Privatization is back

A look at the Turkish sell-offs as privatization is back on the agenda with sugar factories

1 What is Turkey’s experience with privatization?

Privatization in Turkey began in earnest in the 1980s through the sale of public assets to Turkey’s private companies or the public offering of their shares. The process was institutionalized in 1984 under the ANAP, the liberal party of that time, whose main objective was to increase the efficiency and competitiveness of inefficient public institutions by transferring them to the private sector, developing capital markets, and increasing its savings.

2 Privatization drives were limited until 2003. What was behind the slow pace early on?

The first significant sales in privatization schemes began in 1985, focusing on cement and feed plants. In the 1990s, attempts were made to privatize government operations in telecommunication, energy, tourism, transportation, and mining but were unsuccessful. Public and trade unions were opposed to privatization. Meanwhile, coalition governments with the weakest parliamentary majority did not want to take political risks. Also, gaps in the legal framework allowed courts, which were generally opposed to privatization, to obstruct sales. Decisions to cancel sales were made even during the procurement stage, and there were even cases where the Council of State stopped transfer contracts. The Constitutional Court also intervened on occasion. In 1999, amendments were made in the Constitution Law which shifted privatization to the public domain in the Constitution. The Council of State’s authority was reduced to offering comment only.

3 What was the sales amount from 1985 until 2003?

In the privatization applications that started in 1985, the sales amount was $7 billion by the end of 2003.

4 What is the reason behind the accelerated sales after 2003?

Total privatization between 20032017 was $61.4 billion. In addition to the 1999 Constitutional amendment, the results-oriented privatization law no. 4046 was passed in 2005. The economic crisis between 1999 and 2001 broke the resistance of the public. Also, the AK Party’s strong majority in parliament has allowed it to operate more freely while economic conditions in Turkey and internationally have led to successful and high value sales. Those who did not want to work in privatized organizations were appointed to public institutions. Between 2003 and 2008, telecommunications, petrochemicals, refineries, alcoholic beverages and tobacco businesses, ports and first wave electricity distribution companies were sold consecutively at high prices.

5 How were the sales after the global crisis?

After the global crisis, sales concentrated on hydroelectric power plants, electricity distribution networks and real estate sales. Most of them were acquired by domestic investors.

6 How does the privatisation process work?

In the Turkish privatization legislation, the transfer of the shares and assets of an institution to the Privatization Administration does not mean that the company is put up for sale. Once the Privatization Administration has taken the company into its portfolio, it prepares the company for sale and puts the company out to tender according to the sales method it finds appropriate for that company. The tender is finalized with the decision of the Higher Board of Privatization, which is gathered under the chairmanship of the Prime Minister. Therefore, most of the companies and assets in the “portfolio” of the Privatization Administration have not been put on sale.

7 Is there a strong portfolio at the moment?

In the current portfolio, hydroelectric power plants constitute the most valuable group. Some of them are very small. Motorways are also among important and profitable operations. Other than these, the portfolio consists mainly of real assets like land and buildings, and minority interests in various companies.

8 Why are large public companies not in the portfolio?

Most of these companies, valued in the billions of dollars, have been transferred to the Turkish Sovereign Fund.

9 Which companies are these?

These includes licensing ownership of Milli Piyango, Turkey’s flagship carrier Turkish Airlines, the majority shares of two of Turkey’s largest banks, Halkbank and Ziraat Bankasi (which has an indirect impact on Turkcell through deposits,) Turk Telekom’s minority stake, the owner-operator in Turkey’s natural gas network extending to Europe, BOTAS, which also has some import contracts, public postal service PTT, satellite and terrestrial cable network operator Turksat, the TCDD railway transport company which also has wagon, diesel engines and machinery production facilities, TDI, the operator of 9 ports, and ÇAYKUR, the largest tea buying and processing company in a country that consumes the most tea per capita in the world.

10 Will these companies not be privatized?

The Turkish Sovereign Fund was given extraordinary powers although it is a public fund. The fund has the authority to sell the shares of these companies, but this seems unlikely for the time being. The fund has not yet publicly disclosed its plans for managing its assets.