Cabinet nod to end arbitration against Adani, ratifies supplementary agreement

The Kerala government is all set to enter into an agreement with Adani Vizhinjam Private Port Limited (AVPPL), which is constructing the Vizhinjam International Seaport, as part of ending the arbitration proceedings initiated against the Adani Group by the State for delaying the construction work for about five years by the concessionaire. 

The Cabinet meeting held here on Wednesday approved the draft supplementary concession agreement prepared by the State for this purpose. The supplementary agreement became imperative with the State deciding to withdraw the arbitration proceedings against the port concessionaire. The Cabinet approved the agreement after seeking the advice of the Law department and the Advocate General.

The main condition for withdrawing the arbitration proceedings was to complete the second and last phase of the port development in 2028 itself with an investment of ₹10,000 crore, instead of the scheduled deadline of 2045. This is expected to increase the cargo handling capacity of Vizhinjam International Seaport from one million twenty-foot equivalent units (TEUs) in the first phase to three million TEUs in 2028.

The Adani Group was to pay a compensation of ₹219 crore to the Kerala government for delaying the port work for about five years. However, as part of the supplementary agreement, Kerala government will charge only ₹43.8 crore compensation now. If there is a situation where the project cannot be fully completed in 2028, the five-year extension of the contract period agreed upon by the State will be cancelled, and it will initiate measures to recover the full compensation. 

Earlier, the State government issued a statement ahead of withdrawing from the arbitration proceedings initiated against the AVPPL, in which the government emphasised that a new tripartite agreement needs to be inked to make available the viability gap fund (VGF) of ₹817.80 crore allocated by the Central government to the AVPPL. The State had been arguing that the port work would be delayed or the developer would lose VGF if the arbitration was delayed.

However, in the latest development, the Centre asked Kerala to repay the VGF through revenue sharing, and this would cause an additional financial strain of ₹10,000-12,000 crore on the State government as the VGF would have to be paid back in net present value (NPV) terms through revenue sharing.

Published - November 27, 2024 08:39 pm IST