airport development charge – Minivan News

MACL can sue former chairman over GMR airport charge decision, says Civil Court

The Civil Court has ruled the Maldives Airports Company (MACL) can sue its former chairman for allowing the disputed Airport Development Charge (ADC) to be deducted from Indian infrastructure giant GMR’s concession payments during it’s ill-fated agreement.

MACL alleges ‘Kuda Bandhey’ Ibrahim Saleem’s decision to be an act of ‘Ultra Vires’ – meaning that Saleem had acted beyond his permitted authority.

The ruling came following a procedural issue taken by Saleem said he was being wrongfully charged claiming the lawsuit was filed in violation to Article 18 (c) of the Contract Act and Article 74 Company Act.

The Contract Act states a clause requiring a party to refer to arbitration any dispute arising from the contract shall be valid, while the Company Act says the court has a right to issue orders holding personally liable the directors of the company to commit an offense in the name of the company.

But the Civil Court ruling stated that the Company Act does not prohibit the company chairman from being sued personally.

The airports company sued Saleem after he signed a letter sent to GMR on January 5 2012 stating that the ADC and the insurance surcharge fee had been deducted from GMR’s concession payments.

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

Former President Mohamed Nasheed’s administration subsequently chose to honour the original contract, instructing GMR to deduct the ADC revenues from the concession fees due to the state-owned MACL while it sought to appeal the Civil Court ruling.

However, with the Nasheed’s controversial resignation coming just one month later, the opposition soon inherited the contractual problem.

Dr Mohamed Waheed’s government then received a succession of bills from the airport developer throughout 2012, despite its insistence that the January 5 letter from MACL outlining the new arrangement was no longer valid.

In December 2012, the Anti-Corruption Commission (ACC) filed a case with the Prosecutor General’s Office over Saleem’s decision to allow GMR to deduct the ADC from concession fees owed to the state.

As part of the filed case (Dhivehi), the ACC was seeking reimbursement of MVR 353.8 million (US$22.9 million) from Saleem and former Finance Minister Mohamed Shihab over the alleged misuse of authority it claimed had led to significant financial loses for the state.

These losses were used as justification for the contract’s eventual termination in December 2012, for which GMR is currently seeking compensation via a Singapore court of arbitration.

According to the case filed by the ACC, former Finance Minister Shihab stands accused of misusing his ministerial authority to benefit a third party by allowing GMR to deduct the charges between October 2011 and September 2012.

The ACC has also accused Saleem violating the company’s rules. According to the ACC’s case, normal procedure for MACL would be to have the company’s board of directors pass a resolution allowing for consent to be given to deduct the ADC.

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GMR leadership to visit Maldives as government parties escalate nationalisation rhetoric

Board members and the head of Indian infrastructure giant GMR, G M Rao, are due to visit the Maldives later this week in a bid to resolve tensions with the government over the company’s development of Ibrahim Nasir International Airport (INIA).

The upcoming visit follows a meeting between Rao and former President Maumoon Abdul Gayoom at a hospital in India where Gayoom’s wife was being treated. Gayoom also recently met with Indian Prime Minister Manmohan Singh.

GMR won a 25 year concession agreement to develop and manage the airport during the Nasheed administration. The opposition at the time challenged the government’s privatisation and threatened to renationalise the airport should it come to power.

Following the controversial transfer of power on February 7, the unity government under President Dr Mohamed Waheed Hassan has swung between issuing reassurances within diplomatic circles that Indian investments in the country would be protected, while locally stepping up nationalisation rhetoric.

Some of the dissent has blurred the line between business and politics.

Leader of the government-aligned Jumhooree Party (JP), resort tycoon Gasim Ibrahim, urged the government in local media to reclaim the airport, even at a cost of US$700 million, as it was worth “a thousand times more”.

Gasim’s comments followed GMR’s decision to suspend the credit facility for his Villa Air airline, due to unpaid bills totaling MVR 17 million (US$1.1 million) for fuel, ground handling and passenger service fees.

Contentious airport development charge

One of the government’s disagreements with GMR concerns the charging of a US$25 Airport Development Charge (ADC) on outgoing passengers, as stipulated in the concession agreement.

During the last months of the Nasheed administration, the opposition Dhivehi Qaumee Party (DQP) filed a successful case in the Civil Court blocking this fee from being charged on the grounds that was effectively a tax which had not been approved by parliament. DQP leader Dr Hassan Saeed, now President Waheed’s special advisor, and DQP Vice-President Dr Mohamed Jameel – the new Home Minister – justified their disapprobation while in opposition by publishing a pamphlet in Dhivehi (English translation).

The pamphlet described the deal as “paving the way for the enslavement of Maldivians in our beloved land”, and warning that “Indian people are especially devious”.

To abide by the court decision, Nasheed’s government agreed to subtract the ADC from its concession revenue while it sought to appeal.

Following February 7 the opposition inherited that compromise and in the first quarter of 2012 received only US$525,355 of an anticipated US$8.7 million.

With no resolution, in the second quarter of 2012 the government was presented with a bill for US$1.5 million, due to a shortfall in airport income. The loss of revenue comes at a time when the country is facing a crippling budget deficit, a foreign currency shortage, plummeting investor confidence, spiraling expenditure, and a drop off in foreign aid.

GMR publicly offered to resolve the ADC dispute by exempting Maldivian nationals from paying the fee, but has otherwise kept its negotiations largely behind closed doors.

In a statement at the time, GMR noted that the government received US$33 million in 2011 from airport concession fees, “three times the money the government ever made in a year [from the airport] before privatisation.”

Following construction of the new terminal in 2015 – including “a state-of-the-art 600,000 square foot integrated Passenger Terminal and a 20,000 square foot VIP terminal, and various other airside and landside developments,” expected revenue from the airport to the government was expected to reach US$50 million per year, GMR observed, and almost US$100 million from 2021 as passenger numbers increased.

“In effect, GMR Male’ International Airport Limited’s contribution to the government would be over US$2 billion over the concession period of 25 years, which will make a very significant contribution to the economy of the Maldives.”

The government’s airport company, Maldives Airports Company Limited (MACL), complained that it was now facing bankruptcy as a result of the ADC deduction, and insisted that it could make MVR 60 billion (US$3.9 billion) over 25 years by developing and operating the airport on its own. It did not clarify where the investment would come from.

If the government considered GMR’s public offer, it made no sign. Instead, the Transport Minister backed MACL in ordering GMR to pay back the money deducted.

MACL Managing Director Mohamed Ibrahim had told local media that MACL’s agreement with GMR under the previous government to deduct the ADC payment was “null and void”. He told reporters that the deal was no longer relevant as it had been agreed by the former MACL chairman, who had been replaced under the new government. Ibrahim contended that charges could therefore no longer be deducted from GMR’s concession payment.

“We had informed [GMR] that the letter from the former Chairman of MACL was now invalid and hence must not be followed. In addition we had also informed that no deductions can be made from the concession fee,” he told local newspaper Haveeru.

The matter has now been sent to the Singapore court of arbitration, as per the concession agreement.

Escalation

The stand-off escalated in early August following a stop work order on the new terminal development, after the government alleged there were missing planning permissions from the Civil Aviation Authority.

“When the government decides that a project be stopped, we will make sure this happens,” said President’s Office Spokesperson Abbas Adil Riza at the time. “GMR have not discussed the construction with relevant authorities,” he claimed.

In the past week the government and assortment of former opposition parties now in power have stepped up their campaign to pressure the airport developer, with cabinet ministers holding a press conference during which they accused the World Bank’s International Finance Corporation (IFC) of “negligence” and “irresponsibility” in conducting the original bidding process.

The IFC dismissed the allegations: “The IFC’s advice 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 organisation stated.

Attorney General Azima Shukoor then announced she had asked the Supreme Court to rule on whether it had jurisdiction over the airport agreement.

“It is against the International laws and the United Nations Charter that any action that undermines any sovereign right of a sovereign state, it is clear that courts of a sovereign nation has the jurisdiction to look into any matter that takes place within the boundaries of that state as according to the constitution and laws of that state,” read a statement from the court.

“Even though a contract has an arbitration clause giving right to arbitrate in a foreign court does not limit a local courts jurisdiction to look into the formed contract, and it is clear that such limitations are in violation of UN Charters principles of sovereign equality, principle of sovereignty non intervention within domestic jurisdiction, principle of self determination rights,” the Supreme Court said, in an apparent affirmative.

Investor confidence

Meanwhile, the government-aligned Dhivehi Rayithunge Party (DRP) this week revealed President Waheed’s response to its letter requesting details of the implications of exiting the concession agreement with GMR – an apparent fee of US$700 million, although Minivan News understands that even if the government were to produce the money, under the concession agreement it would also be required to prove ‘public interest’ in the Singapore court of arbitration.

According to the DRP, President Waheed advised that it would be “extremely difficult” to make the payment given the country’s economic circumstances, and that cancelling the agreement would furthermore have a negative impact both on perception of the Maldives as a favourable destination for foreign investors, and Maldives-India relations. Dr Waheed emphasised that the decision was ultimately one for the political parties in the unity government.

The following day, DRP MP Ali Azim called on President Waheed to resign, claiming that it was up to him to reach a decision.

“If Waheed is finding it too hard to come to a decision on the matter of GMR, he ought to resign immediately,” Azim told local media.

“Each of these parties have someone who is looking forward to running in the 2013 elections. Whether it be Gasim, Yameen or Thasmeen, they are all just waiting for 2013 to come around. Now if Waheed’s going to ask these men for advice, then he’s going to get tricked, isn’t he?” predicted the MP.

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Government agrees to amend GMR fee while rooting for ADC

The government has agreed to deduct expected revenue from the US$25 (Rf385.5) Airport Development Charge that was to be charged from passengers departing on international flights from Ibrahim Nasir International Airport (INIA) from GMR’s concession fee to the Maldives government.

The agreement is subject to change according to a verdict from the High Court in a related case, and the passage of a bill currently before Parliament.

GMR’s request that the amount be deducted from its concession fee to the government was made to Maldives Airports Company Limited (MACL) last week, and approved following discussions between the Finance Ministry and the Maldives Airports Company Limited (MACL).

MACL officials did not respond to phone calls at time of press.

The ADC was to be charged after midnight on January 1, 2012, however the Maldives’ Civil Court blocked the fee on the grounds that it is essentially the same as a pre-existing Airport Services Charge (ASC) of US$18 for foreigners and US$12 for locals above two years of age.

Citing a contractual obligation with GMR, the government subsequently appealed the case to the High Court, where it is currently awaiting a verdict.

Having received nearly 1 million tourist arrivals in 2011, the government and GMR expected the ADC would generate US$25 million in revenue towards the current renovation of INIA.

Although the expected revenue is said to include fees charged from foreigners and Maldivians traveling abroad, it appears that at US$25 apiece the nearly 1 million tourists alone would meet the revenue needs stipulated in GMR’s original agreement.

President’s Office Press Secretary Mohamed Zuhair informed Minivan News that the notion of exempting Maldivians from the ADC had been raised in meetings, but rejected on the grounds that such an exemption would not generate the necessary revenue.

“The government and GMR have calculated to assure that shareholders and banks are properly recompensed,” he explained. “It should be a matter of pride and joy for any Maldivian to help with the development of their airport.”

Economic Development Minister Mahmoud Razee did not believe the deduction of ADC revenue from the concession fee would impact airport development.

“The government agreed to GMR’s request because the numbers were calculated accordingly” to ensure that the project was not compromised, he said.

Razee added that the agreement is only temporary.

“The government is working through the courts and the Majlis [Parliament] to find a resolution,” he said, affirming that the government continues to favor an ADC.

“When the IFC (International Finance Corporation) did the sums it took as part of the income the ADC revenue,” he explained. “Maldives receives a couple million passengers coming and going every year, but if you compare it to a place like Singapore which transits 30 to 40 million passengers a year, and you need to ensure that you are getting an internal rate of return satisfactory to the investor, you need to adjust that rate.

“So we are trying to maintain a good rate of return for the government and the airport,” he explained.

The matter is being addressed at the parliamentary level in an Amendment of Collection of Airport Tax (international travelers) Act 7/78 Bill. However, Parliament is in recess until March.

GMR previously noted that the payment of a development fee was “a common concept in many airports globally”, particularly as a part of concession agreements where airports are privatised.

“The reason for the inclusion of ADC in many global concession agreements is to address the funding needs to meet the investment model required to upgrade and develop new airport facilities at significant costs,” GMR stated.

The company further claimed that the charge was included in the concession fee proposed between GMR and the government in 2010.

Speaking at the groundbreaking ceremony for INIA’s new terminal on December 19, President Nasheed said he wished to assure GMR that the government was “200 percent behind your contract, and every single other contract the government has signed with any other foreign party in this country. Not just contracts signed by our government, but also contracts that any ruler of the Maldives has signed with any party. We will honour it.”

GMR’s 25 year concession agreement to construct and manage a new US$400 million terminal (to be competed in 2014) is the single largest foreign investment in the history of the Maldives.

Meanwhile, in April India’s Supreme Court ruled against the charging of airport development fees which are not approved by India’s Airport Economic Regulatory Authority (AERA). However Delhi airport, developed by GMR, continued to charge the fee as GMR had obtained permission to collect the sum in 2010.

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GMR and government to seek “win-win situation”: Razee

Infrastructure company GMR has said it will deduct revenue received from collecting a US$25 (Rf385.5) Airport Development Charge (ADC) from every passenger departing on an international flight from the concession fee to be paid to the government.

GMR informed Maldives Airports Company Limited (MACL) last Thursday of its decision. MACL officials had not responded to inquiries at time of press.

GMR planned to begin collecting the ADC at midnight on January 1 this year as per its contract with the Maldives government. Revenue was expected to amount to US$25 million (Rf385.5 million) in 2012, and would be put towards the ongoing development of Ibrahim Nasir International Airport (INIA).

However, a Civil Court ruling in December blocked the ADC on the grounds that it was identical to an existing Airport Services Charge (ASC) of US$18 (Rf277.56). The company’s shares on the Mumbai stock exchange subsequently fell 7.57 percent, India’s Economic Times reported.

The government subsequently appealed the case to the High Court. Meanwhile, GMR is not collecting the ADC.

Economic Development Minister Mahmoud Razee said that the concession agreement between GMR and the government assured each party a certain level of income.

“Because the ADC was included as revenue, until the matter is resolved any money that was going to be received from the ADC should be deducted from what GMR owes the government,” Razee explained.

Razee said that the Ministry of Finance will work with GMR and the government to resolve the matter, adding however that much of the decision rests on a verdict from the High Court.

He added that the related Amendment of Collection of Airport Tax (international travelers) Act 7/78 Bill is also before the Parliament, which is currently in recess until March.

Razee was optimistic about the outcome, however far in the future.

“The contract between the government and GMR allows for certain changes which are mutually respected and agreed upon by both parties,” Razee observed. “They will reach a win-win situation, even if some revenue is lost.”

GMR previously noted that the payment of a development fee was “a common concept in many airports globally”, particularly as a part of concession agreements where airports are privatised.

The company further claimed that the charge was included in the concession fee proposed between GMR and the government in 2010.

The public response has not been so positive. Following GMR’s closure of duty-free shop Alpha MVKB, company CEO Ibrahim Shafeeq organised a protest under the slogan “Go GMR Go!” The protest was held on the grounds that the company was “demonstrating our opinions and dislike of what GMR has done to us and to get public responses,” Shafeeq told Minivan News at the time.

Kulhudhuffushi-South Independent MP Mohamed Nasheed also proposed an amendment to the Business Registration Bill in a bid to reserve airport shops and services for local ownership and “clip GMR’s wings”.

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GMR shares dip on back of Civil Court ruling against airport development charge

GMR shares on the Mumbai stock exchange fell 7.57 percent on Thursday on the back of a Civil Court ruling in the Maldives against its proposed US$25 Airport Development Charge (ADC), India’s Economic Times reported.

The paper earlier reported that the share slip had taken the company to a 52-week low, and that that the decision could leave the airport development project facing an annual funding shortage of US$25 million.

GMR said yesterday that it had yet to receive a copy of the Civil Court’s judgement and was only aware of the ruling through media reports.

“We are yet to receive the copy of the judgment and as such we are not in a position to evaluate the implications of the ruling,” the company said in a statement.

“GMR 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,” the company said.

“The bid for the Concession to manage, develop and operate Ibrahim Nasir International Airport for 25 years was conducted by the [World Bank’s] International Finance Corporation (IFC) and the component of ADC was part of the bid. GMR is confident that Government of Maldives will take such measures as would be necessary to honour its contractual obligation in this regard, given that the success of the development of the airport project is of national economic importance.”

The company noted that the payment of a development fee was “a common concept in many airports globally”, particularly as a part of concession agreements where airports are privatised.

The Civil Court ruled that the clause in the concession agreement with GMR violated the Airport Service Charges Act of 1978, which was amended in 2009 to raise the charge to US$18 for foreign passengers and US$12 for Maldivians above two years of age.

Judge Ali Rasheed Hussein ruled that the Airport Development Charge and insurance charge were service charges “under other names.”

He noted that the Airport Service Charges Act had been amended seven times to raise the charges since 1978 by the legislature, “based on the economic circumstances of the Maldives and the means of the public,” which showed that the purpose of the law was to ensure that enforcement agencies did not have the authority to raise the charges.

The suit was filed by the opposition-aligned Dhivehi Quamee Party (DQP), led by former Attorney General, Dr Hassan Saeed.

President Mohamed Nasheed’s Press Secretary Mohamed Zuhair said he believed the government was obliged to appeal the lower court ruling to in order to comply with the terms of the concession agreement.

GMR’s 25 year concession agreement to construct and manage a new US$400 million terminal (to be competed in 2014) is the single largest foreign investment in the history of the Maldives.

The strength of the IFC-monitored bid by the GMR-Malaysian Airports Holdings Berhad (MAHB), split 77:23 percent respectively, came from its US$78 million upfront payment (compared with US$27 million from the second-highest bidder) and in particular, its 27 percent sharing of fuel revenue (from 2014).

At the time, the government anticipated that 60 percent of government revenue from the airport deal would derive from fuel – US$74.25 million annually between 2015-2020, increasing to US$128.7 a year from 2025-2035. This in turn was the most significant element of the final ‘net-present-value’ calculations to determine the winning bid.

A briefing document obtained by Minivan News following GMR’s successful bid in June 2010 contained forecasts of the government’s expected earnings from the airport over the lifespan of the contract. It revealed that a majority of the predicted revenue, a major factor in calculating the NPV (net present value) used to determine the successful bid, derived from the 27 percent fuel revenue share once the airport is completed in 2014:

2015-2020: 12.8m gross + 74.25m fuel = US$87.05m per year
2020-2025- 17.02m gross + 90.99m fuel = US$108.01m per year
2025-2035 – 20.43 gross + 108.27m fuel = US$128.7 m per year

The document contrasted this with the dividends paid to the government by MACL over the last three years, noting that the majority of the dividends paid in 2008-2009 were achieved “by taking a loan.” Dividends in 2007 were 2.3 million, 13.3 million in 2008, and 5.05 million in 2009.

On the suggestion that MACL should be allowed to raise finance and invest in the upgrade itself, a predicted US$300-400 million, the document noted that MACL “already has debts of Rf 600 million (US$46.69 million)” and would be unable to obtain further leverage “without a sovereign guarantee – simply not allowed due to the IMF measures.”

At the same time, GMR’s bid offered a significantly lower 10 percent share of gross airport revenue, as compared to the other two bids.

The only historic figures available to the government in estimating this revenue (a staid US$20.43 million by 2025-2035) were derived from the existing commercial revenue from the airport – usage fees, ground handling charges, duty free shop rents, and so forth.

Compared to the glittering Gucci-lined corridors of airports in tourist hubs such as Dubai, the airport’s 4-5 departure lounge shops and dilapidated eateries – some serving pot noodle – were a missed opportunity, given the bulging wallet of the average visitor to the Maldives.

Speaking at the opening of GMR’s cavernous Delhi Terminal 3, GMR Manager P Sripathi told Minivan News that the consortium was very interested in the well-heeled concourse traffic in the Maldives – sufficiently interested to invest a sum equal to almost half the country’s stated GDP at the time.

“It’s a lovely project. The type of tourists coming are from the very high-end tourism market, therefore the business opportunities are plenty,” Sripathi said at the time.

Minivan News reported in June 2010 that some of the investment was to be recovered through a US$25 airport development charge, set by the government for all bidders to be levied only on international travellers at time of departure and added to ticket prices.

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