The government and airport operator Hermes are close to reaching a deal on the second phase of works promised at the Larnaca and Paphos airports, which would extend the company’s management of the airports.

Both sides have reached a preliminary agreement on implementing the second phase of infrastructure works and are moving towards a final agreement soon at the Central Committee for Changes and Demands.

According to a report in Philenews, this agreement is a compromise, which was reached after successive consultations and discussions between the government and the airport operator and is divided into three parts.

The extension of the concession period of the airports is directly linked to the second phase of the infrastructure works.

The agreement accounts for the current situation and is the result of intensive negotiations, conducted over the last 12 months by a team including representatives of the transport and finance ministries, as well as legal service officials.

The agreement provides for the implementation of the second phase of infrastructure works at the two airports, a reduction in the claims that Hermes had requested from the state due to the impact of the Covid-19 pandemic and the war in Ukraine, and the renewal of the concession contract of the airports to the company, albeit for a shorter period of time than the original proposal of 2022, which was the basis of the discussions.

According to the agreement, there will be an extension of the airport concession contract for another 18 months, from the day the first agreement ends, on 31 May 2023.

Under these circumstances, Hermes will continue to operate Larnaca and Paphos airports until December 2032, instead of November 2036 as originally proposed.

The company will be granted €30 million in compensation, with the withdrawal of its claims from the state, which amounted to €400 million.

At the same time, according to what government source told Philenews, under the new agreement, Hermes is waiving all its claims, which include compensation for changes in the business environment caused by new taxes and legislation, the impact on airport operations due to the pandemic and the war in Ukraine and the operation of a competing airport.

In addition, the agreement includes a waiver of claims also submitted for the period from 2022 to 2024.

It also provides for the start of construction of the second phase infrastructure works at the two airports.

The report in Philenews said that the government considers the agreement reached between the two parties to be fair and beneficial.

In return, Hermes will implement the second phase of the infrastructure works at Larnaca and Paphos airports as soon as possible.

The new infrastructure will be able to accommodate 50 per cent more passenger movements than the original design and includes building extensions at both Larnaca and Paphos.

The government believes that the agreement is considered a great success for Cyprus, as within the next three years the airports will have additional infrastructure, which will contribute to meeting not only the already increased passenger traffic but also the expected additional increase of up to 50 per cent.

Two years ago, the audit service had found that the 2022 agreement was counterproductive for the state, as the company would have gained a large financial benefit, while the 5.5-year extension of the agreement was financially unviable for the state.

The 2022 proposal – which was not finalised – provided for Hermes to construct the second phase works (costing €150 million) envisaged in the original contract, while the state would agree to extend the duration of the concession contract (for 5.5 years) to facilitate the company’s financing from lenders. It would also eliminate some compensation to the company for the pandemic period and the impact of sanctions against Russia.