The Cyprus Energy Regulatory Authority (CERA) has approved the investment costs for the construction period of the Cyprus-Crete electricity interconnection project (from 01/01/2025 to 31/12/2029) in the amount of 25 million euros per year, with a total maximum limit of income allowed to be recovered during the five years of 125 million euros.
With CERA’s decision, they “block” the 125 million euros of revenue that will be recovered in Cyprus from the beginning of next year, to cover expenses during the construction period of the project.
In addition, CERA extends the total weighted average cost of capital of the project to 8.3% over 17 years (from the originally planned 12).
A further regulatory decision on revenue approval is awaited in order to finalise the agreement, as the aforementioned decision for the €125 million concerns the revenue methodology. The decision to approve the application is a condition for ADMIE to issue the “Final Notice to Proceed” order to Nexans and get the project back on track. Finally, the decision on what the revenue will be and exactly how much will be charged to Cypriot consumers is pending.
Provisions for contractors
The CERA decision states that “the Implementing Agency has the obligation to bind the contractors to whom it will assign the projects and to present the complete framework of the project. These contracts must indicate, among other things, the total cost of the project. In this case, (a) the Contract with the contractor that will carry out the construction of the substations is pending, as the Implementing Agency and the contractor are still in negotiation and (b) while there is an agreement with the company that will build the cable, however, the same company has not completed the geophysical dredging study that will demonstrate the exact route of the cable”.
It is added that “although there are assurances from the Implementing Agency and the cable manufacturing company that with the completion of the above pending issues the total cost will not increase, however, in the absence of definitive contracts, I believe that there is a serious possibility that the total cost of the project will increase significantly with the completion of the above pending issues”.
The cost
It also states: “considering that the incentives offered are based on assurances from the Implementing Agency that costs will not increase, I consider that the incentives and the overall cost of the project are linked and that the Implementing Agency should expressly undertake to cover any increase in costs relating to these contracts.”
Furthermore, it is reported that the Chairperson and the Senior Management Member of CERA, adopting the position of CERA’s external legal advisors, have indicated that any provision imposing a condition on the granting of incentives that any increase in the cost of the project exceeding EUR 1.9 billion will be borne by the Executive Agency, is general and vague in a way that cannot be addressed in this CERA Decision and that the issue in question will receive separate examination on a case-by-case basis and/or in the event of a related request from the Implementing Agency to vary the costs, as provided for in the Cross-Border Cost Sharing Agreement of the “CBCA” project.
Furthermore, the Chairperson and the Member referred to the commitment of CERA’s Senior Management, as reflected in the minutes of the meeting of 30 August 2024 between the European Commission, the Governments of Cyprus and Greece, the Energy Regulatory Authorities of Cyprus and Greece and the Implementing Body, for the administration reasonable and proportionate incentives for the project.
Furthermore, CERA notes that “from the assurances of the Implementation Agency ADMIE SA and the company Nexans Norway AS regarding the non-differentiation of the project costs beyond the possible deviation of ±5%, it follows that the Cypriot consumer will not be burdened later on”.
