According to The Western European Electricity Market Outlook (2008), Greece's energy sector accounts for roughly 5% of its total GDP. The county's energy power production is mainly sourced from coal fired power plants. Greece is also one of the EU's smallest energy consumers, using only 30m tonnes of oil per anum. Although coal is mainly supplied by domestic producers located in the north of the country, coal consumption is decreasing over the years and has resulted to an increase in oil demand by 17%.
As a result, the country is planning to increase demand for renewable energy sources since they currently account for only 6% of total energy consumption. The Western European Electricity Market Outlook (2008) also states that end-user demand is rapidly growing in Greece when compared to other EU countries, with an equal increase between each sector. Sociocultural Environment: According to Wall et al (2004), Greece is highly defined by its Mediterranean culture.
Also they argue that, in Hofsted's terms, the country is characterised by a large 'Power Distance' and strong 'Uncertainty Avoidance'. This means that Greek culture is strongly based on the authority of one's position within a hierarchy and a well structured and consistent routine. In other words, the native workforce is expected to be less individualistic and comfortable with working within a highly bureaucratic organisation. Technological Environment: Greece's most recent technological developments in the energy sector involve the creation of new energy production plants.
Namely, according to The Economist Intelligence Unit (2005), a 147 mw gas-fired electricity plant was built by Iron Thermoilektriki at Viotia, which also provided back-up power during the 2004 Olympic Games. The Western European Electricity Market Outlook (2008) also states that six more gas-fired electricity plants are due to production. 4 of these plants are to be constructed by Greek private companies and the remaining 2 by a joint-venture between Greek gas producer Prometheus Gas and Italy's Enelpower.
Legislation: According to The Western European Electricity Market Outlook (2008), The Greek electricity market is regulated by the Regulatory Authority for Energy (RAE), which was created as an advisory body for the Ministry of Development concerning all energy market regulations. The RAE is also responsible for giving recommendations regarding energy policies, security of energy supply and the promotion of competition in the Greek market.
The RAE was established in Greece in 2001 when EU Directive legislation required the liberalisation the Greek energy market and the PPC's transfer into a limited company. Environmental: At the moment Greece is in a very fragile environmental state, since it has been exposed to severe natural and man-made catastrophes over the last 3 years. One of the worst situations was, according to The Economist Intelligence Unit (2007), during the summer of 2007. Starting from the middle of June, fires were set on forests in the centre and south of the country, most of the Peloponnese and the island of Evia.
In the article it is also stated that in a single day almost 130 different species of birds, 45 different types of mammals and 30 different types of amphibians and reptiles became extinct due to fires that covered Mount Parnitha. Since the Greek electricity industry has already been liberalised by EU regulation (which means that there are no barriers of entry) and the PPC is a natural monopoly, the current market environment could be described as perfectly contestable.
According to Griffiths et al (1996), in a perfectly contestable market public-owned monopolies set their prices depending on their fixed and variable costs in order to earn normal profits, thus decreasing the threat of entry of a private competitor with a more flexible price strategy. In order to have a view of a company in a perfectly contestable market we can examine the figure presented below. Figure 1: Natural monopoly in a perfectly contestable market (Source: Griffiths et al (1996) p. 517) This theory argues that once a public corporation has been deregulated it gives foreign investors to the opportunity for hit-and-run entry.
In other words, firms can enter a market and make their desired profits by buying shares of a public company, manage its facilities (depending on the percentage of shares bought) and in addition exit the market without any costs by selling their acquired shares. It would also be useful at this point to perform a S. W. O. T. analysis on the PPC, in order to have a complete view of the company as well as its potential towards future competition post-privatisation. The PPC is Greece's main electricity producer and distributor.
According to MarketWatch (2007), the company has the leading market position in Greece since it provides electricity to more that 7. 4 million customers and has competitive advantage towards potential entrants since it is a well established brand. On the other hand, due to the market's recent liberalisation competition is gradually increasing in the energy market and could have a negative effect on the post-privatised firm's number of shareholders. Table 2: PPC's S. W. O. T. analysis (Source: MarketWatch: Company Spotlight: Public Power Corporation p. 33, 2008) Strengths:
As mentioned earlier the company is a household name in Greece and is the sole distributor of electricity. According to The Western European Electricity Market Outlook (2008), the firm is also the owner of all transmition assets and generates 93% of the total electricity produced in its domestic market in its 90 power generating stations. The Western European Electricity Market Outlook (2008) also states that PPC-owned assets are strategically located throughout the land according to domestic distribution and demand of electricity as well as the location of lignite coal mines.
As a result, the firm gains competitive advantage by efficiently minimising distribution costs and by offering competitive services at a national level. Weaknesses: According to MarketWatch (2007) almost all of the company's operations, generation capacities and revenue generation are focused on its domestic market. In other words, if the PPC does not seek to internationalise post-privatisation it will be in risk of loosing its current market position and a decrease in its future revenue.
There has been a significant decrease in the company inflows over the last 2 years with cash flow form operation being reduced by 10. 1% from $1,075. 7 million in the year end of 2006 to $960. 7 million in 2007. Opportunities: Burnes (2004), state that the PPC is planning to internationalise post-privatisation and operate as South-eastern European energy distributor by altering its domestic operations and infrastructure, as well as through strategic investments in the EU regional markets. By following this procedure the company will be able to withstand competition and increase its future turnover.
According to The Western European Electricity Market Outlook (2008), the use alternative sources such as wind, solar and renewable energy is increasing in Europe with 22% of the total energy produced by renewable sources. One of PPC's subsidiaries, PPC Renewables, has already begun its production, engineering and commercial activities in Greece. MarketWatch (2007) state that the PPC is seeking to raise its market share to 20% in the renewable energy market, as well as increase its installed capacity from renewable energy sources by 5. 4% by the end of 2013, from 0.
7% which is its current capacity to 6. 1%. Threats: Datamonitor (2009) argue that Greece is about to face economic slowdown throughout 2009 due to the global market crisis and have forecasted that the country's GDP growth rate will decline by 2%, from 4% in 2008 to 2% by the end of 2009. Such a decrease on the GDP growth rate could have a negative impact on the demand for the firm's products and services. According to The Economist Intelligence Unit (2005), the liberalisation law allowing competition in the Greek energy market was enacted in 1999 by the EU directive.
The law came in to force in 2001 and it gave foreign investors the opportunity to access the country's transmition and distribution channels. The Greek electricity market became fully open to competition in 2007 and required that the PPC unbundles its transmition. Based on the information derived from the P. E. S. T. L. E. analysis on Greece's energy market and the S. W. O. T. analysis performed on the PPC, we can argue that rather than following a certain privatisation technique it would be more advantageous for the country if the government followed a combination of techniques.
Namely, the government could start the privatisation process by using the Staged Sales to strategic investors technique. Since the company's board of directors is considering the expansion of the firm into the European energy market, this technique would increase revenue maximisation as well as support the company in maintaining effective corporate governance in an international level. In addition, the government could perform employee buyouts in order to increase share ownership as well as encourage employees to own parts of the company and thus be less reluctant to change.
During the final stages of privatisation, since one of the firm's main threats is the reduction of shareowners, the government could perform IPOs via the stock market thus continue widening share ownership. As mentioned earlier, in Hofstede's terms Greece has a large power distance; its population has strong uncertainty avoidance and prefers to work in a bureaucratic organisation and is reluctant to change. According to Burnes (2004), during the introduction of privatisation markets fall into a divergent state thus forcing change into the markets' environment and challenging its organisation's goals, structure, culture and governance.
In circumstances such as these the most appropriate type of management is the Emergent approach to change, combined with Transformational leadership. Burnes (2004) argues that the Emergent approach to change is accomplished by continuous adaptation to new environments as well as alterations in everyday processes in order to lead to fundamental changes through a series of small adjustments in everyday routines and breakdowns.