BackAdani’s Kerala port project to blunt Congress attack on Modi
Congress-led UDF government approving Adani Group's bid to build Vizhinjam port is a shot in the arm for NDA
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Bengaluru: The decision by the Congress party-led United Democratic Front (UDF) government in Kerala to approve the sole bid submitted by Adani Ports and Special Economic Zone Ltd (APSEZ) to develop a new port at Vizhinjam in the southern part of the state presents the National Democratic Alliance (NDA) government with the best opportunity yet to turn the tables on the Congress, which has frequently attacked Prime Minister Narendra Modi for his alleged proximity with the Ahmedabad-based group that runs India’s biggest commercial port at Mundra in Gujarat.
Adani Group owned by billionaire Gautam Adani and the Bharatiya Janata Party (BJP) have repeatedly denied allegations that Mundra port flourished under the rule of Modi in Gujarat, a charge often hurled by Congress vice-president Rahul Gandhi during public meetings in the run-up to the 2014 polls and thereafter.
More recently, a so-called memorandum of understanding (MoU) signed in November by Adani Group with the country’s largest lender State Bank of India (SBI) for a $1 billion loan to build a $7.8 billion coal mine-cum-port project in Australia during a visit to that country by Prime Minister Modi further stoked allegations of government influence, the perceived closeness between Modi and Adani and caused political uproar in India.
To be sure, seven months after the preliminary deal was struck, there is no official word on whether the loan was finally approved or not. Media reports quoting unnamed sources have indicated that SBI was set to scrap the preliminary deal.
The planned port at Vizhinjam has all the ingredients that can goad political rivals to go after Kerala chief minister Oommen Chandy and the Congress party.
Vizhinjam is being developed as a container transshipment port to compete with the Colombo port. It has sufficient water depth for the purpose and its proximity to the main shipping lane is better than or similar to Colombo, which is currently the biggest transshipment facility in the region.
Colombo and Vizhinjam are located in close proximity to the international shipping route involving only a marginal diversion of about 20-25 nautical miles. While Colombo has a water depth of 16-18m, Vizhinjam will have much deeper berths and approach channel of up to 20m, capable of docking mega-container ships.
A container transshipment terminal acts like a hub, into which smaller feeder vessels bring cargo, which then gets loaded on to larger ships. Larger vessels bring about economies of scale and reduce the cost of operations for shipping lines, which then translates into lower freight rates for exporters and importers.
About 2 million twenty-foot equivalent units or TEUs (the standard size of a cargo container) originating in and destined for India gets transshipped at Colombo every year. India has created and is looking to build more facilities that can help transship containers from the country itself.
However, the going has been tough. Dubai-based global port operator DP World Ltd, which runs India’s first container transshipment terminal at Kerala’s Vallarpadam in Union government-owned Cochin Port, has not been able to play a key role in reducing India’s dependence on Colombo for sending and receiving containers even four years after starting operations.
“It is yet to see any success because DP World is not able to bring mother vessels (big container ships used in transshipment) to the terminal for a variety of reasons," said S.P. Shastri, a chief manager at state-owned Container Corp. of India Ltd, India’s biggest rail hauler of containers.
Though Cochin cut its rates, shipping lines say rates at Colombo were still much lower. This, along with stringent customs procedures/rules on transshipment, has deterred container carriers from shutting some services at Colombo and shifting to Vallarpadam to cater to India’s exporters and importers.
Kerala government has set an upfront rate or a rate cap for Vizhinjam, which will be 25% more than the rate levied by the DP World terminal at Vallarpadam in Cochin port.
The upfront rate has been specified to comply with the viability gap funding (VGF) guidelines, though Vizhinjam is a port outside the control of the Union government and hence free to set its rates.
Given this backdrop, the going may not be easy for Vizhinjam which is a few nautical miles away from Vallarpadam on the same western coast, according to port experts.
“Container transshipment is not easy to crack," said Sriram Ravi Chander, executive director at Krishnapatnam Port Container Terminal Ltd. “I don’t see Vizhinjam having any ecosystem for container transshipment. The Kerala workforce is also equally strong. How much they will allow the port to function smoothly is a big question. Vizhinjam is a total tough-nut altogether," Ravi Chander, who has spent many years in the container shipping industry, said.
Vizhinjam, billed as the biggest infrastructure project yet in the state, is designed to load one million TEUs.
With viability a long way off— APSEZ itself reckons that the port will not make money in the first 10 years—Kerala government applied for VGF from the Centre. Finance minister Arun Jaitley signed off on a VGF of ₹ 817.8 crore in February—the first port to be approved such a grant, based on a recommendation made by a committee headed by finance secretary Rajiv Mehrishi.
VGF is a one-time grant given by the central 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 capital costs as viability gap grant from the central government to boost its viability.
The Kerala government, which is implementing the project, has agreed to chip in with a matching 20% grant, taking the combined VGF available for the project to ₹ 1,635 crore, the money APSEZ has asked for building the Vizhinjam facility.
The Vizhinjam bid was to be decided on the highest premium (revenue share) or the lowest grant quoted by a bidder. Out of the five pre-qualified bidders, only APSEZ placed a price bid and that too after chief minister Chandy engaged with all the bidding groups personally when nobody quoted in the first attempt.
Apart from its own VGF contribution, Kerala government will invest its own money in two key elements of the new port: ₹ 1,463 for breakwater construction and fishing harbour and ₹ 525 crore for acquiring land, taking the total contribution of the state government to about ₹ 2,800 crore. APSEZ will invest about ₹ 2,450 crore.
The Kerala government will collect a premium/revenue share from the private operator only from the 16th year of operations, which will be equivalent to 1% of the gross revenue from the facility. The premium so collected from the private operator will rise by 1% every year till it reaches 40%.
In turn, the Kerala government has agreed to share 20% of the annual premium it collects from the private operator with the Union government, till the VGF is repaid. The port project will have a contract period of 40 years which can be extended by another 20 years.
APSEZ will be allowed to use 30% of the land for port estate development, of which not more than one-third can be used for residential purposes.
However, the move is bound to have political repercussions.
“Politically, it would be suicidal for the Congress party to do something which will weaken their criticism of the Modi government on grounds that it is partial towards the Adani Group," said Pulapre Balakrishnan, professor at the Centre for Development Studies, Thiruvananthapuram.
At the same time, Balakrishnan said if the incentives and concessions relating to the project were made known to all bidders and the Adani Group wins the tender, whether it is a single bid or not, that absolves the Kerala government of being partial towards the Adani Group.
“If all the procedures were followed in the public tender, and I presume it was, then the Kerala government has no option but to give it to the party that has quoted," he added.
On 3 June, chief minister Chandy convened an all-party meet in the state capital in a bid to strike a consensus with the opposition ahead of awarding the project to APSEZ.
With election to the state assembly scheduled next year, the opposition agreed to disagree, said a spokesman for the Kerala government.
On the same day, shipping minister Nitin Gadkari said in Mumbai that the project would be shifted to Colachel in Tamil Nadu if Kerala delayed awarding the project to APSEZ.
Both Vizhinjam and Colachel are outside the brief of the Union government.
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