Greece Infrastructure Report Q4 2009

The announcement of elections in early October has stopped developments, including those in the infrastructure sector, dead in their tracks. Early elections create uncertainty regarding several tenders announced over third quarter, including those for Athens’ new motorways, the new international airport in Crete, the partial privatisation of EYATH, and the much anticipated partial privatisation of DEPA, all of which were expected to be awarded, or be in their final stages, by the end of the year.

Polls indicate that the opposition party PASOK is heading for electoral victory. According to their policy agenda they oppose the privatisation of state owned utilities and have strongly opposed the partial privitisation of EYATH. Political risk therefore becomes a key concern for the Greek infrastructure sector. The burdensome bureaucratic edifice of Greece is costly to investors and is a major obstacle to doing business in the country. This is reflected in BMI’s Infrastructure Business Environment Ratings and Project Finance Ratings for Western Europe.

The infrastructure sector is dominated by the three big players operating in the Greek market: Terna, Aktor and J&P Avax. With the contraction in the construction sector in Greece, Greek newspaper Naftemboriki noted in a recent report that the gap between them and smaller construction players has increased, therefore allowing Terna, Aktor and J&P to further consolidate their position in the market, especially the PPP market, which they dominate. This poses a strong downside risk for Greece’s Business Environment Ratings, as it can affect the indicator that measures competitiveness in the construction and infrastructure market. 

Though the new tenders, especially for motorways, suggested strong upside potential in early September, the uncertainty regarding future policy caused by the pending elections prompted a ‘wait-and-see’ attitude on our part. We forecast that construction sector real growth will continue along the downward trend it embarked on in 2008 as revised data from the national statistics agency revealed. First-quarter data came in negative, broadly in line with our expectations, through the fall was not as abrupt as we had expected. Accordingly, gross fixed capital formation for non-residential construction (including infrastructure) declined by 0.7% compared with Q408, while seasonally adjusted construction industry value registered real growth of -4.5% compared with Q408, but positive 1.4% compared with the corresponding quarter of the previous year.

The latter figure is a very positive sign for our forecasts for 2009, which show that we expect to see a contraction, albeit one that is less steep than last year. Indeed, the first forecasts for the year seem to validate this view, with the year-on-year growth figure in positive territory. Major players in the Greek infrastructure industry include locals Elliniki Technodomiki-Aktor-TEB Group, J&P-AVAX, Terna, Mytilineos, and Aegek, some of which also have significant operations abroad, mainly in the Balkans and Middle East. We anticipate that expansion abroad will become an even greater of part of the corporate strategy of these firms in the coming years, as it will help offset the downturn in Greece. However, it should be noted that, with the possible exception of Saudi Arabia and Qatar, the Middle East and the entire Balkan region do not look too promising for 2009-2010 either. It is worth noting that at least for 2008, their strategy of internationalisation paid dividends, as the three companies reviewed in this report (Terna, J&P-Avax and Aktor) showed robust revenue growth for 2008, beating the downward trend set by many of their European rivals. Contracts overseas also cushioned the contraction in domestic contracts, which in turn affected order books in the first half of 2009.