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

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.

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) .

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.

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

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.

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,

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

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,

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,

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,

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,

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),

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,

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.

Figure VIII.1: Privatization Procedure in Turkey

Source: http://www.oib.gov.tr/

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.

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.

Figure-VIII.2: Privatization Methods

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.

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/