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Cyprus biofuel hiccup October 25, 2007

Posted by grhomeboy in Energy.
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Cyprus’ haste to adopt European Union tax regulations could see the island’s only biofuel producer relocate to Greece because of a legislative muddle on whether the commodity should be taxed.

Cyprus is already lagging behind its EU peers in consumption of biodiesel. Europe-wide, the consumption target was 2 percent in 2005, and is to rise to 5.75 percent in 2010. In Cyprus’s case, there is a national consumption target of 1 percent.

The island’s only licensed biofuel producer is now in court because lawmakers failed to exempt the commodity from excise tax in a broad-based review of pricing structures on diesel prior to Cyprus joining the European Union in 2004.

“After EU accession in 2004, the authorities raided my production premises, demanding a certain amount for unpaid excise taxes, VAT on the unpaid excise taxes and a fine, plus interest,” said Demetris Lordos, director of Environmental Energy Ltd, a production plant based in the southern town of Limassol. Production from the facility, which recycles cooking oil collected from hotels and restaurants, amounts to 300 tons of biodiesel a year.

Officials acknowledge that the company fell foul of the haste to change subsidy laws. For decades, diesel was subsidized at the expense of petrol and largely spared taxation as part of the island’s agricultural policy.

However, when lawmakers were introducing EU-harmonized excise taxes on fuel, they failed to exclude biofuels, in contradiction to stated policy, resulting in the product getting the same tax treatment as mineral diesel. The discrepancy is about to be phased out but will only apply to an exemption of tax on transport diesel. Inferior-grade heating diesel produced at Lordos’s facility will continue to be taxed, but at a lower coefficient, officials said.

“We saw that the law had flaws and we decided to correct it,” a customs official said, referring to the legislation, which is about to come into force. “But when customs finds out that taxes were not paid, it has to treat the case as an offense… We have no right to refrain from seeking payment of these taxes,” the official said.

Lordos has appealed his fine at the island’s supreme court and the case is pending. He says authorities’ conditions for the production of biofuel is making the business unviable and is considering his relocation to Greece.

“The law prescribes that biofuel has to be produced in a strict bonded regime. But this also involves an extra daily cost of 200 Cyprus pounds (US$488) for the producer… For a small producer with a daily output of 2,000 liters of biodiesel, this translate into a cost of 10 cents per liter. So, if the state is intending to support production, why is it then imposing such requirements that make production unviable?” he said.

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