Great Nicobar Port Project: Economic and Strategic Justifications Under Scrutiny
On the ground in Campbell Bay, the government’s promise to remake Great Nicobar into the Indian equivalent of Singapore, Hong Kong, or Macau is starting to feel imminent. Not only has a steady stream of Central government bureaucrats and Ministers been flocking to Great Nicobar, at least two firms have begun preparatory work on the project, which involves building a transshipment terminal and a township to support it on the island.
In the past one year alone, the Prime Minister’s Principal Secretary, P.K. Mishra; the Home Secretary, Ajay Bhalla; the Union Minister for Shipping, Sarbananda Sonowal; and the Union Minister of State for Ports, Shipping and Waterways, Shantanu Thakur have toured the island. Late this January, senior bureaucrats from the Home Ministry and NTPC also paid a visit. The Port Blair-based SS Associates is soil-testing for Egis India, a Gurugram-based engineering consultancy that bagged the bid to design the township. Another company, owned by local panchayat pramukh (head) E.S. Rajesh, is setting up boundary pillars in revenue areas, marking locations for each project component.
There are other signs of change as well. A turtle hatchery on the eastern flank of Galathea Bay has been removed. Locals see more vehicle movement than before. They also say land prices in Great Nicobar are rising fast. “The price used to be around Rs.4 lakh an acre and has now climbed to Rs.45 lakh,” said Sanjay Singh, a civil contractor in Campbell Bay who is also a local BJP leader.
In a few weeks, the activity will accelerate. Last September, even before the project’s Stage 2 forest clearance came in, the Andaman and Nicobar Islands Integrated Development Corporation Ltd (ANIIDCO) had invited expressions of interest for logging. Even though a staggering one million trees (as per official estimates; scientific estimates run higher) will be cut, the Stage 2 clearance is expected soon. Thereafter, once ANIIDCO chooses from the 13 firms that participated in the tender, 130 square kilometres of forest will be clear-felled.
Secrecy and a clampdown
In the meantime, the island is seeing a clampdown. Fearing negative publicity—given the project’s implications for the island’s endemic biodiversity, species like the leatherback turtle that nests in Galathea Bay, ancient forests, and indigenous communities—the Union Territory’s (UT) administration is trying to keep visitors out. Unlike the rest of the island, Campbell Bay is revenue land and, ergo, open to all Indians. Yet, as this reporter personally found, the administration is telling visitors—even tourists—to get approvals from Campbell Bay’s Assistant Commissioner (AC) before it issues flight tickets. Thereafter, the AC’s office does not respond to email and WhatsApp requests.
Also Read | Great Nicobar: Disaster in the making
“I did my last tour there in March 2023,” a Port Blair–based birding tour operator told Frontline on condition of anonymity. “After that, no more tours. In April 2023, they issued an informal order that tourists cannot visit Campbell Bay even though they have no authority to bar visitors.”
A reporting team from the online news organisation The News Minute that reached the island—making the 30-hour journey by ship—told Frontline about the struggle to get access to the forests and about being followed and questioned by local police and Intelligence Bureau officers. The police even tried to stop the two journalists from interviewing local Nicobarese people.
Both haste and secrecy are instrumental choices; despite major concerns ranging from the project’s ecological and social fallouts to its weak economic foundations, they help the government present a fait accompli on the ground.
At present, feeder ships carry as much as two-thirds of all container cargo from India to Colombo, Port Klang (Malaysia), or Singapore where they are loaded onto larger vessels. India’s Ministry of Shipping, therefore, believes that a transshipment port at Galathea Bay will not only save as much as $200 million to $220 million (Rs.17,000 crore to Rs.18,700 crore) each year in foreign exchange, it will also help India participate in the regional and global maritime economy and make it a major player in cargo transshipment.
The Galathea river gently flows into the Bay of Bengal. Logging along its upper reaches will result in the river transporting a lot of silt, locals and scientists fear, with implications for both local marine ecosystems and the port’s operating costs.
| Photo Credit:
M Rajshekhar
And yet, given its scale and distance from the mainland, the Great Nicobar project will be expensive. “The cost of construction in the islands cannot be compared with that in the mainland,” said the head of a civil construction firm in Port Blair on condition of anonymity. “Here, everything costs 2.5–3 times more.”
Can it be competitive?
At the same time, Great Nicobar cannot charge more for cargo movement than rival ports like Colombo. Given that the prevailing market rate is about $35 per container, even if the project handles the targeted four million containers, the revenue will not cover even interest payments, as this article will show.
Private bidders, therefore, want the government to pay for the port construction. As for the township, ports need towns to provide the services that shippers will require. As a Mumbai-based maritime consultant said: “Great Nicobar is not competing with just Singapore or Colombo’s ports but the cities around them too.” However, unlike regular ports that have a large hinterland producing goods and services, transshipment ports produce very little economic activity. “The economic value captured by a container is as much as $25,000–30,000,” said the consultant. “The economic activity produced by a transshipment port, in contrast, is minuscule. All you are doing is unloading one container, putting it on a berth, then loading it onto another ship.”
In the absence of strong revenues from the port to recover investments on the township, the government is trying to create fresh business models for the city: a tourism hub, a shipbuilding yard, a ship-repair yard, a terminal for cruise ships, and so on. These plans too, however, will face higher construction costs and equivalent concerns about competitiveness. Compounding matters, some of these additions might work at cross purposes: like an airport for two million passengers and the plan for a defence base, the latter to ensure that the islands are not annexed and also for India to gain leverage over China, which depends on the Malacca shipping route.
If neither the city nor the port can pay for itself, the government might have to provide viability gap funding. In that case, its outlay on the project, which has already climbed from Rs.10,000 crore (2020) to Rs.72,000 crore (2022) and again to Rs.81,000 crore (2024), will rise yet higher.
The counter-argument about strategic considerations comes with its own questions. Does a defence project have to be clubbed with a transshipment port, a tourism hub, and a financial city?
How does one understand these choices?
Various parameters at play
Like airlines, shipping firms increasingly follow a hub-and-spoke model. Their largest vessels drop containers heading to India’s eastern seaboard at transshipment ports in Colombo, Port Klang, or Singapore. These ships, which continue to grow in size as shippers chase efficiency, do not deviate from their route. “It is not cost-effective for them to do so,” said the maritime consultant. “They drop cargo at a transshipment port from where it is moved by a smaller ship to the destination.”
This is where the claimed opportunity for Great Nicobar lies. “While Chennai will find it cheaper to source containers from Colombo, for ports like Vizag, Gangavaram, Paradeep, Kolkata, and even Bangladesh and Myanmar, Nicobar is closer than Singapore,” said the maritime consultant.
A forest guard collects Olive Ridley eggs inside a forest department hatchery. Great Nicobar is a prime nesting site for Leatherback, Olive Ridley and Green turtles. Of these, leatherbacks, highly endangered, nest mainly at Galathea Bay.
| Photo Credit:
M Rajshekhar
Indeed, a feeder vessel dropping (and collecting) containers to and from Great Nicobar and Singapore will cut sailing distance by close to 1,000 nautical miles—a saving of as much as $150/container, said the consultant—in a line where, as websites like Freightos show, the cost of shipping a container to Vizag currently stands at $5,241 (Germany), $4,345 (New York), and $2,874 (Guangdong). With a base at Great Nicobar, the argument goes, shipping revenues to and from India will stay within the country, rather than go to Singapore and Colombo. In addition, the country can start handling some of the container traffic between Bangladesh and Myanmar.
Sailing distance, however, is not the sole consideration for shipping lines in deciding where to offload containers. “Many of these ships are going around the Cape of Good Hope,” the head of a shipping industry association told Frontline on condition of anonymity. “Another day’s sail doesn’t matter. The number one factor is the draft; then space to keep container cargo for a week or 10 days before other vessels come to collect it; then the capacity to berth vessels up to 425 metres long.”
Apart from these, he said, productivity is important. “In industry standards, the turnaround time for a vessel with 10,000 TEUs [twenty-foot equivalent units] is 24 hours at the most. Then there are port charges; this includes vessel charges and container handling charges.”
A 2022 paper published in Marine Policy journal echoes this. Titled “Do Container Terminal Operators and Liner Shipping Companies See Eye to Eye?”, the paper says: “For port operators, the most important criterion for competitiveness is port location, followed by service level, port tariffs, and port facilities. In contrast, the most important criterion for carriers is (port) operational efficiency.”
Setting up a support system
Finally, as mentioned, transshipment ports do not exist in isolation. “Before a shipping line decides to shift its transshipment business, it will need bunkering, crane operators, banks, hotels, staff housing, schools, hospitals, and power plants,” said the maritime consultant. “If we are talking about 3.5 million containers, that is 280 ships a year. Each will need support services, immigration, crew changes, airline coverage, pilotage, customs, and so on.”
Great Nicobar passes the first of these tests: its draft is 20 metres. The next three requirements are construction challenges that can be addressed. Similarly, while turnaround time for most Indian ports is high, experts say private ports are globally competitive.
Vessel charges might be a problem. The average call cost for vessels of 3,000 TEU capacity in India works out to $32,000, compared with $7,000 in Colombo, $8,000 in Singapore, and $12,000 in Hong Kong. “All Indian ports have high vessel charges,” said the shipping association head. The reasons, he said, besides high fixed costs, are running costs like labour, pensions, and dredging. In private ports, there is the added possibility of rising monopolisation pushing charges up.
Port charges, however, are where the real problem lies. In the Indian Ocean region, container handling charges range between $25 and $45. “Port charges are negotiated,” said the shipping association official, “but $25-$35 is what Colombo will charge; Singapore might be $10 more.” To attract vessels, Great Nicobar will have to offer similar rates. “It doesn’t matter what the fixed cost is,” he said. “If they want business, they will have to be competitive. Otherwise, even if they build a Taj Mahal, ships won’t come.”
In its Preliminary Engineering Design Report for the International Container transshipment Terminal (ICTT) at Galathea Bay, the engineering consultancy AECOM made a similar point. While Great Nicobar can levy similar vessel charges to Colombo, the report says, its terminal handling charges (THC) have to be lower. “For GNI [Great Nicobar Island] to become a serious force, the landed cost of containers should be competitive if not lower than the region’s other transshipment terminals.… It is proposed that GNI start with a tariff discount of 20% on the tariff offered by Colombo. Hence, the recommended THC tariff for GNI is $32.8/TEU-move.”
Money matters
Now, the project’s environmental impact assessment (EIA) report pegs the cost of the transshipment terminal at Rs.35,959 crore—revised last year to Rs.41,000 crore. It will be built in two phases, with the first phase costing Rs.18,000 crore, and its capacity will be four million containers. It is projected to be built up by 2028. By 2059, the port capacity will quadruple to 16 million containers.
Even assuming that Great Nicobar draws four million containers—not easy given Colombo’s competitiveness plus India’s push for multiple transshipment ports, each also competing with Colombo—it will make, even at $35/container, about Rs.1,200 crore as gross revenue. At 12 per cent, interest payments alone on Rs.18,000 crore will be Rs.2,160 crore. Even if India gets cheaper loans—say, at 9 per cent—interest payments alone will stand at Rs.1,620 crore.
With such numbers, the port cannot recover its investment. This, however, is just the start. Factor in the township, and interest payments swell further. Even at 9 per cent, on a total investment of Rs.81,000 crore, annual interest payments will be Rs.7,290 crore. At 12 per cent, Rs.9,720 crore.
The government’s response to these mismatches has been twofold. To make the port viable, it is putting state money into the project. A special purpose vehicle (SPV) comprising Deendayal Port Authority, Paradip Port Authority, and V.O. Chidambaranar Port Authority has been formed. Mumbai’s Jawaharlal Nehru Port Trust was also asked to participate, with a Rs.1,400 crore investment as equity, but it baulked, citing its Vadhavan port commitment.
A monkey seen on a tree branch in Galathea. Its habitat among many others is at stake, with official estimates saying one million trees over 130 sq. km will be felled for the port project. Scientists say the number will be 10 times higher. The area around Galathea Bay is hilly with deep, wooded gorges.
| Photo Credit:
M Rajshekhar
The SPV might borrow against its equity. Alternatively, as the head of a Port Blair–based business group said, the Centre might fund the project from the national Budget. The money will go into developing basic port infrastructure like the breakwater. “If the project is for Rs.18,000 crore, this allocation will take care of Rs.14,000 crore,” he said. “The concessionaire will only have to pay Rs.4,000 crore. That is like a subsidy of 70 per cent. It will make the project viable.”
This idea might have come from the AECOM report, which, noting that even the port as a stand-alone entity (not factoring in the city) has low rates of return, suggested the government take over a part of the costs. After describing three approaches—one where the private party develops the whole project with viability gap funding from the government; another where the whole project is developed by the government; and a third where the government builds the basic infrastructure while the concessionaire runs the port and gives the state a 53 per cent revenue share—AECOM recommended the third approach. It would, it said, make the project “financially viable for the concessionaire”.
This approach comes with its own questions.
“The best way to establish feasibility is to ask some transshipment port guy to come in and invest money,” said the businessman in Port Blair. “They will invest if the port is viable. What we have here is the government saying it will support it.”
Balance sheet not tallying?
Given that decision, other questions follow. Given that the SPV has three firms with experience of running ports, why does India need a private concessionaire? If port trusts or the government put in Rs.14,000 crore, how do they recover that money? Conversely, if they get a 53 per cent revenue share from the concessionaire, as the AECOM report suggests, how does the port pay for itself? The AECOM study lists annual operation and maintenance (O&M) costs for each stage of development. These start at Rs.502 crore (2025-34) before rising to Rs.822 crore (2035-44), Rs.1,137 crore (2045-54), and Rs.1,703 crore (2055-65). In other words, if the port pulls in Rs.2,160 crore revenue (phase 1) but spends Rs.502 crore on O&M and hands another Rs.1,144.8 crore to the government, the concessionaire will be left with Rs.513.2 crore—from which it has to repay its own loans (Rs.480 crore at a commercial lending rate of 12 per cent on Rs.4,000 crore) and support the township which will have its own interest payments and O&M costs. These numbers don’t add up.
Frontline shared these calculations with ANIIDCO, AECOM, and the Home Ministry (which is steering the project), for comment. As of going to press, there was no response.
Then, there is the township. Here too, the government is pushing a part of the expenditure on to state bodies. For instance, NTPC will build the gas-based power plant, which will cost at least Rs.3,000 crore. It is not clear how the other amenities—schools, hospitals, hotels, housing—will be funded. Some of these, like housing, might be pure EPC (engineering, procurement, and construction) deals where the government pays for construction. Others, like hotels, might be handed to firms, with the government providing only basic urban infrastructure.
The government is also trying to boost other activities on the island. There is talk of developing Great Nicobar into a financial hub; a tourist destination (the airport capacity is pegged at two million passengers); a shipyard, a cruise terminal. Questions surround all these plans.
Plans for a financial hub—on the lines of Singapore or Macau—are fraught. Between the airport, the power plant, and the port, India will spend Rs.47,000 crore. That leaves Rs.34,000 crore for the city projected to house at least 3,00,000 people. Investments in Singapore or Colombo were of a different order of magnitude altogether. The city will have to be built fast; urban amenities like hotels, hospitals, homes, shops, and schools would be required from the start. So, those investments will need to be made upfront. Frontline asked ANIIDCO and the Home Ministry if the government would extend viability gap funding in these cases too. There was no response.
Port versus tourism
Tourism is another part of the Great Nicobar project. But, “last year, all of Andaman and Nicobar attracted five lakh tourists”, said the business head in Port Blair. How many can Great Nicobar attract on its own, especially after its biggest tourist destination, Galathea Bay, is concretised into a transshipment port?
Or take the shipbuilding yard. Its competitiveness will suffer from the 2.5–3 times jump in construction costs on the archipelago. And then, there is ship repair. While it is needed for the transshipment port, it is a polluting activity that militates against the tourism plans.
An operational demonstration by Andaman and Nicobar Command at Radhanagar beach, Swaraj Dweep Island, in Andaman and Nicobar Islands, Wednesday, Feb. 21, 2024. Opinion is divided over whether India needs a reconnaissance base in Great Nicobar. Some feel the Navy is better off beefing up existing infrastructure at Car Nicobar, Port Blair, and Visakhapatnam.
| Photo Credit:
PTI
If these revenue streams fail to materialise, the government might have to provide viability gap funding for the township, power plant, and airport too. In that case, between rising fixed costs, interest payments, and viability gap funding, what will be India’s total outlay on the project?
Given that ANIIDCO is the nodal agency, Frontline asked a senior official at its Port Blair office if the UT administration would provide viability gap funding. The official bristled. “Andamans cannot pay VGF,” he said. “It is too small. GoI will have to [do so].”
Such calculations have created an impression in Port Blair that the Great Nicobar project is not about the transshipment port at all. “It doesn’t feel commercial to me,” said the businessman. “I think the logic here is more strategic than commercial.”
That hypothesis, however, comes with its own questions.
A strategic project?
From the national security perspective, the question, as retired Rear Admiral Raja Menon wrote in The Indian Express, is whether India wants a minor reconnaissance base in Great Nicobar or a full-fledged Pearl Harbour as the outpost of a future Eastern theatre command. In defence circles, opinion is split. Some feel the Navy is better off beefing up existing infrastructure at Car Nicobar, Port Blair, and Visakhapatnam than in creating a forward post that will have its own vulnerabilities. “I don’t think the Indian Navy has much say in this,” a defence analyst told Frontline. “It’s a government decision. The Navy wants to focus on Karwar, which is still under development even after 15 years, due to lack of funds. That is the only port where India can dock its aircraft carrier. It also wants to develop its Port Blair facilities.”
One counter-argument here, made by another defence analyst, is that “most islands in Andaman and Nicobar are uninhabited. There is a danger that China could occupy them.” So, India should build more infrastructure on the islands. But this is as easily done by creating locally relevant infrastructure like an industrial fishing harbour, a long-standing demand here. Instead, the country is “over-building” on Great Nicobar, with all the economic and ecological risks it carries.
In its response, the Ministry of Defence defended the project, saying: “While existing defence assets at Car Nicobar, INS Baaz, and Port Blair play a crucial role in India’s maritime security, the new infrastructure at Great Nicobar intends to complement and enhance operational capabilities, rather than supplant ongoing projects.”
In response to a second question—on whether the base’s vulnerabilities would increase due to the township around it—the Ministry wrote: “The coexistence of defence and civilian assets, both seaports and airports, is a global best practice as it facilitates potential dual use of assets during crises. The defence assets are properly ring-fenced and the increase in the commercial and civilian activities do not make our defence assets vulnerable, as borne by the operations at Vishakapatnam and Mumbai ports.”
The 2004 tsunami dramatically altered the coastline in the islands. This water tank at Anderson Beach used to stand 500 metres inshore, next to the road running south to Indira Point. On the other side were houses, all of which have vanished now. After the tsunami, the transshipment project is the biggest ecological calamity to befall the island.
| Photo Credit:
M Rajshekhar
The Ministry also denied that India’s investment in Galathea comes at the cost of other naval installations. “Needless to emphasise, the investment in ICTP [International Container Transshipment Port] does not come at the expense of existing defence infrastructure projects such as Karwar, which remain a priority within our own strategic framework.”
These answers hold a clue to how the Great Nicobar project might play out on the ground. When Frontline spoke to a senior infrastructure official in Mumbai, he said that at its core, Great Nicobar was a strategic project. “Infrastructure projects need to be projected at an integrated scale to get the required institutional attention, energy, and traction,” he added. “It’s the nature of infrastructure planning.”
Too slow to succeed?
And yet, there is also the harsh reality. “The government has real, hard fiscal constraints irrespective of the ministry,” said the infrastructure official. “Only the minimal components that are strategic or commercially viable will be taken up. For the rest, the plan will remain on paper till such time as the situation changes and they become viable or are prioritised for budgetary resources.”
Hardwired into this schemata is a problem. If the government is cash-strapped, as the maritime consultant said, the port-city might be built in bits and pieces, but shipping firms will relocate only if all the services are in place. And if they delay relocation, even with government subsidy, the project’s calculations will go awry.
Given such risks, Great Nicobar is likely to see an EPC boom. Bidders will come to build the project—not to run it. “Most companies that bid for the port asked for EPC contracts,” said the maritime consultant. “They did not bid for the whole project.” Besides, he said, a clutch of consultants are adding fresh components and trying to bag contracts for presenting detailed project reports (DPR).
In other words, it is possible to extract profits even from an unviable project. The country, however, will get saddled with debt and ecological devastation.
Off with the trees
Logging illustrates that well. According to official estimates, one million trees are to be cut. Scientists, however, peg that number 10 times higher. Even at one million trees, the gains will be sizeable. The forests of Great Nicobar have softwoods and hardwoods.
“Hardwood can fetch as much as Rs. 2,00,000 per cubic metre,” said a Port Blair-based hotelier. “Even the softwood—like rubber—can be treated and used for furniture.”
A check post abandoned since the 2004 tsunami dramatically altered the coastline in the islands.
| Photo Credit:
M Rajshekhar
Walking around Galathea Bay, one sees towering trees. “There are big, big trees there,” agreed a Nicobarese tribal leader. Even assuming that 1 cubic metre will be logged from each tree, the timber will fetch anywhere from Rs.15,000 crore to Rs.20,000 crore if sold raw, without processing into more expensive products like veneer. If the number of trees felled is tenfold higher, as scientists say they would be, these numbers will rise proportionately.
In other words, following from what the infrastructure official said about viability shaping the project’s rollout, whether the port or township come up or not, trees will get cut. Interestingly, logging will not be done by the forest department. ANIIDCO is overseeing it. A bunch of private firms like Ultra Tech, the Hyderabad-based Falcon Resilient Infra, the Mumbai-based Terracon Ecotech, the Delhi-based EQMS Global, and PSUs like MECON, RITES, and Konkan Railway Corporation Ltd have participated in its tender. It will be educative to see what percentage of the timber’s value comes to the government.
As things stand, logging will further push up port costs. “The Galathea river flows into the bay,” said a former tehsildar at Great Nicobar. It is the island’s largest river. “Once you cut trees above its delta, its run-off will increase and it will carry a lot of silt,” he said. In other words, to protect the port’s 20 metre draft, dredging will be needed. AECOM’s report, however, is silent on this risk. The project’s EIA too is silent on the impact of siltation on local coral reefs and marine habitats, said the biologist T.R. Shankar Raman.
The Indian government has advanced two reasons for the Great Nicobar project: commercial and geopolitical. Questions swirl around both. Will the port be a white elephant? Also, with the project, feeder ships will save money, but are their savings significant enough to justify the Rs-81,000 crore (not counting interest payments and viability gap funding) that India will spend? Opinion is also split on whether India needs a large defence base at Great Nicobar. Even if it does, should it be bundled with townships and tourism?
Questions abound
As the shipping industry moves to ever larger vessels, the port of Sabang, on the other side of the Malacca Straits in Indonesia’s western extreme, will become more competitive with its draft of 40 metres. Adani was even in talks with Indonesian authorities for this port. Then, there are other risks like cost overruns, earthquakes, storms, tsunamis, and political risk. “If the government changes, this project will get abandoned,” said a Campbell Bay–based businessman. “The government is moving fast because they do not know how long they will be in power.”
Also Read | An obit for Patai Takaru
What one sees here is the political economy of infrastructure projects in India. Local people will not gain from the project. Even the settlers, as the Campbell Bay businessman told Frontline, will meet the same fate as the villagers of Havelock up north in the Andamans. They will have to leave. “This project will help local [people] only in the short term,” he said. “The jobs created will not go to [them]. That is what happened in Havelock. The local [people] left after the hotels came.” Even local companies in Port Blair will not gain; the tenders are too large for them. The businessmen Frontline spoke to hoped for some subcontracting work but were unsure of larger benefits. “All profits from Great Nicobar will be repatriated to the Centre,” said a construction firm owner. “There will be little impact on the rest of the islands.”
What Indians are getting, instead, is a big budget EPC boom that will benefit a few conglomerates. Interestingly, the project, described as critical to India’s maritime and defence interests, is not being handled by either the Ministry of Shipping or the Ministry of Defence. Instructions to ANIIDCO, instead, are coming from Amit Shah’s Home Ministry.
M. Rajshekhar is an independent journalist who writes on energy, the environment, and democracy. He is the author of Despite the State: Why India Lets Its People Down And How They Cope, published by Westland Books in 2021.
On the ground in Campbell Bay, the government’s promise to remake Great Nicobar into the Indian equivalent of Singapore, Hong Kong, or Macau is starting to feel imminent. Not only has a steady stream of Central government bureaucrats and Ministers been flocking to Great Nicobar, at least two firms have begun preparatory work on the project, which involves building a transshipment terminal and a township to support it on the island.
In the past one year alone, the Prime Minister’s Principal Secretary, P.K. Mishra; the Home Secretary, Ajay Bhalla; the Union Minister for Shipping, Sarbananda Sonowal; and the Union Minister of State for Ports, Shipping and Waterways, Shantanu Thakur have toured the island. Late this January, senior bureaucrats from the Home Ministry and NTPC also paid a visit. The Port Blair-based SS Associates is soil-testing for Egis India, a Gurugram-based engineering consultancy that bagged the bid to design the township. Another company, owned by local panchayat pramukh (head) E.S. Rajesh, is setting up boundary pillars in revenue areas, marking locations for each project component.
There are other signs of change as well. A turtle hatchery on the eastern flank of Galathea Bay has been removed. Locals see more vehicle movement than before. They also say land prices in Great Nicobar are rising fast. “The price used to be around Rs.4 lakh an acre and has now climbed to Rs.45 lakh,” said Sanjay Singh, a civil contractor in Campbell Bay who is also a local BJP leader.
In a few weeks, the activity will accelerate. Last September, even before the project’s Stage 2 forest clearance came in, the Andaman and Nicobar Islands Integrated Development Corporation Ltd (ANIIDCO) had invited expressions of interest for logging. Even though a staggering one million trees (as per official estimates; scientific estimates run higher) will be cut, the Stage 2 clearance is expected soon. Thereafter, once ANIIDCO chooses from the 13 firms that participated in the tender, 130 square kilometres of forest will be clear-felled.
Secrecy and a clampdown
In the meantime, the island is seeing a clampdown. Fearing negative publicity—given the project’s implications for the island’s endemic biodiversity, species like the leatherback turtle that nests in Galathea Bay, ancient forests, and indigenous communities—the Union Territory’s (UT) administration is trying to keep visitors out. Unlike the rest of the island, Campbell Bay is revenue land and, ergo, open to all Indians. Yet, as this reporter personally found, the administration is telling visitors—even tourists—to get approvals from Campbell Bay’s Assistant Commissioner (AC) before it issues flight tickets. Thereafter, the AC’s office does not respond to email and WhatsApp requests.
Also Read | Great Nicobar: Disaster in the making
“I did my last tour there in March 2023,” a Port Blair–based birding tour operator told Frontline on condition of anonymity. “After that, no more tours. In April 2023, they issued an informal order that tourists cannot visit Campbell Bay even though they have no authority to bar visitors.”
A reporting team from the online news organisation The News Minute that reached the island—making the 30-hour journey by ship—told Frontline about the struggle to get access to the forests and about being followed and questioned by local police and Intelligence Bureau officers. The police even tried to stop the two journalists from interviewing local Nicobarese people.
Both haste and secrecy are instrumental choices; despite major concerns ranging from the project’s ecological and social fallouts to its weak economic foundations, they help the government present a fait accompli on the ground.
At present, feeder ships carry as much as two-thirds of all container cargo from India to Colombo, Port Klang (Malaysia), or Singapore where they are loaded onto larger vessels. India’s Ministry of Shipping, therefore, believes that a transshipment port at Galathea Bay will not only save as much as $200 million to $220 million (Rs.17,000 crore to Rs.18,700 crore) each year in foreign exchange, it will also help India participate in the regional and global maritime economy and make it a major player in cargo transshipment.
The Galathea river gently flows into the Bay of Bengal. Logging along its upper reaches will result in the river transporting a lot of silt, locals and scientists fear, with implications for both local marine ecosystems and the port’s operating costs.
| Photo Credit:
M Rajshekhar
And yet, given its scale and distance from the mainland, the Great Nicobar project will be expensive. “The cost of construction in the islands cannot be compared with that in the mainland,” said the head of a civil construction firm in Port Blair on condition of anonymity. “Here, everything costs 2.5–3 times more.”
Can it be competitive?
At the same time, Great Nicobar cannot charge more for cargo movement than rival ports like Colombo. Given that the prevailing market rate is about $35 per container, even if the project handles the targeted four million containers, the revenue will not cover even interest payments, as this article will show.
Private bidders, therefore, want the government to pay for the port construction. As for the township, ports need towns to provide the services that shippers will require. As a Mumbai-based maritime consultant said: “Great Nicobar is not competing with just Singapore or Colombo’s ports but the cities around them too.” However, unlike regular ports that have a large hinterland producing goods and services, transshipment ports produce very little economic activity. “The economic value captured by a container is as much as $25,000–30,000,” said the consultant. “The economic activity produced by a transshipment port, in contrast, is minuscule. All you are doing is unloading one container, putting it on a berth, then loading it onto another ship.”
In the absence of strong revenues from the port to recover investments on the township, the government is trying to create fresh business models for the city: a tourism hub, a shipbuilding yard, a ship-repair yard, a terminal for cruise ships, and so on. These plans too, however, will face higher construction costs and equivalent concerns about competitiveness. Compounding matters, some of these additions might work at cross purposes: like an airport for two million passengers and the plan for a defence base, the latter to ensure that the islands are not annexed and also for India to gain leverage over China, which depends on the Malacca shipping route.
If neither the city nor the port can pay for itself, the government might have to provide viability gap funding. In that case, its outlay on the project, which has already climbed from Rs.10,000 crore (2020) to Rs.72,000 crore (2022) and again to Rs.81,000 crore (2024), will rise yet higher.
The counter-argument about strategic considerations comes with its own questions. Does a defence project have to be clubbed with a transshipment port, a tourism hub, and a financial city?
How does one understand these choices?
Various parameters at play
Like airlines, shipping firms increasingly follow a hub-and-spoke model. Their largest vessels drop containers heading to India’s eastern seaboard at transshipment ports in Colombo, Port Klang, or Singapore. These ships, which continue to grow in size as shippers chase efficiency, do not deviate from their route. “It is not cost-effective for them to do so,” said the maritime consultant. “They drop cargo at a transshipment port from where it is moved by a smaller ship to the destination.”
This is where the claimed opportunity for Great Nicobar lies. “While Chennai will find it cheaper to source containers from Colombo, for ports like Vizag, Gangavaram, Paradeep, Kolkata, and even Bangladesh and Myanmar, Nicobar is closer than Singapore,” said the maritime consultant.
A forest guard collects Olive Ridley eggs inside a forest department hatchery. Great Nicobar is a prime nesting site for Leatherback, Olive Ridley and Green turtles. Of these, leatherbacks, highly endangered, nest mainly at Galathea Bay.
| Photo Credit:
M Rajshekhar
Indeed, a feeder vessel dropping (and collecting) containers to and from Great Nicobar and Singapore will cut sailing distance by close to 1,000 nautical miles—a saving of as much as $150/container, said the consultant—in a line where, as websites like Freightos show, the cost of shipping a container to Vizag currently stands at $5,241 (Germany), $4,345 (New York), and $2,874 (Guangdong). With a base at Great Nicobar, the argument goes, shipping revenues to and from India will stay within the country, rather than go to Singapore and Colombo. In addition, the country can start handling some of the container traffic between Bangladesh and Myanmar.
Sailing distance, however, is not the sole consideration for shipping lines in deciding where to offload containers. “Many of these ships are going around the Cape of Good Hope,” the head of a shipping industry association told Frontline on condition of anonymity. “Another day’s sail doesn’t matter. The number one factor is the draft; then space to keep container cargo for a week or 10 days before other vessels come to collect it; then the capacity to berth vessels up to 425 metres long.”
Apart from these, he said, productivity is important. “In industry standards, the turnaround time for a vessel with 10,000 TEUs [twenty-foot equivalent units] is 24 hours at the most. Then there are port charges; this includes vessel charges and container handling charges.”
A 2022 paper published in Marine Policy journal echoes this. Titled “Do Container Terminal Operators and Liner Shipping Companies See Eye to Eye?”, the paper says: “For port operators, the most important criterion for competitiveness is port location, followed by service level, port tariffs, and port facilities. In contrast, the most important criterion for carriers is (port) operational efficiency.”
Setting up a support system
Finally, as mentioned, transshipment ports do not exist in isolation. “Before a shipping line decides to shift its transshipment business, it will need bunkering, crane operators, banks, hotels, staff housing, schools, hospitals, and power plants,” said the maritime consultant. “If we are talking about 3.5 million containers, that is 280 ships a year. Each will need support services, immigration, crew changes, airline coverage, pilotage, customs, and so on.”
Great Nicobar passes the first of these tests: its draft is 20 metres. The next three requirements are construction challenges that can be addressed. Similarly, while turnaround time for most Indian ports is high, experts say private ports are globally competitive.
Vessel charges might be a problem. The average call cost for vessels of 3,000 TEU capacity in India works out to $32,000, compared with $7,000 in Colombo, $8,000 in Singapore, and $12,000 in Hong Kong. “All Indian ports have high vessel charges,” said the shipping association head. The reasons, he said, besides high fixed costs, are running costs like labour, pensions, and dredging. In private ports, there is the added possibility of rising monopolisation pushing charges up.
Port charges, however, are where the real problem lies. In the Indian Ocean region, container handling charges range between $25 and $45. “Port charges are negotiated,” said the shipping association official, “but $25-$35 is what Colombo will charge; Singapore might be $10 more.” To attract vessels, Great Nicobar will have to offer similar rates. “It doesn’t matter what the fixed cost is,” he said. “If they want business, they will have to be competitive. Otherwise, even if they build a Taj Mahal, ships won’t come.”
In its Preliminary Engineering Design Report for the International Container transshipment Terminal (ICTT) at Galathea Bay, the engineering consultancy AECOM made a similar point. While Great Nicobar can levy similar vessel charges to Colombo, the report says, its terminal handling charges (THC) have to be lower. “For GNI [Great Nicobar Island] to become a serious force, the landed cost of containers should be competitive if not lower than the region’s other transshipment terminals.… It is proposed that GNI start with a tariff discount of 20% on the tariff offered by Colombo. Hence, the recommended THC tariff for GNI is $32.8/TEU-move.”
Money matters
Now, the project’s environmental impact assessment (EIA) report pegs the cost of the transshipment terminal at Rs.35,959 crore—revised last year to Rs.41,000 crore. It will be built in two phases, with the first phase costing Rs.18,000 crore, and its capacity will be four million containers. It is projected to be built up by 2028. By 2059, the port capacity will quadruple to 16 million containers.
Even assuming that Great Nicobar draws four million containers—not easy given Colombo’s competitiveness plus India’s push for multiple transshipment ports, each also competing with Colombo—it will make, even at $35/container, about Rs.1,200 crore as gross revenue. At 12 per cent, interest payments alone on Rs.18,000 crore will be Rs.2,160 crore. Even if India gets cheaper loans—say, at 9 per cent—interest payments alone will stand at Rs.1,620 crore.
With such numbers, the port cannot recover its investment. This, however, is just the start. Factor in the township, and interest payments swell further. Even at 9 per cent, on a total investment of Rs.81,000 crore, annual interest payments will be Rs.7,290 crore. At 12 per cent, Rs.9,720 crore.
The government’s response to these mismatches has been twofold. To make the port viable, it is putting state money into the project. A special purpose vehicle (SPV) comprising Deendayal Port Authority, Paradip Port Authority, and V.O. Chidambaranar Port Authority has been formed. Mumbai’s Jawaharlal Nehru Port Trust was also asked to participate, with a Rs.1,400 crore investment as equity, but it baulked, citing its Vadhavan port commitment.
A monkey seen on a tree branch in Galathea. Its habitat among many others is at stake, with official estimates saying one million trees over 130 sq. km will be felled for the port project. Scientists say the number will be 10 times higher. The area around Galathea Bay is hilly with deep, wooded gorges.
| Photo Credit:
M Rajshekhar
The SPV might borrow against its equity. Alternatively, as the head of a Port Blair–based business group said, the Centre might fund the project from the national Budget. The money will go into developing basic port infrastructure like the breakwater. “If the project is for Rs.18,000 crore, this allocation will take care of Rs.14,000 crore,” he said. “The concessionaire will only have to pay Rs.4,000 crore. That is like a subsidy of 70 per cent. It will make the project viable.”
This idea might have come from the AECOM report, which, noting that even the port as a stand-alone entity (not factoring in the city) has low rates of return, suggested the government take over a part of the costs. After describing three approaches—one where the private party develops the whole project with viability gap funding from the government; another where the whole project is developed by the government; and a third where the government builds the basic infrastructure while the concessionaire runs the port and gives the state a 53 per cent revenue share—AECOM recommended the third approach. It would, it said, make the project “financially viable for the concessionaire”.
This approach comes with its own questions.
“The best way to establish feasibility is to ask some transshipment port guy to come in and invest money,” said the businessman in Port Blair. “They will invest if the port is viable. What we have here is the government saying it will support it.”
Balance sheet not tallying?
Given that decision, other questions follow. Given that the SPV has three firms with experience of running ports, why does India need a private concessionaire? If port trusts or the government put in Rs.14,000 crore, how do they recover that money? Conversely, if they get a 53 per cent revenue share from the concessionaire, as the AECOM report suggests, how does the port pay for itself? The AECOM study lists annual operation and maintenance (O&M) costs for each stage of development. These start at Rs.502 crore (2025-34) before rising to Rs.822 crore (2035-44), Rs.1,137 crore (2045-54), and Rs.1,703 crore (2055-65). In other words, if the port pulls in Rs.2,160 crore revenue (phase 1) but spends Rs.502 crore on O&M and hands another Rs.1,144.8 crore to the government, the concessionaire will be left with Rs.513.2 crore—from which it has to repay its own loans (Rs.480 crore at a commercial lending rate of 12 per cent on Rs.4,000 crore) and support the township which will have its own interest payments and O&M costs. These numbers don’t add up.
Frontline shared these calculations with ANIIDCO, AECOM, and the Home Ministry (which is steering the project), for comment. As of going to press, there was no response.
Then, there is the township. Here too, the government is pushing a part of the expenditure on to state bodies. For instance, NTPC will build the gas-based power plant, which will cost at least Rs.3,000 crore. It is not clear how the other amenities—schools, hospitals, hotels, housing—will be funded. Some of these, like housing, might be pure EPC (engineering, procurement, and construction) deals where the government pays for construction. Others, like hotels, might be handed to firms, with the government providing only basic urban infrastructure.
The government is also trying to boost other activities on the island. There is talk of developing Great Nicobar into a financial hub; a tourist destination (the airport capacity is pegged at two million passengers); a shipyard, a cruise terminal. Questions surround all these plans.
Plans for a financial hub—on the lines of Singapore or Macau—are fraught. Between the airport, the power plant, and the port, India will spend Rs.47,000 crore. That leaves Rs.34,000 crore for the city projected to house at least 3,00,000 people. Investments in Singapore or Colombo were of a different order of magnitude altogether. The city will have to be built fast; urban amenities like hotels, hospitals, homes, shops, and schools would be required from the start. So, those investments will need to be made upfront. Frontline asked ANIIDCO and the Home Ministry if the government would extend viability gap funding in these cases too. There was no response.
Port versus tourism
Tourism is another part of the Great Nicobar project. But, “last year, all of Andaman and Nicobar attracted five lakh tourists”, said the business head in Port Blair. How many can Great Nicobar attract on its own, especially after its biggest tourist destination, Galathea Bay, is concretised into a transshipment port?
Or take the shipbuilding yard. Its competitiveness will suffer from the 2.5–3 times jump in construction costs on the archipelago. And then, there is ship repair. While it is needed for the transshipment port, it is a polluting activity that militates against the tourism plans.
An operational demonstration by Andaman and Nicobar Command at Radhanagar beach, Swaraj Dweep Island, in Andaman and Nicobar Islands, Wednesday, Feb. 21, 2024. Opinion is divided over whether India needs a reconnaissance base in Great Nicobar. Some feel the Navy is better off beefing up existing infrastructure at Car Nicobar, Port Blair, and Visakhapatnam.
| Photo Credit:
PTI
If these revenue streams fail to materialise, the government might have to provide viability gap funding for the township, power plant, and airport too. In that case, between rising fixed costs, interest payments, and viability gap funding, what will be India’s total outlay on the project?
Given that ANIIDCO is the nodal agency, Frontline asked a senior official at its Port Blair office if the UT administration would provide viability gap funding. The official bristled. “Andamans cannot pay VGF,” he said. “It is too small. GoI will have to [do so].”
Such calculations have created an impression in Port Blair that the Great Nicobar project is not about the transshipment port at all. “It doesn’t feel commercial to me,” said the businessman. “I think the logic here is more strategic than commercial.”
That hypothesis, however, comes with its own questions.
A strategic project?
From the national security perspective, the question, as retired Rear Admiral Raja Menon wrote in The Indian Express, is whether India wants a minor reconnaissance base in Great Nicobar or a full-fledged Pearl Harbour as the outpost of a future Eastern theatre command. In defence circles, opinion is split. Some feel the Navy is better off beefing up existing infrastructure at Car Nicobar, Port Blair, and Visakhapatnam than in creating a forward post that will have its own vulnerabilities. “I don’t think the Indian Navy has much say in this,” a defence analyst told Frontline. “It’s a government decision. The Navy wants to focus on Karwar, which is still under development even after 15 years, due to lack of funds. That is the only port where India can dock its aircraft carrier. It also wants to develop its Port Blair facilities.”
One counter-argument here, made by another defence analyst, is that “most islands in Andaman and Nicobar are uninhabited. There is a danger that China could occupy them.” So, India should build more infrastructure on the islands. But this is as easily done by creating locally relevant infrastructure like an industrial fishing harbour, a long-standing demand here. Instead, the country is “over-building” on Great Nicobar, with all the economic and ecological risks it carries.
In its response, the Ministry of Defence defended the project, saying: “While existing defence assets at Car Nicobar, INS Baaz, and Port Blair play a crucial role in India’s maritime security, the new infrastructure at Great Nicobar intends to complement and enhance operational capabilities, rather than supplant ongoing projects.”
In response to a second question—on whether the base’s vulnerabilities would increase due to the township around it—the Ministry wrote: “The coexistence of defence and civilian assets, both seaports and airports, is a global best practice as it facilitates potential dual use of assets during crises. The defence assets are properly ring-fenced and the increase in the commercial and civilian activities do not make our defence assets vulnerable, as borne by the operations at Vishakapatnam and Mumbai ports.”
The 2004 tsunami dramatically altered the coastline in the islands. This water tank at Anderson Beach used to stand 500 metres inshore, next to the road running south to Indira Point. On the other side were houses, all of which have vanished now. After the tsunami, the transshipment project is the biggest ecological calamity to befall the island.
| Photo Credit:
M Rajshekhar
The Ministry also denied that India’s investment in Galathea comes at the cost of other naval installations. “Needless to emphasise, the investment in ICTP [International Container Transshipment Port] does not come at the expense of existing defence infrastructure projects such as Karwar, which remain a priority within our own strategic framework.”
These answers hold a clue to how the Great Nicobar project might play out on the ground. When Frontline spoke to a senior infrastructure official in Mumbai, he said that at its core, Great Nicobar was a strategic project. “Infrastructure projects need to be projected at an integrated scale to get the required institutional attention, energy, and traction,” he added. “It’s the nature of infrastructure planning.”
Too slow to succeed?
And yet, there is also the harsh reality. “The government has real, hard fiscal constraints irrespective of the ministry,” said the infrastructure official. “Only the minimal components that are strategic or commercially viable will be taken up. For the rest, the plan will remain on paper till such time as the situation changes and they become viable or are prioritised for budgetary resources.”
Hardwired into this schemata is a problem. If the government is cash-strapped, as the maritime consultant said, the port-city might be built in bits and pieces, but shipping firms will relocate only if all the services are in place. And if they delay relocation, even with government subsidy, the project’s calculations will go awry.
Given such risks, Great Nicobar is likely to see an EPC boom. Bidders will come to build the project—not to run it. “Most companies that bid for the port asked for EPC contracts,” said the maritime consultant. “They did not bid for the whole project.” Besides, he said, a clutch of consultants are adding fresh components and trying to bag contracts for presenting detailed project reports (DPR).
In other words, it is possible to extract profits even from an unviable project. The country, however, will get saddled with debt and ecological devastation.
Off with the trees
Logging illustrates that well. According to official estimates, one million trees are to be cut. Scientists, however, peg that number 10 times higher. Even at one million trees, the gains will be sizeable. The forests of Great Nicobar have softwoods and hardwoods.
“Hardwood can fetch as much as Rs. 2,00,000 per cubic metre,” said a Port Blair-based hotelier. “Even the softwood—like rubber—can be treated and used for furniture.”
A check post abandoned since the 2004 tsunami dramatically altered the coastline in the islands.
| Photo Credit:
M Rajshekhar
Walking around Galathea Bay, one sees towering trees. “There are big, big trees there,” agreed a Nicobarese tribal leader. Even assuming that 1 cubic metre will be logged from each tree, the timber will fetch anywhere from Rs.15,000 crore to Rs.20,000 crore if sold raw, without processing into more expensive products like veneer. If the number of trees felled is tenfold higher, as scientists say they would be, these numbers will rise proportionately.
In other words, following from what the infrastructure official said about viability shaping the project’s rollout, whether the port or township come up or not, trees will get cut. Interestingly, logging will not be done by the forest department. ANIIDCO is overseeing it. A bunch of private firms like Ultra Tech, the Hyderabad-based Falcon Resilient Infra, the Mumbai-based Terracon Ecotech, the Delhi-based EQMS Global, and PSUs like MECON, RITES, and Konkan Railway Corporation Ltd have participated in its tender. It will be educative to see what percentage of the timber’s value comes to the government.
As things stand, logging will further push up port costs. “The Galathea river flows into the bay,” said a former tehsildar at Great Nicobar. It is the island’s largest river. “Once you cut trees above its delta, its run-off will increase and it will carry a lot of silt,” he said. In other words, to protect the port’s 20 metre draft, dredging will be needed. AECOM’s report, however, is silent on this risk. The project’s EIA too is silent on the impact of siltation on local coral reefs and marine habitats, said the biologist T.R. Shankar Raman.
The Indian government has advanced two reasons for the Great Nicobar project: commercial and geopolitical. Questions swirl around both. Will the port be a white elephant? Also, with the project, feeder ships will save money, but are their savings significant enough to justify the Rs-81,000 crore (not counting interest payments and viability gap funding) that India will spend? Opinion is also split on whether India needs a large defence base at Great Nicobar. Even if it does, should it be bundled with townships and tourism?
Questions abound
As the shipping industry moves to ever larger vessels, the port of Sabang, on the other side of the Malacca Straits in Indonesia’s western extreme, will become more competitive with its draft of 40 metres. Adani was even in talks with Indonesian authorities for this port. Then, there are other risks like cost overruns, earthquakes, storms, tsunamis, and political risk. “If the government changes, this project will get abandoned,” said a Campbell Bay–based businessman. “The government is moving fast because they do not know how long they will be in power.”
Also Read | An obit for Patai Takaru
What one sees here is the political economy of infrastructure projects in India. Local people will not gain from the project. Even the settlers, as the Campbell Bay businessman told Frontline, will meet the same fate as the villagers of Havelock up north in the Andamans. They will have to leave. “This project will help local [people] only in the short term,” he said. “The jobs created will not go to [them]. That is what happened in Havelock. The local [people] left after the hotels came.” Even local companies in Port Blair will not gain; the tenders are too large for them. The businessmen Frontline spoke to hoped for some subcontracting work but were unsure of larger benefits. “All profits from Great Nicobar will be repatriated to the Centre,” said a construction firm owner. “There will be little impact on the rest of the islands.”
What Indians are getting, instead, is a big budget EPC boom that will benefit a few conglomerates. Interestingly, the project, described as critical to India’s maritime and defence interests, is not being handled by either the Ministry of Shipping or the Ministry of Defence. Instructions to ANIIDCO, instead, are coming from Amit Shah’s Home Ministry.
M. Rajshekhar is an independent journalist who writes on energy, the environment, and democracy. He is the author of Despite the State: Why India Lets Its People Down And How They Cope, published by Westland Books in 2021.
