Termination unfair, bid transparent: G.M. Rao

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G.M. Rao, Chairman, GMR Group
Bijoy Ghosh G.M. Rao, Chairman, GMR Group

$160-180 million invested in project; GMR hoping for quick resolution of issue

‘Corruption, safety and security’ are the only three reasons that would justify the termination of GMR’s airport modernisation contract in Maldives without any compensation, said G.M. Rao, Chairman of the GMR group, in an exclusive meeting with The Hindu group of publications on Tuesday.

Calling the termination ‘unfair’, he stated that the project was won through a transparent bidding process. World Bank-arm, IFC, a key adviser to the Government of Maldives on the deal, had showcased this project as a success story for other public-private partnerships.

ADC not unusual

Writing to the GMR group on Monday, IFC has termed the annulment of the contract as ‘disappointing’ and has offered to facilitate resolution of the dispute. Rao said that the airport development charge (ADC) of $25 per passenger, the bone of contention in this dispute, was part of the original terms on which bidders participated in the project. In fact, it was on the basis of the ADC that operators made their projections on revenue-sharing.

This airport modernisation project envisaged two types of revenue for the Maldives government. One, an upfront payment to be made immediately by the operator on winning the contract, followed by a fixed annual fee. And, two, an annual revenue-sharing agreement, where the operator would share a percentage of both fuel and non-fuel revenues with the government every year. The airport operator, on its part, would earn income from the sale of fuel, landing/parking fees, ground-handling charges, duty-free and food and beverage shops and rent and lease charges, apart from the ADC.

Pay and earn

The GMR-Malaysia Airports consortium won the contract by putting in the highest bid of $529-million, while the second highest bid was for $483 million. What also probably swung the contract in its favour was that the GMR consortium offered to pay the highest upfront amount of $78 million on winning the bid.

Thereafter, it has committed to pay 1 per cent of gross revenues and 15 per cent of fuel revenues up to 2014, the payouts spiking to 10 per cent and 27 per cent respectively after the project completion in 2014. GMR explains, “While other bidders opted to earn and pay, we opted to pay and earn”.

In contrast to the GMR group, two other bidders offered upfront payments of $7 and $27 million, with revenue shares of up to 31 per cent in the first year itself. With an estimated $160-180 million already invested in the project, Rao is hoping for a quick resolution of the issue, which is now under arbitration.

Asked what compensation would be payable today if the project was stopped, Rao said that as per the group’s internal estimates, the compensation payable to it should be about $700 million, based on the present value of the likely cash flows it expected from running the modernised Male airport.

(This article was published on December 4, 2012)
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