Turkey's huge military-run economic enterprise is about to lose its privileged status and will be forced to compete with other businesses on an equal footing, as recent administrative and legislative changes aim to level the business playing field.
The Turkish Armed Forces Assistance Center (OYAK) has failed in its intense lobbying efforts to convince the government to cancel the Public Procurement Authority's (KİK) decision to strip it of its privileges in public tenders. The government resisted OYAK's lobbying and agreed with KİK's decision.
Despite mediation efforts by Defense Minister Vecdi Gonul and Chief of General Staff Gen. Isık Kosaner, Prime Minister Recep Tayyip Erdogan declined OYAK's demand to reclaim its former privileges. Legal professionals and economists from the ruling Justice and Development Party (AK Party) did not endorse the insertion of OYAK-specific arrangements into the "sack law" -- a term commonly used in Parliament to describe a package of unrelated revisions to laws that are lumped together for the purpose of fast-track legislative changes.
OYAK operates with a unique structure amongst world armies. While in Iran, the Revolutionary Guards have more than 50 companies involved in mainly energy and transportation, OYAK has more than 60 companies involved in very diverse industries from bed frames to mining. Unlike the Revolutionary Guards, OYAK is active in every economic area. OYAK controls over TL 28 billion of capital and has investments in countries like Romania, Cyprus, Spain and the Netherlands.
In China, Honduras, El Salvador, Ecuador, Chile, Bolivia, Colombia, Guatemala, Nicaragua, Indonesia, Thailand, Egypt, Pakistan and Syria militaries are known to have economic enterprises, but none of them is as ubiquitous as OYAK in the economic field. The Turkish Economic and Social Studies Foundation (TESEV) report titled "Military-Economic Structure in Turkey: Present Situation, Problems, and Solutions" revealed that OYAK, which is a product of the military coup of 1980, has had a privileged status for 49 years.
To tackle the lack of any transparent auditing of military expenditures, which is also criticized by the EU, the government had amended the law on the Court of Accounts to introduce the supervision of a part of military spending to the court's oversight.
However, with a last-minute modification of the bill, a significant portion of military spending was again excluded from the Court of Accounts' jurisdiction. This change resulted in a huge backlash of public criticism.
Still, another amendment to the law on the Court of Accounts enabled the auditing of non-budgetary resources allocated to defense including the Turkish Defense Industry Support Fund (SSDF) and the Foundation to Strengthen the Turkish Armed Forces (TSKGV), which has shares in 17 military-run state firms. A significant portion of arms procurement -- which is estimated to amount to about $5 billion annually -- is done via the SSDF.
The new Court of Accounts law subordinated the Higher Inspection Board (YDK), which audits State Economic Enterprises (KİTs), to the Court of Accounts. As this change implied that military-run firms would now be audited by the Court of Accounts, it greatly disturbed OYAK, which is normally audited by independent financial institutions and publishes reports of these audits on its website. OYAK was lobbying to insert a provision into the sack law that would save it from the Court of Accounts' audit.
Meanwhile, KİK put OYAK into its investigative spotlight as it was arguing that the public procurement law does not apply to itself. OYAK's privilege started to be questioned when a private company filed a complaint concerning a public tender held by the Aladag Forest Management Directorate in Bolu. Examining the complaint against Bolu cimento, majority-owned by OYAK, KİK asked OYAK to defend itself. "We are a private company," OYAK said in its written defense.
However, KİK held that OYAK should comply with the public procurement law in a decision crucially important in terms of ensuring civilian inspection of military expenditures in Turkey. The decision noted that the Defense Ministry makes appointments to OYAK's management, which also employs active duty military officers. OYAK appealed the KİK decision at the Administrative Court in Ankara, and OYAK's general director actively participated in the defense.
Sack law last chance
Established as a legal entity subordinate to the Defense Ministry, OYAK has enjoyed certain privileges disguised as a private company under the law concerning its establishment. In an effort to bypass KİK's decision, OYAK management proposed a one-article legal amendment to Defense Minister Gonul, who relayed it to the prime minister. But Erdogan turned it down, and OYAK started a flurry of lobbying to put a special provision into the sack law that will be debated in Parliament in late January.
"OYAK is not subordinate to the Defense Ministry," was the provision the military-run conglomerate was trying to inject in the sack law. However, this attempt was uncovered and blocked by AK Party deputies with backgrounds in law and economy.
Currently, it is very unlikely for OYAK's demand for privilege to be dropped into the sack. Still, some claim the government may make certain concessions as was the case with the Court of Accounts law.
Turkey's largest giant
OYAK, originally established by the military officers who had overthrown the government on May 27, 1960, with a view to providing additional income to the members of the Turkish Armed Forces (TSK), has now become one of the largest conglomerates in the country.
It has 60 subsidiaries from various sectors and controls many profitable companies. It can easily participate in public tenders and is exempted from a number of taxes and levies. Thus, unlike other companies, OYAK does not pay corporate tax, inheritance tax, income tax or stamp and excise duty.
OYAK operates in many sectors of the economy including cement, automotives, insurance, banking, tomato paste production, water and bed production. It also benefits from certain privileges in public tenders that are afforded to no private companies. Some of the subsidiaries of OYAK are OYAK İnsaat, OYAK Teknoloji, Ataer Holding, Adana cimento, Mardin cimento, Bolu cimento, unye cimento, Aslan cimento, Oyak Beton, Aslan Beton, Bircim cimento ve Madencilik, Tam Gıda, OYAK Kagıt Ambalaj, İSKEN, Oyak Renault, Oyak Enerji, HEKTAs, TUKAs, OYAK Anker Bank, OYAK Yatırım Menkul Degerler, Halk Finansal Kiralama, MAİS, OMSAN, OYTAs, OYAK Konut İnsaat, OYAK Pazarlama, Eti Pazarlama and OYAK Savunma ve Guvenlik Sistemleri.