The Hindu Business Line : Cargo imports by domestic entities — New norms soon on first right of refusal to Indian ship owners

INDIAN ship owners who so far had the first right of refusal to haul cargo imported by domestic entities irrespective of the rate quoted by them compared with foreign flag ships will now be granted this privilege only when their price bid comes within 10 per cent of the rate quoted by the lowest foreign ship owner.

Domestic charterers will also be exempted from the requirement of approaching the Indian National Shipowners' Association (INSA) for obtaining a no objection certificate from Indian ship owners for each and every voyage when there is a `contract of affreightment' (CoA) with a foreign shipping line.

Besides, domestic entities will be allowed to go in for a CoA with shipping companies to move their import cargoes for a maximum period of one year only under free-on-board (f.o.b.) basis.

The Director-General of Shipping, the country's maritime regulator, is expected to come out with fresh guidelines in the next few days under Section 406 of the Merchant Shipping Act to give effect to the decisions taken at a crucial meeting held on Monday to iron out glitches in the existing contract of affreightment policy, Government sources said.

During the meeting attended by senior officials from leading domestic chartering entities and shipping lines such as Shipping Corporation of India and GE Shipping, the Director-General (Shipping), Mr G.S. Sahni, rejected demands made by private sector charterers that they should not be bound by the prevailing Government policy on granting the right of first refusal to Indian shipping lines for transporting the cargo imported by them into the country.

"We cannot remove the right of first refusal granted to Indian shipping lines altogether. But, we can restrict this benefit to 10 per cent of the lowest foreign bid," Mr Sahni is understood to have said at the meeting.

This implies that when a domestic entity floats a tender to charter a ship for transporting the cargo, an Indian ship owner will be allowed to match the lowest price bid submitted by a foreign shipping line and take the contract only when his price bid is within 10 per cent of the lowest bid.

Currently, an Indian owner gets the benefit of the right of first refusal to match the lowest foreign bid and walk away with the deal irrespective of the price quoted by him in the tender, even if it is 10, 20 or 50 per cent more than the lowest foreign bid.

Domestic private entities such as Sesa Goa, Gujarat Ambuja and Reliance had complained that they had difficulties in complying with the Government policy on granting right of first refusal to Indian shipping lines when they called for tenders to charter vessels.

"These are not public sector cargoes. These are private cargoes and, hence, we should be exempted from the policy on granting right of first refusal to Indian shipping lines," a leading domestic charterer told Business Line.

However, domestic ship owners first said that the policy on granting right of first refusal to Indian shipping lines should continue and that too without any limit, that is even when their price bids were not within 10 per cent of the lowest price quoted by a foreign flag vessel.

Later, the domestic ship owners said that the right of first refusal should be pegged at 15-20 per cent of the lowest foreign bid.

Moreover, as per the current system, domestic charterers will have to obtain an "in-principle" approval from the Director-General (Shipping) and a no-objection certificate from INSA for chartering foreign vessels when Indian flag vessels are not available.

But, charterers have complained that this system was fraught with difficulties as they had to seek the no objection certificate for each and every voyage by a foreign vessel for moving the cargo after signing of the contract of affreightment.