For decades, a wave of privatisation has been rolling across Europe, making many investors, banks and consultancies rich but making few citizens happy. The great neoliberal promise of privatised utility companies providing water, power and transport more cheaply to their customers has regularly been shown to be deception and even, in many cases, a lie.

The latest study from the Transnational Institute (TNI) on the effects of privatised industry concludes there is “no evidence showing privatised companies work more efficiently.” Instead, privatisation has undermined wage structures, made working conditions worse and increased the income gap.

When it comes to privatisation, Greece is a special case. During the debt crisis the country’s creditors forced it to sell or lease as many public and semi-public companies as possible with the sole aim of paying off the state’s debt. This selling off of public property is the most absurd part of the “rescue program” which has kept the Greek economy in recession for seven years. Forcing a bankrupt state to privatise public companies in the midst of a crisis always means a “discount sale,” state the authors of the TNI report. Even the famous “silverware” can’t be sold off at a fair price during a deep recession; selling it is an act of embezzlement.

This is true regardless of the social pros and cons of the “public sector”. In Greece’s case this admittedly is more complicated than elsewhere because there are arguments for privatisation in some areas; for example, in state companies which traditionally provide a special kind of “utility,” as they do not only offer essential services such as power or transport links. Their secondary raison d’être is to provide well-paid, secure and often comfortable jobs for the clientele of the government of the day – at the expense of the customer and the taxpayer.

This explains why selling public service providers was not at all unpopular for many Greeks. A large majority were in favour of earlier part-privatisation of the telephone company OTE and the national airline Olympic Airways, and believe that OTE and Olympic now work better and are more customer-friendly. As late as April 2011 over 70% of Greeks thought privatisation was “generally necessary”.

Another consideration is the state’s empty coffers. If selling public companies or buildings brings about investment the state can’t afford, such as when it comes to the state rail company ESA, many Greeks don’t think that’s such a bad thing. Most Greeks do not want vital services to fuel private profit, but they do wonder whether their bankrupt state runs its companies in an efficient, customer-friendly way.

When evaluating a privatisation plan there are three key questions to address: are the proceeds from the sale or lease of a company in a reasonable proportion to the income that will no longer go to the public purse? Does the privatisation come with an obligation to make new investments? What influence will the state still have on strategic decisions?

These questions are also important for the two most significant privatisation projects in Greece: selling 67% of the shares in the port operator company at Piraeus (OLP) to the Chinese public company Chinese Ocean Shipping Company (Cosco), and easing 14 airports to a consortium led by the German company Fraport. Looking at Cosco’s purchase of a majority in OLP, one thing stands out which is true of almost all of Greece’s privatisation tenders: in the end, Cosco was the only bidder, meaning it was won by a monopolist who could then dictate not only the price but a range of other conditions. The sale gave the Chinese far-reaching control over Greece’s biggest port, since a Cosco subsidiary has already been operating two of the three container terminals at Piraeus since 2008 on a 35-year lease.

A single bidder for a large chunk of Piraeus

Cosco is paying 368.5 million Euro for its shares in OLP, but how this price was established is still completely unclear. The Greek privatisation authority Taiped has never revealed how much the appraisers stated would be a “fair price.” However, Taiped has projected the deal’s “total value” to be 1.5 billion euro, which includes, for instance, future ceded profit to the Greek treasury which no-one is able to predict, and the agreed 350 million Euro investment.

This calculation is double-dealing, as until now the OLP has received an annual lease cost of around 35 million Euro from the Cosco subsidiary for the two container terminals. 67% of this money will now go to the majority shareholder of OLP, i.e. from one of Cosco’s pockets into another. This means the Greek state will loose out on at least 700 million Euro by the end of the lease, which should have been deducted from the “total value” of OLP’s privatisation.

Even bolder is the calculation of the agreed investment amounts: this includes the 115 million Euro of EU funds for the expansion of the cruise ship terminal at Piraeus. But this amount would have also gone to OLP even if it were purely state owned. Furthermore, there is absolutely no guarantee the agreed investment will actually be implemented: a clause in the sales contract protects Cosco from any sanctions if they violate their obligations for five years.

Touting the economic benefits of privatising OLP, bankers and stockbrokers in Athens point to the long-term effects that should stem from this deal with Cosco: the logistical transhipment centre the Chinese are building for their European exports, bringing in an annual income of 5 billion Euro and ensuring 125,000 jobs.

However, these bold predictions are based on assumptions which are far from certain. The first of these is that the Chinese will also buy the Greek railway network (which they are actually interested in doing); and the second is that booming Chinese exports to Europe continue uninterrupted. Both of these assumptions have recently started to look increasingly shaky. It’s also worth asking whether it is in Greece’s interests to hand over the prime cuts of its logistical infrastructure to the same pair of hands, i.e. to the Chinese.

This question should also be asked of other swathes of privatisation which have already occurred. The German company Fraport, alongside a Greek oligarch, has acquired the license to operate and expand 14 Greek airports for 40 years (with the option of keeping it for 50 years). The consortium is making a one-off payment of 1.23 billion Euro, along with an annual leasing fee and a portion of the profit, which could bring in a scant 8 billion for the Greek state over 40 years.

Yet opponents of the project have a counter argument. These 14 airports already make good profits, which would add up to 5 billion by the end of the leasing period. Fraport itself calculates that in 2017 the company’s total revenues would amount to “fully 100 million Euro… from the Greek airports alone”. On a long-term basis even higher amounts can be counted on, particularly from airports on tourist islands like Rhodes, Mykonos, Santorini and Korfu.

How the deal was made is a story in itself. When the leasing licenses were being awarded, there were three competing prospective buyers until the end of the procedure, which was exceptional for Greek privatisation procedures. So did the German company purely “beat strong competition thanks to a convincing offer,” as Fraport boss Schulte stated? Two points in the procedure stand out, the first of which is the tender for the licensing contract for the 14 highly profitable airports. Until the beginning of 2013, a different procedure was planned: Greece’s 37 airports would be split into two groups, each containing profitable and loss-making properties to limit cherry-picking and force buyers to use some of their profits to subsidise airports on remote islands. This plan was scrapped at the behest of the Troika.

Excellent business for Frankfurt and Hessen

There is a strong suspicion that this decision can be traced back to the Troika’s central power, the German government. This is supported by the second point about the procedure: Taiped employed a “technical consultant” when tendering, choosing Lufthansa Consulting GmbH – the subsidiary of a company directly involved in Fraport (holding 8.45%). This presents a serious conflict of interest, going against all the rules of decency – and of the European Union – for auction procedures.

The authors of the TNI study mentioned above also complain about this, highlighting another factor. The majority of shares in Fraport AG are held by the Federal State of Hessen and the City of Frankfurt (a total of 51.35%). This means a large chunk of the revenue from the most profitable Greek airports will go to the public budget of Germany, a creditor country, for 40 years. The Greeks, on the other hand, lose a long-term source of income which would be far more important to stabilising public finances than a one-off privatisation payment used for short-term debt servicing.

Fraport’s strategy is not only based on growing passenger numbers. To “generate very quick additional turnover,” head of finance Matthias Zieschang is looking to “significantly expand and optimise the commercial space.” In the small print of the transfer agreement, we can see how optimal the conditions are for the lessee. It allows Fraport to terminate all their old contracting partners and tenants in their airports and issue new licenses, without having to compensate the businesses, shops and restaurants they throw out. The Greek government must pay any contractual penalties.

That’s not all. The Greeks also have to pay off employees dismissed by Fraport; compensate victims of workplace accidents owing to failures “of one of the contracting partners”; and finance environmental assessments necessary to expand an airport. They even have to pay if extension works are delayed due to archaeological discoveries.

The transfer of costs to the bankrupt Greek state included in the small print is not only incredibly cynical, it also makes a mockery of the principles stated by none other than the European Commission, which said in October 2012 that “privatising public companies contributes to a reduction in subsidies, other transfer costs and state guarantees for public companies…”

When it comes to Fraport, the opposite is true: the lessee of the 14 airports can claim wide-ranging subsidies, transfer costs and guarantees from the Greek state, and of course they are exempt from financial burdens including property and municipal taxes (these and other provisions are part of the “small print” Fraport is rejecting to publish though asked to do so by Attac Germany). Yet on decisions which are an important parameter for the country’s most significant economic sector – for example, landing fees which can be decisive for developing tourism on an island – do not need to be discussed with the Greeks. Supporters of the Fraport deal assert that refurbishing dilapidated, unappealing airports such as Korfu and Santorini cannot be financed without foreign investment. This is true, and applies to the current conditions for the Greek economy as a whole.

It does, however, beg the question of why it shouldn’t be possible to modernise airports on Greek island with the support of credit from the European Investment Bank (EIB). Incidentally, that would also guarantee neutral technical supervision over the program’s planning and cost-efficiency. Productive investments like this would create guaranteed, growing income for the Greek state – instead of topping up the balance sheets of Fraport and a Greek oligarch.

In terms of sustainably stabilising government finances, the Fraport deal is the worst of all worlds. This is also true of most privatisation procedures carried out, or still pending, in a Greece which is still in crisis mode – with the exception of selling public owned real estate which will be put to sensible use by private investors.

This is in no way a justification of the way things were. The best solution would instead have been a third way between privatisation and patronage. Most public companies in Greece do need radical reform to tidy up structures which have only ever benefited the privileged clientele of the political class. Those who really want to help Greece should facilitate the creation of efficient, provident service providers who would finally honour their claim to serve the “public interests,” for their customers and taxpayers alike.


This is an abridged version of an article originally published in “Nachdenken Über Griechenland”, Niels Kadritzke’s blog on Le Monde Diplomatique (DE).

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