Concessionaire Protection To Support Infrastructure Confidence

BMI View: A new regulation under consideration in Turkey will protect concessionaires from having their contracts annulled within the first five years of the agreement, as we have seen numerous times in recent years. With the risk of cancellation reduced significantly, and the government also having introduced debt guarantees for major infrastructure projects, our view for the infrastructure sector to outperform the residential and non-residential sector in terms of growth looks set to be confirmed.

In a move to stem any potential loss of private interest in Turkey's infrastructure sector as a result of the construction industry being at the centre of large scale corruption allegations over Q114, a draft piece of regulation is being considered in the Turkish parliament which will prevent re-transfer of privatised assets to the state once a concession has been awarded. The move comes after Turkey introduced state guarantees for a number of major infrastructure projects, over fears that investors may shy away over the corruption scandal ( see 'Debt Guarantee: Implications For Infrastructure', 25 April 2014).

The new regulation will protect privatised assets for a period of five years after a contract has been awarded, preventing any disputes leading to an annulment of the agreement. The concession regulation reinforces our view that Turkey's infrastructure sector will continue to perform well over the coming years ( see 'Construction Weathers Storm, But Lasting Damage Done', 16 May 2014). Although we highlight the potential for a slowdown in residential construction ( see 'Supply-Demand Mismatch Poses Residential Downside', 03 June 2014), the infrastructure should continue to perform well. Indeed, Q114 official data shows the Turkish construction industry grew by 5.2% in real terms driven largely by major projects such as the third bridge across the Bosphorus, confirming our own forecasts of 5.3% real growth in 2014.

Infrastructure Growth Gets Further Support
Infrastructure and Residential and Non-Residential Building Industry Growth

Concessionaire Protection To Support Infrastructure Confidence

BMI View: A new regulation under consideration in Turkey will protect concessionaires from having their contracts annulled within the first five years of the agreement, as we have seen numerous times in recent years. With the risk of cancellation reduced significantly, and the government also having introduced debt guarantees for major infrastructure projects, our view for the infrastructure sector to outperform the residential and non-residential sector in terms of growth looks set to be confirmed.

In a move to stem any potential loss of private interest in Turkey's infrastructure sector as a result of the construction industry being at the centre of large scale corruption allegations over Q114, a draft piece of regulation is being considered in the Turkish parliament which will prevent re-transfer of privatised assets to the state once a concession has been awarded. The move comes after Turkey introduced state guarantees for a number of major infrastructure projects, over fears that investors may shy away over the corruption scandal ( see 'Debt Guarantee: Implications For Infrastructure', 25 April 2014).

The new regulation will protect privatised assets for a period of five years after a contract has been awarded, preventing any disputes leading to an annulment of the agreement. The concession regulation reinforces our view that Turkey's infrastructure sector will continue to perform well over the coming years ( see 'Construction Weathers Storm, But Lasting Damage Done', 16 May 2014). Although we highlight the potential for a slowdown in residential construction ( see 'Supply-Demand Mismatch Poses Residential Downside', 03 June 2014), the infrastructure should continue to perform well. Indeed, Q114 official data shows the Turkish construction industry grew by 5.2% in real terms driven largely by major projects such as the third bridge across the Bosphorus, confirming our own forecasts of 5.3% real growth in 2014.

Infrastructure Growth Gets Further Support
Infrastructure and Residential and Non-Residential Building Industry Growth

A number of key pieces of legislation have been passed in recent years which galvanised interest in Turkey's infrastructure sector, as the government looked to attract billions of dollars of investment into upgrading Turkey's energy, social and transport infrastructure. There has been much progress in the social and energy sectors. However, a number of cancelled project awards in the transport sector have created some investor uncertainty. Chief amongst these annulled projects was cancelation of the USD5.7bn Istanbul road privatisation bid (made by a Turkish-Malaysian consortium including Koc Holding, UEM Group and Gozde Girisim), which was a major blow for development for Turkey's infrastructure market ( see 'Tender U-Turn Leads To Disappointing Short Term Outlook', 27 February 2013). Other examples include the cancellation of the Tüpra?, Eti Alüminyum, the Seka, Ku?adas? and Çe?me ports projects.

With the new legislation even a court ruling will be unable to strip an asset from the concessionaire over the five year period, which considering the vulnerability of projects in Turkey to political and judicial interference and social opposition, will help to alleviate investor concerns that their projects could have a similar fate to the port concessions or Istanbul's road network.

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