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THE FATE of the petroleum refinery in Larnaca was sealed yesterday after the Cabinet shelved plans to have it upgraded to meet with EU standards.

Instead, Commerce and Industry Minister George Lillikas said the government would turn the refinery grounds into a fuel import terminal until a new energy centre at Vassiliko was completed by 2008.

Speaking at a news conference yesterday, Lillikas said the decision to shut down the refinery was the cheapest option.

“After reviewing the results of a study carried out by the Ministry of Commerce and Industry regarding alternative solutions to meet the economic needs on petroleum products by 2010, the Cabinet has decided to cancel the upgrading of the refinery and order the cessation of crude oil refining,” he said.

“The refinery will now be modified into an import and storage terminal for fuel until the year 2010, when it will be torn down.”

Lillikas said the two other options were either too costly or impractical.

“We had three options,” he said.

“The first was to complete plans by the previous government and upgrade the refinery to produce sulphur free fuels, keeping it operational until 2010, only to then have it torn down and sold for scrap.

“The other option was to create a fuel import terminal, and the third option was to agree to an Electricity Authority (EAC) suggestion to create an energy centre near the new power plant at Vassiliko.”

But Lillikas said the study showed that the EAC proposal could not fully meet the economy’s petroleum needs if the upgrading of the refinery was cancelled.

“For the time being, the EAC can only provide two tanks with a storage capacity of 60,000 metric tons, meaning that the refinery in Larnaca would have to continue operating with or without the upgrade,” Lillikas said.

“The EAC proposal, did, however, include the construction of a complete fuel import terminal to cover the needs of the whole island. Their suggestion will be studied within the framework of the construction of the new energy centre at Vassiliko by 2008.”

Lillikas said the cost of the turning the refinery into an import terminal was up to $83 million less than it would be to have it upgraded. He added that the operational costs would also be reduced because a smaller number of staff would be employed, while freight costs would be reduced due to the transport of the fuel in larger vessels.

A deal with Larnaca Municipality means the import terminal will have to be removed by 2010, but the cost of environmental restoration of the area was not revealed.

“We have not yet made a study for the restoration of the area,” he said.

“But experts will carry out the study before the installations are removed in 2010.”

The refinery has also been a thorn in the side of the municipality, angry at its effects on tourism and the environment, and questions had been raised as to whether the municipality would issue planning permission for more storage tanks in the area to meet EU directives calling for a 90-day supply of fuel. The storage capacity in Larnaca is for 65 days.

“We are allowed to have a 65-day fuel supply until 2008,” Lillikas said.

“So we are not planning to build more tanks or installations at present. We will also use EAC storage tanks and the energy centre at Vassiliko.”

Lillikas slammed comments by his predecessor Nicos Rolandis that the same experts who had carried out the study recommending the refinery upgrade now said it was cheaper not to go ahead.

“I am saddened by Mr Rolandis’ comments. It appears that he is trying to put the blame on the current administration. Experts do not make policy, they follow decisions made by their political supervisors and the government. They were never asked to make a comparative study for the cost of upgrading or modifying the refinery into a terminal.”

Some 85 people are expected to lose their jobs from when the refinery is shut down. In protest, a group of employees yesterday held a one-hour strike outside the Presidential Palace while the Cabinet was discussing the issue.

Lillikas said there was no chance of the employees being placed in other government positions.

“There are laws and procedures for government employees and unfortunately we cannot offer these people jobs in the government. We can, however, employ them again for the scrapping of the refinery for a short period of time.”

Lillikas said the government would have to bear the burden of making people redundant because it was the only solution.
 

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By Mary Antonescu - mary@cyprus4properties.com