McKinsey delivers challenging targets for PPC’s transformation

The main power utility PPC will need to increase revenues, limit expenses and drastically reduce its debt level for a sustainable and robust future, consulting firm McKinsey, commissioned by the Greek power utility, has proposed in a project compass setting challenging targets for the firm.

To meet these targets, PPC will need to broaden its foreign market exposure, transform into a more functional enterprise and manage expenses with greater effectiveness.

In a company announcement, PPC avoided including the full details of the McKinsey report’s proposals, whose implementation would require electricity tariff hikes and job cuts, but instead opted to present their gist in more general terms.

Taking into account certain figures provided in PPC’s announcement, the power utility’s operating profit will need to increase by approximately 500 million euros to reach a level of between one and 1.1 billion euros proposed by McKinsey. Also, the power utility’s debt will need to be reduced to 2 billion euros from 3.9 billion euros for a sustainable EBITDA/debt ratio.

RES sector and network investments proposed in the report – to counter an anticipated drop in sales as a result of the bailout-required market share contraction targets to less than 50 percent by 2020, as well as PPC’s anticipated electricity generation drop due to obligations concerning a disinvestment of lignite units and withdrawal of older units representing 1,200 MW – will not be able to deliver direct results.

Favorable developments for PPC concerning CAT payments, NOME auctions and a lower supplier surcharge appear insufficient to help the power utility increase its operating profit to the level of between 1-1.1 billion euros proposed in McKinsey’s project compass. Also, proposals for reduced expenses in production, at mines and related activities will not be enough to help boost the firm’s operating profit to such a level.

This will inevitably create a need for tariff revisions at PPC, the most probable move being its scrapping of a 15 percent discount offered to punctual customers.

The McKinsey report proposes a medium-term installation of RES facilities measuring 600 MW by 2022 and over 1,500 MW by 2030, which would represent between 20 and 25 percent of PPC’s overall production capacity. PPC’s renewable energy track record suggests such figures will be difficult to achieve.