GMR-Maldives row: Where the dispute lies

GMR
In June 2010, the Maldives government, the Maldives Airports Company Limited (MACL) and GMR-MAHB Consortium signed a tripartite concession agreement to develop and run the Ibrahim Nasir International Airport at Malé, the capital of the island nation. The process of privatisation of the Malé International Airport was conceptualised and implemented with MACL, being a 100% owned company of the government of Maldives, assuming the role of Grantor while the government remains as the Guarantor.

The Maldives government in 2009 asked the International Financial Corporation (IFC), the private sector arm of World Bank, to manage the bid process for privatisation of the airport to ensure fairness. IFC ran the bidding process in 10 months.

IFC in turn engaged a number of globally reputed consulting firms like E&Y, Halcrow, Gide Loyrette Novel and others to be involved at various stages. The bidding process itself was a typical three-stage process. In the stage of request for proposal, the bid was evaluated on three parameters — legal, technical and financial.

The last was the critical issue where the current dispute lies. To go back to the bidding process then, in the first two stages — legal and technical — there was only pass or fail criteria. Once the bidders qualified from these stages, the criteria for final selection of the winner was based on their financial bids. To evaluate the financial bids, a set formula was given to all the bidders after discussions between the privatisation committee and IFC. The formula was based on the Net Present Value of the revenue (in US Dollars) the bidders will pay to the Maldives government. In other words, the key was who would pay the maximum revenue share to the nation.

Six consortiums — GMR+MAHB, Reliance +ASA, Zurich+GVK, ADPe, TAV, Vienna+SNC Lavlin — were pre-qualified to participate in the bidding process. Three bidders — GMR+MAHB, Zurich + GVK and TAV+ADPe — submitted the bids from whom the final bidder was chosen.

However, after the contract was signed, the Maldives government changed. President Nasheed was replaced by President Waheed in a coup. This government claimed the contract was invalid. The airport is very significant for the nation, as out of its $2 billion annual GDP, about a fifth is made up of revenues that are connected to the airport.

Under the terms of the contract, Maldives had decided to make a passenger service charge a pass through item from the airport. In other words, the sum earlier being earned by the MACL now goes to the government directly. Instead it had allowed GMR to levy an Airport Development Charge (ADC) on the departing passengers, which GMR claims is an international experience.

The ADC was later turned illegal by a local court and could have been legalised had the country's Majlis approved such a charge. Before this could happen, the government changed in the coup. In the absence of such a charge the earlier government had allowed GMR to deduct the ADC revenues from the revenue share of the government. Due to this offset, the government has to pay $3.5 million to GMR for the current calender year period till November.

This charge has got caught up in the national legislature which projected that MACL can instead earn a $4 billion in the term of the concession period ie till the year 2035. But with GMR running the airport the revenue share for the nation will amount to $1. 4 billion. Against this argument, GMR has projected that Maldives will earn $2.1 billion. To buttress its point, the current government questioned the levy of the ADC as part of the revenue share model and moved to cancel the contract.

The Singapore court on Thursday allowed the government to take over the airport from GMR. The deadline expires Friday night, when the government will take over the airport.

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