Finance Minister Abdulla Jihad has declared that the Maldives Airport Company Limited (MACL) is unable to pay the disputed airport development tax (ADC) without risking bankruptcy.
The ADC was intended to be a US$25 fee charged to outgoing passengers from January this year, as stipulated in the contract signed with Indian infrastructure giant GMR in 2010. The anticipated US$25 million the charge would raise was to go towards the cost of renovating INIA’s infrastructure.
The ADC was to be charged after midnight on January 1, 2012, however the Civil Court blocked the fee on the grounds that it was essentially the same as a pre-existing Airport Services Charge (ASC). Following the court ruling the Nasheed government agreed that the ADC be deducted from its concession fee paid to the government-owned company in charge of the airport, Maldives Airport Company Limited (MACL).
On Monday however, new Finance Minister Abdulla Jihad told local newspaper Haveeru that MACL should not and could not cover the development costs.
“The Civil Court ruled against that charge. Hence that amount must not be deducted from the payment to the government which would reduce its income,” Jihad argued. “The Airports Company might face losses if that happens,” he said.
“I don’t believe that GMR can deduct that amount from the payment owed to the government. The estimated US$30 million for this year must be paid. If the payment is not received it would be difficult to run the Airports Company,” he continued.
Speaking to Minivan News, Jihad said the next step was to ask GMR to resolve the issue after the board of MACL was reappointed.
“The new board will write to GMR… It is not for the Finance Ministry to interfere with the running of the [airport] company,” said Jihad.
He also claimed that he did not feel there were any specific provisions in the original deal detailing the collection of the ADC.
In a statement following the court decision, GMR stated that it “has been permitted to collect ADC and Insurance charge under the Concession Agreement signed between GMR-MAHB, Maldives Airport Company Limited (MACL) and The Republic of Maldives (acting by and through its Ministry of Finance and Treasury), and as such has set up processes for ADC collection from 1st January 2012 supported by an information campaign to ensure adequate awareness.”
CEO of INIA Andrew Harrison said that the company was unwilling to comment on the “sensitive” issue at this point.
Meanwhile, Foreign Minister Dr Abdul Samad Abdulla in assured his Indian counterpart that all existing investment agreements would be honoured.
According to the Indian newspaper, the Hindu, Samad assured Indian External Affairs Minister S.M. Krishna that the government’s policy was unchanged, after his counterpart expressed the desire that the Maldives remained friendly to outside investors.
The contentious Civil Court case was filed by the then-opposition Dhivehi Qaumee Party (DQP), now part of the ruling coalition, in a longstanding campaign against Nasheed’s government awarding the airport redevelopment to GMR. DQP leader Dr Hassan Saeed is now President Mohamed Waheed Hassan’s special advisor, while DQP Vice-President Dr Mohamed Jameel is the new Home Minister.
The decision to finalise a deal to develop Ibrahim Nasir International Airport (INIA) was agreed under the administration of former President Mohamed Nasheed in 2010. GMR emerged victorious in the bidding process, amid political opposition on largely nationalistic grounds.
Umar Naseer, now the deputy leader of the ruling coalition party the Progressive Party of Maldives (PPM), previously announced his intention to re-nationalise the airport should his party come to power. Naseer also contended that the airport deal would allow “Israeli flights to come and stop over [in the Maldives] after bombing Arab countries”.
The DQP campaigned vigorously against the deal, producing a pamphlet last December titled “Handing the airport to GMR: The beginning of slavery”, in which it criticised the arrangement with GMR.
In the document, the party argued that deal would allow the Indian company to “colonise” the local economy to the detriment of Maldivians. The DQP also questioned the legality of the deal, taking the issue of the ADC to the civil courts.
The document further alleged that the deal did not make adequate provision for replacing the runway, the condition of which has come under increasing criticism.
Head of the DQP Dr Hassan Saeed today said he was unable to comment on recent developments regarding GMR and the ADC.
The ADC was ruled by the court to be a new tax and was subsequently required to go through the People’s Majlis.
In light of this decision, GMR agreed with the Nasheed government in January that it would deduct the $25 per passenger fee from the concessionary charge paid each quarter to MACL. At the time the government acknowledged the compromise to be a temporary whilt maintaining its commitment to ADC in some form.
Confidence in GMR’s $511 million dollar INIA project appeared to take a hit after the the resignation of President Nasheed in February was accompanied by a five percent drop in GMR’s share prices before bouncing back shortly after.
Dr Waheed has reassured foreign investors that no businesses would be targetted for political reasons, although he did not rule out re-examining “certain deals”.
Attorney General Azima Shukoor announced that she had forwarded some of the previous government’s deals to the Auditor General but said no decision had yet been made on GMR. The government announced the suspension of any new Public Private Partnership schemes last month.
Spokesman for the Maldivian Democratic Party (MDP) Hamid Abdul Ghafoor argued that the new figures in the government were not doing enough to protect foreign investment.
“If they were going to protect the economy, they would be more proactive, rather than simply saying we can’t do it,” said Hamed. “This will seriously impact the the development of the airport. In the meantime, investors lose confidence.”