Maldives wins airport dispute with India's GMR

An aerial picture of the airport in Maldives January 10, 2005.

SINGAPORE/MALE (Reuters) - The Maldives has won a court case allowing it to cancel a $511 million airport development contract with India's GMR Infrastructure, clearing the way for it to take over its main airport.

The contract for Ibrahim Nasir International Airport, agreed in 2010, was the largest foreign investment in the south Asian tropical island chain famous for its luxury beach resorts popular with honeymooners and scuba divers.

But it has become embroiled in a bitter political argument, threatening to cloud foreign investor sentiment towards a country seeking overseas cash for many of its tourism projects.

"The Maldives government has the power to do what it wants, including expropriating the airport," Sundaresh Menon, the Chief Justice of Singapore, said in court on Thursday.

His ruling came after GMR won a brief reprieve on Monday when a court order suspended the government's decision to cancel the contract, although the Maldives still pressed ahead with plans to take over the airport.

A spokesman for the Maldives president said the government would call for international tenders in about 18 months to continue with the airport modernisation.

Shares in GMR Infrastructure were down as much as 4.2 percent following the ruling after earlier being in positive territory on the day. They later pared some of those losses.

Andrew Harrison, chief executive officer of the airport project, said it was too soon to discuss the practicalities of a handover.

"We've always been advocates of following the law. We are waiting to review the full judgment, which is currently being written up. It is too early to comment officially. We will have a staff briefing tomorrow afternoon," he told Reuters.

GMR employs 1,800 people at the airport, 95 percent of whom are locals.

"We will take over. We will enrol all those people from GMR who wish to join. Those who don't can go home. By Friday midnight we will take over," Imad Masood, the Maldives president's media spokesman, told Reuters, adding that the Maldives would pay compensation to GMR.

The two sides have not yet agreed on terms of compensation.

"We will go for international tenders maybe in one-and-half years from now. But they will be very transparent," he added.

The Maldives, south-west of India, terminated an agreement with GMR last week, rattling its relations with its neighbour.

"GMR is the biggest Indian investment in Male and we are only insisting for adherence to the legal process. Nothing more, nothing less," Syed Akbaruddhin, spokesman for India's foreign ministry, said on Thursday.

The cancellation of the contract follows a year of political turmoil in the Maldives that saw the ousting of its former president and months of unrest.

The contract to upgrade and operate the airport and build a new terminal came after a global tender overseen by the World Bank and signed under former president Mohamed Nasheed's administration.

The project was implemented through a joint venture company comprising GMR Infrastructure Limited and Malaysia Airports Holding Berhad (MAHB.KL).

However, Nasheed's rivals filed legal action saying the contract was invalid as it contained a $25 airport development charge per outgoing passenger which was not authorised by parliament. (Additional reporting by Shihar Aneez in COLOMBO and Kaustubh Kulkarni in MUMBAI; Writing by Tony Munroe; Editing by Muralikumar Anantharaman, Jonathan Thatcher and Mark Potter)