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Hydrocarbons will come in as a plus once the Cyprus economy recovers

26 September, 2013

Ministers and experts in Cyprus fully understand that the first priority for the Cypriot economy now is stabilization and that hydrocarbon revenues will come in as a plus once the economy is back on its feet, Michael Leigh, a Senior Adviser at the German Marshall Fund in the US has said.

In a press briefing Wednesday, following a two-day workshop in Nicosia on Hydrocarbons and sustainable development, Leigh pointed out that during the presentations today and following the speeches given by the Ministers of Energy and Finance, it is clear that the first priority is the stabilization of the banks and ensuring the adequate capitalization of the banks.
“Beyond that , there seems to be a clear understanding that revenues from the hydrocarbons will only come on stream towards or around the end of the decade and that Cyprus needs to get back on its feet economically long before that, I would say this is a consensus view and ministers are extremely realistic about that, they present a hydrocarbons as a plus, as something that can sustain the economy but they know that the economy needs to be back on its feet before these revenues occur”, he pointed out.

He said that although the fundamental decision on infrastructure depends first of all on the confirmation of the quantities of gas that are available and this depends very much on the appraisal drilling and the results to be announced early in the new year, sufficient resources are available to justify in economic terms the construction of the LNG plant.
Sir Michael said that in the course of the discussion there have been different estimates as to the impact on employment, adding that “there will certainly be an impact on employment a positive one, that could begin from 2016”.

He said that there will be several thousand jobs created in infrastructure construction whether from the offshore sides to onshore Cyprus or in the construction of the energy center at Vasilikos, with multiple effects on the economy.
“One of the points from the discussion is that there could be a bigger impact on employment in Cyprus if there were more active policy of training of workers and staff for the hydrocarbon industry”, Leigh pointed out, adding that one of the speakers suggested that “only around one third of the new jobs will go to Cypriots”, because at the moment there is simply not a qualified labor force with the necessary skills.

Invited to comment on whether the policy makers in Cyprus understand the clear steps that need to be taken, Sir Michael said that the experts themselves have pinpointed a great deal of what needs to be done.
“But what has to be done now is to translate the political vision and the intellectual understanding into practical steps , it means creating a positive investment environment, creating trust and confidence after the crisis, so that private sector investors will come in and make the necessary funds available to really develop these sectors”, he pointed out.

He went on to say that “the understanding and vision is there, but maybe there needs to be a greater drive and perhaps a more coordinate approach by the different Ministries involved”.
He also said that the Ministers have in mind that they need to avoid excessive concentration in the hydrocarbon sector, the famous “Dutch disease” whereby countries with new and important hydrocarbon revenues, become too concentrated on that sector and they loose diversity in their economy .

“Cyprus is not at that point yet, and you could even say that it may be an advantage that some years will be needed for these revenues to come along, because in that period other sectors of the economy can be strengthened and therefore this reduces the risk of the `Dutch disease` affecting Cyprus and I think that the Ministers understand that”, he stressed.
GMF Senior Adviser said that the issue of the environmental protection was also brought up during the workshop, pointing out that it is clear that companies and the government “have to be seen by the public as giving proper attention to environment protection”.

He said that participants discussed the need for regional cooperation in case of accidents.
Sir Michael stressed that it is to the common interest of all the countries in the region to work together in rapid intervention “regardless of where the accident has occurred and even among countries that have no diplomatic relations or technically in a state of war”.

The participants also had the chance to exchange views on security in the Eastern Mediterranean and they all agreed that we could draw lessons from other countries, in East or West Africa, Indonesia and elsewhere where the problems are more acute.
Leigh also said that security risks could perhaps be developed thought private and public partnerships because there is a role both for the state and for the companies directly involved, explaining that if the risk is great, then it goes beyond the capacity of the companies themselves.

Exploratory drilling carried by Huston-based Noble Energy in 2011 in Cyprus’ Exclusive Economic Zone revealed a gross natural mean raging from 5 to 7 trillion cubic feet (tcf). Noble Energy operates Block 12 with a 70 percent working interest.
Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership each own 15 percent. On June 26, 2013, Cyprus government, Delek and Avner signed a Memorandum of Understanding (MoU) with regard to the construction of a Liquefied Natural Gas (LNG) terminal in the Cyprus.