Wait for Vizhinjam

The Kerala government’s proposal to develop Vizhinjam into an “all-weather, multipurpose, deepwater, mechanised, greenfield port” raises expectations and also doubts whether it is handing over valuable public assets to a big business house without much deliberation.

The site for the proposed container terminal as viewed from the Vizhinjam International Seaport Limited office at Mulloor in Thiruvananthapuram.

RIVAL port operators, political compulsions, environmental concerns and immense scope for corruption have all haunted the proposal for a deepwater seaport at Vizhinjam, located strategically at the southern tip of India, for more than a quarter century.

Attempts by successive governments in Kerala to find promoters and to pursue the State’s dream project have all sunk, tangled in controversy, with the cost of the project going up manifold, from Rs.1,850 crore in 2004, for example, to nearly Rs.7,525 crore in 2015.

The delay has also pushed the proposed facility back by several years vis-a-vis the advantages it would have had otherwise over rival ports that have now become well established in the region. They include, importantly, two in neighbouring Sri Lanka: Colombo, with its Chinese-built second transhipment terminal and ancillary facilities; and Hambantota, a new hub port that rose in quick time in the southern part of that country in a region ravaged by the tsunami in 2004, and developed since then, similarly, by Chinese companies.

The past few decades also saw container ships plying the world’s oceans, undergoing major transformations in size and carrying capacity. In January this year, for example, the world’s largest container ship, MSC Oscar, with a deck as big as four football fields and which could hold 19,224 twenty-foot equivalent unit (TEU) containers, set sail on its inaugural journey from a shipyard in South Korea. A similar ship, CSCL Globe, slightly longer and wider but with a smaller capacity of 19,100 TEU, made its maiden voyage in November 2014. The 18,000 TEU Triple E ships (for “Economies of scale”, “Energy efficient” and “Environmentally improved”) were the novelty only a year earlier. According to media reports, these ships are all nearly 400 metres long, with a beam (breadth) of about 59 metres, and a draft that ranged from 14.5 metres to 16 metres.

Such expansion phases have made world shipping cheaper at every stage. Bigger ships meant lower shipping costs per container but demanded ports that could accommodate ever larger vessels. Shipping lines began looking for efficiency, reliability and competitive tariffs to choose one port over another. Many other factors also played a role in their decisions that could make or mar a port—such as nautical accessibility, size and growth prospects of cargo volumes, cost of servicing, ease of feeder connectivity, road and rail links, flexibility of terminal operations, their productivity and reliability, the kind of technology and innovation, and environment and safety records. Ports that could offer all or most of these services would prosper; others would be forced into subsidiary roles.

In order to succeed, ports also needed to be constantly on their toes. On the one hand, they had to ensure that a ship was brought in safely, loaded and unloaded, turned around easily within its premises and set on its return journey as quickly as possible. On the other, they had to see that the cargo was delivered to the recipient fast, sound and safe.

Today’s ports, therefore, require longer terminals, deeper drafts and bigger turning basins. They need quay cranes big enough to lift containers to the uppermost and farthest tiers of the stacks in the mega ships and yet ensure berth productivity and faster turnaround time.

Though India, with a coastline of about 8,000 km, has nearly 200 ports (including 13 major ports), most of them are of shallow depth, ranging from a mere nine metres to 11 metres, and cannot accommodate the kind of huge ships that are now increasingly in vogue. The biggest ships that frequent the key nautical route linking Europe and the Far East cannot dock at any Indian port. India lacks container transhipment facilities capable of servicing them. Only a handful of ports, including Mumbai, Mundra, Kochi/Vallarpadam, Chennai and Visakhapatnam have container handling facilities.

As a result, most of India’s container traffic business is handled by transhipment hub ports such as Colombo (and now, also, Hambantota), Singapore, Salalah (Oman), Jebel Ali (DP World’s flagship port in Dubai), and Tanjung Pelepas and Port Klang (Malaysia). The Indian leg of the container journey almost always occurs in smaller vessels, partly because of restrictive cabotage and tax laws. The Indian transhipment business has therefore been booming at these foreign hub ports, especially the two in Sri Lanka, located strategically as they are near southern India and with sufficient depth and other facilities that could service the large mother ships.

This is the context in which the Kerala government is proposing, perhaps a bit late in the day, to develop an area near the small fishing harbour at Vizhinjam into an “all-weather, multipurpose, deepwater, mechanised, greenfield port” that could “compete with the international ports”, “attract the lion’s share of the Indian transhipment cargo now being handled by the nearby foreign ports” and become “the future transhipment hub of the country”. Vizhinjam is about 14 km from Kerala’s capital city and just under 3 km from the international tourist resort of Kovalam. The sea nearby, spread along small fishing hamlets and coconut groves, has a natural depth of over 18 m and is located hardly 10 nautical miles (18 km) from the international shipping route from West Asia, Africa and Europe to the far eastern regions of the world.

Vizhinjam, according to the government, has other advantages, too—the availability of a 20-metre contour within one nautical mile from the coast; minimal littoral drift along the coast; natural depth that excludes the need for maintenance dredging (the bane of ports like Kochi/Vallarpadam); road, rail transport link potential; flexibility in design and expansion offered by a virgin greenfield area.

The proposal, according to the Integrated Port Master Plan (described as a “dynamic document that may evolve with user requirement and market scenario”) Report, is to develop the port in three stages, with a total container berth length of 2,000 m (800m + 400m + 800m), to accommodate vessels of a maximum of 400 m in length, 59 m width and a loaded draft of 16 m in the first phase itself.

It will be able to berth two fully laden 12,500 TEU vessels and will have the capability to handle up to 18,000 TEU vessels in the first phase itself. The port is to have a turning circle of 700 m diameter to cater to assisted rotation of vessels of 400+ m length. The container yard is to be developed commensurate with quay development in three phases.

The first phase of the project, to be completed in four years, includes a 300 m cruise-cum-multipurpose terminal, berths for the Navy and the Coast Guard (500 m and 120 m), and a 100 m berth for port craft. The government is also to construct a 500 m fish landing berth that would double the capacity of the existing fishing harbour at Vizhinjam.

Doubts and questions Many such proposals have been in the air for the past 25 years. But now, when the Congress-led coalition government in its final year in office in Kerala says it is going to finally offer the project for development to Gujarat-based Adani Ports and Special Economic Zone Ltd (APSEZ), India’s biggest private port operator and the only agency that submitted a bid this time, a cloud of doubts and questions has risen.

According to the draft agreement, the APSEZ, which is part of the Adani business empire, will be responsible for the construction, operation and maintenance of the port, the first phase of which is estimated to cost Rs.7,525 crore. This includes the Rs.3,436 crore being spent by the State government for basic infrastructure civil works such as the breakwater, quay wall, dredging, reclamation, rail and road access to the port.

The Adani group will invest only Rs.2,454 crore mainly to develop the container yard and terminal buildings, to purchase and to operate cargo handling equipment and operate the port. Additionally, the Central and State governments together will provide the Adani group a grant of Rs.1,635 crore (39 per cent of the project cost) under the Viability Gap Funding (VGF) scheme for public-private projects (PPP).

Interestingly, VGF is a government grant provided to support infrastructure projects that are described as “economically justified but fall short of financial viability”. According to the draft proposal, the Adani group, which is to invest just about one-third of the total project cost, will get the sole right to operate the port under licence initially for a period of 40 years and, then, for an additional 20 years if the second phase of the project is built by the group at its own expense, within the first 30 years.

The APSEZ will be allowed to develop up to 30 per cent of the land for commercial activities on its own, which would include “residential, retail and commercial complexes and mid-market and luxury hotels”.

What will the State get in return? It is only eligible for 1 per cent of the revenue from port operations, ancillary activities like warehousing, truck terminals, and other sources, and that, too, only from the end of the 15th year after the port starts to function. This share of revenue is to go up by 1 per cent every year from then on, but only up to a maximum of 40 per cent. However, the government will get a higher share of 10 per cent of the revenue from “the port (real) estate and other commercial activities” from the seventh year of the facility becoming operational.

At an all-party meeting on June 3, the government announced that the total area required for the project would be 360.01 acres, excluding the 152.13 acres required for rail connectivity (one acre is 0.4 hectare). Of the 360.01 acres, 229.10 acres is to be procured and 130.91 acres is to be reclaimed from the sea. Construction is set to begin on November 1, the State’s Formation Day, according to Chief Minister Oommen Chandy.

Vizhinjam’s strategic importance is known from historic times, and, yet, even in 2004, the then United Progressive Alliance (UPA) government at the Centre and the Congress-led UDF in the State decided to ignore its potential and instead develop the International Container Transhipment Terminal (ICTT) at Vallarpadam, an island near Kochi.

Arguments now being raised in favour of a transhipment port at Vizhinjam were raised in 2004 in favour of the ICTT. Like Vizhinjam today, the ICTT was also initially projected to become India’s transhipment terminal where mother vessels that could not visit smaller ports would bring container cargo directly from various parts of the world.

But it was soon evident that while the Dubai-based DP World came to control a key container port facility in India, the ICTT failed to attract the expected number of mainline vessels. Transhipment (or the transfer of containers to and from feeder vessels to mother ships) virtually came to a stop from the very first year and the port failed continuously to meet throughput targets projected by the Central government and the DP World. (See “Waiting for cargo” and related stories in Frontline , March 9, 2012.)

So far, the four-year-old Vallarpadam terminal has handled a maximum of 3.66 lakh TEU containers a year (up from 3.28 TEUs in its first year), against the initial target of 1.2 million TEUs by 2014.

The opposition Left Democratic Front (LDF) has raised several objections to the terms of the proposed agreement, including the “dubious fact” that the Adani group alone submitted the bid and won it on its own terms.

The Leader of the Opposition in the State Assembly, V.S. Achuthanandan, said that if such terms were accepted, Vizhinjam would provide the lowest profit share among all other such ports in the country. The Ennore port in Tamil Nadu was given to Adani on the terms that the government would get nearly 35 per cent of the revenue, where in Vizhinjam it would get just 1 per cent from the 16th year. Moreover, while other PPP ports are operated by private companies for a term of 30 years, the government has not explained why Vizhinjam is being offered to Adani for 40-60 years. There is no clarity on many such terms, and there is no explanation also on who will control the port after 60 years, he said.

Clearance under the environmental and coastal regulation zone (CRZ) laws had been sought so far only for the first phase of the Vizhinjam project. The Union Ministry of Environment and Forests gave it its sanction in January, subject to compliance of several terms and conditions. However, a number of petitions were filed at the National Green Tribunal against the project and are now pending before the Supreme Court. The apex court is expected to hear them on July 8.

Meanwhile, the State government has used the opportunity offered by the crucial byelection in the Aruvikkara constituency on June 27 and a rather jarring statement by Union Shipping Minister Nitin Gadkari that if Kerala again delayed the project, opportunity would be given to Tamil Nadu to develop the nearby Colachal port with Adani’s help, to pose the project as a key issue in the development debate in the State.

While announcing the Cabinet decision to go ahead with the project, subject to the Election Commission’s approval in the context of the byelection, Oommen Chandy said emphatically: “For Vizhinjam, it is now or never.”

All this has added to the frenzy among a large section of people in Kerala favouring the dream of a future “transhipment hub of the country” coming to reality somehow at Vizhinjam, given its geographical advantages and strategic location and the promised benefits to the local economy.

But Vizhinjam’s sparse hinterland, devoid of industrial activity, and the experience of Vallarpadam, a mere 250 km away, struggling to attract those mother ships, give rise to pertinent questions: Is the Kerala government handing over valuable public assets in a strategically and economically important location to one of India’s biggest business houses without much deliberation? As in the case of Vallarpadam, will the rewards to the State be meagre compared with the gains that await the Adani group, with its known links with Prime Minister Narendra Modi? Will Adani transform Vizhinjam into a transhipment hub or set it to grow only as a private facility purely for private profits?