SOCAR Cements Ties with Greece

The Azeri natural gas company SOCAR has formally sealed its entrance in the Greek gas market by signing in Athens, the acquisition of 66% of the shares of DESFA Company, Greece's transmission and network gas entity.

The head of Socar, Rovnag Abdullayev, ventured to Athens to mark the deal and discuss with political and business shareholders, whilst he emphatically pointed out, between he nexus of this investment and the opening of the Southern Corridor which through the Trans-Adriatic Pipeline, will traverse Greece and originates from Azerbaijan, further strengthening Socar's strategy. From the Greek side

Abdullayev also pointed out that this is the first step towards a greater involvement of Socar with the EU markets and that he plans to use DESFA as a springboard for the Southeastern European market through a set of investments. The Greek alternate Minister of Energy, Makis Papageorgiou stated that the partnership between Greece and Azerbaijan is for the long-term and of a strategic nature.

The privatization agreement signed stipulates for a transfer of 31% share of DESFA from the Greek state to Socar for a price tag of 186 million Euros and 35% share held by the ELPE oil company for 214 million Euros For ELPE's case, this capital injection comes at a crucial time for the company which struggles in decreasing refinery margins and is looking continuously for new sources of revenue.

From the point of view of the Greek state, this privatization is a "pilot" for future transactions, while its main interests is to solidify the placement of the country as a potential "energy hub" from which Azeri, Russian, Algerian gas will pass and be stored to be eventually interconnected with the rest of the Balkan countries. In that sense plans such as TAP are crucial and Athens also hopes that more Azeri capital will be available for the upgrade of DESFA's infrastructure.

Greek Premier Antonis Samaras, whose Administration will assumes EU Presidency on 1st of January 2014 for a six month period, invited the Azeri President to visit Greece on May 2014 in order to boost bilateral energy relations. Abdullayev made a point that his Company is seriously considering further investments in the country.

Nevertheless, a hurdle has appeared as of recent regarding Greek-Azeri gas partnership and its stems from the EU and in particular its monitoring of the privatization procedure and warning that all rules regarding the third energy package should be taken into account. Socar will be the first non-EU corporation that will own the management of an EU network company, and also be a producer and a trader of natural gas. Potentially that may delay the privatization process several months ahead.

Another issue is Greece's "Mediterranean gas strategy" and more specifically it’s lobbying in opening up a gas corridor through a pipeline from the East Mediterranean gas reserves of Cyprus and Israel to mainland Greece before the gas is transferred to the core of the EU. Apart from the Turkish objections and the Israeli ambiguity, Azerbaijan, along with the rest of the Shah Deniz consortium prefers gas from the Mediterranean to be merged directly in Turkish soil with TAP, so as to meaningifully open up the Southern Corridor, without increasing the costs. Thus it is likely that Baku will eventually disagree with Athens in that respect and that will eventually include Brussels as well which has its own stake and ultimately the legal mechanism, as well as, the finance one to decide which project can go ahead or not.