Greek Government Puts an End to Ill-Fated Privatization of DESFA

In a much anticipated move the Ministry of Environment and Energy announced late on Wednesday evening (30/11) that it had terminated negotiations with preferred bidder Socar for the sale of 66% of Greece's independent gas operator, DESFA. In a carefully worded statement the Ministry confirmed the differences of views between the two parties but it also explained that the government was unable to accept a fresh offer and revised payment terms as put forward by the bidder, Socar, and its Italian partner Snam. Therefore,the Ministry statement said, negotiations between the parties had been concluded.

This development came as no surprise to market watchers since the tender under which Socar offered a mere € 400 million for 66% of DESFA had been dragging on for three and a half years, since June 2013 when the state run Azeri oil company had submitted its bid. The bid was not immediately accepted since the European Commission,through DG COM, expressed serious reservations on competition grounds and obliged the Azeris to seek a partner in their bid to buy a controlling interest in the Greek gas operator. Under EU competition rules a single company may not control more than 49% of independent energy operator companies. Consequently, and following an almost two year hiatus because of Brussels wrangling, the Azeris sought and found a partner ,in the face of Snam, and proceeded in  their negotiations with the Greek government.

However, when last July the then energy minister Mr.Panos Scourletis revised the method for determining the tariffs charged by DESFA to its customers, in an effort to prevent unreasonable rises which would hamper competitiveness, the Azeris raised hell accusing the government of interfering  with the ground rules of the tender and furthermore that it was undermining the net worth of DESFA. Hence, and following high level meetings at prime minister level, they submitted a lower offer for approximately €300 million while insisting that this should be paid in installments. Needless to say that Socar's unconventional move infuriated the Greek government which appeared determined to guard its interests by refusing to alter the tender's rules and accept a much reduced  revised offer. As industry sources have repeatedly pointed out during the three and a half years since Socar' offer was submitted DESFA' s net worth had  increased considerably because during this time it managed to upgrade and almost double the capacity of its LNG regasification terminal at  Revithousa but also extend and improve its nationwide high pressure pipeline network by adding new pipelines and compressor stations. At the same time the financial operation of the Greek operator, despite the economy' s contraction over the last 4 years, had showed a remarkable resilience with the company reporting increased earnings.

According to government sources a new  tender for the  sale of a  much smaller stake  in DESFA ,in the range of 20% to 24% ,is soon to be announced following the completion of a fresh evaluation to be undertaken separately by both a government appointed consultant and also by Hellenic Petroleum SA which holds 35% of the operator's shares.