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SPV for Sethusamudram canal project

Our Bureau

New Delhi , July 8

THE Government will set up a Special Purpose Vehicle (SPV) to implement the Sethusamudram ship canal project, the Finance Minister, Mr P. Chidambaram announced in the Budget for 2004-05.

"The SPV will raise funds for the project and the Government will participate in the funding through a mix of equity support and debt guarantee," the Finance Minister stated.

The Government is expected to take a controlling stake in the SPV with five east coast major ports of Chennai, Tuticorin, Visakhapatnam, Paradip and Cochin pumping funds into the project.

With the announcement of the SPV, the Shipping Ministry will now work out the modalities of the SPV structure, the exact percentage of equity to be contributed by the five major port trusts, the Government, the private sector as well as the debt-equity ratio of the project.

The Ministry will also decide on whether the role of the SPV will be limited to that of arranging funds for the project or whether it will also be involved in implementing the project, he added.

The project would link the Palk Bay and Gulf of Mannar on the east coast by creating a shipping canal through Rameswaram Island.

This will provide a continuous navigable sea route around the peninsula. It involves widening and deepening of the Pamban channel to facilitate the movement of coastal ships of the size of 3,000 tonnes. The Shipping Ministry has asked the east coast ports to participate in the equity of the project since they are the primary beneficiaries.

The coal and iron ore cargoes emanating from the east coast and bound for the west coast will have to go via Sri Lanka to reach the destination.

" It is a fine project, given the savings in time and fuel costs, apart from the benefits accruing to the Indian industry," a Paradip Port Trust official said.

The Ministry has entrusted the Nagpur-based National Environmental Engineering Research Institute (NEERI) with the task of preparing a techno-economic feasibility report for the project, which is expected to be submitted shortly, Mr Chidambaram said.

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