Filenews 10 September 2024 - by Chrysanthos Manoli
It does not honour the Cypriot State, but it is a fact that the more the competent authorities study – today, not in time – the existing agreements and regulatory decisions for the electricity interconnection between Cyprus and Crete, the more they worry about dozens of grey zones, but also possible pitfalls.
The President of the Republic comes today to the meeting he himself convened with all interested parties, but he goes more to ask and claim, than to shake hands for an agreement.
The absence of any commitment for the final cost of the interconnection, the delivery time of the project, but also the damage that consumers will be burdened in case of interruption of the project for... reasons of force majeure are the biggest concerns of the Government.
Greece's prime minister said on Sunday that the Cyprus-Crete electricity interconnection project will be done if it is economically viable. And yesterday, the Greek Minister of Energy explained that today the project is not viable and in order to become viable, the Cypriot Government and CERA must accept the requests made ex post by ADMIE for specific changes in the existing regulatory framework. Changes that increase costs for consumers and revenues for investors.
Some of IPTO's demands could be accepted -albeit reluctantly- by the Cypriot side. Besides, they were preliminarily accepted (not all) 8 days ago, but their ratification by the Council of Ministers did not proceed.
A major problem is caused by the stance of investors (IPTO) and the Greek Government (it owns 51% of IPTO shares), who, while demanding that the changes they require in the regulatory framework be made in order to further safeguard their financial interests, refuse to discuss changes or arrangements requested by the Cypriot Government in the regulatory framework. accusing it of backtracking on the original agreements!
Under these circumstances, the chances of reaching an agreement during the afternoon meeting on the electricity interconnection between Cyprus and Crete, in the presence of the President of the Republic, the co-competent ministers, the Minister of Energy of Greece and representatives of the European Commission, ADMIE and Nexans, are not many.
On the other hand, the Government is aware, with the contribution of the Attorney General, that if IPTO, regardless of the outcome of today's meeting, gives the Full Notice to Proceed to Nexans, its obligations to Nexans and ours will have been locked. Perhaps the Government wants to delay the granting of the Full Notice to Proceed to the manufacturer so that it can get answers to the issues it will raise today. On the other hand, such a choice may lead the other side to decide to freeze or stop the interconnection project.
What can be accepted
– Two requests of IPTO could be accepted -even today- : Its funding -in some way- by the state with €25 million euros per year, until December 2029. A total of €125 million, in order to improve, as the investor claims, the viability of the project and its attractiveness to other investors and lenders. Provided, however, that it will be clarified that if for any reason the project stops earlier than December 2029, the state will pay this amount in proportion to the works that will have been done and not in full.
– ADMIE's request to extend to 17 years the concession of a preferential return on capital (profit) of 8.3% for 17 years, instead of 12 currently foreseen, could be accepted (even today), as this was the recommendation of the consultant used by CERA to reassess the viability of the project.
However, if IPTO's two requests are accepted without the other side satisfying the clarifications requested by the Government, then there will be no turning back, as as mentioned above IPTO will give its final commitment to Nexans and the project will proceed with the terms that the Government subsequently does not consider fair for the country.
– In addition, IPTO's request to change the wording for the (unspecified amount) compensation of the promoter in case of interruption of the project without its own responsibility is not accepted by the Government. On the contrary, the Government (and the Attorney General) now consider that this wording in the regulatory framework (the notorious "may") is very insufficient for the interests of the country and should be amended, in the context of consultations with IPTO and Nexans, in order to significantly reduce any costs to consumers for a project that will not be given for their use.
Key concerns of the President and his staff
Although there is no official update on the outcome of the preparatory meetings held in recent days to determine the positions of the Cypriot side at today's meeting, information from various sides converges on the following:
– Under the auspices, in recent days, of the Attorney General, his assistant and their associates, a great effort is being made to identify possible risks (financial and other) for the state and consumers, in the regulatory decisions already taken by CERA and binding both sides.
The Government will insist on seeking a formula that will protect consumers and the economy, in case the cost of interconnection rises seriously beyond €1.94 billion budgeted a year ago. If the cost of the project is maintained at €1.94 billion, the burden on Cypriot consumers in case the interconnection is completed but not operational (i.e. in the worst case), is estimated at €800 million. But no one guarantees that construction costs will not increase in the meantime.
– It will be pointed out to ADMIE and Nexans that no commitments can be undertaken by the Government or CERA to cover unspecified additional costs from consumers, either for the cable or for the voltage converter stations (by Siemens), unless the soundings are completed and if there is no final – binding calculation of the length and cost of the cable. But also the two Siemens infrastructures in Kofinou and Korakia, for which no contract has even been signed for a specific cost.
– Clarifications will be sought regarding the financial obligations of IPTO (and by extension of its customers, i.e. consumers in Cyprus and Greece) towards Nexans, in case the project is interrupted for reasons that will not burden investors. It is not clear at this stage what part of the €1.4 billion contract will be paid out. With Nexans, consumers will be asked to pay, depending on the phase of the construction-laying of the cable at the point in time when an insurmountable problem will be caused. Will only the part of the cable manufactured be paid or a significantly larger order? As we wrote before, the president of IPTO is reported to have said in one of the teleconferences that the minimum cost of interrupting the project due to geopolitical or other risk will be €500 million. euro. Which will be paid by consumers in proportion to 63% (Cyprus) and 37% (Greece).
