Monday, October 3, 2016

What’s Derailing Greece’s Plan to Sell State Assets? Its Own Government

The ruling Syriza party must privatize chunks of the country’s infrastructure to meet bailout terms. Many of its ministers are standing in the way

The Wall Street Journal

Updated Oct. 3, 2016 12:09 a.m. ET

ATHENS—The day that Christos Spirtzis became responsible for much of Greece’s ambitious privatization program, he vowed to ensure it failed.

Greece’s leftist infrastructure minister has resisted every sale of roads, airports and trains, even though he and his government have promised to raise €50 billion from privatizations as part of the country’s international bailout.

“I hope the deal will not bear fruit,” the combative, chain-smoking former labor unionist said after his government, under pressure from Greece’s creditors, confirmed the sale of 14 regional airports to a German investor. He backed calls for local referendums to scuttle the deal. When he finally had to sign the contract, he did so “with a great deal of pain,” he told Greek radio listeners in a trembling voice.

The Greek government is at war with itself, and that is threatening to derail a key plank of Greece’s bailout, which consists of selling state assets to pay down debt and bring in foreign investment. Leaders in the ruling left-wing Syriza party are touring the world, from New York to Shanghai, lobbying investors to come to Greece and help kick-start its depressed economy. But Syriza’s roots in the Marxist, anti-globalization left make privatization a bitter pill.

Privatization revenues are necessary to make Greece’s latest, €86 billion bailout plan add up. Without billions penciled in from asset sales, Greece would need to tap more loans and eventually would need more debt relief. Prime Minister Alexis Tsipras says privatizations are also vital for overcoming investors’ yearslong aversion to Greece and bringing down a 23% unemployment rate.

His government’s for-it-but-against-it actions have angered many involved, from foreign companies who thought they had deals, to unions who thought Syriza would be different.

Germany and other creditors, fed up with foot-dragging over preparations to sell water utilities, transport companies and the electricity grid, froze the latest €2.8 billion slice of bailout aid for Athens. Late last month, the Greek Parliament voted to move the water utilities and other assets into the privatization fund to persuade creditors to release the aid, which is now expected this month. At the same time, Mr. Spirtzis assured Parliament members the companies wouldn’t be sold, saying “only Jesus Christ” would be interested in buying firms with so much debt.

Europe and the International Monetary Fund first made Greece commit itself to the €50 billion privatization target in 2011, before Syriza was in power. Bidders steered clear of the slumping economy, and Greece raised only €3 billion up to 2015. Syriza won elections that year on an anti-bailout ticket and vowed to stop the selloff.

Syriza has said Greece can instead earn funds by selling minority stakes to investors and retaining control.

When international creditors later forced Mr. Tsipras to sign a new bailout in July 2015 or quit the euro, they insisted his government commit itself firmly to the €50 billion goal over coming decades and set up a special privatization fund to manage the assets.

This year, Athens has signed deals worth more than €2 billion, the busiest year for privatizations so far. It has done so through gritted teeth.

The biggest deals, for the port of Piraeus and the 14 airports, were signed only after Syriza moderates made repeated calls to the buyers to tell them to ignore their own party colleagues.

“This [cacophony] obviously creates problems in my job,” said Stergios Pitsiorlas, a moderate whom Syriza appointed to execute the deals.

Mr. Spirtzis, the infrastructure minister, said earlier this year that Mr. Pitsiorlas is “operating against the government’s orders” in handling privatizations.

“The most important thing is the results, not the words,” said Prime Minister Tsipras in an interview. “We delivered privatizations that were stuck for years, and we are close to deliver more.”

The prime minister’s challenge is to convince investors Greece is open for business, without losing the support of swaths of his party and the Greek people.

George Pagoulatos, professor of politics and economy at Athens University of Economics, said the prime minister understands the importance of the sales to the economy. At the same time, Mr. Tsipras presides over a government that “lacks the necessary coherence on the issue.”

Some ministers “want to give the impression that they fought against the projects until the last minute,” Mr. Pagoulatos added.

The complications have made investors wary. Economy Minister George Stathakis, one of Syriza’s most pro-business figures, has criticized privatizations as fire sales. Before Syriza took power, he attacked the conservative-led government for saying national railroad company Trainose could fetch €300 million. Mr. Stathakis called that “provocatively low.”

This summer, when his government auctioned off Trainose, they received only one bid, from Italy’s state rail company, for €45 million. The government agreed to it to avoid the only other option, to shut down the heavily indebted Trainose.

The railroad suffered extra losses this year from long strikes by rail unions trying to kill the privatization. Farmers protesting pension cuts and tax hikes under the bailout also blocked major rail lines with tractors.

Syriza itself had encouraged Greeks to demonstrate against the austerity measures while it was negotiating a new bailout from Europe last year.

“What people in the streets support is what I also support,” Labor Minister George Katrougalos said just days before the farmers’ protests.

Hellinikon, the former Athens airport that is no longer in use, is potentially Europe’s biggest urban-redevelopment project. A Greek-led property fund, Lamda Development, agreed in 2012 to pay €915 million for the 15,000-acre site. Lamda wants to invest several billion euros to build a new neighborhood, including a major casino.

After many delays, Greece agreed to terms with Lamda in June as one of the preconditions for getting bailout funds.

A hiccup arose in August, after Athens got the funds, when the Ministry of Culture’s antiquities branch issued a report that suggested most of the crumbling airport should be declared an archaeological site. That meant ministry archaeologists would have discretion to halt any aspect of the construction work.

The prime minister’s adviser on investments tried to reassure investors, saying the move was “purely procedural.” Government officials told Lamda to ignore it, according to Greek officials.

Last month, the culture ministry doubled down, saying its signature would be needed for every piece of the Hellinikon investment plan. Finally, Parliament passed legislation for the privatization without awarding powers to the culture ministry. The next steps are unclear.

The prime minister is perhaps the best example of Syriza’s dual nature. The back and forth over Piraeus, one of Europe’s biggest ports and the most important asset in Greece’s privatization portfolio, shows Mr. Tsipras bouncing between investors and Syriza’s left wing.

Chinese shipping giant Cosco first leased part of Piraeus’s container terminal in 2009 and was keen to buy the whole port. In 2014, Cosco reached a preliminary agreement to buy a majority stake from the Greek state for close to €370 million.

China’s ambassador in Athens called the deal at the port a “dragon’s head,” or a major gateway to Europe for Chinese trade.

Many people in the then-growing Syriza opposition movement wanted to halt the Chinese takeover. Cosco’s leading foe was Theodoros Dritsas, a soft-spoken veteran left-wing activist born and raised in Piraeus.

Mr. Tsipras, still the opposition leader but soon to be prime minister and seeking to calm investors, tried to reassure the Chinese ambassador. “The challenge is to bring the whole dragon’s body to Greece,” he told him, according to aides.

When Mr. Tsipras won elections in 2015, he appointed Mr. Dritsas as shipping minister. “The [port] selloff stops here,” Mr. Dritsas said the day he took office.

“We got nervous,” said a Cosco official.

Greece’s creditors made the Syriza government commit to the selloff as part of the July 2015 bailout agreement. Mr. Tsipras, to make the port deal more palatable for his party, renegotiated parts of it.

The price stayed the same, but a nonoperational section of the site was taken out of the sale. Mr. Tsipras celebrated with locals.

Other changes included setting up a public port authority, to handle administration and regulation. Its tasks will overlap with several existing public bodies. The Cosco official said it adds to bureaucracy and mainly creates a few more public-sector jobs.

Inside the government, Mr. Dritsas and others fought the deal. This April, when it was finally agreed, the government put on a ceremonial reception for Cosco chairman Xu Lirong. Only a few ministers showed up.

Mr. Tsipras signed the contract in his office and pulled out of the public ceremony. Police had to block angry dockworkers from storming the event.

Cosco grew more nervous as weeks passed without the government sending the contract to Parliament for ratification, the Cosco official said.

Chinese government officials told aides to Mr. Tsipras that Beijing wanted the deal ratified before the Greek leader flew to China on July 1 to woo more investors, the aides said.

Mr. Dritsas left it until June 29 to submit the contract to Parliament. “They took away all the visions we had and have,” the shipping minister told fellow lawmakers.

The Greek text of the deal he put to Parliament contained changes Cosco hadn’t seen before. Among the tweaks: The government would no longer have 90-day deadlines for granting licenses for Cosco’s activities, potentially allowing various ministries to delay projects.

After Cosco lawyers spotted the changes, the head of its Greek subsidiary, Angelos Karakostas, wrote an angry letter to lawmakers saying someone in the government was “completely reversing” the deal “unilaterally.” He also wrote to opposition lawmakers, and the letter was leaked to media within minutes.

The government restored the terms of the agreed contract. The prime minister’s inner circle fumed at Mr. Karakostas for exposing them publicly, people close to the prime minister said. Mr. Karakostas didn’t respond to requests for comment.

The next day, Mr. Karakostas found his seat on the prime minister’s plane to China had been canceled. The prime minister’s office declined to comment.

In China, when Mr. Tsipras arrived at Cosco’s Shanghai headquarters, he entered on a red carpet flanked by Cosco staff waving little Greek and Chinese flags. Cosco’s chairman, Mr. Xu, gave the Greek premier a slideshow about the company’s grand ambitions for Piraeus.

“We hope that the Greek side will help us create a favorable environment,” Mr. Xu said, and then raised an issue that had plagued the port, most recently for the full month of June. “It would be good if we didn’t have so many strikes.”

“Strikes are a natural phenomenon, when the workers are not happy,” Mr. Tsipras replied. “But I’m sure your policy is to have happy workers as well as customers.” Mr. Xu smiled politely.

Another problem for Cosco: The strike over the privatization of the rail company, Trainose, had shut down the overland route from the port north into Europe. Cosco made do by sending container ships up the Adriatic Sea to unload at a smaller port in Slovenia.

Trains were working again by late July, but port managers fear Piraeus could lose out if Cosco decides Slovenia is less hassle.

“If the location of the port didn’t serve China’s geostrategic plans for its presence in Europe…the company would have left a long time ago,” the Cosco official said.

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