An unexpected development was recorded yesterday after the talks held in Athens by President Christodoulidis and the Prime Minister of Greece Kyriakos Mitsotakis, regarding the electrical interconnection of the two countries.
The continuous assurances of recent months that "the project is viable, is progressing and will be completed smoothly" was followed yesterday by the announcement of the two leaders that an update of the techno-economic data of the investment will be made. This decision was made official a few hours later, during the meeting that Energy Ministers Papanastasiou and Papastavrou had with Energy Commissioner Dan Jorgensen.
The update referred to by Mr. Christodoulidis and Mr. Mitsotakis refers to a new viability study. In turn, this refers to a significant respite – delay. In order for the study to be carried out, some procedures compatible with European legislation must be followed for the selection of the company that will undertake to confirm or deny the viability of the electrical interconnection.
It is not officially known at the moment how and by whom the procedures for issuing a tender to find a designer will be promoted, who will prepare the terms of the tender and what timetables will be set for the delivery of the study.
What will happen to IPTO – Nexans?
It is also not known whether during the procedures for the implementation of the update, the cooperation of the implementing agency (IPTO) with the French Nexans for the construction of the cable will continue as it is, nor whether IPTO will be asked to continue paying for a cable that is not certain to be laid at some point for the needs of the Cyprus-Greece interconnection, From the moment that its realization was conditional in the most formal way on a new positive viability study.
What will happen if the costs for the project continue - on the part of IPTO or with the contribution of the two states or the consumers - but in the end the study comes to a negative conclusion? And what will Nexans do if it is asked to freeze the construction of the cable until the viability of GSI is confirmed - if confirmed - ? In short, what will happen to the running expenses? And what will happen to the expenses that have been incurred and the €250 million that IPTO is already asking for from the consumers of the two countries?
Decent abandonment?
Regardless of the assurances given yesterday by official sources in Greece and Cyprus that the sudden decision to carry out a study to update the techno-economic data around the cable does not constitute a prudent abandonment of the effort, mainly due to the inability to deal with the geopolitical obstacles posed by Turkey, in the public opinion of the two countries this is exactly what has been discussed since yesterday: That the decision for a new study, at a time when both governments, with the exception of the Minister of Finance of Cyprus, were assuring of the viability of the project, as well as the Commission, may be the most appropriate and decent way to avoid a political or other crisis with Turkey, on the field of cable laying. Or to postpone it.
The messages sent by both governments last night were reassuring: The project will go ahead, as long as the mathematics of the new data that has been created in the last three years justifies it.
Can IPTO complete such a project?
In addition to the geopolitical obstacle posed by Turkey, yesterday's developments also confirm the inability of the implementing agency (IPTO) to complete the project with its own -financial- forces, even in the event that the Cypriot side fulfils its obligations for the payment of €25 million per year, until 2029. Something that for 2025 he has not yet done.
IPTO's expectations for cooperation with an American-French or other investment fund were disappointed, probably for the same reasons that Cyprus' investment participation in the GSI did not proceed. And obviously this is one of the main reasons that oblige a new study – but possibly also new regulatory decisions for the sharing of construction costs or even the determination of the rate of return on capital: To distribute both the cost and the benefit for all potential investors fairly and proportionally. In other words, IPTO should maintain the role it really deserves in the project, against the financial burden it will undertake.
Commission, governments, consumers and investors
Unofficial information from "F" states that the viability study - or whatever it is called - will not be prepared under the auspices of IPTO. The European Commission will play a leading role. And the role of the two governments is important, through representatives in a committee that will be set up by the EU's Directorate-General for Energy.
However, the procedures to be followed remain unknown. Despite the assurances given yesterday by the Greek and Cypriot sides that the study will "run" quickly, technocrats in the sector argue that it is impossible for this process to be completed before mid-2026. This automatically means that the cable cannot be delivered for use at the end of 2029, as provided for by today's regulatory decisions.
And the postponement of the completion of the project seems impossible not to be directly linked to the increase in the cost of construction of the project: We started many years ago with a cost calculation of €1.2 billion, we went to €1.5 billion, today we are at €1.9 billion, after the update study no one knows what amount we will have reached. But will the final construction cost really be a decisive factor for the project to be deemed viable or not, since the Regulators ensure full repayment of the cost by electricity consumers in the two countries, plus 8.3% return on capital for 17 years and another 4-5% for as many years? Or will the burden on electricity consumers simply be increased for about 30 years, so that for investors (whoever they are in the end) the project will be sustainable and profitable?
