Cyprus faces losing between €50 million and €69 million in European Recovery Fund grants unless parliament approves a rushed bill to establish the Cyprus Business Development Organisation (KOAE) next week, officials said.
The Ministry of Finance is under heavy pressure to secure approval for the draft law, which was submitted at the eleventh hour. The Recovery Plan concludes at the end of the year, and the Republic must appoint the organisation’s board of directors by the end of August. This timeline requires the plenary of the House of Representatives to pass the government’s legislative proposal this coming Thursday, during its final session before the summer recess.
The new state entity aims to improve access to funding for small and medium-sized enterprises (SMEs), start-ups, the self-employed, and other businesses facing financing gaps. However, cross-party lawmakers reacted strongly during article-by-article scrutiny at the House Finance Committee on Friday, uncovering numerous gaps and ambiguities.
A central dispute involves which companies qualify for funding. While MPs insisted the fund must target micro-businesses and SMEs, the text currently allows all categories of enterprises to apply. Finance Ministry representatives countered that the law aims to provide liquidity where commercial banks refuse to lend, adding that eligibility criteria are governed by EU regulations.
Lawmakers also voiced concern over a provision requiring KOAE to establish private companies and buy equity shares in them before it can issue loans. Further clarifications were demanded regarding why applicants’ creditworthiness would not be screened through the Central Bank’s “Artemis” system.
During the debate, party representatives raised several objections:
- Committee Chair Christiana Erotokritou questioned the provisions allowing KOAE to launch or hold shares in private companies.
- DISY MP Savia Orphanidou demanded clarity on whether the organisation will exclusively cover SMEs and start-ups or extend to larger corporations.
- AKEL MP Aristos Damianou criticised the government for rushing the legislation through “at the last minute” under the pressure of EU funding deadlines.
- ELAM MP Marios Pelekanos warned that any delay in approval risks causing Cyprus to lose its European funding allocation entirely.
- Immediate Democracy MP Yiannis Laouris questioned whether the new body will overlap with existing programs run by the Human Resource Development Authority (AnAD) and the Ministry of Energy.
A Finance Ministry memorandum sent to parliament revealed that creating a completely new public law entity was a direct demand from the European Commission. The Ministry of Finance had originally proposed transforming the existing Housing Finance Corporation (OHS) into a National Development Organisation.
According to the ministry’s note, Brussels raised strong objections to using OHS due to tight implementation deadlines. The EU was concerned about lingering delays in selling off OHS’s existing loan portfolio and whether upgrading its IT systems would match the requirements of a development bank. Brussels also warned that the entity’s current commercial banking licence could be a disadvantage due to stricter Central Bank supervisory rules.
The Republic has received technical assistance from the European Commission via the TSI-DG Reform programme to conduct a baseline study. The state will inject €60 million in capital to launch and run the organisation. KOAE will subsequently cover its funding needs through its own operations—such as loan interest and bank participation fees—and will hold powers to borrow directly from European and international institutions.