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A New Approach to Privatisation: An Unexplored Option for Greece in Privatising Troubled State-Owned Enterprises
Steven T. Kargman, President, Kargman Associates, New York, USA and Stathis Potamitis, Managing Partner, PotamitisVekris, Athens, GreeceAs we write this in early November 2011, Greece’s financial and economic future hangs in the balance while its government is in the process of undergoing a major reshuffling. Yet, despite all of the variables and uncertainties in Greece’s near and medium-term future – e.g., whether the bailouts for Greece will continue, whether Greece will be able to achieve a major restructuring of its outstanding debt burden, and even whether Greece will remain a member of the eurozone – Greece will unquestionably face some truly monumental challenges in the coming years.
Crucially, if Greece is ever to come to grips with its fundamental economic weaknesses, one issue that it will need to address head-on during the coming period is settling on a sound and comprehensive approach for privatising its state-owned enterprises (SOEs). These SOEs constitute a large part of the Greek economy and yet represent a major impediment to Greece’s ability to become a more competitive and efficient economy. The privatisation of Greek government-owned enterprises and assets has been identified by Greece’s official creditors and by the Greek government itself as a potentially large source of revenues in the next few years.
Nonetheless, we seriously question whether the approach that to date has been pursued by the Greek government in pending privatisations will contribute to the much-needed overhaul of the Greek economy or generate the ambitious revenue targets expected from privatisation sale proceeds. Instead, we believe that Greece should adopt an innovative and novel approach to privatisation that has been overlooked and could potentially offer great benefits to Greece.
Specifically, in our view, Greece needs to meld its privatisation strategy with well-tested approaches and techniques from the world of insolvency and restructuring. In particular, we believe that Greece’s troubled state-owned enterprises (SOEs) – of which there are all too many in Greece and which represent a substantial and continuing drain on the Greek treasury – could benefit greatly from the rigours and remedial effects of the insolvency and restructuring process. We believe that the current approach for pending privatisations whereby enterprises are to be privatised without first undergoing a restructuring is not a sensible or sound strategy and should be dropped by the government.
Under our proposal, those troubled Greek SOEs that have businesses worthy of rescue should either be restructured through a formal court reorganisation process or, where there is sufficient consensus among the relevant stakeholders, potentially through an outof- court restructuring. Those troubled SOEs that are beyond rescue and show no signs of future economic viability should be subject without delay to an orderly court-supervised liquidation.
SOEs that are designated as suitable candidates for reorganisation or restructuring would likely then become more attractive candidates for privatisation in the eyes of potential investors. Many of the problems which had previously plagued such Greek SOEs – whether it is a heavy debt burden, unwieldy labour/ pension obligations, or structural and operational inefficiencies – could be addressed through the process of restructuring and reorganisation as happens on a regular basis in the world of commercial restructurings and reorganisations.
Of course, as in the commercial context, some issues will be easier to resolve and less contentious than others. And in the specific context of restructuring SOEs, some issues, such as how to transition displaced employees and how to provide such employees with proper skills retraining to the extent necessary, will need to be approached with great attention and sensitivity to the needs and interests of the various stakeholders.
Restructuring troubled enterprises as a precursor to an ultimate privatisation could yield several positive effects. In the first place, it will help stanch the substantial outflow of funds from the Greek treasury that have been used to prop up troubled SOEs. Moreover, the process of decline and disintegration that afflicts many of these troubled SOEs could be reversed. The restructured enterprises and their employees might enjoy a new sense of purpose and direction, and these enterprises could then be in a position to contribute to the strength and productivity of the Greek economy as well as become net contributors of tax revenue to the Greek government.
Copyright 2006 Chase Cambria Company (Publishing) Limited. All rights reserved.