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Published on May 11th, 2017

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Gadkari Scraps Sagar Island Port Project as Mamata Banerjee Plumbs for Tajpur Port

The shipping ministry has formally and finally decided to scrap plans to build at new major port at Sagar Island in West Bengal after the state government told the union government in no uncertain terms that it was proceeding with a new greenfield port at Tajpur in West Midnapore district about 50 kms away from Haldia dock of Kolkata Port.
The shipping ministry had taken the stand that it will not proceed with the Sagar Island port project if Tajpur is developed by the state government. Accordingly, the fate of the Sagar Island project was waiting for a final decision from the West Bengal government.

“The West Bengal government decided to go ahead with the Tajpur Port project which was communicated to the union shipping minister Nitin Gadkari by West Bengal finance minister Amit Mitra and the state chief secretary during a meeting a few days ago. That being the case, the shipping minister said that we will drop Sagar Island project. Naturally, there is no scope for two new big ports in close vicinity on either side of the river Hooghly,” said an official familiar with the development.

“The shipping ministry officially decided to scrap the Sagar Island port project which would have been a major economic booster for the state of West Bengal,” said the official mentioned earlier. “But, for public consumption, the shipping ministry will not say that it is dropping the Sagar Island project. It will say, Sagar Island will be taken up after Tajpur is completed”, he added.

A port industry executive said that the Tajpur port, when developed, will take away the entire cargo of coal and minerals of Haldia Dock. “Haldia is already infested with mafia of stevedoring and shore handling firms and facing problems. If a fully-mechanized port comes up at Tajpur, Haldia will be history,” he said asking not to be named.
In the year ended March 2017, Kolkata Port Trust handled 50.314 million tonnes (mt) of cargo of which Haldia Dock Complex handled 34.141 mt.

Sagar Island was notified as a major port in June 2016 and a special purpose vehicle named Bhor Sagar Port Ltd was set up with Kolkata Port Trust holding 74 per cent equity and the West Bengal government holding the balance stake to build the new port.

In August last year, the shipping ministry and the Public Investment Board approved a Rs 515 crore grant/subsidy to Bhor Sagar Port Ltd for reclaiming land, dredging and erecting basic infrastructure for the new port. The shipping ministry had also drafted a proposal for securing cabinet approval for the grant/scheme.

It was then that the West Bengal government-led by Mamata Banerjee decided to take up the Tajpur project as a state government project, putting it on a collision course with the union government.

The Phase-I of the Sagar Island Port development is estimated to cost Rs1,464 crores. While the union government had agreed to invest Rs 515 crores for basic infrastructure, the construction of port related infrastructure like berths etc was to be undertaken with private funds worth an estimated Rs. 948.6 crores.

The traffic for the Sagar port was projected to be around 3.5 million tonnes (mt) a year in 2020 increasing to around 27 mt by 2035.

“Kolkata Port has been facing challenges in terms of draft limitations, limited headroom for expansion and efficiency. The constraints have necessitated the need to have an alternative port near to sea, having sufficient draft and no river navigation, as it has been there in Kolkata Port,” the port industry executive said.

Sagar Island has been selected after a detailed study for locating the port. A new port in Sagar will share the hinterland of the Haldia and Kolkata ports, particularly the power and steel plants in the eastern region, and containers from the eastern parts of India (Western UP, Odisha, Jharkhand, Chhattisgarh etc.) and neighbouring landlocked countries – Nepal and Bhutan. The port will be a viable alternative to serve spill-over cargo, specifically non-POL bulk from the Haldia dock complex.

Containers will be another major cargo to be handled at the Sagar port. This is primarily due the limitation of capacity and the inability to expand the Haldia and Kolkata ports, which can result in an overflow of containers that can be handled at the Sagar port, the industry executive said.

To have some control over the development of Tajpur port project, the Public Investment Board and the shipping ministry had suggested that the West Bengal government should “give an undertaking to provide a so-called right of first refusal to Bhor Sagar Port Ltd in case it decided to set up a new port in the state”.

But, this was not acceptable to the state government as this meant giving a 74 per cent stake to the union government for developing Tajpur. West Bengal is looking to build Tajpur as a private port on the lines of Mundra, Pipavav, Krishnapatnam, Kattupalli, Dhamra, Karaikal, Gangavaram and many others.

With the scrapping of the Sagar Island port project, the two new major ports identified by the previous UPA government-led by Manmohan Singh have become non-starters.

The other major port to be developed at Dugarajapatnam in Andhra Pradesh is set to be spiked after a government-mandated consultant concluded that it was neither technically feasible nor economically/commercially viable.

The Manmohan Singh cabinet gave in-principle approval for building a new major port at Dugarajapatnam on PPP basis, subject to feasibility – special assistance to the state of Andhra Pradesh in terms of AP Re-Organization Act 2014.

While various preparatory works relating to the project were underway, a major change in the state government’s stand forced the shipping ministry to rework the basic structure of the project.

The decision to set up a major Port at Dugarajapatnam was based on the commitment given by the Andhra Pradesh government to fund the cost of land, Rehabilitation and Resettlement (R&R) and external infrastructure.

Out of the total requirement of 3650 acres of land for the port project, the component of government land is 391.96 acres. The Andhra Pradesh government had to hand over 391.96 acres to the Port Authority and meet the cost of the remainder of procurement of land, R&R and external infrastructure.

However, the state government subsequently conveyed that they are not in a position, due to budget deficit, to allot funds for the cost of land acquisition, R&R and external infrastructure and can only provide government land required for the project.

“As a result of the inability of the Andhra Pradesh government to fulfil its commitment, the project economics underwent a change and upset the basic premise on which it was included in the Reorganization Act,” a shipping ministry official said.

Meanwhile, the shipping ministry floated a proposal seeking government grant of Rs 1,241 crore to meet the land cost, R&R and external infrastructure costs. In addition, a viability gap funding (VGF) of Rs 3,542 crore was sought for making the project viable.

Following this, the prime ministers’ office (PMO) asked Niti Aayog to examine ways and means to reduce VGF. In turn, the NITI Aayog suggested a restructuring of the project to reduce the VGF component and directed the shipping ministry to undertake a fresh feasibility report on the new port.

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