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Our View: Preserving wealth of SGOs costly to the taxpayer

The Cyta pension fund was involved in Dromolaxia scandal

When Cyprus entered the assistance programme in 2013 one of the stipulations of the memorandum of understanding was the privatisation of public organisations. The thinking of the troika was that privatisation of cumbersome, overstaffed, heavily-unionised, inefficient semi-governmental organisations (SGO) like Cyta and the EAC would make them more flexible, efficient and competitive, thus better able to provide a good service. Privatisation would also attract foreign investment and know-how, make these organisations financially stronger and generate funds for the struggling state.

For the political parties, the mere talk of privatisation is sacrilege and all except Disy opposed the proposal of the lenders. Nicos Anastasiades, who was a presidential candidate when the first memorandum was drafted, visited Cyta to give assurances to its workers that he would oppose the Authority’s privatisation – this was a condition for securing Diko’s electoral backing – but nevertheless signed the memorandum. Finance Minister Harris Georgiades made several attempts to privatise Cyta during Anastasiades’ first term, each time increasing the concessions to the unions in the hope they would agree, but to no avail.

In the end, to emphasise their dogmatic opposition to privatisations, the political parties did not approve the budget for the Privatisation Unit set up to supervise and regulate the sale of state corporations and it was unceremoniously closed down. At the Electricity Authority, having forced the government to abandon plans to privatise the electricity network administration – it will remain under EAC control – the unions in collaboration with management have been doing everything they could to prevent the opening up of the electricity market to private producers. The latest reports claim the opening of the market will take place in two to three years, although it was originally slated for this year.

What we have in Cyprus are two big state organisations, one a monopoly, that are in effect run like workers’ co-operatives, that exist to serve their workers and nobody else. Akel always uses the slogan about the ‘national wealth that should remain in public ownership’ when referring to Cyta and the EAC, but this is utter nonsense. How does the public benefit? By paying the highest electricity rates in the EU? By being obliged by law to cover the losses of the pension funds of SGOs, which are routinely mismanaged, so workers are guaranteed their princely pensions? The Dromolaxia scandal was funded by the Cyta pension fund.

The reality is that these semi-governmental organisations exist for the exclusive benefit of their workers who enjoy better pay and more benefits than the rest of the public employees. Auditor-general Odysseas Michaelides made this point when presenting his report on Cyta for 2017 to the House watchdog committee on Thursday. The average annual salary of a permanent Cyta employee was a staggering €56,000 and they received an extra €3,600 in the form of allowances, Michaelides said. He also said that staff and Cyta pensioners also received financial assistance for the university study of their children from a welfare fund, noting that such help should only go to people on low incomes.

The plundering of the Authority takes many forms. Michaelides also spoke about inflated retirement bonuses through devious means, the payment of accumulated leave on retirement, which is banned in the public sector, and the irregular practice of workers jumping four or five pay grades if they do not apply for promotions. Nobody questions these dubious practices – the board consists of appointees of the parties that are in cahoots with the unions while senior management also benefit from them – and there is nobody to stop them. The auditor-general’s report will be forgotten in a few days, but the plundering of the national wealth by SGO workers will continue, with the blessing of the politicians.

Treating SGOs as the ownership of their employees, run by union bosses backed by boards of party appointees is not a sustainable business model as the trend of declining surpluses suggests; it is also grossly unfair on the rest of the working population to have a select group of workers exclusively benefiting from the ‘national wealth’ that are SGOs. Competition is chipping away the Cyta surpluses and things will not become any better in the future as its market share is steadily decreasing. Eventually, it will not be able to compete with rival companies that not only operate with much lower labour costs but are also more efficient and innovative.

Cyta enjoys a dominant market position and the EAC has ensured it will keep some of its monopolistic power for when the electricity market opens so it is unlikely they will suffer a similar fate to Cyprus Airways, another state company run by the workers for the sole benefit of the workers, at a high cost for the public. Competition will gradually diminish the value of the ‘national wealth’ that are the SGOs, and although this will not directly affect the standard of living of the average person that gained nothing from the so-called public ownership except high electricity bills, the taxpayer will still have to pick up the tab for the big pensions that neither Cyta nor the EAC pension funds will be able to pay once they are forced to downsize.

Preserving the ‘national wealth’ has always been very costly to the taxpayer.

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