Greece Infrastructure Report Q1 2009

The protests in Greece raised the political risk premium in the country's business environment, one that transcends into the infrastructure sector as well. The fragility of the government's control and the frail mandate it has, jeopardises the planned investments in infrastructure projects.

The deteriorating financial crisis and the strained government finances - which limit the government's ability to implement stimulus plans like other European peers - means that the overall outlook for investments in infrastructure has severely deteriorated since our last report. In BMI's Q109 Greece Infrastructure Report, we forecast that construction sector real growth will continue to go through an abrupt boom and bust period in the coming years. Gloom has spread in the construction sector according to the latest data by the national statistics agency, which coupled by the wider macroeconomic and political grievances has prompted a much more bearish outlook on our part, with average real growth for the sector for the 2008 to 2012 period at 0.9%.

Uncertainly looms on the ability of the government to remain in power, the implication of which on the infrastructure sector is that any institutional changes (OSE unbundling) and new projects (airports PPP) will likely be put on hold. This however could not have come at a worse time. The macroeconomic crisis and alienation of the wider population from government policies also jeopardises eliminating the progress made in terms of allowing greater private penetration in the infrastructure sector of the country; a structural change in perceptions of no small degree. Traditionally, infrastructure development has been considered solely a public affair, run and operated by public bodies. We anticipate that so long as the government remains unpopular, any moves to hand over management of ports, airports, railways or roads to private operators (like COSCO with Piraeus port for instance) will be met with a vehement response from unions and public servants. The same would apply for any possible unbundling in the PCC, the state owned utilities company, in spite of the fact that the company itself has called for some structural reforms to take place.

Major players in the Greek infrastructure industry include locals Elliniki Technodomiki-Aktor-TEB Group, J&P-AVAX, Terna, Mytilineos, Aegek and Athena, some of which also have significant operations abroad, mainly the Balkans and Middle East.

The private sector involvement becomes more important when one looks at the macroeconomic indicators. The budget will come under strain from falling revenues and according to BMI forecasts, the ballooning external debt of the government will slow short-to-medium term growth, as the government has to revise its debt obligations and fiscal responsibilities, potentially slowing the developments in the infrastructure sector. This will further be accentuated with liquidity drying up rapidly in the financial system, and therefore raising capital will be extremely difficult in 2009 and 2010.