Greek DEPA's Privatization and the Regional Natural Gas Culminations

Greece’s DEPA privatization process that was formally announced recently in Athens reveals the regional aims of several natural gas companies that compete for projects such as the Southern Corridor's South Stream and for the Southeastern European expanding local gas markets.

First, DEPA is the major natural gas provider in Greece and owns 100% of DESFA, the network administrator. Moreover, DEPA owns 51% of regional gas sales companies, effectively controlling the trade of gas in the country. In addition it owns an LNG terminal and is a shareholder in prospective pipeline projects such as ITGI, IGB and South Stream. As it can be understood the company that will succeed in acquiring DEPA's management will have a strong stake in the culminations surrounding Southeastern European natural gas policies. DEPA's financial privatization consultants are the UBS bank, NM Rothschild & Sons Ltd and the Greek Alpha Bank. Moreover the law firm Clifford Chance LLP and the Greek one Koutalides attorney's office will act as legal advisors.

According to the Wall Street Journal (WSJ), the price tag for DEPA-DESFA privatization may reach up to 2 billion Euros, and the Greek state intends to keep 34% of DESFA and sell the rest of both companies. Moreover WSJ estimates that up to 20 international companies will be interested in participating in the bids. Amongst the companies that all information points out that are about to express formally their interest, are: Gazprom along with its Greek partner Prometheus Gas, the Algerian Sonatrach, the Spanish Gas Natural, the Italian ENI, the Austrian OMV, the Azeri SOCAR, Qatar gas, the French GdF Suez and others. The majority of these entities are currently competing for a head on the regional pipeline projects, or aim to become EU's major suppliers of LNG, thus the role of DEPA will be crucial for their plans. Moreover, it has to be noted that DEPA, despite the dire straits Greece’s economy is in, has sound finances, with an EBITDA for 2011 estimated at 275 million Euros and net profits of 191 million Euros. It also has 300 million Euros in company reserves and through its subsidiary DESFA has secured EU and national funds for a 400 million Euros upgrade of Greece's domestic pipeline and natural gas system in the coming years.

The deadline for submission of interest by prospective investors is at 17:00 GMT on the 22nd of March and the final selection is due the first week of August 2012. 

The crucial Russian factor and the Italian dimension

At present, Gazprom is the major gas supplier for DEPA and one that has expressed interest in participating in its privatization. The initial trade agreement the two companies have ends in 2016 and up to date there has been no renewal of the supply contract. After that date the license to sell Gazprom's gas into the Greek market passes on to the Prometheus Gas company, which is 50% owned by Gazprom.

In effect, the Russian side has the potential to indirectly control the course of DEPA's privatization process.  The likely bidder, if not Gazprom itself, could easily become in less than four years the largest competitor for DEPA who will also lose its largest supplier before Azeri or other type of gas finds its way en masse into the Greek market. The latter is not projected to happen before 2018-2019, at the earliest.  

Thus, any potential investor that will make a pledge of investing heavily for DEPA will have to accommodate the Russian side if it wants to have the main supplier at ease so as to continue business. Since Gazprom has rolled up its plans recently in Bulgaria of speeding up the South Stream project, as soon as early 2013, it is more than likely that Gazprom, regardless of whether it wins DEPA’s control or not, it will request the back-up of DEPA for its plans, and more specifically the construction of the Greece-Italy part of South Stream.

This assumption makes it seem that ENI may be the winner of the DEPA privatization process.  Moreover an Italian entrance into the Greek market will compensate to an extent for the loss of the ITGI pipeline route in expense of TAP. Lastly, ENI is in essence a state company and one of its "national champions" and information from various reliable sources points out that Rome is very much interested in securing a place for its company in Southeastern Europe, preferably by investing in DEPA. Already German companies have expressed that they are not interested in the Greek gas company, leaving more space for the Italians and at the same time, combining Russian plans of actually establishing the South Stream route.

All in all, DEPA's privatization will be revealed in the coming months and the investor will play a vital role in shaping the long-term future of Southeastern European natural gas market.