Athens continuing with subsidy model despite Eurogroup request for cuts

The Greek government will continue offering electricity subsidies universally, to all consumers, based on a model it introduced in 2022, despite a Eurogroup proposal earlier this week for more restricted coverage giving priority to low-income households.

Finance minister Hristos Staikouras, commenting from Davos, and energy minister Kostas Skrekas, both ruled out any possibility of electricity subsidy cuts for now.

Greek elections are due within the next few months. Though electricity subsidies are keeping energy costs under control for consumers, they have hampered economic growth, as highlighted by GDP figures for 3Q in 2022.

The country’s subsidy strategy adopted in 2022, one that primarily supports households, as well as businesses, and which covered the majority of the energy crisis’ additional energy costs last year, without significant fiscal cost, will be continued, Staikouras, the finance minister, asserted from Davos.

Meanwhile, Skrekas, the energy minister, ruled out any chance of subsidy cuts until electricity suppliers are able to set retail prices at levels of 15 to 16 cents per KWh. He was fielding questions at a news conference on Greece’s revised National Energy and Climate Plan.

Given the current market conditions, suppliers are not too far off being in a position to set electricity prices at such levels. Their nominal prices for February, to be announced tomorrow – based on recent market rules requiring suppliers to announce their prices for each forthcoming month by the 20th of the previous month – are expected to be slashed by as much as 50 percent compared to January, to levels of around 20 cents per KWh. At such nominal levels, the government will chip in with subsidies not exceeding 6 cents per KWh.

In Greece, energy subsidy support offered in 2022 has been estimated to be worth 2.3 percent of the GDP, above the EU average of 1.3 percent of GDP, seen falling to 0.9 percent this year.

Athens adamant on big energy subsidies despite hit on GDP

The government is determined to keep offering generous energy subsidies for as long as is necessary, regardless of their cost and negative impact on GDP, in order to ensure fair prices for consumers, despite facing pressure at a Eurogroup meeting to reduce subsidy levels.

The administration, facing an election year in 2023, will obviously make sure energy prices are subdued when voters head to the polls, even if this strategy undermines economic growth, as was the case in the third quarter this year.

GDP growth in the third quarter, normally the Greek economy’s strongest due to the country’s robust tourism industry, was restricted to 2.8 percent, well below the 7.9 and 7.1 percent rates in the first and second quarters, respectively, as a direct result of the energy crisis.

Rather than reduce energy subsidies, the government will instead increase them, if required by international price developments, currently on an upward trajectory.

The government has already begun calculating the cost of subsidies for January. Electricity suppliers will announce their retail prices for next month on December 20, based on a recent rule requiring them to announce each forthcoming month’s prices by the 20th of the preceding month. State budget money was not needed to cover the government’s energy subsidy costs for November and December.



Eurogroup agrees on a 540 billion-euro package of measures to combat coronavirus economic fallout

European Union finance ministers agreed late on Thursday on a 540 billion-euro package of measures to combat the economic fallout of the coronavirus pandemic.
“The decision reached by the Eurogroup should be the starting point for even more ambitious – in the future – European initiatives on dealing with the effects of coronavirus, but also the return to normalcy,” Finance Minister Christos Staikouras said describing this decision as “a satisfactory agreement that offers new financial tools to deal with the unprecedented social and economic consequences of the coronavirus spread.”
According to Staikouras, this is a new package of measures, both for tackling the current health crisis and for the subsequent reorganization of European economies.
*The package provides for increased funding for companies through the European Investment Bank, the implementation of a temporary program to protect jobs, and the activation of the precautionary credit line of the European Stability Mechanism (ESM) adapted to the current health conditions.
The aim of this package of measures, totaling more than 500 billion euros, is to strengthen health systems, boost liquidity in the real economy, reduce unemployment and boost social cohesion.
* As for the necessary restart of the economy, a recovery plan is about to be launched, financed by “innovative financial instruments”, as well as the use of European funds, through the rearrangement of the next Multiannual Financial Framework.
This agreement, Staikouras said, comes to complement the very positive recent decisions of the finance ministers for fiscal flexibility and the European Central Bank’s decision to boost liquidity.

“Today we agreed on three safety nets and a plan for the recovery to ensure we grow together and not apart once the crisis is behind us,” Eurogroup president Mario Centeno told reporters after the teleconference.


DEPA privatization draft bill set for parliament on February 28

The energy ministry has been given a February 28 date for its submission to parliament of a draft bill designed to split the gas utility DEPA into two entities, DEPA Trade and DEPA Infrastructure, ahead of its privatization. This parliamentary move comes with slight delay as it was initially expected in December.

Investors will be offered a majority stake (50% plus one share) in DEPA Trade, while, at a latter date, a 14 percent stake of DEPA Infrastructure will also be placed for sale.

Having reserved an end-of-Febuary date for its DEPA draft bill, the energy ministry expects its ratification within the first five days of March. If so, the government will have fulfilled yet another bailout requirement ahead of an imminent Eurogroup meeting of eurozone finance ministers, scheduled for March 11.

The tender offering a majority stake in DEPA Trade should be launched within a month’s time of the bill’s ratification, according to the TAIPED privatization fund’s annual development plan. Given this schedule, the sale’s official announcement can be expected in early April.

One of the annual development plan’s next steps concerning the DEPA privatization entails ensuring veto rights for the Greek State, through its role in DEPA Trade, if extraordinary situations require intervention or any DEPA supply agreements – reached prior to the sale –  for gas quantities concerning PCIs be placed in any doubt. DEPA Trade’s portfolio will include the utility’s international gas supply agreements.


Lenders propose September market test for PPC unit sales

A Greek government delegation will participate at today’s Eurogroup meeting of finance ministers without any progress to show on the country’s bailout-required energy-sector measures.

Greece’s energy minister Giorgos Stathakis failed to make progress on energy sector issues during a teleconference with the lenders last Friday.

The government team hopes to receive some support at today’s Eurogroup meeting which could lead to convergence with the lenders on bailout measures, both in the energy sector and other domains, needed to conclude the second review and avert problems at a politcal level for the coalition.

However, a demand by the lenders for the sale of 40 percent of main power utility PPC’s lignite-fired and hydropower units greatly limits the prospects for any swift deal.

An MOU proposal presented to the Greek government by the lenders sets a tight schedule through which the PPC units would be sold as one, two or three packages within the first half of 2018, assuming certain other intermediate targets are met along the way.

The MOU includes a proposal to stage a market test in September for the PPC unit sales plan, the submission of non-binding offers by investors by November of this year, binding offers by February, 2018, signed sale agreements the following month, and a full review of the procedure within the first half of 2018.

The lenders have also made clear that any future buyers of PPC units must not share any direct or indirect links with the Greek State.

The lenders reject a PPC proposal entailing the sale of new utility subsidiaries with existing clients on board as a means towards achieving market-share contraction targets.

Instead, the lenders insist on a drastic increase of electricity amounts offered by PPC through the recently introduced NOME auctions as a key tool that could reduce the utility’s market share.

The NOME auctions were introduced last October to break PPC’s market dominance by offering other traders access to the utility’s low-cost lignite and hydropower sources.


Prospect of nearing Eurogroup meeting to apply pressure on DESFA sale

A Eurogroup meeting of EU finance ministers scheduled for December 5, just days after the latest one-month deadline extension for the DESFA (natural gas grid operator) sale, now reset for November 30, is expected to apply pressure on the Greek government to reach a final agreement with the operator’s prospective buyers.

The government wants to have completed the bailout’s ongoing second review before the December 5 meeting in order to immediately follow up with debt reduction talks.

Completion of the DESFA sale prior to this December date will lend some support to the government’s debt-reduction case. The DESFA sale is a pending issue that spilled over from the bailout’s first review.

It remains unclear whether the Azerbaijani energy firm Socar, the winning bidder of an international tender for a 66 percent share of DESFA, had the Eurogroup meeting’s timing and impact on negotiations in mind when it decided yesterday to extend, yet again, its letter of guarantee by an additional month.

Socar must surrender at least 17 percent to a certified European operator as a result of European Commission intervention. Italy’s Snam has moved in to take on a surrendered amount.

The Greek government would be taking a big risk should it send finance minister Euclid Tsakalotos to next month’s Eurogroup meeting without good news on the DESFA sale. Brussels and the US, both looking to diversify natural gas supply in Europe to lessen Russia’s dominance, are pushing for a deal.

DESFA’s negotiating sides remain at odds over the operator’s sale price. Socar, the winner of a tender in 2013 on the strength of a 400-million euro offer for a 66 percent stake of DESFA, and Snam, its partner in this venture, both believe the operator is worth far less as a result of revenue-restricting measures imposed last July by Greek energy minister Panos Skourletis. The buyers believe a price tag of 300 million euros is more appropriate, considering the DESFA revisions. Despite the gap, Socar and Snam officials believe a solution is possible.

A change to the original price agreed to through the international tender is not possible as this would cancel the procedure, the government insists. Intervention by RAE, the Regulatory Authority for Energy, or an amendment to the Skourletis bill will be needed if a final agreement is to be reached. An increased dividend yield could also be considered.

Whatever the case, officials at Socar, which has hung on to the long-running DESFA sale attempt for years, remain cautiously optimistic.