EUROPEAN COMMISSION
DIRECTORATE GENERAL
ECONOMIC AND FINANCIAL AFFAIRS

Brussels, 8 October 2016

Compliance note on mid-September milestones for the second
disbursement for debt servicing needs of the second tranche
under the Greek ESM programme
___________________________________

This compliance note provides an assessment of the implementation of the set of
milestones endorsed by the EWG on 9 June 2016 to pave the way to the disbursement of
the € 1.1 bn sub-tranche of adjustment programme approved by the ESM in June 2016.1
On one of the milestones, namely the appointment of the Supervisory Board of the new
privatisation and investment fund, the Hellenic Corporation of Assets and Participations
the European Commission and the ESM acted jointly. This compliance note was
compiled by European Commission staff, in liaison with ECB staff.
Following the implementation of measures, which include the adoption of legislation on
27 September and on 6 October 2016, this report assesses that the received legislation
and other actions taken by the authorities broadly comply with the list of 15 milestones
endorsed by the EWG.
In light of the evaluation of the milestones the following considerations are relevant.
The Supplemental MoU of June 2016 contains additional commitments beyond the
milestones to ensure that HCAP is fully operational. An important next step is the
appointment of a Board of Directors who should have executive responsibilities. As
required by the HCAP law, it is important that the Board of Directors, should be
appointed on the basis of an open and transparent process, and that the successful
candidates are professionals who are fully independent of inappropriate political or
business links. In addition, the internal regulations of HCAP need to be in line with
international best standards of corporate governance. As regards energy policies, the
milestones are important actions as part of a wider strategy to establish efficient and
competitive markets for gas and electricity. To this end, it is important that related
actions not included in the milestones, such as relevant privatisation tenders and the
NOME auctions, are also fully implemented and completed in line with MoU
commitments and in full agreement with the European institutions.
Looking forward, and following the completion of the HFSF review of the Boards of
Directors of the four systemic banks, the process of reconstituting the boards should be
finalised as a matter of priority. All remaining and new board members, including State
representatives, should meet the minimum criteria that are set out in the HFSF law.

1

The list of milestones as approved by the EWG can be found in the Compliance Report of the First
Review of the Third ESM Programme.
(http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/pdf/cr_full_to_ewg_en.pdf)

I. PENSION REFORMS
I.1. Finalise the harmonisation of social security contributions:
(i) eliminate the lower minimum contribution base for owners of tourist accommodation
(ii) repeal all exemptions allowing for lower health contributions
(iii) revise downwards the discount for lump sum payment of notional insurance periods
The necessary legislation was adopted by the Parliament on 27 September as a part of the
omnibus bill (Law 4425/2016).
DONE
II. BANK GOVERNANCE
II.1 The HFSF, with the help of an independent international consultant, will finalise
the review of the boards of the banks in which the RFAs apply.
The financial sector milestone was completed following the conduct of the
comprehensive review of the functioning and structure of the boards of directors of the
four systemic banks by the HFSF with the support of an independent consultant; the
communication of the results to the banks in early July; and the finalisation of the HFSF
assessment of appeals to the review on 23 September 2016. The review was performed in
line with prudent international practices by applying criteria that go beyond supervisory
fit and proper requirements, as set out in Article 10 of Greek Law 3864/2010, which
defines the minimum criteria that need to be applied in the review. While the review has
been completed satisfactorily, the institutions consider that one of the criteria for the
review, namely having 10 years of experience at senior managerial level in the areas of
banking, audit, risk management and distressed asset management, has been interpreted
in a broad way. Looking forward, the process of reconstituting the boards of the four
systemic banks should be finalised as a matter of priority. In line with Law 3864/2010,
the HFSF should undertake efforts to ensure that the findings of the review are
adequately addressed by banks and that all remaining and new board members have
adequate experience in the financial sector and meet all the criteria contained in the
HFSF law, thereby preventing conflicts of interest. These efforts will form an important
element of the second review of the ESM programme.
DONE

III. ENERGY
III.1 Continue the implementation of the gas market reform
(i) RAE (the energy regulator) will adopt gas distribution and transmission tariffs
(ii) legislation will be amended, further facilitating the unbundling process
(iii) the authorities will complete the review of the gas release program, improving
conditions of access for alternative suppliers and substantially increasing the quantities
available
On (i): On distribution, the methodology was published in the Official Gazette on the 26
September 2016 (FEK B 3067), and adoption of the actual tariffs has taken place on 7
October 2016. Transmission tariffs had their methodology changed retroactively through
legislation (Law 4009/2016) without discussing or informing the institutions, in spite of
repeated requests of information. Following extensive discussions, the authorities have
amended the legislation through a provision in the omnibus bill (Law 4425/2016).
Adoption of the actual tariff has taken place on 8 October 2016.
For work on unbundling (ii), the legislation was adopted initially on 4 August 2016 (Law
4414/2016). A number of necessary amendments were made in the omnibus bill (Law
4425/2016).
On gas release (iii), a written proposal by DEPA with revised commitments, i.e.
improved access conditions and increased quantities up to 20% in 2020, has been sent to
HCC and endorsed by HCC.
DONE
III.2 In the context of the implementation of the EU target model for the electricity
market, pass the required legislation on the transposition of the high-level market
design in June 2016
The legislation on the Target Model was adopted as part of the omnibus bill (Law
4425/2016).
DONE
III.3 Amend the current legislation on ETMEAR and/or the structure of the RES
account to ensure that the debt in the RES account is eliminated over a 12-months
forward looking horizon (not later than June 2017); the account will be kept annually
in balance onwards.
The initial amendment on renewable energy incentives had been approved on 4 August
2016 (Law 4414/2016). An amendment which brings a number of points in line with the
milestone has been legislated on 6 October 2016. It also foresees elimination of the debt
in the RES account by December 2017, which is longer than the originally envisaged
timeframe, but includes a corrective mechanism to prevent further or persisting
imbalances of the RES account during this timeframe. Moreover, regular provision of
data on the RES account has been agreed with the Greek authorities.
DONE

III.4 The General Assembly of PPC will authorize the sale of at least 20 percent of
ADMIE to a strategic investor
The General Assembly took place on 11 July 2016 and voted the sale of 24%. The tender
was launched by publication on PPC's website directly thereafter.
DONE
III.5 PPC will conclude the negotiations on HV tariffs with all its customers by signing
the respective contracts, and the adopted tariffs shall be cost-based and take into
account consumption characteristics.
Following extensive negotiations, the Board of Directors of PPC has approved on 28
September 2016 the terms of agreement with Aluminium of Greece (AoG), PPC’s largest
customer. These have been formally approved by the General Assembly on 5 October
2016 and the contract signed directly thereafter. With this signature, except for four cases
concerning a company under liquidation and three companies which have ongoing legal
disputes with PPC, all PPC’s HV (industrial) customers have signed a cost- and
consumption-profile based contract.
DONE
IV. PRIVATISATION
IV.1 The Government with the Institutions (a) agrees on the nominations of the
Supervisory Board of the new Privatisation and Investment Fund (HCAP)
The Government has agreed with the institutions on the composition of the Supervisory
Board of the new Privatisation and Investment Fund (HCAP). Among these, two have
been jointly proposed by the European Commission and the ESM and three by the Greek
authorities. The Ministerial Decision on the appointment of these members has been
signed on 7 October 2016. The Board has already informally met on 5 October and has
launched the process that will lead to the appointment of the Board of Directors.
DONE
IV.2 The Authorities will transfer to the new Fund a second group of SOEs as agreed
with the institutions (list included in the TMU)
Following the establishment of HCAP and its subsidiary EDIS which will take under it
many of the state-owned enterprises (SOEs) share ownerships of additional six entities
have been transferred by law to EDIS (the water companies of Thessaloniki and Athens,
KTIP, ELVO, Attiko Metro and the power company PPC). Regarding the Hellenic
Aerospace Industries the Authorities and the institutions have agreed to have an external
advisor report about the company’s financial state and prospects and whether this
company should be shifted under EDIS in order to have it restructured, without

compromising national security. This should be completed within the second review to
consider the future of the company.

DONE
IV.3 The Authorities will ratify in Parliament the Share Purchase Agreement for
Hellinikon
The share-purchase agreement for Hellinikon SA (a company that would develop the site
of the former Athens International Airport) has been ratified by the Greek Parliament.
This paves the way for financial closing which will take place when a number of
conditions have been fulfilled; this is currently estimated to be completed within the next
six months. The tender has been awarded in 2014 and will bring some EUR 900 million
in proceeds.
DONE
IV.4 The Authorities take appropriate steps, and adopt legislation if needed on
strengthening HCAA
An important new law reforming the Hellenic Civil Aviation Authority (HCAA) has
been adopted by the Greek Parliament on 6 October 2016. Under the new framework
HCAA will be split into two new entities: a regulator for economic matters and airnavigation services, and a separate operator for air navigation services and airports. The
new authorities, and particularly the regulator, will be structured so that they operate at
an arms' length distance from the Government in order to provide their services
independently, especially in view of the prospective privatization of 14 regional airports
that will be completed by February 2017. Overall, the Law is in line with the comments
provided by the institutions. In agreement with the Commission services
(MOVE/ECFIN), the authorities have agreed to make a number of technical adjustments
to the legislation by end-October in the context of the second review. These include
changes needed to address (i) restrictions on the nationality of the Governor unless these
can be justified under national or EU law, (ii) a provision (art 2.1) according to which the
Governor manages the Supervising agency in accordance to ministerial decisions and not
only exclusively his/her Board decisions , (iii) a list of competences from the local
offices that suggest a very decentralised approach which could unduly interfere with the
smooth operation of the privately-managed airports. (iv) a transitional arrangement
according to which the existing governor will continue to oversee both new institutions
until the appointment of the new Governor of the Supervisor, and (v) a provision that
would require a Presidential Decree to appoint the new Governor, something that will
unnecessarily delay the process. In addition some transitional arrangements relating to
staff appointments/transfers will need to be checked with Ministry of Administrative
Reform and Ministry of Finance in order to ensure that they are consistent with the
overall hiring ceiling and MTFS.
DONE

IV.5 HRADF will launch Expressions of interest for the long-term (35 years)
concession of Egnatia Motorway S.A. and three Vertical Axes
The privatization process for Egnatia motorway has been launched after a decision of the
Board of Directors of the Hellenic Republic Asset Development Fund (TAIPED) on 6
October 2016. The process will begin with a preparatory and consultative period with
potential investors that will end with submission of expressions of interest, and tender is
planned to be concluded by the third quarter of 2017. Before launching the process the
company took a number of decisive steps to prepare the ground for the tender and create
more certainty for potential investors (e.g, launching of processes for constructing eleven
new toll stations which will completed over the next one year, and provide data to
advisors to complete new traffic models and to value the company).
DONE
IV.6 The authorities will conclude the Government Pending Actions identified by
HRADF and which are due by August 2016. OTE shares to be transferred to TAIPED
following new shareholder agreement. Completion of the GPA related to the railway
infrastructure network maintenance.
A number of additional government pending actions have been concluded to facilitate the
privatization process (e.g. notably Astir Palace legal steps to allow shares to be
exchanged and financial closing to take place, a number of key steps to relocate services
from within the Hellinikon site, a ministerial decision needed to regulate fees for regional
airports etc.). Regarding the 5% of the shares of the Greek Telecom Company (OTE) that
must be transferred to TAIPED for prospective sale significant progress has been
achieved but a number of remaining steps are pending to complete the legal transfer. As
part of this process the Hellenic Republic renegotiated successfully a new shareholders
agreement with Deutsche Telecom (DT) to adjust the rights of the Hellenic Republic to
reflect the diminished state ownership of OTE as required by the European Commission.
Additionally, the Commission has requested that this agreement is not ratified by
parliament in order to close an open legal process and this added an additional step
involving a small revision in the law that would abolish a previous ratification. Against
this background the formal transfer of shares to TAIPED is ongoing and it is expected to
be concluded by 14 October 2016.
DONE
V. REVENUE AGENCY
V.1 The authorities adopt measures to ensure an appropriate budget for the
functioning of the agency.
(i) a one-off injection of resources to address problems facing the agency with the initial
stock in terms of both personnel and equipment and to ensure a sufficient level of
resources to start to operate effectively;
(ii) an immediate increase in budget for discretionary operational activities;
(iii) the adequate appropriation to allow for the recruitments of sufficient staff in the
agency in 2016 and 2017 to reduce the vacant positions to a normal level, consistent with
the Attrition Rule.

The authorities agreed with the institutions on the budget of the agency related to current
expenditure, investment and staffing, including a detailed staffing and hiring plan for the
years 2016 to 2019.
The current expenditures level will be of about EUR 380 million in 2017. Commitments
on investments will be financed through the public investment programme or, if need be,
on the reserve. Commitments were made on the hiring for the years 2016 to 2019
allowing to raise the current level of staffing to a normal level situated around the 13 500
organic positions by recruitments and transfers through the renewed mobility scheme.
The authorities also agreed, once the agency will be fully functional and by April 2017 at
the latest, to decide, in consultation with the agency board, on the appropriate level of
staff over the medium term.
DONE
V.2 The authorities appoint the Board of Governors of the Agency
The five members of the management board of the Independent authority for public
revenue have been appointed by ministerial decision published in the official Gazette
issue n° 507, on 27 September 2016.
The procedure agreed with institutions and enacted by the agency law has been followed:
A selection panel selected candidates and proposed to the minister on 21 July a tennames list. The selection panel included two EC representatives. The minister proposed
to Parliament in July a list of 5 names. The first parliamentary hearing voted four
members out of five on the 6 September. The fifth candidate had to withdraw due to
conflict of interest raised by his new employer. The parliamentary committee interviewed
the fifth member of the board and agreed him the following week. A lot system has been
put in place on 21 September, in the presence of the board members, to decide on the
duration of the mandates of the members (by law all the board should not be renewed at
the same time).
The independent international expert near the Agency board has been appointed and the
decision published in the same official Gazette issue than the members of the board. He
is a former head of tax administration of a Member State. He was chosen by the minister
out of a list of four candidates provided to the minister by the EC2.
DONE

Annex: Mid-September Milestones

2

The Commission wishes to thank the member states which helped finding candidates.