Thiruvananthapuram: A month left for the much-awaited commissioning of the Vizhinjam International Seaport, the state and the central governments differ over the payment of Viability Gap Funding (VGF).
The state government has objected to the Centre’s decision to impose conditions on paying the latter’s share of Rs 817.8 crore. Both parties, as project proponents, have to pay Rs 1635 crore to Adani Vizhinjam Port Pvt Ltd (AVPPL), which is the concessionaire of the project.
However, the state government is objecting to the new new condition where the VGF disbursed by the Government of India to the Concessionaire should be repaid by the Kerala government in terms of the Net Present Value (NPV) by way of premium (revenue) sharing. This would involve a further loss of Rs.10,000 to 12,000 crore to the State Exchequer in actual terms, computed on projected interest rates and revenue realization from the port over the period of repayment.
In a letter to Finance minister Nirmala Sitharaman, Chief Minister requested the share of the central government in the VGF must be released without imposing the condition that the state must repay it later.
The Chief minister pointed out that the Centre has not imposed any such conditions on similar projects such as the Outer Harbor project of VOC Tuticorin Port in Tamil Nadu. The CM also stated that the Centre stands to benefit financially from the Vizhinjam Port by way of customs duty.
Chief minister’s letter to union finance minister Nirmala Seetharaman
This is to bring to your kind attention a pressing issue relating to the Vizhinjam International Seaport that needs your kind intervention and favorable action.
Vizhinjam International Seaport (VISL), poised to become the deep-water container transshipment hub of the country, is in its final stages of commissioning. The port will cater to bring home the Indian cargo transshipment business presently being undertaken at the ports of Colombo, Singapore, Malaysia, Salalah, and Dubai. The ‘Maritime India Vision 2030’ and the ‘Maritime Amrit Kaal Vision 2047’ released by the Ministry of Ports, Shipping and Waterways, Government of India (Gol) accord topmost priority for the establishment of Vizhinjam port, which is being developed on Public Private Partnership (PPP) basis. Accordingly, this seaport, an initiative taken by the Government of Kerala, with the support of the Government of India, is a key milestone in the plans of the Government of India to ensure that India emerges as a maritime leader in the world.
The Vizhinjam Port was the first Port project in the country to have received in-principle approval for Viability Gap Funding (VGF) on 3rd February, 2015 under the Scheme for Financial Support to Public Private Partnerships in Infrastructure. The Empowered Committee constituted by the Department of Economic Affairs (Ministry of Finance) had recommended the project for final approval under the scheme at its 41st meeting for an amount of ₹817.80 crore.
However, for the availing of the VGF, the Empowered Committee laid down the condition that the VGF disbursed by Government of India to the Concessionaire should be repaid by Government of Kerala in Net Present Value (NPV) terms by way of premium (revenue) sharing.
As Hon’ble Minister may recall, Viability Gap Funding (VGF), as a financial support mechanism was introduced in India to encourage Public-Private Partnerships (PPPs) in infrastructure projects that are economically justified but not financially viable without additional financial support. The three primary objectives of VGF are firstly, to encourage Private Sector Participation in infrastructure projects, secondly to promote infrastructure development and thirdly to reduce burden on Government resources. Viability Gap Funding (VGF) is invariably provided as a grant, not a loan. Thus, the defining elements of any VGF is that the payment to the concessionaire is non-repayable, it is a one-time grant and that it is over the construction period of the project.
In this case, Government of India and Government of Kerala, as the two project proponents, has jointly decided to give this grant to the Concessionaire. But to further stipulate the condition that one of the project proponents, viz.- the Government of India, will advance this money as a deferred ‘loan’ to the other project proponent viz.- the State Government, defies the rationale behind the VGF itself.
The State is investing resources to the tune of Rs.5595 crores out of the total project outlay of Rs.8867 crores. I am sure, Hon’ble Minister would appreciate that given the financial situation of a small State like Kerala with limited financial resources, this scale of investment involves tremendous sacrifice on the part of the State. In addition, as the repayment of Rs.817.80 crores is to be made on NPV basis, this would involve a further loss of Rs.10,000 to 12,000 crores to the State Exchequer in actual terms, computed on projected interest rates and revenue realization from the port over the period of repayment.
Given the fact that the ports in India account for a lion share of the Customs
duties collected in the Country (now estimated in the Union Budget for the current
year of Rs.2.38 lakh crores), Vizhinjam International Seaport, which is to be
commissioned in December 2024, will soon contribute very significantly to this. I
would like to bring to the kind consideration of Hon’ble Minister that out of every one Rupee collected as Customs Duty, the share accruing to the Government of India is approximately 60 paise while the State of Kerala gets to retain less than 3 paise to a rupee as its share of central taxes. Even on a very modest assessment, if Vizhinjam International Seaport were to account for Rs. 10,000 crores annually by way of Customs Duties, the Government of India would derive additional revenue of Rs.6000 crore every year. Furthermore, the direct and indirect benefits to the nation and the savings of foreign exchange that results from establishing such a port would be very substantial.
As recently as in November 2023, the Department of Economic Affairs accorded in-principle approval for the Outer Harbor project of VOC Tuticorin Port. This project is also structured on similar lines as the Vizhinjam International Seaport project, However, the condition that the VGF must be repaid was not imposed in that case. The DCA of the project looks at revenue in this case from the 11th year onwards with a cap of 35 per cent. In the light of the facts outlined above, I request you to kindly accord the same treatment for Vizhinjam International Seaport as has been done for Tuticorin Port referred to above.
I seek your kind intervention for the release of the share of Government of India in the VGF for the Vizhinjam International Seaport, without imposing the condition that the State must repay it later and help avoid the huge financial loss of approximately Rs. 10,000 to 12,000 crores in nominal terms to the State Exchequer.
Seeking your kind and considerate intervention in the matter.
