Debt spiral may trigger Greek power cuts

REUTERS

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Greece may suffer power cuts later this year unless its international lenders allow an emergency cash injection into electricity producers to allow them to buy fuel, the chief of Greece's biggest utility PPC said on Friday.

A yawning gap of more than 300 million euros ($370.9 million) in the accounts of state-run LAGHE, which acts as a clearing house for power transactions, is causing the system to clog up. If unchecked, that may halt operations at independent power producers, PPC's CEO Arthouros Zervos told Reuters in an interview.

Weighed down by debt, LAGHE is unable to reimburse independent power producers for the electricity they generate.

“This is an emergency and it has to be addressed immediately,” said Zervos. “There's a real threat of power cuts.”

PPC would be forced to hike its own hydro and coal production to plug immediate energy gaps. But in the longer run, it would not be able to cover the shortfall and it would have to resort to rotating power cuts - both to businesses and households - in order to prevent a general blackout.

State-controlled PPC meets about two thirds of local power demand.

Independent power producers have suspended payments to natural gas firm DEPA, which provides them with most of the fuel they need to produce some 70 percent of their energy.

“DEPA is the weakest link in the chain because they have to pay the Russians,” said Zervos, whose company is DEPA's biggest customer.

LIQUIDITY INJECTION

According to Greek newspaper reports, DEPA has said in a letter to the government that it does not have enough cash to fund gas deliveries to Gazprom due on June 22.

The Russian energy group provides about 80 percent of all the natural gas Greece uses.

DEPA declined to comment on the reports.

A liquidity injection of about 300 to 400 million euros via a loan from a state bank - The Loans And Consignment Fund - would remove the risk of a shortage, Zervos said.

But Greece's international lenders, particularly the European Commission, are reluctant to allow such a loan, using it as leverage to force Greece to overhaul the country's inefficient market rules.

“They are seeing things too dogmatically,” Zervos said.

The EU has long been impatient about structural flaws in the market, particularly its rigid regulated retail prices.

“It is true that the rules must change. The system is at breaking point. But this is not the moment to do it,” Zervos said.

The crisis in the power sector would be a foretaste of what the country might experience were it ever to quit the euro, Zervos said.

If Greece was unable to pay for oil and natural gas, which is all imported, it would be forced to depend on its coal, hydroelectric power and renewables which cover only about half the country's electricity demand.

“If things get that far, there will obviously be electricity shortages,” he said.

REFINANCING

PPC itself settled all its arrears to LAGHE in April, with the help of a temporary liquidity injection of 260 million euros from the government, Zervos said.

But Greece's economic crisis has still hit the company particularly hard. Falling power demand as a result of the bailout-fuelled austerity, coupled with soaring fuel prices, has caused it to report three consecutive quarters of losses.

Non-payment by cash-strapped customers has also soared, especially after the government used PPC bills as an easy way to collect a hugely unpopular property tax.

With unemployment reaching record levels, 300,000 customers have applied for lower electricity tariffs. Electricity theft has also skyrocketed, often leading to deaths as people clamber up electricity poles to tap power for their homes.

Metal theft has increased too as gangs steal the company's copper wires and other equipment to sell on the black market.

“The theft is not important in itself, but they add up,” Zervos said.

PPC has about 170 million euros in cash left - not enough to repay maturing bank debt of 525 million euros that is due by the end of this month.

But Zervos said he was optimistic he could persuade Greek banks to refinance the amount in the coming days. “No Greek bank would have an interest in pulling the plug from under our feet,” he said.

Greece's four largest banks received a long-awaited liquidity injection of 18 billion euros from the EU last week.

“I am confident we will wrap it up in the coming days,” Zervos said.

But provided the electricity system's liquidity shortfall is overcome, things might look up for PPC, said Zervos, who is slashing labour costs to cope with the crisis.

Non-payment by clients has decreased since April, when the company resumed cutting power to people shirking their bills. Wholesale power prices, PPC's biggest cost item, have also fallen in line with power demand.

“We've done better in April and May,” Zervos said. - Reuters