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Cyprus Energy

Lakkotrypis rules out privatisation of EAC, promises open market

Energy Minister Giorgos Lakkotrypis

Energy Minister Yiorgos Lakkotrypis said the government has no plans to privatise state-owned power producer Electricity Authority of Cyprus even as it intends to open up the market to competitors.

“We will open up the market for independent private producers,” Lakkotrypis said in an interview. “We will open up the market and promote competition but generation and supply will stay in government hands”.

The company, which was initially included in the government’s privatisations list, may not solve its problems by changing to private hands and is therefore currently undergoing a restructuring process ahead of the separation of its operations into two entities, one in charge of power generation and supply and another responsible for transmission and distribution, and the unbundling of its accounts, the energy minister said.

He added that irrespective of his differences with “the EAC and the unions,” they acknowledge the need for the company which enjoys a virtual monopoly in all areas of the electricity market to be overhauled.

Lakkotrypis said that the EAC’s board, management and workers “have been working very hard” towards the company’s separation into two entities which will show where the “fat” needs to be cut.

Unions at the power producer oppose the company’s privatisation and have repeatedlythreatened to strike. Andreas Panorkos, head of EPOPAI, one of the unions at the power producer said on December 7 that workers also oppose the company’s separation into two legal entities.

A study commissioned a year ago by the ministry on the future of the power monopoly, “showed specific reasons not to privatise” EAC, he said.

“Is it best to have a government monopoly or a private monopoly?” he asked. “Not that I am in favour of monopolies. All the problems that we have as a country, as consumers (result from) either oligopolies or monopolies”.

Cyprus’s business sector have repeatedly complained about electricity prices in the past, which have been falling since fell mid-2014 as a result of lower oil prices. EAC generators use mainly heavy fuel oil and diesel to operate and are likely to continue using liquid fuel following Cyprus’s latest failed attempt to introduce natural gas before production at the Aphrodite field begins the earliest in 2020.

“The quantities (of natural gas) that we require are very small which make the economics of the entire project very difficult in the sense of the infrastructure that needs to be constructed, and the investment required is disproportionally high,” Lakkotrypis said in reference to Cyprus’s failure to find an interim gas supplier.

“If you enter a long term contract that will justify the investment, then you put the country at risk” of facing a “take or pay” dilemma involving penalties as was the case with Shell which won a competition to supply Cyprus with gas in 2012, which authorities later cancelled, he said. “If you make the contract too short, then the price increases as one has to amortise in a very short period of time”.

Lower oil prices made the equation even more difficult to solve, he added.

Lakkotrypis said that allowing the private sector to introduce natural gas to Cyprus by scrapping the monopoly of the public natural gas company, known widely as DEFA, created by law, “is certainly one of the considerations”.

Pavlos Liassides, the chairman of the Cyprus Free and Competitive Energy Market Business Association, which represents also investment projects with a production capacity of roughly 600 megawatts, said on February 8, that the group may decide to ask the government to cancel DEFA’s monopoly so that the private sector can take the initiative. Liassides also warned in the past that Cyprus risks outages if private producers fail to enter the market.

Lakkotrypis who defined himself as being “pro-private initiative” said that “the reason we have DEFA (as) an intermediary in the process “is exactly because of the small quantities required in the country. The pie is there and it is not going to change whether electricity is produced by the EAC or another independent producer”.

“We have the growth profile which is pretty much in line with the growth of the economy itself,” he said, adding that an independent producer would have to face even more difficulties to introduce “one third” of the quantity that DEFA was trying to import.

When DEFA, before announcing the terms of the tender for the interim solution, invited independent producers, to declare how much gas they were prepared to commit that they would buy later “nobody did so,” the energy minister said. They only gave an indication about a possible demand in the future, he said adding that “nobody came to commit on a longer contract”.

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