The Vizhinjam project is entitled to receive a viability grant funding of Rs1,635 crore to be shared by the Centre (Rs818 crore) and the Kerala government (Rs817 crore) to boost its viability, making it the first and only port project to be offered such a grant.
The Centre has granted final approval for extending a so-called viability gap funding (VGF) of Rs 818 crore to the Vizhinjam International Deepwater Multipurpose Seaport being helmed by the Adani Group as a wave of protest from local fishermen opposing the new port from mid-August and other delays continue to stalk the project designed to cut India’s dependence on nearby Colombo to send and receive container cargo, a top official has said.
The Vizhinjam project is entitled to receive a viability grant funding of Rs 1,635 crore to be shared by the Centre (Rs 818 crore) and the Kerala government (Rs 817 crore) to boost its viability, making it the first and only port project to be offered such a grant. Of this, 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.
The VGF was the basis on which the bid was awarded to Adani Ports and Special Economic Zone Ltd (APSEZ), which quoted the least grant of Rs 1,635 crore in an auction in 2015.
The “in-principle” approval for granting VGF to the Vizhinjam port project was accorded by the Centre in February 2015.
The Kerala government had filed an application with the Centre in 2018, following lenders appraisal, seeking final approval for the VGF.
“The government of India has finally sanctioned the VGF,” said Subrata Tripathy, CEO, Ports, APSEZ.
“We are expecting the VGF to come in so that the project is ongoing,” Tripathy said at an analyst’s call on 1 November after the company announced the second quarter results.
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 being developed as a container transhipment port with an investment of Rs 5,552 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.
The public-private-partnership (PPP) component of the project is Rs 4,089 crore of which the Centre has agreed to extend Rs 818 crore as VGF, accounting for 20 percent of the PPP portion.
The Kerala government will collect a premium/revenue share from the private operator 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 has agreed to share 20 percent of the annual premium it collects from the private operator with the Centre till the VGF is repaid.
According to the concession agreement signed on August 17, 2015, Vizhinjam port was slated to start operations on December 3, 2019, which could be pushed to August 3, 2020.
Adani Vizhinjam Port Pvt Ltd (AVPPL), the APSEZ unit developing the port, has blamed force majeure events arising from acts of God such as the Cyclone Ockhi, high waves, a National Green Tribunal order, the pandemic, Cyclone Tauktae and reasons attributable to government authorities for overshooting the commercial operations date (COD) set by the concession agreement for the project.
Force majeure clause absolves firms from meeting their contractual commitments for reasons beyond their control.
The delay and the reasons behind it are currently being heard by an arbitration panel.
In August, more than six years after Adani Ports and Special Economic Zone Ltd started construction on the new port in December 2015, fisherfolk groups backed by the influential Latin Catholic Archdiocese of Thiruvananthapuram launched an agitation at the construction site, alleging that the project had resulted in intense shore/coastal erosion on the northern side of the port, affecting their livelihood.
The protestors are demanding that work on Vizhinjam port should be halted till a fresh scientific study is undertaken on environmental and social aspects.
Officials overseeing the construction of the port termed the protesters’ claim on beach erosion as “baseless” without any scientific backing.
After meeting Karan Adani, Chief Executive Officer, APSEZ on 24 July this year, Kerala Ports Minister Ahamed Devarkovil said that the first phase of the Vizhinjam port will be commissioned by September next year.
APSEZ’s Tripathy said that the firm has made “phenomenal progress” on the project in the last year.
“Post monsoon normally is when we open up the project lines both from the land and the marine side,” he said.
The project had previously suffered due to lack of granite to construct the breakwater.
“We are getting stones from the quarry to do the breakwater, they are all well set,” Tripathy stated.
Tripathy described the latest resistance from the fisherfolk groups as being “misled” and as “small aberrations”, which he said will be over soon.
“The government of Kerala is entirely supportive and there is a very affirmative action from the High Court of Kerala which has given instructions that the agitation should be lifted forthwith. We are expecting the whole situation to be cleared in about a fortnight,” Tripathy said.
The port construction hasn’t “lost time” as the monsoon has started receding a fortnight back, he noted.
“We are very confident of the earlier guidance given that the port will be commissioned in calendar year 2023 and we have taken all the affirmative action in line with this,” Tripathy added.
The Vizhinjam port, according to port and shipping industry sources, is best suited to cut India’s dependence on Colombo — a regional transhipment hub — to send and receive cargo containers entailing extra time and costs for exporters and importers.
Vizhinjam has 20 meters of natural water depth that allows big mother ships to dock, a key requirement for hosting a transhipment hub. Further, the port is only 12 nautical miles from the international shipping route, giving direct access to international trade.
Annually, around 3 million twenty-foot equivalent units (TEUs) of India-bound cargo containers are transhipped at neighbouring country ports especially Colombo, Singapore, and other regional ports, according to government estimates. Colombo, Singapore, and Port Klang handle more than 85 percent of this with Colombo alone handling about 2.5 million TEUs. “Given the extra port handling charges incurred at the transhipment hubs, transhipment of cargo results in logistic cost inefficiencies for Indian industry. The additional port handling cost is to the tune of $80-100 per TEU, which could be saved if the container was imported/exported as direct gateway cargo instead of being transhipped,” the Maritime India Vision 2030, a ten-year blueprint for the maritime sector, pointed out.
