Last year the new İstanbul airport project was
launched with great pomp by Prime Minister Recep Tayyip Erdoğan. This mega
airport -- expected to have the capacity to serve 150 million passengers a year
by 2040 -- is scheduled to replace the overcrowded İstanbul Atatürk Airport by
2019.
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| İstanbul new airport model |
The first stage of the project has a benchmark of
serving 90 million passengers a year, almost doubling the capacity of İstanbul
Atatürk Airport. The winning consortium of Cengiz-Kolin-Limak-Mapa-Kalyon, a
joint venture of Turkish companies close to the Justice and Development Party
(AKP), won the tender for a build-operate-transfer (BOT) project, promising to
pay a total of 26 billion euros (including VAT) to the Treasury over the course
of 25 years. Hence, the rent to be paid by the consortium will be 1.05 billion
euros per year.
The investment cost for the first stage has been estimated at 7.5 billion euros, a lot of money for a private consortium.
The winners of the tender, the competition for which was very high, were quite confident about the international financing behind the mega project insofar as they were also quite confident about the profitability of the new airport and the ability to reach the target number of passengers. Nihat Özdemir, CEO of Limak, had stated it would be possible to find a loan of 6 billion euros over 16 years with a grace period of 4 years.
It now appears this objective was too good to be true. The financing difficulties of the mega project first came to the public's attention when the AKP government decided to give Treasury guarantees to bank loans for big infrastructural projects. Business circles imagined, quite naturally, that something might go wrong with the financing for the new airport. Then, recently, we read in the media that the finance package would, in the end, be serviced by a consortium of domestic and public banks, with Ziraat Bankası taking the lead.
In fact, these developments did not surprise me. I said as much in this column over a year ago (“Fate of mega airport depends on growth,” June 28, 2013), expressing my doubts about the profitability of the mega project considered along with the annual amount to be paid by the consortium to the Treasury, the cost of investment and the target number of passengers.
Basically, the profitability of the new airport depends on gross domestic product (GDP) growth over the next 25 years. According to a Bahçeşehir University Center for Economic and Social Research (BETAM) analysis, there will be no problem paying back the loans or making the Treasury installments as long as the Turkish economy succeeds at growing at a rate of 5 percent for the next seven years, then at 4 percent until 2030, and, finally, at 2 percent until 2043, which are the indicated potential growth rates -- though comprehensive economic reforms are required in order to make the Turkish economy more competitive and more efficient.
However, this is actually not the case. The current growth rate is below 4 percent. So, BETAM also analyzed the economics of the new airport under a second growth scenario that I consider more realistic. In this second scenario, the growth rates are estimated at 4 percent, 3 percent and 1.5 percent, respectively. Given these GDP growth rates, the forecasted number of passengers hardly reaches 70 million in 2019 and a capacity of 120 million would be fully utilized only in the 2040s. In this growth scenario, the estimated operating profits would fall far short of the loan repayments and the Treasury installments. It is here, I believe, that the source of the financial difficulties lies.
Might potential international creditors have made a similar analysis? They probably have.
The investment cost for the first stage has been estimated at 7.5 billion euros, a lot of money for a private consortium.
The winners of the tender, the competition for which was very high, were quite confident about the international financing behind the mega project insofar as they were also quite confident about the profitability of the new airport and the ability to reach the target number of passengers. Nihat Özdemir, CEO of Limak, had stated it would be possible to find a loan of 6 billion euros over 16 years with a grace period of 4 years.
It now appears this objective was too good to be true. The financing difficulties of the mega project first came to the public's attention when the AKP government decided to give Treasury guarantees to bank loans for big infrastructural projects. Business circles imagined, quite naturally, that something might go wrong with the financing for the new airport. Then, recently, we read in the media that the finance package would, in the end, be serviced by a consortium of domestic and public banks, with Ziraat Bankası taking the lead.
In fact, these developments did not surprise me. I said as much in this column over a year ago (“Fate of mega airport depends on growth,” June 28, 2013), expressing my doubts about the profitability of the mega project considered along with the annual amount to be paid by the consortium to the Treasury, the cost of investment and the target number of passengers.
Basically, the profitability of the new airport depends on gross domestic product (GDP) growth over the next 25 years. According to a Bahçeşehir University Center for Economic and Social Research (BETAM) analysis, there will be no problem paying back the loans or making the Treasury installments as long as the Turkish economy succeeds at growing at a rate of 5 percent for the next seven years, then at 4 percent until 2030, and, finally, at 2 percent until 2043, which are the indicated potential growth rates -- though comprehensive economic reforms are required in order to make the Turkish economy more competitive and more efficient.
However, this is actually not the case. The current growth rate is below 4 percent. So, BETAM also analyzed the economics of the new airport under a second growth scenario that I consider more realistic. In this second scenario, the growth rates are estimated at 4 percent, 3 percent and 1.5 percent, respectively. Given these GDP growth rates, the forecasted number of passengers hardly reaches 70 million in 2019 and a capacity of 120 million would be fully utilized only in the 2040s. In this growth scenario, the estimated operating profits would fall far short of the loan repayments and the Treasury installments. It is here, I believe, that the source of the financial difficulties lies.
Might potential international creditors have made a similar analysis? They probably have.
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