Storm before the seaport

For Kerala it had been the most anticipated project since the formation of the State. The planned creation of the Vizhinjam International Seaport, off the Thiruvananthapuram coast, had been synonymous with the capital city’s development for well over three decades.

Both the political fronts in Kerala, the Congress-led United Democratic Front (UDF) and the CPI(M)-led Left Democratic Front (LDF), and even the BJP had used the seaport development plank to drive gains in successive elections, and the surrounding hype had led the average man on the street to believe that Vizhinjam could actually change the face of the city and, with it, the State.

This hope was belied a month ago, after the Kerala High Court quoted a report of the Comptroller and Auditor General (CAG) of India to question the project’s economic viability. More crucially, the Court queried “whether the project is a clean sellout favouring the Adani Ports & SEZ Pvt Ltd (APSPL)” and demanded to know what commercial benefits would accrue to the State.

Under the agreement for the ₹7,525-crore project (in the design, build, finance, operate and transfer or DBFOT model), the Kerala government contributes 67 per cent (₹5,071 crore) and the Adanis the rest. It took a public interest litigation from a whistle-blower, MK Salim, to get the court to weigh in, as the CAG report was hitherto ignored, perhaps conveniently, even by the current Left government.

What really set the cat among the pigeons was the CAG’s finding that while the State would earn an estimated ₹13,947 crore at the end of the 40-year period of concession with Adani Ports, the latter would receive a whopping ₹19,555 crore as termination payment, effectively putting the State at a loss.

“Nowhere in the world has such a project been done where the government knows it will end up with a loss even before starting it. No other public-private project has the concessionaire period stretched from 30 to 40 years. The whole agreement has been practically written off in the name of the Adani group... Only a CBI probe will bring out the truth,” Salim told BLink at his house in Kollam.

The financial loss is just the tip of the iceberg among the anomalies flagged by the CAG. The others ranged from inflated invoices for equipment purchase to tweaking the initial agreement to benefit the builder, lack of transparency in the awarding of sub-projects, and registering a negative net present value (NPV).

“All these adjustments that the CAG has pointed out were made after the initial tender, which means the other bidders were not given the benefit of the relaxations... So, clearly, the government was favouring one company. Why that was done must be probed by an independent agency,” says Joseph C Mathew, a former IT advisor to the State government who has been closely following the developments in the case.

The court gave the government time till September 26 to explain itself. The Pinarayi Vijayan government ordered a judicial inquiry into the deal, which was struck in August 2015 by the previous Congress-led UDF government headed by Oommen Chandy.

Four months down the line, neither has the retired judge heading the commission started work, nor has the government provided him the infrastructure to get going, which again drew heavy criticism from the court.

While the Vijayan government hoped to deflect embarrassment by offering to set up the ‘judicial commission’, many suspect it would be merely hogwash. “There is no way the government can scrap the Vizhinjam port project. We have gone far ahead in this and a lot of people’s aspirations depend on it being made successful. But we will wait for the findings of the judicial commission to see if some changes have to be brought to the existing project,” Kadanapally Ramachandran, State minister for ports told BLink.

A saga of discrepancies

The HC while admitting the PIL had pointed out that a close examination of the agreement with the Adani group had made the CAG wonder why it was so one-sided.

Among the errors the CAG flagged, the first relates to the hiked cost of equipment using inflated invoices, which transpired even before the Adanis entered the picture. The government tried to explain that the equipment had to be imported, but the prevailing exchange rates did not bear it out.

Secondly, under the initial agreement the development of the breakwater and fishing harbour was to be assigned to a separate Engineering and Procurement Construction (EPC) contractor, but it was later altered to favour the Adani group.

“It has been given to the same company on a platter for ₹1,460 crore, to be funded by the Kerala government, which again shows a lack of transparency,” added Mathew.

Former chief minister Chandy, however, terms these allegations a conspiracy to derail the project. “See, there have been so many errors in the calculation of the CAG which make the project look like a loss to the State. Even regarding the tender, what can the government do if Adani was the only one that gave the technical bid? Even inside the CAG team there are people who want to derail this project,” he told mediapersons.

It is with the NPV — the difference between a project’s financial benefits and its cost in current monetary terms — that the CAG report makes its strongest case against the project’s financial viability. Namely, the loss of ₹3,866.3 crore to the State exchequer at the end of the 40-year concessionaire period.

It warns that the seaport could eventually turn into a ‘white elephant’, reminiscent of yet another struggling project — the Vallarpadam International Container Transshipment Terminal (ICCT), off the Kochi coast, which is running up losses as it attracts traffic way below its intended capacity.

What has riled activists is the ease with which the erstwhile UDF government allegedly gave in to several bizarre demands of the Adani group.

The extension of the concessionaire period to 40 years from 30 would, in effect, hand the company an additional revenue of ₹29,217 crore.

The International Finance Corporation (IFC), the initial consultants for the project, had in 2013 stipulated 30 years, but the government justified the additional decade on the grounds that Vizhinjam is a greenfield seaport. The CAG points out that a similar port, Colachel in Tamil Nadu, just 50 km away, had a 30-year concessionaire despite it too being a greenfield venture.

A real estate deal?

The Kerala government’s moves have irked even some of the staunchest supporters of the Vizhinjam project after it emerged that 30 per cent of the land acquired was given to the Adanis for real estate development; in return, the government would receive 10 per cent of the revenue, that too from the seventh year.

Additionally, the company has the right to mortgage the land and other assets. While many concede that this is normal in BOT projects, they express indignation at the perceived ease with which these facilities were extended, even in the face of long-term losses to the State.

CR Neelakandan, an anti-corruption activist, accuses the government of unduly favouring a private developer. “That the whole agreement defies logic is known to all and, in spite of it, if you keep silent then there is enough reason to believe that those in power might have taken money to keep their mouth shut. I even complained to the State Legislative Committee on Public Undertakings, but nothing has happened. Now that the judiciary is involved, let’s hope we get to the bottom of this,” he said.

Vizhinjam has faced several ups and downs since inception. The first global tenders, floated in 2003-04, failed to attract credible bidders. The mother company, Vizhinjam International Seaport Ltd (VISL) was created in 2004 and, after two more unsuccessful bidding processes in 2007 and 2011, a deal was finally struck in 2015 with the Adani group.

Many believe that the Adani group was drawn more to the real estate potential of Vizhinjam than its port business, given that the full-fledged trans-shipment port at Colombo is just a stone’s throw away.

What has also baffled many observers is the government’s decision to suspend the Navy’s involvement in the port’s functioning after initially declaring that it would be a permanent arrangement. The Union government had cited security concerns arising out of China’s growing presence in Colombo.

Having entered into a legal agreement with the developer, is the Kerala government now in a bind, as any attempt to roll back the project could backfire electorally?

Whatever the reason, the State would have to be ready with its answers for the HC over the next few weeks.

Naveen Nair is an independent Thiruvananthapuram-based journalist with The Lede

COMMENT NOW