Story by David Harbeck ·
Desperate for cash and looking for a way to pay back international creditors, Greece is selling rights to its major state assets including airports, railways and ports to foreign companies with decades-long contracts that will most certainly become lucrative again, robbing the country of any financial benefit.
A place where tourism makes up more than 18 percent of the gross domestic product, Greece no longer controls many of its utilities, transportation systems, beaches or islands. “This crisis has gone on for so long that the government has no choice now but to try to profit from its own parts,” said Persefeni Tsaliki, a professor of economics at Aristotle University in Thessaloniki. “We need the money.”
The organization in charge of dissecting Greece’s assets and finding suitable bidders is the Hellenic Republic Asset Development Fund or HRADF, established in 2011 with the sole purpose of privatizing assets transferred to the fund by the Greek state.
On May 31, the HRADF negotiated the extension of a contract giving control of 45 percent of Athens International Airport to AviAlliance, a German airport management company. The bid was worth $672 million. In November 2016, another German company, Fraport-Slentel, gained control of 14 regional airports in Greece for $1.3 billion, including the country’s second largest facility in Thessaloniki. That license agreement expires in 40 years, according to the HRADF website.
“Measures like this have been needed in Greece for a long time,” said Tsaliki. “But it took until the crisis and the austerity for the government to actually change.”
The Greek government debt crisis began in 2010, and since, the country has been dependent on three International Monetary Fund and European Union bailouts to avoid collapse. The latest bailout, agreed to in the summer of 2015, stated that Greece must pay back nearly $6.7 billion, through the sale of state assets by 2018. Overall the deal requires Greece to privatize $56 billion worth of assets, which IMF experts say could take decades.
Recently, privatization has become an integral part of EU agreements with other in-debt nations such as Italy, Spain and Portugal.
According to HRADF communications director Roi Haikou, the mission is simple. “The HRADF aims to attract significant capital flows, both national and international, into large-scale corporate, infrastructure and real estate assets,” said Haikou. “If we can induce a secondary wave of investments across these and other assets, we’re contributing to the recovery and sustainable, long-term growth of the Greek economy.”
He explained Greece has no choice when it comes to making agreements that will span multiple decades. “In order to maximize revenues for the Greek state and attract significant investors’ interest, you need to follow international best practices, in accordance to EU rules and legislation. We believe in the need of strategic investors and long-term concession agreements are a key element to that.”
In April, the port of Thessaloniki was acquired by a consortium of German, French and private Greek investors that combine for a 67 percent stake, or $259 million. And when added with yearly mandatory investments of $202 million over the next seven years, the deal will make Greece over $1.12 billion, according to HRADF reports. This concession expires in 2051.
In 2016, Piraeus, the largest port in Greece, located in Athens, was sold to COSCO, a Chinese company, for $313 million in a deal that expires in 2052.
Tsaliki, the economics professor, said in her eyes Greece is making a smart move by privatizing assets. “We have to get into the spirit of capitalism and internationalism and realize those two are inseparable.”
Tsaliki explained that though these concessions may be useful in increasing profitability, there are obvious drawbacks as well. “The downside for the Greek people is here they could’ve done this themselves without foreign organizations. Politicians here have no vision,” said Tsaliki.
According to Tsaliki, privatization is only necessary is Greece because the government repeatedly proved it did not have the capacity to make money and reduce debt. In fact, privatization is a practice that originated in Ancient Greece, she said, when private contractors played a major role in the development of city infrastructure.
The current political party in power in Greece, left-wing Syriza, promised to cut down on privatization when it came to power in January 2015. However later that year the government reluctantly agreed to the third IMF and EU bailout packages and the increase of privatization that came with it. “Privatization is not really compatible with socialism,” said Tsaliki. “If Greece wants to be part of the EU than it’s no question.”
But the negative ramifications of the privatization of Greece are obvious to Panos Fouselas, a professor of economic analysis at Aristotle University of Thessaloniki. “When the economy is not good, public companies do not always make citizens pay. Now if private companies take it, water will become like chocolate in Greece,” said Fouselas. “Part of the public will lose access to basic things.”
Despite this concern, Greece is looking to privatize other basic human necessities, as the country needs investment more than anything else. Major utilities will be privatized such as 23 percent of the Thessaloniki water supply and sewerage, and 11 percent of Athens’ water supply and sewerage.
Next up: gas and energy resources. The HRADF is currently searching for a bidder for 17 percent of the Public Power Corporation, the electricity supply company in Greece. The fund is also exploring options to privatize 35 percent of Hellenic Petroleum, the leading oil refiner and distributor in the country, according to the HRADF asset development plan.
The sale of people’s utilities to private companies may be worrisome to Fouselos, but he acknowledged that since Greece began privatizing in 2011, tourism has increased in the country. In 2016 Greece reached an all-time high of approximately 30 million tourists over the year, with nearly 17 million passengers traveling through Greece’s main airports, according to the Hellenic Statistical Authority.
Although these interests will no longer be controlled by Greece, if investors can improve the quality of the area, they will attract more tourists and create jobs for Greek people, said Fouselos. He mentioned the positive effects of privatization already being seen. “Public enterprises are not as efficient in raising money and jobs. All these agreements boosted tourism,” which now accounts for $36.6 billion of the country’s GDP.
The process of privatizing infrastructure and other assets is a meticulous operation, according to Haikou, the HRADF communications director. “On average the privatization process lasts from nine to 15 months, from the beginning of the preparation stage, which includes the appointment of advisors, financial, legal and technical assessments of the asset, until the financial closing of the deal,” said Haikou. “The privatization procedures are absolutely safe-guarded.”
The HRADF is not only focused on selling its assets to private companies. Public companies from other countries are also frequent bidders in the process. For example, the primary railway company, TrainOSE, was 100 percent acquired by an Italian government-owned railway company for $50 million in 2016.
Political scientist and advisor to the mayor of Thessaloniki, Leonidas Makris, reiterated that Greece really has no choice but to sell its assets. In Thessaloniki specifically, the airport, port, water and sewerage system and Modiano, a popular food market, are all on the block. “The Greek government looked for support from China or Russia, but got nothing. So they turned back to EU creditors which is representative of where Greece truly belongs,” said Makris.
Greece is so focused on acquiring contracts for its property, there seems to be little concern on how these sales affect the identity of the country.
The peninsula of Astir Vouliagmenis, situated about 12 miles from Athens, was sold to an Arab-Turkish fund called Jermyn Street Real Estate Fund for $440 million in 2014. Almost 500 acres of beachfront on the island of Rhodes has been sold to a U.S. construction company M.A. Angeliades for $30 million. The southern part of the beachfront was sold separately to a Greek company, T.N. Aegean Sun Investments Limited, for $17 million. However, both of these investors are expected to pay a combined $335 million to develop the land.
The concern that Greece is no longer controlling its own country is one that the HRADF fully acknowledges, according to Haikou. But every concession still must be approved by multiple Greek agencies, and every company must agree to follow Greek law regarding environment and business practices.
So privatization will move ahead full force as the country continues to claw its way out of crisis. Greece is now looking to privatize its postal system, dozens of major marinas and the Egnatia Odos Motorway, a 416-mile highway serving 33 percent of the Greek population and reaching 54 percent of agricultural land in this sprawling country, according to the HRADF.
Despite the positive revenue gains, there is still plenty to be wary off when it comes to privatization in Greece, according to Fouselas. “Since the government decided to stay in the EU, this has been for a long time inevitable,” said Fouselas. “If EU and IMF policies continue to fail, the burden will once again fall on the people.”