Mumbai: In a move that will likely give domestic shipbuilders a shot in the arm, the Indian government plans to give first preference to ships built and registered in India for moving cargo imported by domestic entities such as Oil and Natural Gas Corp. Ltd, Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd.
Currently, only Indian-flagged vessels, or ships that are registered locally and bear the Indian tricolour, have the right of refusal to match the lowest rate quoted by a foreign flagship for cargo transportation. This is in accordance with the rules set by regulator Directorate General of Shipping, or DGS. All Indian-flagged vessels are not necessarily Indian-made vessels.
“It is proposed in the draft action plan, that to promote Indian shipbuilding sector, we may give the first right of refusal to Indian-built, Indian-flagged vessels and second right of refusal may be given to the other Indian-flagged vessels,” R.K. Sen, assistant director in the shipbuilding and repair division of the ministry of shipping, wrote in a recent circular inviting comments from DGS.
Proposed boost: An ABG Shipyard site in Surat, Gujarat. The firm says this move will boost the order books of Indian shipbuilding companies. Ashesh Shah / Mint
This could be done by modifying existing guidelines issued by DGS, Sen wrote. Mint has reviewed the circular.
Besides cargo import opportunities, the country’s coastal trade is reserved for Indian-registered ships and foreign ships are hired to operate in Indian territorial waters only when Indian ships are not available and that too with the regulator’s approval.
If indeed this proposal comes into force, leading private shipyards such as ABG Shipyard Ltd, Bharati Shipyard Ltd, Larsen and Toubro Shipbuilding Ltd and Pipavav Shipyard Ltd will stand to benefit, given their shipbuilding capability.
India has 27 shipyards, including state-run entities such as Cochin Shipyard Ltd, Hindustan Shipyard Ltd and Hooghly Dock and Port Engineers Ltd.
ABG Shipyard, India’s largest private shipbuilder, has an order book of Rs12,100 crore and its closest rival Bharati Shipyard’s order book is to the tune of Rs4,987 crore.
S.S. Kulkarni, secretary general of the Indian National Shipowners’ Association, an industry lobby, said DGS had sought its comments on the proposal made by the ministry of shipping, but declined to comment on it as he is still collating the opinions of member firms.
A senior executive from a leading shipping company said the Indian shipbuilding industry isn’t mature enough to meet demand.
“Indian shipyards are still not up to the standards of international shipyards and could not cater to the requirements of Indian demand,” said the executive, who didn’t want to be named. “It will take at least 10-15 years for Indian ship makers to reach global standards. Moreover, there could be conflict of interest as most ship makers have their own shipping companies.”
According to him, companies such as Shipping Corp. of India Ltd (SCI) and Great Eastern Shipping Co. Ltd have huge fleet acquisition plans to meet cargo demand.
Indian shipping companies largely rely on South Korean and Japanese ship makers although they have in recent years started placing orders with domestic shipyards.
“Any move to help indigenous efforts are welcome,” said S.S. Hajara, chairman and managing director at SCI, “Also, I do not see any difficulty in fleet acquisition for SCI because of this new proposal as we purchase ships through a global tender. It is quite appropriate to give support to Indian shipbuilders.”
Under the government’s national maritime development programme, SCI is in the process of acquiring 76 new vessels at a cost of Rs15,000 crore. The acquisition will be completed in phases by 2011-12.
The government’s proposal could help boost employment in the shipbuilding industry and help facilitate plans to divest stakes in state-run shipyards that would benefit from the move, said an industry expert, who didn’t want to be named. “It will also help the government in further diluting its stake in SCI as it will be another major gainer with this,” the expert said. The government had earlier proposed to divest a part of its stake in Cochin Shipyard as well.
Dhananjay Datar, chief financial officer at ABG Shipyard, said the move will boost the order books of Indian shipbuilding companies.
“If this proposal comes into force, SCI could place orders with Indian yards as it will get preference in bidding for cargo. The quality of the construction would not be compromised,” Datar said.
According to Datar, very few Indian shipping companies are placing orders with Indian ship makers. “Majority of the clients are foreign shipping companies. But Indian ship makers are capable of meeting Indian shipping companies’ fleet demand.”