Cyprus desalination failure ‘setback for European aid’

Failure to implement the seawater desalination plant at Sirianokhori/Kumköy in the Turkish part of Cyprus represents a significant setback for the overall European Community assistance programme to this region, according to the European Court of Auditors (ECA).

In its report, European Assistance To The Turkish-Cypriot Community – Special Report No 6, 2012, the ECA says that the failure was “mainly due to the Greek Cypriot workers of one of the consortium’s contractors being denied access to the site by the Turkish armed forces and the unresolved issue of the performance guarantee”.

The construction of the 23,000 m³/d desalination plant was not only the EU’s main project in the local water sector but also the largest intervention funded under the assistance programme, amounting to approximately 10% of total contracted funding. The plant was intended to provide clean drinking water for an estimated 100,000 people.

The design of the plant changed considerably during the project formulation process, says the ECA. The original proposal had been to build a plant to treat brackish groundwater, but this approach was dropped because of concerns over compliance with the EU Water Framework Directive.

The project was awarded on 17 December 2009 to Spain’s Cadagua, in consortium with Caramondani Desalination Plants Ltd of Cyprus.

According to the contract conditions, the European Commission (EC), as contracting authority, was responsible for providing access to the construction site, but in practice this was outside its control, says the ECA. The EC was aware of the risk that if a company with Greek Cypriot workers won a tender under the assistance programme, they might have difficulties performing the contract because of potential restrictions on their access rights to the northern part of Cyprus.

The procurement notice for the works contract for the plant stated that the tenderer must provide a performance guarantee for the completion of the contract of 10% of the contract value no later than 30 days after receiving the signed contract or else the contract becomes void. Yet, the contractor never provided it, says the ECA.

In accordance with the procurement notice, the EC should therefore have terminated the contract already on 17 January 2010, the report says, in which case the € 27.5 million would have been decommitted.

“By contracting the works at the latest possible moment (the contracting deadline expired on 18 December 2009) the EC also missed an opportunity to offer the contract to another tenderer,” the report continues. “The procurement notice states that ‘if the selected tenderer fails to provide such a guarantee within this period, the contract will be void and a new contract may be drawn up and sent to the tenderer which has submitted the next cheapest compliant tender’. As the contracting deadline had expired, this was no longer an option.”

The EC only started the high-level dialogue with the Turkish-Cypriot (TCc) political leaders in June 2010, seven months after the contract was signed in December 2009. While the TCc leader responded on 17 June 2010, expressing his political commitment to the project, access restrictions were only partially removed in August 2010.

“If the Commission had started the dialogue already in December 2009, this would have allowed more time to tackle the access issue,” the ECA concludes.

In its reply to the report, the EC says, “The loss of the seawater desalination plant project was an unfortunate setback. After extensive efforts to rescue and proceed with the project, the commission had to act to protect its financial interests and terminated the construction contract.

“No payments have been made under this contract. The commission agrees with the court’s conclusion on the risks to sustainability and the reasons for it and will continue to help the Turkish Cypriot community to develop administrative and technical capacity.”