The EU is seeking to claw back up to €100mn from the Cypriot government after a Chinese-led consortium abandoned a gas import terminal project that is now being investigated for corruption. In 2018 the Cypriot government awarded the €542mn contract for the construction of the Vasilikos liquefied natural gas terminal to a consortium comprising China Petroleum Pipeline (CPP), Hudong-Zhonghua Shipbuilding, Norway’s Wilhelmsen Ship Management and the UK’s Metron.
The project, designed to reduce the country’s reliance on imported oil, was originally due to be completed by 2019. However, it ran into delays and the deadline was first extended to 2022 and then beyond. The deal finally fell apart on July 18 amid accusations that the consortium was not meeting its contractual obligations. CPP has gone to international arbitration in London to try to force Nicosia to hand over €200mn.
The EU’s agency in charge of climate, infrastructure and environment, Cinea, on July 24 sent a request to the Cypriot government to give explanations about the use of EU funding by September and prepare to return part of it. Cyprus has already received €69mn of the total €101mn in EU grant earmarked for this project, according to Cypriot officials. A day later the European Public Prosecutor’s Office (EPPO) said it had “opened an investigation into a project for a liquefied natural gas import terminal in Cyprus, on suspicion of procurement fraud, misappropriation of EU funds and corruption”.
Cypriot energy minister Giorgos Papanastasiou said his government had asked for 30 days to respond. After an emergency meeting on the matter on Tuesday, he said recent developments in the case “put the country at risk”. Last week the country’s president, Nikos Christodoulides, said the previous government should not have selected this consortium for the project. However, he stressed “the project will be implemented”.
The EPPO, which is responsible for investigating and prosecuting crimes against the financial interests of the EU, said its probe followed a January report by Cyprus’s national audit office. Cinea also provided information to EU prosecutors. “After receiving this information and examining it in detail, the EPPO has taken the decision to open an investigation, in order to inquire into the contracts awarded by the public authorities,” it said.
In its public 142-page report, the Cypriot national audit office described the multiple times that it raised concerns about delays, increasing costs, and the quality and safety of the project. The audit office recommended the consortium be stripped of the contract. The natural gas infrastructure company of Cyprus, Etyfa, which was the beneficiary of the project, said that was impossible because of the urgent need for the terminal.
The consortium asked for an extra €25mn to cover the increase in the cost of steel which was approved by the treasury of Cyprus against the recommendation of the national audit office. Etyfa also waived its right to seek damages from the consortium in respect to unreasonable delays. But on July 18, it was Etyfa that pulled the plug on the project, saying in a statement that despite all their efforts, a “series of violations” of contractual terms by the Chinese-led consortium “leave no room than terminating this agreement” and pursuing legal action against them.
When asked about allegations that the Chinese-led consortium had not been paid, Cypriot officials said Etyfa had fully complied with its contractual obligations. The Cypriot energy minister said a new tender would be called in the next few days, with the aim to complete the project “in eight months”. The consortium, individual companies and Etyfa did not respond to requests for comment. The EU commission said it was aware of the investigation but declined to comment.
(Financial Times, July 31, 2024)
