Turkey to guarantee debt on public works projects
Tuesday, April 22, 2014
ISTANBUL – Turkey hopes to protect large-scale public works projects with a plan to provide private contractors with liability guarantees on their loans.
The Turkish Treasury plan announced Saturday says that it will guarantee projects costing more than TL 1 billion (US$470 million), including a third airport in Istanbul and a third bridge over the Bosphorus straits.
The treasury will ensure 85 percent of contractors’ debt if the projects are called off because of a financial or logistical fault of companies. The treasury assumes the entire debt otherwise.
A guarantee will also be offered for education or health investment projects worth more than TL 500 million (US$230 million).
An economist from Turkey's Trakya University, Sadi Uzunoglu, said Monday that the decision would be unfair to rival companies who bid for the tenders becaused it changed bidding conditions after the contract had been granted.
Uzunoglu said the guarantee would lower the risks for financiers operating on a large scale and ease foreign and domestic financing for mega-projects.
Burak Saltoglu, a professor from Bogazici University, said the move was necessary to overcome the financing difficulties, as it would almost completely eliminate risks for financiers.
"The projects that cannot be financed could be realized through this step," said Saltoglu.
Saltoglu warned that the market should be reassured that the new regulation would not lead to irresponsible financing.
Turkey restricted treasury guarantees 12 years ago after a fiscal crisis in 2001 burdened the Turkish economy.
The government had planned to assume at most US$3 billion for public-works project debts for 2014. Turkey's public debt stock to GDP fell to 36% in 2013 from 74% in 2002.
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