Cyprus: The electrical interconnection with Greece still in limbo–Suspicion, fake news

Cyprus has yet to decide whether it will remain the last energy-isolated country in the EU or gain access to the European electricity market through Greece.

The meeting held yesterday in Nicosia, convened by the President of Cyprus, Nikos Christodoulides, did not lead to a definitive agreement on the implementation of the Great Sea Interconnector (GSI) project. This project involves laying a cable to connect Cyprus with Crete and Cyprus with Israel, which is currently focused on its war with Hamas.

After the meeting, which included the Greek and Cypriot Energy Ministers, Theodoros Skylakakis and Giorgos Papanastasiou, along with the CEO of the Independent Power Transmission Operator (IPTO), Manousos Manousakis, the atmosphere did not suggest optimism for overcoming the obstacles threatening to derail a project with significant geopolitical implications.

Theodoros Skylakakis stated that the meeting was constructive and that work would continue. He avoided answering questions on the substantive issues discussed, saying, “What we’ve said is enough for today.” When asked if he was optimistic that a solution could be found, Skylakakis repeated that he had nothing to add, only stating that negotiations would continue on both technical and “obviously, also on a political level.”

Cypriot Energy Minister Giorgos Papanastasiou was also vague, saying, “It is a task that needs to continue, and it will continue.” When asked if the parties were closer or further from an agreement, Papanastasiou said he couldn’t comment further, noting that the Greek Energy Minister and the rest of the delegation had to depart. He denied that Greece had set ultimatums, emphasizing that he could not reveal what had been discussed during the meeting. He reiterated, “It was a constructive discussion. The parties understand each other’s positions, and this work must continue until it concludes.”

Surprise Exit by President Christodoulides

A notable moment was the exit of Cyprus President Nikos Christodoulides from the meeting before it had concluded, as he attended a book presentation event. He was briefed afterward and stated that holding the discussion about the Cyprus-Greece electrical interconnection was a very good decision, as “it helped clarify many issues that were ambiguous and unclear,” and discussions would continue.

Suspicion, Fake News, and Interests

The GSI issue has sparked friction not only between the governments of Greece and Cyprus but also suspicion—mainly in Nicosia—about alleged attempts by IPTO to “deceive” its Cypriot partners, securing its own benefits while shifting the risks to the Cypriot side. Athens, on the other hand, believes that Nicosia is showing unreliability by backing away from commitments, risking the project’s collapse and the loss of hundreds of millions of euros in EU financial aid.

During the ongoing talks and negotiations, all sorts of rumors circulate about the failure to reach an agreement, many containing elements that raise reasonable suspicions about vested interests either wanting or not wanting the project to proceed. Some attribute the obstacles to the influence of major solar park owners on the Cypriot government, as the electrical interconnection with Greece would reduce the large profit margins they currently enjoy by selling electricity to the Cyprus Electricity Authority (EAC).

It should be noted that energy production companies using solar panels in Cyprus sell electricity at three times the price compared to Greece, and the interconnection would naturally end this “feast.”

Others believe that oil companies are also pushing in the same direction, as the EAC would stop producing electricity using fossil fuels (heavy fuel oil).

Another school of thought sees political interference—mainly from Russia—behind the difficulty in reaching an agreement, aimed at preventing Cyprus from becoming energy-independent from fossil fuels, thus reducing Turkey’s influence, which currently enjoys a “honeymoon” relationship with Moscow. The truth is that Turkey would do everything in its power to prevent the project from moving forward, as it disrupts its strategy of participating in every energy development in the Eastern Mediterranean.

There are dozens of scenarios, and rumors abound, with the dominant one being that “Greece, which destroyed the Cypriot economy with bonds in the early 2010s, now wants to deceive the Cypriots again.” On the other hand, many accuse Nicosia of timidity, fearing obstruction of the project by Turkey.

The intervention of the United States, through statements by the U.S. Ambassador in Nicosia (in favor of the GSI project), also fuels conspiracy theories about “the West’s attempt to essentially help Israel with other people’s money.”

Opposition to the Electrical Interconnection

Another group opposing the interconnection believes that ending Cyprus’ energy isolation will reduce the incentive to find a solution to the Cyprus problem, removing what they see as motivation. Some even consider it more reasonable to establish a connection through Turkey, disregarding the fact that such a move would render Cyprus hostage to the pseudo-state and Ankara.

Risks and “Risks”

Initially, Nicosia raised concerns about the risk of investment loss due to possible Turkish intervention. Specifically, who would bear the costs if the project were interrupted due to Turkey sending its frigates and submarines to block the work, claiming that it was taking place within its “exclusive economic zone” under the invalid Turkey-Libya memorandum?

When statements by Kyriakos Mitsotakis and Giorgos Gerapetritis addressed these concerns, new demands arose for explicit guarantees from Greece for military protection in case of Turkish provocations.

U.S. encouragement for the project closed this chapter, leaving only the economic dimensions. How much, from when, and for how long will Cypriot consumers fund the GSI, and why should they contribute 63%, compared to 37% for Greek consumers, if the connection doesn’t ultimately work? IPTO must also commit to keeping the cost at €1.94 billion and not increasing it to the point where Cyprus is held captive by an economic burden it cannot bear, jeopardizing the economy of the Republic of Cyprus.

Nicosia’s concerns over rising costs focus on the cable itself, manufactured by the French company Nexans, and the voltage conversion stations built by the German company Siemens.

IPTO faces skepticism, if not outright refusal, from Nicosia to finance the project with €25 million per year (a total of €125 million by 2029) to make GSI financially viable and attractive to other investors. Nicosia demands assurances that it will not pay the entire cost if the project halts before 2029. A sticking point is IPTO’s demand to extend the preferential capital return period from 12 to 17 years at a rate of 8.3%.

It should be noted that the project has been designated a Project of Common Interest by the EU, and if no agreement is reached, the €657 million grant from Brussels will be lost.

A Long Journey Since 2012

The idea for the electrical interconnection between Cyprus, Crete, and Israel originated from Cypriot entrepreneurs in 2012. The governments of the three countries supported the initiative at the ministerial level. At that time, the private company aiming to implement the project was called Euroasia Interconnector. In 2013, the EU recognized it as a Project of Common Interest. In 2016, then Greek Prime Minister Alexis Tsipras, then Cypriot President Nicos Anastasiades, and Israeli Prime Minister Benjamin Netanyahu met in Nicosia and reaffirmed their support for the project.

However, more declarations than actions followed. There were many proclamations about creating an energy bridge between the EU and the Eastern Mediterranean and utilizing natural gas reserves to produce electricity at attractive prices for the EU.

The first cracks appeared in 2018 when IPTO informed Euroasia Interconnector that the connection between Crete and the Peloponnese would be carried out by IPTO and would not be part of the Israel-Cyprus-Crete interconnection project. In 2022, the European Commission approved a €657 million grant under the “Connecting Europe” program, and an official groundbreaking ceremony took place in Nicosia. By the end of 2023, Euroasia was renamed the Great Sea Interconnector, with IPTO acquiring 51% ownership of the project on January 1, 2024, becoming the project’s implementing entity.

In February, Cyprus’ Finance and Energy Ministers, Makis Keravnos and Giorgos Papanastasiou, submitted a revised proposal for Cyprus’ participation in the GSI with a capital share of €100 million. However, conditions were attached regarding feasibility studies. Since then, a series of demands, objections, and retreats have led to the current uncertainty, with the electrical interconnection hanging in the balance.