Power market deregulation still dim; investors claim high risks

The European Union’s sole monopoly power market has been searching for a way toward deregulation since 1999 as if this were a unique experiment worldwide. Despite the existence of a 1996 EU directive that sets out the basic guidelines for how to break up state monopolies and create competitive markets, the rich experience of at least 14 European countries and a number of deregulation models, ministries, the Regulatory Authority for Energy (RAE), the Electric Power Transportation System Manager (DESMHE), the Public Power Corporation (PPC) and prospecting investors have been trying to arrive at a workable scheme, to no avail. Precious time and money was expended for officials and investors to begin discussing how to create a mandatory daily wholesale market (pool system), which, in the best possible case, is to include two privately operated power plants totaling a capacity of 900 megawatts (MW), as well as PPC with 12,000 MW. This model, made possible by an amendment enacted by the previous government last year, was also endorsed by the new government based on the curious logic – stated by Deputy Development Minister Giorgos Salagoudis – that «if it does not work, we shall think about a new amendment.» A new round of consultations, involving all parties concerned and including licensed prospecting suppliers, has been going on for the last two months as to how this model, in which no one has really believed, will work. As it emerged from a meeting at the Development Ministry last week, the investors continue to argue that the risks involved are too high, while the ministry is waiting to see whether the tenders for the 900 MW will attract sufficient interest when the «energy transaction codes» are agreed upon. Investors describe the model introduced through the codes as «structural and piecemeal interventions not leading to real deregulation.» Everyone agrees that it is certain to lead to an increase in the price of electricity, whereas the goal of deregulation is to reduce costs for the final consumer. And while the capacity of the country’s grid is considered only marginally adequate for 2005 and even less so for 2006, the entire discussion seems more oriented toward meeting the expected additional demand from private plants rather than toward any real deregulation of the market. So far, the prospecting investors – Kopelouzos, Mytilineos and Terna – seem unable to secure the necessary funding, despite the upgraded incentive of a guaranteed 70 percent payback of investment in 12 years. At the last meeting, it became clear that the extra demand will be met by the two plants to be built by Hellenic Petroleum and Motor Oil, which have secured funding through real sureties. The two 400 MW plants, in Thessaloniki and Corinth, are expected to be joined to the grid in 2005 and 2006, respectively. Their realization may be a welcome development, but no one can really claim it will lead to market deregulation. The other investors, who would like to see PPC broken up into units, appear to have adopted a wait-and-see attitude in the process in which they are participating, in order to establish their presence at a decision-making level. A further meeting with bankers is expected this week.