Treasured islands

By bne IntelliNews December 16, 2011

David O'Byrne in Istanbul -

"Beware of Greeks bearing gifts" - as the saying goes. But who should the Greeks beware of? Well how about Turkish journalists looking for a quick scoop - at least that's what the recent experience of Greece's energy minister would suggest.

"Greece plans to connect islands to Turkish grids," blared a headline last month in the Turkish English-language daily Hurriyet Daily News, going on to quote Greek Environment, Energy and Climate Change Minister Giorgos Papakonstantinou as stating that the subject had been discussed with Turkish officials and was being "considered."

In fact, Papakonstantinou had said no such thing, but had merely responded to a question from this bne correspondent as to whether Greece had ever considered supplying its islands along the Turkish coast with power imported from the Turkish mainland.

His actual response was far more equivocal. "There are some possibilities for interconnection with Turkey with limited capacity - it has been discussed, but right now we're trying now to connect the islands to the Greek grid."

Hurriyet's report was an unfortunate misrepresentation and one that having been picked up by the Greek press, left Papakonstantinou, who had only recently been appointed to the post in Greece's post-bailout coalition government, dealing with a political firestorm.

Questions of sovereignty over the islands remains a sensitive subject in Greece, which only took possession of the southernmost archipelago, the Dodecanese, in 1947. And to the right wing of Greek politics, any suggestion of allowing Turkish influence smacks of treason. In reality, though, despite an unresolved disagreement over three tiny islets, Turkey recognizes the islands unequivocally as Greek territory.

Greek fears though, however misdirected, are perhaps understandable. The country is going through the biggest economic upheaval in its history and its most serious political crisis since democracy was restored in 1975. Two bailouts and four austerity packages later, and on December 14 the International Monetary Fund was still warning Greece that its economic reforms are behind schedule and need to be more aggressive in closing loss-making state enterprises and introducing market reforms.

Criticism of the state's controlling role in many areas of the Greek economy is nothing new. The country has been repeatedly criticised by the EU for its failure to introduce market reforms in the energy sector. The Greek state still holds 35% of Hellenic Petroleum, the country's main oil refiner and petroleum distributor with around 75% of the domestic market, while state-controlled companies are responsible for all areas of the country's gas market from importation through transmission to distribution.

And in power generation, the 12 gigawatts (GW) of power plant operated by state-owned Public Power Corporation (PPC) is 84% of the country's total installed capacity and supplies 78% of the country's power needs through the company's transmission and distribution grids. The company also holds an effective monopoly over coal mining in Greece and operates all of the country's renewable power plants.

Complaints over PPC's stranglehold over the power sector are many, and range from criticism of its sloth in developing wind and solar power - of which the country has abundant resources - to direct accusations of "unfair competition" from Austria's Verbund, which pulled out of Greece earlier this year after only five years in the country.

More significantly, PPC is the sole supplier of power to the Greek islands, with 60 of its 97 power plants located on islands where they operate as standalone units unconnected to the mainland Greek grid. While the company does not publish detailed lists of its power plant portfolio, the islands close to the Turkish coast are believed to be powered by individual standalone plants burning fuel oil, or less commonly diesel, including a 206-megawatt (MW) fuel oil-fired plant on Rhodes.

Compared to other fossil fuels, fuel oil and diesel are both expensive and environmentally damaging, and with neither piped natural gas nor liquefied natural gas economically viable, and renewables such as wind and solar power unable to guarantee daily baseload, alternatives are limited.

One alternative, as suggested by Papakonstantinou, is the interconnection of the islands with the mainland Greek power grid. However given the distances involved it's an expensive option and one which Greece's currently parlous economic situation appears to rule out for the foreseeable future. A problem that makes the possibility of supplying them from the Turkish mainland all the more attractive - economically, if not politically.

And even then political opposition is not carved in stone. Greece already imports gas from Turkey, and has been exporting power to Turkey across its mainland border for several years.

According to Turkey's energy ministry, it's an option that has not yet been examined. "We've never been asked, but if Greece is interested why not?" a ministry spokesman tells bne.

With the Turkish state in the process of ending direct involvement in its power sector, any such initiative would be expected to come from the private sector, for which the Greek islands represent an attractive market. "The Greek islands would be a perfect market for us - the cost of generating power on the islands is high," says Mustafa Karahan, head of Turkey's Electricity Traders' Association (ETD), pointing out that their proximity to the Turkish coast makes the laying of transmission cables a simple procedure. More importantly, it would offer consumers on the islands the opportunity of guaranteed power at a lower price than current generating costs.

This is a scenario that many in Greece will find politically difficult to stomach, but which, depending on the country's ability to pull itself back from the brink of economic collapse, may yet be seen to make sound commercial sense.

Treasured islands

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