Home » Global News » Asia » APSEZ prepone capacity expansion of Vizhinjam Port

APSEZ prepone capacity expansion of Vizhinjam Port

Adani Ports and Special Economic Zone Ltd (APSEZ) has agreed to expand capacity of the under construction international container transhipment port at Vizhinjam in Kerala by 2028.
Facebook
Twitter
LinkedIn
WhatsApp
Email

Adani Ports and Special Economic Zone Ltd (APSEZ) has agreed to expand capacity of the under construction international container transhipment port at Vizhinjam in Kerala by 2028, much earlier than the timeline set by the concession agreement, in return for consenting to settle arbitration proceedings initiated against the state government over delay in completing the first phase of the new port and to get a five-year extension in the concession period till 2060.

The capacity expansion will allow Vizhinjam Port to handle 3 million twenty-foot equivalent units (TEU’s) from a 2 km-long berth.

On its part, the Kerala government has agreed to condone the delay by APSEZ in completing the first phase of the Vizhinjam Port (with a quay or berth length of 800 metres having a capacity to load 8 lakh twenty-foot equivalent units) by five years from the earlier stipulated 3 December 2019 to 3 December 2024.

According to the consent award passed by the arbitral tribunal, the state government will withhold Rs 219 crores due to APSEZ as “commitment fee deposit from the equity support to be given by Government of Kerala to AVPPL” (Adani Vizhinjam Port Pvt Ltd).

From the amount withheld, Rs 175.2 crores will be released to AVPPL once the second and third phases of the project are completed in 2028, while the balance Rs 43.8 crores will be retained by the state government.

The scheduled completion date for the project per the concession agreement signed between Adani Vizhinjam Port and the Kerala government was set at 3 December 2019. For each day of delay in complying with the scheduled completion date, the port developer is to pay 0.1 percent (Rs 12 lakh per day) of the performance security amount of Rs 120 crores. This translated into Rs 219 crores for the five-year delay in completing the first phase of the project.

According to the consent award, AVPPL will withdraw all the arbitration claims filed before the arbitral tribunal.

The revenue sharing would remain the same from the 15 year (2034) of the original scheduled completion date of December 2019, per the concession agreement.

APSEZ’s offer to prepone the timeline for capacity augmentation of the project to 2028 for handling 3 million twenty-foot equivalent units and settle the arbitration proceedings, renders the terms stipulated in the concession agreement “null and void”, said a pers on familiar with the arbitral award passed on 8 March.

According to the concession agreement signed on 17 August 2015, APSEZ was contractually mandated to expand the capacity of Vizhinjam Port at the earlier of 30 years from 3 December 2015 (appointed date), ie 2045 or within five years of the port volumes exceeding 75 percent (6 lakh TEU’s) of the first phase capacity of 8 lakh TEUs for three consecutive yeaRs .

If these two triggers on capacity augmentation are not complied with, APSEZ can run the port for 40 years till 3 December 2055 (now extended to 3 December 2060) after which the concession period will automatically end.

But, if APSEZ wants to get the concession agreement extended by 20 years beyond 2060 as written into the concession agreement, they will have to achieve either of these two conditions for capacity expansion.

“Now, by binding APSEZ to undertake capacity expansion by 2028 without any of the two conditions written into the concession agreement, the Kerala government has ensured that the port developer and operator expands the port per the approved master plan that involves a berth length of 2,000 metres (2 kms),” the person mentioned earlier said.

This change in concession terms require a supplementary agreement to be signed by the two parties, which has been agreed by the Kerala cabinet while approving the consent terms to end the arbitration proceedings with APSEZ.

The consent award passed by the arbitral tribunal will also clear the decks for a tripartite agreement to be signed by Adani Vizhinjam Port, the lead bank and the Department of Economic AffaiRs (DEA) with Kerala government as the conforming party for disbuRs ement of viability gap funding (VGF) for the project.

It will also facilitate the signing of a premium sharing agreement between DEA and the Kerala government for the project.

APSEZ had cited 16 force majeure events including cyclones, adverse weather conditions, floods, Covid-19 pandemic, public agitations, among others , as reasons for the delay in completing the first phase by the 3 December 2019 deadline and to invoke arbitration.

VGF is a one-time grant given by the Central government for supporting public-private-partnership (PPP) projects in infrastructure that are economically justified but fall short of financial viability.

Vizhinjam is the first and only port project to be offered a VGF to boost its viability.

The VGF of Rs 1,635 crore, the grant sought by APSEZ – the winning bidder – to build the new port in an auction in 2015, will be contributed by the Union government (Rs 817.80 crore) and the Kerala government (Rs 817.18 crore).

The VGF was the sole criteria on which the bid was awarded to APSEZ. Of the total VGF, Rs 1,227 crore will be given during the construction phase and the balance during the operation period spanning 40 years extendable by another 20 years .

Adani Vizhinjam Port is not contractually mandated to share revenue earned from the project with the Kerala government for the first 15 years of starting operations.

According to the concession agreement, the Kerala government will collect revenue share from the private operator only from the 16th year of operations that will be equivalent to 1 percent of the gross revenue from the facility. The premium collected from the private operator will rise by 1 percent every year till it reaches 40 percent.

In turn, the Kerala government had agreed to share 20 percent of the annual premium it collects from the private operator with the Centre till the VGF given by the Union government is fully repaid.

Vizhinjam is being developed as a container transhipment port with an investment of Rs 7,700 crore to compete with Colombo because its basic infrastructure such as water depth and proximity to the main shipping lane is better than Colombo — the biggest transhipment facility in the region.

Facebook
Twitter
LinkedIn
WhatsApp
Email

Subscribe to Our Newsletter

One Ocean Maritime Media Private Limited
Email
Name
Share your views in comments