Centre insists Kerala must repay Rs 817 cr for Vizhinjam project, rejects request to not treat VGF as loan
By Deepu Mohan | First Published Dec 3, 2024, 10:45 AM ISTThe Union government has rejected Kerala's argument that repaying the Viability Gap Funding (VGF) for the Vizhinjam port project would create a significant financial burden.
Thiruvananthapuram: The Union government has firmly upheld its position that Kerala must repay the financial assistance provided for the Vizhinjam port project. The Union Ministry of Finance recently sent a letter to the Chief Minister's office, rejecting the state’s request to not treat the Viability Gap Funding (VGF) as a long-term loan. The Ministry dismissed the state's argument that repaying the VGF would place a heavy financial burden on Kerala.
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VGF is a central assistance scheme designed to support financially unviable projects, with the goal of attracting private investment in infrastructure development. For the Vizhinjam International Seaport project, the central government is expected to allocate Rs 817.80 crore as VGF. However, the government demands that Kerala repay this amount, based on the future profitability of the port once it becomes operational.
The Kerala government has expressed strong dissatisfaction, arguing that the repayment obligation is unfair, especially since other ports, such as Thoothukudi, have received similar funding without repayment conditions. The state contends that repaying Rs 817 crore with interest would total approximately Rs 12,000 crore—a substantial burden for a project that will only generate revenue after several years. The Chief Minister directly communicated these concerns to the central government.
In response, the Union Ministry of Finance categorically rejected the state's request, affirming that the assistance provided under VGF must be treated as a loan and repaid accordingly.
The Union government’s stance on the Vizhinjam port project comes amidst protests in Kerala, accusing the Centre of a financial blockade by withholding rightful benefits. Of the total Rs 8,867 crore project cost, the state government is responsible for Rs 5,595 crore. Kerala claims to have already spent Rs 2,159 crore, while the Centre has not contributed any funds. The central government justifies the repayment clause by citing that this is the first time VGF is being granted for a public-private partnership (PPP) port project. The agreement between Adani Ports and the Kerala government includes a revenue-sharing arrangement after 15 years. This insistence on repayment and revenue-sharing, despite Kerala’s 20% investment, is expected to spark significant debate in the coming days.
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