EAC may be forced into price hikes – Cost of electricity could rise if government does not stop raiding authority’s coffers

IF THE government insists on continuing to raid the coffers of the semi-government Electricity Authority (EAC), the organisation will have no option but to increase prices to consumers, EAC spokesman Costas Gavrielides warned yesterday.

Earlier this month, the government decided it would raid the surpluses of the EAC and Cyprus Telecommunications Authority (CyTA) for the third year running to plug the state’s budget deficit. According to reports, Finance Minister Makis Keravnos has already contacted the board of directors of both organisations to discuss the issue.

Between them, the two organisations are expected to fork over some £35 million from their profits this year – less than they have paid in the past two years — which will help to offset this year’s fiscal deficit. The government is desperate to reduce the deficit to below three per cent in time for Cyprus to qualify for joining the eurozone in 2007.

The government first raided CyTA and the EAC in 2002, to the tune of £40 million and £20 million respectively. The action was repeated last year with £25 million taken from the EAC.

The fact that both are semi-government organisations and have been able to afford such huge contributions has sparked criticism of excess profits.

So profitable is CyTA that after decades of monopoly in 2002 the Protection of Competition Committee fined it £20 million and ordered it to reduce charges to the public.

But Gavrielides was yesterday quick to quash criticisms of profit. “We don’t have surpluses for the taking. If the government insists on doing this we will have to raise our tariffs.”

The spokesman highlighted that in 2002 the EAC made a surplus of £30 million, of which the government took away £20 million, leaving it with £12 million to spare.

“Even if we keep the full £30 million, we can hardly materialise our 10-year expansion plan of the electric power system which is necessary to satisfy demand.

“To do this, we need to expand the grid, the transmission and the distribution. This is estimated to cost over a billion pounds. Add to that our debts, which run approximately to £230 million,” he said.

“If the government doesn’t take the money, we might just make it with the surplus this year to acquire the loans we need. If they intend to take a large amount like last year or the year before, there is no way we can make it with the tariffs as they are now.”

Gavrielides was at pains to stress that the authority’s biggest priority was the rates. “We are trying very hard to keep our prices low. For 20 years from 1983 until spring 2003, the tariffs were unchanged. And bear in mind that the 1983 prices were considerably higher than those in 2003 in absolute terms, while salaries have increased since then.

“We had to increase prices in 2003 to enable the liberalisation of the electricity market because one sector could no longer subsidise the other,” he added. In the past, industrial consumption was used to subsidise domestic electricity to keep prices low for consumers.

The spokesman added that the authority was not out to make super profits. “Our priority is to keep prices low. We recently changed the system for estimating electricity bills after public demand. We now come every two months to each household to write down the meter as requested. We haven’t raised prices as a result.”

He compared electricity prices favourably to telecommunications prices. “CyTA charge a lot. They have a fixed charge of £5 a month line rental and they don’t even go to the houses like we do.”

According to EUROSTAT, Cyprus has some of the cheapest electricity prices in Europe. The study was taken based on data on January 1, 2004. For an average household that consumed 600 kWh a year, the average cost per 100 kWh was £7.16 or 12.21 euros, including taxes.

Cyprus fared much better than the majority of member states. For the same household consumption range, the French were paying 17 euros per 100 kWh, the British 15 euros, the Irish 26 euros. However, Poland, Estonia, Latvia, Hungary, Malta, Italy and Greece all came out cheaper than Cyprus.