Turkish court endorses labor suit against privatization of Tupras

ISTANBUL – Turkey’s top administrative court has suspended the $4 billion sale of oil refiner Tupras after a labor union presented a legal challenge, the state-run Anatolia news agency said yesterday. The report pushed Tupras shares down more than 5 percent, but an official from the Koc Holding-led consortium, which bought the 51 percent stake, told Reuters the sale was irreversible as it had already been completed. The decision by the Council of State appeared to deal a fresh blow to Turkey’s International Monetary Fund-backed privatization program, which made dramatic progress in 2005 after years of delays caused by legal obstacles. But government sources said they believed the court decision would not reverse the sale and cited similar cases in which the cabinet had decided to go ahead despite court injunctions. The Koc-led consortium, which includes Royal Dutch Shell, bid $4.14 billion last year for the majority stake in a deal that was central to the government’s sell-off program. The Anatolia report, also carried by other Turkish media, could not be confirmed. The Council of State does not generally comment on its activities, aside from issuing its official rulings. It was not clear when it might issue a ruling on this case. In the first official comment on the decision, Justice Minister Cemil Cicek said he had not seen the ruling and could not comment properly until he had, but he added that such a verdict should be respected. «It is binding on everybody because it is a judicial ruling. Everyone must respect it,» Anatolia reported him as saying. Tupras shares fell 5.4 percent to 26.25 lira after the report and were then suspended and did not open again yesterday. Koc Holding, which was suspended at the same time, was down 1.35 percent at 7.3 lira, helping to push Istanbul’s main share index down 0.9 percent by the close. Very negative «This is very negative. Such a decision was not expected at all. The tender happened and (the stake) was transferred to Koc,» said Meksa Securities research director Tuncay Tursucu. The union which filed the appeal against the privatization, Petrol Is, said the court had found its allegation that the tender documents contained irregularities justified. The court had also agreed with it that the privatization administration had launched the process without approval from the more senior High Board of Privatization (OYK), which has the final say on all privatizations. «For those who say Turkey must be governed by the rule of law, this decision will be a process to test their sincerity,» the union said in a statement. But Koc said the tender was carried out correctly, adding it had not been notified of the ruling. Tupras, in a statement to the Istanbul Stock Exchange, also said it had not been notified. «The tender and transfer was carried out in accordance with conditions,» Koc said in another statement to the exchange after a consortium meeting. The consortium official said it was impossible to make a full comment without seeing details of the ruling. «If this decision had been made before the handover, it may have had an impact, but it seems there is no way back as the transfer has been completed and the money paid,» he said. Like the government sources and the consortium, analysts doubted that the privatization could be reversed, but warned that it could undermine confidence in the privatization process. «It seems difficult at this stage for the deal to be reversed and, judging from the reaction from the Koc consortium, it does seem as though the objections of Petrol-Is can be dealt with,» said Robert Rethy, senior equity analyst at CAIB. The union successfully blocked a planned privatization in 2004 but its attempt last year to halt the Tupras deal failed, and the company – whose exports totaled $2 billion in 2005 – was handed to its new owners last week. «Tupras was a big sale, so it may get people worried about the other privatizations coming up. It will definitely get people wondering about the Turkish privatization process and could dampen enthusiasm for local equities,» said Lucy Bethell, emerging markets strategist at Royal Bank of Scotland. Shell has a stake of 2 percent in the consortium, while the Koc group holds the rest.

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