GOING FOR GOLD

Turkey 2011 | EXECUTIVE GUIDE | INTERVIEW

TBY talks to Baran Umut Baycan, Founding Senior Partner at Baycan Law Office, on the ins and outs of the legal system, and developments in the mining sector.

Baran Umut Baycan
BIOGRAPHY
Baran Umut Baycan was called to the bar in November 2000. Between 1999 and 2002 he worked at Iplikçioðlu Law Office, and later worked at Park Holding and ATV Television Legal Department. Baycan Law Office was established in Istanbul in 2005. He is also a member of the Istanbul Bar Association, and the General Manager of HPD Law Magazine.

Your client portfolio is very broad. What sort of experience have you had with foreign companies?

We offer our services to foreign companies that are actively working in Turkey, and to those that are looking for new investment opportunities. The reasons for strong foreign investor interest in the country are the high profit margins on offer in contrast to other parts of the world, and the presence of sectors ripe for investment. Investors have shown strong interest so far in the media, energy, and mining sectors.

This is also related to Turkey's geopolitical position in terms of energy and its well-known potential. Yet, there are still undiscovered underground reserves in the metallic and mineral categories. In both areas, Turkey has overwhelming potential. There has been a sharp increase in 2010-2011 thanks to regulation changes over the last decade, including free money transfer, flexibilities in work permits and property purchases, and acceptance of the international judicial system. Currently, we present our consultancy services to 70% of mining investment companies. In terms of the energy sector, we work intensely with the most active companies in Turkey. There are two nuclear energy projects under consideration, in the north and south of the country. A Russian company has proposed to support the Mersin project, in the south, whereas international meetings are continuing for the Sinop project, in the north. As a consulting agency, we are acting as a mediator in these meetings.

Baycan Law Office is said to be the number one Turkish law firm active in the mining sector. What are the main issues that mine operators face from a legal perspective?

Regarding foreign mining operators, there are no significant obstacles. Turkey has rather advantageous mining and investment legislation, with fair tax and royalty schemes. It should be underlined that legislation related to incentives for foreign investors is now being implemented. Mining companies are taking advantage of laws encouraging their presence in regions that already have a high density of mining and energy investments with exemptions from income, energy, and stoppage taxes. This leads to savings for companies at a noticeable level.

I strongly recommend that foreign investors collaborate with a local partner in order to cut short the long “getting to know the country" process. This practice can sometimes take up to a decade. As soon as the foreign investor starts collaborating with a local partner, that local knowledge is obtained immediately. Baycan Law Office has witnessed the fruitful results of such partnerships in the past. Partnerships are especially important in the mining sector due to its impact on people and the environment. Regardless of the company's reputation worldwide, it is impossible for an international firm to maintain close relations with the locals without local knowledge.

What should foreign companies be aware of when setting up shop for the first time?

When setting up a company, the most important thing a foreign investor should consider is keeping up to date with the frequently changing regulations and legal procedures. Therefore, we recommend investors work with consultancy firms. We believe that this also leads to more success in a company's future operations.

As we see Turkey moving through a reform process, what regulation changes will we see aimed at making life easier for companies wishing to set up, and companies already established here?

With the changes in legislation made as part of Turkey's EU candidacy bid, and agreements made to harmonize the global world, Turkey has been perceived as a secure land by foreign investors. Turkey is a country that always provides incentives to foreign investors. These incentives include investment incentive certificates, interest rate breaks, and tax exemptions. Foreign investors may also benefit from region-specific exemptions and supports. Tax exemptions are available for primary development regions, technology-oriented development regions, industry regions, free trade zones, research and development regions, and private education institutions and cultural investments.

Free zones are exempt from corporation tax, value-added taxes, and income taxes. Technology-oriented development regions are also subject to reductions on taxes for workers' payments and exempt from taxes based on software production profits. In terms of development regions, investors are supported by discounts in income stoppage and premium taxes. In addition to these, foreign investors are supported by VAT exemptions in several areas.

The current government program has taken care of tax and regulation issues. In regard to regulation issues, there have been significant changes such as equal rights, investment freedom, and international arbitration rights. There have also been many changes in the purchase of real assets; tax breaks have been provided, and the duration of bureaucratic procedures has been slashed. In this respect, the government is leading a successful process. For instance, The Investment Support and Promotion Agency of Turkey (ISPAT) was established in 2006 in order to encourage foreign investors. We also work with this agency in several areas. This agency acts as a professional mediator for foreign investors during their initial entrance to the country. We have observed the agency's success since its establishment. Its operations are executed with a private sector mentality rather than that of a public institution.

The potential for mining projects is huge in Turkey. What measures should the government take in order to encourage more foreign players to enter the mining sector?

Turkey has a high potential for foreign investors. I do not think that Turkey lacks any regulations regarding mining investments. We have a comprehensive legislative framework that seeks to encourage foreign investors. Because mining law is a recent concept in our country, the government has to take the initiative and destroy the prejudices in society about the mining industry. To do so, legislation on its own may not be enough. However, the transparency of foreign companies may lead to a more trusting society. When establishing this transparency, foreign companies should follow appropriate policies in human and public relations policies. In addition to this, we believe the Ministry of Energy and Natural Resources should be broken up and restructured in order to enhance the promotion of investment opportunities.

Are there any specific foreign investment success stories that you can highlight?

There are many stories in which foreign investors have gained considerable success in investments in Turkey. No foreign company has seen losses in Turkey since the 1980s. Among the projects that I have been involved in, I can easily understand companies' success through their financials and the satisfaction of their shareholders. We oversaw a merger between a mining firm and an energy company recently, managing the whole process until it was finalized in 2009. Almost a year later, the foreign company, together with its local partner, saw its share price rise 600%. In addition, we saw their expectations regarding Turkey rise considerably. Due to the successful results born out of this partnership and others, we are seeing more attention turning toward Turkey.

Why are so many foreign companies choosing to invest in Turkey specifically?

Following a series of constitutional changes made in 2001, the administrative judicial organs lost their position as the sole authorities for international arbitration agreements. With this change putting an end to the sole authority of Turkish legal organs, foreign investors realized the objectiveness of the law, and as a result more investors have started to come to Turkey.

Foreign investors have also been supported by additional incentives and exemptions that can also be observed by members of the finance industry. This has led to foreign investor profit margins that are remarkable compared to world standards.