GOT ANNOUNCES 2003 PRIVATIZATION

UNCLAS SECTION 01 OF 02 ANKARA 000343

SIPDIS


SENSITIVE


STATE FOR E, EB/IFD/OMA, AND EUR/SE
TREAUSRY FOR OASIA - MILLS AND LEICHTER
STATE PASS USTR - NOVELLI AND BIRDSEY
USDOC FOR


E.O. 12958: N/A
TAGS: ECON EFIN EINV ENRG TU
SUBJECT: GOT ANNOUNCES 2003 PRIVATIZATION
PROGRAM - A GOOD STEP IN RIGHT DIRECTION

SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET
DISTRIBUTION.



1. SUMMARY: DEPUTY PRIME MINISTER SENER
ANNOUNCED JANUARY 13 THE 2003 PRIVATIZATION
PROGRAM, ADOPTED EARLIER BY THE HIGHER
PRIVATIZATION COUNCIL. IT SETS AN AMBITIOUS
TARGET OF $4 BILLION IN PRIVATIZATION REVENUE.
IT INCLUDES FOUR MAJOR STATE ENTERPRISES -
PETKIM (PETROCHEMICALS),TEKEL (TOBACCO AND
ALCOHOL),TURKISH AIRLINES, AND TUPRAS (OIL
REFINING),AND DOZENS OF SMALL FERTILIZER,
TEXTILE, MACHINERY PLANTS AND OTHER STATE
ASSETS. THE DETAILED PLAN TO SELL OFF TEKEL
SHOULD MEET A IMF PRIOR ACTION, AND THE PLAN
SHOULD ALSO IMPRESS THE MARKETS. THE CHALLENGE
WILL BE TO FOLLOW THROUGH AND SELL OFF THESE
COMPANIES EVEN IF MARKET VALUATIONS COME IN
UNDER GOT EXPECTATIONS, AND DESPITE PUBLIC
SECTOR UNION CONCERNS WITH LAY-OFFS (SENER
ADDRESSED THE LATTER IN HIS STATEMENT). AK
LEADERSHIP HAS CONSISTENTLY TOLD US THEY WOULD
ACCELERATE PRIVATIZATION. IMPLEMENTING THIS
PROGRAM, WHICH WE WILL MONITOR CLOSELY, WOULD
ACCOMPLISH THAT. END SUMMARY.



2. (U) DEPUTY PRIME MINISTER SENER ANNOUNCED THE GOT'S
DETAILED PRIVATIZATION PROGRAM FOR 2003 ON JANUARY 13.
THE PROGRAM HAS BEEN APPROVED BY THE HIGHER
PRIVATIZATION COUNCIL (A SUB-SET OF THE FULL CABINET,
IT HAS THE TURKISH ACRONYM OYK). THE GOT AIMS TO
REALIZE $4 BILLION IN PRIVATIZATION REVENUE IN 2003.
SENER STATED THIS WOULD AFFECT A TOTAL OF 64,000 PEOPLE
WORKING IN THE STATE-OWNED COMPANIES. HE SAID "PEOPLE
AFFECTED BY THE PRIVATIZATIONS WILL BE TAKEN CARE OF"
(MEANING PROBABLY THE WORLD BANK-FUNDED $250 MILLION
FACILITY TO PAY SEVERANCE PACKAGES.) PRIVATIZATION
ADMINISTRATION (PA) DEPUTY CHAIRMAN HIDAYAT KAYA TOLD
US THE PA PLANS TO LAY OFF 10,000 WORKERS IN TEKEL
PRIOR TO ITS JUNE 2003 TENDER.



3. THE 2003 PRIVATIZATION CALENDAR ANNOUNCED BY SENER
IS AS FOLLOWS:


FIRST QUARTER 2003:
THE MAJOR PRIVATIZATION IS THE TENDER FOR PRIVATIZATION
OF PETKIM (STATE PETROCHEMICAL GIANT),VIA BLOCK SALE
OF A MINIMUM 51 PERCENT.
OTHER PRIVATIZATIONS INCLUDE THE GERKONSAN STEEL PLANT;
THE TAKSAN MACHINE TOOLS PLANT; ADAPAZARI FACILITY OF
TURKISH AGRICULTURAL EQUIPMENT ORGANIZATION; SEKA PAPER
PLANTS IN AKDENIZ, AKSU, BALIKESIR, CAYCUMA PLANTS; THE
ETI SILVER AND METALLURGICAL PLANTS (ALL VIA EITHER
BLOCK SALE OF SHARES OR ASSET SALES).


SECOND QUARTER 2003:
THE TWO MAJOR PRIVATIZATIONS ARE THE TENDER OF THE
GOT'S 66 PERCENT SHARE OF TUPRAS (STATE OIL REFINING
MONOPOLY),AND TEKEL (TOBACCO, ALCOHOL AND SALT GIANT
TO BE SPLIT INTO THREE CONSTITUENT PARTS AND TENDERED
IN JUNE).
SMALLER PRIVATIZATIONS ARE SUMER HOLDING'S TEXTILE AND
LEATHER PLANTS IN DIYARBAKIR, ADIYAMAN, CANAKKALE
LEATHER, VAN, TERCAN AND AKDENIZ; THE GEMLIK, SAMSUN
AND KUTAHYA FERTILIZER PLANTS (EITHER VIA BLOCK SALE OF
SHARES OR ASSET SALES).


SECOND HALF 2003:
THE MAJOR PRIVATIZATION IS A TENDER FOR TURKISH
AIRLINES, VIA BLOCK SALE OR PUBLIC OFFERING.
OTHER PRIVATIZATIONS INCLUDE A SMALL PORT CALLED TASUCU
(VIA ASSET SALE OR TRANSFER OF OPERATING RIGHTS; THE
BLACK SEA COPPER FACILITIES; ETI COPPER; SEKA PAPER
COMPANY IN IZMIR; SUMER HOLDING'S TEXTILE PLANTS IN
MERINOS, BAKIRKOY, BEYKOZ, ANTALYA, BERGAMA AND MANISA;
AND ATAKOY HOTELS AND MARINA IN ISTANBUL. THESE
SMALLER SALES CAN BE VIA EITHER BLOCK SALE OF SHARES OR
ASSET SALES.



4. (U) SENER ALSO ANNOUNCED PLANS EITHER TO OUTRIGHT
PRIVATIZE OR TRANSFER TO THE PRIVATIZATION
ADMINISTRATION SEVERAL OTHER STATE-OWNED COMPANIES:
-- THE SUGAR BEET REFINERIES (THERE ARE 27 OF THEM
SCATTERED THROUGHOUT TURKEY) WILL BE PRIVATIZED THROUGH
A SEPARATE OYK DECISION (REQUIRES COORDINATING WITH THE
MINISTRY OF INDUSTRY);
-- THE ISTANBUL STOCK EXCHANGE AND THE NATIONAL
LOTTERY WILL BE TRANSFERRED TO THE PA FOR EVENTUAL
PRIVATIZATION.



5. (U) PA CHAIRMAN TURGUT BOZKURT ALSO MADE REMARKS
FOLLOWING DPM SENER'S PRESENATION. BOZKURT SAID THE
RESTRUCTURING OF HALKBANK WAS COMPLETE (HALK IS ONE OF
TWO LARGE STATE-OWNED BANKS AND UNDER THE STATE BANK
LAW MUST BE PRIVATIZED BEFORE YEAR-END 2004.) BOZKURT
SAID HE PLANS TO INCLUDE IT IN THE 2003 PRIVATIZATION
PROGRAM SOON. BOZKURT ADDED THAT THE TURK TELEKOM
TENDER COMMISSION IS CONTINUING THE VALUATION PROCESS,
TO BE FOLLOWED BY AN ANNOUNCEMENT OF A PRIVATIZATION
STRATEGY.



6. (U) TWO MISSING ELEMENTS IN THE PRIVATIZATION
ANNOUNCEMENT WERE ENERGY AND STEEL. PA DEPUTY HALUK
BUYUKBAS TOLD US THAT ENERGY PRIVATIZATION IS INCLUDED
IN THE COMPLETE OYK DECISION (WE ARE SEEKING A COPY)
BUT WITHOUT DEADLINES. ON STEEL, BUYUKBAS SAID THE PA
PREFERS TO COMPLETE THE MERGER OF STATE-OWNED ISDEMIR
INTO ERDEMIR BEFORE SELLING OFF THE COMBINED COMPANY.


COMMENT
--------------



7. (SBU) THIS IS AN EXTREMELY AMBITIOUS PRIVATIZATION
PROGRAM (COMPARE WITH PRIVATIZATION PROCEEDS IN 2002 OF
ABOUT $500 MILLION),AND THE DETAILED TEKEL PLAN SHOULD
MEET A PRIOR ACTION UNDER THE IMF FOURTH REVIEW. ITS
TARGET OF RAISING $4 BILLION WILL DEPEND ON MARKET
VALUATIONS. ONE CHALLENGE FOR THE GOT WILL BE TO SELL
OFF THESE COMPANIES EVEN IF MARKET VALUATIONS COME IN
UNDER EXPECTATIONS. THE OTHER MAJOR CHALLENGE IS TO
DEAL WITH THE POLITICAL FALL-OUT FROM LAY-OFFS AT STATE-
OWNED COMPANIES, WHICH SENER REFERRED TO IN HIS
STATEMENT.



8. (SBU) IMPLEMENTATION OF THIS IMPRESSIVE PROGRAM
WOULD BE A KEY STRUCTURAL REFORM VICTORY, THOUGH WE
SHOULD NOT ENCOURAGE THE GOT TO VIEW IT AS A FISCAL
POLICY SOLUTION, WHICH AK LEADERS HAVE A TENDENCY TO
DO. OVER THE PAST FEW YEARS, GOT PRIVATIZATION EFFORTS
HABEEN LONG ON RHETORIC AND SHORT ON ACTION. WE WILL
CLOSELY MONITOR THE GOVERNMENT'S IMPLEMENTATION OF THIS
PROGRAM, AND PUSH WHENEVER NECESSARY. PEARSON