India Finance Adani Ports
More stormy waters for Adani's Kerala port project
Mar 27, 2021
Adani's worksite for the troubled Vizhinjam trans-shipment container port, Kerala, India.

A spat has intensified between Adani and the government of the Indian state of Kerala over the non-completion of a massive port project. Since 2015, Adani has been working to turn the port of Vizhinjam into an international trans-shipment container terminal. At commencement, Adani said the project would be completed in 2018, a year ahead of schedule. The company has now missed its own unrealistic target, the contracted deadline, and a deadline extension. Earlier this year, the Kerala government ran out of patience and issued a penalty notice. However, Adani has refused to admit to any fault, resulting in a lengthy and complex arbitration process. This imbroglio has occurred against a background of protests from community groups dismayed at the impact of the port development on livelihoods and coastal ecology.

In January 2021, Adaniwatch reported that the government of Kerala had issued a notice to an Adani Group subsidiary demanding penalties for failing to meet contractual obligations in construction of the Vizhinjam trans-shipment container port. The contracted deadline for completion of the port was 3 December 2019. An extension was granted to September 2020 as a result of cyclone damage, but this deadline was also missed.

The contract allowed the company a six-month, penalty-free extension and an additional six months with a fine. The government had the right to levy $USD 17,000 per day of non-completion. If the project were not completed after the stipulated period, the government could also terminate the contract. The Adani Group has claimed exemptions citing a force majeure clause in the agreement, referring to cyclones, floods, strikes, COVID-19 and an alleged scarcity of rocks to construct the breakwater as reasons for the delay. It requested an exemption from the penalties.

Fisherfolk blockade Adani's mega-port worksite at Vizhinjam in September 2020

The government rejected that plea, leading to an impasse with major political ramifications. It set a deadline of 3 March 2020 for payment of the penalty. In response, the Adani Group brought in a special mediator and approached the Delhi-based Centre for Alternate Dispute Resolution.

As the rift between both parties grew, a ministerial meeting of the state government held on 3 February 2021 assigned the District Court at the state capital of Thiruvananthapuram to be the arbitration court, forming a three-member tribunal. Two former Supreme Court judges will decide on a presiding arbitrator. Justice Kurian Joseph will arbitrate for the state government and Justice K S P Radhakrishnan will be the arbitrator for Adani. The tribunal will mediate on this issue within 18 months. The costs of the tribunal will be borne by both parties.

Media reports indicate that Adani’s jump towards formal arbitration was premature. On 22 February 2021, the Times of India reported that the Adani Group had rejected the government’s advice to solve the issue through dialogue before moving to litigation. A day later, the Malayala Manorama newspaper reported that, according to the contract, the Adani Group director and the principal secretary of the Ports Ministry were obliged to have a discussion before moving towards formal arbitration.

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In January 2020 it was reported a Legislative Assembly Committee had made it clear that no more extensions would be allowed to Adani. The committee also directed the company to complete the construction and commission the port within six months. The Committee, led by C. Divakaran, had inspected the port site after Adani failed to finish the project in December 2019, observing that the breakwater construction remained unfinished. The Adani Group blamed the delay on an alleged scarcity of rocks, insisting on more licences to quarry rocks within the state of Kerala. The committee proposed allowing rock quarrying for the port construction and suggested that a panel headed by the chief minister and senior government officials should convene a meeting in this regard. (AdaniWatch has reported on the social and environmental impacts of increased quarrying in landslide-prone parts of Kerala)

Even though the whole of India was under strict lockdown during the COVID-19 pandemic, the port project was allowed certain concessions. Breakwater construction subsequently accelerated until work was hampered when local fisherfolk blockaded the project for a month (as reported last November by AdaniWatch). Construction resumed following mediation by the Kerala government.

In January 2021, the state government also ordered a vigilance enquiry into corruption allegations raised against the construction contract entered into with Adani by the previous government.

An anti-corruption investigation into the government-Adani contract for the Vizhinjam trans-shipment port  is underway

In addition, a citizen named M K Salim had filed a petition at the High Court requesting that appropriate changes be made to the contract to protect the interests of the state based on the criticisms of the contract by the comptroller and auditor general. However, the court ruled  that no action need be taken because a previous inquiry had cleared the government of wrongdoing and because the current government had ordered a vigilance inquiry.

It is now clear that the state government will not back off from the ambitious but damaging and troubled port project. On 21 January 2021, Kerala Finance Minister Dr Thomas Isaac said in his budget speech that although natural calamities and COVID-19 had adversely affected the port construction, all components except breakwater construction and land extension had been almost completed. He said that construction works worth USD $300 million are expected in 2021-22, adding that Vizhinjam Cargo Terminal had already become a major crew-change hub.

Meanwhile, fishing communities, fearing that disruption of coastal ecology caused by the port development will ruin their livelihoods, have continued to protest.