PPP APPLICATIONS IN TURKEY: HEALTHCARE PROJECTS

Turkish Health sector, with its tourism side, is one of the leading and emerging sectors of Turkish economy. The highest quality of Turkish hospitals has already been pleasantly welcomed and accredited by the world’s famous health accreditation entities, such as Joint Commission International (JCI). According to JCI, Turkey is the second country at the ranking list with its 42 prestigious health institutions. The Turkish medical device sector is expected to expand at a CAGR of 8.5% over the 2013-2018 period. Investments in the healthcare sector are expected to continue as the government strives to increase the number of hospital beds per 10,000 population to 32 in 2023 from the current number of 26.5. It has also taken on an ambitious healthcare PPP program. According to PPP professionals, Turkey is the second most attractive market globally for PPP projects in the medium to long term.

With considerable potential for growth, the Turkish healthcare sector provides a vast number of investment opportunities. On the other hand, due to the enormous rates of population growth in Turkey and necessity to rebuild old government hospital buildings have also become key and important issues of Turkey. In order to overcome all of these problems, with minimum limited financial sources, Turkish government has decided to build huge integrated health campuses all around Turkey, equipped with latest technological medical equipments by using Public Private Partnership Model (PPP).  PPPs in the health sector typically range from simple outsourcing of support services (such as catering or laundry) to the more complex design, build, and facilities management of hospitals.

Turkey’s attractiveness as a PPP destination is growing. A global survey conducted by Deloitte in 2012 shows that according to PPP professionals, Turkey is the second most attractive market globally for PPP projects in the medium to long term. According to the same survey, already by 2013 Turkey was expected to be among the top 10 markets with the highest levels of PPP activity. Turkey has lived up to these expectations. According to the Ministry of Development the total value of all PPP contracts in 2013 was USD 46 billion, a remarkable increase from the 2012 level of USD 2 billion. In line with this, Turkey yet again displayed its potential by becoming the third largest PPP market in Europe in the first half of 2013, surpassing not only countries in the same income group, but also performing better than countries with more developed PPP markets.

PPP Professionals’ Top Pick for the Emerging PPP Market in the Medium to Long Term, 2012 

PPP Projects Coming to a Financial Close in the First Half of 2013, by Value

Turkey has undertaken an ambitious Healthcare PPP Program in which a total of 35 health campuses and city hospitals will be built using the build-lease-transfer model.  The health campuses and city hospitals will add between 40,000 - 50,000 beds to Turkey’s existing healthcare infrastructure. It is estimated that the lease payments for the planned health campuses and city hospitals will be between TL 80,000 and 85,000 per year per bed, amounting to a total of USD 1.5 to 1.9 billion per year. Assuming the Ministry of Health (MoH) will lease the facilities for 25 years, the total amount of lease payments for healthcare campuses and city hospitals will reach USD 38 to 47 billion.There are currently, 20 projects in the pipeline: 2 in the pre-qualification tender announcement phase, 1 in the pre-qualification phase, 2 in the bid phase, 3 in the final bid phase, 9 in the contracting stage and 3 in the construction phase. Yet, more projects will be tendered in the short to medium term as the MoH strives for swift completion of the planned healthcare campuses.

Under the Build-Lease-Transfer (BLT) model, the project company contracts or renews healthcare facilities, and subsequently leases it to the government for a set amount of time. During the contract period, in addition to getting regular lease payments from the government, the project company also has the right to develop and operate non-healthcare facilities. If the company is renewing the facility, it receives the right to provide non-healthcare services and a service fee in return for its investment. If new facilities are built, the following procedure is followed:

Tender Phase	Projects are awarded through one of the following procedures: 1.   Open Bid Procedure (preferred) 2.   Open Bid Procedure among bidders selected through a pre-qualification process 3.   Negotiated procedure (only allowed in a limited set of circumstances)
Build	Ø The project company secures the financing required for the completion of the project. Ø If the land on which the facility will be built is treasury-owned, the MoH arranges for the land to be used by the project company, free of charge, for the project's duration. Ø During the investment period, the transactions between the MoH and the company are exempt from the stamp tax.
Lease	Ø Once the health facility is built according to the contract standard, the MoH will lease the facility for a maximum period of 30 years. Ø The MoH will pay the project company a yearly lease adjusted annually on the basis of the Turkish Producer Price Index and the Turkish Consumer Price Index. Ø During this period, the project company also has the right to operate non-healthcare facilities.
Transfer	Ø At the end of the contract term, the project company returns the healthcare facilities built to the MoH in good working condition and without any encumbrances. Ø If the land on which the facility is developed is not treasury-owned, the MoH takes necessary steps to adequately compensate related parties.

PPPs generally focus on the concept of value for money, which typically assesses the affordability and risk transfer of a project. By this standard, the Lesotho project is affordable for the government. On an operational cost comparison, the government will not pay much more for the PPP than it currently spends on the Queen Elizabeth II, yet it will receive vastly improved facilities, medical services, and patient care. From a patient perspective, services at the new hospital and filter clinics are affordable and will cost the same as at any other public health facility in Lesotho. The project has also ensured maximum risk transfer to the private operator, protecting the government from most of the financial, operational, and legal risks inherent in a project of this nature.

RISK ALLOCATION & MITIGANTS

RISK	MITIGATION
Land Issue	All risks arising out of the land will be under the responsibility of the Administration. Superficies agreement has been also executed. The third parties' allegations related to the land shall be settled by the Administration.
Permits/Planning	The Administration is responsible for planning and zoning. In case of any failure to obtain the permits without Project Co's default, the Administration shall reimburse the financial costs of the Project Co and the construction period shall be extended accordingly. The construction permit shall be flowed down to the EPC Contractor.
Delay Risk	In case of a delay at the completion of the Project, the Project Co will have to submit bonds for delay-liquidated damages for each phase. If Project Co will achieve the Final Completion, then such bonds will be returned by the Administration without any set off. The bond requirement for delay liquidated damages shall be flowed down to the EPC Contractor. Furthermore, a long stop date is stipulated at the Project Agreement so that the Project Co shall be entitled to complete the Project within such long stop date.
Environmental	The Project is exempted from the EIA procedure under the Turkish legislation provided that the Project Co. prepared an environmental and social impact assessment report in line with the IFC's guidelines. The EPC Contractor and O&M Company shall follow this report during the term of the Project.
Guaranteed Payments	Administration guarantees for Availability Payments and Services Payments and the minimum quantity for the volume based services.
Change in Law	Change in law is to be dealt with through contract adjustment and the definition of the Administrative Practice can be changed in order to secure any cost impact of administrative practice. The Project Co shall be entitled to claim a variation in case of change in law.
Unavailability of Insurance	In case of any unavailability of insurance, the Project Co shall be exempted from its insurance obligation until such insurance will be available again in the insurance market. Administration shall not be entitled to terminate the Project Agreement due to such unavailability of the Project Company's insurance liability.
Expropriation and Nationalization	Expropriation and project nationalization issues addressed in the Project Agreement will be an Administration event of default.
Assignment	The Project Co shall be entitled to assign the payments and insurance proceeds to the lenders.

MoH PPP PROJECTS IN TURKEY

Urban Infrastructure Projects; Ministry of Health Turkey’s PPP health program includes many PPP hospitals with total investment of more than USD 14 billion. Almost all of the existing hospitals of the country will be renovate through PPPs along with the Greenfield investments in the sector. Some of PPP Health Projects are in pipeline are as follows;

PPP Projects in Healthcare as of December 2013	Pre-qualification tender announcement phase	Istanbul Bakırköy Integrated Health Campus Istanbul Üsküdar Public Hospital	1,043 beds 425 beds
	Pre-qualification phase	Eskişehir City Hospital	1,060 beds
	Bid phase	Kocaeli Integrated Health Campus TPHA + TPMDA Campus	1,180 beds N/A
	Final Bid phase	Bursa Integrated Health Campus Isparta City Hospital Izmir Bayraklı Integrated Health Campus	1,355 beds 755 beds 2,000 beds
	Contract phase	Adana Integrated Health Campus Elazığ Integrated Health Campus Gaziantep Integrated Health Campus Konya Karatay Integrated Health Campus Manisa Education and Research Hospital Mersin Integrated Health Campus PTR, Psychiatric and High Security Forensic Psychiatric Hospitals Yozgat Education and Research Hospital Istanbul İkitelli Integrated Health Campus	1,539 beds 1,038 beds 1,867 beds 838 beds 558 beds 1,253 beds 2,400 beds 475 beds 2,682 beds
	Construction phase	Ankara Bilkent Integrated Health Campus Ankara Etlik Integrated Health Campus Kayseri Integrated Health Campus	3,660 beds 3,566 beds 1,583 beds

Examples From Around the World: Lesotho Hospital Public-Private Partnership

The PPP agreement for this project was signed by the government and the private operator on October 27, 2008. Financial close occurred on March 20, 2009, and construction began on March 23, 2009. The filter clinics are expected to be operational at the end of 2009, and the new hospital in July 2011.

The Lesotho Hospital PPP has demonstrated that it is possible in a low-income country to embark on a very ambitious project that is affordable for the country and patients, is attractive to top-quality private investors, expands services to more people, and has the potential to deliver high-quality health services that address MDGs and the critical shortage of health professionals—key constraints for many developing countries.

Although the project is still in its early stages and the expectation of success is high, there will certainly be challenges and obstacles for the private operator and the government to overcome. A key risk is the high probability that the hospital will reach maximum capacity very early in the project term, requiring the government to rapidly improve the service offering at other hospitals to relieve the pressure on the national referral hospital. Another risk is whether the private operator will be successful in attracting and retaining the numbers of doctors and nurses necessary to ensure effective service delivery. The key factor for the success of this project is the commitment and support of the government demonstrated throughout the project process, from procurement, during negotiations, and to financial close. Government firmly believes this project will deliver meaningful results for the country.

Conclusion: The Way to Success;

Ø The demand for infrastructure and services is strong in Turkey.

Ø Upper middle income country & high economic growth & domestic demand growth will continue in the foreseeable future (2023 targets and fiscal prudence).

Ø Investment in long-term stability & additional growth.

Ø PPP provides additional investment and enhance management of operations and risk.

References:

•Healthcare PPP Projects TURKEY (YDA Groups)
•Healthcare Industry in Turkey (Republic of Turkey Prime Ministry Investment Support and Promotion Agency)
•Infrastructure Investment in Turkey European Transport Finance Forum 2013 by TFI-News (Republic of Turkey Prime Ministry Investment upport and Promotion Agency of Turkey ISPAT)