The Hindu Business Line : CCEA clears Sethusamudram project at Rs 2,427 crore

THE Cabinet Committee on Economic Affairs (CCEA) on Thursday approved the implementation of the Sethusamudram Ship Channel project off Rameswaram in Tamil Nadu at a cost of Rs 2,427.40 crore. Once the project is completed, it is expected that the sailing time and distance for ships between East and West coast would be considerably reduced.

The project envisages dredging of a ship channel in the shallow portion of sea to connect the Gulf of Mannar and Bay of Bengal through Palk Bay so that the ships moving between East and West coast could have a continuous navigable sea route around the peninsula within India's territorial water.

While the capital cost of the project has been pegged at Rs 2,333 crore, the financing cost would be Rs 194.40 crore including interest of Rs 126.80 crore during construction.

Briefing presspersons about the CCEA decision, the Finance Minister, Mr P. Chidambaram, said that Sethusamudram Corporation Ltd has been incorporated as a special purpose vehicle (SPV) for raising resources and implementing the project through the Tuticorin Port Trust.

He said that the project was over 100-year dream of the people of peninsular India.

"This would open a new shipping channel. Otherwise ships have been going around Sri Lanka. It is an NCMP promise and also a budget promise. We are happy that the CCEA has taken the final decision to implement the Sethusamudram Ship Channel project," he added.

While the equity component of the SPV would be Rs 971 crore, the debt portion has been pegged at Rs 1,456.40 crore. The Union Government would extend guarantee to the domestic and foreign debt to be raised for this project. The equity contribution of the Union Government in the SPV would be Rs 495 crore.

The organisations that are contributing to the equity of the SPV are the Tuticorin Port Trust (Rs 50 crore); Shipping Corporation of India (Rs 50 crore); Dredging Corporation of India (Rs 30 crore); Chennai Port Trust (Rs 30 crore); Ennore Port Ltd (Rs 30 crore); Visakhapatnam Port Trust (Rs 30 crore) and Paradip Port Trust (Rs 30 crore). Further, equity funds to the extent of Rs 226 crore are to be raised from IPO/users/private placement.

Mr Chidambaram also highlighted that there are tremendous externalities to the project.

"While the rates of return are satisfactory, the externalities cannot be quantified. There are externalities of defence, security and anti-smuggling. The Sethusamudram ship channel project opens up a canal that would enable Ships to avoid going around Sri Lanka", he said.

Asked about the environmental clearance for the project, Mr Chidambaram said that an environment impact study has been conducted and all apprehensions have been addressed.

The CCEA also gave in-principle approval to provide interest-free non-plan assistance of Rs 390.05 crore by the Union Government and the remaining Rs 374.75 crore by the other ports and PSUs that are equity partners in the SPV in proportion to their equity holding.

This has been allowed for offsetting the negative cash flow, over a period of first nine years of operation starting from 2009-2010.

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