanding (Z)Interest due within first year 6.5

/a All entries on external debt are defined as in the Bank's Debtor Reporting System (only public and private guaranteed d,!bt).75 Includes private guaranteed and non-guaranteed debt, debt relief, and grants./c Includes error. and emissions, and for projected years it includes net IMF, short-tern, and unidentified capital inflows.7- Includes 52,638 million of consolidated short-tern debt./e rakes account of debt relief due to debt rescheduling, and excludes interest on short-tern debt and private non-guaranteed.

EI2DA2/:22/83(0:1841)

-27-

ANNEX IIPage 1 of 9

STATUS OF BANK GROUP OPERATIONS IN TURKEY

STATEMENT OF BANK LOANS AND IDA CREDITS(As of March 31, 1983)

Loan Amount ($ millions)Number Year Borrower Purpose Bank IDA Undisbursed

Thirty-three loans and fourteen credits fully disbursed 1493.0 177.4

883-TU 1973 Republic of Turkey Ceyhan Aslantas 44.0 8.51023-TU 1974 TEK/TKI Elbistan Power 148.0 6.81130-TU 1975 Republic of Turkey Rural Development 75.0 18.71248-TU 1976 Agriculture Bank of

Turkey (TCZB) Agriculture Credit 54.3 26.81258-TU 1976 State Pulp and Paper

Industry (SEKA) Newsprint 70.0 1.61265-TU 1976 Republic of Turkey Livestock III 21.5 6.11310-TU 1976 Republic of Turkey Tourism 26.0 15.11379-TU 1977 DYB Industry 70.0 7.01585-TU 1978 Republic of Turkey Northern Forestry 86.0 50.81586-TU 1978 Republic of Turkey Livestock IV 24.0 18.21606-TU 1978 Republic of Turkey Erdemir Steel Stage II 95.0 34.21741-TU 1979 Republic of Turkey Ports Rehabilitation 75.0 37.01742-TU 1979 Republic of Turkey Grain Storage 85.0 81.51748-TU 1979 TSKB Industry 60.0 16.61754-TU 1979 TSKB Private Sector Textiles 65.0 39.51755-TU 1979 SYKB Private Sector Textiles 15.0 10.8S-15-TU 1979 Republic of Turkey Ankara Air Pollution Control 6.0 5.11844-TU 1980 Republic of Turkey Karakaya Hydropower 120.0 95.71847-TU 1980 Republic of Turkey Sumerbank Cotton Textiles 83.0 75.21862-TU 1980 Republic of Turkey Livestock V 51.0 47.21916-TU 1980 Republic of Turkey Petroleum Exploration 25.0 23.01917-TU 1980 Republic of Turkey Oil Recovery 62.0 47.11952-TU 1981 Republic of Turkey Labor Intensive Industry 40.0 36.21967-TU 1981 Republic of Turkey Second Fruit and Vegetables 40.0 39.51985-TU 1981 Republic of Turkey Fertilizer Industry

Rehabilitation 110.0 100.31998-TU 1981 Republic of Turkey State Industrial Enterprise

Finance 70.0 65.22093-TU 1982 TSKB Export-Oriented Industries 100.0 99.82094-TU 1982 Republic of Turkey Erzurum Rural Development 40.0 38.22131-TU 1982 Republic of Turkey Second Fertilizer

Rehabilitation 44.1 44.12137-TU 1982 Republic of Turkey Highway 71.1 69.82158-TU 1982 Republic of Turkey Third Structural Adjustment 304.5 104.52159-TU 1982 TSKI Istanbul Sewarage 88.1 86.4

Total 3761.6 177.4 1356.5of which has been repaid 386.2 8.1

Total now outstanding 3375.4 169.3Amount sold 3.6

of which has been repaid 3.6 - 0 - - 0 -

Total now held by Bank and IDA /a 3375.4 169.3Total undisbursed 1356.5 0 - 1356.5

/a Prior to exchange adjustments.

ANNEX II-28- Page 2 of 9

STATUS OF BANK GROUP OPERATIONS IN TURKEY

STATEMENT OF IFC INVESTMENTS(As of March 31, 1983)

Fiscal Amount ($ Millions)Year Obligor Type of Business Loan Equity Total

1964 TSKB DFC - 0.92 0.921966 SIFAS I Nylon Yarn 0.90 0.47 1.371967 TSKB II DFC - 0.34 0.341969 TSKB III DFC - 0.41 0.411969 SIFAS II Nylon Yarn 1.50 0.43 1.931970 Viking I Pulp and Paper 2.50 0.67 3.171970 ACS Glass 10.00 1.58 11.581971 NASAS Aluminum 7.00 1.37 8.371971 SIFAS III Nylon Yarn 0.75 - 0.751971 Viking II Pulp and Paper - 0.12 0.121972 SIFAS IV Nylon Yarn - 0.52 0.521972 TSKB IV DFC - 0.43 0.431973 TSKB V DFC 10.00 - 10.001973 Akdeniz Tourism 0.33 0.27 0.601974 Borusan Steel Pipes 3.60 0.43 4.031974 AKSA Textiles 10.00 - 10.001975 Kartaltepe Textiles 1.30 - 1.301975 Sasa Nylon Yarn 15.00 - 15.001975 Aslan Cement 10.60 - 10.601975 DOKTAS Steel 7.50 1.37 8.871975 TSKB DFC 25.00 1.23 26.231976 NASAS Aluminum 1.58 - 1.581976 TSKB DFC 25.00 - 25.001976 Asil Celik Steel 12.00 2.20 14.201977 Borusan Steel Pipes - 0.06 0.061978 DOKTAS Steel - 0.09 0.091979 Ege Mosan Engines for Mopeds 2.15 - 2.151979 ISAS Motor Vehicles & Accessories 8.85 0.45 9.301979 Asil Celik Steel - 1.80 1.801979 Trakya Cam Glass 33.15 2.84 35.991980 TSKB DFC - 1.09 1.091980/82 ISAS Motor Vehicles & Accessories - 1.20 1.201980 MENSA Textiles and Fibers 4.0 4.01981 Kirklareli

Cam SanayiiA.S. Glass Tableware 13.09 - 13.09

1982 M.A.N.Motors Motor Vehicles & Accessories 9.07 - 9.07

1982 TSKB DFC - 0.35 0.35

Total Gross Commitments 214.87 20.64 235.51Less Cancellations, Terminations,

Exchange Adjustments, Repaymentsand Sales 144.80 8.30 153.10

Total Commitments now held by IFC 70.07 12.34 82.41

Total Undisbursed 10.41 0.07 10.48

- 29 -

ANNEX IIPage 3 of 9

C. STATUS OF PROJECTS IN EXECUTION AS OF March 31, 1983 1/

Ln. and Cr. Nos. 883/360 - Ceyhan Aslantas Multipurpose Project: US$44million loan and US$30 million credit of March 22, 1973. Effective Date:March 20, 1974. Closing Date: December 31,1983.

The project is expected to be substantially completed by the currentClosing Date of December 31, 1983. As of March 31, 1983, about $35.5 millionhas been disbursed of this $44 million loan.

Ln. No. 1023 - Elbistan Lignite Mine and Power Project: US$148 million loanof June 28, 1974. Effective Date: June 1, 1976. Closing Date:June 30, 1983.

Progress has been made on the power component in line with themeasures recommended in February 1982. The civil works contracts have beenrenegotiated and additional contractors brought in. TEK has delegated sitemanagement to STEAG, a German project management firm. The main contractor,Foster Wheeler (FW), has revised the work plan taking into account the use oferection personnel being made available by the main equipment suppliers. Therevised work plan concentrates maximum effort in completing Unit No. 1 by end1984. Units No. 2, No.3 and No. 4 would follow at one year intervals. Withthe arrangements made through the US EXIM Bank, and the proposed reallocationof an additional US$6.8 million from the IBRD loan, financing for the FWcontract through end 1983 is assured. Social infrastructure and salaryproblems persist. The contract for operation and training for the miningcomponent expires in July 1983. Decision on renewal has not been taken. Thecontract for mine consulting is continuing. TKI has not negotiated framecontracts for mine equipment maintenance. Maintenance of mine equipment isinadequate. TKI's ability to mine lignite in sufficient quantities toadequately supply the power station (17.6 million tons/a) will be assessed inconnection with the appraisal of a supplemental loan tentatively scheduled forSeptember 1983.

Ln. No. 1130 - Corum-Cankiri Rural Development: US$75 million loan ofJune 23, 1975. Effective Date: January 22, 1976. Closing Date:June 30, 1984.

Satisfactory progress is being maintained except for delayed paymentto contractors by DSI. The Bank has agreed to the Government's request forreallocation of proceeds so as to provide additional funds for short-termcredit, which is expected to be sufficient to cover needs until a proposedsecond agricultural credit project, now scheduled for Board consideration inJune 1983, becomes effective.

1/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report any problemswhich are being encountered and the action being taken to remedy them.They should be read in this sense, and with the understanding that they donot purport to present a balanced evaluation of strengths and weaknesses inproject execution.

-30- ANNEX IIPage 4 of 9

Ln. No. 1248 - Agricultural Credit and Agro-industries: US$54.3 million loanof May 5, 1976. Effective Date: May 11, 1977. Closing Date: June 30, 1984.

The supervised credit and ferryship components are fully disbursedand the study of TCZB organization and operations has been completed. Due toreluctance of sub-borrowers to assume foreign exchange risk and availabilityOf other sources of credit without this risk, only 11 percent of theagro-industries component has been disbursed. The Government is consideringproposals for dealing with this issue.

Ln. No. 1258 - Balikesir Newsprint: US$70 million loan of May 21, 1976.

Effective Date: October 15, 1976. Closing Date: December 31, 1982.

Although the Closing Date has not been extended, accounts are beingkept open pending settlement of final payments. As of March 31, 1983, $68.4million, or 98 percent of the total loan amount, has been disbursed. Aproject completion report is under preparation.

Ln. No. 1265 - Livestock III: US$21.5 million loan of May 26, 1976.Effective Date: February 25, 1977. Closing Date: March 31, 1984.

The Closing Date has been extended to March 31, 1984 to allow forutilization of the remaining $6.8 million of undisbursed loan funds. Projectimplementation has been satisfactory. However, the increased availability oflocally bred offspring of imported cattle at considerably cheaper prices thanfor comparable directly imported cattle, has caused a serious reduction in thedemand for sub-loans. The Bank is currently considering a request from theGovernment for restructuring all three ongoing livestock projects to includefinancing for the foreign exchange component of loans for sheep and beeffattening in addition to dairying; locally bred improved cattle and sheep, aswell as imported ones; and farm machinery and equipment, livestock housing,pasture and forage production, feeds and other inputs in addition to livestock.

Ln. No. 1310 - South Antalya Tourism Infrastructure: US$26 million loan ofJuly 9, 1976. Effective Date: March 1, 1978. Closing Date: December 31,1983.

Project implementation is about two years behind schedule due to

initial difficulties relating to land acquisition and project organization.At present most project works are either completed or under advancedimplementation. The Closing Date has been extended for the first time by oneyear to December 31, 1983. As of March 31, 1983, $10.8 million, or 42 percentof the total loan amount, has been disbursed.

Ln. No. 1379 DYB (State Investment Bank of Turkey): US$70 million loan ofMarch 23, 1977. Effective Date: July 21, 1977. Closing Date:December, 31, 1982.

The Closing Date for this loan has not been extended, but theaccounts are being kept open for settlement of final payments. As of March31, 1983, the undisbursed balance of this loan is $7.0 million.

-31-ANNEX IIPage 5 of 9

Ln. No. 1585 - Northern Forestry: US$86.0 million loan of June 5, 1978.Effective Date: October 30, 1978. Closing Date: March 31, 1986.

Overall physical achievements are about 60 percent of targets. Localfunding, which is almost totally dependent on timber sales, has beeninadequate due to a depression in the construction industry. Althoughequipment procurement is still behind schedule, proposals for foreignequipment procurement have been agreed, providing for initiation of remainingprocurement in 1983/84 witb completion of disbursement expected by early1986. A management consultant to assist the project implementation isexpected in Ankara shortly.

Ln. No. 1586 - Livestock IV: US$24.0 million loan of June 5, 1978. Effective

Date: October 31, 1978. Closing Date: June 30, 1985.

Implementation of the supervised credit program is extremely slow due

in part to the increased availability of locally bred offspring of importedcattle at considerably cheaper prices than for directly imported cattle. AGovernment request for restructuring of all three ongoing livestock projects(see Loan No. 1265) is under consideration.

Ln. No. 1606 - Erdemir Stage II Steel: US$95.0 million loan of June 30,1978. Effective Date: July 30, 1979. Closing Date: June 30, 1983.

Inflation and the devaluation of the Turkish Lira have caused seriousfinancial problems for the company. Proposals to tackle the situation arebeing considered by the company and the Government in consultation with theBank. Implementation of the main components of the original project is oneyear behind schedule with additional delays now expected on some non-criticalsupport facilities and several additional items recommended by consultants toimprove productivity, quality, and efficiency. A financial plan prepared bythe company is being reviewed. Extension of the Closing Date to permitutilization of the remaining loan funds is dependent upon development of asatisfactory financial plan.

Ln. No. 1741 - Ports Rebabilitation: US$75 million of July 2, 1979.

Effective Date: January 22, 1980. Closing Date: June 30, 1983.

Cumulative loan disbursements of $38.0 million up to March 31,1983were only about 51 percent of the total loan amount due to initial delays intendering, awarding contracts, appointing consultants for port planning study,and finalizing specifications of a 250-ton floating crane. Physicalimplementation is now progressing satisfactorily. Extension of the ClosingDate is under consideration.

Ln. No. 1742 - Grain Storage: US$85 million of July 2, 1979. EffectiveDate: January 21, 1980. Closing Date: June 30, 1985.

Prequalification procedures for silo construction contractors are inprogress. The Government is currently examining the merits of possibleadjustments in the project contents to take account of changes in relativeprices and cost increases due to previous delays.

- 32 -

ANNEX IIPage 6 of 9

Ln. No. 1748 - TSKB XIII (Industrial Development Bank of Turkey): US$60million of July 12, 1979. Effective Date: October 25, 1979. Closing Date:September 30, 1983.

Delays in committing this loan have resulted due to sub-borrowers'reluctance to bear foreign exchange risk and cancellation of loan contractsbecause of financial distress caused by high interest rates and shortage ofLocal currency. These financial problems which are endemic in the Turkishprivate sector have prevented TSKB's serious arrears position from improving.The current Closing Date of September 30, 1983 is not likely to be extended.As of March 31, 1983, about $43.4 million has been disbursed.

Lns. Nos. 1754 and 1755 - TSKB (US$65 million) and SYKB (US$15 million)Private Sector Textiles loans of September 17, 1979. Effective Date:February 29, 1980. Closing Date: December 31, 1984.

A lower than anticipated level of commitments (about $38 million or55 percent of forecasts) still prevails due to depressed conditions in thetextile industry and the sub-borrowers' reluctance to assume foreign exchangerisk. Local consultancy service has been reorganized on schedule, as aprivate sector joint venture without further need of the Bank's financialsupport.

Ln. No. S-15 - Ankara Air Pollution Engineering: US$6 million loan ofDecember 12, 1979. Effective Date: April 4, 1980. Closing Date:December 31, 1983.

Out of the five components of this project, only two (Seyitomer Plantand Air Pollution Monitoring Equipment) have so far been partly implemented,representing US$0.9 million or 15 percent of the total loan amount. The testresults from the MTA pilot plant showed that investment in a larger scalepilot plant would not be warranted. The Alternative Technology Study will notbe executed since no feasible processes exist for coke or hot briquettingmanufacture based on Turkish lignite. The Gas Production Study will beimplemented, but the cost for the study might be significantly higher than theappraisal estimate. Revision of the cost estimates and extension of thepresent Closing Date are under consideration.

Ln. No. 1844 - Karakaya Hydropower: US$120 million loan of May 21, 1980.Effective Date: August 15, 1980. Closing Date: December 31, 1988.

Implementation after initial delays is now satisfactory. The cashgeneration covenant was not met for 1982, and is not likely to be met for1983. This matter is now being pursued with the Government.

-33-

ANNEX IIPage 7 of 9

Ln. No. 1847 - Sumerbank Textiles Modernization and Rationalization:US$83 million loan of May 28, 1980. Effective Date: February 27, 1981.Closing Date: June 30, 1984.

After initial delays of about one year due to delayed loaneffectiveness and staffing problems of the project implementation unit,project implementation is now progressing satisfactorily and the costs arewithin appraisal estimates. The reorganization plan for the Cotton TextileDivision was approved by the Sumerbank Board in March 1982. Recruitment ofcompetent personnel for the Cotton Textile Division and the projectimplementation unit has been hampered by salary limitations on State EconomicEnterprises. The situation is expected to improve after the passage of theSEE reform decree.

Ln. No. 1862 - Livestock V: US$51 million loan of June 6, 1980. Effective

Date: October 22, 1980. Closing Date: June 30, 1987.

Progress on the credit component for livestock development, with theexception of boilers, is extremely slow. The Government has decided not toimplement the meat processing component due to changes in its investmentpriorities, and a request has been received to reallocate the funds.Implementation of the animal health and breeding components is reasonablysatisfactory. A Government proposal for increasing the types of livestockcredit eligible for financing (see Loan No. 1265) is under consideration.

Ln. No. 1916 - Petroleum Exploration Project: US$25 million loan ofNovember 24, 1980. Effective Date: June 30, 1981. Closing Date:December 31, 1984.

Project implementation is slow due to delay in contracting consultingservices and initiating technical studies. Acceptable drilling locations havenot yet been identified in southeast Turkey. The Bank has recently approvedthe Government's request to extend the scope of the loan to include the Thracebasin, which has been found to have a highly attractive potential forhydrocarbon exploration, and to reallocate a portion of the proceeds of theloan to finance computer equipment for higher quality seismic data processingneeded for the Thrace program. Progress in separation of TPAO'simport-related operations is also behind schedule because of its relation tothe broader issues under consideration in the SEE reform legislation. Energyaudits for five major industries are currently in progress.

Ln. No. 1917 - Bati Raman Enhanced Oil Recovery Field Demonstration Project:US$62 million loan of November 24, 1980. Effective Date: June 30, 1981.Closing Date: December 31, 1984.

The project is about one year behind schedule due to initial delaysin equipment procurement and delivery. Bids for the enhanced recovery studiesfor other fields are under review, and the studies are expected to startshortly. The fracturing of the Hamitabat gas field has been completedsuccessfully and has demonstrated the feasibility of full commercialdevelopment of the field. Progress in separation of TPAO's import-relatedoperations has also been delayed because of its relation to the broader issuesunder consideration for the SEE reform legislation.

-34- ANNEX IIPage 8 of 9

Ln. No. 1952 - Labor Intensive Industry Project: US$40 million loan ofMarch 13, 1981. Effective Date: June 12, 1981. Closing Date:June 30, 1986.

A poor investment climate still continues to hamper loan

utilization. As of January 31, 1983, subloans totalling $16.8 million hadbeen approved by SKYB.

Ln. No. 1967 - Second Fruit and Vegetable Project: US$40 million loan ofApril 6, 1981. Effective Date: August 1981. Closing Date: June 30, 1986.

Project implementation is proceeding more slowly than projected, but

should improve as a result of experience gained to date: all consultants havebeen engaged and are in place. Three of the four Regional Marketing

Corporations will become operational as soon as TCZB's contribution isreceived in early May 1983.

Ln. No. 1985 - Fertilizer Rationalization and Energy Saving Project:US 110 million loan of May 15, 1981. Effective Date: August 28, 1981.Closing Date: December 31, 1986.

The project components of AZOT and IGSAS are progressing

satisfactorily. GUBRE, one of the three beneficiaries, has not yet signed acontract with an engineering company for project implementation because ofchanges proposed in the scope of the project by GUBRE management to furtherimprove its economic viability.

Ln. No. 1998 - State Industrial Enterprise Finance Project: US$70 million loanof June 3, 1981. Effective Date: August 27, 1981. Closing Date:December 31, 1986.

Project implementation is proceeding satisfactorily. The Bank is

considering the Government's request for an extension of the deadline forcompletion of a study of DYB's future role.

Ln. No. 2093 - Export-Oriented Industries Project: US$100 million loan ofMarch 5, 1982. Effective Date: May 28, 1982. Closing Date: June 30, 1987.

Although the special task force for dealing with problem projects isnow functioning relatively effectively, prolonged low capacity utilizationrates in industry and high interest rates make a substantial improvement inarrears unlikely in the near future. Demand for direct foreign exchange fixedasset financing has been declining due to reduced private sector investmentdemand as a result of current economic conditions and the unwillingness ofsub-borrowers to bear foreign exchange risk. The technical assistance programfor potential exporters has been proceeding on schedule.

-35- ANNEX IIPage 9 of 9

Ln. No. 2094 - Erzurum Rural Development Project: US$40 million loan ofMarch 5, 1982. Effective Date: November 24, 1982. Closing Date:June 30, 1987.

Since the loan became effective in November 1982, implementation hasbeen on schedule for the irrigation, soil conservation, new roads, plantprotection, and veterinary services components. However, progress is slowwith extension services and recruitment of consultants, and it has proveddifficult to recruit and retain a project manager in Erzurum.

Ln. No. 2131 - Second Fertilizer Rationalization Project: US$44.1 million

loan of May 13, 1982. Effective Date: April 13, 1983. Closing Date:June 30, 1987.

This loan became effective in April 1983. The Government hasrequested cancellation of Part A of the project which relates to GUBRE, one ofthe four beneficiary ferti]izer manufacturing companies of the project, whichis no longer interested in proceeding with its portion of the project. Thetotal loan amount will accordingly be reduced from $44.1 million to $38million to reflect this cancellation. The other project components are makingsatisfactory progress.

Ln. No. 2137 - Highway Rehabilitation Project: US$71.1 mi]lion loan of

May 13, 1982. Effective Date: August 13, 1982. Closing Date: June 30, 1987.

Progress continues to be good. All civil works and procurementcontracts have been bid and feasibility studies have been completed for allthe remaining road sections included in the loan.

Ln. No. 2158 - Structural Adjustment Loan III: US$304.5 million loan ofMay 28, 1982. Effective Date; July 16, 1982. Closing Date:December 15, 1983.

This loan became effective in July 1982. The first tranche of theloan has been fully disbursed. Release of the second tranche is expected tobe authorized shortly.

Ln. No. 2159 - Istanbul Sewerage Project: US$88.1 million loan ofMay 28, 1982. Effectuve Date: January 24, 1983. Closing Date:December 31, 1988.

This loan became effective in January 1983.

-36-

ANNEX IIIPage 1 of 2

TURKEY - IGDIR-AKSU-EREGLI-ERCIS(IAEE) IRRIGATION PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

:[,. Timetable of Key Events

(a) Time taken by Government to 12 months.prepare project: (September 1981

to September 1982)

(b) Agency which prepared the General Directorate ofproject: State Hydraulic Works (DSI).

(c) Project first identified: July 1980 for project6 concept, July 1981 for

specific subprojects.

(d) Date of Bank Appraisal Mission: September 1982.

(e) Negotiations completed: May 4, 1983.

(f) Planned date of effectiveness: September 1983.

II. Special Bank Implementation Actions

Revolving fund for payment to contractors (para. 64).

111. Special Conditions

A. Special Conditions of Disbursement

Completion of necessary action to cause TOPRAKSU to assess and

collect water charges on farmers receiving on-farm development worksunder the project would be a condition of disbursement on someproject components (para. 46).

B. Other Special Conditions

(i) Preparation of an irrigation strategy review(para.58);

(ii) Increased water charges and penalties for delinquency inpayment (para. 46);

(iii) Completion and inspection of dams providing water toproject facilities (para. 51);

(iv) Introduction and maintenance of improved extension system(para. 56);

- 37 -

ANNEX IIIPage 2 of 2

(v) Preparing program for training of extension services staff(para. 57);

(vi) Review by the Bank, not later than September 30 each year,of implementation plan and proposed budget allocations(para. 59);

(vii) Provision of adequate agricultural credit (para. 60);

(viii) Establishment of provincial project coordinatingcommittees (para. 61);

(ix) At least 75 percent of civil works for land leveling,surface drainage, and farm roads and at least 10 percentfor subsurface drainage to be carried out by contractors(para. 62); and

(x) Satisfactory arrangements for leasing or sellingGovernment land to farmers (para. 66).

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