Bloomberg News

Cyprus Says Russia Is Benefactor, Denies Naval Base Offer

July 25, 2012

Russia is acting as the guarantor of Cypriot security and territorial integrity as the island pursues a financial rescue to help mitigate threats to its economy, Foreign Minister Erato Kozakou-Markoulli said.

Russia wasn’t offered the use of a naval base on the southern coast of Cyprus in exchange for a second bailout loan in less than a year, Kozakou-Markoulli told reporters in Moscow today after talks with her Russian counterpart, Sergei Lavrov.

Russia, whose only military base outside the former Soviet Union is in the Syrian port of Tartus, less than 200 kilometers (124 miles) east of Cyprus, is weighing a request for 5 billion euros ($6.1 billion), which the euro area’s third-smallest economy is seeking on top of a possible European bailout.

Cyprus has been divided since NATO member Turkey invaded the island in 1974 after a coup aimed at uniting it with Greece. The internationally recognized Greek Cypriot government took over the rotating European Union presidency in July. Turkey, the only country that recognizes the breakaway state, may annex northern Cyprus if a four-decade split isn’t resolved through United Nations-led reunification talks, a Turkish government official said in March.

Cypriot Shield

Russia’s position in the UN, where it’s among five nations that wield a veto as permanent members of the Security Council, is a “shield against any actions against our independence,” Kozakou-Markoulli said in remarks translated into Russian.

Russia joined China on July 19 in using its veto for a third time to protect the government of Syrian leader Bashar al- Assad, striking down a Western-drafted resolution that called for an arms embargo and other sanctions on the Middle Eastern nation.

Cyprus, led by President Demetris Christofias, the Moscow- educated former head of the Cypriot communist party AKEL, last month followed Greece, Ireland, Portugal and Spain in requesting help to return to financial health. The economy, hurt by more than 4 billion euros of writedowns in Greek government debt held by Cypriot lenders, is seeking support from the euro region’s firewall funds to bolster its banking industry.

OAO Novatek (NVTK), Russia’s second-largest natural gas producer, joined Total SA (FP) and GPB Global Resources in May to bid for energy exploration permits off Cyprus as the nation held its second licensing round after finding gas last year. Cyprus angered Turkey with its decision to start drilling in Block 12 of its offshore territory in September, prompting the government in Ankara to send warships to the area in response.

Russian Bailout

Russia agreed to lend Cyprus 2.5 billion euros in December. The world’s biggest energy exporter had $505.3 billion of gold and foreign-currency reserves as of July 13, the world’s fourth- biggest stockpile after China, Japan and Saudi Arabia. The Cypriot bailout request has been called into question by Russian officials representing the country’s financial authorities because of a possible need to maintain reserve buffers if the global economic outlook deteriorates, RIA Novosti reported yesterday.

Cypriot government officials will continue talks with representatives of the International Monetary Fund, the European Commission and the European Central Bank until September in an attempt to reach common ground, Kozakou-Markoulli said.

Troika Talks

The visit by the so-called troika began on July 23 and is due to be completed by July 27, according to the Cypriot Finance Ministry. Christofias, the country’s president, said earlier this month that the terms for a new Russian loan would be less onerous than for euro-area rescue funds, which are provided in exchange for requirements to narrow budget deficits.

Mainly Russian non-residents hold one of every two euros deposited at Cypriot banks, directly or indirectly, according to Theo Parperis, chairman of the Institute of Certified Public Accountants of Cyprus.

Foreign companies that use Cyprus as a base or vehicle for offshore operations contribute about 15 percent to the island’s economy, said Parperis, who is also a partner in PricewaterhouseCoopers Cyprus.

Cyprus intends to use its six-month presidency of the 27- nation EU to help the European Commission build a strategic partnership with Russia, Kozakou-Markoulli said.

To contact the reporters on this story: Stepan Kravchenko in Moscow at skravchenko@bloomberg.net; Stelios Orphanides in Nicosia at sorphanides@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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