Document of The World Bank Report No: ICR00003003 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47870) ON A LOAN IN THE AMOUNT OF EURO 143.7 MILLION (US$184.7 MILLION EQUIVALENT) TO THE REPUBLIC OF TURKEY FOR A RAILWAYS RESTRUCTURING PROJECT December 3, 2015 Global Transport and ICT Practice Turkey Country Unit Europe and Central Asia CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2014) Currency Unit = Euros EUR1.00 = US$1.37 US$1.00 = EUR0.73 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan DLH General Directorate for Construction of Railways, Ports and Airports DPL Development Policy Loan EIRR Economic Internal Rate of Return ERP Enterprise Resource Planning ESW Economic and Sector Work EU European Union GDP Gross Domestic Product ISR Implementation Status Report LARF Land Acquisition and Resettlement Framework M&E Monitoring and Evaluation MoT Ministry of Transport, Maritime Affairs and Communications PAD Project Appraisal Document PDO Project Development Objectives PIU Project Implementation Unit PR Public Relations PSO Public Service Obligation RAP Resettlement Action Plan TA Technical Assistance TCDD Türkiye Cumhuriyeti Devlet Demiryolları - Turkish State Railways USD United States Dollars WB World Bank Regional Vice President: Cyril E. Muller (ECAVP) Country Director: Johannes C. M. Zutt (ECCU6) Senior Global Practice Director: Pierre Guislain (GTIDR) Practice Manager: Juan Gaviria (GTIDR) Project Team Leader: Martha Lawrence (GTIDR) ICR Team Leader: Antoine Kunth (GTIDR) REPUBLIC OF TURKEY RAILWAYS RESTRUCTURING PROJECT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design ...................................................... 1 2. Key Factors Affecting Implementation and Outcomes ...................................................... 6 3. Assessment of Outcomes .............................................................................................. 10 4. Assessment of Risk to Development Outcome ............................................................... 15 5. Assessment of Bank and Borrower Performance ............................................................ 15 6. Lessons Learned .......................................................................................................... 17 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ..................... 19 Annex 1. Project Costs and Financing ............................................................................... 20 Annex 2. Outputs by Component ...................................................................................... 21 Annex 3. Economic and Financial Analysis ....................................................................... 22 Annex 4. Bank Lending and Implementation Support/Supervision Processes....................... 28 Annex 5. Beneficiary Survey Results ................................................................................ 30 Annex 6. Stakeholder Workshop Report and Results.......................................................... 31 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR .............................. 32 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ................................ 39 Annex 9. List of Supporting Documents............................................................................ 40 MAP A. Basic Information Railways Restructuring Country: Turkey Project Name: Project Project ID: P077328 L/C/TF Number(s): IBRD-47870 ICR Date: 06/30/2014 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: APL Borrower: TURKEY Original Total USD 184.70M Disbursed Amount: USD 148.05M Commitment: Revised Amount: USD 184.70M Environmental Category: B Implementing Agencies: Türkiye Cumhuriyeti Devlet Demiryolları (Turkish State Railways, TCDD) Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/22/2003 Effectiveness: 06/19/2006 06/19/2006 07/06/2009 Appraisal: 04/04/2005 Restructuring(s): 07/13/2011 06/27/2012 Approval: 06/09/2005 Mid-term Review: 11/10/2008 Closing: 09/30/2009 12/31/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Unsatisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Moderately Satisfactory Unsatisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Moderately Overall Borrower Moderately Satisfactory Performance: Unsatisfactory Performance: i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA): (Yes/No): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Railways 100 100 Theme Code (as % of total Bank financing) Infrastructure services for private sector development 50 50 Other public sector governance 25 25 Trade facilitation and market access 25 25 E. Bank Staff Positions At ICR At Approval Vice President: Cyril Muller Shigeo Katsu Country Director: Johannes Zutt Andrew N. Vorkink Sector Manager: Juan Gaviria Motoo Konishi Project Team Leader: Martha B. Lawrence Michel Audige ICR Team Leader: Antoine Kunth ICR Primary Author: Antoine Kunth F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To support the Borrower's implementation of the Program over the four (4) year period 2005-2009, to improve effectiveness of railway operations and to assist TCDD in reaching a financially sustainable situation and reduce the fiscal burden TCDD represents for the Borrower. ii Revised Project Development Objectives (as approved by original approving authority) To (a) improve the effectiveness of railway operations on the Mersin-Toprakkale and Yenice-Bogazkopru lines by increasing capacity and improving service quality, and (b) lay the groundwork for restructuring TCDD by developing experience with financially viable contract arrangements for loss making public services and access pricing of infrastructure. These contractual arrangements and infrastructure pricing are key components of future reform to be implemented under the new railway framework law. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years TCDD operating annual revenues would increase by at least 60% during the Indicator 1 : period 2004-2009 (Original PDO) Value quantitative or 243 420 382 Qualitative) Date achieved 12/31/2004 12/31/2010 2009 Comments (incl. % Target not achieved – Indicator was dropped in restructuring of 2009.. achievement) TCDD operating losses are significantly reduced, and the working ratio without Indicator 2: subsidy would improve from the current 370 % to 200% by 2009 (Original PDO) Value quantitative or 366% 180% 324% Qualitative) Date achieved 12/31/2004 12/31/2010 2009 Comments (incl. % Target not achieved – Indicator was dropped in restructuring of 2009. achievement) Increased traffic on Mersin-Toprakkale and Yenice-Bogazkopru lines (Revised Indicator 3 : PDO) Value 270,400 pkm 310,000 pkm 468,307 pkm quantitative or 886,800 tkm 923,000 tkm 937,038 tkm Qualitative) Date achieved 08/31/2008 12/31/2012 12/31/2013 Indicator added in 2009 restructuring. Target values revised slightly in 2012 Comments restructuring. Target values exceeded. The actual achieved values of 468,307 (incl. % pkm and 937,038 tkm represent 151% and 102% of the target estimates achievement) respectively. Increased service quality on Mersin-Toprakkale and Yenice-Bogazkopru lines Indicator 4 : (Revised PDO) Value Average Average commercial Mersin-Toprakkale: quantitative or commercial speed: speed: 35 Qualitative) Mersin- iii Mersin-Toprakkale: 35 Toprakkale: 45 Yenice - Yenice-Bogäzköprü: 25 Yenice- Bogazkopru: 25 Bogäzköprü: 35 Date achieved 08/31/2008 12/31/2012 12/31/2013 Indicator added in 2009 restructuring. Target values not achieved. Significant Comments improvement is expected only after the infrastructure investment is completed. (incl. % Currently the actual achieved values of 35 km/hr and 25 km/hr represent 77.7% achievement) and 71.4% respectively of the target estimates. Indicator 5 : Increase in share of traffic to/from Mersin Port carried by rail (Revised PDO) Value quantitative or 5.9% 6.3% 6.5% 5.0% Qualitative) Date achieved 08/31/2008 12/31/2012 12/31/2013 Indicator added in 2009 restructuring. Target value not achieved. Significant Comments improvement is expected only after the infrastructure investment is completed. (incl. % Currently the actual achieved value of 5.0% represents 77% of the target achievement) estimate. Indicator 5 : Readiness to implement PSO (Revised PDO) Prioritize public PSO pilot support for successfully passenger services implemented and based on value for expanded to cover Value service criteria and No experience with PSO additional trains. quantitative or financially viable contracts Second generation Qualitative) contract draft PSO contract arrangements for prepared covering publically all passenger supported services. passenger services. Date achieved 07/06/2009 6/30/2012 12/31/2013 Comments (incl. % Indicator added in 2009 restructuring. Target achieved. achievement) Indicator 6 : Readiness to implement Infrastructure Access charging (Revised PDO) Value No experience with Full Network Network Statement quantitative or access pricing or network Statement prepared Qualitative) statement prepared Date achieved 07/06/2009 6/30/2012 12/31/2013 Comments Indicator added in 2009 restructuring. Target changed in 2012 restructuring (incl. % from “Financially viable access pricing arrangements” to “Full Network achievement) Statement Prepared”. Target achieved. iv (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Component One: The most predictive part of the freight network is modernized Indicator 1 : and freight traffic increased significantly. (Original) Value 11.6 billion (quantitative 9.6 billion ton.km ton.km or Qualitative) Date achieved 12/31/2004 12/31/2009 Comments Not achieved partly due to an electrification project which is ongoing since early (incl. % 2014 and causes daily traffic interruption. Significant improvement is expected achievement) only after the infrastructure investment is completed. Component Two: TCDD staff is adjusted in a socially acceptable way without Indicator 2 : social unrest. (Original) No specific target Value value was set in 1,596 (5% of 2007 (quantitative PAD results staffing) or Qualitative) framework. Date achieved 12/31/2004 12/31/2009 2009 Comments Indicator was dropped in 2009 restructuring after cancellation of undisbursed (incl. % balance of severance component. achievement) Indicator 3 : Component Three: TCDD Business Plan is implemented successfully. (Original) TCDD Value restructuring is (quantitative implemented or Qualitative) successfully. Date achieved 12/31/2004 12/31/2009 Comments (incl. % The indicator was dropped in the 2009 restructuring achievement) Indicator 4 : Component Four: TCDD staff professional capacity is improved. (Original) 362 trained directly Number of staff and 12,788 trained Value trained during the by staff that (quantitative project received the or Qualitative) implementation: "training of 2,500 trainers" instruction Date achieved 12/31/2004 12/31/2009 Comments (incl. % Achieved. See revised indicator no. 8 below. achievement) Indicator 5 : Component Five: TCDD Public Communication and Surveys. (Original) Value independent (quantitative surveys carried 3 or Qualitative) out: 3 v Date achieved 12/31/2009 12/31/2013 Comments (incl. % Achieved. achievement) Indicator 6 : Component One: Share of project works completed (Revised) Value (quantitative 0% 100% 100% 75% or Qualitative) Date achieved 12/31/2008 05/31/2011 10/31/2013 12/31/2013 Comments Indicator added in 2009 restructuring. Target not achieved. The actual achieved (incl. % value represents 74% of the target estimates at the time of the ICR preparation. achievement) Indicator 7 : Component Three: TCDD Business Plan is implemented successfully. (Revised) Value (quantitative None or Qualitative) Date achieved 12/31/2004 05/31/2011 06/30/2012 Comments (incl. % Indicator dropped as not meaningful on 05/31/2011. achievement) Indicator 8 PSO Value PSO contract PSO contract (quantitative prepared prepared or Qualitative) Date achieved 12/31/2013 Comments (incl. % Indicator added in restructuring of 2009. Target fully achieved. achievement) G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/27/2006 Satisfactory Satisfactory 0.00 2 02/03/2007 Moderately Satisfactory Moderately Satisfactory 0.26 Moderately 3 11/26/2007 Moderately Satisfactory 17.70 Unsatisfactory Moderately 4 03/06/2008 Moderately Satisfactory 28.22 Unsatisfactory Moderately 5 05/30/2008 Moderately Satisfactory 28.47 Unsatisfactory Moderately 6 04/02/2009 Moderately Satisfactory 44.75 Unsatisfactory 7 07/09/2009 Moderately Satisfactory Moderately Satisfactory 44.75 8 03/04/2010 Moderately Satisfactory Moderately Satisfactory 47.02 Moderately Moderately 9 11/22/2010 57.39 Unsatisfactory Unsatisfactory vi 10 06/26/2011 Moderately Satisfactory Moderately Satisfactory 98.75 11 11/19/2011 Moderately Satisfactory Moderately Satisfactory 115.66 Moderately Moderately 12 07/08/2012 124.83 Unsatisfactory Unsatisfactory Moderately Moderately 13 10/02/2012 126.79 Unsatisfactory Unsatisfactory 14 02/19/2013 Moderately Satisfactory Moderately Satisfactory 134.24 15 09/26/2013 Moderately Satisfactory Moderately Satisfactory 139.77 16 12/25/2013 Moderately Satisfactory Moderately Satisfactory 140.95 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Change in PDO and Results Framework to align them more 07/06/2009 Y MU MS 44.75 closely with project activities and realistic outcomes Amendment to address land acquisition and building 07/13/2011 N MS MS 99.94 renovation activities that triggered Bank policies on involuntary resettlement Extension of Closing date to 06/27/2012 N MS MS 124.83 allow TCDD to complete the main investment component vii I. Disbursement Profile viii 1. Project Context, Development Objectives and Design 1. In summary, four main features characterize project implementation: (i) the project was restructured three times, in 2009, 2011 and 2012, (ii) in the 2009 restructuring, the PDO was changed to focus the project on the reforms and achievements that could be realized by the project within Turkey’s existing legal framework for railways, (iii) while initially structured as a two-part APL program the Bank did not proceed to APL-2, and (iv) despite significant achievements the signaling contract remained incomplete at the time of the project closing on December 31, 2013. 1.1 Context at Appraisal 2. At the start of project preparation, Turkey was recovering from the economic crisis of 2001 and was exercising strong fiscal discipline and carrying out extensive structural reforms. The government had already made substantial progress in restructuring State Owned Enterprises. The government’s priorities at appraisal included the continuation of restructuring and partial or full privatization of public utilities coupled with sector reform. The policy dialogue between the government, Turkish Railways (TCDD) and the Bank, was ongoing from 2001, in particular through economic and sector work (ESW).1 3. The European Union (EU) formally agreed to start accession negotiations with Turkey from October 3, 2005, so the government planned to restructure the railway sector in accordance with the EU “acquis communautaire”. In this context, the government requested the assistance of the Bank as an independent advisor and as a financier to restructure the railway sector, which remained one of the few sectors which had not undergone reforms. The government considered the Bank to be well positioned to provide appropriate advice and to work in close cooperation with the EU to help TCDD reducing its financial losses and in meeting the EU accession requirements. 1.2 Original Project Development Objectives (PDO) and Key Indicators Project Development Objective (from Project Appraisal Document) 4. The overall objective of the APL program was to improve the financial viability, productivity and effectiveness of railway operations. 5. The PDO of the APL-1 as appraised was to support the Borrower's implementation of the Program over the four year period 2005-2009, to improve effectiveness of railway operations and to assist TCDD in reaching a financially sustainable situation and reduce the fiscal burden TCDD represents for the Borrower. 6. The key project indicators at appraisal were: - Institutional reform: A new legal and regulatory framework of the sector - compliant with the EU “acquis communautaire” is in place by end of 2006. - Competitiveness of rail operations: (i) TCDD operating annual revenues increase by at least 10 percent per year during the period 2005-2009; and (ii) freight traffic increases from 9.6 billion ton-km in 2004 to 11.6 billion ton-km by 2009. 1 TCDD – Options for reform – June 2002. 1 - Productivity and effectiveness of rail operations: TCDD operating losses would be significantly reduced, and the working ratio without subsidy would improve from 366 percent in 2004 to 200 percent or less by 2009; - Staff adjustment: TCDD railway staff would be reduced significantly in a socially acceptable way; - Reduction of fiscal burden: TCDD’s dependence on public finance to cover rail deficit and investment would decrease from 0.4 percent of GDP in 2004 to less than 0.2 percent of GDP in 2009. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 7. The project expected a new legal and regulatory framework to be implemented in the early years of the project. Each year, TCDD, the State Planning Organization2, and Ministry of Transport and Communications (MoT) indicated that the new railway law would be passed. TCDD submitted the draft General Law on Railways and TCDD law to the MoT at the end of 2006. TCDD and the MoT created a working group and action plan to progress the railways laws during 2008 and the secondary legislation in 2009. In July 2007, the working group prepared and submitted a report identifying the issues that must be decided by high level officials in TCDD and MoT, before any further steps concerning the laws could be taken. The Bank’s missions requested that decisions be taken in a timely fashion.3 8. When this failed to materialize, the project was restructured in mid-2009 to focus it on the reforms and achievements that could be realistically realized by the project within Turkey’s existing legal framework for railways. The project development objective and the results indicators were changed during a Level 1 restructuring approved by Board on July 6, 2009. 9. The revised PDO was: To (a) improve the effectiveness of railway operations on the Mersin-Toprakkale and Yenice-Bogazköprü lines by increasing capacity and improving service quality, and (b) lay the groundwork for restructuring TCDD by developing experience with financially viable contract arrangements for loss making public services and access pricing of infrastructure. 10. The indicators for the revised objectives were4: - Increased traffic on Mersin-Toprakkale and Yenice-Bogazköprü lines, measured by increase in passenger-km of 15 percent and freight ton-km by 4 percent between 2008 and 2012; - Increased service quality on Mersin-Toprakkale and Yenice-Bogazköprü lines, measured by increase in average commercial freight train speed by 28 percent and 40 percent respectively between 2008 and 2012 ; - Increase in share of traffic to/from Mersin carried by rail from 5.9 percent to 6.5 percent by 2012; 2 Later on replaced by the Ministry of Development. 3 See for instance, the project’s Aide-Memoires for missions during June 7-14, 2006, November 5-11, 2006, September 17-19, 2007, or January 14-19, 2008. 4 Project restructuring, July 6, 2009. 2 - Readiness to implement Public Service Obligations (PSO) (progress towards preparation of PSO for each year of the planned implementation); - Readiness to implement Infrastructure Access charging (towards the network statement issuance); 1.4 Main Beneficiaries 11. As originally conceived, the project was to benefit rail users generally and reduce the fiscal burden on government. As revised, the main beneficiaries were rail users of the two lines, who would benefit from enhanced lines capacity, and increased service quality (measured by speed). Passenger users, which primarily belong to the poorer segments of the population, would also benefit from increased level of service particularly on the line from Mersin to Toprakkale via Adana through safer, more secure and more reliable train services. 1.5 Original Components 12. The APL-1 original components were as follows: Part A: Freight Lines Capacity Increase Implementation of a signaling telecommunication and improvement of infrastructure program along Mersin – Toprakkale, Yenice – Bogazkopru line sections, including complementary works for the extension of 750 m. of the loops within crossing stations, mechanical ventilation of two long tunnels, installation of optic fiber along the lines for improved communication, establishment of a computerized traffic center, improvement of railway interface at both the container terminal and the free zone within the port of Mersin, and the rehabilitation of the oil charging facility. Part B: Staff Adjustment and Social Plan Support the implementation of restructuring process of the TCDD through provision of: (a) Severance Payments to eligible workers of the TCDD under terms and criteria set forth in the Operational Manual; and (b) technical assistance including training and re-training for delivery of redeployment services to eligible TCDD workers. Part C: Advisory Services to the TCDD Support the completion of the institutional framework and the restructuring of TCDD, including: (a) implementation of the TCDD’s restructuring process; (b) detailed engineering and work monitoring; (c) strategic marketing for freight businesses; (d) rail border crossing trade facilitation on strategic corridors; and (e) development of targeted freight services for petroleum products and containerized cargo and promotion of combined transport, through provision of technical assistance. Part D: TCDD Staff Training and Re-training Carrying out a training program for: (a) railway procedures review and design; (b) operational performance monitoring; (c) improved communication and negotiation skills; and (d) labor regulation on safety and health, through provision of technical assistance and training. Part E: TCDD Public Communication and Periodic Surveys Support the development of an efficient communication strategy for the TCDD to improve railways public image, including conducting periodic customer surveys through provision of technical assistance. 3 1.6 Revised Components 13. The following table shows the changes in project components and indicators between the original and the revised Loan Agreements. Component A was changed at the request of the client to drop: (i) the installation of mechanical ventilation of two long tunnels and of optic fiber cables, (ii) the improvement of railway interface at both the container terminal and the free zone within the port of Mersin, and (iii) the rehabilitation of the oil charging facility. Component B remained unchanged. The rail border crossing under Component C was dropped due to the focus on domestic lines along Mersin-Toprakkale and Yenice- Bogazkopru. A governance and business skills activity was added to Component D to address project management issues. Table 1. Revised components Loan Agreement (signed on March 13, 2006) Revised Loan Agreement (signed on July 27, 2009) The objective of the Project is to support the The objectives of the Project are: (i) to improve Borrower's implementation of the Program over the effectiveness of railway operations on the the four (4) year period 2005-2009, to improve Mersin-Toprakkale and Yenice- Bogazkopru productivity and effectiveness of railway railway lines by increasing capacity and operations and to assist the TCDD in reaching a improving service quality; and (ii) to lay the financially sustainable situation and reduce the groundwork for restructuring TCDD by fiscal burden the TCDD represents for the developing experience with financially viable Borrower. contract arrangements for loss making public services and access pricing infrastructure. The Project consists of the following parts, subject to such modifications thereof as the Borrower and The Project consists of the following parts: the Bank may agree upon from time to time to achieve such objectives: Part A : Freight Lines Capacity Increase Part A: Freight Lines Capacity Increase Implementation of a signaling telecommunication Implementation of a signaling telecommunication and improvement of infrastructure program along and improvement of infrastructure program along Mersin – Toprakkale, Yenice – Bogazkopru line Mersin - Toprakkale, Yenice - Bogazkopru line sections, including complementary works for the sections, including complementary works for the extension of 750 m of the loops within crossing extension of 750 m. of the loops within crossing stations, mechanical ventilation of two long stations, mechanical installation of optic fiber tunnels, installation of optic fiber along the lines along the lines for improved communication, and for improved communication, establishment of a establishment of a computerized traffic center. computerized traffic center , improvement of railway interface at both the container terminal and the free zone within the port of Mersin, and the rehabilitation of the oil charging facility . Part B : Staff Adjustment and Social Plan Part B: Staff Adjustment and Social Plan Support the implementation of restructuring Support the implementation of restructuring process of the TCDD through provision of: (a) process of the TCDD through the provision of: (a) Severance Payments to eligible workers of the Severance Payments to eligible workers of the TCDD under terms and criteria set forth in the TCDD under terms and criteria set forth in the Operational Manual; and (b) technical assistance Operational Manual; and (b) technical assistance including training and re-training for delivery of including training and re-training for delivery of redeployment services to eligible TCDD workers. redeployment services to eligible TCDD workers. 4 Part C : Advisory Services to the TCDD Part C: Advisory Services to the TCDD Support the completion of the institutional Support the completion of the institutional framework and the restructuring of TCDD, framework and the restructuring of TCDD, including: (a) implementation of the TCDD's including: (a) implementation of the TCDD's restructuring process; (b) detailed engineering and restructuring process; (b) detailed engineering and work monitoring; (c) strategic marketing for work monitoring; (c) strategic marketing for freight businesses; (d) rail border crossing trade freight businesses; and (d) development of facilitation on strategic corridors; and (e) targeted freight services through provision of development of targeted freight services for technical assistance. petroleum products and containerized cargo and promotion of combined transport, through provision of technical assistance. Part D : TCDD Staff Training and Re-training Part D: TCDD Staff Training and Re-training Carrying out of a program for the implementation Carrying out of a program for the implementation of the TCDD's training program for: (a) railway of the TCDD's training program for: (a) railway procedures review and design; (b) operational procedures review and design; (b) operational performance monitoring; (c) improved performance monitoring; (c) improved communication and negotiation skills; and (d) communication and negotiation skills; (d) labor labor regulation on safety and health, through regulation on safety and health; and (e) provision of technical assistance and training. development of governance and business skills, through provision of technical assistance and training. Part E: TCDD Public Communication and Part E: TCDD Public Communication and Periodic Surveys Periodic Surveys Support the development of an efficient Support the development of an efficient communication strategy for the TCDD to improve communication strategy for the TCDD to improve railways public image, including conducting railways public image, including conducting periodic customer surveys through provision of periodic customer surveys through provision of technical assistance. technical assistance. 1.7 Other significant changes Project restructuring: 14. The project was restructured three times in 2009, 2011 and 2012. 15. The purpose of the first restructuring of Level 1 was to amend the project development objective and results framework to align them more closely with project activities and realistic outcomes. The project was restructured to focus it on the reforms and achievements that could be realized by the project within Turkey’s existing legal framework for railways. In addition, the staff reduction component’s amount was reduced and funds were transferred to the freight lines capacity increase component. The project development objective and the results indicators were changed in this restructuring. The project closing date was extended from September 30, 2009 to June 12, 2012 to correspond to the completion date of the contract for supply and installation of the signaling. The first restructuring was approved on July 6, 2009. 5 16. The project was restructured again in 2011 to address land acquisition and building renovation activities that triggered Bank policies on involuntary resettlement (OP/BP 4.12) and physical cultural resources (OP/BP 4.11). The restructuring was approved on July 13, 2011. 17. In 2012, the project was restructured to extend its implementation period in order to allow TCDD to complete the main investment component, a signaling system on the Mersin-Toprakkale and Yenice-Bogazkopru lines. The extension also aimed to channel technical assistance support to the railway sector reform as the law on liberalization of railway transportation in Turkey had been circulated early 2012. The extension included revised target dates for PDO level and intermediate results indicators to reflect the longer implementation period. The third and last restructuring was approved on June 27, 2012. Change in Disbursement Percentage: 18. In the 2009 restructuring, the disbursement percentage of the works component was changed from 85 percent to 71 percent because the cost of the works contract for signaling was greater than was originally estimated, and thus, the World Bank loan amount represented a smaller share of total cost than originally expected. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 19. Lessons learned from previous projects. Previous lessons learned recommended to devote more effort in persuading the Turkish Government to address the root causes of TCDD’s poor efficiency, which were previously identified as its regional based organization, inadequate institutional arrangements, and staffing. The enactment of the railway laws were considered as prerequisites to ensure the sustainability of the project. The policy dialogue between the Government, TCDD and the Bank had been taking place since 2001, in particular through ESW (TCDD – Options for reform – June 2002). The project design reflected the recommendations of this work. However, the project scope and objectives were a posteriori ambitious considering its implementation arrangements, timing and resources. 20. The Bank designed its support to the railway sector as a two-part Adaptable Program Loan (APL), whose objective was to improve the financial viability, productivity, and effectiveness of railway operations. The APL was centered on reform legislation that would change the structure of the railway industry. APL-1 was designed to support implementation of the new railway law. Passage of the law, expected early in the implementation of APL-1, was a key trigger for APL-2. Given the impressive pace of reform implementation that the government followed in other infrastructure sectors, delay in the enactment of the law was considered as improbable and unlikely to compromise the outcomes expected from APL-1. However, the law was not passed until May 2013, well after the original project closing date. 21. Project readiness. The project was approved in May 2005 and became effective in June 2006. Implementation readiness was not fully completed particularly for the signaling component.. TCDD considered staff reduction figures to be sensitive and requested that such figures be taken out of the publically available PAD. The staff reduction component lacked specific targets5. With 5 However, in the minutes of negotiation dated May 5, 2005 Attachment VI, the trigger for APL2 indicated however a reduction of 3000 staff by July 1, 2007. 6 more time to carry out the project preparation, TCDD could have had more extensive consultations with local authorities about the level crossings in the design. This would have put TCDD in a more comfortable position to challenge subsequent requests from those local authorities for additional level crossings. 22. Assessment of risks: The identification of project risks at preparation was for the most part adequate. The risks were identified and discussed in the PAD as follows: (a) insufficient political will to reform (moderate); (b) institutional weakness (substantial); (c) social resistance to change (high); (d) insufficient financing for maintenance of the infrastructure or for the Public Services Obligation (PSO) (substantial); and, (e) important delay in the shift from current “regional” to “lines of business” organization (high). 23. The risks of ‘social resistance to change’ and ‘insufficient financing for maintenance of the infrastructure and for the PSO’, did not materialize. Other risks did materialize during the project implementation, but at different levels than the ones assessed during appraisal. In particular, the insufficient political will to reform, which was assessed as moderate, proved to be high during implementation. Item (b) institutional weakness was intended to be fully mitigated through EU technical assistance, hence placing these risks outside of the project’s set of mitigation measures. At appraisal there was a lot of interest in converging with EU regulations which was found not to be sufficient to carry on the reforms. A lot more due diligence of the completion of the reform law approved and secondary legislation should have preceded the appraisal completion process. Further technical assistance supported by the Bank became necessary to address other institutional issues and complement the EU support. 24. In addition, the following risks should have also been identified during preparation and partly mitigated during implementation: (a) the resistance to implement the railway reform appeared as a more critical issue than social resistance to change, partly due to the political affiliation of the labor unions within TCDD; and (b) poor capacity of local subcontractors. 2.2 Implementation a) Factors outside the control of government or implementing agencies 25. Contractor’s capacity: The signaling contract was the contractor’s first signaling contract in Turkey, and their bid was priced aggressively to try to get into the market. The contractor was mostly familiar with project design and implementation in Western European countries, where they were used to sub-contract a majority of construction work to highly skilled contractors. In Turkey however, they found that the quality of subcontractor work was problematic and this required much more supervision than had been anticipated, raising costs and generating delays. In parallel, TCDD introduced many changes into the design, which created rework and in some cases became sources of dispute, contributing to delays. In this context, consideration was given to terminating or restructuring the contract at several times during implementation, but it was feared this would cause much more rework of the design and additional delays. The signaling contractor’s performance has been below expectations. The contractor’s capacity and willingness to deliver the project outputs has been a concern throughout the entire project implementation period.6 6 The client considered terminating the contractor’s contract after design was completed and about two third of the work completed. However, given the contractor successfully carried out the design of the signaling systems with specific equipment already in place, the client rejected this option in view of the potential associated time and cost for bringing a new contractor up to speed, the delays deriving from possible equipment replacement and the possible reputation risks to terminate a large contract. During the second half of 2013 the Bank supported the implementing agency to hire a claims specialist in the PIU to help resolve the many claims that contributed to slow implementation of the investment. 7 26. Theft and vandalism. The railway signaling component was hampered and seriously delayed by theft and vandalism particularly in the region of Adana. After commissioning MS-9 (Mersin-Tashkent-Termil stations), all the track circuits were stolen, rendering the system inoperable. Such a magnitude of theft and vandalism remained unprecedented for TCDD. TCDD approved a security action plan at a later stage in the project implementation cycle (i.e. in November 2013). The plan included fencing, lighting, security cameras, increased security patrols, making signaling components less readily accessed (e.g., sealing with concrete, filling cable ducts with sand), and community education/outreach. Meanwhile, the safety situation worsened by the major Syrian refugee crisis affecting border areas and where the project is located. b) Factors generally subject to government control 27. The original project design relied heavily on successful implementation of the railway reform as a core dimension guiding some of the APL triggers. The risk for the Law to not materialize was originally considered low given the overall reform program targeting infrastructure, favorable momentum for SOE restructuring, and commitment from highest authorities within the government. The railway reforms were being discussed as part of the negotiations for entering the EU; when the prospects for this diminished, the enthusiasm for the railway reform diminished as well. c) Factors generally subject to implementing agency control 28. TCDD had previously relied on the General Directorate for Construction of Railways, Ports and Airports (DLH in Turkish) to manage railway construction projects, so TCDD’s internal experience with design, international procurement and management of large international contracts was limited. TCDD had to develop its capacity during the course of the project implementation. This constituted a major factor affecting project implementation performance which has been fully acknowledged by the management appointed in TCDD in early 2015. 29. The management structure for the signaling contract was awkward. The Project Manager was the deputy head of TCDD’s Installations Department and responsible for many activities in addition to the signaling investment. The on-site manager, based in Adana, did not have authority to take quick decisions about managing the contract. The PIU, which managed the procurement, financial management and liaison with the Bank, was in Ankara. Responsibility for land acquisition was likewise split between Ankara and Adana. This bifurcation of responsibility and authority hindered the ability to take decisions and to produce timely responses to critical project issues. 30. Moreover, TCDD’s internal procedures were cumbersome, often requiring the PIU to circulate the contractor’s outputs to various technical departments for lengthy review. This situation was worsened by the poor coordination between the technical departments of TCDD such as between the departments in charge of track maintenance, signaling and electrification. This generated substantial delays and suspended the work of the contractor on site. 31. Frequent change orders by TCDD created opportunities for cost escalation, disputes/delays and risks for mismanagement. One of the things agreed with TCDD in the “settlement” that allowed the project to be extended until December 2013 was that it would a stop all change orders. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 32. The monitoring and evaluation system was straightforward in its concept and implementation. The indicators for measuring the ‘before’ and ‘after’ performance were objective 8 and are standard operating statistics collected by TCDD Statistical Bureau on a routine basis. The Bank is confident that they also will allow continued monitoring of longer-term increase in these flows over the coming years. In addition, the construction supervision consultant was requested to produce a methodology and a spreadsheet to monitor the progress of the signaling activities. The Bank team is confident that this methodology will continue to be used by TCDD. Other indicators indicated progress in preparing the railway liberalization, i.e. whether or not the key activities were implemented. 2.4 Safeguard and Fiduciary Compliance 33. During the course of project implementation, the need for land acquisition arose at passing loops and near Yenice Logistic Village (which was not financed by the Bank but adjacent to the project). This issue was addressed during the second project restructuring. The Bank requested TCDD to prepare a Resettlement Action Plan, including procedures and framework for purchase of land and settlement and a socio-economic assessment of the Project Affected People particularly at Yenice Logistic Village. After the restructuring the safeguard reviews have raised fairly minor issues, which the implementing agency cooperated to address effectively. 34. An Environmental Management Plan (EMP) was prepared for the signaling Project and Yenice Logistics Center-Mersin-Toprakkale (43 km of double track between Mersin - Adana, 100 km of single track between Adana -Toprakkale) line sections. The EMP was satisfactorily implemented and included inter alia noise, dust and air pollution mitigation measures, and avoidance of archaeological sites. 35. Financial management under the project was satisfactory. TCDD has implemented adequate financial and accounting systems. Project accounting was adequate. Audit reports were acceptable to the Bank but generally submitted with delays, even though the timing of submission increasingly improved between 2008 and 2012. The Financial Management supervision missions rated a majority of fiduciary assessments as Moderately Satisfactory but noted regular improvements until reaching a satisfactory level. The implementation of the Enterprise Resource Planning (ERP) was required as per loan covenants with due date of December 31, 2007 and was implemented, but only in 2012, although TCDD staff faces difficulty with implementation, which shows a need for additional training. 36. Compliance with the World Bank procurement guidelines was satisfactory. The Bank provided non-objection to all the requests for variation orders and extensions. The Bank advised the borrower to hire a claim specialist under the project, which provided useful support. In addition, the borrower hired a procurement specialist who was effective. 2.5 Post-completion Operation/Next Phase 37. Major legislative reform approved. In 2013, the Turkish Parliament approved major legislation that reformed the structure of the railway industry in Turkey (Law on Liberalization of Railway Transportation of Turkey, effective May 1, 2013) which was a key original objective. This law generally aligned the legal framework with the EU “acquis communautaire”. Regulations are also being issued to implement the law and are in various stages of approval, drafting and review. Actions for implementing the law include: the preparation of an (i) Infrastructure Access legislation and (ii) a Rolling Stock Registry legislation, which were approved respectively in 2014 and 2015, while (iii) legislations on Safety and (iv) licensing have been prepared, endorsed by the Government but not published yet, due to delays in 2015 related to electoral uncertainties. The above four legislations are necessary to allow private entities to operate in the network. The above 9 reform and the accompanying secondary legislation confirm a major enhancement in the sector outlook and is generally understood to be a significant change addressing key sustainability concerns. The government’s transport strategy by 2023 primarily focuses on railway transport. 38. Signaling investment. TCDD has assumed responsibility for paying the remainder of the Supply and Installation contract. TCDD's project management team remains in place, and TCDD has taken over financial responsibility for the contract of the supervision consultant, to ensure that the project will continue to be supervised. TCDD has adopted a security program to address the security issues that have caused project delays. At closing, TCDD, the Consultant and the contractor are making progress in testing and operating the signaling investments. 3. Assessment of Outcomes 39. Since the signaling investment had not been finished at the time of the loan closing in December 2013, Bank management approved postponing the ICR completion until December 31, 2015 to allow the completion of the signaling and station loop extension investments to be reassessed and a full implementation completion report prepared. 40. As of December 2015 when this ICR is finalized, all track extensions in key stations have been completed for a total of 13 km of tracks all of which are operational. The physical completion of the signaling investment along the Bogazkopru-Yenice line has been completed or almost completed, depending of the sections reviewed: i.e., the interlocking system, an automatized real time traffic management system, is completed and/or operational on the majority of sections along the Bogazkopru-Yenice line, which allows trains to run faster and more safely along the single track lines as well as accommodate additional capacity; the Computerized Traffic Centers (CTC) in Adana and Kayseri are completed; and some remaining works include testing activities for telecommunication and balise systems (i.e., to allow on board signaling systems, which provides additional comfort to locomotive drivers) on a majority of sections. These are standard systems and do not involve major technical challenges. Installation of signaling systems along two sections out of 12, specifically between Mersin and Sehitlik is incomplete due to cable thefts. Some delays occurred since the loan closing in 2013 and are for the most part attributable to an ongoing electrification project along the Bogazkopru-Yenice line. 41. The efficiency of operations along the line is increased due to the full completion of track extensions and the partial completion of the signaling component. The track extensions allows longer trains to operate, from 400 m at the time of appraisal to 600 m. This is particularly critical for container trains connecting with maritime ports. The signaling component already generates major benefits in terms of traffic management safety i.e. more reliable rail operations. The technical parameters of the line will allow an increase by 20 percent of trains in operations. Upon completion of the electrification project, electric locomotives will be able to haul heavier loads, hence supporting a more diverse and robust increase in traffic. As with any transport project, the economic benefits deriving from the project investments materialize over the course of years after the project completion. The signaling works along two sections out of four in the Southern line (Mersin- Toprakkale) are on hold, due in part to the cable thefts. The reassessment of the signaling works considers that all other remaining works will be completed by the end of 2016. 3.1 Relevance of Objectives, Design and Implementation 42. Both the reform and investment aspects of the project are highly significant and continue to have high relevance for Turkey. 10  Turkey’s 10th Development Plan (2014-18) makes particular reference to investment in railway signaling in the context of Turkey’s desire to become a "regional logistics base" and with the further aim of reducing the cost of logistics.  In 2013, the Turkish Parliament passed legislation to reform the structure of the railway industry in Turkey (Law on Liberalization of Railway Transportation of Turkey, effective May 1, 2013) and since 2014 has been gradually passing secondary legislation packages. Because of the project activities on PSO and Network Statement, TCDD and the Government of Turkey are prepared to implement important aspects of this law. 43. The sustained relevance of the project objectives is further demonstrated by the progress made with reform, also captured in the Sustaining Shared Growth Development Policy Loan (DPL) approved by the Board in July 2014 which has been successfully implemented. A key action also captured in the DPL was the promulgation of the Liberalization of the Turkish Railway Transportation Law No. 6461 in the Official Gazette No. 28634 on May 1, 2013, which permits qualified train operators to be licensed to operate in Turkey and to have non-discriminatory access to use the railway infrastructure in Turkey. Progress is also being made on secondary legislation for implementation of the law; as of November 2015, half of the secondary legislations have been approved and the remaining ones have been drafted and are awaiting final Government approval. Based on these various points, the relevance of the objectives is rated as High. 44. The project’s components and results framework, as revised through the project restructurings, were appropriate to concentrate efforts on achievable results at the investment level whilst building the sector capacity throughout technical assistance support. Therefore, as per the Bank’s Guidelines for the ICR preparation 7 , since the project/program design reflected proper diagnosis of a development priority that remains relevant, the relevance of design is rated High. 3.2 Achievement of Project Development Objectives 45. Original PDO: At the time of the first project restructuring in June 2009, by which time US$44.75 m. had been disbursed (24.2 percent of the original loan and 30.2 percent of the eventual actual total disbursed by the end of the project), performance against the original PDO indicators was Moderately Unsatisfactory. As shown in Table 2, the target for revenue growth had been exceeded in 2008 (and was nearly met—98 percent in 2009), but the working ratio was significantly higher than the target. 46. By mid-2009, the project had financed the end-of-employment, lump sum payments for voluntary retirement of 1,596 TCDD staff (5 percent of the 2007 railway employment). This saved TCDD an estimated US$35 million per year in staff costs [Estimate from the staff costs in the income statement] and contributed to the PDO objectives of TCDD’s financial viability. 7 Implementation Completion and Results Report Guidelines, OPCS, August 2006, last updated July 2, 2014. 11 Table 2. Original PDO indicators 47. Revised PDO: The revised PDO as of June 2009 has two parts, one related to the signaling investment, i.e. "improve the effectiveness of railway operations on the Mersin-Toprakkale and Yenice-Bogazkopru lines by increasing capacity and improving service quality", and the other related to preparing to implement reforms, i.e. "lay the groundwork for restructuring TCDD by developing experience with financially viable contract arrangements for loss making public services and access pricing of infrastructure." 48. Increasing capacity and improving service quality. Regarding the first set of revised PDO outcomes—increasing capacity and improving service quality—the project’s performance by the final closing date was mixed. On the one hand, the project surpassed its targets for increased annual traffic volume on the Mersin-Toprakkale and Yenice-Bogazkopru lines by 151 percent for passenger traffic and 104 percent for freight traffic. On the other hand, the project failed to reach its targets for improved average speeds on either line, with actual achievements of 78 percent and 71 percent of targets respectively. In addition, the target for the increased share of traffic to/from Mersin Port carried by rail was not reached and the actual value at end-of-project is actually lower than the baseline (5.0 percent vs. 5.9 percent). The intermediate indicator target for increased freight traffic on the most productive part of the freight network (11.6 bn. Tons/km) was not achieved. Because of traffic interruptions along the lines due to an electrification project ongoing since 2014, the recent traffic data did not increase. Nevertheless, the completion of track extensions in stations and the signaling interlocking systems substantially enhances traffic safety (from manual to automatized systems) and increases or are about to increase the lines capacity by at least 20 percent on both lines, except between Mersin and Adana, where cable thefts occurred. The increase in traffic reliability, which is critical for freight transportation directly derives from the completion of the signaling systems. The achievement of the physical investments is modest. 49. Preparing to Implement Reforms. The reform part of the PDO concerns preparing TCDD for restructuring by developing experience with public service obligation (PSO) contracts and access pricing of infrastructure. In 2009, the project initiated a PSO pilot with TCDD and Treasury in which they established an agreement that specified the service requirements and compensation for a limited number of trains. This agreement was successful and expanded to cover additional trains. A technical assistance (TA) financed by the project helped TCDD and Treasury optimize the passenger train service offering and prepared a more sophisticated draft PSO contract covering all passenger services. Thus, the project has fully achieved its target related to developing experience with public service contracts, which is the form of contract that is expected to be used in the future. 12 50. In 2009, the project initiated a pilot in which TCDD prepared its first Network Statement in the format required by the EU (The Network Statement is the document in which railways in the EU define the terms under which competing railway undertakings can have access to the railway infrastructure. It includes the access pricing methodology). The project was to finance further elaboration of the Network Statement, but TCDD obtained grant funds from the EU for this purpose. With this support, TCDD further elaborated and refined the network statement. Thus the project, in cooperation with EU, fully achieved its target related to developing experience with access pricing. 51. The project also contributed to greater transparency and accountability of TCDD by (a) requiring and financing the first external audits of TCDD according to International Financial Reporting Standards, (b) financing an Internal Financial Controls Risk Assessment of TCDD, and (c) monitoring the implementation of an Enterprise Resource Planning Program, the implementation of which was a legal covenant. The project-financed TA on Freight Marketing raised TCDD’s awareness of what it would need to do to compete with other train operators in an open access environment, also preparing it for reforms. TCDD is gradually implementing the project-financed TA on Maintenance Practices (also a legal covenant), improving the cost efficiency of its maintenance practices. The stakeholder surveys conducted under the project penetrated TCDD management complacency by giving them an unfiltered perspective on how customers, employees and other stakeholders view their performance. Finally, the project greatly surpassed its intermediate target for TCDD staff trained (2,500 vs. 362 trained directly plus 12,788 trained by staff who received training of trainers instruction). The achievement of the reform component is assessed as substantial. 3.3 Efficiency 52. Original analysis: At appraisal, the economic analysis of component A was performed using a stylized model that considered the actual and forecast freight traffic on the line sections, and the impact of the proposed investments on available line capacity in a defined ‘do-nothing’ scenario and a defined ‘do-something’ scenario. The economic benefits were defined as the additional revenue that would be realized from additional traffic that could be carried on these line sections, following the increase in capacity, in the defined ‘do-something’ scenario. The analysis showed that component A would be economically viable, returning a positive NPV of YTL 44.6 million. The Economic Internal Rate of Return was 15 percent, and the estimated benefit-cost ratio 1.29. The original financial benefits of the project were derived from: (i) the additional revenue to be realized from additional freight traffic that can be carried as a result of investments for capacity improvements and (ii) the reduction in labor cost as a result of a significant staff reduction during the period 2005-2010. The original financial analysis indicated that the project would be financially viable, returning a very high net present value (NPV) of US$405 million at a discount rate of 12 percent, following an investment of US$129 million for capacity improvements on the line sections, US$93 million for compensation incentives offered to TCDD staff for voluntary departures, as well as US$238 million for structural cost of retirement benefits, which was an accrued liability. The financial internal rate of return was estimated to about 50 percent. It was expected that the investments planned for the railways under the project would lead to substantial improvements in the overall financial position of TCDD. The railway deficit was expected to decrease by about 30 percent in 6 years from US$548 million in 2004 to US$380 million in 2010. Railway revenues were expected to grow annually by about 10 percent during this same six year period as a result of the combination of (i) an estimated traffic growth of 6 percent per annum driven by modernization and rehabilitation of infrastructure financed under the project, the ongoing Ankara-Istanbul rehabilitation project financed by the Spanish bilateral fund, and a new commuter rail system in Izmir and (ii) a more commercially oriented tariff policy. 13 53. A reassessment of the economic return of the project was undertaken after project closing and is summarized in Annex 3. The main economic benefits derive from the retrenchment program and the physical components. The severance payment component has an economic internal rate of return (EIRR) of 95 percent. This is typical for such projects as a proportion of those taking the payments immediately become productive and in any case TCDD immediately saves the annual cost of supervising the staff, providing them with uniforms, offices and supplies. The physical component of the project is expected to generate an EIRR of 9 percent (assuming completion by end-2016), which is typical for a signaling project and is largely attributable to the increased capacity it provides at a time of increasing traffic and to the external benefits that it generates by being able to accommodate traffic otherwise travelling by road. This EIRR for the physical component increases to 13 percent if an allowance is made for the potential reduction in the economic transport operating cost by rail compared to road. 54. The two components combined give an EIRR of 21 percent and up to 25 percent if the transport operating cost reductions eventuate. Thus efficiency is rated Substantial under the scenario of project completion by 2016. 3.4. Justification of the Overall Outcome Rating 55. Original PDO: Progress toward the original PDO is rated as MU, and is given a weight of 31 percent, based on disbursement at the time the PDO was revised. 56. Revised PDO: Progress toward the revised PDO is given a weight of 69 percent based on disbursement at the time the PDO was revised. The assessment of the revised PDO gives equal weight to the two parts, improved service related to signaling and preparation for reforms. While improved services (signaling) represent the lion's share of the disbursement, preparing to implement reforms is highly relevant in light of the Turkey's passage of the Law on Liberalization of Railway Transportation of Turkey in 2013. The part of the PDO related to improved service (signaling) is rated as follows: relevance is high, but efficiency is modest and achievement of objectives is modest, giving an overall rating of Moderately Unsatisfactory for the physical improvements part of the PDO. 57. The part of the PDO related to preparation for reforms has high relevance, Substantial efficiency and Substantial achievement for an overall rating of Satisfactory. 58. Combining these elements, weighting the original PDO rating MU and the revised PDO rating MU for service improvement (signaling) and S for preparation for reforms by their disbursement amounts yields an overall rating of Moderately Unsatisfactory. (0.31*3)+(0.69*[0.5*2+0.5*5])=3.34. 3.5 Overarching Themes, Other Outcomes and Impacts 59. In 2013, the Turkish Parliament passed legislation to reform the structure of the railway industry in Turkey (Law on Liberalization of Railway Transportation of Turkey, effective May 1, 2013). The law splits TCDD into an infrastructure provider and a train operating company and authorizes private train operators to compete using access to the national railway infrastructure managed by TCDD. This law, together with the Decree Law on the Organization and Duties of the Ministry of Transportation of Turkey (November 1, 2011), substantially aligns the structure of the Turkish railway sector with key elements of the EU Railway Legislation. Four legislations are necessary to allow private entities to operate in the network: (i) the Infrastructure Access legislation and (ii) the Rolling Stock Registry legislation, and (iii) Safety legislation were approved 14 respectively in 2014 and 2015, while (iv) legislation on licensing has been prepared, endorsed by the Government but not published yet, due to delays in 2015 related to electoral uncertainties. 60. Under the new railway law, railway passenger services will be financed through a PSO contract with the Ministry of Transport and funded through its budget. The Railway Regulation Department of MoT has indicated that the draft PSO contact prepared under the project will be a model for the contract they negotiate with TCDD Trains. Likewise, under the new railway law, access to the railway infrastructure will be allowed starting in 2014, and this will require TCDD to issue the Network Statement. Because of the project activities on PSO and Network Statement, TCDD and the Government of Turkey are prepared to take these important reform steps. 4. Assessment of Risk to Development Outcome 61. The risk to the development outcome of the signaling component is rated significant. The signaling investment implementation continues to be delayed due to limited project management capacity, suspension of contractor’s activities, and/or continued problems with theft and vandalism. 62. The risk to the development outcome of the reform component is rated moderate. Under the new railway law, railway passenger services will be financed through a PSO contract with the Ministry of Transport and funded through its budget, likely in 2015. Likewise, under the new railway law, access to the railway infrastructure requires TCDD to issue the Network Statement. Because of the project activities on PSO and Network Statement, TCDD and the Government of Turkey were prepared to take these important reform steps. Both activities were completed within the time frame of the project, and before the passage of the new railway law. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry 63. Bank performance at Project Entry is rated Moderately Unsatisfactory because (a) the project design reflected excessive optimism about reform timing and what could be accomplished without legislation; (b) inadequate implementation arrangements due to other-reliance on PIU’s capacity 8 ; (c) insufficient risk analysis and mitigation measures at the outset; (d) the bidding documents were not ready by appraisal; (e) due diligence in readying TCDD organization had not been fully carried out; (f) the staff retrenchment component of the program was not fully developed at the time of appraisal and was lacking targets; and (g) no land acquisition and resettlement framework had been prepared at appraisal. The latter required an assessment of the Affected People to be done during the course of the project implementation in order to deal with land acquisition and resettlement associated with the construction of the passing loops and the creation of a logistic center at Yenice station. The logistics park at Yenice had not been proposed during project preparation; however, there should have been a LARF in case land acquisition for station loops became necessary. (b) Quality of Supervision 64. The Bank restructured the project three times and in a timely fashion to adapt to delayed reforms and other issues affecting the project performance. Both the Bank’s sector specialists and 8 See Section 2.2 c. 15 local staff extended large efforts to (i) address inadequacies in Quality at Entry, and (ii) facilitate the project implementation. While the Bank at an early stage identified deficiencies during implementation, the proposed remedies remained insufficient vis-à-vis the lack of capacity on the Borrower side. Consistent with these efforts, the Bank strengthened its project supervision by mobilizing additional specialized staff. First, a senior international staff overseeing the infrastructure portfolio including transport projects was hired in the Country Management Unit in October 2012. Second, during the period 2011-13, the Bank recruited a railway signaling expert, requested in-house support from seasoned project implementation specialists during review missions, and convinced TCDD to hire a Claim Specialist and to retain the construction supervision consultants after project closing. The Bank supervision took adequate steps in dealing with resettlement, by (i) requesting the implementing agency to survey affected people, (ii) supporting the preparation of a RAP, and (iii) restructuring the project to create obligations to implement the RAP. The Borrower expressed deep appreciation for the Bank’s support (see Annex 5, Borrower Report). Highly relevant technical support was extended during the project, targeting strategic, technical and project management medium and long term needs. The Bank formulated adequate recommendations to TCDD dealing with contractors, construction supervision. There were 16 Bank missions/ISRs during the life of the project, an average of more than two per year. The quality of supervision is rated Moderately Satisfactory, as the Bank could have taken earlier actions to respond in a timely manner to the emergence of significant project risks by restructuring the project sooner. (c) Justification of Rating for Overall Bank Performance 65. The Bank’s performance is rated Moderately Unsatisfactory, considering on one side the shortcomings of the project preparation and on the other side, the substantial efforts extended by the Bank to mitigate the major risks towards achievement of the PDO. 5.2 Borrower Performance Government Performance 66. Under the original PDO, the government prepared the necessary legislation, though it did not introduce it. Under the revised PDO, Treasury followed up on the reform on a regular basis with TCDD at the urging of the Bank and actively participated in the pilot PSO activities. The Ministry of Transport, through the establishment of a dedicated and capable Railway General Directorate, was committed to the implementation of the new law which ultimately passed at the time when the legislature was ready to consider and approved it. The overall government’s performance is rated Moderately Satisfactory considering the delays in implementing the reform. Implementing Agency or Agencies Performance 67. Overall, the implementing agency was committed and took ownership in delivering the technical assistance program, carrying out the necessary social and environmental activities and extending the construction supervision contract beyond loan closing date. The signaling investment component was not completed by the project closing date largely because of TCDD’s internal capacity and a lack of leadership and coordination at government level. The Bank proposed that TCDD should change the project manager designated in the contract with the signaling contractor, from someone in TCDD Headquarters responsible for all signaling activities to either a qualified and dedicated TCDD staff or delegated to the supervision consultant 9 . TCDD argued that the 9 The Aide Memoire dated February 20, 2010 p.3 requested two changes in management of the project to accelerate implementation: (i) the supervision consultant would be named as “project manager” for purposes of the TCDD contract with the signaling contractor; (ii) TCDD management would appoint a Project Director to carry out TCDD’s duties as 16 structure had to remain intact but agreed to involve HQ managers more in project supervision. The limited capacity of the Project Implementation Unit to deal with large scale contracts under international competitive bidding was apparent. Multiple capital expenditures supervised by TCDD resulted in thin capacities, for instance, delaying internal processes of the PIU, which delayed resolving core project implementation issues. Multiple internal reviews resulted in long delays which at times hindered progress of the contractor. Despite these shortcomings the implementation agency performance is overall rated as Moderately Satisfactory. Justification of Rating for Overall Borrower Performance 69. Taking into consideration that both Government and implementing agency ratings are Moderately Satisfactory the combined rating is also Moderately Satisfactory, despite TCDD’s project management shortcomings. 6. Lessons Learned 70. The use of adaptable program lending instrument involving investment components may not leave the Bank’s supervision team with enough leverage to link the progress of physical components with the reform milestones. In this particular case, the project frontloaded the railway reform as a precondition for further project implementation. Because the reform itself was delayed, the entire project implementation was delayed, putting at risk the achievement of the original PDO. While this risk was highlighted during project preparation, the project’s processing records indicate that the submission of the railway laws to the Parliament was seen as crucial to ensure the sustainability of the project. Instead, recent Bank’s interventions in other Middle Income Countries indicate that a sustained sector dialogue in parallel to project implementation can sometimes be more influential than the use of formal triggers within an investment project. The project development objective should be realistically achievable through the project and not depend on the passage of legislation, which the Borrower may not be able to pass. If no mitigation measure can be taken to address some of the political risks, the project design should be revised accordingly 71. Railway reform remains a complex, ambitious and time consuming activity. During the course of the project, TCDD and MoT needed more studies and internal consultations to finalize the reform agenda. As for any sector reform, it is advisable to carry out comprehensive due diligence of the IA’s organization to absorb and adapt to the structural changes, and to implement timely and realistic objectives, with thorough risk assessment and mitigation measures. In house capacity, strategic and advisory support to strengthen the railway historical organization’s ability to restructure itself is suitable. Establishing a Railway Sector Working Group at the outset of the project would have been an important institutional feature to coincide with the reform process. Given that the financing for TCDD was coming from funds lent to Treasury and then on-granted to TCDD, it stands to reason that higher level policy institutions, such as Treasury, would have a more active role in overseeing the reforms and implementation throughout the course of the project. In future engagements of this kind, a Working Group should be maintained through project implementation and should be convened regularly with minutes of meetings to document project implementation progress and achievement of development objectives. The PIU could have featured a dedicated technical team member to document this process continuously in order for the process to remain on track or to ensure that corrective action was taken in a timely manner. “employer” in TCDD’s contract with the signaling contractor. This person would (a) be fully responsible for the signaling and station loop extension project, (b) have the authority delegated from the General Director of TCDD to take all decisions related to the signaling and station loop extension project, and (c) be dedicated full time to the signaling and station loop extension project. 17 72. Railway sector reform in Turkey followed a similar pattern to energy sector reform (e.g. privatization of electric distribution companies). In both cases, the Bank teams anticipated policy reforms well before they materialized and the respective operations designed in both sectors to coincide with the reform process, indeed being dependent on such reforms, were unable to fully meet their development objectives by project completion. Having noted this, the Government has in both cases proceeded with the necessary legal/regulatory reforms, but well after when they were originally anticipated. 73. Implementation structure of the client should be well assessed at the time of project preparation. The project suffered from decentralized review process outside the PIU itself, as well as from complexity within the PIU to formulate decisions. TCDD management that took over early 2015 recognized the need for reform and committed to and even sought Bank assistance in addressing managerial and financial weaknesses. It is suggested in the future to strengthen project management by implementing a dedicated program management team with decision making staff being closer to project site and populated by staff with adequate skills covering the entire technical spectrum of the project. Such program management units have been successfully deployed under other Bank financed projects in other sectors in Turkey. 74. When the implementing agency has limited experience with procurement of technically complex investments such as signaling, greater Bank provision of technical support and training for the preparation of the bidding documents and the management/supervision of such contracts is advisable. Such investment in high quality bidding documents can save considerable time and resources at project implementation. 75. When land acquisition is not planned within a project but is a possibility, the preparation of a land acquisition and resettlement plan and reference to that document in the loan agreement, will facilitate addressing land acquisition, should it arise in the execution of the project. 76. Coordination with other development partners remains essential. The EU technical assistance was considered sufficient at the time of the project preparation to address most of the capacity building and institutional strengthening issues. TCDD developed its capacity during implementation, with support from the Bank, but the due diligence of TCDD’s large scale project management and signaling project management capacity had not been fully carried out upfront and addressed during preparation, including for procurement and contract management. 77. To ensure that the procurement process excludes firms that routinely underbid and make up the financial gap through change orders, bidder qualifications may include demonstration of successful implementation of comparable projects within the originally bid amount. 78. Staff retrenchment remains a difficult and sensitive activity to be undertaken as part of railway restructuring programs due to the associated social safeguards and necessary political coordination with labor unions. In this respect, the government’s ability to drive this process constitutes a key vector towards successful implementation. In view of the tremendous time and efforts that are necessary to negotiate with social partners and eventually achieve results, there is a risk that retrenchment programs could divert government’s attention from other core operational restructuring steps. 79. Signaling projects can potentially be implemented in an effective manner due to their relative simplicity and their limited environmental and social impacts. However, the procurement of signaling systems remains challenging, particularly when associating both design and implementation into one contract. The replacement of the contractor was not an option partly because the design of the signaling components were tailored to the project, and dedicated equipment was implemented and adapted specifically to the lines operations, hence creating major 18 difficulty in the event of the contractor’s replacement. There are also risks of lock-in for the future maintenance of the equipment to be installed. Two recommendations can be formulated. First, it is advisable to mitigate the risks inherent to the procurement of signaling by strengthening the technical capacity of the IA and providing strong analytical support to ensure that the proposed options are correct. Second, the Bank, which currently relies on external independent expertise to review the technical specifications may also consider developing technical capacity in that area. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 80. TCDD formulated in its Borrower Report (see Annex 7) a number of constructive comments. First regarding project procurement, TCDD highlighted the need for the bidding documents to be reviewed thoroughly at a legal level, in order to mitigate and frame potential disputes during the course of the project. Enhanced communication with interested bidders should also be promoted, and communication efforts to raise public awareness shall also be extended. TCDD also formulated comments regarding the project design vis-à-vis political willingness to implement the project or some of the project’s components. At a project management level, TCDD acknowledges the need to turn the PIU into a more efficient and professional organization, simplifying internal reporting mechanisms and procedures. Finally TCDD is ready to concentrate more efforts towards the implementation of enhanced project performance monitoring and evaluation. 19 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) To be completed by Borrower as per ICR guidelines Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Component A. Railway 110.2 To be completed infrastructure modernization Component B. TCDD staff adjustment and social mitigation 74.2 plan Component C. Advisory services 3.1 to the TCDD Component D. TCDD staff 0.5 training and re-training program Component E. TCDD Public 0.2 Communication and surveys Component F. Project 0.7 Implementation costs Total Baseline Cost 188.9 0.00 Physical Contingencies 15.0 0.00 0.00 Price Contingencies 17.1 0.00 0.00 Total Project Costs 221.0 0.00 Front-end fee PPF 0.00 0.00 .00 Front-end fee IBRD 0.00 0.00 .00 Total Financing Required 0.00 0.00 (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Borrower 36.30 0.00 .00 International Bank for Reconstruction 184.70 148.06 80.2% and Development 20 Annex 2. Outputs by Component Component Description Outcome Comment Indicator Freight Line This component finances the Share of works At ICR preparation, Capacity Increase installation of a signaling and completed the signaling telecommunications system on the investments are Mersin-Toprakkale and Yenice - completed or about Bogazkopru lines. This investment is to be completed. The expected to relieve congestion on the safety, speed and railway lines to/from Mersin port so reliability of the that more of the port traffic maybe operations along the handled by rail rather than road. lines have substantially increased. Staff Adjustment This component financed the end-of- TCDD railways The component employment, lump sum payments for staff is reduced financed the end-of- retirement in a socially employment, lump acceptable way. sum payments for of 1,596 TCDD staff. All retirements were voluntary, involving no layoffs. Advisory Services The services include an (a) Internal TCDD is TCDD is prepared to to TCDD Financial Controls Risk Assessment, prepared to implement PSO and (b) Freight Marketing, (c) implement open access by Rationalization of Passenger Services restructuring preparation of a and Public Service Obligation (PSO), Network Statement. and (d) maintenance practices. The outputs support the TCDD Financial Audit for 2009 - 2012. The studies also supported TCDD carrying out pilots supporting reforms on public service contract and infrastructure charging. TCDD Staff TCDD staff training in (a) non- Number of staff 362 trained directly Training destructive testing, (b) project trained during and 12,788 trained management, (c) how to deliver on- the project is by staff that received line, computer based training, and (d) 2500 the "training of training of trainers. trainers" instruction TCDD Public surveys of customers and stakeholders Three surveys The surveys were Communications conducted conducted and the and Periodic asking result interpreted for Surveys customers and TCDD other stakeholders about their perceptions of TCDD 21 Annex 3. Economic and Financial Analysis BACKGROUND 1. The project has two components that are included in the economic evaluation:  Severance payments to accelerate the retirement of TCDD staff that were surplus to operational requirements;  The upgrade of signaling systems, lengthening of passing loops and the installation of improved tunnel ventilation systems on four sections of line: Bogazkopru – Ulukisla, Ulukisla – Yenice and Mersin – Toprakkale via Yenice and Adana. 2. Of these, the Ulukisla – Yenice link, which is the main north-south link serving Mersin port, is close to capacity and the project will eliminate this bottleneck and, together with the upgrade works on the other lines, approximately double the capacity of this line in terms of net tons. 3. The project became effective in 2006 and severance payments for the voluntary early retirement of 1,596 TCDD staff were completed in 2009. The physical works began in 2009 but have not yet been completed. It is currently expected that these will now be completed sometime in 2016; however, in view of past delays this is not guaranteed and the revised evaluation therefore assumes that the project is not completed until 2017. 4. Freight traffic on the TCDD network has steadily increased at 1.8% p.a. over the last 10 years. This period has included the 2008 financial crisis, when freight traffic throughout most European adjoining countries reduced sharply, as well as the difficulties created by the wars in Iraq and Syria. There seems no reason to suppose this growth will slow significantly and this has been adopted for the duration of the evaluation period. 5. Since the IBRD capacity component of the project began, TCDD have also decided to electrify the sections between Bogazkopru and Yenice. This work is taking place simultaneously with the final stages of the IBRD project and will generate benefits over and above those due to the IBRD project alone. For the purposes of evaluation, the electrification has not been considered and the capacity component evaluation is instead based on what could be expected to be the benefits of the IBRD project alone based on the current project assessment. IDENTIFICATION OF COSTS 6. The estimated economic cost of the project (i.e. excluding VAT) is taken as $124 million. IDENTIFICATION OF BENEFITS 7. From an economic perspective, the project has three main potential benefits:  The severance payments allow surplus labor resources to be at least partially redeployed to other areas of the economy;  The installation of CTC reduces sectional running times and hence increases line capacity in terms of trains;  The lengthening of passing loops from the present 450 meters to 750 meters allows train lengths to be increased by 65 percent, thus increasing the net tons per train possible on this section. Severance payments 8. This section evaluates the benefits of the labor severance payments, which enabled redundant staff to be redeployed to more productive activities. These staff were fully employed by 22 the railways, although not undertaking any productive work and the railways thus saved the full cost of the salary and social benefit contributions. 9. At the time of the PAD in 2005, the normal retirement payment was about US$25,000 for blue color workers with 25-30 years of service, and US$15,000, based on the number of years of service (at annual rates of US$1,000 for blue color and US$500 for white color). The minimum number of years of service to be eligible for retirement was 25 years for men and 20 years for women, with a mandatory retirement age is 65 for both men and women. The pension payment averaged about 40 percent of salary for blue color and 70 percent for white color. The annual gross salary at that time averaged about US$19,000 for blue color and US$12,000 for white color. By 2008, the average over all employees had increased to nearly US$25,000, about 30 percent more than in 2005. 10. In practice, the total payment made under this component of the project was US$19.942 million or US$12,495 per employee. This indicates that most of the staff who took the payment were white-collar staff who had worked for TCDD for around 10-15 years and who likely would be able to find another job. If they had not taken the severance payment, they would presumably have remained at TCDD until another round of severance payments induced them to quit. For the purposes of the re-evaluation, this has been assumed as five years but in practice they could remain at TCDD for many more years. 11. The economic benefits of labor severance are a direct function of whether retrenched staff will be re-employed. Past experience shows a proportion never work again, either from their own wishes or through lack of opportunity; the economic benefit in their case is thus only the labor- related supervision and service costs (estimated at about 30 percent of labor costs or US$5000 p.a. for those accepted the payments) that were saved by TCDD together with the benefit (or cost) people experience through no longer working; this latter element has been ignored in the evaluation. Those staff who are re-employed productively, possibly after an interval, will, however, make a contribution to the economy which can be assumed equal to their employment cost. 12. Taking into account the likely age structure and skills of those who were retrenched, the economic evaluation conservatively assumes 25 percent of those retrenched never worked again, and that a further 25 percent only did so after a delay of one year. Reduced sectional times 13. The installation of CTC will reduce sectional running times because of the faster transaction time of CTC-based control compared to manual control at individual stations. It also reduces delays by enabling a more strategic approach to real-time train priorities. These improvements will vary for each situation as it depends on the ratio of the transaction time to the existing running time but would typically be 20-30 percent, thus increasing capacity by around that amount. 14. The potential capacity benefits are discussed in the next section, as they are essentially a function of network capacity rather than sectional capacity but the reductions in sectional running times apply regardless (to a first approximation) of what is happening elsewhere on the network. 15. In 2012, the lines on which the improvements are being undertaken had a combined total of 2.058 million passenger train-km and 1.701 million freight train-km (1.105 million between Yenice and Bogazkopru and 0.596 million between Mersin and Toprakkale). In mixed traffic, passenger trains have priority over freight trains and no benefits have been included for any change in their commercial speed. However, freight trains typically incur significant delays when capacity is limited. The 2012 project restructuring estimated commercial freight train speeds of 25 km/hr between Yenice and Bogazkopru and 35 km/hr on the Mersin – Toprakkale section, which were 23 expected to increase to 35 km/hr and 45 km/hr respectively. This suggests that when CTC is introduced, freight trains will save about 16,400 train-hours per annum over the project lines. 16. An hour of time saved for a typical freight train in the project area will save one locomotive-hour, one train-crew hour and 20 wagon-hours. This will create savings in train-crew and locomotive maintenance costs (of about US$80 per hour), in locomotive capital (of about US$70 per hour for the type used on these sections) and wagon capital (about US$1 per wagon- hour); the total cost is thus about US$170 per train-hour, or US$2.8 million per annum. This will increase over time if the project were not done, as the without-project commercial speeds of 25 km/hr and 35 km/hr would continue to reduce. The potential savings have been increased at 2.5 percent per annum to allow for this. Increased network capacity 17. The Yenice – Ulukisla section of the network carried 3.8 million net tons in 2012, some 15 percent of the total traffic carried on TCDD, and has been close to capacity for several years. It is thus effectively a bottleneck which restricts traffic to and from Mersin port. Increasing the capacity of this link will therefore free up rail traffic to and from the Yenice/Mersin region, improving rail’s competitiveness compared to road. 18. In the absence of the project, rail traffic transiting this link has been assumed to be constrained at its current level from 2015 onwards. The project not only increases the number of train paths but also, by lengthening passing loops allows freight trains of up to 33 wagons, a 65 percent increase on what is currently possible and sufficient for the foreseeable future. 19. The potential reductions in economic transport costs of such an increase in rail traffic are probably positive but not likely to be significantly so. Average revenue in 2012 was TL 0.046/ntkm, around US$0.023, which should cover above-rail costs but do little to contribute to infrastructure. The base evaluation has therefore erred on the conservative side and omitted any such benefits. Average truck tariffs in Turkey are typically about US$0.08/ntkm in the forward direction and about US$ 0.04/ntkm in the backloaded direction. Depending on the balance of these flows, rail could show savings in economic costs of up to US$0.02/ntkm. Sensitivity tests have been undertaken to show the impact of assuming such savings to be either $US0.01/ntkm or $US0.02/ntkm. 20. Regardless of any savings in transport costs themselves, traffic which diverts to rail from road will generate significant reductions in external costs, such as road accidents, emissions, etc. The most comprehensive study of these was undertaken in 201110 and estimated the differential external costs of road compared to diesel railway for freight traffic for each EU country. Using an average of the figures for Croatia and Slovakia as a proxy for Turkey, this study gave a differential external cost of US$0.015c/ntk (US$2008) in favour of rail and this has been used in the evaluation as the benefit from the diverted traffic. 21. These benefits accrue throughout the entire distance of the freight journey; this has been taken as 460 km, the average for TCDD. As this benefit is closely linked to real increases in income through the value of human life, value of travel time etc., these benefits have been increased at 2 percent p.a. EVALUATION RESULTS 22. Table 1 summarizes the costs and benefits discussed in the previous section. 10 External Costs of Transport in Europe, CE Delft 24 Table 1. Summary evaluation (US$million) Severance Signaling/loops Speed External Total Capex benefits Net Capex Net benefits benefits 2007 10.0 -10.0 0.0 -10.0 2008 10.0 8.4 -1.6 0.0 0.0 -1.6 2009 19.0 19.0 15 0.0 -15.0 4.0 2010 21.1 21.1 20 0.0 -20.0 1.1 2011 21.1 21.1 22 0.0 -22.0 -0.9 2012 -10.0 21.1 31.1 22 0.0 -22.0 9.1 2013 -10.0 10.6 20.5 20 0.0 -20.0 0.5 2014 10 0.0 -10.0 -10.0 2015 10 0.0 -10.0 -10.0 2016 5 1.4 0.0 -3.6 -3.6 2017 2.9 3.1 6.0 6.0 2018 2.9 4.0 6.9 6.9 2019 3.0 5.0 7.9 7.9 2020 3.0 6.0 9.0 9.0 2021 3.1 7.1 10.1 10.1 2022 3.1 8.2 11.3 11.3 2023 3.2 9.4 12.6 12.6 2024 3.2 10.7 14.0 14.0 2025 3.3 12.1 15.4 15.4 2026 3.3 13.5 16.9 16.9 2027 3.4 15.0 18.4 18.4 2028 3.5 16.6 20.1 20.1 2029 3.5 18.3 21.9 21.9 2030 3.6 20.1 23.7 23.7 2031 3.7 22.0 25.7 25.7 2032 3.7 24.0 27.7 27.7 2033 3.8 26.1 29.9 29.9 2034 3.9 28.3 32.2 32.2 2035 3.9 30.7 34.6 34.6 2036 4.0 33.1 37.1 37.1 2037 4.1 35.7 39.8 39.8 2038 4.1 38.4 42.6 42.6 2039 4.2 41.3 45.5 45.5 2040 4.3 44.3 48.6 48.6 2041 4.4 47.5 51.9 51.9 2042 4.5 50.9 55.3 55.3 2043 4.5 54.4 58.9 58.9 2044 4.6 58.1 62.7 62.7 2045 4.7 62.0 66.7 66.7 EIRR 95% 9% 21% 25 23. The severance payment component has an EIRR of 95 percent. This is typical for such projects as a proportion of those taking the payments immediately become productive and in any case TCDD immediately saves the annual cost, over and above the direct wages cost, of supervising the staff, providing them with uniforms, offices and supplies. 24. The physical component of the project is expected to generate (assuming completion by end-2016) an EIRR of 9 percent, largely attributable to the increased capacity it provides at a time of increasing traffic and to the external benefits that it generates by being able to accommodate traffic otherwise travelling by road. 25. The two components combined give an EIRR of 21 percent (but note that the original PAD did not appear to evaluate the severance component). 26. When potential benefits from reduced transport costs by rail are included (para 17), the EIRR of the physical component increases to 11 percent and 13 percent respectively with corresponding increases in the overall EIRR for both the severance component and capacity enhancement component to 23 percent and 25 percent. Table 2. Summary evaluation (US$million) Severance Signalling/loops Speed External Total Capex benefits Net Capex Net benefits benefits 2007 10.0 -10.0 0.0 -10.0 2008 10.0 8.4 -1.6 0.0 0.0 -1.6 2009 19.0 19.0 15 0.0 -15.0 4.0 2010 21.1 21.1 20 0.0 -20.0 1.1 2011 21.1 21.1 22 0.0 -22.0 -0.9 2012 -10.0 21.1 31.1 22 0.0 -22.0 9.1 2013 -10.0 10.6 20.5 20 0.0 -20.0 0.5 2014 10 0.0 -10.0 -10.0 2015 10 0.0 -10.0 -10.0 2016 5 1.4 0.0 -3.6 -3.6 2017 2.9 3.1 6.0 6.0 2018 2.9 4.0 6.9 6.9 2019 3.0 5.0 7.9 7.9 2020 3.0 6.0 9.0 9.0 2021 3.1 7.1 10.1 10.1 2022 3.1 8.2 11.3 11.3 2023 3.2 9.4 12.6 12.6 2024 3.2 10.7 14.0 14.0 2025 3.3 12.1 15.4 15.4 2026 3.3 13.5 16.9 16.9 2027 3.4 15.0 18.4 18.4 2028 3.5 16.6 20.1 20.1 2029 3.5 18.3 21.9 21.9 2030 3.6 20.1 23.7 23.7 2031 3.7 22.0 25.7 25.7 2032 3.7 24.0 27.7 27.7 26 2033 3.8 26.1 29.9 29.9 2034 3.9 28.3 32.2 32.2 2035 3.9 30.7 34.6 34.6 2036 4.0 33.1 37.1 37.1 2037 4.1 35.7 39.8 39.8 2038 4.1 38.4 42.6 42.6 2039 4.2 41.3 45.5 45.5 2040 4.3 44.3 48.6 48.6 2041 4.4 47.5 51.9 51.9 2042 4.5 50.9 55.3 55.3 2043 4.5 54.4 58.9 58.9 2044 4.6 58.1 62.7 62.7 2045 4.7 62.0 66.7 66.7 EIRR 95% 9% 21% 27. The severance payment component has an EIRR of 95 percent. This is typical for such projects as a proportion of those taking the payments immediately become productive and in any case TCDD immediately saves the annual cost, over and above the direct wages cost, of supervising the staff, providing them with uniforms, offices and supplies. 28. The physical component of the project is expected to generate (assuming completion by end-2016) an EIRR of 9 percent, largely attributable to the increased capacity it provides at a time of increasing traffic and to the external benefits that it generates by being able to accommodate traffic otherwise travelling by road. 29. The two components combined give an EIRR of 21 percent (but note that the original PAD did not appear to evaluate the severance component). 30. When potential benefits from reduced transport costs by rail are included (para 17), the EIRR of the physical component increases to 11 percent and 13 percent respectively with corresponding increases in the overall EIRR for both the severance component and capacity enhancement component to 23 percent and 25 percent. 27 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Paul Amos Consultant EASCS Consultant Coral Daphne M. Bird Temporary ECSTR Program Assistant Sunja Kim Consultant ECSSD Consultant Lead Transport Olivier P. Le Ber Lead Transport Specialist MNSTI Specialist Alptekin Orhon Consultant SASDU Consultant Luisa Velardi Consultant AFTTR Consultant Michel Audige Sr. Port Specialist ECSTR Task Team Leader Elif Yonca Yukseker Program Assistant ECCU6 Program Assistant Supervision/ICR Sr Financial Ayse Seda Aroymak Sr Financial Management Specialist GGODR Management Specialist Michel Audige Consultant MNSED Consultant Furuzan Bilir Operations Officer ECCU6 Operations Officer Senior Infrastructure Vickram Cuttaree Senior Infrastructure Economist ECSTR Economist Jolanta Hess Consultant ECSSD Consultant Henry G. R. Kerali Sector Manager AFCW1 Sector Manager Sunja Kim Consultant ECSSD Consultant Sr Financial Zeynep Lalik Sr Financial Management Specialist GGODR Management Specialist Sr Transport. Spec. (Railway Martha B. Lawrence GTIDR Task Team Leader Specialist) Lead Transport Olivier P. Le Ber Lead Transport Specialist GTIDR Specialist Lorraine McCann Kosinski Temporary ECSSD Program Assistant Vasile Olievschi Consultant Railways GTIDR Consultant Alptekin Orhon Consultant ECCU6 Consultant Ibrahim Sirer Consultant INTSC Consultant Gaetane Tracz Financial Analyst ECSSD Financial Analyst Resettlement Stanley Peabody Consultant LCSEG Specialist Florian Fichtl Lead Operations Officer ECCU6 Country Manager Ulker Karamullaoglu Program Assistant ECCU6 Program Assistant Antoine Kunth Sr. Railway Specialist GTIDR ICR Author Funda Canli Program Assistant GTIDR Program Assistant Juan Gaviria Sector Manager GTIDR Sector Manager Ogun Cicek Consultant GTIDR Consultant 28 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY04 24 164.22 FY05 39 266.33 FY06 1 20.37 FY07 0.00 FY08 0.00 Total: 64 450.92 Supervision/ICR FY04 0.00 FY05 0.18 FY06 9 118.46 FY07 27 158.24 FY08 21 139.37 FY09 18 0.00 Total: 75 416.25 29 Annex 5. Beneficiary Survey Results (if any) Not relevant for the project 30 Annex 6. Stakeholder Workshop Report and Results (if any) Not relevant for the project 31 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR TURKEY RAILWAYS RESTRUCTURING PROJECT (LOAN NO. 4787) BORROWER’S COMPLETION REPORT Key Project Data Project Number: P077328 Loan Number: IBRD-4787 Effectiveness Date: June 19, 2006 Closing Date: June 30, 2012 Total Loan Amount: € 143.7 million Total Disbursements: € 103.056.972 Funds Committed: € 139.9 million Additional Financing: Na Date of Restructuring: July 6, 2009 Revised Closing Date: December 31, 2013 August 2, 2011 June 28, 2012 A. INTRODUCTION 1. Turkey's geopolitical position - as a link between Europe and Asia - makes the transport sector crucial for the economic development of the region. Turkey is a major player both as a transit country and as an origin and destination of freight. The political developments with regard to the EU accession process and the growing role of Turkey in trade between Central Asia and the South Caucasus with an enlarged European market make the focus on transport even more important. 2. The Government requested the assistance of the World Bank in both roles as an independent advisor and as a financier. With its experiences all around the world in restructuring railway national companies, the Bank is certainly in a unique position to provide appropriate advice and to work in close cooperation with the EU to help TCDD to reduce its financial losses and in meeting the EU accession requirements. Financing would be required to support consultancy services, staff retrenchment, and some financially sound rehabilitation of infrastructure and operating assets. 3. The Turkey Railways Restructuring Project (Loan No. 4787 TU) was approved on June 9, 2005 and is originally scheduled to close on June 30, 2012. The closure date has then extended to 31st of December 2013. The amount of World Bank loan for this project is Euro 143,7 million. Statement of Objectives 4. The overall objective of the program was to improve the financial viability, productivity, and effectiveness of railways operations. 5. The objectives of the project were revised on 05 June 2009 dated loan agreement and the revised objectives became as follows; a. Improve the effectiveness of railway operations on the Mersin-Toprakkale and Yenice-Boğazköprü lines by increasing capacity and improving service quality, and 32 b. Lay the groundwork for restructuring TCDD by developing experience with financially viable contract arrangements for loss making public services and access pricing of infrastructure. Project Components: 6. The project is based on 6 components which are as follows; Component A. Line Capacity Increase Component B. Staff Adjustment and Social Plan Component C. Technical Advisory Service Component D. TCDD Staff Training and Re-training Component E. TCDD Public Communication and Periodic Surveys Component F. Project Implementation Costs B. ASSESSMENT OF IMPLEMENTATION AND OUTCOMES: Rating: The rating scale defined in the guideline of the World Bank is used here for consistency purposes. Accordingly:  Highly Satisfactory There were no shortcomings in the operation’s achievement of its objectives, in its efficiency, or in its relevance.  Satisfactory There were minor shortcomings in the operation’s achievement of its objectives, in its efficiency, or in its relevance.  Moderately Satisfactory There were moderate shortcomings in the operation’s achievement of its objectives, in its efficiency, or in its relevance.  Moderately Unsatisfactory There were significant shortcomings in the operation’s achievement of its objectives, in its efficiency, or in its relevance.  Unsatisfactory There were major shortcomings in the operation’s achievement of its objectives, in its efficiency, or in its relevance.  Highly Unsatisfactory There were severe shortcomings in the operation’s achievement of its objectives, in its efficiency, or in its relevance. Component A: Line Capacity Increase. A construction contract (The Supply & Installation of a traffic management system and construction of station loop extensions for the line sections of Boğazköprü-Yenice and Mersin Toprakkale) and a consultancy contract (Consultancy Services for Construction Supervision of the Supply & Installation of a Traffic Management System and Station Loop Extensions for the Line Sections of Boğazköprü-Yenice and Mersin-Toprakkale) has been awarded under this component The Contract between TCDD and the Contractor was signed on 07 November 2008. The effective date for determining time for completion was 31st of October 2009. Since, the project was not completed in planned time. It was agreed to grant a time extension of 382 days without applying delay damages being the new completion date of the contract 31st of October 2013. The overall 33 physical accomplishments was around 73.7% as of 31st of December 2013, the closure date of the World Bank loan. The Financial progress for the works done until end of 2013 was 103.984.400,89 € which represents a 78,02% progress. 2009 2010 2011 2012 2013 Financial Progress 0,86% 22,62% 54,28% 68,23% 78,02% Physical Progress 2,40% 26,78% 48,38% 60,47% 73,73% After the closure of World Bank loan, starting from January 1st, 2014 TCDD will finance the project by their own funds. The works are not yet completed at the end of 2015. Assessment of Component A: This component is assessed as Moderately Unsatisfactory as the related outcome is not operational by the closure date of the WB Loan, since the related works could not be completed on time and in an effective way. Component B: Staff Adjustment and Social Plan This component would support the implementation of the restructuring process of the TCDD with a reduced number of employees. € 19.941.772 has been disbursed from this component for total of 7,154 retired staff of TCDD (3,894 being at worker status and 3,260 being at Civil Servant status). Assessment of Component B: This component is assessed as Moderately Satisfactory as it could only partially be completed. Component C: Technical Advisory Service Following activities have been realized under this component: Contract Ref. C.9.1 - Consultancy Services for TCDD’s Maintenance Review: A guideline has been produced and being used by TCDD. Contract Ref. C.6 – Consultancy Services for TCDD Freight Market Research: The marketing strategy of TCDD has been developed and integrated into the management of the TCDD. Contract Ref. C.7 - Consultancy Services for Rationalization and Preparing a Passenger Service Obligation (PSO) Contract for Passenger Services in TURKEY: A model contract document has been developed to be used for PSO. Contract Ref. C.11 - Financial audit of TCDD Contract Ref. C.12 - Internal control risk assessment of TCDD Contract Ref. C.14 – Claim Expert Assessment of Component C: This component is rated as highly satisfactory as the intended services have been received and completed with success. One of the key successes of this 34 component was improvement of the maintenance system in TCDD. The related output became a guideline used by TCDD in its new structures and operations. Component D: TCDD Staff Training and Re-training Following activities have been realized under this component: Contract Ref. T.1.1 - Training, Examination and Certification of Nondestructive Testing Contract Ref. T.1.2 - Training Program for Inspection of Superstructure of High Speed Line According to Track Maintenance Concept Contract Ref. T.1.3 - On-line Learning Training Part 1 Contract Ref. T.1.4 - On-line Learning Training Part 2 Contract Ref. T.1.5 - Training of TCDD Rail Welding Trainers Contract Ref. T.1.6 - Training of Trainers Contract Ref. T.1.7 - Project Management Training The table below summarizes the status of all training carried out within the project. Training Status Number of Staff Trained Non-destructive testing Completed 10 Rail welding Contract funded through other sources. NA Project management Completed 12 Maintenance of high speed Dropped track Training skills-Eskisehir Contract signed Aug. 11, 2010. Training Directly trained delivered from Oct 2010 – Jan. 2011. Eskisehir: 196 Ankara:120 Training skills-Ankara Training delivered from Nov 2010 – Trained by staff Feb 2011. who took the training skills training: 12,788 E-learning Completed 24 The Assessment of this Component is Highly Satisfactory as all intended trainings have been provided with success. Component E: TCDD Public Communication and Periodic Surveys Three user surveys were conducted between 2009 and 2012. The last survey in 2012 found an overall improvement in stakeholder perceptions of TCDD and its services. In particular, the overall perception of passengers of TCDD’s reputation, management and institutional image increased by 12 -15%, as compared with the same survey in 2009. The Assessment of Component E is highly satisfactory. 35 Fiduciary Assessment: In line with the loan agreement, TCDD has set related financial systems and independent auditing mechanism for the project. The Borrower through TCDD, at appraisal, developed a procurement plan for project implementation, which provides the basis for the procurement methods. The procurement plan has been implemented in accordance to the World Bank Guidelines and rules. The Allocation of Loan for Railways Restructuring Project Activities is as Follows: (In EUROS) Project Year Loan Allocation Withdrawals % of the Balance of the withdrawals Loan 2007 143.700.000 12.976.085 9,03 130.723.915 2008 143.700.000 8.028.823 5,9 122.695.092 2009 143.700.000 11.196.283 7,79 111.498.809 2010 143.700.000 18.110.012 12,60 93.388.796 2011 143.700.000 35.399.845 24,63 57.988.951 2012 143.700.000 10.563.208 7,00 47.425.743 2013 143.700.000 6.782.715 4,72 44.582.010 Total 143.700.000 103.056.972 71,72 40.643.028 C- ASSESSMENT OF THE BANK’S ROLE AND THE BORROWER’S PERFORMANCE The Bank responded quickly and comprehensively to the request of borrower and supported the components well. Staff spent considerable time assisting the PIU with procedural issues such as hiring design and supervision consultants and the preparation of bidding documents, and Bank procedures. Importantly, World Bank Resident Mission staff played a large and critical role in the smooth operation of the project. Bank performance is rated as highly satisfactory. The Borrower performance is rated satisfactory. The PIU’s performance as satisfactory because, though it faced a number of challenges from the beginning, it managed to successfully needed to work well with a multitude of agencies, and developed the capacity to effectively coordinate the project activities. The government was in full support of the construction and infrastructure components. D- IMPACT ASSESSMENT Objective 1: Improve the effectiveness of railway operations on the Mersin-Toprakkale and Yenice-Boğazköprü lines by increasing capacity and improving service quality, The physical progress as of 31st of December 2013 is 74 % and the rate of this objective (a) is Moderately Unsatisfactory, as the line is not operational and the related objective has not been met. 36 Objective 2: Lay the groundwork for restructuring TCDD by developing experience with financially viable contract arrangements for loss making public services and access pricing of infrastructure. To achieve objective (b); TCDD has been involved in an array of activities which contains; a. A new Prime Minister’s decree has been issued to provide subsidies to 40 uneconomical passenger trains. The decree would be valid until the establishment of TCDD Transportation Company. b. TCDD started a study for Rationalization and Preparing a Passenger Service Obligation (PSO) Contract for Passenger Services at March 2010. The Consultant has prepared a draft PSO Contract for the use of TCDD and rationalized passenger trains. c. TCDD obtained a grant from EU for Turkish Railway Reform Project. The study of “Strengthening Capacity of Prospective Infrastructure Manager at New TCDD on Infrastructure Allocation and Charging” was done within the scope of this EU project. Related staff was trained and increased capacity. d. Furthermore, MoT and TCDD are actively implementing the Law on Liberalization of Railway Transportation of Turkey (effective May 1, 2013) and the Decree Law on the Organization and Duties of the Ministry of Transportation, Maritime Affairs and Communications (November 1, 2011). This Law requires TCDD (rail Infrastructure Company) and TCDD Transport (train operating company to register separately and to separate their respective staff and assets. The Railway Regulation Department of MoT prepared a secondary legislation on safety, registration and licensing, and access which was begun to be put in force starting from 2014. The rate of this objective (b) is satisfactory. E- OVERALL ASSESSMENT The assessment of the project component by component is provided below. In order to have the overall assessment the following issues are considered in addition:  The enactment of the Liberalization Law was too late that prevented to get full benefits/impact of the projects designed at 2004.  The capacity of the TCDD has improved significantly in line with modernization and liberalization objectives of the institution. In that regard, the project provided TCDD many tools, guidelines as well as vision to accomplish the objectives.  On the other hand, being the main and the major component of the Project, the failure to accomplish the Component A- the Boğazköprü- Yenice, Mersin – Toprakkale Signalization project, has caused both not to meet one of the main objective of the project but also had negative impact on meeting TCDD’s financial and operational improvement targets. This has also adversely affected the reputation of the institution. 37 Under these facts, the overall assessment of this project is moderately unsatisfactory currently, yet is very close to be moderately satisfactory if the physical achievements can be met with component A as soon as possible. Lessons Learned; e. Conditions of Contract need to be reviewed by an experienced engineer and a lawyer before entering the tendering stage. It would be wise to make sure any clauses which may lead to disputes be revised accordingly f. Prior to Contract Award, it would be wise to conduct a Debriefing Meeting with the potential successful bidders as to make sure they have understood the project, the contract and their responsibilities and liabilities before signing the contract. g. It would be wise to conduct an effective PR (public relations) in order to enhance the Public Awareness for the proposed project. h. If the project, or the component of a project, has links to a political decision, it needs to be staged or formulated to be implemented after the political decision is taken. i. The overall project management should be organized by only one unit and the related responsibilities and authority should not be divided to separate departments. j. Internal Monitoring and Evaluation of the projects needs to be improved. 38 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not relevant for the project 39 Annex 9. List of Supporting Documents The World Bank, Turkey - Railways Restructuring Project: Project Appraisal Document (Report No. 28049-TU), May 12, 2005 The World Bank, Implementation Status Results Turkey - Railways Restructuring Project (Loan IBRD 4787-TU), from 2006 to 2013 The World Bank, Aide Memoires Turkey - Railways Restructuring Project (IBRD 4787- TU), from 2003 to 2013 The World Bank, Restructuring Paper on a Proposed Project Restructuring of Turkey - Railway Restructuring Project approved on June 9, 2005 to the Republic of Turkey (Report No. 62447-TU), June 14, 2011 The World Bank, Restructuring Paper on a Proposed Project Restructuring of Turkey - Railway Restructuring Project approved on June 9, 2005 to the Republic of Turkey (Report No. 70536-TU), June 6, 2012 The World Bank, Turkey - Railway Restructuring Project: Loan Agreement (Loan IBRD 4787-TU) between the Republic of Turkey and the International Bank for Reconstruction and Development, March 13, 2006 The World Bank, Turkey - Railway Restructuring Project: Amendment to the Loan Agreement (Loan IBRD 4787-TU) between the Republic of Turkey and the International Bank for Reconstruction and Development, July 27, 2009 40 MAP 41