NICOSIA — Cyprus said it plans to transition to cleaner and cheaper natural gas for energy generation in two years as work officially began Thursday to build the east Mediterranean island nation's first gas import terminal.

Cypriot President Nicos Anatastiades attended a groundbreaking ceremony for the terminal, which with a budget of 289 million euros ($327.5 million) is expected to be the country's costliest energy project. 

The terminal will feature a tanker ship built in Singapore and refitted to convert liquefied natural gas back into gaseous form for use in Cyprus' main power plant.

Cyprus contracted a consortium made up of China Petroleum Pipeline Engineering, Metron, Hudong-Zhongua Shipbuilding and Wilhelmsen Ship Management to complete the project, which includes a jetty and pipelines to convey the gas to the nearby Vasilikos power plant.

The consortium has 24 months to deliver an operational terminal from the time construction begins. There were three failed attempts to build a gas terminal in the last decade before the Cypriot government signed the deal with the Chinese-led consortium late last year.

Anastasiades said the terminal would help lower crude-dependent Cyprus' power generation costs by an estimated 15%-25% and reduce its carbon footprint by 30%.

"This historic day highlights our strategic priority to secure and diversify our energy supply while boosting competitiveness in the power generation market and meeting our environmental targets," the president said.

Funding for the project includes a 101 million euro ($114.5 million) European Union grant and low-interest loans from the European Investment Bank and the European Bank for Reconstruction and Development. The Electricity Authority of Cyprus is contributing 43 million euros ($48 million.) 

The terminal will be wholly owned by the Cypriot state. Authorities said it would give the country flexibility to make spot purchases of lower-cost gas on the international market, while allowing for future use of natural gas from gas fields discovered in the Mediterranean Sea off Cyprus. 

Energy companies that Cyprus has licensed to drill for gas in waters where the country has exclusive economic rights include ExxonMobil and partner Qatar Petroleum, as well as Italy's Eni and France's Total.