DEPA planning action against rivals for Gazprom take-or-pay costs

DEPA, Greece’s Public Gas Corporation, intends to take action, including legal, to avoid shouldering the entire resulting cost of a take-or-pay clause in its supply agreement signed with Gazprom. Besides the Greek state-controlled corporation, the Russian gas giant has now also begun supplying other customers in the local market.

Subdued gas demand in Greece amid the long recession has activated the Gazprom supply agreement’s take-or-pay clause, requiring payments for unconsumed amounts.

“We’re not saying ‘no’ to the natural gas market’s liberalization, but DEPA can’t be left alone to cover this expense,” a corporation official contended, adding that the take-or-pay clause was included in DEPA’s agreements with Gazprom to ensure gas supply security for the entire Greek market and that its cost should be shared by all local traders.

Gazprom, operating through Prometheus Gas, its joint venture established with the Copelouzos corporate group, began direct gas supply to local firms  a couple of months ago. Recipients include Heron, a member of the GEK Terna group, Engie, QPI and Elpedison (ELPE, Edison, Eltex), while other industrial enterprises are also involved in negotiations with Prometheus Gas.

The natural gas is being supplied at a price level equal to that of the starting price offered at DEPA gas auctions.

Gazprom’s decision to break a long-running unofficial agreement for exclusive gas supply to DEPA comes at a time when the Russian side is heavily promoting its Southern Corridor pipeline plan to cover southeast Europe, either as an extension of Turkish Stream or as the South Stream project.

Another gas supplier, M&M Gas, a venture involving the Mytilineos Group and Motor Oil Hellas, has also begun supplying modest natural gas amounts to local customers, primarily industrial enterprises, who have stopped ordering from DEPA and its regional EPA supply subsidiaries.

EPA Attica to offer €50m in subsidies for gas installations

EPA Attica, the gas distribution company covering the wider Athens area, plans to offer a subsidy program worth five million euros per year, or 50 million euros over the next ten years, for private gas system installations.

According to energypress sources, the subsidy amount works out to 1,500 euros per apartment block or 700 euros per house.

EPA Attica has asked RAE, the Regulatory Authority for Energy, to incorporate part of the subsidy’s cost into tariffs, but it still remains unclear how this could be arranged.

The issue is connected to RAE’s recent endorsement of distribution fees concerning natural gas networks of the wider Athens area, Thessaloniki, Thessaly and the remainder of Greece.

Market officials expect RAE to endorse trading prices for 2017 before company strategies are determined. Traders are expected to submit their proposals late this month and a response from the authority is expected within November.

Shell, which holds a 49 percent stake in EPA Attica, and ENI, also a 49 percent shareholder of the EPA supply companies covering Thessaloniki and Thessaly, will be waiting for RAE’s decisions before they decide whether to seek compensation from the Greek State for the premature end to their respective regional monopolies. DEPA, the Public Gas Corporation, controlled by the Greek State with a 65 percent stake, holds majority 51 percent stakes in all three EPA gas supply companies.

As part of the country’s gas market reforms in progress, all non-household gas consumers will be free to choose suppliers as of January 1, 2017. Household will be abe to do so a year later.

A WACC (Weighted Average Cost of Capital) figure of 9.23 percent determined by RAE has prompted a negative reaction from the EPA gas supply companies. EPA Attica officials have noted that the figure neither reflects the Greek market’s level of risk nor the limited penetration of gas in the Greek market. Shell and ENI will need to decide on whether such a WACC rate is satisfactory for new investments concerning the network’s expansion to new areas.

Gas distribution fees set, competition to intensify

Greece’s new natural gas distribution fee system, still officially unannounced,  has been finalized by RAE, the Regulatory Authority for Energy, setting the scene for full division of distribution and supply activities in the sector as of January 1, intended to help liberalize the market.

RAE set new distribution tariffs for four Greek natural gas market regions carved out – wider Athens, Thessalia, Thessaloniki, rest of Greece – after requesting additional data from DEPA, the Public Gas Corporation, and three EPA supply companies, still regional monopolies controlled by DEPA with respective 51 percent stakes. The tariffs, determined by one formula for all, differ for all four regions.

According to sources, energy and capacity fees are charged separately, while four consumer categories have been established – household, commercial, major-scale non-commercial consumers, and industrial.

The new distribution tariffs will come into effect as soon as they are endorsed. Consumers, especially industrial customers, are eagerly awaiting the new distribution fee levels. Local authorities recently introduced a hefty transitional price hike from 0.8 euros per Mwh to 4 euros per Mwh for all consumer categories without applying any specific formula to calculate the price level.

The transitional natural gas distribution fee of 4 euros per Mwh, implemented despite opposition from RAE, was originally planned to remain valid until last June but has been stretched out.

The country’s natural gas market is expected to be further liberalized at the beginning of next year as, besides industrial consumers, enterprises with major gas consumption levels are expected to gradually enter free markets, which is expected to generate competition in the current regional monopolies.

Competition in the natural gas market is expected to peak at the beginning of 2018 when supply for households is fully liberalized. As a result, the EPA supply companies currently maintaining regional monopolies will enter each other’s markets.



Negotiators to aim for energy prior action solutions this week

Greek officials and the country’s creditor representatives, currently engaged in bailout review negotiations, believe that certain disagreements between the two sides over outstanding energy-sector prior actions can be resolved this week.

Completion of the prior actions will pave the way for the disbursement of a subtranche of 2.8 billion euros.

Energy Minister Panos Skourletis did not join a team of ministry associates as well as finance minister Euclid Tsakalotos during Friday’s negotiations with the lenders.

The negotiating sides will push for settlement of the outstanding energy-related prior actions by the end of this week. The overall progress made in the bailout review is expected to influence the energy-related developments.

The outstanding issues include natural gas market reforms. A gas release obligation requires DEPA (Public Gas Corporation) to double the amount of natural gas made available to the industrial sector as well as suppliers to help liberalize the market. A documentation process is now in progress.

Another issue is the renewable energy (RES) special account’s deficit, which will impact the RES-supporting ETMEAR surcharge included on electricity bills. Recently ratified legislation has been designed to eliminate the account’s deficit by the end of 2017. However, the lenders want this deficit to be wiped out at an earlier date, by June, 2017. A decision by RAE, the Regulatory Authority for Energy, on the surcharge level will need to take this demand into account.

As for the troubled privatization effort concerning DESFA, the natural gas grid operator, the lenders are pushing for the nullification of a recent amendment that severely limits the operator’s network usage fee hikes and, therefore, revenue potential. The lenders have noted the move has negatively impacted this privatization attempt. Azerbaijani energy company Socar, the winning bidder in an international tender for the DESFA sale, has threatened to withdraw, noting the amendment has reduced the company’s market value.



RAE battling against time for needed gas market reforms

RAE, the Regulatory Authority for Energy, left with just two weeks to finalize the most recent bailout review’s demands concerning natural gas market reforms, yesterday launched a short public consultation procedure, to expire on Monday, for the gas sector’s Pricing Regulations Plan. It will detail the method used to determine regulated charges for distribution networks, based on new law.

As soon as the new Pricing Regulations Plan is endorsed and published in the government gazette, RAE will need to work on setting new distribution network usage tariffs for the country’s EPA gas supply companies.

Immediately afterwards, or no later than the end of September, the RAE board needs to endorse the new tariffs, a pivotal detail in the gas market reforms.

The tariff levels to be set by RAE are eagerly awaited by both consumers and the EPA gas supply company minority shareholders, Shell and Eni, as the prices to be set will determine whether the latter two companies will demand compensation from the Greek State for the premature end to their regional gas monpolies as a result of the gas market reforms, intended to generate competition in the market.

DEPA, the Public Gas Corporation, holds majority 51 percent stakes in the country’s three EPA gas supply companies. Shell holds a 49% stake in the company serving the wider Athens region, while the Italian multinational Eni holds 49% stakes in the Thessalia and Thessaloniki operations.

According to sources, RAE expects to have received many observations by Monday on the Pricing Regulations Plan from parties impacted by the revisions – suppliers, network users, customers, even EVIKEN, the Association of Industrial Energy Consumers. The positions of many interested parties are expected to oppose the plan as published for public consultation.

Burdened by a loaded agenda yet understaffed, RAE has moved slower than intended in meeting bailout-required gas market reforms.

The country’s third bailout agreement requires full separation of the distribution networks and EPA trading activity. This needs to be fully implemented as of January 1, 2017.

Natural gas market reforms well behind schedule

Procedures leading to the operational and legal division of natural gas distribution networks and the trading activities of Greece’s regional gas supply (EPA) companies are one of the energy-sector reforms that have fallen well behind schedule.

The division is a vital step in the process towards fully liberalizing the country’s natural gas market.

Based on the country’s third balout agreement, these reforms need to be fully implemented as of January 1, 2017. However, RAE, Greece’s Regulatory Authority for Energy, ought to have already approved a series of regulations. No progress has yet to be made.

Officials at EPA Attiki, the gas supply company covering the wider Athens area, had submitted the company’s management regulations and pricing policy to RAE in November, 2015, and, based on the schedule, should have received approval from the authority by the end of last February. Eight months on, there has been no sign of any progress.

Part of the delay was caused by a staff shortage problem at RAE over an extended period. However, as things have turned out, RAE cannot affort to waste any time.