Board members and the head of Indian infrastructure giant GMR, G M Rao, are due to visit the Maldives later this week in a bid to resolve tensions with the government over the company’s development of Ibrahim Nasir International Airport (INIA).
The upcoming visit follows a meeting between Rao and former President Maumoon Abdul Gayoom at a hospital in India where Gayoom’s wife was being treated. Gayoom also recently met with Indian Prime Minister Manmohan Singh.
GMR won a 25 year concession agreement to develop and manage the airport during the Nasheed administration. The opposition at the time challenged the government’s privatisation and threatened to renationalise the airport should it come to power.
Following the controversial transfer of power on February 7, the unity government under President Dr Mohamed Waheed Hassan has swung between issuing reassurances within diplomatic circles that Indian investments in the country would be protected, while locally stepping up nationalisation rhetoric.
Some of the dissent has blurred the line between business and politics.
Leader of the government-aligned Jumhooree Party (JP), resort tycoon Gasim Ibrahim, urged the government in local media to reclaim the airport, even at a cost of US$700 million, as it was worth “a thousand times more”.
Gasim’s comments followed GMR’s decision to suspend the credit facility for his Villa Air airline, due to unpaid bills totaling MVR 17 million (US$1.1 million) for fuel, ground handling and passenger service fees.
Contentious airport development charge
One of the government’s disagreements with GMR concerns the charging of a US$25 Airport Development Charge (ADC) on outgoing passengers, as stipulated in the concession agreement.
During the last months of the Nasheed administration, the opposition Dhivehi Qaumee Party (DQP) filed a successful case in the Civil Court blocking this fee from being charged on the grounds that was effectively a tax which had not been approved by parliament. DQP leader Dr Hassan Saeed, now President Waheed’s special advisor, and DQP Vice-President Dr Mohamed Jameel – the new Home Minister – justified their disapprobation while in opposition by publishing a pamphlet in Dhivehi (English translation).
The pamphlet described the deal as “paving the way for the enslavement of Maldivians in our beloved land”, and warning that “Indian people are especially devious”.
To abide by the court decision, Nasheed’s government agreed to subtract the ADC from its concession revenue while it sought to appeal.
Following February 7 the opposition inherited that compromise and in the first quarter of 2012 received only US$525,355 of an anticipated US$8.7 million.
With no resolution, in the second quarter of 2012 the government was presented with a bill for US$1.5 million, due to a shortfall in airport income. The loss of revenue comes at a time when the country is facing a crippling budget deficit, a foreign currency shortage, plummeting investor confidence, spiraling expenditure, and a drop off in foreign aid.
GMR publicly offered to resolve the ADC dispute by exempting Maldivian nationals from paying the fee, but has otherwise kept its negotiations largely behind closed doors.
In a statement at the time, GMR noted that the government received US$33 million in 2011 from airport concession fees, “three times the money the government ever made in a year [from the airport] before privatisation.”
Following construction of the new terminal in 2015 – including “a state-of-the-art 600,000 square foot integrated Passenger Terminal and a 20,000 square foot VIP terminal, and various other airside and landside developments,” expected revenue from the airport to the government was expected to reach US$50 million per year, GMR observed, and almost US$100 million from 2021 as passenger numbers increased.
“In effect, GMR Male’ International Airport Limited’s contribution to the government would be over US$2 billion over the concession period of 25 years, which will make a very significant contribution to the economy of the Maldives.”
The government’s airport company, Maldives Airports Company Limited (MACL), complained that it was now facing bankruptcy as a result of the ADC deduction, and insisted that it could make MVR 60 billion (US$3.9 billion) over 25 years by developing and operating the airport on its own. It did not clarify where the investment would come from.
If the government considered GMR’s public offer, it made no sign. Instead, the Transport Minister backed MACL in ordering GMR to pay back the money deducted.
MACL Managing Director Mohamed Ibrahim had told local media that MACL’s agreement with GMR under the previous government to deduct the ADC payment was “null and void”. He told reporters that the deal was no longer relevant as it had been agreed by the former MACL chairman, who had been replaced under the new government. Ibrahim contended that charges could therefore no longer be deducted from GMR’s concession payment.
“We had informed [GMR] that the letter from the former Chairman of MACL was now invalid and hence must not be followed. In addition we had also informed that no deductions can be made from the concession fee,” he told local newspaper Haveeru.
The matter has now been sent to the Singapore court of arbitration, as per the concession agreement.
Escalation
The stand-off escalated in early August following a stop work order on the new terminal development, after the government alleged there were missing planning permissions from the Civil Aviation Authority.
“When the government decides that a project be stopped, we will make sure this happens,” said President’s Office Spokesperson Abbas Adil Riza at the time. “GMR have not discussed the construction with relevant authorities,” he claimed.
In the past week the government and assortment of former opposition parties now in power have stepped up their campaign to pressure the airport developer, with cabinet ministers holding a press conference during which they accused the World Bank’s International Finance Corporation (IFC) of “negligence” and “irresponsibility” in conducting the original bidding process.
The IFC dismissed the allegations: “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.
Attorney General Azima Shukoor then announced she had asked the Supreme Court to rule on whether it had jurisdiction over the airport agreement.
“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 a statement from the court.
“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 sovereignty non intervention within domestic jurisdiction, principle of self determination rights,” the Supreme Court said, in an apparent affirmative.
Investor confidence
Meanwhile, the government-aligned Dhivehi Rayithunge Party (DRP) this week revealed President Waheed’s response to its letter requesting details of the implications of exiting the concession agreement with GMR – an apparent fee of US$700 million, although Minivan News understands that even if the government were to produce the money, under the concession agreement it would also be required to prove ‘public interest’ in the Singapore court of arbitration.
According to the DRP, President Waheed advised that it would be “extremely difficult” to make the payment given the country’s economic circumstances, and that cancelling the agreement would furthermore have a negative impact both on perception of the Maldives as a favourable destination for foreign investors, and Maldives-India relations. Dr Waheed emphasised that the decision was ultimately one for the political parties in the unity government.
The following day, DRP MP Ali Azim called on President Waheed to resign, claiming that it was up to him to reach a decision.
“If Waheed is finding it too hard to come to a decision on the matter of GMR, he ought to resign immediately,” Azim told local media.
“Each of these parties have someone who is looking forward to running in the 2013 elections. Whether it be Gasim, Yameen or Thasmeen, they are all just waiting for 2013 to come around. Now if Waheed’s going to ask these men for advice, then he’s going to get tricked, isn’t he?” predicted the MP.
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Excellent. So, in the future any and all financial obligations and deals made with foreign investors are null and void every time the government changes. What a great way to do business.
Maldives are kissing goodbye to $2bn over 25 years.
It's interesting, the extent to which these robber barons will go to to steal.
It is a fact that all companies which were/are operated exclusively by the Maldivian government have been mired in corruption and/or been driven to the ground.
It is a fact that since inception that the airport has been mismanaged.
It is a fact that the most important service we will get from GMR or any other foreign airport operator is good corporate governance.
Any fool can construct an airport or invest in a company constructing one. Managing profitably with ebefits to sll stakeholders is another ball game.
It is also undeniable that the investor confidence will be so rattled in an event of nationalization that any benefit will be overshadowed by the fact that no one else will make a major long term investment in this country.
The saddest and final fact I have to state is that the people who stand to lose most are the benighted arrogant nincompoops who are actually fooled by these robber barons.
I want to listen to the hearings of this case in the Maldivian court.
I don't understand why fahari-bin-imran is so vocal about kicking GMR out. Shouldn't he be attending other things like banning all activities that make people happy?
GMR should have known that they were taking a risk when they bribed a few government officials and tried to sign a deal on strictly their own terms. The agreement was neither read nor reviewed by the government. People with some sense in the Airports company board were kicked and some MDP activists were appointed to get it through.
This is not about India or foreign investments. This is about dealing with a huge scandal. What about the confidence that was lost of the other contestants for the bid? They did protest and even requested that the bid be re-evaluated. Investor confidence can be increased when the bidding process is made more transparent.
I am sure the Indian government and foreign investors would understand when a decision is taken for the best interest of the country.
We Maldivians should go for a referendum to become a state of India.
Chikun Dhunya, what good will that do with such a politicized judiciary?
MACL Managing Director Mohamed Ibrahim had told local media that MACL’s agreement with GMR under the previous government to deduct the ADC payment was “null and void”. He told reporters that the deal was no longer relevant as it had been agreed by the former MACL chairman, who had been replaced under the new government. Ibrahim contended that charges could therefore no longer be deducted from GMR’s concession payment.....
oh when Govt or Chairman of change changes the Agreements they signed a not valid. another idiot
The Chairman of a company does not have the authority to make decisions without a board resolution.
Oh aren't we all just idiots?
Mohamed Ibrahim is an idiot. It was his inability to run an airport that landed us in this mess in the first place.
That man should never be near an airport.
Now he says he is ready to run the airport.
He should not be in charge of a bath tub let alone an airport.
We would end up in a worse disaster if he gets to run the airport. It would all be corridors and all that sort of thing.
The deal with GMR is valid but the problem is that the concession agreement was so biased in favour of GMR, the government gets virtually nothing.
It would be a terrible idea to try and wrest the airport back. The best option would be to re negotiate the agreement so it becomes more balanced.
I hope this administration is not stupid enough to take the airport and give it to MACL with the current management to run it.
That would be worst disaster than GMR running it.
by taking back airport from GMR is not saying good bye to 2 billion over 25 years but rather will be more earning more than what we can earn fro GMR.
Since GMR took the airport , they have been invading and kicking out all the small businesses that are being carried out in airport and around.
GMR have kicked out , all duty free shops and they are running that business.
GMR is directly trying to take all airline handling which were done by local companies.
GMR had incraesed 400% rent from all bonded ware house.
GMR had kick out airport cargo handing labour and documentation processing companies and GMR is trying to do it by themselves.
GMR keeps on increasing taxes and fuel charges twice we very month which are discouraging some airlines to fly to Maldives.
GMR is approaching travel companies and asking them not to work with local companies and start work directly with GMR.
GMR deal was not a fair deal in the first place. Anni and some of his associates had taken huge cut out of the deal and profit is kept under one of Anni friends name in Singapore.
I urge Maldivian Government to investigate the deal and the people who involved in the deal, like Kuda Banthu, raazee Anni etc.
Actually, the post-coup regime of Dr Manik is not in power in the manner prescribed in the law and Constitution. Their challenge was to renationalise the airport if they come to power, not if they grabbed the power as they were done by the police and security services on 7 February.
According to the Constitution, the authority of government emanates from and lies with the people. The government as a group of people is empowered to govern with the sanction of the people expressed in an election.
Coming to power normally means to be elected to power as in law. Therefore the present regime led by Dr Manik is under no moral responsibility to reclaim the airport in fulfilling a promise they made during mass protests prior to the 7 February coup.
Mohamed Ibrahim has never been a good CEO. He mismanaged the airport for a long long long long ....time and nothing was done by Gayoom's Government then. The whole operation was taken over by Koli Ali Manik. Each and every spare part, and new equipment, any kind of foreign dealings all had to go through Koli Ali Manik's Malaysian Company. So at the expense of running a prosperous airport we ended up making Koli Ali Manik richer as slowly our Airport reached deterioration. Just like MSL.
tsk you are right and chairman does not have the right to sign the contracts and change the contracts unilaterally and he need to get the board agreed and he can not himself decides.
But many of the MDP supporters will not agree to you on GMR deal but they will agree to any other issue similar to that.
Mohamed Ibrahim may not be a good CEO but the question is whether he was empowered to run the company or he was asked to be a just like a figure head ?
Now I see Koli Ali Maniku as the man who had stopped the airport development and taken all the money from airport .
I guess Anni gave this airport to GMR to kick out the Ali Maniku and get the direct benefit to himself and Raazee. What a good move, ?
Just changing hand of thieves is not good for the country . We do not like anyone to rob us whether its Ali Maniku, Gayyoom or Anni .
MACL speaks about earning more in 25 years from what Maldives can earn with GMR
Where was he when this deal was done and why didn't he take up any initiative to develop this airport.
If he was so interested then he should have explored what GMR is doing then GMR would not have come here at all
According to Customs, most drugs come from India. http://www.haveeru.com.mv/dhivehi/news/127482
Also associated criminal activities like money laundering rife in this part of the world.
All the more reason to keep the Airport in safe hands.
Re- Nationalization of Airport will not weaken investor confidence because investors know about the bribery. To the contrary, investor confidence will strengthen.
Also from a commercial angle, resort owners would be more comfortable if the infrastructure system like Hulhule Airport does not fall into the hand of a single private party.
Who knows, GMR may have plans to own tourist resorts next...
nasheed did all of his corrupt deals through his envoy Zaki, the most corrupt person in gayooms regime. i guss this will be hard to belive by the MDP members. Zaki is behind all these filthy deals. cahnged the board of directors instantly for signing the deal.
GMR did not win any open bid and they were awarded the contract by Anni .Infact GMR was disqualified in the first round.
GMR contribution over the 25 year period may be 2 billion but even without GMR as per the previous income figures , even airport company would have given a profit of USD 4.5 billion to government within 25 years . So what is the gain , the Maldives is on the losing end GMR is getting huge profits not Maldivian Government.