It is high time that environmental groups, fisher people' unions, people's movements and activists exert some pressure on the Kerala government on the major issue of Vizhinjam Transit Harbour, in the interest of oceanic biodiversity, fisher people's livelihood, fisher people's homes, survival of the coasts in Thiruvananthapuram district and the protection of Western Ghats. Here is a report on the economic side.
As far as the leadership of the left is concerned, if they pull out now, it will be an act of saving their faces, if they take a stand respecting human lives and environment as per their election promise. Otherwise, any sensible person in this country will brand the left leadership as being sold out to Adani. Please treat this as an urgent warning and do whatever you can within your means. K.P. Sasi https://www.countercurrents.org/2017/02/25/vizhinjam-port- an-economic-mirage/ Vizhinjam Port: An Economic Mirage <https://www.countercurrents.org/2017/02/25/vizhinjam-port-an-economic-mirage/> in India <https://www.countercurrents.org/category/india/> — by Goutham Radhakrishnan <https://www.countercurrents.org/author/goutham-radhakrishnan/> — February 25, 2017 [image: vizhinjam] Vizhinjam International Deepwater Multipurpose Port, was awarded to the sole bidder Adani Ports & SEZ in 2015 by the previous Congress-led UDF government, almost half a century after the project was first mooted and 20 years after the proceedings started in 1995. The port is being developed as a Public Private Partnership (PPP) project on a design, build, finance, operate and transfer (DBFOT basis. The PPP structure is based on a Landlord model where land will be owned by Government of Kerala (GoK) through Vizhinjam International Seaports Limited (VISL), a special purpose vehicle set up to manage the port development. The concessionnaire (Adani) will manage the entire port including the civil infrastructure and and supra-structure (terminal) and provide cargo handling services to the port users. 30% of the land will be used for real estate development in the form of hotels, commercial buildings and residential apartments.The port assests will be transferred back to GoK at the end of the concession period of 40 years(2015-2054). But interestingly the funding of some civil infrastructure works (breakwater and fishing harbour) will be borne by GoK. Construction has already started and according to the project schedule Phase-1 is expected to be operational by 2019. Supporters of the port see it as a “game changing” project that will alter the developmental fortunes of Kerala and cite Vizhinjam’s proximity to international East-West shipping route, deep natural draft and reduction in import/export cost as the main rationale behind the project. However, many stakeholders and experts claim that the reality is far from the rosy picture painted by the government and the port can have very real adverse impacts on the region’s marine and coastal ecology, livelhoods of local population and tourism, apart from being economically unviable. Further, related legal and regulatory issues including the lack of transparency in the contract award process has also been a subject of criticism from various quarters This article will look into the economic viability aspect of the port and argue that the project does not make economic sense, let alone meet other claims made by its proponents. Vizhinjam port will cater primarily to transshipment traffic. The port is expected to attract low volume of gateway traffic, i.e. port traffic originating in or destined for Kerala, due to the lack of industry in the immediate hinterland of the port. According to VISL estimates, of the total vessels expected to call at the port, 80% will account for transshipment of which 60% will be foreign ships. Only 20% of the traffic will handle gateway cargo. Analysis by Drewry as part of a study commissioned by VISL shows that Colombo handles 35% of the Indian Sub-Continent (ISC) transshipment traffic. Only around 4% of of ISC transshipment is handled by other ports within the subcontinent. The rest 61% is through ports outside of the subcontinent important among them being Singapore, Salalah, Jebel Ali, Dubai etc. Once completed, Vizhinjam, it is claimed, will attract transshipment from these ports and increase India’s share in the transshipment business of the region, thereby contributing significantly to the revenues of the region and reducing import/export costs. It is also claimed that the port would also boost the gateway traffic from the hinterland (primary being Kerala) by opening up new supply-chain networks. All estimates of economic feasibility are made on the central assumption that Vizhinjam would be able to draw a substantial proportion of traffic away from its competing foreign transshipment hubs. A closer examination of the facts reveal that the claim of Vizhinjam attracting significant traffic from other ports is at best an over statement or wishful thinking due to reasons elaborated in the subsequent sections. First has to do with the market conditions and competition. Every study commissioned by VISL[1] <https://www.countercurrents.org/2017/02/25/vizhinjam-port-an-economic-mirage/#_ftn1>, has unambigously stated that Vizhinjam will face intense competition from already established ports like Colombo, Singapore etc in transshipment and domestic ports like Cochin and Tuticorin for gateway traffic.Moreover, established foreign transshipment hubs like Colombo and Singapore have the presence of global players in port operations and they enjoy relationship with shipping lines besides better logistical network. This clearly puts Vizhinjam at a disadvantage from the very start. According to these reports, one of the necessary but not sufficient conditions for Vizhinjam to attract traffic is by providing “world class services” to its users. However, a comparative analysis of Vizhinjam’s competing ports across 7 parameters of port and terminal performance, by Drewry as part of the 2010 IFC report, gives a score of 4.2, 4.8 and 5 on a 5 point scale to Colombo, Dubai and Singapore respectively. No Indian port scores above 2.9 according to thisstudy. Thus the main competing ports are already operating at a very high standard from the perspective of shipping operators. This then raises the question, what standard would Vizhinjam have to aspire for to become a preferred destination over the aforementioned foreign portsand is it realistically achievable? These reports also draw attention to the impact of global economic downturn on the prospective growth of global container traffic. A projected CAGR of 8-10% in container traffic is assumed in the offical economic viability studies but global and national estimates for the previous years put the actual figure much lower. Simply put, the growth in shipping traffic that is expected by the government will not materialise and the projections are a deliberate overestimation. Second aspect has to do with the tariff structure. Two types of tariffs are applicable to shipping traffic. First relates to the vessel (pilotage, port dues and berth hire) and the second to the containers (handling and storage). Apart from the geographical factors, these charges decide the choice of vessels to call upon a given port as opposed to another.According to the 2015 Ernst & Young Feasibility Report, the tariffs at Vizhinjam are to be capped at Cochin rates for gateway traffic and Colombo rates for transshipment.It also calls for a further discount of upto 35% over Colombo rates to attract vessels. Let us look at how Vizhinjam fares without discount viz a viz Colombo on vessel charges fror foreign flag ships. *Type of Ship* *Pilotage Charge (INR/GRT)* *Port Dues (INR/GRT)* *Berth Hire (INR/GRT/Hour)* *Vizhinjam* *Colombo* *Vizhinjam* *Colombo* *Vizhinjam* *Colombo* Upto 30,000 GRT 50 4.11 25 4.77 0.6 0.13 30,000-60,000 GRT 40 4.11 60,000 GRT & above 40 4.11 *(GRT = Gross Registered Tonnage)* A cursory glance at the above numbers reveals that vessel charges of Vizhinjam are many times that of Colombo. Even after 35% discount, the tariffs do not come close enough to pose any serious threat to Colombo, which is also planning to expand its capacity. Also note that Vizhinjam do not have any geographical advantage over Colombo to offset its steeply higher vessel charges. The prospects of Vizhinjam turns gloomier when one considers the fact that Malaysian ports of Kelang and Tanjung Pelepas, both among the largest ports in the world, offer fares even lower than Colombo. Question then remains, why would foreign flag vessels which constitute the bulk of global cargo handling chose Vizhinjam? Moreover, Indian flag transshipment vessels also enjoy no benefit in terms of vessel charges in Vizhinjam compared to Colombo. As mentioned earlier, Vizhinjam will primarily be a transshipment port, a fact that adds to its risk and undesirability. IFC report in no uncertain words states that *“l**arge investments in greenfield ports are rarely planned based primarily on transshipment traffic, because transshipment traffic is very unpredictable and shipping lines are known to switch from one port to another at the slightest of reasons.”* The same report also confesses that Vizhinjam will not contribute substantially to the development of Kerala, the primary justification given for the project. To quote the report: “*A **port based primarily on transshipment traffic does not have significant linkages and synergies with the local economy. As a result one of the key priorities of the Government of Kerala, i.e. development of Kerala, is unlikely to be served optimally, if the port develops primarily as a transshipment port.”*It further states that the project runs the “*risk of creating a white elephant with poorer economic and financial results in the medium to long term.”* Other necessary conditions needed to attract ships to Vizhinjam as proposed by all the three reports commissioned by VISL include exemption from Indian Cabotage Laws to allow foreign ships to handle domestic cargo traffic, relaxation or exemption from labour laws and constituting the port as an SEZ. The above recommendations if implemented can have disastrous consequences. Let us now examine the project structure and its economic viability as estimated by the government. The project is structured in a fashion that has no precedent the country. Total cost of the project awarded to Adani is 4089 Crores out of which 40% or 1635 Crrores will be funded by government’s Viability Gap Funding (VGF) scheme. 20% (817 Crores) of the VGF amount has to be raised by GoK and rest (817 Crores) will be contributed by GoI.Vizhinjam is the first port in the country to receive VGF support. Apart from this construction of a 3km breakwater and fishing harbour will also be funded by GoK under the Funded Works concept. The construction of infrastructure under Funded Works will be done by Adani with GoK paying them a lump sum amount of 1463 Crores, in a move that did not involve any competitive bidding.The cost of funded work increased 53% from 952 in December 2014 to 1463 in May 2015 at the time of final award. At the same time the total project only increased from 3930 to 4089, just about4%. This leads to the conclusion that Adani is making undue benefits from the funded works portion of the project which is being paid for by GoK. Further, land acquisition, supply of drinking water and electricity and rail connectivity is also the responsibility of GoK at a cost of 1973 Crores. Thus the total investment on the port works out to be 7524 Crores. As a proportion of the total investment GoK funds 57%, GoI 11% and Adani 32%. Returns to GoK is non existent for the first 15 years after which Adani will share a paltry 1% of the revenue, increasing 1% annually with the government. Such a preposterous cost and revenue sharing model is indeed shocking and justifiably raises concerns about the real motives behind the project and who its real beneficiaries are. Compare this with the nearby Vallarpadam port where in 2004 DP World and Punj Lloyd had offered 33.3% and 10.1% premium respectively to the government. Moreover, in 2014 Adani themselves in its winning bid had offered 37% premium for Ennore port in Tamil Nadu. All studies commissioned by the government, without exception, has concluded that during Vizhinjam as a stand alone port project is economically unviable, even after such “generous” financing arrangements.According to the Feasibility Report submitted to VISL in 2015, the *“project is not financially viable because of long gestation periods and limited financial returns”. *It is only after allowing Adani to develop the real estate project and providing a (maximum possible) VGF support of 40% that the project could barely cross the viability threshold even on paper. Thus, it is only the Port estate development that delivers any profit (to which government has no claim) and the entire project can be seen as a glorified real estate project with no real contribution to the state exchequer. Note that even this claim of economic viability is contingent upon the rosy traffic projections which as shown earlier is deeply suspect to begin with. It is precisely for this reason that CAG in its 2016 report concluded that Vizhinjam project is against the interests of the state and only the Adani Group is set to benefit from the agreement. The report points out to widespread discrepancies in the Vizhinjam agreementt as well as grave irregularities in breakwater construction and land acquisitionresulting in a substantial loss to the government Even as the government has bent over backwards to claim that the project is economically feasible, what is not considered in these exercises is the economic loss inflicted upon the existing communities and the local economy. Vizhinjam is located close to one of the most important tourism and fishing centres of the state. According to government’s own estimates, the port will provide only 550 direct jobs including management and engineers. Whereas the livelihood of close to 50,000 fisher people stand to be adversely affected by the project. With respect to the tourism sector, 30 resorts with a market value of about 1500 Crores providing nearly 3000 direct jobs and close to 10,000 jobs in total stands to be wiped out in Vizhinjam alone. This is not considering the effect of erosion caused by construction of breakwater Kovalam beach to the north, where tourism provides nearly 10,000 direct jobs with an infrastructure of 20,000 Crores. To conclude, it is evident that the success of the port to even realise its immediate economic returns hinges on many ifs and buts which in themselves are unrealistic. Massive loss of livelihood in the tourism and fishing sector will be wrought about by the port and the purported gains are far outsripped by these losses. The revenue sharing model will push the push the already strained state economy into further debt trap. Add to this the absolute lack of transparency in the bidding process and dubious contract structure, Vizhinjam can only be seen as a massive hoax perpetrated on the people of Kerala for the benefit of Adani and unscrupulous politicians. *Goutham* is an alumnus from TISS and an independent researcher from Mumbai. [1] <https://www.countercurrents.org/2017/02/25/vizhinjam-port-an-economic-mirage/#_ftnref1>*Strategic Option Report* by IFC in 2010, *Detailed Project Report* by AECOM in 2013, *Estimation of Economic Internal Rate of Return of the Vizhinjam Port Project – Draft Report* by Deloitte Touche Tohmahatsu in 2013 and *Feasibility Report* by E&Y, AECOM and HSA Advocates in 2015 -- You received this message because you are subscribed to the Google Groups "Green Youth Movement" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To post to this group, send an email to [email protected]. 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