How PPP is transforming Turkey

Thomas Maier and Şule Topçu Kılıç of EBRD discuss how Turkey's buoyant economy has allowed infrastructure to flourish

March 9, 2016

With Turkey now the 18th largest economy in the world, it’s fast becoming a significant market for investors. Thomas Maier and Şule Topçu Kılıç discuss how the Turkish government is fostering this environment by promoting PPP as the model to deliver much-needed infrastructure. They also talk about EBRD’s successes in developing the country’s transport, and its recent programme to provide quality healthcare services that will also be bankable.

World Finance: Investment in infrastructure is fundamental to the development of any country. And this is a sector that’s burgeoning in Turkey, off the back of its buoyant economy. With me to discuss are Thomas Maier and Şule Topçu Kılıç from EBRD.

So Thomas, if I might start with you. Turkey today: how well developed is it in terms of infrastructure, and where are the challenges?

Thomas Maier: Turkey is a significant market for us, and for many investors. Because let’s remember: it’s the 18th largest economy in the world; the GDP per capita is now above $20,000. It has a lot of connections, both regionally and globally. And at the same time it has a lot of infrastructure needs.

For example, in the next 15 years, the government plans to triple the length of its high-speed rail network, double the motorway network, and increase the capacity of its container ports by about 20-25 percent.

So there are lots of opportunities there. And in addition, what encourages us very much is that the Turkish government promotes the PPP model as the key delivery tool to actually bring infrastructure to the people, and to those who require the service.

World Finance: OK, so talk me through your investment strategy in Turkey’s infrastructure, and your implementation in the PPP model in Turkey.

Thomas Maier: When we look at EBRD as a whole, about 20 percent of the business we do there is in transportation and utilities. About $1.5bn, supporting another $8bn or so of investments coming from our private partners and banks.

So it’s a very big segment of our business. And in the past we have concentrated initially on transportation infrastructure, for example: we did the first PPP in the Bosphorus tunnel, a tunnel that connects the east and west side of Istanbul.

We have also supported Mersin, which is the joint venture between Akfen, a very well renowned Turkish company; and PSA, the port authorities of Singapore. And we have recently done a number of transactions in what I would call social infrastructure: hospital facilities management.

We have, together with our partners in the Turkish government, created a programme that will eventually be around $18-20bn, and will supply 15,000 quality hospital beds that are urgently needed in the economy.

World Finance: And how have you measured this success?

Thomas Maier: I would measure the success in two ways. The first one is: does this programme attract international sponsors? Companies that are willing to put money and resources down. And the emphatic answer is yes, because we now have European, American, and global health investors that are coming to Turkey, and are running this programme.

The second one is that we have attracted institutional investors into this programme. And there are quite a number of institutional investors from Europe that are now actively looking and investing in the Turkish health sector. And that’s a great achievement, because it shows that bankable projects in emerging markets are attractive for European institutional investors.

World Finance: And Şule, talk me through your role in the PPP model in Turkey. How have you made it bankable?

Şule Topçu Kılıç: It was a long journey. It started back in 2008, and the Turkish minister of health took the UK PFI model as the basis for the development of the Turkish model.

But because of the differences between the legal framework in Turkey versus the UK, of course, it was not so easy to implement all the model structure of UK PFI to Turkey. And then we, as EBRD, played a very critical role in conveying the important bankability issues to the Minister of Health.

Thanks to the Minister of Health, they were very committed, very patient, listening to us on all the bankability issues such as forex mitigation, which is very important for Turkey because of the Turkish lira; termination and compensation mechanisms; and direct implementation and arbitration.

And certain measures were not really defined in the Turkish legislation, and the Minister of Health made some PPP law changes, in order to make it implemented. And we as EBRD played a very critical role in supporting the Minister of Health to make those bankability issues sorted out.

World Finance: What have been the challenges, and how have you overcome them?

Şule Topçu Kılıç: In a PPP programme which is newly developed in a country like Turkey, bankability issues and solving those bankability issues is one part of the challenges, which was sorted out successfully with the commitment we received from the Minister of Health.

The second challenge, which was very important, was the acceptance of the PPP programme by the public. And political acceptance as well was very important.

So with the technical support we have provided to the Minister of Health, value for money methodology is being developed at the moment, which we will show what the project, if it is done with the PPP model, will be providing in cost and benefit versus if it is done by the public.

Of course another challenge is, the Minister of Health needs to have the full infrastructure to monitor during the construction and operation period. And that’s another technical support we are currently providing.

World Finance: Şule, Thomas: thank you.

Thomas Maier, Şule Topçu Kılıç: Thank you.