Adani’s plan to create a mega-port just north of the Indian metropolis of Chennai has generated fierce opposition from communities attempting to protect wetlands rich in fish. Now, a key aspect of the proposal has been opposed on financial grounds. A group of retired senior civil servants has written to the government warning that an extension to Adani’s lease would result in undue losses to the state treasury.
The plan of billionaire businessman Gautam Adani to extend the lease period of Kattupalli Sea Port, located along the southern coast of India in the state of Tamil Nadu, has met with opposition on the grounds that it would result in undue loss to the state treasury. This comes on top of the campaign to protect wetlands, estuaries and lagoons, including Pulicat Lake, from the impacts of the massive proposed expansion.
A group of retired Indian civil servants has written to the Tamil Nadu government urging that the Adani Group’s proposal to extend the lease period from 30 to 99 years be rejected. The contents of the letter (dated 29 August 2021) were framed on the basis of information procured from the government through India’s Right to Information (RTI) laws. The documentation acquired revealed that the Group’s subsidiary, Adani Ports & Special Economic Zone (‘Adani Ports’), is seeking a longer lease-period.
Specifically, the Adani-owned firm Marine Infrastructure Developer Private Limited (MIDPL) told the government that the ‘significant fund infusion’ it was making to develop the port was contingent upon the projects having a longer duration to operate.
MIDPL, in its letter dated 28 September 2018, wrote to the Tamil Nadu Maritime Board, an autonomous body under the state government of Tamil Nadu that handles management of ports along the state’s coastal zone. MIDP said that it would not be possible to secure financial viability of the project under the existing license period of 30 years.
However, the retired civil servants disagreed.
‘If Adani’s business plan states that the Kattupalli project is viable only with a 99-year concession period, there is tremendous risk that the Government of Tamil Nadu would be saddled with a white elephant if it were to go ahead with the same project with the standard 30-year concession. Extending the concession period is not an option, as it would entail a massive revenue loss to the state,’ the retired bureaucrats have stated in their letter to the Chief Minister of Tamil Nadu, MK Stalin.
‘The solution thus proposed by the promoter is going to pose serious risks to the state government, as it will close its options and cause possible revenue losses over a much longer period, if the project fails to get reasonable return. It also amounts to an undue concession to the promoter. At the macro level, the same promoter seems to be monopolizing the bulk of the port operations along the country’s long coastline, which tends to shrink competition and adversely affect the competitive environment that is necessary.’
At present, Adani Ports is expanding the cargo-handling capacity of Kattupalli Port after acquiring 97 per cent equity stake in MIDPL – the joint venture partner of Tamil Nadu government in the public-private partnership sea port project – at a cost of Rs 1950 crore (US $259 million). The expansion project, undertaken through the development of marine infrastructure at a cost of Rs 4000 crore (US $530 million) as per 2018 estimates, has also met with stiff opposition from environmentalists and climate-change activists as well as local fishermen who fear loss of livelihoods.
‘The project is not only an ecological disaster but is also a financial disaster. The location of the project is in an ecologically fragile area. Ideally, greenfield seaports are leased out for a maximum period of 30 years to the project concessionaire whereas in Kattupalli the project proponent is seeking an extension of 69 years. A lease period of 99 years would be as good as handing it over to the private developer for eternity,’ retired bureaucrat MG Devasahayam, another signatory of the letter, told AdaniWatch.
The state-owned government company, Tamil Nadu Industrial Development Corporation, which owns the remaining 3% equity stake in Kattupalli Port, has allotted back-up land near the seaport for industrial development for a lease period of 99 years. MIDPL has demanded that this policy be implemented uniformly, applying to the port as well as to lessees allocated the back-up land.
The MIDPL argued in its letter that owing to the long gestation period of the project it will not be possible to get funds from investors and banks for a period as ‘short’ as 30 years. It said an increase in the license period, on the other hand, would not only allow it to ‘continuously invest in development of the port infrastructure so that it can achieve its full cargo handling capacity’ but would also result in ‘progressively higher revenue’ for the Tamil Nadu government.
But the retired civil servants countered this argument by referring to another example of a port being given a longer-than-usual lease. In their letter, the former bureaucrats referred to a report by the Indian government’s premier auditing agency, the Comptroller & Auditor General (CAG) of India, which had found that an extension of 10 years in the licence period of the Vizhanjam Sea Port in the neighboring South Indian state of Kerala, as lopsided against the government. (AdaniWatch has reported on this in stories about Vizhinjam.)
‘In 2017, the CAG stated in a report that the private concessionaire of Vizhanjam Sea Port project would collect an additional revenue of nearly Rs 29,217 crore [approximately US $4.5 billion as per 2017 estimates] because the Kerala government had allowed it a license period of 40 years as opposed to the standard term of 30 years followed in India for greenfield ports. Much higher profits will be raked in by the private concessionaire from Kattupalli Port if the lease period is increased to 99 years while the Tamil Nadu government will incur losses,’ said Devasahayam, a 1968-batch IAS officer, to AdaniWatch.
Incidentally, Adani Ports is also the private partner of the Kerala government in the Vizhanjam port project referred to. In August 2015, Adani Ports entered into a concessionaire agreement of 40 years with the Kerala government for developing the Vizhanjam port. At the time that the agreement was signed, the state of Kerala was being ruled by a coalition government led by Congress, the principal political opponent of the BJP which has held power at the centre in India since May 2014 under the leadership of Prime Minister Narendra Modi.
The CAG report cited that, ideally, this profit which will ultimately be cornered by the Adani Group subsidiary, should have accrued to the Kerala government which had invested 67% of the cost of the project. A three-member judicial commission, headed by retired Kerala High Court judge CN Ramachandran Nair, was constituted by the subsequent Left Front Kerala state government in July 2017 to probe into alleged irregularities in the concessionaire agreement. The commission cleared the previous government of wrongdoing but found that certain provisions of the agreement were indeed against the interests of Kerala.
A set of queries was emailed to the Adani Group asking, amongst other questions, for a response to the issue flagged by the former bureaucrats that any extension in the lease period of the Kattupalli Sea Port would result in losses to the Tamil Nadu government and undue gains for the private concessionaire. No response had been received to these queries at the time of publication. This article will be updated if a response is received.
The retirees noted that the port proposal has not only triggered intense opposition from local residents over issues of erosion, loss of livelihoods and pollution, but has also aggravated residents of Chennai over the risks of flooding to the city and salinity intrusion into aquifers that supply the city’s drinking water into the city. The bureaucrats demanded that the project be totally scrapped.
During the run-up to the state’s assembly elections earlier this year, in the face of intense public opposition to Adani’s port project, the then ruling political party of Tamil Nadu, the All India Anna Dravida Munnetra Kazhagam (AIADMK), promised to scrap the port expansion project. Ottakarathevar Panneerselvam, the state’s former Deputy Chief Minister belonging to the AIADMK, told the public at an election rally in March 2021 that the expansion project will be scrapped altogether. Panneerselvam, popularly known by his moniker OPS, had made this promise notwithstanding the fact that the port’s concessionaire agreement was signed with the Adani Group during a previous government formed by his political party in Tamil Nadu when former AIADMK supremo Jayaram Jayalalithaa was the chief minister.
Like its principal political foe AIADMK in Tamil Nadu, the DMK too had promised to do away with the Kattupalli Port Project if elected to power during the run-up to the state’s assembly elections earlier this year. In a set of amendments made to its poll manifesto, the DMK promised to scrap the draft Environmental Impact Assessment (EIA) report of Kattupalli Port Project after being elected to power. The party’s supremo MK Stalin released the amendments to its 505-point poll manifesto on 13 March 2021.
EAS Sarma further said the trend, of late, for state governments has been to indiscriminately agree to expanding existing ports and setting up new ports through the private sector, without exercising prudence regarding the projects’ viability and impacts on the environment, both marine and hinterland. He said that though the central government had in the past issued guidelines on detailed hydrodynamic studies to be conducted to assess a port’s impact on sedimentation, in the case of Kattupalli, these studies do not seem to have been conducted. Nor have the potential levels of pollution (from emissions at the port and seepage of salinated water) in the hinterland been adequately assessed.
In November 2009, the Congress-led United Progressive Alliance (UPA) central government issued a memorandum stipulating that expansions of existing ports, harbours and jetties – within their notified port limits – were to be undertaken only if hydrodynamic studies indicated that the project does not have any significant impact on the shoreline or associated ecologically sensitive areas.
This memorandum, issued by the Union Ministry of Environment & Forests (MoEF), was based upon the findings of an expert panel headed by Professor MS Swaminathan, an eminent Indian scientist popularly known as the ‘Father of Green Revolution’ in the country. Further, in accordance with the guidelines contained in this memorandum, new ports in certain areas of India’s coastline (including North Chennai) were to be established only after conducting a ‘Comprehensive Environmental Impact Assessment’ of the project based on the data of a minimum of three seasons.
The proposed expansion, including the addition of 25 new berths, involves an increase of the port area to nearly 2473 hectares from the existing 133.54 hectares by intruding into nearly 810 hectares of the Indian Ocean. Senior bureaucrats of India have opposed the idea of constructing numerous ports around the country in the past as well. Michael Pinto, a former top bureaucrat in Union Ministry of Shipping, wrote an article in June 2015 building a case against the Indian government’s policy of encouraging the port-building industry.
‘More ports do not necessarily bring in more cargo. The extent of a country’s exim trade is a function of its policies and its openness to international commerce,’ Pinto, a 1966-batch IAS officer, said.