Introduction

Turkey in Brief
The East-West expansion of the world's geographical horizons has ushered in a new era for a country situated in the fertile crescent and cradle of civilisation called TURKEY.

TURKEY is a historical gateway from the ancient Silk Road to new markets becoming a powerful focal point as a cultural and a political intermediary as well as a trade center of growing importance

TURKEY is stable democratic secular parliamentary Republic with proven commitments to international cooperation and is a member of major international organisations such as the UN, NATO, IMF/World Bank, the OECD, the European Council, the ECO and the OIC. Turkey has also played a pioneering role in establishing the Black Sea Economic Cooperation Council (BSCE) and upholds agreements with the International Center for Settlement of Investment Disputes (ICSID) and the Multi-National Investment Guarantee Agency (MIGA).

TURKEY is a fast growing and dynamic country listed as having one of the highest growth rates among OECD countries (5.5% per year) from 1984 to 1993. A more updated time frame from 1988 to 1995 still places Turkey's average growth rate over the average rate of developing countries.

TURKEY provides access to a wide range of markets. Nearly half of its exports are now directed towards the European Union. Turkey also enjoys excellent relations with the Commonwealth of Independent States (CIS), Central and Eastern European Countries, the Turkish speaking Republics of Central Asia, the Gulf and the Middle East and also all Islamic countries making it a perfect base from which to access and serve these markets.

Being strategically positioned at the crossroads of Europe, the Middle East, the Black Sea region and the Turkish speaking Republics of Central Asia, Turkey offers an excellent base for economic activities throughout the region.

The business environment in Turkey is becoming an increasingly attractive and substantial platform for free enterprise. The Liberal Foreign Investment Law, free trade policies, a dynamic stock exchange and numerous incentives for investors and exporters all contribute to Turkey's expansion in this area.

As of the end of 1995 the population of Turkey was more than 63 million, and its total land area is 814,578 square kms.

Main Socio-Economic Indicators
 

TURKEY is bound to become an important commercial and financial center in the region. Within this operating environment, Turkey is committed to pursuing a free-market oriented development. In the last 10 years, Turkey initiated an economic development program that included the liberalisation of import restrictions fostering greater domestic competition, the privatization of state enterprises, and the reduction of taxes. This rapid growth policy promoted extensive industrialisation, and major liberalization policies have been fully adopted by the government to define its firm commitment to an open-market oriented economy.

Major policies include:

Convertible currency,

• 100% foreign ownership permission,
• 100% repatriation of profits and dividends,
• Permission (even support) for management control by foreigners,

• Focus on exports,
• Reduction of tariffs and non-tariff trade barriers to match European Union levels,
• Active financial sector (Istanbul Stock/Gold Exchange),
• Ongoing privatization of State Owned Enterprises,
   

THE PHILOSOPHY OF THE PRIVATIZATION PROGRAM

The main philosophy of the privatization is to confine the role of state in the economy in areas like health, basic education, social security, national defense, large scale infrastructure investments and provide legal and structural environment for free enterprice to operate.

THE MAJOR TARGETS OF THE PRIVATIZATION

The major targets of the privatization program are primarily:

• To minimize state involvement in the industrial and commercial activities of the economy
• To provide legal and structural environment for free enterprise to operate,
• To decrease the financing burden of State Economic Enterprises on the national budget,
• To transfer privatization revenues to the major infrastructure projects
• To expand and deepen the existing capital market by promoting wider share ownership,
• To provide efficient allocation of resources.

THE LEGAL FRAMEWORK

The privatization program was initiated in 1983. In 1984 the first related regulation (Law No:2983) and in 1986 Law No:3291 was enacted. Within the perspective of the provisions of law No:3291, the Council of Ministers was authorized to give decision on the transfer of SOEs' (State Owned Enterprises) to the PPA (Public Participation Administration) and the High Planning Council was authorized to decide the transfer of partially state owned companies and subsidiaries to the PPA for privatization. In 1992, with the Statuary Decree No: 473, Public Participation High Council (PPHC) was authorized to approve privatization transactions.

Upon formation of a political and social consensus on the needs for privatization, the new privatization law has been enacted on November 1994 with the law No:4046. Within the context of the new law, Public Participation High Council is changed into Privatization High Council (PHC) and the Public Participation Administration is changed into Privatization Administration (PA). Currently, the restructuring and sale of Turkey's state-owned enterprises are being managed by the Privatization Administration under the supervision of the Privatization High Council, chaired by the Prime Minister.

PRIVATIZATION IMPLEMENTATIONS BETWEEN 1985-1995

A) Companies in the Privatization Portfolio:

Since 1985 a total 138 companies have been taken into the privatization portfolio. Some of these are fully state owned enterprises, while others have more than 50% state shares Later, 8 of the companies were taken out of the portfolio for various reasons. One of these was Türkiye Ögretmenler Bankasi, which was merged with Halk Bankasi in May 1992 and Denizcilik Bankasi which was merged with Emlak Bankasi in November 1992.

In December 1994, 4 pieces of real estates which belong to the Ministry of Finance and the Directorate of Rural Services were taken into the privatization program. Yeniköy, Kemerköy, Soma-B Power Plants and Hamitabat Combined Cycle gas Turbine of TEAS (Türkiye Elektrik Üretim ve Iletisim A.S.) have been taken into the scope of the privatization since June 11,1995

Currently there are 44 companies and 4 power plants in the portfolio and 27 of them have more than 50% state shares.

B) Completed Privatization Cases:

Privatization implementations started in 1984 with the transfer of the incomplete plants of the SOE's to the private sector to be completed or to construct a new plant. In this juncture, 6 plants were sold to different investors and 9 plants were transferred to municipalities or to state enterprises on book value.

Since 1986, privatization implementations gained momentum and 100 companies were privatized either via sale of shares or asset sale, in 87 of them no state shares were left. One company (Karabük Iron and Steel) were transferred to the joint ownership which has been established by the factory workers and region industrialists. Production plants of the YEM Sanayi (Animal feed manufacturing) were completely privatized.

Since 1985, total sales value of privatization implementations has been about US $ 2.6 billion. Some of these asset and share sales were made on installment payment and foreign exchange basis and as of August 31,1995, US $ 2.4 billion privatization revenue has been realized. The discrepancy between the sales value and net revenues derives from interest on payment by installments and exchange rate variations in the case of foreign exchange payments.

Total income from organizations on the privatization program during the 1985-1995 period, together with the US $800.7 million dividend income and US $ 100 million other income, reached to US $ 3.3 million. In the same period total privatization expenses was US $ 3 billion. The largest item in privatization expenditures is f nancing in the form of equity participation and loans.

C) The Companies whose Tender Prosedure are being continued:

l. ERDEMIR Eregli Demir ve Çelik Fabrikalari A.S. (Iron and steel): In January 13,1995, tender announcement was published for some of the 51.66% state shares sale. Subsequent to the expiry date of the tender announcement, February 3,1995, 8 proposals were received. Initial round of negotiations with the bidders have been completed.

2. SÜMER Holding A.S. (Textile,leather,ceramics,carpeting) : Tender announcement for 36 properties (land), 6 real estates, one retail unit (store), one training premise and Holiday Village at Kusadasi was published on February 20,1995. Subsequent to the expiration date of tender announcement, March 13,1995,173 proposals were registered. Negotiationswith the bidders started on April 6, and completed on April 24,1995. Proceeding the evaluation of final bids by the tender commission, 8 land and one real estate sales were approved by the PA. Three of the land sales agreements have been signed. Other sales agreements will be signed in the following days.

Meanwhile, Holding published tender announcement for the sale of the 89 retail shops on August 4,1995. As of the last day of the tender September 1,1995,167 proposals were registered. No bid was received for the retail shop in Sinop. Evaluation of the bids is still underway. Tender announcement will be made in the beginning of October for the sale of 10 textile plants.

3. ÇINKUR (mining/processing of zinc and lead):

The tender which announced by the Company's Board of Directors on the late February 1995 for the permission transfer of 11 mining fields, finished on March 7,1995. Negotiations with the bidders were completed in early April. After the evaluation, the transfer of 3 mining fields are approved by the PA. Since there were no satisfactory proposals, other tenders for the mining fields were cancelled. Preparation for the block sale of 98.8 % PA share has been completed and tenders are invited between September 28,1995 and October 14,1995.

4. TESTAS (Electronics):

Tender announcement for Aydm premises sale published on August 7,1995. By the last day of the tender, September l,1995, 6 proposals were received. Negotiations with the bidders will take place in the near future.

5. TÜRK DENIZCILIK ISLETMELERI (Maritime passenger and freight carrier) :

Tender announcement was published on April 17,1995, for the sale of the possesion right of the real estate where the old fish market placed on, in Izmir/Konak. Only IZBELTUR gave proposal by the last day of tender, May 2,1994. Negotiations have been finalised and the decision will be submitted to the PHC for ratification. On the other hand, the tender announcement was published on June 8,1995, for the transfer of management rights of urban lines and quays together with the sale of Company' s 7 passenger ships operating sn these lines. The last day of the tender was July 24,1995.

Since there were not enough proposals, tender was cancelled. New tender announcement was made on August 22, 1995 and by the last day of the tender notice September 21,1995, 4 proposals were received.

6. TÜRKIYE GEMI SANAYI A.S. (Construction of vessels) :

Tender announcement was published on April 20,1995, for the sale or the transfer of management rights of Pendik, Haliç, Camialu and Alaybey shipyards and Pendik Motor Company as well as the sale of some parts of Istinye land. 22 proposals were received as of the last day of tender June 19,1995. Following the preliminary negotiations, tender for the tstinye land was cancelled since there were no satisfactory proposals. Negotiations for the other shipyards and Pendik Engine Company are continuing.

7. DENIZ NAKLIYAT T.A.S. (Turkish Cargo Lines):

Tender announcement was published on September 28,1995 for the block sale of 99.92 % public shares of Turkish Cargo Lines. The last day of tender notice is October 14,1995.

8. EBK Et ve Balik Ürünleri A.S. (Meat and fish processing):

Tender announcement was made on July 4,1995, for the sale of 15 meat complexes and one affiliated partnership. Tender was realized with the public auction method between the dates of July 26-28,1995. There were satisfactory proposals for 12 complexes and one affiliated partnership. PA approved the sales of the 11 complexes on August 2, and Van Meat Complex on August 8,1995. Sale of the affiliated partnership was approved by PHC on August 11,1995. Tender for the Van Meat Complex was cancelled since the bidders abstained from signing the sales agreement. With the authorization given by PA, Company published tender announcement on April 25, 1995 for the sale of 8 real estates in different cities, 5 satisfactory proposals were approved by PHC on July 3,1995. Ankara Meat Complex sales agreement to Gimat at US $ 29 million was signed on August 11,1995.

9. SEK Süt Endüstrisi A.S. (Milk and dairy products):

Tender announcement for the sale of 32 premises, 4 milk collection units, 3 land and SEK's trade mark was published on June 6,1995. Between the dates of June 3-7,1995, proposals were registered and sale was realized with the public auction method. There were no satisfactory proposals only for 2 premises. PA approved the sale of 25 premises, 4 milk collection units and 3 land due to the sales values being under 75 billion TL on July 11,1995. In addition to these sales, PHC accepted to sale of 5 premises and SEK's trade mark which exceeded this limit on July 19,1995. The sales agreements of the 27 premises, 2 land, one milk collection unit and the trade mark have been signed. Tenders for the Devrek and Adiyaman milk premises, Siverek milk collection unit and Aydin-Kösk land were cancelled since the bidders abstained frotn signing the sales agreement.

10. KÜMAS Kûtahya Manyezit Isletmeleri A.S. ( Magnesite mining, Processing of sinterized magnasite, fire brick and calcinated magnesite) :

Tender announcement for the block sale of 99.74 % PA shares was published on June 26,1995. As of the last day of tender notice, July 19,1995, 8 proposals were registered. Highest bid was given by Zeytinoglu Holding A.S. and the sale of KUMAS to this Company at US $ 52.5 million was approved by PHC on September 4,1995. The sales agreement signed on September, 28, 1995.

11. KÖYTAS Tarim Makineleri A.S. ( Manufacture of agriculturel trailers):

Tender announcement was published on June 26,1995 for the block sale of 85.59% PA shares. As of the last day of tender notice, July 19,1995, 3 proposals were registered. Negotiations started on July 27,1995. Sale of KÖYTAS to A.B.G joint enterprise at US $ 150.000 was approved by PHC on August 29, 1995. Sales agreement will be signed in the following days.

12. SÜMERBANK A.S. (Banking):

Tender announcement for the block sale of 100 % PA share was published on July 10,1995. By the last day of tender announcement, August 4,1995, 3 poposals were registered. Negotiations started on August 14,1995. Highest bid was given by IPEKS Iplik Teksal Sanayi A.S. and the sale of SÜMERBANK A.S. to IPEKS at US $ 103.460.000 was approved by PHC on September 11, 1995.

13. TURBAN Turizm A.S. (Tourism):

Tender announcement was published on July 17,1995, for the sale of Çe&127;me Hotel, its' annexes and lodgings. As of the last day of the tender notice, August 9,1995, 8 proposals were registered. Highest bid was given by GAZALA A.S. ( US $ 11.250.000) and it will be submitted to the PHC approval soon.

PRIVATIZATION PROGRAM FOR 1995 :

Aimed privatization revenues for 1995 which was declared as US $ 5 billion in the initial 95 program have been later revised upon the enactment of the new privatization law No: 4046. The previous US $ 5 billion target was revised due to the unexpected implementation problems and cancelled tenders in the first half of this year.

In this frame, privatization revenues by the end of 1995 is expected to be US $ 2.7 billion. Privatization revenues since January 1995 is US $ 484.4 billion.

PA's planned privatization implementations in the coming period are:

• ERDEMIR: Block sale of some of the PA shares
• PETKIM: (Work is underway for the detemzination and preparation of action plan)
• TÜPRAS: Asset sale of the refineries,
• POAS: Block sale of some of the shares,
• SÜMER HOLDING: Real estate and asset sale
• TURBAN : Asset sale and/or leasing,
• EBK and SEK: Real estate and asset sale
• T. GEMI SANAYI, DENIZCILIK ISLETMELERI and DENIZ NAKLIYAT: Asset sale, real estate sale, transfer of management rights,
• ORÜS: Asset sale
• PETLAS: Block sale
• KÖYTAS: Block sale,
• TESTAS: Asset sale,
• ÇINKUR: Block sale and permission transfer of mining field
• Block sale of some PA shares in participations and
• Sale of real estates and lands.

A) Companies that tender preparations are in process:

l. Petrol Ofisi A.S. (Gasoline and fuel oil marketing and distribution):

4% of the Company shares were sold in May 1995 by public offering and these shares are still being traded at Istanbul Stock Exchange. PA still holds 93.3 % of POAS shares. Privatization strategy of POAS was determined by PHC on December 23,1994. In this frame, some of the shares will be sold in the form of block sale. This block sale will be realized together with the asset sale of TÜPRAS refineries. The remaning shares of POAS will be sold by international and public offerings.

2. TÜPRAS Tûrkiye Petrol Rafineleri A.S. (Petroleum refining):

1.66 % of the Company shares were sold in May 1991 by public offering and these shares are still traded at fstanbul Stock Exchange. PA still holds 96.52 % of TÜPRAS shares. In the frame of the new program preparations are continuing for the asset sale of the refineries.

3. Türk Telekomünikasyon A.S. (Telecommunications) :

With the law No: 4107 dated May 6,1995, up to 49 % of the Turk Telecommunication Co. shares can be sold. In accordance with this law,10 % of these shares will be transfered free of charge to Turkish Postal Services General Directorate. In sales of the shares, a share of 5 % is allocated for Turkish Postal Services and Turk Telecommunications Co. employees and for other small investors. The remaining 34 % of the shares will be sold to individuals and corporations.

Privatization High Council (PHC) has the authority to define the principles of transfering and selling of the shares as well as definition of transfering and approval of fmal transfer. Estimation of the values of Turkish Telecom's shares and their sales will be executed and finalized by the Privatization Administration.PA, in coordination with the World Bank, requested proposals to assess and sell the shares of Turkish Telecom from 23 investment banks in 6 countries.

Expiry date for these banks to compose a consortiums and present their proposals was June 27,1995. PA will evaluate the proposals and determine a short list of 6 consortiums. Assignment of the advisors is planned to be finished by the end of August or in the beginning of September. On the other hand, studies are continuing for the transfer of operation licence of "GSM" and it is planned to be finished by the end of this year.

4. Petkim (Petrochemicals) :

Studies for the privatization of Petkim are continuing under the privatization strategy of PHC. Privatization will be implemented through assets sale, block sale, international and public offering.

B) Companies which are planned to be taken in privatization portfolio in 1995:

1. TEDAS (power generation) (Sale of shares and transfer of management rights of power plants and distribuuon units)
2. T. SEKER FABRIKALARI (Sugar production) (Asset sale)
3. 2 TOBACCO FACTORIES OF TEKEL (Asset sale)
4. SEAPORTS OF TURKISH STATE RAILWAYS (Transfer of management rights)
5. SEKA (Pulp and paper production) (Asset sale)
6. T. GÜBRE SANAYI (Fertilizer) (Asset sale)
7. TIGEM/Tarim Isletmeleri (General Directorate of Agricultural Works)