This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ISTANBUL 000184 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EUR/SE 
 
E.O. 12958: N/A 
TAGS: ECON EINV TU
SUBJECT: GALATAPORT PRIVATIZATION FOUNDERS 
 
REF: A. ANKARA 455 
 
     ¶B. 2005 ISTANBUL 1716 
 
Sensitive but unclassified.  Not for internet distribution. 
This message was coordinated with Embassy Ankara. 
 
¶1.  (SBU) Summary: The politically troubled privatization of 
Istanbul's Galataport (ref b) came to an ignominious close in 
late January as the GOT formally cancelled the tender 
granting a 49-year lease on the site to a consortium 
including Israel's Ofer Group.  The coup de grace was 
delivered by Deputy Prime Minister Sener, following a January 
13 decision by Turkey's Council of State (Danistay) to block 
Ministry of Culture approval of zoning changes in the site. 
In contrast to the Danistay's Tupras decision (ref B), which 
sparked consternation in Istanbul business circles, there was 
little surprise regarding Galataport, as the project had 
become a political football between and among various 
factions in the AKP government and the opposition, and as 
most believed it had been badly mishandled and should be 
redone.  Still unclear is the related fate of the block sale 
of 14 percent of Tupras' shares to the Ofer Group, which 
added to the original controversy.  End Summary. 
 
¶2. (SBU) As Ref B related, the Galataport sale has been 
controversial since its announcement in October.  Critics 
faulted the government for not clearly demarcating 
responsibility for the project (authority was shared among 
the Maritime Undersecretariat, the Privatization 
Administration, and the State Planning Office) and for 
failing to establish either clear payment principles or clear 
planning guidelines.  As a result, Tankut Gundogar, board 
member of FIBA Holding and former Chairman of the city's 
zoning commission told us, bidders offered varied and not 
easily comparable amounts for the property on the basis of 
different conceptions of what they would be able to do with 
it.  Subsequent attempts to streamline the process of 
securing zoning and other approvals for the winning bidder 
thus sparked criticism and ultimately legal action to stop 
the sale.  Indeed, the Istanbul city government, itself in 
the hands of the AK party, went to court to block the tender, 
arguing that such planning provisions should have been 
completed before the tender was announced.  Ultimately, 
however, the Danistay decided against the project on the 
basis of another suit filed by the Istanbul City Planners 
Chamber. 
 
¶3. (SBU) In Ankara, the project had become a political 
football, with the opposition People's Republican Party (CHP) 
and portions of the press attacking the government's handling 
of the tendering process, and linking the Ofer Group's 
winning the bid to a meeting that Prime Minister Erdogan had 
granted to the Israeli businessman.  In a rare public display 
of differences within the AKP government, Deputy Prime 
Minister Sener had strongly implied his opposition to the 
transaction.  In the end, according to press reports, it was 
Sener who delivered the coup de grace, refusing to approve 
the privatization.  There was also an anti-semitic 
undercurrent that stoked opposition to the deal. 
 
¶4. (SBU) Gundogar, who still sits on the Istanbul city 
council and now heads its EU/International Relations 
committee (a relatively lighter burden, he quipped), believes 
prospects for the project are more positive now, and said 
that the city is in the process of withdrawing its suit 
against it.  In exchange, it will play a lead role in 
developing the plans for the site, which will be the first 
stage of a three stage process.  After this consultation 
among the city, the Ministry of Culture and Tourism, and the 
Privatization Administration, a vision for the site will be 
established in line with the decided zoning plan.  At that 
point, bidders will be invited to submit bids to realize the 
project.  The tender will utilize a "transfer of operating 
rights" model rather than the build-operate-transfer model 
used in the initial offering.  If the initial process had not 
been rushed, Gundogar opined, the resulting chaos could have 
been avoided.  But he noted that the government has learned 
its lesson, and moved to correct earlier errors: putting 
planning first, giving responsibility for the privatization 
to the Privatization Administration, which obviously has more 
expertise in the matter than its maritime counterpart, and 
establishing clear and consistent payment principles (50 
percent down and two annual payments thereafter). 
 
¶5. (SBU) Gundogar added that he expects the number of bids to 
exceed those registered in the initial offering, given the 
current boom in Istanbul real estate, which has resulted in a 
doubling of property values in the last two years.  FIBA 
Holding, which finished second the first time around, will 
likely participate, as will other major real estate 
developers here.  Not clear are the plans of the winners of 
the initial tender, though Global Holding Chairman Mehmet 
Kutman has been vocal in noting the losses his company 
suffered as a result of the reversal. 
 
¶6. (SBU) Comment: The business community was not surprised to 
see the star-crossed Galataport deal cancelled, whereas 
business people were much more concerned about the recent 
Danistay ruling against the already-consummated Tupras 
privatization (ref A).  Neither case is encouraging for 
future bidders on privatizations, of course, who may wonder 
if the tender they are bidding on will really go through. 
 
¶7. (SBU) Comment continued: Gundogar's optimism about the 
project itself going forward is echoed by others, including 
Abdurraman Ariman, former Secretary General to the Foreign 
Investors' Association who now heads a private investment 
consulting firm and also works as an advisor to the Istanbul 
Municipality.  He also shared with us a wide range of 
conceptual projects the city has developed, including plans 
for a large cruise ship terminal in Zeytinburnu in the Sea of 
Marmara that would provide security above and beyond what is 
possible at Galataport.  How that vision will impact the 
Galataport project, however, remains to be seen.  End Comment. 
JONES