When the construction work began on December 5, 2015, Gautam Adani made a promise. He said the first ship would berth at Vizhinjam International Seaport in 1,000 days, on September 1, 2018. Later, the deadline was pushed to December 3, 2019, 1,459th day of work.

On Wednesday, February 21, it will be 3,000 days since the work began. At this point, the 3.1-km breakwater is not even 70 per cent complete and more than 25 per cent of the sea remains to be reclaimed. The Kerala government has now agreed to a new deadline: December 5, 2024, which is five years more than the original deadline and would be the 3,288th day of the port construction.

The fact is, Adani has got away with more than just a breach of deadline. Right from funded works and its own share in the total project cost to mortgage rights and a generous termination clause, India's biggest billionaire had a sweet deal.

Additional funds
The share of ‘funded’ works - construction of the breakwater and a new fishing harbour - was revised to Rs 1,463 crore from Rs 1,210 crore. The concessionaire (Adani Vizhinjam Port Pvt Ltd - AVPPL) would execute the work but the entire cost would be reimbursed by the Kerala government.

Originally, the ‘funded’ works were to be done as an independent engineering procurement and construction (EPC) contract. Though the concessionaire who had bagged the project would get preference while bidding for the contract it still had to bear the entire cost. There was no reimbursement.

Core advantage
In addition to the ‘funded’ works, the Kerala government would also bear the entire cost of the external infrastructure like road and rail connectivity, which is now pegged at Rs 1,973 crore.

The total project cost of Rs 7,525 crore is the sum of core work (Rs 4,089 crore), ‘funded’ works (Rs 1,635 crore) and external infrastructure (Rs 1,973 crore). The funding for the core work - dredging and reclamation, development of berths, substations, superstructure and equipment, and operations - is supposedly Adani's cross to bear.

The reality is that the AVPPL needs to bother itself with only Rs 2,454 crore, 60 per cent of its obligation (Rs 4,089 crore). The remaining 40 per cent, Rs 1,635 crore, will be provided as viability gap funding (VGF) by the State and Central governments; the Centre's share of Rs 817.17 crore was approved last November.

Pawn as you please
The Kerala government allowed Adani to mortgage project assets, including land acquired by the government at a cost of over Rs 600 crore.

Top government officials told Onmanorama that it was done at the request of bidders after there were no takers for the project in 2015. However, the CAG had pointed out that the mortgage clause was inserted after Adani became the sole bidder.

In fact, one of Adani's competitors wanted such a clause included before the opening of the bid but the Empowered Committee (EC) of Secretaries set up by the state government rejected the demand.

Incremental capacity building
At the ‘request for quote’ (RFQ) stage, the capacity of the port was fixed at one million (10 lakh) TEUs (twenty-foot equivalent units) on the day commercial operations begin or COD (commercial operation date). This was changed to 0.6 million (6 lakh) TEUs on the COD and 10 lakh TEUs within the next decade.

(A TEU is a giant shipping container. A fight sequence staged among these yellow- and blue-coloured containers is common in commercial films.)

Yet, the Kerala government claims that the port capacity is 10 lakh TEUs. A government official said the 6 lakh TEUs figure was meant only in terms of traffic. He said the concessionaire would still have to create the necessary berth capacity for 10 lakh TEUs by the time operations begin.

Traffic meter
The Vizhnjam agreement says the Adani Group will gain or lose its time in Vizhinjam based on traffic.

If there is a fall in traffic, the Group would find its concession period extended and if there is more than expected traffic, the concession period would decrease. The objective is to prevent losses, and also excessive gains, for the concessionaire.

So for every 2 per cent shortfall in actual average traffic over 20 years, the concession period would be increased by one year subject to a maximum of 10 years. Similarly, for every 2 per cent excess, six months will be reduced from the concession period, subject to a maximum of three years. However, this reduction will be waived if the AVPPL pays a surcharge, 10 per cent of its prospective earnings from the period that would be shortened.

This favours Adani. If there is a fall of say 20 per cent, he would get the concession period extended by another 10 years with the resultant earnings from the port. If the traffic exceeds, his concession period would be reduced by a maximum of three years but he could still pay a premium and get his original period restored. This surcharge will be nothing compared to the earnings Adani could pocket during the period.

The Department of Economic Affairs (DEA) wanted the 2 per cent traffic meter widened to 10 per cent. But Kerala insisted that it would lead to the bidder infusing a higher risk factor in its bid.

Farewell gift for Adani
The agreement with Adani has a termination clause unheard of in the case of other big infrastructure PPP (public-private partnership) projects such as the Hyderabad Metro project or Jawaharlal Nehru Port Trust (JNPT) fourth terminal.

As per the agreement, the government has to pay Adani a termination payment at the end of the concession period. This is calculated as the realisable fee collected by the company in the last month of the concession period multiplied by 30. (30 refers to the usual concession period of 30 years for big infra projects. In this case, the concession period is 40 years.)

According to the feasibility report done by Ernst&Young (E&Y), consultants appointed by Kerala government's Vizhinjam International

Seaport Ltd (VISL), the termination fee Kerala has to pay Adani at the end of 40 years is approximately Rs 19,555 crore. (The projected realisable fee at the last month of the 40th year is Rs 652 crore. This multiplied by 30 is the termination fee.)

The government says such a provision exists for greenfield and brownfield airports even if not for big infra projects.

Kerala's fate
In 40 years, the E&Y projects Kerala's earnings from the port to be Rs 13,947 crore. Now to pay Adani Rs 19,555 crore at the end of 40 years, the the state government will have to mobilise an additional Rs 5,608 crore.

While the AVPPL invests Rs 2,454 crore or 33 per cent of the total cost of Rs 7,525 crore, Kerala would end up carrying 67 per cent of the project burden (Rs 5,071 crore).

The E&Y study says the project will turn profitable by the 11th year. So after 40 years when Adani walks away with all the profits it could amass and also the huge termination benefit, Kerala will find itself scampering to borrow funds to pack off Adani.