In a major blow to Bangalore-based GMR Infrastructure, the Government of Maldives has recommended to terminate the contract awarded to infrastructure developer to upgrade the airport at Male at a cost of $530 million.
The Maldives cabinet in a meeting today decided to terminate the contract and a notice to this effect was issued to GMR Group, Maldivian President's Press Secretary Masood Imad said in a statement. The project was awarded to GMR Infrastructure during the previous regime of the island nation during mid of 2010.
GMR Infrastructure said that this move is unilateral and completely irrational move the Government of Maldives intending to take over the possession and control of the Ibrahim Nassir International Airport under the pretext that the Agreement is void.
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“This unlawful and premature notice on the pretext that the Concession Agreement is ‘void’ is completely devoid of any locus standi and is therefore being challenged by the Company before the competent forums,” the company said in a statement.
The Government of India also threw in its weight behind GMR Infrastructure and said that the Maldives' decision to terminate contract with GMR without due consultations sends "very negative" signal to foreign investors.
Ever since the contract was awarded to GMR Group, the project has been at the centre of controversy over collection of $25 as airport development charges and to various allegations from the current government that the prior ruling party rushed through the bidding process and the same was not transparent enough.
GMR Infrastructure has formed a 77:23 joint venture with Malaysia Airport Holdings for this project which involves upgrading, maintaining and operating the existing airport as well as build a new terminal by 2014. The current traffic at the Ibrahim Nasir International Airport in Male is at 2.6 million passengers per annum. The first stage of the project will include increasing the traffic at the airport to 3 million passengers per annum by way of constructing a new terminal and thereby increasing the traffic to 5 million passengers per annum.
Even as the political allegations were flying thick and fast, GMR Infrastructure earlier this year was forced to stop collecting airport development fee from foreign travellers due to a ruling by Civil Court of Maldives. GMR has appealed against this order and an arbitration is on at a court in Singapore. Ever since the controversy broke out with uncertainties looming large, GMR has since paused the construction of the new terminal.
The GMR-led consortium has been maintaining that the bidding process was overseen by World Bank owned institution IFC and the entire process was transparent. GMR had even offered to renegotiate on the collection of ADC for natives of Maldives and had offered various options in that segment as well.
The total cost of the modernization and expansion project, estimated at $529 million, is being funded through a combination of debt and equity in the ratio of 70:30. The debt component of $358 million has been tied up with Axis Bank Ltd., Singapore Branch, who is acting as the Sole Underwriter and Mandated Lead Arranger for the entire debt facility. The debt has a door to door tenure of 12 years with ballooning repayment over 7 years commencing from June 2015. Axis Bank is also acting as Security Trustee and Facility Agent whereas State Bank of India, Maldives Branch is acting as Account Bank for the debt facility.
According to GMR Infrastructure, it won the global competitive bid for this airport, due to its “pay and earn” method, while other bidders opted for “earn and pay.” The GMR-led consortium said it made an upfront commitment of $78 million and then subsequently offered a revenue share over a period of time taking the total bid value to $529 million. The other bidders were Reliance, GVK among others.
