Mumbai: Religious questions and political battles aside, a key banker says there is just not enough money to demolish the bridge that Ram may or may not have built.
The bank in charge of securing the loans for the proposed Rs2,400 crore channel says that the Sethusamudram project may never happen—in the absence of required money.
“I don’t think this project will ever see the light of day because there is no money,” said Ashish Kumar Singh, vice-president of capital markets at Axis Bank Ltd. Axis, formerly known as UTI Bank, was appointed “loan arranger” for the project in 2005.
Since the project’s inception in 2004, costs have skyrocketed to at least Rs4,000 crore, interest rates have crawled higher and old loan terms have lapsed. Singh says the project is languishing because no company will dredge the channel for cheap and Indian dredging companies don’t have the required equipment.
Even before the first dredger began its work in 2005, costs had already spiralled to more than Rs3,500 crore, Singh said. The loan sanctions, valid only up to Rs2,400 crore, lapsed. To secure more money, Singh said Sethusamudram Corp. Ltd would have to return to the drawing board, draw up new reports, sit with parliamentary committees and receive fresh approval.
So far, it has not gone back to the government, as the delays in the project have moved from insufficient funds into other, more complicated political arenas.
For the last few months, Hindu groups have staged protests, forcing the Supreme Court to halt the project until a January hearing. The floating bridge has figured in the Bharatiya Janata Party’s plans for coming back to power.
Shipping minister T.R. Baalu has said he plans to carry on, regardless of public opinion. Baalu did not return a call for comment. He was at a meeting in Chennai of the Dravida Munnetra Kazhagam, part of the ruling coalition at the Centre.
Singh, whose bank continues to be the loan arranger for the project, says the government has not approached him to raise any new loans. Even if it did, a government guarantee is now unlikely. “As a stand-alone project, no lender will touch this project. First, the interest rates have gone up. It is not possible to lock in the rates. The expected returns on the project were as low as 7.7% to begin with,” he said. “With higher debt cost and higher debt requirements, how can it hope to even break even?”
Not so long ago, before protest defined the future of the Adam’s Bridge, or Ram Sethu, the project promised to shorten shipping routes and help revive Tamil Nadu’s economy. In late 2005, Axis had little problem selling the idea to lenders. When the bank hit the road to drum up interest, “it was the most attractive thing out there,” said Singh, who managed the loan-raising process for Sethusamudram. “It had great visibility, people were excited... and there was a buzz around it.”
While the Union government and other government organizations, such as the Tuticorin, Chennai and Ennore port trusts, and the Dredging Corp. of India (DCI), were supposed to raise Rs971 crore in equity, the remaining Rs1,456.40 crore was to be a debt component, according to the project’s website.
After six weeks of lobbying, 10 banks, including Deutsche Bank and the Dublin-based Depfa Bank, agreed to extend credit. Singh said that because the Union government guaranteed the loans, banks did not have to perform a risk analysis, nor worry about capital adequacy.
On Monday, neither bank returned phone calls for comment.
While Axis was raising debt, Sethusamudram simultaneously floated tenders for the dredging work.
While DCI was nominated to do a quarter of the work, the rest of the dredging was to be done by third-party contractors, according to the project’s economic feasibility study.
With 80% of the project total estimated to be dredging, these tenders were the most important part of the process, Singh said. Yet very few companies have the ships needed for such a project, said Capt. H. Balakrishnan, a naval expert who conducted an analysis of the project.
Bidders included South Korea-based Hyundai Dredging International, Netherlands-based Van Oord International and Belgium-based JanBe Nul. On Monday, none returned calls for comment.
“But the lowest quote was about 80 or 90% higher than what was estimated,” said Singh. This represented the first setback for the project. From then on, “it just unravelled”, Singh said.
In 2006, as project costs escalated, DCI was nominated to do all the work. But it cannot do this work without help from other dredgers, as “it does not have the equipment needed,” said an official at the DCI office in Rameshwaram, who requested anonymity, citing a gag order.