CyTA’s Greek blunder legacy of spending millions of dollars on taxpayers

A few years after being sold to Vodafone, the poorly run CyTA Hellas, a Greek subsidiary of Cyprus State Communications, continues to suffer financially.

In a special report just released on CyTA Hellas, the Audit President said that the entity was not well-managed from the beginning, imposing millions of obligations on Cyprus’ parent company and ultimately taxpayers. Said that.

This investment aimed at expanding CyTA’s business in Greece was confusing, showing all the signs of “sloppy decision-making.”

The guard dog also sent the report to the Attorney General, indicating that he may have civil and possibly criminal liability to investigate.

Audit Office Top Evaluation – CyTA management “could not perform due diligence”.

The problem became apparent from the first day CyTA hired a consultant (through a non-bid contract) to prepare a feasibility study for its Greek subsidiary. The consultant was selected based on a previous successful collaboration with CyTA on another subsidiary in Hungary.

However, the working assumptions used in the CyTA Hellas feasibility study were “misleading,” the Audit Office said. The study predicted positive cash flows in the medium and high rates of return, but later turned out to be overly optimistic.

In addition, the findings were submitted to the Minister of Finance on September 9, 2006, and only eight days later they were asked to approve the investment.

“CyTA Hellas’ capital requirements have been significantly undervalued and continued to change. As a result, investments began with € 15 million in 2007 and will grow to € 165.5 million in 10 years. I did. “Report note.

“An example of a crude and rushing plan is the fact that within a year of the company’s establishment, a revision of its business plan to expand across Greece created an additional funding requirement of € 72 million. . “

CyTA Hellas’ business plan is based on an internal evaluation provided by the company to its consultants. The situation was so bad that the consultant could not individually validate the data provided and therefore included a non-responsibility clause when considering the business plan.

“Reviews of these plans that formed the basis of key business decisions observed flawed assessments, overly optimistic and unrealistic predictions, and inadequate risk analysis.”

A tax audit conducted in 2017 discovered a major tax obligation, but it was not reflected in CyTA Hellas’ financial statements. For example, auditors have discovered an unreasonable reclassification of costs. Sales costs were reclassified as operating costs, thus creating a false image of the company’s finances.

Poor planning has affected many projects. Most notable are projects involving the laying of fiber optic networks from Athens to Saronica. The board allocated the drilling work to a private company for € 5.3 million, while at the same time, about two months later, leased Internet capacity for 15 years from another carrier’s network.

Later, while the excavation work was still in progress, a decision was made to revoke the contract, and the contractor took legal action to claim compensation of € 4.75 million.

For years, CyTA Hellas continued to receive financial support from its parent company, but always lost money. Finally, on January 23, 2018, the subsidiary was sold to Vodafone-Panafon for € 38.56 million.

In this transaction, Vodafone-Panafon paid an additional € 57.36 million to settle a loan to CyTA and its other subsidiary CyTA Hellas. Vodafone also paid € 18.45 million to settle CyTA Hellas’ debt to a third party.

According to the Audit Office, these amounts led to a significant loss of public funds. In addition, the cost of selling CyTA Hellas has not yet been finalized, as court proceedings with other parties are pending. From this proceeding, the parent company of Cyprus is expected to make a large repayment to Vodafone. CyTA’s Greek blunder legacy of spending millions of dollars on taxpayers

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