HURRAY! At last, EU membership is paying off. The Commission has written to the government asking to be informed on the procedure by which the government intends to assign the construction and management of the new airport to a private consortium.
While everyone else in Cyprus, apart from the rival companies that alerted the Commission, regards this as a national disaster, I believe it is excellent news. My reason is simple. I know from a well-placed source how the government team was negotiating. It basically caved in to the demands of the consortium to lower the specified service standards. Lower standards, which mean lower costs, increase the profitability of the operation of the airport. Even worse, the government accepted to bear much of the risk from fluctuations in future passenger traffic.
The idea of public-private partnerships is that both the public and private parties assume a similar or at least a significant amount of risk. The concessions of the government in the negotiations on the new airport came very close to turning the project into a free lunch for the consortium.
The government did not seem to know how to handle this affair. Typically, officials were reticent to respond to queries from journalists until they could consult their legal advisors. Although this may appear to be wise, I think, on the contrary, that it reveals they had not thought through all possible complications. I very much hope the Minister for Communications and Works and his Permanent Secretary are reading this article because I have grave doubts about the advice they have been receiving.
The initial reaction from the government was to belittle the significance of the Commission letter. The fact that the Commission intervention was in the form of just a letter requesting information reveals nothing about how grave the Commission concerns may be. This is the first stage of a standard procedure on suspected infringements of EU rules by member states. If the Commission is not satisfied with the answers it receives, it will then proceed to the second stage where it prepares a fully reasoned opinion of how EU law has been violated and eventually to the third stage where it refers the member state concerned to the European Court of Justice.
Once it was realised that the Commission letter could not be taken lightly, some of the officials involved in the negotiations were reported to be defiant. “Let the Court fine us,” they said. Apparently, in their view, the country could not wait any longer because it was in the national interest to sign the agreement with the consortium as soon as possible. Naturally, this begs the question why after years of delay, signing the agreement and getting started on the project all of a sudden became so urgent. Urgency of this kind raises suspicion about the motives of those who push for quick conclusion of the agreement.
But the important point is that, irrespective of their motives, they are wrong both on the damage the European Court can potentially inflict on Cyprus and on the economics of waiting a few weeks longer to get the agreement right and to ensure it complies with EU law. Let me explain.
The European Court may impose substantial fines depending on the gravity and time length of the infringement. In a case brought against Greece, the fine was 20,000 euros per day. In a case against Spain, the fine was 625,000 euros per year. The fines continue to be paid until the infringement is over. Greece paid a total of 4.7 million euros by the time it managed to comply with the ruling of the Court. But in Cyprus’ case there is no imminent danger from the Court, as it always takes years before a case ends up in a fine. So why worry, you may ask.
The real problem for the government is that it will be locked in a 25-year contract through which it will assume significant risk amounting to tens of millions of pounds. Why the rush? More importantly, why rush to sign a contract that may be declared illegal under EU law.
On this point, the Minster has argued that the legal opinion he received from both Cyprus and abroad was that he could go ahead to sign the agreement, as the risk of a court case was minimal and certainly not imminent. I have to admit that I do not know much about the rules on public procurement. But I know enough to appreciate that the law on public-private partnerships is evolving and therefore it is unclear. If I were the minister I would be a bit more cautious.
But the most serious risk is not from the European Court. It is from the Commission. The discussion during the past couple of weeks was whether the agreement complies with public procurement directives. The point is that even if the agreement complies with procurement rules, the fact that the government has assumed excessive risk may be found by the Commission to be a form of state aid. This should be much more worrisome for the government because on state aid issues the Commission can act swiftly and independently. It does not have to initiate proceedings before the European Court and its decisions do not have to be sanctioned by the Court in order to be enforced. In fact, member states are obliged to comply immediately with Commission decisions that prohibit state aid even if they lodge an appeal to the Court.
More damagingly is that, under EU law, any company whose interests are harmed can petition directly a Cypriot court to stop any public measure which contains state aid that has not received the prior approval of the Commission. The rival companies that were excluded from the construction and management of the new airport can do precisely that and ask for damages as well. European Courts and the Commission cannot award punitive damages. National courts can.
I very much hope that the advisors of the minister have fully explained to him all the potential consequences of a decision to sign an agreement that may not comply with EU law. If he has not appreciated the extent of the risk he is assuming then he is indeed gambling with public money. Ignoring the EU is always a perilous game for public authorities. For the rest of us, it provides another check on government excesses.
n Phedon Nicolaides is Professor at the European Institute of Public Administration, Maastricht, The Netherlands
