Cyprus has entered a correction phase as it averted the grave danger of a total collapse of its banking system, Minister of Finance Harris Georgiades said on Wednesday.

Addressing a workshop on hydrocarbons and sustainable development in Nicosia, Georgiades referred to the agreement between Cyprus and the European Commission, the European Central Bank and the IMF, collectively known as the Troika, on €10 bailout that averted the collapse of the island’s banking system severely hit by the Greek sovereign debt haircut and asset quality deterioration due to the financial crisis.

“The worst is behind us as far as the banking system is concerned, we have exited the danger zone and we are into a stabilization zone,” Georgiades said.

The bailout agreed on March 25 featured a controversial bail in, that is, the conversion of uninsured deposits to equity in a bid to recaptalise the distressed banks. According to an IMF report, the bail in imposed in Cyprus wiped out €9.4 billion deposits.

Georgiades acknowledged that in recent years the public finances were producing “unsustainable deficits” which in turn were allowed to turn into structural deficits, noting that this will be corrected by spending cuts and not new taxation.

“We shall not raise taxes further and we are sending this message internationally because a stable tax regime is very important to potential investors so we are taking action on the spending side,” he said.

Noting that not all of the public spending has been well-thought and well targeted, Georgiades added we are finanlising the budget for the next fiscal year which involves significant spending cuts.

The Cypriot Minister also said that the government aims bringing about a “complete overhaul of the civil service” as well as reforms in public administration.

“The correction course it is not easy is politically difficult and challenging its takes time and effort, the benefits regrettably will not be delivered quickly. There is no quick fix solution to the problems of the Cypriot economy but there is a clear political determination to proceed along the road of change and reform,” he said.

On privatizations, a key condition of the Memorandum, containing the terms of the bailout, Georgiades said the government has commissioned a report into the privatization prospects so decisions will be taken quite soon and they will be taken with transparency and with care to maximize benefits for the organizations themselves, the employees and especially for the economy as a whole.”

On the positive appraisal made by the IMF, the ECB and the European Commission, Goergiades said that the positive note was not enough for substantial reasons but a message to our partners, the markets and “to our fellow citizens that the effort we have embarked upon is not futile.”

With regard to discovery of hydrocarbons in Cypriot offshore blocks, Georgiades said this is a “a hugely important prospect” but underlined that “it is not under no circumstances an excuse for not doing what’s need to be done, for not implementing the reforms mentioned.”

“On the contrary, these important prospects relating to the hydrocarbons are an added reason for us to basically rebuild the foundations of our economy, of our public administration of our economic model so we are better prepared to handle this prospect and to absorb the revenues when they come,” he said.

“Maximasing prospects requires an economy which has sound foundations not an economy which is shaky with imbalances which lacks the confidence necessary if the prospects from hydrocarbons are to be maximized,” he added.

Responding to a question on the possibility of front-loading revenues from natural gas revenues, Georgiades said “when the time comes when the project is ready and matured I suspect this will be an instrument or a method to be pursued.”

“All methods and instruments we will pursue but all in good time,” he concluded.

Exploratory drilling carried out by Huston-based Noble Energy in 2011 revealed an estimated gross resource range of 5 to 8 trillion cubic feet (Tcf), with a gross mean of 7 Tcf. Noble Energy is currently conducting an appraisal well to determine the size of the reservoir, which is expected to be completed by the end of the month.

Noble Energy operates Block 12 with a 70 percent working interest. Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership each own 15 percent. In June 2013 the Cyprus government, Delek and Avner signed a Memorandum of Understanding (MoU) with regard to the construction of a Liquefied Natural Gas (LNG) terminal in the Cyprus.

Cyprus has signed contracts with the ENI/KOGAS consortium for hydrocarbons exploration in blocks 2, 3 and 9 in the EEZ of Cyprus, as well as with French TOTAL for blocks 10 and 11.

Furthermore, speaking to the workshop, Cyprus National Hydrocarbons Company Chairman Charles Ellinas said the development of the natural gas industry in Cyprus is expected to create 10,000 jobs in Cyprus.

He noted that the first real revenues from natural gas exploitation are expected in 10 years, whereas natural gas import in Cyprus for electricity generation can be done by 2019, which will yield a 40% reduction in the electricity bill.

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