Sethusamudram - A Rethink

India's Coastal Shipping: (8)

"Activities with low productivity or low value addition, in the final analysis, hurt the poorest the most." – APJ Abdul Kalam in 'India 2020'

 

At a cost of 600 million $ - a project to blast & dredge 89 Kms of rocky seabed & land, entailing a canal of 167 Kms with a width of 300 metres and a depth of 12 metres – joining Arabian Sea to the Bay of Bengal, Sethusamudram appears to be of ' Low productivity & low value addition. Quote from official government web site: "The channel will cut short sailing of an additional distance of 254-424 nautical miles and 21-36 hours of sailing time"

 

Facts: The most distance you can save is from Chennai to Tuticorin is only about 350 nautical miles. From Africa, you save no distance at all. From Red sea or Persian Gulf region towards Malacca straits, you would some distance. Considering the best-case scenario of west coast to east coast, you would save 18 to 29 hours depending on a speed of 20 to 12 Knots. In the canal, you have to slow down to about 6 to 8 Knots for shallow water effects. You have to slow down to pick up or drop pilot too. So effectively, you could save 12 to 20 hours. You would save fuel of about 25 Tons for an
average 12000-Ton ship drawing about 8 metres of draft. The largest vessel transiting the canal can draw a maximum draft of 10 metres along with smaller ones. From charterer's point of view, you can save about 12000 $ in today's market (This could go higher when charter rates and bunker prices go up), provided the transit is free of cost for the vessel in the example. Moreover, it is not meant to be free. The project plans to recover the costs in 30 years! 600 million $ in 30 years amounts to daily net profit margin of 55000$. The project guestimates 9 calls a day, implying a net profit of 6100$ per vessel call. To get a net profit of 6100$ per ship, perhaps you have to charge 9,000$ per vessel – because you will have the running costs of staff, navigation, & periodic dredging too. No ship owner or charterer would be willing to save only 2000$ for the trouble, unless the transit tariffs are brought down.

 

Going by the news reports, China & Pakistan have provided arms and UN support to Srilankan government to crush the LTTE. As part of this deal, they are building a port on the southern part of Srilanka for undisclosed purposes. 'Sethusamudram' project has irritated and threatened our friendly neighbour to cosy up with China & Pakistan. This would cost us heavy too in military expenses. Was this an externality, unimagined?

 

Solution: Coming back to the cost of 600 million $, the dredging cost is phenomenally high. The charter hires of dredgers had obscene figures like 40,000 to 80,000$ a day. In this current market situation, the numbers need to be crunched harder with repeat tenders. This can bring down the cost to about 300 million $, if you stick to a depth of 12 metres. I would suggest bringing the depths down to about 7 metres for coastal barges, small vessels and ships in ballast – after all, we need to start from smaller ships & barges. This would bring down the dredging cost further to about 200 million $. The coastal Masters should be allowed to navigate without compulsory pilots. This shall open the door for development of coastal shipping and trade. When demand increases further for bigger vessels instead of barges, the canal can again be dredged keeping the commercial viability in mind. At the same time, our friendly neighbour should be constructively involved in its making and usage, removing any threat perception and collaborating on mutual share of the facility. The saved money should be used for development of 'Smart Flag' & port facilities – where we need the funds desperately.