The news of the government’s termination of the €1.2 billion Larnaca port and marina concession agreement with Kition Ocean Holdings came as no surprise, confirming a long-anticipated fiasco of monumental proportions.
Since the handover of the marina and port of Larnaca to the contractor on April 1, 2022, very few minor works have been executed, with the company even using the renewal of a bank guarantee as leverage to push for design changes that favoured real estate developments.
Just days before the supposed commencement of the project’s first phase, the government, based on a legal opinion from the Law Office, decided to terminate the contract with Kition.
Now, both the state and Larnaca, which have been awaiting this much-desired integrated development for over 20 years, find themselves in a predicament, with the timeline for a resolution remaining unclear at this stage.
The government’s immediate priority is to regain control of the port and marina and implement its plan B to find a new investor. However, neither of these processes has been clarified, and for plan B, in particular, the road ahead is expected to be long.
This is evident from the company’s statement, where they expressed their intention to exhaust all available legal avenues, which could potentially stall certain procedures. Kition once again lashed out at the government, as they did last Saturday, in an interview with Phileleftheros, accusing them of undermining the rule of law, given the ongoing court proceedings regarding the disputed bank guarantee.
In their statement, Kition expresses surprise at what they characterise as a disregard for the judicial process, “which would not be expected from a state,” asserting that “the government’s behaviour undermines the rule of law, which should protect investors”.
They further note that “Kition has always acted based on the agreement and the Law and has been willing to proceed with the project, attempting to resolve any differences with the government in a constructive manner”.
The relationship between the two parties began to sour on January 31, 2024, when Kition, instead of renewing a €10 million bank guarantee (which they calculate at €4 million), submitted a list of requests for design changes. The final rupture occurred when, according to the government, the company reneged on its commitments made on April 15 before the President of the Republic, who has repeatedly stated that “the state cannot be blackmailed”.
Based on a legal opinion from the Law Office, which found that the failure to renew the bank guarantee constituted a breach of an essential term of the contract, the Ministry of Transport has been considering scenarios for contract termination for several weeks.
The first step was taken last Friday when instructions were given to liquidate another bank guarantee (payment security) worth €3.2 million. At 8:30 am on Monday, accompanied by the Police, the termination letter was delivered to Kition Ocean Holdings, with its subsidiaries, Kition Ocean Port and Kition Ocean Marina, also being informed.
Meanwhile, according to the Minister of Transport, the company refused to participate in a meeting intended to ensure a smooth transition of the port and marina back to the state.
Justifying the government’s decision, Vafeades stated that “Kition’s continuous refusal to renew the bank guarantee led us to the decision to terminate the contract immediately”.
He further noted that “our action triggers a process whereby the port and marina revert to state management. The state is ready to operate the port without any interruptions. It has taken all necessary measures to ensure the uninterrupted functioning of essential services and to meet the needs of Cyprus.”
In essence, what will happen is that the Cyprus Port Authority will take over the management of the critical services provided by the Larnaca port.
Regarding the marina, the state will assume management, and at a later stage, as mentioned by a government source to Phileleftheros, a decision will be made on which government agency will oversee it.
If the company refuses to hand over the marina and port, which remains unclear from their statement, the government, according to competent sources, will seek a court order to secure the management rights. Should the company ignore the court order, the government will once again turn to the judiciary for contempt of court and request the issuance of arrest warrants.
Notably, the Minister of Transport’s admission that “something has gone wrong with the contract,” along with his acknowledgement that “self-criticism is warranted,” underscores the need for a thorough review to prevent similar problems in future processes.
Moving forward, the government’s plan B will be implemented, according to Vafeades, with the project expected to be executed by a new investor following a new call for tenders. The specifics of this plan will be discussed on Friday in a meeting with the Larnaca Development Committee, in the presence of the Minister of Transport.
While the collapse of the Kition deal was anticipated, it has nonetheless caused significant disappointment among Larnaca stakeholders.
The Mayor of Larnaca, characterising the development as negative, stated that on Friday, they will “discuss how the project will proceed and be realised under the new circumstances, a position that has been expressed most emphatically and officially by both the Minister of Transport, Communications and Works and the President of the Republic, and one with which we all agree.”
The proposal by the President of the Larnaca Chamber of Commerce and Industry, Nakis Antoniou, is also on the table to separate the project. “Larnaca businessmen are ready to help and contribute to the project, which can take a different form, making it easier to execute,” he noted.
“I would be pleased to see foreign capital coming in, but I would be thrilled if Cypriot businessmen invested so that the profits remain in our hands,” he added.
The idea of two separate developments is gaining traction among several Larnaca stakeholders, who believe it would expedite the procedures.
Meanwhile, AKEL blamed the Anastasiades and Christodoulides governments for the chaos, noting that no one else knew the provisions of the contract.
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