Minutes from video conference on the Great Sea Interconnector reveal ongoing pressures

The dialogues that took place during the recent teleconference held on the Great Sea Interconnector matter with the Commission are highly revealing of the pressing attitude expressed by Greece’s Independent Power Transmission Operator (IPTO), both towards the Republic of Cyprus and towards the Cyprus Energy Regulatory Authority (CERA) regarding the electrical interconnection project.

The teleconference included the participation of all the bodies involved, including CERA and Greece’s Regulatory Authority for Energy, Waste and Water (RAAEY), and representatives of IPTO, France-headquartered cable and optical fibre company Nexans and the Ministries of Energy and Greece.

Through the discussion that took place, the minutes of which were secured, held and brought to light by InBusinessNews, IPTO argued in a strong and forceful, but not vague, way about the necessity of changing CERA’s decision regarding the return of income during the construction of the project, as well as the necessity of the Republic of Cyprus’ equity participation with the €100 million approved as funding from the Recovery and Resilience Fund.

At the same time, in the context of the teleconference, all open issues related to the implementation of the Cyprus-Greece (Crete) electrical interconnection were discussed at length and specific timetables were agreed upon in terms of critical decisions being made.

In more detail, according to the minutes, during the teleconference CERA urgently raised the issue of a possible increase in the final cost for the implementation of the project, with IPTO trying to counter its concerns.

Also based on the minutes, the issues that must be clarified by the next video conference on the matter, which was set for next Monday (12 August) at 9.30am are:

1. Completing the regulatory framework so that there is a positive NPV (net present value).
2. The question of cost recovery during the construction period.
3. Decisions on allowable income for the first regulatory period.
4. Managing geopolitical risks.

The Commission requested information

According to the minutes, Catharina Sikow-Magny, the Director responsible for Green Transition and Energy System Integration in the Directorate General for Energy, after welcoming the participants, asked for an update on the progress of IPTO's request for a review of CERA's decision.

Taking the floor, the Chairman of CERA, Andreas Poullikkas, informed Sikow-Magny that had been was a meeting with IPTO on 15 July, during which additional data was submitted by the implementing body of the Great Sea Interconnector, as well as that an expert was assigned to study the data.

As Poullikkas pointed out, CERA's goal is to ensure that there will be a positive NPV for the entire project, while regarding the geopolitical risk and the participation of the Republic of Cyprus as a shareholder, he said that the Authority is awaiting the government's intentions.

At the same time, Poullikkas announced that by today Friday 9 August CERA is expected to take a decision on all the issues raised before it.

The Director for Energy at the Ministry of Energy, Commerce and Industry, Charalambos Rousos, reiterated that a decision was made, according to which a €100 million grant will not be given, but the participation in the company's share status will be evaluated, while he informed the participants that in about two months a relevant decision will be made.

Geopolitical risks

Regarding the issue of geopolitical risks, he noted that CERA is expected to request exactly what it needs from the Ministry of Energy.

On his part, the Chairman of CERA pointed out that communication was made with the Ministry of Energy and a relevant letter was sent on 22 July, 2024, with Rousos replying that the issue will be examined after CERA's letter was also studied.

The Chairman and CEO of IPTO, Manos Manousakis, requested clarification as to whether CERA will complete the regulatory framework by 9 August, in order to eliminate the regulatory risks, noting that in order for IPTO to move ahead with the full notice to proceed for Nexans, it needs, in addition to the recovery during the construction of the project, to cover the €100 million gap and to clarify the coverage of the geopolitical risk.

The Head of Department of Regulatory Issues & Regulated Revenues at IPTO, Anthoula Zampeli, clarified that the RAAEY (the regulatory authority of Greece) accepted the implementation body's proposal for inclusion in the Regulated Base of Fixed Assets and recognition and recovery of the expenses carried out by IPTO in case of significant delay or cancellation of the project for objective reasons beyond the control of the implementing body, with the representative of the Commission noting that this provision is reasonable considering the size of the project.

Questions for Nexans

Taking the floor afterwards, CERA's Vice-Chairman, Philippos Philippou, asked the representative of Nexans why the company insists on receiving the full notice to proceed, before the seabed study, which is being carried out by the company itself, is completed.

In response, the Nexans representative said that in mid-August the grant will be completed and in order to continue the construction of the cable, the project needs to cover the costs, indicating that otherwise the construction will be suspended with a corresponding increase in the cost due to the delay.

Responding, Philippou asked how likely it is that the seabed survey will change the course of the cable with the consequence that its length will increase and thus the cost will also increase, to receive an answer from the representative of Nexans that the survey will indicate the exact route that the cable will follow and that from his experience and the seabed indications in the area, it will not significantly affect the cost.

He also emphasised that the construction of the cable is being done in parallel with the seabed survey, with the CERA Vice-Chairman questioning whether Nexans is willing to submit in writing or provide some guarantee that the cost will not change significantly through the survey.

The France-Spain interconnection and the contract with Siemens

On his part, the Chairman of IPTO noted that from the agency's experience, the result of the seabed survey will not significantly affect the cost, with the Vice-Chairman of CERA citing as an example the interconnection between France and Spain through the Bay of Biscay, for which changing the cable placement affected the cost, noting that IPTO could also inform in writing about this.

He further asked when the contract with Siemens is expected to be signed, to receive an answer from the Vice-Chairman of IPTO, Ioannis Margaris, that it is in the final stage and that the General Directorate of Energy of the Commission is aware of the process. He added that when it is signed, the regulators will be informed about it.

Regarding the cost, he said, the €400 million provided for in the contract for the converter stations is more than enough and no increase is expected along the way considering that for Crete-Attica the cost for two converter stations was €370 million.

At this point, CERA's Vice-Chairman requested a written guarantee that Siemens' costs would not increase.

Referring to Philippou's example pf the France-Spain interconnection, the representative of the Commission said that she does not consider that the only reason for the increase in costs was the change in the course of laying the cable. The representative of Nexans also agreed with this statement.

The concerns of the Commission

Taking the floor again, the representative of the Commission asked whether the CERA amendment will be ready before 9 August with Poullikkas replying that the Authority is working together with RAAEY and it is expected that it will be ready by 9 August.

In response to Sikow-Magny’s question as to when and how the geopolitical risks will be dealt with on the part of Cyprus, the representative of the Ministry of Energy replied that no commitments can be given, as these are decisions that will not be taken by the ministry alone, however, an effort will be made to settle the issue as soon as possible.

Furthermore, the representative of the Commission asked whether geopolitical risks should also be included in the regulatory framework, with the Department of Regulatory Issues at IPTO indicating that decisions need to be made on the recognition of income during the construction period, the recovery from the first regulatory period which must be common for the two regulators and the geopolitical risks must be addressed by CERA, as was done by RAAEY.

Taking the floor, the Chairman of CERA emphasised that time is needed to thoroughly examine the data submitted and reiterated that the main concern of the Authority is to have a positive NPV for the project as a whole.

On the part of RAAEY, the vice-president of the Authority said that RAAEY is working to finalize the decision on the first permitted revenue by mid-August and asked IPTO to submit to the Authority the new cost-benefit study that it submitted to the Ministry of Energy and the data which it submitted to CERA towards the revision of its last decision.

Why is the €100 million important?

Then the second representative of the Commission, after summarizing the pending issues, asked IPTO why the issue of the €100 million is relevant to the decisions that need to be made, Manousakis repeated that the solving of the three pending issues was necessary for the implementing body to proceed with the full notice to proceed, stressing that the gap of the €100 million cannot be accepted mainly due to the conditions set by the banks.

In response, Poullikkas clarified that what CERA mentioned is that the main goal is to ensure a positive NPV for the project as a whole.

Returning, the Chairman of IPTO clarified that according to the economic model he submitted, when talking about a positive NPV, this is meant to be achieved with a recovery from the construction period, ensuring that the IRR (internal rate of return) will remain at 7.4% and not at 5.29% to be at comparable levels with other IPTO projects.

Open issues

Summing up, the representative of the Commission said the issues expected to be clarified are:

• Completing the regulatory framework so that there is a positive NPV (net present value).
• The question of cost recovery during the construction period.
• Decisions on allowable income for the first regulatory period.
• Managing geopolitical risks.

She noted that IPTO is expected to submit to RAAEY the cost-benefit study and the data it submitted to CERA for a review of its decision.

Shortly before the end of the teleconference, the Vice-Chairman of CERA pointed out that a written guarantee was also requested from Nexans for no change in costs due to the change in the placement of the cable, with the representative of the Commission noting that although she does not consider this to be formal practice, Nexans will judge whether it can provide such a guarantee.

(Source: InBusinessNews)