New government will face serious pending issues in industry, energy

The new government that will emerge from the March 7 election will be burdened by too many pending, and difficult, cases concerning industry, small and medium enterprises, energy and investments. Just thinking that the new government will likely be forced to negotiate (if a clause in the relevant agreement is invoked) the return of Hellenic Shipyards – also known as Skaramangas Shipyards – to state ownership, gives an idea of the degree of difficulty of policy decisions that the new government will face. It will also need to find a way to deal with the disastrous failure of the investment in Cassandra mines, in northern Greece, since the recent agreement to resell the mines to a group of investors only served to temporarily appease the voters and buy time until the election. One could say that prospects in the energy sector are encouraging, if only because the current government was unable to come up with a «solution.» With the exception of the sale of shares in state-controlled Public Power Corporation (PPC), the government did not manage to realize its plans. At least this will allow the new government to make a fresh start, hopefully in the right direction. To the above one must add the country’s inability to attract investment and prevent disinvestment. Recent research by the Foundation for Economic and Industrial Research (IOBE) showed clearly that the news on the investment front is bad: Greece is last, by a comfortable margin, among European Union member states in attracting foreign direct investment. There are also problems afflicting small and medium-sized enterprises, despite the government’s promises to increase funding from the EU’s Third Community Support Framework (CSF III) program. A privatization reversed? The privatization of Hellenic Shipyards, in July 2002, was made possible for two reasons. First, the government gave in to demands by the buyers, German shipyard HDW, to undertake to pay off the company’s massive debts, to guarantee new orders by the state – especially the Greek Navy – and to undertake to cover fines resulting from punitive clauses in contracts previously signed by the shipyard with the Greek Navy and Hellenic Railways (OSE). Second, the government agreed on a clause that could reverse the privatization. When the agreement to sell Hellenic Shipyards was finalized in June 2002, the government had basked in the glory of yet another «successful» privatization. Just over a year later, on July 10, 2003, the German buyers sent a letter to the, jointly responsible ministers of Development, Economy and Transport, demanding that the sale be reversible. To back up their demand, they alleged that the ministers had failed to adhere to the provisions of the contract regarding the punitive damages resulting from the delay in implementing OSE’s order for carriages. The HDW letter, a copy of which is in Kathimerini’s hands, indicates that the sale of Hellenic Shipyards was based on the explicit undertaking by Economy and Finance Minister Nikos Christodoulakis, Development Minister Akis Tsochadzopoulos and Transport and Communications Minister Christos Verelis, in a letter dated October 11, 2001, which they jointly addressed to HDW, that they would make certain that OSE would not raise the question of punitive fines with HDW. Hans-Jochim Schmidt, chairman of the HDW’s board and the person who signed HDW’s letter to the government, called on the ministers to stand by their commitment. «Otherwise, we will exercise all our rights included in the sale contract, with foremost that of the reversibility of the sale.» Until know, no solution has been provided, which means that the new government may suddenly face HDW’s demand to reverse the case. the result of such a request would be catastrophic. Idle mines The Cassandra Mines, situated in the prefecture of Halkidiki, east of Thessaloniki, were advertised not only as a successful privatization, but as the largest foreign direct investment in Greece. The government was slow in responding to the problems, legal and otherwise, that the buyer, Canadian company TVX Gold, faced right away. Most of the problems were the government’s hastiness to conclude the agreement in 1996 by undertaking commitments it could not live up to. These problems overwhelmed the investors and led them, eventually, to abandon their investment. Facing the cessation of mining operations, the government agreed to take the mines back and, shortly before the elections, transferred the business to a new consortium, of questionable viability, without an open tender. The difficulties for the Cassandra mines are not over. Energy void In the energy sector, things appear clearer, because the ministers did not manage to put their plans into action. The inability to attract investors in electricity production, despite the revision of the legal framework, leaves the new government with its options open, including a new plan to open the market that takes account of the local market conditions. The electricity sector remains a closed market, with PPC’s monopoly remaining intact – a unique situation among EU states – with the difference that 49 percent of PPC’s shares are now held by private investors. as far as renewable energy sources are concerned, and despite the ambitious plans and the big funds available through CSF III, the majority of investors have not been able to implement their plans. The lack of any physical planning as to the location of wind parks, the bureaucratic procedures for the licensing of operations have made implementation of the investments impossible. The new government will need to devise an integrated policy on renewable energy sources in order to take advantage of the country’s big potential. Natural gas is another sector where everything remains to be done. The government failed to complete the privatization of the Public Gas Corporation (DEPA), which was fortunate, given the demands of the only available buyer, Spain’s Gas Natural. At the same time, the sale of a 30 percent stake in DEPA to PPC also failed. Following the merger of Hellenic Petroleum with Petrola, there is little the new government can do to improve an already competitive sector, except to crack down on fuel contraband, an activity which costs the state 600 million euros a year in forgone revenues.