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Cablegate: Privatization Chief Says Sales Are Moving Forward

This record is a partial extract of the original cable. The full text of the original cable is not available.

181315Z Jul 03

UNCLAS SECTION 01 OF 02 ANKARA 004528

SIPDIS


SENSITIVE


STATE FOR E, EB/IFD AND EUR/SE
TREASURY FOR OASIA - MILLS AND LEICHTER
NSC FOR BRYZA
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO


E.O. 12958: N/A
TAGS: ECON EINV EFIN PGOV TU
SUBJECT: PRIVATIZATION CHIEF SAYS SALES ARE MOVING FORWARD


REF: ANKARA 4061


1. (SBU) Summary: New Privatization Administration (PA)
President Metin Kilci says strong political support is
enabling him to proceed with long-delayed privatizations.
The Higher Privatization Council's approval of the
controversial sale of Petkim to the Uzan family was an
important step forward, and the PA hopes to complete the
sales of Tupras (petroleum refining) and Tekel
(alcohol/tobacco) by year-end. Meanwhile, Kilci says the PA
is "cleaning out" its portfolio by selling companies -- or in
some cases just their assets -- that have been under its
control for as long as twenty years. Many investors/analysts
believe this government is more committed to privatization
than its predecessors, and therefore are hopeful that
positive rhetoric will translate into actual sales. End
Summary.


2. (SBU) New Privatization Administration (PA) President
Metin Kilci briefed us July 18 on privatization plans for the
rest of the year. He began by stressing that, unlike in the
past, there is now strong political support for
privatization. He noted specifically that Finance Minister
Unakitan, who now oversees the PA, is a strong supporter.


3. (SBU) Kilci argued that the Higher Privatization
Council's recent decision to approve the controversial sale
of petrochemical company Petkim to the Uzan family (reftel)
marked an important step forward because it demonstrated
convincingly to investors that the government was committed
to privatization, even at a political cost. Kilci said the
PA was waiting to see whether the Uzans could come up with
the $240 million payment and "credible" bank guarantees for
the remaining $365 million (to be paid in three installments)
by the August 6 deadline. He acknowledged that the Uzan's
successful bid had been embarrassing, since the family owes
the government hundreds of millions of dollars, and said the
PA had the legal authority to screen would-be bidders more
carefully. (Comment: Most investors with whom we have spoken
commended the GOT's approval of the sale, saying the need to
show seriousness about privatization outweighed concerns
about the purchaser in this case. Some also wondered if the
GOT had approved the sale in the expectation that, given
other recent GOT actions against Uzan Group assets, the group
would not be able to come up with the payment to PA. End
Comment)


4. (SBU) The PA's current focus is on the upcoming sales of
Tupras and Tekel. According to Kilci, a number of foreign
and Turkish companies are interested in the companies, and
are now undertaking due diligence. The tender process should
begin in September-October, leading to open auctions in late
October, though there is some flexibility on that date.
Kilci's goal is to finalize the sale contracts by the end of
the year (though he warned this could slip into early 2004).
In the case of Tupras, the PA will sell the state's 66
percent stake, retaining only a "golden share" to guarantee
company sales of refined petroleum products to the military.
On Tekel, the PA will sell the cigarette (production and
distribution companies jointly) and spirits divisions
separately.


5. (SBU) Kilci said that the PA is also engaged in
"cleaning out" its portfolio, a move he believes is as
important as the Tupras and Tekel sales. He complained that
several companies have sat in the PA portfolio for as long as
twenty years, during which time they have steadily lost value
while remaining a drain on state finances. He is determined
to clear them out, even if it does not bring in substantial
revenue. Last week, the PA opened a tender on six textile
factories owned by state company Sumer, and sold 3-4 of them.
It also has sold five pulp and paper factories, and is
trying to sell some facilities owned by meat packing company
EtBalik. Kilci clarified that, where the companies have some
potential to operate in the market, the PA is selling them as
full companies. For those companies without potential, the
PA is simply selling the land and other real assets and
liquidating the companies. He noted that these steps have
provoked strong opposition from some Parliamentarians and
labor unions, but the government has instructed him to
proceed anyway.


6. (SBU) The PA's plan for 2004 is to sell Turk Telekom, a
number of electricity production and distribution companies,
and several sugar factories, PA is now working with the
World Bank, the Telecom Regulatory Authority, and private
consultants to prepare a complete strategy for Turk Telekom's
sale. If all goes according to schedule, the Council of
Ministers will receive and approve the strategy by the end of
October, so the tender process can begin by the end of the
year. Kilci noted that the ongoing merger of cellular
companies Aria and Aycell (the latter owned by Turk Telekom)
was causing some delay, because the merger will affect Turk
Telekom's valuation.


7. (SBU) Comment: After 2-3 years of positive rhetoric but
little action on privatization, the investment, business and
foreign diplomatic communities remain somewhat skeptical of
government promises. On the other hand, there is a
widespread belief in the business/investor community that
this government is more committed to privatization than its
predecessor. Given the PA's schedule, the government has an
opportunity in the next 3-5 months to prove itself on this
issue.
PEARSON

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