Cyprus Mail 11 June 2020 -by Andrew Rosenbaum
The board of the European Investment Bank is to review a project to import LNG to the island, to build a plant for an LNG terminal at the port of Vassiliko so that it could arrive by sea, and to regasify it so that it could help power the electrical grid
A key project in the Cyprus energy plan and the reduction of carbon dioxide emissions has come under fire in the European press just as it reaches the starting gate.
Today, the board of the European Investment Bank is to review a project to import LNG to the island, to build a plant for an LNG terminal at the port of Vassiliko so that it could arrive by sea, and to regasify (regasification is a process of converting liquefied natural gas (LNG) at −162 °C (−260 °F) temperature back to natural gas at atmospheric temperature) it so that it could help power the electrical grid.
The tender for the project was put out by Cyprus Natural Gas (Defa), the government monopoly provider of the commodity, and it was awarded to a JV led by China Petroleum Pipeline Engineering, AKTOR and METRON, Hudong-Zhonghua Shipbuilding and Wilhelmsen Ship Management.
The cost of this project is about $550 million in total. The EIB is expected to provide a grant for €150 million, with a first instalment of €101 million to be paid from the ‘Connecting Europe Facility – Innovation and Networks’ programme.
But, on Sunday, French newspaper Libération published an article that is sharply critical of the project, warning that it is “causing a stir” within the EIB.
According to the report, the EIB might not approve the project – a last-minute challenge that would have exhaustive ramifications.
“The winner is an industrial consortium led by a Chinese public company, a subsidiary of China National Petroleum Corporation (CNPC),” Libération reports. “A hydrocarbon giant with annual turnover of more than €350 billion.”
The French newspaper cites an internal report at the EIB which is critical of Cyprus Gas as administrator of the project. A few weeks after the choice of the Chinese company in August 2019, the Greek AKTOR was excluded from the project by the Cypriot promoter. Two other offers for the site were rejected without due consideration, according to the report. Competing bids were dismissed for unclear compliance reasons, according to the report. “So there was only one proposal on the table.”
The report additionally expresses concerns about costs beyond the usual market value, and notes that the Cyprus Auditor-General had expressed objections about the project.
Minister of Energy George Lakkotrypis could not be reached for comment. Cyprus Gas (Defa) chair Symeon Kassianides declined to comment.
Several industry observers commented that there are significant political forces at work in the French newspaper article. The current suspicion of China, which recently found expression in the renewed opposition to Huawei participation in the 5G network, is clearly indicated.
Nonetheless, there are serious questions, raised by industry observers, about a number of aspects of the project.
The fact that competition for the tender was reduced to a single bidder, after the two other participants were disqualified, raised concerns. Then, the import of LNG would not be sufficient to help Cyprus achieve its 2030 climate-change target, so the very considerable investment in LNG should be questioned as well.
And the gas could reportedly be supplied by the Israeli firm Energean by pipeline at a cost below $7mmbtu (one million British Thermal Units). Another option, involving leasing, could reportedly supply LNG at a similar price level.
Finally, the Norwegian company Höegh, which specialises in LNG, has an alternative solution which would be considerably cheaper, and which would offer a European partner. Meetings between Höegh and the Cypriot authorities were held last month, but there has been no reply from Defa.
What will happen if the EIB does not approve the project tomorrow? This is simply not clear. Alternative financing could be found, or an alternative for supply could be adopted. Perhaps the Cyprus government will simply finance the project entirely?
