The Privatization Of Public Economic Enterprises In Turkey

1. THE PRIVATIZATION OF
PUBLIC ECONOMIC
ENTERPRISES IN
TURKEY
Prof.Dr.Coskun Can Aktan
Dokuz Eylul University
Faculty of Economics & Management
&
Social Sciences Research Society
http://www.sobiad.org

2.  Public economic enterprises were instrumental in
initiating the industrialization and facilitating a
balanced regional development in Turkey from the
beginning of the proclamation of Republic until the
end of l960's. However, lack of competitive spirit
coupled with political interference and bureaucratic
procedures have made the public economic
enterprises a serious burden on economy. In
response to the problems of PEEs, privatization
program was initiated in 1985.

3. Background
 The history of the privatization in Turkey extends as
far back as the date of the foundation of the
Republic. As a matter of fact, when the first public
economic enterprise, Industrial and Mining Bank of
Turkey was established in 1925, it was asserted in
the law that the bank should be privatized in the
future. Article 8 of the Law No 633 reads: " The bank
is to sell up to 51 percent of the shares of its
establishments to the legal corporations. The shares
are expected to belong Turkish citizens"
(Aktan,1987;171) .

4.  The Sumerbank, which can be accepted the
first well organized PEE in Turkey, was also
planned to be privatized in the future and this
idea was remarked in its establishment law.
The Article 11 of the of the Sumerbank Law
also required that the shares of the enterprise
could be sold to the public partially or wholly.
However, Sumerbank never accomplished its
openning to the public till the establishment in
1933.

5. The objectives of the privatization program were determined as
follows in the master plan. Note that these 14 objectives ranked
below were judged as being of most relevance to Turkey.
 1.Making the economy more responsive to market forces,
 2.Increasing industrial efficiency and generating real growth,
 3.Increasing the quality and the quantity of the goods and services,
 4.Spreading ownership base,
 5.Developing capital markets,
 6.Minimizing financial support for the public economic enterprises by the
Treasury,
 7.Decreasing the types of protection and subsidies(direct and indirect),
currently given to those public economic enterprises,
 8.Freeing government officials to work on policy and regulatory issues rather
than managing public economic enterprises,
 9.Having modern technology and management techniques,
 10.Increasing labor productivity by awarding equity stocks to the employees
of public economic enterprises,
 11.Shifting political ideology more toward private ownership,
 12.Strengthen relations with international firms through foreign investments,
 13.Increasing the rate of return of the current capital investments,
 14.Generating revenues for the government

6. Legal-Institutional Framework
 The privatization program in Turkey 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 SOE's (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 subsidaries to the PPA for
privatization. In 1992, with the Statutory Decree No :
473, PPHC (Public Participation High Council) was
authorized to approve privatization transactions.

7.  Upon formation of a political and social consensus
on the needs for privatization, the new privatization
law has been enacted on 27 November 1994 with
the new Law No : 4046. This new Law contains the
provisions related to ;
 The establishment of the "PHC (Privatization High
Council)" and the "PA (Privatization Administration)
and the determination of their duties,
responsibilities, and rights,
 The establishment of the "Privatization Fund" and
the determination of the resources and utilization
fields of such fund,

8. The primary duties of the Privatization
Administration are stated in the law as follows ;
 a) To execute the decisions of the Council,
 b) To make decisions on pertinent issues and to
implement the necessary procedures in line with the
rights and duties granted and delegated by the
Council,
 c) To present proposals to the Council for the
inclusion of organizations into the scope of the
privatization or returning the organizations that have
been included in the scope of privatization back to
their former status, or orienting the preparation of
those organizations that are within the scope of
privatization when required

9.  d) To realize the implementation of all
necessary procedures for the privatization of
the organizations and to execute the follow-
up and coordination of the activities for the
preparation of those for privatization,
 e) To decide whether or not to transform
those organizations which do not maintain
the status of an incorporation into joint-stock
companies,

10.  f) To determine the amount of stock capital of
organizations, to make necessary arrangements for
their establishment, merger or division; to determine
the principles for the properties and the rights and
obligations; to make all arrangements for the
accounts and activities of the organizations that are
under the status of an incorporation or transformed
into a joint-stock company and to take necessary
precautions to ease such procedures until such time
that public shares in those organizations drop below
50% (Fifty Percent) and to do the same for others
until the date of assignment and/or transfer as a
result of the privatization,

11.  g) To conduct and to implement every type of
procedural operations related to privatization
that are essential for privatization,
 h) Within legal limitations, to make
arrangements for the financial, administrative
and legal structures of organizations,

12.  ı) To make decisions on resource utilization,
acquisition and leasing of immovable properties or
economizing on those immovable properties by any
other agreement; on obtaining domestic and
international credits; on recruiting or reducing
personnel under the principle of increasing
productivity, working conditions; on demands and
requirements for the temporary assignment of
personnel overseas, for those organizations that are
within the scope of privatization program,

13.  i) To present proposals to the Prime Minister for
assignments and appointments to and for the
withdrawal from the chairmanship and membership
of the board of directors of organizations, of auditing
and liquidation committees, and from general
managerial positions for those organizations under
the scope of the privatization program separately
from the organizations to which they belong and not
deemed necessary for transformation into an
incorporated company, and of the managerial
positions in their administrative units thereof. (A four
year university degree is a prerequisite to be eligible
to receive appointment to these positions),

14.  j) To determine the quantity and value of
every type of securities and any other
negotiable instruments to be issued through
the Council's decision,
 k) In the event of investing capital in kind in
organizations, to evaluate or have
evaluated/appraised such capital,

15.  m) To conduct all types of research activities, project studies,
advertisements, promotion, public relations, financial auditing
and legal, technical, administrative and financial evaluations
and/or to have such works conducted by assigned consultants as
and, when needed.
 n) To provide loans to organizations when required for
privatization and to determine the interest rates and the terms
and conditions for such financing provided by the Privatization
Fund under the condition that the interest applicable to such
funding shall not be in excess of the highest interest rate applied
by public banks,
 o) To perform other duties defined by the laws and other
legislation.

16. Figure VIII.1: Privatization Procedure in Turkey
Source: http://www.oib.gov.tr/

17. Privatization Methods
 Companies within the privatization portfolio are privatized through
the use of one or more of the methods mentioned below;
 -Sale: Transfer of the ownership of companies in full or partially,
or transfer of shares of these companies through domestic or
international public offerings, block sales to real and/or legal
entities, block sales including deferred public offerings, sales to
employees, sales on the stock exchanges by standard or special
orders, sales to investment funds and/or securities investment
partnerships by taking into consideration the prevailing conditions
of the companies.
 -Lease: Grant of the right of use of all or some of the assets of the
companies for a defined period of time.
 -Grant of Operational Rights
 -Establishment of Property Rights other than Ownership
 -Profit Sharing Model and other Legal Dispositions Depending on
the Nature of the Business.
 It would be useful to summarize the value assessment and tender
phases of privatization also.

18. Value Assesment and Tender Methods
 Value Assessment Commissions are established
before each tender according to the provisions set
out in Law No. 4046. Value Assessment
Commissions employ at least three value
assessment methodologies using various criteria
regarding the organization such as its industrial,
commercial and social features, service distinction,
sector and market specifications, potential future
cash flows, production methods, technological
structure, movables and immovables and quotation
of its stocks in the several exchanges.

19. Figure-VIII.2: Privatization Methods

20. Tender Commissions are established before each
tender according to the provisions set out in Law
No. 4046. The Tender Commission may decide to
employ one or more of the tender methods listed
below:
 -Sealed Bid
 -Negotiation
 -Public Auction
 -Sealed Bid Among Designated Bidders.

21. Figure VIII-3: Privatization
Implementations by Year
28,6 38,3
131,2
486,9
243,8
422,9
565,5
411,8
572,5
292
465,5
1019,7
2716,5
119,8
536,4
171,6
711,2
0
500
1.000
1.500
2.000
2.500
3.000
1985-
88
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Years
Million $
Source: http://www.oib.gov.tr/