Greek government sets out on privatisation path

* Privatisation revenues small in terms of Greek debt

* State monopolies first to go, profitable companies last

By Jon Hemming

ATHENS, May 26 (Reuters) - The Greek government met on Wednesday to kick off its privatisation programme that could go a small way to help pay off its huge debt, but more importantly send a signal that it is serious about economic reform.

As a condition of its 110 billion euro ($135 billion) bailout by the EU and IMF, Greece has committed to have a privatisation plan ready by the end of the year to raise at least 1 billion euros annually from 2011 to 2013.

Prime Minister George Papandreou chaired a cabinet meeting to discuss privatisations but made no statement on the issue.

However, Greek officials told Reuters the government was considering starting procedures immediately for the privatisation of state railway OSE, state-controlled nickel producer Larco and sales of state real estate.

Next would come the sale of state gas monopoly DEPA, Athens International Airport, Athens Water Company (EYDr.AT) and Thessaloniki Water Company (TWSr.AT).

The government wants to retain, in the short term at least, its lucrative 34 percent stake in monopoly OPAP (OPAr.AT), Europe's biggest betting firm, and its 20 percent stake in OTE (OTEr.AT), the biggest telecoms company in the Balkans, an official said.

Raising 3 billion euros through privatisation in the next three years will only go a very small way to dent Greece's debts of 310 billion euros, but the state will also make savings by shedding loss-making firms and boost competition in the economy.

"The overall effect on the public finances is very small. It's more of a signal of trying to scale down the public sector," said Citigroup economist Giada Giani. "You increase the productivity and competitiveness of the overall economy."

The Greek strategy of selling off its loss-making state companies and real estate first appears to be a sound one and it makes sense to wait, in the hope that markets improve, to sell off stakes in more profitable businesses later, analysts said.

REALISTIC GOAL

State railways may be a hard sell though. The last published official figures show OSE railways lost 830 million euros in 2008.

"The corruption levels within the Greek railway system are astronomical, beyond any belief," said Constantinos Michalos, the head of the Athens Chamber of Commerce. "So the intention may be there, but to be quite honest I don't think there will be many prospective buyers."

The government will attempt to reorganise the railways in the coming months to try to sweeten the pill, analysts said. Resistance from railway workers is likely to be stiff however and could hamper the government's efforts to turn OSE into a saleable commodity.

State nickel monopoly Larco also has problems. The company had a pre-tax loss of 116 million euros in 2008 after hedging deals went sour. But Greece does have sizeable reserves and nickel prices have risen some 13 percent in the year to date.

Athens owns large tracts of real estate, especially in the tourism sector, but selling some assets may prove psychologically unacceptable to many Greeks. Leasing such things as harbours, airports and marinas may be another option.

The water companies could also prove attractive.

"I think they provide tremendous growth potential and profit potential for anyone involved," Michalos said. "Especially the ones in northern Greece because ... they have the possibility of expanding also into other Balkan countries."

Greece plans to hold onto its stakes in betting firm OPAP, which made a net profit of 594 million euros last year, and try to generate more revenue by easing restrictions on online betting and low-price video lotto machines.

If the plan is followed through, raising 3 billion euros in the next three years is a realistic goal, analysts say.

"I would say that what is forecast in the stabilisation programme is rather conservative," said Platon Monokroussos, economist with EFG Eurobank.

"I think that if they design an ambitious privatisation plan and they proceed with the right marketing effort there is a lot of scope to obtain privatisation revenues well in excess of the stabilisation programme," he said.

Much depends on how much those plans will be upset by resistance from Greece's powerful unions which have already staged a number of strikes and sometimes violent protests against government austerity measures.

The big question though is what state the world economy will be in a year from now and how much appetite there will be to invest in troubled economies such as Greece. (Additional reporting by Lefteris Papadimas; Editing by Susan Fenton) ($1=.8139 Euro)