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Some of Turkey’s largest banks are reluctant to finance President Recep Tayyip Erdogan’s planned Istanbul canal due to environmental concerns and investment risks on the massive construction project, four senior bankers told Reuters news agency.
According to two of these sources, the global sustainability pact signed by Turkey’s six major banks was a barrier to financing the Istanbul Canal, and Erdogan called it his “crazy project” when he put it in a decade ago.
The government hopes to start land in the canal in June, which would connect the Black Sea from the north to the Marmara Sea and cover 45 km (28 miles) along marshes, farms and the western edges of the city. .
Erdogan says the canal would protect the Bosphorus Strait, which runs through the heart of Istanbul, by diverting traffic.
However, the mayor of Istanbul, engineers – and, according to a survey, most citizens – are opposed to the project for environmental reasons, saying it will destroy the marine ecosystem and resources that supply nearly a third of the city’s fresh water.
Russia, meanwhile, has expressed concern about the project for security reasons, as the canal would open a second passageway to the Russian Black Sea, where the Russian fleet is located.
“I don’t think we can get involved in financing the Istanbul Canal,” said a senior banker who asked for anonymity. “It may cause some environmental problems.”
Six Turkish banks, including Garanti Bank, Is Bank and Yapi Kredi, have signed the framework of the principles of Bank Responsibility backed by the United Nations, which calls on the signatories to avoid harming people and the planet.
“We certainly do not want to give a loan to this project because of environmental problems,” a second senior banker told Reuters, adding that the signatory banks must comply with the UN’s sustainability protection pact.
In 2019, the price of the canal was estimated at 75 billion pounds (or $ 13 billion at the time) in a government report.
‘Profitable project’
The reluctance of some Turkish lenders to finance the project should play a bigger role in making Erdogan’s dream of state and foreign financing come true.
A spokesman for the finance ministry did not immediately respond to a request for comment.
Asked whether Turkish banks will participate in the financing, Erdogan’s spokesman and adviser Ibrahim Kalin told Reuters that the project would “certainly” attract investors and creditors when bids are made soon.
Garanti Bank declined to comment. Is Bank and Yapi Kredi did not immediately respond to requests for comment.
DenizBank and statewide VakifBank declined to comment on the channel’s financing, while Akbank and state-owned lenders Halkbank and Ziraat Bank did not immediately respond to requests for comment.
The cost of the canal would eliminate other megaprojects, such as Istanbul’s new extensive airport, which Erdogan has defined as a legacy of credit-driven growth.
Banks and companies have perpetuated a massive short-term foreign debt of $ 150 billion and exposed the risks of depleting Turkey’s foreign exchange reserves.
The currency crisis in 2018 delayed the canal project, but it is once again on the agenda, with the economic pandemic claim of the coronavirus and the government approving development plans last month.
In an interview on Sunday, Erdogan’s adviser Kalin said he was already interested in tenders that would be open to all, including Turkish, European, American and Chinese companies.
“It’s a profitable project … and we’re sure it will move forward,” he told Reuters.
‘White Elephant’
For most Turkish banks, especially lenders with European partners and those involved in loan syndications, the risks would surely be too great, sources said.
They said taking such a large project could limit their ability to do more loan syndication, as there is also a risk of torpedoing the project later.
“No Turkish banks, neither state nor private, could take that risk,” said a former chief banker.
A bar employee collects chairs before closing, on the last day of restaurants and bars open, in Istanbul, Turkey, before imposing stricter coronavirus restrictions. [File: Dilara Senkaya/Reuters]
The Turkish Ministry of the Environment has carried out environmental assessments that have cleared the way for the project to go ahead.
European sponsors of Turkish banks would probably not accept Turkey’s environmental acceptance seal, the former banker said.
“This is one of those white elephants. In addition to speculation in land prices, it is difficult to see any value in it, ”he said.
The canal would destroy the marine ecosystems and basins that provide almost a third of Istanbul’s freshwater, according to the Turkish Chamber of Engineers and Architects Union.
Moscow is concerned that the canal will not be covered by the Montreux agreement, as it restricts the entry of foreign warships into the Black Sea from the Bosphorus Strait.
A Turkish official said in 2019 that the new channel would not be covered by the 1936 agreement.
This month, as the Russian navy piled up near Ukraine, the Kremlin said President Vladimir Putin had to abide by the agreement in an agreement he called to Erdogan.
A fourth banker also said that because opposition parties are opposed to the project, construction could be halted if Erdogan’s Justice and Development Party (AK party) is thrown out. Presidential elections are set for 2023.
“The size of the project is huge. It has reputational risks and loan risks, “the person said.” It still seems to be a government pet project. “
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