The state of affairs surrounding the liquefied natural gas project at Vasilikos is placing the current Government in a difficult dilemma, with very serious economic, energy, and political dimensions.
According to the governmental side, the state-owned Chinese company CPP continues to fail to meet the requirements of the contract and the revised schedules put in place, while demanding an additional compensation of €200 million within the framework of arbitration taking place in London.
The options for the state are not many and all entail risk and potential cost.
Either the state continues to tolerate the delays and shortcomings at Vasilikos, hoping that at some point the use of natural gas in electricity production will be achieved, mainly through reducing greenhouse gas emissions, or it enters into rapid negotiations with the assistance of an independent mediator to resolve the financial disputes, risking the imposition of additional financial burden to progress the project, without necessarily abandoning the option of ongoing arbitration.
Alternatively, it can terminate the contract, charging CPP with a lack of reliability and expertise in the specific project.
The option of a mutually agreed termination of the contract, which was on the table much earlier, is no longer available. At present, termination of the contract may be contentious and would lead to disputes for a long period, with the potential that the project could be completed by the Republic of Cyprus and other contractors, albeit with significant additional delay.
During yesterday’s closed session of the parliamentary Control Committee, Energy Minister Giorgos Papanastasiou reportedly stated that the ongoing arbitration process in London is very costly (€15-20 million) and time-consuming.
Furthermore, it negatively affects the relations and cooperation between the two parties for the progress of the works at Vasilikos, which are only at 40-50% of the total planning, despite the schedule predicting delivery next July.
Information from Phileleftheros suggests that MPs were informed that the contractor has already been paid €240 million out of the €320 million provided, limiting the Republic’s options.
The same information supports that the Ministry of Energy mentioned the option of mediation by an independent person of common acceptance for resolving disputes, but this option, as indicated during the session by the Auditor General, deprives the state of its most important defence, the existence of specific contract breaches by the contractor.
However, it was mentioned that there is another critical mediation process, based not only on the financial demands of the parties but mainly on their compliance with their contractual obligations, something that is believed to significantly strengthen the chances of the state’s vindication.
It turns out that for now, no decisions have been made, but time is pressing for decisions to be made within February, without ruling out the possibility of further deterioration or even rupture of the Natural Gas Infrastructure Company (NGIC) – contractor relations.
Since last Friday, work at Vasilikos has stopped, although NGIC has made the payment, which CPP protested was not made on time by the state-owned company.
In statements after the meeting, the Energy Minister said that the Ministry is focused on completing a project that “has many problems and many mistakes have been made in the past.”
He mentioned that the floating unit (FSRU) has some problems acknowledged by the contractor, adding, however, that “these problems are not prohibitive for the unit to be certified very soon and sail to Cyprus,” while “the onshore terminal requires a lot of work.”
“The works have been stopped by the contractor last week in violation of the contract, and in the next few days, some decisions will have to be made by NGIC and the Republic regarding the contractor,” he said.
“We cannot justify the cessation of work at the onshore terminal, and for this reason, urgent contacts between NGIC and the contractor are needed, and political interventions may be necessary.”