GOLD Magazine by Kevi Chishios

ISSUE 28 JULY 14 - AUGUST 13, 2013 PRICE €4.95

5 29 129 5 00 057 7

00001 >

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

The Russian Federation has the largest share of the world’s natural gas reserves

THE

$1.6 trillion per year on average – will be

60 tcf of natural gas

Natural gas is primarily used for electricity generation, industrial, residential, and commercial sectors

Natural gas emits up to 60% less CO2 than coal when used for electricity generation

necessary to meet energy demand until 2035

USGS estimates that Cyprus may have up to

Natural gas is affordable, reliable, efﬁcient and available

Cyprus’ block 12 ﬁrst LNG export: Q3/2019

Levant Basin holds close to

3450

bcm of natural gas

25%

of the natural gas arriving in the EU is in liquid form

Worldwide consumption of natural gas

3,222.9 bcm in 2011

All 6 leased blocks in Cyprus EEZ may potentially hold

1,400 bcm of natural gas

Europe is dependent on Russian gas for

Cyprus’ block 12 ﬁrst gas to Cyprus:

35-40% of its energy

Q3/2018

production

+ THANOS DOKOS, GEORGE IOULIANOS, PETER JOHN KUWAIT

Learning from the Kuwaiti experience

INTERVIEWS

John M. Koenig John Mauldin Steve Roberts

SOCCERNOMICS How to Deal with German Champions

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

Our commitment In order to help companies in the oil and gas industry achieve their desired position in an intensely competitive market, KPMG has established an Oil & Gas Group to maximize synergies in our service delivery to the industry. Global presence, local delivery KPMG Cyprus is your point of access to the knowledge and experience we can offer locally and globally. We cooperate closely with our clients in order to maximize benefits.

For more information please contact our offices: NICOSIA: T: +357 22 209 000 E: nicosia@kpmg.com.cy

LIMASSOL: T: +357 25 869 000 E: limassol@kpmg.com.cy

LARNACA: T: +357 24 200 000 E: larnaca@kpmg.com.cy

PARALIMNI: T: +357 23 820 080 E: paralimni@kpmg.com.cy

PAPHOS: T: +357 26 943 050 E: paphos@kpmg.com.cy

POLIS CHR.: T: +357 26 322 098 E: paphos@kpmg.com.cy

Visit our website at: www.kpmg.com.cy or our web tv at: www.kpmgcy.tv

©2013 KPMG Limited, a Cyprus limited liability company and member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. All rights reserved.

Your trusted Advisor in Oil & Gas

Issue 28 July 14 - August 13 2013

6 EDITORIAL 8 UP FRONT 15 FIVE MINUTES WITH…

THE

62 FEATURES

THE DISCOVERY OF NATURAL GAS IN CYPRUS’ OFFSHORE EXCLUSIVE ECONOMIC ZONE MAY HAVE COME TOO LATE TO HELP THE COUNTRY AVOID AN INTERNATIONAL BAILOUT OF ITS ECONOMY AND BANKING SECTOR BUT NO-ONE DOUBTS THAT IT IS SET TO CHANGE THE ISLAND’S FORTUNES. WE PRESENT AN OVERVIEW OF THE CYPRUS ENERGY SECTOR, INCLUDING INTERVIEWS WITH SPECIALISTS AND KEY PLAYERS.

56 | SOCCERNOMICS German teams may be Europe’s football champions but Gabriela Guellil, Germany’s Ambassador to Cyprus, argues that her country cannot dominate Europe in the economic and political arena.

58 | ‘NO-ONE IS PUNISHING CYPRUS’ Austerity is a consequence of the country’s own poor decisions, according to US financial expert John Mauldin.

62 | RESTORING CREDIBILITY The US wants to see Cyprus back on its feet

+ OPINION NO WEAPONS OF MASS DESTRUCTION IN CYPRUS By Costas Markides 60 ON YOUR MARKS By Stavros Papadopoulos

THE LAST WORD By Peter Economides

S PE C I A L A D V E RTI S I NG FE A TURE

ENERGY M

any obser ers belie e that the disco ery of natural gas in yprus’ offshore clusi e co no ic one is the ost significant de elop ent in the island’s year history as an independent country

one that will change not only the econo but yprus’ i portance to the uropean y nion which is looking to reduce its de pendence on ussia for its gas i ports yprus has the potential to beco ea a or energy hub in the region and on the following pages e perts fro a ariety of

fir s in ol ed the pro ision of ser ices to the broader energy sector e press their iews on how the successful e ploitation of the island’s new found resource is likely to affect its future prosperity and how their co panies’ specific e pertise can play a part in the new energy industry

31 SPECIAL 58

and attracting international investors, says US Ambassador John Koenig.

ADVERTISING

FEATURE ENERGY 31 | COMPANIES PROVIDING SERVICES

TO THE ENERGY SECTOR: THE EXPERTS EXPRESS THEIR VIEWS ON THE ISLAND’S NEW-FOUND RESOURCE AND THE FUTURE PROSPECTS FOR CYPRUS AS A REGIONAL ENERGY HUB.

68 | FACING THE FIDUCIARY CHALLENGE Regulating fiduciary providers is only the first step in a long and ongoing process. Interview with George Ioulianos, General Manager of the Cyprus Fiduciary Association.

72 | LEARNING FROM THE KUWAITI EXPERIENCE Kuwait went through Cyprus’ current learning process regarding natural gas exploration and exploitation many years ago, the country’s Ambassador tells Gold.

78 82 82 86

{money} {business} {economy} {lifestyle}

4 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

contents.indd 4

09/07/2013 11:22

E D I TORI A L ISSUE 28 JULY 14 - AUGUST 13, 2013 PRICE €4.95

5 291295 000577

00001 >

Life’s a Gas!

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS Russian Federation has the largest share of the world’s natural gas reserves

THE

$1.6 trillion

60 tcf of natural gas

Natural gas is primarily used for electricity generation, industrial, residential, and commercial sectors

Natural gas emits up to 60% less CO2 than coal when used for electricity generation

per year on average – will be necessary to meet energy demand until 2035

USGS estimates that Cyprus may have up to

Natural gas is affordable, reliable, efﬁcient and available

Cyprus’ block 12 ﬁrst LNG export: Q3/2019

Levant Basin holds close to

3450

bcm of natural gas

ere it not for the truly exciting prospects that the discovery of offshore natural gas reserves has opened up for Cyprus, it would be extremely difficult for most people to be cheerful as we enter the second half of 2013. Three months after “temporary” restrictions were imposed on capital movements, they remain in place; the opposition continues its seemingly never-ending attacks on everything the Government does – this is, of course, what the opposition is supposed to do but its apparent amnesia about how the country got itself into this mess in the first place makes even the most justified of criticism reek of hypocrisy – which only serves to intensify the air of doom and gloom that hangs over our day-to-day existence; and the political parties continue their bickering as usual. So thank heaven for natural gas and the euphoria it has created. Who would have ever imagined that people could get so worked up by a word like “hydrocarbons” which few of us had even heard before 2011? The only dampener on the whole business is the fact that we shall still have to wait for a few more years – possibly until 2020 – before the money comes rolling in. But there can be no doubt that the country is finally going to throw off its “small Cyprus” complex and become a player in the European energy game. As you will see in this month’s cover story (page 16) and in the special advertising supplement that follows (page 31), the experts are talking about a strategic alliance with Israel, about the possibility of a solution to the Cyprus Problem on Cyprus’ terms, and the Minister for Energy reveals that plans have already been drawn up for the establishment of a Sovereign Wealth Fund to manage revenues from the commercial exploitation of the island’s new-found resource. These are still early days but before the end of the year we shall have a clear picture of the minimum amount of gas in offshore Block 12 and a decision will have been taken on the construction of a Liquefied Natural Gas (LNG) terminal which, eventually, may even be used by Israel as well as Cyprus. Of course, it is easy to get carried away by the potential scenarios and it would be wise not to get ahead of ourselves just yet but all the indications are that the country is going to become the recipient of serious income and could undergo a change in status within Europe, if not on an even grander global scale. We would all do well, however, to pay attention to that mysterious phenomenon known as the “Resource Curse” which Jeffrey Sachs and Andrew Warner described in the 1990s and which shows a link between an abundance of natural resources and poor economic growth. One only has to look at most of the world’s oil-producing nations to see this apparent paradox. It is essential that Cyprus does not use its coming wealth in the wrong way and, while it may not feel like it to many people right now, it is perhaps fortunate that we have to wait a few more years until the gas is pumped from the country’s Exclusive Economic Zone. Let the authorities show that they are capable of resolving crises, of behaving responsibly and raising standards to those we like to describe as “European” before the temptation to spend the revenues carelessly becomes too great. The promise of living in a country that has turned itself into a successful regional energy hub is undoubtedly an attractive one but it is of little comfort to those who are experiencing hardship in July 2013. However great the future rewards of natural gas may be, the Government still needs to focus on resolving today’s problems if Cyprus is to be in a position to deal with the change that is surely coming to its economy and society. By the end of the decade, we should all be able to say “Life’s a Gas!” and smile. For the time being, there is still work to be done. But at least we have something to look forward to.

John Vickers, Chief Editor john@imhbusiness.com ISSUE 28 JULY 14 - AUGUST 13, 2013 PRICE €4.95 00001 >

ΜΗΝΙΑΙΑ ΕΚΔΟΣΗ ΓΙΑ THN ΚΥΠΡΙΑΚΗ ΑΓΟΡΑ & ΤΑ ΣΤΕΛΕΧΗ | TEYXOΣ 89 | IOYΛIOΣ 2013

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS Russian Federation has the largest share of the world’s natural gas reserves

THE

$1.6 trillion

USGS estimates that Cyprus may have up to

Natural gas is affordable, reliable, efﬁcient and available

60 tcf of natural gas

Natural gas is primarily used for electricity generation, industrial, residential, and commercial sectors

Natural gas emits up to 60% less CO2 than coal when used for electricity generation

per year on average – will be necessary to meet energy demand until 2035

FREE

Cyprus’ block 12 ﬁrst LNG export: Q3/2019

Levant Basin holds close to

and get an annual subscription for both Gold & IN Business

Call us on (+357) 22505555

OFFER INCLUDES

5 291 295 000 577

Subscribe today for just €90

25%

of the natural gas arriving in the EU is in liquid form

3450

bcm of natural gas

25%

of the natural gas arriving in the EU is in liquid form

Worldwide consumption of natural gas

3222.9 bcm in 2011

Europe is dependent on Russian gas for

All 6 leased blocks in Cyprus EEZ may potentially hold

1400 bcm

Learning from the Kuwaiti experience

INTERVIEWS

Q3/2018

production

John M. Koenig John Mauldin Steve Roberts

SOCCERNOMICS How to Deal with German Champions

Cyprus’ block 12 ﬁrst gas to Cyprus:

35-40% of its energy

of natural gas

+ THANOS DOKOS, GEORGE IOULIANOS, PETER JOHN KUWAIT

Οι ελπίδες της Κύπρου για ανάκαμψη στρέφονται πάλι στο γηρασμένο, κατά τα άλλα, τουριστικό προϊόν της, το οποίο χρήζει ανανέωσης επειγόντως…

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

TΙΜΗ €4.95 | ΣΕ Ε ΕΙΔΙΚΗ ΤΙΜΗ €3.40 ΓΙΑ ΤHN KYΡIAKH 7/7/13 ΜΑΖΙΙ ΜΕΡΙΝΗ ΜΕ ΤΗΝ ΕΦΗΜΕΡΙΔΑ ΣΗΜΕΡΙΝΗ

www.inbusinessnews.com

ACCESS TO DIGITAL EDITIONS

Worldwide consumption of natural gas

All 6 leased blocks in Cyprus EEZ may potentially hold

3222.9 bcm in 2011

1400 bcm of natural gas

Europe is dependent on Russian gas for

Cyprus’ block 12 ﬁrst gas to Cyprus:

35-40% of its energy

Q3/2018

production

+ THANOS DOKOS, GEORGE IOULIANOS, PETER JOHN KUWAIT

Learning from the Kuwaiti experience

INTERVIEWS

John M. Koenig John Mauldin Steve Roberts

SOCCERNOMICS How to Deal with German Champions

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

PUBLISHED BY IMH ISSN 1986 - 3543

MANAGING DIRECTOR

George Michail GENERAL MANAGER

Daphne Roditou Tang MEDIA MANAGER

Elena Leontiou EDITOR-IN-CHIEF

John Vickers SENIOR EDITOR

Kyproula Papachristodoulou CONTRIBUTORS TO THIS ISSUE

Gabriela Guellil, Costas Markides, Stelios Papadopoulos, George Theocharides, Spyros Yiassemides ART DIRECTION

Anna Theodosiou SENIOR DESIGNER

Alexia Petrou PHOTOGRAPHY

Jo Michaelides and Philippos Christou MARKETING EXECUTIVE

Kevi Chishios SALES & BUSINESS DEVELOPMENT EXECUTIVE

Phivos Karayiannis ADVERTISING EXECUTIVES

Irene Georgiou, Christopher Constantinou OPERATIONS MANAGER

Voulla Nicolaou SUBSCRIPTIONS

Kevi Chishios PRINTERS

Cassoulides Masterprinters CONTACT 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus Mailing address: P.O.Box 21185, 1503, Nicosia, Cyprus Tel: +357 22505555, Fax: +357 22679820 e-mail: gold@imh.com.cy website: www.goldmagazine.com.cy subscriptions: goldsubscriptions@imh.com.cy

6 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

editorialGOLDnew.indd 6

09/07/2013 10:54

www.pwc.com.cy

Focus on tomorrow, starting today

We listen. We learn what you want to do and we help you create the value you are looking for. Value that is based on the knowledge that our almost 1.000 local professionals draw from 180.000 experts in 158 countries. We focus on the provision of Assurance, Advisory, Tax and Global Compliance Services.

UP FRONT

George Osborne

JAIL RECKLESS BANKERS, URGES UK STANDARDS COMMISSION

enior bankers guilty of reckless misconduct should be jailed, a longawaited report on banking commissioned by the British government has recommended. The Parliamentary Commission on Banking Standards was set up by Chancellor George Osborne last year after a number of scandals involving the industry. The cross-party group’s fifth report attacked the lack of accountability of

bankers and also said some bonuses should be withheld for up to 10 years. The report advocates that: • Senior bankers should be assigned clear personal responsibilities, with the legal onus on them to show they have done all that is reasonably required. • Recklessly disregarding these responsibilities should be made a criminal offence, including a possible prison sentence. • Bonus payments to bankers

should be deferred for up to 10 years, with the ultimate payout linked to the long-term performance of the bank and of the employee’s particular business area. • Deferred pay and pension rights should also be cancellable if a banker misbehaves or – in the case of senior managers – if the bank has to be bailed out. • Banks should be legally required to put financial safety ahead of shareholder interests.

FLIGHT TRACKER MESSAGE SERVICE FROM HERMES AIRPORTS

ermes Airports has introduced a new flight information text message service. By texting the flight code to 99778833, you will receive an immediate update regarding the status of the flight. Furthermore, by adding a question mark after the flight code (e.g. AA 123?), callers will continue to receive information regarding the flight, with updates on all phases, such as the start of the check-in process, the start of boarding, delays, and departure/arrival of the flight. The

Flight Tracker is an automated service. Anyone wishing to speak to a Customer Service operator should contact the Call Centre on the islandwide number 77778833.

G PUBLIC MOMENTUM

GROWING FOR BETTER

ACCOUNTING

PwC surveys central governments in 100 countries

overnments around the world are increasingly taking steps to improve their accounting and achieve greater transparency, amidst growing recognition that the accounting framework traditionally used by the public sector isn’t fit for the 21st century. A PwC survey covering 100 countries reveals that while only 24% of governments currently use ‘accrual accounting’, 37% plan to move to this form of accounting in the next five years, bringing the total adoption rate to 63% of governments surveyed and

representing an increase of 142%. The majority of governments today still rely on ‘cash accounting’, which has been the primary method used by the public sector for many years. This form of accounting – which is based on cash payments and receipts being recorded as they occur – fails to capture information on public sector assets and liabilities and therefore presents a very short-term view of public finances. Jan Sturesson, PwC Global leader, Government and Public Services, says: “It is important that governments, which regulate accounting in the private sector, lead by example and have

On Your Bike!

orexTime Ltd (FXTM) has renewed its advertising agreement with Nextbike Cyprus, the public bike-sharing scheme that has been successfully offering a new transport system to residents of Limassol and visitors to the town. The Nextbike scheme encourages the public to use bicycles as an environmentally- friendly means to commute across town and it is integrated with an extensive cycle lane network that has significantly contributed towards a healthier and more active lifestyle for those who choose to use it. All 172 bikes of the scheme and 14 payment stations are now branded with ForexTime’s distinctive orange and green logo. The payment stations also feature catchy slogans such as “Time is Money… Spend It Well!” and “Time Flies When You’re Having Fun”, which represent FXTM’s philosophy that time is precious and are in line with its innovative trading solutions that allow clients more time for the fun things in life – including a bicycle ride. FXTM is already known for its positive contribution to the local community, particularly in ways which benefit people’s wellbeing and raise living standards.

CORRECTION In last month’s Top 50 Accounting, Audit & Tax Advisory Firms in Cyprus feature, the number of employees at the No. 1 firm (PwC) was wrongly stated as 840. The correct figure is 903.

a high standard in their accounting system. This is not the situation today, but we see great interest in seeking improvement.” In accrual accounting, transactions and economic events are recorded and reported when they happen, regardless of when cash transactions occur – resulting in a comprehensive view of a government’s assets and liabilities, and of its financial performance and cashflows. IPSAS (International Public Sector Accounting Standards) are often taken as a reference point. The research shows that the biggest shift to accrual accounting is expected in developing countries.

Among the non-OECD countries surveyed, 50% plan to transition to this form of accounting in the next five years, with Africa leading the way (11 shifting countries), followed by Asia (10 countries) and Latin America (8 countries). When asked to state the main beneficiaries of accounting reforms, the governments surveyed primarily listed citizens (77%) and politicians (69%). The report Towards a new era in government accounting and reporting is available to download at pwc government-accounting-andreporting-survey .

8 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

up_front.indd 8

09/07/2013 17:27

UP FRONT

SWISS ‘NO’ TO BANK SECRECY BILL

banks had helped American account holders to evade taxes. The US had demanded action by 1 July, but the Swiss parliament summer session ended last month. The bill will now return to the Senate. The lower house decided by 126 votes to 67 not to discuss the bill. A second rejection by the lower house would effeche lower house of Switzertively kill the draft law. land’s parliament has refused The Senate only reluctantly to debate a bill that would approved the bill after it beallow Swiss banks to pass cli- came clear that the US would ent information to the US tax indict Swiss banks and possiauthorities. bly even cut them off from the The bill was the result of dollar market if it did not go pressure from the US folthrough. The bill would allow lowing revelations that Swiss Swiss banks to sidestep strict

secrecy laws and release information relating to clients’ accounts. In January, Switzerland’s oldest private bank, Wegelin, closed after being indicted and fined $58m by the US authorities after admitting in court to helping American customers to hide more than $1.2 billion from the Internal Revenue Service. In 2009, Swiss bank UBS paid $780 million and handed over details of more than 4,000 accounts in order to avoid indictment. Switzerland has also come under pressure from the EU over the issue.

CHINESE BANK

TOPS WORLD BANKS RANKING

or the first time, a Chinese bank has come top in the 2013 list of the Top 1000 World Banks compiled by The Banker magazine. ICBC (Industrial and Commercial Bank of China) has moved from third to first place on the back of a 15% increase in capital. Last year’s winner, Bank of America, fell back to third while JP Morgan stayed second. ICBC’s stellar performance marks a new high in the growing strength of Chinese banks. China’s second largest bank China Construction Bank (CCB) also grew its

capital by 15% and dislodged Citigroup from fifth place. The UK’s only bank in the top 10 is fourth-placed HSBC, which gains significant earnings from its Asian operations. China now has 96 banks in the Top 1000 ranking and holds four places in the Top 10. Its big four banks ICBC, CCB, Bank of China and Agricultural Bank of China head the table for the largest profits. Brian Caplen, editor of The Banker, says: “For several years now European and American banks have been stagnant and shrinking while

Chinese banks have been expanding in line with the growth in the Chinese economy. On most measures they now score as well or better than Western banks but their big test will be how they cope as China’s growth slows over the next few years.” Though European banks continue to perform badly, one of the best European performers is Turkey where the banks grew profits by 37%. Spanish banks together lost $73bn accounting for nearly 5% of GDP. In a table of the 10 largest losses, six of the banks are Spanish.

TOP 10 GLOBAL BANKS BANK 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

ICBC JPMorgan Chase & Co Bank of America HSBC Holdings CCB Citigroup Mitsubishi UFJ Wells Fargo & Co Bank of China Agricultural Bank of China

COUNTRY CHINA US US UK CHINA US JAPAN US CHINA CHINA

TIER 1 CAPITAL $M 160,646 160,002 155,461 151,048 137,600 136,532 129,576 126,607 121,504 111,493

Bob Geldof Condemns the Fund Industry

ock star, political activist and private equity investor Bob Geldof has condemned the global funds industry for its lack of innovative thinking and failure to invest in Africa. He described the funds industry as “criminally non-innovative,” saying that “Fund managers are actually paid to invest money according to their principles, so how can they justify ignoring one billion people in the world’s fastest-growing markets?” He accused them of being willing to go “through endless hardship to get to Asia,” adding that investors who looked to China rather than Africa were missing out on “massive returns”. Geldof has backed 8 Miles – a fund named after the distance between the Africa and the most southern tip of Europe – that raised $200m last year to invest across the continent. The fund also was backed by the former UN SecretaryGeneral Kofi Annan and sponsored by CLSA, the investment bank. The UK development institution CDC invested $50m in the fund. In response, Peter De Proft, DirectorGeneral of the European Fund and Asset Management Association, said the industry would need to see some stability before investing in Africa but he acknowledged. “It is a whole continent with an important future. We have a moral obligation as a fund industry to look at this,” he added. Geldof’s commitment to Africa dates back to 1984 when he co-wrote the fundraising song Do They Know It’s Christmas? and later raised an estimated £150 million for famine relief via the Live Aid concerts.

10 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

up_front.indd 10

09/07/2013 10:43

CHRISTOS THE FIRST NAME IN ETHICS

We are a global, independent provider of trust, fund and corporate administration services. We are committed to helping our clients protect, nurture and grow their wealth. Above all, we are a people business. To find out more about our services and to get to know us better, visit www.firstnames.com

UP FRONT

THE MOST

COSTLY BREAKUPS

RUPERT & ANNA MURDOCH SETTLEME T AMO T

ILLIO

The most expensive divorce to date occurred between media mogul Murdoch and his former wife, Anna. After a marriage of 32 years and three children together, the couple split up in 1999. Under the settlement, $1.7 billion (including $110 million in cash) went to Anna.

BERNIE & SLAVICA ECCLESTONE SETTLEME T AMO T ILLIO ILLIO

When a marriage goes sour and the couple’s net worth is in the stratosphere, divorce becomes increasingly more complicated. The absence of an official prenuptial agreement, differences in international law and circumstances surrounding of the breakup can result in large sums being paid out in the divorce settlement. In June, Rupert Murdoch announced the end of his marriage with his wife of 14 years, Wendi Deng. Sources close to the situation say that the couple did sign a prenuptial agreement, which will limit the amount of compensation she will receive. It was a wise move, considering that Murdoch’s divorce with second wife Anna is currently the most expensive in history. So, what are the biggest divorce settlements and who has paid the most? Here are the top 10, according to CNBC.

The 2009 divorce was thought to be the most expensive in history at the time with a $4 billion figure being quoted. However, the final settlement is estimated to be in the range of $1-1.2 billion. Slavica, a former Armani model, is now estimated to be worth $1.16 billion.

STEVE & ELAINE WYNN

SETTLEME T AMO T

MILLIO

In March 2010, casino mogul Steve Wynn divorced his wife Elaine (for the second time) and had to pay an estimated $741 million in Wynn Resorts stock. Her holdings in the company are currently valued at $1.2 billion, so her strategy of holding the stock after the divorce has certainly paid off.

ADNAN & SORAYA KHASHOGGI SETTLEME T AMO T

MILLIO

Saudi billionaire entrepreneur and arms dealer Adnan Khashoggi and his wife Soraya filed for divorce in 1974 but it took until 1979 for her to sue her ex-husband for the right to cash in the wake of their breakup. In 1982, the couple agreed to a settlement that landed Soraya $874 million.

ROBERT & SHEILA JOHNSON SETTLEME T AMO T MILLIO

When America’s first African-American billionaire, Robert Johnson, and his wife Sheila split up in 2000 after 30 years of marriage, she received an estimated $400 million in the settlement. In 2005, she married William T. Newman Jr., the judge who presided over her divorce case.

MEL & ROBYN GIBSON SETTLEME T AMO T

MILLIO

In the biggest celebrity divorce of all-time, Mel Gibson reportedly handed over half of his $850 million fortune when he split with Robyn, his wife of 31 years. Robyn was entitled to not only half of Mel’s wealth, but also any future residuals from his films. The couple did not have a prenuptial agreement.

ROMAN & IRINA ABRAMOVICH

12 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

up_front.indd 12

SETTLEME T AMO T MILLIO

Roman Abramovich’s split with wife Irina ended up costing the Russian billionaire “only” $300 million. At the time (2007) it was speculated that Irina could be awarded up to half of her former husband’s $18.7 billion net worth. Instead, she was awarded less than 2% of his fortune.

5 CRAIG & WENDY MCCAW SETTLEME T AMO T

MILLIO

The founder of McCaw Cellular, Craig McCaw and wife Wendy split up in 1998, a few years after selling the company to AT&T for $11 billion-$12 billion. The settlement gave Wendy $460 million, which put her on the Forbes list of the 400 richest Americans for a while.

ARNOLD SCHWARZENEGGER & MARIA SHRIVER SETTLEME T AMO T MILLIO

When movie star and former California Governor Arnold Schwarzenegger and his wife of 25 years, Maria Shriver, split up in 2011, he was required under California law to hand over half of his wealth, placing the settlement between $250 million and $375 million.

MICHAEL & MAYA POLSKY

SETTLEME T AMO T MILLIO

In 2003, Maya Polsky, wife of Michael Polsky, filed for divorce and wound up settling for $184 million. Polsky, the founder, president and CEO of Invenergy LLC, had an estimated $368 million in cash and assets with his wife prior to the divorce, and she got half.

09/07/2013 10:44

I N TERVI EW

five minutes with...

Prof. Peter John

Vice Chancellor, University of West London

ow important is professional learning for businesses in today’s world? It’s absolutely central. Unless business leaders and all professionals continually upgrade their knowledge and skills, they will be left behind in a very competitive world. How can businesses incorporate professional learning in their practices in an environment where liquidity is scarce and budgets are tight? Where there is a will there must be a way – that is my motto! I accept that budgets are tight and staff development is the first area to be cut but there are ways – imaginative ways – forward: use in-house skills and experience to develop packages; use IT to improve engagement at a lower cost; join with others to bring volume and cost effectiveness to the activity. The financial crisis in Cyprus has highlighted the need for a change in educational trends and skills as the island is forced to alter its economic model. What policies should be followed by the state and by universities to channel young graduates into education programmes that will give them real future employment prospects?

End any divide you have between academic and vocational. Also, don’t squander resources trying to get young people to follow the wrong educational route. Embed work placements in all courses so that employers have new skills to work with and play a role in the development of young people. It is also cost-effective. Finally, improve flexibility at work and allow those with talent to experiment. Do you see a prosperous future for professional degrees? Yes, absolutely. What is the role and contribution of universities to the economy and society? They are central to economic growth. In the UK they contribute nearly £50billion annually and, through research, knowledge transfer and spin-outs, companies make a massive contribution to the growth agenda. The University of West London contributes nearly £60 million to the local economy in one small part of the West London alone! Given today’s high unemployment levels, particularly in the eurozone, isn’t there a danger that many young people may believe that, after spending three years at University, they will still end up without a job?

Of course there is always a risk but, as Bill Clinton said, “The more you learn, the more you learn!” All the data across the OECD shows that the graduate premium will always pay dividends in the long term and although graduate jobs are in short supply, the possession of a degree will create better career opportunities, regardless of the economic situation. Finally, taking a degree is about more than a cost-benefit economic analysis; it is also about changing thoughts, transforming attitudes and being educated. Today’s employers are demanding evergreater qualifications from their staff. How have things changed since you began your academic career? In the late 1970s, having a university degree meant that you inhabited an elite group of 10% of the population. Having a higher degree made it even more narrow so the pressure to up-skill and gain further qualifications was less intense. However, in medicine and law, for example, it was regarded as de rigeur to continue to gain higher qualifications, and it still is. Now, of course, we have more academic drift where the demand for more and more relevant qualifications seems to be insatiable. Finding the right course and the appropriate qualification is vital.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

five_min_prof.john.indd 13

Gold 13

09/07/2013 11:20

CIPA International Investment

Awards 2013

he ceremony for the 2nd CIPA International Investment Awards, presented by Gold magazine, will be held on Tuesday, 10 September, 2013 at the Presidential Palace, Nicosia. The annual awards from the Cyprus Investment Promotion Agency pay tribute and say ‘thank you’ to some of the companies and individuals who, thanks to their investment, have helped Cyprus gain a reputation as a leading regional centre for international and professional services. The awards recognize companies that have created a value added element to the economy of Cyprus by establishing operations and providing employment opportunities here; firms providing services to international investors and helping to attract foreign investment to Cyprus; and individuals

who have made a significant contribution to the professional services sector which continues to grow in importance. The Presidential Palace was the venue for the first CIPA International Investment Awards ceremony presented by Gold on 19 November, 2012. It followed a lavish Gala Dinner, during which the Greek all-female electric string quartet Fortissimo performed their special blend of classical and rock music for some 250 invited guests including politicians, business leaders, foreign investors, professional service providers (lawyers, accountants, fiduciary service providers, bankers, etc.) and others. Ten awards were presented, of which three were Special Awards. The seven CIPA International Investment Awards went to companies that have been active in Cyprus from as far back as 1955, as in the case of NCR (Cyprus) Ltd, and as recently as 2010, which is when Lidl Cyprus opened

its first stores. The recipients of the inaugural CIPA International Investment Awards are Alfa Capital Holdings (Cyprus) Ltd, Bernhard Schulte Shipmanagement (Cyprus) Ltd, Columbia Shipmanagement Ltd, H.M. Housemarket (Cyprus) Ltd [responsible for IKEA in Cyprus], Laureate International Universities, Lidl Cyprus, and NCR (Cyprus) Ltd. The first of the Special Awards was presented to John Tomich, Country Manager Cyprus of Noble Energy Inc. Before handing over the award, Christodoulos Angastiniotis, said although until 2011, few people in Cyprus had ever heard of the company, there is probably not a single person on the island who is not familiar with the name Noble Energy which, thanks to its drilling in Cyprus’ Exclusive Economic Zone, has literally changed the country’s economic prospects in a big way. “Because of the impact that Noble Energy has had on

14 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

CIPA AWARDS.indd 14

09/07/2013 17:37

Cyprus and its future prospects, the Cyprus Investment Promotion Agency decided that on an evening of awards that are a tribute and a ‘thank you’ to those who have made a difference to Cyprus thanks to their investment, it would be a major omission if a special award were not given to the company in recognition of everything it has accomplished here”. The second Special Award was given in recognition of the biggest single investment to have been made in Cyprus during 2012, worth €300 million for the construction of an oil storage terminal that is expected to make the country an oil products trading hub. The investor, VTTI, is one of

the world’s fastest-growing energy storage businesses and, through its subsidiary, VTT Vasiliko Ltd, it is working on a major project that is expected to bring significant economic benefits to the country. The only individual to be honoured with a CIPA International Investment Award was Michael H. Zampelas who, together with his associates, established the accounting and consulting firm Coopers & Lybrand in Cyprus and Athens in 1972. Zampelas served the firm as its Chairman and Chief Executive Officer from its establishment until 2001 and as non-Executive Chairman from 2002 until 2005. As a result of a merger with Price Waterhouse in

1998, the firm is now known as PricewaterhouseCoopers (PwC). During the awards ceremony, internationally famous brand strategist and permanent Gold contributor Peter Economides gave a fascinating and enjoyable presentation entitled “Living in a World of Multiple Choice” which, among other things, touched on why and how the most successful brands in the world become so. As this issue of Gold went to print, members of the special CIPA/Gold committee were voting for the recipients of this year’s CIPA International Investment Awards. The winners’ names will not be made public until the night of the actual ceremony.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

CIPA AWARDS.indd 15

Gold 15

09/07/2013 17:39

COVER STORY

FUTURE Demand for Natural Gas is set to grow faster than any other major fuel source and it will be the No. 1 source of electricity generation by 2040. Cyprus is due to play a small but significant role in adopting the environmentally-friendly fuel, both for its own electricity generation needs and as a lucrative export that will bring enormous revenues to the island.

ur world runs on energy – it’s fundamental to our way of life and growing our economy. Energy is essential for everything from fuelling our cars to heating and cooling our homes to powering the appliances we depend on daily. But the world is changing. An expanding population, economic growth, new technology

development and changes in the nature and scope of regulations are all transforming the energy landscape. We are becoming more energy-efficient and moving to cleaner fuels. At the same time, modern technology is developing new resources and making energy more affordable, while creating new jobs and expanding trade around the world. The world’s energy supplies have changed throughout history, with the most dramatic changes occurring in the past 50 to 60 years, as advances in productivity and a dramatic evolution of technol-

16 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

ogy have enabled higher living standards and created better lifestyles for people. A recently-published 2013 forecast by ExxonMobil provides an informed view of what the world’s energy future will look like by 2040. Today, the world consumes about 25 times the amount of energy used 200 years ago. A diverse supply mix helps ensure that more people around the world have access to energy that is reliable, affordable, convenient and clean. The rapid rise of oil use from 1900 to 1950 fuelled the growth of modern transport and dramatic gains in intra- and

s e m u s n o c ld r o w e Today, th t n u o m a e h t s e im t 5 about 2 o g a s r a e y 0 0 2 d e of energy us inter-regional trade. Today, natural gas is poised to surge and Renewable Energy Sources (RES) are gaining prominence in many countries. With advances in technology over the past decade, from computers to smartphones, it’s easy to think that the fuel powering these advances might change just as quickly. That is not the case. Developing new energy sources and scaling them up to make an impact takes time and resources. It took 100 years from the first oil well discovery until oil became the No. 1 source of energy in the world. The International Energy Agency estimates that an unprecedented level of investment – an estimated $1.6 trillion per year on average – will be necessary to meet energy demand until 2035. The evolution of energy, technology and the human progress it enables will continue. Ultimately, what types of fuel and how energy will be used will depend on actions taken by consumers, suppliers and policymakers.

ELECTRICITY

A little over a century ago, electricity use was a novelty. Today, it is a basic necessity in the lives of most people (although, even now, around 1.3 billion people don’t have access to electricity, according to the International Energy Agency). Total industrial energy use is set to grow by around 30% by 2040. About 40% of industrial demand growth is driven by electricity, and it accounts for about 90% of the growth in residential/commercial demand.

LOOKING AHEAD

• The world’s population will rise by more than 25% from 2010 to 2040, reaching nearly 9 billion. An additional 2 billion people worldwide by 2040 means growing mobility requirements, rising electricity needs for homes and other buildings, and increasing energy supplies to

Energy demand by sector

50%

Quadrillion BTUs 300

Electricity Generation

Energy for electricity generation grows by 50 percent from 2010 to 2040, driven by electricity demand in the other three sectors.

Industrial 250

200

Transportation

Residential/Commercial

150

Electricity demand 100

2010

2025

2040

2010

2025

2040

Think of all the appliances and electronics we depend on every day for work, recreation and basic comfort. Computers, smartphones, air conditioning, microwaves, washing machines – these things all depend on electricity to work. And as the number of homes and businesses across the world grows, so does the need for power. By 2040, fuel for electricity generation will account for about 55% of demand-related energy growth. The fuels we use to power our world are also changing, with natural gas emerging as the No. 1 source of electricity generation by 2040. Today, the OECD and non-OECD

power industry. • 75% of the world’s population will reside in Asia Pacific and Africa by 2040. India will have the largest population, post-2030. • The global economy is expected to grow at an annual average rate of 2.8% until 2040. Economic growth and the improved living stan-

dards it enables will require more energy. • In 2040, global energy demand will be approximately 700 quadrillion BTUs, or about 35% greater than in 2010. • While energy demand in the OECD countries will remain ﬂat to 2040, economic output will increase by 80%.

2010

2025

2040

2010

2025

2040

countries consume approximately the same levels of electricity but that relationship will change significantly as non-OECD electricity demand surges by 150% by 2040. In China, electricity demand will more than double and in India it will more than quadruple by 2040. Africa will also experience rapid growth in electricity use, with a 335% increase in demand. The OECD countries will see demand rise by about 25% while the US will see the largest increase in demand, representing close to 50% of the growth in OECD electricity use. One of the emerging drivers of demand globally relates to digital warehouses. The New York Times reports that on a worldwide basis, these data facilities use about 30 billion watts of electricity, roughly equivalent to the output of 30 nuclear power plants. Data centres in the United States are estimated to account for one-quarter to one-third of that load.

NATURAL GAS

With global energy demand increasing around 35% by 2040, a diverse, reliable and affordable fuel mix will be needed to provide the energy that enables economic

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 17

d l r o w r u o r e w o p o t e s u e w s s l a e g u l f a r u t The a n h t i w , g n f i o g n e a c r h u c o e s ar 1 . o N e h t s a g 0 n i 4 g 0 r 2 e y m b e n o i t a r e n e g y electricit

COVER STORY

growth and societal advancements. As our world changes – with improved living standards, more fuel-efficient vehicles and modern appliances and buildings, as well as increased limitations on greenhouse gas emissions – some important changes will occur in the makeup of our energy supply. Oil will remain the largest single source of energy, growing by around 25%, but the most significant shift in the energy mix will be the replacement of coal by natural gas as the second-largest fuel by 2025. Gas will grow faster than any other major fuel source, with demand up 65% by 2040. Oil and gas will supply about 60% of global energy demand in 2040. Natural gas, which emits up to 60% less CO2 than coal when used for electricity generation, will gain the most. By 2040, natural gas will account for 30% of global electricity generation, compared to just over 20% today. By 2025, natural gas will have overtaken coal as the second most consumed fuel, after oil. The shift toward natural gas will carry tremendous benefits for consumers and the environment. Natural gas is affordable, reliable, efficient and available. Global gas supply is expected to increase by 65% over the next three decades, with 20% of production occurring in North America. Globally, about 60% of the growth in natural gas comes from unconventional resources, which approach one-third of the global gas supply by 2040. Shale gas comprises the largest component of unconventional resources, but it also includes coal bed methane and tight gas. The International Energy Agency estimates there is about 28,000 trillion cubic feet (TCF) of remaining natural gas resources across the globe. Experts believe this is enough natural gas to meet current demand levels for more than 200 years.

Fuel into electricity generation

Growth in fuels for electricity generation

Quadrillion BTUs

Quadrillion BTUs 75

300

Non OECD Renewables

250

Nuclear 200

150

Renewables

Nuclear

15 0% By 2040 , nuclear and natural gas power generation in Non OECD countries is expected to increase by more than 150 percent.

Gas Coal OECD 100

Gas

Coal

Oil

Oil 2000

2020

2040

–15

2010-2025

2025-2040

RENEWABLE fuel inputs for electricity ENERGY generation by SOURCES

2010-2025

2025-2040

wind-powered energy will grow sevenfold by 2040. Wind Renewable 2040, it will only and solar energy account for about Energy comprise an Sources (RES), 7% of global particularly wind important and electricity supply. growing part of Likewise, solar and solar, are the global energy power generation already playing mix and have a bigger role is expected to an important worldwide but increase by more role to play in gas will see than 20 times but meeting energy will only account strong growth, needs. However, for about 2% of increasing ExxonMobil by 85% and global electricity predicts that approaching supply in 27 even though one-third of years’ time.

18 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

CHANGING THE CYPRUS ECONOMY With the correct planning and exploitation, natural gas could alter the island’s fortunes for generations to come. By Kyproula Papachristodoulou

or centuries, natural gas has been Cyprus’ hidden treasure but it is about to play a prominent role in the international debate on how the world will satisfy its increasing – and environmentally ever more demanding – energy needs in the future. The International Energy Agency foresees that the global use of gas will rise by more than 50% from its 2010 levels and will account for more than onequarter of global energy demand by 2035. As the future becomes more challenging, Europe is redesigning its energy policy to secure, among other equally important objectives, the supply of natural gas from multiple sources, which it considers vital for the development of European society, and a reduction in its dependence on Russia, which currently supplies over 30% of the continent’s annual needs. After years of rumours about the possible existence of natural gas reserves in Cyprus’s Exclusive Economic Zone (EEZ), it has finally been verified that natural gas has the potential to be a major source of income for the island in the medium to long term. The discovery of an estimated 5-8 trillion cubic feet (tcf) of natural gas in the Aphrodite gas field in Cypriot waters, worth around $80 billion at current prices, was announced by Noble Energy Inc. in December 2011. Based on the available data, all six leased blocks in Cyprus' EEZ may potentially hold 40 tcf of natural gas. The USGS (United States Geological Survey) estimates

that Cyprus may have up to 60 tcf. Amidst a very negative economic environment, Cyprus initiated a second licensing round in February 2012. After scrutinizing a total of 33 applications from 15 different applicants, it was decided to award four licences for Blocks 2, 3, 9 and 11: to a consortium made up of Eni (Italy) and KOGAS (South Korea) for Blocks 2, 3 & 9 and to Total (France) for Blocks 10 and 11. All the exploration licences were signed in early

2013 and are valid for three years, with an option for two renewals of two years each. Eni/KOGAS will commence geophysical surveys in the third and fourth quarter of 2013 and exploratory wells in 2014. They have already paid €150 million in license agreements for the three offshore blocks 2, 3 and 9. Total paid €24 million for its licenses in February and also plans to commence geophysical surveys in the third and fourth quarter of 2013 with exploratory wells in 2014 and 2015.

nsees e c i l n o i t a t i o Expl rus offshore Cyp

Cyprus 3 2 BLOCKS 2, 3, 9

1 4

Eni [80%] Kogas [20%]

13 BLOCK 12

BLOCKS 10,11

Noble Energy [70%] Delek Drilling [15%] Avner Oil Exploration [15%]

Total [100%]

The natural gas discoveries are expected to have a major economic impact on Cyprus

CYPRUS NATURAL GAS TIMELINE 20TH CENTURY DEVELOPMENTS 1938-1948: The Iraq Petroleum Company Ltd carries out surveys in Cyprus. 1949-1970: Onshore exploration

by local companies takes place at Moni, Tseri, Archangelos and Lefkoniko. 1970-1974: Delta Exploration Inc. carries out the ﬁrst seismic surveys

in water up to 200m depth. 1975: Sefel Geophysical Ltd acquires seismic surveys in the Eastern Mediterranean covering Cypriot waters.

1985-1987: The Soviet Academy of Scientists issues the results of a study indicating a moderate potential for hydrocarbons discovery offshore Cyprus.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 19

s t i r o f y d a e r e b l l i w s d u r i r h p t y e C h t n i s t r o p x e G N first L 9 1 0 2 f o r quarte COVER STORY

NATURAL GAS: FACTS AND FIGURES AFTER STRONG GROWTH IN 2010, PROVEN NATU-

On 7 June, 2013, Noble Energy began drilling a second appraisal well in Block 12. It is estimated that drilling will take approximately three months to reach a total depth of about 5,600 metres and the results will help Noble confirm the estimated resource size and provide the information required to initiate planning of subsequent stages of development. The results of the appraisal well will be announced around three months after the completion of the drilling. The natural gas discoveries are expected to have a major economic impact on Cyprus and, given the extremely adverse economic conditions prevailing on the island, the State wants the drilling, extraction and exploitation of the gas to be completed as soon as possible. The country aspires to become a regional natural gas hub, an ambition based not only on its finds but

GAS FINANCIALLY PROMISING… BUT NOT YET

Cyprus views developments in the Eastern Mediterranean hydrocarbons area as promising since new prospects are being created for the wider region. Existing and expected future gas discoveries (including those of Israel, Lebanon and possibly Egypt) envisage the transformation of the region into a potential gas export hub and are expected to contribute to the diversification of Europe’s supply sources and routes as well as to the enhancement

also on the prospects that will be created by the construction of a land-based LNG (Liquefied Natural Gas) terminal in the Vasilikos area of Limassol. Before the final decision for the construction of the LNG plant was taken in June 2012 by the previous government and reconfirmed by the current government a year later, the country had been considering various other options for the exploitation of its natural gas resources. Among them were the construction of a submarine pipeline that would export the gas to Crete (this idea is still under consideration as a parallel to the LNG plant) and thereafter to Southern Greece before connecting with the pipelines envisaged for the Southern Corridor, most notably the Trans-Adriatic Pipeline (TAP), and the creation of a floating LNG station. Another option considered the construc-

of EU energy security. For Cyprus – with its present economic difficulties – the discovery and, more importantly, the exploitation of its natural gas resources are a godsend, even though the benefits will not be immediate. The country is now undergoing serious financial and economic problems and any benefit resulting from the exploitation of natural gas will come after the end of the Troika’s programme and thus only when the country has met its painful fiscal targets and reclaimed its lost position in the international

finance markets. It is true that preparations for the exploitation of natural gas will result in some earlier indirect benefits through the boosting of local industries and the creation of new employment opportunities. However, direct fiscal benefits from natural gas exports and the indirect effect on the economy through growth will be delayed. The same goes for the reduction in the cost of energy which will come through the use of natural gas for electricity generation instead of imported oil.

RAL GAS RESERVES REACHED THE RECORD LEVEL OF APPROXIMATELY 200 TRILLION CUBIC METRES (TCM) AS OF JANUARY 2012. THE BIGGEST RESERVES ADDITIONS WERE RECORDED IN RUSSIA (+2.6 TCM), IN IRAN (+530 BCM) AND IN THE US (+290 BCM) THANKS TO SUSTAINED SHALE GAS EXPANSION.

Proven Natural Gas Reserves*

• The Russian Federation has the largest share of the world’s proven natural gas reserves. The Federation’s reserves amount to 44.6 tcm (trillion cubic metres), representing 21.4% of the total world reserves. • The second largest holder of natural gas is Iran with proven reserves of 33.1 tcm, equal to 15.9% of the world total. • Qatar’s reserves of natural gas amount to 25 tcm, or 12% of the world total and third largest in the world. • Turkmenistan is the fourth biggest holder of natural gas reserves with 24.3 tcm, (11.7% of the world total). • The US has proven reserves of 8.5 tcm (4.1% of the total). • The Middle East area - notably Bahrain, Iran, Kuwait, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen – is the area with the largest natural gas reserves in the world. • Cyprus is not yet on the world natural gas map as its reserves have still to be proven. World proven natural gas reserves at the end of 2011 were sufficient to meet 63.6 years of production. • A large increase in Turkmen reserves pushed the Reserves-to-production (R/P) ratios for Europe and Eurasia to 75.9 years. The Middle East has an R/P ration of over 150 years. * Proven reserves of natural gas are generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions. The data is based on 2011 data compiled by BP using a combination of primary official sources and third-party data from Cedigaz and the OPEC Secretariat.

CYPRUS NATURAL GAS TIMELINE 21ST CENTURY DEVELOPMENTS 2003: Cyprus delineates its Exclusive Economic Zone (EEZ) and agrees on its borders with Egypt. 2004: Cyprus delineates its EEZ and

agrees on its borders with Lebanon. 2006: Cyprus commissions seismic surveys of its waters from the Norwegian company PGS. The resulting data forms the basis for the ﬁrst

20 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

licensing round. 2007: 1st licensing round (FebruaryAugust) 2008: An exploration licence is granted to Noble Energy Inc. pro-

viding for two exploratory drillings in Block 12 of the Cyprus EEZ. A Production Sharing Contract is signed on 24 October. 2010: Cyprus delineates its EEZ and

EU GAS PLANNING tion of a Compressed Natural Gas (CNG) station in Cyprus, whereby the product would then be exported to Mediterranean markets. The construction of an LNG export terminal is the favoured option, even though it is widely accepted that a pipeline is cheaper. The Vasilikos LNG terminal is considered to have a strategically advantageous location which will allow access to multiple export markets in Europe and Asia via the Suez Canal. The country’s intention is for the terminal to become the core facility for the East Mediterranean corridor announced by EU President Jose Manuel Barroso to the European Council on 22 May, 2013. By 2025 the East Med could be in a position to export 35 bcm per year. This could rise to 50 bcm if Vasilikos becomes an LNG hub for the region. The island’s conviction that an LNG plant is the most suitable way for the exploitation of its natural gas resources was confirmed at the end of June when the government signed a Memorandum of Understanding (MoU) for the development of the LNG terminal with Noble Energy and its Israeli partners in Block 12, Delek Drilling and Avner Oil

Natural Gas Production BILLION CUBIC METRES

2011

2011 share of total

651.3

20.0%

Russian Federation

607.0

18.5%

Canada

160.5

4.9%

Iran

151.8

4.6%

Qatar

146.8

4.5%

China

102.5

3.1%

Norway

101.4

3.1%

Saudi Arabia

99.2

3.0%

Algeria

78.0

2.4%

Indonesia

75.6

2.3%

demand will increase from the present 526 billion cubic metres (bcm) to 622 bcm by 2030. In the same vein, the EU’s Energy Roadmap 2050 forecasts that gas imports will rise notably due to a decline in home production. This additional demand will have to be covered by new, additional gas suppliers. Recently the Nabucco West project, one of Europe’s most ambitious infrastructure projects, lost out to the Trans-Adriatic Pipeline (TAP) in the contest to supply Caspian gas to Europe. TAP is backed by Statoil of Norway, the Swiss company Axpo and Germany’s Eon. The final decision to proceed with TAP is considered a huge milestone in European efforts to create a new southern supply corridor that could tap burgeoning gas reserves in the Caspian Basin and the Middle East, and lessen the continent’s dependence on Russian imports. The new pipeline is supported by the EU as a TEN-E (Trans European Networks – Energy) project in conformity with its energy policy. In May the European Council reaffirmed the EU’s energy policy, announcing that the energy market will be urgraded through vast investment projects.

Since the gas crisis in 2009 (as a result of a dispute between Russia and Ukraine), the European Union has looked to diversify its gas supply. One of its strategies was to open the Southern Gas Corridor in order to directly and physically link the EU gas market to the largest deposits of gas in the world in the Caspian Sea and the Middle East. In principle, gas from the Caspian Sea could be delivered to the EU via Baumgarten/Vienna (Nabucco West) or Italy (TAP). The European Commission, however, has urged the construction of a new pipeline outside the EU, which would be scalable so as to allow for future additional gas volumes, as well as a clear and transparent legal framework for the transport of the gas to Europe. The opening of the Southern Corridor along with the ongoing work promoted by the EU on building the missing interconnectors in the EU will allow for Caspian Sea gas to reach several European countries, in particular those in the Southeast. The EU is still negotiating with potential gas suppliers in the broader region in view of additional gas volumes. The International Energy Agency forecasts that EU gas

For this reason, the EU estimates that by 2020 its energy system will need total investments in the electricity and gas sectors of over €1 trillion, of which around €70 billion will be allotted to gas transmission projects. Within the context of the European Union’s infrastructure regulation, Cyprus has been included in the Southern Gas Corridor for the transmission of gas from the Caspian Basin, Central Asia, the Middle East and the Eastern Mediterranean Basin to the EU to enhance the diversification of gas supplies. The member states included in the Southern Gas Corridor are Austria, Bulgaria, the Czech Republic, Cyprus, France, Germany, Hungary, Greece, Italy, Poland, Romania, Slovakia and Slovenia. TAP, as well as Cyprus’ LNG terminal and a possible trans-Mediterranean gas pipeline are projects included in the Southern Gas Corridor. It is in this context that Cyprus aspires to take an active part in fulfilling EU’s future gas needs. The Government believes that a successful LNG project can transform the country into a regional energy hub and an energy and political bridge between EU and Middle East Countries.

EU INFRASTRUCTURE PRIORITIES Gas Country

Rank

Baltic Energy Market Interconnection Plan

Electricity and gas

Electricity & Gas

N or t h Se a s Offs h or e Gr i d

Electricity

Oil and gas

Ce n t r a l / Sou t h E a s t e r n E l e c t r i c i t y Con n e c t i on s N or t h -Sou t h Ga s Cor r i dor i n We s t e r n E u r ope

Smart grids for electricity in the EU

N or t h -Sou t h Ga s I n t e r c on n e c t i on s & Oi l Su ppl y Sou t h e r n Ga s Cor r i dor

Sou t h We s t e r n E l e c t r i c i t y I n t e r c on n e c t i on s

The total production of natural gas reached 3276.2 bcm in 2011.

Data from BP and includes data from Cedigaz.

Presentation of J.M. Barroso t o the European Council, 22 May 2013

Source: European Commission

CYPRUS NATURAL GAS TIMELINE agrees on its borders with Israel. 2011: On 1 October, Noble Energy starts drilling operations in Block 12. On 28 December it announces the discovery of mean estimat-

ed resources of 5-8 trillion cubic feet (tcf) of gas. 2012: 2nd licensing round (February-May). 33 applications received. 2013: Exploration Licences for

Blocks 2, 3 and 9 are granted to Eni/KOGAS and signed on 24 January. Exploration licences for Blocks 10 and 11 are granted to Total and signed on 6 February.

Delek Drilling and Avner Oil Exploration Ltd join Noble Energy with a 15% share each on 11 February. Drilling of an appraisal well starts on 7 June.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 21

e m o c e b o t s e r i p The country as b u h s a g l a r u t a n l a a region COVER STORY

seeking investors for the estimated €7-€8 billion LNG terminal to be built at Vasilikos. A pre-FEED (Front End Engineering Design) of the LNG export terminal has already been completed. The plan provides for the construction of one-train initial LNG export capacity with the ability to expand to a total of three trains in the future when sufficient gas reserves will be proven to warrant such expansion. The train will be economically viable even if only Block 12’s gas is used. It is estimated that the project will be completed at the end of 2019 or at the beginning of 2020. For the construction and development of the LNG terminal, the government is not only willing but hoping for the full collaboration of the licensees of other blocks

Cyprus LNGl Termina Exploration Ltd. The MoU is considered to be the first step in a long process leading to a project agreement and a final investment decision at the end of 2015 or the beginning of 2016. The objective is the creation of a joint venture that will serve as a special purpose vehicle,

ALLIANCE WITH ISRAEL

The discovery of natural gas by both Israel and Cyprus in adjoining maritime zones may lead the two countries to form a strategic alliance. Israel is way ahead in natural gas exploration and development, having discovered at least 24 trillion cubic feet (tfc) of natural gas in two blocks while Cyprus is still in the process of confirming the discovery of about 7.5 tfc in its own

Block 12. The Israeli cabinet has already approved a plan to export 40% of Israel’s gas reserves which has given hope to Cyprus that its LNG facility could be utilized by Israel. Although blessed with gas, Israel’s ambition to become a major gas exporter is hampered by complex geopolitical issues. Cyprus has realised that timing is of the essence and is building the pillars of its LNG terminal at Vasilikos to

reach potential consumers before the gas market’s dynamics are altered by newcomers. Cyprus hopes that, with an estimated overall 100-120 tfc of natural gas reserves waiting to be explored and pumped out from offshore gasfields lying between Cyprus, Israel and Lebanon, the Vasilikos terminal could act as a common production platform for its eastern neighbours who have yet to decide on a similar plant.

in Cyprus’ EEZ. Also, doors are open for collaboration with neighbouring countries for the LNG export project as the country markets itself as a full member of the EU and a credible and predictable partner offering a stable and reliable routing for export. French company Total and the ItalianKorean joint venture ENI/Kogas have already shown interest in investing in a supply train at the Vasilikos LNG terminal. The LNG project agreement is due to be finalised and signed at the end of 2013 with the appraisal work programme to be concluded during the third quarter of 2014. Based on the government’s roadmap, the final LNG investment decision will be taken a year later. The first natural gas will be ready for domestic use in the third quarter of 2018 while Cyprus will be ready for its first LNG exports in the third quarter of 2019.

Natural Gas Consumption Billion cubic metres

2011

2011 share of total

US Russian Federation

690.1 424.6

21.5% 13.2%

Iran

153.3

4.7

China

130.7

4.0%

Japan

105.5

3.3%

Canada

104.8

3.2%

Saudi Arabia

99.2

3.1%

United Kingdom

80.2

2.5%

Germany Italy

72.5 71.3

2.2% 2.2%

1 2

The total consumption of natural gas reached the 3222.9 bcm in 2011.

Data from BP and includes data from Cedigaz.

CYPRUS NATURAL GAS TIMELINE CYPRUS LNG EXPORT PROJECT The Cyprus Government is currently working with the Block 12 PSC Contractors (Noble Energy, Delek and Avner) on LNG Export Project development in the Vasilikos area near Limassol. 2013: Signature of MoU on 26 June, followed by Project Agreement by

the end of 2013. The purpose of the MoU is to determine the process and initiate negotiations for the ﬁnalisation of a Cyprus LNG Project Agreement (PA). CYPRUS GAS DEVELOPMENT ROAD MAP 2014: First indications expected

22 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

of resources potential of the other Blocks. Based on an assessment of the available data, it is estimated that all 6 leased Blocks in the Cyprus EEZ may potentially hold 40 tcf of natural gas. USGS estimates that Cyprus may have up to 60 tcf. 2014: Completion of the Appraisal Work Programme in Q3.

2014: Heads of Agreement(s) in Q3-Q4. 2015: LNG Final Investment Decision in Q3. 2018: Block 12 ﬁrst gas to Cyprus in Q3. 2019: Block 12 ﬁrst LNG export in Q3.

A LEGACY

COVER STORY

FOR FUTURE GENERATIONS Once natural gas revenues begin to ﬂow, they will be for the benefit of all. By Kyproula Papachristodoulou

yprus is positive that it can become an important exporter of natural gas to the EU and not only that. The Minister of Energy, Trade, Industry & Tourism, George Lakkotrypis, tells Gold that the island’s aspirations will be realized through the construction of the LNG plant at Vasilikos which will be expandable to serve not only Cyprus’ natural gas deposits but potentially those of neighbouring countries too. The Government, Lakkotrypis says, is determined to put in place all the safeguards required to ensure that hydrocarbon exploitation will benefit all Cypriots, including future generations. Gold: The Government recently asserted that “Cyprus is now on the energy map”

following a European Council meeting at which Commission President Jose Manuel Barroso delivered a presentation depicting a natural gas route running from Cyprus to Greece, through Crete. How important was this for Cyprus and what does it mean in terms of the future role of the island in meeting the natural gas needs of the EU? George Lakkotrypis: We are positive that Cyprus can become an important exporter of natural gas to the EU, as well as to other international markets, through the operation of the onshore Liquefied Natural Gas (LNG) Plant that we have already decided to construct at Vasilikos. It is important to stress here that the LNG Plant will be expandable to serve not only the Cypriot natural gas deposits, but potentially those of our neighbouring countries.

begin. How politically and economically feasible is a Cyprus-based LNG centre? G.L.: At the outset, I would like to make it perfectly clear that, by moving forward with the delineation of its Exclusive Economic Zone (EEZ) and with agreements with multinational companies and neighbouring countries for hydrocarbon exploration and production activities, the Republic of Cyprus is simply exercising its internationally recognized sovereign rights. As such, no one can doubt the “political feasibility” of the LNG project. As for its economic feasibility, our calculations clearly indicate that the LNG terminal at Vasilikos will be viable even if only the estimated 7 trillion cubic feet (tcf) of natural gas discovered in Block 12 of our EEZ is processed there. Of course, we expect that more natural gas discoveries will be made in our EEZ and, as I have already mentioned, we plan for the LNG plant to be expandable to serve not only our natural gas deposits but potentially the deposits of our neighbours too. As such, the project will be fundamental to the realisation of our strategy to establish Cyprus as an important regional energy hub. After all, in its capacity as a full member of the EU, coupled with its strategic geographical location, our country can facilitate cooperation between the countries of the Eastern Mediterranean with Europe, Asia and the Middle East. Gold: Cyprus places the construction of an LNG facility high on its list of priorities. What is the roadmap for implementing the plans relating to the LNG terminal? G.L.: An important milestone on the roadmap for the construction of the LNG Plant was reached on June 26 2013, with the signing of a Memorandum of Understanding for the project between the Republic of Cyprus and our three partners in the Production Sharing

The Ministry of Finance is already preparing the legislation for the establishment of a Sovereign Wealth Fund that will manage revenues from hydrocarbons Gold: Nicosia’s strategic plan involves developing Cyprus as an energy hub which will accommodate an LNG plant from where transport routes for the export of Mediterranean gas reserves will

24 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

WHO’S WHO Contract for Block 12 of our EEZ: Noble Energy International Ltd, Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership. This is essentially an agreement that defines the framework in which the negotiations will be conducted for the conclusion of a comprehensive agreement regarding the project’s construction and operation – the Project Agreement, for which the agreed target date for completion and signing is December 31, 2013. According to the roadmap, the Final Investment Decision for the LNG plant at Vasilikos will be made in the third quarter of 2015. On this basis, it is planned that the first LNG cargo will be delivered from the Vasilikos Plant to international markets in late 2019-early 2020.

are obviously now in the process of setting up operations in Cyprus but they are already moving forward quickly with preparations to carry out seismic surveys in the second half of 2013. Based on the results of these surveys and the geological and geophysical studies to be completed, it is expected that the licensees will proceed with oil and natural gas exploration drillings within the next two to three years. Gold: What safeguards will Cyprus put in place to prevent misuse and mismanagement of its natural gas resources, both at the initial exploitation stages and later when the economic and financial benefits arrive? G.K.: Everyone agrees that the exploitation of the hydrocarbons discovered in Cyprus’

The LNG project will be fundamental to the realisation of our strategy to establish Cyprus as an important regional energy hub Gold: What is the significance of Noble Energy’s appraisal drilling in Block 12 for the development of Cyprus’ hydrocarbons industry? G.L.: The drilling operations of the appraisal well, spudded on June 7, 2013 in Block 12 by Noble Energy, Delek and Avner, are expected to last three to four months. The aim is to ascertain the size and quality of the initial gas find in Block 12, estimated at around 7 tcf. Obviously, these results will be of immense importance for the development of the country’s hydrocarbons industry, as they will provide us with a clearer picture regarding the reserves in the Aphrodite field and will allow us to proceed with our plans for the exploitation of our natural gas reserves. Gold: The Eni/KOGAS consortium and Total have now been granted licences for the exploration of hydrocarbons in Cyprus’ EEZ. What is the roadmap, as agreed with the Government, for the commencement of the relevant operations? G.L.: It is public knowledge that the 2nd Licensing Round resulted in the granting of three Licences for Hydrocarbon Exploration in Blocks 2, 3 and 9 to the consortium of Eni and KOGAS, as well as two Licences to Total for Blocks 10 and 11. The licensees

EEZ should benefit all Cypriots, including future generations, and our Government is determined to put in place all the safeguards required to ensure that this common vision is materialised. To this end, the Ministry of Finance is already preparing the legislation for the establishment of a Sovereign Wealth Fund that will manage revenues from hydrocarbons in a transparent way. Gold: What are the main challenges arising from the exploration of natural gas for Cyprus in the immediate future and in the long run? G.L.: We are now working hard on forming an overall strategy regarding hydrocarbons exploration and exploitation which, however, needs to be flexible enough to adapt quickly and effectively to important developments in our region as well as globally. In the short term, we obviously need to wait for the completion of the appraisal drilling in the Aphrodite field that will establish conclusively our first proven reserves. At the same time, we are moving forward with the negotiations with Noble, Delek and Avner for the signing of the Project Agreement for the LNG Plant by the end of 2013. Moreover, we are also currently in the process of adapting our legal and institutional framework in order to facilitate an efficient organisational framework for the emerging oil and gas industry.

George Lakkotrypis: Minister of Energy, Trade, Industry & Tourism. The minister has ultimate responsibility for all decisions relating to the energy sector in Cyprus, although they are taken by the Council of Ministers and the President. Nowadays his main focus is on natural gas, which is the most promising in terms of generation of direct and indirect income for the island. Lakkotrypis, has extensive experience and has held key positions in the IT sector in Cyprus and abroad. In 2009 he was also appointed as a member of the Board of Directors of the Natural Gas Public Company (DEFA), a position he held until his appointment as Minister of Commerce, Industry & Tourism (the name of the ministry was changed immediately afterwards in recognition of the importance of the energy sector). Stelios D. Himonas: Permanent Secretary of the Ministry of Energy, Trade, Industry & Tourism. He will lead the negotiations for the conclusion of the final agreement for the construction of the Liquefied Natural Gas (LNG) terminal at Vasilikos. In addition to the Ministry, other government departments will also participate (e.g. Energy Department, Town Planning Department, Department of Environment, Department of Land, etc.) along with all the parties with an interest in Block 12, i.e. Noble Energy Inc., Delek Drilling and Avner Oil. Himonas holds a Ph.D in Electrical Engineering from the State University of New York at Stony Brook. Charles Ellinas: CEO of the Cyprus National Hydrocarbons Company (CNHC), often referred to by its Greek acronym KRETYK. The company’s original brief included negotiating commercial deals with gas and oil companies on behalf of the state. It was also supposed to decide on the details of the planned LNG terminal. CNHC’s duties and responsibilities are currently being reviewed by the government. Though fully state-controlled – the shares are vested in whoever holds the position of Energy Minister – the company is governed by private law. Until 2012, Ellinas was Managing Director of Mott MacDonald’s Oil, Gas & Petrochemical business worldwide, with over 35 years experience in the sector. Eleni Vassiliadou: Executive Chair of the Natural Gas Public Company (DEFA). The company was established to oversee the import, storage, distribution, transmission, supply and trading of natural gas, and the management of the gas distribution and supply system in Cyprus. Vassiliadou worked previously in the energy sector in the UK, the Netherlands and Canada, initially in research and later in direct business activities and the development of investments in Europe, North Africa and the Mediterranean. She actively participated in the establishment and operation of the Attiki Gas Supply Company in Greece and was a member of the Board in its early years of operation, representing Shell Gas BV which was a strategic investor in the company. Solon Kassinis: Executive Vice-Chairman of the Cyprus National Hydrocarbons Company (CNHC), often referred to by its Greek acronym KRETYK. The former long-serving energy chief at the Ministry of Commerce, Industry & Tourism quit the civil service after being offered a top job with the state hydrocarbons company. Following a successful career abroad, where he worked both as a chemical engineer and a petroleum engineer at Sasol and Royal Dutch Shell and as a consultant on energy issues at the World Bank and for other organisations and governments, he returned to Cyprus where he joined the Cyprus Petroleum Refinery and then the Geological Survey Department, before being appointed Director of Energy at the Ministry of Commerce, Industry & Tourism. Constantinos Xichilos: Acting Director of the Energy Service of the Ministry of Energy, Trade, Industry & Tourism where he has worked in the Energy Service for 34 years. Prior to this, he obtained his MSc in Engineering Management from Frederick University in Cyprus and a BSc in Mechanical Engineering from the Central London Polytechnic. He holds a diploma in Mechanical Engineering from the Higher Technical Institute, Cyprus. George Shammas: Chairman of the Cyprus Energy Regulatory Authority (CERA). The main statutory objectives of CERA are to encourage, promote and safeguard healthy and substantial competition in the electricity and natural gas markets, to protect consumers’ interests, to ensure the security, continuation, quality and reliability of the electricity supply, to encourage the efficient generation and use of electricity.and to promote the use of Renewable Energy Sources (RES). Shammas is a mechanical and electrical engineer. Cyprus Institute of Energy: Founded in 2000, its remit is the promotion of energy conservation and rational use of energy, the development and promotion of Renewable Energy Sources (wind, solar, biomass, hydro, geothermal, etc.) in Cyprus and activities to promote them with the aim of encouraging the further utilisation of financially feasible energy technologies.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 25

COVER STORY

TIME

FOR A GAS MASTER PLAN

A Master Plan is required to define how Cyprus takes care of gas exploration and exploitation.

or the time being, public debate in Cyprus tends to focus on how much natural gas is likely to be discovered in the country’s Exclusive Economic Zone (EEZ), which companies may be interested in extracting and exploiting it, how soon this can be done and how natural gas can be monetized. There are, however, several other issues that need to be considered and addressed on the way to the full utilisation of the island’s undersea resources. Steve Roberts is Principal Consultant on oil and gas for GL Noble Denton, a world class technical service provider for the oil and gas industry, who told delegates to last month’s 2nd Natural Gas Conference in Nicosia that the success of gas sector development is, in most cases, dependent on the following: • The availability of domestic gas resources at reasonable prices; • A market where gas can compete with other sources of energy; and • A country’s institutional and financial capability to develop and operate the capitalintensive gas infrastructure. Roberts said that the development of a Gas Master Plan would enable Cyprus to optimise gas field development to meet growing gas demand and to develop the required infrastructure – LNG, gas transmission pipelines, gas storage and distribution networks – in the medium to long term. At the same time, he emphasised, it will have to develop the policy, legal, regulatory and institutional framework for supporting gas sector development in the long term. A Gas Master Plan would deal with a number of interrelated capital-intensive projects with different life cycles such as the legislative and policy framework, economic and energy market characteristics, gas

By Kyproula Papachristodoulou

supply and demand analysis, natural gas infrastructure assessment, seasonal gas storage assessment, social and environmental impact assessment, etc. Cyprus must consider how to regulate its natural gas environment, focusing on economic and safety regulation, Roberts said, noting that international experience has shown that economic regulation only applies to some non- or partially-competitive activities within the gas sector and is generally driven by the need to prevent the abuse of market power by monopolists or dominant players. On the other hand, safety regulation applies across the whole of the gas supply chain to a greater or lesser extent and is primarily risk-based, depending on assessments of the likelihood and consequences of major accident hazard events. “Safety risks must be managed to a level whereby they are tolerable for individuals and society and as low as reasonably practicable,” Roberts said. Broadly speaking, the key objectives of regulation are to ensure non-discriminatory access to essential facilities so as to establish and constantly improve the conditions for a competitive market in gas and to protect consumers and improve efficiency. It should also ensure financial viability through the recovery of efficiently incurred costs and provide for security of supply and standards of service. Steve Roberts believes that the economic regulatory regime should

26 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

also encourage private sector participation and reduce the perception of regulatory risk. “In the gas sector, the need for regulation depends on the activity being undertaken within the gas supply chain and the wholesale and retail market arrangements. These activities include gas production and importation, storage, ancillary gas services, gas transmission, wholesale supply, distribution, retail supply and metering and billing.” In conclusion, Roberts said that effective and efficient gas sector planning, development and operation required a technically and commercially robust Gas Master Plan. That would set out the short-, mediumand long-term vision for the gas sector and associated gas infrastructure including gas production and import/export facilities (including LNG), gas storage, gas transmission pipelines and distribution networks. Of high importance, he added, are the economic and safety regulatory regimes.

sider n o c t s u m s u r Cyp e its t a l u g e r o t w o h ment, n o r i v n e s a g l natura nomic o c e n o g n i s u foc ion t a l u g e r y t e f a and s

Steve Roberts

NATURAL GAS

THE PEACEMAKER? Expectations regarding Cyprus’ geopolitical weight as a future energy provider for Europe should not be exaggerated, according to Dr. Thanos Dokos, Director-General of the Hellenic Foundation for European & Foreign Policy (ELIAMEP). He told Gold that the island will have plenty of opportunities to inﬂuence EU decisions and policies in the energy sector but its role will not be especially important. However, new alliances could lead to broader, long-term regional cooperation. By Kyproula Papachristodoulou

old: What are the prospects for cooperation among the various natural gas players in the Mediterranean, given the fragile political and economic environment? Thanos Dokos: There are several countries that are currently interested – or will be in the future – in participating in the Eastern Mediterranean energy saga. In principle, this is a win-win situation where almost all the involved parties could profit from the exploitation of hydrocarbon deposits in their respective maritime zones. However, this is unlikely to happen in the foreseeable future as most of those countries have difficult relations with their neighbours and therefore perceive the situation as a zero-sum game. In principle, Lebanon, Palestine, Egypt, Israel and Cyprus could benefit if they managed to delineate their maritime zones and subsequently exploit their natural gas deposits through an LNG facility in Cyprus or through a pipeline in the context of the Eastern Mediterranean Gas Corridor. Turkey and Greece could be added to this group of countries through pipelines but cooperation among the group would face considerable obstacles as most of them either do not recognize each other or they are in a state of conflict with one or more of their neighbours. As a result, in the short term, efforts should focus on the exploitation of deposits between countries that have normal political relations, without ignoring the long-term objective of regional cooperation in the energy sphere.

Gold: Do you consider as realistic Cyprus’ hopes that the East Med Gas Corridor will be of major strategic importance to Europe in the future and that, as a result, the Levantine Basin and Cyprus will be established on the energy and political map of the EU? T.D.: There are many unknowns regarding Europe’s future energy needs and policy choices but there are some certainties as well. For example, despite the current recession, Europe will need more natural gas in the future, partly because Germany and some other countries have decided to remove nuclear energy from their energy mix. Also, Europe will continue to try to diversify its energy suppliers and reduce its dependence on any single one of them (Russia, for example). It will, therefore, welcome any increased participation of Caspian, Eastern Mediterranean and even North American natural gas. Reliable suppliers will, of course, have even greater priority for Europe. Cyprus – and hopefully Greece in the future – will enjoy an additional advantage: as full members of the European Union and the eurozone, they will have multiple tools and opportunities to influence EU decisions and policies in the energy sec-

Thanos Dokos

s In the short term, effort should focus on the exploitation of deposits ve ha between countries that s normal political relation tor. On the other hand, given that the amount of natural gas in Cyprus’ EEZ will account for only 2% of Europe’s annual requirements, unless additional deposits are discovered, the geopolitical weight of Cyprus as an energy provider for Europe will not be especially important.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 27

COVER STORY

n i s a g l a r u t a n f o t n u o m a e Given that th ill account for only 2% w Z E E ’ e s h u t r , p s t y n C e m e r i u q e r l a u n n a s ’ e p n a s a of Euro t h g i e w l a c i t i l o p o e g e s b ’ y t r o n l l i count w e p o r u E r o f r e d i v o r energy p t n a t r o p m i y l especial Gold: What will the role of Russia be in the supply equation in the medium to long term? Does it have a role to play in the exploitation of natural gas resources in the Eastern Mediterranean? T.D.: Moscow aims to penetrate the European energy market from several directions and to maintain as much influence and leverage as it can, hence the development of the South Stream project and its interest in acquiring Greece’s natural gas company (DEPA). To meet the increasing demand for natural gas and reduce high levels of energy dependency on Russia, the European authorities need to promote the realisation of projects contributing to the diversification of the natural gas supply, alongside improving Europe’s relationship with Russia, two targets which are not necessarily mutually exclusive. Clearly the West and Russia need to work quietly towards the full normalisation of relations and the development of a strategic partnership among fundamentally status quo powers in the emerging international system. Regarding the exploitation of natural gas resources in the Eastern Mediterranean, it would be in Russia’s interest to prevent the emergence of a complementary supplier for Europe’s energy needs. If this is not feasible, it might decide to become involved in the exploitation of newly-discovered resources. The question is whether the Western powers would allow such an involvement. Gold: Do you see tangible prospects for a Cypriot-Israeli energy alliance despite the expected improvement of relations between Israel and Turkey? T.D.: It should come as no surprise that the recent apology to Turkey by the Israeli

Prime Minister Benjamin Netanyahu for the death of Turkish citizens in the MV Mavi Marmara incident and the expected gradual improvement of Israeli-Turkish relations has disappointed those who believe that an alliance between Greece, Cyprus and Israel, based on the perception of a “common enemy”, would constitute a ‘shield’ vis-à-vis Turkish action in the Eastern Mediterranean. According to another, more pragmatic school of thought, this trilateral cooperation could have substantial potential benefits for all sides but would not by itself provide an answer to all the foreign policy challenges that Greece and Cyprus are currently being facing. To be viable, such cooperation should move away from any notion of an axis against a specific country and the logic of a zero-sum game and be based on common interests that the three sides involved should define as soon as possible. If one accepts the inherent logic of the second school of thought, the reasons for strategic cooperation between Israel, Greece and Cyprus remain important, despite the serious economic problems and the resulting weakened position of the Republic of Cyprus and the efforts for an, at least, partial improvement of IsraeliTurkish relations. In any case, Israel’s foreign policy and security institutions are characterized by a certain – not completely unjustified – ‘paranoia’ and strong mistrust regarding third parties in general and Islamic regimes in particular, which will probably prevent the full normalisation of relations with an Islamic Turkey (despite the wishes and strong encouragement of the US). Furthermore, the nascent Turkish-Israeli rapprochement process will be tested in the next Palestinian crisis in Gaza. Israel’s energy choices – and the results of additional energy exploration in all three involved countries – will shape the

28 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

nature and depth of the strategic relationship between Israel, Greece and Cyprus to a considerable degree. The strategic value of Greece and Cyprus to Israel is still relatively high but all three countries will have to define the parameters of their strategic cooperation on the basis of common interests and realistic expectations. Gold: What is a realistic timeframe for Greece to take concrete steps towards the exploration and exploitation of its natural gas resources? T.D.: Energy-related projects can be instrumental in Greece’s effort to repair its image, re-acquire a leading regional role, increase its influence, accumulate ‘diplomatic capital’ and, in the medium- to longterm, ‘fuel’ its economy. In this context, the Southern Gas Corridor can play an important role. Recently the Trans-Adriatic Pipeline (TAP) – crossing Greece and Albania on its way to Italy – was selected for the transportation of natural gas from Azerbaijan and this will provide a major boost for Greece’s economy and its regional role, as well as for regional cooperation in the Western Balkans and European energy security (also through interconnectors to Bulgaria and the Balkans). In addition, Greece can be expected to try to enlarge its energy footprint through other projects, in addition to the exploitation of potential hydrocarbon deposits in various parts of the country, notably in Western Greece and the maritime areas south of Crete where third parties have no sound legal claims. If all goes well, within the next 24 months Greece may have a pretty good idea about the location and approximate size of potential deposits in some of its maritime zones. However, it should be kept in mind that, even under the most favourable circumstances, it will probably take Greece a decade until actual exploration starts. Therefore, energy production should be viewed as a long-term source of income for Greece.

NOBLE ASPIRATIONS

Noble Energy expands its cooperation with Cyprus as appraisal drilling starts.

n late 2011, Noble Energy announced a significant discovery of natural gas deposits off the southern coast of Cyprus in a development that is set to change the entire energy profile of the island in the years to come. Last month, drilling began at the A-2 appraisal well location in Block 12 of Cyprus’ Exclusive Economic Zone (EEZ). Drilling is expected to take approximately three months to reach a total depth of about 5,600 metres below sea level, after which the assessment of the data will take another 2-3 months. In the most recent development, a Memorandum of Understanding was signed between the Republic of Cyprus and the Contractor (Noble Energy International, Delek Drilling and Avner Oil Exploration) which provides for the negotiation of a definitive Cyprus LNG project agreement. The project agreement is expected to specify the technical and commercial basis on which an onshore LNG plant will be built at Vasilikos to process and commercialize the gas produced from Block 12. The MoU is the first in a series of agreements required for the implementation of the Cyprus LNG project. Asked about its operational priorities, Noble Energy told Gold that the company leverages its success from around the world to safely

and responsibly create exceptional opportunities. “We made a commitment to the region when we began energy exploration in the challenging deep waters of the Eastern Mediterranean. In 2011, Noble Energy discovered the first significant natural gas discovery offshore Cyprus with a possible 5 to 8 trillion cubic feet of natural gas. The Block 12 discovery has the potential to contribute to a stronger and more prosperous future for the people of Cyprus. Beyond meeting the country’s own energy needs, the Block 12 discovery has the potential to enable the export of about 5 million tons of Liquefied Natural Gas annually,” it said in a statement. Regarding the planned LNG terminal at Vasilikos, the drilling results from the A-2 well will help Noble Energy confirm the estimated resource size and provide the information required to initiate planning of subsequent stages of development. The company said that “additional appraisal drilling may be required. The aim is to ensure that the minimum of the range is adequate to support an LNG project.” If the numbers for Block 12 are verified and the range is confirmed, one concept for the commercialisation of Block 12 natural gas production is the construction of an LNG facility at Vasilikos, where space is available for at least three LNG trains. “We have completed significant engineering work for this site and established its viability for a world-class LNG export facility,” Noble Energy stated, adding that ultimately, the

ry has e v o c is d 2 1 The Block ute to a ib r t n o c o t l ia the potent perous s o r p e r o m d stronger an people of Cyprus future for the

decision regarding how an export project will proceed will be based on collaborative efforts with the Republic of Cyprus. Asked to estimate the number of potential jobs that such a project could create, Noble Energy said that at this stage of drilling, it is difficult to quantify the job opportunities that will be created as a result of its operations in the region. However, it did say that it is “committed to hiring local, talented individuals and providing them with opportunity”. Finally, on the question of a strategic alliance between Cyprus and Israel, Noble would only say that in partnership with the governments of Israel and Cyprus, it is evaluating multiple export options. “Ultimately, decisions regarding how export projects will proceed in each country will be determined by each country’s respective government,” the company said.

ranean r e t i d e M n r e East lds Offshore Fie Tanin

Leviathan

Tamar

Cyprus Dolphin

Dalit

Noa Pinnacles Mari-B

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 29

Christos Mavrellis

Angelos M. Gregoriades

Harris Chr. Georgiades

Neophytos Neophytou

Maria Kyriacou

Chris Economides,

Eric D. Ryan

Lior Pick

Organizers

PROFESSIONAL GOLD NEW.indd 1

Communication Sponsors

Academic Sponsor

Corporate Clothing Sponsor

Michalis Florentiades

Sponsors

08/07/2013 4:15 ��

SPECIAL ADVERTISING FEATURE

ENERGY M

Photos by Jo Michaelides (except p.42)

any observers believe that the discovery of natural gas in Cyprus’ offshore Exclusive Economic Zone is the most significant development in the island’s 53-year history as an independent country,

one that will change not only the economy but Cyprus’ importance to the European Union, which is looking to reduce its dependence on Russia for its gas imports. Cyprus has the potential to become a major energy hub in the region and on the following pages, experts from a variety of

firms involved the provision of services to the broader energy sector express their views on how the successful exploitation of the island’s new-found resource is likely to affect its future prosperity and how their companies’ specific expertise can play a part in the new energy industry.

SPECIAL ADVERTISING FEATURE

ABACUS LTD

Marianna Charalambous Head of Energy 32 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

bacus has recently appointed you as Head of Energy. How significant is this to the firm’s future plans and what services does Abacus provide? 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. How significant are the hydrocarbon discoveries for the future of Cyprus, both socio-economically and geopolitically? 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.

added benefit of creating a sizable number of jobs that provide a trickle-down long-term effect on the economy.

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.

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.

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

bacus is a leading independent provider of Global Business Services in the field of corporate administration, accountancy, fiduciary and business advisory services to clients

worldwide. Its clients comprise of some of the world’s largest multinational public and listed corporations, including banks and investment firms, oil companies, real estate developers, leading law and accounting firms and high net-worth individuals and their families.

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.

CONTACT INFORMATION

ABACUS LTD

Head Office: Elenion Building, 5 Themistocles Dervis St., 1066, Nicosia. Tel: (+357) 22555800 Fax: (+357) 22555801 Website: www.abacus.com.cy e-mail: abacus@abacus.com.cy

At this early stage of the development of the Energy Sector in Cyprus, Abacus offers services both to potential investors as well as to the government that aim at promoting mutual interests and creating investment opportunities in energy related areas.

SPECIAL ADVERTISING FEATURE

CHRYSSES DEMETRIADES & CO LLC H

ow significant are the hydrocarbon discoveries for the future of Cyprus, both on the socio-economic front as well as geopolitically? Demosthenes Mavrellis: We need to speak of “proven discoveries”. What we have now is the Aphrodite find which is in itself undergoing an exploratory second drilling. The current finds, if confirmed, will obviously allow Cyprus to create electricity out of its own resources and perhaps export gas from a one-train LNG facility. If, however, as many analysts predict, there are more reserves in our EEZ, then the rules of the game will change. Any surplus will be exportable, as domestic needs would have been covered already by Noble Energy’s current find. That, in turn, will create a much larger development in the wider energy sector and in the LNG area specifically, which will create thousands of highly-paid jobs directly and indirectly. Since upon the confirmation of new reserves, investment will have to be made in order to monetize the same, we would see a direct injection of funds into the economy which would begin to drastically limit the effects of the current financial crisis. It would also give the impetus for interest among the local population to adapt and educate itself on energy issues, creating new fields of excellence which, in a decade or two, may rank on a par with accounting and legal services, at which Cypriots excel.

(L-R) Alexandros Economou, Chris Georgiades, Christos Mavrellis, Demosthenes Mavrellis 34 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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? Assuming that the finds will be substantial and the monetization plans successful, this will tip the trade balance in favour of Cyprus, which will probably become a net exporter. We will see the total substitution of oil (as coal has not been used domestically), as source of electricity and we may even see motor vehicles running on gas and even electricity. This, paired with the ever-increasing introduction of photovoltaic technology in the production of domestic and/or industrial sources of energy, will lead to a diminishing of oil as

the dominant fuel and the dependence of Cyprus on external sources. It is useful to note that companies involved in hydrocarbon exploration consider it a strong possibility that oil may also be found. Such a discovery may lead to a review of the above strategy but I believe that, due to Cyprus’ EU environmental obligations, we will still push domestically for “clean energy” and orientate ourselves towards petroleum export, as a fast way to inject cash into the government’s coffers. Currently the EU produces around 48% of its energy needs within the Union and imports the remainder. Its gas imports are mainly from Russia, Norway and Algeria. Isn’t this an area that is perfect for Cyprus to step into? At the moment Europe is greatly dependent on Russian imports, a fact that cannot be over-emphasized, as evidenced by the latest Ukrainian crisis. This puts Europe in a geostrategic hard place. The new Trans Adriatic Pipeline (TAP) has now been approved to bring Azeri gas to Europe via Turkey, Greece, Albania and Italy. We have to put this into perspective, as major shale gas discoveries have been made in Poland. The price of gas in the future will be dependent on the willingness of the EU and its Member States to exploit such resources, a difficult task, since it raises the spectre of environmentally harmful practices and access to hitherto greenfield sites. Cheap shale gas may also be imported to Europe by the United States which is very advanced in shale gas exploitation. Furthermore, we should take into consideration Germany’s decision to close down aging nuclear stations that will reduce the local supply in the short term. Cyprus’ role as an exporter to Europe will be related to the levels of pricing of the gas, taking into account all the above considerations. As the political situation stands right now, a pipeline linking any Cypriot gas production to Turkey is out of the question so the cost of LNG production ought to be factored in. It has

HRYSSES DEMETRIADES & Co. LLC is a Cyprus law firm providing a comprehensive range of legal services to local and inter-

been mentioned – and rightly so – that only the LNG proposal enables Cyprus to act independently and materialize the highest available price for its gas, which may be the price offered in the Asian market. How great a contribution can Cyprus’ gas reserves make to Europe’s energy security and energy needs? That would depend on the quantities found. At any rate, Cyprus and possibly Israel will create another alternative pool of energy assets. There are currently no specific tax laws on hydrocarbon exploration/ exploitation activities in Cyprus. Are the present corporate tax laws applicable or will new legislation be necessary? I believe that the current scheme of profit sharing arrangements is a good one and will benefit both the government and the participating companies. It will be harmful to introduce new tax burdens on those companies and add another level of bureaucracy. The low tax regime will lead to even more investment in the domestic gas industry and the government should expect to receive funds from profit sharing and, more importantly, from a healthy and boisterous economy that will be created from this new industry. Do you believe that the discovery of hydrocarbons in Cyprus’ waters could become a catalyst to promote a solution of the still unresolved Cyprus problem? It would be if we were dealing with logical players. I believe that Turkey now wishes to import gas from Cyprus as it is economically sensible to do so and it has no proven reserves of its own. Furthermore, I believe that Cyprus would benefit greatly from exporting gas to Turkey via a short undersea pipeline (without abandoning the LNG project). It is also clear that major powers now wish the Republic of Cyprus to be free to exploit its resources,

national clients. It has been instrumental in the development of Cyprus as an offshore and international financial centre and is widely acknowledged as one of the leading law firms

independently of the control of any foreign overlord. The Government is willing to give the Turkish Cypriots their equitable share of any financial gain. However, unless Turkey matures enough to see an independent Cyprus as a partner and not as a potential protectorate, a solution will not be within reach. Although Cyprus’ natural gas discoveries are recent, your company has been involved in providing services to international companies involved in the sector for some time. What services do you provide? We offer services across the board as we are a full service firm of more than 50 lawyers. Our services are focused on corporate law and finance but also regulatory and environmental advice. We also maintain a strong litigation team. Furthermore, throughout the years, we have had a major shipping department. The firm is geared to serving major international banks and other corporates and has been involved in the financing of major energy projects in Russia and Eastern Europe in the last decade as well as in shipping finance involving LNG and tankers. The firm envisages being actively involved in the energy sector, acting as local adviser to investors, financiers, contractors, etc. With this in mind, the firm is actively seeking to create ties and synergies with major players in the international arena.

CONTACT INFORMATION

CHRYSSES DEMETRIADES & CO LLC

Head Office: 13, Karaiskakis St., 3032 Limassol Tel: (+357) 25800000 Fax: (+357) 25588055 Website: www.demetriades.com e-mail: info@demetriades.com

in Cyprus in all key areas of corporate activity. It is consistently highly rated in independent research studies and regularly leads offshore league tables.

SPECIAL ADVERTISING FEATURE

DELOITTE Nicos Papakyriacou Partner in charge of Nicosia office, Oil and Gas Industry Leader, Deloitte Cyprus

ow significant are the hydrocarbon discoveries for the future of Cyprus? The recent discovery of hydrocarbons within the islandâ&#x20AC;&#x2122;s Exclusive Economic Zone has attracted a lot of attention internationally and has created a lot of optimism locally about the future. According to a study by Shell, global energy demand could increase by as much as 80% by 2050. Therefore, the potential impact of the hydrocarbon discoveries on the future of Cyprus is extremely significant, both on the socio-economic front as well as geopolitically, depending of course on the actual quantity of gas and oil reserves that are confirmed. Can you expand further on the socioeconomic and geopolitical dimensions of such discoveries? Regarding the socio-economic dimension, in addition to the obvious stream of revenues from the future export of our gas reserves, the emergence of this new industry and the possible direct foreign investment in significant infrastructure projects, such as the LNG Terminal and the pipeline facilities, will create the need for a great number of other support services. These will lead to the creation of thousands of jobs, helping the ailing property market and exerting a favourable domino effect on many sectors of the economy such as financial, professional services and many others. Furthermore, it will reduce the over-reliance of the economy on financial services and tourism and diversify the risk of the economy in the eyes of foreign investors, the rating institutions and the markets in general. Regarding the geopolitical situation, the discovery of hydrocarbons in Cypriot waters, as well as in the Southern Mediterranean region in general, has added a new dimension to the geopolitics of the region. On the one hand it has created a new dynamic that could be used as a catalyst to promote a solution to the Cyprus problem but, on the other hand, it could create significant complications. Therefore, the historic challenge facing our political leaders is to formulate a common oil & gas strategy that will take into account the interrelated socio-economic and geopolitical factors, which should be the vision of all future governments, irrespective of their political positioning.

36 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Currently the EU produces around 48% of its energy needs within the Union and imports the remainder. Its gas imports are mainly from Russia, Norway and Algeria. Isn’t this an area that is perfect for Cyprus to step into? The EU would certainly welcome the opportunity to diversify its sources of gas imports and reduce its over-reliance on Russian imports and Cyprus could benefit strategically if it is in a position to facilitate such diversification. However, the issue is not so simple because it will depend on the quantity of gas reserves discovered in Cyprus and the neighbouring countries, the method of exporting to Europe (pipeline or LNG), the prevailing prices of gas in Europe and the Far East and, of course, the geopolitical balances and alliances of the regional players at the time. The major gas discovery in Block 12 is expected to boost plans to replace oil and coal with gas. How will this affect consumers? It is expected to help consumers and the Cyprus economy in many ways. For example, the price of electricity for households should be significantly reduced. At the same time, all businesses will also benefit from lower energy costs that will help them become more competitive in the pricing of their products and services for both local consumption and export. Also, let’s not forget that about two thirds of the purchase cost of the gas by the power stations will be returned as income to the government instead of being paid to overseas oil suppliers. Furthermore, since gas is a cleaner fuel than oil and coal, it will have lower greenhouse emissions, for the benefit of the community in general. There are currently no specific tax and VAT laws on hydrocarbon exploration/ exploitation activities in Cyprus. Are the present corporate tax and VAT laws applicable or will new legislation be necessary? This is correct but the general income tax

ith more than 500 professionals in its Nicosia, Limassol and Larnaca offices, Deloitte is one of the largest professional services

laws in force are applicable and therefore companies resident in Cyprus are subject to 12.5% corporate income tax on their taxable profits. However, special provisions are included in the model PSC (Production Sharing Contract) which state that the applicable corporate tax will be deemed to be included in the Republic’s share of profit oil & gas and the portion of available oil & gas to which the contractor is entitled, will be net of corporate tax. No changes to the existing legislation are expected, but clarifying circulars guiding the companies operating in this industry are expected to be issued at some stage. Regarding VAT, given the absence of oil & gas industry-specific VAT legislation, Cyprus has generally adopted the main provisions of the EU’s VAT regulations and the system is largely harmonised with that of the EU. Deloitte has worked closely with the authorities in formulating local VAT policies for the newly formed oil & gas industry in Cyprus, following best EU practices, has requested the issue of specific circulars and has obtained rulings on behalf of its clients. Deloitte has navigated the local tax and VAT laws as they apply to companies and consortia in the oil and gas industry and has supported Cyprus’s first PSC holder in understanding the practicalities of the tax and VAT clauses in the PSC and is advising other PSC holders on their obligations. Although Cyprus’ natural gas discoveries are recent, your company has been involved in providing services to international companies involved in the sector for some time. What services does Deloitte provide? In Cyprus, we were involved in the oil and gas industry from the very beginning, serving the first ever exploration company in all facets of its operations with the provision of CRS certification, statutory audit, tax advisory, VAT advisory, human capital services and other advisory work. As a result of this unique experience and intensive internal training in the oil & gas industry, we have built a very knowledgeable team of professionals, from all

organisations in Cyprus and part of the Deloitte global network, employing more than 200,000 people in over 150 countries. It provides a full range of audit, tax, consulting, financial advisory

service lines, specialising in the oil & gas industry. It is no coincidence that in the last two years we have been providing the major industry players, including all the operators on the island, with most of these services. How great a role does Deloitte play in the provision of services to the global oil & gas industry? At Deloitte, we always think ahead to assist our clients in meeting the challenges of our times. We help our clients address many of these challenges by providing a range of services to companies in all segments of the oil and gas industry, including 63% of the world’s top 60 oil & gas companies, 43% of national oil companies, and many independents and oilfield services and energy trading businesses. Our Oil & Gas practice, which comprises 2,500 specialists across all sectors of the industry, has an expert presence on every continent and in each major oil and gas centre around the globe. In addition to the standard tax, audit, consulting and financial advisory services, our range of services spans the entire spectrum of corporate functions as well as analytical price forecasting, economic modelling, geological analysis and reservoir audits, wellhead planning and operations, and deep sea platform and equipment decommissioning, to name a few. Our internal resources ensure that our teams have access to up-to-the-minute market intelligence, can respond promptly to industry developments and are able to provide value added advice to our clients.

CONTACT INFORMATION

DELOITTE

24, Spyrou Kyprianou Ave., 1075 Nicosia Tel: (+357) 22360300 Fax: (+357) 22360400 Website: www.deloitte.com/cy e-mail: infonicosia@deloitte.com

and wealth advisory services to a diverse client portfolio and an integrated services offering addressed primarily to the international business community.

SPECIAL ADVERTISING FEATURE

ow significant are the hydrocarbon discoveries for the future of Cyprus, both on the socio-economic front as well as geopolitically? The discovery of hydrocarbons offshore Cyprus will undoubtedly have an enormous positive impact on the local economy. The benefits of this new industry for Cyprus will find their way into all socio-economic sectors, resulting in additional sources of revenue for the Government, new capital injections and, of course, thousands of new jobs. Furthermore, the recent signing of a Memorandum between Cyprus and Noble Energy International, Delek Drilling and Avner Oil Exploration to build an LNG facility at Vasilikos will also have a positive impact on the economy. The construction of such a plant will be the largest investment in the island’s history and will allow Cyprus to commence exporting gas to the international markets. It is also important to note that, given its strategic location, Cyprus is geopolitically in a position to attract other related investments from large multinationals engaged in petrochemicals and other oil & gas by-products. Collaboration with neighbouring countries such as Israel, Egypt and Lebanon will also contribute positively towards converting the Eastern Mediterranean into an international energy hub.

Stavros Pantzaris Board Member 38 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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? It is true that the local energy sector is very much dependent on imported energy but the country’s energy system is currently going through a period of significant change, with the liberalisation of the energy market (electricity) as required by the EU, the decision to import and include natural gas in the country’s energy mix, and the promotion of Renewable Energy Sources, changes which require structural interventions to face the new challenges in the energy sector. The natural gas reserves in the Aphrodite Field, estimated to be 5-8 tcf, are considered enough to supply domestic consumption for well over 100 years. Cyprus is thus expected to be less dependent on imported energy in the future, which will contribute to the competitiveness of the local economy. It should,

however, be noted that the gas from Block 12, which will initially be used for electricity production, will not be available for domestic distribution before 2018. Currently the EU produces around 48% of its energy needs within the Union and imports the remainder. Its gas imports are mainly from Russia, Norway and Algeria. Isn’t this an area that is perfect for Cyprus to step into? Indeed, this is a tremendous opportunity for Cyprus to positively contribute to the EU’s efforts aimed at reducing its dependency on gas imports from non-EU countries. The International Energy Agency (IEA) estimates that Norway will remain the only European country with increasing natural gas production and that the Netherlands’ and the UK’s gas production will decrease. Taking into consideration the advantages of natural gas and the EU’s stated objectives in its Energy roadmap, it appears that natural gas could be the preferred fossil fuel of choice for the Union. The main European countries supplying natural gas to the EU are facing their own challenges and the development of gas production and gas markets in the Caspian and Caucasus regions could be helpful but this is not without its political, economic, financial and technological difficulties. How great a contribution can Cyprus’ gas reserves make to Europe’s energy security and energy needs? Undoubtedly, the natural gas that has already been discovered within Cyprus’ EEZ, in conjunction with future hydrocarbons discoveries, will have a huge impact on the Cyprus economy and on the broader European economy. Industry experts believe that commercially exploitable gas reserves in Cyprus can make a significant contribution to Europe’s energy security and energy needs. The major gas discovery in Block 12 is expected to boost plans to replace oil and coal with gas. How will this affect consumers? As already mentioned, the gas reserves discovered in the Aphrodite field are expected

is a global leader in assurance, tax, transaction and advisory services, employing 167,000 people

to be available for domestic distribution towards the end of 2018. The gas will initially replace oil and coal in the generation of electricity, and both household and industrial consumers will undoubtedly benefit to a great extent from reduced energy costs. The anticipated reduction in costs will also enhance the competitiveness of the local economy. There are currently no specific tax laws on hydrocarbon exploration/ exploitation activities in Cyprus. Are the present corporate tax laws applicable or will new legislation be necessary? There is no specific legislation in Cyprus for the hydrocarbon industry and the existing legislation has many shortcomings in dealing with particular issues relating to energy. Such issues include the tax treatment of joint operations, the timing of revenue recognition, the treatment of buy-in payments, amortisation of costs, asset recognition and VAT treatment of flows between consortium partners, to name just a few. The contracts signed so far provide for all income taxes from the operations to be taken out of the government’s share of revenues, so the investors were not particularly concerned in preparing their bids. The first revenues are expected in 2019 so by that time amendments should be introduced to cover these deficiencies in the current legislation. Do you believe that the discovery of hydrocarbons in Cyprus’ waters could become a catalyst to promote a solution of the still unresolved Cyprus problem? If the Turkish Cypriots were alone in deciding their future, the Cyprus problem would most probably been resolved already and definitely the discovery of hydrocarbons would have been a major catalytic factor. However, the matter is in the hands of Turkey which aims to maintain its presence in Cyprus and gain a strategic advantage in the area. Israel’s recent announcement of its intention to export 40% of its natural gas reserves will also affect Cyprus and its relations with Turkey. It goes without saying that, if the Cyprus problem is not resolved, the possibility of exporting gas to Turkey through Cyprus is

worldwide. The firm combines leading practices, methodologies and tools, together with fresh thinking, tailoring its services to its clients’ business needs. In Cyprus, where the firm’s origins

remote. A realisation of the importance of hydrocarbons in Cyprus for the West might bring about a change in Turkey’s attitude towards resolving the Cyprus problem. Although Cyprus’ natural gas discoveries are recent, your company has been involved in providing services to international companies involved in the sector for some time. What services does EY provide? The oil & gas industry is going through a period of fundamental change. The issues currently faced by oil & gas companies span the technical, commercial and financial aspects of their business. Services provided by EY in assisting companies in meeting today’s challenges include: statutory audits, compliance risk assessments, supporting internal audit and accounting functions, valuation services, financial and tax due diligence and modelling, advising on tax restructuring, payroll services, to name just a few. How great a role does EY play in the provision of services to the global energy sector? EY has established a global network of more than 9,200 professionals supported by 13 Global Oil & Gas Centres. Our experienced and dedicated Global Oil & Gas Centres resources anticipate market trends and identify the services that companies in the oil & gas industry need. They also develop and deliver oil & gas specific training to our professionals and develop points of view on relevant industry issues so that our clients stay informed about key developments and trends.

CONTACT INFORMATION

Head Office: Nicosia Tower Centre 36, Byron Ave., 1096 Nicosia Tel: (+357) 22209999 Fax: (+357) 22209997 Website: www.ey.com e-mail: ey.cyprus @cy.ey.com

date back to the 1930s, it has an excellent reputation amongst the local business community as a high quality provider of professional services from offices in Nicosia and Limassol.

SPECIAL ADVERTISING FEATURE

HYPERION SYSTEMS ENGINEERING

Stavros Spanos Executive VP Marketing

iven that Hyperion is one of Cyprus’ success stories in exporting technology and high added-value engineering services, how come most of us had not heard of your company until quite recently? Although we have been working globally for the last 20 years – building a name for ourselves, employing many Cypriot chemical engineers and winning several export awards along the way, there wasn’t really a reason for the broader Cypriot public to be interested in knowing about us. It is only over the last couple of years, with the discovery of natural gas, that Cypriots have developed an interest in oil & gas, petrochemicals and other industries of this sort and started to find what Hyperion does more appealing. It is also true that Cyprus for us was just our home, with only a handful of projects executed here, and has only lately started to appear as a potential market.

So, how significant do you think these discoveries are for the future of Cyprus? I believe that the emergence of a worldclass hydrocarbons production and processing industry will re-define Cyprus for the decades to come. Education and professional development will be an area of profound change; engineering and sciences will gradually return to the forefront, overtaking economics, finance and law in the process. Local universities are already following the trend. Even more importantly, a realistic state-driven education strategy will re-inject life into our long-dead technical education sector, one which once produced technicians and skilled craftsmen that, sadly, our society has stopped valuing over the years. The construction and maintenance of pipelines, rigs, plants and terminals that the hydrocarbons bring along will make these professions valuable, rewarding and attractive once again.

Do you also believe that the discovery of hydrocarbons in Cyprus’ waters could become a catalyst to promote a solution of the still unresolved Cyprus problem? While many public speakers have voiced fears that the hydrocarbons will somehow be utilised by the world powers as a lever to blackmail Cyprus into a solution, I remain positive and optimistic. I believe that if all goes well with Noble’s Aphrodite-2 confirmation drilling and those that follow by Total and Eni, Cyprus will be presented with such a unique opportunity to drive economic growth and development that politicians on both sides will have no choice but to exploit it to reunite our island. History has proved that, when offered growth and prosperity, people can put aside many differences. Hydrocarbons is one of the main industries Hyperion serves. Can you give us some examples of your work? Indeed, Hydrocarbons have historically been a key industry for us. This year, we have completed delivery of training simulators for three big gas processing plants for Saudi Aramco, the largest ethylene plant in India for Linde/OPaL, a Crude Oil and Natural Gas extraction plant for the state Polish company PGNiG and only last month we kicked off a similar project for one of Lukoil’s largest petroleum refineries in Volgograd. At the same time, a Hyperion team is currently executing the IT FEED (Front End Engineering Design) study for Al-Hosn Gas, a new on-shore gas field development in the UAE, and we have just performed an audit of the real-time systems in three KNPC (Kuwait National Petroleum Co) refineries, where we have a 3-year support contract until 2015. Other current projects include the audit of the country-wide crude transport logistics optimisation for the Russian state company Rosneft, and the IT project management consulting for Borouge, one of the largest Middle East petrochemicals manufacturers. Finally, at this early stage of natural gas exploration/exploitation in Cyprus, what services does Hyperion provide to companies involved in the sector? While seismic and underground analysis and exploratory drilling is not an activity area for Hyperion, as we come closer to the FID (Final Investment Decision) and companies move into field development and detailed engineering, our IT solutions and engineering services come into play with all types of sizing and design validation studies, as well as solutions covering real time information management, modelling, flow assurance and other areas. In addition, once rigs and platforms appear, we offer specialised systems for process control, emergency shutdown, fire and gas detection and others.

SPECIAL ADVERTISING FEATURE

IOANNIDES DEMETRIOU LLC H

ow significant are the hydrocarbon discoveries for the future of Cyprus, both on the socio-economic front as well as geopolitically? Socio-economically the hydrocarbons discoveries are, to my mind, the most significant economic development since independence in 1960. It is a great shame that the discoveries have coincided with Cyprus’ worst economic crisis. The crisis and the resulting political and economic dependency on the Troika and the countries that can influence the Troika’s approach may result in a reduced capacity and ability for Cyprus to reap the full benefits of the discoveries. This issue will need skilful political handling. Geopolitically there are both risks and opportunities. These are for the politicians to manage. The main fear is that the hydrocarbons discoveries, combined with the economic crisis and the local political landscape, may be a catalyst for a “solution” to the Cyprus problem which may reduce or even threaten the economic benefits of the hydrocarbon discoveries for future generations. 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? Cyprus does not import energy as such. Cyprus is characterised as a small, isolated electricity system. Cyprus imports the raw material for the production of its electricity in the form of expensive heavy fuel oil (Mazout). The use of natural gas will certainly signal an end to the dominance of heavy fuel oil in power generation. This will mean reduced costs and increased competitiveness as well as reduced environmental damage. This will be offset against the cost of constructing the LNG terminal but the benefits of natural gas over heavy fuel oil are undeniable.

Andrew Demetriou LL.B (Hons) Barrister at Law, FCI Arb. Chartered Arbitrator, TEP Director 42 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

itself as an energy hub. The blossoming strategic cooperation with Israel is also significant in this respect. Israel, due to its political problems with the majority of its neighbours, is also effectively a small and isolated electricity system. Cooperation with Cyprus can provide security of supply to both countries at competitive prices. Strategic cooperation in the production of power itself for export via a submarine cable or of natural gas to Europe provides economies of scale and the possibility of shared resources which could make the Eastern Mediterranean region a major source of power or gas supply for Western Europe. The major gas discovery in Block 12 is expected to boost plans to replace oil and coal with gas. How will this affect consumers? It will certainly bring lower fuel prices and, as a result, it will make businesses and what local industry there is more competitive. The cost of electricity has become a major expense for businesses and households. Much is made of Cyprus having the highest electricity prices in Europe and the EAC is often unfairly blamed for this by people who should know better. Successive governments have failed the consumer. The delay in the use of natural gas as the basic source of fuel for power generation has cost hundreds of millions to the country and to the consumer. The blame for this lies at the door of successive governments and the same politicians who now complain – in a manner that is pure hypocrisy and populism – about the high cost of electricity. There are currently no specific tax laws on hydrocarbon exploration/ exploitation activities in Cyprus. Are the present corporate tax laws applicable or will new legislation be necessary? A tax-free environment for hydrocarbon profits was a major incentive offered to bidders in the first bidding round and second round bids through the model contract. This represents a significant

OANNIDES DEMETRIOU LLC is a full-service commercial law firm that has acted as legal advisor in some of Cyprus’ biggest financial

loss of income but I fear that Cyprus has made its bed in this respect and it will have to lie in it. If, indeed Cyprus does decide to tax future bidders then it will have to make it clear that hydrocarbons activities governed by future Production Sharing Contracts will be taxed and it will have to stick to its guns in the subsequent negotiations. This is not impossible as future bidders will face less risk than the first bidding pioneers. It is a matter of resolve. If and when this decision is taken, then legislation will certainly have to be introduced. An area where we believe legislation is required, even at this stage, is in the definition and delineation of hydrocarbon exploration costs, which are repayable by the government to the oil companies. This is a possible source of future contention and the government should look into it and introduce uniform, fair and acceptable rules, thereby ensuring that there is certainty and transparency in the accounting function. Do you believe that the discovery of hydrocarbons in Cyprus’ waters could become a catalyst to promote a solution of the still unresolved Cyprus problem? No, but I think the existence of the Cyprus problem could prove to be an impediment to the proper and effective exploitation of the hydrocarbons. The recent discoveries are a national natural resource. The government has to find a viable method of sharing this with the Turkish Cypriots, solution or no solution. The sooner we can do this, the sooner we can begin to reap the benefits and the greater chance we will have of averting undue and unwanted Turkish and other third party involvement in the hydrocarbons sector, which is a sovereign right and resource of all the people of Cyprus. It is wishful thinking to believe that the Greek Cypriots will be allowed to be the sole exploiters and beneficiaries of this resource, even if the Greek Cypriot administration is the only internationally recognised government in Cyprus.

deals. In the energy sector, it is permanent legal advisor to the main electricity provider on all regulatory, competition and environmental matters. The

At this early stage of natural gas exploration/exploitation, what services does Demetriou LLC provide to companies involved in the sector? Our involvement in the sector precludes Ioannides Demetriou LLC from providing services to the companies that have been awarded contracts for exploration, exploitation and production of hydrocarbons. We were appointed the legal advisors to the Government for the first and second bidding rounds and we continue to advise the Government on the three contracts that are in existence, at all times in cooperation with the office of the Attorney General of the Republic. This does not, however, preclude us from providing services to other companies involved in the sector, such as those providing support services to the companies holding exploitation and production-sharing contracts. We are in contact with such companies and we envisage that we shall be very active in the sector for many years to come, so much so that we are encouraging our lawyers to study and gain qualifications in natural gas contracting and negotiating. Additionally, as the only Cyprus members of the Energy Law Group (a specialist international grouping of law firms offering expertise and specialised services in the energy sector), we feel that we are very well placed to offer further services to the private and government sectors in the hydrocarbons industry as we can provide access to the full range of resources and expertise that the Energy Law Group has at its disposal.

CONTACT INFORMATION

IOANNIDES DEMETRIOU LLC

Head Office: 2, Diagorou St., ERA House, Floors 7-12, 1097 Nicosia, Cyprus. Tel: (+357) 22022999 Fax: (+357) 22022900 Website: www.idlaw.com.cy e-mail: info@idlaw.com.cy

firm is also the legal advisor for the LNG Project for Cyprus and acts for a number of international investment groups in renewable energy in Cyprus.

SPECIAL ADVERTISING FEATURE

KPMG LTD

ow significant are the hydrocarbon discoveries for the future of Cyprus, both on the socio-economic front as well as geopolitically? Hydrocarbon discoveries will definitely play a significant role in the future of Cyprus, both in the socio-economic and geopolitical aspects. Even though revenues from exports are not expected until 2020, the Cyprus economy will start generating benefits through investment growth in a number of related sectors including infrastructure (LNG & pipelines), professional services, property, education & training, research & development and biochemicals, to name a few. The geopolitical gravity is also shifting. It is now a good opportunity for Cyprus to enhance alliances with neighbouring states that can reinforce its geostrategic position in the area for mutual benefit.

Iacovos P. Ghalanos Board Member – Advisory Services Energy & Natural Resources Group 44 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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? It’s true that Cyprus’ energy system is currently heavily dependent on fuel oil. It is expected, though, that this will soon change. The partial liberalisation of the electricity market, efforts being made towards the import and use of natural gas for power generation (interim and longterm), the promotion of RES investments, the installation of modern cogeneration systems, the promotion of energy saving and the recent discovery (and hopefully future discoveries) of natural gas all indicate that the overall energy mix is going to change. The use of natural gas for power generation is expected to reduce electricity prices to some extent (through lower costs and reduced emissions) and to eliminate the country’s dependency on expensive imported oil. Furthermore, DEFA is designing the internal gas network infrastructure connecting the Gas Import Hub with the three existing downstream Power Stations at first instance and later to industries, hotels and households. Natural gas may also be used in transport for fuelling cars, buses, etc., creating a new opportunity that needs to be addressed and exploited.

Currently the EU produces around 48% of its energy needs within the Union and imports the remainder. Its gas imports are mainly from Russia, Norway and Algeria. Isn’t this an area that is perfect for Cyprus to step into? Indeed, Cyprus can be an alternative source of gas supply to energy-hungry Europe even though means and routes of export are yet to be defined. A Memorandum of Understanding was recently signed for the development of an LNG plant in the Vasilikos area which is expected to be able to handle exports by the year 2020. Geopolitical as well as financial and technical aspects will need to be carefully considered before this option materialises. How great a contribution can Cyprus’ gas reserves make to Europe’s energy security and energy needs? Over the years, the EU’s dependence on imported natural gas from Russia has increased. It is no secret that European officials have become increasingly concerned about the potential for cut-offs or curtailments of Russian natural gas supplies to Europe and this has induced them to look for supply diversification options. The recently announced Trans-Adriatic Pipeline (TAP), which will transport natural gas from the giant Shah Deniz II field in Azerbaijan via Greece, across Albania and the Adriatic Sea, will come ashore in southern Italy, allowing gas to flow directly from the Caspian region to European Markets. Furthermore, exports from Cyprus and the Eastern Mediterranean (Israel recently announced a 40% export limit), could provide the additional security that EU is seeking. The major gas discovery in Block 12 is expected to boost plans to replace oil and coal with gas. How will this affect consumers? As previously mentioned, it is expected that the use of natural gas for power generation, as well as for industrial and domestic use, will reduce electricity prices to some extent and benefit consumers. The actual extent, though, can only be determined after considering relevant exploration, exploitation

PMG is a global network of professional firms providing audit, tax and advisory services through 152,000 outstanding profession-

and infrastructure costs as well as reduced greenhouse emissions. A number of side benefits will also emerge through the use of gas in transport as well as development of other interrelated sectors. There are currently no specific tax laws on hydrocarbon exploration/ exploitation activities in Cyprus. Are the present corporate tax laws applicable or will new legislation be necessary? Upstream oil and gas exploration and exploitation activities in Cyprus are undertaken under a production sharing contract (PSC) scheme, signed between the Cyprus Government and the Licensee as opposed to a Royalty or Tax scheme whereby International Oil Companies/ Operators adhere to specific tax rules for the industry. Under a PSC scheme, the Government will be entitled to a certain percentage of the hydrocarbon profit (profit oil & profit gas) resulting from the hydrocarbon operations undertaken by the operator or contractor in Cyprus at its sole risk, cost and expense. Furthermore, the applicable Corporate Income Tax (CIT) will be deemed to be included in the government’s share of profit oil and profit gas and, therefore, the portion of the available hydrocarbons that the operator or contractor is entitled to will be net of CIT. Do you believe that the discovery of hydrocarbons in Cyprus waters could become a catalyst to promote a solution of the still unresolved Cyprus problem? Yes, Cyprus’ hydrocarbon reserves could become a catalyst in solving the Cyprus problem. On the other hand it may also prove to be an obstacle if a mutual understanding is not reached on exploitation for the benefit of all Cypriot citizens. In the past, political reasoning has failed to bring reunification of the island. Financial incentives, though, might be more powerful in settling a conflict than politics alone if different parties both stand to benefit. Although Cyprus’ natural gas discoveries are recent, your company has been involved in providing services to inter-

als working together to deliver value in 156 countries worldwide. KPMG in Cyprus traces its origins back to 1948 and is one of the largest audit and advisory

national companies involved in the sector for some time. What services does KPMG provide? For a number of years now, KPMG in Cyprus has had a specialised, dedicated group focusing on the Energy and Natural Resources sector. It comprises high calibre professionals with financial and engineering backgrounds who have the technical knowledge and experience to provide the full range of Audit, Tax & Advisory services to the Energy/Hydrocarbons sectors. Our local team has formed close links and is supported by KPMG’s International Oil & Gas practice that has presence in various dedicated oil & gas centres of excellence in key energy hubs around the world, working as part of our global network. Our strong relationship with the various centres of excellence in the oil & gas sector enables us to draw resources and share knowledge in order to best serve our clients. How great a role does KPMG play in the provision of services to the global energy sector? KPMG is considered as one of the key service providers in the global energy sector. We provide services to 76% of the top 50 Oil & Gas companies in the Forbes 2000, 60% of Oil & Gas companies in the FT Global 500 and 70% of the largest refining companies in the Fortune Global 500. Our share of the power and utilities companies on the FT Global 500 exceeds 80%. It is no coincidence that the majority of companies in the energy sector have associated themselves with KPMG. Our goal is to assist our clients in meeting the challenges of our times and their needs.

CONTACT INFORMATION

KPMG

Head Office: 14, Esperidon Street 1087 Nicosia Tel: (+357) 22209000 Fax: (+357) 22678200 Website: kpmg.com.cy e-mail: nicosia@kpmg.com.cy

organisations in the country. From 6 offices throughout the island, more than 750 professionals work closely with clients of all sizes active in all industries.

SPECIAL ADVERTISING FEATURE

anitis Green Energy Group, a subsidiary of N.P. Lanitis, is the only group of companies in Cyprus which operates exclusively in the green energy sector and the emerging energy market in general. The company offers a full range of services in Renewable Energy Sources (RES) and Energy Conservation (EC) including trading, manufacturing, production, energy saving and consulting.

The Group offers a broad spectrum of specialized products and services in photovoltaics, solar thermal and geothermal systems, liquefied petroleum gas, energy saving as well as automation systems. The vision and strategic objective of the group is to remain a dynamic player in the emerging energy market of Cyprus and to introduce and implement new technologies, products and services in the sector. Its primary goal is to intensify the scale and the synergies in order to maximize benefits for existing and potential customers, partners and other member companies. Lanitis Green Energy Group, in collaboration with the Cyprus Energy Agency (CEA) have put in place

today the standards of tomorrow by introducing a comprehensive energy plan which aims to minimize the energy consumption to practically zero, both for residences and commercial structures. This concept contributes actively to the European target to reduce CO2 emissions and to limit the greenhouse effect which is estimated to reach up to 20% by 2020. With this pioneering venture, the Group now offers complete solutions relating to production and saving through its subsidiaries and selected partners, validating that environmental protection and economic success are of equal concerns and not contradictory ones.

Lanitis Green Energy Group

mbracing the commitment to participate in the development in the energy sector and to positively contribute to the countryâ&#x20AC;&#x2122;s economy, Lanitis Green Energy Group & Caramondani Bros Consortium had major recent success in the PV Bidding Competition with the Ministry of Commerce, Industry & Tourism for photovoltaic park licensing -generate and sale of electricity.

Permits were obtained for 6 of the 23 projects amounting to 21.9MW of the 50MW given. The Consortium secured the license for the largest project of the competition, the one of 10MW, which will also be the largest project in Cyprus. Such projects are especially vital during this difficult economic period as it will open doors of opportunity for funds and revenue of

such developments to remain in the country, attract foreign investors and create more positions in the working environment. The strategic goal of the Group is its dynamic presence in all areas of the emerging energy market and to discover innovative products and technologies through selected partners both in Cyprus and abroad.

iming to create a company that will continue to play a pioneering role in the Cyprus renewable energy market, Conercon and Lanitis Solar have joined forces to form Conercon Energy Solutions. This recent merger reinforces the dynamic presence in the market which these companies held over the last 9 years, utilizing the synergies to offer the best possible products and services.

Conercon Energy Solutions fully uses the latest technologies in the design, sale and installation of photovoltaic and solar thermal systems as well as for automation systems of the highest standards both for residential and commercial industries and large-scale PV parks. The company provides complete solutions from initial design and planning to installation and maintenance of systems. Having put in place a long-term development program in the broad sector of renewables, the company

successfully has installations to date, exceeding 12MW in photovoltaics as well as a significant number of solar thermal systems covering a total area of 2468mÂ˛. Through this long-term energy program, the strategic goal of the company is the selection of renown/prominent/well-recognized global partners and suppliers in the renewables industry thus ensuring both physical and legal entities, the highest return on investment while guaranteeing top quality. Such international companies

include SchĎ&#x2039;co, Conergy, Luxor, SMA, Siemens, and Kaco.

ergy GmbH and the Swiss STUDER Innotec in Cyprus.

With a fully staffed technical department, both in equipment and labour force, Conercon Energy Solutions firmly stands by the client even after the initial investment in providing the entire range of services, technology and expertise in the renewable energy field. Proof of this expertise and experience is confirmed with the exclusive collaborations with Authorized Service Partner of the German company Kaco New Section En-

Realizing that the use of renewable energy has become a priority, the shift to clean energy sources is perhaps the only way to reverse climate change already threatening the planet, while reducing dependence on traditional forms of energy; a position which firmly aligns with the principles of Conercon Energy Solutions to make a difference.

SPECIAL ADVERTISING FEATURE

anitis Gas was founded in 2005 and is the exclusive distributor in Cyprus of the liquefied petroleum gas (LPG) Agip-Eurogas supplied by Petrolina Holdings. In a brief time period, the company has established itself as one of the most competitive companies in the LPG sector, providing services in the field of trade/sale and distribution of LPG in cylinders.

With ample storage space, a wellorganized sales network covering all of Cyprus and a large fleet of vehicles at hand, Lanitis Gas is fully equipped to meet the market needs, whatever the requirements. The company supplies gas cylinders to supermarkets, small and large retail

outlets, restaurants, cafeterias, etc offering services in its relevant field. LPG, as one of the most efficient and environmentally friendly types of fuel, nowadays constitutes one of the major energy needs in almost all areas of everyday life: for heating, in the catering industry, industrial areas and as a propellant.

In an effort to respond vigorously to these requirements, Lanitis Gas founded the subsidiary company Lanitis GasTech in 2010, which deals in the promotion, sale and distribution of bulk LGP.

anitis GasTech and Chryssafidis SA sealed an exclusive cooperation for the supply of materials and components relating to gas and natural gas for the Cyprus market.

Lanitis GasTech is now a major supplier and exclusive representative of prominent firms in this sector such as: Spirax, Sarco, Klinger, Ebro, RMG / Bryandonkin, EffebiI, Luval, Saunders, Crane, Rego and Recomb.

In conjunction with the relevant technical and scientific know-how and the acquired broad experience in the general use of LPG, the company is well positioned to provide complete solutions pertaining to the most demanding LPG bulk cases.

The supply of specialized and certified equipment, the study and design of the installation in accordance with customer requirements, installation and inspection of LPG systems and the distribution of gas, compose the main activities of the company, which are always based on safety, cost saving and compliance with all relevant legislations.

Lanitis Green Energy Group multirooming

ounded in 2007, Eti Fotos maintains a strong presence in the market of quality building automation using the KNX-EIB Instabus system for lighting, electric blinds and electrical installations, cooling/heating controls, multi-room sound systems and hidden lighting structures. Intercom and access control systems are also available as well as wireless automation systems and electrical automation equipment for hotels. The company specializes in the study and design for professional lighting for offices and other commercial buildings and also provides a wide range of fine quality indoor and outdoor light fixtures for both residential and commercial areas, LED lighting systems and tailor made designs for hidden lighting.

C o n s u l t i n g

Services include energy audits and valuations of existing systems, energy saving technical studies, project management, consulting saving energy techniques and seminars for renewable energy & saving energy and certifications of system EN 160001:2009.

The company imports and provides the required technical support for automation materials of Siemens mechanical air-conditioning and heating installations. Eti Fotos has secured very strong partnerships and represents leading brands known for their excellent quality and highest standards such as: JUNG - high

end switches & automations, WHD -TCS sound systems, video intercom systems, intercom and access control systems, Siemens â&#x20AC;&#x201C; mechanical equipment, building , HVAC, Osram -lighting systems and Visiomaticvisual systems, touchscreens, central audio and video systems.

oday, energy efficiency and effectiveness, combined with energy saving systems poses a great challenge. LGEG Enercon Consulting Ltd offers a wide range of services relating to the renewable energy sector.

Moreover, Enercon provides cohesive consulting services, as per relevant recent legislation, such as studies on energy performance of buildings -evaluation and development of alternative energy sources-, and design and installation of renewable energy systems thereby utilizing the best options for conservation and energy consumption.

SPECIAL ADVERTISING FEATURE

PAMBORIDIS LLC

ow significant are the hydrocarbon discoveries for the future of Cyprus, both on the socio-economic front as well as geopolitically? The discovery of hydrocarbons is the single most important event that has happened to Cyprus since its independence. It can only be compared in significance to the country’s accession to the European Union and I would still argue that the hydrocarbons are potentially much more significant that EU membership itself. I say “potentially” since everything will depend on whether we play our cards right. If one considers that Cyprus stands to receive a foreign direct investment of around €25 billion, solely for infrastructure projects such as the LNG Terminal, the pipelines and the port facilities, and all this within a period of 5 years from today, one may appreciate how valuable the growth of this field could prove for the local economy. Furthermore, and subject to Cyprus playing its cards right, the synergies which could arise between Israel and Cyprus (and also between Lebanon and Cyprus) could elevate Cyprus into becoming a regional factor for peace, stability and prosperity as well as the local bastion of EU values in the region and the contact point of Brussels with the Middle East. 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? The first direct result of these discoveries will be the cost of local energy production. Just by converting from imported oil to locally-produced natural gas, the benefit to the economy and also the environment will be huge and immediate.

Dr. George Pamboridis Senior Partner

50 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Cyprus’ reserves are potentially big. Some speak of 60 tcf. However, for the time being we are only hoping to receive confirmation of 7-9 tcf (from Block 12). These reserves represent only a tiny fraction of what the EU will require by 2020 when our natural gas will be commercially exploitable. Now, if we make the right moves and we manage to build long-term partnerships with other countries in the region (e.g. Israel or alternatively Lebanon or why not both?), then the so-called East-Med Corridor could become a viable alternative to the traditional natural gas providers (Russia) or even the new ones (Azerbaidjan). Furthermore, the EU has now declared natural gas as its preferred fuel which, in itself, is bound to increase the demand for natural gas in Europe. The fact that Norway has already announced that it will gradually stop exporting its gas to the EU, along with the anticipated growth in Africa and the ever-growing demand for natural gas in Asia (see China, Korea and Japan with their policy to reduce their dependence on nuclear energy), will possibly result in a decrease in supply. Subject to what is happening in the field of Shale Gas production, this could be a perfect opportunity for Cyprus and the other Eastern Mediterranean countries. How great a contribution can Cyprus’ gas reserves make to Europe’s energy security and energy needs? It all depends on the final quantities that we manage to drill and, of course, on whether we manage to convince our neighbours (Israel and Lebanon) to join forces with us. In any event, any discovery is a positive contribution to the energy security of the EU. That said, for Cyprus to contribute substantively to the energy security of Europe, we need to take the initiative to play the role of a regional leader and work to create commercial as well as political synergies among the countries of the region.

AMBORIDIS LLC is a general commercial and corporate law firm with offices in Nicosia and Athens. It was founded in 2003

The major gas discovery in Block 12 is expected to boost plans to replace oil and coal with gas. How will this affect consumers? The cost of the raw material should decrease dramatically. However, this is not the only parameter which affects the final per kilowatt cost. If the EAC is modernised by getting rid of all the “fat” it has accumulated over the decades, and is properly restructured in a manner which will allow free market economics to operate, then I expect our electricity bills to be reduced significantly. If not, no real reduction will be seen. There are currently no specific tax laws on hydrocarbon exploration/ exploitation activities in Cyprus. Are the present corporate tax laws applicable or will new legislation be necessary? The model that Cyprus opted for (i.e. the Production Sharing Contract model) excludes such activities from any taxation. And I think this is a much better model compared to the one chosen by Israel, which subjects all foreign investors to the possibility of new taxes. I am against any form of taxation on these activities; they would just drive foreign investors away. For example, Israel decided last year to increase the applicable taxes, thereby turning the tables on foreign investors like Noble Energy which came in at a time when there were no hydrocarbon discoveries. It is always tempting for politicians to impose taxes so, in my opinion, the system chosen by Cyprus protects our investors and ourselves from such stupid moves. Do you believe that the discovery of hydrocarbons in Cyprus’ waters could become a catalyst to promote a solution of the still unresolved Cyprus problem? If we know what’s good for us, yes. We are the ones who should use this weapon to our benefit. This in itself has the potential to change all the rules of

and is headed by Dr George Pamboridis, assisted by three Partners and a number of senior and junior associates in both jurisdictions. Its energy team is in

the game and elevate Cyprus to the level where it can actually set its own conditions on how the ‘day after’ should look like. Geopolitically, Cyprus is much more significant now than it has ever been. The discoveries off Cyprus and the ones off Israel have enhanced – and will enhance even more – the position of Cyprus vis-à-vis Turkey. We must work carefully and systematically to capitalise on this development and avoid wasting this new “weapon” until it is time to do so. And that time would be the point when Turkey’s growth is impeded by its stubbornness to comply with international law on the matter of Cyprus and also on the matter of the Exclusive Economic Zones (EEZ) in the Eastern Mediterranean. Although Cyprus’ natural gas discoveries are recent, your company has been involved in providing services to international companies involved in the sector for some time. What services do you provide? We provide legal services as well as corporate structuring services. We support clients engaged in offshore shipping services, consortia engaged in the creation of infrastructure projects related to Oil & Gas as well as E&P companies which seek to be engaged in the developments not only in the Cyprus EEZ but also those of Israel and Lebanon.

CONTACT INFORMATION

PAMBORIDIS LLC

Head Office: Pamboridis House, 45, Dighenis Akritas Ave., Nicosia Tel: (+357) 22752525 Fax: (+357) 22752800 Website: www.pamboridis.com e-mail: info@pamboridis.com

a position to represent clients throughout the energy sector, from national and international oil companies through to funders, investors and the government.

SPECIAL ADVERTISING FEATURE

POWERIMAGE SERVICES LTD

Nora Dikaiou (seated) & Stephanie Dikaiou Managing Directors 52 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

ow significant are the hydrocarbon discoveries for the future of Cyprus, and how will they change the local energy sector that has always been so highly dependent on oil? Nora Dikaiou: The hydrocarbon discoveries in Cyprus present opportunities but, at the same time, great challenges for the country. The opportunities mean using environmentally-friendly fuel for the country’s power stations (still working on expensive oil) and local industry plants as well as for domestic use. New jobs will be created for thousands of people in various related professions who are currently unemployed due to the financial crisis. Consequently, in the long run it will help restore the country’s problematic economy. It also presents great challenges due to regional political conflicts. More specifically, Turkey – with the excuse of acting on behalf of the occupied northern Cyprus and the Turkish Cypriots – is using its military strength to ensure that its policies are met, irrespective of the fact that the Republic of Cyprus is a EU member state and that the international community supports the right of the Republic of Cyprus to undertake oil and gas exploration. Stephanie Dikaiou: Our country lies at the middle of an energy crossroads and in a geographical region where nations are thirsty for energy. Therefore there is a great opportunity to export natural gas. At the same time, Cyprus will become less dependent on other countries to meet its energy needs. I believe that Cyprus can become a centre offering services to energy companies and thereby boost the Services, Shipmanagement, Construction and Engineering sectors. However, the major challenge is in the hands of the government. There needs to be a strong vision and strategy in place in order to handle the geopolitical issues in a smart way and to give local and international companies the right incentives to invest in and develop these sectors.

Currently the EU produces around 48% of its energy needs within the Union and imports the remainder. Its gas imports are mainly from Russia, Norway and Algeria. Isn’t this an area that is perfect for Cyprus to step into? Nora Dikaiou: This is definitely an area that Cyprus must step into for all the above-mentioned reasons. However, at present the entire estimated gas reserves of the Republic of Cyprus would only supply a small part of the EU’s annual gas consumption but this will nevertheless enable the EU to diversify its natural gas sources and reduce its dependence on Russia (25% of its gas imports). As exploration/exploitation in Cyprus is just beginning, there might be considerably more gas and therefore an even greater supply to the EU in the future. Stephanie Dikaiou: I attended the recent IMH Natural Gas Conference where industry specialists noted that Cyprus will only need a fraction of its gas reserves for local use. It is therefore very important that we build a strategy to achieve strong exports which will benefit both the EU and Cyprus. However, on the political front, we need to make sure that we don’t give the impression that we are competing with the Russians in exporting gas. The government needs to handle this issue carefully because our economy still depends a great deal on Russian investments. The discovery in Block 12 is expected to boost plans to replace oil and coal with gas. How will this affect consumers? Nora Dikaiou: It will offer consumers an alternative solution and a cheaper source of energy. However there is a need for infrastructure so that this new energy is easily accessible to meet consumers’ needs. Stephanie Dikaiou: Natural Gas could be one of the principle sources of energy for many day-to-day needs and activities and it has historically been better value than electricity as a source of energy in

OWERIMAGE/MISCO CYPRUS offers a wide range of tailor-made interventions, customised to fit each company’s unique needs, providing a comprehensive range of HR business services,

the home. Therefore, once the distribution channels are built, consumers could directly benefit from its use. But processing and manufacturing plants could also benefit from it, lowering company overheads significantly and thereby improving their financial performance. Do you believe that the discovery of hydrocarbons in Cyprus’ waters could become a catalyst to promote a solution of the still unresolved Cyprus problem? Nora Dikaiou: We believe that the discovery of hydrocarbons will definitely provide an incentive for the Turkish Cypriots to come to a solution and this is a motive for both parties – Greek Cypriots and Turkish Cypriots – to expedite a just, functional and viable solution to the Cyprus problem so that both communities can enjoy the natural wealth of the country. At this early stage of natural gas exploration/exploitation, what services does PowerImage Services provide to companies involved in the sector? Stephanie Dikaiou: As mentioned above, the region around Cyprus has proven to be rich in natural gas reserves and, at the same time, it is at an ideal geographical location where energy-thirsty countries can have easy access to our natural gas. Therefore, we envisage that Cyprus will become a service centre for energy companies and key providers to the energy industry and, at the same time, it will be the entry to neighbouring countries with gas reserves such as Israel, Egypt and Lebanon. With this vision in mind, we have created a new subsidiary company called PowerEnergy with the aim of servicing energy companies and their suppliers with specialised Human Resources services. We have sourced a strong pool of expert associates and professionals in the field of energy which enables us to provide specialised services such as finding the right talent, organising training for the industry, offering market entry and

products and solutions that help clients grow and succeed by better managing their operations and employees. The firm endeavours to provide superior client service and build long-term client relationships.

Human Resources consultancy solutions. Our philosophy is to look at our clients’ challenges through the lenses of business strategy, organisational structure and talent management. The benefit for working with us as compared with other international one-stop solution consultancy companies is that our clients will receive the highly specialised services needed in such a specialised industry. Furthermore, as a small but dynamic company, we offer our clients proper attention and care with a flexible approach and very competitive pricing. Nora Dikaiou: Additionally, through the mother company PowerImage/ MISCO Cyprus, we provide our clients with market research for their Oil and Gas industry needs as well as advisory services on Joint Ventures for identifying and selecting local partners and suppliers. Backed by a network of professionals with experience in the energy sector, we are able to offer our clients a fully integrated service. So what’s next for PowerEnergy? Stephanie Dikaiou: Although it is too soon to announce anything specific, we are currently preparing manuals and handbooks for the industry which will be available in September and a specialised training programme which will run in October-November. We shall publish more specific information in the coming months via our websites and LinkedIn and we intend to approach companies that are active in Cyprus and those that are located in neighbouring countries.

CONTACT INFORMATION

POWERIMAGE/MISCO CYPRUS Head Office: 37, Constantinos Paleologos St., 1015 Nicosia Tel: (+357) 22660006 Fax: (+357) 22661222 Website: www.powerimageservices.com e-mail: team@powerimageservices.com

Through its subsidiary PowerEnergy, it offers specialized Human Resources solutions to local and international energy companies and their suppliers in Cyprus and abroad.

GERMANY

How to Deal with German Champions By Gabriela Guellil

E ermany is not and ne er will be a superpower 54 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story_soccernomics.indd 54

09/07/2013 10:23

urope’s strongest economy, with booming exports and record employment levels, balanced national budgets, and with investors accepting de facto negative interest rates for State bonds, is attracting international admiration. To top it all, two Bundesliga clubs made it to Wembley this year in a historic first: never before has there been an all-German Champions League Final. Bayern Munich – the last German team to win the trophy in 2001 after two previous consecutive failed attempts – won the 2013 title in an intense match against Borussia Dortmund who last triumphed in 1997. Moreover, we should not forget that the German women’s football team VFL Wolfsburg won the Women’s Champions League final against Olympique Lyonnais this year. Being number one in football is gender equal! “Weeeeee are the Champions! We are the Champions....!” Are we? Big headlines can be misleading if you neglect the fine print hidden behind the “we”. Bayern Munich achieved what no other German Bundesliga team had ever managed in the past: winning the “Treble” – the League, the Cup and the Champions League in the same season. Bayern Munich is a famous German club, of course: the most prominent and the richest of all. However, for all its local Bavarian traditions and profile, Bayern is anything but a purely German team. Instead, like almost all teams competing at this level, it is a multinational ensemble based in Germany but consisting of players from all over the world. Bayern Munich may be “made in Germany” but its quality components are a global mix of ability, skills and excellence. Many of Bayern’s top players are key members of different national teams – Ribéry (France), Robben (Netherlands), Van Buyten (Belgium), Alaba (Austria) and others from Latin America. Dortmund’s A-Team also includes non-German stars – their top scorers are very popular Polish players. This season, with a little help from our (foreign) friends, the German Bundesliga’s two

top teams are the best in Europe as well. This says a lot about the competitiveness of the Bundesliga. And so it is with Germany and the German economy: With a little help from our friends… These days, Germany enjoys AAA status in the economic arena as well as on the football pitch. There may be a link. Two years ago, a few days ahead of the May 2011 Champions League Final in which Barcelona beat Manchester United, the Financial Times likened Barcelona’s football to German engineering in the way they both hire and promote talent. Dortmund, in the heart of the Ruhr Region, and Munich, at the heart of Bavaria’s industrial centre, have successfully pursued a policy of combining local and global talent. “Made in Germany” stands for innovation and durability founded on German craftsmanship but Bavaria recognises international expertise as well. Despite the unprecedented success of Jupp Heynckes, the team will be coached next season by the undisputed Spanish star Pep Guardiola. If this further increases the quality of the team, it will be seen as a correct move by the club’s management. However, this has to be proven first by renewed success on the pitch.

We are incapable of dominating Europe and any such attempt would be self-defeating. The analogy goes even further. Competition is the essence of football and competitiveness the winning formula. The same is true for market economies: competition drives progress and competitiveness determines who succeeds. But even this is not the whole story.

Competition needs competitors. To win the Champions League there have to be teams performing at a comparable level. And not just any teams but strong competitors that make for a close match. Otherwise, there would be no tough game and we fans would lose interest. It is the quality of the challenger that provides the thrill as the winning team is forced to put on an outstanding performance. The legendary Liverpool manager Bill Shankly half-jokingly expressed his disappointment with the view that football is a matter of life and death, saying: “I can assure you it is much, much more important than that.” We football devotees feel the same when a game involving our team is teetering on a knife-edge. But we also know that we can afford such feelings because ultimately football is what it is – just a game. Economics is not. There have been times in European history when wars were the result or continuation of economic rivalries by military means. They were driven by zero-sum illogic: in peacetime, it could be translated into the formula “If you lose, I win” but in wartime it was “Only if you lose will I survive”. Fortunately, such attitudes belong to the past, not only and not least because of European integration. The EU is based on and thrives on the logic of the common good: peace, prosperity and democracy go hand in hand and we either enjoy them together or we lose them together. This logic is ineluctable, even for a country as big as Germany. True, in the economic Champions League we have been the ‘title holders’ for some years now, and with economic efficiency comes political power that puts us in a pivotal position in Europe – whether we (and others) like it or not. Arguably, never before has post-war Germany been so crucial to – and so influential in – a European Union engulfed by an unprecedented economic and financial crisis. Such a situation is bound to entail frustration: on the part of those outside Germany who accuse us of doing too little to stimulate recovery and showing too little solidarity with the weaker ones, and on the part of those inside Germany who fear that we are

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story_soccernomics.indd 55

Gold 55

09/07/2013 14:20

GERMANY

Info: Gabriela Guellil is the Ambassador of Germany to Cyprus

taking on too much of other peoples’ debt in what is too heavy a burden. Germany’s singular position has led some to assert that the “German question” is back; that Germany is too strong for a Europe of nation-states. But that is a myth. To dispel it, we Germans can point to facts and interests. A sober look at our lack of commodities and given production resources (size of population and economy, technological prowess and military capabilities) makes it clear that Germany is not and never will be a superpower: while we are stronger, we do not tower above others. We may play in the European Champions League but we do not qualify for the Global Champions League. Europe does. That is why even ‘big’ Germany has a fundamental interest in a strong Europe. Collective European sovereignty enables us to deal with other global players on an equal footing and thus promote our own interests and values. Europe is strong when its member states are strong. In today’s world, this strength mainly derives from economic and technological clout as well as political and cultural appeal. On both accounts, Germany needs Europe as much as Europe needs us. Our prosperity depends on a prosperous Europe because the single market is – and will remain – our most important trading place. As the country with the most neighbours in Europe, our stability is best ensured by belonging to a community of democratic nation-states. United in diversity and governed by the rule of law, Europe demonstrates that against all the historical odds, lasting peace is possible and such a Europe can act as a force for good in the world. So from a German point of view, we are incapable of dominating Europe and any such attempt would be self-defeating. But only ideologues or self-righteous hegemons would ignore the fact that how they see themselves may differ radically from how others see them. Germany can and should be criticised. We have no monopoly on wisdom and we are not perfect. But neither have oth-

less

competiti e ermany would help

nobody but hurt e erybody ers and nor are others. Germany’s is the only AAA-rated large economy left and we are the main anchor of the eurozone. To date, German taxpayers have taken on implicit liabilities of nearly €300 billion within the rescue mechanisms. With the backing provided by the German economy, the European Central Bank has taken measures and changed its role in the financial world on a scale unforeseen when it was established. So what is to be done if, as our critics believe, Germany wields too much influence and uses it in a detrimental way? Well, what would a football club do in order to catch up with a rival? Assuming that it could not rely on some mega-financier bailing or buying it out, it would have to adopt the harder and longer-term – but ultimately more sustainable – strategy of tackling weaknesses, nurturing homegrown talent and relying on innovation. This, the experts have shown, is what German football did a number of years ago, leading to an unprecedented success story. It does not work the other way around: you cannot expect your competitor to become weaker to save you going through the hardship of reform. It is the opposite of the outdated logic of wars cited above that relied on the weakness and eventual defeat of the enemy. To put it another way: by stopping hard daily training and hoping that others will do the same, one might aim to preserve the ranking but in a competitive environment this would obviously not be a successful approach. On the economic pitch, it is just the same. Allegedly ‘over-competitive’ Germany is being asked to ease up so that others

can catch up and imbalances in the eurozone may dissipate. But will a weakened Germany solve the problems of our crisisstricken partners? Who will benefit if the power of the engine is reduced? Think again. A less competitive Germany would help nobody but hurt everybody. An underperforming Germany would be weaker and thus less capable of extending a hand of solidarity. Such a Germany would also import less, which would be especially harmful to those of our neighbours who supply German companies. Some argue that the German car industry is ‘too strong’ and asphyxiating other (European) manufacturers. It should be borne in mind that German automobile exports, for example, have an import content of 25%. So we lose, you lose! You are competitive, we are more competitive! Let’s not forget that in this sector, as in many others, our main competitors are located in third countries like Korea. Lastly and most importantly, unlike the UEFA Champions League, the benchmark of economic competitiveness is global. Europe’s prosperity depends on our ability to measure up to the likes of the US, Japan, China and India or Brazil as well as to ensure a level playing field on global markets. So yes, we are the European champions: This year’s football crown went to a German club. But the economic crown belongs to Europe and the euro. For some years now, our euro team has been struggling and Germany has been asked to be both manager and captain. This situation cannot and should not last. Our team can and will be stronger only when we improve both our individual and our collective performance. And finally, even in football we still have to prove if a purely German team (the national one) can win the World Cup in 2014 in Brazil. I, for one, will be keeping my fingers crossed for our boys!

56 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story_soccernomics.indd 56

09/07/2013 10:24

‘NO-ONE IS PUNISHING CYPRUS’ Austerity is a consequence of the country’s own poor decisions, says US financial expert. By Kyproula Papachristodoulou

yprus’ own bad decisions are to blame for its current predicament, not those of the Germans or the Dutch who allegedly “don’t like the Cypriots”, says John Mauldin, the renowned financial expert and founder of Mauldin Economics whose Thoughts from The Frontline is the most widely read investment newsletter in the world. Each week, well over a million readers turn to Mauldin to better understand Wall Street, global markets and the drivers of the world economy. Mauldin, who spoke in Cyprus last month on Currency Wars and Quantitative Easing, also tells Gold that real test for the eurozone is going to come when France finds itself engulfed in a financial and economic crisis.

JOHN MAULDIN

ohn Mauldin is a renowned financial expert, a best-selling author, a pioneering online commentator and the publisher of the Thoughts from the Frontline newsletter, providing investors with free, unbiased information and guidance. His company Mauldin Economics publishes a number of investing resources, including both free and paid publications aimed at helping investors do better in today’s challenging economy. In addition to publishing, John Mauldin is co-sponsor and host of the annual Strategic Investment Conference for accredited investors that draws a faculty of some of the most respected investment and economic luminaries in the world. His books include The Little Book of Bull’s Eye Investing (2012), Endgame (2011), Just One Thing (2006), and Bull’s Eye Investing (2004).

Gold: Aren’t there basically two schools of thought when it comes to handling national debt and financial crises? The American way, which is to print money (quantitative easing) and the European way, which is austerity? J.M.: Nobody is forcing austerity on Cyprus. Austerity is not a punishment. It is a consequence of losing access to the bond markets. Cyprus had borrowed too much money; its budgets were too big. Why would anybody lend the country money when it was not acting responsibly? So austerity is a consequence of Cyprus’ bad decisions. When the island behaves in a responsible way, then the markets will be

58 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story2_john Mauldin.indd 58

09/07/2013 11:17

F INA NC E

willing to lend money to it again. Austerity isn’t a punishment that the Germans or the Dutch decided to impose on Cyprus because they don’t like the Cypriots! Regarding quantitative easing, if you can print money you should do it cautiously. For example, the Japanese say that they want 2% inflation every year. In order to achieve that, they have to devalue their currency by 15% every year. They are not going to get it internally. They are a dying nation with bad demographics and bad economics. Their banks are zombies that should have been allowed to collapse 20 years ago and they would be much better of. Now Japan is dealing with the consequences of 25 years of very bad decisions.

mutualisation of debt – is going to have its hands tied by the Japanese who are competing head to head with the Germans on machine tools and other products, especially in Asia. So when the Yen falls another 20%-30%, Germany will have to do something.

Gold: So you foresee a steady devaluation of the Yen? J.M.: If you look at it the way Japanese Prime Minister Abe does, his country has two big problems: very high debt and growth. How do you deal with that? There has been no growth for 24 years. and nominal GDP is still where it was in the 1990s. How do you run a business like that? You don’t. It is a bad business. The Japanese are in a situation where their only real path out of a shrinking economy is to devalue the Yen.

WHEN THE ISLAND BEHAVES IN A RESPONSIBLE WAY, THEN THE MARKETS WILL BE WILLING TO LEND MONEY TO IT AGAIN

Gold: Analysts have described Japan’s debt as the biggest financial nuclear bomb on the planet. J.M.: It is. No question. Gold: What about the US debt? J.M.: It is still manageable today. If we do not fix our problems, in five years it will not be manageable. That’s why I can’t tell you what to do in the next five years. I do not know what my politicians will be doing in five years. Gold: High levels of debt, though not like those of Japan and the US, exist in Europe as well. J.M.: Regarding Europe, I believe that the biggest future problem is France. The country is very close to getting out of control and that is when Europe will face its real crisis. Italy is a very small problem compared to France. I think what will happen with the European debt, is that Germany – which is resisting to

Gold: What can it do? J.M.: It can allow the ECB to print money and do that by allowing mutualisation of debt. If France is on its knees in a crisis, it will agree to things that it would not normally agree to now. So the Germans will get their way and they will mutualise the debt before turning the ECB on and the euro goes to parity with the dollar within a year.

Gold: And what will the other European countries give up in order to agree to debt mutualisation? J.M.: European countries will have to give up their sovereignty. It all comes down to how much they want to keep the European experiment alive. Gold: Do you think that they want to keep the euro alive? J.M.: I think they want to, absolutely. A nightmare scenario for Germany is to go back to the Deutschmark. It would immediately become so strong that they would become uncompetitive. Germany

does not want to become Switzerland. Today’s world is upside-down! The time for Germany to figure out what to do in the future was before they adopted the euro or maybe a few years after, surely not today. I wonder what the Dutch would do. They don’t compete with the Japanese and they don’t necessarily need a weaker currency. The Dutch could leave the euro and have their own currency and if their currency got stronger they would simply say, “OK, it got stronger”. Gold: So currency is a main consideration that investors should have in mind when deciding what to do with their money right now? John Mauldin: Yes. For international investors, the first single most important decision they have to take is not whether they want this company or that one but in what currency they want their investment to be denominated. As a consequence, if they want to buy a stock in a company, they have to determine if they can hedge against the currency that they want to be in. For example, you might want to own shares in Japanese companies but you do not want to own Yen. The currency between now and the latter half of this decade will become the most important allocation decision that an investor can make. You can talk about buying gold, stocks, corporate bonds, whatever. But the question is: In which currency? Because at the end of the day, money is just buying power. I have X amount of money; what shall I buy with it? If your buying power goes down because you are in the wrong currency, then you actually have no power. Gold: How does an investor go about deciding on a currency? J.M.: By looking first at what the central banks are doing and then at what the politicians are doing. As I said before, it’s an upside-down world! Politicians have always played an important role but not the most important one. It used to be different. If I wanted to buy Apple stocks, I would have to determine if Apple had a better product than Samsung. Now, not only do I have to know that but I also have to decide in what currency I want my investment to be denominated.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story2_john Mauldin.indd 59

Gold 59

09/07/2013 11:17

OPINION

No weapons of Mass Destruction in Cyprus The Troika puts a different spin on the Moneyval/Deloitte findings

espite the unjustified attacks and highly exaggerated accusations made a few weeks ago about Cyprus being the epicentre of money laundering worldwide, the global media are now finding headlines elsewhere and the bright spotlight of publicity is shining on their next victim. The Eurogroup, meanwhile, issued a plain announcement, (which was not even regarded as worth publishing by the majority of the press and media) expressing its satisfaction with the outcome of the independently-assessed (Moneyval/Deloitte) Anti- Money Laundering (AML) reports and their conclusions on Cyprus. This, incidentally, was the very first of its kind, according to Moneyval, the statutory body responsible on behalf of the Council of Europe. Although the Moneyval/Deloitte reports have been treated as confidential, the Troika’s summary of the reports was not and it was leaked to the media. The four-page document intentionally omits the many positive and assertive findings of the Moneyval/Deloitte reports and focuses on the negative findings (which clearly exist too but not to the degree, the frequency and the magnitude which the language used in the summary document implies). No other EU Member State has been subjected to such a rigorous and exhaustive AML check to date. This is a fact. For obvious reasons, the summary document drawn up by the Troika has a negative bias and clearly attempts to present a picture that does not fit the findings of Moneyval/Deloitte reports. Not only that, it even arbitrarily states that Moneyval has now negatively assessed the previous favourable standing of Cyprus. This is one of the many instances where reality blends with wishful thinking since nowhere in the Moneyval/Deloitte reports is such a statement to be found. The document states that Deloitte’s analysis

No other EU Member State has been subjected to such a rigorous and exhaustive AML check to date

By Costas Markides

exposes “systemic deficiencies in the implementation of preventive measures by the audited institutions”. This statement could not be further from the truth. Cyprus is fully compliant with all the European Directives regarding the procedures followed on money laundering prevention. It is worth mentioning here that Cyprus applies a stricter threshold than any other EU Member State to identify beneficial owners of legal entities: in Cyprus a 10% ownership must be disclosed, while the EU benchmark is 25%. According to the Troika summary document (extensively reproduced in the German media), 29 “potentially suspicious cases have been identified in the last 12 months alone”. The Troika summary diligently omits to reveal that this number was negligible compared to the total number of cases thoroughly examined (570,000 cases) and the fact that the Banks under examination provided full explanations, even for the handful of “suspicious” cases identified. There is no doubt that Money Laundering is a serious issue. Perhaps the time has come for every country in the EU to voluntarily undergo a routine but thorough AML check similar to the one imposed on Cyprus, especially countries hosting banks that have shown vulnerability in the past when it comes to money laundering activities. Cyprus is fully committed to the highest transparency standards and is one of the countries on the OECD White List. As a result, according to the Minister of Finance, it will take into consideration the recommendations and suggestions of the Moneyval/Deloitte reports and take action as necessary. We all agree and bid higher on the need to modernize and update existing sectors (Registry of Companies), to automate and bring systems and procedures up to speed (as per the findings of the Moneyval/Deloitte reports) in an attempt to turn around the image that Cyprus currently has in the eyes of foreign investors. Cyprus is small only in size. It is not small in dignity and certainly not in integrity.

info: Costas Markides is Member of the Board of KPMG. 60 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

opinion_markides.indd 60

09/07/2013 10:45

Serving the Oil & Gas Industry Naturally resourceful

With more than 2,500 oil and gas professionals worldwide, our Oil & Gas practice is focused on providing audit and enterprise risk services, tax services, consulting services and financial advisory services to companies in all segments of the Oil and Gas industry. Our oil and gas industry specialists help our clients develop solutions for capitalizing on the opportunities and managing the challenges. Deloitte member firms serve: · 63% of the world’s top 60 Oil & Gas companies · 43% of national oil companies In Cyprus, Deloitte serves the major industry participants. Our professionals have access to up to the minute market intelligence, can respond promptly to industry developments and are able to provide informed comment and background information to clients.

www.deloitte.com/cy

RESTO CREDIB The US wants to see Cyprus back on its feet and attracting more international investors. By John Vickers. Photograph by Jo Michaelides

he United States believes that the EU, and the eurozone in particular, needs to make a more concerted effort to encour encourage economic growth and to promote further integration in the financial sphere. Cyprus should focus on restoring its credibility as a financial and service centre for international business and, by taking the right decisions, it can expect considerable interest from US investors who will help the country regain its reputation and status in the region. John M. Koenig, Ambassador of the United States of America to Cyprus, tells Gold why he is optimis optimistic about the islandâ&#x20AC;&#x2122;s long-term future.

62 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story_USA.indd 62

09/07/2013 10:28

I NT ER V I EW

ORING DIBILITY Gold: The US and the European Union have used very different methods to solve their economic crises (bailouts and quantitative easing vs bailouts and austerity). What are your views on the advantages/ disadvantages of each method? John M. Koenig: In 2008-2009, when discussions first began in the context of the transatlantic effort to coordinate the response to the financial crisis (which, as everyone knows, started in the United States) I was temporarily serving as Chargé d’Affaires in our Embassy in Berlin. At that time, the differences were already very evident. I then went on to do something else for three years and when I came back I saw that the differences still remained, essentially exactly the same as they had been back in 2008-2009. Clearly, this has been a subject on which the United States and the European Union – and the eurozone

in particular – have not seen eye to eye despite extensive consultation over about five years. Gold: So who is getting it right? J.M.K.: It’s not a matter of saying who’s right and who’s wrong. Let’s just look at the results. In the United States we are now going through the 37th month of job growth – we’ve added more than 6.5 million jobs. We’ve had 14 consecutive quarters of growth, we are seeing our deficit get under control and growing out of the problem that we had, plus some aggressive measures on the fiscal side that are bringing the deficit down. In Europe, on the other hand, we’ve seen six quarters of more or less consecutive contraction, unemployment is at record levels in many eurozone member states and youth unemployment, in particular, is in the catastrophic range

in some key southern economies. So this is why I say we shouldn’t argue about who’s right and who’s wrong but rather we should look at the consequences of consistently following one policy or another. We are really looking to Europe now to rebalance, especially in the surplus countries, towards greater support for expansion and growth. Gold: Isn’t one of the problems the fact that the US is one country whereas the EU is made up of 27 or the eurozone 17 and this makes for big problems? J.M.K.: It certainly creates a more complex policy environment in Europe than in the United States, even though the United States is complex enough. Europe has moved forward very successfully in terms of full integration in some spheres while national sovereignty is retained in others.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story_USA.indd 63

Gold 63

09/07/2013 10:28

We believe that it’s time the Europeans moved forward with more determination, particularly in the financial mechasphere, not only to have a single supervisory mecha nism, for example, but to further integrate with regard to the resolution mechanisms in the Union and to do something about the further integration of deposit insurance so that it doesn’t remain a national responsibility. Gold: How do you respond to the observation that the US is an “economic time bomb” given its huge debt? J.M.K.: While it is true that we have a cumulative national debt of about $16 trillion, we have an annual GDP of something in the neighbourhood of $15-16 trillion. The deficit is now coming down and it’s going to be well under $1 trillion this year. The United States continues to be able to borrow funds at a very reasonable rate of interest. People talk about the large amount of sovereign debt from the United States that is held by China but essentially this is simply another element of the close interaction and integration between the world’s two largest economies. With regard to the sustainability of our national debt, the President believes that we can strike a “grand bargain” that will address some of the long-term drivers of budget deficits in the United States. But right now our main focus is on growth and creating jobs and the news is very good in that regard. Gold: What was your reaction to the Eurogroup’s decision to impose a ‘haircut’ on uninsured bank deposits in Cyprus as part of the restructuring of the banking sector? J.M.K.: I was, of course, very interested in following the news closely. The situation here was extremely grave so a sustainable arrangement for addressing both the banking crisis and Cyprus’ fiscal difficulties had to be found. In the end, the United States engaged quite robustly behind the scenes in close consultation with the key players in order to ensure, first and foremost, that an agreement was reached in this critical period because it had become a crisis, especially between the first and second Eurogroup sessions in Brussels. The particular steps that were taken are, one might say, in the most positive sense “innovative”. We are still watching the situation closely because it does represent a new way of dealing with

that the legislative framework was quite strong in Cyprus. When the charges were being made, we were asking those who were putting them forward, “What is it precisely that leads you to take such a stern view of Cyprus’ performance on money laundering?” We do acknowledge, of course, that further steps ought to be taken here and in many other places with regard to the enforcement and implementation of anti-money laundering regulations and laws, but right now we believe that Cyprus needs to focus on restoring its credibility as a financial and service centre for international business and we think that the steps that it has pledged to take as a result of this very close examination are very positive. Cyprus can become a model for the implementation of anti-money laundering regulations and that would be a good thing.

CYPRUS CAN BECOME A MODEL FOR IMPLEMENTATION OF ANTI-MONEY LAUNDERING REGULATIONS

covering the losses of banks that are in extreme difficulty. Right now we are looking more at how we can work with Cyprus to ensure that, if it’s at all possible, we can make a contribution so that the country doesn’t remain mired in recession for a lengthy period of time and that it gets back on its feet and begins to attract more international investors. Gold: Do you believe that such measures would ever be taken in a similar situation in the US? J.M.K.: I don’t believe that you can really compare one case with another. We took some pretty tough decisions in 2008-2009 at the height of our financial crisis. There were prosecutions, there were bankruptcies and millions and millions of American investors were affected. However, some US banks which were in severe difficulty in 2008-2009 are now among the healthiest in the world and are once again leading the banking sector worldwide. So you can’t really foresee a situation in which systemic banks would be put through such a difficult transition in the American economy. Gold: Before the March Eurogroup meetings, Cyprus had been accused of being a money laundering hub but the latest reports issued by Moneyval and Deloitte, as well as past Moneyval reports, put Cyprus in a better position than many EU countries, possibly even better than the US. Do you have any views on why the accusations were made at that particular time? J.M.K.: Money laundering is a serious concern for the United States and a lot of other countries. Without going into the motivation behind the prominence that this issue was given by some of Cyprus’ European partners, I would just say that we have always considered that the island’s Moneyval reports were valid and

Gold: The US is imposing new requirements on banks outside the US, designed to identify US persons holding investments in offshore accounts to avoid their US tax obligations (FATCA). How efficient do you consider this type of measure to be? Is it going to work? J.M.K.: We hope so. There is always going to be the issue of “Where does tax avoidance transition into tax evasion?” and there are worse things like money laundering and terrorist finance which are also out there as major issues for us to examine. We believe that the transparency and information sharing arrangements that are represented by the FATCA-type agreements will help us address the question of tax evasion, by which we mean illegitimate business activity that seeks to avoid tax. Cyprus is a major international business centre and hopes to restore and preserve its place as such so we believe that it should also address the question of sharing information in order to ensure that the legitimate minimisation of tax by international business activities does not become tax evasion, which is only damaging. Gold: Can you give us some basic facts and figures on US-Cyprus/ Cyprus-US trade? J.M.K.: We have a robust trade relationship which has grown quite a bit in the last several years, both in the

64 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story_USA.indd 64

09/07/2013 10:28

I NT ER V I EW

issue. On the other hand, I think it is useful for people trade and investment portfolios. The United States and Cyprus have more or less balanced trade in the range of to consider these questions: Can the development of some $90 million on each side. We look forward to subthis resource be viewed as a way of advancing the efforts stantial expansion of this trade as certain business sectors to find a Cyprus solution? Can the anticipated revenue take off in Cyprus, most notably the stream from the natural gas industry be natural gas industry and supporting seen as a way of helping with some of the industries. On the investment side cost questions that are associated with a we also see potential for substansettlement? I think you should look at tial growth, not only in large scale it from a variety of angles. I don’t want investments which, I think, are to exaggerate its potential value as a likely to be seen in the coming catalyst for progress toward a settlement years but also in terms of expanbut I think the Cypriots in particular sion of a variety of service investand the countries in this region should ments that the United States has examine natural gas not strictly as a made here: providing financial natural resource for development but as a and business consultancy, franpotentially useful mechanism to advance chise arrangements and other their geostrategic objectives and, most imareas in the business sphere where portantly, a Cyprus solution. we have been quite active. On the oil and natural gas side, we Gold: Until the gas revenues start to recently arranged for a delegation also be very pleased to see to see a really dramatic expan- flow, are you optimistic that Cyprus can from Cyprus to visit the Offshore sion of interest by large American investors in Cyprus in regain its position as a successful profesthe time that I’m here. If Cyprus adopts the right legislaTechnology Conference, a very sional services/financial centre in the large annual trade fair that is held tive measures and takes the right initiatives, I think that the opportunity exists for a much greater involvement of region, despite the rather harsh terms of in Houston each year, and we the agreement on a financial assistance hope to continue to support such American companies in the Cypriot economy. package? activities. We are actually looking J.M.K.: We are hopeful and we are enGold: The discovery of natural gas deposits off to the Government of Cyprus couraging Cyprus to take steps that will Cyprus looks like changing the economy and the and Cypriot industry itself to step reinforce its position as a business centre. status of the country but it brings with it considerup and organise more engageable geopolitical challenges. How can Cyprus deal I was talking recently to a significant, fastment in these fields in order to growing company that has established its with them effectively? attract investors here, including headquarters here and does tens of millions J.M.K.: Cyprus is doing a good job right now with resubstantial investors from the of dollars of business in the Unites States gard to the natural gas industry and the management United States in the natural gas and in many other countries. They say that of these issues in its Exclusive Economic Zone (EEZ). and the natural gas services field. With regard to our policy, we have been very clear on they are going to stay in Cyprus, not bethe US side that we recognize Cyprus’ right to explore cause it has the greatest banking sector that Gold: What are your aspirathey want to do all their banking here, but tions as Ambassador regarding and develop the resources in its EEZ, we believe the because they regard Cyprus as a very well proceeds should be shared equitably in the context of commercial relations between equipped centre for business services – aca comprehensive Cyprus settlement and we call upon the two countries? counting, consultancy, tax lawyers and so all parties, including the Republic of Cyprus, to avoid J.M.K.: I’m expecting to be here taking measures that would escalate tensions unneces- on. On that basis, if Cyprus persists with until 2015 and that will probably a well-designed plan for reform, if it opens sarily. The best single thing that could happen – in be the time when the real, visible onshore activity with regard to the order to pave the way towards the smooth exploitation up new opportunities in areas like casino gambling, if it successfully develops a good natural gas industry begins to take of this resource not just in Cyprus but in the region framework for the hydrocarbon industry off. So we’re very happy that an and, also, bring about a great spurt in the growth of American company – Noble Ener- the island’s economy – would be a Cyprus settlement and other energy sectors, we think that Cyprus can retain and regain and expand gy – has had the lead in pioneering and a resolution to all the disputes in this region. We its role as an international business centre. the development of natural gas in are working very hard to support efforts to find a the Eastern Mediterranean basin. Cyprus solution which, hopefully, could even happen Gold: So there will be hardship in the We look forward to working close- during my time here as Ambassador. Then I believe short term, leading to good times ahead? ly with Noble and other American that the future would be much brighter for Cyprus J.M.K.: Yes. There’s no way to avoid the companies that are investing heavi- and for all those interested in Cyprus. bitter reality that there will be substantial ly in that field. As a result of certain reforms that are already under way Gold: Could the energy issue become a catalyst for economic contraction for a year or two in Cyprus, as well as proposals such a solution? There are two sides to this dispute and at least but, at the other end, the Cyprus as the expansion of opportunities economy can emerge stronger with a better for years they have failed to agree. for large-scale resort development balance and a more sustainable business J.M.K.: I think it could cut either way. It’s not clear including casino gambling, I would that it will be the catalyst for progress on the Cyprus model for the future.

THE OPPORTUNITY EXISTS FOR A MUCH GREATER INVOLVEMENT OF AMERICAN COMPANIES IN THE CYPRIOT ECONOMY

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story_USA.indd 65

Gold 65

09/07/2013 10:28

OP I NI ON

On Your Marks Could Germany be contemplating a eurozone exit?

arious solutions to the eurozone debt crisis have been discussed by economists, politicians and commentators, including the issuing of eurobonds, whereby 60% of a country’s debt would be guaranteed by the eurozone, a banking union with powers of supervision and the ability to recapitalize banks directly, and investment in the deficit countries. Germany is adamantly against all three but there has been some talk about a banking union in a recent Financial Times article by German Finance Minister Wolfgang Schäuble. Yet Schauble calls for time-consuming treaty changes which suggests that Germany is simply delaying the process of establishing a banking union. Why is Germany against these measures? Firstly, successive polls have shown that the majority of Germans oppose eurobonds while austerity has to be imposed in order to legitimize the bailouts in the eyes of the electorate, or more specifically to bail out the peripheral countries on condition that they “pay for their profligacy”. Secondly, a banking union is opposed because, if accepted, it would essentially surrender powers over national banks to supranational authorities such as the ECB. In a eurozone of nation states where bank supervisors cater to the interests of their own banks, a banking union is politically impossible for the time being. Does the above imply that Germany might eventually exit the eurozone? There are two reasons to suggest that it might. Firstly, in January this year the German government began the process of transferring 300 and 374 tonnes of gold from New York and Paris respectively back to Germany. The only reason for this would seem to be to back up the new Deutschmark in case the euro breaks up. Secondly, the Bundesbank, under governor Jens Weidman, is attempting to bring back the Deutschmark. In December 2012, the bank presented a deposition to the Constitutional court calling for a ruling against the legality of Mario Draghi’s ECB bond-buying programme which calmed the bond markets in May 2012 and restored confidence in the euro. Although these two reasons certainly raise the probability of an exit, I would not bet on it. First of all, the gold reserves are there for security reasons in case there is a break-up. Moreover, according to a

The Bundesbank is attempting to bring back the Deutschmark

By Stelios Papadopoulos

Grant Thornton report, 76% of German businesses favour further economic integration while 61% favour greater political union. The Bundesbank is simply trying to restore the control over monetary affairs that it lost to the 23-member ECB governing council whose decisions it cannot veto. More importantly, the euro benefits Germany through the absence of competitive devaluations and no exchange rate volatility – a fact which reduces production costs for German manufacturers like Volkswagen which produces gearboxes in Spain before transferring them to Germany – while in the absence of a strong Deutschmark, Germany’s export industry has thrived, solidifying its surplus position in the eurozone. I do not believe then that Germany would not want the euro survive. Because of politics, however, I do not think that Germany will implement the proposed solutions. The FT’s Wolfgang Munchau suggests a very plausible scenario, namely extended loans and zero interest rates by the ESM (the eurozone’s bailout fund) which would amount to “hidden eurobonds’’: eurobonds because they would come from the ESM and “hidden” because they would not be officially recognized so as to avoid political opposition. This is further corroborated by a November 2011 report in Austria’s Der Standard that eurobonds were being considered behind the scenes. The rest of the scenario is a “Japanese decade” of bankrupt zombie banks and very low growth. Such a situation would suit Germany since it would create a special economic zone on the periphery with a cheap and flexible labour force – a proposal suggested by Hans-Peter Keitel of the Federation of German Industry (BDI) and Angela Merkel in her “six point plan’’. Meanwhile, German capital goods firms are offsetting weak demand through exports to emerging markets while BMW, Daimler and Volkswagen are thriving, courtesy of American and Chinese demand for luxury cars. So, will Germany abandon the euro for the Deutschmark? It may not want to but if Cyprusstyle bail-ins are used in other countries and austerity continues, bank runs and unsustainable debts are certain. When reality shows its grim face, my prediction is that Germany will actually ‘’do whatever it takes’’ because it has too much to lose if it fails to act.

info: Stelios Papadopoulos holds an MSc in Political Economy from the University of Manchester, UK. He is a political and security risk analyst with Bradbury’s Global Risk Partners. 66 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

opinion_papadopoulos.indd 66

09/07/2013 10:46

A D MI NI S T R A T I V E S ER V I CES

FACING TH E

CHAL L UNCERTAINTY IS HINDERING THE DEVELOPMENT OF NEW BUSINESS By John Vickers. Photograph by Jo Michaelides

George Ioulianos

68 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story5_fiduciary.indd 68

09/07/2013 11:18

H E FIDUCIARY

L LENGE T

he Cyprus Fiduciary Association was founded in November 2011 on the initiative of a number of fiduciary providers whose aim was to further develop and organise the sector in Cyprus. Thirteen months later, a new fiduciary Law (L.196(I)/2012 – The Law Regulating Companies Providing Administrative Services and Related Matters of 2012, to give it its proper name) finally entered into force. However, the passing of the new law was only the beginning since, as George Ioulianos, General Manager of the Cyprus Fiduciary Association, told Gold, the law itself does not ensure the well and fair functioning of the sector. Ioulianos also spoke of how the bailout has affected his members’ work, how he views the short- and long-term prospects of the fiduciary sector and what remains to be done if Cyprus’ competitors are to be prevented from attracting the island’s business. Gold: You recently had your 1st Annual General Meeting. What has the Cyprus Fiduciary Association achieved during its first year? George Ioulianos: The founders of the Cyprus Fiduciary Association envision a dynamic

and constructive organisation that will be able to really contribute to the development of the sector and the Cyprus economy in general. To this end, we have set up a number of Committees, through which our members can participate in the Association’s operations, contributing to public affairs and producing the organisation’s policies and stances. We have also been working on the Association’s educational role by holding a number of fiduciary services-related seminars. Moreover, we have been in continuous contact with our members and a large number of firms to keep them informed on issues relating to new developments in the sector and also to assist them regarding their licencing application to the CySEC. We have also prepared an Anti-Money Laundering manual, based on the requirements of the CySEC, which is provided free-of-charge to our Members. I would like to emphasise the constructive relationship we have developed with the CySEC, which has been working for the benefit of all those involved in the fiduciary sector. At the beginning of our second year, we had to face the Eurogroup decision and all the turmoil caused to the Cyprus economy and we have stood by our members, providing assistance and information regarding developments in the banking sector. We have also spent time replying to some hostile messages and announcements from foreign providers who have been – and still are – trying to take advantage of the negative international publicity about our country by attracting the funds and corporate structures managed in Cyprus. As an Association, we have also drafted a set of proposals, which we have sent and presented to several authorities.

Gold: How many members do you have? G.I.: The Association currently counts 36 member firms, many of which are the largest fiduciary service providers in Cyprus, with an extensive international presence. They employ more than 700 staff, manage over 33,000 companies with international activities, while contributing an estimated €150 million to Cyprus’ GDP. Gold: A key moment for you was the passing of the so-called Fiduciaries Law at the end of 2012. Have you seen any specific results from the enactment of the Law? G.I.: It is too early to expect any noticeable results. First of all, the Administrative Services Providers (ASPs) – as fiduciary providers are referred to in the Law – are still in the process of submitting their applications. The CySEC has provided a small extension to the deadline, with final date being July 15. Nonetheless, all firms had to comply immediately with the Law, which forced them to revisit their structures and procedures. They will now have to operate with a new mindset, that of a regulated entity. Although, a large number of firms already complied with international standards and regulations, the new Law will definitely enhance the sector in raising its standards. The Cyprus Fiduciary Association stands beside the CySEC to enhance the communication and application of the Law. Gold: Is it true that there is now a huge backlog of companies waiting to be registered and regulated? G.I.: There is a large number of firms (fewer than 200) that have submitted their application to the CySEC. These are the ASPs that fall under the Law. It is natural that there should be such a backlog, as these are the firms that are already operating and need to receive their licence. I know that the CySEC, despite the workload, is properly prepared to promptly review and assess the applications. Gold: How has the fiduciary sector been affected by the bailout agreement signed with the Troika? G.I.: Almost four months after the Eurogroup’s decision, we now have a clearer view of the situation. As an Association, we have emphasised from the beginning that this has essentially been a banking sector crisis. The traditional features that have made Cyprus an attractive structuring destination remain effectively unchanged. Even with a corporate income tax rate of 12.5%, Cyprus will con-

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story5_fiduciary.indd 69

Gold 69

09/07/2013 11:18

A D MI NI S T R A T I V E S ER V I CES

tinue to have one of the lowest income tax rates in Europe and to be highly attractive to private equity funds, holding structures, commercial activities, investment firms, major financial institutions and trusts. However, things still feel a bit numb and new business is still a challenge, due to the harm that has been done to our country’s credibility and image as an international business centre. Gold: Presumably some of the ‘cowboys’ working in the sector were among the first to leave? G.I.: I do not know whether any of them have left the market for one reason or another but what I do know is that unless all ASPs are effectively monitored by their respective bodies, there will always be room for such ‘cowboys’ – the firms that are in the fiduciary sector to make an opportunistic profit, whose owners do not care about the quality of service or their own long-term presence. The best way to eliminate them from the market and prevent them from lowering the standards of service and harming the credibility of the country as a business centre, is to ensure that everyone adheres to the same set of laws and regulations and that the supervisory bodies are effective in their monitoring duties. Gold: What are the main problems facing your members right now? G.I.: The main problem is the sharp reduction in demand for the registration of new Cyprus companies and structures. Even though it is widely recognised that Cyprus still compares favourably with many competing jurisdictions, the ongoing and sustained uncertainty is hindering efforts to attract new business. The remaining restrictions on banking transactions do not help our members in their daily efforts to maintain their current clientele. Gold: Would it be true to say that most of the foreign clients of the main fiduciary firms in Cyprus did not maintain funds

in Cypriot banks and were therefore untouched by the resolution of Cyprus Popular Bank and the restructuring of Bank of Cyprus? G.I.: If we are talking about number of clients that were affected, then yes, this is true. The majority of clients did not necessarily maintain their funds in local banks, and even if they did, the amounts were less than €100,000. Nevertheless, the total amount of foreign funds affected was in billions, meaning that several clients were severely affected by developments in the two banks. Furthermore, the confidence of foreign clients, irrespective of whether they incurred a financial loss or not, has been severely shaken; they fear for their assets, for the imposition of new taxes, etc. Gold: Are you optimistic about the longterm future of the fiduciary sector? G.I.: You cannot afford not to be optimistic about the long-term future. The point is how and when you reach your targets. Cyprus needs to maintain and develop its services sector, which has been the backbone of the economy for the last 20 years, but for that we need a plan. We need to set aside any short-sighted approaches, work collectively and place the interests of Cyprus above all others. Projections about the future are based on the facts we have today; if we manage to adjust our mentality and approach on certain issues, I could probably be even more optimistic. Gold: What about the situation over the coming 18-24 months? G.I.: The short-term situation is even more difficult to predict, as it will be affected by a number of factors. The upcoming visit of the Troika will shed more light on the financing needs of the Government, as well as on the future of the Bank of Cyprus. Uncertainty is what kills business and, hopefully, we will soon be in a position to speak confidently about the economy and our particular sector. Gold: You mentioned that Cyprus’ competitors been trying to take advantage of the negative publicity surrounding the

problems of the economy and the banking sector. What have they been doing exactly? G.I.: Foreign fiduciary providers have been e-mailing our clients to inform them of their willingness to assist them in restructuring their businesses outside Cyprus. They have even organised seminars and conferences on this exact topic. Such things are to be expected in a competitive environment. What was not expected, however, was the use of untrue and misleading information regarding the situation in Cyprus, with some providers even referring to political instability in the country! Gold: Have they succeeded in any noticeable way? G.I.: Even with all this negative publicity and the daily efforts of foreign competitors, it is very important to note that the vast majority of our clients have not left the country. So, in that respect, the competitors haven’t been successful. On the other hand, they must be satisfied by the fact that they are absorbing new business from clients that would traditionally have chosen Cyprus. Gold: Is there anything specific that the government or, indeed, the private sector can do to make Cyprus more attractive for clients of your member firms? G.I.: There is a lot to be done. Even before the Eurogroup’s decision, Cyprus had the capacity to improve its services, to become more efficient and lead the international business sector. Now this need is even more intense. The Government should lead an international campaign, aiming to promote Cyprus and its services and to boost the confidence of foreigners. Every effort must be made to modernise and optimise our procedures in order to facilitate foreign business, e.g. online procedures at the office of the Registrar of Companies. The Government should sign double tax treaties with even more countries. The House of Representatives should approve important pending legislation (e.g. captive insurance, foundations, cell companies) and there should be a review of the role and function of the Cyprus Investment Promotion Agency (CIPA), as the principal authority for attracting business and foreign investment to the country.

70 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story5_fiduciary.indd 70

09/07/2013 11:18

KUWAITI BUSINESSMEN CAN FIND GOOD OPPORTUNITIES FOR INVESTMENT IN CYPRUS AMBASSADOR AHMAD SALEM AL-WEHAIB

main_story7_ambassador.indd 72

09/07/2013 10:30

K U W A IT

LEARNING

FROM THE KUWAITI EXPERIENCE CYPRUS STANDS TO BENEFIT A GREAT DEAL FROM THE EMIRATE’S LONG AND SUCCESSFUL EXPLOITATION OF ITS NATURAL RESOURCES.By Kyproula Papachristodoulou, Photography by Jo Michaelides

uwait, a vocal and vibrant democracy in the Arabian Peninsula, owns the world’s fifth largest oil reserves and has enormous experience at all levels of the energy sector. Ahmad Salem Al-Wehaib, Ambassador of Kuwait to Cyprus, tells Gold that the prospects for bilateral cooperation between the two countries are vast. Kuwait’s valuable knowledge and experience in the exploration and exploitation of natural resources, gained over many decades, can be extremely useful to

Cyprus which stands on the threshold of a new energy era. Gold: Kuwait has the world’s fifth largest oil reserves. Petroleum products account for about 95% of the country’s export revenues and 80% of government income. Are there plans to reduce this dependence on oil in the future? Ahmad Salem Al-Wehaib: As a matter of fact, the government of the State of Kuwait realized the importance of substituting a depleting asset – oil – with financial investments about 60 years ago. The Kuwait Investment Board was

set up in London in 1953, eight years before Independence. Subsequently, in 1982, the Kuwait Investment Authority (KIA) was established to take over the responsibility of managing the assets of Kuwait. Part of the KIA’s mission is “to achieve a long-term investment return on the financial reserves entrusted by the State of Kuwait to the Kuwait Investment Authority by providing an alternative to oil reserves, which would enable Kuwait’s future generations to face the uncertainties ahead with greater confidence”. The role of the KIA, which is the oldest sovereign wealth fund in the world, is to invest wisely in order to create an

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story7_ambassador.indd 73

Gold 73

09/07/2013 10:30

K U W A IT

alternative source of income “for a rainy day”. One example of the important role of the KIA is what happened during the 1990 Iraqi invasion of Kuwait. At that time, more than 700 oil wells were set on fire, resulting in no source of revenue for the next three years. During that period, the KIA spent more than US$80 billion on the country’s liberation and subsequent reconstruction efforts. Gold: What is the economic growth forecast for Kuwait? A.S.A-W.: In general, Kuwait enjoys sound macroeconomic conditions, reflected in moderate but sustainable economic growth. However, in the past few years, the political scene has gone through some difficulties, which has caused delays in the implementation of some of our development plans. Now, following improvements in the political situation, we are optimistic and looking forward to obtaining parliamentary approval of many new laws, which will gradually lead to greater economic prosperity. Moreover, it is expected that the next two years will bring further solid economic growth in the Gulf Cooperation Countries (GCC). This growth will be supported by high oil prices, strong government financial balances, and sustained public spending on infrastructure projects and social issues. Gold: How has the global economic and financial crisis affected Kuwait’s economy? A.S.A-W.: In Kuwait, as in many other countries around the world, the global financial crisis had a negative effect on the national economy, which manifested itself as a sharp decline in asset values as a result of the lack of confidence in the markets. Moreover, there was a decline in economic activity accompanied by a scarcity of funding sources, and the fragile capacity of some companies to earn revenue, causing an increase in their debts. In addition, the effect of the crisis on the conventional and Islamic banks was a decline in the value of their lending portfolios and financial and real estate investments. Gold: How has the Government of Kuwait handled the situation? A.S.A-W.: The governments of all leading economies, including those of the GCC, have adopted very significant measures to help their public and private sectors, usually – or at least predominantly – through the provision of special funding to their financial institutions. The Kuwaiti Government announced its own rescue plan as well. For example, at the level of monetary and regulatory policy, the Central Bank of Kuwait followed easing policies in the application of these tools; such policies were followed by central banks and regulatory authorities in most countries of the world.

EVERY YEAR THE STATE OF

KUWAIT

TRANSFERS 10% OF ITS OIL

REVENUES INTO THE FUTURE

GENERATION FUND

Furthermore, the National Assembly approved the development plan up to 2013-2014 which aims at turning Kuwait into a regional trade and financial hub through sustained economic development, economic diversification and GDP growth. Many had been calling for this plan, which is expected to revive the economy of Kuwait after the recent recessionary pressures it has been facing. This plan was approved with an estimated budget of KD 37 billion (US$125 billion) focusing on both oil and non-oil economic sectors and targeting both pillars of the Kuwaiti economy: government capital expenditure and increased private sector participation. Some of the megaprojects associated with this plan are the new business hub (Silk City) with estimated cost of US $77 billion, a major container harbour, a 25km causeway, railway and metro system and additional spending on new cities, infrastructure and services, particularly health and education. Gold: How attractive is Kuwait for foreign investors in terms of ease of entry in to the market, setting up a business and access to financing? A.S.A-W.: Kuwait is one of the most vocal and vibrant democracies in the region and offers a friendly living environment to foreigners who wish to work there. It enjoys high FDI incentives and has signed more than 100 bilateral treaties with 40 major countries, one of which is the Free Trade Agreement between Kuwait and the European Union (EFTA) in 2009. The country has always had an open economy with a thriving merchant class and extensive trade relations – even before the oil discovery era. To this day, Kuwait continues to enjoy relatively liberal trade with flexible policies and open markets for foreign trade and it has a transparent and sound legal system with the proper separation of the legislative, executive, and judicial branches. Moreover, a host of economic laws contribute to the investment

climate, intellectual property rights and trade relations. Such laws encourage the role of the private sector in the economy through privatisation programmes and Public-Private Partnerships. In addition, more laws to encourage competition and protect consumers are expected to be enacted shortly. Gold: What measures are being pursued to enhance the business environment in Kuwait? A.S.A-W.: The Government has adopted several long-term economic and social development plans, based on the state’s general strategy. The main objective of such plans is to respond to the needs of the national economy and to implement various financial and human resources in accordance with the agreed priorities and the current economic, social, cultural and national security situation. One such plan is the one mentioned previously for 2013-2014. Through such development plans, the Government is eager to achieve the vision for 2035 that articulates the aspirations of H.E. the Emir of the State of Kuwait which are “to transform Kuwait into a worldclass financial and commercial centre, with the private sector leading economic activities, fostering competitiveness and increasing productivity, supported by viable public institutions, while maintaining the deep-rooted values and national identity, towards achieving balanced economic and human development, supported by an adequate infrastructure, legal framework, and enabling business environment”. Gold: What steps has Kuwait taken to maintain the distribution of wealth between present and future generations? A.S.A-W.: Every year the State of Kuwait transfers 10% of its oil revenues into the Future Generation Fund. This, as mentioned earlier, is the major responsibility of the KIA, the parent organisation of the Kuwait Investment Office (KIO). This conservative economic policy, which dates back several decades, not only provides a cushion for those dealing with Kuwait but also has the noble objective of ensuring a fair distribution of the country’s wealth for current and future generations. The main objective of such policy is to maintain the real value of the Future Generation Fund of the State of Kuwait and to achieve a fair return over the long term. Proof of the success of this policy comes from the authoritative Sovereign Wealth Institute, which has stated that Kuwait’s Sovereign Wealth Fund amounted to nearly $340 billion at the start of 2013, ranking it the sixth biggest in the world.

74 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story7_ambassador.indd 74

09/07/2013 10:30

Gold: What are the prospects for increased cooperation between Cyprus and Kuwait? A.S.A-W.: There are many common factors and similarities between Kuwait and Cyprus, which means that the two countries have shared visions and prospects. As countries with a small population and a strategic geographical location, they both require open channels of communication, consultation and dialogue so as to exchange views on important issues at a regional and an international level, as well as on the challenges they both face. Furthermore, the compatibility and congruence of both countries on many international issues and the fact that they share and respect international laws and United Nations agreements for resolving regional conflicts, looking towards stability and security in the region, and understanding the need to respect the principle of national sovereignty and non-interference in the internal affairs of other countries, are all positive factors in promoting political and diplomatic relations between Cyprus and Kuwait. Also, it is very likely that the strengthening of bilateral relations between Kuwait and Cyprus will lead to a consolidation of political, economic and trade relations between the GCC – of which Kuwait is a member playing a pivotal and important role – and the European Union, of which Cyprus is a member. The prospects for bilateral cooperation between the two countries include the economic sphere, which can lead to mutual benefits from their experiences and competencies in the various sectors. This will also help the joint exploitation of the natural wealth enjoyed by both countries, whether in the field of energy, agriculture, industry, fisheries and animal resources. Gold: In which sectors of the Kuwaiti economy do you see opportunities for Cypriot companies? A.S.A-W.: Kuwait is always seeking to open doors for investment cooperation and an exchange of experiences with friendly countries such as Cyprus, and in this context Cypriot companies are welcome to participate in the implementation of the development plan projects undertaken by the government of Kuwait. Such projects concern the updating of infrastructure services, telecommunications and construction, including both short-term and long-term projects. In the context of strengthening such cooperation, the Government of Kuwait is always willing to overcome any obstacles which may discourage foreign investors from investing in the country, and to provide excellent facilities and assistance as an incentive to increase business investment and cooperation with foreign companies and entrepreneurs. Furthermore, despite the economic crisis which Cyprus is currently

facing, I believe that the island has what is needed to help it get through this difficult time. The most important factor concerns the various investment opportunities in many sectors. Thus, Kuwaiti businessmen can find good opportunities for investment in Cyprus in various sectors such as tourism, hotels, real estate, the food industry and ports, as well as in research and exploration in the oil and gas sector, since they have the expertise, the capability and relations with international oil companies. Gold: Kuwait has been involved in the exploitation of its large oil reserves for decades. What lessons from the country’s experience could be of use to Cyprus which finds itself at the beginning of this process? A.S.A-W.: The State of Kuwait has pioneering experience in the field of energy at all levels, as well as being a successful model for managing, exploiting and investing in energy regionally and worldwide. Over many decades of hard work and diligence in the field of research and oil exploration in its territory and its territorial waters, Kuwait has put itself on the global energy map as a key resource and a powerful force in this area. Over the years, Kuwait has gained great experience through its cooperation with international oil companies, international organisations and major countries in the energy sector, eventually exploiting this unique experience and shaping it in accordance with the requirements, objectives and strategies that protect its national rights while, at the same time, being consistent with the requirements of the global energy map. Cyprus can benefit a lot from Kuwait’s experience in this field. At the initial stages, which include carrying out preliminary studies, concluding regional and international agreements, signing contracts with foreign companies and other issues arising prior to starting the process of research and exploration, Cyprus can benefit a great deal from Kuwait’s knowledge and experience, especially regarding

CYPRUS

CAN BENEFIT A GREAT DEAL FROM KUWAIT’S

KNOWLEDGE AND EXPERIENCE

KUWAIT

• Kuwait is an Arab country in Western

Asia situated on the north eastern edge of the Arabian peninsula at the tip of the Persian Gulf. ait s lar e oil fiel s ere • discovered in the late 1930s. • After Kuwait gained independence from the United Kingdom in 1961, the state’s oil industry underwent unprecedented economic growth. • It has proven crude oil reserves of 104 billion barrels (15 km³), estimated to be 10% of the world’s reserves. • The co ntr has the orl s fifth largest oil reserves and petroleum products now account for nearly 95% of export revenues and 80% of government income. • The Central Bank issues Kuwait’s currency, the Kuwaiti dinar. • Kuwait has one of the most vocal and transparent media in the Arab World.

how to deal with the difficulties and obstacles – economic, administrative, technical or political – that may hinder or delay the start of research, exploration and extraction of natural gas and oil. The accumulated Kuwaiti-international experience, especially in the transition from the stage of cooperating and dealing with the foreign companies doing the business research, exploration, management and investing in oil reserves to the stage of nationalising this wealth and establishing national oil companies, can certainly become involved and play a part in this area. Gold: At present, Cyprus is looking at natural gas but oil may also be discovered offshore. A.S.A-W.: Yes and Kuwait has also great experience and huge investments in the oil industry in all its forms, and this represents another major element of the Kuwaiti experience that Cyprus can benefit from at some point. For example, refining is considered a strategic industry and a major and vital component in the production of various types of petroleum derivatives to generate energy that contribute to the development of the economy in various fields. This industry has undergone great development in Kuwait to the point that it is now one of the most important elements of the Kuwaiti economy. This particular Kuwaiti experience represents another important one that Cyprus may benefit from, especially as the island is looking for new areas in which to create jobs and attract investment to revitalise its economy and its investment sector.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story7_ambassador.indd 75

Gold 75

09/07/2013 10:30

4th PENSION & PROVIDENT FUNDS

FORUM

PENSION GOLD.indd 1

09/07/2013 2:14 ��

{July 14 – August 13, 2013}

ISSUE

+ BOOK REVIEW ECONOMY: Austerity: The History of a Dangerous Idea By Mark Blyth

LIFESTYLE: A Song of Ice and Fire By George R.R. Martin

{money}

78 Tales from the Downside: Risk Reduction Strategies High market volatility has driven the devel-opment of investment strategies advertised to deliver reduced risk without reduced return.

{business}

82 5th Professional Services Conference Looking ahead to the major annual gathering organised by IMH and Gold. 83 Hellenic Bank Shipping Business Centre begins operations The newly-opened SBC specialises exclusively in providing advice to the local shipping industry.

{economy}

84 Shady Dealings Europe’s €2.15 trillion shadow economy. 85 ForexTime launches OTW account A new initiative puts traders and the trading experience at the heart of the international broker’s operations. 85 CSC/CUT sign cooperation alliance One of the potential areas of cooperation concerns the possibility of establishing a Marine Engineering Department at the Cyprus University of Technology.

{lifestyle}

86 Corporate Celluloid 10 Notable Cinematic Businessmen

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES OF CYPRUS

gold_plus.indd 77

Gold 77

09/07/2013 10:15

r i sk m a na g em ent

{MONEY}

TALES FROM THE DOWNSIDE: RISK REDUCTION STRATEGIES

quity market volatility in the past decade has at times reached levels not seen since the Great Depression. We forecast that risk will continue to be elevated for several years to come, as economic and market uncertainty persist. Some clients have a limited ability to absorb further capital losses of the magnitude experienced in 2008-09. The primary lever clients have to reduce total portfolio risk is a shift from return-seeking (equity, risky fixed income and alternative assets) to risk-reducing (fixed income) assets. But historically low fixed-income yields mean bond allocations won’t likely contribute much toward total portfolio return objectives, while at the same time they carry risk in terms of falling bond prices when rates rise. Investors want a way to reduce risk, especially the risk of large losses in tail events, but without giving up much return. At the same time, some investors have dampened enthusiasm for traditional active management to improve on capitalizationweighted indexes in terms of either value added

By Mike Sebastian and Zoltan Karacsony

or downside risk protection. Consequently, a host of products advertised to reduce risk, without reducing return, have appeared since 2008. We’ll discuss several potential strategies for limiting risk, including prodlow volatility equity strategies, tail risk prod ucts, and managed futures and global macro hedge fund strategies.

LOW-VOLATILITY EQUITY STRATEGIES Low volatility equity strategies operate on the belief that the traditional relationship between higher risk (as measured by volatility or beta) and higher expected return does not hold within publicly traded equities. (Beta is a measure of market risk. The market is defined as having a beta of 1; an investment with a beta of 2 has twice

the market risk and would be expected to generate twice the market’s excess return over the risk-free – cash – return. Under this belief, an investor could construct a portfolio of stocks with low aggregate volatility, without giving up expected return.) How has this strategy performed? Lower volatility stocks performed significantly better over the past ten years, with the low volatility S&P 500 outperforming the standard index by 2.9 percentage points per year. While low volatility stocks lagged in the bull market of the late 1990s, they out-

performed significantly in the market crises of 2000-02 and 2008-early 2009, and over the entire period since 1990.

PREVIOUS INDUSTRY RESEARCH

In a frequently cited research paper, authors Baker, Bradley and Wurgler (2011) examine the historical relationship between equity return and risk, as measured by both volatility and beta, in a broad sample of large and smallcap stocks. They find that the returns of lowrisk stocks exceeded those of high-risk stocks from 1968 to 2008. Specifically, the value of a dollar invested in the 20% of stocks with the lowest historical volatility grew to $59.55 over the period; the value of a dollar in the highestvolatility 20% fell to $0.58, a vast difference. Notably, while there was a negative relationrelation ship between volatility and return across the board, the highest-volatility portfolio was the clear outlier in terms of poor performance, providing the dramatic results cited above. Why would a negative relationship between volatility and return, never mind such a huge one, exist, and why would investors fail to exploit it and arbitrage it away? The authors of the study argue that investors disproportionately demand high-risk stocks, and thus they are overpriced and offer low returns, for two main reasons. First, investors value the lottery-like aspects of

high-risk stocks, irrationally believing that their road to outperformance must lie in identifying the next runaway success story. Second, low volatility stocks must overcome the reduced market-related return and higher tracking error they bring to a portfolio before they are attractive to benchmark-focused investors. As an outgrowth of results like this, and investor concerns about market volatility and risk, several well-known providers have developed indexes that are constructed using a low-volatility approach, for a passive implementation of the style. Active strategies focused on the low-volatility anomaly have also been developed.

78 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

money_tales.indd 78

09/07/2013 17:01

RETURNS IN HIGH-RISK AND LOW-RISK MARKETS 75% 50.7%

50% 27.6%

25%

16.5%

0% -25%

-21.0% -40.1%

-50%

-58.5%

-75%

FINANCIAL CRISIS (9/08-2/09)

RETURNLOWEST-RISK 30%

SINCE MARKET BOTTOM (3/09-10/11)

MIDDLE-RISK 40%

HIGHEST-RISK 30%

MARKET EVENTS SUCH AS THE 2007-09 FINANCIAL CRISIS HAD A PROFOUND EFFECT ON RISK ing or eliminating high-risk stocks, that means risk that is stable through time, so past risk is a good predictor of future risk. We found that betas can vary significantly over time, making prediction difficult. Idiosyncratic risks can cause betas to spike unexpectedly. Most of the stocks we analyzed had their beta fluctuate between the low and high groups over the period of study. For example, Johnson & Johnson, which many would consider a defensive stock, had only 50% of its monthly returns in the low beta bucket, and 26% in the high beta bucket. This implies that historical risk is not a good predictor of future risk. Looking more broadly across all of the stocks in our analysis, the market risk of the 100 individual stocks varied widely through time. And market events such as the 2007-09 financial crisis, had a profound effect on risk.

PUTTING IT ALL TOGETHER ANALYSIS

Should clients allocate funds to a low volatility strategy? We begin our assessment with a straightforward analysis of the potential effect in a sample of large, liquid stocks. We calculated five-year rolling betas for the 100 largest stocks in the S&P 500 index, over the period 1990-2011, to rank stocks by level of market risk. (Stocks were required to have 15 years of return history. Transaction costs and fees were ignored in the analysis). The stocks were divided into three groups in each month; the lowest-risk 30%, the middle 40% and the highest-risk 30%. Stocks were equalweighted within each group. We avoided capitalization weighting to be consistent with actual low volatility equity strategies, which more closely approximate equal weighting (in an active strategy) or weighting by volatility rank (many indices). The weighting scheme is an important detail to which we will return later.

ARE RISK AND RETURN RELATED IN PUBLIC EQUITY?

Over the entire period of our study (January 1990 – October 2011), we found that the risk/ return relationship suggested by the Capital

INVESTORS DISPROPORTIONATELY DEMAND HIGH-RISK STOCKS, AND THUS THEY ARE OVERPRICED AND OFFER LOW RETURNS Asset Pricing Model (CAPM) was still intact: The high-beta stocks had the highest returns while the low-beta stocks had the lowest returns. In other words, we found no evidence of a low-volatility effect. Our analysis generally found the theoretically expected relationship between market risk and return in up and down markets, shown in the table above. Higher-risk stocks suffered larger losses in the 2008-09 financial crisis but outperformed strongly in the recovery.

IS RISK STABLE THROUGH TIME?

A key consideration for an investment strategy based on risk is whether future risk can be predicted. For a passive low-volatility strategy that seeks to outperform by overweighting historically low-risk stocks and underweight-

Some evidence suggests that a low-volatility anomaly exists; stocks with high risk underperform and lower-risk stocks outperform in capitalization-weighted samples of large and small stocks. Other evidence, however, indicates that the anomaly is highly dependent on how it is measured. Short-term reversals in return may explain the underperformance of an unrebalanced, capitalization-weighted portfolio of high-volatility stocks. Past winners, which make up a larger part of cap-weighted portfolios, become tomorrow’s losers and drag down returns. In equal-weighted portfolios, these reversals may cancel out, explaining part of our finding of no low-volatility effect using equalweighted samples. Researchers do not yet agree why the effect may exist, a clear buyer-beware warning in the world of investing anomalies. Some – as much as half – of the phenomenon is probably due to the effects of valuation and size, which overlap with measures of individual stock risk. (The low volatility effect, by the way, is similar in many ways to the value premium. Many investors concede that it probably exists at least some of the time, but few institutional investors attempt to exploit it as a matter of policy, instead leaving it to their active managers.)

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

money_tales.indd 79

Gold 79

09/07/2013 10:32

r i sk m a na g em ent

Like the value and small cap effects, the low volatility premium is not constant through time, with much of the outperformance found in the Baker study concentrated just in the chaotic period of 2000-02. Most of the effect is also found in the very highest-risk subset of stocks. These stocks may well also be the smallest and least liquid, and therefore the most difficult and expensive to trade. Sullivan (2012) finds that transaction costs wipe out gains from the anomaly in portfolios designed to exploit it. Our study of large, liquid stocks found no evidence of the low volatility effect. The very riskiness of highvolatility stocks may explain the persistence of any anomaly—investors attempting to profit from arbitrage may find the effect swamped by the stocks’ price fluctuations. Lastly, the premise of low volatility investing is that investors know what is, and will be, low volatility. But our examination of historical market risk shows that yesterday’s low volatility stock may be tomorrow’s risky venture. We found that betas spike when companies are distressed. Low historical beta/risk may not translate into low future risk. Even stocks that are considered defensive have had significant changes to their betas over time. Given historical beta is not a good predictor of future beta, some firms rely on forecast beta or use quality screen overlays to try to avoid the risk traps. Once portfolio managers start down the road of quality screens, then the process begins to resemble traditional fundamental equity management.

RECOMMENDATION ON LOW VOLATILITY STRATEGIES

Low volatility, in our view, joins the list of potential stock anomalies, like value, small-cap and the January effect, that are well suited as one tool in the kits of skilled active managers who can exploit them when and where they work, and focus elsewhere when they don’t. Investors should continue to use a broadly diversified portfolio of stocks, high risk and low, as the foundation of their public equity investments.

TAIL RISK STRATEGIES

Following 2008, several investment managers developed products that are designed to perform extremely well in periods of market distress. This is accomplished through a combination of strategies, including derivatives contracted on the returns of major markets. Such protection strategies have one common

characteristic – because they provide protection from risk, like homeowner’s insurance, they have a cost, like an insurance premium, associated with them in normal (non-crisis) times. This is termed a negative carry – a consistent, regular loss attributed to the strategy to cover the costs of protection. This negative carry is made worse by management fees, which can be substantial. Tail risk strategies have a natural appeal to those who want some protection from another market meltdown. Investors with tail risk allocations will be glad they have them should another major down market period appear, and the gains in such a period may well offset the cost of the strategy in more normal times. But we believe that most investors are best served by each element of their portfolio providing a consistent contribution to the bottom line in the form of positive return. The consistent drip of portfolio value from a tail risk strategy in return for protection from an unknown future event may be difficult to stomach. It may be difficult to stick with such a strategy in the long term in the

INVESTORS SHOULD CONTINUE TO USE A BROADLY DIVERSIFIED PORTFOLIO OF STOCKS, HIGH RISK AND LOW, AS THE FOUNDATION OF THEIR PUBLIC EQUITY INVESTMENTS face of turnover among investment committee members and other decision makers. And most severe risks are the ones that occur in unpredictable ways and places. Will strategies designed with hindsight protect against the unknown risks of the future?

MANAGED FUTURES AND GLOBAL MACRO

So far we have discussed strategies that are intended to reduce risk. But some strategies may exist that possess some risk mitigation properties as part of a traditional strategy to produce favorable returns at an appropriate level of risk.

MANAGED FUTURES

Managed futures, sometimes called systematic global macro strategies, seek to add value through unconstrained, quantitatively-driven investment processes implemented primarily

through futures contracts in the areas of equities, fixed income, commodities and currencies. They are often also called trend followers because a significant feature of the strategy is the exploitation of the anomaly of many markets to exhibit momentum, or trends, in returns. Therefore, they tend to profit from rising markets as they continue to rise and, because the strategies involve short as well as long investments, gain from falling markets as they continue to fall. Managed futures returns have an options-like payoff structure, where all else equal returns benefit from periods of persistent market volatility. As a result, managed futures have historically offered strong returns in volatile and negative market environments. A disadvantage of tail risk protection strategies, as described earlier, is their ongoing cost of hedging, which results in a drag on total fund returns, or a need for successful market timing to add tail risk protection just before it is needed most. With their ability to add to returns in normal times, managed futures have what can be described as an offensive, rather than defensive, approach to downside risk. Managed futures investing does involve risks of which a potential investor should be aware. They operate at high level of volatility, similar to that of public equity, relative to other hedge fund strategies. And their momentum-based investment strategy will lag when markets quickly reverse direction.

GLOBAL MACRO

Global macro hedge funds represent possibly the most unconstrained investment strategy available. Similar to managed futures, but with a much stronger emphasis on discretionary, judgment-based portfolio management as opposed to quantitative, algorithmic trading, global macro managers invest in a wide variety of asset classes using mostly derivatives to maximize flexibility and minimize trading cost. Trading, as they do, among major markets such as stocks and bonds, global macro strategies thrive in periods of elevated volatility. Their go-anywhere style allows them to emphasize, or avoid entirely, entire markets depending on their views—uniquely suiting them to navigate market uncertainty. We recommend that clients who wish to make some protection from tail risk a part of their investment strategy consider allocating a portion of their alternatives or hedge fund allocations to a diversified group of managed futures and global macro managers.

info: Mike Sebastian is a Partner at Hewitt EnnisKnupp, Inc. Zoltan Karacsony, CFA, is an Investment Consultant at Hewitt EnnisKnupp, Inc. 80 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

money_tales.indd 80

09/07/2013 10:32

Easy adjustable shelving. Boltless, modular form. High tech design, attractive bright finish. Various heights, widths and depths available. Wide range of unique accessories. Simple and quick assembly. High load bearing capacities, exceptional strength. Easy construction of two-tier installations. Utmost cost efficiency. Suitable for the food storage in refrigerators.

1/2/ is made from certified, prime quality, zinccoated, high tensile steel, ensuring superb performance and a high level of durability. 1/2/ carries the German TUV-GS approval mark. The product meets the requirements of the Equipment Safety Law 1/2/ : the total answer for your shelving problems!

Tel.: 25865000

e-mail:info@phil-andreou.com

www.phil-andreou.com

p r o f essi o na l ser v i c es

{B U S I NES S }

WHAT MILLENNIAL WORKERS WANT Greater flexibility, work/life balance and global opportunities are the keys to job satisfaction, survey finds.

he 5th annual Professional Services Conference, organised by IMH and Gold, takes place on 18 September at the Hilton Park Hotel, Nicosia. The conference has become a major gathering of the professional services world in Cyprus, a forum where accounting, tax and legal firms, fiduciary service providers, banks, international corporations and the government discuss and exchange practical ideas on local and international trends. It aims to bring the latest developments, expertise and knowledge from organisations around the world and combine these with local knowledge and practices. It also provides food for thought for all the professionals involved to reassess their strategy and positioning and improve their services. The island’s Professional Services sector is now bigger than tourism in terms of its contribution to new jobs and economic growth. It has also proven to be resilient during the recent economic downturn, yet it faces a number of challenges which are keeping Cyprus behind some of its competitors. Furthermore, the country’s reputation as an international business centre has been undermined lately, both by internal and external factors, in particular by the damage done by the island’s banking sector. The 5th Professional Services Conference aims to bring together the Government and the Professionals to devise, agree and commit to a strategy to strengthen Cyprus as an International Business Centre. For further information, contact Lefteris Karydis on 22505538 or via e-mail at lefteris@imhbusiness.com

he Millennial generation – those born between 1980 and 1995 – seek more workplace flexibility, better balance between their work and home life, and opportunity for overseas assignments as keys to greater job satisfaction, according to the largest, most comprehensive study conducted into their attitudes and behaviour, a two-year undertaking initiated by PwC. The research both confirmed and dispelled stereotypes about the Millennials – who already make up about two-thirds of PwC’s global workforce. While younger workers are more tech savvy, globally focused, and willing to share information, the study found they did not feel more entitled or less committed than their older, nonMillennial counterparts, and are willing to work just as hard. The global survey also found that many of the Millennials’ attitudes are consistently shared by their more senior colleagues. PwC’s NextGen: A global generational study, conducted in conjunction with the University of Southern California and the London Business School, represents the most ambitious research into the millennial genera-

tion, or ‘Generation Y’. The study included responses from 44,000 employees throughout PwC’s global network of professional service firms, with almost one quarter of the responses coming from Millennials. The research, compilation and analysis of its findings took place over two years. The study sought to measure factors relating to workplace retention, loyalty and job satisfaction. Among the major findings of PwC’s NextGen study: ● Millennial employees want greater flexibility… and so does everyone else. Millennials and nonMillennials alike want the option to shift their work hours to accommodate their own schedules and are interested in working outside the office where they can stay connected by way of technology. Employees across all generations also say they would be willing to forego some pay and delay promotions in exchange for reducing their hours. ● Millennials put a premium on work/life balance.

Unlike past generations, who put an emphasis on their careers and worked well beyond a 40-hour work week in the hope of rising to higher-paying positions later on, Millennials are not convinced that such early career sacrifices are worth the potential rewards. A balance between their personal and work lives is more important to them.

Other findings: ● Interference. 71% of Millennials (vs. 63% of nonMillennials) say that their work demands significantly interfere with their personal lives. ● Globally-focused. More than one third (37%) of Millennials would like the opportunity to go on a global assignment (vs. 28% of non-Millennials). ● Transparent. Almost half (43%) of Millennials say they have discussed their pay with co-workers (vs. 24% of non-Millennials). ● Not entitled. Millennials say they do not deserve special treatment and are equally as committed as non-Millennials.

YOUNGER WORKERS ARE MORE TECH SAVVY, GLOBALLY FOCUSED AND WILLING TO SHARE INFORMATION

82 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

business_2.indd 82

09/07/2013 17:00

sh i p p i ng b u si ness c ent r e

{B U S I NES S }

Andrey Dashin

CYPRUS BOASTS THE THIRD LARGEST MERCHANT FLEET IN EUROPE AND ONE OF THE TEN LARGEST FLEETS WORLDWIDE

he newlyopened Hellenic Bank Shipping Business Centre (SBC) is the first in Cyprus to exclusively serve companies operating in the shipping sector. Last month the management and personnel of the SBC gave media representatives a presentation of the centre’s activities and explained the importance of its operations. According to Marinos Athanassiades (General Manager, Group Global Markets and International Banking), the international banking sector is one of Hellenic Bank’s strategic priorities. “By continuously upgrading our services and our systems, we aim to serve our foreign clients at an exceptionally high professional level,” he stated. With that goal in mind, Hellenic Bank currently operates 4 dedicated International Business Centres (2 in Nicosia, 1 in Limassol and 1 in Larnaca) in addition to the newly-founded Shipping Business Centre. Antonis Charitou (Manager, International Business Unit), said that services for the shipping sector were being provided long before the International Business Centres were established in 1990. Charitou added: “The shipping sector is one of the pillars of the Cypriot economy, with a long tradition. Cyprus boasts the third largest merchant fleet in Europe and one of the ten largest fleets worldwide. At the same time, Limassol is the largest shipping centre in the European Union and the second largest in the world. Over 1,000 ships carry the flag of Cyprus and more than 140 ship

owning and management companies are registered here. We consider the establishment of this Centre as part of our natural progression, considering the Bank’s long tradition of serving the shipping sector, and we hope that the shipping community will welcome the arrival of the SBC.” Angelos Kosta (Manager, Hellenic Bank Shipping Business Centre), pointed out that the Centre’s extensive clientele includes most of the key companies in the Cypriot shipping sector. The SBC offers specialised services focusing on ship owners, ship managers, charterers, ship suppliers, shipping insurance services and other sector-related services. Kosta added that all the know-how and expertise of Hellenic Bank in shipping is at the SBC’s disposal, enabling it to offer services of the highest quality. “Being so close to our customers, we are able to better cater to their needs. By adhering to strict schedules for the provision of the various services, using computer systems optimised for the shipping sector and with Client Relationship Officers being the primary communication channel with every customer, we aim to provide an even better professional experience,” he said. Kosta also announced that the Hellenic Bank Shipping Business Centre has become a member of the Cyprus Shipping Chamber, an indication of the level of Hellenic Bank’s dedication to the sector. The Hellenic Bank Shipping Business Centre is housed in a modern business space in the centre of Limassol and boasts a high level of aesthetics, comfort, technology and functionality.

HELLENIC BANK SHIPPING BUSINESS CENTRE

BEGINS OPERATIONS 83 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

business_hellenic bank.indd 83

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 83

09/07/2013 10:14

{ECONOMY}

SHADY DEALINGS EUROPE’S €2.15 TRILLION SHADOW ECONOMY By Kyproula Papachristodoulou

he size of the shadow economy is declining as economic conditions in Europe are improving. According to estimates published by VISA and compiled by Professor Friedrich Schneider (Johannes Kepler University, Linz) and the global strategic management consulting firm A.T. Kearney, the size of the shadow economy in Europe will reach a 10-year low in 2013. Yet at an estimated size of €2.15 trillion, equal to 18.5% of Europe’s economic activity, it remains massive.

CYPRUS IS ESTIMATED TO HAVE A SHADOW ECONOMY OF €4.4 BILLION, EQUAL TO 25.2% OF THE ISLAND’S GDP OF €17.5 BILLION The shadow economy comprises legal business activities that are performed outside the reach of government authorities. These activities typically fall into two categories that remain common across Europe: undeclared work (which accounts for roughly two thirds of the shadow economy), and underreporting business profits to avoid tax. Almost two-thirds of the shadow economy is concentrated in Europe’s five largest economic powers – Germany, France, Italy, Spain and the United Kingdom. However, in Eastern Europe the shadow economy is much larger in relation to the size of the official economy than in Western Europe. In Austria and Switzerland, the shadow economy is equal to 7%-8% of the size of their official GDP, while Poland has a shadow economy of €95 billion, compared to an estimated GDP of €400 billio, or 24%. In Eastern European

nations such as Bulgaria, Croatia, Lithuania, and Estonia, the shadow economy is almost 30% of the size of the official economy. Cyprus is estimated to have a shadow economy of €4.4 billion, equal to 25.2% of the island’s GDP of €17.5 billion (these estimates were made before the recent Eurogroup decision). Last year the size of the shadow economy in Cyprus was estimated to be 25.6% of GDP while in 2011 it was even higher at 26%. The size of the shadow economy correlates strongly to economic cycles. As noted in The Shadow Economy in Europe,.2013, during times of economic downturn, rising unemployment, lower disposable income and fears about the future, more individuals tend to drift into shadow activities such as taking on additional employment that goes unreported in order to improve personal finances and compensate for missing income streams. The economic crisis that began in 2008 confirms this. In 2009, the first full year of impact, the shadow economy surged by 0.5% relative to GDP. Although the 2009 increase may not have been massive, says the report, it broke a steady long-term trend in which Europe’s shadow economy declined in comparison to GDP. “The accompanying reduction in the absolute size of the shadow economy is compelling evidence of the depth of the continent’s economic decline. While more individuals sought alternatives to the official economy, the shadow economy could not compensate for the decline in the real economy,” the report says. Improving economic conditions since 2012 have helped recover this lost ground. By 2011, the shadow economy was below pre-crisis levels, and in 2013 it is expected to shrink to an all-time low level relative to GDP. The size of this improvement, however, will depend on the speed and degree of economy recovery in the second half of the year.

THE SHADOW ECONOMY IN EUROPE - ESTIMATED 2003 Austria Belgium Bulgaria CYPRUS Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovenia Spain Slovakia Sweden United Kingdom EU 27 2012 Turkey Croatia Norway Switzerland

Share of shadow economy % of GDP

Shadow Economy (billions of euro)

7.5 16.4 31.2 25.2 15.5 13 27.6 13 9.9 13 23.6 22.1 12.2 21.1 25.5 28 8 24.3 9.1 23.8 19 28.4 23.1 18,6 15 13.9 9.7 18.9 26.5 28.4 13.6 7.1

23.9 63.2 12.9 4.4 23.9 32.5 4.9 25.8 204.1 350.7 43.2 22.7 20.4 332.7 6 9.7 3.7 1.7 55.2 95.2 31.1 39.6 8.1 195.6 11.1 58.7 189.2 176.9 12.7 56.6 36

Source: Eurostat, Professor Dr. Friedrich Schneider, Johannes Kepler University of Linz, Austria; A.T. Kearney analysis

84 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

economy_shady dealings&news.indd 84

09/07/2013 10:11

news

{ECONOMY}

CSC/CUT COOPERATION ALLIANCE

n an effort to enhance the island’s shipping infrastructure, the Cyprus Shipping Chamber (CSC) signed an Alliance of Cooperation with the Cyprus University of Technology (CUT) on 5 July. At a ceremony on the University’s Limassol campus, the Protocol of the Alliance of Cooperation was signed by CSC President Capt. Eugen Adami and the Rector of the CUT, Dr. Elpida Keravnou-Papailiou. The Alliance formalises cooperation in certain fields of mutual interest and advantage to

both organisations and it aims to facilitate the further strengthening of the already existing cooperation, the further development of new innovative technologies and accomplished human resources, and the further development and enhancement of Cyprus as an all-embracing international maritime centre of excellence. To this end, the parties have agreed to cooperate in fields such as Students’ Practical Orientation Learning Experience, Maritime Training and Education, Research & Development, Information Exchange & Knowledge Sharing, and Joint Public Relations Activities.

In particular, one of the first areas for collaboration will be to examine the possibility of the establishment and development of a Marine Engineering Department at the University, which will not only boost the CUT’s image but may also act as a catalyst for students to choose a career in shipping.

THEY WILL EXAMINE THE POSSIBILITY OF THE ESTABLISHMENT AND DEVELOPMENT OF A MARINE ENGINEERING DEPARTMENT AT THE UNIVERSITY

BOOK REVIEW

FXTM Launches

Over-the-Weekend Account

ny experienced trader knows that one of the downsides of executing a medium-to long term Forex trading strategy is the necessity of leaving positions open overnight – this is when trades incur rollover charges, also known as Forex swap rates. In response to this, international Forex broker ForexTime Ltd (FXTM), has just announced that it is launching an “Overthe-Weekend” (OTW) account, where traders can enjoy swap-free trading from Monday to Friday. A Forex rollover or swap is the interest added or deducted for holding a position open overnight. Running from 1 June to 31 August 2013, the ForexTime OTW account allows clients to trade swap-free on any trading instrument and for positions to be held for any length of time from Monday to Friday without incurring any additional fees or charges. If clients choose to leave any positions open

over the weekend they will be charged a small weekend fee on Friday at market close. ForexTime CEO Olga Rybalkina says, “At ForexTime our priority is always to ensure that our clients get the maximum value from the time they spend trading. In response to their growing needs, we have launched the OTW account for the summer period, to give even more to the trading experience.” The OTW account is one of several initiatives by ForexTime which puts traders and the trading experience at the heart of the international broker’s operations. Committed to ensuring client satisfaction and helping traders get more out of their trading experience, ForexTime has also recently launched the FXTM margin calculator and VPS hosting services.

AUSTERITY: THE HISTORY OF A DANGEROUS IDEA BY MARK BLYTH RRP: £16.99 (£15.29 FROM AMAZON.CO.UK)

overnments in Europe and the United States have succeeded in casting government spending as reckless wastefulness that has made the economy worse. In contrast, they have advanced a policy of draconian budget cuts – austerity – to resolve the financial crisis. This has taken the form of a global turn to austerity, a policy of reducing domestic wages and prices to restore competitiveness and balance the budget. The problem, according to political economist Mark Blyth, is that austerity is a very dangerous idea. First of all, he says, it doesn’t work, and he looks at the past four years and countless historical examples from the last 100 years to show that, while it may make sense for any one state to try and cut its way to growth, when all states try it simultaneously, all it succeeds in doing is shrinking the economy. Blyth notes among other things how austerity policies worsened the Great Depression and created the conditions for seizures of power by the Nazis and the Japanese military establishment before the Second World War.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

economy_shady dealings&news.indd 85

Gold 85

09/07/2013 10:11

m o v iem o g u ls

{L I F ES T YL E}

86 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

lifestyle.indd 86

09/07/2013 10:18

CORPORATE

CELLULOID 10 NOTABLE CINEMATIC BUSINESSMEN By Spyros Yiassemides

It ’s not a question of enough, pal. It’s a Zero Sum game - somebody wins, somebody loses. Money itself isn’t lost or made; it’s simply transferred – from one perception to another. Like magic. Gordon Gekko in Wall Street (1987)

ilms possess the power of immersing the viewers in a dreamlike world where they can step into the shoes of the protagonists for two hours or so. Some roles tend to get under the skin of viewers more effectively than others – soldiers, drug users, gangsters…they all exude something forbidden and alluring at the same time, something that cannot be experienced by the average viewer in real life, hence the film provides an on-screen experience as an alternative to the real thing. It has been said that watching Fear and Loathing in Las Vegas (1998) is the closest thing to doing drugs without actually doing them. Using the same logic, one could argue that stepping into the shoes of a cinematic businessman could be the closest thing to having copious amounts of money and power without actually having it. Business-related movies may be fewer than gangster, war or those belonging to most other genres. However, the performances delivered by some of the protagonists in so-called ‘business flicks’ are amongst the most memorable in cinema history. And sometimes the line between genres becomes so blurred that one cannot distinguish the gangster from the businessman, with some of them being gangsterbusinessmen (Gordon Gekko in Wall Street (1987)) and some others businessmen-gangsters (Michael Corleone in The Godfather II (1974) and III (1990)). Irrespective of whether

the on-screen businessman is a hero (Chris Gardner in The Pursuit of Happyness (2006)), an antihero (Gordon Gekko in Wall Street: Money Never Sleeps (2010)) or an out-and-out villain (Gordon Gekko in Wall Street (1987)), one thing is certain: cinematic businessmen will never cease to seduce us through their unquenchable thirst for power, money and corporate status…and the ten characters that follow tend to do it better than the rest of their money-hungry counterparts!

1. MICHAEL CORLEONE (PLAYED BY AL PACINO IN THE GODFATHER I

(1972), II (1974) & III (1990)) Although the Godfather films cannot be perceived as business-thematic per se, they provide an overly realistic depiction of a meticulouslystructured family organisation in the context of organised crime. The Corleone family runs a very profitable business by operating gambling and prostitution parlours as well as selling protection but it does not go into the drug business, which is perceived as immoral by the patriarch, Don Vito Corleone, thereby instilling an element of ironic contradiction as regards the values embraced by the family. In a simplified world, the Corleone family does not differ greatly from a legitimate organisation in terms of hierarchical structure and purpose of operation – they even have a consigliere much like conventional organisations have business consultants! Michael Corleone is seen as the

heir of the empire who is brought into the family business forcibly when an assassination attempt on his father is made by a rival mob family and he proceeds to head the family when his father and older brother are dead, at which point he eradicates all the competition by ef effecting a ‘hostile takeover’ on the market of organised crime. A parallel can be drawn here between immoral practices employed by traditional organisations such as corporate espionage and the ones employed by criminal organisations.

2. GORDON GEKKO (PLAYED BY MICHAEL DOUGLAS IN WALL

STREET (1987) & WALL STREET: MONEY NEVER SLEEPS (2010)) Gordon Gekko is probably the most wellknown cinematic businessman of all time. He was first introduced to the old generation of moviegoers via Wall Street (1987) and, almost 25 years later, to younger audiences through the sequel, Wall Street: Money Never Sleeps (2010). Douglas’ portrayal of Gekko was so iconic that the protagonists of Boiler Room (2000), which belongs to the same genre, mimick his mannerisms and parrot his punchlines, clearly admiring him, in a

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

lifestyle.indd 87

Gold 87

09/07/2013 10:19

m o v iem o g u ls

scene in the movie. Gekko is ruthless in his business dealings and possesses a devilish charm that loosens the defences of his potential victims and enables him to ambush them financially. He sees himself as the king on a corporate chessboard having as pawns protégés like Bud Fox who are following in his footsteps, carrying out his dirty deeds on his behalf (in the sequel, Charlie Sheen has a cameo role as a corrupted Bud, blinded by greed, much like a Gekko replica). At the end of the first movie, Gekko is charged with insider trading and sentenced to prison time, suggesting that greed is only good in moderation.

3. HENRY HILL (PLAYED BY RAY LIOTTA IN GOODFELLAS (1990))

In the second gangster film of this list, we see Henry Hill rising through the ranks of the Italian-American mafia by doing various ‘errands’, first as a young boy and later as a grownup, with the degree of task complexity being augmented as Henry progresses in his life and career, just as he would in a conventional business organisation. Although he has enough money to fuel an extravagant lifestyle, Henry becomes greedy along the way and decides to act outside his (crime) family by entering the lucrative drug trading business, indulging frequently in his own product. Eventually this greed becomes the driving force behind his arrest and subsequent betrayal of his friends in the courtroom, stripping him of all the perks of his previous life and leaving him with the bare minimum necessities in a dull witness protection programme, backing up the precept stemming from Wall Street (1987) that, contrary to Gekko’s saying, greed is not always good.

4. BLAKE (PLAYED BY ALEC BALDWIN IN GLENGARRY GLEN

ROSS (1992)) Glengarry Glen Ross (1992) is the film that coined the term ‘ABC - Always Be Closing’ which is used today as retail jargon for a tenacious sales strategy in which salespersons exhibit extreme perseverance in trying to close deals. Blake, briefly but chillingly played by Alex Baldwin, utters the term while leading a ‘motivational’ meeting with the purpose of boosting the property sales of the real estate firm in which he works. However, every word leading up to ABC and following it fits the definition of blackmail rather than that of an inspirational speech. Sell or be fired, white or black, there are no shades of grey in the instructions conveyed by Blake and not meeting sales quotas is considered unacceptable. The salesmen of the firm are pushed to their limits by being put in a ‘do-or-die’ situation which ultimately forces them to act in an unscrupulous and deceitful fashion in order to avoid being fired. Accordingly, the takeaway here is that workforce productivity and performance is better augmented via ‘open-door’ policies and incentive schemes rather than threats which, more likely than not, will backfire as is the case in the movie.

RICKY ROMA (PLAYED BY AL PACINO IN GLENGARRY GLEN ROSS (1992)) Al Pacino delivers a tour-de-force performance as cocky salesman Ricky Roma who will employ every imaginable practice – honest or deceitful – to close a sale. Ricky is the perfect example of the unrelenting salesman, one that will go to great lengths to relate to his ‘victims’ on a personal level and then use this newly-created relationship to promote a potential investment as extremely promising. Whether the arguments and justifications provided to secure a sale are truthful is irrelevant; what’s important is to carry out as many ‘hit-and-runs’ as possible so as to top

the sales chart at the end of the day. Anything goes in the sales game and Ricky knows it well so he acts as a self-assured lone wolf and distances himself from his colleagues who loathe his success as they don’t have any. There are times when he seems compassionate towards them, as when Shelley Levene (Jack Lemmon) is called for interrogation on suspicion of the office break-in, albeit his sympathy feels artificially-plated and not genuine.

6. SETH DAVIS (PLAYED BY GIOVANNI RIBISI IN BOILER ROOM

(2000)) This film is considered by many as ‘Wall Street for the new generation’ and it even pays homage to it via a scene where young investment bankers impersonate Gordon Gekko and his notorious mannerisms. The movie depicts a group of young and aspiring brokers trying to make it big in the stock trading business with their key performance indicators being lavish sports cars, enormous mansions, oversized bank accounts and expensive drug habits. Seth is introduced to this seductive world by a friend of his who works for a seemingly successful investment bank, JT Marlin, which, as it turns out later in the film, makes its money through illegal practices. Blinded by the promise that he will become a millionaire in the first three years of his employment with JT Marlin, Seth leaves behind a successful owner-managed gambling operation and joins the bank as a trainee broker. His zeal and hard work advance him through the hierarchy ranks and he does indeed make a great deal of money. However, when he realizes that all that glitters is not gold and after being confronted by his father and the FBI, he turns state’s evidence and tries to undo the financial harm caused to his naïve victims. Seth is the perfect example of a young professional intoxicated by corporate power and fast money, only to come to the realisation that there are no shortcuts on the career advancement journey.

7AFFLECK . JIM YOUNG (PLAYED BY BEN IN BOILER ROOM (2000)) 3

Although having a relatively small role in Room, Jim Young undeniably makes Boiler Room epithis presence felt in the film. He is the epit ome of cockiness and corporate coldness, much like Blake played by Alec Baldwin in Glengarry Glen Ross (see above), a largerthan-life version of the typical HR officer whose job is to manage the workforce as

88 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

lifestyle.indd 88

09/07/2013 10:19

10 effectively as possible, even if this means firing people on impulse for exhibiting derogatory behaviour. In Jim Young’s version of the business world, insult translates to motivation and apparently leads to career advancement through a survival-of-the-fittest culture instilled by Jim to the trainee brokers. However, fierce competitiveness is not always the best way to go about climbing the corporate ladder since, while you may win in career terms you definitely lose peer respect and appreciation. After all, as Gloria Clemente (Rosie Perez) cunningly puts it in White Men Can’t Jump (1992), “Sometimes when you win, you really lose, and sometimes when you lose, you really win, and sometimes when you win or lose, you actually tie, and sometimes when you tie, you actually win or lose. Winning or losing is all one organic mechanism, from which one extracts what one needs”. Got that?

8. NICK MARSHALL (PLAYED BY MEL GIBSON IN WHAT WOMEN

WANT (2000)) What Women Want falls into the ‘romantic comedy’ genre, despite the fact that the protagonist, Nick Marshall, seems to be parodying romance when he acquires the power to eavesdrop on female minds. A natural born womanizer, Nick manages to progress with enviable success through the romantic and corporate ranks and to establish himself as a key ‘player’ in both senses of the word. He is the archetypal example of the dominant male in all the arenas of life, one that will do anything within his (special!) powers to climb the corporate ladder as quickly and as high as possible. However, underneath all the machismo and ruthless modus operandi lies a sensitive side which is ready to atone for all his belowthe-belt moves by trading his career for love. After all, real success is not quantified by the number of arguments won in the boardroom but by the breadth and depth of benevolence each of us possesses.

BOB HARRIS (PLAYED BY BILL MURRAY IN LOST IN TRANSLATION (2003)) Anybody who has ever been away on business can effortlessly relate to Bob Harris who represents the amalgamation of all its dull details – the loneliness of solo travel, the coldness of a single hotel room, the melancholic wandering in an unfamiliar city, the cultural gaps, the ‘strictly-business’ acquaintances and other dejected particulars of a typical business trip. Bob has a sadness in his eyes which stems partly from the mid-life crisis he is experiencing and show business which seems to have worn him out. As the film progresses he has a chance encounter with Charlotte (Scarlett Johansson) who is in Tokyo accompanying her husband on his business trip and they form an uncanny relationship out of which they both draw strength and, as a result, the first rays of sunshine since their arrival in Japan’s gloomy capital make their appearance, proving that hope can be found even in the strangest and farthest of places.

10. JARED COHEN (PLAYED BY SIMON BAKER IN MARGIN CALL

(2011)) Making it big in the business world as early as possible is every company executive’s dream but to do so, it takes more than profuse talent in one’s area of expertise – it also requires a certain mindset in order to act emotionlessly in situations where hard decisions need to be made, for example when an employee must be let go due to downsizing. There is a scene in the film where Seth (Penn Badgley), astounded by the youthful appearance of Jared, a top executive in their firm, asks his colleagues “He looks like he’s fifteen years old. How old is he?” to which Will (Paul Bettany) replies “He’s like forty. “ Kid’s a f***ing killer”. Will’s estimation of Jared’s age is not far from accurate – when questioned about his age by a curious Sam (Kevin Spacey), Jared replies, to Sam’s astonishment, that he is forty three. In today’s fiercely competitive business world, it is not uncommon for young professionals to occupy top corporate executive positions; after all, for better or worse, businesses are on

the lookout for such ‘killers’ whose primary aim will be to drive their profitability to new highs by any means necessary, even if this translates into employing cruel tactics such as firing people without consideration of their personal circumstances, corporate espionage and other strategies bordering the line between moral and amoral.

BOOK REVIEW A SONG OF ICE AND FIRE (7 VOLUMES) BY GEORGE R.R. MARTIN (HARPER VOYAGER, 2012) RRP: £60 (£35 FROM AMAZON.CO.UK)

f you are addicted to the TV series Game of Thrones (named after the first ook in this series consi er o r s mmer holi a rea in fi e from now. And if you are coming to A Song of Ice and Fire eca se of the T sho o ill e e en more im resse . There is nat rall so m ch more material here a es orth to e recise that makes it h el re ar in to rea . artin s s er ritin st le is escri ti e t i an it also has an a lt feel to it oth in the ra hic nat re of the iolence an the se al relationshi s of the characters. The scale of the ook is h e ith most locations set ithin the ast continent of esteros hich feels e en i er than Tolkien s i le arth. ot one t se en ooks each one of hich o on t ant to t o n an once it s o er o can t ait to et on to the ne t one. Tr l e ic. or tr e fans this set comes ith a ma of esteros.

info: Spyros Yiassemides BA, MSc, ACA is a keen cinephile and he is currently undertaking his PhD in Film Studies THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

lifestyle.indd 89

Gold 89

09/07/2013 10:19

Electric Dreams

THE LAST WORD

If at first you don’t succeed… By Peter Economides

So there we were in a high-tech Tel Aviv neighbourhood. One where every building houses at least one NASDAQ listed company. And we started talking about why Israel is such a hotbed for innovation. Mr Z started telling me about this incredible new start-up which would turn Israel into the first country on earth where everyone – and he means everyone – would be able to drive electric because it would be so convenient and so affordable. He felt really proud of it. And so he should have done because that would have been quite a feat. To wean an entire nation off its petrol habit. Wow. He told me about this amazing young Israeli called Shai Agassi who had left a huge position at SAP on the West Coast in order to start up this company. And he told me how Shimon Peres had taken a personal interest in this project and how he had helped Shai to get the project on the road. And I was amazed. Years later I went to the Better Place Customer Centre just outside Tel Aviv and drove an electric car for the first time. Try it. But be warned that what you are driving now – whatever that car is – will forever feel so yesterday. Because electric feels so tomorrow. You start the car. And the only thing that happens is that a few small lights go on. And the computer starts up and asks you to tell it who you are. So you buckle up and put the car in gear. There is only one gear. And you put your foot on the gas. Whoops! I mean on the accelerator. You

take off. And the only sound you hear is a whirr and a slight whistle... You get pushed back in your seat because the acceleration is

Electric cars feel so civilized, so evolved, so tomorrow

so good and the power curve is so continuous. And it is silent. It feels so civilized, so evolved so tomorrow. Now the problem with driving electric is this: its 120 kilometre limit. Which is fine if you drive from your home to the office and then back home. In fact, it is perfect for this. Because you’ll plug your car in every night and you’ll never stop to fill up again. Unless of course your trip takes you further than 120 kilometres which is the current range of an electric car. So here was Shai Agassi’s genius: if you run out of battery, you can change it at a battery switch station. That’s what Better Place was all about: battery switching. Brilliant. A process that takes less time than it takes to fill a car with petrol. Better Place was once described as the biggest start-up in the history of start-ups. Unfortunately Better Place is no more. The company went bankrupt in May 2013. It was a sad day for everyone and not just the brave investors who’d put millions into this vision. For a short period of time, I was Global Chief Marketing Officer of Better Place. It was a dream. A chance to save the world from its petrol habit. A chance, truly, to make the world a better place. I wish it had made it. I really, really do. I bet it’s a question of time. This whole idea of switching batteries will be back because it is so smart. And when it is I will be there. Just as a user this time. But still, I’ll be happy.

info: Peter Economides is a Brand Strategist and founder of Felix BNI. He is a former Executive Vice President and Worldwide Director of Client Services at global advertising agencies McCann-Erickson Worldwide and TBWA\Worldwide. He has worked on some of the world’s most iconic brands including Coca-Cola, Apple, Absolut, illy, Audi and Nike. In Cyprus, he has been involved in branding projects for Bank of Cyprus, Sigma Television and easy-forex. Peter is based in Athens. Follow Peter on facebook at http://www.facebook.com/economidespeter or on Twitter @petereconomides

90 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

last_word.indd 90

10/07/2013 09:12

More than just a holiday destination with pristine white beaches and 300 days of sun shine, Cyprus can also cater to your business needs ranging from registering and setting up your company’s operations to managing your EU, North African and Middle Eastern clients at a considerably lower cost. As well as being an EU country and a mem ber of the European Monetary Union since 2008, Cyprus enjoys a competitive corpo rate tax rate. Cyprus belongs to those juris dictions on the OECD White List which have substantially implemented the internation ally agreed tax standard. In addition to this, Cyprus provides efficient business services, has a transparent legal and regulatory system and is committed to sustainable growth. Cyprus welcomes both visitors and investors to work here, so, if you are searching for a new business base, consider Cyprus. It’s more than just beaches and sun.

Cyprus Investment Promotion Agency Tel + 357 22 441133 Fax + 357 22 441134 www.cipa.org.cy info@cipa.org.cy

Ministry of Commerce, Industry & Tourism Trade Service Tel: + 357 22 867100 Fax:+ 357 22 375120 www.mcit.gov.cy/ts ts@mcit.gov.cy

“Columbia’s growth and expansion over the years is attributed to the uniqueness of Cyprus; being the island’s strategic position at the crossroads of three continents, its comprehensive legal framework, double tax treaties regime, communication system, banking system, infrastructure in general and last but not least its highly educated labor force.” Captain Dirk Fry, Managing Director Columbia Ship Management Ltd

“The favorable business climate, the excellent

telecommunications

infra-

structure, the well educated and skilled human resources, the favorable tax rates and the proximity to the Middle East and Africa markets, were some of the key factors that enabled NCR to decide to move its regional offices to Cyprus in the 80’s. Gradually, NCR managed to expand the office in Cyprus to cover also all the African Countries.” Managing Director of NCR Cyprus, Mr. George Flouros

With global know-how, itâ&#x20AC;&#x2122;s easier to cut through. When you have access to global expertise, navigating complexity becomes much simpler. At Barclays, the focal point is your dedicated Relationship Manager, who will channel the knowledge and skills of the entire Barclays Group on your behalf. They will diagnose needs and identify relevant solutions for your international business. To find out more about how Barclays can help your international business, call us on +357 22 654477* for our Nicosia office or +357 25 208000* for our Limassol office or visit barclays.com/wealth

Wealth and Investment Management

*Available between the hours of 0830 and 1700 Monday to Friday. Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider. Barclays offers banking, wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is regulated by the Central Bank of Cyprus in the conduct of its banking and investment business in Cyprus. Barclays Bank Plc Cyprus branch is now recognised as a Foreign Bank under the Enforcement of Temporary Restrictive Measures on Foreign Banks in case of Emergency Third Decree of 2013 (the Foreign Banks Decree). In accordance with the Foreign Banks Decree, Barclays Bank Plc Cyprus Branch can only service International Clients as defined by the Foreign Banks Decree.