The GMR contract controversy in the Maldives

The GMR contract controversy in the Maldives

Genesis of the controversy.

The Maldives Government on November 27 terminated the $500 million modernisation project of Ibrahim Nasir International Airport (INIA) at Male handed over to the Indian infrastructure company GMR saying the agreement was void ab initio as it was signed under “dubious” conditions.

The GMR Group led consortium had won the contract for 25 years through competitive global bidding process initiated by the previous regime in the Maldives. The agreement – signed on June 28, 2010 – turned controversial after the GMR Group decided to levy $ 25 towards Airport Development Charge (ADC) and insurance charge, a move that was struck down by the Civil Court.

The project had been hanging in balance ever since the regime change in the Maldives earlier in 2012. According to reports, the Cabinet took the decision in the face of increasing pressure from pro-Government political parties for annulling the agreement.

The GMR group has subsequently sought legal remedy to enable it to remain in Maldives and to protect its investment and employees.

Issues involved
  1. Questions have been raised about the safety of foreign investment in the Maldives. The Government’s reckless decision to terminate GMR’s contract will scare off investors. It will have serious ramifications for the economy of the Maldives.
  2. The GMR-led consortium has so far invested $230 million in the project, out of which $160 million has been funded by Axis Bank. The company has 80 expatriates working at the airport and they may have to be evacuated in case the matter continues to remain unresolved.
  3. The share prices of GMR Infrastructure Ltd. have been affected badly.
The recent legal developments

The dispute has led to arbitration proceedings in Singapore – as provided for in the contract – and the Singapore High Court recently stayed the Maldives Government move to take over the airport from GMR.

Recently, the International Finance Corporation (IFC), part of the World Bank, also came out in support of GMR. Terming the episode disappointing, the IFC has expressed hope that the sanctity of the contract is upheld and the matter is resolved as per the contractual framework and in line with Maldivian and international laws.

A defiant Government of the Maldives has however refused to accept the order and has said it will retake the airport, regardless of the consequences.

It has decided that the airport functioning will be managed by a state-run organization namely Maldives Airport Company Limited.

The Maldives Government now insists that the move to terminate GMR Infrastructure’s 25-year contract to own and operate the Male International Airport is a totally economic decision that is crucial to its survival. According to the Government, the terms of the contract are not positive and it cannot accept a situation where it has to pay someone to run it.

The steps taken by the Government of India

The GoI, in a stern message to Maldives, has said that it expects no arbitrary and coercive action being taken pending the outcome of legal proceedings on the GMR contract issue. It has also warned that recourse to any such action would have adverse consequences for bilateral relations.

According to media reports, India will consider whether to proceed with its generous aid package to the Maldives after its Government disregarded India’s pleas and decided to cancel the contract given to GMR. Notably, India is assisting the Maldives in combating its financial difficulties, including paying salaries to civil servants and shoring up the surveillance and reconnaissance ability of its security forces.

India has also expressed concerns over reports from the Maldives about continuing violence and intimidation against elected representatives and expressions of radical sentiments.

About GMR group

It is an infrastructure development company with its headquarters in Bangalore. The company was founded in 1978 by Mr. Grandhi Mallikarjuna Rao. The company has its major interests in Airports, energy, highways and urban infrastructure (Special Economic Zones and large area developments). The Airports operated by GMR are:

  • Indira Gandhi International Airport – New Delhi
  • Rajiv Gandhi International Airport – Hyderabad
  • Sabiha Gokcen International Airport – Turkey
  • Ibrahim Nasir International Airport – Maldives

How well did you understand the issue? Assess yourself.

Question 1 | (250 Words): What are the issues involved in the decision of the Maldives Government to terminate the management contract  of Ibrahim Nasir International Airport (INIA) at Male handed over to the Indian infrastructure company GMR? How do you think it would affect India’s relation with the Maldives?

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