Since the turn of the century, Turkey’s focus has been on its upcoming centennial. Now that we are a decade away from 2023, we can reasonably forecast where we might find ourselves in that year. Moreover, we can lay out our desired ends and consider the best course to achieve them. Having regained its economic and political stability, Turkey now aims to become a major global player, especially in the MENA region. En route to such a position lie two critical intermediate goals: attracting financing for increasingly large-scale public works projects and self-sufficiency in energy.
These goals are not mutually exclusive: energy independence requires heavy investment in capital-intensive projects like nuclear power plants or alternative energy facilities. Turkey’s other intermediate goals, such as becoming a regional leader in finance and telecommunications, will also require significant investment, and therefore this milestone is of paramount importance.
The preferred way to finance projects around the globe is through debt rather than equity. In Turkey project finance has traditionally relied more heavily on equity financing, but as the scale of projects increases it is more difficult to find investors who are able to make the necessary capital outlays. That, in turn, reduces the pool of available investors, and taints the tendering process since winners may end up being preferred not because they are necessarily the best at their job or the lowest-cost provider, but because they have the financial backing of another government.
The legal infrastructure must be updated to enable this kind of a transformation in how projects are going to be financed. The relatively new Turkish Commercial Code and Code of Obligations have provided much-needed legal tools and have perhaps put Turkey ahead of most European nations in terms of flexibility, but the effects of these changes have yet to manifest themselves in the country’s day-to-day business.
Another area in which Turkey must make further progress is capital markets liberalisation. Here, the new Capital Markets Law is a step forward. The Istanbul Finance Centre (IFC) project will also facilitate the flow of capital by attracting funding and motivating policymakers to enact further needed reforms. A cornerstone of the IFC project will be the Istanbul Arbitration Centre, which will be a contender for the preferred seat of arbitration in the MENA region.
Turkey will also need to update its public tendering laws – the current method of having bidders compete solely on price and compliance with technical specifications may prove unsustainable given the scale of planned projects. External factors such as the backing of a foreign government may prove decisive in how tenders are awarded. An interesting by-product of this structure is that it tends to promote the use of intergovernmental agreements to set up project-specific regulations for large-scale investment projects in lieu of the domestic laws of the host state.
Further, Turkey will not become a regional power unless it becomes energy independent by diversifying its sources. To this end, nuclear energy is a necessity, as are renewable sources. The nuclear plants to be constructed at Akkuyu and Sinop are big steps in the right direction, and, with the first solar power generation licences due to be awarded this summer, renewables may start to make a noticeable contribution to Turkey’s energy needs even in the short term.
Turkey’s development agenda necessitates a flexible yet dependable legal infrastructure. The adoption of the Turkish Commercial Code and Code of Obligations were initial steps in the right direction. The next wave of changes includes liberalisation of the capital markets and the energy markets. While the draft energy laws are pending, capital markets liberalisation received a boost with the new Capital Markets Law and the Capital Markets Board’s initiatives to enable alternative and less costly methods of financing for large-scale projects. Finally, it is essential to secure investor confidence by reforming laws to mitigate business risks and to offer dispute resolution forums to handle complex investment disputes.
Read More from OBG
