Document of The World Bank FOR OFFICIAL USE ONLY Report No 20417 IMPLEMENTATIONCOMPLETION REPORT TURKEY PRIVATIZATIONIMPLEMENTATIONASSISTANCE AND SOCIAL SAFETY NET PROJECT (Loan 3728-TU) May 9, 2000 Private and Financial Sector Development Unit Country Department VI Europe and Central Asia Region Thisdocument has a restricted distribution and may be used by recipients onlyin the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bankauthorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document ofThe World Bank
FOR OFFICIAL USE ONLY
Report No 20417
IMPLEMENTATION COMPLETION REPORT
TURKEY
PRIVATIZATION IMPLEMENTATION ASSISTANCE ANDSOCIAL SAFETY NET PROJECT
(Loan 3728-TU)
May 9, 2000
Private and Financial Sector Development UnitCountry Department VIEurope and Central Asia 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 EOUIVALENTS(as of December 31, 1999)
Currency Unit = Turkish Lira1 TL. US$ 0.000002US$1 = 540,445
GDC - General Directorate of CensusHUAK - Hacettepe University for Actuarial Sciences
IIBK - Turkish Employment OrganizationKOSGEB - Small and Medium Industry Development Organization
LAP - Labor Adjustment ProgramMENR - Ministry of Energy and Natural Resources
MOF - Ministry of FinanceMOL - Ministry of Labor
PA - Privatization AdministrationPHC - Privatization High Council
PHRD - Policy and Human Resources Development FundPPA - Public Participation AdministrationPPF - Project Preparation FacilitySEE - State Owned Economic EnterpriseSPO - State Planning OrganizationTAL - Technical Assistance Loan
TOBB - Union of Turkish Chambers of Commerce and Industry
TURKEY'S FISCAL YEAR
January 1 to December 31
Vice President: Johannes F. Linn, ECAVPCountryDirector: Ajay Chhibber, ECCO6
Program Team Leader: Lalit Raina, ECSPFSector Manager: Ilham Zurayk, ECSPF
FOR OFFICUL USE ONLY
IMPLEMENTATION COMPLETION REPORT
TURKEY
PRIVATIZATION IMPLEMENTATION ASSISTANCE ANDSOCIAL SAFETY NET PROJECT (Loan 3728-TU)
TABLE 10: STA"TUS OF LEGAL COVENANTS .......................................................................... 19
TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS ............... ............................ 21TAI3LE 12: BANK RESOURCES: STAFF INPUTS .......................................................................... 21
TABLE 13: BANK RESOURCES: MISSIONS .......................................... ................................ 21
Appendixes:A. Borrower contribution to the ICR
This document has- a restricted distribution and may be used by recipients only in the,performance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.
IMPLEMENTATION COMPLETION REPORT
TURKEY
PRIVATIZATION IMPLEMENTATION ASSISTANCE AND SOCIAL SAFETY NETPROJECT (LOAN 3728-TU)
Preface
This is the Implementation Completion Report (ICR) for the PrivatizationImplementation Assistance and Social Safety Net Project in Turkey, for which loan 3728-TU inthe amount of US$100 million equivalent was approved on May 3,1994, and made effective onFebruary 28, 1995. The Original Closing Date of June 30, 1998 was extended to June 30, 1999and furthermore the loan was kept open for two selected categories of expenditures untilDecember 31, 1999. Despite this, on an exceptional basis, the final disbursement took place inFebruary 2000. After being amended in 1997, 1998 and 1999, the original loan amount wasreduced to US$32.6 million and after the final adjustment, which took place on February 1,2000, the balance of US$2.6 million is being cancelled.
The ICR was prepared by Gurhan Ozdora of the World Bank Ankara Office andreviewed by Hans Morritz (former Task Manager), Vinod K. Goel (ECSPF), Lalit Raina(ECSPF), Ilham Zurayk (Sector Manager, ECSPF), and Sally Zeijlon (ECCA4).
Preparation of the ICR began during the Bank's final supervision/completion mission inJune 1999. It is based on material in the project files. The borrower contributed to preparationof the ICR.
IMPLEMENTATION COMPLETION REPORT
TURKEY
PRIVATIZATON IMPLEMENTATION ASSISTANCE AND SOCIAL SAFETY NETPROJECT (LOAN 3728-TU)
Evaluation Summary
Introduction
1. The process of economic liberalization during the 1980s exposed the weaknesses ofTurkey's State-Owned Economic Enterprises (SEEs). Originally established in the framework ofeconomic planning for industrial development and the provision of infrastructure, most of theseenterprises were not equipped to face the challenges of a dynamic market economy. Continuingits economic liberalization program, the Government decided to privatize the SEEs. The mainobjective of the Government's program was to promote efficiency and productivity in theeconomy and achieve a permanent reduction in the fiscal deficit.
2. In 1986, a master plan for privatization was completed but not implemented. Following this,in 1992 a new Government and subsequent changes in the management and structure of thePublic Participation Administration (PPA), the agency responsible for privatization, helped toaccelerate the pace of privatization. In 1993, another Government announced a renewedprivatization program coupled with the strengthening of the social security system and thedevelopment of a social safety net targeted at redundant workers and affected communities. Tothis end, the Government requested Bank assistance for the implementation of its privatizationprogram and the Bank responded with a Technical Assistance Loan (TAL) in the amount ofUS$100 million.
Project Objectives
3. The project aimed at accelerating privatization, helping to ensure a transparent andprofessional process, and laying the basis for a sustained divestiture and fiscal contractionprocess. It also aimed at building institutional capacity to manage the more complex workloadentailed by a larger restructuring and divestiture program. Another important objective was thealleviation of the adverse impact of SEE downsizing and divestiture on displaced workers andtheir families by fully integrating social safety net measures, including labor adjustmentprograms, into the divestiture process. According to the Loan Agreement, in achieving theseobjectives, part A of the project was to be carried out by the Privatization Administration (PA),through a subsidiary project agreement with the Bank, parts B, C and E by the Treasury and partD by the State Planning Organization (SPO).
4. Part A of the project provided technical and financial support to privatization for: (i) thepreparation and implementation of privatization transactions for the PA's existing portfolio andfor futLre transactions as they arise; (ii) the strengthening of PA's capacity to implementprivatization; (iii) the strengthening of Treasury's capability for debt management andrestructuring prior to privatization; (iv) the development and implementation of a publicinformation campaign to promote the Government's privatization program and broaden public
support; and (v) assessments of the environmental liabilities of relevant SEEs, and plantreconfiguration for Sumer Holding prior to privatization.
5. Part B was designed to support the institutional strengthening of Treasury for pre-privatization debt management and restructuring. Here the project aimed at assisting theTreasury with the review and analysis of SEE debt. Part C aimed at the development andimplementation of a social safety net. Here the project included: (i) labor adjustment programs todeal with the increased demands for such services resulting from the privatization anddownsizing of SEEs (including assessments of work force redundancy, job counseling, retrainingschemes, and small enterprise development, including incubator programs, in regionsexperiencing concentrated layoffs); and (ii) studies to analyze the social security/pension andidentifier systems.
6. Part D of the project was designed to support the preparation of a Regional DevelopmentProgram for Zonguldak region, aimed at diversifying the economic base of the region inconjunction with the proposed divestiture/downsizing of Turkish Hard Coal agency (TTK) andKarabuk Steel Plant (Kardemir). Part E of the project involved preparation of a study on theregulatory framework for the privatization of telecommunications and an analysis of privateparticipation in infrastructure services, aiming at developing a more coordinated strategy for theprivate provision of infrastructure in Turkey.
Implementation Experience and Results
7. Although the loan was signed on May 5,1994 and project implementation was scheduledover a 4-year period the loan became effective more than nine months after its approval. Thedifficulties encountered in the passage of the privatization law in mid-1994 were a major reasonfor this delay. Since Parliamentary approval had to be sought for a new privatization law, therewere extensive delays in implementing the privatization program. Also, the loan could not bedeclared effective since some of the conditions for achieving project objectives had beennegated. Following Parliamentary approval of the new privatization law in November 1994,Treasury and the PA were in a position to complete the legal actions required to make the loaneffective and the loan became effective on February 28, 1995.
8. After the loan became effective, progress still remained slow due to political instability andinstitutional weaknesses, which manifested themselves in difficulties in decision-making andfrequent replacements of the PA management. In addition to these, PA was confronted with thedifficult task of providing corporate governance to a large number of SEEs and, at least in somecases, of restructuring those that would remain in its portfolio for some time. Lacking thesecapabilities, the PA could not restrain itself from becoming preoccupied with governance andrestructuring functions, which deviated its attention from its main task.
9. The project failed to reach its original development objectives. The main problemsconfronting the implementation of the PIAL in its original form have been the institutionalweakness of the Privatization Administration and the lack of political continuity and strong willto advance the privatization process, which together resulted in the failure of Governments'privatization programs. Since the Government did not come forward with timely and acceptableproposals on the full use of the loan proceeds within the given time limits and the objectives of
the project, and did not respond to the Bank's recommendations concerning an acceleration ofthe privatization process, the project was restructured three times, mainly by excluding the two
core project components-technical support for SEE privatization and for labor adjustmentservices- and by including a comprehensive Energy Sector Reform study.
10. The implementation experience related to the remaining project components wascharacterized by initial delays in starting the implementation due to contractual andadministrative issues and problems related to preparation, review and approval of the projectTORs. The final status of these components can be summarized as follows: (i) the first-phase ofthe unique identifier system component has progressed well and was essentially completed bythe closing date; (ii) the studies on the energy sector reform and privatization were completed byDecember 31,1999, as accepted by the third loan amendment in 1999; (iii) analysis of the socialsecurity systems, as well as of related financial management and policy recommendations, wascompleted and the reports have been submitted to the Treasury; (iv) the incubator in Zonguldakhas progressed well, is considered a success by KOSGEB, and is much appreciated by the localauthorities (KOSGEB intends to complete the original plan of establishing from two to threeincubators in other parts of the country); and (v) the actuarial training component has beensuccessful in creating a capacity for training of actuaries and supporting the "Center forResearch, Implementation and Education in Actuarial Sciences" (HUAK) within the HacettepeUniversity in Ankara.
11. It should be noted that the implementation period for the privatization component was lessthan 3.5 years (this component was cancelled after the project restructuring in mid-1998), whichis relatively short. Most other technical assistance loans have a longer implementation periodand, in addition, have often had their closing dates extended repeatedly (the Bank-widedisbursement profile for TALs indicates that an average disbursement period of such projects isabout six years). Compared with such projects, the rating of the PIAL in the Bank's supervisionreports has probably been more critical. This was justified, however, by the slow progress in thearea of privatization.
Summary of Findings, Future Operations and Key Lessons Learned
12. The project, because of its specific nature and implementation performance cannot in itselfbe evaluated according to its sustainability. However, some of the project components that weredesigned to create new or strengthen existing institutional capacities can be evaluated accordingas to their continuity and sustainability. Of the five remaining project components, UniqueIdentifier system (MERNIS) and Actuarial Training components can be regarded as beingsustainable since these components are actually parts of an existing and ongoing programs thatare supported by their parent agencies. Sustainability of the Zonguldak incubator may bedifficult without some financial and administrative support from KOSGEB. Sustainability of theSocial Security Studies and Energy Studies will have to be evaluated as to their acceptance bythe policy-makers and their influence on policies adopted.
13. The reasons for the delays and slow progress in privatization were mostly of a political andinstitutional nature. Their resolution would have required drastic organizational and legalmeasures. The experience with the project has shown that accelerated privatization can only beachieved if either the Privatization High Council (PHC) commits itself to reach specific targets
and enforces compliance, or if the privatization process is depoliticized by changing thecomposition and decision-making procedures of the PHC and strengthening the role of the PA bygiving it more autonomy. In addition to this, a strong Government commitment to an agreedprivatization strategy should have been a condition for Board presentation, in addition to thenumber of SEEs to be privatized. Other more quantitative performance indicators, such assavings to the Treasury through reductions in subsidies to SEEs, should have been established.
14. The main problem confronting the implementation of the project was its over-ambitiousdesign. Designed with the purpose of supporting the Government's privatization efforts, it triedto achieve many objectives in synchronization with the privatization process. The project did nottake into consideration the fact that privatization is a highly political process and that it wouldalways be influenced by the changes in the domestic political scene. Since the main projectcomponent was predominantly designed to support privatization of the SEEs, delays and slowprogress in this component due to political instability, caused disruption in the synchronizationof the other components, which were basically designed to support the main component. As aresult of this and restructuring of the project, where the privatization component was cancelled,these supportive components lost their significance for the privatization program as wasoriginally intended and each component became an end in itself without much contribution to theprivatization process.
15. A major lesson that was learned through this project experience is the importance of notgoing ahead with projects prematurely, where compliance with the loan covenants are subject tochanges in the relevant laws and are beyond the control of the implementing agencies. Indesigning a project of this magnitude where there are many agencies involved, care should betaken in defining the relations between the implementing agencies and more attention should begiven to possible sensitivities that might arise between these agencies.
IMPLEMENTATION COMPLETION REPORT
TURKEY
PRIVATIZATION IMPLEMENTATION ASSISTANCE AND SOCIAL SAFETY NETPROJECT (LOAN 3728-TU)
Part I. Project Implementation Assessment
A. Statement and Evaluation of Objectives
1. Continuing the process of economic liberalization that had started in 1980s, the Governmentdecided to privatize the state-owned economic enterprises. The main objective of theGovernment's program was to promote efficiency and productivity in the economy and achieve apermanent reduction in the fiscal deficit. In 1986 a master plan for privatization was completedbut not implemented. Following this, in 1992 a new Government and subsequent changes in themanagement and structure of the Public Participation Administration, the agency responsible forprivatization, helped to accelerate the pace of privatization. In 1993 another Government,announced a renewed privatization program coupled with the strengthening of the social securitysystem and the development of a social safety net targeted at redundant workers and affectedcommunities. To this end, the Government requested the Bank assistance for implementation ofits privatization program and the Bank responded with a Technical Assistance Loan in theamount of US$100 million.
2. The project aimed at accelerating privatization, helping to ensure a transparent andprofessional process, and lay the basis for a sustained divestiture and fiscal contraction process.It also aimed at building institutional capacity to manage the more complex workload entailed bya larger restructuring and divestiture program and alleviation of the adverse impact of SEEdownsizing and divestiture on displaced workers and their families by fully integrating socialsafety net measures, into the divestiture process.
3. To help meet these objectives, the project aimed at assisting in: (i) the provision of technicaland financial support to the preparation and implementation of privatization, including themanagement of SEE liabilities pursuant to privatization; (ii) the development andimplementation of a social safety net, including labor adjustment programs (LAP) and studies toprovide a robust analytical base for Government decision-making regarding the reforms of thesocial insurance/pension systems, and the design of a unique identifier system for Turkishcitizens; (iii) the preparation of a regional development program for Zonguldak region; and (iv)studies to facilitate future privatization, including a study of the regulatory framework forprivatization of telecommunications and an analysis of the private provision of infrastructureservices.
4. Technical and financial support for privatization involved: (i) provision of resources forhiring financial advisers and other consultants to assist in the process of preparation andimplementation of privatization transactions for Privatization Administration's existing andfuture portfolio; (ii) strengthening of PA's capacity to implement privatization; (iii)
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strengthening of Treasury's capability for debt management and restructuring prior toprivatization; (iv) development and implementation of a public information campaign to promotethe Government's privatization agenda and broaden public support; and (v) assessments of theenvironmental liabilities of relevant SEEs and plant reconfiguration for Sumer Holding, prior toprivatization.
5. Development and implementation of a social safety net involved: (i) labor adjustmentprograms to deal with the increased demands for such services resulting from the privatizationand downsizing of SEEs, including assessments of work force redundancy, job counseling/retraining schemes, and small enterprise development, including incubator programs in regionsexperiencing concentrated layoffs; and (ii) studies to analyze the social security/pension andidentifier systems. These studies would: (a) assess the financial status and management capacityof the national pension schemes and evaluate alternative options for financially and operationallyviable social security/pension systems for Turkey; (b) develop a unique identifier system for taxand social purposes; and (c) develop an implementation program for pension and social securityreform based on the recommendations of the social security/pension study.
6. Other objectives of the project were: (i) the preparation of a Regional Development Plan forthe Zonguldak region aimed at diversifying the economic base of the region in conjunction withthe divestiture and downsizing of Turkish Hard Coal Agency (TTK) and the Karabuk iron andsteel plant (KARDEMIR); (ii) to carry out a telecommunications study which would have threeobjectives: a revised legal and regulatory framework, a plan for the corporatization oftelecommunications services and options for privatization. This study would, inter alia, considerthe options for competition and regulation in basic and value-added services; compare sectorstructures and regulatory regimes in other countries, especially the EC; and present options for aregulatory framework; and (iii) to carry out a study to develop a more coordinated strategy forthe private provision of infrastructure in Turkey, where the Government plans to increase privatesector participation in electric power, water and transportation sectors. These efforts wouldbenefit from more effective coordination and the development of an overall strategy that takesinto account the institutional, legal and regulatory framework for attracting local and foreigninvestors
B. Achievement of Objectives
7. As part of the loan agreement, seven "Criteria for Mid-Term Review" were agreed upon inthe loan negotiations as a benchmark for assessing overall progress in privatization. Out of thesecriteria, five were related to objectives of the privatization component and two were related tothe social safety net component. According to the first criterion, PA was to complete by theplanned mid-term review in October 1995, the privatization of at least one half of the 10 SEEs,12 affiliated partnerships and the 34 share participations in its January 1994 portfolio. In view ofthe legal problems encountered in 1994 and subsequent delays in loan effectiveness, the mid-term review was postponed to November 1996. Interim targets were set involving theprivatization of three small and three major enterprises by the end of October 1995, andprivatization of additional three enterprises by the end of 1995.
8. Concerning the interim targets, three small enterprises (EBK, SEK and Adiyaman Cimento)and two medium sized firms were privatized by the end of October 1995. However given the
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elections in December 1995 and slippages in technical preparation, no major enterprise was sold.Also, the target of additional three privatizations by the end of 1995 was not met. Concerningtargets for the postponed mid-term review, neither these nor the more modest targets, agreedearlier for 1995 and the Governments targets for privatization revenues were met. By November1996, more than one year after the agreed deadline, only three of the 22 enterprises and affiliatedpartnerships and some of the 34 share participations that were included in PA's 1994 portfoliowere sold.
9. Progress in privatization, which started in 1985, had been very slow. Actual privatizationtransactions have consistently constituted a small fraction of the Government's announcedprivatization programs. Aggregate gross revenues from privatization between 1985 and 1999amounted to about US$5 billion. In the same period, total privatization expenses were aboutUS$5.8 billion where 90% of the expenditures were related to the financing of the companies inthe PA's portfolio in the form of capital injections and loans. In 1998, privatization revenuesreached a record high of US$1 billion (US$465 million in 1997), of which about 77 percentresulted from the privatization of EtiBank and IsBank (the rest from the sale of individualassets). Given the PA's large privatization portfolio and the fact that many of the problematicSEEs have been repeatedly prepared for privatization, this cannot be considered a breakthrough(during the first months of 1999, privatization revenues were back to a very low US$3.4 million).With few exceptions, the major loss-making enterprises that have been on the privatization listfor years have not been sold.
10. Another objective of the project and second criterion for mid-term review was to help buildpopular support for the Government's privatization program through a public informationcampaign. Recognizing the need for popularizing privatization in Turkey, the PIAL includedUS$17 million for the financing of public information services. The campaign was implementedwith the assistance of a domestic public relations firm which was contracted for US$5.1 millionby PA in mid-1995 to develop a comprehensive public relations strategy andmonitoring/marketing plan and to prepare and implement on this basis, campaigns from time totime. The media campaigns, launched in August and later in December 1995, when the publicattention was mainly focused on the general elections, were not based on a proper long-termprivatization strategy. For these reasons they did not have the desired and lasting impact onpublic opinion and no major privatizations followed the campaign.
11. Another objective of the project and the third criterion for the mid-term review waspreparation of the SEEs in the PA's portfolio for privatization. The Treasury was to develop amethodology for the evaluation of the liabilities of all SEEs subject to privatization and applythat methodology to a set of selected SEEs. To enhance Treasury's capacity for pre-privatizationdebt-management and restructuring, a team of consultants was contracted in July 1994 for aperiod of two years. The consultants completed major reports on SEE financial performance anddebt restructuring, monitoring and control procedures based on lessons learned from previousrestructuring exercises. In addition, they prepared a number of enterprise-specific reports ondebt-management of companies in the PA portfolio. These studies, however, proved to be oflimited value, since the privatization plans for most of the involved companies did notmaterialize. An important contribution of this component was the training of the Treasury staffwhich will be capable of doing similar tasks as required in the future.
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12. According to the fourth and the seventh criterion for the mid-term review, the Governmentwas expected to have adopted a policy for the settlement of the environmental liabilities for theSEEs to be privatized and it was to make substantial progress in the restructuring andprivatization of the Sumer Holding, respectively. In both cases, the progress was not satisfactory.No overall policy for the settlement of environmental liabilities was developed, and only sevenout of thirty Sumer plants were sold.
13. According to the fifth criterion of the mid-term review, the Government was expected byOctober 1995 to develop the methodology and achieve substantial progress in the application anddelivery of assistance for SEEs and labor adjustment services to workers in relation to theprograms for SEE restructuring and privatization. As for the other components of the project,the establishment and start of operations of the Labor Adjustment Program were also delayed.However, the program, consisting of pre-layoff analysis and assistance and post-layoff serviceswas fully designed and procedures established, benefiting from the assistance of internationalconsultants, and it was "pilot-tested" in a first large privatization transaction. In addition, theLocal Economic Development Planning Program was implemented successfully by TOBB. TheLAP involved a number of "lead agencies" (IIBK, KOSGEB,TOBB) and was coordinated by theTreasury. Since the LAP services were to be provided to workers laid off as a result of theprivatization, the implementation of the LAP depended on the progress achieved in theGovernment's privatization program, and as progress in privatization was very slow, the systemsand procedures of LAP, developed with the help of consultants, were used to a very limitedextent, mainly in locations that were affected by the privatizations of Petlas and some plants ofSumer Holding.
14. The objective of the Zonguldak Regional Development Plan component was to use this studyas the basis for a regional development project, for which a feasibility study would be preparedunder the PIAL. The project, executed by the State Planning Organization, supported thepreparation of a Regional Development Program for the Zonguldak region, aimed at diversifyingthe economic base for the region in conjunction with the proposed divestiture/downsizing ofTTK and KARDEMIR. Draft reports on the "Zonguldak Regional Development Plan" and "TTKand Kardemir Issue" were completed in March 1996 and December 1996, respectively, by aconsortium of consulting firms financed by a PPF of Yen 106 million (US$2.0 million) providedby the Japanese Government under a Grant Agreement dated May 3, 1994. Although somerevisions on these drafts were needed, upon the Government's request the funds allocated for thiscomponent of the loan were cancelled during the first loan restructuring in 1997.
15. The preparatory work for the private participation in infrastructure (PPI) studies were almostcompleted and the consulting agreement was negotiated, but not signed. The Treasury in 1999informed the Bank that since no provision for this component had been made in the interimbudget, the Ministry of Finance (MoF) was not in a position to clear the study. Since waiting foran allocation in the next budget would postpone this activity until after the closing date, theTreasury, as part of the restructuring in 1999, requested cancellation of this component.
C. Major Factors Affecting the Project
16. Although the project was signed on May 5, 1994, and its implementation scheduled over a 4-year period, the loan became effective more than nine moths after its approval. The difficulties
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encountered on the privatization law in mid-1994 were a major reason for this delay. SinceParliamentary approval had to be sought for a new privatization law, there were extensive delaysin implementing privatization. Also, the Bank loan could not be declared effective since some ofthe conditions for achieving project objectives had not been met. Following parliamentaryapproval of the new privatization law No. 4046 in November 24, 1994, pursuant to which thePrivatization Administration was established as the legal successor of the Public ParticipationAdministration, the Treasury and the PA were in a position to complete the legal actions requiredto make the loan effective and the loan became effective on February 28, 1995.
17. Following loan effectiveness, progress still remained slow due to political instability andinstitutional weaknesses, which manifested themselves in difficulties in decision-making andfrequent replacements of the PA management. Excessive centralization of decision-making inthe Privatization High Council (PHC), the requirement for unanimous PHC approval, and lack ofautonomy for the PA were equally important obstacles to rapid privatization. Other problemsincluded high staff turnover and institutional weaknesses in PA, delays in the implementation ofthe technical assistance components as well as ineffective use of TA.
18. The main problems confronting the implementation of the project have been its over-ambitious design, institutional weaknesses of the Privatization administration and the lack ofpolitical continuity and strong will to advance the privatization process. These factors togetherresulted in the failure of the various Governments' privatization programs. The labor adjustmentprogram was fully developed under the project, but the slow progress in privatization resulted invery low demand for these services.
D. Project Sustainability
19. The project, because of its specific nature and implementation performance, cannot in itselfbe evaluated according to its sustainability. However, some of the project components whichwere designed to create new or strengthen existing institutional capacities can be evaluatedaccording to their continuity and sustainability. To ensure the sustainability of the LAP, whichwas to serve as an additional safety net for the workers laid off by privatization, a protocol wassigned by the Treasury and the PA, according to which the responsibility for the LAP wastransferred to the PA.
20. To this end, the expertise generated in the Treasury with the help of intensive consultantservices, and some local consultants trained under the LAP, were to be transferred to the PA.However, due to the slow progress in privatization, there was no pressing need for LAP services,no staff were transferred and no activities were initiated following this protocol. Therefore, it isdoubtful that this will ensure sustainability, since the PA will have to focus all of its institutionalcapacity on privatization, once the program is re-vitalized, and it does not have the necessarystaff and know-how to operate the LAP.
21. As part of the post-layoff services in the LAP, PIAL included originally a program forestablishing five business incubators. After the first attempt to establish an incubator inEskisehir failed, a second attempt was energetically undertaken by KOSGEB, and the firstincubator was opened in September 1998 in Zonguldak, a coal mining region on the Black Seacoast, where the closure of the TTK mines resulted in substantial unemployment. The incubator
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is considered a success by KOSGEB and is much appreciated by the local authorities inZonguldak. Therefore KOSGEB intends to complete their original plan of establishing from twoto three incubators in other parts of the country. Although the incubator seems to operate in anideal setting considering the need for its services, availability of well-trained staff laid off by themines, initial assistance by PIAL, availability of training facilities and potential support byGerman donor agencies, it is not yet financially self-sufficient, since it is not yet fully occupiedand its administrative costs are relatively high, considering the small size of the operation.KOSGEB has, therefore, devised a plan to provide limited support to the incubators, which aimsat establishing financial sustainability within 2-3 years.
22. Of the remaining project components, Unique Identifier System (MERNIS) and ActuarialTraining Components can be regarded as being sustainable since these components are actuallyparts of existing and ongoing programs that are supported by their parent agencies. ThroughMERNIS, GDC has been provided with an efficient and integrated electronic database, that willensure accurate and up-to-date citizenship records for the whole country. As of September 1999,transcription of records in 919 out of 921 subprovinces were completed. MERNIS project whencompleted fully is expected to bring many direct and indirect benefits such as; accuratecitizenship records, database for improved population statistics, operational support for electionsand a solid database for tax and social security purposes. However, these benefits will be realizedonly when the second phase of the project is completed. Sustainability of the social securitystudies and energy studies will have to be evaluated as to their acceptance by the policy-makersand their influence on the adopted policies following this.
E. Bank Performance
23. Bank performance has been satisfactory in some respects and less satisfactory in others.Bank missions were fielded at regular intervals and the progress of the project components wasfollowed closely. The Bank was responsive to the changes in project implementation andfollowing a good mid-term review, the supervision missions of 1997 and 1998 emphasized theneed for a review of how the project should evolve in response to the changes in the projectobjectives and borrower requirements.
24. While Bank supervision performance has been satisfactory, deficiencies at the time ofpreparation and appraisal should also be noted. The main weakness of the project appraisal werethat the appraisers were not able to visualize in the beginning that the functional relationshipbetween the PA and the PHC could be a source of problems in the implementation of theprivatization program. Bank supervision missions provided useful guidance on technical issues,project management and institutional strengthening. Despite staff changes at the Bank, theproject did not suffer from discontinuity. The working relationships with Treasury, PA and otherimplementing agencies were good. The Bank positively responded to the Borrower's request forchanges in the allocations for the project components, and extension of closing date andwithdrawal periods.
F. Borrower Performance
25. On the borrower's side the main weaknesses were the deficiencies of the Privatization Law,the fact that the PHC did not take decisions and direct the PA to take actions, and that the PA
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managers were not able to make use of the PIAL resources which offered them a uniqueopportunity to strengthen their institution. The PA's performance also was poor in severalaspects. While PA had a small core of strong staff, it lacked technical, financial and legal skillsas well as the privatization-related experience needed to ensure timely and well-structuredtransactions. Due to this lack of privatization-related experience, the PA did not have an overallstrategic policy formulation capability. Lack of privatization-related experience also resulted ininefficient process management and supervision. Low decision-making threshold of the PAresulted in excluding the PA from the decision-making mechanism for more important SEEs, andresulted in a rather politicized decision making process.
26. Due to the lack of autonomy of the PA and the political orientation of the PHC, the PA wasunable to present a credible plan for project implementation. When the reduction of the loan wasnegotiated, the PA presented a list of activities for which the remaining funds would be needed.However, this list suffered from the same defect: progress in privatization and, therefore, inutilizing the loan is not determined by the PA. Since the Treasury's involvement in the project--mainly through debt management of large privatization candidates and coordination of the laboradjustment program-was fully dependent on progress in privatization, the lack of a credibleplan for future utilization of the loan by the PA made it impossible for the Treasury to present aplan for its own activities. It was only when part of the loan was cancelled that the Treasury wasable to present a list of activities for which it would be able to use some part of the remainingloan amount.
27. The PA's Advisory Services department lacked a system for monitoring the use of the legalservices and for controlling the advisors. PA management generally had doubts about theusefulness of international technical assistance, resulting from the poor performance of some ofthe consultants. This, in turn, was the consequence of the consultants not having been properlyselected and not always used effectively, given the constant changes in the PA's managementand also often unfavorable work environment, as well as the politically motivated slow progressin privatization.
28. Treasury's performance during project implementation was satisfactory. Apart fromindividual problems due to coordination between agencies, Treasury was successful in thecoordination of various activities and also in implementing the project components under itsresponsibility. However there were a lot of delays in the compliance with loan covenants whichrequired periodic submission of quarterly reports on the execution of the project and annual workprograms. In most cases these reports were submitted after long delays and only after repeatedreminders. There was also the problem of lack of coordination between Treasury, the PA andother agencies which has been an important problem throughout the project implementation.
G. Assessment of Outcome
29. Since most of the privatization benchmarks, revised at the November 1996 Mid-TermReview, were not achieved, and loan utilization was very slow, the loan was restructured inAugust 1997. At that time, US$27.2 million from various loan categories was cancelled and theclosing date for category 2(b), related to consultants' services, was extended for one year to June
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30, 1999. Following this, the loan was restructured again in September 1998 when an additionalUS$33.5 million was cancelled reducing the loan amount by a total of US$60.8 million.
30. The main changes resulting from the second loan restructuring in 1998 were the terminationof PIAL support for the PA's activities and for the LAP (with the exception of the Zonguldakincubator). The termination of support to the PA did not affect the Government's privatizationeffort, since the progress in privatization remained slow, and PA seemed to have easy access toadequate resources from the Privatization Fund. However, the objective of the PIAL was not justto provide resources in support of privatization, but to provide assistance to the PA in the areasof policy formulation and practical implementation through an active dialogue between the Bankand the PA.
31. Due to lack of timely and acceptable proposals on the full utilization of the remainingamount of the loan, the project was restructured for the third time, mainly by excluding the studyon Private Participation in Infrastructure, reducing the allocation made for the Energy SectorReform and Privatization Studies, canceling a part of the allocation made for the ActuarialTraining Program, and increasing the allocation for the Zonguldak incubator. These changesresulted in reduction of the loan by an additional US$6.6 million, bringing the total loancancellations to US$67.4 million and the outstanding loan amount to US$32.6 million. As aresult of this final restructuring, the Loan Agreement was amended to provide for covering thecosts of the newly structured loan category 2(d), for which the loan account was kept open untilDecember 31, 1999.
32. Analysis of the social security systems which consisted basically of a financial andmanagement review of the three social security institutions, as well as of related financialmanagement and policy recommendations, was completed by the end of 1999 instead of thetargeted dated of June 30, 1999. This delay was partly due to Ministry of Labor's (MOL) initialconcerns about the scope of the study. The work on these studies is finished and the reports weresubmitted to the Treasury to be reviewed and approved by the steering committee. Given thevery high contribution the social security system is making to the budget deficit, further effortstowards reforming the social security system will continue to have a high priority in theGovernments' agenda and the Bank could assist the Government in these efforts if requested,although this would go beyond the time frame of the PIAL. In order to achieve sustainableresults from this work that was done to improve the social insurance system, Treasury needs totake decisions on, whether and how the study will be coordinated with the efforts of the MOL,and how the results will be made available to high-level decision makers in order to ensureimplementation.
33. The first phase of implementation of the MIERNIS project is almost completed. All 921regional census centers have been provided with the necessary computer capacity (in total 3,850PCs have been installed), the software has been prepared, 96 percent of the 120 million personalrecords have been keyed in, and computer staff have received the necessary training. On anexceptional basis the Bank agreed to honor withdrawal applications received by October 31,1999, in respect of eligible expenditures incurred after the closing date of June 30, 1999 but notlater than October 31, constituting a final payment of about US$0.8 million for engineeringservices, which the General Directorate of Census wants to retain until a final testing of thesystem has been carried out. The GDC, in February 1999, informed the Bank that, additional
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financing from the Bank would not be required. Given the importance of the MERNIS facilityfor various Government agencies, GDC can be expected to receive adequate budget support inthe future, which, in addition to the revenues from fees, will ensure the sustainability of thisproject component.
34. Financing of preparatory studies related to reform and privatization in the energy sector wasone of the targets agreed under the second restructuring of the project. Discussions on thiscomprehensive study continued for a long time between the Bank and the Ministry of Energyand Natural Resources (MENR). After long delays due to budgetary limitations and bureaucraticdifficulties, an agreement was signed between the MENR and the consultant firm. (the contractprice was US$1.7 million). At the request of Treasury, US$3.0 million of the US$5.0 millionoriginally earmarked for this project component were cancelled during the final restructuringwhich took place on May 1999. Since it was clear from the beginning that the studies asoriginally conceived could not be completed by the closing date, the Bank agreed to keep theloan account open until December 31,1999, for withdrawal applications under this component.The work on the five studies requested by the MENR was completed and all of the reports weresubmitted in December 1999.
35. The study on private participation in infrastructure was also delayed for a long time. Since noprovision for this component could be made in the 1999 interim budget, and the budget of thenew Government was not expected to be issued in time before the closing date of June 30, 1999,this component was cancelled at the request of the Treasury during the final loan restructuring inMay 1999.
36. The Actuarial Training Program, designed for the financing of a training program foractuaries in the Treasury and the social security organizations was included in the social safetynet component as an additional subcomponent in October 1996. The program aimed at creatingin Turkey a capacity for the training of internationally certified actuaries. In general terms, thiscomponent progressed well and was essentially completed by the project closing date.Disbursements accounting for a relatively small part of this component (10%), as agreed earlier,continued for a small number of students taking training abroad until August /September 1999.The Directorate of Insurance as a result of this capacity is now redirecting its efforts to theestablishment of a "Hacettepe University Center for Research, Implementation and education inthe Actuarial Sciences (HUAK)". In line with the original idea of the PIAL, some of theparticipants in the training program will be instructors at the Center. A small part (US$60,000) ofthe loan component was used for the acquisition of basic equipment for the new Center. TheCenter has already held some lectures but is in the process of developing a training program.The initiative of the Insurance Directorate has provided much-needed initial support to theCenter and seems to have ensured sustainability of the actuarial training effort.
37. Although the project is rated unsatisfactory in terms of achieving its development objectives,in assessing the outcome of the project however, it should be noted that the overall projectimplementation period of approximately four years, is relatively short compared to most otherTechnical Assistance Loans that have a longer implementation period to start with and, inaddition, have often had their closing dates extended repeatedly (the Bankwide profile fordisbursements of TALs indicates that TALs have an average disbursement period of about sixyears). Compared to such projects, PIAL evaluations have been much more critical, mainly due
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to the Government's inability to act in the area of privatization. However, it is quite clear thatnot much would have been achieved even if the implementation period for the privatizationcomponent had been further extended.
H. Future Operation
38. During the project implementation there were various requests from the Government toextend some of the loan components and suggestions for alternative utilization of the loanproceeds. Although some of these requests for changes and extensions were approved, the Bankdid not respond positively to others in the cases when the proposals were not found to be relevantto the privatization program. In the future, privatization efforts should be supported by the Bank,provided that the legal infrastructure is present, the government is determined and the funds aremade available through a more suitable project. As of today, there are no indications for a similaroperation in the future.
I. Key Lessons Learned
39. The reasons for the delays and slow progress in privatization were mostly of a political andinstitutional nature and their resolution would have required drastic organizational and legalmeasures. The experience with the project has shown that accelerated privatization could not beachieved by agreeing with the PA on targets, unless either the Privatization High Council (PHC)committed itself to reach specific targets and enforces compliance, or if the privatization processwas depoliticized by changing the composition and decision-making procedures of the PHC andstrengthening the role of the PA by giving it more autonomy. In addition to this, the compositionof the PHC should be changed, converting it into a more neutral organ that decides pragmaticallyand based on expert advice instead of political convenience. Decisions of the PHC should notrequire unanimity but should be taken with qualified or simple majority.
40. A strong Government commitment to an agreed privatization strategy should have been acondition of Board presentation of this project. In addition to the number of SEEs privatized,other more quantitative performance indicators, such as savings to the Treasury throughreductions in subsidies to SEEs, should have been considered. Privatization of the SEEs inTurkey is based on the Privatization Law (no: 4046) of November 24, 1994. Although someauthorities assure that there is nothing wrong with the Law, the fact remains that majorprivatization decisions have been contested in the courts resulting in the cancellation of variousdecisions and in substantial delays in the privatization process. Therefore, the Privatization Lawshould be reviewed by legal and privatization experts and revised as necessary. In addition, thePA should make better use of its external legal consultants to ascertain that privatizationdecisions are in line with the Privatization Law and the rest of the legal framework, including theconstitution.
41. According to the Privatization Law, PHC decides among other things on: (i) the transfer ofSEEs to the PA's portfolio; (ii) the method of privatization; (iii) the restructuring of SEEs in thePA's portfolio and the purchase and sale of shares of such SEEs; and (iv) the final transfer ofproperty rights. However, it seems that the PA is often and always contacting the PHC duringseveral interim steps in the privatization process. Given the existing legal framework and theability of the PHC to guide the PA through regulations and directives, the PHC should be
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involved in decision making on specific privatization transactions only twice: to transfer the SEEto the privatization portfolio of the PA and to approve its privatization. Also the PA should havemuch more autonomy. Free limits below which the PA can make the final decision onprivatization transactions should be increased. In addition, the privatization portfolio of the PAshould be reduced to those SEEs that are realistically expected to be privatized, thus allowing thePA to focus more fully on its privatization function and avoiding a potential conflict of interestbetween governing and maintaining SEEs on the one hand, and the need for privatizing them asquickly as possible, on the other hand.
42. In order to be more efficient, the PA should be reorganized to focus on policy formulation,process management, monitoring and supervision. It should be run with a smaller, but highlyexperienced core staff that is strongly supported by in-house consultants. It should contract outall direct privatization transactions to carefully selected privatization consultants, where suchconsultants are given a deadline for individual transactions, freedom to act within legal andcontractual guidelines, and a strong incentive (success fee) to carry out the transactions rapidlyand at a favorable price. In essence, this means privatizing the privatization process.
43. The main problem confronting the implementation of the project was its over-ambitiousdesign. Designed with the purpose of supporting the Government's privatization efforts, it triedto achieve many objectives in synchronization with the privatization process. The project did nottake into consideration the fact that privatization in Turkey is a highly political process and that itwould always be influenced by the changes in the domestic political scene. Since the mainproject component was predominantly designed to support privatization of the SEEs, delays andslow progress in this component due to political instability, caused disruption in thesynchronization of the other components which were basically designed to support the maincomponent. As a result of this and eventual restructuring of the project when the privatizationcomponent was cancelled, these supportive components lost their significance for theprivatization program as was originally intended, and each became an end in itself without muchcontribution to the privatization process.
44. All of the findings and recommendations mentioned above were repeatedly brought to theattention of the Government through aide-memoires and to the attention of the Bankmanagement through supervision and interim reports, but due to frequent changes in the PAadministration these recommendations could not be implemented. The Bank considered closingthe project in 1996, but later decided to only reduce it, since each succeeding government waswary of the political consequences of such a decision and each had promised to accelerate theprivatization program. There were as many as six different governments and as many or morePA managements during the project implementation, where new hopes were created by each ofthem, inducing the Bank, which was eager to support privatization, to continue its efforts,although repeated loan reductions and project restructuring was unavoidable.
45. Project implementation period coincided with a period of political instability and a series ofcoalition governments, which did not always agree on the importance and targets of theprivatization program. There was generally a lack of commitment on the governments' partwhich can be considered as the most important obstacle for the privatization effort. This can bestbe understood when compared with the commitment of the current government which, since the
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beginning of 2000, realized 66% of the privatization program by achieving $5 billion worth ofprivatization in four months where the target for the whole year was set at $7.6 billion.
46. An important lesson that was learned through this project experience is the importance ofnot going ahead with projects prematurely, where compliance with the loan covenants are subjectto changes in the relevant laws and are beyond the control of the implementing agencies, due topolitically motivated interference. In designing a project of this magnitude where there are manyagencies involved, care should be taken in defining the relations between the implementingagencies and attention should be given to possible sensitivities that might arise between theseagencies.
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Part II. Statistical Tables
Table 1: Summary of AssessmentTable 2: Related Bank Loans/CreditsTable 3: Project TimetableTable 4: Loan/Credit Disbursements: Cumulative, Estimated and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Indicators for Project OperationTable 7: Studies Included in ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and BenefitsTable 10: Status of Legal CovenantsTable 11: Compliance with Operational Manual StatementsTable 12: Bank Resources: Staff InputsTable 13: Bank Resources: Missions
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Table 1: Summary of Assessments
A. Achievement of Objectives Substantial Partialbl Not awlicable
Macro Policies E L E0
Sector Policies a E Ea
Financial Objectives E El 0l
Institutional Development E IZ l
Physical Objectives E E ElPoverty Reduction E E I]
Gender Issues ] E LI]
Other Social Objectives E E El
Environmental Objectives a E El
Public Sector Management E E ElPrivate Sector Development a E ElOther (specify) a E E E
(Continued)
B. Project Sustainability Likely Unlikely Uncertain
(V) (/) (/)
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Hi hlyC. Bank Performance satisfactorv Satisfactory Deficient
(V) (1) (1)
Identification E La
Preparation Assistance [ I]
Appraisal
Supervision : i:i
D. Borrower Performance satisfactory Satisfactory Deficient
Table 5: Key Indicators for Project Implementation
Indicators for project implementation not included in the PAD
Table 6: Key Indicators for Project Operation
Indicators for project operation not included in the PAD
Table 7: Studies Included in Project
Study Purpose as defined at Status Impact ofappraisal/redefined study
1. Energy sector reform and Preparation of studies related Completed To provideprivatization studies to reform and privatization the
to be undertaken by the governmentgovernment as agreed under with athe restructuring of the reference inproject the energy
reform andrelatedlegislation
2. Study on private Cancelledparticipation in infrastructure
3. Social security studies Financial and management Completed To providereview of three social thesecurity institutions that governmentwould lead to financial and with apolicy recommendations to reference tothe government. policy options
Item Local Foreign Total Local Foreign Totalcosts costs costs costs
IBRD 19.0 81.0 100.0 2.7 27.2 29.9
Cofinancing Institutions
Other External Sources
Domestic Contributions 29.0 0 29.0 4.5 0 4.5
etc.Total 48.0 81.0 129.0 7.2 27.2 34.4
Table 9: Economic Costs and Benefits
No normal financial or economic cost benefit analysis was undertaken for this project
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Table 10: Status of Legal CovenantsTURKEY3728-TU
Covenant Present Original Revised Description of Covenant CommentsAgreeme Section Type Status Fulfillment Fulfillment
nt Date DateLA 2.02 (b) 03 C PA to open and maintain a special Complied with
account for part A of ProjectLA 2.02 (c) 03 C Borrower to open and maintain a Complied with
special account for parts B,C,Dand E of the project
LA 3.03 (a) 03,10 C 08/03/1994 02/28/1995 Borrower to conclude the Complied withand Subsidiary Project Agreement,6.01(a) satisfactory to the Bank, with PA
LA 4.01(a,b, 01,09 C 06/30/1996 06/30/1998 Maintenance of project records and Complied with after longc) accounts in accordance with sound delays and repeated
accounting practices and auditing clarificationsof accounts
LA 4.02 (a) 09 NC 11/30/1996 11/30/1998 Submission of proposed work Partially complied with andprograms for the following year not required after project
restructuringLA 4.02 (b) 09 NC 12/15/1995 11/30/1998 Borrower to submit evidence of a See covenant 4.02 (a)
satisfactory work programapproved by the Bank
LA 4.03 09 C 10/31/1995 Borrower to carry out a The mid-term review wascomprehensive mid-term review of postponed, due tothe project implementation with political/institutionalthe Bank uncertainties, and was finally
carried out in 11/96LA 4.04 09 CP 12/31/1998 Borrower to furnish to the Bank Reports are received mostly
quarterly progress reports on parts with long delays and repeatedB,C,D and E of the project reminders
LA 6.01 (b) 10 C 08/03/1994 PA to appoint consultants for debt Complied with and the workmanagement and labor adjustment is completedservices
LA 6.01 ( c) 10 CD 08/03/1994 PA to appoint consultants for in- Consultants have beenhouse strategic planning, legal appointed after delay.advisory and public information Contracts have beenprogram terminated.
LA 6.01 (d) 10 CD 08/03/1994 PA to conclude contracts for Contacts have been concludedfinancial advisory services for after delay. Contractsprivatization of two SEEs terminated.
LA Sched.5, 10 CD 08/31/1994 Borrower to enter into protocols nonePara I with IIBK and KOSGEB to carry
out the labor adjustment servicesunder part C.2 of the Project
LA Sched.5 10 CD 08/31/1994 Borrower to employ consultants to Study A (pension schemes)Para carry out social security pension completed in March 1996.2(a)(i) studies under part C,4 of the Study B (financial
Project; initial phase of such study management of three stateto be carried out by 11/30/1995 insurance companies)wasand the second phase by delayed, but is now11/30/1996 completed.
LA Sched.5 10 CD 09/15/1994 Borrower to employ consultants to The study was completedPara 2 carry out the unique identification (financed from other sources)(a) (ii) system study under Part C.4 of the and phase I of project
Project implementation is nearingcompletion.
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LA Sched. 5 10 NC 12/31/1995 Borrower to employ consultants to This loan component wasPara 2 carry out the study on the cancelled at the Mid-term(a) (iii) preparation of the Zonguldak review
Regional Development PlanLA Sched. 5 10 CD 08/31/1994 Borrower to employ consultants to Study was completed after
Para 2 carry out the study on the delay(a) (iv) regulatory framework for
telecommunications and toprvatize telecom
LA Sched. 5 10 NC 09/30/1994 Borrower to employ consultants to This loan component wasPara 2 carry out the study to increase cancelled in the course of the(a) (v) private sector participation in the last restructuring
infrastructure sectors under partE.2 of the project
LA Sched. 5 10,09 NC Borrower to furnish the results and The study on Private-Para 2 recommendation to the Bank no Participation in Infrastructure(b) later than 2 months following the has been cancelled. Reports
completion of each of the studies of consultants on socialreferred to under schedule 5, paras insurance has been received,(a) (i)-(v) but the final report is not yet
approved
PA 4.01 01,09 CD 06/30/1996 PA to maintain project records and 1997 audit was submitted late(a,b,c) accounts in accordance with sound and it was based on
accounting practices and submit to provisional financialBank audited financial statements statements. Auditorsno later than six months after the confirmation requested thatend of each year their opinion has not changed
after reviewing finalstatements.
PA 4.02 09 NC 11/30/1996 By Oct. 31 of each year, PA to Since the privatization(a,b) submit to the Bank a work program component was excluded as
for the following calendar year, for part of project restructuring,part A of the project and to submit work program is not requiredevidence to the Bank that suchwork program satisfactory to theBank has been approved
PA 4.03 09 CD 10/31/1995 PA to carry out a comprehensive The mid-term review wasmid-term review of Part A of the postponed due toProject with the Borrower political/institutional
uncertainties, and it wasfinally carried out in 11/96
PA 4.04 09 NC PA to furnish to the Bank quarterly Since the privatizationprogress reports on part A of the component was excluded asproject part of project restructuring.
progress reports are notrequired
Covenant types: Present Status:1. = Accounts/audits 8. = Indigenous people C = covenant complied with2. = Financial performance/revenue generation from 9. = Monitoring, review, and reporting CD = complied with after delay
beneficiaries 10. = Project implementation not covered CP complied with partially3. = Flow and utilization of project funds by categories 1-9 NC = not complied with4. = Counterpart funding 11. = Sectoral or cross-sectoral budgetary or5. = Management aspects of the project or executing other resource allocation
agency 12. = Sectoral or cross-sectoral policy/6. = Environmental covenants regulatory/institutional action7. = Involuntary resettlement 13. = Other
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Table 11: Compliance with Operational Manual Statements
Project was compliant with applicable Bank Operations Manual statements (OD or OP/BP)
Table 12: Bank Resources: Staff Inputs (Actuals)
Stage of project cycle US$ (000)
Preparation to Negotiations 648.4Negotiations to Completion 834.6
Total 1,483.0
Table 13: Bank Resources: Missions
Not available
REPUBLIC OF TURKEYPRIME MINISTRY
THE UNDERSECRETARIAT OF TREASURYGeneral Directorate of Foreign Economic Relations
Ref: B.02.11.HM.0.DEi.01.04.187/404A4 Ankara, April 14, 2000
Mr. Gurhan OZDORAOperations Officer 5yij3t* 29931The World BankResident Mission
Dear Mr. Ozdora,
With reference to your letter of April 13, 2000, please see attachedthe views of the Government of Turkey on the draft version of theImplementation Completion Report (dated April 11, 2000) of the PIALProject.
In addition to this, please see attached our views about theimplementation and the outcomes of the project. As you would recall,these views has already been sent to the Bank with our previouscorrespondence of October 21, 1999 and we would like to send them tothe Bank once again for your convenience.
In this regard, we would appreciate the Bank's attention forincorporating our views to the ICR before publishing it.
Best regards,
Jale AKTAaDepartment Head
Enclosed- (Views on the ICR report dated April 11, 2000)- (Views which was sent to the Bank on October 21, 1999)
cc. Mr. Vinod Goel
VIEWS OF THE REPUBLIC OF TURKEY ON THE DRAFT VERSION (DATEDAPRIL 11, 2000) OF THE IMPLEMENTATION COMPLETION REPORT OF
PIAL LOAN
. In the evaluation summary part, paragraph 10, it is stated that the projectwas restructured for three times during the implementation period becauseof the reason that "the Government of Turkey did not come forward withtimely and acceptable proposals on the full use of the loan proceeds withinthe given time limits and the objectives of the project, and did not respond tothe bank's recommendations concerning an acceleration of the privatizationprocess". However, we believe that, a credit should also be given to theBank for the said restructuring efforts due to the weak design efforts of theproject. On paragraph 12, it is clearly mentioned that the disbursementperiod of the loan was well below (3.5 years) the other Technical AssistanceLoans (6 years) financed by the Bank. This in fact is an other indicator of theinsufficient project design. Our views are also supported by paragraph 16,which indicates that the project design was over ambitious.
On page 3, paragraph 10, we believe that the amount of the funds allocatedto the public information campaign should be corrected. As you would recall,category 3 of the loan agreement (Media time and space under part A of theProject) was 8.75 million USD in the original loan agreement and it was just3.27 Million USD in the latest amendment dated April 27, 1999.
* On page 6, paragraph 22; please be informed that the numbers given as 919and 921 denote the sub-provinces rather than provinces.
* On page 7, paragraph 28, although it is true that the delays happened in theprogress reports, we are not in the opinion that there was a lack ofcoordination between PA and Treasury.
* On page 8, paragraph 31, the fist sentence should be changed. Treasurytook all the prompt action for the unutilized amounts of the loan proceeds.For this reason it would not be suitable to mention these actions leading tothe restructuring. It is obvious that the unutilized amount should be cancelledin order to prevent the payment of commitment fees.
. On page 11, paragraph 45; please delete the words "....but no concreteactions materialized".
* In Table 1 of page 14 and 15, Preparation Assistance of the Bank should bemarked as "Deficient" rather than "Satisfactory" due to the reasons explainedabove. As it was mentioned in our letter of October 21, 1999, the Bank did
Undersecretariat of Treasury - General Directorate of Foreign Economic Relations -Department of World Bank Projects
not take the prompt action to the factors affecting the project. For thisreason, the supervision of the Bank should also be rated as Deficient insteadof satisfactory and paragraph 24 in page 6 should be changed accordingly.
* Please insert the Government's views to the ICR as the appendix of thereport. As you would recall, Government's views were sent to the Bank withour letter dated October 21, 1999.
Undersecretariat of Treasury - General Directorate of Foreign Economic Relations -Department of World Bank Projects
Enclosed 2
IMPLEMENTATION COMPLETION REPORT (ICR) FOR THEPRIVATIZATION IMPLEMENTATION ASSISTANCE AND SOCIAL
SAFETY NETWORK PROJECT (PIAL)
This report represents the overall view of the Government ofTurkey (GOT) represented through its Undersecretariat of Treasury onthe outcomes of the above mentioned project.
GOT's privatization efforts, which basically aimed at i) increasingthe efficiency and output in the state economic enterprises ii) increasingthe overall production in the economy and iii) reducing the fiscal burdenof those enterprises to the budget, were started in early 1980's.
The current privatization law (No. 4046) was enacted inNovember 1994 after a couple of changes were realised in theregulation binding the privatization efforts. With the current law, thePublic Participation High Council was replaced by the Privatization HighCouncil (PHC), whereas the Public Participation Administration wasturned into Privatization Administration.
Privatization Administration (PA) is the executing agency of theprivatization activities in Turkey. However, PHC, which is composed of 5ministers chaired by the prime minister is the main decision makingbody. PHC also has the responsibility of determining the methodprivatization for the nominated enterprises.
For the last 14 years, 211 companies were taken into theprivatization portfolio, of which 22 of them were excluded for severalreasons. For the time being there are 74 companies under in theprivatization portfolio. Since 1985, the total amount of sales revenueswas reached to 4.1 billion USD. In this period, the major privatizationefforts were the sale of Kardemir to employees and the publicindustrialists and the sale of the %12.3 of the Turkish isbank, which wasoffered both domestically and internationally. With the sale of i,bankshares, 633 million USD was received. Currently, various companies arein the tender process. Among these, the most important ones are,Turkish Telecom, Turkish Airlines, PETKiM, TUPRA,5 and POAi.
However, despite the above stated efforts, it should be stated thatthe privatization efforts are behind the schedule. The major reasonsbehind this lag are the frequent changes in the top management of PAin connection with the changes in the governments.
Proiect Background:
Undersecretariat of Treasury - General Directorate of Foreign Economic Relations 1Department of World Bank Projects
PIAL project, which aimed to assist the GOT's above statedefforts was signed with the World Bank on May 5, 1994. The originalloan amount was 100 million USD. During the life span of the project, 3amendments were made between the Bank and GOT. With the firstamendment, which was realised on September 11, 1997, a total of27.25 million USD was cancelled. Besides this, the activities focused onthe Zonguldak Regional Development were taken out of the projectwhile the "Study B" component was included into the project. Thesecond amendment, which was signed on September 30, 1999, causedthe cancellation of an additional 33,575,804.67.- USD. After thisamendment, the total amount cancelled increased to 60,825,804.67-,more than %60 of the original loan amount. In addition to this, with thesecond amendment two brand new activities were inserted into the loanagreement, namely the Energy Sector Studies and the PrivateParticipation in Infrastructure Study. The latest amendment wasexecuted on May 28, 1999 with which a further 6.6 million USD wascancelled.
The original closing date of the loan was June 30, 1998. But,except for the part implemented by the Privatization Administration andthe Labour Adjustment Project (excluding the activities performed byKOSGEB), the other parts were extended for one year until June 30,1999 with the second amendment. In addition to this, with the thirdamendment, the Energy Sector Studies which is performed by theMinistry of Energy and Natural Resources (MENR) was extended untilDecember 31, 1999 and the Bank also accepted to honour thewithdrawal applications submitted for Actuarial Training and UniqueIdentifier System components after the closing date but before October31, 1999.
Project Implementation Issues:
Privatization Program:The aim of the component, as discussed in the loan agreement,
was to support GOT's privatization efforts through technical assistance,training and implementing a public media campaign.
Most of the activities which had to be performed by thePrivatization Administration under the project were already started at thetime when the project was commenced. This was the main reasonbehind the low disbursements under the PA part, the major componentof the project with a total of 59 million USD. As a result of this factor, alarge amount of resources which were not utilised were cancelled. Thefrequent government changes during the project implementation periodexposed different approaches towards the implementation efforts
Undersecretariat of Treasury - General Directorate of Foreign Economic Relations 2Department of World Bank Projects
whereas the recurrent changes in the management of PA caused delaysin the project implementation. This was another factor behind the lowdisbursement ratios.
The media campaign was launched in the second half of 1995 inorder to create awareness of the privatization efforts. This activity wasfinanced by the loan proceeds and for this category around 3.2 millionUSD was disbursed.
Labour Adiustment Project:The weak performance in the privatization efforts during the life of
the project limited the success Labour Adjustment Project (LAP) whichwas implemented by Turkish Employment Organisation (iiBK), Union ofChambers and Exchanges (TOBB) and Small and Medium IndustriesAgency (KOSGEB) under the general coordination of the GD of StateEconomic Enterprises of Treasury. As a part of the social safety netcomponent of PIAL, LAP's purpose was to enable the workers to findout or develop businesses who lost their jobs after the privatizationefforts. But, due to the fact that privatization efforts was limited, LAPcould not be as beneficial as originally planned.
An important part of the LAP was to carry out the incubatorprogram through the guidance of KOSGEB. Only one incubator centercould be established in Zonguldak. However, as a result of the internalfinancing problems, the project lacked to provide seed capital for thenew businesses.
After the second loan amendment, LAP activities were turnedover to PA by a protocol signed between Treasury and PA. With thisprotocol, it was decided to further implement the LAP activities by thePA after the project closing date of June 30, 1998. But the LAP activitiesafter the said date would not be financed by loan proceeds. However,due to the reason that none of the SOE's were privatized after thetransfer of LAP component to PA, no progress was made in the LAPcomponent.
Actuarial Training:The actuarial Training, one of the successful parts of PIAL, was
started in 1996. It aimed at improving the institutional structure of therelated government agencies and universities in the social securitysystem through providing actuarial training to the employees of theseinstitutions. With the project, 27 people were sent to masters anddiploma programs in USA and UK. From this point of view, the projecthelped to form a solid actuarial background which Turkey lacked for along time. In addition to these, with the proceed of the loan a seminarwas successfully organised in Istanbul in 1997 and experts from the
Undersecretariat of Treasury - General Directorate of Foreign Economic Relations 3Department of World Bank Projects
relevant General Directorates of Treasury were sent to short termtraining programs in abroad. Also, some computers and officeequipment were acquired for the Insurance Department of Treasuryfinanced from the loan.
The project will also finance the establishment of an actuarialscience center in the Hacettepe University. Approximately 80.000 USDwill be used for this purpose and the this is planned to be realised inSeptember 1999.
Study A:"Study A" was conducted by International Labour Organization
(ILO) as the international consultant. However, a steering committee,which was comprised of the representatives of the related publicinstitutions, actively participated the implementation process. The aim ofthe study was to analyse the social security policy options.
Under the study two quantitative models were developed, namelythe actuarial and the social. These two models are actively being usedby the Turkish authorities. The models showed that the current pensionsocial security is unsustainable.
It can easily be argued that the study was successful. The reasonis that the study provided the Turkish authorities a solid quantitativebase for the assessment of the reform options.
Study B:"Study B - The audit of accounts and financial management study"
was started relatively late. the reason behind this delay was majorly theapproval of the Ministry of Finance for the consultancy contract. Thefinal contract was signed on April 15, 1998. However, the beginning ofthe project was further retarded due to the as the Ministry of Labourrequested the consulting firm for not continuing the study of SSK andBag-Kur. This inconsistency was surpassed by inserting the word"financial review" instead of "audit" in the name of the study.
The consulting firm prepared several reports and these reportswere reviewed by the steering committee. Among these reports, 6 ofthese reports have not been approved by the steering committee due tothe critiques raised by the member of the committee. The revisions onthese reports are still continuing.
Unique Identifier System Component (Memis):Mernis component was implemented by the Ministry of Interior
with the management services provided by UNDP. The component wasone of the most successful among the other components. However, the
Undersecretariat of Treasury - General Directorate of Foreign Economic Relations 4Department of World Bank Projects
procurement for the printers have not been finalised as of today and it isnot possible to complete process by using the loan proceeds. In additionto this, although the Bank has given its no-objection for honouring thewithdrawal applications for the engineering services submitted after theloan closing date but before October 31, 1999, the activities have notbeen finished yet. But the overall impact of the project to Turkey will behighly beneficial if completed successfully.
Enerqv Sector Studies:The component which is currently implemented by the Ministry OF
Energy and Natural Resources(MENR) was inserted into the projectafter June 30, 1998. The original amount allocated to the project, 5million USD, was reduced to 2 million (including some contingencies) asthe contract signed with the consultant was 1.7 million USD. Although itwas planned to be closed by June 30, 1999, Bank gave its approval foran extension of 6 months. The effective starting of the project delayedbecause of some governmental factors. As the budget law was enactedby the parliament in June, the counterpart financing was a problem untilthat time. Besides, the delay in granting the Ministry of Finance visa tothe contract signed with the consultant firm created some delay. On theother hand, the 5 studies, which has to be conducted by the consultantfirm for the Ministry, are progressing. For the time being, one study wascompleted by 85%, two studies were completed by 65%, and the othertwo studies were completed by 60% and 45% respectively.
Private Participation in Infrastructure:No progress was made in this component, which was included to
the PIAL project after June 30, 1999. The reason was that the budgetlaw was not approved on time and the provisional budget did not allowthe insertion of the new budget allocations. For this reason, the tenderevaluation committee decided to cancel the tender, considering the factthat the project would not be completed in the short period of time untilthe closing date. In this respect, 3 million USD which was allocated forthis purposed was cancelled in order to prevent the payment ofunnecessary commitment fees.
Assessment of the outcomes:
The project were always regarded as unsatisfactory due to thereasons mentioned above. Among the successful part are, the Merniscomponent, except the recent problems in the procurement of printers,actuarial training. Although the starting of the Energy Sector Studieswere quite delayed, the achievements realised in the 5 studies in theshort period of time are worth noting. The Study B part, could be moresuccessful if the consultant firm was better in analysing and evaluating
Undersecretariat of Treasury - General Directorate of Foreign Economic Relations 5Department of World Bank Projects
the current system as well as presenting more concrete solutions to theproblems.
Borrower Performance:
The project had many implementing agencies. The deficiencies ofthese agencies in the project management as well as the lack ofqualified personnel hampered the successful implementation of theproject. Frequent changes in the project implementation units, especiallyin the PA which was the biggest implementing institution was anotherdrawback. Besides this, out of the control of the implementing agencies,the changes in the governments and the coalition structure of the newgovernments caused significant delays both in terms of decision makingand implementation.
Bank Performance:
It is considered that Bank's efforts during the design stage of theproject was insufficient. PIAL project was unique among the other Bankfinanced projects such that the whole 100 million USD was allocated toTechnical Assistance (TA) activities with very minor equipmentpurchases included in it. The design mistakes were resulted lowdisbursements, significant amount of cancellations, and the project'spermanent "unsatisfactory" rating through out its implementation period.
During the implementation stage, Bank did not take promptaction to respond the factors affecting the project.
Undersecretariat of Treasury - General Directorate of Foreign Economic Relations 6Department of World Bank Proiects
