The disagreement between the State and Hermes, the airport management company, particularly concerning Phase 2 construction works, brings with it problems at the airports. For example, notable delays have been observed at Paphos Airport. Indeed, regarding this issue, the Mayor of Paphos referred to an agreement between the Ministry of Finance and Hermes for an extension of the concession contract. However, this was later contradicted by the Ministry of Finance, which emphasized that the Republic of Cyprus had initiated arbitration proceedings against the management company. The aim is to compel them either to carry out the Phase 2 construction works or to compensate the Republic of Cyprus.

However, until a resolution is reached between the two parties, problems at the airports persist and may even escalate. Even if an agreement is reached, it will take years to complete the works. The Government recognizes this and has reportedly devised a plan to address, at least partly, these issues.

Brief spoke with the Minister of Transport, Alexis Vafeadis, as the responsibility for finding a compromise solution has recently shifted from the Ministry of Finance to his ministry. Initially, as the Minister of Transport mentioned, the State is in negotiations with the management company to resolve the differences that have arisen.

Regarding the problems observed at the airports, Mr. Vafeadis mentioned that even if an agreement is reached, it will take some time to implement the Phase 2 construction phase. Thus, as the Minister notes, the State has devised a plan to solve these emerging problems.

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

However, concerning the ongoing consultation process between the State and Hermes, it may be concluded by March 2024.

As previously reported by Brief, all possibilities are open regarding the agreement between the State and Hermes. The Ministry of Transport has proceeded with a new contract for consultants, who will provide specialized knowledge to advance negotiations for a compromise solution, aiming to complete Phase 2 of the airport works.

Essentially, anything preliminarily agreed upon during the negotiations ceases to be valid, as the new consultants will reassess and reprice the statements made. A prime example is the preliminary agreement for extending the airport concession for another 5.5 years (note: the concession agreement expires in 2031. Hermes requested an extension of 7 years, the State's consultants suggested 4, and the State preliminarily agreed with the company for 5.5 years), which, as Brief learns, will be reevaluated after the new assessment by the Consultants. It is noteworthy that the concession agreement with Hermes for the airports concludes in May 2031.

Indeed, the above takes on particular importance since the extension of the airport concession is directly linked to the Phase 2 works, as Hermes failed to secure the necessary funding to proceed with them.

Simply put, although Hermes was supposed to have already started the works for extensions at the Larnaca Airport building, the corridors, and other projects at both the Paphos and Larnaca airports, it had not managed to secure the necessary funding, estimated at about €250 million. Hermes claims that this funding could be secured from lenders if an extension is granted for the airport concession. However, the Audit Office has a contrary opinion and calls on the company to repeat the effort.

At the same time, however, the question arises as to what can be done in case this funding cannot ultimately be secured by Hermes, and thus Phase 2 cannot be implemented. One possibility, provided for 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 possibility is considered extremely remote.

It should be reminded that Hermes has had a loan of €600 million since 2006 when it took over the airports with a 25-year concession contract, guaranteed by the state and which is expected to be repaid by 2025.