Turkey Economy: Privatisation Programme On Target

Despite setbacks, Turkey has a fair chance of meeting its target of raising US$4bn from privatisation this year and has outlined more sales for 2004

Under pressure from the IMF and the World Bank, which have been bankrolling a US$16bn bail-out of the Turkish economy, the newly elected Justice and Development Party (AKP) government announced at the start of 2003 that it intended to raise US$4bn this year from privatisation. Given that Turkey managed only US$551m of sales last year, that target was widely viewed as optimistic. However, despite some setbacks, the government has chalked up a number of successful sales, and has just announced ambitious plans for selling off most of the state holdings in the power sector.

Shaky start

The government raised a somewhat modest US$51m in the first four months of the year from sales of one of the state-owned SEKA paper factories and operating rights for a number of small ports and a number of lignite mines. The privatisation drive then suffered a serious blow when the president, Ahmet Necdet Sezer, vetoed plans to privatise Turk Telekom through the sale of convertible bonds. The reason for the veto is not clear but it seems that Mr Sezer, a former senior judge, may have feared that the method of sale may prove to be unconstitutional. This presents a problem for the government, as it had promised the IMF that it would offer the company for sale this year, but assuming that it is able to meet its US$4bn target on other planned sales and is able to draft a new strategy for the sale of Turk Telekom, the IMF is expected to grant some leeway.

Of those other sales, early June saw the conclusion of the tender for the sale of the state's 88.86% stake in Petkim, a petrochemical producer, for US$605m -- substantially below the government valuation of US$3.2bn. The prime minister, Tayip Recep Erdogan, has announced that he intends to scrutinise the sale, implying that it may yet be cancelled, but industry sources claim that given the high level of investment required for Petkim to reach international levels of profitability, the winning bid is on the high side.

If no further problems emerge with the Petkim sale then that, together with other scheduled sales, should enable the government to meet its US$4bn target. Substantial interest from both major international oil companies and domestic petroleum distributors has already been shown in the tender for the sale of state-controlled oil refiner Tupras, opened on June 11th, leading to the stake on offer being raised from 51% to the complete 65.76% held by the state. A similar high level of interest has been shown in the separate block sale of 100% of shares in the tobacco and alcohol business of the state-owned Tekel company, with bids expected from both major international alcohol and tobacco manufacturers and large Turkish companies.

Other sales scheduled for sale in 2003 include gas distribution networks in the cities of Bursa and Eskisehir, a state-owned tea producer, the state-owned sugar refiner, the national lottery, the Istanbul Stock Exchange and Gold Exchange, two copper mines, and operating rights to two more ports. The high level of interest shown in tenders opened for the establishment of new gas distribution networks in other Turkish cities -- one of which attracted 17 bids -- indicates that the sale of two existing networks will similarly prove very popular. The other companies on offer are also expected to attract a number of bids, with the autonomous military pension fund Oyak already having declared interest in the national lottery.

Big plans for 2004

Next year should see Turkey selling off two of the remaining three state banks and handing over much of the country's power sector to private control. The semi-autonomous Vakif Bank is planning to offer 55% of its shares to its own staff next year, while preparations are also under way for the sale of state-owned Halk Bank, most likely via a public offering.

Plans have already been drawn up for the lease of operational rights for 19 of the country's 33 electricity distribution regions in early 2004. The 19 regions are in the process of being transferred to the Privatisation Administration prior to the issuing of tenders late this year. The sales are to be conducted via the offering of operational rights, expected to be 20-25 years, on a revenue-sharing basis with bidders being invited to submit bids based on the percentage of revenue they will pay to the state over the period of operation. The choice of this method of sale comes after months of negotiation with the World Bank which had been pressuring Turkey to sell off its electricity distribution sector in perpetuity.

Of the other 14 distribution regions, three are already in private hands while the remaining 11 are the subject of ongoing legal actions stemming from previous attempts at selling off operational rights. These regions are planned to be offered for sale when legal problems have been resolved. Also scheduled for sale in 2004 are 25 power plants operated by the state electricity-generating body TEAS, with a total installed capacity of 9,295 mw