Palk Bay and Sethusamudram Shipping Canal Project

Sethusamudram: will the ships use it?

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The Hindu, Open Page, 21 December 2004

THE BASIC justification advanced in favour of the Sethusamudram Ship Canal Project (SSCP) is that it will reduce the distance between Kolkata and Tuticorin by 340 nautical miles and between Chennai and Tuticorin by 434 nautical miles, thereby saving, for the ships plying between these places, both fuel cost and time involved in sailing the additional distance.

Not a free seawayEdit

This justification will be readily valid if the SSC is a free seaway which ships can sail through without any payment to the project authority.

But the SSC cannot be a free seaway because the grounding of a wayward coal or oil ship that strays from the alignment or a collision of two ships in the channel will result in an ecological disaster of unimaginable proportions to the Gulf of Mannar and the Palk Bay.

So ships will be allowed to pass through the canal only under regulated pilotage, and pushed/pulled by tugs belonging to the SSCP.

The official project paper says that the estimated investment of Rs. 2,000 crores will "earn an operating profit from its very first year of operation and that the capital will be recovered with 9 per cent interest within the first 25 years after which there will be a mammoth profit generation in the next 25 years."

Obviously, even while saving on the cost of fuel, a ship passing through the canal will be expected to make a payment to the SSCP for using the facility.

The question arises: will the saving in fuel cost be substantially greater than the charge to be levied by the SSCP to enthuse the shipowners to use the canal?

If the SSCP is to make a profit, its levy must leave a margin after meeting the cost of amortisation of the capital and the annual revenue expenditure incurred on maintenance dredging and provision of the pilotage service.

The likely pilotage charge to be levied by the SSCP has not been made public, but an approximate figure can be guessed by extrapolating similar charges levied by the Chennai and Tuticorin Port Trusts at present.

The approach channel to Chennai port has a length of 7 km. A 36,000 tonne coal ship calling at Chennai has to pay approximately Rs. 21.75 a tonne, or a total of Rs. 7.83 lakhs, as pilotage charges, averaging Rs. 1.11 lakh per km.

Tuticorin's approach channel is only 2.4 km long and an identical coal ship calling at this port is levied Rs. 17 a tonne, or a total of Rs. 6.12 lakhs, towards pilotage, working out to Rs. 3 lakhs per km.

(The comparative lower rate per km in Chennai is because the capital cost of digging the much older channel had been amortised a long time back.)

The projected length of the Sethusamudram channel is 56 km. Both capital and recurring cost will be much higher for the SSCP than for the Chennai and Tuticorin ports, and its levy of pilotage per km is likely to be substantially higher than that of even the latter if it has to have a 9 per cent return on the capital.

Even if the Chennai rate is assumed, the same ship will have to pay over Rs. 60 lakhs to the SSCP for passing through the canal.

But the cost of fuel that will be saved by the same ship by taking the shorter route through the Sethusamudram canal instead of sailing round Sri Lanka will be less than Rs. 7 lakhs, which is even less than 1/8 of SSCP's likely levy.

The saving in sailing time for that ship will also be substantially less than the 36 hours projected by the SSCP because the ship cannot be towed at its normal speed through the canal, and time will also be lost in embarkation/disembarkation of pilots and other inspection procedures. The saving in sailing time of just about a day will not justify the incurring of over 8 times the cost of the saved fuel.

Mutually contradictoryEdit

Though the above example relates to only a 36,000 tonne coal ship, the argument is valid for other types of vessels also.

So, shipowners conscious of the bottomline in their balancesheets are likely to evince little enthusiasm in using the Sethusamudram canal.

The two statements that the ships using the Sethusamudram canal will save money and that the SSCP will be a financially viable undertaking are therefore mutually contradictory and cannot have simultaneous validity.

The comparison of Sethusamudram to Suez is not valid because the 160 km long Suez Canal, by obviating the need to sail around the African continent, saves a distance of more than 9,000 km between a European port and any eastern port such as Colombo, Chennai, Singapore or Tokyo. The consequent saving in fuel cost and time is substantial enough for ships to ungrudgingly pay the toll charges levied by the Suez Canal Authority.

(The author is a former Deputy Chairman of the Chennai Port Trust and former Managing Director of the Poompuhar Shipping Corporation)

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