Sethusamudram Corporation Ltd, (SCL) the special purpose vehicle for the Sethusamudram Ship Channel Project, has appointed UTI Bank to handle the financial arrangements for the project.

UTI Bank which has been selected through a competitive tendering process will be the arranger of funds, including the rupee and foreign currency loans and handle the public issue or private placement, if any.

Prime Minister, Dr Manmohan Singh, is scheduled to inaugurate the project in the first week of July 2005. Suez Canal Authority will soon enter into an agreement with SCL to share the former's experience in construction and maintenance of ship channel facilities.

The Sethusamudram ship channel envisages dredging of a 167-km channel along the Palk Straits, Palk Bay and Adam's Bridge between Sri Lanka and India to connect the Bay of Bengal and the Gulf of Mannar. This would enable ships to take a shorter route between the two countries instead of having to sail around Sri Lanka.

The overall cost is estimated at Rs.2,427 crore, which includes the project cost of Rs.2,233 crore with the balance constituting the financial cost and interest accrued during construction (IDC). The debt to equity ratio would be 1.5:1.

The equity component would be Rs.971 crore with the Union Government taking a 51 per cent stake of Rs.495 crore. The balance would be shared between the Tuticorin Port Trust and Shipping Corporation of India, which would each contribute Rs.50 crore. 

The other five partners -- Chennai Port Trust, Ennore Port, Visakhapatnam Port Trust, Paradip Port Trust and Dredging Corporation of India -- would bring in Rs.30 crore each.

SCL would also raise Rs.50 crore either through a public issue or a private placement of equity shares.

The project involves dredging up about 82.5 million cubic metres of soil, which is expected to take about 30 months. Initially, Dredging Corporation of India would dredge 13 million cubic metres and the balance would be allotted on the basis of international competitive bidding.