By Dimitris Kontogiannis
Greece is facing a gap of billions of euros in the second EU/IMF financing program due to the country’s perceived highly risky profile, unrealistic assumptions about sellable assets and various delays in the privatization program it can ill afford. The new leadership to be appointed shortly by the government at the Hellenic Republic Asset Development Fund (TAIPED) has little time at its disposal to turn things around and provide a glimpse of hope in what could be a make-or-break five-month period ahead for the country.
Privatizations and the sale of state-owned assets, such as real estate, has been a sensitive topic for most local politicians and a non-negotiable theme for trade unions and others deriving power and benefits from preserving the status quo. The case for privatizations in the public debate is usually cast in terms of the proceeds they will bring to state coffers rather than the efficiency gains they will accrue to the economy.
So, it cam as no surprise that political parties and others of all stripes came out swinging against the PASOK government’s commitment in March 2011 to raise 50 billion euros from asset sales and real estate development by 2015 in return for a tighter spread and extending the maturity of EU bilateral loans in the first 110-billion-euro bailout package.
A few skeptics pointed out at the time that the plan to raise 50 billion euros by 2015 was unrealistic, even if there were an appetite for Greek assets, because there were no assets worth that much available for sale. Of course, the target looked quite realistic if one believed fairy stories putting the value of the state-owned property at 280-300 billion euros, as suggested by some analysts and others in Greece.
The 50-billion-euro figure also looked out of touch with reality when compared to the 10 billion euros the country raised from privatizations, part-flotations and other schemes during the first decade of 2000 when international market conditions were much better for Greece than they have been in the last couple of years.
The second financing package introduced some adjustments by making the 50-billion-euro figure from asset sales a medium-term target. It also set a goal of 4.5 billion euros being raised from June 2011 to the end of this year, 7.5 billion by the end of 2013, 12.2 billion by the end of 2014 and 15 billion by end-2015.
The new lower targets were deemed more realistic by many, with government officials and the outgoing head of the privatization fund repeatedly expressing optimism that they could be attained. However, experts with a good knowledge of the real estate assets, the functioning and the general approach of TAIPED -- supposedly molded after Treuhand, that is, the German agency which privatized East German companies in the 1990s -- did not share this view.
The experts continued to be pessimistic, arguing that even if the 2012 goal was met -- a very difficult proposition -- the targets for 2013 and 2014 were unrealistic because “there were no sellable assets available”. They added that the top echelon at TAIPED should have known this.
This was not the only obstacle set to the attainment of the targets for raising money from assets sales and development. The board of the TAIPED was largely made up of political appointees, most of whom had no previous managerial experience or involvement in corporate deal-making. Even the two representatives of the troika at the board were not considered experts.
But the problems accounting for some of the delays in the privatization and real estate development program went even deeper. The adoption of a generalistic consultancy-type approach for dissimilar projects, such as licensing and the sale of strategic equity stakes, did not help. Likewise, the insistence on sale methods in real estate property deals, such as the establishment of an SPV (Special Purpose Vehicle) in which the state held a minority stake with the goal of maximizing the value of the state in the future, has proven ineffective so far.
It is also hard to say whether cases of described as “bad chemistry” between prospective investors and professionals working for TAIPED are isolated or part of a bigger pattern.
All of the above are not intended to downplay the role played by the high country risk in prospective investors’ decision-making and the big workload and extensive time required to clear most real estate assets of various legal, ownership and other issues before sale. Neither is it intended to obscure the perceived political will to delay and even stop some privatizations such as the listed port and water companies at Thessaloniki.
Still, some of the above issues pointed out by experts may help explain why the privatization plan has been behind schedule and is threatening to open a new hole in Greece’s second bailout package. The new leadership at TAIPED has a good opportunity to tackle some of these issues and to reinvigorate the privatization and real estate program, filling the funding gap to a large extent, attracting new investments and providing a boost to the Greek economy at a time when it needs it the most.