The entity overseeing the Cyprus-Crete electricity interconnector is seeking changes to regulatory frameworks in Cyprus and Greece to improve project financing prospects.
The Independent Power Transmission Operator (IPTO) argues that modifications to the regulated revenue methodology are necessary to secure loans and attract investors. These changes include:
- Gradual cost recovery from electricity consumers.
- A guaranteed return on the project during operation (potentially 8.3%).
The IPTO believes these measures would provide a predictable revenue stream for the implementing entity, facilitating loan repayments and investor distributions.
However, concerns remain. The IPTO acknowledges the project’s complexity and potential risks, along with unspecified “external factors” that could hinder operations. To mitigate these risks, the IPTO has requested additional financial assurances from regulators in both countries.
Quite enlightening as to the IPTO’s insistence on fully securing its financial interests about the interconnection investment, even if it is not implemented or does not operate, is a letter dated May 24, 2024, sent by the president and CEO of IPTO, Manos Manousakis, to the Greek energy regulatory authority, RAE, as part of a public consultation.
A key sticking point is the level of guaranteed return offered to investors. The Greek regulator (RAE) has set a 1% premium on the standard rate, while the IPTO argues for a higher rate (potentially 3.7% in Cyprus) to compensate for project risks.
The Cypriot regulator (CERA) has rejected the IPTO’s request for additional cost recovery from consumers in the event of delays. RAE has partially accommodated the IPTO’s request for additional financial assurances, but details remain unclear.
As seen in the letter, IPTO has requested from the regulatory authorities of Cyprus and Greece “additional assurances,” of a financial nature, if “external factors beyond the control of the Operator lead to the inability to complete the project or to a significant delay in its implementation.”
CERA rejected the request as submitted, but left open the possibility of examining such issues – and the possibility of additional financial assurance for the implementing entity – if the need arises.
It is clear, however, that the implementing entity’s desire is for consumers in both countries and a large part of the risk of non-implementation or non-completion of the project and the damage that would be caused to bear much of the cost. And it is probably certain that among the ‘external risks’, the IPTO includes the risk of Turkish aggression.
The IPTO’s financial disclosures in its letter to RAE reveal spending of approximately €48.8 million to replace the previous implementing entity and €82 million towards cable construction by Nexans.
An additional €248 million is expected for Nexans in 2024, along with €20 million for a guarantee letter related to transformer supplies by Siemens in Kofinou, Cyprus and Korakia, Crete.
