Thiruvananthapuram: The Kerala government on February 15 decided to sign a tripartite agreement with the Centre and Adani Vizhinjam Port Pvt Ltd (AVPPL) for receiving the Centre's share of the viability gap fund (VGF) of Rs 817.80 crore for the Vizhinjam International Deepwater Multipurpose Seaport. The project deadline has also been extended to December 2024.

Vizhinjm project is the only port project in the country that would be offered the VGF. Viability Gap Funding is designed to provide capital support to PPP projects which would not otherwise be financially viable. VGF would make a project financially attractive for the private partner, it would reduce the revenue required to recover costs.

The VGF for the project was capped at 40% of the total project cost of Rs 4089 crore that did not include funded works that would be taken up by the state. Thus, the viability gap was fixed at Rs 1635 crore to be shared equally by the Centre and the state. The Centre granted its approval for extending its share of the VGF (Rs 817.8 crore) last November.

However, the Kerala cabinet has put up conditions for signing the agreement and for the extension of the deadline. One, steps should be taken to withdraw arbitration proceedings. Two, the second and third phases of the project, with a combined cost of Rs 10,000 crore and originally scheduled to be completed only by 2045, should be completed by 2028, 17 years ahead of schedule. 

Three, the commitment fee of Rs 219 crore for the extended five years, provided to AVVPL from Kerala's equity share, will be withheld. (The commitment fee for four years, Rs 175.2 crore, will be released to AVVPL if the second and third phases are completed by 2028. The commitment fee for the fifth year, Rs 43.8 crore, will remain with Kerala.)

The tripartite agreement will be signed only if AVVPL agrees to the three conditions. 

The Vizhinjam project was supposed to become operational by December 3, 2019. The AVVPL had attributed the delay to 16 'force majeure' events (happenings beyond the power of humans), including floods and Ockhi, and had sought a further extension of the deadline.

Vizhinjam International Seaport Limited (VISL), a Kerala government company, rejected the demand prompting the AVVPL to go for arbitration. The AVVPL had sought Rs 3854 crore as damages, and VISL, in turn, had placed a counterclaim of Rs 911 crore. It is this arbitration proceedings that Kerala wants withdrawn.

The second and third phases of the project involve extending the container terminal by 1200 metres, taking its total length to 2000 metres; in the first phase, it would be 800 metres. The breakwater, which will be 3180 metres in the first phase, will be increased by 900 metres more during the second and third phases, taking the total breakwater length to 4080 metres.