Opportunities in Turkey

18 March 2008

Since the early 1990s, many European Union (EU) countries have used various forms of public-private partnership (PPP) to deliver major construction projects. These partnerships are designed to deliver better quality public services, by bringing in new investment and improved management, thereby helping state-owned businesses achieve their full potential.

Advantages

PPPs or Alternative Financing Partnerships (AFP), as they are known in many countries, allow the public sector to access private Finance to build infrastructure, while enabling them to transfer risks that can be better managed by the private sector. Governments needing roads, rail systems, schools, courts and hospitals without cash to spend are increasingly turning to private sector consortia to deliver infrastructure cheaper and faster than completing it in-house.

Rather than paying for an asset up front, PPPs allow governments to pay for a service over time based on predetermined performance standards. There are little to no payments during construction and if the private sector doesn't deliver the asset or fails to perform, the government doesn't pay or pays less. In extreme cases it can even terminate the private sector partner's role.

However, the challenge of creating a partnership that works for both sides is never easy. For a successful PPP, certain conditions have to be met:

• Government and private enterprises need to work together on the basis of clear, contractual agreements;

• distinct regulations need to be laid down in those agreements concerning the responsibilities of the parties regarding costs and risks;

• social and commercial goals have to be met at all times;

• every party should keep its own identity and responsibilities.

Ppp In Turkey

During previous years Turkey experimented with many models such as build-operate-transfer (BOT), build-own-operate (BOO) and design-build-Finance-operate (DBFO), but unfortunately the public sector could not always achieve the expected benefits with any of these. This was often because in all of these procurement models, the public sector tried to retain the directive role and be the decision making party under the terms of the concession or project agreements.

However, over the last five years or so the Turkish government has realised that it needs to change this approach if projects are to be delivered on time and on budget. This has lead the national government, and most of the municipalities to further investigate PPP models and best practices.

Although PPP is a relatively new concept in Turkey, it is quite common in many other parts of Europe and beyond. Toll roads and bridges, especially older ones with established rates of traffic growth and toll increases, are the most straightforward pieces of infrastructure to privatise.

According to Merrill Lynch analyst Philip Villaluz, their predictable cash flows can easily be morphed into long-term investments with quantifiable risks.

But despite the advances of the last few years, PPP procurement in Turkey remains a complex business for both the public and private sectors, and it is not as widely used as it could be. Accountancy and other legal regulations relating to PPPs are still not completed and both public and private sectors therefore need experienced legal advice throughout the process.

But, as Abraham Lincoln said, "A loser considers the opportunities as complexity but the winner seeks the opportunity in the complexity". In this regard, as local Turkish companies do not yet always have the extensive knowledge and industry experience in PPP, this creates opportunities for experienced companies to join forces with local Turkish partners as a way into the Turkish PPP market.

Rather than paying for an asset up front, PPPs allow governments pay for a service over time based on pre-determined performance standards.

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