Turkey’s public-private partnership projects impressive by global standards, World Bank director says

Published 25.10.2017 23:45
Updated 25.10.2017 23:54
With a $35.6 billion investment value, Istanbul's new airport is the largest public-private partnership project with the build-operate-transfer model.
With a $35.6 billion investment value, Istanbul's new airport is the largest public-private partnership project with the build-operate-transfer model.

Public-private partnership projects have been instrumental in developing the country's investments, and have secured interest from the public sector in projects such as highways, railways, airports and energy and health facilities

Since the early 1980s, Turkey has been implementing numerous projects with public-private partnership (PPP) in building highways, airports, railways, hospitals, energy facilities and ports. Over the last decade, a large portion of the most pronounced mega-scale projects, including the Yavuz Sultan Selim Bridge, the Eurasian Tunnel, the Istanbul New Airport (also known as the Third Airport), the Osmangazi Bridge, city hospitals in Yozgat and Mersin, and the Istanbul-Ankara High Speed Railway, were completed with the successful and efficient implementation of the PPP model.

These public-private partnership projects have not gone unnoticed in the international arena. World Bank Turkey Director Johannes Zutt openly expressed the fact that Turkey has accomplished many projects using the PPP model.

Speaking yesterday at a conference titled "Accounting for Public-Private Partnership Applications According to International Accounting Standards and Presentation in Financial Tables," Zutt said, "The public-private partnership model has been implemented successfully for years in Turkey, and the results are quite impressive when compared to international standards."

The World Bank director said that PPP applications have played an important role in financing infrastructure priorities in Turkey, especially in the health and transportation sectors.

At the conference, which was attended by Finance Minister Naci Ağbal, Zutt said that they have been working with Turkey in the public financial management sector since 2001. He pointed out that Turkey completed its first-generation reforms in the area with the "Public Finance Management and Control Law," which entered into force in 2003. He went on to express his satisfaction in working with Turkey's Finance Ministry on the implementation of the second-generation reforms.

Drawing attention to the importance of the project for improving public finance management, Zutt emphasized that raising financial reporting standards would allow state activities to become more open to public oversight.

Projects that are financed through public-private partnerships, including the build-operate-transfer (BOT) model and the build-own-operate model-based projects, are generally seen in developing countries like Brazil, Russia, India and Turkey. One of the reasons for adopting this financing model for large investments is that it does not levy the burden on budget, while also enabling countries to benefit from the global money flow and ensure a shorter period of delivery of services.

Moreover, the PPP-model financing also allows for a wider time frame through concessions. For instance, the $35.6-billion airport project that resulted in Istanbul Third Airport, which included $6.5 billion in investments in physical assets and $29.1 billion in expected concession fees to be paid over the life of the concession, offers long-term benefits for paying investment costs.

According to information compiled from World Bank data, from 1990 to 2016 the total value of 7,132 PPP model projects worldwide totaled $2.6 trillion. Among the top 10 countries with the largest number of PPP projects from 1990 to 2015, Turkey ranks third with a total value of $165 billion, following Brazil and India with $517 billion and $343 billion, respectively.

Across Europe, the value of PPP projects totaled 12 billion euros in 2016. While the U.K. ranks first with 3.8 billion euros in Europe's PPP market, Turkey comes third after France.

From 1986 to 2016, 47.9 percent of the projects have been complemented by a financing model that includes public-private partnerships while it accounts for 62.8 percent of the total contract value of these projects, according to data compiled from the Ministry of Development.

During the said period, the investment value of these projects was recorded at $53 billion, while 182 projects are currently operating and 29 of these are still under construction.

With a contract value of $67.5 billion, airport projects that were completed via the PPP model rank first in sectoral terms compared to energy projects which have a contract value of $25.3 billion, coming in second in the PPP market. Energy projects are followed by highway projects and health facilities, which are valued at $13.6 billion and $10.6 billion, respectively.

Meanwhile, Finance Minister Naci Ağbal gave details about Turkey's future plans, saying, "Although the government has invested in infrastructures in many areas by allocating funds from the budget, Turkey needs to invest much more in health, education, infrastructure and transportation in short-term."

"These investments are important for Turkey to become more competitive and earn to a better place in international comparisons," Ağbal said, indicating that the government is committed to accelerating investments by putting into action PPP-based projects rather than traditional budget resources in this financing method.

"The government has initiated many PPP projects and continues to implement them," he added, expressing that they have conducted impact analysis and financing methods of the said projects.

Pointing out that the private sector wants to be aware of the risks when stepping into cooperative agreements, the finance minister said, "Today, projects in the transportation and health sector have started to bear fruit. Now, we see that the investment stages of these projects are over and have entered the operating stage.

He stated that it is necessary to provide guarantees for some prospective PPP projects and that if such risks are not shared and not determined in contracts, the pricing model of these projects will also change.

Ağbal went on to underline that the made investments include factors that increase productivity, especially regarding transportation and energy, as well as the competitiveness of the private sector. He indicated that, when seen as a whole, the projects being carried out by the government today such as highway projects and bridges from Istanbul to İzmir provide direct savings and benefits.

"When we put them all together, we will see that these projects have the potential to provide very important benefits to the development of Turkey," he said.

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