Select Committee on Trade and Industry Ninth Report


47. In August 1999, North West Turkey suffered a huge earthquake along the Anatolian fault line, measuring 7.4 on the Richter scale, with significant loss of life. It was clear immediately that vast reconstruction work would be necessary. The World Bank estimated the costs would be $4.6 billion. Most of these costs will be met by finance from the World Bank, IMF and EU — through its Earthquake Reconstruction funds, worth $600m.

48. In September 1999 Nick Raynsford, Construction Minister at the Department of the Environment, Transport and the Regions, visited the Yalova province while in Turkey on a trade mission. The outcome was the British Earthquake Consortium for Turkey (BECT). Six UK firms (Balfour Beatty JV, Ove Arup, John Laing, Thames Water, Bovis Lend Lease and Hyder Consulting) committed themselves to a study of the Yalova province to establish a strategy and priority projects for reconstruction. The study cost £2 million, funded jointly by DETR and the Consortium.

49. Once BECT had carried out data collection and consultation, it produced a 'Long List' in the Final Report of 115 projects needed in the province over the short, medium and long term in further consultation with Ministries both in Ankara and in regional offices. The Ministry of Public Works (MoPW) was involved closely at all levels over different Directorates. Every Governor and Mayor in Yalova Province was visited and the Project Implementation Unit at the World Bank advised. A seminar for mayors and technical advisors was given in April 2000.

50. An Interim Report was produced on target in June 2000 and the Final Report was delivered on time and to budget in August 2000. From the 'Long List', five Priority Projects were identified; solida waste management systems, provision of clean water to all Municipalities, sewage collection treatment and disposal, a 200 bed hospital with Public Health Laboratory and a university. BECT were also asked by the Turkish authorities to consider a tourism project in Termal and a new Yalova Province Master Plan.

51. The cost of these proposals is $850 million. This seems to have surprised many in Turkey. BECT were offered $50 million in credit from ECGD at the start of the study. We gathered the impression from the authorities in Yalova that there had been some confusion about this situation. We heard subsequently that the nature of this money was not fully understood in Turkey. It was regarded variously as money that would cover the cost of the entire project and as floating funding for money already spent. We have been reassured by various sources that the UK funding position has remained the same from the outset. Additional confusion has arisen over a lack of communication between the Turkish Ministry of Public Works, and the Ministry of Finance which must authorise the expenditure. In a meeting with the Minister of Economy in Ankara, we heard of the reservations in the government in funding such an expensive project for the benefit of just one, not particularly deprived province.

52. In November 2000, shortly after our visit to Yalova, BECT submitted a second proposal to the Turkish authorities. The Integrated Environmental Project would concentrate on the water and sewage systems. It would repair the damage caused to the water infrastructure by the earthquake and within five years it would provide fresh water and waste disposal systems, compliant to EU standards. The cost is around $300 million. ECGD's $50 million cover can be used for this project. A joint investment of a further $50 million has been promised by Balfour Beatty, Thames Water and the Turkish company Koc Group, dependent on a 30 year contract Concession Agreement. Further finance from international institutions such as the European Investment Bank would require cover. There are high hopes of an EIB soft loan of $80-100 million. The project could be completed in three phases which would spread the cost, and enable work to begin this year, but would lengthen the construction time and raise the overall eventual cost. Should the Integrated Environmental Plan go ahead, offshore goods and services would be needed to the tune of $80 million. This is something of which the UK should ensure it is in a position to take advantage.

53. In both construction plans, the ultimate owners of the work would be a Union of Municipalities of Yalova Province. Whilst this Union has yet to be established, similar bodies on a smaller scale have been set up in the region, the Mayor of Yalova is taking the lead in developing it. The Turkish Government would guarantee the loan which would ultimately be paid back through revenues. We are aware that the Izmit Dam Project, which we also visited in November 2000 and which was promised Turkish Government backing through payment for water produced, found itself in trouble when the Government failed to keep its guarantee. At present, the Government is yet to make a decision on either plan, but a statement is expected as this Report shortly is to be published. We are aware that the new rescue programme includes a resolution to block new spending and investment if not necessary. We realise this may have some impact on a decision regarding Yalova. We urge the UK government to make all efforts possible to secure more funding for the Yalova project to give it a chance of approval by the Turkish government. It would be unfortunate if this project, benefiting the UK and Turkey, were to be lost.

54. We have looked at this is some detail as we were concerned that a project intitially presented to us as representing a good example of UK-Turkish trade was in fact at risk of damaging that relationship. We were also aware that recent DETR-sponsored reconstruction initiatives, such as that in Kosovo, have had little real impact. We are glad to see the UK involved in a scheme for a new modern waste water system in Yalova, positioning itself to take advantage of contracts arising from both immediate and long term projects. We hope to hear in the near future that the Turkish Government has approved this plan.

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