Kerala decides to forfeit revenue from Azhikkal port for 35 years to woo investors

The Kerala government that spends over ₹3,000 crore for the first phase development of the Azhikkal port will get its share of revenue only 35 years since launching of construction.

A Chief Secretary-level meeting held recently decided to introduce changes to the concessionaire agreement, enabling revenue sharing with the Kerala government only after the concession period of 5+30 years (five-year development period and 30 years of operation).

In the case of Vizhinjam port, the State will receive a share of the revenue from the 15th year of operation, in 2034, although the port construction was delayed by five years. As per the agreement signed between the Adani Group and the Kerala government, Adani has a 40-year concession to build, operate, and transfer the port, with the provision for a 20-year extension.

According to government sources, in Azhikkal, the initial understanding was that the concessionaire has to share a portion of the income with the State government right from the project’s inception to avoid further financial liability on the government for the project’s later phases.

However, the State government was forced to bring in changes to its previous order considering the equity Internal Rate of Return (IRR) of the project. The project, conceived to be developed in the Public Private Partnership (PPP) mode, is unlikely to attract expressions of interest from the private sector as per the previous condition. Enabling revenue-sharing after 35 years is expected to attract private investors to develop the port, said the sources. Though the State government granted in-principle approval for seeking the Viability Gap Funding (VGF) from the Union government, the chances for getting the VGF grant for a PPP port remain uncertain, especially against the backdrop of the Vizhinjam port, for which the Centre provided the VGF as a loan.

Malabar’ growth

sThe project envisages the development of a port with a depth of 14.1 m and a capacity to handle Panamax-sized container ships, with a capacity of 8,000-75,000 DWT (deadweight tonnage) or 5,000 TEU (twenty-foot equivalent unit). The project also seeks to promote industrial and commercial development in Malabar by creating industrial parks and special economic zones. The State also requires a private partner like Adani in Azhikkal, as the cargo sourced from the State is not enough to make the project break even in a short span of time.

The export and import community in Coorg, Karnataka, especially the coffee traders, needs to be attracted to Azhikkal. The State is of the view that a private investor was essential for investing and wooing the coastal shippers to the port. The Detailed Project Report of the port was prepared by M/s. HOWE Engineering Projects (India) Limited and submitted by M/s. Malabar International Port & SEZ Ltd, the special purpose vehicle formed to execute the project.