Cyprus Mail 22 December 2024 - by Elias Hazou
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| reece’s Independent Power Transmission Operator, Admie, is the project owner of the interconnector |
Reports raise doubts about interconnector’s viability just as a major investor agrees to buy a major stake
News-wise, the Great Sea Interconnector had had quite the week: first the leaking of two reports casting major doubts over the endeavour, followed almost instantaneously by the revelation that a major French investor acquired just under 50 per cent of the stake in the company implementing the project. What does it all mean?
The broad strokes: the holding company, or special-purpose vehicle, to implement the project is likewise named Great Sea Interconnector or GSI. Twist: GSI is a subsidiary of Admie, Greece’s Independent Power Transmission Operator. Admie is the project owner. Any investors buying into the project would therefore acquire an equity shareholding in GSI.
Earlier in the week, someone leaked to the press two reports compiled by consultancy firms and commissioned by the Cyprus government. The first was a ‘red flag analysis’ done by Charles River Associates, a global consulting firm headquartered in Boston, Massachusetts. It zoomed in on the technical aspects of the interconnector – the proposed submarine power cable linking Cyprus to Crete with a reported €1.9 billion price tag.
“It is unclear whether the development and utilisation of the GSI will ultimately decrease the cost of electric power for Cypriot consumers,” reads the analysis, seen by the Cyprus Mail.
This report tackled the technical feasibility of the subsea cable as well as its capabilities if and when completed.
The second dossier finding its way to the media was a legal due diligence report by Curtis, Mallet-Prevost, Colt & Mosle LLP – a New York-headquartered international law firm.
It went with a fine-tooth comb through the documents submitted so far by Greece’s Admie to Cypriot authorities. The purpose: to see what kind of a deal the various stakeholders – including potentially the Cypriot state – can expect to get from the concession agreement offered by Admie.
Officials here are mulling whether the state itself should become an equity investor in GSI – paying in up to €100 million.
The summary of the Curtis report reads: “The terms and conditions proposed by Ipto [meaning Admie] for an equity investment in GSI are not sufficiently developed and not adequate to attract any serious strategic equity investors to GSI, particularly considering that GSI offers limited profitability upside and is facing a steep challenge to raise the financing required to develop the Project.”
And: “The Draft Concession Agreement is heavily one-sided in Ipto’s favour, and would create an unnecessary additional layer of risks for any equity investors in GSI.”
Then on Thursday, seemingly out of left field, the news broke that French company Meridiam has agreed to buy a 49.9 per cent stake in the interconnector project. Admie would retain a controlling share – 50.1 per cent. Both Meridiam and Admie declined comment.
This came just hours after we had learned that the Curtis report questioned whether the project could wheel in any “serious investors”. But Meridiam has $20 billion in assets under management.
So did the consultancy get it ‘wrong’, in a manner of speaking? Also, were these back-to-back developments mere coincidence, or does the timing suggest something else afoot?
It’s hardly the first time we’ve seen mixed simultaneous messages around the interconnector. It wouldn’t be far-fetched to speculate that competing interests in Greece and in Cyprus are engaged in information warfare.
Sources familiar with the matter tell the Cyprus Mail the “deal” reportedly struck between Admie and Meridiam likely refers to what’s known as a term sheet. This is a document which sets out certain terms of a transaction agreed in principle between parties, and is typically negotiated and signed at the beginning of a transaction. Term sheets evidence serious intent, but generally are not legally binding.
In brief, Admie and Meridiam may still have some way to go before inking an agreement.
Regarding the aforementioned timing, the same sources put it this way:
“Was the announcement of the deal a bluff? Or intended to counterbalance the leaked [consultancy] reports?”
On the consultants’ findings, the sources said that they “do raise some fundamental issues and concerns”.
The key worry has to do with the status of prospective stakeholders in GSI. The Curtis report does not mince its words. Citing the draft concession agreement provided by Admie, it says:
“GSI is (and therefore its equity investors are) treated essentially as an Epci (Engineering, Procurement, Construction and Installation) contractor, taking on all the typical obligations of a contractor vis-à-vis a project owner in a turnkey construction contract.”
In other words, equity investors – such as the Cypriot state – would be relegated to concessionaires rather as co-owners.
Moreover, “Ipto [Admie] would have every relevant right that owners typically have vis-à-vis contractors in construction contracts, including the rights of ordering changes, suspension and cancellations of any planned works.”
Further, Admie would have the right to approve GSI’s selection of contractors, it would require GSI to have the system built and transferred to it upon completion, letting Admie operate the system during the rest of the concession term.
And the kicker: “GSI – instead of Ipto today – would end up absorbing losses and liabilities resulting from cost overruns in the contracts negotiated by EuroAsia and Ipto with Nexans and Siemens (and in any future contracts with other project contractors) due to liability limitations protecting contractors, undertakings to compensate contractors for increased costs, or contract price increases resulting from work variations, as well as from any termination payment.”
The report clearly describes the arrangement as lop-sided in Admie’s favour.
On all this, our sources commented: “The Republic of Cyprus wants to be a co-owner of the assets. There is no way it would accept being an equity investor without also being a co-owner.”
But they qualified that this does not necessarily signal a deal-breaker.
“Some problems you can live with, others not. It’s a question of negotiating with the Greeks.”
On the news about Meridiam, and why the company would agree to act as concessionaire rather than as co-owner – going by the Curtis analyis – the sources offered:
“Meridiam may wish to take a high risk, they want to maximise returns, as they’re accountable to its shareholders. So they might go for the concession/buy-in agreement.
“But the Republic of Cyprus has different criteria – its objective is not to maximise profits, but to ensure affordable electricity for Cypriot consumers.”
The Cyprus Mail learns that the government took delivery of the Curtis report about a month ago.
We are also told that the participation of the Cypriot state in GSI’s equity was never a foregone conclusion.
The €100 million equity investment by the state would correspond to about 30 per cent of GSI’s shareholding.
Another standout observation from the Curtis due diligence report:
“The documents received from Ipto provide no reliable evidence that the Project is financially feasible as envisioned in the Cbca Agreement or the Ipto draft documents.”
‘Cbca Agreement’ refers to the Cross-Border Cost Allocation Agreement entered into on October 10, 2017 between the respective energy regulators of Greece and Cyprus.
It goes on: “The Cbca Agreement was signed in 2017 envisioning (i) total project capital costs of €1.5 billion, (ii) a grant of €750 million from Cinea [European Climate, Infrastructure and Environment Executive Agency], (iii) 50 per cent financing of total capital requirements by EIB [European Investment Bank], and (iv) 20 per cent commercial bank financing.
“In the seven years that have elapsed since then: (i) the projected capital costs of the Project have increased by 500 million euros; (ii) the Cinea grant was issued in an amount 93 million euros lower than projected.”
Energy Minister George Papanastasiou told the Cyprus News Agency on Saturday that Cyprus was proceeding according to plan and that an arrangement between the implementing body and an investment fund, like that of Meridiam and Admie, was always good news for a project.
“If an arrangement has indeed been made with such an investment fund, it is always good news for a project of this scope, regardless of the specific project, for the reason that financial resources are being found to proceed and complete it,” he said.
He also confirmed to the Cyprus Mail that next week (December 27) he and a team will travel to Greece for “face-to-face” talks with the Greek energy ministry on the two consultancy reports as well as the general state of play with the interconnector.
In response to a question by the Cyprus Mail, the minister said he did not know if Admie would attend this meeting.
The two governments are involved because the interconnector is a public-private project.
Admie, the project owner, is itself 51 per cent owned by the Greek state. The State Grid Corporation of China has a 24 per cent stake, with the rest owned by other investors.
A Chinese state-owned electric utility corporation, State Grid is the largest utility company in the world. According to Wikipedia, as of March 2024 State Grid is the world’s third largest company overall by revenue, behind Walmart and Amazon.
Admie’s chairman and CEO is Manousos Manousakis. The corporation’s deputy CEO is Qu Qi, a Chinese national. Another Chinese national, Yin Liu, sits on the board.
Although the Curtis report states that GSI was incorporated and is currently domiciled in Greece, the company is also registered in Cyprus as an ‘overseas company’.
Searchable Registrar records show a company by the name of ‘Great Sea Interconnector Single Member SA’.
It was registered in Cyprus on August 6, 2024. Its directors include Manousos Manousakis and Yin Liu.
