US embassy cable - 03ANKARA4528

UNCLAS SECTION 01 OF 02 ANKARA 004528 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/IFD AND EUR/SE 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR BRYZA 
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO 
 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, EFIN, PGOV, TU 
SUBJECT: PRIVATIZATION CHIEF SAYS SALES ARE MOVING FORWARD 
 
 
REF: ANKARA 4061 
 
 
1. (SBU) Summary: New Privatization Administration (PA) 
President Metin Kilci says strong political support is 
enabling him to proceed with long-delayed privatizations. 
The Higher Privatization Council's approval of the 
controversial sale of Petkim to the Uzan family was an 
important step forward, and the PA hopes to complete the 
sales of Tupras (petroleum refining) and Tekel 
(alcohol/tobacco) by year-end.  Meanwhile, Kilci says the PA 
is "cleaning out" its portfolio by selling companies -- or in 
some cases just their assets -- that have been under its 
control for as long as twenty years.  Many investors/analysts 
believe this government is more committed to privatization 
than its predecessors, and therefore are hopeful that 
positive rhetoric will translate into actual sales.  End 
Summary. 
 
 
2.  (SBU) New Privatization Administration (PA) President 
Metin Kilci briefed us July 18 on privatization plans for the 
rest of the year.  He began by stressing that, unlike in the 
past, there is now strong political support for 
privatization.  He noted specifically that Finance Minister 
Unakitan, who now oversees the PA, is a strong supporter. 
 
 
3.  (SBU) Kilci argued that the Higher Privatization 
Council's recent decision to approve the controversial sale 
of petrochemical company Petkim to the Uzan family (reftel) 
marked an important step forward because it demonstrated 
convincingly to investors that the government was committed 
to privatization, even at a political cost.  Kilci said the 
PA was waiting to see whether the Uzans could come up with 
the $240 million payment and "credible" bank guarantees for 
the remaining $365 million (to be paid in three installments) 
by the August 6 deadline.  He acknowledged that the Uzan's 
successful bid had been embarrassing, since the family owes 
the government hundreds of millions of dollars, and said the 
PA had the legal authority to screen would-be bidders more 
carefully. (Comment:  Most investors with whom we have spoken 
commended the GOT's approval of the sale, saying the need to 
show seriousness about privatization outweighed concerns 
about the purchaser in this case. Some also wondered if the 
GOT had approved the sale in the expectation that, given 
other recent GOT actions against Uzan Group assets, the group 
would not be able to come up with the payment to PA.  End 
Comment) 
 
 
4.  (SBU) The PA's current focus is on the upcoming sales of 
Tupras and Tekel.  According to Kilci, a number of foreign 
and Turkish companies are interested in the companies, and 
are now undertaking due diligence.  The tender process should 
begin in September-October, leading to open auctions in late 
October, though there is some flexibility on that date. 
Kilci's goal is to finalize the sale contracts by the end of 
the year (though he warned this could slip into early 2004). 
In the case of Tupras, the PA will sell the state's 66 
percent stake, retaining only a "golden share" to guarantee 
company sales of refined petroleum products to the military. 
On Tekel, the PA will sell the cigarette (production and 
distribution companies jointly) and spirits divisions 
separately. 
 
 
5.  (SBU)  Kilci said that the PA is also engaged in 
"cleaning out" its portfolio, a move he believes is as 
important as the Tupras and Tekel sales.  He complained that 
several companies have sat in the PA portfolio for as long as 
twenty years, during which time they have steadily lost value 
while remaining a drain on state finances.  He is determined 
to clear them out, even if it does not bring in substantial 
revenue.  Last week, the PA opened a tender on six textile 
factories owned by state company Sumer, and sold 3-4 of them. 
 It also has sold five pulp and paper factories, and is 
trying to sell some facilities owned by meat packing company 
EtBalik.  Kilci clarified that, where the companies have some 
potential to operate in the market, the PA is selling them as 
full companies.  For those companies without potential, the 
PA is simply selling the land and other real assets and 
liquidating the companies.  He noted that these steps have 
provoked strong opposition from some Parliamentarians and 
labor unions, but the government has instructed him to 
proceed anyway. 
 
 
6.  (SBU) The PA's plan for 2004 is to sell Turk Telekom, a 
number of electricity production and distribution companies, 
and several sugar factories,  PA is now working with the 
World Bank, the Telecom Regulatory Authority, and private 
consultants to prepare a complete strategy for Turk Telekom's 
sale.  If all goes according to schedule, the Council of 
Ministers will receive and approve the strategy by the end of 
October, so the tender process can begin by the end of the 
year.  Kilci noted that the ongoing merger of cellular 
companies Aria and Aycell (the latter owned by Turk Telekom) 
was causing some delay, because the merger will affect Turk 
Telekom's valuation. 
 
 
7.  (SBU) Comment:  After 2-3 years of positive rhetoric but 
little action on privatization, the investment, business and 
foreign diplomatic communities remain somewhat skeptical of 
government promises.  On the other hand, there is a 
widespread belief in the business/investor community that 
this government is more committed to privatization than its 
predecessor.  Given the PA's schedule, the government has an 
opportunity in the next 3-5 months to prove itself on this 
issue. 
PEARSON