Blame game in full swing over LNG terminal dispute

The Chinese-led consortium with the contract to build a liquefied natural gas (LNG) terminal at Vasiliko is claiming €200 million from Cyprus in arbitration proceedings, MPs heard on Thursday, as the blame game went into full swing over the infrastructure project marred by glitches from the outset.

A day earlier, it emerged that China Petroleum Pipeline Engineering Co Ltd (CPP) has submitted a statement of claim with a London arbitration court seeking increased costs from the Republic of Cyprus due to technical problems and delays surrounding the project.

The €200 million number and other details came out in statements to the press after a session of the House audit committee. The session itself was held behind closed doors.

Energy Minister George Papanastasiou, attending the discussion, spoke of “many misfires” in the past, as a result of which delivery of the project has been delayed time and again.

He told MPs that right now the infrastructures on land are just 45 to 50 per cent complete, while the floating, regasification and storage unit (Fsru) is 95 per cent ready.

The Fsru vessel is still in a port in China awaiting seaworthiness certification before Cyprus can take formal delivery of it.

“Overall the project is at 75 per cent,” the minister said. “There’s a great deal of work left, at least as far as the land-based terminal goes, before we can say the project has been completed.”

It also came out that the contractor has since last week ceased any work on the terminal – but that’s attributed to a separate dispute over payment of an invoice.

Papanastasiou reiterated that the contractor should not have halted construction while the arbitration process is ongoing.

“This is an irregularity and a faux pas on the part of the contractor, a breach of contract.”

He noted that Etyfa – the state-run natural gas infrastructure company which owns the project – likewise has claims over the delays. Under the latest timetable submitted by CPP, delivery of the LNG terminal is slated for July 23 of this year.

Giving his personal view, the minister said that target “probably is not doable under the current circumstances, so we’re talking about a small delay…assuming works restart within the week.”

Also present at the discussion were the auditor-general as well as representatives of Etyfa and Defa, the natural gas public company. Etyfa is a subsidiary of Defa.

The committee plans to continue the discussion next week, when they’ll summon former energy minister Giorgos Lakkotrypis (March 2013 to July 2020) and the former head of Defa Symeon Kassianides.

Regarding the contractor’s move to down tools on the terminal, Papanastasiou said Etyfa needs to sort this out as soon as possible.

It might even take “a political intervention” to get the contractor to comply.

“The contractor, as a Chinese company, must realise that this is a European project, funded by the European Commission to the tune of €101 million, another €150 million from the European Investment Bank, and €80 million from another European bank,” noted Papanastasiou.

He suggested the Chinese consortium should keep in mind it might get blacklisted in the EU should it derail what amounts to a European infrastructure project.

MPs meantime discussed the findings of a special report compiled by Auditor-General Odysseas Michaelides. The dossier, released earlier this month, slammed the delays plaguing the LNG project and cited violations of public contracting that could even entail criminal liability.

According to the auditor-general, the whole project should have taken 22 months to complete. Also, while the contract was awarded for €500 million, to date expenses have surpassed €542 million.

Speaking to journalists, chair of the House audit committee Zacharias Koulias (Diko) opined sanguinely that were the arbitration court in London to adopt the findings of the auditor-general, “the company will get a big fat zero.”

But Disy MP Savia Orfanidou cautioned that it could go the other way. She cited a memo issued by Defa warning that the Chinese contractor may in fact use the auditor-general’s report as ammunition in the arbitration case.

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.