In the end it was tiny Maldives which crashlanded the Bangalore-based GMR Group’s international plans.

Earlier this month, the Maldives Government cancelled the group’s contract for modernising the Male Ibrahim Nasir International Airport after a legal battle fought in a Singapore court. The matter is still sub judice and this time the GMR Group is fighting over the compensation amount due to it for cancellation of the contract.

The diversified GMR Group has interests in roads, energy and airports. It is present in Turkey, South Africa, Indonesia and Singapore and operates assets worth about $5 billion (over Rs 22,000 crore). Assets worth about $6 billion are under construction.

The Male International Airport was the group’s second project in modernising an international airport, the first being in Turkey where it modernised Istanbul’s Sabiha Gocken airport. Domestically, the Group has built the Hyderabad airport but is perhaps best known for modernising the Delhi airport’s Terminal 3 in record time.

However, each of these projects has not been without controversy. For instance, in Delhi the project ran afoul of the Comptroller and Auditor General, who pointed out that the consortium of Delhi International Airport Ltd (DIAL) was given land at a highly concessional lease rental.

Total revenue

But it is the cancellation of the Maldives airport contract which is likely to affect the group the most. According to GMR, half of its total revenue comes from its airport business and nearly half of that is from international airports. Clearly, the loss of the contract will not only hit its bottomline but may also dent its reputation. After all, the group will be hoping to bag bigger projects based on its global credentials, not just on the basis of constructing or modernising three airports, two of which are in India. Though GMR is silent on the issue because the case over compensation claim is still in court, it does acknowledge the fact that it will have to exercise greater caution in respect of opportunities in other countries in future.

At the heart of the problem in Maldives is the decision of the GMR Male International Airport Ltd (GMIAL), the GMR-led consortium, to levy a departure tax of $25 a person. G.M. Rao, Chairman of the group, said that the airport development charge (ADC) of $25 on each 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.

Originally, the airport modernisation project envisaged two types of revenue accruing to 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 payment 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.

According to the GMR group, the Nasheed Government had approved GMR’s bid and allowed the ADC. However, the Government in the country changed last February and so did the decision. GMR was asked to return the project to the Government and leave the island immediately. The new regime claimed that GMR had no authority to levy the tax as the contract itself was null and void right from the beginning. Experts say that personal preferences, political agenda and business interests could have possibly influenced this decision.


The GMR Group did not give up that easily. It took the Maldivian Government to court to fight its decision of cancelling the contract. (The contract stipulates that any arbitration between the two parties has to be settled in Singapore.) After losing this battle, the group is now fighting another legal battle on the amount that it should be paid as compensation for the cancelled contract.

While the GMR Group is asking for $800 million, the Maldivian Government is claiming that the amount payable is much less. “We have heard figures of $700 million, $550 million, $350 million and also $220 million. Let the Singapore court decide and we will abide by the judgment,” Press Secretary to the Maldivian President Masood Imad had told Business Line earlier.

The GMR Group was to invest $500 million in the project – the largest FDI investment by any company in the country. Till date, it has invested about $240 million ($160 million raised through debt and the rest, equity). For the full financial year 2012-13, GMIAL was expected to generate revenues of over $250 million (including ADC revenues and fuel sales). This would have increased in line with the increase in traffic, by four to five per cent year-on-year.

GMR officials claim that the project would have given more than $2.5 billion to the Maldives Government over the 25 years concession period. In addition, the island state’s Government would also have received more than $1 billion through duties and royalties.

Of course, the situation is no better for the Maldivian Government. If Maldives is forced to pay $800 million in compensation to the consortium it could weigh down the finances of the island nation. Many feel that this will put a significant – and avoidable – financial burden on the Maldivian people. With a GDP of around $1 billion, a payout of $800 million is bound to have a significant impact on the country as a whole.

Wrong signals

Further, the manner in which the contract was cancelled cannot do much good for its image. As a small island nation that relies mainly on tourism to power its economy, the country is desperately trying to attract FDI for building its infrastructure. It can hardly be disputed that treating the largest FDI investor in such a manner is likely to send all the wrong signals about the investment environment in the country.