Head of Energy at Abacus Ltd. Talks Oil & Energy |
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This position resulted from the firm’s strategic analysis of the current business environment in Cyprus and the emerging opportunities together with client demand. Abacus is a business consulting firm with an impressive list of international and global clients – many in the energy field – who, following recent developments, have requested the firm’s assistance. It was a matter of meeting threats and seizing opportunities by offering a new product in an emerging market. The appointment is significant because it addresses our clients’ needs and the firm’s strategy for the future. At this early development stage of the sector we seek to offer services to potential investors and the Government, promoting mutual interests creating business opportunities. These include consultancy services regarding the sector and relevant stakeholders locally, stakeholder engagement; local and regional business intelligence (industry follow-up and opportunity alert) and a review of local and EU-related legislation with an analysis of harmonisation and its alignment with business needs.
A potentially valuable asset is by itself significant; how significant depends upon whether it can be produced in adequate commercially profitable quantities. If so, it will change Cyprus’ business environment as a new industry will emerge. However, whether it will increase the standard of living of the average Cypriot will greatly depend upon how we manage this resource. Note that many of the poorest countries in the world are hydrocarbons-rich. Hopefully, Cyprus’ long-established legal systems and democratic history will contribute greatly towards the creation of a model which will yield a Norwegian rather than a Nigerian result. Geopolitically, if the resource proves to be commercially successful it will raise the value of the island, which could potentially increase conflict in the region particularly with Turkey. The rule of law is on our side and our developing alliances with powerful states and companies will hopefully prevent Turkey from engaging in ‘gunboat’ diplomacy.
There are currently no specific oil and gas tax laws in Cyprus. Are the present corporate tax laws applicable or will new legislation be necessary?
Generally, corporate tax laws apply to all companies, independent of sector. Indeed, Cyprus’ model Production Sharing Agreement (PSA) includes a clause addressing just that. Fiscal regimes are complex, balancing a plethora of issues magnified here because of the longevity of these projects and they include the collection of most of the economic rent generated, ensuring a stable business environment, providing the potential for a fair return to state and companies, avoiding complexity, limiting administrative burdens and allowing flexibility to accommodate changing economic conditions. These are addressed both through national legislation and contract negotiation – the PSA. To assess the adequacy of Cyprus’ current regime vis-à-vis the considerations, one has to evaluate current law as well as the signed PSA which is confidential.
The local energy sector is characterized by its high dependence on imported energy and the strong dominance of oil in the energy balance. How is this going to change?
We could convert to our own natural gas for domestic needs which would reduce the cost of energy production in Cyprus. Recent press reports state that Noble Energy has offered a solution for the provision of domestic gas by 2016, reducing production costs by 12-15% and I understand that DEFA is also considering an ITERA bid for interim local needs. However, eventually we should use solar energy for domestic needs. Germany, with 140 days of annual sunshine, has achieved solar production of up to one third of its peak electricity needs. We have almost 290 days of annual sunshine! Solar energy, unlike oil and gas extraction, has the added benefit of creating a sizable number of jobs that provide a trickle-down long-term effect on the economy.
Do you believe that Cyprus and Greece will be able to settle their maritime boundaries disputes with Turkey?
Regarding maritime boundaries in the area, Turkey follows a longstanding policy of non- negotiation, blocking legal settlements by not submitting itself to the jurisdiction of the International Court of Justice (ICJ). Some commentators contend that Turkey simply objects in general so as to prevent any agreements from being formulated and there is no indication of this stance changing. Turkey’s refusal to accept international law is understandable: under international law, despite its long coastline, it has limited territorial sea and almost no contiguous zone in the Aegean and the Mediterranean as it is blocked by Greek islands. The ICJ has repeatedly ruled that the delimitation of boundaries is a process which simply demarcates what states already own and is not an exercise in apportioning or refashioning boundaries. The Turkish claim that there are no maritime boundaries between Cyprus and Greece is, in fact, an attempt to refashion boundaries. Regarding Cyprus’ maritime boundaries, Turkey’s claim results from an illegal military invasion. The Court ruled that a de facto situation resulting from an illegal action cannot simply metamorphose into a de jure situation (Qatar v Bahrain). Basically both the law and the Court are saying to Turkey “Too bad!” I believe that Cyprus, Greece and Egypt should come to a special agreement similar to that among Denmark, Germany and the Netherlands and request that the ICJ outline the law and draw the boundaries between them. The ICJ cannot decide in areas where it lacks jurisdiction – hence it cannot decide where Turkish interests are at stake – but can rule on the boundaries between Cyprus, Greece and Egypt. An ICJ ruling, apart from establishing precedence, will determine the behaviour of international oil companies engaging in the Mediterranean.
Currently the EU produces around 48% of its energy needs within the Union and imports the remainder. Is this an area for Cyprus to step into and how great a contribution can Cyprus’ gas reserves make to Europe’s energy security?
Energy security has indeed been a high priority for states since even before Churchill’s Anglo-Persian agreement at the beginning of the 20th century. The EU is seeking to secure a continuous supply of energy in varied forms at affordable prices. The International Energy Agency expects energy demand to grow by 50% by 2030. Supply is affected by many factors such as the discovery of new reservoirs and the ability of companies to bring product to market. Extraordinary events such as earthquakes (e.g. Japan and Fukushima) also affect worldwide energy markets. Whether Cyprus will or can play a role in Europe’s energy security depends both on the quantities found and the island’s ability to deliver a competitively-priced product where the need exists. The Vasilikos plant can be an EU energy import point and, at the very least,, Cyprus will benefit from a percentage of the import duties. If Israel agrees to process its gas though Cyprus the profitability of the plant will be better assured. However, the Israeli parliament’s approval to export 40% of its reserves is currently being challenged. Labour Party chairwoman MK Yachimovich and MK Reuven Rivlin (Likud) have launched a legal petition against any exports. We have to wait for the court’s verdict which could allow exports yet insist on their being processed from a plant on Israeli soil.
Link to source: http://www.goldnews.com.cy/en/energy/head-of-energy-at-abacus-ltd-talks-oil--energy
