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.


11 thoughts on “State guarantee for GMR to obtain bank loans had no limits: Attorney General”

  1. who the buffoons in male trying,international law is not conducted like how maldivian government treat contracts,with their banana republic style system of justice

  2. who the buffoons in male trying to fool,international law is not conducted like how maldivian government treat contracts,with their banana republic style system of justice

  3. In the real world, contracts are worth the paper they are written on, Maldives in unique.

  4. Didn't the state of maldives give a sovereign guarantee to the loans of a few business tycoons a few years before 2008? I wonder if the state of maldives was a party to a private commercial contract of a businessman when it gave those guarantees. AG Shukoor, please understand the lawful nature of discretionary authority of the head of state to execute sovereign guarantees. From what i hear in the news, the so-called guarantee was signed by Ali Hashim. He was not the Finance Minister when the Finance Act kicked into operation. So, provisions of Finance Act relating to Sovgn Guarantee will not apply to that guarantee. Lady, please get the facts rights.

  5. "Significant and avoidable burden on the people of Maldives"i.e., $800m debt burden - because this government did not do due diligence before jumping to terminate an international contract. Who cares, when arbitration is over in 3 years, the case can be dragged into appeal, another 2 years. After that, government of maldives can simply sit on the debt. We did that before with Air Maldives mess-up. Cost in the interim? Public borrowing will become costlier. Impact? More public burden through higher public debt. Ironically, the people that will pay for this is TOURISM SECTOR. As government will be forced to increase taxes on resorts. Way to go AG. Downside of jingoistic nationalism - isolation and spiralling debt, spiralling inflation, belly-up economy and a mirror-image of stupidity.

  6. Azima Talks Nonsense more JAZUBAATHEE maybe this lady still thinks Anni is in power

  7. Azima, it's simples, yet again.

    "She stated that if the government found itself unable to pay back these loans, the image of the state will be damaged..."

    It's a bit late in the day to start worrying about that. That image has been tarnished beyond recognition on 7th Dec. It takes decades to build up trust and business relationships (thus, the phrase, "my word is my bond"), and just a few seconds to break them up. Maldives did the latter on 7th Dec.

    "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."

    Oh dear. Sounds like Azima has got herself in a bit of a twist here. What's the structure of MACL, given that it's 100% owned by the Maldivian state? If the owner gave guarantees in order to secure loans which would otherwise have been unavailable, then the owner does carry a final responsibility in the case of default.

    I think Sawad is right. Azima is out of her depth here.

  8. These Maldivian use their brain only how to wash their back. You have already cancelled a legitimate contract and said it was not legal. And why you are worrying of any things that relates to that contract.
    I don’t know why these moron use attorney generals and big names , what a waste for Maldives who spent money in the name of education. The purpose of education is not put DR in front your names. Educating these people are just like teaching Orangutan how to use I pad.

  9. who the hell said Maldives has to pay USD 800 million to GMR ?

    We do not need to pay this much to GMR and no court will order to pay that much.

    We only need to pay the money that Anni had taken as advance and the money that GMR had spent from thier income for renovation work that they have done at the airport which is going to be within the range of USD 35-40 million.

    These money will be able to pay from the income that airport will get from its operations for next few months.

    Anni and his associates who had taken huge amount of money under the table are trying to scare the people with these huge amounts but we will not be sacred of you people.

    GMR also knows that they got the contract by bribing Anni and they will have to get the money that they paid to Anni from Annni and not from the state.

    GMR did a gamble on this deal and they have earned over 200 millions within the contracted period.

    GMR had also incurred an expense of USD 72 million and is classed in thier books as " administrative, legals and processing fee" to acquire the airport and these money are the money that was given to Anni and his friends.


  11. GMR made a gamble by hastily acquiring INIA knowing very well that the whole thing may backfire..only thing they did not expect was the fall on Anni's government. GMR needed INIA to shore up the losses at their other 3 airports as outlined in the following report on CAPA online

    India's GMR Infrastructure Ltd stated its INR666.9 million (USD14.8 million) loss in the three months ended 30-Jun-2011 was caused by losses at Delhi Indira Gandhi International Airport and a higher tax payout (Dow Jones/CNBC TV18/The Hindu/Money Control/RTT News, 10-Aug-2011). The company posted a loss of INR1.92 billion (USD42.5 million) on its Delhi Airport operations. It also incurred a 38% year-on-year increase in interest costs and a 67% increase in depreciation on capitalisation costs for Terminal 3 at the airport. GMR expanded at the airport last year, with the construction of the country's largest international terminal, T3. Higher costs associated with the operation of the new terminal has impacted GMR, as it continues to negotiate with the airport regulator to be allowed to raise fees on various services for passengers and airlines. "Once new tariffs are in place, the airport division will become profitable," GMR airports division CFO Sidharth Kapur said. Meanwhile, GMR Infrastructure CFO A Subbarao noted that in addition to the depreciation and interest costs for Delhi, which "hurt our bottom line", losses were also experienced in Turkey(Sobiha International Airport). He added that whether the company reports a profit in the 12 months ended Mar-2012 would depend on how much it can increase profits at Delhi Airport.

    On a revenue side, GRM Group Chairman G M Rao stated that "higher revenues were brought in primarily by the operations of Male International Airport (which was acquired by GMR in Nov-2010)the Male(INIA)Airport which has given about Rs 253 crore(US$65 million) revenue for the quarter (Jan-Mar 2011)

    Therefore the advance of $78 million would have been recovered in 4 months at most.


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