Cyprus has not even confirmed the existence of natural gas off its shores, but it is already thinking about setting up a sovereign wealth fund to manage the riches it hopes will come its way.
Gas has the potential to transform the island, but assuming the first results from exploratory drilling due in December are positive, it will be a long time before the euro zone's third-smallest economy is able to export gas, Trade and Industry Minister Praxoula Antoniadou told Reuters.
"We are talking about the medium and long term -- a very minimum of three years before anything can materialise with reference to supplying the local market, and many more years before we could be exporting," she said on the sidelines of an economic conference.
Texas-based Noble Energy started drilling last month in a bloc abutting a prospect controlled by Israel that is the largest natural gas find of the last decade.
If Noble finds gas, two more appraisal wells will be sunk and Cyprus will have a clearer idea six or eight months later just how much hydrocarbon it is sitting on.
The prospecting has angered Turkey, which says the status of divided Cyprus must be resolved first.
Cyprus is finalising plans to launch a second offshore licensing round for oil and gas before the end of the year, and Antoniadou said a "significant" number of companies had purchased preliminary geophysical data that point to extensive deposits ranging from 4 trln cubic feet to 10 trln.
Russian companies have shown keen interest and Moscow has agreed to provide a 2.5 mln euro loan, at 4.5% interest to be repaid in four years, that will help Cyprus reduce its public deficit that has spiralled out of control, prompting the IMF to call for immediate drastic cuts.
NORWAY, QATAR AS MODELS
Gas is new for Cyprus and how to spend the yet-to-be-confirmed windfall is the talk of the island.
While cautioning against euphoria, Antoniadou said the government was looking ahead to the possible need for a sovereign wealth fund one day to invest its gas wealth.
Norway's fund, which invests a maximum of 4% of its revenues at home, was a "respectable" model being studied; that of natgas major Qatar, which ploughs more money into infrastructure investment at home, was another.
"Certainly it is something that we are considering, but we have to take things in steps," she said. "It has to be a model that guarantees the future of generations to come but also respects current generations as well."
Cyprus has suffered more than some from the turbulence in the euro zone because its banks are heavily exposed to Greece. Making matters worse, the country's largest power station was destroyed in a deadly accident in July.
The government, which is raising taxes but is slow to push through unpopular spending cuts to reduce its budget deficit, is forecasting next to no growth this year and in 2012. The IMF predicted a contraction this year and zero growth in 2012.
Antoniadou insisted that the fundamentals of the economy remained strong but said the deficit was being cut partly in case Cyprus's banks have to record bigger losses on Greek debt.
"We are taking measures to contain the deficit to be able to be in a position to face whatever may be coming," she said.
With a budget deficit this year projected at close to 7% of GDP, Cyprus has been effectively shut out of the international capital markets.