Cyprus Mail
CyprusEnergy

‘Damage already done’ to Cyprus gas industry

THE government’s scramble to offer Limassol as an alternative support hub to the energy giants turfed out of Larnaca, is too little too late as the damage to the island’s image has already been done, business leaders have told the Sunday Mail.

Larnaca municipality’s decision to reject a request to extend the operation of MedServ, a company providing oil and gas exploration support services out of the port, has angered those directly involved and caused widespread disappointment in the industry, even more so as the move was ‘respected’ by the government.

It has also led to the delay in French company Total’s exploratory drilling by three to four months, Energy Minister Giorgos Lakkotrypis said on Saturday.

Speaking at a conference in Limassol on Cyprus’ energy future on Saturday, Lakkotrypis said that Limassol could be the “permanent solution” to the problem for all three energy giants, Total, ENI and Noble. The option will be put to the three companies at crucial meeting on Monday.

“It is important for us to find a permanent solution that will create a stable environment for companies to know where they will set up their operations,” Lakkotrypis said.

But for the head of the Cyprus Oil and Gas Association, Andy Varoshiotis, it is too little too late, as according to him, the damage has already been done.

“The government made a huge mistake by leaving the decision to the municipal council which did not have the know-how to handle such a case,” Varoshiotis told the Sunday Mail. He added that in the event the companies ultimately decide to leave Cyprus, another 40 to 50 companies which cooperate with them would leave as well, ‘‘leaving many people jobless”.

His personal view is that the whole issue was due to the “incompetence” of Transport Minister Marios Demetriades, whom he called on to resign, along with the Larnaca municipal councillors who voted against the requested extensions for six months to a year.  Demetriades, he said was the one who passed the issue to the Larnaca council on the government’s behalf. He added that the whole debacle was about “micropolitics”.

“We have been for so many years trying to get companies to come to Cyprus because we are ‘business friendly’. We made a huge effort to bring these companies to Cyprus and where they set up operations, 200 more follow them,” Varoshiotis said.

Commenting on whether Monday’s meeting will make a difference; he said that it was too late.

“Instead of agreeing to extend the stay of these companies at Larnaca temporarily, they will ask them to relocate to Limassol instead. Companies don’t play games. We have no vision, no planning,” he said.

He added that the government had spent €25m for the Vassilikos master plan and that the companies had been expecting to move there since 2014, but that it was decided by the government not to go through with this.  “We shot ourselves in the foot,” he said.

Another industry insider said hundreds of energy companies which set up offices in Cyprus in recent years were considering relocating to Egypt. “Companies are fed up with Cyprus; they got their fingers burnt,” he said. “The choice now is not between Larnaca and Limassol but between Cyprus and Egypt”.

Besides, he added, oil companies left Limassol years ago after being overcharged for space they sublet from a Cypriot company which rented it from the Cyprus Port Authority at a much lower price, the former oil and gas executive added. “Noble also got its fingers burnt there and now there is additional uncertainty as a result of the port’s privatisation”.

Godfrey Attard, MedServ’s Cyprus manager said his company was “considering its options”.

The head of the Cyprus Chamber of Commerce and Industry (KEVE), Phidias Pilides told the Sunday Mail even if the government persuades the companies to use Limassol, “it will take time to transfer their entire infrastructure, which translates to delays in drilling and added costs.”

Pilides added that he would hate to be in the shoes of those municipal councillors who down voted the request, “to look in the eye an employee who lost his job due to his decision”.

“We are very worried by the fact that as a country we are not business friendly to foreign investors. Bureaucracy has several times prevented foreign investment in Cyprus,” Pilides said.

And, when it comes to hydrocarbon companies, Cyprus should be even more sensitive. Commenting on whether the oilfield services companies Halliburton and Schlumberger which are also based in Larnaca could be next, Pilides said that as far as he was concerned, since environmental reports did not indicate any health hazards, he did not believe they should be asked to leave as well.

Larnaca residents have also asked that the two companies relocate as the 2013 Larnaca Local Plan, does not provide for the establishment of heavy industry factories in the area the plants are located.

Lakkotrypis in a telephone interview on Saturday said the first order of business  on Monday was to listen to the energy companies.

“That is why we are having the meeting. I already met Total on Thursday. And I need to see the others and see whether they have practical problems,” he said.

“Total has said that there is going to be a delay in drilling of up to four months but as a government we believe that it is manageable provided we come to a permanent arrangement,” the minister added. “What concerns us most as a ministry is that (the companies) have space so that they can carry out their drilling. The ministry of transport has to make arrangements with respect to the facilities as it is in charge of the ports”

Government spokesman Nicos Christodoulides told CyBC on Saturday that if the companies agree the government’s proposal, the issue will be forwarded to the cabinet to vote.

He said that at the meeting, Demetriades and Lakkotrypis would urge the three companies to prioritise in hiring the employees who would be left unemployed in Larnaca following the council’s decision.

The damaging move came hot on the heels of government’s decision last Sunday to cancel the tender – the third in five years- for an interim natural gas supplier, which would have allowed the state-owned power company to switch to a cleaner fuel, added insult to injury, the industry insider said.

The twin decisions neither took into account how the industry worked nor which players were involved, he said.

Following the acquisition of a 35 per cent stake in Cyprus’ Aphrodite field by British Gas (BG), the island, he added, would soon discover that it would have to deal with energy giant Royal Dutch Shell.

BG, the owner of Egypt’s natural gas liquefaction plant at Idku, that Cyprus eyes for its planned gas exports, was the target of a £40bn (€51bn) takeover by the Anglo-Dutch company, which is expected to absorb BG’s operations this year.

Shell was the company that won a competition for a €7bn contract to supply Cyprus with natural gas four years ago. The government cancelled the tender following the discovery of the Aphrodite gas reserve by US-based Noble Energy, thought then to hold up to 10 trillion cubic feet (tcf) of gas.

Shell, which is considering how to complete the merger with BG, is now “suspicious” of Cypriot authorities as it was among bidders in the two new tenders for the interim supplier that followed, the oil and gas insider said. “Shell has a very long memory”.

Itera which won the competition three years ago, declined to submit an improved offer after it was asked by DEFA to do so and pulled out of the competition.

As oil prices dropped to their lowest level since 2003, “Shell will take time to consolidate the takeover” and in this context, it will also have to consider BG’s €160m Aphrodite investment and the Idku liquefaction terminal, the professional said.

“So Shell will have to feel that it is worthwhile,” the professional added. “However Cyprus is not easy to invest in”.

“How are you going to guarantee the return when they don’t even know whom they should talk to? How can one explain that a municipality can kick out companies?” the professional asked. “If Shell decides not to work with Cyprus, who is going to develop Aphrodite?”

Lakkotrypis when asked whether the twin decision has soured relations with the hydrocarbons industry, said: “Not at all. We try to be as predictable as possible, to create a predictable environment; we have some problems, let’s not forget that our activities are in their infancy and they show understanding. There are often disagreements and that is why we are meeting on Monday to resolve them definitely.”

(The Cyprus Business Mail’s Stelios Orphanides contributed to this report)

 

 

 

 

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