The timeline of the foreshadowed 'divorce' between the Government and Kition

"The Ministry of Transport, Communications and Works announces that today, the morning of Monday 27 May 2024, a notice of termination of the concession contract for the project of the unified development of the port and marina of Larnaca has been delivered to the company Kition Ocean Holdings Ltd."

This was the first paragraph of the announcement issued by the competent Ministry on the morning of 27 May and through which it communicated its decision in relation to the 'soap opera' -as it has developed into for some time now- of the implementation of the 1.2 billion euro development by Kition.

The latest development for the course of the project - as it was made official on the morning of 27 May - was not a bolt out of the blue, as there had been every indication over the last months that things were headed in this direction. It was clear that the cracks in the relationship between the state and the contractor company had become more than obvious.

The countdown to the termination of the contract had effectively started at the end of last January when the company did not renew one of the three guarantees, which act as an safety valve that a company that undertakes a public project will complete it, while at the same time ensuring the interests of the state.

The timeline of the problems

The management of the port and marina of Larnaca passed into the hands of Kition on 1 April, 2021 after it was selected to implement the monumental project.

Until 31 January, 2024, the company fully fulfilled its obligations, periodically renewing guarantees to the state.

However, at the end of January, and while this was due as stipulated in the contract, it did not proceed with the renewal of one of the three guarantees, namely the guarantee concerning the operation and maintenance of the port and the marina of Larnaca.

From the very first day of the violation, the Government through the Ministry of Transport, Communications and Works was mobilised, sending a total of four written warnings to the company, requesting the deposit of the guarantee.

But it was to no avail, since the company did not do so by the morning of 27 May, when the decision was taken to terminate the contract.

On its part, Kition, although it had not submitted the guarantee, sent a letter to the Ministry, stating, among other things, that, in its opinion, the guarantee should be reduced to 4.2 million euros.

In the same letter, the company also submitted a series of requests to alter the terms of the contract.

Among other things, the company requested the non-implementation of all the infrastructure projects envisaged in the first phase until it was decided whether they were needed or not, while it also wanted to start selling real estate before completing the infrastructure projects. Also, Kition was asking for a higher building factor for some projects.

Responding to Kition, the Ministry of Transport called on the company to fulfill its obligations, i.e. to deposit the guarantee, assuring it at the same time that it would refer Kition's requests to the competent State Commissions for examination.

In fact, it was emphasised to the company that neither the Government nor the Minister of Transport could decide on their own whether or not to accept Kition's requests since these had to be examined by the state's experts.

The company, however, insisted on its positions and emphasised the need for its demands and the amount of the guarantee to be discussed, without first depositing the guarantee, demanding, at the same time, that the discussions be completed within a specific time frame that would not exceed one month.

Christodoulides' intervention and the conclusion

In an effort to prevent things from reaching extremes, in the interim, and specifically on 15 April, the President of the Republic, Nikos Christodoulides, convened a meeting at the Presidential Palace, during which it was decided that Kition should deposit a letter of guarantee amounting to 4.2 million instead of 8 million euros, as previously agreed.

In fact, Kition also refers to this agreement in a statement the company issued on the afternoon of the same day.

"After a constructive dialogue, an agreement was reached on the deposit of a guarantee amounting to 4.2 million euros by Kition Ocean Holdings. This step will allow discussions on the details of the final amount of the guarantee to continue," the statement said, among other things.

In relation to the guarantee and whether the Government accepted the reduction of the amount of the guarantee, a competent source hs clarified to InBusinessNews that "we never accepted this amount (of 4.2 million euros), as calculated by the company, and the President of the Republic never negotiated the amount of the guarantee."

According to the same source, what was emphasised to the company was the readiness of the state to immediately enter into discussions with it about the requests it submitted, which the Government would refer for evaluation to the competent Committees.

And while, during the meeting with President Christodoulides, Kition had expressed its readiness to submit the guarantee, it, however, did not go on to do so, with the result that the Government appealed to the Law Office of the Republic for legal advice.

In mid-May, the Law Office submitted its position to the Government, on the basis of which it was agreed that the only way to proceed with the project was to terminate the contract, due to the fact that Kition had breached a material term of the contract.

This decision was communicated to the company on the morning of 27 May and now the state is proceeding with the implementation of its Plan B, the steps of which are expected to be determined during the meeting that the Minister of Transport will have with the Larnaca authorities on Friday, 31 May.

Plan B and the risk of going to court

It is noted that the government's Plan B essentially concerns the announcement of a new tender to find a new investor, since the state does not have the necessary expertise to implement such a large project on its own.

Whether, however, this process will proceed immediately or be significantly delayed will also depend on what Kition will do, and specifically on whether or not it will go to court.

However, a competent source, when asked about this, emphasised that "we consider that we have correctly taken this decision, based on the opinion of the Law Office."

"Whether or not the projects will be delayed will be made clear by the court's decisions, if and when the company appeals," the source indicated.

Also answering if there are thoughts about separating the projects of the marina and the port of Larnaca, the same source emphasised that "this is something that will be discussed at the meeting with the Larnaca authorities."

'Finalising the bill'

Moreover, it is worth mentioning that, after the termination of the contract, Kition and the Government will have to 'finalise the bill,' to make it clear whether the state will claim compensation or whether the state will compensate the company.

Essentially, what works should have been done to date and if they were done will be examined, as will what the state had to provide and what the company had to provide and it will become clear if the state has to pay an amount to the company or vice versa.

It is emphasised that if there is no conclusion in the discussions between the state and the company, then the resulting dispute will be resolved through the courts.

Kition's intentions...

It should be noted, however, that Kition has indicated its intentions through a statement it issued late in the afternoon of 27 May.

On the counterattack, Kition says it was informed by its legal team that the termination notice is illegal and violates the terms of the agreement.

In this context, as indicated, the company is considering its legal options.

Kition speaks of Government behavior that undermines the rule of law, which it notes should be in place to protect investors, while concluding that it had acted on the basis of the agreement and the law, and was willing to proceed with the project, trying to resolve any differences with the Government in a constructive manner.

Also read: Alexis Vafeades: “We are activating Plan B, a new investor for the marina and the port of Larnaca will be found” (Updated)

(Source: InBusinessNews)