Airport concession contract extension remains unresolved

No agreement has been reached on the extension of a concession contract for the airport management company’s obligations regarding management and development of Larnaca and Paphos airports, the finance ministry said on Thursday.

The ministry’s response was prompted by claims from Paphos Mayor Phedonas Phedonos, who quipped that a deal the company struck with the finance ministry stipulated that Phase B would only commence as part of a comprehensive agreement package encompassing a 5.5-year extension of the agreement and the satisfaction of the company’s requirements.

The audit office backed Phedonos’ claims saying on Tuesday that under the previous government, the interior ministry, “without being the contracting authority, marginalised the competent transport ministry, and with its permanent secretary as the head of the negotiating team, preliminarily adopted the unacceptable positions of the operator [Hermes] on bundling.”

The government watchdog was criticising the bundling of three issues: the express contractual obligation of the company to expand the airports to increase their capacity (so-called Phase B), the “illegal” extension of the concession agreement by 5.5 years (with no-bid contracts for services with gross revenues of €1.5 billion), and the various financial claims on both sides – the government and the airport concession holder.

In their statement, the ministry said the audit service and Phedonos “present events in a fragmentary, incorrect, and misleading manner, with the result that they distort reality and create negative impressions”.

The ministry added that they are obliged now to reiterate relevant facts in an objective manner to inform the public.

As noted, Phedonos “appears to have stated that the reason why the additional construction works at Larnaca and Paphos Airports did not proceed is a previous agreement of the ministry of finance with the managing company for a time extension of the concession contract and satisfaction requirements of the company”.

“The ministry of finance declares competently that no agreement has been reached between the management company and the ministry of finance for a time extension of the concession contract and satisfaction of the company’s demands,” the statement said.

According to the ministry, the concession agreement includes milestones for the start of construction of Phase 2.

The milestone regarding exceeding the capacity of Larnaca Airport was met in 2016 and according to the provisions of the agreement, the milestone to start construction of Phase 2 and for Paphos Airport was enacted immediately.

However, the ministry added that the management company then filed to postpone construction works for Phase 2 indefinitely, which was rejected by the state.

The decision rejected the company postponing phase 2 but did not oblige them to begin the projects.

“For this reason, the Republic of Cyprus has initiated arbitration proceedings against the management company in order to oblige it, or to execute the relevant construction works of Phase 2, or to compensate the Republic of Cyprus accordingly,” the ministry stated.

According to the announcement, the management company informed that it is unable to secure bank financing for the construction of Phase 2.

The ministry said that in the context of the discussion between the two parties held in 2022, options were discussed on how the company could find financing to meet its obligations and how Cyprus could meet its obligations to the management company.