Inevitable gas surcharge hike of nearly 40% looming

DESFA, Greece’s natural gas grid operator, will need to submit its network cost-related data to RAE, the Regulatory Authority for Energy, within the first ten days of the new year. The move, expected to lead to surcharge increases of nearly 40 percent as a result of the reduced overall gas consumption in Greece, has already been delayed and needs to be made as Fluxys-Enagas and Snam are preparing to submit bids for at least a 17 percent stake of DESFA. Both are currently conducting due diligence procedures.

Azeri company Socar had agreed to acquire a 66 percent of DESFA through an international tender but the European Commission intervened and has demanded that it surrender at least 17 percent and be left with no more than a 49 percent stake in the Greek operator.

DESFA’s delayed hand-over of its network cost-related data to RAE has been attributed to the inevitable sharp surcharge increase, a development that has so far been avoided, especially by the government.

Socar had offered 400 million euros for a 66 percent stake in DESFA based on a pricing formula which factors in the ability to adjust surcharge revenues annually in order to cover operating costs and offer a return on capital of roughy 11 percent.

Based on the current network cost-related and consumption data, the surcharge increase is expected to rise from 3.22 euros per MWh to a level of between 4.1 and 4.2 euros per MWh.

According to regulations, DESFA was supposed to have provided RAE with its network cost-related data by late in May, so that new network surcharge figures could be determined, but the deadline was missed as a result of the wider disarray of the bailout era in Greece.

Natural gas tariffs are revised every three years. Market conditions have changed drastically since the last revision in 2012. Natural gas consumption in Greece fell from 4.219 billion cubic meters in 2012 to 2.78 billion cubic meters in 2014. DESFA has anticipated increased surcharges for the three-year period covering 2016 to 2018 compared to the previous three-year period based on a plan to recover investment costs for the network’s development in 20 years.