Our View: Caution needed in EuroAsia Interconnector investment

It was reassuring that a degree of caution was expressed by two ministers, with regard to the government’s prospective financial involvement, either through loan guarantees or direct investment, in the EuroAsia interconnector project.

Finance minister Makis Keravnos said the government could not commit to becoming involved in such a major undertaking unless it explored how it would impact public finances. This, after all, is €1.9 billion project, for which, not even half the funding has been secured. The European Commisssion has offered €657 million as the interconnector has been designated as a Project of Common Interest, while the government has offered a loan of €100m from the Recovery and Resilience Fund.

There has been talk about interest being shown by an Israeli fund, but the European Investment Bank, which usually funds such projects has been reluctant to get involved. An external consultant hired by the EIB to look at the project’s viability expressed reservations about granting the requested €580m loan. And if the EIB does not consider the project viable, the Commission might also withdraw its funding. This is why the project manager has been at pains to explain that the EIB decision was not final.

An EIB delegation is expected in Cyprus this month and the interconnector will be a subject of its meetings. Keravnos said that once the government was briefed by the EIB it would form an opinion. Energy minister Giorgos Papanastasiou seems convinced about the importance of the project for Cyprus and said he would prefer the state to buy equity in the project rather than provide loan guarantees. Any decision would be subject to the advice of a consultancy firm that would be commissioned to assess the project’s financial viability and geostrategic value, said Papanastasiou.

Talk of geostrategic value is worrying as it seems designed to justify an investment that might not be financially viable. How would the geostrategic value, which Papanastasiou – surprisingly for a technocrat – has repeatedly mentioned when discussing the project, be calculated? This is an argument normally resorted to by politicians to justify state expenditure that cannot be justified financially. In this case, the geostrategic value would justify the state funding a project that is a private initiative.

Does the geostrategic value stem from the fact EuroAsia would connect Cyprus to the European power grid? Cyprus could be connected only to Israel’s power grid and realise the geostrategic value at a much lower cost. The only drawback is that the project would receive no EU funding for a connection with a non-EU country. It would be interesting to hear what the EIB technocrats will tell the government about the project when they visit, as they will not be basing their assessment on the geostrategic value of the project but its economic viability.