Tribunal rules against Axis Bank in airport dispute

A Singaporean arbitration tribunal has ruled that the Maldivian government does not have to pay US$160 million loaned by the India’s Axis Bank for airport development in 2011, Minivan News has learned.

The Axis Bank sought repayment of the loan after the government abruptly took over the airport from Indian developer GMR in December 2012.

The bank said the government had guaranteed the loan issued to GMR and was liable in the event of an early termination or an expropriation of the airport.

After concluding hearings in March, the tribunal ruled on Friday that neither the government nor the state-owned Maldives Airports Company Limited (MACL) was responsible for the loan.

The tribunal also ordered the Axis Bank to pay the government and MACL’s legal fees for the arbitration process.

The bank had claimed US$170 million from the government, including US$10 million in interest and fees.

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

In the first phase of the arbitration process, the tribunal found the concession agreement to have been “valid and binding.” The government and MACL were “”jointly and severally liable in damages to [GMR Malé International Airport Limited] for loss caused by wrongful repudiation of the agreement”.

The tribunal is yet to determine the amount owed to the Indian infrastructure giant as compensation. A verdict is expected in mid-2015.

President Abdulla Yameen has previously said that the Maldives will not have to pay more than US$300 million to GMR, which would be “manageable” for the MACL.


According to submissions made to the tribunal by the Axis bank and the government, obtained by Minivan News, the government argued that declaring the concession invalid from the outset does not amount to an early termination.

While the tribunal in the separate GMR arbitration determined that the termination of the GMR deal was “wrongful repudiation” (refusal to honor the contract), the government contended that “repudiation” alone does not lead to termination.

The government blamed GMR for terminating the concession agreement by “accepting” the repudiation, and said no force was used in the takeover.

Axis bank is “perfectly entitled to recover the loaned sums from the party to which it loaned them,” lawyers representing the Maldives argued.

The bank had dismissed the arguments as “highly semantic” and noted that the Maldives civil aviation authority had cancelled GMR’s aerodrome certificate from December 7, 2012, making it “legally impossible for GMR to continue to operate the airport.”

The government also accused the Axis Bank and GMR of colluding to extract large sums of money, claiming the infrastructure giant had paid for the bank’s litigation fees for the separate arbitration process.

As an Indian Bank for whom GMR was a major customer, the Axis Bank wanted to cement its relationship with GMR “by assisting it in making a very substantial claim for damages,” the government alleged.

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 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.


Airport staff strike over bad food and bad bonuses

Maldives Airports Company Limited (MACL) employees working at Ibrahim Nasir International Airport (INIA) went on strike today over the low quality of food served at the staff cafeteria as well as cuts to the annual company bonus.

The protest began early this morning and continued until around noon. At around 10:30am, the managing director of the company arranged a meeting with a five member group representing staff, as well as with the CEO Ibrahim ‘Bandhu’ Saleem.

While the protesters estimated that approximately 250 – 300 employs were ready to go on full strike, the situation was resolved following the meeting after employees were assured that solutions would soon be found for all their concerns.

Speaking to Minivan News, one of the five staff negotiators said that the main two demands of the protesters were the improvement of the conditions of the staff restaurant ‘Beach Rest Cafe’, and the resumption of the annual company bonus for employees – which has been “discontinued for the past two years”.

When disbursed by India’s GMR – the previous company that managed the airport – some would receive a bonus of MVR1500 while others would receive as much as MVR30,000, said the staff negotiator.

“It started with the Beach Rest issue. Even today they served rotten curry. This has been going on for a while now. We cant eat the food they prepare,” he explained.

MACL Corporate Communications Manager Hassan Areef said that the situation was resolved shortly after negotiating with protesters.

“Beach Rest is not run by the company, but we will talk to them and address the issue immediately,” he said.

When asked about the company bonus, he said that information would be revealed on that as progress is made, but assured that the company would this issue also.

“When the situation was resolved the staff were happy, they went back to work immediately,” Areef said.

Ibrahim Rasheed, a protester who took part in the dialogue, said that staff were promised the cafeteria issue would be addressed immediately and that another cafeteria would be established within two or three months.

Another protester said that the CEO had assured them the annual bonus would also be arranged shortly.

“He said it will be arranged very soon – as soon as the ongoing audit is completed. We were told that the bonus will be even better than before,” he said.

According to MACL staff concerned about the bonus, the issue has been taken to senior management several times within the past two years without any response.

In 2010, the GMR Male International Airport Pvt Ltd (GMIAL) – a consortium of the Indian GMR Group (77%) and the Malaysia Airports Holding Berhad (23%) — was awarded a concession contract to manage the airport for a period of 25 years.

However, President Dr Mohamed Waheed’s government prematurely terminated the agreement and the airport was handed over to the 100% government owned MACL in December 2012.

GMR later filed a compensation claim of US$1.4 billion for “wrongful termination”.


MACL denies imminent strike action by air traffic controllers, as staff allege pay and safety concerns

Air traffic controllers in the Maldives say they are building up to a full work stoppage over ongoing grievances and safety concerns left unaddressed by the current government.

Such strikes could lead to delays and disruption of flights to the luxury tourism destination, that welcomes almost one million tourists a year.

Several controllers responsible for organising the strike explained to Minivan News that they have been raising safety concerns with all relevant government authorities following the restructuring of the state-owned Maldives Airports Company Limited (MACL). Despite countless promises, no action had been taken, they said.

“For the last six months we’ve been ‘going by the book’, following all the procedures which causes a lot of delays. In the aviation industry that is considered a mild strike,” the air traffic controllers explained.

The air traffic controllers are now “building towards a full strike”, and many are even now calling in sick to work, the sources said.

A full strike would involve notifying all the relevant regional and international agencies, airlines, and all relevant government agencies in the Maldives, because no planes will be able to land except for hospital and humanitarian aircraft.

“This strike affects everyone, sea planes as well. Whatever happens at Ibrahim Nasir International Airport (INIA) will cause delays at the domestic airports as well,” they added.

Six air traffic controllers should be on duty at all times, three in the control tower and three in area control, the sources said.

“Last night only two people showed up to work,” they confirmed.

“The [MACL] management and Maldives National Defence Force (MNDF) had to run the system last night,” the air traffic controllers claimed. “Management is totally stressed.”

“This morning only one person was working area control, so management has had to fill in and today at 1:00pm nobody one went into work,” the controllers stated.

As a result, MACL management is also trying to close the area control centre and combine all operations in the control tower, the sources said.

“A pilot from a domestic carrier called me today to say he’s hesitant to fly because the guy currently in the tower doesn’t know what he’s doing – it’s a big safety issue,” one of the controllers alleged.

Ground staff at Kaadedhdhoo domestic airport in Gaaf Dhaal Atoll told Minivan News that since strike activity began many domestic flights had been delayed “three or four hours” while a number of international flights coming into Male’ “have been diverted to Colombo”.

CEO of the Maldives Airports Corporation Limited (MACL), Ibrahim ‘Bandhu’ Saleem, told Minivan News no such strikes were occurring.

“As far as I’m concerned there is no strike – you are wrong,” said Saleem.

He explained that there have been no flight cancellations or delays at INIA and that “only Male’ international [airport], not domestic airports, are under my control.”

While Saleem insisted there is no strike, he noted “there are contingency plans in place [in the event of a strike].” He declined to answer further questions.

The air traffic controllers told Minivan News that while they were not aware of flights being cancelled as of early this afternoon, a flight from Dharavandhoo airport in Baa Atoll was one-and-a-half hours delayed this morning “because INIA couldn’t handle the air traffic.”

Safety and standards

The air traffic controllers claimed strike action was supported by 75 controllers – over 95 percent of the country’s qualified staff.  They are demanding the reinstatement of a professional grading system, adherence to International Civil Aviation Organisation (ICAO), and the holding of the presidential run-off election that remains suspended by the Supreme Court.

“This was not a political issue,” they emphasised. “But now because we’ve lost trust in and cannot negotiate with the current government, [the strike has taken a political direction],” the air traffic controller sources told Minivan News.

“We were counting on a new election and government so we could bring our problems to them. If there’s no election our grievances will be exacerbated. [Now] we don’t know when we’ll be able to vote and elect a new government,” the sources continued.

The controllers repeatedly emphasised that the Maldivian Air Traffic Controllers Association (MATCA) was not involved [in organising the strike], “because they don’t want this to appear a politically motivated thing.”

Concerns and demands

The air traffic controllers said staff were not getting proper breaks, domestic airports are understaffed, the radar system – installed at INIA in 2008 – does not meet ICAO standards, and the professional grading system for controllers had been abolished.

“Everyone got knocked down to the same grade one position, there have been no promotions or pay raises in four years,” the sources explained.

The professional grading system ranks experience level and qualifications, with four levels: 1) basic air traffic, 2) aerodrome (tower) controller, 3) approach controller, and 4) area controller. While the same task is performed at each level, the airspace area each controller is responsible for increases.

“If air traffic controllers are continuously stressed out they might get into trouble by losing a picture [on radar],” the sources warned. “More fatigue means more mistakes, but we can’t makes mistakes is this job.”

The sources said MACL staff from Male’ are sent to work the domestic airports. However, the majority of domestic airports are understaffed, with only one or two air traffic controllers. At least three people should be running the control tower at any given time, the sources explained.

“Where there is only one person working the tower – like in Forvumulah’s airport – that individual has to stay awake. He only gets four hours of sleep a day and has to work 30 days continuously without a day off,” they continued.

“If you are the only person on duty you cannot leave the room, it’s a safety issue,” the controllers explained.

Thimarafushi airport in Thaa Atoll has no air traffic controller, however the Civil Aviation Authority gave authorisation for the airport to operate anyway, the sources alleged.

“That’s totally fine by us, even in the US there is uncontrolled airspace. It’s not a big issue as long as the pilots feel that they can land and take off,” the sources added.

“No one to trust” in government

“The government is trying to say everything is running smoothly, while trying to buy us out,” alleged the air traffic controllers. “We also gave an interview to Haveeru yesterday but they nothing has been posted about it.”

“Minister Adheeb called us today asking us if we were on strike. He’s pretending he didn’t know that our concerns hadn’t been addressed, even though we met with him earlier this year,” the sources noted.

“Three supervisors – of eight total – went to the MACL Managing Director’s meeting today. He’s asking them to talk to us to bring us back to work,” the sources continued.

“We are professionals and don’t want to create chaos in the Maldives, but with the current situation there is no one to talk to,” they explained. “We’ve tried to do it in a democratic way and did every single thing [to resolve our grievances]. We’ve exhausted all resources. There is no one to trust,” they added.

“We have been trying to raise these problems – again – since 7 February  2012 with the current government run by [President Mohamed] Waheed, [Jumhooree Party Presidential Candidate and MP] Gasim [Ibrahim], and [Progressive Party of the Maldives Presidential Candidate and MP Abdulla] Yameen,” the sources continued. “They promised us action but didn’t take it.”

The air traffic controllers have additionally met with Vice President Waheed Dean, Defence Minister Mohamed Nazim, Tourism Minister Ahmed Adheeb, Transport Minister Ameen Ibrahim, MACL, the Civil Aviation Authority, and the Labour Relations Authority, “but nothing happened,” they explained.

Over a year ago air traffic controllers submitted a case to the Labour Tribunal signed by more than 40 individuals, the sources noted.

“On December 21, 2012, over 60 air traffic controllers signed a petition that gave notice that we would be going on strike. We were promised that by January 1 our grievances would be addressed, the grading structure would be re-implemented and we would receive proper raises,” the sources added.

The controllers agreed to withdraw the case when promised the reforms and did, however  the promised action was still not forthcoming.

“We met with MDP’s Mohamed Nasheed and he pledged that under his government he would correct the mistakes and try to get us better pay,” the controllers noted. “We [also recently] met with the other political parties, but so far nothing.”

“Some [of us] are waiting for confirmation in writing [that our demands will be met], but many are waiting for the Supreme Court to rule so we can have an election,” the sources continued. “We’ve heard that MACL ground services employees are also planning to strike.”


Mega Maldives negotiating with tax authorities over account freezing dispute

Airline Mega Maldives continues to operate scheduled flights to and from China this week, despite the Maldives Inland Revenue Authority (MIRA) taking action to freeze the company’s accounts on Monday (June 17) over disputed tax payments.

MIRA announced this week that it had decided to freeze bank accounts linked to Mega Maldives with the assistance of the Maldives Monetary Authority (MMA) over what it claimed was the company’s refusal to cover tax flagged in an audit report.

The airline has stated that it was engaged in negotiations with local authorities to try and resolve the dispute with MIRA concerning the state’s interpretation of the requirements under which withholding tax must be paid.

The company has maintained that it remains fully up-to-date in terms of covering profit and service tax payments to MIRA.

Mega Maldives, which is operated through a US-Maldives private joint-venture under the name Mega Global Air Services (Maldives) Private Limited, is the country’s second scheduled airline.

The airline commenced operations in 2010 and completed its maiden flight in January 2011, where it flew over 230 passengers from Hong Kong to Gan International Airport.

During July 2011, the airline went onto become the first Maldivian carrier to provide flight services from Shanghai to Male’ with 200 passengers.

MIRA’s Director General of Audit and Finances Fathuhulla Jameel told local media this week that a tax audit carried out by the authority revealed that Mega Maldives owed large sums of money as unpaid taxes.

According to Jameel, the total amount of money MIRA is owed by Mega Maldives stood at more than MVR 13 million (US$ 843,060.96) as of this week.

The airline is also required to cover unpaid fines valued at around MVR 1 million (US$ 64,850.84) resulting from the company’s failure to pay taxes and produce statements, according to MIRA.

Speaking to Minivan News today, Jameel said that MIRA had been acting in accordance with the law, adding that withholding taxes were imposed under section sixof the Corporate Profit Tax Act.

“We have a two stage appeal process. One is if they are not satisfied with our figures in the tax audits, then there is a department in MIRA which they can appeal. If that fails, they can appeal to the Tax Appeal Tribunal. So far, to my knowledge, no appeal has been made to Tax Appeal tribunal. If they are unhappy with our figures, there are ways they can find a solution,” he said.

No funds in the frozen accounts: MIRA

MIRA has revealed that the accounts of Mega Maldives frozen by the MMA were found to have insufficient funds to cover the outstanding payments.

“We believe that they will produce the required tax statements and pay the money owed to the authority. Having failed to pay the amount, we froze their accounts and when we checked, there were no funds in those accounts,” Jameel said.

According to Jameel, of the two frozen accounts, one had only US$ 10,000, while the other contained MVR 9,000.

“Some accounts are still not frozen. But we had requested to freeze all accounts under the airline. They can still deposit money even if the account is frozen,” Jameel added.

Jameel told Minivan News that negotiations were already under way with the airline, which would be allowed to make payments in installments once an initial 30 percent of the outstanding payment to MIRA has been covered. However, Jameel said it was difficult to detail the exact figures or the duration over which installments could be made as negotiations were ongoing.

Jameel said that MIRA had formally requested the MMA to freeze the company’s accounts last Thursday (June 13) after several attempts to retrieve the money were unsuccessful.

“As a last resort, we requested [MMA] to freeze their account. We had made the decision [to freeze the account] after all the attempts made to collect the money failed,” Jameel said. “MMA will order all the banks to freeze the accounts of that airline.  I presume the accounts may now have been already frozen.”

Airline negotiations

In a press statement issued yesterday (June 18 ), the airline claimed that it was currently in negotiations with MIRA and the government to try and resolve the dispute.

“The tax that this airline is required to pay as per Maldives Inland Revenue is the withholding tax. This tax, by any means, is not similar to taxes such as the Corporate Profit Tax (CPT) or the Goods and Services Tax (GST),” read the company statement.

“Generally, corporations are required to pay taxes based on their profits or based on the income that is generated. These two taxes [CPT and GST] are being regularly paid to MIRA as required by the law,” it added.

Withholding taxes are based on a local company’s spending on services provided by expatriates. Mega Maldives, being an operator of wide body flights, said it was continuously required to seek foreign technical assistance.

Interpretation issues

The airline has said that according to MIRA and the Maldivian government’s interpretation of tax laws, several services required by the airline had fallen into the criteria requiring payment of withholding tax. The tax currently stands at 10 percent of the costs paid in such services.

“Assessing the figures, having to pay an additional 10 percent as tax means 10 percent is added to the cost incurred by the airline,” it claimed.

The airline argued that under this interpretation, it was required to pay withholding tax on top of the cost of spare parts required to be made available by each airline in the country as per the Maldives Civil Aviation regulations. Withholding tax was also said to have been added to the general cost of operating international flights.

“Since the stated expenses are required by an international carrier, imposing a huge tax on such expenses is a financial burden on the airline that is resulting in huge losses. The Maldives Civil Aviation Authority which is helping this airline in the negotiations with MIRA has also highlighted that such taxation could be detrimental to the aviation industry,” it claimed.

Speaking to Minivan News, Chief Executive Officer of Maldives Civil Aviation Authority, Hussain Jameel confirmed that the authority had been assisting the talks between the airline and MIRA.

However, he declined to provide further details at the current time.

Mega Maldives stated that as a result of financial difficulties incurred by the company over the dispute concerning the withholding tax, it had been forced to reduce its number of scheduled flights.

The airline maintained nonetheless that was working on expanding its fleet, which currently consists of several aircraft.

In its statement, Mega Maldives called on authorities to create an environment for aviation companies to have a profitable and viable business in the country.

Operations interrupted

Local media reported earlier this week that the Maldives Airports Company Limited (MACL) had originally denied approval for a Mega Maldives flight to leave the country over its failure to pay for the airport handler’s services.

However, the flight was allowed to leave the country after the airline and MACL finally came to an agreement over payment of the services.

The flight, which was expected to depart at 5:10pm on Monday evening, was only able to leave more than two hours later at around 7:20pm.

According to MACL’s Managing Director Dr Ibrahim Mahfooz, both Mega and the MACL had discussed the issue of pending payments, and Mahfooz told local media outlet Sun Online that Mega had agreed to make the payments to MACL.

Sun Online reported that following the grounding of Monday’s scheduled flight by the airline, it had agreed to pay MACL a sum of US$ 235,000 and to pay an additional sum of US$ 389,000 on Wednesday and Thursday.

Meanwhile, speaking to Minivan News about the dispute today on condition of anonymity, a senor figure within the country’s tourism industry said that Mega Maldives had in recent years played a vital role in connecting Maldives to China.

China last year overtook established European tourism markets to become the leading source of visitors to the Maldives. The senior tourism source said that air connectivity and flight frequency played a significant part n the fortunes of an isolated destination like the Maldives.

“An impact on any airline operating to the Maldives will impact the country’s tourism sector,” the source claimed.


Ibrahim Nasir International Airport reduces jet fuel costs

Ibrahim Nasir International Airport reduced the price of jet fuel from US$1.16 per litre to US$1.14 per liter for international flights and from US$1.14 to US$1.13 for domestic flights, reports local media.

The State Trading Organisation (STO) signed a US$136 million agreement March 31 to provide Maldives Airports Company Limited (MACL) with jet fuel.

The MACL said the price reduction is a result of the decrease in the product’s cost, which took effect April 1.


Preliminary hearing on GMR-Maldives arbitration case scheduled for April 10 in London

The preliminary hearing of the arbitration case concerning the government’s voiding of its concession agreement with Indian Infrastructure giant GMR is scheduled to take place on April 10 in London, reports local media.

On February 3, the parties announced the appointment of arbitrators for the case.  According to the Attorney General’s office, 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.

Speaking to the newspaper, Deputy Solicitor General Ahmed Usham said that the meeting will take place at the presence of three arbitrators appointed to hear the case along with lawyers representing the government of Maldives, Maldives Airports Company Limited (MACL) and GMR.

“It is not an official hearing of the arbitration case. It is a hearing in which a date for the commencement of the hearings would be agreed and to agree as to how the case should proceed. Decisions concerning how the proceedings should take place will be agreed,” Usham told Haveeru.

He also said that although the preliminary hearing was to take place in London, the official hearings of the case will be heard in Singapore.

In 2010, GMR-Malaysia Airports Holdings Berhad (MAHB) consortium, 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) – in which the GMR-MAHB Consortium was contracted with the management and upgrading of Ibrahim Nasir International Airport (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 have claimed that its second legal ground 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 Attorney General Azima Shukoor at the time of announcement of the contract.

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.

In December 2012, the Maldives government paid back US$50 million to the State Bank of India, after it refused to extend the period of the treasury bonds issued by the bank during the previous government. India has called in further installments of US$50 million, forcing the government to draw on the state reserves.

Finance Minister Abdulla Jihad has said the government is yet to come to an arrangement to pay the next US$50 million installment to SBI, explaining that the money will have to come from the Maldives Monetary Authority (MMA).

“The US$50 million due in February will have to be paid from the reserve. We have been ordered to pay the amount. There has been no change to the order so far. So it must be paid,” Jihad told local media at the time.

At the start of 2013, state reserves had shrunk to MVR 4.9 billion (US$317.7 million), according to the MMA.

“Gross international reserves at the MMA have been declining slowly, and now account for just one and half months of imports, and could be more substantially pressured if major borrowings maturing in the next few months are not rolled over,” an International Monetary Fund (IMF) delegation observed during a mission to the Maldives in November last year.

Moreover, one of GMR’s lenders, Axis Bank, is also seeking the repayment of loans for the airport project, which were guaranteed by the Ministry of Finance and approved by the Attorney General’s Office under the former government.

Attorney General’s office was not available for a comment at time of press.


MACL pays STO US$7.5 million in overdue jet fuel charges

The state-owned Maldives Airports Company Limited (MACL) has settled US$7.5 (MVR115 million) in outstanding jet fuel charges.

The payments, owed to the State Trading Organisation (STO), were left outstanding from before the government opted last November to void a contract with Infrastructure group GMR to manage and develop Ibrahim Nasir International Airport (INIA).

A deadline for payment of the bills had reportedly been set by the STO for December 2012, but was delayed after Singapore’s Supreme Court overturned an injunction blocking the Maldivian government from voiding its sovereign agreement with GMR.

STO Managing Director Managing Director Shahid Ali has said that after the state-owned MACL took over management of the site from GMR late last year, it also took on the developer’s existing contracts and therefore had been required to pay the outstanding fuel charges, local Newspaper Haveeru reported.

MACL is requested to pay a further US$2.5 million (MVR38.3 million) in unpaid fuel bills.

According to local media, GMR had signed a US$150 million (MVR2.3 billion) jet fuel supply deal in March last year that is set to expire in April 2013.


Government considering seeking compensation from GMR: Attorney General Azima Shukoor

Attorney General (AG) Azima Shukoor has said the Maldives government could opt to seek compensation from infrastructure group GMR after it decided to void the India-based company’s concession agreement to develop Ibrahim Nasir International Airport (INIA), according to local media.

GMR last week confirmed that it was seeking an estimated US$800 million in compensation in order to recover what it has claimed are investment and earnings after the government “wrongfully” terminated its contract.

In a press conference held yesterday (December 17), the attorney general maintained the government’s belief that the agreement with GMR to develop INIA was illegal.  She added that the government therefore intended to seek compensation for damages it “might” have incurred during the process of entering into the contract with GMR, local newspaper Haveeru reported.  The contract was signed during the administration of former President Mohamed Nasheed.

Highlighting the pending arbitration process in Singapore Court between the government and GMR, Shukoor said that efforts were being made to appoint arbitrators for the hearings. She added that the government and Maldives Airports Company Limited (MACL) had appointed a “member” of Singapore National University as their arbitrator.

Similarly, GMR will also be given a 30-day period to appoint an arbitrator on its behalf.

Shukoor suggested during the yesterday’s press conference that it may take a period of one year until the due procedures were completed before a decision was made in the courts.

“It will take about two months time to appoint the panel to overhear the arbitration case. After that, parties will exchange documents and affidavits and respond to it and only after that a proper hearing on the matter will be held and might take up a period of one year,” she suggested.

Indian media reported last week that GMR had sent a letter to the Finance Ministry stating that it would seek compensation worth US$800 million.  Shukoor denied such a communication had been sent, adding that she did not believe such a demand could even be made.

“We terminated the agreement on the grounds of void ab initio (void from the outset) , therefore we will begin the negotiation on the position that the government of Maldives do not require to pay back anything,” Shukoor explained.

However, she admitted that owing to the size of GMR’s investment, there remained a possibility that government might have to pay some amount that would be determined through the arbitration process.

“Even if we do require paying back as compensation, it would be based on the decisions reached during the arbitration process. If it is settled out of court, then it would be based on legal arguments raised by the parties to the contract,” she added.

Shukoor has also claimed that even before INIA was handed over to GMR, no asset valuation was carried out – a decision expected to cause problems for the government. She also said that it has not been yet decided how the asset valuation would be carried out or how the amount that the government might seek in compensation from GMR would be calculated.

Even with the arbitration process now proceeding, Shukoor told local media that if the government believed additional compensation was required, it would seek the additional amount through the same courts.

“A lot of work is being carried at the moment. However, we have not yet calculated the amount we might have to pay or the amount that had been invested and even the amount we expect to seek,” she explained.

GMR demands US$800 million in compensation

GMR is seeking US$800 million in compensation following the termination of its US$511 million concession agreement signed under the former government back in 2010.

The Indian infrastructure giant has said that the proposed US$800 million claim was based on its “provisional estimates” and that the company had also taken into account the Maldives’ ability to cover such payments if compensation was awarded by the Singaporean courts overseeing arbitration.

GMR’s chief Financial Officer (CFO) Sidharath Kapur previously told Minivan News that the sum was a “preliminary estimate” based on a number of factors including investments made by the company, debt equity and loss of profits as a result of the contract termination.

He also added that on last Tuesday (December 11) the company had communicated with Maldives Ministry of Finance by sending an official letter outlining its concerns that the contract had been “wrongfully” terminated without respect for the agreed procedures.

Meanwhile according to Finance Minister Abdulla Jihad, no mechanism is currently budgeted should the Maldives face a multi-million US dollar bill for evicting GMR, but stressed it was not for the company to decide on any eventual payment.

He also played down fears that any potential fine could prove perilous for the country’s economy, as well as attempts to reduce the spiralling budget deficit, stating that any possible fines would be set by the Singaporean arbitration court hearing the dispute.

“We will deal with the matter when we know the amount of compensation to be paid,” he said at the time. “GMR cannot decide, it will be down to the court [hearing the arbitration].”

The INIA concession agreement

In 2010, the government of Maldives through its Finance Ministry, MACL and GMR-MAHB entered into a concession agreement with INIA whereby the Malaysian-Indian consortium were to develop and operate the airport for a period of 25 years.

According to the concession agreement a “project company” under the name GMR International Airport Limited (GMIAL) was to carry out the development project.

However, a lengthy dispute between the new government of President Dr  Mohamed Waheed Hassan and the GMR Group led to the eviction of the agreement.

On November 27, President Mohamed Waheed’s cabinet declared the agreement void, and gave the company a seven day ultimatum to leave the country.

Shukoor at the time stated the government reached the decision after considering “technical, financial and economic” issues surrounding the agreement.

She also claimed the government had obtained legal advice from “lawyers in both the UK and Singapore as well as prominent local lawyers – all who are in favour of the government’s legal grounds to terminate the contract.”

The INIA was handed over to the government on December 8, in an invitation-only press conference; Finance Minister Jihad presented the official handover documents to MACL Managing Director Mohamed Ibrahim, and said that the Maldives would pay whatever compensation was required “however difficult”.

With arbitration proceedings underway in Singapore over the contested airport development charge (ADC), GMR received a stay order on its eviction and appeared confident of its legal position even as the government declared that it would disregard the ruling and proceed with the eviction as planned.

On December 6, a day prior to its eviction, the government successfully appealed the injunction in the Supreme Court of Singapore. Chief Justice Sundaresh Menon declared that “the Maldives government has the power to do what it wants, including expropriating the airport.”

That verdict, effectively legalising the sovereign eviction of foreign investors regardless of contractual termination clauses or pending arbitration proceedings, was “completely unexpected”, according to one GMR insider – “the lawyers are still in shock”, he said at the time.

A last ditch request for a review of the decision was rejected, as was a second attempt at an injunction filed by Axis Bank, GMR’s lender to the value of US$350 million.