The government has released a Special Audit by the Auditor General (AG) into the former government’s concession agreement with Indian infrastructure giant GMR, ahead of upcoming arbitration proceedings.
The two parties agreed to commence arbitration proceedings in mid-2014, following a preliminary meeting in London on April 10 this year.
GMR is seeking US$800 million in compensation for the sudden termination of its 25 year concession agreement, while the Maldivian government has contended it owes nothing as the contract was ‘void ab initio’, or invalid from the outset.
The AG’s report notes that Axis Bank is separately seeking repayment of US$160 million in loans to GMR, which were guaranteed by the Maldives’ Finance Ministry.
“Under the terms of the direct agreement, these loans would be repayable if the concession was terminated early, as defined in the direct agreement. The government contends, however, that if the concession agreement is void ab inito, then these terms do not apply.”
The AG’s report reveals that concession revenue due the government plummeted fourfold in 2012 as a result of the Civil Court case – filed by the Dhivehi Qaumee Party (DQP) in 2011 – blocking the charging of an Airport Development Charge (ADC) to outgoing passengers as stipulated in its concession agreement.
Net concession revenue in 2011 of US$25,424,877 fell to just US$6,058,848 in 2012, after GMR Male’ International Airport Limited (GMIAL) deducted the ADC from the concession fees due to the government – a stopgap measure approved by the Nasheed government while it sought to appeal the ruling. However, the DQP, in coalition with other opposition parties, came to power following the controversial transfer of power on February 7 2012, before the appeal was complete.
“The new government took the view that it would not be proper for it to intervene in the legal process for the benefit of a private concern,” the report stated. Instead, on April 19, 2012, MACL informed GMIAL it was “retracting the previous agreement [to offset the ADC] on the grounds that the then Chairman of MACL did not have the approval of the MACL board to make the agreement.”
GMIAL asserted that this decision was a political event as defined within its concession agreement, and warned that “this would amount to a breach of the agreement by the government. The government did not accept this argument.”
By the end of 2012, GMIAL had withheld a total of US$22.9 million from the concession fee paid over to MACL, 79 percent of the total fee that would otherwise have been due, the report noted, adding that the decision by the Transport Minister and MACL Chairman to agree the offset had been sent to the Anti-Corruption Commission on the grounds that the decision had required presidential approval.
Prior to the court ruling, GMIAL’s audited net profit for the period November 25, 2010 to December 31, 2011 was US$26,141,438. During this period GMR paid US$30,327,644 in concession fees to government.
GMIAL’s pre-tax profit for the first nine months of 2012 was US$31,668,384, on total revenue of US$184,641,985 (US$125,193,817 of this consisting of fuel sales).
MACL’s own net profit was US$14.9 million in 2008 and US$16.6 million in 2009 – the last two full years in which it operated the airport prior to the concession agreement coming into force. In 2010, this increased to US$21.4 million, and in 2011, US$27.4 million.
The AG’s report examines fuel sales at the airport in light of the new government’s criticisms of GMIAL’s management, in particular an increase in prices it claimed had driven away airline operators.
The analysis showed “a mixed picture”, according to the AG’s report. Sales had dropped to 143 million litres in 2009 from 160 million litres in 2008, but rose from 166 million litres in 2010 to a five-year high of 173 million litres in 2011. The figure dropped to 152 million litres in 2012 – almost entirely due to a decision by SriLankan Airlines to stop fueling its London-Colombo route in Male.
“Until 2012, Sri Lankan Airlines’ daily London-Colombo flight called at Male’ to refuel but no longer does so; SriLankan Airlines told us that the increased price of fuel at Male’ was one of the reasons they stopped doing so. In 2011, Sri Lankan Airlines bought some 18 million litres of fuel, so this change along represents a significant reduction in airport fuel sales,” the report suggested.
It also noted that the Ministry of Tourism had blamed a 25 percent decline in seat capacity on routes from Europe between 2010 and 2012 on higher fuel prices, although this hypothesis did not appear to be reflected beyond SriLankan Airlines in the amount of fuel sold in 2012.
The report examined the bidding process conducted by the World Bank’s International Finance Corporation (IFC) in which the airport was awarded to GMR. The report stated that evidence to back allegations of “improper interference” during technical bidding process “is not conclusive on this point”, and deferred the matter to the Anti-Corruption Commission (ACC).
However, the report noted that the IFC’s terms of reference involved “securing the best deal for the government in terms of the concession fee paid to the government and MACL, and did not consider impacts on the Maldivian economy.”
“Such impacts could be both negative and positive,” the report suggested.
“For example, there has been concern that Maldivian businesses working at the airport might not have their contracts renewed, and that proposed commercial development at the airport would take business away from existing local businesses. Conversely, Scott Wilson’s work in 2008 suggested that successful development of the airport could benefit employment both at the airport itself and more widely in the Maldivian economy, and the rents from commercial development could increase the concession fee paid to the government,” it explained.
The report noted that at time of publication, the government had not announced how it intended to take forward development of the airport, but noted that Universal Chairman Mohamed Umar Manik and four other directors had been appointed to the board of Male’ International Airport Limited (MIAL). Bandhu Ibrahim Saleem has meanwhile been appointed Managing Director.
According to an independent engineering report, as of October 31 2012 GMR Male International Airport (GMIAL) had completed 25 percent of the refurbishments and upgrades to Ibrahim Nasir International Airport planned for the end of 2014, and had been invoiced by its contractor for US$69 million.
“Significant progress had been made in some areas – for example, 87 percent of the material for land reclamation had been dredged,” the AG’s report noted.
However, according to the engineering report, work was 155 days behind schedule after the new government order GMIAL to stop work “pending regulatory approvals”.
“In the meantime, all work on the ground on the improvement to the airport has ceased. Sensitive elements of the new structures that had been planned by [GMR] are incomplete and exposed to the weather and at risk of damage – possibly closing off the option of re-using these elements to reduce the cost of any future development of the airport,” the report concluded.
Read the full report (English)