Our View: Govt has been forced into corner over Vasiliko

The dispute between the government and the Chinese CPP Metron Consortium (CMC) has turned ugly in the last few days as the two sides engaged in a war of words in the media. Reports appeared indicating that there was a complete breakdown in relations between CMC and Etyfa, the natural gas infrastructure company, putting the future of the project at risk.

CMC accused Etyfa of refusing to take delivery of the Prometheas floating storage regasification unit (FSRU), that had been ready since January. Etyfa responded by claiming CMC was trying to mislead public opinion, while President Christodoulides joined the fray on Saturday declaring that “the state will not be blackmailed” and that it would honour its obligations. He said the government had a Plan B but expressed the hope that a solution would be found.

A meeting on Monday afternoon with Chinese ambassador Liu Yantao at the presidential palace did not yield a breakthrough, although it was agreed to end the public statements. Press reports claimed the next few days would be crucially important to what will happen, even though CMC had not withdrawn the ultimatum it had issued before Monday’s meeting. It had said it wanted a meeting with a representative of the government, who had the power to make decision, outside Cyprus.

This was another way of saying it refused to engage in any talks with project manager Etyfa, which CMC has openly accused of trying to stop the project and is refusing to talk to. On Tuesday morning, Energy Minister Giorgos Papanastasiou, who was also at the meeting at the presidential palace, repeated that the “state would not be blackmailed,” while insisting there was a “viable and realistic” Plan B.

This seems more like a negotiating ploy, because terminating the contract would be catastrophic. Finding another company to take over a half-completed project would be extremely difficult, time-consuming and very costly. Suggestions that the sub-contractors could complete it are laughable. Would they receive guidance from Etyfa, which has a big share of the responsibility for the disastrous situation we are facing today? That Etyfa bureaucrats, without the technical know-how or experience, were put in charge of overseeing the project defies belief. This lack of expertise would be a problem even if another company is found to take over the project.

What would the cost of terminating the contract with CMC and giving the project to another company, assuming one could be found to take it on, be? There will also be costly legal cases, apart from CMC’s demand for €200m, which is currently at the arbitration court. And how much would the economy lose if the EAC’s power stations would have to wait another two or three years before natural gas can be imported? According to energy expert Charles Ellinas, energy costs could be reduced by as much as €300m a year when power stations switch to natural gas; consumers would benefit from this.

Unfortunately, the government is in a corner. The state may, eventually, give in to the blackmail of CMC because the cost of not doing so would be extremely high.