ECONOMY

Construction sector braces for cleansing and post-Olympic slump

About one in five construction companies traded on the Athens Stock Exchange and dozens of smaller businesses active in the sector are in danger of losing their licenses or being downgraded to lower categories, meaning that they will be restricted to bidding for smaller public projects. Such could be the result of the full application of the law in the annual survey of their activities. In actual fact, calls for such a development have been initiated within the sector, as major operators faced with the prospect of a slump after the conclusion of large projects for the Olympic Games wish to see a clearer landscape. They point out that in spite of the explicit requirements of Law 2940/2001, the Ministry of Public Works failed to audit the Activity Reports for 2002 submitted by contractors in the summer of 2003. As a result, listed companies with a turnover of no more than a few thousand euros, businesses with negative equity or even some which have no other assets than the expensive four-wheel-drive vehicle of their owner, are keeping their permits «intact.» The cleansing process is expected to be widespread among companies that have secured lower-category licenses, as dozens of them are controlled by businessmen of questionable credentials and whose fortunes have grown in recent years in parallel with the proliferation of colluded bidding practices based on the infamous «mathematical formula.» Construction companies submitted their 2003 Activity Reports a few days ago and, according to G. Gianaros, general director of the Institute of Construction Economy (IOK), «we are witnessing a large number of cases in which companies do not meet the minimum requirements of the law. If the law is applied, those companies will be downgraded, creating an explosive situation with high unemployment in the construction market, in combination with the projected downturn after the conclusion of the Olympic projects.» Construction company managers, who are also projecting a difficult period ahead, insist that the Ministry of Public Works must now move to «cleanse the sector» and set the sector on a healthier footing. They note, however, that the consequences would not have been so dire had the ministry properly audited the 2002 Activity Reports earlier, «although it knew that such an omission amounts to dereliction of duty.» Today, 14 active construction companies hold the highest category Z-class licenses, 51 are in the second-highest ST class, 65 in E class, 85 in D class and 485 companies in the lowest C class. Of these 485 companies, only 173 are properly registered with the ministry. Many of the rest are no more than «businesses on paper,» set up for the sole purpose of participating in the «mathematical formula» process. For a construction company to keep its license, or in order to avoid being downgraded in the Ledger of Contractors (MEEP), a number of their financial indicators must be inspected. These include its equity capital, assets, annual income and possible past bankruptcy applications. Yet, professionals such as civil engineers insist that it is better for the law to be applied immediately and for the market to be restructured now in order to be better prepared for the projected slump after the Olympics. In spite of the positive projections by IOK concerning construction activity in the post-Olympics era, some of its senior officials are now apprehensive that the sector will be faced with serious problems in the short term. Important factors leading to such a negative development include «weaknesses in the realization of projects funded through the European Union-subsidized Third Community Support Framework and the three-year delay in promoting seven road projects under private financial initiatives. With the exception of the underwater tunnels of Thessaloniki and the Maliakos Gulf, where progress is being made, all other projects are in initial stages of development.