State asset sales program besieged by obstacles

Last spring, after Greece?s creditors demanded that the country draw up a plan for raising revenues of 50 billion euros through 2015 from the sale of state assets, the government at the time appeared pretty confident that its program would succeed.

Nine months later, the plan has all but collapsed, and instead of generating 5 billion euros in revenues in 2011, the privatizations and licensing program only brought 1.8 billion into the state coffers, and this from entities which had already made plans to make investments, such as license extensions by gaming company OPAP and mobile phone companies and a 10 percent stake in OTE bought by Deutsche Telekom.

For 2013, the redrawn privatization program foresaw revenues of 9.3 billion euros, although the new entity managing the process, the Hellenic Republic Asset Development Fund (TAIPED), estimates that at best, only 4.7 billion euros will be garnered over the course of the year. In fact, last week, TAIPED chief Ioannis Koukiadis described the program as being up in the air and its targets arbitrary. TAIPED adviser Andreas Taprantzis, speaking to Bloomberg, further said that the target of 50 billion euros may not be attainable until 2020.

The uncertainty that has prevailed in regard to Greece?s future in the eurozone and the disbursement of further funding from its creditors has certainly played an important role in the derailment of the privatization program. Ever since September, when the government attempted to renegotiate the memorandum, setting the sixth tranche of its bailout in jeopardy, and up until the present day as negotiations continue, Greece has been in a precarious position that has scared off serious investors.

This was clearly apparent in the case of OPAP, which in addition to buying new gaming licenses also wanted to acquire the license to operate the state lottery, which is a monopoly. Under different circumstances, OPAP may have easily got its hands on several billion euros of funding in order to do just that. As things stand, however, it was only able to raise 300 million euros, and this from Greek banks. In the end, the organization had to join forces with another three companies for the aquisition of the state lottery license.

The main reason why the privatization program is moving along so sluggishly, however, is not investors? reluctance to enter the Greek market. The bumps in the first six months of TAIPED?s operation, according to market experts, will eventually be smoothed out and the organization will begin operating more efficiently. The biggest problem, they say, is that the state simply is not — and never was — prepared for privatizations. For one, the ownership and legal status of many state assets remain very hazy, as was clearly the case in the failed sales of the Hellenic Gas Transmission System Operator (DESFA) and the Public Gas Corporation (DEPA), as well as that of the former international airport at Elliniko in southern Athens. Furthermore, given that the Greek state has failed to negotiate with the European Commission in regard to OPAP?s monopoly, the sale of the organization will inevitably carry a very high risk. Finally, if to all this we add the overall absence of determination by the country?s politicians to put the privatization process on the right track, it becomes obvious why it is moving so slowly.

Greece?s creditors, meanwhile, do not appear overly concerned with the cost of the sell-off of state assets and this is why they have set such high targets. Their objective, according to sources, is to break the taboo that the sale of state assets as a form of reducing the debt burden represents and bring in investment capital that will ease the recession burden. Unfortunately, neither of these goals have been achieved.

According to sources, all of the above issues are being addressed in a reorganization of the entities that handle the privatization process. These are TAIPED and a specialized body at the Ministry of Finance, which are expected to facilitate the sell-off of state assets.