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Western EuropeMay 4 2010

Private push

Turkey's privitisation programme is still moving at a rapid pace, despite a change in focus. Writer Metin Demirsar
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Turkey's ambitious privatisation scheme has shifted gears, from the sale of sprawling state industries to the marketing of the country's energy sector, infrastructure and services, attracting foreign investors around the world.

Since the programme's initiation in 1985 to the end of 2009, the Privatization Administration (OIB), the agency responsible for carrying out the scheme, has sold the state's shares in nearly 200 firms, generating a total of $38.58bn in revenues.

The state has moved away from areas such as forestry products, petrochemicals, dairy, pulp and paper, oil refining, oil retail, tobacco and spirits, aluminium, animal feed, cement industries and shipping. Though several industries still remain in the OIB's portfolio, such as the sugar company Seker Fabrikalari, privatisation in Turkey is now focused upon energy, airports and ports, highways, banking and finance, real estate and services.

The biggest privatisation in Turkey to date is Saudi Group Oger Telecom's acquisition of 55% of Türk Telekom, the state telecommunications concern, in 2005 for $6.5bn. Oger, owned by the family of the Lebanese prime minister Saad Hariri, is the largest foreign investor in Turkey.

Saudi, Czech, Russian, Austrian, German, Italian, Azeri, Belgian, US, French, Dutch and UK companies have invested in Turkey in recent years, particularly in the area of energy production, importation, distribution and sales, as well as sectors such as banking and finance, automotive, real estate development, tourism, petrochemicals and retailing. In 2009, Turkey attracted $7.79bn in foreign investment, largely drawn from the privatisation programme, according to the Central Bank of Turkey. The country pulled in a record $21.87bn in foreign direct investment (FDI) in 2007. About 70% of FDI has been in mergers and acquisitions and the remainder has been in greenfield investments.

New direction

Bankers expect investors from the Far East and the Gulf to be the main investors in Turkey in coming years. "Foreign investment is likely to come from regions that have large current account surpluses, including the Far East and the Gulf area, Russia and central Asia," says Nihan Turgay, senior vice-president responsible for financial institutions at of Garanti Bankasi.

In 2009, a joint venture involving Turkey's Sabanci and Enerjisa and Austrian electricity company Verbund acquired Baskent (Capital City), one of 20 regional power distributors in Turkey being privatised, for $1.25bn. Another joint venture, involving Turkey's Ak Enerji and the Czech Republic's CEZ Group, bought Sakarya, which sells electricity in north-west Turkey, for $600m. The OIB also sold Meram, which distributes power in six provinces in south-central Turkey, to Turkish interests for $440m.

Turkey's power distribution firms control 800,000 kilometres of power lines, provide electricity to 72.5 million people and have a total market value of $3.2bn. Investment analysts predict significant growth, saying the country could attract more than $10bn in funds.

In 2009, France's GDF Suez acquired the operational rights of the Izmit gas company, IZGAZ, from Municipality of Greater Kocaeli in western Turkey, for 25 years for $522m. IZGAZ supplies 1 billion cubic meters of natural gas to subscribers in the city each year.

Distribution deals

In March this year, OIB also launched tenders for four other power distribution businesses: Trakya, which supplies electricity to three provinces in European Turkey; Istanbul Bosphorus, which provides power to the European side of Turkey's largest city and has 3.8 million subscribers; Dicle, energy provider in six provinces of south-east Turkey with 1 million subscribers; and Gediz, which distributes power in Izmir and Manisa provinces in western Anatolia and has 2.3 million subscribers.

The OIB will hold a new tender in 2010 for Baskent Dogalgaz, the natural gas distribution company of Ankara, Turkey's capital.

Also to be privatised are the Ankara Municipal Directorate of Electricity, Gas and Bus Services and the Istanbul municipal natural gas distribution company.

The government also announced it will sell 45 major thermal energy and hydroelectric dams owned by the state's Electricity Generation to raise $15bn. Four of the thermal power plants, located in western Turkey, will be sold individually - the 1120-megawatt (MW) Hamitabat; the 1034 Soma A and B; the 320 MW Çan; and the 600 MW Seyitömer. The remaining 41, including the gigantic lignite-fired 1440 MW Elbistan A and the 1356 MW Elbistan B power plants, will be sold in nine batches.

A consortium of four groups - Citigroup, Oyak Yatirin, Master Danismanlik and Socoin - won the consultancy services in the privatisation of the assets of state power producer and Elektrik Uretim AS (EUAS). EUAS operates hydroelectric dams and power plants and controls 30% of electricity production capacity in the country, with 12,525 MW.

Eye to the future

Turkey plans to privatise the state petroleum pipeline operator Botas, munitions producer Makina Kimya Endustrisi Kurumu (MKEK) and the General Directorate of Coal (TKI) when the global economic crisis is over. Botas is responsible for the importation, transmission and distribution of oil and natural gas. It operates 3374km of crude oil pipelines and 10,526km of natural gas pipelines, carrying 130.2 million tons of crude oil and 88 billion cubic metres of natural gas each year; MKEK, which comes under the Defense Ministry, is the state munitions manufacturer, operating 10 factories and producing armaments for the Turkish armed forces. TKI mines lignite coal at seven big mines in western Turkey.

In 2010, Turkey intends to complete the sales of Port of Derince in the Gulf of Izmit, on the north-eastern shore of the Sea of Marmara, and Galataport, Istanbul's old passenger liner gateway. The government wants to transfer the operational rights of the Galataport on a build-operate-transfer scheme.

The State Railways Administration (TCDD) is planning to lease out its 904 train stations and terminals in 57 provinces to the private sector, possibly in 2010, in the greatest reform in the 78-year history of Turkey's biggest money-losing state economic enterprise. The TCDD intends to raise $500m annually through the leases that would allow the private sector to build cafes, restaurants and operate stores at the stations and terminals.

The biggest prizes would be Istanbul's Haydarpasa and Sirkeci railway terminals, where major shopping centres, five-star hotels, public parks, convention venues, yachting marinas, theatres and restaurants will be constructed. A new central train terminal is being built as part of the Marmaray project, a high-speed rail-link connecting Asia and Europe with an underground line crossing the Bosphorus that will replace the Sirkeci and Hydarpasa terminals.

Later in 2010, the OIB is planning to launch tenders to transfer the operations of the Bosphorus Bridge and the Faith Sultan Mehmet Bridge in Istanbul, and nine express roads across Turkey. The Istanbul Municipality also intends to privatise its Metro and light rail systems, the Istanbul Sea Bus Company, real estate development company Kiptas and the municipal gas distribution firm.

Sell off

Meanwhile, privatisation is being carried out by the Savings Deposits Insurance Fund (TMSF), a state banking receivership fund that is selling companies and assets of more than 20 banks that collapsed since 1997. Other state agencies, banks and municipalities are also involved in the programme.

Major sales carried out by the TMSF in the past three years were the mobile phone services operator Telsim to the UK's Vodafone for $4.55bn and a series of television channels and cement companies previously owned by the Uzan family but taken over by the receivership fund against its debts to the state over the collapse of its Imarbank.

FDI inflows into Turkey, 1980-2009 ($m)

FDI inflows into Turkey, 1980-2009 ($m)

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