Suggestion comes after damning Audit Office report on endless delays

The project team for the liquefied natural gas (LNG) terminal at Vasiliko has recommended that Cyprus halt further payments to the Chinese-led contractor if the latter fails to conform to the contract, it transpired on Monday.

AlphaNews broke the story, saying they got a hold of an internal document from Etyfa – the state-run entity that is the owner of the LNG project – where the authors recommend to Etyfa’s board that it make no further concessions to the contractor and also consider taking other steps, including stopping payments.

The leak comes just days after the auditor-general released a report slamming the delays plaguing the LNG project and saying he’d report the matter to the European Public Prosecutor’s Office as EU funding was involved. The auditor cited violations of public contracting that could even entail criminal liability.

According to the leaked Etyfa document – submitted to the board on January 15 – the absence of a firm delivery deadline for the LNG terminal, as well as problems with the floating, storage and regasification unit (Fsru) merit taking robust measures.

Etyfa is a subsidiary of Defa – the natural gas public company.

An industry source confirmed this document to the Cyprus Mail. But the source, who requested anonymity, also said that Etyfa turned down the idea to withhold payments to the contractor.

However, should the contractor continue deviating from what was agreed, Etyfa “might consider withholding payments in the future”.

It’s understood that payments are made every month, based on the contractor’s work performance.

The document speaks of concessions made by the Cypriot side on a “daily basis” and which endanger the quality of the work as well as the safety of personnel, casting a shadow over the overall credibility of the project.

Moreover, it reportedly refers to constant disagreements between the Chinese-led consortium awarded the contract and the owner’s engineer. The owner’s engineer – otherwise known as the government’s ‘eyes and ears’ on the project – are Hill International.

Our source confirmed this as well, telling us of 18 “critical points of dispute” between the owner’s engineer and the contractor. They concern technical aspects of the project.

Speaking on the AlphaNews television channel later in the day, Energy Minister George Papanastasiou acknowledged the problems facing the project. Asked specifically about the recommendation to stop payments to the contractor, he neither confirmed nor denied, saying only that he did not know whether such a decision has been taken.

The minister gave assurances that, in any case, the Republic of Cyprus would if needed exercise its contractual rights vis a vis the consortium.

Commenting on the Fsru – the purpose-built vessel, Etyfa Prometheas, to convert imported LNG into gaseous form so that it can be fed into the Vasilikos power station to generate electricity – Papanastasiou clarified that the fact the Chinese shipyard in Shanghai has delivered the ship to the contractor does not mean that Cyprus itself has taken delivery of it.

The handover ceremony from Cosco to the contractor (China National Petroleum Company) took place on January 16.

“As regards the Republic of Cyprus, we’ll have to wait for the certification of the Fsru because, whereas it may have been completed on the technical side, we cannot receive it without it first having being certified,” he noted.

“We know that when the seaworthiness tests and the gasification tests were carried out, some minor problems came up, after which the vessel would be certified. So we wait on the Chinese contractors for that certification.

“So let there be no concern [over safety issues]. We’re monitoring the project closely, there are people watching it.”

The minister also gave assurances that the €101 million received as a grant from the EU under the Connecting Europe Facility (CEF) financial instrument, would not “be lost”.

Initially costed at €500 million, the project has now shot past €542 million. According to the auditor-general, the extra €42 million covered €25 million to the contractors for the increased cost of steel and other costs relating to engineering, and legal expenses on the Cypriot side.

Marios Petrides, spokesman for the Audit Office, told us on Monday that they will indeed report the issue to the European Public Prosecutor’s Office.

“That’s a definite yes, the only question is when, we haven’t decided that yet. As this is ongoing, we may come up with further discoveries,” he said.

It was way back in December 2019 when Cyprus signed the contract with the consortium. The contractor has since submitted four delivery timetables – September 2022, July 2023, October 2023 and lastly July 2024.

Last summer sources had told the Cyprus Mail that – even under the revised timetable – the Fsru would likely set off from China by late September.

The LNG terminal will include the Fsru, a jetty for mooring it, a jetty-borne gas pipeline and related infrastructure.