Four local fleet owners have secured a stay from the Delhi High Court on Thursday against a key policy change of the shipping ministry that grants top preference to Indian-built ships for carrying cargo or providing other services such as dredging and offshore oil exploration support activities to state-run entities.
The Great Eastern Shipping Co Ltd its off-shore unit Greatship (India) Ltd, Seven Islands Shipping Ltd and Samson Maritime Ltd together filed a writ petition in the Delhi High Court “seeking prospective application of the new rule and safeguard their fundamental right to do business as an Indian entity”.
“We are seeking a direction from the court to set aside the policy change in the interest of Indian ship owners,” said an executive with Seven Islands Shipping.
The policy change – announced and took effect from February 13 just days before the election dates were announced – had annoyed the local ship owners.
RoFR policy
The so-called right of first refusal (RoFR) policy was re-designed to boost local shipbuilding and fire-up the government’s faltering ‘Make in India’ initiative.
Prior to the policy change, local shipping companies got a right to match the lowest rate offered by a foreign flag ship in tenders issued by state-run firms for hiring ships under the chartering guidelines framed by the director general of shipping. If Indian shipping companies declined, then only the foreign flag ship that had quoted the lowest rate was allowed to carry the cargo.
Following the change, the RoFR will be available to local fleet owners only when the ship being offered for charter by the lowest bidder (L1) is built outside India, provided the bid of the Indian participants is within the 20 per cent range of the lowest bid quoted by a foreign owner as per the purchase preference given to Indian entities.
The RoFR would be exercised if the lowest bidder is a foreigner or company registered outside India, offering a ship not built in India. Or, the lowest bidder is a Citizen of India/company or society registered in India/Indian shipping company/organisation with a ship registered/flagged in India, offering a ship not built in India.
In such cases, the first priority to exercise the RoFR would be given to a bidder who offers an Indian-built ship.
“In case, none of the bidders offering Indian built vessels matches the L1 price, then RoFR would be offered to bidders who are either Citizen of India/companies or Societies registered in India or offering a vessel flagged in India. In case, none of the bidders eligible to exercise the RoFR matches the L1 quote, then the charter shall be awarded to the lowest bidder,” Dashrath Prasad, director, ministry of shipping, wrote in a February 13, 2019 circular.
The director general of shipping issued guidelines on March 22 to give effect to the policy change.
“Nobody is against the government’s move to support Make in India, but by definition it is prospective, and can’t be retrospective. The way they have worded the policy of February 13, it does not say prospectively. Hence, if you have built a ship ten years ago, it would be given top priority. You may not even have placed the order originally, but just happened to buy the ship in the second-hand market. How does that encourage future Make in India?” Bharath Sheth, chairman and managing director of Great Eastern Shipping told BusinessLine in a March 4 interview.
“As it is proposed with retrospective effect, the new policy will impair the shipping industry without helping the shipbuilding industry. So, net-net you are a loser. No benefit for yards, while destroying value in shipping,” he added.
The four shipping firms have decided to pursue the case together rather than under the banner of the Indian National Shipowners’ Association (INSA), the lobby group, to avoid embarrassment to state-owned Shipping Corporation of India (SCI), India’s biggest ocean carrier, whose CMD is the president of INSA.