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Hill Executive Discusses PPP Prospects for Turkey

With a population of 77 million people (as per the 2014 census) and all indications of confirmed GDP growth, Turkey is a strong candidate for the private-public-partnership (PPP) model of economic growth to strike deeper roots.

 

With a current inventory of 198 PPP projects – of which 164 are already in operation, while another 34 are under construction – the European Union (EU) nation has been successful in enticing the interest of the private sector, Yilmaz Ilgin, director general at the Ministry of Investment, said recently at the 4th Annual “PPP in Turkey forum” held in Ankara. “Private and public sector investments will be addressed with a holistic approach for achieving high and stable growth performance,” he said, noting public investments will be focused on economic and social infrastructure areas that could not be fulfilled by the private sector. “In the infrastructure sector, the emphasis will be on better maintenance and repair and efficient use of existing assets,” Ilgin said. His statements were based on Turkey’s long-standing experience in the sector and in light of Turkey’s background as one of the first to apply PPPs since the 1980s. The major PPP models implemented in Turkey, Ilgin said, include the: build-operate-transfer for the energy, marina and airport sectors; the transfer of operating rights for energy, airport and ports projects; the build-lease-transfer method for healthcare and education sectors; and the build-operate technique for the energy industry. For its part, the government plays an active and supportive role of tax exemption, revenue or demand guarantees and last, but not least, even assuming debt, he said.

  

The results have been too obvious to ignore. Of the total successful 198 PPP projects in the country, 76 have been for energy production facilities, followed by 33 for motorways and service facilities, 22 for development of harbors, 18 for airports, 17 for healthcare and 16 for marina and tourism facilities, Ilgin said. The total contract value under the PPP model was $115 billion, with airports attracting the highest at $65 billion, energy production at $22 billion, motorways and service at $12 billion and $10 billion for healthcare. Amongst the major projects under the PPP investment strategy have been the Ataturk and the Ankara Esenboga airports, the Istanbul new airport of with four terminal buildings, six runways and 16 taxiways, the 421 km (260 mile) Gebze-Bursa-Izmir and the North Marmara motorways, the 5.5 km (3.4-mile) Eurasia tunnel, he said. Looking ahead, other major projects planned to be built under the PPP model will include the Ankara-Nigde, Ankara-Kirikkale-Delice and the Aydin-Denizli motorways and tunnels on the North-South highway corridors, to name a few. In the marine sector, a container port is also planned at Mersin to emerge as a major hub in the Eastern Mediterranean. Also in the healthcare sector, investments are planned for 35,000 new beds, he said. “As a developing country, Turkey has ambitious objectives and an important infrastructure gap. While PPP can be a good solution, there will also be a need to keep an eye on risk allocation, contract management and co-ordination and planning,” Ilgin pointed out.

 

“PPP is an alternative system used by public administrators to provide service to its citizens where non-core functions are transferred to the private sector,” Serdar Gucar, senior vice president and managing director of Turkey for Hill International, said at the same forum. Outlining the major characteristics of a successful PPP structure, he said, key issues will include an alignment of public and private sector interests, the need for strong financial capabilities and skills in the private partner and the financial bankability of a planned project based on the conducting of a feasibility study. “Projects must be carefully and responsibly identified and sized and there is no one-size, fits-all PPP for all sectors and regions. If you do not manage the risk, the risk might manage you,” he said. Major items on the “must do” list to ensure success of a PPP venture, Gucar said, include measuring and mitigating risk, front-end planning, drawing up a project organization chart clearly defining and allocating roles and responsibilities, broadening of design management, incorporating scheduling skills early on in the project and always re-thinking procurement process.

 

With the global economy being forecast by bankers, financial analysts and statisticians to remain sluggish in 2016, government spending will be restricted opening the doors further for PPP projects. Given its past history and experience, Turkey is in an advantageous position to elicit the interest of private sectors. Fuat Kantarci, director general of health investments at Turkey’s Ministry of Health said at the same forum that several healthcare projects will be tendered under the PPP model offering the construction of a total of 10,505 beds at Yenisehir (Izmir), Aydin, Antalya, Sancaktepe (Istanbul), Bartin, Ordu, Trabzon, Kahramanmaras and Diyarbakır. These projects have been financed by 20 different financial institutions including six local banks, nine foreign banks, three international financial institutions including EBRD, IFC and BSTD and two mutual development financing agencies of DEG and Proparco. For Hill International, which has managed several PPP projects in the healthcare sector in Spain, the time is ripe to now cut its teeth in Turkey in that new sector.