Financial authorities in the Maldives have said no budgetary provisions presently exist to cover an estimated US$800 million in compensation being sought by Indian infrastructure group GMR after the government abruptly terminated its agreement to develop Ibrahim Nasir International Airport (INIA).
Finance Minister Abdulla Jihad told Minivan News today that no mechanism was currently budgeted should the Maldives face a multi-million US dollar bill for evicting GMR, but stressed it was not for the company to decide on any eventual payment.
GMR has said that the proposed US$800 million claim was based on its “provisional estimates” and that the company had also taken into account the Maldives’ ability to cover such payments if compensation was awarded by the Singaporean courts overseeing arbitration.
However, Jihad today played down fears that any potential fine could prove perilous for the Maldives’ economy, as well as attempts to reduce its spiralling budget deficit, stating that any possible fines would be set by the Singaporean arbitration court hearing the dispute.
“We will deal with the matter when we know the amount of compensation to be paid,” he said. “GMR cannot decide, it will be down to the court [hearing the arbitration].”
Jihad also claimed that there had been no communication between GMR and the Maldives government over compensation as the matter was presently being dealt with through arbitration.
“There has been no communication [with GMR] over the levels of compensation,” he said.
With the compensation case pending, the Maldives government is this month attempting to reduce its spending as it also faces calls to cover debts from its neighbours and pressure from the International Monetary Fund (IMF) to reduce a ballooning fiscal deficit and protect dwindling state reserves.
The Indian government last month requested that the Maldives repay US$100 million in treasury bond funds by February 2013 – a matter it claimed was not related to a diplomatic row over the airport dispute at the time. Local media has previously reported that state reserves could fall to just US$140 million (MVR2.2 billion) once the payments are settled.
It is amidst these budgetary challenges that GMR has said it was seeking up to US$800 million in compensation following the termination of its US$511 million concession agreement signed under the former government back in 2010.
GMR’s chief Financial Officer (CFO) Sidharath Kapur told Minivan News today that the sum was a “preliminary estimate” based on a number of factors including investments made by the company, debt equity and loss of profits as a result of the contract termination.
Kapur added that on Tuesday (December 11) the company had communicated with Maldives Ministry of Finance by sending an official letter outlining its concerns that the contract had been “wrongfully” terminated without respect for the agreed procedures.
Speaking to the India-based Economic Times newspaper today, Government Spokesperson Masood Imad suggested GMR had been a victim of failing to perform proper due diligence before signing a contract with the former government – which was ousted following a police and military mutiny in February 2012.
A particular point of contention for GMR during the contract’s lifetime was an Airport Development Charge (ADC) – a US$25 fee for outgoing passengers stipulated in the concession agreement – which was blocked by the then-opposition Dhivehi Qaumee Party (DQP) in the Civil Court on the grounds that it was a tax not authorised by parliament.
Former President Nasheed’s administration chose to honour the original contract, and instructed GMR to deduct the ADC revenues from the concession fees due the government, while it sought to appeal the Civil Court ruling.
However, the Nasheed government fell in February 2012 and the opposition inherited the result of its court victory, receiving a succession of bills from the airport developer throughout 2012, despite the government’s insistence that the January 5 letter from MACL outlining the arrangement was no longer valid.
Government spokesperson Imad alleged that the ADC dispute has resulted from a lack of transparency by the former administration. “We feel the former government should have been transparent with GMR on the ADC issue,” he was quoted as telling the Economic Times today.
However, Kapur rejected the governments’ claims, stressing that its tender agreement to develop INIA had been overseen by legal and financial experts including the International Finance Corporation (IFC), a World Bank entity, as well as the certified approval from the former Attorney General Ahmed Ali Sawad.
“The IFC had clearly said that there are no further approvals required for the ADC. We were in compliance with all laws and all approvals had been taken as backed by the then attorney general of the Maldives,” he said. “Beyond that, what further due diligence could we do? Any international bidder would have taken comfort in that level of due diligence.”
With GMR’s calls for compensation currently being heard by the Singaporean judiciary, Kapur said the company believed there was a high probability it would be awarded financial remuneration to be paid by the Maldivian government.
Pointing to the verdict given by the Supreme Court in Singapore earlier this month, Kapur said that in allowing the Maldives government to expropriate the airport, the provision of compensation was required to be given to the company.
“What the appellate court has said is that appropriate compensation must be paid. [The Maldives government] have the right to do as they wish as long as compensation is paid, this is binding on the Maldivian government,” he said.
While expecting a favourable outcome in its calls for compensation, Kapur added that the company was aware of the Maldives’ present financial vulnerabilities as well as its ability to cover any such payments.
“The possibility of getting compensation is high, but [the Maldives government’s] ability to pay is unknown,” he said.
Kapur added that in other international tribunal cases such as this, there were a number of methods that a court can use to ensure compensation is implemented. However, he said it was still too early to speculate on what form these methods may take in the case of the INIA dispute.
Meanwhile, in a letter sent to the Maldives’ Ministry of Finance and Treasury, Andrew Harrison, CEO of the GMR Male International Airport Limited (GMIAL) that ran INIA under the agreement, reiterated the company’s argument that there had been “specific mechanisms” established to terminate the contract under specified circumstances.
“There is no suggestion that any of the circumstances arose,” the letter was reported to have read, according to the Economic Times.
Harrison was also said to have claimed that despite the present government’s stand that the contract was “void ab initio” or invalid from the beginning, the government “also warranted and specifically represented that the Concession Agreement was valid, legal and binding.”
“Further, as part of the closing of the financial transaction on 28 December 2010, the then Attorney General of the Maldives rendered a formal legal opinion confirming that the Concession Agreement was lawful,” the letter was said to state.
Minivan News was trying to obtain a copy of the letter at the time of press.
Management of INIA was taken over by the state-owned Maldives Airports Company Ltd (MACL) on Saturday (December 8 ) after the Singaporean Supreme Court had overturned an injunction blocking the Maldivian government from voiding its concession agreement with GMR.
Both GMR and the MACL have this week praised the management handover as “going smoothly” as the government began planning for the future of INIA beyond the aborted privatisation plan. The termination of GMR’s contract officially ended the largest single foreign investment project in the country’s history.
On Tuesday (December 11), the Maldives cabinet recommended the formation of a government-owned company to run Ibrahim Nasir International Airport (INIA)
Looking towards the future of the airport, the cabinet recommended that Male’ International Airport Ltd be formed with 100 percent government shares, while claiming full authority to operate and develop INIA through a special contract with the Maldives Airports Company Ltd (MACL).
Speaking to Indian media earlier this week, President Dr Mohamed Waheed Hassan Manik has dismissed suggestions that China urged the Maldives to push out the Indian company.
“The only significant cooperation we have with China at this time is through development assistance… like building the museum, housing projects. I don’t think India should worry about it at all,” Waheed was quoted as saying in the Hindu newspaper.
The claims were made as Maldives Defence Minister Colonel (Retired) Mohamed Nazim departed to China for a five-day official visit said to be focused on securing its assistance in developing the Maldivian military.
The President had claimed that the Maldives was presently “not looking for a foreign investor” to develop the international airport, with the government announcing that it was undecided on whether any new privatisation agreement would be sought in future.