Cyprus Mail

Troika piles on the pressure for SGO sell-off, EAC union pledges to resist

Troikans Delia Velculescu (IMF) and Maarten Verwey (EC) have a giggle but did not share the joke

By Elias Hazou

AN Electricity Authority of Cyprus (EAC) trade union pledged yesterday to fight any attempt at privatising – either partially or in full- the utility, as news trickled out that Cyprus’ international lenders were leaning on the government to speed up the de-nationalisation of state-owned enterprises.

In a lengthy statement, the SEPAIK union – representing the utility’s scientific staff – sought to dispel the notion that privatising the EAC would increase competition and drive down electricity prices.

Rather, the union said, because of the small size of the market in Cyprus, it was more than likely that a private monopoly would take over the industry. Since private enterprises are driven by the desire to maximise profits, this would inevitably lead to a hike in electricity bills.

The union cited a number of examples worldwide where the privatisation of electricity had led to high prices (such as in Britain) or to frequent power outages, as in California.

This was a predictable outcome once a public utility is commoditised, the union argued.

Instead, SEPAIK proposed a series of reforms to improve the functioning of the utility, including tighter financial audits and the formulation of development plans.

The union threatened “dynamic action” should the government ignore its warnings and press ahead with “any form of privatisation.”

Similar threats were recently made by EPOPAI, the electricity utility’s biggest union.

Under the memorandum of understanding (MoU) between Cyprus and its international lenders, “authorities will initiate a privatisation plan to help improve economic efficiency through enhanced competition and encouragement of capital inflows, and to restore debt sustainability.

“This plan should consider the privatisation prospects of state-owned enterprises (SOEs) and semi-governmental organisations (SGOs), including, inter alia, CyTA (telecom), EAC (electricity), CPA (ports authority), as well as real estate/land assets.”

The privatisation plan is intended to raise “at least €1bn by the end of the programme period [end of the first quarter of 2016] and an additional €400m by 2018 at the latest,” according to the MoU.

The Cyprus News Agency reported yesterday that the troika had drafted a list of SGOs divided into two classes: those earmarked for privatisation and others which are to be modernised.

Reports said that the government and the troika have already struck a deal on privatising the telecoms utility, with a timeline of 2016 by which the majority stake in the company would be acquired by private interests. Other reports, instead, suggested that the government and the international are miles apart on the issue.

The troika is said to be pressurising the government to produce a comprehensive road map on privatisations by year’s end. The administration has reportedly countered it is not yet ready to do so, as a relevant study – assigned to Price Water House Coopers – is still in progress. Reports, however, said that PWC’s report should be ready sometime in the next few days.

Meanwhile the Central Bank confirmed that it has been handed by the troika a revised MoU, but did not disclose details.

The same document was delivered to the finance ministry. Government officials and technocrats are going through it and expected to come up with counter-proposals.

Local media quoted unnamed officials as saying the updated MoU contained a number of thorny issues, including privatisations and the establishment of a national health scheme.

It’s understood that an agreement on a revised MoU- laying out the targets that Cyprus must achieve during the remainder of the programme – must be reached before the troika inspectors leave the island.

Troika teams also met with real estate developers, who pressed for relaxations on the repayment of loans. In a statement issued later in the day, the Cyprus Association of Property Valuers said that “the line of causality is from a healthy real estate sector to a healthy economic recovery and not the other way round, and hence we urge you to see this sector with utmost caution.

“To this end, we suggest that measures of reducing the abrupt negative impact on real estate prices should be taken in order to safeguard that the banking sector does not enter into a negative spiral of non- performing loans. Such measures need not contradict policies already set out in the Loan Agreement with the Troika.”

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