GALATAPORT PRIVATIZATION FOUNDERS

UNCLAS SECTION 01 OF 02 ISTANBUL 000184

SIPDIS

SENSITIVE

STATE FOR EUR/SE

E.O. 12958: N/A
TAGS: ECON EINV TU
SUBJECT: GALATAPORT PRIVATIZATION FOUNDERS

REF: A. ANKARA 455


B. 2005 ISTANBUL 1716

Sensitive but unclassified. Not for internet distribution.
This message was coordinated with Embassy Ankara.


1. (SBU) Summary: The politically troubled privatization of
Istanbul's Galataport (ref b) came to an ignominious close in
late January as the GOT formally cancelled the tender
granting a 49-year lease on the site to a consortium
including Israel's Ofer Group. The coup de grace was
delivered by Deputy Prime Minister Sener, following a January
13 decision by Turkey's Council of State (Danistay) to block
Ministry of Culture approval of zoning changes in the site.
In contrast to the Danistay's Tupras decision (ref B),which
sparked consternation in Istanbul business circles, there was
little surprise regarding Galataport, as the project had
become a political football between and among various
factions in the AKP government and the opposition, and as
most believed it had been badly mishandled and should be
redone. Still unclear is the related fate of the block sale
of 14 percent of Tupras' shares to the Ofer Group, which
added to the original controversy. End Summary.


2. (SBU) As Ref B related, the Galataport sale has been
controversial since its announcement in October. Critics
faulted the government for not clearly demarcating
responsibility for the project (authority was shared among
the Maritime Undersecretariat, the Privatization
Administration, and the State Planning Office) and for
failing to establish either clear payment principles or clear
planning guidelines. As a result, Tankut Gundogar, board
member of FIBA Holding and former Chairman of the city's
zoning commission told us, bidders offered varied and not
easily comparable amounts for the property on the basis of
different conceptions of what they would be able to do with
it. Subsequent attempts to streamline the process of
securing zoning and other approvals for the winning bidder
thus sparked criticism and ultimately legal action to stop
the sale. Indeed, the Istanbul city government, itself in
the hands of the AK party, went to court to block the tender,
arguing that such planning provisions should have been
completed before the tender was announced. Ultimately,
however, the Danistay decided against the project on the
basis of another suit filed by the Istanbul City Planners
Chamber.


3. (SBU) In Ankara, the project had become a political
football, with the opposition People's Republican Party (CHP)
and portions of the press attacking the government's handling
of the tendering process, and linking the Ofer Group's
winning the bid to a meeting that Prime Minister Erdogan had
granted to the Israeli businessman. In a rare public display
of differences within the AKP government, Deputy Prime
Minister Sener had strongly implied his opposition to the
transaction. In the end, according to press reports, it was
Sener who delivered the coup de grace, refusing to approve
the privatization. There was also an anti-semitic
undercurrent that stoked opposition to the deal.


4. (SBU) Gundogar, who still sits on the Istanbul city
council and now heads its EU/International Relations
committee (a relatively lighter burden, he quipped),believes
prospects for the project are more positive now, and said
that the city is in the process of withdrawing its suit
against it. In exchange, it will play a lead role in
developing the plans for the site, which will be the first
stage of a three stage process. After this consultation
among the city, the Ministry of Culture and Tourism, and the
Privatization Administration, a vision for the site will be
established in line with the decided zoning plan. At that
point, bidders will be invited to submit bids to realize the
project. The tender will utilize a "transfer of operating
rights" model rather than the build-operate-transfer model
used in the initial offering. If the initial process had not
been rushed, Gundogar opined, the resulting chaos could have
been avoided. But he noted that the government has learned
its lesson, and moved to correct earlier errors: putting
planning first, giving responsibility for the privatization
to the Privatization Administration, which obviously has more
expertise in the matter than its maritime counterpart, and
establishing clear and consistent payment principles (50
percent down and two annual payments thereafter).


5. (SBU) Gundogar added that he expects the number of bids to
exceed those registered in the initial offering, given the
current boom in Istanbul real estate, which has resulted in a
doubling of property values in the last two years. FIBA
Holding, which finished second the first time around, will
likely participate, as will other major real estate
developers here. Not clear are the plans of the winners of
the initial tender, though Global Holding Chairman Mehmet
Kutman has been vocal in noting the losses his company
suffered as a result of the reversal.


6. (SBU) Comment: The business community was not surprised to
see the star-crossed Galataport deal cancelled, whereas
business people were much more concerned about the recent
Danistay ruling against the already-consummated Tupras
privatization (ref A). Neither case is encouraging for
future bidders on privatizations, of course, who may wonder
if the tender they are bidding on will really go through.


7. (SBU) Comment continued: Gundogar's optimism about the
project itself going forward is echoed by others, including
Abdurraman Ariman, former Secretary General to the Foreign
Investors' Association who now heads a private investment
consulting firm and also works as an advisor to the Istanbul
Municipality. He also shared with us a wide range of
conceptual projects the city has developed, including plans
for a large cruise ship terminal in Zeytinburnu in the Sea of
Marmara that would provide security above and beyond what is
possible at Galataport. How that vision will impact the
Galataport project, however, remains to be seen. End Comment.
JONES