GMR – Page 8 – Minivan News

No corruption in GMR airport deal, concludes ACC

The Anti-Corruption Commission (ACC) has ruled out corruption in the awarding of a concession agreement in June 2010 to a consortium of Indian infrastructure giant GMR and Malaysia Airports Holdings Berhard (MAHB) to develop and manage the Ibrahim Nasir International Airport (INIA).

In a 61-page investigative report (Dhivehi) made public yesterday (June 17), the ACC concluded that the bidding process was conducted fairly by the World Bank’s International Finance Corporation (IFC) and that the GMR-MAHB consortium won the contract by proposing the highest net present value of the concession fee.

The ACC further concluded that the awarding of the contract did not contravene amendments brought to the Public Finance Act requiring parliamentary approval for such agreements.

The amendments were published in the government gazette after the concession agreement was signed, the ACC noted.

The concession agreement was signed on June 28, 2010, while the amendments were gazetted on December 13, 2010, following a Supreme Court ruling. The amendments were voted through for a second time in August 2010 following a presidential veto.

On the previous administration’s decision to replace the board of directors at the 100 percent government-owned Maldives Airports Company Ltd (MACL) – after they refused to sign the concession agreement claiming insufficient information – the ACC observed that there was “no legal obstacle” for the move.

The ACC report also concluded that the government would benefit more from privatising the airport.

“Considering the situation (2008, 2009 and 2010) when the decision was made to privatise the Male’ International Airport,” the ACC’s calculations showed that MACL would make a profit of about US$254 million in 25 years if the airport was operated by the government-owned company.

Conversely, the government would receive about US$534 million in the same period from the GMR consortium if the airport was privatised, the ACC found.

The privatisation of the airport by the ousted Maldivian Democratic Party (MDP) government in June 2010 was strongly condemned by opposition parties on nationalistic grounds.

The Dhivehi Rayyithunge Party (DRP), Peoples Alliance (PA), Dhivehi Qaumee Party (DQP) and Jumhooree Party (JP) signed an agreement to work against the privatisation process and launched a media offensive alleging “massive corruption” in the awarding of the contract.

The ACC report this week meanwhile followed a special audit conducted by the Auditor General’s Office with the assistance of a British consultant concerning the airport privatisation deal.

The AG’s report stated that evidence to back allegations of “improper interference” during the technical bidding process “is not conclusive on this point” and deferred the matter to the ACC.

The AG’s report also noted that the IFC’s terms of reference involved “securing the best deal for the government in terms of the concession fee paid to the government and MACL, and did not consider impacts on the Maldivian economy.”

Government stance

In November 2012, the current government – made up of a coalition of parties opposed to the MDP government’s privatisation policy – declared the concession agreement with the GMR-led consortium “void ab initio” (invalid from the outset) and abruptly terminated the contract.

In April this year, the Attorney General’s Office confirmed that arbitration proceedings resulting from the contract cancellation would begin by mid-2014.

Responding to the ACC’s findings yesterday, the government insisted that the report would have no impact on its legal position to declare the GMR concession agreement void, contending that President Dr Mohamed Waheed’s decision had nothing to do with corruption allegations levelled by “some people”.

President’s Office Media Secretary Masood Imad told Minivan News that the contract was declared void from the beginning due to the negative impact on state finances in 2012.

“Back before the government took back control of the airport from GMR, the reason we gave was that the deal was bleeding the country’s economy. We were paying GMR to keep them here,” he explained.

Masood said that despite “speculation from some people” concerning corruption by the former administration in signing the deal, the present government was not responsible for filing a case with the ACC.

He added that the government’s concerns over the deal had been in relation to the imposition of a US$25 Airport Development Charge (ADC) by GMR that was blocked by the Civil Court in 2011 after the then-opposition DQP filed a case on the matter.

The DQP, now part of President Waheed’s coalition government, attempted to block payment of the charge on the grounds that it was effectively a tax not approved by parliament.

In response, the MDP government agreed to deduct the ADC from the concession fees payable, while GMR later offered to exempt Maldives nationals from paying the ADC as it moved to appeal the verdict.

However, former President Mohamed Nasheed resigned under controversial circumstances on February 7, 2012 amidst a violent mutiny by elements of the police and military before the Civil Court verdict was appealed at the High Court.

Consequently, in the first quarter of 2012, Dr Waheed’s 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.

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President Waheed ignored advice on GMR termination, PPM alleges

The Progressive Party of Maldives (PPM) has accused President Dr Mohamed Waheed of ignoring the advice of his coalition government by abruptly terminating the US$511 million airport development contract with Indian infrastructure group GMR last year.

PPM MP Ahmed Nihan said that while the PPM believed terminating the GMR contract had been the right decision, President Waheed had nonetheless personally taken an executive decision to cancel the agreement without listening to the party’s advice in seeking a compromise with the company and the Indian government.

However, the PPM’s coalition partners today accused the party of making “contradictory statements” regarding the decision to terminate GMR’s concession agreement, accusing its senior leadership of trying to terminate the deal at the time without discussion or following due process.

The allegations against President Waheed surfaced following the visit to India last week by former President and PPM founder, Maumoon Abdul Gayoom, who pledged his party would seek to restore relations with India damaged by the government’s summary eviction of the GMR.

While Gayoom ultimately blamed former President Mohamed Nasheed for not obtaining parliamentary approval and “consulting all political parties” before signing the deal with the GMR-Malaysian Airports consortium in 2010, he was also critical of the present administration’s handling of the termination.

“Had Nasheed consulted all political parties, the public would not have formed the impression that corruption had taken place. Then we told the next President Mr Waheed that he should hold discussions with the GMR Group and the Indian government to arrive at an acceptable solution, after which the government was free to act on its own,” he said. “Unfortunately, this was not done and suddenly there was this unhappy ending,” Gayoom was reported as saying in the Hindu.

“Better” handling

MP Nihan said following a press conference held by the PPM in Male’ today that the party continued to believe the decision to terminate GMR’s concession agreement was in the best interest of the country.

However, amidst concerns about the subsequent negative impacts on bilateral relations from cancelling the deal, he stressed that the president could have handled the matter “better” in order to protect the relationship between the Maldives and India.

“We believe that the room was there to correct any negative relations with India,” Nihan claimed.

“This could have been much easier and perhaps a new approach could have been found to cancel the GMR contract,” he added.

Nihan said that as well as the GMR contract, President Waheed had on a number of occasions sought to take advantage of his position by making executive decisions against the wishes of his government coalition, all while trying to shift blame away from himself.

“We have seen [President Waheed] try to spin all good developments as being the result of his work, while anything that has gone wrong [in the government] is the PPM’s fault,” he said.

Following a PPM press conference today, Nihan added that the media has been shown two different letters sent from the party’s council to the government prior to the termination of the agreement last November that called to find a solution through dialogue.

Nihan also reiterated Gayoom’s comments that the manner in which the contract was not a “happy ending” in terms of its impact on bilateral relations with India.

“We are of the view that the agreement was only to be cancelled through due process of the law,” he said.

Nihan claimed that the contract dispute had also further exacerbated concerns held by the Indian government about treatment of Indian nationals in the country. He said this had in turn created difficulties for Maldivians in obtaining visas to travel to India for medical treatment.

Considering former President Gayoom’s 30 years spent in office, Nihan praised his efforts to try and strengthen bilateral relations with India.

The government’s sudden eviction of the Indian investor did not appear on a list of 11 grievances handed to all senior Maldivian reporters by the Indian High Commission in January. The list instead included concerns such as discrimination against Indian expatriates and the confiscation of passports by Maldivian employers.

Tension

The argument over responsibility for the GMR contract termination has comes amidst reports of increased tension within the present coalition government, with PPM presidential candidate Abdullah Yameen last month criticising President Waheed over his alleged use of state funds for campaigning.

The PPM has nonetheless pledged to continue supporting President Waheed’s government up until September’s election, despite concerns about the decision to dismiss former Home Minister Dr Mohamed Jameel Ahmed after he decided to stand as MP Yameen’s running mate.

DRP response

The PPM’s recent criticism of President Waheed’s handling of the GMR dispute was today slammed as being “contradictory” by government coalition partner the Dhivehi Rayyithunge Party (DRP).

The party added that its members had previously come under heavy criticism from the PPM for advocating at the time that any termination of the GMR airport deal should be made via the due process of the law.

DRP Parliamentary Group Leader Dr Abdulla Mausoom told Minivan News that it was in fact senior figures in the PPM that were among the most vocal supporters for terminating the GMR agreement.

“It is ironic that we are hearing these statements from the PPM, whose leader has been witnessed supporting rallies demanding the cancellation of the [GMR] agreement,” he said.

Dr Mausoom alleged that he had also been informed from “a reliable political source” present during government consultations last year over whether to terminate the GMR agreement that it had been PPM presidential candidate Yameen who personally advocated cancelling the deal without a need for discussion.

“Either there is no harmony within the [PPM], or this is all political talk to try and gain an advantage. Either was it is very irresponsible,” he said of the PPM’s recent comments about terminating the GMR concession agreement.

Mausoom alleged that contrary to the PPM’s claims, it had been the DRP which had advocated finding a legal means of terminating the GMR agreement at at time when fellow government-aligned parties had taken to the streets holding rallies demanding the airport be “reclaimed”.

Despite appeals by GMR that it was acting as a caretaker for running and improving Ibrahim Nasir International Airport (INIA), which would remain Maldivian-owned, efforts to cancel the concession agreement – which was vetted by the World Bank’s International Finance Corporation (IFC) – intensified up to November.

On November 13, just ahead of the contract termination, a seaborne armada of about 15 dhonis carrying flags and banners circled the airport seeking to increase pressure on the government to “reclaim” the site from GMR.

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No intention to transfer assets to MIAL: MACL to Axis Bank

The Maldives Airports Company Limited (MACL) and its lawyers have denied any intention of dissipating the state-owned company’s assets by transferring them to a newly-created, state-owned entity called Male’ International Airport Limited (MIAL).

MACL and the government of the Maldives are currently party to arbitration proceedings in Singapore after one of the lenders to the terminated GMR-Malaysia Airports (GMR-MAHB) development – Mumbai-based Axis Bank – called in US$160 million worth of loans which had been guaranteed by the Ministry of Finance.

A copy of the agreement from November 24, 2010, in which the Ministry of Finance guarantees the loans to GMR-MAHB, is signed and stamped by both then-MACL Chairman Ibrahim Saleem and Finance Minister Ali Hashim on behalf of the government.

Eviction and arbitration

In December 2012, the GMR-MAHB consortium, which had signed a 25 year concession agreement with the former government to manage and upgrade Male’s airport, was given a seven day eviction notice by the new government after it declared the concession agreement void ab initio, or ‘invalid from the outset’.

That decision is currently subject to arbitration proceedings in Singapore, with GMR-MAHB’s compensation claim expected to reach upward of US$1 billion. Axis Bank is pursuing the US$160 million in separate proceedings.

President Waheed’s government on March 14 meanwhile declared in a one-line statement that it was establishing MIAL as a new 100 percent state-owned company, and several weeks later announced the appointment of a board of directors including tourism tycoon and Chairman of Universal Enterprises, Mohamed Umar Manik, and Island Aviation Chairman Bandhu Ibrahim Saleem as managing director.

Finance Minister Abdulla Jihad informed local media on May 21 that MIAL would take over the operation of the airport under a management contract by July.

The apparent move to transfer MACL’s management functions to MACL led to a flurry of letters from Axis Bank to both MACL and the government, with the bank expressing concern that “if MACL ceases to manage and operate Male’ airport, and MIAL instead performs that role, then MACL will lose almost all of MACL’s revenue stream, and become a shell.”

MACL’s denial

In a letter responding to Axis Bank’s CEO Bimal Bhattacharyya, dated April 24, 2013, and obtained by Minivan News, MACL’s Managing Director Ibrahim Mahfooz claims “your insinuation that MACL is attempting to dissipate assets to avoid and satisfaction of any judgement is insulting and without any basis.”

“For the record, we can confirm that MACL has no plans to transfer any of its assets to another company,” Mahfooz writes.

He accuses Axis Bank of making a case on “hearsay and speculation”, and asks whether its threat of legal action was “part of a concerted plan with any other parties”.

“You have tried to assert that your claim of US$163,596,347.78 remains unsatisfied. We had in our previous correspondence to you made it clear that you do not have a valid claim against MACL,” Mahfooz states.

“At best your alleged claim (at its highest) is purely a monetary claim against MACL and GOM. Please set out clearly the basis in which you think your claim will not be satisfied by MACL and GOM in the event Axis Bank is not successful,” he writes.

That letter triggered a further flurry of correspondence between Axis Bank’s legal representation Norton Rose and MACL’s Singapore-based firm Advocatus.

The latter firm, acting on behalf on MACL in December 2012, successfully overturned an injunction in the Singapore Supreme Court blocking MACL from taking over the airport, on the grounds that the arbitration court had no jurisdiction to prevent the Maldives as a sovereign state from expropriating the airport.

In the Singapore Supreme Court’s full verdict, a copy of which Minivan News has obtained, Financial Controller for the Ministry of Finance, Mohamed Ahmed, “affirmed in an affidavit that the Maldives government would honour any valid and legitimate claim against it. He also stressed that the Maldives government had never defaulted on any of its payments.”

Lawyer representing MACL, Christopher Anand Daniel, “also accepted that if the arbitration tribunal found that the Appellants were wrong in their asserted case that the Concession Agreement was void ab initio and/or had been frustrated, but the Appellants had by then already gone ahead with the taking over of the airport, they would at least be liable to compensate the respondent for having expropriated the airport” (emphasis retained).

Legal barrage

Stern letters exchanged throughout late April and most of May between the two sets of lawyers suggest brewing disagreement over whether MIAL’s assumption of management responsibilities for the airport can be construed as a transfer of assets and an attempt to dissipate its assets in preparation for a costly verdict.

“Almost all of MACL’s income comes from MACL’s management and/or operation of Male’ Airport,” notes Axis Bank.

“The stated purpose for the incorporation of MIAL is for MIAL to manage and operate Male Airport. This is a role presently performed by MACL. The natural consequence of the above facts is that if MACL ceases to manage and operate Male’ Airport and MIAL instead performs that role, then MACL will lose almost all of MACL’s revenue stream, and become a shell company,” Axis Bank’s lawyers noted, adding that the government had made no effort to deny this despite repeated invitations.

In response Advocatus, in a letter dated May 10 and obtained by Minivan News, declared “Your client [Axis Bank] has no evidence that MACL is dissipating assets to begin with. It is obvious that your client is attempting to see if it can create a case by correspondence when it has none.”

Following Finance Minister Abdulla Jihad’s pledge that the transfer of assets to MIAL would be completed by July 1, widely reported in local media, Norton Rose wrote another letter noting “[the Minister’s] statements are in direct contradiction to MACL’s position in its letter of April 24 stating that ‘For the record, we can confirm that MACL has no plans to transfer any of its assets to another company.’”

“These new developments, stated in the various news reports, lend credence to Axis Bank’s legitimate concerns that MACL is in fact attempting to dissipate its assets in favour of MIAL or any other third party and, consequently, there will not be sufficient assets to satisfy any arbitral award that may be rendered in favour of Axis Bank against MACL in the arbitration,” the lawyers wrote.

Advocatus responded on May 29, again accusing Axis Bank off “desperately trying to create a case where none exists.”

“The Minister, who had given the interview in Dhivehi, had been misquoted in the English version of news reports you mentioned,” MACL’s lawyers stated.

“When he gave the interview, the Minister had in fact said that ‘asset management is going to be officially handed over to MIAL’,” Advocatus contended.

Assets, management and the draft agreement

Meanwhile, a working draft of an ‘Operations and Management’ agreement between MACL and MIAL, dated May 21 and obtained by Minivan News, notes that MIAL “is a company established with the primary objectives of operating, maintaining and managing the airport.”

The agreement states that while the Finance Ministry has granted MACL the lease of the site and rights to operate and manage the airport, “MACL, in the interest of the better management of the airport, and/or overall public interest, is desirous of granting to MIAL the functions of operating, maintaining and managing the airport.”

The agreement includes provision for the transfer of employees from MACL to the new company, and the requirement that it obtain an aerodrome certificate from the Ministry of Civil Aviation – the core authority issued by the state for a company to operate an airport.

It also noted that “no proceedings against MIAL are pending or threatened, and no fact or circumstance exists which may give rise to such proceedings that would adversely affect the performance of its obligations under this agreement.”

MIAL would be paid management fees by MACL, although the extent of these are not included in the particular draft obtained by Minivan News. The agreement does however set out how “MIAL shall, on behalf of MACL, deposit all monies received from the operation of the airport into one or more bank accounts in the name of MACL.”

Board issues

Despite the Finance Minister’s comments on May 21, MIAL’s appointed CEO Bandhu Saleem has told Minivan News that “until the arbitration is complete, I think it will be very difficult to start a new company.”

Minivan News is seeking to establish the current status of the new company. However further obstacles appeared this week in the form of the government’s Attorney General Aishath Bisham, who informed local media that President Waheed lacked the authority to appoint the boards of government-owned companies following the ratification of January’s Privatisation Act.

Instead, she said, the privatisation board created under that act operated as “a separate legal entity, and has the sole authority to appoint board members.”

Besides MIAL, President Waheed also in February appointed the board of the Maldives Ports Authority Limited (MPL).

“The Privatisation Board should investigate those cases,” suggested the attorney general.

Former President Maumoon Abdul Gayoom, whose Progressive Party of the Maldives (PPM) was among the most strident opponents to GMR-MAHB’s development of the airport, meanwhile appeared to have adopted a conciliatory tone during a visit to India last week to smooth troubled relations.

“[The cancellation] was a very populist move at the time as the public had a perception that the contract was bad for the country. The way it was handled was not good,” Gayoom was reported as telling Indian newspaper The Hindu.

“I am sad that this has somehow affected our bilateral relations. We want to overcome that and restore our relationship with India to its former level,” Gayoom told the paper.

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PPM will address Maldives’ strained relationship with India: Gayoom

Former President Maumoon Abdul Gayoom has pledged during a visit to India that the Progressive Party of Maldives (PPM) will repair strained relations between the two countries should it come to power in September, local media has reported.

The three day visit, which concluded Thursday (June 6), saw the former president meet with dignitaries including Prime Minister Manmohan Singh to discuss bilateral relations and the impact of the Maldives government’s decision to last year cancel a US$511 million airport deal with India-based infrastructure giant GMR.

In interviews with Indian media, Gayoom expressed sadness that the Maldives’ relationship with India had been impacted by President Dr Mohamed Waheed’s administration deciding to evict GMR from the country with seven days notice.

Gayoom blamed Nasheed for not obtaining parliamentary approval and “consulting all political parties” before signing the deal with the GMR-Malaysian Airports consortium.

“This was a mistake. Had he consulted all political parties, the public would not have formed the impression that corruption had taken place. Then we told the next President Mr Waheed that he should hold discussions with the GMR Group and the Indian government to arrive at an acceptable solution, after which the government was free to act on its own. Unfortunately, this was not done and suddenly there was this unhappy ending,” Gayoom was reported as saying in the Hindu.

Waheed’s government late last year declared the contract between GMR and the Nasheed government, which was vetted by the World Bank’s International Finance Corporation (IFC), as ‘void ad initio’, or invalid from the outset. It is currently disputing its obligation to compensate the company in arbitration proceedings, arguing that the termination clause could not be applied to a contract it had deemed invalid.

Gayoom told Indian media that former President Mohamed Nasheed – whose government was controversially replaced in February last year – had to take the majority of blame for the GMR contract dispute, despite not being in office at the time of its cancellation.

“The GMR experience was not a very good one for us. It began badly with [Nasheed] not informing parliament,” Gayoom was reported as saying in the Indian Express.

“By law, he should have had it passed by parliament. Some may even say it had an illegal beginning. [The cancellation] was a very populist move at the time as the public had a perception that the contract was bad for the country. The way it was handled was not good. I am sad that this has somehow affected our bilateral relations. We want to overcome that and restore our relationship with India to its former level,” Gayoom told the paper.

The government’s sudden eviction of the Indian investor did not however appear on a list of 11 grievances handed to all senior Maldivian reporters by the Indian High Commission in January, which instead included concerns such as discrimination against Indian expatriates and the confiscation of passports by Maldivian employers.

The list’s release was followed by the Indian High Commission issuing a statement in early February slamming local media in the Maldives for “misrepresentation and twisting of issues”.

Gayoom nonetheless told the Hindustan Times publication this week that he would endeavor to maintain strong bilateral relations with India, claiming that people who were “anti-GMR” were not “anti-India”.

The PPM is presently part of the coalition government backing President Waheed, whom Gayoom said had been requested to find an “acceptable solution” for both GMR and the Indian government that addressed concerns about the airport deal.

Fierce criticism

Among the most fierce critics of the GMR airport deal before its cancellation last year were the now government-aligned Dhivehi Qaumee Party (DQP ), led by President Waheed’s Special Advisor Dr Hassan Saeed.

Saeed in November last year appealed to Prime Minister Singh to terminate the GMR deal, writing that “GMR and India ‘bashing’ is becoming popular politics”.

While in opposition in December 2011, the DQP also released a 24 page pamphlet alleging that allowing GMR to develop Ibrahim Nasir International Airport (INIA) was “paving the way for the enslavement of Maldivians in our beloved land”, and warning that “Indian people are especially devious”.

Former Home Minister Dr Mohamed Jameel Ahmed, the DQP’s Deputy Leader at the time of the pamphlet’s publication, was recently unveiled as the running mate of PPM Presidential candidate Abdulla Yameen – Gayoom’s half brother.

SOFA a concern: Gayoom

Gayoom – described in the Hindu as a “sprightly 76 year-old” – also expressed concern about the Status of Forces (SOFA) agreement being negotiated between Waheed’s government and the United States.

“I am not happy. I didn’t want that to happen,” he said, warning that such a move risked upsetting the balance of power in the Indian Ocean.

A source within the PPM said former President Gayoom, during his 30 years as head of state had forged strong relations with various regional powers such as India and Sri Lanka.

The source said that while the handling of the GMR contract remained a controversial issue, the recent strain in the relationship between India and the Maldives was the result of a number of factors, including “certain difficulties” facing expatriate workers from India living in the country.

“We have a large number of professional expatriates from India working here in health, education and accountancy. The [Indian] embassy here in Male’ has aired some of the issues with us,” the party source claimed, adding that the Maldives also had grievances over obtaining visas to travel to India that needed to be resolved.

The party official claimed that Indian authorities had raised these issues not only with the PPM, but all other stakeholders both in government and the country’s political opposition, presently represented by the Maldivian Democratic Party (MDP).

Highs and lows

Despite admitting that every country has high and lows in their bilateral relations with neighbours, Indian High Commissioner to the Maldives Rajeev Shahare has previously emphasised what he called the country’s “unshakable” long-standing relationship with the Maldives.

“During my tenure, I will endeavour to further strengthen the relationship between India and the Maldives, which is already very strong with an unshakable foundation,” he said on April 10, shortly after his appointment.

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International airports body urges caution over foreign investment in Ibrahim Nasir International Airport

Airports Council International (ACI), the global body representing the world’s airports, has advised its members to exercise caution before making any investment in the Maldives relating to Ibrahim Nasir International Airport (INIA).

In an email obtained by Minivan News dated May 8, ACI alerted its members that the Maldivian government is “in the process of transferring the Male’ airport to a wholly-owned subsidiary of MACL and may explore a sale of equity in this entity to another airport operator.”

“ACI members are advised to conduct due diligence while considering any investment in the Maldives, considering the latest developments, uncertainty of outcome of elections, the legal and financial risks of the current arbitration and the nascent legal framework,” the email states.

The cautionary note emphasises that ACI was “not taking sides with respect to the decisions made by the various parties”, and matter-of-factly outlines the government’s sudden termination of the concession agreement with the GMR-Malaysia Airports (GMR-MAHB) consortium to manage and upgrade Ibrahim Nasir International Airport (INIA).

The government declared the 25 year concession agreement ‘void ab initio’ in November 2012 and gave the foreign investors seven days to hand over the unfinished airport to the government-owned Maldives Airports Company Limited (MACL).

While subsequent arbitration proceedings saw the Singapore Supreme Court endorse the government’s right to expropriate the airport, ACI noted that “this was subject to [the government] offering sufficient compensation pursuant to the concession agreement”.

“However on December 8 MACL/Government of Maldives took over the possession and control of the airport without payment of compensation”, the email stated.

ACI informed its members that the takeover was the subject of arbitration proceedings expected to last 9-12 months, and further noted that as the government had guaranteed bank loans used by the developer, these were also the subject of separate proceedings.

With elections scheduled for September, ACI advised it was possible that “any leadership changes arising out of the elections [could] have a material impact of the future of the Male’ airport and the decision of expropriation.”

MACL and MIAL

On March 14, the government declared in a one-line statement that it was establishing by presidential decree a new 100 percent state-owned company, Male’ International Airport Limited (MIAL).

On March 31, President Dr Mohamed Waheed appointed MIAL’s board of directors, including tourism tycoon and Chairman of Universal Enterprises, Mohamed Umar Manik, as chairman, and Island Aviation Chairman Bandhu Ibrahim Saleem as managing director.

Other directors appointed included Thoriq Ibrahim of G. Noomaraahiya, Ahmed Munavvaru of Gaafu Dhaalu Madaveli Gahaa, Abdulla Yazeed of Dhaftharu, and Ibrahim Iyas of Dhaftharu.

The decision to form MIAL last month led GMR-MAHB’s lender Axis Bank to accuse the government of trying to turn MACL into a shell company, and warning it not to transfer MACL’s assets or function while arbitration was pending.

“Given that Axis Bank’s claim under the direct agreement is against MACL, you will understand that Axis Bank views with the greatest concern any attempt to dissipate the assets of MACL in favour of MIAL or any other third party,” wrote Axis Bank’s CEO Bimal Bhattacharyya in a letter copied to MACL and the Ministry of Finance, dated April 22.

“If MACL ceases to manage and operate Male’ airport, and MIAL instead performs that role, then MACL will lose almost all of MACL’s revenue stream, and become a shell,” writes Bhattacharyya in the letter, obtained by Minivan News.

The letter calls on the government to “confirm or deny” its intentions by April 25, and “undertake not to allow any assignment, transfer or disposition of any of MACL’s rights to manage and or operate Male airport to MIAL or any third party… or allow MIAL or any third party to perform any function of managing or operating Male’ airport which is presently performed by MACL” by April 27.

“Please understand that Axis Bank views any dissipation of MACL’s assets with grave concern, and will take the necessary legal action to prevent such a dissipation”, the bank advised.

MIAL’s appointed CEO Bandhu Saleem confirmed to Minivan News that the government did intend MIAL to manage the airport, but said the process of transferring that responsibility over from MACL had run into “hurdles” relating to its current legal issues.

“The board has been appointed, but I have not yet taken on the role,” he said, noting that the new company was waiting on government clearances and had yet to be officially created.

“Until the arbitration is complete, I think it will be very difficult to start a new company,” he added.

Axis Bank loans and compensation claim

A legal submission detailing the Axis Bank dispute, also obtained by Minivan News, notes MACL’s failure to notify Axis Bank of its intention to terminate the concession agreement within 60 days, as required in the bank’s direct agreement.

An included copy of the November 24, 2010 agreement, in which the Ministry of Finance guarantees the loans to GMR-MAHB, is signed and stamped by both then-MACL Chairman Ibrahim Saleem and Finance Minister Ali Hashim on behalf of the government.

The document shows that Axis Bank is seeking the repayment of US$160 million by the government of Maldives due to MACL’s breaching its obligations under the agreement.

At the same time, the governor of the Maldives’ central banking authority recently warned parliament that the Maldives’ gross state reserves had fallen to little more than US$300 million, after the government was compelled to repay a series of US$50 million loans the State Bank of India declined to roll over at the start of 2013.

Repayment of the Axis Bank loan could place the Maldives in a position where it has less than a month of imports in reserve – a potential crisis for an island nation 100 percent dependent on imports for basic subsistence.

The government meanwhile contends that it is not subject to termination and associated clauses relating to a contract it has deemed ‘void from the outset’.

“Under the terms of the direct agreement, these loans would be repayable if the concession was terminated early, as defined in the direct agreement. The government contends, however, that if the concession agreement is void ab inito, then these terms do not apply,” reads a special audit commissioned by the Auditor General.

Present situation

With arbitration pending and efforts to create a new management company having apparently stalled for the time being, the outlook for the airport remains uncertain.

Much will be dictated by the election in September. Former President Mohamed Nasheed has said he will invite GMR-MAHB to return should his party resume government, while the Progressive Party of the Maldives (PPM) has declared one of GMR-MAHB’s most voracious opponents, ex- Home Minister Dr Mohamed Jameel, as the party’s Vice-Presidential candidate.

The government’s special audit of the project shows the upgrade and construction of the new terminal was 25 percent complete as of October 31, 2013.

“In the meantime, all work on the ground on the improvement to the airport has ceased. Sensitive elements of the new structures that had been planned by [GMR-MAHB] are incomplete and exposed to the weather and at risk of damage – possibly closing off the option of re-using these elements to reduce the cost of any future development of the airport,” the report noted.

Former Transport Minister Dr Ahmed Shamheed, who was dismissed by the government in November 2012, warned in January 2013 the airport needed urgent work to reach acceptable standards, that was outside local capabilities.

“To get the airport to the right level, they will need to bring in outside help,” he told Minivan News at the time.

“The airport is in very bad shape right now and work is needed on the runway, all of which cannot be done without finance.”

Ibrahim Nasir International Airport was meanwhile dubbed the ‘Indian Ocean’s Leading Airport 2013′ at the Indian Ocean World Travel Awards on May 12.

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Airport’s 2014 refurbishment was 25 percent complete prior to GMR’s termination: Auditor General’s Special Audit

The government has released a Special Audit by the Auditor General (AG) into the former government’s concession agreement with Indian infrastructure giant GMR, ahead of upcoming arbitration proceedings.

The two parties agreed to commence arbitration proceedings in mid-2014, following a preliminary meeting in London on April 10 this year.

GMR is seeking US$800 million in compensation for the sudden termination of its 25 year concession agreement, while the Maldivian government has contended it owes nothing as the contract was ‘void ab initio’, or invalid from the outset.

The AG’s report notes that Axis Bank is separately seeking repayment of US$160 million in loans to GMR, which were guaranteed by the Maldives’ Finance Ministry.

Report

The AG’s report reveals that concession revenue due the government plummeted fourfold in 2012 as a result of the Civil Court case – filed by the Dhivehi Qaumee Party (DQP) in 2011 – blocking the charging of an Airport Development Charge (ADC) to outgoing passengers as stipulated in its concession agreement.

Net concession revenue in 2011 of US$25,424,877 fell to just US$6,058,848 in 2012, after GMR Male’ International Airport Limited (GMIAL) deducted the ADC from the concession fees due to the government – a stopgap measure approved by the Nasheed government while it sought to appeal the ruling. However, the DQP, in coalition with other opposition parties, came to power following the controversial transfer of power on February 7 2012, before the appeal was complete.

“The new government took the view that it would not be proper for it to intervene in the legal process for the benefit of a private concern,” the report stated. Instead, on April 19, 2012, MACL informed GMIAL it was “retracting the previous agreement [to offset the ADC] on the grounds that the then Chairman of MACL did not have the approval of the MACL board to make the agreement.”

GMIAL asserted that this decision was a political event as defined within its concession agreement, and warned that “this would amount to a breach of the agreement by the government. The government did not accept this argument.”

By the end of 2012, GMIAL had withheld a total of US$22.9 million from the concession fee paid over to MACL, 79 percent of the total fee that would otherwise have been due, the report noted, adding that the decision by the Transport Minister and MACL Chairman to agree the offset had been sent to the Anti-Corruption Commission on the grounds that the decision had required presidential approval.

Prior to the court ruling, GMIAL’s audited net profit for the period November 25, 2010 to December 31, 2011 was US$26,141,438. During this period GMR paid US$30,327,644 in concession fees to government.

GMIAL’s pre-tax profit for the first nine months of 2012 was US$31,668,384, on total revenue of US$184,641,985 (US$125,193,817 of this consisting of fuel sales).

MACL’s own net profit was US$14.9 million in 2008 and US$16.6 million in 2009 – the last two full years in which it operated the airport prior to the concession agreement coming into force. In 2010, this increased to US$21.4 million, and in 2011, US$27.4 million.

Fuel sales

The AG’s report examines fuel sales at the airport in light of the new government’s criticisms of GMIAL’s management, in particular an increase in prices it claimed had driven away airline operators.

The analysis showed “a mixed picture”, according to the AG’s report. Sales had dropped to 143 million litres in 2009 from 160 million litres in 2008, but rose from 166 million litres in 2010 to a five-year high of 173 million litres in 2011. The figure dropped to 152 million litres in 2012 – almost entirely due to a decision by SriLankan Airlines to stop fueling its London-Colombo route in Male.

“Until 2012, Sri Lankan Airlines’ daily London-Colombo flight called at Male’ to refuel but no longer does so; SriLankan Airlines told us that the increased price of fuel at Male’ was one of the reasons they stopped doing so. In 2011, Sri Lankan Airlines bought some 18 million litres of fuel, so this change along represents a significant reduction in airport fuel sales,” the report suggested.

It also noted that the Ministry of Tourism had blamed a 25 percent decline in seat capacity on routes from Europe between 2010 and 2012 on higher fuel prices, although this hypothesis did not appear to be reflected beyond SriLankan Airlines in the amount of fuel sold in 2012.

Bidding process

The report examined the bidding process conducted by the World Bank’s International Finance Corporation (IFC) in which the airport was awarded to GMR. The report stated that evidence to back allegations of “improper interference” during technical bidding process “is not conclusive on this point”, and deferred the matter to the Anti-Corruption Commission (ACC).

However, the report noted that the IFC’s terms of reference involved “securing the best deal for the government in terms of the concession fee paid to the government and MACL, and did not consider impacts on the Maldivian economy.”

“Such impacts could be both negative and positive,” the report suggested.

“For example, there has been concern that Maldivian businesses working at the airport might not have their contracts renewed, and that proposed commercial development at the airport would take business away from existing local businesses. Conversely, Scott Wilson’s work in 2008 suggested that successful development of the airport could benefit employment both at the airport itself and more widely in the Maldivian economy, and the rents from commercial development could increase the concession fee paid to the government,” it explained.

Future

The report noted that at time of publication, the government had not announced how it intended to take forward development of the airport, but noted that Universal Chairman Mohamed Umar Manik and four other directors had been appointed to the board of Male’ International Airport Limited (MIAL). Bandhu Ibrahim Saleem has meanwhile been appointed Managing Director.

According to an independent engineering report, as of October 31 2012 GMR Male International Airport (GMIAL) had completed 25 percent of the refurbishments and upgrades to Ibrahim Nasir International Airport planned for the end of 2014, and had been invoiced by its contractor for US$69 million.

“Significant progress had been made in some areas – for example, 87 percent of the material for land reclamation had been dredged,” the AG’s report noted.

However, according to the engineering report, work was 155 days behind schedule after the new government order GMIAL to stop work “pending regulatory approvals”.

“In the meantime, all work on the ground on the improvement to the airport has ceased. Sensitive elements of the new structures that had been planned by [GMR] are incomplete and exposed to the weather and at risk of damage – possibly closing off the option of re-using these elements to reduce the cost of any future development of the airport,” the report concluded.

Read the full report (English)

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GMR-Maldives arbitration to begin mid 2014: Attorney General’s Office

The Attorney General’s (AG’s) Office has confirmed that an arbitration case concerning the government’s decision to void its concession agreement with Indian Infrastructure giant GMR will begin by the middle of next year.

Deputy Solicitor General Ahmed Usham today told Minivan News that both parties had agreed to commence proceedings by the middle of 2014 and were now waiting on arbitrators to confirm the exact schedule for when their respective cases would be presented.

The initial agreement was reached after representatives for the state and GMR met in London, England on April 10 for a preliminary procedural meeting. A timetable was agreed upon for holding hearings over the cancellation of a US$511 million contract to develop and manage a new terminal at Ibrahim Nasir International Airport (INIA).

Usham said that the hearing in London last week had been focused solely on establishing a timetable for when arbitration will begin proper in Singapore.

“It is quite straight forward in these procedural hearings. We discussed the schedule for hearings, such as when cases would be presented, as well as when parties can reply and make counter claims,” he said. “These arbitrators are quite busy, so it can be difficult to manage time in their schedules.”

The AG’s Office has previously claimed that the Maldives will be represented by Singapore National University Professor M Sonaraja, while former Chief Justice of the UK, Lord Nicholas Addison Phillips, will represent GMR.

The arbitrator mutually agreed by both GMR and the government is retired senior UK Judge, Lord Leonard Hubert Hoffman.

Concession agreement

In 2010, GMR-Malaysia Airports Holdings Berhad (MAHB) consortium, the government of former President Mohamed Nasheed and Maldives Airport Company Limited (MACL) entered into a 25-year concession agreement worth US$511 million (MVR 7.787 billion). The agreement charged the GMR-MAHB Consortium with the management and upgrading of INIA within the 25 year contract period.

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 – meaning the contract was invalid from the outset.

Should the argument of void ab initio fail, the government has claimed the second legal grounds on which it would argue in favour of termination of the contract would be that the contract had been ‘frustrated’.

‘Frustration of a contract’ is 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 principle purpose for entering into the contract.

“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 then Attorney General Azima Shukoor.

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”.

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.

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Military consolidation expected to dominate Defence Minister Nazim’s India visit

Defence Minister Mohamed Nazim is expected to commence talks today with his Indian counterpart on strengthening military ties between the two nations. The talks will be the most senior meeting of ministers between the two countries since reports of bilateral tensions earlier this year, according to the Times of India.

As part of his visit to India, Nazim is expected to meet with Indian Defence Minister Shri A K Anthony to discuss establishing further defence collaboration, as well as the possibility of extending Indian coastal radar systems across the Maldives.

Nazim’s visit comes after Defence Minister Anthony travelled to the Maldives last year to open the ‘SenaHiya’ Military Hospital in Male’, where he spoke of expanding cooperation on naval security and preventing drug trafficking.

The ceremony in September 2012, was held at a time when international media was playing up a perceived strengthening of relations between the Maldives and China, drawing attention to the potential geopolitical implications for neighbouring India.

According to the Times of India, Nazim is the first senior government minister to visit the India since the country was accused of becoming embroiled in the Maldives’ domestic politics earlier this year.

Both Nazim and President’s Office Media Secretary Masood Imad were not responding to calls from Minivan News as time of press.

Reported tensions

Back in February, Maldives political figures from several government-aligned parties criticised the Indian High Commission after former President Nasheed was allowed to seek refuge on its premises from police seeking to present him to the Hulhumale’ Magistrate Court.

Nasheed remained in the high commission’s chancery building on Sosun Magu in Male’ for 11 consecutive days, maintaining that charges against him for detaining a chief Criminal Court Judge were a politically motivated attempt to prevent him from contesting in presidential elections scheduled for this year.

Indian officials at the time rejected accusations of taking sides in the country’s domestic affairs, maintaining that India only favoured “inclusive elections”.

After Nasheed was allowed into the building, Home Minister Dr Mohamed Jameel implied through social media that India was meddling in the Maldives’ internal affairs, stating at the time: “What’s happening now gives us an indication of the extent and level of interest some countries prepared to take in our internal matters”.

“I would strongly urge everyone to let our institutions deal with the challenges, allow Maldives to uphold rule of law,” he tweeted.

Just a month before Nasheed went into the high commission building, Maldivian authorities denied that the country’s foreign minister had been snubbed by the Indian government after it rejected an official request to meet.

The reported snub came as Maldivian local media were issued a list of 11 grievances from the Indian High Commission concerning the treatment of Indian nationals in the country.

“Unshakable” relationship

However, the new Indian High Commissioner to the Maldives Rajeev Shahare last week emphasised the “unshakable” long-standing relationship between between both countries during a meeting with local media (April 10).

Shahare at the time stressed there had been no change in the relationship between the Maldives and India, despite media reports of increased tension between both nations.

“In any relationship there are highs and lows, but the relationship carries on its course normally,” he said. “Engagement between the Maldives and India has been constant. We are pretty much on course.”

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Former attorney general to keep advising government on Nexbis, GMR matters

Former Attorney General (AG) Azima Shukoor will continue to advise the government on two high-profile legal cases she has previously been involved in, despite being transferred to the Gender Ministry earlier this month.

The two cases involve the future of an agreement to implement a border control system supplied by Malaysia-based Nexbis and arbitration hearings resulting from declaring “void” a US$511 million airport concession agreement with India-based GMR void.

Shukoor, who was appointed as Minister of Gender, Family and Human Rights on April 10, said yesterday (April 13) that she intended to continue to serve on a team of lawyers working for the state on the cases involving Nexbis and GMR, local newspaper Haveeru has reported.

President’s Office Media Secretary Masood Imad has previously told Minivan News that the government had decided to transfer Shukoor as part of commitments to help oversee proposed legal reforms that could potentially end the use of flogging as a punishment for sexual offences.

The government has previously criticised the practice, which it alleged serves to punish victims of rape and sexual abuse in some cases.

The state has come under further pressure to review the handling of sexual offence cases from petition site Azaaz.org, which has threatened otherwise to call for a tourism boycott over a flogging sentence handed to a 15 year-old girl for ‘fornication’.

Shukoor has claimed in local media to have personally requested the president appoint her to the Gender Ministry on condition she would continue to work on the cases relating to Nexbis’ agreement and the arbitration hearings with GMR.

GMR arbitration

In November 2012, President Dr Mohamed Waheed’s government declared void a concession agreement signed by the previous government with Indian firm GMR to manage and build a new terminal at Ibrahim Nasir International Airport (INIA). It then ordered the company to leave the country within seven days.

Nexbis

Nexbis signed a “legally binding” deal in 2010 to provide a customised border control system under a ‘build, operate and transfer’ agreement to Maldivian authorities that still remains in use as of this month.

The deal is presently the subject of legal wrangling over whether the Anti-Corruption Commission (ACC) has the power to demand termination of the contract. Parliament has also voted to cancel the system, but this is subject to a court injunction.

However, the US government late last month signed a Memorandum of Understanding (MOU) to provide a border control system to the Maldives. Representatives for Nexbis at the time said they had not been informed of the MOU signing or what it might mean for the company’s own agreement with the state.

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