The new Syriza government in Greece has started with wide ranging policy changes, including in the energy field. According to press reports, the new minister of Reconstruction, Environment and Energy Panayotis Lafazanis announced on 28.1.15 the government’s intention to halt the privatisation of energy firms and to change course in liberalisation in the energy field. This is a momentus policy u-turn for Greece, that has been going down the liberalisation path for some time and it is likely to bring Greece into conflict with private investors and the EU which has legislated energy liberalisation.
The previous policy framework
In a paper in the Journal of Energy Security in 2012 it was noted how the IEA pushed Greece towards the” completion of necessary reforms mainly in the area of privatization and unbundling of system operators in both gas and electricity from the vertical integrated companies”. Greece’s main objective under Samara’s government was advertised as attracting foreign capital and expertise to the energy field. Liberalisation started with the process of privatization of the natural gas groups DEPA and DESFA and continued by reducing the public sector’s share in Hellenic Petroleum (responsible for the privatization process was the Hellenic Republic Asset Development Fund (HRADF) that was established on 1st July 2011 (L. 3986/2011), under Greece’s medium-term fiscal strategy).
Within this context and with an orientation towards attracting investment, the main pillars of Greek energy policy were:
1) Encouraging energy market liberalization and private sector participation of international private investors in the Greek market through the attraction of productive investment in order to reduce the delivered price for power to consumers through healthy competition
2) Introduction of renewable energy sources in the country’s energy balance in order to achieve the national goal of 20% renewable energy production by 2020.
3) Expansion of natural gas networks to other countries in the region
4) Promotion of national development programs for the exploitation of hydrocarbon deposits in order to reduce the country’s energy import dependence and to reduce national spending outflows on oil imports amounting to 12 billion Euros/year.
5) Creating the conditions necessary for the transiting of international oil and gas pipelines in order that the country could become an energy hub in Greece’s wider region and in doing so become a key lever in supporting European energy security (including establishing close cooperation with both Cyprus and Israel.)
A key motivator for the previous policy was reducing the allegedly over-sized public sector which was perceived to hinder the development of healthy competition. This effort started in 1999 with the enactment of Law 2773/1999, aimed at compliance with European Union legislation in order to boost private investment and competition. A new energy law was introduced in 2011 to achieve amongst other things the implementation the EU’s Third Energy Directive.
Foreign investors in Greece
A series of companies had expressed interest in the acquisition of the DEPA/DESFA including the Russian giant Gazprom, Azerbaijan’s SOCAR, Japan’s Mitsui, Span’s Enagas, Italy’s ENI, Algeria’s Sonatrach, Russia’s Neguneft, Holland’s Vopak, and the Israeli Israel Corp. The Norwegian firm PGS was selected as the contractor from among eight of the most important international companies that expressed interest in seismic surveys for offshore Western and Southern Greece. According to Enterprise Greece, US Third Point Gas has entered into the share capital of Energean Oil & Gas (a Greek based Oil & Gas producer and explorer) through an equity capital injection of $60 million; Qatar Petroleum International (QPI) and the Greek company GEK Terna have signed an agreement to acquire an interest in the Heron II power plan. Canadian investment fund Fairfax Holdings has become the third-biggest shareholder of Greek industrial energy group Mytilineos, acquiring a 5 percent stake worth about 30 million euros ($41 million). US York Capital Management had announced 100 mn € investments in Greece’s energy group GEK Terna, acquiring a 10% share of the firm.
Is Greece the next Spain?
There is concern that the sudden policy change will be perceived by foreign investors as a violation of investment treaty protections, in a similar fashion to Spanish regulatory changes in relation to solar energy generation. Foreign investors in the Spanish Photovoltaic market have not taken the radical changes to the regulatory environment and the deconstruction of incentive schemes for renewables with good grace. They have resorted en-masse to investment tribunals seeking redress, for what many perceive to be the end of solar energy generation in Spain. The Energy Charter Treaty secretariat registers 11 cases against Spain, with ICSID having registered 8 cases since 2010 -all still pending. For example Allen & Overy is involved in actions, one of which is by 15 PV Investors claiming in 2011 in an UNCITRAL arbitration for losses upwards of 600 million Euros, with another involving a claim in 2013 at the Stockholm Chamber of Commerce Arbitration Institute for 60 million in annual losses, both for alleged violations of Energy Charter Treaty obligations.
While one has to applaud the rapid application of Syriza’s electoral platform, there are significant legal risks associated with wholesale policy reversals that will require the new government to tread carefully.