Turkey’s rail liberalisation brings opportunities for investors and contractors

20 January 2014 0 Comments

20 January 2014

By Metehan Sonbahar in Istanbul

Turkey badly needs a better rail system to move people and cargo. For evidence you need only look at how İstanbul and other growing cities here regularly grind to a halt with too many cars and lorries on a limited road network.

Due to insufficient investment in rail after 1950 Turkey has fallen well behind European countries in respect of its railway network. 

In my university years I would travel home by train because it was the cheapest option, and would regularly have to stand for seven or eight hours as the packed carriages made their way along the single, unreliable track between İstanbul and Ankara.

That was around 15 years ago. In recent years conditions have improved and new fast-track lines have beenbuilt  between Ankara and Eskişehir, and between Ankara and Konya. A new fast line between Ankara and İstanbul is expected to be complete early this year.

But it’s still not enough for a country that aims to be one of the top 10 biggest economies in the world within 10 years. That’s why the government plans to build 15,000km of new railways in the next decade.

Such a feat would be difficult under the old, state-controlled approach to rail. Throughout the history of the Turkish Republic the rail network has been under the monopoly control of the government-owned operator, TCDD, an abbreviation for Turkish State Railways.

An expansion of this scale would require a massive injection of state funds and a correspondingly large expansion of state administration.

Now, however, thanks to the success and growth of the public-private partnership (PPP) model in Turkey, we have seen promising improvements in the legal framework in the past year.

One of these affects rail. A new code in respect of the liberalisation of Turkey’s rail system came into force on 1 May 2013. It is called Law No. 6461.

The new code restructures TCDD to include two new, separate entities: TCDD, a government body, has been restructured as the infrastructure operator, while a new joint-stock company has been established, TCDD Taşımacılık AŞ, as a train operator.

(Note, infrastructure includes groundwork, ballasts, sleepers and rails, electrification, signalling and communications, plus stations, bridges and logistics hubs.)

This code takes the rail network monopoly away from the state and provides investment and operation rights to other entities, both private and public. They are now entitled to build their own railway infrastructure; operate the infrastructure on the railways owned by themselves or others; and be train operators on the national railway network under authorisation of the Ministry.

The code also guarantees that public and private entities will be treated equally under free competition rules, and TCDD will ensure that the same conditions are applied to all railway transportation companies, including the new TCDD Tasimacilik A.Ş.

What’s more, if a private company wishes to build new infrastructure, and the scheme receives Ministry approval, relevant lands will be expropriated by the Ministry for up to 49 years, and rights of way will be established, with the cost of the expropriation born by the investor.

This new development should help unleash more private investment in Turkey’s rail sector.  

The need is clear. According to a 2012 TCDD sector report, in 2010, only 2.3% of all passengers in Turkey preferred rail, while the rest preferred either personal cars or buses. That compares to 7.4% of people preferring rail in England, 8% in Germany and 10% in France, in the same year.  

In terms of freight that year, in Turkey only 4.7% of all goods were transported by rail compared to 11.2% in England, 24.5% in Germany and 13.5 % in France.

The new code allows private companies to build and operate their own railway networks or to operate railways built by others. As a developing country Turkey needs a new and improved railway network and it is expected that this new approach will provide opportunities for construction companies and investors to bring that about.

Metehan Sonbahar is senior construction consultant at Akinci Law Office in Istanbul