‘Paying for sins of the past’: trouble with LNG terminal

Energy Minister George Papanastasiou on Wednesday sought to ease concerns of a multi-million euro arbitration cost the government may be forced to pay out, amid a halt in the construction works at the liquefied natural gas (LNG) terminal at Vasiliko.

The China Petroleum Pipeline Engineering Co Ltd (CPP) has submitted a statement of claim before a London arbitration court seeking to claim increased costs from the Republic of Cyprus due to technical problems and delays surrounding the project.

CPP’s move may end up costing the Republic of Cyprus over a reported €100 million, though Papanastasiou did not wish to disclose the amount of the claim the Chinese-led consortium is seeking.

Upping the pressure?

Speaking to the Cyprus Mail, Papanastasiou said the arbitration was filed in October 2022 but CPP has since last Thursday completely halted any construction works.

“Perhaps they are short of cash, maybe this is also part of their efforts to push up the pressure.”

The minister said arbitration disputes “are very common” and should not be seen as something particularly shocking.

Although he did not share the sum CPP is claiming, Papanastasiou said courts usually go for a middle-ground between both sides.

“If the government is burdened with a payment, it will pay it. If the contractor is required to make a payment, then it will.”

He stressed that the court proceedings should not leave any impact on construction works over the LNG terminal, however he said CPP has suspended works since Thursday.

“We will give them another week, and then submit a written notice.”

Though he did not delve into the specifics, the minister clarified there are clauses in the deal covering a potential halt of works.

‘Sins of the past’

Asked if he was concerned with the developments, Papanastasiou did not mince his words.

“I had concerns since day one. This was not a project of our choosing but one we inherited from previous governments,” he said.

“We are paying for sins of the past.”

The dispute that has caused CPP to suspend works stems from a claim regarding the payment of an October invoice, he said.

Papanastasiou stresses Cyprus settled the dues for October on the last day it had the window to do so.

The disagreement stems from a dispute from both parties on whether the payment is marked from the date of issue vs the date of clearance, he stressed.

“It has been paid.”

‘Tragic project’

The LNG terminal has been riddled with issues, with the audit office recently entering the fray saying the project would be reported to the European Prosecutor’s Office as EU funding was involved in the debacle, now years delayed with no sign of completion.

The management of the whole project has been “tragic”, according to its 150-page report. The audit office said the project has so far cost the taxpayer €542 million due to the increased cost of delays in a process riddled with inaccuracies and serious violations of public contracting that could even involve criminal responsibility.

The project promoter is Etyfa, a subsidiary of Defa, the natural gas public company. The audit office accuses the body of pandering to the contractor instead of claiming compensation for the delays endured.

Since the signing of the contract in December 2019, the CPP has submitted four delivery timetables – September 2022, July 2023, October 2023 and now July 2024.

The contract was awarded in 2019 with a 24-month deadline for completion.

“A project whose design and construction should contractually be completed within 24 months, will theoretically be delivered 22 months after the contractual date of completion, i.e. in twice as long, although we express serious doubts as to whether this will be implemented in practice,” the audit office report said.

The LNG terminal is to include a floating, storage and regasification unit (Fsru), a jetty for mooring it, a jetty-borne gas pipeline and related infrastructure.