Major opportunities in energy

The domestic energy market is undergoing an extensive overhaul as the liberalization of the electricity and natural gas markets proceeds in parallel with the country’s connection to international fuel and electricity networks. While the network connections provide opportunities for more business, they are also fraught with danger for local energy groups, both state and private, that have operated within the safe boundaries of a closed market. Until now, for example, no one could envisage a third group becoming active in fuel refining, in addition to the well-established HELPE/Petrola and Motor Oil, not only because of the large amount of capital required but also the high risk entailed by such an investment. The agreement on the construction of the Burgas-Alexandroupolis oil pipeline and the strategic decision of Russian oil firms to enter the downstream market has been worrying the HELPE/Latsis group alliance and the Vardinoyiannis family, owners of Motor Oil. It is certain that their Russian partners in the Burgas-Alexandroupolis pipeline will eventually develop activities in their own fields and, indeed, offer cheaper refinery products since they also produce the raw materials. Greek groups must live with that prospect and we may soon see more Russian-Greek partnerships. The Vardinoyiannis group is already in talks with Russian oil firm Lukoil about the possibility of the latter’s acquisition of a stake in Motor Oil. The likelihood of refinery installations being built in Alexandroupolis by the international consortium that will also build the pipeline will also open the downstream market to Gazprom, Transneft and Rosneft. Compared to other foreign investors, the Russians also have a significant advantage in the natural gas market. The announced extension of the contract between Gazprom and Greece’s Public Gas Corporation (DEPA) from 2016 to 2040 and the increase in the volume of natural gas conveyed to Greece from 2.8 billion cubic meters (bcm) to 5 bcm annually, make Gazprom a near-monopoly supplier of the Greek market. Therefore, the opportunities – opened up by liberalization – for third companies to become active in the wholesale gas market may not be seized, since it would be very difficult to compete against the largest global producer and supplier of natural gas. Developments in both the oil and natural gas sector point to a strong presence of Gazprom, which also plans to consolidate its domination of the European market. Gazprom’s strengthening meanwhile benefits the Kopelouzos group, with which Gazprom set up the joint venture Prometheus Gas in 1991. Through Prometheus Gas, Gazprom has a stake in the international consortium that will build the Burgas-Alexandroupolis pipeline. Greek businessmen have a 23.5 percent stake in the consortium, of which HELPE controls 25 percent and Thraki SA, a 50/50 joint venture between Prometheus Gas and the Latsis group, controls 75 percent. Bearing in mind that the Latsis group already controls 35.89 percent of HELPE – with the option of controlling the management from 2008 onward – and HELPE owns 35 percent of DEPA, it is clear that the Latsis group is becoming the Russians’ major partner. If Gazprom wishes to control Greece’s oil and natural gas markets, it must inevitably deal with Spyros Latsis. Power production In his recent visit to Athens, Gazprom Chairman Alexei Miller also expressed interest in the electricity production sector. Here, things are not so easy for the Russians, as the domestic market has developed rapidly over the past couple of years. Two factors have contributed to this: the crisis facing former domestic monopoly Public Power Corporation (PPC) and its aging power-generating facilities and the policy of strengthening the Greek power grid’s international ties being pursued by Development Minister Dimitris Sioufas. The potential of the electricity market has attracted major European players, such as Italy’s Enel and Edison and Spain’s Iberdrola and Endesa. These four companies have found Greek partners in the Kopelouzos group, Hellenic Technodomiki and the Vardinoyiannis and Mytilineos groups respectively. Also active in the market are HELPE, with a 400-megawatt combined-cycle unit, and construction firm Terna, with a 160MW wind turbine unit in Viotia. Under different circumstances, Gazprom’s interest in electricity production would have worried European investors. However, high natural gas prices make gas-run power installations uncompetitive and many European firms have turned to coal instead. Italian and Spanish investors’ plans for Greece, besides wind power, include coal-driven power plants. Developments in the domestic and European electricity markets point to some consolidation. The anticipated acquisition of Endesa by Enel may also lead to a reshuffle of their Greek portfolios, owned in partnership with the Mytilineos and Kopelouzos groups respectively. This may mean an eventual alliance between the two Greek groups, no matter how unlikely such a prospect appears at the present time, as Enel will be their common partner. The Mytilineos group has entered into an alliance with Hellenic Technodomiki, Greece’s largest construction group, with a joint bid for the lignite deposits at Vevi, northern Greece. The outcome of the bid will also determine further cooperation. Gazprom may enter the Greek market through its existing alliances with Enel and the Kopelouzos group. PPC, once Greece’s electricity monopoly, wasted precious time defending its monopoly status even though it was fully aware that deregulation was a European Union imperative. Unlike other former European monopolies, it is now breathlessly trying to catch up with market developments instead of leading them. Its finances are worsening and its aging and polluting lignite-powered stations are losing value. PPC’s new chairman and CEO, Takis Athanassopoulos, appeared optimistic about the company’s prospects in his first press conference since his appointment. He forecast that PPC’s declining profitability would be reversed this year, although he did not present any specific plan as to how this ambitious goal will be achieved. Athanassopoulos spoke to reporters about the major problems he had encountered at PPC in his three months at the helm. «PPC has been listed on the Athens Stock Exchange since 2001 and the electricity market was completely deregulated on July 1, 2007. But, everyone still treats it, and it still treats itself, as a state monopoly and public utility.» «Changing PPC from a state monopoly into a company that constantly monitors and controls its costs while addressing the needs of its customers» are his first priority, he said, adding that his management would focus on cost cutting. Athanassopoulos said PPC would exit its present crisis through a change in its regulations and legal framework, cost cutting and increased productivity, a new production strategy and new energy sources, with an emphasis on the renewable energy market and expansion into the Balkans through investment subsidiary Sencap.

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