Maldives without budgetary provisions to cover GMR’s US$800m compensation claim

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.

Budget battle

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.

“Preliminary estimate”

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.

“Specific mechanisms”

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.

Smooth takeover

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.


18 thoughts on “Maldives without budgetary provisions to cover GMR’s US$800m compensation claim”

  1. There was much uproar from the various parties whenever a Maldivian politician visited India during the last government. Almost all those politicians were accused of taking bribes from GMR.

    There's quite a silence over Nazim's visit to China days after taking over the airport from GMR. Is Waheed telling the truth regarding Chinese intentions in the Maldives? How much is Nazim collecting in his pocket from the Chinese? There are a lot of unanswered questions...

  2. Waheed has no plans for anything. He has no vision for this country. He is carrying orders from religious fanatics.

  3. What compensation?

    Maldives will NOT have to pay any compensation to GMR. Just wait and see till this story ends soon enough.

    Don't believe me? Well, you should. After all didn't I predict that GMR will be kicked out during this year with no serious consequences from India while most were crying out doom while others thought it would be impossible!

  4. So our Finance Minister's tactic is to just hope for the best and wait for the final outcome? Well the issue of compensation should have been considered with much gravity before terminating the contract to satisfy Imran's demands. Now it's a bit late, and my guess is that Nazim is in China exactly for this purpose and wonder at what cost we are going to get the funds from them! So much for protection of national interest, when we have a bunch of desperados running the nation!

  5. Compensation for GMR should not come from the budget. It should be collected from those responsible for evicting GMR. If the assets of Champa, Gasim and the rest of those responible were confiscated, it will cover the GMR claim. Imran need not contribute any money. If he is ordered to simply shut up, it will be enough punishment.

  6. Indeed, Waheed has no plans and probably can't make a plan even if he had one. After all, he's a temporary caretaker as others have pointed out, whilst the axes are being sharpened in the pink quarters.

    I was quite bemused to hear him ramble about the fisheries sector and how we should export more to the European Union. Little mention was made of the billions of dollars of tuna products going into the EU from countries which are far more competitive and productive than the Maldives.

    It's one thing to aspire to increase exports to the EU, and quite another to actually achieve that. That takes vision, experience, expertise, finance and risk. Waheed and his regime has neither of those in abundant supply, I'm afraid.

  7. It is typical fishermen style, cheating, robbing. In this country of savages, you can’t trust anyone. No ethics, no disciplines, even the government, is made of these crooks. They have no shame to rob, cheat, deceive. It is culture of the fishermen. They will justify all their wickedness, with the name of their god and would say this is what Allah wants, this our country. No big issue, they would say GMR was wrong and the contract was born without father. And why should they pay for illegal child.
    The only way GMR can get compensation is once the arbitration rules to pay the fine and India forces to get these guys to pay. If that does not happen there is no way GMR would get any compensation.
    They have history of cheating, robbing and deceiving for financial gain and feel no shame. You can’t blame them as well. They are the most ignorant people of modern time; the ignorant have no ethics no morality and discipline. A lesson for investors, these guys are crooks and they can escape this kind of Mafioso from being independent country like Thaliban who did all inhuman things before they made a blunder by playing with US.

  8. Anni and his associates had it? They need to repay the money that they have collected from GMR. Why we should we the public bare these cost.

    In fact GMR know that this contract was illegal contract and they got it signed knowing that Anni was not smart enough and he can be bought easily and took the risk thinking that Anni will be able to stay in power as a dictator for minimum 10 years.

    GMR together with Anni had a planned to change the constitution to legalize and bring "mockery" to the country.

  9. Mody! Mody! Back to where you started. Not a single new idea. Devoted as I am to you, I am forced to write this second set of suggestions to broaden your thinking. Remember,I wrote earlier, some weeks back. This is the second step of my tireless jouney to improve you, my love!
    Number 2: If you wish people to be persuaded by your scintillating prose, your erudite expression, your deep understanding your empathetic reasoning, your sheer brillian expository wit and opinions, I suggest you start an extensive programme of reading. This may help you to have a few more ideas, understand how the world functions; indeed allow you to become a little bit less boring by arming you with a few more things you can discuss. See, a win-win situation all round. Francis Bacon said that "Reading maketh a full man." Now, don't be put off by the surname, (but, don't let the Salafist know you have heard of him! You know what they will do if you have anything at all to do with bacon!)I think the advice is sound, especially for those suh as yourself who struggle in the realm of imagination tempered with verisimilitude and erudition (Sorry! Big words, I know! But this is all part of your education)and ideas. If you find reading anything longer than say, ten lines at a time threatening, I suggest that you start with "The Enormous Crocodile" by Roald Dahl. It's a kiddie story, but one of my favourites. It deals with an idea you can relate to- an archaic, reptillian brain trying out 'secret plans' and 'clever ticks' to stay relevant and in control when everyone else can see through its limited and self-serving vision. (Beginning to sound a bit like the regime you support, isn't it?) You see, I think you will identify with the story line immediately, although the ending is a bit explosive!

  10. How can it be the compensation is bigger than the contract value. is the difference pocket money?

  11. Dear Brothers. India tightens Visa Rules for Maldivians.

    Read the Links.

  12. Specttor, cost vrs profit, I know basic economics is not taught in the Maldives but now you know 🙂

  13. In a contract that was terminated as it was "VOID AB INITIO" means it was not a valid contract even at it's inception. There cannot be an illegal contract that is not void. So there will be no claims for compunsation.


Comments are closed.