Turkey Infrastructure Report Q1 2010

This quarter BMI has introduced new data series for infrastructure and its subsectors (transport and energy & utilities). This is an effort to address a significant deficiency in the availability of globally comparable, infrastructure-specific indicators and forecasts across a wide range of countries. BMI's new infrastructure data series enables users to quantify trends and growth patterns in the infrastructure sectors of the 35 main emerging and developed markets out of the 62 countries in BMI's infrastructure service.

According to our new data for Turkey, infrastructure industry value real growth for 2009 will contract by 11.6% to reach TRY19.5bn (12.6bn). The contraction is symptomatic of reduced investments witnessed in both transport and energy and utilities throughout 2009. A strong recovery is in the cards though for 2010 onwards, with infrastructure industry value registering annual average real growth of 12% to the end of our forecast period in 2014. Though energy and utilities infrastructure will contribute the lion’s share to total infrastructure industry value, transport infrastructure will see quite a steep rise, claiming a significant share of the total infrastructure value in the coming years. Accordingly, transport infrastructure value will register annual average real growth of 26% between 2010 and 2014, while energy and utilities infrastructure industry value will register average annual real growth of 5.8% over the same period. Highspeed railways, investments in ports from the new operators and the Izmit Bay Crossing project are projects that will sustain value creation in Turkey’s transport sector in the coming years.

We maintain the same forecasts this quarter, but note that risks are to the upside. The full-year figure for 2008 came in worse than expected at YTL44.8bn; we were forecasting YTL46bn. The real growth rate according to the statistics institute was -7.6% for 2008 (probably due to the very high raw-material prices that eroded industry real value). In BMI's Q110 Turkey Infrastructure Report we maintain our forecast of industry value of YTL44bn for 2009; this represents a real growth decline of -9.4%. Our confidence about the viability of new investments in infrastructure, however, is evident from the anticipated robust recovery of the industry in 2010, when we forecast that the construction industry value will reach YTL47.6bn, or a real growth increase of 3.6%.

The Project Finance Rating for Turkey is 42.9, which places the country at 14th place out of 16 in Central and Eastern Europe. The lira’s volatility and high inflation expectations are factors that consistently keep the country’s score down and pose the greatest threat to project finance operations in the country. Another risk, pertinent especially in the energy and utilities sector, is price risk. Turkey has been charging among the lowest electricity tariffs in the region, which has proved to be a disincentive for investors to become involved in creating new capacity. This is especially so in renewables, where aspiring investors have been deterred by the lack of a clear pricing structure. However, it should be noted that the government has introduced successive tariff hikes in recent months and a new variable pricing regime for different renewables, which is why we consider the price risk to be secondary to forex and inflation risks.

Until the latter abate, we do not expect Turkey’s position in the regional table to move much.