[Economy] GMR-Maldives Airport Controversy, IFC, AAI: Meaning, Reason, Implications, Explained
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. What is GMR? Delhi Airport Management What is Airports Authority of India (AAI)? What is GAGAN? Male International Airport, 2009 What is International Financial Corporation (IFC)? Coup, Feb 2012 Singapore Court, Dec.2012 Indian Government’s response Should India stop giving ca$h to Maldives? Should India be Assertive? Conspiracy Parts The Chinese angle The Crony Capitalism Angle The Rajnikanth angle The Funny Parts Mock Questions
What is GMR?
An Indian company dealing with infrastructure related business: airport Management, coal mining, highways etc. It operates the airports in Delhi, Hyderabad and Turkey. Grandhi Mallikarjuna Rao founded this company, hence the name “GMR”.
Delhi Airport Management
Delhi airport is managed by Delhi International Airport Ltd or DIAL. But that company created by partnership between GMR + Airports Authority of India (AAI) etc.
What is Airports Authority of India (AAI)?
Public Sector Undertaking (PSU) It operates more than 100 airports in India AAI also works as traffic police of Indian airspace. (Air Traffic Management). AAI has undertaken GAGAN project with Indian Space and Research Organization (ISRO). So aircrafts are fitted with GPS, and AAI’s command centre will monitor them via satellites for efficient traffic Management.
What is GAGAN?
GPS Aided Geo Augmented Navigation (Gagan). GAGAN GPS devices help pilot to fly in difficult weather, fog, tough terrains. They also help in efficient Air traffic Management= less fuel burned by aircrafts= less pollution. Anyways enough sidetalk, back to the issue. First question: Why the hell would GMR want to run airport in Maldives? Well, for the same reason Ekta Kapoor makes Saas-Bahu serials= to make truckload of ca$h. When you own an airport, you can make money via 1. 2. 3. 4. Car Parking fees. Renting rooms to Jet-Airways, Kingfisher to run their ticket booths. Open or rent food-stalls, duty-free liquor stores etc. Charing money on airlines to use the air-strip, fuel refilling,.
Male International Airport, 2009
Second Question: why would Government of Maldives want to give away the airport Management to a private company? 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 to handover Management and control this airport to a private company. But Why? Well, for the same reason why experts recommend that Air India should be privatized. Because Government owned companies are mired with inefficiency and loss-making.
Besides 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.
What is International Financial Corporation (IFC)?
For that, we’ve to go back to Bretton Woods (CLICK ME). Bretton Woods conference led to creation of three organizations: 1. IMF 2. GATT->WTO 3. World Bank World Bank is made up of five organizations: Arm of world bank 1. International Bank for Reconstruction and Development (IBRD) 2. International Development Association (IDA) Role Give loans @market rates to middle class and poor countries.
Give loans @ZERO interest rate to poor countries. +knowledge sharing, health education etc.
3. Multilateral Investment Loans and insurance to private companies, when they invest in Guarantee Agency Developing countries. (MIGA) 4. International Centre for Settlement of To settle investment disputes between foreign investors and Investment Disputes their host developing countries. (ICSID) 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.
5. International Finance Corporation (IFC)
Anyways IFC was tasked to manage the bidding process for privatization of the Male airport to ensure fairness. Big players such as GMR, Reliance and other companies from Switzerland etc. were in the competition. The whole bidding process, checking applications etc. went on for 10 months (which is roughly the same time it’d take UPSC to declare official answer key for any exam under R.T.I.)
Finally GMR of India, won the contract in 2010 (when Nasheed was the President of Maldives). They got the right to run Male Airport for 25 years. And the contract had provision: If there is any dispute in future, either party (Government or GMR) can approach the High Courts of London or Singapore for settlement.
Coup, Feb 2012
Fast forward to Feb-2012, There was a coup in Maldives, Nasheed had to resign and Waheed became the new President. (We already discussed this in previous article, click me) During all this time, there was political debate over privatization of Male Airport. Some politicians and experts projected that Government itself can run the airport (via that company MACL) and make 4 billion dollars till 2035. But now we’ve handed over the operation to private company GMR, they’ll barely give 1.5 billion dollars to Government, during this period. Second, after getting the contract to run Male Airport, GMR decided to charge each passenger: $25 as Airport Development Charge (ADC) + $2 as insurance = total from each But the local court of Maldives ruled that it is one sort of ‘tax’ and tax cannot be levied on passengers without approval of parliament. Therefore, GMR cannot collect such charges from Passengers. However, GMR says “This was all written in our contract agreement with previous Government.” President Waheed took the opportunity and started saying “GMR contract is not in best interest of our country. They had got the contract by bribing previous President Nasheed. So we’ll take over the airport Management. Our Government company MACL will run this airport.” He also ordered criminal investigation against the company.
Singapore Court, Dec.2012
GMR took the issue to Singapore’s Arbitration Court. In December Supreme Court of Singapore ruled in favor of Waheed, that Government of Maldives has full right to terminate contract. Now GMR has hired best lawyers and they’re studying the judgement. They plan to sue Government of Maldives for $800 million dollars for the losses caused.
Indian Government’s response
Initially Government made aggressive statements like “this will affect foreign investment in Maldives, we are committed to protect the interst of Indians abroad etc.etc.etc.” But after Singapore judgement did not come in favour of GMR, Salman Khurshid says “this is all legal matter, we respect the judgement.”
Should India stop giving ca$h to Maldives?
From earlier article, you also know that India gives truckload of financial and technical aid to Maldives (and also to other poor countries of the region such as Bhutan, Bangladesh, Myanmaar).
Rich nation gives aid to poor nation, for three main reasons 1. Whenever there is voting in UN general assembly or other forum, the poor nation will vote in favor of rich nation. (e.g. Kashmir or Arunanchal pradesh border dispute, or WTO, Climate-change agreements). 2. Poor nation will allow the rich nation to construct military, naval bases, radars, missile defense system etc. in its territory. 3. Poor nation will allow rich nation’s companies to get mines, mineral and other contracts. Indian Government was planning to cancel financial aids to Maldivian Government, to force them into settling issue in favor of GMR. Experts are against this move because 1. If India stops giving money to Maldivian Government, then China (or US) will step in, start playing big-brother and giving cash to Maldives. 2. Loss of good will among Maldivian citizens. 3. Apart from GMR, Indian companies like Tata, Taj etc. invested in Maldives. So if Indian Government stops financial aid, then Waheed could start harassing them also.
Should India be Assertive?
Some other experts say India has not been “Assertive” in its diplomacy, and that led to GMR fiasco. Now what is this “assertiveness”? Dictionary meaning: Aggressive self-assurance. Practical meaning: Mohan should call up Waheed and threaten him that 1. I’ll stop or reduce financial and technical aids given to your country. 2. I’ll also start bullying and harassing your companies working in India via Income Tax dept./CBI. 3. I’ll start giving money, weapons and shelter to opposition parties, rebels of your country. 4. I’ll increase taxes on goods imported from your country. 5. I’ll hatch some conspiracy to get you out of office. (sting operation, buying coalition partners of Government.) 6. I’ll order my state media, psuedo-civil society organization etc to bad mouth you in India and abroad about Human rights violation, corruption etc. Traditionally US and Chinese Governments are very ‘assertive’ almost ‘aggressive’ when it comes to protecting their national and commercial interests. But it doesn’t mean they’ve always succeeded. For example, In 2011, Myanmar Government suspended $4 billion Chinese project to build a large dam on the Irrawaddy River. This happened despite China’s strong support to Myanmar during its long years of international isolation and Western sanctions. China’s relationship with Myanmar is much stronger than that between Delhi and Male. Yet China had to display patience and hold its tongue. Therefore, it is not the “assertiveness” but “preparedness” that is necessary to tackle such issues. (We saw earlier, how India was caught unguarded during the coup). >40 per cent of India’s GDP is linked to imports and exports. Indian corporate is investing tens of billions of dollars abroad every year. The real lesson is that India should be more prepared to protect the interests of its companies operating abroad. Problem with Maldives Economy= heavy dependence of tourism. Hence their GDP is low, purchasing power is low and they’re suseptibe to instability. (both economic and political). India should see to it that they ‘diversify’ (marine food processing etc.) and have strong import-export relationships with India. Once established, economic tries are harder to breakoff than diplomatic ties.
Other necessary things for stable Maldives: Independent media, judiciary, penetration of internet, cable-TV, powerful civil society.
The Chinese angle
Behind the curtains, China had played role in it. First getting Nasheed replaced and then Getting Waheed to cancel the GMR deal. And (perhaps) later, it’ll get the contract to manage the airport. Maldives is of strategic interest for both China and India, because of its location in the Indian Ocean alongside major oil and shipping lanes. More than 80% of international trade to and from Asia passes through Maldivian territory. Even USA has plans of building a military base in one of the islands of Maldives. China doesn’t want this. China has recently opened an embassy in Male= proves they’re interested in the Maldives. China has been consistently expanding its own influence in island nations on India’s periphery – the Maldives, Sri Lanka, Seychelles and Mauritius by giving several millions of dollars in aid and infrastructure projects.
The Crony Capitalism Angle
GMR is a shoddy company. It was “unknown” before 2000s. Suddenly it started making billions after getting Delhi-Hyderbad airport contracts and other plump highway, building and coal projects. There is nexus between Indian ministers and this company. GMR is charging Airport development fees in Indian airports also. (according to CAG report, this wasn’t part of original contract.) Now even IT department has started raiding its offices. Nasheed was already in debt of India Government (recall we purchased 100 million worth treasury bonds.) So behind the curtains he was “ diplomatically” coerced into giving final approval to this company. This was either done because Indian Government wants to increase presence in Male or simply because GMR paid gave them a few suitcases for lobbying.
The Rajnikanth angle
In his exam-oriented blockbuster movie “Shivaji, The Boss”, the Rajnikanth plays role of an NRI businessman. He wants to open free Medical college in Tamilnadu. But he has to pay crores of rupees as bribe to bureaucrats and politicians for land allotment. But then elections are held. New minister again demands bribes from the Rajnikanth. Similarly, after Waheed took charge, he’d have asked GMR to pay another suitcase full of money, but GMR refused (or decided to delay bribe because, elections are just upcoming in 2013 who knows if Nasheed again became President!) So, Waheed cancelled the contract to teach a lesson to GMR (and other Indian companies in Maldives) ki suitcase delivery mein delay nahi hona chaahiye.
The Funny Parts
Indian banks’ money stuck (AGAIN)
So far GMR had invested about 500 million dollars in Male Airport. But all of that money didnot come from its own pocket. GMR had taken loans from Axis Bank and Indian Overseas Bank (IOB) worth approx 160 million dollars. Some experts believe that GMR will now refuse to pay interest rate on loan until matter is settled! (SBI must be feeling happy for not being the only bank loosing money on airline related loans.)
ADC charge in India
In India, Government had allowed the airport operators to charge airport development fee from passenger. So, the airport operators charge anything between 100 to 1300 rupees per passanger. CAG says, when DIAL (GMR and AAI owned company) got contract to run Delhi airport, this ADC charge was not mentioned in the agreement. Yet they’re collecting money from passengers. So far they’ve made undue benefit of over Rs. 3,400 crore in the name of Airport development fee! (meaning they gave suitcase full of bribe to previous minister to order the airport development fee approval.) Now the new Aviation Minister ordered ban on ADC on Delhi and Mumbai airport from January 2013. But GMR is non-committal about it (They are planning to go to Airports Economic Regulatory Authority (AERA) and court against this move, in India also!) So, neither Indian nor Maldivian Government likes the private company making money through Airport Development fee, yet Indian Government is against Maldivian Government’s move to scrap GMR contract– the whole crisis has stemmed from ADC.
Tit for Tat/ Karma-Cycle
Indian Government (and media) say, “GMR crisis will affect Foreign investment in Maldives.” Curiously, the same thing was said by Norway and Russia after their 2G licenses were cancelled.
Q1 which of the following, is not a function of Airports Authority of India (AAI)? 1. Air traffic management over Indian air space. 2. Arbitration of Labour disputes involving airline staffers. 1. 2. 3. 4. Only 1 Only 2 Both None
Q2. Which of the following, is a function of GAGAN? 1. Weather forecasting 2. Aiding pilots to navigate and land in difficult weather and terrain. 3. Aiding Air-traffic Management. 1. Only 1 and 2 2. Only 2 and 3 3. Only 1 and 3
4. All of them Q3. Which of the following is correctly matched? 1. International Bank for Reconstruction and Development (IBRD) 2. International Development Association (IDA) 1. 2. 3. 4. Only 1 Only 2 Both None Give loans @ZERO interest rate to poor countries. Give loans @market rates to middle class and poor countries.
General Studies Mains
Explain following terms (5 marks, 50 words each) 1. 2. 3. 4. 5. 6. International Bank for Reconstruction and Development (IBRD) International Development Association (IDA) Multilateral Investment Guarantee Agency (MIGA) International Centre for Settlement of Investment Disputes (ICSID) International Finance Corporation (IFC) Applications of GAGAN
1. How do you rate India’s handling of GMR crisis? 2. Apart from GMR, are you aware of any recent disputes involving Indian Businessmen vs Foreign Governments? 3. Are you in favor of Privatization of Airports? Yes/No and why? 4. What do you understand by Crony Capitalism? 5. Can you think of any solutions to tackle Crony Capitalism?