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Following the public admission by Energy Minister George Papaconstantinou, the agreed separation between Cyprus' Natural Gas Infrastructure Company (ETYFA) and the Chinese consortium CPP-METRON Consortium Ltd (CMC Ltd) is imminent, according to a report by Apostolos Tomaras in this Sunday's printed edition of Kathimerini. Official announcements are expected next week, as the Energy Minister will be briefed on Tuesday.
The coordinated exit of the Chinese consortium from the unfinished Vasilikos energy terminal has damaged the Republic of Cyprus' image and will likely deter international companies from future projects. This issue adds to growing concerns following the failed Larnaca port redevelopment and highlights the shortcomings in the tendering and awarding processes for large public works.
The exit of the Chinese consortium from the unfinished Vasilikos energy terminal has damaged the ROC's image and will likely deter international companies from future projects.
Before the government can correct these procedures, it must investigate why numerous flagship infrastructure projects either never started or were abandoned half-finished. The agreed exit will lead to financial losses for the Republic due to ongoing negotiations with the Chinese.
This situation has postponed the introduction of VAT, which burdens state coffers annually, to the distant future. The government is considering structural changes to prevent issues like those seen with the Vasilikos terminal, Larnaca port, and other problematic projects.
Root causes and corruption allegations
Discussions within the government have identified key issues, such as the criteria used to award projects. The current system, which prioritizes the lowest bid, has proven problematic. It often leads to project delays, additional costs, and questions about project integrity. This affects all public works in Cyprus.
For the Vasilikos terminal, four main issues were identified:
1. Lack of qualitative criteria: The selection of contractors focused on the lowest bid rather than quality.
2. Corruption: Strong evidence suggests corruption in the contractor selection process. Quality companies were allegedly excluded, leaving only the Chinese consortium.
3. Rigid public sector framework: The environment, influenced by the Auditor General, does not allow for flexible approaches to projects with technical specificities.
4. Lack of oversight: There were insufficient rules for supervision and control of contractors.
Investigations and changes
The government is considering investigations into the Vasilikos terminal's award process. This could include criminal investigations if evidence supports such action. The President's office supports this approach, aiming to identify and correct procedural failures.
Proposed changes to the public works framework include:
- Stricter supervision rules
- Tighter framework for granting extensions
- Consequences for problematic contractors
- Creation of a list of banned contractors
Impact on energy needs
The agreed separation will have significant financial costs and impact Cyprus' energy needs. The uncertainty surrounding the completion of the remaining 40% of onshore infrastructure projects means no clear timeline for the arrival of liquefied natural gas (LNG) in Cyprus. This is critical as Cyprus is one of the few European countries still using fuel oil for electricity, incurring millions in EU penalties annually.
Tough negotiations with the Chinese
Next week's negotiations are crucial. The Chinese consortium is tough in negotiations to avoid financial claims from Cyprus. They have completed the FSRU vessel, for which the Republic has paid €190 million, but it remains anchored in Shanghai. The Chinese are willing to hand over the ship if Cyprus does not activate project guarantees of €80 million, claim €62 million in penalties, or continue arbitration in London. If an agreement is reached, another contractor will complete the Vasilikos project.
As Energy Minister Papaconstantinou explained, efforts are underway to hold the project consortium accountable. "This terminal should have been delivered in September, and there are contractual obligations," he said.
[This article is a synopsis of the original article written by Apostolos Tomaras in Greek and published in this Sunday's printed edition of Kathimerini. Subscribe to read the full version]
