Turkey Economy: Renewed Privatisation Push

Although Turkey began efforts to privatise state assets back in the mid- 1980s, political opposition to the programme from within successive governments and from the military meant that progress was slow.

By the end of 2002 Turkey's privatisation programme had raised a total of only US$8bn. A large part of this came from three major deals concluded in 2000. The government secured US$2.25bn from the sale of one 1,800-Mhz GSM operating licence. The sale of 51% of the state-owned petroleum products distributor POAS raised US$1.26bn, and a further US$1.24bn came from an initial public offering (IPO) of 31.5% of the shares in the country's leading oil refiner, Tupras.

Efforts were lent a new urgency following the collapse of the Turkish economy in February 2001 and the subsequent US$16bn, IMF-funded rescue plan under which Turkey is obliged to sell off all major state-owned assets. However, political opposition continued to hamper progress; the only major sale to be completed since the IMF agreement has been a secondary offering in 2002 of 16.5% of shares in POAS, which raised only US$183m.

Problems were exacerbated by a round of failures in the banking sector which saw state banking authorities obliged to step in and take over 22 private banks, which were then added to the list of state banks awaiting sell-off.

New government, fresh start

Turkey's new majority government elected last November has promised to speed up privatisation, both in response to increasing pressure from the IMF and because of the urgent need to raise cash to fund its own social welfare programmes. Its political position is strong, for the time being at least, in that with a two-thirds majority in parliament it can push through constitutional amendments necessary for some sales, even in the face of opposition from Turkey's military. However, the cohesiveness of the ruling Justice and Development Party (AKP) might be severely tested if the government is forced into further fiscal retrenchment.

The government's initial programme planned to raise US$4bn. This would come through block sales of large state companies such as Petkim (a petrochemicals company), Tupras and Tekel (the state tobacco and alcohol monopoly), as well as smaller state mining and manufacturing operations and the sale of operating licences to a number of ports. As of August 2003 most of these sales are already under way.

The programme was subsequently expanded, boosted by the inclusion of a number of state companies, institutions and assets either not slated for sale or expected to be sold outside the privatisation programme itself. These include Turkey's three remaining state-controlled banks, 25 power plants and the operational rights to 19 of Turkey's 33 electricity distribution regions. Also on the block are the national lottery, Millipiyango, the Istanbul Stock Exchange and Gold Exchange, and the operational rights to Istanbul's two Bosphorus bridges, as well as the sale by public auction of formerly forested land belonging to the Treasury.

Changes were also introduced to the methods of sale to be employed. Plans have been announced for the sale of "revenue-sharing certificates" in 32 hydroelectric dams operated by the state water authority, DSI. Another amendment to the laws covering privatisation allows for state companies which fail to attract bidders in two tenders to be transferred to private ownership in return for guarantees on future investment and staffing levels.

Mixed results

So far 2003 has seen the successful sale of operating rights to two ports operated by the state-owned ferry company, Turkish Maritime Lines (TDI), and the sale of three factories belonging to the state paper producer, SEKA. These deals have netted only US$65.6m. The US$109m sale of a fourth SEKA plant, the US$40m sale of a silver-mining company, two more SEKA facilities, a third TDI port, and four textiles plants belonging to the state-owned Sumer holding company are expected to be completed soon.

The big disappointment of 2003 has been the failed sale of Petkim. The winning bidder, a venture controlled by the controversial Uzan business family, had offered US$605m, but proved unable to make the first payment. A new tender is planned to be completed before the end of the year.

Other sales now getting under way offer more promising prospects. Foremost among these are the sale of the state's remaining 65.76% stake in Tupras, and the block sale of the alcohol and tobacco arms of Tekel, both of which are out to tender. Istanbul analysts are particularly bullish about the prospects for Tekel's tobacco assets, for which six international companies are thought to be preparing bids by the September 26th deadline. Recent sales of tobacco assets in Morocco, Serbia and Italy have been concluded at prices well above initial expectations, and bankers have been quoted as saying the Tekel deal alone could fetch up to US$4bn.

Tenders have also been opened for the block sale of copper and chrome mining businesses, the individual block sale of five state-owned fertiliser factories, and operational rights to two more TDI ports. The government is preparing tenders for the block sale of seven more textiles plants belonging to Sumer holding, five more fertiliser plants, and a hotel and marina complex in Istanbul. This year may yet also see the sale of Turkish Airlines (THY) with the privatisation administration announcing that it intends to hold a 15% public offering to be followed by a tender for a controlling block if market conditions are deemed right.

Success for at least some of these deals will lessen the pressure on the government for more fiscal retrenchment. The Economist Intelligence Unit remains sceptical, and expects the government to face mounting political and economic problems during 2004. The IMF has recently reaffirmed its support for the government's programme, which has boosted investor sentiment, for now. That boost needs to be sustained by success with privatisation