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Cypriot report Cypriot report
by Euro Reporter
2012-01-06 10:03:13
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Cyprus’ foreign minister briefing US officials on natural gas development

The foreign minister of Cyprus is discussing with U.S. officials her country’s promising economic prospects from natural gas exploration. Erato Kozakou-Marcoullis met with Secretary of State Hillary Rodham Clinton on Tuesday. The U.S. supports the exploratory drilling being conducted by the U.S. Company Noble Energy Inc. despite objections from U.S. ally Turkey.

Turkey does not recognize Cyprus as a sovereign state and opposes any Greek Cypriot energy search on grounds that it undermines the rights of Turkish Cypriots to any oil and gas wealth. Estimates are due this month of how much gas is in the field being explored off the island’s coast. Kozakou-Marcoullis said she believes the prospects for gas development already have increased dramatically her country’s strategic importance.


Cyprus President calls for unity

President Demetris Christofias has said that 2012 will be an optimistic year but at the same time very difficult. He also said that talks for a Cyprus settlement are not going well, Turkey continues its threats against Cyprus, and the Republic will be holding the EU presidency during the second half of the year. Addressing a National Guard new year's event, President Christofias pointed out the importance of the army, adding that the political and military leadership of the island should examine Turkey's policy and draw strategies that would be able to tackle Turkey's arrogance and expansionist policy.

«The National Guard is the fighting power of any government of the Republic of Cyprus to help maintain peace and act as a deterrent. If the National Guard did not exist, Turkey would exercise freely its expansionist designs,” the President pointed out. Ankara, he said, “is arrogant and instead of learning from its successes – as many believe it has – it appears to act the way Ottoman Turkey used to act.” Regarding the Cyprus problem, he pointed out Turkey's intransigence and noted that Turkey's policy does not serve the interests of the Turkish Cypriots.

“Turkey sees the Turkish Cypriots as second class people, hence the steady influx of settlers into the northern Turkish occupied areas of Cyprus, in an effort to change the demographic character not only of the Turkish Cypriot community but also of Cyprus as a whole,” the President pointed out. The objective of the Turkish Premier is to equate in numbers the population in occupied Cyprus with that of the southern government controlled part of the country. This, he said, renders the tragedy even harsher and more difficult, in particular for the Turkish Cypriots.


What Cyprus can learn from the Norway model

The discovery of natural gas in the southern edge of Cyprus’ Exclusive Economic Zone has the potential to inject billions of euro into the island’s economy but without proper structures and rules to manage this massive wealth, the ‘blessing’ could easily become a curse. “If you look across the world and over the centuries, countries with rich natural resources have been more cursed than the opposite. It’s easy money and a tremendous challenge handling such resources and exploiting them in a long-term way,” said Norwegian State Secretary Morten Soberg. Speaking to the Sunday Mail, the deputy finance minister added: “It’s important to set up institutions and rules that are solid and prudent.”

Soberg had two pieces of advice for Cyprus: “It’s absolutely important to look at other countries like Alaska or Norway who were in a similar situation not so long ago and judge if there’s anything to learn from them.”  The second is to set up a sovereign wealth fund and implement a tax system that ensures the majority of the wealth created from oil and gas extraction is transferred to the country where the resources originate.  “There is a lot to learn from Norway on this. We have 78 per cent tax on foreign companies. You have to make sure you secure funds for the country where the company is operating,” he said.  “The tax systems and fund construction are things that other countries have already done. In that respect it’s much easier for you,” he added

Norway has plenty of experience in amassing and managing petroleum wealth, particularly with the future generations in mind. After striking oil in huge quantities in 1969, the country spent the next 20 years extracting oil and spending the relatively low revenue created.  In the 1990s, the income flows became so huge, the government had no way of spending it all, and needed a rule on how to spend in the long-term.  In 1990, a law was passed with the support of all parties setting up the Norwegian sovereign wealth fund in which all oil revenue plus any return from the fund’s investments would be placed. The first profits from oil revenue were put in the fund six years later. With a view to the long-term management of national wealth, the government renamed the fund the Government Pension Fund Global (GPFG). “Now, it’s the world’s largest fund and owns 1.0 per cent of all stocks in the world,” said Soberg.

The Fund has around €400 billion to invest around the world, with half of investments in Europe and a growing share in Asia. Around 60 per cent is invested in stocks, 35 per cent in bonds and 5.0 per cent in real estate. The move to real estate is relatively new, starting only two years ago.  “We have properties in Regent Street, London, and Champs Elysees in Paris. It will become one of the largest funds in real estate,” said Soberg.  While the Norwegian finance ministry is responsible for the fund, its central bank is in charge of operational management. “We have very strict ethical guidelines on investment,” said the deputy minister. The two main ethical obligations are to manage the Fund with a view to achieving a high return that will enable coming generations to benefit from the country’s petroleum wealth, and to ensure respect of the fundamental rights of those affected by companies in which the Fund invests.

An advisory board makes recommendations on which companies to withdraw investments from based on ethical grounds, such as those engaged in gambling, weapons, porn etc. Over 90 per cent of recommendations are implemented. Since 2001, all oil revenue is put directly in the Fund while approximately 4.0 per cent of its value is transferred to the annual budget. The 4.0 per cent represents the ministry’s estimation of the dividend created by the Fund. In other words, the state does not touch income generated by petroleum but simply takes what it expects the return on investments will be, leaving the rest in tact in a permanent fund while phasing a controlled sum into the economy. While arguments to spend more than 4.0 per cent are prevalent, this only serves to highlight the obvious need for the rule, said Soberg, to make the Fund safe and implement prudent rules on transferring funds into the economy. 

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