Minister ‘doesn’t know’ if mega-projects guarantee will hurt budget

In a statement that surprised the markets on Tuesday, Finance Minister Mehmet Simsek said in Ankara that he “does not know” if a new law requiring the Treasury to act as a guarantor of multi-billion-dollar projects will hurt the public budget balances.

The government decided last week that the Treasury would provide a major financial guarantee to certain build-operate-transfer (BOT) and build-lease-transfer (BLT) projects, according to Turkish news reports on Sunday. This means that Turkey’s ongoing mega-projects, worth as much as 30 billion euro, could be undertaken by the Treasury in the event of unforeseen circumstances causing the projects’ failure or suspension. Observers have criticized the government for putting the public budget balances at risk with the decision.

Simsek’s words refer to apparent confusion within the government as to how this system can be applied, observers argue. “We should see this [Treasury guarantee] as a project insurance. … The government will discuss in detail which companies will benefit from this,” Simsek said, adding that the government is committed to continuing with the guarantee system in a transparent way. These comments come amid serious corruption allegations in the government regarding large-scale tenders and public procurements.

“For instance, failure to finalize the construction of Istanbul’s new [third] airport will be a serious burden on the public budget. … We are talking about measures to help such big projects be realized,” he said. The minister signaled for the first time that a failure to realize the new Istanbul airport is a possibility. The pro-government consortium Limak-Cengiz-Kolin-Mapa-Kalyon OGG won a 25-year BOT contract for Istanbul’s third airport in May 2013, advertised by Ankara as one that may become the world’s largest . The full amount of money the consortium will pay the state totals 26.14 billion euros with the 18 percent value-added tax (KDV) added to the final bidding amount of 22.1 billion euros.

BOT projects with minimum budgets of TL 1 billion in addition to BLT projects that are being conducted by the Ministry of Health and the Ministry of Education costing at least TL 500 million will be ensured by a TL 3 billion guarantee from the Treasury if the projects run into financial or logistical difficulties, a note on the Official Gazette on Saturday said.

BOT projects refer to those that are facilitated and operated by a private firm and then subsequently transferred to the government, while BLT projects are undertaken by a private firm, leased and eventually transferred to the government.