The
government is determined to handle the hot potato of electricity rates
in order to resolve, once and for all, the problems associated with the
liberalization of the power market.
This determination was
highlighted by the request by the Public Power Corporation (PPC) to
increase rates by an average of 21.7 percent as of December 1, and the
government’s subsequent official and unofficial statements.
“The
proposal of the Regulatory Authority for Energy (RAE) will be examined,
bearing in mind the company’s operating costs and the lowest possible
burden for consumers,” said government spokesman Theodoros
Roussopoulos. Statements made by Deputy Development Minister Stavros
Kalafatis in Parliament were in a similar vein, while ministry sources
told Kathimerini that the minister will accept the proposal to be
submitted by RAE.
The proposal is expected to be submitted this
week and – according to well-informed sources – adopts the level of
rate increases requested by PPC, but not with immediate effect. Instead
they will be implemented over a three-year period. The first
installment of rate hikes will concern increases of 5 percent for low
domestic consumption and up to 10 percent for high domestic
consumption, 8 percent for medium-voltage industrial consumption and 10
percent for high-voltage industrial consumption.
The proposals
and statements by all authorities involved last week have made it clear
that for the first time they are looking seriously at an issue that
until recently had been taboo due to the political cost entailed, and
in effect constitutes the main reason for the distortions and lack of
competition in the electricity market.
It was PPC which raised
the issue, making for the first time since its admission to the stock
market a demand not only for an increase in rates but also for their
harmonization with market rules. PPC asked for rates that reflect the
operating cost of each enterprise, incorporating the harmonization
issue into the main parameter of its new strategic plan.
The
company highlighted the problem in the strategic plan that PPC put
before institutional investors, presenting data which show that the
whole schedule of rates is subsidized by an average of 25 percent and
asking the relevant ministers to focus on this very real problem, which
is also connected with the poor financial state of PPC and the lack of
any real liberalization of the power market.
Sins of the past
The
president and CEO of PPC, Takis Athanassopoulos, showed he has fully
understood what the previous administrations of the power utility, from
2001 onward, had not: namely that PPC has nothing to fear from
competition but will instead gain from it as it will be able to rid
itself of the burden of subsidized services that add up to 400 million
euros per year to its costs, while also streamlining its production
portfolio which includes a mix of fuels that any private investor would
envy.
Since 2001, when the first attempt to liberalize the power
market was made, the PPC, the RAE, investors and relevant ministers
have known all too well and have privately acknowledged that
liberalization is not possible while keeping PPC rates low. PPC
produces very cheap electricity, thanks to lignite, and sells it even
cheaper, below cost, in the name of social policy. This in itself
leaves no scope for the entry to the market of private investors, which
is why so far not a single private electricity production facility has
been built, with the sole exception of the Hellenic Petroleum (HELPE)
plant in Thessaloniki, which was a clear political choice.
Even
though the causes of the problem were well-known to everyone, they had
been swept under the carpet and for years investors, politicians and
the managers of groups and companies sought alternative ways to achieve
liberalization, which, however, were completely ineffective and even
dangerous, as they had a negative impact on the capacity of the
country’s electricity system.
Things got worse when, two years
ago, the combined-cycle plant of HELPE was completed and was supposed
to start operating. It was then ascertained that it could not operate
for even one hour out of 24, as it was simply unable to sell its
product to the grid at a competitive price. It was then decided to
change the way that the system marginal price (SMP) is calculated. The
calculation of SMP relates to the price of electricity set by the grid
each day and at which producers sell, including PPC in its capacity as
producer, and then is purchased exclusively by PPC in its capacity as
electricity trader, to supply all consumers as the law provides.
This
change led to a rise in the sale price of electrical energy and
therefore to a rise in the acquisition price by PPC, the trader, which
was obliged by law to sell power to consumers at a much lower rate.
This dubious way of calculating SMP created expectations of profits and
prompted the interest of major domestic and foreign groups, but it sent
PPC to the verge of financial ruin.
This once again requires a
solution and for the first time there is a clear intention to sort
things out and redefine the notion of “electricity market
liberalization,” placing it on a more solid basis. The start of this
new approach has been signaled by PPC, which has assumed the role of
the “honest player,” and at the same time a strong player in the face
of the competitors that will emerge, as ensured by its new business
plan.
This plan, apart from the issue of breaking the company up
into subsidiaries which has divided experts, is redefining the entire
spectrum of the company’s activities according to the new conditions
and prospects. It accepts that by 2014 PPC will have lost some 30
percent of its market share. However, this will allow the corporation
to regain its health, through better services provided to consumers.
Crucially, it will relieve it forever of the burden of its social
character, which is not compatible with the profile of a listed company.
PPC
now appears ready for the second and most important step since its
listing on the Athens bourse, as it pursues its transformation into a
purely competitive enterprise. Its success will largely be determined
by the government’s attitude. But at least Athanassopoulos has
presented the problem in the context of the new business plan, proposed
solutions and highlighted some serious dilemmas.
