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Maldives says GMR's deal not viable

Surajeet Das Gupta & N Sundaresha Subramanian/New Delhi 02 Dec 12 | 11:42 AM

Did GMR Infrastructure get a sweet deal from the ousted Maldivian President Mohamed Nasheed, which eventually turned sour after a new government under president Mohammed Waheed came to power?

If Hassan Saeed, special adviser to the new Maldives president is to be believed  the termination of the Indian major’s contract  to manage Male Airport last week, was justified as the project  turned into an unviable proposition for the Government.

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That is because Saeed has projected that instead of earning revenue,  for giving GMR the concession to run the airport, it had to ironically fork out a staggering eight billion Maldivian Rufiyaa or Rs 2871 crore over the 25 year tenure of the concession to GMR, seriously impacting the coffers of the tiny island. 

The reason for this was a bonanza given by the previous government. After a civil court cancelled imposition of a US $ 25 airport development charge (ADC) and US $ 2 as insurance charge from all departing international passengers in December last, Nasheed just before he was ousted in February, permitted GMR to set off the short fall amount (for the reason of non-collection of ADC charge) against the payment of future variable annual concession fee.

As a result GMR slapped a bill totalling  US $ 3.5 million to the government for payment in for the last two quarters , as their ADC revenue was much more than the concession fee that they had to pay to the Government.  But the new government cancelled the consent letter given earlier to permit what they consider a cosy adjustment.

But GMR says that termination rules of the agreement which requires a 65  day notice was not followed (they have given only seven days) ,  it has already spend US $ 240 million, and imposition of ADC was enshrined in the request for proposal (RFP)  as one key source of revenue without which the project was not viable. The company based on what they have spent and interest costs could ask for a compensation of  upwards of US $ 500 million due to the premature cancellation, which is nearly half of the islands’ GDP of US $ 1.2 billion.  The matter is now under adjudication in the courts of Singapore.    

Two months before the contract was terminated, Saaed had written to Prime Minister Manmohan Singh seeking support for termination of the project.   In his letter to Singh in September he had said that the ADC alone is expected to generate $2.7 billion for GMR through the concession period in return of its proposed investment of only $380 million. Clearly for them this was a one sided deal. 

But a GMR spokesperson says the ADC existed in a different form before the entry of GMR. “Prior to privatization, Maldives Airport Company Ltd (MACL) used to collect a passenger service charge (PSC) of $18.5. During the bid, the government decided to take this PSC directly to treasury and replace it with a new charge of $25 termed as the Airport Development Charge. Hence from an airport revenue stream perspective, only $7 were added which were required for the development of the airport."

The spokesperson also added that GMR Male International Airport Ltd (GMIAL) is investing nearly $600 million towards the development of the airport (and not $380 million as suggested by Hassan Saeed). Also the present value of this additional charge that will accrue to GMIAL is less than $100 million over the entire concession period, which is less than 16% of the investment to be made.

Saeed also alleges that although the Maldivian government is incurring a huge financial loss, as it has to now pay the Indian company, GMR has already declared Male International Airport its most profitable operation. Yet another evidence of the one sided deal. 

But, GMR claims that Maldivian government is still making thrice what they were making earlier while the airport was operated by MACL.  The company added that the court ruling does not relieve the government of its obligations as per the concession agreement.

“In fact, failure of the government to pass the ADC bill in the Parliament has led to the current situation. This despite multiple offers by GMIAL to not charge Maldivians any ADC (it offered that if ADC is upped to US $28 Maldivians going abroad would not have to pay it)" the spokesperson added.

It also says that the government of Maldives has, as part of the budget, proposed just a few days ago to increase the PSC from $18 to $30 which is nothing but another form of ADC. This clearly shows that the government is trying to short change GMR by not implementing ADC and on the other hand, implementing the same bill in another form – thereby keeping the entire money with itself.

Saeed in his letter to the PM  had also recalled how MACL, the state-owned operator that ran the airport before 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.

But GMR claims that these numbers were inflated. “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. “ 

In comparison, it says, GMR consortium even before taking over the operations of the airport paid an upfront fee of $78 million – which is more than twelve times MACL’s average annual payments to the government.

The new government has also alleged that GMR was instrumental in altering the Sir Scott Wilson master plan for the airport project, influenced 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 however says there is no basis for these allegations. It says that the bid process was managed and run by IFC, a World Bank entity, which appointed Master Plan consultants, Halcrow, to design an ideal Master Plan. This plan was prepared even before the bid process was launched and even before bidders were given the RFQ. “Alleging that GMR exercises its influence over World Bank is preposterous, to say the least. There was not a single change to the master plan given to the bidders as a part of the RFQ," they add.

The new Maldivian government also points a finger to the hefty airport charges which were   increased dramatically for GMR making it more expensive than London’s Heathrow and threatening viability of carriers.  But GMR says that air traffic movement actually went up by 15 per cent after they took over and aero charges are fixed by the regulator which is a Maldivian authority.

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