Our children are financing public projects

Our children are financing public projects

If it was known that the credit debts of the tender winners of those gigantic public projects of the built-operate-transfer model in 2013 would afterward be granted state guarantees - or, to use the light new term in Ankara, “undertaking the liability” - I wonder how many more entrepreneurs would have wanted to participate in these tenders? Could there have been a better price? Yes, probably.

Or, let’s look at it this way: Those who won these tenders, could it be that they knew these guarantees would be introduced and so offered high prices to eliminate their rivals?

I am talking about state tenders where, on the one hand, there are assurances on returns financial and, on the other hand, the public guarantees the debts. It is obvious that certain companies participating in the tenders were covertly whispering, “We will support you afterward,” about certain projects.

Or, let’s look at it from the point of the citizen: There are several public guarantees given and obligations undertaken on behalf of and on account of the taxpayers. What’s more, it’s not known exactly how much this comes to. So, the right to know the budget has been swept away. Has parliamentary approval been given for the financial commitments that the public and, in the end, the taxpayer, will undertake? The answer is no.

With a legal amendment in February 2013, the door was opened for the public sector to undertake debts for build-operate-transfer projects. The key to this door was the regulation to be issued by the Cabinet. Well, this regulation was issued last week.

Here is the deal: In those public tenders held between Dec. 1, 2012 and Jan. 1, 2014, for those debts of private contracting firms that may come up, the state will be able to undertake them. This means an open public guarantee to the creditors of the private sector companies building these projects.

What does this bring? In those public projects that were put to tender for the private sector, when firms that have won the tender get stuck during the business, the public will take over the facilities. However, it will also undertake the debts of the contracting firms. In other words, those contractors that are not able to do the job will hand over the keys to the public together with the debts.

The bad side of this deal that concerns the public is that we would not know how much of a guarantee was given to which company and what the size of the contract is. The reason for this is that when the Cabinet decides to undertake debts, it will not be printed in the Official Gazette.

In the years immediately after the 2001 crisis, there was a “yard cleaning” in every field, drawing lessons from the past. Necessary legal arrangements and reforms were introduced. On top of these was the 2002 Law on the Public Financing and Management of Debts, in which restrictions were introduced to state debts, public undertakings and commitments.

Bypassing the Treasury comes from Babacan

According to the regulation, the authority to take the subject of undertaking debts to the Cabinet lies with the minister in charge of the Treasury. In other words, in today’s circumstances, Minister Ali Babacan has this authority. Contractors who won tenders in 2013 will be able to file an application within 15 days, and Babacan will have the final say on taking these applications to the Cabinet. In the new regulation, it is stated that in exceptional circumstances this will be done without the opinion of the Treasury. It shouldn’t be a surprise to hear Babacan give the statement that, “The political will has decided as such.” Let’s also note that it was the Treasury that prepared this regulation.

In those build-operate-transfer projects, the credit the contractors took had a feature where there was invisible control over the activities of the project. In other words, those that gave credit to the project – in a way –monitored the project indirectly. Now, however, the prevalent view is that the state is able to take over the keys, so it can also take over the debts.

Nevertheless, there is this medium term dimension of the job: It is institutions, much more important than the political will, that form economic policies and carry them out. Now, the bottom of these institutions is being emptied out through laws. The institutional structure of the fiscal discipline of the post-2001 period was formed based on principles and legal amendments. Now that the door is open, the potential risks have also increased. The subject of debt undertaking is precisely like this. Welcome back to the habits of pre-2001.