Greece Infrastructure Report Q2 2014
The Greek construction industry experienced yet another year of contraction in 2013 and we do not expect a tentative recovery before 2017. Throughout 2014 the downturn will be evident in both the housing and infrastructure segments, 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. We see little scope for a quick rebound in the construction industry during our 10-year forecast period to 2023.
Key Areas Offering Growth Potential
Transport Infrastructure: In August 2012, Greek development minister Kostis Hatzidakis announced that the government would increase its focus on new transport infrastructure projects to boost development in the recession-plagued economy. However, the projects are constantly being delayed and we do not see any of these to be completed soon. 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) Hatzidakis announced that long-awaited extensions to four major motorways (Olympia Odos, Aegean Motorway, Kentriki Odos and Ionia Odos), which have been frozen for years, will be re-started. European funds will continue to be crucial to the country's infrastructure sector, as public sector funding continues to be constrained by austerity measures, which is subsequently making private investors wary of the market. In a move indicative of this trend, the European Investment Bank has offered Greece EUR550mn to fund a number of infrastructure projects.
Renewable Energy: As part of the EU, Greece has committed to the European Commission's 20-20-20 goals for 18% of energy for final consumption to be from renewable sources by 2020. However, the country has also committed to reaching 20% of energy from renewable sources by 2020, under the Implemented Directive 2009/28/EC (EEL, 140/2009). 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 (FiTs) and scaling back on renewables, especially the solar PV sector, our Renewables team sees that the Greek government will revise down FITs in 2013. As per our expectations, the government has proposed a reduction in FiTs for solar PVs, from 45% to 35%. This is part of the wider 'new deal' legal framework that the Ministry of Energy and Climate Change submitted for consultation in September 2013 and which seeks to streamline, rationalise and balance the renewable market in Greece. The immediate objective is to eliminate the deficit of the operator of the electricity market, LAGIE.
Privatisation Drive: The government of Greece is planning to expedite the sale of its 74% stake in the country's Port of Piraeus, which is planned for 2014. The OLP will be sold through a concession contract and the last date to submit an expression of interest is April 28. The current concession contract under which the Piraeus Port Authority (PPA) operates will undergo certain changes, including changes in the obligations of the PPA and preservation of the position and role of the port of Piraeus. Under the new concession contract, balanced growth of the port and investments to revitalise shipbuilding will also be encouraged. The sale is expected to include a 30 to 40 year management concession. The government is expected to raise at least EUR320mn (US$436mn) from the sale, based on the current market price of Piraeus Port Authority stock.
According to Development Minister Kostis Hatzidakis, the port of Piraeus is likely to emerge as one of the top five container-shipping hubs in Europe. This could be achieved as the government is promoting logistics activities in order to push economic growth, added Hatzidakis. Currently, the port is the 11th largest container-shipping port in the EU and is under expansion as China-based COSCO Pacific is constructing a third pier and gearing up to provide cargo-train shipping to multinational companies. In 2012, the port handled a total of 3.163mn twenty-foot equivalent units (TEU) and was ranked 4th in terms of TEU in the Mediterranean in 2012. The Port of Piraeus is estimated to emerge as the busiest container terminal in the Mediterranean by 2016.
Meanwhile, the ruling coalition of Greek Prime Minister Antonis Samaras is getting ready to divest all of rail operator Trainose in order to stimulate demand for sea and rail transport near the crossroads of three continents.
The long-term outlook for Greece's power sector is downbeat at best. As such, we expect the government's efforts to privatise state-owned utility Public Power Corporation (PPC) and introduce plans to liberalise the domestic electricity market at the same time to dampen investor interest in PPC itself or any spin-off of the state-owned power firm, as demonstrated by the government's failure in 2013 to attract any bids 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, investor caution and the government's austerity drive keeping the country's Rewards score at a low 49.1. Although the Greek economy remains the laggard among the Eurozone member states, the latest headline data show a continued improvement in GDP (in y-oy terms) at a time when growth across the euro area has faltered. Indeed, according to data provided by the national statistical office, the rate of economic contraction in Greece eased to 3.0% y-o-y in the third quarter of 2013, slowing from -3.7% the previous quarter. However, European funds will continue to be crucial to the infrastructure sector in Greece, as public sector funding continues to be constrained by austerity measures, which is subsequently making private investors wary of the market. Indeed, one of the key weaknesses of the country's economic restructuring plans remains the slow pace of privatisation with regard to state-owned assets.