WHILE Indian corporates in recent years have been aggressively pushing ahead with investments abroad, quite a few of them are now experiencing what many global investors have for years faced in the country.
And that is the vagaries of domestic politics that can overnight transform a promising investment with the potential to be a money-spinner into a virtual dud. The latest Indian victim to this harsh reality in the world of international business is GMR Infrastructure, part of the Bangalore-headquartered GMR group, which has interests spanning fast-growing sectors including airports, energy, highways and urban infrastructure. The company, which operates the international airports at Delhi and Hyderabad, besides the Istanbul airport, was recently unceremoniously kicked out of the Maldives, where it has been operating the international airport at its capital, Male.
On November 27, the Maldivian government terminated the 25-year contract signed between GMR and the Maldives Airport Co Ltd (MACL) about two years ago and directed the company to pack up and hand over the Ibrahim Nasir International airport to the local company. Accusing the government of arbitrariness, GMR got a stay order from a Singapore court.
However, on Thursday, the Singapore court of appeal ruled that the Maldives government had the authority to take back the airport from GMR, and dismissed the Indian company’s plea. “The Maldives government has the power to do what it wants, including expropriating the airport,” declared Sundaresh Menon, the chief justice of Singapore.
The issue has, however, resulted in a major diplomatic row between India and the Maldives. The Indian government has urged Male to adhere to all legal procedures and warned that future investments into the island nation could be jeopardised if it adopted arbitrary procedures. The Maldives, located in the Indian Ocean, is a mere 400 km south-west of India.
GMR won the $500 million Male project — to upgrade the airport, build a new terminal and operate it for 25 years — following a global tender overseen by the International Finance Corporation, a World Bank affiliate, and signed by the government of former president Mohamed Nasheed. The contract was awarded by MACL to a joint venture company formed by GMR Infrastructure Ltd. (with a 77 per cent stake) and Malaysia Airports Holding Berhad.
It was the biggest Indian investment in the Maldives and GMR was supposed to complete the project by 2014-15. However, within a year of the contract, local politicians in Male objected to the Indian company taking over city-side space at the airport for commercial development.
Nasheed’s political rivals also filed a case against the contract, claiming that the provision for charging $25 per passenger as airport development charge (ADVC) was illegal as the parliament had not approved it.
GMR had imposed the $25 ADC last December and an additional $2 as insurance for outbound passengers. The company hoped to raise about $25 million through these charges in 2012. The company has been charging airport development fees in Delhi as well, a move that has been opposed by passenger associations.
A local court in Male directed GMR to stop collecting the ADC. The government then allowed GMR to set off its share of the revenues against the amount of ADC that was supposed to have been paid by passengers. The result was that instead of the government getting a part of the revenues, it ended up paying hefty sums to GMR as compensation for the ADC that was struck down by the court.
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THE Indian company’s problems got aggravated after Nasheed was ousted and a new government headed by Mohammed Waheed came to power in March. The new government accused GMR of winning the contract through unfair means, a charge that the company vehemently denies.
But the new regime was not willing to allow it to operate the airport. In November, the government terminated the contract, accusing GMR of having won it by unfair means. The move has irked the Indian government, which was also unhappy with the regime change in Maldives. According to Masood Imad, the Maldivian president’s spokesman — who has been interacting widely with the Indian media after the cancellation of the contract — the former minister of transport had sacked the chairman and the board of MACL as they had opposed the deal. The government is also authorised to take over the project as per the terms of the contract, he maintains.
Imad says there was a lot of anger in the country about the deal signed between the previous regime and the Indian company, especially since the government would finally end up paying for running the airport. The Maldivian government was for the past few weeks seeking the Indian governments help to renegotiate the deal, but did not get any response and hence had to scrap the deal, he claims.
But Sidharth Kapur, chief financial officer, GMR Airports, denies that the new government tried to renegotiate the contract. According to him, “the airport has become a football in the political arena in the Maldives.”
Renegotiating contracts following change of regime, however, is not something that is unheard of in India. The most notorious example was that of American energy major Enron, which had signed a contract with the Maharashtra government — then ruled by the Congress — in the early 1990s to put up a massive power plant in Ratnagiri district, about 600 km south of Mumbai. It was then the single biggest foreign direct investment in India.
However, in 1995, when the Shiv Sena and the Bharatiya Janata Party (BJP) came to power in the state, the two right-wing parties decided to revoke the agreement with Enron. The new regime renegotiated the deal with the American corporation, but by then it had run afoul of regulators in the US and its plant was shut down.
American multinationals including IBM and Coca Cola have also had to face the ire of politicians following a change of regime. George Fernandes, the then industries minister in the Janata government in 1977, forced the two US giants to close shop after they failed to dilute their equity stake to 40 per cent.
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AND GMR is not the only Indian corporate to have faced such problems. Indian-origin steel tycoon Lakshmi Mittal has been under fire in France for the past few months, especially after the Socialist government, headed by Francois Hollande, came to power.His ArcelorMittal steel company is accused of being a predator, shutting down plants in France, sacking employees and selling sites ‘piece by piece’ and making hefty profits. The French government has threatened to nationalise one of his units. And though Mittal has been living in Europe for several years, he is still being seen as an Indian businessman.
Another high-flying Indian businessman who has been facing problems abroad is Naveen Jindal, a Congress MP, who has had to pull out of his $2.1 billion mining and steel venture in Bolivia. Jindal had signed an agreement with Evo Morales, the Bolivian president, in 2006, which was the single-largest foreign investment in the country.
According to Jindal, the Bolivian government reneged on its commitment to supply gas for the power plant — which would have powered the steel factory. The government charged the Indian industrialist of not making the promised investments and in July it confiscated his assets, besides initiating criminal proceedings against some of Jindal’s top executives. The group has had to write off $90 million it invested in the country.
Other Indian corporates — including state-owned ONGC Videsh Ltd. — have also been caught up in controversies due to political upheavals, civil war, regime changes and other crises across the globe in recent months.