Turkey’s Treasury to act as guarantor of mega-projects

The Treasury will provide a major financial guarantee to certain build-operate-transfer (BOT) and build-lease-transfer (BLT) projects, according to Turkish news reports on Sunday.

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. This development was detailed yesterday in the Official Gazette.

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.

A total of 85 percent of the costs of projects that were abandoned due to company failure would be assumed by the Treasury, while the costs of unrealized projects canceled for reasons unrelated to the relevant company would be assumed in full. Furthermore, the public would not be informed as to which projects were under the financial responsibility of the Treasury, as such specific information will not be published in the Official Gazette, news sources say.

This is the first time in Turkey that the Treasury has taken on such a role as a financial guarantor. While the government has previously provided certain financial guarantees — such as the promise of toll revenues — to companies undertaking major projects, the Treasury has never undertaken such direct financial oversight. It was also stated that BOT and BLT projects meeting the specified requirements that are already in progress would be exempt from the TL 3 billion limit. This means that the financial responsibility for projects such as Istanbul’s third airport, the Istanbul-İzmir highway and the third bridge over the Bosporus — which together account for more than 25 billion euro in tender prices — could be theoretically undertaken by the Treasury in the event of unforeseen circumstances causing the projects’ failure or suspension. Other projects that would be covered include education centers that are slated to be built in eight provinces and city hospitals that are planned to be built in 15 provinces.

BOT and BLT projects have been conducted frequently in Turkey, particularly since the ruling Justice and Development Party (AK Party) has been in power. Critics say that these public partnerships primarily seek to financially benefit the government and holding companies that are close to it, at the expense of social and environmental concerns. Controversial projects include the aforementioned third airport and third Bosporus bridge — an artificial shipping canal on the European side of Istanbul between the Sea of Marmara and the Black Sea that Prime Minister Recep Tayyip Erdogan refers to as his “crazy project” — as well as two power plants planned in the provinces of Mersin and Sinop that have price tags of over $20 billion.