Greece faces the threat of rolling power blackouts as the economic crisis leaves utilities without cash to pay for natural-gas imports and operate power stations.
Regulators will meet with Greece’s power market operator as early as today to discuss an emergency loan of 300 million euros ($375 million) to cover payments for gas imports from Russia’s OAO Gazprom (GAZP), Turkey’s Botas AS and Italy’s Eni SpA. (ENI) The country’s largest power producer is almost out of money and likely to default after unpaid accounts jumped more than 50 percent in a year, according to Standard & Poor’s.
As Greece prepares for a second national election in six weeks, a vote that may determine whether it remains in the euro, the collapse of the energy sector has emerged as a risk for a country that imports most of its oil and gas. At the start of the main vacation season, power cuts that leave tourists trapped in dark hotels without air conditioning would be a further blow to an economy in its fifth year of recession.
“Blackout is definitely a risk,” Olivier Jakob, managing director of Zug, Switzerland-based energy consultant Petromatrix GmbH, said in a telephone interview. “Greece is going to face higher costs because suppliers will want to have better creditor protection. And if the country cannot pay the bill, well, it’s a real problem.”
Public Power Corp SA (PPC), the biggest electricity producer, is on the verge of default, Standard & Poor’s analysts Nicolas Rivier and Vittoria Ferraris said in a June 7 report. PPC, as the Athens-based company is known, has seen cash flow drop as unemployment and falling wages leave many Greeks unable to pay power bills. A lack of cash to pay operating expenses may force the closure of some power stations.
PPC spokesman Kimon Steriotis said there was no immediate danger of power cuts because coal-fired stations were well- supplied and reservoirs at hydroelectric plants full. Power plants on islands not connected to the national grid also had ample fuel, ensuring power supplies during the tourist season, he said in an e-mail. He didn’t comment on the prospect of the company defaulting.
PPC, 51 percent owned by the state, is struggling to manage its 4.85 billion-euro debt as it faces “extremely limited liquidity” and must refinance 525 million euros by June 29, Chief Executive Officer Arthouros Zervos said on a conference call with analysts on May 29.
“PPC has almost fully depleted its liquidity, owing to sharply falling earnings, climbing overdue receivables, and the absence of new credit facilities,” S&P said in the report, cutting the company’s rating to the lowest level above default. “PPC will likely default on its obligations in the near term.”
Depend on Imports
With practically no gas or oil deposits of its own, Greece depends heavily on imports to keep power production and the transportation sector going. Oil represented about 55 percent of the country’s total primary energy supply while natural gas accounted for 11 percent in 2008, according to the International Energy Agency.
The prospect of sporadic power shortages come as officials grapple with a mounting social crisis. Unemployment is at 22 percent, the country faces shortages of imported food and drugs, and Bank of America (BAC:US) Corp. says the country may run out of cash by early July.
The Greek electricity market operator has applied to the Greek Deposits and Loans Fund for a 300 million-euro loan to pay off its debt to PPC and other energy companies, which in turn owe 300 million euros to Greece’s gas company Depa, its spokesman said. Depa, which buys gas from Gazprom, Botas and Eni, has threatened to cut supply if it isn’t paid promptly.
Although gas provides only 22 percent of Greece’s power supply -- the majority comes from domestically mined coal -- disruption to imports could force limited blackouts, said Paris Mantzavras, an energy analyst at HSBC Holdings Plc (5) in Athens.
“If gas supplies are completely cut off, then yes, there is a danger of blackouts,” he said in an interview. “Not major ones, but probably some rolling blackouts. It would be critical for the industry and manufacturing sector, and for tourism too. I would expect the government to do its best to avoid a complete cutoff.”
Tourism is Greece’s biggest industry, accounting for almost 16 percent of the economy in 2001, according to the London-based World Travel and Tourism Council.
Supplies of crude oil are also in question. Greece had been importing the majority of its oil from Iran, which stopped shipments at the end of March because of Greece’s failure to pay up. The country has since been forced to seek other suppliers from the Middle East, central Asia and Libya under less favorable conditions, analysts say.
“They have to rely on a couple of traders able or willing to handle the risk,” Petromatrix’s Jakob said. “But that comes at a price, of course.”
Greece agreed to reforms in the energy sector, including opening up the electricity market faster, as part of pledges to receive a 110 billion-euro bailout in May 2010 and a second aid package of 130 billion euros this year. Plans to sell energy plants and cut the state’s holding in PPC have been put on hold until after the election.
The six-week election campaign has kept Greece from solving even its most immediate problems. The process led to a decline in state revenue collection, a standstill in the state-asset sales program and putting off a permanent bank recapitalization plan until after a new Cabinet is formed.
The upcoming election may determine whether the country stays in the 17-nation euro. The inconclusive May 6 ballot showed gains for parties, led by Syriza, that oppose terms of the country’s bailouts from the European Union and the IMF.
Syriza leader Alexis Tsipras has said he will halt state- asset sales and nationalize banks if he wins the June vote. After political party leaders failed to form a coalition government in May, speculation that Greece will abandon the euro rose.
The Athens Stock Exchange index has fallen 21 percent since May 6 and the euro has weakened 4 percent against the dollar. Public Power shares dropped 2.1 percent to 1.40 euros at 3:22 p.m. in Athens today.
An exit would see the government take control of all oil and gas imports as the state managed limited foreign currency reserves, said Elias Konofagos, vice president of Athens-based consultant Flow Energy & Environment Operations SA.
“For a long period of time they would import a portion of what’s needed, which would lead to rationing, even for gas for cars,” Konofagos said in an interview.
Meanwhile, PPC is struggling to collect payments from customers. The utility was owed 763 million euros from non- industrial customers in March, compared with 414 million euros the same month a year earlier. The jump came after the government announced a property levy in September which was collected through electricity bills.
“Greece’s energy sector could collapse,” S&P said. “Repeated blackouts likely to ensue might discourage users from paying their electricity bills.”
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