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Greece

Capital Athens
Time Zone EET (GMT+2)
Country Code 30
Mobile Codes 690,693,694,695,697,698,699
ccTLD .gr
Currency Euro
Land Area 131,990 sq km
Population 11.3 million
Language Greek
Major Religion Orthodox Christianity

Transformations in the Greek Natural Gas Market: EU Strategy, Azerbaijan, and a Regional Role for DEPA

By Ioannis Michaletos

Balkanalysis.com editor’s note: Greece’s ongoing financial crisis and uncertainty over a debt bailout package continues to alarm EU leaders and indeed governments and investors worldwide. The round of privatizations anticipated by the bailout will have far-reaching implications for the country, its energy security and ownership or influence of energy corridors in the region.

DEPA, SOCAR and the ITGI

As Greece’s budget crisis drags on, the Greek state-owned natural gas company, DEPA, is preparing for privatization. The proposed scheme sees the state selling the bulk of the 65% shares it currently retains, while the remaining percentage is to be owned by the ELPE (Hellenic Petroleum) oil company.

In parallel, DEPA executives are also now holding high-level negotiations with the Azeri SOCAR gas company in order to agree upon how to materialize the ITGI pipeline project (Inter connector Turkey-Greece-Italy), a project aims to supply significant amounts of gas from Azerbaijan to the EU markets over the next few years.

According to Greek analytic sources on energy affairs such as the Institute of Energy for South East Europe (IENE), DEPA’s privatization is inexorably related with the wider geo-economic strategies between the EU’s “Southern Corridor” energy policy, the aims of Azerbaijan and other players, including the USA, Russia, and Turkey. All of them have a stake in the developments, in terms of production, transfer or political involvement in the regional energy market.

The Potential Investors

Prospective companies that according to all available data are interested in investing in DEPA are SOCAR, the Italian energy company Edison which already cooperates in joint ventures with the Greek company, as well as the German energy giants, RWE and EON.

Moreover, according to recent reports in the Greek daily newspaper Kathimerini, Gaz de France seems to be interested, as do Gaz Natural from Spain and the Italian ENI.

There are Greek suitors as well- the Mytilineos Holding Company, which has a diverse portfolio of energy projects in different countries, as well as ELPE. Some 40% of the latter is owned by the interests of the Greek tycoon Spyros Latsis, who is also the owner of one of the largest commercial banks in the Balkans, Eurobank S.A.

Already, talks have been held, mostly behind-the-scenes in various European locations, between DEPA’s board and those of the prospective buyers; these have also included representatives of the Greek Alpha Bank, together with N.M Rothschild & Sons, who have taken part in the negotiations as the official privatization consultants for DEPA, seeking to find a suitable partner and gain from the hefty commissions that this entails.

Ventures, Assessments and Stated Commitments

The CEO of DEPA, Charis Sachinis, ventures often to Azerbaijan in relation to plans regarding the formation of ITGI, in which DEPA, along with the Turkish BOTAS and the Italian Edison have made plans for great investments. Turkey’s eastern neighbour is thus at the very center of the intrigue affecting Greek energy sector privatization today.

The original ITGI plan called for around 12 billion cbm volume of gas flow per annum and Mr Sachinis, in his latest remarks in the Greek press, mentioned that talks are underway in order to increase that amount to over 20 billion cbm.

At the same time, a well-placed source in the Greek Energy Ministry in Athens has revealed for Balkanalysis.com that “the increase in volume acts as an incentive mostly towards the EU’s side, in order to favour ITGI compared to other projects, such as Nabucco, by showing that this project is able to carry the best affordable amount of gas to the market. The Greek government supports this project 100%.”

Managers from all companies involved estimate that initially amounts around 2 billion cbm could start to be delivered by 2013 onwards, if all things are settled and most importantly if the recent deal between Ankara and Baku regarding transfer fees is complete and detailed.

Recently, at the Annual Gas Infrastructure World Caspian Forum in Baku, DEPA’s Sachinis fully backed ITGI, calling it the best available plan, and pledged 300 million euros of initial investment from DEPA’s side, while mentioned that the EU is willing to give another 100 million euros.

Moreover, he assured other participants that present differences between DEPA and BOTAS regarding pricing issues will not interfere with ITGI planning’s and, in any case, that this issue in which BOTAS claims the Greek company owns capital from previous transactions could be solved by recourse to international arbitration without any further complications.

A Southeastern Strategy?

For his part, SOCAR’s president mentioned in the same forum that Greece, as well as Bulgaria, could become the first markets for the first transfer batch of the 2 billion cbm of gas in 2013.

At this point it is interesting to mention that in 2013 it is estimated that the IGB (Inter connector Greece-Bulgaria), will be operational, which is a pipeline of reverse flow capability valued at 170m euros, and which is supported by the EU in order to diversify Bulgaria’s energy dependence away from Russia.

IGB would be able to carry up to 5 billion cbm per year. Thus it seems that the ITGI is a part of a wider scheme aiming not only for the supply of the EU’s market (mainly Italy); it also has a distinct and strategic Southeast European aim.

Moreover, it has to be noted that the whole planning relies on the ability of Azerbaijan to meet the needs of the pipeline, which in turns depends on the Shah Deniz gas field in the country, which is expected to produce and deliver the targeted capacities by 2016-2017.

In case these estimates are not achieved, serious delays could hinder the overall structure of the Southern Corridor strategy, unless new sufficient amounts of gas are to be supplied from producers further afield, such as Uzbekistan or even Kazakhstan. However, such a case would certainly affect the planning of ITGI in particular.

DEPA: Strong Profits and Plans for Expansion

As can be seen, DEPA’s privatization is related to a series of larger geostrategic goals and developments that originate from Brussels and end up along the Caspian Sea.

The company, in other respects, has a sound economic outlook, with 1.24 billion euros of sales reported for 2010 (expected to rise by 20% in 2011), and a net profit of 90 million euros. Its assets are around 2 billion euros, and it also has 300m euros in cash reserves.

DEPA also maintains substantial credit capabilities, despite the overall grim picture of the state of Greece due to its debt problems. The company also owns 100% of the Greek natural gas administrator company, named DESFA. However, in the case of privatization the government has already announced it will split this company from the mother one and proceed in another privatization in the medium-term.

Lastly, amongst DEPA’s plans are to enter the commercial natural gas market of Italy and Bulgaria within the next two years by acquiring licenses to sell gas in local consumers, mostly industrial users or regional companies.

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