A new and improved PPP regime

Author: | Published: 1 Apr 2011
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Hergüner Bilgen Özeke

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Suleyman Seba Cad. Siraevler 55, Akaretler 34357 Besiktas-Istanbul Turkey

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Kemal Mamak Mert Oguzülgen

Turkey is one of the first jurisdictions in the world to have adopted a set of laws falling under the general umbrella of public-private partnership (PPP) legislation. However, Turkey has neither PPP-specific laws nor a central PPP governmental authority. During the 1980s and 1990s, new methods of delegation – such as build-operate-transfer (BOT), build-operate (BO) and transfer of operating rights (TOR) – emerged as alternatives to the inflexible concession method, marking a distinct shift to the use of private-law contracts under which both parties enjoy equal status.

Today, the BOT model is used for many greenfield infrastructure projects in different sectors, while the concession method is still in use for the transfer of operating rights over existing publicly-owned infrastructure facilities. In the energy sector, over 30 power plants with a total established capacity of approximately 10,000MW – more than 20% of Turkey's power production capacity – have been completed under BOT and BO schemes.

Key projects in other sectors involving construction, renovation and current operation by the private sector include all of the six main airports of Turkey, numerous leading industrial ports, yachting ports, main customs service stations, highway roadside facilities and a road tunnel.

On paper, a number of sector-specific PPP laws have been available to facilitate such schemes, including the Law on Granting Authorisation to Institutions Other than the General Directorate of Highways for Construction, Maintenance and Operation of Highways (Law No 3465) and Law No 5335, among others, regarding the transfer of operation rights of airports and passenger terminals by the State Airport Authority for the transportation (roads and airports) sector, and Supplemental Clause No 7 of the Law on Health Services (Law No 3359) for the healthcare sector.

However, application of these laws has remained limited until now, and efforts are underway to effectively regulate all PPP model projects under the all-encompassing Draft PPP Law by repealing the current scattered legislation.

Despite the existence of successful BOT projects in operation – particularly airport projects and large power plants – there are weaknesses in the legal and institutional framework of Turkey's PPP model that may discourage stakeholders and thwart the categorical success of the PPP model in line with international best practices. Such hurdles facing the PPP model's comprehensive success have led the government to prepare a new PPP framework law (Draft PPP Law).

Although predicting the precise timing of its enactment is not possible, the Draft PPP Law is expected to be included on the parliamentary agenda in the current legislative year. The draft law indicates that its secondary regulation setting forth detailed provisions for implementation will be drafted by an inter-ministerial commission within six months following the release of the law.

The most recently-published version of the Draft PPP Law introduces the following key provisions:

  • PPP is defined by law for the first time. It is defined as a general model covering all sub-models, such as BOT, BO, TOR and unnamed hybrid models.
  • All laws currently in force regulating different PPP sub-models are to be revoked.
  • Provisions of Law No 4046 on Privatisation Implementations regulating the TOR method are to be deleted, thereby removing the current link between privatisation and PPP schemes.
  • Standard provisions and procedures will be applicable to all sub-models, for example the rules for starting a project, tendering, risk sharing, project assessments and dispute resolution.
  • The General Directorate of Public-Private Cooperation, a new PPP unit, is to be established within the central government. In addition to supervising public entities, the authority will assume an implementing role in the PPP project cycle. The new unit will also approve feasibility reports and project contracts.
  • The availability of the Treasury guaranty instrument for payment obligations of non-central-government contracting authorities, such as municipalities or state economic enterprises, is to continue. Although details are expected to be revealed in the secondary regulation, a new guaranty form for central government entities that is not now available is proposed in the draft.
  • The PPP model has been expanded to cover all sectors, in addition to the classic investment sectors listed in Law No 3996 on the Realisation of Certain Investments and Services within the Build-Operate-Transfer Framework, such as transportation and energy. The new PPP model is designed to cover any kind of government facility, including prisons, state hospitals and state schools.
  • Parallel to European Union legislation, competitive dialogue and negotiation methods are provided for tenders of complex PPP projects or in the event that completion of other tender methods fails.
  • Sharing project risks between public and private parties and allocating risks to the best-equipped party are established as key goals.

The new legal regime for PPPs will usher in eagerly awaited, highly useful changes to the present state of affairs. The Draft PPP Law aims to introduce a unified regulation covering all PPP model projects, which are currently regulated by disjointed pieces of legislation. The new definition of PPP will provide a more flexible approach that permits hybrid models, increasing adaptability for project-specific needs.

The new Treasury guaranty will provide a privileged payment mechanism avoiding delays for payments to be made to PPP companies by central government agencies outside the traditional payment mechanism. These and other advantages in the Draft PPP Law's key provisions will mark the dawn of a new era for the delegation of public services to the private sector in Turkey.

Kemal Mamak and Mert Oguzülgen