ECONOMY

Switching to natural gas

The government is responding to worries about the rise in the price of fuel with a series of measures promoting the use of natural gas, in order to contain the effects of oil rate hikes on real economy and consumers’ pockets. On Friday the prime minister hosted a meeting with Development Minister Dimitris Sioufas and Hellenic Petroleum President Timos Christodoulou, with Sioufas admitting afterward that the continuing rise in global oil prices is creating problems and noting that the prime minister was informed in detail about the sector’s international instability. With its policy, Sioufas said, the government is making efforts to minimize the possible effects on the Greek economy and people. The main measures decided to this end, promoting the use of natural gas, are the following: – Use of natural gas as an oil substitute since the former, despite being imported too, is steadily available at a price that is 20 percent lower than that of oil. The government has actually set a goal of doubling the consumption of natural gas in Greece by 2008 compared with today’s 2.5 billion cubic meters on an annual basis. Consumption per head in this country is the lowest among all EU member states. – Connection with the natural gas network of all state buildings, including those run by local authorities, by 2006, in regions where natural gas is available, such as in Attica, Thessaly and Thessaloniki. – Public buildings in these regions will be obliged to switch their burners from using oil to natural gas. Similarly, private companies will need to act as obliged by law, although there has been little response so far. – Realization of an extensive program for substituting oil burners with natural gas in schools and hospitals. – Promotion of works for the construction of the Greek-Turkish and Greek-Italian natural gas pipelines, which transform the country into a natural gas conduit from the Caspian Sea to the major European markets and provide Greece with another alternative supply. – Proclamation by the Public Gas Corporation (DEPA) of international tenders during 2006 for the establishment of three local natural gas distribution companies (EPA), to cover the regions of Sterea, Macedonia (Thessaloniki excepted) and Thrace. – Expansion of the natural gas network to the prefectures of Trikala and Karditsa by DEPA and the EPA of Thessaly, and programming for the expansion of natural gas to the Peloponnese, satisfying demand in the region. In this context, certain incentives are being offered for the expansion of natural gas in households. After consultations, the Economy and Finance Ministry included in the recent tax law an exemption of up to 500 euros from taxable income of taxpayers for expenses for either house switching from oil to natural gas, or new installations of natural gas. Greece’s dependence on oil is greater than in other European Union countries, so oil market developments create a major headache for the government. Even small changes in the international price of oil provokes a greater rise in the price of goods and services in this country compared with other EU members. According to a study by the Bank of Greece, each 10 percent rise in international fuel prices pushes the Consumer Price Index in Greece higher by 0.19 percent. It is therefore calculated that in 2005 the total weighing of fuel alone on inflation will be 1-1.5 percent. This means that a household with an average annual income of 24,000 euros will be forced to pay an extra 350 euros due to the rise in oil prices. Bank of Greece officials believe that the increase of oil prices internationally will continue to affect the level of prices, both directly (through the rise of fuel prices included in the consumer’s «basket») and indirectly (influencing, via a time delay, the production costs of other goods and services). Nevertheless, the total impact on inflation will be smaller than in 2004. From Bank of Greece calculations it seems that the increase in prices of other products (besides oil) imported into Greece from countries outside the eurozone will be contained. This eventuality depends on the euro’s exchange rate with other currencies remaining at the levels of the last 10 days of January. The Bank also estimates, based on certain data at its disposal, that the increase rate in labor costs per product unit in 2005 could drop significantly across the economy’s board (at 2.7 percent from 4.2 percent in 2004) and less in the business sector (at 2.8 percent from 3.2 percent last year). This forecast reflects estimates that the rate of increase of the average income across the economy will decline by about one percentage point to 5.4 percent, mainly due to containing the rise in state salaries.