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.

(This article was published on December 3, 2012)
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