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07/12/2016

How a state company derailed competition in Greece

Energy

How a state company derailed competition in Greece

larco_logo_0003.jpg

[Greeevolution.eu]

While energy-intensive Greek industries are struggling to survive in an unfriendly and costly business environment, a state company is enjoying a privileged status at the expense of taxpayers. 

General Mining and Metallurgical Company (Larco) was established in 1963, and is currently the biggest ferronickel producer in Europe, and one of the five largest producers worldwide.

In 1989, the Greek mining company’s ownership changed, and the National Bank of Greece, the Public Power Corporation S.A. (PPC) and the Business and Financial Reconstruction Organization acquired the largest shares.

But the new state-owned company, despite intense international demand for nickel, has turned into a loss-making enterprise.

From over-recruitment to mismanagement, Larco has landed itself in serious financial crisis.

Company losses reached €51 million in 2013, and have continued to grow. Last year, Larco suffered losses exceeding €75 million, while similar losses are recorded for the first half of 2015.

In March 2014, the European Commission concluded that public support gave the company an undue advantage over its competitors, in breach of EU state aid rules.

In total, capital injections and public guarantees that it received are worth €136 million.

The Commission asked Larco to pay back the amount with interest, to mitigate distortions in competition.

The debt paradox

Surprisingly, Larco’s main debt burden is another state company, the PPC, which is also a shareholder in the firm.

At the end of 2013, PPC announced that Larco’s debt amounted to approximately €150 million, while in 2014, the mining company only paid €22.5 out of €57.3 million billed by PPC.

Last year, Larco suffered losses exceeding €75 million, while similar losses are recorded for the first half of 2015.

Furthermore, the power incumbent informed its investors that during the first half of 2015, Larco “(paid) only a small part of its electricity consumption bills”.

The high energy costs for energy-intensive industries, as well as the state-monopoly regime in the Greek energy market, has put businesses under pressure.

Greek industry’s energy expenses are one of the highest in the EU. Many believe it makes entrepreneurship unsustainable, while the loss of thousands of jobs, particularly in the mining industry, is increasingly becoming a concern.

>>Read: New Greek energy minister seeks alternatives to cut high power costs

Greece’s state electricity supplier unilaterally imposes its tariffs on Greek energy intensive industry without previous negotiations, resulting in unbearable and unpredictable costs for Greek businesses.

Larco’s energy costs are almost 30% more compared to its European counterparts, which inevitably affects its competitiveness.

However, in light of the unfriendly business environment, Larco enjoys a protective shield, and some special privileges, including tacit exclusion from severe salary cuts imposed on the entire domestic public sector during the past five years, rapid tax refunds, “environmental immunity” and an unprecedented tolerance from PPC, over not paying its electricity bills (Larco is the second-largest consumer of electricity in Greece after an aluminum smelter).

100,000 more Greeks without electricity

But at the same time, highly-taxed Greek consumers are urged to pay their energy bills.

Giorgos Adamidis, President of the General Federation of PPC Personnel, recently announced that the state electricity company had cut off electricity to 100,000 consumers, as their unpaid bills toward amounted to €2 billion.

“The cutoff will apply to those who are not poor, but (whom), under specific conditions,  would be able to pay their bills,” he stressed.

Background

Greece’s electricity company Public Power Corporation S.A. (PPC), in which the state holds 51% of the shares, enjoys the status of a monopoly on the Greek electricity market.

Greece is a net power importer and imported 3.3% of its electricity need from Turkey and 3.1% from the Former Yugoslav Republic of Macedonia (FYROM). The country is connected to all of its neighbors, including Italy (with a high voltage sub-sea DC link).

Greece’s state electricity supplier unilaterally imposes its tariffs on Greek energy intensive industry without previous negotiations resulting in unbearable and unpredicted costs for the Greek businesses.

The Commission insists PPC should negotiate its tariffs and not impose them unilaterally.

>>Read the Links Dossier: The energy conundrum in Bulgaria and Greece

Further Reading