New Delhi: GMR Infrastructure Ltd was dealt a setback on Thursday when a Singapore court ruled that the Maldives government was entitled to take over the Male airport, upholding the termination of the company’s contract to operate the gateway to the Indian Ocean archipelago.
GMR said it was studying the options before it after the ruling, the latest in a business dispute that has acquired political and diplomatic dimensions after the Maldives government terminated the $500 million (around Rs.2,725 crore today) deal with the Indian company and Malaysia Airport Holdings Bhd (MAHB), and ordered GMR to leave the country by 8 December.
“We are still studying the oral order passed by the honourable Singapore court of appeals. We would be able to comment only after studying the final written order,” a spokesperson for GMR said by email.
A person familiar with the situation said the dispute could snowball into a “huge damage suit” that could take years to settle. GMR will decide its next course of action in 24 hours, this person said. “The subcontractors of the airport will file case against GMIAL (GMR Male International Airport Pvt. Ltd) and seek damages. GMIAL will seek these damages from the government of Maldives. It will be a messy legal affair with uncapped damages,” the person said.
The Singapore court ruling quashed a stay on the Maldives order that GMR had obtained from the dispute settlement court in the island state on Monday. The outcome had been critical for both the Maldives government and the Indian company, which says about $230 million has been spent on the airport it has operated since 2010; the ruling closes the legal options for GMR in Singapore.
The chief justice of Singapore, Sundaresh Menon, said the Maldives government was empowered to take over the airport.
“The government of Maldives has the right to expropriate the asset subject to its liability to compensate the respondent in accordance with the terms specified in the agreement,” said the order, according to a GMR official who declined to be named.
Legally, “expropriate” means the taking over of land without the consent of the owner by an authority exercising its statutory powers. The penalty for cancellation of the contract is still to be worked out, Mint reported on 6 December, citing a GMR official who didn’t want to be named.
A senior GMR team led by Srinivas Bommidala, chairman (airports), landed in the Maldives on Thursday to assess the situation on the ground and meet various authorities.
The airport operator has to hand over the premises by midnight of 7 December under the current deadline, although the transition could take a few weeks. Maldives President Mohamed Waheed’s press secretary Masood Imad said his government will go ahead with the transfer from GMR as scheduled.
“A transition management committee will be formed tomorrow for the same, which will include representatives from GMR and Maldives Airport Co. Ltd,” Imad said.
GMR Airports’ chief financial officer Sidharth Kapur said on Wednesday the firm was confident the Singapore court’s stay on the termination of its contract would be upheld by the court of appeals. He urged the Maldives government not to use force to evict the company, which has 110 Indians working in Male.
Shares of GMR fell 1.25% to end at Rs.19.80 on BSE after the news broke at about 1.15pm India time, while rival GVK Power and Infrastructure Ltd was up 1.83% at Rs.14.49. The Sensex rose 0.49% on Thursday.
The dispute settlement court had stayed an order by the Maldives government cancelling the $500 million contract awarded to the GMR consortium that runs the Male airport.
GMIAL, a consortium of GMR and MAHB, won the bid to operate and modernize Ibrahim Nasir International Airport after international competitive bidding among six shortlisted contenders conducted by the International Finance Corporation, an arm of the World Bank, in 2010. GMR, which also runs airports in New Delhi, Hyderabad and Istanbul, tied up nearly $358 million of debt for the project with the Singapore branch of Axis Bank Ltd.
The issue has escalated into a diplomatic row between India and the Maldives.
“Fulfilment of all legal process and requirement is what we want to see in this case, and we hope that all relevant contracts and agreements would be adhered to and all legal process are carried through,” PTI cited external affairs ministry spokesperson Syed Akbaruddin as saying.
A government official with understanding of the airport contract with Maldives who declined to be named, said the judgement implied the airport contract was a commercial agreement and “if you are ready to remove them, pay them the compensation”.
The GMR-led grouping was supposed to pay a small percentage of revenue from the airport to the Maldives government. It was also allowed to levy an airport development fee (ADF) at $25 per passenger, the government official explained.
When the expected revenue from ADF did not meet targets, GMR said it would deduct the shortfall from the revenue share of the Maldives government, the official said. When the shortfall still couldn’t be bridged, it asked the Maldives government to make good the difference as per the contract, he said. That precipitated the crisis.
A civil aviation ministry official, who declined to be named, said the matter rests with the ministry of external affairs and the Maldives government, and how much “influence the government can exert on Maldives”. If India is unable to prevail, GMR may have no option but to leave, the official said.
PTI contributed to this story.