Local trade unions are up in arms over the decision, accusing the pro-business government that inherited a financial meltdown from the previous communist administration, that it is selling off national assets. Finance Minister Haris Georgiades said earlier this week that the government should announce a privatisation roadmap by the end of December in order to raise some 1.4 blneuros over the next three years. The trade unions argue that the state should not sell off vital assets, such as the telecoms company Cyta, the Electricity Authority of Cyprus (EAC) and the Ports Authority, but have failed to suggest alternative ways to raise funds, control costs, reduce staff and raise competitiveness. One trade union suggested that Cyta alone could save some 250 mln euros if it offered voluntary redundancies to about 370 staff.
IMF spokesman Gerry Rice said the Fund is in close contact with Cypriot authorities on formulating the privatisation plans and that achieving the objectives would require “an early start to the process”. Asked if this is a precondition for the next loan trench, Rice declined to go into details. “I wouldn’t get in to what or might not be conditions of the next loan,” he noted. During the press briefing in Washington, Rice said privatisations “can provide financing to the state over medium term, but even more importantly it can increase the efficiency of the economy as resources are transferred from the state to the private sector which can help to spur competition for the benefit of the consumers.” Referring to the Troika visit to Cyprus earlier in November, he said that the IMF team is now producing a full report that will be discussed by the board in mid-December. “Once the board discusses and approves the review, the disbursement can be made,” he concluded.
Meanwhile, the president’s advisory National Economy Council said it favours full privatisation of the semi-governmental organisations. “Full privatisation, wherever possible, should be pursued,” the NEC said in a policy paper released on Thursday, adding that “privatisations will yield significant proceeds and will manifest Cyprus’ determination to proceed with reforms that would satisfy the relevant provisions of the MOU.” According to the paper, full privatisation would attract bigger investments, as opposed to partial privatisation. Full privatisation would also “solve the problem of political intervention and limit the scope of actions associated with party interests,” as over decades, all political parties have abused the system by pushing for hirings of supporters, but never on merit.
The NEC suggests that Cyta should be the first to be privatised, as it already operates in an environment described by functioning competition, whereas it considers the case of the EAC as “rather more complex.” South African-owned MTN has been competing head-on with Cyta in all telecom services, with the island’ssecond mobile operator now claiming a 35% market share. A third mobile license is currently being negotiated with PrimeTel, while a handful of other companies offer Internet and fixed line services.
The NEC said that EAC is in a difficult position as a sizeable part of its capacity is inactive due to a drop in demand following the financial crisis, while it also remains trapped with costly diesel to generate electricity compared to the production costs by photovoltaic solar panels that are below the EAC costs and produced by independent operators. Solar parks and windfarms should provide about 20% of all energy production by the end of the decade a part of an EU-wide effort to cut down on emissions, while the EAC is also looking to buy natural gas to operate its power plants, a fuel that will eventually get cheaper when Cyprus starts exporting its own oil and gas in less than ten years. "A transition to a new ownership regime would be more difficult and traumatic for the EAC than for Cyta," the NEC said, pointing out that possible privatisation of the EAC should be accompanied by a strong regulatory authority that would supervise the private firm, while the EAC should also be restructured and modernised to attract potential investors.
As far the Cyprus Ports Authority (CPA) is concerned, the NEC recommends that the Authority should assume a regulatory role over ports, whereas the administration of the ports should be transferred to the private sector.
“We don’t have to sell our ports, but we can license their management to new operators,” said NEC chairman and Nobel economics laureate Christoforos Pissarides.
Source: Financial Mirror
