PROJECT BRIEF

BACKGROUND: The Privatization Social Support Project is directly linked to and supports the Country Assistance Strategy (CAS), the Economic Reform Program, and the related Economic Reform Loan (ERL). The 1997 CAS notes that the SOEs have been a major drain on the budget and drag on the economy for years and indicates that, as a base case strategy/action to address persistent financial imbalances and erratic growth, the state-owned enterprise sector should be privatized by transferring majority ownership and/or management to the private sector, with adequate safety net provisions. The PSSP addresses the safety net provisions. The 2000 CAS notes that the possibility of political backlash to the reform program is one of the greatest risks to the reform. The project helps address this risk by providing assistance to those adversely affected by the reforms in the early phases of privatization and ensuring the negative effects of the reforms on the disadvantaged is minimized. The Government recognizes the need for fundamental reforms to improve productive and allocative efficiency and to reduce the SOE sector’s heavy fiscal burden. The primary instrument for achieving these objectives is divestiture, including both privatization and closure. The Government and the World Bank are in broad agreement on the diagnosis and strategy for economic adjustment and structural reform, which includes privatization and closure of state-owned enterprises.

PROJECT OBJECTIVE: The development objective of the Privatization Social Support Project is to support the achievement of the objectives of the Government’s Privatization Program, mitigate the negative social and economic impact of the privatization of state-owned enterprises, and monitor the social impact of the Economic Reform Program.

PROJECT DESCRIPTION:
(a) Job Loss Compensation: The objective of this component is to improve the productivity of certain elements of Turkey’s industrial sector (previously state-owned enterprises) and to ameliorate the temporary negative social and economic impact of job loss compensation on workers displaced during privatization of SOEs. This component finances severance and related payments, as regulated by law, to workers displaced by job loss due to privatization of SOEs.

(b) Labor Redeployment Services: The objective of this component is to provide labor redeployment services to workers who have been displaced by the privatization of SOEs, including secondary layoffs, to assist them in rapidly re-entering the labor market. The component finances: (i) technical assistance and minor goods to develop and maintain administrative procedures between the Privatization Administration (PA) and other lead agencies, including the Turkish Employment Agency (ISKUR) and the Small and Medium Industry Development Agency (KOSGEB) which will facilitate the assessment and planning for delivery of services to workers in 39 SOEs being privatized; and (ii) the actual cost of delivering labor redeployment services to approximately 32,000 unemployed workers through sub-contractors to the two lead agencies (i.e., ISKUR, KOSGEB).

(c) Social Impact of Economic Reform Program: The objective of this component is to monitor the social impact of the economic reform program and assist with the design and formulation of supportive economic and social policies. The component finances: (i) surveys to monitor the general social impact of the ERP and privatization on selected communities: (ii) follow-up surveys to determine the economic status and coping strategies of workers directly displaced from SOEs; and (iii) follow-up surveys to monitor the net impact of labor redeployment programs.

(d) Project Management: The objective of this component is to ensure effective administration and coordination of the overall project program, financial accounts, and procurement. The component finances technical assistance and minor goods to: (i) coordinate project execution, and manage the resources of the project; (ii) procure all Bank-financed goods and services for implementing agencies; (iii) operate the financial management system according to the Bank’s financial management requirements; (iv) act as liaison between the technical agencies and the World Bank; and (v) ensure that annual audits are completed in keeping with Bank standards.

IMPLEMENTING and MONITORING: The primary implementation agency is the Privatization Administration which reports to the Prime Minister’s Office. The following components are being implemented and monitored as follows:

(a) Job Loss Compensation: The PA is identifying SOEs qualifying for 70% Bank financing of job loss compensation based on two criteria agreed with the Bank, and is notifying the Bank concerning the name of the enterprise and approximate number of qualifying workers prior to making severance payments, and verify that the SOEs involved meet the agreed criteria, and that agreed procedures have been followed in calculating the payments (additions and subtractions to the initially agreed list of 39 SOEs are to be agreed with the Bank). The first criterion is that the payment of severance is an investment and the second is that the payment of severance is an appropriate use of public funds.

(b) Labor Redeployment: This component is coordinated by the Labor Assistance Group within the PA, in close cooperation with ISKUR and KOSGEB. The LAG is responsible for: (i) developing and maintaining the administrative framework for the Labor Redeployment Program (LRP); (ii) taking the lead role, in cooperation with representatives from two lead Agencies, unions, SOE management, and community leaders to organize in-plant labor redeployment assessment and planning sessions for workers; and (iii) providing ongoing monitoring of the delivery of labor redeployment services being administered by the two lead agencies. Actual delivery of labor redeployment services is being contracted to local services providers.

(c) Social Impact of Economic Reform Program: Three studies under this component are being managed by the EKA at Treasury and technical assistance has been procured.

(d) Project Management: Overall project management is being carried out by the Privatization Administration (PA), which is the primary implementing agency for this project over its five year duration. The Project Coordination Unit is established at the PA, and is headed by PCU Department Heads, with civil service status, and reports directly to the Vice President of the PA. The PCU Department Heads is responsible for coordinating the project activities, specifically the overall “business office” functions of project management and all liaison with the Bank and the Labor Assistance Group. The PCU comprises: (i) a Financial Management Department, and (ii) a Procurement and Reporting Department. The Department Head of Financial Management Department serves as the Coordinator of the PCU for purposes of project operations and is the primary point of contact with the Bank. The PCU is supported by three long-term local staff consultants (i.e., financial officer, reporting and communication specialist and a secretary. There is an overall Tripartite Advisory Committee established for the project, consisting of representatives of Government, including Treasury, Privatization Administration, SPO, SIS, KOSGEB, ISKUR; from employers (e.g., TISK, TOBB), and unions.

BENEFITS: The primary benefits are to: (a) improve the productivity of former state-owned enterprises, through shedding of excess labor; (b) ensure that workers displaced by SOE restructuring do not fall into poverty, by provision of temporary income support; (c) expedite the return of workers displaced by privatization and the economic reform program back into the labor market, by provision of labor redeployment services; and (d) identify alternatives to improve social assistance programs and build a more comprehensive social safety net in Turkey. The primary target group is workers directly displaced by SOE privatization and the Economic Reform Program. In addition, the social impact programs will improve related institutional capacity and the ability to evaluate the impact and use of public funds in involved agencies and in Turkey in general.

PROJECT STATUS: The Project continues to perform satisfactorily, addressing all the agreed development objectives. Technical conditions for full project implementation are in place for all four components. The pace of implementation for the two major components, Job Loss Compensation and Labor Redeployment, continues to increase. As of June 2005, disbursement reached US$242,785,706, which amounts to 97,1 of the Loan. As of June 30, 2005, Severance Payments had been made to 17,041 laid off workers at 41 privatized State Economic Enterprises, using $ 205,7 million loan funds. A total of $ 12,3 million in Special Job Loss Compensation payments have been made from the loan to 723 former employees who received both Severance Payments and Job Loss Compensation. As of June 2005, 30.741 unemployed workers received training under the Labor Redeployment Services Component at a cost of US$25,071,210. The training comprised job counseling, job placement, temporary community employment small business assistance, and incubator services.

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