Indian infrastructure giant GMR has handed Ibrahim Nasir International Airport (INIA) over to the state-owned Maldives Airports Company Limited (MACL), after the Maldivian government voided the concession agreement and gave it seven days to leave the country.
The sudden eviction of the developer – which won a 25 year concession under the former government to manage and upgrade the airport – scraps the project, which at US$511 million was the single largest foreign investment in the Maldives.
GMR had clung to the terms of its concession agreement while the government fanned growing nationalistic and anti-India sentiment. On November 27, President Mohamed Waheed’s cabinet declared the agreement ‘void ab initio’ – invalid from the outset – and ordered the developer to leave.
With arbitration proceedings already 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”.
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.
Following a meeting with staff yesterday, GMR issued the following statement:
“In deference to the orders of the Court of Appeals, Singapore; GMR Male International Airport Ltd (GMIAL) will facilitate a smooth takeover of the Ibrahim Nasir International Airport (INIA) by the Maldives Airport Company Ltd (MACL), effective midnight tonight.
GMIAL has been assured that as a result of this takeover all its employees, suppliers and other interested parties will not be put to any inconvenience. GMIAL remains committed to finding a suitable solution to this situation. We are taking requisite steps to work out the compensation receivable from the Government of Maldives, keeping in mind the judgement of the aforementioned court and the concession agreement dated 28th June 2010.
All actions as above are without prejudice to our legal rights and statements made before various courts/tribunals where matters are currently being pursued or likely to be taken up.”
An invitation-only press conference to mark the handover was held by Defence and Acting Transport Minister Mohamed Nazim in the airport VIP lounge at midnight. Minivan News understands that GMR did not participate for legal reasons.
During the ceremony, Finance Minister Abdulla 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”.
Economic Minister Ahmed Mohamed claimed the eviction would enhance investor confidence:
“Investor confidence will only increase when they know that Maldives will do everything in accordance with the law,” Haveeru reported the minister as saying.
Attorney General Azima Shukoor expressed hope that the compensation would be lower than anticipated.
Estimates as to the amount of compensation for which the government is liable have ranged from the US$220-240 million GMR estimated it has already invested, up to US$700 million – a sizeable chunk of the country’s GDP.
Apart from the size of the compensation is the Maldives’ ability to ultimately pay, given the crippled state of its domestic economy.
Finance Minister Jihad in late October warned that the Maldives would be unable to pay government salaries without a promised US$25 million loan from India.
A month later, amid rising anti-India sentiment over the GMR issue and a diplomatic incident triggered by the government’s spokesperson, Jihad described India’s calling in of US$100 million in existing loans as “not a major concern”. The debts, he said, would be paid from the state’s reserves, which local media at the time reported could fall to as low as US$140 million (MVR2.2 billion) once the payments to India were settled.
An International Monetary Fund (IMF) delegation in November warned that the Maldives’ financial reserves “have been declining slowly, [and] now account for just one and a half months of imports, and could be more substantially pressured if major borrowings maturing in the next few months are not rolled over.”
Further pressure on reserves came from a ballooning public debt ratio, “which now stands at over 80 percent of GDP, and has helped to boost national imports, thus worsening dollar shortages in the economy and putting pressure on reserves,” the IMF warned.
Presenting the 2013 budget to parliament in late November, Jihad warned of “bitter consequences” should the spending trend continue.
His target budget deficit of 6.1 percent in 2013 takes into account a raft proposed revenue raising and cost cutting measures which would impact the tourism industry – such a proposed tourism GST increase to 15 percent – and require parliamentary approval.
Further modernisation of the airport – or even completion of the existing upgrade – is likely to require extensive outside assistance or further loans. The rusting foundations of GMR’s new terminal sits on 60 hectares of newly reclaimed land on the airport island, after the government ordered a halt to the development in August. Large sections of the old terminal remain boarded up for construction work, which the government’s ability to proceed with is in doubt.
Further modernisation of the airport is likely to depend on outside assistance. President’s Office Spokesperson Masood Imad told Indian newspaper The Hindu yesterday that after reclaiming the airport, the government would again float a tender for its modernisation “and get more parties in to take the work forward.”
“The tender will be floated by the Maldives government in a transparent manner and after consulting investors. The mistakes made during the float of the tender which has been cancelled will not be repeated,” Imad told the paper.
Environment Minister Dr Mariyam Shakeela has meanwhile separately appealed to China for financial and technical support, telling journalists from the Chinese government’s authorised web portal China.org.cn that the Maldives “needs funds for infrastructure building.”
“We are obviously in need of funds and technical assistance as we do not have the financial means, the technical know-how or the capacity to address these huge climate change issues,” said Mariyam, in an appeal for assistance with climate adaptation.
The government has dismissed speculation Chinese involvement in the development, however Minivan News has learned that senior Chinese military officials landed at the airport in the tense week leading up to the handover, even as India warned of “adverse consequences” should the government proceed with forceful eviction.
India’s reaction after the Singapore Supreme court ruling was muted. Ministry of External Affairs Spokesperson Syed Akbaruddin said the ministry was “studying” the judgement and that their lawyers “need to understand it”.
“There are two issues in the case – one the sovereign right of a nation and other the legality of the agreement, which was linked to compensation to GMR and its associates in Malaysia, he said the latter part has not been “affected or responded” in today’s judgement.
“These issues are not affected with the judgement or not responded to. Fulfilment of all legal process and requirement is what we want to see in this case and we hope that all relevant contracts and agreements would be adhered to and all legal process are carried through,” he said.