Millions in compensation to Cyprus Airports under review

A compensation agreement between the state and Hermes Airports is being challenged in parliament, echoing a public debate on how and whether Larnaca and Paphos airports should receive government funds due to the operation of the illegal Ercan (Tymbou) airport in the north.

Members of the House Watchdog committee are challenging the formula by which millions in compensation are being calculated and provided to Hermes Airports based on a previously-existing agreement in 2002.

But the issue goes beyond the House, as a debate has been raging on between Auditor General Odysseas Michaelides and the Transport Ministry.

In light of Hermes trying to justify a higher amount for the company, essentially seeking €23 million in compensation for the next three years, Michaelides challenged the request last month and further told the committee on Thursday that a formula for calculating the compensation amount ought to be reconstructed.

Hermes’ Larnaca and Paphos airports receive funds from the state as compensation due to the illegal operation of Ercan airport in Tymbou, just outside Nicosia in the northern part of Cyprus which is not internationally-recognised. Under a possible future federal solution, Ercan would operate and compete legally with the south, and this was the basis for the compensation agreement. 

The agreement came into being in 2002 in anticipation of a solution to the Cyprus problem, which ultimately failed in 2004, but checkpoints were opened in 2003 that allowed most people to travel freely between north and south. Hermes received a total of €43 million since the agreement was put in place in 2002 between the state and the previous company, Altera, which managed the airports in the south in the past.

According to the auditor general, the state paid €10 million in the first years of the agreement and then the amount jumped to €33 million.

“And here we are now discussing whether the annual amount of €5.5 million ought to jump to €7.5 million, jacking up the total price to €66 million,” said the auditor general, in case the new compensation request is accepted.

Traffic passenger in south on the rise

The House committee also heard that if passenger traffic in Larnaca and Paphos airports continues to climb, the compensation agreement might not even be needed in one or two years.

Tourist arrivals reached 192,090 in March compared to 140,873 in the same month in 2017, according to official data released Tuesday. And a record 3.65 million tourists enjoyed a Cyprus holiday last year, spending an unprecedented €2.6 billion.

But Transport Ministry’s Permanent Secretary Alecos Michaelides (no relation with the auditor general due to same family names) dismissed the auditor general’s point of view, with the top ministry official saying that the company’s financial strength would be put at risk if the formula was renegotiated.

The ministry has argued that a renegotiation of the contract could possibly lead to the termination of the agreement, forcing the state to pay 95% of the money owed to the company. 

The auditor general said he believed there would be other ways to save that amount of money.

According to daily Phileleftheros, the agreement with Hermes was signed in May 2006 and provides for the airports to be managed by the company for 25 years, and then the management would fall under the state in 2031. The state also receives 33% of the annual profits and so far it received €417 million. The profits for 2017 were €50 million.