Turkey, seeking to speed up its entry into the European Union (EU) and to satisfy its huge public sector borrowing requirement, is moving ahead with its massive privatisation programme, inviting bids for its oil refineries company, tobacco concern, banks and other state enterprises. Major state companies, long-protected from outside influence, are at last being offered to foreign investors.
Prime Minister Recep Tayyip Erdogan’s Islamist government is also preparing to carry out new reforms that will further align Turkey’s political system with the 15 members of the union. These reforms include granting rights to minorities to establish private radio and television channels to broadcast in their mother language, and reducing the military’s entrenched role in Turkish politics.
Mr Erdogan’s government is also seeking to find a solution to the Cyprus impasse that has poisoned Turkey’s relations with Greece for nearly 40 years and that has been a major stumbling block to its accession to the EU. In March, Turkish and Greek Cypriots opened the borders that divide the island to citizens from each community for the first time since 1974, and Turkey began granting visas to Greek Cypriots.
Interest rates drop
The government hopes to meet part of the country’s $111bn domestic and $131bn foreign debt through funds generated by the privatisation exercise. The privatisation programme comes as Turkey’s economy continues to improve, with interest rates falling, signs that inflation is being reined in following the Iraq war and the lira revaluing against the US dollar in real terms.
The Central Bank of Turkey lowered overnight interest rates on bank loans four percentage points in May to 44% to stimulate the economy further and keep inflation down.
“There are encouraging developments in inflation data, supporting our argument that the rise in inflation is temporary,” Serhan Çevik, an equity research analyst at Morgan Stanley, wrote in a report on Turkey on June 10.
Although consumer prices rose 1.6% in May, pushing year-to-year inflation to 30.7% from 26.4%, Mr Çevik wrote, the Wholesale Price Index declined 0.6%, the first deflationary reading in Turkey since 1985.
He noted that four factors had pushed up inflation in the first quarter of 2003: public sector price adjustments, currency depreciation, war-reduced rise in crude oil and natural gas prices, and adverse climatic conditions: “We are seeing a reversal in (all the) factors that caused an increase in inflation rates.”
The lira has gained 17% in value against the US dollar since the September 11 attacks, allowing for an increase in imports. Turkey’s economy, supported by International Monetary Fund lending, grew 7.8% in 2002, after declining 9.8% in 2001, in the worst recession since the second world war.
The Privatisation Administration (OIB), the main government body responsible for Turkey’s multi-billion dollar sell-off of state enterprises, invited bids in June for the block sale of former state tobacco monopoly Tekel and for a majority stake in oil refineries concern Tüpras. Tekel owns seven cigarette plants and Tüpras operates five refineries and a petrochemical complex and had total sales of $9.2bn in 2002.
In a separate tender, Turkey’s Standard Enerji, owned by the Uzan family, was the highest bidder for an 88% stake in Petkim, the state petrochemical concern, with an offer of $605m. Petkim operates the biggest of Turkey’s three petrochemical complexes.
At least five multinational cigarette manufacturers, three with production facilities in Turkey, said they would to bid for Tekel, which has a 61% share of the 111 billion sticks (number of cigarettes) domestic market and is one of the world’s biggest producers of cigarettes and exporters of leaf tobacco.
Battle for Tekel
The fight over Tekel is growing and all the major cigarette producers are present in Turkey for the privatisation. The company that buys the state tobacco concern will become a near-monopoly on the domestic market, says Mehmet Ali Yula, a board member and corporate affairs director for Japan Tobacco International (JTI) Turkey, which plans to bid for Tekel.
In addition to JTI, Philip Morris, British American Tobacco, Imperial Tobacco and Altidas have indicated that they will bid for Tekel, which had an income of $195.5m on total sales of $2.6bn in 2002. Tekel’s eight spirits plants and 100 leaf tobacco processing centres, salt mines and other properties will be sold separately at a later date.
Since Turkey began its privatisation programme in 1984, the government has sold its interests in 170 state companies either via share or asset sales, according to the OIB. Excluding the sale of operator licences of its cellular telecommunications networks, it has raised $10.5bn through privatisation from 1984 to the end of 2002, according to government sources.
Turkey has completely withdrawn from cement, animal feed production, dairy products, catering services, forestry products as a manufacturer, and petroleum distribution services. More than 50% of state shares in tourism, textiles, iron and steel and sea freight have been privatised. Several state banks, or state assets in the banks have been sold.
Currently 31 companies, six toll motorways and Istanbul’s two Bosphorus Bridges are slated for privatisation under the OIB. The state’s share in 24 of these companies is more than 50%.
Turkish state enterprises – KITs as they are known locally – employ about 510,650 people and control about 40% of the country’s industrial output.
The KITs are legacies of Kemal Atatürk, the founder and first president of the modern Turkish Republic. He adopted the principle of state-owned and state-operated industry in the 1930s to overcome Turkey’s economic underdevelopment.
Privatisation, opponents say, will aggravate unemployment and lead to foreign domination of the nation’s industry and commerce.
Other major companies up for sale include: seven paper mills owned by SEKA, the state pulp and paper concern; the state fertiliser manufacturers IGSAS and TÜGSAS; Eti Krom, the state chromium mines, and Eti Gümüs, the state silver mines; the state’s 51.66% share of Erdemir, Turkey’s leading manufacturer of steel; the state national lottery, Milli Piyango; Turkish Airlines (THY), one of the world’s fastest growing carriers; and Turk Telekom, the state telecommunications concern, which operates 19.3 million fixed phone lines and had a turnover of $2.5bn in 2001.
Plans are under way to merge state-owned mobile phone network operator Aycell with private network operator Aria, which is operated by Telecom Italia and Isbank.
Banks for sale
The government is also attempting to sell Pamukbank, Bayindirbank and Toprakbank, three banks under the control of the Central Bank’s Savings Deposits Insurance Fund.
France’s Société Générale Group, Turkey’s Tekfen Holding and Libyan-Canadian HNS (Hussein Nuaman Soufraki) Group are planning to bid for Pamukbank.
The government is also examining alternative ways to privatise Halk Bankasi, Turkey’s fifth biggest bank, which finances small and medium-size companies and artisans and craftsmen. Economics minister Ali Babacan said Halk Bankasi could be merged with the country’s largest bank, T. Ziraat Bankasi, and the two could be sold as a single institution. The two banks control about a quarter of the assets and deposits of the Turkish banking system and employ more than 39,000 people.
