Developments are emerging regarding the agreement between the State and Hermes for the construction of Phase 2 at the airports. As reported by Brief, the state has narrowed down to two companies, one of which will ultimately be appointed as the state's advisor to begin discussions with Hermes in March.

Speaking to Brief, the Minister of Transport, Alexis Vafeades, confirmed this information, adding that the candidates include a Cypriot and a foreign company.

Mr. Vafeades pointed out that by the end of February, one of these two companies is expected to be selected to provide specialized knowledge to the state during negotiations with Hermes for finding a solution for the implementation of Phase 2 of the airport projects.

The state arrived at these two companies after evaluating those who expressed interest in providing advisory services. This process ensures avoiding any potential conflict of interest between the state's advisor and Hermes, the airport management company. After the evaluation, these two companies were given the necessary documents to submit their offers, and in February, as mentioned earlier by the Minister, one will be selected for the advisory role.

It should be noted that the new advisor will evaluate and cost Hermes' claims during the consultation with the state, although the government will have the final say in the agreement.

As Brief has previously reported, anything preliminarily agreed upon recently during the negotiations is no longer valid. The new advisor will re-evaluate and re-cost these matters. A notable example is the preliminary agreement for extending the airport concession by another 5.5 years (note: the concession agreement expires in 2031. Hermes asked for a 7-year extension, the state advisors suggested 4, and the state initially agreed with the company for 5.5 years). This will also be reassessed following the new evaluation by the Advisor. It is worth mentioning that the concession agreement with Hermes is set to complete in May 2031.

This matter gains particular importance as the extension of the airport concession is directly linked to the Phase 2 projects, as Hermes has failed to secure the necessary funding to proceed with their implementation.

Simply put, although Hermes was supposed to have already started the expansion works at the Larnaca Airport building, the channels, and other projects at both Paphos and Larnaca airports, it had not managed to secure the necessary funding, estimated at about €250 million. Hermes asserts that this funding can be secured from lenders if the airport concession is extended. However, the Audit Office has a differing opinion and calls for the company to repeat the effort.

At the same time, the question arises: what happens if Hermes cannot ultimately secure this funding, and therefore Phase 2 cannot be implemented? One possibility, foreseen in the Concession Agreement, is even the cancellation of the agreement with Hermes before its completion in 2031. However, as competent sources informed Brief, this scenario is considered extremely unlikely.

It is reminded that Hermes has been managing the airports since 2006 under a 25-year concession agreement, with a loan of €600 million guaranteed by the state, expected to be repaid by 2025.

Regarding the problems observed at the airports, Mr. Vafeades mentioned that even if an agreement is reached, it will take some time before the construction phase 2 is implemented—approximately 3 years.

Therefore, as the Minister notes, the state has devised a plan to resolve these emerging issues.

According to the Minister, one way to reduce the queues observed at the airports is to expedite the control procedures within the airports. Hence, there are considerations to increase the staff both at the control points and the check-in services.

However, the consultation process currently underway between the State and Hermes is likely to be completed in March 2024.