Archive for November, 2012

GMR Group Again, this time in Maldives.

29 November 2012
Maldivian cabinet declared the agreement with Indian infrastructure giant GMR to develop Ibrahim Nasir International Airport (INIA) void, and has given the company a seven day [contract stipulates 30 days notice to vacate] ultimatum to leave the country. Maldives is a tiny nation of atolls in Indian ocean, and India plays a larger than life role in its affairs. Yet, it was forced to take such extreme step. Why? Reports in Indian newspapers severely lacked details. The Hindu said, ^^The government reacted strongly to the decision of the Maldives government to terminate the agreement with the GMR Group by promising to pursue the issue with Male as it thought politics had intruded into what was a purely commercial matter^^. Politics plays role in everything and Indian government should know that. But what caused Maldives to react so strongly even though it must be well aware it won’t sit well with New Delhi. The agreement with the GMR Group-Malaysia Airports Holdings Berhad consortium was signed on June 28, 2010 with the Nasheed [previous president who was toppled in a coup and replaced with an interim opposition President Mohamed Waheed] administration. US$ 511 million investment to develop and operate the airport is touted as biggest foreign investment in Maldives and is some 25% of its GDP.
The search for information from Maldivian sources though paid rich dividends. Apart from the usual sound bytes about contractual terms, obligations and legal challenges, the Minivan News attributes following remarks to Arun Bhaghat- GMR Executive Vice President & Group Head of Corporate Communications. ^^The company would further like to state that it has taken all measures to continue operations at the Ibrahim Nasir International Airport thereby ensuring that this vital gateway to Maldives is kept open….We have no plans to go. We have 23 more years here and vowed that the cabinet’s decision would have no effect on the operation of the airport….The defence force in this wonderful country is well geared to ensure smooth operation of the airport^^. Imagine a company executive making these assertions [if true] in the face of an internationally recognised Maldivian Government’s categorical decision to hold the contract null and void, and asking the company to vacate from the country in 7 days. Leave aside the merits of the case for a moment, but look at his confidence in Maldivian defence forces, who he expects to back GMR group against Maldives’ government. Imagine now if a Walmart or an IKEA were to make same statements about its investments in India; were in future an Indian government was placed in a similar predicament as today faced by Maldives’ government.
GMR and Maldives’ Government are taking the dispute to arbitration in Singapore and we leave the contractual finer points to arbitrators to settle. I have culled below some interesting *facts* as reported by J J Robinson for Minivan News. J J Robinson’s article must be commended for its command over facts, lucid presentation, and coverage of probably all points of views. It should be a textbook case study for many Indian journalists to emulate

  1. In late 2011 the then-opposition Dhivehi Qaumee Party (DQP) filed a successful Civil Court case blocking GMR from charging an Airport Development Charge (ADC) – a US$25 charge for outgoing passengers stipulated in the concession agreement – on the grounds that it was a tax not authorised by parliament. Nasheed’s administration chose to honour the original contract, and instructed GMR to deduct the ADC revenues from the concession fees due the government, while it sought to appeal the Civil Court ruling.
  2. However, the Nasheed government fell a month later and the opposition inherited the result of its court victory, receiving a succession of bills from the airport developer throughout 2012, despite the government’s insistence that the January 5 letter from MACL outlining the arrangement was no longer valid.
  3. In the first quarter of 2012 the government received US$525,355 of an expected US$8.7 million, after the deduction of the ADC. That was followed by a US$1.5 million bill for the second quarter, after the ADC payable eclipsed the revenue due the government.Combined with the third quarter payment due, the government now owes the airport developer US$3.7 million.
  4. The net result of this is that the Maldivian government now has to pay GMR for running the airport. On this basis it is likely that the Maldivian government will end up paying about MVR 8 billion (US$519 million) to GMR for the duration of the contract.
  5. The GMR-MAHB consortium narrowly beat Turkish-French consortium TAV Holdings-Aéroports de Paris Management (ADPM), scoring a final Net Present Value (NPV) score of 495.18 to the runner up’s 454.04 at conclusion of the bid.
  6. GMR’s win was based on playing to the government’s highest-scoring factors – fuel share revenue and upfront payment – at the expense of non-fuel related airport revenue.
Public Private partnerships [PPP] have a way of ultimately socialising the costs and privatising the profits, however lucratively in public-interest they are initially made out to be. What happened in case of fees levied by GMR in case of Delhi Airport is worth remembering here. CAG had observed in August this year, ^^The approval of the Ministry, and later of the AERA, for the levy of development fee (to bridge the funding gap) was a post-contractual benefit given to the DIAL. This was neither envisaged in the request for proposal (RFP), nor included in the provisions of the OMDA or the State Support Agreement. This led to an undue benefit of Rs. 3,415 crore to the DIAL, at the cost of passengers^^.  Even earlier in April 2011 the apex court had held, ^^A two-judge bench held that development fees cannot be levied or collected on the basis of just authority letters issued by the central government but only if there was clear approval from the airports economic regulatory authority. Consequently, Mumbai airport has been barred from levying the fees, while Delhi airport will be able to continue to levy the fees^^. This was precisely the point of Maldives’ civil court- no tax or fees can be charged without express approval of their parliament. The contract signed by Maharashtra Government with Enron Corporation comes to mind too as it favoured the US company over Indian interests. Both Congress and later after making lot of noises against it, Shivsena-BJP government had blessed it. It is said that a single clause in the contract – ramping the Dhabhol plant to peak power generation within 2 hours of notice, which Enron could not meet on several occasions-; and Enron’s bankruptcy in USA ultimately saved the day for Indians from that white elephant.
Hamid Karzai, President of Afghanistan, studied in India for his graduation and post-graduation. He was recently on India tour to exhort private sector to invest in Afghanistan. His administration has  been accused of rampant corruption, graft and even of condoning drug trafficking allegedly by his brother. The report on investigation of Kabul Bank is the latest dubious success notched up by Karzai government that has been created and supported by USA and NATO members. The review was conducted by the Independent Joint Anti-Corruption Monitoring and Evaluation Committee, and funded by the British Department of International Development and Danish International Development Agency. Searing indictment of US$ 900 million Ponzi Scheme reads,
  1. Afghan and American officials had for years promoted Kabul Bank as a prime example of how Western-style banking was transforming a war-ravaged economy.
  2. Kabul Bank had little reason to exist other than to allow a narrow clique tied to President Hamid Karzai’s government to siphon riches from depositors, who were the bank’s only substantial source of revenue.
  3. The auditing firms used by the bank never took issue with loan books that were almost entirely fraudulent. Afghan government explore suing the last such auditor, A F Ferguson & Co., a private Pakistani firm with a franchise under Price Water House Coopers.
  4. Afghan authorities learned in late 2009 that Kabul Bank was moving money through food trays’’ on flights operated by Pamir Airways, a multi-million-dollar Afghan airline that was established with loans from the bank and has since gone out of business.

Countries of the subcontinent compete vigorously when it comes to innovative solutions to commit graft. Creating an airline from bank funds to secrete away those very funds is akin to having the cake and eating it too. 
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