Kerala CM urges Union FM to release grant for Vizhinjam seaport project

Kerala chief minister Pinarayi Vijayan has urged Union finance minister Nirmala Sitharaman to release the Centre's share of Rs 817.80 crore in the Viability Gap Funding (VGF) for the Vizhinjam seaport in Thiruvananthapuram without imposing the condition that the state has to repay it later.

Vijayan, in a letter to the FM, said the condition imposed by the Empowered Committee constituted by the Department of Economic Affairs, that the VGF amount should be repaid by Kerala in Net Present Value (NPV) terms by way of premium (revenue) sharing, would result in a huge loss of Rs 10,000 to 12,000 crore to the state exchequer.

"The state is investing resources to the tune of Rs 5,595 crore out of the total project outlay of Rs 8,867 crore. I am sure, the 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 crore is to be made on NPV basis, 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 realisation from the port over the period of repayment," the CM said.

He further said that the VGF was a financial support mechanism that was introduced to encourage Public-Private Partnerships (PPPs) in infrastructure projects that are economically justified but not financially viable without additional financial support.

The VGF is invariably provided as a grant, not a loan and its defining elements are 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", the CM said.

Thus, the condition that the VGF has to be repaid, "defies the rationale" behind it, he added.

"..the 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 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," he said in the letter.

Vijayan further said that such a condition of VGF repayment was not imposed on the Outer Harbor project of VOC Tuticorin Port which is "structured on similar lines as the Vizhinjam International Seaport".

"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," he said.

The CM also pointed out in his letter that ports in India account for a lion's share of the Customs duties collected in the country and even on a modest assessment, "If Vizhinjam seaport were to account for Rs 10,000 crore annually by way of Customs duties, the government of India would derive additional revenue of Rs 6,000 crore every year."

"I seek your kind intervention for the release of the share of the 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 crore in nominal terms to the state exchequer," the CM said in his letter to Sitharaman.