Turkey: A Strong Financial And Political Tool In Turkey: Privatization

Last Updated: 7 July 2011

In parallel with the drastic changes in the Turkish economy, Turkish government initiated a comprehensive privatization program in 1980's. Since then, privatization has always been in the agenda of Turkish governments.

The legal basis of privatization originates from the Turkish Constitution. Further, Turkey's Privatization Act No.4046 (the Privatization Act) is the main law introducing principles and rules regarding privatization.

Being a strong financial and political tool in Turkish practice, privatization has been subjected to strict scrutiny by the judicial system. In certain cases, (e.g. privatization of sugar factories and Galataport), such scrutiny has been strongly criticized on the basis that it slows down privatization efforts and the financial and sociological restructuring in Turkey accordingly. Yet, the Turkish government's commitment to proceed with privatization is an ongoing one and underlines its legal basis.

Below, we set out our comments on privatization under Turkish law.

I. Privatization under the Turkish Constitution

Privatization was not openly mentioned in the Turkish Constitution until the 1999 amendment. However, even before the 1999 amendment, Turkey's Constitutional Court was recognizing privatization as a legitimate financial tool at the disposal of the government as long as it was subjected to detailed legislative statutes. Therefore, when Article 47 of the Constitution was amended in 1999 to include "privatization", what had already been recognized by the judiciary was cemented.

Article 47 does not include any criteria as to which public services fall within the legal scope of privatization and which do not. Some Turkish scholars argue that certain articles of the Constitution assigning certain public services (e.g. education, social security) to "the State" or "the Administration" cannot be privatized. This has so far been a "theoretical debate" since there is no judicial precedent declaring any legislative statute "unconstitutional" on the basis that it opens up areas and services to privatization that are not allowed by the Constitution.

II. The definition of privatization under Turkish Law

In principle, privatization's major objective is to convert "public" assets into "private" ones by transferring their "ownership" to private entities. However, the Privatization Act does not limit the exercise of privatization to ownership transfer and for example, labels the "grant of operational rights" as privatization too. When, for instance, a highway's "operational rights" are "privatized" under the Privatization Act, this would not include the transfer of the highway's ownership. The highway itself would remain as "public domain", but the holder of operational rights would be entitled to take initiative as if it were the "owner" under the supervision of the relevant authority (i.e. the Ministry of Transportation and the General Directorate of Highways). Accordingly, at the end of the authorization period, the private entity (i.e. holder of operational rights) would be required to "return" the highway both physically and legally without receiving any payment from the Government.1

III. Privatization step-by-step

Below, we set out the privatization methods step-by-step.

The making of the privatization decision - The Privatization High Council (the PHC), a decision-making body positioned within the central administration of Turkey is chaired by the Prime Minister. The PHC has four other minister members of the Prime Minister's choice. The PHC decides which public services should be privatized-meaning they should be added to the privatization program carried out by the Privatization Administration (the PA). Once the PHC decides, the relevant public agency is required to start the procurement process under the supervision of the PA as determined by the PHC.

Procurement starts - The relevant public agency (e.g. the General Directorate of Highways) forms a "procurement commission" (the Commission) to execute the PHC's specific privatization decision. The procurement process starts with an official announcement inviting the potential bidders to the tender.

Privatization methods – The Privatization Act lists a number of privatization methods:

  • sales;
  • lease;
  • grant of operational rights;
  • establishment of property rights other than ownership; and
  • profit sharing model.

Candidates compete – The Privatization Act contains various tender methods such as:

  • closed bidding,
  • bargaining,
  • public auction,
  • closed bidding among designated bidders.

On the methods other than sales –including the grant of operational rights- the relevant public agency's discretion is limited. The agency may either choose the "bargaining" or "public auction method", by considering the attributes and properties of the organization in the scope of privatization, characteristics of the services offered and structure and legal status thereof.2

The winner is announced - At the end of the procurement process, the Commission announces its decision as to which bid is chosen. This decision does not become effective unless approved by the PHC.

The Contract is signed - After receiving the PHC's approval, the agency invites the winning bidder to sign the contract including all the details of the relevant privatization (the Contract). Signing of the Contract officially ends the procurement phase and according to the timeframe stated in the procurement announcement, the winner becomes entitled to take over the management of the facility, or the ownership of certain properties, etc., depending on the substance of the procurement.

IV. Judicial review and arbitration

Turkey has a separate body of "administrative courts" independent of "the courts of general jurisdiction". Administrative courts deal with "administrative decisions and actions" stemming from bureaucracy. Administrative decisions are "unilateral" which explains their fundamental difference compared to contracts. Every dispute which is "administrative" in nature falls within the jurisdiction of the administrative courts. (Courts of general jurisdiction, on the other hand, deal with civil law and criminal cases.)

The privatization process is completely "administrative", meaning that starting with the decision of the PHC to privatize a certain public corporate body or a public service activity, all decisions granted by the PA and the relevant agency may be taken to the administrative courts in the form of an "annulment lawsuit". The contract is also"administrative" regarding the privatization of existing highways limited to the granting of operational rights. The Act on the Establishment and Duties of the General Directorate of Highways No.6001 describes these types of contracts as "concession", which is openly stated in Article 155 of the Constitution laying down the foundations of the administrative judiciary. Therefore, any disputes arising from a "concession contract" will have to be taken to an administrative court.

On the other hand, Act No.45013 and Act No.46864 permit the administration to recognize the arbitration right as the sole judicial review condition in the Contract. Although not mandatory and perfectly within the discretion of the PHC, privatization projects with considerable financial value usually force the Government to recognize "international arbitration" and waive national administrative courts' jurisdiction in order to make the contract "attractive" to foreign investors. International arbitrators' approach to these contracts is to treat them as a "relationship among equals" unlike Turkish administrative courts putting the administration to a superior position. Thus, concession contracts' administrative "label" does not have any significant legal impact in favour of the administration on the outcome of an arbitration case.

Footnotes

1. Turkish law makes an important distinction between the "operating" of already-existing highways and the "building and operating" of new ones. Transferring the existing highways' operational rights to private parties is subjected to the privatization process. Building and operating new highways has a different legal procedure authorizing the Ministry of Transportation and the General Directorate of Highways to make administrative decisions not dependent on the approval of the PA. The latter also authorizes the administration to follow the "Build-Operate-Transfer" procedure which subjects the contract to be signed by the administration and the private party to "private law" once the procurement phase is completed.

2. The Bargaining Method: The procurement process may be commenced by inviting more than one bidder to submit their proposals in enclosed envelopes. More than one bargaining session may be held with the bidders and these are conducted separately with each bidder. At any stage of the bargaining, the Commission may decide to hold joint bargaining with the bidders. During the bargaining process, in response to new conditions emerged, the Commission may stipulate new principles provided they do not cause any unfair competition, do not contradict the basic principles of the invitation to bidders and/or procurement specifications and are applied to all bidders on equal treatment basis. If deemed necessary by the Commission, the procurement may be finalized by the public auction method upon participation of the bidders involved in the bargaining. This is pre-announced in the invitation to the bidders and/or the procurement specifications. The proceedings are taken under memorandum by the Commission, which is later endorsed by the commission members and the bidders.

"The Public Auction Method": Only bidders having submitted the required temporary bid bond and pre-qualified by the Commission which regard to the conditions of eligibility as announced in the invitation to bidders may participate in the public auction. The initial value and the minimum increments at each stage of the public auction shall be determined by the Commission. The duration of the public auction shall be determined by the Commission and conveyed to the bidders before the auction. This duration may be extended once only, and only on the condition that it does not exceed half the previous duration time if the Commission deems fit. All proceedings and bidding orders shall be recorded by the Commission in the presence of the bidders. The public auction shall continue if proposals received are at the same level or are higher than the initial proposed value. The bidders shall submit their new proposals in order to go over the previous offer. If, in consequence, no new proposals are submitted, the chairman of the Commission shall announce three times that the procurement is to be concluded on the last proposal received. If there are no new proposals submitted notwithstanding the announcement, the public auction shall be concluded. The auction proceedings are recorded in a memorandum endorsed by the Commission members and the bidders.

3. Act on Principles to be Followed in the Event that Arbitration is Resorted Regarding the Disputes Arising from Concession Agreements on Public Services No.4501.

4. Act on International Arbitration No.4686.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions