By Angelos Anastasiou
ALTHOUGH the power generation and distribution industries were liberalised more than a decade ago – in 2003 – no investments by private entities have materialised since, though some have applied and been licensed.
Therefore, the thinking goes, either the Cyprus market cannot sustain more than one viable power provider, or else private investors find the profit margins unacceptably low – and so the privatisation of the EAC equals a higher price on electricity.
But while investor interest is virtually non-existent at this point, most of the reasons can be traced back to logical explanations that can be addressed.
Firstly, the state licensing authority (RAEK) has a mandate allowing it to issue licenses only for gas-burning power generation, while Cyprus has no gas yet. Until gas is imported – or unearthed – any investor wishing to compete with the EAC must somehow find a way to get gas to Cyprus.
Second, Cyprus’s natural gas public company (DEFA) has been appointed by government decision as the “sole importer and distributor of natural gas in Cyprus.” Any investor wishing to operate in the Cyprus power-generation industry needs to buy its fuel from DEFA. Of course, the EAC holds a 44 per cent stake in DEFA, so any investor wishing to compete in the Cyprus market would essentially be buying fuel from the EAC – the competition.
Lastly, EAC’s power plants have been retrofitted to burn oil and gas. It is almost certain that importing or unearthing natural gas would lower the cost – and thus the price – of electricity.
The EAC is now complaining that the state has long ignored its calls for the import of natural gas, which would allow it to offer cheaper electricity. But a private investor would certainly have an incentive to ensure the use of the most cost-efficient fuel available – if only to increase the profit margin – than to rely on a third party to provide it.