A DEAL IS ON THE TABLE

The question of the purchase by the State Oil Company of Azerbaijan (SOCAR) of the Greek gas distribution company DESFA could be close to completion. Certain concessions by both sides have helped bring about this long drawn-out compromise, although in the summer of 2013 few people could have predicted any problems in what appeared to have been a done deal.

In 2012-2013 Greece attempted the massive sale of state property in order to seek funds to top up a budget that was falling apart at the seams. Sea and air ports, the DEPA and DESFA energy companies, and so on, were put up for sale. At the time, SOCAR won a tender for the purchase of shares in DESFA, and in December 2013 the sides drew up an agreement. The contract provided for the purchase of 66 per cent of DESFA's shares for 400m euros. SOCAR purchased 31 per cent of the shares of the company from the Greek government and 35 per cent from Hellenic Petroleum SA. The remaining 34 per cent of shares were left in Greek state ownership. But until now the deal had not been completed. First the European Commission (EC) intervened, launching a procedure to check that the deal complied with anti-monopoly legislation. And the coming to power of the Syriza coalition in Greece only aggravated the situation. 

Almost immediately the new government stated its intention to review the contract with SOCAR and even announced plans for a possible change in the conditions of the agreement on the Trans-Adriatic gas pipeline. The latter question was quickly resolved - the new Greek energy minister explained in Baku that the agreements on TAP were of an inter-governmental nature, and no-one had the right to change them based on a change of government. As far as the deal on the sale and purchase of DESFA is concerned, this question was also left hanging in the air. Moreover, the new Greek government had more than once expressed the wish to retain a package of this asset. SOCAR, however, which by then had even made an advance payment, insisted on completing the deal on the conditions agreed. The European Commission was also unable to make a decision on this deal. SOCAR's president, Rovnaq Abdul-layev, repeatedly said that the company had answered all the European Commission's queries about the purchase of DESFA.

It is probable that the EC itself deliberately marked time so that both parties could reach an acceptable compromise. On the one hand, the EC was impelled to take into account the opinion of the Greek government, and on the other Azerbaijan is a new source of gas for Europe, and attempts to completely block the deal could have a negative impact on subsequent cooperation. At the same time, SOCAR claims that Greece ought to be more interested in selling the asset than SOCAR is in purchasing it. Although the Azerbaijani State Oil Company does not believe that the purchase of DESFA is in any way linked with the implementation of the TAP project, some influence cannot be discounted. SOCAR is striving to obtain additional benefit from the sale of gas direct to the end consumer in importer-countries. We have seen this policy in Georgia where SOCAR runs the gas distribution networks. In Turkey, the company recently obtained the right to the wholesaling of gas. En route to the construction of TAP the Azerbaijani company intends to provide gas for Albania, a country which doesn't consume gas at all. And DESFA is a continuation of this policy. At the same time, it should be noted that it was in Greece that the highest prices for gas in the EU for the end consumer were fixed. As a result, in order to escape from this impasse, both parties made a compromise. SOCAR agreed to reduce its share to 49 per cent, and the Greek government promised to assist in gaining permission from the European Commission for the completion of the deal.

It is expected that SOCAR will acquire the agreed 66 per cent of DESFA's shares, and then sell 17 per cent to other companies. In that case, the Azerbaijani company will remain DESFA's biggest shareholder, albeit without a controlling package. According to the Greek media, several companies, including the Belgian Fluxys, the Dutch Gasunie and the Italian Infrastrutture Transporto Gas and Snam Rete Gas, have already expressed interest in acquiring a package. Interestingly, Fluxys, which is aspiring for 8 per cent of DESFA, is already a shareholder in the TAP project, and Snam wants to purchase a 20-per cent share of Statoil in the project. In other words, these companies also intend to extract additional benefit from the possibility of Azerbaijani gas being supplied to the end consumer in the Greek market. Greece's agreement to the option of the transfer of part of DESFA's shares to third companies was expressed by Panos Skourletis, minister of the environment, energy and climate change, who at a meeting with Azerbaijan's ambassador to Athens, Rahman Mustafayev, and SOCAR representatives, said that this process of privatization was going smoothly. At the same time, this reassignment also fully satisfies the directorate of the European Commission for Competition. It is expected that in the coming months the curtain will be drawn on the protracted question of the privatization of DESFA.

Mention should also be made of the change in rhetoric of the Greek government in matters regarding TAP and DESFA in recent months. Although the top people in Syriza, headed by Alexis Tsipras, who triumphed at the extraordinary parliamentary elections in September, are playing the main role in the government, there have been changes in the energy situation. This first and foremost concerns the Turkish Stream project, which proposed the construction of a pipeline along the bed of the Black Sea to Turkey with an outlet in Greece and the possibility of organizing a gas hub there. Athens was very much relying on this project, which would immediately make it one of the most important players in Europe's energy market. But Gazprom was unable to get Turkey to take the plunge and the talks have become virtually frozen, at least until the parliamentary elections planned for Turkey on 1 November. Moreover, originally the capacity of Turkish Stream was reckoned to be 63bn cu m, of which 47bn were sent to Europe and the rest purchased by Turkey itself. But now there is talk about halving the capacity of the pipeline, and it is by no means certain that this option will be implemented. At least, Turkey and Russia at this stage intend to discuss the option of laying only one string of the pipeline to substitute for supplies via Ukraine in the light of Gazprom's possible rejection of gas transit through that country.

In a situation of radical differences in the approaches of Ankara and Moscow towards a solution of the Syrian crisis, the hopes for a broadening of energy cooperation between the two countries are completely illusory. In any event, according to a statement by Turkish President Recep Tayyip Erdogan, official Ankara could review the question of purchases of Russian gas. "Russia must be sensitive in these questions. We are the number one purchaser of natural gas from Russia. Turkey's loss will be a serious loss for Russia. If necessary, Turkey could purchase natural gas in all kinds of places," Erdogan told journalists on his way to Japan. This virtually deprives the Turkish Stream project of its original scale and, accordingly, Greece's claims to become a hub on Europe's southern borders. In the present circumstances, the Greek authorities are doubly interested in the progress of Azerbaijan's projects, including TAP, and the purchase of DESFA. And in all likelihood Athens was also aware of this.