Filenews 17 September 2022 - by Angelos Nicolaou
EAC is being led down dangerous paths in its effort to deal with the financial difficulty unprecedented for the Organization with the visible risk of not being able to meet its role and mission, with consequences for consumers and the country's economy. According to highly confirmed data of "F", the Organization has recorded extremely significant losses in the last three years, while a healthy Organization is led to bankruptcy if immediate measures are not taken to reverse the negative situation.
According to information from "F", the Organization's losses in 2020 reached €11.9 million, and in 2021 €42 million. The estimate for 2022 is extremely worrying since it is expected to be completed with extremely significant losses for the Organization, if we take into account that the losses for the first five months of 2022 amount to €46 million.
As for the cash reserves, there the situation is being driven from bad to worse. In 2020, the year ended with approximately €400 million and decreased in 2021 to €238 million. In 2022, the situation, instead of ringing a bell and reversing it, led the EAC to be in the process of using overdraft accounts.
EAC gives its own explanation for the extremely adverse effects on the Organization's profitability and cash resources, pointing out that they are not unrelated to the unprecedented situation in the energy sector, which is caused by purely exogenous factors far beyond the control of the Organization. In particular, it cites the coronavirus pandemic, which has disrupted the entire spectrum of the supply chain internationally, and the war in Ukraine and the measures taken by the EU against Russia that have resulted in soaring gas and liquid fuel prices globally. Actions that inevitably led, according to the EAC, to a significant increase in the price of electricity to all categories of consumers as well as to significant adverse effects on the organization's profitability and cash resources.
"Both the negative financial results and the significant reduction in cash reserves are also largely due to the way EAC is reimbursed for its costs, based on the agreed and approved by CERA methodology for the recovery of permitted revenues", it is stated on behalf of the Organization. That is, EAC for a long time was obliged to price its consumers at a price below the actual cost of energy, essentially financing the bills of consumers and, by extension, the economy of the place. As a result, the Authority recovers all the costs allowed by CERA in a later period of 2 years, inevitably causing a significant reduction in cash reserves.
In response of the Organization to "F", it is noted that in the context of preparing the tariffs for the five-year regulatory period 2017 - 2021, EAC, based on the pricing methodology, submitted to CERA in 2016 a proposal on the amount of the allowed revenues of all its activities. The spokesperson of EAC, Christina Papadopoulou, characteristically mentioned that the calculations were based on data in force in 2016, predicted a specific mode of operation and consequently specific efficiency of the production system, specific loss rates of the Transmission and Distribution systems, as well as specific energy production from RES. It is emphasized that based on the existing methodologies for determining the permissible revenues and tariffs, EAC was not able to update these assumptions, resulting in large exclusions in the above-mentioned assumptions. In addition, the rapid increase in fuel prices further aggravated the situation.
For the year 2022, EAC submitted a proposal for allowed revenues based on updated data, as a result of which the 2022 tariffs applied since the middle of the year the picture presented improved compared to the previous two years.
Asked to answer about the reasons that led to losses of millions of euros in the last three years, Ms. Papadopoulou pointed out that the losses in both 2020 and 2021 are mainly due to the spread of the pandemic and the subsequent economic recession, the sharp and continuous increase in the cost of fuel and greenhouse gas rights due to the crisis in Ukraine and the delay in recovering this increase through the mechanism of automatic price adjustment of electricity. They are also due, she noted, to a significant extent to the granting of a special discount of a total amount of €46.1 million. (€31,9 million in 2021 and €14,2 million in 2022) based on relevant decisions of the Cyprus Energy Regulatory Authority (CERA).
The granting of the special discount continued during the first two months of 2022. The discount granted until February 2022 amounted to €8 million bringing the total amount of the discount from 2020 to €54.1 million. The EAC pointed out to all the competent bodies that it was not in a position to continue granting the discount and highlighted the need for the immediate approval of new tariffs. Taking into account that as of March 2022, EAC no longer grants any other discount, as well as that new tariffs have been approved by CERA, which were applied to the monthly customer accounts from June 2022 and bimonthly customers from July 2022, it is expected, based on current data, that the results for 2022 will be improved compared to 2021 but not necessarily the expected ones, due to the reduced revenues of the first half of 2022.
Towards an increase in the limit on bank overdrafts
The Organization's cash reserves decreased from €400m. in 2020 to €238 million in 2021, with the result that in 2022 EAC is in the process of using overdraft accounts.
Mrs. Papadopoulou told "F" that the Cash Resources of the Organization decreased mainly due to the granting of the special discount, the increase in fuel prices and the delay in recovering the increased costs, as well as the delay in the implementation of the new tariffs of the year 2022. It is noted that the Organization has not yet used its available bank overdrafts. Nevertheless, EAC is in consultation with banking institutions to increase the limit of its banking overdrafts to address the possibility of a worsening of global conditions in relation to fuel prices.
Reportedly, until the situation returns to normal, the situation is taking measures to improve its economic situation.
Among other things, the approval of new tenders takes place only in cases where they are absolutely necessary for business continuity. Furthermore, the already approved budgeted expenditure for 2022 and 2023 was limited to the maximum extent possible. Projects / services are postponed for the following years which can be postponed without affecting the main functions of the Agency. In addition, the issuance of tenders for services and / or consulting services and / or their reception by EAC staff was transferred in a more timely manner.
INTERVENTION
Liquidity problems
Poor handling led the EAC from €400m. liquidity to the point of overdraft within two years. From a positive sign we went to a negative one. The Agency above gives answers because it has reached the need to increase the limit of bank overdrafts. EAC today is the most important Organization operating in the Republic of Cyprus. The unprecedented economic hardship that the European area is experiencing is no excuse to jeopardise the adequacy and security of supply, which must not go unnoticed. Of course, this should not be forgotten in the Agency either, since the sector in which they operate does not bear mishandling.
