Cyta privatisation on hold, for now

After nearly two years of negotiations with the Troika of international lenders, the government has finally formulated its privatisation framework for state-owned telco Cyta, reassuring its 2,000 workers that their jobs and salaries were secured.

The plan is to eventually privatise the semi-government organisation into a company with the government as its sole shareholder, which will later offer its stake to local or international investors. Athe same tiome, the company will rpobaly be split into two – the commercial operator of telephony and the owner-operator of the infrastructure, that will probably remain in government hands, but will sell services to the new Cyta, as it would to all other telcos on the island.

The government has had an obligation to at least launch the privatisatioon process for Cyta, as well as power company EAC and the port authority by the end of 2015, as part of the EUR 10 bln bailout plan from the EU, the ECB and the IMF.

But after protests staged by the Cyta workers’ unions in front of parliament and at the Presidential Palace as the Cabinet was meeting on Monday, the government seems to have backed down from i mmediate privatisation, preferring to leave the decision till after the parliamentary elections in May.

The only support that the ruling DISY party would have had was expected from the centre-right DIKO, that has a significant membership among the trade unions, as it appointed many staff during the hey-day of party favouritism in the 1980s and late 1990s. DIKO’s main opposition to privatisation was the clause for national security, which seems to have been appeased with a separate bill tabled on Tuesday that allows for state intervention in the case of a national emergency. Opposition parties also said that the privatisation process could open the doors to Turkish entities buying up the Cyprus telco.

However, back in September, communit AKEL’s mouthpiece Haravghi reported on leaked first half results for Cyta, suggesting that profits were higher, in an attempt to fend off reasons to sell of the telco. It said that the early retirement and voluntary redundancy schemes helped reduce operating costs from EUR 156.5 mln in the first half of 2014 to EUR 138.8 mln this year.

Profits, the newspaper reports, reached EUR 40.1 mln, up from 25.1 mln from the year earlier, not realising that such an argument would make it even more attractive to potential buyers.

Finance Minister Harris Georghiades reassured workers on Monday that their salaries and jobs were secure, with four alternatives expected to be discussed which will determine the employment status and benefits of the workers who will move on to the privatised company.

Warning that Cyta should not have the same fate as former national carrier Cyprus Airways, Georghiades said that the final EUR 400 mln tranche from the Troika would be jeopardised if the privatisation bill is not passed any time soon.

He said that the telco has improved its image by becoming more efficient and profitable, wit the iam of making it attractive to strategic investors, unlike Cyprus Airways that had become a black hole with rigid unions failing to foresee its demise due to unsustainably high operating costs and payroll.

He said that the final EUR 400 mln was aimed for the Co-operative sector, as Cyprus is expected to exit from the three-year moratorium some time in March 2016 and will not have fully utilised the 10 bln initially planned.