Concession norms for Vizhinjam port project favour Adani more than state: CAG

By fixing 40 years as the concession period instead of the standard 30, the Adani Group will take home an additional revenue of Rs 29,217 crore. 

Published: 24th May 2017 01:26 AM  |   Last Updated: 24th May 2017 08:27 AM   |  A+A-

By Express News Service

THIRUVANANTHAPURAM: The fate of the Rs 7,525 crore Vizhinjam international seaport project hangs in the balance with the Comptroller and Auditor General of India (CAG) concluding the concession agreement’s conditions do not favour the state. Instead, it allows ‘undue benefit to the private partner’ - the Adani Group. 

The CAG’s findings are listed in the report on the Public Sector Undertakings for the financial year ending on March 31, 2016 tabled in the Assembly on Tuesday. By fixing 40 years as the concession period instead of the standard 30, the Adani Group will take home an additional revenue of J29,217 crore. Again, by providing a clause whereby the concession can be extended by another 20 years, Adani will benefit by J61,095 crore, the CAG said. 


It was the previous Oommen Chandy-led UDF Government which inked the concession agreement with Adani Vizhinjam Ports Pvt Ltd on August 17, 2015, overriding the objections of the LDF-led Opposition.

The CAG has also pulled up the state government for fixing 15 years from the Commercial Operations Date as the point from which revenue would be shared. By doing so, the state has foregone revenue to the tune of J2,153 crore, allowing undue benefit to the private partner, it said.

“‘We observed as per the projected cash flow statements prepared by the consultants engaged by VISL (Vizhinjam International Seaport Ltd), the concessionaire would recoup their investment of J2,454 crore by the eleventh year from COD, which is by 2030,” said the report.

The CAG has even found problems with the terminology in the concession agreement which can result in undue extension of the deal. For instance, the pact mentions the commissioning of a competing port within 100 km of Vizhinjam by a ‘government instrumentality’.  


The agreement has a clause allowing the concessionaire an entitlement to additional concession period equal to three times the duration between the commissioning of the competing port and the 15th anniversary of the appointed date (December 5, 2015, when work started on the Vizhinjam project).

The proposed Colachel port is just 51 km away and the term ‘government instrumentality’ also includes the Government of India. “Thus, there is a risk the clause will be invoked if the proposed port in Colachel comes up causing additional prolongation of the concession period,” said the CAG.

A failed argument
The government’s justification the concession period was fixed as 40 years because the initiative was a major greenfield project involving high risks has failed to convince the CAG. Though the proposed port at Colachel, Tamil Nadu, is a similar project, its concession period is 30 years, said the report. 
 

WHAT THE CAG SAYS


The technical and financial estimates prepared by external consultants were not scrutinised with due diligence resulting in inflation of cost estimates. The interests of the Government of Kerala were not protected adequately while drawing up the concession agreement.


Cost estimates prepared by external consultants for PPP projects should be subjected to scrutiny by qualified and responsible government officers/departments before approving the same.


Exercise due diligence to protect the interests of the government drawing up agreements in respect of PPP projects.


Since the government bears 67 pc of the total investment, the revenue sharing with the concessionaire should have commenced from the date on which the private partner recoups its investment, which is from 2031

CAG report: Sudheeran seeks probe
Former KPCC president V M Sudheeran has said the CAG report on Vizhinjam project was a serious matter.

“The report stating the clauses of the Vizhinjam project, on which the state has pinned much hopes, are detrimental to its interests and very serious. It will be appropriate to conduct a comprehensive probe into it,” Sudheeran said in a Facebook post.

‘Check possibility of vested interests in Seaport deal’ 
CPM state secretary Kodiyeri Balakrishnan on Tuesday said the government should check whether there were vested interests in striking the Vizhinjam Seaport deal with the Adani Group.  

Reacting to the CAG report, he said the issues raised by the LDF at the time of signing the agreement turned out to be true with the CAG’s findings.  “The government should take appropriate action on the issue. The Left Front had opposed the agreement with the Adani group for the project,” he said.
 

Fire and Rescue Services a damp squib
THE absence of periodical inspections of  buildings, shortage of manpower and equipment, and lack of adequate legal back-up have crippled the ability of the Fire and Rescue Services to effectively prevent and combat fire, the Comptroller and Auditor General of India (CAG) has found. The CAG was sharply critical of the department in the report on general and social sectors for the year ended March 31, 2016.

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