Power’s dim prospects

A senior power industry administrator yesterday aired serious doubts about the prospects of an effective deregulation of the Greek power industry and its ability to meet the country’s projected higher electric energy demands in the coming years. «The market is not going to be deregulated given the present arrangements. The current environment does not offer the stable prospects conducive to attracting the large investment required in infrastructure,» Pandelis Kapros, president of the Regulatory Energy Authority (RAE), told the Economist Conference on Oil, Gas & Electricity in an Athens hotel. Kapros said that almost a year after the formal ending of the power production and distribution monopoly of the Public Power Corporation (PPC), the market was still plagued by monopolistic structures that discouraged the entry of investors. For one thing, he pointed out, a European Union Directive for the deregulation of the market for natural gas – on which most of the private producers already licensed by RAE depend for operating the power plants – had still not been implemented, and the market was still dominated by the monopoly of the Public Gas Corporation (DEPA). Deregulation needed the entry of third parties into the market, he said. «Natural gas transportation costs are four to five times higher than those elsewhere in Europe,» Kapros said. Prospective producers were caught in a vicious circle where they cannot sign contracts with future customers and cannot project for lower gas transportation costs if they are not assured of future demand. «The present situation for producers is akin to one where you wish to pay for the transportation of a parcel and upon delivery you are charged the cost of the truck,» he said. Moreover, Kapros pointed out, RAE is still waiting for PPC to unbundle its monopolistic and competitive cost factors that will prevent cross subsidies. Under the deregulation scheme introduced on February 19, 2001, PPC acts as a single buyer and distributor for the power produced by private operators, who have said they are also uncertain of the levies PPC will charge them for connection to the national grid until it unbundles particular cost factors. Kapros said effective deregulation of the power market needs flexible mechanisms – including an energy futures market – and a stable framework for energy trading where competitors are able to assess their investment risks and obtain the finance required. Unless this happens, the country faces the danger of energy shortages in coming years, he warned, as prospects for energy imports are limited. He also noted that countries in the wider region were taking more substantive steps. PPC Chairman Dimitris Papoulias, who had addressed the conference earlier, said Greece had no experience in the deregulation of the power market and that unless the corporation remained at the heart of the system for some time to come there would be problems. PPC recently acquired a 30-percent stake in DEPA. PPC Managing Director Stergios Nezis painted an upbeat picture of the corporation, saying its performance was exceeding provisions in the business plan, with positive cash flows in 2001 for the first time and the total debt burden falling from 5.40 billion euros to around 5 billion, and that its recent 15.3-percent stock market flotation had been a success. DEPA President Dimitris Sotirlis said Greece was in negotiations with Iran, Turkmenistan and Azerbaijan in order to extend its natural gas supply sources, and also with Turkey for an extension of the pipeline coming from those countries. He said the project merely required the construction of 85 kms of pipeline in Greece and 200 kms in Turkey. He also spoke of a plan to take the pipeline across northern Greece and then to Italy. Final decisions will be made within 2001, he projected, while DEPA was also looking for a strategic partner. He said the use of natural gas was forecast to rise from 2.2 billion cubic meters today to 4 billion by 2005 and 6 billion cubic meters by 2010. Yiannis Kelemenis, an analyst of IKRP Rokas & Partners, said consumers were unlikely to realize any tangible benefits from the deregulation of the power market before 2004. «PPC’s dominant position will undermine competition,» he said, pointing the finger at bureaucracy, unclear rules and high investment risks. Russia aims to use its fossil fuel resources towards developing its technology, with a view to utilizing its considerable pool of scientists and engineers, Stanislav Zhiznin, deputy director of the Russian Foreign Ministry’s Department of Economic Cooperation, told the conference. He also said his country had considerable energy interests in Europe, which was its main target market. The post-Soviet republics and the Caspian and Black Sea regions also figured high in the priorities of Russian energy diplomacy, he added. Cooperation with Greece faced excellent prospects after the recent visit of President Putin, he said. Meanwhile, Russia, Greece and Bulgaria yesterday signed in Moscow a memorandum for construction of the Burgas-Alexandroupolis oil pipeline connecting the Black Sea with the Aegean. The three countries stated their agreement to the project, endorsed a feasibility study prepared by the ELF company, and agreed to the setting-up of a trilateral company and on a timetable for presentation of the project abroad. The Greek groups involved in the project are Hellenic Petroleum, Latsis and Kopelouzos.

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