Energy privatizations exceed forecasts, raising nearly €3bn

Two major energy-sector privatizations whose bidding procedures were completed last week, the 100 percent sale of gas company DEPA Infrastructure and 49 percent sale of electricity distribution network operator DEDDIE/HEDNO, exceeded even the most optimistic of expectations, resulting in total revenue, from both sales, of 2.849 billion euros, well over initial projections of 2.2 billion euros.

Australian fund Macquarie’s 2.116 billion-euro winning offer for 49 percent of DEDDIE/HEDNO, being offered without managerial control, stands as a record sum for Greek privatizations.

The DEDDIE/HEDNO sale’s amount will be used by power utility PPC, the parent company, for network modernization, RES growth, and improved customer services.

Italy’s Italgas secured 100 percent of DEPA Infrastructure with an improved follow-up offer of 733 million euros. Thus sum is expected to exceed 800 million euros once the buyer’s bid for a 49 percent stake in distributor EDA THESS, covering the Thessaloniki and Thessaly areas, is submitted and added to the tally.

According to the DEPA Infrastructure sale’s terms, the winning bidder must also purchase EDA THESS’s 49 percent stake, held by Italy’s Eni gas e Luce, wanting to sell.

The favorable outcomes of the two privatizations highlight the country’s improving investment climate as well as the confidence of foreign institutional and strategic investors in the prospects of the Greek economy, Prime Minister Kyriakos Mitsotakis noted. This improvement is also confirmed by yet another upgrade of the Greek economy, this time by Scope Rating, he added.

Besides signaling good news for the Greek economy, the DEDDIE/HEDNO and DEPA Infrastructure privatizations also send an upbeat message on the prospects of the domestic energy market.


Government working to promote major-scale RES projects

The government is working on upgrading the country’s legal framework for the RES sector in an effort to promote the development of major-scale projects, not just smaller wind and solar energy farms.

The need for a national RES strategy revision has been intensified by the prospect of major pandemic-induced damage to the tourism industry, the backbone of the Greek economy.

Big RES projects promise to attract foreign funds managing portfolios worth billions. An influx by such funds promises to create jobs, generate economic growth and help Greece reach its ambitious RES objectives set for 2030.

The government took an important first step yesterday by ratifying legislation to simplify the RES licensing procedure. But this is not enough. Ensuing steps in the overall procedure for RES investments also need to be simplified.

“We have begun and are working on proposals to simplify procedures for the next stages all the way to the installation permit. We are also moving forward with other issues to accelerate the RES sector’s penetration of the energy mix,” deputy energy minister Gerassimos Thomas recently told parliament.

Cyprus on track for Industry 4.0

By Constantinos Kesentes

Chairman of the Board of Directors at GAIAOSE

Member of Innovation Advisory Team at HCAP

After the difficult period of the economic crisis, the Republic of Cyprus has been impressive in the way it is preparing the future. A characteristic example is the field of innovation. The Republic of Cyprus has turned its attention to the fourth industrial revolution and strives to create the right environment, at the level of enterprises, companies, services and investments, by adopting innovative practices and processes.

On the initiative of the President of the House of Representatives, Mr. Dimitris Syllouris and through a systematic effort of three years, Cyprus has already developed a National Strategy for Blockchain Technologies and Distributed Ledger Technology (DLT) while the corresponding National Strategy for the Development of Artificial Intelligence is already at the stage of completion. With a clear vision, strategic goals, priorities and a precise roadmap that includes pilot projects and the necessary legislative reforms the Republic of Cyprus is claiming a position among the pioneering EU states and a coordinating role at a regional level.

Given the recent experience of attending the Conference of the House of Representatives on “The Fourth Industrial Revolution: Innovation, Artificial Intelligence, and Integration”, I would like to point out some aspects that impressed me:

– The high symbolism of organizing such a specialized conference inside the House of Representatives and with the active participation of Members of the House, which signifies the importance that the Republic of Cyprus attaches to the issues of innovation.

– The harmonious cooperation of public and private academic institutions with public and private bodies with the sole aim of advancing the country.

– The inspirational leadership of President D. Syllouris who bears the characteristics of a visionary politician and a result-oriented manager. An example of his effectiveness and determination was his statement to a participant who noticed that “In order for the pilot projects to begin the completion of the legislative reforms is required.” The President’s answer was: “If we want to be among the successful countries, we have to move fast. We will find the way to realize the pilot projects without having to wait for the completion of the legislative work.”

Having these thoughts, I met the President Mr. D. Syllouris during his recent visit in Athens to discuss about the conclusions of the Conference and investigate the cooperation opportunities between Greece and Cyprus for the development of innovative infrastructure and services.

Right after the Conference, at the initiative of the House of Representatives, the process for developing an integrated legislative framework for blockchain/DLT has begun. With the help of experts from Europe and the US, a modern and flexible institutional framework is being designed with a particular emphasis on supervisory mechanisms, which will ensure the transparency and the avoidance of the use of blockchain services to serve illegal activities.

The medium-term goal of President D. Syllouris is the establishment of a Network of Understanding and Cooperation among all interested parties for the implementation of the National Strategy of the Republic of Cyprus for the fourth industrial revolution. Academic institutions, research centers, the business world, startup ecosystems and funds will be invited to participate in this network and to cooperate in order to make Cyprus a benchmark for industry 4.0.

In this context, significant opportunities of cooperation between Greece, Cyprus and States of the wider region are created to develop public blockchain services infrastructure and to engage companies in the provision of value added services in sectors such as supply chain, real estate, transportation, fintech, retail, intelligent agriculture, food safety & traceability and many more. These co operations could be the catalyst for the overall upgrade of the two countries’ economy.

It is worth mentioning that, according to a recent report of the World Economic Forum, blockchain could lead to 1.5% global GDP growth in the next decade. With this expectation a global race to develop such infrastructure and services has begun. The recent “Worldwide Semiannual Blockchain Spending Guide” report of International Data Corporation (IDC) forecasts that spending on developing blockchain solutions in 2019 will increase by 80% comparing to 2018 and will reach 15.9 billion USD in 2023.

The position of Greece and Cyprus in this scene is reinforced by the fact that the fourth industrial revolution is of high priority for the EU. The European Commission has a holistic approach to blockchain technologies and DLT, which aims at positioning Europe at the forefront of blockchain innovation and uptake. In this context, the EU aims through a series of initiatives to reinforce cooperation on the development of blockchain/DLT based applications, support international standard setting and facilitate dialogue between industry stakeholders and regulators, notably for a regulatory framework, that builds on the EU acquis.

An important initiative that is involved in the above context is the European Blockchain Partnership (EBP) for the establishment of a European Blockchain Services Infrastructure (EBSI) that will support the delivery of cross-border digital public services, with the highest standards of security and privacy. Both Greece and Cyprus are members of EBP. At the same time the EU, in order to encourage cooperation between public and private sector, has launched the International Association for Trusted Blockchain Applications (INATBA), which brings together industry, startups and SMEs, policy makers, international organisations, regulators, civil society and standard setting bodies to support blockchain/DLT to be mainstreamed and scaled-up across multiple sectors. The EU context of initiatives is complemented with appropriate funding. Already 180 M€ of EU funding spent to support research and innovation in blockchain/DLT while a new investment fund, “The blockchain and AI fund”, is being created. In 2020, 100 M€ will be allocated to the European Investment Fund (EIF) for being invested in Venture Capital funds, who will then invest a total of 300 to 400 M€ in AI and blockchain startups.

This favorable framework, which appears to be in place, is an important opportunity for growth for the economies of Cyprus and Greece. Initiatives like the one of the President of the House of Representatives, Mr. D. Syllouris, contribute to this very direction.



Electricity demand up 3.8% in first half, indicating improved Greek economy

Domestic electricity demand has increased by 3.8 percent in the first half of 2019 compared to the equivalent period a year earlier, indicating an improved Greek economy, latest power utility PPC figures have shown.

PPC’s total turnover increased by 94 million euros, or 4.3 percent, in the first half, despite a 4.6 percent, or 921 GWh, reduction in sales as a result of the utility’s retail market share loss, from 83.2 percent in the first half last year to 77.1 percent in the first half this year, the utility’s first-half results showed.

The power utility’s total turnover increase was attributed to the increased local demand for electricity; a partial recovery of CO2-related expenses from mid and high-voltage electricity sales; and a reduction of PPC’s punctuality discount from 15 to 10 percent as of April 1, 2019, it noted.

Lower RES auction prices a vote of confidence for economy

Lower prices prompted by aggressive bidding at Greece’s second RES auction for the year yesterday, offering capacities to investors for new projects, can be interpreted as a vote of confidence by investors, local and foreign, for the Greek economy and RES sector.

The session’s lower prices, which reached levels of major European markets, also reflect an anticipation of further RES equipment cost reductions and higher facility yields.

The biggest price drop was produced by the auction’s third category, offering capacities for wind energy installations of between 3 and 50 MW, where the lowest price registered was 55 euros per MWh and the highest 65.15 euros per MWh, according to sources.

Prices for this category ranged between 68.18 and 71.93 euros per MWh at the previous RES auction, held in July.

Successful bidders in this category included Terna, Rokas, Portugal’s EDPR, Volterra and Ostria. Representing 14 projects with a total capacity of 281.65 MW, they vied for 160.94 MW. Bidding for the category started at 79.77 euros per MWh.

In the category for small-scale photovoltaic installations of up to one MW, the lowest price was 64 euros per MWh and highest 69 euros per MWh. Bidders representing 180 projects with a total capacity of 102.19 MW contested for 61.95 MW at a starting price of 81.71 euros per MWh.

Prices for this category ranged between 75.87 and 80 euros per MWh at the previous RES auction.

In the session’s other category, offering capacities for larger-scale PV installations of between one and 20 MW at a starting price of 71.9 euros per MWh, bidders representing a large proportion of projects totaling roughly 35 MW secured capacities at prices of approximately 63 euros per MWh, sources informed.

Investors representing 27 projects with a total capacity of 151.32 MW contested for 86.47 MW in this category.

The Solar Cells group acquired capacities for four projects at elevated prices, while PPC Renewables secured satisfactory price levels of just below 70 euros per MWh, sources noted.

Prices for this category ranged between 62.97 and 71 euros per MWh at the previous RES auction.


PM, EBRD chief discuss increasing bank’s RES sector involvement

Prime Minister Alexis Tsipras and the president of the European Bank for Reconstruction and Development (EBRD) Suma Chakrabarti discussed the prospect of the bank’s increased involvement in the country’s RES sector, among various issues, at a meeting in Athens yesterday.

The Greek prime minister made note of the country’s economic recovery in progress and the objective to swiften growth rates of small and medium-sized enterprises. Tsipras also highlighted the Greek economy’s benefits as a result of the EBRD’s activities in Greece, noting the bank’s presence will contribute to an acceleration of economic growth.

Chakrabarti, the EBRD head, commended the government for putting the economy back into growth territory and boosting employment, while adding that the bank is determined to continue offering support.

The bank’s involvement will be stretched to 2025 for financial support to small and medium-sized enterprises, the sectors of tourism, real estate, green energy, agricultural food production, as well as investments for improved municipal services.

EBRD financial investments in Greece have reached 2.5 billion euros, making Greece Europe’s fifth highest recipient. A total of 600 million euros of EBRD financial investments are expected to be made in 2018.

During his visit to Greece, the EBRD president also noted the bank intends to establish a branch in Thessaloniki for business services to small and medium-sized enterprises.

Extended global turmoil could affect Greek privatization plans

Greece’s privatizations program, now approaching the final stretch towards implementation, could be staged under drastically different market conditions if the current turmoil and instability witnessed in international markets carries on.

Though still too early for any safe predictions, the uncertainty of foreign stock exchanges could greatly impact the international plans of global investors, including in Greece.

Also, the current turmoil could also end up reducing the bourse value of the Greek State’s stakes in the main power utility PPC as well as the Athens and Thessaloniki water supply and sewerage utilities, EYDAP and EYATH, respectively. The state’s stakes in these utilities have been transferred to TAIPED, Greece’s privatization fund, as part of the lead-up to the privatizations.

Market experts have noted that investors prefer to place their money in low-to-zero risk countries during times of uncertainty. If the global economy enters a new period no longer offering low interest rates, a weaker euro and low oil prices, as was the case between 2015 and 2017, then the Greek economy could be negatively impacted.

It remains to be seen how such conditions could influence the plans of international investors in Greece.

Given the current market conditions in Greece, offering low asset values, and high unemployment amid the educated classes, which is prompting lower labor costs, investors should be eyeing Greece. However, a series of age-old factors, such as the country’s notorious level of bureaucracy and slow legal system, as well as newer factors, including the government’s negative impact on entrepreneurship, marked by high taxation levels, appears to be keeping investors away.

If the current turmoil in foreign markets ends up not being ephemeral, then a Plan B may need to be established for Greece’s privatizations program.

Gasoline demand drop of 4.6% dampens economic outlook

Gasoline demand fell by 4.6 percent in the first quarter of 2017, compared to the equivalent period a year earlier, official market data released by the energy ministry has shown.

The downward trajectory of market trends, especially in fuel demand, a key economic indicator, runs contrary to more optimistic forecasts trumpeted by the government, claiming the country is now set for an economic recovery.

Diesel (ULSD) demand registered a marginal 0.6 percent increase in the first quarter and auto LPG demand rose by 2.9 percent.

Howewer, in March, gasoline demand dropped by 1.4 percent, LPG sales slumped by 7 percent and heating fuel – in a seasonal development – plunged by 25.4 percent.

Market officials expect a further overall slump in fuel demand to be registered for April. Unofficial data suggests a double-digit drop in diesel sales, but refineries have not confirmed such a development.

Diesel demand fell by 6.1 pecent and 2.2 percent in January and February, respectively, before rising sharply, by 8.5 percent, in March. Diesel is the leading fuel of choice among drivers in Greece.

Pre-recession power demand to be reached as of 2022, IPTO notes

Recession-battered Greece will need an entire fifteen-year period to reach record electricity demand figures set in 2008, prior to the prolonged recession’s emergence, IPTO, the power grid operator, has foreacast.

This prediction was included in a ten-year electricity transmission network development plan submitted by the operator to RAE, the Regulatory Authority for Energy, for approval.

The operator noted that electricity demand in Greece is expected to regain the ground lost over the past few years from 2022 onwards.

IPTO factored in its GDP forecasts to estimate Greece’s future electricity demand levels. The operator presumes GDP growth of between 2.2 and 3.1 percent for 2018, 1.8 to 2.8 percent for 2019, 1.4 to 2.4 percent for 2020, 0.8 to 1.8 percent for 2021, and, from then on, annual growth of 0.3 to 1.3 percent until 2027.




Fuel demand down by 8% amid recession despite lower prices

The prolonged recession, its consequent intensifying anxiety felt by consumers, and the government’s barrage of taxes are further subduing households and disposable income levels, which is flattening any favorable market prospects offered by lower fuel prices.

Although the current average of fuel prices is 10 percent lower compared to last year, consumption levels have fallen and also establishing themselves at these lower levels.

Unofficial petroleum company data for the month of May showed total sales at fuel stations fell by eight percent, year-on-year, in volume terms.

Yiannis Aligizakis, president at EEPE, the Hellenic Petroleum Marketing Companies Association, noted that this considerable fuel demand drop concerns both unleaded fuel and diesel.

The official pointed out that last month’s drop in the demand for auto diesel was the first to be registered in two years, which, he added, reflects reduced business and industrial enterprise orders as a result of subdued overall demand.

Households, too, affected by increasing financial burdens and a negative psychology generated by a general fear that worse could still lie ahead, are limiting their car use, as indicated by last month’s eight percent drop in fuel demand, as well as other necessities, which, in turn, is reducing manufacturing levels, delivery transport, and diesel sales.

Worse still, many analysts forecast that international crude prices will rise over the next few months, which makes the country’s new fuel taxes an untimely addition for consumers as well as the government’s tax revenue objectives.

New fuel taxes will affect heating fuel in autumn and auto fuel – unleaded and diesel – as of 2017. A just-imposed one percent VAT hike on fuel, from 23 percent to 24 percent, prompted slight fuel price increases of about one cent per liter, but this is seen as a prelude compared to the prospective hikes to be caused by special tax consumption (EFK) increases.

At present, taxes in Greece represent 69.5 percent of fuel prices, whereas, as of 2017, the figure will increase to 71 percent once the special tax consumption on fuel is hiked.

Heating fuel is expected to increase by 7 to 8 cents per liter in October. As of January, 2017, the rise in diesel prices is expected to reach 11 to 12 cents per liter once the EFK hike is introduced on top of the VAT increase. Also at the beginning of 2017, unleaded fuel prices are foreast to increase by 5 to 6 cents per liter.


Local industrialists set to invest as soon as conditions stabilize

A large number of local entrpreneurs, especially industrialists active in the fields of energy, infrastructure and manufacturing, are keen to make investments as soon as conditions allow, judging by the content of speeches, as well as the sideline talk, at a SEV (Hellenic Association of Industrialists) conference staged at the Athens Hilton.

Mihalis Stasinopoulos, chief at Elval (Hellenic Aluminium Industry) and the Viohalco group, who usually avoids public events, as well as other prominent entrepreneurs, among them Evangelos Mytilineos, chief exectutive at the Mytilineos corporate group, participated.

Political stability and Greek State consistency are essential factors for improved conditions that can once again attract capital and investments, it was reiterated.

Mytilineos pointed out that the ruling Syriza leftist-led coalition and main opposition conservative New Democracy party’s shared pro-EU outlook and support for reforms offers stability and a predictable business environment, necessary traits for long-term investments.

Industrialist Spyros Theodoropoulos, head of Chipita, underlined that the managerial ability, versatility, decisiveness, and strength displayed by Greek enterprises that managed to establish themselves internationally amid the crisis stands as their greatest asset.

A number of entrepreneurs appear ready to invest, conditions permitting. The Mytilineos group, for example, is preparing to invest 110 million euros in renewable energy (RES) projects within the next two months as long as economic and political stability prevails with the completion of the first review of Greece’s third bailout package. Elval, too, seems set to proceed with a major investment, backed by EU funding support, that will double the aluminium industry’s production capacity.

Certain macroeconomic factors, the most noteable being the handling of Greece’s debt issue, a constant threat for the economy’s sustainability, will need to be addressed if the country’s investment climate is to improve, it was pointed out at the conference.

At a practical level, entrepreneurs are waiting to see positive impact from last night’s agreement at the Euro Working Group, in the form of a further fall in Greek bond interest rates from the current levels of 7.5 percent to about 5 percent. This will help reduce the extraordinarily high cost of capital for Greek enterprises, compared to levels enjoyed by competitors abroad.

PPC share’s volatility reflecting wider economic concerns

Yesterday’s trading session at the Athens bourse reflects the negative psychology currently affecting the stock exchange and Greek economy. Interestingly, analysts and investors are linking the share price of main power utility PPC to the overall prospects of the Greek economy.

Taking this correlation into consideration, the 15 percent loss in value of PPC’s share price over the past week, which has reached as much as 25 percent during trading, acquires particular significance. If looked at over a wider time span that includes the six-month high of 5.40 euros struck by PPC’s share last November, then the loss exceeds an alarming 50 percent. This plunge fully reflects the deterioration of Greece’s economic condition over the past few months, which has prompted renewed uncertainty and delays in the latest review by lenders of the country’s bailout program.

Yesterday’s closing price of PPC’s share, which ended the session at 2.68 euros, is just four cents over its 52-week low. This share price brings the utility’s worth down to a meager 621.76 million euros, well below the level it should be at, considering PPC’s corporate stature.

This is clearly an undervalued and non-reflective evaluation of PPC’s true market worth, one that primarily reflects the market’s psychology, as well as certain issues linked to the utility, such as the uncertain future of its subsidiary firm IPTO – the power grid operator – the alarming level of arrears owed by consumers, and the utility’s lack of competitiveness.

Yesterday, PPC’s share gained 1.52 percent, backed by a trading volume of 2.1 million euros. During the session, it fell to as low as 2.34 euros and peaked at 2.80 euros before closing at 2.68 euros for the day.

Local economic slowdown drastically affecting industrial activity

Greece’s heavy industry is bracing for further setbacks as consumer demand continues to weaken. The worrying trend, forecast just weeks ago by major industrial groups for the second half of this year, is already being confirmed. According to industry estimates, sales are expected to fall by more than 50 percent in the second half of this year.

The steel and cement industries are expected to be hardest hit and, needless to say, employment levels will be affected. Just yesterday, the Volos-based steel company Sovel, operating one of Greece’s biggest industrial units, announced that workers will be given compulsory three-week breaks.

Greece’s heavy industry has been trapped in the doldrums for five years amid the deep recession. Some signs of a possible recovery emerged in 2014 and early this year, when work at stalled road-development projects had resumed for a short while. However, the Greek state has, since April, stopped making payments to companies contracted for major projects, prompting them to halt work.

The steel and cement industries had placed high hopes on the progress of road projects as a means towards recovery. But, based on the latest developments, they once again find themselves in troubling positions.

The country’s steel industry is now believed to be at a standstill. The cement industry is not much better off either as domestic demand has virtually fallen to zero levels.

Industries are relying on exports, but at high production costs as a result of pending energy-sector issues.

Highlighting the extent of the problem, even industry sector officials who normally remain reserved with their views are now describing the overall situation as bleak.

If the progress at major infrastructure works remains stagnant, then permanent job losses at industrial companies will be inevitable.


Minister focuses on TAP, IGB at meeting with US ambassador

Production Reconstruction, Environment and Energy Minister Panos Skourletis held a meeting with US Ambassador to Greece David Pearce in Athens yesterday, during which the officials exchanged thoughts on the state of the Greek economy, conditions needed to attract foreign investment, as well as Greek energy matters.

On energy, the two officials discussed developments concerning the TAP (Trans-Adriatic Pipeline) project – to primarily carry Azeri natural gas to Europe via two EU member states, Greece and Italy – as well as the IGB pipeline, which will interconnect the Greek and Bulgarian gas systems.

Highlighting the change of direction at the energy ministry since the recent replacement of hard-line leftist Panayiotis Lafazanis from its leadership, a plan for a new Greek-Russian pipeline plan, fundamental in Lafazanis’s agenda, was just briefly mentioned during yesterday’s meeting.

Skourletis emphasized the Greek government’s effort to ensure energy security and multiple energy sources for Greece. The energy minister made particular note of the country’s objective to reinforce its role as an energy hub, which is expected to benefit Greece and contribute to the wider region’s geopolitical and economic stability.

Energy issues concerning Greece and the USA will be discussed in greater detail by the Greek energy minister and Amos Hochstein, the US Special Envoy and Coordinator for International Energy Affairs, who is expected in Greece imminently.

Hydrocarbon earnings, state firms included in sell-off fund

The basis for Greece’s latest bailout agreement, the third in five years, includes the establishment of a super-fund for long-term sales of state assets, possibly energy companies as well, its objective being to service the national debt, recapitalize banks, and finance investments.

At this stage it appears the fund will be established through the sale of bank subsidiaries and shares, state-owned property, state companies, as well as prospective earnings of tenders offering hydrocarbon exploration and exploitation rights for offshore and onshore blocks.

The fund’s aim, as revealed yesterday by Austrian chancellor Werner Faymann, will be to raise 50 billion euros through privatizations over a 30-year period. Of this total amount, 25 billion euros will be used to service European Stability Mechanism (ESM) costs for the recapitalization of Greek banks. The plan for the fund also entails evenly splitting the other 25 billion euros to service national debt (12.5 bn euros) and finance investments (12.5bn euros). The fund will be based in Athens and controlled by the Greek government under strict European Commission supervision.

Faymann explained that the privatizations will take place over a long-term period to avoid selling at depreciated costs amid the crisis.

Although details concerning the fund’s asset make-up remain unknown at this stage, it is expected, based on current estimates, to be supported by three key pillars.

The first will include bank assets, such as property and bank subsidiaries, both in Greece and abroad, according to comments offered yesterday by German chancellor Angela Merkel. Emphasis will be placed on the network of Greek bank subsidiaries in southeast Europe, including the National Bank of Greece’s Financbank in Turkey.

The existing TAIPED State Privatization Fund and its hundreds of small and large-sized properties, stakes in state-run companies, as well as infrastructure such as ports, airports, amd marinas, will, based on current plans, serve as the new super fund’s second main component. It remains unknown whether energy companies such as the main power utility PPC and DEPA, the Public Gas Corporation, will be included here, though this is not out of the question.

The fund’s third main component, according to reports, will consist of future earnings to be raised by hydrocarbon exploration and exploitation rights offered for offshore and onshore blocks.

The coalition’s main party, Syriza, had announced a plan to establish a fund for hydrocarbon-related revenues several months ago. Like previous Greek governments, the coalition envisaged fashioning a fund based on the Norwegian model, which supports social welfare policies through oil and gas revenues. However, the latest plan is entirely different and entails using hydrocarbon earnings to directly service national debt, recapitalize banks, and finance investments.



Greek crisis to subdue fuel demand, agency reports

The ongoing Greek economic crisis will lead to a sharp decline in the demand for fuel and petroleum products, the International Energy Agency (IEA) has noted.

An exit from the eurozone – whose probability was greatly diminished this morning with the announcement of a basis for a bailout agreement between Greece and lenders – would further subdue demand for petroleum products in the Greek market, while a return to the drachma, and its anticipated slide against hard currencies, would favor local refinery exports, the IEA noted in a report for the month of July.

The introduction of capital controls in Greece and the refusal of credit card transactions at many petrol stations are expected to subdue consumer access to petroleum products, the report noted.

The macroeconomic prospects for Greece and, possibly, Europe as a whole, are under threat as a result of the domestic turmoil and negotiations with the country’s creditor representatives, IEA noted.

The agency noted that first-quarter demand for fuel in Europe and Greece rose by 4.6 percent and 15 percent respectively. This significant increase is not sustainable, while, in the short term, is expected to contract in Greece, noted the agency. It primarily attributed the fuel demand increase in Greece to the extremely cold weather last winter.

Current forecasts for fuel demand in Greece expected the level to drop from 290,000 barrels per day in the first quarter to 275,000 barrels per day by the fourth quarter. An even sharper drop, prompted by the latest events, was not ruled out by the agency.

Lafazanis: Energy sector will drive Greece out of recession

The country’s energy sector will help drive Greece out of the deep recession, Production Reconstruction, Environment and Energy Minister Panagiotis Lafazanis told an energy conference in Athens today.

Commenting on a bilateral agreement that was recently signed by Greece and Russia to make official their interest in developing “Greek Stream”, the local natural gas pipeline segment to be incorporated into the prospective Southern European Pipeline, Lafazanis said the project will be completed by the end of 2018.

The minister noted the pipeline’s construction will create about 20,000 jobs, offer fiscal benefits to the national economy as a result of significant revenues to be collected by the prospective Greek state company that will be established to co-manage the gas pipeline, and, on a wider scale, upgrade the country politically and geopolitically.

The Southern European Pipeline stands as an exemplary model of fair and balanced cooperation between countries, Lafanis noted, while adding its construction will be funded by Russian capital.

Lafazanis also told the conference – titled “Natural Gas Market Penetration in Greece” and organized by the ESCP Europe business school’s Research Center for Energy Managament (RCEM) – that total energy security and low-priced energy sources, which he described as key aspects for peace, stability and economic growth in Europe, stand as the ultimate objectives at his ministry.

The energy minister expressed hope that an international tender for exploration and exploitation of twenty offshore blocks in the Ionian Sea and south of Crete, whose deadline expires next week, on July 14, will produce desirable results. He rejected reports that a new deadline extension will be offered, as a result of the adverse market conditions, following an extension granted earlier this year.

Lafazanis also noted the government intends to further utilize the country’s lignite deposits, which he described as significant for Greece’s energy future.

The hard-line leftist, who heads the radical Left Platform wing within the coalition’s main party, Syriza, reiterated, yet again, that public energy corporations in Greece will not be privatized, while noting private-sector investments in the sector are welcome.

Offering his views on the bankruptcy-threatened country’s current economic turmoil as Prime Minister Alexis Tsipras and his team appear to be pushing for a last-minute bailout deal with creditor representatives, Lafazanis noted that last weekend’s resounding “No” vote in the Greek referendum  – which rejected a previous round of harsh austerity measures proposed by lenders to Greece – would not be transformed into a humiliating “Yes” for a new agreement.

“Having reached this stage, we know that all options are difficult. However, the worst, or most exhausting, humiliating, and unbearable agreement of all would be one of surrender, plunder, and submission of the country and its people,” Lafazanis stressed. “We will never make this choice, not only because it would cause even greater hardship for Greek citizens, but also because it is a choice without any future prospects.”

Playing down the overall panic caused by the ongoing closure of Greek banks, which have now been closed for a week, the energy minister contended the country is not out of control, but instead has many options to choose from. The energy minister described a recent adjustment made by the European Central Bank (ECB) to the emergency liquidity assistance (ELA) mechanism for Greece, which prompted last week’s forced closure of local banks, as a criminal act.

Lafazanis said no nation and its people had been subjected to such degree of suffering and blackmail by “so-called partners” during a time of peace as Greece had over the last five or so years. “Greece can also win this major and unfair battle like so many others it has fought heroically and won in the past,” said Lafazanis.


Swift deal, bank normality needed following referendum

The strong victory for the “No” vote in yesterday’s Greek referendum, endorsing the leftist Syriza-led coalition’s stance for less austerity, has already sparked political developments. Late last night, Antonis Samaras, the fomer prime minister and leader of the main opposition New Democaracy conservatives, stepped down as party leader after five-and-a-half years at its helm, while the commanding “No” vote, which scored 61.3 percent, well above predictions that had forecast a close battle, provides Prime Minister Alexis Tsipras with political dominance, both at a national level and within his party, one of mixed leftist strands, from radical to mild.

Following last night’s referendum outcome, Tsipras clearly noted the result does not represent a mandate for him to break ties with the EU. The prime minister has already called for a meeting of party leaders today, to be chaired by the country’s president. This is a positive initiative as Greece finds itself closer than even before to being ousted from the eurozone.

In spite of all this, the situation that will need to be confronted over the next few days by the government and whatever Greek negotiating team may emerge will not only be difficult but also extremely perilous. The fact that a Eurogroup meeting of eurozone finance ministers has been called for tomorrow, ahead of an EU summit meeting on the same day, suggests that Greece’s EU partners are not likely to change course on the Greek ordeal. This can also be presumed based on comments made by leaders of EU member states in response to the referendum’s result.

The pressure on Greece can be expected to be relentless, especially if the European Central Bank (ECB) does not increase liquidity levels through the emergency liquidity assistance (ELA) mechanism. The country is already at the mercy of the IMF and the European Financial Stability Facility (EFSF) as to whether it will be declared bankrupt following Greece’s failure to make an IMF payment last week. Greek banks have now remained closed for a week. People cueing up at ATMs for limited withdrawals are highly concerned over the possibility of deposit losses, a fear that is being intensified by conflicting comments emerging from government officials.

Greece also faces another imminent creditor deadline, on July 20, when it must pay about three billion euros to the ECM for maturing bonds.

The real economy is being battered to the ground as all this goes on. Market activity has literally halted and many enterprises, whose liquidity levels have dried up amid capital controls, are neither able to place orders nor pay employees. Many employees are being forced to take time off.

Therefore, achieving a swift agreement with lenders and EU partners, which could normalize the country’s banking system, is an urgent priority right now. Ousting the government’s controversial Finance Minister Yannis Varoufakis from his post would increase the prospect of a deal.

It remains unknown whether any agreement that may be reached would be better or worse than the one rejected by the government and the people. Whatever deal may emerge, it will certainly be harsh as there is no easy way out of the crisis. Under the current conditions, the Greek economy is loosing blood fast, every single day, as needs intensify.

In the lead-up to the referendum, the prime minister not only promised a deal with creditors but went a step further by clearly stating it would be improved. Based on the referendum result, he convinced the majority of citizens. His promise last night of being “fully aware that the mandate you have given me is not an order to break away from Europe” stands as the measure against which developments will be judged.

These will also determine how long the Greek dancing that broke out among “No” voters last night at Syntagma Square will last.



Country on the edge amid the chaos of capital controls

The country arguably finds itself in its worst position ever in modern history, or since the fall of the military dictatorship in 1974, following last night’s failure by Greece to make an IMF payment that makes the country eligible for bankruptcy if the fund’s officials refuse to offer any leniency.

The capital controls imposed a day earlier, on Monday, have, in very little time, generated a whirlwind of devastating developments, stunning the government, which appears blatantly unprepared to handle the rapidly snowballing crisis.

Late maneuverings by the Greek side, as the IMF payment deadline approached last night, cannot be expected to yield any real results for as long as the government’s call for a referendum this Sunday – which has sharply intensified the drama and led to futher uncertainty – remains on the cards. The country’s lenders appear determined to wait for Sunday’s referendum to take place before entering any further bailout talks with Greek officials.

The drastic surge of consequences prompted by capital controls has fully exposed citizens to an alarming level of insecurity as they scramble, forming queues for cash at ATMs, within capital controls limits, fuel, even food.

The country is now at the mercy of the IMF as to whether it will be officially declared bankrupt. The ESM (European Stability Mechanism) support for Greece has prematurely ended, affecting liquidity supply from the European Central Bank, and also depriving the country of a further 12.7 billion euros from the mechanism.

The devastation felt and experienced by citizens appears to have persuaded masses to vote “Yes” in the referendum, expressing endorsement of the bailout procedures that were disrupted by the government last week, when it called a referendum on the issue, citing it could not accept the conditions of a bailout deal offered by lenders. In fact, the alarming developments over the last few days have reportedly prompted the government to either consider cancelling the referendum or go against its initial standing and support the “Yes” campaign. A series of emergency meetings will take place today, both at a local and European level.

With banks closed and uncertainty at a peak, market activity has frozen. As a result of the lack of liquidity, many firms are currently unable to make orders and pay employees, who, in a number of cases, are being forced to take time off, at best. A new wave of unemployment may strike if no solution is swiftly found. The current course towards an exit from the eurozone will also damage tax revenue collections.

Like all else in the country, the energy sector is feeling the effects of the wider mayhem.

As for the tourism industry, a pivotal part of the local economy, bookings for flights to Greece dropped by 40 percent over the past week, according to sector officials, while hotels are experiencing a first round of cancellations.

Highlighting the widespread unease, panick-stricken citizens have rushed to stock up on survival basics such as beans and lentils. For the time being, supermarkets are able to continue offering supplies, but the credit controls imposed are making transactions and imports more challenging. Following panick-driven purchases by consumers on Saturday and Monday, some sense of calm returned yesterday, but, amid the volatile overall situation, consumer behavior is changing by the hour.

Capital controls already devastating market activity

Imposed just yesterday, capital controls are already making widespread negative impact on the Greek market. The effects are being felt by locally based energy-sector companies, big and small, all trapped amid the overall uncertainty and prospect of a possible Greek default and exit from the eurozone.

Both local and multinational enterprises operating here have presently frozen all activity. Investment plans, orders, and all types of transactions, including tax obligations and payments to suppliers and staff, have stopped. It is all swiftly developing into a major shock for the market.

Although enterprises are making an effort to remain composed, the underlying panic cannot be hidden. Both local firms and multinational subsidiaries are preparing to activate emergency plans.

Trading ties between local and foreign companies have been devastated as a result of the sharp increase of distrust from abroad. Any exisiting favorable credit terms offered are vanishing. Officials at locally based companies of all sizes are already reporting that foreign suppliers are demanding full advance payments for all orders before providing products and services. Under the current stifling conditions brought about by capital controls, this is simply impossible.

Responding to the alarming and intensifying negative market developments, entrepreneurial representative groups – SEV (industrialists), ESEE (merchants), SETE (hoteliers), and GSEBEE (small and medium-sized businesses) – joined forces yesterday to seek an emergency meeting with Prime Minister Alexis Tsipras. A meeting was initially scheduled for today but later postponed as a result of the Prime Minister’s overloaded schedule of other urgent matters.

It has already become perfectly clear that companies without funds abroad will encounter serious operational problems in Greece amid the current conditions. Enterprises that have transferred their headquarters and funds abroad, as well as multinationals supporting local subsidiaries, will be favorably positioned.

Energy-sector firms anxiously awaiting bailout developments

Energy-sector authorities contacted by energypress have all expressed deep concern over today’s crucial bailout talk developments as the possibility of a break in ties between Greece and its lenders has not yet been ruled out, while certain members of the leftist Syriza led coalition, including from its junior partner Independent Greeks, appear to want a rift.

The concern is not only linked to the concerns of the business sector – certain entrepreneurs, as a result of the nature of their particular fields, believe a Greek exit from the eurozone would benefit their operations – but, more crucially, the social, political, and economic upheaval that would be prompted by a breakdown in today’s negotiations.

Last week’s enormous outflow of deposits from Greek banks was countered with capital injections from the European Central Bank (ECB). If the negotiating sides fail to reach a deal, the ECB will stop providing liquidity, which would prompt a collapse of the local banking sector and leave banks unable to cover deposits. Implementation of capital control measures would be necessary, placing in danger social composure, the state’s smooth functioning, services, the economy, production, even national security. In addition, in the event of an unfavorable deal for the government, it would be forced to head for elections.

Certain energy sector officials told energypress that a temporary deal between Greece and its lenders would avert the danger of immediate collapse, but, essentially, the country and economy would fall further behind on commitments for the remainder of this year, increasing the difficulty of any prospective restructuring.

Both the Greek government and all creditor representatives need to act based on mature political insight for a wide-reaching and sustainable agreement. Only such a deal could restore faith in the economy and unlock investment as a preliminary step towards the economy’s revival.

The series of energy-sector demands set by the country’s creditor representatives include part-privatization of PPC, the main power utlity; privatization of IPTO, the power grid operator; gas market reforms; PPC tariff revisions based on production costs, which would lead to increases and decreases, depending on category; adoption of NOME-type auctions for lower-cost electricity; CAT revisions; energy tax revisions; and preparation of a legal framework supporting the renewable energy source (RES) sector.



Energy a key theme at the recent Economist conference

Energy was a key theme at the Economist’s recent 19th Roundtable with the Government of Greece in Athens, with much discussion of pipelines and the politics surrounding them.

Production Reconstruction, Environment and Energy Minister Panagiotis Lafazanis set out a vision of Greece as a “pluralistic energy hub” and a “pioneer in energy interconnections”. Diversity of energy links would make the country truly independent in the energy sphere, he noted.

The euro-zone economy is improving, supported by a trio of favorable factors, quantitative easing (QE) from the European Central Bank (ECB), cheaper oil, and a cheaper euro, former Italian Prime Minister Enrico Letta pointed out at the conference.

However, the uncertainty over Greece is a big cloud on the European horizon, with a palpable risk of the country falling out of the euro zone – a 40% chance, reckons Joan Hoey of the Economist Intelligence Unit (EIU). Greece is back in recession, and growth forecast for 2015 has been taken down to 0.5% by the European Commission and to zero by the EIU.

Precisely because all eyes are on Greece there was very high interest in the Roundtable, with more than 600 people attending the session with Finance Minister Yanis Varoufakis and at the closing dinner with Prime Minister Alexis Tsipras.

Tsipras said his government came with “a new perception of how society and the economy can be organised”, and he gave an assessment of its first 100 days. Among the achievements he listed were first steps to “relieve the humanitarian crisis”, anti-tax-evasion measures, jobs restored to cleaning ladies at the finance ministry, a law to reopen public TV, moves towards raising the minimum wage and bringing the issue of wartime reparations from Germany into the limelight.

As for the crucial matter of the negotiations, the prime minister said he was devoting much of his time to them personally. The partners should not imagine that “our red lines will fade”. Four key points for an agreement were low primary surpluses as targets, especially for the first two years; no obligation for new cuts on pensions and salaries; a restructuring of public debt; and solid packages of public investment. Common ground seems to have been identified, and Tsipras expressed optimism that a deal was very close.

Varoufakis stressed that Greece would not do the sort of deal with its creditors that resulted in only a temporary fix. Emphasising the need to be more realistic about the targets set, he said he would “never sign a deal that is not dynamically consistent”.

Minister of state Nikos Pappas echoed this notion, saying that Greece wants to reach a deal that will lead to “solutions”, not just any kind of deal.

According to Varoufakis, Greek debt has to be “redesigned”, avoiding the term “haircut”, a taboo word. Payments to the ECB should be deferred to the future and Greece integrated into the QE mechanism, he noted, adding there should be no change in VAT before the end of the summer.

Both Letta and Varoufakis stressed that Grexit would be a disaster. Letta called it a “catastrophe”, while Varoufakis said it would be a “recipe for going back to the Neolithic age”, even if he might have preferred that Greece had stuck with the drachma rather than joining the euro in the first place. On the positive side, the finance minister believed that as soon as a deal is struck there would be a “torrent of investment” in Greece. “Greece is going to have a bonanza,” Varoufakis remarked.

For the opposition New Democracy party, former deputy finance minister Christos Staikouras, speaking at the opening dinner, said that in its four months in charge, the Tsipras government had “lost time, confidence and allies”. Considering various measures, such as the primary budget surplus, payment arrears, non-performing loans, the investment climate, privatisation, education reforms, Greece had started to regress rather than make progress, Staikouras remarked.

Offering his views on reforms, based on the experience of other countries, Alvaro Pereira of the OECD’s Economics Department stressed the need not just for passing laws but having the ability to put them into practice. For a new government, front-loading of reforms is vital, and cross-party support helpful, Mexico being a good example, he noted.

The bankers were naturally concerned about the shortage of liquidity, but believed that much of the problem stemmed from the uncertainty over whether Greece would reach a deal with the institutions. As uncertainty comes down, liquidity would come back.

Government ministers did not dispel entirely concerns that tourists to Greek islands would have to pay an 18% tax on hotel and restaurant bills – saying it would not happen this summer, but not ruling out the proposal altogether.

For all the concerns over Greece, a bigger worry is the tension between Russia and the West and the possibility of nuclear war, said Laza Kekic, setting the scene for the session on security challenges for Europe.

Greece’s Defence Minister Panos Kammenos, leader of the Independent Greeks, the coalition’s junior partner, stressed that Greece’s role was to be a “pillar of stability” in a region of instability. He criticised the treatment of Greece by Germany (which wants to “impose its rule throughout Europe”) and expressed his displeasure with the West’s sanctions on Russia. Kammenos revealed that he was going to the US soon and would propose the creation of a new NATO base on an Aegean island.