Sale of strategic stake in natural gas utility DEPA faces impasse
When Greece’s Economy and Finance Minister Professor Nikos Christodoulakis decided last year to include the Public Gas Corporation, known as DEPA, in this year’s privatization program, he could hardly have imagined the almost disastrous outcome of his government’s international quest for a strategic investor. The Socialist government of Prime Minister Costas Simitis, encouraged by the partial privatization, through its floatation of PPC, the electricity utility, on the Athens and London exchanges two years ago, had decided to move ahead full speed with further privatizations in the energy sector. Greece’s monopoly gas utility DEPA, with its brand-new infrastructure and at the start of developing a promising local gas market, presented an excellent opportunity. DEPA’s infrastructure comprises its extensive gas transmission system, a state-of-the-art liquefied natural gas (LNG) terminal, metering and distribution stations and operation and maintenance control centers. The backbone of DEPA’s natural gas transmission system is the main high-pressure (70-bar) transmission pipeline from the Greek-Bulgarian border to Attica, of a total length of 512 kilometers (317 miles). DEPA receives Russian gas through this pipeline which currently amounts to 2.0 billion cubic meters (bcm) per year but could gradually rise to 5.0 bcm. Also in place are other high-pressure transmission branch pipelines to eastern Macedonia and Thrace, Thessaloniki, Volos and Attica totaling 440 km (273 miles). DEPA has also developed extensive medium-pressure (19-bar) and low-pressure (4-bar) networks in most major cities and industrial areas. In Athens, Thessaloniki, Volos and Larissa, gas supply companies have been established with 49 percent participation by private equity partners, who are also responsible for their management, and hence responsible for the expansion of their distribution networks. The LNG terminal is situated on the islet of Revithoussa, in the Gulf of Megara, near Athens, and houses delivery, storage and gasification facilities for LNG which is imported from Algeria. DEPA imports at present 0.5 bcm of LNG. The terminal has two LNG tanks with a total capacity of 130,000 cubic meters, tanker-anchoring and cryogenic facilities and gasifiers for the regasification of liquefied natural gas. DEPA’s short-term objectives, according to its development strategy, include expansion of its transmission system as far as the Greek-Turkish border and interconnection with the Turkish network. In the long term, DEPA’s plans foresee the linking of its network, via an underwater pipeline in the Adriatic, with the Italian gas system and hence the transit of Iranian and Azeri gas through Greece and Turkey for sale in the Western European market. Government economists estimate DEPA’s current net worth position at approximately 1 billion euros, which, according to some market observers, is grossly undervalued given the extent of the company’s infrastructure and the relative young age of its facilities. The creation of infrastructure for the transmission of natural gas is regarded as Greece’s single most important postwar project that continues to be implemented even today. Its significance can only be matched by the setting up of the country’s electricity generation and transmission network. Energy analysts note that the Greek natural gas system is one of the most advanced in Europe, operating according to the most stringent of standards and with high safety margins. According to the government’s official tender notice, which was published last September, expressions of interest were requested from experienced and well-funded gas companies that would be interested in acquiring a 35 percent stake in DEPA. The successful contender would gain a strategic position in Greece’s monopoly gas utility, participate on its board and assist the company in further expanding its operations in Greece as well as in neighboring countries. Nine companies eventually responded to the government’s call. These included the world’s heavyweights, such as German Ruhrgas, Russian Gazprom, Italian ENI and Gaz de France. Algerian gas producer and trader Sonatrach, Spain’s Gas Natural, Italian companies ENEL and Edison and French oil-gas conglomerate Total also participated in the tender’s first leg with the intention of making it to the short list. Following the evaluation of their credentials and capabilities by the adviser to the sale, London based J.P. Morgan, all nine companies made it to the second phase of the tender. But when asked earlier this month to submit initial offers, only three companies responded and eventually two companies, Ruhrgas and Gazprom tabled non-binding offers of 210 million euros and 205 million euros, respectively. Both offers were substantially lower than the government’s 300-million-euro target. The two ministers in charge of DEPA’s partial privatization have not concealed their disappointment with the State of the tender so far. They both admit that the timing of the exercise was not the best, a development which the government could not have foreseen when it set the sale process in motion last summer. Uncertainty as a result of the latest Gulf offensive, which was clearly in evidence in the performance of international markets over the last months, is given as the main reason for the lack of sustained interest in the case of DEPA. Disappointment with the DEPA sale comes soon after the government’s failure last January, in the case of Hellenic Petroleum, to secure the sale of a smaller stake (23.5 percent) to a strategic investor. A consortium consisting of a Latsis Group company, Petrola, and Russian oil giant Lukoil pulled out at the last minute, having submitted an offer way below government expectations. Sources close to the two ministers say that considerable skepticism now prevails as to the wisdom and eventual benefit for the government should it go ahead with the next and final phase of the tender by asking, through the adviser, the two remaining companies to submit improved final offers. Recent information suggests that Ruhrgas and Gazprom are in talks concerning the possibility of making a joint improved offer for the 35 percent equity stake in DEPA. Should such a move take place, there are grounds for the government to invoke certain clauses and thus cancel the tender by arguing that there is a lack of competition. However, some analysts argue that if the government were to cancel the tender, it may take it at least two years before it could attempt another return to the market, by which time conditions may have deteriorated rather than improved. No wonder the government now faces an impasse concerning the partial privatization of the country’s national gas utility. (1) Costis Stambolis is publisher of ENERGIA (www.energia.gr). He contributed this article to Kathimerini English Edition
