Viability gap fund for Vizhinjam International Seaport: Centre's share a repayable loan?

In a letter to Finance Minister Nirmala Sitharaman, Chief Minister Pinarayi Vijayan urges her to release the fund without imposing any conditions

24-Kerala-Chief-Minister-Pinarayi-Vijayan Kerala Chief Minister Pinarayi Vijayan | Sanjay Ahlawat

Kerala Chief Minister Pinarayi Vijayan has written to Finance Minister Nirmala Sitharaman, requesting her intervention to release the Union government's share in the viability gap fund (VGF) for the ambitious Vizhinjam International Seaport. He asked that this be done without imposing the condition that the state must later repay the amount.

The Vizhinjam Port was the first port project in the country to receive approval for viability gap funding under the Scheme for Financial Support to Public-Private Partnerships in Infrastructure.

The Department of Economic Affairs' Empowered Committee (which is under the Ministry of Finance) had recommended final approval for the project in its 41st meeting, endorsing a sum of Rs 817.80 crore under the scheme.

In the letter, Vijayan noted that for the release of the VGF, the Empowered Committee has, however, imposed a condition: the VGF disbursed by the Centre for the project must be repaid by the state government in Net Present Value (NPV) terms through premium (revenue) sharing.

The Vizhinjam International Seaport, intended as a deep-water container transshipment hub, is now in its final commissioning stages. The state government raised concerns that any confusion about the nature of the funds provided at this critical juncture could hinder progress.

"Viability gap funding is invariably provided as a grant, not a loan. Thus, the defining elements of any VGF is that the payment to the concessionaire is non-repayable, it is a one-time grant and that it is over the construction period of the project," the CM noted in his letter.

"In this case, Government of India and Government of Kerala, as the two project proponents, have jointly decided to give this grant to the Concessionaire. But to further stipulate the condition that one of the project proponents, viz.- the Government of India, will advance this money as a deferred 'loan' to the other project proponent viz.- the State Government, defies the rationale behind the VGF itself."

The Kerala government is spending Rs5,595 crore out of the total project outlay of Rs 8867 crore, and the CM raised the plea noting that Kerala has only limited financial resources and that the state has already made tremendous sacrifices for the project.

The state government also raised the argument that as the repayment of Rs 817.80 crore is expected to be made on NPV basis, this would involve a further loss of Rs 10,000 to Rs 12,000 crore to the state exchequer in actual terms.

The CM also noted that last year, approval was granted for the outer harbor project of VOC Tuticorin Port—a project similar to the Vizhinjam International Seaport project, but no condition of repayment of VGF was imposed. 

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