Mumbai: The cost of calling for shipping lines at an Indian port is set to come down following the tax concessions for the upkeep and maintenance of navigation channels in the sea and exemption of dredgers from payment of customs duty announced in the Budget.
Port calling cost is one of the major expenses for shipping lines entering an Indian port to load and unload cargo. Compared with other international ports, the port charges in India are high. This is because the government-owned port trusts pass on the cost of dredging the port’s channel to the ships calling at the ports. Dredging is required to make the channel deep enough to accommodate ships.
“Going forward, the port dues may come down as lower costs will need to be passed on by the ports to the ships calling at the ports,” says rating agency Care in a recent report on the Indian shipping industry.
The finance minister’s proposals will also benefit the proposed Rs2,427.4 crore Sethusamudram Ship Channel Project by reducing its dredging costs. The project envisages dredging a ship channel across the Palk Straits between India and Sri Lanka. The channel will be deepened to 12 metres, enabling large ships to ply the route which is 424 nautical miles shorter, saving up to 29.9 hours. According to Care, if a container laden with 16-18 boxes calls at India’s busiest container port Jawaharlal Nehru Port, it pays $18,000-20,000 for two days. In Dubai, Colombo and Singapore, the cost for the same is $5,000, $6,500 and $9,000, respectively. “The main reason for this is that the cost of dredging in Indian ports is recovered from the shipping companies whereas in other countries it is borne by the government,” Care points out.
India’s 13 government-owned ports have lined up investments worth Rs6,304 crore over the next three to five years to deepen their channels.
Finance minister P. Chidambaram said that navigation channel in the sea would henceforth qualify as an infrastructure facility. As a result, firms engaged in dredging the channel of a port can claim income-tax deductions from profits from such business under sub-section (4) of Section 80-IA of the Income-tax Act. The tax benefit arising out of this status will be passed on to the port trusts and this will lower the dredging cost. “The benefit of lower dredging costs will, in turn, be passed on to the shipping lines and trade,” says an official with Jawaharlal Nehru Port which will award a Rs800 crore contract to deepen its channel soon.
The government-owned ports and other private ports outsource the task of deepening the channel draft to dredging firms. “But, there is a shortfall of dredgers in general to execute the huge dredging works at Indian ports,” says T. Vijaymurthy, director at Dutch dredging firm Van Oord. The cost of import duty on dredgers is 9%.
A dredging firm loads the customs duty while collecting dredging costs from the port which, in turn, recovers it from the shipping lines. Hence, the withdrawal of import duty on dredgers will lead to a reduction in dredging costs. Going by the existing rules, in order to get the infrastruture status and enjoy tax holiday, ports will have to float special purpose vehicles (SPVs) to execute the dredging work.
“With dredger imports made duty-free and grant of infrastructure status to navigation channel in the sea, it is a good time for the state-owned Shipping Corporation of India (SCI) to enter dredging activity,” says S.S. Kulkarni, secretary general, Indian National Shipowners Association.
SCI plans to form a joint venture dredging company along with a few government-owned ports to cater to the rising demand for dredging jobs in the country.