Turkey: Private Participation In Turkish Highway Sector

Background:

The privatization program in Turkey was initiated in 1983. In 1984, the first related regulation (Law No: 2983) and in 1986 (Law No: 3291) was enacted. Within the perspective of the provisions of Law No: 3291, the Council of Ministers was authorized to give decision on the transfer of SOE's (State Owned Enterprises) to the PPA (Public Participation Administration) and the High Planning Council was authorized to decide the transfer of partially state owned companies and subsidiaries to the PPA for privatization. In 1992, with the Statutory Decree No: 473, PPHC (Public Participation High Council) was authorized to approve privatization transactions.

Upon formation of a political and social consensus on the needs for privatization, the new privatization law has been enacted on 27 November 1994 with the new Law No: 4046. This new Law contains the provisions related to;

• The establishment of the "PHC (Privatization High Council)" and the "PA (Privatization Administration" and the determination of their duties, responsibilities, and rights,
• The establishment of the "Privatization Fund" and the determination of the resources and utilization fields of such fund,
• The supply of financial and social rights to the personnel contracted at organizations included under the scope of privatization who might become unemployed as a result of privatization,
• The personal and social rights of the public employees working for the organizations included within the scope of privatization,
• Paying "Redundancy Compensation" in addition to other indemnities foreseen in the collective bargaining agreements and/or in the existing laws in relation with potential employment reductions that may occur,
• Not using the proceeds of privatization for general budget expenditures and/or investments,
• Preventing the negative effects resulting from a monopolistic structure that may occur,
• Procuring of a shareholders' group capable of undertaking the responsibility and authority of management, as well as the expansion of the ownership,
• Creating privileged State shares for strategic fields,
• Not allowing for transfers to public institutions, organizations and to the local administrations during privatization, unless the necessitated by the sake of national security and/or the best interest of the public.

Privatization of highways in Turkey:

The Privatization High Council included highways and bridges in its privatization program on October 15, 2010.^[1] The scope of privatization covers the motorways, bridges and service facilities on these motorways, as presented below. The construction, maintenance, rehabilitation and operation of these assets are currently undertaken by the Directorate of Highways (KGM).

• Edirne-İstanbul-Ankara Motorway
• Pozantı-Tarsus-Mersin Motorway
• Tarsus-Adana-Gaziantep Motorway
• Toprakkale-İskenderun Motorway
• İzmir-Çesme Motorway
• İzmir-Aydın Motorway
• Gaziantep-Şanlıurfa Motorway
• İzmir, Ankara and Fatih Sultan Mehmet Bridge Peripheral Motorways
• Boğaziçi and Fatih Sultan Mehmet Bridges

The above mentioned motorways and bridges (including their connection roads) and service facilities thereon as well as the maintenance-operation and toll collection units (Motorways and Bridges) were to be privatized under one package via Transfer-of-Operating-Rights (TOR) agreement for a period of 25 years starting from the transfer day.

In the tender for the privatization of highways and bridges conducted by the Privatization Administration (ÖİB), the highest bid of USD 5.72 billion is submitted by the Consortium comprising of Koç Holding, UEM Group Berhad, and Gözde Venture Capital Investment Company. Koç Holding and UEM Group Berhad each hold 40 percent, and Gözde Venture Capital holds 20 percent shares in the Consortium. The consortium was granted the total rights to and revenues from toll roads, including the Edirne-Istanbul-Ankara highway and the Bosphorus and Fatih Sultan Mehmet bridges that connect the European and Asian sides of Istanbul, for 25 years. However, Finance Minister Mehmet Şimşek said in a written statement February 22nd 2013 that the Ministry and the Privatization High Council (ÖYK) had jointly decided to cancel the deal.^[2]

Legal landscape:

KGM was established in 1950 in order to implement a new road network program launched in late 1940s. Since then the jurisdiction of KGM has steadily expanded. Currently its legal status and authority is governed by Law No: 6001 enacted in 2010.

KGM is classified as a separate public entity with a separate budget affiliated with the Ministry of Transportation. The responsibilities of KGM include planning, building, operating and maintaining the highways and service facilities.

In its initial version, Article 29 of Law No: 6001 allowed only TOR as a method for privatization while the amended^[3] version paved the way for all methods for privatization other than transfer of ownership laid down in the Law No: 4046 governing privatizations. In particular, methodology for privatizing through transfer of shares (including corporatization) has been explained in detail.  

BOT Model in Highways – İzmir-Gebze Highway:

Pursuant to Law No: 3996 and Decree of the Council of Ministers No: 94/5907 concerning the implementation of Law No: 3996, the BOT tender for Gebze-Orhangazi-İzmir Motorway (including İzmit  Bay Crossing and Approach Roads) was conducted on 9 April 2009.

The most favorable bid came from Nurol-Özaltın-Makyol-Astaldi-Yüksel-Göçay Joint Venture with 22 years and 4 months bid (construction & operating). The Project covers the financing, design, construction, operation, maintenance and transfer of Gebze-Orhangazi-İzmir Motorway to KGM at the contract expiry date free of any and all debts and liabilities, as in full operation status and free of charge.

The Implementation Contract was signed on 27 September 2010. The parties of the contract are KGM and appointed company, Otoyol Yatırım ve İşletme A.Ş. which was founded on 20 September 2010 by the Joint Venture to perform the works of construction, operation and transfer. The total investment sum of the project is 10.051.882.674 TRY^[4]. The duration of the contract and construction (7 years) started from the effective date of Implementation Contract which is 15 March 2013. The contract will be expired on 15 July 2035 and the assets will be transferred to KGM.

Conclusion:

Since the interim instability in the Turkish political sphere has vanished after the elections held in 1st November 2015, we may expect acceleration in the privatization process for highways as in others including İstanbul natural gas distribution, electricity generation etc.

The method for privatization will be decided upon later. Although after the cancelation of the first tender, an initial public offering was the leading option transfer of operating rights or regrouping and selling of roads and bridges depending on their revenue are also among the options.^[5]

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.