Agreement on the electricity connection Greece-Cyprus: The background, how the golden ratio was found – 2024-09-07 14:41:21

Yesterday’s consultations (2/9) between the Greek and Cypriot authorities brought an agreement in principle, which may lead to the implementation of the Greece-Cyprus-Israel underwater electrical interconnection, according to information from ADMIE.

Philelefthero’s information states that ADMIE maintained a non-constructive attitude until the last moment, constantly making new demands and initially refusing to accept the formula agreed to last Friday by the energy ministries of Cyprus and Greece and CERA.

In the face of the visible possibility that the negotiations will lead to a wreck and that ADMIE will find itself in front of the spectrum of being exposed to Nexans, to which it owes many tens of millions for the kilometers of cable already constructed, the leadership of the organization agreed to the proposal that was from the last week at the table, following the initiative of Energy Minister Giorgos Papanastasiou.

The position of the Government, the Minister of Energy and CERA throughout yesterday’s bargain was clear: Nothing more than 25 million per year, for five years, despite the constant threats for the other side to withdraw from the negotiation table.

They reached an agreement on the electrical interconnection pic.twitter.com/rU3oHMEK43

— Emerson (@EEmerson14) September 2, 2024

What does the agreement say?

According to the agreement concluded – with the participation of the General Directorate of Energy of the EU – the Cypriot Government will finance the costs of the ADMIE from 2025 until the operation of the project in 2030 with 25 million per year and a total of 125 million. money will be available from the state’s revenues from the trading of pollution rights and not directly from consumers.

Any other amounts that may be considered reasonable expenses of ADMIE during the construction, will recover them after the start of operation of the project, by charging electricity consumers.

The regulatory framework approved by CERA since ’23 will not change, at least at this stage, as far as geopolitical risk is concerned. The reference will remain in the document that in the event of an external risk that will interrupt or prevent the completion of the project, without the direct responsibility of ADMIE, CERA may approve the recovery of the costs incurred by the implementing body from the consumers until then.

ADMIE’s efforts to remove the “may” reservation did not bear fruit, after the clear position of the Cypriot Government that the geopolitical risk will burden the investor and not the consumers.

Το premium wacc

However, the information states that with the agreement, the increase in the duration of the preferential rate of capital return was locked in favor of ADMIE. The original regulatory decision – which then concerned the EuroAsia Interconnector – provided for a preferential profit (yield) yield of 8.3, against the 4.6 normally granted to the EAC for regulated energy projects.

8.3% is expected to be granted to the implementing body for 12 years. However, after intense pressure from the ADMIE, but also after an assessment of the matter by an audit consultancy hired by CERA, it was deemed necessary to extend the validity period of the premium wacc for 17 years, instead of 12. Obviously, this means securing revenues of some millions to the implementing body, so that the project is considered sustainable (profitable for investors) in all its phases.

In order to formalize – finalize yesterday’s agreement, decisions will be required from the Council of Ministers and the higher authorities of CERA, in the next few days.