Tag: Singapore arbitration tribunal

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.

Arbitration

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.

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Maldives considered GMR buyout, but lacked funds

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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India should assist Maldivian people in changing the government, says Nasheed

Assistance in changing the government is the biggest relief the Indian government could offer the Maldives regarding compensation owed to GMR for the premature termination of its airport deal, former President Mohamed Nasheed has said.

Speaking at a rally at the reopened Maldivian Democratic Party (MDP) haruge (meeting hall) last night, the main opposition party’s acting president said he had learned that GMR would inform the Indian government of the situation.

“In my view, that relief is for that [Indian] government to work together with us, the Maldivian people, to change the government of the Maldives,” Nasheed said.

After 18 months of arbitration proceedings, a Singapore tribunal ruled last week that the concession agreement signed by the MDP government with the GMR-led consortium in June 2010 to manage and develop the Ibrahim Nasir International Airport (INIA) was “valid and binding.”

Former Attorney General Azima Shukoor – incumbent at the time of the termination – has this week maintained that the agreement was invalid under Maldivian law.

Nasheed yesterday contended that parties in the ruling coalition had fanned anti-Indian sentiment and incited anger among the public towards the country in their efforts to topple the MDP government, which he claimed were orchestrated by former President Maumoon Abdul Gayoom.

He also referred to anti-Indian rhetoric by senior officials of the current administration in the weeks leading up to the eviction of GMR in December 2012.

Former President Gayoom exploited nationalism and Islam – which are “accorded the highest place in the hearts of the Maldivian people” – to mislead the public with “lies”, Nasheed argued.

The MDP has also announced its intention to sue former President Dr Mohamed Waheed for defamation and damages caused by his administration’s unilateral termination of the concession agreement.

Sovereign debt crisis

The Singapore tribunal concluded that the Maldivian government and the Maldives Airports Company Ltd (MACL) were “jointly and severally liable in damages to GMIAL for loss caused by wrongful repudiation of the agreement as per the concession agreement.”

The Bangalore-based company is seeking US$1.4 billion in compensation for “wrongful termination” of the contract – an amount that eclipses the Maldives’ annual state budget.

The compensation owed is due to be determined in the second phase of the arbitration process.

In the wake of the arbitration decision, Attorney General Mohamed Anil said that current administration would honour the verdict and expressed confidence that the government would not have to pay the US$1.4 billion sought by GMR.

“According to the agreement, [we] mostly have to compensate for the investments made. We said we do not have to pay the amount GMR has claimed,” Anil told reporters on Thursday (June 19).

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

Nasheed, however, predicted last night that the compensation figure would not be “lower than US$800 million”, a fee which would plunge the Maldives into a sovereign debt crisis as the foreign currency reserves are currently below US$100 million.

Warning of an impending economic crisis, Nasheed called on the public to awake from its “slumber” and “consider what is happening to our country”.

Nasheed also accused former Attorney General Azima Shukoor – who had advised cancellation of the contract on the grounds that it was void ab initio (invalid from the outset) – of attempting to mislead the public concerning the arbitration ruling.

Shukoor has told newspaper Haveeru that the contract was illegal under Maldivian law.

“Even if the agreement is legit under Common Law, it does not necessarily concur that the agreement had also been made according to Maldivian laws.

“Nobody sitting as AG in Maldives can still pronounce the deal to have been done as per the Public Finance Act. No one can. That’s why I spoke against it even then,” she was quoted as saying.

She further argued that the termination of the agreement was justified as the domestic economy would have suffered “unimaginable losses”.

Nasheed however questioned the “literacy” of ministers in the “coup government,” noting that a legal process for terminating the contract through arbitration was laid down in the concession agreement.

Public-private partnership

Nasheed also defended the initial awarding of the contract – in a bidding process overseen by the World Bank’s International Finance Corporation (IFC).

As public debt was over 60 percent of GDP when the MDP government took office in November 2008, Nasheed said his administration believed loans should only be obtained for capital investments and infrastructure projects.

The government decided to privatise the airport in a public-private partnership as loans could be put to better use to “upgrade hospitals, improve schools and build water and sewerage systems,” he explained.

Referring to the Anti-Corruption Commission (ACC) ruling out corruption in the airport privatisation deal, Nasheed noted that the commission had concluded that the government would have received US$534 million from the consortium during the 25-year lease period.

Conversely, MACL would have made a profit of about US$254 million in the same period if the airport was operated by the government-owned company.

While MACL paid on average MVR96 million (US$6.2 million) a year to the government from 2005 to 2010, Nasheed noted that GMR paid MVR872 million (US$56.5 million) in 2011 as concession fees.

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