Greece’s state electricity supplier should negotiate its tariffs and not impose them unilaterally, according to a European Commission decision that paves the way for a “new deal” on energy pricing in heavy industry.
The liberalisation of the Greek electricity market started in 2001, but has had no results to date.
The Greek state controls 51% of the country’s electricity company Public Power Corporation S.A. (PPC), which enjoys the status of monopoly on the Greek electricity market.
PPC was included in the privatisation program agreed to by the previous coalition government and the Troika (IMF, European Commission, ECB), but the Syriza-led government has ruled out any privatisation schemes for the country’s energy sector.
Moreover, the new Greek government counts on PPC to foot the bill for restoring electricity service to the poorest of households that had been disconnected, offering them 300 kilowatt hours per month.
Last week, Greek energy minister Panagiotis Lafazanis reiterated his intention to block the privatisation of PPC, saying that it should remain public, and become the driving force on the way out of the crisis.
Lafaznis also appeared to indicate that plans for the Russian-sponsored “Turkish Stream” pipeline could greatly benefit Greece, transform the country in an energy hub and ultimately bring down energy prices. However, he didn’t name “Turkish Stream” by the name which was given to it by Moscow.
“The Greek government’s efforts to rebuild PPC and make the country an energy hub with a new pipeline carrying Russian gas […] with a drastic reduction in energy prices, is a prerequisite for the efficient functioning of the economy,” the minister said.
PPC has a competitive advantage, as it enjoys preferential access and has special mining rights to lignite (98% of the total active reserves owned by the state), a strategic natural resource in Greece used for electricity generation. Greece is the second largest lignite producer in Europe and fifth in the world. It also exploits all major hydro plants in Greece.
Having a total monopoly in generation, transmission and distribution, the tariffs are being unilaterally formulated by PPC for all kinds of customers, including the cash-strapped Greek industrial sector and energy-intensive companies, which have no alternatives for electricity supply.
In the 1960s, aluminium producing company Aluminium SA, which consumes 5% of Greece’s total electricity, and 40% of all high-voltage consumption of the country, signed an agreement with PPC, offering the company a globally competitive rate for electricity supply.
The agreement was due to expire in 2006, unless it was to be extended. No agreement was reached, and both sides jointly decided to accept arbitration under the auspices of the Greek Regulatory Authority for Energy (RAE). This took place in accordance with the basic principles on power supply tariffs approved by the European Commission, taking into account the underlying cost of PPC, and the consumption profile of Aluminium SA. A tribunal was composed of renowned experts in the energy sector and was supported by acknowledged international consultancy firms such as The Brattle Group, and PWC.
But the arbitration decision wasn’t to the liking of PPC, who filed a complaint with the European Commission, claiming that it was forced to provide electricity to Aluminium SA at below-cost levels, as state aid, offering it unfair advantage over other EU producers.
In two letters in May and June 2014, the Commission rejected the complaint of PPC, considering that RAE’s pricing does not confer any unfair advantage and does not constitute state aid toward for Aluminium SA.
PPC did not accept the decision, and appealed to the EU General Court against the Commission’s decision to close the case.
On 25 March, in a decision signed by the Competition Commissioner Margrethe Vestager, the College of the European Commission brought definitive closure to PPC’s complaints.
In its decision, the Commission rejected the allegations of state aid, noting that the arbitration was fully in line with market “best practice.”
It also stressed that PPC’s monopoly makes heavy industry totally dependent on it for electricity, as it has no other options to turn to, and urged PPC to proceed to negotiations with the energy-intensive companies regarding the pricing based on the “unique consumption characteristics of the customer and the Greek electricity market and the cost structure of the supplier”.
As Greek heavy industry claims, real negotiations on electricity tariffs actually have never taken place.
The Syriza-led government has announced that the privatization process of the country’s energy market will stop. Such privatisation was a commitment made by the previous government towards international lenders, and a crucial term of the bailout.
Natural gas importer and distributor DEPA, and electricity company Public Power Corporation S.A. (PPC) are both controlled by the Greek government.
Proposals for the privatisation of DEPA and PPC have been “abandoned”, according to Greek energy minister Panagiotis Lafazanis.
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