14/10/24

INTERCONNECTOR

Finance Minister Makis Keravnos has called for careful consideration of the country’s participation in the electrical interconnection project, citing significant financial implications. He noted the project’s estimated cost of €2 billion represents a substantial portion of Cyprus’s annual budget of approximately €10 billion and the country’s involvement in this investment is a very serious matter and must be studied very carefully.

He emphasised the need for thorough feasibility studies and economic assessments before a final decision is made on state participation.

Keravnos drew particular attention to the financing aspects of the project, noting that the implementing body, Great Sea Interconnector, may need to borrow over €1 billion.

“We must know in advance the terms of such a loan, the interest rate, and whether state guarantees for repayment will be required”. 

The Cyprus  Mail reported that the proposal of the Ministry of Energy presented to the Electricity Authority recently, is, in essence, an idea to nationalise the electricity authority’s (EAC) grid and its operation so it can turn into a full state-owned operation.

A subsidiary company will then be created which will invest €100 million as the state’s capital share towards the Great Sea Interconnector (GSI). 

And the EAC will basically become just an energy producer.

The Chairman of the Authority said they would assess the proposal and give an answer by the end of November, around the same time as the study by the European Investment Bank (EIB) on the feasibility of the GSI and financial recommendation for how to materialise the project.

“There is no profit to the EAC from this manoeuvre. The state needed to find a way to create a company to invest in the GSI cable, it cannot do so directly,” the Chairman said.

Meanwhile, the trade unions will stand in the way of any plans of the government regarding the involvement of the EAC in the Interconnector and the separation of the grid.  The unions believe that the government proposal is simply a pretext for its dismemberment and privatization of its networks. Media reported that in case that the EAC does not accept the proposal, the Cyprus Hydrocarbons Company (CYC), which is a state-owned company, could also be an option.

DRILLINGS

Cyprus’ first natural gas extraction will most likely be from the Kronos reservoir in block 6, which may be in 2027, Energy Minister George Papanastasiou said in an interview. He also said that in early 2025, ExxonMobil will begin drilling an exploratory well in the Electra site in Block 5 and a well in the Glaucus site in block 10. As for Aphrodite, he said Chevron has submitted a preliminary development plan, which seems to be in the intended direction. “The aim is to complete the plan within four months and there should be no surprises down the road.”

VASILIKO PROJECT

The Minister of Energy said that for the arrival of natural gas and completion of the terminal at Vasiliko, the state natural gas infrastructure company (Etyfa) was “cautiously proceeding” with the appointment of a project manager to assist in the securing of offers to narrow down the company to complete the remaining jetty and land works at the LNG terminal site.

Regarding the regassification unit (Frsu) Prometheus, where there are disagreements with the Chinese consortium CPP Metron, the minister said “intense negotiations” were underway and the securing of the vessel, which is legally the property of the Republic, was in its “final” stage.

OTHER ECONOMIC NEWS

Philenews reported of a new Israeli investment of tens of millions in Cyprus by Fattal. It concerns the acquisition of Elias Latsi Holiday Village Resort, which will soon be completely renovated and renamed Leonardo Club Family Resort.

The new project is expected to offer a new experience in Paphos, with state-of-the-art facilities and many activities for families and children, including a water park. Based on the plans, the estimated cost amounts to €55 million, while with the issuance of the necessary permits, the project will be completed within 1.5 years.

Measures aimed at tackling the high cost of living will return, Finance Minister Makis Keravnos announced , as zero VAT will be implemented on a number of products.

There will be zero VAT on diapers for infants and adults, baby milk, female hygiene products, fruit and vegetables. Opposition parties accused the government of incompetence. Both left-wing Akel and right-wing Disy accused the government of lacking a coherent plan and being out of touch with the realities faced by Cypriots.

The French Supreme Court has upheld an international arbitration decision in favour of the Republic of Cyprus, rejecting a $1.4 billion compensation claim against the country. The case stemmed from actions taken by the Central Bank of Cyprus to place FBME Bank under resolution after the U.S. Department of the Treasury classified FBME as a financial institution of “primary money laundering concern”.

Philenews reported that the area east of occupied Kyrenia has become unrecognizable due to illegal developments and the worst thing of all is that no one can stop this situation. Through the cases of usurpation of Greek Cypriot land in the occupied territories that the Police has recently been investigating, it appears that the areas of occupied Agios Ambrosios, Kalogrea, Akanthou as well as Trikomo are at the center of huge developments where hotels, marinas and countless residences have been built. 

Politis reported that for approximately a year now, there has been a change in the attitude of the government and the prosecuting authorities of the Republic as regards the usurpation of Greek Cypriot properties in the occupied North. A 4th case has been brought to court while five persons from Israel, Germany and Hungary facing charges. The cases of a woman from Germany and 2 women from Hungary even have a common denominator which is the Kayim construction group, closely linked to Turkish Cypriot leader Ersin Tatar.

According to the general director of the Cyprus Hotel Association (Pasyxe) Philokypros Roussounides, despite the ongoing conflict in the region, hotel bookings have not shown a significant downturn. 

However, he expressed caution regarding the future, pointing out that the broader Mediterranean area could experience impacts next year due to the conflict.

Philenews reported that Cyprus has seen a significant reduction in its trade deficit. Figures for the January-August period show a marked decrease in imports and a noticeable decline in exports. The main reason is that most probably, high prices have led to decreased demand, consequently lowering inflation but also reducing imports (and the trade deficit).

Total imports of goods from January to August 2024 amounted to €7.5 billion, a 15.5% from the corresponding period of 2023.

Total exports of goods for January-August 2024 reached €2.6 billion, marking a 9.0% decline.

Cyprus has seen significant economic growth across various sectors in the first half of 2024, according to the latest “Monthly Economic Developments” report from the Statistical Service.

Manufacturing production rose by 3.7% between January and July 2024 compared to the same period in 2023. The construction sector showed robust growth, with the total area covered by approved building permits seeing a 46.5% increase year-on-year. Vehicle registrations rose by 16%.

The government unveiled its strategy for the agricultural sector aimed at sustainable development, innovation and economic resilience. It aims to increase the contribution of the agricultural sector to Cyprus’ GDP, which currently stands at 1.8 per cent.

The new strategy was presented by Agriculture Minister Maria Panayiotou. It includes a number of actions such as addressing marketing gaps in promoting produce, water management interventions and the adoption of smart farming technologies. etc. with a budget of €109.3 million for the period 2024 to 2028.

Meanwhile, the Director of the Water Development Dept. stated that they have been working to draw up an action plan to deal with the water shortage that will be submitted to the cabinet for approval very soon.

It includes immediate actions which include the provision of mobile desalination units to the Paphos and Limassol district and an expansion of the existing desalination units’ capacity. The possibility of “artificial rain” being created by cloud seeding is also something being discussed.

Philenews reported that despite rising rental costs in Cyprus, the country’s increase from 2010 to the second quarter of 2024 is among the lowest in the European Union (EU) and the Eurozone.

According to Eurostat, Cyprus experienced a rental price increase of 9.02% during this period, significantly lower than the EU-27 average of 24.83% and the Eurozone-20 average of 22.95%.

The cost of residences in Cyprus has also increased, though not as dramatically as in some other countries.

09/10/24

Philenews reported that a proposal that, if implemented, will bring huge changes to the Electricity Authority was presented by the Minister of Energy to the administration and senior management of the organization.

The idea is for the possibility of the regulated (monopoly) activity of the Networks (currently belonging to the EAC) to turn into a 100% state company that will create a subsidiary company, which will invest, on behalf of the Republic, 100 million in the share capital of the Great Sea Interconnector.  For the Government, the EAC is the most suitable organization to manage the participation (under consideration) in the 2 billion project and wants to avoid mistakes like the contract for the natural gas terminal in Vasiliko.

The proposal caused numbness in the EAC leadership while the reaction in the ranks of the unions is particularly cautious.

A worry is the possibility of exposing national infrastructures to the business risk of a mega-project, with many technical, financial and geopolitical challenges. Another worry is the possibility of reopening the discussion of private investors entering the Networks, something that was ruled out in 2017. From the government’s point of view, the risk to the national electricity grid from any investment risk is not valid, since the investment will be made by a subsidiary company of the Networks. It also assures that there is no intention to alienate the national wealth of Networks from full state ownership. The original idea that either the Cyprus Transmission System Operator (TSO), after becoming independent from the Electricity Market Operator, or EAC Networks, without alienating them from the parent organization, would invest in GSI was deemed unfeasible, due to incompatibility with the EU acquis and the Directives concerning competition in the electricity market.

For this reason, the independence of the Networks, without alienating them from the state, was considered an appropriate option, if this will be the final decision of the Government.

The option of the participation of the Republic of Cyprus in the Great Sea Interconnector through the Cyprus Hydrocarbons Company (ΕΙΚ) has also been discussed. Although this option has not been definitively abandoned, the need to seriously strengthen the company (100% state-owned) with technocrats specialized in electricity, networks and transport management is problematic.

Chevron has suspended work on a subsea pipeline for the third phase expansion of the Leviathan gas field due to the ongoing conflict in the region, project partner NewMed Energy announced.

The suspension, expected to last until at least April 2025, will delay the project’s completion by a minimum of six months, NewMed Energy told the Tel Aviv Stock Exchange.

NewMed Energy, which holds a 45.34% stake in Leviathan, stated that while the delay would not significantly impact the project’s overall discounted cash flow, it “is expected to have a material negative cumulative effect on the expected cash flows in 2025”.

Chevron is the project operator with a 39.66% stake and the expansion delay is likely to reduce Israel’s gas available for export.

Last year, 75% of Israel’s exported natural gas went to Egypt, with the remainder going to Jordan.

Kathimerini reported that in the last eight months, Cyprus has acquired an extraordinary glamor for investors of the region, who are moving at a fast pace either by expanding their businesses in the country or by creating a plan b to transfer their companies due to the situation in the Middle East. Cyprus is attracting more and more Israeli investors, who seek to expand their businesses but also to scout the ground for new multi-million investments in various sectors. At the same time, the disorderly situation in the Middle East has created investment activity in the last quarter also from Lebanese, who have already invested in Larnaca that is popular for them and are leaving behind Limassol. Large multinationals with Israeli interests are seeking to create a temporary base until the situation in the Middle East stabilizes, as they know that Cyprus provides high-quality services and, above all, is a safe investment destination, according to the relevant authorities involved with attracting investments . Additionally, there are examples of companies creating a plan b, with the aim of having a base here in the event that the situation reaches a point where they cannot carry out their operations. There are also cases, however, where Israeli businessmen no longer wish to have any business activity and presence in their country, with Cyprus being their number one choice for transferring their operations. The fields of activity include fintech, regtech, gametech, edtech, shiptech, etc. There are also examples of companies involved with construction, industry, hospitality, health, fund management but also with cyber security and artificial intelligence (AI).

An example is Fattal of Israel that has created a network of hotels throughout Cyprus. In particular, Fattal’s investments in Cyprus prove the vote of confidence in the island as it currently has a total of 10 hotels.

Another example is Global Knafaim, which deals with the purchase and leasing of aircraft and owns 33.33% of the Cypriot airline TUS Airways.

Israelis are also targeting additional investments of millions in the hotel industry.

Lebanese are also showing interest with 35 companies expressing specific interest in recent months. These companies are active mainly in the construction sector but also in the pharmaceutical industry. A typical example is the Franco-Lebanese investment management company Murex, which maintains a presence in Cyprus from 2021 with 200 employees and is set to reach 500 by the end of the year. A new hospital is also being planned in Limassol by Hôtel-Dieu hospital, of Lebanese and French interests, which is expected to be ready around the end of 2025. It is one of the leading hospitals in Lebanon with a presence in Beirut and Paris.

With the aim of hearing the voice of Israeli investors, Invest Cyprus organized a meeting with the 10 largest companies of Israeli interests active in Cyprus. The entrepreneurs confirmed their desire to continue doing business in Cyprus as they feel safe, in a protected framework that offers business facilities. The Israeli investors also brought up issues that concern them, with the competent Ministry assuring them that it is going to take them seriously. Routine banking are a brake to business growth as was noted by the Israelis. They are also troubled by issues related to the bureaucracy but also social issues related to living here (schools, public transportation, etc.).

The Cyprus Mail reported that DND Homes (based in Boston) and its subsidiary DND Cyprus, based in Famagusta, currently advertising 622 luxury homes in the north, are being investigated for the usurpation of Greek Cypriot properties.

Disy MP Nikos Georgiou sent a letter to Foreign Minister Constantinos Kombos seeking answers, however Kombos replied in confidentiality and the letter was not made public.

Behind DND Homes and DND Cyprus is Turkish Cypriot businessman Ozan Dökmecioğlu, who is closely linked to the north’s leadership.

The authorities are also gathering information to make a case in court and arrest warrants may be issued in the near future against Dökmecioğlu and senior staff of his company.

DND Homes is included in a list of 24 usurpers of Greek Cypriot properties made public by the Cyprus Greens in August.

Nicosia criminal court rejected pre-trial objections put forth by a German national held in connection with usurping Greek Cypriot property in the north.

Her defence lawyer had argued she would not receive a fair trial due to bias.

Another point put forth by the defence lawyer concerned the charge sheet, as well as conflicts the lawyer said exist between national law and the European Convention of Human Rights.

Prosecution asked for time to examine the objections, and the hearing will resume on October 17 at 10am.

Philenews reported that hotels in Larnaca are experiencing unusually high occupancy rates due to an influx of visitors fleeing the escalating conflict between Israel and Lebanon.

Marios Polyviou, president of the Larnaca Hoteliers Association (PASYXE) said that “there’s high demand correlating with flights from Lebanon. It’s mainly Lebanese citizens and third-country nationals“.

Many visitors are using Cyprus as a temporary haven or transit point.

Hotel occupancy has also increased due to the presence of international delegations preparing for potential mass evacuations from the region

The betting industry now accounts for 3.72% of Cyprus’ GDP, according to Permanent Secretary of the Ministry of Finance George Pantelis.

08/10/24

INBNews reported that a new hotel with a capacity of 480 beds, named Leonardo Club Latsi, is being planned in Paphos by the Fattal Hotel Group while it is also opening another NYX hotel in Nicosia.

Philenews reported that in a letter to the Minister of Energy, which was communicated also to the Parliamentary Energy Committee, lawyer Ionas Nicolaou (former Minister of Justice and former Member of Parliament) has submitted a proposal for the installation of 800 megawatt hours of electricity storage systems from private photovoltaic parks, that could be offered a grant from the state, at specific rates.

The proposal is submitted on behalf of a significant number of companies that are active in the utilization of solar energy for electricity production and cooperate with his law office. According to the letter, the total cost of his customers’ storage systems is estimated at 135,616,000 euros and the sponsorship (if their proposal to cover approximately 45% of the eligible costs is accepted) will amount to 60 million euros. In his letter he also criticizes the Electricity Authority’s announcement to install a storage system at the Dhekelia station.

Politis reported that the list of usurpers of Greek Cypriot properties includes an American company (DND HOMES) and its subsidiary, based in occupied Famagusta. It promises on its website to bring the quality of America to (occupied) Cyprus. DND HOMES is active, beyond the occupied territories which it calls the “Turkish Republic of Northern Cyprus”, in Boston. The Authorities are aware for some time about its activities.

Philenews reported that left-wing opposition AKEL party has encountered renewed resistance to its proposed taxation of banks’ excess profits stemming from increased interest rates.

The proposal was rebuffed by the executive branch, the Central Bank and the Association of Banks during a parliamentary finance committee meeting.

The bill, suggests imposing a 5% extraordinary solidarity levy on banks, with proceeds earmarked for a Social Solidarity and Borrower Support Fund.

The Director General of the Ministry of Finance, expressed reservations about the bill, warning it could undermine the country’s credibility and deter investors.

A Law Office representative identified constitutional issues with the bill, arguing that levy imposition and fund operation should be managed by the executive branch.

A representative of the Association of Banks stated that banks have paid €400 million in special taxes over the past four years.

07/10/24

Cyprus’s economic outlook remains positive despite a climate of significant uncertainty, Finance Minister Makis Keravnos stated on the 02/10/24 after submitting the state budget for 2025 to House Speaker Annita Dimitriou.

The 2025 budget, totalling €10.2 billion, projects a surplus of 3.3% and a primary surplus of 4.8%.

Keravnos noted that public debt is expected to decrease to 64.2% in 2025 and further to 58.1% in 2026, with the aim of reducing it below 60%.

All expenditures, including developmental, capital, transfers, and social benefits, have increased.

Two Hungarian women were arrested last week on suspicion of involvement in the usurpation of land belonging to Greek Cypriots in the occupied areas.

Large technology companies operating in Cyprus have pointed out that prices of office space in Cyprus and especially in Limassol are in some cases higher than in London and Amsterdam, with this issue being presented as one of the obstacles to the further growth of the IT & ICT sectors, which have seen rapid growth in recent years.

An op-ed by ex-President of DISY Averof Neophytou concludes that the long period of economic insecurity society is experiencing requires bold political initiatives that should be centered on a bold tax reform. Only in this way will the middle class be able to raise its head, respond to the difficulties created by high prices and face the future with optimism and creativity. As long as the middle class cannot “breathe”, the future of the country will remain uncertain. (My note: his numerous political interventions might be an indication of preparation for the next Presidential election).

An op-ed by Leslie G Manison (former senior economist at the International Monetary Fund, an ex-advisor in the Cyprus finance ministry and a former senior advisor at the Central Bank of Cyprus) concludes that with the government focused primarily on GDP growth and on budgetary surpluses in assessing the performance of the economy and in its policy decisions, while giving minute consideration to the deteriorating well-being of many of its citizens.