SNMRY Snam SPA (PK)

ATHENS—Greece said Wednesday it had failed to reach an agreement with Azerbaijan's state energy company, Socar, to sell a 66% stake in Greek natural-gas operator Desfa, creating another obstacle in the country's efforts to reach the privatization targets dictated by its bailout agreement.

The Azeri company proposed reducing the price of its investment, whose initial amount was €400 million. The proposal "was legally unfeasible and would cancel the tender," a statement from Greece's Energy Ministry said.

"The Greek government will decide on how it will re-launch the tender next week after consultation with its international creditors," an energy ministry official said.

Greece must raise some €6 billion through the sale of state-controlled assets by 2018, according to the terms of its third bailout agreement with creditors, reached in 2015. The Azeri company first agreed in 2013 to buy a 66% stake in Desfa, per the privatization plans laid out in the second bailout, which was agreed to in 2012.

The transaction stalled when the European Union raised antitrust concerns and asked Socar to reduce the stake it planned to purchase. Socar agreed earlier this year to sell at least a 17% stake to Italian company Snam SpA in order to keep its stake below 49% as required by EU regulations.

But the deal hit another stumbling block when the Greek government passed a law setting a limit on gas tariffs. Socar said this would reduce Desfa's future profits by 40% to 50%, thus diminishing the Greek operator's value.

The two sides have been trying to reach a compromise over the last several months. After the latest talks stalled, Socar declined to renew for a third time its letter of guarantee, which expired Wednesday.

Write to Nektaria Stamouli at nektaria.stamouli@wsj.com

(END) Dow Jones Newswires

November 30, 2016 23:05 ET (04:05 GMT)

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