US, European and Russian interests clash in privatisation of DEPA and DESFA

US, European and Russian interests clash in privatisation of DEPA and DESFA
# 07 January 2013 12:09 (UTC +04:00)

On 9 January, Hellenic Republic Asset Development Fund (TAIPED), the new public agency tasked with enacting the Greek government’s privatisation plans, is expected to hold a board meeting to discuss some of the 35 projects that are up for privatisation. Talks may include the progress on a 100% sale of DEPA and a 65% stake in DESFA.

However, the issue is more political than economic. "For the moment various and credible information streaming from Greek governmental sources indicate that the bidding for DEPA may even be postponed and dealt with after other major privatisations take place,” Ioannis Michaletos, a security and energy affairs analyst at the Institute for Security and Defence Analysis in Athens, told New Europe on 3 January.

The Greek government hopes that, if all goes well, it is possible that the sell-off of DEPA-DESFA will bring in revenues that will cover a significant part of the target for privatisation intakes in 2013.

Non-bidding offers for natural gas company DEPA and DESFA have come from Russian gas monopoly Gazprom, Russian energy firm Sintez Group, which participates through its subsidiary Negusmeft, Azerbaijani state oil and gas company SOCAR, as well as two Greek consortiums comprising M&M GasCo, Mytilineos Holdings, Motor Oil Hellas Corinth Refineries and a joint bid by PPF and GEK Terna Holding Real Estate Construction. Some or all of these companies will advance to the next stage of bidding offers.

Gazprom and Negusneft have reportedly raised the price tag seemingly for geopolitical reasons while Washington recently warned Athens through the office of US Ambassador to Azerbaijan Richard Morningstar not to let DEPA fall into Russian hands, Michaletos said.

Greece’s Prime Minister Antonis Samaras is expected to address his country’s energy issues in his visits to Moscow and Washington, although no date has been set yet.

The European Commission is also said to be worried about European dependence on Russian gas. In September, the European Commission officially announced its investigation of alleged anti-competitive market practices by Gazprom.

Regarding Greece, the Commission earlier reminded that the company which imports the gas has to sell or cannot be the owner also of the pipeline and has to “stick to EU rules”.

TAIPED administration sources told New Europe on 4 January that it’s absolutely clear that the investors, who will handle Greece’s natural gas operations “must fully comply with the EU’s Third Energy package”. There must be complete independence of the two entities. “This is also stated in the competition rules. This is a substantial reason for disqualification from the competition if in any way compliance with the Third Energy Package or security of the country’s energy supply is not ensured under any circumstances,” a TAIPED source said, adding that it is also Greece’s obligation to the EU.

The source noted that the investors’ compliance will be ensured not just by contractual clauses but entire mechanisms that completely safeguard the Greek government.

“Thus Athens, taking also into account EU's Commission's stance towards Gazprom, would most probably delay DEPA's privatisation,” Michaletos opined. “In fact I would bet on it and a likely excuse which has been heard in Greek political offices is that when the competition started, there was ‘political risk’ for Greece, so there was also limited interest by EU companies especially, thus a new process is needed. Plainly, a diplomatic excuse to renew the process," he added.

Meanwhile, Negusneft does not supply Greece with natural gas so its case is different from that of Gazprom. Russian tycoon Leonid Lebedev, who has been in a sort of a conflict with Russian President Vladimir Putin and the Kremlin, controls Sintez. Therefore Sintez-Negusneft’s interest in DEPA-DESFA surely clashes with that of Gazprom - economically and politically.

Regarding SOCAR, if the Trans-Adriatic Pipeline (TAP) is selected to carry Azerbaijani gas across Greece and Albania to Italy, Baku will have an increased interest for Greece’s DEPA and DESFA, analysts say.

The privatisation of DEPA falls under the general geopolitical context of the gas discoveries in Cyprus and Israel, the exploration for hydrocarbons south of Crete, the Eastern Mediterranean Energy Corridor (East Med) and the Southern Gas Corridor.

Analysts say Gazprom is not just interested in the small Greek gas market but wants to control non-Russian gas flows from the Caspian, Israel and Cyprus to Europe. Meanwhile, Greece wants to avoid a situation similar to the Ukraine-Russian gas crisis that disrupted supplies to Europe.

According to some reports, Gazprom is willing to pay up to €1 billion for DEPA. But the TAIPED administration source told New Europe that a high bid is not the only consideration but the investor will have to abide by these rules. “This is absolute. This is the evaluation that is done now. We sit and discuss with each investor separately how they will ensure - not just contractually but through specific mechanisms - absolute compliance with the Third Energy Package,” the source said. “They may talk money and then not meet their obligations to the EU. That will never fly,” the source said.