India’s maritime regulator, the Directorate General of Shipping (DGS), has tied itself up into knots by issuing a ruling last week on the operation of single-hull oil tankers along the country’s coast.
Single-hull tankers have to be replaced with double-hull ones by December 2010 globally, according to rules framed by the International Maritime Organization (IMO), the global maritime regulator.
Double-hull tankers have been mandated by IMO in an attempt to make carriage of liquids such as oil safer; in the event of an accident, a double-hull will prevent spillage and the consequent expensive and hazardous clean-ups. However, a few maritime nations, including India, have framed their own rules on single-hull tankers plying along their coast purely for carrying domestic cargo even after the global phase-out date.
In India, such ships can ply along the country’s coast till 2015 or till they reach 25 years, whichever is earlier, based on their structural condition and operational areas, according to a circular issued by DGS in 2005.
On 31 December 2009, DGS issued a circular scrapping the earlier special exemption granted to single-hull tankers operating along the coast for domestic shipments.
It said that the special exemptions granted to Indian single-hull tankers would, however, continue only for those single-hull tankers that have been registered before the date of publication of the 31 December circular.
The regulator also said that applications for registration of single-hull tankers pending on the date of the DGS circular will be processed and be governed as per the (earlier) existing guidelines/circulars.
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The ruling does not state anywhere that DGS will refuse to entertain applications for registering single-hull tankers in India from January. It cannot. According to the Merchant Shipping Act, 1958, the legislation that governs the maritime sector, India cannot deny registration to ships when sought by entities incorporated here, even if it is the subsidiary of a foreign company.
And after registering the vessel as an Indian ship under the Act, DGS cannot deny it a licence to operate along the coast. The Act only gives an option to DGS to limit the licence by conditions that it can specify. This is the law.
The business of shipping cargo between different coastal locations is reserved for Indian registered ships.
After getting a licence to operate along the coast and assuming that the vessel is seaworthy, it cannot be rejected when offered in a ship hiring tender floated by a local oil firm.
A DGS official has clarified that a single-hull tanker registered in India after January will not be entitled to “certain advantages and privileges”, including cargo support given to existing Indian single-hull tankers operating along the coast.
The 31 December circular was mainly aimed at checking foreign owners who were looking to bring their single-hull tankers that cannot be deployed anywhere else after December 2010 because of the IMO ruling, to India, to extend their operational life and earning potential.
By denying advantages and privileges that are enjoyed by existing Indian single-hull tankers, DGS reckons that it could deter foreign owners from dumping such ships in India, and prevent environmental disasters in the event of a mishap.
But the fact is that DGS cannot give advantages and privileges to one set of ships while denying them to certain others. The law is very clear on this. A ship registered in India and owned by an Indian entity will get cargo preference over foreign vessels. There is nothing like a so-called first preference for an Indian single-hull tanker already operating and second preference for those registered after January. The law is the same for all Indian ships for the purposes of determining eligibility for cargo support. Otherwise, it would amount to discrimination and violation of fundamental rights and can be challenged in courts.
The 31 December ruling came in the wake of strong lobbying by local shipowners.
They had argued that foreign single-hull tankers that are facing an imminent phase-out may attempt to secure an Indian registration, to be able to enjoy certain advantages and privileges afforded to them for operating Indian ships along the coast.
The new circular will only limit competition and help some local owners whose single-hull tankers are contracted to oil companies for carrying cargo.
In the absence of competition, local shipowners can dictate rates that oil firms have no choice but to pay. The higher rates will get passed on to the end-use consumers.
If the purpose is to safeguard the coast against potential oil pollution, the government should have banned all single hull tankers, including existing Indian ones from operating.
P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday.
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