Electric power gets a major investment boost in multi-billion-euro bid to boost the economy

Twenty months after he announced a «new way of governing,» Development Minister Dimitris Sioufas has announced steps that just might provide hopes for a major leap forward for the economy. It now seems possible that during 2006, Greece will be in a position to produce a considerable amount of its energy from clean sources such as natural gas and wind energy. During the first years of the Soviet regime, Lenin defined communism as the total sum of the powers of the soviets and the electrification of the economy. Sioufas might not be aware of that sentiment, but his bill on deregulating electrical energy and natural gas, just tabled in Parliament, along with the news that he is promoting renewable energy sources, has opened the way for major new investments – both domestic and foreign – that will make the Greek economy self-sufficient in electrical energy and even provide a considerable surplus for investments in industry. These new developments in the energy sector, along with tourism, are the main areas of growing investor interest. It is clear that the government has targeted these two economic sectors in its bid to create a strong investment climate in the runup to the next elections. The first positive development is the fact that the Development Ministry leadership (Sioufas, his deputy Giorgos Salagoudis and ministry secretary-general Nikos Stefanou) are now working on a draft of the forthcoming competition for plants to produce a total of 900 MW, which will open the way to the operation of major private plants in Greece. Ministry sources say that by spring of next year the competition procedure will have been completed. Since 2001, eight private energy groups have received permits to produce electricity. Most of them are expected to take part in the competition. They comprise the largest domestic energy groups, including Kopelouzos, Mytilinaios, Vardinoyiannis, GEK-TERNA and Elliniki Technodomiki. The competition is likely to be tough, according to the same sources, who hastened to provide assurances that it will be carried out on the basis of absolutely transparent criteria so as to ensure that the private firms do not start out under a cloud. The top groups in the competition results will be given priority regarding construction of the power plants, so that the winning group will build its plant first, the second a few months later and so on; this staged system is aimed at averting problems likely to ensue from the simultaneous inclusion of new units into the system, since electrical energy needs increase by just 3-4 percent annually. Sources at the Development Ministry, the Electricity Commission (RAE) and the state power watchdog (DESMHE) expressed optimism over the attractive criteria in the competition, chiefly for banks, which are expected to play a major role in the success of this competition and in the construction of the new plants. According to current estimates, 70 percent of the construction cost of a new unit will be funded by foreign capital; the state’s own participation will not surpass 30 percent. The cost of building a modern 400 MW plant is estimated at between 250 to 270 million euros. Renewable sources At least 1 billion euros, therefore, will be required to build three units producing a total output of 900 SW. If all the permits granted to produce electricity from renewable sources are acted upon, this could lead to investments of 1.5 billion euros over the next two or three years. DESMHE’s guaranteed purchase of power is expected to last for 12 years, about the same duration as the bank loan. Some bidders might eventually form alliances. According to sources, owners of permits to produce electricity are in negotiations and could take part in the tender to construct the units, so that investment cost and risk are shared. The government is encouraging these alliances, in the belief that the electricity market has enough room for all serious investors. By the time the 900 MW competition begins, the bill on deregulating the natural gas market will have been passed into law. New power plants will be operating on natural gas, according to Development Ministry specifications. The Public Power Corporation (PPC) will not be participating in that competition since, according to sources, both the European Union’s Competition Commission and the corresponding domestic committee have expressed grave fears that a violation of the principles of fair competition cannot be avoided. The procedure to include two more power plants that could help prevent power shortages next summer is also proceeding apace. These are a 380 MW plant belonging to Thessaloniki Energy (a subsidiary of ELPE) and PPC’s fifth plant at Lavrion, with a total capacity of 400 MW, expected to be ready for inclusion by January 2006. Prices Meanwhile, the government is not concerned about a price increase arising from deregulation of the energy market. Of course it has made no secret of the fact that initially the market will be functioning mainly for electrical energy suppliers, something that has already begun to occur. As of July 1, 2007, in fact, consumers will be able to choose their supplier. As pointed out by both Nikos Stefanou, the Development Ministry’s general secretary, and RAE president Michalis Karamanis, experience of deregulating energy markets elsewhere in Europe indicates that prices will fall rather than rise. It is no coincidence that the average reduction for households, small commercial consumers and major industries was 6, 20 and 9.5 percent respectively between 1997 and 2004. Considering the above, it is only logical for PPC’s staff union (GENOP-PPC) to object. Although not as powerful as they used to be, the unionists are trying to raise obstacles to the deregulation of Greece’s energy market. However, the political will to do so is unmistakable; in fact Prime Minister Costas Karamanlis has instructed Sioufas to speed up procedures.