Clash of the flags: ball in court of regulator

Clash of the flags: ball in court of regulator
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First Published: Thu, Mar 19 2009. 10 51 PM IST

Updated: Thu, Mar 19 2009. 10 51 PM IST
India’s shipping industry is keenly watching a tussle between Gujarat State Petroleum Corp. Ltd (GSPC) and Varun Shipping Co. Ltd that can well be called the “clash of the shipping flags”.
In shipping terminology, a ship registered in India is called an Indian flagship (has to fly/bear the Indian tricolour) and a vessel registered in another country is called a foreign flagship. The fight is over whether GSPC has complied with the rules framed by India’s maritime regulator in 2002, while awarding a two-year contract for hiring an anchor handling tug-cum-supply vessel used to support offshore oil drilling operations.
Varun claims that GSPC had violated the rules after the Indian flagship offered by the shipowner for the contract was denied the right to match the lowest rate quoted by a foreign ship. In a public tender, an Indian ship 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 Directorate General of Shipping (DGS) to develop the local shipping industry. 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 regulator’s approval. Varun has petitioned DGS about this alleged violation of rules. In the first round of bidding for hiring the vessel, GSPC had asked Varun to match the lowest rate quoted by the foreign ship offered by Boa Offshore AS.
Varun matched the rate, but the action sparked off a controversy. In the second round of bidding, another Indian firm Great Offshore Ltd offered the lowest day rate on a Cayman Islands-registered vessel owned by its subsidiary Great Offshore (International) Ltd. But Varun was not given the right of first refusal to match the lowest rate quoted for the foreign-registered ship of Great Offshore though it was the only firm offering an Indian ship for the contract. The contract was awarded to the foreign flagship of Great Offshore.
In its defence, GSPC says that in the first round, Varun had sought two days’ extension to the original date set by the oil firm to match the lowest rate quoted by the foreign ship. But Varun jumped its own extended time limit by two hours and 39 minutes on the second day. Moreover, Varun’s delayed offer was subject to certain conditions that deviated from tender clauses. The oil firm then asked Great Offshore to match the lowest rate and the firm did it within the deadline set by GSPC and without any conditions.
Instead of throwing out Varun at this stage for deviating from tender conditions and for “failing to validly exercise its right of first refusal”, GSPC inspected the vessel offered by Varun and continued to talk to the firm. Subsequently, it invited Varun and Great Offshore to quote final rates in which the latter quoted the lowest rate on a foreign flagship. But Varun was denied the right to match the lowest rate, though it was ready to do so. GSPC contends that the right of first refusal is applicable only to tender bids and not to subsequent rate negotiations. Once this right is exhausted, the matter ends there, it submitted before the regulator. But then why was Varun called to quote final rates?
If Varun was not above board during the tender process, neither were the other parties. In the first round, both Boa Offshore and Great Offshore offered the same vessel for the contract, a foreign flagship named Boa Mammoth. Between the opening of the first price bid and the invitation to quote final rates, Boa Mammoth was purchased by Great Offshore and renamed Malaviya 9, but remains a foreign flag.
According to rules, a vessel offered by an Indian bidder, and which remains under a foreign flag on the date of the price bid opening, would be treated as a foreign flag vessel for the purpose of bid evaluation. Besides, the offer of any foreign flagship made by an Indian bidder, with an undertaking to convert it to an Indian flag prior to commencement of contract but later than the price bid opening, can be considered only when and if the Indian bidder with an Indian flagship has failed to match the lowest rate offered by the foreign ship.
The ball is now in the regulator’s court.
P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday.
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First Published: Thu, Mar 19 2009. 10 51 PM IST