Setu project will be a sick unit, say experts

Sethu project will be a sick unit, say experts (Deccan Chronicle, 12 April 2008)

Chennai, April 11: The Sethusamudram Shipping Channel will be a sick unit from its very first year of operation itself, according to the terms and conditions prepared by Axis Bank, bankers of the project. If the Channel has to be financially viable, then the ships sailing through it should be levied a minimum tariff of Rs 4.66 lakh to use the 167-km long channel which will make transiting through Sethusamudram Shipping Channel Project (SSCP) economically unviable for the shipping industry, according to Capt Hariharan Baplakrishnan, veteran navigator.

The Sethusamudram Corporation Limited, the holding company of the channel, expects 3,055 ships to navigate through the channel every year. The experts committee constituted by the Government of India has recommended that a 50 per cent of the cost of fuel saved by the ships could be the ideal tariff to be charged for using the channel. Even if the charges were fixed at Rs 2,50,000 per ship, the total revenue to be generated by the channel would be only Rs 76.25 crore per year. But the repayment of loan amounts work out to be Rs 142 crore from the fifth year onwards. The SSCP has been given a moratorium of five years for the rupee loan and eight years for the dollar loan, as per the information memorandum posted on the company’s website.

The SSCP loan repayment stands out because of the riders attached to them. Both the rupee and dollar loans have to be paid back in 16 and 24 equal semi-annual instalments respectively after the moratorium period. It is also mentioned that the rates of interest is 8 per cent (for the rupee loan) and 5 per cent for US dollar loan. What remains unanswered is that whether 3,055 ships will opt to sail through the channel. To meet that figure itself, at least 9 ships should sail through the channel every day. No ships other than the vessels commuting between Chennai and Tuticorin will opt for sailing through the channel. "Comparison of the tariff per ship and the fuel savings costs reveals that barring the voyages from Tuticorin to Vizag, Aden to Chennai, Tuticorin to Vizag, and Tuticorin to Kolkata transiting through the SSCP will prove economically unviable for the shipping industry. The SSCP does not make any nautical sense," said Capt Balakrishnan.

Dr S Kalyanaraman, former director, Asian Development Bank, pointed out that if only 50 per cent of ‘savings’ of navigating ships were to be charged as tariff, the project would not only be sick in the first year but for ever since the earnings realised will not be sufficient to repay the borrowed money (both rupees and dollars). "The project will end up as a drain on the public exchequer. Whether 50 per cent of ‘savings’ will be a sufficient incentive for a mariner to take the risk of navigating through the mid-ocean channel is another issue," said Dr Kalyanaraman.

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