Arbitrators have been appointed to determine the amount of compensation payable by the Maldivian government to Indian infrastructure giant GMR, according to the Attorney General’s Office.
GMR signed a US$511 million 25-year concession agreement with the Nasheed government to manage and upgrade Ibrahim Nasir International Airport (INIA).
However in November 2012, the government of President Dr Mohamed Waheed Hassan Manik declared the developer’s concession agreement void and ordered it to leave the country within seven days.
A last minute injunction from the Singapore High Court during arbitration proceedings was overturned on December 6, after Singapore’s Chief Justice Sundaresh Menon declared that “the Maldives government has the power to do what it wants, including expropriating the airport.”
GMR is seeking US$800 million in compensation for the sudden termination, while the Maldivian government is contending that it owes nothing as the contract was “void ab initio”, or invalid from the outset.
The awarding of the bid in 2010 was overseen by the World Bank’s International Finance Corporation (IFC), which the Waheed government has accused of being “negligent” and “irresponsible”.
The Maldives’ Deputy Solicitor General Ahmed Usham told local media today that the Maldives would be represented by Singapore National University Professor M. Sonaraja, while former Chief Justice of the UK, Lord Nicholas Edison Phillips, will represent GMR.
The arbitrator mutually agreed by GMR and the government is retired senior UK Judge, Lord Leonard Hubert Hoffman, according to the Attorney General’s office.
“They have sent us the terms and conditions now. A day to start the arbitration proceedings will be decided once it is agreed to and signed,” Usham was reported as saying.
Should the matter be decided in the government’s favour, uncertainty remains as to the potential impact on foreign investor sentiment given the prospect of sudden asset seizure under the ‘void ab initio’ precedent.
If decided in GMR’s favour, the outcome of the case could potentially see the Maldives facing sovereign bankruptcy, with millions of dollars in additional debt emptying the state’s already dwindling reserves, crippling the country’s ability to obtain further credit, and potentially sparking an economic or currency crisis.
In December 2012, the Maldives government paid back US$50 million to the State Bank of India, after it refused to extend the period of the treasury bonds issued by the bank during the previous government. India has called in further instalments of US$50 million, forcing the government to draw on the state reserves.
Finance Minister Abdulla Jihad has said the government is yet to come to an arrangement to pay the next US$50 million instalment to SBI, explaining that the money will have to come from the Maldives Monetary Authority (MMA).
“The US$50 million due in February will have to be paid from the reserve. We have been ordered to pay the amount. There has been no change to the order so far. So it must be paid,” Jihad told local media.
At the start of 2013, state reserves had shrunk to MVR 4.9 billion (US$317.7 million), according to the MMA.
“Gross international reserves at the MMA have been declining slowly, and now account for just one and half months of imports, and could be more substantially pressured if major borrowings maturing in the next few months are not rolled over,” an International Monetary Fund (IMF) delegation observed during a mission to the Maldives in November last year.
Moreover, one of GMR’s lenders, Axis Bank, is also seeking the repayment of loans for the airport project, which were guaranteed by the Ministry of Finance and approved by the Attorney General’s Office under the former government.