RAE’s WACC reduction for operators ultimately neutralized

A recent decision by RAE, the Regulatory Authority for Energy, reducing the WACC rate amid a fixed four-year period for energy market operators, as a result of the government’s corporate tax reduction from 29 to 24 percent, is ultimately expected to be neutralized as the authority has asked operators to submit updated data based on latest market conditions, including borrowing costs, all factors applied by the authority to its WACC formula.

Gas grid operator DESFA, power grid operator IPTO, as well as the country’s gas distributors EDA Attiki, EDA Thess and DEDA, initially reacted against RAE’s intention to reduce the WACC rate, determining earnings, within the preset four-year period. It is supposed to be adjusted every four years.

However, RAE’s latest call for updated data from operators and distributors, effectively promising to offset any WACC rate adjustment, has been well received.

 

DEPA Infrastructure bidder shortlist expected end of month

A shortlist of second-round bidders for DEPA Infrastructure, a new entity formed by gas utility DEPA ahead of its privatization, is anticipated towards the end of May, while the cut for DEPA Trade bidders, the utility’s other new division being privatized, could be announced a month later, government sources have informed.

DEPA Infrastructure, whose earnings are regulated by RAE, the Regulatory Authority for Energy, is less vulnerable to the impact of the pandemic, which is not the case for DEPA Trade, fully exposed to market forces.

“We will not rush, for any reason, to take action that would lead us to much lower offers than the prices we are seeking,” Aris Xenofos, president of the privatization fund TAIPED, told Reuters yesterday.

Weighted Average Cost of Capital (WACC) levels set for network operators by RAE before the coronavirus crisis emerged offer protection to certain privatizations against the global economic uncertainty, government sources told energypress.

Though absolute safety can never be assured, DEPA Infrastructure, whose WACC level has been set at around 7 to 8 percent, is less susceptible to financial volatility compared to other companies on Greece’s privatization list.

DEPA Trade, Hellenic Petroleum ELPE, and power grid operator IPTO – its earnings are regulated but the company is listed through IPTO (ADMIE) Holding – are all far less resilient.

IPTO in talks with financial institutions for Crete link loan

Power grid operator IPTO is currently involved in talks with local and foreign financial institutions for a loan concerning Crete’s major-scale electricity grid interconnection with Athens, a project budgeted at around one billion euros.

IPTO chief executive Manos Manousakis is looking for a project loan of roughly 400 million euros. Talks, so far, with financial institutions, including the EBRD, according to sources, are believed to have made good progress.

Financial institutions contacted so far appear positive on the prospect of  providing financing for the Crete-Athens interconnection but want WACC level and cost-benefit study assurances.

IPTO anticipates financing for the project from three sources, including the 400 million-euro bank loan.

The operator has already allotted 200 million euros for subsidiary firm Ariadne Interconnector, the project promoter. IPTO also expects between 350 and 400 million euros to come from the EU’s National Strategic Reference Framework (NSRF).

A new regulatory framework for the grid interconnection as a national project rather than a PCI project is a significant pending issue that also needs to be resolved.

Energy firms react against RAE plan for WACC reduction

The prospect of upcoming WACC level reductions reportedly planned by RAE, the Regulatory Authority for Energy, for gas grid operator DESFA, power grid operator IPTO, as well as the country’s gas distributors EDA Attiki, EDA Thess, DEDA and their parent company DEPA, the gas utility, has unsettled the administrations of all these companies.

Though RAE has not yet reached a decision on the matter, the aforementioned energy companies understand the authority is working to soon lower their WACC levels as a follow-up adjustment to the government’s business tax rate reduction, from 29 to 24 percent.

RAE has endorsed the current WACC levels for a four-year period. A revision at this point would cancel out this endorsement.

The energy companies will push for a delay of any WACC rate revisions until the four-year period has expired, it is believed.

DESFA officials have already pointed out a need for stability and predictability, also stressing the company has invested heavily in the operator during a difficult period for the country.

DEPA’s gas distribution companies fear a WACC revision may negatively impact an ongoing privatization procedure for DEPA Infrastructure, a new DEPA entity established for the privatization.

DEPA and its associated firms have warned DEPA Infrastructure would become a less attractive prospect for nine candidates who have expressed first-round interest, while a revision before the WACC level’s four-year period has been completed could be interpreted as a signal of uncertainty by investors.

DEPA Infrastructure yield, 8.2% + 1.5%, a drawcard for bidders

Though not yet officially announced, a new annual regulated yield for distribution network operators, now set, represents one of the strongest drawcards for the sale of DEPA Infrastructure, a new entity established by gas utility DEPA for privatization.

Prospective bidders engaged in preliminary contact with authorities linked to the DEPA Infrastructure sale ahead of a February 14 deadline for non-binding expression of interest have been told the WACC figure has been set at 8.2 percent plus a 1.5 percent premium if certain investment objectives are achieved.

These objectives include swift network development in areas covered by gas distributor EDA, achievement of pipeline addition goals, specified in kilometers, as well as the development of projects not included in DEPA Infrastructure’s initial development plan.

Prospective participants, including funds, will enter this privatization procedure knowing their investment’s potential yield can reach 9.7 percent, far higher than WACC performances enjoyed by network operators in central Europe.

This higher yield offering has generated all-round optimism for a solid turnout by participants Friday week.

Potential bidders, so far, are believed to include Greek gas grid operator DESFA, France’s Engie, Italy’s Italgas and Germany’s Eon.

Besides European operators, the privatization is also expected to attract a number of funds, seen partnering with operators for the sale’s second round of binding bids.

DEPA Infrastructure has taken under its wings DEPA’s interests in the distribution networks of wider Athens (EDA Attiki), Thessaloniki and Thessalia (EDA Thess) and the rest of Greece (DEDA).

 

DEDDIE preparing 10-year plan for longer-term approach

Distribution network operator DEDDIE/HEDNO, headed for privatization, is preparing a new and ambitious 10-year business plan reflecting the lofty goals set of the National Energy and Climate Plan, energypress sources have informed.

The operator will seek a long-term WACC figure from RAE, the Regulatory Authority for Energy, the body responsible for approving this constituent.

The operator’s multi-billion ten-year plan will include urgently needed  network upgrade projects, network expansions, digitization, as well as electric vehicle sector initiatives.

A favorable revision of the regulatory framework and the WACC level, set by RAE on an annual basis, will be a crucial factor for the operator’s plan. DEDDIE’s current WACC level is at 7 percent.

WACC level clarity over a ten-year period will be sought for the operator’s prospective new shareholders, as is the case with many other European network operators. This is crucial for planning and execution of projects.

Until now, DEDDIE’s business plans have had a five-year duration. The most recent of these, worth 1.37 billion euros, was approved by RAE just last November. However, the lofty demands of the new NECP require a longer-term approach.

The operator’s new business plan is expected to be ready for presentation in two months, the energypress sources informed.

 

 

Ministerial decision signed for Kavala underground storage

The environment and energy ministry has signed a long-awaited ministerial decision for the development of an underground gas storage facility in the offshore South Kavala region through the transformation of a depleted natural gas field, an unprecedented venture in Greece.

The country, as a result of this project, situated 30km south of Kavala, will join the list of EU member states contributing to the continent’s underground gas storage capacity and energy security.

Deputy energy minister Gerassimos Thomas and the ministry’s secretary-general Alexandra Sdoukou have completed all preparations needed for the project’s operating framework.

The ministerial decision essentially outlines the legal terms concerning the facility’s operation, including licensing requirements for development and exploitation, sources informed.

RAE, the Regulatory Authority for Energy, needs to decide on the project’s WACC level, or minimum acceptable rate of return for investors, the sources added.

A total of 126 underground gas storage facilities operate in the EU, offering an overall capacity of approximately 80 billion cubic meters, recent data showed.

Internationally, a total of 642 underground gas storage facilities have been developed for an overall capacity of 333 billion cubic meters, approximately 11 percent of global gas consumption.

 

Incentive regulation considered for operator earnings formula

An incentive-based regulation that would gradually replace a cost-based model is being seriously considered for a formula determining earnings provided to the country’s operators.

The energy ministry and RAE, the Regulatory Authority for Energy, are examining changes to the regulatory framework concerning investments in the energy transmission and distribution networks, officials representing the two bodies have highlighted at the ongoing Thessaloniki International Fair.

Operator earnings include regulated earnings determined by WACC figures for projects.

Regulatory authorities around Europe typically permit higher and lower WACC rates that consider the time required to complete a project, or its cost. This is not so in Greece.

Incentives driven by specific targets or the achievement of specific results need to be offered by the regulatory authority, deputy energy minister Gerassimos Thomas told a forum titled “Energy Developments in the Country amid Structural Changes to the New Energy Model”, staged within the framework of the Thessaloniki International Fair.

 

WACC, revenue and expense figures for DESFA this month

RAE, the Regulatory Authority for Energy, appears set to adopt a middle-of-the-road solution for gas grid operator DESFA’s weighted average cost of capital (WACC) for the current regulatory period (2019-2022) as well as the operator’s revenue and expense recognition.

The energy authority has decided on an 8.22 percent WACC figure for 2019, which will drop to 7.4 percent in 2022, according to energypress sources. This represents a drop in the gas grid operator’s WACC figure for the previous period,  which stood at 9.25 percent.

As for the operator’s expenses, RAE is seeking to keep their recognition level low in order to subdue tariffs. Even so, many expenses have been recognized, sources informed.

As for the recognized revenues, RAE and the operator’s new owners, the Snam-Fluxys-Enagas consortium, have been miles apart over protracted talks. RAE has insisted that tariffs paid by consumers for various regulatory services need to also include revenues stemming from miscellaneous operator activities.

Final decisions for the operator’s WACC and recognized revenues and expenses are expected this month.

RAE expecting extra IPTO data for Ariadne WACC figure

Power grid operator IPTO is currently preparing additional data for RAE, the Regulatory Authority for Energy, requested by the authority to determine the weighted average cost of capital (WACC) and regulated yield for Ariadne, an SPV established by the operator to develop the Crete-Athens grid interconnection.

Besides IPTO, RAE’s WACC decision will also interest investors interested in acquiring a minority stake expected to soon be offered in Ariadne.

IPTO plans to offer an Ariadne stake of less than 49 percent, the most likely figure being a 39 percent share that had been offered to Euroasia Interconnector, a consortium of Cypriot interests heading the wider PCI-status Greek-Cypriot-Israeli electricity grid interconnection project.

IPTO and Euroasia have been embroiled in a dispute for control of the project’s Crete-Athens segment. Euroasia did not respond to a February 28 deadline for this minority share but, instead, has warned of taking action.

IPTO has already submitted a proposal to RAE for the remainder of the regulatory period covering 2018 to 2021. A WACC figure already set by RAE for the national grid for this period, beginning at 7 percent and gradually descending to 6 percent, will serve as a base for the Ariadne figure.

Investors will be invited to submit bids to an Ariadne tender over two stages, beginning with expressions of interest to shortlist contenders, and followed by binding offers. An Internal Rate of Return (IRR)  maximum price will be set as a starting price for a descending price auction.

 

RAE, DESFA owners at odds over tariff, cost, revenue figures

RAE, the Regulatory Authority for Energy, and the new DESFA board appointed by the Snam-Enagás-Fluxys team that acquired a 66 percent stake in Greece’s gas grid operator last year have yet to find common ground on tariff revisions for a four year-period that already commenced on January 1.

The Greek energy authority has yet to endorse Revenue Requirement (RR) and Weighted Average Cost of Capital (WACC) figures for this four-year period, which is generating uncertainty for the new owners.

RAE insists costs associated with additional amenities that have been provided to full-time staff over the years  should not be factored into the calculations, according to sources.

RAE is obviously seeking to restrict the operator’s officially recognized costs in order to keep tariffs low now that the gas grid operator’s privatization has led to an annual total of 14 monthly paychecks for staff on the payroll, as is the case for all private sector enterprises,  from the previous 12 applying to public sector firms.

DESFA’s new administration is pushing for the opposite. The operator’s new ownership does not want to cease offering DESFA employees their customary amenities but wants to recover these through tariffs.

As for revenue matters, the current gap between the two sides appears to be wider. For example, DESFA’s new administration regards a recent gas pipeline maintenance contract signed by the operator and TAP as a supplementary entrepreneurial activity whose resulting revenues should not be factored into the tariff calculations.

 

Follow-up DESFA bids submitted, WACC level may subdue offers

UPDATE

Two consortiums participating in the natural gas grid operator DESFA’s international tender offering a 66 percent stake submitted their follow-up offers today as first-round offers, both over 400 million euros, were less than 15 percent apart. TAIPED, the state privatization fund, included a term requiring additional bids in such a case to generate the highest possible sale price.

Energypress previously reported:

DESFA, the natural gas grid operator, may have posted a spectacular operating profit increase of 70 percent and impressive cash deposits amounting to 228 million euros, but the firm’s subdued weighted average cost of capital (WACC), as well as the rejection by authorities of a steady WACC level proposal for the operator requested by bidders taking part in an ongoing international tender offering a 66 percent stake, could keep offers below 500 million euros, pundits believe.

Two consortiums participating in DESFA’s international tender are expected to submit their follow-up offers today as first-round offers, both over 400 million euros, were less than 15 percent apart. TAIPED, the state privatization fund, included a term requiring additional bids in such a case to generate the highest possible sale price.

Local officials have been optimistic in the lead-up and expect the new offers to reach close to, or even exceed, 500 million euros.

Italy’s Snam, Spain’s Enagás Internacional and Belgium’s Fluxys formed a consortium to participate in the DESFA tender. All three hold key stakes in the TAP consortium. Another Spanish entry, Regasificadora del Noroeste (Reganosa Asset Investments) joined forces with Romania’s Transgaz and the EBRD, the European Bank for Reconstruction and Development, for the other offer.

Just days ago, RAE, the Regulatory Authority for Energy, set annual WACC levels for IPTO, the power grid operator, at 7 percent for 2018, 6.9 percent for 2019, 6.5 percent for 2020 and 6.3 percent for 2021. This is seen as a precursor for DESFA rates to be set by RAE within the current year.

DESFA’s bidders had sought a steady network usage rate for the gas grid operator during an earlier stage in the tender.

The eligibility of both bidding teams was thoroughly inspected by authorities during the processing stage of first-round offers, which took over a month to complete. As a result, the new offers to be submitted today should be unsealed very quickly, by Friday the latest, unless new funding sources are added to any of the two teams.

In a previous and unfinished sale attempt that also offered a 66 percent of DESFA, Azerbaijan’s Socar was declared the prefered bidder with a bid of 400 million euros. At the time, five years ago, when Greece’s country risk factor was higher, the operator’s 66 percent had been estimated to be worth 330 million euros.