Maldives cancels GMR’s $511m airport project

The Maldives government has terminated a USD 511 million contract with Indian infrastructure firm GMR for the development and operation of the Ibrahim Nasir International Airport (now Velana International Airport). The decision, announced on November 27, 2012, included an order for GMR to exit the country within seven days. India has urged the Maldives to honor the legally binding agreement, warning of potential diplomatic and economic repercussions.

Background

In 2010, under the administration of former President Mohamed Nasheed, the Maldives signed a 25-year concession agreement with a GMR-led consortium following a competitive bidding process overseen by the World Bank’s International Finance Corporation (IFC). The contract tasked GMR with upgrading the existing airport, operating it, and constructing a new terminal to enhance the country’s tourism-dependent infrastructure.

On February 7, 2012, President Nasheed was ousted in a controversial coup d’état, and his rival, Mohammed Waheed Hassan, assumed the presidency. The political shift led to increased scrutiny of the GMR contract by Nasheed’s opponents, who challenged its legality.

Reasons for Cancellation

The cancellation stemmed from a legal challenge initiated by Nasheed’s rivals, who argued that the contract was invalid. A key point of contention was the inclusion of a $25 airport development charge levied on each outgoing passenger, which critics claimed lacked parliamentary approval and violated Maldivian law. The Waheed administration, backed by anti-GMR political factions, declared the contract void, citing irregularities in the bidding process and national interest concerns.

The decision was also influenced by domestic political dynamics and growing anti-foreign sentiment, with some Maldivian stakeholders advocating for greater control over critical infrastructure projects.

Impact and Reactions

The abrupt cancellation raised significant concerns about the Maldives’ investment climate and the security of foreign investments. India, a key regional partner, expressed disappointment, emphasizing the need to uphold international contracts. The move strained India-Maldives relations, with India hinting at reviewing its economic aid and cooperation.

Investors and international observers flagged the decision as a setback for the Maldives’ reputation as a stable destination for foreign direct investment (FDI). The tourism sector, which relies heavily on the airport’s capacity and efficiency, faced uncertainties regarding future upgrades and operational stability.

Developments Post-2012

Following the termination, the Maldives government took over the airport’s operations and later awarded a new contract to other international partners, including China’s Beijing Urban Construction Group, for airport expansion. GMR pursued arbitration through the Singapore International Arbitration Centre, seeking compensation for losses. In 2019, an arbitral tribunal ruled in favor of GMR, ordering the Maldives to pay $270 million in damages, a decision the Maldivian government initially contested but later settled.

The incident remains a notable case study in the risks of political instability affecting foreign investments in small island nations. As of 2025, the Maldives continues to balance its reliance on foreign partnerships with domestic pressures to maintain sovereignty over strategic assets.