Privatisation budget cut by parliament a costly, outdated practice, Petrides says (Update-1)

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By Stelios Orphanides

Parliament’s decision to vote down the funds earmarked for consultancy services by the government’s privatisation unit on Wednesday is a costly and outdated practice that may send negative signals to foreign investors, a government official said.

petrides-constantinos“Privatisations would send a very strong message to the markets” and rating companies, which still rate Cyprus’s sovereign rating below investment grade, undersecretary to the president Constantinos Petrides said on Thursday.

“Instead, they are sending instead the opposite message. With such messages, if I were a major investor, I would think twice and three times before engaging.”

Under the terms of the bailout agreement in March 2013, the government launched a privatisations programme which included, among others, the Electricity Authority of Cyprus (EAC), telecoms company CyTA, and the commercialisation of the Limassol port, in a bid to generate €1.4bn in revenue to reduce public debt.

The government, under Nicos Anastasiades, who promised before the February 2013 presidential election that he would not privatise public companies, encountered strong resistance from unions and affiliated political parties.

The government backed down in early 2015 from its pledge to privatise EAC. Shortly before Cyprus exited its bailout programme in March this year, opposition parties signalled they would not approve the government’s draft bill on the privatisation of Cyta, forcing its withdrawal.

“They are employing a person whom they are not taking advantage of,” economist Symeon Matsis said of commissioner for privatisations Constantinos Herodotou. “It was the government that changed its policy. If they really wanted to go ahead with privatisations, they would have filed their proposal and allow the opposition to reject it”.

symeon-matsisMatsis, who served as director of the Planning Bureau, a government department that drafted government economic policies before the island’s accession to the EU, said that apart from generating cash, the purpose of privatisations was also to unleash underperforming productive forces in the economy.

The faster than anticipated fiscal improvement after the 2013 banking crisis made cash generation less pressing, he added.

On top of that, as state-owned companies also served “political purposes,” by allowing governments to employ workers, they remain under the control of politically connected persons appointed to their boards “instead of serving the interests of society”.

Finance minister Harris Georgiades said in September that the government would seek to privatise CyTA by applying the same model as in the case of the commercialisation of the Limassol port, which provides for the assumption of the administration by a strategic investor with the state maintaining the ownership.

CYTAThe Cyprus Business Mail understands that President Anastasiades’ preoccupation with reunification talks may have a side-effect on economic policies increasing his tolerance level to criticism from opposition politicians on the economy.

Anastasiades is backed in his efforts to reach a settlement by his party, Disy, and communist Akel, Cyprus’s second largest party for which privatisations are an anathema. Diko, the third largest party which otherwise supported reforms prescribed by international creditors, and all other minor opposition parties, oppose both privatisations and reunification talks.

Petrides who is also in charge of the government’s effort to reform the public sector, said that the parliament’s decision to cut €1.4m for the purchase of consultancy services for the privatisations “introduces a new practice” of freezing funds required for them to be successfully completed, “instead of judging them politically and voting them down in parliament when the time comes”.

It is not the privatisation commissioner who decides the fate of privatisations “but the individual draft bills submitted in parliament,” Petrides continued. “It is therefore political spite serving domestic petty politics”.

Privatisation commissioner Herodotou is currently working on the privatisation of the State Lottery, the government holiday residences in Troodos, and the Cyprus Stock Exchange. He has so far completed the sale of Cyprus Airways’ trademark and logo for €2m, hardly covering his expenses.

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