PPC wants rate hike to pay for new plants

Public Power Corporation (PPC), Greece’s biggest utility, yesterday asked the government, its largest shareholder, for permission to increase prices beginning December 1 to halt a profit slide. PPC reported a record loss of -39.2 million ($18.4 million) for the third quarter, as fuel costs outpaced government-controlled rates. A price gain would help fund total planned investments of -12.4 billion, partly to create about 4,000 megawatts of new power plants over the next seven years, PPC’s Chief Executive Officer Takis Athanasopoulos said in a presentation in Athens yesterday. «There’s optimism that PPC will get at least part of the tariff increase it has asked for,» Paris Mantzavras, an Athens-based analyst at HSBC Pantelakis Securities, said today in a telephone interview. Alberto Ponti, a London-based analyst at Citigroup Inc, raised his rating on the stock to «buy» from «sell.» Stock upgrade «Our expectations for tariff increases are the main factor» for raising the price estimate on the stock by 35 percent to -25 euros, Ponti said in an e-mailed note to investors. «While there’s significant uncertainty over the government’s willingness to grant this, management seem surprisingly confident on the likelihood of such a tariff rise,» James Brand, a London-based analyst at Deutsche Bank AG, said today in a note to investors. «Government reaction is key,» Brand said. The government will await the regulators’ recommendation on the request and then «consider» it, Deputy Development Minister Stavros Kalafatis said in a televised statement from Parliament today. The Regulatory Authority for Energy may recommend as soon as next week that the increases be spread over a period of between two and three years, its president Michalis Karamanis said in a telephone interview. «The request isn’t unreasonable but it’s difficult to be accepted by the government in one piece from next year,» he said. Cheap power Greek electricity is cheap by European Union standards as past governments have avoided unpopular price increases. PPC’s annual tariffs were raised an average 4.8 percent from August 1, 2006, the first above-inflation increase in four years. Prices were allowed to rise by an average 3.6 percent from August 1 this year. Greece’s European Union-harmonized inflation rate will accelerate to 3.1 percent next year from 2.8 percent in 2007, according to EU estimates. Athanasopoulos said yesterday in the presentation that he plans to reduce costs at the company. PPC has an «efficiency gap» of 750 million euros a year and wants to «decrease this gap by 20 percent in 2008,» he said. The company’s separate cost-reduction target «is enough to allow us to incorporate part of a 56-euro-per-share evaluation into our price estimate,» Sofia Savvantidou, a London-based analyst at JPMorgan Chase & Co, said in a telephone interview today. Savvantidou currently has a -30 price estimate on the stock.