Analysing the Economic Viability of SSCP – On the basis of “OFFICIAL REPORTS”

published on April 10, 2008






ANALYSING THE ECONOMIC VIABILTY OF THE SSCP FROM A SHIPPING PERSPECTIVE – ON THE BASIS OF “OFFICIAL REPORTS”


 


By


 




Capt.(retd) H. Balakrishnan, I.N.
 
 
 
 

                            INTRODUCTION

 
1.          Over the past year, much has been written and stated about the
viability of the SSCP , and the economic benefits that are expected to accrue to the Southern Districts of Tamil Nadu.
 
2.          This paper analyses the economic viability of the SSCP, ‘PURELY’
from a shipping perspective, on the basis of various ‘official’ reports such as, (a)
– “The website of the Sethusamudram Corporation Ltd.( SCL)”, (b) – the
‘Report’ submitted by “The Committee of Eminent Persons” to the Union
Ministry of Shipping & Road Transport, on the basis of which the
revised affidavit has been submitted by the Govt. to the Supreme Court, and, (c) –  the
“Information Memorandum” prepared by the then UTI Bank (now Axis Bank),
the lead bank for arranging the loan for the execution of the Project.
 



ECONOMIC VIABILITY OF THE SSCP
 


 
3.          SCL Website.   The website, amongst other USPs of the Project

states:  “ Sethusamudram Ship Channel Project, which envisages dredging of a ship channel across the Palk Straits between India and Sri Lanka, is finally taking shape.  The project will allow ships sailing between the east and west costs of India to have a straight passage through India’s territorial waters, instead of having to circumvent Sri Lanka.  This will lead to a saving of upto 424 nautical miles (780 Km) and upto to 30 hours in sailing time. It further states: “



The
project will become self-sustaining over a period of time. According to
conservative estimates, about 3,055 vessels will be using the canal
annually. This will inevitably go up further.”
   (


http://sethusamudram.gov.in/WhatisSethu.asp


)
 
4.          The foregoing statement in the website implies that the SSCP is

envisaged to be a profitable entity and this would lead to its self-sustenance in the years ahead.
 



Terms of Financial Loan
 
5.          From the “Information Memorandum” of the then UTI Bank, it is
seen from the “Indicative Term Sheet” at Item 14 (pp-78), that the loan to the SCL has
three components, namely, (a) Rupee Loan, (b) U.S.$ Loan, and, (c) Zero Coupon Bonds.
 

6.
        


Rupee Loan.


  The capital and terms of the ‘Rupee Loan’ are (a)
Rupees
4369 million, (b) Loan period of 13 years including a moratorium period
of 5 years, (c) Interest rate of 7.5 to 8% payable monthly, and, (d)
Principal Repayment in 16 equal semi-annual installments beginning at
the end of 5 years.
 

7.        


U.S. $ Loan.


  The capital and terms of the ‘U.S. $ Loan’ are (a) U.S.
$
100 Million, (b) Loan period of 20 years including a moratorium period
of 8 years, (c) Interest rate LIBOR + 125 TO 175 basis points payable
half-yearly ie. 5% (approx.), and, (d) Principal repayment in 24 equal
semi-annual installments beginning at the end of 8 years.
 

8.        


Rupee Loan Repayment Calculation.

 The repayment burden on the
SCL
for the ‘FIRST YEAR’ of repayment, works out to (a) Principal Repayment
= Rs. 546.125 Million, (b) Interest Repayment = Rs. 349.52 Million, and
thus (c) Total of (a) + (b) = Rs. 895.645 Million or Rs. 8956.45 lakhs.
 

9.        


U.S. $ Repayment Calculation.

The repayment burden on the SCL
for
the ‘FIRST YEAR’ of repayment, works out to (a) Principal Repayment =
U.S. $ 8.3333 Million, (b) Interest Repayment = U.S. $ 5.0000 Million,
and thus (c) Total of (a) + (b) = U.S.$ 13.3333 Million or U.S. $ 133.3333 Lakhs.
 

10.   


Tariff Calculation per Ship Transiting through the SSCP.


 From
the SCL website, it is seen that 3055 transits are anticipated annually. Thus, the tariff to be levied on ONE SHIP to ‘break even’,
in the case of Para 8 above is Rs. 8956.45 lakhs / 3055 = Rs. 2, 93,
170.00 lakhs. Similarly, in the case of Para 9 above, it will be U.S. $
133.3333 Lakhs / 3055 = U.S.$ 4360. At an exchange rate of 1 U.S.$ =
Rs. 39.79 ( Eminent Persons Committee Report Chapter 8,Para 8.2.2 ) =
Rs. 1,73,484.4. Thus the total tariff per ship works out   to Rs. 2,93,170.00 + Rs. 1,73,484.4 or Rs. 4,66,654.4.
 



Comparison with Time and Fuel Cost Savings
 
11.     The ‘Report’ submitted by the ‘Committee of Eminent Persons’
(Chapter
8, Para 8.2.5), gives the voyage distances between ports of ‘origin’
and ‘destination’. The voyage speeds in the ‘Open Sea’ as also through
the SSCP have also been given in the ‘Report’ (Chapter 8, Para 8.2.13).
 

12.   
 On the basis of the foregoing, the ‘Savings in Voyage times’ as also
the ‘Savings in Fuel Costs’ have already been calculated. The same can be had at the following URL: http://setubandha.blogspot.com/2008/03/navigating-through-sscp-not-cost.html
 

13.   
 Comparison of the tariff per ship and the fuel savings costs reveals
that barring the voyages from  (a) Tuiticorin to Vizag (at 6 knots through the SSCP), (b) Aden to Chennai, (c) Tuiticorin to
Vizag, and, (d) Tuiticorin to Kolakata (at 8 knots through the SSCP for (b),(c) and (d) respectively),transitting through the SSCP will prove economically unviable for the Shipping Industry.


 

14.    However, the ‘Report’ by the ‘Committee of Eminent Persons’, in
Chapter 8 at Para 8.2.7 states: “The
approach followed by the consultants to propose tariff @ 75% of savings
in one of the alternatives, may result in a scenario where the Channel
charges maybe higher than the savings. As the tariff rate @ 50% of
savings has been proposed, in the base case I.R.R., such a situation
has been avoided. However, the savings to some ships will be more than
50% while for some it will be lower.”
 
15.     In case 50% of the ‘savings in fuel costs’ is adopted by the SCL as

the tariff to be levied on ships, it will be seen from the ‘fuel savings costs’ calculations at Para 12 above, the


‘SCL WILL BE A SICK UNIT’ in its VERY FIRST YEAR OF OPERATION.’
 
 



CONCLUSION


 
16.     In my earlier 6-Parts analysis of the SSCP, I had concluded that the


“SSCP JUST DOES NOT MAKE ANY NAUTICAL SENSE”.
The present analysis, on the basis of official reports has only served to reinforce the earlier “conclusion”.
 
 


References:
 
(A)   – Sethusamudram Corporation Ltd. Website at:


www.sethusamudram.gov.in
 
(B)   –  ‘Report’ by “The Committee of Eminent Persons”
 
( C ) – Information Memorandum of the then UTI Bank



http://sethusamudram.gov.in/Images/InfoMemo.doc


 

  
 
 

   
Â