Cabinet voids US$511 million GMR contract, gives airport developer seven day ultimatum to leave

Additional reporting by Neil Merrett and Mohamed Naahii.

The Maldivian cabinet has declared the agreement with Indian infrastructure giant GMR to develop Ibrahim Nasir International Airport (INIA) void, and has given the company a seven day ultimatum to leave the country.

“The government has given a seven day notice to GMR to leave the airport. The agreement states that GMR should be given a 30 day notice but the government believes that since the contract is void, it need not be followed,” said Attorney General (AG) Azima Shukoor.

During a press conference on Tuesday evening, Shukoor stated that the government reached the decision after considering “technical, financial and economic” issues surrounding the agreement.

The attorney general 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.”

“We also got advice from both local and international lawyers in the Maldives Airports Company Limited (MACL),” she added.

Shukoor said the government had two legal grounds to terminate the contract: one in which the government believed the contract was ‘void ab initio’ – meaning to be treated as invalid from the outset; and the second being ‘frustration’, an English contract law doctrine which acts as a device to set aside contracts where an unforeseen event either renders contractual obligations impossible, or radically changes the party’s principal purpose for entering into the contract.

“The contract is governed by the English contract law. The government believes that the agreement is void ab initio meaning the contract was void from the beginning or the contract is frustrated,” she said.

She added the termination of the agreement was a “purely legal decision” and did not have any connection with the recent series of anti-GMR protests headed by the religious Adhaalath Party (AP).

The decision was, Shukoor insisted, made “professionally” and after “thorough research”.

Shukoor also claimed the government was going to initiate the arbitration process in Singaporean Courts and had already informed its decision to both GMR and MACL.

Asked how the government planned fund the estimated US$700 million in compensation for terminating the contract, Shukoor declined to speak of the sum of money but expressed “full confidence” in winning a court battle.

“We were advised by very professional lawyers including Queen’s Counsels (QC). We have full confidence in winning the case,” she said.

“We do not intend to share all our legal arguments in this press conference. Please do respect that decision,” she added.

“Completely irrational”: GMR

GMR has slammed cabinet’s decision as “unilateral and completely irrational”.

“This unlawful and premature notice on the pretext that the concession agreement is ‘void’ is completely devoid of any locus standi and is therefore being challenged by the company before the competent forums. The company disputes that the concession agreement is ‘void’,” GMR said in a statement.

“The company would further like to state that it has taken all measures to continue operations at the Ibrahim Nasir International Airport thereby ensuring that this vital gateway to Maldives is kept open.

“We would also like to inform all that this action by the government of the Maldives is in complete disregard of and has been done during the pendency of arbitration proceedings in the designated tribunal in Singapore. We are therefore taking all measures to ensure the safety of our employees and safeguard our assets. We are confident that the stand of the company will be vindicated in every way.”

Speaking to Minivan News, GMR Executive Vice President & Group Head of Corporate Communications, Arun Bhaghat, said the only reason for the decision as stated in the government’s letter was that the airport development charge had been ruled unleviable by the Civil Court, and therefore the entire contract was void.

In late 2011 the then-opposition Dhivehi Qaumee Party (DQP) filed a successful Civil Court case blocking GMR from charging an Airport Development Charge (ADC) – a US$25 charge for outgoing passengers stipulated in the concession agreement – on the grounds that it was a tax not authorised by parliament.

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 a month later 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.

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 now owes the airport developer US$3.7 million.

“The net result of this is that the Maldivian government now has to pay GMR for running the airport. On this basis it is likely that the Maldivian government will end up paying about MVR 8 billion (US$519 million) to GMR for the duration of the contract,” wrote Dr Hassan Saeed, DQP Leader and President Mohamed Waheed’s Special Advisor, in a recent appeal to Indian Prime Minister Manmohan Singh calling on him to cancel the Maldives’ agreement with GMR and warning the Indian PM of “rising extremism” as a result of the GMR deal and anti-Indian sentiment.

GMR attempted to compromise by offering to exempt Maldivian nationals from the ADC, with GMR Chairman G M Rao personally mailing Waheed with the offer, but claimed to have received no response from the government.

“This is by far the single largest foreign investment in the Maldives at US$511 million – in today’s figures, 40-50 percent of the Maldives’ GDP,” observed Bhaghat, adding that the company was supremely confident of defending its legal position.

“We have no plans to go. We have 23 more years here,” he said, vowing that the cabinet’s decision would have “no effect” on the operation of the airport.

“The defence force in this wonderful country is well geared to ensure smooth operation of the airport,” Bhaghat told Minivan News.

India backs GMR: “All necessary measures”

The government of India “proposes to monitor the situation in Maldives closely and is prepared to take all necessary measures to ensure the safety and security of its interests and its nationals in the Maldives,” India’s Ministry of External Affairs has meanwhile said in a statement.

“We have noted the decision by the Government of Maldives to terminate the agreement with the GMR Group to manage the Male International Airport. It would be recalled that the consortium consisting of GMR and MAHB (Malaysian Airport Authority) had been awarded the contract to manage the Male’ International Airport concession through a global tender conducted by the International Finance Corporation (IFC), Washington, a member of the World Bank.

“As the Advisor to the Government of Maldives, the IFC has stated that it has complied with Maldivian laws and regulations and followed international best practices at each step of the bidding process to ensure the highest degree of competitiveness, transparency and credibility of the process,” the statement read.

“The investment by GMR represents the single largest foreign direct investment in the history of Maldives. The decision to terminate the contract with GMR without due consultation with the company or efforts at arbitration provided for under the agreement sends a very negative signal to foreign investors and the international community. The Government of India would continue to remain engaged with the Government of Maldives on this issue, and would expect that the Government of Maldives would fulfil all legal processes and requirements in accordance with the relevant contracts and agreement it has concluded with GMR in this regard.”

“Destabilising the country”: MDP

The Maldivian Democratic Party (MDP) has meanwhile accused cabinet of destabilising the country by attacking foreign investment and supporting “extremist” rhetoric.

“This decision is bad for tourism, bad for the economy and bad for the Maldivian people,” said former President Mohamed Nasheed.

“Waheed’s government has cynically used xenophobia, nationalism and religious extremism to attack GMR, the country’s largest foreign investor. This will put off potential investors for decades. Waheed is leading the Maldives down the path to economic ruin,” he stated.

MDP MP and Spokesperson Hamid Abdul Ghafoor told Minivan News that disputed contracts could be unravelled through a legal process, but said the executive’s decision to void the contract and evict the country’s single largest foreign investor was not backed by any law.

“If cabinet has now decided to revoke the contract, who is going to execute the order? The contract is bound under international law. The case is still being heard by a court of arbitration in Singapore,” Ghafoor said.

“Will police be executing this order to reclaim the airport, or will it be Islamist elements? This is an executive decision that is being taken without any legal or political backing.”

Maldives National Defence Force (MNDF) Spokesperson Colonel Abdul Raheem said the military was “not involved” in the airport issue: “We will however, continue to take care of security [at the site] and look after it,” he said.

Police Spokesperson Sub-Inspector Hassan Haneef told Minivan News that any decision to enforce the decision would have to be directed by the President’s Office.

Decision prompted by “extremists”

Ghafoor claimed that threats of direct attacks on foreign investors reflected what he was the growing role of extremist Islamic thinking within the most senior decision making of the present government.

Raising concerns over the legality of voiding the GMR contract, Ghafoor pointed to recent comments in local media by the government-aligned religious Adaalath party, whose president Sheikh Imran Abdulla was yesterday quoted as threatening to “invade the runway” should the government not renege on the airport agreement.

“The deal was done very transparently, and [the government] have never been able to prove any wrongdoing,” Ghafoor claimed. “Yet, what is most worrying is that we have the cabinet of what we believe is an illegitimate government that is being influenced by extremist influences.”

Ghafoor alleged that the government’s decision over the GMR issue was being driven by former President Maumoon Abdul Gayoom’s Progressive Party of Maldives (PPM), Adhalaath Party President Sheikh Imran and fellow party member and Minister of Islamic Affairs, Sheikh Mohamed Shaheem Ali Saeed.

“We are now seeing the government partnering with and backing the rhetoric of a movement led by an Islamist group, it is very apparent what is going on here,” he said.

MP Ghafoor further claimed that parliament had, as of this evening, received no information on the decision to renege on the GMR agreement, adding that several no-confidence motions against senior government figures including President Waheed were scheduled.

“What is going on right now is a shift in parliament,” he said.

Ghafoor also claimed that beyond the potential legal and economic ramifications of reneging on the sovereign agreement with GMR, rumours of a Chinese intermediary stepping in to cover possible financial consequences could significantly affect the Maldives internationally.

“In terms of geopolitics, we are hearing about a Chinese connection to the [airport issue] that does not put the country in a comfortable position,” Ghafoor claimed. “Ideologically and culturally we have much closer ties to India than China.”

Returning from a visit to China back in September, President Dr Mohamed Waheed Hassan told reporters that Chinese aid to the Maldives would not be limited to a US$500million (MVR7.7billion) loan finalised earlier this year.

Waheed revealed at the time that the Chinese government had pledged to make all necessary aid available to the Maldives, including assistance with road and shipping development, local media reported at the time.

Regarding China’s view on Maldivian politics, Waheed noted that the Chinese were amongst the first nations to recognise his unity government.

“The Chinese Prime Minister personally told me that he had full confidence and support for the Maldivian government,” Waheed was reported as saying.

However, the Maldives government this evening dismissed suggestions that China would be taking a role in any future airport development.

“On this matter, China is as far away from the airport development as is physically possible,” said Presidents Office Media Secretary Masood Imad.

Troubled airport agreement

The agreement with the GMR-Malaysia Airports Holdings Berhad consortium was signed on June 28, 2010 with the Nasheed administration, following a bidding process conducted by the World Bank’s International Finance Corporation (IFC).

The GMR-MAHB consortium narrowly beat Turkish-French consortium TAV Holdings-Aéroports de Paris Management (ADPM), scoring a final Net Present Value (NPV) score of 495.18 to the runner up’s 454.04 at conclusion of the bid.

GMR’s win was based on playing to the government’s highest-scoring factors – fuel share revenue and upfront payment – at the expense of non-fuel related airport revenue.

As part of its successful bid, GMR paid the government US$78 million and 1 percent of non-fuel revenue and 15 percent of fuel revenue for 2011-2014, increased to 10 percent and 27 percent respectively for 2015-2025. The developer at the time anticipated that additional services and duty free development for the country’s well-heeled clientele, as well as the Maldives’ tourism growth potential, would offset the risks of the higher fuel share.

Opposition parties at the time the agreement was signed – and are now in government following February 7’s controversial transfer of power – first opposed GMR’s development of the airport on nationalistic grounds, and then levelled numerous allegations against the company ranging from corruption to concerns that the deal would allow Israeli bombers to refuel en route to bombing Arab countries.

Further protests occurred in December 2011 after GMR ceased renewing lease agreements of several existing airport duty free operators, notably duty-free liquor store Alpha-MVKB.

The High Court upheld at the time that since GMR had given notice on March 1, 2011 and, as per the agreement, the contract had been terminated on March 31. The court concluded that MVK had no right to remain at the airport without approval from GMR, and began packing up the store’s contents on December 4. Following the eviction, MVK CEO Ibrahim Shafeeq accused GMR of breaking into his shop and stealing his stock, and then launched a ‘Go Home GMR’ protest.

As tension with the developer increased, President Waheed’s cabinet attacked the IFC as “irresponsible” and “negligent” in conducting the bidding process.

The IFC denied the accusations, 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”.

The stand-off escalated in early August 2012 following a stop work order on the new terminal development, after the government alleged certain planning permissions had not been obtained from the Civil Aviation Authority.


66 thoughts on “Cabinet voids US$511 million GMR contract, gives airport developer seven day ultimatum to leave”

  1. Barbarian talks like a barbaric hardline pakistan trained terrorist. He forgets that he still continues to use the name as "GMR" airports!! lol!

  2. GMR are out and it is not target to India and it was cancelled because the whole contract is in valid and based on the corruption . Money were given to anni and his associates .

    these guys are now jumping up and down because they probably have to returned the cut they got from GMR.

    Babarian. 78 million dollar is not a big deal to pay from MACL accounts since thier monthly income alone will be equivalent to this amount. MSCL will have clean profit over 70 million annually and paying of this debt is not that difficult.

    People like you who may have benefited through Anni regime will go any miles to defend the case . But anyone with a common sense will know this deal was a corrupt deal.

    The dictator Anni thought he can get aways selling the country like his own property but now he should have leant the lesson.

  3. Its time India obtained a better 'monitoring system'. She has been 'closely monitoring the situation in Maldives' since Feb 7.

  4. Look at the airport now and compare the same with Airport b4 two years and realize how much beautification is done on it. Why the previous operators have not done this beautification? Now we Maldivians are crying when GMR is earning profits but why the same profits were not disclosed by the previous administration.

  5. mody: you bring hardline politics into an airport which is a deemed national asset. the purses of your leaders thinned down after GMR took over. and they make a huge cry and hue over religion and misplaced patriotism. And you dance to their tunes.
    Ablo: you talk like India has always been just your dumb neighbour. the Problem with India is it never offenses the sovereignity of anu country. Evn this crab hole of maldives. Be sure to go for a health check up next time to India without shame.
    Ahmed: Nitwits who talk and repeat words of their illiterate leaders will never see the change that has occured! they were too dumb to protest when Gayoom made the country dance to his tunes for more than a decade.

    All of you who are now hardline and all rhetoric would keep being dumb when you are poor and pathetic and when the leaders you follow open the next bottle of liquor and massages in some country abroad! good going fellas!!

  6. we need to get rid of the the OLD Fox the leaders of PPM Mafia gang and everything will be ok Nazim Riyaaz all are B*********ds

  7. This political circus is going to have bad economic after-shocks for cash starved Maldives. It will no longer get loans from India to run it's country. Govt civil servants will get their salaries after many months.

    The Negative affect of all this is going to have a Positive affect on Mohamed Nasheed's campaign (i.e. if he is not in jail) and people will vote him back to power in the coming election. This is the Boomerang Effect in politics.

  8. This act is one of the stupidest thing ever done by the new Maldivian-coup government. And Yes this is all the way related political issue. I humbly requests all my indian colleagues and Indian firms to stay relent to the situation and hopefully look forward in talking with maldives government and past-government to get the airport back before the monks seal the deal with MACL again.

  9. Maldives India bilateral relations are far more strong and long lasting to be damaged because of the decision to terminate the flawed and illegal GMR agreement.

    It is natural for the Indian Government to back GMR but that should not and will definitely NOT have a serious negative impact on the close cooperation between the two countries.

    It is in the common interest of both nations to ensure that the defense, commercial, social and many other areas in which the two nations cooperate are further improved in the years to come.

    Former Prez Nasheed signed this flawed and one sided agreement with GMR for his personal financial benefit at the expense of the Maldivian Public.

  10. Fahari bin Imran .. open the champagne bottles...

    GMR is gone......kicked out.

    and Lol

    GMR still operates the Airport.

    23 Dec Ittihard mission accomplished.

    Hahaha fooled the 23rd Ittihard of FOOLS.

  11. Know your place Maldivians. A tiny country of more or less 300.000 inhabitants is like a cockroach vs India in the role of human. Don't turn them into your exterminator.

    A small piece of advice: start investing your rufiyaa into foreign values or goods. Once India decides not to hand out loans anymore, another devaluation seems inevitable.

  12. This la la laa is very much in your face, or shall we say in our face. So better stop singing as this is going to hit us real bad!

    For a moment of mad glory, just to show to the people you can do it, you have directed the the anger of the mightiest around on poor defenseless us. We don't have weapons to fight this one.... I am feeling sick....

  13. To those GMR's Indian PR idiots venting off here, let me just say this:

    You can vent or fart all you want, but NOTHING will stop Maldivian Government from kicking out GMR! In two weeks, you and other GMR officials will be gone from this country. Got it?

    Your mistake was to get into bed with Anni and engineer the no-confidence motion against Prez Waheed. You may have succeeded in buying off a few corrupt MPs like Jabir like the way you bought Ali Waheed for MDP.

    Your pathetic attempt to interfere in this country's politics via your puppet Ex Dictator Nasheed will fail.

    Just watch the show. Its just beginning!


Comments are closed.