Mumbai: More local firms are entering the dredging sector to capitalize on the huge opportunity for deepening port channels to allow larger ships to call for carrying cargo.
The latest to join the bandwagon is Mercator Lines Ltd, India’s second largest private shipping company by fleet size. The Mumbai-based firm is scouting the market for second-hand dredgers. “We are exploring the possibility of buying dredgers,” said Atul J. Agarwal, joint managing director, Mercator Lines.
Mercator joins the list that includes Larsen & Toubro Ltd (L&T), Hindustan Infrastructure Projects & Engineering Pvt. Ltd, state-run Shipping Corp. of India and Gujarat Maritime Board, the maritime regulator of Gujarat.
All these firms have announced their intention to float dredging ventures, attracted by the huge opportunities for dredging works at Indian ports and the mega Rs2,427.4 crore Sethusam-udram Ship Channel Project. Dredging works at ports are carried out with the help of specialized ships called dredgers.
The Sethusamudram project involves dredging of a ship channel across the Palk Straits between India and Sri Lanka. When completed, it will alllow ships sailing between the east and west costs of India to have a straight passage through India’s territorial waters saving up to 424 nautical miles (780km) and up to to 36 hours in sailing time.
India’s 12 major ports, owned by the Union government, have also lined up investments worth Rs6,304 crore to deepen their channels over the next three-five years. Besides, ports owned by the state governments that have been given to private entities for development and operation also require dredging to allow ships to enter for loading and unloading cargo.
The dredging sector has so far been dominated by state-run Dredging Corp. of India and small private firms such as Jaisu Dredging and Shipping Ltd. But these entities do not have adequate dredging fleet to take up growing dredging works. As a result, Dutch dredging firms such as Van oord Dredging and Marine Contracting Co. NV, Dredging International NV and Royal Boskalis Westminster NV have won dredging contracts in India.
The shortage of dredgers also coincided with a spurt in port expansion projects globally as economic growth stokes demand to carry more cargoes on larger ships to reap the benefits of scale.
“There is lot of pressure in the international dredging market due to shortage of capacity. Hence, there is lot of potential in this business,” said David Wignall, head, Ports and Logistics at London-based global maritime consultancy firm BMT Group.
The new entrants are also enthused by the policy and fiscal support provided by the government. Dredgers are covered under the new tonnage tax, a tax based on the capacity of ships that lowers tax outgo of firms when compared with the normal corporate tax. Besides, the February Budget has granted infrastructure status to navigation channel in the sea and also fully exempted dredgers from payment of customs duty of 9%. Following the government’s decision, firms engaged in dredging the channel of a port can claim income tax deductions for up to 10 years on profits arising from such business.
In order to get the infrastructure status and enjoy tax holiday, firms will have to float special purpose vehicles (SPV) to execute the dredging work.
India’s largest engineering and construction firm L&T has set up a joint venture firm, International Dredging Seaport Co. Ltd, along with Belgium firm Dredging International NV to carry out dredging work at Dhamra Port in Orissa which is being developed jointly by L&T and Tata Steel Ltd.
Hindustan Infrastructure will float an SPV to undertake dredging works for its greenfield port at Vijaydurg in Maharashtra’s Sindhudurg district as well as for other projects. Shipping Corp. is planning to set up a mega dredging firm in which Kolkata Port Trust and Jawaharlal Nehru Port Trust will be partners. Gujarat Maritime Board will set up a dredging entity christened Dredging Corp. of Gujarat along with a private firm that will carry out dredging works at ports owned by the state government and also bid for other national and global contracts.