Kerala CM appeals to PM Modi on VGF repayment condition for Vizhinjam port

Thiruvananthapuram: In a letter to Prime Minister Narendra Modi, Kerala Chief Minister Pinarayi Vijayan has urged the withdrawal of the Centre's decision requiring the state to repay the Viability Gap Fund (VGF) for the Vizhinjam Seaport project. This follows the Centre’s rejection of the Kerala government's appeal to reconsider the repayment terms. The Chief Minister contends that the state should receive the VGF assistance without any insistence on repayment, which he claims deviates from the standard guidelines of the scheme.

The Vizhinjam Seaport project was structured to receive VGF under the Scheme for Financial Support to Public-Private Partnerships (PPP) in infrastructure, managed by the Department of Economic Affairs (DEA), Union Ministry of Finance. The Centre had approved Rs. 817.80 crore as VGF for the project. However, the Union Ministry of Finance imposed a repayment condition for the VGF, to be paid by Kerala in the form of premium revenue sharing, computed on Net Present Value (NPV) terms.

In his letter, CM Vijayan criticized the Centre for transforming what should be a grant into a loan by imposing a repayment condition. He stated that insisting on repayment would make the VGF assistance a loan, which contradicts the intent of the VGF scheme. He also pointed out that Kerala’s repeated requests to the Ministry of Finance to waive the repayment condition have not been favorably considered.

The repayment condition would result in Kerala having to repay an amount between Rs. 10,000 and Rs. 12,000 crore, based on projected interest rates and expected revenues from the port, CM Vijayan estimated. The VGF scheme was introduced to support infrastructure projects that are economically justified but financially unviable, by encouraging private sector participation, reducing the burden on government resources, and promoting infrastructure development.

Vijayan further emphasized that according to the VGF guidelines, such assistance is typically provided as a grant, and nowhere in the guidelines does it mention repayment by the recipient. He also noted that the Kerala government had invested Rs. 4,777.80 crore in the Vizhinjam project, in addition to its share of VGF support, furthering the state's significant financial commitment to the project.

The Chief Minister urged that the state’s investment in the project, which is of national importance, be given due recognition. He explained that the revenue-sharing provision in the concession agreement was designed not to recover the VGF, but to offset the state’s huge investment and the fact that Kerala will forgo revenue from the port during its first 15 years of operation.

Vijayan also highlighted the Tuticorin Port project as an example where the Centre had granted VGF without imposing repayment conditions, despite the presence of a revenue-sharing clause. He suggested that the Vizhinjam project, similarly, deserves such treatment due to its significant contributions to the national economy and the Union government.

Earlier, CM Vijayan had accused the Centre of adopting a vindictive stance against the state, particularly in the case of VGF allocation for the Kochi Metro, which had no stipulation for repayment. He stressed that the new criteria set exclusively for Kerala were contradictory to the standard guidelines of the VGF scheme.

The CM concluded his letter by urging the Prime Minister to reconsider the decision, citing the fairness of withdrawing the repayment requirement, given Kerala’s substantial contribution to the project and its national economic benefits.

With PTI inputs