US embassy cable - 05ATHENS849

UNCLAS SECTION 01 OF 03 ATHENS 000849 
 
SIPDIS 
 
FOR EUR/SNEC STEVEN MANN 
 
E.O. 12958: N/A 
TAGS: ECON, ENRG, EPET, GR, AMB 
SUBJECT: A SNAPSHOT OF THE GREEK ENERGY SECTOR: 
AMBASSADOR'S MEETINGS WITH GREEK OIL AND GAS CEO'S 
 
 
1.  (U) SUMMARY:  Ambassador Ries met with the Chairman of 
the Public Gas Corporation (DEPA) on March 21, and the CEO 
and Chairman of Hellenic Petroleum (HP) on March 22.  DEPA is 
undergoing capital restructuring while the GoG has already 
gradually sold its shares of HP.  DEPA is part of a joint 
effort to build a gas interconnector linking the Greek and 
Turkish gas networks to that of Italy.  DEPA's Chairman was 
optimistic about the project's progress despite the recent 
announcement by Turkey's BOTAS that, for procurement process 
irregularities, it had canceled the construction tender for 
the Turkish portion of the trunk supply line and will start 
the process anew.  HP's Chairman confirmed that Greece, 
Bulgaria, and Russia are scheduled to sign a final memorandum 
of understanding concerning the Burgas-Alexandropoulis 
pipeline on April 15.  Despite a ten-year delay, the project 
appears to have regained momentum.  HP's CEO maintained that 
the Burgas-Alexandropoulis pipeline will be complementary to 
-- not competitive with -- the Baku-Tbilisi-Ceyhan pipeline. 
In addition, HP is working to consolidate its downstream 
operations in the Balkans and expand its upstream operations 
in North Africa and the Mediterranean.  END SUMMARY. 
 
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PUBLIC GAS CORPORATION 
---------------------- 
 
2.  (U) In a March 21 meeting Ambassador Ries and Raphael 
Moissis, Chairman of the Public Gas Corporation (DEPA), 
discussed current developments in the natural gas industry. 
Although originally a wholly-owned subsidiary of Hellenic 
Petroleum, today DEPA is owned by HP (35%) and the GoG (65%). 
 DEPA is currently undergoing capital restructuring as part 
of the larger privatization efforts occurring throughout the 
Greek energy sector.  Once the process is complete, DEPA's 
ownership will be divided between private investors (34%), HP 
(35%), and Greece's Public Power Corporation (30%). 
 
3.  (U) DEPA currently owns a 51% share in three gas 
distribution companies, which distribute gas to households 
and small industries in Attica, Thessaly, and Thessaloniki. 
DEPA plans to expand by forming three new gas distribution 
companies covering Central Greece and Evia, Central (Greek) 
Macedonia, and Eastern (Greek) Macedonia and Thrace.  Because 
of an exemption from the EU energy directive, the three 
existing companies have a thirty-year right of exclusivity. 
DEPA intends to request a similar exemption for the three new 
companies. 
 
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TURKEY-GREECE GAS INTERCONNECTOR 
-------------------------------- 
 
4.  (U) DEPA, Turkey's BOTAS, and Italy's Edison have teamed 
together to build a gas interconnector project to link the 
natural gas networks of Greece and Turkey to that of Italy by 
2006.  Moissis estimated the total cost -- including the 
Turkish, Greek, and trans-Adriatic portions -- at 1 billion 
euros.  The interconnector will link to Turkey's existing gas 
grid to move gas from the Caspian and Russia (from the Blue 
Stream line) across Greece and under the Adriatic to 
Brindisi.  Once completed, the pipeline will be able to carry 
up to 11 billion cubic meters (bcm) per year.  There are 
already agreements between DEPA and BOTAS, the GoG and the 
GOT, and DEPA and Edison.  There is not yet an agreement, 
however, between the GoG and the GoI.  The trans-Adriatic 
portion would be jointly owned by DEPA, BOTAS, and Edison -- 
but they are open to having additional investors become joint 
owners.  According to Moissis, DEPA and BOTAS will connect 
the Greek and Turkish grids even if the trans-Adriatic 
portion is delayed or canceled. 
 
5.  (U) Although construction was due to begin in Turkey in 
April, Moissis informed us that the Turkish tender recently 
was canceled.  He explained that Turkey's Peker, which was in 
the consortium that submitted the best bid, was part of the 
recent corruption investigation in Turkey's energy sector. 
Therefore, BOTAS canceled the tender and will start anew.  It 
is unclear how long this set back will delay the 
interconnector's construction. 
 
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THE LINK TO ALBANIA 
------------------- 
 
6.  (U) According to the current plan, the interconnector 
will go in a southwest direction from Kipi in northeastern 
Greece to Perdika in northwestern Greece.  A direct east-west 
route would shorten the interconnector but it would cut 
across southern Albania.  Although the GoA is eager to pursue 
this alternative route, Mr. Moissis stressed that Edison does 
not believe it is a bankable option because the investors 
will not be able to secure Italian export credit if the 
interconnector passes through Albania and the financing terms 
would accordingly be much worse because of the increased risk. 
 
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HELLENIC PETROLEUM 
------------------ 
 
7.  (U) On March 22, Ambassador met with Hellenic Petroleum's 
CEO, Dr. Panos Cavoulacos, and Chairman, Timos Christodoulou 
to discuss HP's operations in Greece and abroad.  HP was 
established in 1988, carved out of the former state-owned 
Public Petroleum Corporation.  The GoG has gradually sold its 
shares of HP.  Today the GoG holds 35.5% of HP shares while 
the Latsis Group holds 32.9%.  Minister of Economy and 
Finance Alogoskoufis announced in August 2004 that the GoG 
has no intention of selling any more of its stake in HP. 
Three-fourths of HP's revenues derive from its four oil 
refineries (three in Greece and one in Macedonia) which cover 
72% of Greek market requirements.  While the Macedonia 
refinery must eventually close because it does not (and 
cannot) meet EU specifications, HP is planning a 500 million 
euro expansion of one of its refineries in the Athens area. 
 
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BALKAN OPERATIONS, NORTH AFRICA PROSPECTS 
----------------------------------------- 
 
8.  (U) According to Mr. Christodoulou, HP has "all the 
advantages of a private company but all the disadvantages of 
a public company."  When the GoG was the majority 
shareholder, HP expanded operations for the sake of political 
objectives.  Today, however, HP is attempting to consolidate 
its operations and run for profits.  Despite its investments 
totaling 350 million euros in southeastern Europe, Dr. 
Cavoulacos explained that HP has had "little return."  HP is 
present in the downstream market in eight countries: Albania, 
Bulgaria, Cyprus, Georgia, Greece, Macedonia, Montenegro, and 
Serbia.  HP would like to expand operations in Bulgaria and 
Serbia, but consolidate operations in Albania, Macedonia and 
Montenegro.  In the latter countries, HP has faced 
considerable rule of law problems.  Although HP's upstream 
operations are extremely limited, it would like to partner 
with larger companies to expand its efforts.  In particular, 
HP is looking for production or exploration investment 
opportunities in North Africa and the Mediterranean. 
 
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BURGAS-ALEXANDROPOULIS PIPELINE 
------------------------------- 
 
9.  (U) In November 2004 Greece signed a memorandum of 
understanding with Bulgaria and Russia to cooperate on the 
construction of an oil pipeline from the Bulgarian port of 
Burgas on the Black Sea to Alexandropoulis on Greece's 
northern Aegean coast.  Despite a ten-year delay, the project 
appears to have regained momentum.  The signing of the final 
MOU is scheduled for April 15.  If completed, the 700 million 
euro project would relieve tanker pressure on the Bosporus by 
reducing average tanker transit delay by 4.5 days by 2008. 
Dr. Cavoulacos maintained that the Burgas-Alexandropoulis 
pipeline would be complementary to -- not competitive with -- 
the Baku-Tbilisi-Ceyhan pipeline.  The Burgas-Alexandropoulis 
pipeline, according to Dr. Cavoulacos, will be cost efficient 
because of its short length and the fact that very large 
crude carriers (VLCC's) could load at Alexandropoulis, making 
shipment to U.S. markets economic.  He added that the 
pipeline parties would welcome the participation of U.S. 
financial institutions and investors. 
 
10.  (U) COMMENT:  The CEO's of both DEPA and HP would like 
to expand cooperation with the U.S.  Dr. Cavoulacos noted in 
particular that GE is one of two finalists to run HP's new 
electricity plant in Thessaloniki and that HP is eager for 
U.S. financial institutions to participate in the 
Burgas-Alexandropoulis pipeline.  Ambassador commented that 
U.S. companies would likely be interested in any pipeline 
that is commercially viable.  Both CEO's acknowledged that 
liberalization in the Greek domestic energy market is 
inevitable (and required by EU directives), yet recognized 
that public-sector unions still have significant influence 
and constrain GoG enthusiasm.  END COMMENT. 
Ries