Greece asks Gazprom to lower its prices

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Greek natural gas distributor DEPA has asked Russia's Gazprom to lower supply prices by about a fifth, to align them with those paid by natural gas users in western Europe, Greek energy industry sources said.

DEPA and Gazprom, Greece's biggest natural gas supplier, are already in talks to arrive at a settlement, the officials told Reuters on Monday on condition of anonymity. If no agreement is found by year-end, the Greek side may go into arbitration.

"An agreement has to be found by the end of the year, after which point either side may contractually refer the matter to arbitration," one of the sources said on condition of anonymity.

Greek government officials stated earlier this year that state-controlled DEPA would ask Gazprom for lower prices, but they did not reveal the size of the requested cut.

Gazprom has already agreed to revise long-term gas supply contracts with customers in Europe, where it generates around 55% of its revenues, making "retroactive payments" to avoid losing business.

Russia's gas monopolist is also under pressure by European regulators investigating suspected anti-competitive pricing. Gazprom sales to Greece, which began in 1996, are not under investigation, the Greek officials said.

Gazprom is DEPA's biggest supplier, accounting for about sixty percent of purchases. DEPA imported 2.3 billion cubic metres (bcm) of Gazprom gas in 2012, compared with 2.8 bcm it can import each year under the terms of their contract, which expires at the end of 2016 and will most likely be extended.

DEPA was among the first European companies to obtain a rebate from Gazprom in 2011, of about 7%. But the Greeks are now seeking deeper cuts.

DEPA pays Gazprom about $470 per 1,000 cubic metres of gas, according to the Greek energy industry sources. That is 20% more than the weighted average price paid by a group of other western European countries including France, Germany, Italy and Netherlands, according to independent estimates based on official data, they added.

"Market conditions across Europe have changed since the last time prices were reviewed in 2011," said one of the officials.

DEPA wants its Gazprom contracts to reflect hub indexation, away from a current model that links its supply prices to those for crude oil, fuel oil and gasoil.

Gazprom is treating Greece as part of its Eastern European markets, which are usually charged higher prices than western ones, the Greek officials said. The Russians argue they charge Greece more because it is a small market that is not connected with western European gas hubs, they added.

Focus on privatisation

DEPA is under pressure to lower its prices from clients hit by Greece's economic depression. Cutting prices will also help it stay competitive in Greece's natural gas market, which was liberalised four years ago.

The company obtained a 10% reduction in LNG supply prices from Algeria's state-owned Sonatrach, its second-biggest gas supplier, at the end of last year.

Lower prices might also improve the prospects of DEPA's planned privatisation, required under Greece's bailout.

A previous attempt to sell DEPA failed in June when Gazprom surprisingly decided against submitting a binding offer. But Greek officials hope the new tender could attract more investor interest after DEPA's liquidity strains have since eased and Greece's role as a possible transit hub for gas has increased.

Arrears by electricity producers, DEPA's biggest client group, have fallen below €300 million from more than €400 million and are expected to drop to about €150 million by the end of the year, the sources said.

In June, Azerbaijan picked the Trans-Adriatic Pipeline (TAP), which will cross northern Greece, to ship much of its gas to western Europe.

DEPA has stayed profitable in the crisis, with net income of €134 million in 2012, including a 94-million-euro charge to settle a dispute with Greek utility PPC.

“[Full-year 2013] sales volumes are to be very close to last year's levels," a third source said. DEPA sold 3.94 bcm of natural gas in 2012, down 6.7% from the previous year.

As cash-strapped Greece is selling many of its state assets, three Russian companies - including Gazprom - bid last year to acquire the Greek gas company DEPA and the grid operator DESFA. There were 17 bidders from 12 countries.

Later, Gazprom retracted from the auction, saying that it was worried about DEPA's financial position. Greece said the Russian firm may have been discouraged by fears that the EU would impose stringent conditions.

In the meantime, Greece sold DESFA to Azeri state energy company SOCAR for €450 million. This helped SOCAR to chose the Trans-Adriatic Pipeline (TAP) for bringing Azeri gas to Europe, to the detriment of the EU-favoured Nabusso project.

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