Facebook Twitter Instagram Youtube LinkedIn

Analyses

Turkey's megaprojects and China's growing influence in the Bosporus area

Tunel
©EPA/SEDAT SUNA  |   Turkish Presdient Recep Tayyip Erdogan and his wife Emine attend the opening ceremony of the Eurasia Tunnel in Istanbul, Turkey 20 December 2016.

Under a conservative AKP regime since November 2002, Turkey has initiated numerous construction projects in the early 2010s, presented obsessively to the public as signs of the country's growth as major regional power. These include thousands of huge shopping centres, huge private and public hospitals, cultural centres, sports stadiums and covered arenas, highways, bridges and tunnels, energy projects and many, many others. To them should be added billion dollars budgets for defence and for the country's top religious body, Diyanet. The political capital involved cannot be overstated. Public discourses of President Erdoğan and other prominent figures in the AKP-led government insist on the historical significance of these investments as symbols of Turkish grandeur. The "historical significance" message is designed particularly for the Turkish citizens, to convince them that the current leadership is superior even to that of the founder of the Republic, Mustafa Kemal Atatürk.

Many of those megaprojects have been completed, while some are ongoing. Most often set on the build-operate-transfer (BOT) model, the overall value of such schemes has passed the unprecedented total of 155 billion USD and much of this is in connection with the said megaprojects. The BOT model has been promoted by the regime despite European Union (EU) funds being available to access for Turkey as (still) formally a candidate to EU membership. Although some of the EU funding would have been non-reimbursable, it carries the "burden" of being under the scrutiny of EU agencies, which now include the European Public Prosecutor Office (EPPO). Such scrutiny was obviously not welcome in Ankara from the outset, as it is not welcome even in some EU Member States governed by populist nationalists who speak publicly against the Union and its rules.

In Turkey, the costs of this strategy are about to become dramatically high. Many megaprojects were initiated with budgets calculated in foreign currencies, at a time when the exchange rate was around 3 Turkish lira (TL) per US dollar. After the fall of the local currency in August 2018 and the subsequent shocks, the lira reached the record low of 8.58 TL/USD in November 2020. In mid-May 2021, the ratio came again close to that record low, briefly surpassing 8.50. This signalled ongoing troubles caused by the political control over the central bank and other flaws in the Turkish political and economic establishment under the presidential system of government inaugurated in 2018. In this context, most megaprojects are underperforming. Leaving aside that they contribute massively to the destruction of the environment, they also threaten to become long-term financial "black holes", consuming insatiably taxpayers' money for generations to come.

Having lived and worked in Izmir for almost twenty years, I had the chance to drive a few times on some of the new highways, especially in the Izmir area. Those experiences left me perplexed. Each cost me a significant proportion of my daily wages as a university lecturer. In January 2021, media reports indicated that the cost of driving from Izmir to Istanbul on the new highway was 367 TL (cca. 41 euro), which represented double the cost of flying between the two megacities and similar to the price of a plane ticket between Istanbul and Bucharest, or Munich. People I know, who need to commute regularly between Istanbul and Izmir for their jobs, have confirmed the information and fear that they may have give up their jobs or businesses because of the expenses.

This is the flip side of grand construction projects being promoted and constructed over the last decade by the AKP-Erdoğan regime. People simply avoid the new highways, bridges and tunnels because they are far too expensive for the frequent commuting that the Turkish economy is built on. Given the large number of megaprojects, analysing each of them would demand an immense work and a very long text. Here, I offer some relevant details only about those in the huge and strategically important Istanbul region. My aim is to demonstrate not only that the respective objectives do not make much sense economically, but also that, in the long run, they may become serious strategic vulnerabilities for Turkey and Europe.

Istanbul Airport

This megaproject is about the construction of Istanbul's third airport, intended to replace in time the Atatürk Airport. It became partially operational in April 2019 and it is planned to be fully open to service in 2028. The airport is owned by the General Directorate of State Airports and operated by Istanbul Grand Airport (IGA). It is constructed by a consortium of Turkish firms with close ties to the regime (Cengiz, Mapa, Limak, Kolin and Kalyon). The overall cost of building all planned facilities was initially estimated at 16.65 billion USD, but an additional 5 billion USD is envisaged, partially because of loses already encountered.

Istanbul Airport was designed to serve 200 million passengers when all its facilities are completed. This is a huge number, especially when compared to the 60 million that used to pass on average every year through the old Atatürk Airport. IGA obtained from the government operation rights for 25 years, for which it was expected to pay 22 billion Turkish liras (5.8 billion USD in 2018) as rent over the same period. According to rather optimistic estimates in a 2013 academic study from Bahçeşehir University, the Turkish Treasury, now under President Erdoğan's control, would have to pay around 93 million euro from the national budget if the number of passengers does not go above 80 million/year and 154 million euro if the yearly number of passengers falls below 68 million.

However, the current developments indicate that even such figures may be far too optimistic. In the first nine months of operation, only 52 million passengers passed through the new facility. Although the government closed Atatürk Airport and restricts traffic at Sabiha Gökçen to channel the flux to Istanbul Airport, the later suffers from general conception flaws. Its runways were poorly projected, so takeoffs and landings are affected by the strong winds in the region. Additionally, besides the fact that the airport has destroyed forests and lakes in the area, it is actually located on a major path of bird migration. All these factors, together with the immensity of the facility, contribute to sometimes excruciatingly long delays. I have personally experienced such delays during takeoff, landing and taxi and people I know confirm with their own annoying experiences. Walking in the airport can take very long time between gates and, to prevent incidents, flights are scheduled at around two-hour intervals between each other, thus increasing the overall travel time to various destinations around the world. This is unthinkable in much better designed international airports around the world.

Then the COVID-19 pandemic hit the industry terribly and only 81.7 million travellers were registered in all Turkish airports in 2020, a number that included transit passengers. Istanbul Airport was the busiest, with 23.4 million, but this is much below the overoptimistic targets on which the megaproject was built. Transparency is rarely observed in Turkey, especially when public budgets are in question. More recent figures are thus not easily available. It is confirmed however that, in the beginning of 2020, the airport had already accumulated debts of around 6 billion euro (6.7 billion USD), while IGA is supposed to pay 822 million euro (926.5 million USD) yearly in rent to the Turkish state. The main carrier at Istanbul Airport, Turkish Airlines, has also reported important loses, the official figure for overall debts being 20.2 billion USD, which means an increase of almost 6 billion USD since last year. Turkish Airlines is now, together with some public banks and other major assets of Turkey, under control of the omnipotent Türkiye Wealth Fund that, in turn, is controlled by the President. There are indications that investors in this megaproject may gradually desert it, following the early exit of Kolin. Thus, although seen by one analyst as an airport that can outpace all European rivals in the near future, Istanbul Airport could also become a huge financial problem for Turkey.

Osman Gazi Bridge

Under the Turkish name Osman Gazi Köprüsü, this is currently the longest suspension bridge in Turkey and the fourth in the world with more than 2.5 km in length (it will be soon surpassed by the Dardanelles Bridge). It was opened on the 1st of July 2016 and crosses the gulf of Izmit in the Marmara Sea, between Gebze and Yalova. The Osman Gazi Bridge was built by the Japanese company IHI for the joint venture NOMAYG JV (five Turkish firms) and Italian group Astaldi, which currently operate and maintain it. The steel used in the construction was produced and delivered from Arcelor Mittal Galați, Romania. The overall costs of construction were between 9 billion USD and 11 billion USD, depending on sources.

The traffic average is far from the guaranteed figure of 40.000 cars/day necessary for the megaproject to produce profits. In the first three years of its life, the bridge was crossed on average only by a bit over 22.000 cars/day. At the moment of writing, the official site of the General Directorate for Highways does not provide any information for later periods and the last figures available are from 2019. Thus, only 8.5 million vehicles crossed the bridge that year, which was much below the guaranteed yearly figure of 14.6 million. This costs the government 2.035 billion USD in compensatory payments to the operating company under the BOT scheme. There may be much more trouble ahead given the restrictions associated with the COVID-19 pandemic and the passage tolls, which are high for Turkish pockets. The current toll for vehicles of all types to cross the bridge varies between 103 and 468.50 TL (cca. 12-46 euro). Coupled with tolls for adjacent highways, these are very high prices and do no give hopes for big profit in the near future.

Yavuz Sultan Selim Bridge

This is the third bridge over the Bosporus Strait in Istanbul and the third largest bridge in the world, opened on August 26, 2016. It was built and operated by IC İçtaş (part of IC Ibrahim Çeçen Holding) and Italian group Astaldi. The costs of construction are integrated, like the bridge itself, in the very complex Northern Marmara Highway Project, together with the Marmaray rail tunnel under the Bosporus. The overall value of the project is in the region of 8 billion USD. The official figure for the construction of the bridge itself is 2.5 billion USD and the government guaranteed in the construction plans that 135.000 vehicles would cross the bridge daily. That figure was never realised. By June 2020, the government (Treasury) had already paid 1.2 billion USD for the bridge and 8.1 billion dollars for the adjacent highway as compensation to the proprietary consortium for the almost eight years of unprofitable operation.

The bridge recorded debt from its first year in operation. After the fall of the Turkish lira in the summer of 2018, financial problems and poor traffic raised debts to billions of USD. The government reacted, as usual, with impositions: all large vehicles such as buses and trucks are imposed to use the bridge, or face fines of around 200 USD. Financial loses eventually led Astaldi to sell its share in the bridge consortium to partner IC Içtaş. In January 2020, IC Içtaş also sold 51 per cent of its share in the Yavuz Sultan Selim Bridge and the Northern Marmara Highway Project to a Chinese consortium.

Eurasia Tunnel

Part of the grand projects designed to ease traffic between the European and Asian sides of Istanbul is also the Eurasia double-deck tunnel under the Bosporus (Turkish: Avrasya Tüneli). The tunnel has a length of 5.4 km and opened for operation in December 2016. The official construction costs totalled 1.3 billion USD. The European Bank for Reconstruction and Development provided part of funding, in conjunction with a loan from the European Investment Bank and guarantees from selected Turkish, Korean and Japanese banks. Eurasia Tunnel Operation Construction and Investment Inc. (ATAŞ) initially contracted the tunnel for a concession of 29 years under the BOT scheme, with the French group Egis Tunnels responsible for maintenance. The traffic seems not to cover costs.

In four consecutive years after opening, much less vehicles passed through the tunnel than figures constructors relied on when planning it. In 2019, of the more than 25 million vehicles guaranteed to go through the tunnel, only 17.5 million did so. The Turkish government (Treasury) therefore had to make a compensatory payment of 244 million USD to the operating company on the basis of the BOT scheme. According to the Presidency Communication Centre, in 2020 only 11.740.343 vehicles used the tunnel while the number guaranteeing profit for that year was 23.932.650. The Treasury thus made again compensatory payments of 391 million TL (48.7 million USD) in value.

Significant profits are not in sight because vehicle owners avoid the tunnel, as in all the other cases, due to the high tolls. The current prices of 4.5 euro (46 TL) for cars and 6.8 euro (69 TL) for minibuses are enormous for daily commuting, especially when tolls for adjacent highways are added. There are rumours that, like other strategic megaprojects in the area, financial troubles will allow for Chinese funds to eventually take over control of the Eurasia Tunnel, too.

Canal Istanbul

Probably the most controversial project is the huge canal planned to unite the Black and Marmara Seas west of Bosporus, called Kanal (Canal) Istanbul. Although there have been fears that it could become a game-changer of the strategic balance set in the Black and Mediterranean Seas by the 1936 Montreux Convention, those fears are unfounded. The ships passing through it still have to cross the Dardanelles, which remains covered by the Convention's strict rules. However, Canal Istanbul may be yet another threat to Turkey's economic security.

With cost estimations in a 2019 governmental report of around 13 billion USD, Turkish officials said that this megaproject already attracted interest from international investors, including from China, Russia, the Netherlands and Belgium. However, things were never that simple. A more recent estimate by the country's transportation minister is that the 45-kilometer waterway would cost around 15 billion USD and not 13 billion as planned less than three years ago. The figure advanced by the Istanbul municipality in January 2020 was even more stunning: 25 billion USD. Additionally, the canal will destroy water resources flowing from the east to the Turkish metropolis, which presupposes potentially massive extra costs. The Canal also raises long-term logistical problems because, like the Bosporus itself, will have to be crossed by bridges and tunnels, which means more and more billions of hard currency not available that easily. Last month, Reuters reported that Turkish bankers are increasingly expressing serious reservations (on condition of anonymity!) about investing in Canal Istanbul due to 'environmental concerns and investment risks'.

Under these conditions, there are rumours that the Erdoğan-AKP regime becomes more inclined to accept Chinese offers. In other words, after already taking financial control of the third bridge over, and possibly of the tunnel under the Bosporus, China is also encouraged to expand its clout in the region within the broad context of its Belt and Road westward investment offensive. This may lead to the de facto loss of Turkish sovereignty over the Bosporus Strait, a historical first, to the advantage of China. Falling into such trap would also increase already existing tensions between Turkey and its Western partners and Russia, with incalculable consequences.

Chinese affair?

Far from heralding the rise of a new, powerful Turkey in the region, the megaprojects may become, indeed, what economic analyst Mustafa Sonmez has called a "financial quagmire", possibly with seriously negative implications for the country's economy and security. This weakness was accentuated by a highly aggressive foreign policy, which has isolated Turkey internationally and contributes to decrease in foreign investments, which the Turkish economy desperately needs. Moreover, this situation of maximum vulnerability due to poor management has become an opportunity for Chinese capital, which always comes with dangerous strings attached. And the year 2015 was important in this context.

It was in 2015 that the state-controlled Industrial and Commercial Bank of China (ICBC) entered Turkey by taking over Tekstilbank. The same year, at a time when I was living in Izmir and there were rumours about other foreign consulates being closed, China did the opposite and opened its first consulate in the Aegean metropolis. These moves, together with others indicated below, signalled a strategy that now, only six years later, pays off.  ICBC offers credits for the more than 1000 Chinese firms in Turkey and finances Turkish energy and transportation projects with 3.6 billion USD in loans. It plans to play a central role in the increasing trade between the two countries in coordination with China's central bank. In 2016, the latter provided Turkey with 1 billion USD under a swap agreement that saved the lira. More recently, Chinese giant Alibaba took over control of Turkey's largest e-commerce platform Trendyol. Then, the ICBC became the "saviour" of two of Turkey's projects: the Northern Marmara Highway Project and the third bridge, Yavuz Sultan Selim, on the Bosporus. Thus, the bank was authorised by the Turkish government in 2018 as lead regulator for refinancing the current loan of 2.7 billion USD for the two infrastructure objectives.

The pro-government Daily Sabah presented the move as 'an important milestone with regard to China and Turkey' one Belt, One Road vision'. However, two details should not be overseen: (1) the Belt and Road Initiative (BRI) is Chinese primarily and only secondarily Turkish, and (2) the European Union backed the initiative. It was with EU backing that, in 2015 (again!), China and Turkey signed a memorandum to align Turkey's Middle Corridor with the BRI. It was after the signing of that memorandum that cooperation between Ankara and Beijing increased exponentially along the path sketched here. And it was with the EU's backing, too that major transportation projects were initiated in Turkey to start with. European funds were eventually excluded from the projects not because of the EU, but because of Ankara's choice for the BOT schemes, which now threaten to reduce Turkey's control of its own strategic megaprojects.

China 'looms large' now in the Bosporus as financial backer of Turkey's increasing role in the BRI, especially as transit route for railways linking China with Europe. This mega scheme was conceived to help increase the Europe-Asia trade volume of 21 trillion USD and avoid Russian routes and Moscow's numerous sanctions. This is an attractive picture, which also explains President Erdoğan's swift change of discourse vis-a-vis the Uighur issue. In 2009, he was shouting to crowds of supporters that China's persecution of the Uighurs amounted to 'genocide' (Turkish: soykırım). Since 2016, only one year after the crucial 2015, Turkey has arrested hundreds of Uighurs that had taken refuge on its territory and interned them in deportation centres, eventually deporting some to China. An extradition treaty between the two countries, signed in 2017, cemented bilateral "cooperation" on this issue. In apparent exchange, Chinese funds continued thereafter to save and feed Turkish ambitions, leading some to even call Turkey now a 'client state' to Beijing.

Difficult times ahead 

In fact, there are no alternatives to China for the current regime in Ankara after it has managed to irk virtually all traditional partners. The "West" now offers financial aid only conditioned upon fundamental political and economic reforms, which would seriously undermine the regime's logic of government. The rich Arab states do not want to help a government that continues to support the Muslim Brotherhood. Only Qatar remains on Turkey's and the Brotherhood's side, but it is a tiny country with limited financial means by comparison with the big boys in the game. Russia and Iran may be rather waiting for Turkey to fall in their arms and, anyway, they are not capable of aiding Ankara financially.

It is in this international context that the country has to find support to finance its massive deficits, to prop the falling lira, to pay the regime's numerous and expensive domestic and international clients, and to save its megaprojects from bankruptcy. And the domestic situation is not encouraging either. The 2018 financial crisis and the COVID-19 pandemic hit the country at the worst possible time. According to official statistics, the growth rate fell to 1.5% on average in 2018 and 2019, picking up only a bit to 1.8% in 2020. Such growth is simply insufficient for a country that, in the early 2010s, initiated ambitious investments in all fields, including the megaprojects, on expectations of economic growth above 5%. And poor management may be the only explanation.

Turkey is now a country where, in line with the constitutional amendments of 2017, the legislative and the judiciary, the Central Bank and the entire public financial system are controlled by the executive presidency. In a text published in August 2018, I concluded that, in the new presidential system of government, the President and only the President bears responsibility for anything happening in and with this country from that moment on, be it good or bad. Less than three years later, the economy is in tatters and the central bank is left without sufficient foreign currency to defend the lira in the difficult times ahead. Add to all the above the external debt that Turkey needs to pay over the next 12 months, which is around 192 billion USD, of which 125 billion belongs to the private sector and 67 billion to the public sector according to official data.

Help from Turkish citizens is illusory because they can barely pay, if they do, for using the new facilities. To pay tens of euros for driving on highways, bridges and through tunnels is not affordable in a country where half of the population live on monthly wages below 7.800 TL (around 770 euro) and almost 30 per cent of the young people (around 15 per cent of the total population) are both unemployed and not enrolled in education. This is the highest rate among OECD countries. Given that annual consumer inflation has passed 17 per cent in April, how future governments and the citizens will also pay the debts made every day by the country's megaprojects is a question very difficult to answer. The contractors themselves have started to give clues about the gravity of the situation. To save themselves, contractors for seven of Turkey's megaprojects have signed on foreign loan agreements valuing 17.2 billion USD (see p. 20 in official document of the Treasury and Finance Ministry, in Turkish). Given the poor governmental performance on COVID-19, too, it is therefore no surprise that many opinion polls indicate the regime's significant loss in popularity. Thus, the ambitious megaprojects may not become symbols of "historical significance" about Turkey's grandeur, but burdens very difficult to carry by future generations of taxpayers and visitors to the country.

 

Vă invităm la un Centenar Regal! Pe 25 octombrie se împlinesc 100 de ani de la nașterea Regelui Mihai I
Other articles
The mistakes that led to losing Afghanistan*

The mistakes that led to losing Afghanistan*

The United States made three big mistakes in Afghanistan - two before 9/11, and the third after invading the country. One every decade since the 1980s.

Propaganda war – Russia vs. Poland (and the rest of the EU)

Propaganda war – Russia vs. Poland (and the rest of the EU)

In recent years, relations between Poland and Russia have been marked by tensions over the interpretation of the history of the 20th century. Russia does not have a clear and attractive vision of its future, so it manipulates the past more and more boldly. But the Polish government also uses radical methods to force its own vision of history. What are the gains and losses from aggressive historical politics?

Hungary’s Orban pushes ultra-conservative agenda at home and abroad

Hungary’s Orban pushes ultra-conservative agenda at home and abroad

Viktor Orban’s domestic “pro-family” policies made him a champion for the conservatives engaged in the so-called “culture wars”.

Dragoș Mateescu

31 May 2021
Dragoș Mateescu

16 minutes read
  • Under a conservative AKP regime since November 2002, Turkey has initiated numerous construction projects in the early 2010s, presented obsessively to the public as signs of the country's growth as major regional power. These include thousands of huge shopping centres, huge private and public hospitals, cultural centres, sports stadiums and covered arenas, highways, bridges and tunnels, energy projects and many, many others. To them should be added billion dollars budgets for defence and for the country's top religious body, Diyanet. The political capital involved cannot be overstated. Public discourses of President Erdoğan and other prominent figures in the AKP-led government insist on the historical significance of these investments as symbols of Turkish grandeur. The "historical significance" message is designed particularly for the Turkish citizens, to convince them that the current leadership is superior even to that of the founder of the Republic, Mustafa Kemal Atatürk.
  • In Turkey, the costs of this strategy are about to become dramatically high. Many megaprojects were initiated with budgets calculated in foreign currencies, at a time when the exchange rate was around 3 Turkish lira (TL) per US dollar. After the fall of the local currency in August 2018 and the subsequent shocks, the lira reached the record low of 8.58 TL/USD in November 2020. In mid-May 2021, the ratio came again close to that record low, briefly surpassing 8.50. This signalled ongoing troubles caused by the political control over the central bank and other flaws in the Turkish political and economic establishment under the presidential system of government inaugurated in 2018. In this context, most megaprojects are underperforming. Leaving aside that they contribute massively to the destruction of the environment, they also threaten to become long-term financial "black holes", consuming insatiably taxpayers' money for generations to come.
  • Far from heralding the rise of a new, powerful Turkey in the region, the megaprojects may become, indeed, what economic analyst Mustafa Sonmez has called a "financial quagmire", possibly with seriously negative implications for the country's economy and security. This weakness was accentuated by a highly aggressive foreign policy, which has isolated Turkey internationally and contributes to decrease in foreign investments, which the Turkish economy desperately needs. Moreover, this situation of maximum vulnerability due to poor management has become an opportunity for Chinese capital, which always comes with dangerous strings attached.
Al-Qaeda, the Islamic State, the Taliban. Why jihadis are fighting each other
Al-Qaeda, the Islamic State, the Taliban. Why jihadis are fighting each other

This war among Muslim extremists might seem peculiar. Their ideologies are strikingly similar. Most of their fighters originate from the same region and share the same cultural and ethnic background. Their number one enemy is the West, embodied by the United States, whose withdrawal from Afghanistan is perceived by many as a defeat. Rather, their rivalry is more nuanced and has to do with their divergent worldviews and their distinctive approach to religion and jihad. Their dispute is also highly political, as they both fight for supremacy and prestige. Finally, their clash reflects the old rivalry between al-Qaeda and the Islamic State.

Cătălin Gomboș
Cătălin Gomboș
08 Oct 2021
The arrest of Moldova’s Prosecutor General: a step towards reform, or a stage in the fight over institutions?
The arrest of Moldova’s Prosecutor General: a step towards reform, or a stage in the fight over institutions?

The Prosecutor General of the Republic of Moldova was arrested on October 5 for corruption. This is the latest in a series of scandals over this institution. Will it mark the true beginning of judicial reform, or are we dealing with a new stage in the war over the control of a vital institution?

Mariana Vasilache
Mariana Vasilache
06 Oct 2021
Propaganda pawns. The mirage of chess in the Soviet era
Propaganda pawns. The mirage of chess in the Soviet era

Since Lenin, many communist leaders have tried to play and promote chess. Most of the time, these leaders were pathetic players, who were not able to face a tournament of medium and even amateur level; except, perhaps, for one organized only among themselves, an event which, however, never took place, despite the socialist friendship between their peoples. But that did not stop the same communist leaders from turning chess into a powerful propaganda tool during the Cold War. And in this respect, the Soviets were indeed champions.

Ionuț Iamandi
Ionuț Iamandi
01 Oct 2021
Why Bulgarian President Rumen Radev is here to stay
Why Bulgarian President Rumen Radev is here to stay

Two months before the Presidential elections, Radev is the only candidate, and with an approval rating soaring above 65%, he stands a good chance of being re-elected. Supported by parties opposing the local politics status-quo, Radev is trying to build a stronger persona and a long-term presence on the political scene

Svetoslav Todorov
Svetoslav Todorov
21 Sep 2021