This Article is From Jul 13, 2015

A Kerala Port with Adani. Why That's a Good Thing.

Vizhinjam is a somewhat sleepy fishing village at the southern periphery of Kerala's capital, Thiruvananthapuram. It is a picturesque place, with an attractive lighthouse, acres of beachfront and a small harbour crowded with fishing vessels.

That is today. But tomorrow it could be the deepest seaport in India and a trans-shipment hub for all of southern India, if not the whole country and the wider Indian Ocean Rim region.

One problem: the Vizhinjam Port bid has been won by Adani Ports, whose owner has been reviled by many as a beneficiary of "crony capitalist" practices by the present ruling party in Delhi. Many well-meaning liberals, including in Congress-ruled Kerala, are appalled at the prospect.

Let's look at what's at stake here. Ships carry 90% of the world's goods across the seas; for decades, they have not been the preferred mode of passenger movement, but when we speak of international trade, we speak of shipping. Mainline container vessels or "mother ships" carry goods to major, deep-water ports, from where they are transferred to smaller "feeder vessels" that take them to smaller, shallower ports, in a process known as trans-shipment. This enables goods to be transported at the lowest cost to and from relatively shallow ports, which include most of India's existing so-called major ports like Mumbai and Visakhapatanam.

Despite India having enjoyed steady economic growth over the last fifteen years, the vast majority of India's container traffic is either being trans-shipped at ports outside the country, mainly at Colombo (Sri Lanka), Singapore, Port Klang and Tanjung Pelapas (Malaysia), Salalah (Oman), and Jebel Ali (Dubai), or delivered by smaller, less efficient ships directly to relatively shallow Indian ports. This is because India currently has no major all-weather, deep-water port near the international sea routes to handle large mainline container vessels. 

As a result Colombo trans-ships more Indian goods than all of India's own ports. There is a serious geopolitical angle to being dependent on Colombo for transshipment, since its latest and biggest terminal is now operated by a Chinese firm. India prohibits Chinese firms from investing in or building its ports, but in effect condones the transshipment of the lion's share of our cargo via a Chinese-operated port where Chinese Navy submarines regularly call for resupply. 

Most of the major ships carrying cargo between East Asia and Africa, and between Europe and East Asia, pass directly through or go very near Indian territorial waters. Currently, a significant number of these ships break their bulk at Colombo, Singapore or Dubai, with the majority of the cargo meant for India or the rest of South Asia. 

It doesn't have to be this way. Vizhinjam is uniquely located close to the shipping routes between Asia and Europe. The key Suez-Malacca shipping lane runs very close to Vizhinjam, some ten nautical miles away, much closer than to any other Indian port. With changing technology, bigger vessels -- such as the 19,224 TEU MSC Oscar, the 19,100 TEU CSCL Globe or the 18,000 TEU Maersk Triple-E class -- are becoming popular because of their economies of scale and the consequent reduction in shipping costs. ("Triple E" refers to "Economies of scale", "Energy efficient" and "environmentally improved"; the TEU figure correlates to the number of twenty-foot containers that can be carried by the vessel).

Ships of over 18,000 TEUs are the future of sea cargo because they involve lower costs per container shipped. But bigger ships require deeper ports. Typically a vessel greater than 10,000 TEUs in size requires water depth greater than 14 metres to operate safely in. This has to be artificially created through costly dredging in most transshipment hubs across the globe, whereas Vizhinjam has a natural un-dredged draft of up to 24 meters, perfect for all mother vessels. Ships of up to 20,000 TEU or more can easily berth there from day one.

A few years ago, Kerala tried to break into the trans-shipment market with Vallarpadam terminal in Kochi, which unfortunately has struggled to maintain even 10 meters of depth through daily dredging. It has also struggled with legacy unionization and tariff related constraints on account of it being part of a Government of India-controlled Major Port. Since 21st century ports require longer terminals, deeper drafts and bigger "turning basins" than Vallarpadam can provide, the project has not even been able to attract significant direct cargo, far less any transshipment traffic. It's typical of Kerala's politics that with Vizhinjam available, decision-makers developed Vallarpadam first.

However everything that's wrong with Vallarpadam can and should be remedied at Vizhinjam. It is the deepest natural port in India, with an operating draft of 21-24 metres and minimal littoral drift, which means no maintenance dredging would be required and O&M [operating and maintenance] costs would be minimized. It is as close to the key shipping lanes as Colombo is, and being a greenfield port, has no legacy unionization issues. In fact its strategic location on the tip of the peninsula provides not just proximity to the international shipping lanes but also equidistance from both West and East Coast Indian ports. Since Vizhinjam would be built from scratch, it has the ability to deploy "best in class" equipment without being burdened by legacy facilities. It can be highly mechanized and have world-class efficiency (given the right operator). Vizhinjam could handle the largest ships in the world as efficiently as Singapore, Hong Kong or Rotterdam for decades to come.

India suffers from high logistics costs because of the lack of direct calls by main shipping lines and the lack of a domestic transshipment port capable of handling such giants. We have a 7516.6 kilometre coastline and nearly 200 ports, but most - even our 13 so-called "Major Ports" -- have depth of between nine to eleven metres. As a result we cannot dock or service any of the bigger ships now plying international waters; they offload our goods in foreign ports. In effect, our economy is helping to pay for ports like Colombo, Salalah and Tanjung Pelapas, while our exports remain relatively uncompetitive and our imports become more expensive. The Indian economy will remain less competitive compared to those of China, Singapore or Malaysia till we have a domestic deep-water transshipment terminal. Vizhinjam is the most pragmatic and immediate answer.

The Vizhinjam project has already received the necessary environmental and Coastal Zone Regulation clearance. It has attracted Viability Gap Funding of Rs 800 crores from the Central Government. The State government has already acquired 90% of the land required for the project and begun work on road and rail connectivity. Electrical and water supply lines are being established. The project, with a capital cost of Rs 6647 crore, has been structured as a Public-Private partnership with the State Government as landlord, on a "Design, Build, Finance, Operate and Transfer" basis.

Despite having these advantages, for various reasons, we failed to secure a viable bid to build and operate the port in the last 25 years. The current winning bid, in the fourth bid process over the last decade or so, is the last chance for Vizhinjam.

With each passing year, escalation in project costs, the development of rival ports and competition from existing international ports like Colombo and Hambantota poses serious challenges to the project's viability. So we should all understand that this is a now or never situation. 

Which brings us back to Adani Ports. Should the Vizhinjam project be deferred rather than give it to Narendra Modi's favourite capitalist? As Deng Xiao Ping had memorably said, "I don't care if the cat is black or white, so long as it catches mice." Adani Ports is India's leading private sector port developer and operator, and operates India's most sophisticated and fastest growing container port that may soon unseat Mumbai's Jawaharlal Nehru Port Trust as India's top container port. Adani Ports won the tender process for Vizhinjam fair and square. Other considerations are frankly beside the point.

If Vizhinjam's only credible bidder is denied this opportunity, Adani Ports will simply move down the coast to where a red carpet awaits them, in Tamil Nadu's fledgling port of Colachel, represented by a BJP MP. This would neither be in Kerala's interest nor in that of the nation, since Vizhinjam is both deeper and better situated than its rival, but capital will flow where it is most welcome and where it feels most secure. 

A golden opportunity beckons. From the Vizhinjam lighthouse, the horizon glows at sunrise. If the port is built, the prospects are as stunning as the view. It is time we put development ahead of politics and embraced the bid in order to develop the project without any further delay, in the best interests of the people of Trivandrum -- and of India as a whole.

(Dr Shashi Tharoor is a two-time MP from Thiruvananthapuram, the Chairman of the Parliamentary Standing Committee on External Affairs, the former Union Minister of State for External Affairs and Human Resource Development and the former UN Under-Secretary-General. He has written 15 books, including, most recently, India Shastra: Reflections On the Nation in Our Time.)

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