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. - - - - - - - - - - - - - - - - - - - - Bolstering TGI through Appropriate and Transparent Regulation - - - - - - - - - - - - - - - - - - - - ¶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. - - - - - - - - - - - - - - - - Nothing New on Southstream, Concerns about TAP and Nabucco - - - - - - - - - - - - - - - - ¶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 ATHENS 00001693 002 OF 003 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. - - - - - - - - - - - - - - - - - - Progress Report on New Powerplants - - - - - - - - - - - - - - - - - - ¶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. ATHENS 00001693 003 OF 003 ¶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. - - - - - - - - - Personnel Follies - - - - - - - - - ¶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. - - - - Comment - - - - ¶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