Privatisation of Greek airports still on track

Despite delays and rumours of renegotiations, a €1.2bn lease agreement with Germany’s Fraport is likely to reach commercial close by year end.

The privatisation of 14 Greek regional airports has hit several snags since a consortium teaming German airport operator Fraport with a subsidiary of Greek energy company Copelouzos emerged as the preferred bidder for the 40-year, €1.2 billion operating concession last November.

The agreement, which comprises airports that in 2013 served a total of 19.1 million passengers located in various parts of Greece, including its second-largest city Thessaloniki and popular tourist destinations such as Crete, Rhodes, Mykonos and Santorini, has yet to reach commercial close. This is mostly due to a fluid political situation which saw the election in January of a leftist government opposed to privatisation, a referendum on austerity measures, the possible exit of Greece from the euro, and most recently the resignation of current prime minister Alexis Tsipras and the decision for a snap election next month.

Reports in the local media stated that the Fraport-led consortium was seeking to renegotiate the terms of the agreement while the Greek government was threatening a do-over of the tender process.

But Fraport denied those reports. “The Fraport consortium is not renegotiating the terms of the concession agreement, but on the basis of the outcome of the bidding process, we need to finalise the overall project process and the remaining details of the concession agreement and its appendices in further conversations,” a spokesperson for the German airport operator told Infrastructure Investor in an e-mailed response.

The Greek privatisation agency – the Hellenic Republic Asset Development Fund (HRADF) – responded separately to these reports, stressing in a statement released on August 19 that the Fraport-led consortium has confirmed its interest in the deal and has renewed letters of guarantee totalling €300 million.

HRADF declined to comment beyond the press release but a source familiar with the negotiations expects the agreement to reach commercial close by the end of 2015.

Fraport and Slentel, the Copelouzos subsidiary participating in the consortium, beat two other teams that had also submitted binding offers: Argentina’s Corporation America with Greek engineering firm Metka and France’s Vinci with Greek contractor Ellaktor.

Fraport, the consortium’s controlling member, and Slentel will pay the €1.2 billion upon commercial close and have committed to invest an additional €1.4 billion in the airports over the life of the concession, of which €330 million is to be invested in the first four years. In addition, the consortium will pay €22.9 million a year, a fee that will be annually adjusted according to the Consumer Price Index (CPI).

According to a non-paper Infrastructure Investor had the chance to review, the concessionaire will bear all maintenance, operating and expansion costs. The refurbishment plan includes upgrading existing facilities as well as building new terminals and expanding existing ones, expanding runways where necessary and building new parking areas.

The concessionaire will have to submit a Master Plan within five months of commercial close and a Refurbishment Plan one month later.

Critics of the deal have pointed to Fraport’s ownership structure. With the State of Hesse owning a 31.35 percent interest, and the City of Frankfurt’s wholly-owned subsidiary Stadtwerke Frankfurt am Main holding a 20.02 percent stake, the majority of Fraport is owned by German state-owned entities.

Seeking comment from Fraport whether this raises any issues, its spokesperson responded: “The Greek privatisation fund noted and accepted our participation in the bidding process in awareness of our ownership structure.” The spokesperson also emphasised that the German airport operator is not acquiring the 14 airports but will operate them under a 40-year concession agreement.

“Fraport is a publicly traded company,” our source said. “As far as HRADF is concerned, Fraport is a private sector company.”

Another criticism levelled at the deal has focused on the €1.2 billion price tag. But according to industry insiders, every state-owned asset that goes on the selling block is first evaluated by an independent firm. The specific firms are not identified in order to ensure objectivity. Once a fair value has been determined no bids below that amount are accepted, these sources told us.

The Greek airports deal is one of the largest since the beginning of the country’s debt crisis that broke out in 2010. Under the latest bail-out agreement – the third – Greece has reached with its international creditors, the country must privatise €50 billion worth of state-owned assets in order to receive a new batch of financial aid totalling €86 billion.

Privatising state-owned assets was also a condition included in the previous two agreements Greece has signed with the European Union, European Central Bank and the International Monetary Fund, which in addition with a series of other measures, arranged to provide the country with €240 billion in aid.

Progress, however, has been dismal. In 2010-2011, Greece agreed on a programme that would raise €50 billion by the end of this year; as of January 2015, it had raised only €3.1 billion.

Should the deal with Fraport be finalised, Greece will be on track to meet its most recently stated goal of raising €1.4 billion by the end of 2015.