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Business News/ Companies / Panel recommends viability gap funding for Vizhinjam port plan
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Panel recommends viability gap funding for Vizhinjam port plan

This will be the first port project to receive viability gap funding

The recommendation will have to be signed off by finance minister Arun Jaitley, as the VGF is in excess of Rs200 crore. Photo: Hindustan TimesPremium
The recommendation will have to be signed off by finance minister Arun Jaitley, as the VGF is in excess of Rs200 crore. Photo: Hindustan Times

Bangalore: An empowered committee has recommended grant of viability gap funding (VGF) of as much as 790 crore for building a new port at Vizhinjam in Kerala after the state government agreed to alter the way costs are shared by the private developer selected through an auction and the state.

The committee, headed by Arvind Mayaram, secretary, department of economic affairs, has recommended the project for VGF at a meeting on Wednesday, a spokesman for the Kerala government said. A spokesman for the shipping ministry also confirmed the development.

The recommendation will have to be signed off by finance minister Arun Jaitley, as the VGF is in excess of 200 crore. This will be the first port project to receive VGF—a one-time grant given by the central/state government for supporting public-private-partnership, or PPP, projects in infrastructure that are economically justified but fall short of financial viability.

A project can secure as much as 20% of the capital costs as VGF from the centre. The state government which is implementing the project can chip in with a matching 20% grant. The combined viability gap funding for the Vizhinjam project is estimated worth 1,580 crore.

The bidder seeking the lowest grant will win the 6,500 crore project with a capacity to load 1 million twenty-foot equivalent units, or TEUs, a year initially (can be scaled up to 2.5 million TEUs as per demand). Vizhinjam will also have facilities to handle bulk cargo.

Adani Ports and Special Economic Zone Ltd, Essar Ports Ltd, Gammon Infrastructure Projects Ltd, a consortium of Srei Infrastructure Finance Ltd and Obrascon Huarte Lain SA, and a joint venture of Concast Infratech Ltd and Hyundai Engineering and Construction Co. Ltd have been short-listed for the project.

According to the revised scope of the project, the Kerala government will bear the cost of dredging and reclamation of land estimated worth 583 crore in line with the VGF scheme, while the cost of constructing a breakwater will be borne by the private firm.

A container transshipment terminal acts like a hub, into which smaller feeder vessels bring cargo which then gets loaded onto larger ships. Larger vessels bring about economies of scale, and lower the cost of operations for shipping lines, which then translates into lower freight rates for exporters and importers.

The Kerala government has decided to re-work the rates for handling trans-shipped export-import containers. This rate will now be on par with the rates approved by India’s port tariff regulator for a similar facility at Vallarpadam in Cochin port run by DP World Ltd.

The rates so set act as an upper limit or ceiling beyond which the private operator cannot charge customers. The rate, though, will rise automatically every year, as it is indexed to the wholesale price index (WPI) to the extent of 70% and consumer price index (CPI) to the extent of 30% to account for inflation. Private operators will be free to levy rates from customers within that cap.

This will put Vizhinjam and Vallarpadam in direct competition with each other for handling Indian containers trans-shipped through Colombo port.

In the earlier plan, the rate was pegged on par with the Colombo port, through which a large portion of India’s export-import containers are trans-shipped.

The bulk cargo handling rates at Vizhinjam will be pegged to the rate prevailing at the nearest Indian port.

Being a port owned by the state government, Vizhinjam is free to set rates for services. In comparison, ports controlled by the Union government are regulated by the Tariff Authority for Major Ports.

However, a tariff cap is being set for the project because a pre-determined tariff is a pre-requisite for availing of a VGF from the centre, according to the eligibility criteria for VGF.

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Published: 31 Oct 2014, 12:23 AM IST
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