Cancellation debate in privatization

Cancellation debate in privatization

Prime Minister Recep Tayyip Erdoğan’s statement saying the most recent two major privatization tenders may be cancelled put the spotlight on privatization again. Debate was heated on these topics, such as whether the prices pronounced in privatization bids were high or low, how this can be determined, how these cancellations would affect privatization tenders – especially the interest of foreigners in tenders – and where the revenue raised by privatization should be used. At the center of the debate, though, is the highway tender that was held at the end of last year that corresponds to the sale of the revenues of the 2nd Bosphorus Bridge and connection highways for 25 years. In that tender, whether the highest price bid by a consortium – $5.7 billion – was suitable or not is being debated.

When the tender was held, this price was not debated much; however, Erdoğan’s words on the possible cancellation heated the debate on the price.

We know that officials from the Privatization Authority, Deputy Prime Minister Ali Babacan and Finance Minister Mehmet Şimşek, find the price suitable. Moreover, Finance Minister Şimşek, who is also responsible for privatization, said in a statement he made before Erdoğan’s words that when the net income was viewed, the highest bidding price would cover the revenue of 27 years, in other words a very suitable price.

The factor in the prime minister finding this price low has been the report prepared by the General Directorate of Highways that said this price should have been much higher. We know that this report was discussed last month in a meeting attended by the minister and his bureaucrats and that the calculations this institution made were also found extremely exaggerated by other ministers.

After the PM’s words on cancellation, we see that the ministers and the bureaucrats are now silent and in a position of not being able to defend the tender. This also demonstrates that at the High Board of Privatization, what the prime minister has said will become a decision.

Indirect results of the cancellation
Well, what will happen if there is a cancellation decision? When we talked to privatization officials, they said if there was a cancellation, it would be very difficult to organize this tender again. They pointed out that among other firms that participated in the tender there were also experts in the relevant field, and that their bids were way below the highest bid of $5.7 billion. Consequently, if there was a new tender organized, it would be very difficult to go beyond this price.

It is obvious that the revenue expected from this will be missed out. However, beyond that, it is a concern that these cancellations would totally disrupt the privatization move. When the price that originates in tenders are not accepted, then there will be no belief in tenders, it is being said. They are also saying that major national and international firms that spend huge amounts to participate in the tender, moreover, that start searching for finances, will now be reluctant to participate in tenders.

Where the revenue raised from privatization should be spent is a never-ending discussion. A joint opinion is that they should mostly be used to decrease the country’s debts, since these revenues are from the sales of society’s own assets.

In short, while the government is making a decision on the cancellation of privatization tenders, it should calculate its direct and indirect consequences in a much more detailed way.