Cyclone Tauktae prolongs India’s box transhipment ambition

Cyclone Tauktae damaged a portion of the breakwater that Adani Ports and Special Economic Zone Ltd (APSEZ) is constructing at its upcoming port at Vizhinjam in Kerala, further prolonging India’s aspirations to develop a container transhipment port to cut the country’s dependence on Colombo port to send and receive cargo containers.

According to the concession agreement signed on August 17, 2015, the port was slated to start operations on December 3, 2019 which could be pushed to August 30, 2020.

APSEZ has blamed force majeure events such as the cyclone Ockhi in November 2017, high waves, a National Green Tribunal order, the pandemic and reasons attributable to government authorities for overshooting the commercial operations date (COD) set by the concession agreement for the project.

The firm is expected to use the cyclone Tauktae to justify further delay.

The state government has the right to terminate the concession agreement on completion of extended COD and also levy liquidated damages at the rate of 0.1 per cent of the performance security amount for each day of delay in completing the project. This works to ₹12 lakhs a day.

Adani Vizhinjam Port Pvt Ltd (AVPPL), the APSEZ unit developing the port, has initiated arbitration proceedings to resolve the disputes arising from the delay in completing the project.

AVPPL has constructed 850 metres of the total breakwater of 3.1 kms. Cyclone Tauktae damaged the structure from 676 metre onwards.

“The damage to the breakwater will add fuel to the fire,” a Kerala government source said referring to APSEZ’s entry into rival Colombo port to build a new container terminal “with the blessings of the Indian government”.

“APSEZ’s planned terminal at Colombo port will be detrimental to the interests of Vizhinjam port,” the source said.

Damage repair

That side, the damage to the breakwater from the Cyclone has taken the state government by “surprise”.

“The breakwater is designed for much higher wave conditions. It is supposed to withstand higher waves than what has come due to the Cyclone. The wave height had not reached the design wave height,” the source indicated.

The purpose of a breakwater, he said, is to withstand extreme wave conditions and to protect the port facilities and give a tranquil area for ships to berth for loading and unloading cargo.

The state, though, will wait for the report from the Independent Engineer to conclude the reasons for the damage to the break water structure, he said.

Repairs to the damaged portion and the construction of the remaining length of the breakwater will take more time. Monsoon will set in over Kerala by the end of the month, halting construction activity for at least three months.

At the current pace of work, the port is expected to be completed by 2024 if not later. “By that time, the new terminal at Colombo port is likely to start operations and get the early bird advantage,” said the source. “Thus, the very objective of setting up an international container transhipment terminal at Vizhinjam will be defeated,” he said.

The Vizhinjam project, incidentally, is entitled to receive a viability grant funding or VGF of ₹1,635 crore to be shared by the Centre (₹818 crore) and the Kerala government (₹817 crore) to boost its viability, making it the first port project to be offered such a grant. Of this, ₹1,227 crore will be given during the construction phase and the balance during the operation period spanning 40 years extendable by another 20 years.

The VGF was the basis on which the bid was awarded to APSEZ, which quoted the least grant.

“The VGF has been granted in-principle approval earlier and is awaiting final approval from the Centre,” the source said.

To show its “commitment” to the project and allay apprehensions, AVPPL said it has availed additional equity funding of ₹697.04 crore from APSEZ towards equity funding requirements and taken bank loan of ₹500 crore, both in February this year, to fund the project.

Dependency on the port

Industry sources said that it was imperative to develop the Vizhinjam facility at the earliest by tapping the strategic location with least deviation from the Suez route and deep draft.

The Maritime India Vision 2030, a ten-year blueprint for the maritime sector unveiled by Prime Minister Narendra Modi on March 2, suggested prioritising development of Vizhinjam in the short-term (1-3 years) by providing required support from the Central government.

Currently, nearly 75 per cent of India’s transshipped container is handled at ports outside India. Colombo, Singapore and Port Klang handle more than 85 per cent of this with Colombo alone handling about 2.5 million TEUs.

Indian ports lose up to $200-220 million of potential revenue each year on transshipment handling of cargo originating/destined for India.

The loss is even higher when considering the opportunity to handle cargo emerging from other countries in the region, the Vision document said.

“Given the extra port handling charges incurred at the transshipment hubs, transshipment of cargo results in logistic cost inefficiencies for Indian industry. The additional port handling cost is to the tune of $80-100 per TEU, which could be saved if the container was imported/exported as direct gateway cargo instead of being transshipped,” the Vision document pointed out.

A strong economic case therefore exists for enabling a transshipment hub in Southern India that can attract Indian and regional transshipment traffic from the current hubs, save significant revenue loss, reduce logistics inefficiencies for Indian trade, reduce risks to country’s export competitiveness and create an opportunity for India to become a large hub for Asia-Africa, Asia-US/Europe container traffic trade, the Visison document added.