Turkish port reform back on track

Turkish port reform back on track

Neil Ford

SUCCESSIVE TURKISH GOVERNMENTS have sought to sell off state owned assets but their efforts have been more successful in some industries than others. The port sector privatisation programme originally proved particularly problematic, but many ports have now been transferred to private sector control and Ankara’s persistence finally seems to be paying off. The south coast port of Mersin is now managed by a joint venture of PSA International and Turkish company Akfen, Izmir has been secured by a consortium led by Hong Kong’s Hutchinson and the tender for Derince is nearing completion.

As an increasingly important trading nation, the port sector is particularly significant. The economic downturn of 2000 now seems to be nothing more than a bad memory, as the economic reforms agreed with the IMF have resulted in an average economic growth of 7% since 2002. This growth has been driven by higher exports, as container traffic reached 3.8m twenty foot equivalent units (TEU) in 2006. Under Ankara’s Nationwide Port Development Master Plan of 2000, total container traffic was predicted to reach 6m TEU by 2020 but this figure is now expected to be easily surpassed.

[ILLUSTRATION OMITTED]

Ozgur Kalelioglu, the group manager of sales and customer development at Arkas Holding Port Services, paints an optimistic picture of the sector. He says: “The use of Turkish ports presents obvious benefits to carriers in terms of local and transshipment cargo, mainly in the area of lower costs due to the reduced transit times that can be realised by using the Bosporus. Moreover, the booming economy of Turkey and the surrounding countries also presents major potential for containerisation. As such, traffic between Turkey and its neighbouring countries, the current and potential capacity of the Sea of Marmara, Turkey’s container traffic investment opportunities in the Black Sea region all present investment opportunities.”

Private sector management is certainly helping to drive port expansion. Of the 20 ports originally controlled by the state owned transport utility Turkiye Cumhuriyeti Devlet Demiryollari (TCDD), just five–Samsun, Haydarpasa, Derince, Bandirma, and Iskenderun–remain under the company’s control. The others have been transferred to private sector firms via long term concessions, although the ownership of most will revert to TCDD when the contracts expire. Under this landlord port model, ports at Hopa, Giresun, Ordu, Rize, Sinop and Tekirdag were awarded to private operators in 1997, followed by Antalya in 1998 and Alanya and Marmaris in 2000. The ports of Cesme, Kusadasi, Trabzon and Dikili were either sold outright or offered under concession in 2003.

However, many of Turkey’s main ports and most of the key container terminals remained under TCDD control. Tenders for contracts to manage the remaining ports proved to be far more controversial. In 2004, the Privatisation Higher Council planned tenders for all seven remaining TCDD ports but political disagreement and contractual difficulties have resulted in a series of delays.

In 2005, the PSA International-Akfen joint venture submitted the highest bids for both Mersin and Iskenderun–$755m and $80m respectively–but the Competition Board argued that it would hamper competition if the same company secured both concessions. It was eventually decided to award Mersin to the joint venture and determine the fate of Iskenderun at a later date. In May 2007, PSA-Akfen announced that it had signed an agreement with the Turkish privatisation authority, Ozellestirme Idaresi Baskanligi (OIB), to take over Mersin in a 36-year concession.

Singapore based PSA is already one of the world’s biggest port operators and manages 25 port facilities across the globe, while Akfen is a Turkish construction company. Eddie Teh, PSA’s chief executive, commented: “We look forward, together with our partner, Akfen Holding, to turn Mersin Port into a major international port servicing the East Mediterranean region. For PSA, our investment in Mersin International Port is our third single largest investment outside of Singapore, and this demonstrates our strong confidence in the country.” Mersin container terminal has four dedicated container berths and handling capacity of 880,000 TEU a year.

[ILLUSTRATION OMITTED]

The Izmir tender was subject to similar delays. OIB appealed for bids to be submitted by June 2006 but this was extended several times, although no explanation for the extensions was given. Four bids were received by the final deadline, in March 2007: a consortium of Hutchinson Port Holdings (HPH) and Turkish firms EIB Limas and Global Yatirim Holding; PSA Akfen Joint Venture Group with Babcock & Brown of Australia; Turkish airport and construction company Celebi Holding; and another consortium of Turkish firms.

The Hutchinson-led group announced in May that it had been awarded the concession under a 49-year contract with a winning bid of $1.275bn. This is the longest deal yet awarded and may have been offered to ensure that international port operators would be prepared to bid. New capacity will be the new operator’s main priority. The port s container terminal has been operating at maximum capacity for the past four years and congestion has actually resulted in a fall in the number of containers handled.

In October, Turkey’s Turkerler Group revealed that it was holding talks with interested parties with a view to setting up a joint venture to operate the port of Derince. The company’s chairman, Kazim Turkerler, told journalists: “Talks with foreign firms are continuing regarding a partnership. We will find an operating partner.” He indicated that investment of up to $110m would be required to boost the handling capacity of the container terminal to 600,000 TEU a year. Turkerler offered the highest bid, of $195m, and now plans to bid for Bandirma, Iskenderun and Samsun.

Despite the focus on the privatisation programme, private sector companies have developed their own ports over the past 12 years and these ports now handle more cargo by volume that the seven container terminals originally controlled by TCDD. The most active of these private operators is Marport Terminals, which was set up by Arkas in 1996. The company’s three container terminals near Istanbul, Marport Main, West Terminal and East Terminal, have total handling capacity of 1.5m TEU. They are Turkey’s only deepwater container terminals and the draft alongside of 14.5 metres allows very large ships to enter the port. Ongoing expansion and the purchase of new cargo handling equipment have helped to ensure terminal efficiency.

It appears to have been Marport’s success that persuaded the government that private sector concessions were the best option. The company is confident that there is plenty of room for further growth in the market. Kalelioglu says: “If you consider the global annual average of containerised goods equals one container to every seven people, we haven’t even reached half of our potential, despite the fact that we are surrounded by three different seas and connect two continents, namely Asia and Europe.”

As Turkey inches towards greater cooperation with the European Union, it is clear that additional port capacity will be required and that this will be provided by the private sector. However, Turkish ports are also carving a niche for themselves as transit ports for trade with the Black Sea. The country is certainly well placed to take advantage of growing trade between the EU, the former Soviet Union, the Middle East and North Africa. With most ports now in private hands, it appears that the battle over the port landlord model has finally been won and investment levels are likely to rise on the back of more intense competition.

COPYRIGHT 2008 IC Publications Ltd.

COPYRIGHT 2008 Gale, Cengage Learning