A Turkish court cancelled a $1.3 billion sale of oil refiner Tupras Turkiye Petrol Rafinerileri, a key component of an International Monetary Fund loan agreement, citing flaws in the offering and a lack of information about the buyers.

Tatneft, Russia's sixth-biggest crude oil producer, and Turkey's Zorlu Holding had won a January tender for Tupras with an offer of $1.3 million for the government's 66 per cent holding.

The transaction would be Turkey's biggest asset sale in three years.

The Ankara 10th Administrative Court's order is a setback to Turkey's programme of selling government-run companies, part of a $19 billion loan agreement reached with the IMF in 2001 to help reduce debt and inflation.

That may dent investor confidence, said Guler Sabanci, chairwoman of Haci Omer Sabanci Holding, Turkey's second-largest diversified company. "These kinds of interruptions in the privatisation process create serious uncertainty and doubt," Sabanci said at a press conference in Istanbul.

"Unfortunately, Turkey hasn't been able to do privatisation properly in all these years. That's sad."

Tupras shares fell 1.1 per cent to 9,050 liras as of 2:05 pm in Istanbul. They were earlier suspended from trading for almost an hour following the court's decision, pending a government statement.

The Privatisation Administration told the stock exchange it will appeal the verdict at the country's top administrative court.

The government failed to maximise its revenue from the sale because it didn't hold an auction among competing bidders, the court said in a statement explaining its judgment in the case brought by labour union Petrol-Is.

It also said that Efremov Kautschuk GmbH, the German unit of Tatneft that submitted the bid, didn't include enough financial information. The partnership with Zorlu, which was announced the day before the bidding deadline, came too late in the tender process and wasn't clearly defined, the court said.

An initial injunction by the 10th Administrative Court on May 21 against the transfer of shares was overturned 10 days later by a higher court.

Finance Minister Kemal Unakitan said yesterday the sale could go ahead this week.

Turkey has lost billions of dollars in revenue in the past because of court verdicts annulling asset sales, Industry Minister Ali Coskun said last week.

The Constitutional Court blocked the sale of state phone company Turk Telekomunikasyon in the early 1990s.

Standard & Poor's and Fitch Ratings had said they may downgrade the ratings of Tatneft and Tupras because of concerns about the buyers' ability to finance the purchase.