In two weeks’ time the government “may” take a decision on the ongoing dispute with the joint venture holding the concession over the redevelopment and operation of the Larnaca port and marina area – a €1.2 billion project. And although the government is holding its cards close to its chest, it’s no secret that terminating the contract is one of the options.
The issue is that since signing the contract in 2020, the joint venture – Kition Ocean Holdings – has done virtually nothing at the marina and port apart from raising the docking fees for boat owners and the businesses leasing boats. The project should have been completed by 2025. The joint venture had received several extensions because of the Covid situation, but the government is concerned with the lack of progress.
The latest showdown came about over the Operation and Maintenance (O&M) guarantee for the port which had expired and Kition was refusing to renew. It went to a meeting at the presidential palace to discuss it on April 15 and there it was apparently agreed that it would pay a guarantee for €4.2 million – significantly lower than the €10m it had been and the government was demanding.
Transport Minister Alexis Vafeades said at the time that it was agreed for Kition to pay €4.2m by April 23, and the two sides would go to arbitration to decide the size of the guarantee in the meantime.
April 23 came and went, and the guarantee was never renewed. So, Vafeades turned to the attorney-general’s office for legal advice, to see how the government could proceed.
Meantime the Larnaca mayor and the town’s players were alarmed about a potential contract termination, as it would mean a new tenders process from scratch that would take years to finalise – assuming anyone showed interest. Past experience had shown it was difficult to spark interest.
When contacted, Larnaca mayor Andreas Vyras told us that they’re waiting on the government to take whatever steps necessary.
“What do we want? For the government to clear up the situation, one way or another,” the mayor said.
“That means either with the current contractor, or with someone else…but so long as the project isn’t derailed.”
Vyras, who could not speak long due to a prior engagement at the time, added: “Of course we’re worried. Judging by public statements on the matter, it looks like things have reached a critical stage.”
We next reached out to the transport minister, who gave the government’s version of events.
He said the contract stipulates that concessionaire must submit three letters of guarantee. For example, these guarantees relate to construction, as well as to operation and maintenance.
If, for instance, the concession holder doesn’t build well, the state can cash the relevant guarantee – which is like an insurance policy. The guarantees are held by a bank.
Guarantees have a cutoff point, after which their validity is renewed. The issue at hand is that Kition did not renew the validity of the O&M guarantee.
“These guarantees are an essential term of the contract,” Vafeadis told the Sunday Mail. “If not renewed, to us this means that a basic component of the agreement is missing.”
But why? What’s the dispute really about?
Officially, Kition say the project as it stands is not viable under the current circumstances. They want to revise certain aspects of the agreement. It’s understood that they’ve cited the adverse environment due to Covid, the Ukraine war and the ongoing conflict in Gaza.
Kition has thrown the idea of being allowed to start the more profitable aspect of the project – building villas and flats – before beginning work on the port and marina. The government has refused to discuss this – perhaps because it has lost faith in the joint venture. It’s understood that Kition have to date carried out only minor infrastructure works – some maintenance work on the old pier (a listed building) plus creating a parking space. No substantive work has begun on either the marina or the port.
On its part, the government says it won’t – and can’t – discuss any changes to the agreement unless the guarantee is renewed first. Once it’s renewed, only then will the government be willing to renegotiate aspects of the contract.
So, this can be likened to a Catch-22. By not renewing the O&M guarantee, the concessionaire is holding the government to ransom, in a manner of speaking.
According to the minister, it was Kition itself who proposed downsizing the O&M guarantee to €4.2 million. This happened in late January.
In the minister’s opinion, the concession holder is now “in default” in the sense of keeping to the contract.
“We got the legal opinion from the attorney-general beginning of this week [meaning last week],” Vafeadis confirmed. “We’re currently studying the legal opinion and its ramifications and are in touch with the AG’s office.”
Asked directly whether the drastic option of terminating the contracting is on the table, the minister replied in the affirmative.
“But we have not decided anything yet,” he hastened to add.
“Even if the contract were terminated, we are committed to pressing on with the project, it won’t be the end of it. But yes, it would have to be a new tender from scratch, so more delays.”
Vafeadis would not comment on whether they’ve set any deadline for action. “We’re proceeding step by step,” he offered.
But a decision, based on the AG’s legal advice, “may” be taken in two weeks.
Other sources apprised of the matter told us that one of two things are happening: either Kition have concluded the project is not viable and they want to renegotiate; or the concession holder faces financial trouble.
The parent company of Kition are Aroundtown SA, a public limited liability company listed on the Frankfurt stock exchange. Aroundtown, which has Israeli interests behind it, holds 80 per cent of the stake in Kition.
At the close of the markets on Friday, May 10, Aroundtown’s share traded at €2.07. The company has a market cap of €2.26 billion.
The company’s stock price has been trending down in the last three years. For example, in early 2020 the shares were trading at €8.
In a press release dated March 27, 2024, regarding Aroundtown’s results for fiscal year 2023, the company stated it had “strong liquidity and solid operations”.
The same press release said the company had secured a “new bank debt of ca. €1 billion signed in 2023”.
It added that due to “current macro-economic environment, the company will not pay dividend for 2023.”
As at the end of 2023, its assets consisted of (by value): 40 per cent office space, 33 per cent residential, 21 per cent hotels, and the rest in logistics/retail.
According to its Wikipedia entry, the majority of Aroundtown’s real estate portfolio is located in the cities of Berlin, Frankfurt, Munich, Cologne, Hamburg, Amsterdam, London and other major European metropolitan areas. The company owns hotels such as Hiltons in Berlin and London, the Sheraton in Rome and the Marriot in Paris.
Back to the minister, who says he fully understands the fears of Larnaca people that the entire project might face the chop.
“I’ve discussed the matter with local Larnaca reps, explaining to them that we cannot give in to unreasonable demands. But naturally, they’re not happy with the situation.”
Plans for expanding and privatising the Larnaca marina have been plagued by years of delays and failure to find investors.
Back in 2010 the government struck a deal with Zenon Consortium for a €700 million project to transform both the existing port and marina. The consortium failed to raise the necessary funds even though the government extended the deadline up to 20 times until 2015 when the deal fell through.
Much of the blame fell on the recession and the 2013 banking crisis.
