The beleaguered GMR group, whose 25-year concession to develop and operate the Male International Airport has been terminated by the Maldives government, got a shot in the arm, with International Finance Corporation (IFC), part of the World Bank, coming out in its support.
“This is very disappointing. I hope that the sanctity of the contract is upheld and the matter is resolved as per the contractual framework and in line with Maldivian and international laws,” the IFC said in a letter to G.M. Rao, Chairman of the Group.
IFC was the agency that managed the global tender process for award of concession for development and operation of the Male airport in 2010.
“I want to emphasise that IFC, as the lead transaction adviser to the Government of Maldives for this project in 2010, provided advice to the Government of Maldives that 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,” says Karin Finkelston, Vice President, Asia Pacific, IFC.
Meanwhile, Mr G.M. Rao, Group Chairman, GMR Group has alleged that the termination is “totally political” and does not follow due process. In an interview to The Hindu group of publications at its office in Chennai, Mr Rao said: “They don’t want settlement, they want to cancel, that is their aim.”
He pointed out that GMR had complied with all the demands of the Maldivian government including agreeing not to charge Airport Development Charge (ADC) to Maldivian nationals, consider building an emergency runway to address the constraints of a single runway and upgrade the existing runway. Yet, the government slapped a “stop construction” notice on GMR in July saying due approvals were not taken; GMR says that it has all approvals. The nub of the controversy is over the $25 ADC which GMR was entitled to charge every departing passenger from Jan.1, 2012 as part of the terms of the concession agreement. According to Mr Rao, all the bidders structured their bids by factoring in the ADC revenues into their calculations. As per the successful GMR bid, it had to pay $78 million upfront, a 1 per cent gross revenue share up to 2014 and 10 per cent after that. GMR was also required to share 15 per cent of the fuel revenues until 2014 and 27 per cent after that adding up to a total bid value of $529 million, which was the highest among all bidders.
In December last year, the Maldives Civil Court ruled that ADC cannot be charged as there was no enabling legislation from Parliament for that. GMR requested the Maldives Airport Company Ltd. (MACL), equivalent of the Airports Authority of India, to allow it to set-off the ADC against the revenue share payable to the latter which MACL agreed to. Trouble began with the change of government in Male in February this year. The new government cancelled the set-off arrangement forcing GMR to go for arbitration in Singapore where the case is still on.
MACL, meanwhile, filed a case against its former Chairman seeking a declaration that the letter issued by him allowing GMR to set-off the ADC is not binding on MACL. GMR went to the Singapore High Court in July and obtained an injunction against this. MACL unsuccessfully contested this last month after which came the termination notice.
“The Singapore court mentioned that this is one of the best, transparent agreements that it has seen and complimented IFC for this,” Mr Rao said pointing out that the Maldives government now wanted to somehow cancel the agreement without paying compensation. “That is their dream,” he said.
According to him, the contract can be annulled without paying compensation only on three grounds: corruption, safety and security. “They evaluated all three parameters and have not been able to find anything,” Mr Rao said.
As per a working by the Maldives government, compensation could run up to $700 million if the agreement is cancelled. “How will they pay it when they have no money to pay salaries to government staff?” he remarked. As per a tripartite agreement between MACL, GMR and Axis Bank, which has lent up to $160 million for the project, the bank should be served a 60-day notice before termination which has not been followed, according to Mr Rao.
“They have alleged that IFC has funded GMR but the truth is that we have not borrowed a single dollar from IFC. The project is fully funded with Indian money from Axis Bank,” Mr Rao said. Till date GMR has invested about $180 million in the project according to him.