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Turmoil in Turkey Could Alter Defense Contracts

Major political turmoil in Turkey that threatens Prime Minister Recep Tayyip Erdogan’s 11-year-long rule could delay or shakeup major procurement contracts, analysts and industry sources say.

“In days like this it is typical of bureaucracy to gear down in fear of corruption allegations,” one senior procurement official said. “Defense procurement is no exception to the rule.”

Erdogan’s government has come under increasing pressure from its opponents and former political allies after a Dec. 17 investigation made allegations against six Cabinet ministers, three ministers’ sons, prominent businessmen and bureaucrats, including the general manager of a state-run bank. Erdogan has reshuffled his Cabinet but has denied allegations claimed were orchestrated by “dark forces conspiring against Turkey’s rise.”

The legal investigation claims suspects were involved in corruption worth hundreds of millions of dollars. A parallel corruption investigation, implicating Erdogan’s son Bilal and a dozen or so other businessmen, changed course after the government suspended its prosecutor.

“The political landscape in Turkey has changed radically since Dec. 17,” a London-based Turkey specialist said. “This is the biggest political challenge Erdogan has faced in his political career.”

Erdogan, elected to prime minister three times since 2002, is organizing his party for critical local elections on March 30.

Political analysts say a major decline in his vote, at 50 percent in the 2011 parliamentary elections, would ruin his plans to get elected as president this summer. Erdogan is hoping to run for president as his party’s self-imposed rules limit party politics to three terms. He is also hoping that his Justice and Development party wins a constitutional majority in parliamentary elections in 2015 and amend the constitution in favor of an executive presidency against the present symbolic one.

It is not even certain, even if Erdogan’s party does not lose votes in March, whether he will get elected as president and, even if he does, how much control he will have over the party. “This summer, we can have a new prime minister, a new defense minister and a new chief procurement official,” a political analyst said.

Erdogan’s political career is critical for foreign and Turkish players on the market because the prime minister in recent years has become an “almost sole decision-maker in procurement.”

The new top military command structure approved last August features generals who would work in full respect to government’s authority in both procurement and politics, agreeing to retreat to a minimal role in specifying requirements and choosing bidders.

In October 2012, the government introduced a new set of rules to regulate procurement and broaden the jurisdiction and administrative powers of the civilian procurement agency, the Undersecretariat for Defense Industries (SSM). Under the new rules, a program takes off when a military request for a weapons system has been approved by the SSM and the defense minister. The SSM is solely responsible for determining the ideal modality for every procurement program. It also has powers to buy from a single source when it deems necessary due to “national interest, confidentiality, monopoly of technological capabilities and meeting urgent requirements.”

Analysts said the new rules, coupled with the profile of the new top brass, meant a one-man show in procurement in the powerful personality of the prime minister.

“Now the one-man show is threatened, and most players don’t know where to position themselves,” said one Ankara-based defense analyst. “We basically have two options: Either things will slow down in procurement decisions, or Erdogan and his bureaucrats will wish to quickly close these high-profile dossiers before they depart from governance.”

Turkey will decide, in about a year, whether to stick by a September decision to award a US $3.44 billion contract to China Precision Machinery Import-Export Corp. to build Turkey’s first long-range air and anti-missile defense architecture. Turkey has come under increasing pressure from its NATO allies, especially the United States, to change course. The Chinese contractor is on a US list of sanctions as part of the Iran, Syria and North Korea Non-Proliferation Act. Turkey has said that it would turn to European and US bidders if talks with the Chinese contender failed.

Under Erdogan’s leadership, the procurement bureaucracy also will decide whether to sign a $800 million contract with Sedef, an Istanbul shipyard partnered with Spain’s Navantia, to construct Turkey’s first landing platform dock ship; select another shipyard for the construction of four new corvettes under the MILGEM program; decide whether to sign a multibillion dollar deal with Sikorsky to purchase utility helicopters; pick up a serial production contractor for the Altay, an indigenously-developed new generation battle tank; and decide on the future of Turkey’s partnership in the US-led, multinational F-35 Joint Strike Fighter program.

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