Cyprus’ Vasilikos LNG Terminal Faces Funding Challenges And Investigation

Cyprus’s Natural Gas Public Company (DEFA) has requested an additional €200 million from the Ministry of Finance to complete the Vasilikos LNG terminal, bringing the total project cost beyond its original €500 million valuation. The request follows delays, mismanagement concerns, and financial disputes that have plagued the project.

Government’s Response and Financial Support Options

• Dionysis Dionysiou (Ministry of Finance) confirmed that the government is evaluating options for state support or loan financing for DEFA.
• Possible funding methods include direct grants or loans, with fiscal implications currently under review.
• Energy Minister George Papanastasiou assured that the project remains on track for completion by late 2025, despite procedural constraints.

Technical and Infrastructure Challenges

• Floating Storage and Regasification Unit (FSRU):
  • The Prometheus vessel, intended as the project’s FSRU, has failed to meet certification standards due to two component deficiencies.
  • Wilhelmsen, the Norwegian vessel management company, has been directed to make necessary modifications.
• Jetty and Onshore Infrastructure:
  • ETYFA is assessing two potential scenarios to expedite jetty construction.
  • New tenders will be required for onshore works.
• Gas Transmission Readiness:
  • The Electricity Authority of Cyprus (EAC) has installed pipeline infrastructure to transport gas.
  • PEC power station at Vasilikos has also proceeded with pipeline installation at its own cost.

Audit Exposes Mismanagement and Legal Concerns

A recent Audit Office report revealed serious mismanagement and repeated delays, triggering an investigation by the European Public Prosecutor’s Office (EPPO).

Key Findings from the Audit

• The original completion date (October 2022) has been postponed multiple times, with late 2025 now considered an “optimistic” target.
• The project’s Chinese-led contractor, CPP, withdrew in July 2024 due to financial disputes and contractual disagreements.
• The European Commission has demanded the return of its €101 million grant, citing potential procurement fraud, misappropriation of EU funds, and corruption. Cyprus has been given 30 days to respond.
• The FSRU remains inactive off the coast of Malaysia, with ETYFA exploring interim employment options while infrastructure delays persist.

Next Steps and Uncertain Future

• The EPPO’s ongoing investigation could result in legal actions or financial repercussions for Cyprus.
• The government must decide on additional funding to ensure project completion while addressing EU concerns over mismanagement.
• New contractors and tenders may be required to replace the Chinese-led consortium that exited in 2024.

As Cyprus pushes forward with its LNG strategy, the Vasilikos terminal remains a critical but troubled project, with its future hinging on financial solutions, regulatory approvals, and infrastructure completion.