Concessionaire Protection To Support Infrastructure Confidence


BMI View: A new regulation under consideration in Turkey will protect concessionaires from having their contracts annulled within the first five years of the agreement, as we have seen numerous times in recent years. With the risk of cancellation reduced significantly, and the government also having introduced debt guarantees for major infrastructure projects, our view for the infrastructure sector to outperform the residential and non-residential sector in terms of growth looks set to be confirmed.

In a move to stem any potential loss of private interest in Turkey's infrastructure sector as a result of the construction industry being at the centre of large scale corruption allegations over Q114, a draft piece of regulation is being considered in the Turkish parliament which will prevent re-transfer of privatised assets to the state once a concession has been awarded. The move comes after Turkey introduced state guarantees for a number of major infrastructure projects, over fears that investors may shy away over the corruption scandal (see 'Debt Guarantee: Implications For Infrastructure', 25 April 2014).

The new regulation will protect privatised assets for a period of five years after a contract has been awarded, preventing any disputes leading to an annulment of the agreement. The concession regulation reinforces our view that Turkey's infrastructure sector will continue to perform well over the coming years (see 'Construction Weathers Storm, But Lasting Damage Done', 16 May 2014). Although we highlight the potential for a slowdown in residential construction (see 'Supply-Demand Mismatch Poses Residential Downside', 03 June 2014), the infrastructure should continue to perform well. Indeed, Q114 official data shows the Turkish construction industry grew by 5.2% in real terms driven largely by major projects such as the third bridge across the Bosphorus, confirming our own forecasts of 5.3% real growth in 2014.

Infrastructure Growth Gets Further Support
Infrastructure and Residential and Non-Residential Building Industry Growth

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Related sectors of this article: Infrastructure, Transport Infrastructure, Utilities - Infrastructure, Public Private Partnership, Roads and Bridges, Ports
Geography: Turkey