US embassy cable - 05ANKARA3845

UNCLAS SECTION 01 OF 02 ANKARA 003845 
 
SIPDIS 
 
EB/CBA FOR FRANK MERMOUD 
TREASURY FOR CPLANTIER AND MMILLS 
NSC FOR BRYZA AND MCKIBBEN 
USDOC/ITA/MAC FOR DAVID DEFALCO 
 
E.O. 12958: N/A 
TAGS: EINV, BEXP, EFIN, TU 
SUBJECT: SAUDI-ITALIAN CONSORTIUM WINS TURK TELECOM BID 
 
REF: A. A. 04 ANKARA 6673 
 
     B. B. 05 ANKARA 446 
     C. C. 05 ANKARA 2159 
     D. D. 05 ANKARA 2812 
 
1.  (SBU) Summary: The Privatization Authority took a major 
step in the privatization of 55 percent of Turk Telekom July 
1, opening the four consortia,s bids and short-listing the 
two top bidders: Oger Telecoms-Telecom Italia and a 
consortium led by Etisalat of UAE.  In a televised bargaining 
session, the Oger consortium topped Etisalat with a $6.55 
billion bid.  The privatization now goes to the competition 
and regulatory boards and to the Council of Ministers for 
approval.  If the PA is successful in navigating these shoals 
without falling prey to legal challenges it will be a 
watershed event in Turkey,s economic reform program.  End 
Summary. 
 
2.  (U) On July 1, The Turkish Privatization Authority opened 
the bids of the four groups that had submitted bids June 24 
to buy a 55 percent stake in the state landline company Turk 
Telecom (TT).  Privatization Administration (PA) President 
Metin Kilci announced that Oger Telecoms JIG (Oger Telecoms 
and Telecom Italia) and Etisalat JIG (Cetel-Calik Energy 
Telecommunication, Dubai Islamic Bank, Abu Dhabi National 
Insurance Company and Etisalat-Emirates Telecommunications 
Corporation) submitted the two highest bids and were 
therefore shortlisted.  We understand Oger-Telecom Italia's 
sealed bid was $1.4 billion higher than Etisalat's.  The 
other two bidders, who were eliminated July 1, were Koc 
Holding JIG (Koc Holding A.S. and the Carlyle Group L.L.C.) 
and Turktel JIG (Turktel Information Services, Gen-PA 
Telecommunication and Communications Services-Tekofaks Office 
and Communication Equipment Trade-Kurtson Mining and Industry 
Operations).  Carlyle was the only U.S. company involved in 
the bidding. 
 
3.  (U) News reports, citing leaks from the Privatization 
Administration, indicated that a lower-limit*or reserve 
price*had been set at a minimum of USD 9 billion (valuation 
for 100 percent of the shares) in order to continue with the 
tender.  Kilci said in a news conference that "within the 
framework of the tender commission's ruling, the decision was 
made to continue negotiations with the investors who made the 
two highest bids."   Oger's final $6.55 billion bid for 55 
percent of the shares more than meets the minimum threshold. 
 
4.  (SBU) This will be the third attempt by the GOT to sell 
shares of TT (see Ref. A).  Repeated delays, legal obstacles, 
political sensitivities, internal wrangling over tender 
specifications, and outright cancellations of sales have 
blocked the previous attempts and slowed the current effort 
to sell this flagship state enterprise, that is widely 
considered a "cash cow" for the Turkish state.  (See Ref. 
A-D).  A demonstration took place today at the Privatization 
Administration building to protest the privatization of TT. 
Turkish labor unions have intensified their opposition to 
privatization in recent weeks with demonstrations and 
billboards showing evil foreign investors (literally with 
vultures) ready to acquire Turk Telekom.  The unions mounted 
a street demonstration in front of the PA headquarters during 
the auction.  However, Turk-Is labor union,s international 
relations advisor Hakan Sukun told Laboff July 1 that, 
although the union opposed the privatization of Turk Telekom, 
it doubted it would be able to stop it. 
 
5.  (SBU) Next steps: As PA President Metin Kilci announced 
at the close of the bidding session, the deal still requires 
approval by the Telecom Regulatory Authority, the Competition 
Authority, and the Council of Ministers. 
 
6.  (SBU) Comment.  The sale of TT would be a watershed event 
for the GOT's faltering privatization program.  The GOT has 
been able to sell off most of its small and medium-sized 
state economic enterprises (SEEs), but has failed in past 
attempts to sell off larger SEEs like TT.  The sale of TT 
would build credibility in the GOT's privatization program 
and would represent both a significant inflow of Foreign 
Direct Investment and cash for Turkish Treasury to use to 
reduce public sector indebtedness.  Perhaps most importantly, 
it would open the door to more efficient, world-standard 
telecommunications services in Turkey.  End Comment. 
MCELDOWNEY