Bambis Psychogios is a plumber who spends a lot of time traversing the windy roads of Mykonos installing pipes in flashy new hotels. Just about every day, he drives past the island’s defunct diesel-powered energy plant, located on the outskirts of the main town.
These days, the sight of the plant evokes a sense of relief. “Just imagine the pollution caused by five ship engines operating at the same time. That’s what it was like. This has now stopped,” he says.
Power on the island has also become more reliable; Psychogios rarely needs to crank up his back-up generators to finish a job anymore.
Beloved by tourists and clubbers, Mykonos was one of Greece’s first outposts in the Cyclades island chain to be hooked up to the national power grid in 2018. This is part of a four-stage, 800 million euros ($887 million) project partially funded—about one-third—by the European Union.
It’s the Chinese though that have their finger on the switch.
In 2016, China’s State Grid Corporation became a strategic investor in IPTO, or the Independent Power Transmission Operator, the Greek company that is linking the islands with Greece’s mainland power network.
State Grid acquired a 24 percent stake in IPTO for 324 million euros in a deal that led to much hand-wringing in Europe’s capitals. The investment was part of Greece’s ongoing efforts to privatize its energy sector and raise, per EU directives, outside investment. In the wake of the financial crisis that struck in 2008, the country’s GDP collapsed by one-quarter and its debt-to-GDP level has since climbed to above 170%.
While Brussels fretted the IPTO deal risked pulling Athens closer to Beijing, the deal was welcomed with open arms back home. It helped unlock hundreds of millions of euros of funding from Chinese banks to help pay for investments at half the rate offered by Greek lenders, officials say.
It also secured valuable knowhow from State Grid, the world’s largest electricity utility, on one of the most challenging undersea power projects ever undertaken.
After investing in Greece’s energy infrastructure at the peak of the country’s economic crisis (when few other foreign investors would touch its assets), the Chinese became eager partners in other infrastructure projects. Now they seek an even tighter relationship. Meanwhile, all cash-strapped Europe can do is to look on and bite its proverbial tongue.
The idea to get the whole of the country on the grid, so to speak, was long in the making. More than 20 years ago, Greece began putting in place a complex submarine power transmission network spanning the Aegean Sea, with the hope of supercharging its islands. Greece’s tourism sector accounts for about 25% of the economy and its islands attract visitors the world over.
Only in recent years has the project really started moving forward. Greece’s IPTO is rolling out more than 300 kilometers of cable at depths of up to 550 meters, linking dozens of islands. The company manages the grid network that transports electricity from energy plants to substations throughout Greece.
The first phase of the project was completed in 2018 when the islands of Paros, Syros and Mykonos all went online. The second stage, connecting with Naxos and Andros, further on, is in progress and scheduled for completion by the summer. In the third stage, work will start in 2020 on strengthening the Syros link, while the fourth stage will gradually commence in 2023 and include the southern Cyclade islands of Santorini, Milos and Folegandros, among others.
In its ten-year investment plan, which has been put to public debate throughout January, IPTO said that these connections will help boost the reliability of the power supply on the islands, cut electric bills and be more environmentally friendly.
“The energy isolation of the islands will be ended as the size of the country’s electricity market grows,” said IPTO.
The budget of some 800 million euros, however, will undoubtedly need to be ratcheted up considerably when the national grid is later extended to islands further north and then southwards to Crete. The Crete-Attica undersea line, dubbed the Ariadne Interconnection, alone will require an additional 1 billion euros of investments. That too is also being eyed by the Chinese.
Tensions in Europe
Athens is considering doing yet more business with State Grid despite opposition in Europe; when Brussels signed off on the initial 24% deal it required stringent monitoring of the network for security risks.
Greece holds a 51 percent stake in IPTO, but State Grid has been given extensive co-decision rights on strategic matters. State Grid controls three of the nine positions on the company’s board of directors, including that of the deputy chief executive.
Officials in Athens said they had no choice than to sell the stake to State Grid back in 2016, noting the country was under enormous pressure from its European partners to complete privatizations and deregulate its markets, or risk forfeiting rescue money.
“There was also interest from the French and the Italians. The French, however, stopped short of actually making an offer, while the Italians offered a very low amount,” an official, who was close to negotiations, told Fortune.
“The Chinese brought cash to the table in the highest bid. It was an offer that had a clear, long term outlook. We accepted it,” added the official, who requested anonymity in order to speak freely about the negotiations.
Since then, skepticism in European capitals towards Chinese investors has risen. In 2017, Germany cited security fears in blocking a bid by China’s State Grid to acquire a 20% stake in the country’s largest electricity transmission company, 50Hertz.
Last year, the European Commission slammed China as being a “systematic rival,” and it criticized countries in the south of Europe for selling off important infrastructure assets to the Chinese as part of the One Belt, One Road program. State Grid has often been at the center of these disputes as it was when the company acquired in 2012 a 25% stake in Portugal’s electric grid management company REN.
It’s all Greek to the Chinese
Fast forward to 2020 and State Grid Corporation is interested in increasing its position in Greece’s IPTO. And there’s mutual interest. Greece wants to sell more of the company but has yet to decide the size of the stake to be sold.
Additionally, the Chinese power giant has its eye on the vital Ariadne Interconnection that would connect with Crete on Greece’s southern flank.
Greece is expected to launch an open tender selling a 20% stake on that undersea power link in the coming months. There has also been interest from a few European power transmission operators, Greek government officials say, adding that there could be more than one strategic investor in the project.
But the Chinese may already have the jump on the deal.
In addition to the work they have already done on Greece’s power grid, they are the only potential investor to have signed an agreement for an expression of interest in the Ariadne Interconnection.
The expression of interest was signed in Athens in November during a visit by China’s President Xi Jinping, along with another 15 bilateral agreements, focusing on sectors such as transport and tourism.
The two countries are hitting it off and one key reason for this is the Pireaus port, the biggest in the eastern Mediterranean.
Business is booming at Athen’s chief port after China’s state run shipping giant, China Overseas Shipping Group Co. (Cosco), took a majority stake in 2016. The Chinese are investing nearly one billion euros in Piraeus as part of a plan to turn it into the main entry point for Chinese exports to Europe.
Privately, Greek officials have admitted that they don’t want to ruffle feathers in Europe amidst concerns that too many key projects are going China’s way. But more recently, with a newly installed pro-business center-right government in power, Athens doesn’t seem to be too concerned about any pushback from Brussels.
Greece’s Deputy Energy Minister for Environment and Energy, Gerassimos Thomas, said the country is playing by the bloc’s rules, insisting that foreign investors play by them as well.
“Greece has always made it clear to all third-country investors that they have to abide by EU public procurement, sectoral regulations—in this case, the electricity market—corporate governance and control rules,” he told Fortune.
But under the European Commission’s new president, Ursula von der Leyen, Europe’s position on China is anything but clear. The trading bloc is still trying to assert its position as a global power rather than get caught in the middle of the shifting trade priorities of China and the United States.
“With the new EU Commission in place, it remains to be seen whether the more hardline stance vis-a-vis China, that we could see in 2019, will continue,” Janka Oertel, Director of Asia programme at the European Council on Foreign Relations, told Fortune.
“An improvement in China-US relations will make it harder for European countries to dodge serious decisions on the future of their relationship with Beijing,” she added.
In the meantime, the Greek islands are ramping up for the coming tourist season, more confident than ever that the power won’t burn out.
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