Utilities’ chiefs need to deliver deep cost cuts
Economy and Finance Minister Giorgos Alogoskoufis will see the managers of 42 public utilities over the next few days, to brief them on what he expects them to do to cut their companies’ costs. These 42 non-listed utilities, most of whom are lossmakers and whose borrowing needs the state backs up by acting as a guarantor to creditors, were the objects of legislation passed last month aimed at providing tighter control over their finances. Among the most controversial provisions of the legislation was one giving the state greater leeway to set wages should management and employees fail to agree through established collective-bargaining procedures. The law also effectively abolished lifetime employment at public utilities for new hirings. Alogoskoufis wants the utilities in question to produce tangible results in cost-cutting by the end of April. He and Prime Minister Costas Karamanlis consider this attempt at limiting excessive expenditures at these companies as crucial in their attempt to reform the public sector and promote further structural reforms. These utilities, as well as the ones now listed on the Athens Stock Exchange and at least partly privatized – including, especially, the Hellenic Telecommunications Organization (OTE) and Public Power Corporation (PPC) – used to be significant instruments of promoting political patronage as well as a cozy relationship between management and employees that created a privileged class of state employees. Public utilities are also well-known for their powerful unions which share power with management and which have largely opposed reforms. Most of these unions are controlled by unionists close to the opposition Panhellenic Socialist Movement (PASOK) and have not hesitated to confront their party’s leadership during PASOK’s long spells in government when the latter showed signs of favoring reform. The present PASOK leadership, wanting to please both reformers and those clinging to the idea of a big public sector, has failed to clarify its position over the utilities bill. Between 2003 and 2005, the utilities’ accumulated debt rose 30 percent, reaching 12.2 billion euros, up from 9.35 billion in 2003. The utilities’ lax management practices and the state’s use of them as a means to satisfy demanding voters, by appointing them or their offspring to what were up to now lifetime jobs, are to blame for this worsening financial situation. Because of the number of sectors affected, reform in public utilities is considered as an integral step for others to follow, such as the use of Public Private Partnerships (PPPs) in public infrastructure projects and further privatizations. For these latter plans, the government’s priorities are the sale of its remaining stake in Emporiki Bank, as well as a 10-15 percent stake in state-controlled ATEBank and a bigger stake in Athens International Airport. The sale of state assets will bring in some 1.6 billion euros, to be used to reduce the country’s public debt. One of the biggest listed utilities, OTE, is expected to invest over 1 billion euros in 2006-2008 in new infrastructure, including underwater fiber optic cables. OTE aims at retaining a 75-80 percent market share in fixed-line telephony. According to sources, OTE’s clients division estimates that OTE’s ADSL (fast Internet) customers will increase to 300,000 in 2006 and 800,000 in 2008. To help reach those numbers, OTE plans to offer ADSL connections at up to 4 megabits per second (4Mbps), four times faster than the top speed currently on offer. OTE also plans to reverse its hostility toward VoIP services (telephone service over the Internet) and offer those services itself. OTE has been suffering from declining profit margins over the past four or five years. This is partly due to the deregulation of the telecoms sector and the cost of offering lucrative early retirement packages to older employees.
