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Tuesday, 27 May 2014

Turkey ports: $3.5bn investment opportunities

Iskenderun Iskenderun LimakPort

While few port projects remain up for grabs in Turkey, the country still offers investment opportunities. The attendees of the recent Port Finance International conference in Istanbul were briefed about how to recognise the most promising opportunities and make the best of them.

Turkey is moving forward with the privatisation of its ports. Huseyin Ozhan, of the European Bank for Reconstruction and Development, reported that besides the ongoing tender for Derince port, bid announcements are expected for the Izmir container port and the Inebolu port and shipyard.

Turkish ports handled 384 million tonnes of cargo in 2013, including 7.9 million TEUs, and the country’s foreign trade targets for 2023 are 966 million tonnes with 17.8 million TEUs, said Harun Sismanyazici, of the Turkish Chamber of Shipping.

A lot of existing ports are being expanded (Candarli, Filyos) and greenfield container terminals are being built: AsyaPort by TIL (1.9m TEUs in Barbaros, Tekirdag); DP World Yarimca (1.3m TEUs in Korfez, Marmara region); Petkim Port, which will be operated by APM Terminals (1.5m TEUs, near Izmir).

Turkey’s container capacity of 12.5m TEUs will be pushed to 30m TEUs if all the current expansion and construction projects are carried out, whereas trade projections do not exceed 18m TEUs, noted Mr Sismanyazici. The risk of overcapacity is more acute in the Marmara region, where Romain Py, of Baobab Capital, said there are too many terminals and a need for consolidation. 

“There should be a centralised capacity planning body,” regretted Oytun Ozer, of Raiffeisen Investment. Observing that most local operators manage only one terminal, he predicted a consolidation trend in the port sector.

The total lack of national capacity planning should be borne in mind when deciding whether to invest in a Turkish port – and in which region. It shouldn’t however discourage projects with success potential.

Resit Yildiz, of LimakPort, gave an enticing presentation entitled “The Magic of Privatisation.” He described how the derelict Iskenderun port with its damaged berths and 9.5m depth was turned into an operational facility with a 15.5m draught, new layout and rail connection, capable of handling bulk and general cargo but also containers. The transformation followed the transfer of operational rights in late 2011 to Turkish holding Limak under a 36-year concession.

There remain plenty of opportunities for international investors. In recent years, “Turkish banks have financed big infrastructure projects but their stamina is running out,” said Mr Ozhan. The EBRD estimates that Turkish ports will need $3.5 billion of foreign direct investment over the next 10 years.

Less than a year ago, Mersin International Port (MIP, a joint venture between Singapore’s PSA and Turkey’s Akfen) issued a $450m Eurobond to expand the port it operates under a 36-year concession. This was the first bond ever to be issued in Turkey by a private infrastructure company. And Mr Ozhan sees it as “a good example for future developments in the port sector.”

At the PFI conference which took place in Istanbul May 20-21, the delegates were given advice on which projects to favour and how to ensure they meet success.

Sean Pierce, the CEO of Yilport, which operates four terminals in Turkey, stressed the intrinsic difference between transshipment and gateway ports. “Transshipment by nature has no loyalty to your port,” he warned.

Bob West, strategist at WorleyParsons, recommended to look beyond containers: “You get your money back a little faster in bulk ports.”

As an investor, “hinterland cargo is the best security you can have,” said Steven Bouckaert, of MTBS, suggesting also a diversification of assets, both geographically and in terms of cargo mix.

Mr Pierce noted that technology could give terminal operators a competitive advantage. Yilport has invested in optical character recognition (OCR) and automation systems which will allow control clerks to manage exceptions at multiple terminals from one location.

Saleem Kadernani, of Sharjah-based operator Gulftainer, insisted on the importance of cooperating with the carriers “because a lot of our productivity depends on them.” Proper communication on window arrival, crane moves, vessel planning and crane split can increase a terminal’s productivity. In the longer term, by collaborating with its customers, a port may ensure that its investments are in line with the volumes of the shipping lines.

Pavlo Grabovets, of the IFC, said that there is no such thing as a perfect project. He however listed the key success factors for port projects: realistic market expectations, construction cost control, competent sponsors, government commitment, robust financial structure and sponsors’ financial resources. Among the failure factors, he identified over-supply, changing traffic flows, labour unions unrest, political events, government interference and bad management.

Alec Martin, of ERM, drew the delegates’ attention to environmental and social risks. Intangible, as they tend rely on stakeholders’ impressions, these risks are often underestimated. And yet, they can have tremendous impact on a project, delaying its implementation and increasing its cost.

Major projects cannot do without public support, agreed Nico Berx, of Port of Antwerp International, who also remarked that blue collar labour was often forgotten in port development projects.

“Don’t assume anything,” Mr Berx strongly advised potential investors. He urged them not to rely on one exclusive source of information, but to check the facts and cross-reference the information. He enjoined them to mimic Columbo and always ask “just one more thing.”

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