How will Gautam Adani’s flagship company Adani Ports and Private Limited get undue benefits from the Vizhinjam Internation Seaport Project in Kerala, though the Kerala government will bear 67% of the total investment required for the project? This is what is explained by the CAG report that has probed the deal and which was tabled in the Kerala assembly on May 23. According to CAG, at the end of 40 years from the commencement of the project, Adani Group will walk away with a cool Rs 29,217 crore as additional revenue.
And this is why the CAG concludes that the conditions in the agreement with the Adani Ports and Private Limited for implementing the Rs 7,525 crore Vizhinjam International Deep-water Multipurpose Seaport project were not favorable to the state.
The concession agreement for the project with the Adani group was signed in August 2015 when the Congress led United Democratic Front government was in power. Oommen Chandy was the then Chief Minister. Adani Group was the lone bidder for the PPP model project, the cost of which was Rs 7,525 crore. CPI (M) veteran and former Chief Minister VS Achuthanandan on Monday had demanded the government to issue a White Paper on the port, alleging corruption in the deal.
Details
For PPP (public-private participation) projects, the standard concession period is 30 years.According to the government, the most common form of PPP (public-private participation) projects used is where the private sector operator designs, builds, finances, owns and constructs the facility and operates it commercially for the concession period. After the concession period, the facility is transferred to the authority or the public sector.
For PPP projects, the standard concession period is 30 years.
But in this case, it has been fixed as 40 years, going clearly against recommendation. This extra 10 years will allow the Adani group to get the additional revenues. “In the report on Vizhinjam project by the International Finance Corporation (IFC), the concession period was recommended as 30 years. The concession period was specified as 30 years in all the three tenders issued for Vizhinjam project prior to the 2013 tender. In the current agreement, however, the concession period was fixed as 40 years,” the CAG report said.
And this was done by the previous UDF government and is being carried forward by the LDF too. Obviously Adani enjoys favours across party lines!
The government had originally envisaged an extension period of ten years, and if it was retained, an additional revenue of Rs 61,095 crore (present value-Rs 353 crore) would have accrued to the state.
There’s more.
The CAG report says that in the Concession Agreement, the Concessionaire (Adani Group) was given right to mortgage all assets (except funded works) on the ground that “it would provide an additional layer of security to Lenders”.
Though the rules laid down by the Ministry of Corporate Affairs says that project assets were excluded from the assets and rights which could be mortgaged or pledged to lenders as security for debt incurred by the Concessionaire.
In spite of this a modification was made post award of concession and that too contrary to advice.
End result? The Concessionaire (Adani Group) has the right to mortgage assets which includes land taken over by the government at a total cost of Rs 548 crore.
The CAG report also says that a last-minute modification made in the contract on the equity support payable to Adani Group will make Government of Kerala pay excess equity support of Rs 283.08 crore in advance, resulting in interest loss of Rs 123.71 crore.
Also, as per the projected cash flow statements prepared by the consultants engaged by Vizhinjam International Seaport Limited, Adani group will recoup their investment of Rs 2,454 crore by the eleventh year from Commercial Operation Date, that is by 2030. Since the government bears 67% of the total investment required for the project, the revenue sharing with the Adani group should have commenced from the date on which the private partner recovers its investment i.e. from 2031. By postponing the commencement of revenue sharing, the government has forgone revenue of Rs 2,153 crore. This also allows undue benefit to the Adani Group.
Reacting to the CAG report, Oommen Chandy said, “Allowing extra concession period was not a unilateral decision, but done as per the model concession agreement of the Planning Commission of India. No change was made after the final agreement of the port. Also, the finding that the cost of Colachel port is less than that of Vizhinjam Port is wrong,” Oommen Chandy said in a press conference in Thiruvananthapuram on Wednesday. “I owe full responsibility of the agreement of Vizhinjam port. No official will be made scapegoat in this,” he said.
“Three groups bought the tender form for the port. But the government received the tender only from the Adani group. The tender works of the port were transparent” he said. Chandy also said that he is agreeing with the Chief Minister’s statement that the CAG’s criticism on the agreement should be examined. “The examination should be conducted soon,” the former Chief Minister said.