Scoop has an Ethical Paywall
Work smarter with a Pro licence Learn More

Search

 

Cablegate: Turkey's Liberalization Woes: Smoke, but No Fire

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

UNCLAS SECTION 01 OF 03 ANKARA 004141

SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/DDEFALCO
USDOE FOR CHARLES WASHINGTON
TREASURY FOR C PLANTER AND M MILLS
EB/CBA FOR FRANK MERMOUD

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EINV EFIN ECPS PGOV TU ENGR
SUBJECT: TURKEY'S LIBERALIZATION WOES: SMOKE, BUT NO FIRE

REF: A. ANKARA 3223
B. ANKARA 3258
C. ANKARA 2812
D. ANKARA 3845

Sensitive But Unclassified. Please handle accordingly.

1. (SBU) Summary: Despite a modest but tangible political
will to privatize, and efforts by the Privatization
Administration, Competition Authority, and other sectoral
regulatory bodies, Turkey's program of sectoral reform,
liberalization, and privatization remains delayed and
troubled. Across several key sectors, particularly energy,
aviation and telecom, delay in liberalization and
privatization appears to indicate a lack of political will
to relinquish state control. Reftels have provided
background on impediments to privatization: deep opposition
from the judiciary, unions, and the "deep state",
particularly if it involves relinquishing control to
foreigners. Liberalization remains flawed or unsteady,
given lack of regulatory transparency and/or weak and
embattled regulatory agencies, in the face of entrenched
government bureaucracy or dominant state companies. End
Summary.

Advertisement - scroll to continue reading

Are you getting our free newsletter?

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.

--------------------------------------------- ---------
They Might be Privatizers, but they ain't Liberalizers
--------------------------------------------- ----------

2. (SBU) Turkey has made significant progress in rebounding
from the 2001 financial crisis and stabilizing the economy,
largely through competent fiscal and monetary policies
overseen by the IMF. However, with the IMF limiting itself
to broad macro policies and a relatively limited set of
structural reforms, the GOT is missing an opportunity to lay
the foundations of stronger growth over the long-term by
failing to aggressively privatize and, especially,
liberalize several key sectors of the economy. Sectors such
as aviation, telecoms and energy continue to see a high
degree of state intervention with only small steps towards
liberalization likely in the medium-term. Many small state
enterprises have been privatized, but hardly any large SEES
have been. This could change, however, in the coming months
if the Turk Telekom, Erdemir and Tupras deals are
consummated. While privatizing any of these flagship
companies would be a major accomplishment in the Turkish
context, the GOT's focus--and the public debate--continues
to be on the proceeds of the sale, not on the benefits of
moving to a fully-liberalized economy with strong regulatory
bodies. Moreover, several significant state enterprises are
not slated for privatization at all.

--------------------------------------------- ---
Energy: Need for Capital, but Fear of Foreigners
--------------------------------------------- ---

3. (SBU) The Energy Regulatory and Market Authority (EMRA)
has been engaged in bitter turf battles with the Energy
Ministry and other parts of the bureaucracy, as it attempts
to regulate and foster a competitive market in electricity,
natural gas, and petroleum sectors. EMRA reps have told
Embassy they fear prospective legislation, which they say,
would limit its independence. Working with the World Bank,
Turkey has put in place an Electricity Strategy Paper, which
identifies the need for foreign capital to increase power
generation capacity to fill a projected shortfall of supply
over demand. The Privatization Administration (PA) has
targeted electricity regional distribution for privatization
first. U.S. firm AES is persevering in its interest in this
potential tender, but there have been delays and uncertainty
in finalizing privatization method, timing, and legislative
underpinning (Ref A). The GOT's love-hate relationship and
steps forward and back on Transfer of Operating Rights
(TORs) and other past models for encouraging foreign
investment in generation has created historical baggage and
impediments to privatization and liberalization.

4. (SBU) State pipeline company BOTAS has not been targeted
for privatization, on the implicit grounds of need to
protect the national champion to compete and negotiate with
the likes of Russia state pipeline monopoly Gazprom. In
accordance with the Natural Gas Strategy Paper, the GOT is
proceeding with tenders for new municipal natural gas
distribution networks. This is generally perceived as
successful, but some observers worry about inadequate
prequalification criteria. The targeted transfer of BOTAS
natural gas import contracts has been postponed at least
four times. A BP contact told us that the legislative
underpinning and process were still unclear, with respect to
gaining approval from sellers (Russia and Iran). He fears
that a new amendment under consideration would confer
excessive control on sellers like Russian Gazprom and firms
partnered with it.

5. (SBU) State oil company TPAO is also not slated for
privatization as national champion. As in many other
countries, foreign oil companies are required to partner
with the domestic state company for exploration. The
investment regime for oil and gas exploration and
development is generally perceived as not that favorable for
foreign firms. There are a few lingering investment
disputes. A prospective new petroleum law, which would
introduce modest improvements and incentives, has been held
up at the parliament. The state refinery TUPRAS is slated
for privatization and there is significant interest, but
there is significant opposition from the labor union, which
was successful in derailing the last tender won by Russian
Tatneft and Turkish Zorlu. A labor-sponsored advertising
campaign used fear of giving away the national wealth to
argue against TUPRAS' prospective privatization (Ref B).

--------------------------------------------- ------------
Telecom: Need for Foreign Capital, but Fear of Letting Go
- Two Strikes, and ...
--------------------------------------------- ------------

6. (SBU) State firm Turk Telekom is the overwhelmingly
dominant presence in the fixed line telephony, although
private Turkcell dominates mobile telephony. The July 1 win
by Oger Telecom of the bidding process for 55 % stake in
Turk Telekom raises hope the deal could finally go
through(Ref C) Turk Telekom's privatization has failed two
times before, so this is generally viewed as the last
chance. This privatization round has faced delays, and will
have to overcome entrenched opposition from labor, the
judicial system, and - some say - the "deep state" (concerns
about foreign control of what is perceived as a strategic
asset). The announced sale of a majority stake in mobile
company Turkcell to Nordic TeliaSonera has been reneged upon
by the Cukurova Group (in favor of a minority interest
transaction with Russian Alfa Telecom), and TeliaSonera has
taken the case to the courts. Either of these deals being
consummated will represent a major new inflow of FDI and a
powerful symbol that both the telecom sector and the climate
for foreign investment are changing.

7. (SBU) Uncertainty, lack of competition, and
expensive/inadequate service in the telecom/internet sectors
has contributed to overall weakness in the investment
climate. While competition and liberalization exist in
principle in some key domains, such as long distance and
internet access, in practice Turk Telekom has used its
dominant position to stifle competition. Providers in these
areas complain about facing a price squeeze between
wholesale access to the Turk Telekom network and retail
competition with Turk Telekom. The well-intentioned, but
relatively weak Telecom Regulatory and Competition Boards
have struggled to enforce rulings. Turk Telekom has has not
allowed remarketing of its sole wide-band (ADSL) service and
value-added service such as Voice Over Internet Protocol
(VOIP). Consequently, Turk Telekom's dominance is unlikely
to be resolved by merely selling a 55% stake, however
positive a step this is.

-----------------------------
Aviation: Fear of Competition
-----------------------------

8. (SBU) Although competition exists on paper, state
enterprise Turkish Airlines still controls slots and routes.
Turkish Airlines recently exercised this control in
squeezing out private upstart Atlas Airlines, which had the
audacity to compete vigorously on price with Turkish
Airlines on the key Ankara-Istanbul trunk route. Turkish
Airlines is on a half-hearted "B-list" for possible
privatization, but sale of shares to the public-with
continued government control--is the most likely outcome.

-------
Comment
-------

9. (SBU) The state seems loathe to yield control of vast
swathes of the economy still firmly in its grip. Long
promised to the International Financial Institutions, and
long identified as critical for providing access to needed
foreign capital, embracing E.U. accession, and providing
better service to its citizens, privatization and,
especially, liberalization are hard to do. Despite a
government with a clear majority, there has only been a
political will for partial privatization, rather than for a
more aggressive privatization program coupled with
liberalization. Turkey's failure to transfer its large
state enterprises to private control is a major weakness of
its economic reform program. Turkey faces the risk that it
will fritter away chances to move ahead in global linkages
and competition, while the value of the state firm dinosaurs
will decline. Successes so far by the Privatization
Administration have been generally limited to IPO's, which
gain revenues trumpeted by the PA, but which do not
relinquish state control of these strategic assets.
Struggling sectoral regulatory boards fear prospective
legislation that would further decrease their independence,
vis a vis the government bureaucracy.

MCELDOWNEY

© Scoop Media

Advertisement - scroll to continue reading
 
 
 
World Headlines

 
 
 
 
 
 
 
 
 
 
 
 

Join Our Free Newsletter

Subscribe to Scoop’s 'The Catch Up' our free weekly newsletter sent to your inbox every Monday with stories from across our network.