As Greece’s privatization program resumes this month, nearly half a year 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.
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 privatization 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 euro target this year. It now expects to generate just 300 million in 2012.
Many hope privatization 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 percent.
Greece, the most indebted euro zone 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 privatizations could add an annual 3.5 percent 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 percent 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.
WOOING FOREIGN INVESTMENT
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 euros by 2015, but more important will be how Greece is perceived by international markets to be meeting criteria for its 173 billion euro bailout.
“It is absolutely critical we send a signal of change,» the top official said.
The privatization 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 privatization target, down from an initial 50 billion euros, 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 U.S. fund managers.
WINDS OF CHANGE
Still, there are signs business practices are changing for the better in a country one official jokingly called «the last Soviet-style economy in Europe». One good example came early this year.
Russian oil executive and former energy minister Igor Yusufov strolled into the fund’s Athens office «with a buxom blonde woman on one arm and a gold watch on the other. He offered 250 million euros in cash (to buy the entire Greek gas network)», said a person who was in the room.
In pre-crisis Greece, a deal might have followed, enriching powerful individuals but robbing the Greek people of the true value of the state assets.
Instead, Yusufov’s investment vehicle, Fund Energy, was dropped from the tender process for DEPA, the public gas corporation 14 companies are now bidding for, which is expected to fetch more than four times that amount.
Fund Energy did not confirm the details of its prior involvement. It complained at the time that its exclusion from the tender process was «unlawful», but said this week it was still interested in Greek energy assets.
The privatization program 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 euros from the long-term lease of a shopping mall that once housed the broadcast center 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 percent in football betting monopoly OPAP and a controlling stake in DEPA.
Other businesses and properties slated for privatization are regional ports, airports and a multi-billion-euro, top seaside property at the site of the former Athens airport of Hellenikon.
“The finance minister and the prime minister are very keen to show the Europeans things are moving ahead, and a key priority is to show privatization is being accomplished,» said Wolfango Piccoli of Eurasia, the political risk consultancy.
“It’s a huge priority for the government. Not just revenue, but most important is to send a signal.”