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Interview of Stelios Stavridis, President of the Hellenic Republic Asset Development Fund, to Pavlos Efthymiou, Research Associate of the Crisis Observatory

Privatization is a key aspect of the Greek fiscal adjustment programme. In this direction, the role of the Hellenic Republic Asset Development Fund (HRADF) is expected to be catalytic. But what exactly is the role of HRADF? What are the objectives and obstacles in its operation? In order to answer these questions, we met with the president of HRADF, Stelios Stavridis. The interview is divided in five parts: a) the role of HRADF, b) the significance of privatizations, c) the timing of privatizations, d) the criticisms towards HRADF and e) the conditions for the success of the privatization programme.

The Role of HRADF

Mr. Stavridis, what are the objectives of HRADF?

The vision of HRADF is to help Greece develop. How? The aim of privatizations is not simply to find funds in order to pay for our debts, but rather to create growth. To absorb public posts and create new jobs, to attract foreign investors, to provide for economic activity: investments, visitors and injection of money into the market.  

In this sense, privatization means the creation of economic wealth and, thus, growth. We have to understand that Greek enterprises, the ones that remain alive, are marginally surviving – whereas the banking sector is facing significant problems. Therefore, we cannot survive on our own. We are only reproducing recession. We have to attract foreign investors, income from other countries has to be invested in Greece and, through this activity, Greece will be able to start growing.

The European economy consists 95% of SMEs which, however, operate in cooperation with large complexes. This is the model that has to be implemented in Greece as well. If we continue on our own path, fragmented as we are, we are not going to succeed.

Is the work of HRADF connected to tourism?

To a great extent. Those who come to invest, bring not only funds but also a network of connections. They will attract tourists and visitors, organize conferences and other activities. In other words, they carry with them a whole network which may attract people. In particular, wealthy and mobile people (doctors, businessmen, the economic elite in general).

The most economically dynamic cells of societies are aged between 35-37 and 50 years. Greece needs to become a destination for all these young people, who are at the pinnacle of their career, earn a lot of money and have the potential to build a house in Greece, at first for vacation and later to bring their parents and, why not, come themselves permanently when they get 65-75 years old. Greece has missed all these opportunities so far.

 The importance of Privatizations

Both the government and the Governor of the Central Bank have repeatedly talked about the multiplicative value of privatizations, as well as the fact that we should not look solely at the direct inflow of capital into the fund. Can you explain to us what this value is?

It would be a “crime” to look at privatizations only in terms of direct capital inflows. Of course we need to pay our debts. But when you are dealing with a people who have been persuaded, rightly or wrongly, that they do not owe anything, and that “they”, the foreigners, owe them instead, you cannot say to that people that “I privatize in order to collect money”. Of course you must and ought to do so. But, instead, you decide to sell a plot of land in Rhodes or Chalkidiki for €20 million. Has anyone considered that in the next 40 years it may yield one, two or even three billions? What is the multiplier in this case, 50, 100 or 1000?

If I give you €100 and you decide to buy a SONY camera, this money will be transferred to Japan. The multiplier is essentially 1. But if with this €100 you build a house in, say, Cephalonia, then the Greek builder, the Greek manufacturer, the Greek cement industry, the Greek gravel industry, the Greek enterprises will work, and so on. Thus, the multiplier is much higher in this case. And this is exactly what we want. Invested money to remain in our country and feed our own productive forces. We want foreign investors to build their factory units here, utilizing the Greek work force and paying VAT, payroll taxes, income taxes, and so on.

The Timeframe

Privatisations have begun. It would be useful to start with a synopsis of what has been done so far – how much has the fund collected until now?

Yes, a few real estate (€40 million) and the State Lottery (€200 million). We could do much better. Ports, airports, marinas, etc. We have the Xenia Hotels in Vitina, Tsagkarada and Cephalonia, which have remained abandoned for 30 years. How come that some people accuse us of selling out? In other words, when you have abandoned your own house, which has collapsed, and I decide to give it to someone, rightly or wrongly, who will invest, who will clean it, build or renovate it and create 50 jobs, then are we talking about selling out or for putting the property to use? All state property that is abandoned and left unused is devalued in the long run, it deteriorates further and pollutes the environment. If not used, it offers nothing to society.

The property that has been included -and keeps increasing- in the Fund is inconceivable. And if the Fund generates income, then this model will be extended further. We have real estate, airports, ports, marinas, Olympic buildings – a huge property.

Let us elaborate a little further on Olympic property. Of course, the Olympic projects should have been built with a plan for their later use; with the private sector participating as a “shareholder” of the day after – not simply as a builder for the three weeks of the Olympics. Who will choose this property now, e.g. the Hippodrome? Huge buildings 35,000m², “Pharaonic” constructions, who will buy them? They are wasteful – simply taking electricity and energy bills into account. In addition, it is scandalous what is happening with the Olympic property; pillage: taps, windows and aluminum parts are being stolen- a real plunder. The same goes for Kaimaktsalan ski resort -plunder- they have removed all wires … an incredible disaster.

So, what you are saying is that if this property passes into private hands, then it will not only be utilized but also safeguarded and preserved.

Indeed. But these private hands must be held accountable. They must be controlled. It is no coincidence that private entrepreneurship is being challenged in Greece. It is being challenged because its presence has been disgusting in Greece; it was encouraged to behave in this way. It has operated with great impunity. But this is no crisis of private enterprise. This is a crisis of the state. The state must play a regulatory and supervisory role. It must set rules and then check actors’ compliance with these rules.

Can you briefly give us a timetable for 2013? What are the planned privatizations for this year?

Following the recent success with had with OPAP, where the state will receive €710 million (€652 million plus a €60 milion dividend), we have a number of projects coming including the Public Gas Corporation (DEPA) and the Hellenic Gas Transmission System Operator (DESFA), the Astir Palace Hotel, ports, marinas, peripheral airports, the Eleftherios Venizelos Athens International Airport, the plot of the old airport at Elliniko, etc.

Are you afraid of an engagement with the Competition Commission in case that, as it appears, the Russians are the highest bidder?

Initially, we -as HRADF- have to give it to the highest bidder. However, the Russians have not come without some guarantee or “weapons” in their “arsenal” so as to reassure their approval.

One could wonder, however, how can they offer so much more than the others, given that they have been reassured they will finally get it?

The “key” element here is that there is no “absolute” answer. That is, the other bidders cannot afford to offer much more in any case. On the other hand, the Russians can both afford it and want this investment. Thus, it is not easy to decide which the right amount is. Is it better to go with the others that offer less? Or with the Russians that offer more?

As HRADF, we evaluate, as far as this is possible, the validity of their intentions, we will receive a letter of guarantee for 10% of the investment, and perhaps also include a small penalty of €20-30 million. Whatever we decide of course has to be mutually acceptable. We would not want to do something that makes the Russian side withdraw its interest.

Estimated revenues from privatizations have already been revised twice since the first -over-optimistic- projection of €50 billion by the end of 2015. The target is now €2.6 billion by the end of 2013 and less than €7 billion until late 2015. Do you think these goals are realistic and under what conditions?

The initial projection of €50 billion was very crude. Moreover, since this statement was made, prices have dropped by up to four times. Everything related to land has been discredited. Prices have dropped to one quarter of their value before crisis.

Could we go over the timetable in more detail?

This year the privatization of OPAP and DEPA-DESFA will be completed, the ports and marinas will follow, with Marina Alimos showing real progress, the Elliniko casewill also proceed -which is a more complex issue though- and the same goes for the ports of Thessaloniki and Athens, as well as for the Eleftherios Venizelos airport. Part of the money will probably be included in the budget for 2014, due to the complexity of these investments. Even the comparatively simple case of the State Lottery privatization was completed in a 9-months period. It took three months for the Court of Auditors to make its decision, another 15 days of waiting for the possibility of an objection, and then the whole process of parliamentary examination and approval – until its examination in Parliament and eventually its signing- the process took nine months. The privatization of OPAP will probably need approximately eight months. We have to find ways to simplify things.

With regard to ports, Greece can become a huge transit hub between Asia and Europe. If Greece had developed its ports, and if it had not been trapped in a rationale of petty interests in the last 20 years, Piraeus and Thessaloniki would be bigger ports than Hamburg, Rotterdam and Amsterdam. Location is a decisive factor therefore. Consider that Athens is only one day and a half away from Port Said, whereas Hamburg, Amsterdam and Rotterdam are eight days and half. For a ship carrying containers Greece can be up to €1,5 million cheaper compared with the respective ports of Holland.

In every case, OPAP and DEPA-DESFA are key. If these movements are successful, then the target of 2013 will be met. And if the target of 2013 is met, then all other targets will be met as well. We also have new, very important developments – new investment and hedge funds are starting to show interest for Greece, while they had no idea of Greece’s location on the map until last year. When they start showing interest, they will also start buying company shares, or investing with a positive outlook for the economy and the country. They will start betting on Greece rising not on decline and destruction. This time we may end up with positive speculation, which will drive up values, allowing companies to raise capital through the stock market in order to grow; the market will be stimulated and start moving.

In addition, with regard to investment in land, an extensive debate is now taking place about whether this is the ideal time to invest in real estate. It is worth mentioning that, in any case, companies are not characterized by the same bureaucratic and licensing chaos of the real estate sector. This sector because of the bureaucracy and the chaos that exist acts as a deterrent for investments in Greece. We are selling a marina whose one half cannot be traced on the map, while the other half is wrongly recorded, both the seashore and the beach. Many public buildings do not have construction permit! The legal framework of many of the assets that we are trying to sell is characterized by encroachments, lack of plans, lack of licenses and planning deficiencies – what is happening in this country is incredible! Luckily the HRADF services are working systematically and absolutely professionally in order to deliver fast, final and legally sound solutions. 

Criticism of HRADF

The criticism exercised on HRADF, either from the Right or the Left, is that the government and the HRADF are selling out public property and wealth, in one way or another. How do you respond to this criticism?

When your property is falling apart, disintegrating and being plundered… not only what we do is not selling out, but leaving things as they are would be stupidity and a social crime as well. Imagine the following picture: on the one hand, hundreds of thousands of unemployed Greek young people, whereas on the other an abandoned beach or marina, an illegal junkyard, an Olympic building falling apart and a public building collapsing, with all of its equipment plundered.

Even if we had money and no unemployment, most of this estate, most of these buildings are hotbeds of infection and environmental pollution, they exist against our aesthetics. How can we talk about prime property then?

As far as real estate is concerned, you have expressed your opinion clearly, while the images you communicate are very strong indeed. However, there is also a critique that you sell first the best property, that is, companies, which are often profit-making. Would it not be more rational to manage them more effectively and create thousands of jobs?

I have been hearing this since I was a child. For 35 years we have shown that we cannot do it. For 35 years we have proven that parties, statists, favoritism and nepotism were dominant in the management of these companies. Governments would change their administration like shirts. Be it a family or an enterprise, an organization ought to have leadership. And such leadership does not exist, because everyone changes constantly. Therefore, we have proven, again and again, in the most outright way, that we are incapable of doing this. That is, although the question is theoretically sound, when you have proven your inability for 35 years, why do you keep wondering? Say, if you were a triple jump athlete and I told you that the target is eight meters, but for 35 years you have not exceeded five meters, then what do you expect? Do you expect me to hope you will make it now?

The time for testing and waiting is over. What should we wait for? For unemployment to reach 50%?

In a sense, then, privatization serves as a rationalization of the state. Because you give it to someone in order to increase profitability, to restructure the business to create jobs and eventually to create wealth, where previously plunder reigned.

In addition, another question arises: are public enterprises really profitable, or could they be much more profitable? Private incentive creates more jobs, greater efficiency and higher profits. I have worked in EYDAP (Athens Water Supply and Sewage Company). This experience taught me that everything was organized and set up so as to favor the suppliers of the company, rather than the company itself. I personally believe that any private company who buys OPAP will save €100 million per year by confronting wasting and plundering.

Furthermore, with regard to OPAP, the OPAP of 2012 has nothing to do with the OPAP of 2013. Because, starting from 2013, the state decided to impose a 30% tax on gross profits. From €1,3 billion gross in 2012, we fell back to very low profits in 2013, given that approximately €400 million went to taxation. In addition, two or three years are needed, in order to develop the new games. During which two or three years, the investor will have to manage successfully a period of instability and uncertainty. Indeed, we often forget that OPAP is already private by 66%.

But when the British, for instance, say that we should be careful with privatizations, because we (the British) have privatized everything and we are facing too many serious issues, such as the prohibitive prices of railways, what do you answer?

They may be facing problems, but they have trains and train stations. At the very least, the citizen enjoys the services. Here, we have “straws”, instead of services, and we have paid a high price as well. One thing that Greece has stubbornly refused to do is the implementation of good practices and examples from other countries. First we must have services, wealth creation, investments, and then we can proceed to any necessary corrective actions. We must not make critical national decisions driven by dogmatic perspectives.

To what degree is the work of HRADF, as well as the process of privatizations, influenced by the polarized political scene and the criticism of the opposition parties?

It does not help at all the business environment. Entrepreneurs want stability: political, economic and stability of the terms of doing business.

Polarization has two objectives: 1) To sell false hope, to prevent the government from doing anything, to make the government fail because the people are opposed, whereas at the same time the people rewards those who are actually damaging them; 2) To prevent anything from happening, so that we keep everything to ourselves, even if it is gradually rotting away, since we cannot really make use of it.

Populism has no color. Populism hides miserable and petty interests. It favors small groups that ultimately offer nothing to society. Thus, populism is an anchor in the past and in misery. An anchor which keeps Greeks poor and destitute.

The problem is that, until now, populists have been rewarded. But society is changing, it is becoming more mature and starts to comprehend. The problem has been that populists were seeing that their victims would turn to them and support them. This is the bet, to succeed in persuading Greeks that populists, either from the Right or the Left, are cheating them, while capitalizing on this deception. As a result, the masses are impoverished, while a few people are getting rich.

Conditions for success

Do you believe that, after the agreement on the disbursement of the €50 billion tranche, and the consequent reduction of the risk of the so-called “Grexit”, the prospects for success of the privatization program have improved? Is there any evidence for this?

The economy is like psychology. What makes us all apprehensive is not where we have been led to, but the uncertainty as to whether the coming day will be even worse than today. When the time comes and you believe deep inside you that the next day is going to be marginally better than today, an impressive investment and development momentum will be created, with growth rates higher than expected – even 7% or 8%.

Was there an alternative? Should they (privatizations) be done later or at a slower pace? Maybe the economy should have been stabilized first – in order to achieve better prices? Has planning so far been effective? Would it not be better, for example, to start with real estate and other assets outside of stock market and proceed to listed companies later, so as to allow for their prices to recover first? Are these counterproposals sustainable?

There are no such dilemmas. We have been fighting against false dilemmas. When your country has collapsed, you cannot afford to wait for two or three years. Because, if you do not do anything but wait, the situation you will be dealing with in these three years will be three times worse. Development will not come as if by magic. Development means projects. Projects mean: I dispose my assets and give them for exploitation, in order for development to come.

In order for the market to improve and the prices to go up, something has to be done. While you are waiting in inactivity, the prices drop and you stay behind. Proof thereof: if privatizations had been progressing fast since 2011, we would have achieved much higher prices for our assets. We were looking at the tsunami coming, but did nothing to protect ourselves. We just hoped that the debt and deficit binge would keep us “fed”.

Have you ever heard of anyone wishing for his personal problems to be solved on their own? Such dilemmas make up the definition of insanity. 

When the debate on privatizations began, analysts said that it would be good to make a start, with the assessment that this would consequently lead to a rise in confidence and prices – have we seen any signs of such development?

The bet is now. OPAP. If we prove to the international public opinion that we mean it, we are going to witness positive developments. And then we must continue with vigor. We are under constant review.  

Do you believe that the investment and fiscal framework are in place, at this moment, along with the necessary infrastructure needed for Greece to attract substantial foreign investments? And if not, could it be the case that the only investors approaching Greece are those interested in low prices only, whose contribution to the development of the national economy is doubtful?

Of course not. In order to have an investment framework, you need: a) An environment that favors entrepreneurship. On the contrary, the investment environment here is hostile. Firstly, due to populism, but also due to poor business practices in the past; b) Access to financing. Which is hard to find, both in Greece and from abroad; c) You need to have a functional civil service. Without bureaucracy, paradoxes, overregulation, delays in the judicial system. Justice is dysfunctional and under strain. d) You need education. You need culture, in the sense of social maturity.

Regarding investors, we must be careful. Entrepreneurial ingenuity always moves forward. It is there even when the situation is dim. We set strict terms, conditions and requirements in order to protect society but also the investors from any possible hazard.

Is “the bet of HARDF” simply to sell public assets at good prices, or is this accompanied by a study of projected sustainability and profitability of the bidder, with the aim to ensure the provision of the best services possible, but also to ensure medium to long term public income through the taxation of the company?

We set such conditions that ensure all that you just mentioned in an unequivocal manner. In other words, we filter everything. Do not forget that everybody need to respect and abide by the laws of the state: labour, environmental, financial and so on. When people ask me, “will the Chinese come and bring Chinese labourers, paid at low wages, with them?”, I answer, “Are there no laws in this country that protect us from such scenarios?”

In one word, according to your opinion, what more is needed to be done in order for Greece to become an even more attractive destination for foreign investment? In addition to what we have seen so far.

We have to become serious, competent and professional. And this does not start from the state. It starts from each one of us. Here in HRADF, we assume responsibility for our actions. This is called ownership and we lack it in our culture. It starts with everyone carrying out his/her job conscientiously and responsibly. Although income has fallen dramatically, whoever is employed is comparatively in an advantageous position. If we do our job properly, each of us, we will secure existing jobs and create new ones.

Culture and liberation from populism is the key to privatizations and development. Citizens have to take their future in their own hands; they can become the “master of his destiny and captain of his soul”, and exercise the right pressure to increase social responsibility by everyone.

Are there any strategic dilemmas? Namely, if China decides, for example, to file proposals through its companies both for the central airport and the central port of the country – would this be a dilemma for the government? The same goes for the case if Russia filed proposals for all key-companies in the energy sector.

The dilemmas lie in the selection of the appropriate social and environmental conditions, so as to be indifferent to who is coming to invest and from where. Everybody has to play to our own rules. In any case, the Chinese are not going to take all our ports. The market regulates itself. Cosco will de facto not take the ports of Piraeus, Alexandroupoli and Thessaloniki. It want them all, it does not need them all.

However, competition does not translate into Piraeus competing against Piraeus because we are so accustomed. Competition means Alexandroupoli competing against Piraeus, Thessaloniki against Piraeus fir the benefit of local communities, first of all and then for Greece as a whole. Piraeus, Alexandroupoli and Thessaloniki should compete for example with the new port being built by Turkey in Constantinople, or the ports in Malta, Nicosia or Trieste.

The more powerful we are, the more investors of better quality we will attract.

In your discussions with potential investors, to what degree does the issue of competitiveness come up and in what context?

Labor cost has now reached very reasonable levels and no longer comes up as an issue. If all hurdles we have mentioned so far are tackled, then corrections will be made and new jobs will be created.

Who are the main allies of HRADF in its quest and who are its key “opponents?”

The natural ally of HRADF is the brutally battered Greek citizen. The Greek taxpayer, the unemployed, the one who lives in poverty. The middle-aged people who worry about raising their children. Our wonderful young generation. The deprived and heavily taxed Greek. We have not yet touched them, but we will. I am absolutely persuaded about this. In one year from now, no one will dare to speak in a negative way about HRADF.

Our biggest enemy is populism and misinformation. However, I remain optimistic that his crucial battle will be won and what is more, it will be won easily and definitely.