PPP's in General
There are numerous ways in which the private sector may invest in public infrastructure. Depending on the level of risk, the variety of arrangements range from public procurement (where a contractor does not assume any project risk) to privatization (where public assets or shares in a public company are acquired by an investor assuming all the risks). The most complex arrangements lie between procurement and privatization. The volume and number of public private partnerships (PPP's) have increased significantly globally since 1990s.
A PPP is a contractual agreement between a public sector agency and a private sector entity. By way of this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the utilization of the public. In addition to sharing of resources, each party shares in the potential risks and rewards in the delivery of such service and/or facility. The UK was the first to take concrete steps to create exemplary PPP models. . This was mostly due to establishing PPP models and Private Finance Initiative (PFI), by mitigating the obstacles that would cause the private sector not to get involved in public sector affairs.
The benefits of PPP's in general is to provide high quality public services effectively and cost efficiently avoiding extending construction time and to remove cost increases frequently encountered in projects executed in the public sector. The benefits of PPP's for the public sector are; (i) to provide a new opportunity in public financing,(ii) to direct the private sector to areas where social benefit is high, (iii) to benefit from the correct determination of market needs,(v)to put resources into effective use, (vi) and to share joint liability with the private sector and to benefit from a more correct analysis of the risks in providing services. The benefits of PPP's for the private sector is to reduce the commercial risks and to make use of public sources.
PPP's in Turkey
There are various PPP models that are implemented. Some of the PPP models are as follows:
The implementation of concessions in Turkey dates back to the Ottoman Empire and the Law of Concessions Regarding Public Benefit (Menfaii Umumiyeye Müteallik İmtiyaz Hakkında Kanun) which was enacted in 1910 still remains in effect as the foundation for legislation for the granting of concessions to the private sector in Turkey.
During the 1980's in Turkey, certain PPP models became prominent increasing the role of the private sector in the economy. From 1980 onwards, several legislations were enacted in Turkey with regard to the PPP's, as follows:
Difficulties Encountered by Previous PPP Schemes
The main problems that were encountered upon implementation of the PPP projects based on the above schemes were; (i) lack of political, economical, legal stability; (ii) the lack of experience of the public sector in drafting the PPP agreements and different applications by the public sector entities; and (iii) unbalanced risk distribution between the public and the private sector.
Furthermore, from the structural standpoint, despite some successful PPP applications, several issues were also noticed in the implementation of the PPP models in Turkey. These were; (i) limited number of the PPP models in the existing legislation, (ii) lack of harmonization in the PPP legislation, (iii) the absence of a single responsible state authority governing PPP Projects.
Draft PPP Law
In order to overcome the structural difficulties, a study was conducted by the State Planning Organization (SPO). Following these studies, the draft PPP Law (Draft PPP Law) has been prepared and posted on the web-site of SPO for further review and comments.
The major points concerning the Draft PPP Law are as follows:
The implementation agreement to be entered into by and between the winning bidder and the administration will be subject to private law. The term of the implementation agreement shall not be longer than 49 years. The material provisions of the implementation agreement, such as guarantee types, operating term, costs, financing conditions, tariffs, lease amounts, etc. cannot be amended against the interest of the administration. On the occurrence of force majeure conditions, amendments to the implementation agreements in favor of the administration require the approval of HPC.
Immaterial changes will be concluded between the administration and the assigned company. The penal sanctions in case of non-fulfillment of obligations by the assigned company against the administration and consumers, breach of the terms of the implementation contract, bankruptcy, composition with the creditors and insolvency will be determined in the implementation agreement. The administration has the right to take and implement the necessary precautions for the continuation of the public service upon the termination of the implementation agreement. The disputes will be resolved under Turkish law and the Turkish courts will have competence to resolve the disputes. The parties may agree that the disputes will be resolved by arbitration under Turkish law.
The key to successful PPP's in Turkey
To summarize, the following needs to be made for a successful PPP application in Turkey:
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.