The shipping industry is sinking. It needs Rs. 55,000 cr for new ships

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By Shantanu Guha Ray

Hard times Indian shipping’s share in maritime trade has sunk to a low of 8 percent.
Photo: SCI

EARLIER THIS month, mandarins at the Ministry of Surface Transport that oversees the country’s Rs. 35,000 crore shipping industry asked when Finance Minister Pranab Mukherjee would agree to giving subsidies to the maritime sector.

What was worrying them was a recent internal report that said Indian shipping’s share in the country’s maritime trade in 2009-10 had fallen to an all-time low of 8 percent — half the 2009 level. “Subsidies will definitely help us and Indian shipping,” said Sabyasachi Hajara, chairman and managing director of the stateowned Shipping Corporation of India (SCI) which, after a long wait, got the government’s nod for a stake sale that could fetch Rs. 1,300 crore.

The SCI has for long sought an interest subvention facility, on the lines of the Technology Upgradation Fund scheme for the textiles industry, where the government bears a part of the interest burden on loans availed of for upgrading manufacturing facilities. “Out of the 9.45 gigatonnes of shipping capacity, about four million tonnes will need to be scrapped and replaced by 2012,” said Hajara.

Indian shipping companies want Rs. 400 crore to be set aside for interest subsidy to replace ageing ships. The Indian National Shipowners’ Association (INSA), the body that represents 36 firms, estimates that the ship replacement programme will require roughly Rs. 55,000 crore.

“The fall in share of Indian shipping companies is alarming. Indian ships are considered more expensive than foreign ones, but our companies are heavily taxed,” says Atul Aggarwal, a board member of the Mumbai-based INSA that has been troubled for the past couple of years by increased taxes levied on the sector. Aggarwal said the INSA had sought strict implementation of the rules reserving coastal shipping for Indian flag and cargo support.

Worldwide, coastal routes are traditionally reserved for the ships of the respective country; but in India the director general of shipping has discretionary powers to grant licences to foreign vessels.

Ministry officials admit to missing out on orders, both from domestic and international companies. But, due to funding problems, Indian shipping companies are also unable to acquire vessels despite the low rates. Ship costs are currently down by 50 percent in the global market.

“Raising funds is a big challenge for Indian companies because local banks do not have the appetite for ship finance and are not keen to offer loans,” a senior ministry official told TEHELKA.

Indian firms are unable to acquire vessels though costs are down 50 percent globally

He said it was becoming increasingly difficult for domestic firms to access international banks, and recalled what Greek Prime Minister George Papandreou had recently told Indian Vice- President Hamid Ansari. He had said his country’s lowcost shipping lines could handle much of India’s exports to the European Union.

MEANWHILETHE big Indian companies, which hope the subsidy will come in the next Budget, have slowly started augmenting their vessel plans. Great Eastern Shipping Company Ltd — with an average vessel age of 9.7 years — is planning to acquire five dry bulk carriers and three crude tankers or carriers to boost its current fleet of 27 tankers and six dry bulk carriers, adding up to 2.52 million deadweight tonnage (DWT). Similarly, SCI, which has 78 vessels of 5.03 million DWT, has ordered 31 ships, adding up to 2.19 million DWT and worth 7,500 crore for delivery between 2010-end and mid-2011.

But first, Mukherjee has to offer the subsidy.

shantanu.guharay@fwtehelka.com

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