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Great Sea Interconnector Project Faces Heightened Cost And Viability Scrutiny

by THEFUTURE.TEAM

December 5, 2025

In a recent House Finance Committee session, critical issues surrounding the cost and long-term viability of the Great Sea Interconnector (GSI) were brought into sharp focus. The project has become a focal point amid ongoing concerns over budgetary deficits at the Cyprus Energy Regulatory Authority (Cera), which continues to operate at a deficit for the sixth consecutive year.

Project Cost Concerns

During the session, Cera Vice-Chairman Alkis Philippou acknowledged that EU-backed projects of common interest typically receive state subsidies due to their initial lack of financial viability. However, Philippou warned that escalating costs could ultimately undermine the sustainability of such essential infrastructure initiatives. Committee Chairman Polyvios Lemonaris highlighted unresolved issues, notably the final cost of substations, and pointed out that remaining technical challenges—such as incomplete seabed surveys and uncertainties in the cable-laying process—might necessitate additional expenditures and infrastructure enhancements.

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Budgetary Implications and Fiscal Oversight

In addressing the myriad financial challenges, lawmakers expressed a demand for comprehensive clarification, emphasizing both the impact on public finances and the importance for citizens. Lemonaris provided further insight into Cera’s 2026 budget, which projects a significant deficit of €2.8 million against revenues of €3.1 million and expenditures of €5.9 million, with nearly half of the expenditure allocated to staff salaries. Despite these short-term imbalances, current reserves are expected to cushion the deficit and leave €2.2 million in the accounts by year’s end. Additionally, annual fees currently represent 87% of revenue while salaries consume 48% of expenditures. A revised fee structure has already been proposed to steer the agency toward a balanced budget.

Market Dynamics And Project Timelines

Lemonaris also touched upon broader market developments, noting that the electricity market officially opened to competition on October 1. However, with only two producers, 11 suppliers, and a handful of renewable energy stakeholders currently active in the sector, wholesale pricing remains in line with transitional arrangements. He expressed optimism that the natural forces of competition would help stabilize—and eventually drive down—prices once the market matures.

Looking Ahead

The critical nature of completing interconnection projects on schedule was underscored by committee members, who warned that delays could leave Cyprus with constrained energy capacities post-2029. While Greece’s independent transmission system operator, Admie, has yet to signal any changes to the December 31, 2029, completion deadline, ongoing technical reviews and pending reports from the natural gas administrator are set to outline the necessary infrastructure improvements. Lawmakers continue to monitor these developments closely, recognizing the far-reaching implications for both national energy security and fiscal stability.

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ECB Launches Geopolitical Stress Tests For 110 Eurozone Banks

The European Central Bank is preparing a new round of geopolitical stress tests aimed at assessing potential risks to major financial institutions across the euro area. Up to 110 systemic banks, including institutions in Greece and the Bank of Cyprus, will take part in the exercise, which examines how geopolitical events could affect financial stability.

Timeline And Testing Process

Banks are expected to submit initial data on March 16, 2026. Supervisors will review the information in April, while the final results are scheduled to be published in July 2026. The process forms part of the ECB’s broader supervisory work to evaluate financial system resilience under different risk scenarios.

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Geopolitical Shock As The Primary Concern

The stress tests place particular emphasis on geopolitical risks. These may include armed conflicts, economic sanctions, cyberattacks and energy supply disruptions. Such events can affect banks through changes in market conditions, borrower solvency and sector exposure. Lending portfolios linked to regions or industries affected by geopolitical developments may face higher risk levels.

Reverse Stress Testing: A Tailored Approach

Unlike traditional stress tests that apply the same scenario to all institutions, the reverse stress test requires each bank to define a scenario that could significantly affect its capital position. Banks must identify a geopolitical shock that could reduce their Common Equity Tier 1 (CET1) ratio by at least 300 basis points. Institutions are also expected to assess potential effects on liquidity, funding conditions and broader economic indicators such as GDP and unemployment.

Customized Risk Assessments And Supervisor Collaboration

This methodology allows banks to submit risk assessments based on their own exposures and operational structures. The approach is intended to help supervisors understand how geopolitical events could affect institutions differently and to support discussions between banks and regulators on risk management and contingency planning.

Differentiated Vulnerabilities Across Countries

A joint report by the ECB and the European Systemic Risk Board indicates that countries respond differently to geopolitical shocks. The Russian invasion of Ukraine led to higher energy prices and inflation across Europe, prompting central banks to raise interest rates. Belgium, Italy, the Netherlands, Greece and Austria experienced increases in borrowing costs and lower investor confidence. Germany, France and Portugal recorded more moderate changes, while Spain, Malta, Latvia and Finland showed intermediate levels of exposure.

Conclusion

The geopolitical stress tests will not immediately lead to additional capital requirements for banks. Their results will feed into the Supervisory Review and Evaluation Process (SREP). ECB supervisors may use the findings when assessing capital adequacy, risk management practices and operational resilience at individual institutions.