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SCI making pitch for change in procedures to purchase vessels

SCI making pitch for change in procedures to purchase vessels
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First Published: Tue, Mar 11 2008. 12 07 AM IST
Updated: Tue, Mar 11 2008. 12 07 AM IST
Bangalore: Ths state-run Shipping Corp. of India Ltd (SCI), India’s biggest shipping firm by fleet size and revenues, is lobbying for changes in the government’s ship acquisition procedures to make the process more flexible and expedite its own purchase of ships.
Shipbuilding yards in Japan, Korea and Norway are fully booked till 2011. SCI is also looking to promote shipbuilding facilities that have come up in India such as the ones run by Pipavav Shipyard Ltd and Larsen and Toubro Ltd.
“We are approaching the Union shipping ministry with a proposal to relax the ship acquisition procedures by allowing us to consider new shipyards also. This will ensure more flexibility and better participation of shipyards in buying new ships,” said Umesh C. Grover, director, technical and offshore, SCI.
The Mumbai-based firm, 80.12% owned by the Union government, plans to invest more than $3 billion (Rs12,210 crore) in three-five years to buy ships as it replaces its ageing fleet. The firm has placed orders with Korean yards such as Hyundai Heavy Industries Co. Ltd, Daewoo Shipbuilding and Marine Engineering Co. Ltd, STX Shipbuilding Co. Ltd and China’s Jinling Shipyard for building 28 ships, at an estimated cost of $1.3 billion.
SCI has also floated global tenders for buying four Capesize ships and four Kamsarmax carriers with an investment of over $500 million.
Capesize ships are the largest vessels capable of carrying dry bulk commodities. They must travel via the Cape of Good Hope or Cape Horn because they are too large to use the Suez or Panama canals. A Kamsarmax carrier is the biggest ship that can call at the largest bauxite port at Kamsar in Equatorial Guinea.
The scarcity in shipbuilding slots is posing a problem to SCI. For instance, SCI received a single bid from Pipavav Shipyard when it floated a tender for four Panamax carriers, the largest ships that can sail through the Panama Canal fully laden.
The tender was scrapped because the Central Vigilance Commission has banned processing of single bids by government-owned firms.
Unlike its private rivals who negotiate deals with shipyards through brokers, SCI has to float global tenders to buy ships. This is a time-consuming process given the layers of government approvals necessary for the purchases. Besides, SCI can consider shipyards for placing orders only if that yard has been in operation for a minimum of three years, according to rules framed by the government. These have limited SCI’s flexibility in placing orders for new ships quickly to cash in on the booming demand for carrying raw materials such as coal, iron ore and steel.
“The ban on processing single bids was introduced by the government when shipbuilding was a buyer’s market. But, now it is a seller’s market,” said Ray Stewart, chief executive officer, Pipavav Shipyard.
“We are recommending to the government that SCI should be allowed to consider new yards having modern shipbuilding technologies,” Grover said. Even if this proposal is accepted by the government, SCI will ensure that it does not become a “guinea pig” for new yards to experiment with, he added.
SCI currently owns and operates about 20 dry bulk carriers. These are mostly of the handymax variety, which can typically carry as much as 60,000 tonnes of dry bulk commodities. Apart from the smaller size, SCI’s dry bulk carriers get lower rates as most of them are older ships and fetch less rates compared with younger vessels.
In a bid to replace its old dry bulk fleet, in December, SCI placed orders for six new handymax carriers with STX Shipbuilding at a total cost of $269.4 million.
“Even the finalization of this new shipbuilding contract required lot of negotiations as STX was not too keen on the deal given its full order book position,” said an SCI official, who did not want to be named.
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First Published: Tue, Mar 11 2008. 12 07 AM IST