The Electric High-Speed Rail Accelerating Turkey’s Low-Carbon Future

A reinvented railway will strengthen global supply chains, supported by a new model of sustainable-development financing

Nestled on the northeast Mediterranean, Mersin is Turkey’s second-largest container port and a pivotal trade gateway between the East and West. But today, goods flowing into and out of the port endure lengthy overland journeys by way of congested roads and a sluggish, diesel-powered railway.

A bold new infrastructure project promises to change that by transforming the 286-kilometer span of railway that connects Mersin to the booming industrial cities of Adana, Osmaniye and Gaziantep into an electric high-speed rail line—reshaping the corridor into a sustainable engine for growth, while highlighting the role that sustainability-minded financing can play in advancing economic development.

Reimagining transport for modern times—and modern ambitions

Turkey has set challenging targets to achieve its vision of becoming a key global logistics hub in the 21st century, including expanding its infrastructure and connecting industrial zones to import and export gateways—advancements expected to accelerate growth across the country.

“To put it in context, Turkey transports one-tenth the amount of cargo by rail as Germany, even though it’s twice the size,” says Arsalan Mahtafar, Head of J.P. Morgan Development Finance Institution (JPM DFI).

This lack of rail capacity puts undue pressure on Turkey’s roadways.

Modernizing the railway will relieve that pressure by tripling cargo capacity, moving everything from people to pistachios—a major Turkish export—three times faster.

By increasing the amount of freight that can be moved directly from these key industrial zones to the sea while drastically cutting logistics costs, the transition to electrified rail lines is expected to generate increased international demand for Turkish exports—all while reducing emissions.

Environmental benefits of Turkey’s rail electrification project

• 150,000 metric tons of CO2 emissions reduced annually
• 32,000 equivalent number of passenger vehicles removed from the road
• 80% less energy used by rail than by trucks per ton of freight

Sources: Rönesans Holding, Boston Consulting Group

The Mersin–Adana–Osmaniye–Gaziantep rail project would seem to sell itself. But positive potential alone was not enough to generate the €923 million necessary to finance an undertaking of this scale.

For that, Turkey’s Ministry of Treasury and Finance turned to Rönesans Holding, a leading European construction contractor, and to J.P. Morgan, which assembled a multidisciplinary, multi-jurisdictional team—including the JPM DFI, the arm of the bank that helps developing-market entities measure their impact and attract sustainable capital, and its Export and Agency Finance (EAF) group—to work with the Turkish government and several export credit agencies led by UK Export Finance.

Construction is now underway on the electrified railway, which is scheduled for completion in phases between 2025 and 2027.

"At its core, what we do is relationship banking, and this is no different. But here, we're also coupling private capital to the engine of a socially and economically impactful project in a way that's sustainable.”

Richard Wilkins

Global Head, Export and Agency Finance Origination, J.P. Morgan

Expanding the definition of ‘capital’

Traditionally, developers secure financing based on risk and return. But from Mahtafar’s perspective, this approach overlooks the impact of a project on peoples’ lives and livelihoods.

"Turkey has the imperative to develop economically in order to reduce poverty and promote prosperity for its citizens. But if it doesn't do that in an environmentally sustainable way, then we won't meet our global climate goals and preserve our natural ecosystems for generations to enjoy."

Arsalan Mahtafar

Executive Director and Head of J.P. Morgan Development Finance Institution

Linking impact investors to projects in developing economies, Mahtafar also spends time helping borrowing entities provide transparency on the impact of the capital that is raised.

For Turkey’s railway effort, this meant helping Rönesans Holding build proof points about job creation and sustainable industrialization practices, and securing commitments to report progress toward those targets.

The project is expected to generate 2,700 contractor jobs, plus 200 new permanent managerial and administrative jobs, and 150,000 tons per year in carbon-emission reductions.

Building connections to realize a shared vision

Each stage of the rail project—from financing to construction—has been fueled by collaboration.

As Rönesans Holding installs an advanced signal system and optimizes power utilization along the rail, the contractor will be considering the needs of shippers in the petrochemical, steel and agriculture sectors, as well as the input of citizens who stand to benefit from the upgrade.

"We think about every person that the project touches, and have tailored design and construction to best suit all stakeholders' needs. The project brings together the best practices from all around the world, through international engineering firms and suppliers."

Eşref Ömer Yıldız

CEO, Concession Division, Rönesans Holding

 The project has also required assembling a constellation of suppliers of various goods and services, from cables and grid connectors to the reflective safety vests worn by workers.

J.P. Morgan’s Export and Agency Finance team, working alongside export credit agencies led by UK Export Finance, helped procure access to these international suppliers—and eligibility to participate in the supply chain was key to triggering financing guarantees from partner countries Italy, Austria and the UK.

While all parties involved in the rail line project share a common vision of sustainable transport and more efficient and profitable trade for Turkey, the coalition-building model engineered by J.P. Morgan that has united them is applicable far beyond transit, says Richard Wilkins, Global Head of Export and Agency Finance Origination at J.P. Morgan.

“It’s really about moving these projects forward by building trust between parties. Especially when sustainability is the shared goal, this work can’t be done in isolation,” he says.

Source: The Electric High-Speed Rail Accelerating Turkey’s Low-Carbon Future (bloomberg.com)