28 March 2019 - 12:00 am UTC

Turkey’s president Erdogan is facing a recession, a highly volatile lira and anxious municipal elections on Sunday. With the chance of four more years in power to see through a grand infrastructure vision, changes to PPP procurement and contracts are expected. Antonio Fabrizio and Colin Leopold report

Speaking generally, the Turkish word “beka” means something between continuation and permanence. In economic and military terms, it’s more often translated as “survival”. In Turkey’s local elections – being held across 81 provinces on Sunday (March 31) – it is also the slogan for ruling President Recep Tayyip Erdogan’s alliance with the National Movement Party.

The Sunday polls are a crucial barometer for Erdogan’s economic policies, which have pushed up the price of vegetables by 30% and plunged Turkey into recession for the first time in a decade. His almost single-handed attempts to keep the lira stable and minimise pain for voters have also pushed up borrowing costs and reduced local bank liquidity. Concerns about the lira, which lost around 30% of its value last year and has been fluctuating widely in the run-up to the elections, are now a major headache for international investors.

“It’s all very fluid… we need to see what happens after the elections,” says one international banking source active in the market. The small group of mainly European and Asian commercial banks already invested in Turkey’s PPP market are counting on the government’s long-term ability to make FX-linked revenue payments, while the wider investment community is questioning whether Erdogan can still push through a new, slimmed down list of mega projects.

All roads to 2023

From massive bridges to what Turkish authorities advertise as the world’s biggest airport, close to a dozen mega-projects have been procured as Built-Operate-Transfer (BOT) projects – the Turkish equivalent of a PPP – with a certain degree of success since around 2010. The top 10 transport and social infrastructure PPPs which reached financial close between 2012 and 2018 in Turkey have a value of almost EUR 25bn, according to Inframation data. The next wave of infrastructure PPPs now appears much less certain. 

Once elections are over, the administration will shift their focus back on some big infrastructure projects


Sources expect that once the local elections are concluded, central authorities will re-focus on plans to tender new mega-projects ahead of Erdogan’s self-imposed 2023 deadline, marking the centenary of the birth of modern Turkey. Turkish sources describe a ‘priority list’ of PPPs that has been drawn up by Erdogan’s government which includes two motorways, a new tunnel under the Bosphorus and high-speed rail projects, requiring billions of euros of investment (see box below). If successful, Erdogan faces a four-year window with no scheduled elections to see through his plans.

But what about the lira?

On transport and hospital PPPs, the government typically makes hard-currency linked revenue payments to project companies either through minimum traffic guarantees or availability payments. Currently hospital PPPs with availability payments paid in USD or EUR equivalent include a floor mechanism that stipulates each payment should not be lower than the last, even in the case of local currency devaluation. During the height of the currency crisis last year, analysts suggested that all infrastructure projects receiving revenues in Turkish lira and repaying debt in hard currency should be monitored carefully because, despite traffic guarantees, “toll rates cannot be adjusted forever”, as one source put it – a likely reference to the Eurasia Tunnel, where tolls were hiked by more than 25% at the start of 2018 after less than half the predicted 25.6 million vehicles used the route. On existing major projects – including the Third Bosphorus Bridge, the Eurasia Tunnel and Gebze-Izmir motorway BOT – which feature debt assumption, as well as traffic guarantees – the Turkish Treasury has set aside a huge amount in its budget for payments, two sources say.

But as political and economic uncertainty have grown in Turkey, so too have PPP capex estimates. From the EUR 1.25bn Eurasia Tunnel, completed in 2016, to the EUR 6bn new Istanbul airport – whose full opening has been delayed several times already, but is now widely expected in early April.

The most recent landmark financing was for the world’s largest suspension bridge – the Canakkale Bridge BOT – which took place just before the Turkish lira crisis unfolded in 2018. The EUR 3bn deal attracted major IFIs and international lenders – which between them provided more than EUR 1.5bn of funding, in addition to a further EUR 680m of loans coming from local lenders. The complex financing structure required a total of 24 lenders from 10 countries. It included covered facilities from Korean export credit agencies KEXIM and K-Sure – which included European lenders including Natixis, ING and Deutsche Bank; uncovered facilities from a handful of international lenders; an Islamic debt tranche; and a portion of uncovered debt from Turkey’s leading banks.

Internationally financed PPPs

Capex (USD m)

Financial Close 

International lenders

Ankara- Nigde Motorway


June 2018

Credit Suisse, EKF, SERV

Canakkale Bridge


May 2018

Bank of China, Deutsche Bank, ICBC, ING, Intesa Sanpaolo, KEXIM, KEB Hana Bank, Korea Development Bank, Natixis, Samsung Life, Siemens Financial Services, Shinhan Bank, Standard Chartered Bank

Istanbul Ikitelli Health Campus


November 2017

Dai-ichi Life Insurance Company, Iyo Bank, JBIC, MUFG & BTMU, Nippon Life Insurance, Standard Chartered, SMBC

Bursa Integrated Health Campus


October 2017

DEG Invest, EBRD, EIB, Kommunalkredit Austria, Proparco, Siemens Financial Services, SMBC

Izmir Bayrakli Integrated Health Campus


July 2017

EBRD, EDC, ICBC, ICBC, Intesa Sanpaolo, OPIC, UniCredit

Gazientep Integrated Health Campus


May 2017

EBRD, EIB. KEB Hana Bank, KEXIM, Nonghyup Bank, Samsung Life

Kocaeli Integrated Health Campus


March 2017

EBRD, EDC, ICBC, Intesa Sanpaolo, OPIC, UniCredit

It is difficult to know to what extent the terms of the bridge’s debt were affected by shifts happening in the Turkish economy. A person involved in the financing at the time said the international debt was priced higher than the Eurasia tunnel, despite the same Korean sponsor being involved, and there were concerns from the sponsor that the relatively higher price of Turkish bank debt on the deal – at a margin close to 500bp – might push international debt margins even higher.

Debt financing Turkey’s next wave of mega-projects will be even more challenging, according to sources.

They believe that Turkish banks alone will not be able to replicate the structures put in place for the new Istanbul airport or the Northern Marmara highways, where all debt financing came from local financiers. Turkish banks are already heavily exposed to existing projects and are being weighed down by non-performing loans, up more than a third according to the latest figures. International lenders – European, Asian or Islamic – are now more important than ever for Erdogan’s priority PPPs.

In January, major Turkish donor the EBRD pledged continued support for the country but the involvement of ECAs and international commercial banks will depend on the presence of international sponsors. In order to attract these, the government will need to keep in play mechanisms used in previous projects, such as traffic guarantees and the Treasury-backed debt assumption model, say banking and sponsor sources.

Some international banks active in Turkey remain positive, while watching the situation closely. According to one London-based banking source: “There is a big pipeline (in Turkey), which we don’t have elsewhere (in Europe) so we are looking to see what we can do next.”

PPPs in the pipeline


Cost (USD m)

Preferred Bidder

Status Date

Great Istanbul Tunnel





Bosphorus Underwater Tunnel





Çeşmeli-Taşucu Motorway





Aydin- Denizli- BuRdur Highway





Trabzon Hospital PPP

Transaction Launch




Aydin Hospital PPP

Pre-Qualified Proponents




Antalya Hospital PPP

Pre-Qualified Proponents




Bilkent Laboratory PPP

Preferred Proponent


CCN Holding


Sanliurfa Health Campus

Preferred Proponent




Kutahya Integrated Health Campus

Preferred Proponent


Dia Holding


Sancaktepe Health Campus Pre-launch 2,000 n/a 22/05/2015

But can the Turkish Treasury maintain favourable guarantees and contract structures as the country moves through recession? “If they don’t give traffic guarantees, then the financial model does not support the financing of the project,” says one local source. “Simply put, they are necessary to make the projects bankable.” 

If they don’t give traffic guarantees, then the financial model does not support the financing of the project. Simply put, they are necessary to make the projects bankable.”


Other sources say that authorities might be forced to review these mechanisms in the future, if they become too expensive for the government’s purse. It’s unclear how the existing guarantee scheme could be amended, however. One source suggests that authorities are known to be studying different arrangements – including replacing the annual payments they make with semi-annual ones – to take into account currency fluctuations more accurately.

An IFI banking source adds that it is already renegotiating contracts terms and conditions on hospital PPPs currently under construction which have been affected by the lira crisis. “It’s not a full restructuring, but we need to get them operational,” says the source. The contract structure of other hospital PPPs, delayed or awaiting financing, are also being examined so they can be “unstuck”, says the same person. PPPs in operation may be more difficult.

The list of projects believed to be a priority for Erodgan and his government pre-2023 comprises several thousands of kilometres of new roads, tunnels, bridges and a 45km waterway project – the massive Kanal Istanbul, connecting the Black Sea to the Sea of Marmara in order to bypass the Bosphorus. Sources believe that just a handful of these projects will actually be tendered between 2019 and 2020 – and therefore be ready for 2023. Despite all the political fanfare, Kanal Istanbul, with its cost estimated at some EUR 30bn, is unlikely to be one of them, they say. Tendering is expected to resume in the second part of the year, according to sources, but is linked to the outcome of the municipal elections. “Once elections are over, the administration will shift their focus back on some big infrastructure projects,” says one source. “If AKP is successful at local level, it will finally focus on procuring the deals, because there aren’t any further elections on the horizon in the short term.”

For others, linking the municipal elections to the tendering process is not “completely correct” because the central government’s plans are not going to change, regardless of whether Erdogan loses control of Ankara as some predict. The same sources still expect tenders to continue, albeit at a much slower pace than before. “We really do hope that the second half of 2019 will be better than the first half,” one source says.

Turkey’s economy is known by investors for bouncing back relatively quickly – a phenomenon known as the V-shaped contraction and evidenced after the failed coup of 2016. Both Moody’s and S&P cut Turkey’s credit rating last year, pushing it deeper into non-investment grade territory but the London-based banking source says there are hopes for a slow rating improvement, beginning in the second half of 2019.

Brown for now

Perhaps there is another opportunity to consider in the short-term, in brownfield asset sales. International and local sponsors in the big transport projects are understood to be assessing their options to sell equity stakes to recycle capital for the new planned projects expected to come to market.

Until now, the priority for sponsors has been securing extra funding for those projects which have suffered delays, one banker says. But once the assets become fully operational, the disposal plans can kick off, sources agree. Italy’s Astaldi appointed advisers at the end of 2017 to sell its equity interest in the Third Bosphorus Bridge but failed to secure a firm commitment and sought bankruptcy protection in September 2018. A solution is currently being negotiated, and the prospective buyer – Astaldi’s Italian main competitor, Salini Impregilo – has already confirmed that if successful, it will sell all Astaldi’s shares in its Turkish concessions, including the Bosphorus Bridge. This is unlikely before 2020, however. Co-sponsor IC Ictas has also been exploring a potential sale of its shares in the project, according to reports. 

The environment is not really seductive for foreign investors at the moment, so we will take our time before deciding what to do



And there are other sale processes to focus on. All five sponsors of the Gebze-Izmir motorway BOT are understood to have held initial meetings with investment banks ahead of a formal mandate in the coming weeks to see whether they can sell their equity in the motorway, which is expected to become fully operational at the end of this year. Though the sale of the shares held by Astaldi is certain, sources say they expect all other sponsors – Makyol, Nurol, Ozaltin and Gocay – to assess whether to sell their stakes too.

These assets could attract local sponsors interested in remaining invested in the projects. But international infrastructure funds could be interested, according to sources. GIP, IFM and InfraMed are among international investors which have acquired Turkish transport assets before, and sources say they could assess future opportunities in this space. “We have seen some preliminary interest from funds, we think they’ll try to participate,” one source says.

There has also been speculation about rising interest for shares in the concessionaire of the new Istanbul Airport, which is set to become fully operational soon following the closing of Ataturk Airport, operated by Groupe ADP-controlled TAV Airports. Recently, one of the project’s shareholders sold its 20% to co-shareholders Kalyon (15%) and Cengiz (5%), but there have been rumours of other groups interested. Turkish Airlines was reportedly interested, but it denied it was seeking to buy a stake last month, saying that no decision had been made by the board of directors regarding a stake acquisition. A few months earlier, TAV denied rumours it was in negotiations to acquire shares in the new airport concession. But sources have suggested that once Ataturk – TAV’s biggest asset – closes, TAV will need to find alternative sources of revenues, and a stake in the new airport is seen as the most natural buy for them.

But even these sales may not be immune to Turkey’s economic pains.

“The environment is not really seductive for foreign investors at the moment, so we will take our time before deciding what to do,” one potential seller says. For him, and for other market sources, 2019 will be a “year of stabilisation” for private investments in infrastructure, with limited, if any, financing of new transactions and investors assessing carefully what to do with their current assets whilst waiting for the new projects.

Translating political slogans is not an exact science but perhaps the Turkish word for ‘stabilisation’ might have been a better choice for Erdogan and his AKP party.

Turkey’s priority PPPs

Two motorway PPPs worth more than EUR 1.5bn were put to tender in Turkey last year, then postponed. Worth a combined EUR 1.5bn, these two projects are the Aydin-Denizli motorway BOT project, a 168km road long requiring a capex of around EUR 1bn; and the 78km Çeşmeli-Taşucu motorway BOT, worth some EUR 600m. In addition, sources point to high-speed rail projects that could be procured as a PPPs, including a fast rail connection linking directly Ankara to Istanbul. One source says a EUR 2bn direct rail link between Istanbul and Ankara might be procured as a BOT, and a tender launch could happen as early as next year.

In the hospital sector, though most have already been procured and as many as nine have already opened, the tender for Turkey’s largest-ever hospital PPP in Istanbul’s Asian district of Sancaktepe continues to be postponed. Sources expect it to come to market this year but expect delays to the official tender date of end of April.

The most significant project in the pipeline is the new Great Istanbul Tunnel under the Bosphorus, with capex requirements of EUR 3bn. “Ahead of the elections, [the Turkish government] have been making lots of talk about the new Bosphorus Tunnel project, but there’s nothing concrete yet,” one source says. Engineering consultancy Yüksel was appointed in 2017 but it is still unclear what type of procurement will be selected and when it will begin. “What we hear is that the government is working on how it will tender the project,” one source says. Financing the project on balance sheet is one of the options, according to people close to the project. If authorities go ahead with a BOT plan, they will need to make the tender attractive to international sponsors, followed by their international banks.

One source says that Asian investors, including Korean firms, have already expressed interest in building the tunnel. Despite its much larger size which requires unprecedented technical and construction efforts, this project would still bear similarities with the 5.4km Eurasia Tunnel, a PPP which reached financial close in 2012 and had as its sponsors an SPV of Turkey’s Yapi Merkezi and South Korean firm SK E&C. “But we do really need international banks for a project like this one, because Turkish banks have a stockpile of restructuring issues, and have too much stake in the existing mega-projects,” one local source says.

But the lack of detail around procurement timing has been frustrating investors. “Government people have been making a lot of talks about big projects, they even say there is a lot of interest from foreign investors, but no names have been given about who is interested and how,” one source says. With reference to the Kanal Istanbul project, he adds: “They keep saying they are going to do it, but there haven’t been any details about the project and its tender. It’s just in their talks.”