Greece has some significant strategic advantages. It is the crossroads of three continents, a geostrategic junction for the transport of oil and gas. Greece, mainly through the port of Thessaloniki, is the EU threshold to an emerging market of more than 50 million people. It is a gateway to European Turkey, and a traditional and trusted partner to the Middle East and the Arab world.

Greece, as a country of origin, is the main investor in Bulgaria, the former Yugoslavian Republic of Macedonia, and Albania, and is among the three largest investors in Romania. It maintains close ties with Serbia and Montenegro and is developing a presence in Bosnia Herzegovina. The Balkans were for centuries the traditional place in which Greeks did business and, at the time, gathered excessive wealth. This market is open again, after decades of introversion and seclusion. Although the US is active in the area, other EU countries seem not to have fully understood, or be in position to seize, the opportunity.

Call for action

Given these circumstances, one would expect Greece to host a booming business environment, but the economy is moving slowly, still burdened by a large, slow, and unproductive state that is directly or indirectly involved in about 65% of the economy. Out of the ten top ASE listed companies, only three are genuine private companies. Expected growth of GDP is slowing down by 18%, from 4.0% in QII of 2004 to 3.3% in QII of 2005. The expected 2005 average inflation rate, based on WES QII and QI 2005, is up two points, from 3.2% to 3.4%, whereas the European average is 1.9 and the WES 91 countries average is 2.9%. After hosting one of the most successful and safe Olympic Games in 2004 (at a cost ranging between €9 and €12 billion depending on who and how is counting), the country has been forced to regroup, faced with huge public debt, a 2004 budget deficit of over 6%, and an obligation towards the EU Commission to cut this by 3.2 GDP points by December 2006. Most of the state budget is absorbed by inflexible public sector operational costs (salaries and pensions) and debt interest.

A new administration with a strong ideological platform based on commitment to transparency, elimination of state control and bureaucracy, and provision of better services assumed office in March 2004. Fifteen months later, this administration is attempting to transform the economy, boost productivity, cut costs, and provide better service to the world investors.

The government is pleading for direct investment. It is resolved, eager and obliged to support, protect and breed prosperity and profit for the first time since 1953, when politicians realized that private and international investment was the only way out of the country's vicious circle of poverty and regional devastation.

The remedy then was a law with teeth - Law 2687 of 1953 - and its strict implementation. All major industrial investments until 1974 (refineries, aluminium and steel factories, fertilizers, textiles) were the product of the resolution of the 1953 government and the country's need to attract investment and industrialize Greece.

New legislation

The remedy today is also a law. A law that, after deliberation between the administration, the business community, the unions and all social partners is expected to be voted and enacted by parliament shortly, within 2005.

All public bodies, that is, state, local governments, state-controlled companies, SAs controlled by the state (through a minimum 50% shareholding) or subsidized or financed for at least 50% of their annual gross income, or governed by any of the above carriers, and all affiliated companies may partner with private partners to provide services, or to create, maintain and run infrastructure projects within their scope of activity.

Public-private partnerships (PPPs) are effected through special purpose vehicles (SPVs) formed as SAs and registered in Greece. Investors participate with a minimum 51% shareholding whereas government is limited to a maximum of 49%.

Anything that is not reserved by the state constitution as a direct and exclusive sovereign function of the state, that is, anything but national defence, police work, justice, and the enforcement of sentences, may be the object of PPPs. The criteria for a public-private partnership are:

• the provision of services or the creation of infrastructures are the object of the public bodies either by law or by contract;
• the private partners, for a compensation to be paid either by the public bodies or by the end-users, either once or in instalments, assume a substantial financing, availability, or demand risk of the object of the PPP and other related risk as, indicatively, management or technical risk;
• the financing, either in whole or in part, for the provision of services or the creation of infrastructures will be secured by the private partners with equity and loans; and
• the total budget for the realization of each PPP cannot exceed €200 million, exclusive of VAT. Bigger projects are also eligible as PPPs subject to an inter-ministerial committee's prior consent.

PPPs proposed by a public body are planned or reviewed, authorized and followed up by a specially formed one-stop shop operating under the auspices of the Ministry of Finance: the PPP Special Secretariat (EGSDIT). It is supervised by an inter-ministerial committee (DESDIT) consisting of the ministers of finance, development and urban planning and headed by a secretary appointed by the prime minister and the minister of finance. All projects with a budget up to €200 million may be the subject of a PPP without the inter-ministerial committee's consent. Any project with a higher budget may be also awarded to a PPP, subject to the prior consent of the inter-ministerial committee, which may not be unreasonably withheld.

EGSDIT must issue its decision whether to approve public-private partnership projects proposed or requested by any public body within two months from the filing of a PPP application. When EGSDIT approves the PPP, it assumes all tendering procedures for the selection of a private partner.

EGSDIT may select its staff and work with independent advisers as may be freely resolved by DESDIT.

Tenders and awards are subject to applicable EU Procurement Directives for services and projects as specified and analyzed within the law. Equal treatment, transparency, proportionality, mutual recognition, protection of the public interest, protection of the interests of private partners, freedom of competition, and environment protection are predominant guidelines for the special provisions of the new PPP law.

Qualifications for award, negotiation procedures, open or closed award procedures, qualification criteria and disqualification reasons (financial adequacy, evaluation, qualifications and skills) are extensively covered by the text of the draft law, as well as extraordinary cases in which PPPs may be approved if not eligible for approval in general terms.

PPP agreements and their relevant schedules are the sole source of the contractual rights and obligations of a PPP, additionally regulated only by the Greek Civil Code when necessary. The minimum content of a PPP contract is also included in the draft law by reference to the matters that need to be addressed by such contracts.

Provisions for the financing, and the ability of a public body to contribute in equity or in kind, by rights of use of property or secondment of personnel are extensively stipulated.

All licences and permits required for the planning, construction, financing, operation and maintenance of PPP projects are deemed awarded if not rejected by the competent authority within two months from the date of submission of a complete file and application for that permit. In case of concerns of the Archaeological Service, which is obliged to proceed to all necessary action or approve alternative methods of deployment within a strict 60-day period provided by the draft law, all terms of a PPP contract are extended for a period equal to the delay, notwithstanding the private partner's right to be indemnified for the delay.

Environmental impact assessments are awarded and executed before the PPP awards. If the public body involved has not completed the appropriate procedures before the date of submission of binding offers from the private partners, this public body is obliged to hold the private partner not liable for any additional cost or loss of profit that may arise due to the non-calculation of related additional costs.

Appropriations related to PPP's are expedited, while adequate provisions are stipulated regarding the ranking of secured PPP creditors, or the listing of a PPP to the ASE or other stock exchanges, and the issue of bonds.

Tax breaks and special provisions regarding the tax and accounting breaks for a public body financial contribution are also provided for. If a public body contributes to a PPP equity, any such contribution is treated as a subsidy, and is exempt from VAT, income or other tax, or duty. Credited VAT is refunded within 90 days from the date of request, any delay bearing interest to the benefit of the private partner. Losses may be transferred for set-off with taxable profits for 10 subsequent years. Different methods of amortization are also made available to the investors.

Dispute resolution provides for arbitration, while Greek law is stipulated as the sole applicable law.

Any possible change that may be incorporated into the draft until enactment is only expected to make the bill friendlier to investors and provide a more suitable leverage for the privatization of the larger part of the economy that is still, directly or indirectly, controlled by central and local government, public bodies and their affiliates.

The opportunities

Given the size of the economy controlled or owned by central or local government and the role that PPPs are expected to play on the downsizing this ownership or control, from a business perspective the Greek economy is up for grabs. And it is offering major takeover projects. Greece is a member of the EU, with exemplary and uninterrupted political stability for more than 30 years. It was one of the first, although few, EU members to ratify, with a big parliamentary majority, the constitutional convention of the EU. It has excellent relations with its neighbouring countries and a business presence of about 3500 Greek businesses and 400 branches of Greek banks in the Balkans. Greece is obliged and resolved to shrink state control.

It is eager, resolved and obliged to dispose of non-core state stakes, projects and services. Anything that is not the subject of strict sovereign authority, such as the exercise of government, diplomacy, defence administration and justice, may be tendered, financed and controlled by the private sector.

The business opportunities include:

• a construction market that is hungry for robust, competitive and apt partners or international contractors for major projects in the region;
• concession agreements for roads, highways, tunnels, and bridges, with returns on equity much higher than 11%;
• PPPs for services rendered by, or through, the state and, in general, a private initiative takeover for a 51% of most of the 65% of Greek economy that is controlled today, directly or indirectly, by the state. Few countries today, if any, present privatization opportunities for at least 25% of their economies;
• PPPs that range from building and running schools, hospitals, central and local government buildings and centres, construction projects of various sizes, transport, waste management projects, renewable, hydraulic and combined cycle environmentally friendly energy projects, car parks, marinas, hotels and golf resorts, property development, museum and cultural sites development and marketing, betting, quality food processing and marketing, and quality services in general;
• agrotourism projects, which include the ability to develop entire villages into traditional leisure resorts. Such projects, for instance, will be tendered soon in Rethymnon/Crete, and Tzoumerka, by Agrotourism, the state SPV for regional development.
• land promising oil and gas that could be tendered by the state for the exploration and exploitation of hydrocarbons.

The full picture of reforms

The draft PPP bill is one of many measures planned and taken in the past few months to enhance investment in Greece. It aims to boost the economy, enhance investment and increase productivity and competitiveness, and is one of the tools intended to help make Greece a business hub in south-east Europe and the broader region.

The rest of the measures already taken or are about to be implemented are:

• reform of labour law, with more flexible terms regarding working hours, overtime, secondment of employees and part-time employment;
• transformation of the social security system;
• a new tax law that decreases corporate rates from 35% to 25% and tax on partnerships from 25% to 20% within a couple of years;
• an investment law that offers different investment incentives for regional investment, such as either co-financing of investments up to 55% of a total investment cost, or exemption from income tax for five years for the aggregate initial amount of an investment.
• zoning the entire Greek territory, including the full length of the coastline, for the installation and operation of renewable energy installations, tourism infrastructure and investment activity;
• the complete liberalization of the energy market regarding production of electricity and the sale of natural gas, achieving lower energy cost for business and creating a new business sector for the production and sale of energy;
• the abolition of any professional barriers left;
• the containment of bureaucracy through a revision of the existing licensing procedure, the containment of necessary paperwork, and the implementation of a new, simple and fast licensing procedure for numerous kinds of businesses. The formation of SAs with a share capital up to €300,000 can now be completed within five business days; a big privatization programme, including sale of a strategic state shareholding in the Public Power Corporation, the state gaming monopoly, banks, and industries. For example, the Greek state no longer owns shares in the largest Greek bank, the National Bank of Greece;
• a new regulatory framework that will assess, before enactment, the impact on productivity of any draft law.

These reforms, along with the obligations that the Greek government has assumed towards the EU Commission regarding decreasing budget deficit, privatization, and reducing debt could turn Greece to an attractive package for business.

It is no coincidence that shipping, an activity in which the state neither had, nor can have, a stake, has flourished to the extent that, today, shipping, along with tourism, is saving a highly deficient import-export balance sheet.

The cornerstone for the success of these policies is that the policies are not those of a single government. They cannot be reversed by another government two, six or 10 years from now. It is dictated, as all polls show, by a vast political and social coalition representing 87% of Greek citizens.

PPPs will not just improve public services. PPPs will not just keep assets off the government's balance sheet. They are expected to improve how projects are managed, they are expected to change the nature of government's role in funding projects, they will create new investment opportunities, provide higher quality services at a lower cost and develop new working methods while raising morale and performance along the workforce.

Greece may now become the investor's ideal second home.

About the author

Harris A D Ikonomopoulos Ikonomopoulos & Partners Harris A D Ikonomopoulos established Ikonomopoulos & Partners law offices in 1993. The firm offers legal advice to Greek and foreign clients who operate, or are planning to do business in Greece. The firm's main practice areas are foreign investment, energy, upstream telecommunications, real estate development, white-collar crime and the spectrum of business and commercial law. Ikonomopoulos & Partners worked for the Greek parliament opposition on the concession agreement for the design, construction, financing, maintenance and operation of the Rion-Antirion Bridge (1996) and the on concession agreement for the design, construction, financing and operation of the free highway between Eleysina, Stayros and Spata Airport and the West Peripheral Avenue of Imitos (Attiki Odos). Ikonomopoulos graduated from the University of Athens Law School in 1988, and undertook EU Commission training in 1990. He was admitted to the Athens Bar in 1991. He is a practising attorney before the Supreme Court and the Council of State. He was secretary of the Centre of Political Research and Information from 1990 to 1995. In that time he was engaged in the review of and recommendations for establishing a tough institutional framework for financing political parties' and candidates' campaigns. He was a special advisor to the Secretary General of Research and Technology, Ministry of Development from 1992 to 1993. Ikonomopoulos is a speaker and moderator at several Greek and international conferences, and is the author of many articles on legal issues and community matters. He is fluent in Greek, English and French, and fair in Italian.