Published: January 10 2007 Financial Times
The Turkish government yesterday postponed the privatisation of parts of the country's electricity distribution network amid fears that it would lead to higher prices for consumers in a general election year.
The announcement confirmed speculation ignited last week by Recep Tayyip Erdogan, the prime minister. During a trip abroad, he unsettled some of his cabinet colleagues and the financial markets by suggesting that the sell-off might be too politically sensitive as Turkey nears polls, scheduled for November.
Hilmi Guler, the energy minister, said yesterday that the privatisation of three distribution companies, including one in Istanbul, would not take place before the election. "We don't want to address such a vital issue as electricity privatisation in a rush," he said. Local reports said the sell-off could have raised about $3bn (€2.3bn, £1.55bn).
The privatisation was not a condition of Turkey's $10bn loan agreement with the International Monetary Fund, and IMF officials in Ankara would not comment yesterday. But its postponement may fuel concern that the government's commitment to structural reform, including ending distortions in electricity pricing, will weaken during what promises to be a bruising election campaign.
Turks already pay some of the highest prices in the world for energy, especially petrol.
Uncertainty about the government's intentions added to pressure on the Turkish financial markets, already buffeted by global trends in recent days. Stocks fell a further 2 per cent yesterday. Observers said the decision to postpone was a sign of how politics was starting to dominate the agenda this year after four years during which the focus was on stability and structural, social and political reforms.
Parliament is also due to elect a new president in May. There is intense speculation about whether Mr Erdogan will stand for the post. If he does, it could undermine any chance his ruling, neo-Islamist Justice and Development party (AKP), in office since late 2002, has of winning a second overall majority in the parliamentary election.
Mr Erdogan has said he will not make his intentions clear until mid-April, when candidates must be named. A dispute is already raging among the government, the opposition and the judiciary about the constitutional procedure for electing a president. This has added to the brittle political mood in Ankara, which in turn is beginning to affect the mood of business and investors in Istanbul.
Business leaders have begun saying in public that Mr Erdogan should remain at the helm of the government, which has been Turkey's most pro-business administration in 20 years. Political observers said ministers did not want to lose that reputation but may give freer rein to populism in the next few months.
Financial analysts said the 2007 budget was cautious on privatisation revenues, suggesting that abandoning the electricity deal would not unduly affect the wider sell-off programme.
The Financial Times Limited 2007