Privatization of DESFA Faces Possible Challenge
The privatization of Greece’s DEFSA faces an obstacle from the European Commission, with the launch of an investigation into SOCAR’s successful bid of €400 million bid to acquire a 66% holding in the Greek gas transmission system operator.
In a press release issued on November 5, 2014, the Commission, through its Directorate-General (DG) Competition, stated that the investigation was being undertaken in accordance with EU Merger Regulations.
DESFA owns and operates Greece’s sole high-pressure gas transmission system and its only LNG terminal. These factors, in combination with the fact that the Greek company mainly transports gas through its own network, highlight EC concerns that such a purchase could further reduce competition on the upstream wholesale supply market for natural gas in Greece.
In an official statement SOCAR said that it “will continue to cooperate constructively with the Commission to complete the process within the earliest possible period.’
A “Phase II” in-depth” investigation into the proposed transaction will see the EU re-examine the privatization agreement, together with all supplementary information that both companies will submit to Brussels regarding their practices, both present and future, towards enabling competition in the gas trade.
While the Commission has assured the investigation is not pre-determined, preliminary research in 2014 showed that the takeover of DESFA might lead to a monopolistic environment and exclude third parties from entering the wholesale gas market in the country in favor of SOCAR. Furthermore, concerns were expressed that future investments in DESFA's infrastructure could be reduced as an indirect obstacle for the entrance of third players in the local market and concurrently gas imports in the country could be reduced in favor of those that will derive from SOCAR.
Governmental and corporate circles in Athens opine that the EU will grant approvals, but potentially apply conditions such as requiring DESFA and SOCAR to increase mid and long-term investment projects and provide tangible assurances for the equal entrance of third parties within Greek gas transmission system.
The DEFSA deal provides Europe, in partnership with Azerbaijan, the opportunity to achieve greater energy security by diversifying sources of energy and decreasing dependency on Russian gas. It should be noted that there was Russian interest in DEFSA. However, some commentators have noted that the EU wants to be seen in Moscow especially as a "fair player” given the looming issue of the South Stream pipeline project and the alleged non-adherence to the EU's Third Energy package. A tough stance against SOCAR could be seen as a needed step to indirectly pressure Gazprom to acknowledge Brussels' stance and to avoid legal action by the Russian company against the Commission for applying a double standard policy.
SOCAR’s president, Rovnag Abdullayev, as reported by Trend News Agency, commented on the EC action by saying: “Europe and Greece need this project more than we do. There are a lot of more profitable projects where we can make investments.”
The Phase II investigation is normally concluded within 90 working days. A final decision is expected within the first half of 2015.