Turkey

Turkey's geopolitical position as a link between the East and the West 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 severe fiscal instability and the recent external developments with regard to EU accession and the growing role of Turkey in trade between Central Asia and the South Caucasus make the focus on transport even more important.

Transport is normally one of the five major issues in the EU accession agenda (macro stability, labor, agriculture and the environment are the others). Problems range from physical integration to the harmonization of infrastructure, vehicles, environmental and other standards, the development of logistic networks, the improvement of border crossings and trade facilitation policies (modernization of customs, etc.). EU requirements include the mandate that government separate out social services from commercial services, a requirement that will have a special significance for TCDD (Ports and Railways). Aside for its importance to rail restructuring (see below), it also has significant fiscal implications for the Turkish Government.

The current discussions among Armenia, Azerbaijan and Turkey could lead fairly quickly to the reopening of the border between Turkey and Armenia. This could lead to business opportunities for the Turkish economy through a dramatic improvement in the cost of imports/exports to Armenia and Azerbaijan, implying not only transport issues but also trade facilitation and customs. The Bank has recently sponsored a study of the potential approaches and costs of restoring the road and rail links among Armenia, Turkey, Georgia and Azerbaijan in the event that the conflict is sufficiently resolved to permit commencement of traffic.

Turkey is falling behind other middle income developing countries in reforms to move away from a production-oriented sector to a sector responding to market needs. The results of the present modeling of the transport agencies are: (i) over-dimensioned agencies; (ii) poor planning decisions, excessive priority given to large "political" projects at the expense of high return maintenance; and (iii) an excessive fiscal burden. There is a need to commercialize the provision of transport infrastructure and services and bring an element of accountability and transparency to their performance.

Structure of the transport market. Transport demand in Turkey has grown significantly over the past five decades. Overall, demand (as measured by passenger-kilometers and ton-kilometers) has grown at an annual rate of nearly 8% since 1950. Demand for road transport has grown at an annual rate of about 7.6% while rail transport demand has grown at about 2%, demand for water transport by 5% and air at over 16% per year. As in most developing countries, road transport is becoming a much more significant factor for both freight and passenger transport.

Transport in Turkey has grown beyond the railway. Rail market shares have declined. It is not likely that much new traffic can be attracted to the railway without significant investment in new and very expensive railway infrastructure, or major changes in railway service.

Road transport represented about 37% and rail 55% of the total transport market in 1950. By 2000, road transport represented 93% of the total market, rail about 4%, water about 2% and air 1% of the total intercity transport market in Turkey. While the current rail transport task is not insignificant, it is certainly much less important to the economy of Turkey than in the past. Although TCDD's rail traffic market shares have declined significantly, overall railway traffic has grown somewhat. Total TCDD railway traffic units have grown at about a 2% annual rate.

Road sector. The road agency (KGM) has annual estimated budgets of about US$1.3 billion. The investment budget, amounting to approximately 60% of KGM's total budget is thinly spread in numerous projects with an average completion time of nine years. Investments are dominated by works on an over-designed motorway program. Total expenditures on the program reached about US$13.3 billion in 2001 with annual allocations in the last few years of about US$600 million . The current budget, on the other hand, is mostly consumed by wages, with minimal allocations for maintaining existing assets.

The Bank is currently supporting the institutional strengthening of KGM (roads administration) through the introduction of performance based management information technologies, the elimination of congestion in main export corridors, and the establishment of a systematic, multidisciplinary system to address the traffic safety issues.

The issue of road safety has been moving inexorably up the policy agenda in Turkey. Turkey's accident rates are 3-6 times above that of the EU. About 7,000 people die each year in road accidents and the losses because of injuries and property damages are estimated to be in the order of 2% of GDP. Every two years the number of fatalities on the roads equals the death toll of the tragic Marmara earthquake in 1999. Furthermore, the death toll will probably dramatically increase in the next years in connection with traffic increase (from 1983 to 1993, the number of accidents has been growing at an average 14% per year, more than twice the growth rate of vehicle-kilometers (6%)). The Government of Turkey, with the support of the World Bank, has recently completed a medium term strategy to address this issue, but its implementation is awaiting the endorsement of the Traffic Safety High Council, which is headed by the Prime Minister.

In parallel, a strategic alliance has recently been formed between the Dutch programme Partners for Roads and the World Bank to jointly contribute to further the development and incorporation of safe road design and to facilitate the transfer of knowledge in Turkey as well as in a number of other countries. The intention is that, via a series of training courses, representatives from the public sector bodies involved in road safety will learn to observe a road from a road safety perspective. The outputs from the project are expected to be specific short-term recommendations that will both prevent accidents and increase the capacity of the road, whilst also building capacity in the recipient countries.

Railways restructuring issues. The railways (TCDD) are the largest money loser among the public sector enterprises. TCDD manages the seven largest ports, the railways and the locomotive, wagon and coach manufacturers and repair workshops. Ports actually cross subsidize the railways. Reform of the TCDD is one of the main targets for change. Over the past twenty years to 2001, the railway cost the government more than US$10.5 billion (in 2002$).To become a commercial enterprise, TCDD has to be restructured, the railway radically reduced in size, service improved, and prices increased.
The recent acceptance of Turkey as a candidate for joining the EU and therefore the implementation of the EU Order (91-440 and related Orders) will effectively require:

• A complete recasting of the books of TCDD to show the results of each activity separately and clearly.
• An end to cross subsidies from ports to rail, and from freight to passenger. Government policy will have to change to provide direct subsidies for losing passenger services.
• Management of freight as a separate profit center.
• Elimination of excess labor because of the prohibition of subsidies to anything but contracted and explicit social services.

Ports issues. Cross-subsidization of the railways by the ports' excess profits within TCCD suggests pervasive overcharging by the Port Authorities, or inadequate depreciation and maintenance schedules, or maybe both. Whatever the case, it is more than likely to result in non-optimal cost-efficiency in the delivery of port services. If overpricing is a reality, then it is at the expense of the country external trade competitiveness and increased costs of imports. If inadequate depreciation and maintenance is the case, then it will shortly result in decreasing service quality because of infrastructure wear and tear, which in turn will translate into additional costs for port customers in time, cargo losses, etc. Either way, the ports will take a toll on the country competitiveness, and the fact that they are generating excess profits on a regular basis strongly suggests weak competition for the delivery of commercial services, or a strong barrier to entry for new terminal operators, if the rent for the Port Authority comes from overpriced rents on port land. Further separation of public regulatory and land management duties, usually vested in public port authorities, from commercial activities left to private operators, and implementation of a more competitive framework between ports to restrain rent opportunities, are therefore a possible course of action. Trade and Transport facilitation measures at the port interface may also well be necessary to improve the overall cost-effectiveness of the port transit function.