Govt plans steps to boost use of Indian registered ships in local pacts

Proposal involves tweaking a policy that grants first preference to Indian-registered ships and is applicable only to pacts related to state-owned entities and other govt departments


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 and that, too, with the approval of India’s maritime regulator, the director general of shipping. Photo:  Bloomberg
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 and that, too, with the approval of India’s maritime regulator, the director general of shipping. Photo: Bloomberg

India plans to offer local fleet owners more flexibility to take up contracts either for moving cargo on domestic routes or for other marine-related activities in its Exclusive Economic Zone (EEZ), including its territorial waters and contiguous zone. The proposal involves tweaking a policy that grants first preference to Indian-registered ships and is applicable only to contracts related to state-owned entities and other government departments.

Ships that are covered under the proposed policy include floating storage and offloading units, oil-field support services vessels engaged in towing, anchor handling, dredging, off-shore drilling/production rigs, diving support, maintenance support, various types of surveys, cable laying, sea-bed mining operations, pipe-laying, salvage, marine construction, supply and transport of passengers, goods and material, port and terminal related support services vessels.

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 and that, too, with the approval of India’s maritime regulator, the director general of shipping (DGS).

So far, in a public tender, an Indian ship (owned by Indian entities and registered 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 DGS to develop the local shipping industry. If the right of first refusal is not exercised by Indian-registered ships, according to rules, then preference is given to ships purchased by Indian citizens, companies or co-operative societies through a so-called bare-boat-charter-cum-demise (BBCD) route followed by foreign registered ships.

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 will 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. The pecking order for exercising the right of first refusal is now been broadened from the earlier three to 12 categories of Indian ships that are owned/ controlled or hired by Indian entities.

The first priority will be given to Indian-registered ships that are owned by Indian entities, followed by Indian-registered ships that are hired by Indian entities participating in the tenders issued by state-run firms.

Third preference will be given to Indian registered ships that are hired by foreign firms.

The next will be Indian-controlled ships (foreign registered) owned by Indian entities. Indian controlled ships are those registered by local fleet owners in overseas jurisdictions without opening subsidiaries abroad for such a task.

Next in the hierarchy will be Indian-controlled ships (foreign-registered) that are hired by Indian entities. Indian-controlled ships (foreign-registered) that are hired by foreign bidders will get the next priority.

Seventh preference will be given to foreign-registered ships that are under construction at the time of tender and owned by Indian entities with a commitment to convert to Indian flag ship before commencing the contract.

Foreign-registered ships that are hired by Indian entities with a commitment to convert to Indian flag prior to commencement of work will be given the next priority. Foreign-registered ships that are under construction at the time of tender and hired by Indian entities with a commitment to convert to Indian flag ship before commencing the contract will be next in the pecking order.

Next will be BBCD ships hired by Indian entities.

Foreign registered ships that are built in Indian shipyards and owned or hired by Indian or foreign entities will be given the next preference followed by foreign-registered ships built in overseas yards and owned or hired by Indian or foreign entities.

The tender-awarding authority will have to incorporate deterrent penalties to ensure that the bidder converts the vessel to Indian flag before commencement of operations.

“An Indian bidder who offers Indian flag vessel(s) for a particular tender will not be granted licence by the DGS to hire foreign flag vessel(s) for the same work either at the commencement of contract or at any time during the tenure of the work. The Indian bidder will also not be allowed to substitute Indian flag vessel(s) with a vessel that was being constructed, contracted or flying a foreign flag at the time of bidding but was to be converted to Indian flag prior to commencement of operations. Nor will he be allowed to bring in another Indian-flag vessel from elsewhere hoping to replace it with a foreign-flag vessel, irrespective of whether tender process was followed or not.

“This is being done to ensure a balance between the objectives of encouraging the existing Indian-flag vessels on the one hand, and of encouraging the acquisition of new Indian tonnage, but with a slight tilt in favour of existing Indian-flag vessels since the investment here has already been made,” according to the plan drafted by the DGS.

P. Manoj looks at trends in the shipping industry.

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