GMR Contract Termination and India-Maldives Relations

Dr N Manoharan 

(Senior Fellow, VIF)

India was upset when Maldives announced termination of $511 million contract with the Indian infrastructure company GMR Infrastructure Limited (GIL) on 27 November 2012. GIL-MAHB (Malaysia Airports Holdings Berhad) consortium with 77 and 23 percent stakes respectively won the project in June 2010 to maintain and develop Ibrahim Nasir International Airport in Malé. Despite done through a global tendering process conducted by the International Finance Corporation (IFC), the Maldivian government under President Mohamed Waheed justified the contract termination “on grounds that there were many legal, technical and economic issues.” The Singapore High Court initially stayed the termination, but later ruled that “the Maldives government has the power to do what it wants, including expropriating the airport.” Even before the Court’s final ruling, the Maldivian government conveyed its termination decision as “non-reversible and non-negotiable” and “no such injunction can be issued against a sovereign state”.

Significantly, when the project got underway in November 2010 it became the single biggest FDI into Maldives that too at the time of global economic recession. It was to upgrade, maintain and operate the existing Airport as well as build a new terminal by 2014. In the process, the aim was to increase the traffic from 2.6 million passengers per annum to over five million. Located in the Malé Atoll, the airport is not only the largest in Maldives, but is considered as one of the fastest growing in the region. All these have come to a naught now despite GMR spending over $230 million. Malé has agreed to compensate GMR, but the termination has sent negative signals to investors in general and India in particular.

If the reason is legal, Maldives would not have much problem in abiding by Singapore High Court’s stay on the termination. If the reason is technical, the project would not have stayed alive successfully for two full years; even otherwise Waheed, who was Vice President in Nasheed’s government, and later as President, had enough time to sort it out. If the reason is economic, Malé would have accepted GMR’s offer waving the $25 airport development fee for all Maldivians flying out of Maldives. The atoll state indeed has every right to take a call on matters that suits its national interests. But, what annoyed India most was the unprofessionalism displayed by Waheed’s regime on the issue and its disregard to abide by international agreements due to local political considerations. Surprisingly, even Indian Foreign Minister Salman Kurshid’s suggestion to iron out the differences between Malé and GMR through a neutral international expert was not considered by Maldives.

As a larger donor to Maldives, India is concerned that such thoughtless cancellations would hurt the interests of the atoll state in the long run. The move is not an encouraging one for prospective investors, especially the Indian ones. New Delhi quickly reached out to Waheed when he succeeded Nasheed, the first democratically elected president of Maldives, in a bloodless coup this February. It may look like that the Indian gesture went in vain. However, the fact that fringe parties like Adhaalath Party could dictate terms to the government of Maldives shows that President Waheed is not in control of things. What is more concerning is anti-Indian sentiments shown by the groups that have been behind the termination of GMR contract. This got India worried on the safety of about 30,000 Indians working presently in Maldives and the state of Indian interests there.

What is also more worrying is favourable disposition of these groups towards China that has been desperately looking for a strong foothold in the Indian Ocean region. In a tweet, Adhaalath Party stated that “We would rather give the airport contract to our friends in China, who now make the majority of our tourist population.” It further stated, “…the addition of Maldives as a friend [by China] would be a massive blow to future Indian power in this region.” Beijing has for long been building maritime and other linkages with the countries of Eastern Africa, Southeast Asia, Seychelles, Mauritius, West Asia, Pakistan, Maldives, Sri Lanka, Bangladesh, and Myanmar. The avowed objective behind is to ensure the security of its sea lanes, especially unhindered flow of critically-needed energy supplies from Africa and West Asia. At the same time, these linkages have had the impact of somewhat encircling of India, which some call as “String of Pearls” construct. Maldives is undoubtedly an important “pearl”. Sino-Maldives interactions have increased in the recent past to extent of China opening an embassy in Male in 2011. Chinese are among the top visitors to the Maldives lately. Beijing has evinced keen interest in developing infrastructure in Ihavandhoo, Marao and Maarandhoo Islands of the Maldives. Not without reasons that the current dispensation in Male holds the view that “It will be to the detriment of Maldives not to engage with China.”

Maldives may find China attractive now, but India’s long-term commitment and help in developing the island cannot be undermined. India’s Standby Credit Facility to Maldives runs into millions of dollars. Several state and private Indian institutions have been playing a vital role in the economic and cultural development of the Maldives. Above all, it was India that promptly dispatched its armed forces to foil a coup attempt (‘Operation Cactus’) aimed at deposing the then President Gayoom.

Ideas like suspending economic aid to Maldives until it falls in line are being floated in India. But, any such move would not work and in fact push Maldives further into Chinese hands. Any punitive measure would also help in strengthening radical anti-Indian forces in the island. New Delhi should, of course, let Malé know of its disappointments and the costs involved in the long run. At the same time, what is required is a patient handling of the issue in the interest of Maldives, in the interest of India-Maldives ties and in the larger interest of regional peace and security. On its part, the Maldivian government, instead of outright rejection, should consider negotiating with GMR and flush out amicable settlement. Narrow political considerations should not come in the way of image and development of the island.