Finance Minister Harris Georgiades expects that Cyprus will annually receive up to €600m in gas revenues inside of 12 years once exploitation of the Aphrodite field – so far Cyprus’s single hydrocarbon finding – begins, the Cyprus News Agency reported on Monday.
Georgiades who was briefing the parliamentary finance committee on the government’s plans to set up a national investment fund that will manage hydrocarbons revenue, said that while the exploitation of the Aphrodite finding is not expected to commence before 2020, the parliament should not delay the approval of the bill. The figure includes revenue from the sale of gas and non-repeating revenue such as those from licensing rounds.
“What makes its institutionalisation urgent and important now is that we send a very timely message abroad, but mainly at home that Cyprus can handle hydrocarbons revenue in a serious and responsible manner,” the finance minister was quoted as saying by the Cyprus News Agency.
Georgides said that as long Cyprus’s public debt remains above the 80 per cent mark as a percentage of gross domestic product, up to 50 per cent of revenue would be diverted towards reducing government debt, which last year stood at 108.9 per cent. Public debt is expected to drop below the 100 per cent mark by 2020, the minister added.
Cyprus which held a third round of oil and gas exploration and licensing in July and is expected to announce the winners before early 2017, wants to speed up exploratory drilling in its exclusive economic zone in order to obtain more reliable data before deciding on investment for its gas exports.
When the government debt drops to below 80 per cent and remains above 60 per cent of the economy, then 75 per cent of hydrocarbons revenue “will be diverted towards the creation of reserves” and the rest will help reduce public debt, the minister said. When public debt drops below 60 per cent, then all revenue will be diverted to the fund.
When the fund’s reserves rise to 30 per cent of Cyprus’s economy, then the fund could divert revenue equal to 1 per cent of gross domestic product to the government’s budget which will be used for development purposes and investment.
In the transition period until the fund contains funds equal to 3 per cent of Cyprus’s GDP, it will invest in third country bonds and the responsibility will lie either with the Central Bank of Cyprus or an independent investment company, Georgiades said. As the appointment of the fund’s board of directors will be necessary after it has accumulated 3 per cent of the economy in reserves, it will be up to the government elected in 2023 to decide on the appointments.
“When the revenue begins to flow in, it will have to be invested in government bonds such those of Germany,” Georgiades was quoted as saying. He added that a clause in the draft bill would limit investment to 5 per cent per security issuer.
Demetra Kalogerou, chairwoman of Cyprus’s Securities and Exchange Commission which supervises investment firms said that fund would have to be properly staffed and would need, in addition to its audit committee also a risk management committee.
Akis Hadjiosif, who represented the government’s Audit Office said that compared to the original text submitted by a group of experts tasked with preparing proposals on how to manage hydrocarbons revenue, the current version of the draft bill underwent many changes.
Hadjiosif made reference to possible conflicts of interest including one that appeared to allow use of the fund as collateral merely on the recommendation of the finance minister instead of the parliament. the cabinet’s power to set the remuneration of the board members and the possibility of the cabinet appointing the fund’s audit committee instead by the fund’s board of directors.
The term of the board also has to cover the term of the respective government in order to safeguard its independence, the representative of the Audit Office said, prompting the finance minister to respond that the preparation of the bill followed extensive consultations with both the Auditor General and the government’s Treasury adding that no independent official’s assent is needed for a draft bill to be submitted to the parliament.
Disy deputy Onoufrios Koullas proposed that the Fund should help compensate people affected most by Cyprus’s financial crisis, including depositors and bank shareholders.
Akel deputy Stefanos Stefanou said that the bill conflicted in many instances with best international practices. Stefanou, who also served as government spokesman under former president Demetris Christofias, said the Anastasiades government “disassembled” the entire planning process of the previous administration, which made it hard to predict when the exploitation of natural gas would begin.
Diko deputy Angelos Votsis criticised the lack of reference to investment in infrastructure, while Anna Theologou Orati, a lawmaker from the Citizens’ Alliance complained that it contained no explicit reference to the Republic of Cyprus, adding that she was concerned it could be used to extend guarantees that will cover the cost of a possible settlement of the Cyprus problem. Michalis Georgallas, a lawmaker from the Solidarity Movement said that revenue that would flow into the fund over the next seven years could be used to support people in need.