Cyprus Mail

Is there political manoeuvring to control the gas?

The signing of the initial agreement for the LNG plant in June

By Elias Hazou

THE GOVERNMENT aims to appoint a ‘fully political board’ to the national oil and gas corporation, giving it total control over the entity, the Sunday Mail is told.
The coming shake-up at the company will see the position of executive director abolished, and the people now serving as executives will get a different job title. In effect, they are to be demoted to department heads.
And that’s a key reason why a top energy official Solon Kassinis wants to quit as executive vice-chairman at the corporation, the Cyprus National Hydrocarbons Company (CNHC), sources said.
Currently, the board consists of three executives (one being Kassinis) on five-year contracts and four non-executive directors.
The outspoken official said he was resigning this week after being excluded from a team appointed earlier this month by the government to negotiate with Noble Energy and other companies for the earliest possible supply of natural gas from offshore block 12 and the construction of an LNG plant.
According to the official announcement at the time, the team members are: Stelios Chimonas (chairman), permanent secretary at the trade and energy ministry; Nora Nicolaidou, state’s attorney; Stelios Koundouris, treasury accountant; Eleni Vasiliadou, chairman of the Natural Gas Public Company; Odysseas Michaelides, head of the department of control, ministry of communications; and “a representative from the CNHC”.
During his chat with President Nicos Anastasiades on Wednesday, Kassinis got confirmation that the government intends to transform the entire board of the CNHC into non-executive directors – more likely than not political appointees.
The president showed Kassinis a paper – drafted by the energy minister – outlining how the three current executive directors are to become ‘department heads’ in a soon-to-be reorganised company.
The new board would still consist of seven members, but they would all be non-executive officers.
But Kassinis for one wants to hear nothing of it, and has said his decision to step down is final. Departing from the presidential palace, he also told reporters that other executives at the company are thinking of resigning as well.
Still, it should be said that Kassinis likely won’t be decamping for greener pastures any time soon: his contract states he needs to give a three-month notice.
But Kassinis’ own gripes at being snubbed are only part of the story.
Sources say it’s clear that the CNHC has been sidelined, and cite the fact that just one of the company’s members has been included on the team negotiating for the LNG project.
One of first clear signals that the leadership of the CNHC was being marginalised came when energy minister Giorgos Lakkotrypis rebuffed a proposal for all three executive directors to be put on the team.
Arguing their case with the minister, the CNHC leadership said that, given the company acts as the state’s representative and commercial arm, it made more sense for the entity to negotiate what are – at the end of the day – commercial agreements.
“How can you now ask directors who haven’t actually been involved in talks to put their signatures on deals?” a source said.
The next blow happened in June, when the CNHC was left out of a preliminary agreement on the development of an LNG plant on the island, despite it having done all the legwork.
Instead, the accord was signed in front of the cameras by the energy minister on behalf of the government, with the CNHC relegated to the status of observer.
At around the same time, the government commissioned a study into restructuring the energy sector. The consultants, a Norwegian law firm, recommended upgrading the status of the CNHC by making it the ‘command vehicle’ for the LNG project in Cyprus.
Among others, they recommended that the company take the lead in negotiating and concluding gas contracts. Another suggestion was the integration of the CNHC and the Natural Gas Public Company (DEFA).
The consultants’ findings were forwarded to the energy ministry.
What has happened, sources say, is that the government has taken on board the recommendations – but interpreted them in a way that can only be described as warped.
A case in point: the consultants recommended that the CNHC be modeled on Norway’s Statoil. But Statoil’s board is comprised exclusively of executive directors, that is, employees of the company who are responsible for the day-to day-running of the company within their respective spheres.
In stark contrast, the government here wants to structure the CNHC so that its board consists only of non-executives.
Non-executive directors typically – though not always – have less experience and knowledge, and are appointees, not employees.
The administration agrees with the Norwegians that the CNHC should be upgraded; but ironically, it has apparently reasoned that precisely because the company will play such a prominent role, it should come under political influence.
“Call it the Norwegian model with a Cypriot twist,” remarked the sources.
And therein lies the crux of the matter: what does it say about the government’s energy policy when the CNHC is being run by political appointees with limited experience?
“It’s no secret that, in Cyprus, experts in the field can be counted on the fingers of one hand. Take the team that will negotiate with Noble…only Eleni Vasiliadou, the head of DEFA, knows her stuff.”
The same sources say there is a heavy dose of truth to rumours that the energy portfolio was ‘assigned’ to coalition partners DIKO during the horse-trading with DISY just ahead of the presidential elections.
This, they said, can be tied to a bill co-sponsored by DISY leader Averof Neophytou. Among other things, the legislative proposal, drafted in November 2012, envisaged re-jigging the company’s board so that it consisted of just one executive director and six non-executive officers.
“It’s hard to escape the conclusion that the parties want to run the show,” the Mail’s sources said.
Also, under the change of policy, the CNHC now no longer talks shop with the energy firms, like Noble, Total and ENI. Since a few weeks ago, the companies’ official contact is the energy ministry.
All this, just as the LNG project kicks into a delicate phase. This coming week the negotiating team meets with Noble reps in Nicosia – one of the first in a series of discussions aimed at hammering out a deal for a final project agreement.
The government has given a deadline of late 2013 for the signing of the final project agreement, which is considered a milestone for the whole LNG endeavour. That deal will then pave the way for the setting up of a special-purpose vehicle – a joint venture between Cyprus and foreign companies that will seek gas contracts and investors for the multi-billion gas plant.
Further beyond beckons the final investment decision by Noble and its block 12 partners, which is what will really cinch the LNG deal.
A roadmap does exist. So while the shakeup at the CNHC won’t derail the LNG venture – on which Cyprus is banking for its economic recovery – signs of political meddling do not bode well for it.

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