THE GOVERNMENT has not done badly in attracting foreign investment, in the midst of a world recession. A couple of weeks ago it announced the signing of an agreement for the creation of an oil product terminal facility in Vassiliko with one of the world’s biggest, independent energy trading companies.
A few months earlier an agreement was signed with a big state-owned Qatari company for the development of the area opposite the Hilton Hotel – the Cyprus government would provide the land and the Qataris funds of an equivalent value for the project. This was another impressive deal that would benefit the economy, but it appears to have hit problems.
Tuesday’s Alithia, reported that there was a big discrepancy in the valuation of the land, on which the Qatari investment would be based. While the government valued the land at €134 million, Qatar valued it at less than half this amount. An independent valuation is now pending, but it remains to be seen whether both sides will accept it. If it is too high, the Qataris may decide not to go ahead with the project and if it is too low the government may be faced with dilemma of either contributing funds to make the development viable or pulling out.
This is what could happen to joint ventures when the preparatory work done is inadequate. Logically, the valuation of the land should have been agreed by the two sides before anything was signed. It was absurd not to discuss and agree such an important part of the deal before anything was signed. Now there is a danger of both sides feeling that the other is trying to impose its valuation, which is not the ideal way of pursuing a joint venture.
The government is in a particularly difficult position, as it made a big song and dance about the whole project and could end up with egg on its face. If the independent valuation is perceived as being too low it would come under attack for doing a bad deal. If it decides to abandon the deal (the agreement would be null and void if the two sides do not agree on the valuation) it would be ridiculed and mocked for the fiasco.
It might not come to this if the independent valuation is considered fair by both sides. This is what the government must be praying for, because a cancellation of the project would be a major embarrassment after all the fanfare which greeting the signing of the agreement in April.
