Vasiliko LNG Terminal Case: Unjustified Delays, Project Cost Inflation, and State Inaction
New Details Emerge
Energy, Commerce, and Industry Minister Giorgos Papanastasiou highlighted numerous problems and past errors in the construction of the liquefied natural gas (LNG) terminal at Vasilikos during statements following a closed-door session of the Parliamentary Audit Committee. The committee's meeting was held amid an ongoing arbitration process in a London court, initiated by the project contractor on 17th February 2023, demanding an additional €200 million.
Furthermore, Papanastasiou mentioned that only 45%-50% of the land terminal has been completed. Last Saturday, the contractor indicated requirements exceeding €200 million, and he emphasized that "the construction process should not have ceased while arbitration is underway."
"This is a misstep and a breach of contract by the contractor," Papanastasiou stressed, noting the Energy and Natural Resources Corporation's (ETYFA) claims for project delays. The latest schedule requires completion by 23rd July 2024.
Completing the project by July 2024 might be unfeasible under current conditions, and we should expect a slight delay if work begins this week
Papanastasiou expressed his personal view that completing the project by July 2024 "might be unfeasible under current conditions, and we should expect a slight delay if work begins this week."
The Committee, which discussed the Audit Office's special report on Vasilikos' LNG terminal, in the presence of the Energy Minister, the Auditor General Odysseas Michaelides, representatives of the Public Gas Corporation (DEFA) and ETYFA, decided to continue the discussion in next week's session, inviting former Commerce Minister Giorgos Lakkotrypis and former DEFA President Symeon Kassianides, among others.
Papanastasiou mentioned that the Vasilikos terminal consists of a floating unit currently in a shipyard in China and the land unit under construction in Vasilikos. He said the floating unit is 95% complete and awaiting certification to sail to Cyprus, while the land terminal is 45%-50% complete. "Together, both units are about 75% complete, but there is significant work needed, especially on the land terminal, to declare this project finished."
The tender awarded totaled €499.999.997, with costs exclusively for the project now exceeding €542 million without VAT
The Audit Office's report, published on 19th January 2024, revealed that "the project, contractually scheduled to be completed within 24 months, will likely be delivered 22 months after the contractual completion date, effectively doubling the time frame." The report further stated that "the tender awarded totaled €499.999.997, with costs exclusively for the project now exceeding €542 million without VAT."
The Minister acknowledged issues with the floating unit, admitted by the contractor, but stressed that "these problems are not prohibitive for the unit to be certified and sail to Cyprus soon, while the land terminal requires a lot of work."
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"The contractor unlawfully halted work last week, violating the contract with ETYFA," he said, adding that "ETYFA and the Republic of Cyprus will need to make decisions regarding the contractor in the coming days."
Furthermore, Papanastasiou stated that urgent discussions between ETYFA and the contractor are needed, possibly requiring political intervention for the Chinese company to understand "this is a European project funded by the European Commission with €101 million, another €150 million from the European Investment Bank, and €80 million from another European bank."
"A Chinese joint venture should not put itself in a position to potentially be excluded because it chose to stop a European project," he added.
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In his remarks during the open session, Auditor General Odysseas Michaelides said that the 142-page report from the Audit Office "is an accusation against the previous government and DEFA for repeatedly favoring this specific contractor."
There's not a single word in this report that a contractor demanding money from the Republic could use against the Republic
"If this report were used in the arbitration, it would be a major blow against the contractor," he said, adding that "there's not a single word in this report that a contractor demanding money from the Republic could use against the Republic."
Michaelides, referring to DEFA's remarks before the report's release, said, "There's an obvious reason. Evidently, DEFA doesn't want the public to hear about its deeds," clarifying he's referring mainly to the previous board, management, and government.
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According to the report, the tender for the design, construction, operation, and maintenance of the LNG terminal project in Cyprus was announced on 5th October 2018, with an estimated value of over €500 million plus VAT. The initial deadline for bid submission was set for 18th January 2019, which, after several amendments, was moved to 12th July 2019, a six-month delay, at which point bids were received from three international consortia.
In its conclusions, the Audit Office stated that "in a colossal-sized tender, satisfactory participation was not ensured, and sufficient competition was not developed, as only one bidder proceeded to the evaluation stage."
The report adds that while contract terms stipulated work should start by 12th March 2020 at the latest, it began on 28th September 2020, with a completion date of 27th September 2022.
It continues, "Even the new completion date was entirely unrealistic, as noted by ETYFA itself, since neither the expected project progress nor the pace of work could support such a timeline."
No deductions were made from payments to the contractor as compensation for unjustified delays, nor was there any seizure (partial or total) of the performance guarantee, nor did ETYFA take any other action to safeguard public interest
The Audit Office remarks that "this was immediately pointed out to the contractor, who eventually submitted a revised work schedule on 21st July 2023, indicating completion by 23rd July 2024."
"Notably, as of the report's publication date, even though the extended contractual completion date of 31st July 2023 had passed, no deductions were made from payments to the contractor as compensation for unjustified delays, nor was there any seizure (partial or total) of the performance guarantee, nor did ETYFA take any other action to safeguard public interest," the report adds.