Kerala CM accuses Centre of vindictive attitude on Vizhinjam sea port VGF

Coming out strongly against the Union Government's stance that the Viability Gap Fund (VGF) for the Vizhinjam Seaport project should be repaid in installments, Chief Minister Pinarayi Vijayan on Monday accused the Centre of maintaining a vindictive attitude towards the state.

Addressing the media here, the Chief Minister said that, in a letter responding to the state's request to reconsider the decision on the VGF, Union Finance Minister Nirmala Sitharaman had reiterated the Central Government's stance that the allocation for Vizhinjam should be treated as a loan, not a grant.

The Chief Minister criticised the decision, calling it a deviation from the Central Government's long standing policy on VGF grants.

Even when VGF was allocated for the Kochi Metro, there was no stipulation for repayment, and the new criteria set exclusively for Kerala contradict the standard guidelines of the VGF, he alleged.

The central government has never imposed a repayment condition on any project that has received viability gap funds until now.

"As per the established criteria, VGF is provided as a one-time grant and should not be treated as a loan," he added.

Even with a moderate estimate, the Government of India is expected to earn an additional Rs 6,000 crore annually from the Vizhinjam Port.

"Despite this, the Centre is attempting to impose an additional financial burden on the state," Vijayan said, adding that with the Centre's new stance on VGF repayment, Kerala is now in a position to independently raise such a large amount.

The VGF is contributed by both the state and union governments. The union government's share amounts to Rs 817.80 crore while the state's share is Rs 817.20 crore.

The state government will directly pay its share to the Adani Port Company. Once Vizhinjam International Port Company begins earning dividends, the state is required to pay 20 percent of that amount to the Central Government.

"This implies that if the current payment is Rs 817.80 crore, considering interest rate changes and the port's income during the repayment period, the amount to be repaid could escalate to approximately Rs 10,000 crore to Rs 12,000 crore," the Chief Minister said.

CM stated that Kerala wants to receive a larger share of the profit due to its substantial financial contributions. Kerala is also contributing a VGF grant for the Vizhinjam project.

Additionally, the state government is investing Rs 4,777.14 crore in the construction of Vizhinjam Port and its related infrastructure, he said. This includes Rs 1,726.34 crore for breakwater and harbour construction, Rs 1,115.73 crore for land acquisition, Rs 76.77 crore for electricity and water infrastructure, Rs 123.6 crore for social welfare, Rs 135 crore for consultancy and project administration, Rs 278.8 crore for interest during the construction phase, and Rs 1,213.66 crore for rail connectivity, he stated.

The central government views the amount it has provided as a loan to the state government, with the responsibility for repayment, including interest, falling on the state. This contradicts the fundamental purpose of viability gap funding, he alleged.

For example, when 1,411 crore was granted as VGF for the Outer Harbour Project of Tuticorin Port, no similar conditions were imposed. Kerala's request is for Vizhinjam to receive the same treatment as Tuticorin Port. However, the Centre now argues that the two ports are not comparable, Pinarayi said.

The agreement for providing the VGF is made between the central government, the Adani company, and the bank funding the amount. However, the unusual condition is that the repayment agreement should be between the state government and the central government.

Earlier, Vijayan had urged Union Finance Minister Nirmala Sitharaman to release the Centre's share of Rs 817.80 crore in the Viability Gap Funding (VGF) for the Vizhinjam seaport in Thiruvananthapuram without imposing the condition that the state has to repay it later.

Vijayan, in the letter to the FM, said the condition imposed by the Empowered Committee constituted by the Department of Economic Affairs, that the VGF amount should be repaid by Kerala in Net Present Value (NPV) terms by way of premium (revenue) sharing, would result in a huge loss of Rs 10,000 to 12,000 crore to the state exchequer.

Even before the commencement of commercial operations, 70 ships have already arrived and departed from Vizhinjam. So far, the Central Government has received over Rs 182 crore as GST revenue from various categories. The new approach by the Centre comes despite the fact that the VGF funds disbursed by the Central Government will be received as GST revenue within a year of the start of commercial operations, CM said.