Various government agencies initiating tender processes (the "Administration") have been including in their tender specifications statements such as certain price discounts to local bidders.
Violation of the FDI Law
A discount in the tender price for local bidders, which is clearly incentivising local bidders to bid in the tender, is a clear violation of the Foreign Direct Investment Law numbered 4875 (the "FDI Law"). Article 3/a-1 of the FDI Law explicitly states that foreign investors shall be subject to national treatment (milli muamele) which is defined in the same article as a treatment under the same conditions as local investors.
This provides the foreign investor with the opportunity to request from the relevant Administration to revise the tender specifications in line with the FDI Law. In the event that the Administration refuses to do so, the investor may request from the courts to cancel the tender. In case the court finds the clause in the relevant tender specifications to be against the law, it may cancel the tender, after which the relevant Administration is free to revise the specifications and initiate the tender once more, but without the prejudicial discount that was the ground for the cancellation. Alternatively, the court has the freedom to partially cancel the tender. In other words, if the court finds that the entirety of the tender may continue without the prejudicial clause and the specifications need not to be revised in their entirety, the court need not cancel the tender but has the option to sever the prejudicial clause from the specifications.
Violation of the BITs
Under international law, the prejudicial clause is also a violation of BITs between the Republic of Turkey and a number of other countries. Most BITs to which the Republic of Turkey is a party contain national treatment and most favoured nation clauses (en çok kayrılan ulus kaydı). A violation of this clause in a BIT is a violation of Turkish law and recourses are available to investors in arbitration.
Violation of Competition Law
A prejudicial discount to one particular group of bidders may also be in violation of the Competition Law and be subject to separate sanctions. Article 6 of the Competition Law forbids prejudicial pricing in the event the enterprise applying the pricing is in a dominant position in the market. Therefore, an examination on a case by case basis must be made of the enterprise in question for a proper legal analysis.
The prejudicial pricing clause in question was found in the tender initiated by the Turkish Electricity Transmission Company ("TEİAŞ") which had initiated a tender for its installation works for one of its substations (the "Tender"). The market that TEİAŞ operates in is the Turkish electricity transmission market in which TEİAŞ is a monopoly. A landmark decision of the Turkish Competition Authority states that an enterprise that is a monopoly in the upstream market is considered to be in a dominant position and any prejudicial pricing in the end market may be considered an abuse of such dominant position. TEİAŞ is enforcing a prejudicial pricing that benefits one group within the end market and may therefore be regarded as abusing its dominant position. Accordingly, the sanctions under the Competition Law may apply.
The Competition Authority determines the existence of such violation (either ex officio or by an application by the investors) and has the power to levy large amounts of fines on the abuser (Article 16) as well as to reverse the violation (Article 9). This avenue is also open to investors.
Conclusion
Prejudicial pricing in tender processes is against Turkish law. A State enterprise or authority should not be allowed to tamper with the market in a way that favours one group of bidders only.
This is a dangerous trend and we hope that investors will take the necessary steps in reversing and restoring the principles of equal treatment between local and foreign companies investing in the Turkish market.
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