Local fleet owners including the Indian units of global shipping giants such as Mitsui O.S.K Lines, Ltd (MOL) and BW LPG Ltd, have utilised some Rs213.54 crores or about 13.15% of a Rs1,624 crore subsidy scheme introduced by the government in 2021 for a five-year period to boost India’s shipping capacity.
To achieve the objective of ‘Atmanirbhar Bharat’, the Union Cabinet approved a scheme in 2021 to provide Rs1,624 crores as subsidy over a period of five years to Indian shipping companies in global tenders floated by ministries, departments and Central Public Sector Enterprises (CPSE’s) for importing government cargo.
“The CPSE’s concerned have provided a subsidy amounting to Rs213.54 crore up to 8 October 2024,” Sarbananda Sonowal, Union Minister for Ports, Shipping and Waterways told Rajya Sabha in a written response to a question on 17 December.
While the offtake of the subsidy corpus has been low, the scheme has managed to attract two of the world’s top shipping companies to own and operate ships under the Indian flag.
In April 2021, MOL opened a unit in India to tap the subsidy scheme and is already India’s fourth biggest fleet owner, running nine ships registered under the Indian flag from the Domestic Tariff Area (DTA) regime.
Sakura Energy Transport Pvt Ltd, the Indian unit of MOL, runs three very large gas carriers, two very large crude carriers, two medium gas carriers and two product tankers since starting operations.
BW LPG India, a subsidiary of BW LPG Pte Ltd, is the largest owner and operator of Indian-flagged Very Large Gas Carriers (VLGCs) with eight tankers. Singapore-based BW LPG Pte Ltd is the world’s top owner and operator of LPG vessels.
“We have added six VLGC ships under the Indian flag in the past four years; one of the biggest encouraging factors for this is the subsidy scheme,” said a BW LPG India official.
Given the low utilisation of the subsidy scheme and with just two years left for the scheme to end, fleet owners reckon that the scheme should be extended beyond 2026 and modified by removing the Right of First Refusal (RoFR) restrictions besides making it applicable to all cargoes apart from crude, LPG, coal and fertilisers.
Local ship owners say that the 20% band for triggering the RoFR should also either be removed or widened to 40% or more for better implementation of the scheme and to raise the subsidy offtake.
“The Indian ship will match the L1 foreign ship in any case in the tender. So, why put such a 20% band? Subsidy is given because the cost of operations of an Indian flagged ship is more compared to a foreign flagged ship,” said an executive with a local shipping company.
According to the scheme cleared by the Cabinet, for a ship that is flagged in India after 1 February 2021 and is less than ten years at the time of flagging in India, the subsidy support would be extended @15% of the quote offered by the L1 foreign shipping company or the actual difference between the quote offered by the Indian flag vessel exercising a so-called Right of First Refusal (RoFR) and the quote offered by the L1 foreign shipping company, whichever is less.
Under the RoFR rules, local shipping companies get a right to match the lowest rate offered by a foreign flag vessel in tenders issued by state-run firms. If Indian shipping companies decline, then only the foreign flag ship that had quoted the lowest rate is allowed to carry the cargo.
The RoFR policy will be triggered only when the rate quoted by the Indian participants in a tender is within the 20 per cent range of the lowest bid offered by a foreign ship owner, per the purchase price preference given by the government to Indian entities.
According to the subsidy scheme, for a ship that is flagged in India after 1 February 2021 and which is between 10 to 20 years old at the time of flagging in India, the subsidy support would be extended @10% of the quote offered by the L1 foreign shipping company or the actual difference between the quote offered by the Indian flag vessel exercising RoFR and the quote offered by the L1 foreign shipping company, whichever is less.
The rate at which the above subsidy support is extended would be reduced by 1% every year, till it falls to 10% and 5%, respectively, for the two categories of ships.
For existing Indian flagged ships that were less than 10 years old on 1 February 2021, the subsidy support would be extended @10% of the quote offered by the L1 foreign shipping company or the actual difference between the quote offered by the Indian flag vessel exercising RoFR and the quote offered by the L1 foreign shipping company, whichever is less.
For existing Indian flagged ships aged between 10 to 20 years on 1 February 2021, the subsidy support would be extended @5% of the quote offered by the L1 foreign shipping company or the actual difference between the quote offered by the Indian flag vessel exercising RoFR and the quote offered by the L1 foreign shipping company, whichever is less.
The subsidy support is not available in cases where an Indian flagged vessel is the L1 bidder.
Foreign shipowners will have to register their ships in India (100% FDI has been allowed in shipping since 1997) if they are keen on securing PSU cargo contracts.
The Cabinet has considered crude oil, liquefied petroleum gas (LPG), coal and fertiliser cargo only for disbursement of subsidy. Of the Rs1,624 crore subsidy, Rs931.46 crore has been earmarked for hauling crude oil while Rs520.76 has been set aside for LPG shipments. For coal, the subsidy is Rs155.61 crore while for fertilisers, it is Rs16.23 crore.
(source: ET Infra)
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