Being one of the world's most rapidly emerging countries, at
least economically, Turkey has been adopting investment-friendly
legislation for quite some time, in order to attract more
(particularly foreign) investment. On the last day of 2014, Turkey
enacted the new Regulation on the Principles and Procedures
Applicable for Assumption of Treasury Guaranteed Obligations (the
"New Regulation"). The New Regulation
abolished the former Regulation on Treasury Guarantees of 2002 (the
"Former Regulation") after 12 years.
Under the New Regulation, the primary liability for fulfilling
obligations lies with the principal debtor, being the relevant
Turkish administrative authority or state-owned entity in charge of
a particular infrastructure investment project. The principal
debtor will be obliged to (i) plan the repayment of debts (when
due) guaranteed by the Treasury and (ii) reserve these amounts in
its yearly budget with priority. Provided that the debtor reserves
the necessary amounts, it will be able to request the Treasury to
(fully or partially) assume its obligations, if the debtor is
financially incapable of fulfilling its obligations due to
unexpected cash flow problems.
If the Treasury assumes obligations on behalf of provincial
special administrations (il özel idareleri),
metropolitan municipalities, municipalities and their affiliates,
having independent budgets and public legal personality, these
institutions will be joint guarantors, along with the Treasury. If
the Treasury assumes obligations on behalf of state economic
enterprises or their affiliates, then the relevant state economic
enterprises will be joint guarantors.
Similarly with the Former Regulation, the New Regulation
stipulates provisions regarding the Treasury's supervision and
the principal debtors' liability. The Treasury can conduct
audits in order to (i) confirm the authenticity of information
provided by the debtor and (ii) determine whether or not the
Treasury guarantee is being used properly.
There are two significant differences between the New Regulation
and the Former Regulation:
Both regulations provide that debtors are primarily liable for
the fulfillment of their obligations, even if the obligations are
guaranteed by the Treasury. However, while the Former Regulation
provided an exception to this general rule through a clause
"except for situations that the Treasury
approves", the New Regulation does not contain this
clause. Accordingly, this exception is now abolished.
This change is considered as a
positive one, preventing debtors to put pressure on the Treasury to
create exceptions for their duty of fulfilling their own
obligations and making them to plan their actions beforehand.
The New Regulation provides a specific clause regarding the
assumption of foreign state obligations guaranteed by the Treasury.
The Former Regulation did not have such a clause. Although the law
constituting the basis for the New Regulation (i.e. Law No. 4749 on
Public Financing and Regulation of Debt Management1)
stipulates provisions regarding "Treasury State
Guarantees", and enables this subject to be regulated, this
provision attracted heavy criticism, on the ground that providing
guarantees for foreign states is extremely risky, as there is no
way of taking such guarantees back once they are given.
The New Regulation was enacted five days after the enactment of
the Regulation on the Principles and Procedures Regarding External
Financing within the Scope of Law No. 4749.2 Enacting
two regulations within such a short timeframe shows the Turkish
government's eagerness to attract new investors for new
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