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Business News/ Companies / News/  Will hiring a CEO from private sector swing fortunes of Shipping Corp.?
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Will hiring a CEO from private sector swing fortunes of Shipping Corp.?

Hiring a person from private sector without lifting operational restrictions won't help improve efficiency and profitability, say experts

Union shipping minister Nitin Gadkari. Photo: Ramesh Pathania/MintPremium
Union shipping minister Nitin Gadkari. Photo: Ramesh Pathania/Mint

Bengaluru: Hiring a person from the private sector to run India’s biggest ocean carrier company, state-controlled Shipping Corp. of India Ltd (SCI), without lifting the operational restrictions placed on the company won’t help improve its efficiency and profitability, say experts.

“The Prime Minister has allowed me to select the chairman of Shipping Corporation of India from the private sector. This is the first time I have got an opportunity to get talent from outside," shipping minister Nitin Gadkari told The Economic Times on 9 October.

“I’ll soon invite people for the job. Just to know the trends in the private sector, I asked a top executive about his salary. He told me he was drawing 16 crore a year. Here in government, we can’t pay more than 30-40 lakh (a year). So, I tried convincing him that you should do this for your country. He said he would come back after discussing it with his wife. So, yes, in government we have some limitations and we have to work in such a scenario. We need successful people to run companies. But I’m optimistic that things would change and we’ll make some headway," said Gadkari.

Arun Kumar Gupta, chairman and managing director of SCI, will superannuate on 31 December.

B.B. Sinha, a master mariner by qualification who spent 16 years at sea, some of which as a captain, was selected by the government’s headhunter, Public Enterprises Selection Board (PESB), on 29 June from a short-list of seven candidates, to run the company from 1 January 2016. Sinha is currently a director looking after personnel and administration at SCI and sits on the company’s board.

The PESB recommendation will have to be signed off by the appointments committee of the cabinet headed by Prime Minister Narendra Modi.

Applications for director-level and above posts in state-owned firms have to be routed through the parent ministry, in this case, the shipping ministry, according to government procedure.

Sinha spent another 17 years on-shore at various departments of SCI including ship management, bulk carriers, tankers, chemicals, LPG and LNG operations. Besides, he does not have any vigilance cases against him.

Sinha’s application was forwarded to PESB with the approval of the ministry. Shipping secretary Rajive Kumar sat on the PESB panel that interviewed candidates on 29 June.

“After going through all procedural formalities, why has the ministry changed its mind now to look for somebody from outside to run the company," said T.V. Shanbhag, a Mumbai-based independent shipping consultant. “This situation could have been avoided if the ministry had clarity on succession planning at Shipping Corp. much earlier."

Shanbhag, who was the government’s chief controller of chartering between 1995 and 2005, said that just hiring a chief executive from the private sector without removing some of the operational hurdles may not bring the desired results.

For instance, SCI does not have the flexibility to buy used or second-hand vessels and sell ships for further trading, which is a normal part of the shipping business globally. There are times when selling a ship makes much more commercial sense rather than operate it at rates that don’t even allow recovery of operating costs. This is one of the ways fleet owners shore up their financials in a depressed freight market.

In November 2013, SCI put one of its oil supertankers (built in 2005) for sale in a desperate bid to prevent a third consecutive year of annual loss by utilizing the proceeds to stay afloat.

Despite being a navratna company, a tag that allows state-owned firms greater freedom from government control, SCI had to scrap the plan because the two ministry nominees on the company’s board were not supportive of the proposal.

SCI had never sold a ship for further trading since starting operations 54 years ago.

“Successive CMDs have been reluctant to take a call on selling trading ships (which can be run for many more years) due to fear of agencies like the Central Vigilance Commission, the Comptroller and Auditor General of India and the Central Bureau of Investigation. If CMDs are given immunity from such oversight bodies, the company will be able to improve its efficiency and profitability," says a Mumbai-based executive tracking shipping at one of the big four global audit and consulting firms. He declined to be named because his firm advises the government on policy issues.

Similarly, buying second-hand ships require time-consuming government approvals. “Whereas, asset play requires taking quick decisions. Without removing such restrictions, even a private sector person will not be able to do a better job," the executive said.

SCI ended 2013-14 with a loss, its third in a row, as a prolonged downturn in the shipping industry—triggered by the 2008 global meltdown—continued to roil fleet owners.

To be sure, most of India’s private shipowners, with the exception of the Great Eastern Shipping Co. Ltd, have been incurring losses since the 2008 crisis, indicating the key role freight market plays in the fortunes of a shipping company.

“There is no other industry segment where the global freight market plays such a pivotal role in the performance of a company as in shipping. Shipping is a terrific industry on the way up, but a terrible industry on the way down," Shanbhag added. SCI, though, turned around in 2014-15, through some deft cost-cutting measures including cancelling orders for new ships.

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Published: 15 Oct 2015, 12:27 AM IST
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