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Business News/ Industry / Government aid for shipbuilders contingent on meeting deadline
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Government aid for shipbuilders contingent on meeting deadline

Also, ship construction contracts given on nomination basis (without a tender) will not be eligible for the financial assistance

A file photo of the Nhava Sheva port in Navi Mumbai. This stipulation is being included to avoid the pitfalls in the earlier scheme that ended in August 2007 after a five-year run. Photo: BloombergPremium
A file photo of the Nhava Sheva port in Navi Mumbai. This stipulation is being included to avoid the pitfalls in the earlier scheme that ended in August 2007 after a five-year run. Photo: Bloomberg

Bangalore: Local shipbuilders will get financial aid from the government only if they complete construction of a ship within three years of signing the contract, according to the draft guidelines for implementing the scheme approved by the Cabinet in December and issued on Wednesday.

This stipulation is being included to avoid the pitfalls in the earlier scheme that ended in August 2007 after a five-year run.

Committed liabilities on shipbuilding subsidy in the earlier scheme were liquidated by the government till March 2014, seven years after the scheme ended. Some of the ship orders signed before the subsidy scheme ended on 14 August were not built.

The government, however, has taken the shipbuilding industry by surprise by stipulating that contracts signed between the shipyard and the buyer or ship owner for construction or manufacture of more than one vessel (in a single order) shall not be eligible for claiming financial assistance.

This would imply that a shipyard taking, say, a six-ship order from a client (which is common in the shipbuilding industry) would not get the financial assistance. To qualify for the assistance, the contract would have to be split into orders for six separate ships.

“Indian shipyards are generally perceived by global fleet owners to be slow in executing shipbuilding orders," said a Singapore-based shipbuilding consultant who works with a few yards in India. South Korean and Chinese yards construct a ship in 18 months whereas Indian ship builders take anywhere between 2-3 years to construct a ship, he said asking not to be named citing conflict of interest.

“Linking the grant of financial assistance to a three-year timeline for constructing the ships will spur local yards to fine tune their ship delivery schedules," he said.

However, the three-year time-frame will be relaxed for construction of specialized vessels such as liquefied natural gas (LNG), liquefied petroleum gas (LPG), passenger ships built under the Indian Merchant Shipping Act with a minimum capacity of 500 passengers except for the vessels built under Inland Vessels Act, chemical tankers, floating or submersible drilling or production platforms, floating, production, storage and offloading (FPSO) units, floating, storage and offloading (FSO) units and floating, storage, regasification units (FSRUs).

This will help the Indian yard constructing three LNG carriers for use by GAIL (India) Ltd for shipping LNG from the US. The tender issued by GAIL has given Indian yards winning the shipbuilding contract, six years to build the first of the three LNG carriers given the lack of experience of local yards in building such sophisticated ships.

Also, ship construction contracts given on nomination basis (without a tender) will not be eligible for the financial assistance, the shipping ministry wrote in the draft rules reviewed by Mint.

Ships built for defence purposes or for use by Navy or Coast Guard and those constructed for an Indian buyer or ship owner which does not exceed 15 tonnes net are also excluded from the scheme.

The financial assistance to shipbuilders—both state-owned and private—will be valid for a 10-year period beginning 1 April 2016, scaling down the quantum by three percentage points every three years, starting with 20% during the first three years, 17% for the next three years, 14% for the next three years and 11% in the 10th year.

The quantum of assistance will be calculated at the applicable rate of financial assistance taking into account the lowest among the contract price, fair price, base price, or, actual price.

In case of a contract obtained through global tender or competitive bidding, the fair price shall be equal to the contract price.

The major portion of the hull unit/components of the vessel for which financial assistance is claimed have to be constructed indigenously. The assembly of the hull components, installation and commissioning of the machinery, equipment and tests/trials of the vessel have to be done in India, according to the draft rules.

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Published: 18 Feb 2016, 01:32 AM IST
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