Page added on September 16, 2012
Additional reporting by Neil Merrett
A spokesperson for the International Finance Corporation (IFC) has defended the organisation against charges of negligence during the bidding process for the development of Ibrahim Nasir International Airport (INIA).
In a press conference last Thursday held by the Attorney General Azima Shukoor, Economic Development Minister Ahmed Mohamed, Toursim Minister Ahmed Adheeb and Civil Aviations Minister Dr Ahmed Shamheed, it was alleged there were discrepancies in the bid awarding and concession process.
The cabinet members claimed that the IFC had been “irresponsible” and “negligent” in advising the former government of President Mohamed Nasheed in the concession of INIA by Indian infrastructure giant GMR.
“The current government believes that the IFC had not given the most appropriate legal, financial and economic advice to the Maldivian State,” Azima Shukoor said.
The IFC denied the accusations, stating that its advice was geared towards achieving the “objective of upgrading the airport and ensuring compliance with applicable international regulations” and providing the Maldives government “with the maximum possible revenue”.
“A competitive tender was organised with the objective of selecting a world-class, experienced airport operator, who would rehabilitate, develop, operate and maintain the airport,” said an IFC spoksperson.
The IFC – a member of the World Bank Group – was established in 1956 to stimulate private investment in developing countries through investment, advisory, and asset management services.
The spokesperson stated that the bids were evaluated by a government appointed committee, comprising senior government officials, using two key criteria.
The first criterion required firms to meet all the technical requirements set out in the tender documents which, Seth stated, were designed to meet the objectives of the government, and ensure the airport becomes a world class airport with ‘Leadership in Energy and Environmental Design’ certification (Silver).
The second criterion was financial, favouring the highest offer from firms that passed the technical stage. The financial criterion was a combination of a one-time up-front fee, and fixed and variable fees to be paid throughout, explained the spokesperson.
“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.
“These processes have been followed globally in several Public-Private-Partnership projects in the airport and other infrastructure sectors,” it added.
Asked if the IFC was currently continuing assistance to GMR or the Maldivian government, it replied “We are currently not working in any capacity with the authorities on this project. We however remain available to address any issues or concerns that the government may have relating to the project.”
A GMR Spokesperson said that the company did not wish to comment on the remarks made by government ministers.
The Anti-Corruption Commission (ACC), which is currently investigating the GMR deal, said last week that continued work on the project may be delayed considerably whilst the investigations are completed.
ACC investigations began in June, although building work on the new terminal – due to open in July 2014 – was ordered to halt in early August after the government claimed that the company had not acquired the appropriate permits.
Government’s critique of bidding process
During Thursday’s press conference, Shukoor claimed that the role played by the IFC during the bid awarding process – as well as the technical, financial and legal advice given – was unacceptable and included “major inconsistencies” in the “loss-benefit assessment” carried out before awarding the project to GMR.
“The legal agreement also lacks equity between the state and GMR, and gives significant powers which have narrowed the government’s ability to manoeuvre within the agreement. For this reason, the state is facing a huge loss even in taking steps that have to be taken immediately,” she added.
Speaking about the prospective profit, Shukoor claimed the agreement made between GMR and the government would lose the country more than that it would earn, and a much more cost effective master plan had been made during the tenure of former President Maumoon Abdul Gayoom.
She said that as long as the agreement between GMR and the government is not invalidated, the agreement would be “legally binding” despite a “majority of the people” who wish to “terminate the agreement immediately”.
“The government must also consider how much money has to be paid back as compensation if terminating the agreement, and it is clear to all of you that the Maldives financial and economic situation is at a critical level, and in this situation it is not an easy thing to do,” she told the press.
Shukoor also expressed the government’s concern about the effect on investor confidence that may result if the agreement is terminated in addition to other “diplomatic issues” that may arise from such a decision.
The Economic Minister, Ahmed Mohamed, claimed that the Nasheed government had only considered the lump sum that it received as the upfront payment, rather than long term benefits that the government could have achieved.
“They awarded the bid to a party who proposed to pay US$76million, but if you look at the other bidders, their bids were more profitable in the long run. For example one of the bidders proposed to give a 31 percent share to all the businesses except that from oil trades until 2014, but GMR proposed only one percent,” he claimed.
He added that another bidder had proposed to share 16 percent of the profits gained from the oil trades with the government.
“It is clear that the government did not consider, when awarding the bid, the long term benefits of the people but rather an instant short term profit,” he argued.
Highlighting the already much disputed issue of the Airport Development Charge (ADC), Mohamed claimed the government had given up a lot of power to GMR in the contract, allowing them to dictate all the fees during the concession.
He stated that there were only two options left for the government: “Either find a solution within the concession agreement with GMR or terminate it.”
Civil Aviation Minister Dr Shamheed said the initial INIA master plan, made by British consultancy firm Scott Wilson, was considered too costly by the IFC.
“So we checked the truth of IFC’s report. The master plan by Scott Wilson is a phase based development. There were developments that were to be brought in the first phase, the second and other phases that followed were mentioned very much in detail,” he claimed.
Shamheed claimed that despite the fact that Wilson’s master plan was more cost effective the IFC made a new master plan, hiring another foreign Consultancy firm – Halcrow- which Dr Shamheed claimed was more costly.
“Scott Wilson’s phase one cost us US$390 million, and all the three phases summed up came to a figure around US$590 million. IFC did not provide this information to the government. We are talking about a development of 30 years,” he said.
Shamheed also alleged that the new master plan was made without even testing the status of the current runway at all and said they relied on a test that was made a long time ago.
“Even those tests showed that the runway needed significant repairs and some parts of the runway had to be removed,” he added.
“This is very irresponsible that the former government entered into a contract with a party who did not assess the situation of the existing runway,” he claimed.
Tourism Minister Ahmed Adheeb alleged that because of the new fees implemented by GMR following its take-over, the flight frequency from Europe had declined.
“Coming to Maldives is no longer feasible for most of the chartered flights. Sri Lankan airlines’ Male to London direct flights have been pulled out following the decision. Even though the flight frequency from China has increased, the number of bed nights has declined,” Adheeb said.