Tension peaks in Cyprus natural gas development

The development of the Natural Gas network of Cyprus has become a tangled mess, as after the delays in the schedules and the appeals that have been made in the tender, sources of the Public Natural Gas Company (DEFA) emphasize from their side that, now every possible effort must be made in order to complete all the necessary infrastructure works in Vasilikos.

At the same time, it is noted that, on January 9, the hearing of the appeal no. 51/2023 by the Consortium Hill Internatonal N.V (HiLL) - Hellenic Gas Transmission System Operator S.A. (DESFA) against the decision of the Public Natural Gas Company Limited in the Tender no. DEFA 50/2023 has been set.

A few days after the letter of the European Commission (20.12.2023) that makes explicit reference to the reasons for rejecting the grant of 10 million that DEFA is entitled to receive from the European Energy Recovery Program having requested a second extension, in the answer there remains a "small window" of claiming the grant.

Under the prism of DEFA sources, in the answer of the Europeans there is a small window of claiming the grant if it proceeds immediately to the preparation of the design (FEED) which is the first deliverable in case of signing an agreement with the successful bidder. It is noted that, a possible immediate signing of the contract will give the possibility to the contracting authority in one month from the signing of the contract to submit to the EU the FEED that is noted in the letter as essential deviation from the requirements of the EU, without pre-paying any positive outcome.

As the same sources state, the specific tender and by extension the much-desired development of the NG network of Cyprus has been tormented and delayed with great responsibility of the applicants, reminding at the same time that, the first tender in which they were the only bidders was declared invalid, with official information and from the Authority of Public Contracts since it was essential deviation the non-submission of a correct guarantee letter, and later due to the taking of restrictive measures and the adjudication of the case.

Make every possible effort
According to their own position sources of DEFA, all the necessary infrastructure works at Vasilikos must be completed, in order to make possible the use of natural gas as fuel as soon as possible. According to them, this will be necessary for the following reasons:

• Savings will result from the reduction in the high cost of pollution that the country is burdened with from the use of fuel oil and diesel as fuel. Reference is made to the emissions of sulfur dioxide (SO2) in the atmosphere of Cyprus, in the annual report of greenhouse gas emissions, where although Cyprus shows a significant reduction since 2005, based on the table of 2021 it is noted that 80% of the emissions come from electricity generation. It is also noted that Cyprus, for the same issue, has received a Warning Letter from the European Commission regarding the failure to achieve the percentage of reduction of annual emissions of SO2.
• The use of natural gas will contribute to the increase of the efficiency of the conventional power generation units. Based on the information received by DEFA from the involved entities, the existing conventional power generation units of EAC at the Power Station of Vasilikos, have been affected very negatively and often present serious problems and damages, due to the long-term use of fuel oil and diesel in recent years.
• The 6th unit of combined cycle of EAC at the Power Station of Vasilikos, with a capacity of 160 MW, is scheduled to be put into operation around the middle of 2024, to cover the demand for electricity during the peak periods of 2024. This unit will operate only with natural gas.
• The same problem will be faced by the power station of the independent producer PEC, with a combined cycle unit, with a capacity of 260 MW, which is under construction in the area of Vasilikos, as well as the power station of Paramount Energy with internal combustion engines, with a capacity of 100 MW, which will also be erected in the area of Vasilikos.
• There will be a problem of production adequacy, due to the non-arrival of LNG if it is not possible to cover the maximum demand with the existing conventional power generation units of EAC. As a result, the risk of power outages during the summer months is now visible. With today's data, long-term LNG purchase agreements are much cheaper than the corresponding fuel oil and diesel. Any delay may lead to the signing of agreements that will be unfavorable for the KD, resulting in the increased cost being transferred to the Cypriot citizen.

Appeals and fines
As noted by the sources of DEFA for what was mentioned and during the first appeal, every month of delay in the supply of the Electricity Authority of Cyprus with LNG leads to a cost of emission rights beyond 23 million euros (283 million euros for 2023) (almost double the amount from the estimated value of the contract), a cost that is borne by the Cypriot citizen in the monthly bill he receives. According to the same sources, the claim of the applicants during the first appeal that EAC will receive LNG directly from the LNG Terminal is not allowed by the current regulatory and legal framework. As they explain: A) according to the law on the regulation of the LNG market, the 3 power generators must receive LNG simultaneously (so the entire network must be completed before EAC receives LNG) B) to receive LNG EAC needs a Distribution and Control Center which is in the responsibilities of the current tender C) to receive LNG EAC requires a Connection Agreement with the Transmission System Operator and the agreement requires data that will be finalized by hiring the specific consultants.

They also point out that, delays in the timetables set by the Regulatory Authority to DEFA entail fines. Specifically, within the framework of its license, DEFA must A) complete the First Open Demand Assessment Process for LNG which ends with the Connection Agreements with the licensed power generators and B) within 4 weeks of completing the First Open Process to submit the Ten-Year Development Program (TYNDP). Without the completion and award of the Tender 50/2023, none of the above can be completed since A) without design and construction dates of the network, Connection Agreements cannot be signed and B) even if A proceeded with hypothetical dates, without the consultants DEFA will not be able to submit within time limits the Ten-Year as it is included in the "scope of work" of the specific consultants.

Finally, according to the same sources, the other licensed power generators are waiting for the completion of the Transmission System Network in order to be able to operate their units.

The Background
As explained by the sources of DEFA, while the tender was published with strict timetables in September 2022, an extension was given after a request from interested parties (among which the applicant) who was also the only one who submitted a proposal by the deadline. Due to non-compliance of the proposal with the terms of the tender and specifically as regards the duration of the guarantee letter, the tender was not awarded.

The tender in question could have been awarded to the applicant in January 2023 but due to non-compliance of his proposal with the terms of the tender (of the sole bidder) the tender was canceled, but the delay of one year could not be foreseen by the contracting authority.

[This article was translated from its Greek original]