India: Shipping Ministry working on compromise formula to tweak ‘right of first refusal’

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India: Shipping Ministry working on compromise formula to tweak ‘right of first refusal’

The Shipping Ministry is weighing a compromise formula to overhaul the right of first refusal (ROFR) benefit given to local fleet owners for carrying export-import (EXIM) and coastal oil and bulk cargo owned by state-run firms.

The ROFR is expected to be retained when state-run firms finalise their shipping arrangements through a tender. If not, ROFR will not be applicable. Like-wise, if public sector undertakings or government departments opt for hiring of ships on time-charter, ROFR is likely to be retained. But, if they hire ships from the spot market or on voyage charter, ROFR will not apply, according to officials briefed on the plan.

The Ministry’s re-think on the ROFR follows a hue and cry from local fleet owners against a blanket withdrawal of the benefit, considered initially.

In time charter, a ship is hired for a specific period wherein the charterer pays for all fuel the vessel consumes, port charges and a daily hire rate to the owner of the vessel. In voyage/spot charter, a ship is hired for a specific voyage for which the charterer pays the vessel owner on a per-tonne or lump-sum basis. The ship owner pays the port costs, fuel costs and crew costs.

“The new formula being considered by the Ministry is a partial relief for us,” said an executive with a Mumbai-based private shipping company. The proportion of cargo carried on time charter and voyage/spot charter basis is 50:50.

Currently, local shipping companies get a right to match the lowest rate offered by a foreign flag in tenders issued by state-run firms, or otherwise, for hiring ships under the chartering guidelines framed by the director general of shipping. If Indian shipping companies decline, the foreign flag ship that had quoted the lowest rate is allowed to carry the cargo.

“The aim is to bring Indian charterers on par with Indian ship owners,” the government official said.

Lack of government policies and fiscal and financial support has rendered Indian shipping a marginal player on the global stage with a cargo carrying capacity of a meagre 17. 7 million dead weight tonnes (dwt).

This is despite the fact that the country’s vast coastline of some 7,517 km dwarfs those of many other smaller maritime nations who are leaders in this industry and that too without the cargo volumes that India have.

Local fleet owners say the government should make Indian shipping competitive compared to foreign peers. “Let us use Indian cargo to incentivise flagging into India rather than permitting foreign flags to access our cargo. This will not only check flight of freight, it will lead to higher tonnage (capacity), taxes and employment to Indian seafarers,” according to the Indian National Shipowners Association (INSA), a 42-member strong group.

India paid $52 billion in freight to foreign shipping companies in FY17 who now carry about 92 per cent of India’s external trade shipped by sea, according to the Reserve Bank of India. This flight of freight is a loss of foreign exchange to the national exchequer, says INSA.

“Of even bigger significance is the need to retain control and secure transportation of critical cargoes, says Anil Devli, CEO of INSA.
Source: The Hindu Business Line

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