Greek Economy & Markets - Issue 5 by Vassilios Loukanidis

5th issue - October 2007

(-1.7*)

Greek Economy & Markets

Targets set in new agenda Foreign investors take positions Ship owners upgrade fleets PPP達s move ahead

5th issue - October 2007

Contents Cover Story The 2008 draft budget estimates another year of strong economic growth as the Finance Ministry takes steps to reduce the budget deficit. After the re-election of the conservative government in September, the economic policy being formed includes steps on energy, telecommunica(pages 20 – 29) tions and structural reforms.

Themes Venturing in Greece, TANEO’s strong comeback TANEO expands scope and aims at helping revitalize market. (page 10) Shipowners sail into changing global conditions Greek shipowners invest in upgrading fleets (pages 11 – 13) Public-Private Partnerships (PPP) Ministerial committee gives green light to 24 projects worth 31 billion euros. PPPs in waste management projects grow. (pages 39 – 46)

Markets Investors waiting for privatizations after the elections (page 18) Foreign funds eye Greek companies Greek Economy & Markets 07

(page 30)

A publication of the “Agora Ideon” forum.

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Greek Economy & Markets 07 is also distributed along with the International Herald Tribune (IHT) and Kathimerini English Edition newspapers in Greece, Cyprus and Albania. The content of the magazine does not involve the reporting or the editorial departments of the IHT.

Leading European players take positions in Greece (page 34 – 36) Perennial underperformer shows growth in foreign investments (page 37 - 38)

Facts & figures

The profile of the Greek economy

Latest Statistical Data Period

Value

Consumer Price Index (CPI)1

September 07/September 06

2.9

Harmonized Index of Consumer Prices (HICP)1

September 07/September 06

2.9

Producer Price Index in Industry1

August 07/August 06

1.2

Industrial Production Index (excluding construction)3

August 07/August 06

-0.4

July 07/July 06

5.5

Gross Domestic Product (provisional data)1

Q2 2007

4.1

Unemployment Rate2

Q2 2007

8.1

2001

10,964,020

July 07/July 06

-9.6

Turnover Index in Retail Trade1

Population (2001 Census)4 Building Activity)3 1

Annual rate of Change, 2Rate, 3Periodical rate of change, 4Value

In September, the Consumer Price Index increased by 2.9 percent in comparison to September 2006. The unemployment rate decreased from 9.1 percent in the first quarter of 2007 to 8.1 percent in the second quarter. Furthermore, in the first quarter of 2007 the gross domestic product expanded by 4.6 percent whereas in the second quarter the growth rate decreased to 4.1 percent. Also, the total value of exports in the first half of 2006 was 8.1 billion euros and in the first half of 2007 increased to 8.5 billion euros. This is in line with the improvement of external competitiveness of the Greek economy, which has been under observation during recent years and improved its standing by eight positions within the ranking of Institute for Management Development in 2005.

GREECE: Your strategic partner in Southeast Europe

Key geopolitical position ¸ Gateway to the fast-growing market of Southeast Europe with 140 million consumers. ¸ Access to a broad business network of more than 3,000 Greek firms operating in the region.

¸ Energy hub in the East-West energy corridor with a new transbalkan pipeline connecting Greece with the Black Sea.

¸ Banking hub with 2,300 branches of Greek banks operating in Southeast Europe.

¸ Maritime and shipping hub as Greece has the largest fleet in Europe and the third largest in the world. Major transhipment center for the East Mediterranean and Southeast Europe with the upgrading and privatization of the Greek ports underway.

¸ One of the most highly skilled labor forces and some of the most renowned universities and research centers in the region.

Dynamic economy

¸ Strong economic growth — among the highest in the eurozone. Over the last three years the Greek economy has grown at an average rate of 4%. ¸ International orientation of the economy. Exports rose twice as fast as nominal GDP presenting a 34.4% increase in the last three years, while outward FDI increased by 40.9% in 2004/5 and 184% in 2005/6. ¸ Job creation and falling unemployment. Unemployment is decreasing steadily. From 11.3% in March 2004, it fell to 7.8% in July 2007. More than 200,000 new jobs have been created over the last three years.

¸ Increasing investment. Total investment in Greece went up by 12.7% in 2006 in comparison with 2005. In 2006, foreign direct investment net value reached 4.3 billion euros (2% of GDP), nine times higher than 2005. ¸ Structural reforms paving the way for great business opportunities: ñ Competitive tax regime with corporate tax rates reduced from 35% to 25%. ñ The Investment Incentives Law led to 8.8 billion euros of new investment in the last two years. ñ The new framework for Public-Private Partnerships facilitates the construction of public infrastructure. Twenty-four PPP projects of 3.1 billion euros have already been approved and will start in 2008. ñ An extensive privatizations agenda accounting for 6.2 billion euros has already stimulated competition in the banking sector and continues to present significant investment opportunities in various sectors. ñ The flourishing tourism, energy and services sectors present significant investment opportunities.

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¸ Stable macroeconomic and favorable business environment as a member of the eurozone. Public finances are back on track (the deficit fell from 8% of GDP in 2004 to 2.7% in 2006).Inflation rates are decelerating (3.5% in 2005, 3.2% in 2006, 2.9% in Sept 2007). Labor productivity is continuously increasing (72% of the EU-15 average in 2000, 79% in 2004). In addition to the high quality of the greek workforce, labor costs are among the lowest within the EU-15.

Facts & figures

Deficit seen sliding to 1.7 pct General government financial balance (deficit/GDP ratio)

Finance Ministry

2005

2006

2007

2008

-5.6

-2.7

-2.5

(-1.7*)

-5.5

-2.6

-2.4

-2.7

-4.5

-2.3

-1.9

-2.2

draft budget European Commission (Public Finance in EMU 2007) OECD (Economic Outlook 2007)

According to the recent speech of Economy and Finance Minister Giorgos Alogoskoufis to the World Bank and International Monetary Fund, the public deficit to GDP ratio is forecast at 2.5 percent in 2007 and 1.7 percent in 2008. Also, the fiscal consolidation is not at odds with the development of the Greek economy because the government has undertaken supply side reforms which have improved the reallocation of recourses and enhanced private investments. According to the European Commission (Public Finance in EMU 2007) the Greek deficit to GDP ratio is forecast at 2.4 percent and 2.7 percent in 2007 and 2008 respectively. Additionally, according to the OECD (Economic Outlook 2007) the deficit of the general government is seen at 1.9 percent of GDP in 2007 and 2.2 percent in 2008.

Authorized and regulated by the Hellenic Capital Market Committee (HCMC No 3/88/1991) Registered in Greece (No. 24829/06/B/91/50), Ministry of Development. Registered office as above.

Products and services ñ

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A complete range of brokerage services, research and investment consultancy on stocks listed on the Athens Stock Exchange. Underwriting and financial Advisory Services - Mergers & Acquisitions, IPOs, rights issues, private placements. Custodian services. Investment advisory services on stock and derivative products to institutional and private investors. Equity and market research. Fundamental and technical analysis of listed equities. Brokerage services and proprietary trading on derivative products of the Athens Derivatives Exchange

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APPA Securities SA is a member of the Athens Stock Exchange and the Athens Derivatives Exchange. Founded in 1991, it constitutes the continuation of the brokerage house of the Komninos family, whose longstanding presence in the market goes back to 1921. At the beginning of 1996 the company was reorganized under a new management team, headed by chairman and major shareholder Spiros Bellos. The new management's main objectives were, apart from the upgrading the company's EDP systems, to incorporate capable and experienced executives from the stock and banking markets, in order to offer a complete range of brokerage services of high quality to foreign and domestic institutional and private investors. Under the new management the company has achieved an impressive increase of its market share in the past three years, thus joining the top ranks of Greek brokerage firms. The leading position and the recognition it has received are a result of excellent brokerage and corporate services and successful investment proposals. In November 1997, the company's status was upgraded by the Capital Markets Committee to an Investment Services Company (EPEY), which enables KAPPA Securities SA to provide a broader range of investment services, such as underwriting and asset management. In mid-1999 KAPPA Securities SA became a member of the Athens Derivatives Exchange (ADEX) as a market maker and it was one of the first companies to become active in derivative products.

MEMBER OF THE ATHENS EXCHANGE SECURITIES MARKET / DERIVATIVES MARKET 15 Valaoritou St, 106 71 Athens, Greece Tel. +30-210.367.8600, Fax +30-210.364.1002

Themes TANEO is designed to invest jointly with private investors in order to form new venture capital schemes that will finance Greek SMEs. For this purpose and with the financial support of the Greek government, 150 million euros in total has been raised.

Venturing in Greece, TANEO’s strong comeback things are finally looking up for the New Economy Development Fund (TANEO). After three years of idle performance, its operations are beginning to take off. A year ago the management of the company claimed that during 2007 the fund should be completely restructured with the approval of the European Union to extend its investment period and then use its uncommitted resources. Another main goal was to get approval from the Greek authorities and the EU in order to expand TANEO’s scope and transform it from a vehicle for innovative investments to the first venture capital fund for SME funds. Finally, it was envisioned that by accomplishing all the aforementioned initiatives, it could be possible for the management to commit all the unused resources to funding equity participations. After all the previous lack of interest in collaboration in previous years, reality has certainly and pleasingly surpassed expectations. In an interview for a survey on the Greek venture capital market at the beginning of this year, we expressed the opinion that we felt quite confident. Now we may claim with certainty that our confidence is valid. November 5 is D-Day for the relaunching of TANEO in the venture capital market. However, this is no longer our sole objective. TANEO is designed to invest jointly with private investors in order to form new venture capital schemes that will finance Greek SMEs. For this purpose and with the financial support of the Greek government, a total 150 million euros was raised. However, after all these years, out of 150 million euros, more than 100 million (approximately 70 percent) is still uncommitted. Originally it was said that this was inevitable due to the structural characteristics of the Greek venture capital market. It was thought that it would be almost impossible to attract matching funds from the private sector and accomplish TANEO’s original task. Currently, though, 160 million euros solely from the private sector are queuing for TANEO’s co-funding. Furthermore, some among the most involved prestigious professionals from the venture capital sector used to claim that there are not enough experienced and dedicated fund managers adequately competent to lead new venture capital funds to success. TANEO’s management, to a certain extent, almost believed them, but fortunately reality disproved us all. Today, more than 25 dedicated practitioners with valid track records have formed six promising management teams. These people marketed their experience to TANEO and to other private investors (institu-

Nikolas Haritakis Vice President & CEO The New Economy Develoment Fund SA (TANEO) www.taneo.gr

tions, wealthy people, etc) and signed on for our uncommitted resources. Among these private investors are large international and domestic banks that eagerly accepted investing in collaboration with TANEO for those talented and young managers. By the end of the current year, those management teams are expected to feed private equity funding with an additional 200 millon euros, doubling the number of venture capital firms currently in operation. Taking the above into consideration, it is obvious that the capital structure and therefore the landscape for Greek small and medium-sized enterprises will not be the same. The fact that almost 60 million euros come from foreign investors is indeed challenging. However, for us, more important is the aggressiveness and the spirit that the new management teams will bring to the market. Inevitably, TANEO will expand, mature and gain the trust of industry. Today, market practitioners are exposed to a better environment compared to previous years and we may say with confidence that we are ready to support initiatives in a greek market full of opportunities. Our goal for 2007 was mainly to revitalize the existing market. That is why we are using our strength to design market-driven, differentiated and mostly effective financial vehicles such as real estate development funds, health and industrial funds, green economy funds etc. Attracting and allocating financial resources is only a tiny part of our mission. It is not by coincidence that the current developments in the Athens Stock Exchange related to the launch of the ‘Alternative Market’ support our initiative with good and valuable foundations. The fact that speaks for itself is that three out five companies waiting to be the first listed in the Alternative Market belong to TANEO’s portfolio. What will TANEO do next? Monitor, publicize, expand. Those are the key terms for next year’s objectives. By ‘monitor,’ we mean an environment closely facilitated by our experience and scope. Step by step, TANEO’s role is becoming more and more organic in the development of the venture capital market in Greece. Finally, in regards to expansion, the market is without doubt still lacking in terms of financial availability of resources. Nevertheless, and as we see it, restructuring an underdeveloped market is an ongoing process. The first major steps, however, have already been taken...

Greek shipowners are taking steps toward the improvement of their fleet quality and capacity. The sector is playing an increasing role in the domestic economy, contributing more than 13 billion euros in sea transport receipts.

Shipowners sail into changing global market conditions reek shipowners are preparing for changing global conditions in international trade by upgrading their vessels and improving the capacity of their fleet in a sector that is playing an increasingly important role in the domestic economy. Bank of Greece, the country’s central bank, pointed out in its 2007 monetary report that receipts from shipping transport revenues have managed to continue increasing despite a drop in international freight rates. ‘It is important that in 2007 the increase in revenues from sea transport is expected to continue, even if at a slower rate, mainly due to the increase

By Stelios Bouras

in the transport capacity of Greek-owned ships,’ the report highlighted. ‘This development is attributed to the 19.6 percent increase in the deadweight capacity of Greekowned ships and the quality upgrade of vessels due to a reduction in the average age.’ Until recently, a large problem of the Greek fleet was its increasing age, mainly due to the business strategy of Greek shipowners, who preferred highly leveraged inexpensive old ships that could be operated at low cost. However, this situation has reversed in recent years mainly as a result of new environmental legislation, especially concerning oil transportation, and heightened

Themes

world competition in this segment. In addition, strong competition between Chinese, South Korean and Japanese shipyards has led to a significant decrease in shipbuilding costs. Greek shipowners have been especially active in shipbuilding operations recently. Earlier this year, official data showed that orders for new vessels of Greek interests stood at 612 ships of total capacity 47.9 million deadweight tons (dwt), up an incredible 86 percent on 2006 figures. Most of the 612 vessels are expected to sail under the Greek flag, 340 of them tankers, representing 19.8 percent of total global newbuilt vessel capacity. Data show that the average age of ships is constantly improving — i.e. dropping — with the age of foreign-flagged Greek-owned vessels in 2006 falling to 14.3 years from 15.3 years in 2005. With regard to Greek-flagged ships, the average age dropped to 11.1 years from 11.7 years in 2005. The Greek commercial fleet’s capacity expanded by 4,014,042 register tons during the first five months of this year compared to December 2006, according to data put together by the National Statistics Service (NSS). In May, the Greek fleet numbered 2,025 vessels, with a total capacity of 35,609,983 register tons against 31,595,941 in December 2006. NSS data also show that of the 2,025 ships, 630 are dry-bulk carriers and 911 are passenger carriers and other vessels. This growth is attributed to the measures the Merchant Marine Ministry recently took to boost the competitiveness of the Greek register. On a global scale, the Greek-owned fleet remains the largest in the world, and this year witnessed a reversal in the trend of the last few years, of the slow decrease of its percentage in the world fleet.

Robust growth Shipping is one of the most vibrant sectors of the Greek economy, contributing substantially to the economy’s growth. It is Greece’s only sector which has a leading position in the international market in what is considered to be a highly competitive business. Greece’s improved ties with countries such as China and Russia have helped contribute to growth in the sector as they are also nations that require the sea transport services of Greek shipowners. Union of Greek Shipowners (UGS) President Nikos Efthymiou recently described the industry’s current trading environment as enjoying ‘an unprecedented climate of euphoria’ and called for further investments in staff training to help maintain the ‘positive momentum in the future. In this competitive market, Greek shipowners control 16 percent of the world’s seagoing fleet and 21.5 percent of the world’s tanker and dry-cargo fleet. As a result of its large market share, the sector generates more than 4.5 percent of the country’s GDP and employs more than 160,000 individuals. The sector also generates significant foreign exchange, sufficient to cover 30.2 percent of the country’s trade deficit in 2005, compared with net

tourism receipts and EU net transfers that reached 26.7 percent and 11.6 percent respectively of the trade deficit. Bank of Greece data show that revenues from ship transport services in 2006 reached 13.2 billion euros, up 2.53 percent from the previous year, when the figure stood at 12.9 billion euros. Revenue growth rates have been deteriorating, as shipping transport revenues grew by annual amounts of 38.4 percent and 4.42 percent in 2004 and 2005 respectively. ‘Given that the largest part of revenues come from the provision of sea transport to meet the needs of global transport, net earnings from Greek transport services, which are almost exclusively in shipping, represent three-quarters of net revenues from transport services in the EU,’ the central bank said. The number of shipping companies based and active in Greece has grown by 4.7 percent in 2007

compared with last year, reaching 725 from 693 in 2006, according to recent research, putting an end to the decline that started in 1998. Back then there were 926 companies in Greece, but they declined to just 690 in 2005 due to the lack of competitiveness at small shipping firms who usually manage older vessels. ‘The Merchant Marine Ministry measures in 2006 aimed at increasing the competitiveness of the national register had a positive impact, stopping the flight of ships from the Greek flag, while their mass repatriation has also begun,’ according to UGS sources. ‘This is why most of the 612 vessels ordered will raise the Greek flag.’ Small shipping companies — those owning up to eight vessels –– are proving to be the backbone of the industry in Greece as they account for 82.3 percent of all Greek shipping companies based in this country. One of the qualitative factors reflecting change in the shipping industry is the changing age of Greek ships. The average age of ships was reduced from 15.3 years in 2005 to 14.3 years in 2006, according to data included in the 2006-2007 annual report compiled by the Greek Shipowners’ Association (EEE). The report is aimed at providing information on the fundamentals and prospects of shipping. In the period from January 2001 to May 2007, there was a 2.9 percent rise in ship numbers and an increase of 30.3 percent in total capacity. Drybulkers have increased in number by 0.8 percent and in capacity by 19.8 percent. Tanker numbers have increased by 5.9 percent, with their capacity growing by 40 percent. Passenger carriers and other ships increased in number by 2.9 percent and their capacity rose by 21.9 percent. ‘Investment activity in the shipping sector is expected to slow considerably in the following years, on the back of accelerating shipbuilding prices, as most shipyards are already operating at maximum capacity and the modernization in world economic growth rate coupled with large accumulations of new tonnage in the same period,’ said an Athens economist.

Greek flag The fleet flying the Greek flag grew by 8 percent in the first few months of the year as the 46 vessels added to the register raised the total capacity to 33,980,782 registered tons, from 31,595,941 tons on December 31, 2006. The increase in the number of ships bearing the Greek flag is the result of positive moves by the shipping community in response to the Merchant Marine Ministry’s measures to strengthen the competitiveness of the country’s register. Since the beginning of 2007, 46 ships with a total capacity of 2,581,088 register tons and an average age of 6.6 years have joined the Greek register. Of these ships, 21 are new constructions with an average age of 0.3 years and a capacity of 1,576,734 tons. The new entries on the register consist of 23 dry-cargo ships, 21 tankers

and two chemical product and liquid natural gas (LNG) carriers. ‘We believe that with the measures taken we will attract more ships to the Greek flag, rendering it even stronger,’ ministry sources say. The ministry recently took a significant leap forward by overcoming certain impediments of the past. The two measures it introduced have clearly begun bearing fruit to the benefit of the Greek register. First, it decided to proceed with a more flexible approach to the composition of crews for oceangoing vessels. It ruled that the restriction on the number of Greeks should be six, including all officers and crew. Second, the social insurance contributions of Greek seamen serving as low-level crew are to be subsidized. However, if a shipping company decides to have more than six Greek seamen and they are low-level crew, then the state, as an incentive, will subsidize the contributions, not only of seamen but also of shipowners. Cypriot-based Ocean Tankers Holdings is an example of a fast-growing company that has multiplied its fleet by five times since December last year. It said recently it has completed the acquisition of a fleet of eight tankers for $231.5 million as part of its broader expansion plans. The delivery of eight double-hull and ice-class A tankers is expected to be completed by April next year and will be financed through a loan with ABN Amro Bank, an upcoming rights issue and a $12 million (8.38-million-euro) loan from major shareholder Michalis Ioannides. The acquisition will mean the company has multiplied its fleet size fivefold since December 2006, raising the total number of its tankers to 16 from three and upping the total capacity to 200,000 tons from 20,000 tons. ‘It is worth noting that the acquisition of the fleet includes a long-term time charter with oil company Lucoil for seven years plus three years with a daily net revenue per ship of $15,300 (10,696 euros),’ the company said. ‘The company’s revenues are expected to reach $60 million (41.9 million euros) on an annual basis.’ The Cypriot-based shipper is one of the largest companies in the world that provide double-hull tankers.

The right infrastructure Whether the Greek economy can take full advantage of Greek shipping’s premier position in the industry depends largely on its taking advantage of synergies from the development of Southeastern Europe, including efficient links with rail and road transport. Currently, the Greek share of freight handled in European ports is 4.6 percent, with 40 percent attributed to trans-shipment, which suggests a relatively small share of total outward goods. To achieve economies of scale, the ports of Piraeus and Thessaloniki must improve their links with rail and air transportation, with the former highly underutilized in Greece. In fact, the freight volume per kilometer of rail networks is 0.2 million tons in Greece versus an EU average of 1.8 million tons. The current restructuring plans for both Greek ports, involving improved capacity and links to rail and road trans-

port are supported by the European Union’s Third Community Support Framework. The EU projects provide an opportunity to improve scale by attracting trade destined for SE Europe, which in sufficient size could make Greece a regional trade hub for the region. In particular, the five-year investment plan for the port of Piraeus (2006-2010) amounts to 215 million euros, of which more than half concerns the improvement of the production capacity of the container terminal by 60 percent. Economies of scope will follow economies of scale, attracting business such as shipbroking,

legal services and marine insurance, thus creating a maritime cluster. Along with the subsequent higher employment in shipping-related business, the decline in Greek seamen, and officers in particular, could also be reversed. More specifically, since Greece has long lost its competitive advantage in low-cost crew, it is essential to focus on the high-level training of Greek officers. In fact, over the past couple of decades, there has been a sharp decline in well-trained seamen, particularly officers. As the worldwide shortage of officers has reached 16,000 and is projected to reach 46,000 officers by 2010, the potential benefits from investment in seamen’s training are clear. ‘Greek shipping needs suitably trained seamen. Apart from offering their services at sea, they can continue to work in the business by working from the land,’ said Efthymiou. ‘Despite recent attempts to upgrade training in Greece, more needs to be done in order to secure the right number of competent staff members being created with the right level of education that can meet the needs and opportunities of modern fleets.’ Data show that shipping is by far the largest employer from the traditional maritime sectors, making up about 16 percent of the total cluster of employment with nearly 42,000 jobs on the sea and shore. Meanwhile, coastal tourism generates more employment than all the other parts of the maritime sector put together. The European Commission is also taking initiatives in a bid to increase the transportation of goods by sea rather than by road. Last week it announced sweeping changes in sea cargo transport in an attempt to introduce the free movement of goods to the sector that already exists in land transport. In the European Union’s large domestic market, people and goods can move (more or less) freely; however, there still remains one area of trade in Europe that has still to open up — ports. Cargoes transported by sea between European ports are still subject to all the customs, police, health and veterinary checks that apply to goods transported to non-EU states. The European Commission presented a plan for the cessation of these controls as Transport Commissioner Jacques Barrot pointed out that progress in technology allows for closer monitoring of ships and their journeys. The Commission will submit related proposals for approval next year. There are hopes that a quick approval by governments will pave the way for the maximization of sea transport within the EU to the benefit of the economy and the environment, which will be less burdened by the trucks that currently cross Europe daily. The role the Greek shipping sector plays in the economy is large and appears to be continuously growing. It is the only market in which Greece can make a decisive impact on the industry on a global scale. Signs, however, that Greek ship companies are reinvesting their funds in acquiring new vessels is a positive development as the economic gains from these operations are being spread into other industries.

NBG GROUP An effective partner in project finance

ational Bank of Greece heads the strongest financial group in the country and boasts a dynamic profile internationally, particularly in Southeastern Europe and the Eastern Mediterranean.

Today, after recent acquisitions, the Group is present in 12 countries and owns eight banks and 65 companies in the financial services sector. The retail network comprises 561 branches in Greece and 939 overseas, and constitutes the largest Greek network for the distribution of financial products internationally. NBG was the only Greek firm included in the FT Global 500 (list of the 500 largest firms in the world), recently published in the Financial Times.

for some high-profile infrastructure projects in Greece and abroad. The Group currently maintains a leading position in project finance and Public-Private Partnerships among Greek financial institutions. NBG is in 25th position in the ‘Global Advisory Mandates won in 2006’ League Table and in 23rd position in the ‘Europe, Middle East & Africa (EMEA) Advisory Mandates won in 2005’ League Table according to the Project Finance International Magazine.

The Group currently maintains a leading position in project finance and publicprivate partnerships among Greek financial institutions.

NBG Group provides a full range of financial products and services to corporate clients, including corporate lending, investment banking services, insurance, asset management, brokerage, leasing and factoring. In addition, the Group has been mandated as arranger and underwriter

The Bank’s services in this field are provided by a team of experienced and highly qualified professionals who have actively participated in the evolution of Public-Private Partnership / Private Finance Initiative (PPP/PFI) practice in Greece. The involvement of NBG Group in project finance dates back to 1994, when NBG was assigned to advise the Ministry of National Economy on the evaluation of the offers that had been submitted for

the design, financing, construction and operation of the new International Airport in Spata. The NBG team continued successfully advising the ministry during the negotiations, the signing of the concession agreement, the financial close and finally until the commencement of the airport’s operation in March 2001. To date, three more large infrastructure projects have already been completed on a BOT basis in Greece, namely the Rio-Antirrio Bridge, the ElefsinaStavros-Spata Airport Highway & Western Hymettus Peripheral Highways (ESSI Highway or Athens Ring Road) and the Thessaloniki Submerged Tunnel. In all these projects, the NBG team has provided its advisory expertise to the Ministry of Environment, Physical Planning and Public Works throughout the whole process, from the invitation for tenders and the signing of the concession agreements, to their implementation and the operation of the projects. Currently, the NBG team is advising the Greek state on the Greek Highways concession Project (six Concession schemes), which is one of the largest highway projects in Europe, to be implemented on a concession basis, with a total cost exceeding 8 billion euros. Namely these schemes are:

(Act 3389/2005). The new law is expected to facilitate significantly the process for the implementation of projects on a PPP basis and maximize efficiency, thus strengthening the incentives of all parties involved. NBG has been appointed jointly with Grant Thornton as Financial Adviser, along with its legal and technical partners, to the first two projects that are putting the law into practice after its enactment last year and involve the design, construction, finance and operation of 27 schools in the Attica district and six buildings of the University of the Peloponnese.

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concession agreements and other legal documents; Supervision and coordination of the financial closing; Support of the contracting authority during the implementation of the project.

NBG takes a complete view in project finance, providing clients with well-integrated services both in project advice and financing. Along with our advisory services, we provide specialized financing solutions for PPP/PFI projects at the stage of structuring a financial deal as well as at the stage of arranging, participating or managing medium- to long-term syndicated loans. This specialized package of products is supplemented by the full spectrum of an international bank, offering our corporate clients not only standard products, but also capital and international banking services. NBG’s key focus areas regarding involvement in Project Financing are Infrastructure Projects, as well as Energy Projects and primary market of industry projects. The Bank has participated in the financing of all the projects that have been implemented in Greece on a PPP basis, as well as many other important projects in Greece and abroad (Romania, Turkey, Kuwait, Germany, the USA and the United Kingdom). Internationally, the financing services are facilitated by NBG’s dense network of units and branches in foreign countries, mainly in Southeastern Europe.

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Northwestern Axis (Ionia Odos) & PATHE: Athens - Maliakos / Schimatari - Halkis PATHE: Maliakos - Kleidi PATHE: Athens - Corinth - Patras & Southwestern Axis: Patras - Pyrgos - Tsakona Corinth - Tripolis - Kalamata Central Greece Highway Urban Projects in Attica Region

The integrated services offered by the Project Finance team include: ñ ñ ñ ñ

Moreover, NBG has contributed via its experience and know-how to the evolution of the new legal framework for Public-Private Partnerships in Greece

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Formulation of preliminary studies and economic models; Review and assessment of the bankability of the project; Preparation of tender documents and planning of project implementation; Assistance in the preparation of offers for submission in tenders; Arrangement of financing; Negotiation of the economic terms included in

NBG Group, capitalizing on its unique knowhow, efficiency and financial strength, will seek to maintain its position as a partner of choice for PPP and PFI projects, and will further assist in creating a context for steady growth in this field in Greece and abroad, especially in the Southeastern Europe region.

Contact: C. Stavridis ñ tel + 30-210.8897.060 ñ e-mail: stavridis.eteba@nbg.gr ñ fax + 30-210.8897.100 ñ www.nbg.gr

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NBG Group, capitalizing on its unique know-how, expertise and efficiency, will seek to maintain its position as a partner of choice for PPP and PFI projects, and will further assist in creating a context for steady growth in this field in Greece and abroad, especially in the Southeastern Europe region.

Themes Private consumption and investments are seen keeping the GDP expansion rate in 2007 above the 4 percent mark, but international competitiveness is eroding as wage growth beats inflation rates and productivity increases.

The Greek economy at the end of 2007: Developments and prospects

DP revision: Eurostat, the European Union’s statistical body, recently approved the revision of Greece’s GDP, up by 9.6 percent using 2000 as the base year. This means that 2007 nominal GDP will now reach 230 billion euros from the initial 209.3 billion, confirming Greece’s dynamic 4.1 percent 11-year growth trend. It should be noted that improved, more accurate economic surveys were behind the GDP revision and not the inclusion of Greece’s rather substantial shadow economy. Previous data, covering business activity, employment, the number of economic units, profit margins as well as numerous other variables, were based on older, outdated 1988 economic surveys and methodologies which were incapable of accurately measuring current economic activity. Recorded GDP could be even higher with the inclusion of the unofficial or shadow economy which arises from the efforts of various economic entities and individuals in Greece to a) avoid taxes and social insurance contributions, b) sidestep strict (on paper) laws on housing

G Demetrios Maroulis Manager, Economic Research Division, Alpha Bank www.alpha.gr

planning, development and land use and c) take advantage of profitable shadow market opportunities provided by the state monopolies which remain in the Greek education, health and social security sectors. The OECD has estimated the size of the shadow economy at 28 percent of GDP between 2002-03 — the highest among all the OECD countries. Moreover, there are strong indications (e.g. a rate of growth of net current budget revenues during the 2002-07 period, which is 2.7 percentage points lower than the rate of growth of nominal GDP) that in the last five years the shadow economy has grown at a rate in excess of the official GDP growth rate. Current developments: The Greek economy continues to maintain its growth momentum, with GDP rising 4.4 percent year-on-year in H107, compared with the 4.2 percent y-o-y growth recorded in H106 and 4.3 percent full-year growth in 2006. The main growth drivers remain total investment and exports of goods and services, with the former growing by 10.4 percent y-o-y (13.3 percent H106) and the latter by

9.2 percent (2.6 percent H106). Consumption growth remains healthy at 2.9 percent y-o-y (3.6 percent H106) and is expected to remain above this rate in the coming quarters. In fact, government consumption is expected to accelerate in H207 due to the additional expenditure which arose following this past summer’s devastating forest fires. On the other hand, the growth of imports remains high at 9.8 percent y-o-y in H107, all the more concerning given the already substantial increase of 9.3 percent y-o-y in H106, negating all positive benefits conferred by the robust growth in exports and ultimately subtracting 1.2pps from Greece’s headline GDP growth in first half of 2007 (-1.98 pps in 2006). Growth prospects: On the basis of the above developments and economic indicators published before the end of October 2007, we expect GDP growth to once again exceed 4.0 percent in 2007 and 3.8 percent in 2008, following a 4.3 percent growth rate in 2006. Private consumption is expected to maintain the 3.0 percent growth rate, supported by the sustained high growth of both consumer lending (+24.1 percent at end-July 2007) and disposable incomes (expected to grow at 7.4 percent and 7.3 percent in nominal terms in 2007 and 2008). On the investment front, the following developments point to a high growth rate in the current and the following years: a) public investment which is set to remain one of the main drivers of growth in 2007-08 as the government accelerates absorption of EU funds in the final two years of the Community Support Framework III implementation period; b) numerous key infrastructure projects (budgeted at 3.6 billion euros) which have already been awarded to consortia of construction companies via public-private partnership arrangements (PPPs); c) the posi-

tive business investment outlook which remains supported by the healthy increase in profits of both listed and non-listed firms, as well as by the good performance of the Greek stock exchange enabling listed firms to improve their capital base. Business investment also remains supported by grants received under the investment incentives law. Furthermore, in the housing sector d) is the negative growth in the volume of building permits issued in January-July 2007 which is expected to bring about the deceleration of residential investment growth to around 2.0 percent in 2007 and 0.0 percent in 2008, following the 32 percent surge in 2006. In fact, residential investment remains supported, notwithstanding some important setbacks in some short time periods affected by government policies, by the ever-present high demand for housing due to the continued high growth of mortgage lending (at relatively low interest rates) and the high number of building permits issued in both 2005 and 2006. Finally, robust export growth is set to continue in 2007 and the following years based primarily on the continued internationalization of Greek firms, which have increased their size and domestic production capacity in tandem with expansion into neighboring Southeastern Europe. Moreover, the rapid development of public infrastructure in Greece and Southeastern Europe in combination with favorable demand conditions for tourism and other products prevailing in Greece’s main exporting markets will provide a boost for Greek exports. Impediments to growth: The high rate of GDP growth in Greece is based solely on the high growth of domestic demand, due itself to rapid wage growth (far in excess of both inflation and productivity growth) resulting in the continued erosion of Greece’s

international competitiveness. This is most clearly evident in the growth rate of domestic unit labor costs (ULC) which remain substantially above the rate recorded by Greece’s main competitors. Crucially, an opportunity has been missed which could have seen the high rate of GDP growth facilitating the necessary fiscal adjustment via sizable reductions in the country’s general government debt/GDP ratio, which even after the GDP revision, remains high at 96 percent of GDP. Finally, growth in domestic demand has also been based on the continuous deterioration of the financial position of the main social security funds in Greece, with incentives for increased pension savings almost non-existent, leading to the explosive increase of the Greek state’s future implicit pension liabilities. These developments underlie Greece’s relatively low credit rating and remain the single largest combined threat to the country’s continued economic expansion in the coming years. Currently, they have the combined effect of driving the growth of imports of goods and services even higher, while acting as a constraint on further growth of exports, which accounts for the rising Greek current account deficit, set to reach 11.5 percent of the revised GDP in 2007. In all, this implies a rapid increase in Greece’s international indebtedness which will in turn lead to the rapid increase of payments for interest, dividends and profits to foreigners, contributing further to the worsening of the current account deficit. Therefore, while prospects for Greece’s future economic growth and prosperity remain bright, they are fraught with obstacles which require timely action and focused policy aimed at further fiscal adjustment, reform of the social security system and improvement of the country’s international indebtedness.

Themes The economic impact of the recent national elections is likely to have repercussions on state-controlled companies such as Postal Savings Bank, OTE telecom, the Public Power Corporation and state lottery and gaming firm OPAP, among others.

Investors waiting for steps in privatizations after the elections he governing conservative party, New Democracy (ND), won Greece’s general elections on September 16 with 41.83 percent of the vote (152 seats vs 165 previously), followed by the socialist PASOK party with 38.1 percent (102 vs 117), communist party KKE, 8.15 percent (22 vs 12), left-wing SYRIZA, 5.04 percent (14 vs 6), and right-wing LAOS, 3.80 percent (10 seats vs no representation previously). Based on pre-election references made primarily by the minister of finance, Giorgos Alogoskoufis, ND’s re-election will likely signal further privatizations in certain companies majority-controlled by the state. Moreover, restructuring potential has been cited explicitly for companies like the Public Power Corporation (PPC). Below we identify likely sector-specific repercussions:

Financials (Postal Savings Bank, ATEbank) Two key developments had been put on the back burner, to be looked into after the elections. Namely the cases of Postal Savings Bank and Agricultural Bank and the further divestment of state holdings. The plan calls for further divestment up to the point where the state will own 51 percent of ATEbank; however, we do not think that will bring any significant changes. As for PSB, prior to the elections, it was the government's intent not to sell its stake to another Greek banking institution and that it would rather sell it to a foreign strategic investor. Telecoms (OTE, Cosmote) The state will proceed

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with reducing its current 28 percent stake in the medium rather than short term, as market conditions have not been materially altered (i.e. a preferred mainstream operator has yet to appear as a strategic investor). In our opinion there will be no impact on the current management team in the short term. The new structure in the top management of Cosmote may denote a transitory period for Cosmote’s top post given the diverging views on strategic issues for the OTE Group. The move may bring closer a potential Cosmote minority buyout for OTE. Electricity (PPC) The CEO remains in place, while changes will be expedited and an aggressive business plan is likely to be implemented. During the past four months, the government has firmly stated, through both the minister of national economy and the minister of development, that substantial issues of critical importance to PPC will be firmly addressed. Such critical issues include the definition and the manner in which the PSO reimbursement will be dispersed (to PPC), the commencement of the increased (3,200 MW) replacement plant, a future placement and the restructuring that PPC is in need of, although no further comments have been made on this particular issue. We continue to look forward to the upcoming October business plan but following the elections outcome, in our view, uncertainty has paved the way for more visibility and could turn into an opportunity. A further reduction in the state’s stake is very likely. Gaming (OPAP) OPAP’s management and the new government’s gaming policy may change. In our opinion, OPAP’s operating performance during the next one or two years will be decoupled from a hypothetical top management change. A change in

gaming policies reflected in the forthcoming business plan of OPAP may trigger risks and opportunities for the medium term. Industrials (Metka, Endesa Hellas) A rather positive development for Metka, like PPC, is expected to accelerate the implementation of the 3,200 MW replacement program of a big part of its obsolete lignite plants with new combined cycle gas turbine (CCGT) ones. In this case, Metka can take advantage of its long-term relationship with PPC through the assignment of large-scale energy projects in the next two to three years. Positive catalysts can be viewed for Endesa Hellas too, as the new government can proceed faster with the full liberalization of the domestic energy market. Water utilities (EYDAP/EYATH) Unlikely management changes and strong potential stemming from a further state stake reduction, though there is slim likelihood that such a development could occur anytime soon. There is substantial room for operational improvements through the continuation of headcount reduction by attrition rate and no hiring and expediting the collection of owed receivables. In EYATH's case, in particular, a closer integration with French Suez and the secured annual tariff increases above inflation would definitely benefit the company. Ports (OLP/OLTH) The reshuffling of the board of directors with three new non-executive members, likely to be appointed in the upcoming EGM early November, will most likely accelerate an ambitious 40-million-euro investment program for a 30 percent increase in container capacity, yet we do not expect any change in the existing CEO position. State stake reduction is rather unlikely in the next 12-18 months before operational efficiencies and new terminal capacity are materialized.

Government policy aims at social justice in tandem with economic efficiency. Support offered to low-income pensioners through the pension fund for retired farmers (OGA) and to the allowance to low pension receivers (EKAS) eases economic burdens while the same can be said for the establishment of the Social Cohesion Fund.

The state’s social role in Greece n comparison with other eurozone countries, Greece presents a peculiarity: Its public sector is broader and is involved in a wider range of activities. This continues to be the case despite the efforts during the past three years to curtail the public sector. The large participation of the state in the production process is related to low productivity in Greece, now standing at about 70 percent of the eurozone average. This is due not only to the low productivity of public enterprises but also to the distortions and constraints imposed on private entrepreneurial activities. These distortions raise the cost of doing business in Greece either directly — through financing and taxation — or indirectly — through the administrative burden that is created, red tape and corruption. On the other hand, it is important to consider whether the state is successful in its social role; a role which cannot be substituted by the private sector. In other words, is the welfare state efficient? Does it redistribute income and does it reduce poverty? Unfortunately the answer is that the state has not accomplished its welfare-related goals. Specifically, apart from social expenditures (which account for almost one-third of GDP), it has not been successful in reducing income inequality, nor has it combated poverty effectively. Greece still has the second-highest inequality index among EU15 countries (after Portugal), while one-fifth of its population lives below the poverty line. What is even more interesting, though, is the fact that despite quite high social contributions, the reduction of the rate of poverty as a result of social transfers amounts only to three percentage points (from 23 percent of the population to 20 percent). This equals to lowering the poverty rate by 13 percent, while in other countries, such as Denmark, for example, the poverty rate has been lowered by 61 percent. But even ignoring the case of Denmark — think of it as an outlier — the average drop of the poverty rate in EU-25 is 38 percent. This fact alone highlights the inefficiency of our mechanism for social transfers. The problem is that until now emphasis was put on general benefits which did not produce results in combating poverty or in lowering inequalities. If, for example, benefits are given without discrimination to wide categories of the population, the line of poverty is simply raised, leaving the same people below it. To tackle this, we must have better-targeted measures to those who are really in need. Taxation is a way to strengthen the social role of the state, especially policies aimed at combating tax evasion. In a country like Greece, where there is extensive tax evasion, the structure of direct taxation can have the opposite results to the redistribution of income between law-abiding and non-

Plutarchos Sakellaris Chairman of the Council of Economic Advisers Professor at Athens University of Economics and Business

complying taxpayers. Nonetheless, if someone had to choose between taxation and social transfers to achieve income redistribution, the most effective choice seems obvious: The policy mix should put emphasis on transfers. According to a recent study on a group of developed countries, transfers are more effective than taxes as they have multiple results on reducing income inequality (in some cases 11 times larger effect, as was the case in France). The government’s policy aims at social justice in tandem with economic efficiency. The fruits of growth should be broadly distributed and, at the same time, the taxpayer’s every cent should be spent wisely. The support offered to low-income pensioners through raises to the pension fund for retired farmers (OGA) and to the allowance to low pension receivers (EKAS) eases somehow the economic burden of those who are most in need. The same can be said for the establishment of the Social Cohesion Fund, which aims to reduce poverty levels with better-targeted measures and more effective social transfers. Finally, the ongoing fight against tax evasion is creating more revenues that are providing funding for even more social expenditures.

Economic priorities take shape Greeceâ&#x20AC;&#x2122;s fast-growing economy has seen rapid changes in recent years, with structural reforms helping to spur growth and close economic gaps with our European Union peers. Cutbacks in public spending and moves to stamp out tax evasion have helped tighten fiscal policy while moves such as cutting corporate tax rates and the reduction in red tape have helped make the business environment more friendly. Results have started to materialize, with Greeceâ&#x20AC;&#x2122;s budget deficit expected to be cut down to 2.5 percent in 2007, below the 3 percent limit imposed by the European Union, and the stubbornly high unemployment rate is starting to retreat. Prime Minister Costas Karamanlis is focusing on changes in the fields of economy and development, energy policy, tourism, the environment, public works and economic diplomacy â&#x20AC;&#x201D; developments that will help the country make its mark in a fast-growing and highly competitive part of Europe. New programs regarding public-private partnerships are expected to bolster investment activity by boosting construction projects such as new schools and prisons.

In his speech at the 2007 International Monetary Fund annual meeting in Washington DC, Economy and Finance Minister Giorgos Alogoskoufis spoke about the Greek economy’s strong growth prospects, on the back of rising private investments and exports, and the country’s role in the fast-growing region of Southeastern Europe. He also highlighted the government’s commitment to structural reforms aimed at helping boost the economy’s competitiveness.

Greece maintains strong growth; downside risks abroad grow he global economy continues to grow strongly, although downside risks have clearly increased. The recent financial market turbulence that originated in the US credit market potentially could slow the pace of the global expansion. Financial market conditions have improved since mid-August but a full recovery will require time. The widening of credit spreads has a positive aspect, insofar as it better reflects underlying risks. However, it creates downside risks to near-term growth. Rising oil prices, inflation concerns and trade protectionism also constitute key risks to the global outlook. Climate change and clean energy needs should also be taken into consideration. The speed at which the recent credit crunch spread from the US to Europe and other parts of the world provides a powerful illustration of the systemic risks associated with financial globalization. Enhancing transparency in financial markets is key to avoiding unexpected events that create uncertainty and impair market liquidity. The recent turbulence calls for improvements in the practices of market participants regarding the disclosure of information on exposure to risks. There is also a need to strengthen cross-border regulation and supervision. Given its global membership and financial stability mandate, the Fund has a key role to play in identifying spillover risks and working with national regulators and other relevant bodies to help avoid or contain them.

Quota & voice reform

Giorgos Alogoskoufis Minister of Economy and Finance Speech at the 2007 World Bank - IMF Annual Meetings in Washington DC

Reform of the Bretton Woods institutions is progressing. The ad hoc quota increases agreed last year are only a first step toward achieving a redistribution of quotas in favor of the most dynamic economies and the low-income countries. It is imperative that we reach agreement and complete the quota and voice reform by the fall 2008 deadline. The new formula must be simple and transparent, and give a primary role to GDP at market rates. A compression factor would clearly help toward a more equitable redistribution of voting power. We look forward to further progress in enhancing the credibility and effectiveness of the Fund.

World Bank These annual meetings take place at a time of increased financial flows to developing countries.

The World Bank Group has retained a key role in financing the least developed countries, where private capital inflows have remained limited. ODA (Official Development Assistance) and IDA (International Development Association) in particular have a prominent role to play in sub-Saharan Africa. In this connection, we support the pledge of the World Bank Group to allocate an amount of 3.5 billion dollars from its earnings to IDA15. We support the IFC (International Finance Corporation)’s commitment to increase its engagement in IDA countries. Greece is actively participating in the IDA 15th replenishment round with a view to increasing its IDA share.

Greece’s economic performance Greece plays a key role in the development of Southeast Europe through trade and direct investment. Southeast Europe is becoming one of the fastest-growing regions in Europe and Greece is committed to facilitate the integration of these countries in the global economy and the European Union. Greece’s growth performance has been quite strong over the past three years, exceeding the Euro-area’s average by a significant margin. Growth has been underpinned by private investment and exports, while tourism and shipping services also are a contributing factor. GDP growth reached 4.3 percent in 2006 and is expected to be sustained around 4 percent in 2007-08. The Greek economy can do even better in the medium term, as structural reforms are being pursued to make the economy more competitive and to tackle the perennial weaknesses of the public sector. Fiscal consolidation has advanced significantly in the past three years, as the general government deficit was slashed below the 3 percent EMU threshold from 8 percent in 2004. The general government deficit is estimated to reach a 10-year low of 2.5 percent of GDP in 2007. Greece’s adjustment record demonstrates that fiscal consolidation is compatible with sustained growth if accompanied by supply-side reforms that help redirect resources toward private investment. Looking forward, the Greek government remains committed to continuing structural reforms, including the pension reform, while pursuing fiscal consolidation efforts to achieve balanced budgets by 2010.

Cover

The 2008 draft budget at a glance PRIMARY OBJECTIVES

HIGHLIGHTS OF THE 2008 BUDGET ñ ñ ñ

Greece’s first budget drafted since exiting from the excessive deficit procedure. Launche of the second phase of fiscal consolidation and economic reforms for sustainable growth. Continuation of the implemention of the new economic model for growth, employment and social cohesion, initiated in March 2004.

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Further deficit reduction aiming at a balanced budget by 2010. Further reduction of unemployment. Enhancement of social cohesion. High economic growth.

MAIN ELEMENTS OF FISCAL CONSOLIDATION ñ ñ ñ ñ

Downsizing the public sector. Containing public expenditure. Tackling tax evasion. Reducing public debt.

OBJECTIVES OF THE 2ND PHASE OF FISCAL CONSOLIDATION & REFORMS PROGRAM 1. Achieve a balanced budget by 2010

4. Reinforce the social welfare system

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By tackling tax evasion and illegal activity related to fuel distribution. By broadening the tax base. By improving the accounts of state-owned enterprises, social security and the National Health System.

2. Reform budget procedures

5. Boost regional development

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By integrating all extra-budgetary accounts to the budget. By intensifying fiscal audits. By completing and broadening the implementation of the legal framework for the operation of state-owned enterprises.

3. Complete the final phase of the tax reform ñ ñ ñ

By establishing a minimum national pension by 2009. By setting up the National Fund for Social Cohesion to support poor households. By supporting low-income pensioners.

By reducing the tax rates for individuals with mid-level incomes to 25% by 2009 from 30% and 40% in 2006. By further tackling tax evasion. By abolishing or simplifying certain property taxes such as those for the first residence and inheritance. The aim is for citizens to pay a small duty for their real estate holdings (excluding the first residence), similar to the regime in most other developed countries around the world.

By successfully completing the absorption of the 3rd Community Support Framework and the optimal use of funds from the National Strategic Reference Framework 2007-2013. Through the Investment Incentives Law and public-private partnerships.

6. Reform the pension system ñ

Through broad social and political dialogue.

7. Further implementation of the new growth model ñ ñ

By promoting the outward orientation of the economy. Through privatizations, the investment incentives law, the digital strategy and public-private partnerships.

ECONOMIC POLICY RESULTS ñ

PRIORITIES OF THE REFORMS PROGRAM ñ ñ ñ ñ ñ ñ ñ

Tax cuts for enterprises and households. Investment incentives. Community Support Frameworks (EU funds). Outward orientation of the economy. Public-private partnerships for infrastructure projects. New privatizations agenda. Strategy for Digital Greece.

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Achieved fiscal consolidation: — The deficit of the general government was rapidly reduced from 8% of GDP in 2004 to less than 3% in 2006. — The debt of the general government was reduced by 6.6 percentage points of GDP in the period 2004-2007. Maintained a rate of growth above that of other eurozone member states, reaching 3.7% in 2005, 4.3% in 2006 and 4.4% during the first half of 2007. Growth is based on higher private investment and exports. Reduced the unemployment rate from 11.3% in the first quarter of 2004 to 8.1% in the second quarter of 2007. Improved Greece’s competitiveness.

ECONOMIC POLICY & FORECASTS FOR 2008 Further deficit reduction

Debt reduction

The deficit is expected to be reduced further from 2.5% of GDP in 2007 to 1.7% in 2008.

Public debt is expected to be reduced by 3 percentage points of GDP and fall below 100% of GDP for the first time since 1992.

Total expenditure restriction ñ

State budget expenditure is expected to be restricted to 30.1% of GDP in 2008 from 30.4% in 2007 while, at the same time, public investment will increase.

Social spending increase ñ

The restriction of primary expenditure is expected to allow the increase of social spending by 850 million euros, i.e. by 0.4% of GDP, which will be allocated to: — an increase of pensions of retired farmers by 19%, — an increase of the allowance to low pension receivers by 18%, — an increase of the unemployment benefit by 10%. The Social Cohesion Fund has been established in an effort to reduce poverty levels with better targeted measures.

Tax revenues increase ñ

Tax revenues are expected to increase at a rate of 12.3%, reaching 24.4% of GDP (from 23.2% of GDP in 2007) while corporate and personal income tax rates will be reduced. The increase of tax revenues is attributed to: — Maintaining high growth rates. — Tackling tax evasion by: intensifying tax audits, cross-checking and customs control, restructuring taxation of heating oil to avoid illegal activity, providing taxpayers with incentives to ask for receipts and fulfill their tax obligations. — Broadening the tax base by: tackling property tax evasion through the introduction of a single real estate tax.

High growth rate ñ ñ

As also specified by the Stability and Growth Program, the growth rate for 2008 is expected to be 4%. Private investment and exports will continue to be the locomotives of economic growth, accounting for more than 60% of GDP growth.

Higher employment, lower unemployment ñ

Employment is expected to increase by 1.9%, leading to further reduction in unemployment of 7.4% (down from 8.3% in 2007).

More privatizations ñ

Revenues from privatizations are estimated to reach 1.6 billion euros.

Private consumption increase ñ

Private consumption is expected to increase at a rate of 3.5%.

Inflation reduction ñ

Inflation is projected to slightly fall to 2.6% (down from 2.7% in 2007).

Cover Policies focus on better connecting Greece with international energy networks, saving energy and promoting environmentally friendly power along with improving the regulatory framework regarding investments in the sector.

Energy stays high on priority list as Greece takes position on power map hange and speed are characteristics of our era. Our world is developing technologically, producing innovations, developing at an extraordinary pace, challenging the status quo. We have to sieze the moment since missed opportunities cannot be brought back. For us today, our major challenge is to take advantage of the opportunities available globally by creating incentives capable of maximising the creative forces of this country and exploiting our geo political position. In this direction, the energy sector remains a key priority. The boosting of this sector in the recent years reflects our stead fast commitment to become the energy hub of S.E.Europe. In this context our objectives are: - Securing energy supply, - Investing in infrastructure and production capability and - Increased concern for the environment. Our energy policy is built around three axes: The first axis has to do with the Energy Interconnections to the international networks of transport of electricity, oil and natural gas, so that the country is

Christos Folias Minister of Development www.ypan.gr

rendered an international transit energy centre and its geostrategic role is reinforced. We are now making significant advances regarding the various agreements signed in the last two years for the construction of major international energy projects such as the Burgas-Alexandroupolis pipeline, the ITGI natural gas pipeline of which, the Greek-Turkish pipeline will be inaugurated shortly, the Greek-Italian natural gas pipeline currently at the phase of technical study. Furthermore, on June 27 2007 the Prime-Minister Mr Kostas Karamanlis, announced the participation of Greece in the construction of the projected South Stream natural gas pipeline that will connect Russia with Europe via Greece and which will involve it is foreseen, Russia, Bulgaria and Italy . Moreover, we are promoting the interconnection of electricity networks between Greece and Turkey that will be completed shortly as well as the upgrading of the electricity interconnections with other Balkan countries. The energy interconnections in question enhance the safety of energy supply in Greece, rendering it an energy hub in Southeast Europe. It is a given that the modernisation of the national system of interconnections and transportation of electricity, (which also includes the interconnection of islands with the continental system), contributes to the safety of energy supply. At the same time, we aim to satisfy the energy needs even further by increasing the contribution of Renewable Energy Sources (RES) in our national energy balance. Simultaneously, we are intensifying the efforts so as to ensure the domestic safety of supply

through new investments in electricity production from the Public Power Corporation (PPC), which will be replacing old units with new ones of equivalent total power but of higher output, as well as from other investors. The second axis is saving energy and promoting environment-friendly energy sources (RES), the so-called green energy. The public consultation for the RES Special Land-planning has already been completed and will be finalised shortly. We expect their rapid development due to the financial incentives that have been provided with laws and development programs, as well as with the construction of essential electricity networks of transportation. The third axis is the liberalization of the energy market. In this context, the national regulatory bodies for the electricity and natural gas systems are being updated according to the EU norms which will contribute to the creation of an environment attractive for private investments. Above all our objective is to create the necessary conditions in order for our consumers to benefit from an improved quality of service. Our primary objective is for consumers to benefit from the liberalization of the electricity and natural gas markets. Whereas the consumption of energy used to be an important indicator of prosperity today the need to protect our environment has led to the revision of this of this factor. In accordance with the objectives of the EU Energy Policy, we are implementing energy saving measures. We want buildings that conserve energy and methods that produce environment-friendly energy. The energy

resources do not belong to us. They belong to the future generations. In the sector of Trade, we are adopting new regulations which simplify the incorporation and operation procedures for Societes Anonymes as well as all types of commercial companies. We are in the process of completing the national Companies Registry so that we can facilitate the procedures further while reducing red tape. We are unifying and encoding the ratifications, which are incorporated in the Market Code, revising the method by which fines and penalties are imposed by different state institutions, while we are intensifying the efforts for tackling illegal trade. At the same time, in the sector of Industry, we are adopting new regulations which simplify the incorporation and operation procedures for industrial enterprises in combination with the new Land-planning. This will resolve longlasting problems such as environmental and urban planning issues with regard to the manufacturing sector. We are promoting programmes that will support enterprises mainly by capitalizing on our national human capital and creating new infrastructure. We are taking special care to ensure that new tax measures and additional incentives will encourage and support entrepreneurship in Greece. Innovation, research and new technologies are of strategic importance. The transition to the knowledge society aims at infusing research, technology and innovation into the production process, thus boosting growth and competitiveness in the Greek economy and society. Our goal is to link the research system with industry increasing competitiveness. Our policies reflect our commitment to transform Greece into a leading EU and regional player. We are determined to maximize our national potential and to exploit our geo-strategic position, located as we are at the crossroads between Europe, Africa and Asia, laying the foundations for our future generations.

The Transport Ministry aims to turn Greece into a transport center for Southeastern Europe, to reduce the number of cars on the roads and to boost efficiency. New technologies will give the telecommunications sector a new boost.

Toward a better future in transport and communications fter spending 13 years in the European Parliament, where I had the opportunity to see how problems similar to the ones we face in Greece were addressed in different and innovative ways, I am now part of the Greek government. For me this is both a great honor and a significant yet rewarding challenge. Simply pointing out the problems faced by Greek citizens is not enough anymore; I now have to contribute to a better Greece with targeted solutions to specific problems. And that is what I aim to do. The Ministry of Transport and Communications is one of the most vital ministries to the livelihood of the Greek population. It is directly related to the quality of our everyday lives, to the environment, to the use of new technologies for the benefit of the people and the welfare of the country as a whole. Taking all this into consideration, I have set six priorities for my tenure as minister. All of these goals are centered on the wellbeing of each citizen. The first one is to turn Greece into a transport hub for the whole region of Southeastern Europe. The European Union will assist Greece in achieving this goal by supporting the upgrade and expansion of the Greek railway network. The second and third goals are related, on the one hand, to urban transport and, on the other, to the need to support rail transport for people and goods. As for urban transport, the aim is to have fewer cars in the cities by convincing people to use buses and the rail networks. In order to achieve this, we need to provide better services, that is to say, quicker and more comfortable means of public transport. I have worked abroad for a long time and every day I used public transport to go to work, just as the majority of Europeans do. I believe that Greeks can do so as well and can leave their cars behind, provided that they have a better alternative. This is an easy way to improve the quality of our everyday lives. At the same time, it is of vital

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importance to support and upgrade the railway system all over Greece. Rail transport is one of the most comfortable and environmentally friendly ways to travel. We need to follow the example of the majority of European Union member states and place the railways at the center of our attention. That way people will be able to travel more safely and quickly and, most importantly, by environmentally friendly means. Here again the economic contribution of the EU will be of vital importance. My fourth and fifth goals are linked to the civil service sector and to those organizations that suffer from severe public debts. On the one hand, we need to focus on ways to increase the efficiency and improve the finances of all the organizations supervised by the Ministry of Transport and Communications. On the other, we need to find a viable solution specifically for the problems facing Olympic Airlines. Without ignoring the fact that all the organizations supervised by the ministry have an important social role to play in providing affordable services to the people, we need to focus on making them more economically viable. There is already a law in place, introduced in the first years of the New Democracy government, concerning the operation of all public organizations. We need to ensure this law is enforced without further delay. According to this law, every public organization will have to set a specific business plan and guiding rules by which it will operate. If we do not enforce these rules now, public money will continue being spent at the

expense of efficiency and effectiveness. This is something the New Democracy government and I personally will not tolerate any longer. As for Olympic Airlines, we need to be realistic. This organization, which is the only public civil aviation organization in Europe, has severe debt problems. Our goal is to save Olympic Airlines. But in order to save the company we need to privatize it. All our efforts are focused in that direction. Currently a final round of negotiations is being carried out with the European Commission regarding the money the company owes to the Greek civil sector and vice versa. These negotiations have been tough, but we are doing the best we can to come to an equitable solution for everyone. Above all, the rights and well-being of the people working for Olympic Airlines will be safeguarded whatever the outcome of the negotiations. The final goal I have set is related to the field of telecommunications. Telecommunications and more generally new technologies have gained momentum across the EU and elsewhere. Although it has made significant progress in recent years, Greece is still far behind its European counterparts in the field of new technologies. I strongly believe that this field, together with shipping and quality tourism, can be the three pillars that will support a â&#x20AC;&#x2DC;smartâ&#x20AC;&#x2122; development for our country. Telecommunications is a significant sector in the global economy, which, if we as a nation can create our own niche, has the potential to create many quality jobs

for the people of Greece. Therefore, it is to our own benefit to make full use of the opportunities lying ahead. More specifically, we have set the following targets: All citizens, the state and businesses should have quick and reliable internet services in the near future. All customer services have to be improved. Remote areas need to have full access to new technologies. This last point is of particular importance, since with new technologies everyone, regardless of where he or she lives, can partake in a number of activities ranging from telecommerce to telemedicine and teleeducation. At the same time, new technologies can significantly enhance traditional occupations and can contribute to a better quality of life for all. These goals are not simply words and empty promises; it is my commitment to the Greek people. I know very well that at the end of my time in office I will not be judged by what I said or who I was seen with, but by my actions. And at the end of my tenure I would like to be able to look every single Greek in the eye and say to them that everything I promised four years before has become a reality.

Kostas Hatzidakis Minister of Transport and Communications www.yme.gr

Cover The government intends to push ahead with economic reforms and changes to its social policy after positive results emerged during its first term in office. Prime Minister Costas Karamanlis is adopting a forward-looking strategy in order for the Greek economy to grow beyond the countryâ&#x20AC;&#x2122;s borders.

Reforms in Greece: Full speed ahead

uring its first term in power, the government of Prime Minister Costas Karamanlis adopted a forward-looking strategy in order for the Greek economy to grow beyond its borders, above everyoneâ&#x20AC;&#x2122;s expectations, and for the good of the society as a whole: extroverted growth and domestic reforms. The impressive recent economic figures as well as the positive outcome of the latest national election have empowered the New Democracy party to put fresh emphasis on social policies for those in greater need and to take bold reformative initiatives. With all these promising developments taking place on the domestic front and the country assuming an increasingly important role in the region of the Eastern Mediterranean, there is no way for Greece but forward. A brief look at the figures makes it clear that the governmentâ&#x20AC;&#x2122;s economic policies have borne much fruit: a brisk GDP growth rate of 4.3 percent in 2006 and 4.4 percent in the first half of 2007, a budget deficit down to 2.5 percent of GDP from 7.8 percent in early 2004, and an unemployment rate reduced from 11.3 percent in early 2004 to 8.9 percent in 2006 and 7.8 percent in July 2007, creating 250,000 new jobs, 80 percent of which are in the private sector. Given these remarkable developments, the newly re-elected government prioritizes helping those in greater need, both in everyday as well as in extreme circumstances. Specifically, the govern-

Panos Leivadas General Secretary of Information

ment recently presented the Draft Law for the National Fund meant to advance social cohesion by helping those living below the poverty line. In addition, taxes for low-income citizens have already been reduced while a minimum national pension and a fund for unemployed middle-aged employees in problematic areas are being established. In terms of extreme circumstances, the best example can be drawn from the immediate measures that the state took for the compensation of the people and the reconstruction of the areas affected by the recent forest fires (Peloponnese, August 2007). In addition to the funds coming from the European Union for that specific cause, the Greek economy will also finance the rebuilding work. Furthermore, the government oversaw a great effort to collect funds from Greeks both at home and from around the world. In an outpouring of fellowship and unity, we came together with a stronger sense of patriotism, gathering more than $200 millon. Starting in the next few weeks, the greatest part of this amount will go toward the reconstruction of homes. Empowered by the vote of confidence of the Greek people, the newly formed cabinet has already taken important steps to correct, for example, long-term and deep-rooted wrongs in bureaucratic policies. In fact, the pilot program was implemented during the recent forest fires. Specifically, with a fast and efficient process put in

place, all affected citizens were able to get compensation in the days following the devastating fires. The government now aspires to implement such a policy of minimum bureaucracy on all levels of the state’s transactions with citizens. It is a new philosophy of not seeing every citizen as a potential law-breaker but trusting them unless otherwise proven and giving them the opportunity to maximize their potential as they see most fit. By the same token, of course, it is the philosophy of a state that closely and strictly inspects and supervises all processes, implementing its laws in an uncompromising and non-negotiable way. At the same time, the government puts the same emphasis as before on the Greek economy’s extroverted growth. After all, there is no doubt that in today’s competitive international environment, a market of just 10 million people cannot fulfill its potential in isolation; it thus needs to open up and engage others in its own path of growth. Greece continues to do exactly that by capitalizing on the fortunate coincidence that our neighbors, who were once a cleavage between us and Europe, have now become close partners who want to follow in our path of democracy, economic development and active participation in the Euro-Atlantic organizations. In the last couple of years especially, Greece has been looking outward to maximize on its comparative advantages. Our role in the global energy market has been redefined, thanks to important agreements on the Burgas-Alexandroupolis oil

pipeline, the natural gas pipeline from Turkey and all the way to Italy, or the new South Stream gas pipeline. Equally impressive are the developments in the shipping industry. With the Greek-owned fleet being the largest in the world and approximately 300 new ships currently under construction, Greece is transferring increasing quantities of commercial goods and oil globally. At the same time, the country is becoming an important distribution hub; the 3-billion-euro Protocol with the European Investment Bank to upgrade our ports as well as projects to implement security systems in 12 ports through public-private partnerships are but a few of the promising developments that are transforming our ports. Last, Greece is a credible financial and business center in its neighborhood, holding the position of the leading foreign investor in Albania and the Former Yugoslav Republic of Macedonia (FYROM) and ranking among the first three in Bulgaria, Romania and Serbia. With more than 3,600 Greek companies in the region and Greek investments exceeding 12 billion euros so far, we are the base for reaching out to a market of 160 million consumers across Southeastern Europe. In addition, our banking sector, with more than

1,000 branches now operating in the region, holds 16 percent of the region’s banking market share and has invested millions of euros to acquire and build networks in a number of countries. At the same time, Greek banks are progressively penetrating promising markets such as those of Turkey and Egypt. In conclusion, the government of Costas Karamanlis is moving ahead with reforms and initiatives at a faster pace and with greater determination. Our international partners have once again taken notice, counting on Greece not only to be a paradigm of strong economic growth but also to assume a shaping role in the Eastern Mediterranean by promoting peace and stability as well as actively shaping EU foreign policy in an increasingly important region.

Cover The election of a new government provides an opportunity for a new economic policy that distances itself from the stereotypes of the past and responds to society’s desire for reforms.

A new economic policy takes shape

he formation of a new government following elections on September 16 provides the opportunity for the adoption of an economic policy that takes into consideration the medium-term needs of the Greek economy, that foresees and plans, reducing to an absolute minimum those interventions which are strongly influenced by combinations of economic and political circumstances. The fresh popular mandate creates the conditions for the exercise of a policy with greater freedom of movement without undue political cost, not only for the government but also the opposition. This will facilitate efforts to achieve the social and political consensus that is absolutely necessary for advancing key reforms, particularly those relating to the social security system, the state and education. At present, there are two very important factors which facilitate the advancement of significant reforms in these key sectors. The first is a new collective perception, according to which the time is now ripe for resolving the major problems facing Greek society. Society is ready to accept the changes. The second factor is the convergence of the positions of the government and the main opposition, not only regarding their estimation of the urgent nature of the changes, but also the main directions which they propose. Despite this, experience from recent years shows a clear timidity on the part of governments to undertake initiatives since the possible political cost entailed is usually overesti-

Extract of quarterly bulletin prepared by the Foundation for Economic and Industrial Research (IOBE) released in September 2007. www.iobe.gr

mated, i.e. the will of society for the advancement of overdue changes is underestimated. The election of a new government provides an opportunity for a new economic policy that distances itself from the stereotypes of the past and responds to society’s desire for reforms. The new economic policy must set medium-term goals and develop separate interventions with appropriate planning and the assigning of priorities. The primary goal, on which almost the entire political world agrees, is of course faster economic growth that will bring about a reduction of unemployment and a more efficient state, not only in the various fields of administration but also in social policy. In order to achieve this goal, as already noted above, what is needed is a shift in emphasis to supply, i.e. a strengthening of the Greek economy’s capacity to produce competitive goods. This in turn means the bolstering of competitiveness and entrepreneurship, with a drastic reduction of structural weaknesses which to date have had a negative impact.

Priorities Fiscal adjustment: On the issue of fiscal adjustment, it should be noted that despite the important progress made in recent years, the challenges continue to be formidable, as the situation regarding the country’s public finances remains fragile. The major economic problems created by the aging population and a possible future slowdown in economic activity will increase the pressures even further. For this reason, the country must

press ahead in a timely fashion with those structural changes which will ensure the fiscal rehabilitation of the economy so that it will be able to undertake without particular problems the funding of its greater needs in the future. Given that the ratio of public debt to GDP is very worrying and the estimated future pressures on spending for pensions and health are among the highest in the OECD region, it is absolutely imperative for fiscal rehabilitation measures to be taken in good time. And the undertaking of such measures in the immediate future is facilitated by the fact that the Greek economy is registering high rates of economic growth, which makes adjustment easier. For this reason, too, it would be expedient to draw up a long-term program on fiscal developments, which analyzes how — and on the basis of which priorities —fiscal policy will deal with the anticipated major imbalances. Fiscal adjustment must be based on efforts on both the revenue and expenditure fronts. 1st. The increase of revenues should not be pursued by increasing tax rates and the tax burden, which is already high. It will therefore be necessary to broaden the tax base, by combating tax evasion and incorporating underground economic activities. Essential prerequisites for achieving this are: ñ The reform, simplification and codification of tax legislation, in order to eliminate the existing uncertainties and ambiguities which currently serve to further stimulate the underground economy and tax evasion. ñ The reform of tax administration, with modernization of tax collection mechanisms and reduction of their cost. ñ The consolidation of a climate of trust and consistency vis-a-vis the tax system with the abolition of tax amnesties. 2nd. The room for maneuver on the expenditure side is far greater, particularly regarding the efficiency of public spending. The possibilities here are considerable and, as is clear from international experience, placing emphasis on efficiency will enable significant improvements to be made in areas such as health, education and combating poverty. In this respect it is worth noting that expenditures for public administration in Greece absorb a much higher percentage of general government spending than in the majority of OECD countries; yet despite this, the quality of Greek public administration continues to be unsatisfactory. The long-term rehabilitation of public finances cannot be achieved without comprehensive fiscal reform, which will include: ñ The preparation of budgets having a timeframe of more than one year, and which are in line with the three-year fiscal program that is submitted in the framework of the Stability and Growth Pact. ñ Assessment on a long-term basis not only of the legality but also the expediency and effectiveness of expenditures. ñ Complete transparency of all general government accounts, including the so-called Special Accounts. The publication of such accounts in the case of the broader public sector should be on an annual basis. Publication also of all guarantees provided by the government.

Instituting of procedures to enable a substantial comparison each year of the fiscal outcome with the corresponding budget. Any overruns which have not been approved by Parliament should automatically be charged to the following year’s budget of the respective ministry or organization. Establishment of procedures for checking local government finances.

Efficient state: The second, related and equally important issue concerns the operation of the state and public administration. The question of whether we need a smaller or larger state has become obsolete. What we do need in present conditions is a more efficient state, i.e. a state that maximizes the performance of the enormous resources which it manages for the benefit of society as a whole, a state which will be judged on the basis of its administrative efficiency and effectiveness. With this in mind, IOBE in 2006 put forward a series of specific proposals which are aimed at creating a more efficient state. These proposals, presented in detail in the publication ‘IOBE’s Positions on an Efficient State,’ relate to the following: ñ The streamlining and simplification of existing legislation and the improvement of the quality of laws. ñ A more effective regulatory/supervisory role on the part of the state. ñ The creation of a public administration which is more efficient in its operation, simpler with regard to procedures, adopts meritocracy in its manning and is more effective in implementing policies. ñ The improvement of the operation of public enterprises and utilities (DEKO) as well as of the social services provided by the state. Social security system: The need for the reform of the social security system is now accepted by all. In addition, the analysis has been completed of the causes responsible for the crisis in the system and proposals have been put forward for changes to its parameters. Moreover, for fiscal reasons alone, it is clear that the growing burden placed on the state budgets by social security expenditures cannot be allowed to continue. Lastly, proposals have been put forward by both the European Union and the OECD. The time is now ripe for the reform of the social security system and a solution is possible.

As has been underlined by all sides, the reform of the social security system will come about through social dialogue. This dialogue must be comprehensive, effective and rapid. However, the dialogue should not rule out immediate measures which are based on legislation in force and do not require any changes to those parameters of the system that will be decided through social dialogue. Such measures which can be implemented include the curbing of contribution evasion, the integration of migrants into the system and the reduction of early retirements. Remedying the fire damage: The economic policy priorities must also include the effort for the reconstruction and development of those areas stricken by fires in August. Immediate measures have already been taken, while reconstruction programs have been announced for the areas in question. Essential preconditions for the success of this program are the following: ñ The detailed recording of the damage caused and its impact on economic activity and demographic trends. ñ Clarity with respect to the goals of the program. The main objective should not be reversion to the situation prevailing before the devastation, but the charting of a new path for more rapid economic, social and environmental development. ñ The securing of the resources necessary for achieving the targets that have been set. ñ The effectiveness of expenditures made, so as to ensure the maximum possible benefit for the stricken areas and for the Greek economy as a whole. Under the conditions currently prevailing in Greece, the choices and priorities of economic policy as described above are — to a large extent — acknowledged by the majority of the country’s political forces. The problem is the effectiveness of economic policy in advancing the specific means for achieving the various targets. In order to be more effective, economic policy must acquire determination, continuity, consistency and administrative efficiency in order to push forward those reforms that have been delayed. By convincingly illustrating the benefits that will result from these reforms for society as a whole, it may be possible to overcome possible opposition and secure the consent of society that will be necessary for the success of the reform drive.

Markets The Hellenic Roadshow brings Greek companies into contact with foreign fund managers that conduct around 60 percent of the daily transactions on the Athens bourse. The funds that participated at this year’s roadshow represent more than 3 trillion euros.

Foreign funds eye Greek companies

Participating companies ALPHA BANK ASPIS BANK SA ATHENS MEDICAL ATTICA HOLDINGS SA BAN∫ OF CYPRUS PUBLIC COMPANY LTD EFG EUROBANK SA ELVAL SA - HALKOR SA FOURLIS HOLDINGS SA FRIGOGLASS SA GEK-TERNA SA POSTAL SAVINGS BANK SA HELLENIC PETROLEUM SA HELLENIC TECHNODOMIKI SA HYGEIA MEDICAL SA IASO SA ILEKTRONIKI ATHINON SA INTRALOT SA J&P-AVAX SA LAMDA DEVELOPMENT LV LAVRENTIADIS GROUP METKA MICHANIKI SA MOTOR OIL SA NEL LINES SA NIREUS SA OPAP SA PIRAEUS BANK SA PROTON BANK SA SARANTIS SA S&B INDUSTRIAL MINERALS SA SIDENOR SA - CORINTH PIPEWORKS SA SPRIDER STORES SA TITAN CEMENT COMPANY SA VIOHALCO SA

By Dimitris Pappas 30

or the second consecutive year, the Athens Exchange (ATHEX), with Bloomberg’s support, organized the Annual Hellenic Roadshow in London for Greek listed companies, which again met with great success. The roadshow is a unique opportunity to promote the Greek market to the international investment community. The reason behind this initiative is the certainty of the ATHEX management that international exposure will add to the value of Greek listed companies and Greek entrepreneurship as a whole. The success of this event was underlined by all the participants and especially the president of the Athens Exchange, Spyros Kapralos. But, apart from his comments about the event, Kapralos also announced that the Greek stock market could proceed with a partnership only if it was to the benefit of shareholders and the Greek capital market in general. Robert Buckland, managing director of Global Equity Strategy of Citi Investment Research, who was the keynote speaker on the first day of the roadshow, pointed out that markets are currently in a phase of rising maturation. He stressed that he does not fear the possibility of recession in the markets, adding that for the next two years stocks will probably show a controlled profit. He underlined that the above objectives will be achieved sooner or later, and in the case of Greece possibly to a greater degree. According to Buckland, the only danger that can stop the bull run in the next two years is not the credit crisis but inflation. He stressed that this time inflation is controlled. The Second Annual Hellenic Roadshow was one of the rare occasions that many of the participating

companies — especially the smaller ones — get to interact with international funds and to liaise with them in one-to-one meetings, during which they demonstrated their long-term growth strategy. Around 60 percent of the ATHEX’s daily transactions are made by international funds, so it is important for Greek stock market officials to introduce the fund managers to the management of the companies in which they invest. Funds that participated at this year’s roadshow represent more than 3 trillion euros and the number participating were double that of 2006. Among those funds were: Fidelity, Capital, Wellington, Fortis, Axa, HSBC, Morgan Stanley, Citigroup, BNP-Paribas, Robeco, Goldman Sachs and Centaurus. Furthermore, it was a unique opportunity for many of the Greek companies to operate in an international environment and to mingle with experts of the investment community. It is very important for the ATHEX to support listed companies and to assist them in their efforts toward growth and expansion. It is worth noting that many of the companies that participated in the first roadshow have seen their business grow considerably within the last 12 months. A number of them even outperformed the ATHEX general index during the year, thus proving the positive effect of such events on their development. Indeed, the number of participating companies rose to 38 out of 30 last year and the number of investment funds rose from 92 in 2006 to 138 this year. Throughout the duration of the roadshow approximately 650 meetings took place, rising from 500 last year.

The Athens Stock Exchange is about to expand its range of products and services with the introduction of Exchange Traded Funds, which are open-ended mutual funds helping investors diversify their portfolio.

New prospects for ATHEX he Athens Stock Exchange (ATHEX) will shortly launch a new product and service as part of plans to broaden operations offered to investors. The Exchange Traded Funds (ETFs) is a new product which will be issued by the end of 2007. ETFs are open-ended mutual funds which are issued by Mutual Fund Management Companies (AEDAK) and are accepted for trading on the stock exchange. Just like shares, ETFs can be traded at any time, during trading hours, by members and brokerage firms. An ETF offers investors the benefits of a diversified portfolio, i.e. the risks involved are reduced by spreading them across a wide portfolio, while its main investment objective is to reproduce the performance of a specific index. Seven international and local issuers have expressed their interest in the creation of an ETF and in a few days the successful one will be selected. The issuers are: 1) Alpha Bank - Alpha Mutual Funds, 2) BNP Paribas - BNP Paribas Asset Management for its EasyETF platform, 3) EFG Eurobank - Eurobank Mutual Funds, 4) JP Morgan - JP Morgan Securities, 5) Marfin Egnatia Bank - Marfin Mutual Funds, 6) National Bank of Greece - Diethniki Mutual Funds, 7) Societe Generale Group - Lyxor.

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The new service that the ATHEX plans to incorporate in its activities is the Alternative Market of the ATHEX (ENA), a Multilateral Trading Facility (MTF). Since it is not a regulated market it does not fall under the obligatory provisions that apply in regulated markets or impose strict admission and ongoing requirements. It will operate in accordance with the ATHEX operating rules. The Alternative Market is addressed to companies seeking funding and easier access to the Secondary Market and investors looking for alternative forms of investment and who are willing to accept higher risk. The benefits for the market participants arising from admission to the ENA are mainly the following: an alternative method of fund-raising at a competitive cost, quick and easy access to the Secondary Capital Market, an increase of visibility and enhancement of reputation, an expansion of business in new products, market valuation of investments. The benefits for the ATHEX are, firstly, the further enhancement of its business and an increase in competitiveness for the benefit of all market participants and, secondly, the decrease of operating costs for the ATHEX with a corresponding reduction of the said cost for all capital market participants. Of course the ATHEX has imposed some prereq-

uisites for admission to trading. At the time of approval of the sharesâ&#x20AC;&#x2122; trading, the shareholders' equity in the company must be at least 1 million euros on a consolidated basis. Also the company must have published or drawn up annual financial statements for at least two fiscal years. In the event of loss-making fiscal years, accumulated losses must not exceed 50 percent of own equity. A company must appoint a nominated adviser both before and after admission, at the time of trading approval and for two years following such approval. Nominated advisers are either credit institutions and investment services firms/brokerage firms which are authorized to provide underwriting investment services or financial services/companies/consulting firms with adequate experience and operational organization. Finally it should be noted that the ATHEX is solely responsible for setting out the prerequisites for admission to trading, the obligations of companies and advisers as well as for imposing sanctions for any violation of the operating rules. ENA is supervised by the Hellenic Capital Market Commission on issues concerning market abuse, public offers and the issue of a prospectus, in cases its issuance is mandatory.

Markets BANKING SECTOR reek banks have been enjoying a growing market for credit products; however competition in the sector has been intensifying, with the appearance of new players and some existing banks becoming more competitive. This is reflected in net interest margins compression and in the efforts of the bigger banks to maintain rather than increase their market shares. On the other hand, the degree of concentration is still high with the five largest banks controlling about 70 percent of total loans and more than 60 percent of deposits. Furthermore, Greek banks are continuing to expand their operations in the promising markets of Southeastern Europe. In recent years outstanding loans in Greece have been growing at a significantly higher rate than GDP. As a result, the loans/GDP ratio has been moving higher and has reached a level estimated to be slightly over 90 percent. The EU average stands at over 120 percent. The latest data released by the Bank of Greece regarding loans and deposits in the private sector include the month of July. Overall, credit exhibited healthy growth rates both in the retail segment and in the corporate segment. Overall credit to the private sector rose by 19.7 percent in July, reaching a total of 199.8 billion euros. Greek households are raising their debt levels at a rate of 23.1 percent year-on-year. Unsecured lending is the strongest growth area, exhibiting growth rates of 28.9 percent, while the lowest growth segment are the outstanding credit card balances that are growing at rate close to GDP, i.e. 4.4 percent. Outstanding balances in mortgages (including securitizations) grew by 23.8 percent y-o-y, reaching 64.4 billion euros. Corporate loans exhibited a 16.7 percent y-o-y increase to 103.3 billion euros (including securitizations of 2.7 billion and bond loans of 16.4 billion). We should however mention that there was a slight acceleration of the growth rate in the months of May and June. Despite the declining trend of overall credit growth rates, after the hyper-growth experienced at the beginning of this decade, Greek households and corporations’ demand has kept the rates at relatively high levels. Deposits growth rates had been declining leading up to the end of 2006. So far this year we have seen the growth rates in the balance of deposits accelerating and reaching 14.4 percent with the balance standing at a total of 188.1 billion euros. In order to get a better feel of the domestic banking sector, we compare loans and deposits growth in H1 2007 extracted from the Greek banks’ standalone balance sheets as an indication of their activity in the domestic market and compare it to the growth market growth rates extracted from ECB data.

Research

Securities 32

Looking at total loans figures we see that the market growing at a 13 percent year-to-date, with most of the big traditional banks growing at a slower pace. Banks Piraeus, Marfin Popular and Postal Savings had the highest growth rates during the first half of 2007, with 19, 32 and 15 percent respectively. In terms of market share, the three largest banks — National Bank of Greece (NBG), Alpha Bank and EFG Eurobank — have lost a few basis points from their market share figures, as is the case for Emporiki Bank and ATEbank. On the other hand, the largest beneficiary is Piraeus Bank, which has gained almost 100 bps during this period on the back of a very strong presence in the corporate segment and mostly to SMEs. Deposits have, according to the European Central Bank, grown at 9 percent in H1 2007. Once more, most of the larger banks grew at a slower pace. Piraeus, EFG Eurobank and Marfin Popular grew more than the market as a result of aggressive/differentiating product offering. In the domestic deposit market share EFG Eurobank and Piraeus have gained approximately 100 bps each at the expense of NBG and Alpha Bank. Of the smaller banks, Marfin Popular is the only one gaining market share. Greek banks have been exploring opportunities in neighboring countries since the early 1990s. Before that any foreign operations were limited to countries and cities with a significant diaspora presence. Ever since Alpha Bank launched its first operations in Romania in 1994, many have followed and the new millennia has found Greek banks — especially the four largest — with operations in more than one country in Southeastern Europe as well as in Turkey and Egypt. The banks are a part of these fastgrowing economies and are contributors to the growth of these countries. In some cases these are markets with large populations and they are all under-banked and underleveraged when compared to their Western counterparts, meaning they represent attractive growth opportunities. Such is the environment where Greek banks have either already established or are on their way to establishing critical mass. Most banks have provided business plans stretching up to 2009 or 2010. Many have revised them upward and others are in the process of revising them a second time. The growth that Greek banks are experiencing has obviously been reflected in their market prices as well. The ATHEX banks index has outperformed the General Index year-to-date by over 100 bps. We remain positive on the sector, as any decline in the domestic growth in demand for credit could be offset by their established presence in the fast-growing economies of Southeastern Europe and the Eastern Mediterranean.

Piraeus Bank

Piraeus Bank was founded in 1916 and became a private bank in December 1991 after a long period of state ownership and management (1975-1991). Today the bank is ranked fourth in terms of market capitalization having demonstrated a period of very rapid growth through M&As and organic growth. The most significant acquisitions were those of Macedonia Thrace Bank, Xiosbank and ETBA Bank. Moreover, the bank acquired a number of foreign branches in Greece, such as Chase Manhattan, Credit Lyonnais and National Westminster. Currently, Piraeus operates as a universal bank with a clear focus on high margin segments such as SMEs and retail banking. At the same time, especially after 2000, strategic efforts toward international expansion have been ongoing, which has resulted in a significant presence of the bank in eight countries outside Greece with 356 branches and 6.2 billion euros in assets. President and CEO Michalis Sallas has been in charge of the bank since 1991 being very successful up to date and respected even by his competitors. There is also a team of longstanding senior managers with a very active role in the bank’s operations as well as in transferring its corporate culture. The way the management reacted during the recent takeover attempt by the Marfin Group was evidence of its effectiveness and high quality. At the end of June 2007, the Piraeus Bank Group had a network of 574 branches (304 in Greece and 270 abroad — excluding an acquisition in Ukraine which was completed in September), 10,227 employees and its equity capital stood at 1.9 billion euros. Clients' deposits, repos and retail bonds issued came to 20.7 billion euros, gross loans reached 25.5 billion and total assets were 37.3 billion. The company reported 372 million euros’ net profit for H107 including 150 million euros in one-off gains from the sale of its stake in Bank of Cyprus. Greek market Domestically, Piraeus Bank has been one of the biggest success stories in the sector. Still, having a young branch network (one out of three branches have been in operation for less than five years) the bank presents one of the highest growth rates in terms of business growth and profitability. In terms of market share, Piraeus has a 13.1 percent in loans and 12.2 percent deposits and repos, and ranks fourth in both categories behind NBG, EFG and Alpha. Fast procedures and flexible product offering, expertise in SMEs, investing in new technologies and young and friendly IT personnel are among the factors that make Piraeus a distinct case in the banking sector and resulting also in market share gains in a very competitive environment. In line with its strategy, the creation of the successful Winbank — an e-banking platform which has won several awards — has been contributing to the bank’s image as a modern and sophisticated organization as well to its business growth. An effort to expand to other sectors beyond traditional banking, such as bancassurance products and wealth management, is also under way. In June the bank acquired a 30 percent stake in Europaiki Pisti, a medium-sized Greek insurance company, and few days ago it signed an exclusive agreement with the ING Group, following a five-year strategic alliance. The latter agreement calls for the distribution of ING’s bancassurance products domestically by the bank and the sale of Piraeus retail products through the insurer’s network, whereas the partnership with Europaiki Pisti works is complementary as the bank can sell its insurance products through its international network. International market Piraeus Bank is also very active in the broader region outside Greece, with a presence currently in eight countries after the completion of the acquisition of the Ukrainian International Commerce Bank, while Cyprus operations are also expected to start in January

2008. Excluding Ukraine, total assets abroad stand at 6.2 billion euros, total loans at 4.3 billion, or 17 percent of group loans, and total deposits at 2.9 billion, or 14 percent of group deposits. International operations contribute about 12 percent of the group’s net profit, which is expected to increase in the coming years as business activity expands and matures. Indicative of how fast business is growing abroad for the bank is the impressive growth rates reported in H107 for loans and deposits, which grew by 93 percent and 44 percent respectively. Piraeus’s first move toward international expansion was made quite early in 1996, opening its first subsidiary in Albania, with the next step in 1999 when the bank established its presence in London and New York. In 2000 Pater Bank (renamed Piraeus Bank) in Romania was acquired, while 2005 was one of the most active years since the bank took control of subsidiaries in Bulgaria, Serbia and Egypt. Currently Bulgaria and Romania are the countries where the bank has its largest presence, while Ukraine and Egypt are two of the largest and most underbanked economies of the region which are expected to grow very fast, generating significant benefits in the future. Recent developments An indication of the bank’s quality comes from the recent successful completion of a 1.35-billion-euro capital increase, equal to its existing capital at the time and without having a single major shareholder to contribute. In July Piraeus announced its intention to proceed with a capital increase by issuing a total of 67,548,758 new common registered shares (a ratio of one new to four old shares) at a subscription price of 20 euros each. Despite the crisis that weighed on global markets in the last two months, the bank managed to attract 2.4 billion euros, oversubscribed 1.8 times, which represents a significant success. According to the management, approximately 900 million euros of the incremental capital will be required to support the accelerated business growth through 2008 while at the same time preserving capital adequacy levels above 11 percent and Core Tier I ratio above 7.5 percent. Risks Growth does not come without risks. Nevertheless it does not seem that Piraeus has taken excessive risks in its growth effort. Operational and execution risks are there but given the bank’s recent history they should not create abnormal concerns. Systematic risks are more important in this case. The future Piraeus’s vision is to be distinguished as a significant regional player in SE Europe and the Eastern Mediterranean by becoming the main bank of service for SMEs, being strong in providing solutions to individuals’ banking needs and remaining a preferred employer and top financial services provider. More specifically, in Greece the bank is aiming at having a network of 360 branches by 2010 in an effort to increase market share in all segments of activity through attracting new relationships and intensifying cross-selling. Expertise in SMEs and retail banking will aid in this direction. In its international operations, Piraeus’s primary goal is to expand business organically or through small acquisitions in countries where the bank is already present, whereas expansion to new countries cannot be excluded, especially after the successful completion of the capital increase. Domestic experience in several segments is quite valuable in forming an entry strategy in most of the foreign operation attempts.

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Markets Foreign investment in Greece is on the rise. Last year inflows of foreign direct investment reached 5.4 billion dollars, according to the World Investment Report, published in the middle of October by UNCTAD, the UN’s division on trade. This development shows that the country is increasingly attracting the interest of international business. Here are seven examples of foreign investors who are leading players in the European economy and that have invested in Greek companies with activities in various sectors, ranging from banking to energy and retail.

Leading European players take position in Greece

By Maria Vasileiou

Credit Agricole — Emporiki Bank

Societe Generale — Geniki Bank

In December 2000 French bank Credit Agricole announced the acquisition of 6.7 percent of Emporiki Bank. It was a strategic acquisition that led Credit Agricole to further increase its stake in the Greek bank to 9 percent in May 2002 by acquiring 2.35 percent owned at the time by the Loans and Consignment Fund (LCF). The terms of the transaction were those set when Credit Agricole SA purchased its initial holding in Emporiki in December 2000. At the time, it was agreed that Credit Agricole SA would have the right of first refusal on the LCF's holding in Emporiki. Six years after Credit Agricole began cooperating with Emporiki, on July 4, 2006, the French bank made a cash offer of approximately 2 billion euros for Greece’s fourth-largest banking institution. A month and a half later Credit Agricole SA’s bid for Emporiki was declared successful and it secured a 72 percent stake. Today Emporiki collaborates with Credit Agricole SA in four areas: life insurance, with the formation of Emporiki Life, a 50-50 joint venture between Emporiki and French insurer Predica; consumer credit via Credicom, a 50-50 joint venture between Emporiki and banking institution Sofinco; asset management with a 20 percent holding by Credit Agricole Asset Management (CAAM) in Hermes, Emporiki’s fund management arm, and the formation of Emporiki Asset Management, an institutional investment manager 20 percent-owned by CAAM; and wholesale banking with cooperative activities between Credit Agricole Indosuez and Investment Bank (of which CAI owns 2 percent) in project financing and fixed-income business. Emporiki Bank has 1.5 million customers, 425 branches and a 10 percent market share. Credit Agricole is the largest banking organization in France, with a presence across the entire spectrum of banking and finance activities. It is a leader in Europe in terms of current accounts and retail banking revenues, while it holds the second position in Europe and the sixth worldwide in terms of shareholders' equity. Credit Agricole SA pursues a strategy of sustainable, profitable growth through a unified approach between the regional banks and the group's specialist business line subsidiaries. Credit Agricole SA’s activities are centered on six business lines: French retail banking, with a 25 percent stake in the Regional Banks and the LCL (Le Credit Lyonnais) network, international retail banking, specialized financial services, asset management, insurance and private banking, and corporate and investment banking. Credit Agricole is France’s leading retail bank and has a unique competitive advantage: two highly complementary networks (the Regional Banks and LCL). The group significantly increased its international retail banking presence in 2006. After acquisitions in Egypt, Portugal and Ukraine, it seized opportunities to build on its presence in Greece and Italy. Credit Agricole SA generated net income of 3.947 billion euros for the first half of 2007, an increase of 48.7 percent compared with the same period in 2006. Net income expanded by 17.9 percent, to 1.292 billion euros, despite a conservative approach to the impacts of the US subprime loan turmoil, thereby confirming the great strength of the group's profitable growth model. Emporiki’s restructuring plan is moving forward as anticipated. Its five-year business plan was announced on April 27, 2007, with the aim of transforming the bank into a modern banking institution and recapturing its natural market share (10.5-11 percent, on average). This process is based on three sources of growth: i) the sustained growth of the Greek economy, ii) the transformation potential of the bank, and iii) further important developments in SE Europe, where Emporiki will serve as a hub for Credit Agricole.

On March 5, 2004, French bank Societe Generale (SoGen) became the majority shareholder of Greece’s Geniki Bank, holding 50.01 percent of Geniki following the acquisition of a block of shares held by the Army Pension Fund and the completion of a reserved capital increase on the basis of 6 euros per share. Societe Generale is one of the largest financial services groups in the eurozone. The group employs 88,000 people serving more than 16 million clients worldwide. Its interests revolve around three key businesses: Retail Banking and Financial Services, where SoGen serves more than 15 million retail customers worldwide; Asset Management, Private Banking and Securities Services, where Societe Generale is one of the largest banks in the eurozone in terms of assets under custody ($1.165 trillion) and under management (284 billion euros, December 2003); and Corporate and Investment Banking, in which it ranks among the leading banks worldwide in euro capital markets, derivatives and structured finance. SoGen is included in the four major socially responsible investment indices. Societe Generale was established on May 4, 1864, when the authorization decree was signed by Napoleon III. The bank's ambitions were reflected in its original articles of association, when it took the form — still very unusual at the time — of a limited company. In 2006 the bank reported 22.4 billion euros net banking income. Geniki Bank, a member of the Societe Generale Group, stands today at a very important juncture. The bank is entering a new era. Many positive initiatives have been taken and improvements have been achieved at all levels. The existing branches are undergoing renovation and by the end of the year a significant number of new branches will have opened. New products are being prepared and will soon be launched on the market. Geniki’s total assets are estimated at 3.8 billion euros (end of 2006). It has more than 305,000 customers, 2,303 employees, 139 branches and 67 off-site ATMs (at end-2006). Total operating income over the first six months of 2007 came to 84.7 million euros, slightly over (+0.4 pct) the first half of 2006. Costs in the first half of 2007 showed a limited increase (+4 pct) against the same period last year, at 84.7 million euros. Operating results before provisions stood at nil in comparison with 3 million euros in the first half of 2006. On June 30, 2007 total loans and advances, net of provisions, amounted to 3.1 billion euros and showed an increase of 12.8 percent. Total customer deposits and repos, amounting to 2.8 billion euros, showed an increase of 8 percent. As planned, a share capital increase of 210 million euros was voted upon in June 2007 in order to meet all regulatory and statutory requirements.

Lafarge — AGET Heracles Group

Iberdrola — C. Rokas SA

The AGET Heracles Group of Companies was established in 1911. But it wasn’t until 1992 that the company started attracting foreign investment. During that year 50.5 percent of the company's shares were transferred to CAL-NAT, a joint venture of Calcestruzzi SpA and National Bank of Greece. Four years later, in 1996, the clearance procedure for CAL-NAT took place as well as the distribution of the AGET shares it possessed (50.5 percent of the total) to Concretum (38.5 percent) and National Bank of Greece (12 percent). In 2000 54.48 percent of the company's shares were transferred to the Blue Circle Industries Group of the UK, which was acquired in 2001 by Lafarge, today AGET Heracles’ major shareholder. The Heracles Group is now Greece’s largest cement producer, with a production capacity of 9.6 million tons per year. It is also the largest cement exporter in Europe. Focused on sustainable development, it creates value for all its stakeholders, contributing to the economy and to the local communities where it operates. With three cement plants — in Volos (the largest in Europe), Halkis and Milaki — seven cement terminals, as well as facilities for production and trading of aggregates and concrete, the group has production activities in 29 prefectures around Greece and trades all over the Greek mainland and islands. Lafarge is the world leader in building materials, with top-ranking positions in all of its businesses: cement, aggregates and concrete and gypsum. With 71,000 employees in over 70 countries, Lafarge posted sales of 17 billion euros in 2006. Lafarge is committed to pursuing a strategy that puts the customer at the top of its priorities list. Lafarge is the only company in the construction materials sector to be listed in 2007’s ‘Global 100: Most Sustainable Corporations in the World.’ Its growth is based on its sustainable development policy. Group know-how encompasses industrial efficiency, value creation, protection of the environment, respect for people and cultures, and preservation of natural resources and energy. Lafarge offers all construction industry sectors — from architect to tradesman and from distributor to end-user — a comprehensive range of products and solutions for each stage of the building process. During the period 1990-2001 Lafarge became the world leader in building materials. In 2001, following the acquisition of Blue Circle, Lafarge became the world's leading cement producer. Numerous acquisitions and joint ventures in all four divisions and on every continent, particularly Asia, have continued to consolidate its world leadership position. In July 2001, Lafarge was introduced onto the New York Stock Exchange (NYSE). The Heracles Group of Companies announced sales amounting to 331 million euros in the first half of 2007, marking a marginal increase of 0.5 percent year-on-year. Respectively, the company’s sales for the first half of 2007 amounted to 297 million euros — an increase of 1 percent on the corresponding period of 2006. The group’s net profits after taxes for the first half amounted to 28.2 million euros, compared to 26.8 million euros in the same period of 2006 — an increase of 5 percent. In 2006 the group’s sales reached 693.7 million euros, increasing by 13.9 percent in relation to the corresponding period of 2005. Respectively, company sales for 2006 amounted to 615.7 million euros, increased by 13.1 percent compared to the same period of 2005. The rise in turnover mainly derived from the increase in the volume of cement and concrete sales in the domestic market, as well as in the achievement of higher prices in cement exports. Profit after taxes for the company showed a decrease by 63.9 percent, at 54.3 million euros compared to 150.5 million euros in 2005. Respectively for the group, profit after taxes decreased by 63.4 percent at 58 million euros in 2006, compared to 158.7 million euros in 2005.

C. Rokas SA was founded in 1958 by Christos Rokas, its main scope of business being the construction and installation of lifting and handling equipment, as well as heavy machinery and steel structures. In 1977, following its conversion into a societe anonyme (SA), or public limited company, the company built its new modern production unit in the industrial area of Tripolis and started specializing in more complex steel structures, supplying equipment to major commercial ports, shipyards and heavy industries in Greece and abroad. In 1990, the company was listed on the Athens Stock Exchange (ATHEX). During the period 1991-1992, the company constructed the first wind farms in Greece for the Public Power Corporation (PPC) and in 1998 it constructed the country’s first private wind farm. In 2004 Rokas became a member of the Iberdrola Group, which dates back to the beginning of last century when Hidroelectrica Espanola was set up to supply the markets of Madrid and Valencia, exploiting the Tajo, Jucar and Mijares rivers. Today Iberdrola is a world leader in renewable energy sources, with a considerable international presence in over 30 countries. In 2005 Iberdrola completed the agreement signed with the Rokas Group, the largest wind energy producer in Greece, acquiring a 49.9 percent stake in its capital. The company presently holds a leading position in both sectors of its activity — renewable energy sources and electromechanical equipment. In wind energy especially Rokas has a considerable market share, with a total installed capacity of 193.3 megawatts. In 2006 the company reported turnover of 50.188 million euros and gross profit of 22.133 million euros. Last year Iberdrola’s board of directors unanimously approved the 20072009 strategic plan — with projections to 2011 — which continues the course decided upon and successfully fulfilled in the previous five years and contemplates the beginning of a new investment cycle, within the framework of which 9 billion euros (+20 percent compared to the previous threeyear period) will go toward the continuation of the company’s commitment to the basic energy business, both in Spain and overseas. The new strategic plan, the aim of which is to increase profitability through growth, efficiency and internationalization, ratifies the company’s commitment to the environment and sustainable development. Not in vain does Iberdrola envisage extending its world leadership in the sector of renewable energy — it will reach a power of 10,000 MW in 2011 — and investing in clean electricity generation technologies. Supply quality is likewise one of its basic pillars. As a consequence of both its investments and growth of efficiency, Iberdrola will obtain a net profit at the end of the period of 2.350 billion euros, a figure that posits an increase of 70 percent (almost 1 billion euros) with respect to that achieved in the 2005 financial year (1.380 billion euros). Similarly, 3 billion euros will be paid as dividends. Iberdrola’s strategic focus again saw positive results in first-half accounts. Despite an environment of low pool prices (-36 pct) and modest demand for electricity in Spain (+2.6 pct), performance improved across the board: Sales rose 22.2 percent to 6.718 billion euros), EBITDA was up 25.4 percent to 2.403 billion euros, net operating profit rose 22.3 percent to 1.697 billion euros and net profit was 34.7 percent higher at 1.101 billion euros. The figures are testimony to the birth of a world energy leader, with a strategic focus on an Atlantic platform (Europe - North America - Latin America), and a cash flow (generated from operations) that surged 45 percent in the first half to 1.712 billion euros, laying the foundations for future growth at Iberdrola.

Delhaize Group — AB Vassilopoulos SA

Weather Investments — Wind Hellas Wind is today one of Greece’s largest telecommunications operators, with an annual turnover of 1.1 billion euros and more than 4 million customers. It was founded in 1992 as a subsidiary of Telecom Italia and became the technology leader of the Greek mobile telephony market thanks to its innovative products and services. In 2005 the company was acquired by APAX Partners and Texas Pacific Group, two of the biggest international investment funds. In 2006, TIM Hellas acquired Q-Telecom, the fourth-largest mobile operator in Greece. This acquisition allowed TIM to further strengthen its market position. the year 2007 is another milestone in the company’s history. On February 7, Weather Investments SpA, which controls the international group Orascom Telecom, acquired TIM Hellas. The sale price included 500 million euros in equity plus 2.9 billion euros in net debt at the end of 2006. APAX and TPG initially acquired TIM Hellas from Telecom Italia in June 2005 for 1.6 billion euros. In January 2006 the consortium completed the follow-on acquisition of Q-Telecom from Info-Quest SA for 360 million euros. During APAX and TPG’s period of ownership, the company was successfully turned around and set on a growth trajectory leading to a significant improvement in all financial and operating key metrics. As part of Weather Investments Group’s international footprint, TIM continued its successful course in the Greek market and changed its brand name to Wind. Weather Investments is a global telecommunication group controlled by Naguib Sawiris, who ranked 278th among the world's richest people in 2006. Sawiris made his first foray into the European telecom sector with his group's 12billion-euro purchase last year of a controlling stake in Italian mobile and fixed-line phone operator Wind Telecomunicazioni. He has also bought a stake in Hutchison Whampoa for 1.3 billion dollars. Today Weather owns Wind Telecomunicazioni SpA, the third-largest mobile operator and second-largest fixed-line operator in Italy as well as 50 percent plus one share of Orascom Telecom Holding SAE. Orascom Telecom is a leading international telecommunications company operating GSM networks in seven high-growth markets in the Middle East, Africa and South Asia. In Greece, through Wind Hellas as well as through the second-largest Greek fixed-line operator Tellas, the Weather Investments group has a significant presence in the local market and develops synergies to offer even more competitive products and services. Weather Investments gained absolute control of Tellas in the middle of October. Sawiris’s holding company bought the remaining 50 percent minus one share of Tellas by offering 175 million euros to the Greek Public Power Corporation. Today Weather owns 100 percent of Wind Telecomunicazioni SpA, with over 15.2 million mobile subscribers and more than 1.14 million direct fixed-line subscribers as of May 2007. Weather also controls and owns 50 percent plus one share of Orascom Telecom Holding, having a total population under license of approximately 460 million with an average mobile telephony penetration of approximately 29 percent as of March 31, 2007. OTH operates GSM networks in Algeria, Bangladesh, Egypt, Iraq, Pakistan, Tunisia and Zimbabwe. OTH had over 56 million subscribers as of March 2007 and owns 19.3 percent of Hutchison Telecommunications International, a leading telecommunication services provider operating in eight countries. OTH is traded on the Cairo and Alexandria Stock Exchanges and has GDRs traded on the London Stock Exchange.

Since its acquisition of Trofo, the sixth-largest food retailer in Greece, in January 2001, AB Vassilopoulos has become the second-largest food retailer in Greece. AB focuses on customers looking for competitive pricing as well as high-quality products and services. In 1992, the Delhaize Group acquired control of AB Vassilopoulos. It currently owns 61.3 percent of AB. The Greek operating company of the Delhaize Group had 7,200 employees as of December 31, 2006, and was operating 148 stores. AB Vassilopoulos SA was established in December 1969 by brothers Gerasimos and Charalambos Vassilopoulos. In November 1990 it was listed on the main market of the Athens Stock Exchange. AB reported revenues of 559.5 million euros and a net profit of 13.5 million euros during the first half of 2007. The Delhaize Group is a food retailer headquartered in Belgium which operates in seven countries. The group was founded in Belgium in 1867. The principal activity of the Delhaize Group is the operation of supermarkets in North America, Europe and Southeast Asia. As of December 31, 2006, the Delhaize Group has had a sales network (which includes directly operated, franchised and affiliated stores) of 2,705 stores with employees numbering approximately 142,500. Store formats are primarily supermarkets, which represent 85 percent of the Delhaize Group's sales network. The group's sales network also includes other store formats, such as neighborhood stores, convenience stores and specialty stores. In addition to food retailing, which accounts for approximately 95 percent of the Delhaize Group's sales, the group also engages in food wholesale to stores in its sales network and in non-food retailing of goods such as pet products and health and beauty products. In 2006 the Delhaize Group recorded sales of 19.2 billion euros and net income of 351.9 million euros. The Delhaize Group's operations are located primarily in the United States, Belgium and Greece. Its other operations are located in Romania and Indonesia. Belgium is the historical home market of the Delhaize Group. Over the years, the group has built a strong market position (second in terms of sales), providing its customers with quality products and services at competitive prices. At the end of 2006, the Delhaize Group's sales network consisted of 843 stores in Belgium, and the group employed 18,000 people in its Belgian activities. The Delhaize Group's Belgian sales network consists of several brand names, depending on the specialty, store size and whether the store is directly operated, franchised or affiliated (that is, stores to which the group sells wholesale goods and generates income only from sales made to such stores). Delhaize ‘Le Lion’ supermarket is the leading banner of the group in Belgium. The other supermarket banner, AD Delhaize, has been the most important growth vehicle for the Delhaize Group in Belgium for some years now. Proxy Delhaize is a convenience store operating minimarkets emphasizing fresh products and Delhaize private label products.

Dixons Group — Kotsovolos SA On July 4, 2004 Dixons, the high-street electronics and electrical chain owned by DSG International, took a controlling stake of Greek firm Kotsovolos, a leader in mixed electricals retailing in Greece, with the 35.7-millioneuro cash acquisition of a 39 percent stake in the Greek company. The stake increased Dixons’ holding in the company to 52.3 percent from 13.6 percent and gave it a controlling interest in Kotsovolos. It also gave Dixons the opportunity to extend its reach in Greece. Later Dixon’s increased its stake in Kotsovolos even further, when the Fourlis Group sold a 10 percent minority participation in the share capital of P. Kotsovolos SA. Greek furniture and sporting goods retailer Fourlis Holdings sold a 10 percent stake in Kotsovolos to the Dixons Group for 22.3 million euros. Fourlis holds another 10 percent stake in Kotsovolos and has the option to sell by September 2008. The United Kingdom-based company DSG international plc, formerly Dixons Stores Group plc, is one of the largest consumer electronics retailers in Europe. The company operates the Dixons, Dixons Tax Free, Currys, Currys.digital and PC World stores along with many other brands across Europe. DSGi is also a member of the FTSE 100 Index. The group's main focus is to specialize in the sale of high-technology consumer electronics products, audiovisual equipment, PCs, small and large domestic appliances, photographic equipment, communication products and related financial and after-sales services (e.g. extended service agreements). Other products and services provided by the group include electrical products, spares, accessories and repairs, mobile services, online digital photo processing, pre-recorded media and even childcare equipment. It also undertakes business to business (B2B) sales. Its main rival is KESA Electricals plc, which owns Comet and Darty. The British group reported 7.929 billion pounds sterling of turnover in 2006, while profit reached 114.1 million pounds. It operates in the UK, Ireland, Scandinavia, Italy, France, Spain, Hungary and the Czech Republic. Apart from Greece, where the group has retail interests, it undertakes property development in Belgium, Luxembourg, France and Germany.

Markets Foreign direct investments in Greece displayed large growth in 2006 but the country continues to fall short of its potential to draw foreign players. Outflows, on the other hand, remain strong as Greek companies invest heavily in the wider region.

Perennial underperformer shows growth in foreign investments reece managed to ride a wave of growth in global foreign direct investment (FDI) flows in 2006 relatively successfully, and saw both the inflow and outflow of FDI soar to record highs, at least compared to the years since 1990. Moreover, during 2006 Greece improved its relative position both as a recipient of FDI and as an investor abroad, although it continued to perform way beneath its potential, especially as an FDI destination. These are some of the conclusions in the 300page 2007 World Investment Report (WIR07), which is compiled annually by the United Nations Conference on Trade and Commerce (UNCTAD). This year the report was presented in the library of the American College of Greece, in Aghia Paraskevi, northern Athens. Greece climbed to a respectable 42nd position as a provider of FDI in 2006 (compared to 57th place in 2005), with outflows of $4.167 billion (compared to $1.451 billion in 2005). On the other hand, it ranked 114th among 141 countries with inflows of $5.363 billion in FDI (compared to 126th with $607 million in 2005). More telling of the country’s performance, however, is the fact that UNCTAD estimates Greece’s actual inflow potential at 36th among all the countries UNCTAD surveys. According to economists, the difference in ranking regarding outflows and inflows reflects to a certain extend the obstacles that discourage investment in the Greek economy. A country’s potential is calculated on the basis of several indices, such

Harilaos H. Daskalothanassis Director of media relations at the American College of Greece. www.acg.edu

as GDP per capita, the growth rate of the economy as a whole, exports as a percentage of GDP, the ratios of fixed-line and wireless telephony connections as well as that of college graduates in the population, energy use for commercial activities, and the country’s risk investment assessment. A significant part of the FDI inflows was due to mergers and acquisitions (M&A) activity. The largest such transaction in 2006 was the acquisition of Emporiki Bank by the French giant Credit Agricole, worth $2.7 billion. According to UNCTAD, this deal is one of the 172 so-called mega-deals, involving more than $1 billion, that took place worldwide in 2006. Experts expect that Greece will not be able to sustain this growth in FDI inflows in the immediate future. A large share of the FDI outflows went to countries in Southeastern Europe, where Greek companies more than doubled their sales to $821 million in 2006 from $362 million in 2005, making Greek multinationals in the aggregate the ninth-highest grossing group in the area (Austria leads the pack with $5.6 billion). Overall FDI flows increased for the third consecutive year in 2006, reaching $1.3 billion, an increase of 38 percent, said Professor Marina Papanastasiou of the American College of Greece Graduate School and the Copenhagen Business School, who presented the WIR06 in Greece. The top recipient of FDI was the United States, with the United Kingdom and France in second and third place respectively. China ranked first

among developing countries, and Russia was the largest recipient among the so-called transition economies. Among regions, Asia attracted the most investment, with West Asia (including Turkey and the Gulf countries) performing best with a tenfold increase in inflows since 2002, according to the summary provided by Supachai Panitchpakdi, the secretary-general of UNCTAD. Turkey in fact performed best among West Asian countries, and attracted $20.12 billion in FDI inflows in 2006 — twice what it did in 2005, and more that 25 times its average during the decade 1990-2000 ($791 million annually). Turkey’s surge reflects the approval of international investors of the stabilization of the Turkish economy under the moderate Islamist governments of Prime Minister Recep Tayyip Erdogan. Resource-rich Africa performed remarkably well by historical standards, attracting $36 billion in FDI, double its performance in 2004. The UNCTAD study registered the broad recovery in mergers and acquisitions activity that took place in 2006, with global M&As reaching their best level since the banner year 2000. UNCTAD predicts FDI activity to continue growing in 2007, albeit at a slower pace. According to Panitchpakdi, his organization’s surveys show that FDI activity is likely to grow in the years 2008 and 2009. This outlook is uncertain, however, due to signs of global financial instability and the frenzied rise in the

cost of energy. In the discussion that followed the presentation, Dr Anna Triantafyllou, a professor at the American College of Greece and a financial columnist, urged countries ‘not to be passive recipients of FDI’ but to set up the appropriate regulatory frameworks that will prevent exploitative practices and will ensure sustainable development.

$100-a-barrel oil? This year’s WIR paid particular attention to the socalled extractive industries, a broad sector that involves raw materials and energy. Much of the FDI that was directed to developing countries and the socalled transition economies, like the Russian Federation, went to mining and drilling. With oil prices having approached $90 per barrel in recent weeks, much of the discussion at the presentation revolved around oil. Energy expert and former Finance Minister Andreas Andrianopoulos remarked that unlike previous oil price surges, the current one is demand-driven and therefore more sustainable and less damaging to global economic growth. Andrianopoulos, who in the past served as Eleftherios Venizelos professor at the American College of Greece, explained that a shortage of refining capacity conspires with rapidly growing demand from Asia to push oil even higher, and said that it should not surprise anyone if oil topped $100 per barrel in the near future.

Cross-border merger and acquisition overview, 1990-2006 1990-2000

Sales 2004

2005

2006

(Annual average)

Greece

119

1990-2000

(millions of dollars)

2004

Purchases 2005

2006

(Annual average)

1,455

1,295

6,490

408

6,590

Memorandum Turkey

132

13,395

15,303

108

8 806

584

United Kingdom

17,980

58,107

171,689

150,527

20,447

47,307

90,535

91,717

European Union

53,668

178,772

429,146

432,144

59,437

164,677

386,757

426,656

Europe

56,362

185,809

445,126

451,288

66,085

176,095

413,405

483,637

Developed economies

105,003

317,431

604,882

727,955

108,743

341,682

627,064

752,482

World

117,889

380,598

716,302

880,457

117,889

380,598

718,302

880,457

Source: UNCTAD, World Investment Report 2007: www.unctad.org/wir or www.unctad.org/fdistatistics For details, see ‘definitions and sources’ in annex B and annex tables B. 4 and 6 in WIR07

Country rankings by Inward FDI Performance Index, Inward FDI Potential Index and Outward FDI Performance Index, 2004-2006 a Inward FDI Performance Index Economy 2005 2006

Economy

Inward FDI Potential Index 2004 2005

Outward FDI Performance Index Economy 2005 2006

Benin

103

109

New Zealand

Trinidad and Tobago

Algeria

113

110

Bahrain

South Africa

Malawi

116

111

Slovenia

United States

Denmark

123

112

Estonia

Lithuania

India

121

113

Malaysia

Indonesia

Greece

126

114

Greece

Australia

129

115

Kuwait

Japan

Paraguay

120

116

Czech Republic

Poland

United States

118

117

Lithuania

Venezuela

Uzbekistan

114

118

Libyan Arab Jamahir

Jamaica

Taiwan

132

119

Hungary

Latvia

Source: UNCTAD, World Investment Report 2007: www.unctad.org/wir or www.unctad.org/fdistatistics For details, see annex table A.I.6. in WIR07. Note: Ranking is that of the latest year available. Covering 141 economies. The potential index is based on 12 economic and policy variables. a. Three-year moving averages, using data for the three previous years, including the year in question.

Themes The progress of PPPs creates positive prospects for their further implementation in Greece. It is now demonstrated in practice that the Greek public authorities have a clear picture of the benefits and the new opportunities that the careful design and implementation of PPP projects can yield.

Ministerial committee OKs 3.1 billion euros of projects ince March 2006, upon the establishment of the PPP Interministerial Committee, under the provisions of Law 3389/2005 for the implementation of public-private partnerships (PPPs) in Greece, 24 projects have been approved with a total budget of 3.1 billion euros. The approval of these projects has been based on patterns set in other European countries which have successfully implemented PPP projects for years. The approved projects fall into different sectors of the economy, and more specifically into the sectors of education, health, port infrastructure, waste and sewage management, accommodation of public authorities and tourism. It is a fact that the up-to-date progress of the implementation of PPPs in Greece is mainly a result of the consistency between words and actions that has constantly been demonstrated since the ratification of the underlying legal framework. The main target of the PPP unit was to create a new market of projects and services which would significantly contribute to the development of the Greek economy. The approval of the abovementioned projects in just one year demonstrates the establishment of this new market. A market in which consulting firms, consultant engineers, banks and construction companies can all be active, a market open and accessible to any interested private party, a market which can yield significant benefits to all stakeholders involved. Up to now, the procedures for the appointment of specialized financial, technical and legal advisers have been completed for half of the abovementioned projects, while it is estimated that the rest (apart from the last five projects approved in August 2007) will be completed in the next three months. There has been a great interest in these projects, since more than 100 Greek and foreign companies have participated in the respective tenders. As for the tendering of the PPP projects themselves, the Hellenic Public Real Estate Corporation (KED SA) was the contracting authority that procured the first PPP project for the construction and maintenance of seven new fire stations of the Hellenic Fire Service. The procurement of this project is estimated to be completed by March 2008, and

the construction of the infrastructure is therefore estimated to start in June 2008. In July 2007, the General Secretariat for the Olympic Utilization launched the tender for the selection of the private partner for the transformation of the Faliron Pavilion (Tae Kwon Do stadium) into an international conference center. According to the planning of the PPP unit, from December onward, on a monthly basis, a new PPP tender will be launched, beginning with the construction and maintenance of three new prisons, the construction and maintenance of six new buildings for the University of the Peloponnese and the Attica schools project. The progress of PPPs creates positive prospects for their further implementation in Greece. It is now demonstrated in practice that the Greek public authorities have a clear picture of the benefits and the new opportunities that the careful design and implementation of PPP projects can yield for the faster provision of infrastructure and betterquality services to the citizens. It is also evident that the private sector considers PPPs as a new field for business activity. The approval of the implementation of a significant number of projects across different sectors creates substantial investment opportunities that stimulate the interest of many firms for participating in the implementation of these projects. As for the participation of foreign companies in the tenders of the first pilot projects, it clearly demonstrates that the Greek PPP market has been established quickly enough but with careful and cautious steps, so as to mobilize the interest of foreign companies that have significant expertise and know-how which they can efficiently disseminate around our country. Besides access to more projects, both foreign and Greek companies, through their participation in the Greek PPP market, can accumulate and add to their existing know-how, resources and credibility that will render them more competitive in the new PPP market throughout Europe. The 24 approved PPP projects, along with the clear legal framework and the transparent procedures, without doubt render Greece a focal point on the map of PPPs with significant business opportunities for foreign investors.

Leonidas Korres Special Secretary for Public-Private Partenships www.sdit.mnec.gr

Themes The first application for public-private partnership in the field of waste management has already been approved. The project, already in the pipeline and expected to start operations in early 2010, has raised several interesting issues requiring a second look.

Public-private partnerships in waste management: The first experience irst the facts: The first application for publicprivate partnership (PPP) in the field of waste management (WM) has already been approved by the Special Secretariat for PPPs and the Interministerial PPP Committee. The project of â&#x20AC;&#x2DC;Integrated Waste Management in Western Macedoniaâ&#x20AC;&#x2122; includes design, construction and operation of a modern waste treatment facility and the relevant landfill for residues, as well as the operation of nine transfer stations that have already been constructed, for 25 years. A detailed profile of the project can be found at http://www.sdit.mnec.gr/en/projects/projects/project0020.html. The budget is around 120 million euros and up to 50 percent of this will be covered by the Greek government through PPP law regulations, while the rest will be contributed by the local municipalities, through their Waste Management Authority (WMA), DIADYMA. The project is already in the pipeline and it is expected to start operations in early 2010. During the preparation of the project, which has not yet been completed, there several interesting issues have arisen that need to be discussed in a public dialogue. The most important are addressed below.

Drivers

Antonis Mavropoulos CEO EPEM SA www.epem.com

The Greek WM market is in transition. A lot of landfills do exist and are in operation and still more will be constructed during the next years, but the challenge of waste treatment has not yet been confronted. Although there is a national strategy regarding EC Directive 99/31 that establishes strict targets for biodegradable waste and its diversion from landfills, the steps already implemented have been inadequate. Two mechanical biological treatment (MBT) facilities have gone into operation, but their environmental results are questionable, to say the least. In any case, these facilities do not satisfy the requirements initiated by Directive 99/31. At the same time, a lot of the big landfills are coming under increasing pressure due to lack of space, with the case of Athens serving as a symbol

of the failure of the actual WM policy to meet EU targets. The Greek WM market and WMAs understand the necessity for waste treatment, but until now there has been no certain indication that EU or national funds will be used to that end. So the combination of treatment necessity and the lack of financial resources is a big driver for PPPs in WM. The response of the Ministry of Finance to this situation is a hopeful signal for the market and we hope that this is just the first of the required steps. Additionally, the very short time period remaining to achieve the targets for biodegradable waste provides a great advantage to PPP procedures. Although the preparation of a PPP contract is neither an easy nor a rapid task, there is much more flexibility and the PPP law provides certain tools that can significantly reduce the preparation period. One more important driver is the experience gained from the poor operation of the existing WM facilities. We all now understand that there is no point in spending decades and millions of euros developing waste treatment facilities if we cannot ensure their effective operation. And the truth is that effective operation can be achieved if the contractor is responsible for that, which can only be achieved through PPP contracts.

Barriers Despite the fact that real, strong drivers do exist, the application of PPPs in WM in Greece is a difficult issue due to the specific characteristics of the solid waste management systems. First, the status and the human resources for most WMAs are not capable of preparing and implementing PPP contracts. It is not by chance that the first effort started with DIADYMA SA, a managing authority with remarkable status in terms of human resources and a certain record of successes in EU funding and project implementation. But there are very few similar cases. Second there is the cost barrier. In most parts of the country, Greek citizens are used to paying a negligible price for waste management and even so it is not always certain that they achieve value for money. The

country’s great dependence on landfills is also testimony to that. There is a need for brave political decisions to achieve a gradual but steady increase of WM funds if we want to see the successful implementation of recovery and recycling targets. One of the reasons that led to the successful preparation of DIADYMA was that the local authorities were persuaded they had to increase WM spending in order to achieve great environmental results. And the generous contribution of the Ministry of Finance in its willingness to pay is a good example that will certainly affect the political decisions required. Last but not least of the barriers are the negative experiences of some PPP efforts that have been made previously. Of course one must understand that these efforts came out of the new framework. In general terms these failures were characterized by: ñ Poor or no preparation; ñ Lack of performance standards; ñ Lack of risk distribution; ñ Lack of reliable commitment between the PPP contractor and the municipalities.

Project preparation

Combination of funds

The Greek WMAs, the consultants involved in WM, as well as the government and the contractors need to reassess project preparation. The application of PPPs to WM projects: — Should be combined with certain changes to project design. The overall feasibility of the project must be carefully documented, since PPPs are long-term relationships which are based on the financial contribution of citizens and municipalities and not just European Union funds. Local affordability levels must be determined and evaluated before the contracts. — Must lead to project preparation with an emphasis on specific, desirable and quantified results instead of the usual more-or-less detailed design of the facilities that dominate the Greek market. — Needs careful and justified consideration of the potential risks of the project. This is something that is not yet understood by the public decision makers, who are used to ignoring long-term risks, but we all know that a PPP contract without efficient risk allocation will be a certain disaster.

One of the most important lessons provided by the DIADYMA experience is that the modern waste management gate fees are too high for Greece, even in the case of one of the most efficient and expensive WM systems in the country, that of Western Macedonia. The Ministry of Finance has made a great contribution of funds in order to cover the existing gap between gate fees for modern waste management treatment and citizens’ ability to pay. But if a large part of the construction cost was covered by EU funds, the gap would be much smaller and the implementation of similar projects would be affordable in many more cases. The new government should consider this as the last opportunity for Greece to develop modern WM infrastructure utilizing EU funds that do exist. If these funds are once again used just for landfills and transfer stations, this opportunity will be lost. Then, the future of waste management in Greece will be much more expensive and, undoubtedly, difficult to consider.

Themes Implementation of the program is indispensable for the modernization of the accommodation of the Greek civil service. The goal is to highlight and select new implementation and funding tools for accommodation projects, which will increase the financial return for the public sector in comparison to conventional methods.

HPREC targets improved efficiency of public real estate hese last few years, the Hellenic Public Real Estate Corporation (HPREC) has been moving toward the development of services regarding the implementation of the Accommodation Program for the Greek Civil Services, as well as the acceleration of the business plan, aiming to develop and utilize a large number of major public real estate properties. Implementation of the public housing program through building facilities suitable to support services of high standards is an absolute priority, and therefore an important parameter in the efforts toward modernization of the Greek public administration. To date, accommodation projects have been implemented almost exclusively through public funding. However, the significant extent of the program along with the need to optimize use of public funds render necessary the use of alternative funding tools by employing private funds. Our goal is to implement the program with the best quality, at the best cost for the Greek state, within acceptable budget lines and within the set implementation time frame. The Accommodation Program for the Greek Civil Services currently comprises 244 projects. These projects cater to a wide range of housing needs. The overall budget amounts to 2.6 billion euros. The superstructure of projects under the Accommodation Program covers a total of approximately 1 million square meters, while basements and auxiliary facilities totsl an additional 0.5 million m2. Twelve percent of the program has already been completed in recent years, and another 5 percent is either under auction or in progress. Implementation of the program is essential for the modernization of accommodation of the Greek civil service. Based on the compiled data, a considerable number of key public administration bodies are currently housed in inadequate buildings, while housing and relocation needs are increasing. There is also a lack of appropriate technical management services to prevent devaluation of the existing buildings. For those entities in need of accommodation, it is important to ensure the best possible quality of housing services at the lowest cost. Quality of housing services implies quality in both building infrastructure and auxiliary services, which is necessary for the smooth operation of these infrastructures in the long run. In the conventional project implementation model, the private sector assumes specific responsibilities over a limited time span, primarily focusing on the construction objective. With the new housing models, the private sector is expected to contribute to the implementation of the program, thus undertaking the

Î&#x201D;

Konstantinos Gratzios HPREC Chief Executive Officer/Agronomist Land Surveyer Urban Planner www.ked.gr

funding of housing projects, and most importantly assuming an essential part of the risks associated with the overall life cycle of such projects. The added value of private entity involvement resides in their ability to manage certain risks in a more effective manner, therefore resulting in more cost-effective solutions. Private entities contributing to the implementation of the Accommodation Program comprise not only construction companies, but also include a multitude of other categories, such as real estate management companies, specialized investors of publicprivate partnership projects, institutional real estate investment companies, technical management providers, investors in real estate leasing schemes, and funding entities, such as banks. The public sector is currently implementing two basic alternative models in project implementation or provision of housing services: a) the proprietary model and b) the leasing model. In the proprietary model, the public entity assumes all risks of the project, which often leads to deviation for the original construction and operation budget. In contrast, under the leasing model, the private entity assumes an extremely large proportion of the risks, and the public entity on the other hand bears the cost of the high flexibility retained under this scheme. In both cases, the overall housing cost for the public entity is elevated, therefore rendering these conventional methods less cost-effective. Financial return is defined as the metric system used to compare the cost to the value of services offered (value for money).

Private initiatives The goal of the Accommodation Program is to highlight and select new implementation and funding tools for housing projects which will increase the financial return for the public sector in comparison to conventional methods, thus equally meeting the requirements of accommodated parties, the public administration and investors. The new tools fall under two general categories: Ăą Implementation tools of new housing projects, or upgrade of existing projects through private funding; Ăą Fund-raising tools through exploitation of existing building facilities or other real estate properties. The first implementation category referring to new housing projects comprises two basic tools: the public-private partnership (PPP) schemes and infrastructure implemented through long-term operation lease with construction. HPREC and the public are especially interested in the second fund-raising tool category, through the

exploitation of existing buildings or other real estate properties. These funding tools are based on the fundamental concept of sale and leaseback (S&L). The funding tools can combine solutions, such as exploitation of existing real estate with implementation of new housing projects, as in the case of S&L with construction. The Accommodation Program includes 21 categories of projects which can form one or more agreements each. Of a grand total of 244 projects, 185 will be handled under project implementation agreements, while the remaining 59 projects will be undertaken through fund-raising agreements. With the aforementioned data in mind, HPRECãs goal of preparing and announcing 17 separate tenders of a total value of 1.130 million euros within a three-year time frame is considered feasible. A considerable number of Accommodation Program projects will be implemented via conventional implementation tools for public housing projects, since other tools do not ensure return for the public. In any case, the new tools are anticipated to operate as alternatives rather than replacements to the institution of public works. As far as the institution of PPPs is concerned, the tender for the seven fire departments scheduled to be completed within the first quarter of 2008 is under way. The technical consultant for the technical management program of four buildings for the Hellenic Police has been identified, and by the end of the year the project should be put to auction. Furthermore, the tender for the identification of a technical consultant for the 11 police departments is also in progress. By December, two more projects of the Accommodation Program will be submitted to the Bi-Ministerial Committee for approval: the Hel-

lenic Police Headquarters and the Fire Department Headquarters. It is common knowledge that HPREC is managing a variety of public real estate properties, aiming to create added value from the exploitation through flexible investing schemes, with private sector standard of operation criteria, thus ensuring public and social welfare.

Properties for utilization Last July, an agreement was concluded between HPREC and the Municipality of Glyfada in southern Athens: a Memorandum Agreement on the upgrading, management and secure operation and use of the entire coastal zone of Glyfada. The goal is for the coastal area to be remodeled into the most significant open-air recreational space for aquatic and other sports in the whole Athens and Eastern Attica region. We have prepared a plan that envisages the remodeling of 18 hectares on the Glyfada seafront, which aims to rearrange the entire coastal zone stretching over 2 kilometers, from the Asteria area up to Aghios Cosmas. According to the plan, modern self-financing venues and infrastructure will be developed, employing modern architectural standards and provision for the creation of footpaths and bicycle lanes running all along the coast next to the tram lines. This effort is part of a generalized plan to modernize the coastal zone, so that it can be returned to the people of Athens. Finalization of the auction procedure is anticipated by the end of next year. — Another Memorandum Agreement was concluded last May for the creation of the International University of Greece in the region of Michaniona, Thessaloniki, foreseeing cooperation of the Municipality of Michaniona with the Ministry of Education and HPREC for:

The foundation of the International University of Greece along with auxiliary facilities, which will trigger development and exposure of the wider Thessaloniki region; ñ Contribution to the socioeconomic development of the region, by creating new employment opportunities for the local population, ensuring local business participation in the project works, and thus boosting the economy of the Michaniona area. Furthermore, there is a provision for the design and subsequent operation of an international conference center along with auxiliary facilities. Thessaloniki is currently lacking such facilities, which are indispensible for the unobstructed operation of both the International University and the Pole of Research and Innovation, already operating in eastern Thessaloniki. — Regarding the former US Telecommunications Facility of Gournes in Iraklion, Crete: The initial approach to development of the area focuses on implementing two operational and building units: a business park, featuring a business center with office space, stores and recreational facilities; a leisure park for tourism, recreation, culture and sport, including hotels, specialized facilities for tourist activities, auxiliary activities, aquatic sport, multifunctional recreational centers, and more. — The real estate property of Antirio, which stretches over some 22.3 hectares, mainly comprises sections of the former construction site of the RioAntirio Bridge. This property is in a strategic location, expected to attract significant investments in the coming years, especially in light of the completion of the Ionian Highway. HPREC is in close cooperation with the regional fund for development of Western Greece, the Aitoloakarnania Prefecture and the Municipality of Antirio, on this issue, and utilization of the property is already in the pipeline, first viewing to enhance development and investing opportunities in the project. The auction procedure of the project, focusing on identifying a suitable investment scheme for development, is anticipated to be initiated at the end of 2007 and to be completed by the year 2009. — The last property is where the broadcasting station of Voice of America was based. The property’s land area totals approximately 800 hectares and the building surface is approximately 25,000 m2. This is coastal land on the estuary of the Nestos River in the Xanthi Prefecture with exceptional ecological characteristics. It is included in the NATURA 2000 network, and is protected by the International Ramsar Convention for Wetlands of International Importance. The property is also part of the National Park of Eastern Macedonia and Thrace. HPREC’s goal is to develop the property by highlighting its natural characteristics; to this end, collaboration has been initiated with the Prefecture of Xanthi and the National Park Managing Body. The strategic goal of HPREC is to develop and utilize major properties through private funds. These properties feature adequate size and potential of attracting trustworthy private investors. In this manner, the conditions will be set for both development of investment initiatives and optimization of public revenue.

Themes The government interministerial committee approved a 40-million-euro project that is at the bidding stage. The Rafina project, expected to be completed by 2010, has the backing of the local council and residents. However, broader problems regarding sewerage networks remain.

Green light given for waste treatment unit in Rafina n August 2, 2007, the Interministerial PPP Committee, after consulting with the Special Secretariat for PPPs, a task force within the Ministry of Economy, agreed to the ‘implementation of sewerage networks and a sewage treatment unit in the Municipality of Rafina.’ This project is the first ever project planned under the Public-Private Partnerships regime in the field of sewerage networks and sewage treatment and involves the design, construction, financing, maintenance, facility management and operation of the new infrastructure for 25 years. The project will cost 40 million euros (plus 20 percent for insurance and conservation expenses) and it is now at the bidding stage for the consultants’ appointment. The initial infrastructure is intended to be constructed during 2008-2009 and to go into operation by 2010. The Municipality of Rafina had been struggling for years to find a funding opportunity for constructing this project, which is a necessity for local residents. Finally, after gaining the full support of all local councilors and the local community, the Municipality of Rafina succeeded in absorbing the relevant funds under the Public-Private Partnerships regime. (For further information regarding this project, please log on to http://www.sdit.mnec.gr/en/projects/projects/project0022.html.)

Present situation

Dr Evangelos Mihalopoulos President of BoD ASE SYNERGY CONSULTING SA

In the past, the population’s sewage treatment needs were covered via infrastructure funded by the EU or the Greek government. This was followed by a huge amount of time taken to submit the project proposal to release the relevant funds and finally construct the proposed infrastructure. Despite the fact that in recent years there has been important progress regarding sewerage networks and sewage treatment in Greece, there are still certain significant problems, which can be summarized as follows: ñ Increase in local and seasonal population creates drinking water shortages and raises ques-

tions about its required quality. The Prefecture of Attica and most of the islands popular with tourists require extended attention in sewage networking due to population increase needs, especially during the summer months. ñ Water availability forecasting in conjunction with climate change makes the future uncertain in many areas. In many cases, misunderstandings regarding the actual technical and financial capability of those involved in the construction phase were the main reason for unreliable project operation or non-operation. Project parties were usually unable to account for the real project needs or to take into consideration any future additional work needed. There is also significant inactivity reported in managing sewage resulting from sewage treatment, therefore creating the potential for an additional service financed under PPP. ñ Most of the sewerage network and sewage treatment shortage is concentrated in small or medium-sized areas. ñ Most of the current infrastructure is not designed to cover all expected population and visitors’ needs and potential funding is not secured for extensions.

Opportunities On the other hand, it is necessary to identify several opportunities which may arise: ñ Projects regarding sewerage networks and sewage treatment (unlike waste management projects) show increased community acceptability because the initial cost that citizens would be required to pay for the establishment of such a system is less than if there were no such system at all. ñ Many of the identified needs are observed in tourist areas which usually possess the necessary capital to fund such projects, bearing in mind that such a project creates room for improvement, therefore greater sustainability and improvement in tourist indicators. ñ There are several small areas that would be

very difficult to absorb EU funding: ñ Technological advancements may offer extensive solutions to different and changing population needs. This increased demand makes PPPs an attractive solution to conservative funding mechanisms of public infrastructure. ñ High correlation between conservative and new technologies in project construction and operation of sewerage networking - sewage treatments and renewable energy systems occurs to the betterment of the service using cheaper options in favor of the citizens. The role of all stakeholders is crucial: the Ministry of Economy, PPPs Department and PPP Secretary, Local Authorities, PPP Consultants as well as potential investors. For successful implementation and cooperation there is a need for a new vision when dealing with such projects.

The new vision Certain crucial matters arose from the open dialogue with the Municipality of Rafina: ñ A new approach is needed. A new approach that specializes not only in constructing the infrastructure but in the way this service is actually distributed. The way public authorities used to operate sewerage networks and sewage treatments is no longer appropriate. Population needs, which change and increase as the years go by, will be properly satisfied by a new aspiration to create public infrastructure while maintaining balance and quality vis-a-vis the increased demand. Interrelation of cost-benefit analysis must be in place for fighting disoperation, abandonment and poor system conservation. In this way, citizens will be happy to receive an up-to-date service.

ñ Public-private partnerships transfer a great deal of risks (environmental, operational, legal, social responsibility, demand) to the private sector and the potential institutional investors. In the meantime, this current PPP regime provides the private sector with the opportunity to choose the appropriate technological solutions depending on performance indicators, while allowing citizens to pay for a service with value for money. ñ The European Union, via its potential participation in funding such projects, may have the opportunity to increase the acceptability and effect of fund release while transferring a significant part of this shared responsibility to the private sector. A further reason for participation of funds in the constructing phase may be to make this investment more attractive to potential investors.

Themes The objective is ambitious, however the fundamentals are set and our prospects to attract private investors in the sector of integrated waste management are intensely visible.

A 120-million-euro waste management project moves ahead

wo years after the inauguration of the first regional sanitary landfill in Greece, the Interministerial Committee unanimously agreed on the incorporation of the municipal solid waste treatment plant (MSWTP) of Western Macedonia through public-private partnership. The project, with a budget of 120 million euros (at current prices), is expected to be subsidized up to 50 percent and this includes the manufacture of the MSWTP and the operation of the regional integrated waste management system (RIWMS) of Western Macedonia for 25 years. It will be the first time at a national level that an intermunicipal enterprise undertakes the development of such a complex technological investment with an unusual institutional process in this sector. The objective is ambitious; however, the fundamentals are set and our prospects of attracting private investors in the section of an integrated waste management are intensely visible. According to the chairman of the Waste Management System of Western Macedonia (DIADYMA), Nikos Totonidis, ‘the cooperation with enterprising figures aims to secure capital for the project’s development through intense competition, combining enterprising ability with the financial and technical know-how in terms of managing and operating a municipal solid waste treatment plant of similar scale.’ In mid-2011 the MSWTP will operate and will quickly appoint the regional IWMS entirely compati-

Nikos Totonidis CEO of DIADYMA www.diadyma.gr

ble with the European Union’s strategic plan in the sector of waste management by forming a new model in Greece which aims to reduce the environmental implications and the rational management for natural resources. Totonidis adds that the project’s rapid development is already obligatory, as the remaining life cycle of the sanitary landfill does not exceed seven years. This undertaking requires great effort and a complete exploitation of technical know-how that the company has accumulated on issues such as auctioning and managing expenditure since 2002. Moreover, the smooth operation of the RIWMS from mid2005 has proved the company’s ability to manage the technical composition and operation of a multiparametric system whose life cycle depends on the financial stabilization insurance identified with the revenue bond of the performed usage from the municipalities. Totonidis underlines that ‘the success of DIADYMA is owed to our attentive goals, our ability at the technical, institutional and administrative levels and mainly to the observation of international progress through the strong managing organization of the company and its project.’ He adds, ‘The “capital” that we accumulated in previous years in combination with social consent constitute a solid base for the project’s development, and the local government once more is asked to respond to the institutional liability in relation to citizens, environment and public health.’