,cument of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 10760

PROJECT COMPLETION REPORT

TURKEY

FIRST AND SECOND FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECT(LOANS 1985-TU AND 2131-TU)

JUNE 19, 1992

MrCrtOFICHE COpY

Report No. 1 .07630-TU Type: (PCF)MASON-ANDE/ X31676 / T911l/ CEDD)l

Industry and Energy DivisionTechnical DepartmentEurope, Middle East and North Africa Regions

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.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Average Annual Rate (TL/USS 1.0)

1980 761981 1101982 1611983 2241984 3671985 5221986 6751987 8571988 1,4221989 2,1221990 2,609

ABBREVIATIONS AND ACRONYMS USED

ARGUBRE Akdeniz Gubre Sanayii A.S.AS Ammonium SulfateCAN Calcium Ammonium NitrateDAP Diammcnium PhosphateDONATIM, TZDK Turkiye Zirai Donatim KurumuEGE Ege Gubre Sanayii A.S.GUBRE Gubre Fabrikalari T.A.S.GOT Government of TurkeyIGSAS Istanbul Gubre Sanayii A.S.KBI Karadeniz Bakir Isletmeleri A.S.N Nitrogen Content in FertilizerNPK Nitrogen-Phospahte Potash Complex FertilizerP(P205) Phosphorous Nutrient Content in FertilizerPPF Project Preparation FacilitySPC State Planning OrganizationTAN Technical Ammonium NitrateTSP Triple SuperphosphateTUGSAS Turkiye Gubre Sanayii A.S.

FISCAL YEAR

January 1 - December 31

THE WORLD BANK FOR OMCIL4 USE ONLYWashington. D.C. 20433

U.S.A.

of Directw-GeneralWtirns Evaluation

June 19, 1992

MEMORANDUM TO THE EXECUTIVE DTRECTO013 AND THE PRESIDENT

SUBJECT: Project Completion Report on TurkeyFirst and Second Fertilizer Rationalization and Energy SavingProlects (Loans 1985-TU and 2131-TU)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report on Turkey - First and Second Fertilizer Rationalization andEnergy Saving Projects (Loans 1985-TU and 2131-TU" prepared by the Industry andEnergy Division, Technical Department of the Europe, Middle East and North AfricaRegional Office, with Part II contributed by the Borrower. No audit of thisproject has been made by the Operations Evaluation Department at this t4me.

Attachment 2

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

FOR OFFICIAL USE ONLY

PROJECT COMPLETION REPORT

TURKEY

FIRST AND SECOND FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECTS(LOANS 1985-TU AND 2131-TU)

TABLE OF CONTENTS

PAGE NO.

PREFACE . . ..... . . ..... ...... .... iEVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . .

PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . ..

1. Project Identity . . . . . . . . . . . . . . . . . . . . . . 12. Background . . . . . . . . . . . . . . . . . . . . . . . . . 13. Project Objectives and Lescription . . . . . . . . . . . . . 24. Project Design and Organizat4on . . . . . . . . . . . . . . 45. Project Implementatior. . . . . . . . . . . . . . . . . . . . 66. Project Results . . . . . . . . . . . . . . . . . . . . . . 117. Compliance with Covenants .... . . . . . . ..... . . 158. Project Sustainability . . . . . . . . . . . . . . . . . . . 159. Bank Performance .... . . . . . . . . . . . . . . . . . . *.610. Borrower's Performance . . . . . . . . . . . . . . . . . . 1711. Consulting Services .......... . -. 1712. Lessons . . . . . . .. . . . . . . . . 18

PART IT PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . . . . 19

PART III STATISTICAL INFORMATION .. ............... . 29

1. Related Bank Loans . . . . . . . . . . . . . . . . . . . . . 292. Project Timetable . . . . . . . . . . . . . . . . . . . . . . 293. Loan Disbursements . . . . . . . . . . . . . . . 30

Table 1. Loan Disbursement Schedule (Loan 1985-TU) . . . 30Table 2. Loan Disbursement (L.oan 2131-TU) . . . . . . . 31

4, Implementation Schedule .. ... . 32Table 3. Project Completion Schedule . . . . . . . . . 32

5. List of Subprojects Financed Under Loans 1985-TUand 2131-TU . . . . . . . . . . . . . . . . . . . . . . 33Table 4. List of Loan Beneficiaries . . . . . . . . . . 33

6. Project Cost . . . . . . 34Table 5. Project Costs . . . . .34

7. Project Financing . . . . . . . . . .. . . 35Table 6. Project Financing (Loan 1985-TU) . . . . . . . 35Table 7. Allocation of Bank (Loan 1985-TU) . . . . . . . 35Table 8. Project Financing (Loan 2131-TU) . . . . . . . 36Table 9. Allocation of Bank Loan (Loan 2131-TU) . . . . 36

8. Project Results . . . . . . . . . . 37Table 10. Capacity Utilization of Plants Before

and After Rehabilitation . . . . . . . . . . 37

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

Table of Contents (Cont'd)

lable 11. Economic Impact . . . . . . . . . . . . . . . . 38Table 12. Financial Impact . ..... . . . . . . . . 38Table 13. Studies . . . . . .. . . ..... . . . . . 39

9. Fertilizer Production and Consumption (1986-91) . . . . . . . 40Table 14. Fertilize- Production and Consumption

(1986-91) . . . . . . . . . . . . . . . . . 4010. Import Duties on Fertilizer . . . . . . . . . . .. . . . 41

Table 15. Import Duties . . . . . . . . . . . . . . . . . 4111. Fertilizer Prices and Subsidy . . . . . . . . . . . . . . . . 42

Table 16. Fertilizer Prices and Subsidy . . . . . . . . . 4212. Company Financial Statements . . . . . . . .... . . .. . 43

Table 17. IGSAS: Income Statement (1986-90) . . . . . . 44Table 18. IGSAS: Balance Sheet (1986-90) . . . . . . . . 45Table 19. TUGSAS: Income Statement (1986-90) . . . . . . 46Table 20. TUGSAS: Balance Sheet (1986-90) . . . . . . . 47Table 21. GUBRE FABRIKALARI: Income Statement . . . . . 48Table 22. GUBRE FABRIKALARI: Balance Sheet (1986-90) . . 49Table 23. AKENDIZ GUBRE: Income Statement (1989-91) . . 50Table 24. AKENDIZ GUBRE: Balance Sheet (1989-91) . . . . 51Table 25. EGE GUBRE A.S.: Income Statement (1986-91) . . 52Table 26. EGE GUBRE: Balance Sheet (1986-91) . . . . . . 53Table 27. KBI: Financial Highlights (1986-90) . . . . . 54Table 28. KBI: Balance Sheet (1986-90) . . . . . . . . 55

13. Use of Bank Resources . .. . . .. . . ......... 56A. Staff Input . . . . . . . . . . . . . . . . . . . . . 56B. Missions . . . . . . . . . . . . . . . . . . . . . . . 57

PROJECT COMPLETION REPORT

TURKEY

FIRST AND SECOND FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECTS(LOANS 1985 AND 2131-TU)

PREFACE

This is the combined Project Completion Report (PCR) for theFirst and Second Fertilizer Rationalization and Energy Saving Projects, forwhich Loan 1985-TU (US$110 million) and Loan 2131-TU (US$ 44.1 million)were approved on May 7, 1981 and April 27, 1982, respectively. The firstloan was closed on December 31, 1989, and the second loan, on December 31,1987. From the first loan, an undisbursed amount of US$ 11.81 million wascancelled and, from the second loan, an undisbursed amount of US$ .7.14million was cancelled.

The PCR was prepared by the EMENA Technical Department (onbehalf of the Industry, Trade and Finance Operations Division of the EMENACountry Department I) and the main comments of some loan beneficiaries intheir project completion reports are summarized in Part II.

Preparation of this PCR was started during the Bank's finalsupervision missions of the projects in 1990 and is based, inter alia, onthe Staff Appraisal Reports, the Loan Agreements, the Project Agreements,supervision reports, and financial reports of the companies.

- iii -

PROJECT COMPLETION REPORT

TURKEY

FIRST AND SECO!1 FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECTS(LOANS 1985 AND 2131-TU)

EVALUATION SUNMARY

Obiectives

The objectives of the Projects were to: (i) rehabilitate andmodernize six major fertilizer plants and one copper smelter (whichproduces sulfuric acid as a byproduct for fertilizer production) withparticular attention to eu:.gy saving and pollution control, and help raisecapacity utilization in the fertilizer sector from low levels; (ii) expandtraining programs; and (ii) carry out three studies (i.e. the FinancialManagement Improvement Study for TUGSAS, the Fertilizer Marketing andPricing btudy, and the Fertilizer Raw Material Resource Study) tofacilitate institutional and policy reforms as well as future planning ofthe fertilizer industry. The objectives of the Projects have been largelymet.

Im2lementation Experience

The implementation of both the Projects took significantly moretime than envisaged at the time of appraisal partly be;cause of projectscope changes following detailed inspection by engineerirng firms as well asby the changing pattern of demand for particular type of fertilizers.However, the main reason for the implementation delays was the change inthe approach to the rehabilitation work. At the time of the appraisal, itwas envisaged that the plants would be closed for the duration of theimplementation, and the rehabilitation work would be carried in one step.However, the companies decided subsequently at the suggestion of theGovernment to carry out the rehabilitation work with minimum dislocation toannual production as the country was experiencing foreign exchangeshortages to allow adequate import of fertilizers. Therefore, the actualrehabilitation work was carried out mostly during the emergency plantshutdowns and annual plant turn-arounds. In spite of project delays, therewas no cost increase in the first Project. However, in the second Project,there was significant cost increase mainly because the detailed inspectionby engineering firms showed that the copper smelter/sulfuric complex of KBIat Samsun required substantially more investment than estimated duringappraisal based on a consultant study. Even though the internal cashgeneration of companies fell short of the appraisal estimate to finance theProjects, the companies were able to make up the deficit through additionalcapital increases and/or domestic borrowing.

- iv -

Results

The design of the Projects were well-suited to rhe needs ofTurkey's fertilizer industry, considering that a large part of theproduction facilities were old and inefficient, and the capacityutilization in the fertilizer r3ctor was as Low as 40X in 1979, when theBank started evaluation of the Projects. The Bank-financed Projects havehelped increase the average capacity utilization in the fertilizer sectorto 75X in spite of the cutback of production in some plants because ofimports at artificially low prices due to fertilizer oversupply in theworld. As this oversupply situation is not expected to last long, thedomestic plants are expected to increase capacity utilization in the nearfuture when the world prices rise toward their long-term equilibriumlevels.

Technical problems of the plants have been overcome and theplant management is now giving mo-e attention to both preven.:ive and normalmaintenance. Companies have introduced computerized accounting andfinancial management systems but some have problems in retaining trainedpeople because of low salary scales. Local training of operating andmaintenance personnel were carried out as expected but the overseastraining of middle level management staff was curtailed because of theGovernment's reluctance to use Bank funds for overseas training. Technicaladvisors were not used effectively by all the beneficiary companies. Someof them (i.e. AKDENIZ, GUBRE and KBI) used technical advisors only duringthe initial part of the project implementation. The three studiesundertaken as part of the Projects had a major impact on pol.cy reforms andsector development. The Fertilizer Marketing and Pricing Study helped inthe process of fertilizer marketing and pricing reforms carried ou't in mid-1986. The Fertilizer Raw Material Resource Study helped in the planning ofthe fertilizer sector development. The Management Improvement Study forTUGSAS was carried out as Phase I of the overall Management ImprovementProgram. The recommendations of the Study were impleme.sted as part ofPhase II of the Program. The objectives of this program were not fullyrealized because of lack of adequate capable middle level managers.Further, the consultant services ended before they had trained adequateTUGSAS personnel for the computerized accounting and financial managementsystems.

SustainabiU&It

In spite of project delays, all plants rehabilitated under thetwo Projects are economically viable. The rehabilitation work has made thesix companies more attractive to privatization. One company, AKDENIZ, hasalready been privatized and Its performance has improved remarkably sinceprivatization in January 1990. Another company, GUBRE, is going throughthe procedures for privatization. Its operation became profitable in 1990after losses during the previous three years partly due to competition fromfertilizer imports at depressed world prices. The public sector bank,Ziraat Bankasi, is trying to sell its 49Z stake in the company. EGE, aprivate sector company, experienced losses during the last two yearsbecause of import competition at depressed prices and also due to laborstrikes. However, the company is expected to show regain profitabilitythis year. IGSAS, a public sector company, is operating above capacity and

v

has attained int-rnational competitiveness. Its financial profitabilityhas improved significantly since 1986, making it attractive forprivatization. The financial situation of the other two loanbeneficiaries, TUGSAS and KBI--two fully-owned state enterprises --isdeteriorating, with losses increasing partly due to ineffective managementand lack of adequate trained personnel, and partly due to delays inreceiving compensation payments and authorized share capital increases in atimely manner. Those companies should be given priority in the proposedGovernment program for privatization of state economic enterprises. Theoperation of these companies are potentially viable followingrehabilitation and this potential is expected to be realized with effectivemanagement after privatization.

Lessons Learned

The main lessons learned in the Projects, as discussed at the endof Part I, are: (i) the rehabilitation of old plants of different vintageis a complex task and this complexity has to br- taken into account morefully in determining the project implementation schedule; (ii) projectscope changes are to be expected in rehabilitation projects followingdetailed inspection by engineering firms and the bank should be receptiveto these changes when appropriate and react quickly to requests forrealloeqtion and/or cancellations; (iii) possible changes in demand forspecific products would necessitate changesi in project scope; (iv) full-time project teams are necessary for project success; (v) details of thetraining program should be worked out more clearly at the projectpreparation stage; (vi) more attention to be given to improving accountingand financial management systems of companies; and (vii) the Bank shouldexercise the remedies under the loan agreement in case the agreed covenantsare not complied with.

PROJECT COMPLETION REPORT

TURKEY

FIRST AND SECOND FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECTS(LCANS 1985 I.ND 2131-TU)

PART 1. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

1. PROJECT IDENTITY

Name : First & Second Fertilizer Rationalization andEnergy Saving Projects

Loan Numbers: 1985 & 2131-TURVP Unit EMENA RegionCountry TurkeySector : Industry (Fertilizer)

2. BACKGROUND

2.1 The Bank's involvement in Turkey's fertilizer industry began with aloan for the IGSAS ammonia/urea fer,Lilizer project in 1972, when thecountry's consumption of nutrients amounted to 375,000 tons of nitrogen (N),246,000 tons of phosphate (P) and 27,000 tons of potash (K). The domesticproduction of fertilizers, however, was not sufficient to meet the demand andlarge quantities were imported -- 345,000 tons of N, 136,000 tons of P andall of the potash (which Turkey does not produce). From 1972 until the endof the decade, the average annual growth rates in the consumption ofnutrients were 11% for N, 15Z for P and 5% for K. Turkey's fertilizerconsumption reached 779,000 tons of N, 660,000 tons of P and 38,000 tons ofK in 1979 when the Bank started evaluating the First FertilizerRationalization and Energy Saving Project for financing. Between 1972-79, aconsiderable quantity of fertilizer production capacity had been added,amounting to 610,500 tpy N and 278,800 tpy P. In 1979, the total nutrientproduction capacity in Turkey stood at 728,400 tpy N and 578,300 tpy P.However, it was still necessary to import a large part of the nutrientrequirements amounting to 437,000 tons e-? N and 298,000 tons of P in 1979.Fertilizer imports cost Turkey US$3177 million in 1979 and about US$500million in 1980. In addition, Turkey had to rely on imported fertilizer rawmaterials and intermediates such as phosphate rock, phosphoric acid andsulfuric acid. Also, the domestic production of ammonia was largely derivedfrom petroleum products (e.g., naphtha) derived from imported ̂rude oil.

2.2 Fertilizer production failed to keep pace with Turkey's needspredominantly due to the industry's inability to maintain an adequateproduction efficiency from the installed fertilizer plants. The averagecapacity utilization in the fertilizer industry was only 46% for N and 37Zfor P in 1979. Low capacity utilization was mainly due to: (i) technical

-2-

bottlenecks arising from design deficiencies and poor maintenance; (ii)inadequate imports of raw materials, intermediates and spare parts; (iii)

deficierncie3 in the supply of local raw materials end utilities, e.g.poor/uneven quality and unreliable supply of lignite, pyrites and rockphosphate, and shortages of pcwer and water; (iv) working cap4tal problems;(v) organization and management deficiencies, and (vi) lack of trainedmanpower.

2.3 The Government and a Bank preappraisal mission in March 1980identified seven fertilizer and intermediate product plsnt. as a highpriority for Bank financial/technical aesistance to eliminate technni"albottlenecks, improve capacity utilization, and achieve energy savings andpollution control. Project Preparation Facility (PPF) funds of 'JS$600,000were made av.ilable for foreign engineering consultants to complete;;reparation for the rehabilitation of the plants. It was agreed to implementthe Project in two phases since the task was complex and the required foreignexchange funds exceeded the amount that the Bank was prepsred to makeavailable at the time. At the time of appTaisal in December 1980, for thefirst Project, there were six companies in Turkey exclusively producingfertilizers from 15 product plants. In the public sector, two companiesoperated seven plants -- TUGSAS (6) and IGSAS (1). In the joint sector, fiveplants were operated by GUBRE (3) and AKGUBRE (2), and in the private secLortwo companies operated three plants -- EGE (1) and BAGFAS (2). Except forGUBRE's NPK unit and the private sector plants of EGE and BAGFAS, which cameon-stream in 1978 and 1980 respectively, the other plants had beencommissioned over the period from 1961 to 1974. In addition, three plantswere producing ammonium sulphate fertilizer as a by-product from the publicsector operations of one petrochemical and two steel complexes.

3. PROJECT OBJECTIVES AND DESCRIPTION

3.1 Prolect Obiectives. The two Projects, financed under two separateloans (1985-TU and 2131-TU), aim at increasing production, productivity andenergy efficiency in selected fertilizer facilities in Turkey through energysaving, rehabilitation and rationalization investments supported byappropriate technical assistance, institutional improvements and training.The main benefit to be gained from the Projects was an increase in annualfertilizer production of about '25 million tons. The Projects were also tohelp substantially increase '.e output of intermediate products forfertilizer production and annually release large quantities of naphtha andfuel oil for outside use as a result of substitution with refinery platformerand off-gases as feedstock and fuel for ammonia production. In addition,reductions in the specific material consumption per ton of nroduct was toyield significant savings in the consumption of sulfuric acid, phosphaterock, ammonia, energy, etc. and help reduce unit production costs.

3.2 Prolect DescriDtion. The first Project (Ln 1985-TU) covers threecompanies -- TUGSAS, IGSAS and GUBRE -- and four plants: the Kutahya II and

-3-

Samsun complexes of TUGSAS, the Izmit plant of IGSAS and the Yarimca plant ofGUBRE. The second Project (Ln 2131-TU) involvqs three companies 1/ --AKOUBRE, EGE and KBI -- and three plants: the Mersin complex of AKGUBRE, theEGE facilities at Foca and the Samsun plant of KBI (which produces sulfuricacid au a byproduct of its blister copper operation, for the fertilizerindustry).

3.3 The design of the Projects consists of five main components:

A. Rehabilitation and Ene:!a Saving Comgoneat: To rehabilitate existingplants and remove capacity-limiting bottlenecks in machinery and equipmentand to improve the plant economics through energy and feedstock-savingmeasures, as well as process revamping and, in some cases, expansion ofplar.t capacity. The first Project configuration included: (i) therehabilitation of TUGSAS's 340,000 tons per year (tpy) lignite-basedKutahya II calcium ammonium nitrate (CAN) fer.ilizer plant; (ii)modernization and rehabilitation of TUGSAS's 220,000 tpy triple super-pbosphate (TSP) and 230,000 tpy di-ammonium phosphate (DAP) fertilizercomplex at Samsun; (iii) modifications and conversion to use lower costrefinery gases to replace naphtha feedstock and fuel oil for the IGSAS511,500 tpy urea fertilizer plant; (iv) rehabilitation and modernizationof GUBRE's Yarimca 200,000 tpy T3P and 200,000 tpy complex fertilizer(NPK) plants, and the construction of a new 250,000 sulfuric acid plant atthLs facility to balance production. The second Project configurationincluded: (i) basic and detniled engineering for investments inrationalization and modernization of the Iskenderun plant and off-sitefacilities of GUBRE, conversion from 200,000 tpy TSP production to DAP andrehabilitation of the sulfuric and phosphoric acid plants; (ii)rationalization and energy saving modifications of AKGUBRE's 594,000 tpyCAN and 148,000 tpy DAP plants at Mersin and addition of a new 600 ton perday (tpd) ammonium sulphate (AS) fertilizer unit based on scrubbing wastesulfur dioxide (S02) gases with ammonia; (iii) rationalization of EGE's306,000 tpy complex fertilizer (NP) plant at Foca to enable production ofadditional fertilizer grades; and (iv) modernization and rationalizationof KBI's blister copper complex at Samsun and the pyrites-based 350,000tpy sulfuric acid plant for supply of the acid as feedstock to theadjacent TUGSAS phosphoric acid plant. Each of the above sub-componentsincluded in' -cment3 on 'ollution control measures.

B. Training Component: To provide financing to supplemer.t the trainingactivity and facilities under development for TUGSAS an(d IGSAS and toextend them to other fertilizer companies, which had no such facilities,for the purpose of: (i) implementing training programs; (ii) tr'ining oftrainers; (iii) supplying training aids and equipment; and (iv) creating

l/ After the cancellation of the Iskenderun subproject of GUBRE goonafter loan approval. GUBRE cancelled the subproject as the demandfor TSP and DAP began to declire in Turkey.

-4-

training centers. In addition, training in critical areas (i.e.,preventive and operaticnal maintenance) would involve the use of foreignexperts and the foreign training of selected personnel from the companieswho woi.ld be sent abroad for specialization.

C. Management Improvement Component: 1/ To address theorganizational and managerial problems of TUGSAR. covering its six plantsloceted in different parts of the country, and fo.lasing on operationaland financial management strategies with respect to: (i) admisetment of theorganization for increased operational efficiency; (ii) delegation ofauthority to plant level management; (iii) improvement in maintenance,inventory control, and energy management; (iv) compensation policyimprovements to minimize turnover of professional,; and (v) introductionof mode n accounting financial management techniques.

D. Fertilizer Marketing and Pricint Study Component: 2/ Forrationalizing the fertilizer transportation, storage and distributionsys.ems and the fertilizer pricing mechanism.

E. Fertilizer Raw Material Resource Study Component: 3J For reviewof fertilizer raw material resources in Turkey for development of theindustry based on local resources.

4. PROJECT DESIGN AND ORGANIZATION

4.1 The design of the Projects was technically well fitted to the needsof Turkey's fertilizer industry, considering that a large part of itsproduction capacity was aging, inefficient and unable to respond to thecountry's demand for fertilizers at the time of project identification. Theneed for the rehabilitation and energy saving measures was clear to theindividual companies, which initially identified the problems in theirplants, and also to the authorities.

4.2 Nevertheless, due to changes that subsequently took place in therelative prices of imported inputs, such as rock phosphate, sulfur,phosphoric acid, etc., and the changes in the demand pattern (i.e., thedeclining demand for TsP and the rising demand for NPK), the scope of theGUBRE sub-component under the first loan was revised. Rehabilitation of theTSP complex, including a revamp of the phosphoric acid plaut and constructionof a new sulfuric acid plant was cancelled. Instead, it was decided to

1/ Included under Loan 1985-TU.

2/ Included under Loan 2131-TU.

3/ Included under Loan 2131-TU

- 5 -

expand NPK production capacity at Yarimca by establishing a new NPK plant(NPK II) to meet the increasing domestic demand for the product. Further,when gas became available in Turkey from the Soviet Union with theconstruction of the gas pipeline, the scope of the IGSAS subproject wasmodified to use natural gas, the most efficient feedstock for nitrogenousfertilizer production.

4.3 Under the second loan, GUBRE decided with the agreement of the Banknot to pursue the basic design and engineering for rehabilitation andconversion of the old Iskenderun TSP complex to DAP; production of DAP atIskenderun was deemed unattractive as the demand for it was showing less thanexpected increase in Turkey. The Company, therefore, decided to phaseout theoperation at Iskenderun. Furthermore, AKGUBRE decided not to construct a new600 tpd AS fertilizer unit at Mersin as proposed originally, due to the lackof growth in local demand for that product. EGE also modified the scope ofits subproject for additional investment on its raw material and producthandling facilities.

4.4 As it later became evident, the importance of a strong institutionalcapability for project management was underrated by the companies in view ofthe projects' extensive technical scope and the companies' need fororganizing effective project teams at the companies' head offices and plants.As a result, some companies such as TUGSAS, AKDENIZ and KBI, were not able tomake the most efficient use of technical advisors/consulting firms.

4.5 Each company formed a project team responsible for implementing thesub-projects by using their senior engineers experienced in the planttechnologies involved. In the case of TUGSAS and GUBRE, the services oftechnical advisors for project management and the provision of technicalassistance and training for its team was recognized to be essential, as theyhad limited in-house expertise in executing new process plant projects and inimproving plant operations. The other companies' project teams were judgedto be adequate to supervise and expedite the implementation work to becarried out with the assistance of the foreign engineering firms. Upon loaneffectiveness, Scientific Design (UK) was selected as technical advisor (TA)to TUGSAS and GUBRE following Bank guidelines for consultants. While TUGSAScontinued with TA until project completion, GUBRE used TA only during theinitial part of project implementation. Some other companies utilized theservices of project management advisors during part of the projectimplementation period -- Haldor Topsoe for EGE, Cremer & Warner (UK) forARGUBRE, and Boliden Contech (Sweden) for KBI. In general, the projectmanagement capability of the companies was inadequate. More extensivetechnical supervision by consultants would have contributed to reducing thelong implementation period.

4.6 The Project was basically well prepared in terms of the projectdesign with regard to overcoming the deficiencies prevailing in the sector.However, in view of the deterioration in the physical condition of manyproduction units and their age, it was necessary at the time to execute thetwo Projects covering a wide scope, which increased the burden on the

organizations cincerned and partly caused considerable delays in projectimplementation.

5. PROJECT IMPLEME.ATATION

5.1 Loan Effectiveness and Prolect Commencement. Ln 1985-TUR for thefirst phase of the Project was approved on May 7, signed on May 15 and becameeffective on August 28 of 1981. Ln 2131-TUR for the second phase wasapproved on April 27 and signed on May 13 of 1982, but did not becomeeffective until April 13, 1983. The 11-month delay in effectiveness was dueto the drawn-out procedures in Turkey for finalizing the onlendingarrangements through the financial intermediaries and negotiations betweenthem and the beneficiary companies.

5.2 Procurement. Process licensing agreements, existing between thefertilizer companies and the design and engineering firms which built theoriginal plants, dictated that the process units be rehabilitated/revamped byusing the same firms. Therefore, the companies began contract negotiationswith the original lead engineering firms, mostly requiring their detailed andtime-consuming inspection of the condition of the plants. The negotiations,however, became extremely prolonged on account of: (i) refusal by DavyInternational (FRG) to provide guarantees on performance of the TUGSASphosphoric acid, TSP and DAP plants at Samsun after rehabilitation. Theproblem with Davy was overcome by engaging SIAP2 (Tunisia), which also usesthe Davy process, strengthened with some Davy engineers; (ii) the inabilityof TUGSAS to obtain satisfactory contract terms with Krupp-Koppers (KK) andacceptable performance guarantees for the Kutahya II facilities after therehabilitation work. The work was thus divided into five main contracts,each awarded to the firm responsible for the original unit of the complex --Babcock (US) for coal preparation/boilers, KK (FRG) for coal gasification,GHH (FRG) for gas compression, Linde (FRG) for air separation, and AmmoniaCasale (Italy) for ammonia synthesis; and (iii) the reluctance by Uhde (FRG)to give IGSAS adequate performance guarantees for its ammonia/urea plantmodifications.

5.3 Following the Yarimca project scope changes, GUBRE was able underinternational competitive bidding (ICB) to engage Krebs (France)/ENTES(Turkey) as the engineering contractor. AKGUBRE completed an engineeringservices contract with Kellogg (Holland), the original engineering contractorfor the Mersin complex, but experienced long delays in negotiating thecontract, including the demand by Kellogg for detailed inspection of thefacility's condition. However, the engineering firm, INTECSA (Spain), wascontracted for the modifications to ECE's complex fertilizer plant at Foca,close to schedule. Engineering services for the KBI sub-component wereprocured late under ICB, following the contractors' detailed inspection ofthe smelter plant (by Furukawa Ltd., Japan) and the sulfuric acid unit (bySirychamon Impianti, Italy) at Samsun. Procurement, in general, was executedsatisfactorily and in accordance with the Bank guidelines. The engineeringcontractors carried out the bulk of procurement for the machinery, equipment

- 7 -

and materials but the companies also took part in the overall supervision ofthe procurement work with assistance from their technical advisors.

5.4 Implementation and Schedule. The above delays in the commencementof work by the main contractors compared to the assumptions of the StaffAppraisal Reports (SARs) were the following: (i) the effective dates of thefive contracts for the Kutahaya II plant lagged behind the SAR estimate by 22months for the KR contract and up to 28 months for the Linde contract; (ii)similarly, at Samsun, the beginning of the Lurgi contract for the sulfuricacid unit fell 16 months behiid the original schedule and the SIAPE contractlagged by 20 months; (iii) the Uhde contract with IGSAS was delayed by3 months; (iv) the scope changes by GUBRE after prolonged study of changingmarket conditions and available options for the revised project configurationcaused a 34-month delay; (v) the start of the Kellogg contract for Mersin waslate by 17 months; (vi) INTECSA's contract with EGE at Foca was delayed by 2months; and (vii) at Samsun, KBI's two contracts with Furukawa (for theblister copper unit) and Sirychamon Impianti (for the sulfuric acid unit)began late by 24 and 26 months, respectively. In addition, the measuresrequired earlier for meeting the conditions to enable the Bank to declareloan effectiveness took longer than expected, especially for the second loan.

5.5 The actual periods of execution, from contract effectiveness tocompletion of rationalization of the facilities, became considerably extendedin most cases compared to the SAR schedules. As a result, the relativeoverruns for the individual sub-projects, in terms of months, were thefollowing: (i) the Kutahya II complex, on average for the five contracts --9 months; (ii) the Lurgi contract of Samsun (TUGSAS) -- 19 months; and forthe SIAPE contract -- 51 months; (iii) the Uhde contract for IGSAS asoriginally conceived -- 21 months; (iv) the Krebs/ENTES contract for GUBRE'srevised sub-project scope for Yarimca -- 29 months; (v) the Kellogg contractfor Mersin -- 7 months; (vi) INTECSA's contract for Foca -- 2 months; and(vii) the Furukawa contract for Samsun (KBI) -- 24 months, and for theSirychamon contract -- 22 months. It should be noted, however, that theseapparent delays often were partly due to scheduling of the rehabilitationwork during periods when plants were shut down, for annual maintenance and/oremergency repairs. Production of fertilizers, therefore, continuedthroughout project implementation at varying levels of output. This approachwas followed by companies to minimize the decline in production duringproject implementation as the demand for fertilizers was growing fast and theGovernment was experiencing serious foreign exchange difficulties to allowadequate fertilizer imports. At the time of appraisal, it was assumed thatthe plants would be closed continuously during rehabilitation and the workwould ba carried out over a shorter period.

5.6 To a certain extent, more efficient project management could havehelped reduce the time taken for execution of the project. Considering theheavy workload for the TUGSAS components, the company deployed a team ofabout 30 staff at its headquarters but at the project sites the number offull-time team personnel was quite inadequate. For Yarimca, GUBRE had notestablished a project team until at least 16 months after loan effectiveness

as they were studying options for the revised project scope. Late. on, theproject management capability was improved with the assistance of the projectmanagement advisors. However, these advisors' services were terminatedbefore the project was completed.

5.7 In summary, the slow start and late completion of therehabilitation/energy saving component of the Projects was mainly due to: (i)the engineering firms insistence on detailed inspection of the plants beforepreparing their bids (in addition to the available consultant reportsprepared for the companies); (ii) the need for the fertilizer companies toapproach the original engineering firms, which initially opposed givingsatisfactory performance guarantees and quoted high prices in the absen e ofcompetition, leading to protracted negotiations; (iii) GUBRE's revisions ofthe project scope of the Yarimca complex, which called for re-bidding;(iv) other companies' minor revisions to the scope of their sub-projects; and(v) the companies' requirement for minimizing decline in production offertilizers during the project execution period. Thus intermittentinstallation and repair of machinery and equipment was carried out as far aspossible at the time of operational shutdowns for emergency repairs and/orduring annual turn-arounds.

5.8 The Management Improvement contract was awarded early in 1982 toPrice Waterhouse (US) in collaboration with MUHAS, a local consulting firm.Their report recommendations were accepted and on this basis they continueduntil April 1984 to assist the implementation of a management programinvolving key reforms in TUGSAS and other state economic enterprises (SEEs),including design of a computerized management information system (MIS) andstreamlining of the financial management and accounting systems. One problemfaced by TUGSAS in this context was in the training of adequate personnel andthe difficulty of retraining trained personnel at low salary scales.

5.9 The local consultants, TUMAS, cooperated with a Danish consultingfirm, DARUDEC, in carrying out the Fertilizer Marketing and Pricing Studybeginning early 1982, under the supervision of a governmental steeringcommittee and a follow-up unit of the State Planning Organization. Upon itstimely completion and acceptance by the authorities, the studyrecommendations were implemented under the Bank Agriculture Sector Loan of1984. The Fertilizer Raw Material Resource Study contract, awarded to SEMA(France), was carried out satisfactorily, from early 1983 to March 1984, andthe findings were taken into account in the Government's planning for futuredevelopment of Turkey's fertilizer industry.

5.10 The objectives of the Training Component were not adequatelyachieved in view of: (i) the concentration on contractual difficultiesexperienced during early stages of the Project; (ii) the companies' focus onminimizing decline in fertilizer production; (iii) the Projects' extensivescope and heavy workload of the staff; and (iv) difficulties in gettingpermission by the Government to send personnel for training abroad. Theactivities were generally limited to on-site training by the contractors'specialists and the use of video training programs on plant operation,

-9-

maintenance, instrumentation and control. In the case of GUBRE, they sent asmall team to the contractor's office and to fertilizer plants in France fora relatively short period.

5.11 Proiect Costs and Financing. Although prolonged delays wereexperienced in the implementation of both the first and second fertilizerrationalization projects for reasons already noted, the plant rehabilitationcosts of the first project were lower than the appraisal estimate by US$22.2million (9.4%), partly due to the changes by GUBRE in the scope ofrationalizat'.on for its Yarimca complex. However, the main reason was thatduring 1983-85, when awards for the major engineering contracts and the bulkof the machinery and equipment procurement took place, the world market forthe supply of capital goods to the chemical process industry was depressedand very competitive prices were available; and the appreciation of the USdollar over the same period also had a favorable impact. The saving in theoverall cost of the first project was achieved in spite of the fact that theTUGSAS subproject at Samsun experienced an overrun of US$14.8 million due tothe cost of additional modification/rationalization agreed subsequent to theloan approval, which was financed out of loan surpluses from othersubprojects.

5.12 The second Project, undertaken one year later than the first, alsobenefited from the depressed market for equipment, competitive prices anddollar appreciation during 1983-85. Further, the GUBRE subproject for therehabilitation of the Iskenderun plant was cancelled (for which there was aloan allocation of 6.1 million) by the company management because of thedeclining demand for TSP and less than anticipated growth rate in the demandfor DAP. In spite of the above factors, there was a cost increase of US$30.4million equivalent (39%) because of a large increase (by TIS$32 millionequivalent) in the total cost of the KBI subproject at Samsun, partly due tothe extended execution period, but mostly because the detailed inspection ofthe complex by the engineering contractors revealed that the extent ofrehabilitation required was much greater than originally estimated by KBIwith the help of foreign consultants. As for the overall total costs of thetwo Projects, there was a net saving of US$7.2 million (2.3%) against theappraisal estimates .

5.13 As shown in Table 5 of Part III, the actual total financing requiredfor the two projects was US$321.1 million of which US$192.1 million was inforeign exchange. The Bank loans (net of cancellations) financed 65Z of thetotal financing required. A problem was experienced in finding internal cashgeneration to finance the Projects to the extent anticipated at the time ofappraisal, especially in the case of TUGSAS, GUBRE, AKDENIZ and KBI. Theshortfall in cash generation (due to low world fertilizer prices whichdetermine the domestic ex-factory prices in Turkey to a large extent sincemid-1986) and heavy interest rate burden (because of the high cost ofborrowing from local banks for working capital when the receivables ofcompensation payment from the Government to cover farmer fertilizer subsidytook more than three months for settlement). The shortfall in cashgeneration for project financing was made up partly by the infusion of new

- 10 -

capital by shareholders (the Government and/or private) and partly bydomestic borrowing. The first project was financed on a debt/equity ratio of50/50 (against the appraisal estimate of 47/53) and the second Project wasfinanced on 60/40 debt/equity ratio (against the appraisal estimate of52/48).

5.14 Disbursements. Estimated vs. actual disbursements are given in Table1 of Part III. Disbursements of the Bank loans were delayed by: (i) the slowinitial implementation period caused by the drawn-out process of engaging themain engineering contractors, following detailed plant investigations andprotracted negotiation of contracts; (ii) changes in scope of somesutbprojects; and (iii) execution of the rehabilitation work mainly duringemergency repairs and the annual shut-down of plants (for maintenance) tominimize disruption of production. As a result, the Bank granted threeextensions for Ln 1985-TU, each of one year, extending up to December 31,1989. The Closing Date for Ln 2131-TU remained unchanged at June 30, 1987.

5.15 Loan Allocations. The original and revised allocations and finaldisbursements by beneficiaries are shown in Table 4 of Part III. Aconsiderable degree of revision to the original allocations took place forreasons Previously mentioned, mainly attributable to lower than expectedprices for machinery and equipment and also the changes in scope of somesubprojects. Taking into account the changes in the project scope and thecost savings in foreign exchange, there have been cancellations from both theloans as shown below. Taking into account the cost savings and based onrequests received by the beneficiaries through the Government (the Borrower),part of the loans were cancelled from time to time as shown below:

- 11

Loan 1985-TU Loan 2131-TU

I. Original Loans US$110 US$44.1

II. (a) Cancellations (Ln 1985-TU):- April 23, 1986 6.000- January 1, 1989 3.000- August 7, 1989 0.066- December 20, 1989 0.379- March 14, 1990 2.381- Sub-Total 11.8?6

II. (b) Cancellations (Ln 2131-TU):- April 10, 1983 6.100- July 24, 1986 8.200- December 7, 1987 2.842- Sub-Total 17.142

III. Net Disbursement 98.18 26.958

6. PROJECT RESULTS

6.1 Proiect Obiectives. The Projects have generally met technicalobjective to improve the operational performances of fertilizer plants inTurkey selected by their need for rehabilitation/modernization. This hasnecessarily been achieved, however, with significant changes in the scope ofcertain subprojects in order to adjust to the changing fertilizer consumptionpatterns in the country and to take advantage of and/or react to changeswhich took place in the raw materials and intermediate feedstock situations,in terms of pricing and availability, during the implementation periodlasting through the 1980s. For example, the Yarimca TSP subproject wasrestructured to supply the increasing demand for NPK fertilizers; IGSASultimately changed its ammonia production base from expensive naphtha tocheaper and more efficient natural gas feedstock; and other firms de-emphasized phosphoric acid production in favor of low-cost importation of theintermediate. The declining demand for TSP led to the cancellation of theIskenderun subproject; and AKGUBRE cancelled its plan to produce low-nutrientammonium sulphate fertilizer because of import competition at depressedprices. Such changes, however, were all consistent with the overallcbjectives of the Projects to modernize and upgrade performance of Turkey'sfertilizer industry and economically meet the country's fertilizerrequirements. As a result of the two Projects, it is to be noted that theaverage capacity utilization in the fertilizer sector in Turkey has increasedfrom about 40 percent in 1979 to about 75 percent in 1990. The production ofN and P increased during the last decade by 1162 to nearly 1.8 millionnutrient tons in 1990 (Table 15 of Part III).

- 12 -

6.2 Technical Performance. The Projects succeeded in the attainment ofmuch improved and satisfactory fertilizer production rates, on a sustainablebasis, from the rehabilitated facilities; while the overall investment costsin doing so have remained generally in line with the initial estimates,despite the prolonged implementation period and taking into account the scopeof changes and cancellations that became necessary. The Projects havesucceeded in achieving better efficiency in material consumption andattaining considerable (10-15 percent) energy saving in different plants.Training under the Projects which was mostly organized locally, has helpedimproved efficiency especially in operation and maintenance.

6.3 Sectoral Roforms. The Fertilizer Marketing and Pricing Studycarried out under Ln 1985-TU, led to the liberalization of the fertilizermarketing system as weli as to the reform of the fertilizer pricing system.As a result of the marketing reform DONATIM and SEKER do not now have themonopoly for fertilizer marketing, even though they are still active infertilizer distribution in competition with other distributors (public andprivate) including fertilizer producers and importers. Imports have beenliberalized and protective tariffs have been reduced to low levels (as shownin Table 15 of Part III). Under the current fertilizer pricing system, theGovernment does not subsidize fertilizer plants for their losses. However,the Government continues to subsidize fertilizers to farmers. The subsidiesrange frcm 27 percent to 52 percent, depending on the type of fertilizer (asshown in Table 16 of Part III). The total amount of fertilizer subsidy hascome down in current terms from US$623 million in 1981 to about US$450million in 1990. However, the fertilizer subsidy level is still high and itis one of the causes of the budget deficit in Turkey.

6.4 Financial Performance. The financial statement of the loanbeneficiaries are shown in Tables 17-28. TUGSAS, GUBRE, AKDENIZ and KBI werenot able to generate internal funds to the extent envisaged during appraisal.They relied partly on capital increase by shareholders and partly on loansfrom local banks to make up the shortfall in cash generation to finance theprojects.

6.5 Among the beneficiary companies, IGSAS and EGE are financially soundand are able to meet the covenants agreed with the Bank with respect toliquidity, financial structure and debt service. The financial situ.ation ofAKDENIZ, which had deteriorated because of the year-long labor strike in1989, is showing improvement under the new management following privatizationin early 1990. GUBRE has improved its liquidity and financial structure withthe injection of additional capital by shareholders. In 1990, the companyregained profitability following losses during the preceding three years.There is a continuing financial crisis in both TUGSAS and KBI (Tables 19-20and 27-28 of Part III). They are not able to meet the financial covenantsagreed with the Bank.

6.6 The problems of TUGSAS and KBI are partly due to overstaffing, pooroperational, maintenance and inventory control systems, lack of use of modernaccounting and financial management systems, inadequate attention to cost

- 13 -

control, productivity improvement and marketing, and difficulty in attractingand retaining qualified and competent personnel. TUGSAS performance is alsoadversely affected by delays in receiving payment of farmgate fertilizersubsidy from the State and delays in authorized capital injections from theGovernment (the sole shareholder) which necessitate the Company to borrowshort-term loans (which are often rolled over) from commercial banks at highannual interest rates (ranging from 60-70 percent) for working capi4tal andinvestment purposes.

6.7 TUGSAS is not able to make debt service payments. The Governmenthas been making those payments on behalf of TUGSAS. The Government ischarging 60 percent interest on these payments. In this context, the Bankhas suggested to the Government to write-off those pryments against theGovernment's outstanding unpaid capital to TUGSAS. This measure is necessaryas a part of the financial restructuring of TUGSAS to make its prospectiveprivatization attractive to investors.

6.8 KBI's financial situation deteriorated sharply in 1990 (Tables of27-28 of Part III) partly due to a 75-day labor strike and partly due to athreefold increase in wages. KBI is not able to service its debt and theEXIM Bank (formerly DYB through which the IBRD loan portion to KBI waschannelled) is doing the debt servicing on behalf of KBI. KBI should get itsshare capital increased and pay off the outstanding payments to the EXIMBank. These measures would improve the prospects for the privatization ofKBI.

6.9 Sales Price. Under the price reforms carried out in the sector inmid-1986, fertilizer producers/distributors have the flexibility to determinethe farmgate price. They, however, get a farmgate subsidy per ton of productsold from the Government (Table 16 of Part III). This subsidy which isdetermined by the Government on a product by product basis, changes more orless every six months. Even though price controls on the farmgate price havebeen removed, the Government distributing agency, DONATIM, is still themarket leader in setting farmgate prices. Further, the world fertilizerprices which influence the ex-factory fertilizer Drices including thefertilizer farmer subsidy fixed by the Government, con.'nue to be depressed.As a result, fertilizer companies (except IGSAS which has a comparativelymodern plant and which operates very efficiently) have not been showing muchfinancial profitability. This situation is expected to change in the futurewhen world fertilizer prices are projected to increase in real terms as worldsupply/demand situation for fertilize2. tighten because of low investment inthe world on new fertilizer plants in the 1980's due to fertilizer oversupplyand depressed prices. When world fertilizer prices recover and approachtheir long-term equilibrium levels, the local ex-factory prices would alsoincrease in Turkey, making the operation of fertilizer plants moreprofitable.

6.10 Financial and Economic Rates of Return. The financial and economicperformance of the Projects are shown in Tables 11-12 of Part III. Thefinancial and economic rates of return for the subprojects are substantially

- 14 -

lower than the appraisal e.'imates partly because of project delays andpartly because of prolonged depression of the domestic and world fertilizerprices during the 1980s. However, taking into account the projected recoveryin world fertilizer prices in the future and consequent increases in thedomestic fertilizer prices in Turkey, all the subprojects show acceptableFRRs and ERRs. The FRRs range from 14.4 percent to 27.1 percent; and theERRs range from 9.2 percent to 31.9 percent. Among the subprojects, KutahyaII (of TUGSAS) is showing the lowest economic rate of return (9.2 percent)because ammonia production in that plant base oi lignite has been curtailedsince the completion of rehabilitation in 1987 because imported ammonia (dueto depressed market conditions) had been available at prices lower than theammonia production cost at Kutahya II. This situation is expected to changein the future as world ammonia prices rise to their long-term equilibriumlevel, inducing the Kutahya II ammonia plant to maximize capacityutilization.

6.11 ImDact of Prolects. As nored, in spite of project delays and lowerthan expected world fertilizer prices, all components of the two projects arestill economic. The projects have helped overcome the technical problems ofthe selected fertilizer plants in Turkey. As a result, the overall capacityutilization in the fertilizer sector in Turkey has gone up from hardly 40percent in 1979 to about 75 percent in 1990. The projects have alsocontributed significantly to energy saving (10-15 percent) and reduction inenvironmental pollution. Further, the three studies (i.e. the FertilizerMarketing and Pricing, the TUGSAS Management Improvement Study and theFertilizer Raw Material Resource Study) have contributed to significantreforms and improvements in the fertilizer sector.

6.12 Privatization. Through the physical restructuring of the plantswhich were operating at very low capacity because of serious technicalproblems, the Projects have improved the prospects for the privatization ofthe rehabilitated complexes. The Government has already announced itsintention to privatize all state economic enterprises (SEEs) including TUGSASand KBI. One fertilizer company, AKDENIZ, has already been privatizedfollowing rehabilitation. Fifty one percent share in that company wasacquired by TOROS GUBRE, a private sector fertilizer company in Turkey. Asa result, the management control of AKDENIZ has been assumed by TOROS GUBREfrom January 1990. Since privatization, measures have been taken to reducethe debt of the Company in order to improve its future profitability (Tables23-24 of Part III). Currently, the state-owned Ziraat Bankasi, which holdsabout 49 percent of the shares of GUBRE (a beneficiary of Ln. 1985-TU) istrying to sell them as under the new Banking Law all commercial banks areencouraged to divest their share holdings in industrial enterprises.Further, in the case of IGSAS, whose operational efficiency is comparable tomodern plants in the world following modernization (under Ln 1985-TU), 1/

1/ In the IGSAS plant, the energy consumption per ton of ammonia, forexample, has declined by about 14 percent from 10.1 million kcal to 8.7million kcal following modernization. Further, the plant is currently

- 15 -

there is strong private sector interest in its privatization. EGE, anotherbeneficiary (under Ln 2131-TU), is in the private sector.

7. Compliance with Covenants

7.1 All covenants have been complied with except:

- The Government has not streamlined payment procedures tofertilizer producers and has not adopted effective administrativeprocedures to ensure that producers are paid in a timely manner. This hascreated a financial crisis in some companies in the fertilizer sector.

- TUGSAS and KBI have not taken measures to get annual accounts tobe prepared promptly and satisfactorily by training more accountants andusing external accounting firms, if necessary, so that the High AuditingBoard could finalize the audit within four months of the end of theaccounting period.

- TUGSAS and KBI are not meeting the current ratio covenant and thedebt service coverage covenant. ADKENIZ, which is improvingproduction performance since privatization in January 1990, is notyet able to meet the current ratio covenant.

8. Prolect Sustainabilitv

8.1 As noted, technical problems of the plants of TUGSAS, IGSAS, GUBRE,AKDENIZ, EGE and KBI have been overcome, and the plants are economicfollowing rehabilitation/modernization. As for the individual companies,IGSAS has been meeting the financial covenants (current ratio of 1.3:1,debt/equity ratio of 60/40 and debt service coverage of 1.5 times) since1987. GUBRE, which did not meet some financial covenants during 1986-89, wasable to meet all the covenants in 1990 because of sharp increases in itscrading activity and improvement in financial management. AKDENIZ, which hadalso problems in meeting financial covenants during 1986-89, is showingimprovement in financial performance following privatization in January 1990.In 1990, it was able to have a debt service coverage ratio of over 1.5 timesand a debt/equity ratio of lower than 60/40. EGE, the private sectorcompany, showed losses during 1989 and 1990 due to strong comp:tition fromimports at low prices and also due to labor strikes. It was not able to meetthe debt service coverage ratio of 1.5 times during those years. However,its financial position is forecast to improve in 1991 with the rising worldfertilizer prices and the resolution of the labor problem. TUGSAS and KBI,as noted, are continuing to face serious financial problems. As noted theyhave been showing losses during 1987-90 and have not been able to meetfinancial covenants. Their financial situation might get worse partly due tohigh short-term borrowings at high interest rates. The plants of both TUGSASand KBI are, however, economic. (The economic viability of the Kutahya II

operating at slightly above the attainable capacity.

- 16 -

plant of TUGSAS could be improved with further investment for switching overfrom lignite to natural gas as feedstock). Bank has urged the Government toprivatize TUGSAS and KBI on a priority basis consider4-g the fact that theirfinancial losses have been increasing in spite of their potential forprofitable operation. They are expected to regain profitability followingproposed privatization.

9. Bank Performance

9.1 The bank helped the Government develop an overall program forrehabilitation/modernization of the fertilizer sector through a projectpreparation fund (PPF) advance. A consultant study subsequently provided thebasis for rehabilitation/modernization of the fertilizer industry in Turkey.As the task was very complex, it was decided to carry it out in two Bankoperations involving six companies and eight plants. The Bank showedflexibility in changing the project scope of some subprojects when it wasjustified in the light of (i) the changing demand pattern for fertilizers;(ii) the international price situation for fertilizr- intermediates andfinished products; (iii) results of detailed plant inspection by engineeringfirms prior to bid offers; and (iv) a changing situation with respect tofertilizer feedstock supply (e.g., the arrangements for supply of Sovietnatural gas to Turkey which were made following the Bank approval of theProjects). The Bank also showed flexibility in agreeing to a change in theapproach to the implementation of the plant rehabilitation/implementationwork. As a result, most of the work was carried out when the plants weredown for annual maintenance and/or emergency repairs. This was agreed tominimize decline in fertilizer production during Project implementation. Theoriginal approach proposed at the appraisal stage was to carry out therehabilitation/modernization work in one step by closing the plants. As a result of thechange in the approach, the Project implementation took a much longer timethan originally estimated. Therefore, the time required for supervision ofthe two Projects was significantly more than anticipated earlier.

9.2 The Bank served as a catalyst in the privatization of one fertilizercompany (AKGUBRE) in January 1990 follawing the completion of rehabilitationof its plant at Mersin. The company performance has improved remarkablysince privatization. The Bank is now working with the Governrent in theprivatization of other beneficiaries of the two loans in the public (i.e.,TUGSAS, IGSAS and KBI) and joint sectors (i.e., GUBRE).

9.3 The Bank has also played an important role in designing the projectswith particular attention to energy saving and reduction in environmentalpollution. As noted, results in iese areas have been significant.

9.4 The main shortcomings in the Bank's role in the Projects were: (i)the price assumptions for financial and economic calculations provedoptimistic; (ii) the change in the pattern of demand for specific productsfollowing price liberalization was not foreseen clearly at the time ofappraisal; (iii) the option of project implementation over a longer period

- 17 -

with a view to minimizing production declinn wae not exami ed closely; and(iv) the Bank did not put adequate pressure on the Government and thecompanies during annual project implementation reviews to rectify violationof financial covenants in a timely manner.

10. Borrower's Performance

10.1 The Government (the Borrower) worked closely with the Bank andprovided full support to the rehabilitation of the fertilizer sector.However, it did not take prompt measures to rectify the non-compliance withfinancial covenants by loan beneficiary companies such as TUGSAS, KBI, GUBREand AKDENIZ . Further, in the case of TUGSAS and KBI, in which theGovernment is the sole shareholder, the authorized capital increases to thecompanies were not paid in a timely manner, causing liquidity and debtservice problems for the companies. Moreover, the Government is continuingwith farmer fertilizer subsidy which costs the Treasury about US$450 milliona year. As the Price Stabilization Fund from which the fertilizer subsidy ispaid is often short of money, the Government is not able to provide thecompensation payments to fertilizer producers in a timely manner. Thissituation has caused a major working capital problem for the fertilizercompanies in general. With the Gcvernment payments being delayed too long(3-4 months), the companies have to resort to short-term borrowings at highinterest to finance working capital. As a result, the interest burden onfertilizer companies have increased sharply in recent years. Further, theGovernment has been slow in proceeding with the privatization of fertilizercompanies, in spite of the announced policy for privatization of state-ownedenterprises in general. The fertilizer companies which have had their plantsrehabilitated under the two Bank loans are ready for privatizationi and theGovernment should give priority to these in the privatization process.

11. Consulting Services

11.1 A number of consulting and engineering firms were involved in theexecution of the subprojects under the two loans. Overall, their performancewas satisfactorv. However, their performance could have improved if all thecompanies had full-time project teams with capable company personnel. In thecase of one foreign engineering firm which had a local sub-contractor for aspecific task in the GUBRE plant, the foreign firm experienced problems withthe local sub-contractor as the latter refused to carry out certainmodifications which the foreign firm recommended.

- 18 -

12. Lessons

12.1 The main lessons learned from the projects can be brieflysummarized as follows:

(a) Complexity of revamping old plants of different vintage have tobe taken into account more fully in determining the projectimplementation schedule; and more attention is needed for riskassessment of those old plants.

(b) While financing rehabilitation projects, agreements should besought on a schedule for privatization.

(c) Project scope changes are to be anticipated in rehabilitationprojects as detailed plant inspection work progresses.

(d) Possible changes in the pattern of demand for specific productshave to be taken into account in determining the project scope.

(e) It is necessary to include a bonus/penalty clause inengineering and construction contracts to expedite projectcompletion.

(f) Full-time project teams staffed with adequate experienced andcapable personnel are essential for successful implementation.

(g) Details of the training program, especially training ofselected personnel abroad should be worked out during projectpreparation.

(h) More attention should be given to improving accounting andfinancial management aystems in public sector companies.

(i) The approach to Bank forecasting of fertilizer prices needreview.

(j) Bank should exert more pressure on the Govenment and loanbeneficiaries to comply with covenants in the legal documents.

- 19 -

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

TfHE REPUDBILIC OF TURKEYPRIME MINISTRY

TH1E UNDERSECRETARIAT OF TREASURY AND FOREIGN TRADE

Ref:DFt-rV-4-!55/85 Ankara, January 6,1992

Mr.Vranco BATZELLA ENERGY DCVISION

Indubtry and Enoergy Divinion CORRESMi"D4ENCEESU, CD 1 LOG NO.:ThP. World hank DATE RE'D:httshiii gton l).C. ASSIGiNED TO AU.S1.3A.

0DAT E R ESZD -ITL-

Ref: Project Completion Report of First and SecondFertilizer Rationalization and Energy Saving Projects.

!'irst of all, we would like to extend our deep appreciationfor your invaluable contributions and kind cooperation during theimplementation peri.od of the referred projec:t and also for wellpreparecl Proaject. Completioll Itcport (PCR).

To start with, we have some comments on the serntionconcerving Dorrower'Si Performance.

Concerning the TreaRury's action on belhlf of the Borrowerin the PCR, it's mentioned that Treasury did not take promptmeasures to rectifv the noncompliance with financial covenantsby loan beneficiary companies. Even It was the fact that theTreasury had from time to time some difficulties in compensatinglon )beneficiaries for duty losses and making paid-in capitalincreases in a timely manner due to macro economic difficulties,overall efficiency, profitability and all other financial ratioswere still improving for these companies as the projects'imnpltlment81.ion were proceeding well and leading to producrtivitygfti.ns as also clearly indicated it. various Biank supervisionreports in the paist,

Tra this respect, paid irn capital of TUGSAA has reached to431 billion TI. atnd TtIGSAS's receivables fr-om the Governmenthave been fully r-ecovered. Further, all fertilizer manufacturersand distributers, including TUGSAM were paid for theirreceivables rrising from fertilizer subsidies out of the PriceStabilizat-ion Fund's resources a.s of 29.8.1991. It has to be alsoemnphasized that Lhe Government's initiative to privatize thedistributio of ferti.lizer has been a major reform for theliberalization of fertilizer marketitng and pricing systemii of'Turkey. Furthlermo?e, with the liberalization of imports and thereduction in tariff rates, this Sector has become more(;0mpctitive, as well.

- 20 -

Inr order to protect the proJect beneficiaries fromcontinuous working capital problems, whieh are causing thesecompanies resort to short-term borrowing at high interest rates,the Treasury has been working on supplying TUGSA$ with a $ 100million long term loan under its guarantee. Similarly, TilrkEximbank is in an effort to re-schedule the term structure ofall loans to KB?, which are due by the and of 1990 (includingalso thoise of 88.7 billion TL to Eximbank itself). To this end, aJ)rotocol was signied betweon KBI, Eti-bank (major shareholder ofK131 by 99.9 %) and TUrk Eximbank1 on 20.12.1990. TUrk Eximbankalso provided to Kbl a lIine of credit of the same anmountagai.nst this enterprise's maturing debts to itself. In additionto t}lis, the maturity of the loan (1998-TU) to KBJ bas beenextended lby Turk Eximbanik until Maroh 3096.

There is also a strong emphasis in thLe rcR that TUGSAS andKBt slouldl be privati2ed as soon as possible. In this respect,it is claimed that those firms will be economically viablethroughl the increase in efficiency of management as a result ofprivatization. As It was previously explained to the Bank onseveral occasions, privatization of these companies will behiiiidled within the framework of the Government's privatizationplan which is already under study. However, when TUGSAS KUtabyaPlant Reh:abilitation is re-considered, this Plant has beenincurring significant losses eventhough its rehabilitationprocess was completed. This is mainly because of lignite basedexpernsive amoniac dependent style of fertilizer production.Hence, at this stage, it is difficult to expect that KUtahyaPlant to be easily privatized. Privatization of this Plant canonly be possible, if fertilizer production technics will betransformed from lignite to natural gas based processes.

When we assess the current sJtuation of anme beneficiarycompanies ; Rlaz3g affiliate of TUGSA$ has been modified as toallow a privatization operation, by the High Planning CounicilDecision. Besides, it Is aimed for the privatization purposest.hat the management of TUGSA$ has to be in full compliance withthe sound managerial and marketing principals without waiting thest rengthening (if iLt tibrancial struc1ture.

KB1, on the other hland, has bean incurring losses on itsoverall balance-sheet despite its protitability ont operations.The reason for these losses is interest expenses on KBI's bankloians. In this context., K1I3 is expected to suffer from a loAs of179.9 billion TL in 1991. When international blister prices inthis year are considered, in August the price level fell to $2015 from January's level of $ 2404. For this reason. sellingprices are well below the cost and leading to an accumulation ofsubstantial stocks. Therefore, it is hard to envisage KBJ in thenear future to be an enterprise restoring its ffnancial viabilityand repaying its all debt. We also share your concerns aboutpr ivotizotion such that te shares need to be sold to employeesexpertized on copper production and to foreign specialised firmsin this tield.

- 21 -

With regard to IGSA$'s situation# t.his firm reached to aprofit level of 21.3 billion Tt,. in 199(3. Furthtermore, during thefirst half of 1991, IGSAS made a full utilizatio0, of its ureaproduction capacity and increased its profits-to 45 billion TL.In 1990, 1GSAS's production accounted for 81 % of total domesticurea consumptionL. Even though, after the second half of 1.988,more exponsive nattral gas was started to be used instead ofnaphta as a raw material in tGSA$'s Plant, a significantreduction in costs has been realized. When considered Itsachievements, IGSA$ should take pri.ority in privatization wellbeforc TU1GSA$ Atnd KBI.

As a conclu%ionary point, it could be said that the mainaims of the project were realized. In general, the projects werewell-suited on overcoming technical problems of public andprivate plaDts through increasing energy savings, preventingenvironmental, pollution and developing organizational structuresand satisfying educational needs. As a rcsult of these, sector-wide capacity utilization increased from 40 . in 1979 to 75 %during and aft;er the implementation of both projects. As a matterof fact., capacity utilization could not he increased further,hecausso of growing importations sousrced by low internati.onot iprices.

Some of the beneticiary firms, namely IGSAS, GUBRETA$AKD)ENIZ GUWREs TUGSA$ have individual comments regarding witlhthe Project Completion Report and these are also conveyed foryour consideratiun, in the enclosures.

liest regards

Sincere y_ Yours

0tevn OZGfdNlbeputy Difecto' C,:ret?tc4 Forelion t;Vr cn

}ncl5s; l(SA 's comment.s on PCRQUJRBTA$ comments on PCRAKDENIZ ;UDfRE's viuws and comments on PCRTLJUSAVS views and comments nn PCR

- 22 -

IGSAS

Reterring tv Article 0.2 on page 15

It must be takenin to consideration thdt taSAS as ment.ionedat the bottom lrie of page (Itl) of PCR, isn't a joint but apublic sector institution.

GUERETAS

Referring to Article 12.1/J on page 16, the following issuesmay be proposed in the context of the complianice of the projectimplementing institutions to covenants of loan agreements

Afs it's known, loani beneficiary institutions face manyvommitments generated by the loan agreement. These commitmentsgenerally include important. financial covenAnts, such as to beaudited by on independent audit firm and to comply with sometinarcial ratio; in the project implementation process. However,the loan beneficiaries weren't able to comply with theircommitments and the World Bank hasn't exerted interventionistpressures anymore over those institutions due to Treasuryguarantee. For this reason, we are of the opinion that theTreasury should implement various measures such as to control therealization of the institutional obligations and in the case ofnon-compliance with financial covenants to suspend the relevantpart of credit.

- 23 -

Sjucctj ; Vitaws a;r. ct,itner4s of A'kdtc'Lz Cil:xLe c.n th,-.-is

cf thr: Px'-e.ct Wnlilc'tior 1wiX4.CIL i Rimai by th.

W1ld3 HaO wtere Akd.3cniz (Xb.v. lx r.crvcd to In crntexi..

vk-; liav reviewo d c t)o. iev) Y.C.R. vr.d wuluci llike to Oonr;rat

as fo1!.ows:

1. P1s mefer to Art 4.4 cn P, '

WC! would brirq to youir attAzition thal. th, ac,5iqctnL of only

crhe adv1ior to the projet waa in ac r(nce with parac;raph

c c)f tlf, Artic1el 2.02 of tly. )lcMlblitat jun Projtxre /,grnent

sigmre1 1 y Nutibje arnd thfr Worl(d MAnk.

In ampliance with the abov: wgreftir.t a*na pirvxint to Advisoi-y

ServiceS kjrraYsmint r0gnel w'ith Creuwr atm1 OW +1hich

.tlsc, vs approvy L y tfl 1hbrld J3!n, ori aldvisor was asSirned

to AW pyubr q-r)ojc;t tn.tU.

Tn t.h tviiinn j, perfolttiiiflc anid capabiAttAies of the first

advi=sc7 SrOeC-eedr3 tc) tU.*' W M&qtucite1. Thribcre ury)n

&.irnx=l(.1 tA ; xro lev wzs replA]crd by arc, 4 uciisor.

I1) scuz=nY wc )L-jieVe t;hlt dirinz4 enigineerinn r' .e of t!ht

prr-jec,t, assis:t;wtx, and r-Trv'i)es cf thiL advisor te.h prcCjeCt

sas Very satisfactory. Unsequetly, LitrH was mt ajy

Interiptbion or epjiy cv. wXk; th&t laid )een ccarriced oit

by A3qUbru1 witJhin t.ts.r £.Oipe of the project.

. Pleat' retcr tc Artic. 5.4 - S,5 ol praer, 6-'

WIl-en timt .chpacble, issuedtit tte iriy sta. c of the enrgneurinr

p,at;, in. %Luo.ec it. w.'11 bo rrd!iCed that: t;v're. is a omn:idcira1bde

;e); & l t),( J!v--;jr:ct l5cap)iticirs O.uto v^ivichad.

A. SY 1sirtl:h pe.rif.e' c' this cde].)Yt i. fr-mvwer solely c-Aised by.

t)K! c'+r,Sf~ s l of A rd Ci'TUoffc cf -t ewW rijimerinu fiJnii

(e.llcxjqg (.tXr;EtmntL b.Rl .1 the N J* i1ands anrl thmr-fres tz.rusf!ri

of tr plj:oc' to t.hO .rloncton Cy(fice .;' I.S:. xer11qei ')uY.

- 24 -

Dta.a.Jedinfttini.tt;.r, regardim rxi3cxta. trsausbix ,LvT .'o Mnstcr&,-r

V;; L:r*r ay b> ip wg 65v n 3-0evatnt rvolmoi; RmWsrt.s asad P.C'.o..

j Soud by ?Skqt.ibrci.

A3 8:,t terc! i. or; q par din,ay c,Gi thM- 'Reyi Ii t c t.oti ProjectAre nt sigred with tht. W,.B to kcnxm.' efVec.Lvc wiicik us

eritire'ly die to time 0rnswtind ne*otat4or.s wit T.8.K.S.act±nq on beha1f o5 t.he 7ii*sh CI)et'1mv:xt for an aqroec-nttc) b r- it c) cor raletse of the W.B. crxlit a1lGocated for N9kib;e.

3. 1(e:.wXe refer tc) the secron(t s 1-ntLerim fr,re, t1 top of theart.Acle 5.3 Oi page 6

D tMit x@ds. "VUT cap1eted an

eminoerirm srvicos rintA acl. wJLIh Kelloggj (W.Aand), flv

originO&? cuInoerlna Cv.ntryact"r f(r te t i Cmplcs:...... "

it is rot i ftilly tU s:tatownt of fuct, kecmne I c.AlogCoJ1tirmntal (llzand) was aorn,q± i ciminwring co.ntrActor

of thxo C,A.1.\ P3.wint only. 7t*v- origlrai s wigiiatrinr co ntracting

f.ims of the tw otier p3lants rnclu&4 I1n t1t RehabilAltat1onlr-oject: were liurij fKH/ FPir f0r tia* SWuribrurIc Acic t'lant mndL1Ay Mc, Y.e (Originally Pint&b )Inag) /FRfr ft: the Nitric AcidPI ant.

WVithin the SO'xs of thi Rehmbiit,tticn JIro-ijct the ontracts

cuncli.u1Vd are witia )llogc W.mr;jinental tIll.nd) owiwring emr4iincrirn!"cIVicOes Ctf bth C.A,k. and Nitric AMid Pla-iLs, ard with lurci(tbl1/FrC for thu Sulphiuric Acid Plar.t.

4. I'leave refer to att1cX4 4.5 oni gage S

We, are 1rt tVve opdnr;cr t.hat our prowut ltub va Qfftectivn asd

ecasftu ir? technlial aslects or the l Jviilitaticn ProjcCtdurin]) tLi.. JVemm-rtelitc' rar-i3 oii sOtL-, mms.ncqjaso ofwhL%ch evidencx-i hsy 95.5t% C&p2city utl 17tiricn of thei plLnLs

e.f£cletIecy ire coy,n 'prtio.n of rma- matwrials., suvinq In powDrY)flstipti.} ) cir cr o i!l r.rloi.uctiont for tho ysa- 1990.

- 25 -

FIRST AND SECOND FERTILIZER RATIONALIZATION AND ENERGY SAVING PROJECTS(LOANS 1985-TU AND 2131-TU)

COMMENTS FROM TUGSAS

Oult comments tAbout the subjectU 1elslJd to oLr Comp any stated in Project

Con,pletic'n Rejmt %Vhkich was prepAterd (ot 1irst atid Second f.ertili.cr

Ratio:ualization itsid FRmetS,; Naving Ptojects (loan,- 1958-Tt) and 2131-TU) by

EMENA Tcchnlelt Ie)partrr eni arc givtn below.

The project catrietJ out by our Company undcr the scope of first Perrili&er

Rationalization and Envigy Shving Project (loan 1985$TU) consists yr thir7c

c*omnponents.

Rehtlbilitu.tion waut Energy !,aving Coinmcpnont

Under this scopc Klt(ahya-1! and Samstri Pla)ias we:e- rehabilitated and thet

belowmantioned points werv achieved ufter ribtemoacval of technical bottIcnecks;

-ncrebsef of the capacity

Decrease of raw uinaterial and entzgy consumptions

Decrease of environmental p(rllution

Takizig into. considerration thie uluve ameritionied p04rats we can say that the

objectives of the project huve been eo-Whived ftrom the technical point of

view.

For the Implementatiorl of the project, the jlrojcct teami werc establiskled

at tht' feacdquamei tnd rt the Sites. of Somsur and K1tahyr%. irl spite of

some drvlatlons occured tin thei progsainme, these teams which spent great

e!ffort durir.; the implenetitation of the projeIt ecnnpleted -. th works

suceesfully.

- 26 -

The lJiall uroblero facs ld titnc rt tirr.; tas r.ot to 1e able to set. up pl ifect

coordination between the partics of TCIISA, lheadqutiarter, TUGSAs Samsuri

site, ffrcing and lucfi) mngirleetinr fiimns und supplier-.

TO)CGSAQ ttied to gct matxiwiurn benefit frorrm tchc:nical consulting servlces. As

It was known, Scieritific; Design C;o.l,td. wete selected for the consultancy

service&. 5clentific t)esi&I Co.ltcl. hnd gliven lsis5 &ssistazce ill the foroaduarl

cdf projer.t otgnniswticru bot,h at heatdqluarter and plar?b levels, setting up jot.

dufinitions, ptepatation oi procteVrlciCnFt, Cost ond titne conttol proccedurts.

Purthermote, TOCGSAS huc; benefits from their assistance and quidntce if,

cont,Art nergoiations, nneetinl,s, solutions cf disptjles nand Scenltific l:)esign

Co.Ltd. hafd atso taken. part in erection control, inspectioiI of local

rnanufa-t,urhng during th,e progtess of tld woik.

2- Trairing Coimponent:

A rraining centre har., beci:r est,b!lished at Kiutahyyn with tthe support of tlex

United Nations Development progranm (UNDP) and training facilities had lteen

deveclipcd. In additicni, opernting and mnlteTarsoc f pessoQrue) had becti trained

nr-Site by contrac:tors' xpecit.;scs. In this way local traitring was ac.hieved

sati;fSatoffily. IC,1cwe-veS freinsg training wus not achieved as expected. F.I

this rec-son wre cvat say thnt tbh geals of t?aining were not re-achredc ccnnplete;y.

3- hianagement improvemnent Component

Thje final report whi-ch was prepared for murnatgenicnt impt:vemernt fly Price

Waterhou::e and MO%0:,A fizmris had been subnmitted to TOGSA5 on 5.6.190S.

T'he program stitted in th;is !poit could not Ile full), applied not because v(g

the lack of adequate c-apablr middle level manmtgers but due to the unrealization

of the necessar)y regulatiota. for the legislation.

Aftltough the project ha5 rcochr;d its technical ain ua nae'rntioaied abo"C,

te-babilitated pshint ler. I'be;i cptiated ai low t7apaUiry) tduL tu the artificidll$

low priccs: of ammcmiit aind fertilizer ir, the world matket. For this tcmsicn

exre ctted financ-ial l,tofitahility hns not been reathed.

- 27 -

Our Cc;amInents ttittteci to tlit ptoblenais mentionu.d in the icport are o.5 follows.

Thumt iS niu covvs.&oaffini, ii our vornpai.). Thc pianned staff numnbcr of owsco)mpat1v is fixed. When sOln. stLAff retired TUGSAS had nmade a conctactwith new staff. 'Iocday tht, nurnbet (f staui workiasg in our vuvigpany is beiuwfrom planned staff ntimlber. *Yew staff had been tguined fizstly.

'Nvessary p'iecoution'. foC imptovement 'F o.ecountit,g, financial manuternent,coSI toritrul asdtl e,turkting prncedure had bcen taken, Accounting jobs hadbeen donte. b) ut;:ing o curnpuLer systoni. 'tainir of rtelated staff had Lcecadoine conratinuously.

The organization of out Corilinny haiJt b'vvs revised and atccotdingly, Financ.ialafid Mnaketing dtlprZLtmnta, l1avr bcon estabUished.

In addition, Cost Cotntrol Crrctql, has been esttiblishcd fcr the purpose of coms

ctintiol und for the inml,ovem'nent of produietivitr tecently.

Diffi:ult in retaining qjualifietd pc:smavinerI )i; beein de:rcased as a iesuit c f

the new personnel poicly of our Company.

-Some progie6s hits beern acilieved ti decrense thy financial problems* of ourConmiany, recently.

W6L)lz. the Scope thle new ezcnornical ncasurtfC of the Glevernzttent, fcrmgatefnttifi.i?t subs:idj h*s! bccn incroasecd by t)e rate of 60 9% and VAT hlw beendoereased ftom 11 % to I %.

In atdldition, dtirtIng the meetln; held with Ctic.vcrnment authorities, it in promisedthot the paymenet f farigiatte feitilit.cr subsidy will be nade within, one

nionth.

In the view of abto.v mrne!ttvr.ed prugimsre it is expected thut the bottlenecksof nur Company will greut)y be ckoetased.

- 29 -

Ill. _TAIlSnCALINFORMAlnON

1. RELATED BANK LOANS AND/OR CREDrTS

Loan Number Date ofand Title Puroose Aporoval Satus Comments

845-O-TU and To construct a 750 tpd ammonia 05/71 Completed PCR lssuedJ845-1 -TU plant and an 850 tpd urea plant 04173 12V75 June 1980IGSAS Fertilizer the project scope was laterProject expanded to 1.000 tpd ammonia

and 1,500 tpd urea under asupplemental Bank loan.

2. PROJEECT TMETABLE

Planned Date Revised Date Actual DateLoan Number 1985-TU 2131-TU 1985-TU 2131-TU 1985-TU 2131-TU

identificatlon 08/30/80 08/30180 - - 06/30/80 06/30/80

Appraisal Mission 02/02/81 05/15/81 - - 12V21/80 07/07/81

Board Approval 07/15/81 06/30181 - - 05/07/81 04/27/82

Loan Signature 08/15181 07/30181 - - 05/15181 05/13/82

Loan Effectiveness 09/15/81 08/30-81 - - 08/28181 04/13183

Loan Closing 12/31/86 06/30/87 12/31/87 - 12/31/89 06/3018712/31/881V/31/89

- 30 -

3. LOAN 0I9URSM (US$ million)

Table 1: LOAN DISBURSEMENT SCHEDULE (LOAN 1985-TU)

Calender Year AppasaEL Actualand Quartser (Cumulative) (Cumulative)

1981

IV 6.60 0.011982

I w160 0.8011 21.00 1.37HII 35,00 3.40IV 4.00 5.01

*19831 68.00 9.6811 79.00 10.94III 84.50 12.85IV 89.00 14.40

19641 91.50 21.1811 93.50 25.31

III 99.00 30.49IV 99.00 34.32

19851 104.50 45.39II 107.50 48.80III 107.50 53.53IV 110.00 56.66

1966I 62.48II. 6.05

III 69.16IV 71.50

19871 73.301 75.72III 76.19IV 83.08

198887.28

11 90.90III 92.40IV 93.53

19891 95.901 96.72III 97.76IV 97.85

1990I 98.16II 98.19 a/

at USS11,814,330.36 wascanceled at the requea ot the Borrower.

- 31 -

Table 2: LOAN DISBURSEMENT (L.OAN 2131-TU)

Calendar Appraisal ActualYear and Cumulative CumulativeQuarter Disbursement Dlsbursement

1982liI 2.80IV 3.70

49831 5.001 6.80 0.57liI 10.70 0.66IV 14.30 0.68

198417.60 1.57

11 21.70 1.88iii 25.80 2.08IV 30.10 2.83

1985I 33.00 3.95

11 35.20 5.11liI 37.40 6.79IV 38.90 7.61

19861 41.70 9.5011 43.10 11.13IlI 44.10 17.97IV 25.07

19871 26.271i 26.15IiI 26.48IV 26.96 b/

b/ USS17,142.346.77 was cancelled at the request of the Borrower.

- 32 -

4 IMPLEMENTATION SCHEDULE

TahIa .: PROJECT COMPLETION SCHEDULE

OriginalSchedule Actual

I. First RationalIzation andEneray Savina Prolect

TUGSAS- Kutahya II 12/83 9/85- Samsun I and 11 6/84 12/89

IGSAS- lzmit 12/83 12/85 a/

GUBRE- Yarimca 9/84 1/90 b/

11. Second Fertilizer RatIonalizationand Enerav Savina Prolect

EGE GUBRE- Foca 2/85 8/86 C/

AKDENIZ GUBRE- Mersin 9/85 8/87

KBI- Samsun 7/85 8/89

a/ Modification of the IGSAS ammonia plant to use natural gas which was approved by theBank In 1986 (following the completion of the original sub-project) was completedin December 1989.

b/ The plant started production In March 1989 but problems in the washing and dedustingsystems and the formulation of 15-15-15 are continuing. They are expected to be solvedby Krebs (France) by August 1991.

c/ Additional modifications in the Ege Gubre facilities at Foca to produce complex fertilizersapproved by the Bank (following the completion of the original subproject In 1986) waswas completed in June 1988.

- 33 -

5. LIST OF SUBPROJECTS FINANCED UNDERLOANS 1985-TU AND 2131-TU

Table 4;L UST OF LOAN BENEFICIARIES

- nBank LoanBeneficiaries Original Actual Disbursed

i) Loan 1 985-TU:

TUGSAS 69.00 70.90IGSAS 20.60 19.73GUBRE 20.60 7.19GOTISPO 0.40 0.37

110.00 a/ 98.19

II) Loan 2131-TU:

GUBRE 6.10 - b/AKDENIZ GUBRE 25.28 15.572EGEGUBRE 2.97 1.131KBI 7.92 9.078GOT/SPO 1.83 1.101

44.10 C/ 26.958

al A totl of USS11,814,330.3a was cancelled from Loan 1985-TU.

b/ GUBRE subproject was cancelled subsequently.

cl A total of US$17,142,346.77 was cancelled from Loan 2131-TU.

- 34 -

6. PROJECT COST

Table 5: PROJECT COSTS al(USS million)

---Appraisal Estimate--- --- Revised Estimate----Local Foreign Total Local Foreign Total

. First Rehabilitation ProlertTUGSAS- Kutahya II 30.50 50.60 81.10 27.35 45.50 72.85- Samsun 320 27.40 66.60 42.74 3868 81.42

Sub Total 69170 78.00 147.70 70.09 84.18 154.27mm. .m. =mm.. mm. mm. m..

IGSAS- izmit 9.70 25.90 35.60 4.79 24.78 28.57 a/G3UBRE- Yarimca 25.90 26.70 52.60 20.10 9.75 29.85SPO-Studies 030 0040 0.70 0.30 0 38 068

TOTAL 105.60 131.00 236.60 95.28 119.09 213.37mm.. mm.. mm.. mm. mm.. ..

I1. Second Rehabilitation ProiectEGE GUBRE- Foca 2.70 3.47 6.17 1.26 2.46 3.72 blAKDENIZ GUBRE- M"sn 19.10 34.08 53.18 14.33 39.62 53.95KBI- Samsun 6.00 9.12 15.12 18.16 29.06 47.22StO- Studies 100 1.8 2 83 1.00 183 2.83

TOTAL 28.80 48.50 77.30 c/ 34.75 72.97 107.72 c/.m. mm. m. mmm. mm. mm..

a/ Including Interest during construction and Initial working capital.

bl Including the cost of additional mnodification/rationalization agreed subsequent to the Loan approval.

cl After cancelling the GUiRE subproject at Iskenderun.

- 35 -

7. PROJECT FINANCING

Table 6: PROJECT FINANCING (LOAN 1985-TU)(USS million equivalent)

Appraisal Actual Variance

1. Deb

IBRD 110.00 98.19 -11.81Other -m +L=

110.00 107.19 e 7.19

2. 1g&

a) Internal Funds 86.6 24.50 -62.10b) Other 4000 82.68 +42.68

Sub-Total 128.6 107.18 - 19.42

Total Financino 236.6 214.37 -22.23- -_

Table7: ALLOCATION OF BANK (LOAN 1985-TU)(USS million equivalent)

Loan FinalCategory Agreement Disbursement

Equipment, Materialsand spares 79.00 64.86

Technical Services 13.60 21.99Training 3.40 0.39Refund of Project Prepration Funds 0.60 0.45Studies 3.40 2.23Interest During Construction 1000 8.27

TOTAL 110.00 98.19_B

- 36 -

7. PROJECT FINANCING (Continued)

Table 8: PROJECT FINANCING (LOAN 2131-TU)(USS milion equivalent)

Appraisal Actual Variance

1. Debt

IBRD 44.1 26.956 -17.142Other - 37.672 +37.162

44.1 64.630 +20.530

2. Equity

Intemal Funds 40.4 20.500 -19.90Other - 21.92 21.92

Sub-Total 40.4 42.42 + 2.02

3. Govemment (for study) 1.0 1.0 -

Total Financina 85.5 107.72 22.22_ -

Table 9: ALLOCATION OF BANK LOAN (LOAN 2131-TU)

Loan FinalCategory Agreement Disbursement

Equipment, Materialsand Spares 30.41 22.133

Technical Services 7.82 3.724Training 3.42 0.0Study 1.80 0.539Front-end Fee on Bank Loan 0.65 0.562

TOTAL 44.1 26.958. _U

- 37 -

& PROJECT RESULTS

Table 10: CAPACITY UnLIZATON OF PLANTS BEFORE AND AFTERREHABILITATION

Production Capacity Utilization (%)Before Before

Rehabilita- 1990 Rehabilita- 1990Capacity/Plants Products Capacity tion (Actual) tion (Actual)

-------- Product Tons -

1. TUGSAS

(a) Kutahya II TAN 50,000 18,675 39.410 37 79CAN (26% N) 273.500 209,152 225,735 49 82

(b) Samsun TSP (45% P) 220,000 132.800 36,175 60 17 a/DAP(18-46-0) 227.000 121,000 146.200 53 64

II. IGSAS

lvnit Urea (46% N) 561,000 365,000 563.312 65 100

IlI. GUBRE FABRIKALARI

Yarimca NPK I 200,000 157,980 200,060 79 100NPK II 200.000 - 218,345 -

IV. EGE GUBRE

Foca NPK 306,500 196,050 191,055 64 62al

V. AKDENIZ GUBRE

Mersin DAP (18-48-0) 148,500 68,922 66.288 46 45 a/CAN (26% N) 594,000 224,950 567,380 38 96

VI. KBI

Samsun Sulphuric Acid 282,920 33,645 169,752 12 60Blister Copper 38,760 11,120 22,645 29 59

a/ Production was reduced because of Import competition under depressed world prices.

- 38 -

8. PROJECT RESULTS (Continued)

Table 11: ECONOMIC IMPACT

Economic Rate of Return (V)Appraisal RevisedEstimate Estimate

First ProiectIGSAS Subproject 67.5 31.9TUGSAS Samsun Subproject 34.6 26.7TUGSAS Kutahya II Subproject 35.8 9.2GUBRE Subproject 39.1 21.9Overall First Project 42.8 22.1

Seondg ProlectAkdeniz Gubre Subproject 43.6 20.0EGE Gubre Subproject 49.3 15.0KBI Subproject 66.2 24.9Overall Project 49.4 21.6

Table 12: FINANCIAL IMPACT

Financial Rate of Return (Vo)Appraisal RevisedEstimate Estimate

First ProietIGSAS Subproject 69.4 24.3TUGSAS Samsun Subproject 52.0 25.9TUGSAS Kutahya II Subproject 41.6 14.4GUBRE Subproject 32.9 24.5Overall First Project 48.9 22.0

Second ProlectAkdeniz Gubre Subproject 57.7 23.0EGE Gubre Subproject 49.7 16.8KBI Subproject 76.5 27.1Overall Project 61.1 24.2

- 39 -

S. PROJECT RESULTS (continued)

Table 13: STUDIES

Purpose Status Impaact

i) TUGSAS To examine the Study was TUGSAS hasManagement management and completed in 1984. implemented theImprovement Study. organization study(Loan 1985-TU) problems of TUGSAS recommendations to

and recommend improve plantmeasures for operations andimprovement. financial

management.However, financialmanagement systemis still weak forlack of adequatetrained accountingand financialprofessionals.

ii) FertilizerMarketing and To examine and Study was This study had aPricing Study. recommend measures completed in 1983. major impact on(Loan 1985-TU) to improve the bringing about

efficiency of the reforms in thefertilizer fertilizertransportation, marketing andstorage and pricing systems.distribution The study findingssystem, and the were followed upfertilizer pricing by the Bank in thesystem. Agricultural

Sector Loan ofThe Fertilizer Raw 1984.Material ResourceStudy. To review Completed in 1984. The study is(Loan 2131-TU) fertilizer raw serving as the

material base in basis for theTurkey and exploitation ofrecommend future local fertilizercourse of action raw materials asfor fertilizer well as forindustry development of thedevelopment. fertilizer

industry inTurkey.

9. Fertilizer Production and Consumption (1986-91)

Table 14: TURKEY - Fertilizer Rationalization and Energy Saving ProjectTurkey: Fertilizer Production and Consumption, 1986-1991

(Est.)

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

lwN tau m efatte

Nitrogen (N)

Production 468.0 700.0 691.0 750.0 783.0 717.0 855.0 854.0 1,026A 1,025.9 1.025.9 1,120.1

Consumptonk 638.0 777.0 848.0 991.0 997.0 920.0 950.0 1,i42.0 1.081.6 1,149.4 1,218.5 1.286.8

- Surplu(Defic) (170.0) (77-0) (157.0) (241.0) (214.0) (203.0) (95-0) (288.0) (5S.2) (123.5) (192.6) (166.7)

Phosphate (P205)

Production 348.0 554.0 433.0 590.0 634.0 611.0 595.0 616.0 641.6 737.6 736.5 809.2

Consumption 423.0 496.0 570.0 618.0 580.0 479.0 520.0 585.0 490.2 545.8 602.4 657.9

Surplusl(Defickt) (135.0) 58.0 (137.0) (28.0) 54.0 132.0 75.0 31.0 151.4 191.8 134.1 151.3

Po"sh (K20)

Production - - 17.0 20.0 26.0 38.0 24.0 31.0 32.8 35.3 37.5 39.0 o

ContSmption 4S.0 38.0 33.0 25.0 31.0 33.0 49.0 51.0 41.8 43.8 49.5 S3.S

Surplusl(Dracit) (4S.0) (38.0) (16.0) (S.0) (S.0) 5.0 (23.0) (20.0) (9.0) (10.5) (12.0) (14.5)

Total

Production 816.0 1,254.0 1,141.0 1,360.0 1,443.0 1,413.0 1,317.0 1,503.0 1,528.5 1,793.7 1.740.8 1.900.0

Consumption 1,166.0 1,311.0 1,451.0 1,634.0 1,608.0 1,432.0 1,519.0 1,778.0 1,613.6 1,741.0 1.870.4 1,998.2

Surplusl(Deficit) (350.0) (57.0) (310.0) (274.0) (165.0) (19.0) (202.0) (275.0) (85.1) 52.7 (129.6) (98.2)

Annual Rade of hoans..: Avegm 1980-1990

Nitrogen (N- Potash 3K201

Production 8.2% Production (1982-9 10.4%

Consumption 6.7% Consumption 1.0%

Phosphate (P205) TotalProducton 7.8% ProductIot 7.9%

Consumptfon 2.2% Consumptin 4.8%

- 41 -

10. INPORT DUTIS ON FERTILIZER

table 15: IMPORT DUTIES

Prodacts USS-/Ton

Ammonium Sulfate (20.6X N) 10

CAN (26%N) 7

CAN (33X N) 10

Urea A/ 5

TSP 15

DAP 20

20-20-0 15

26-13-0 15

15-15-15 15

A/ As urea is used as an intermediate product for NPK fertilizerproduction, the Government is keeping the import duty on ureaat a lower rate than for other fertilizers. However, theGovernment pays directly to IGSAS, the only producer of urea inTurkey, US$15/ton of urea produced as the world price iscomparatively more depressed for urea than for other fertilizers.

- 42 -

11. FERTILIZER PRICES AND SUBSIDY

Table 16: FERTILIZER PRICES AND SUBSIDY al(US S equvaent)

Retail Subsidy toPricelton b/ Farmer/ton c/ (1)+ (2) (2y(3)

Type of FertilIzer (1) (2) %

Ammonium Sulfate 80.2 47.8 128.0 37.3%CAN (26% N) 96.9 58.0 154.9 37.4%CAN (33% N) 117.4 68.3 185.7 36.8%Urea 138.9 51.2 190.1 26.9%TSP 112.3 119.5 231.8 51.6%DAP 180.2 153.6 333.8 46.0%20-20-0 - 136.9 102.4 239.3 42.8%26-13-0 96.9 100.7 197.6 51.0%15-15-15 143.3 --- 105.8 249.1 42.5%Potassium Sulfate 153.9 167.7 321.6 52.2%

aJ Prices at the end of 1990 convened at the exchange rate of 1 USS TL 2,930.

b/ Retail price of TZDK (DONATIM).

eM Fixed by the Govemment. It cha 4ges every six months.

- 43 -

12. COMPANY FINANCIAL STATEMENTS

Tables 17-18 IGSAS

Tables 19-20 TUGSAS

Tables 21-22 GUBRE FABIKALARI

Tables 23-24 MKDENIZ GUBRE

Tables 25-26 EGE GUBRE

Tables 27-28 KBI

g vg lX U C.' 0!

< ~ ~ ~~~ E! fTi |

* S

- 45 -

Table 18: IGSAS: BALANCE SHEET (1986-90)

ACCOUNTS 1986 1987 1988 1989 199

ASSETS

Cura Asasm

Cash and Banks 520.s 3,184.9 26,045.3 16,521.9 23,032.5

Receivables 9,689.9 23,849.7 57,718.5 68,561.2 76,224.3

Inveaty 3,784.1 10,838.5 24,776.7 26,812.5 49.174.6

Otht Current An6s .U 1,036.1 2= 11.670.3 11.497.5

SUB-TOTAL 14,031.1 38,909.2 110,824 .0 123.872.9 159,928.9

Fied Aasa

Criou Fixed As 59,466.7 76,624.4 130,172.8 222,850.5 341.647.2

Acumiloed Depreciaion (45,446.2) (58,145.8) (90.932.7) (153.632.9) (243.860.8)

Not Fixed Asst 14,020.5 18,478.6 39,240.1 69.217.6 97,786.4

Othbr Fixd Aants 855.1 3.374.S 16.6S4.3 16.343.3SUB-TOTAL 14.07S.3 19.333.7 42.614.6 85.871.9 114.129.7

UABILrIIES

Cure Liab iits

Accounts Payable 13,648.2 7,962.4 9.556.4 13,630.3 24,989.6

Coun. Portion of L-T Debt 5,214.2 5,138.5 9,070.8 8,777.8 10,390.8

Other Cumret LIabillt9 239.7 2.S069 X921.8 X590.5 33,L01?

SUB-TOTAL 19,402.1 15,607.8 57,549.0 56,998.7 68,392.1

Long-term Debts 9,450.8 8,705.1 12,386.5 14,212.6 11,935.2

EQUITY

Paid-a Capitl 1.000.0 15,304.2 18,313.2 47,030.0 81,183.1

Reseves 1,725.3 1,726.1 4,820.0 15,297.8 15,410.1

ProfwlLoa (14,385.5) 2,980.0 38,671.1 33,142.3 21,324.3

Reivauaion Increa 10,913.7 13,919.7 21,698.8 43,055.4 75,801.8Other - - - 8.0 12.0

TOTAL EQUITY d746.51 33,930.0 83,503.1 138.533.5 193.731.3

BALANCE SHEET RATIOS

Curret Ratio 0.72 2.49 1.93 2.17 2.34

DetlEquity Ratio

Lo og-ter Debt 109% 20% 13% 9% 6%

Equity -9% 80% 87% 91% 94%

- 46 -

Table 19: TUGSAS: INCOME STATEMENT (1986-90)

ACCOUNTS 1986 1987 19S8 1939 1990stUbs of Lin

Net Sle 96,026.6 151,541.7 192.635.1 410,672.2 402,667.4Cot of Goods Sold 73206.6 12L2l7.0 1#.21S.0 321.530.9 346L317.3

' Pxwxoy *mW""--

Marking Expeam 461.2 742.4 1.043.2 1.U6.4 4,632.1Adl_vAe Expeo 4.202.5 81S13.6 13.156.0 27.S24-.2 59.513.7

SUB-TOTAL 4,663.6 8,896.0 14,199.2 29,410.6 64.145.8

FP cil Chiqr 9.039.7 26.565.4 60,314.8 88.5995 155,138.5other EqXPs 4,143.0 5,183.4 17,26.6 13,466.0 41,84S.1

~-. .... .. .

Tan 2.474.8 2.S0. 667.LL

TUJRKEY - Fertilizer Rationalization and Energy Saving ProjectTUOSAS: FINANCIAL HIGHLIGHTS, 1986-1990

ACCOUNTS 3986 1937 1933 1939 1990sUbs dUn

Net Proi/Lo 1,049.6 (11,134.7) (39,246.1) (29,084.9) (196,556.0)- J3.227.9 27.026. 63.329. I14.797.9 16.S07L4

SD-TOTL 14,277.5 14.392.1 24,083. 85,713.1 t33.74.5.~ . .33 .27 3.0' .6ASV . 4 0.,.NoC = :=n104. 11147 (39t,246.) (2.849 (9,560

- 47 -

Table 20: TUGSAS: BALANCE SHEET (1986.90)

ACCOUNTS 1986 1957 19U8 1989 1990miinaedL4wa

ASSETS

Curren Asset

Cash and Bob 1,069.0 4,426.6 2,704.0 6,367.6 2S,443.7Recivables 13,963.9 34,SS0.4 28,700.S 90,729.7 63,SIS.7

InIVORMy 29,569.2 37,008.1 73,964.3 81,641.8 179,422.8Oter Curn Ass 2143.9 41.6 13.361.8 IS.S43.8 13.649.8

SUB-TOTAL 46,746.0 80,182.7 118,730.6 194,282.8 282.032.0

Fihd Aseoss Fixed AMts 170,989.8 266.8S9.1 482,276.1 766,683.9 1,151.096.0

Meumilazed DeprecIation (56,578.5) (83.905 4) (147.234.9) (262,032.9) (424.840.3)

Net Fied Assets 114,111.3 182,983.7 335.041.1 504,651.0 726,2S5.7Ote Fied Aset S.377.2 9.730.7 9.253.8 11.662.0 16.424.6

SUB-TOTAL I 19.488.S 142.714.4 344.294.9 516.313.1 742.680.3

TOTAkA8U1fl~~ Na.s.t :::; S S :2~7 :l,$S :- 104,1

LIABILTIES

Cure Liabities

Acwcous Payable 17,599.7 23,921.3 91,300A 80,426.2 183,226.7Other Curret LIabilities 50.615.8 10.474.9 132.283.2 183.352.2 444.869.1

SUB-TOTAL 68,215.5 132,396.2 223,583.7 263,778.4 62S,095.8

Long-tem Dd 44.635.6 8,4484.9 150,380.2 204.012.1 234,161.7

EQUITY

Pawi-in CapitI 26,304.5 34,938.8 61,654.8 168,143.1 193,283.1Resrves 8,783.2 12,038.0 .3,682.4 14,483.1 18,988.1ProftLosse (1.511.8) (16.722.9) (57,423.2) (86.980.1) (287,860.1)Revluuion lcnrese 19,807.4 25,762.1 71,147.6 147,1S9.3 238,043.7

TOTAL EQUITY 53.38S.3 S6.015.9 89.061.6 242.80S.4 162.454.S

BALANCE SHEET RATIOS

Curntm Rao 0.69 0.61 0.53 0.74 0.4SDeb/EqIty Ratio

Loang-tem Dekb 46% 60% 63% 46% 59%Equity 54% 40% 37% 54% 41%

- 48 -

Table 21: GUBRE FABRIKALARI: INCOME STATEMENT(US$ Million)

196 19 8988 1989 1990

Sales 82.6 62.6 98.5 107.1 150.8Cost of Sales 77.6 57.2 82.2 94.0 117.1Gross Profit 5.0 5.4 16.3 13.1 33.7Period Expenses 0.7 3.4 4.4 5.1 17.2Operatng Profit 4.3 2.0 11.9 8.0 16.5Financial Expenses 3.1 14.6 20.0 14.1 8.8Other Income (Expenses) 0.3 (1.5) 5.7 1.2 (3.7)Profit Before Tax 1.5 14.1 2.4 (4.9) 4.0Corporate Tax - - - -

Net Profit 1.5 (14.1) (2.4) (4.9) 4.0mu mu -m

- 49 -

Table 22: GUBRE FABRIKALARI: BALANCE SHEET (1986-90)

ACCOUNTS 19S6 1987 198S 1989 1990USSMMHeM mwsia

ASSETS

Cuant AseCa and BanS 0.7 0.2 0.4 0.2 0.6Reaivables 17.9 19.9 28.2 43.3 61.0laWmy 13.2 16.0 11.8 .10.1 15.5Ode Curr Amu . 1.6 a 1a9

SUB-TOTAL 35.3 38.7 44.0 55.4 79.0

Fixnd AelsNot Fixed ASets 10.5 8.9 7.2 8.5 24.6Otr Fixed Assts 1911 1 8.6

SUB-TOTAL 28.0 24.5 19.3 33.2

; "35 ~~~~~~~~~~~~~~74.7 Ii; 2

LIABLITIESCurrent Liabiie

Accounts Payable 18.3 42.4 30.6 14.0 41.0Oher Cumr LiabUilies 20.6 14. 3SO 13.2

SUB-TOTAL 35.5 63.0 45.4 29.0 54.2

Log-tsm Debs 8.0 8.4 17.4 13.0 7.4

EQUITY

She Capita 6.4 4.8 10.8 40.1 46.1Reseves 3.6 2.7 1.5 1.1 1.1ProftLoSs 1.3 (12.4) (8.8) (10.6) (2.1)Revalution ncreas 0.3 0.2 2.2 2.1 S.S

TOTAL EQUITY 11.6 L47 U DJi 0.7

BALANCE SHEET RATIOSCumnt Ratio 0.99 0.61 0.97 1.91 1.46DebtEquity Ratio

LA1g-tem Debt 41S 227% 751 28% 13%Equiy 59% -127% 2S% 72s 87%

- 50 -

Table23: AKENDIZ GUBRE: INCOME STATEMENT (1989-91)ec-

ACCOUNTS 19S9 1990 1991

Rev_.Net 8d 14,243.4 S 8,079.7 106.315.8Cot of Good 3l 9002.9 73.146.3 94.676.6

Msatt;S 380.8 702.9 1,861.7AdaiSwiv. SapsJ 1.916.1 299 7.m

SUB-TOTAL 2.296.8 3,232.7 9.591.6

~~~W m.

Famma #ad COir Bhps 49,M73.7 56.101.9 52,918.0od nc_m 61L9Q2.8 $0.810.4 S1.600.0

~~~ .7- .~~~M-MlN~R

Tam"_ .

- 51 -

Table 24: AKENDIZ GUBRE: BALANCE SHEET (1989-91)Fimg^

ACCOUNTS 1989 1990 1991

ASSETS

CutrwM Ase

Cauh and flank 1,360.7 2,703.2 231.5Raecsivala 5,174.4 28,267.6 6,443.9Raw and Aux. ateria Stocks 15,489.7 5463.5 14,375.3Other Cunsnt Assm 9s404.7 10.677.3 4.228.0

SUB-TOTAL 31,429.5 47.111.6 25.278.7

Fixud AussGOsswFn d FAsew 148.914.1 226.582.5 255,997.9Aseumilded Deprecatn (57,806.5) (106.085.3) (114.256.8)Net Fined Aset 91,107.6 120,497.2 141,741.1

Other Fixed Auses 1615.5 1.761.2 1.941.9SUB-TOTAL 92.73.1 122.258.4 143.683.0

UA3HLrRESCurent LIabilities

Accounts Payabe 36,915.1 11,577.0 6,220.2Bak Loan 24,065.2 67,970.2 71,619.0Other Curmt Liabiliies 14.466.4 11.046.3 12.468.1

SUB-TOTAL 75,446.7 90,593.6 90,307.3

Long-team Deb"s 20,583.2 20.334.6 22,356.5

EQUITY

Paw-in Citd 32,180.0 56,090.0 56,090.0Rbao s . 3,454.3 3,454.3 3,454.3

ProFiLosses (7,511.6) (1,102,S) (3,246.S)

Rwaluwan Iner,"" - -

TOTAL EQUrTY 28122,7 58.441.8 56.297.8

BALANCE SHEET RATIOS

Curt Rato 0.42 0.52 0.28

DeWEquiq Rab

Long-t Debt 42% 26% 28%

EqulWy 58% 74% 72%

- 52 -

Table 25: EGE GUBRE A.S.: INCOME STATEMENT (1986-91)(In TL Million)

1986 1987 1988 1990 1991 (esfl

GrossSales 25,074.2 63,181.1 70,119.2 113,839.0 124,096.0 194,887.0Less Discount (786.0) (3,067.9) (4.617.4) (6,599.0) (4,996.0) 0.0

Sales Revenue (Net) 24,288.2 60,113.2 65,501.8 107,240.0 119,100.0 194,887.0

Matorial Cost 17,797.3 47,656.8 47,733.3 76,573.0 80,013.0 142,672.0Bagging Cost 584.0 1,475.0 1,760.6 2,416.0 3,004.0 7,046.0Manufacturing Cost 2,372.5 2,524.3 5,712.5 11,154.0 13,576.0 22,772.0

Cost of Goods Sold 20,753.8 51,656.1 55,206.4 90,143.0 96,593.0 172,490.0

Gross Profit 3,534.4 8,457.1 10,295.4 17,097.0 22,507.0 22,397.0

Sales Expenditures 543.3 3,225.0 1,682.7 6,148.0 9,073.0 12,331.0Admin. Expenses 1,174.6 1,713.4 1,301.8 4,047.0 7,154.0 8,188.0Interest Expenses 211.4 1,935.4 5,941.4 12,757.0 12,878.0 9,512.0Other Income 998.0 136.8 143.0 3,146.0 3,839.0 8,973.0

Profit Before Tax 2,603.1 1,720.1 1,512.5 (2.712.0) (2,759.0) 1,341.0

Tax 1,069.3 494.3 612.7 818.0 - -

Net Profti(Loss) 1,553.8 1,225.8 899.8 (3,531.0) (2,759.0) 1,341.0

- 53 -

Table 26: EGE GUBRE: BALANCE SHEET (1986-91)Eat

ACCOUNTS 1986 1987 1988 1989 1990 1991n,iWa af Lin-

ASSETS

Curren M

Cob and Rabks 1,593.5 1,262.4 4,558.4 1,804.0 2,922.0 3,030.0

Receivables 9,671.9 26,291.3 28,810.1 .38,186.0 35,506.0 46,215.0

Otbh CurraAsftuM s 3.t67.6 6 1. 17.M.0 21.688.0 19.684.0

SUB-TOTAL 14,433.0 35,773.9 43,S89.0 S7,765.0 60,116.0 68,929.0

Fixed AusstGsm. Fixed Mass 8,891.0 17,564.6 29,1S7.4 50,060.0 79,215.0 112,181.0

Accmhliat DepecIaiSon (4,927.7) (8,819.S) (16,786.8) (32,56.0) (SS,449.0) (80.971.0)Not Fixed Masts 3.963.3 8,745.2 12,370.6 17,484.0 23,766.0 31;210.0

Other Fixed AJJd _ 1.0 15.8 329.0 525.0 420.0

SUB-TOTAL 3.963.3 ,746.2 12,386.3. 17.813.0 24,291.0 31.630.0

_OA~S~S~ .;. 4,%0t _ m !W,$5_

UADILAIESCurnt Liabiltis

La.. Payabl S,370.4 10,844.0 9,796.9 7,934.0 8,781.0 4,734.0curene Portion of

Long-tarm debt 30.0 746.7 1,323.0 2,292.0 8.666.0 790.0

Accounts Payable 1,892.1 16,812.9 22,644.4 27,915.0 16,977.0 24,S75.0

Other Cusrnt Liabilities 900.6 1.433.1 2,245.8 2.314.0 2.751.0 10.689.

SUB-TOTAL 8,193.1 29,836.7 36.010.1 40,455.0 37.17S.0 40,788.0

Long-term Des 1,812.2 2,929.S 2,324.5 11.486.0 4,968.0 7,758.0

EQUTrY

Shaer Capita 800.0 2,4W0.0 7,200.0 12,000.0 36,000.0 36,000.0

Reserves 359.6 2,796.6 2.872.0 3.028.0 3,028.0 3,028.0

Proftftluases 2,033.8 1,720.1 1,512.5 (3.530.0) (6,289.0) (4.948.0)

Reouatlmn lncrane - - - 12,139.0 9,52'.0 17,933.0

Specal Poviaoss 5197.6 4.S37.2 s9s _7

TOTAL EQUITY 8.39.1 11.73. 17.544.2 .23.7.0 42.264.0 52.013.0

BALANCE SHEET RATIOS

CurortRatio 1.76 1.20 1.21 1.43 1.62 1.69

DebtiEquity Reto

Lceg-to mDebt 18% 20% 12% 33% 11% 13%

Equity 82% 80% 88% 67% 89% 87%

- 54 -

Table 27: KBI: FINANCIAL HIGHLIGHTS (1986-90)

ACCOUNTS 19S6 1987 1933 19 1990ialim dfam

Not Profk/L=s (13,209.9) (20,481.7) (19,649.3) (2.26.7) (75,031.1)Depreciaziom 10.92&6 16.348,7 48.132.9 99.29.1 122.740.0

SUB-TOTAL (2.287.3) (4.133.0) 28.4S3.6 97.5S82.4 47.708.9

.

- 55 -

Table 28: KBI: BALANCE SHEET (1986-90)

ACCOUNTS 19S6 1987 1988 1989 1990uiiLUo Lir

ASSETS

Currt .Ases

Cuh and Bank .1.027.7 1.020.5 22.976.7 52,548.6 2,916.0

ReeIvables 9,588.2 21.843.0 16.159.5 22.015.7 5,978.2

Advco Paid 607.1 2,748.2 3,554.6 2,330.6 449.9

Stock 11,330.5 14,789.9 18,651.5 58,957.6 114,197.0

ote 36.2 IrS79.S 17.261.3 5.522.9 5052.1

SUB-TOTAL 22.918.7 41.981.1 78,603.5 141.375.4 173,S93.3

Fixed Ase ... ....

Net Tangibl Fixed .Ansts. 52,156.S 84.445.3 140,091.8 208,975.6 335.962.8..

Net Intangible Fixed Assets 917.8 724.0 5731 2,813.7 2.327,0

Other Fixed Ases 28t4.4 3.740.S 19.639.8 21.856.9 74.801.1

SUB-TOTAL SS.928.2 88.909.8 160.304.6 233.646.3 413.090.8

LIABILlTIES

Cuarrt Liabilitie

Lans Payable 21,420.9 50.255.4 32,245.9 73,950.9 47,020.5

Curmt Portion of

Long-term debt 1,249.6 S61.7 0.7 1.7 1.8

Accounts Payable 6,S61.0 10,800.7 9,282.3 55,101.7 27644.2

Aoured Expens 4.4S9.6 8,853.5 20,888.6 6,691.2 99.949.3

oter 1.628.3 1.763.2 50,120.5 4.452.7 12.749.5

SUB-TOTAL 35,319.S 72,234.5 112,538.1 140.198.2 187,365.3

Lonterm Ddbs 22,658.8 36,582.2 61,406.2 52,498.4 IS1,408.0

EQUITY

Shae Capil 30,000.0 43,000.0 100,000.0 200,000.0 261.000.0

Reseves 191.0 191.0 191.0 191.0 191.0

Losses (20.920.7) (41,402.5) (61,051.8) (58,80S.1) (133,836.2)

Revalaio Incrase 10.67S.1 18,913.9 23,600.2 37,268.7 114.476.1

Specl Prvsions 923.8 1.371.9 2.224.5 3.670;.4 6.

TOTAL EQUITY 20.869.1 22074.2 64.963.9 182.32S.0 247.910.t

~~~~ -~~~~~~~~~ -~~~~~~~~~ 4'W# ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ------'--

BALANCE SHEET RATIOS

Cumat Ratio 0.65 0.58 0.70 1.01 0.93

DetAEqWy Rad

Long-term Debt 52% 62% 49% 22% 38%

EquIty 48% 38% 51% 78% 62%

13. USE OF BANK RESOURCES

A. Staff Input(Staff Weeks)

(a) Use of Bank Resources (for Loan 1985-TU)

Stage ofProiect Cycle . Plane-d Fal Comment

Preappraisal 63Appraisal - 108 Includes programs time.From appraisal toBoard Approval 23

Supervision - 55Total 249

(b) Use of Bank Resources (For Loan 2131-TU)

Stage ofProiect Cycle Planned Final Comments

Preappraisal - 47Appraisal - 92 Includes programs time.From appraisal toBoard Approval - 21

Supervision -42

Total 202

- 57 -

OveralLStage ef Month/ Number of Staff Weeks Spsctialietions Perfotmaneo Types ofPro2ctU Cvel Year Foramns in Field Roe td Ratir a Erobleme

Auoraisal 12/80 3 2.3 Fin. AnaL./Econ. N/A N/AFinranial Aal.Chbmcal Enginseo

Superison

Tech. &1 7/81 3 0.3 2 FInancial

Fin. /Anal /Econ. Materials2 4/62 3 0.6 Ch. Engin.c: (2) 2 & Tech.

3 10/82 1 0.9 Chm. Enineer 2 ManageriaL

Fin. Anal /Ecen Hanagerial4 5/84 3 0.9 Fin. Anal. 2 & Flnl.

Proj. Hgut.5 3/85 1 1.5 Ch_. lagingtr 2 Dev. Impact

6 3/85 1 1.6 Fial. Ansl./Econ. 2

7 11/66 1 1.0 2

63 11/87 1 1.3 2

Fini.1 Ansl./Econ9 5/80 2 1.3 Chm. Engineer 2

Leg. covenats10 4/80 2 0.0 2 Compliance/FinLl.

11 11/s9 2 2.0 2

12 04/90 1 1.6 Finl. Anal./Econ 2

13 10/90 1 1.0 2

1 - Problem free or minor problems; 2 - Moderate Problems; 3 -Major Problems.