Cyprus – Evgenios Evgeniou, CEO
The CEO of PwC Cyprus shares his thoughts on Cyprus‘s current economic challenges, the professionalization of the Cypriot hydrocarbon sector, and the role that audit and advisory companies like PwC can play in helping the country reach its objectives in oil and gas.
What are the economic challenges for Cyprus today? And how does the discovery of significant hydrocarbon reserves change the complexion of the national economy?
Following the climax of the financial crisis in Cyprus in March 2013, we are currently in the stabilization phase: implementing the agreement with our international lenders and working on the recovery of the economy. The economy has been performing better than expected, which is reflected in the credit ratings upgrades, the appraisals by our lenders, by the recapitalization of the banks and by the fact that the government has been able to raise international funding.
In terms of the energy sector, I think that it is something quite separate from the efforts of the country to stabilize and move towards recovery. Cyprus has the prospect of developing into an energy producing country and an energy service hub, but that should not lead us to complacency in the effort to place the economy back on a stable footing. Any benefits from the energy sector should be an add-on to the existing efforts towards the recovery of the economy as a whole. We are at the beginning of this effort and what we are doing today in the hydrocarbons domain must be for the future generations rather than to deal with the immediate situation. I hope that it will prove to be the basis on which to build the next phase and the next cycle of economic growth and prosperity for the country, rather than being a shortcut to solving problems of the past.
Cyprus has limited expertise when it comes to hydrocarbons. What is the role of the professional services sector in professionalizing what will be happening in the oil and gas sector?
With regards to PwC Cyprus, for some years now we have set up an energy team across competencies. We have been developing the energy expertise by attending and participating actively in the international network of PwC energy professionals; by seconding our people to the PwC energy centers of excellence; and by engaging actively with the companies that are already in Cyprus, or that are contemplating market entry and working with them to service and support them, but also to acquire the experiences necessary for the future. We have been and we will continue to invest in building a sound industry capability in Cyprus so as to cover the whole range of services, from audit and taxation to consultancy and corporate finance capabilities.
Local energy consumption is characterized by a high dependence on imported energy at the moment, which focuses on short term horizons. How should the country go about creating a sustainable energy sector, which balances those near-term needs with the long-term vision of becoming an energy hub?
There is clearly an issue in Cyprus regarding the cost of energy. In PwC, every year we carry out a CEO survey and one of the main concerns raised always relates to the size of the energy bill. This is therefore an issue that needs to be addressed. In addition, the prospect of having cheaper energy would create significant opportunities for the development of some high energy consuming industries. There has actually already been some interest from the Middle East in this domain, because it provides the potential of having a manufacturing base within the European Union while being geographically close to that region. At the moment all such proposals remain at the level of initial interest, therefore, careful planning and preparation is required for the long-term development of Cyprus as an energy producing country.
We have been hearing about many different proposals for monetizing Cypriot hydrocarbon reserves. From the PwC perspective, what represents the most viable solutions to date?
Should the companies that carry out exploration activities in the Cyprus EEZ discover additional quantities of natural gas, more commercialisation options for monetising the Cyprus hydrocarbons may become possible. It is usually the case that in assessing the various options available the companies involved take into account factors such as cost, project investibility, technical feasibility, the time it takes to get the gas to market and other criteria. The choice of the most appropriate monetisation solution is usually market driven since for investors to proceed, the terms presented to them need to make commercial sense especially given the risks involved in such projects and the large investments needed. The Government of Cyprus will of course have the final say for any such decisions.
On the other hand, as a country we should also retain flexibility regarding our options; therefore, having various plans and options on the table until we are certain on how to proceed, I believe is the right approach. We should progress with decisive steps and clear plans, without rushing or making hasty decisions. What is important is to have solid and credible business plans for investors to be willing to put their money into the development of Cyprus as an energy center.
Some stakeholders would say that there is a race against time in terms of exporting LNG due to the global outlook and the effect on pricing of increased capacity from the US. How do you respond to this?
I’m not saying we should be relaxed and laid back about it, not at all. We should move decisively and with very clear plans and very clear timelines. When I say we shouldn’t rush, what I mean is that we need to have the fundamentals in place first before embarking on large-scale infrastructural projects. There is a certain sequencing that needs to be applied here. There is currently progress taking place in exploration, and I agree with you that there is a window of opportunity where the international energy gas market is rapidly changing, both from a geopolitical perspective and the development of shale gas and what is happening in the US and Europe. We therefore need to be aware that there is a timing issue, but, on the other hand, we should be realists in the sense that for international players to invest, they need to have something that is sufficiently concrete, tangible and credible.
What is the status of the regulatory frameworks and the tax regimes surrounding Cypriot oil and gas?
The overall regulatory framework is currently under development. The government has followed a policy of stable and business-friendly tax regimes recognizing the fact the real benefits for the country should arise from employment and government revenues from business activities, rather than by actually taxing specific sectors. The same approach will potentially be followed for the energy sector. At the same time, we have to recognize that Cyprus is at the beginning of this long journey of developing into an energy hub and in this context we still need to do more in completing the regulatory framework for this sector.
What remains to be done in completing and implementing this regulatory framework?
The government needs to recruit, to train, to buy tools in terms of software and frameworks that they will need to apply. There is still work that needs to be done from a regulatory and government perspective to be able to properly supervise this sector and to be able to negotiate with the incoming multinationals that have the expertise. As a country, we should be open to utilize expertise from elsewhere both in terms of government to government partnerships but also via public sector collaborations with the private sector.
Cyprus is globally renowned for its advanced professional services sector. How can this benefit the emergent oil and gas industry?
In terms of attracting multinationals, one of the reasons that Cyprus has been successful so far as an international and regional business center is down to its infrastructure. There are already a number of companies, which have nothing to do with the energy sector, that have decided to base themselves in Cyprus for a number of reasons, including the quality of the professional services sector.
The ingredients are already in place and the energy sector has its own specific needs when it comes to the infrastructure on the ground, which the government now properly understands. As you may know, the Deputy Minister to the President has assumed responsibility for the growth and reform strategy with the objective to create a more business friendly environment. One of the aspects that they are currently working on is the facilitation of the development of the hydrocarbons industry.
Cyprus has an historic legacy as being a hub of support for various different industries. What is the potential of oil and gas on a regional basis?
From my perspective, it’s very clear: this is potentially an even better prospect than the natural gas discoveries themselves. The Eastern Mediterranean and the Levant region are developing as a new frontier in terms of natural gas and oil, and in this region, if you look at the map, there is only one country that has the political and economic stability to act as the hub. Now that Cyprus enjoys its own potential as an energy producer, more and more energy companies are looking to Cyprus as a safe and stable base for their regional operations.
What differentiates PwC from the other consultancy firms, and what makes you the go-to partner for oil and gas?
I think it’s really for others to answer that question, but from our perspective, we always focus on building relevant expertise by blending our local knowledge with quality insights and tried and tested practices from across our global network. On the basis of this combined know-how, we can then provide robust and innovative services to our clients to optimize their operations and add tangible value to what they are already doing. Because of our size and strong connectivity with our international network, we have the capacity to deploy dedicated teams across all competencies in the energy sector.
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