Did Alstom further damage Turkish-French ties?

The facade at the joint press conference last week between visiting French Foreign Minister Bernard Kouchner and his Turkish counterpart, Ahmet Davutoğlu, was like a “mutual admiration society” if one is to judge just the facial expressions and complementary words exchanged between them.

Yet the real situation in bilateral relations is far from desirable, and France is fast losing the “privileged partnership” status it had maintained for years with Turkey, to newcomers from the south and east of the border. Italians are catching up in trade volume and investment figures higher than anticipated, with Italian companies benefiting from Turkish contracts at the expense of the French. On the east, both the Chinese and South Korea have been positioning themselves to push France further to the sidelines in industries like energy and transportation.

That is not the only unfortunate development for the French, however, and I will try to reveal a much more devastating situation arising slowly but surely in Ankara circles. We have known for some time how French companies have been facing challenges in business deals in Turkey because of French President Nicolas Sarkozy’s adamant stand against Turkey’s accession to the European Union and his utterance of anti-Turkish remarks. They lost defense contracts like chopper tenders and Gaz de France was shunned for the Nabucco pipeline — which connects Caspian gas reserves to Europe — by Turkey.

Nonetheless, there has never been a blanket ban on French companies in Turkey, and many examples of success stories can be found where lucrative trade deals were awarded to the French. Here is the catch, however. There is a belief in Ankara that French companies are not reliable partners when it comes to crucial multi-billion dollar crucial infrastructure projects in the energy, defense and transportation sectors. If French culture, in that sense, was to develop in the notoriously slow moving Turkish bureaucracy, this would be detrimental to bilateral ties no matter who is in charge, either in Turkey or France.

A case in point is the French engineering company Alstom, which decided to terminate the contract known as CR1, the modernization of existing railway commuter routes as part of the 77-kilometer Marmaray project in Istanbul, which will link the city’s Asian and European sides via an undersea train line. The contract was awarded to the AMD Consortium consisting of Alstom, Marubeni and local partner Doğuş in March 2001. The group submitted a very low bid during the tender guaranteeing the award.

According to accounts provided by people familiar with the negotiations, the original plan was to jack up the price afterwards, citing changing conditions. Alstom even lobbied local municipal governments along the railway line to exert pressure on Ankara and organized meetings with the help of its local partner. Realizing the plan, the government balked at the request of Alstom and its partners to increase the bill, resulting in the unilateral withdrawal of the group from the contract on April 27, 2010. The cancellation was also reciprocated by the Ministry of Transportation’s General Directorate of Railways, Harbors & Airports, and the case ended up in arbitration.

The cancellation dealt a blow to the Marmaray project, though Turkish Transportation Minister Binali Yıldırım insisted it would be finished on deadline, Oct. 29, 2013. That does not sound credible, however, as the project is already four years behind schedule, largely due to the discovery of a Byzantine-era archaeological site on the proposed route of the European tunnel terminal in 2005.

The dispute between Turkey and Alstom was not unexpected and it was forthcoming for some time. Turkish Prime Minister Recep Tayyip Erdoğan even raised the issue with Sarkozy during a visit to France. But, Alstom is known to have developed a special relationship with Sarkozy — who prevented a takeover of the company by its German rival Siemens AG in 2004, while he was economy minister.

Now the government has opened another tender for the project, renamed CR3, to replace existing double-track alignments on each side of the main tunnel with three tracks. The contract envisages construction at 36 station sites, replacement or construction of 130 bridges, construction of two new substations and installation of signaling, telecommunication and control systems. The interested parties can submit their bids up until Jan. 2, 2011, and the work should be completed, in phases, by the end of 2013.

When asked whether Alstom can again submit a new bid for CR3, officials said there was nothing preventing them from doing so. There is one caveat there, however: “While we are in the process of divorce with Alstom for CR1, I do not think we would be looking favorably for another marriage proposal advanced by this French company in CR3,” one official said.

These remarks are a clear indication of the growing anti-French feeling in the Turkish bureaucracy. France should mobilize to put its house in order and engage with Turkey to create a favorable climate for French companies to do business here. I think, in this case, the ball is in France’s court.

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