The Cyprus Parliament recently approved a bill which establishes a national investment fund, to help the island manage future revenue from the island’s hydrocarbon resources.
Members of Parliament eventually agreed to disconnect gas revenues from Cyprus’ national debt. The original bill had included provisions stipulating that under strict fiscal circumstances, a percentage of the fund would be fed into government reserves, while the majority of the proceeds would be reserved for future generation investment and projects commencing after 2021.
The legislation was passed with 44 votes in favour and 9 against, and comprises an amendment tabled by The Democratic Rally (DISY) who currently hold the majority of seats, and their main opposing party AKEL to separate gas revenues from the national public deficit. The amendment provides that the public debt will only be serviced by fund resources if it exceeds 80% GDP.
The amendment states that the aim “is to make the operation of the Fund well established and to ensure that its return on investment is to the benefit of all residents living in the Republic of Cyprus.” The law introduces regulations on the establishment and operation of the fund, and:
Enforces legal responsibilities and tasks of its management bodies and of the competent minister in relation to the fund and its management bodies.
Provides general principles governing investment and reserves of the fund.
The internal & external audit framework for the management and investment of the fund.
The assurance of transparent decision-making procedures regarding the fund.
A special committee called the Cyprus Investment Management Organisation will be set up when the fund will have sufficient financing; which corresponds to 3% of the total GDP at market price, and will have the responsibility of the fund’s investment policy.
Revenue from the confirmed natural gas deposit in the Cypriot Exclusive Economic Zone, once fully operational, is expected to range between EUR €500m to EUR €600m per year over a 12 – 13 year period.
The government considers that the implementation of a legal framework for the establishment and operation of the fund prior to the exploitation of hydrocarbon deposits is of particular importance, as it will send a message both internally and abroad that it is approaching the issue of hydrocarbon management and revenue resulting in a responsible manner, and that such a development will assist in presenting Cyprus as a credible investment destination.