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3rd issue - July 2007

(1.632*)

Greek Economy & Markets

07

Privatizations draw international interest Energy’s new landscape Marine tourism sets sail Delicatessen - Made in Grecce


editorial

7/07

In one of the economy’s most dynamic and fastest-changing sectors, energy is drawing strong interest from investors and featuring regularly at the top of government agendas. Deregulation of the electricity industry, the introduction of renewable energy sources and Greece becoming part of European petrol and natural gas networks are all developments that are helping the country prepare for future energy challenges. Vast amounts of money are heading toward the sector. According to government estimates, some 5 billion euros will be invested in energy in the next three years. Wind parks across Greece and photovoltaic systems feature among investments plans following the introduction of improved financial incentives and a simplification of bureaucratic procedures. Greece is currently in a race against time as it tries to meet a European Union-imposed deadline which states that 20.1 percent of the country’s energy requirements need to be supplied by renewable energy resources by 2010. While speaking with people in the sector, one senses a feeling of expectation. It is however disappointing that, despite the work that has been completed so far, we are still trailing our European Union peers on many issues here. Greece is considered to be one of the EU’s luckiest countries in terms of natural wind and sun resources able to power energy units. Year-round windy conditions on the country’s many islands along with its many hours of sunshine have not been exploited as well as they could have been. It is interesting to note that on a global basis, countries with the highest installed capacity are not those with the best wind resources. The third edition of Greek Economy and Markets 07 (GEM) also looks at the government’s privatization program that recently went into full swing. At one stage, it looked as if state sell-offs this year might miss the mark. But in a period of two months, the government reduced its stake in OTE telecom and Postal Savings Bank by offering the shares through an accelerated bookbuilding process. Revenues from the sale of the two state assets totaled 1.6 billion euros. The strong demand for the shares is a reflection of how successful the privatizations were, in a development some sources believe opens the way for the conservative government to call the next national elections.

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Stelios Bouras


3rd issue - July 2007

Contents Cover Story Road opens for investors in energy sector

(pages 20 – 31)

Anastassios Nerantzis The modern energy reality

(pages 32 – 33)

Ioannis Agapitidis Investment Prospects

(pages 34 – 35)

Anastasios Garis Wind parks leading the way

(pages 36 – 37)

Markets The key players

(pages 40 – 41)

Themes The Greek capital market and international institutional investors Credit Suisse’s Christos Megalou explains about foreign interest shown in Greece’s privatization program. (pages 12 to 13) Privatization policy and the Greek economy The Special Secretary for Privatizations Loukas Papazoglou offers a closer look at what consists of the government’s privatization agenda. (pages 16 to 19)

Greek Economy & Markets 07 A publication of the “Agora Ideon” forum.

Project manager: BusinessOnMedia 118 Kremou str, Kallithea, 17675 Athens, Greece tel: +30-210.953.3095 fax: +30-210.953.3096

Marine tourism on the rise Marine tourism is displaying significant growth this summer, hand in hand with the favorable prospects of Greek tourism as a whole. (pages 38 to 39) Rich tradition — modern lifestyle Greek cuisine is being promoted around the world with positive results for food exports (pages 42 to 46)

Greek Economy & Markets 07 is also distributed along with the International Herald Tribune (IHT) and Kathimerini English Edition newspapers in Greece, Cyprus and Albania. The content of the magazine does not involve the reporting or the editorial departments of the IHT.

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Facts & figures

The profile of the Greek economy

Latest Statistical Data Period

Value

Consumer Price Index (CPI) (1)

June 07 / June 06

2.6

Harmonized Index of Consumer Prices (HICP) (1)

June 07 / June 06

2.6

Producer Price Index in Industry (1)

May 07 / May 06

1.6

Industrial Production Index (excluding construction) (3)

May 07 / May 06

0.3

April 07 / April 06

1.7

Gross Domestic Product (provisional data) (1)

Q1 2007

4.6

Unemployment Rate(2)

Q1 2007

9.1

Turnover Index in Retail Trade(1)

Population (2001 Population Census)(4)

2001

Building Activity (volume) (3) 1

Annual rate of change,

2

Rate,

April 07 / April 06 3

Periodical rate of change,

10,964,020 -14

4

Value

Greece’s Consumer Price Index was at 2.6 percent year-on-year in June with the EU-harmonized inflation rate at the same level (2.6 percent) for the same month, according to figures provided by the National Statistics Service. The table also shows that gross domestic product expanded by 4.6 percent, on an annual basis, in the first quarter of the year.

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Facts & figures

Privatization revenues Proceeds from state sell-off program for the 2004-2007 period (billions of euros) 2.200

(1.632*)

2.000 1.800 1.600 1.400 1.200 1.000 0.800 0.600 0.400 0.200 0 2004

2005

2006

1/2007 - 7/2007

Privatization revenues for 2007 up until July reached 1.632 billion euros after the government cut its holding in OTE telecom and Postal Savings Banks during June and July. Apart from helping pay down public debt, the state sell-off plan is helping liberalize markets as the government’s role in the two companies, both listed on the Athens bourse, is being reduced. Finance Minister Giorgos Alogoskoufis said the government has ‘essentially’ completed its privatizations program for 2007, after having reached its revenue target for the year.

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Cover Interest is growing in the Greek capital market. Changes such as a reduction in the corporate tax rate and the adoption of international accounting standards have fuelled interest in local equities and the government’s privatization program.

The Greek capital market and international institutional investors n June 29, 2007, Greece placed 52.7 million shares of OTE telecom worth 1.122 billion euros. The shares represent some 10.7 percent of OTE’s share capital. The sale of the shares that took place via a book building process was completed in less than an hour. The short time period needed to complete the transaction and the fact that the size of the deal amounts to 40 days of OTE’s share volume trade on the Greek stock market can all but surprise the international and domestic market. The interest in the Greek market and particularly for the equity market from foreign, institutional and retail investors is growing from year to year. Companies such as Hellenic Exchanges and National bank of Greece have on their share registry important foreign institutional investors. It is estimated that international institutional investors control 57 percent of companies on the FTSE-20 index. At the same time, daily turnover on the Athens stock market exceeds 500 million euros

O

Large international investments banks have increased their interest in Greece and give larger weight to the Greek economy and Greek businesses.

Christos Megalou Head of Investment Banking Central, South Eastern Europe and Israel Credit Suisse Securities (Europe) www.credit-suisse.com

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when eleven years ago (in 1996) and when the Initial Public Offering (IPO) of OTE took place, daily turnover did not exceed five million euros. The amount of transactions on the Greek stock market has reached levels seen on large foreign bourses. This, in combination with the speed and ease in which OTE tranches are sold, show the depth of the Greek market and the high level of liquidity. Since nothing happens by chance in the global economy, there are particular reasons which warmed foreign investor interest in the Greek capital market and gave the Greek stock market the ability to absorb large amounts of share offers. The main reasons are the following:

ñ ñ

The privatization program of each government. The increased number of investment banks that cover the Greek market and Greek companies. ñ Improved transparency in Greece’ investments landscape and the more favorable institutional framework. ñ The valuations of Greek companies in comparison with their basic fundamentals. Improved corporate governance. ñ Greece’s leading role in the Balkans and generally in south eastern Europe. From 1998, total revenues from privatization programs have reached 20.84 billion euros. There are many examples that can be referred to, including the recent stock placement of OTE (10.7 percent), the share placement of Postal Savings Bank (20%) and the further privatization of Agricultural Bank and Emporiki Bank in 2006. In all of these cases, demand for the new shares more than covered supply, making the Greek shares difficult to find for foreign institutional investors. The privatization of state companies will continue and must continue as the extent of government penetration in Greece’s economy is still very high. The following table shows the development of revenues from state sell offs. At the same time, large international investments banks have increased their interest in Greece and give larger weight to the Greek economy and Greek businesses. This can easily be seen by the large number of Greek companies that are covered, now by investment bank research departments. Changes in the tax system and the reduction of the corporate tax rate, the transfer of accounting rules from Greek accounting standards to International Financial Reporting Standards (IFRS), the boosting of the role of the Capital Markets Commission and the adoption of the European Commission’s directive on mergers and takeovers in Greek law are additional reasons to sustain the favorable climate in the Greek stock market. Additionally, Greek businesses are particularly attractive due to the relatively high growth rates, the reduction in investment risk and the production of cash flow in recent years. Improved corporate gover-


nance contributes to growth in Greek companies while also maintaining a positive climate in the Greek capital market. Greece is a strategic crossroad for every foreign investor. The combination of an emerging and developed market is proving to be highly attractive particularly for foreign institutional investors. The gross domestic product (an annual real growth rate above three percent) expansion rate is higher than the eurozone average while the political risk for investors is reduced due to Greece’s membership in the European Union. Greece’s leading position in the Balkans, an increase in takeovers in south eastern Europe and attempts to branch out into central and eastern Europe (where larger western European players stand out) offer larger weight to Greek businesses and create one more reason for investment in the Greek capital market and particularly in shares.

Privatization revenues (billions of euros) 4500 TOTAL 20.84

4000 3.971 3500

3000

3.148 2.697

2500

2000

2.104

2.101 1.830

1500

1.740

1.651

1.600

1000 0.754

500

0 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: National Economy and Finance Ministry

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Themes During the 2004-2006 period, privatization revenues reached 4.5 billion euros in a move that also helped to substantially reduce the public debt and liberalize Greek markets.

Privatization policy and the Greek economy rivatizations are a way of reducing state participation in economic activity, thus allowing the state to focus on its primary role as regulator. Moreover, they are a tool for increasing public revenues and correspondingly decreasing public debt while removing the fiscal burden of subsidizing loss-making state-owned enterprises (SOEs). πt has been empirically and theoretically proven that shifting assets from the public sector to private investors has benefited the companies in question, among others, through capital structure improvement, rationalization of investment, competitiveness, development of corporate governance and managerial effectiveness and improved quality of products and services offered. Thus, both the company and its shareholders gain from the resulting creation of value. Moreover, privatizations that are accompanied by market liberalization policies boost entrepreneurship by attracting foreign and domestic private investment, and increase competitiveness, employment levels and the rate of return from invested capital. The most commonly used privatization methods are initial public offerings (IPOs), secondary public offerings (SPOs) and trade sales to strategic or institutional investors. In addition, governments have used public-private partnership (PPP) structures as an alternative way of reducing state participation in the economy. It is worth mentioning that in some cases a combination of the abovementioned methods is by no means excluded but rather necessary. Depending on market conditions, government objectives, the nature of the SOE in question and the political agenda of the government, European countries have historically pursued different methods of privatization. For example, during 1980-2001, privatizations in Portugal and France were carried out at a percentage of 60 percent and 57 percent respectively through IPOs/SPOs, whereas in Spain only 9 percent of privatizations were carried out through market offer-

P

Loukas Papazoglou Special Secretary for Privatizations Ministry of Economy and Finance www.mnec.gr

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ings while the remaining 91 percent were completed through trade sales. In Europe, privatizations gained considerable momentum during 1990-2000, representing a

In 2007, the government proceeded with a further step toward reducing its interest in the banking sector through the sale of 20 percent of Postal Savings Bank via an accelerated bookbuilding offering. fairly new trend in the design of economic policy. Greece has been slower in following these developments and adopted such policies with significant delay compared to the rest of the continent. In Greece state presence is still widespread in almost every sector of economic activity and the issues that ought to be addressed are quite complex (social, economical, political etc). The body responsible for the formation of privatization policy is the Interministirial Privatizations Committee constituted by Law 2000/1991 and replaced by Law 3049/2002. The IPC is supported in the implementation of privatization policy by the Special Secretariat for Privatizations. It is important to point out that, given the complexity of the process and the significance for the public interest, the privatization process itself dictates detailed preparation, implementation and control, essential elements for the success of the emprise. The primary goal of the government elected in March 2004 with regard to privatizations was the decrease of state participation in the free market and the better utilization of state property. The new era of privatizations is characterized by moving away from the accounting approach in favor of


methods that maximize benefits for the economy. Within this scope, it has been of great importance to emphasize the maximization of value of stateowned enterprises before the actual privatization process. Thus, the government first chose to privatize mature enterprises, the ‘value’ of which was widely recognized in the market. During 2004-2006, total privatization revenues in Greece reached 4.595 billion euros, reducing the public debt substantially. More specifically, a series of privatization transactions were successfully carried out in the period 2004-2005, generating

revenues of 2.855 billion euros, while 2005 was particularly successful in exceeding the target revenues from privatizations by 31.3 percent. During 2006, the privatization program focused on further liberalizing financial markets through the reduction of the state’s participation in the sector. In particular, with the restructuring and IPO of Postal Savings Bank, the restructuring and further privatization of ATEbank and the full privatization of Emporiki, the banking sector in Greece was substantially reformed, while the corresponding privatization revenues reached 1.740 billion euros,

exceeding the national budget target of 1.650 billion euros. In 2007, the government proceeded with a further step toward reducing its interest in the banking sector through the sale of 20 percent of Postal Savings Bank via an accelerated bookbuilding offering. In addition, 10.7 percent of the Hellenic Telecommunications Organization (OTE) was similarly sold, helping revenues from privatizations reach a total of 1.632 billion euros, coming within reach of the 1.700 billion euros national budget target.

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Themes In more detail: Hellenic Petroleum SA (HELPE) ñ In August 2004 the Hellenic Republic (HR) sold 8.21 percent of the share capital of Hellenic Petroleum to the existing shareholder Paneuropean Oil & Industrial Holdings. ñ The transaction took place following extensive negotiations and resulted in 192 million euros of revenues for the HR. ñ No additional rights for the management of the company were given to the existing shareholder, which already had the right of first refusal. ñ It is worth noting that the transaction price incorporates a 13 percent premium to the closing price of the previous day as well as a considerable premium to the trading of the share during the previous months. National Bank of Greece SA (NBG) ñ In November 2004 the HR proceeded with the successful sale of 7.46 percent of National Bank of Greece to institutional investors in domestic and international markets, raising 562 million euros. ñ This move led to the exit of the HR from the direct shareholding of National Bank of Greece, a fact that was positively appreciated by the market. ñ The transaction was the largest placement on the Athens Exchange in 2004. Football Prognostics Organization SA (OPAP) ñ In July 2005 the HR successfully completed the sale of 16.44 percent of OPAP, through a combined domestic and international offering. ñ The transaction resulted in a return of 1.266 billion euros, an amount that was the highest ever raised through privatizations in Greece. ñ The offering was the largest placement that has ever taken place on the Athens Exchange as well as the first to be completed with an offering circular drafted according to new Regulation (EC) 809/2004 of the European Union. ñ The offering was characterized by strong demand from international and domestic institutional investors and by the return of retail investor participation with 61,338 applications, one of the highest figures that has ever been registered in a Greek public offering. Hellenic Telecommunications Organization SA (OTE) ñ In September 2005 the HR successfully completed the sale of 10 percent of OTE to institutional investors in Greece and abroad through an accelerated bookbuilding process. ñ The amount raised from this sale for the HR was 835 million euros. ñ Following the completion of this privatization the shareholding of the HR in OTE is 38.70 percent. Agricultural Bank of Greece SA (ATEbank) Restructuring ñ In June 2005, ATEbank successfully completed an increase of its share capital by 1.250 billion euros with the aim of strengthening the bank’s equity and capital adequacy ratios.

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ñ ñ

The HR exercised its rights according to its shareholding. As a result of the above actions ATEbank shares attracted significant interest from foreign investors.

Sale of 7.2 percent of ATEbank’s share capital ñ In May 2006 the HR successfully completed the sale of 7.2 percent of ATEbank, raising 328 million euros. ñ The transaction was completed through an accelerated bookbuilding offering to institutional investors in Greece and abroad. ñ Due to strong demand, the HR increased the offer from 5 percent of ATEbank’s share capital to 7.2 percent. ñ The decision for the sale was made following the share capital increase (June 2005) and the extensive operational restructuring of the bank, which was very well perceived by the markets. Postal Savings Bank SA (PSB) ñ In May 2006 the HR sold 34.84 percent of its shares in Postal Savings Bank through an IPO and the listing of PSB on the Athens Exchange. ñ The offering, which was 5.4 times oversubscribed, was a combined domestic and international offering. ñ The Hellenic Republic raised 612 million euros from the successful privatization of PSB, which was concluded in an adverse market environment. The recapitalization of PSB that took place prior to the equity offering, and was in the form of returning excess capital to shareholders, yielded 400 million euros for the HR. ñ A cross shareholding between PSB and Hellenic Post (ELTA) took place prior to the IPO. In particular, PSB entered into an agreement with the HR for the purchase of 10 percent of ELTA’s shares, while, under a separate agreement with the HR, ELTA purchased 10 percent of PSB’s shares ñ Following all of the above, the HR and ELTA hold 55.16 percent and 10 percent of PSB’s share capital respectively. ñ The successful IPO of PSB was the outcome of a significant restructuring that resulted in both elaborating and bringing out the bank’s value and in the entrance of a new dynamic player to the Greek banking sector. Emporiki Bank SA ñ Remaining consistent with its policy to reduce its participation in the banking sector, the HR decided in March 2006 to explore the possibility of fully privatizing Emporiki Bank. ñ The above decision was made following the successful capital reorganization of the bank which was carried out through: — A rights issue in November 2005, at 15 euros per share, raising 397.2 million euros and to which the HR fully subscribed, and — The resolution of Emporiki’s pension fund issue through Law 3371/2005. ñ During the period that the HR’s advisers were exploring the state’s privatization options, Credit Agricole SA, a 9 percent shareholder of

ñ

Emporiki, submitted a public offer for 100 percent of the bank’s shares at 23.50 euros per share. In the end, Credit Agricole increased its offer to 25 euros per share. In August 2006, the IPC decided to accept Credit Agricole’s revised public offer and to dispose of the HR’s 11 percent shareholding in Emporiki. Through the public offer process,


OTE June 2007: The transaction’s success and market importance was highly acclaimed by The Financial Times, which stated that the sale provided Greece’s privatization highlight of the year and helped European equity markets fight back after five sessions of losses.

Hellenic Telecommunications Organization SA ñ On June 29, 2007, the HR successfully completed the sale of 52.5 million shares of OTE representing 10.7 percent of its share capital, through an accelerated bookbuilding process structured with a backstop price. ñ The sale was also preceded by a relevant legislation amendment that allowed the HR to reduce its stake in the company below the 33.3 percent threshold. Following the sale, the HR holds a 28 percent stake in the share capital of OTE. ñ The HR raised 1.122 billion euros, an amount that represents 66 percent of the target receipts from privatizations in 2007. ñ It is considered one of the most successful placements of the HR, given that the pricing was set at the high end of the range (20.8021.40 euros) representing 0 percent discount to the previous day’s close and giving a book that was oversubscribed at that price by 6.5 times. ñ The transaction’s success and market importance was highly acclaimed by The Financial Times, which stated that ‘the sale provided Greece’s privatization highlight of the year and helped European equity markets fight back after five sessions of losses.’ ñ The success of the offering was also the result of a three-year continuous effort to rationalize and restructure the company, for the benefit of shareholders and the economy (new management team, voluntary retirement scheme, new personnel code, new business plan). ñ The book was opened before market opening and the offering was covered within the first 15 minutes.

ñ

ñ

Credit Agricole accumulated 70 percent of Emporiki’s share capital. The HR’s direct revenues reached 364 million euros, whereas another 700 million was raised by pension funds and other state-related entities that accepted Credit Agricole’s offer. The completion of Emporiki’s privatization constitutes the biggest ever foreign investment in Greece.

Postal Savings Bank SA ñ Following the successful IPO of PSB in May 2006, which signaled the introduction of a new dynamic player in the Greek banking market, the government proceeded with a further step toward reducing its interest in the banking sector. ñ On July 11 2007, the HR successfully completed the sale of 28.2 million shares of PSB representing 20 percent of its share capital, through an accelerated bookbuilding process structured with a backstop price — following the sale, the HR holds a 44 percent stake in the share capital of PSB, including the 10 percent interest that ELTA has in the company. ñ This transaction concluded the privatization program for 2007, raising 510 million euros for the government. ñ The offering had been widely expected by the market as part of the HR’s privatization strategy, and despite the large size of the stake, the transaction was significantly oversubscribed (c.3x). ñ The offering’s great success is highlighted by the premium (0.56 percent) to the previous day’s close at which it was priced. ñ It is the first time that an ABB in the Greek market was priced at a premium to the previous day’s close and one of the very few times this has happened in Europe. ñ The deal was launched early on July 10 and the

ñ

book was covered before the opening of the Athens market at 10.30 a.m., with book orders coming in at strike price. The book continued to build throughout the morning, which enabled an indicative price range to be formed at 18.00-18.10 euros. The banks closed the books at 11.45, three hours after it had opened, well oversubscribed at the top end of the price range (18.10 euros).

t is important to point out that despite the considerable progress made so far in the field of privatizations, the governmental effort will continue with the same pace and focus. In particular, the government’s privatization policy includes the following: a)Tourism Development Company (TDC). The IPC has decided to develop certain assets of the company, such as the Faliron Marina, the Corfu Casino, the Golf Club of Afandou in Rhodes and hotels in various places of tourist interest in Greece. The process for many of the abovementioned projects is well advanced. b)Public Gas Corporation (DEPA). The IPC has decided to proceed with the listing of DEPA on the Athens Exchange. The listing will follow the restructuring of the company, the legal unbundling of the transportation activity and the corresponding formation of the subsidiary companies pursuant to Law 3428/2005 for the Deregulation of the Gas Market in Greece. The privatization program also includes the exploration of the optimum way to further privatize Athens International Airport, as well as examining the most appropriate methods of bringing out the value of state participations in listed and non-listed companies. In addition, the government recently introduced a modern and flexible regulatory framework for PPPs and private funding initiatives (PFIs). The establishment of such a regulatory framework, which underlines the government’s intention to promote PPPs/PFIs as a method of privatization, could dramatically transform the privatization framework in Greece while attracting foreign and domestic direct investment. Privatization is a method of reallocating assets and economic activities from the public to the private sector. Even though there was much controversy around privatizations mainly during the 80s and 90s, nowadays it is widely accepted as a major means of economic policy and structural reforms, to the extent that it has been adopted across the world and by different political regimes. The driving force behind the increasing popularity for pursuing privatizations is that undoubtedly the private sector has proved to perform far better in a globalized competitive environment than the public sector, offering products and services of better quality and at lower prices. Both empirical and theoretical studies support the fact that privatization increases profitability and efficiency at the microeconomic level. Apart from that, in the case of Greece it is evident that the privatization program has had a positive impact on the reduction of the public deficit, the attraction of foreign investment, and the increase of the liquidity and capitalization of the stock market.

I

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Road opens for investors in energy sector Faced with a changing natural environment and continually evolving economic conditions, Greece is taking steps in the energy market in an attempt to switch from being a passive petrol consumer to a producer of renewable energy sources. A more favorable regulatory framework that offers financial incentives and cuts down on red tape is helping draw the interest of local and foreign investors. Additionally, the deregulation of the electricity market — despite still being at a very early stage — is boosting optimism regarding future investment activity in the sector. It is these investment plans and broader developments that the third edition of Greek Economy and Markets 07 focuses on. Government officials see investments reaching 5 billion euros in the next few years while some other industry sources place the figure even higher. Private companies being given the right to run and manage private energy plants are the focus of immediate plans while ambitious plans in wind energy projects are also going ahead. Wind parks are expected to represent a key source of growth in the field of renewable energy sources. With the country’s many islands continually subject to strong winds, it seems natural that wind turbines will appear in these popular tourist destinations; however, a debate is also emerging as to what impact the wind parks will have on the islands and their vital tourist industry. Another area of investment activity is represented by pipelines. Greece is being connected to different petrol and natural gas pipelines — projects that will help turn the country into an energy hub which also require investments worth billion of euros.

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Cover As Greece takes steps to adapt to a fast-changing global energy environment, developments in the fields of electricity, renewable energy sources and pipeline connections are drawing solid investor interest in a potential high-growth market.

Firing up the energy sector eregulation of the country’s domestic power market along with the growth of renewable energy sources (RES) and new infrastructure projects transporting natural gas and petrol are expected to pave the way for investments of some 5 billion euros in Greece in the next three years. Government estimates predict 2.5 billion euros being invested in RES and electricity production facilities while domestic investments in electric, natural gas and petrol projects are seen totaling around 5 billion euros. Development Minister Dimitris Sioufas said that 1.8 billion euros has been invested in energy from 2001 and that by 2010, some 5 billion euros will go toward the growing sector. ‘We are working on a strategy and plan for the gradual reduction of our dependency on petrol to the increased use of renewable energy sources and natural gas,’ said the minister. Progress has been made in deregulating the electricity power market and developing RES but experts point out that the country still has a lot of work to do before it catches up with its EU peers. Just over 20 percent of Greece’s energy needs will have to be met by renewable energy sources by 2010, according to goals set by Brussels.

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Windy conditions

By Stelios Bouras 22

Greece enjoys some of the highest winds in Europe and therefore wind capacity factors are considered to be relatively high, according to experts. There is large growth potential in wind parks. Total installed capacity of wind systems in Greece reached 808 MW in June versus 371 MW in 2003, according to government estimates. However, if Greece is to meet its 2010 RES goal, the country will need to be powered by another 3,000 MW in the next three years. One of the largest players in the sector is private wind farm operator Rokas, majority-owned by Spain’s Iberdrola, which owns 40 percent of the country’s total installed capacity. Rokas, whose planned wind park projects are among the largest in the world, currently has 13 operational wind parks across Greece and plans to install a further 400 MW by 2009 at a cost of some 400 million euros, according to analysts. Apart from being a leader in the local market, Rokas has been making a name for itself

abroad as there are few listed companies that specialize in clean energy. According to analysts, this could result in stronger interest coming from foreign investors since the company can act as a vehicle for environmentally friendly investors.

Strong demand Financial services provider Ernst & Young said in its first-quarter report on Renewable Energy Country Attractiveness Indices that Greece has seen a rush of applications for new wind developments following last year’s law change. ‘In some cases, projects are being blocked through local opposition, citing the lack of a clearly defined legal planning structure. That is set to change, as February saw the release of draft landplanning documentation, outlining primary and secondary regions for development,’ the report said. ‘It is hoped June’s law and the new land-planning documentation will further speed up applications and foster growth in a high-potential market,’ it added. Out of the 25 countries reviewed by Ernst & Young, Greece ranked in position number eight in the All Renewables Index (ARI) in the first quarter of the year — unchanged from the previous year. Public Power Corporation, Greece’s power utility, has also set up a subsidiary, PPC Renewables, in a bid to tap part of the growing RES market. The company is aiming to capture 20-25 percent of domestic RES with the help of joint ventures with some of the country’s leading energy players. On the downside, one of the issues that has arisen regarding wind park development is the impact on the local environment. In a recent Reuters interview, the Hellenic Society for the Protection of the Environment and Cultural Heritage called on the government not to grant licenses for wind power parks on Skyros and Serifos on the grounds that they would damage recognized nature reserves on both Aegean islands and well as spoil the spectacular views of the white sun-baked houses that draw thousands of tourists annually. Many locals on both islands have opposed the plans, saying they want to protect their main source of income — tourism. Tourism accounts for about 18 percent of the country’s total economic output and roughly one in five jobs. Other objections to wind park development include noise pollution caused by the turbines.


Meanwhile, the Environment Ministry is close to completing a new national land use plan, which will identify three mainland regions for high-density development of wind parks. A favorable regulatory framework has helped stir interest in the sector, fueling expectations of strong growth in RES in the coming years. Changes to the legal framework have help cut red tape, making the sector more appealing to investors. The new regulatory framework provides for a simplified licensing procedure for the installation and operation of RES systems, a new set of prices for electricity produced from RES, with increased prices for power generated by photovoltaic and solar systems.

Solar power The use of photovoltaics has more than tripled since 2000; however, experts have pointed out the higher

cost of solar power will weigh on the sector’s growth potential. Industry sources indicate that every megawatt of solar power costs $6.4 million (4.6 million euros) versus $1.2 million (870,360 euros) per megawatt of wind energy. Despite the higher costs, demand in this RES category is expected to rise in coming years. The Development Ministry has set a target of 18 MW from solar energy by 2010. One of Greece’s leading energy companies that is branching out into solar power is GEK-Terna through its subsidiary Terna Energy. Terna Energy is planning the construction and operation of a number of photovoltaic stations, as part of its 10-year business plan. The company is also planning to invest 1.5 billion euros in energy projects by 2016 as part of plans to develop its thermal power production plants. A sector of the energy market that has already

The sudden rise in international oil prices, our country’s high oil dependency and the ever-growing domestic demand for electricity has put renewables and energy efficiency at the top of the new government’s agenda. At the same time, an extended global dialogue has begun between policymakers, scientists and concerned citizens on climate change and its impact on the quality of our lives as well as on the international economy. Within this context, following the March 2004 elections, the new government has placed great emphasis on promoting the use of renewable energy sources, and created a new stable regulatory framework which: ñ Simplifies the licensing procedure; ñ Introduces a new, higher set of feed-in tariffs; ñ Provides direct investment incentives; ñ Ensures investor confidence in the Greek renewables market with a 10 plus 10 year power sale contract. At the same time, Greece: ñ Is implementing a thorough program of projects to further develop the electricity system as well as to enhance its capacity; ñ Is introducing a special land-use plan for renewables, in order to protect the projects in this sector, and ñ Is launching an information campaign with the aim of raising public awareness and support of renewables. The fact that, already, both Greek and foreign investors have shown great interest in carrying out large-scale renewable energy projects as well as investing in the production of photovoltaic panels is the result of a comprehensive and clearly structured government policy. A series of mergers and acquisitions between Greek and large foreign firms in the renewable energy sector show that the new energy strategy is being implemented successfully by the independent Regulatory Authority for Energy (RAE), the Hellenic Transmission System Operator (HTSO) and the Center for Renewable Energy Sources (CRES). For these reasons, investments in the renewable energy and biofuels sectors are expected to reach 4.5 billion euros by 2010. We are confident that with the joint effort of the public authorities, investors, scientists and citizens, our renewable energy sector will develop faster and better and will play a promotional role in the sustainable development of our country.

Dimitris Magoutas Special Adviser to the Minister, Ministry of Development Board Member of CRES (Center for Renewable Energy Sources)

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seen considerable investment activity is the electricity market. The opening up of the electricity market is allowing private companies to build power plants that will ultimately supply households with power. Currently, households can only obtain power from Public Power Corporation (PPC). State-controlled Hellenic Petroleum was among the first players in the energy sector by building a 390 MW unit in Thessaloniki. Earlier this month, Hellenic Petroleum said it had signed an agreement to set up a joint venture with Italy’s second-largest power producer Edison. Brokerage Marfin Analysis said the purpose of the joint venture is to develop a diversified power generation portfolio in Greece of approximately 1,500-2,000 MW, trading in electricity and participating in cogeneration activities. ‘The above alliance is in line with the company’s strategy to develop into a leading multi-energy group in Southeastern Europe,’ Marfin added. Edison said that it would confer a total of 1,400 megawatts of assets to the joint venture. The joint venture will aim to be the second-largest electric power operator in Greece with about 12 percent of the market. Another important development for the market is the teaming up of Mytilineos with Spain’s Endesa to create a joint venture that will have an initial capitalization of 1.2 billion euros. The company will aim to develop its portfolio in the construction and operation of thermal power stations (natural gas and coal), renewables, as well as electricity and CO2 emissions trading. ‘Gradual retail penetration is also foreseen after the opening of EU markets in July 2007,’ according to the company.

The issue of energy price volatility has taken on important dimensions on the international energy scene during the last two years due to the effect it has on economies of consumer countries as a result of the high price of crude but also due to the uncertainty developed in relation to the adequacy of petrol supplies. The international petrol industry operates in an extremely competitive and uncertain environment with unique characteristics.

Panos Kavoulakos Managing Director Hellenic Petroleum

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Slow start The deregulation of the Greek electricity market has been moving at a slow pace. As of the start of this month, Greek consumers have theoretically had the right to choose which power company they use. However, the actual ability to switch over from PPC to another provider is not expected to materialize for a few more years. The Greek electricity market is considered to be one of the least open in the EU with the government holding on to almost all of the power and transmission assets. ‘It would be highly unlikely that things will drastically change despite the July 1 deadline,’ said Athens-based brokerage P&K Securities in a research note in June. ‘The market deregulation will open up within the next five years — if not longer — so that any residential customer can choose the supplier of his choice,’ it added.

Currently households can only obtain electricity from PPC. Independent power producers (IPPs) have been invited to construct and operate additional installed capacity but so far efforts have failed due to the capital intensity of such an investment, the significant technical know-how requirement and the lack of guarantees regarding the system’s ability to absorb a minimum electricity production at profitable prices that would support the viability of an IPP investment, the Athens-based brokerage added. The new rules on the opening up of the market clarify details about the charging of consumers and access by consumers and alternative suppliers to data concerning consumption, while providing for the installation of meters by private suppliers so that each consumer’s charges can be precisely calculated for their specific consumption. ‘It is obvious that the purpose of market liberalization is for new investment in both power produc-


tion and in transmission and distribution networks in the most effective way possible, so that the end-user enjoys the greatest benefit,’ said Michalis Karamanis, president of the Regulatory Authority for Energy (RAE). ‘The incentive for the modernization of networks will be the actual or potential entry of third suppliers to the market,’ he added. The RAE president also expects that liberalization will enhance the reliability and flexibility of production capacity — helping keep blackouts to a minimum. One of the obstacles deterring investors is that Greece has one of the cheapest electricity tariffs in the EU. The government uses cheap tariffs as a way of keeping inflation in check as power has a large weighting in the basket of consumer goods used every month to calculate inflationary price rises by the National Statistics Survey (NSS).

Biofuels growing In the Ernst & Young survey Greece came in at position number 13 in terms of its development of biomass and other renewable energy sources. The US held first place in the survey, with Germany and Spain second and third respectively. Biomass is a broad term used to describe material of recent biological origin that can be used either as a source of energy or for its chemical components. It includes trees, crops, algae and other plants, as well as agricultural and forest residues. Changes regarding the regulatory framework of biodiesel energy production are taking place in Greece in an attempt to develop the sector. Development Minister Sioufas recently announced that Greece would spend over 4.5 billion euros up until 2010 on investments in biofuels and other renewable energy sources. Greece is committed to replacing 5.75 percent of the petrol and internal combustion fuel used by the country’s transport sector by the end of 2010. Following the implementation of the EU’s Common Agricultural Policy (CAP), the cultivation of 600,000 hectares of sugar, beet, tobacco, cotton, wheat and corn is expected to be abandoned by Greek farmers seeking greater profits. More than half of this farmland — some 370,000 hectares — must be sown with crops that produce biofuels if the coun-

try is to meet EU targets. Earlier this month, Greece’s largest sugar producer, Hellenic Sugar Industries (EBZ), short-listed nine companies for a tender to convert two of its five sugar plants into bioethanol plants. The total capacity of each plant is estimated at about 120,000 tons of bioethanol a year, while the final capacity will be determined in cooperation with the new strategic investor. The benefits arising from the use of biofuel include the creation of a new sector with the potential to provide a significant number of new jobs in the cultivation of energy-producing crops and the production and distribution of biofuels. Job creation is seen as being a vital area of growth in the sector, particularly in regional parts of Greece.

Power network Greece’s energy landscape is changing fast as the country firmly positions itself in Europe’s developing energy network. The signing of the pipeline deal linking Bulgaria’s port of Burgas with Alexandroupolis in northeastern Greece is seen as a significant step in placing the country on the European energy map. The deal, which will involve pumping mostly Russian crude to the Mediterranean, will take Greece a step closer to transforming into an energy hub at a time of soaring petrol prices and a growing world appetite for power. Construction of the 280-kilometer pipeline is scheduled to start at the end of 2008 with a completion date set for the start of 2011. Once completed, the pipeline will be able to transport around 35 million tons of oil per year. This amount will be able to increase to 50 million tons at a later stage, according to officials involved in the project. Politicians have repeatedly called the signing of the deal an ‘historic occasion’ as they point to the fact that it is Europe’s first major pipeline project in the last 40 years. The signing of the deal between the three countries — Greece, Russia and Bulgaria — took place after 14 years of negotiations. The pipeline was repeatedly delayed mostly due to concerns about its financial viability. However, soaring oil prices and the recent inauguration of the BakuTbilisi-Ceyhan pipeline linking the Caspian Sea with the Mediterranean prompted Bulgaria, Russia and Greece to speed along the signing of the deal.

Russian interest Indicative of the support behind the pipeline were the two recent visits to Athens by Russian President Vladimir Putin. In September last year Putin visited Greece to revive the long-stalled pipeline project in talks with Greek Prime Minister Costas Karamanlis and Bulgarian President Georgi Parvanov. The Russian president visited Athens again in March to attend the signing ceremony. The project is seen to be of strategic importance, giving Greece for the first time a role in helping ensure the steady flow of petrol to other European countries. Experts pointed out that the pipeline could help secure stability in the Alexandroupolis region, which lies next to the Greek-Turkish border, since the supply of energy to Greece’s EU partners could be interrupted in the event of any military conflict aris-

It is a fact that the fast rate of increase in international energy demand in coming decades will not be able to be met by existing energy supplies. On the other hand, using existing energy supplies will continue to create a big problem for the environment, resulting in climate changes (increase in temperature, lower average rainfall and snowfall) which will in turn further reduce current energy supplies. Inevitably, we must then search for new, clean forms of energy sources and the unlimited solar energy — via photovoltaic systems — can offer a new method for further development of electricity production.

Panagiotis Athanasopoulos President of Public Power Corporation (PPC)

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ing between the two nations. A Russian consortium of the Transneft, Rosneft and Gazprom energy companies will hold a 51 percent stake in the project, while Greek and Bulgarian companies will evenly split the remaining 49 percent. The majority of Greece’s stake (24.5 percent) will be held by a joint venture between state-controlled Hellenic Petroleum and Thrace SA, belonging to the Copelouzos group, while the remaining 1 percent will be held directly by the Greek government. The project foresees oil being transported by tankers to Burgas from Novorossiysk, Russia, and from there the new pipeline will transport it to Greece. Tankers currently make the entire trip via the Bosporus Strait but traffic along the waterway has intensified in recent years, raising congestion concerns. Tanker accidents often endanger the environment and the safety of homes on the banks of the strait. The government says the economic benefits are numerous.

Hefty revenues

The South Stream project will undoubtedly strengthen the country’s geopolitical position, making it an important link in the energy chain that connects the Caspian Sea with the West. Additionally, it will considerably boost our security. Any crisis in the broader region will have repercussions on European consumers, discouraging any backers from such a plan. Of course it will also help secure our own energy needs. The main question that arises, however, is whether the project serves the purpose of differentiating energy suppliers given the fact that this is part of Gazprom’s plans and increases dependency on the Russian producer. Additionally, how will this project help with price control of natural gas from the moment that it favors a particular supplier who can — due to the lack of competition — control prices based on larger profit margins?

Constantinos Filis Head of the Center for Russia and Eurasia

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Apart from construction of the project demanding a 1-billion-euro investment for the region, Greece also expects to earn tens of millions of dollars from government-imposed oil duties. On the job front, the project is seen creating 300 permanent positions after the completion of its construction. Another area that could open up to Greek businesses is transporting crude oil from Russia’s Novorossiysk to Burgas before it is pumped down the pipeline to Greece. Experts point out that Russia does not have an adequate number of tankers for this part of the route and is likely to require the services of foreign shipping companies to transport the petrol. Steps made in helping make world fuel supplies more stable could also trim price volatility of international oil markets. According to figures from the International Energy Agency (IEA), an energy policy adviser to 26 member countries, final energy consumption in Greece reached 23.5 million tons of oil equivalent in 2004, about 50 percent higher than energy levels recorded in 1990. Experts estimate that this growth rate indicates that Greece will be required to double its current energy supply within the next eight years. Due to delays in introducing alternative energy sources, Greece is one of the EU countries with the highest dependency on oil imports. Economists also point out that although Greece’s economy is growing at a fast rate there are other countries in the region which are growing even faster and, as a result, are demanding increasing power supplies. Experts agree that the Burgas-Alexandroupolis Pipeline will help place Greece on the map but stress that more is needed to develop the country’s weight on the world energy scale.

Gas works In a bid to further develop the country’s energy role, Greece will also hook up with Turkey and Italy in a pipeline that will transport natural gas from the Caspian Sea region east of Russia, to Western Europe. Work on the 300-kilometer pipeline linking Komotini, northeastern Greece, with Bursa, north-

western Turkey, is at an advanced stage and is expected to be completed soon. The second stretch, called the Greece-Italy Gas Interconnector (IGI), will run across Greece for some 600 kilometers with another 217 kilometers stretching under the Adriatic Sea that separates the two countries. The IGI is budgeted at 1 billion euros and is expected to start operating in 2011. Italian utilities company Edison will build the IGI along with Greek state gas company DEPA. DEPA will also work with Turkey’s pipeline company Botas for the Greek-Turkish link. The link with Turkey will have a transport capacity of 11.5 billion cubic meters per year while the connection with Italy will be able to transport 8-


expected to double between now and 2010 to 6.5 billion cubic meters on higher industrial and consumer demand and ambitious plans for new gas-fired electrical power plants.

Supply concerns

8.8 billion cubic meters annually. The difference will be channeled into the Greek market, as well as Albania and the Former Yugoslav Republic of Macedonia (FYROM). The pipeline is seen as a way of helping Greece reduce its power dependency on Russia, which supplies the country with over 80 percent of its natural gas. Greece has been importing natural gas for a decade, 80 percent of it from Russia via a pipeline through Bulgaria. Apart from serving the country’s strategic interests, the pipeline will help Greece meet its own growing energy needs. Greek domestic gas consumption rose by 35 percent between 2003 and 2006 and is

Greece’s new role in the sector has triggered concerns over who will be supplying the pipelines with gas or fuel. A decision by the Greek government recently to supply the Turkey-Greece-Italy pipeline with natural gas from Azerbaijan will help ease supply concerns. ‘The Greek government, in agreement with the governments of Turkey and Italy, will immediately take one more important initiative,’ said Sioufas. ‘The signing of the four-state agreement between Azerbaijan, Turkey, Greece and Italy will take care of all details regarding the supply and transportation of natural gas from Azerbaijan, via Turkey and Greece to Italy and Europe,’ the minister added. Experts believe that Greece’s decision to turn to Azerbaijan for natural gas is part of the country’s aim to diversify suppliers — in line with Washington’s wishes. ‘However, (Azerbaijan’s) production potential appears overestimated (in 2006, Azerbaijan produced 6.7 billion cubic meters of natural gas, Kazakstan 26.3 billion cubic meters, Turkmenistan 65 billion cubic meters and Russia 656.2 billion cubic meters) — a fact the Greek government appears to have taken into consideration,’ Constantinos Filis, head of the Center for Russia and Eurasia, a think tank set up by Panteion University’s International Relations Institute, told GEM. ‘Consequently, the choice of Azerbaijan is mainly aimed at making Greece’s policy more acceptable to the American side rather than it being a strategic choice by Athens regarding energy projects,’ Filis added. Another important step in helping the country evolve into an energy hub was Greece’s decision last month to take part in the construction of a natural gas project, the South Stream pipeline, that will run under the Black Sea linking Russia with Europe. The move is seen further upgrading the country’s role in Europe’s energy sector. After meeting with Russian President Vladimir Putin, Prime Minister Costas Karamanlis said in Istanbul, Turkey, that Greece will take part in the South Stream pipeline. Italian energy group Eni SpA and Russia’s statecontrolled Gazprom have signed a memorandum of understanding on the possibility of supplying Russian gas to European Union countries through the South Stream pipeline. Under the plan, more than 900 kilometers of pipeline could be laid under the sea and across Bulgaria before splitting off into two directions, north through Hungary to reach Austria and south through Greece and on to Otranto, a port in southeast Italy. The news has been welcomed by industry experts as it will help Greece raise its profile in the world energy market but the impact is seen as far less than that of the Burgas-Alexandroupolis pipeline. ‘It is an important deal as it will increase Greece’s role in energy distribution,’ a senior government source close to the deal told GE&M07 on the condition of anonymity. ‘However, the deal does not entail Greece

being involved in the construction of the project. Greece will be paid a fee by the companies for the pipeline that covers Greek soil but that will probably be the full extent of the financial benefit,’ he added. The government has not yet announced any further details of the deal. The growing number of pipelines crossing Greece are playing an important role in upgrading the country’s strategic position in a development that will also have an impact on security in the region. Billions of euros of funds will be invested in the different projects by the Greek government; however, the final cost has yet to be determined. Talks are currently being held with the EU, which is expected to part fund the projects via the European Investment Bank. Experts have warned the government that careful cost planning is required to avoid the government ending up in the red with all the infrastructure projects. ‘At the moment it appears that Greece will have overcapacity in import connections and the government should ensure that the potential cost of excess investment in infrastructure will be passed on to the users of the interconnector according to a cost-reflective transit tariff scheme,’ said the IEA in its 2006 report on Greece. Analysts have all commended the country on progress made in hooking up with large international energy players, while, however, pointing out delays in deregulation of the domestic power market. Claude Mandil, the IEA’s executive director, said that Greece should take care to continue with the introduction of real competition in its domestic gas and electricity markets, to ensure that local consumers benefit from increased market liberalization. ‘Creating fully independent system operators and strong measures to reduce the market power of the incumbents will be required to lead to a successful opening up of Greek gas and electricity markets,’ he pointed out.

No to nuclear Despite growing international interest in developing nuclear energy, Greece has taken a stance against the power source. Seismic activity in the region increases the risk of setting up a nuclear plant on Greek territory. Deputy Development Ministry Anastassios Nerantzis said in June that Greece respects the right of other countries to develop nuclear power but that it supported other forms of power developments such as hydrocarbon energy. ‘Greece, like other EU states such as Germany, Austria, Luxembourg, Iceland, Norway and Ireland, is not in favor of (nuclear power). We believe that every country has the right of choice and that they need to take into consideration international concerns,’ highlighted the minister. In Europe, the use of nuclear power is left up to national governments. Europe has about 160 nuclear power plants, many of which are reaching the end of their expected lives and need to be replaced with new reactors or some alternative. Nuclear plants with a total capacity of about 4,000 MW are under construction in France, Finland and Romania.

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Leading Energy Players Public Power Corporation (PPC) ñ ñ ñ ñ ñ

PPC is Greece’s largest company based on assets and has a market valuation of some 5.24 billion euros. It holds a 97.7 percent stake in the Greek electricity market. It owns almost all of the country’s power and transmission assets. On July 1 2007, PPC lost its monopoly on supplying households, which can now switch over to other electricity suppliers. In a bid to handle changing market conditions, PPC has embarked on a cost-cutting process. Analysts describe the process as being slow and believe the company needs to improve its fundamentals.

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Analysts said that first-quarter earnings were broadly in line with expectations but profit margins are falling at all levels, dragged lower by high fuel costs. PPC will team up with France’s EDF Energies Nouvelles to develop wind farm projects as part of the broader strategy to expand into renewable energy production. Through rapid growth and completion of its operational program, PPC is seeking to acquire and retain 23 percent of the Greek renewable energy sources market by 2014.

Hellenic Petroleum ñ ñ ñ ñ

Its main business activity comprises the refining and marketing of petroleum products but the company is also taking steps in the energy sector. Hellenic Petroleum operated the first private power producer in Greece with combined cycle technology. A plant with 390 MW capacity has been in operation in Thessaloniki since December 2005. The firm recently announced setting up a joint venture with Italy’s second-largest power producer Edison. The new company will seek to create

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an energy generation portfolio of 1,500-2,000 MW and capture a 12 percent share of the local market. It has a 35 pct stake in DEPA, Greece’s natural gas company, which owns and operates the domestic high- and medium-pressure gas pipeline grid. It has a market capitalization of about 3.6 billion euros and is 35.4 percent-owned by the Greek state. Hellenic Petroleum is aiming to double operating profits to 500 to 600 million euros by 2009.

Rokas ñ ñ ñ ñ ñ

Rokas is Greece’s leading wind park operator. Valued at 442 million euros, 52 percent of the company is owned by Spain’s Iberdrola. It operates 13 winds farms and one photovoltaic station with a total capacity of 193.5 MW, accounting for 30 percent of the Greek market. Rokas was the first private sector company to enter the market and is the most experienced player in Greece. It is expanding into hydro and solar energy with ongoing applications.

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Rokas has high growth potential in the future; however, there is still execution risk due to bureaucracy and capacity constraints. It is among the few listed companies in Europe that offer pure renewable energy sources, resulting in strong interest from foreign investors. Due to competition intensifying in the sector, experts believe that if the company’s peers achieve 50 percent of their plan then this will mean that Rokas’s market share will drop significantly by 2010.

GEK-Terna ñ ñ

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Its business divisions are split between construction and energy activities. The group operates winds parks with an aggregate power of 119 MW. At the same time two small hydroelectric projects with a capacity of 12 MW are under construction. The group’s aim is to set up 1,600 MW of power from renewable energy sources in Greece and abroad by 2012 and a further 1,200-1,500 MW of power from thermal energy sources. Future capacity in wind energy activities is expected to be boosted by the company entering foreign markets in Southeast Europe and Asia.

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It also plans the construction and operation of a number of photovoltaic stations and biomass energy plants. In 2006, turnover from Terna Energy’s wind parks totaled 17.5 million euros. According to press reports, the company is examining the listing of Terna Energy on the Athens Exchange by the end of the year. GEK-Terna has been operating in the Greek energy sector for 10 years and currently has a market value of 665 million euros.

Mytilineos ñ ñ ñ

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Mytilineos is the leading industrial group of companies with a market value of some 1.5 billion euros. It recently announced the setting up of a 1.2-billion-euro joint venture with Spain’s Endesa. Its asset base will include a 430 MW natural gas-fired power plant under construction (with a June 2009 completion date) and a portfolio of more than 1,000 MW of renewable energy projects. Apart from being an independent power operator in Greece, the joint ven-

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ture will aim at retail penetration of energy markets in the European Union after the July 1 opening of markets. Experts believe the deal is promising and an ideal springboard for longterm growth. Turnover in 2006 reached 843.3 million euros while market analysts expect the figure to reach 1.1 billion euros this year. The group’s low net debt position allows for new acquisitions and accelerated corporate activity.


Cover MICHANIKI GROUP OF COMPANIES

Vital role of renewables he financial development of a country is based on a number of important keystones. Among these is energy in its various forms: electricity, fossil fuels (e.g. lignite, coal, oil and natural gas) and renewable sources (e.g. hydro, wind and solar). The main objective of Greece’s energy policy is to analyze the growing demand and the correspondent possible supply of each energy sector and to secure with the necessary technical, commercial, legislative and regulatory measures the balance between demand and supply in each sector and the price, which must be socially acceptable and competitive. Greece’s energy policy is implemented by a political, social, financial and legal framework influenced by many foreseen and unforeseen aspects of national, European Union and other international factors. According to the abovementioned general remarks and taking into consideration: 1. The global energy crisis has led oil prices over 70 US dollars per barrel, due to the unbalance between the demand and supply and other structural factors; 2. Global warming and the relevant environmental commitments to CO2 reduction of the Kyoto Protocol and the new carbon emissions market etc, for the reduction of the greenhouse effect, which has already created immense environmental and financial problems; 3. Greece’s need to avoid sanctions and fines resulting from the provisions of EU Directives 2001/77 and 2003/87 etc, and 4. Greece’s need to secure energy sufficiency and the reduction of energy dependence on oil and natural gas, it is strictly necessary for the country: a. To develop a strategy to exploit the main energy sources — lignite — and renewable energy sources (hydro, wind, solar, biofuels) in order to reduce dependence on energy imports and to secure a balance between production-supply and the consumption demand on these energy sources. The above target is also the European Union’s target to reduce the dependence on energy imports, which are expected to rise further, reaching 70 percent by 2020. This is especially true for oil and gas, which increasingly come from sources further away from the European Union, often with certain geopolitical risks attached. Attention will therefore increasingly focus on security of supply. Lignite and renewable sources of energy will then have an important role to play in reducing the level of energy imports with positive implications for balance of trade and security of supply. b. To develop a strategy to emphasize energy efficiency and a reduction in consumption over production and imports. This target will also help efforts to reduce greenhouse gas emissions. The accomplishment of the targets of the above-

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mentioned strategies will be based on the following: ñ The liberalization of the electricity and natural gas sectors, which theoretically have been almost accomplished and will promote the development of the internal electricity market in terms of efficiency gains, price reductions and increased competitiveness. The implementation of biofuels in the energy balance, especially in the transportation sector, and a strong subsidy policy for renewable energy sources

A key objective for Greece is to meet the growing demand and introduce measures that will boost competitiveness in the sector — changes that will also be socially acceptable. will promote and increase the contribution of such sources to electricity production, especially in the internal electricity market. ñ The evaluation and improvement of the existing legislative and regulatory framework for the licensing procedures of energy projects, taking into consideration the environmental impact of such projects. Issues such as national landplanning and forest legislation are of major importance for the development of energy projects. ñ The securing of the development, maintenance, reliability and safety of electrical transmission and distribution systems, taking into consideration that the transmission system and distribution system operators must be required to secure any new producer of electricity the possibility to be connected to the grid with a comprehensive cost associated with the connection. ñ The assessment whether the existing, underconstruction and planned interconnections with other Balkan countries, as well as other related infrastructures, mainly of Balkan countries, such as power transmission systems along with oil and gas pipelines are appropriated to ensure a parallel and synchronous operation mode etc. This is very important for the coming three years, during which there will be a deficit between the installed power of the Greek interconnected electricity system, which is about 11,500 megawatts, and the edge demand that exceeded 10,500 MW in June 2007. It is Michaniki’s will and policy to participate in the development of renewable energy sources in Greece, especially in the development of big hydropower units, utilizing the technical know-how and experience acquired during its 34 years of cooperation with the country’s Public Power Corporation in the construction of hydraulic tunnels, dams and other large public works projects.


New partnerships start taking shape ne of the leading players in the energy sector is Mytilineos Holdings. In a sign of the changing landscape in the domestic energy market, Mytilineos announced in March that it will embark on a 1.2-billioneuro joint venture with Spain’s Endesa. The new company, Endesa Hellas, aims to become one of the largest independent power operators in Greece. The joint venture, which will have an initial capitalization of about 1.2 billion euros, will be 50.01 percent-owned by Endesa. Mytilineos will contribute its entire thermal and renewable energy assets and licenses to the new company. The contribution of these assets is expected to start immediately and be completed 12 months after the announcement was made. ‘The financial power of the new company, the know-how of Endesa (one of the largest private multinational companies, with a presence in more than 15 countries in Europe, America and Africa) and the relevant local presence and industrial dimension of the Mytilineos group will allow the new company to meet the demands of this ambitious development growth project,’ the Greek company said in a statement. The scope of the new company includes the construction and operation of thermal power stations (natural gas and coal), renewables (wind parks, hydro and photovoltaic) as well as electricity and CO2 emissions trading. Gradual retail penetration is also foreseen after the opening up of EU markets that took place at the start of this month. Analysts have described the joint venture as being promising and acting as a springboard for Mytilineos’s long-term growth. In one of the new company’s first steps, it announced the acquisition of an 80 percent stake in the share capital of Evroenergiaki SA from Deutsche Erneuerbasre Energien GmbH, an affiliate of Deutsche Bank, and Messrs Jung and Voulgarakis for up to 16 million euros. Evroenergiaki SA is located in Alexandroupolis and engages in the development, construction and operation of renewable energy sources (RES) with an emphasis on wind farms in the greater area of northern Greece. It operates

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a wind farm of a total installed capacity of 3 megawatts located in Alexandroupolis, has an installation licence for a wind farm of a total installed capacity of 30MW, while it also has projects in the pipeline of 100 MW at various stages of development. According to Mytilineos, by capitalizing on Endesa’s proven technical and operational expertise as well as on Mytilineos’s growth potential and knowledge of the Greek electricity market, Endesa Hellas aims to play a leading role in the Greek energy market as well as selectively expanding in Southeastern Europe. The companies, Mytilineos and Endesa, have also jointly submitted a power generation license application for a 600 MW coal plant in Aghios Nikolaos in Viotia, central Greece. The plant construction investment stands at 720 million euros, while the overall investment, including infrastructure projects, is set to rise to 890 million euros. The two companies have prepared the application file in the context of their strategic cooperation and the important power generation investment project in Greece. Endesa’s wide experience in coal plants construction and operation, as well as an analysis of our country’s energy needs, immediately highlighted the necessity for a hard-burnt coal-fired plant. It is stressed that Endesa is probably the biggest coal load operator in the Mediterranean and as such will bring the production cost significantly down. Mytilineos Holdings is a leading industrial group of companies active in metallurgy and mining, energy, engineer procurement construction (EPC) and defense sectors. Through its subsidiaries Aluminium of Greece and Sometra, Mytilineos is the largest metals producer in Southeastern Europe. Its subsidiary Metka, in which Mytilineos holds a 52.5 percent stake, is the leading EPS contractor in Greece and is active in the execution of large-scale industrial and energy projects. Additionally, ELVO, which is also part of the Mytilineos group, is the leading vehicle manufacturer in Greece engaged in civil and defense projects.

Next on RES investment agenda he Greek energy sector, electricity production in particular, is currently in a transitional phase, in which the gradual liberalization of the domestic electricity market constantly creates new opportunities, as well as business challenges, for the independent power producers that utilize both conventional fuels (natural gas, coal/lignite etc) and/or renewable energy sources (RES — wind, hydro, photovoltaics, biomass etc) in their electricity generation projects. The GEK-Terna Group of companies has been active for more than 10 years now in the Greek energy sector, and is a leader in the challenging field of independent power production (IPP) in this country. At present, the group’s installed power capacity, both from renewables and from thermal power plants, is 266 megawatts. This power capacity base is rapidly expanding, through the gradual materialization of an ambitious 10-year business plan, which is expected to bring the GEK Group to the forefront of the Greek IPP market within the next few years. Terna Energy, a subsidiary of Terna which specializes in the construction and operation of RES projects, already has eight wind parks in operation in Evia, Thrace and Crete, of 119 MW total capacity. Currently, the company is constructing four new wind parks of 61 MW total capacity, while it also possesses additional electricity generation licenses for 18 more wind parks, totaling 521 MW. Moreover, Terna Energy has submitted new applications for generation licenses for 33 more wind parks of 896 MW total capacity. In the hydropower sector, the company is currently constructing two small hydro plants of 12 MW total capacity, while it also possesses electricity generation licenses for a total of 106 MW of additional small hydro projects. In parallel, Terna Energy is planning the construction and operation of a number of photovoltaic stations and biomass-to-energy facilities. In 2006, the turnover from the operation of Terna Energy’s wind parks totaled 17.5 million euros, a figure which is expected to rise exponentially in

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the next few years as more and more of the company’s RES projects come on stream. The company’s total RES installed capacity, both in Greece and abroad, is expected to reach 1,600 MW by 2012. A significant part of this future capacity is expected to come from Terna Energy’s expanding wind energy activities in promising foreign markets, such as SE Europe and Asia. In the field of thermal power production, the GEK-Terna Group has been the unquestionable private sector leader in Greece, having constructed and

Policies aimed at promoting renewable energy sources are helping the country reduce its dependence on petrol. Investments in the sector include pipelines that will hook Greece up with Europe’s energy network. operated, since 2004, the first and, so far, only private thermoelectric plant in the country (located in Viotia). This gas-fired power plant, of 147 MW installed capacity, which covers crucial reserve-load needs of the national interconnected system, produced a turnover of 33 million euros in 2006. In addition, the GEK Group has initiated the materialization, in the same Viotia location, of a larger 435 MW gas-fired, combined-cycle power plant, which is already fully licensed. The construction of this new power plant will be completed by 2009, at a total capital investment cost of 240 million euros. In parallel, GEK-Terna is currently completing the planning phase of a number of additional power plant projects, utilizing various conventional fuels (gas, coal) that will bring the group’s total installed thermal capacity to about 1,200-1,500 MW by 2012.

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Cover Policies aimed at promoting renewable energy sources are helping the country reduce its dependence on petrol. Investments in the sector include pipelines that will hook Greece up with Europe’s energy network.

The modern energy reality he modern world we live in is complex politically, economically and energy-wise. It is moving at a new pace. It is faced with new opportunities as well as serious dangers. The facts of the new reality include: changes in the global economy, increasing growth rates, an increasing world population, rising living standards, new environmental problems, technological advances and the digital revolution. Within this framework, energy acquires a catalytic effect, more than ever before. Self-supplying economic growth and the deregulation and globalization of markets have changed the energy landscape. The security of supply needed to cover increased demand and the security of demand are today mainly related to competitiveness. At the same time, the energy sector ranks among the economy’s most dynamic fields in Europe as well as in Greece. Strong growth rates in recent years are due to the continual rise in energy demand, which is a result of improved living conditions. Modern civilization cannot exist without sufficient energy. The consequences of energy developments are felt by all of us on a daily basis. The need to form a realistic energy policy is part of the daily agenda at the national, regional and international level. As of March 2004, we have been applying an organized, dynamic and multifaceted policy which includes reforms, projects and investments on a long-term basis. The basis of the strategy is the following: the deregulation of the energy market; the reduction of dependence on petrol; the promotion of renewable energy sources (RES) and biofuels; the promotion of petrol, natural gas and electricity links; steps to save energy and energy efficiency; and environmental protection. We are aiming at: securing energy sufficiency for the country; turning Greece into a producer of clean energy sources instead of a passive petrol consumer; improving the competitiveness of the Greek economy; securing participation in large international natural gas, petrol and electricity networks that upgrade our country’s position in the broader area and on the world energy map; and saving natural resources for the next generations. By focusing on the energy sector, we are securing high growth rates, supporting regional develop-

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Anastassios Nerantzis Deputy Development Minister www.ypan.gr

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ment and creating new jobs. We are securing a modern and secure investment environment with budgetary stability, the new investment law, tax reforms and the utilization of European Union funds in addition to steps being taken in the energy sector. Indicatively, I would like to refer to the law for the issuing of permits and the creation of committees that promote renewable energy resource investments which set a simplified and transparent outlook for the implementation of the respective projects and the provision of high economic motives and special land planning for the construction of RES plants. Via the Operational Program ‘Competitiveness,’ 228 RES projects are being funded with a total budget of 735 million euros, while the development law has inducted 83 investments with a total budget of 334 million euros. The natural gas and energy market has been opened up with the entry of new producers, suppliers and importers of energy. At a political, economic and institutional level, we are creating a framework for the development of

Strong growth rates in recent years are due to the continual rise in energy demand — a result of improved living conditions. investments in the energy sector so that the country can embark upon a new path with sufficient energy, a high standard of quality, cheap services and with minimal impact on the environment. Already, we are moving ahead with investments in all departments: Gas pipelines include the Greek-Turkish pipeline that will soon be inaugurated and the extension of the domestic network to more areas across the country. Within 2008, the construction of the Greece-Italy pipeline will start in order to open one more avenue of European gas supply. The recent agreement for the South Stream pipeline and its construction creates one more alternative and credible gas supply to Europe. The inauguration of the Burgas-Alexandroupolis Pipeline in 2008 places our country on the world energy map. Beyond the obvious geopolitical importance of these projects,


they offer job positions, the acquisition of technical know-how and benefit the national economy. The boosting of the electrical energy transport system domestically with certain projects, such as the connection of the Cycladic Islands with the rest of the country, the improvement of the system in the southern part of the country and the international connections comprise a second area of investments. At the same time, the construction of new electricity plants by the Public Power Corporation and private investors and the replacement of old plants with cleaner and more efficient technologies comprise one more important parameter of investments in energy. Here I would like to stress that this procedure is new for our country and is going ahead with the implementation of a 2005 law even though it should have happened during the 1990s. The development of renewable energy sources could not be left out of an organized energy policy. The RES sector is developing at a fast rate. Already, we have installed 920 megawatts. From 1994 to March 2004 we had power of just 350

MW. By the end of the year, we will have exceeded 1,100 MW. Here I would like to note that the energy sector does not offer investments of an opportunistic nature but ones which demand a serious and credible stance. Solid motives have been given as there is a pressing need for new inexhaustible forms of energy which cannot be provided by get-rich-quick schemers. Additionally, we must remember that RES are not just provided by wind parks and photovoltaic systems, but also by thermal, biomass, small hydroelectric and hydrogen technologies. Particularly for hydrogen programs, possibly the solution of the future, the Greek platform has already been announced, which opens up the way to a wide area of research with broad investment interest. Additionally, investing in new technologies that aim at energy efficiency and saving should not escape our attention. Finally, I would like to refer to the importation of biofuels within the country’s energy equation. Beyond the environmental impact, the development

of biofuels creates new opportunities to boost activity in regional parts of Greece via the correct cultivation of new crops. Additionally, the importation in the near future of bioethanol will have a further impact on the energy sector. Already, a call for tenders has been issued for the transformation of the Hellenic Sugar Industry into a modern bioethanol unit. The energy industry is moving at a fast pace, covering lost ground. In coming years, in the local market alone, we expect investments that will exceed 4.5 billion euros. At the same time, the development of the energy market in Southeast European countries creates fertile ground for the attraction of 43 billion euros of investments by 2020. These investments contribute to growth in the country and the region, meeting the large energy and environmental challenges of our time. The continuation of reforms and support of investment plans that offer energy sufficiency, create new job positions, maintain and develop everyone’s living standards and protect the environment amount to a commitment for the government.

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Cover Development of renewable energy sources in Greece is still at an early stage; however, recent changes to the law have introduced simpler procedures for investors and new financial incentives for industry participants.

Investment prospects he development of renewable energy sources (RES) — particularly from wind, water, solar power and biomass — constitutes a basic policy priority of the European Union aiming at the protection of the environment, security of supply and enhancement of competitiveness. There are several reasons for this: Renewable energy has an important role to play in reducing carbon dioxide (CO2) emissions — a major Community objective: The Kyoto Protocol demands an 8 percent reduction of greenhouse gas emissions in the period 2008-12 (Greece has been allowed an 25 percent increase but has already reached this figure since the year 2000). On the other hand, increasing the share of renewable energy in the energy balance works toward sustainability. It also helps to improve the security of energy supply by reducing the Community's growing dependence on imported energy sources. According to EU Directive 2001/77, the generation of electricity produced from RES should reach 22.1 percent by 2010. The Greek national target is set at 20.1 percent (including large hydro plants) by 2010 and 29 percent by 2020. In order to achieve this goal, RES need to contribute substantially in the energy mix, with wind power taking a leading role next to the large hydro plants (almost 50 percent of the RES capacity). In 2005, the generation of electricity from RES covered 11.5 percent of the total electricity consumption (78 percent produced from hydroelectric units, 20 percent from wind energy and 0.23 percent from biogas). The total installed capacity of wind systems in Greece, which amounted to 371 megawatts in 2003, reached 808 MW in June 2007. Most existing Greek renewable power projects are relatively small in scale. In 2005, 11 new wind farms were installed, with an average capacity of 9.2 MW. Disregarding two very small developments on noninterconnected islands and four slightly larger developments on Crete, the average capacity of wind farms connected on the mainland was 17 MW. The installed capacity of small hydroelectric units that function in Greece amounted to 66.6 MW in 2005. Despite the fact that the country’s hydroelectric potential has been developed to a significant degree up to now, it is estimated that margins of further exploitation still exist. The penetration of other RES remains rather small. In order to achieve

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Ioannis Agapitidis President, Center of Renewable Energy Sources (CRES) http://www.cres.gr/

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the national objective for 2010, a considerable increase of RES produced electricity — almost dou-

Feed-in Tariffs (Euro/MWh)

Power Supply Source

Interconnected System

Non-interconnected Islands

Biomass, Geothermal, other RES, HE-CHP

73.0

84.6

Wind, offshore

90.0

90.0

Wind, Small Hydro,

PV Solar <100kWp

450.0

500.0

PV Solar ≥100kWp

400.0

450.0

Other Solar <5MWe

250.0

270.0

Other Solar≥5MWe

230.0

250.0

FiT Resources: through electricity bills, euros 60c/MWh charge. Validity of Contracts: 10 years (+10y depending on the producer).

ble — is needed in the next three to four years. The Greek Parliament approved the new RES legislation in 2006 and a new law for the promotion of RES — Law 3468/2006, on production of electricity from renewable energy sources and high-efficiency cogeneration — was put into force in order to speed up the licensing procedures and to reform electrical energy production from renewable energy sources. The new law represents a new reality and a landmark in the production of electric energy from geothermal sources, wind farms, photovoltaic systems, hydroelectric stations, solar systems, biomass, cogeneration and aquatic energy. The new bill simplifies the licensing procedures and creates new financial and administrative incentives for the promotion of RES. Among other provisions, Law 3468 stipulates the following: ñ The guaranteed feed-in tariff is increased up to fivefold, especially for the PV systems; ñ The contract period expands from 10 to 20 years; ñ Shorter deadlines are being set for the licensing procedures; and ñ The special levy in favor of local authorities hosting such investments is raised to 3 percent (with the exception of PV producers).


The legislative framework for the licensing procedure, the methodology and the guidelines for obtaining grid connection for RES projects has been further clarified and described in a number of ministerial decisions that followed the law, while recently (April 2007) the Ministry of Development issued the Greek PV investment plan setting clear PV targets and a timetable for all Greek prefectures. Moreover, a major financial support instrument providing substantial public subsidies to RES

Anticipated investment*

Million Euro Wind Energy Small Hydro PV

900 500 3,000

Cogeneration

300

En. Efficiency in industry

500

En. Efficiency in services

35

En. Efficiency in housing

900

TOTAL * in the next 3-5 years

6,135

investment projects is also active. The ‘National Development Law’ (3299/04), which was amended by the New Investment Incentives Law (3522/06), is the financial instrument-umbrella covering private investments in Greece in all sectors of economic activity. It has a strong regional character; therefore, the level of public support depends strongly on the particular geographic region where each private investment is planned. Regions with high unemployment rates and low incomes per capita receive the highest investment subsidies from the state. Investments in RES installations are favored by the new law, placed in a category similar to investments in high technology, environmental protection, tourism etc. The funding concerns cash grants (20-60 percent) or tax allowances (50-100 percent) depending on the region and the size of the company. The following categories in the energy sector are eligible for incentives under the new law: ñ Power generation, in the form of warm water or steam; ñ Production of solid fuels and biofuels; ñ Cogeneration of electricity and heat; ñ Energy production from renewables, and especially wind and solar, hydroelectric, geothermal energy and biomass, and ñ Investment plans for energy saving. A tax deduction incentive was introduced with Law

3522/06. An article that refers to a 20 percent tax deduction for a series of equipment, including offgrid RES systems, thermal solar heating and natural gas systems, thermal insulation retrofits, is included mainly with the aim of assisting in the development and installation of such systems in the household sector. RES incentives are also included in the Greek Operational Program for Competitiveness (Third Community Support Framework — 2000-2006), which is scheduled to be continued also for the 2007-2013 period. The national special spatial plan for RES by the Ministry of Environment, Physical Planning and Public Works is the last main legislative action that is still pending (currently under public consultation), which aims to stress the priority of RES over other land uses and to set specific parameters on the eligibility of RES projects all over Greece. In conclusion, the Greek market is henceforth ready (mainly thanks to the new institutional framework and the upcoming changes from the application of EU directives) to further develop the RES sector. Wind and solar energy (photovoltaic systems mainly), biomass and geothermal energy are expected, in order of priority, to be further developed in Greece and to have a positive effect on the growth of the relevant commercial companies and the employment of important human potential in RES technologies.

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Cover Interest in renewable energy sources (RES) in the most part focuses on wind parks, seen as being one of the more mature branches in the developing energy sector. Meanwhile, favorable financial terms are helping to pry open the door to the photovoltaics industry for small investors. PPC Renewables leads the way through its involvement in RES projects since the early 1980s.

Wind parks leading the way nterest in the Greek renewables market is picking up speed as legislation requires that 20.1 percent of electricity consumed is to be produced from renewable energy sources (RES) by the year 2010. It is estimated that RES close to 3,000 megawatts, primarily in the form of wind parks, would have to be installed by that time in order to meet the target. Above and beyond the 2010 target, which is unlikely to be fully met on time due to the sheer magnitude of the task, it is probable that in the more distant future this target will be surpassed by leveraging the enormous potential for electricity generation from solar and wind power in Greece. This could be potentially underpinned by a progressive reduction of CAPEX cost structures, enhanced electricity network inter/intraconnections and more simplified investment processes. The lion’s share of RES investment for meeting the 2010 target is expected to be absorbed by wind parks due to the relative maturity of this RES sector. Photovoltaic (P/V) and small hydroelectric plants (SHEP) will contribute somewhat toward the

I

‘The photovoltaic industry is less mature but is evolving fast, underpinned by European Union and Greek state financial incentives.’

Anastasios Garis Chief Executive Officer PPC Renewables www.dei.gr

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target while other RES sectors, such as biomass, are less mature at this stage. The wind park investment business is well understood among the key industry players, given the relatively mature status of the industry. There is capacity of some 760 MW currently, about 1,510 MW with installation and/or network connection licenses and around 5,500 MW with production licenses. The projects with installation and/or network connection licenses mostly relate to wind parks with good value — and potential — that will be built before or around the 2010 target date. Adequate financial incentives from the state and relatively easy access to debt financing for the right projects would help to speed

up the investment process but access to wind turbines and completion of the permit processes could remain a limiting factor, especially for the smaller players. The industry remains very fragmented at the tail end but recent M&A activities have reinforced the concentration at the top end with 50 percent of the currently installed capacity being owned by four players and 60 percent of the installation and/or network connection licenses held by five. This level of concentration will probably increase to facilitate easier access to key materials and cost savings from economies of scale. The photovoltaic (P/V) industry is less mature but is evolving fast, underpinned by European Union and Greek state financial incentives. The nature of P/V applications, unlike that of wind parks, also opens the door for small investors to


enter the market with relatively small local projects with favorable financial returns. While relatively large projects (say above 1 MW each) complement electricity production from other energy sources by carrying them via the network, a large number of relatively small projects dispersed across the country will assist the provision of electricity to local communities without the need to overload the wider network. These and other similar initiatives by the European Union and its members states have attracted the interest of many investors for the installation of P/V plants and so the industry is expected to grow dramatically. This has in turn encouraged manufacturers and suppliers worldwide to invest heavily across the R&D, upstream/downstream manufacturing and supply chain of the P/V industry, which will hopefully

result in the further development of current and new technologies, lowering the cost structure for the investor and opening the door for a wider range of applications. In Greece, the potential for P/V applications is significant and the state has published a program of permit allocations that allows for 640 MW on the mainland and islands that are connected to the mainland network, as well as 200 MW on the rest of the islands. Moreover, another 80 MW will be allocated for P/V plants that will directly assist with environmental improvement at lignite mines. A subsequent program, at a later stage that would extend these targets to fully leverage the solar power potential in Greece, would be beneficial to all once reduction of the investment cost structure allows for a significant reduction (or even elimination) of the state’s and the consumer’s

financial burden from the P/V subsidies and feedin tariffs respectively. PPC has been the protagonist in RES investment in Greece, having started to build wind and P/V parks in the early 1980s. Currently, through its wholly owned subsidiary PPC Renewables (PPCR), PPC has 85 MW of RES plants in operation, 58 MW under/or near construction and over 200 MW at various stages of the permit allocation process. PPCR’s strategic intent is to grow significantly in the Greek market, investing across all RES sectors, leveraging its longstanding expertise in the industry and current portfolio of plants and permits. Part of PPCR’s growth strategy is to seek and implement innovative solutions for the electricity production needs of the Greek islands and partnering with other reputable companies in the sector on a win-win basis.

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Themes Marine tourism is displaying significant growth this summer, hand in hand with the favorable prospects of Greek tourism as a whole. However, there are certain issues that this sector is facing which have not been resolved.

Marine tourism on the rise By Maria Vasileiou reece is once again becoming a major international tourist destination and development prospects for the entire sea tourism sector, as well as companies dealing with the exploitation of the country's yachting marinas, are highly favorable. To a large extent, this comes as a result of the successful organization of the Athens 2004 Olympic Games, but recent communications and advertising programs as well as participation in international tourist exhibitions that the Ministry of Tourism Development has undertaken have also had a significant positive impact. ‘Marine tourism is on the rise,’ Antonis Stelliatos, president of the Union of Shipowners of Greek Tourist Vessels, stressed during the 6th International Yachting Symposium, which was held recently on the island of Poros. According to Stelliatos, this fact is

G

38

encouraging and highlights how important a role marine tourism plays in the Greek tourism sector as a whole. However, he emphasized that further development needs governmental support. Stelliatos mentioned that the minister of tourism development, Fani Palli-Petralia, succeeded in repositioning Greece as ‘your vacation destination' in the minds of all foreign tourists, due to her continuous travels in order to promote the country abroad, in combination with the ‘Explore your senses in Greece' campaign. Representatives of the yachting management sector describe 2006 as a positive year on the whole as sea tourism increased and yachting marinas have been filling up. Increased demand has come from the professional yachting sector, as hiring Greek yachts is becoming increasingly popular among visitors from

the UK, the Netherlands, Germany, Sweden and other European countries. Increased demand has also come from large private yachts. According to the Union of Shipowners of Greek Tourist Vessels, the increased demand for up to 49passenger yachts in 2006 reached 100 percent to 150 percent compared to 2005. The increase for vessels between 21 and 50 meters with a crew was smaller but still very significant (+20-25 percent), while motor boats without crew and sailing boats (up to 20 meters) increased by 15-20 percent. The richness and diversity of the Greek seas, the endless miles of Greek coastline, and the thousands of islands, pristine beaches, moderate climate, extended sunlight and interesting and diversified scenery make Greece an ideal destination for the development of sea-related tourism. All this is augmented by Greece's marine heritage that dates back thousands of years, and its favorable conditions for sea travel. The Greek seas are considered among the safest in terms of maritime dangers, the distances between coasts are short, and conditions related to the strength of winds and temperatures of land and sea are also favorable. Sea tourism began to develop in Greece in the 1960s and, especially in recent years, has been increasing at a fast rate. Cruise ships sailing under the Greek flag that embark on cruises to the various Greek and Eastern Mediterranean ports amount to over 160,000 GT (gross tons) and can carry more than 10,000 passengers. However, cruise ships under foreign flags also visit Greek ports, carrying more than 500,000 passengers per year to the coastal borders of this country. Last year cruise vessels that visited more than four Greek harbors during their trip carried 1,244,694 passengers. This figure represents an increase of 6.14 percent compared to 2005. But, according to Stelliatos, the tourist vessel sector in Greece needs the government’s support. ‘There are 2,500 boats flying the Greek flag, 750 of which have a crew,' he said, ‘and the entire political leadership should realize the unique resource that these boats represent for Greek tourism.' According to the president of the Union of Shipowners of Greek Tourist Vessels, ‘the Merchant Marine Ministry should acknowledge the important role of the 2,000 Greek men who are members of crews on these vessels and subsidize their social insurance fund. These men help shape the image of Greece held by foreign tourists.'


Competition and perspectives There is still room for further development of marine tourism in Greece as there are a few privately managed Greek marinas that offer comparable services to those directly competing in the Adriatic Sea and the Eastern Mediterranean â&#x20AC;&#x201D; mainly Croatia, Italy and Turkey. These countries do not have such extensive coasts and variety and number of islands, but they have managed to create more marinas than Greece. Furthermore, marinas in Greece that are under state control need further development and better maintenance as well as better infrastructure. Government initiatives appear to point in this direction. Greece's main competitor is undoubtedly Croatia, which has almost 50 modern marinas comprising 13,200 docking berths. Also, Turkey has been investing significantly in the sea tourism sector during the past few years. In Greece there are more than 1,250 ports of all kinds, while privately managed marinas number less than 30, including the ones that will be allocated to the private sector in 2007. According to the latest available financial data for 13 businesses in the sector of marina management, 11 have increased revenues, reaching an average rate of increase of 19 percent. However, the majority of businesses have not been profitable at the operating and net profit level, as a consequence of significant administrative and financial expenses, reaching 31 percent

and 13.7 percent of total revenues respectively. According to a study by Hellastat, there are a series of conditions and recent developments that create a favorable outlook for investing in the sector: First, the Greek authorities are promoting the development of alternative kinds of tourism aiming both at differentiating the tourist product of Greece against competitive countries and at extending the tourist season to 12 months per year. In this context, there are plans for the development of sea tourism, mainly through the commitment of funds from the 4th European Community Support Framework. Second, another funding protocol of 25 yearsâ&#x20AC;&#x2122; duration, amounting to a total of 3 billion euros, was signed in June 2005 between the Merchant Marine Ministry and the European Investment Bank. Its objective is the development and modernization of the country's sea infrastructure (port installations, marinas) for the period 2005 to 2015. Third, the Merchant Marine Ministry passed an amendment in Parliament in December 2006, according to which the Bay of Dermata, belonging to the Orga-

nization of Iraklion Port, will be used for the development of a marina for large vessels. This is one of the first steps in leveraging the protocol mentioned above in the sea tourism sector.

Continuous improvements Sea tourism is due to develop even further along with continuous improvements in Greek tourism. Greek tourism has entered into a period of continued increases in tourist arrivals. The 2004 Olympic Games in Athens increased tourist interest in Greece, revealing that the Greek tourist sector has considerable resources that can contribute to even more significant increases in tourism arrivals and revenues. According to the latest available data, the arrivals of foreign tourists in 2006 (excluding cruise ship passengers) increased by 8.6 percent. Just over 16 million tourists visited Greece in 2006. This year it is estimated that the country will host even more visitors.

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Markets ENERGY SECTOR research

The electricity market deregulation and privatization throughout Europe is currently a hot topic, mainly due to the following reasons: 1. Market liberalization/privatization is a highly politicized matter globally. 2. Various groups advocate changes to provide the greatest benefit to their members (e.g. oil industry vs renewables). 3. Sociopolitical interests such as public sector labor unions are actively opposing the liberalization, favoring inflexible labor laws, and pay wages above the private sector in a risk-free environment. 4. The anti-trust crackdown injects a dose of uncertainty among investors and politicians, as it is difficult to foresee the outcome at this stage. The global trend is evident and the momentum toward liberalization of the electricity industry continues around the world, though at varied rates of progress. In Greece, the power market is one of the least open in the European Union, as the Public Power Corporation (PPC) and the government own almost all of the power and transmission assets. Greece faces the same issues as all other European states regarding market liberalization and deregulation in the electricity field. We are past the July 1 2007 deadline when every customer in Greece was supposed to be able to purchase electricity from the supplier of his/her choice. Furthermore, we are way past July 1 2004, when all commercial and industrial customers in Greece were set free to choose the supplier of their choice. Yet there remain a lot of obstacles to the market’s further opening. On January 11 2007, the EU Commission presented its findings regarding the electricity market’s liberalization throughout Europe. In particular for Greece, the findings pointed to PPC’s market dominance and lack of transparency, while the Commission harshly criticized the current regime of tariff regulation as one that does not offer viability, supply security and competitiveness to the country. On the positive side, Greece is a fast-growing yet ‘underpowered’ electricity market in Europe. There is a need for at least 300-400 megawatts installed capacity to enter the Hellenic Transmission System Operator’s (HTSO) system annually to keep up with the growing consumption in Greece. However, there are many major problems, such as the: ñ Slow-occurring regulatory framework changes in Greece, compliant with the EU directives, including the definition and calculation of the (SMP) calculation method and adoption; and the HTSO’s bidding process for the new electricity capacity that is progressing very slowly (900 MW) as not a single competition has officially been awarded; ñ Inflexible labor laws governing significant headcount reduction and pay raises; ñ Political indecisiveness of recent governments, causing significant delays and the lack of bipartisan cooperation prohibiting the parties from reaching a consensus regarding how they will implement the EU directives on deregulation; ñ Regulated tariffs, the most sensitive and controversial issue, as at one end of the spectrum it is the entire Greek society as the end-user that will be affected by any tariff increase and this implies a big political cost to any gov-

Securities 40

ernment; while in addition, because the electricity tariff is an important input in the prices of industrial goods and because it is included in the calculation of the Consumer Price Index (CPI), the government uses it (the tariff) to control and keep inflation low. The (residential) electricity tariffs have been increasing at inflation rate but they will significantly increase after 2008 as PPC’s electricity tariffs will need to significantly increase to reflect the company’s costs, prior to reducing on the back of the competition that will exist at the time; ñ Tariff unbundling that in turn would result in ‘ownership unbundling’ — forcing the large energy suppliers to relinquish the pipelines that make up the transmission networks — is a hot topic and highly debated in the EU currently. The EU supports the view that competition among generators will intensify as a result, as a company cannot focus on the entire electricity value chain. Opponents disagree, proposing instead to retain ownership of their transmission networks but give the network management to separate companies, the independent system operators (ISO). The Regulatory Authority for Energy (RAE) has authorized PPC’s unbundled accounts for the period 2002-2006; ñ Low-cost lignite competitive advantage, as the EU has dictated that PPC’s exclusive lignite use rights need to be abolished and, thus, PPC cannot participate in the bidding; ñ Potential PPC placement that could only occur past 2008 during a likely second four-year New Democracy government term. In our view, such a prospect would be a positive one as the pressure from the majority shareholders could push things forward at PPC regarding its longawaited restructuring, as the government simply cannot make harsh decisions on issues such as layoffs and/or voluntary exits, significantly increased tariffs, or expedited construction of the replacement units (2,500 MW). Furthermore, regarding electricity generation from renewable energy sources (RES), the aim is to have renewable energy sources comprising 20 percent of the country’s energy needs by 2010. Currently, it stands at 10 percent (2006). In our opinion, bureaucratic obstacles may not decrease as quickly as the market expects following the announcement of the land-planning law. This is attributed to the following: ñ Wind park operators were not invited to participate in the consultation process of the new land-planning law. Electric power company Rokas admits that if the new law is passed as drafted it will limit the size of its budgeted portfolio of projects in terms of MW, primarily in the case of the Mammoth project; ñ The new law passed in July 2006 reduced bureaucracy in some procedures but increased it in others. We expect that the delays previously evidenced at the installation license phase will now impact the production license phase. We think that the Greek market cannot cater for more than 3,000 MW of wind capacity because connectivity issues and constraints arising from the new land-planning law will have to be addressed. In our market estimates we assume 3,000 MW by 2010 and 5,400 MW by 2020. The 2020 20 percent binding RES target set by the EU earlier this year is a positive development for the stability of the legal framework but it is not a growth target for Greece because, based on current market projections, RES may cater for 18 percent of country demand by 2010.


Motor Oil Hellas The key players in the Greek energy market reported the following results for Q1 07 so far: ñ PPC announced its Q1 07 results; lower on the revenue side but higher at an EBITDA and net profit level, from both consensus estimates and ours. The results were anticipated — and are — bad overall but came in slightly better than expectated. Revenues came in at 1.242 billion euros, up 3.5 percent year-on-year, EBITDA was 235 million, lower by 20 pct y-o-y, while net profits reached 41 mln, down by 54 pct from last year. Profit margins continue to shrink at all levels as: The EBITDA margin reduced by 5.6 pct to 19 pct; EBIT margin by 5.1 pct to 7.6 pct and net profit margin by 4 pct to 3.3 pct. Our view of the results was poor as revenues may continue to increase, albeit at a smaller rate, but at an EBITDA and net profit level results were lower. Despite PPC’s improved expectations for cost cutting, we believe that this restructuring effort needs further evidence proving (the effort’s) sustainability. ñ Endesa Hellas, the joint venture between Mytilineos and Endesa, will construct a 600 MW coal-fired power plant while it also possesses a 400 MW production license for another combined cycle gas turbine (CCGT) plant in Volos. Endesa Hellas aims at developing 750 MW of installed capacity — possibly to 1,200 MW plus another 1,000 MW under construction plus renewables. ñ Hellenic Petroleum’s T-Power entered HTSO’s system in December 2005 posting losses of 2 mln euros. However, the company reported in its full-year 2006 results sales volume increasing to 1,905 TWh, revenues amounting to 145 mln euros (amid a HTSO high system marginal price [SMP] in the high 70 euros/MWh) and an EBITDA contribution of 31.1 mln euros to the overall results. Reporting Q1 07 results, the EBITDA y-o-y doubled to 10 mln euros stemming from Q1 revenues of 38 mln and volume of 477 TWh. ñ GEK-Terna Group has set the objective of accelerating the development of its (RES) generation facilities that are to reach up to 1,600 MW by the end of 2012. The group also examined a potential IPO of Terna Energy and will proceed with the listing of the company by year-end 2007. The GEK-Terna Group already operates Heron SA, the gas-fired 147 MW plant that in 2006 generated revenues of 33.6 mln euros, EBITDA of 15.7 mln euros and profits before tax of 9.4 mln. The group aims to be the largest energy producer (IPP) in Greece within the next three years. ñ Rokas results were mixed vis-a-vis our estimates, lower in terms of electromechanical revenues and EBITDA but higher in terms of net income. Wind energy growth was primarily driven by a 10 pct increase in invoiced output arising from strong winds at the Patriarchis Park and new capacity of 4.8 MW at Modi-Crete. Net profit was once again positively affected by non-recurring items, i.e. lower-than-expected net interest expenses due to interest rate swaps and a low effective tax rate at 12.5 pct attributed to a reversal of tax provisions. Capex amounted to a mere 0.6 mln euros, implying a delay in the execution of the investment program. On the other hand, efficient receivables management at a parent level led to increased operating cash flow. In our opinion bureaucratic obstacles may not decrease as quickly as the market expects following the announcement of the land-planning law.

Motor Oil Hellas (MOH) was established in 1970, comprising a crude oil refining unit, a basic lubricant production unit, a jetty with loading terminal, and truck-loading terminals. In 1996, Saudi Aramco bought a 50 pct stake while in 2001 the company was listed on the Athens Stock Exchange (ATHEX). Four years later in 2005, Aramco pulled out and Motor Oil Holdings SA reacquired its aggregate stake. The company is one of the biggest employers in Greece with a work force of 1,157 persons; 971 worked at the refinery and 186 at company headquarters (Dec 31 2005 data). Motor Oil delivered a mixed set of results in the first quarter of 2007 — below consensus and our estimates but anticipated, amid a rather negative operating environment. Group revenues stood at 808 mln euros, down by 14.8 pct y-o-y, EBITDA at 56.1 mln euros, down by 28.7 pct, and net profits at 25.7 mln, down by 40.2 pct y-o-y. The lower (MOH) refining and trading margins, the weaker US dollar and lower oil prices hit the company’s earnings, in addition to the lower volume sold. On the investment negatives, we highlight the refining margin volatility as a problem that can negatively drive a refinery’s performance, as very clearly demonstrated in the first and second half of 2006. The ongoing devaluation of the US dollar is another concern, as refining margins (thus profits) are quoted in dollars and operating costs in euros. However, we have solid reasons to remain buyers on the MOH stock as the company: a) is better positioned strategically among its competitors due to its hydrocracker unit, one of the very few in SE Europe; b) maintains a continuous improvement philosophy and aggressively exploits new markets and products; and c) will generate high cash flows amid the reduced future capex. Moreover, management presents an investor-friendly philosophy and a solid track record while certain investment plans such as for a new unit of lubricants — a high profit margin product — and the 50 pct capacity increase of the refining of crude oil are all reasons for optimism. Finally, the Eastern Mediterranean is a booming market and the Greek market is solid, as demand has grown for diesel and gasoline products, in addition to the significant diesel shortage and the stricter 2009-EU specs. Since January 1 the stock has delivered a positive 2.4 pct performance (July 13 2007) but in relative terms it underperforms the ATHEX General Index by 11.9 pct. In addition, Motor Oil’s stock continues to trade at an expensive to peers P/E ratio of — usually — around 16.0x while the consensus sees an even higher P/E of 19x, implying an even lower EPS than our 2007 estimate for the same current price. Nevertheless, in our view the company is in a better position to deliver results and is more resilient to oil price moves than most of its competitors, thus, the higher valuation is justified. Additionally, the stock still trades below our target price per share of 23.60 euros — an 18.3 pct discount based on current prices. As Motor Oil is always looking for new markets to exploit — products (e.g. lubricants), venues and revenue-enhancing ways — we remain firm on the company’s investment case, while we highlight that there may be catalysts ahead such as a potential — and much speculated upon by the press — cooperation with Russia’s Lukoil, not to mention the shift of investor interest toward the refining sector once more now that global oil prices have been picking up again.

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Themes Greek cuisine is ideal for sharing and its variety reflects the distinct characteristics of the country’s land and sea. Contemporary Greek cuisine respects the exquisite quality and simplicity of traditional ingredients, such as olive oil, olives, feta, Greek yogurt, honey, saffron, gum mastic, seafood, wine and ouzo. The Hellenic Foreign Trade Board has undertaken initiatives to spread the word around the world with positive results for Greek food exports.

Rich tradition — modern lifestyle ‘

By Maria Vasileiou 42

e have decided to redefine and reposition Greek food products in markets around the world. Our goal is to promote these products by using contemporary marketing techniques and by integrating Greek cuisine in the modern lifestyle.’ Panagiotis Drosos, chief executive officer of the Hellenic Foreign Trade Board, has set high on his agenda the effort to introduce Greek food and the country’s unique products to people all around the world. The Hellenic Foreign Trade Board (HOPE) and the Ministry of Economy and Finance, in close collaboration with associations of the food and beverages sector, the ministries of Development, Rural Development and Food and Tourism, and the Greek National Tourism Organization have formulated an idea to promote the country’s untapped wealth of delicious foods and beverages through Greek gastronomy and tourism. ‘Kerasma’ is the name of the campaign which aims to bring Greek food, wine and beverages closer to the minds, hearts and palates of consumers and trade professionals around the world. ‘Through a series of activities, which aim at promoting the quality, the uniqueness and the quantity of our products, we are trying to promote new gastronomy proposals and, ultimately, Mediterranean dietary habits,’ said Drosos during the second international Kerasma conference on Greek gastronomy and the food, wine and spirits industry, which was held on Crete at the beginning of June 2007. Due the HOPE’s initiatives, awareness of Greek food products has increased significantly. According to the latest available data, Greek food and wine exports increased by 8.9 percent in 2006 compared to a year earlier, and by 36.5 percent compared with 2004. According to Drosos, the upward trend will continue this year. He estimates that at the end of the year Greek food and wine exports will have increased by 50 percent over a three-year period. Contemporary Greek cuisine reflects the distinct characteristics of the land and sea it evolved from, bridging the ancient and modern. It springs from the tradition that generations of cooks have passed on, always respecting the exquisite quality and simplicity of traditional ingredients, such as olive oil, olives, feta cheese, Greek yogurt, honey, saffron, gum mastic, seafood, wine and ouzo, that flourish in the temperate Greek Mediterranean climate, and transforms them into nourishing and simple-to-make dishes. The branded treat — Kerasma — is meant to impart the message that Greek cuisine is an ideal cuisine to share. As part of the Kerasma initiative, a team of the country’s top chefs work to create simple and nutritious recipes which reflect contemporary Greek cuisine. Acting as an ambassador brand, Kerasma encompasses the core values of Greek lifestyle: enjoying good food, drinking fabulous wines and beverages and sharing precious moments with family and friends. Kerasma reveals the values of Greek Mediterranean gastronomy. It brings the pleasure of food and beverages to the everyday table. Kerasma has traveled the world promoting Greek cuisine. Presentations have been held in numerous cities around the globe, including Budapest (at the dinnergala organized by the Greek ambassador to Hungary, Kerasma was presented to representatives of import companies, distribution companies, hotels, tourist agencies and foreign diplomats), London, Cologne, New York, Paris, Tokyo, Moscow, Melbourne and Beijing, as well as various Greek cities, including Athens. Under the initiative ‘Foods from Greece — Real Taste, Great Living,’ HEPO is promoting Greek foods abroad.

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The ancient Greeks were the first to cultivate the olive tree for its precious products: olives and olive oil. The olive tree, harmoniously tied with the Greek landscape, is a symbol of social and religious values, progress, peace, affluence, wisdom and fame. Olive oil was called ‘liquid gold’ by Homer, and the ‘great healer’ by Hippocrates. Today, Greece still relies on the olive tree. There are 120 million olive trees in Greece or, to put things into perspective, 12 olive trees for every Greek citizen. Greece is the world’s third-largest producer of edible olives and olive oil, with a 16 percent share of the international olive oil market. Some 450,000 families depend on olive oil production as a primary or secondary source of income. Production is scattered all over the country, although the Peloponnese and Crete account for over 65 percent of total production. The average annual olive oil production is 350,000 tons. Eighty percent of Greek olive oil produced is of the extra-virgin variety, which is the top-ranked classification category in the world. This makes Greece the world’s largest producer of extra-virgin olive oil. The superior quality of Greek extra-virgin olive oil is appreciated by the international trade, which is the reason why 150,000-200,000 tons of Greece’s best olive oil are exported to Italy and Spain and sold at a premium price, in comparison to that from other countries. At an international level, Greece enjoys the largest per capita consumption of olive oil, with the average Greek consuming more than 15 kilos annually. Spaniards come in second place, with 11 kilos per capita consumption per annum. Biological olive oils and olive oils of controlled origin are becoming a trend in the internal market, demonstrating growth of more than 30 percent annually.

Nowadays, Greece produces about 120,000 tons of table olives per year. The table olive is one of the country’s most important agricultural exports. The harvest begins in October for table olives and continues for about two months, depending on the type of olive and where it is cultivated. Green olives — essentially less ripe than their darker counterparts — are harvested first; next come the plump black olives that are among the country’s best-known snacks: tightskinned Kalamata olives with their pointy, nipple-like tips; juicy Amfissas in an array of browns, blacks and purples. Last to be plucked from the tree is the wrinkled black variety, which matures on the branch, can be harvested as late as March, and is cured in coarse salt rather than brine.

Honey

Olive oil

Olives

Greek honey is globally famous for its exceptional quality, its unique aroma and its rich taste. This advantage derives to a great extent from the rich Greek flora, which comprises numerous wild plants and herbs. In Greece, 12,000 tons of honey are produced annually. The vast majority of forest honey production is pine honey, fir honey and oak honey. There are about 25,000 beekeepers in Greece and about 1.3 million hives. Despite the density of hives — one sees them all over the countryside — production is relatively limited. Figures vary depending on the source, but production is fairly stable from year to year.

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Saffron is the most precious and expensive spice in the world. The filaments, or threads, are actually the dried stigmas of the saffron flower, Crocus sativus Linnaeus. Each flower contains only three stigmas. These threads must be picked from each flower by hand, and more than 75,000 of these flowers are needed to produce just one pound of saffron filaments. Today, the greatest saffron-producing countries are Greece, Spain, Turkey, Iran, India and Morocco. The largest saffron importers are Germany, Italy, the USA, Switzerland, the UK and France. The history of red saffron in modern Greece starts in the 17th century, when red saffron was cultivated in the area of Kozani in Macedonia. For more than 300 years, Greek red saffron has been systematically cultivated in an area including many small towns of Kozani in Western Macedonia. Kozani saffron is globally accepted as among those of the highest quality. According to European Union Law (378/1999), Kozani saffron has been accepted and established as a Greek product, and so Greece is the only country that has the right to produce it. The quality production and packing methods for Kozani saffron has majorly contributed to the international promotion of Greek products.

Yogurt

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Saffron

Gum mastic

Gum mastic comes from the resin that seeps like teardrops from the bark of the mastic tree (Pistacia lentiscus). It is an exclusively Greek product, because although the mastic tree grows in many places it only sheds its tears, thus producing its valuable crystals, on the Aegean island of Chios. Care for the mastic groves is a year-round job carried out by the families of some 4,850 members of the mastic producers’ union. According to European Union Law (123/1997), Chios gum mastic has been accepted and established as a Greek product, and so Greece is the only country that has the right to produce it. Chios gum mastic is one of the quality Greek products that will be featured at the 1st International Conference.

Yogurt production is about as ancient as that of milk. It was the first and most immediate way to preserve milk by extending its life for several weeks. Greek yogurt, renowned the world over for its quality, density and unabashed, delicious sour taste, is a product of the country’s pastoral traditions. Today consumers can find a vast variety of premium-quality Greek dairy products. Their refined taste and premium quality put them at the top of Greek and foreign consumer’s favorites.

Seafood

Themes

Greece is a country with a long tradition in quality seafood. With a 4,000-kilometer coastline around the mainland, plus a further 11,000 kilometers around the islands, Greece offers excellent conditions for fishing operations: The country’s waters are home to about 250 types of marine creatures. The majority of Greek coastal fishermen still use traditional methods with 5-6-meter boats, which constitute 90 percent of the total fleet. The Greek sea fishing industry produces 130,000160,000 tons of fish and other seafood every year. About 90 percent is caught in the Aegean Sea. The most important species are sardines, anchovies, seabream, seabass and Mediterranean mussels. The catch taken from the Ionian Sea to the west of Greece mainly consists of European anchovies, pilchards and picarels, whereas in the Mediterranean and Black Sea regions several thousand tons of swordfish, long-finned tuna (albacore) and frigate tuna are caught. The country’s inland freshwater fisheries catch about 20,000-30,000 tons a year. In volume terms, anchovies and Mediterranean mussels are the main species, followed by sardines. The remainder of the catch consists of a broad spectrum of marine fish. Aquaculture supplies more than one-third of Greek fish production. With an annual growth rate of about 10 percent, aquaculture is one of Greece’s fastest-growing industrial sectors. The most important farmed species are seabream, seabass and — although in smaller quantities — rainbow trout, European eel and carp. In the meantime, Greece produces 60 percent of the seabass and seabream farmed in the European Union and nearly half of worldwide production. Three-quarters of production is exported to EU member states. The most important European markets for seabass and seabream are Spain, France, Greece, Turkey and Portugal. Demand is also growing in Central and Northern Europe. The most important destination for Greek fish in general is Italy, but demand is also growing in Germany, France, Great Britain and Spain. Greece mainly exports live, fresh and chilled fish and seafood, less so processed products. Mussels (Mytilus spp., Perna spp.) are at the top of the list of marine export production, second place is held by seabream (Dentex dentex, Pagellus spp.), fresh or chilled, and in third place is seabass (Dicentrarchus labrax), fresh or chilled. The fish canning sector exports more than 1,600 tons of produce, mainly mussels and molluscs, every year — most of them to France, Albania, Germany and Italy. In the frozen fish export sector, it is sardines (Sardina pilchardus) which dominate, mainly going to Italy, Serbia, Montenegro, Romania and Bosnia-Herzegovina. In the category ‘dried, salted, in brine or smoked seafood,’ Greece mainly exports anchovies. With regard to the main export products, seabass and seabream, Greece’s export capacity is still not exhausted.


Aromatic plants

Ouzo

Ouzo is a globally famous Greek aperitif. It is an anise-flavored liqueur that is widely consumed throughout the country. Ouzo is exported throughout the world and is one of Greece's most sought-after products. In 1932, ouzo producers developed the method of distillation using copper stills, which is now considered the canonically proper method of production. The resulting spirit is stored for a few months, and then diluted, usually to around 40 percent ABV. When water or ice is added to ouzo, which is clear in color, it turns milky white; this is because the etheric oils are soluble in alcohol but not water. Diluting the spirit to less than around 40 percent ABV causes it to separate into an aqueous and organic solution whose fine droplets refract the light. This well-known aperitif, according to European Union Law (1576/1989) has been accepted and established as a Greek product, and so Greece is the only country that has the right to produce it. Nowadays in Greece there are almost 300 different ouzo producers, with exports worth 2.4 million euros.

Since antiquity, Greeks have been using aromatic plants for their healing attributes and their nutritional value. Nowadays, there is a growing awareness that certain plants possess healing qualities, which is leading to a change in attitudes as pharmaceutical companies search for new cures for modern diseases such as cancer. Herbs are still part of the healing tradition of Europe and North America. The past few years have witnessed a continuously increasing global interest in Greece’s aromatic plants and their multiple uses. Greek and international companies are using such plants for the production of cosmetics, medicines and foods. Throughout the country Greeks enjoy the therapeutic benefits of a variety of herbs: chamomile, lime, sage, mountain tea, mint, spearmint, thyme, fennel, aniseed, St John’s wort, lavender and oregano can still be found in the modern home.

Wine

Since the days of Homer Greece has been producing quality dairy products. Feta is arguable the best-known Greek food abroad. The European Union granted Greek feta PDO (Protected Designation of Origin) status and issued a decree prohibiting other European countries from using the name feta. In Europe, similar cheeses now must be called ‘brined white cheese.’ Within Greece, feta can be made only in specific regions: Macedonia, Thrace, Thessaly, Central Mainland Greece, the Peloponnese and Lesvos. Feta is a simple cheese to make. Production abides by very specific rules that control the manufacture and the allowed percentage of goat’s milk in the cheese. Feta is made predominantly with sheep’s milk, although a small percentage of goat’s milk (up to 30 percent) can be added. Cow’s milk is never used in the production of true feta.

Raisins

Feta cheese

Greece, the renowned birthplace of Dionysus, the ancient god of wine, has arguably the longest wine history in the world, as well as the richest heritage. Today, there are more than 500 companies active in the wine industry in Greece, both in the private and the cooperative sector, the majority of which have wine production as their exclusive activity. The quality of Greek wine is owed to the country’s climate and the know-how of its wine companies.

Raisins are one of the most important traditional Greek products. They are produced in many areas of Greece, especially in the Peloponnese, Crete and on smaller islands. The main variety is the sultana. The grapes are mostly sun-dried, thus producing seedless raisins of an average size and golden color. A notable exception to this rule is the grape variety cultivated especially for the purpose of raisin production in Corinthia, which are darker and smaller and known as Corinthian. Corinthian raisins are not seedless.

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Themes

Kerasma — great living

year-and-a-half has passed since we at the Hellenic Foreign Trade Board (HEPO) initiated the Kerasma campaign and in that time Greek food and beverage exports have increased more than 42 percent, to 2.93 billion euros between 2004 and 2006. The success of the Kerasma campaign is unquestionably linked to the increase in food and beverage exports and we here at HEPO are proud of its achievements. HEPO, together with key representatives of the Greek food and beverage industries, has embarked on an Odyssey of sorts: to bring the range of top-quality foods and beverages of Greece to a worldwide audience through a unique, branded initiative. We chose a Greek word — Kerasma — which means treat or offering. Kerasma encompasses all the hospitality of the Greek table. When used in Greek, Kerasma often refers to the offering of small plates, meze, Greece’s most convivial and versatile dining experience. Since it began, Kerasma has been at the heart of some of HEPO’s most successful activities in the international market. With Kerasma as our vehicle, we’ve forged new business partnerships by opening up new markets and upgrading the image of Greek products in existing markets. Beyond such tangible achievements, though, Kerasma means something else to us here at HEPO. The campaign’s success has shown us that our strategy is the right one, our direction correct. Greek exports have been on such a positive course, evinced by the biggest growth rate in years, that now we are thinking ahead to how we can achieve an Chief Executive Officer even bigger increase and intensify our Hellenic Foreign presence abroad. Trade Board (HEPO) We face a few challenges: how to www.hepo.gr attract the interest of business and food and wine professionals abroad, and how to broaden and systemize our interaction with reliable distribution networks in target markets. We here at HEPO believe that only through a continuation and strengthening of activities that illustrate all the unique characteristics of Greek food and beverages will we be able to sustain and augment our successes abroad: ñ By identifying Greek food and beverages with Greek-Mediterranean nutrition, a model that is now an internationally acknowledged vehicle for balance, health, well-being and longevity; ñ By incorporating food with the entire Greek culture, the Greek way of living; ñ Through original, qualitative ways of presentation and marketing. Food and beverages are indelibly linked to quality of life, which is an indisputable ingredient in the commercial success of culinary products. With that in mind, we have created a new communications tool — a slogan — that will support all our activities, embrace our products, and incorporate and boost the notion of offering of Kerasma. We have a great lifestyle, a great table, a great vineyard here in Greece, and our new slogan relays that with immediacy and precision: ‘FOODS FROM GREECE, REAL TASTE. GREAT LIVING — WINES FROM GREECE, REAL FLAVOR. GREAT LIVING.’

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Panagiotis Drosos

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Greek Economy & Markets - Issue 3