March 17, 2017 5:00 pm JST

Turkey serves lesson for Japan's infrastructure export drive

IHI, others lost to cheaper South Korean proposal on Dardanelles bridge

SINAN TAVSAN, Nikkei staff writer

The South Korean and Turkish ministers hold up the signed contracts for the bridge project.

ANKARA -- Though Japan is working to boost infrastructure exports by focusing on its technological prowess, its failure to score a major bridge-building contract in Turkey shows how costs and other considerations can take precedence.

Turkey signed an agreement Thursday with a South Korean-Turkish consortium for the construction of what will be the world's longest suspension bridge, a project many bidders, including Japanese and Chinese ones, had hoped to win.

The project includes the construction and operation of a bridge exceeding 2,000 meters over the Dardanelles strait, as well as roughly 100km of related highways at a total cost of roughly 10 billion lira ($2.76 billion). The goal is to have them finished in 2023, the year of the Turkish republic's centennial.

Ahmet Arslan, the Turkish minister of transport, maritime affairs and communications, stressed the importance of the project at the signing ceremony in Ankara. He said the bridge will shorten the travel between the strait's Asian and European sides to just three to four minutes of driving, whereas it now takes an hour by ferry.

The bridge will be erected under a build-operate-transfer contract, which gives builders the right to operate the project for a time to recoup costs. The shorter this concession period, the less financial strain it places on the government. The winning card of the South Korean-Turkish consortium, comprising SK E&C and Daelim Industrial, was a swift turnover.

Japanese bidders, including IHI and Itochu, had stressed their rich experience with similar projects, such as the Akashi Kaikyo suspension bridge in Japan, and their earthquake technologies. Although both consortiums projected similar construction costs, it would have taken the Japanese-Turkish group 20 months longer to hand the bridge over to Turkey. During the signing ceremony, Arslan expressed his satisfaction with the "ambitious" timeline proposed by the winning bidder. 

The Japanese-Turkish consortium misread Ankara's desire to minimize the government's burden and to make the bidding process transparent. They also underestimated the government's growing trust of South Korean companies, which have recently completed other huge infrastructure projects in the country.

During the signing ceremony, South Korean Minister of Land, Infrastructure and Transport Kang Ho-in praised the recent accomplishments of South Korean companies in Turkey. "Last year, they successfully completed the monumental projects of the third bridge and tube tunnel on the Bosporus," Kang said. "With the Dardanelles bridge project, South Korean companies will again seize the chance to display their advanced technology."  

For Japan, this defeat in Turkey provides a valuable lesson for the future. Japan expects tough competition from China and other rivals for a high-speed rail link between Singapore and the Malaysian capital of Kuala Lumpur, as well as on plans for magnetic levitation, or maglev, trains in the U.S. Tokyo is ramping up its charm offensive through top officials like Keiichi Ishii, minister of infrastructure, transport and tourism. But an objective analysis of the situation will be invaluable as well.

At the ceremony, Daelim Industrial Senior Executive Vice President Yoon Tae-seob explained to the Nikkei Asian Review how the 20-month difference in the concession period emerged despite the similar cost projections. 

"The South Korean consortium is formed by only EPC (engineering, procurement and construction) and SPC (special purpose company) contractors, whereas the Japanese-Turkish consortium also included general trading houses like Itochu and other nonconstruction companies," Yoon said. "That might have made the Japanese-Turkish group more profit-oriented."

Yoon said the South Korean-Turkish consortium would complete the construction faster than the Japanese-Turkish consortium, enabling it to start generating income sooner and thus become profitable during the shorter concession period.

IHI Corp.

Japan

Market(Ticker): TKS(7013)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 4,789.47M
Shares: 1,546.8M

ITOCHU Corp.

Japan

Market(Ticker): TKS(8001)
Sector:
Industry:
Distribution Services
Wholesale Distributors
Market cap(USD): 23,101.6M
Shares: 1,662.89M

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