Implementing Key Features of PPPs:

Case Studies From Turkey

Mehmet UZUNKAYA

Planning Expert

State Planning Organization

OUTLINE

I. RATIONALE: WHY PPPs?

II. WHAT ARE PPPs?

III. THE EXISTING LEGAL FRAMEWORK FOR PPPs IN TURKEY

IV. PROJECTS IMPLEMENTED WITHIN THE EXISTING LEGAL FRAMEWORK

V. MAIN PROBLEMS FACED

VI. FOR SOLUTION...

VII. INTENDED OUTCOMES

RATIONALE: WHY PPPs?

Increasing Infrastructure

Demand

Constraints on Public

Budgets

Inefficiency in

the Existing Systems

Increased consideration of alternative project management and financing methods in both national and local level.

Need for Rapid Realization

of Infrastructure Investments

The Potential of Private Sector

for Financing Support

Potential for Utilizing

Private Sector

Expertise and Dynamism

Public-Private Partnerships

%

Total Investments

Private Investments

Public Investments

Cental Govt. Budget Investments

(*) Includes investments on the municipal level

RATIONALE: WHY PPPs?

GDP Shares of Investments in Turkey (1998-2012)

RATIONALE: WHY PPPs?

Thousand TL

Total Project

Cost

2009

Cumulative

Expenditure

2010

Budget

Remaining

Financing Need

Remaining Time

for Completion

(Years)

AGRICULTURE 68.568.676 24.524.831 3.666.606 40.377.239 12

MINING 1.951.107 116.630 1.419.800 414.677 1

INDUSTRIAL PROD. 1.506.429 603.996 333.472 568.961 3

ENERGY 38.752.912 15.629.815 3.376.100 19.746.997 7

TRANSPORT 103.344.206 54.327.602 7.744.744 41.271.860 6

COMMUNICATION 734.103 293.372 223.500 217.231 2

TOURISM 1.406.179 446.797 182.202 777.180 5

HOUSING 416.027 110.844 157.021 148.162 2

EDUCATION 19.980.361 9.546.415 4.060.417 6.373.529 3

HEALTH 9.361.289 3.195.457 1.777.892 4.387.940 3

OTHER 27.378.875 9.630.245 4.853.536 12.895.094 4

TOTAL 273.400.164 118.426.004 27.795.290 127.178.870 6

2010 Public Investments in Turkey (Beginning of Year)

Public-Private Partnertships (PPPs):

“Risk-sharing contractual agreements between public and private sector on the realization of a public-mission project through the dominant use of private sector resources which is extended beyond the construction to operation and management stages that constitutes the basis for the private partner to cover its costs by either user charges or government’s partly or fully purchasing of the services”

Whichever definition is used, however, both in terms of PPPs as a general and in terms of contract types (such as BOT, BOO, BOOT, etc), boundaries of public and private responsibilities in a PPPs arrangement are basically determined by the specific contract clauses signed between public and private partners.

A GENERAL DEFINITION

WHAT ARE PPPs?

Special Purpose Vehicle

(Project Company)

Contractor Operator Supplier

Public Authority

(Government) Public

Administration Treasury

Bank or International

Finance Organization

(Debt)

Investor

(Equity)

Financing

Contract

Financing

Contract

Construction

Contract

Input Supply

Contract

Implementation

Contract

(PPP)

Purchasing

Agreement

Guarantee

Agreement

Management

Contract

Guarantee

Agreement

Recourse/Non-Recourse/

Limited Recourse

R

R

R R R

R

R R

WHAT ARE PPPs?

Involvement of a new source of finance, helping expand coverage: particularly attractive

for governments having fiscal constraints

Utilization of private sector expertise, efficiency and innovative approach in construction,

operation and management: Factors that would potentially provide better risk

mitigation and drive down the costs of service provision as compared to public

provision.

POTENTIAL BENEFITS OF PPPs

WHAT ARE PPPs?

Risks from Private Sector Perspective

POTENTIAL RISKS IN PPPs

Source: Yescombe, E. R., (2002).

WHAT ARE PPPs?

Commercial Risks Macroeconomic Risks Political Risks

Commercial Viability

Completion Risks

Operation Risks

Environmental Risks

Operation Risks

Revenue Risks

Input Supply Risks

Force Majeure Risks

Contract Mismatch

Sponsor Support

Inflation risk

Interest rate risk

Exchange rate risk

Investment risks

Currency convertibility and

transfer

Expropriation of the project

by the state

Political violence (war and

civil disturbances)

Change of law risk

Quasi-political risk

Risks from Public Sector Perspective

Information, expertise and incentive asymmetry

Subjective project selection

Biased optimism

POTENTIAL RISKS IN PPPs

WHAT ARE PPPs?

Build-Operate-Transfer (Law No: 3996, 3465,

3096)

Build-Operate (Law No: 4283)

Build-Lease-Transfer (Law No: 5396)

Transfer of Operating Rights (Law No: 4046,

5335, 3465, 3096)

Long Term Lease (Law No: 5335, 4046)

Shadow Toll (Law No: 3996)

METHODS COVERED BY THE EXISTING

LEGAL FRAMEWORK

POWER

Electricity Production, Transmission, Distribution and Trading

Dams

TRANSPORTATION

Motorways, Bridges, Tunnels, Carparks, Motorway Roadside Facilities

Railways

Seaports and airports for civil use

AGRİCULTURE Irrigation

WATER AND SEWAGE Water for Drinking and other use Waste Treatment Sewage

SECTORS COVERED BY THE EXISTING

LEGAL BASE

HEALTH Hospitals

TOURISM Marinas

GENERAL ADMINISTRATION Border Gates

MINING

Mining and Enterprises ENVIRONMENT

Investments to Prevent Environmental Pollution

PRODUCTION Factories, and etc.

COMMUNICATION

POWER

BOT Projects (22) Marmara Ereğlisi-Trakya

Natural Gas Combined

Marmara Ereğlisi-Unimar Natural Gas

Gebze-Dilovası Natural Gas

Esenyurt Natural Gas

Birecik Dam ve HEP Plant

Berdan HEP Plant

Çal HEP Plant

Çamlıca HEP Plant

Aksu-Çayköy HEP Plant

Fethiye HEP Plant

Tohma-Medik HEP Plant

SECTORAL APPLICATIONS

Girlevik II-Mercan HEP Plant

Gaziler HEP Plant

Gönen HEP Plant

Kısık HEP Plant

Hasanlar HEP Plant

Suçatı HEP Plant

Dinar II HEP Plant

Ahiköy I-II HEP Plant

Sütçüler HEP Plant

Bozcaada Wind Power

Çeşme-Alaçatı Wind Power

POWER

BO Projects (5)

Gebze Natural Gas Combined-Cycle Electricity Plant

Adapazarı Natural Gas Combined-Cycle Electricity Plant

İzmir Natural Gas Combined-Cycle Electricity Plant

Ankara Natural Gas Combined-Cycle Electricity Plant

İskenderun Thermic Plant

TOR Projects (2)

Çayırhan Thermic Plant

Hazar I-II HEP Plant

SECTORAL APPLICATIONS

TRANPORTATION

AIR TRANSPORT

Antalya Airport I. ve II. International Flights Terminal (BOT)

Atatürk Airport International Flights Terminal Building (BOT)

Milas-Bodrum Airport Terminal Building (BOT)

Dalaman Airport International Flights Terminal Building (BOT)

İzmir Adnan Menderes Airport International Flights Terminal Building (BOT)

Ankara Esenboğa Airport Domestic and International Flights Terminal Buildings (BOT)

Sabiha Gökçen Airport International Flights Terminal Building (BOT)

Atatürk Airport Domestic and International Flights Terminal Buildings (Long Term Lease)

Antalya Airport Domestic and International Flights Terminal Buildings (Long Term Lease)

Zonguldak Çaycuma Airport (Long Term Lease)

Antalya Gazipaşa Airport (Long Term Lease)

ROAD TRANSPORT

Göcek Tunnel (BOT)

Roadside Facilities on Motorways (BOT)

Gebze-Orhangazi-İzmir Motorway (İzmit Bay Crossing Included) (BOT)

SECTORAL APPLICATIONS

TRANSPORTATION

MARITIME TRANSPORT

Çanakkale Kepez Port Superstructure Facilites (BOT)

Güllük Ship Wharf (BOT)

Bodrum Passenger Wharf (BOT)

Trabzon Port (TOR)

URBAN TRANSPORT

İstanbul Strait Road Tunnel Crossing (BOT)

SECTORAL APPLICATIONS

TOURISM

Antalya Marina (BOT)

Didim Marina (BOT)

Dalaman Marina and Seabus Approaching Facility (BOT)

Fethiye Marina (BOT)

Muğla Marina (BOT)

Bodrum Turgut Reis Marina (BOT)

Kaş Marina (BOT)

Alanya Marina (BOT)

Mersin Marina (BOT)

Sığacık Marina (BOT)

Çeşme Marina (BOT)

Gazipaşa Marina (BOT)

Yalova Marina (BOT)

SECTORAL APPLICATIONS

GENERAL ADMINISTRATION

Edirne İpsala Border Gate (BOT)

Iğdır Gürbulak Border Gate (BOT)

Dereköy Border Gate (BOT)

Hatay Cilvegözü Border Gate (BOT)

Artvin Sarp Border Gate (BOT)

Şırnak Habur Border Gate (BOT)

Edirne Kapıkule Border Gate (BOT)

Edirne Hamzabeyli Border Gate (BOT)

MINING A-Kafa Ore Extraction Facility (BOT)

SECTORAL APPLICATIONS

MUNICIPAL SERVICES

İzmit Urban and Industrial Water Supply Project (BOT)

Pre-qualification for 22 projects under the law No.3996.

Municipalities utilize private finance in drinking water, sewerage, solid waste, transport and other (parking, fairs, etc) under the Law of Municipalities (No.5393)

SECTORAL APPLICATIONS

In summary;

Models: Mainly BOT, BO, Long-term Lease and Transfer of Operating Rights

Sectors: Mainly energy, transport, (especially air transport), marinas, border gates

Projects: Mainly of the central administrative bodies

Arrangements in the municipal level are relatively limited and/or of small scale.

SECTORAL APPLICATIONS

1. The piecemeal nature of the existing legislation

2. Lack of model diversity

3. Lack of quality and timely preperation of documents, due to the lack of institutional capacity, that would asses the technical, economic and financial feasibility of projects and their socio-economic costs, benefits and risks, which would effectively assist decision makers in their decisions

4. Lack of ownership by the public sector of PPP projects due to the fact that PPPs are generally financed and operated by the private sector

5. In some cases, the over-optimism that PPPs are panacea

6. Lack of experience of public officials in PPP arrangements, which include more complex processes as compared to conventional procurement methods. (Information and experience asymmetry between public and private sector)

7. Lack of a central PPP unit, which would be a center of knowledge in PPPs and in charge of appraisal, prioritization and selection of PPP projects

8. Lack of standardization of project documents (Feasibilities, contracts, guidelines, etc)

MAIN PROBLEMS FACED

Steps need to be taken,

A single framework PPP law

Building capacity within the public sector

Institutional arrangements

An administrative structure that would, Ensure the compliance of PPP projects with the National Development Plan

Objectives, Annual Programs and Sectoral Policies

Prepare guidance and standardized documents for the implementing institutions

Assist line ministries and implementers to build capacity in preparing feasibility documents

Formulate the national PPP policy

Be in charge of appraisal, evaluation, prioritization, selection and monitoring of PPP projects

Become a center of knowledge

Coordinate creating capacity in the municipal level

FOR SOLUTION…

Meeting the ever increasing infrastructure demand

Increasing the quality and effectiveness of public

services

Contribituon of private finance

Utilizing the management and organization capacity of

private sector

Technology transfer

Fast and timely realization of public investments.

INTENDED OUTCOMES

THANKS...