Turkey seeks to protect mega hospitals from soaring lira costs -sources

Turkey’s government is working to protect itself and investors from soaring costs on several hospital mega-projects including some left unfinished after a 2018 currency crisis, according to several people familiar with the effort.

Treasury Ministry officials joined talks among lenders, investors and the Health Ministry that stalled in recent months, hoping to find ways to keep debt payments flowing to banks without leaving companies footing the bill of Turkey’s depreciating lira, the sources told Reuters.

The problem revolves around delays and cost overruns in building seven of the 17 hospitals under a public private partnership (PPP) model promoted by Ankara to modernise health care. One hospital completed in Ankara is among the world’s biggest, covering an area the size of around 100 football pitches.

Investors borrowed to build the hospitals and the government agreed to pay rent for a set period. But the loans, which totalled some $10 billion, were often denominated in euros while lease payments were indexed to euros but denominated in lira.

The problems and adjustments have left the Turkish government cool to the idea of expanding the PPP model for future infrastructure projects, according to bankers, executives and advisers who spoke to Reuters. Last year, Ankara adopted a public procurement method to fund about a dozen other hospitals.

The European Bank for Reconstruction and Development committed 644 million euros ($700 million) to eight hospital PPPs, three of which have opened.

“These are big, complex infrastructure projects and it is not unusual that over time some contractual agreements may need to change, payments need to be adjusted and construction periods extended,” said Arvid Tuerkner, the EBRD’s managing director in Turkey, adding it is working on solutions with stakeholders.

The talks involving the Treasury led to a quiet legislative change last month meant to fix a mistake in the calculation of payments made by the government.

The mistake meant that payments rose when the lira weakened, but did not decline when the currency regained some ground in late 2018 and again in mid-2019 after another selloff, said one of sources, most of whom requested anonymity.

“A mechanism is being worked on to prevent the government and companies from overpaying due to the high exchange rate,” said a separate source with direct knowledge of the discussions.

The Treasury Ministry told Reuters the legislative change, announced on Jan. 25, aims to limit any future inflation and foreign-exchange risks to usage fees paid by the government. “Further work on risk management continues,” it added.

The 2018 crisis, which led to a 36% off the value of the lira in two years and sparked a recession, led to delays in the seven unfinished projects.

Source: Reuters