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T N Ninan: The 'Ugly Indian'?

Source : BUSINESS_STANDARD
Last Updated: Fri, Nov 30, 2012 20:50 hrs

Most people in India have assumed that the Maldives is guilty of breach of contract in the case of the Malé airport, and GMR the victim. But is there another side to the story? The contract was a revenue-sharing arrangement (one per cent till 2014, 10 per cent after that; also 15 per cent and 27 per cent revenue share on fuel). The contract allowed GMR to charge an airport development fee (users of Delhi airport, also run by GMR, will be familiar with this issue). The issue went to court in Malé, which in late 2011 struck down the fee as illegal. The Maldives then allowed GMR to set off its revenue share against the fee that might have been collected. The consequences became clear in the first quarter of 2012, when a revenue share for the Maldives of $8.7 million was reduced to $0.5 million after setting off the airport fee. By the second quarter, the Maldives instead of receiving revenue share was asked to pay $1.5 million; the bill climbed further in the third quarter, totalling $3.5 million. The new Maldives government feared that, far from receiving an expected $1 billion, it might end up paying massive sums to GMR over the 25-year period of the contract, extendable by 10 years. Abrogation of the agreement followed. Readers will see parallels with the Enron/Dabhol case, where Maharashtra was in the position of the Maldives government: stuck with a contract that would ruin the state, but faced with severe penalties if it walked away. India eventually paid a price for throwing out Enron, and that may well be the fate awaiting the Maldives. Where should our sympathies lie?

Cut to another case. Back in 2011, Pankaj Oswal was riding high; his company in Western Australia was supremely profitable, and he and his wife set up an extravagant home outside Perth that got a lot of press attention. Soon, however, the headlines became negative; there were allegations of money being siphoned out of Burrup Fertiliser to privately held firms in Singapore, and Burrup went into receivership. Mr Oswal and his wife left Australia and their fancy home outside Perth, and are said to be in Dubai or Singapore.

The question to be asked, as more and more Indian businessmen invest overseas, is whether we are risking the birth of the “Ugly Indian”. Lakshmi Mittal’s problems in France, where the French government has threatened to nationalise a unit of ArcelorMittal, would seem to have more to do with the vagaries of French politics. But there is also the case of Jindal Steel and Power (JSP), which had to exit Bolivia in May. JSP had made headlines in 2007 by bagging the world’s largest untapped iron ore mine, and agreeing to set up a steel plant in Bolivia. Amid a welter of charges and counter-charges, a new Bolivian government said the company had not fulfilled its investment targets, while it said the government had not provided it with the required natural gas for fuel. End of project, no steel plant and no iron ore.

In both Bolivia and the Maldives, there was a change of government before contracts were cancelled. France too has seen a change of tune after the François Hollande government assumed office. India has its own history of throwing out companies after a change of government — Coca-Cola and IBM after the Janata came to power in 1977; Enron after the Shiv Sena government took charge in Maharashtra in 1995. Now the boot is on the other foot, and poses tricky challenges for Indian diplomacy (should the government automatically back Indian companies?), as well as for India’s entrepreneurs. Companies get into all manner of scrapes in the crony-capitalist business environment at home (Jindal in the coalgate affair, GMR over the Delhi airport), but continue doing business; the consequences in another country are quite different, and also on a wider plane.




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