The government was unable to reach an agreement with Dubai Ports (DP) World to develop a port at the Thilafushi industrial island near Malé with a free trade zone, Fisheries Minister Dr Mohamed Shainee revealed yesterday.
Following the signing of a Memorandum of Understanding with the global marine terminal operator on March 19, then-Tourism Minister Ahmed Adeeb said a joint venture agreement will be signed between DP World and the Maldives Ports Limited (MPL) within a month.
However, Shainee told local media yesterday that the government’s board of investment reviewed DP World’s proposal and found that it would not be beneficial to the Maldives.
The investment board formed under the government’s flagship Special Economic Zones (SEZ) Act asked the company to submit a revised proposal, he said, but it did not do so within the period specified in the law.
Under the proposal, ships would carry cargo from other ports in the region to Thilafushi, Shainee said, which would lead to higher prices for local consumers.
The proposal also posed obstacles to the development of commercial ports in other areas of the country, he said. The government is now in talks with multi-national companies from Saudi Arabia, China, India, and Philippines for the port project, he said.
Shainee was not responding to calls at the time of publication.
Earlier this month, the main opposition Maldivian Democratic Party (MDP) criticised the government’s failure to attract significant foreign investment despite assurances after the passage of the SEZ Act in August last year.
The new law offered tax breaks and relaxed regulations as incentives for investors, which the government maintained was necessary to “transform” the economy through diversification and mitigate the dependence on the tourism industry.
The MDP, however, suggested that the Maldives was unlikely to attract investments in SEZs because its comparative advantage lies in tourism and fisheries, contending that the government’s reliance on SEZs is resulting in “failed economic policies.”
The SEZs will ultimately become money laundering centres for international criminal organisations, the MDP alleged, reiterating the need for judicial reform to restore investor confidence.
The government had anticipated US$100 million as acquisition fees from investments in SEZs by August this year. The figure was among US$220 million expected from new revenue raising measures, including hiking import duty rates, the introduction of a “green tax”in November, and leasing 10 islands for resort development.
In April, Adeeb told The Maldives Independent that the government was confident of meeting budget targets and that the Thilafushi port was likely to be the first SEZ project.
“Some investors are prepared to pay a US$100 million acquisition fee on a single project,” he said.
However, in May, the government obtained US$20 million from Saudi Arabia for budget support. Finance Minister Abdulla Jihad told The Maldives Independent at the time that the funds were to be used to “manage cash flow” as revenue was lower than expected.
A large portion of the forecast revenue of MVR21.5 billion (US$1.3 billion) was expected later in the year, he said, adding that shortfalls were plugged through sale of treasury bills (T-bills).
The MDP meanwhile said that despite record levels of income from taxes, increased recurrent expenditure was forcing the government to rely on T-bill sales, resulting in reduced lending to the private sector as most of the T-bill debt is held by commercial banks.
The outstanding stock of government securities, including T-bills and T-bonds, reached MVR18.8 billion (US$1.2 billion) at the end of July.
The Thilafushi port project involved relocating the central port in Malé to Thilafushi and developing a free trade zone with facilities for bulk breaking and transhipment cargo handling.
In April, former MDP MP Visam Ali claimed that DP World was only interested in the Maldives to protect its multi-billion dollar port in India’s Cochin.
“Their only reason to invest in the Maldives is to protect that investment, because if there is a major port in the Maldives their investment in the Cochin port will fail. Maldives’ strategic location will make a port here more beneficial to traders. So Dubai World knows if there is a major port in the Maldives, their Cochin port will not be economically viable. So they are attempting to take control of the Maldives port. There is black money in this,” she said.
London-based maritime analysts Drewry Equity meanwhile characterised DP World’s interest in the Maldives as an attempt to take on Colombo’s position in the Indian Ocean, as the Maldives is “more strategically ideal as a cross-road between Far East-Europe and Far East-Africa trade lanes than the Colombo port.”
However, a Maldives port may “cannibalise” transshipment volume at DP World’s main port at Jebel Ali, Drewry said, adding that the best strategy for the company would be to operate the Maldives port as a low margin facility, possibly in partnership with a shipping line.