Greece: Selling Assets Among the Ruins

A PPC plant in Greece: tough union, low share price 

Πηγή: Bloomberg
By Jonathan Stearns and Natalie Weeks
August 23 2012

In the mountains of northern Greece lies an $800 million power plant whose future may help determine whether the country can salvage its place in the euro zone. The facility near Florina, the town known as “Where Greece Begins,” is the most modern of four production units that the state-controlled Public Power Corp. is scheduled to sell to competitors to meet European Union demands that the country deregulate its energy market. Public Power, or PPC, is itself a prime candidate for sale to help the Greek government raise the money it needs to support its budget and satisfy the demands of the International Monetary Fund, the European Commission, and the European Central Bank to shrink the government.

If the government of Prime Minister Antonis Samaras goes ahead with plans to sell the four power units, the most powerful Greek union, whose workers man the plant, threatens nationwide blackouts. “We will make saving PPC a cause for all Greeks,” Nikos Fotopoulos, head of the 18,000-strong Genop union, said in July in his Athens office, which is adorned with photos of Lenin and Trotsky. “We fight our battles with faith and passion, and we fight them hard. A serious state must control businesses of strategic importance.”

Founded in 1950 to distribute domestically generated electricity to Greek consumers, PPC is a microcosm of the political protection, vested interests, and reliance on foreign financing that have defined the economy for decades. Any outside investor who buys into the utility or its Florina plant would have to deal with the union.

A new owner would also have to lock in a supply of the soft, brownish-black coal called lignite that the plants rely on for fuel. The utility is fighting to keep its monopoly on the locally mined coal, which is so vital to the company that it’s in the process of moving a whole village to extract more of it. EU regulators ordered Greece in March 2008 to loosen the company’s stranglehold on lignite, saying competitors faced unfair market barriers and that as a result Greece was in violation of European law.

Since forming a government after the June 17 election, Samaras and his ministers have been in talks with the EU, ECB, and IMF to keep aid flowing during the fifth year of Greece’s recession. They are seeking at least €11.5 billion ($14.2 billion) of further budget cuts for 2013 and 2014. Samaras has vowed to make the sale of state-owned assets a priority and last month appointed former PPC chief executive officer Takis Athanasopoulos as chairman of the organization that manages the privatization program.

Athanasopoulos, a U.S.-trained business manager and university professor, battled the union boss Fotopoulos during his tenure at PPC over issues ranging from job cuts to teaming the company with partners such as Germany’s RWE, that country’s No. 2 utility. PPC employs 20,000 people, compared with about 38,000 in the mid-1990s, and is now restricted to one new hire for every 10 departures. “We are determined, as a government of three parties, to press on with structural changes, with state asset sales,” Samaras told reporters on July 26. His New Democracy party has formed a coalition with the Democratic Left and Pasok, the socialist group traditionally backed by the unions.

The standoff is a test of Samaras’s ability to prove to the euro area and the IMF that Greece is meeting their demands to open markets to competition, scale back state ownership of companies, and cut red tape. The asset sale program also may involve lowering the state’s stake in PPC to a minority position from the current holding of 51 percent. The company’s shares have collapsed by 61 percent in the past year, and its net debt at the end of the first quarter stood at €4.85 billion.

If the Samaras government had to sell the utility soon, it would probably get a fraction of the true value of the company. “The government is committed to proceeding with the privatization of PPC in an organized fashion,” Assimakis Papageorgiou, Greece’s deputy energy minister, said in an Aug. 1 e-mail. He declined to elaborate on the plans, saying they are still being developed. In Greece, selling a state business is never going to be easy.

The bottom line: The Greeks need budget cuts of up to €11.5 billion for 2013 and 2014, increasing the pressure to sell state assets.