Greek privatization project running into obstacles

Greece?s privatization fund (TAIPED) is revving its engines, but the state of the markets and the legal contracts binding the public corporations which are up for sale are putting the brakes on the project.

The markets, as TAIPED chief Costas Mitropoulos said recently, will of course decide whether there is anyone out there who is interested in actually purchasing the assets that the Greek state is putting up for sale. As the crisis in the euro area deepens, reluctance is growing among prospective buyers to back Greece?s privatization program.

The OPAP gaming company is a good example. Although it is considered to be one of the country?s most profitable firms, it recently ran into difficulties trying to borrow 600 million euros. Moreover, responding to demand by interested parties, TAIPED recently agreed to extend the deadline for expressions of interest for state lotteries by 15 days.

However, it?s not just the markets which – mostly through their failure to find money – are putting obstacles in the path of Greece?s privatization program. Public corporations are bound by a series of legal contracts which create problems regardless of whether the macroeconomic environment is favorable or not.

One example is the Public Gas Corporation (DEPA), which has signed an agreement to build the part of the South Stream natural gas pipeline project that will cross through Greece. The deal, the product of bilateral agreement, would hardly attract any interest from private investors because it was not made on the basis of strict financial criteria.

Another issue that has to be resolved before DEPA can be privatized is that of an option by the Public Power Corporation (PPC) for a stake in the gas company as well as a commercial agreement between the two firms. PPC has agreed to use two-thirds of the natural gas sold by DEPA in Greece. The agreement expires in 2015 and, naturally, a privatization of DEPA would have to take into account outstanding agreements with PPC.

Other barriers in the way of the debt-wracked country?s privatization drive are the debt of mining company Larco to the electricity company and a number of outstanding fines for environmental pollution. Larco, which is set to be privatized in the first quarter of 2012, owes about 90 million euros in electricity bills and dozens of millions in environmental fines. At the same time, PPC also owes money to the mining company for lignite procurements. The exact price has not been precisely specified yet.

Such debts may be tolerated while the the companies are under state control, but they are out of the question if one of the two is to come under private control. In its bid to maximize revenues from privatizations, TAIPED will try to settle all these legal and entrepreneurial issues dogging state corporations.

Particularly with regard to listed companies which are up for sale, Mitropoulos has said the privatizations fund will not launch a bidding round but that any buyouts will take place through bargaining.

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