By Shavasb Bohdjalian
Certified Investment Advisor and CEO of Eurivex Ltd.
The issue as to whether or not Cyprus should proceed with privatisation of semi-governmental organisations such as Cyta, the Electricity Authority (EAC) and the Ports Authority has once again become headline news for the all the unfortunate reasons.
We know the real reason why the “old establishment” does not wish to change the status of the semi-governmental organisations. Simply put, the “old establishment” - meaning all the political parties - have used these SGOs for both placing their respective party members or sympathisers in highly paid jobs and used the SGOs to fund their various “social” and business activities, which in the end is again given to their party members and sympathisers.
The party hierarchy, which thrives on the rousfeti system of giving jobs and contracts in exchange for votes, cannot function if the political parties cannot fulfill their obligations to their constituents.
Following the economic crisis, the political parties know well that their ability to place their faithful with the government, banks and the likes of Cyprus Airways has finished, so the only other place where they can still place the party faithful and clinch lucrative deals are the SGOs.
That is the reason why the new government (and all the others before it) does not wish to even discuss the issue of privatisation of the SGOs and not because they are acting in the interests of the employees of the SGOs as they publicly claim.
The only person who dared mention the dreaded word was Finance Minister Michalis Sarris, who as we all know has reached his position because of his academic and work credentials and not because of his rank in a specific political party. Even Sarris was careful in choosing his words, saying he prefers the SGOs to become organisations with share capital, all of which will be owned by the state, without explaining what would be the purpose of such an undertaking if eventually it would not lead to a partial or full sale.
And why is Cyta, the EAC and the Ports Authority any different from the Cyprus Stock Exchange, for example? How come the same politicians who are now drawing “red lines” saying they won’t allow the three SGOs to go cannot be bothered when there was a suggestion to privatise and sell the CSE? Is it because the CSE does not have the ability to absorb the party faithful, or deliver the lucrative contracts for various unnecessary projects?
The irony of the situation is that Cyprus is engaged in tough negotiations to convince our fellow eurozone partners to provide us with a financial bailout, otherwise risk default and we desperately need to identify sources of revenue to prove that the country’s debt would be sustainable after the recapitalisation of the banks and securing a loan to cover the financing needs of the country.
The Sunday Kathimerini placed a EUR 4.2 bln valuation on the three main SGOs of which EUR 1.2 bln is the valuation for Cyta, EUR 1 bln is the estimate for the Ports Authority and EUR 2 bln is the valuation of the EAC.
Press reports suggest that Cyprus has been offered a EUR 10 bln loan from the Troika and told to find the remaining EUR 7 bln or so to capitalise its two major banks and cover its financing needs from other sources.
Instead of putting the issue on the table and agree to the immediate privatisation of all three SGOs to close the deal, our politicians are instead playing with fire by agreeing to discuss other revenue raising methods such as an increase in the corporate tax from 10% to 12.5%, imposing a tax on financial transactions, which if implemented will lead to an exodus of foreign companies and result in layoffs and also a tax on interest accrued on deposits, which may lead to a flight of capital.
For decades, the politicians and political parties have “milked” the SGOs, making them inefficient, unproductive and forcing them to effectively operate without planning and vision. It’s time they were turned over to the private sector, coupled with the removal of their monopolistic status in order to encourage competition, better service and proper planning to cover the real needs of this country for the future.
(Eurivex is a Cyprus Investment Firm, authorized and regulated by CySEC, license #114/10 and approved by the Cyprus Stock Exchange to act as Nomad for listings on the Emerging Companies Market. The views expressed above are personal and do not bind the company and are subject to change without notice)
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