Vizhinjam Port: Cash-Strapped Kerala Govt To Borrow Rs 400 crores From HUDCO To Settle Overdue Payment To Adani Ports And SEZ

The Kerala government is reportedely planning to take an immediate loan from Housing and Urban Development Corporation(HUDCO) or a consortium of cooperative banks in order to pay the Adani Ports and Special Economic Zone Limited(APSEZ)-owned Adani Vizhinjam Ports Pvt Ltd (AVPPL) towards the ongoing construction of breakwater developed as part of the Vizhinjam port.

According to the agreement between the state government and APSEZ, Kerala will have to pay APSEZ Rs 400 crore when 30 per cent of the breakwater is completed. APSEZ has been following up on the pending payment.

Except for breakwater and berth, 95 percent of the work for the first-phase of the port has been completed. Of the 2.4 kilometre breakwater required for the first-phase, 1.6 kilometre was completed and work on the remaining portion is progressing.

The first phase of the seaport project consists of building a 3.1-kilometer breakwater, an 800-meter container berth to accommodate two 12,500 TEU (twenty-foot equivalent unit) container vessels, and a fishing harbour.

The state government needs to pay Rs 1450 crore for the construction of the breakwater.

With state's economy in a state of despair and government caught in a debt trap, Pinarayi Vijayan-led state government is struggling to honour the commitment to the Adani Group. With time running out, the state government is likely to take a loan of Rs 400 crore from HUDCO.

In November 2022, a viability gap funding (VGF) worth ₹818 crore to the Vizhinjam International Deepwater Multipurpose Sea Port was approved.

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

The VGF is a one-time grant provided by the government to promote infrastructure Public-Private-Partnership (PPP) projects that have a strong economic rationale but lack financial sustainability. The criteria for the project award was on 'least quoted VGF grant'. APSEZ won the bid VGF quoting the least VGF of Rs 1,635 crore during the auction in 2015. 

Significance Of Vizhinjam Port

The deep-water, multipurpose, international seaport and container transhipment terminal at Vizhinjam being constructed by AVPPL is expected to boost India's maritime ambitions significantly.

The port project was signed during the tenure of the Congress-led United Democratic Front (UDF) government led by former chief minister Oommen Chandy. The port is being built under a landlord model with a Public Private Partnership component on a design, build, finance, operate, and transfer (DBFOT) basis.

The Adani Group and the Kerala government signed a Rs 7,525 crore deal in 2016, but the project has faced several roadblocks and controversies.

Once complete, Vizhinjam will emerge as a significant competition to the transhipment ports of Colombo, Singapore and Dubai as it is the only transhipment hub in the Indian subcontinent, closest to the international shipping routes, and is centrally located on the Indian coastline.

It has a natural draft of 20-24 m and minimal littoral drift.

The port will also offer infrastructure to handle Megamax containerships. Its capacity in Phase 1 is 1 million Twenty Equipment Units (TEUs) — in subsequent phases, another 6.2 million TEUs will be added.