The Regulation on the Debt Assumption by the Undersecretariat of
Treasury (the "Regulation") has been published in the
Official Gazette, numbered 28977, dated 19 April 2014 upon the
Decree (No.2014/6217) of the Council of Ministers, regarding the
public private partnership projects to be carried out by the public
administrations with general budget and administrations with
special budgets within the framework of Law No. 3996 on Procurement
of Certain Investments and Services through Build-Operate-Transfer
Model, Law No. 6428 on the Construction and Renovation of
Facilities and Procurement of Services through the Public Private
Cooperation Model by the Ministry of Health and the Amendment of
Certain Laws and Decree Laws and the Decree Law No. 652 on the
Organisation and Duties of the Ministry of Education, provided that
the investments values of these projects exceed certain limits.
As a general condition, the relevant project agreement should
include provisions regarding the termination of the agreement
before the end of its term and the takeover of the facilities by
the relevant administrations
Although many of the principles and procedures set forth under
the Regulation were already applied in practise, they are now
regulated through the provisions of the Regulation. These
principals can be summarized as below;
Pursuant to the Regulation, the scope, limits, and payment
conditions of the financial obligations subject to the debt
assumption including those arising from the derivative instruments
for the obtaining of such financing have been determined.
Accordingly, a minumum investment value of 500 million Turkish
Liras has been foreseen for the projects under the Law numbered
6428 on the Construction and Renovation of Facilities and
Procurement of Services through the Public Private Cooperation
Model by the Ministry of Health and the Amendment of Certain Laws
and Decree Laws and the Decree Law numbered 652 on the Organisation
and Duties of the Ministry of Education; and a minimum investment
value of 1 billion Turkish Liras has been foreseen for the projects
under the Law numbered 3996 on Procurement of Certain Investments
and Services through Build-Operate-Transfer Model.
In case any investment amount is determined under a foreign
currency, the Turkish Lira equivalent of such amount shall be
calculated by taking into account the average currency rate in the
relevant investment programme of that year.
In case of the termination of the project agreement caused by
the project company's default, the debt assumption provided by
the Treasury shall cover 85% of the principal loan amount and in
case of termination of the agreement due to any reason other than
the fault of the project company, the debt assumption undertaking
shall cover the 100% of the principal loan amount and all financing
The limits for the derivative costs shall be determined by the
Treasury in a manner that does not exceed 10% of the principal
amount taking the maturity date of the principal loan and the
structure of the derivative instrument into consideration. The
derivative costs included within the financing costs may not exceed
the abovementioned derivative cost limit.
Regardless of the termination cause of the agreement, in order
for the Treasury to assume the principal amount, the default
interest and financing costs which were not paid on due date as a
result of the default of the project company, the shareholders of
the Company should provide a joint and several surety (kefalet) to
the Treasury, in the amount of at least 110% of the highest
repayment amount payable to the creditor under the principal
Furthermore, the following conditions should be fullfilled in
order for the Treasury to undertake the debt assumption: (i) the
relevant authority should not have any overdue obligation
vis-à-vis the Treasury, (ii) the debt assumption should
remain within the limit of the debt assumption undertaking limit of
the relevant year, and (iii) the project agreement should refer to
the the debt assumption clearly and should include certain
provisions set forth in the Regulation.
The yearly limits for debt assumption will be determined by the
Law on Central Administration Budget within the relevant fiscal
term. Council of Ministers shall have authority to increase such
limit up to one time upon the request of the Minister.
The project companies should obtain an external financing
number by making an application to the Treasury before the drawdown
of the principal loan. The project companies which already executed
a debt assumption agreement should apply to the Treasury to obtain
an external financing number within 15 business days as of the
publication of the Regulation.
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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