Maldives considered GMR buyout, but lacked funds

The Maldivian government considered buying out the 2010 airport development contract from India’s GMR, but lacking the necessary funds declared the agreement invalid, Minivan News can exclusively reveal.

The Maldives is now facing a payout to GMR, potentially as high as US$803 million or over half of the state budget, after a Singaporean tribunal last year ruled that the agreement was valid and binding.

The government, however, expects the compensation claim to amount to US$300 million. The exact figure is yet to be determined by the tribunal.

Testimony by cabinet ministers and airport company officials – in a separate arbitration between the government and an Indian bank over the airport deal – show that ex-president Dr Mohamed Waheed Hassan asked his cabinet to estimate the sum required to buy out the concession agreement from GMR.

Minivan News has obtained the opening submissions by the government and the Axis Bank made in February and March, respectively.

According to the submissions, then-minister of youth and sports, Mohamed ‘Mundhu’ Hussain Shareef, said the cabinet did not “have the necessary information to make a reliable calculation, but the potential figures were intimidating … As it was the country would have had difficulty paying even US$200 million.”

Former defence minister Mohamed Nazim said what the cabinet “did establish was that it was almost certainly more than either MACL [the Maldives Airports Company Pvt. Ltd] or the government was in a position to pay.”

The inability to buy out GMR led to a political impasse, Shareef said.

At the time, the Adhaalath Party had issued a six-day ultimatum to the government to nationalise the airport.

The religious conservative party in alliance with the Progressive Party of the Maldives, the Jumhooree Party and a coalition of NGOs had played a key role in ousting former President Nasheed and bringing his deputy Dr Waheed to power.

Shareef said the coalition’s opposition to the concession agreement was one of the main reasons behind Waheed assuming the presidency.

The emergence of the void ab intio or invalid from the outset argument was a way out from the political impasse, he said.

Ibrahim Mahfooz, a director at the state-owned MACL at the time, said president Waheed had also asked the company for an estimate of the sum required to buyout GMR, but said it was clear to the company’s board that the sum would exceed what they or the government could immediately afford.

If president Waheed has asked the company to buy out GMR, “I expect that we would have asked for time to attempt to borrow the money and if President Waheed had insisted on our acting immediately, I expect that some of us would have resigned, forcing President Waheed to appoint new board members who were willing to comply,” Mahfooz said.

At a cabinet meeting on November 27, 2012, ministers unanimously agreed to terminate the deal with GMR.

“This entire agreement has to be brought to an end, as it is believed by everyone that the agreement is invalid and cannot be continued legally,” Dr Waheed said, according to cabinet meeting minutes submitted to the tribunal.

Then-vice president Mohamed Waheedudeen said: “This cabinet represents a lot of political parties. Amongst them, almost everyone does not want to renegotiate this agreement, and wants to terminate this agreement.

“The decision taken today will be for national independence; this country’s existence as nation in the future and making it possible for the coming generations to inherit this nation. And for these reasons the agreement should be terminated.”

The government’s takeover of the airport led to a cooling of relations between India and the Maldives, with India imposing visa restrictions on Maldivians seeking medical treatment in India and ceasing the export of some construction materials.

In the submissions obtained by Minivan News, the Maldives said GMR and Axis Bank had successfully lobbied India for the sanctions.

The restrictions were only lifted after President Abdulla Yameen assumed power in November 2013.

The Axis Bank is seeking repayment of the US$160 million loan as well as an additional US$10 million as interest and fines from the Maldivian government. The bank contends that state is liable for the loan in the event of an early termination or an expropriation of the airport.

The government first argued that declaring the concession agreement void ab initio did not amount to an early termination.

Following the verdict in the GMR tribunal, which said the government had repudiated or refused to honour the terms of the agreement, the government claimed a repudiation did not amount to an early termination.

The Axis Bank, however, says the GMR arbitration ruling is not applicable in its case, arguing that the bank is not bound by the ruling issued in a separate, private and confidential arbitration.


Maldives blames GMR, Axis Bank for sanctions by India after airport takeover

An Indian infrastructure company and a bank successfully lobbied India for sanctions on the Maldives over the 2012 cancellation of a deal to develop the international airport, the government has claimed.

The government made the allegation last month at a Singaporean arbitration tribunal, where India’s Axis Bank is seeking the repayment of a US$160 million loan from the Maldives. The loan was given to GMR group in 2011 to upgrade and manage the Maldives’ main airport.

India had tightened visa regulations for Maldivians and ceased exporting some construction materials to the Maldives, after the government took over the airport in 2012, but neither India nor the Maldives had explained the reasons for the sanctions.

India only lifted the restrictions after President Abdulla Yameen was elected in November 2013.

In its submission to the Axis Bank tribunal – obtained by Minivan News – the government claimed the bank had been involved in an “attempt to secure political pressure from the Indian government” to prevent cancellation of the deal.

The Axis Bank in 2012 also told the government it would “approach the regulatory-diplomatic authorities in India” after GMR was ordered to handover the airport, the government said.

GMR also wrote to the prime minister in August 2012 “requesting intervention by the Indian government, when it was clear that future of the concession agreement was in jeopardy,” the government said.

GMR is meanwhile claiming US$803 million from the Maldives in a separate arbitration after the tribunal ruled last year that the government had “wrongfully” terminated a “valid and binding” concession agreement.

The campaign by GMR and Axis Bank led to Indian officials including then-Prime Minister Manmohan Singh telling ex-president Dr Mohamed Waheed that the “Indian government stood ready to assist GMR in making sure [the cancellation] did not happen.”

According to minister Mohamed Hussain Shareef, “the message [Waheed] got from them was confident and unbending: they expected [the Maldivian government] not to take any action to terminate the concession agreement”.

The Indian government subsequently “insisted on the repayment of outstanding debts of US$100m” in mid-November 2012 and warned of “repercussions” shortly before the agreement was terminated, lawyers representing the Maldives said.

The lawyers also alleged that then-Indian high commissioner to the Maldives “sought to intervene through several meetings with [then-defence minister Mohamed Nazim] in which he asked the Maldives to cooperate in allowing GMR/GMIAL back into the airport.”

Nazim in his testimony said that the message from India was “either back off or suffer the consequences.”

Documents disclosed during arbitration proceedings also showed that the Axis bank’s officials had met the Indian High Commissioner in January 2013, a month after the government took over the airport, lawyers added.

The submission noted that former president Mohamed Nasheed stated after a visit to India in February 2013 that “India believes the deteriorating ties between Maldives and India will recover” if the 25-year contract is restored.

“On 11 March 2013 several Indian Navy attack craft were reported as having conducted exercises just outside Maldivian territorial waters,” it added.

With the tightening of visa regulations for Maldivian citizens, dozens of people to queued outside the Indian High Commission to obtain visas to travel for medical treatment.

In February 2013, the Indian government revoked a special quota afforded to the Maldives for the import of aggregate and river sand. The move led to a shortage of the supply of construction material and rising costs for construction companies.

The current Indian Prime Minister Narendra Modi meanwhile invited the GMR chairman to a state banquet in honour of President Abdulla Yameen in January 2014, lawyers representing the Maldives noted.

Minivan News is awaiting a response to the allegations from the Axis Bank and GMR, while the government has declined to comment on the ongoing arbitration.

The Axis Bank is seeking repayment of the US$160 million loan as well as an additional US$10 million as interest and fines from the Maldivian government. The bank contends that state is liable for the loan in the event of an early termination or an expropriation of the airport.

However, the government has argued that declaring the concession agreement invalid from the outset does not amount to an early termination. The government also accused the Axis Bank and GMR of colluding to extract large sums of money, claiming the developer paid for the bank’s litigation fees for the separate arbitration process.

The Axis Bank meanwhile dismissed the argument as “highly semantic” and stated: “what words were used by the government to characterise its own acts are irrelevant to establishing whether the acts of the government amounted to an expropriation.”

Verdicts are expected in both the GMR and Axis Bank arbitrations in June.


Government pays GMR US$ 4 million in arbitration fees

The Maldives Airports Company Ltd (MACL) has paid US$4 million to Indian infrastructure giant GMR as compensation for legal costs of arbitration proceedings in Singapore.

Following an 18-month arbitration process, a Singapore tribunal ruled last month that a concession agreement with the GMR-led consortium to manage and develop the Ibrahim Nasir International Airport (INIA) was “valid and binding” and held the government and MACL “jointly and severally liable in damages” for losses caused by the premature termination of the contract in December 2012.

The Singapore Court of Appeal ordered the Maldivian government and the 100 percent government-owned airports company to pay GMR US$4 million within 42 days for the cost of arbitration proceedings.

Finance Minister Abdulla Jihad told Sun Online last week that the US$4 million was paid out of the MACL’s revenues and not the state budget.


Government seeks US$600 million from China and Japan for airport development

The government of Maldives is in talks with the Japan Bank for International Cooperation (JBIC) and China Exim Bank to secure a US$600 million for airport development.

Tourism Minister Ahmed Adeeb said the government is seeking US$200 million from JBIC and US$400 million from China’s Exim Bank to develop a terminal and runway respectively.

Sinagpore’s Changi Airport Group will be hired as consultants as they are better qualified to work with Chinese and Japanese contractors, he added.

The government is in the process of finalising an agreement with Changi, he said.

Speaking to the press on Tuesday, Adeeb said he does not expect a Singaporean tribunal’s ruling ordering the government to pay damages to former airport developer GMR Infrastructure for wrongful termination to affect the government’s new plans.

In abruptly terminating the contract, the government had chosen to protect the country’s multibillion-dollar tourism sector, Adeeb said. He claimed major airlines had threatened to cease operations in the Maldives following the GMR takeover – a move that may have led to collapse of tourism.


Adeeb has dismissed opposition fears of an imminent sovereign debt crisis if forced to pay GMR’s initial claim of US$ 1.4 billion, repeatedly stating the government has the capacity to pay compensation.

“God willing, our airport will be developed. Our economy will grow with the special economic zone bill, and our government will become rich, we will overcome our budget deficit and god willing we will be able to pay any amount we have to,” he said.

Adeeb also said the arbitration tribunal had ruled out the US$1.4 billion claim as a large percentage of the claim is business opportunity losses.

The exact amount of compensation is to be set in a second phase of arbitration and will factor in concession fees and the amount GMR invested in INIA.

President Abdulla Yameen has previously predicted compensation to be approximately US$300 million, while former Attorney General Azima Shakoor in 2012 said the figure may be as high as US$700 million.

The World Bank in December said GMR’s compensation will place severe pressure on the country’s already “critically low” reserves.

As of April 2014, the Maldives’ gross foreign reserve stood at US$434.8 million, while total outstanding debt at the end of 2013 stood at US$793.6 million dollars.

GMR or tourism?

The concession agreement was “lopsided,” “biased” and negatively affected airline operations in the Maldives, Adeeb said.

“[I]t was either tourism or GMR contract. Only one of them would survive in the Maldives. Airlines were complaining, some airlines were moving out – as you know, for big airlines like Qatar, it is no big deal for them to stop operations here. For them, this is a very small market. If airlines stop operations, a country’s tourism will go bankrupt. We have seen the decline to tourism in Seychelles and Mauritius. We had to take action,” he said.

“IATA research shows seat capacity from Europe decreased from 2010 – 2012, and it was not affordable for charter airlines to fly to the Maldives. They were increasing fuel prices, by week, by month, for big scheduled airlines, without considering world prices, because they had a monopoly. Due to the agreement, there was nothing the government could do,” he added.

However, a 2013 Auditor General report presented a “mixed picture”, stating only Sri Lankan airlines definitively ceased refueling due to increased price of fuel.

Adeeb said he believed airport infrastructure are tourism investments, and pledged to integrate tourism and regional airport development.

“We want responsible investors, not just investors,” he said, adding that the government will sue former government officials who have caused losses to the government through lopsided business contracts.


MDP to sue former President Waheed for defamation, damages over GMR airport deal cancellation

The Maldivian Democratic Party (MDP) is preparing to sue former President Dr Mohamed Waheed for defamation and damages over his administration’s unilateral termination of the GMR airport development deal.

The main opposition party announced in a press statement on Thursday (June 19), following a Singapore arbitration tribunal ruling that the agreement was “valid and binding”, that it would pursue legal action against the former president and other responsible parties in both Maldivian and international courts.

“Dr Mohamed Waheed Hassan Manik and his coup partners had spread falsehoods concerning the GMR agreement, incited hostility and antagonism towards the MDP among the public, and attempted to defame this party,” the press statement read.

“And [they] plunged the nation into serious strife and discord, paved for the way for a coup, and toppled the first democratically elected government of the Maldives in a coup d’etat.”

The party contended that Dr Waheed’s administration was responsible for the compensation the Maldivian government would likely have to pay GMR – which would be “a financial burden the country cannot bear” – as well as loss of investor confidence, soured bilateral relations, and the damage to the Maldives’ international reputation.

The concession agreement signed with the GMR-led consortium in July 2010 to Ibrahim Nasir International Airport was beneficial to the Maldives, the statement continued, and its abrupt termination was unlawful.

“Void ab initio”

In November 2012, following a campaign spearheaded by Adhaalath Party President Sheikh Imran Abdulla calling for the nationalisation of the airport, Dr Waheed’s cabinet declared the concession agreement void ab initio – invalid from the outset – and gave the consortium a seven-day ultimatum to hand over the airport.

On December 7, the government took over the airport and evicted GMR, prompting the Indian infrastructure giant to seek US$1.4 billion in compensation for “wrongful termination” of the contract – an amount that eclipses the country’s annual state budget.

In a letter sent to the Bombay Stock Exchange last week, GMR explained that the arbitration tribunal concluded the Maldivian government and the Maldives Airports Company Ltd (MACL) were “jointly and severally liable in damages to GMIAL for loss caused by wrongful repudiation of the agreement as per the concession agreement.”

The determination of liability – the first of two phases of arbitration – will now be followed by the determining of compensation owed.

In the wake of the arbitration decision, Attorney General Mohamed Anil said that President Abdulla Yameen’s administration would honour the verdict while expressing confidence that the government would not have to pay the US$1.4 billion sought by GMR.

“According to the agreement, [we] mostly have to compensate for the investments made. We said we do not have to pay the amount GMR has claimed. We always said we will have to pay compensation, and that this compensation has to come through the agreement,” Anil told reporters on Thursday.

President Yameen had predicted in April that GMR would only be owed US$300 million in compensation.

False pretext

Meanwhile, addressing supporters in Malé at an MDP maahefun (traditional celebratory feast ahead of Ramadan) Thursday night, former President Mohamed Nasheed argued that opposition parties misled the public to topple the MDP government in February 2012 with false allegations.

Opposition parties at the time had claimed that privatising the international airport posed a threat to Maldivian independence and sovereignty as well as Islam, Nasheed recalled.

The concession agreement with the GMR-led consortium was characterised as detrimental to the Maldives, he added, which was used as the pretext for the “coup” on February 7.

“Today it is becoming clear to us that the agreement was valid, and that it was terminated in violation of legal principles as well as international norms, in a way that causes serious damage to the Maldivian people,” Nasheed suggested.

Referring to AG Anil’s insistence that the compensation figure would not be too high, Nasheed accused President Yameen’s administration of continuing to mislead the public.

Nasheed stressed that the amount owed to GMR as compensation was not yet clear, noting however that the arbitration tribunal has ordered the government to pay US$4 million to the company to cover its legal expenses.

“The question we are asking now is, who will be paying those dollars? The dollars will be paid from our pockets. Legal action must be taken against those responsible for us having to pay these dollars,” he insisted.

“We have to seek compensation for the damage caused to our government. We know, we can see, that President Yameen’s government will not last. We know that President Yameen’s government does not have the support of the people. They cannot rule over all of the people in this country with the support of just 25 percent of the public.”

Changing the current government was “a duty and an obligation” for the MDP, the former president said, advising supporters not to despair.

“God willing, our courage will not flag. We will not be afraid and we will not back down either,” he said.


Civil Court upholds Malaysian arbitration ruling

The Maldives Civil Court has ordered the implementation of a ruling by an international arbitration tribunal.

Malaysia’s Kuala Lumpur Regional Center for Arbitration  ruled that a Maldivian company Gasveli Island Private Ltd must pay US$445,216.66 to International Construction Consortium.

The ruiling marks the first time a Maldivian court has ordered the implementation of an international arbitration verdict.

The Civil Court has ruled the Maldivian company must pay the amount to the court within three months. The ruling was issued in the absence of Gasveli.

Chief Judge Ali Rasheed Hussain said that, while the law is unclear on which court a complainant must ask for implementation of the arbitral award, regulations compiled by the High Court say the Civil Court can take up such cases.

The regulation states that the Civil Court can use procedures in place for for implementing arbitration awards.

The Maldivian government is currently awaiting the outcome of an arbitration process in Singapore over its abrupt decision to terminate an airport development contract with Indian infrastructure giant GMR.


Nasheed warns of “imminent sovereign debt crisis”

Former President Mohamed Nasheed has warned of a sovereign debt crisis if the Maldives is forced to pay US$1.4 billion in compensation to GMR over the abrupt termination of a concession agreement to develop Ibrahim Nasir International Airport (INIA).

Nasheed also reiterated calls for the government to reverse the decision to cancel the contract in December 2012.

“The Maldives is now known around the world as a country that doesn’t keep its promises or honour the contracts. The airport fiasco will hit each and every Maldivian because banks won’t lend money and companies won’t invest in our country without demanding much higher rates of interest,” Nasheed was quoted as saying in a press release issued yesterday.

“By now, Maldivians should have been looking forward to a world-class, new airport, to rival Kuala Lumpur, Singapore, and Hong Kong. Instead we have nothing but an abandoned building site. The actions of President [Abdulla] Yameen and [Dr Mohamed] Waheed have caused this crisis and Maldivians will be paying for their recklessness for decades to come” he added.

The press statement insisted that international best practices were followed in the bidding process – which was overseen by the World Bank’s International Finance Corporation (IFC) – while the Anti-Corruption Commission (ACC) has since ruled out corruption in the airport deal.

Nasheed’s remarks comes on the heels of the opposition Maldivian Democratic Party (MDP) – of which he was recently appointed acting president – threatening to terminate any new agreements concerning the airport should the party regain power.

Failure to reinstate the airport development contract would cause the Maldives to “suffer unforeseeable risk and irrevocable harm,” the party said in a statement yesterday.

Compensation owed “in any case”

Following President Abdulla Yameen publicly conceding that the Indian infrastructure company was owed compensation, GMR said it intends to stick to the US$1.4 billion compensation claim.

“The forceful takeover of the airport by Maldives government amounts to repudiation of a valid contract and therefore damages, including loss of future profit has to paid,” the company said in a statement on Friday (April 26).

Asked by reporters a day earlier if he was confident the outcome of the arbitration would be favourable for the Maldives, President Yameen said: “The reality we have to accept is that a government with full sovereign powers made an agreement with a foreign party and leased [the airport]. This is a government, and what preceded this was a government as well. So believe we have to pay them some kind of financial compensation.”

If the judges on the arbitration panel accept the government’s arguments for nationalisation or expropriation, Yameen said the compensation owed to GMR could be smaller.

“We’re going to have to provide compensation in any case,” he conceded.

Yameen however contended later that GMR was owed US$300 million as compensation for its investment as well as upgrades to the airport.

Yameen had previously said that the out-of-court settlement sought by GMR was too high, and that he would await the outcome of the arbitration proceedings, which could take up to another two months.

“Sovereign debt”

The US$1.4 billion sought by GMR at the Singapore Court of Appeal for “wrongful termination” of the 25-year contract exceeds the annual state budget whilst the national debt is expected to rise to MVR31 billion (US$2 billion) this year.

Nasheed meanwhile warned that “the consequences of the outcome of the arbitration will drive the Maldivian economy to the brink, leading to major sovereign debt crisis.”

The statement noted that estimated GDP for 2014 was US$2.5 billion with an external debt of US$868 billion while the Maldives presently “receives less than US$30 million in grant aid.”

“Coupled by the budget deficit and domestic debt crisis, we are looking at a heavy burden on our children and grandchildren. It would mean by the end of 2014, debt will increase from 25 percent of GDP to 88 percent of GDP,” it added.


“Yonder lies the greener pastures”: President Yameen inaugurates investor forum in Singapore

President Abdulla Yameen inaugurated the Maldives Investment Forum at Singapore’s Marina Bay Sands today with assurances to potential investors of the government’s commitment to fostering a business-friendly environment.

In his keynote address at the event, President Yameen said his administration was “cognisant of the needs of our investors and the requirements to strengthen and redefine the legal and regulatory environment governing foreign investments.”

“To address investment climate and to facilitate mega investments with attractive incentive packages, a Special Economic Zone Bill will be tabled in the parliament soon. Additionally, the Foreign Investment Act and Companies Act are being revised to cater the ever increasing needs of the modern foreign investors,” he said.

“Investment registration and facilitation has also been strengthened recently, with structuring of Invest Maldives as a one-stop shop for investment promotion, registration and facilitation.”

Over 160 companies and close to 200 representatives from 16 countries were present at the first overseas investor forum organised by the Maldives, Yameen noted, expressing gratitude for the “overwhelming support received for this forum.”

The new government has “embarked on an ambitious economic agenda to transform the economy” with the goal of becoming “a resilient, diversified high income economy in the next decade,” the president said.

He added that the government was committed to exploring “openings for increasing foreign investment flows to non-traditional sectors to lift Maldives beyond the image of a picturesque postcard.”

Yameen suggested that the success of the tourism industry over the past 40 years was due to “ingenuity, private enterprise and a liberal policy environment for foreign investments”.


The projects for which the government was seeking investors were “designed to position Maldives to take advantage of its strategic location as a hub and gateway for commerce, innovation and creativity, linking rest of the globe with South Asia,” he explained.

Briefing participants on the five mega-projects envisioned by the government, Yameen said that the Ihavandhippolhu Integrated Development Project or iHavan “provides immense potential to capture substantive share of the trade and commercial opportunities in the South Indian Ocean and capture the trade flows crossing the seven degree channel.”

The government hoped to “engage private investors in the delivery of key pieces of infrastructure,” he said.

The other mega-projects or infrastructure development plans were concentrated in the Greater Male’ region, Yameen noted, which included the Hulhumale’ Youth City with further land reclamation and a maritime seaport project.

“With these investments, we foresee the region surrounding the Male’ City emerging as a vibrant commercial hub in the region,” he said.

The other mega-projects include the expansion of the Ibrahim Nasir International Airport (INIA), relocation and expansion of the central port to Thilafushi, and exploration for oil and gas.

Concluding his remarks, Yameen thanked foreign investors and senior businessmen from the Maldives for their “support and presence” at the forum, which gave the government “comfort and confidence” in its economic and trade policies.

Yameen said he hoped the forum would serve as “an avenue for enhancing understanding of the investment environment and opportunities in Maldives.”

He went on to congratulate Economic Minister Mohamed Saeed and his team for organising the forum and expressed gratitude to the key sponsors.

“Yonder lies the greener pastures,” he concluded by saying.

Yameen’s remarks were followed by presentations on the five mega-projects, a question and answer session with government ministers and speeches by Stephen Ho, President of Starwood Asia Pacific, Akhil Gupta, Chairman of Blackstone India, and William Ellwood Heinecke, CEO of Minor International.

President Yameen also launched the new Invest Maldives website at the forum this morning.

In his speech at the inauguration ceremony, Economic Development Minister Saeed revealed that the government was planning to hold a second investor forum in Shanghai, “the commercial capital of China.”

Moreover, at a press conference held at the forum, Tourism Minister Ahmed Adeeb reportedly revealed that the government has decided to lease islands for resort development for 99 years instead of the 50-year lease period at present.

Legislation will be submitted to parliament to authorise the extension, he said, which was intended to gain investor confidence.

Meanwhile, prior to departing for Singapore yesterday, President Yameen told the press that the government was certain it would have to compensate Indian infrastructure giant GMR for the premature termination of the concession agreement to develop and manage INIA.

Earlier this month, Yameen had said that the out-of-court settlement sought by GMR was too high, and that he would now await the outcome of arbitration proceedings in Singapore, which could take up to another two months.

The US$511 million contract awarded by the administration of former President Mohamed Nasheed was the single largest foreign direct investment in the Maldives’ history.


High Court passes regulations on arbitration cases

The High Court has compiled a set of regulations to be followed in arbitration cases

The ‘Regulation on the High Court presiding on Arbitration Cases’ was passed unanimously by the the general assembly of High Court judges on January 1.

The court stated that the regulation is compiled under the powers granted to them under the Arbitration Act.

The Act mandates the High Court to follow the procedures outlined in this regulation when accepting cases and passing sentences on arbitration cases.