GMR entered the Maldives after realising the lack of potential in India for large airport projects. The relatively new global infrastructure is reportedly not insured against political risk—only to find itself stranded after a government change in that country.
Pro China sentiments along with commercial disputes used by some extremists and political parties in Maldives have provoked anti-India sentiments which resulted in GMRÂ’s Male airport confl ict. Maldives government finally rejected a Singapore courtÂ’s stay on the termination of an airport contract that had been given to a consortium of the Bangalore-based GMR Infrastructure and a Malaysian company. Interestingly, in a recent development, the Singapore court ruled that Maldives government is entitled to take over Male Airport from GMR.
GMR was given the pact to build Male International Airport in 2010 in collaboration with Malaysia Airports Holdings Bhd (MAHB) under public-private partnership (PPP) mode. The project has been in the eye of a storm since the former president of Maldives Mohamed Nasheed quit in February. The project has been facing opposition, mainly from political parties such as the Adhaalath Party, which is part of WaheedÂ’s coalition government.
The new government has decided to terminate the $511 (around Rs 2,700 crore) Male airport contract of GMR Group based on legal, technical and economic issues regarding the agreement.
According to media reports, Hassan Saeed, special advisor to the new Maldives President said, “The termination of the Indian major’s contract to manage Male Airport was justified as the project turned into an unviable proposition for the Government.” Saeed mentioned that instead of earning revenue, for giving GMR the concession to run the airport, the country will loose eight billion Maldivian Rufiyaa (Rs 2,871 crore) over the 25 year tenure of the concession to GMR.
Media Secretary of Maldives Government, Masoon Imad informed media that the government’s decision is very clear, ‘it is non-reversible and non-negotiable’. MACL, the state-owned operator that ran the air port before the entry of GMR, was able to provide all services at reasonable costs and still make a profit of $50-60 million annually. In addition, it also supported the national carrier Island Aviation through a subsidy of $10 million per annum, Saeed stated.
But, GMR claims that these numbers were infl ated. “As per Hassan Saeed’s own book, MACL paid on an average $8-9 million to the government on an annual basis. In fact, far from contributing to the Maldivian economy, MACL took more than $45 million loan from the government during the period 1994-2004,” the company said, adding “GMR consortium even before taking over the operations of the airport paid an upfront fee of $78 million – which is more than 12 times MACL’s average annual payments to the government.”
However, the new government has alleged that GMR was instrumental in altering the Sir Scott Wilson master plan for the airport project, infl uenced the bidding process to its own favour through international consultants. It also alleged that the then president who removed the board of MACL to make sure it signed the concession agreement. GMR says that the bid process was mana ged and run by IFC, a World Bank entity, which appoi nted consultants, Halcrow, to design an ideal Master Plan.
The new Maldivian government also points a finger to the hefty airport charges which were increased dramatically for GMR making it more expensive than LondonÂ’s Heathrow and threatening viability of carriers.
Meanwhile, India had conveyed its displeasure to Maldives soon after the GMR deal was scrapped on November 27 and it had been communicated to Maldives government that the Indian interest should be ‘fully protected’ otherwise India’s financial aid of $25 million to Maldives could wither away as bilateral ties.
Given this backdrop, GMR story is no doubt a lesson for Indian corporate those have overseas expansion plans. Indian companies should understand and study the political situation or risk of the country before taking any such decision on massive investment. Although, Maldives government is agrees to compensate GMR, but that too long way to go. The final judgement against GMR to leave Male airport will not only jeopardise cash fl ows but also bring strain in the balance sheet of the company. As on September 30, the companyÂ’s debtto equity ratio at 3.2 was higher than 2.6 six months ago, with net debt at a huge Rs 35,000 crore.
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