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GreekReporter.comGreek NewsEconomyWith Privatization Lagging, Greece Ready to "Burn the Furniture"

With Privatization Lagging, Greece Ready to "Burn the Furniture"

ATHENS – As Greece struggles to save its economy by cutting workers’ pay to the bone, raising taxes to the limit, slashing pensions and preparing for the firing of 150,000 workers, a big revenue-raiser – privatizing state-owned entities and selling and leasing state properties – has fetched less than $2.53 billion so far as some analysts fear potential buyers are waiting in the wings to scoop up fire sale bargains. The European Union-International Monetary Fund-European Central Bank Troika had estimated as much as $70 billion could be raised, but has scaled that back to only $25.3 billion at most as the country’s economic crisis has made Greece so desperate that investors believe they can get what they want for far less than the value of the offerings.
“It is not clear Greece has the luxury of doing anything in an optimal way; they are basically burning the furniture just to get by,” Bill Megginson, Professor of Finance at the University of Oklahoma, told Reuters. “But other countries, especially where the crisis seems to have abated a bit, like Italy and Spain, they could and they probably will,” he added, referring to other European countries with similar economic problems, although not as deep. Greece is surviving on a first bailout of $152 billion in loans from the Troika and a second just approved for $172 billion that came with forcing losses on investors to help Greece write down its debt by $134 billion. Those came with attached austerity measures that have created a deep recession of 21 percent unemployment and led to the closing of more than 111,000 businesses, leaving Greece with little else to do to raise money as tax evaders costing the country more than $72 billion have largely gone unpunished.
Despite a reluctance to sell assets in poor market conditions, Greece has put some choice offerings up for bid, including the state-owned natural gas company DEPA, the management rights to its Olympic broadcasting complex and plans to put stakes in betting monopoly OPAP and refiner Hellenic Petroleum – one of the few profit-making state entities – up for sale by May, Greece’s chief privatization official said. But the tight timeframe and ambitious targets, suggest it will struggle to meet its price expectations. “There is a big risk … the long-term strategy for the businesses and getting a fair price for the taxpayer falls by the wayside,” David Parker, Emeritus Professor of Privatization and Regulation at the Cranfield School of Management in the United Kingdom told Reuters. “We are certainly going to have a risk that the government sells off industries without really thinking about the long-term implications,” he added.

Protesters rally against the government's privatization outside the headquarters of telecommunications company OTE in Athens in May 2011. (PHOTO/REUTERS/JOHN KOLESIDIS)

Buried under $460 billion in debt, Greece is looking everywhere to find ways to raise revenues and is being pushed by the Troika for failing to privatize earlier. “It is a balance; do you become opportunistic in terms of picking up offers, or do you actually have a considered plan that will give you a few years to figure out how you increase the value of the organization before you sell it off?” James Close, head of transaction and advisory services to government at Ernst & Young said to Reuters. Added Megginson: “If you sell them in pieces, the first piece may be somewhat underpriced, but then as the firm improves performance you sell the remaining tranches at progressively higher prices.”
Jeremy Golding, founder of Golding Capital, a German fund-of-funds manager with $2.66 billion of assets under management, said, “I don’t expect a gold rush of private equity at the privatizations in Greece. It will be a cherry-picking.” Selling an asset cheaply also means the government gives up future revenues for less than they’re worth, ultimately harming its ability to manage its debt, said Paolo Manasse, Professor of Economics at the University of Bologna. He said Greece could make more money simply by prosecuting tax evaders and collecting what is owed rather than almost giving away its properties and assets forever. Analysts said that having more time also allows the state to set up the right regulatory regimes before selling certain assets. Rushing ahead risks transferring unchecked monopoly power to private individuals or companies, with potentially long-term damage to the economy.
Earlier this year, Greece’s privatization agency announced plans to sell a seafront property on the tourist island of Corfu.  According to a statement by the Hellenic Republic Asset Development Fund, the property will be leased for up to 100 years and is aimed at companies with a track record in real-estate development. “The seafront property of approximately 500,000 square meters is located in the northeastern coastline of Corfu, just 38 kilometers from the city center, with significant development potential,” the fund said.
Privatizing the state-owned gas company DEPA and natural gas grid operator DESFA could be more lucrative. DEPA’s sale combined with the majority stake in DESFA could bring $2-2.6 billion, according to analysts’ estimates. Greek budget estimates value DEPA alone at $1.32 billion. “There are indications that about 20 companies could be interested,” a person in Greece’s privatization agency said. These include: Russia’s OAO Gazprom, through its joint venture Prometheus Gas; Algeria’s Sonatrach; Spain’s Gas Natural France’s GDF Suez; Italy’s Eni; and Austria’s OMV, the source said, as the Wall Street Journal reported. Gazprom said that it will review the strategic value of Greece’s state energy assets and plans to make a decision later on whether to participate in an upcoming tender. Greece owns 65% of DEPA and the other 35% is owned by Hellenic Petroleum, which is partially owned by the Greek state. The two sides have agreed to jointly sell their respective stakes in DEPA Group. DEPA is active in the wholesale, trading and supply of natural gas to large customers. Through DESFA, it owns and operates the high pressure gas transport network and liquefied natural gas re-gasification facilities in Greece.

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