Gas talks end but officials tightlipped on preferred supplier

DEVELOPMENTS on a natural gas deal appeared to be moving rapidly yesterday, as the government took flak for its hush-hush policy after strong speculation emerged that Shell was the preferred supplier.

The Commerce Ministry was briefed on the conclusions of the Natural Gas Public Company (DEFA) for the preferred supplier of natural gas.

DEFA, in charge of importing and distributing natural gas, is majority-owned by the government, while the Electricity Authority of Cyprus (EAC) holds a 44 per cent stake in it.

The body has just completed the last round of discussions with three short-listed suppliers of natural gas.

The terms of the negotiations provide for a 20-year contract for the supply of Liquefied Natural Gas (LNG). Meanwhile, in a parallel process, the EAC has been holding talks with companies interested in building an LNG regasification facility, estimated to cost Cypriot taxpayers some €800 million.

Chairman of the DEFA board Costas Ioannou denied they had selected a supplier for LNG:

“This is a misrepresentation. We have concluded the process of discussing with the interested companies, and today we presented our findings to the government. We haven’t picked a supplier, as some say.”

Asked by the Mail whether this was obfuscation – given that DEFA’s task was precisely to pick the supplier of LNG – Ioannou repeated: “We’ve given our recommendations/conclusions to the government. That is not the same as saying that we are recommending a certain supplier. It’s now up to them [the government] to decide.”

Ioannou declined comment on reports that Shell is the company selected, or that the 20-year contract is worth €6 billion.

A confidentiality clause has prevented DEFA from releasing the names of the interested companies.

Speaking to newsmen after meeting with DEFA’s leadership, Commerce Minister Paschalides was similarly tight-lipped, saying only that he would be briefing the government and next the political parties.

It was clear yesterday that things were moving swiftly, as DEFA also met with the EAC in what was called an “informal briefing.”

And shortly after that meeting, the EAC board convened to discuss its own selection process for a strategic partner for the LNG facility.

In a statement released last night, the EAC appeared to have made its final decision. It read:

“The Board of Directors has unanimously accepted the recommendations of its independent advisors…and of the EAC’s negotiating team concerning the ranking of the strategic investors as well as the determination of the Preferred Strategic Investors with whom the EAC will hold consultations. The decision has been communicated to the Commerce Minister.

The EAC was authorised in March 2009 to set up a joint venture together with a strategic investor for the construction of an LNG processing and storage plant on the island.

As such, the semi-governmental organisation could not go ahead before DEFA closed a deal guaranteeing supplies of natural gas.

Government officials have said the re-gasification facility should be up and running by the year 2014.

Earlier in the day, EAC chairman Harris Thrasou said they could not move forward and select a strategic investor for the terminal before they were officially briefed on DEFA’s conclusions.

This was because some of the investors wanted to supply the fuel as well as part of their offer, he explained.

But he did say that it was “only a matter of days” before the government officially announces the name of the preferred LNG supplier.

Critics have slammed the government for having opted to enter into direct negotiations with interested fuel suppliers instead of the more usual process of inviting public tenders. In particular, they are concerned over the lack of transparency. The government has responded that its method is time-saving and is intended to introduce natural gas as soon as possible, thus weaning the island off crude oil.

DISY deputy Christos Pourgourides yesterday released a statement warning that parliament would not sit idly by while the government concluded a deal worth billions of euros that would come out of taxpayers’ pockets.

While welcoming the Commerce Minister’s pledge to brief parties on any decision, Pourgourides said the parties should have been kept in the loop prior to any decision.

“We are warning the government: do not present Parliament with a fait accompli,” he noted.

“This is the biggest contract in the history of the Republic, and parliament has been kept in the dark. Why?”

He went on to urge DEFA to ensure that it includes a clause in the contract explicitly stating that any government guarantees must be pre-approved by parliament.

But speaking to the Mail later, Pourgourides acknowledged that, whether or not such a provision is included, the government could still conclude a contract with the supplier.

The DISY deputy said the “lack of transparency” was especially worrying since no one can independently verify if the government has secured the best prices and terms for LNG supplies.

And according to Pourgourides, it’s entirely plausible that Cypriot consumers could end up paying higher rates for natural gas – which is supposed to be cheaper – than they do today for crude oil.