In stops and starts: The privatisation portfolio includes a number of big-ticket items

Privatisation has been on the agenda for years, with sales of major state-owned industries in the late 1990s and early 2000s defining the country’s commitment to free markets. The trend hit a high-water mark in 2005-06, when the government accrued a total of $16.3bn in revenues from the sale of Türk Telekom, the refinery company Tüpraş and steel producer Erdemir. In recent years, the focus has turned to privatising networks – electricity grids, gas distribution systems and motorways. The upcoming transport privatisations have the potential to raise revenue while improving operational efficiency. At the same time, there may be a mismatch between investor and state interests.

ON THE ROAD: The privatisation story of the year is the sale of six motorways and the two existing Bosphorus bridges. The highways on offer include those connecting Edirne-İstanbul-Ankara, Pozant›-Tarsus-Mersin, Tarsus-Adana-Gaziantep, Toprakkale-Iskenderun, Gaziantep-Şanl›urfa, Izmir-Çeşme, Izmir-Ayd›n as well as the Izmir and Ankara Ring Motorways. The assets will be sold via 25-year transfer of operating rights in one tender. This is a controversial approach, and many industry players interviewed told OBG that the size of the projects would create bankability issues. With the tender for the motorways expected to be $3bn-6bn, financiers might react as they did to the third Bosphorus bridge project, which had a similar price tag.

Recent experience supports the pessimistic viewpoint: four of six electricity privatisations worth a total of $12bn fell through in 2011. In addition to the size of the investment, figures involved in the electricity privatisations blamed the long process – one to three years – of getting approval from the Council of State, a concern shared by potential investors in the roads deal. The deal does not include termination guarantees in case the authorities default on their obligations. For its part, Turkey’s Privatisation Administration cites 2010 gross income of TL576m (€244.8m) annually for the motorways and TL276m (€117.3m) for the bridges. This represents 31% growth over toll figures from the previous high of 2007. Extrapolating from a half to a full year of data for 2011 gives a 4.4% annual growth rate.

The tender has already drawn interest from Turkish groups including Akfen and European heavyweights such as Vinci and Autostrade per l’Italia. The tender was scheduled for late May 2012.

PORT POSSIBILITIES: The maritime sector is also seeing a good deal of activity. The most recent to close was Limak Holding’s acquisition of Iskenderun Port, a 36-year concession for which Limak paid $372m. The incentive for acquiring entities to maximise profits on their new holdings was demonstrated by Limak’s announcement, just days after the sale was completed, that it would invest $250m in expanding Iskenderun’s facilities. Limak envisions the port as an entry hub for goods going to or from Iran, Iraq and Syria.

Still on the agenda despite a troubled history is the privatisation of Galataport, Istanbul’s passenger port.

Having been planned since the 1990s, the port was tendered in 2005, and Royal Caribbean Cruises won the bidding. But legal issues related to the rezoning of key waterfront land cancelled the sale.

Statements from Ahmet Aksu, vice-president of the Privatisation Administration, indicate that Galataport will be put to tender once again during 2012, along with the port of Izmir. Local construction firm Akfen Group, among others, has signalled its interest.

Privatisation of state assets once thought to be integral has both promise and pitfalls. Revenues of $62bn, from the past several decades of Turkey’s liberalisation period, are certainly impressive. Successful sales like the Iskenderun Port demonstrate that the private sector can often put large amounts of capital to more productive use than can the government. The large dollar amounts involved and the fact that the government is directly transferring assets into private hands makes it important to get the process right. As Turkey sells the rights to some of the last big ticket items in its privatisation portfolio, the question of what is in the public interest will be very much in the forefront.

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The Report: Turkey 2012

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