Cyprus Mail

Foreign experts suggest LNG plant be in private hands

Up until now the government has said it wants a controlling interest in any LNG plant

By Elias Hazou

FOREIGN consultants hired by the government have thrown a spanner in the works by suggesting Cyprus should consider leaving a mooted gas liquefaction terminal in the hands exclusively of private investors.

Politis, which broke the story on Sunday, writes that Gas Strategies, a London-based consultancy, has outlined for the government three main options regarding the LNG project: a complete absence of the state from the multi-billion investment; holding a minority stake in the joint venture; and retaining a controlling interest.

The daily said also that Gas Strategies – hired by the government to produce a study – presented their findings to the President and senior officials at the Palace the previous weekend.

Energy minister Giorgos Lakkotrypis confirmed to Politis the three options put forward by the consultants, but declined to elaborate on the findings.

The minister went on to stress that no decision has been made, but seemed to hint to the paper that the government is reviewing all options.

Up until now, the government’s position had been that the state must retain a controlling stake in the LNG project, for both financial and national security reasons.

The LNG terminal is estimated to cost anywhere from €6bn to €8bn, including all related infrastructures. That’s the ballpark figure for a single LNG train or production line; more trains would presumably be added should new gas discoveries be made offshore Cyprus.

As it stands, Cyprus’ proven natural gas reserves average out to around 5 trillion cubic feet (tcf); it’s understood that at least 5.5 tcf are required for an LNG train with a capacity of 5 million tonnes per annum.

Lakkotrypis could not be reached for comment yesterday. But industry sources, speaking on condition of anonymity, have confirmed to the Mail that the foreign consultants did recommend that the LNG terminal should be privately owned.

The consulting firm was addressing the issue from a purely investment angle, the sources said. But the government – which at the end of the day will make the decision – must look at the big picture.

“If the state should relinquish control of the LNG project, it would still make money off the sales of LNG as part of production-sharing agreements. But other factors come into play: there’s a case to be made for local job creation, spawning new industries around gas and so on – things that can be ensured so long as the state participates in the venture. In short, for Cyprus this is a strategic project, not just an investment decision.”

In their recommendation, Gas Strategies observed that the Cypriot state cannot borrow billions, or even hundreds of millions, for a gas project.

And as the Mail’s sources add, Cyprus’ international lenders would be averse to the island borrowing these amounts which would cause the national debt to soar further.

Still, there could be a way: typically for such projects the equity raised (for example through a shares issue) needs to be only 30 to 40 per cent of the total cost. Assuming the LNG terminal costs €6bn, Cyprus would need to raise €1.8bn in equity, with the rest of the funds coming from loans.

Where might the €1.8bn come from? Given the island is bankrupt and cannot raise that kind of cash, it could turn to strategic investors. It has been reported, for instance, that Chinese corporations have expressed an interest in investing in the project in exchange for LNG.

At any rate, the government needs to make up its mind as fast as possible. Industry sources now place the earliest date for possible exports of LNG at 2021. Officials had initially spoken of 2018 or 2019.

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