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Our View: Auditor-general’s charges over Hermes deal simplistic at best

Auditor general Odysseas Michaelides

There is no doubt the reaction of the ministers of finance and transport to the allegations made against them by the auditor-general last week regarding dealings with Hermes Airports was excessive. As we wrote a few days ago, the response was along the playground lines of ‘I am not playing anymore,’ which is not what anyone would expect from government ministers, no matter how offended they felt.

Any minister would have taken offence after Odysseas Michaelides’ insinuations of law-breaking and dishonesty, which was followed up by accusations that they were promoting the positions of the private company at the expense of the state. It was not as if these allegations were documented with anything resembling concrete evidence – they were based on the auditor-general’s interpretation of events, which was superficial and showed a keenness to jump to simplistic conclusions.

It was also based on the warped statist mentality, shared by parties and public officials, which is based on the assumption that private business is bad, and the state is the force of good. That we have two well-functioning airports, that were delivered on time and according to the specs, is down to the private company that won the BOT (build, operate, transfer) contract. If it were left to the state to do this job, the new Larnaca airport would have been completed in 2016 instead of 2006, at a huge expense to the taxpayer.

Hermes invested €640 million to set up the airports and has paid the state 33 per cent of its annual gross revenue which amounted to some €500 million in those 15 years. The annual payment has increased significantly with the increase in passenger traffic, reaching about €65 million in 2019. The state benefited from the agreement as did Hermes, which undertook this project to make money and not as a charity enterprise, as some seem to think. And it is trying to maximise its earnings and profits from the contract as any well-run business would have done.

This may have caused disputes with the state, particularly over Phase 2 – the extension work at the airports – which, according to the contract should have commenced in May 2022. But was the auditor-general’s suggestion that the contract should have been terminated because the company failed to carry out its obligations? This is not some simple contract involving a few thousand euros, but one worth hundreds of millions, the termination of which could have led to huge legal costs for the Republic and costly disruption to the operation of the airports.

Under the circumstances, the finance and transport ministers were correct in exploring the possibility of reaching a compromise with Hermes through negotiations. The partnership between the Republic and Hermes has been beneficial to Cyprus, and it has another nine years to run. Of course, Hermes would try to maximise its earnings from any new agreement, but it is up to the ministries to ensure a fair deal from which both sides will benefit.

Michaelides’ assertion that the government can terminate a contract worth a few billion euro with another nine years to run without consequences for the state is very simplistic. The ministers should return to negotiations with Hermes and ignore the auditor-general’s publicity gimmicks.

 

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