Govt tweaks cargo support policy to help Indian shipbuilders

 

Bangalore: Ships that are manufactured and registered in India will be given first preference for moving cargo on local routes, according to a government policy change aimed at boosting the sales of Indian-made ships

 

The country’s coastal trade is reserved for Indian-registered ships and foreign ships can be hired to operate in Indian territorial waters only when Indian ships are not available—that too with the approval of India’s maritime regulator.

 

So far, in a public tender, an Indian ship (owned by Indian entities and registered in India but not necessarily built in India) has a so-called right of first refusal to match the lowest rate quoted by a foreign flagship and take the contract, according to rules set by the directorate general of shipping (DGS) to develop the local shipping industry. 

 

If the right of first refusal is not exercised by Indian-registered ships that are not built in India, then preference was given to foreign registered ships that were manufactured in India, followed by ships purchased by Indian citizens, companies or co-operative societies through a so-called bare boat charter cum demise (BBCD) route, in that sequence.

 

Now, the government has added a new category of ships to this list—Indian built, Indian flag vessels—that are eligible to get first preference for the right of refusal for carrying Indian cargo.

“The committee of secretaries, Government of India, had considered a proposal of the ministry of shipping for initiating policy measures for the promotion of Indian shipyards and on an examination thereof agreed that the modality of exercise of right of first refusal should be amended under such circumstances to include the category of Indian-built Indian flag vessels, followed by Indian flag vessels for the purpose of such licences,” G.L. Singh, joint director (shipping development) in the DGS, wrote in a 21 November circular, a copy of which has been reviewed by Mint.

 

The change in the eligibility criteria for exercising the right of first refusal will potentially create a reliable market for local shipbuilders by incentivizing the purchase of ships manufactured by Indian shipyards, said a spokesman for the Shipyards Association of India, an industry lobby.

The idea is to encourage a “Buy India” framework for ships.

 

Such a policy is followed in the US, Brazil, Indonesia, among others, he added. The Jones Act mandates that all goods transported by water between US ports be carried on US flag ships that are built in the US, owned by US citizens, and crewed by US citizens and permanent residents. Indian shipbuilders have been facing a tough time since September 2008 after the global liquidity crunch and the recession cut demand for trade and, in turn, for ships. 

 

A boom-time prior to that had attracted firms such as Larsen and Toubro Ltd and Pipavav Defence and Offshore Engineering Co. Ltd, to enter shipbuilding and led existing players such as Cochin Shipyard Ltd, Bharati Shipyard Ltd and ABG Shipyard Ltd to expand capacity. 

 

While commercial orders have dried up, shipyards are banking on naval orders to stay afloat.

“It’s a half-hearted measure, (taken) without knowing the ground realities,” said T.V. Shanbhag, a Mumbai-based independent shipping consultant and arbitrator. 

 

“It’s not going to benefit ship owners or shipyards. There are hardly any Indian-registered bulk carriers, tankers and container ships doing business that were built at Indian yards. By putting such restrictions, fleet owners will be forced to build their ships at Indian yards where construction costs are much higher compared with the price offered by Chinese and Korean yards,” he said.

 

The policy change will, however, benefit Indian entities that own vessels used for supporting oil exploration activities. Many such ships run by Indian owners were built at Indian yards. “But those Indian ship owners whose off-shore oil exploration support vessels, including rigs, were built at overseas yards will lose out because of this policy change,” Shanbhag added. 

 

BBCD is a form of financing ship purchases. Under this hire-purchase scheme, the acquisition is typically done by paying a fourth of the total cost of the vessel as down payment while the balance is paid in instalments over the next five years out of the revenue earned from operating the ship.

During the lease rental period, the ship has to fly the flag of the country from where the acquisition is made. On completion of the lease rentals, the ownership of the vessel is transferred to the Indian entity which hired the vessel, and the ship becomes an Indian flag carrier thereafter

RANJAY KUMAR,

PGDM 1st YEAR

SOURCE;- MINT