The long overdue construction of the liquified natural gas terminal at Vassiliko, near Limassol, is crashing into a brick wall, as the government and the Chinese-led consortium that was awarded the contract are in courts to resolve a dispute over delays, as confirmed by Energy Minister George Papanastasiou.
The news comes just months after the minister had set a definite timeline for the construction of the LNG terminal, after it had been pushed back until the end of July 2024, allegedly overcoming delays.
China Petroleum Pipeline Engineering Co (CPC) presented its latest work timetable to Cypriot officials last August.
This is the fourth time the Chinese-led consortium has pushed back the construction date. Initially, there were hopes of it being ready by early 2022.
It was back in December 2019 when Cyprus signed the contract with the consortium, amid great fanfare, with the Anastassiades administration hailing it as the best way to utilise natural gas deposits discovered in the Republic’s offshore exclusive economic zone (EEZ).
Since then, the contractor has submitted four delivery timetables for September 2022, July 2023, and October 2023.
Last week, energy analyst Charles Ellinas told CyBC radio that ENI, which announced successful targets during its drilling in Block 6 of the EEZ, does not want to send the natural gas onshore to Cyprus as it would be too costly for the Italian giant.
“They (ENI) are in a rush to export their resources by subsea pipeline to the nearby Zohr gasfield, and from there to Egypt for regassification and export. It will be faster and cheaper than investing in a natgas terminal at Vassiliko,” he added.
In statements to the Cyprus News Agency, following a Cabinet meeting on Friday, Papanastasiou confirmed that the government is in arbitration in an international court in London with the construction company of the Vassiliko LNG terminal.
“The termination of the relationship with the contractor is not ruled out. There is a possibility of claiming compensation due to delays and the failure to deliver the project as initially planned,” confirmed the minister.
Asked to elaborate on the challenging solutions for the Vassiliko terminal, Papanastasiou stated that the terminal “faces some additional difficulties beyond the technical ones it already had. The contractor has suspended the construction works of the new terminal, while the floating storage and regasification unit (FSRU) is 95% ready”.
However, it cannot be taken over by the Republic of Cyprus, even though it owns it, as it awaits certification from a naval architect.
Terminal half ready
Regarding the land terminal, he continued, it is 45-50% complete, with much work still to be done. He noted that without a land terminal, the floating unit cannot operate.
Various alternative solutions are being considered, he added, depending on the reactions of the construction company.
“One painful solution, which I cannot hide, is the complete termination of the relationship with this specific construction company,” he noted.
Papanastasiou did not hide the government’s dissatisfaction with the fact that the company has requested numerous extensions.
“If a contractor who constantly extends the delivery date of a critical infrastructure for a state and a European project, you can understand that the problems must be serious,” he said.
For this reason, he continued, the Republic of Cyprus, through the Cyprus Natural Gas Public Company (DEFA), may be called upon to evaluate the capabilities of this contractor in the coming weeks and, if necessary, make the painful decision to terminate the relationship.
Papanastasiou also mentioned that the contractor has in the past requested additional amounts, stating that the government deemed these amounts unjustified.
However, it could potentially justify €25 million through a legal process, explained due to the increase in the international price of steel.
“At the moment, we are in arbitration, which started about a year ago by the contractor, but as of Friday, the company has added to violations of the contract.”
He explained that the suspension of the construction works of the terminal is a breach of the contract.
On Saturday, he said, in the London arbitration, they were presented with a list of works valued at over €200 million, which the Republic of Cyprus believes lacks documentation for these claims.
“Our side strongly believes that it has strictly adhered to the contract and may have substantial claims for the delay in the works and the timely delivery of the project,” said Papanastasiou said.
“There are clauses in the contract that allow the Republic of Cyprus to claim for delays and the contractor’s failure to complete the project, he noted, saying that he would not like to mention specific figures,” he concluded.