PaphosAirportDispute: The Ministry of Finance and the Auditor General are at odds over the Phase 2 development of Larnaca and Paphos airports. The Auditor General claims that the Ministry failed to include provisions for terminal expansion at Paphos Airport in the Concession Agreement, while the Ministry argues that the facts are being misrepresented. Cyprus has initiated arbitration to compel the managing company to begin construction or provide compensation. The need for expansion is widely recognized, but disagreements and delays continue to hinder progress.
What is the dispute between the Ministry of Finance and the Auditor General regarding Paphos Airport?
The dispute between the Ministry of Finance and the Auditor General concerns the Phase 2 development of Larnaca and Paphos airports. The Auditor General alleges that the Ministry of Finance lacked provisions for terminal expansion at Paphos Airport in the Concession Agreement. The Ministry refutes these claims, arguing that the facts are being presented selectively and misleadingly. The Republic of Cyprus has initiated an arbitration process to compel the managing company to commence Phase 2 construction or provide compensation.
The underlying friction between the Ministry of Finance and the Auditor General revolves around the Phase 2 development of Larnaca and Paphos airports. The Auditor General’s allegations against the Ministry, juxtaposed with the latter’s rebuttals, uncover the lack of provisions in the Concession Agreement for terminal expansion at Paphos Airport.
The Concession Agreement
The original Concession Agreement for the airports did, however, have stipulations for an extension of the runway. But during a contentious consultation with the managing company, a failed attempt was made to remove this requirement. The need for a runway extension no longer existed. Instead, proposals were brought forward to expand the terminal facilities.
Pressure for Expansion
The need for Paphos Airport’s expansion is a consensus among all relevant stakeholders. The current facilities are insufficient to handle the growing air traffic, and possibilities for further expansion are nonexistent. As a result, authorities in Paphos have been pushing for a quick expansion of the arrival and departure halls at the airport.
Ministry of Finance’s Response
Responding to the Auditor General’s claims, the Ministry of Finance argues that both the Audit Office and the Mayor of Paphos are presenting facts selectively, inaccurately, and misleadingly. It creates a distorted image of reality, creating negative impressions. The Ministry denies reaching any “agreement” with the managing company for a time extension of the Concession Agreement.
The Milestones of the Concession Agreement
The Ministry of Finance explains that the Concession Agreement comprises milestones for the beginning of Phase 2 construction. The checkpoint concerning capacity surpassing at Larnaca Airport was achieved in 2016. The milestone for the commencement of Paphos Airport’s Phase 2 was automatically activated according to the Concession Agreement provisions. However, the managing company initiated a dispute resolution process, requesting an indefinite postponement of Phase 2 construction and instead proceeding with improvement works at the airports.
Arbitration and Financial Troubles
Arbitrators rejected the company’s request, and the decision, issued in 2021, doesn’t bind the company to construct the Phase 2 works. Consequently, the Republic of Cyprus has initiated an arbitration process to compel the managing company to execute Phase 2 construction or compensate the Republic accordingly. During discussions held in 2022, options were explored to facilitate the company in securing bank financing for Phase 2.
The Expansion Delay
The Ministry of Finance emphasizes the delay in implementing additional investments at Larnaca and Paphos airports is not due to the so-called “agreement.” Nonetheless, during the 2022 discussions, it was suggested that the Paphos Airport terminal building’s expansion be included in Phase 2’s additional investments.
The Auditor General’s Criticism
The Audit Office, in its intervention, accuses the Ministry of Finance of sidelining the Ministry of Transport, Communications, and Works (MTCW) under the previous government. The allegation suggests that the Ministry of Finance prematurely adopted the managing company’s unacceptable positions. The Audit Office regards this as serving the company’s interests and predict delays for Phase B, as obtaining approval from the European Commission, if granted, would take 1-2 years.
In simple terms, the Ministry of Finance and the Auditor General are in a disagreement about the development of Paphos Airport. The Auditor General claims that the Ministry didn’t include plans for expanding the airport in the agreement, while the Ministry says this is not true. The government has started a legal process to force the company managing the airport to start the construction or provide compensation. Everyone agrees that the airport needs to be expanded, but the dispute is causing delays.