The European Union is launching a corruption investigation into a liquefied natural gas (LNG) import terminal project in Cyprus after a consortium led by Chinese investors abandoned the project. The EU is seeking to recover funds granted by the EU to the Cypriot government for the project.
According to the Financial Times, in 2018, the Cyprus government awarded the contract to build the Vasilikos LNG terminal to a consortium consisting of China Petroleum Pipeline Engineering Limited (CPP), Hudong-Zhonghua Shipbuilding Co. Ltd., Norway’s Wilhelmsen Ship Management, and UK-based Metron.
The project was originally scheduled for completion in 2019 but faced delays, with deadlines first extended to 2022 and then further beyond. On July 18 this year, amidst accusations that the consortium had failed to fulfill its contractual obligations, the agreement ultimately collapsed.
In a report released by the Cyprus Auditor General on January 19, 2024, concerns were raised about project delays, cost overruns, and worries about quality and safety.
The Auditor General recommended canceling the consortium’s contract. Initially, Cyprus Gas Infrastructure Company Etyfa, as the project beneficiary, had deemed canceling the contract impossible due to the urgent need for project completion.
The consortium, led by Chinese investors, requested an additional €25 million to cover increased steel costs. Despite the Auditor General’s recommendation, the Cyprus Ministry of Finance approved this request. Etyfa subsequently waived its right to claim compensation from the consortium for unreasonable delays in the project. However, on July 18, Etyfa terminated the project, stating in a release that despite their efforts, the consortium’s “series of breaches” of contract terms “forced them to terminate the agreement” and take legal action against them.
China Petroleum Pipeline Engineering Limited has filed a lawsuit with the London International Arbitration Court, attempting to compel Cyprus to hand over €200 million.
On July 25, the European Public Prosecutor’s Office (EPPO) announced that it had initiated an investigation into the Cyprus LNG project for alleged procurement fraud, misappropriation of EU funds, and corrupt practices.
The project aimed to establish a natural gas entry point for Cyprus to connect to the broader European gas market. The project cost €542 million, with approximately €101 million provided by the EU financing tool Connecting Europe Facility (CEF) program.
On July 24, the European Climate, Infrastructure, and Environment Executive Agency (CINEA) requested that the Cyprus government explain the use of EU funds by September and prepare to return some funds. According to Cypriot officials, of the €101 million allocated by the EU for the project, Cyprus has received €69 million.
EPPO stated that the Cyprus Auditor General’s report released on January 19 raised concerns about potential irregularities in the LNG project procurement process and the execution of public contracts. CINEA also submitted a report to EPPO.
After reviewing this information in detail, EPPO decided to launch an investigation.
According to Cyprus Mail, Energy Minister George Papanastasiou stated on Monday, July 29, that the government was working to explain the failure of the LNG project to the European Commission.
“This government has done everything possible to minimize the negative impact,” Papanastasiou said.
He also provided an update on the project, mentioning plans to complete the remaining works for the Vasilikos project’s onshore facilities, with an estimated cost of around €40 million.
He revealed that a foreign expert would arrive in Cyprus in the coming days to oversee progress on the onshore facilities and vessels. Regarding the terminal and onshore facilities, the government is drafting documents for public tender in the coming days.