Cyprus Mail

Last-ditch talks with Russia’s Itera

By Elias Hazou

A HIGH-RANKING officer from Russia’s Itera will be holding talks with officials here tomorrow in an apparently last-ditch attempt to close a deal on interim supplies of natural gas.
Itera’s latest bid to date – reportedly at €11 ($14.75) per million BTU – was turned down by the Natural Gas Public Company (DEFA) in consultation with the Electricity Authority of Cyprus (EAC).

DEFA, which a year ago invited calls for expression of interest for the supply of natural gas as an interim solution, recently determined that Itera’s offer would not decrease the cost of electricity production. It did not scrap the tender, however.

Although the electricity utility is keeping its cost formula a closely-guarded secret, a recently leaked classified report indicates that the current cost of fuel (using heavy fuel oil and diesel) comes to €0.114 per kilowatt-hour, or €33.41 ($45.1) per million BTU.

Meanwhile the Ant1 news network last week revealed a confidential report, compiled by the EAC and forwarded to DEFA, showing that, under Itera’s offer, between 2015 and 2021 the electricity utility would save some €800m by running its plants almost exclusively on natural gas instead of heavy fuel oil (mazut) and diesel.

According to the report, the cost of mazut and diesel for the six years would come to some €3.3bn. By contrast, with natural gas under Itera’s offer, the fuel cost would amount to a little less than €2.5bn.

The price quoted by Itera – the preferred bidder – also reportedly took into account the continuing operation of power units at the Dekelia power plant as a back-up.

While acknowledging the report is genuine, the EAC has countered that the report’s findings were founded on initial assumptions made by Itera that are no longer valid.

The EAC said, for example, that Itera’s calculations were based on outdated forecasts regarding fuel needs over the next few years. Due to the ongoing financial squeeze, the electricity utility now says it anticipates a sharp drop in electricity demand this year – hence less fuel needs to be purchased. Initially the utility had projected spending €650m on fuel purchases for 2013; they are now projecting around €480m.

Therefore, the EAC, argued, Itera exaggerated Cyprus’ fuel needs.

EAC spokesman Costas Gavrielides said moreover that Itera had made a number of other false assumptions.

He said the Russian company had over-calculated the efficiency of the turbines running on natural gas, and as a result had arrived at an erroneous conclusion on how much gas is needed to generate a certain amount of power.

Gavrielides said also that Itera failed to take into consideration the three steam units at Vasilikos power plant which run on mazut, but have been converted to burn natural gas as well. Mazut costs the EAC around €500 per metric tonne.

All of the EAC’s arguments have been refuted point-by-point by a Cypriot academic whom Itera engaged as a private consultant to prepare a report on their behalf.

In August, Herodotos Phylaktou, a senior lecturer at the University of Leeds and a member of the university’s Energy Research Institute, delivered a report comparing and contrasting Itera’s offer to the EAC’s current electricity costs.

In a statement released earlier this week, Phylaktou said all his calculations were based on available data, that he did not inflate the efficiency of the gas turbines, and that – contrary to the EAC’s claims – his report did factor in the three steam units at Vasilikos.

“Hitting back, Phylaktou said either the report had not been read with sufficient care or the misrepresentation of its contents was deliberate

The EAC is expected to argue its side of the story at a press conference in Nicosia today.

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