India's first transshipment port Vizhinjam nears operational launch

The Vizhinjam port will also be the first mega port to come up since 1999 when Mundra began operations

India’s first transshipment port should be able to receive its first commercial cargo ship before September ends. Though it is a busy season for announcements in the Indian maritime sector, with the government clearing the development of Vadhavan port at a cost of Rs 76,220 crore in June this year, the opening of Vizhinjam, just south of Thiruvananthapuram in Kerala, is most significant.

It checks all the boxes to become a thriving port for nautical reasons. Those it does not are mostly in the political realm. For instance, in the second phase, the port plans to build connectivity with the Bengaluru industrial zone, which will require developing new road or rail links, mostly through Kerala—a fraught exercise. It will also be the first mega port to come up since 1999 when Mundra began operations, so Indian policymakers have little experience handling the demands of maritime projects of this scale.

Port officials at Adani Ports and Special Economic Zone, speaking on condition of anonymity, said they have already conducted trial runs to berth massive post-Panamax vessels at the dock. These mother vessels have also unloaded cargo onto what, in shipping parlance, are known as daughter ships. One of those was MSC Deila, a ship of the Mediterranean Shipping Company (MSC), which discharged around 1,550 containers in late August. 

Full-fledged operations, if they happen now, will be an improvement over the December deadline. Earlier plans for a 2023 inauguration were postponed due to ongoing agitations by the local community against land loss and the impact on fishing.

The port expects to handle business of 1 million TEU (twenty-foot equivalent units) in its first full year of operation. Colombo Port has crossed 5 million TEUs by September, achieving a cumulative growth of 9.6 per cent. A significant challenge to those numbers is that Vizhinjam is far from the India-Middle East-Economic Corridor story, located so far south. Its sister port Mundra, government-owned Deendayal, and even the upcoming Vadhavan are far better located.

A TEU is the standard measure of a container port’s capacity and translates into 24 million tonnes per annum. While in India the latter is the usual measure to compare port capacities, globally the measure most cited is TEU. The reasons have much to do with India’s sea-based trade. Until recently, India had little significant container traffic, largely confined to the state-run Jawaharlal Nehru Port Authority (JNPA) off Mumbai coast and the Adani-run Mundra port in Gujarat. Deendayal port aims to reach a capacity of 269 MTPA, Paradip 290 MTPA, and JNPA 142 MTPA.

Except for JNPA, the other 11 major ports, operated by the central government, dealt primarily with dry or bulk cargo like crude oil, fertilisers, iron ore, coal, food grains, and cement. Goods requiring containerisation were rare. As the economy has diversified, these demands have risen.

This is where Vizhinjam could find its footing. The port is a public-private partnership between the Kerala government-owned special purpose vehicle Vizhinjam International Seaport Ltd. and Adani Ports and Special Economic Zones. This is known as the landlord–PPP model, a first of its kind for India. The latter is the port operator with a 40-year lease. The location is ideal, situated just 12 nautical miles from the busy international shipping routes of the Indian Ocean, connecting Europe, the Persian Gulf, and the Far East. 

What also gives the port an advantage is the natural draft of 18m close to the shore, so the cost of dredging is minimal. As an official put it, “The port can leverage its natural depth to host even ultra-large next-gen container ships requiring 20m plus drafts.” Globally, the shipping industry is moving towards mega-size vessels with ships of 20,000 TEU and above. Even the current cape-size vessels (dry cargo carriers) require a draft of over 18m. The government-run ports, including Deendayal, Paradeep, and JNPA, have drafts of just 14 to 16 metres due to siltation.

Until recently, the government expected these ports to manage this problem from their funds. However, with a change of policy, the sea lanes around them have been declared national assets, allowing the Ministry of Ports, Shipping and Waterways to finance these works. However, its budget is limited.

Earlier attempts
 

Vizhinjam, like Vadhavan, has seen several attempts. The first was in 1995, followed by efforts in 2004-05, 2007-08, and 2010-11. The last included consultancy support from World Bank arm IFC. The delays, however, made nearby Colombo Port more attractive. VISL expects to draw away traffic from the almost saturated Sri Lanka port.

The Adani Group is also building a new terminal on the western flank of Colombo Port, but the group expects there will be enough traffic to cater to both their ports, located just 176 nautical miles from each other—less than a day’s voyage. “Several factors make a port attractive—the tariff, the waiting time, and the time taken to move the cargo. We hope to create a compelling case for the Indian port,” an Adani official said.

PPP Model
 

Vizhinjam will have sweeteners built in since the PPP model envisages the state government beginning to receive a revenue share only from the 15th year of the port’s operation, increasing by 1 per cent annually, subject to a ceiling of 40 per cent. This is also the first port project in the country to receive viability gap funding, with the centre paying Rs 817.8 crore. 

Adani Ports and SEZ did not respond to requests from Business Standard to contribute to this article.

The port operator will have the right to undertake port estate development, that is, commercial activities resulting from port-induced development, subject to a cap of 30 per cent of the site area provided for the project. The Kerala government will set the upper limit for the port’s tariff.

Most importantly, the construction risk of the project was entirely transferred from the Kerala government. For example, the construction risk of the breakwater, which was to be borne by the government under the 2011 model, was transferred to Adani Ports and SEZ. This also eliminated the interface issue of two contractors working on the same construction front. The state government cumulatively saved Rs 3,000 crore under the present model, a figure even the CAG could not dispute.

Despite political disturbances, Colombo Port will be a difficult challenge for Vizhinjam. Since the early 1990s, Colombo has perfected the transshipment business, where ships unload their cargo at Colombo for onward transport to Indian, Bangladeshi, and Pakistani ports. There has been no alternative, except for a mid-sea transfer of goods nearer to an Indian port. Also, cargo from Bangladesh would not come to Vizhinjam, as it is on the western side of the Indian coast.

This week, a 24,000 TEU vessel Ever Arm, sailing under the Taiwan flag, berthed at Colombo. The Sri Lanka Port Authority was justifiably pleased, as the vessel is a giant compared to the 10,000 TEU of post-Panamax container vessels. Plans to make tariffs more competitive have begun as competition intensifies in the Indian-Sri Lankan waters to capture a rising share of the seaborne trade volumes.