After the Centre rejected the Kerala government's plea to reconsider its decision requiring the state to repay the Viability Gap Fund (VGF) for the Vizhinjam Seaport project in instalments, Chief Minister Pinarayi Vijayan on Saturday wrote to Prime Minister Narendra Modi, saying the fund be given without insistence on repayment by the state.

In his open letter, the CM alleged that the Vizhinjam International Seaport project would be the only case in the country where the Government of India has demanded repayment of the Viability Gap Funding (VGF) assistance provided.

The Vizhinjam Seaport project is structured to avail Viability Gap Funding (VGF) under the Scheme for Financial Support to Public Private Partnerships (PPP) in infrastructure by the Department of Economic Affairs (DEA), Union Ministry of Finance. The Ministry has approved an amount of Rs. 817.80 crore as VGF for the project.

However, for availing of the VGF, the Union Ministry of Finance imposed the condition that the VGF assistance disbursed by the Government of India should be repaid by the Kerala government in Net Present Value (NPV) terms by way of premium (revenue) sharing.

"Needless to say, if the payback is insisted by the union government, the assistance provided would not be a capital grant but would be a loan. This clearly is contrary to the very intent of the scheme," the letter said.

"Though the state government has repeatedly requested the Union Ministry of Finance at various levels to revoke the above condition and release the VGF recommended to the state unconditionally, the request of the state has not been considered favourably," the letter added.

As the Rs 817.80 crore provided by central government is to be repaid on Net Present Value (NPV) basis, this would result in the repayment of Rs 10,000 to 12,000 crore from the state exchequer in actual terms, computed on projected interest rates and revenue realisation from the port over the period of repayment, CM stated.

The VGF scheme, as a financial support mechanism, was introduced in India to encourage Public-Private Partnerships (PPPs) in infrastructure projects that are economically justified but not financially viable without additional financial support.

According to the CM, the three primary objectives of VGF are firstly, to encourage private sector participation in infrastructure projects, secondly to promote infrastructure development, and thirdly to reduce the burden on government resources.

As per the guidelines of the VGF scheme, the VGF is invariably provided as a grant and not a loan. Nowhere in the guidelines issued by the DEA, repayment of the grant provided to the concessionaire is envisaged, CM pointed out.

To facilitate the commercial viability of the Vizhinjam International Seaport project, apart from the VGF amount of Rs. 817.80 crore agreed to be provided by the union government, an equal amount is also provided by the state government as VGF to the concessionaire.

“Apart from the above, the Kerala government is also investing Rs 4,777.80 crore in the project. The efforts taken by the state government in investing substantial amounts in a project of national importance, despite its limited financial resources, should be given due consideration,” CM urged.

The rationale of premium sharing by the concessionaire (from the 15th year of port operations) mentioned in the concession agreement is not to recover the Rs. 817.20 crore provided by the state government as VGF, but instead to ensure some inflows to the state government, considering its huge investment of Rs. 4,777.80 crore and that revenues arising from the first 15 years of port operation are foregone by the state, CM said.

“Considering the major investment made by the state (Rs 5,554 crore) and the returns accruing (including savings on foreign exchange) to the nation as a whole, it is only just and fair that the decision requiring repayment of Rs. 817.80 crore provided by union government as VGF in NPV terms is withdrawn at the earliest,” he urged.

Citing the example of the Tuticorin Port, the CM pointed out that for the Outer Harbour project of VOC Tuticorin Port, which is structured similarly to the Vizhinjam International Seaport project, the DEA granted in-principle approval for VGF in November 2023.

However, unlike the Vizhinjam project, no condition for repayment of the VGF was imposed on the Tuticorin project, despite the presence of a revenue-sharing provision with the concessionaire.

“The Vizhinjam International Seaport project also deserves similar treatment, considering its substantial contributions to the national economy, including significant additional revenue for the union government,” CM said.

Earlier, responding on the matter, the Chief Minister had accused the Centre of continuing with its vindictive stance towards the state.

Even when VGF was allocated for the Kochi Metro, there was no stipulation for repayment and the new criteria set exclusively for Kerala contradict the standard guidelines of the VGF, he had alleged.

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