Wednesday, June 11, 2008

Setu project: A white elephant.

Setu project:

a white elephant,

an ecological-social disaster,

being falsely foisted as a dream project.

Thanks to Capt. Balakrishna and to Sudarshan Rodriguez

for their incisive analyses.

Executive Summary: Setu project is a white elephant, an ecological
disaster, and is being foisted as a dream project without involving
detailed studies using the expertise of Geological Survey of India
(GSI) and National Institute of Oceanography (Goa), without consulting
the local pollution control, maritime boards, without consulting the
neighbouring country under international treaty obligations, ignoring
international treaty obligations related to UN Law of the Sea, UNESCO
World Heritage and Underwater Cultural Heritage Conventions.. Above
all, there is a cognizable criminal offence involved by violating
Section 295 of the Indian Penal Code which prohibits the hurting of
sentiments of a community.

It is shocking that a fundamental question remains unanswered: for
whose benefit is this project?

How will it benefit the coastal people?

Has an alternative of Marine Economic Zones along the long 8000 km. of
the nation been evaluated which has the potential to increase marine
product export foreign exchange earnings from the present Rs. 8000
crores per annum to Rs. 40000 crores per annum?

Scrap the project. Don't ever dream such project disasters.

The project zone is Rama's hotspot with mannar volcanic rocks and
hotsprings all along the coastline and is close to the most fragile
eco-system – the Sunda plate which is subject to almost daily
earthquakes and which scientists (Nature magazine 6 Sept. 2007) have
noted as a potential disaster zone which will adversely impact 6 crore
coastal people from Kolkata to Kerala by a more devastating tsunami
than the one which occurred on Dec. 26, 2004 killing 2,60,000 people.

How could any rational government have conceived a project and
inaugurated it on 2 July 2005 (that is within 6 months of the tsunami)
without a detailed evaluation of the impact of the Dec. 2004 tsunami
on the bathymetry of the ocean and without providing for tsunami
protection measures to save the nation's coastal property and peoples'
lives? How could anyone approve of a project which 34 Sri Lankan
experts claim will impact adversely the drinking water supply to
Rameshwaram and Jaffna if the fresh-water bearing limestone caves in
Rama Setu are blasted off? Do we have a socially responsible
governance or not?

The detailed project report prepared by the consultants for
Setusamudram Corporation is an UNRELIABLE, document, based on
computational errors, erroneous/biased assumptions and is intended
only as a make-believe exercise, a pathetic attempt in economic
casuistry. The project economics presented in the DPR is simply bogus.
Capt. Balakrishnan conclusively proved that the project is nautical

In addition to social costs which are excluded from the computations
of economic viability, the following costs are also either excluded or
grossly understated:

1. additional security costs which will devolve
on the Indian Navy to acquire, for example, special anit-mine-warfare
vessels which can traverse through a shallow channel in narrow straits
(which may be of the order of Rs. 3000 crores);

2. costs to the neighbouring country, Sri Lanka, very close (3 kms. proximity) to the

3. maintenance dredging costs in one of the five
sedimentation sinks of the world constituting the Gulf of Mannar-Palk Straits;

4. costs of facilities which are an imperative, for salvage
operations in case a ship gets grounded in the shallow sands;

5. failure to estimate the number of ships which will be less than 30,000
dwt (dead-weight-tonnes) and which will be phased out during the next
10 years since the trend is to build large-tonnage ships going upto 1
million dwt.;

6. losses which will be suffered by coastal people due
to denial of access to about 26% of the ocean zone – the breeding zone
for marine products and fish nurseries -- in Gulf of Mannar-Palk
Straits by creating a veritable international boundary channel 3 kms.
west of the Indi-Sri Lanka medial line (considering that the distance
between Dhanushkodi and the Medial Line is only 15 kms.);

7. failure to include provisions/facilities for tsunami-cyclone protection to
safeguard the integrity of the nation's coastline.

SSCP will be a perpetual sick unit. The claim that Setusamudram Corp.
Ltd. (SCL) will be financially self-sustaining is thus questionable.
No sensible banker will lend money to such an entity. It will be a
tax-payer's burden for the foreseeable future.

First year Loss: Rs. 54 crores

(3055 passages/year X Rs.1.78 lakhs, i.e. Tariff of Rs. 3.89 lakhs
minus Rs. 2.11 lakhs fuel and cost savings per passage of a ship);

9th year Loss: Rs. 143 crores

(3055 passages/year X Rs. 4.68 lakhs, i.e. Tariff of Rs. 6.79 lakhs
minus Rs. 2.11 lakhs fuel and cost savings per passage of a ship).

There are hidden costs which have not been included; if included, the
sickness of SCL will become chronic: a) Capital and maintenance costs
for Naval security of the channel; b) Maintenance dredging costs may
be as high as Rs. 1000 crores per annum; c) Provisions of tsunami
protection walls as in Japan to save lives and property along the
coastline; d) social costs such as loss of livelihood for coastal
people dependent upon fisheries and marketing of marine products.

Dr. S. Kalyanaraman


Special Investigation June 15, 2008

An expert analysis of Sethu project
The howlers in the expert committee report on SSCP
By Captain (Retd) H. Balakrishnan, I.N.

During the course of my analysis of the Report submitted by the
'Committee of Eminent Persons', I found that the Report faulted the
'Detailed Project Report (DPR), prepared by the Consultants to the
Project—M/s L&T Thornboll. Yet, Cabinet sanction for the SSCP was
accorded on the basis of the DPR!! This left me wondering—'What
sanctity for Cabinet approvals, if the 'due process of application of
mind' is conspicuous by its absence?

Report of 'the committee of eminent persons' finds fault with the DPR

Chapter-8: "Economic Viability And Related Issues"

Para 8.2.3 (pp –96)
"Hence, it may not be fair to pick up a few developments selectively
and object to the viability of the Project, which was worked out
sometime ago. As regards the comments made on the approach and
assumptions adopted in the DPR, the main argument against the DPR
rests on the distance that will be saved by ships that are coming from
Europe, America, Persian Gulf and Africa (using Suez Canal). While the
DPR takes the savings in distance from Cape Comorin, it has been
argued that these ships need not come right up to Cape Comorin to go
around Sri Lanka. This observation is valid as the ships coming from
Europe, America, Africa etc. need not come to Cape Comorin for going
around Sri Lanka. To that extent the savings in distance, particularly
for non-coastal cargo, will be less."

Para 8.2.6 (pp – 97)
"It is clear from this Table that there is hardly any saving for a
ship coming via Port Louis (Mauritius) to the east coast ports. Hence,
the point made that the ships coming from Mauritius using Cape of Good
Hope route will not use the Channel is valid. However, the consultants
have also not identified the ships coming via Mauritius in any of the
five origin – destination pairs identified for the SSC (Table 6.10 of
the DPR). It is seen that the difference in distance saved by the
ships coming from Suez Canal to the east coast ports as obtained from
the Chief Hydrographer and the one given by the Consultants in DPR is
only 19 NM. The Consultants in DPR have taken the Channel length as
152 km for calculation of savings in fuel and savings in time charters
whereas, the actual Channel length in DPR is 167.22 km. These
differences, in Channel length and savings in distance, will have some
impact on the savings of the ships."

Para 8.2.7 (pp – 98)
The second argument is that the Consultants have taken the average
distance saved instead of calculating the savings in distance for each
ship journey. It is seen from the distances in the DPR that the
distance saved varies from 254 NM to 424 NM. With this variation in
distance, taking a simple average of 335.5 NM may not reveal the
correct picture. It is seen as per the traffic statement for SSC in
DPR (Table 6-11 page 158 of DPR), there is no coastal movement between
Chennai and Tuiticorin, where the distance saved is maximum. However,
the possibility of cargo movement between these ports exists, when the
coastal shipping picks up. Most of the revenue is coming from
non-coastal cargo. The average distance saved from Aden to different
ports on east coast, excluding Tuiticorin, as per the distances
obtained from Chief Hydrographer is 271 NM. The Consultants may have
taken average distance so as to determine uniform Channel Charges for
all routes; nevertheless, it would have been better if the Consultants
had calculated the distance saved for each pair for estimating savings
of ships and then recommend a tariff rate. The approach followed by
the Consultants to propose tariff @ 75 per cent of savings in one of
the alternatives, may result in a scenario where the Channel charges
may be higher than the savings. As the tariff @ 50 per cent of savings
has been proposed, in the base case IRR, such a situation has been
avoided. However, the savings to some ships will be more than 50 per
cent while for some it will be lower."

Para 8.2.8 (pp – 98)
"It is, however, worthwhile to mention that the average distance taken
(142 NM) in the Report captioned "Review of the Environmental and
Economic Aspects of the Sethusamudram Ship Channel Project (SSCP)" is
the average of ships taking the Suez route as well as the Mauritius
route. This is also not relevant because the DPR does not envisage the
ships moving via Cape of Good Hope and Mauritius as potential traffic
for SSC. However, the Consultants have not explained how the ships
coming from Africa other than Suez route, have not been taken into
account while identifying SSC cargo from Africa. Similarly, the
Consultants have not clarified how crude oil vessels and inter-port
movements within east coast ports, have been excluded."

Para 8.2.13 (pp – 100)
" As regards speed of vessels, the Consultants have assumed that the
ships will move at an average speed of 12 NM in open sea and 8 NM in
the restricted channel. There are some apprehensions about the speed
at which ships can move in a regulated channel. - - - - - -. Based on
the impression gathered by the Members from the mariners, it is felt
that an average speed of 6 to 8 NM in the proposed Channel is not an
unreasonable assumption."

Para 8.2.14 (pp – 100)
"The proposed Channel is a double lane Channel. The Consultants have
recommended a double lane Channel as reducing it to a single lane
would have enhanced the waiting period. This could have also been
backed by a financial analysis."

Para 8.2.15 (pp –100)
"The Consultants have estimated revenues escalating @ five per cent
per annum. The revenues come mainly from the Channel charges. The
charges are linked to savings in fuel cost and savings in charter
costs. Hence, the increase in revenue is related to the increase in
charter and bunker prices. The basis for estimating the escalation of
five per cent per annum in revenue and costs has not been spelt out.
The Consultants have also made no mention of the social cost."

Para 8.2.16 (pp-100)
"The Consultants have taken 2001-02 as base for port-wise and
commodity-wise forecast for next 20 years. The Consultants have taken
average parcel load of previous three years from 1999-00 to 2001-02 as
the basis to estimate the number of potential ships for the Channel in
the next 20 years. Again, the Consultants have taken the DWT wise
break up of vessels calling at east coast ports (excluding Tuiticorin)
in 2001-02 as the basis to estimate the size-wise number of ships
likely to use the Channel. The Committee feels that the Consultants
should have taken into account the trend or other developments that
may change the inter-se share in future."

Chapter 6: Environment And Related Issues

"Issue 5: Impact of Cyclones on the Project and also on sedimentation dynamics"

Para 6.4.13 (pp – 77)
(A Howler!!!)

"It appears that all the ports on the coast will be vulnerable and not
only the SSCP. Necessary safeguards to deal with cyclone condition
have been incorporated in the Project design."

(Comment: As young mariners, we are taught in the Navigation School,
about the dangers posed by the 'Tropical Revolving Storms' (Cyclones)
and the precautions and actions to be taken at sea to 'avoid' these
'Cyclones'. These are highlighted in the Admiralty publication "The
Mariner's Handbook". But, this is the FIRST TIME, I'm learning about
'necessary precautions' taken to safeguard a 'static entity' called
the SSCP'!! Should be in the reckoning for the Nobel Prize in

"Issue 7: Impact of sulphur in the fuel on environment"

Para 6.4.20 (pp – 79)

"The emission of SO2 due to burning of fuel in ship is considered as a
line source. The ships have been recommended to use low sulphur fuel.
The emissions envisaged will be low and impact of these emissions on
the Marine National Park which is 20 km away from the Channel,
considering the dispersion and dilution potential available due to sea
wind, is not envisaged".

(Comment: The use of Low Sulphur High Speed Diesel (LSHSD) by ships
will affect the fuel savings costs as LSHSD is nearly 1.5 times
costlier than HSD. The difference in rates between HSD and LSHSD can
be clearly seen on the website

(The writer can be contacted at "Athreya"A1/8-flat-5 22nd Cross Street
Besantnagar, Chennai-600 090)


Analysing the economic viability of the SSCP from a shipping
perspective on the basis of official reports – Part 7 by Capt. (Retd.)
H. Balakrishnan, I.N.


Over the past year (2007), much has been written and stated, in the
media, about the viability or otherwise, of the SSCP. The statements
have also highlighted the economic benefits that would accrue to the
Southern districts of Tamil Nadu on account of the SSCP.
This paper analyses the economic viability of the SSCP, from a
shipping perspective, on the basis of information contained in various
'official documents' and reports such as:

(a) The website of the Sethusamudram Corporation Ltd. (SCL)

(b) The 'Report' submitted by the 'Committee of Eminent Persons' to
the Govt. of India. This 'Report had formed the basis of the revised
affidavit filed in the Supreme Court, by the Govt. of India.

(c) The 'Information Memorandum of Sept. 2005' prepared by the then
UTI Bank (now Axis Bank), the lead Bank for arranging the financial
loan for the execution of the Project.

Economic viability of the SSCP

SCL Website

The website, in addition to highlighting various USPs of the project,
states: "Sethusamudram Ship Channel Project, which envisages digging 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 Coasts 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 kms) and
upto 30 hours in sailing time." It further states: "The project will
become self-sustaining over a period of time. According to
conservative estimates, about 3055 vessels will be using the canal
annually. This will inevitably go up further."

The foregoing statement in the website implies that the SSCP is
envisaged as a profitable undertaking which would lead to its
self-sustenance in the years ahead.

Information Memorandum of the UTI Bank (now Axis Bank)

From this document, the annual expenditure for the SCL can be
calculated. The main items forming this expenditure are summarized

Operation and Maintenance Costs (O&M Costs). From item 10.2 of the
'Information Memorandum', the budgeted figures for the O&M costs are
as follows:

(a)Maintenance Costs

(Rs. in millions)

-- Maintenance of Vessel traffic Management Scheme (VTMS) 50

-- Maintenance dredging

(Note: For the 3rd and 4th year Maintenance Dredging has been

pegged at Rs. 170 million and from the 5th year onwards it

stabilizes at Rs. 140 million)

-- Civil Maintenance

-- Tugs and launches

-- Plant and Machinery

(b) Operation costs

-- Administration and staff costs


--Tugs and Launches

-- Plant and Machinery

(c) Contingency and Project Management costs

-- Contingencies

(Note: For the 3rd and 4th year, this has been pegged at

Rs. 24.3 million. From the 5th year onwards, it stabilizes at

Rs. 22.8 million).

Details of the financial loan. From Item 14 of the Information
Memorandum, entitled 'Indicative Term Sheet,' the following are the
details of the financial loan:--

(a) Rupee loan

-- Amount
Rs. 4369 million

-- Interest rate

-- Loan period
13 years

-- Moratorium period
5 years

-- Principal repayment 16 'equal installments' from
the end of 5 years

(b) US Dollar loan

-- Amount
USD 100 milion

-- Interest rate Libor +
125 to 175 basis points = 5%

-- Loan period
20 years

-- Moratorium period
8 years

-- Principal repayment 24 'equal installments' from
the end of 8 years

(c) Zero coupon bonds

-- Amount
Rs. 5826 million

-- Interest rate

-- Loan period
30 years

-- Moratorium period
18 years

- Principal repayment 12 'annual instalments' beginning from
the end of 18 years


A profit margin of 9% has been assumed for the project
to build reserves.
Thus, the 'Income to be generated' by the SCL to become a
self-sustaining undertaking, on an annual basis, is tabulated at
Appendix A. The Zero Coupon Bonds have not been taken into account for
the purposes of this analysis.

Ship tariff. As the SCL website anticipates an annual shipping traffic
of 3055 ships to pass through the SSCP, the possible tariff to be
levied on individual ships has been calculated and tabulated at
Appendix A.

Time and fuel cost savings

The Report submitted by the 'Committee of Eminent Persons' (Chapter 8,
para 8.2.5), gives the voyage distances between the ports of 'Origin'
and 'Destination'. The voyage speeds in the 'open sea' as also through
the 'SSCP' have been given in this Report (Chapter 8, para 8.2.13).
On the basis of the foregoing, the following have been tabulated: (a)
Fuel cost savings—Appendix B; (b) Time savings –-Appendix C

Analysis of the Appendices

The Report by the 'Committee of Eminent Persons', in Chapter 8, 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 may be 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."

In the light of the foregoing, comparison of the possible tariff to be
levied on individual ships as calculated at Appendix A, and 50% the
Fuel Cost Savings at Appendix B (column 'q'), will clearly reveal that
the SCL will NOT be able to recover its expenditure burden in the

On the other hand, if the SCL decides on a higher tariff regime, as in
the case of the major ports of India (e.g. Chennai Port Rs. 1.11
lakh/km for 7 kms of 'pilotage'), then the fuel cost savings achieved
by navigating through the SSCP, will be nullified for the shipping

The 'Time Savings' tabulation at Appendix C debunks the claim of the
SCL website of 'Savings upto 30 hours in sailing time'. The same is
the case in 'Savings in Voyage distances' also.

Cost escalation. A report in the economics daily 'MINT' of 25 Sept.
2007, entitled 'Money runs dry for Sethusamudram', stated the cost of
the project has 'Skyrocketed to at least 4000 crores, interest rates
have crawled higher and old loan terms have lapsed.' In a word, higher
tariff regime for ships other than indicated at Appendix A.


In my earlier 6 Part 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.
The SSCP is a nautical folly.

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