The structure governing the privatisation of the Cyprus Telecommunications Authority (Cyta) aims at attracting a strategic investor, while safeguarding the national interest and protecting the employees of the island`s state-owned telecommunications provider, Constantinos Herodotou, the Privatisations Commissioner, told CNA.
One of the conditions for Cyprus` €10 billion bailout by the EC, the ECB and the IMF, was a privatisation plan including the sale of Cyta, the Electricity Authority of Cyprus, and the sale of the commercial activities of the Limassol port. The plan aims at garnering €1.4 billion by 2018 to be used for public debt reduction. Furthermore, the approval of the bill for the privatisation of Cyta has been set by Cyprus` lenders as a prior action to the next disbursement of Cyprus` bailout that will be decided during the next Eurogroup meeting scheduled for September 11.
The government approved the bill during a Council of Ministers` meeting last Wednesday, and the bill will be submitted to the Parliament for debate and approval.
Speaking to CNA, ahead of the discussion on the government bill, Herodotou said that “one of the structure`s aims is to safeguard the national interest and the national wealth,” stressing that “the option to create a new state-owned limited company allows the state to transfer to the new company only the assets and liabilities that are directly attached to telecommunications activities, therefore maximising the price of the transaction.”
He explained that if all assets of the state-owned Cyta that are not connected with telecommunications activities were to be transferred to the new company, “they would possibly receive a lower valuation by the prospective investor, resulting in a loss for the state.”
Under the bill, the government will issue a decree determining which assets will be exempted from the privatisation process and will remain to the public Cyta that will continue to operate as a state-owned organisation.
The core assets, which are assets directly attached to telecommunications activities, will be transferred to the new Limited Company, with the Republic as the sole share-holder, until the attraction of a strategic investor. That will minimise the risk of a possible loss for the government.
“This is a structure aiming at maximising advantages for the state. With this structure and the assistance of the Privatisations Unit and its advisors, we tried to maintain a difficult balance; the protection of the public interest and the taxpayer, the protection of the employees but also the attraction of a prominent investor,” Herodotou said.
According to figures from Cyta`s balance sheets, the company`s real estate amount to €250 million. Herodotou said that Cyta`s administration, in cooperation with the Privatisations Unit and its advisors, will determine which of these real estate will not be included in the transactions, therefore minimising the risk for a lower evaluation.
He pointed out that if the state-owned Cyta was to be converted into a private company, then all assets, including real estate ownership, and all employees would be included in the privatisation process, bearing the risk of a lower valuation of the non-core assets, whereas the employees, even with the state as the sole share-holder until the finding of a strategic investor, would not be able to maintain their public sector employee status.
Therefore, the government believes that the structure allowing the government to create a private company, will not affect the employees until the finding of a suitable strategic investor for Cyta. Under this structure, following a transitional period of one year after the final transaction between the government and the strategic investor for the sale of the private company, the employees will be called to take decisions on their future based on four options.
Under the government proposal given to the employees, the first option covers the employees who will work in the private Cyta with a private contract and will be granted a package of free shares of the company as an incentive to abolish the public sector employee status.
The second choice covers the employees who opt to work for the private company while maintaining the public sector employee status. These employees will be considered as public sector employees with unpaid leave, whereas the investor will not be able to request their return to the state-owned Cyta up to one year following the expiry of the transitional period. If the investor, at any time following these two years, requests the return of any employees back to the state-owned company, they will return to their posts in the state-owned company. The same applies for any employee who voluntarily decides to return back.
This, the government believes, provides a safety net for the organisation`s employees, as technically they will maintain their public sector employee status, even if the government is not paying their salaries.
The other two choices include a voluntary retirement scheme and the transfer of employees who will remain in the state-owned Cyta in other government services and departments and who will organisationally be included in the structure of the state-owned company and maintain the same salary scales and benefits.
According to the planning so far, the Parliament will require up to three months to debate and approve the government bill, after the approval of which the privatisation process will begin. It is expected that it will take up to nine months to be concluded once the whole process runs smoothly. Following the conclusion of the priviatisation process, the one-year transitional period will begin and Cyta employees will have to take their decisions on their future.
“For two years from today, nothing changes for Cyta employees as they continue to be employed by the state-owned company,” said Herodotou, allaying fears of Cyta`s employees that they will lose their jobs.
According to the government plan, the state-owned company will maintain its organisational structure that includes the employees who will work for the private company, while maintaining their public sector employee status, and those employees who will opt not to work in the private company and will be transferred to other public sector departments and services.
Moreover, the state owned company will manage the assets not included in the privatisation.
Sources told CNA that Roland Berger, one of the Privatisations Unit advisors on the sale of Cyta, apart from drafting the Cyta business plan that will determine the organisation`s value, is in the process of calculating how many free shares will be given to the employees who will opt to work for the private company abolishing their public sector employee status.