The Singapore High Court’s December 3 decision in favour of the GMR-led
consortium for modernising Male airport is a victory for the Indian Group. The
recent act shows the Maldivian Government in poor light, and is likely to have
larger implications for the island nation.
On Monday, the Singapore High Court, which has been the legal
battleground between the GMR Group and the Maldivian Government, gave a second
decision in favour of the GMR Group.
The Court directed the Maldives Ministry of Finance & Treasury and
Maldives Airports Corporation Limited (MACL) not to interfere with the rights
of the GMR Male International Airport Private Limited under the concession
agreement. GMRIAL is the joint venture company undertaking the modernisation of
Male international airport. The Maldivian Government has, however, said that
its decision to revoke GMR’s licence was very clear and “non-reversible and
non-negotiable”. Last week, Singapore High Court had dismissed an application
filed by the Maldives Airports Company seeking to vacate the order granted in
favour of the GMR Male International Airport Private Limited for modernising
Male airport.
Days after this decision by the Singapore High Court, the Maldivian
Government revoked GMR Male International Airport Private Limited’s licence for
modernising the airport.
INVESTOR CONFIDENCE
At the core of the issue is levying a $25 airport departure fee for
every passenger leaving Male airport. While the GMR-led consortium maintains
that it is allowed to levy the fee under the various agreements that it has
signed with the Maldives Government to undertake the project, the opposition in
the country had taken on the Group in this regard.
The decision to go in for arbitration in Singapore was taken as the
contract stipulates that in case of a conflict, the matter will be decided
under Singapore or UK law.
To complicate matters, the Maldivian Government also decided to increase
the Airport Departure Fee (ADF) to $ 30 from the existing $12 in the latest
Union Budget.
Here, it must be clarified that the ADF goes to the Maldivian
Government, while the fee being collected by GMR is viability gap funding to
finance the completion of the airport project.
The decision to increase the fee was taken without responding to GMR’s
communication offering an amicable way out of the controversy by not levying
the departure fee on Maldivian nationals.
The money involved in the project is substantial -- the GMR Group is to
invest close to $500 million in the modernisation of Male airport. But it is
more than money that is at stake here. GMR is the largest FDI investor in the
island nation.
How this project shapes up will have implications for others from the
private sector – both in India and elsewhere in the world—and how they look at
investing in Maldives.
Clearly, revocation of the contract and legal action are not going to
send positive signals to investors.
This is something that Maldives, which is looking at FDI for the development
of the country, can do without.
Indian Government officials rightly maintain that the outcome of the
current problem could affect investment flows not only from India, which has
traditionally been Maldives’ close ally, but also from global investors, who
are in any case wary of investing in a country that does not honour
international contracts.
POLITICAL TURMOIL
The Maldivian Government’s handling of GMR’s project paints a negative
picture as far as the investment potential in the country is concerned.
The modernisation of Male airport has been dogged by controversy right
from the time that the GMR-led consortium won the bid in 2010. At that time,
the Maldivian Government was being led by President Mohamed Nasheed.
In December last year, President Nasheed assured the GMR Group and even
other foreign investors that the Maldives Government would honour all its
contracts. Nasheed was ousted in February this year.
Many believe that the current government is using the modernisation
project as a political tool against Nasheed. What is lending credence to this
thinking is the fact that the country is due for elections in October next
year, with many maintaining that they could be held sooner than that.
Small, fringe parties too have stepped up their opposition to the
Nasheed Government’s decision to award the contract to the GMR Group, while the
current Maldives Government led by President Waheed, who came to power after
President Nasheed was ousted in February, maintains that the contract signed
earlier was void
ab initio.
When it comes to India, the entire controversy has other larger
implications. India is keen to ensure that Maldives’ outlying islands are not
used for anti-social activities including smuggling of drugs and arms and
ammunition.
Moreover, the island nation provides ample business opportunities not
only for the Indian Government, but also for the private sector. Equally
importantly, India also does not want to give China an opportunity to set up
base in its backyard. China is reportedly very keen to invest there.
With the island nation embroiled in political turmoil, the modernisation
of Male airport is going to be in the news for at least some time to come.
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