hospital

Public Private Partnership Model (“PPP”) for Turkish Integrated Health Campuses

I. Healthcare and Integrated Health Campuses in Turkey

Turkish Health sector, with its tourism side, is one of the leading and emerging sectors of Turkish economy. The highest quality of Turkish hospitals has already been pleasantly welcomed and accredited by the world’s famous health accreditation entities, such as JCI. According to JCI, Turkey is the second country at the ranking list with its 42 prestigious health institutions. In this respect, Turkish government has decided to adopt a healthcare network modernization and support health sector’s growth.

On the other hand, due to the enormous rates of population growth in Turkey and necessity to rebuild old government hospital buildings have also become key and important issues of Turkey. In order to overcome all of these problems, with minimum limited financial sources, Turkish government has decided to build huge integrated health campuses all around Turkey, equipped with latest technological medical equipments by using Public Private Partnership Model (“PPP”).

There has been no official information about the contract value recent tendered PPP projects about integrated health campuses. According to press, at recent “Integrated Health Campus” projects, The Ministry of Health of Republic of Turkey will pay an annual lease of the amount of as follows:

  • (1)Kayseri app. 138 million TL; (2) Ankara-Etlik 319 million TL; (3) Ankara-Bilkent 289 million TL; (4) Manisa app. 65 million TL; (5) Konya-Karatay app. 90 million TL.

According to five “Integrated Health Campus” PPP tenders stated above, the amount of annual lease for all projects mentioned above is totally approximately 900 million TL. For a 25 years term “Integrated Health Campus” PPP agreement, total value of the lease, which will be paid by the Ministry of Health of Turkey to the PPP project companies is equal to app. 22,5 billion TL for only above mentioned five PPP Integrated Health Campus” projects. The calculated amount will be thousands of billions of Liras when it is calculated for all “Integrated Health Campus” PPP projects.

Under the above mentioned needs and economical aspects, the Parliament of Republic of Turkey has enacted a new Turkish Health PPP Law, numbered 6428. The aim of the new Turkish Health PPP law, numbered 6428, which was entered into force on 09 March 2013; is to regulate the legal framework of all above mentioned “Integrated Health Campus” projects, especially for new 45 integrated health campuses.

 II. History and Legal Background of the new Turkish PPP Law

Before the Turkish Health PPP Law numbered 6428 has been enacted, the Turkish PPP legislation was spread into different laws and the Turkish Health PPP system was regulated by different articles. The main legal ground of the previous health PPP projects was the additional article 7 of the law of “Turkish Health Services” numbered 3359.  After the first three Turkish Health PPP projects had been tendered; “Turkish Association of Medical Doctors” brought an action against the Ministry of Health of Turkey on claiming that there was no legal basis for Turkish Health PPP projects of integrated health campuses. They claimed to cancel the pending Health PPP projects of integrated health campuses. The Highest Administrative Court of Turkey (“Danistay”) ordered a temporary injunction, by suspending the first three integrated health campus projects, which had already been tendered at the time of the court’s decision, in July 2012. In its verdict, the Highest Administrative Court of Turkey also applied to the Constitutional Court of Turkey to annul the additional article 7 of the law of “Turkish Health Services” numbered 3359, which was the previous legal basis of all Turkish Health PPP projects of integrated health campuses.

After the Turkish Highest Administrative Court’s Decision, the government has decided to apply to the Parliament of Turkey to repeal the controversial previous law articles and enact a new Turkish Health PPP law; instead of waiting the decision of the Constitutional Court of Turkey in order not to delay the pending and planned Health PPP projects and also to proceed quickly according to the Turkish health development plan.

The new Turkish Health PPP Law has also repealed the legal controversial issues that was claimed by the plaintiff association and enact new articles which have already been acknowledged by the Highest Administrative Court of Turkey. For instance, contrary to the old Health PPP law, it is not possible to use any attached land rather than lands of main hospital buildings for any commercial business activities anymore. However, it was possible to use attached lands to the integrated health campuses for commercial purposes before.

III. Announced Health PPP Projects: Integrated Health Campuses and City Hospitals

 It has been planned to be built 35 different (total 46.000-bed capacity) city hospitals and integrated health campuses by the Ministry of Health of Turkey. These hospitals and integrated health campuses will be built and operated through Public-Private Partnership Model. As of May 2013 and Ministry’s web site, announced projects are as follows:

  A. Projects on the Pre-Qualification and Bid Phase

  1. Eskişehir City Hospital (~3.000-bed capacity)
  2. Kocaeli City Hospital (~3.000-bed capacity

  B. Projects on the Final Bid Phase

  1.  Bursa Integrated Health Campus (~1.400-bed capacity
  2. Isparta City Hospital (~3.000-bed capacity
  3. Izmir Bayraklı Integrated Health Campus (~2.000-bed capacity)

  CProjects on the Contract Phase

  1. Adana Integrated Health Campus (~1.550-bed capacity)
  2. Elazığ Integrated Health Campus (~1.000-bed capacity)
  3. Gaziantep Integrated Health Campus (~1.900-bed capacity)
  4. Konya Karatay Integrated Health Campus (~850-bed capacity)
  5. Manisa Education and Research Hospital (~600-bed capacity)
  6. Mersin Integrated Health Campus (~1.250-bed capacity)
  7. PTR, Phychiatry and High Security Forensic Phychiatry Hospitals (in sum ~2400-bed capacity; they will be built in 8 different cities)
  8. Yozgat Education and Reserach Hospital (~500-bed capacity)
  9. İstanbul İkitelli Integrated Health Campus (~2.700-bed capacity)

  D. Projects on the Construction Phase

  1. Ankara Bilkent Integrated Health Campus (~3.600-bed capacity
  2. Ankara Etlik Integrated Health Campus (~3.600-bed capacity)
  3. Kayseri Integrated Health Campus (~1.584-bed capacity)

In sum; it has been planned by the Ministry of Health of Turkey that there will be 35 city hospitals and integrated health campuses in 22 different cities of Turkey through PPP (“Public-Private Partnership Model”).

 IV. Main Legal Issues regulated by new Turkish Health PPP Law

  1. Ownership Status of the Lands of Health PPP Projects: The site of health PPP projects will be in the full property and ownership of the Turkish Ministry of Health. There will not be any transfer of the ownership rights of the lands of these projects to project company. However, a servitude right may be established and registered to the Register of Title Deeds Office in favour of the Project Company for a maximum term of 30 years free of charge. However, previous project agreements were signed for a term of 25 years.

  2. Tender Procedure: Dutch auction is conducted for Health PPP tenders.

  3. Requirement for Domestic Products: 20% of all medical equipments, which will be used at health PPP projects, shall be produced in Turkey.

  4. Required Performance Bonds: There are 3 different performance bonds, which shall be required to be held by the Ministry of Health of Turkey. These are as follows:

  5. Bid Bond: 3% of either the Total Fixed Investment Sum value of the projector of the tender bid shall be lodged by the Project Company at the bidding stage.

  6. Construction Term Performance Bond: The Construction Term Performance Bond shall be delivered by the Project Company on the execution date of the Health PPP Agreement and its value shall be 3% (three percent) of the Total Fixed Investment Sum.  When the Construction Term Performance Bond is lodged, the Bid Bond is returned by the Administration.

  7. Operational Term Performance Bond: The Operational Term Performance Bond shall be delivered by the Project Company on the execution date of the Health PPP Agreement and its value shall be 1,5% (one and half percent) of the Total Fixed Investment Sum. When the Operational Term Performance Bond is lodged, the Construction Term Performance Bond is returned by the Administration.The Performance Bonds can be in cash form in Turkish Lira or letters of guarantee issued by banks and participation banks, and the state internal borrowing securities issued by Undersecretaries of Treasury, and documents issued against these securities

  8. Required Minimum Initial Equity of the Health PPP Project Company: The initial equity of the Health PPP Project Company may not be less than 20% (twenty percent) of the Total Fixed Investment Sum of Health PPP Project. In case of an increase in the Total Investment Sum, the amount to be covered from the Equity shall not be less than 20 % (twenty percent) of the new Total Fixed Investment Sum

  9. Lease Payment and PPP Project Term: Lease Payments and project term will be determined by taking into consideration of:

  • PPP projects’ construction cost,
  • value of the project,
  • whether the Project Company provides medical equipments or not,
  • revenues of the Project Company,
  • whether it is permitted by the agreement or not to operate other facilities of the campus by the Project Company or not.  The operational term of the Health PPP projects’ agreement may last until the end of the Project Term for duration of maximum 30 (thirty) years by law [However, pending projects are announced for duration of 25 years] commencing on the Completion Date of the Project unless extended or interrupted by the Ministry of Health of Turkey.
  1. Employment Fees of Medical Doctors and Other Medical Employees: Employment fees and all pensions of the medical employees such as doctors, nurses…etc will be borne by the Ministry of Health. However, the Project Company shall pay off all rights and receivables of its workers arising from their employment contracts and the Labour Code of non-medical employees, such as cleaners, reception clerks, security guards…etc.

  2. Starting Date of Lease Payments:  The Project Company shall be entitled to receive lease payments by the Ministry of Health of Turkey starting from the actual completion and the first operational date of the Health PPP project up to the end of the operational term.

  3. Adjustments in Lease Payments:  The Lease Payments of Health PPP Projects will be adjusted in the first days of every year on the basis of the inflation rates of previous lease term. For the purpose of the calculation of the new lease term, the arithmetic mean of the CPI (“Turkish Consumer Inflation Rate”) and the PPI (“Turkish Production Inflation Rate”) announced by the Turkish Statistical Institution will be applied. In addition, if the increase of foreign currency in the time of increasing of lease is higher than the increase rate of (CPI+PPI) / 2, it is also added to the lease payment.

  4. Tax Benefit for Project Companies for Health PPP Projects: All of the agreements and documents, which will be signed and used by the private Project Company of the PPP Project in relation to the PPP projects, are all exempted from taxes and duties such as VAT, stamp duty…etc. at all. This exemption is also valid for the main PPP agreement which will be signed between the Ministry of Health of Turkey and the Private Project Company.

  5. Possibility of Transferring of the Rights of the Project Company: Upon the confirmation of the Ministry of Health of Turkey, the Project Company is entitled to transfer of its rights and duties to third parties.

  6. Planning Regulation of Health PPP Projects: All planning regulation for the buildings of health PPP Projects will be developed and undertaken by the Ministry of Environment and Infrastructure of Turkey instead of local municipalities.

  7. Transferring of Assets at the End of the Term by the Project Company: The Project Company shall transfer all assets of the Health PPP Project to the Ministry of Health of Turkey in good operating, well-maintained and useable condition, free of all charges, encumbrance or undertakings upon the termination of the project agreement. For this reason, the Project Company is responsible to maintain all assets of the project in a good condition during the operational period. At the end of the term of the PPP Project Operational Term, the Ministry of Health of Turkey and the Project Company will issue a joint handover and delivery document, which explains all details and conditions of projects’ assets.

  8. Government/Treasury Guarantee: Lease payments are funded by not only the revolving fund mechanism budget but also the central budget of Ministry of Health of Turkey. Therefore, all lease payments are guaranteed by the government/Treasury by law.

  9. Debt Assumption: The government is entitled to decide for assumption of the debt arise out or in relation for financing the Health PPP project with its derivative debts by the Undersecretary of the Ministry of Health of Turkey provided that (a) the project value is over 500 million TL (b) it is agreed at the Health PPP agreement that the Undersecretary of the Ministry of Health of Turkey is entitled to take over the operation and assets of the project before its agreed termination date (c) official offer of the Health Minister and consent of the government are obtained

  10. Dispute Resolution Procedure: As a rule; any dispute arising out of or relating to PPP Agreement shall be finally settled by Turkish Commercial Courts instead of Turkish Administrative Courts. However, parties are also entitled to choose arbitration provided that the dispute should be resolved by according to the Turkish Arbitration legislation. The Arbitration is also to be held in Turkey, in the Turkish language and Turkish law is to be applied.