Greece Infrastructure Report Q4 2013
Published by Business Monitor International
on Oct 10, 2013
, 80 pages
PDF - Download Now with 3 Quarterly Updates format - Download Now
While recent economic data releases suggest that Greece may overcome six years of recession and record slightly positive economic growth in 2014, one of the weaknesses of the country's economic restructuring plans remains the slow pace of privatisation with regard to state-owned assets. In line with this slight positive economic outlook, though our forecast for the Greek construction industry in 2013 remains bleak with yet another year of contraction in the industry, we see the sector to pick up the pace in 2014 but recording tentative recovery only by 2015. Throughout 2013 and 2014 the downturn is evident in both the housing and infrastructure segments, as private residential construction and government sponsored public projects ground to a halt. In line with our overall view about existing projects facing significant delays and funding issues, we see little scope for a quick rebound in the construction industry during our 10-year forecast period.
Greece's construction industry is estimated to have contracted by almost 15.6% year-on-year (y-o-y) during 2012 in real terms, according to new data released by General Secretariat of National Statistics, and there is little hope for resurgence in 2013 as reduced spending on planned projects and diminished demand from the private sector (owing to higher property taxes, tight credit and rising unemployment) discourage investors from returning to the market.
Key areas with growth potential:
Transport Infrastructure: In August 2012, Greek development minister Costis Hatzidakis announced that the government will increase its focus on new transport infrastructure projects to boost development in the recession-plagued economy. Key transport projects include the completion of a metro network in the northern city of Thessaloniki, expansion of the suburban rail network and the regional ports of Patras, Igoumenitsa and Lavrion. In addition, most recently (mid-2013) Mr. Hatzidakis announced that long awaited road extensions of 4 major motorways (Olympia Odos, Aegean Motorway, Kentriki Odos and Ionia Odos) which have been frozen over the past years will be re-started. As such, we see the railways, airports and ports sub-segments to see particularly strong investment inflow over the 10 year forecast period. However, risks remain to the upside as Greece's unstable economic environment makes it unable to secure the financing required to keep the projects active.
Renewable Energy: Greece's government is keen on making the country Europe's solar energy powerhouse, with up to EUR20bn being invested over our 10-year forecast period to 2022. However, reflecting the wider European trend of cuts in feed-in-tariffs and scaling back on renewables, especially the solar PV sector, our Renewables team sees that the Greek government will revise down Feed-In Tariffs (FITs) in 2013. The government will not issue new permits for solar PVs until a new strategy is in place for the sector and the deficit of the operator of the electricity market (LAGIE) is cleared. We have revised down our forecasts for wind and solar for 2013 and 2014, and tentatively put an increase in place from 2015 onwards, though the capacity that has already flooded the Greek market should discourage a renewed influx of capacity, especially at lower FiTs.
Privatisation Drive: In January 2013, China Ocean Shipping (Group) Co, is considering the acquisition of a 74% in the Piraeus port, in a deal which could be valued at EUR1bn, according to a Reuters report. The company's recent investment deal - of EUR230mn - to increase the port's cargo handling capacity by two thirds over the next 7 years by expanding the long awaited Pier III, is forecast to ease Piraeus privatisation process. Meanwhile, plans are being made to split twenty-one regional airports into two groups, which will then be conceded to private investors for a period of about 30-35 years, the government announced in March 2013. In terms of Greece's energy infrastructure our Country-Risk team sees that the long-term outlook for the country's power sector is downbeat at best. As such, they expect that despite the government's efforts to privatise state-owned utility Public Power Corporation (PPC), and at the same time introducing plans to liberalise the domestic electricity market, it is difficult to envisage that there will be much investor interest in PCC itself or any spin-off of the state-owned power firm, as demonstrated by the government's recent failure to attract any bid for state-owned gas firm DEPA.
Greece continues to occupy the bottom ranking in BMI's Developed States' Infrastructure Risk/Reward Ratings table, with ongoing economic pressures, investors' caution and government austerity drive keeping the country's Rewards score at a low 49.1. The country still faces years of punishing fiscal austerity and anaemic economic growth, leaving little scope for the public sector - the main investor of infrastructure in Greece - to provide funding for new projects.