Turkey: Port Operation in Turkey: An Overview of Applicable Legislation

Over the last decade, the operation of port facilities has been among the top investment opportunities in Turkey, attracting the attention of both local and foreign investors. This comes as no surprise given the country's long coastlines covering major international transportation routes. Sixteen ports have been privatized by the State in the past seventeen years, and privatization transactions concerning some ports (e.g. İskenderun, Bandırma and Samsun) have also been accompanied by transfer operations among private parties (e.g. Antalya port has been the subject of private commercial transactional activity since its privatization in 1998).

Transfer operations involving the ports of Turkey exhibit certain qualities that differentiate them transactionally from ordinary share or asset transfer deals. This is due mainly to the fact that the core of these transactions has dealt with the transfer of rights related to the land upon which the port facilities were constructed, as well as the transfer of licenses specific to operating a port in Turkey. These qualities stem from the fact that Turkey's coastal areas are either state-owned or subject to the state's right of disposal by virtue of the Turkish Constitution. Acquiring entities holding port operation rights cannot thus enjoy ownership rights with respect to the port itself, and can only benefit from servitude or utilization rights over the land subject to conditions that are, to a great extent, pre-defined in the applicable legislation.

The following is a summary of the transfer regime applicable to the rights and licenses that are required for the operation of a port business in Turkey.

Transfer of Licenses Specific to a Port Business

Main Licenses

Under the port legislation, in order to operate a port in Turkey, an entity should either carry a permanent or a temporary port operation license.1 Temporary port operation licenses are granted for a period of six to twelve months to cover the period until the finalization of the port construction. Both licenses are transferrable to third parties, provided that the rights related to the land on which the port facilities are located are also transferred to the party acquiring the operation license. The Maritime Undersecretariat must be notified of any transfer involving the port operation license or the temporary port operation license within one month from finalization of the related transfer.

Ancillary Licenses

Apart from the main licenses, there are certain ancillary licenses that may be required in connection with a port business in Turkey depending on the nature of the activities to be carried out in the port facility. For example, security certificates must be obtained if services will be provided to specific types of vessels in the facility (e.g. vessels carrying cargo weighing 500 gross tons or more). Transfer of the related port business will require reissuance of the security certificate in favour of the acquiring party. If the entities are willing to operate a bonded warehouse in the related facility, this will require acquisition of a bonded warehouse certificate from the Undersecretariat of Customs. Such certificate may be transferred to third parties provided that the approval of the Undersecretariat of Customs is obtained. On the other hand, pilotage and tugging business permits that must be obtained in order to provide piloting and tugging services cannot be transferred to another entity, and no entity with a foreign shareholder may apply for such a permit.

Transfer of Rights to Land on Which Port Facilities Are Constructed

Rights related to coastal land

Since coastal land in Turkey is subject to either ownership or disposal rights of the state, private entities cannot acquire ownership of the related land, but may only benefit from either servitude2 or usage rights over it.3 Such rights may be transferred to third parties as part of a transaction involving the transfer of the related port business, provided that the Ministry of Finance's approval for such transfer is secured. It is noteworthy that even if the entity holding the related rights remains the same, any transaction concerning the transfer of 50% or more of the shares of the related entity will require the approval of the Ministry of Finance. Although the servitude and usage rights may be transferred to third parties subject to ministerial approval, such transfer will still require the acquiring party to execute a new deed, and the Ministry of Finance may impose new conditions distinct from those set forth in the original deed.

Rights related to forestry

According to the Forestry Law, entities are entitled to benefit from forestry for the establishment of facilities providing, among others, transportation services. Use of the forestland requires the issuance of a preliminary forestry permit that will be granted for a term of two years, and which must be replaced with a forestry permit before its term expires. Such permits are granted by the Ministry of the Environment and Forestry. The forestry permit may be transferred to third parties with the approval of the Ministry of Environment and Forestry, and the acquiring party must execute a letter of undertaking in that respect. However, the preliminary forestry permit cannot be transferred.

Expected Transactions

According to the news, the State plans to make additional investments in some of the ports for which the privatization process could not be finalized. An additional investment of $300 million will be devoted to İzmir Port, which was acquired by neither of the two second-highest bidders in the tender launched in summer 2007. Finalization of most of the investments is planned in March 2011 increasing the yearly cargo capacity of the port to 2.5 million TEU. Based on the statements of Transportation Minister Binali Yıldırım, a new tender will be launched for the privatization of İzmir Port, although the exact date has not been announced. It is hoped that the second privatization process for İzmir Port will share the same destiny as İskenderun Port, the acquisition of which by the highest bidder could not be finalized as a result of the tender launched in 2005 due to the court order. However, in the second tender launched in September 2010, the port has attracted a bid four times higher than the highest bid made in the first tender.

Footnotes

1. The requirements to obtain a port operation license as well as the related procedures are set forth in the Regulation on the Procedures for Granting Operation Licenses for Coastal Facilities, published in the Official Gazette dated 18 February 2007 and numbered 26438.

2. The state may grant servitude rights regarding the land subject to the state's ownership right, whereas utilization rights may be granted over the land subject to the disposal right of the state.

3. The issuance of the related rights as well as the applicable transfer procedures are regulated under the Regulation on the Utilization of Immovable Property Owned by the Treasury and Communiqué No. 324 issued by the General Directorate of National Real Estate of the Ministry of Finance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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