Will follow due process and compensate GMR as per law: Maldives official

Masood Imad, Media Secretary in the Maldives President's Office and a former
 Director of the Maldives Airports Company Limited (MACL)

B T :K.R. Balasubramanyam : December 19, 2012  | 09:22 IST


On December 8, the Maldivian government took control of the international airport on Hulhule island from a consortium led by the Bangalore-based GMR Group. Masood Imad, Media Secretary in the Maldives President's Office and a former Director of the Maldives Airports Company Limited (MACL), spoke to K.R. Balasubramanyam while on a visit to Bangalore. He stated that the Maldives government would compensate GMR in accordance with the law. Edited excerpts:
Q. Why is the Maldivian Government after the GMR Group's airport project?
A. When this so-called privatisation of the airport started, three entities bid for the project, including the GMR-led consortium. The technical evaluation process that followed did not qualify GMR for the project. But the technical evaluation committee, acted under pressure from the then president (Mohamed Nasheed) and qualified the GMR Group for the project. 

Later, when the deal was signed between the government and the GMR-led consortium, the commitment from the GMR side was to share one per cent of the airport revenue with MACL for the first 10 years, and 10 per cent of the revenues for 15 years thereafter. 

The government gave them the entire island of Hulhule and the vast real estate for commercial exploitation. GMR was also allowed to raise rentals to leaseholders. Yet the revenue share was so low. It was not seen as a fair deal at all. The contract was not acceptable to the public.

Q. What was your issue with the airport development charge?
A. One of the clauses introduced in the contract that MACL signed with GMR was to collect a $25 airport development charge (ADC) from every departing passenger. The International Finance Corporation (a World Bank affiliate) failed to notice that there was a legal issue in the collection of ADC.

The law of the land is clear that no taxes of any type can be levied on anybody in the country without the approval of Parliament. In this case, the ADC was sought to be levied without any legislative approval. And, this ADC was sought to be collected from passengers for the full lease period of 25 years, something not seen anywhere in the world. 

Q. Were there any other issues with the ADC?
A. The other issue was that there was already an ADC of $20 per passenger introduced by the previous president on tourists, called Tourism Goods & Services Tax. That meant an outgoing passenger had to pay $45 every trip. As you know, tourism is the lifeline of our country, and costs such as these could destroy our tourism economy. Hence, the $25 ADC was unacceptable. And, it was struck down. 

For the GMR Group, the Maldives business was the most profitable even without the ADC.

Q. What was the role of the previous government in signing the deal?
A. The then president surreptitiously signed the deal with GMR even as Parliament cleared a Bill which mandated that every case of large-scale foreign investment needed to go through it (Parliament). The then president had the GMR deal signed before giving his assent to this Bill. Our Constitution, of course, is clear that a Bill twice cleared by Parliament is law from the moment it is cleared, with or without the President's assent. Thus, what the then president signed (with GMR) was an illegal contract. The then president's handpicked board signed the contract with GMR.

Q. What is your response to the compensation claims? 
A. There are different types of figures in circulation. As far as the government is concerned, we will not stick to any of these figures. We have asked for an arbitration process to decide how much money we will have to pay GMR. We have appointed our side of the arbitrator. GMR is yet to appoint its side of the arbitrator. We will follow the due process of law and the government will give them as compensation whatever has to be given. It is not our intention to frighten foreign investors. 

Q. But doesn't this episode spoil your relationship with foreign companies?A. Our experience in partnerships with foreign companies has been good except with GMR.

Q. We hear there is a Chinese hand behind the exit of the GMR Group...
A. This is highly untrue. There is no Chinese hand of whatever sort. The GMR Group is spreading these rumours and creating a scare to spoil the excellent relationship between India and Maldives. In our country, GMR was seen as the equivalent of invasion by the Bohras in the early 1950s. This trading community invaded our country and posed a threat to the locals. And, they had to be evicted.

Q. Will your country's attitude to the GMR Group change?
A. It is a good company. The previous government used the company to push its own agenda. The company has built a good airport in New Delhi. In future, too, the GMR Group is welcome to bid for projects in Maldives. We have not blacklisted the company from doing business in Maldives. The only bone of contention between the government and the GMR Group was the contract on the airport

GMR, not Wal-Mart, is our real worry

Shoppers entering a Wal-Mart store in Riverside, Illinois. Photo: AFP

Sundeep Khanna: mint :Wed, Dec 12 2012. 01 31 PM IST

Where Indian firms might be getting it wrong is in their estimation of how hard some govts are going after corruption

Instead of getting our collective knickers in a twist over the legality of Wal-Mart’s
lobbying efforts, we might be better off ensuring wannabe Indian multinationals have a clear permissible practices list.

In recent times, in countries as diverse as the Maldives, Bolivia, Bulgaria, Zambia and Zimbabwe, Indian business groups such asGMR, Jindal, Mittal and Essar have run afoul of local politics or rules. As we float our boats, hoping India’s new reputation as a global player pushes us into the big league, the country needs the equivalent of the US Foreign Corrupt Practices Act (FCPA), or even the UK’s Foreign Bribery Act, 2011.

Currently, India just has the inadequate Prevention of Corruption Act, which hasn’t been able to rein in corrupt practices at home, leave alone those in distant lands.

FCPA has two parts. The first prohibits US citizens and US firms, or those listed on a US stock exchange, from making and offering to make payments to foreign government officials to obtain, or retain, business or a business advantage. The second requires that companies maintain accurate books and records. And the onus is on the parent entities; they can be held responsible for the actions of their subsidiaries. Though approved in 1988, FCPA became robust only after the passage of the Sarbanes-Oxley Act.

For India, a country ranked 94 on Transparency International’s global corruption list, it is futile to pretend that its companies will act within the letter and spirit of the law when doing business, particularly in developing countries, which may themselves be dodgy about their business practices (on the same list Bolivia is 105 while Zimbabwe is 163).

Graft and corruption have always been a part of global business. Assuming, therefore, that a kickback is the best way to get a contract isn’t unreasonable. Where Indian companies might be getting it wrong is in their estimation of how hard some governments are going after corruption, propelled in part by a groundswell of global opinion against graft in business.

The full story of GMR’s ouster from the airport project in Maldives isn’t out yet, so we don’t know if any rules were bent when the contract was being awarded. But neutral experts have acknowledged that the original contract was structured too heavily in favour of GMR. That may have been merely a part of business negotiations. But in the absence of a specific law to modulate their behaviour, Indian companies have been left to figure out for themselves the Lakshman rekha.

What hasn’t helped is the government’s own pussyfooting around this issue. India, as a member of the International Monetary Fund, is committed to the revised Madrid Declaration unanimously adopted recently by the lending agency and declaring that “promoting good governance in all its aspects, including efficiency and accountability of public sector, and tackling corruption are essential elements of a framework within which economies can prosper”. But such declarations lack teeth.

The Anti-Bribery Convention of the Organisation for Economic Co-operation and Development, now signed by 38 countries, established legally binding standards to criminalize bribery of foreign officials in international business. India, along with China, hasn’t joined the convention yet. Alvaro Cuervo-Cazurra, Robert Morrison fellow and associate professor of international business and strategy at Northeastern University, in a paper, Who Cares about Corruption?, says that laws against bribery abroad act as a deterrent against engaging in corruption in foreign countries and that investors who have been exposed to bribery at home may not be deterred by corruption abroad, seeking instead countries where corruption is prevalent.

Increasing globalization implies grappling with uncertainty when the internal politics of a country or even regime change reverses or starts dictating business decisions. Even as Indian corporate credibility plummets with the GMR episode in the region, what is clear is that despite the bilateral treaties between government pairs—that today stand at 3,000 or more in the world— interpretation and lack of common standards leave companies to their own devices in manoeuvring in foreign shores. An unambiguous law laying down the rules of behaviour wherever in the world an Indian company operates, will serve as a guiding principle for those that may find it difficult to take a conscience call in the face of a multi-million dollar deal.