Filenews 12 October 2025 - by Christos Maxoulis
Lately there has been a lot of talk about the GREAT SEA INTERCONECTOR. Unfortunately, there is a lot of noise and little substance. I wrote about the project many months ago but from a different point of view. Today's intervention aims to comment or clarify only one or two important aspects.
The project is a cross-border electrical infrastructure, of common interest and governed by the European REGULATION (EU) 2022/869 of 30 May 2022. In projects of common interest, the specific degree of risk of their construction is significantly higher, compared to ordinary infrastructure projects. Therefore, according to Regulation (EU) 2022/869, projects are usually granted appropriate incentives commensurate with the specific degree of risk.
Article 17(3) of the relevant Regulation provides that incentives are granted that cover, among others:
(b) the rules for the recognition of cost-effective costs incurred prior to the commissioning of the project;
c) the rules for the provision of additional returns for the capital invested in the project,
It should be noted here that 17(3)(b) concerns an incentive to compensate the implementing agency, even in the event that the project is cancelled (socialization of the damage), so as not to discourage investors/project promoters.
Have we given the project a ROCE Extra Return on Invested Capital (ROCE) incentive? Yes, we have given, with a regulatory decision. In particular, we have granted a preferential rate of return on capital of 8.3% to the implementing agency, at least for the first 17 years of the project's operation.
Let's get to the point: Have we given an incentive to share the risk in the event that the project is not completed? In other words, although we have chosen that the recovery of capital and operating costs of the interconnection as far as the Cypriot electricity consumer is concerned will take place after the operation of the project, have we given an incentive for potential compensation to the implementing body (Owner) in the event that the project is never put into operation?
The answer is that yes, we have given this incentive. But under certain conditions.
For those who wonder whether this is possible, it should be noted that CERA may not have the authority to bind the state or the taxpayer, but it does have the authority to bind the user of the Cypriot electricity system, i.e. the electricity consumer.
How and when did we give this incentive? We gave it with the regulatory decision 22 of 2023, dated 25.01.2023 and in particular with the methodology for adjusting allowed revenues and tariffs.
Who was the implementing body (owner) on that date? O euroasia interconnector ltd.
Was CERA in consultation with the state when it granted, in the way it did, this incentive? The answer is that this is a very good question.
If the project is cancelled
Because this issue is also the controversial one, the relevant article of Regulatory Decision 22 of 2023 is listed below almost unchanged.
Article 25 – Arrangements in case the Project does not proceed with completion
1. CERA acknowledges that for Projects of Common Interest their specific degree of risk may be significantly higher in terms of their development and construction, compared to that resulting for similar infrastructure projects in other Member States, and therefore, in accordance with Regulation (EU) 2022/869, it should be ensured, within the framework of this Methodology, the provision of appropriate incentives commensurate with the specific degree of risk of these projects during the development and construction period.
2. In accordance with the provisions of par. 1 of this article and in par. 3 of article 17 of Regulation (EU) 2022/869, in the event that factors arise that make it impossible to complete the development and construction, and which are external and beyond the control of the Owner, then the reasonable and efficient costs incurred up to that point in time may be recovered, following a decision of CERA and on the basis of the methodologies issued in relation to Article 17 of Regulation (EU) 2022/869, by the users of the national transmission system through network access tariffs and attributed to the Owner within a reasonable period of time.
7. In its decision, and in the event that it is decided that the reasons that make it impossible to complete the development and construction are attributable to external factors outside the control of the Owner, CERA shall determine the amount of the costs incurred that are considered reasonable and efficient and can be recovered from the users of the national transmission systems of the countries where net positive results of the project are identified, through the tariffs for access to the networks of the said States, as well as the reasonable period of time in which they must be reimbursed to the Owner.
Who decides?
There is no need for someone to indicate it, but the juice in the activation/application of article 25 is:
(a) to decide that the project will not proceed to completion. Who will decide it and under what circumstances will this be decided? Also, when will this be decided (costs are running...)?
(b) the determination of what were the factors that made the completion of the construction impossible and especially the interpretation of whether these were external and outside the control of the Owner. This will be the question of millions of euros.
On the other hand, however, how easy is it to officially invoke that the reason for the cancellation is geopolitical threats and what precedent does it create or what impact will this have on the very sensitive issues of sovereign rights of the two states?
In relation to the above, with the latest Regulatory Decision 284/2024, dated 06.09.2024, it was decided to amend the Cross-Border Cost Sharing Agreement, in order to ensure that the Regulatory Authorities jointly decide whether the reasons for the delay or cancellation of the Project are attributable to reasons external and beyond the control of the Owner.
Question: In the event that the project is cancelled, not through the owner's responsibility, what will the co-financier, i.e. the EU, do, since the project is also of European interest? Will it take on a larger part of the risk, through additional participation in the compensation of the owner, since the geopolitical issue concerns a very specific, sensitive, but European issue or even responsibility, even if it is never officially raised as a reason for cancellation?
Some additional thoughts
The first comment is that with what little I know about agreements and the management of complex technical projects, the following are of great importance:
(a) the identification, appropriate allocation and meticulous preventive management of risks
(b) the methodology for resolving a dispute between the parties in the event of a dispute.
In relation to (a), it should be noted that the concept of geopolitical risk before 2023 was not even on the table. At that time, the ability of the first owner to carry out the project, the technical complexity of the project and its commercial viability were dominant on the table. We have heard the phrase geopolitical risk in the last 1 to 2 years, while the first time it was "officially" reflected is in the memorandum of understanding between Greece and Cyprus dated. 20.09.2024 (part C: cost sharing in case of delay or cancellation). I will not comment on anything else on this.
Now in relation to (b). Who has the authority to decide whether the Regulator of Cyprus and the Regulator of Greece do not agree whether the reasons for the delay or cancellation of the Project are attributable to reasons external to and beyond the control of the Owner? Or who has the authority to decide whether the regulated person disagrees with the interpretation of the Cypriot Regulator on Article 25 – Regulations in case the Project does not proceed with completion?
In the event of a disagreement between Regulators on this aspect, it seems that ACER (Agency for the Cooperation of Energy Regulators) now acquires competence, as it concerns the issue of co-decision of Regulators. As far as the interpretation of Article 25 in relation to the remaining issues is concerned, most of them replied that the Cypriot courts will have jurisdiction.
An interesting aspect is whether this regulatory provision / incentive is in essence an application of a European Regulation and its incorrect interpretation/application may constitute a violation of the acquis, which gives the Commission the right to initiate infringement proceedings. In such a case, which is rather remote, the EU court will have jurisdiction.
In any case, as in all disputes of major projects, let alone in this one, bearing in mind the stakes, which in the end are not only financial, the point is not to be led to a dispute resolution by a third party, but for all interested parties, including the EU, to sit down, and clarify an agreed plan A and a plan B, which where we have reached must include "damage control" management, in order to minimize the damage, which is not only narrowly economic.
* Mechanical Engineer
Dipl Eng, MBA
** The opinions expressed are personal.
