Page added on September 19, 2012
Board members and the head of Indian infrastructure giant GMR, G M Rao, are due to visit the Maldives later this week in a bid to resolve tensions with the government over the company’s development of Ibrahim Nasir International Airport (INIA).
The upcoming visit follows a meeting between Rao and former President Maumoon Abdul Gayoom at a hospital in India where Gayoom’s wife was being treated. Gayoom also recently met with Indian Prime Minister Manmohan Singh.
GMR won a 25 year concession agreement to develop and manage the airport during the Nasheed administration. The opposition at the time challenged the government’s privatisation and threatened to renationalise the airport should it come to power.
Following the controversial transfer of power on February 7, the unity government under President Dr Mohamed Waheed Hassan has swung between issuing reassurances within diplomatic circles that Indian investments in the country would be protected, while locally stepping up nationalisation rhetoric.
Some of the dissent has blurred the line between business and politics.
Leader of the government-aligned Jumhooree Party (JP), resort tycoon Gasim Ibrahim, urged the government in local media to reclaim the airport, even at a cost of US$700 million, as it was worth “a thousand times more”.
Gasim’s comments followed GMR’s decision to suspend the credit facility for his Villa Air airline, due to unpaid bills totaling MVR 17 million (US$1.1 million) for fuel, ground handling and passenger service fees.
Contentious airport development charge
One of the government’s disagreements with GMR concerns the charging of a US$25 Airport Development Charge (ADC) on outgoing passengers, as stipulated in the concession agreement.
During the last months of the Nasheed administration, the opposition Dhivehi Qaumee Party (DQP) filed a successful case in the Civil Court blocking this fee from being charged on the grounds that was effectively a tax which had not been approved by parliament. DQP leader Dr Hassan Saeed, now President Waheed’s special advisor, and DQP Vice-President Dr Mohamed Jameel – the new Home Minister – justified their disapprobation while in opposition by publishing a pamphlet in Dhivehi (English translation).
The pamphlet described the deal as “paving the way for the enslavement of Maldivians in our beloved land”, and warning that “Indian people are especially devious”.
To abide by the court decision, Nasheed’s government agreed to subtract the ADC from its concession revenue while it sought to appeal.
Following February 7 the opposition inherited that compromise and in the first quarter of 2012 received only US$525,355 of an anticipated US$8.7 million.
With no resolution, in the second quarter of 2012 the government was presented with a bill for US$1.5 million, due to a shortfall in airport income. The loss of revenue comes at a time when the country is facing a crippling budget deficit, a foreign currency shortage, plummeting investor confidence, spiraling expenditure, and a drop off in foreign aid.
GMR publicly offered to resolve the ADC dispute by exempting Maldivian nationals from paying the fee, but has otherwise kept its negotiations largely behind closed doors.
In a statement at the time, GMR noted that the government received US$33 million in 2011 from airport concession fees, “three times the money the government ever made in a year [from the airport] before privatisation.”
Following construction of the new terminal in 2015 – including “a state-of-the-art 600,000 square foot integrated Passenger Terminal and a 20,000 square foot VIP terminal, and various other airside and landside developments,” expected revenue from the airport to the government was expected to reach US$50 million per year, GMR observed, and almost US$100 million from 2021 as passenger numbers increased.
“In effect, GMR Male’ International Airport Limited’s contribution to the government would be over US$2 billion over the concession period of 25 years, which will make a very significant contribution to the economy of the Maldives.”
The government’s airport company, Maldives Airports Company Limited (MACL), complained that it was now facing bankruptcy as a result of the ADC deduction, and insisted that it could make MVR 60 billion (US$3.9 billion) over 25 years by developing and operating the airport on its own. It did not clarify where the investment would come from.
If the government considered GMR’s public offer, it made no sign. Instead, the Transport Minister backed MACL in ordering GMR to pay back the money deducted.
MACL Managing Director Mohamed Ibrahim had told local media that MACL’s agreement with GMR under the previous government to deduct the ADC payment was “null and void”. He told reporters that the deal was no longer relevant as it had been agreed by the former MACL chairman, who had been replaced under the new government. Ibrahim contended that charges could therefore no longer be deducted from GMR’s concession payment.
“We had informed [GMR] that the letter from the former Chairman of MACL was now invalid and hence must not be followed. In addition we had also informed that no deductions can be made from the concession fee,” he told local newspaper Haveeru.
The matter has now been sent to the Singapore court of arbitration, as per the concession agreement.
The stand-off escalated in early August following a stop work order on the new terminal development, after the government alleged there were missing planning permissions from the Civil Aviation Authority.
“When the government decides that a project be stopped, we will make sure this happens,” said President’s Office Spokesperson Abbas Adil Riza at the time. “GMR have not discussed the construction with relevant authorities,” he claimed.
In the past week the government and assortment of former opposition parties now in power have stepped up their campaign to pressure the airport developer, with cabinet ministers holding a press conference during which they accused the World Bank’s International Finance Corporation (IFC) of “negligence” and “irresponsibility” in conducting the original bidding process.
The IFC dismissed the allegations: “The IFC’s advice complied with Maldivian laws and regulations and followed international best practices at each step of the bidding process to ensure the highest degree of competitiveness, transparency and credibility of the process,” the organisation stated.
Attorney General Azima Shukoor then announced she had asked the Supreme Court to rule on whether it had jurisdiction over the airport agreement.
“It is against the International laws and the United Nations Charter that any action that undermines any sovereign right of a sovereign state, it is clear that courts of a sovereign nation has the jurisdiction to look into any matter that takes place within the boundaries of that state as according to the constitution and laws of that state,” read a statement from the court.
“Even though a contract has an arbitration clause giving right to arbitrate in a foreign court does not limit a local courts jurisdiction to look into the formed contract, and it is clear that such limitations are in violation of UN Charters principles of sovereign equality, principle of sovereignty non intervention within domestic jurisdiction, principle of self determination rights,” the Supreme Court said, in an apparent affirmative.
Meanwhile, the government-aligned Dhivehi Rayithunge Party (DRP) this week revealed President Waheed’s response to its letter requesting details of the implications of exiting the concession agreement with GMR – an apparent fee of US$700 million, although Minivan News understands that even if the government were to produce the money, under the concession agreement it would also be required to prove ‘public interest’ in the Singapore court of arbitration.
According to the DRP, President Waheed advised that it would be “extremely difficult” to make the payment given the country’s economic circumstances, and that cancelling the agreement would furthermore have a negative impact both on perception of the Maldives as a favourable destination for foreign investors, and Maldives-India relations. Dr Waheed emphasised that the decision was ultimately one for the political parties in the unity government.
The following day, DRP MP Ali Azim called on President Waheed to resign, claiming that it was up to him to reach a decision.
“If Waheed is finding it too hard to come to a decision on the matter of GMR, he ought to resign immediately,” Azim told local media.
“Each of these parties have someone who is looking forward to running in the 2013 elections. Whether it be Gasim, Yameen or Thasmeen, they are all just waiting for 2013 to come around. Now if Waheed’s going to ask these men for advice, then he’s going to get tricked, isn’t he?” predicted the MP.