Can Greece implement its privatisation programme?
- 1 July 2011
- From the section Business
The relief rally on the markets that has greeted the austerity deal in Greece prompts the question, what are investors buying into?
Most extraordinary of all was a 4% rise since Tuesday in the Athens Composite Index.
Why would anyone buy into an austerity plan that pretty much guarantees the economy will shrink by 3.2%, send unemployment up to 15.5% and hold out precious little hope of recovery?
And let us not forget that as GDP shrinks, the deficit, as a percentage of GDP grows, which in theory would require another austerity programme, which would shrink the economy and raise the deficit and so on, ad infinitum.
The word "growth", so dear to investors' hearts, is conspicuous by its absence.
If the austerity plans are implemented in full - and there's little faith that they will be - taxes go up, and spending gets sliced to the bone.
The third aspect, though, is privatisation, designed to raise 50bn euros within the next five years. Fifteen billion euros is pencilled in for 2011-12.
Seeing that the Greek government was unable to sell off even seven billion euros' worth during the boom times of 2004 to 2008, the chances of it being able to conduct an auction at anything above fire-sale prices seem slim.
However, privatisation could do more than fill the empty coffers. Jamie Stewart, director of independent research at Eden Financial, says: "There is obviously an advantage in having funds directed into the government from these sales, but there is also an advantage in getting new management into these large infrastructure companies, get them growing again and contributing more in terms of taxes."
So the Ministry of Finance has bravely announced an "immediate" sale of the telecoms group OTE, the postal bank, the ports of Athens and Thessaloniki and the public water company in Thessaloniki.
Deutsche Telekom already has 30% of OTE. In 2008, the Greek government negotiated a put option to sell it another 10% at 2008 prices.
Deutsche Telekom can hardly be thrilled by the idea of buying into a company where net profits plummeted 54% in the first quarter of this year. But then again, you can hardly blame the Greek government for taking the chance to cash in a few OTE shares for a handsome 400m euros.
Selling banks may prove more problematic. They have weak market positions and require capital injections.
The Agricultural Bank of Greece had the appalling distinction of actually failing the original European stress test which gave a clean bill of health to that doomed trio, Anglo-Irish Bank, Allied Irish Banks and Bank of Ireland.
The water companies, the ports and some of the commodity companies may get more buyers, although all of these have very powerful and militant unions, which are in no mood for cost-cutting new owners.
Most daunting of all is the Public Power Corporation of Greece, which is loaded with dirty lignite-burning power stations.
In two years, it will face mounting bills for CO2 emission certificates under EU carbon trading rules. And its unions are as feisty as any in the country, turning off the lights on a regular basis to fight privatisation proposals.
On the other hand, water may prove easier, especially when potential investors such as Veolia Environment and Suez Environment have experience in operating in volatile economies, often amid anti-privatisation groups.
The government is also expected to sell its 49% stake in the rail group OSE, which may prove attractive to foreign investors - so long as the government assumes the 10bn euros' worth of debt and chops out some of the non-profit making lines.
Up for sale, too, will be some of its loss-making defence companies - Hellenic Defence Systems, Hellenic Vehicle Industry, Hellenic Aerospace Industry.
And there are reports that buyers from the US, Israel and Germany are actively considering bids, again depending on whether the government will assume some of its debt.
Perhaps the most attractive candidate for foreign investors is state-controlled gambling operator OPAP, Europe's biggest betting firm. It operates nine casinos, a horse racing operator and state lotteries.
Total proceeds in 2008 were about 8.7bn euros and it has exclusive rights on sports betting and lotto games in Greece until 2020.
And on the subject of games, many of the Olympic properties are likely to go up for sale, too, which is only fair since their construction played a not insignificant role in getting Greece into this mess in the first place.
However, property sales generally are said to be fraught with legal problems, not least of which is the lack of a centralised and reliable land registry.
What that means is the government may well want to sell a patch of land - but take years, through legal and political obfuscation and delays, trying to do so. All of which could well be said of the whole privatisation project.