Herethere Case Drags on

US $ 55 million is a sum of money that 99.9% of Maldivians will never see in their life time, let alone posses. But that is exactly what Yacht Tours, the company that leased Herethere Resort from Maldives Tourism Development Cooperation (MTDC), is demanding from the lessor as compensation for the loss of the island, which according to many tourism experts is unlikely to make any profit anyway.

So why do people make such extravagant demands at all? Simple: They often win, as Yacht Tours itself did a few years back when it won a $ 31 million dollar case against Tourism Ministry for disqualifying its bid for an island in Male Atoll.

This time however, Yacht Tours appears to have run out of luck. On Thursday Civil Court ordered Yacht Tours to pay a sum of $ 895,319 to MTDC in a counter-claim case filed by the latter. However, the main court case, that for $ 55 million filed by Yacht Tours, is dragging on as is the Company's occupation of the island.

Something Rotten in the State of our Public Companies

When Maldives Tourism Development Corporation (MTDC) was launched friends advised me to buy its shares. I refused. From the less-than-respectable history of public corporations in the Maldives I had my doubts. One year later when MTDC paid a dividend nearly equal to the original investment my friends had triumphant smiles. The smiles faded last October when the company’s audit report was released.

With Bank of Maldives I was less cautious. This may partially have been because when the company went for a public issue, it had been apparently running professionally and efficiently for some years –long enough to lull my suspicions. It may partially also have been because I had worked earlier in a bank and was a bit familiar with the internal safeguards that operated in banks. But the audit report released on Sunday indicates that my confidence was misplaced. Probably I’ll lose my investment in the bank. Fortunately my savings are not in Bank of Maldives.

From Qaumee Company to MITE and MTCC to MTDC, the plight of ordinary shareholders has been the same. Forget about getting any profit, they should consider themselves lucky if they manage to get their investment back. These companies were all formed with the lofty goal of giving ordinary people the chance to invest their meager savings. But they all end up with unscrupulous managements fleecing unwary shareholders.

Today there is a Company Law and a Registrar of Companies established under the law. There is a Capital Market Development Authority and a Monetary Authority to regulate the financial sector. But things are only getting worse if any. At least in the 1960s those responsible for swindling Qaumee, Orchid and MITE companies were prosecuted and brought to book. But later those who swindled FPID, MIFCO, MTCC, STO, STELCO and MTDC were not only left scot free, but also given promotions, many to ministerial level.

Taking action against perpetrators of economic crimes is not just a question of recovering stolen money. It’s more a question of reestablishing the moral norms of our society. An entire generation has been brought up believing that corruption is the smart thing to do. If another generation goes that way, the word corruption itself will have no meaning at all. Surely that’s not the good governance we want to establish in the Maldives.

MTDC exposed

"The world is full of obvious things which nobody by any chance ever observes" –Sherlock Holmes

One should have smelt a rat the moment MTDC announced a dividend payment of Rf 90 per 100-rufiya share for year 2007. Where on earth would one find a company that returns 90% of the investment back to the investors within one year –that too before serving a single customer? It's fishy to say the least. And now Auditor General Naeem has pulled the lid off the mystery, exposing the dark secrets and ugly skeletons in the MTDC closet.

MTDC was formed in April 2006 to allow the ordinary man to participate in the tourist industry –a lofty aim no doubt, but too high to reach. The graph above tells it all. For year 2007 an ordinary man who bought shares up to the maximum legally allowed limit of 2645 would have received a dividend of about Rf 0.24 million –peanuts compared to Villa group's dividend of Rf 27.8 million and Champa group's Rf 5.2 million. These figures are based on the minimum number of shares controlled by Villa (309,207) and Champa (57,261) as estimated by the audit report, and the actual dividend paid per share –90 rufiyaa.

The audit report says MTDC acquired 10 islands at an average rent of $ 2738 per bed per annum, which is almost 10 times lower than the market value and 3 times lower than even the controlled rent fixed by Tourism Ministry ($6908). The report estimates that because of this low rent the exchequer loses a minimum of $ 11.8 million each year. And that's not all. MTDC has subleased the islands at rents considerably higher than $ 6908. This means the exchequer is losing far more than the $ 11.8 million estimated above. Where did all this money go? Part of the answer is seen in the graph. Part of the answer is the 70 million rufiyaa due to other private investors and the 135 million rufiyaa due to the government for its shares. But for a very important part one will need to investigate the subleases and who got them.

Now the question is, why did all this happen while there was a board of directors with 4 government directors in it to protect the rights of the public? The audit report explains how:

• Though the company was established for the public, two entities have controlled the company from day one by acquiring far more shares than the allowed maximum;
  


• Villa Group controls the board of directors of the company;
  


• All major decisions were taken for the company by a temporary board;
  


• The company was politicized at all stages in its formation and development;
  


• Conflict of interest because Tourism Ministry is both supervisor and regulator of the company;
  


• Managing Director is abroad on study leave and other people run the company;
  


• Company has dealings with firms where members of the board have interests;
  


• Family connections between a member of the board and a senior executive of the company;
  


• Inappropriate decision to pay a dividend of Rf 90 per 100 rufiyaa share, which is over and above company profits and reserves;
  


• Five persons own shares more than the limit of 2645;
  


• Exceeding the Herethere development budget of $ 30 million and spending $ 52 million;
  


• Herethere contracts were awarded without bidding;
  


• Over payment to Herethere sub contractors;
  


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  The government has only paid one third of what it has to pay as paid up capital;
  
  
  

  
  

  
  

  Based on the above findings the Auditor General has recommended dissolution of the company. He has also recommended prosecution of the people responsible for the malpractices.
  

"Where large sums of money are concerned, it is advisable to trust nobody." –Agatha Christie