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June 30, 2011 7:14 pm
For sale: stake in Greek power company: former state monopoly, government unwilling to give up control, militant trade union, close ties to ruling socialist party, host of cost and efficiency issues. Serious offers only.
A truthful sales description for Greece’s Public Power Corporation (PPC) would highlight the challenges facing Evangelos Venizelos, the country’s finance minister, as he embarks on an ambitious privatisation programme demanded by the European Union and International Monetary Fund.
Under Greece’s bail-out programme – fast-track implementation of which was approved on Thursday – some €50bn of privatisation revenues are expected by 2015.
The sale of a 17 per cent stake in PPC, currently 51 per cent government owned, is on a long list of possible disposals that also includes stakes in other state utilities, concessions to operate airports and ports, and leases on state property and real estate for tourist development.
However, setting ambitious targets for privatisation proceeds will be much easier than achieving them. PPC is a case in point.
Greece launched its first privatisation programme in 1991, but failed to complete any strategic sales because of political infighting in the governing conservative party and opposition from the unions of state companies slated for disposal, writes Kerin Hope.
In 1993, the socialist government revived the programme after unions agreed to a different strategy: partial privatisations through listings of minority stakes in state-controlled companies on the Athens stock exchange.
However, the companies remained under state management.
The most successful disposal was Hellenic Telecom (OTE), the public operator, which raised a total of €8.3bn ($12.05bn) at current prices through a “salami-style” series of public offerings.
Deutsche Telekom then bought a strategic stake from MIG, a Greek investment group, with the approval of the government, and took over management.
The first important deal involving a foreign investor was Emporiki Bank, acquired by France’s Crédit Agricole group, in another government-approved sale through the stock exchange. The French investor also took over management.
Greece also sold operating rights at one of two container terminals controlled by Port of Piraeus, the country’s largest port, to the Cosco shipping company under a 35-year concession marking the first Chinese investment in the country.
The government planned to raise about €2.5bn last year through the sale of a new operating concession for the Athens International Airport, as well as equity stakes in state banks.
However, none of the deals went ahead because of bureaucratic delays caused by the country’s deepening debt crisis.
“To be honest, nothing is very clear,” admits Artho-uros Zervos, PPC’s chief executive. Athens, he points out, has still to fully liberalise its energy markets – which could make a big difference to the value of his company. The government has also said it wants to keep management control, which could further deter buyers.
On top of that, Mr Zervos admits PPC “has a lot of problems” arising from its past as a state-owned monopoly. One big problem is PPC’s trade union, which opposes privatisation. Its leaders claim that if the state loses control of the company, which employs 21,500, electricity prices will soar and thousands of jobs will be lost.
As parliament debated the government’s privatisation programme this week, the union joined protests outside – and staged rolling 24-hour strikes that caused blackouts nationwide.
Nikos Fotopoulos, the union’s president, says the plans would see the 17 per cent stake in PPC being sold at “a dumping price and we won’t allow it”.
Beyond union militancy and a depressed Greek stock market, other obstacles to privatisation include unresolved legal issues at many companies, the absence of a full-scale land registry – which will make land sales harder – and the time needed to obtain the dozen of licences and permits required to build tourist resorts on leased land.
The privatisation programme implies disposals, mainly covering utilities and state-controlled gaming companies, of one sale every 10 days for the remainder of this year. So far, just one transaction has been agreed: the €400m sale of a further 10 per cent of Hellenic Telecom to its strategic partner, Deutsche Telekom, bringing its stake in the operator to 40 per cent.
Even in favourable market conditions, Greece would be hard pushed to achieve this timetable, al-though one hurdle was cleared on Thursday with parliamentary approval of legislation setting up an in-dependent “national wealth fund” to handle sales.
“There’s no quick fix, you can’t privatise with a gun to your head,” said Nikos Karamouzis, deputy chief executive of EFG Eurobank, which is advising the government on several disposals. “You can’t sell public assets without transparency, a proper investment plan and competition.”
But he does not write off the programme’s chances. If Greece pulled off two transactions above €1bn each by the end of this year, he argues, the market climate would change. One contender would be the operating concession for Athens International Airport, held by Germany’s Hochtief group. Another would be OPAP, the state-controlled gaming company.
Realising a good price for the stake in the PPC power utility is a different proposition. Wisely, the government’s privatisation programme does not envisage its sale until late 2012, by which time it hopes there will be greater clarity on its operating environment – and over Greece’s future.
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