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Home Archive November 2012 Issue Issue Content Energy as an Opportunity for Tackling the Greek Economic Crisis

Energy as an Opportunity for Tackling the Greek Economic Crisis

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In the context of a particularly challenging economic environment, the Greek economy is going through a volatile transition period. The ongoing crisis and the recession make it imperative to look for new opportunities and development potential across all sectors of the Greek economy. The energy sector is no exception, and it is expected to play a key role in the recovery of the economy. As stated in the Greek energy road-map to 2050: “the energy sector constitutes a cornerstone for economic development and has either direct or indirect impact on the every sector of the economy. Therefore it becomes obvious that energy planning at national level is an important tool in the implementation of a country’s development policy, with a tremendous impact not only on the economic activity, but on the national activity as a whole."

Given the current economic crisis,  which excludes the introduction of financial incentives for capital investment and the subsequent inability of extensive public investment there are major challenges to attracting capital of any kind (foreign or domestic).  Within this context and with an orientation towards attracting investment, the main pillars of Greek energy policy and in many cases how this policy is tied to investment  are as follows:

1) Encouraging energy market liberalization and private sector participation of international private investors in the Greek market through the attraction of productive investment in order to reduce the delivered price for power to consumers through healthy competition

2) Introduction of renewable energy sources in the country’s energy balance in order to achieve the national goal of 20% renewable energy production by 2020.

3) Expansion of natural gas networks to other countries in the region

4) Promotion of national development programs for the exploitation of hydrocarbon deposits in order to reduce the country's energy import dependence and to reduce national spending outflows on oil imports amounting to 12 billion Euros/year.

5) Creating the conditions necessary for the transiting of international oil and gas pipelines in order that the country could become an energy hub in Greece’s wider region and in doing so become a key lever in supporting European energy security (including establishing close cooperation with both Cyprus and Israel.)

However, for the realization of the aforementioned goals, the chronic systemic problems of corruption, bureaucracy, an anti-reform mentality and lack of central planning in the energy sector need to be addressed. In addition, Greece’s effort to attract investment is taking place in a highly unstable political environment after two successive elections which changed radically the political balance of power in the country.  While the coalition government which emerged from the elections seems willing to make those changes and reforms long overdue, the radical left opposition party which is likely to be the next government strongly advocates for an enhanced role of the state in the economy and is opposed to any form of privatization particularly in the energy sector.
The institutional framework
Energy policy is conducted under state supervision which is implemented by the Ministry of Environment, Energy and Climate Change and the Regulatory Authority for Energy (RAE) in the framework of their responsibilities (Law 4001/2011.)
Others public agents involved with energy issues are:

DESFA, the national grid system operator which was established following the provisions of law 3428/2005 on liberation of the national gas market aimed at the harmonization of Greek legislation with the EU Directive 2003/55/EC. DESFA was established as a subsidiary company of DEPA SA (Public Gas Corporation). The sector of the National Natural Gas Transmission System (NNGS) was transferred from DEPA to DESFA by means of a spin off. Within the new legal framework DESFA takes over full control of NNGS. The purpose of the company is the operation, management, exploitation and development of NNGS in order to become economically efficient,  technically sound and integral to serving the needs of the natural gas users in a safe,  adequate,  reliable and economically efficient way.
LAGIE or OEM (operator of electricity market) which was established following the provisions of law 4001/2011 which incorporates the third energy package. LAGIE operates the daily electricity market and may take any action that is necessary for the sufficient and coordinated establishment of the internal energy market of the European Union, through transition until December 2014, into the European single market model (target model).
ADMIE or IPTO (The Independent Power Transmission Operator) was also established in compliance with the law 4001/2011 and European Union Directive 2009/72/EC regarding the adoption of common rules in the organization of EU electricity markets, and is a 100% subsidiary of  DEI or PPC (the Public Power Corporation) and undertakes  the role of manager of the Greek electricity transmission system. Its tasks involve the ownership, maintenance, management, operation and development of the transmission system and cooperation with other operators and other participants in the electricity market. The aim is to contribute to the establishment of the internal electricity market of the European Union, by incorporating duties that until now were enforced by HTSO (Hellenic transmission system operator).
• Finally regional and local authorities have decisive power regarding the issuance of environmental permits as well as installation and operation licenses for electricity generation units from renewable energy sources.

General features of the Greek energy landscape
According to IENE the Greek energy sector corresponds to 14% of GNP and approximately 130,000 people are employed directly in the sector, from oil refining, oil marketing and bunkering to electricity production and distribution, electrical equipment manufacturing, natural gas marketing and installation, and RES production.

The main feature of the energy mix is its high level of conventional fuels both in electricity production and consumption in all sectors.  The exploitation of lignite [coal] emerged as a strategic option despite its environmental impact and remains the main domestic fuel today. 
Source: Eurostat 
Oil still dominates energy use corresponding to 53.2% of total primary energy supply (TPES).  Lignite is Greece's second largest energy source at 27% of TPES.  Natural gas corresponds to 11.4% of Greece’s TPES, while biofuels and waste account for 4% of TPES.  Hydropower, solar and wind account for only 5% of Greece's TPES combined.
Source: Eurostat
Another feature of the Greek energy market is the presence of an over-sized public sector which hinders the development of healthy competition. Despite the fact of the adoption of successive laws starting in 1999 with the enactment of Law 2773/1999, aimed  at compliance with European Union legislation in order to boost private investment and competition.  A new energy law was introduced in 2011 to achieve amongst other things the implementation the EU's Third Energy Directive.  While it is intended to pave the way for increased competition by advancing the unbundling of incumbent public companies, the European Commission notes that energy sector is “still dominated by a few state-owned enterprises with low productivity and which still have a quasi-monopoly position in the market”   The IEA has urged Greece for the” completion of necessary reforms mainly in the area of privatization and unbundling of system operators in both gas and electricity from the vertical integrated companies,”  So the process of privatization remains both urgent and necessary.

A third characteristic of the Greek energy market is that most islands remain isolated and are reliant on diesel generators and oil-fired plants for power generation.  This situation is expected to change once the interconnection of Cyclades and Crete with the continental system is completed, a development that could lead to further exploitation of large local RES potential. During the next decade interconnections could be expanded to cover all islands of the Aegean as well as the development of a significant number of offshore wind farms which could augment power availability.

Important investment opportunities may arise in the near future as efforts to reduce oil dependence will continue and may be accompanied by the enhancement of gas supply which is expected to penetrate considerably in almost all areas of Greek consumption through the electrical power sector and accelerated by the expansion of transmission and distribution networks.

This requires the implementation of infrastructure investment and participation in cross-border projects for constructing and enhancing natural gas pipelines which will pass through Greece turning the country into an energy hub.  The best use of all renewable energy technologies, for which there is already strong investor interest, will further contribute both to the diversification in the nation’s energy mix and to the security of energy supply which should contribute to the enhancement of Greek economic growth.

However in order to achieve all the above, it is necessary to establish a secure investment environment with a clear licensing framework and the development of specific timelines for the implementation and support of energy produced by all technologies.  This should lead to the establishment of an integrated set of energy policies and measures characterized by continuity and consistency as far as the achievement of specific energy goals is concerned.

Investment opportunities through privatization
 The Greek government argues that the main criteria in the selection of potential investors and investment project will be measured by how well they meet Greece’s national interests.  Greece’s main objective is that the process of privatization serves the country’s strategic goals for the formation of a clear energy policy aimed at attracting foreign capital and expertise.

The first phase has started with the process of privatization of the natural gas groups DEPA and DESFA and will continue reducing the public sector’s share in Hellenic Petroleum, while there is an ongoing discussion about PPC and the prospect of selling 17% of shares to individual shareholders thereby lowering public shareholding to 34%.

Responsible for the privatization process is the Hellenic Republic Asset Development Fund (HRADF) that was established on 1st July 2011 (L. 3986/2011), under Greece’s medium-term fiscal strategy. The new law is aimed at restricting governmental intervention in the privatization process and its further development within a fully legal context. Subsequently, the old privatization process under the Law 3049/2002 was abandoned. 

Natural gas
DEPA is the incumbent natural gas importer and distributor. It sources gas from a number of suppliers through long-term supply contracts and provides approximately 90% of the gas consumed in the country. DEPA holds 100% of DESFA, which holds, operates and develops the National Natural Gas Transmission System. DEPA also holds a 51% interest in the Gas Distribution Companies of Attica, Thessaloniki and Thessalia which supply retail clients in their respective regions.  The Hellenic Republic holds 65% of DEPA, with the remaining held by Hellenic Petroleum SA.

The course of privatization of DEPA,  owner of  the central gas pipelines and other LNG facilities in Revythousa,  has accelerated.  Already 14 companies have expressed interest in the acquisition of the company starting with  the Russian giant Gazprom, Azerbaijan's SOCAR, Japan’s Mitsui, Span’s Enagas, Italy’s ENI, Algeria’s Sonatrach, Russia’s Neguneft, Holland’s Vopak, the Israeli Israel Corp, among others having expressed interest.
Here it should be noted that the whole procedure takes place in the midst of the fierce reactions from the main opposition party, SYRIZA, which claims that due to the strategic profile of DEPA and DESFA and their role in the formation and implementation of the nation’s energy policy, no government should even consider the possibility of privatization.

But foreign analysts along with the European Union and the IEA have adopted very different perspectives since the Southern corridor constitutes a priority  for the  enhancement of European energy  security through diversification  of sources and routes by transporting  natural  gas  mainly from the Caspian, Azerbaijan and Turkmenistan .

With Greece and Bulgaria constituting the only gateways for Caspian gas to reach the European Union privatization of the two companies could contribute to the efficient operation and increased energy security of Greece and the European Union.  As long as DEPA and DESFA remain under public ownership foreign investors will continue to view Greece with skepticism which will adversely and negatively affect pipeline construction. Thus privatizing DEPA and DESFA will boost the development of the Greek economy and through the assistance of reliable international gas companies Greece will actually fulfill its geopolitical energy diplomacy targets and develop economically.

HELPE - Hellenic Petroleum
As for Hellenic Petroleum, the government intends to sell the entire share at its disposal (approximately 35.48%).  HELPE is the leading oil refiner and distributor in Greece and a significant player in the Southeast European market. It operates three refineries in southern and northern Greece which cover approximately 70% of the country’s refining capacity, and a refinery in the former Yugoslav Republic of Macedonia (FYROM).

Apart from ex-refinery sales to retail companies HELPE is also active in fuel retailing in Greece where it holds a 28% market share and abroad in Cyprus, FYROM, Bulgaria, Serbia, Montenegro and Albania. Additionally, HELPE holds stakes in Greece’s natural gas distributor, has a joint venture in power generation, and operates Greece’s sole petrochemicals plant.  Recently the company launched a new production complex for diesel products in Eleusina. This is not only the biggest refinery  investment (1.2 billion Euros) in Greece but also in Europe in the refining sector.  This development should give a big boost to the company’s competitiveness since from a net-importer of diesel it will evolve to a major exporter of products with high added value in the Greek economy. At the same time, investment in Eleusina is an environmentally friendly project, since it will reduce all emissions of the refinery at rates between 70% to 84%, while 25% of the capital invested is for environmental improvement. 

It should be noted that despite the adverse domestic and international environment, the Group of Hellenic Petroleum implemented an investment program of total 3 billion (2008-2012), a key part of which was the upgrade of Eleusina.

PPC- Public Power Corporation

The Public Power Corporation SA is the largest power generator and supplier of electricity in Greece with more than 7.5 million customers and an installed capacity of 12,800 MW, more than 80% of the national total.  Production is based  on coal, gas and oil and in hydropower and renewable energy installations. PPC owns and operates the national electricity transmission and distribution networks.  The Greek government owns 51% of the PPC.

PPC privatization is still at the consultation stage after objections have been expressed both by the main opposition  party that characterized any potential  attempt to privatize the company as an “act of national betrayal” and by the employees trade union which threatens to launch a general blackout  throughout the country whenever the issue of privatization comes up.
For the government, however, the privatization of PPC is considered necessary because an organized and modern privatization model could bring huge benefits both to the economy and to consumers, since an influx of private capital would allow the company to make necessary investments needed to develop and to strengthen. Second, it will contribute to the deregulation of  the Greek energy market and thus will promote the reduction of the delivered cost of power to the consumer. Third, it will enhance government revenue and reduce pressure on public finances and in addition, it will bring new investments without any cost to the state budget which should lead to growth and jobs.

Hydrocarbons exploration

The first essential step, after many years, towards hydrocarbon’s exploration was made late last year, when the Ministry of Environment, Energy and Climatic Change (YPEKA) preceded to an International Public Invitation for the Participation in non-exclusive seismic surveys for offshore Western and Southern Greece. This process was carried out and completed.  The Norwegian firm PGS was selected as the contractor from among eight of the most important international companies that expressed interest. The company will collect data and by the summer of 2013 the firsts results will be available that would lead to safe and accurate conclusions about deposits in the region.

Furthermore, in early 2012 the Ministry of Environment, Energy and Climate Change published an announcement for granting oil exploration & exploitation rights for three areas (Patraikos Gulf, Ioannina and Western Katakolo) following the procedure of an “open door”  policy.  Finally, the establishment of the Hellenic Hydrocarbons Management Company S.A. has been included in the Law 4001/2011. This new corporation, whose articles of association are currently being prepared in the form of a Presidential Decree and whose Board of Directors will be selected through a transparent open government process, will undertake the responsibility to organize and execute all the relevant exploration and/or production tenders, evaluate the offers, select winners, prepare the relevant contract agreements and constantly supervise their appropriate execution. The legal framework governing the permitting process to search, exploration and exploitation of hydrocarbons under Greek law ensures public benefit yet remains simple and friendly to potential investors.
RES and the Helios Project
Renewable energy sources can play an important role in boosting Greece’s economy taking into consideration the countries high RES potential especially in solar energy.  It is estimated that one-third of Greece’s energy requirements could be met with solar energy while experts believe that the market will grow impressively and have a value of more than 4 billion Euros in just few years. Besides major foreign companies,  small and medium size companies are active in the sector. As a result , the installed capacity of all  renewable energy sources increased by 24% over the period 2002-2011 with solar energy covering  approximately 22% of such installed capacity.

The Greek government has  launched a large solar project entitled Helios.  This project includes the installation of 10 GW solar energy in Greece and intends to export solar energy to the countries of Central and Western Europe. The state will provide an “all-inclusive” platform to encourage and facilitate investments in he solar sector, by presenting potential investors with ”turn key”–fully licensed solar photovoltaic( SPVs ) projects in specific state-owned site locations.  The benefits of such a project are multiple, both during developmental as well as operational phase.  Furthermore the strengthening and development of new network infrastructure will substantially contribute to the realization of development projects for European interconnections and the creation of a single European energy market. The development of such strategic investment projects will strengthen Greece’s energy profile in the region while providing significant direct benefits to the local economy and the creation of growth opportunities and new jobs in the region.
Shaping Greek energy policy
Within the context of shaping Greek energy policy the following factors must be considered:

1. Energy policy should have a medium to long term perspective
2. It must take into account the correlation of forces in international affairs
3. It must  comply with conditions and restrictions posed by the European Union and other international organizations
4.It must ensure energy security by providing alternative solutions such as the diversification of resources
5. It should utilize the country's geopolitical and geographic position in the context of three continents  (Europe, Asia and Africa ) as a safe harbor in the wider  Eastern Mediterranean basin
6. It should explore the prospect of finding significant hydrocarbon reserves within  its exclusive economic boundaries

Based on the above specifications there are a variety of opportunities that can be followed in the formation of a successful energy policy either by the state or by private investors or jointly.  Suffice it to say that these options cover the entire fuels and power sectors from domestic hydrocarbon development to the introduction of RES power generation.  Regardless of the application area/technology there remains a role for the state to play.   

In particular concerning major transmission networks (oil, gas, electricity) the participation of the state is necessary, either directly or indirectly through regulatory authorities, in order to assure fair competition for all parties who seek access to these networks.  This is in fact the basis of the Energy Charter Treaty.  Further, this approach is important because some of the  main transmission networks  interconnect with neighboring countries some of which are not EU members. Finally, the state can ensure that private system operators comply with EU environmental regulations and that the systems themselves work in Greece’s public interest. 

All distribution networks can be privately owned on the condition that they ensure environmental protection, provide safety from potential accidents and promote the energy security of the region they supply.  In this case, the government can help prevent the formation of monopolies that may lead to lack of competition thus safeguard Greek consumer protection.
As a conclusion one might say that the energy sector in Greece has all the potential to contribute in the country's economic recovery, but the primary and fundamental pre-condition for this is the development of a strong national strategy that will avoid the mistakes of the past based on an agreement between the main political forces in the country in order to maximize the benefit for the nation. 

Contributor Vassiliki Souladaki is a PhD Candidate in European and International Relations at Panteion University in Athens,  Greece


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