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* EUR 500 mln for 4 new hydro plants *
The Public Power Corporation (PPC/DEH) is joining forces with Cyprus-based Quantum Energy in a hydroelectric joint venture in Republic of Serbia that will propel Greece's primary electricity producer into a new role as a regional energy provider and trader.
The venture, PPC Quantum Energy S.A., was ratified by partners DEH (51%) and Quantum (40%) last week and will see the construction of four brand new hydroelectric power stations with a total output capacity of 238 MW.
The greenfield project will cost some 500 mln euros and will need about three years to complete once the contractors have been chosen, a process that may last throughout 2012.
This is the first time that DEH will venture beyond Greek borders to invest in power generation that could provide it with much-needed earnings or electricity, or both, as Greece is a net importer of the commodity. On the other hand, Serbia, Bosnia-Herzegovina and Srpska Republic have a surplus of power generation, earning these states steady revenues from the transmission and trade of electricity contracts.
“This is an important step for DEH as the whole region, where we already operate five other hydro and thermoelectric stations, is very rich in natural resources such as water and lignites,” explained George Killas at Quantum.
“The future earnings potential are enormous,” he said, adding that cooperation between DEH and Quantum in other areas is also possible.
Bank of Cyprus is taking part in the venture as both stakeholder and lead manager to arrange funding, while other European and Serbian institutions may also join in at a later stage with smaller stakes.
Ever since its first investments in Srpska in 2000, Quantum’s three hydroelectric power stations in Bocac, Trebisnjica and Drina Visegrda produce 2.522 mln Kwh a year, while the pair of thermoelectric stations in Gasco and Uglevic generate 2.456 mln Kwh a year, with a total installed capacity of 1422 MW. At nearly 5.2 bln Kwh a year, these power stations generate some 30% more than the total output of the Electricity Authority of Cyprus and the book value of its assets in Srpska are estimated at 1.2 bln euros.
The news could not have come at a better time for the Greek energy utility that last month posted its first quarterly loss in almost two years, paying the price for a recession and for having become the tax collection vehicle of the cash-strapped government.
CHEAPER RIVALS
Rising prices for natural gas and oil, which DEH burns to produce a large part of its energy, have made things even worse. Energy costs rose by almost a quarter from January to September, while businesses curbed electricity use or turned to cheaper rivals to save money in the recession.
To save money, DEH has scrapped a 135 mln euro project to build a 100 MW power plant in Crete, but it stuck to an ambitious 1.4 bln euro project for a new coal-fired power station in the north of country.
But investors are deserting the company's stock, whose price has plummeted 59% since the beginning of the year, underperforming a 52% drop in the general Athens bourse index.
The shares trade at about 3.3 times estimated 2011 earnings, compared with a multiple of about 10 for French utility group EDF.
The discount also derives from the high degree of regulatory uncertainty, particularly relating to oil and carbon emission costs.
Lignite, a form of brown coal, forms the backbone of DEH's electricity production and carbon emission costs are set to rise in the EU from 2013.
The Greek state, which owns 51% in the company, plans to sell a stake or some lignite plants to competitors to comply with its bailout terms, but its workers have said they would unleash a wave of strikes if this happened.
