Qatar wins big as Erdoğan privatises $20 billion tank factory

When Turkish President Recep Tayyip Erdoğan’s Dec. 20 decree turned over the right to operate Turkey’s national tank factory for a 25-year period to the Turkish-Qatari vehicle manufacturer BMC, it marked the first time a military facility of strategic significance had been privatised.

Criticism of what has been dubbed the privatisation decree has centred on concerns over national security. The leader of the main opposition Republican People’s Party (CHP) Kemal Kılıçdaroğlu also demanded to know whether commissions had been set up to ascertain the value of the privatised project, whether the deal had been opened to tender, if so, when, where and to which firms, and if not, why not.

But Kılıçdaroğlu focused on the presence of a foreign firm in one of Turkey’s most important defence projects, which is responsible for producing Turkey’s homemade new generation Altay tanks. The CHP leader demanded to know the conditions under which the Qatari government had bought its 49.9 percent stake in BMC and whether the Turkish soldiers up to now involved in the Altay tank project would continue to work on the project and take orders from a Qatari firm.

Qatari involvement in the deal is a serious point of contention for both the CHP and nationalist opposition Good Party, who pointed out the potential vulnerabilities it could lead to.

Erdoğan enjoys close ties with Qatar’s royal family, which over the past year has presented the Turkish president with the gift of an ultra-VIP private jet worth $500 million, as well as helping bail Turkey out with a promise of $15 billion in direct investment when the lira fell dramatically in August. This in itself is enough to raise suspicions that the BMC deal is a form of reimbursement.

CHP deputy Engin Özkoç pointed to the risk of trouble if these friendly relations turned sour.

“At one time our relations with Syria, too, were good. What happens if we fall out with Qatar?” Özkoç said. “What if the Qataris decide to sell their 50 percent stake to Greece or another unfriendly country?”

Erdoğan has brushed off criticism, maintaining that the 25-year deal does not constitute privatisation since nothing was sold – even though this contradicts the written decree on Dec. 20, which specifically relates to privatisation. He said the project would employ 10,000 people and bring billions of dollars of investment from Qatar and other countries, adding around $5 billion to Turkey’s GDP.

The circumstances of the deal, and how a company known for its close ties to the Turkish president appears to have been chosen for a crucial and lucrative project without it going to public tender, demand close scrutiny.

The Dec. 20, 2018 decree stated that the privatisation process would continue until Dec. 19 this year. Yet it took less than a month for Erdoğan to announce on Jan. 13 that BMC had been authorised to run the factory for 25 years. Thus the factory was turned over to BMC without any other companies having the chance to bid. 

The links tying BMC’s owner, Ethem Sancak, to Erdoğan’s Justice and Development Party (AKP) are well known. Sancak, now himself a member of the AKP’s executive board, is one of the businessmen whose stars rose rapidly since the party came to power in 2002.

BMC was taken over by the Savings Deposit Insurance Fund of Turkey (TMSF) after its former owner, Turkish billionaire Mehmet Emin Karamehmet, ran into trouble in the banking crisis of 2001. 

When Sancak acquired the company in May 2014, he faced no competition and paid 751 million lira – 231 million lira under the price originally sought by the TMSF. Weeks later, he sold half of the company’s shares to the government of Qatar.

Since then BMC has enjoyed a steady flow of orders from Turkish security forces and many AKP municipalities, which it supplies with armoured vehicles, water cannon and public buses.

Turkish President Tayyip Erdogan welcomes Qatar's Emir Sheikh Tamim bin Hamad al-Thani as he arrives for a meeting in Istanbul, Turkey, November 26, 2018. Kayhar Ozer/Presidential Press Office/Handout
Turkish President Tayyip Erdogan welcomes Qatar's Emir Sheikh Tamim bin Hamad al-Thani as he arrives for a meeting in Istanbul, Turkey, November 26, 2018. Kayhar Ozer/Presidential Press Office/Handout

BMC was also not the original firm involved in the Altay tank project, which was developed by Otokar, a subsidiary of Koç Holding, one of Turkey’s largest industrial groups. After Erdoğan gave the project the green light in 2007, Otokar spent nine years on research and development of the tank, enlisting around 100 domestic and international companies in the process before producing the first prototypes of the Altay, which were displayed at a defence fair in 2016.

“As long as a very big problem doesn’t come up, all our tests have been successful and (the tank) has performed above our expectations,” Otokar chief Ali Koç said at the time. 

“These are not my words but those of our armed forces. From this perspective, turning the project over to another company would set it back by three to five years. We believe it is in the best interest of our country … for Otokar to produce the tank,” he said.

Yet in August 2016, months after the prototypes were displayed, Turkey’s Defence Industries announced that Otokar’s tender bid to produce the tanks had been rejected.

Instead, in April 2018, the $3.5-billion tender to build 250 Altay tanks went to BMC, when which was chosen over Otokar, and another defence firm, FSSN.

BMC was granted government “super incentives,” including tax relief and subsidies on customs, export duties, energy bills and infrastructure costs. The state also allocated a plot of land in Sakarya, in northwest Turkey, for the company to build its tank factory.

Nevertheless, production of the tank was delayed for months, at first seemingly due to economic difficulties. Then came Erdoğan’s decree granting 25-year operating rights, free of charge and without any competing bids, for the 1.804 million metre square military tank factory – a move that saves BMC the massive expense of constructing its own factory. 

The privatisation decision sparked protests from Turkish defence industry workers’ union Harb-İş, which noted that the land for the tank factory had originally been presented as a gift to the Turkish military by the people of Sakarya in 1975, when a U.S. weapons embargo prevented Turkey from buying spare parts for its U.S.-built tanks.

“How right is it to hand over this facility on a silver platter to these people for 25 years,” asked Harb-İş’s Sakarya branch head Yaşar Yavuz. “How right is it, while we have done everything to prepare for construction of the Altay tank, to hand over the factory to people who have no experience, understanding or connection to this field?”

The only clear winners are BMC and its Qatari partners, who have somehow been granted the right to operate a factory that produces all the Turkish military’s tracked vehicles, as well as modernising its Leopard T1 and T2 and M52 tanks and manufacturing other equipment.

As well as the billions of dollars it would have taken BMC to build its own factory, the 25-year operating rights the company has been granted also saves it the two or three years of investment, and gives it access to the thousands of experienced staff already in place.

All in all, Qatar’s emir, Sheikh Tamim bin Hamad Al Thani appears to have done well by sending Erdoğan his $500 million jet and received a factory worth billions in return. And, while we are still yet to see any of the $15 billion direct investment promised by the Qataris, their 50-percent share of the $20 billion factory already leaves them close to breaking even. Of course, the $3.5 billion order for tanks is just the cherry on top.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.