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LNG import chaos was predictable

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The Auditor-General (AG) took the unprecedented step of issuing a statement, more or less proclaiming the delayed LNG import project risks becoming the victim of ‘blackmail’.

The AG’s comments are very serious and damning. I hope they are not pushed aside…again.

I raised similar problems long before the contract was signed on 13 December 2019.

In October 2018, before DEFA proceeded with the tender that led to the current project, I suggested that it be preceded by a commercial viability study of this and other options to import LNG, the results of which should be made public.

Not only was this not done, but now crazy numbers, such as €1.5 bln annual benefits from the import of LNG, based on this project – are being flaunted about without any substantiation, as are many other claims regarding this project – in effect numbers out of a hat.

Also, in mid-November 2019, I raised questions about irregularities in the tender evaluation and award process, similar to those of the AG and others, but they were ignored.

I emphasised that CPP, the leader of the winning consortium, has no real LNG import and regasification terminal experience.

And the end should not justify the means.

The tender process must be proper and transparent to avoid criticism and future challenges.

These problems are now coming home to roost.

But instead of pausing and carefully evaluating their implications and the contractor’s demands and consequences, all comments and criticism are being brushed aside, placing Cyprus in an extremely risky situation.

The serious problems and suggestions on choices regarding the way forward must be examined seriously.

Difficult choices

As I said in an earlier article, “it may now be the time to make the difficult choices before we dig ourselves in so deep that not only can we not extract ourselves out of this quagmire later, but we end up paying for the consequences of cost and schedule overruns over the next decade.”

Political expediency, unsubstantiated and not backed-up by techno-economic fact, should not prevail – and certainly no changes to the contract.

Rushed compromises at this stage could leave the state exposed to future mounting problems it will be less able to control if the July 2023 date and costs slip further.

We risk finding ourselves in a ‘fait-accompli’ situation.

The reported threat that if the state does not cave in to demands, “the contractor will leave the project and there will be chaos” does not stick.

Responsible contractors do not do that, and the government contract has adequate provisions to deal with disputes.

In addition, the option to abandon this project altogether, opting for leasing an FSRU, much the same way as Egypt did quite successfully in 2015 to overcome gas shortages, should be examined.

It may now merit consideration.

In such a case, it may even be possible for gas deliveries to start as early as the end of this year.

However, the priority ought to be to arrive at an acceptable, negotiated way forward that safeguards the state’s interests under the existing contract.

In any case, the AG’s statement that his office will not agree to recommendations for settlement of the contractor’s demands without detailed substantiation offers some hope.

On the other hand, the AG was brushed aside in 2019, and his intervention may have a similar fate now. Let’s hope not.

Dr Charles Ellinas is Senior Fellow at the Global Energy Center, Atlantic Council

Tw: @CharlesEllinas