Kerala CM Urges PM Modi To Revoke Finance Ministry’s VGF Repayment Demand For Vizhinjam Seaport

Vizhinjam International Seaport project, a key infrastructure initiative for Kerala, was sanctioned VGF under the Scheme for Financial Support to Public Private Partnerships (PPP) in Infrastructure.

The CM argued that the repayment condition imposed by the Finance Ministry could place a significant financial burden on Kerala.

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Kerala Chief Minister Pinarayi Vijayan has written to Prime Minister Narendra Modi urging to step in and reverse Union Finance Ministry's directive to reimburse Viability Gap Funding (VGF) provided for Vizhinjam International Seaport project. In an open letter, the Chief Minister emphasised that this decision would set a precedent. He stated that the decision would make Vizhinjam the only project in India where VGF assistance is classified as a repayable loan instead of a capital grant.

The Vizhinjam International Seaport project, a key infrastructure initiative for Kerala, was sanctioned VGF under the Scheme for Financial Support to Public Private Partnerships (PPP) in Infrastructure, managed by the Department of Economic Affairs (DEA), Union Ministry of Finance. The central government approved Rs. 817.80 crore as VGF for the project. However, the Finance Ministry imposed a condition that the amount must be repaid by the Kerala government in Net Present Value (NPV) terms through revenue sharing.

In his letter, CM Vijayan emphasized that the VGF scheme was introduced to provide financial support for infrastructure projects that are economically viable but face financial hurdles. The primary objectives of the scheme include encouraging private sector participation, promoting infrastructure development, and reducing the financial burden on government resources.

The CM said: "Needless to say, if the payback is insisted by the union government, the assistance provided would not be a capital grant but would be a loan. This clearly is contrary to the very intent of the scheme."

"Though the state government has repeatedly requested the Union Ministry of Finance at various levels to revoke the above condition and release the VGF recommended to the state unconditionally, the request of the state has not been considered favourably," the letter added.

Kerala CM Pinarayi Vijayan writes a letter to Prime Minister Narendra Modi, urging him to intervene and withdraw the Finance Ministry's decision requiring the state to repay the Viability Gap Funding (VGF) for the Vizhinjam International Seaport project. pic.twitter.com/lCqWjw5TFl

— ANI (@ANI) December 14, 2024

The repayment condition imposed by the Finance Ministry could place a significant financial burden on Kerala. The CM stated that the Rs. 817.80 crore grant, when recalculated on an NPV basis, could result in a total repayment of Rs. 10,000 to Rs. 12,000 crore over time, factoring in projected interest rates and revenue realizations from the port. 

Therefore, the Kerala government has repeatedly urged the Union Finance Ministry to revoke the repayment condition and release the VGF without strings attached.