Turkey:
A Comparative Overview Of Public Private Partnerships; With Those In Turkey
29 July 2008
Bener Law Office
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PPP's in General
There are numerous ways in which the private sector may
invest in public infrastructure. Depending on the level of
risk, the variety of arrangements range from public procurement
(where a contractor does not assume any project risk) to
privatization (where public assets or shares in a public
company are acquired by an investor assuming all the risks).
The most complex arrangements lie between procurement and
privatization. The volume and number of public private
partnerships (PPP's) have increased significantly
globally since 1990s.
A PPP is a contractual agreement between a public sector
agency and a private sector entity. By way of this agreement,
the skills and assets of each sector (public and private) are
shared in delivering a service or facility for the utilization
of the public. In addition to sharing of resources, each party
shares in the potential risks and rewards in the delivery of
such service and/or facility. The UK was the first to take
concrete steps to create exemplary PPP models. . This was
mostly due to establishing PPP models and Private Finance
Initiative (PFI), by mitigating the obstacles that would cause
the private sector not to get involved in public sector
affairs.
The benefits of PPP's in general is to provide high
quality public services effectively and cost efficiently
avoiding extending construction time and to remove cost
increases frequently encountered in projects executed in the
public sector. The benefits of PPP's for the public
sector are; (i) to provide a new opportunity in public
financing,(ii) to direct the private sector to areas where
social benefit is high, (iii) to benefit from the correct
determination of market needs,(v)to put resources into
effective use, (vi) and to share joint liability with the
private sector and to benefit from a more correct analysis of
the risks in providing services. The benefits of PPP's
for the private sector is to reduce the commercial risks and to
make use of public sources.
PPP's in Turkey
PPP Models
There are various PPP models that are implemented.
Some of the PPP models are as follows:
- Build-Operate-Transfer Model (BOT)
The private sector partner will finance the project,
constructs and operate it, and at the end of the
designated time, will return the property back to the
administration.
- Build- Rent-Transfer (BRT) The
private sector partner finances the project,
constructs, rents the property to the administration
for a designated period and returns the property to the
administration at the end of the rental period.
- Build-Operate (BO) The private
sector partner finances the project, constructs and
operates it, after which the ownership of the property
will eventually belong to the private sector
partner.
- Transfer of Operating Right (TOR)
The administration transfers its assets or one of its
units to the private sector in consideration for
payment and in order to transfer operation for a
designated period of time. The ownership shall continue
to belong to the administration.
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Present Legislation
The implementation of concessions in Turkey dates back to
the Ottoman Empire and the Law of Concessions Regarding Public
Benefit (Menfaii Umumiyeye Müteallik İmtiyaz
Hakkında Kanun) which was enacted in 1910 still
remains in effect as the foundation for legislation for the
granting of concessions to the private sector in Turkey.
During the 1980's in Turkey, certain PPP models
became prominent increasing the role of the private sector in
the economy. From 1980 onwards, several legislations were
enacted in Turkey with regard to the PPP's, as
follows:
- (General) BOT Law: The Law on the
Build-Operate-Transfer No. 3996 published in the
Official Gazette on June 13, 1994, No. 1959;
- TOR Laws:
- (General) The Law on Privatization
No. 4046 published in the Official Gazette on 27
November 1994, No 22124),
- (Electricity) The Law on Turkish
Electricity Authority for Generation, Transmission,
Distribution and Trade of Electricity No. 3096,
published in the Official Gazette on 19 December 1984,
No 18610, and;
- (Airports) Law No. 5335 (transfer
of operation rights of airports and passenger terminals
by State Airports Authority) published in the Official
Gazette on 27 April 2005, No 25798.
- (Highways) BOT Law: The Law on
Construction, Maintenance and Operation of Highways No.
3465 published in the Official Gazette on 2 June 1988,
No 19830;
- (Electricity) BO Law: The Law on
the Establishment and Operation of Electricity
Production Plants and Energy Sales No. 4283, published
in the Official Gazette on 19 July 1997, No.
23054)
- (Health) BLT Law: The Law on
Build-Lease-Transfer in Health Sector No. 5396
published in the Official Gazette on 15 July 2005, No.
25876)
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Difficulties Encountered by Previous PPP
Schemes
The main problems that were encountered upon implementation
of the PPP projects based on the above schemes were; (i) lack
of political, economical, legal stability; (ii) the lack of
experience of the public sector in drafting the PPP agreements
and different applications by the public sector entities; and
(iii) unbalanced risk distribution between the public and the
private sector.
Furthermore, from the structural standpoint, despite some
successful PPP applications, several issues were also noticed
in the implementation of the PPP models in Turkey. These were;
(i) limited number of the PPP models in the existing
legislation, (ii) lack of harmonization in the PPP legislation,
(iii) the absence of a single responsible state authority
governing PPP Projects.
Draft PPP Law
In order to overcome the structural difficulties, a study
was conducted by the State Planning Organization (SPO).
Following these studies, the draft PPP Law (Draft PPP Law) has
been prepared and posted on the web-site of SPO for further
review and comments.
The major points concerning the Draft PPP Law are as
follows:
- The Purpose of the Draft PPP Law
is the determination of procedures and principles for
the fulfillment of certain investments and services
currently conducted by the public authorities, social
security administrations, local administrations and
state economic enterprises by way of public private
partnerships.
- Coverage of Draft PPP Law is the
fulfillment of investments and services by way of
public private partnerships, in the fields of
agriculture, irrigation, mining, manufacturing, energy,
transportation, telecommunications, high technologies,
tourism, housing, culture, city and urban
infrastructure, municipal works, environment, research
and development as well as education, health,
judiciary, security and general administrative
infrastructure that are currently conducted by public
administration, social security administrations, local
administrations and state economic enterprises.
- The main principles of the PPP
process are as follows:
- public benefit and contribution to the economic
and social development;
- administration to act in line with their duty in
PPP projects;
- conformity to the public guarantee with respect
to amount and time with the market dynamics;
- conformity of the public guarantees with the
financing balances of the state and
administrations.
- PPP Models set forth in the Draft
PPP Law are BOT, BO, BL, TOR or Joint Ventures whereby
the private sector stake cannot exceed 49%.
- The Tender Process in accordance
with the Draft PPP Law is as follows:
- application by the relevant administration to the
SPO, accompanied by the feasibility and tender
strategy, is to be made;
- opinions of the relevant public administrations
and agencies concerning the proposed project will
then be collected;
- Upon obtaining a positive response from the SPO,
the application to the High Planning Council (HPC)
must be sent. Authorization by the HPC of the
relevant authority must be sought to initiate the
tender process;
- Projects having the value of less than TRY
10,000,000 can be authorized by the SPO, without the
need for approval of the HPC; and
- Initiation of the tender by the relevant
administration and approval of the tender by the
relevant minister or minister of interiors for the
local administrations. Execution of the
implementation agreement between the winning bidder
and the administration following the approval of the
terms of the implementation agreement by the SPO.
Entry into the implementation agreement after the
approval of the HPC.
- Tender methods stipulated in the
Draft PPP Law are stated below. The general principle
are based on the application of the open tender method
or bids among certain bidders method.
- Open tender method: whereby all bidders
may submit their bid. No limitation can be put on the
number of bidders allowed. The bids will be in
written form. The conditions of the tender will be
determined in the tender specifications.
- Bids among certain bidders: whereby he
pre-qualified bidders may submit bids. In this
method, the administration can receive bids from the
bidders whose technical and financial
pre-qualifications are approved by the
administration.
- Competitive dialogue method: whereby the
administration invites pre-qualified bidders and
enters into dialogue with these bidders. In case the
administration cannot define the technical standards
and functional requirements objectively, and the
legal and financial characteristics of the project
cannot be determined, or the project cannot be
allocated to an open bid or a bid among certain
bidders, the dialogue method can be used. Following
the dialogue period, administration will request the
submission of bids by the candidates.
- Negotiation method: in the event that the
administrations cannot receive satisfactory bids via
open tender method or where the existing risks will
not permitbid among certain bidders method or
competitive dialogue method, the tenders can be
concluded by negotiation method.
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The implementation agreement to be entered into by and
between the winning bidder and the administration will be
subject to private law. The term of the implementation
agreement shall not be longer than 49 years. The material
provisions of the implementation agreement, such as guarantee
types, operating term, costs, financing conditions, tariffs,
lease amounts, etc. cannot be amended against the interest of
the administration. On the occurrence of force majeure
conditions, amendments to the implementation agreements in
favor of the administration require the approval of HPC.
Immaterial changes will be concluded between the
administration and the assigned company. The penal sanctions in
case of non-fulfillment of obligations by the assigned company
against the administration and consumers, breach of the terms
of the implementation contract, bankruptcy, composition with
the creditors and insolvency will be determined in the
implementation agreement. The administration has the right to
take and implement the necessary precautions for the
continuation of the public service upon the termination of the
implementation agreement. The disputes will be resolved under
Turkish law and the Turkish courts will have competence to
resolve the disputes. The parties may agree that the disputes
will be resolved by arbitration under Turkish law.
The key to successful PPP's in
Turkey
To summarize, the following needs to be made for a
successful PPP application in Turkey:
- The legal framework should be improved via
enactment of the Draft PPP Law covering all models. The
secondary legislation should also be enacted in a way
that the tender process will be competitive, simple and
transparent.
- The institutional framework should also be improved
in a manner that a central specialized PPP unit with
special staff be formed and the related staff of public
administrations should have the necessary educational
background to properly handle the PPP projects.
- Precautions should be taken to eliminate the
imbalance of agreements, and the internationally
recognized agreement forms should be used to the
maximum possible extent, such as FIDIC contracts,
PFI-Standard Contracts, etc
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The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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