Greece plays down privatisation blow amid budget audit

(ATHENS) - Greece played down on Tuesday the impact of the collapse of a major privatisation sale on the country's finances, saying it would not spark new budget cuts and tax rises to meet debt-rescue conditions.

But the European Commission said that the failure of the process, which blows a hole in budgeting, was an issue.

"Certain jokes have been heard that new measures will be taken because of (this) entanglement," Prime Minister Antonis Samaras told reporters just as EU-IMF auditors review progress on reforms.

Samaras was referring to the privatisation of Greece's gas distributor DEPA, which fell through on Monday after Russian giant Gazprom pulled out of the bidding process.

The setback could cause a shortfall of at least 700 million euros ($912 million) in the 2.6 billion Greece needs raise this year under the terms of its EU-IMF fiscal bailout.

It came as a mission from the so-called troika of creditors -- the EU, IMF and the European Central Bank -- began a scheduled audit of Greek reforms and fiscal performance that will determine the payment of the next instalment of rescue funding under bailout agreements.

The spokesman for EU Economic Affairs Commissioner Olli Rehn said that the failure of the sale would "clearly be discussed" during the audit.

"The Greek authorities will now have to assess what has happened...and how best to address it...right now our message is that we would like (the process) to resume as soon as possible," spokesman Simon O' Connor told reporters in Brussels.

A Greek government source earlier said it was "practically impossible" to find a buyer for DEPA this year.

Greek media had earlier raised the prospect of additional budget cuts this year to make up the expected shortfall from the sale failure.

The Athens stock exchange was shedding 4.46 percent of its value on Tuesday. It had registered a 4.69-percent drop on Monday.

Gazprom said on Monday that it was worried by mounting unpaid bills owed to DEPA by independent electricity producers and industry.

"We did not receive adequate guarantees that DEPA's financial situation will not deteriorate until the deal is concluded," said Gazprom spokesman Sergei Kupriyanov.

"The takeover procedure could last another year after the end of the tender," he added. "The company is already burdened with unpaid customer bills."

But there are also strong signs that the European Union had reservations about the sale as Gazprom is a key gas supplier to Greece.

EU gas market reforms bars suppliers from also running a country's gas distribution system.

-- Progress with reforms --

Fellow Russian firm Sintez likewise held back bidding on DEPA subsidiary DESFA, the Greek gas transmission system operator.

Samaras insisted on Tuesday that the privatisation glitch had nothing to do with Greece.

"The tender for both companies was carried out under all the rules," the PM said.

The Russian pullout poured cold water on a positive period for Greece when it was building up praise from international officials for its progress on enacting austerity and structural reforms.

The head of the International Monetary Fund, Christine Lagarde, said last week that Greece had achieved "massive, unprecedented fiscal consolidation" and the global lender even went as far as admitting planning errors in Greece's first bailout deal.

And Jeroen Dijsselbloem, head of the Eurogroup of eurozone finance ministers, has offered hope that further debt relief for Greece could be discussed next year if Athens stays on track with its recovery programme.

The latest creditor audit will determine the release of an instalment of 3.3 billion euros ($4.3 billion) of loans approved in May.

The troika is looking to see what progress Greece has made in overhauling its state administration and liberalising its energy sector, while Athens is requesting a cut in sales tax to capitalise on the tourism season.

However, the troika itself is labouring under some tension after the IMF pointed to errors in the first bailout, and the European Commission angrily disagreed.

In return for two EU-IMF bailouts, Greece has pledged to raise 9.5 billion euros ($12.4 billion) in asset sales by 2016, a target that was originally 50 billion euros.

The privatisation drive has had a slow start and revenue goals have been repeatedly scaled back since it began in 2010.