Issue 28 pages 1 12

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

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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.

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Your trusted Advisor in Oil & Gas

Issue 28 July 14 - August 13 2013

6 EDITORIAL 8 UP FRONT 15 FIVE MINUTES WITH…

16

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

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

66

THE LAST WORD

By Peter Economides

90

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

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

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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

W

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

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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…

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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

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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.

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UP FRONT

George Osborne

S

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

H

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!

F

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

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09/07/2013 17:27

UP FRONT

SWISS ‘NO’ TO BANK SECRECY BILL

T

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

F

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

R

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

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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

1

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.

2

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.

3

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

4

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.

6

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

9

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

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7

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.

8

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.

10

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