Rush to build could prove costly

THE PUBLIC Company for Natural Gas (DEFA) will be evaluating, over the next few weeks, the proposals submitted by four, big international companies for the supply of liquefied natural gas to Cyprus over a 20-year period. A new round of negotiations with at least two of the short-listed companies would follow as DEFA, which is owned by the state and the Electricity Authority of Cyprus (EAC), are looking to secure the best possible terms.

Once the contract is signed, the EAC would announce its decision regarding its strategic partner for the construction and operation of the land terminal for the LNG. After more than a decade of prevarication and indecision, the authorities have finally got moving. The government found a sense of urgency once the EU started imposing fines on Cyprus for its CO2 emissions, a cost that will increase every year and will be passed on to the Electricity Authority’s customers.

But as with all rushed decisions there is a big risk of costly mistakes being made. Serious reservations have already been expressed about the government’s plans which, on the surface, do not seem to be the most cost-effective. This is inevitable given that the enterprise was placed on the wrong basis from the start, by the approval in 2007 of the law that gave DEFA monopolistic rights and obliged it to purchase LNG and de-liquify it at the Vassiliko terminal. The most worrying thing is that the state would be in charge of the project, which means costs would be higher than if it were given to the private sector. In a statement issued on Monday, DISY deputy leader Averof Neophytou questioned the logic of awarding the successful company a 20-year, supply contract. What if, in five or ten years, Cyprus was able to extract natural gas from sea? Explorations are currently under way and this possibility is not as remote as it seemed three years ago. But even if we don’t find natural gas under the sea, in ten years’ time there could be cheaper alternatives to LNG, such as compressed natural gas (CNG).

Former commerce minister Antonis Michaelides expressed a similar opinion, warning that the LNG/land terminal option could be disastrous for the economy. The cost of the investment in a land terminal would be huge and it would limit our options to LNG which might not be the cheapest alternative. He repeated his view - first voiced three years ago – that Cyprus should have invited tenders from abroad requesting the supply of natural gas directly to EAC’s power stations. A time-frame would have been demanded and guarantees for the continuous supply from the successful company.

We may have had to pay a slightly higher unit price, but there would be no need for a big investment in a land terminal and exclusive reliance on LNG. This would have been the rational approach that would have led to the most competitive and cost-effective solution. But it seems such rationality is beyond our politicians who could lumber the taxpayer with huge and unnecessary costs.

(Cyprus Mail)