Tag: International Finance Corporation (IFC)

Attorney General asks for Supreme Court to decide jurisdiction on GMR

The Attorney General Azima Shukoor has said she will ask the Supreme Court to rule on whether the laws of the Maldives can be applied to the government’s agreement with GMR concerning the development of Ibrahim Nasir International Airport (INIA), local media has reported.

Shukoor, who was not responding to calls at the time of press today, said a request was sent following the release of a Supreme Court statement yesterday.

“It is against the International laws and the United Nations Charter that any action that undermines any sovereign right of a sovereign state, it is clear that courts of a sovereign nation has the jurisdiction to look into any matter that takes place within the boundaries of that state as according to the constitution and laws of that state,” read the statement.

“Even though a contract has an arbitration clause giving right to arbitrate in a foreign court does not limit a local courts jurisdiction to look into the formed contract, and it is clear that such limitations are in violation of UN Charters principles of sovereign equality, principle of sovereign non intervention within domestic jurisdiction, principle of self determination rights,” read the statement.

Shukoor told Haveeru that if the case could be dealt with by the Maldivian courts, the process would become much easier.

However, she also expressed her confidence that government would be successful in the arbitration case regarding the Airport Development Charge, which was file by GMR in Singapore.

“We can win the case at the Singapore Arbitration even by biding our time. It is quite certain,” she told Haveeru.

The original agreement, argued Azima, was drafted under UK law although both sides agreed to settle any disputes through third party arbitration.

Arbitration

Third party arbitration is often used in order to gain impartial decisions from international experts whilst avoiding the uncertainties and potential limitations of local courts.

One of the world’s leading arbitration companies, the Singapore International Arbitration Centre (SIAC) gives a number of examples of why Singapore is frequently chosen for international arbitration.

Number one in its list is the country’s strong reputation for neutrality, currently placed fifth in Transparency International’s Corruption Perceptions Index, behind New Zealand, Denmark, Finland and Sweden

The Maldives is currently placed 134th in this list alongside Eritrea, Pakistan, and Sierra Leone.

The Maldives judicial system has also faced issues regarding its political independence since the adoption of the 2008 constitution.

A recent report by the International Federation for Human Rights (FIDH) said that “different sections of the judiciary have failed to become fully independent and still lack adequate expertise.”

“According to testimonies from members of the judiciary met by the FIDH team in Male’, under the successive administrations, no political party has actually ever shown any willingness to establish an independent judiciary since each seems to benefit from the existing system,” said the report.

“Moreover, the judiciary is allegedly under the influence of the business sector. For instance, the member of the JSC appointed by the Majlis is also one of the main business tycoon of the country. His presence in the body overseeing the conduct of judges, as well as the general pressure imposed upon the business sector on the judiciary, has therefore been subjected to controversy,” it concluded.

Both civil society groups as well as the current government have acknowledged the need for stronger independent institutions in the country.

President of the Anti Corruption Commission (ACC) Hassan Luthfee told local media yesterday that one of its three cases regarding the GMR deal was nearing completion.

Luthfee, who has recently questioned the ability of the ACC to fulfil its mandate, told Minivan News last week that a high profile case such as this was not easy for the institution to finish which was likely to result in delays.

“Even an international organization such as the International Finance Corporation (IFC) had provided expertise in this case. So when such an allegation of a major criminal offence has been made we must probe the matter quite extensively. This is by far the most high profile and sensitive case. So we must be certain,” he told Haveeru yesterday.

The IFC was forced to defend itself this week after being described by senior cabinet figures as “irresponsible and negligent” during the INIA bidding process.

Shukoor had said last week that as long as the agreement between GMR and the government is not invalidated, the agreement would be “legally binding” despite a “majority of the people” who wish to “terminate the agreement immediately”.

She also expressed the government’s concern about the effect on investor confidence that may result if the agreement was terminated.

Independent MP Mohamed Nasheed today told local media that, despite indicating its willingness to do so, the Majlis had not at present become a party to the 1958 New York Arbitration Convention which deals with the recognition and enforcement of arbitration awards.

Nasheed argued that the Maldivian constitution requires citizens to act in accordance with international conventions which have been backed by domestic legislation.

He added, however, that the Maldives’ Arbitration Act was still in the committee stage.

Nasheed was not responding to calls at the time of press.

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IFC responds to government’s allegations of negligence in airport bid

Additional reporting by Neil Merrett

A spokesperson for the International Finance Corporation (IFC) has defended the organisation against charges of negligence during the bidding process for the development of Ibrahim Nasir International Airport (INIA).

In a press conference last Thursday held by the Attorney General  Azima Shukoor, Economic Development Minister Ahmed Mohamed, Toursim Minister Ahmed Adheeb and Civil Aviations Minister Dr Ahmed Shamheed, it was alleged there were discrepancies in the bid awarding and concession process.

The cabinet members claimed that the IFC had been “irresponsible” and “negligent” in advising the former government of President Mohamed Nasheed in the concession of INIA by Indian infrastructure giant GMR.

“The current government believes that the IFC had not given the most appropriate legal, financial and economic advice to the Maldivian State,” Azima Shukoor said.

The IFC denied the accusations, stating that its advice was geared towards achieving the “objective of upgrading the airport and ensuring compliance with applicable international regulations” and providing the Maldives government “with the maximum possible revenue”.

“A competitive tender was organised with the objective of selecting a world-class, experienced airport operator, who would rehabilitate, develop, operate and maintain the airport,” said an IFC spoksperson.

The IFC – a member of the World Bank Group – was established in 1956 to stimulate private investment in developing countries through investment, advisory, and asset management services.

The spokesperson stated that the bids were evaluated by a government appointed committee, comprising senior government officials, using two key criteria.

The first criterion required firms to meet all the technical requirements set out in the tender documents which, Seth stated, were designed to meet the objectives of the government, and ensure the airport becomes a world class airport with ‘Leadership in Energy and Environmental Design’ certification (Silver).

The second criterion was financial, favouring the highest offer from firms that passed the technical stage. The financial criterion was a combination of a one-time up-front fee, and fixed and variable fees to be paid throughout, explained the spokesperson.

“The IFC’s advice complied with Maldivian laws and regulations and followed international best practices at each step of the bidding process to ensure the highest degree of competitiveness, transparency and credibility of the process,” the organisation stated.

“These processes have been followed globally in several Public-Private-Partnership projects in the airport and other infrastructure sectors,” it added.

Asked if the IFC was currently continuing assistance to GMR or the Maldivian government, it replied “We are currently not working in any capacity with the authorities on this project. We however remain available to address any issues or concerns that the government may have relating to the project.”

A GMR Spokesperson said that the company did not wish to comment on the remarks made by government ministers.

The Anti-Corruption Commission (ACC), which is currently investigating the GMR deal, said last week that continued work on the project may be delayed considerably whilst the investigations are completed.

ACC investigations began in June, although building work on the new terminal – due to open in July 2014 – was ordered to halt in early August after the government claimed that the company had not acquired the appropriate permits.

Government’s critique of bidding process

During Thursday’s press conference, Shukoor claimed that the role played by the IFC during the bid awarding process – as well as the technical, financial and legal advice given – was unacceptable and included “major inconsistencies” in the “loss-benefit assessment” carried out before awarding the project to GMR.

“The legal agreement also lacks equity between the state and GMR, and gives significant powers which have narrowed the government’s ability to manoeuvre within the agreement. For this reason, the state is facing a huge loss even in taking steps that have to be taken immediately,” she added.

Speaking about the prospective profit, Shukoor claimed the agreement made between GMR and the government would lose the country more than that it would earn, and a much more cost effective master plan had been made during the tenure of former President Maumoon Abdul Gayoom.

She said that as long as the agreement between GMR and the government is not invalidated, the agreement would be “legally binding” despite a “majority of the people” who wish to “terminate the agreement immediately”.

“The government must also consider how much money has to be paid back as compensation if terminating the agreement, and it is clear to all of you that the Maldives financial and economic situation is at a critical level, and in this situation it is not an easy thing to do,” she told the press.

Shukoor also expressed the government’s concern about the effect on investor confidence that may result if the agreement is terminated in addition to other “diplomatic issues” that may arise from such a decision.

The Economic Minister, Ahmed Mohamed, claimed that the Nasheed government had only considered the lump sum that it received as the upfront payment, rather than long term benefits that the government could have achieved.

“They awarded the bid to a party who proposed to pay US$76million, but if you look at the other bidders, their bids were more profitable in the long run. For example one of the bidders proposed to give a 31 percent share to all the businesses except that from oil trades until 2014, but GMR proposed only one percent,” he claimed.

He added that another bidder had proposed to share 16 percent of the profits gained from the oil trades with the government.

“It is clear that the government did not consider, when awarding the bid, the long term benefits of the people but rather an instant short term profit,” he argued.

Highlighting the already much disputed issue of the Airport Development Charge (ADC), Mohamed claimed the government had given up a lot of power to GMR in the contract, allowing them to dictate all the fees during the concession.

He stated that there were only two options left for the government: “Either find a solution within the concession agreement with GMR or terminate it.”

Civil Aviation Minister Dr Shamheed said the initial INIA master plan, made by British consultancy firm Scott Wilson, was considered too costly by the IFC.

“So we checked the truth of IFC’s report. The master plan by Scott Wilson is a phase based development. There were developments that were to be brought in the first phase, the second and other phases that followed were mentioned very much in detail,” he claimed.

Shamheed claimed that despite the fact that Wilson’s master plan was more cost effective the IFC made a new master plan, hiring another foreign Consultancy firm – Halcrow- which Dr Shamheed claimed was more costly.

“Scott Wilson’s phase one cost us US$390 million, and all the three phases summed up came to a figure around US$590 million. IFC did not provide this information to the government. We are talking about a development of 30 years,” he said.

Shamheed also alleged that the new master plan was made without even testing the status of the current runway at all and said they relied on a test that was made a long time ago.

“Even those tests showed that the runway needed significant repairs and some parts of the runway had to be removed,” he added.

“This is very irresponsible that the former government entered into a contract with a party who did not assess the situation of the existing runway,” he claimed.

Tourism Minister Ahmed Adheeb alleged that because of the new fees implemented by GMR following its take-over, the flight frequency from Europe had declined.

“Coming to Maldives is no longer feasible for most of the chartered flights.  Sri Lankan airlines’ Male to London direct flights have been pulled out following the decision. Even though the flight frequency from China has increased, the number of bed nights has declined,” Adheeb said.

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IFC delegation addresses government concerns over GMR airport deal

A delegation from the International Finance Corporation (IFC) – a member of the World Bank group and the largest global institution focused on private sector in developing countries – met with senior government officials last week to address concerns over the concession agreement with Indian infrastructure giant GMR to develop the Ibrahim Nasir International Airport (INIA).

Local daily Haveeru reported that the IFC delegation comprised of the country manager to the Maldives, the technical team of the airport development project evaluation committee and its legal team. The delegation reportedly provided information requested by the government regarding the evaluation of the agreement with GMR.

“The government’s main concern is the deduction of the fuel concession fee which includes airport development charge and insurance surcharge by GMR, payable to Maldives Airports Company Limited (MACL). In addition, the government also raises its concern over the restricted opportunities for Maldivians in the development plan of the airport,” the newspaper reported.

According to IFC, the key objectives of the institution in its role as lead advisor to the government in the structuring and awarding of the 25-year concession agreement were:

  • increase the airport’s capacity to handle long-term traffic growth while ensuring that the airport met international technical standards;
  • position the airport as a world-class facility catering to highend tourism;
  • improve operations and service quality standards in line with international best practices;
  • maximize the value of the project for the government in terms of proceeds and quality.
  • implement a successful public-private partnership which could serve as model for other infrastructure projects.

“The concession was awarded to a consortium of GMR Infrastructure Limited (GMR, India) and Malaysia Airports Holdings Berhad (MAHB, Malaysia). The consortium will pay $78 million in upfront fees and offered a percentage of shared revenues that represents over $1 billion in fiscal benefits for the government over the length of the concession, calculated on a net present value (NPV) basis. The proposed investment of $400 million represents nearly 40 percent of the country’s gross domestic product (GDP),” reads an IFC document on the airport deal.

“The advisory work was supported by AusAid (Australia), the Ministry of Foreign Affairs of the Netherlands, and DevCo. DevCo is a multi-donor program affiliated with the Private Infrastructure Development Group and funded by the UK’s Department for International Development, the Ministry of Foreign Affairs of the Netherlands, the Swedish International Development Agency, and the Austrian Development Agency.”

On the bidding process, which was organised by the IFC and “evaluated based on the payment of an upfront fee as well as annual concession fees as a percentage of gross revenues to the government”, the document explained that, “Each bidder was required to demonstrate that it had the requisite experience in developing, designing, constructing, operating, and financing airports of a similar size.

“The technical solutions proposed by the bidders were also expected to consider the specific conditions on Hulhulé Island,  including its physical and environmental constraints, and the coordination required between conventional aviation activities, seaplanes, and motor boats.

“The cornerstone of the project was the construction of a new passenger terminal expected to meet LEED silver criteria and to be carbonneutral—i.e., to minimize energy consumption and carbon emissions through the use of energy-efficiency and renewable-energy technologies, and minimize water consumption. The bidders were also asked to make specific, predefined improvements to the existing airport infrastructure, and to manage all core airport services, including the provision of fuel—a historically established role at Malé airport.”

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