As Turkish construction giant Yapi Merkezi celebrates its 50-year anniversary in 2015, chairman Başar Arıoğlu explains how the family firm was able to undertake the massive Eurasia Tunnel public–private partnership (PPP) project beneath the Bosporus, as it looks to build on its position as one of the world’s leading contractors.
What role has the construction industry played in fuelling the economic development of recent decades, and how important is your industry to the future growth prospects of the country?
Of course the construction business is very important in Turkey. One obvious sign of development, in any country, are the buildings: without buildings and without infrastructure you cannot talk about development.
It is a positive circle where one feeds the other.
Turkey’s construction sector is very dynamic because of its young population and the geopolitical location.
Construction has been enhancing the productivity of the country by providing good infrastructure.
You cannot take advantage of the productivity of your workforce if you cannot bring their produce to the international markets in cost-effective ways.
In the early days of the republic, railroads were very important; these provided very efficient transportation, linking different parts of the country and allowing products from remote areas to reach the market.
Together with the railroads, we also built ports.
Then we had the energy boom and we built dams.
After that, we built roads in our cities (this was in the 1950s) and our cities became like the most important European cities, which have wide streets. In the ‘70s and ‘80s we built the highways between the cities.
These created a transport route between Europe and Asia by connecting the borders of Iran, Iraq and Syria to the European routes.
During the rule of the AK Parti for the past 13 years, a lot of attention and investment was made in, what we call, double roads: these are the smaller highways that connect the cities.
They increase the safety of the highways in a tremendous way. Of course, there is a lot more to be done, but we are on the right track.
The number of traffic accidents has decreased in a significant way.
When our current President was Mayor of Istanbul, he encouraged the construction of metro and tram systems in Istanbul.
When he became Prime Minister, there was a tremendous increase in the amount of railroads constructed.
For us, his government has been good as our expertise was finally important and appreciated in Turkey.
The first metro project in Turkey was built in 1985 by our company. At that time Yapi Merkezi was a civil contractor only.
Our expertise in civil works is one of our competitive advantages in the international arena.
For example in Doha, we are part of a civil construction group and in Dubai we were also member of the civil JV.
Doing metros in urban settings gave us the expertise in building tunnels and bridges as well as overcoming the difficulties in cities.
However, over the years Yapi Merkezi acquired more and more of the expertise required to build the systems component of metros and railways.
It’s an extension of our business and, progressively, we are developing more and more on that front. Now, we can take responsibility for the systems works including power supply and signaling.
The only thing we have not started doing in-house is manufacturing the trains.
It is really important to embrace information technology, and it is not easy in our sector as it is so old-fashioned and depends on a lot of tradition.
Of course, we use computers to analyze the soil behavior, which is so very complicated due to its composition from many different layers and types of materials.
Also we use computers to design the structures and our architects are very skilled in developing 3D BIM (building information modeling) models to help in all facets of construction planning.
In light of your extensive experience in PPP projects, how is Yapi Merkezi positioned to take advantage of the current and future opportunities to bridge the global infrastructure gap, which is a major priority of Turkey’s G20 presidency?
PPP is a phenomenon and a fashion these days. Everybody is talking about PPPs.
But it is very difficult to take full advantage: the government has to be very well educated to be able to economically manage PPP projects.
The tendency in the market is to shift all risk to the contractor, but if you shift all the risk to the contractor, he will price it according to his capabilities.
The contractor is part of the private sector and is also a smaller entity than the government, and as such, carries risk at a higher cost.
When the contractor goes to the bank, the bank is going to give him a price which is definitely more expensive than the cost of that risk to the government.
Therefore, it is not very cost efficient to make the private sector carry all of the risks that come with a construction project.
Secondly, the government should choose projects which don’t require subsides. If the project pays for itself, it can be carried out by the private sector in PPP or BOT (build-operate-transfer) form.
But if the projects need huge payments or require a big guarantee by the government, then these kinds of projects should be done by the government itself, by going to the market and borrowing the funds because they can borrow at a much cheaper rate.
At the end of the day, the government will have to make huge payments because there are not enough users of the facility or they are not willing to pay.
A special case is the Eurasia Tunnel project: even though the government had structured the project by shifting a lot of risks to the contractor, due to our expertise in tunneling we are going to deal with them successfully and without increasing costs.
At the same time, this project has the ability to be paid for entirely by its users; their contribution will be enough for the development of the project.
There is a revenue guarantee by the government, but the level of the guarantee is low and it should be thought of as a security of last resort.
We are doing this project, not for the guarantee, but for the surplus traffic that we are expecting.
Where do you see the most opportunities geographically for Yapi Merkezi to undertake the projects of the future?
We have been very active in the Middle East and North Africa. Now we are looking towards sub-Saharan Africa to find new markets.
Africa needs a lot of infrastructure. It is a huge continent that needs a lot of railways and this will be very relevant for us to grow there and apply our expertise in railways.
Already some of the major cities in Africa need metros and tramways. We see a lot of potential in Africa.
It is also true that the Turkish private sector has been ignoring the southeast part of Europe. Although we are historically connected, we have to admit that we have been absent from this geography.
So, Yapi Merkezi will be looking for suitable projects in this region in the coming years.
Can you elaborate on the meaning behind your motto, “building happiness is our happiness”, and the extent to which the values and ethos of the company have helped you to grow into a global brand over the past 50 years?
We have always been aware of the significance of civil engineering on the environment and on society.
Our ethos has always been to pay attention to the social and environmental impact of the construction.
This is why Yapi Merkezi was comfortable in doing train systems, because they are so environmentally friendly by default. However, our Eurasia project seems to contradict with this.
But from our perspective, it doesn’t.
First of all, the Eurasia Tunnel project does not touch the sea life and according to our research, there is no archaeology or life where we are passing through.
We are connecting existing roads in Europe and Asia and as such this is almost a brown-field project.
Second, this project will remove some traffic from the first bridge and as a result, the total waiting time in traffic will decrease quite considerably.
We will also make a positive contribution to the air quality of the city because of reduced travel times and thus reduced emissions.
The financial institutions financing our project like EIB and EBRD are really sensitive about the environmental and social impacts of the projects they finance so they will never finance a project that does damage to the environment.
Also, they require the contractors they finance to put in place management systems to minimize and mitigate the environmental and social impact they cause during and after the construction process.
Something nice happened in May: the Eurasia project received the sustainability award from the EBRD; a very prestigious institution chose our project out of 45 other projects.
I know you like equations and you are a technical person. If you had to give the winning equation for Yapi Merkezi, what would it be?
It is very good to be environmentally and socially conscious and trying to build happiness.
But at the end of the day you have to make money and you have to spend it wisely. For us, it is a combination of a number of factors.
You have to be very good at what you are doing and very efficient. Because of our ethos we cannot sacrifice quality and in general we are working under time pressure in all our projects.
It is difficult to sustain good quality as you do things quickly to meet deadlines, and to combine this with bringing down costs.
Our industry is one of the worst in the world in this sense. I will give an example: in fashion, people want to buy the most expensive item.
But our customers want the quality, they want it on time, but they want to pay the lowest price possible for it. We have very difficult customers.
As a result, we look for markets where our quality has the opportunity of being fairly valued.