Regional Flagship Initiative Regulatory Reform in South East

Regional Flagship Initiative Regulatory Reform in South East Europe In the framework of the Investment Compact Of the Stability pact The Greek Experience in Network Industries SEMINAR ON REGULATORY GOVERNANCE AND NETWORK INDUSTRIES 19 APRIL 2002 SARAJEVO, BOSNIA AND HERZEGOVINA 22/01/2022 2

Main Points of my Presentation The Greek Experience in Network Industries 1. Background of the Greek Economy 2. Privatisation Process in Greece Ø Environment and Methods of privatisation Ø Privatisation of ailing(problematic) Enterprises(OAE_IRO) Ø Privatisation of state-controlled Banks Ø Privatisation of Network industries 3. Results of Privatisation 22/01/2022 3

Background of the Greek Economy The Greek Experience in Network Industries Ø During the 90 s, for the first time in postwar history, Greek strategies for economic development shifted on market forces rather, than on state-managed growth 22/01/2022 4

Periods The Greek Experience in Network Industries Ø We have three main periods for Greek economic Development. 1. The pre-1974 period, 2. The period between 1974 and 1995, 3. The period from 1995 till today 22/01/2022 5

Periods_Details The Greek Experience in Network Industries Ø Ø In the pre-1974 period Greece’s development strategy based on ü import substitution, ü credit allocation in such a way to produce strong growth (7% with manufacturing on the average at 11. 4% annually), ü a low inflation (4%) and, ü A small balance of payments deficits (2. 1% of GDP). From 1974 until 1995 the economy showed a completely different picture. ü GDP annual growth rate averaged 2%, ( manufacturing growth slowed to almost zero), ü annual inflation averaged 18%, and, ü the average external deficit, as a share of GDP, doubled. Ø Structural reforms, started timidly in the early 90 s with : ü important changes to financial and labor market regulations, ü some product market liberalization, and ü initial steps in state reforms. 22/01/2022 6

The results of structural reforms The Greek Experience in Network Industries The impact of these structural reforms to Greek Economy, along with supportive macroeconomic and labor market policies, were that Greece achieved, comfortably, the five Maastricht criteria for membership to Euro-zone area(EMU) by the target date of January 1, 2001. In the following table 1, you can see the evolution of main macroeconomic data for the Greek economy during 90 s. 22/01/2022 7

Table 1 Main Economic Indicators: Greece, Euro-land, OECD Source: HSBC, European Economics, Q 2 2001, OECD Outlook, No 69, June 2001 1993 1994 1995 1996 1997 1998 1999 2000 2001 The Greek Experience in Network Industries 1. GDP growth (%year) -Greece -Euroland_Average -OECD_Europe_Average 0, 2 -0, 8 0, 0 2, 2 2, 4 2, 0 2, 4 2, 7 2, 4 1, 9 3, 5 2, 1 2, 6 3, 1 2, 8 2, 7 3, 4 2, 5 2, 1 4, 1 3, 4 4, 1 2, 3 2, 0 2 Inflation (%year) -Greece -Euroland_Average -OECD_Europe_Average 14, 4 3, 9 6, 2 10, 9 3, 1 8, 3 9, 3 2, 9 5, 7 8, 5 2, 4 6, 0 5, 4 1, 8 5, 8 4, 5 1, 3 3, 9 2, 1 1, 2 3, 9 2, 3 3, 7 3, 1 2, 1 4, 4 3 Investments (%year) -Greece -Euroland_Average -OECD_Europe_Average -3, 5 -7, 5 -4, 8 -2, 8 2, 0 1, 7 4, 2 2, 5 3, 2 8, 4 1, 6 2, 7 7, 8 2, 5 4, 0 11, 8 5, 1 5, 6 7, 3 5, 2 4, 1 8, 1 4, 7 4, 9 9, 0 3, 3 2, 3 4. Gov’t Deficit (%GDP) -Greece -Euro-land_Average -OECD_Europe_Average 13, 8 5, 9 6, 3 10, 0 5, 4 5, 6 10, 2 5, 3 7, 4 4, 2 4, 0 2, 6 2, 3 2, 5 2, 2 1, 6 1, 8 1, 3 0, 6 0, 9 0, 1 0, 6 0, 0 1, 0 0, 3 111, 6 70, 2 66, 6 109, 3 72, 7 68, 9 108, 7 76, 3 71, 9 111, 3 77, 5 72, 7 108, 3 76, 9 71, 8 105, 5 75, 2 69, 8 104, 6 74, 4 68, 6 102, 7 72, 1 66, 2 102, 2 69, 9 63, 8 9, 7 10, 9 10, 4 9, 6 11, 7 10, 0 11, 4 10, 3 11, 6 10, 4 10, 2 11, 7 10, 1 11, 2 10, 9 9, 3 12, 0 10, 0 8, 5 11, 3 9, 0 7, 7 10, 8 8, 6 7, 3 5. G. G Public Debt (%GDP) -Greece -Euro-land_Average -OECD_Europe_Average 6. Unemployment (%) -Greece -Euro-land_Average -OECD_Europe_Average 22/01/2022 8

The Greek Privatisation Process The Greek Experience in Network Industries Ø Privatisation in Greece started in the early 1990 s and the title of the relevant law was (2000/91), “on denationalisation, simplification of liquidation procedures strengthening the rules of competition and other matters” Ø Greek privatisation programme has been undertaken to reduce the dominant role of government in the economy. Ø The Greek privatisation programme has required considerable planning effort and determination. Ø Several institutions had to be transformed to public companies with shares. Ø Furthermore, social security and pension arrangements had to be made and considerable restructuring was implemented. Ø In several enterprises a break up between an assets and an operations company was necessary the run up to privatisation. 22/01/2022 9

Methods and Sectors of Privatisation in Greece 1. The main methods used in Greece for the sale of assets were: Ø Ø Initial Public Offering (IPO) in a deep capital market Asset sales, often following the liquidation of the company Trade sales to strategic investors Management employee buy-outs (small companies, labor intensive) We must noted that the privatisation methods have varied across countries for various reasons, including privatisation strategy and market conditions. 2. The main sectors in which privatisation concerns are: Ø Ailing enterprises Ø State-own Banks Ø Network Industries Ø Water Services, Ø Others 22/01/2022 10

1. Privatisation of Industrial Enterprises (IRO)-Ailing Enterprises The Greek Experience in Network Industries Ø Greek state gave considerable , since 1983, interests in a large range of companies (almost 100) whose it had defacto nationalized, as a means of rescue-to reconstruct and run around- from financial difficulties and particularly from the huge debts to the state banks. Ø These were grouped together under a state Agency (Industrial Reconstruction Organization_IRO or OAE) charged with restoring them to profitability and subsequently selling the businesses back into the private sector, where possible, or otherwise liquidating them. Ø A large number of small and medium size companies were sold (or dissolved) by the IRO. The Organisation itself has been put into liquidation. 22/01/2022 11

Table: Privatisation Revenues selling IRO The Greek Experience in Network Industries Privatisation Revenues in M$USA 1992 Total Ailing 22/01/2022 0 1993 34, 9 1994 73, 5 1995 44, 4 1996 28, 2 1997 15, 2 1998 0 1999 0 2000 0 Total 196, 2 12

2. Privatisation of state- controlled banks: The Greek Experience in Network Industries Ø Before 1987, state-controlled banks dominated banking sector, and the Bank of Greece set interest rate and administrative regulations. The banking system was used to finance the public sector deficit, and negative real interest rates prevailed. Ø Despite considerable liberalization of the financial and banking sectors, state controlled banks still account for 45 percent of deposits and credits (down from 60 percent in 1995). Due to competition, however, and conscious policies to restructure the portfolios of several of these banks, their performance has improved, despite the fact that they have lost market share. Nevertheless, considerable effort is still needed to make them function like the private banks. Ø Privatisations of public banks, mergers and entry of new banks have enhanced competition. The market share of publicly controlled banks has declined. A large number of specialized private firms offer a wide variety of financial services. Ø The privatisation of banks has initiated a major restructuring of the financial sector and a repositioning of private groups. 22/01/2022 13

Table: Privatisation Revenues from Banks in M$USA The Greek Experience in Network Industries COMPANY Bank % sold 1993 1994 1995 1996 1997 1998 1999 1. Bank of Central Greece 51 60. 76 2. Bank of Crete 97 76. 65 3. E. T. E (N. B. G) 2000 0 Total 0 60. 76 0 76. 65 219. 5 1007. 2 0 1226. 7 4. ETVA 25 0 395. 99 0 396. 0 5. General Bank 33 48. 78 0 0 48. 78 6. IONIAN Bank 51 917. 61 0 917. 61 95. 12 0 0 95. 12 7. Macedonia Thrace 8. Agriculture Bank 13 0 0 902. 8 9. Commercial Bank 7 0 0 307. 7 500. 81 2320. 8 1210. 5 4032. 1 3969. 2 4896. 4 1692 12663. 1 Bank’s TOTAL Greek Grand Total %of Banks to Total 22/01/2022 34. 9 73. 5 44. 4 557. 2 1395. 5 3. 18 14

Effects of bank’s Privatisation The Greek Experience in Network Industries Ø Profitability has risen considerably in recent years Ø Technical innovation such as increased automation has led to considerable service provision improvement, and the variety of products has expanded, banking employment has declined, but the entry of a variety of private companies offering financial services has enhanced overall sector employment. Ø Salaries for skilled personnel have increased rapidly Ø Considerable efficiency gains have been obtained in the financial service sector, labor productivity has increased and costs have declined. Ø The management of two state -controlled banks (namely the National Bank of Greece and the Commercial Bank of Greece) will no longer be voted by Parliament and would be chosen freely by their boards. Ø The volume of financial services has been increased, prices (fees and commissions receivable as a % of total assets) have declined (from 1. 53 in 1994 to 0. 85 in 2000) and the spreads between lending and borrowing rates have declined from 11. 3 in 1994 to almost 6. 0 in 2000. 22/01/2022 15

3. Public entreprises-utilities and their main characteristics The Greek Experience in Network Industries 1. The publicly owned enterprises have the following characteristics: ü their number was about 50, ü they employ about 6 percent of wage labor, ü they account for about 22 percent of all investments in Greece, ü their products account for 7 percent of the CPI basket, ü their financing needs have imposed a heavy burden on overall public debt. ü their contribution to GDP, in 1991 and 1999, was respectively 16, 1% and 6. 1%. This indicates, in some way, the progress that has been made in privatisation. 2. The ten largest enterprises among them were monopolies or oligopolies in telecommunications, energy, and transport sectors. Inadequate management, inflexible labor agreements, high labor costs, and lags in modernization have resulted in performance that has induced significant product market distortions, and has burdened the cost of operation of other sectors. 3. Greek public enterprises had often been used to implement multiple policy objectives, unrelated to their primary objective of efficiency, which was to provide quality goods and services 22/01/2022 16

i). Restructuring of Loss Making Public Corporations The Greek Experience in Network Industries Ø Ø Ø Ø Ø The restructuring of loss-making public corporations (mainly in the transport, postoffice and defense sectors) is well underway (law 2414/1996). It includes: The appointment of high quality management consultants to design restructuring plans (feasibility study and initial valuation of asset, legal restructuring, financial restructuring), The appointment of high quality international management, The elimination of restrictive labor practices in order to increase productivity and competitiveness, The transfer of surplus personnel to other areas of the public sector with excess personnel demand (local authorities, public hospitals etc. ), The formation of strategic alliances with domestic or foreign firms. Public corporations listed in the stock exchange will enjoy considerable autonomy from the government, according to a recent amendment to 2414/96 law. The corporate bodies (board of directors and shareholders general meeting) will take from now on the major strategic and operational decisions and will select and appoint the chief executive. Concerning public monopolies in utilities, the plan is to offer majority (over 51%) shares to the public through the stock market, while maintaining in many cases a “golden share”. 22/01/2022 17

ii) Sectors that have been privatized The Greek Experience in Network Industries 1. Telecommunications sector a. Telephony i)Fixed telephony services ii) mobile telephony iii)Independent Authority. b. Postal services 2. Energy sector Oil market (ELPE) i). Electricity market ii) Oil and Gas Market Gas Corporation(DEPA) 3. Waters Services 4. Other entities-organizations that have been privatized i). Hellenic Vehicle Industry (ELVO) ii). The Stock Exchange (ASE) iii). Duty Free Shops (DFS) 22/01/2022 18

1. TELECOMMUNICATIONS_Telephony i). Fixed telephony The Greek Experience in Network Industries Ø Ø Ø Ø The Hellenic Telecommunications Organisation (OTE) established by the Greek State in 1949, and is the national telecommunications provider. It operates in an environment that has become increasingly liberalized in recent years, OTE had the exclusive right to provide throughout the country fixed telephony services until January 1 2001. In January 2001 the Greek fixed telephony market opened to competition according to EU stipulations, and this is expected to further increase competition. Domestic and international telephony services is the company’s core business, generating almost 85% of OTE’s revenues OTE has recorded sufficient gains in efficiency and has improved the quality of its services over the last few years. Taking in advantage of the derogation provided to Greece, OTE progressively rebalanced prices of local and distant calls, bringing tariffs in line with European legislation By the end of 2000 the company had some 5. 6 million access lines in service, which corresponds to a density of 53, 7 fixed lines per 100 inhabitants, close to EU average. OTE had achieved a digitalization rate of 93. 4% in 2000 compared with 42. 1% in 1997. The Hellenic Telecommunication Organisation has currently almost 49% private share ownership and it has raised revenues equal to USA $ 4380 million or 35. 1% of the total amount of money raising from Greek Privatisation. 22/01/2022 19

1. TELECOMMUNICATIONS_Telephony i). Fixed telephony (continued) Ø An important step towards the full privatization of OTE was taken through the launch of a € one billion (GRD 340 billion) bond convertible into shares (equivalent to 10% of the share capital bringing down the state’s share to 41%). An additional sale of a 5% stake is planned to a group of selected domestic and foreign banks. The banks will keep OTE’s shares for a specified time period with the objective of placing them with institutional investors as soon as the market condition permit. Ø OTE was listed on the Athens Stock Exchange (ASE), for the first time, in March 1996 with an initial IPO of 8% of its share capital and at the end of the same year has achieved a listing in the New York Stock Exchange( NYSE) and the issue has been twice over subscribed Ø The company is a key player in the telecom sector in Balkans through several joint ventures and acquisitions, in partnership with other international operators. Ø Since 1992 OTE has faced stiff competition from the two private GSM mobile telephone operators (Panafon and Telestet) that has led considerable improvement of services and declines in prices. Ø About other 240 companies provide a variety of services (leased lines, internet access, etc. ) 22/01/2022 20

1. TELECOMMUNICATIONS_Telephony ii). Mobile telephony The Greek Experience in Network Industries Ø In 1992 two private GSM mobile telephone operators (Panafon and STET Hellas) started to offer mobile telephony services to Greek people. Ø In 1996 OTE established its own mobile company COSMOTE, which began to operate in April 1998, since when it has enjoyed a consistent increase in market share, as the next diagram me indicates. Ø Cosmote is partially privatised (a 15% stake was floated on the Athens Stock Exchange raising GRD 156 million or € 457813, 6). Ø So today three companies are operating in mobile telephony, Panafon (majority-owned by British Vodafone), Telestet (majority-owned by Italian STET) and COSMOTE (70%owned by OTE and the rest by Norwegian Telenor). Ø The market for mobile services is very competitive and has grown very fast. Its penetration ratio is steadily increasing, reaching 66% by the end of 2001 and it is expecting to exceed 80% by the end of 2004. Ø Another important development in this sector was the sale of three 3 G high speed (UMTS-third generation mobile telephony) mobile phone licenses to the three existing mobile operators. 22/01/2022 21

1. Telecommunications (Figure 1. Mobile telephony : Markets shares) The Greek Experience in Network Industries 22/01/2022 22

1. TELECOMMUNICATIONS (Results from Privatisation) Ø The Greek Experience in Network Industries Ø Substantial improvements in the telecom sector have taken place in terms of both the number of services provided and their quality. In the table below terms of quality progress has been together with the current value of each indicator Table : Quality of telecommunication's services: targets and current value Indicator 1. Waiting time for a new connection to the Network 2. Faults per 100 connections per year 3. % of faults repaired within the next day 4. Average operator response time Target for 2003 Current value 1998 1999 Less than one week 2000 5 days 2001 5 days 10 17, 4 6 95% 90% 93, 4% <10 sec 60 sec 20 sec Rebalancing of tariffs for fixed telephony services 1. %change in local calls 2. % change in long-distance calls 3. International calls 22/01/2022 13 61, 5 28. 6 16. 7 -8. 4 -31. 4 -35. 5 -30. 0 -4. 0 -12. 6 -17. 2 23 -10, 0

1. Telecommunications (Independent Regulatory Authority. EETT_New Entrants_PPC) The Greek Experience in Network Industries Ø An Independent regulatory authority, the National Telecommunications and Post Commission (EETT) has been established by the Law 2867/2000, to grant licenses and to oversee the liberalized market. Ø The EETT organized successfully a multiple round auction for 9 national fixed wireless access (Local Multipoint Distribution Services. LMDS) licenses. The licenses include four broadband (25 GHz) and three narrow-band (3. 5 GHz) systems, which are based on wireless local loop technology. Ø Two of the 25 Ghz went to companies Associated with existing mobile operators and the other two went to joint ventures based on network industries: one to Public Power Corporation(PPC) and the other to Europrom, a consortium of Prometheus gas Ø In addition to its core electricity business, PPC is diversifying into the-business of telecommunications, doing a consortium with WIND ( a joint venture owned 56% by ENEL, and 44% by France Telecom) 22/01/2022 24

1. Telecommunications Table: Privatisation Revenues The Greek Experience in Network Industries PRIVATISATION REVENUES in M$USA Company 1996 1. OTE_1 trance _2 trance _3 trance _4 trance 529, 4 1997 1998 1999 TOTAL 1491, 2 1088, 6 529, 4 1270, 6 1491, 2 1088, 6 0 4379, 8 48 467, 8 15, 0 467, 8 4847, 6 Greek Grand Total 12663. 1 % of Total to Grand total 3. 8 22/01/2022 % sold 12 12 10 14 1270, 6 2. COSMOTE Total(1+2) 2000 Method of Privatisation First Secondary Thirty Fourth IPO IPO IPO 25

1. Telecommunications_Postal Services Ø Up to 1975 the stated owned Hellenic Postal Service (ELTA) was the sole provider of postal services in Greece. Ø Since then, however, a number of postal services firms (about 150) have active in Greece providing especially courier services. These firms were operating with no special license but according to the rules for commercial companies. Ø According to the framework of ELTA is the universal services provider while the other segments of the market are open to competition. Ø The implementation of the Law 2668/98 provided the postal services sector with a new legislative framework, in accordance with the EU directive 97/67, which however it seems to delay full liberalisation of the sector until 2003. Ø ELTA has been under a restructuring business plan since 1998 and the results are very promising. Profits are recording, the quality of services is also continuously improving and is expected to reach the standards set by EU in the coming years Ø ELTA is currently searching for a strategic partner with who it is planning to establish a joint venture of express services. The partner will have also the responsibility for management. Ø ELTA will be listed on the stock exchange 22/01/2022 26

2. Energy sector The Greek Experience in Network Industries The Greek energy sector was, until recently, dominated by state monopolies. The sector consists of: 1. the electricity market in which still operates only one enterprise, the Public Power Corporation (PPC-DEH), 2. and the oil and gas market where two public enterprises are operating, the Hellenic Petroleum Enterprise (ELPE) and the natural gas enterprise (DEPA), in which ELPE holds a stake of 35% and the rest belongs to the state. Ø Only in last decade there were some movements for partial pravitisation the monopolies and gradually opening markets competition. Ø We must noted that liberalisation largely has been a response to EU directives designed to create a continent-wide energy network and market that will provide both more secure and cheaper supplies. Ø Greece is a small energy market and it is dependent on imports for two thirds of its energy requirements, particularly in oil and petroleum products(only 10% of its domestic oil needs are covering by its oil field Prinos). The high dependency on imported oil, which is greater than for other European partners, is a major factor influencing inflation. Ø The Greek principal hydrocarbon resource is lignite, which is of low calorific value and highly polluting. However it is still used by PPC(only 1% of lignite deposits are used) to produce nearly 70% of electricity. The rest of Electricity is generated using natural gas (it is imported from Russia), Hydro-electric plants (10%), crude fuel oil (15%), and renewable energy resources. 22/01/2022 27 Ø Ø

2. Energy sector i) Electricity sector The Greek Experience in Network Industries The electricity sector has four main stages in production: Ø Generation-the production of electric power using variety of fuels and technologies Ø Transmission from generators to industrial costumers(High. Voltage) Ø Distribution to small customers(low-voltage) Ø Retailing or supply to final consumers Ø We must noted that transmission and distribution will be, even in the future, natural monopolies, while both generation and retailing are potentially competitive activities. 22/01/2022 28

2. Energy Sector i)Electricity Market_PPC The Greek Experience in Network Industries Ø Ø The Public Power Corporation (PPC) is the main electricity enterprise in Greece. It was established in 1950 having as task the exclusive generation and transmission of electricity through Greece. PPC is vertically integrated in all aspects of the electricity sector except for system operation. Some industrial companies generate 2% of electricity, largely consumed by them with the rest sold to PPC is a corporation under private Law. It has been transformed into a société anonymé with the State as a unique shareholder. A recent Law foresees eventual partial privatisation in that it requires that the state retain at least 51% of the voting shares, which mean that provision is made for privatisation of up to 49% of the company. The restructuring process for PPC has been long and difficult. The company was overstaffed, had a huge un-funded pension liability for its staff, productivity was low and unions resisted privatisation, because of the inevitable jobs cuts The electricity market is now entered a phase of deregulation, since February, 2001 (the market has to be fully deregulated by the year 2005). Under the EU’s directive 96/92/EC, concerning the regulation of the internal electricity market by the institution of common rules regarding the activities of the sector as a whole, and the law 2773/99 on the deregulation of the electricity market and regulation of energy policy matters, which was adopted to comply with the above mentioned directive, Greece must inter alia open, (the inter-connected system), at least 30% of its electricity demand to competition, meaning that those customers (eligible), with annual consumption of over 1, 5 GWh (high and medium voltage users of the interconnected system), will be free to choose their electricity supplier(any licensed generator or importer). This percentage is close to the EU’s 2005 target of 33%. (Greece has two years of derogation) 22/01/2022 29

2. Energy Sector i)Electricity Market_PPC (continued) Ø For eligible customers the prices are negotiated with generators, while for noneligible customers the prices are recommended by RAE and finally decided by the competent Minister. Ø PPC remains vertically integrated, retains exclusive ownership of transmission and distribution and retains ownership over its generation and supply facilities. PPC maintains the right to supply the other 67% of non-eligible, low voltage customers. Ø PPC almost loses control over the operation of the transmission grid which will operate by an independent entity, the Hellenic Transmission System Operator (HTSO), in which PPC participate with 49% of its shares. Ø The same law (law 2773/99) removes the prohibition on entry into electricity generation. Ø PPC (DEH), according to the previous law must produce separate accounts, according to International Accounting Standards, for four electricity activities, generation, transmission, lignite mining, distribution and for non-electricity consolidated accounts. These activities are required to operate at arm’s length with no cross subsidy. Ø Concerning privatisation , the company came to the market in December 2001 with 16, 5% offered for sale(IPO) and the raising revenues were equal to M$USA 518, 9 or M€ 463. 3 22/01/2022 30

2. Energy Sector i)Electricity Market_RAE and HTSO The Greek Experience in Network Industries Ø Ø Ø In mid-2000, a Regulatory Authority for Energy -RAE was established to regulate the sector, and to propose to the authorities the enactment of measures to protect competition and consumer’s interests. We have to note from now that RAE if for the whole energy sector. By the same law an Independent entity the Hellenic Transmission System Operator-HTSO has been set up. The Regulatory Authority for Energy (RAE) is an administratively and financially independent authority and has a mixture of advisory, decisive, and monitoring powers. Its main duties consist of delivering opinions on the license granting to new-entrants, monitoring the operation of the energy market, enhancing competition, supervising prices and protecting consumers. Ø Ø Regarding tariffs the Minister of Development asks RAEs opinion on the tariffs for offered the licenses for supplying electricity to eligible customers, and on the prices to be charged for noneligible customers. An additional objective of RAE is the establishment of a forward market for energy, which it would be supervised in order to smooth out fluctuations in energy prices. HTSO is a new entity owned by 51% by the state and 49% by licensed generators(for the time being PPC is the only shareholder but as the independent power producers enter the trading system, they acquire shares in the proportion to their installed capacity), will operate, use, ensure the maintenance and development of, and interconnections with other networks of transmission system. It must be noted that the above-mentioned law made some provisions on social security rights of PPC’s employees, and thus the privatization of PPC will be easier. 22/01/2022 31

2. Energy Sector i)Electricity Market_New Entrants(Importers_IPPs) The Greek Experience in Network Industries 1 Importers Ø The imports from other EU countries and the large-scale domestic entry are the necessary and sufficient conditions to increase competition in Greek electricity market. Ø As far as the imports are concerned for EU generators there are some weak links through the Balkan Peninsula, (because of damage to the transmission system in Croatia and Bosnia-Herzogovina) and weak legal framework for transit. Thus, competition is virtually precluded except from Italy (a small inter-connector (about 4000 GWh-with Italy (part of EU’s Trans-European Networks-TENs) can deliver power quantities equal to 10% of total Greek demand or less than 1/3 of demand that has been liberalised. However, since electricity prices in Italy are higher than in Greece, the flow is likely to be westward. Thus the competitive impact of this link will be limited. Ø We must note that small imports are made from some Balkan counties (Bulgaria, Fyrom, Albania, Turkey, but their volume is to little to influenced competition. 22/01/2022 32

2. Energy Sector I)Electricity Market_New Entrants(Importers_IPPs The Greek Experience in Network Industries 2. New Entrants Ø As far as the domestic entry concerns there are serious problems for entry because Ø Ø Ø entrants face high barriers, like access to transmission and distribution, access to fuel, switching costs of potential customers, and low prices to large industrial customers. The Ministry of Development, though RAE, has invited Greek and foreign companies to express their interest bidding for electricity generating and supply licenses. Until March 2001 RAE has received 996 applications from domestic and international companies which wish to generate electricity in Greece with proposals for a total installed capacity of 20. 130 MW. Five of the 996 applicants were approved by RAE, with a capacity of 1. 350 MW. From them only two have independent access to fuel, one is ELPE which may construct a plant at one of its refineries (Thessaloniki) and the other Prometheus Gas which has the right to use part of the gas pipeline from Russian. However the 1999 Law removes the legal prohibition on entry of new generators. According to Law other possible entrants are auto generators-IPPs, who by definition would use most of the electricity themselves. The independent generators were reported to have obtained preliminary site installation permits but they argue that the liberilisation regime as set out in Law 2773/99 does not established a market in which they can compete. 22/01/2022 33

2. Energy Sector ii)Oil and Gas Market a). Oil Market The Greek Experience in Network Industries Ø Ø Ø Ø The Greek oil market has long been a public-private hydrid. Since 1970 s there have been private refineries but, until 1992 were styled as export refineries and sold the majority of their products abroad, unless there were shortfall at home. Once the market was liberalised the private sector refiniries began to sell on the inland market providing stiff competition for the state refiniries, because then the market has been liberalised wholeshares and retailers are free to charge what prices they think the market will bear. The whole market was open to both domestic and foreing private companies but legislation regarding security stocks made it virtually impossible for the large multinational distribution companies to import cheaper products from their own refiniries abroad. The Greek oil market today consits from four refineries (two are in the state sector and the rest_Motor oil and Motorola in private sector), but the market is dominated by the Hellenic Petroleum Enterprise (ELPE) which is today partly owned by the state. ELPE’s core bunisens is refining of crude oil, the marketing and trading of refined petroleum products. ELPE now operates largerly on private sector criteria and has branched out into upstream (with the Austria. OMV, the Hungarian MOL, and the Polish PKN Orlen) and dowstream ventures. ELPE owns three refineries one is the former ELDA, in Aspropyrgos area that has nominal rated capacity of 7, 6 million tonnes(mtn) per year, the second is the EKO, at Thessaloniki(3. 4 mtn) per year and the thirt the OKTA at SKOPJE in FYROM(3. 5 mtn per year) In June 1998, ELPE was listed on the Athens (ASE) and London Sock Exchanges offering of 46. 4 mn shares (23%) to international and domestic investors and company employees(about GRD 35 bn). In march 2000 the state sold a second tranche of shares (12, 9%) thought a public offering which raised GRD 121, 5 bn. So the total amount riased from ELPE partial privatisation accounted to M$USA 840. 8 So ELPE are partly privatised (35. 9%) and the share of the state in ELPE is now only 58% with rest belonging to retail and institutional investors. Last year the state has been issued an invitation for expression of interest for a strategic investor to take a 23% stake in the company. Three potential bidders met the deadline for expressions of interest for the strategic stake: Yukos of Russia, OMV of Austria, and a consortium of Lukoil of Russia and the Greek Latsis Group. Originally it was planned that bidding expressions of economic interest should be in by the end of 2001 but this has been posponed untill the April of 2002. So as long as present policy is maintained this will create a company owned 35% state, 23% strategic investor, and 42% floating. 22/01/2022 34

b). Gas Corporation. (DEPA) The Greek Experience in Network Industries The public Natural Gas Corporation (DEPA) is almost a state owned enterprise in which the state holds 65% of its share and the rest belongs to ELPE. Ø Natural gas is currently imported mainly from Russia, through a pipeline and, and on smaller part, from Algeria in liquefied form (LNG). For this reason it has been given the right to Greece to derogate from the EU gas directive (98/30) on the liberalization of the gas market, up to November 2006. Ø During the last few years significant progress has been made in the construction of gas supply network, which consists of: · The transmission network (high pressure trunk line and branches, metering and operation stations and maintenance centers), which is already in operation. · A liquid natural gas terminal (storage facility) in Revithousa and · A distribution network consisting of low and medium pressure networks. Some of the medium pressure pipelines are in operation while the low pressure are not yet operational Ø Legislation passed in 1995 to comply with EU liberalization rules, provides for third party access to the natural gas network created by the Public Gas Corporation (DEPA) and for the licensing of pipeline companies to provide gas to areas of the country that DEPA grid does not service. However pipelines cannot be established until the national grid has been operational for seven years, nor can trading company licenses be issued until 10 -years after the transportation system has begun to function. Ø Under the terms of the governing legislation DEPA owns the network and operates the highpressure distribution system. Ø As far as the distribution of natural gas in the major urban areas is concerned, companies whose shares will be in the private sector for at least at 49% level and the rest to the subsidiaries of DEPA and local authorities, will be operated. Ø We must point out that the Ministry of Development has decided to reduce its stake in this company below 50% from 65% today. An international tender is planned for the sale before the end of the 22/01/2022 35 year. Ø

3. Water services. The Greek Experience in Network Industries Ø Athens Water and Sewage Company (EYDAP) were partially privatized in December 1999 by a listing of 30% of its shares on the Athens Stock Exchange. Ø Prior to listing the company was restructured and broken up into two entities. The main assets of the company have been transferred to one entity. Through a leasing agreement EYDAP will secure the use of assets in exchange for covering maintenance costs. The other entity includes the networks, which remains in the possession of EYDAP. Ø The rate of tariff increases for the period 2000 -2004 has been set; water tariffs increase in line with inflation while sewage tariffs have been aligned with the cost of providing services. Ø Regarding the Sallonica water and sewage company partial privatization was taken placed in the autumn of 2001. 22/01/2022 36

Other entities-organisations that have been privatised 4. The Greek Experience in Network Industries i). Hellenic Vehicle Industry (ELVO): ELVO manufactures jeeps, buses and armoured personnel carriers for the Greek Army. Last year, a domestic consortium consisting of the metals-trading group Mytillineos bid to acquire 43% of the company. ii). The Stock Exchange (ASE) Ø The Athens Stock Exchange was established in 1876. Under the provision of Law 2324/95 Ø Ø Ø the company was transformed into a joint-stock company operating under the name “Athens Stock Exchange SA” with the Greek state as the sole shareholder. In December 1997, it was decided that institutional investors, brokers and issuers of listed shares could participate to the company’s share capital via a private placement. The Greek state offered 39. 7% of ASE’s share capital, raising GRD 22. 8 billion. In November 1998, the second private placement took place- to the same categories of investor-with the offering of another 12% of the company’s share capital. The proceeds from the second trance amounted to GRD 10. 2 billion. After that the Greek state has an equity stake of 48. 3% in ASE share capital, while the rest is owned by companies listed on the ASE, brokerage firms and institutional investors, such as banks, pension funds, mutual funds and insurance companies. The Greek state, as majority holder, has agreed to the listing of the company’s shares on ASE in the coming years. iii). Duty Free Shops (DFS): Duty free shops were established in 1979 and were operated 33 outlets at airports, ports and border crossings throughout Greece. Following the abolition of duty free sales within EU, the company proposes to offset the inevitable reduction in the sales by expanding its activities in nonduty –free retail sales. Today 67% of the shares of DFS have been transferred to Agricultural Bank of Greece. 22/01/2022 37

5. Results of privatisation a) Revenues raised The Greek Experience in Network Industries Ø The following Table indicates that the total money raised from privatization during the period 1992 -2000 has reached the level of GRD 3. 6 trillion (USA $ 12 663, 14 million) or 9, 1% of 2000 GDP. These revenue were used mainly to retire government debt, or to funding adjustment policies for employees, where was necessary. Privatisation Revenues in M$USA 1992 1. Ailing Enterprises 0 1993 34. 9 1994 73. 5 1995 44. 4 1996 1997 28. 2 15. 2 2. Banks 3. Telecommunication s 0 0 0 4. ELPE 0 0 0 5. Waters 0 0 6. Others PEs 0 7. Priv. . Certificates Greek Grand Total 22/01/2022 1998 1999 2000 Total 0 0 0 196. 2 500. 8 2320. 8 1210. 5 4032. 1 529. 4 1270. 6 1491. 2 1088. 6 467. 8 4847. 6 0 0 0 303. 1 537. 7 0 840. 8 0 0 230. 2 0 0 0 0 109. 7 489. 5 719. 1 13. 6 1331. 6 0 0 0 1184. 6 0 34. 9 73. 5 44. 4 557. 2 1395. 5 3969. 2 4896. 4 1692 12663. 1 38

i)Total Revenues raised per yea: The total revenues in firure terms: the following diagram also illustrates that there was a sharp increase of privatization revenues during the period 1997 -1999. In 2000 the speed growth rate of privatization was low because the market conditions were deteriorated. 22/01/2022 39

ii)Privatisation Revenues by Method of Privatisation The following Figure presents the revenue of privatization by method of privatization 22/01/2022 40

iii)Privatisation revenues by Sector: The following Figure presents the revenue of privatization by sector 22/01/2022 41

b. Price reduction and growth increases The Greek Experience in Network Industries Ø Structural and regulatory reforms that have been implemented over the past decade have made an important contribution to the main macroeconomic magnitudes. Ø In the 1998 OECD economic Survey of Greece you can find some estimation of the potential long –run gains from the broad structural changes in Greece. It found that the potential cumulative (direct and indirect) national income gains from restructuring the main public enterprises and introducing competition in the markets, where they operate, could be of the order of 5 -7 percent of GDP. The total effect could be possibly as high as 10 per cent of GDP, if the impacts of higher quality products and improvements in the budget balance were taken into account. Ø On the other hand a more efficient public enterprise performance could have a downward impact on the aggregate price level-one percentage point off the CPI price level. 22/01/2022 42

The Greek Experience in Network Industries c. Employment and salaries results Ø In some sectors there was a reduction in the employment during the period of restructuring. However the entry of a variety of private companies to different sectors (telecom, electricity, financial services) enhanced overall employment. Ø We must point out that Greek government in some cases of privatization have been addressed labor issues to privatization candidates, for the purpose to keep the employment stable for some time. Ø On the other hand because the competition was increased in the innovation enterprises, salaries for skilled personnel have increase rapidly. Ø The privatisation of the above mentioned public sector companies and banks would enhance the efficiency of the corporate sector. It also entails a lower burden for the state budget and, consequently, for the taxpayer. 22/01/2022 43