Maldives shoots itself in the foot by ousting GMR

By Rajeev Sharma

Whether the world liked him or not mattered little to Mao Zedong, the founding father of the People's Republic of China. His admirers and their principal backers in Male have obviously not heard the time-tested Mao adage, which Beijing has adopted as its official creed. Otherwise they would not have mixed their penchant for Wahabism with economics and terminated the lease to run the Ibrahim Nasir International Airport in Male and cancelled the contract to build and operate a new airport terminal.

The twin contracts were awarded after a 10-month long global bidding process overseen by International Finance Corporation, (IFC), a World Bank affiliate. In today's world market, the Bretton Woods twins are the acknowledged practitioners of transparency. Put mildly, the cancellation of the Male airport contract to the consortium of GMR Infrastructure and Malaysia Airports Holdings Bhd will prove costly in terms of arbitration and compensation costs to the Maldives government and investment prospects of that country.

Maldives President Waheed Hassan Manik. Reuters

For Maldives, which is just emerging from a year of political turmoil and months of unrest, Indian rupees and Malaysian ringgits are as important as yuans and greenback.Money has no colour, particularly when demand outstrips supply. Maldives cannot afford to make any class or colour discrimination since the long years of Maumoon Abdul Gayoom's rule offered a dose of religion and not development.

Maldives' mainstay, tourism, can prosper and become the true growth engine of the islands' economy only if there is foreign investment and if it comes with globally accepted investor protection norms.

Frankly, investors must be fully and properly insured from political vicissitudes and the whims of the helmsman of the day. The basis of any business is trustworthiness and competency of the bidder. The Male airport saga shows that the investment climate is anything but heart warming.

Consider these facts.

Mohamed Nasheed, as President, initiated and finalised the Male airport deal through a global competitive bidding process on 28 June, 2010. The contract was for $511 million. The successful bidder, the GMR-MAHB Consortium, entered into a 25-year agreement with Maldives Airports Company, and the government of the Maldives.

Known in some circles as the Mandela of the Maldives, Nasheed had everything going his way as the fourth President of the country till things turned murky for him and for his Maldivian Democratic Party (MDP). The tide turned against him without much notice by end 2011 because of his inexperience or excessive exuberance. Well, politics is an enterprise as much of populism as of oneupmanship.

Nasheed bowed out in February this year in what his MDP claims as a coup d'tat staged by powerful networks of Gayoom loyalists. But that is of no concern to investors like GMR-MAHB Consortium; they are there in Male for business and business alone. And they are not fly-by night operators; they have several prestigious projects outside Maldives. As such they remain outside the parameters of internal political dynamics not only in Maldives but also in all the countries they work.

This is the message American MNC Wal-Mart has sent out recently when it hauled up some of its top executives. They were taken to task after an internal inquiry when the management noticed that these worthies had indulged in some unethical practices to gain business. Today, any company which is listed on New York or London stock market cannot afford to push under the carpet any mistake or mischief, and still hope to survive.

But in Male, the change of guard at the presidency meant troubles for the GMR-MAHB Consortium. Opposition came from the ruling combine, particularly the main player, Gayoom's Progressive Party of Maldives (PPM), for which the airport deal became a peg to settle scores with Nasheed.

President Mohammed Waheed, as the chief executive of the country, could have used his position to prevent the airport project from turning into a political football. He did not. Instead he has publicly shared the perception of the anti- Nasheed camp that the agreement was a "bad contract" signed "conceivably under dubious conditions" by the previous government.

Clearly, he and his coalition see the airport deal as an effective weapon to beat the MDP and its chief Nasheed at the hustings. No date has yet been set for the poll but the general consensus is that the election would be some time in July-August 2013

If his opinion was uninfluenced by extraneous factors, the President could have called the consortium representatives for a frank talk. His government could have demanded a fresh look at the fineprint of the documents, which is a valid exercise under global trade norms.

Alternately, the government of Maldives could have dragged the Indian-Malaysian group to international arbitration. Such a course could have been the highway to investor confidence and could have created a 'propitious' climate for investments.

Sadly, the Waheed government did not adopt any of these courses. First, the ruling parties staged a protest rally and one of the star speakers, the President's spokesperson Abbas Adil Raza, targeted Indian High Commissioner DM Mulay in the most undiplomatic way. He alleged that Mulay was acting hand-in-glove with GMR and demanded that he should go, "once GMR is made to leave".

Abbas's statements may not reflect the official stand and it may be his unadulterated personal opinion, as the President himself had since clarified in a newspaper interview. But the fact that a senior functionary of the government had the temerity to join a rally held against a foreign investor and bad-mouthed a diplomat of a friendly country is a sad commentary.

So much so, Tuesday, 27 November decision terminating the airport contract did not come as a surprise. It was expected. Also expected was the reasoning for the decision that "there were many legal, technical and economic issues regarding the agreement", and that "it was legally invalid and impossible to further continue".

Expectedly, the investor in Male airport has considered the government decision as "a unilateral and completely irrational move under the pretext that the agreement is void". The company has decided to challenge the termination "before the competent forums" saying that "this unlawful and premature notice on the pretext that the Concession Agreement is void is completely devoid of any locus standi".

Without much ado, GMR has since taken Maldives government to a designated arbitration tribunal in Singapore. This is the second arbitration the company is seeking; the first issue related to the Male airport development charge (ADC) and insurance surcharge on passengers. A civil court in Maldives last December ruled against such levies. For students of international trade, it is intriguing why the Maldives government did not take its critique of the Nasheed era airport contract to the Singapore arbitrator as provided under the deal.

Interestingly, Maldivian Minister of Finance and Treasury Abdulla Jihad has held the decision of the Male court as final on the ADC issue. "The court decision is a definitive and final statement of the public law and constitutional powers of the Maldivian government in relation to the said charges", he told the GMR. In other words, the Finance Minister sees neither relevance nor justification for the ADC arbitration initiated by the company as provided by the contract documents which were vetted by IFC. Contracts are legal documents and they are binding on the parties to the deal. Elementary in all business transactions! There is no room for whimsical action.

Maldives Attorney General Azima Shukoor is on record saying that the airport contract provided for a 30-day notice of termination to the GMR consortium but the government of which she is the legal advisor did not honour that clause. Instead, the government said the termination clause need not be followed since the contract was 'void'.

"The government has, therefore, given a seven-day notice to GMR to leave the airport," said Shukoor. Only Idi Amin would be pleased mightily by such patently unfair and arbitrary actions; Uganda has paid the price for his economics, and learned the hard way the way to woo international investors.

L'affaire GMR venture is not sweet music even to the Chinese firms who are eyeing the Gan International Airport in Addu Atoll in the Maldives and another one closer to the borders on Lakshadweep.

Not even to the Pakistanis, who have just been dragged to the International Court of Arbitration by Turkish company Karkey after their ship-based power plants have ended up as political and judicial football.

*The writer is a New Delhi-based journalist-author and strategic analyst who is a regular columnist with several leading international media outlets. He can be reached at bhootnath004@yahoo.com.