File picture of a plane landing at Male International Airport while a sailboat makes its way through a blue lagoon. (AFP)
New Delhi, Nov. 28: The Maldives government has discovered to its dismay that it would have to fork out a staggering $519 million to the GMR Group over a 25-year period to operate the refurbished Ibrahim Nasir International Airport — one of the reported reasons it chose to scrap the contract yesterday.
Blame it all on the terms of a loaded contract that was conceived in 2010 as a revenue-sharing arrangement between the Maldives government and the GMR Group, which runs the Indira Gandhi International Airport in Delhi and the Rajiv Gandhi International Airport in Hyderabad.
The brouhaha erupted after GMR recently presented a bill for $3.7 million to the Maldives government for running the airport.
Two clauses lurking in the fine print of the agreement struck between the Maldives government headed by former President Mohamed Nasheed and GMR has sparked the situation where the former must pay, instead of receive, money under the deal.
The first is a standard clause that said the Maldives government would receive a revenue share under the contract. The second had permitted GMR to levy a steep airport development fee of $25 per passenger — arguably the highest such levy anywhere in the world.
The airport project, which was to be built at a cost of $500 million, was touted as the biggest foreign direct investment into the country. It conferred on GMR the right to run the airport for 25 years and was extendable by another 10 years.
The build, operate and transfer (BOT) project was supposed to provide the Maldives $1 billion over 25 years, which is a big deal considering the island nation’s GDP is estimated at $2.8 billion.
Opposition parties, which had been protesting against the deal, had gone to court questioning the legal validity of the airport development fee (ADF). Their argument was that it amounted to the levy of a tax that did not have the sanction of Parliament. The court upheld this argument in the winter of 2011.
The current crisis erupted after the Nasheed government said GMR could set off the ADF against the revenues that the government was supposed to receive. It chose to take that step because it wanted to keep the biggest foreign investor in the country happy.
The new government under President Mohamed Waheed has woken up to the calamity posed by that administrative fiat.
The Maldives received a paltry $525,255 in the first quarter of 2012 against a revenue share of $8.7 million that it was originally entitled to get.
In the second quarter of 2012, GMR informed the government that the ADF collections “eclipsed” the revenue share of the government — and it promptly presented it with a bill for $1.5 million.
By the third quarter, the Maldivian government’s payout ballooned to $3.7 million.
“The net result is that the Maldives government now has to pay GMR for running the airport,” Hasan Saeed, special adviser to President Waheed, said in a note.
“On this basis, it is likely that the Maldives government will end up paying about Maldives Rufiyaa 8 billion ($519 million) to GMR for the duration of the contract,” he added.
The Waheed government has now decided that the contract is no longer workable in its present form and would become a huge drain on its parlous coffers.
Arun Bhagat, vice-president of GMR, has confirmed that the Maldives government now owes the airport developer $3.7 million. He added that the $25 ADF was at the heart of the conflict.
GMR had at one stage proposed a compromise by offering to waive the ADF for Maldivian nationals and levy it only on foreigners.
The Maldives government has balked at the levy since it could scare off tourists who are the biggest source of revenue for the island nation. Tourism accounts for 28 per cent of its GDP and more than 60 per cent of the Maldives’ foreign exchange receipts.