Insurance payout reveals state liability for Mari blast

FOR THE first time since the Mari blast of July 2011, the state appears to have openly accepted civil liability for the incident, having agreed to pay a large chunk of the repair costs for the damaged Vassilikos power plant.
The admission – albeit an indirect one – came from Attorney-general Petros Clerides during a discussion at the House finance committee yesterday. Clerides informed MPs of the deal clinched between the state and the insurers and re-insurers of the power station.
The parties agreed to settle out of court, whereby the electricity authority (EAC) will receive €132.5m in total from the plant’s insurers, Atlantic Insurance. Some €30m has already been paid out to the EAC.
In turn, the government will reimburse the re-insurers to the tune of €99m in instalments, without interest, except in the event of delayed payment.
According to a finance ministry memo shown to MPs, under the agreement the state will pay €15m on January 28 and an additional €14m on July 28. This would be followed by six-month instalments of €14m until the €99m is paid in full by January 2016.
For this fiscal year, the government needs €29m to honour the agreement. The extra expense was slipped into the 2013 budget at the last moment, and yesterday the finance ministry asked lawmakers to approve the release of these funds.
The insurers and re-insurers of the power plant had sought compensation from the Cypriot state, as a condition for paying insurance monies to the EAC. Otherwise, they would sue the government, whom they consider responsible for the blast that severely damaged the Vassilikos plant.
The ministry memo revealed also that the EAC’s initial demand to the insurers was for €167.8m, while the latter were accepting only €110m. Negotiations wrapped up on October 25 last year, culminating in a €132.5m deal.
Although the insurers would ultimately pay out more than they would receive, the deal would presumably suit all sides by avoiding a drawn-out and costly legal battle; the insurers would start receiving monies immediately, as would the EAC.
According to chairman of the House finance committee Nicholas Papadopoulos (DIKO), Clerides told MPs this was a good deal, considering that a potential legal battle with the insurers (either in the courts or via arbitration) would end up costing the state much more.
What’s more, Clerides informed deputies that in his opinion the insurers would have a solid legal basis on which to sue the state. Though expressed in a roundabout manner, this appeared tantamount to an admission of liability for the July 11, 2011 blast.
Having settled out of court, Papadopoulos later told newsmen, the state has admitted to civil liabilities for the Mari explosion.
It was high time the government also accepted political responsibility for the event, Papadopoulos said, adding that the president has never apologised to the people of Cyprus.
It’s no secret the state would have had a tough time denying responsibility for the blast had it gone to court with the insurers. For one, the European Commission has refused to provide the country with humanitarian aid to fix the damaged power plant – suggesting that natural disaster has been ruled out as the cause.
Moreover, a number of government ministers and military officials have been indicted and are currently being prosecuted for the munitions explosion at Mari that left 13 people dead.
Last year the attorney-general issued a legal reasoning – kept from the public eye – stating that the state could be liable for civil damages for the Mari blast, for two chief reasons: first, because the naval base is in located a government facility and lies on government land; and second, the munitions stored at the base were under the government’s responsibility.
DIKO’s Papadopoulos told newsmen the €99m cost to the state for repairing the plant is over and above the millions already paid for purchasing electrical power from the breakaway regime in the wake of the blast to avoid rolling power cuts. In addition, the government owes the electricity authority a substantial amount (some €25m) for costs incurred for renting mobile power generators.
And up to €37m could be needed in a similar out-of-court settlement with the insurers of combined cycle unit no. 5 at Vassilikos.
There’s also the matter of the estimated €200 million worth of damage to Vassilikos that was uninsured. The EAC is likewise entitled to apply to the government for compensation for damage to its power plant, but has agreed to wait, recognising that cash is tight right now.