Monday, February 20, 2017

Concerns over future gas fund spending - CYPRUS MAIL

February 20, 2017
Elias Hazou

An annual revenue of up to €600m is expected from the sale of hydrocarbons, 12 years after production begins at the Aphrodite gas field (in block 12).

Questions still hang over the precise manner in which investments will be made using future oil and gas revenues, MPs said on Monday.

Lawmakers were continuing discussion of a finance ministry bill on the establishment and operation of the National Investment Fund, which will manage hydrocarbons proceeds.

They asked the ministry to come back next time with specifics on how revenues would be invested.

Main opposition Akel noted that absent from the bill is any clause relating to the state channelling revenues to hydrocarbons-related infrastructures.

MP Stefanos Stefanou said that the various government departments and stakeholders still disagreed among themselves on a number of issues pertaining to the management of oil and gas revenues, adding that these issues should have been straightened out by now.

One disagreement relates to the mode of appointment of the fund’s audit committee.

Since first submitting the bill to parliament, the finance ministry has amended article 21, now providing that the fund’s audit committee be appointed by the cabinet.

In the earlier draft, the persons sitting on this committee would have been picked from among the board of directors of the fund.

The finance ministry argues that its tweak boosts transparency.

But the auditor-general’s office says this is not necessarily the case, and argues that there is no need to appoint extra people as this will increase expenditures.

What is known is that under certain circumstances, the government will be able to use part of the revenues to reduce government debt and for other purposes.

As it stands, the bill stipulates that as long as the public debt is above 80 per cent of GDP, half the hydrocarbons revenue would go towards reducing this debt. When it is below 80 per cent but above the limit of 60 per cent – set by the Maastricht criteria – only 25 per cent of revenue would go towards the public debt and the rest would be used for the creation of reserves.

Once gas revenues start flowing in – not for years to come – the fund is expected to aggregate hundreds of millions. But investing those amounts into the Cypriot real estate market, for example, would wreak havoc with property prices given the relatively small size of the local economy.

Rather, the fund’s reserves will all be invested abroad, be it in property or in triple A-rated government bonds.

Last September, finance minister Harris Georgiades said he expected an annual revenue of up to €600m from the sale of hydrocarbons, 12 years after production begins at the Aphrodite gas field.

To date, Aphrodite is the only proven reserve with an estimated 4.5 trillion cubic feet of natural gas.