OBG talks to Ahmet Aksu, President, Turkish Privatisation Administration

Interview: Ahmet Aksu

How would you evaluate Turkey’s experience with privatisation over the last three decades? What key lessons has the government learned?

AHMET AKSU: Turkey was among the first countries in the world to attempt a large-scale privatisation programme. Yet, the process, which began in 1984, was held back by an unsophisticated domestic legal environment that created uncertainty for investors and weak coalition governments that bred political instability.

It was not until 1994 that privatisation became a constitutional reality, and it was not until 2003 that privatisation was supported by a strong political order. Consequently, more than 80% of privatisation revenues collected by the government have come over the last decade; total revenue collected from privatisation has reached approximately $46.5bn.

The purpose of privatisation, of course, is not merely to generate income for the state on a one-off basis. Rather, it is also designed to reduce cost burdens on the public purse and create a more liberal competitive environment for businesses – areas where privatisation in Turkey has reaped big rewards.

In terms of lessons learned, we have become more careful regarding pricing and the way in which public service concession contracts are structured. Further, we have taken additional steps to ensure the continuity of service delivery after assets are transferred and to ensure that companies provide sufficient financial and technical documentation indicating how they will enhance quality and capacity. Above all, the process must be fair and advantageous for the public, which, to be frank, has responded quite positively to privatisation and other liberal economic reforms.

Over time, as Turkey has adapted its privatisation regulations based on lessons learned from previous experiences. For this reason, institutions like the World Bank and the International Monetary Fund have declared that Turkey’s privatisation regime is a model for other developing countries to follow with respect to competition, legal efficiency and transparency.

What benefits do you envision privatisation bringing to the economy over the long term?

AKSU: We evaluate privatisation using several criteria, with short-term revenue gains from public asset sales being among the least important. Above all, the most important potential benefit to the nation is increased efficiency, which can drive economic growth and lessen the strains on the state budget.

In this context, a good example is the privatisation of Turkey’s state-owned energy companies. This was essential because in the view of many analysts, the single greatest threat to the nation’s economic health is the current account deficit, which has been quite high due to our dependency on expensive energy imports.

In Turkey, more than 50% of electricity is produced from imported natural gas. Natural gas is purchased from foreign suppliers by state-owned Boru Hatlar İle Petrol Taş›ma Anonim Şirketi (BOTAŞ), which then transfers the gas to domestic electricity generation facilities. In turn, these facilities send the electricity they produce to Türkiye Elektrik Dağ›t›m Anonim Şirketi (TEDAŞ), which then provides the electricity to consumers. Working through the same supply chain, but in reverse, TEDAŞ transfers the money it collects from consumers to the electricity facilities, which pay their debts before sending what is left of the remaining income to BOTAŞ to pay foreign suppliers.

If one part of this supply chain is broken or inefficient, BOTAŞ, as the final link, will not receive enough income to compensate for its debts in the global energy markets. Indeed, this has often been the case, with the end result being that losses at BOTAŞ have fallen on the shoulders of taxpaying citizens. What is more, recurring losses at BOTAŞ have put tremendous pressure on the Treasury, which is forced to push the nation deeper into debt to pay for energy imports.

Ultimately, we regard privatisation as an important solution to this challenge, because it can enhance the energy supply chain and shift the cost burden, while also creating further opportunities for investment.