The European Union is placing top priority on the diversification of energy sources, where prospects seem to be opening up with the completion of two new natural gas pipelines from Iran and Azerbaijan to Turkey, and the plans for tapping new deposits in the countries of the Caspian Sea region. It is clear that the efficiency of the European Union’s policy of deregulation of the electric power market, elevated to top priority in 1999, will largely depend on the competitiveness of the price of natural gas. Deregulation is projected to increase the consumption of natural gas, for which the EU is 35-percent dependent on Russia. Beyond an increase in the security of supplies, which the diversification of sources promotes, the introduction of gas from Iran and Azerbaijan is expected to boost competitive pricing, with beneficial repercussions on the economies of the member states. In this new policy, Greece has already assumed an important role, which is expected to grow further when it holds the EU’s rotating presidency in the first half of 2003. Indeed, some observers go so far as to suggest that the success of the Greek presidency will depend on the EU’s success in diversifying energy sources. Apart from Russia, Greece itself is currently looking for additional natural gas suppliers, to meet the higher requirements of private electricity producers and domestic consumers, projected for after 2005. The Public Gas Corporation (DEPA), in collaboration with the Development Ministry, is in contact with Russia, with a view to increasing imports, as well as with other countries in order to obtain competitive prices. In this context, Greece last month signed memorandums of cooperation with Turkey and Azerbaijan for construction of a pipeline connecting the two countries with Greece and other European countries in the future. The memorandums were signed between DEPA and the respective companies of Turkey (BOTAS) and Azerbaijan (SOCAR). The Turkey-Greece connection project, as laid out so far, concerns construction of 85 kilometers (53 miles) of pipeline 36 inches in diameter from the city of Komotini to the border with Turkey (Kipoi post) and a further 200 kilometers of pipeline from there to Karacabey near the Sea of Marmara. The budget is $96 million for the Greek segment and $150 million for the Turkish segment. Part of the Greek segment (Komotini – Alexandroupolis) would have been constructed anyway in the framework of infrastructure for the regional gas company. DEPA and BOTAS began cooperation early last year on a joint preliminary technical study and economic analysis for the project. The technical study, completed in June 2001, set the technical parameters of the project, including the diameter of the pipeline, the route and the capacity of the pipeline. The annual capacity is expected to be 3.6 billion cubic meters, which can be upgraded by 10 million cubic meters per year in the future in order to channel greater supplies further into Europe through a possible Greece-Italy connection. Economic analysis of the project, completed by Societe Generale in March 2001, found that the project is economically viable on the condition that the price of natural gas at the Greek-Turkish border is competitive with prices from other sources, and that it is the preferred solution for the diversification of gas supply sources for Greece. Nevertheless, according to the results of the study, it will be very difficult to finance the project without guarantees by the Greek and Turkish governments, for two reasons: first, the still-undeveloped market for natural gas in Greece, which means that the pipeline will operate under capacity in the initial years of operation (2005-2015); and second, the present transitional phase to deregulated markets in both countries, which makes it all but impossible to secure long-term guarantees for demand. In case loans are obtained with the backing of government guarantees, the study considers that the European Investment Bank is the best option. For the above reasons, the study recommends that the largest possible EU participation be sought in the financing of the project. Already, a 20-percent subsidy has been approved for the Greek segment under the Third Community Support Framework, while a further 20 percent will be the national contribution. The Turkish side has also expressed the wish for EU funding, and Development Minister Akis Tsochadzopoulos said recently that this was approved following a Greek recommendation. The study also advises that the project be incorporated as much as possible into the two national grids in order to minimize unit costs. The DEPA-SOCAR memorandum concerns the preparation of a study on the terms of the supply of Azeri gas to Greece and other European countries through Turkey. Discussions will continue in Athens during the first week of June.