Category: Business & Tourism

Maldives business news

Government cannot accommodate MVR2.4billion budget reduction: Jihad

Finance Minister Abdullah Jihad has said the government cannot accommodate MVR2.4billion (US$156 million) worth of cuts to the proposed state budget as recommended this week by a parliamentary committee review.

Speaking to Minivan News today, Jihad said that although there was room to reduce the proposed MVR 16.9 billion (US$1.1 billion) budget unveiled last month, the level of cuts recommended by Parliament’s Budget Review Committee were not feasible to run the state next year.

The parliamentary committee this week recommended an almost 15 percent reduction to state expenditure proposed for 2013 – resulting in a total budget of MVR 14.5 billion (US$947 million). The committee’s decision was met with mixed reactions from opposition and government-aligned parties who will vote on whether to approve the budget in parliament.

The committee opted to make cuts to the budget in line with recommendations from both the International Monetary Fund (IMF) and Maldives Monetary Authority (MMA) Governor Fazeel Najeeb as part of efforts to ensure a more manageable expenditure for next year.

A recent mission from the International Monetary Fund (IMF) had urged the government to implement a raft of measures to raise revenues, advising that strengthening government finances was “the most pressing macroeconomic priority for the Maldives.”

Some senior finance figures within the country confirmed to Minivan News this week under condition of anonymity that the reductions made by the budget committee were an “encouraging” development in trying to manage state expenditure, with the proposals likely to receive Majlis support.

However, Jihad said that the Finance Ministry was presently in discussion over potential cuts to state spending, maintaining that a budget of MVR 14.5 billion would not be acceptable to the state.

“If the government agrees to cut some of the budget, I don’t think we can go that level,” he said, adding that it remained too early to give an acceptable figure by which the state would approve budget reductions.

Jihad yesterday told local media that the MVR 2.4 billion in cuts proposed by the Budget Review Committee would impact on the provision of healthcare and education – two areas he claimed had been “neglected” during the past two years.

However, the finance minister said today that the budget review committee had not suggested any specific areas or sectors where the budget needed to be cut, adding there had been “no mention” of further reductions to the health budget.

Speaking to Minivan News yesterday, MP Mohamed ‘Colonel’ Nasheed of the opposition Maldivian Democratic Party (MDP) said that the MVR 2.4bn in cuts had been made largely by reducing “unnecessary recurrent expenditures” within the budget.

Nasheed claimed that the committee had looked at specific areas of the budget where “fat” could be cut from state expenditure without directly impacting services.

“What we proposed was that there could be reductions to internal and external transport [for government employees],” he claimed. “We have big delegations going abroad at present. What we have called for is a 50 percent reduction of transport costs. It is not necessary to send 30 people abroad on trip. Five people could go for example.”

Another area Nasheed claimed cuts could be more easily made was in the purchase of new office furniture that could reduce spending by some MVR 451 million in line with the costs of supplies like stationary and paper. He claimed such expenses could be reduced through more effective online governance.

Cuts were also said to have to be made in the proposed provision of specific services to islands around the country, which Nasheed claimed had never been viable considering the current economic challenges facing the Maldives.

“[President Dr Mohamed Waheed Hassan] has made many lousy promises on his tours of islands for developments that cannot be granted. We cannot work from a fantasy budget,” he claimed at the time.

Civil servant salaries were not said to be included as part of the cost cutting, according to Nasheed.

DRP view

Despite Nasheed’s claims, the government-aligned Dhivehi Rayyithunge Party (DRP) has said that cutting the budget to MVR 14.5 billion from the proposed MVR 16.9 billion would impact the provision of government services and the functioning of independent institutions at a vital time.

DRP Deputy Leader and MP Dr Abdullah Mausoom claimed therefore that the party would wait for the government to decide whether it could function during 2013 with a reduced budget of MVR14.5 billion, before deciding whether to back the changes in the People’s Majlis.

“We need to know whether the government thinks it can manage to function with this MVR 14.5 billion. If it can then we would have no problem,” he told Minivan News yesterday.

Mausoom said that considering the cross-party composition of the Budget Review Committee that approved the cuts, support for the amendments in the People’s Majlis could prove likely.

Mausoom also contended that the “drastic” nature of the proposed reductions had raised concerns about whether funding would be distributed “fairly and equally”, as well as having a detrimental impact on the running of the state.

“It is a shame that such drastic reductions have been made. We have had a very different year [in 2012] to other years with the change of government. With 2013 set to be a presidential election year should the budget be squeezed as a result of political rivalry,” he stated.

Mausoom said that of noticeable concern was how the budget cuts may potentially impact the work of independent institutions that he said would be increasingly vital over the course of a contentious general election next year.

He added that a wide number of independent institutions in the country had already gone on record to address concerns about how the present budget would impact on their operations.

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State guarantee for GMR to obtain bank loans had no limits: Attorney General

Attorney General (AG) Azima Shukoor has claimed that a loan guarantee provided by the former government to infrastructure group GMR would have allowed the company to obtain finance without limitation.

According to local media, the attorney general has alleged that such a loan agreement would have contravened the country’s financial regulations unless approved by parliament at the time.

However, her claims have been dismissed by former Attorney General Ahmed Ali Sawad, who claimed that the agreement was conducted within state laws.  Sawad helped oversee the agreement between GMR and former President Mohamed Nasheed’s government back in 2010.

GMR’s concession agreement was terminated by the Maldives government  late last month after it decided – citing legal advice – that the sovereign contract was invalid from the outset.

Speaking to Parliament’s Public Accounts Committee yesterday (December 19), Shukoor revealed that the Maldivian state had agreed under the cancelled contract to act as a guarantor for all loans obtained by GMR under its agreement to develop Ibrahim Nasir International Airport (INIA).

According to the attorney general, this provision had been approved despite not being part of any senior finance agreement.

Shukoor added that under the primary agreement between the state-owned Maldives Airports Company Limited (MACL) and GMR, should MACL fail to make any repayments, the Maldivian state would have to cover any resulting costs.

“[The state] is not part of the senior agreement, thus to act as guarantor for loans obtained by another group – whether this was done with approval or not – would be to give a ‘blanket’ guarantee. I don’t think this can be permitted. I don’t believe that even the Public Accounts Committee would do that,” local media reported Shukoor as saying.

The agreement, which states that the Maldivian government is responsible for all loans obtained by GMR, was made with the approval of former Attorney General Sawad, Shukoor said.

According to Shukoor, Sawad had permitted the agreement in writing, concluding at the time that the deal would not result in any legal problems.

She also claimed that approving the agreement without parliament’s approval was in violation of the Finance Act.

“Financial guarantees given by the state should have limits. We are signing an agreement allowing future groups to obtain as much money as they want under our guarantee – I don’t believe that this is a valid legal concept,” Shukoor was reported to have said.

Responding to Shukoor’s comments, Sawad today told Minivan News that he “did not believe” there had been a violation of any law whilst he held the position of attorney general.

“I deny her claims, although I’m not actually sure what her claim is. I don’t think she knows what her claim is,” he said.

“She [Shukoor] needs to figure out if it was a guarantee or not a guarantee, because in the meeting she said that it ‘was a guarantee’ and then said that it was like a guarantee’.  Regardless of whether or not it was a guarantee, the whole thing is irrelevant as she has stated the GMR contract is void ab initio (invalid from the outset),” Sawad claimed.

GMR’s tender agreement to develop INIA was overseen at the time by legal and financial experts including the International Finance Corporation (IFC) – a World Bank entity.  The deal also obtained the certified approval of former Attorney General Sawad.

Attorney General Shukoor was not responding to calls from Minivan News at time of press.

Speaking to the committee yesterday, local media reported Shukoor as stating that Singapore’s Axis bank had permitted GMR to obtain loans worth $386 million, of which GMR had taken $165 million. Shukoor highlighted that should GMR fail to repay this loan, then the government would have been required to meet any resulting costs.

She stated that if the government found itself unable to pay back these loans, the image of the state will be damaged, leading to potential implications for securing future finance.

“When we think about taking legal action in relation to this matter, we see that the head state prosecutor has advised that signing that agreement should not cause any legal problems. So it becomes something the state has to honour,” she added.

Despite the former Attorney General approving the agreement, Shukoor stated that government has a strong legal argument over the loan issue, whereby under the Public Finance Act, the government cannot act as a guarantor without the parliament’s approval, which was allegedly not obtained.

“The State is acting as the guarantor to the loans taken based on the transactions between GMR and Axis Bank. I believe that is not something permitted under the Finance Act. It is like a blanket sovereign guarantee. We may not be able to classify it as a sovereign guarantee. But we are seeing an assurance given by the State,” Shukoor was quoted as saying by local newspaper Haveeru.

GMR bid qualification

Meanwhile, Chief Financial Officer (CFO) of GMR Airports Sidharath Kapur today rejected comments made by President’s Office Spokesperson Masood Imad in Indian media alleging that the company did not originally qualify as a bidder to develop INIA in a technical evaluation process.

Masood was quoted in the Business Today publication as claiming that the technical evaluation committee during the bidding process acted under pressure from former President Mohamed Nasheed, who then qualified the GMR Group for the project.

In response, Kapur said that the company had won the project in an “open and transparent” bidding process, stating that GMR had qualified in the technical, financial and legal evaluations.

Kapur noted that the bidding process was supervised by the International Finance Corporation (IFC), and that the IFC had successfully handled such public-private partnerships in the airport sector in many countries.

“While other bidders opted for the ‘earn and pay’ route, the GMR consortium adopted a ‘pay and earn’ strategy, and hence paid $78 million up front to the Government of Maldives,” he added.

Kapur also attacked the present government’s handling of the GMR issue, alleging that the resulting arbitration case to decide on compensation owed to the company from the contract cancellation could have serious financial ramifications for the nation.

“Compensation believed owed to GMR due to the illegitimate cancellation of the contract by the government of Maldives may put a significant and avoidable financial burden on the people of Maldives,” he stressed to Business Today.

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STO owed MVR 1.45 billion in overdue bills from state institutions, government companies

A large portion of the national budget had been “managed through the cash flow” of the State Trading Organisation (STO), the Auditor General’s Office has said, revealing the state-owned enterprise is owed MVR 1.45 billion (US$94 million) in overdue bills from government companies and state institutions.

In his professional opinion (Dhivehi) on the proposed 2013 budget submitted to parliament’s Budget Review Committee and made public this week, Auditor General Niyaz Ibrahim stated that the “state’s cash flow was being managed through STO”.

“This shows that state expenditure is managed outside of the state budget, that this is an ‘off balance sheet’ finance arrangement and that the actual deficit will be much higher than stated in the state budget,” the Auditor General’s report to parliament stated.

The Auditor General stated that the practice was “worrying” and recommended changes to current treasury management “to put an end to depending on a government-owned company to manage the state’s cash flow.”

STO is a public company with an 81.6 percent stake owned by the government. The company was set up in 1964 to import and supply staple foodstuffs and fuel at controlled prices.

In its report to parliament, the Auditor General’s Office revealed that STO was owed MVR 398 million (US$25.8 million) in overdue payments from state institutions and government companies for goods released on credit.

Of the outstanding amount for items purchased on credit, the Finance Ministry owed MVR 388.1 million (US$25.1 million), according to the findings.

In addition, the Male’ Health Corporation (MHC) owes MVR99.4 million (US$6.4 million), Gan Airport Company owes MVR 61.8 million (US$4 million), Southern Utilities Ltd owes MVR 75.6 million (US$4.9 million), the State Electricity Company (STELCO) owes MVR 53 million (US$3.4 million) and the Works Corporation owes MVR 10.1 million (US$654,993).

Moreover, Fuel Supply Maldives, a subsidiary of STO, was owed MVR 186.2 million (US$12 million) for oil released on credit, mainly from government utility companies, the report added.

As a consequence, STO was owed a total of MVR 1.45 billion (US$94 million) in overdue bills, including outstanding bills worth MVR 289 million (US$18 million) from 2011 and MVR 8.2 million (US$531,776) from 2010 and earlier.

A total of MVR 1.15 billion (US$74 million) is owed to STO from overdue bills in 2012, according to a statement shared by the Finance Ministry showing STO’s receivables.

The government’s health insurance company ‘Aasandha’ meanwhile owed STO MVR 18 million (US$1.1 million) in overdue bills, the report noted.

The figures also showed that state institutions and government companies were “heavily dependent on STO’s working capital” to function.

“And as a result of not receiving millions of rufiyaa owed to STO from the state, STO has not paid any dividends to the Ministry of Finance and Treasury since 2009,” the Auditor General revealed.

In November 2011, the government sold five plots of land measuring 87,155.2 square feet to STO for MVR 522.9 million (US$33.9 million) and deducted the amount from monies owed to STO.

“This was carried out by the Ministry of Finance and Treasury following deliberations by the cabinet and based on the advice of the cabinet,” the Auditor General noted.

The Auditor General contended that the sale was in violation of amendments brought to the Public Finance Act in 2010, which stipulated that state assets and property must be sold in accordance with a law passed by parliament.

The plots were sold to STO in the absence of a law governing the sale of state properties.

“Therefore, we note that it is important to further investigate how this transpired and that the Ministry of Finance and Treasury’s plans to settle payments owed to STO from the government must be clarified before the budget is passed,” the Auditor General recommended.

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Tourism Ministry figures show year-on-year drop in November arrivals

Official Tourism Ministry figures have recorded a 3.7 percent drop in arrivals to the Maldives last month when compared to the same period last year.

It is the first time since May 2012 that monthly arrivals to the country have fallen on a year-on-year basis.

Despite the monthly decline, arrival numbers rose by 2.4 percent between January and November when compared to the same period in 2011.

The official figures indicate that as of November 2012, 866,310 tourists have arrived in the country over the last 11 months. By contrast, 845,732 arrivals were recorded visiting the Maldives between January and November in 2011.

Earlier this year, the Maldives Marketing and Public Relations Corporation (MMPRC) had set a target of attracting one million visitors to the country by the end of 2012.

According to the latest ministry figures, tourist arrivals during November from Britain fell 13.8 percent to 7,164, while Chinese visitors to the country rose 9.2 percent to 18,450 during the same month.  China has accounted for 24.7 percent of all tourist arrivals to the country during the year so far.

Visitors from Germany decreased 13.2 percent to 8,729 in November, while Italian arrivals decreased by 35.9 percent to 3,551 during the same month.

Promotion aims

The MMPRC had this year been allocated a budget of MVR 70 million (US$4.5 million) to conduct marketing activities for the year, almost double last year’s budget of US$2.3 million which saw the country receive 900,000 tourist arrivals.

Following February’s controversial transfer of power, the incoming government of President Dr Mohamed Waheed Hassan sought to utilise public relations groups and advertising to try and offset the impact of negative news headlines resulting from the controversial nature of the change in government.

This focus has included agreeing on a US$250,000 (MVR3.8million) advertising deal to promote the country’s tourism industry on the BBC through sponsorship of its weather services, as well as signing a £93,000 per month (US$150,000) contract with public relations group Ruder Finn to try and improve the country’s image internationally.

With these focuses in place, Maldives tourism authorities said back in October that they were confident the country could meet its one million visitor target, despite ongoing “political turmoil” in the Maldives over the last year.

Speaking to local media in the same month, Minister of Tourism, Arts and Culture Ahmed Adheeb Abdul Ghafoor said that should the Maldives achieve its aims of attracting one million visitors during 2012, it could be effectively seen as being equivalent to welcoming two million arrivals to the country.

Adheeb claimed this statement was made taking into account the challenges in overcoming the impact of “political turmoil” on the country’s reputation following February’s power transfer.

“We are closing in on that target with a lot of challenges. We are working with major obstacles due to the present crisis in the country,” Adheeb was quoted as saying at the time.

Adheeb and Deputy Tourism Minister Mohamed Maleeh Jamal were not responding to calls by Minivan News at the time of press.

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Parliament to vote on whether to halt Nexbis border control project

Parliament’s Finance Committee is to put the controversial issue of the Nexbis border control system (BCS) before parliament to vote on whether to halt use of the project.

The MVR500 million (US$39 million) project finally moved ahead this year after a series high-profile court battles and delays that led Malaysia-based Nexbis to last year threaten legal action against the Maldivian government should it incur losses for the work already done on the project.

However, the Malaysia-based mobile security provider has come under scrutiny by political parties who claim that the project is detrimental to the state, while the Anti-Corruption Committee (ACC) has continuously alleged of corruption in the bidding process.

Nexbis has continued to dismiss accusations of corruption within its deal with the Maldives government.

The vote has been scheduled after Parliament’s Finance Committee earlier this month also revealed that the Maldivian government had agreed to waive taxes for Nexbis.  The committee noted in a letter sent to President Dr Mohamed Waheed Hassan that there was a potential financial burden facing the state due to the BCS deal agreed with Nexbis.

Despite the allegations, the border control system is currently active at Ibrahim Nasir International Airport (INIA) after a Supreme Court ruling in early September favouring Nexbis ended almost two years of efforts by the ACC to block the project.

Speaking about the BSC project, Majlis Finance Committee member Ahmed Hamza said today he believed parliament would halt the project as “most members” were of the impression the contract is not financially beneficial to the country.

“The nature of the contract means that both the government and Maldivian people will suffer heavily from a financial point of view,” Hamza told Minivan News today.

In September, the ACC informed the committee that the deal would cost the Maldives MVR 2.5 billion (US$162 million) in potential lost revenue over the lifetime of the contract.

A member of Parliament’s Finance Committee member told local media yesterday (December 18) that the project is “laden with corruption allegations” and could have been carried out at a much lesser cost.

When asked if there was a sufficient system to take over from Nexbis, Hamza revealed today that there was a “worry” within the immigration department that their own system will not be sufficient.

Furthermore, Hamza stated that there is a “possibility” that human trafficking could increase should the Nexbis contract be cancelled, and to combat this parliament will need to provide a “sufficient solution to deal with these problems”.

Under the ‘build operate and transfer’ (BOT) agreement with Nexbis, the government is obliged to pay Nexbis US$2 for every foreign passenger processed and US$15 for every work permit for the 20 year lifespan of the contract. Nexbis remains responsible for the upgrading, servicing and administration of the system.

Former Immigration Controller Abdulla Shahid has expressed concern earlier this year over both the cost and necessity of the project, calculating that with continued growth in tourist numbers, Nexbis would be earning US$200 million in revenue over the 20 year lifespan of the agreement.

At five percent, royalties to the government would come to US$10 million, Shahid said, when there was little reason for the government not to be earning the revenue itself by operating a system given by a donor country.

“The option was there to establish the system for free,” stated ACC President Hassan Luthfee, revealing that the US government had offered a free system in 2009.

“Even the Indian government had offered to do it for free. On the other hand this could have been done for MVR2.3-2.5 million. So we can’t believe that this should be done at such a high cost,” Luthfee told the committee.

Minivan News today contacted Immigration Controller Dr Mohamed Ali over the developments regarding the BCS agreement with Nexbis.

“I am not aware of any recent decisions from the parliament over this matter,” Dr Ali claimed, before declining to comment further.

Back in July, Dr Ali claimed that with the Maldives having signed up to conventions pledging to try and more effectively combat Transnational Organised Crime like human trafficking, new systems were needed to help meet these aims.

“From our own experience, we have found people being trafficked back into the country even after they have previously been deported,” he claimed at the time. ”A system like this should put a stop to that.”

Minivan News was also awaiting a response from Nexbis at the time of press.

Nexbis has previously claimed that allegations of corruption in its deal with the government was “politically motivated” and had “wrought irreparable damage to its reputation and brand name.”

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Government considering seeking compensation from GMR: Attorney General Azima Shukoor

Attorney General (AG) Azima Shukoor has said the Maldives government could opt to seek compensation from infrastructure group GMR after it decided to void the India-based company’s concession agreement to develop Ibrahim Nasir International Airport (INIA), according to local media.

GMR last week confirmed that it was seeking an estimated US$800 million in compensation in order to recover what it has claimed are investment and earnings after the government “wrongfully” terminated its contract.

In a press conference held yesterday (December 17), the attorney general maintained the government’s belief that the agreement with GMR to develop INIA was illegal.  She added that the government therefore intended to seek compensation for damages it “might” have incurred during the process of entering into the contract with GMR, local newspaper Haveeru reported.  The contract was signed during the administration of former President Mohamed Nasheed.

Highlighting the pending arbitration process in Singapore Court between the government and GMR, Shukoor said that efforts were being made to appoint arbitrators for the hearings. She added that the government and Maldives Airports Company Limited (MACL) had appointed a “member” of Singapore National University as their arbitrator.

Similarly, GMR will also be given a 30-day period to appoint an arbitrator on its behalf.

Shukoor suggested during the yesterday’s press conference that it may take a period of one year until the due procedures were completed before a decision was made in the courts.

“It will take about two months time to appoint the panel to overhear the arbitration case. After that, parties will exchange documents and affidavits and respond to it and only after that a proper hearing on the matter will be held and might take up a period of one year,” she suggested.

Indian media reported last week that GMR had sent a letter to the Finance Ministry stating that it would seek compensation worth US$800 million.  Shukoor denied such a communication had been sent, adding that she did not believe such a demand could even be made.

“We terminated the agreement on the grounds of void ab initio (void from the outset) , therefore we will begin the negotiation on the position that the government of Maldives do not require to pay back anything,” Shukoor explained.

However, she admitted that owing to the size of GMR’s investment, there remained a possibility that government might have to pay some amount that would be determined through the arbitration process.

“Even if we do require paying back as compensation, it would be based on the decisions reached during the arbitration process. If it is settled out of court, then it would be based on legal arguments raised by the parties to the contract,” she added.

Shukoor has also claimed that even before INIA was handed over to GMR, no asset valuation was carried out – a decision expected to cause problems for the government. She also said that it has not been yet decided how the asset valuation would be carried out or how the amount that the government might seek in compensation from GMR would be calculated.

Even with the arbitration process now proceeding, Shukoor told local media that if the government believed additional compensation was required, it would seek the additional amount through the same courts.

“A lot of work is being carried at the moment. However, we have not yet calculated the amount we might have to pay or the amount that had been invested and even the amount we expect to seek,” she explained.

GMR demands US$800 million in compensation

GMR is seeking US$800 million in compensation following the termination of its US$511 million concession agreement signed under the former government back in 2010.

The Indian infrastructure giant 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.

GMR’s chief Financial Officer (CFO) Sidharath Kapur previously told Minivan News 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.

He also added that on last 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.

Meanwhile according to Finance Minister Abdulla Jihad, no mechanism is 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.

He also played down fears that any potential fine could prove perilous for the country’s economy, as well as attempts to reduce the 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 at the time. “GMR cannot decide, it will be down to the court [hearing the arbitration].”

The INIA concession agreement

In 2010, the government of Maldives through its Finance Ministry, MACL and GMR-MAHB entered into a concession agreement with INIA whereby the Malaysian-Indian consortium were to develop and operate the airport for a period of 25 years.

According to the concession agreement a “project company” under the name GMR International Airport Limited (GMIAL) was to carry out the development project.

However, a lengthy dispute between the new government of President Dr  Mohamed Waheed Hassan and the GMR Group led to the eviction of the agreement.

On November 27, President Mohamed Waheed’s cabinet declared the agreement void, and gave the company a seven day ultimatum to leave the country.

Shukoor at the time stated the government reached the decision after considering “technical, financial and economic” issues surrounding the agreement.

She also claimed the government had obtained legal advice from “lawyers in both the UK and Singapore as well as prominent local lawyers – all who are in favour of the government’s legal grounds to terminate the contract.”

The INIA was handed over to the government on December 8, in an invitation-only press conference; Finance Minister Jihad presented the official handover documents to MACL Managing Director Mohamed Ibrahim, and said that the Maldives would pay whatever compensation was required “however difficult”.

With arbitration proceedings underway in Singapore over the contested airport development charge (ADC), GMR received a stay order on its eviction and appeared confident of its legal position even as the government declared that it would disregard the ruling and proceed with the eviction as planned.

On December 6, a day prior to its eviction, the government successfully appealed the injunction in the Supreme Court of Singapore. Chief Justice Sundaresh Menon declared that “the Maldives government has the power to do what it wants, including expropriating the airport.”

That verdict, effectively legalising the sovereign eviction of foreign investors regardless of contractual termination clauses or pending arbitration proceedings, was “completely unexpected”, according to one GMR insider – “the lawyers are still in shock”, he said at the time.

A last ditch request for a review of the decision was rejected, as was a second attempt at an injunction filed by Axis Bank, GMR’s lender to the value of US$350 million.

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“There was a legitimate contract signed. We are disappointed”: Malaysian Trade Minister

The Malaysian government has expressed “disappointment” at the scrapping of the Maldives’ “legitimate” contract with the GMR-Malaysia Airports Holdings Berhad consortium.

Indian media reported that Malaysian Prime Minister Najib Tun Razak was scheduled to visit New Delhi towards the end of the week and would likely be discussing the matter with Indian Prime Minister Manmohan Singh.

Malaysia’s Consul General in Chennai, Citra Devi Ramiyah, told reporters in Delhi that it was too early to speculate whether MAHB would seek compensation from the Maldivian government, which voided the GMR-MAHB concession agreement and ordered the company to leave by December 7.

The government had earlier dismissed a stay order for the eviction granted by the arbitrators – the Singapore High Court – as an affront to the country’s sovereignty. A day before the end of the seven day notice period, the injunction was dropped on appeal after Chief Justice Sundaresh Menon of the Supreme Court of Singapore declared that “the Maldives government has the power to do what it wants, including expropriating the airport.”

Ramiyah told reporters that the Maldivian government had shown its intention “to do the project on its own and [was] willing to compensate financially. So, it is very early for us to comment.”

Malaysian Minister of International Trade and Industry Seri Mustapa Mohamad was more concerned, according to the Economic Times, and expressed hope that the Maldives would reconsider its decision to evict the investors.

“In Male we have enjoyed very close ties with the previous government for many years. The Maldives is 100 per cent Muslim country. Of course, with the new government the lesson for us is we should be more careful, more due diligent,” Mohamad said.

“We want our investments to be protected. There was a legitimate contract signed. We are disappointed,” he added.

GMR meanwhile handed over the duty free stores today after being ordered to do so by the government.

“GMR has vacated the duty free shops at the airport. So since they’ve cleared their goods, no services will be provided from the shops,” Maldives Airports Company Limited (MACL) Rahmathullah Ashraf told local media.

Andrew Harrison, CEO of GMR Male International Airport – GMR’s side of the voided airport development – dismissed claims in local media that the company had “stripped” the duty free store ahead of the handover.

“We were asked to close duty free by the 17th. It is not true we have stripped duty free. We have destocked and in some cases returned goods to suppliers, or found buyers through appropriate customs procedures,” Harrison said.

GMR had sought a smooth transition after being ordered to handover the airport “as we did not want passengers or carriers to suffer,” he said. “The only area left where we [were] active was duty free.”

GMR staff had begun returning to India, particularly those involved in the construction of the new terminal after the cancellation of the contracts to build it, he said.

The government has not yet declared what it intends to do with the foundations of the abandoned terminal project, built on 60 hectares of reclaimed land on the other side of the airport island.

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No plans to privatise airport, “might sublease”: Tourism Minister Ahmed Adheeb

Minister of Tourism Ahmed Adheeb has said the government is not planning to hand over full control of operations at Ibrahim Nasir International Airport (INIA), but might sublease specific development projects to international parties through a “transparent” bidding process.

Minister Adheeb told Minivan News that privatising the only international airport allowed it to become a monopoly which was not in the best interests of the country.

“What we saw was that handing over operation of the only international airport in the country meant it was monopolised. What we are saying is that if the airport is given like that without any competition, it is not in the best interest of the country,” he said.

Adheeb admitted that INIA needed further development and refurbishment, including the addition of an extra runway, and said such projects would be subleased to developers through a transparent bidding process. He also maintained that “operation and control” of the airport would not be given away as he alleged the former government had done with GMR’s concession agreement.

President Mohamed Waheed Hassan also highlighted in an interview to India’s Business Standard that MACL would “open tenders for major development projects”.

“I think it’s too early to talk about the rebidding but, yes, MACL will open tenders for major development projects in connection with the airport modernisation program. GMR is eligible to participate. I don’t see any reason why Chinese companies should be barred from participating in the bidding process,” he told the Business Standard.

However, when contacted by Minivan News, MACL Managing Director Mohamed Ibrahim denied any knowledge of such bidding processes and said he did not wish to further comment on the matter.

Minister Adheeb said 75 percent of the tourists coming into the country were from Europe and following the “European [economic] crisis, the Maldives government should have provided an incentive to those tourists arriving to the country, but because of INIA being operated by GMR, several airport fees were raised.”

“Flight operators operate as a business. They will not consider us if we give no incentives in such a time of crisis and when the airport handling charges are too high. We have to understand that INIA is a tourist airport, it is not a shopping airport or a transit airport,” he explained.

Therefore, the Minister said that the country needed an efficient airport where tourists can go through quickly, with an efficient check-in system.

Earlier on February 2, Qatar Airways CEO Akbar Al Baker warned the airline will re-consider flying to the Maldives if the airport operator maintained its plan to raise airport handling fees at INIA by 51 percent.

Reuters at the time reported that the airline was “‘dismayed’” over what it understood to be GMR’s plan to increase the handling fee at a future date, and suggested such a move would “threaten Qatar Airways’ continued presence in the Maldives.”

However, the GMR Group at the time denied the allegations stating that it had had received no official communication from the airline about its concerns.

GMR spokesman Amir Ali responded at the time saying that the fee hike had already been made by MACL shortly before GMR assumed control of the airport, adding that while there were no plans for a further increase at present, prices were dependent on factors such as fuel costs.

Adheeb also alleged that the former government intended to rush the development process of the airport rather than a “well contemplated phase by phase development plan”.

“Why do we really need to develop the airport to cater to four million people? We could have done that through proper planning in a phase by phase development process,” he said.

The INIA concession agreement

In 2010, the government of Maldives through its Finance Ministry, Maldives Airports Company Limited (MACL) and GMR-MAHB entered into a concession agreement withINIA whereby the Malaysian-Indian consortium were to develop and operate the airport for a period of 25 years.

According to the concession agreement a “project company” under the name GMR International Airport Limited (GMIAL) was to carry out the development project.

However, a lengthy dispute between the new government of President Mohamed Waheed Hassan and the GMR Group led to the eviction of the agreement.

On November 27, President Mohamed Waheed’s cabinet declared the agreement void, and gave the company a seven day ultimatum to leave the country.

Attorney General (AG) Azima Shukoor stated the government reached the decision after considering “technical, financial and economic” issues surrounding the agreement.

She also claimed the government had obtained legal advice from “lawyers in both the UK and Singapore as well as prominent local lawyers – all who are in favor of the government’s legal grounds to terminate the contract.”

The INIA was handed over to the government on December 8, in an invitation-only press conference; Finance Minister Abdulla Jihad presented the official handover documents to MACL Managing Director Mohamed Ibrahim, and said that the Maldives would pay whatever compensation was required “however difficult”.

With arbitration proceedings underway in Singapore over the contested airport development charge (ADC), GMR received a stay order on its eviction and appeared confident of its legal position even as the government declared that it would disregard the ruling and proceed with the eviction as planned.

On December 6, a day prior to its eviction, the government successfully appealed the injunction in the Supreme Court of Singapore. Chief Justice Sundaresh Menon declared that “the Maldives government has the power to do what it wants, including expropriating the airport.”

That verdict, effectively legalising the sovereign eviction of foreign investors regardless of contractual termination clauses or pending arbitration proceedings, was “completely unexpected”, according to one GMR insider – “the lawyers are still in shock”, he said at the time.

A last ditch request for a review of the decision was rejected, as was a second attempt at an injunction filed by Axis Bank, GMR’s lender to the value of US$350 million.

Scott Wilson Plan

Minister Adheeb said the Scott Wilson master plan produced during former President Maumoon Abdul Gayoom’s administration would have been “a better master plan to develop the airport.”

“Sir Scott Wilson’s master plan to development of INIA was a good master plan. We actually did not require a plan to be implemented immediately. The plan was to develop the airport in a phase by phase development process. Some of the development projects had already been completed at the time the airport was given to GMR for development,” he explained.

Following the signing of the concession agreement of INIA with India’s GMR group, the Scott Wilson master plan was abandoned for a new master plan produced by the International Finance Corporation (IFC) through another foreign consultancy firm – Halcrow – which the current government 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. The IFC did not provide this information to the government. We are talking about a development of 30 years,” former Civil Aviation and Communications Minister Dr Ahmed Shamheed said previously.

The current government criticised the IFC for abandoning the Scott Wilson plan for a more “costly master-plan”  and alleged that the World Bank affiliated group had been “irresponsible” and “negligent” in advising the former government of President Mohamed Nasheed in the concession of INIA by Indian infrastructure giant GMR.

However the IFC denied the allegations, 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 spokesperson at the time.

Airport Development Charge

Highlighting the Airport Development Charge (ADC) that the former government intended to charge – prompting criticism from the opposition parties who are now currently in government of President Waheed – Adheeb said that the former administration proceeded to taking ADC without legislation.

“The way they intended to charge ADC was not a mechanism established in anywhere in the world. ADC is taken through a proper legislation and should be flexible and adjustable in parallel with the inflation rate,” he contended.

On November last year, former President Mohamed Nasheed’s government’s Transport Minister Adil Saleem announced that GMR will begin charging international passengers a US$25 (MVR 385.5) ADC at the departure check-in counters of INIA for all flights scheduled after 12:00am on January 1, 2012.

Saleem stated at the time that the fee had been previously approved by the government as part of its contract with GMR.

The matter was soon taken to Civil Court by then opposition Dhivehi Qaumee Party (DQP) – led by current Special Advisor of President Waheed, Dr Hassan Saeed. The DQP claimed that a pre-existing Airport Service Charge (ASC) of US$18 (MVR 277.56) invalidated the ADC.

The Civil Court in December 2011 invalidated the ADC charge, ruling that the clause in the concession agreement with GMR violated the Airport Service Charges Act of 1978, which was amended in 2009 to raise the charge to US$18 for foreign passengers and US$12 for Maldivians above two years of age.

The current government, after ascension to power, claimed in a “cabinet-committee report” that it was “not in the best interest of the country” to appeal the Civil Court decision to High Court, and thereby ignored the decision.

The former government had honoured the concession agreement following the civil court ruling, and,  under instruction from a letter sent by MACL, had been deducting ADC revenue from concession fees due the government.

Following the ousting of the Maldivian Democratic Party (MDP)-led government on February 7, the new government – which included the DQP – inherited the crippled concession revenues, under which it was effectively obliged to pay GMR to develop the airport.

The new government received a succession of bills from the airport developer throughout 2012. In the first quarter of 2012 the government received US$525,355 of an expected US$8.7 million, after the deduction of the ADC. That was followed by a US$1.5 million bill for the second quarter, after the ADC payable eclipsed the revenue due the government.

Combined with the third quarter payment due, the government owed the airport developer US$3.7 million (MVR 57.05 million).

On May 8, GMR offered to exempt Maldivian nationals from paying the contentious ADC in a bid to end a legal and contractual stalemate that had given rise to MACL going bankrupt and the deprivation of the majority of all airport revenue that the government was to generate through the agreement.

However, despite attempts to renegotiate the issue, the government decided to terminate the agreement at risk of compensation. The ADC case is still pending in the Singapore Arbitration Court.

Adheeb stressed that such major projects that is pivotal to the country’s economy should not be taken without thorough research and proper consultation and analysis. The current government, he said, would address these issues “with patience and with a proper plan.”

He also added that the current government of President Waheed would seek towards a “balanced economic and foreign policy” that would be in the best interest of the country.

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“Compromise” essential for growth of independent travel in the Maldives: Lonely Planet author

This story was originally published on Minivan News’ spin-off travel review site, Dhonisaurus.com.

There remains huge potential to expand independent travel across the Maldives’ ‘inhabited islands’, though only a “tiny proportion” of tourists would presently accept legal restrictions in the country without it becoming more inviting for holidays, the author of a major new Maldives travel guide has claimed.

Under the country’s laws, traditional holiday staples such as the sale and consumption of alcohol and pork products, and women publicly sunbathing in bikinis are outlawed unless on designated ‘uninhabited’ islands set aside exclusively for resort developments.

Tom Masters, a travel writer and journalist who has authored the latest Lonely Planet travel book to focus on the Maldives – released back in October – said he ultimately believed local islands can provide independent travellers with “sufficient attractions”, even within the strictly conservative laws practiced outside of the country’s resort islands.

“However, I think only a tiny proportion of potential visitors would be happy to accept such a number of restrictions on their annual holiday, and so if some degree of compromise could be reached on issues such as alcohol or sunbathing, then the number of travellers opting for island tourism over that in an expensive resort would rise enormously,” Masters told Dhonisaurus.

Despite the claims, the Maldives Ministry of Tourism, Arts and Culture has said that even with the emergence of a number of boutique guest houses around and the planned expansion of domestic flights routes in the Maldives, the market for independent travel will remain “quite insignificant”.

Ultimately, no law can be enacted against the tenets of Islam, according to the Maldivian constitution.

Even last month, debate took place in parliament about the legality of selling alcohol in the Maldives, both in terms of outside the country’s resorts and even on its exclusive island properties, with a bill potentially outlawing any form of alcohol sales being narrowly accepted by the People’s Majlis.

“Great changes”

The Maldives has undergone great changes in terms of tourism and national development since the Lonely Planet last published a guide on the Maldives in 2009, according to author Tom Masters.

“The last [Lonely Planet] guide was researched and published in 2009, a time of great optimism and change for the Maldives after the election of President Nasheed. The changes introduced by his government were a fantastic step in the right direction for tourism, I think, especially given the global financial climate, which made relying on high-end tourism alone a dangerous path,” he said.

“The biggest change was undoubtedly the opening of guest houses on inhabited islands and the creation of a national ferry network. These were both fantastic for the independent traveller and a great way to make visiting the Maldives affordable.”

While Masters remains optimistic for further developments in independent travel in the Maldives, he added these feelings were tempered by the challenges facing the market – not least in better managing the expectations of travellers within the context of local culture and practices.

“The travellers I met staying in guest houses were all very culturally sensitive and of course came knowing that alcohol, bikinis and pork weren’t going to be available. However, many suggested that in the future some degree of compromise might be possible – perhaps allowing beer drinking inside guest houses or the opening of closed-off ‘Westerner’ beaches where tourists could swim and sunbathe without upsetting locals,” he added.

“I also think that the ferry network needs to be invested in and improved, as at present it’s slow, unreliable and hard to access as an outsider. Online timetables, better vessels and more frequent boats would all make independent travel far easier and appealing than it is at present.”

Masters stressed that the Maldives remained “overwhelmingly a luxury destination” – a tag he did not anticipate would change drastically unless island tourism could be made more “inviting”.

“The financial demographic hasn’t much changed, but the geographic spread of visitors has enormously – the Chinese have risen from a tiny part of the market to one of its biggest groups, which in turn has changed the feel of many resorts where large groups of Chinese visitors predominate. The independent traveller is still a tiny and unknown quantity in the Maldives, but one that I’m confident will continue to grow as long as the new government doesn’t try to further restrict their behaviour,” he said.

“The question is whether that is in the new government’s interest. As the new government is made up of many resort owners, I’d be very surprised if they felt that encouraging island tourism was a priority, which I think is a shame.”

Forty years of tourism

With the Maldives celebrating 40 years since the inception of tourism, the Ministry of Tourism, Arts and Culture has spent the year trying to claw back consumer confidence in the destination, which was damaged by political instability during the early months of 2012.

The ministry has also been working to outline a fourth long-term master plan for pursuing growth within the Maldives travel sector – now expected to be unveiled before the end of 2012.  Independent travel will be included in this focus.

From a Maldives perspective, the independent travel market market is represented mainly in the country through guest houses and safari/dive vessels, being described by veteran guide book author Adrian Neville as “a weakling in need of love and nurturing”.

Speaking to Minivan News last month, Deputy Tourism Minister Mohamed Maleeh Jamal told Minivan News that amendments approved in 2010 to the country’s Tourism Act had allowed for a renewed focus on guest house development.

“There is opportunity in the area [of independent travel] with growth in domestic flights that is being seen. [The island of] Hulhumale’ already has some very good quality guests houses and boutique bed and breakfast properties,” he said.

“However, guest houses represent a minute number of beds and that number will continue to remain quite insignificant.”

Until 2008, guest houses had been banned by Maldivian law since May 1, 1984.

Back in June, Minister of Tourism, Arts and Culture Ahmed Adheeb said that it was difficult to say where authorities stood on guest house development as the industry was still relatively niche compared to the established resort sector.

“The Maldives continues to be branded as a luxury destination within the tourism market. It is a bonus therefore that these guesthouses allow us to supply mid-market demand,” he said at the time.

“We are formulating our plan right now. This will look specifically into how many guest-houses have been built and how they contribute to the economy,” he said.

However Raki Bench, founder of the Guest-houses in Maldives website which offers specially prepared packages to experience a more independent holiday experience in the country, has been critical of the role played by the present and former government to develop the industry.

Bench added in recent years, despite previous government commitments to provide more mid-market accommodation for visitors wanting to explore the country’s inhabited islands, further support had been lacking.

“The government has not really been helping guest-houses at all. It is a small sector, but it is showing growth within the wider tourism industry. I don’t see any promotion from authorities,” added Bench, who said he was realistic about the economic reasons for this.

“I do understand why this is the case. After all what is the point in promoting an industry with a value of US$50 a night when you compare that to what resorts can make?” he said.

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