Back in 2013, the Greek government under then-prime minister Antonis Samaras was attempting to implement a package of reforms that included the sale of state-owned assets to the private sector, including Greek gas firm Depa, one of the perceived “jewels in the crown.” Depa was purportedly being targeted by Russian gas giant Gazprom for a takeover bid.
In May of that year, the Russian company offered €900 million for the company, well in excess of the only rival bid in the deal.
All of the signs on the ground were looking good. Gazprom chief executive Alexey Miller had flown to Athens in an effort, many believed, to oversee the deal personally and people close to the deal within the Greek establishment were briefing the press that an announcement was imminent.
They were right. It just wasn’t the announcement they had been expecting.
On June 10, it emerged that Gazprom had decided not to formally put in a bid for Depa. Rumours suggested that it had backed out under pressure from the United States and the European Union over concerns about deeper Russian involvement in Europe’s energy market.
Whatever the reason, it was a hammer blow to Samaras’ ambition to raise as much as €2.6 billion through privatisations and set back the country’s already shaky reform programme still further. His government had extended the deadline for bids and eased the terms of the deal in an effort to woo the Russians, but even that had proven insufficient to draw a bid.
Worse, it left the Greek state with a big problem. Greece’s heavy industry had been hammered by a combination of the country’s crisis and rising energy bills. To provide stimulus to the ailing sector the government had hoped that Gazprom, which provides 90% of Greece’s natural gas, would be in a position to deliver cost savings to Greek industry had it taken over Depa.
The state had no choice but to negotiate a better deal for Gazprom, a partner that appeared to have little to gain in such a compromise.
A deal was struck in February 2014. It secured a 15% cut in the price of gas supplied to the country to be applied retroactively from July 2013 and is set to run until at least 2016.
In addition, Depa’s take-or-pay obligation (whereby it is required to pay for unused gas) was cut to a maximum of 2 billion cubic metres (bcm)/year from the 2.4 Yobcm/year it had previously been committed to.
On the face of it, all looked well. Despite the privatisation fiasco, Greece had secured a much-needed boost for its heavy industry sector and repaired its relationship with a crucial trade partner in Gazprom (Russia was Greece’s largest import partner, accounting for around 14% of all imports in 2013).
What they didn’t foresee, however, was a collapse in energy demand in the country. Demand for natural gas in Greece fell by approximately 35% in 2014 compared to the previous year as the economic crisis ground on and consumers cut back on their energy use. Under the take-or-pay obligations this has left the country facing a potential bill of around €100 million.
The threat of a court case over that bill and urgent calls on the Greek side for a renegotiation of the 2014 contract have left the country in a difficult position with respect to Russia: while it lobbies for concessions from state-owned Gazprom, Greece will be asked to vote on further sanctions against Moscow for its role in the ongoing crisis in Ukraine at a meeting in Brussels on Thursday.
Given the circumstances it may be little surprise that the new government in Athens led by Alexis Tsipras is attempting to distance itself from an EU call to consider broader sanctions against Russia. On Tuesday, a spokesperson for Tsipras said Greece had not approved an EU statement which called for Europe to consider “further restrictive measures” against Russia following renewed violence between government forces and allegedly Russian-backed rebels in the east of Ukraine.
Many commentators have viewed this as the new government attempting either to cosy up to Moscow or to use sanctions as a bargaining chip in their efforts to renegotiate the terms of the country’s bailout deal with its European partners. Those remain possible. Yet we shouldn’t discount the appeal of this leverage being used to secure a new long-term gas deal to provide energy security for the fragile Greek economy and give the left-wing Syriza party an early win (at least in the eyes of the Greek electorate).
Doing so, however, could come at a steep political cost.
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