INVOLVED
PARTIES
GMR
- An Indian company dealing with infrastructure related
business: airport Management, coal mining, highways etc.
- It operates the airports in Delhi, Hyderabad and
Turkey.
- Grandhi Mallikarjuna Rao founded this company, hence
the name “GMR”.
Male International Airport/ Government of
Maldives
- Male=capital of Maldives.
- Maldives is a tourism economy. Their annual GDP=$2
billion annual GDP.
- About 1/5th (=20%), of that GDP comes from this Male Airport.
- So far this Male Airport was managed by Maldives
Airports Company Limited (MACL).
- Maldives Airports Company Limited (MACL) = 100%
Government owned company.
- In 2009, Government decided to handover Management and
control this airport to a private company.
- Maldives Government itself did not have enough money to
develop or modernize the airport, they were looking for some foreign
private investment.
- Therefore Government of Maldives (under President
Nasheed) decided to invite “Biddings/tenders” for privatization of Male
Airport: Whichever foreign company agreed to share maximum profit with the
Government, will get the contract to run the airport.
- But the bureaucrats of Maldives= had no prior
experience of how to evaluate the financial, legal and technical
worthiness of foreign bidders.
- So, Government asked International Financial Corporation
(IFC) to oversee the bidding process.
International Finance
Corporation (IFC)
- When foreign investor, wants to start business in developing country, IFC provides financing and technical advice and assistance, works as a catalyst.
- So, Aim of IFC= boost private investment in developing countries.
Impact on India-Maldives Relations
Ø Though
it’s inevitable for the move to “affect bilateral relations”, India has hoped
that the controversy would not be “allowed to be used “by firing groups in
that country to lead to deterioration in ties.
Ø Foreign Minister Salman Khurshid has
stated that with GMR Infrastructure
reaching a settlement with the Maldives government, the Indian
government would not intervene in the matter.
Ø
While New Delhi has been assured by the
Maldivian government about the safety of Indians in the island country, India
feels that the attitude of the Mohammad Waheed government will work as a
deterrent for potential Indian and international investors.
LESSON LEARNT
Ø The recent termination of GMR’s contract by the Government of Maldives
has once again highlighted issues of propriety and legality of the conduct of
sovereign parties to a contract in their dealing with foreign investors.
Plenty of Indian companies now have large global footprint and similar issues
are bound to crop up periodically.
Ø Very often, states, and particularly developing countries, require capital
and technical expertise from nationals of other states. States enter into
concession or other agreements for development of their natural resources or
infrastructure by foreign investors.
Ø However, many a time, states have repudiated their contractual obligations,
“expropriated” the foreign investor’s property or otherwise caused diminution
in the value of such property. The question then is, how does the investor
recover its investments and the projected returns?
The investor may consider
certain precautions at the stage of negotiating and concluding the agreement. Some
of these precautions are :
·
Bilateral
investment treaties are a defence against arbitrary state
·
Diligence on the state’s assets by the investor before entering into a
private contract.
·
Make provision for a neutral dispute resolution mechanism with the seat of arbitration
outside the territory of the host country.
· Appropriate
investment backing, for
example, through Multilateral Investment Guarantee Agency.
|