June 09 2014

The Economic Threat of The New Projects in Istanbul, Turkey

The Justice and Development Party (AKP) government funds gigantic projects with huge international loans, and is leading Turkey to an economic dead-end, and Istanbul to an ecological disaster. Their approach is not sustainable from either an economic or ecological point of view. This economic strategy of depending heavily on loans has difficult insurance conditions. The sustainability of these conditions, depending on growth rates, is not feasible with Turkey’s current economic inertia and imminent crisis. Turkey might face heavy indemnities because of these projects. The Third Bosphorus Bridge, Istanbul Canal and Yenisehir projects, located mainly in northern Istanbul where forests and great divides exist, pose a great threat not only economically, but also ecologically.

The Economy of Gigantic Projects

Turkish Prime Minister Erdogan took a liking to talking about “interest lobbies.” If there is a matter of concern in this issue, it is the risks taken within the frame of the projects and the warrants given to the financiers via the companies. It is useful to study a report concerning this issue: it is proposed in this report, prepared upon the request of the Istanbul Metropolitan Municipality under the coordination of Robert Yaro, the president of the Regional Plan Association, that a new city should be built outside of Istanbul. The report encourages “bravery” about the financing of the proposed project, and states that the projects can be realized with public and private sector cooperation, where foreign investors become a partner in the process. This kind of cooperation was also used when the Ottoman Empire constructed railways in the 19th century.

Construction site of the third Bosphorus Bridge, Turkey

The project financing system of the Ottoman Era is going to be adopted, and the financial problem stems from this method. The method, used in the Ottoman Era during the construction of the railways can be described shortly like this: The construction of the railways were given as a privilege, and the profit of the companies was guaranteed by the Ottoman Empire. Should the companies’ profits remain under the guaranteed amount, the Ottoman Empire compensated the companies. Briefly, while the financing risks of the project were eliminated for big investors and financiers, the possible risks were transferred to the public. If things took a wrong turn, the public would take on the debts and the costs were given to the tax-payers, who were not actually part of the process.

Neo-Ottomanism: Third Bosphorus Bridge and Third Airport

The method, proposed within the Yaro Report, is fully applied to the Third Bridge and Third Airport bids. It was reported that the investment was made attractive like this: the rent of the project for 25 years, an amount of 22,152,000,000 €, was achieved with 5 guarantees given to the investors by the government. The company to win the bid will be given a guarantee of tariff and income. Should the contract of the company be annulled, the state will take over the capital spent and the loans. In this 25-year duration, no other airport that may be an alternative to this one will be built, and when the third airport is active, Atatürk Airport will be shut down. Owing to these five guarantees, the bid for a 25-year rental of the third airport to be built in Istanbul is the costliest of the history of the Turkish Republic.

Bosphorus Bridge construction site, Istanbul, Turkey

The Ottoman method, which gives the profits to the investors and the risks to the public, was used in the bid for the Third Bosphorus Bridge. The guarantees given to the investors can be summed up as such: even if there’s no traffic flow, the daily profit of the company will be $480,000 with the guarantee given by the state from the day the bridge starts working. Even if just 35,000 vehicles use the bridge, the state will pay the $354,000 for the 100,000 vehicles that were supposed to pass the bridge, but never did.

Although the guarantee is given to the companies, the real objective is that the companies use these guarantees as proof in order to get large loans from transnational financing organizations. This means the companies get these loans with the guarantee of the state. In this framework, the companies that win the Third Bosphorus Bridge bid are given a six-month duration to find the mentioned loan.

An Economic Gamble

There are two main risks concerning these projects and their financing. The first is that these projects are envisioned to be realized in the north, and are expected to work perfectly in direct relationship with each other. The economic feasibility of both the third airport and the Third Bosphorus Bridge depends on the creation of a demand that currently does not exist. Consequently, for the third airport bid, Atatürk Airport is to be closed off except for limited flights in order to create this demand. This means that the travel distribution in Istanbul will be completely changed. Moreover, it is required that the population and the residence areas move to the north. The third airport bid made the Canal Istanbul project inevitable, as the airport project requires that the filling be moved from the canal. Canal Istanbul, in the same way, makes Yenisehir (New City in English) a necessity. The probability is that similar guarantees for these projects will be given in order to find loans. This strategy makes sure that not only travel, but also the residential areas move to the north.

If this is not realized or the projects get delayed, the state will be indebted for the amount guaranteed. For example, without the constructions of Yenisehir and the third airport, the expected traffic flow will not be reached. This will mean the state will need to pay long-term indemnities to the project’s contractors.

Moreover, the bigger risk is the expected global economic crisis which will no doubt include Turkey. In that environment, it is expected that financing organizations will act close-fisted and such economic activities will become more rare. Along with the difficulty of finding loans for the financing of these projects, many estimates about both the number of flights and the number of vehicles passing the bridge will be unexpectedly lower. Another possible risk is a bid for Canal Istanbul. This project has become a necessity for the filling work for the airport. In the event that the Canal project cannot be started, the delay of the third airport is imminent. If the work-chain somehow gets broken, harm will eventually be done to the state and directly to the tax-payers because of the profit guarantee given to the companies.

What risky economic choices have been make in the city where you live? 

Original article, originally published in Turkish, here.

Credits: Images by VikiPicture. Data linked to sources.

Imra Gundogdu

Born and raised in Istanbul, Imra earned her B.A. in Translation and Interpretation from Bilkent University in 2010. From her senior year on, she works as a literary translator, with an emphasis on children’s literature. She gained extensive knowledge on translation technologies by working for local leaders in Turkey and handled prominent clients such as Microsoft and Apple, satisfying her need to understand how software works. She also took on several universities and PhD candidates as clients to develop herself in social sciences and recently added Political Science to her specialization areas. Feeling concerned about the deforestation and depersonalization of her hometown, and in an effort to understand urbanization, she joined Global Site Plans as an intern. She likes gardening, wants to live in a eco-friendly community and her dream is to see Earth from the space.

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This entry was posted on Monday, June 9th, 2014 at 9:18 am and is filed under Architecture, Community/Economic Development, Environment, Government/Politics, Housing, Imra Gundogdu, Social/Demographics, Transportation, Urban Development/Real Estate, Urban Planning and Design. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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