Executive Summary
The Republic of Cyprus (ROC), located at the crossroads of Europe, Africa, and the Middle East, offers opportunities for U.S. energy and energy-sector service providers in the areas of consulting, environmental assessment, offshore hydrocarbon exploration and exploitation, supply of natural gas for domestic use, and basing of auxiliary energy services for the wider region. Currently the island is powered almost exclusively by heavy fuel oil and limited renewable energy sources. The government is making efforts to import natural gas as part of its strategy to meet EU Green Deal goals and to avoid significant EU carbon emission penalties. Following three licensing rounds and a direct negotiation round, the ROC awarded nine exploration licenses and one exploitation license, out of 13 available blocks in its Exclusive Economic Zone (EEZ). Exploration and exploitation of natural gas deposits in the ROC’s EEZ have slowed due to COVID-19 but are expected to continue in 2021. Efforts to monetize confirmed and other recently discovered natural gas deposits in the ROC’s EEZ are ongoing. Some options considered for monetization include a pipeline to Egypt’s existing Liquefied Natural Gas (LNG) facilities and the construction of an onshore LNG export plant in the ROC, assuming licensed operators discover sufficient deposits of natural gas.
{Note: Use of the term ROC and references do not include economic activities occurring in the northern part of the Island of Cyprus. The southern part of Cyprus is under the control of the government of the Republic of Cyprus, the only internationally recognized government on the island. Since 1974 the northern part of Cyprus has been administered by Turkish Cypriots. The area proclaimed itself the “Turkish Republic of Northern Cyprus” (“TRNC”) in 1983. The United States does not recognize the “TRNC,” nor does any country other than Turkey. While the unresolved conflict has implications for all potential investment on the island, companies considering investments in the TC-administered area should be aware of complications that arise from the lack of international recognition}.
Current Market Needs
Exploration, exploitation, ancillary services, and supply of natural gas for domestic use, hold significant promise for U.S. business. Moreover, in the near future, and depending on private agreements for the sale of natural gas from the ROC’s offshore deposits, a need might arise for pipeline construction or even an LNG onshore facility.
Competitive Landscape
Standards for Trade
Cyprus has adopted all European directives and standards. Cyprus has also adopted many EU directives into national law. Additionally, several semi-government organizations, such as the Electricity Authority of Cyprus, generally require companies bidding on tenders to meet applicable International Standards Organization (ISO) standards. Large energy companies like Chevron, ExxonMobil, TOTAL, and ENI are already in the market.
Best Prospects for U.S. Exporters
Bunkering Infrastructure Development / Port Facilities
Partially funded by the Connecting Europe Facility (CEF), the Poseidon Med II project covers the ROC, Greece, and Italy. Used as a practical roadmap, it aims to promote the adoption of LNG as a safe, environmentally efficient, and viable alternative fuel for shipping. The Cyprus Ports Authority (CPA) is a partner in the project. The ROC must have the bunkering infrastructure for LNG fuel ready by 2025. The Ministry of Transport, Communications, and Works is planning the extension of the Vasilikos port to facilitate bunkering and energy companies operating in the region. It is seeking investors for a Finance, Design, Build, Operate, and Transfer project.
Construction and Development of a National Transmission and Distribution Natural Gas Pipeline Network
The Natural Gas Public Company plans to issue a tender for the construction and development of a natural gas onshore distribution network to supply consumers with natural gas once it becomes available in Cyprus. The first phase of the project, with an estimated value of close to 71 million dollars (60 million Euro), will consist of three pipelines that will supply the Electricity Authority of Cyprus’s (EAC) three power plants located in Vasilikos, Dhekelia, and Moni. In the future, DEFA will further develop the network to cover cities and industries and will use the initial pipelines as the backbone. The entire network will have a total length of about 80km. DEFA has already secured a funding commitment from the EU’s European Energy Program for Recovery (EEPR) worth approximately 11.8 million dollars (10 million Euro).
Hydrocarbon Exploration and Exploitation Efforts
There is one confirmed gas field in the ROC’s EEZ progressing to exploitation, Chevron (formerly Noble Energy)/Shell/Delek consortium’s ‘Aphrodite’ in Block 12, totaling 4.5 trillion cubic feet (tcf). (Chevron acquired Noble Energy in October 2020.) ExxonMobil/Qatar Petroleum announced a sizeable find at the ‘Glaucus’ site in Block 10 in February 2019. They estimate it holds 5-8 tcf and remain committed to drilling assessment wells to determine its future commercialization potential. The latest exploration efforts by ENI/TOTAL in Block 6 show possible deposits in the range of 6-8 tcf. COVID-19 postponed eight offshore drills – six exploratory and two appraisal – which are expected to resume in the latter half of 2021. Experts expect ongoing exploration in the ROC’s EEZ will result in additional discoveries of hydrocarbon reserves and the ROC will eventually become a natural gas exporter. For more information on other licensed blocks in the ROC’s EEZ for exploration, and details from previous licensing rounds, please visit the Ministry of Energy, Commerce, and Industry’s Hydrocarbons Service.
Ancillary Services / Drilling Equipment
With eight anticipated exploratory and appraisal drilling efforts in the pipeline for 2021-2022, U.S. companies offering related ancillary services and drilling equipment in exploration and exploitation of natural gas could find potential opportunities in Cyprus.
Pipeline Construction
The ROC and Egypt are discussing potential natural gas exports from the ROC’s EEZ. Industry experts anticipate a tender for the construction and maintenance of two pipelines — one to deliver gas to existing LNG facilities in Egypt, most likely Idku, and the other to bring gas onshore to serve the domestic Cypriot market. The Cyprus Hydrocarbons Company (CHC) and the Egyptian Natural Gas Holding Company (EGAS) have reviewed the technical details to transport natural gas via pipeline from the ROC’s Block 12, “Aphrodite” field to Egypt. The ROC and the ROE have already signed the necessary intergovernmental agreements to facilitate the project.
Site Remediation
As part of its efforts to become a tourism hub, the Larnaca municipality issued a decree in January 2014 requiring oil companies operating there to relocate their fuel storage facilities (oil products and Liquid Petroleum Gas), a move which should be completed in 2021. Companies that offer site remediation may find opportunities for new business as a result of this requirement.
Energy Related Degrees from Cypriot Universities in Collaboration with U.S. Universities
With the discovery of offshore hydrocarbons in Cyprus’ EEZ and the potential for additional discoveries in the future, local universities are designing curricula and degree programs in hydrocarbons, petroleum engineering, and related sectors. Cypriot universities are interested in establishing linkages with U.S. universities specialized in these and related fields. This is also a priority area for the Cyprus Hydrocarbons Company (CHC).
Market Entry
To navigate the Cypriot market, companies often work through a local partner. The Embassy’s Political/Economic Section represents the Department of Commerce’s Commercial Service and offers services aimed at assisting U.S. companies wishing to enter the Cyprus market. A detailed description of these services is available here.
Regulations / Registration Process
Domestic and foreign investors may establish any of the following legal entities or businesses in the ROC:
- Companies (private or public)
- General or limited partnerships
- Business/trade name
- European Company (SE), and
- Branches of overseas companies.
The registration process takes approximately two working days and involves completing an application for approval/change of name, followed by the steps outlined here. The Ministry of Energy, Commerce, and Industry’s (MECI’s) One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size. In addition to registering a business, foreign investors, like domestic business owners, are required to obtain all permits that may be necessary under Cypriot law. At a minimum, they must obtain residence and employment permits, register for social insurance, and register with the tax authorities for both income tax and Valued Added Tax (VAT). A municipal license is required before using any building or premises for business, including commerce, industry, or any other income-earning activity. Additionally, town planning or building permits are required for building new offices or converting existing buildings. There are also many sector-specific procedures. Information on all of the above procedures is available online. Additionally, foreign investors can take advantage of the services and expertise of the Cyprus Investment Promotion Agency (CIPA or Invest Cyprus), an agency registered under the companies’ law and funded mainly by the state, dedicated to attracting investment. {Email: info@investcyprus.org.cy}
Technical Barriers & Tariffs
Cyprus has fully adopted the EU’s Common Customs Tariff (CCT) for third countries. EU products enjoy zero tariff rates. The Integrated Tariff of the Community, referred to as TARIC (Tarif Intégré de la Communauté), is the integrated Tariff of the EU and it is a multilingual database in which all measures relating to the EU customs tariff, commercial, and agricultural legislation are integrated. Post recommends exporters review the TARIC for their products to determine if a license is required. For more information, please visit the Cyprus Customs and Excise Department and the European Commission on TARIC. A tariff system based on the Harmonized Commodity Description and Coding System regulates Customs duties. Goods are classified according to their composition, description and purpose, and carry various rates of duty. In addition to tariffs, fuel products are subject to steep excise taxes. Notably, excise taxes apply to the above products regardless of origin (i.e. whether they originate from the EU or not, as well as for products made in Cyprus). Additionally, Cyprus imposes a 19 percent value added tax (VAT) on most goods and services, with certain exceptions. Please visit the Department of Customs website for more.
Procurement & Tenders
For most projects or large-scale purchases, the ROC and other government or semi-government entities, are required to issue a tender or request for proposals following EU procurement regulations. The ROC typically releases tender documents in the Greek language, which is an official EU language. In certain instances, usually for big projects, the ROC issues tender documents in the English language. U.S. companies can bid on any tender either directly or through a local agent. The government posts all tenders on the e-procurement website where prospective bidders can register, acquire tender documents, and submit their proposals. Semi-governmental organizations have their own tender boards and evaluating committees. Under the procurement law, evaluating and awarding tenders is the responsibility of each Ministry’s or state-owned enterprise’s tender board. A Tenders Review Authority (TRA) examines complaints from bidders to ensure the efficiency of procedures in public procurement. Information on upcoming tenders is available through the U.S. Embassy in Nicosia, Political/Economic Section, through Export.Gov, or through the Business Information Database System (BIDS). Ministry technical committees evaluate government tenders. Bids are usually evaluated first on technical merit and then on cost, depending on the value of the project. Bidders on government contracts are advised to offer products/services that meet exact tender specifications. The ROC agreed to abide by the World Trade Organization Government Procurement Agreement by way of its accession to the European Union in 2004.
Getting Paid / Trade Finance
The usual method of payment for business transactions is by letter of credit, with 90-days credit. Credit rating reports are available through various local firms (please reach out to the Political/Economic section for details). Companies like InfoCredit Group Cyprus Ltd. and Rime Information Bureau Ltd. also offer debt collection services. Visa, Mastercard, and American Express credit cards are widely used and accepted. The Cypriot banking system is small and moderately healthy, following significant consolidation after the 2013 financial crisis. Despite the strain on cash flows because of COVID-19’s economic impacts, banks still have sizable cash reserves and are open to sound lending opportunities. Standard banking services in the ROC compare well with other European countries and the United States. The deposit insurance scheme covers up to EUR 100,000 per depositor. The Central Bank of Cyprus supervises private banks and requires them to meet Bank for International Settlements (BIS) standards as well as corresponding directives by the European Union. Bank financial statements are in compliance with international standards and audited by internationally recognized auditors. U.S. Development Finance Corporation (DFC) funding may be available for energy projects in Cyprus.
U.S. Commercial Service Information
The Political/Economic Section of the U.S. Embassy in Cyprus cooperates closely with all energy sector related interlocutors. If you wish to learn more about the sector, or are interested in any of the projects listed above, please contact:
Ephie-Yvonnie Charalambidou
Commercial Specialist
charalambidouey@state.gov
