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After the failure of Greek gas company DEPA’s sale, the government has been left with the only hope of continuing the privatization programme through DESFA, which is the gas transmission system operator in the country.

The first round of the tender is over and the Azerbaijani Socar was the only company that submitted an offer for the purchase of the Greek gas transmission system operator.

Earlier this month, the other two candidates for DESFA’s purchase, the Czech PPF-TERNA and Russian Sintez, had withdrawn from the tender thus leaving the company from Azerbaijan without real rivals as regards this privatization deal.

"The bidding process for the privatization of DESFA has been completed and Socar has started negotiations with the Greek government," Rovnag Abdullayev, president of the company from Azerbaijan, told reporters late last week. "This means that the whole natural gas transmission system in Greece will  soon be in our hands," he said, cited by the online edition capital.gr.

According to previously disclosed information, the lowest price at which the government is ready to sell the company is 66% of its total value. The financial data of December 2012 show that DESFA’s total capital amounts to 779 million euro which means that the lowest acceptable price for the company, which has a net profit of about 80 million euro per year, is 514 million euro.

Greek media report, relying on anonymous sources, that the offer of the company from Azerbaijan ranges from 390 million euro to 430 million euro. The price it offers is significantly lower than the minimum privatization threshold which is putting Greece in an awkward position. This price will be adequate only if the total capital of the company is re-evaluated and its value is set at about 600 million euro.

Such a reverence to the company from Azerbaijan is acceptable only if the Trans Adriatic Pipeline (TAP) wins the competition to transport Azeri gas to Europe over the alternative Nabucco project. According to experts from the energy sector, if Socar acquires DESFA at the lower price this will be of mutual benefit only if the TAP is preferred on 28 June this year.

It is expected that the picture will be clearer on 23 June when the government will decide whether Socar’s offer is acceptable or not. If the government does not accept the lower price, this could prove fatal to Greece’s privatization programme and to the economic stability of the country in particular.

The problems related to the privatization programme will pose serious difficulties in achieving the objectives of the Memorandum of financial aid that the country signed with the foreign lenders at the end of last year. Under the plan, one billion euro should have been brought to the state treasury by the third quarter of the year and the aim by the end of 2013 is for the state to have collected 2.5 billion euro from the sales of state assets.

Moody's credit rating agency has stated that the loss of revenue due to the failure of DEPA and DESFA’s sale will open in the budget a financial gap amounting to about 1.5 billion euro. It must be offset through additional fiscal consolidation measures or the country should be put into the default mode again (credit negative) as reported by the on-line edition moneyonline.gr.

According to financial analysts from the agency, the fragile political environment does not allow the government to further reduce public sector wages which have already lost 35% of their value since the beginning of the crisis, nor does it allow it to further cut pensions. This is compromising the objective of the government to report a balanced primary budget this year as set out in the rescue programme.

At the same time, it seems that the privatization of the state lottery OPAP could also fail. Several days before the completion of the sale, it turns out that, under the contract, the new owner Emma Delta will not be able to take any decisions on OPAP’s fate without the consent of at least one of the minority shareholders, namely Intralot and Scientific Games.

At the beginning of the year, Emma Delta had submitted the highest bid for the purchase of OPAP. It offered 652 million euro against which it should have obtained the majority stake of the company, which is 67%. Emma Delta has received seven of the eleven seats in the board but without the right to appoint the chief executive of the company. However, in accordance with the rules set out in the sales contract, the new majority owner will be able to take decisions on the management of the company only if it receives the support of at least eight out of the eleven votes in the board.

This means that the two companies, Intralot and Scientific Games, each of which holds 16.5% of OPAP, will be able to block decisions on who will be the chief executive of the company, the range of services the company will provide, the suppliers of technological equipment, the agreements it will make and with whom.

Emma Delta will not agree to buy the majority stake of the company which is a monopolist in the gambling industry without a major voice in the decision-making. If the government does not correct the sales contract, there is a real risk that the specific privatization deal may fail thus causing the collapse of the entire privatization programme.