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Lacklustre privatization plan announced by government

The government has announced a privatization plan lacking in ambition, signalling its intent to avoid structural change. This will hamper the supply side of the economy and reduce growth potential and the chances of success of the EU/IMF restructuring programme.
On June 2nd the government announced a plan (without a specific timeframe) to partially privatize state assets with the aim of raising € 1 bill. in the period 2011/12 and € 3 bill. by 2014. This falls short of previously announced intentions (in Dec 2009 the finance minister had spoken of € 2.5 bill. within 2010 alone). It seems that this delay is indicative of difficulties in the implementation of structural adjustments required by the EU/IMF imposed programme as the government struggles to formulate an overarching growth strategy and overcome external and internal political, ideological and administrative obstacles. At this stage it is hard to gauge whether the government sees privatization and reduction of state activity in the productive economy as a good thing and a driver of economic growth leading to a clean break with the past or whether this is just a revenue raising exercise with the government vying to maintain influence in privatized entities through formal and informal means. On balance the latter seems more probable given the reported resistance to privatizations and privatization procedures by ministers and vested interests (with the excuse that at present valuations would be low) and/or the reluctance to give up strategic and operational control over companies to be privatized and the possibility of using them as tools for social policy or party politics.
As it is the government announcement calls for full privatization only of gambling casinos. Utility and infrastructure assets will be partially privatized either through floating of shares with the Greek state retaining majority or through concession contracts. Specifically it appears that the ministry of finance lost its bid to privatize the water companies in Athens ( EYDAP ) and Thessaloniki ( EYATH ) through concession contracts and that up to 49% of shares of the companies will be floated with the state retaining majority control. The same intent applies to the Post Office ( ELTA ).
As far as major state corporations are concerned including the power company ( DEH ), Hellenic Telecom ( OTE ), the oil company ( ELPE ) or the natural gas distribution company ( DEPA ) no further change or privatization is planned with the exception of the gas pipeline network which will be separated (unbundled) from operations, but which will remain in state ownership. Plans to sell generation units of the power company have apparently been shelved, though the government intends to liberalize both retail and wholesale electricity markets in line with EU directives.
The government plans to proceed with concession contracts for lesser assets such as regional airports, ports and highways and possibly extend the concession for Athens airport. A strategic investor (49%) is being sought for the operating business (ie not infrastructure) of the railway company ( OSE ), which is heavily loss-making and has accumulated state guaranteed debt in excess of € 10 bill. A government restructuring plan is supposed to be announced in June.
Finally the government is considering the bundling of state assets in a holding company, 49% of which may be floated on the stock exchange.
The announced privatization plan is lukewarm at best. It virtually guarantees low levels of investor interest and signals the government’s intent NOT to proceed with structural changes. Given the poor performance of state companies in the past, the relative lack of management capacity, the need for investment to upgrade and improve infrastructure and the urgent need for revenue and FDI it is hard to comprehend why the government does not grasp the opportunity of the crisis to proceed with full scale privatization and radical restructuring. Arguments regarding current asset valuations seem hollow as the value of assets will collapse if the EU/IMF imposed programme fails and the engagement of foreign strategic investors would improve the country’s BoP. Further the value of assets could be linked to future performance limiting the downside.
The lacklustre nature of the privatization efforts could have been predicted by the similar absence of restructuring in the broader state sector and general government, where efforts have focussed on pay reductions rather than upgrading of management capacity, administrative process improvements, elimination of waste and red tape or reductions in personnel numbers. It appears that conservative elements in the government retain the upper hand and / or the government fears that it cannot muster or sustain majorities necessary to push through more radical change. As a consequence the supply side of the economy, crucial for the success of the bail-out programme, will stay below potential reducing growth prospects.

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