03 December 2012 Business business: airports

Mayday In Maldives

GMR’s Male airport project runs into political turbulence
Mayday In Maldives
Mayday In Maldives
GMR’s Island Troubles Likely Scenarios

  • GMR wins 25-year Male Airport contract in 2010, signed by the then Nasheed government 
  • GMR has already invested $240 million of the $500 million build-operate-transfer project
  • Under the new Waheed regime, there's a move to scrap the project, saying it was signed under questionable conditions
  • Some sections in Maldives also say strategic sectors should not be given to “outsiders”
  • The Waheed government may scrap the airport contract in “national interest”. GMR will be paid compensation.
  • With an eye to the 2013 elections, political parties may keep the issue alive, after which a decision will be taken
  • With GMR already opting for arbitration, the matter may be settled by neutral authorities in Singapore
  • As the Maldives economy is in a shambles, it may say it can ill afford to pay potential compensation to GMR


After a tense change of power, a massive contract for an airport in Maldives, the beautiful atoll nation, has become a political and diplomatic football. The contract to modernise the Ibrahim Nasir International Airport in Male, won by Indian infrastructure firm GMR, has led to frayed diplomatic relations between India and Maldives. With the island nation  preparing for presidential elections in 2013, there’s also the suspicion that Maldivian politicians are using the issue for political and personal advantage.

The cost of the project is $500 million. The build-operate-transfer contract would translate into the Maldives government receiving $1 billion over 25 years. For a country with a GDP of a little over $2 billion, this is clearly a project that can make or break governments. On the surface, the controversy is about the conditions under which the contract was given out, during the regime of former president Mohammed Nasheed. The present government, under Mohammed Waheed, is accusing the former government of twisting local rules to grant the contract to GMR.

The Waheed administration has raised questions and doubts about the authenticity of the conditions under which the contract was signed. There are allegations of money having changed hands. Of course, the players involved deny this. But it doesn’t help matters that GMR has of late been getting some poor press in India. Most recently, the CAG has castigated the GMR-led DIAL for anomalies in developing the T3 terminal of Delhi airport. Earlier, there were issues with GMR’s Hyderabad airport project.

While there has been no official communication from the Maldives government to the GMR group regarding a rethink on the airport contract, there are reports that political parties are also raising questions about the contract for a strategic asset being given to an “outsider”. That’s potentially bad news for GMR, because even if the contract conditions are positive and secure for the company, the government can, at any time, scrap a contract in the “national interest”. Of the $500 million, GMR has already put in $240 million in the project and paid $130 million to the government.

GMR told Outlook that since the bidding process was monitored by international authorities—the World Bank group’s International Finance Corporation (IFC)—there should be no doubt about its authenticity. Says Siddharth Kapur, GMR’s CFO (airports), “The whole process was handled by IFC and the contract was given in a transparent manner. Why is this being raked up one-and-a-half years later, when no one, not even the other bidders or members of the government,  had objections to the process before?”

The election next year in the Maldives may be the reason behind some politicians raking up anti-India sentiments.

The other contentious issue is that of the $25 airport development fee (ADF), which GMR insists was built into the contract. Says Kapur, “The concession agreement provides for charging of ADF on departing international passengers. This is a sovereign commitment under the concession terms. The Maldives government needs to get their requisite approvals in place to honour their commitment.” GMR sources say that since an amendment in laws was required to allow the ADF, the former Nasheed government had written to GMR, stating that the ADF amount should be adjusted from the revenue share. However, this was discontinued when the government changed and the Waheed regime took over.

With elections due in less than a year, Maldives-watchers feel there is increased play by different political groups which want to prove they are “saving” the airport, a precious asset. Raking up an anti-India sentiment is also on the agenda of many politicians. This was apparent when the Maldives president’s spokesperson called Dnyaneshwar Mulay, India’s envoy to the Maldives, a “traitor” and “an enemy of Maldives”, before the government launched a huge fire-fighting exercise to save face.

Says Maldives expert N. Sathiyamoorthy, who is with the Observer Research Foundation, “Waheed, as president, heads a party which does not have strength and needs to create a constituency by creating such sentiments and issues. And the GMR case fits into the issue of the Maldives’ sovereignty.” As no Maldives political outfit would want to antagonise India—which regularly extends a monetary line to the country—larger issues like security and national interest are being constantly raised.

Then there is the China question. Many pro-India politicians are also raising the China bogey, saying that the entire hullabaloo about GMR is basically to ease the Indian company out of the project and bring the Chinese in. A senior member of the Waheed government said on condition of anonymity, “This whole hype about GMR and the anti-India sentiments is done by some in the government who are seeking Chinese favours....The Chinese are keen on competing with India in this part.... They have plans to get the southernmost Gan International airport in Addu too. There is one more airport only a couple of miles from India’s Lakshwadeep borders. China is looking at that too.”

Recently, the Maldives government issued a prime plot of land close to the Indian High Commission in Male to China to build their embassy, a development not seen positively by India. China got the plot within a year of starting an embassy in Maldives. While this could be a serious strategic issue for India, political watchers say it is not unusual for Maldivian politicians to rake up the China issue to get the attention of Indian policymakers and Maldivian leaders. At election time, such games  pay off.

As of now though, the fate of GMR’s contract in Male hangs in doubt, with the government yet to take a decision on it. With election fever picking up in Male, the airport issue may decide who rules the country next year. If anti-India sentiments prevail, GMR could just be part of the collateral damage.

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