World Bank Documentdocuments.worldbank.org/curated/en/245481468319500230/pdf/multi-page.pdfIG3 - International Competitive Bidding ILO - International Labour Organisation I'AFRA -

Document of

The World Bank

FOR OFFICIAL USE ONLY

/' j*{ -8 .3 z-_ 1-T/

Report No. 5463-TU

REPUBLIC OF TURKEY

STAFF APPRAISAL REPORT OF A

THIRD PORTS PROJECT

April 24, 1985

Projects DepartmentEurope, Middle East ane. North Africa Region

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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CURRENCY EQUIVALENTS(as ot January 1, 1985)

Currency Unit = Turkish Lira (TL)TL 1 = 100 kurus (krs)US$1 = TL 428TLI = US$ 0.002336TL 1,000,000 = US$ 2,336.4

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet (ft)1 kilometer (km) = 0.62 miles1 kilogram (kg) = 2.20 pounds (lbs)

FISCAL YEAR(of TCDD and TDI)

January 1 to December 31

GLOSSARY OF ABBREVIATIONS

DB - Turkish Maritime Bank (Denizcilik Bankasi)DLH - General Directorate of Railways, Ports and Airports

Construction, Ministry of Public Works. (DemirYollari Limanlar Hava Meydanlari)

I)WT - Deadweight TonnageGDP - Gross Domestic ProductIG3 - International Competitive BiddingILO - International Labour OrganisationI'AFRA - Ministry of Agriculture, Forestry and Rural

AffairsMUF - Ministry of FinanceM-OT - Ministry of TransportiPI - National Ports InstitutionNPMP - National Ports Master PlanNTMP - National Transport Master PlanPCC - Project Coordination CommitteeSPO - State Planning OrganizationTCDD - Turkish State Railways

(Turkiye Cumhuriyeti Devlet Demir Yollari)TCL - Turkish Cargo LinesTDI - Turkish Maritime Organization1'EU - Twenty-foot Equivalent UnitsTHY - Turkish Airlines

(Turk hava Yollari)TSM - Transport Sector MemorandumUJNDP - United Nations Development Programme

Demirliman - TCDD Ports Establishment (Limanlar IzmetmesiMuessesesi)

Denizliman - TDI Ports and Vessel Salvage Establishment(Liman Isletme ve Gemi Kurtama Muessesesi)

FOR OMCIAL USE ONLYTURKEY

THIRD PORTS PROJECT

Loan and Project Summary

Borrower; Republic of Turkey

Amount: US$134.5 million

Terms: Seventeen years including four years of grace, with standardvariable interest rate

Project Objectivesand Description: The proposed project is designed to assist the Government in

introducing modern container handling technology to theports system to accommodate the forecasted rapid growth incontainer traffic at a time of increasing uncertaintiesaffecting port planning and development. The project couldcover a first plhase of container port development designedto meet traffic growth up to 1990. The loan would providefinancing for: (i) specialized equipment for handling con-tainers at four selected ports (Izmir, Haydarpasa, Mersinand Trabzon); (ii) renewal of high priority items of float-ing equipment required for the maintenance and constructionof port facilities; (iii) civil works for container berthfacilities; (iv) technical assistance for introducing con-tainer handling technology including documentation,operating procedures, maintenance and training.

Benefits andRisks; The project would lead to savings in ship service time and

to reductions in cargo handling costs which will be felt inslower increases in sea freight rates and port tariffs.Benefits would also include savings from avoided damage togoods, reduction in potential congestion and reduced needfor general cargo facilities. The project would generateforeign exchange earnings by providing support to Turkey'sforeign trade and by facilitating internationrl transittraffic. Adverse developments in transit traffic representthe major risk for the project. Should conditions in theGulf area return to normal in the next two to three years,Gulf ports could again handle the major traffic to Iran andIraq by the early l990s. In the event that transit trafficto Iraq should decline, container capacity at the Mersinport would be taken up through growth in exports from S.E.Turkey. As the transit trade to Iran provides the onlycontainer traffic in the Black Sea, a minimum developmenthas been proposed for the port of Trabzon. Should transittraffic fall substantially in the Black Sea, the equipmentat Trabzon could be relocated in other ports. Risk analysissuggests that the project would remain economic even ifmajor reduction in transit traffic should occur.

This document has a restricted distinbution and may be used by recpients only in the perfor_ance of their offrcial duties. Its contents may not othenvwse be disclosed without World Bank authorization.

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Staff Appraisal Report; Republic of Turkey; Third Ports Project

US$ million equivalentEstimated Project Costs: Local Foreign Total

Equipment(a) TCDD 5.0 45.3 50.3(b) TDI 2.9 25.9 28.8(c) DLH 4.4 25.4 29.8C() customs 0.9 8.0 8.9

Subtotal 13.2 104.6 117.8

Civil Works(a) Izmir Dredging 2.2 12.2 14.4(b) Izmir Berth/

Reclamation 4.0 1.7 5.7(c) Mersin Berth 2.3 1.0 3.3(d) Trabzon Berth 1.3 0.6 1.9(e) Hayaarpasa Berth 0.6 0.3 0.9Ct) Supporting Infrastructure 3.6 -- 3.6

Subtotal 14.0 15.8 29.8

Technical Assistance/Training 1.7 1.7

Total Base Cost 1/ 27.2 122.3 149.5

Plhysical Contingencies 0.3 1.8 2.1Price Contingencies 3.5 18.9 22.4

Total Project Cost 31.1 143.0 174.0

Financing Plan: US$ million equivalentLocal Foreign Total

Government 31.0 8.5 39.5Proposed Bank Loan -- 134.5 134.5

Total 31.0 143.0 174.0

Estimated Disbursements:US$ million

Bank FY 1986 1987 1988 1989 1990 1991

Annual 12.8 36.9 38.3 31.0 12.5 3.0Cumulative 12.8 49.7 88.0 119.0 131.5 134.5

Estimated Economic Rate of Return: 18%

I/ Equipment purchases under the project are exempt from custom duties andsales tax.

REPUBLIC OF TURKEY

STAFF APPRAISAL REPORT OF A

THIRD PORTS PROJECT

Table of Contents

Page No.

I. THE TRANSPORT SECTOR ...... ............................. 1A. The Transport System ..... .......................... IB. Transport Policy, Planning and Coordination ........ 1C. The Ports Subsector ..... ........................... 3D. Previous Bank Experience in the Transport Sector .... 3

11. THE PROJECT PORTS ...... ................................ 6A. General ............................................ 6B. Port Operations .................................... 6C. Port Facilities .................................... 7D. Ports Administration ..... .......................... 10E. Budgets, Accounts, Audits, Insurance ............ ... 11

III. THE INVESTMENT PLAN AND THE PROJECT .................... 14A. Port Investment Program ..... ....................... 14B. Project Objectives ................................. 15C. Description of the Project ......................... 16D. Cost Estimates . . .. ........ 21E. Financing Plan ..................................... 23F. Project Implementation ..... ........................ 23G. Procurement and Disbursement . ...................... 25Ii. Environmental Impact ..... .......................... 28I. Impact on Employment ..... .......................... 28

IV. ECONOMIC EVALUATION . ................................... 29A. Introduction ....................................... 29B. Existing Traffic ................................... 29C. Traffic Forecasts 1988-92 ..... ..................... 31D. Project Benefits .... 35E. Project Costs ...................................... 37F. Results of Evaluation ..... ......................... 37G. Project Risk ...... ................................. 38

This report is based on the findings of an Appraisal Mission to Turkey inDecember 1984 composed of Denis Perfrement (Port Engineer), P.O. Cheryan andDavis Elliott (Financial Analysts), Roy Knighton (Transport Economist) andSuzanne Morris (Research Assistant). Assistance was provided during projectpreparation by Consultants Messrs. Arthur Moon (Port Operations Specialist),Colin Dale (Transport Economist) and William Feely (DocumentationSpecialist).

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Page No.

V. FINANCIAL EVALUATION. . .40A. General .. 40B. Past Financial Performance under

Previous Project (Loan 1741-TU) ................. . 40C. Financial Situation of TCDD and TDI ................ 41D. Financial Requirements .................... 46

VI. RECOMMENDATIONS.48

ANNEXES1. Existing Port Facilities and Equipment ............. 502. Traffic Forecasts ....... ........................... 533. EconomiL Evaluation ...... .......................... 664. Financial Evaluation .... 845. Action Plan .............. .......................... 936. Technical Assistance tor Container Operations;

Outline Terms of Reference . . . . 1157. Project Coordination Committee: Outline

Terms of Reference .............................. 1208. Documents in Project File ................. .... 122

CHARTS

World Bank 26972 - TDI Maritime Organization Chart -

Including Ports OperationsWorld Bank 26971 - TCDD Railways Organization Chart -

Including Ports Operations

IBRD 18676 - Port of IzmiriBRD 18677 - Port of TrabzonIBRD 18678 - Port of MersinIBRD 18679 - Port of HaydarpasaPort of Izmir - Areas to be Dredged

MAPSIBRD 18675 - Turkey: Transport NetworkIBRD 18778 - Main Transit Routes to Iraq and the Islamic

Republic of Iran

I. THE TRANSPORT SECTOR

A. Introduction

1.01 Transport plays a vital role in the economy of Turkey by providingessential support for economic activity, foreign trade and transit traffic.The widespread distribution of population and economic activity and thedifficult terrain over much of the country calls for efficient road, rail,air and maritime transport services. The Turkish transport network is alsoa vital bridge between Europe and the Middle East. Transport contributesabout 10% of GDP and 12% of employment outside agriculture, and the sectorgenerates majcr indirect effects which are felt throughout all sectors ofthe economy.

1.02 Turkey has an extensive and fairly well-developed transport system:about 60,000 km of state and provincial roads, 270,000 km of rural roads and220,000 km of forestry roads; 8,200 km of railways; 12 major pubLic portshandling a significant volume of cargo including coastal traffic; a systemof civil and military pipelines; and Turkish Airlines, which serves severaldomestic and international routes (Map IBRD 18675). Road transportcurrently carries over 75% of freight traffic and 95% of domestic passengertraffic. Since 1976, rail freight traffic has declined from a 20% share ofthe market, mainly due to an acute shortage of motive power and low opera-tional efficiency. Although coastal shipping has only increased at about 2%per year since 1979, there is considerable scope for future growth.

1.03 Despite the importance of transport in the economy, investment inthe sector during the 1970s did not keep pace with the development andpresent requirements of the economy. Inadequate attention to rehabilitationand modernization of transport facilities and equipment now constitutes amajor bottleneck to economic growth. Roads are currently below standard forpresent traffic levels, some major railway routes require rehabilitation andthe railways lack adequate motive power and other facilities. Moreover,because of an imbalance between overall economic growth and the level oftransport investment, the modal pattern of investments must now shift inorder to accommodate changes in demand and technology. For instance, thecurrent emphasis on the development of mining and the iron and steelindustry as well as the development of the agricultural sector, particularlycereals, will lead ta new bulk transport requirements, primarily on therailways. At the same time, the continued growth of Turkey's foreign tradeas well as transit traffic to the Middle East requires the introduction ofmodern port handling equipment to accommodate the growing volumes ofcontainer traffic, expected to increase at up to 20% per year through 1990.

B. Transport Policy, Planning, and Coordination

1.04 Responsibility for transport sector planning, policy development,and investment is divided among a large number of key ministries andagencies. The main agencies involved are: (a) the Ministry of Transport,which significantly contributes to transport policy and also oversees the

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main agencies in the transport sector - Turkish State Railways (TCDD), theTurkish Maritime Organization (TDI), Turkish Cargo Lines (TCL), TurkishAirlines (THY); (b) the Ministry of Public Works which is primarily respon-sible for execution of all transport infrastructure projects includingplanning, policy and construction of state and provincial highways andexecution of port and railway infrastructure; (c) the Ministry ofAgriculture, Forestry and Rural Affairs (MAFRA) which is responsible for thevast network of local and forestry roads; and (d) the State PlanningOrganization (SPO) which coordinates and helps to determine project priori-ties in conjunction with the Ministry of Finance.

1.05 The need for improved coordination in the transport sector and asystem for ensuring an appropriate determination of modal, sector, andnational priorities had been recognized by the Government and was incorpora-ted as a major goal in its development plans. The Government's plans forthe development of the sector are embodied principally in the stabilizationprograms pursued since 1980 and, especially, in the National TransportMaster Plan (NTMP) for the period 1983-1993. Although there have been somechanges in the economy since preparation of the NTMP, the basic targetsstill remain valid and the plan provides a valuable general framework andgeneral directions for the development of the sector. The Governmentintends to update the NTMP every three years, the first revision beingscheduled for 1985. The NTMP is supported by five-year programs for eachtransport agency, which are now being established as a rplling-plan for theperiod 1985-89. Long-term guidelines for the development of: the portssubsector are provided by a National Ports Master Plan (NPMP) prepared byconsultants in 1983. This study determined that, in the medium-term,existing port capacity is generally adequate and that the main needs are todevelop specialized facilities for container traffic and to provideadditional capacity by the early 1990s in the Istanbul-Mamara Region(para. 3.04).

1.06 The Bank has been involved in detailed policy discussions andinstitutional issues in the transport sector and on modal investment plansthrough preparation of a Transport Sector Memorandum (TSM) in 1983 and morerecently through a T..ansport Investment Plan Review in October 1984.Through its involvement in the sector, the Bank has reached a broadconsensus with the Turkish authorities on the main issues and goals of thetransport sector. In particular, the authorities now see a need toestablish cost-based tariffs to increase operational efficiency, to reducerailway deficits and to remedy deficiencies in project preparation andimplementation. At the same time, the Bank has assisted the authorities inaddressing a wide range of sector issues through its involvement in projectpreparation and implementation in highways, railways and ports (para. 3.06).Under the proposed project, for instance, assistance will be provided to theGovernment for the introduction of a modern system for handling containers,related improved documentation and customs procedures, greater autonomy forports, and comprehensive training programs (para. 3.07). Similarly,improved planning and better selection of highway projects as well as ashift from force account work to construction by private contractors arebeing achieved under two existing Highway Projects. Under a proposedAgricultural Sector Loan, one of the objectives is to achieve improved

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planning and subproject selection for rural roads. A railway project underpreparation would attempt to remedy major deficiencies in railway operationsincluding arrangements to reduce deficits.

C. The Ports Subsector

1.07 Turkey's long coastline of 7,300 km has many ports and landingfacilities, including 12 major public ports, about 30 small municipal andother public ports, and about 35 specialized ports owned by industrialcomplexes. The large number of ports results from the country beingsurrounded on three sides by the sea while land transport links are diffcult because of adverse inland topography (Map IBRD 18675). Altogether, theports handled about 22 million tons of cargo in 1983, including 5 milliontons of coastal traffic and about 10 million tons of general cargo andtransit traffic. The major public ports served the bulk of the country'sforeign trade handled by ship. Since 1979, foreign cargo has been growingat a high rate of almost 11% per year, while coastal traffic has increasedat only 2% per year. In addition, transit traffic to Iraq and Iran hasdeveloped dramatically over the past five years, increasing from only600,000 tons in 1979 to over 4 million tons in 1983 (Map IBRD 18778).Container traffic has increased from 77,000 TEUs in 1979 to a current levelof around 200,000 TEUs (paras. 4.03 to 4.06).

1.08 Turkish ports generally have aIequate capacity and ship waitingtime is tolerable. The main emphasis of the Bank-s previous Ports Rehabili-tation Project (Loan 1741-TU) was on a program of rehabilitation which isscheduled for completion during 1985. Following this program, no majorneeds are expected in terms of infrastructure requirements and general cargohandling equipment during the remainder of this decade (para. 2.01).However, container operations, throughput and traffic control need to beimproved. The growth of foreign trade and the country's emphasis onexports, combined with major increases in international containerizedtransit traffic, require the introduction of modern container handlingsystems. In view of the specialized nature of container operations, thistraffic is tending to be concentrated in a limited number of ports andconsiderable benefits in ship service time, ship waiting time, reducedhandling costs as well as reduced losses on cargo could be achieved byintroducing specialized container handling equipment and techniques in theseports. These developments are being addressed by a major part of the portinvestment program under the Fifth Development Plan 1985-89, which wouldassist foreign trade flows and assist in Turkey's foreign exchange earnings(para. 3.04).

D. Previous Bank Experience in the Transport Sector

1.09 The Bank has participated in five projects in the transport sectorincluding two ports projects, of which one (Loan 1741-TU) is nearing comple-tion, one railway project (Loan 893-TU--completed) and two highway projects(Loans 2137-TU and 2439-TU), both of which are ongoing and scheduled forcompletion in June 1987 and December 1990, respectively. Details of theseprojects and their status are included in the Project File (see item B.8 inAnnex 8). Project implementation, although experiencing delays, has

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generally been satisfactory in achieving physical targets. Most problemshave occurred in implementing policy decisions and with procurement delays.However, the Government has now adopted a more coordinated and realisticapproach towards transport sector policy. This has been reflected in thequality of preparation of the proposed project and in Government's willing-ness to discuss the important sectorial issues raised in the TSM.

1.10 Only the Railway Project (Loan 893-TU of US$47 million) whichcovered the first three-year tranche of the Railways 1972-1977 InvestmentPlan and closed June 30, 1981, has been the subject of a Project CompletionReport (PCR). This PCR is currently under review by the OperationsEvaluation Department, which is preparing a report on the project. The mainconclusions of the PCR were that the project was largely successful inmeeting its physical objectives, especially track rcnewal. However, it wasless than successful in achieving institutional and policy objectives,particularly relating to improved productivity and financial viability.These issues are being addressed through preparation of a proposed SecondRailway Project.

1.11 The proposed loan would be the third Bank loan in the portssubsector. The earlier loans for ports were:

(i) Loan 28-TU dated July 7, 1950, for US$12.5 million for portdevelopment which included the exteision of Salipazari,Haydarpasa and Izmir ports, construction of a new port atSamsun, mechanical equipment for loading/unloading grain, oreand coal at Iskenderun, essential repair and replacement ofcargo-handling equipment in the above ports and some harborconstruction equipment for the Ministry of Public Works;

(ii) a supplementary loan for port development No. 28-TU, SupplementNo. 1 dated February 28, 1954, which increased the originalloan to US$16.3 million to meet increases in project costestimates arising from agreed changes in the project and priceincreases after 1950; and

(iii) Loan 1741-TU, dated July 2, 1979, for US$75 million for portsrehabilitation, which included replacement and modernization ofcargo-handling equipment, storage facilities and floating craftto improve efficiency of port operations at ten major ports,and to assist the Borrower in port subsector planning forfuture investment programs and improvement in port managementtechniques.

1.12 The project covered by Loan 28-TU was expected to be completed in1958 but was actually completed only in L9t2. The project covered byLoan 1741-TO was somewhat slow in being implemented but speeded up latterly.rt fell about 18 months behind schedule based upon disbursements, andalthough the closing date was June 30, 1984, the Turkish Government does notexpect all components of the project to be fully completed until mid-1985.

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1.13 Through Bank assistance, Turkish ports have been able to handleincreasing traffic in recent years at reasonable cost and efficiency, inparticularly the major expansion of transit traffic. However, with therapid development of containerized traffic in recent years, it has nowbecome vital to introduce modern handling techniques and procedures tosupport exports and transit trade and to reduce costs on imported goods.

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II. THE FROJECT PORTS

A. General

2.01 In view of the major program of equipment renewal pursued by theGovernment in recent years, assisted by the Bank's Ports RehabilitationProject (Loan 1741-TU), requirements for conventional port equipment areexpected to be minimal during the period of the Fifth Development Plan,1985-89. In effect, the rapid growth of container traffic will graduallyrelieve pressure on existing general cargo handling equipment and facili-ties. Similarly, a review by the mission of bulk traffic requirementsduring the Fifth Plan period has indicated that no major new investments arerequired in this area, except for the possible development of coal handlingfacilities serving thermal power plants. The main focus of the port invest-ments and development program would therefore be on the introduction ofmodern container handling technology (paras. 1.08 and 3.01).

2.02 The National Ports Master Plan (NPMP), prepared by consultants in1983 for the Ministry of Transport, proposed the development of sevencontainer ports during the period through 1990 while the separate plans ofTCDD and TDI proposed a total of nine ports. Given the specialized natureof container facilities as well as uncertainties over the development oftraffic, especially transit traffic, the Government subsequently determinedthat a firmer basis for development would be provided by focussing in afirst phase on only four ports over a three-year period (paras. 2.05 and4.01). This approach would minimize risks and provide flexibility in thatit would enable the port authorities to gain experience in container opera-tions and to monitor and analyze changes in traffic patterns following theintroduction of modern facilities in the selected ports. The preparation ofa second phase of container port development would be included under theproposed project (para. 3.23).

B. Port Operations

2.03 Although conditions vary from port to port, c'rgo handling perform-ance in Turkish ports in 1983 was reasonably satisfactory. Throughputs forgeneral cargo range from about 270 tons to 720 tons per ship day with anaverage rate of between 450 and 500 tons. Container handling with conven-tional equipment or ships' gear showed throughputs of 7 TEU per crane hourand general cargo throughputs ranging from 500 tons to 1,750 tons per day.Detailed port performance indicators are given in Annex 3, Tables 1 and 2.While the present maintenance capability of the ports is generally adequatefor conventional types of handling equipment, there is currently a backlogof routine dredging work because of inadequate dredging capacity(para. 3.11). Dredging work is particularly critical for continued accessto the ports by some of the larger container ships and bulk carriers.

2.04 Since 1983, improvements in port efficiency are being achievedthrough the introduction of new equipment, revised maintenance procedures,newly completed storage areas, and ports staff and workers training, all ofwhich were provided under the Ports Rehabilitation Project (Loan 1741-TU).Other measures which are being introduced include better overall control,particularly where agents are handling port operations, improved

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pre-planning of ships' arrivals, clearance of unwanted cargoes from berthand storage areas, better traffic control as well as greater use of storagefacilities when direct delivery is not available. The ports are alsoplanning to introduce multiple shift working, which will be a requirementfor specialized container operations. To ensure the serviceability of thenew container handling equipment being provided under the proposed project,a specialist technical review will be made to ascertain any areas wheremaintenance systems, arrangements or procedures need to be modified to caterfor the new equipment including ready availability of spare parts andcomponents. Any necessary improvements will be implemented with technicalassistance to be provided under the project (para. 3.16). In addition,improvements in routine infrastructure maintenance, particularly dredging,will be possible following renewal of high priority floating equipment underthe project (para. 3.11). These various measures are summarized in anAction Plan for the project (para. 3.23 and Annex 5, Table 1).

C. Port Facilities

2.05 Following a detailed traffic analysis and a review of port layoutplans and other operational considerations, agreement was reached with theauthorities that the first phase of container port development should focuson one port in each major hinterland area. The four ports-Haydarpasa,Izmir, Mersin and Trabzon-currently handle about 60Z of total general cargotraffic. However, it is anticipated that the share of container trafficwould amount to -at least 85X of the total due to diversion from other portswithin the traffic shadow zone of the proposed ports (para. 4.02). Asummary of the main technical data of existing and planned facilities at themain public ports is presented in Annex I.

Marmara/Thrace Area

2.06 In view of its importance for general cargo traffic and its posi-tion on the Asian side of the Bosphorus, the port of Haydarpasa is a clearcandidate for the first stage of container development in the Istanbularea. The port, which is approached from the main Bosphorus channel wherewater depth exceeds 27 m, has a general depth of 10.5 m and is protected bytwo breakwaters, 1760 m and 600 m long. There are some 14 berths totallingabout 2,650 m of which 9 handle general cargo, 3 dry bulk, and 2 will handlecontainers. The main general cargo berths have a depth of water alongsideof 10 m and the container berths 12 m. Haydarpasa is the country's maingeneral cargo port and has rail and road links westwards to Europe andeastwards to Ankara and the interior. Because of limitations of space aswell as urban congestion, the second stage of container port development inthe Marmara/Thrace area would probably be located in an alternative port,possibly at Derince, about 45 km from Haydarpasa. Other ports in theMarmara Region include Salipazari, a port on the European side of theBosphorus which serves as the main passenger port but which suffers fromlimited space and its location in Istanbul's business district, andBandirma, a new port handling mainly bulk traffic.

2.07 In 1983, the total number of commercial vessels calling atHaydarpasa was 666, of which 520 were general cargo liners, 108 container

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ships and multi-purpose vessels and 38 bulk carriers. Total traffic in 1983was 2.1 million tons of dry cargo, of which 1.4 million tons were generalcargo traffic. Although current container trafEic is only 12,000 TEU, thereis considerable scope for growth, Haydarpasa being the main port for importtraffic. There is currently -o ship waiting time at Haydarpasa, but thereis congestion on the quays and in the storage areas because of unclaimedcargo. Although, performance of general cargo handling, about 500 tons pership day, is above average for Turkish ports, this could be improved throughmore efficient handling of cargoes on the berths and in storage areas, andtraining courses for dockworkers are currently run at the Haydarpasatraining school (para. 3.25). There are currently 1,050 permanent dockerson the labor register at Haydarpasa.

Aegean Sea

2.08 The port of Izmir already handles a substantial volume of containertraffic, in the range of 50-60,000 TEU per year, primarily required tosupport agricultural exports. The development of specialized containerfacilities at Izmir is therefore a logical step. Izmir is located at thehead of a large protected bay soine 60 km long on the Aegean Sea and isTurkey's main export port for agricultural products. There are presentlyabout 1,000 m of general cargo quays and one RoRo terminal with water depthsalongside of 10.5 m and 8.0 m respectively. A new terminal area is underoqnstruction and will provide a further 1,300 m of berths, of which 450 m

will be 'or container ships and the remainder for multipurpose ships.Con.-petion of the new facilities is sch'_duled for November 1986.

2.09 A total of 829 ships visited Izmir in 1983, of which 438 were cargoliners, 274 container and multi-purpose ships and 117 bulk carriers. Totaldry cargo traffic in 1983 was 1.5 million tons of which 934,000 tons ofgeneral cargo, including 340,000 tons in containers, and 526,000 tons of drybulk, mainly cereals. There was no ship waiting time in 1983 and through-puts of around 480 tons per ship day for break bulk and 1,445 tons forcontainer traffic are satisfactory given the type of traffic, which ismainly agricultural exports. The port has a total labor force of 1,080workers.

Mediterranean Sea

2.10 There are two ports in the eastern Mediterranean, Mersin andIskenderun, both of which serve the development of transit traffic to theMiddle East. About one-third of existing traffic is containerized, andtotal container movements in both ports have a7v'eraged about 105.fl00 TEU inthe past three years. As the area's largest port with good laiud transportlinks, the port of Mersin provides the logi.al choice for container trafficdevelopment. The port of Iskenderun would be developed primarily as asupport facility using heavy duty conventional equipment as it becomesredundant at Mersin and Haydarpasa. Facilities at Mersin include 23 berthswith a total length of 3,800 m, two-thirds of which have a depth alongsideof lO m; 9 berths handle bulk cargo and the remainder general cargo. Two ofthe berths totalling 400 m in length are designed for container handling anda third berth of 250 m is to be constructed under the proposed project. The

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only other facility on the Mediterranean coast is the small port of Antalya,some 700 km west of Mersin, but which offers little scope for futuredevelopments.

2.11 Mersin accommodated a total of 2,454 ships during 1983, including1,444 general cargo liners, 494 container and multi-purpose Ro-Ro vesselsand 516 bulk carriers. Ship waiting time exceeded 48,000 hours or 24 hoursper ship in 1983, this being due mainly to construction work on the new400 m berth completed in 1984. Total traffic reached 3.3 million tons ofdry cargo including 2.1 million tons of break-bulk general cargo, 637,000tons of container and Ro-Ro traffic and 516,000 tons of dry bulk. Cargohandling performance at Mersin is lower than average for Turkish ports,being only 286 tons per ship day for general cargo in 1983. Although therehave been improvements during 1984 with the introduction of new equipment,the low productivity is due to poor overall control by the port with manyoperations being handled directly by agents using inadequate equipment.Rates per day for container and Ro-Ro traffic reached 1,114 tons and 1,380tons respectively. Productivity is expected to improve farther as a resultof additional training provided under the project (paras. 3.15-3.18). Theports of Mersin and Iskenderun currently employ about 2,100 workers.

Black Sea

2.12 The present container traffic in the Black Sea is about 13,000 TEUand the potential for future growth is limited mainly to transit traffic toIran. Of four public ports on the Black Sea Coast, two have some claim fordevelopment as container ports, namely Samsun and Trabzon, both of whichcater to transit traffic. The other ports, Giresun located between Samsunand Trabzon, and Hopa near the Russian Border, are minor ports which havealso begun to handle some transit traffic to Iran. As the area's main portserving much of central Turkey, including Ankara via a relatively good roadlink, development of the port of Samsun was considered under the first stageof container port development. On the other hand, although it serves theless well-developed hinterland of Eastern Turkey, the port of Trabzonprovides clear advantages over Samsun for transit traffic. The ongoingberth construction program at Trabzon is well advanced and road links toIran are about 400 km shorter than from Samsun. Consequently, it has beendecided that Trabzon should be developed in the first phase and thatdevelopment of Samsun in the second phase will depend on further growth oftransit and domestic traffic.

2.13 Trabzon has three existing berths, totalling about 400 m in length,one of which carries a grain facility and silo. The depth alongside theberths is 10.0 m. Construction of a new quay about 580 m long at rightangles to the existing berths is in progress, 280 m of which will handlecontainers with the remainder available for general cargo. Completion ofthe container quay is scheduled for November 1986.

2.14 A total of 293 ships visited Trabzon in 1983, including 176 generalcargo liners and 33 container ships. Total waiting time was about 33,000hours, or 113 hours per ship, this being due to disruption caused by a majorberth construction program as well as a substantial increase in Iran's

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transit traffic from 260,000 tons to 433,000 tons as a result of problems onthe competing Russian overland route (para. 4.11). Total traffic in 1983was 730,000 tons of which 373,000 tons were general cargo traffic. Generalcargo throughput reached an acceptable level of about 420 tons per shipday. Total employment in TDI ports in the Black Sea is about 500 workers.

D. Ports Administration

General

2.15 The 12 major ports function under two separate institutions, onegroup, i.e. the Ports of Samsun, Haydarpasa, Derince, Bandirma, Mersin andIskenderun are under the ports establishment of the TCDD Railway Corporationand another group, i.e. the Ports of Trabzon, Giresun, Hopa, Salipazari(Istanbul), Izmir, Antalya and the recently added Rize under the portsestablishment of the Turkish Maritime Organization (previously the MaritimeBank (DB), and now known as TDI). Construction and maintenance of portinfrastructure are tk'o responsibility of the Directorate of Ports (DLH) inthe Ministry of Publi Works. The Loan Agreement for the ongoing portproject (Loan 1741-TU) c'led (under Section 3.06 (a) and (b)) for theestablishment of a new National Ports Institution (NPI) to take over theports activities of the above major ports. However, the Government as wellas the Bank are now no longer convinced that establishment of one institu-tion is the appropriate short-term approach to follow. First, recentattempts to establish national institutions in other sectors of the economyin Turkey have not met with success. Secondly, it is now clear that themain objectives are to strengthen the basic administrative functions of theports organizations, including planning and accountability, and to providefor financial autonomy. As a result, a more gradual approach is beingpursued by establishing the ports departments as semi-autonomous organiza-tions although still under the control of each Board of TCDD and TDI(para. 2.16). This is a major step towards making the ports departmentsmore responsible for establishing accountability and financial autonomy, andfor meeting the needs of the economy.

TCDD and TDI Ports Establishments

2.16 Under Decree No. KHK 233 of June 8, 1984, both TCDD and TDE portsoperations have been transformed, with effect from January 1, 1985, into newsemi-autonomous entities to be named TCDD Limanlar Izletmesi Muessesesi orTCDD Ports Establishment (Demirliman), and TDI Liman Isletme ve Gemi KurtamaMuessesesi or TDI Ports and Vessel Salvage Establishment (Denizliman). BothDemirliman and Denizliman will have separate ident-ties, but they will beunder the corporate control of their parent institutions as subsidiaryunits. In order to ensure the operational and financial well-being of theseestablishments, there is a need for them to set up, in addition to theexisting operations and technical functions, fully competent departments inplanning, project preparation and implementation, marketing, and accountingas well as to retain funds for the adequate maintenance of port facilitiesand equipmeat, debt service, capital projects and other essential require-ments before their surpluses are distributed. A general understanding hasbeen reached on these principles which are included in the Action Plan

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(para. 3.23). In addition, the financial viability along the above lines ofthe port organizations is assured by specific financial covenants discussedin Chapter V, paras. 5.10 and 5.11.

Ports Organizations

2.17 The attached chart (Chart 26971) shows the proposed organizationalstructure of TCDD and the position of ports operations within it. Asdiscussed above, TCDD ports operations will be structured as an establish-ment to be called Demirliman (para. 2.16). It has a Board of Directors orExecutive Committee of its own appointed by the TCDD Board of Directors, anEstablishment Director who will be the chief executive, three AssistantDirectors who rill be in charge of the central departments and six PortDirectors in charge of each port. Demirliman will prepare in advance itsoperating, investment and cash budgets, a projected balance sheet and astaffing plan for each year for approval bv the TCDD Board of Directors.The Demirliman Board will have authority to approve expenditures up toTL 10 million (US$20,000 equivalent) per contract or activity, beyond whichthe authority rests with the TCDD board.

2.18 As far as the TDI ports are concerned, they will be functioningunder a similar organizational pattern to that of TCDD ports. The attachedchart (Chart 26972) shows the proposed organizational structure of TDI, andthe position of ports operations (Denizliman) within it.

7

2.19 The staffing in Demirliman number some 5,000 and Denizliman some4,300 as of January 1985. Each port agency has concentrated during recentyears on training of port workers and staff, and assistance was given underthe previous port project (Loan 1741-TU) and by ILO and UNDP by providingspecialists who organized and initiated training courses. A ports opera-tions training school was set up at Haydarpasa, and over 30 different typesof courses have been run for dockworkers, supervisors, plant operators andmaintenance technicians (para. 3.25).

E. Budgets, Accounts, Audits, Insurance

Budgets

2.20 Under their respective charters, both Demirliman and Denizliman aresubject to the budget preparation, execution and controls of the state-ownedestablishments and enterprises. Annual operating and capital budgets areprepared and approved by the Board of Directors of the parent companiessubject to annual overview by the Ministry of Transport, the State PlanningOrganization and the Ministry of Finance. The budget system itself is wellconceived. All transactions are to be pre-checked with budget provisionsbefore commitments are made. However, comparisons of actual expenditureswith budget allocations are not prepared and circulated in a timely mannerto help management review actual performance. The proposed project includesarrangements to effect improvements (para. 2.22). Both Demirliman andDenizliman are expected to improve their budgetary controls as self-accounting units.

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Accounts

2.21 All organizations in the public sector are required to adhere tothe national uniform accounting system. The accounting concepts, classifi-cations, and definitions follow generally accepted principles of accountingand the system is, on the whole, adequate for basic financial accounting.It does not adequately cover, however, tbe analytical aspects of accountingwhich are necessary for the determination of costs and use as managementtools. Attempts under the previous project (Loan 1741-TU) to introduce costaccounting in the TCDD and TDI ports operations were not completely success-ful, but they did result in the introduction of procedures for activity-based costing, e.g. determining the time units of each major activity ateach port such as loading, unloading and shifting of cargo, pilotage,berthing, etc. Based on these time units, cost and tariff revenue calcula-tions are made for determining the financial contributions made by eachmajor activity at each port.

2.22 Both TCDD and TDI's centralized accounting units produce quarterlyincome statements for each port, and annual income statements for each portand for the TCDD and TDI's ports department as a whole, as well as notionalannual balance sheets for the ports operations extracted from the generalaccounts. In addition, they prepare approximate monthly operating resultsbased on time allocations of the various activities at each port. In conti-nuation of the efforts under the previous project and in the context ofsetting up the new ports establishments, the proposed project will includeconsultancy assistance for a diagnostic review to be followed by the intro-duction of approved proposals for the improvement of the financial, account-ing and costing, and management information systems, methods and proceduresto serve the needs of management decision-making, budgetary control, accoun-tability and tariff-setting (para. 3.18). During negotiations, agreementwas reached that TCDD and TDI will introduce the approved proposals no laterthan January 1, 1988 (para. 5.10).

Audits

2.23 Annual audits are conducted by the Financial Inspectors attached tothe Ministry of Finance, and Controllers and Sworn Banking Auditors attachedto the Treasury Department. Under the previous project (Loan 1741-TU), bothTCDD and TDI were required to submit annual audited financial statements fortheir respective port operations within six months after the end of eachfiscal year. Submissions of these annual reports have been delayed in thepast, reportedly due to insufficient numbers of MOF inspectors. Theseproblems were discussed with the inspectors and understandings r-ached onthe timing and format of future audit reports. During negotiations,assurances were obtained on the annual audit of the financial statements ofthe port operations of each of TCDD and TDI.

Directorate of Ports, Public Works Ministry (DLH) and CustomsDepartment - Budgets, Accounts and Audit

2.24 DLH, which is a part of the Ministry of Public Works, and CustomsDepartment, which is a part of the Ministry of Finance (MOF), prepare theirown annual budgets for the recurrent and capital expenditures. The approved

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budgets are closely controlled by the agencies and the ministries concerned,and their accounts are audited by MOF inspectors. During negotiations,assurances were obtained that DLH and the Customs Department each will main-tain detailed accounts by sources, currencies and dates on a current andcumulative basis, of project expenditures incurred for equipment, facili-ties, training and technical assistance for items financed under theproject. Assurances were also obtained that DLH and the Customs Departmenteach will have the project accounts audited annually and submit the auditedstatements to the Bank not later than six months after the end of eachfiscal year.

Insurance

2.25 TCDD, TDI, and DLH each maintain adequate insurance for theirequipment. During negotiations, assurances were obtained that adequateinsurance coverage will be provided for equipment and facilities financedunder the project.

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III. THE INVESTMENT PLAN AND THE PROJECT

A. Port Investment Program

3.01 The Government has just completed the Fourth Five-Year DevelopmentPlan, 1980-84, and has now embarked on a rolling plan basis for the five-yearperiod 1985-89. The plan will be reviewed annually, thereby introducingmuch needed flexibility in the planning process. Total investment in thetransport sector during 1985-89 is expected to remain at about the samelevel as under the earlier plan (1980-84), namely at about 18-20% of thepublic investment program.

3.02 Investments in ports during the Fourth Development Plan 1980-84averaged about TL 18.8 billion annually (US$54 million) in 1984 prices. Themain emphasis during this period was on the rehabilitation of the ports,particularly of conventional cargo handling equipment and storage facili-ties. However, during the latter part of the plan, construction of newberth facilities began in several ports in order to cater for expectedincreases in general cargo and container traffic (para. 3.13). Investmentsin these facilities as well as the balance of the equipment renewal programrepresent the bulk of the current spillover of ongoing investments into theFifth Development Plan 1985-89, equivalent to about TL 25 billion(US$70 million) in 1984 prices.

3.03 Table 3.1 shows the outline port investment program for 1985-89based on the 1985 budget figures recently approved by Parliament:

Table 3.1: Outline Port Investment Program: 1985-89(TL million 1984 prices)

Expected Average AnnualBudget Expenditures Expenditures-1985 1986-89 1985-89

TCDD

Ongoing Investments 2,195New Projects 2,305 24,980

Total TCDD 4,500 24,980 5,896 (US$16.8 m)

TDI

Ongoing Investments 5,254 2,174New Projects 1,700 16.463

Total TDI 6,954 18,637 5,118 (US$14.6 m)

DLH

Ongoing Investments 6,506 8,622New Projects 6,494 38,403

Total DLH 13,000 47,025 12,005 (US$34.3 m)

TOTAL 924,454 0,642 23,019 (US$65.7 m)

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3.04 It is expected that investment levels in ports during 1985-89 willaverage about TL 23 billion annually (US$66 million) in 1984 prices, aslight increase in real terms over levels during 1980-84. However, thislevel is well below the initial proposals of the port agencies. Theseproposals were based on continued investment in general cargo handlingfacilities and equipment while at the same time providing for the develop-ment of container handling facilities on a relatively broad front. Detaileddiscussions on the port investment program were held with the Bank duringpreparation of the proposed project as well as during a Transport InvestmentReview Mission in October 1984. The Bank's views were subsequently consi-dered by the port agencies and the State Planning Organization (SPO) infinalizing the 1985 Budget. The latter essentially limited the new projectsintroduced into the 1985-89 Plan to the proposed container port developmentprogram and to the essential renewal of conventional cargo handling equip-ment and high priority floating equipment for DLH. In view of the uncer-tainties over container traffic flows, especially in international transit,a phased approach has now been adopted for the development of container portfacilities (para. 2.02). This program, which covers the years 1985-88, isexpected to account for about 60% of the 1985-89 port investment plan. Theremainder concerns mainly equipment renewal, particularly for DLH, ongoingbulk berth construction, and provision for new facilities in the Istanbul-Marmara Region towards the latter part of the plan. In general, all itemsin the plan appear justified except that the development of bulk mineralfacilities at Izmir should possibly be deferred or reconsidered. Assuranceswere obtained at negotiations that the Government will provide the Bank withdraft annual programs and budgets for the ports subsector during the periodof project implementation (para. 3.26) and that any proposed new investmentswill be supported by adequate feasibility studies.

B. Project Objectives

3.05 Bank lending to Turkey aims to support the country's currenteconomic policies with specific emphasis on an export-oriented developmentstrategy, quick-yielding new investments, restraint on public investmentlevels and improvements in the balance of payments. Assistance in thecountry's port development program will provide direct support for exportdevelopment of both industrial and agricultural products and will ensureforeign exchange savings on sea freight rates for both exports and imports.Moreover, the development of modern container handling facilities serving agrowing demand for international transit traffic will provide Turkey withvaluable foreign exchange earnings accruing to Turkish shippers, roadtransport companies and port agencies. A Banik-assisted port developmentproject will therefore provide substantial suppo-t for increased foreignexchange earnings and positive effects on the balance of payments situation.At the same time, the introduction of improved planning in the ports sectorwill enable the port agencies to direct scarce investment resources tocurrent priorities and to improve port operations.

3.06 The basic rationale for Bank lending to Turkey's transport sectoris to support the development of an efficient transport system capable ofmeeting the needs of the economy and to continue institution-building

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efforts. Particular emphasis is being placed on improvements in organiza-tional and operational efficiency, the implementation of balanced investmentplans and the introduction of cost-based tariffs. These goals are beingpursued primarily through ongoing project implementation and preparation inhighways, railways and ports. Additional assistance is being providedthrough a proposed Agricultural Sector Loan, which provides for the intro-duction of improved planning procedures for Turkey's vast rural roadnetwork. In the ports subsector, the following specific goals are ofimportance:

(i) the introduction of improved cargo handling methods, specifi-cally through the provision of specialized container handlingfacilities in a number of selected ports;

(ii) agreement with the Government and the port agencies on arealistic investment program for the Fifth Development Plancovering the period 1985-89;

(iii) implementation of a comprehensive action plan for the introduc-tion of container handling technology, including operationalprocedures, equipment maintenance, and modified customs regula-tions; and

(iv) the, introduction of institutional reforms which would include,as a first -phase, the strengthening of planning capabilitiesand the separation of port accounts from those of other activi-ties managed by TCDD and TDI, and the introduction of acost-related tariff structure at commercially feasible levelsfor container traffic.

C. Description of the Project

3.07 The components of the proposed project are:

(i) specialized equipment for handling and clearing containertraffic at four selected ports--Izmir, Haydarpasa, Mersin andTrabzon--including nine standard container gantries, fivelightweight gantries, and appropriate supporting equipment;

(ii) renewal of high priority items of floating equipment necessaryfor the maintenance and construction of port facilities;

(iii) civil works for container berth facilities at the ports ofIzmir, Mersin and Trabzon; and

(iv) technical assistance for the introduction of container handlingtechnology including documentation and operational procedures,maintenance and training, the establishment of improvedaccounting, financial, costing and management informationsystems, meLhods and procedures, and the development of aseries of inland container depots.

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Equipment and Materials

3.08 The proposed container port development program to be implementedduring thc period 1985-88 provides a least-cost solution for meeting antici-pated container traffic demands up to 1989/90. The proposed program takesinto account overall traffic patterns, hinterland linkages, ongoing portdevelopment schemes and the suitability of existing ports for development inthe medium term. The list of container handling equipment for the fourports has been established based on detailed traffic forecasts for nationaland transit traffic and the expected productivity of new equipment. Detailsof traffic forecasts are given in Chapter IV. The proposed equipmentprogram is summarized below for each port:

Izmir. The development program at Izmir calls for a three-craneoperation to cater for a forecast of 88,000 TEU in 1989. The project willfinance two standard container cranes which will work the main 450 m berthcurrently under construction, delivery being scheduled for May-June 1987.In addition, because of the current throughput of 50-60,000 TEU, TDI isproviding for early procurement of two lightweight cranes using its ownresources. These cranes will operate a multi-purpose berth beginning inmid-1986. In line with an overall Action Plan for the project (para. 3.23),TDI will assess the need for four cranes at Izmir in 1988 with a view torelocating one lightweight crane at that time to another facility. Inaddition. to the two standard cranes, the project will finance supportequipment for a three-crane operation, including six transtainers, 15 towingunits, 18 trailers and two Belotti-type container mobile cranes.

Haydarpasa. Expected traffic developments in the Istanbul areacall for the establishment of a three-crane operation capable of handling88,000 TEU in 1989, a major increase over the present level of 12,000 TEU.The project will finance two standard cranes for use of the recentlycompleted 300 m berth and one lightweight crane which will work on anadjacent multi-purpose Ro-Ro berth. Support equipment to be financed by theproject includes six transtainers, 15 towing units, 18 trailers and twoBelotti-type cranes.

Mersin. As the main transit port for Iraq as well as serving amajor export demand from southeastern Turkey, the proposed containerdevelopment program at Mersin calls for a five-crane operation. Forecasttraffic for 1989 is 200,000 TEU, compared with a current level of about105,000 TEU through the ports of Mersin and Iskenderun. The proposedproject will finance five standard container cranes, 11 transtainers, 21towing units, 23 trailers and two Belotti-type cranes.

Trabzon. Forecast traffic in the Black Sea is limited essentiallyto transit traffic to Iran and is expected to increase from about 13,000 TEUat present to about 40,000 TEU in 1989. Because of uncertainties over thelevel of transit traffic and the rate of container penetration, a minimumcontainer operat-vn based on two lightweight cranes is proposed for Trabzon.In addition to the two quay-side cranes, support equipment to be financed bythe proposed project includes four transtainers, seven towing units, tentrailers, and one Belotti-type crane.

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3.09 Assessment of the balance between the numbers of gantry cranes andsupport equipment was made on a basis of five tractor/trailer units and twotranstainers per gantry crane. The assumptions made and method used is setout in Annex 5, Table 6. Other support equipment to be financed by theproposed project includes 41 forklift trucks, including seven of 10/12 toncapacity and 34 of 2 ton capacity. Additional support equipment is alreadyavailable in TCDD and TDI ports and includes 12 ton, 28 ton and 42 tonforklift trucks, and some container tow tractors and trailers purchasedrecently either under the Ports Rehabilitation Project (Loan 1741-TU) orfrom the agencies' own resources (see Annex 1, Table 2). The project wouldalso finance crane rails for the gantry cranes as well as miscellaneousitemis such as special temporary storage facilities which will free plannedcontainer areas.

3.10 With the substantial increase in numbers of containers to behandled through the project ports during the coming years, customs will needto review closely and modify their existing procedures for clearance ofcontainers as well as increase staff, since the expeditious clearance ofcontainers will be of paramount importance to the effectiveness of theproject as a whole. This may be achieved through improved clearance methodsin the ports by use of specialized surveillance equipment and systems, andby the use of inland container depots established at strategic points in theports hinterland where sealed import traffic containers are transporteddirectly from ship to depot at which location they are opened, unloaded andcleared by Customs officers (para. 3.18). The simplification of Customsprocedures including the ratification of a 1972 Customs Convention forContainers, which allows for duty-free import and export of container boxes,the need to recruit and train additional Customs officers, and equipmentrequired to facilitate clearance of containers have already been discussedwith Customs and the agencies. A list of equipment for Customs, and anAction Plan for implementing revised Customs procedures and recruitment andtraining of additional officers were discussed and confirmed at negotia-tions. Initially, about 25% of the proposed equipment will be obtained toenable field tests to be carried out at specific locations to verify thatthe equipment as designed will meet all customs requirements. It isintended that the system would be installed at the four project ports aswell as at the four main land borders handling container traffic.

3.11 DLH has carried out a study of its new equipment needs for theperiod of the Fifth Development Plan 1985-89. DLH's current floating equip-ment fleet includes some 115 items with a total replacement value of aboutUS$200 million (Annex 1, Table 3). With over 100 items over ten years oldand 60 items are over 20 years old, much of the fleet is beyond its usefuleconomic life and a backlog of esselntial maintenance work, especiallydredging, has built up over the years. The equipment needs have beenestablished based on a detailed program of maintenance and construction forthe period 1985-89. During this period, DLH will concentrate its resourcesincreasingly on maintenance operations, with construction activitiesallocated mainly to contractors. From these equipment requirements, a listof high priority items has been selected for financing under the proposedBank loan up to a total CIF cost of about US$26 million. The list of equip-ment includes two 90-ton floating cranes, three bucket dredgers, six

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back-hoe dredgers, as well as diesel engines for tugboats and dredgingbarges. Details of the DLH equipment fleet and proposed work program are inthe Project File (Document No. B.2 and B.3).

3.12 Detailed lists oF equipment for TCDD, TDI and DLH are included inAnnex 5. The lists were discussed and confirmed at negotiations. Theproject will allow for possible revision of support equipment requirementsduring implementation depending on operational experience and trafficdevelopments.

Civil Works

3.13 The new container quays, and storage areas at each of the projectports have been financed from the agencies' own resources, and has beenconstructed either by DLH or under DLH's supervision. At Haydarpasa, thenew container area has been completed apart from some regrading of areasdesignated for storage of containers (see Chart 18679). At Mersin, twoberths are already available and a third berth is to be constructed byextending an existing berth and reclaiming the area behind the new quay (seeChart 18678). At Izmir, construction of the main container quay is nearingcompletion but reclamation of the main container storage area behind thequay will not be completed until 1986 (see Chart 18676). At Trabzon,construction of the new container quay as well as a new general cargo quayis in progress and will be completed in 1986 (see Chart 18677).

3.14 Dredging alongside the quays where necessary at Haydarpasa, Mersinand Trabzon has been or will be carried out by DLH dredgers as part ofroutine maintenance requirements within the ongoing works, but that at Izmirwill be undertaken by contract awarded through International CompetitiveBidding (see para. 3.27). This tzmir dredging will be the only civil worksfinanced from the proposed loan and was orig .ally to have been carried outby DLH under the ongoing Izmir port development financed from the agencies'own resources. However, completion of the dredging (estimated at about5 million mi3) within the requisite time frame is beyond the resourcecapacity of DLH, and it has therefore been included in the project for Bankfinancing to ensure timely completion in accordance with the overallprogram. The depth of water in the existing port varies between 10.5 and11.0 meters at the existing general cargo berths and about 6 meters to thenorth and west of the new berths. Dredging off the new 450 m containerberths will be to a depth of 13 meters consistent with the design depth ofthe berths, and suitable for container ships in the forecast capacity rangewith drafts of up to about 12 meters (para. 4.18). The area off theadjacent 600 m multi-purpose berths will be dredged to 12 meters consistentwith the berth design and rorecast shipping. About 1.5 km of channel fromthe port will require dredging to 13 m depth to reach natural deep water.Additional dredging to achieve a 13 m deep channel will be required nearYenikale some 11 km downstrean from the port where the channel narrows andshoals. The general limits of dredging are shown on the chart at the end ofthe report. Material unsuitable for reclamation purposes will be depositedat the designated spoil dumping ground some 15 km from Izmir (para. 3.30).

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Technical Assistance

3.15 To assist the Turkish authorities in setting up modern containerport operations, about 172 man-months of specialized consulting serviceshave been included under the proposed project (see Annex 5. Table 7). Thisprogram is critical to the establishment of satisfactory modern containerhandling methods and is carefully phased to maximize on-the-job training inline with the planned delivery schedule for equipment. Although considera-tion was given during discussions with the agencies to the possibility of amanagement contract for handling containers, specialist technical assistancewas deemed to provide the best alternative, bearing in mind staff trainingalready undertaken (para. 2.19). the likely increased adverse impact of amanagement contract on the port labor force (para. 3.31), and the desirabi-lity of achieving early commercial orientation and expertise of port staff(para. 2.02).

3.16 Technical assistance for container operations will cover threeprincipal areas: (i) container documentation and control; (ii) physicalcontainer handling on ship and shore; and (iii) establishment of proceduresfor engineering operations, maintenance and repairs, and stores inventories.Port personnel from TCDD, TDI and Customs will be trained in these areasthrough a series of pilot schemes. The initial pilot scheme in documenta-tion and control systems would require a specialist for about 8 monthscommencing at Izmir in about January 1986 in anticipation of the deliveFy ofTDI's own-resource financed equipment in April 1986. The documentationspecialist would then transfer in about September 1986 for a further periodof 8 months to Mersin to run a second pilot scheme there, so that trainedstaff would be available at both Izmir and Mersin to assist in implementingthe operations pilot schemes which would follow consecutively at each portand be run by operations specialists. These operations pilot schemes wouldcommence prior to the start-up of container operations, and would each runfor about 8 months, first at Izmir from about May through December 1986, andthen at Mersin from January through September 1987. An estimated 72 man-months of operations specialists would be required for the two operationalpilot schemes, including four man-months for review of the documentation andoperations systems set up at Trabzon and Haydarpasa by staff trained earlierat Izmir. Finally, specialists in repair and maintenance of containerhandling equipment will establish a training scheme for maintenance proce-dures at Izmir, beginning in April 1986, for a period of about eight months.The maintenance team will then transfer to Mersin in about November 1986.About 55 man-months of equipment maintenance specialists would be requiredfor the pilot maintenance schemes. The details of target dates andman-months r--uired for the pilot schemes (documentation, operations andmaintenance) are set out in Tables 7 and 8 of Annex 5. A further 10man-months of foreign consultant time would be required for generalsupervision and to organize and supervise a series of overseas technicalvisits for key personnel from the various agencies involved with portoperations (para. 3.17).

3.17 The proposed project would finance about 80 man-months of overseastechnical visits for port staff, customs officials and DLH personnel toprovide training in container operations and in container terminals design

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and layout. A preliminary series of visits would be made prior tc implemen-tation of the pilot schemes with a further program for management staffduring the operational phase (para. 3.25).

3.18 Additional technical assistance would be included under the projectfor further improvements to accounting procedures and analyses. About 15man-months of local consultants would be required for this purpose. Theproject would also finance a study which would assess the need for inlandcontainer depots to be used in the collection and distribution of containertraffic and for customs clearance of goods. This would include a review ofthe use of an existing area at Icerenkoy near Istanbul which is presentlyoperated by TDI. An estimated 20 man-months are required for this study.

3.19 It is expected that technical assistance for container operationswill be provided by a single specialized firm. Draft Terms of Reference areshown in Annex 6 and these were discussed and confirmed at negotiations.Outline terms of reference for the financial study and the container depotstudy (3.07(iv)) are in the Project File (Document Nos. C4 and C5). Theseterms of reference as well as the organization of overseas training visitswere discussed and confirmed at negotiations and will be carried out inaccordance with a schedule agreed in the Action Plan for the project(para. 3.23).

D. Cost Estimates

3.20 The total cost of the project is estimated at US$174 million with aforeign exchange component of US$143 million (82%), the balance comprisinglocal costs, taxes and duties. The proposed Bank loan of US$134.5 millionwould cover 96% of the foreign exchange cost of equipment, the foreign costof the Izmir dredging contract, and 99% of the cost of technical assistance.The costs of civil works and of two lightweight cranes which are beingfinanced by the agencies are included in the project cost, since it isessential to the project that these works and items of equipment are under-taken and provided by the requisite time. Cost estimates have been adjustedto reflect January 1985 prices. A detailed project cost table is shown inAnnex 5 and is summarized below:

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Table 3.2: Summary of Project Cost Estimates

BankTL Million US$ Mil,ion Loan

Local Foreign Total Local Foreign Total US$ mill.

A. Equipment(a) TCOD 2,155.84 19,402.52 21,558.36 5.04 45.33 50.37 45.33(b) TDI 1/ 1,230.07 11,070.65 12,300.72 2.87 25.87 28.74 21.88(c) DLH 1,885.77 10,860.07 12,745.84 4.41 25.37 29.78 25.37(d) Customs 380.92 3,428.28 3,809.20 0.89 8.01 8.90 8.01

Subtotal 5,625.60 44,761.52 50,414.12 13.21 104.58 117.79 100.59

B. Civil Works(a) Izmir Dredging 918.06 5,202.34 6,120.40 2.15 12.16 14.30 12.16(b) Izmir Berth/

Rcclamation 2/ 1,715.00 735.00 2,450.00 4.01 1.72 5.72 --(c) Mersin Berth 1,000.70 428.87 1,429.58 2.34 1.00 3.34 --

(d) Trabzon Berth 2/ 574.53 246.23 820.75 1.34 0.58 1.92 --

(e) Haydarpasa Berth 2,' 257.25 110.25 367.50 0.60 0.26 0.86 --

(f) Supporting Infra-structure 1,549.36 -- 1,549.36 3.62 -- 3.62 --

Subtotal 6,014.90 6,722.69 12,737.59 14.06 15.72 29.76 12.16

C. Technical Assistance/Training 5.78 821.55 827.32 0.01 1.92 1.93 1.92

Tztal Base Costs 11,673.27 52,305.76 63,979.03 27.27 122.21 149.48 114.67

D. Contingencies(a) Physical 137.71 780.35 918.06 0.32 1.82 2.15 1.82(b) Price 7,008.35 37,293.15 44,301.50 3.46 18.85 22.31 17.98

Subtotal Contingencies 7,146.06 38,073.50 45,219.56 3.78 20.67 24.46 19.80

TOTAL PROJECT COST 18,819.33 90,379.26 109,198.59 31.05 142.88 173.94 134.48

I/ Includes two lightweight cranes to be procured independently by TDI.2/ Ongoing works.(4214D)

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3.21 Equipment costs are based on recent price experience for similartypes of equipment provided by foreign manufacturers. Dredging costs arederived from preliminary estimates which will be updated based on detailedinvestigations, which will be available prior to negotiations. Becausedredging costs depend upon the availability of suitable contractors, anadditional contingency of 15% has been allowed. A provision of 10% has beenmade for most spare parts with 15% for equipment which will be subject toheavy wear and tear. Technical assistance costs for expatriates includesalaries, fees, international travel and subsistence. The average man-monthrate for local consultants includes the cost of logistic support. For costsexpressed in Turkish Lira, price contingencies have been estimated assumingannual price increases of 30% in 1985, 25% in 1986, 20% in 1987, 15% in1988, and 10% in 1989 and 1990 and when expressed in US Dollars, 5% in 1985,7.5% in 1986 and 8% for 1987 through 1990. During negotiations, the projectcosts estimates were discussed and confirmed.

E. Financing Plan

3.22 The proposed Bank loan of US$134.5 million would cover 94% of thetotal foreign exchange cost (para. 3.20). The remaining foreign exchangecosts relate to the indirect foreign costs of ongoing berth constructionprograms which are being met under DLH's investment program and the CIFcosts of two lightweight container cranes currently being procured by TDIwith their own resources. All local costs will be met from the budgets ofthe respective agencies. All- items related to the proposed project areincluded in the 1985 Budget and rolling plan documents recently approved byParliament. During the period of project implementation, the Governmentwill discuss the annual budget estimates with the Bank in order to ensureadequate budgetary allocations to cover planned expenditures (para. 3.04).During negotiations, assurances were obtained that all local costs as wellas all cost overruns would be met by: (i) the Government in the case of thecomponents to be implemented by DLH (Ministry of the Public Works), and bythe Customs Department of the Ministry of Finance and Customs, and (ii) bythe TCDD and TDI Ports Establishments for their respective share of thecomponents to be implemented by them.

F. Project Implementation

3.23 With the involvement of four different agencies in the project,close coordination of efforts will be essential and the Government hasalready set up a Project Coordination Committee (PCC) chaired by a DeputyUndersecretary of the Ministry of Transport. This Committee includes seniorrepresentatives of each agency and technical staff will also be recruited byMOT. The PCC will be responsible for implementing and monitoring theproject in line with the comprehensive Action Plan shown in Annex 5. ThePCC will also ensure that civil works at the project ports are completed asscheduled in line with the main implementation program. The PCC will bespecifically responsible inter alia for overall coordination of projectactivities, and of implementing the technical assistance component andcoordinating the preparation of a draft second phase container port develop-ment program. Specific Terms of Reference for the FCC (Annex 7) werediscussed and confirmed at negotiations. In addition, assurances were

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obtained at negotiations that the Action Plan (Annex 5) will be implementedas agreed with the Bank and updated from time to time.

3.24 Procurement of container handling equipment will be undertaken on aconsolidated basis by TCDD on behalf of TCDD and TDI in accordance with asigned protocol. DLH and Customs will each be separately responsible forthe procurement of their equipment to be financed from the loan. Assumingthat all bid documents for equipment are prepared promptly and cleared bythe Bank, orders for some equipment would be placed by the end of 1985.Based on estimated manufacture periods from date of ordering of 12 monthsfor container cranes and 8 months for transtainers and other support equip-ment, and a commissioning and testing period of 3 months, the equipmentshould become operational starting in March 1987 and all be available byOctober 1987. The timetable for project implementation as agreed with theGovernment and project agencies (Chart, Annex 5) set targets for which theagencies should aim to enable the new facilities to become operational assoon as possible. The implementation period has been extended by six monthsto allow for start-up delays, and also one year has been added to allow forunforeseen delays giving a total implementation period of 4-1/2 years (fromthe date of Board presentation).

3.25 To enable the technical assistance pilot schemes for setting upcontainer documentation, operations and engineering maintenance and subse-quent training to be completed in time to coincide with forecast equipmentdeliveries, a specialist firm will need to be recruited and appointed assoon after the date of effectiveness of the loan as possible so that themain assignment may be completed by mid-1987 in accordance with the scheduleshown in the Action Plan (Annex 5, Tables 1 and 8). The target dates forsupply of equipment, completion of civil works and provision of assistedtechnical assistance have been detailed in Table 8 of Annex 5 to demonstratethe need for close coordination between these three components, and to actas a checklist for updating or modifying as found necessary during projectimplementation. TDI will be responsible for technical assistance to beprovided for both TCDD and TDI, and implementation will be organized by asmall joint TDI/TCDD executive committee. Additional operational trainingfor port workers will be given at the existing port training school atHaydarpasa where courses for port workers and technicians have been runningsince its inauguration during the previous Ports Project (Loan 1741-TU) andat other ports (para. 2.19). Overseas operational training will be plannedin two phases, a first phase to be implemented in late 1985 prior tostart-up of the pilot training scheme in Turkey. However, the main part ofthe overseas training program will be implemented from April 1987 through1988 so that it does not conflict with the training schemes i-: the projectports (Chart, Annex 5).

3.26 The PCC will submit to the Bank quarterly progress reports onoverall project implementation which will include progress of construction,manufacture and delivery of equipment, technical assistance and training,traffic statistics, financial statements and disbursement schedule, and portperformance indicators. The format was discussed and agreed at negotia-tions. The PCC will be responsible for submitting annual investmentprograms ard budgets to the Bank (para. 3.04). In addition, during project

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implementation, the PCC will ensure that the necessary records of relevantdata are kept for the preparation of the PCR. The PCR should be submittednot later than six months after the closing date.

G. Procurement and Disbursement

Procurement

3.27 Procurement of equipment and dredging works at Izmir to be financedby the Bank will be carried out on the basis of ICB in accordance withcurrent Bank Guidelines for Procurement (August 1984). The equipment willbe tendered for in separate packages as appropriate for: (i) standardcontainer cranes; (ii) lightweight container cranes; (iii) transtainers;(iv) trailers and towing units; (v) forklift trucks; (vi) Belotti-typecranes; (vii) crane rails and fasteners; (viii) dredgers; (ix) dieselengines for tugboats; (x) outboard propulsion units; and (xii) specializedcustoms inspection and examination equipment. Contracts for each type ofequipment will be large enough to attract foreign suppliers and to ensurestandardization of the equipment concerned. Consideration will be given toincluding an item in equipment bid documents for price quotations by manu-facturers for maintenance contract engineers on a year-to-year basis.Smaller items of equipment of a specialized nature may be procured underlimited international bidding contracts of less than US$50,000 up to a totalof US$1.0 million for the whole project. The dredging work at Izmir will betendered under one contract on the basis of international competitivebidding in accordance with Bank Guidelines. In evaluating internationalbids for equipment contracts, domestic manufacturers will be allowed apreferential margin of 15% of the CIF landed price of competing imports, orthe prevailing customs duties, whichever is lower. Specialist consultantswill be recruited in accordance with the Bank's Guidelines. Table 3.3 showsprocurement methods for the project elements.

Disbursement

3.28 Disbursements tmder the proposed loan will cover 100% of theforeign exchange costs of equipment procurement, equivalent to the CIF cost,and the foreign costs of the Izmir dredging contracts estimated at 85% oftotal costs. Disbursements against technical assistance will cover 85% oflocal and 100% of foreign expenditures. The disbursement schedule has beendeveloped from the implementation schedule shown in Annex 5 and assumes theproject will be effective in September 1985. Much of the civil works hasbeen completed or is under construction with completion expected by mid- tolate-1987, and the capital dredging at Izmir by the end of 1987. Most ofthe equipment will be procured within the first three years of the project.Hence a disbursement period of 5-1/2 years is reasonable, and the periodcorresponds to about 80% disbursement under the Regional sector profile.Table 3.4 reflects the corresponding rates of disbursement. The disburse-ment schedule was discussed and confirmed at negotiations.

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Table 3.3: Procurement Method(US$ millions)

Procurement Method TotalProject Element ICB LCB Other N.A. Cost

Civil Works 18.70 16.87 1/ -- -- 35.57(16.02) (_) C--) (--) (16.02)

Equipment 136.11 - 0.10 -- 136.21(116.22) (--) (0.10) (--) (116.32)

Technical Assistance 2.16 - -- -- 2.16(2.14) (-}() - (2.14)

Total 156.97 16.87 0.10 -- 173.94(134.38) (-) (0.10) (--) (134.48)

Figures in parenthesis are for the proposed Bank loan.

1/ Financed from agencies' own resources - all contracts except for berthextension at Mersin-are already ongoing.

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Table 3.4: Schedule of Disbursements

Fiscal Year and US$ millionQuarter Ending Amount Cumulative

FY1986December 31, 1985 2.8 2.8March 31, 1986 4.3 7.1June 30, 1986 5.7 12.8

FY1987September 30, 1986 7.8 20.6December 31, 1986 8.5 29.1March 31, 1987 9.2 38.3June 30, 1987 11.4 49.7

FY1988September 30, 1987 10.6 60.3December 31, 1987 9.6 69.9March 31, 1988 10.3 80.2June 30, 1988 7.8 88.0

FY1989September 30, 1988 10.0 98.0December 31, 1988 8.5 106.5March 31, 1989 6.4 112.9June 30, 1989 6.1 119.0

FY1990September 30, 1989 4.5 123.5December 31, 1989 4.3 127.8March 31, 1990 2.2 130.0June 30, 1990 1.5 131.5

FY1991September 30, 1990 1.5 133.0December 31, 1990 1.5 134.5

l

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3.29 The Goverrnment of Turkey would be the borrower of the Bank loan forthe whole project. For the portion of the loan pertaining to DLH and theCustoms Department, there would be no relending arrangements since theirrespective ministries are parts of the Government and are not revenue-earning entities. However, the portions of the loan covering the componentspertaining to TCDD and TDI Ports Establishments would be relent by theGovernment to these agencies respectively under the same terms and condi-tions as the proposed Bank loan to the Government, with the foreign exchangerisk on interest charges and loan repayments being the responsibility of theborrowing agencies. Signing of the subsidiary loan agreements, acceptableto the Bank, would be a condition of loan effectiveness.

H. Environmental Impact

3.30 The development of container handling facilities will reduce theneed for majcr expansion of port facilities which would normally benecessary for general cargo operations. In addition, berth occupancy torcontainer facilities generally does not exceed 30%, thereby reducing theamount of time spent by ships in port and the related dangers of pollutionand oil spills. No environmental problems are expected from the Izmirdredging operations as unsuitable materials will be deposited in a desi-gnated spoil area some 15 km from Izmir (para. 3.14).

I. Impact on Employment

3.31 The introduction of modern container handling facilities willreduce the need for labor in the project ports. The port agencies arealready anticipating the reductions in labor and they do not foresee anyproblems with the introduction of multiple-shift operations. It is expectedthat the savings in labour will be achieved partly through attrition andpartly through redeployment in other port activities or in other sectors ofthe economy. The overall program would require a reduction in the laborforce of about 1,000 workers (paras. 2.19 and 3.15). The estimated reduc-tion in labor range from about 11% at Izmir to about 30% at Haydarpasa withthe transit ports in the Eastern Mediterranean and the Black Sea requiringreductions of about 20%. It is essential that agencies should startplanning as soon as possible how any excess labour may be transferred toother tasks to minimize adverse effects. However, following expansion ofport traffic, additional employment may be created in such activities astrucking, storage and freight forwarding.

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IV. ECONOMIC EVALUATION

A. Introduction

4.01 This chapter summarizes the economic evaluation of the proposedinvestment in container handling facilities in Turkish ports. As discussedin Chapter II (paras. 2.02 and 2.05), TCDD and TDI had originally proposedcontainer port development on a broad front involving as many as nineports. However, taking into account present traffic patterns, it wassubsequently decided that a sounder basis for container port developmentwould be to limit container handling facilities under a first phase toessentially one port in each major hinterland area. The first phase, to beimplemented during the period 1985-88, would provide an opportunity fortraffic developments to be monitored and appropriate adjustments to be madeunder a second phase of development during the period 1988-91 (para. 3.23).Equipment requirements have been established in order to meet the forecastcontainer throughput for 1989/90 through to 1992, taking into accountminimum operational requirements in each of the project ports. Details ofthe methodology used in establishing traffic forecasts and in the economicevaluation are given respectively in Annexes 2 and 3.

4.02 As the proposed project is concerned with the introduction ofmodern container handling technology in Turkish ports, the focus of thetraffic analysis and economic evaluation is on general cargo traffic and theimpact of containerization on this traffic. Although the four project portscurrently handle only about 60% of total general cargo traffic, their shareof container traffic is expected to be about 85Z of total traffic due todiversion from other ports within the traffic shadow area of the projectports. Detailed forecasts of general cargo and .-ontainer traffic have beenprepared for all ports. Forecasts of other traffic have been prepared on amore global basis in order to obtain a complete traffic picture for Turkishports for the period through 1992.

B. ExistinR Traffic

4.03 Turkey's foreign trade has increased sharply during the 1970s inline with a GDP growth rate of about 7% per year. However, Turkey'seconomic structure and growth process proved to be exceedingly vulnerable tovarious external factors during the late 1970s, including increases in oilprices, stagnation in western Europe and a deterioration in the terms oftrade. A period of stagnation in foreign trade during 1978 and 1979 wasfollowed by the introduction of a stabilization program and structuraladjustment process in 1980 designed to introduce greater reliance on marketforces and policies to achieve high export growth rates. Since tthe intro-duction of this process, foreign trade has picked up and the upsurge inexports in 1981 has continued through 1984, with industrial exports leadingthe way. In addition, the removal of restrictions on imports during 1984has lead to growth in import demand, particularly for raw materials requiredby export-oriented industries. This growth in imports is expected tocontinue at a moderate rate in the medium term.

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4.04 During 1983, the 12 TCDD and TDI ports handled a total of some22 million tons of cargo. Dry cargo amounted to 15.3 million tons, includ-ing 8.5 million tons of foreign trade, 4.1 million tons of transit trafficand 2.7 million tons of coastal traffic.

Table 4.1: Traffic at TCDD and TDI Ports 1979-83('000 tons)

Annual Growth Z1979 1980 1981 1982 1983 1979-83

Dry Cargo

Foreign 6,336 6,179 6,901 7,641 8,477 7.5Transit 627 1,242 2,365 3,496 4,051 59.4Coastal 2,702 2,881 2,644 3,065 2,771 0.6

Total 9,665 10,302 11,910 14,202 15,299 12.2

Liquid Bulk

Foreign 2,341 3,291 3,696 4,314 4,539 18.0Coastal 2,354 2,484 2,415 2,841 2,721 3.7

Total 4,695 5,775 6,111 7,155 7,260 11.5

Grand Total 14,360 16,077 18,021 21,358 22,558 12.0

4.05 Since 1979, foreign dry cargo traffic in Turkish ports, excludingtransit traffic, has increased from 6.3 million tons to 8.5 million tons in1983, an average increase of about 7.5% per year. Much of this growth hasbeen made up of exports of general cargo, particularly iron and steel andmanufactured goods. Total general cargo traffic increased from 4.5 milliontons in 1979 to 6.1 million tons in 1983, an annual increase of about 8%.During the same period, transit traffic to Iran and Iraq increased dramatic-ally from 630,000 tons in 1979 to just over 4 million tons in 1983. Coastaltraffic, mainly bulk commodities, is currently at about 5 million tonshaving increased at a low rate of just over 2% per year since 1979.

4.06 Despite Lhe 1-ck of appropriate handling technology, containertraffic has shown rapid growth in Turkish ports. Actual container movementsincreased from 77,000 TEU in 1979 to a little over 200,000 TEU in 1982, butthen declined to 160,000 TEU in 1983, partly in response to inadequatehandling facilities. Estimates of potential containerizable cargo have beenmade for each year of the period 1979-83 based on an assessment of thephysical chara_teristics of the major cargo categories (Annex 2). Containe-rizable cargoes at the 12 ports are estimated to have increased from2.2 million tons in 1979 to 4.9 million tons in 1983, largely due to thedevelopment of transit trade.

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Table 4.2: Estimated Containerizable Cargo at TCDD and TDI Ports 1979-83('000 tons)

Annual Growth X1979 1980 1981 1982 1983 1979-83

Turkish TradeImports 1,052 1,163 1,332 1,215 1,271 4.8Exports 775 822 1,206 1,313 1,395 15.8

1,827 1,985 2,538 2,529 2,666 9.9

Transit TradeDischarged 302 649 1,270 1,775 2,043 61.3Loaded 31 52 98 101 161 51.0

333 701 1,368 1,876 2,204 60.4

TotalDischarged 1,354 1,812 2,602 2,990 3,314 25.1Loaded 806 874 1,304 1,414 1,556 17.9

2,160 2,686 3,906 4,404 4,870 22.5

4.07 On average,. penetration of containerizable cargo has reached about20% in 1983, the highest level of around 50% being at the port of Izmirwhere a large share of the agricultural exports is already containerized.Izmir is currently the only port handling a significant volume of containertraffic related to Turkish foreign trade, namely some 50-60,000 TEU peryear. Most of the remaining container traffic is transit traffic throughthe Mediterranean ports of Mersin and Iskenderun with a combined total ofabout 105,000 TEU per year.

C. Traffic Forecasts 1988-1992

General

4.08 The main focus of the analysis is on establishing forecasts ofcontainerizable cargo, for both Turkish foreign trade and transit traffic,and estimating the penetration of this traffic by containers following theintroduction of modern container handling methods. No attempt has been madeto make separate estimates of Ro-Ro traffic through the project ports. Allports include Ro-Ro ramp facilities and at least one container crane in eachport will be located adjacent to the ramp in order to provide for simulta-neous handling of containers and Ro-Ro trailers carried by multi-purposevessels. Ro-Ro traffic has not developed to a great extent in the EasternMediterranean because of the long haul distances from Western European portsand it is expected that there would be little further development oncespecialized container handling facilities are established. Traffic fore-casts have been prepared for each of the years during the period 1988-1992.Detailed traffic forecasts are given in Annex 2.

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Turkish National Traffic

4.09 Forecasts of national general cargo traffic are based on a conti-nuation of the stabilization program through 1985, followed by a strategyaimed at a 5 to 6% per year growth in GDP through the period of the FifthDevelopment Plan, 1985-89. Central to this strategy is a sustained growthin exports of about 8% per year with the main increases coming fromnon-traditional exports such as machinery, intermediate goods and processedfoods. Industrial goods are forecast to increase at 10% per year andagricultural exports at 5% per year. Import growth is expected to increaseat about 8% per year during the period 1985-90. These growth rates havebeen applied to the existing general cargo traffic for each port. Theaverage share of containerizable cargo over the three-year period 1981-83was used as a basis to forecast containerizable cargo traffic (para. 4.06).

Transit Traffic

4.10 Any accurate assessment of the likely future development of transittraffic through Turkey is hardly possible in view of the changes which couldoccur in the physical, political and economic situation in the Middle East.Although transit traffic to Iran and Iraq has currently reached some4 million tons, there have been considerable fluctuations in recent yearsreflecting changing demand for imports and the competing effects of alter-native rputes (Annex 2, paras. 6 and 7). Average transit traffic volumesduring the 1981-83 period amounted to about 3.2 million tons of which2.4 million tons transited through the Mediterranean ports of Mersin andIskenderun, primarily to Iraq, and 800,000 tons of traffic to Iran throughthe Black Sea ports of Trabzon, Sansun, Giresun and Hopa. These flowsrepresent about 30% and 10% of the foreign trade of Iraq and Iran,respectively.

4.11 The Mediterranean route through Mersin and Iskenderun to Iraqcompetes with the route through Jordan using the port of Aqaba. Both theseroutes handle comparable volumes of traffic in the range of 2.5 million tonsof general cargo. The Black Sea route to Iran competes mainly with theRussian overland route using the Volga River system and the Caspian Sea.The Russian route currently handles some 3.5 to 4 million tons of transittraffic to Iran, but in the past two years this route has experienced diffi-culties which have resulted in diversion of traffic through the Turkishports on the Black Sea. Clearly, improved services in the Black Sea portswill encourage some of this traffic to continue using the Turkish route.

4.12 A comprehensive assessment of transit traffic to Iran and Iraa :ndthe role and position of alternative routes is given in Annex 2 (MapIBRD 18778). The Turkish routes are now well established with relativelyefficient port operations and well organized road transport services. Seafreight rates via Turkey are lower than via Aqaba or the Gulf ports.Moreover, land transport distances to the main centers of population andeconomic activity in Iran and Iraq are comparable for all the major routes,including through the Gulf ports. Following the end of the Gulf War, it canbe expected that total traffic to Iran and Iraq will increase, particularlyfor materials needed for reconstruction. Subsequently, it can be expected

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that Iran and Iraq would wish to develop their.own ports but the rehabilita-tion of these facilities would probably take several years. This would alsobe true for Beirut, should this port reopen for traffic. In addition, bothIran and Iraq would probably wish to maintain alternative routes throughTurkey for strategic reasons. Under such a scenario, these routes mightaccount for 10 to 20% of total foreign trade in the longer term with trafficvolumes possibly at substantially the same level as at the present time.

4.13 Although the natural advantages of the Turkish transit routes couldbe made more attractive with the provision of modern container handlingfacilities, an accurate assessment of traffic prospects is not possible.Under these circumstances, a simple approach has been adopted to establishtransit traffic levels for the first phase of container port development.This involves simply taking the average traffic levels for the three-yearperiod 1981-83, of 2.4 million tons for the Mediterranean route and 800,000tons for the Black Sea route, and assuming that they will remain unchanged.The transit traffic flows represent about half of the container trafficpotential in the Mediterranean ports and almost all of the container trafficpotential in the Black Sea. While a fall in traffic to Iraq in the longerterm would be offset by rapidly increasing export traffic from SoutheasternTurkey, the Black Sea coast offers very little potential for growth of localtraffic. Port development in the Black Sea represents, therefore, the majorrisk element in the project (para. 4.26). During project implementation,traffic levels would be monitored with a view to adjustment of the containerport program during a second phase, as required by traffic developments(para. 3.23).

Container Traffic Forecasts

4.14 It is assumed that without the development of modern facilities,container penetration would not increase above its present level in each ofthe project ports (Annex 2, Table 4). Under this assumption, it is antici-pated that although total containerized cargo would increase from about900,000 tons to 1.3 million tons, container movements would remain at about200,000 TEU. However, with the provision of specialized facilities, con-tainer penetration is expected to increase rapidly. Based on previousexperience in container port development, the level of penetration isassumed to follow an "S" curve, the details of which are given in Annex 2(para. 13). The number of TEU has been estimated using a standard load of12 tons per TEU. Calculations were made separately for national and transittraffic based on the dominant flow patterns. Detailed forecasts are shownin Annex 2, Table 5, port by port, while Table 4.3 below summarizes theestimated containerized cargo and number of containers for the principaltypes of traffic:

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Table 4.3: Estimated Containerised Cargo at Project Ports: 1990

Turkish Trade Transit Trade Total

General Cargo ('000 tons) 10,980 3,200 14,180Containerizable Cargo ('000 tons) 3,900 1,770 5,670

Without ProjectContainerized Cargo (X) 201 29Z 23Z

'000 tons 800 508 1,308'000 TEU 110 86 196

Residual Containerizable Cargo('000 ton) 3,100 1,262 4,362

With ProjectContainerized Cargo (S) 63X 64Z 63Z

'000 tons 2,460 1,133 3,593'000 TEU 328 186 514

Residual Containerizable Cargo('000 tons) 1,440 637 2,077

4.15 The individual port forecasts for container movements are summa-rized in Table 4.4 below for the "with" project scenario:

Table 4.4: Container Traffic Forecasts 1988-1992 ('000 TEU)

Mersin 1/ Trabzon 2/ Haydarpasa 3/ Izmir Total

Actual1981 97 10 12 36 1541982 138 11 14 38 2011983 78 13 12 57 160

Forecast1988 162 31 58 78 3291989 201 40 88 88 4171990 242 50 123 99 5141991 287 59 163 112 6211992 335 70 209 126 740

L/ Includes Iskenderun traffic.

2/ Transit traffic for all Black Sea ports; export traffic forTrabzon, Hopa and Giresun.

3/ Includes Salipazari (Istanbul) traffic.

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4.16 The traffic forecasts show that containerization would increase itsshare of general cargo traffic, rising from the present 8% of traffic to 25%in 1990. Total container movements would increase from 200,000 TEU atpresent to about 420,000 TEU in 1989 and 740,000 TEU in 1992, an annualincrease of about 181. The detailed port by port traffic forecasts shown inAnnex 2, Table 5 indicate that after the introduction of the new facilitiesin 1988, residual general cargo would cease to increase in most ports,remaining at about 10.5 million tons annually.

D. Project Benefits

General

4.17 The main benefits accruing to port users following the introductionof container handling facilities include savings in ship service time andreductions in cargo handling costs. Similarly, dredging of the Izmir portwill provide access for larger and more economical vessels thereby providingfurther reductions in ship demurrage costs. These savings are ultimatelypassed onI to producers and consumers through lower sea freight rates andport handling charges. The project would have a marked effect on cargohandling rates on cargoes otherwise handled as gen.eral cargo, with majorreductions in the average time vessels spend at the berth and savings inport labor costs. Other benefits might include reductions in potentialcongestion in the ports, with benefits accruing either in the form ofsavings- in ship waiting time or avoided construction of additional generalcargo facilities. Port operating statistics for 1983 indicate that shipwaiting time reached high levels at three ports--Mersin, Iskenderun andTrabzon-but this was due to a combination of inadequate pre-planning ofship arrivals and berthing, unusual peaks in transit traffic, and ongoingberth construction programs (Annex 3, Table 1). Moreover, with improvementsin productivity following the major equipment renewal program under the1980-84 Fourth Development Plan and the recent construction of berth facili-ties at the four projects ports, originally for general cargo purposes, itis anticipated that ship waiting time would remain at acceptable levelsduring the next five to seven years. Benefits related to reduced portcongestion have not therefore been included in the analysis. Similarly,other benefits such as net reductions on cargo losses, savings in packagingcosts, reductions in transit times and the value of increased security, havenot been assessed. By limiting therefore the quantification of benefits toship service time and handling cost savings, the evaluation has understatedtotal benefits and, therefore, the rate of return.

Main Assumptions

4.18 The following describes the main parameters and assumptions used inthe economic evaluation: further details on each of the parameters used inthe analyses are shown in Annex 3.

(a) Ship Costs. Two ship types bave been selected as representative ofthose normally employed on general cargo traffic to and from Turkish ports.Currently ships on the Mediterranean routes are in the 3,000-7,000 DWTcategory, while smaller ships may be employed in the Black Sea and sometimes

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larger ocean-going vessels are engaged for long distaa;ce traffic. Onbalance a 5,000 DWT ship has been taken as representative, with an estimatedopportunity cost at port of US$4,660 per day. For container ships, it isexpected that most will be multi-purpose vessels in the 300 to 800 TEUrange, handling both containers and Ro-Ro trailers. Again, smaller vesselsare expected in the Black Sea while large third generation vessels mayappear at Mersin. A 400 TEU capacity ship has been chosen as representativewith an opportunity cost at port of US$7,170 per day.

(b) Cargo Handling Rates - Ships' Time. The main basis of the economicanalysis lies in estimating the time taken to load and unload cargoes in the"with" and "without"t project scenarios and the corresponding savings inships time. Calculations of ship service time are based on an analysis ofconventional cargo handling rates in Turkish ports as well as expected rateswith modern facilities. Conventional general cargo handling rates currentlyrange from 270 to 720 tons per day in the project ports. However, someimprovements in these rates are expected following the implementation of theSecond Port Project (Loan 1741-TU) and a rate of 800 tons per day has beenadopted as a conservative assumption for the economic evaluation. Containerhandling rates are assumed to be 7 TEU per hour using ships' gear or conven-tional facilities, 20 TEU per hour for a standard container crane and 15 TEUper hour for a lightweight container crane, with modern container cranesusually working in pairs.

(c) Labor Costs. Cargo handling costs have been estimated based onactual labor costs provided by TCDD, taking into account typical gang sizesrequired for various operations. Handling costs for break-bulk generalcargo are estimated at US$2.70 per ton, while containers handled withconventional equipment would provide an equivalent cost of US 80 cents perton. Handling costs with modern facilities would be on the order of US 30to 40 cents per ton. Because of uncertainties as to whether labor savingswill be achieved in full through redeployment to other port activities orother sectors of the economy and through attrition, only half of the laborcost savings have been included in the evaluation.

Distribution of Benefits

4.19 About two-thirds of the forecast container traffic in 1990 will berelated to Turkish foreign trade, with the remainder concerned with transittraffic. Currently about 40% of Turkish foreign trade, excluding petroleum,is handled by Turkish vessels, but plan targets call for this share toincrease to about 60% by the end of the Fifth Development Plan in 1989. Itis expected therefore that about half of the savings in ship service timerelated to Turkish foreign trade will accrue directly to Turkey. Of thesavings accruing to foreign ship owners, it is expected that a large shareof these savings will ultimately accrue to Turkey through much slowerincreases in sea freight rates than would have otherwise occurred. Thesesavings would be reflected in the lower cost of imports and the increasedcompetitiveness of exports. Although some of the savings in ships' servicetime would be retained by foreign shipping lines, these benefits have beenincluded in the evaluation as a surrogate for benefits accruing to Turkey inother forms. These benefits would include foreign exchange earnings on

CURRENCY EQUIVALENTS(as ot January 1, 1985)

Currency Unit = Turkish Lira (TL)TL 1 = 100 kurus (krs)US$1 = TL 428TLI = US$ 0.002336TL 1,000,000 = US$ 2,336.4

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet (ft)1 kilometer (km) = 0.62 miles1 kilogram (kg) = 2.20 pounds (lbs)

FISCAL YEAR(of TCDD and TDI)

January 1 to December 31

GLOSSARY OF ABBREVIATIONS

DB - Turkish Maritime Bank (Denizcilik Bankasi)DLH - General Directorate of Railways, Ports and Airports

Construction, Ministry of Public Works. (DemirYollari Limanlar Hava Meydanlari)

I)WT - Deadweight TonnageGDP - Gross Domestic ProductIG3 - International Competitive BiddingILO - International Labour OrganisationI'AFRA - Ministry of Agriculture, Forestry and Rural

AffairsMUF - Ministry of FinanceM-OT - Ministry of TransportiPI - National Ports InstitutionNPMP - National Ports Master PlanNTMP - National Transport Master PlanPCC - Project Coordination CommitteeSPO - State Planning OrganizationTCDD - Turkish State Railways

(Turkiye Cumhuriyeti Devlet Demir Yollari)TCL - Turkish Cargo LinesTDI - Turkish Maritime Organization1'EU - Twenty-foot Equivalent UnitsTHY - Turkish Airlines

(Turk hava Yollari)TSM - Transport Sector MemorandumUJNDP - United Nations Development Programme

Demirliman - TCDD Ports Establishment (Limanlar IzmetmesiMuessesesi)

Denizliman - TDI Ports and Vessel Salvage Establishment(Liman Isletme ve Gemi Kurtama Muessesesi)