Airports operator defends contribution to the state

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Cyprus airports operator, Hermes, said it is offended by criticism over the extension of the 25-year concession agreement for Larnaca and Paphos airports.

Hermes argues that the state has been rewarded €500 mln from the concession fee, calculated on the company’s gross revenues and not profit.

It was the first public comment in a quarrel between themselves and the government over a possible 5-year extension linked to allegations that Hermes has not carried out obligated infrastructure work.

The row intensified with the Auditor General’s intervention, hinting that the government was rewarding the airports operators with an extension of the concession agreement while the latter has not fulfilled its contractual obligations.

As a result, the government has decided to discontinue an incentive scheme supporting airlines to keep Cyprus on their schedule through the COVID pandemic and the impact of the war in Ukraine.

Hermes said it was offended by claims from Auditor General Odysseas Michaelides that the company was essentially handed the airports from the state without a procurement process.

“In 2006, through an international tender, Hermes Airports undertook the construction and management of Larnaca and Paphos Airports, based on a 25-year concession agreement with the Republic of Cyprus,” said Hermes.

“Hermes as the private investor has spent a total of €640 mln for constructing the two airports of Larnaca and Paphos without any charge to the State”.

Not wanting to get into a public discussion over its obligations, Hermes sufficed to say that disagreements between participants are only natural in long-term BOT deals.

It said the concession agreement provides ways of resolving disagreements or different interpretations of articles in the contract.

Commenting on the state’s decision to freeze an incentive scheme to attract airlines to Cyprus, the company said it is an important tool for the tourism industry, with Hermes contributing €120 mln, based on an agreement with the state.

The two parties had been in talks for a five-year extension to the concession agreement signed in 2006, foreseeing that Hermes would operate the airports beyond 2031.

According to the Auditor General, the parties struck up a draft agreement regarding the extension by 5.5 years, while the company has yet to fulfil its initial obligations.

The draft agreement would extend the concession to November 2036.

In exchange, Hermes would waive any claims for compensation for financial losses sustained during the pandemic – when the government closed airports to commercial traffic for several months — and the fallout from EU sanctions on Russia.

However, as noted by the Auditor General, Hermes had yet to commit to undertaking expansion works on the two airports.

The project, costing €250 mln, should have gotten underway between 2017 and 2018.

Reportedly, Hermes is also requesting €150 mln in compensation for not being able to use the airspace over the Turkish-occupied north and fly through Turkish FIR.