GMR's troubles in Maldives could make India Inc wary

The Singapore Court of Appeal's decision on Thursday (December 6) favouring the Maldives government in its dispute with GMR Infrastructure , could make Indian companies, especially those in core infrastructure, choosy about their overseas investments. Countries with shaky political foundations are likely to be given a wide berth henceforth.

On November 27, the Maldivian government had cancelled GMR's $500 million contract to upgrade the airport in its capital Male. The company won the contract two years ago in partnership with Malaysia Airports Holdings Berhad. It was to operate the airport for 25 years.

On Thursday, the Singapore Court of Appeal said the Maldives government could take over the Male International Airport, overturning the Singapore High Court's stay order, and confirming GMR's worst fears.

GMR's setback comes nearly five months after Jindal Steel & Power (JSPL), owned by Congress MP Naveen Jindal, pulled out of its $2.1 billion mining and steel project in Bolivia owing to inadequate gas supply from the government.

Politics - and ideology - may have been central to JSPL's dispute with Bolivia. Evo Morales, a socialist and a close ally of Venezuela's socialist leader Hugo Chavez and Cuba's Fidel Castro, became President of Bolivia in 2006 and signed an agreement with JSPL later that year. The agreement, which got Bolivia its single largest foreign direct investment, showed Morales becoming market-friendly. But some believe political considerations forced him to adopt a strong stance against foreign investors.

There have been other instances of political turmoil adversely affecting Indian companies' fortunes abroad. ONGC Videsh Ltd (OVL) is caught in the middle of a dispute between Sudan and the newly formed South Sudan. It had invested over $2.5 billion in the region when Sudan was undivided. Some of OVL's assets are now in South Sudan, which wants a greater share of the revenues than earlier agreed.

Engineering and construction company Punj Lloyd's projects in Libya, worth nearly Rs 9,500 crore and accounting for a third of its total order backlog, came under a cloud last year after the country's late ruler Muammar Gaddafi was ousted from power during the 'Arab Spring' revolution. Work has since resumed on some of the projects thanks to normalcy returning to the troubled nation.

Politics has also played a crucial part in the Maldives government's decision to cancel GMR's contract. The project was awarded under former President Mohamed Nasheed, who was ousted from power earlier this year. He was succeeded by then Vice-President and current President Mohammed Waheed Hassan.

GMR's problems are another reminder for Indian companies of the dangers of doing business in countries with a volatile political climate.