THIS TIME last year we wished that seriousness would prevail vis a vis the handling of the natural resources – the gas – with which the island is endowed. Alas, ‘twas not to be. If anything, things took a turn for the worse in 2012. A little troika here, a little electioneering there, and common sense took a hike – more than usual.

Irrespective of the financial crisis, the hoped-for bailout and the inflammatory rhetoric of looming elections, there are nagging signs that we are nowhere near ready to handle the plentiful bounty lying at the bottom of the sea. Certainly we talk the talk, but can we walk the walk?

For starters, the fundamental logistics do not appear to be in place. It’s still not clear who’s in charge of what. No one knows for sure when Noble Energy plans to do follow-up drilling at the Aphrodite well – this is slated in the first quarter of next year, according to the latest information – and the earliest date for export of domestic offshore gas has been pushed back to 2018.

Meantime, there’s a lot of chatter about the island becoming a regional energy hub, joint projects with the Israelis and the like. And the gas terminal and associated infrastructures, we are told, will create thousands of jobs. But given the specialised nature of the industry, which is more likely – that Cypriots with little to no experience will land the jobs, or that the companies would bring in skilled foreign workers?

Earlier this year, and in a bid to deprive the Christofias administration of controlling lucrative gas distribution contracts, parliament –  with the exception of ruling AKEL –  decided to split the job between the Natural Gas Public Company (DEFA) and the Energy Regulatory Authority (CERA). DEFA would import, distribute and supply natural gas locally, while CERA would be in charge of exporting natural gas, in addition to its regulatory role.

And what of the state hydrocarbons company, with the charming Greek acronym KRETYK? On its establishment back in October, the government said KRETYK would handle all aspects of natural gas, including its liquefaction, transport, export and import. There appears to be some overlap.

Earlier this month, an opposition-dominated parliament drove through a law stipulating that KRETYK would, inter alia, engage in the production-sharing contract with Noble Energy with regard to the extraction and exploitation of natural gas from Block 12 and engage in consultations with prospective investors concerning the construction of a terminal in Cyprus to liquefy natural gas.

The state will own the majority capital in KRETYK, which will be a private and not a public company, as per the government’s wishes; as such, the company’s budget would be submitted to the House but would not require its approval.

Another compromise was struck whereby the company would be subjected to the oversight of the auditor-general; moreover parliament would need to approve the criteria for the appointment of the company’s executive board members – but have no say in the appointment of the persons themselves.

To some extent, these ups and downs could be attributed to the tradeoffs of the political/democratic process. To a neutral and cynical observer, it all smacks of a power struggle to determine which faction gets to ‘control’ the gas.

But beyond that there are troubling signs. Given that KRETYK shall – God willing – be called upon to manage projects worth billions, some analysts are privately voicing reservations about the calibre of the people earmarked to run the company.

Then there was the whole racket about ‘pre-selling’ a part of Block 12, an idea championed by presidential candidate Giorgos Lillikas. The proposal – intended to raise cash fast and thus do away with the need for a state bailout – was summarily trashed by Lillikas’ adversaries. After the dust had settled somewhat, energy chief Solon Kassinis explained two simple concepts: one, that in order to assign a monetary value to the prospect, its actual gas reserves must first be proved (currently they are only estimates); and two, even after said valuation, issuing an initial public offering would mean selling the block on the cheap. Undeveloped and ‘raw’, the prospect might go for €10 billion; but with the infrastructure it could be worth double that, Kassinis said.

Last but not least, the heinous ‘troikans’ were said to be eyeing our gas. Were they? Yes and no. It does seem that the international lenders had proposed any proceeds go toward servicing the debt; but after negotiations the two sides reached an understanding, with the troika apparently convinced by the government’s argument that it needed to look at the longer-term picture.

Thus, the memorandum agreed with the troika strikes a balance, calling for the establishment of a resource fund to “receive and manage the public revenues of offshore gas exploitation”. In addition, it advocates that “clear rules governing inflows and outflows should be established as part of Cyprus’ budgetary framework, giving due respect to the need to develop the hydrocarbon industry, including the necessary infrastructure, the importance of bringing Cyprus’ public debt on a steady downward path and the need to invest for future generations.”

All in, the outlook is uncertain. Neighbouring Israel – which has its own policy and regulatory issues to resolve – appears to be moving faster on gas than we are. At times it feels as if it’s two steps back for every step forward. No doubt work is being done behind the scenes – and the second licensing round did garner a great deal of interest from oil powerhouses. But it’s hard to discern which direction we’re heading in.

Published by:  www.cyprus-mail.com