Filenews 3 July 2024 - by Chrysanthos Manoli
CERA's decision yesterday to reject almost all ADMIE's requests to amend previous regulatory decisions for the electricity interconnection between Cyprus and Crete is very important in all respects.
Until late yesterday there had been no official – public reaction of ADMIE to the decision, which is expected to happen today, as this is a development that the interconnection promoter itself avoided, hence it had pushed a lot for a different decision on the part of CERA.
However, there was a reaction to various sides in Cyprus from the European Commission, which was pushing more than IPTO to start the financial burden on consumers in Cyprus from this phase.
CERA's decision
The four individual aspects of CERA's unanimous decision are specified in the following:
- He said "no" to charging electricity consumers a special fee on kilowatt-hour as of now, so that the implementing body can recover its costs for the project.
- He said "no" to IPTO's request to change the methodology for calculating the rate of return on capital (Weighted Average Cost of Capital – WACC), through which there were fears that the preferential rate (WACC premium) of 8.3% would increase from time to time.
- He said "no" to IPTO's request to ensure that it will have additional financial guarantees (at the expense of consumers) if the project is interrupted or significantly delayed, not through the fault of the implementing body.
- He said "no" to IPTO's request to restore the useful life of the project to 25 years, from the 35 years determined by CERA.
Theme with Nexans
Based on what was stated by IPTO in the previous period, CERA's decision makes it more difficult to find financiers or investors to promote the project. Above all, according to the promoter, it will cause problems in its cooperation with Nexans, which manufactures the cable in Norway and which at one stage had assisted ADMIE's efforts to push for the recovery of its costs from this phase to start and for payments for the cable to proceed smoothly.
It should be noted that the Regulatory Authority for Energy in Greece has recently approved the start of cost recovery by the implementing body from 1/1/2025, through charging consumers in Greece, who will be asked to cover the total cost (€1.3 billion, excluding the €657 million grant from the EU) at a rate of 37%.
On June 20, ADMIE had warned CERA that if the regulatory framework was not completed as requested, it could not give Nexans the final commitment to assume the total cost of €1.4 billion. for the cable (full notice to proceed), which indicated a possible cancellation of the order. The deadline to grant the full notice to proceed to Nexans is August 31.
The decision of the RoC remains
Yesterday's development with CERA's negative response to IPTO is one of the two crucial aspects in which the Republic of Cyprus is involved. The second aspect is whether or not the state will participate with €100 million in the shareholding structure of ADMI's subsidiary, Great Sea Interconnector. For IPTO, the participation of the Republic of Cyprus in some way in the project is very important, as it is estimated that it will help to obtain loans from European or other organizations, perhaps even from the EIB.
The Government has announced that it will make its final decision when the cost-benefit study is delivered to it by the implementing body and after it has been evaluated by a foreign firm, the University of Cyprus and the Cyprus Institute. ADMIE announced yesterday that the study will be delivered to Energy Minister George Papanastasiou on July 11.
Reaction from the European Commission
Yesterday's decision by the independent energy regulatory authority is certain to cause the discomfort of the European Commission, whose executives lately, in cooperation with the management of IPTO, exerted unbearable pressure on the Ministry of Energy and CERA in order to accept the requests of the implementing body regarding the start of the recovery of costs for the electricity interconnection.
Yesterday afternoon there were the first reactions from Brussels, as Phileleftheros has been informed.
Given the political support that the project had during the Anastasiades administration but also under the current government, the EU – which offered a significant sponsorship for the project – feels strongly about the possibility that the interconnection will get stuck in shocks, for economic reasons.
In spring 2023, the Commission's Directorate-General for Energy was involved in an effort to review decisions on the takeover of the project by the EuroAsia Interconnector, as the company was not convinced that it was able to find the necessary funding.
The EU – as well as the Cypriot state – considered the best solution to replace the implementing body and assign the project – and the €657 million grant – to IPTO. However, it subsequently emerged that most (if not all) of the costs incurred by ADMIE for the construction of the cable in Norway were financed by EU sponsorship and not by equity.
In addition, the entry into the project of other investors has not been finalized so far, nor the securing of a significant loan from a bank or much more from the European Investment Bank.
Therefore, the Commission seems to consider it imperative to start burdening Cypriot consumers as the only source of funding for the project for the time being, apart from its sponsorship, but also the participation of the state in it, in order to facilitate the finding of funders.
