Turkish infrastructure market overview

October 2014
Turkish infrastructure market overview
Private and confidential
1
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2
Contents
Section
Page
I–
Underlying dynamics for infrastructure demand
3
II –
Overview of Turkish infrastructure landscape
9
3
I. Underlying dynamics for infrastructure demand
4
Strong fundamentals support infrastructure investments
Population by age groups – Turkey vs. EU15
Population increase (CAGR 2013-2020)
47
11
64
60
11
39
81
21
143
7
EU-16
80-84
Turkey
70-74
1.6%
Total population (mn) in 2013
60-64
50-54
0.8%
0.5%
40-44
0.4%
30-34
0.3% 0.3% 0.2%
-0.2% -0.2% -0.3% -0.4% -0.4%
20-24
Bulgaria
Russia
Romania
Germany
Poland
Czech Republic
Italy
United Kingdom
Source: IMF, World Bank
Greece
Spain
10-14
16.0%
together with
increasing
12.0%
<5 years
Source: IMF, UN
Unemployment rate (%)
Large and young
population
Evolution of household income distribution
Breakdown of households
for income brackets
Disposable income
14.0%
10.0%
8.0%
9.0%
>$75 k
898
$50-75 k
1,190
2,496
2,666
6%
13%
7%
14%
$25-50 k
4,475
6,598
28%
35%
$10-25 k
6,100
6,838
43%
33%
16%
4%
6.0%
4.0%
2.0%
$1-10 k
0.0%
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
welfare of the
middle class
drives demand
for infrastructure
76
Turkey
population of 76
mn
41% of Turkish
population is
below age of 24,
promising
extensive period
of growth
1,243
India
Turkey is one of
the most
populated
countries in
Europe after
Russia and
Germany with a
Source: Turkstat
800
2007 # of households
Source: BCG
2,520
2017 # of households
5
GDP growth fuelled by the investment friendly environment
Nominal GDP growth (US$ bn)
Annual average real GDP growth (2012-17)
CAGR: 5.8%
Increasing GDP
per capita, which
currently stands
above US$10K,
and enhanced
borrowing
capacity of
CAGR: 8.5%
735
730
647
483
820 810 850
775 786
China
907
616
531
5.1%
5.0%
4.6%
Argentina
4.1%
Brazil
3.8%
Russia
3.7%
3.5%
3.2%
2016E
2015E
2014E
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
Mexico
Source: OECD Economic Outlook
Inflation (annual change %)
Real interest rate (CPI adjusted*)
14%
20.0%
12%
15.0%
10%
9.3%
9.4%
10.0%
8%
6%
5.0%
6.3%
0%
Source: Turkstat, Undersecretaries of Treasury Medium Term Program 2015-2017
-10.0%
Source: Turkstat
*Yield for CPI Adjusted Government Domestic Debt Instruments
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
-5.0%
Jan-07
2%
Jul-06
0.0%
Jan-06
5.0%
Jul-05
4%
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
2014E
2014E
2015E
2015E
2016E
2016E
investments
Turkey
South Africa
S.Korea
Source: Turkstat, Undersecretaries of Treasury Medium Term Program 2015-2017
favorable
environment for
6.0%
Slovakia
After years of
high inflation,
decreasing
interest rates
provide a
6.9%
Indonesia
392
individuals fuel
personal
spending in
Turkey
8.4%
India
6
Key parameters indicate need for infrastructure investments
Infrastructure investment per capita
Transportation investments
EU-27= 100
As % of GDP (2011)
4.3%
126
109
80
Poland
Russia
Spain
Turkey
Bulgaria
France
Sweden
1.4%
1.1% 1.2% 1.3%
0.9%
0.8%
0.7%
UK
Poland
Bulgaria
Czech
Republic
Sweden
UK
Netherlands
France
53
Turkey
64
45
2.9%
2.5%
China
107
Romania
98
Spain
GDP of US$25
trillion
131
118
Belgium
Located between
Europe and Asia,
Turkey enables a
link between
three continents
over 1.5 billion
people and a
Source: EU Transport in Figures, data as of 2010
Electricity consumption per capita (kWh)
United States
Foreign trade volume (US$ mn)
13,246
Germany
CAGR: 12.0%
1,200
7,081
Euro area
CAGR: 14.0%
6,599
Czech Republic
700
6,289
Greece
553
5,380
243
Bulgaria
Poland
Turkey
*Latest available 2011 figures
Source: UN
897
4,864
3,832
2,709
299
102
141
114
186
2009
2010
376
389
403
429
135
152
152
167
344
241
237
252
262
209
2011
2012
2013
2014 E
2015 E
Import
Source: Turkstat, Ministry of Development
Export
536
361
2020 E
500
2023 E
7
Turkey aspires to achieve ambitious goals by 2022
Transportation and energy infrastructure forecasts for Turkey
Infrastructure (TL bn)
Energy and utilities infrastructure (TL bn)
Transportation
constitutes a
significant portion
of the government
budget. In 2013,
the government
allocated 30% of
the total
infrastructure
CAGR: 12%
40
35
30
25
20
15
10
5
0
CAGR: 12%
60
50
40
30
20
10
0
investment budget
to the
transportation
industry.
Roads and bridges
Railways
Airports
Ports, harbors and waterways
Power plants and transmission grid
Oil and gas pipelines
Water infrastructure
Infrastructure
investments are
expected to reach
Planned major projects
TL36.6 bn by 2022
The infrastructure
Körfez Bay
Bridge 1st
Phase
US$9.2 bn**
1
investments for
energy and utilities
4
Euroasia
Tunnel
5
US$1.6 bn
3rd Airport
in Istanbul
EUR10.2 bn
will increase at a
CAGR of 12% from
2015
2016
2017
2020
2011 to 2022,
reaching TL55.8 bn
2
3rd Bridge
in Istanbul
US$2.5 bn
*Envisaged completion date for the first part of the project
**Indicates total project cost
3
PPP Hospitals*
US$7.7 bn
1
Körfez Bay
Bridge 2nd
Phase
US$10.1 bn**
8
Privatizations have opened infrastructure to private capital
Transportation
Airports
1997
2003
2005
2007
2008
İstanbul
Atatürk
(BOT,
US$2.4 bn)
Ankara Esenboğa
(BOT)
İzmir Adnan Menderes
(BOT, US$870 mn)
İstanbul Atatürk (TOR,
US$2.9 bn)
Antalya
(TOR,
US$3.2 bn)
İstanbul Sabiha
Gökçe
(BOT,
US$3.1 bn)
Ports
Mersin Port
(TOR,
US$755 mn)
2010
2011
Samsun
(TOR, US$125 mn)
Bandırma
(TOR, US$175 mn)
İzmir*
İskenderun
(BOT, US$372
mn)
2013
2014
2015-2018
National
network of
2000 km*
Toll roads
National network of 2000
km to be retendered
Transmission
Utilities
(1)
Natural gas
Electricity
Başkent Gaz
(US$1.2 bn)
Total of 65 regions under BOT scheme
IGDAŞ
(2)
Total of 21 regions under TOR
(Total of US$13 bn)
Natural gas
National backbone
(BOTAS) to be
privatized
Electricity
National grid to be
privatized
*Cancelled
(1) Ankara gas distribution
(2) Istanbul gas distribution
BOT: Build operate transfer
TOR: Transfer of operating rights
9
II. Overview of Turkish infrastructure landscape
Turkish infrastructure landscape offers diverse opportunities
Utilities / Energy

Natural Gas
Transportation

Starting from 2003, private investors have
been given concessions to roll out natural
gas distribution networks in certain regions
through public tenders
As a result, few companies have emerged
as leading gas utilities providing service in
several regions


Ports
Private sponsors will construct and equip
hospitals and rent the facilities to the
government under long term contracts
Toll roads
Turkish government intends to privatize
approx. 2000 km of tollroad network
Government has recently announced that
BOTAS, national backbone operator and
TEIAS, national grid operator are
considered to be privatized
In addition, there are three major
development projects in progress under
private ownership

PPP Structure in Healthcare
Turkish government has long been
working on a major investment program in
healthcare, where over 20 city hospitals
will be developed under PPP scheme
There are several private port
developments are in progress in order to
tap growth in increasing foreign trade
volumes
Transmission

Airports are the first examples of
privatization in infrastructure and now all
major airports are being operated by
private operators
Most of the major seaports have been
privatized except for Port of İzmir
Electricity
Based on a broad liberalization program in
energy sector, Turkish government has
completed privatization of electricity
utilities, a total of 21 regions in Turkey


Airports
Social
Railways
Railways are under the privatization
program and needs significant investment
for rehabilitation
Legal framework is now in place and
preferred sponsors are selected for most
of the projects
Several projects are near to financial
closings and constructions have started in
some cases
Turkish government is expected to
introduce PPP scheme in other areas of
social infrastructure based on the
experience in healthcare
10
11
Utilities: Natural gas distribution
Overview
Market structure

IGDAS, gas utility for Istanbul, is the only remaining major public
distributor and is being prepared for privatization in 2015



Almost all of natural gas consumed in Turkey, approx. 50 bn mcm, is
imported and Russia is the major source of imports. BOTAS, stateowned backbone operator, is the main natural gas importer in Turkey
By the end of 2013, share of private companies among natural gas
imports has increased to 20% as a result of transfer of BOTAŞ contracts
to private companies
Supply
Wholesale
Importers
(BOTAŞ &
Private)
Wholesalers
(BOTAŞ and
private
companies)
Local
production
Tenders for transferring BOTAŞ contracts to private companies are still
in progress to create a fully liberalized market
Network
Retail
Distribution companies
(majority private and minority
government)
Turkish natural gas market has been going through a liberalization
program since early 2000s. Privatization tenders for 65 regions have
been completed
Transmission company (BOTAŞ)

Non-eligible
customers
Exporters
Remains in the state ownership
Distribution regions
Eligible
customers
Industry dynamics
Consumption
State Industrial
offices
2%
Other
5%
0.5%
Supply /
Demand
Offices
11%
Supply
Spot LNG
2%
Algeria
Other
9%
1%
Azerbaijan
9%
Residential
81%
Regulation
Russia
58%
Iran
19%
Natural gas market is being regulated by EMRA, the
independent energy authority
EMRA has awarded 30 years of distribution licenses
Torunlar
Energaz
EWE & Calik
GDF - Suez
Aksa
Other
Zorlu
Kolin
Other cities to be privatized
Source: EMRA, BOTAŞ, Company Websites
Tariffs
Distribution companies are provided with a minimum return
on investment through regulated asset base tariff structure
12
Utilities: Electricity distribution
Market structure
2011
2009
2013
13
Trakya
17
Boğaziçi 14
Ist.Anadolu
9
Baskent
12
Uludağ
11
Gediz
16
Osmangazi
19
Menderes
8
Meram
10
Akdeniz
2013
Wind
NG
Electricity price (TL/MWh)
15.4
15.4
16.3
13.9
14.9
16.8
Generation (2013)
3% 2%
29%
25%
Coal
Hydraulic
Jun-14
42%
Aug-14
Feb-14
Apr-14
Oct-13
Dec-13
Jun-13
Wind
Company
4
Çoruh
3
Aras
6
Çamlıbel
18
Kayseri
20
Göksu
CLK
5
Fırat
Enerjisa
Akenerji - CEZ
2
Van Gölü
1
Dicle
7
Toroslar
*EMRA seized Osmangazi Region in 2013. Region is currently under re-privatization stage
**Kayseri Region had been privatized in 1990 and exempted from the process
Source: EMRA, PA, Company Websites
2011
38%
Hydraulic
NG
Other
Avg. day ahead p.
Key players
21
Yeşilırmak
15
Sakarya
Coal
19%
Other
Avg. marginal day ahead p.
Distribution regions
3%
240
230
194
Aug-13
Threshold for
eligible customer
was decreased by
EMRA to 5,000
kWh in 2013
2009
Feb-13
All companies
have been
privatized
Capacity (2013)
35%
Apr-13
Day Ahead
planning system
and Balancing
Power Market
tools for operating
the market are
established by
TEİAŞ
64
53
45
Oct-12
81 cities in Turkey
grouped into 21
distribution
regions each
served by a
company
Generation (TWh)
4%
Dec-12
The trade and
wholesale
activities are
operated by
TETAŞ
distributors
Installed capacity (GW)
Jun-12
Due to
privatization
efforts share of
EUAS in total
installed capacity
decreased to 37%
in 2013
Due to national
security concerns
transmission
network remained
outside the scope
of the privatization
efforts
Distribution
Aug-12
% of state
ownership
TEIAS operates
all the
transmission
activities in Turkey
Wholesale
Feb-12
% of private
ownership
Power is supplied
by both EUAS,
stated owned
producer and
private producers
which supply
electricity under
BOT schemes or
in open market
Transmission
Apr-12
Generation
Key statistics
Çalık
Alarko - Cengiz
Aksa
Total # of
Subs (mn)
Total Electricity
Distributed (TWh)
6-10-12-17
8.9
45.6
7-9-14
10.9
36.1
15
1.4
8.0
3-21
2.3
7.7
8
1.8
6.0
4-5
1.6
5.6
Region #
13
Transportation: Airports
Favorable location
Turkish Airlines: Key growth factor
Total PAX numbers
Turkish aviation
Change in revenue passenger km
CAGR:15%
market is expected
149
130
to further expand
118
27%
103
and reach a total
19%
86
PAX of 205 mn (100
17%
20%
13%
mn international and
9%
105 mn domestic) in
4%
2016*
2%
6%
5%
-1%
As major airway hubs in the region, Istanbul
Airport provides a practical route of
transport with a maximum 4-hour direct
flight to the major cities in Europe, Western
& Central Asia, the Middle East and Africa
Turkish Airlines took
the leadership in
terms of PAX
figures. Turkish
Airlines reached total
Major airports
2010
2011
201220%
2013
2007
2009 2010
2013
Key2008
players
and2011
total2012
PAX
numbers
Atatürk 51 mn PAX
2013
1
3rd Ariport
2
(2013)
Number of
airports
Total PAX
(mn)
Revenues
(TL mn)
11**
84.0
1,078
IC Ictas Fraport AG
1
26.7
896
MAHB
1
18.9
434
Key players
S.Gökçen 18 mn PAX
7
TAV
3
Esenboğa 11 mn PAX
5
İzmir 10 mn PAX
Dalaman
Antalya 27 mn PAX
6
4
** TAV won the concession tender of Bodrum Milas Airport. TAV has also
operations in Saudi Arabia, Tunisia, Macedonia in addition to 15% interest in
Zagreb Airport in Croatia and ground handling and duty free operations in Riga
Airport in Latvia which make a total of 11 airports under operation
Upcoming
Privatized
* Source: General Directorate of State Airports Authority
4%
27%
23% 200723%
2008 2009 2010 2011 2012 2013
19%
27%
World
17%
23%
23%
13%
20%
19%
World
Turkish Airlines**
17%
9%
6%
13%
5% 4% THY
4%
2%
** Turkish Airlines,
the flag carrier airline of Turkey,
is the only 4 Star airline in all
9%
-1%
and 5%
ranks the “Best Airline” in Europe for the fourth
6%
4% categories in Europe
4%
2%
consecutive year
2007 2008 2009 2010 2011 2012 2013
-1%
2009
PAX of 48 mn in
23%
23%
14
Transportation: Ports
Key dynamics
The coefficient
between container
Key players
Turkish real GDP growth vs.
container volume
Turkish foreign trade (US$ mn)
Owner
Port
Capacity
1
Akfen-PSA
Mersin
1.8 mn TEU
2
Arkas Holding
Marport
1.9 mn TEU
3
Fiba Holding
Kumport
1.7 mn TEU
4
Yıldırım Holding
Yılport-Gemport 1.1 mn TEU
5
Limak Investments Iskenderun
CAGR:14%
volume growth and
GDP has been
3.1x in Turkey
299
243
between 2004 and
04 05 06 07 08 09 10 11 12 13
Turkey Real GDP
Growth %
403
135
152
152
141
186
241
237
252
2009
2010
2011
2012
2013
Turkey Container
Volume Growth
Source: Turkstat, TURKLIM
389
114
102
2013
376
Import
Exports
Source: Turkstat
Major ports of Turkey
6
Asyaport
(6)
6
Asyaport, partly owned by MSC, expected to become operational in
2015 with a total capacity of 2.5 mn TEU
7
(7)
SKY won the tender for Derince Port for US$543 mn in 2014
(8)
8
Izmir port privatization tender awarded to Hutchison Global
Consortium for US$1.2 bn in 2007. Later, tender was cancelled
Marport 2
Kumport
3
7
4
Yılport
Derince
8
Bandırma
Gemport
4
0.4 mn TEU
1
5
15
Transportation: Tollroads
National Tollroad Network*
Turkey has around 2,000 km of tollroad network including two
bridges over Bosphorus in Istanbul
3rd Bridge in Istanbul
Project
Description:
Connecting European and Asian sides through the
Northern Marmara Motorway Project, includes 8 lanes
of motorway and 2 lanes of railway. Project expected to
become operational in 2015
CAPEX:
US$2.5 bn
National tollroad network has approximately US$500 mn revenues
with 383 mn vehicles as 2013 year-end
Government has introduced a tender process for the privatization of
the operation which was cancelled in 2013
Project
Sponsors:
Process is expected to be relaunched by the Turkish government.
Public listing of the operating company is also being considered
Izmit Bay Bridge
and Gebze – Izmir Tollroad
Euroasia Tunnel
Project
Description:
Tunnel under Bosphorus, providing motorway
connection between Europe and Asia.
Passage of 25 mn vehicles per year is guaranteed
by the government for the project. The project will
become operational in 2016
CAPEX:
US$1.6 bn
Project
Sponsors:
*Currently operating
Project
Description:
CAPEX:
Project
Sponsors:
The project connects Istanbul with Izmir, with a
377 km motorway and a bridge over Izmit bay.
Project is expected to reduce the travel time from
10 hours to 4 hours. The bridge will become
operational partially in 2015 and finalize in 2020
US$10.1 bn
16
Public private partnership: Integrated health campuses
Highlights



Public Private Partnership (“PPP”) model in Turkish Health Sector has
been initiated with the establishment of Department of Public Partnership
(“Administration”) within the Ministry of Health in 2007
9
For the planning of the construction, renewal and management of new
health facilities all across Turkey, Introduction Administration and
enactment of related laws have been approved
International tenders have been launched for the design, finance,
construction, commissioning and operation of the integrated health
campuses, city, education and research hospitals

20 hospitals of which 14 tenders are completed and awarded, have been
planned in the introduction phase of PPP model

Projects have been structured as 28- year design, build, finance, operate
and transfer model with 36 month construction period and 25 year
operating period

Project locations*
Turkish Government aims to utilize the financing capabilities of the private
sector in public health investments
Ankara Etlik Integrated Health Campus Project
5
3
14
2
12
4
10
8
7
11
1
6
13
Bed
Capacity
1,150
CAPEX
(mn US$)
481
IC Ictaş -DIA-Intersun
3,662
1,100
Bursa IHC
Rönesans-Sıla-Ş.A.M
1,355
1,327
Elazığ IHC
Rönesans-Sıla-Ş.A.M-TTT
1,038
n.a.
5
Etlik IHC
Astaldi-Türkerler
3,566
1,121
6
Gaziantep IHC Samsung C&T-Kayı
1,875
467
7
Isparta CH
Akfen
755
268
8
Bayraklı IHC
Türkerler-GAMA
2,060
765
9
İkitelli IHC
EMSAŞ-PBK-Ascension-A&S
2,682
1,200
10
Kayseri IHC
YDA - Inso Systemi
1,587
650
11
Karatay IHC
YDA - Inso Systemi
838
253
12
Manisa ERH
YDA - Inso Systemi
558
n.a.
13
Mersin IHC
IC Ictaş - Intersun
1,253
n.a.
14
Yozgat ERH
Rönesans-Sıla-Ş.A.M-TTT
475
129
#
Project Name Sponsor
1
Adana IHC
Rönesans-Meridiam-Sıla-Sam
2
Bilkent IHC
3
4
IHC: Integrated Health Campus, CH: City Hospital, ERH: Education & Research Hospital
* Illustrated projects whose tenders are completed and awarded. There are 6 remaining
projects whose tenders are still in progress
Public private partnership: Structure and regulatory framework
Overview
Legal framework
Authority
Contractual Structure

Joint Venture
Equity Investor
Ministry of
Health
PPP program is regulated by the Turkish Ministry of Health –
Department of Public Private Partnership (the “Administration”)
Revenues
Project
Agreement
Shareholder’s Agreement
Project Finance
Agreements
SPV
(Borrower)

Project revenues will comprise of availability payments, service
payments and revenues from commercial activities

Availability payments will be paid to sponsors by the Administration for
the availability of the Campus facilities during the relevant operating
period

Service payments are also made by the government for services such
as laboratory and imaging, laundry, catering, cleaning

Project Company will collect revenues from the commercial areas at its
own cost, risk and responsibility. Those areas may include medical
equipment stores, shopping malls, cafes, hotels etc.
O&M
Companies
O&M
Agreement
EPC Contract
Lenders
(Financial Inst.)
EPC JV
(EPC Contractor)
Direct Agreement
Subcontractors
Subcontract Agreements
Indexation

2
3
Operational Non-Volume
Pest Control
Car Parking
Cleanning
Security etc.
Optional Volume
Laboratory & Imaging
Sterilisation&Disinfection
Rehabilitation
Laundry & Catering etc.
Revenue Structure & Provided Services
Availibility Payments
Security

Revenues
Obligatory
Building & Land Services
Extraordinary Maintenance
Furnishing Services
Other Clinical Support etc.
1
Non Volume
Serivce Pymnts
1
2
Volume Serivce
Pymnts
Payments will be made by the Administration, monthly and quarterly,
through central government budget, hence carry sovereign risk
Bankability
Service Payments
3
Volume Clinical
Support Pymnts
Rev. From
Commercial
Activities
Annual adjustment mechanism is introduced in order to compensate
the Project Company for risks arising from inflation and FX rate
fluctuations based on defined formulas
Volume Support
Service Pymnts

Administration can terminate the contract on certain events and
termination compensation payable by the Administration to the Project
Company will differ depending on the Termination Event

Lenders are provided with certain step in rights to protect them in case
of default

Minimum 20% of equity is required from sponsors

Share transfers in the Project Company are subject to approval of the
Administration
17