Gas Featured in Cyprus Talks with Moscow

Possible deals to harvest gas fields off the troubled Mediterranean country of Cyprus feature in emergency talks with Russia, according to media reports.

The European Central Bank has given the country of 1.1 million people until next Monday to agree a bailout with the EU and International Monetary Fund. Cyprus, the eurozone's third smallest economy, needs around €15 billion. A plan to raise money by taxing bank deposits of savers large and small has failed amongst public fury and international condemnation.

The levy, with estimated proceeds of €5.8 billion, was an EU condition for rescue. Now Cyprus is asking Russia, which loaned it €2.5 billion in December 2011, to  stump up another €5 billion,  Russian media reported.

As incentive, Cypriot Finance Minister Michael Sarris has suggested shares in potentially lucrative gas fields in waters off his country. Any deal with Moscow should be in Russia's best interests too, Sarris said.

Estimates up to €300 billion have been made of the possible returns from fields south-east of the island nation. The head of the new state hydrocarbons company claimed Cyprus could have up to 40 trillion cubic feet (tcf) of gas within its exclusive economic zone.

 Observers said gas could be on the table, though Cyprus faces many problems in developing this asset, not least geopolitical concerns about neighbour Turkey.

"It might be possible for part of this loan to be convertible over time to equity in Cypriot assets, such as privatised state assets and hydrocarbon rights," Jacob Nell, a Moscow-based economist, told Reuters.

"There are precedents in Belarus and Ukraine for similar deals involving Russia," said Nell, referring to deals with Russia's ex-Soviet neighbours in which debts owed to monopoly Gazprom were swapped for assets.

 See also: Eastern Mediterranean Offshore Gas: Growth or Conflict?