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The Slovenian legal framework of bank guarantees

Bank guarantees are a well-known and widely used type of security interest intended for the strengthening of the creditor’s position as well as his protection from various risks, especially for securing for the event of non-payment, or as the case may be, non-fulfilment of contractual obligations sContenttemming from commercial contracts (contracts concluded between two business entities).

The Slovenian legal framework in this particular field of law is slightly different with respect to comparable legal systems as bank guarantees are subject to legal regulation all the while certain unorthodox measures are used to do so. Namely, the essential legal act in the field of Slovenian law of obligations, the Code of Obligations (Obligacijski zakonik, hereinafter referred to as OZ) refers to the Obligations Act (Zakon o obligacijskih razmerjih, hereinafter referred to as ZOR) in its section on transitional and final provisions with regard to Bank guarantees. The latter is a legal act adopted in the year 1978 and was in force only until 2001. The relevant legal matter hence does not delve deeply into the matter. ZOR simply stipulates that a bank guarantee must be concluded in writing and that with the issuance thereof a bank takes on an obligation to settle a debt that a third party has towards the beneficiary of the guarantee in the event of a default of repayment of said debt pursuant to the fulfilment of the conditions that are stipulated in the guarantee itself.

Prevention of abuses when calling on bank guarantees

Independent, abstract bank guarantees are most widely used in (inter)national business practice. The main characteristic of these is that a bank as a guarantor must pay the guaranteed sum once the beneficiary calls on said guarantee. When deciding on whether or not it shall pay the guaranteed sum, the bank may not look into the underlying relation between the applicant and the beneficiary. Certain documentary conditions may be included in such guarantees despite their independent nature.

Various forms of abuses may occur due to the abstract nature of the relation that is established between the guarantor and the beneficiary based on the issuance of an independent bank guarantee. Unwritten rules of the international business environment entail that a bank must treat each call on a guarantee with the utmost diligence as well as that it may decide, in accordance with the diligence that is to be expected from a banking or financial expert, whether or not the call on the guarantee is justified. Notwithstanding all of this, Slovenian courts have approached the matter in a restrictive manner thus far, stating that, due to the abstract nature thereof, a bank does not need to verify whether an attempt of an abuse of a guarantee has been carried out through a call on a guarantee. The only legal means for preventing maleficent, unjustified calls on guarantees is thus a motion to issue an interim order (injunction) to prevent the bank from honoring a guarantee, which may be filed by the applicant of the guarantee.

The burden of proof in the aforementioned procedure is on the applicant. The applicant must therefore prove that either an infringement of the prohibition of abuse of rights contained in Article 7 of the OZ, or as the case may be, the principle of conscientiousness and fairness in Article 5 of the OZ has taken place. Proving an abuse of rights stemming from a guarantee is considered to be probatio diabolica. Issuances of interim orders are thus rare. Even more so since such interim orders are only effective when the applicant is notified of a call on the guarantee in question before the guarantor disburses the amount guaranteed. In the event of the guarantor paying the guaranteed sum prior to notifying the applicant of this (thereby in effect depriving him of the possibility of recognizing the abuse and potentially preventing it) the applicant is left with no direct legal remedy towards the guarantor. He may, however, in line with the ZOR’s general provisions, file a claim for the repayment of the guaranteed sum aimed at the guarantee beneficiary. 

Guarantor’s security by way of pledges on immovables in the event that the applicant is subject to insolvency proceedings

Insolvency proceedings have become frequent in the last few years. Hence a problem in relation to the effects of a concluded insolvency proceeding on the validity of pledges on immovables with which banks have secured their claims of recourse in the event of a call on a guarantee have become apparent. The situation where a pledge was established by a third party on his own real estate for securing a claim of recourse that guarantors filed against an applicant that was subject to an insolvency proceeding presents an especially pressing issue. Because the rights stemming from a pledge have an accessory character, i.e. are wholly dependent on the main claim, the question posed itself whether the guarantor can demand a repayment of his claim of recourse as part of the value of the pledged immovable of a third party providing that the applicant has ceased to exist as a result of the conclusion of an insolvency proceeding.

Legal theory and practice have held different views on this matter. Case law used for its base the hypothesis that all creditors’ claims against the applicant cease to exist upon the conclusion of an insolvency procedure, including the recourse claim of the guarantor stemming from the bank guarantee as well as (consequently) automatically pledges on immovables owned by third parties. Legal doctrine, on the other hand, advocated the position that the purpose of the security is of paramount importance, meaning that by doing so the security is rendered (and unjustly so) wholly ineffective. It has therefore openly lobbied for preserving the pledge on real estate of a third party, no matter what happens to the recourse claim, or as the case may be, what may transpire in the course of an insolvency proceeding.

The Supreme Court of the Republic of Slovenia ended the security crisis in the midst of which banks found themselves because of the aforementioned view of the courts when it issued a legal opinion on principle on 21. 6. 2013. Taking into account the opinions of theoreticians which say that in practice securing claims in the form of pledges on real estate is carried out for the sole purpose of expectance of protection from risks connected to insolvency proceedings, the Supreme Court was of the opinion that the obligations of an insolvent debtor do not cease along with the cessation of the debtor itself. Therefore, ever since this opinion was issued, the existence of the pledge on immovables of third parties has not been in jeopardy any longer.

First instance courts have begun to issue decisions in line with this opinion soon thereafter. With this, the pledge of a guarantor on immovable property of a third party was rendered immune to both, the developments of an insolvency proceeding with respect to the applicant, as well as the legal epilogue of its conclusion. Banks-guarantors no longer have to tremble at the possibility of their security provided by third parties would become useless due to the effects of an insolvency procedure of the applicant of the bank guarantee.

By Tilen Tacol, Senior Associate, ODI Law Firm

It may be quite clear to people from the energy community, but it is worth repeating: the Czech energy market is not isolated from global trends, and those who understand the trends can better anticipate what will comes next. This applies to business people as well as to lawyers and other advisors. We can see the impact of global trends on almost all energy-related deals in the Czech Republic and indeed the wider CEE market. What are the key trends which affect the Czech and wider CEE energy markets?

First is the phenomenon of global warming. Irrespective of whether global warming is scientifically proven or not, some regulators across the globe have reacted with legislation supporting the reduction of carbon dioxide emissions. The EU regulator has been in the forefront, adopting the famous 20:20:20 target: the ambition to reduce carbon dioxide emissions by 20%, to increase renewables to 20% of the energy mix, and to decrease energy consumption by 20% – all by 2020. EU states have expressed a clear interest to carry on with further measures with another target date of 2050. The impact on the CEE energy market has been tangible. The generous support of renewable energy has led to the creation of a sufficient number of installations and to the achievement of the EU renewables target. It has also created disincentives for investing in conventional power generation. For example, no new conventional power plant has been commissioned in the Czech Republic in the last decade.

The second key trend is the Fukushima Daiichi nuclear accident. In Europe, this has helped a number of states – including Germany and Italy – to express a clear “no” against keeping nuclear sources in their energy mix. Importantly, the German nuclear phase-out has led to increased M&A activity in the CEE energy market, with large German incumbents leaving the market. RWE’s sale of NET4GAS, the Czech transmission system operator, could be a primary example of this. Another side effect of the Fukushima Daiichi nuclear accident is increased pressure on nuclear safety, resulting in increased costs for commissioning and operating nuclear power plants. An example of this could be the ever increasing costs of the commissioning of Unit 3 and 4 at Mochovce in Slovakia.

The third key trend is environmental protection. Increasingly strict EU rules on emissions of, among others, SO2, NOX, and dust will lead to higher costs for the operation of conventional (coal) power plants post-2016. In recent years, most of the operators of conventional power plants in the EU have been facing the dilemma of whether to commit to large investments in the refurbishment of power plants or to close them. Again, this has led to increased M&A and construction activity on the Czech energy market. Due to the stigma of conventional power, some operators have even been leaving the conventional power segment completely. A recent possible example is the contemplated sale of conventional assets by the Vattenfall group on the Czech, German, and Polish borders. 

The fourth trend is linked to specific EU liberalization rules and rules on protecting the free market economy. The third EU energy package, combined with antitrust rules and rules against state aid, has created a relatively hostile environment for incumbents, with great incentives for new entrants. Again, this has had a material impact on the Czech energy market. An example of this is the unbundling of the RWE group, the gas incumbent, in the Czech Republic. CCEZ’s failed tender for the construction of a new nuclear power plant could be another example – due to strict EU state aid rules restricting the use of guaranteed off-take prices, the commissioning of new nuclear and other power plants is proving to be a challenging area. 

Last but not least, the slowdown of the global economy in recent years has led to a drop in commodity prices and the major restructuring of regional energy groups. It has also almost halted investment in new capacity in the EU. This has clearly stimulated M&A activity in the CEE market, creating interesting opportunities for new entrants. Examples of this are the acquisition by EPH of SPP, the Slovak transmission system operator, from GDF and E.ON, and the potential sale by Enel of a 66% shareholding in Slovenske elektrarne, the Slovak power incumbent. 

In sum, global trends are making the waters of the Czech and wider CEE energy markets considerably more muddy and turbulent. The regulatory and political framework has become complex, and commercial decision making has become more difficult. This obviously creates challenges, but also opportunities – and it is great to be able to look out for these.

By Alex Cook, Partner and Petr Zakoucky, Senior Lawyer, Clifford Chance Prague LLP

This Article was originally published in Issue 2.1. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

General. In July 2014, the Austrian legislator passed the new Energy Efficiency Act (Bundes-Energieeffizienzgesetz, hereinafter: “EEA”), transposing the 2012 EU Energy Efficiency Directive into Austrian law in order to meet the European Union’s 2020 target of reducing energy usage by 20%. In the new law, Austria put the main burden on suppliers delivering all sorts of energy for payment to end consumers in Austria, irrespective of their place of incorporation. Therefore, foreign energy companies also have to comply with the new law. Most of the provisions of the EEA applicable to energy suppliers entered into force on January 1, 2015.

Obligation to Effect Energy Efficiency Measures. Pursuant to section 10 of the EEA, energy suppliers are obliged to initiate and prove energy efficiency measures equivalent to at least 0.6% of their total energy supply to end consumers in Austria in the preceding year. At least 40% of the required efficiency measures have to be implemented at the household level. For energy suppliers active in the mobility sector, however, the “40% household” requirement may also be fulfilled by proving energy efficiency measures in the mobility or public transportation sector.

Suppliers that delivered less than 25 GWh of energy to end consumers in Austria in the previous business year are exempted from the obligation pursuant to section 10 EEA.

These measures have to be documented and reported to a national monitoring body by the supplier together with a notification of the total amount of energy supplied in Austria by the supplier on or before February 14 of the following year, starting with February 14, 2015. The monitoring body will be competent to decide whether and to what extent to take the reported measures into account. Measures can either be taken by the suppliers themselves or be transferred from third parties.  

Compensation Payments and Administrative Fines. Compensation payments in the amount of 20 cEUR per kWh become due if energy suppliers fail to provide proof of the required energy-efficiency measures. The Austrian regulator E-Control will be competent to adjust the exact amount of the compensation payments each year on the basis of this minimum amount (which may not be reduced), thereby taking into account the average marginal costs.

Furthermore, the EEA provides for administrative fines ranging from EUR 10 thousand to EUR 100 thousand, depending on the nature of the offence committed by an energy supplier. In particular, fines of up to EUR 100 thousand may be imposed on suppliers that fail to fulfil their individual energy-saving obligation or fail to make compensation payments in time.  

Specific Challenges for International Suppliers Active in Austria. The activities of international energy suppliers in Austria are often confined to industrial and commercial customers. As most international players are not active in the household sector in Austria, they will probably struggle to achieve 40% of their 0.6% savings obligation at this level.

Obviously, compliance with the requirements of the new law will trigger additional costs for energy suppliers. The EEA, however, does not include any transitional and/or amendment provisions with respect to existing supply contracts. Amendments of existing contracts will only be possible where such contracts provide for price adjustment clauses or other general provisions on the transfer of all sorts of taxes and other costs arising out of or in connection with the fulfilment of the supply contract. It is, however, conceivable that the respective margins of the suppliers are lower than the costs of compliance with the EEA, in particular in highly competitive (industrial) segments. When introducing respective adjustment clauses in new contracts, suppliers should be aware that the exact cost of compliance with the EEA depends on numerous factors that will only be known after the evaluation by the monitoring body – which might be completed more than a year after delivery. 

Further Turmoil Anticipated. In order to reach the 20% reduction target, Austria has chosen a highly sophisticated and complex regulatory system, including the establishment of a new monitoring agency, which will lead – as far as can be judged so far – to numerous legal and administrative issues.

The Ministry for Science, Economy and Research recently published a document of more the 70 pages on FAQs in connection with the interpretation of the EEA. However, instead of solving the problems so far identified, the document appears to give rise to even more questions. 

In addition, the appointment of the monitoring agency, which according to law should have started its work by now and should already be playing a decisive role in the administration of the EEA, has successfully been challenged. As a result, for the time being, at least, the Ministry is acting in its place, without any legal basis. 

By Thomas Starlinger, Partner, Fiebinger Polak Leon Rechtsanwalte

This Article was originally published in Issue 2.1. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Serbia is a contracting party to the Energy Community Treaty (ECT), signed in October 2005 between the European Union (EU) and nine South Eastern European countries. Since then, Bulgaria, Romania, and Croatia have ceased to be parties upon their accession to the EU and thus are no longer parties to the ECT, while Moldova and Ukraine have become parties to the agreement.

One of the explicit aims of the ECT is to support the development of renewable energy. As renewable energy is still not competitive compared to conventional energy, the development of renewable energy in the ECT countries is heavily dependent on the implementation of support schemes for renewable energy in their legal systems.

Serbia implemented a support scheme for renewable energy in its legal system for the first time in 2009. The initial scheme underwent notable improvements with the adoption of the 2011 Energy Law, the accompanying bylaws which were adopted in early 2013, and model power purchase agreements (PPAs) in the summer of 2013. Renewable generators were, for the first time, given by explicit provisions of the law the right of priority access to the grid and the right to sell the entire quantity of generated electricity to the state-owned purchaser under guaranteed, preferential prices. 

Even though the framework was notably improved compared to the initial one, the renewable energy sector has not witnessed any concrete, significant developments. 

Why? If we disregard the fact that the framework still faces numerous shortfalls (which are generally mendable), the main reason for the absence of concrete developments in the sector is a lack of confidence from investors in the permanence and reliability of the support scheme introduced in 2011.

Investors in renewable energy develop and operate long-life, capital-intensive projects. Therefore, confidence that a project will be able to generate revenues during its life is essential in order to get it developed.

A PPA concluded between a renewable generator and state-owned purchaser for a period of 12 years provides the main revenue stream for a renewable project; thus, the PPA has to have characteristics which ensure permanence and reliability of revenue.  

Primarily, it needs to be concluded at an early stage of the development of a project in order to give investors certainty of the terms by which electricity will be purchased. The PPA should be concluded by the time construction is commenced, at the latest.

As the development of renewable projects is subject to heavy permitting procedures, the PPA should provide reasonable deadlines for the development of a project.

Further, the PPA needs to provide adequate protection for the generator against risks that a generator cannot control, avoid, or minimize. Typical examples for such risks are grid constraints. If a generator is unable to deliver its electricity to the purchaser due to an interruption or restriction of export of electricity onto the grid, the purchaser should be required to pay for the volume of electricity which would have been generated had there been no such interruption or restriction. Other risks generators cannot control or minimise include the risk that a law will change or acts and omissions of the competent authorities will impact the development and operation of renewable projects. The PPA should also provide a mechanism which will allow generators to withdraw from the PPA and to be compensated for their losses, if, without their default, circumstances outside their control occur which make it impossible or unlawful to maintain the PPA. These circumstances include defaults and breaches of the PPA by the purchaser, changes in the law after which the generator cannot be put back in substantially the same economic position. or unlawful acts and omissions of the competent authorities.

Also, considering that the generators will finance a significant portion of the development costs through loans procured in the financial market, the PPA should allow the generator to assign the PPA to lenders providing financing for the project. Furthermore, the PPA should provide a mechanism giving lenders the opportunity to step into or take over a project together with the rights and obligations of the generator under the PPA. 

Currently applicable PPA models, which were prepared and published in 2013 on the basis of the 2011 Energy Law, do not provide for the protections discussed above. Consequently, investors have been (justifiably) suspicious of the permanence and reliability of the Serbian renewable-energy support scheme based on the 2011 Energy Law.

At the very end of 2014, the Serbian Parliament adopted the new Energy Law which became applicable starting from January 1, 2015. The new Energy Law laid down grounds for the improvement of the support scheme and, even more important, improvement of currently applicable PPAs. One may hope that these improvements will not remain only on paper, but that they will finally lead to a boost in the development of the renewable energy sector.

By Milos Vuckovic, Senior Partner, and Petar Mitrovic, Senior Associate, karanovic/nikolic

This Article was originally published in Issue 2.1. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In the last couple of years, a change has been observed in the activity of the Hungarian State in the Hungarian energy market. The regulated energy and public utility prices for household residential customers have been gradually decreased, and price cuts are planned to be extended to industrial customers. Following the reinforcement of its position as a significant player in the Hungarian electricity sector, the Hungarian State entered the Hungarian natural gas market by acquiring ownership stakes in several energy companies. Meanwhile, a new state-owned public utility service system is being created in Hungary.

Hungarian residential customers have been enjoying decreased energy and public utility prices since 2013, as the end prices of electricity and natural gas universal service, district heating, water utility, chimney sweeping, and waste management services have been gradually decreased by law in Hungary. To ensure that customers are actually able to reap the benefit of these price cuts, new consumer protection rules have been implemented. There are plans to extend the price cuts to a certain extent to industrial customers as well.

The Hungarian State recently acquired ownership interests in several Hungarian natural gas companies. Since 2013, when MVM, the fully state-owned energy holding company, acquired a significant part of the natural gas business of the Hungarian subsidiaries of the German E.ON group, the State, already an important market player in the Hungarian electricity market, has established itself as one in the natural gas market as well. 

The newly acquired natural gas portfolio consists of a major natural gas trading company and a natural gas storage operator. The major long-term natural gas import contracts involving the channeling of natural gas from Russia’s Gazprom belong to the now state-owned natural gas trading company, which supplies natural gas to other natural gas traders, universal service providers, power plants, and industrial customers, thus covering a significant part of the Hungarian wholesale and retail natural gas market. 

The other part of the newly acquired natural gas business consists of four underground natural gas storage facilities located in Hungary, which are used for commercial purposes.

Subsequently, the State acquired a stake in MMBF, another Hungarian natural gas storage operator. As a result of this acquisition, the State is now the majority owner of the so-called “strategic” natural gas storage, which is intended to supply natural gas to residential household and certain public customers in the event of a natural gas crisis. The majority stake in the strategic storage operator was acquired from Hungary’s MOL, and the State became co-owner alongside the Hungarian Hydrocarbon Stockpiling Association, which is responsible for managing natural gas in the strategic storage.

For regulatory reasons, the strategic storage operator belongs to the state-owned MFB Hungarian Development Bank. MFB will also become the majority owner of FOGAZ, enabling the Hungarian State to enter into the natural gas universal-service market and to supply natural gas to residential household customers and certain non-residentialhousehold customers with lower consumption. In addition, the territorial scope of FOGAZ’s universal service license will be extended to the entire country, making it possible for the State to provide natural gas universal-supply services to all eligible Hungarian customers.

In addition to this series of acquisitions, the Hungarian Government laid down by resolution the foundation of a new state-owned public utility service system in Hungary, the framework of which includes the provision of natural gas, electricity, and district heating supply services by the State on market terms and measures to ensure sustainable operation in the long term. ENKSZ Elso Nemzeti Kozszolgaltato Zrt., the new state-owned company to be incorporated in early 2015, will be responsible for implementing this public utility service system. 

With the above-mentioned acquisition of FOGAZ, which holds a natural gas universal service license, the establishment of the public utility service system in the field of natural gas supply is ahead of the electricity and district heating segments, since the review of the conditions of the State’s entry into the electricity universal-service and district-heating markets is expected by mid-2015.

By Kristof Ferenczi, Partner, Head of Energy, and Zsolt Csanadi, Managing Associate, Andreko Kinstellar Ugyvedi Iroda

This Article was originally published in Issue 2.1. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Repetitive policy upheavals and misguided and often divergent regulatory responses have led the Bulgarian energy sector into a cyclical condition of underperformance. The energy industry has somewhat consolidated against the Bulgarian state as investors now seek opportunities for domestic litigation and/or international investment arbitration. In the meantime, policymakers have been attempting to appease discontent and provide fresh remedies to the mismanagement of the sector. Regretfully, any solution to industry woes has proven to be a zero-sum game, and remedial policy efforts have simply resulted in a re-allocation of winners and losers.

Three major streams of ongoing policy issues may be identified in the Bulgarian energy sector:

Renewable Energy. Achieving EU-set targets on renewable energy (i.e. Directive 2009/ 28/ EC) requires significant policy making. The renewable target for Bulgaria is 16% of renewable energy sources in final consumption by 2020.

From the outset, Bulgaria provided generous incentives for investments in renewable energy, especially in the years 2007-2011. The incentives came in the form of inflated feed-in tariffs. The price-support mechanism for wind and solar energy generously exceeded investment costs combined with long-term power purchase agreements (25 years for solar power and 12 years for wind and hydro power). As a result, there was a rapid growth in renewable energy that caused serious financial strain on households and businesses. 

The regulatory response in the years from 2011 to 2014, following the boom of renewable energy capacity, was a sequence of amendments to the Law on Energy and the Law on Energy from Renewable Energy Sources. Some of the most radical changes affected grid interconnection (a moratorium on interconnection of new plants), the formation of feed-in tariffs (substantially reduced since 2011), fees on access to the grid (repealed later by court) and a fee on the generation of renewable energy (also repealed later by court).

Despite this hostile environment, a decent number of renewable power generators have managed to stay afloat and honor their financing arrangements. According to a 2013 report from the Bulgarian Ministry for the Economy and Energy, the 2020 target of 16 % had already been achieved. Some of the successful plants, still operating at profit under long-term power purchase agreements, are expected to change hands through mergers and acquisitions in the years leading up to 2020. 

Distribution and End Supply. The current situation for distribution and end supply is largely the result of the attempts of SEWRC to retain lower regulated tariffs driven by political and social considerations. SEWRC has failed to keep the regulatory tariffs in pace with the expansion of renewable energy (priced-in by pass-through) and other costs for distribution and end supply. Despite the efforts of policy makers to impose measures that withhold revenue from renewable energy generators, the drastic expansion of renewable energy and associated costs for the distribution and supply companies has not been adequately reflected in regulated tariffs. In order to artificially retain tariffs at lower levels, SEWRC often disregarded the applicable statutory provisions on tariff setting. One of the foreign-owned energy groups in Bulgaria – EVN – has already filed an ICSID claim. 

Long-Term Purchase Agreements. The long-term power purchase agreements are generally considered to be transitional to the stage of complete liberalization in the electricity market in Bulgaria. Currently, there are two long-term power purchase agreements operated between the National Electricity Company (NEK, public supplier), on the one hand, and AES Maritsa East I (AES) and ContourGlobal Maritsa East III (ContourGlobal) (coal power plants), on the other hand. 

As a result of the constant political pressure to lower regulated tariffs, SEWRC opted for the overhaul of the long-term power purchase agreements. These attempts interfere first and foremost with the provisions of the long-term power purchase agreements on minimum dispatch requirements and the agreed payments, respectively. AES, ContourGlobal and NEK have been urged to undertake renegotiation of the price under the agreements and contracted capacity.

International Investment Arbitration. There have been strong allegations that the Bulgarian state has failed to maintain the initial conditions for investment in the energy sector. The measures adopted against electricity market participants may serve as a ground for an arbitration claim.

It is well known that the concept for creeping (indirect) expropriation captures a multitude of inappropriate regulatory acts, omissions, or other conduct that undermines the normative framework created by international investment treaties and by which host governments may be deemed to have expropriated a foreign investment. 

By Milan Pandev, Partner, and Yassen Spassov Senior Associate, Djingov, Gouginski, Kyutchukov & Velichkov

This Article was originally published in Issue 2.1. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Almost seven years since the outbreak of the debt crisis and the subsequent recession in Greece, the country’s energy sector is now in the midst of a structural shift, forecasting timid signs of growth. The old players in the region seem to be gradually pulling out and potential game changers are taking up the slack, shifting the current alliances both at regional and national levels.

Benefitting from its geographical embeddedness and its role as a strategic transport node among the countries of South East Europe (SEE), Greece has managed to secure a strong comparative advantage towards neighboring countries, as it strives towards emerging as an energy hub for the European Union and a true gateway to Europe, Asia, and Africa.

Greece has always been the focal point of Europe in terms of energy policy and energy efficiency, harnessing a set of traditional and increasingly popular alternative energy sources and carriers. Despite having been saddled with harsh financial realities over the last years, Greece remains a major oil producer in Europe, home to billions of oil barrels and generating high revenue potential over the next decades. While Greece’s energy balance is significantly dependent on the oil industry, national energy experts are now setting their sights on enhancing the country’s energy agenda by upgrading Greece to a natural gas transport hub in the SEE region. Greece’s participation in the Turkey-Greece natural gas pipeline and its proposed participation in the Italy-Greece natural gas pipeline, along with its role as a way-station in the expected route of the Trans Adriatic Pipeline (TAP) confirm, inter alia, the country’s vital geography and strategic positioning. 

In addition to the oil and gas industry, Greece demonstrates an abundant supply of renewable energy sources (RES) and a large potential for wind and solar energy. Thanks to its favorable climate, which ranges from continental to Mediterranean, Greece is a top-ranking viable energy supplier in terms of installed RES capacity from both wind farms and solar power plants. The renewable energy sector multiplies the likelihood of a Greek “energy explosion” in the SEE region by virtue of the deployment of new wind and solar projects, the performance of R&D activities on all aspects of solar photovoltaic energy, the existence of favorable – though currently reduced – feed-in tariffs, and the enhancement of the current national and European legal framework on RES licensing.

In light of the role Greece plays in SEE energy policy and system, it comes as no surprise that Greece should reintroduce itself as the most reliable energy partner in the region, capable of attracting new investors and strengthening Europe’s bargaining power in energy negotiations. From its side, Europe should ensure that new key partnerships are built with international players, large-scale energy projects are spurred, and legislation on energy is harmonized, improving thereby energy efficiency and security and delivering economic benefits for both SEE countries and continental Europe.

Despite the good environment and encouraging prospects of enhancing the country’s energy export activities and leadership position in SEE, Greece appears to lack an innovative, fresh, and well-structured energy policy framework, failing to meet the high expectations created by its extremely beneficial positioning in the region and its unique indigenous energy resources. The long period of recession and fragile political stability manifested at a national level through constantly changing policies, legal and financial regimes, and governance frameworks chipped away investors and eliminated the country’s energy efficiency standards. Even on the home side, in terms of energy infrastructure, the national power grid system seems to be run-down and poorly maintained, whereas uneven and asymmetrical loads injected to the grid mainly by RES have led to power grid imbalances and calls for urgent modernization of the grid system through the dynamic balancing of energy supply and demand (i.e., “smart grids”) as per the latest international energy standards. 

Although the national legal framework on energy has been recently modernized and is sufficiently harmonized with relevant European legislation, its implementation remains a source of uncertainty and sets challenging technical barriers to the deployment of national and European energy projects. More concerns stem from the reluctance of local administration authorities and from major bureaucratic issues when it comes to the implementation of ambitious energy plans; individual government agencies often fail to respond immediately to project needs and insufficient resources doom promising energy investment options for small-scale undertakings.

The recently-elected government should undertake as a matter of utmost priority the setting up of a vibrant policy scheme that will pitch into the achievement of international energy standards and the development of ambitious and large-scale projects, aiming at the resiliency and viability of key energy assets and the security and restoration of the national energy infrastructure. By linking its strong geopolitical comparative advantage with an innovative policy framework and modernized infrastructure, Greece can become an energy champion in South East Europe and an attraction pole for long-term foreign investments in the region. 

By Panagiotis Drakopoulos, Senior Partner, and Mariliza Kyparissi, Senior Associate, Drakopoulos Law Firm

This Article was originally published in Issue 2.1. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.