Filenews 12 September 2024 - by Eleftheria Paizanou
The Republic of Cyprus is expected to shake hands soon with Hermes Airports, which is the managing company of Larnaka and Pafos airports, in relation to the second phase of construction of infrastructure works at the two airports and the extension of its management of the two airports.
According to information provided by "F", the two parties have reached a preliminary agreement for the implementation of the second phase of the infrastructure at Larnaka and Pafos airports, which will be submitted for final ratification soon, to the Central Committee for Changes and Requirements.
As "F" is informed, this is a compromise formula, which was reached after successive consultations and discussions between the Republic of Cyprus and the airport operator and is divided into three parts.
It should be noted that the extension of the airport concession time is directly linked to the second phase of infrastructure projects. The agreement takes account of the current situation and is the result of intensive and in some cases intense negotiations, conducted over the last 12 months by a group that included, among others, the Ministry of Transport, the Ministry of Finance and the Legal Service.
Specifically, as reported by "F", the agreement provides that the second phase of infrastructure works at the two airports will be implemented, the claims (compensations) that Hermes had requested from the State due to the effects of the coronavirus pandemic and the war in Ukraine will be reduced and at the same time the airport concession contract to the company will be renewed but for a shorter period of time than the initial proposal of 2022, which formed the basis of the debate.
What does the new agreement envisage?
In detail, the new agreement reached by the two parties provides for the following:
- Extension of the airport concession contract for another 18 months, from the day the first agreement is completed, on May 31, 2031. Therefore, with this in mind, Hermes Airports will continue to manage Larnaka and Pafos airports until December 2032.
- Granting compensation to the company amounting to €30 million, with the withdrawal of its claims from the State, which amounted to €400 million. At the same time, under the new agreement, Hermes waives, as government sources told "F", all its claims, which include, among others, compensation for changes made to the business environment by new taxes and legislation, the impact of airport operations due to the pandemic and the war in Ukraine and the operation of a competing airport.
- In addition, the agreement includes the waiver of claims for the above, submitted for the period from 2022 to 2024.
- Construction of the second phase infrastructure works at the two airports is also planned.
We are informed that the Government considers the agreement reached by the two parties to be fair and beneficial.
The 2022 proposal
It is recalled that the 2022 proposal – which was ultimately not finalized – provided for Hermes to construct the works of the second phase (costing €150 million) provided for in the initial contract, while the Republic would consent to an extension of the duration of the concession contract (for 5.5 years), in order to facilitate the financing of the company by lenders. It would also remove some compensation to the company for the pandemic period and the impact of sanctions against Russia.
The rewards from Hermes
In return, Hermes will implement as soon as possible the works of the second phase of the infrastructure at Larnaka and Pafos airports.
A competent source told "F" that the new infrastructure will be able to satisfy 50% more passenger traffic than originally planned and includes building extensions in both Larnaca and Paphos.
The Government estimates that this agreement is considered a great success for Cyprus, as within the next 3 years the airports will have additional infrastructure, which will contribute to satisfying not only the already increased passenger traffic but also the expected additional increase of up to 50%.
- The agreement is expected to be submitted for ratification before the Central Committee for Changes and Claims (CEEA).
Odysseus' old "no"
It is worth mentioning that two years ago, during the discussion of the issue in the parliamentary Committee on Finance, the Audit Office had vetoed the initial agreement promoted by the two parties on this issue, as it had identified problems.
Among other things, the Agency had found that the 2022 agreement was unbalanced for the state, as the company would reap a great financial benefit, while extending the agreement for 5.5 years was economically unprofitable for the state.
It is recalled that due to the involvement with the non-implementation of the projects, the two parties had appealed to the arbitral tribunal, a process which was put on ice during the consultations.
