In consultation with European government agency after EIB no
“K” information wants the EIB to have has second thoughts about the financial viability of the project.
By George Kakouris
The implementing body of the EuroAsia Interconnector is turning to a European state organization and international financial institutions to find the remaining funds for the construction of the electrical interconnection of Cyprus with the rest of the European Union, after the loan request from the European Investment Bank was rejected, according to what said the body itself in a written statement to “K”. “Along with the possibility of reviewing the funding request to the European Investment Bank, the implementing body is proceeding with the completion of the financing program for the construction of the project”, while “it is in parallel consultation with a leading European government organization and, together with international financial institutions , proceeds with the conclusion of a syndicated loan” it states.
At the same time, a representative of the Commission who spoke to “K” noted that the financing of 675 million euros from the “Connecting Europe” Mechanism is a co-financing tool whose goal is to activate the finding of resources from other sources, whether public or private. The same representative also confirmed that the additional 100 million euros that have been committed to the project by the Recovery Fund are support through borrowing, the granting of which goes through the completion of specific milestones. In the meantime, the project implementer – which is a private initiative – considers that the EIB issue is not closed, announcing a consultation “with all interested parties, the Cypriot government and the European Commission”, and then a discussion of the EIB's assessment with representatives of the bank in September. According to the body, the EIB's decision was “purely economic”, as the investment bank presented the mass installation of batteries as an alternative. The agency refers to the EIB assessment (which has not been made public) to emphasize that the investment bank recognizes that the project is financially viable and that its implementation will bring benefits to Cyprus and the EU.
It should be recalled that the EuroAsia Interconnector project concerns the electrical interconnection of Greece – Cyprus – Israel, however the discussion about co-financing from the E.U. concerns the first leg of the project that will connect the site of Korakia in Crete with Kofinou.
Blurred landscape and contradictions
Controversies over whether the project is sustainable continued last week after the post of former finance minister Constantinos Petridis, in which he stated that the Commission approved the funding based on political criteria and the condition of finding funding from other sources as well. The issue is expected to concern the Parliamentary Committee on Trade, Industry and Tourism next Tuesday, August 29, with DISY's position considered to be of particular interest due to the participation of personalities close to the party in the effort, as well as the strong objections that has been formulated by Mr. Petridis.
Information from “K” wants the EIB to have second thoughts about the financial viability of the project, among other things, due to the non-provision of guarantees or support through participation in the equity capital, but also due to question marks that remain, according to the same sources, for the technical specifications of the project. The total cost of the project, which was initially estimated at 1.57 billion euros, has increased in the last period to 1.9 billion euros due to the situation in the world market.
As “K” has written, the implementing body has requested the support of the state (over the previous and the current government) through state guarantees of 600 million euros, so that it can proceed to secure borrowing to cover the remaining amount. For its part, the government is considering a number of options, including not supporting the project. Participation in the equity capital of the project is also an option for the state, as the Minister of Energy stated in his statements to the media in mid-July.
The Commission's criteria
Asked about the EIB's decision not to grant a loan to the project, a representative of the Commission told “K” that it is not up to the Commission to comment on EIB decisions. He added, however, that the project is a Project of Common Interest, which means that “the Commission evaluated it and confirmed that the cost-benefit analysis was positive.” Also, he added, before approving the 675 million fund from the “Connecting Europe” Mechanism, the Commission examined a series of criteria such as “the maturity of the project, and the quality of the project proposal, which implies financial viability”.
However, he reminded that the financing from this mechanism “is always only a co-financing tool whose objective is to encourage investments from other sources, whether public or private”.
In relation to the 100 million euros from the Recovery Fund, the same representative confirmed that it is a potential loan. The payments from the Recovery Fund, he added, are made after the member state requests their disbursement, and after the Commission assesses whether the milestones set have been met, taking into account the opinion of the competent technocratic group of the Council of the EU. All milestones (regarding the project's construction process) must be met by August 2026, he said.
Specifically for the EuroAsia Interconnector, he added, the National Recovery Plan of Cyprus includes three milestones which have not yet been assessed – this will be done if Cyprus requests payment of the fund. However, regarding the financing from the Recovery Fund, the National Recovery Plan of Cyprus states that the loan will take place “given that the project will secure the necessary financing from the Connecting Europe Facility and the necessary financing from the EIB and/or other funding agencies”.
Disagree with alternative
In its statement to K, the body reiterates the argument it presented in a press release last week that the assessment by the EIB was “purely economic”, as the EIB took into account alternatives such as the use of electricity storage batteries. A solution which the implementing body considers insufficient for the needs of Cyprus and does not have the same quality benefits. Specifically, the agency notes that in the context of the evaluation process of the loan request, the EIB recognized that the project is financially viable, but “compares the implementation of the electrical interconnection with other potential alternatives (counterfactual scenarios)”.
The alternative proposed by the EIB was, according to the body, “the massive installation of batteries, throughout Cyprus, of the order of 1350MW and lasting 4 hours”. The organization's counter-argument is that in the EIB's assessment it is recorded that “the degradation factor of the batteries, which is usually 2.6% of the time, was not taken into account, while it was considered that these batteries had a 100% utilization rate, while practically this indicator is 90%”.
According to the operator, the life of the batteries is 15 years compared to the 40 to 50 years that is the life of the electrical interface, and therefore, it notes, “the study would have to calculate the mass replacement of the batteries by and 3 times (instead of the calculated 2)'. Also, the operator adds, in the event of a system failure or blackout, the batteries can only supply the electricity system of Cyprus for four hours and only if they are fully charged, in contrast to the electrical interconnection which can provide continuous supply for as long as needed.
“The EIB's specific evaluation is purely economic and does not take into account the significant qualitative, functional and environmental benefits resulting from the implementation of the Electric Interconnection compared to the non-comparable solution with only the installation of batteries” it is emphasized. According to the body, in its assessment the EIB recognizes that the project is financially viable and that the Cyprus-Greece interconnection will bring benefits to consumers of 300 million euros per year and reduced bills, as well as that the financial benefit outweighs the cost of the project.
Also, the agency highlights as benefits that were not taken into account the end of the energy isolation of Cyprus, the geopolitical dimension of the project, the improvement of the penetration of renewable sources in the energy mix, and the strengthening of energy security.
Petridis objections
However, as regards the former Minister of Finance, Konstantinos Petridis, who commented on the matter last Monday on the occasion of the “K” publication on the EIB's decision, after the rejection of the loan request “no question of participation can be raised anymore of the government neither with share capital, nor with the provision of guarantees”. Mr. Petridis even asked for transparency regarding the reasoning and findings of the EIB, especially as the project has been quite busy with the media, adding that this was done “sometimes not in the right way”. According to Mr. Petridis, the approval of the financing by the Commission was done “with political criteria on the condition that sustainability would be ensured by the other sources of financing”, while he noted that the Commission itself does not carry out sustainability studies.
< p>It is noted that the Commission has not carried out a sustainability study, but has financed the carrying out of studies within the framework of Projects of Common Interest. Mr. Petridis also mentions that a 100 million grant from the Recovery and Resilience Fund was indeed made for the project, adding, however, that “it is the only project for which provision was made for (possible) borrowing and not a subsidy, due to the doubt about the viability and outcome of the project”, and considering that now “the loan will simply not be drawn”. In mid-July, when the issue of losing funding from the E.U. had arisen through publications. due to the non-fulfillment of specific milestones (such as the purchase of cables), Mr. Petridis questioned whether investors were found for the project as a result of the political support given by the state, and asked, if they were not, to explain why.< /p>
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