Make or break for DESFA sale scenarios, all set to be tabled

Yesterday’s resignation by DESFA (natural gas grid operator) managing director Konstantinos Xifaras, a request made by energy minister Panos Skourletis, highlights the minister’s determination to possess full control over developments through collaboration with trusted officials. It also coincides with today’s visit to Athens by officials of Italian operator Snam, here at a crucial point in the troubled and long-running effort to privatize DESFA, for talks with energy ministry officials.

Snam appears to have agreed to take on a 17 percent of DESFA from Azerbaijani energy firm Socar, ordered by Brussels to surrender this stake after emerging as the winning bidder of an international tender in 2013 for 66 percent of the Greek operator.

A letter of guarantee provided by Socar, which has been extended several times during the sale effort’s overstretched procedure, expires at the end of this month.

Xifaras had been appointed to his DESFA post while the country’s previous administration was in power. DESFA is a wholly owned subsidiary firm of DEPA, the Public Gas Corporation, controlled by the Greek State with a 65 percent stake. The removal of Xifaras as DESFA’s managing director will serve the current Syriza-led coalition’s negotiations concerning the operator, including various future alternatives should the current sale effort not be finalized.

Xifaras, who had also submitted his resignation in the past, co-headed DESFA with company president Sotiris Nikas, still at his post.

One of three scenarios is possible at DESFA. Which one it will be will become apparent over the next few days. An agreement could be reached if mutual concessions are made. Also, Socar could assume a weaker role, which would allow Snam to acquire a stake greater than the 17 percent it appears to have currently agreed to with Socar – if the deal proceeds. Finally, the sale effort could collapse and prompt the need for the launch of a new tender based on new terms.

Socar officials will be expecting a new offer that reflects DESFA’s reduced market value, as perceived by the Azerbaijaini company. Socar officials believe the operator is now worth considerably less as a result of a revenue-limiting measure engineered and imposed by Skourletis, the energy minister, to protect consumers from steep network usage fee hikes.

RAE, the Regulatory Authority for Energy, could help save the sale effort by deciding to not significantly reduce the weighted average cost of capital (WACC), whose 11 percent level agreed to with Socar in 2012 is deemed as satisfactory at DESFA. RAE could also help by avoiding an interest rate reduction for irrecoverable funds at DESFA, currently at 10 percent. Resetting short-term contracts, which could significantly influence the operator’s earning potential, would also be constructive.