Cyprus to absorb new energy bill hikes – finance minister (Update 2)

Cyprus said on Thursday the state would absorb a sizeable chunk of cost increases in energy to buffer anticipated rises of up to 25 per cent in bills for households and businesses to the tune of €50 million in the autumn.

The state would cover all additional costs to so-called vulnerable households, and introduce a staggered subsidy for other consumers by between 50 per cent and 85 per cent based on consumption, Finance Minister Constantinos Petrides said.

Vulnerable groups will be covered for the full cost of new hikes, he said.

The scheme will cover the period September-December, applying to electricity consumption on EAC bills from July through to October.

A staggered subsidy was designed to encourage users to save on energy use, Petrides said.

“We haven’t hidden the truth – prices will remain at very high levels. So the permanent and long-term solution focuses on two factors – first, saving, and secondly the energy ministry has a comprehensive plan for fully tapering off our dependence on fossil fuels.”

The measures also include the reintroduction of VAT on electricity at 19 per cent. The government will cover the difference and pay the EAC, which will adjust the tariffs.

The new package comes in addition to the packages already implemented, the cost of which exceeded €300 million. Petrides said the subsidy would cover both residential, commercial and industrial users of bi-monthly tariffs, thus supporting 449,000 households and 111,500 businesses.

“In this way, the measures are both horizontal and very targeted and will serve mainly the middle class, but also the vulnerable groups of the population,” Petrides said, adding that this measure also promotes savings, which he said was very important.

“The state sponsorship will cover two parts, the percentage of the increase and the VAT,” he said. “Instead of lowering the VAT, this difference will be subsidised by the state,” he said, adding that in the invoices sent out in September, there will be a 20 per cent to 30 per cent reduction depending on the tariff.

Responding to a question, Petrides explained that the subsidy will be paid to the EAC and therefore the invoice received by the consumer will record the original price, the state subsidy and the amount to be paid by the citizen.

In a presentation titled ‘Additional package of measures to deal with inflationary pressures’, the finance ministry gave some examples of the electricity subsidies.

For households (other than vulnerable groups) with a consumption of 1 kilowatts to 400 kilowatts, the subsidy will be up to 85 per cent of the increase; for 401Kw to 600 Kw, up to 75 per cent; for 601 Kw to 800 Kw, up to 50 per cent.

For businesses, consumption of 1 to 500 Kw will get a subsidy of up to 85 per cent of the increase; and for industrial usage, consumption of 1Kw to 750 Kw is eligible for a subsidy of up to 85 per cent.

In statements of her own, Energy Minister Natasa Pilides said energy-saving and installing photovoltaics were the best methods to permanently reduce the cost of electricity. She said that in addition to these measures, the ministry’s plans, which have a much larger budget, continue to be in force.

She said that until 2020 €8 million per year was allocated to the subsidy plans, while the budget for 2021 would exceed €120 million. At the same time, plans for the installation of photovoltaic panels, roof insulation and the installation of water heaters were running, as well as specific plans for vulnerable groups.

The €40 million ‘Save – Upgrade’ project for businesses was also running, which encourages savings and subsidises the installation of photovoltaic panels, “so that we can achieve a permanent reduction in the cost of electricity”.

Russia’s invasion of Ukraine and the ensuing disruption of energy supplies has left European countries scrambling to find alternative sources, and calls to cut down on consumption.

Despite having an abundance of sunshine and the discovery – still untapped – of natural gas in the past decade, Cyprus generates most of its electricity from heavy fuel oil.

Last week, US energy giant Chevron and Cyprus’ energy ministry said they would expedite development of an offshore gas field discovered in 2011.

The European Union member state is not part of any network with continental Europe. Cyprus, along with island states Ireland and Malta, were recently exempted from a voluntary 15 per cent cut in gas use agreed for other member states.

(Reuters News Agency and the Cyprus News Agency contributed to this report)