PROTECTIN TGI: GREECE'S REGULATORY AUTHORITY FOR

C O N F I D E N T I A L SECTION 01 OF 3 ATHENS 001693

SIPDIS

E.O. 12958: DECL: 2/16/2018
TAGS: ENRG GR
SUBJECT: PROTECTIN TGI: GREECE'S REGULATORY AUTHORITY FOR
ENERGY

Classified By: Acting Deputy Chief of Mission Miller for Reasons 1.4 (b
,d)


1. (C) Smmary. Greece's Regulatory Authority for Energy
(RAE) is in the forefront of efforts to advance TGI's
completion. In a December 15 conversation, RAE's
Vice-President, Michael Thomadakis, outlined his
organization's work to creQa faiQd transparent gas
network code that promotes energy diversity. Thomadakis said
he strongly supports TGI and is working to protect it.
Interestingly, he, like other major Greek policy makers,
believes Southstream is off the table for now because of the
economic crisis. Rather, TGI's real competition comes from
the Trans-Adriatic Pipeline (TAP) and Nabucco.


2. (C) Thomadakis also outlined plans to meet Greece's
growing electricity needs. It is planning for new
electricity plant construction, both large-scale and
small-scale "peakers". RAE is also working to improve the
transparency and flexibility of Southeastern Europe's
electricity market; unfortunately it is running into
difficulties with Bulgaria, which Thomadakis called a "black
hole" from the perspective of transparency. Lastly,
Thomadakis outlined some personnel challenges involving RAE's
Board, which other Greek officials ascribe to a political
battle between Minister of Development Folias and his
predecessor, Parliament President Dimitris Sioufas, whom many
believe wants to remain in the energy game. End Summary.

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Bolstering TGI through
Appropriate and Transparent Regulation
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3. (C) Thomadakis said he had been working since mid-2007 on
creating a gas network and transit regime in Greece that
would maximize transparency, fairness and competitiveness.
He said his ideas were in large part driven by the goal of
promoting and protecting TGI, which he felt was key to the
health of the Greek gas system. Thomadakis passed Economic
Counselor a summary of his policy proposals in a small
pamphlet finalized in May 2008 titled "A Position for the
Regulation of Transit Gas Flows in Greece." The 28-page
document outlines six goals: Allocating Grid Capacity
Appropriately; Preventing Strategic (Comment: i.e.
monopolistic) Behavior, Avoid Wasted Investment by the Greek
State; Stability; Attractive Tariffs; Avoiding
Discrimination. It stresses allocating capacity on a
first-come/first-serve rule; imposing a series of milestones
-- both financial and project -- that must be met by pipeline
promoters before the Greek state will invest in a project;
preventing capacity hoarding; and adapting the Greek transit
regime to Greece's future role as a gas transit state.


4. (SBU) Thomadakis noted that his draft network code was out
for public comment. Once comments were incorporated into the
draft code, he would forward it to Minister Folias for
signature and forwarding on to Parliament for ratification.

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Nothing New on Southstream,
Concerns about TAP and Nabucco
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5. (C) Thomadakis said there had been no progress on
Southstream since the ratification of the agreement with
Russia in August. He stressed that the agreement had been
"utterly general" in nature, with many loose ends: "No one
knows to what extent what we signed even complies with the
acquis..."


6. (C) While Thomadakis was worried about competition to TGI,
his concerns focused much more on the Trans-Adriatic Pipeline
(TAP) and Nabucco. He noted that TAP promoters had been
"very aggressive" in applying for Greek transit capacity.
Economic Counselor noted that, while the USG generally
supported energy projects based on purely economic and
commercial criteria, it was dead set against TAP as a project
that would in effect reward the Iranian regime with a patina
of European respectability. Thomadakis emphasized he was
well aware of our policy concerns, but that as a regulator he
had to base his opposition on the threats he felt TAP
represented to Greece's overall gas regime. Note: In an
aside, Thomadakis harshly criticized Statoil's stance on TAP
as being both pushy and non-serious: "While the TAP promoters
apply to RAE for transit capacity that actually exceeds the
capacity our system will have after adapting it for TGI, they
have not even conducted serious conversations with the

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supposed end user of their gas, the Italians, who know
nothing about the project."


7. (C) Thomadakis said he was also concerned about the threat
to TGI posed by Nabucco. While he accepted the fact that the
two pipelines would need to make their case to shippers based
on objective economic/commercial criteria, he said he felt
the EU bureaucracy and other EU member states were not
working the issue in a transparent manner. He said that, in
a very public EU forum, Austria accused Greece approximately
six months ago of creating a regulatory structure that
"discriminated" against Nabucco by helping make TGI "too
easy." He also said that he had explored with the EU the
idea of disaggregating the transit portion of the Greek gas
network code from the rest of its complex provisions. He
found it strange that he had received no support for this
effort from people who were supposedly trying to support
increasing European energy diversity as quickly as possible.

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Progress Report on New Powerplants
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8. (SBU) Thomadakis said RAE was doing what it could to
support increased domestic electricity generating capacity.
(Note: The growth in Greek generating capacity has for some
years lagged behind economic growth; over the past five
years, generating capacity has been insufficient to cover
peak needs during the hot summer months, with Greece being
able to cover peak needs only through electricity imports.
End note.) He provided a quick readout on new powerplant
construction in Greece, both large-scale and smaller plants
designed to feed in during periods of peak demand. While
permits for 12 large-scale plants have been applied for and
approved, he believes only five are likely to come on line
before 2011:


A. Terna (Greek) Plant in Biotia. Capacity 125 mW.
Operational since 2004. Electricity generated under contract
to the Greek Transmission System Operator (HTSO). Upon
upcoming expiration of HTSO contract, Terna will sell
electricity from this plant on a commercial basis.


B. Terna Plant in Biotia (co-located with plant number 1).
Capacity: 420mW. All administrative approvals received.
First gas expected September, 2009.


C. Mytilineos (Greek) Plant in Biotia. Capacity: 330 mW:
280mW combined cycle/150 mW steam. First gas received in
May, 2008. Briefly operational during testing in summer
2008, but currently experiencing problems with its generator.


D. ENELCO (ENEL of Italy plus the Copelouzos Group of
Greece) Plant in Biotia. Capacity: 420 mW. Progress on this
plant hit an unexpected bump when construction personnel
found archaeological artifacts on site. Thomadakis guessed
the plant would open some time in 2010.


E. Public Power Corporation of Greece (PPC) in Aliveri.
Capacity: 420mW. Permits received.


9. (SBU) RAE is also working to support the construction of
smaller "peaker" plants through incentive provisions in a new
energy law passed this year. The incentives are greatest for
plants constructed and on line by July 2009. Thomadakis hopes
that PPC will build a number of these plants in view of the
state-owned corporation's expertise and capital base. He
noted that the new energy law paved the way for PPC action in
this area by lifting the previous law's ceiling on maximum
allowed PPC generating capacity.


10. (SBU) Thomadakis outlined a number of complications on
electricity imports. While he was pleased by the signing of
the electricity agreement with Turkey in the summer of 2008,
which could lead to imports of between 150 and 400 mW,
implementation of the agreement depended on some complex
technical changes to the Turkish grid. Because the vast bulk
of Turkey's electricity system is not synchronized with that
of Western Europe (including Greece),Turkey would have to
"wall off" a portion of its grid and resynchronize it to
European standards, before being able to send significant
quantities of electricity to Greece. Thomadakis noted that
Turkey had already performed a similar synchronization with
Bulgaria, allowing it to send 800 mW of electricity to its
northern neighbor. Eventually, the entire Turkish grid would
be synchronized with Greece and Bulgaria, greatly expanding
the flexibility of the Southern European grid.


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11. (C) Thomadakis bewailed the effects of Bulgarian
Government opacity on the regional electricity market.
Calling the country a "black hole," he noted that Bulgaria
was the only EU member state without comprehensive data on
electricity supply, flow and pricing. "Our HTSO website, for
example, lists prices for electricity on almost a real-time
basis. So does Romania..." He said that there was a
combined technical capacity of up to 2000 mW between
Bulgaria, Macedonia, Albania and Greece, of which just 600 mW
was being allocated for export because of the uncertainties
injected into the system by Bulgarian practices. In just one
example of the insidious effects of this situation,
Thomadakis said Greece had a technical capacity to export
significant quantities of electricity to Italy, but was not
doing so as the lack of Bulgarian data meant Greece could not
be certain it would be left with unfilled demand as a result
of exports to Italy.

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Personnel Follies
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12. (C) On the personnel front, Thomadakis said RAE's Board
of Directors was going through a period of turmoil. Two of
the six Board positions, including that of the Chairman, were
in flux. His comments were amplified by Rafael Moisis, the
head of Greece's Energy Planning Organization, who said in a
separate meeting that the turmoil in RAE's Board resulted
from a political battle between the current Minister of
Development, Christos Folias, and his predecessor, Dimitris
Sioufas. Moisis said Folias had decided to appoint George
Kremlis, an EU official, to the REA board and eventually move
him up to Caramanis, position when the latter left the board
at the end of this year. This is a move that requires
Parliamentary approval, however, and Sioufas stopped the
initiative in its tracks after Folias signed the appointment.


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Comment
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13. (C) Thomadakis made it clear throughout this meeting the
importance he places on creating a fair and transparent
regulatory structure that promotes diversity in Greece's gas
market. He gave the impression of confidence in being able
to effect the changes he is seeking. RAE's influence in
shaping Greece's gas market can be seen, to cite just one
example, in the way that the country's National Transmission
Operator (DESFA) is already adhering to RAE's proposed
network plan.


14. (C) While Thomadakis did not seem perturbed by the
politics involving RAE, that does not mean they do not exist.
We believe the delay in replacing RAE President Caramanis is
a clear sign that Parliament President Dimitris Sioufas wants
to keep his hand in energy issues, and that he continues to
do so to Folias, disadvantage.


15. (C) The conversation at RAE and a number of others have
given us the distinct impression Greek officials involved
with energy are largely discounting Southstream. A number,
including Moisis, have made it clear they assume Gazprom
cannot afford such an expensive project in the current
economic environment. While these officials raise TAP as a
concern, in large part because of the very active way that
pipeline's promoters are pushing the project here, they do
not give the impression they believe TAP is truly in the
running, partially because of staunch USG opposition and
partly because they do not see a convincingly developed
business plan.


16. (C) The result is that TGI is once again top dog on
Greece's gas infrastructure list. TGI's new found prominence
cannot, however, allow the USG to think that the battle in
Greece is over. The Greek portion of TGI will belong to the
Greek domestic network, which means it is fully subject to
EU-dictated third-party access. This theoretically allows
end users to choose their ultimate gas provider, including
Gazprom. In order to reduce the chance that electricity
producers go this route, the Embassy is touching base with
key private electricity companies such as Terna, and
explaining the benefits to Caspian gas. So far, we have
received a polite hearing, with the standard concerns about
the timing and availability of Caspian gas.
SPECKHARD