Marina Larnaca
In an exclusive interview with Phileleftheros, Kition Ocean Holdings CEO Oliver Corlette blames the Government for the impasse that threatens to derail the €1.2 billion Larnaca port and marina investment.
For the first time, the company publicly admits that the project is “at serious risk of failure,” indicating that if the differences are not resolved, the matter will be decided in the Courts.
Corlette reiterates that the company wants to execute the project and provides details on the amount invested to date and the changes they are requesting to make the project viable. “It’s not too late to save this project,” he notes, calling on the Government to engage in dialogue.
The company is criticized for collecting fees from the marina and port without performing any work. Since April 2022, what work has been done and how much money has Kition Ocean Holdings invested so far?
To date, Kition has invested over €30m of its own funds in the project. We have not stopped working even for a day. We are now ready to commence construction that will transform Larnaka into one of the most attractive new destinations on the Mediterranean.
This is a long-term partnership between the public and the private sector and in addition, it is a very complex project in terms of construction and in terms of size. The partners should go hand in hand and work together to face the challenges this project brings and adjust to current times. We feel there is no flexibility on the Grantor side.
The current blockages to the progress of the project are the direct result of the Government's refusal to engage in discussions with us within a set timeframe which is outlined in the Concession Agreement. This is essential to proceed with the effective planning and implementation of the project.
Sadly, the huge efforts that we have put in, along with some of our partners in the Government, are now seriously at risk of failure as the Govt has taken on an intractable position on the issue of the O&M guarantee which is immaterial to the whole project. Simply put, there is a dispute over the amount of the guarantee (approximately €5m) and the Govt refuses to follow the clearly defined Dispute Resolution Procedure to resolve this disagreement. Furthermore, the Government refuses to meet us to have a commercial discussion regarding the crucial matter of the challenges that the project faces. They have chosen to turn down any discussions and any chance of resolving the pending matters unless they are first satisfied with the guarantee but for the guarantee they also refuse to meet and resolve the calculation in a meeting. We are in a deadlock situation.
As a result of the Government's actions, we have had to ask the Courts to intervene to protect our position. More importantly, the project is now close to failure because of the Government’s refusal to work with us to resolve the overarching challenges of the project.
We want to begin a robust commercial discussion to find a mutually agreeable path to resolving this. We do not want this impasse to lead to the loss for Cyprus of one of its largest investments. We are still very keen to pursue this major infrastructure investment and have the funds available to start immediately but prior to that, we must have a serious commercial discussion, in good faith, to resolve these issues before we can start the works which are due to start in June.
Will the works for Phase A of the investment begin in June, or does this depend on the progress of your negotiations with the government?
We are fully prepared to begin the construction work in June. We are ready to select the main subcontractor, and we are submitting to the Government the construction contract for their approval. However, as things stand, we are at an impossible impasse where the Government refuses to engage with us. This is essential to proceed as we need to finalize the direction for the contractors so that the project can move forward. Our discussions with the Government need to be within the prescribed timeframe of the Agreement so that they do not become prolonged and cause delays. Kition is only asking what the Agreement itself provides. This will increase the chances of resolving the disputes and starting the project. We just lost a very crucial 3 months in which we could have already solved all the open issues should the grantor meet us in January. The project's progress is blocked by the Government's unwillingness to begin discussions and by their public statements that they are considering terminating the Agreement. We were informed at the end of April that the construction permit is ready to be issued but that unless we pay close to 1M EUR within 30 days to get it, it will be cancelled. We are ready to pay the permit fee, but it is not logical to take this step when there is such uncertainty created by the Government regarding the survival of the Agreement and when there are underlying issues that need to be resolved for the project to proceed. We greatly appreciate the enormous efforts the mayor and his team have put in to be prepared to move forward and we wish this could be replicated across the Government.
It is not too late to save this project and it is entirely in the Government's hands. We are not setting any conditions for approval of our requests. All we are saying is that the Government should come to discussions to resolve the disputes. This is no more than the Agreement itself provides. We believe the public deserves the full efforts of the Government to find a way forward given how important this project is to the town of Larnaka, how much employment this will generate, and that the Government has one of the strongest European real estate companies willing to back this transformational project right now. If we can get a productive dialogue and find a path forward, we can finally deliver on a project that the people have been waiting for 20 years. We fear that by terminating the project now the government will create an additional few years delay for the project and will find itself in a much worse economic condition.
It is often stated that your request is to start with real estate and then proceed with the works on the marina and port. What exact changes have you requested as a company? Why didn’t you submit these change requests earlier, but only a few months before the project begins?
We will be starting with over €60m of infrastructure and approximately €45m in marina and port works before we even get to the point of delivering any real estate.! The actual plans that we have proposed and the requests we have put forward have no impact on the delivery of the town infrastructure that Larnaca has been waiting for years to see. Our final plans were submitted to the Government on 31 January 2024 asking for a meeting to discuss these changes we are proposing. However, we have already communicated to the grantor that changes must be made more than a year ago. The point is that the market continues to deteriorate, and adjustments are needed to adapt to the current situation. Nevertheless, had the Government started discussions in February, we would have been done by now and we would have been able to proceed as planned.
The requests we have put forward simply move back the delivery of some parts of the marina and port which align with the overall market growth, but do not affect the nature of the project nor do they affect the financial position of the Government negatively. In fact, they improve the Govt's financial return from the project considering that this is a partnership between KITION and the Government, with the Government sharing up to 60% of the profits with the company, we believe the Govt should act in the best interests of the citizens by supporting our initiatives.
The specific nature of the requests does not impact the long-term obligations of the company under the Concession Agreement. The Master Plan will be delivered almost in its entirety in accordance with the Concession Agreement and only some obligations in the First phase will be extended time-wise. What we are proposing will allow the project to grow organically and sustainably with parallel development of the infrastructure and the real estate. Our requests are reasonable and are in line with the Agreement, the EU Directive on Concessions, and the national law. The only reason we ask to allow us to move forward a small part of the real estate is to slightly cover the significant increase of several hundred million euros in the expected costs of this project which occurred in the last 2.5 years. We commit not to take out any funds from the project before we complete the infrastructure and in any event, the government is getting up to 60% of the profit from the project.
The Audit Office has initiated an investigation, which clarified that according to the contract signed, changes in the mandatory works at the port and marina cannot be made, and despite the disagreement with the state, the works must begin in June. What is your position?
The requests we have put forward are compatible with the agreement, the law and the relevant EU Directive, they do not change the nature of the agreement and they benefit both parties. Larnaca will acquire a modern marina and a port and all the supporting buildings and infrastructure. The law specifically allows for amendments to concession agreements because by their nature they are long-term commitments, and it is natural that changing circumstances will make it necessary for adjustments. In our opinion, any independent third party would consider our proposals reasonable.
Some wonder how it is possible for a giant like Aroundtown to negotiate over a few million of the guarantee while preparing to invest 1.2 billion . This, combined with the €2.4 billion losses announced by the company last March, raises questions about its financial capability to execute the project. How do you respond?
The majority shareholder is one of the largest real estate companies in Europe, traded on the Frankfurt Stock Exchange with over €2.9bn of cash on its balance sheet, so it can easily fulfill its obligations for this project. So far our shareholder has invested over 30 million euros to date, while the entire project is estimated to cost somewhere in the region of 1.2 billion euros invested over a period of 15 years. This is a substantial investment, and it is essential for both the Company and its partner, the Government, to work hand in hand to materialize the project. The government's recent statements that it is examining the termination of the agreement and its refusal to engage have raised concerns in the company about the Government's commitment to the project. Kition is ready to put the guarantee. It is the government which is refusing to meet for one day and discuss what is the amount. We have been chasing them since the beginning of this year even before the old guarantee expired but they refused to meet and discuss the amount. We really don't understand their rationale for considering terminating such a project when they can solve all their issues through a short meeting. Very importantly a successful outcome to resolve this dispute will send a signal across Europe that Cyprus is the place to make major investments – many international investors are watching closely this case.
If your requests are not met after negotiations with the state, what will you do? Is there a possibility that you might abandon the project?
We are still hoping that through dialogue with our partners in the Government, pending matters will be resolved, and we are actively working towards this so that the project can move forward. We are submitting the main subcontractor's details and the proposed agreement for approval by the Government. It is in the Government's hands to give this project a chance. If the disputes are not settled through dialogue, within the framework of the Concession Agreement, the matter will have to be decided by the Cyprus courts.
Why was Larnaca not included in this year's maritime connection with Greece? Are there other planned cruises at the port, and how has the crisis in the Middle East affected their reduction?
Larnaca was not included this year in the maritime connection with Greece due to the strong decrease in demand. Even though we offered a competitive price it was decided for the connection to remain in Limassol. The crisis in the Middle East has definitely had a negative impact. Thus far we have had cancellations of 30% of cruisers this year, so we expect 10 vessels during this summer period. Compared to other locations this is milder, so we are thankful it has not been worse. We continue to work with our Cruise Ship industry consultants to develop new business opportunities in the cruise ship sector.
