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27 February 2018, Gateway House

The politics of doing business in the Maldives

The recent crisis in the Maldives is a pertinent time to revisit an old case, highlighting the political uncertainties in the island nation due to growing Chinese influence and its impact on businesses and investors

Former Senior Researcher

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While recent events have triggered a political crisis in the Maldives, many investors have faced a slow-building crisis of their own for years, as Chinese enterprises have gained increasing economic and political influence in the tropical Indian Ocean nation – and used their clout to push competitors aside. The experience of India’s GMR Infrastructure Limited may be a case in point.

Eight years ago, GMR won a contract to modernize the Maldives’ International airport. But today, the company watches from the sidelines as a Chinese firm has taken over the work. Exactly how this happened isn’t entirely clear, as the situation is clouded by legal maneuvering and unexplained policy shifts. But the outcome – favorable to Chinese investors and damaging to others – is not in doubt.

The Agreement

The situation looked promising for GMR in June 2010, when a consortium it led won a concession to modernise and operate the Maldives’s Ibrahim Nasir International Airport, Male.[1] Working through a special-purpose vehicle known as GMR Male International Airport Private Limited (GMIAL), it signed a $511 million, 25-year Concession Agreement with the Government of Maldives (GoM) and the state-owned Maldives Airport Company Limited (MACL).[2] The agreement required GMIAL to pay a percentage of profits and fuel-sales revenue to the government (concession fee), and allowed it to levy an Airport Development Charge (ADC) of $25 per passenger using the airport.

The Opposition

In December 2011, the Dhivehi Quamee Party, which later became a coalition partner in the Abdulla Yameen government, filed a case in the local civil court to block one pillar of the agreement – the ADC levy. The court ruled in the party’s favour, saying that ADC was a tax and could not be levied because it had not been approved by the parliament.[3] The MACL and GoM subsequently allowed GMIAL to deduct the ADC amount from its concession fee, but following a change in the administration, MACL informed GMIAL that the ADC deduction from concession fee had been made by the former chairman without authority. It did not fully explain this sudden reversal, which clearly represented a significant setback for the GMR consortium.

The Singapore Proceedings

Faced with a loss of revenue, GMIAL commenced arbitration proceedings, seeking a declaration that it was entitled to deduct ADC from its concession fees. MACL countered by asking for a declaration that the whole Concession Agreement was void.  As the two sides drew farther apart, the Singapore Court of Appeal held that if the Concession Agreement were found to be valid, damages would be the adequate compensation for GMIAL.[4]  This indicated to the Maldivian government that even if it lost the arbitration case, it would be free to give the project to another company as long as it simply paid GMIAL the appropriate damages.

Warming up to the Chinese

In June 2014, the arbitration tribunal held that GoM and MACL had wrongfully repudiated the Concession Agreement and were liable to pay damages to GMIAL. Three months later, the Maldivian government gave the airport expansion contract to a Chinese company, Beijing Urban Construction Group.[5] It acted even before the arbitration tribunal had set the amount of damages. The government did not fully explain its decision, but the speed of its move and its apparent lack of concern about the damages payable (GMIAL was seeking $800 million) left the impression that it had already decided to get rid of the Indian entity at any cost.

In October 2016, the arbitral tribunal awarded GMIAL US$ 271 million – an amount that included sums GMIAL owed to the project lenders, including Axis Bank Singapore Pte Ltd.[6] A month later, President Yameen’s government allowed the Chinese company to collect the airport development charge it previously had opposed, passing a legislation levying fees of $12 per Maldivian and $25 per foreign passenger.[7]

The Money Trail

The GMIAL officials confirm receipt of $271 million from the government. News reports indicate that some of the money was raised by the Maldives Monetary Authority (central bank of Maldives) using its international reserve to buy a US$140 million bond issued by MACL.[8] Maldivian news reports also suggest that the value of the project was revised to $800 million from the earlier $511 million estimate. The monies have been secured from various sources, including $373 million from China’s EXIM Bank.[9] The increase in the project cost from $511 million to $800 million for the Chinese company is almost equal to the $271 million award the Maldives had to pay GMIAL in damages.

Gateway House has published a detailed study of Chinese Investments in the Maldives, which have grown to a level equal to 40% of the country’s GDP. A majority of the investments have been made in the last five years since the Yameen government came to power, and have been characterized in part by a lack of transparency.

Kunal Kulkarni is a Senior Researcher at Gateway House.

This blog was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive features here.

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[1] GMR Group, GMR Infrastructure Limited Wins The Bid To Expand & Operate Male International Airport, 24 June 2010, <>

[2] GMR Group, GMR Group Achieves Financial Closure Of GMR Male International Airport Private Limited, Republic Of Maldives And Takes Over Operations Of Male International Airport, 25 November 2010, <>; Shareholding pattern in GMR Male International Airport Private Limited – GMR Infrastructure Limited (77%) and Malaysia Airports Holdings Berhad (23%)

[3] Johnstone, Eleanor, ‘Civil Court rules airport development charge invalid as GMR opens airline office complex’, Minivan News Archive, 8 December 2011, <>

[4] Maldives Airports Co Ltd and another v GMR Malé International Airport Pte Ltd [2013] SGCA 16. <>

[5] Beijing Urban Construction Group, BUCG Signed Preliminary Contract Agreement for Expansion and Upgrading of Ibrahim Nasir International Airport in Hulhuleof Maldives with MACL, 18 September 2014, <>

[6] GMR Group, GMR Wins Arbitration Against Government Of Maldives; Gets Compensation Of US$ 270 Million, 27 October 2016, <>

[7] Naish, Ahmed, ‘Airport development fee to be introduced in 2017’, Maldives Independent, 26 November 2016, <>

[8] Naish, Ahmed, ‘Central bank defends bailing out government with GMR payout’, Maldives Independent, 27 November 2016, <>

[9] Rasheed, Zahina, ‘Maldives airport expansion to cost US$800m’, Maldives Independent, 8 April 2016, <>