PPC retail dominance, lower production has cost plenty

Power utility PPC is paying the price for a paradoxical and distorted business model combining retail electricity market dominance with a low share of electricity generation – a structure created by the state-controlled corporation and supported by a succession of governments over the years – latest financial results have indicated.

The power utility’s retail electricity market share remains dominant, at 73.9 percent, but its share of electricity production is far lower, at 43.4 percent.

The inability of the power utility’s power stations to generate sufficient electricity needed to cover its retail needs has forced the corporation to make high-cost wholesale energy purchases.

This, combined with NOME auctions, obligating PPC to offer lower-cost electricity to rival suppliers over the past three years; high-priced CO2 emission rights, needed as a result of the utility’s considerable lignite-based production; a sharp drop in hydropower output; as well as a sharp price increase of fuel and gas, all contributed to the disappointing first-half results.

PPC’s overall cost for fuel, gas, CO2 emission rights and lignite surcharges increased by a total amount of 494.1 million euros, or 42.3 percent, in the first half compared to the equivalent period a year earlier, the first-half results showed.

PPC discount cut offers some relief to independent players

A main power utility PPC decision reached yesterday for a reduction of its punctuality discount, offered to its consumers paying power bills on time, from 15 percent to 10 percent as April 1, promises to offer some relief to the retail electricity market’s independent suppliers.

Even so, overall market conditions remain challenging for independent players as they have little leeway to undercut PPC’s offers.

Independent suppliers have been forced to activate clauses enabling higher tariffs as a result of increased wholesale costs. But PPC’s discount reduction, to essentially raise its prices by 5 percent, will enable independent players to slightly increase their revenues and make more competitive offers.

Independent players also stand to soon benefit from a return of the RES special account’s surplus in 2018. The abolishment, as of the beginning of this year, of a supplier surcharge paid into the RES special account by suppliers is also a favorable development.

But the good news ends here as independent suppliers face a series of negative factors such as a gradual rise of wholesale electricity prices, prompted by higher CO2 emission right costs, as well as lofty fuel prices.

In addition, amounts of lower-cost electricity offered to independent suppliers through NOME auctions stand to be reduced if PPC’s ongoing sale of lignite units is successfully completed.

RAE expected to reach decision today on fuel price ceilings

RAE, Greece’s Regulatory Authority for Energy, is examining data provided by the General Secretariat for Commerce to decide if price ceilings will need to be imposed on liquid fuels in order to protect consumers from extraordinarily high price levels observed around the country this summer, especially on islands.

Over the past three days, RAE officials have been examining the details of a 30-page study focused on over-inflated fuel prices to decide if current price levels, which in some cases have exceeded two euros per liter for unleaded gasoline, are justified.

Transportation costs, wholesale and retail fuel market profit margins, fuel price comparisons around the country, fuel tax levels, as well as other factors influencing price levels, both domestically and internationally, are all being examined at RAE.

The authority is seen reaching a decision on the matter today, which is then expected to be forwarded to the Ministry of Economy and Development as a policy proposal, energypress sources informed.

According to unconfirmed reports, extraordinary price-control measures, most probably in the form of fuel price ceilings, will be imposed on certain island markets.

If introduced, these fuel price ceilings will be valid for an initial two-month period and then be revised weekly, sources noted.

RAE to propose fuel price limit, prices up on the islands

RAE, Greece’s Regulatory Authority for Energy, is examining the prospect of proposing a price ceiling on liquid fuels in various regions around the country where price levels of unleaded gasoline and other petroleum products have risen to extraordinarily high levels.

The authority’s board is expected to meet either today or tomorrow to decide on whether to forward a substantiated price-ceiling proposal to the Ministry of Economy and Development, energypress sources informed.

RAE officials have been examining price-related fuel data gathered over the past couple of months to determine whether retail prices, up to levels of approximately two euros per liter for unleaded fuel, and in some cases even higher, are justified.

Citing one extreme example, a local fuel price monitoring agency has pointed out that unleaded fuel is selling for as much as 2.045 euros per liter on the island Sikinos.

RAE was prompted to take action as a decline of the country’s average price for unleaded fuel between June and July, from 1.654 euros per liter to 1.634 euros per liter, was not reflected in many areas around the country, including islands.

On the Cyclades, unleaded fuel prices currently range between 1.95 and 1.99 euros per liter on Milos, Amorgos, Anafi, Andros, Naxos, Sifnos, Serifos and Santorini.

On Skopelos, Alonissos and Patmos, prices have ranged between 1.997 and 1,999 euros per liter. Price levels of as high as 1.99 euros per liter have been recorded in Ikaria.

Market officials have attributed the elevated fuel prices on islands to the small number of suppliers and the disproportionately large number of petrol stations given the small size of islands. As a result, petrol station owners are seeking to rake in profits during the summer season’s higher demand and secure  sustainability as business activity during the rest of the year is minimal at best.

High fuel tax levels and transportation costs have also contributed to the elevated prices on islands.

 

PPC’s ability to manage resource price fluctuation risk diminished

Bailout-required market share contraction targets imposed on the main power utility PPC, combined with rising CO2 emission right costs, are diminishing the power utility’s ability to manage business risks linked to resource price fluctuations in international markets.

The power utility registered a wholesale electricity market share of 54.2 percent and a retail electricity market share of 88.2 percent in 2017.

PPC’s vertical integration is decreasing the power utility’s ability to offset the risk of electricity price increases.

Besides fuel, the price of metals and other materials determined by international trading trends are also exposing the power utility to the dangers of price fluctuations.

As observed by state-controlled PPC, the enterprise’s inability to freely set consumer tariff prices increases the power utility’s vulnerability to such potential dangers.

PPC could encounter difficulties in absorbing price increases of electricity generation resources and CO2 emission right costs through electricity bill tariff hikes, the power utility has noted.

International price levels of fuel and natural gas resources used by PPC to produce electricity, as well as CO2 emission right costs and electricity import costs, are all major factors shaping the power utility’s financial results.

The development of a series of island interconnection projects, to lead to the closure of fuel-dependent facilities operating on islands, is good news for the power utility, as these unit closures will decrease PPC’s susceptibility to international price fluctuations.

 

Subdued fuel sales not good news for economy ahead of bailout finale

Latest fuel market figures remain unfavorable, which, to a certain degree, explains the economy’s anemic growth rate. Fuel market data provided for March is not positive given the imminent completion of Greece’s bailout program. Ideally, consumer confidence should now be gaining momentum but it is not.

Gasoline demand in March fell by 1.7 percent compared to the equivalent month a year earlier, diesel demand was down 1.2 percent, while heating fuel demand plummeted 9.8 percent, primarily as a result of the mild winter weather, according to data provided by a market official.

Though the gasoline and diesel demand drops seem trivial, they provide further evidence that the fuel market’s contraction of the past seven years is not yet over.

“I believe 2018 will be slightly better than 2017,” remarked Avin general manager Tolis Vassilakakis, who presented the latest market data during a presentation of the petroleum firm’s new product range and services.

The fuel market’s subdued activity was confirmed by tax revenue figures for March. Energy product special consumption tax (EFK) revenues were 78 million euros, or 7.1 percent, below the target figure as a result of lower consumption levels. Also, VAT revenues stemming from petroleum products were 13 million euros, or 2.8 percent, below the target figure set for March.

Over the course of the first quarter, volume-based gasoline demand rose by 1.9 percent, diesel sales were up 5.8 percent, and heating fuel dropped by 22 percent.

However, the figures for the first three-month period of the year are not considered indicative of the market’s true situation at present. A higher EFK tax rate imposed on fuels as of January, 2017 prompted consumers to rush and fill tanks during the last weeks of 2016, meaning demand was lower than usual at the beginning of 2017. That slump makes the first-quarter figures for this year look better than what they actually are.

 

Major fuel demand decline in 2017, signs of life in January

The prolonged bailout negotiations in the first half of 2017 not only impacted bond spreads and business loan interest rates but market sentiment, overall, which has affected fuel consumption levels, officials at Greek petroleum company Motor Oil Hellas noted yesterday while presenting the corporation’s results.

Despite the negative Greek market conditions, the refinery group posted record results as a result of its increased emphasis on exports to make up for lower demand in the domestic fuel market, which appears to be entering a new crisis period.

Overall demand for the corporation’s petroleum products in 2017 fell by 2.1 percent. Gasoline registered the biggest drop, falling 3.1 percent. Diesel demand increased by 0.5 percent while heating fuel, affected by poor activity in December, down by 30 percent compared to the equivalent month a year earlier, fell by over 2 percent, overall.

Latest fuel market data for January showed some signs of improvement for the auto fuel sector but the decline in heating fuel demand was sustained.

Gasoline demand rose by 11 percent in January, diesel demand rose by 23 percent, while heating fuel demand slumped 37 percent.

The significant decline in heating fuel registered for the winter gone by can be attributed to a particularly heavy winter a year earlier, which had boosted heating fuel demand to particularly elevated levels.

Returning to Motor Oil Hellas, overall fuel sales, in volume terms, achieved a new record level in 2017, reaching 13.7 million metric tons, up from 13.04 million metric tons in 2016. The refinery group’s exports exceeded the 10 million mark for the first time, reaching 10.2 million metric tons.

 

EKO returns to Georgian market through Wissol deal

Greek fuel retailer EKO, controlled by ELPE (Hellenic Petroleum), has reached an agreement with Wissol Petroleum, one of Georgia’s biggest fuel distributors, for the establishment of a flagship EKO gasoline station in Tbilisi as a pilot project amid a wider strategy eyeing expansion in the Balkans and southeast Europe.

The new fuel station will mark EKO’s return to the Georgian market following a previous spell that began in 1996, when ELPE became one of the former Soviet state’s first foreign investors, capturing a 5 percent market share with a retail presence numbering 16 outlets.

“EKO’s return to Georgia is the first step in the partnership with Wisssol,” noted Dimitris Karabalis, Greece’s ambassador to Georgia. “Wissol was chosen based on its size as Georgia’s biggest chain and its credibility as a reliable local associate,” he added.

Commenting on the development, ELPE official Roberto Karahannas noted: “We are the most developed group in southeast Europe. Through EKO, we offer the highest quality products in the countries where we are present and are now back in the Georgian market.”

In his remarks, Wissol president Soso Pkhakadze pointed out: “Even though EKO has not been active in Georgia for a number of years, the company, based on market research, is renowned for possessing exceptional quality.”

Slight local fuel price hike expected soon as a result of Hurricane Harvey

For the time being, the market impact of the catastrophic Hurricane Harvey that tore through parts of Texas several days ago has been limited to the US, where the natural disaster has prompted fuel shortages and gasoline price hikes.

Greek fuel prices have so far remained steady, averaging 1.488 euros per liter around the country on Sunday, despite the US disaster. However, local officials estimate that a slight fuel price hike can be expected to soon hit the Greek market.

A terminal in the coastal Texan city of Corpus Christi supplying significant shale oil and shale gas exports has been shut down as a result of the damages. According to current estimates, the Corpus Christi port facility is expected to be reopened next week, at best, possibly on Monday.

Besides this terminal, other major US refineries have also been forced to stop operating and it remains to be seen whether they will be able to resume production at full capacity in the short term.

Gasoline prices in the US have already increased to 1.7799 dollars per gallon, the highest level registered since 2015. WTI prices have also risen by 23 cents, a 0.5 percent increase.

Brent Oil prices have also hit an upward trajectory, rising by over 20 cents, or 0.4 percent, to 52.09 dollars a barrel.

Analysts noted that Hurricane Harvey managed to succeed where OPEC did not, when the cartel announced a cutback of its output with the aim of lifting prices to boost flagging oil revenues of member states.

The global impact of Hurricane Harvey remains opaque.

China imported approximately 130,000 barrels of crude from the US during the first seven-month period this year. The US ranks as the 15th biggest supplier of crude to the Chinese market.

In recent months, US oil exports reached levels of one million barrels per day. Roughly two-thirds of this amount hails from the coastal area affected by Hurricane Harvey.

The US also imports crude, whch makes determining the overall intermational effect of the disaster even more difficult to assess.

Besides Hurricane Harvey, the international market, especially the Mediterranean region, is currently also being impacted by reduced output at Libya’s biggest refinery, Zawiya, operating at half its full capacity as a result of a pipeline problem. Libya has temporarily halted exports from this facility.