Justin Vela in Istanbul -
With a new tender for Turkish natural gas distributor Baskent Dogalgaz planned for July after the previous winner failed to meet the payment deadline in May, there appears to be no let up in Turkey's privatisation drive.
This year, the Turkish government aims to collect $9.5bn in revenues from the privatisation of state-owned property and infrastructure. This figure is around 15% of the total from the privatisations carried out over the past 25 years, but the ballooning current account deficit and other economic weaknesses make it an imperative for the freshly elected Justice and Development Party (AKP).
Since 1988, Turkey has seen about 118 sell-offs. The largest privatisations occurred between 2005-2006 when the government gained $16.5bn in revenues from the sales of steel producer Erdemir, the petrochemical refiner Tupras and telecommunications giant Turk Telekom. Last year, the country garnered about $3bn from privatisations, mostly from electricity distribution facilities.
The next asset on the block will be the Ankara-based gas firm Baskent Dogalgaz, which as Turkey's second largest gas distributor pumps about 2bn cubic meters of gas every year into 1.2m homes. In August 2010, MMEKA, a joint venture of Turkish businessmen Mehmet Emin Karamehmet and Mehmet Kazanci, offered the top bid of $1.2bn for an 80% stake, but Turkey's privatisation authority (OIB) cancelled the deal in May after the firm failed to meet the payment deadline despite receiving two extensions and called for new bids in July.
The last completed privatisation was on June 16 when the Turkish consortium TASS Denizcilik became the owner of the Istanbul Fast Ferries (IDO), formerly a subsidiary of the Istanbul Metropolitan Municipality. TASS won the auction for 100% of IDO shares in April with an $861m offer. The Turkish daily Milliyet reported in April that the minimum value of IDO was set at $700m. The company's value is expected to increase to $1bn. The six-month privatisation process saw 11 groups purchase tender specification documents, generating about $0.55m for the Istanbul Municipality. The money from the sell-off will go towards upgrading the city's transportation systems.
Along with IDO, the Turkish government has planned a series of other privatisations for this year to reach its goal of $9.5bn in revenues. These include, for example, the selling of its remaining 49% of Turkish Airlines; gas distributor IGDAS; ISPARK, a commercial enterprise established by the Istanbul Metropolitan Municipality that provides parking services; and state-owned Halkbank. Several highways, including the Edirne-Istanbul-Ankara Motorway and the Tarsus-Adana-Gaziantep Motorway in the south, will also be privatised, along with several bridges.
The way forward
Altug Ozgur, chief economist at Istanbul's BGC Partners, a global brokerage house, says that with the June 12 parliamentary elections over with and the ruling AKP firmly in control, privatisations can be expected to increase through the rest of 2011. "In the first six months of the year, except energy privatisation, probably we didn't do anything," Ozgur says. 'We always privatise state-owned assets, but we will accelerate this because we have a very large current account deficit to finance. We need portfolio inflows as well, but other than portfolio inflows the healthiest way to finance the deficit is to increase foreign investment inflows."
Indeed, the ballooning current account deficit is Turkey's Achilles' heel. In May the current account deficit reached $7.75bn, a 163% increase over May 2010, with Turks heavily reliant on imported goods and energy.
State assets taken over by experienced and efficient private enterprises will be an important accelerator for the Turkish economy, experts believe. The country has strong economic growth, but needs to develop domestic production and infrastructure to create jobs and narrow the current account deficit. "The aim is to be able to use this money to boost Turkey's economy so that the economy can perform better in itself," says Can Buharali of Istanbul Economics. "[The privatisations] also make sure that the new entities are fully professionally and thus they become more beneficial to the Turkish economy."
Irfan Civcir, a business professor at Ankara University, says by privatisating assets, "the Turkish government is expecting to increase efficiency in the economy and to decrease the financial burden of state economic enterprises on the national budget."
Through privatisation, the Turkish government also obtains much needed funding to carry out infrastructure and development projects as it struggles to collect taxes in a country where the informal economy is still substantial. "Please note that we are continuing our efforts while also decreasing [tax] rates, but please also know that the informal economy accounts for an estimated 40-45% of our national economy," Turkish Prime Minister Reccep Tayyip Erdogan told a group of businessmen in May.
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