PPC chief warns low tariffs may make it easy prey for prospective foreign giants

The Public Power Corporation (PPC), Greece’s main electricity utility, is in danger of becoming a problematic enterprise due to overbearing government control and the influence of colluding interests of media and senior public officials, its president and former finance minister Yiannis Paleokrassas warned in an interview with Kathimerini. The interview began with a flashback to 1978. «What do you think of the Greek economy?» was the question. «What Greek economy? We have a Greek-Soviet economy,» was his answer. «The reason is statism and the French left-wing culture of all political sides.» Eleven years later, in 1989, he wrote: «No market operates in Greece. Oligopolies, the expression of immorality in the economy, hold sway… Greece is a vast graveyard of competition, where the Greek graverobbers of protectionism wander with the blessings of the country’s political and intellectual leadership.» Sixteen years later, nothing much has changed, Paleokrassas says. «Ireland has left us way behind. Bulgaria, if we don’t change mentality, will do the same in a short time, indeed, with Greek investments. The only exception is merchant shipping because it operates outside the country’s borders.» «It is clear that we have a problem,» he continued. «I call it a peculiar mafia system which divides Greeks into protectors and proteges. In this system, the mechanism is not of the market but of favoritism and political clientele. Everything is regulated and everyone has his price… Those without a price and daring to go against the current are executed in public, usually by the corrupt media.» At loggerheads Ever since assuming his present post, Paleokrassas has been at loggerheads with the rest of PPC’s board and has been widely criticized in the media for initiating legal tussles which have been holding the corporation’s development back. «This is my case,» he said. «The funny thing is that the sources of most publications against me are in the pay of public utilities. And, of course, it is not just the instruments, there are also senior political ministry officials who act as conductors, completing the orchestra… «The score which the orchestra is playing is PPC’s 900-million-euro investment program and the 1.7 billion euros of its annual procurements. National suppliers which dominate all public utilities (PPC is no exception) are annoyed by the requirements for transparency and the keeping of lawful procedures. «But the worst thing is that the system enjoys political protection. Everyone’s slogan is: ‘For God’s sake, don’t touch the system.’ It serves the management system that used to prevail and was based on the bribing of the many and the terrorizing of the few. The big loser was always PPC, its workers and, ultimately, the economy,» Paleokrassas said. PPC’s nine-month results were disappointing. How do you explain them? It seems there has been a slowdown in the growth rate of electricity consumption, possibly related to some saturation in the household sector and a fall in industrial production. Despite this, the small drop in sales would not have had a significant impact on profitability, had we not had a 30 percent, or 160-million-euro, increase in the cost of fuels, and the purchase of carbon dioxide emission rights, at a cost of 69 million euros, which appeared in nine-month results for the first time. Without these costs we would have shown a pretax profit of 461 million euros, 15 percent higher year on year. PPC is pushing for the adjustment of tariffs to the higher fuel prices, in line with international practice, and the recovery of the cost of the collection of fees on behalf of third parties. We have also begun a review of the corporation’s business plan, with emphasis on the reduction of operating expenses, particularly regarding expensive fuels, oil and natural gas. PPC’s managing director, Dimitris Maniatakis, referred in Parliament to the low tariff increases approved by the government. How do you comment? Unfortunately, all governments do not understand or do not wish to understand where the policy of low tariffs leads. In Greece, we have the highest per capita consumption of electricity in all of Europe. We have household tariffs subsidized by commercial and, a bit, by industrial tariffs. The opposite is the case throughout Europe. The result is that we heat our homes with electricity, which requires three times the fuel which an ordinary central heating boiler consumes. Moreover, the tariff structure has become especially problematic with market deregulation. Today, power importing suppliers are creaming off our clientele, offering slightly lower rates than those set for PPC by the Development Ministry. PPC, on the other hand, is not allowed to offer the slightest discount. As far as I understand, it seems that market deregulation will take place at PPC’s cost. The problem of the inadequate deregulation laws, which were belatedly introduced in 1999 and again in 2003 despite the existence of an EU directive since 1992, is how to encourage private investment in power production. The investment schemes stumble on the simple problem that banks do not wish to fund them at a low rate of return… And so the solution that has been adopted is for the indirect subsidization of private investment. The tender which the industry’s watchdog, the Electric Power Transmission System Operator (DESMHE), will issue for privately operated plants totaling a capacity of 900 megawatts aims at precisely that. DESMHE will seek to buy certificates of available capacity from the investors-to-be. What will happen if these investors ask 100 million euros annually for the new certificates? Who will pay for them? We must take into account that big European power companies, such as ENEL, RWE and EON, are now paying huge sums and excessive prices to acquire capacity in the Balkans. Why should Greece be an exception when it has the facility of the certificates? PPC is not allowed to take part in this tender and so, while we are in discussions with these European giants for partnerships outside Greece, we are excluded from Greece. It is clear that DESMHE and the Regulatory Authority for Energy (RAE), which will express an opinion on the price of the certificates, must exercise the utmost caution not to cause irreparable damage to the country’s energy infrastructure. PPC is not afraid of competition, provided it is allowed to build its financial strength and participate in the game on equal terms. Nevertheless, PPC is a giant by Greek standards. Let me say that its dominant market position may be easily overturned. Let us not have illusions. A financially weak PPC will be easy prey for any of the big European companies, or even domestic groups wishing to enter the market. Many would surely like to see it break up but I do not believe that this will come to pass. I am more concerned by the fact that PPC is not allowed to recoup the higher fuel costs which other European power firms have done. It is not difficult for a public utility, indeed the country’s biggest industrial concern, to become ailing and problematic.