Credibility of reformist agenda dented by the delays in restructuring power utility

If the Greek government wanted to send the strongest signal ever about its determination to revitalize the economy through reforms, the first candidate on the list should have been the Public Power Corporation (PPC). It is the state-controlled company with the strongest labor union and biggest assets in the country. However, events in the last two weeks show this does not appear to be the case. The Public Power Corporation came to the forefront in the last couple of weeks for different reasons. In both cases, the news did little to improve its image among investors and the general public. In the first case, the board of PPC appeared to looking for a compromise solution to avoid a head-on collision with its powerful unions and keep hope alive among the foreign investors who bid up its stock in the last three months that its new business plan will be implemented.    The shares of PPC, which became a corporation (Societe Anonyme) in 2001 and was admitted to the Athens bourse in December of the same year, approached the -30 mark around October 10, setting a new record high, before falling to between -26 and -27 lately. The shares have gained 36 percent in the last three months, starting from below -20 before mid-August. At the end of 2006, the shares of the biggest utility in the country were hovering between -18 and -20.   Apparently, PPC senior management wanted to avert a series of strikes during the winter period and consented to the unions’ demands that talks on the new business plan take place in the next six months.  On the one hand, it was a logical decision given the strength of the unions, which have not hesitated to cause blackouts in the past to protect their interests in the name of consumers. On the other, it was a slap in the face for optimistic investors who thought its chairman and CEO Panayiotis Athanassopoulos would go ahead with the new business plan to overhaul the company.  After all, it was the appointment earlier this year of Athanassopoulos, a respected retired top manager of Toyota, which made many people think he could turn out to be PPC’s Vourloumis. Panayis Vourloumis, the chairman and CEO of OTE telecom, who is a respected retired banker, is credited with making OTE more competitive, even it meant confronting the unions in some cases in the past. Being aware of union opposition to any major changes in the company’s status quo, one would have expected the management of PPC to be prepared to cope with the storm caused by the communication of its new business plan among unionists. However, this was not the case and in the process, Athanassopoulos used up a good deal of PPC’s capital in the eyes of the investment community, regardless of the government’s stance on the issue. Gov’t appointee Of course, this does not mean the government has been weakened. After all, it was the government that appointed PPC’s management. Moreover, it is hard to believe PPC’s senior managers did not consult with government officials before deciding to freeze the much vaunted business plan for a number of months, following strong opposition from the unions. In addition to the delay in the implementation of the new business plan, PPC was thrown into the spotlight following a leak that the company was about to sign a memorandum of understanding with Germany’s RWE under which the German company will get the management and a 51 percent stake in the new power plants to be built. Although the Greek utility denies this, the story has further hurt the image of senior management and not unsurprisingly has provided a lot of ammunition to its critics. The most disturbing aspect of this second developments is the fact that PPC’s management appears to be choosing partners without holding a tender. This practice may be all right in a private company where the management has obtained the consent of major shareholders but it is a no-no in a state-owned company with powerful unions waiting just around the corner.       In doing so, PPC has set a bad precedent which may hurt future efforts to find a strategic partner. Limited competition for the next few years, rising tariffs and a strong demand for electricity may help shore up its profitability provided high oil prices are compensated for in the form of higher tariffs or oil prices come down. Still, the need to overhaul PPC in order to cut operating costs, decrease its dependence on lignite, limit CO2 emissions and utilize its huge real estate portfolio remains. Given that investments in new, cleaner power plants are necessary to replace old ones in order to cut operating costs, and this requires a huge amount of capital, it is logical to explore options for a potential link-up with a large European utility. However, this should be done with transparency in the framework of a well structured plan to make PPC more competitive. In this regard, the RWE affair has done more bad than good. The government should encourage and even empower PPC’s management to restructure the company, even if it means going against the status quo and clashing with the unions. However, all reforms at PPC should be introduced with prudence, determination and a clear timetable. The events of the last two weeks show this has not been the case and this undermines the government’s reformist agenda as well as the image of PPC’s senior management. This should change.