Cyprus will not be seriously affected by an energy supply crunch tied to the war in Ukraine threatening to cause widespread blackouts across the European Union this winter, say analysts.
Nevertheless, as market players state, high fuel prices continue to plague the business sector, especially those that have accumulated problems on their balance sheet during the Covid-19 pandemic.
The European Union is shoring up its resources as temperatures drop and preparing for two conceivable scenarios.
“One in which a few states experience power cuts, and another in which blackouts occur in many countries simultaneously,” EU Crisis Management Commissioner Janez Lenarcic told Germany’s RND media.
But an official of the Cyprus Federation of Employers and Industrialists (OEB) said: “This will not be the case in Cyprus. Unlike our fellow EU member states, we do not rely on natural gas coming from Russia”.
In comments to the Financial Mirror, the head of OEB’s Energy and Environment department, Andri Demetriadou, said that businesses do not expect to see more pressure from energy costs or a danger of being unable to operate.
“Power cuts are not something we need to worry about, which is positive as our businesses are still on the rebound from blows, they suffered from COVID restrictions.”
“However, one cannot be sure what the future holds regarding the cost of energy for the public and businesses.”
As Demetriadou noted, there is a scenario that could strain the economy with September price inflation at 8.7%.
“In the case, other European countries find themselves faced with power cuts due to the shortage of natural gas resources, they may turn towards conventional fuels, such as petrol,” said Demetriadou.
She explained this would upset the balance between demand and supply for conventional fuels, such as petrol and diesel.
“An increase in demand from Europe will definitely push up prices, and, in turn, the operating costs of businesses across the Union, putting pressure on Cyprus’ already battered businesses.”
Demetriou said that is the worst-case scenario, with OEB predicting that energy costs will remain stable for the next months.
She noted that if the worst scenario does not come to life, then predictions are that the cost of fuel could even drop, although slightly, as the price of buying emission rights is on a downward trend.
On Friday, the government launched a third scheme to support low-income earners and businesses by subsidising electricity bills as of 1 September.
The electricity authority’s press officer Christina Papadopoulou said that consumer bills would be brought down by a subsidy of up to €68.72.
“The reduction in the September bills is generated by the government’s measure to subsidise the increase in energy costs.
“This subsidy will cover the increase resulting from the government’s decision to reinstate VAT to 19% after lowering it to 9% for a ten-month grace period,” said Papadopoulou.
The measure will last until December and benefit 449,000 households and 111,500 businesses.
Papadopoulou explained the discount on EAC bills that consumers receive in September would be for electricity consumption for July-August.
She said the subsidy would be tiered, depending on the level of consumption and range from 50% – 85% for households, commercial and industrial charges.
In contrast, for vulnerable households, it is 100% of price increases.
The government has also extended reduced excise duties on fuel until 15 January 2023 in a bid to alleviate the effects of soaring inflation driven by the war in Ukraine.
Despite government measures, consumer associations are still concerned about hiking energy costs, which may take off in the coming months, although stable for now.
The president of the consumer association, Marios Drousiotis, told the Financial Mirror that oil prices in Cyprus would not increase significantly.
“Although nobody can make safe predictions, observing international prices, I think we will have small increases for two weeks, but then they will return to today’s levels,” said Drousiotis.
“However, given the increase in the price of heating diesel that has already occurred, consumers, this year, will have a difficult time keeping their houses warm during the winter.”
He believes people will choose not to heat their homes with central heating but prefer to use their air-conditioning units to warm the rooms they use.
“The price of heating diesel is currently between €1.42 and €1.45. So to fill a tank of one tonne, someone will have to pay €1,450.
“How many people can afford that?”
Drousiotis said that if the tension between Russia and the West does not de-escalate, the first months of the new year might also be difficult for Cypriot consumers.
“Unfortunately, no one can predict when the hike in fuel and electricity prices will stop.”