Financial Daily from THE HINDU group of publications
Friday, Apr 18, 2003
Industry & Economy - Disinvestment
CCD decision on preference to SCI irks shipping sector
NEW DELHI, April 17
THE decision of the Cabinet Committee on Disinvestment (CCD) on April 15 to extend purchase preference on crude carriage to Shipping Corporation of India (SCI) for two years after privatisation has raised a storm among the shipping fraternity.
"There cannot be a purchase preference for SCI alone. As per the policy being followed by the Union Government with regard to crude shipments for IOC, the purchase preference is given to Indian flag owners as against foreign owners," an industry expert told Business Line.
The Government's policy of giving purchase preference to Indian ship owners has been in existence since 1960.
And, until 1991, some sort of a price preference was also granted to Indian owners.
However, this was discontinued in the wake of liberalisation introduced by the Government since 1991, the expert said.
The move to grant purchase preference to SCI for crude movement for two years post-disinvestment would be difficult to implement, he added.
As per the policy being followed, Indian ship owners only have the first right of refusal to match the lowest rate quoted by a foreign owner and secure the crude transportation contract.
"This implies that first preference will be given to Indian flags, irrespective of whether it is an SCI vessel or any other vessel owned by other domestic private shipping companies, if a foreign flag emerges the lowest in a competitive bidding process."
Even among Indian flags, there is no preference.
But the right of first refusal will be given to the Indian owner who has quoted the lowest to match the lowest foreign bid.
In other words, from among SCI, Essar, GESCO and Varun, if GESCO is the lowest Indian bid, it will be given the first right of refusal to match the lowest foreign bid.
"Once SCI is privatised, how can the Government make an exception and grant purchase preference to the company? Under what circumstances and rules will this decision be implemented?" the expert asked.
"Moreover, how can the Chairman and Managing Director of SCI, who is also President of Indian National Shipowners Association (INSA), make a representation to the Government to give purchase preference to his company when he represents the entire domestic shipping industry?"
The Disinvestment Minister, Mr Arun Shourie, has been quoted as saying that SCI will continue to enjoy the status of preferred carrier of crude for Indian Oil Corporation (IOC) for two years after privatisation. "Privatised SCI will enjoy purchase preference but not price preference."
According to him, SCI will be given an opportunity to match the rate quoted by the lowest bidder.
But apart from throwing light on the confusion prevailing among the Government's disinvestment managers on the policy in vogue, the CCD decision will be extremely difficult to implement, according to the expert.
Shipping industry sources reckon that the sole reason behind the CCD move was to improve the valuation of SCI and make it attractive to the bidders while starting the privatisation process afresh.
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