Turkey: Possibility of Arbitration in Turkish PPP Projects

Public Private Partnership ("PPP") is described as the collaboration of public and private sector entities, in order to provide public services that are traditionally provided by the state. PPPs are mostly used for the construction and operation of major infrastructure facilities (e.g. power plants, motorways and hospitals). The purpose of PPPs is to ensure the financing, design, implementation and operation of infrastructure facilities through the allocation of: (i) resources, (ii) risks, (iii) rewards, and (iv) responsibilities.


1. Build – Operate – Transfer ("BOT")

The first PPP model introduced into Turkish legislation was the BOT model. BOT is a PPP model where a facility is built, financed and operated by the private sector. The constructed facility is transferred to the relevant public authority after the private entity's operation term. During the operation term, the revenues generated are used to repay a large part of the financing. BOTs are more commonly implemented in complicated long term projects such as (i) highway constructions, (ii) airport constructions and (iii) power plants. Sabiha Gökçen Airport International Terminal and Atatürk Airport International Terminal are two of the most notable BOT projects in Turkey, in addition to many hydroelectric power plants. Laws No. 30961, 3465,2 and 39963 deal with the implementation of BOT projects in Turkey.

2. Build – Operate ("BO")

In the BO model, a facility is also built and operated by the private sector. The difference between the BO model and BOT model is that in a BO project, the facility's ownership is not transferred to the relevant public authority at the end of the operation term. This model is commonly implemented in power plant facilities. The İskenderun Thermic Power Plant is one of the most notable BO projects aside from a few natural gas combined cycle electricity plants. Law No. 42834 governs the implementation of the BO model for the construction and operation of thermic power plants.5

3. Transfer of Operation Rights ("TOR")

In this model, the public authority transfers the operation right of an infrastructure facility to the private sector, for a certain period, in return for an agreed price. Proprietary rights are not transferred to the private entity. Ownership remains with the state. This model is commonly implemented in power plant facilities and ports. Sabiha Gökçen Airport and İzmir Adnan Menderes Airport are two of the most notable TOR projects in addition to many power plants and ports. Laws No. 4046,6 5335,7 3465,8 and 3096 deal with the implementation of the TOR model.

4. Build – Lease ("BL")

In the BL model, the private sector finances and builds a facility and subsequently leases this facility to the relevant public authority. The state provides the public service. The infrastructure facility is leased for maximum of 49 years and, during the lease period, the public authority pays a lease fee to the private investor and operates the facility. The private investor sometimes transfers the facility's ownership to the public authority at the end of the lease period. This model is more commonly used for healthcare facilities (e.g. Bilkent Health Complex and İkitelli Health Complex).9 Article 20 of Law No. 35110 and Article 23 of Decree Law No. 65211 govern the implementation of BL projects.

5. Build – Lease – Transfer ("BLT")

On 9 March 2013, the BLT model was introduced into Turkish legislation by Law No. 6428,12 commonly known as the City Hospitals Law. This model will be used for healthcare facilities. In this model, the private sector is given a right of construction (üst hakkı) over the Treasury's immovable property, for a maximum of 30 years. The hospital will be built by the private sector and the private sector will lease the hospital for 30 years and operate it during this period.13 At the end of lease term, the facility on the immovable will automatically be transferred to the Treasury.

It is worth emphasizing that although the above listed PPP models are the most common PPP models used in Turkey, as PPP contracts are subject to private law provisions (as will be explained below), parties can create a whole new PPP model, within the framework of their freedom of contract.


In Turkey, PPP contracts were born as a derivative of traditional concession agreements, which are subject to public law and the Council of State's review. Due to the nature of traditional concession agreements, the private sector (particularly foreign investors) did not want to invest in public services. This lack of investment was preventing or delaying the realization of certain critical infrastructure facilities and projects. In order to attract more private investment, the state decided to grant private law agreement options to public services, instead of traditional concession agreements. In 1999, after prolonged legal discussions regarding the legal regime of PPP models, changes were made in the Turkish Constitution. Private law agreement options were permitted for public services:

"Investments and services carried out by the State, state economic enterprises and other public corporate bodies that can be performed by or delegated to persons or corporate bodies through private law contracts shall be determined by law."14
"Disputes arising from concession contracts and agreements regarding public services may be settled by national or international arbitration. Only those disputes involving an element of foreignness may be submitted to international arbitration."15

With these amendments to the Constitution, the Turkish Parliament put an end to doubts regarding the possibility of arbitration in disputes arising from PPP contracts. Furthermore, most of the laws governing the use of different PPP models permit the application of arbitration to the relevant PPP model, by stipulating that (i) the relevant PPP contract is subject to private law provisions or that (ii) the parties can freely agree on settling disputes through arbitration.16

Furthermore, Turkey has ratified many bilateral and multilateral investment agreements regarding the protection of investments. Turkey is party to the Convention on the Settlement of Investment Disputes (ICSID Convention). These agreements also allow for the settlement of disputes through arbitration.


In November 2007, the State Planning Organization prepared a draft PPP law (the "Draft Law"). Although it has been more than six years, the Draft Law has not yet been brought to the Turkish Parliament's agenda. Since 2007, some of the changes contemplated in the Draft Law have been implemented through amendments made to various current laws.

If enacted, the Draft Law will combine all PPP related legislation and abolish the current legislation.17 The Draft Law's significant features are as follows:

  • It defines PPP models as investment models where the public and private sectors share the costs, risks and rewards in delivering a service or facility to the public.
  • PPP is defined as a general model covering all sub-models such as BOT, BO, TOR and BL.
  • The scope of the Draft Law includes agriculture, irrigation, mining, manufacturing, energy, transportation, communication, information technology, tourism, real estate, municipal services, health, security, general administration infrastructure investments and services.
  • Public administrations can only execute PPP models that fall within their fields of activity.
  • It specifies the authorization and tender processes in detail.
  • The Draft Law stipulates that the governing law of implementation contracts must be Turkish law.
  • It expressly permits arbitration.
  • Private investors must incorporate a Turkish joint stock corporation.
  • Public authorities can enter into partnerships with private investors. However, the public authority's share in the partnership cannot exceed 49%.
  • New guarantee mechanisms are made available.18
  • It provides for the formation of the Public and Private Partnership General Directorate.

At this stage, we cannot foresee a time schedule for the Draft Law's enactment. However, regardless of whether or not the Draft Law is passed, most contracts related to PPPs may already stipulate for an arbitration clause. We believe that the passage of the Draft Law will also increase investment (especially foreign) due to new guarantee mechanisms.


1 Law No. 3096 on the Generation, Transmission, Distribution and Trade of Electricity by Third Parties Other than the Turkish Electricity Authority was published in the Official Gazette dated 19 December 1984 and numbered 18610.

2 Law No. 3465 on the Construction, Maintenance and Operation of Highways was published in the Official Gazette dated 2 June 1988 and numbered 19830.

3 Law No. 3996 on the Realization of Certain Projects under the Build-Operate-Transfer Model was published in the Official Gazette dated 13 June 1994 and numbered 21959.

4 Law No. 4283 on the Establishment and Operation of Electricity Generation Plants and Energy Sales under the Build-Operate Model was published in the Official Gazette dated 19 July 1997 and numbered 23054.

5 Under Article 1 of the Law No. 4283, hydroelectric, geothermal, nuclear plants and the plants using other renewable energy resources are outside the scope of this law.

6 Law No. 4046 on Privatization was published in the Official Gazette dated 27 November 1994 and numbered 22124.

7 Law No. 5335 regarding the transfer of operation rights of airports and passenger terminals by the State Airports Authority was published in the Official Gazette dated 27 April 2005 and numbered 25798.

8 Law No. 3465 on the Construction, Maintenance and Operation of Highways was published in the Official Gazette dated 2 June 1998 and numbered 19830.

9 These projects are in the construction phase.

10 Law No. 351 on Higher Education, Loan and Hostels Institution was published in the Official Gazette dated 17 August 1961 and numbered 10883.

11 Law No. 652 on the Organization and Duties of the Ministry of National Education was published in the Official Gazette dated 14 September 2011 and numbered 28054.

12 Law No. 6428 on the Construction and Renewal of Facilities under the PPP Model by the Ministry of Health was published in the Official Gazette dated 9 March 2013 and numbered 28582.

13 The Ministry of Health provides the health services.

14 Last paragraph of Article 47 of the Constitution of Turkish Republic.

15 First paragraph of Article 125 of the Constitution of Turkish Republic.

16 Under Article 5 of the Law No. 3996, agreements to be executed between a public authority designated by the High Planning Council and private companies are subject to private law provisions. On the other hand, Under Article 4/11 of the City Hospitals Law, the parties can decide that disputes will be settled within framework of the International Arbitration Law, although the applicable law must be Turkish law, and the arbitration proceeding must be held in Turkey.

17 If enacted, the Draft Law will abolish (i) Law No. 3096, (ii) Law No. 3465, (iii) Law No. 3996, (iv) Law No. 4283, (v) certain provisions of Law No. 4046 and (vi) Article 33 of the Law No. 5335.

18 Guarantee mechanisms include:

i) payment guarantee by Treasury or Ministry of Finance,
ii) purchase guarantee by Treasury or Ministry of Finance under some circumstances, and
iii) guarantee to financial institutions for repayment of financing.

© Kolcuoğlu Demirkan Attorneys at Law, 2014

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.

Okan Demirkan
Burak Eryiğit
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”

Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.