As Greece‘s privatisation programme resumes this month, nearly six months behind schedule, at stake is not just the billions of euros it needs to raise, but the credibility of its commitment to reforms demanded by its creditors.
The sale of the highly profitable State Lotteries operator is expected next month
Greek politicians are under intense pressure at home to resist foreign calls to sell state assets on the cheap and raise fast cash to pay down Government debt.
More challenging, still, will be efforts to use privatisation as a tool to uproot corrupt business practices and restore foreign investors’ confidence in Greece.
The 15-month-old Hellenic Republic Asset Development Fund aims to transform dozens of State businesses to increase value before leasing or selling them through a series of tenders.
The first major sales – gambling company OPAP, state gas business DEPA and several prime real estate projects – could be completed as early as the first quarter of 2013, putting the fund back on track after wildly missing a €3 billion target this year. It now expects to generate just €300 million in 2012.
Many hope privatisation proceeds will help break the cycle of austerity and recession in Greece, where economic output has declined by almost a quarter since 2008 and unemployment is nearing 25 per cent.
Greece, the most indebted eurozone nation relative to GDP, has repeatedly missed targets set under its EU/IMF bailouts and risks being forced out of the single currency. If successfully executed, economists say the privatisations could add an annual 3.5 per cent to GDP from 2013, enough to return Greece to growth, and create 150,000 long-term jobs.
A leading fund official said the delays had been largely down to the need to get companies in a state to sell.
“As the interest for Greece is waning, you can’t proceed with tenders where the assets are not 100 per cent clean and attractive,” the official said on condition of anonymity.
“We’re having a deep dive in all the companies to single out all the major issues the companies have, to deliver them to the market,” he said.
To create greater transparency and attract foreign investors, the fund was set up in July 2011 as an independent agency, with English as its official language.
Its core task is raising €19 billion by 2015, but more important will be how Greece is perceived by international markets to be meeting criteria for its €173 billion bailout.
“It is absolutely critical we send a signal of change,” the top official said.
The privatisation fund got off to a rocky start, with repeat general elections in May and June having stalled activity by more than five months.
Its first head, Costas Mitropoulos, quit less than a year into the job, citing a lack of political will.
“The newly elected Government has not given ... the necessary level of support,” he wrote in a July resignation letter. “On the contrary, in an indirect but systematic manner, the Government has acted to undermine the authority and credibility of the fund.”
A high-level Greek official speaking on condition of anonymity said the current privatisation target, down from an initial €50 billion, is still unrealistic because “the credibility of Greece is at a low”. Investors are more interested in high-yield Government bonds than sinking money into 30-year infrastructure projects with uncertain outcomes, the official said, citing conversations with major US fund managers.
There are signs business practices are changing for the better in a country one official jokingly called “the last Soviet-style economy in Europe“.
An example came early this year, according to a person who was present, when Russian oil executive and former Energy Minister Igor Yusufov offered €250 million in cash to buy the Greek gas network in a meeting at the fund’s Athens office.
Yusufov confirmed attending a meeting at the privatisation fund’s office in April but denied proposing – in writing or verbally – to buy the network for €250 million in cash saying that this was not his intention.
Yusufov’s investment vehicle, Fund Energy, was dropped from the tender process for DEPA, the public gas corporation with 14 companies now bidding for it, which is expected to fetch more than four times that amount.
Fund Energy complained at the time that its exclusion from the tender process was “unlawful”, and says it is still interested in energy assets in Greece.
“We continue to be interested in energy assets in Greece and await the announcement by the Government of new terms for the process of privatising the country’s energy assets,” Yusufov said.
The privatisation programme requires a raft of bureaucratic reforms. At least 77 technical regulations, Government decrees and ministerial guidelines must pass through Greece‘s notoriously slow legislature, including the creation of new market regulators.
In September, the first small deal was reached when the fund said it would raise at least €81 million from the long-term lease of a shopping mall that once housed the broadcast centre for the Athens 2004 Olympics.
Next month, the sale of the highly profitable State Lotteries operator is expected, followed by the state’s remaining 33 per cent in football betting monopoly OPAP and a controlling stake in DEPA.
Other businesses and properties slated for privatisation are regional ports, airports and a multi-billion-euro, top seaside property at the site of the former Athens airport of Hellenikon.