Ercüment Erdem: How to invest in Turkey’s $100bn PPP projects

Transcript

Turkey’s infrastructure renewal continues apace, despite 2016’s political upheaval. In 2015 the Turkish government invested $30bn in construction, with the total value of projects scheduled through to 2023 worth over $100bn. Project finance expert Professor Dr H Ercüment Erdem, founder and senior partner of Erdem & Erdem Law Office, outlines the most exciting projects happening in Turkey right now, including the New Istanbul Airport, scheduled to begin operation in 2017. He outlines the laws governing PPP projects in Turkey, and explains how partnerships are typically structured; and identifies the key risks and considerations for international investors who want to engage in the country’s development.

World Finance: Turkey’s infrastructure renewal continues apace, despite 2016’s political upheaval. In 2015 the Turkish government invested $30bn in construction, with the total value of projects scheduled through to 2023 worth over $100bn. Joining me is project finance expert Professor Dr Ercüment Erdem.

What are some of the most interesting projects happening in Turkey at the moment?

Professor Dr Ercüment Erdem: We have many interesting projects, but let me give you only three examples.

The first one is Yavuz Sultan Selim Bridge. It’s a very new bridge, the third bridge on the Bosphorus, and it’s part of the Northern Marmara motorway project.

The second one is the New Istanbul Airport. It will be one of the major airports in Turkey; we expect it to be in operation in 2017, probably.

My third example is Osman Gazi Bridge. This crosses Ismit Bay, and it’s part of the Izmir-Istanbul motorway project. It reduces more than 50 percent the distance between Istanbul and Izmir. It’s been in operation since 2016, and it cost $1.1bn – it was a major project for Turkey.

World Finance: What are the laws governing PPP projects in Turkey?

Professor Dr Ercüment Erdem: We have two sets of rules. The first one is the PPP law; we call it the PPP law, but in fact it’s a law with respect to healthcare facilities. PPP projects are very important for Turkey, in particular for healthcare facilities. So, this is the first time that we have mentioned PPP projects in the law.

The second is the public tender law. It’s a general law, but it provides some guidance for the public tender, and organises how they have to be structured – with confidentiality, reliability, and many other main principles.

World Finance: How are these projects typically structured?

Professor Dr Ercüment Erdem: These projects are typically structured as joint ventures, in the form of joint stock companies.

We have long-standing experience with BOT projects in Turkey, since we have a particular law for that respect, enacted in 1994. This law provides some guidance, some general guidance, for BOT projects, and some variants to BOT projects: like Build-Operate, or Build-Lease-Transfer models.

And what we are doing in practice, in Turkey, is: we are using the model contract prepared by international institutions such as FIDIC or ICC.

World Finance: What unique risks do foreign companies need to be aware of when they’re looking to invest in Turkey?

Professor Dr Ercüment Erdem: Whatever risks are equivalently valid for foreign investors and Turkish investors. And foreign investment is a top priority for the Turkish government. But I would like to draw the attention of investors mainly to three points.

The first one is the management risk: how you manage the contract obligations and the project. There might be some failure for obtaining permits, environmental risk, and many other.

The second one is the legal risk, or the limitation of liabilities; in particular force majeure, step-in rights, or public order issues.

The third risk is the enforceability of security. As you may know, we are taking many securities for project finance, and these securities should be easily enforceable. So this is an important point as well.

World Finance: Finally, what’s the most important thing for businesses to be aware of, if they want to engage with Turkey’s development plans?

Professor Dr Ercüment Erdem: They have to understand the opportunity, and they have to evaluate the risk. Opportunity and risk go together, so they have to be prepared, and your legal, financial, and tax advisers have to have a strong background for project financing and in PPP projects.

And they have to be ready for the worst case scenario: the non-performance of the contract. So we may need a reliable, user-friendly, and easily implemented dispute resolution mechanism. For that respect I strong suggest to use international arbitration.

World Finance: Ercüment, thank you.

Professor Dr Ercüment Erdem: Thank you.