LN - ESC3 C LE COPY C!P;CULAI;COPY. To BERxTUR^iED TORIORTS DS DOCUMENTOF INTERNATIONALBANK FOR RECONSTRUCTIONAND DEVELOPMENT INTERNATIONALDEVELOPMENT ASSOCIATION Public Disclosure Authorized Not For PtMicUse Reon No 12a-TU Public Disclosure Authorized APPRAISAL OF A RAILWAY PROJECT TURKEY Public Disclosure Authorized April 6, 1973 TransportationDivision-Projects Department Office Public Disclosure Authorized Europe, Middle East and North Africa Regional report was prepared for official use only by the BankGroup. It maynot be piblithed. quoted This for the or cited without BankGroup authoriation. The BankGroup does not acceptresponsibility accuracyor comnpletenesof the report. Currency Equivalents: Currercy Unit - Turkish Lira (TL) Subsidiary Unit - Turkish Kurus Through December 1971 Since January 1972 uS$o.066 - TL 1 US$0.071 -TL 1 US$1.CV = TL 15 US$1.00 = TL 11 US$66,666 TTL 1 million US$71,40 - TL 1 million US$I million - TL 15 million US$1 million - TL 14 minlion Fiscal Year: January 1 - December 31 System of Weights and Measures: Metric Metric 1 meter (m) 3.28 feet (ft) 1 kilometer (km) - 0.62 miles (mi) 1 kilogram (kg) = 2.20 pounds (lb) 1 metric ton (m ton) 0.98 long ton (lg ton) = 1.10 US short tons (sh ton) 1 passenger-kilometer(pass-,:m) = 0.62 passenger mile (pass-mi) 1 ton-kilometer(ton-km) = 0.68 US short ton-mile (ton-mi) Abbreviationsand Acronyms: MFW - Ministry of Public Works SPO - State Planning Organization TCA - TransportCoordination Agency TCDD - Turkish State Railways TCPC - Transport Coordination Project Center TURKEY APPRAISAL OF A RAILWAYPROJECT TABLE OF CONTENTS Page bNo. SUMIOA AND CONCLUSIONS ............................. i-ii 1. DNTRODWCTION . 1 2. BACKGROUND . ......... 2 A. Transport Sector ........... 2 B. Transport Policy and Coordination4... 3. THE RAILWAYS ...... ... 7 A. Organization,Management, ComrercialPolicy and Staff 7 B. Budget,Accounting and Audit ...... ... X ... 11 C. Railway rroperty... .12 D. Operatie.w .... 13 E. Traffic ...... ...............; ....................14 F. UneconomicLines, Stations and Services . 16 4. THE PLAN AND THE PROJECT. 1f A. The Long-Term InvestmentProgram . 16 B. The 1972-1977 InvestmentPlan ... 17 C. The Project and the Loan .... .. 18 D. Execution of the Project, Procurement and Disbursement. 21 E. Financing of the Project ... .................... 22 F. Memorandumcf Understandingon a Plan of Action for TCDD 22 5. ECONOMIC EVALUATION .... 23 A. General .23 B. Evaluation of the Plan .24 C. Quantificationof Economic Benefits .25 6. FINANCIALEVALUATION .... o 25 A. Present Position 25 B. FutureProspects . .... .27 7. RECOMMENDATIONS . oo. .................... ......... .. oo. 29 This Appraisal Report has been prepared by Messrs. D. Havlicek (Economist),G. Lubbeke (Engineer)and M. S. flanxjltiah(Financial Analyst). TABLEOF CONTENTS(Continued) Tables 1. Traffic Data for All Modes of Traffic 2. Selected OperatingStatistics 1965-1971 3. Operatlng Efficiencyand Staff Productivity 4. Motive Power and RollMiS Stock - Yearly Averages 1967-1971 S. Freight Traffic 1964-1971 (pages 1 and 2) 6. Freight Traffic Forecast 1972-1977 and 1980 by Major Comodities 7. Passenger Traffic 1964-1971 8. Passenper Traffic Fctecast 1971-1977 9. Track Renewal Progran 1972-1982 10. Revised InvestmentProrram 1972-1977 (pages 1, 2 and 3) 11. Project Exptnditure1972-1974 and Proposed Loan Financing 12. Revenue, Expenses and Net Loss 1967-1971(as reported bv TCDD) 13. Railway Revenue, Expenses and ret Income (Loss)- Actual 1969-1971 (Reconstructed)Forecast 1972-1977 14. Balance Sheet Data - Actuala 1969-1971and Analysis of 1971 Data 15. Summary Balance Sheet Forecast 1972-1977 16. Cash Flow Forecast 1972-1977 Annexes 1. Ilemorandunof Understandingon a Plan of Action for Transport Coordinationin Turkey, with Amendments 2. Republic of Turkey - Applicationto the United Nations Development Prograr.for Technical Assistancein Special Railway (TCDD) Studies 3. Turlish Railway Organization 4. Implementationof Freight Tariff Reform - Tentative Terms of Reference 5. Present Tariff Structure and Tariff Reform 6. Descriptionof Railway Property 7. Freight and Passenger Traffic Forecasts 8. Memorandumof Understandingon a Plan of Action for the Turkish Railway System (TCDD),with Amendments 9. Productionof Diesel Locomotiv'sby TCDD - Sumnaryof Report by Mr. A. Kniffler Consultant 10. EstimatedSchedule of Disbursemen*S 11. State of Implementationof the Plans of Action for Transport Coordinationand Turkish Railways (TCDD) 12. Economic Evaluation- Principal Assumptions 1?. Fi.aancialForecasts PrincipalAssumptions Maps Average Annual Daily Traffic Volume 1969 - IBRD 10043 Turkey Railway System - IERD 3313(R) TCDD Traffic Flows, Track Conditionsand Track Renewal - IBRD 10077 TURKEY APPRAISAL OF A hAILWAYPROJECT SUMHARYAND CONCLUSIONS L. This report appraises a project consistingof the first stage (1972-1974)of the Turkish State Railways' (TCDD) long-termrehabilitatioa and modernizationprogram, for which a Bank loan of US$47 million is proposed. The program is designed to transformTCDD from a rapidly deterioratingrail- way systea, operatingwith large and increasing deficits,into an efficieut and comercially viable enterprise. ii. At the request of Government,the Bank has been in contact with TCDD stnce 1969. Poor and inadequateinvestments over the last decades, t we'u -P.agement, antiquated coimercial policies and road competition con- t-ibuted to the decline of TCDD and threaten an orderly and safe continua- tion of its operations. Llttle has been done up to now to reverse Oild; pattern, but Government and TCDDhave recognized that a major and determined effort is required to improve TCDD's physical, competitive and financial position. TCDDhas been operating in growing deficit since 1959 and, in 1971, working expenses amounted to twice the operating revenues. Staff costs doubled in the period 1967-1971 while tariffs declined in real terms. Nevertheless,even with the rapid arowth of road transport, an efficient railway system is vital to the economy of Turkey, especiallyfor the long distance transportof bulk commodities. The country'sagricultural and mining productionand industrialgrowth promises substantialincreases of TCDD's bulk traffic, ideally suited to low cost transportby rail. iiI. The project, estimated to cost about US$223 million, forms part of TCDD's US$541 million 1972-1977Investment Plan in which track rehabilitation. dieselization and railway reforms are the focal points. The project takes Into account the Government'slimited resourcesfor local currency financing and it constitutesthe minimum outlay necessary to achieve the objective referred to in paragraph i. The main items of the project include renewal of track (27%), provision of motive power and rolling stock (39%), improve- ment of naintenanceand repair facilities for motive power and rolling stock (8%), training facilitiesand consultants'services (0.5%) and signalling, telecommunicationsand other miscellaneousequipment (10%), with a conting- ency allowance of 16%. The proposed loan would finance track equipment, materials and track works, signalling and telecommunication equipment, im- ported materials for the manufacture of freight cars and passenger coaches, machinery and tools for locomotive depots and workshops, training abroad, training facilities and consultants' services. itwould contain US$37 mil- lion to finance imported equipment and material to be procured through in- ternational competitive b±iding and US$10 million of local currency expendi- ture. Some items to be procured locally would be unsuited for international - ii- bidding. Some US$16.1 million for the import of components for the manu- facture of diesel locomotives until be financeiBy the LurOpea.zi lnvestmen~.Bank; US$1.2 million would come from a French bilateral credit. The balance of US$158.5 million would be provided by the Turkish Gcvernment since TCID is unable to contribute to the financingof the project. œv. The InvestmentPlan covers only the phvsical aspect of the r'oderni- axtionand rehabilitationof TCDID. It is complementedby a Plan of Action for Railway Development specifying time-phasedimprovements to be achieved, coamensuratewith the physical progress of the Plan, through reductionsof traff by attrition.improvements in TCDD's organizationand corporate planning, introduction"f a eompetitivecost-related pricing policy, and study of and ,i:tionon uneconomic lines, stations and services. Furthermore,provision hias been nae i l the proposed Bank loan for consultants'assistance in execut- ini various prograns critical to the success of the InvestmentPlan and the Plan of Action for Railway Developit.nt. In addition, financial assistance has been obtained from UNDPfor sttdies concerning specific aspects of the ?ian of Action. V. Turkey lacks a consistenttransport policy and a coordinatedplan or the integrated developmentof the transportsector as a whole. Decision -.Iiinl concerning transport matters is uncoordinated and is dispersed among r >- various t;overnnent bodies. A Plan of Action for Transport Coordination ad tbe establishmen 3f a Transport CoordinationAgency (TCA), agreed upon ul 1970 between the Bank, Govenmer't and TC'jD,was intended to form the basis fer further Paak involve.ment in the trarsport sector. After a promising Ft,irt TCA ceased to function in Dccember '971. MIwever, in recognitionof t'ieimportance of coordlnateddecision making in the transport sector, Gov- vrnment has reestablishedthe TCA in the Ministrv of Communicationsand equipped