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LARCO, ELVO, EAS Privatizations (part 1)

In its efforts to meet privatization targets agreed upon with the Troika of lenders, the government has slated three problematic, to varying degrees, industries for privatization. These are Hellenic Defense Systems (EAS), Hellenic Vehicle Industry (ELVO) and LARKO mining and metallurgy firm.

Of these the first two pose special problems as most of their products are defense related, while LARCO is the only mining firm producing nickel on European soil, covering 6% of European needs in the metal. For this reason many also consider it a strategic asset.

Now, the government wants to liquidate the industries while in operation, with a division between units producing defense related goods and those producing for general trade, and an early retirement scheme for staff.

So far this does not seem to be washing with the lenders.

Debt the greatest thorn.

The main problem for the companies that has hindered the "cleaning of their houses" and is now hindering their privatization, is debt.

LARKO is burdened by 130 million euros of government subsidies, which the EU and troika want to be repaid to the government, back taxes worth 190 million euros. While it also owes power provider DEH 160 million euros. One further hindrance for prospective buyers are breaches of environmental laws that will necessitate another 50 million euros to restitute.

But, the company's power costs, which constitute around 35% of the cost are twice as high as the power costs of international rivals LARCO paid 72 euros per MW/h, which was lowered to 50 euros after a relevant request to the energy regulatory authority RAE, still double the 25-30 euros per MW/h paid by competitors.

EAS, the most heavily indebted of the three has garnered 1.1 billion worth of government subsidies, has a debt of 140 million euros, and was 84.4 million euros in the red in 2011.

Before PYRKAL (one of the two components of EAS, established in 1874) was nationalized it was part of the Bodosakis group (as was LARCO), under whom it reaped great profits. In 1982, after the demise of its "ruler" it was taken over by the state, which despite its existence had founded another company, in 1977, that was in direct competition EVO (Hellenic Weapons Industry, the other component of EAS). The two companies were amalgamated into a single entity in 2004 in a first effort to somehow 'clean house'. But, the rot had begun to set in almost from the very beginning of the post-junta era.

Unions believe a main reason for the huge debts was the fact that state subsidies were given in the form of loans guaranteed by the Greek state, in essence burdening the company with mounting interest, while at the same time never paying its bills on time. One wonders why as these were state guaranteed loans they did not undergo a "haircut."

Also maintaining inoperative production lines, in case they were necessary, meant spending money without profit.

Recently the government hired three companies to advise them on how to privatize the company and told them to come up with a scheme in 30 days. They are the same three advisers that had been hired to clean up the firm in 2004, with no results.

Ownership of prime real estate cuts in Athens and Elefsis make the company an attractive target for liquidation.

Some believe the company can be salvaged through its foreign orders, for 40mm and 5.56 mm ammunition.

Of the three companies ELVO has the lowest debt amounting to 54 million euros and an annual deficit of 17 million euros. The company, founded in 1986, after a transfer of the share package of Steyer Hellas S.A.to the Greek state.

In 2000, ELVO, transferred 43% of shares and management to Mytilinaios S.A. Under this management the company had the biggest turnovers through a series of collaborations with US and German firms that sold vehicles to the Hellenic armed forces. Some of these synergies were looked into by justice because of reports involving kick backs and bribery.

Last moment torpedo.

The rather recent demand by creditors for the firms to return subsidies makes the near impossible proposal of the government to liquidate the industries while in operation.