Vizhinjam Project – An Open Response to Shri. M.A. Baby

Vizhinjam

The comments made by Shri M.A. Baby in his Facebook page regarding the Vizhinjam project seem to be based on incomplete facts. All these “concerns” and relevant facts were made available to the public by VISL through their website at respective occasions and this open response is based on publically available information pertaining to various State and Central Govt norms for PPP projects. The concerned issues were also addressed during the EIA Public hearing in May 2013 and project model was made public during the tender process, road show presentations and through media. The fact is that this level of transparency was only visible during this tender / attempt (since 2012) and never before during the course of this project since its inception. Hence, we citizens of Thiruvananthapuram, urge Shri M.A. Baby, other respective leaders and media to comprehend the facts regarding the most prestigious project of Kerala/South India. The responses to the concerns raised are addressed below and the chart aside may be referred:

1. Project Cost, Payments and Returns

Detailed comparison/breakup of project cost is appended in the chart.

ppp copyThe current model gives guaranteed returns from Year 16 for Port Related Activities (including all phases of the project) and from Year 10 for Port Estate related activities. The notion that the returns (profits) to GoK shall only come after Year 60 is misinterpreted. Capacity augmentation, additional infrastructure creation etc are bound to be solely under the investment of the private developer with approvals from the State. In contrast, as per the earlier model, Govt.of Kerala has NIL returns and held liability for recurring investment for capacity augmentation, maintenance dredging.

Payments to Developer – The payments to the developer, including cost of breakwater & VGF, are not initially paid to the developer, rather will be made only in stages after completion of respective stages of the project. 30% of the VGF shall be disbursed after all the equity contribution (30% of total private investment of Rs.2454 Crores) is being spent on the project by the developer. This is also further restricted to 150% of the actual equity spent. All payments are made as debt repayments to the banks and further payments shall be made during the Operations stage after commissioning of the project. This shall be audited by an Independent Engineer appointed by Vizhinjam International Seaport Limited (VISL). The cost of breakwater shall also be disbursed only in stages after completion of respective stage. All payments and cash flow will be managed through an escrow agreement and account to which Govt.of Kerala and the lead financing bank is a party.

 2. Regarding conditions in bid

No additional conditions can be sought as per the tender norms (This is typical for any public tenders and the bid has to be unconditional). Imposing any conditions will make the bid unresponsive. The bid parameter in this case being the VGF grant (Rs. 1635 Crores). All Conditions for implementation of the project are as per the Concession Agreement and RFP Document drafted by VISL as per the norms of Planning Commission of India. This is common to all bidders.

 3. Regarding Maintenance Dredging

One should not forget the fact that maintainence dedging is not required in Vizhinjam, which is one among the advantage of this project. Evenif it is required, the responsibility of maintenance dredging lies with the developer. Not only this, but any other capacity augmentation shall be under the investment of the private developer. There are no recurring investments for State. Cost escalation is also not bound to be covered by Govt.of Kerala and these are absolute payments even if the construction is delayed by the developer.

 4. Regarding Port Estate Development

It is understood that 220 acres of land shall be given to the bidder under a “license agreement” for the duration of concession period. 30% of this land can be used for port estate development activities. 10% of revenue generated from this activity has to be shared with Govt.of Kerala from Year 7. Govt.of Kerala is not bound to acquire any further land (even in the future).

 5. Regarding CIAL Model of Development

A similar model of CIAL was what that was attempted in 2010, where the State had committed to undertake the “Port Construction” and the “Port Operations” left to a private operator. This was already a market tested model and failed, leaving the State in huge losses compared to the currently attempted model. Now, the only better option ahead is to undertake the “Port Operations” also under State. Container Terminal Operations is a much specialised domain and is monopolistically held within few players globally today. In India, only very few players has attempted it and Adani is currently the largest Indian player with more than 75% market share among Indian players. PSA Singapore, APM (Maersk) and DP World being the other international players with presence in India. Thus, VISL or in that matter any public sector undertaking in India would find it difficult to break into the domain of container terminal operations, especially in specialised transhipment focussed port like Vizhinjam. The lack of gateway cargo and yet-to-be-organised business framework in India adds the complexity of the matter. The industry expertise, business network and specialization required to run a deep water transhipment port, competing with Colombo, Singapore, Salalah or Dubai makes this a “Herculean” task.

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