In the normal state of affairs, the failure of a third successive attempt at privatising a state company would be regarded as an indication that the company in question is unsaleable. Yet in the case of Turkey's Baskent Dogalgaz - monopoly gas distributor in the Turkish capital Ankara - the lesson of the failure of a third attempted privatisation on April 27 is somewhat less explicit.
The sale of 80% of Baskent succeeded in attracting sealed bids from four highly successful, well-respected Turkish companies. However, despite the highest sealed bid reaching $585m, none of the four were willing to match the $626m base price selected by Turkey's Privatisation Authority (OIB) as the starting point for open bidding - an unexpected development given that the two previous failed tenders had resulted in winning bids of $1.61bn and $1.21bn, respectively.
While there is a clear thread linking the failure of the third tender to its two failed predecessors, it isn't a simple reflection on Baskent's commercial success or of its potential. The company is profitable and last year recorded sales of 2.3bn cubic metres (cm) of gas to 1.34m subscribers and is reckoned to have the potential to add a further half million subscribers over the next decade.
Rather, the problem lies largely with the difficulty that is being experienced by bidders in raising credit in the midst of ongoing global financial turmoil.
The first attempt at selling Baskent in 2008 unfortunately coincided with the height of that year's global financial meltdown, effectively ending hopes of either of the two bidders raising the $1.61bn sale price. The second tender two years later attracted seven bidders and a winning bid of $1.21bn, but none of the three highest bidders was able to raise finance.
If international lenders were unwilling to underwrite bids of over $1bn and if the third failed when the base price was pegged at $626m, then that would appear to indicate that Baskent's true value - given current market conditions - lies in the range $585m-$626m.
Not so, says Oguz Turkyilmaz, chairman of the energy committee of Turkey's influential Chamber of Mechanical Engineers (MMO) and a prominent opponent of Turkey's privatisation programme. Turkyilmaz points out that Baskent was also recently subject to an extra-procedural bid of $1.2bn from Turkey's state-owned upstream operator TPAO - which holds a portfolio of gas production assets in Turkey and neighbouring Azrbaijan for which Baskent would provide a ready market. "It was rejected by the government, as they are committed to privatisating Baskent," he says, explaining that Baskent is owed around $320m in unpaid gas bills by Ankara municipality.
"Add that to say $620m from the third tender and you have a minimum real value for the company of approaching $1bn," he explains, concluding that the real value would be higher.
Little wonder the OIB opted to cancel the third tender rather than sell at a reduced price.
Fourth time lucky?
Whether or not a fourth tender will succeed in attracting higher bids given the reluctance of international banks to fund the purchase remains to be seen. But the same reluctance is also affecting other ongoing energy privatisations in Turkey, and plans to fully liberalise Turkey's energy markets.
Tenders for the sale of the last six of Turkey's state-owned regional power distribution companies opened in 2010 have faced the same problem.
Both the sales of Bogazici EDAS, which distributes power in the European side of Istanbul and was subject to a winning bid of $2.75bn, and of Akdeniz EDAS, which distributes power in the southern city of Antalya for which a winning bid of $1.2bn was received, have already been cancelled after the successful bidders found they were unable to raise the necessary funding to complete the purchases.
Tenders for four more utilities for which bidders are still trying to find funding are widely expected to also be cancelled over the next two months, while doubts also hang over whether government plans to sell off state generating plants will be able to go ahead this year as previously announced. "As with Baskent, the main barrier to the privatisation of both power distribution and generation is the problem of financing," says Mustafa Karahan, head of Turkey's Electricity Traders Association (ETD).
According to Karahan, any new tenders for distribution companies are likely to mirror that of Baskent, and elicit far lower bids than those held two years ago as bidders respond to tighter financing conditions.
Planned sales of 11,500 megawatts of state power plant will be similarly affected, Karahan says, and the success of the sales will also reflect the quality of the assets -18 poorly maintained coal- and gas-fired plants and 27 highly efficient hydroelectric dams.
Although four large gas and coal plants are slated for individual sale, the remaining 41 plants are to be sold in nine mixed portfolios.
Doubts over the security of supply of gas and coal has raised questions over the strategy of selling "mixed portfolios," with many questioning whether tenders can be opened this year as planned and Karahan suggesting an alternative strategy of "privatisating the product instead of the plant". "If they can't sell the plant, they should consider selling annual options on the baseload they produce - at least as a short-term strategy," he advises.
As a strategy, that wouldn't solve the problem of privatising state energy assets, but would at least allow further liberalisation of Turkey's energy markets while that privatisation process gets up and running.