Thiruvananthapuram: In a major policy shift, the Kerala government will not claim any revenue from the proposed Azhikkal international seaport in Kannur for the first 30 years of its operation. The new move aims to make the project more appealing to private investors.

The government was originally to receive its revenue share from the port from the very first year of commercial operations. A new order, issued a year later, now defers this entitlement, with the company running the port set to share revenue with the government only from the 30th year.

Essentially, the government has decided to forgo any revenue from the port for the first 30 years, arguing that the earlier condition could discourage private investors from constructing and operating the port.

The revised order, issued a few days ago, corrects an earlier order issued under the Fisheries Department directive, which was based on the state cabinet's approval of the Detailed Project Report (DPR)  in August 2024. Notably, the government has agreed to forgo revenue from the Azhikkal port for 30 years, even though it has an agreement with the Vizhinjam Port to receive its share from the 15th year of commercial operations.

The Azhikkal project is being developed under the supervision of Malabar International Ports and SEZ Limited (MIPSL), a company chaired by the Chief Minister. The project is proposed on 200 acres of government land, and the state government plans to spend ₹2,808 crore on constructing a breakwater.

The Centre for Management and Development, which prepared the techno-economic feasibility report, had also recommended a revenue-sharing plan for the project. Acting on this, the state cabinet approved the DPR in August 2024, agreeing that the government should receive its revenue share from the first year of the port’s operations itself. This condition was incorporated into the government order issued on August 22, 2024, which authorised the invitation of Expressions of Interest to select a company to construct and operate the port.

However, the move to revise this key stipulation began after MIPSL conducted consultations with corporate players in the port development sector. Following these discussions, MIPSL submitted a letter to the state government on March 28 this year, citing that the earlier condition would deter private investors and should therefore be withdrawn. A chief secretary-level committee reviewed the letter and recommended the change, which was subsequently approved during the last meeting of the state cabinet.

Under the new order, the port project will be handed to a private company for construction over five years and operation for 30 years. While the project can be transferred to another party after 30 years, the existing company will receive a 10%  weightage if it chooses to continue operating the port.

Reasoning behind the change

The government, meanwhile, explains that the revision also takes into account the Centre’s stance that no Viability Gap Fund (VGF) will be provided if the state starts receiving revenue from the port from the outset. The VGF accounts for 20% of the total project cost. In the case of Vizhinjam Port, the VGF was provided as a loan rather than a grant, requiring the state to repay approximately ₹10,000 crore for the ₹817 crore received. In the case of Azhikkal, however, the mystery lies in the state's decision to forgo revenue for the first 30 years, even before receiving any assurance from the Centre on whether the VGF will be provided as a grant or a loan.