The Larnaca marina and port ‘divorce’ from the contractor’s perspective

Approximately eight months after the termination of the contract with contractor Kition Ocean Holdings, a development that largely put the implementation of the integrated development of the Larnaca marina and port on hold, the government is in search of the appropriate formula that will allow this ambitious project to restart.

This is something which is considered to be of vital importance for the city and district of Larnaca, but also for the whole of Cyprus.

The contract with Kition, it is recalled, was terminated by the state on 27 May, 2024, with the Minister of Transport, Communications and Works, Alexis Vafeades, proposing that the main reason that led the government to decide to terminate the contract was the company's refusal to renew the port’s operations and maintenance guarantee. He also spoke of "a violation of an essential term of the contract, which could not be unfulfilled."

On the other hand, the Kition consortium, in announcements it had issued, rejected Alexis Vafeades' reports and spoke of the illegal termination of the contract, while criticising the state for what it described as the inadequate management of the situation.

Against the backdrop of what has happened in the past months and in anticipation of developments, and in particular the final decisions expected to be taken by the state regarding the future of the marina and the port of Larnaca, sources from Prosperity Group CY , a 20% shareholder in Kition Ocean Holdings, speaking to InBusinessNews, give their own version of the events and the timeline that led to the Government and the company being led to their ‘divorce’.

Their basic position, as formulated and emerging from what they claim, is that not all possibilities for finding a solution and continuing the contract have been exhausted.

The chronicle of the tug-of-war

In particular, as is known and commonly accepted, the tug-of-war between the contracting parties regarding the value of the disputed guarantee began in early 2024, as a result of a difference that arose regarding the amount of the guarantee. With the government talking about €10.4 million and Kition about €4.2 million.

It was a difference that, as sources from Prosperity who spoke to InBusinessNews claim, was due to the fact that through the established accounting audits that the company underwent, it emerged that the formula with which the said guarantee was calculated during its first and second issuance was incorrect.

This, according to the same sources, was communicated to the Ministry of Transport before the expiration of the second guarantee, and a meeting was requested to clarify the matter in order to avoid delays in the issuance of the new guarantee.

Specifically, as the sources report, instead of being €3.4 million, the deposited guarantee that expired in December 2023 was €8 million. Based on the new calculations and always based on the economic model approved by the state, the company's financial advisors indicated to its management that the new guarantee should have been €4.2 million.

However, according to sources from Prosperity, the government insisted on maintaining the original, formula the company found to be incorrect, it demanded more than ten million euros.

It is worth noting that, according to the same sources, during approximately the same period, specifically in December 2023, Kition had proceeded with the renewal of a guarantee value of €3.2 million, which concerned the securing of payments to the state by the company that receives the port usage fees (payments security), proceeded with the renewal of multi-million euro insurance policies relating to the operation of the port and the Larnaca marina and paid the rights owed to the state, as provided for in the contract.

Actions that, as indicated by the sources who spoke to InBusinessNews, demonstrate the company's intention to continue the project, while also demonstrating that it would have acted similarly regarding the guarantee for operations and maintenance, if there had been no disagreement regarding its value.

A disagreement which, as we were told, could be resolved through the activation of a specific term in its contract with the state.

This term, as they argued in this regard, provided that in the event of a disagreement, the solution would be provided through a dispute resolution mechanism, specifically by an independent mediator, whose decision would be communicated within two to three weeks and would be binding on both contracting parties, who would also have the corresponding consequences in the event of non-compliance.

Something which, according to the same sources from Prosperity who spoke to InBusinessNews, was not accepted by the Ministry of Transport, which reportedly insisted that only if the guarantee value of ten million was deposited, was the state willing to consider the issue of revising the formula for calculating its value.

With the company, reasonably - as InBusinessNews was characteristically told - amidst the uncertainty that existed, not accepting such a thing and requesting that the agreement between the two parties precede the submission of the guarantee.

"It is understood that despite the fact that Kition was showing the way to resolve the dispute and continue the project without hindrance within the framework of a relevant clause in the contract, the state appeared adamant and was leading developments towards terminating the contract," the sources who spoke to InBusinessNews claimed.

"Why the criticism of delays is unfounded"

It is noted that another pillar on which the criticism of Kition Ocean Holdings was based, and which was also highlighted by the state as a supporting reason for terminating the contract, was the alleged delays in the implementation of the project.

The sources from Prosperity recalled that the contractor assumed full management, operation and development of the project on 1 April, 2022, after a period of one year, during which the company - as they claimed - managed to complete the demanding process of undertaking all the project's work without any problems, and with the masterplan being approved a few months later, in October 2022.

As they further emphasised, within one year the company succeeded in upgrading the port's infrastructure and services, resulting in a doubling of the port's turnover and with multiple benefits for the region.

As they stated, immediately running all procedures with the aim of implementing and completing the development within the timeframes provided for by the contract, and based on the final master plan as approved by the Government, the company either secured or was in the process of securing all relevant permits.

At the same time, it proceeded with the planning for the development and commercial exploitation of the buildings that would be erected within the development area, as well as the design of a road network of more than three kilometers in length that would serve the project and the entire wider Larnaca area.

For comparison purposes, they indicated that in similar smaller-scale projects, the above tasks require much more time from the design stage to permitting.

To complement this, they said that within this very short period of time, they also undertook and completed the design, secured approval and began the maintenance and improvement of the preserved waterfront within the agreed timetables and instructions of the department of preserved heritage and based on the concession agreement.

At the same time, receiving the port and marina in a not particularly good condition - according to their claims -, the company initially focused and prioritised, pending the receipt of the required permits for the main projects, on the creation of supporting infrastructure with an emphasis on safety and health issues, while also proceeding with upgrade projects, installation of security systems and landscaping of the areas.

The same sources indicated that obtaining the required permits for the main projects required enormous coordination, since it required the involvement of approximately 45 government agencies (either state or municipal), with their issuance being - and still is for projects of such scope and scale - an extremely time-consuming and complicated process.

Thus, in reality, and despite the fact that the company immediately ran all the procedures and submitted all the documents to secure the permits, the licensing inevitably did not proceed at the appropriate pace, due to the large number of services involved in these procedures, with the result that it itself could not proceed based on the planning it would have liked for its work, always in accordance with what they claimed.

It is characteristic, as InBusinessNews was told, that one of the most important permits for the project, the one for the construction of the road network, was issued only last April (2024), one year after the relevant application was submitted.

"The great paradox..."

The sources from Prosperity who spoke to InBusinessNews, describing the above timeframe for issuing the said permit as reasonable, taking into account the size and scope of the project, spoke of a great paradox.

That, as they claimed, while a month later, and specifically in mid-May 2024, the company sent a letter to the Ministry of Transport, informing that it had reached a conclusion on the contractor who would undertake the construction of the roads and infrastructure, essentially requesting the state's approval to proceed with the contract, instead of a response on this matter, it received a letter terminating the contract a few days later.

It is noted that based on its contract, during the period 2022-2028, the company should have completed the Yacht Club, the expansion of the marina, so that it has 600 berths, the port's passenger hall, the port's office building and the necessary infrastructure projects (roads, pedestrian walkways, etc.).

"Based on the agreed schedules and with the aim of implementing the above projects within the schedules," the same sources emphasised, "the company never stopped or delayed the procedures for issuing and evaluating offers, despite the fact that hundreds of thousands of euros and hundreds of hours of work are required to process them."

They finally emphasised that to achieve the above, Kition spent over €35 million and employed a large number of experienced subcontractors, both from Cyprus and abroad, in order to be ready with all the thorough and detailed studies necessary for the start of construction work and, by extension, the implementation of the project.

(Source: InBusinessNews)