PPC buys back its output to subsidize others

Odd things seem to be happening in the energy sector – many with a strong whiff of scandal. The Public Power Corporation (PPC), the biggest public utility company, which is 49 percent-listed on the Athens bourse, is showing a steep decline in profitability despite remaining a powerful monopoly. In the nine months to September, PPC’s profit was down 53.4 percent. This dismal performance is largely attributed to mismanagement and labor unionists, who want a joint role in administration. But I have also received information that a large part of the decline is due to PPC subsidizing private power plants. It is well known that PPC, because it (wrongly) does not pay for the lignite it uses, has power plants with low production costs (27 euros/megawatt). The same applies to hydroelectric stations, while the old oil- and natural gas-fired stations have an average cost of no more than 50 euros/MW. But because PPC’s production is not high enough to meet requirements (and the government wrongly does not allow it to build new stations), prices are determined by the high costs of the modern private plants (60 euros/MW) whose additional output is necessary to meet demand. This wholesale price, which is set by the Regulatory Authority for Energy (RAE), is the system’s marginal price at which PPC is obliged to buy electric power from the Electric Power Transmission System Operator (DESMHE). This produces the outrageous outcome that PPC «rebuys» the electric power it produces itself at 70 euros/MW (and up to 110 euros/MW) in the summer months, and sells it for 40 euros/MW to large industrial consumers and even lower to households. And so the private producers make money at the expense of PPC. And I hear that after RAE, with the intervention of the Development Ministry, set the marginal price at 57 euros, the Hellenic Petroleum power plant in Thessaloniki (in which the Latsis group has a share), that was previously threatened with closure, is now doing very well. I also hear the Mytilineos Group’s ultramodern, natural gas-fired plant will be ready in April 2007. This plant was heavily subsidized by the government, as it was deemed necessary for the operation of the group’s aluminium plant. According to the new rules, Mytilineos will be able to sell its power for 70 euros/MW and buy PPC’s at the industrial rate of 40 euros. In all, PPC will have to shoulder subsidies totaling 215 million euros to the private operators this year. With the entry of more private plants into the system, the subsidies are projected to reach 2 billion in 2010.

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