Infrastructure to Turkey (Rail and PPP)

Trends and opportunities

The market

Turkey is in a unique geographical position bridging both Europe and Asia. It is also one of the key countries in the Middle East region for infrastructure projects. According to Goldman Sachs, Turkey will become the world’s ninth largest economy by 2050. (Source: Hurriyet Daily News, Turkey among 2050's top 10 economies, 30 July 2008)

The construction sector has grown rapidly in recent years, making the most of opportunities in the local economy as well as successfully entering the Middle East, Central Asia and Russian market.

A member of the Customs Union, it is also a candidate to become a full member of the European Union (EU), with discussions to align laws and regulations to the EU standards a success. The EU has allocated pre-accession funding to Turkey, mainly for the building and refurbishment of highways, railways and ports. In addition, the World Bank is active in this space, offering finance to large infrastructure projects.

Rail

Railways are benefiting from a period of significant and sustained investment. There is major investment in high-speed lines, rail solutions to freight and distribution and urban transportation in major cities across the country. The government has made a commitment to expand the rail network. This is with the construction of 9752 km of high speed track and 5663 km of conventional track by 2035, with an investment of A$42 billion (A$21.9 billion before 2023). (Source: Turkish Railways ’ ‘The Development of Railway Infrastructure in Turkey’ presentation by Nazim Bukulmez, Deputy Head of Research and Planning Coordination Department of Turkish Railways, 03 June 2014)

A number of major cities have urban rail, Light Rapid Transit (LRT), trams or a metro. Extensions or new lines are in demand and being planned. In Istanbul alone, there are plans to provide 118 km of new lines by 2018 and a further 276 km by 2023. (Source: Sabah Daily Paper, Istanbul’a Muthis Projeler, 24 September 2013)

Public Private Partnerships (PPP)

Turkey has a goal of high, sustainable and permanent growth. Along with its increasing population, this has led to a greater demand for infrastructure. This includes: hospitals, schools and universities, motorways, airports, marinas and energy production projects. There are not adequate public resources available for funding so alternative financing and PPP models are required.

Key sectors have been identified by the government for PPP:

• Social/municipal infrastructure
• Healthcare
• Transport networks (rail, road and sea ports)
• Waste management
• Financing capability (banks)

Opportunities

Some areas of growth, opportunity and skills shortage to consider are:

• Concession contracts, including very large transportation and Public Private Partnerships (PPP) projects are continuing to present opportunities for companies providing technical and legal services to lending banks and project consortia.
• There are opportunities for niche design services, materials or products to form part of the supply chain.
• While Turkey has its own strong construction consultancy sector, there are opportunities in the commercial and retail sectors where institutional investors are involved.
• Tourism projects: plans for further resorts and marinas built to international standards and a growing interest in heritage tourism.
• Regeneration of city centres, the competition in Istanbul for the master planning for parts of the run-down areas of the city has already commenced.
• Project management and construction management services are not well developed. Even larger contractors are said to be finding a skills shortage which is making an impact on performance and profitability.
• Pre-project studies and technical assistance. EU funding will increase as Turkey progresses towards EU membership. This will create opportunities for Australian consultancies to participate in project identification and feasibility, capacity building of local institutions, technical assistance and project supervision. Areas of opportunity include the new highway and rail projects.
• Turkish contractors have been very successful at securing projects and in developing countries at competitive prices with a rapid mobilisation. A market is developing to sell specialist services in cost, project and construction management to Turkish contractors in both their home markets and overseas in order to improve their performance and drive down costs. A number of Australian companies (e.g. Ausenco, Aconex, Leightons etc.) already have strong relations with Turkish contractors and have worked in projects in the Gulf Cooperation Council (GCC) and Commonwealth of Independent States (CIS) countries.
• The concept of regeneration is now developing, although this appears to be focused on the generation of land value rather than a balance between this and community needs. As the process develops and matures, there is likely to be opportunities for those with experience of urban regeneration to provide services to the private and public sectors. Within Istanbul, there will be continuing interest in this sector driven in part by the recognition of the risk of further serious earthquakes.
• Sustainability is beginning to be addressed with increased costs, concern over security of supply and a change of public perception. These are beginning to drive a commitment to greater sustainability and energy efficiency in buildings. These ideas are relatively new and there appears to be limited local expertise in this area. This presents opportunities for those with experience of sustainable design for both domestic and commercial development to raise awareness and take market share.

Competitive environment

Infrastructure is one of the largest industry sectors. Turkish construction companies and contractors have gained significant clout during the growth period. On the 2014 Top 250 International Contractors listed by global magazine Engineering News Record (ENR), 42 were Turkish. With China at the top, Turkey had the second highest number of contractors on the list.

The largest Turkish firms are ENKA, Rönesans, TAV and Polimeks. International companies are also active in the Turkish market including Astaldi, Bauer, China Railway Construction, FCC, HOCHTIEF, POSCO, Strabag and Vinci.

France and Germany are traditional players in the rail market, with more recent involvement from Chinese, Japanese and Korean companies.

China has become a major player in developing Turkey's rail network. In 2005, China was awarded the development of the Ankara-Istanbul high-speed railway and an agreement for an unprecedented US$30 billion loan for Turkey's high-speed rail projects. China Railway Construction Corporation, China National Machinery Import and Export Corporation joined with Turkish firms Cengiz Construction and Ibrahim Cecen Ictas Construction to build the high-speed line, which was inaugurated in July 2014. With at least 10 000 km of high-speed lines within Turkey's rail development plans, it is expected that the market share China has created within the market will continue within this high growth sector, backed by financing from Chinese banks. (Source: BMI’s Turkey Infrastructure Report, Q4 2014)

Tariffs, Regulations and Customs

Legislative Framework

The government is authorised under the constitution to enter into contracts with the private sector to carry out certain public services. It is subject to a number of laws applying to different types of PPP projects. As a result, a number of laws and secondary legislation potentially apply to any PPP project.

Three principal structures have been used in recently tendered PPP projects:

• The build-operate-transfer model has generally been used in Greenfield PPP projects.
• A structure involving the transfer of the rights to operate a project for a fixed period of time, has mainly been used in the privatisation of brownfield PPP projects.
• Greenfield healthcare PPP projects are being developed under the build-lease-transfer model. Under this structure, healthcare facilities and certain ancillary facilities are developed by the private sector and then leased to the government. Renewal of existing healthcare facilities may also be tendered out to the private sector. In these cases the project company can also undertake non-medical services or the operation of non-medical facilities.

A draft law has been prepared by the Ministry of Development (formerly the State Planning Organisation) that would provide a general framework for the PPP regime by consolidating the existing PPP legislation. However, this is not expected to be passed in the near future.

The main methods for tendering PPP projects are sealed and open bids (among prequalified bidders) and negotiated procedures.

Regulatory issues

When undertaking a PPP project, depending on the model used and the specific sector, various permits, clearances and/or opinions from governmental bodies will be required. These include planning permissions, environmental and antitrust clearances. Further, PPP projects may trigger other regulatory issues not addressed under the legislative framework. Handling of these issues can be time-consuming and open to challenges, possibly causing delays in the investment and/or operation phases e.g. obtaining planning permission requires that the zoning plan is approved by the relevant municipality or ministry. Certain maritime activities are reserved for Turkish persons under the Cabotage Law and approval from the General Staff of the Turkish Military is required for the development of airport PPP projects.

PPP projects, where an environmental impact assessment is required, may only proceed if the Ministry of Environment and Urbanization issues an ‘environmental impact assessment affirmative’ decision. Other PPP projects may be subject to a less detailed assessment, at the end of which an environmental impact assessment may not be required. Transfer of operating rights of brownfield PPP projects are subject to the Council of State’s (the highest administrative court) opinion. (Source: Project Finance International European Report, September 2012)

Marketing your products and services

Market entry

Collaboration with Turkish contractors or consultants can simplify market entry into challenging but potentially lucrative markets in the Middle East, North Africa and the Central Asian Republics.

Turkey, with its growing project portfolio and import propensity presents significant opportunities for Australian businesses in the infrastructure, building and construction industry. Challenges in qualifying partners or customers and the different business culture make it difficult for Australian companies to identify the most suitable contacts and secure appointments.

Austrade's experienced Business Development Managers are members of relevant building sector business groups. They are well connected with key business people and able to open doors on behalf of Australian companies and arranging appointment programs for companies making individual visits.

There is a big difference between the commercial laws in Turkey and Australia, which if not understood, can result in decisions which impede the growth of business. It is very important to understand the legal context. Austrade provides information about agency/distribution and legal regulations and the different types of commercial entities open to Australian companies.

Links and industry contacts

Association of Turkish Building Material Producers
Association of Turkish Consultants and Architects
The Building Information Centre
The Chamber of the Architects of Turkey
Doing Business guidance on various business issues
European Bank for Reconstruction and Development
European Investment Bank
European Union
General Directorate of Highways
Greater Municipality of Ankara
Investment Promotion and Support Agency
Istanbul Metropolitan Municipality
The Marmary Project Istanbul
Ministry of Tourism and Culture
Turkish Contractors Association
Turkish Electricity
Turkish State Railways
Urban Age, Istanbul
The World Bank

Please note: This list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only. The content is for information and carries no warranty; as such, the addressee must exercise their own discretion in its use. Australia’s anti-bribery laws apply overseas and Austrade will not provide business related services to any party who breaches the law and will report credible evidence of any breach. For further information, please see foreign bribery information and awareness pack.

Contact details

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