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Cyprus

Minister flummoxed over EAC unions reaction

By Elias Hazou

The government is “convinced” that the state power company (EAC) must remain in state hands, Energy Minister Giorgos Lakkotrypis reiterated on Tuesday, asking why trade unions are up in arms and threatening strike action.

Speaking on the public broadcaster radio, Lakkotrypis said the Memorandum of Understanding with the international lenders – known as the troika – calls for the “efficient and effective” splitting up of the state power company.

This is a “prior action” for the release of the next tranche of Cyprus’ bailout programme.

Although the MoU does not explicitly refer to the ownership or legal unbundling of the EAC, it is the course of action selected by the government for the company’s effective separation.

Under the third EU energy package, this was among three options available to the government, he said.

The government proposal, forwarded to the troika last Wednesday, calls for breaking up the EAC into two separate organisations: a distribution monopoly, and a power-producing entity competing in the liberalised electricity market.

Although the transmission and distribution grid would remain a monopoly, private operators (energy suppliers) would be able to use it.

Two public-law entities would be created – effectively two semi-governmental organisations – both owned by the state.

Employees would retain their civil servant status and all their rights and benefits.

The key difference, however, is that via ownership unbundling the two entities would not be able to engage in cross-subsidisation of operations, as is the currently the case.

The cabinet is to take a ‘preliminary decision’ for ownership unbundling. Once and if the troika green-lights the proposal, a road map will be submitted, with a two-year horizon for implementation.

Lakkotrypis confirmed also that the government proposal includes repealing a decree calling for the privatisation of the EAC.

According to the minister, the accounting separation of the EAC – which the company is in the process of carrying out – on its own is insufficient for complying with the requirements of the third EU energy package.

The other option would have been to have an Independent Transmission Operator (ITO), which France has adopted. That provides for the creation of private-law subsidiaries, under a public-law organisation, to which would be transferred some of the assets of the power company.

The third option would have been to create an independent systems operator.

These two other options were studied in detail, but it was decided that the legal unbundling of the EAC was the best scenario for the Cypriot market, Lakkotrypis said.

It is the most balanced solution, he added, given the number of indeterminate factors that might impact the energy market.

Examples of such developments, which could thwart plans, included the possible importation of natural gas (the interim gas solution), a mooted electricity cable connection with Israel, and the possible solution of the Cyprus problem.

Lakkotrypis denied allegations that he coerced the EAC board and management into agreeing with the ownership unbundling, during meetings held in the past couple of weeks.

And he challenged the EAC trade unions to prove how the legal separation of the company would, in their words, be catastrophic.

Currently, the EAC is a vertically integrated organisation, in that it owns the entire supply chain. The unions want to keep it that way, and say that accounting separation is where they draw the line.

Adonis Yiasemides, head of the scientific personnel trade union SEPAIK, countered that the government is trying to fix something that isn’t broken.

“If two entities are created, we will need two licenses, two different software systems, two managements, two boards. All these expenses will be borne by the taxpayer,” he argued.

The European Commission, he said, has granted derogations to countries like Cyprus, Malta and Luxembourg, which all have isolated power grids, so that they are exempted from ownership unbundling of their power companies.

The accounting separation alone is enough to comply with the third energy package, Yiasemides added, noting that the troika is going beyond that.

He accused the government of failing to forcefully make this point to the international lenders during negotiations.

“The troika has no one inside who is from the European Commission’s energy directorate. They are all economists and accountants,” offered Yiasemides.

He further argued that the government has not carried out a cost-benefit analysis on the proposed ownership unbundling.

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