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Turkey's 2011 Privatization Plans

For the year 2011, the Turkish Government has set a budgetary target of USD 9.5 billion for its privatization proceeds. This is a challenging figure, constituting more than 15% of the aggregate of the last 25 years.

Privatization of state-owned companies and assets has been in Turkey's agenda since the mid-1980s. Because of its high level of profitability and modern technology in the telecommunications industry, Teletas was selected as the first large enterprise to be privatized and 22% of its capital was offered to public in 1988 by the Privatization Administration (the "PA"). Since then, 118 privatizations have occurred, with total proceeds reaching approximately USD 42 billion.1 The largest sales were made in 2005 and 2006, when Turk Telekom, Erdemir and TUPRAS alone generated USD 16.5 billion of proceeds for the PA. In 2010, the total proceeds were approximately USD 3 billion, a significant portion of this pertaining to the sale of Turkey's electricity distribution facilities. According to Finance Minister Mehmet Simsek's speech at the Parliamentary Planning and Budget Commission, for the year 2011, the Turkish Government has set a budgetary target of USD 9.5 billion for its privatization proceeds. This is a challenging figure, constituting more than 15% of the aggregate of the last 25 years. This is envisaged within the framework of the following privatizations.

Istanbul Deniz Otobusleri A.S. (IDO)

Istanbul Deniz Otobusleri A.S. ("IDO") was founded in 1987 by the Istanbul Metropolitan Municipality. It operates on 19 lines and serves 32 points with ten fast ferries, 25 sea buses (only passenger) and 17 conventional vehicle-passenger ferries. According to the teaser document prepared by Finans Yat?r?m Menkul Degerler A.S. which has been appointed by the Istanbul Metropolitan Municipality as the advisor for IDO's privatization, IDO is one of the leading maritime transportation companies in the world in terms of its passenger volume. Its General Manager, Mr. Ahmet Paksoy, recently stated that the expected turnover of IDO for the year 2011 is approximately USD 239 million.

The privatization process is going to be carried out by the Istanbul Metropolitan Municipality. IDO will be privatized in accordance with the Privatization Law by means of a block sale of 100% of its shares. Bidders have been purchasing the bid specifications since 17 January 2011 and the deadline for submission of bids has been announced as the last day of March. It is worth noting that because of the Turkish Cabotage Law, IDO must be sold to a company controlled by Turkish shareholders and managed by Turkish individuals.

Istanbul's Mayor, Mr. Kadir Topbas, recently announced that 11 companies and/or consortiums have purchased the bid specifications. According to the press, Turkish Rhea Girisim and Greek Nel Lines have formed a consortium named "IDO Marmara Ege (KAP)" to bid together in IDO's sale. Reportedly, U.N Ro-Ro, KKR, the Koc Group, Global Liman, Stena AB, Tepe-Akfen, Y?lmaz Ulusoy, Albayrak Group and Y?ld?r?m Holding are also interested in this privatization.

IGDAS

Istanbul Gaz Dag?t?m Sanayi ve Ticaret A.S. ("IGDAS") was founded in December 1986 with the participation of the Istanbul Metropolitan Municipality, IETT (General Directorate of Istanbul Electric Tram and Tunnel Businesses) and a few other shareholders. IGDAS distributes gas to approximately 4.5 million subscribers in Istanbul.

The privatization process will be carried out by the Istanbul Metropolitan Municipality, which will sell IGDAS's shares through a block sale model. As part of this privatization, 10% of IGDAS's shares will be transferred freely to the Istanbul Metropolitan Municipality. The consortium of Citigroup Global Markets Limited, EFG Istanbul Menkul Degerler and AK Yat?r?m Menkul Degerler has been appointed as the advisor for IGDAS's privatization. The tender has not yet been announced but according to the press, the Istanbul Metropolitan Municipality plans to carry out IGDAS's privatization tender in April 2011.

According to the press, several local and foreign energy giants are interested in IGDAS's sale. Among the candidates are leading gas suppliers Russian Gazprom, French Gaz de France (GDF), Shell and Israeli businessman Sami Ofer.

Baskent Dogalgaz Dag?t?m A.S.

Baskent Dogalgaz Dag?t?m A.S. ("Baskent Gaz") was founded in 2007. It distributes natural gas to residences, offices and industrial customers in Ankara. 80% of the shares of Baskent Gaz belong to the PA. The tender for the sale of Baskent Gaz was conducted in 2010, within the framework of the Privatization Law, whereby the winning bidder was MMEKA A.S., with its bid of approximately USD 1.2 billion. Following this privatization, the Turkish Chamber of Mechanical Engineers filed a lawsuit before the Council of State, requesting the annulment of the Privatization High Council's decision as well as the Competition Board's approval. Pending the decision of the Council of State, this privatization may or may not occur in 2011.

ISPARK Istanbul Otopark Isletmeleri Ticaret A.S. ("ISPARK") was established as a commercial enterprise of the Istanbul Metropolitan Municipality in 2005. It provides short-term parking services in local streets and transfers long-term parking from the main traffic arteries to places with low densities.

ISPARK's privatization process has not yet started. Mayor Topbas recently announced that they envisage this privatization to begin after completion of the sales of IDO and IGDAS. According to the press, The Government expects to collect nearly USD 4 billion from this privatization.

Highways and Bridges

The PA has decided to privatize the following motorways, bridges and service facilities: Edirne-Istanbul-Ankara Motorway, Pozant?-Tarsus-Mersin Motorway, Tarsus-Adana-Gaziantep Motorway, Toprakkale-Iskenderun Motorway, Izmir-Cesme Motorway, Izmir-Ayd?n Motorway, Gaziantep-Sanl?urfa Motorway, Izmir, Ankara and Fatih Sultan Mehmet Bridge Peripheral, Bogazici and Fatih Sultan Mehmet Bridges

The acquiring company will have the right to operate these highways and bridges and the accompanying facilities such as maintenance, supervision, toll centers as well as other facilities for 25 years. Until privatization, the maintenance and supervision of these highways and bridges will be conducted by the General Directorate of Highways.

The president of the Industrial Development Bank of Turkey, Mr. Halil Eroglu, recently announced that Australian Macquarie Infrastructure, Spanish Albertis, Portuguese Brisa, Japanese Itochu Corp and Italian Atlantia are interested in the privatization of highways and bridges. According to the press, Italian Autostrade, French Egis Projects and the Malaysian State Fund are also closely following this privatization.

Milli Piyango (National Lottery)

Milli Piyango Idaresi ("MPI") was founded in 1988. The first attempt of MPI's privatization failed in mid-2009, due to low offers and tax-related issues. The new tender's date has not yet been announced, but the PA recently declared that MPI will be privatized in accordance with the Decree with the Force of LawNo. 320 on the National Lottery Administration's Establishment and Duties by means of a license transfer, for a term of ten years. The PA envisages completing this privatization by the end of 2011.

Sal?pazar? Port (former Galataport)

The Sal?pazar? Port Project includes the construction and 49-year operation of hotels, shopping malls, cinemas and entertainment centers in the quarter of Karakoy-Sal?pazar? in Northwest Istanbul. In 2005, the consortium led by Israeli Royal Caribbean Cruises Ltd. won the build-operate-transfer model tender, which was held by Turkiye Deniz Isletmeleri (Turkish Maritime Operations), but the Council of State canceled this project in 2006 due to improper conduct, not due to the particulars of the bid. After this cancellation, the name "Galataport" has been registered by three entrepreneurs and for this reason, the new name of this project has become Sal?pazar? Port.

Mr. Ahmet Aksu, chairman of the PA, recently declared that they are planning to initiate the Sal?pazar? Port's tender process and complete it in 2011. This privatization is expected to happen within the framework of a build-operate-transfer model. Turkish Airlines Turkish Airlines ("THY") was included within the PA's privatization portfolio in 1990, by virtue of the Council of Ministers Decree No. 90/822 and dated 22 August 1990. In December 2004, 23% of THY's shares were offered to public, as a result of which the PA's share portion in THY was reduced to 75.18%. In May 2006, an additional 28.75% stake in THY was offered to public. The PA thus currently owns 49.12% of THY's shares.

Officials of the PA have recently stated that the PA envisages selling its shares in THY (i.e. approximately 49%) but that they have not yet decided on the privatization model. The PA has recently appointed the consortium of TSKB-UniCredit Bank. A.G. - Yap? Kredi Menkul Degerler A.S. - UniCredit Menkul Degerler A.S. as its advisors for this privatization process. The next step is expected to be the selection of the privatization model.

Halkbank

Privatization of state-owned banks was commenced with Sumerbank in 1995 and continued with Denizbank in 1997, Anadolu Bank in 1997 and Etibank in 1998. In May 1998, the international and domestic offering of the 12.3% state-owned shares in Is Bankas? was completed.

Halkbank was incorporated in 1933. In May 2007, 24.98% of its shares were offered to public. For the remaining shares, which are expected to be privatized in 2011, the privatization strategy has not yet been determined.

Electricity Generation Facilities

The PA has appointed Citigroup and Oyak Yat?r?m as its advisors for the privatization of electricity generation facilities. For 2011, the PA envisages to start the privatization process with thermal power plants. The first privatization will be Hamitabat Elektrik Uretim ve Ticaret A.S ("HAMITABAT"). HAMITABAT will be privatized in accordance with the Privatization Law by means of a block sale of 100% of its shares. Bidders must have signed the Non-Disclosure Agreement until 21 March 2011. They are now required to submit their pre-qualification documents until 29 April 2011. The deadline for submitting final bids has been announced as 27 June 2011.

The PA envisages continuing the privatization process of thermal power plants with Kangal, Soma A-B and Seyitomer, which will be privatized in the second quarter of 2011. Soma A-B, located in the western province of Manisa, has a capacity of 1,034 MW, while the capacity is 600 MW for Seyitomer.


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