Raising revenue: Fresh bidding rounds are under way for privatisation of state assets

The year 2012 is scheduled to be a banner one for privatisation in Turkey, if all goes according to plan, with moves ahead on gas and electricity grids, bridges, highways and ports. Yet these plans are also likely to be subject to the temperature of the global economy, as those charged with organising the sell-offs try to launch when investor interest is at a peak. With 2012 starting out on uncertain terms, there were several postponements to scheduled privatisations announced, with the dates rescheduled for times with fairer economic weather. By the end of the year though, if the target is met, the sell-offs will have ultimately added some TL10bn (€4.25bn) in funds to the state’s coffers.

PROGRAMME PEDIGREE: While privatisation has been on the political agenda in Turkey since the mid1980s, the programme really only began to make significant progress in the past decade. Partly this was because the law governing such sell-offs of state assets, passed in 1994, left a large number of difficulties in implementation (including exposure to legal challenges), while at the same time international investor interest in Turkey was low.

It was not until a new law was passed in 2003 amending the 1994 law that many of these issues were resolved, with this leading to a take-off in privatisation deals. The 1994 law did, however, set up the two main bodies that are responsible for running the sell-off programme.

These are the Privatisation High Council (PHC) and the Privatisation Administration (PA). The PHC is headed by the prime minister and takes the political decisions as to which bodies will be included in the privatisation portfolio, or withdrawn from it. The PA then conducts the privatisation process itself, reporting directly to the prime minister.

The process follows international practices, with a value assessment commission established prior to each tendering, then a tender commission, which can then decide whether movement should proceed via sealed bid, negotiation, public auction, or a sealed bid among designated bidders. A third body, the Competition Authority, is also involved, if the privatisation may impact the competitive environment.

SALES DRIVE: Between 1985 and year-end 2011, the PA’s privatisation portfolio has seen state shares in some 270 companies, 114 establishments, eight toll motorways, 22 incomplete industrial plants, both Bosphorus bridges, 929 items of real estate, six ports and one service unit placed within it. By the start of 2012, only 23 companies and 13 entities remained, according to the PA. Total proceeds in the privatisation programme, meanwhile, were $55.9bn in the period between 1985 and the end of 2010.

The programme marked a radical change in the very structure of the Turkish economy. The state – which had long been the primary player in many sectors – all but vanished from industries such as cement, petroleum distribution and refining, banking, telecoms, dairy and forestry, while seeing a more than 50% reduction in its presence in areas such as tourism, iron and steel, sea freight and textiles.

The programme has also had some headline successes – such as the 2005 privatisation of 55% of Türk Telekom, a tender won by the Ojer Telekomü nikasyon consortium (comprising Saudi Arabia’s Oger and Telecom Italia) for $6.55bn. The 2005-06 period also saw the sale of stakes in steel maker Erdemir and refiner Tüpraş, netting a total of $16.5bn in proceeds for the PA over that period.

YEAR IN REVIEW: In 2011, however, the programme realised just some $265.1m in total asset sales, according to government data, despite a $9.5bn target. In contrast, 2010 saw proceeds reach some $3bn, thanks to a number of major sales of electricity distribution companies.

In addition to that 2011 figure, some $7.52bn in privatisation proceeds were still at the signature stage, with a further $734.5m at the approvals stage.

These latter two figures include privatisations from previous years, with the earliest back in 2008. The $265.1m also does not include the $861m agreed for the privatisation of Istanbul’s ferry service provider, Istanbul Deniz Otobüsleri, which was carried out successfully in June 2011, with operating rights transferred to a consortium of Tepe, Akfen, Souter and Sera. In value terms, most of the sales completed in 2011 were in the hydroelectric dam sector, while there were also sales in real estate.

The hydroelectric schemes were part of the state Electricity Generation Company (EÜAŞ), an outfit which had owned around 53% of Turkey’s power stations. The government began selling off its hydro plants in 2010, with 2011 seeing the completion of this with the sale of seven more packages of dams out of a total of 19. Most of the real estate sold was land that had belonged to the Treasury in Aydın, Istanbul, Malatya and Balıkesir. There were also parcels of land sold belonging to Turkish sugar producer Türk Şeker and electricity authority TEDAŞ.

ON THE TABLE: For 2012, the TL10bn (€4.25bn) target is much more ambitious. One of the stars in the tender portfolio this time is a large package of highways and bridges with a 25-year operating licence. The package includes eight toll motorways and Istanbul’s two bridges over the Bosphorus. Press reports suggest Italian Autostrade, Turkey’s Koç, Sabancı, Akfen and Çukurova groups, and Portugal’s Brisa are amongst the parties interested in making a bid.

Also up for accelerated privatisation in 2012 are assets in the marine sector. These include Izmir Kruvaze Port, Izmir Pasaport, Istanbul’s Galataport, Kalamış marina and Mersin-Taşucu marina.

A third highlight was the natural gas grid for Ankara, currently run by Başkent Doğalgaz. An 80% stake in this company was up for sale prior to April 2012. Meanwhile, government stakes in two electricity grid companies are also coming under the hammer. These are Aksu Elektrik and Kayseri ve Civar Elektrik, in which 20% shares are on offer. Finally, and also attracting international interest, is the tendering for sale of 10.3% of Petkim, the country’s largest company operating in the area of petrochemicals work.

EXTENDED DEADLINES: By February 2012, however, many of the deadlines for the above processes had been extended. The bridges and highways package, announced in August 2011, came with a final bidding deadline of February 16, 2012. This was then extended to August 9, 2012. Başkent Doğalgaz also saw its final bidding deadline extended from January 27 to April 16, 2012. The tender was then cancelled once that date passed, due to a lack of offers. The ports, meanwhile, are still scheduled for 2012, although no specific dates have yet been announced.

Delays and postponements are a feature of privatisation programmes in many countries, often reflecting estimations of market sentiment, rather than any significant hiccups with the process itself. With global economic uncertainty high as 2012 got under way, and concerns as to whether investor appetite was there in strongly risk-averse times, postponement was largely about finding a time when markets and investors would be more receptive to making an offer on the tenders.

MAJOR LEAGUES: There are also several big-ticket items in the PA’s portfolio that have been about to be privatised for some years, yet still remain on the books. These include stakes in Turkish Airlines, Halkbank – the last state-owned bank in the portfolio – and even the national lottery company. On the first of these, the PA has said that it still intends to sell its 49.12% stake in the national carrier, yet has still to decide on the privatisation model. On Halkbank too, the strategy was yet to be determined. Reasons for the delays vary from political to market-driven.

REVENUE RAISING: Meanwhile, the government has also announced some additional revenue generation plans that may have an impact on the budget in the year ahead. These include the selling of 2-B public lands – land that was once forested but is no longer. With around 3.4% of just Istanbul’s territory having this classification, this is a resource that could be worth up to TL26bn (€11.1bn) nationwide, according to the government. In late 2011, the Ministry of Finance had approved two draft laws on 2-B land for submission to the country’s parliament, with this legislation also allowing sales of such land to proceed for foreigner purchasers.

Another revenue raiser will be the introduction of paid military service. Under this, Turkish nationals over 30 years of age will be able to exempt themselves from military service by paying TL30,000 (€12,750). Turks who have worked for three years or more abroad can also gain exemption for €10,000. A new law on this was passed by parliament and approved by the president in December 2011.

These steps, along with the planned privatisation receipts and an ongoing debt restructuring exercise that from January to November 2011 brought in TL13.1bn (€5.6bn), should help allay many budgetary worries the government may currently have.