As the Vizhinjam deep-water port project seems to be gathering steam, to borrow an appropriately nautical expression, with the Kerala Cabinet clearing the bid submitted by Adani Ports, India’s largest port operator, a storm still seems to swirl around the project in the media and in the perception of the general public. A storm of deliberate misinformation generated by a plethora of vested interests operating against the project and against the interests of Thiruvananthapuram, Kerala and India. These range from uneducated politicians, to malicious pseudo-environmentalists to unemployed lawyers. Unfortunately, this miasma has been getting so widespread, that’s long overdue that we call out and dispel the allegations raised by these hostile forces.
Q: If Vallarpadam, which has 14 meters of draft and is close to the international shipping channel has been an abject failure even after the exemption from the restrictive Cabotage Law, then how can Vizhinjam succeed?
A: The only truth in this statement is that Vallarpadam has became an abject failure, resulting in the loss of almost Rs 3,000 Crores of public funds, that were spent on its extravagant rail and road connectivity and on over a decade of futile dredging.
What’s not true is that the Ernakulam port has ever had 14 m of draft. At best it achieved something between 10 and 12 meters, and that too sparingly as illustrated by the difficulties in bringing the container terminal’s cranes into the port, the later difficulties bringing LNG tankers to Puthuvypeen and most recently the delays in undocking INS Vikrant from its drydock because of the siltation that prevented the dock’s gate from being opened. Hence, Vallarpadam has never had the required depth to bring in mainline container vessels of 8,000 TEUs or more, far less today’s behemoths of over 18,000 TEU which need over 16 m of water depth.
Legacy labor issues and tariff constraints on account of TAMP requirements have also afflicted Vallarpadam. None of these are applicable to Vizhinjam, which has a natural depth of 18-24 m, is a greenfield port with high levels of automation and being a State port is outside the purview of TAMP restrictions.
Q: Won’t the need to establish breakwaters at Vizhinjam will make its cost prohibitive and make it unviable?
A: Vizhinjam is located right on the coast and hence does not need a channel like an estuarine port such as Ernakulam. Deep water ports, that typically are located on the coast and make use of breakwaters have now taken over from older, shallower, estuarine ports like Kolkata, Shanghai, or London.
The incremental cost for the breakwater – approx. Rs 1,500 Cr – is equivalent to just under 10 years worth of annual dredging cost at Vallarpadam but the breakwaters create a harbor basin that can be up to 24 m deep, compared to the 10-12 m achieved at best at Vallarpadam. Hence, it makes great economic sense.
Q: Won’t the maintenance dredging and breakwater construction cause destructive coastal erosion and siltation at Vizhinjam?
A: Vizhinjam will not need any maintenance dredging because the natural depth within 1 Nm of the shore is over 25 m. The developer will carry out detailed engineering studies of the breakwater to minimize or eliminate any erosion or siltation issues. Any minor issues that do still arise with sediment transport due to the breakwater construction can be easily overcome with a sediment bypass system that pumps sediment from one side of the port to the other to prevent differential erosion and deposition if it does arise.
Q: Isn’t this project located in a densely populated, environmentally sensitive area?
A: The region has not been demarcated as a critical area under any MoEF study. The chosen site is not densely populated as highlighted by the fact that only a few hundred people had to be relocated for it. The Vizhinjam project completed a full year-long, multi-season EIA, and a protracted EC process with MoEF at the end of which it was granted clearance by the Ministry.
The only reason that the project’s final environmental clearance is being delayed is on account of legal action launched by vested interests, including entities that seem to have hidden links with resort owners who themselves have been guilty of illegal construction on the coast as well as widespread pollution of the land and sea. Some of the litigants are apparently ordinary citizens, whose ability to bear the massive costs of such litigation seems suspicious.
Q: Isn’t the reason behind poor investor interest in Vizhinjam its inherent lack of viability?
A: The Vizhinjam project has received bids from national and international developers in multiple rounds of bidding in the last 10 years however those were lost either due to legal action filed by vested interests or Government intransigence. A transshipment project can only be operated by a handful of operators around the world, most of whom already have facilities in the Indian Ocean region and hence were competitors. The current bidder has tied up with MSC, which has no terminal to compete with Vizhinjam and such an alliance takes time to evolve. The very fact that India’s largest port operator has chosen to take on the risk of a greenfield, transshipment terminal at Vizhinjam is itself the best endorsement of its viability.
Q: Didn’t the International Finance Corporation’s report find the project to be unviable?
A: The IFC study looks at Vzm in isolation (it does not look into the possibility of Vizhinjam attracting gateway cargo from less competitive ports like Vallarpadam, Tuticorin and Mangalore) and makes very conservative assumptions. Even under those, the project can generate up to 15% IRR given the right mix of public and private investment. Like any investment in transportation infrastructure, where a monopoly is not at play like an airport or the only road between two cities, immediate returns from the project itself are low. But a port of this nature produces multiplier effects for the regional and national economies that have to be factors into the cost-benefit analysis.
Q: Did the Government of India mandate that the port or its operations should not be leased out to a private entity?
A: The very move to restructure the project model to include a PPP model was to receive viability gap funding and there’s no restriction on leasing out land to the operator as is the case here. The port and the land always remains in Government ownership. In this regard, the port continues to be Landlord mode, except that instead of an individual terminal being leased out to a developer, the entire port is leased out at one go. This is followed in the case of almost every PPP project, typically for periods ranging from 30 to 90 years.
Q: Isn’t the single bid received from Adani Ports not sustainable as at least 3 bids are needed for the process to be legal?
A: There’s no requirement for 3 or bids under CVC guidelines as long as a clear and transparent bid process is carried, as was the case in Vizhinjam. There are clear guidelines in the case of receipt of only a single, viable bid as is the case in many project. Often there are very few qualified bidders possible for very specialized projects such as container transshipment projects or nuclear power plants.
Q: Why did the Government increase the tenure of the lease/operation period, if not to favor Adani Ports?
A: The time taken to stabilize traffic volumes and hence recoup the initial investment varies with the type of project. A first-of-its-kind, greenfield, transshipment terminal will take longer to stabilize, requires more investment and involves more risk than developing a new terminal at an established port. Hence the developer/operator needs a longer lease in order to turn a profit that rewards the project risk and needs the landlord to demand less cash up front. The landlord’s motivation is to facilitate infrastructure development and to facilitate socioeconomic growth, not to turn a profit from year 1.
Q: Won’t Adani Ports just pledge its stake in the port to avail bank loans from public sector banks and avoid spending any of its own capital to finance the construction of the project?
A: A minimum knowledge of project financing and/or common sense tells one that no bank will finance a project of any kind without the proponent investing its own equity in it. The amount of debt will also depend on the project cash flows that the banks accept. A project generally can get 60% or so debt funding but this is true of any project or any developer.
Q: Is Adani Ports truly capable of developing and operating a project like Vizhinjam? They don’t have any container terminal development and operations experience, do they? Are they present anywhere outside India?
A: Adani Ports is India’s largest port operator with over 200 Million tons of cargo volumes in 2014, which is 6-7 times that of Vallarpadam port for example. They also have major developments in Australia where they are developing one of the world’s largest bulk cargo ports. Adani Ports’ Mundra port has four container terminals, is India’s fastest growing container port and will soon overtake JNPT as the biggest one. Adani Ports has relationships with MSC and CMA CGM, both of which operate terminals at Mundra, and are the world’s second and third largest container shipping lines, after APM Maersk. Hence, Adani is best placed to bring mainline ships to Vizhinjam.
Q: Isn’t Adani Ports only commiting to invest Rs 2,500 Crores in the port project only to grab the land associated with it for real estate development purposes?
A: The total land acquired for the Vizhinjam project is comparable to that acquired for “Smart” City and far less than for Nedumbasserry airport. Only a small fraction of this would be available for “real estate” development, hardly enough to justify investing Rs 2,500 Cr to get access to it. Adani could buy a significant chunk of the Bandra-Kurla complex in Mumbai with that sum of money.
Q: Why should the Government of Kerala invest public funds in a project with no immediate financial returns, when there are so many other worth causes that need resources?
A: Govt.of Kerala has invested over Rs 2,200 Cr into the Kochi Metro which has no direct economic benefit to the State and has also invested several hundred Crores each into the Nedumbaserry and Kannur airports, yet no one dares to questions those decisions. Vizhinjam has definite multiplier effects for the Kerala economy and can generate tens of thousands of indirect jobs by promoting industrial development across Kerala by making it the most attractive location in India with respect to logistical access to the rest of the world. This has the potential in the medium and long term to significantly enhance Kerala’s economy and generate tens of thousands of direct and indirect jobs.
The Vallarpadam project involved the loss of over Rs 2,700 Cr of tax payer money by choosing an inherently infeasible site for a transshipment terminal. The site’s disadvantages were self evident yet there was no move by anyone crying foul over Vizhinjam to oppose the squandering of so much public funds there. Indeed, the money spent at Vallarpadam should have been spent at Vizhinjam then and it’d have an a leading global transshipment hub today like Algericas, Tanjung Pelapas or Tangiers, all of which were developed in the same time period. Vallarpadam should be immediately shut down to save the hundreds of Crores spent on dredging ever year and the Central Government should instead invest more in Vizhinjam.
We hope that the above Q & A series will help shed clarity amidst all the negative propaganda swirling around the Vizhinjam project. Vizhinjam is closer now than at any point in the past to coming to fruition. Let’s see past the falsehoods and fallacies of those who wish ill for the project and for us, and help keep up the pressure on the Government to see this one through!