Sell Offs and Seizures

With the courts taking two steps back - and then one giant leap forward - in the privatisation of Turkey's giant state oil refiner this week, the country's troubled sell-off programme appeared to be stumbling forwards once again. Yet there is still a long way to go if the government is to meet its ambitious privatisation targets, while the inventory of assets still up for sale by the state grows steadily longer.



On May 24, Ankara's 10th Administrative Court issued an injunction blocking the $1.3bn sale of oil refiner TUPRAS to a consortium consisting of the Tartar Tatneft and Turkey's Zorlu Holding.



This was four days before the official handover of the company was due to take place and four months after the sale of the 66% stake had been agreed with the consortium. The decision also backed up an earlier lower court ruling.



The injunction was granted after representatives of the TUPRAS workers' union, Petrol-Is, successfully argued against the sell off.



"It is contrary to the public's benefit and to the Competition Institution Law," read the court's decision, "because the proposal was accepted without condition and without going to public auction."



Naturally enough, the Privatisation Board (OIB) then appealed the decision to an even higher court. A week later, on May 31, this superior court delivered its contrary verdict and unblocked the sale.



Now, according to Deputy Prime Minister Abdullatif Sener, the government will forge ahead at double quick time to complete the sell off.



"The government will do everything necessary to complete the TUPRAS process," he told reporters the following day.



Partly, this haste is due to the fact that the TUPRAS sell off had been the only significant privatisation carried out by the government since it took office at the end of 2002. Efforts to sell the tobacco and alcohol company TEKEL had only partially succeeded, with the alcohol arm sold, while the tobacco division failed to attract high enough bids. TEKEL tobacco is still awaiting a decision from the government on when and how another attempt will be made to sell it off.



Elsewhere, the perennially difficult Turk Telekom sell off seems to be moving no faster than ever, with delays in the announcing of tendering, while even the appointment of a consultant is still not decided.



So, with the actual amount of delivery standing in such marked contrast to the stated targets of the privatisation programme, there has been growing concern in the markets over just where the sell offs are going. This is particularly due to the fact that selling these companies is a central plank of the country's $19bn loan accord with the IMF.



Yet the TUPRAS deal had also been questioned by many market watchers from the moment it was announced. In particular, the status of Tatneft has been under the spotlight. News that the union had managed to get an injunction against the sale had ironically caused many Tatneft shareholders to sigh with relief, as the company was already massively leveraged when it won the tender. Market watchers had asked where the company would find $1.3bn, when it had such a burdensome debt position already.



This had also led to some questioning in Turkey over the soundness of selling the company to Tatneft at all - a company that has a fairly controversial reputation within its sector. On the other hand, Zorlu Holding's part in the deal seems largely to have been to enable the bid to meet the criteria of Turkish participation, and it seems unlikely that this major conglomerate is in any way exposed by the arrangement.



The union is meanwhile keeping its cards close to its chest, but may seek to continue the legal process further with more appeals. It argues that proper procedures were not followed and is fearful of the job cuts a sell off will likely bring.



Meanwhile, the market is assessing where this leaves the programme as a whole. In addition to the scheduled privatisations, the state has also accumulated a great deal of other business interests over the last few years from the private sector which it is also looking to sell. Some 219 companies were seized from the Uzan Group earlier this year, while last week, 38 more were added to the state's list with the seizure of companies belonging to Erol Aksoy's Avrupa ve Amerika Holding.



In addition, the state also possesses large numbers of banks and other companies taken over following the financial crisis of 2000-2001, leading many to quip at how the state has now become a bigger player in the economy than it was before the privatisation programme began.



Yet, while failure to sell off major state industries was one of the main factors held against previous governments by the markets - and was a major cause of financial instability - this time things are significantly different.



In contrast to previous periods, there is still widespread confidence in the political will of the Justice and Development Party (AKP) government of Prime Minister Recep Tayyip Erdogan to carry through, eventually.



Therefore, while news of the TUPRAS injunction caused some wobbling on the currency markets and on the stock exchange, its impact was not that dramatic. Now, with the injunction overturned, the hope in the markets is that the sell off can still be completed quickly and the $1.3bn injected into the government's finances.



Meanwhile, many are still waiting for the government to make announcements on TEKEL tobacco and on Turk Telekom. Also waiting in the wings is the sale of the national lottery, which has already attracted great interest internationally. The hope is these will have a far smoother passage than we have seen so far.