Release Viability Gap Funding to Vizhinjam port as grant, not loan, Kerala Chief Minister requests Centre
Kerala Chief Minister Pinarayi Vijayan has sought the intervention of Union Finance Minister Nirmala Sitharaman for release of Central share of Viability Gap Funding (VGF) for Vizhinjam International Seaport Limited (VISL) without imposing a condition that the state must repay it later, in order for it to be spared of a potential financial loss of ₹10,000-12,000 crore in nominal terms.
First VGF port project
Vizhinjam is the first port project in the country to receive in-principle approval for VGF on February 3, 2015, under the Scheme for Financial Support to Public Private Partnerships in Infrastructure, the Chief Minister recalled in a letter to Sitharaman on Friday. The Empowered Committee constituted by Department of Economic Affairs had recommended the project for final approval under the scheme at its 41st meeting for an amount of ₹817.80 crore.
- Also read: 3400 acres allotted for green hydrogen entities at Kandla, Gujarat: DPA Chairman
The Chief Minister said, the Empowered Committee had laid down a condition that VGF disbursed by the Centre to the Concessionaire should be repaid by the State government in Net Present Value (NPV) terms by way of premium (revenue) sharing. But VGF, he pointed out, was introduced to encourage Public Private Partnership (PPPs) in infrastructure projects that are economically justified but not financially viable without additional financial support.
‘Released as grant, not loan’
The primary objectives were to encourage private sector participation in infrastructure projects, promote infrastructure development, and reduce burden on government resources. VGF is invariably provided as a grant, not a loan. “Thus, the defining elements of any VGF is payment to concessionaire is non-repayable, it is a one-time grant over the construction period of the project,” Vijayan pointed out.
In this case, Government of India and Government of Kerala as the two project proponents have jointly decided to give this grant to the Concessionaire. But to further stipulate one of the project proponents, viz. Government of India, will advance this money as a deferred ‘loan’ to the other project proponent viz. the State Government, defies the very rationale behind VGF, he added.
Rider defies rationale
Vijayan cited an instance in which Department of Economic Affairs had accorded as recently as in November, 2023, in-principle approval for Outer Harbour project of VO Chidambaranar Port in Tamil Nadu, which is structured on similar lines as the VISL. “However, the condition that VGF must be repaid is not imposed here. The Draft Concession Agreement (DCA) looks at revenue in this case from the 11th year onwards with a cap of 35 per cent.”
- Also read: Adani Ports Q2 PAT up 39%, revenue up 6.3%
In the light of the above case, he requested the Finance Minister to accord the same treatment for VISL, which is poised to become the deep-water container transshipment hub of the country. Currently in the final stages of commissioning, it will cater to bring home Indian cargo transshipment business undertaken at the ports of Colombo, Singapore, Malaysia, Salalah, and Dubai.
Investing precious money
The ‘Maritime India Vision 2030’ and the ‘Maritime Amrit Kaal Vision 2047’ released by the Ministry of Ports, Shipping and Waterways, accord topmost priority for the establishment of the port. Thus, the VISL is a key milestone in plans to ensure that the country emerges as a maritime leader in the world.
The State is investing resources to the tune of ₹5,595 crore out of total project outlay of ₹8,867 crore. “Given the financial situation of a small state with limited financial resources, this scale of investment involves tremendous sacrifice. As repayment of ₹817.80 crore is to be made on NPV basis, this would involve a further loss of ₹10,000-₹12,000 crore in actual terms, computed on projected interest rates and revenue realisation from the port over the period of repayment.”
Projected Customs revenue
Given the fact that ports account for a lion share of Customs duties collected (estimated in the Union Budget for the current year at ₹2.38 lakh crore), the VISL, which is to be commissioned in December, will soon contribute very significantly to this, the Chief Minister claimed. Out of every one rupee collected, the share accruing to the Centre is approximately 60 paise while Kerala gets to retain less than 3 paise to a rupee as its share of central taxes, he added.
“Even on a very modest assessment, if VISL were to account for ₹10,000 crore annually by way of Customs Duties, the Centre would derive additional revenue of ₹6,000 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,” Vijayan pointed out.