Adani’s Vizhinjam port still mired in controversy after inquiry into CAG report

22 October 2018
Construction of Adani's Vizhinjam International Seaport, proposed to be set up along the southwest coast of Kerala near the state capital Thiruvananthapuram, is currently running behind schedule and will miss the Phase 1 deadline of December 2019.
S Gopakumar/The Hindu
Construction of Adani's Vizhinjam International Seaport, proposed to be set up along the southwest coast of Kerala near the state capital Thiruvananthapuram, is currently running behind schedule and will miss the Phase 1 deadline of December 2019.
S Gopakumar/The Hindu

In August 2015, the Kerala government and Adani Group signed an agreement for the Vizhinjam International Deepwater Seaport Project close to the state’s capital. The agreement soon ran into controversy after the Comptroller and Auditor General released a highly critical report, in May 2017, questioning the project’s financials and the manner in which it was awarded. Two months later, the state government constituted a three-member commission to find out “the persons responsible for taking decisions against the interest of the state ... as reported by the CAG.” For almost a year, the commission heard submissions, counter-submissions and received affidavits from environmentalists, government officials and Adani’s representatives, in relation to the CAG’s findings. However, in an unusual move, just before its final hearing, the commission’s mandate was inexplicably changed. The commission was now asked to explore whether the CAG report in itself had any merit.

The CAG report claimed that the terms of the agreement between the state government and Adani resulted in undue gain to the private partner at the state’s expense. The three-member commission, headed by a retired Kerala High Court judge CN Ramachandran Nair, was initially constituted to assign responsibility and suggest legal action against the guilty and procedures to make good the loss sustained by the state. On 18 July this year, one week before its final hearing, the commission’s terms of reference, or ToR, were modified. The changed ToR was not made public even after the hearing concluded, depriving interested members of the public an opportunity to raise their concerns about the project. The commission is slated to submit its report in January 2019.

In its May report last year, the CAG had raised serious questions about the circumstances that led to the Adani Group emerging as the lone bidder for the Rs 7,525-crore project. According to the CAG, Vizhinjam International Seaport Limited, or VISL, a company fully-owned by the Kerala government, changed the entire structure of the project arbitrarily, in the middle of the bidding process. The state government had justified this claiming that it adopted the Planning Commission’s Model Concession Agreement, or MCA, to make the project attractive to private bidders. The MCA is the central government’s template for private-public partnerships, or PPP, in port projects. However, during the course of the judicial inquiry, James Mathew, former IT Consultant to the state government, provided a detailed statement to the commission questioning the legitimacy and adoption of the MCA. Additionally, the CAG also observed that the final Concession Agreement did not comply with the MCA in entirety. The CAG’s report states that the state government “was mixing and matching clauses as per convenience, all of which resulted in providing additional benefits to the concessionaire”—the Adani Group.

According to the report, aspects of the Concession Agreement, such as extension of concession period and commercial real estate development, accrued massive benefits to Adani at the state’s expense. The excess benefit to the Adani Group from the extension of the concession period alone was estimated to the tune of Rs 29,000 crore, even as there was no commensurate advantage to the state. Despite the Kerala government funding 67 percent of the project, the CAG noted that “the interests of state government were not protected adequately while drawing up the concession agreement.” It concluded that the “technical and financial estimates prepared by the external consultants were not scrutinised with due diligence resulting in inflation of cost estimates,” and heavy subsidies were written into the agreement favouring Adani, all at the cost of public exchequer.

Nileena MS is a reporting fellow with The Caravan. 

Keywords: Gajendra Haldea Kerala Thiruvananthapuram Adani Ports Vizhinjam Vizhinjam International Deepwater Seaport Project Adani Group CAG Ernst & Young planning commission Model Concession Agreement Pinarayi Vijayan Oommen Chandy
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