Greece: When will PPP resistance end?

Piraeus Piraeus has just had a large slice of its expansion plans approved but its container terminal expansion plans still face a bureaucratic red light

What does an investor expect from a public private partnership (PPP) in the port sector?

To make money of course albeit within the ‘rules’ set under the terms of the governing concession agreement and within the framework of any port masterplan. But it seems this is more of a challenge in Greece with PPP’s suffering from what can be interpreted as an unusual degree of tinkering as highlighted recently in the port of Piraeus.

Greece’s Committee of Planning and Development of Ports approved a range of expansion plans for the Port of Piraeus, valued at USD673 million, but, for the time being at least, turned down the plans of COSCO Shipping, the port’s majority owner (51%), to realise a major expansion of container terminal capacity.

In business terms, given that COSCO is satisfied with its business plan for the new container terminal expansion, there seems to be no real commercial justification for the Committee not to sanction the plan.

The motivation to do so appears to originate more from what can be termed wider considerations. It is a matter of record that Greece under the previous left wing Syriza Government was effectively dragged to the table by the EU to privatise key infrastructure including its main ports – Piraeus and Thessaloniki – as a primary condition of its massive economic bail-out.

Prior to this there was resistance all the way down the line to the idea of implementing PPPs and then when this became inevitable so began a process of bureaucratising PPPs from which port sector privatisations continue to suffer today.

Indicative of this when the left wing Syriza party came to power in 2015, Alexis Tsipras, the new prime minister, appointed Thodoris Dritsas as Shipping Minister who promptly announced, “The port sell-off stops here!”

This didn’t last long, however, with the Syriza Government compelled to implement the major port sell offs as part of the new EU July 2015 bailout agreement. The response to this on the part of government, however, in the case of Piraeus was to tinker with the terms of the original deal which included removing a large non-operational section of the site from the opportunity.

Then came the setting up of a port authority whose function, COSCO complained at the time, overlapped with that of several existing bodies and created unnecessary bureaucracy. And all the time, prior to COSCO signing the deal, in April 2016, Mr Drisitas and others fought the deal inside government. There was then a hiatus whereby Mr Drisitas took until 29 June to submit the contract to Parliament for approval.

When it was submitted the text of the deal contained changes that COSCO had not seen before – a major one being that the government would no longer have to abide by 90-day deadlines for granting licences to COSCO’s activities thus creating the opportunity for various ministries to delay projects.

This led to Angelos Karakostas, acting on behalf of COSCO, writing a pointed letter to lawmakers suggesting that someone in government was “completely reversing” the deal “unilaterally.”

The terms of the original contract were hurriedly restored and the deal was eventually ratified on 30 June 2016. Under the terms of the whole port privatisation COSCO purchased 51 per cent of Piraeus for USD280.5 million and contingent on completing investments worth USD350 million over the next decade it has the right to purchase a further 16 per cent for USD88 million after a five-year period.

COSCO formally signed the agreement that made it the 51 per cent owner of Piraeus on 10 August 2016 with the signing ceremony taking place at the Athens Stock Exchange.

There has, of course, recently been a change of government in Greece – the centre right New Democracy party assuming power with promises of progressive economic reform. So far, however, this does not seem to have translated into PPP’s “without strings attached.”

Piraeus has taken a step forward with part of its expansion plans approved but the justification for holding up its container terminal expansion does not appear to have been formulated on pure business grounds.

Generally, the jury is still out on exactly what New Democracy will do to oil the wheels of progress in Greece’s port sector and facilitate the primary goal of investors, to generate reasonable returns on the substantial investments made.

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