Monday, February 22, 2010
Sethu Samudram: A bridge too far
While the Union Government drags its feet on a possible realignment of the Sethusamudram route that would save the Ram Sethu (Adam’s Bridge), experts are demanding that the ship channel project itself be scrapped as it has become a white elephant. The Centre is locked in a controversy over the proposed alignment, with the Supreme Court recently admonishing it for delaying a final decision on the issue. Meanwhile, the initial project cost has spiraled from Rs 2400 crore in May 2005 to more than Rs 4500 crore now. And it does not promise to stop at that.
But the Centre clings on to its pet scheme and is awaiting sanction from the Cabinet Committee on Infrastructure and the Public Investments Board for the revised estimate. It is also hoping for a green signal from the Supreme Court (which had halted work two years ago) and also from the Expert Committee it had set up to study realignment of the sea canal route.
Even if clearances are received the dredging work carried out so far at an enormous expense of nearly Rs 800 crore may have to be re-done at even higher costs since silting will have undone the previous effort. Moreover, dredging would not be a one-time affair; experts say round-the-year dredging would be needed to maintain the 12-metre depth of the proposed canal. This would be an additional recurring expense.
Several people have questioned the financial viability of the Sethusamudram Ship Channel Project regardless of the alignment. They have pointed out that only nominal time and money would be saved – and that too by some vessels on certain routes – in taking the proposed path connecting Palk Bay with the Gulf of Mannar between Sri Lanka and India. They say these minor savings would not be an incentive for ships to take the Sethusamudram lane, adding that the conclusion on the scheme’s feasibility in the Draft Project Report prepared by L & T-Ramboll Consulting Engineers was not based on ground realities.
Janata Party chief and former Union Minister Subramanian Swamy said the project should be terminated. “It is completely flawed and a financial deadweight. It must be done away with. It is not just a question of realignment, the Sethusamudram project itself makes no business sense,” he stated.
Swamy said ports such as Tuticorin in Tamil Nadu could be developed into a container hub to enhance maritime business in the state. “The proposed canal can handle vessels with a maximum 30,000 dead weight tonnage (DWT). Most ships are above that and would not be able to use the route. Only ships owned by former minister T R Baalu’s family members will benefit since those vessels are under that tonnage!” he remarked.
Expressing surprise over the project’s continuance, he said, “I wonder why successive governments have persisted with this failed project. I had even written to the then NDA government that the Sethu idea should be buried for good. The UPA regimes have had their own petty motives to push ahead. There are other more sensible ways to develop maritime business in Tamil Nadu.”
Swamy incidentally has been in the forefront of the campaign to halt the project and evolve an alternative path to promote marine trade in the state. The apex court had halted work at the Ram Sethu in August 2007 on an application filed by Swamy who argued that the project was rooted in “illegalities.” He told the court the government had not even considered other alternatives nor done proper studies before clearing the project.
Echoing similar sentiments, AIADMK Rajya Sabha member and parliamentary party leader V Maitreyan said the project was an “economic disaster.” He stated, “When the project was launched by the UPA government we were in power in Tamil Nadu. Sonia Gandhi and Prime Minister Manmohan Singh launched it in Madurai. But we were not a party to the launch.”
Maitreyan said expert studies had showed the Sethu to be “economically unviable,” adding the issue was no longer one of realignment. “Realignment is irrelevant. Our party is opposed to the project itself,” he stated.
According to a report by infrastructure economist Jacob John and published in a leading magazine, the Sethusamudram Corporation will have a maximum pre-tax internal rate of return (IRR) of just 4.5 per cent if it decides to charge a ship as canal tariff the entire sum that the vessel will have saved by taking the route. (The savings figure has been arrived at through a formula.) On the other hand, if it chooses to attract more vessels by offering a lower tariff of 50 per cent of the cost saved, the IRR would be a pathetic 2. 6 per cent!
The report goes on to say that while ships coming from Europe and Africa are expected to comprise 70 per cent of the projected users, their savings would be very low when compared to “coastal” vessels emanating whose origin and destination are both Indian ports. Yet, the “non- coastal” ships with minimal savings will need to pay the same tariff as those who savings are considerably larger. This would deter the non coastal vessels from taking the canal route. Since the canal tariff is likely to comprise as much as 60 per cent of the project’s earnings, failure of “non coastal” ships to take the canal route would be disastrous for the corporation.
John also pointed out that the time-saving projected by taking the canal route was not very significant for the “non coastal” ships. In his report, John commented, “The repeated claims of the project that it will save up to 30 hours of shipping time, sounds suspiciously like a shoe sale that offers a discount of up to 50 per cent. Like the discount sale, where the offer is probably for a few items in the store, the savings of up to 30 hours are valid for just a single journey: between Tuticorin and Chennai.”
Moreover, while the total distance that a vessel has to travel may get cut down by the proposed channel, the ship’s speed too gets reduced on the route since the waters are shallower. Thus, while a trip from a port in Africa to Kolkata through the existing route is 3217 nautical miles, it would be reduced to 3112 nautical miles by the proposed route. John calculated that at the end the vessel would have actually taken 3.5 hours more by the new shorter route!
When the draft project was first prepared the cost of debt financing the project had the Indian rupee loan at eight per cent and the US dollar at four per cent. But interest rates have significantly gone up since then, as a result of which the credit costs would be considerably higher now, further denting the financial viability.
Like Swamy, who suggested developing Tuticorin port as a major container hub to boost marine trade in Tamil Nadu, John too offered an alternative. He proposed the government simply offer “subsidies to all ships that reach the Indian east coast after going around Sri Lanka.” The subsidies, he added, could be funded from earnings that the government may receive by placing the total project cost amount in a fixed deposit or investing it in some other financially sound project.
Another report, ‘Socio-economic Impact of Sethusamudram Project’ by Kannan Srinivasan of The Indian Institute of Information Technology and Management, Kerala, too concluded that the project’s economic benefits were hard to identify. “It is difficult to see any economic benefit from the project immediately. Based on the data available, the economic feasibility is not established by the reports,” it stated.
The haste with which the government kicked off the project contrasts sharply with the manner it has dragged its feet in settling contentious issues. Forced by the hue and cry over the manner in which it was handling the project, the Centre in June 2008appointed a panel headed by noted environmentalist R K Pachauri to study a realignment that would skip the controversial Ram Sethu or Adam’s Bridge region. Seventeen months down the line, the matter still hangs in balance, prompting the apex court to question the delay.