With Tamil Nadu set to go for assembly polls in March-April next year, Centre-owned VO Chidambaranar (VOC) Port Authority has resurrected plans to build a mega container terminal in its outer harbour by calling bids to construct breakwater along with capital dredging and reclamation for backup yard on the Public Private Partnership Hybrid Annuity Mode (HAM) at an estimated cost of Rs 9,859.45 crore.

The tender, issued on Friday, comes some two years after Prime Minister Narendra Modi laid the foundation stone for the outer harbour container terminal project at the state-run port located in Tamil Nadu's Thoothukudi district on February 28, 2024, following Cabinet approval for the Rs 7,055.95 crore project.

VOC Port Authority, though, failed to attract bidders even after two rounds of auctions spread over 20 months, causing huge embarrassment to the Modi government.

At the foundation stone laying ceremony on February 28, Prime Minister Modi, pointing a finger at DMK's K Kanimozhi, Member of Parliament representing Thoothukudi, who was seated on the dais, said that her party held the shipping portfolio for 10 years during the UPA rule but failed to develop the outer harbour project.

"I am going to take up that work, and I will convert VOC Port into a container transhipment hub," he had assured the public.

The port authority's failure to implement the project for close to two years with private funds is expected to give the ruling DMK a handle to attack the Modi government for giving "false promises", said an industry source.

The delay has also escalated the total project cost of constructing the mega container terminal by 75.1 per cent to 12,354.78 crore, including a whopping 155 per cent increase in dredging expenses to Rs 3,622.55 crore, raising concerns over lack of accountability for the "faulty" cost estimates previously worked out by the National Technology Centre for Ports, Waterways and Coasts (NTCPWC).

If a project cost increases by 20 per cent, it requires fresh clearance from the Cabinet ahead of floating tenders. In this case, the project cost will be double the cost approved earlier by the Cabinet.

"The VOC Port Authority will get a dressing down from Modi when the project is taken to the cabinet for fresh approval," the source said.

In its zeal to showcase the mega project to the public ahead of the polls, VOC Port Authority is said to have floated the HAM tender without waiting for the Public-Private-Partnership Appraisal Committee (PPP-AC) and the Union Cabinet to clear the restructured project, the industry source said.

The restructuring involves splitting the project into two components with the construction of breakwater, rock bund, wharf along with capital dredging, reclamation for backup yard and allied onshore facilities, including maintenance, to be undertaken on the Hybrid Annuity Mode (HAM) by adopting the model followed for the Vadhvan port in Maharashtra.

The bid will be awarded to the entity quoting the lowest cost for the works.

Whereas the container terminal will be developed through the PPP route.

In the previous rounds of tendering for the ambitious 4 million twenty-foot equivalent units (TEUs) capacity container terminal in its outer harbour, the VOC Port Authority had structured the project on the viability gap funding (VGF) model.

The VGF of Rs 1,950 crore translated into 27.64 per cent of the total project cost of Rs 7,055.95 crore. The project was to be awarded to the bidder quoting the lowest VGF, the sole criteria for evaluation of bids, for a concession period of 45 years.

Cost escalation
Interestingly, a fresh 'Draft Detailed Project Report for Development of Outer Harbour at VOC Port' written by the same NTCPWC has re-estimated the capital cost of the project at Rs 12,354.78 crore including GST, as against Rs 7,055.95 crore in the previous rounds of tendering, an increase of 75.1 per cent.

The NTCPWC, in its draft DPR "noted that no provision has been made to cover unforeseen costs owing to force majeure events, exchange rate fluctuations and changes in rates of taxation, changes in law or other circumstances", indicating that the project cost could be much higher. Multiple industry sources reckon that the project cost may touch Rs 15,000 crore.

According to the draft DPR prepared by NTCPWC, the capital cost for the 'Outer Harbour Development Phase I Stage 1' is estimated at 26,224.99 crore including GST.

Construction of one container terminal to handle 18 metres draft vessels, development of container terminal yard and other matching infrastructure facilities such as roads, supplying and installing container handling equipment such as quay gantry cranes, rubber tyred gantry crane, tractor trailers and reach stacker, etc is estimated at 23,066.68 crore including GST, translating to 19,291.67 crore.

In stage 2, a second container terminal will build to handle 18 metres draft vessels, along with development of container terminal yard and other matching infrastructure such as roads which is estimated to cost Rs 3,063.11 crore including GST, taking the total project cost to 12,354.78 crore, per revised estimated worked out by NTCPWC in June this year.

Dredging the seabed comprising of soil and weathered rocks in front of proposed container terminal 1 and 2 at the outer harbour and the straight navigational channel (10.96 million cubic metres of dredged materials) to handle 16 metres draught vessels is estimated at 23,622.55 crore compared to the earlier Rs 1,420.62 crores, a whopping 155 per cent increase.

The construction of a 5.513 km long breakwater using the dredged material is estimated at 21,344.72 crore compared to the earlier Rs 698.45 crore, an increase of 92.53 per cent.

"The estimate is firm as on June 14, 2025. Hence, whenever the works are undertaken in a phased manner, the rates need to be reviewed and updated," the NTCPWC wrote in the draft report.

VOC Port Authority then hired Spain's Tecnica Y Proyectos SA (TYPSA) to write a Detailed Project Report (DPR) for building the mega container terminal.

The draft revised DPR written by NTCPWC formed the basis for TYPSA to prepare a DPR and the work was completed within a few days, a person familiar with the matter said, adding that the board of VOC Port Authority cleared the DPR in "double quick time".

Following this, during a meeting held in Delhi, senior officials in the Ministry of Ports, Shipping and Waterways is said to have questioned the port authority's decision to involve NTCPWC in writing a "commercial" report for the project, the person said.

The steep increase in dredging costs has also lent credence to concerns expressed by bidding groups in the earlier rounds of tendering over what they called "unrealistic" cost estimates worked out by NTCPWC on dredging and break water construction.

This also explains why the port authority is now looking at using the HAM model for dredging and reclamation works to deflect potential criticism over the "faulty and unrealistic" estimates worked out by the NTCPWC for the last round.

"Now, they can't do the project on a complete PPP and want to split it by adopting the HAM model for breakwater, dredging and reclamation works and PPP route for erecting the container terminal," the industry source said.

VOC Port Authority did not respond to an email seeking comment.

Source: ET Infra. Com 

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