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European CommissionThe Second Economic Adjustment Programme for Greece. Fourth Review29. The mission urged the authorities to timely deliver all programme commitments and to startworking towards identifying areas, where further improvement can take place, therebysupporting the fiscal adjustment. Given that the expected gains from the re-organisation of therevenue administration are assumed to contribute to the fiscal consolidation, a timely delivery of thereforms on this front is crucial. Moreover, despite the significant improvements having been made sincethe start of the programme, there are still areas where significant efficiency gains can be made, throughfurther streamlining of the public sector and reviewing spending envelopes. The authorities are startingwork toward a comprehensive VAT reform to be introduced in 2015 and will in the coming monthsreview the existing VAT policy and administration (see section 3.2.2. Tax policy reform and Box 6).Furthermore, a review of social security policies is being initiated to improve targeting, fairness, andefficiency. The authorities are also starting work on consolidating pension fund administration with aview to ensuring that the consolidated system is actuarially balanced in the next decades. Thediscussions of the concrete proposals will take place in the context of the 2015 budget preparation in theautumn.30. The projections for 2016-17 are inherently uncertain. A key issue is the impact of structural reformsand economic recovery on tax and spending aggregates. Tax revenues could rebound significantly morethan assumed in the baseline projections once the economy recovers and the liquidity situationimproves. This will be contingent on continued resolute implementation of the on-going reforms of thetax and social security revenue administrations. On the other hand, any severe delays in programmeimplementation may result in a widening of the fiscal gap, thereby leading to higher needs for savingsin other areas.Table 4. Medium-term fiscal projectionsIn % of GDP 2012 2013 2014 2015 2016 2017General government balance -6.4 -3.2 -2.9 -2.1 -0.7 -0.7Primary balance -1.3 0.8 1.6 3.0 4.5 4.5Note: the fiscal numbers in the table are consistent with programme definitions as laid out in theTechnical Memorandum of Understanding (TMU). The main differences compared with the ESA-95definition are the exclusion from the programme definition of ANFA and SMP profit transfers, mostsales of non-financial assets, and costs related to bank resolutions and recapitalisations.Source: European Commission services3.2. STRUCTURAL REFORMS WITH BUDGETARY RELEVANCE3.2.1. Privatising to boost efficiency in the economy and reduce public debt31. Progress has been made in completing privatisation deals. Following the completion of theprivatisation transactions for State Lotteries (EUR 133 million) and OPAP (EUR 622 million), theauthorities are moving forward with the certification process of the gas transmission operator (DESFA),which has been adjudicated for around EUR 187 million. Additional transactions in the pipeline includethe railway operator (Trainose), the rail service provider (Rosco) and regional airports. The preferredinvestor was selected for the acquisition of the shares in the landmark real estate project Hellinikonafter it improved its financial offer significantly (EUR 915 million). A successful conclusion of thetender would imply that the consortium undertakes an investment of EUR 5.7 billion (over 2.5% ofGDP) over the coming years, out of which EUR 1.25 billion correspond to the necessary infrastructurecosts and the metropolitan park, which will be exclusively assumed by the company. The transaction forthe sale and lease-back of 28 buildings is expected to be completed in the second quarter 2014following a delay in the approval of the deal by the Court of Audit.32. As the preparation of key assets for privatisation is advancing and the majority of state-ownedenterprises have now been transferred to the privatisation fund, the focus is now on designing andimplementing appropriate arrangements to ensure appropriate regulation and oversight. Thisincludes setting up a strong regulator for ports, to oversee the market after the privatisation of a largearray of ports, in particular those of Piraeus and Thessaloniki. The authorities strengthened the26
3. Programme implementationeffectiveness and autonomy of the port regulator by appointing the Board of Directors and areadditionally committed to adopt and implement the secondary legislation aiming to have a fullyfunctioning institution by the end of the tender process for the ports. They also staffed the newlycreatedwater regulator and strengthened its independence by revising the legislation aiming togradually enable the Special Secretary to issue formal decisions on regulatory matters. Moreover, aftersuccessive delays the authorities are expected to propose a plan with concrete measures to improve theeconomic regulatory function attached to the Hellenic Civil Aviation Authority.33. More progress is however needed in the area of real estate privatisation. Preparatory work isadvanced to secure the pipeline for the transfer of full and direct ownership of 1,000 commerciallyviablereal estate assets to the HRADF. The authorities are in the process of identifying and transferringto the privatisation fund the remaining 250 real estate assets of the fourth quarterly batch of transfers.Additional steps will be taken to improve the real estate preparatory process, through reviewing themission, objectives, and staffing of ETAD and to strengthen its effectiveness in professionallymanaging and preparing real estate assets ahead of transferring them to HRADF. Given the progressand completion of a certain number of corporate assets privatisations, the sale of the real estate assetswill have a crucial importance for the overall attainment of the revenue targets from a medium and longterm perspective. A specific roadmap for the implementation of these measures has been agreed withthe authorities. More broadly, it is important that all elements for successful privatisation of real estateassets are in place now that market sentiment is expected to gradually improve.34. The authorities have defined a roadmap for alternative sale methods of real estate assets, such asasset securitisation and monetisation in order to raise additional revenues beyond what iscurrently foreseen in the privatisation plan. Such efforts will be targeted at the private sector, inparticular international investors and will complement the direct sale of assets currently on-going. Thisproject, combined with improving investor interest in Greece, can help raise additional proceeds in themedium terms. The Authorities will assess the progress in this field in the coming months and will, ifneeded, revise upwards the proceeds estimates from privatisation. The authorities will submit the firstprogress report by end-June 2014 and should complete the first transaction by end-November 2014.35. The authorities have committed to comprehensive governance reforms for the privatisationinstitutions. The Government has adopted legislation requiring HRADF to exercise its shareholderpowers where it has a majority shareholding, according to a co-operation framework with objectivesand criteria in line with the privatization process. In line with this new legislation, HRADF will havethe possibility to take action towards board members and management in relevant companies and toappoint at least one member to the Board of the companies under its portfolio where it is notrepresented. The authorities also amended the HRADF law to allow the CEO to be able to act aschairman in case of the latter's vacancy and reduce the number of board members required to be presentto hold a board meeting from 5 to 4, so as to ensure uninterrupted operations, and to clarify the groundsfor dismissal of the board.36. The expected cumulative privatisation proceeds have been revised downward somewhat to EUR22.3 billion by 2020 (from EUR 24.2 billion in the July 2013 review). The cumulated amount ofexpected proceeds has been updated based on current transaction trends and based on policy measuresand commitments. These targets remain under review, mindful of both upside (from heightened investorinterest) and downside (from continuing significant hurdles to privatization) risks. Improvedgovernance and transparency of the privatisation process are essential to build confidence among thegeneral public that the privatisation process will maximise value for the tax payer. Additional steps areneeded to expedite approvals from the Court of Auditors, Council of State, and the CompetitionCommittee to reduce the overall time for the sale of assets. The final sale of assets is of crucialimportance for financing purposes but also for ensuring additional investment, greater managerialexpertise, increased efficiency and better governance for the enterprises involved. The timing of somecorporate sales has been revised in order to allow the strengthening of the regulatory environment priorto privatisation.27
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OCCASIONAL PAPERSOccasional Papers
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