Male Airport dispute: GMR wins first leg of arbitration

GMR, Malaysia Airports had invested $230 mn in the project during the two years they had managed the airport

GMR Infra, the Bangalore-headquartered publicly-held infrastructure developer whose agreement for upgrading and managing the Male international airport was unilaterally terminated by the Maldives government, has won the first leg of an arbitration process in the matter.

The Maldives government had in late 2012 initiated the arbitration process seeking to declare void its concession agreement for the $511-million project with the Indian firm. It had alleged that the contract had been awarded by the previous government in the country through a process that was not transparent. On its part, GMR, through its subsidiary GMR Male International Airport, had disputed the wrongful termination.

After nearly 18 months of hearing, the Rt Hon Lord Hoffman’s Tribunal in Singapore has ruled in favour of GMR and said the concession pact was valid & binding and not void for any mistake of law or discharged by frustration.

“The Maldives government and Maldives Airport Company Ltd are jointly and severally liable in damages to GMR for loss caused by wrongful repudiation of the concession agreement,” GMR said in a statement quoting the arbitration award.

The company is also seeking $1.4 billion in damages for wrongful contract termination and loss in future earnings from the project. The arbitration proceedings to arrive at the compensation claim is expected to start shortly.

In 2010, GMR and Malaysia Airports (in a 77:23 partnership) had won the contract to upgrade Male’s Ibrahim Nasir International Airport for a total cost of $511 million. The 25-year concession agreement involved upgrading the terminal, as well as setting up a new one to expand the capacity. The two partners had invested $230 million in the project during the two years they managed the airport.

Of this, $168 million was through debt from Axis Bank, while the rest was equity brought in by GMR and Malaysian Airports in the 77:23 ratio.

At the time of contract termination, GMR had said it had annualised revenue of Rs 1,200 crore from this project, while the net profit and operating profit were firming up strongly. “This project had a good potential for us and we were at a loss due to wrongful termination of the contract. We are accounting for possible future earnings when pressing for the $1.4-billion claim,” a senior GMR management official told Business Standard. However, industry analysts indicated GMR was unlikely to get that sum. According to two analysts “it may be Rs 2,000 crore to Rs 3,000 crore”.

The GMR Infra stock did not react to the development on Thursday; it remained unchanged from previous close at Rs 32.85 on NSE.

SMOOTH TAKE-OFF

• The Singapore tribunal has said GMR Infra’s 2010 concession pact with Maldives is not void for any mistake of law or one discharged by frustration
• The Maldives govt and Maldives International Airport Company have been jointly and severally held liable in damages to the GMR consortium for loss caused
• The GMR consortium is seeking $1.4 billion in damages for wrongful termination of its concession agreement

CURTAILED SOJOURN

• 2010: GMR and Malaysia Airports (77:23 partnership), win the $511-mn Male airport upgrade project with a 25-year pact
• Late 2012: The Maldives govt cancels the contract and evicts the consortium, alleging the previous govt in the country awarded the contract in a not- transparent manner; Maldives goes for arbitration seeking to declare the concession pact void, GMR disputes