Interconnector agreement reached

An agreement has been reached on how to cover the funding gap for the Great Sea Interconnector (GSI), it emerged on Tuesday, after a marathon session between all stakeholders the previous day.

The accepted solution, based on a proposal of Energy Minister George Papanastasiou, involves tapping into the state’s energy penalty fund for emissions, state broadcaster CyBC reported.

The governments of Cyprus and Greece, the EU directorate-general for energy, the regulatory authorities of the two countries, and Greece’s independent power transmission operator, Admie, managed to hit on a mutually acceptable wording on the contract governing the mooted electrical interconnection of Cyprus and Crete, after years of wrangling and amid fears the project would be scrapped.

According to the agreed wording, the pollution fund will be used to pay out €25 million per year, from 2025 to 2030, to cover the cost of the project.

The move is presented as an avoidance of foisting the project’s cost directly onto individual consumers through hiked up electricity tariffs, a proposed measure which had been consistently blocked by Cyprus’ energy regulator (Cera).

Admie had initially been uncooperative, refusing to accept this solution worked out by the energy ministries of Cyprus and Greece and Cera last Friday, according to a report in Philenews.

Admie, faced with the spectre of the project’s collapse, whereupon it would be liable for tens of millions of euros to cable provider, Nexans, which has already been commissioned to construct it, eventually relented, according to the daily.

Government negotiators reportedly tooka hard-nosed stand that no more than a total of €125 million would be paid out, despite threats from Admie to leave the negotiation table..

Additional costs incurred, should they be deemed reasonable construction expenses put out by Admie, can still be recouped via consumers’ electricity bills, but only once the project goes into operation

As far as geopolitical risk is concerned, the regulatory framework approved by Cera since 2023 will not change. Should an external risk, for which Admie cannot be held responsible, interrupt the project, it may be permissible for Cera to approve the recovery of said costs from consumers, the contract stipulates.

Admie’s efforts to make wording regarding this eventuality more definitive were unsuccessful, according to the daily.

Elsewhere Admie managed to increase its locked-in profit rates by securing a five-year extension. A rate of 8.3 per cent annually for a period of 12 years had already been provided for in the original regulatory decision, which at the time concerned the EuroAsia Interconnector.

After pressure from Admie as well as an assessment of the matter by an audit consulting firm recruited by Cera, it was agreed to extend the period of validity to17 years, instead of 12. 

This means investors will seek assurances that the project can generate sufficient revenue so as to considered sustainable throughout its lifecycle.

Decisions are expected to be formally taken and announced from the council of ministers and the Cera’s top leadership by Wednesday, according to reports.

Earlier on Tuesday, President Nikos Christodoulides had assured that data, satisfactory answers, and substantial reduction in electricity costs for consumers, would drive any decisions taken by the state.

The interconnector project hit a roadblock after Cera rejected the idea of imposing a €0.6 cents levy on consumers per kilowatt hour starting January 1, 2025.

The levy would have allowed Admie to recover the €1.9 billion construction cost.

The impasse prompted fears that the European Commission would withdraw a €657 million grant for the project.

Rumours circulated last week that Finance Minister Makis Keravnos could quit over lingering concerns he had regarding the GSI.

Keravnos dismissed the reports but added that the government is waiting on the European Investment Bank’s assessment.

The finance ministry said it was not in a position to evaluate the Cyprus-Greece electricity interconnector as several parameters remained unknown.