One of biggest challenges for India today is achieving clarity and transparency in the economic rationale and financing of mega projects that involve public-private partnerships (PPPs). Take, for example, the case of a port that is due to come up at Vizhinjam near Thiruvananthapuram, Kerala. The state government, along with a private partner, plans to build a container transhipment terminal that will have an annual capacity to handle one million TEU (a shipping terminal’s cargo handling capacity), at a cost of Rs 4,000 crore to Rs 5,000 crore.
The project, however, lacks any economic justification because of several reasons. First, there is a similar port — the Cochin International Container Transhipment Terminal (ICTT) — in Cochin (176 nautical miles away); and, second, Vizhinjam is only 11 nautical miles closer than the Cochin ICTT from the International Shipping Routes. Third, the Cochin ICTT, which was also a PPP project and built in 2011 at a cost of more than Rs 3,000 crore, was India’s first-of-its-kind terminal and it was supposed to wean away container transhipment traffic bound for Colombo port. And now, surprisingly, Vizhinjam port is also being built for the same reason even though the Cochin ICTT has not reached its target and is utilising only 35% of its capacity of one million TEUs per annum.
On July 4, the ministry of shipping questioned Vizhinjam’s viability because while the Cochin ICTT is offering an 85% discount on the ceiling tariff, the former is offering only a 35% discount. In the same meeting, the ministry of shipping pointed that the project will also impact the revenue earning potential of the Cochin ICTT. Vizhinjam port’s market potential has also been studied in great detail by renowned international consultants and they have concluded that the route via Colombo port is the cheapest option.
They added that the proposed Vizhinjam port will capture business only if it offers discounts as high as 40-50% of the tariff charged by Colombo port. In spite of these facts, the government granted an in-principle agreement to approval Vizhinjam port and recommended it for approval by the Empowered Committee (EC) and the finance ministry.
Some experts believe that with the current policy and planning trend, from a commercial point of view, competition and markets will stabilise the market and some ports will die out and some could be merged. However, this does not make any sense because these ‘dead’ ports will leave permanent and irreversible negative social and environmental impacts. Their decommissioning and mitigation are costly and sometimes they cost as much the capital investment that was made for building these dead ports.
Instead of investing money in Vizhinjam, the government should invest in dredging in Cochin and improve the efficiency of Cochin port. Having said this, I must emphasise that the government needs to review and audit the financing, operation and management of the Cochin ICTT as there have been reports of the private partner in the PPP not investing enough of its share.
Sudarshan Rodriguez is a senior programme coordinator, Tata Institute of Social Sciences, Mumbai. The views expressed by the author are personal.