Thiruvananthapuram: Chief Minister Pinarayi Vijayan wrote to Prime Minister Narendra Modi on Saturday, urging him to reconsider the Centre’s decision to require the state to repay the Viability Gap Fund (VGF) for the Vizhinjam Seaport project in instalments. He also requested that the fund be provided without any condition for repayment by the state.

In his open letter, the Chief Minister claimed that the Vizhinjam International Seaport project would be the only case in the country where the Government of India has demanded repayment of the VGF assistance. The project is designed to avail VGF under the Scheme for Financial Support to Public-Private Partnerships (PPP) in infrastructure, overseen by the Department of Economic Affairs (DEA), Ministry of Finance. The Ministry has approved an amount of Rs 817.80 crore as VGF for the project. However, for the VGF to be disbursed, the Union Ministry of Finance imposed the condition that the assistance should be repaid by the Kerala government in Net Present Value (NPV) terms through premium (revenue) sharing.

The letter stated, “Needless to say, if the Centre insists upon the payback, the assistance provided would not be a capital grant but would be a loan. This clearly contradicts the very intent of the scheme.” It further mentioned that despite the state government’s repeated requests to the Union Ministry of Finance at various levels to revoke this condition and release the VGF unconditionally, these appeals had not been favourably considered.

The chief minister pointed out that, because the Rs 817.80 crore provided by the central government is to be repaid on an NPV basis, it would result in an actual repayment of Rs 10,000 to 12,000 crore from the state exchequer, based on projected interest rates and expected revenue from the port, PTI reported. The VGF scheme, introduced in India to encourage PPPs in infrastructure projects, aims to support projects that are economically justified but financially unviable without additional assistance.

According to the CM, the three primary objectives of the VGF are to encourage private sector participation in infrastructure, promote infrastructure development, and reduce the burden on government resources. He emphasised that, as per the scheme’s guidelines, VGF is intended to be provided as a grant, not a loan, and nowhere in the guidelines issued by the DEA is repayment of the grant to the concessionaire envisaged.

In addition to the VGF of Rs 817.80 crore provided by the Union government, the Kerala government has also provided an equal amount as VGF to the concessionaire. Furthermore, the state is investing Rs 4,777.80 crore in the project. The chief minister urged that the substantial investment made by the state in a project of national importance, despite its limited financial resources, should be given due consideration.

The rationale for the premium-sharing arrangement, which starts from the 15th year of port operations, is not to recover the Rs 817.20 crore provided by the state as VGF. Instead, it is intended to generate some inflows for the state, considering its significant investment of Rs 4,777.80 crore and the fact that revenues from the first 15 years of port operations are foregone by the state.

Given the major investment made by the state (Rs 5,554 crore) and the returns it will generate, including savings on foreign exchange for the nation, the Chief Minister argued that it is only fair for the decision requiring repayment of Rs 817.80 crore in NPV terms to be withdrawn at the earliest.

The chief minister also cited the example of the Tuticorin Port, where the DEA granted in-principle approval for VGF in November 2023 for the Outer Harbour project, which is structured similarly to the Vizhinjam Seaport project. Unlike Vizhinjam, no repayment condition was imposed on the Tuticorin project, despite a revenue-sharing provision with the concessionaire. He suggested that the Vizhinjam project should be treated similarly, given its significant contributions to the national economy, including additional revenue for the Union government.

Earlier, the CM had accused the Centre of maintaining a vindictive stance towards the state. He pointed out that when VGF was allocated for the Kochi Metro, there was no stipulation for repayment, and the new criteria set exclusively for Kerala contradicted the standard guidelines of the VGF.