Repairs at Cyprus’s Vassilikos power station could cost up to €2bn and take months to complete, EU energy experts told the Ministry of Interior and the island’s Electricity Authority of Cyprus (EAC) on 27 July following their initial assessment of damage to the site as the result of an 11 July explosion. A team of 15 EU experts valued the damage to power generating infrastructure at Vassilikos at €700-800mn and said that parts needed for repairs would have to be obtained, the Cyprus Mail reported on 28 July. The EU team informed the ministry that it would take six months or more to repair and bring back into service Unit Five, which has a capacity to generate 150mw, and that it would take a year or longer to repair Unit Four, capable of generating 220mw. No timeline was provided for the repair or replacement of the plant’s other units. Prior to the explosion Vassilikos had a generation capacity of 793mw. The EU team also said there was no danger of radiation from the explosion and that there had been no pollution damage to the air, environment or sea. Cyprus is looking to the EU to provide financial assistance in order to restore the facility (MEES, 25 July, 18 July).

Iranian munitions loaded aboard the Russian-owned, Cypriot flagged Monchegorsk and bound for Syria were confiscated by Cyprus under UN guidelines in early 2009. The Cypriot authorities stored the munitions, amounting to 98 containers, on a spot at a naval base located some 300ms from the island’s main power generation system. A fire at the site on the morning of 11 July resulted in a massive explosion that killed 13 servicemen and firemen, wounded more than 60 people, and destroyed the 793mw capacity power plant. The island has since been hit with daily rolling power outages that are expected to last for a year as EAC works to install generating units to cope with demand. There is also an ongoing political uproar that has led thousands across the island to call for the resignation of President Demetris Christofias and his government. On 28 July, President Christofias asked his entire cabinet to resign with the intention of attempting to form a new government.

Moody’s Downgrades Cyprus

Adding to the island’s woes, Moody’s Investors Service on 27 July downgraded Cyprus government bonds to Baa1 from A2, and stated that outlook for the island is now negative. It also downgraded Cyprus’s short-term rating to P-2 from P-1. Moody’s said that the drivers for the action were: ongoing concerns about Cyprus’s fiscal position amplified by the fiscal and economic consequences of the destruction of the Vassilikos power station; the increasingly fractious domestic political climate, which has increased implementation risks to the government’s new fiscal plans; and the material risk that at least some Cypriot banks will require state support over the medium term as a result of their exposure to Greece.

Although the government has recently announced a range of structural measures intended to improve fiscal stability, the positive impact of those measures for the next few years will be reduced by the plant’s destruction, warned Moody’s. In view of the regular power outages caused by the destruction of the plant, the ratings agency reduced its forecasts for Cyprus economic growth to 0% in 2011 and 1% in 2012.