Private contractors feed on Turkey’s public funds during pandemic

Private contractors in Turkey are set to make a fortune from the state budget as they fail to meet passenger quotas in public infrastructure during the country’s battle with the coronavirus outbreak.

Contracting firms have been handed tenders that allow them to operate the public infrastructure projects they construct – such as airports, bridges and tunnels – earning guaranteed income in dollars or euros in many cases for decades before turning them over to the state. As part of the agreement, the firms are guaranteed an income paid by the state if they do not achieve their customer quotas.

The government announced that the crossing of bridges would be free-of-charge during the Eid al-Fitr holiday, which coincides with a state-sanctioned four-day curfew. That means most people do not have access to the infrastructure.

But Özgür Karabat, an Istanbul deputy for the main opposition Republican People’s Party (CHP), pointed out that the three-day cost of the Yavuz Sultan Selim Bridge would still be at least 7.8 million liras, while the cost of the Osmangazi Bridge for the same days would be a minimum of 64.2 million liras, bringing the total amount the Treasury must pay contractors to at least 72 million liras ($10.7 million).

“According to the president's decision, it is free to cross the bridges during the holiday. However, nothing is free in Turkey because of guaranteed public-private partnership projects. All citizens fund the Treasury with their taxes,” Karabat said, calling the bridges a “black hole” in the state budget.

Meanwhile, the aviation industry has experienced a difficult times due to the global pandemic and its financial troubles are bound to reflect on the state budget as well, according to Patronlar Dünyası.

The business news website cited airline statistics released by the State Airports Authority (DHMI) for April, which said the number of airline passengers fell by 99 percent after international and domestic flights were banned to reduce the spread of COVID-19. 

At Istanbul Airport, which is privately constructed and operated by business consortium İGA, the number of passengers have decreased from 5 million in January to 33,000 in April. Like other public-private partnership projects in Turkey, İGA receives a “customer guarantee” for the revenue it gains from the airport.

As the coronavirus situation grew to a global pandemic, the number of aircraft flying in and out of Istanbul Airport dropped from 35,089 aircraft in January to 19,878 in March. The figure later sunk to 1,327 in April, a 96 percent decrease compared to January.

The airport’s guarantee for 2020 has been set at 333.8 million euros. Should the airport's revenue fall below that level, the state has promised to make up the difference. The total warranty for 13 years is 6.3 billion euros.

Turkish journalist Çiğdem Toker said that the pandemic should be considered a "force majeure", a common clause in business contracts that essentially frees both parties from liability or obligation when an extraordinary event prevents any party from fulfilling their obligations under a contract. Thus Treasury guarantees could be suspended, she said.

“When the Eurasia Tunnel was opened at the end of 2016, the dollar was just over 3 Turkish liras. It was around 1.2 liras in 2008 when the tender was held. The same dollar is 7 liras today,” Toker said. The 5.4-kilometre double-decker tunnel connects Kumkapı on the European side of Istanbul and Koşuyolu, Kadıköy, on the Asian side of the city.

The lira slid to a record low of 7.269 per dollar on May 7 and now trades at around 6.8 per dollar.

“Can you see how destructive it is that the dollar, which was set at 1.2 liras in the Eurasia Tunnel tender under which the Transport Ministry guarantees a daily passage of 68,500 vehicles, is now 7 liras today?” Toker said.

The increased costs come at a time when government spending is spiralling upward, in part due to the financial measures it has introduced to cushion the impact of COVID-19. The budget deficit is consequently becoming ever deeper.

The deficit for April totalled 43.2 billion liras, falling just short of a record 43.7 billion liras posted in March, official data published on May 15 showed. The gap more than doubled from 18.3 billion liras in April 2019.

“Nowadays when the 2020 budget figures have lost their meaning, the price paid by the public for projects the government has built with the public-private partnership model is getting ever heavier,” Toker said.