The Hindu Business Line : New norms on right of first refusal on cargo for shipping cos

DOMESTIC shipowners will henceforth have to deal with stiff conditions including a 10 per cent price differential criteria imposed by the Director General of Shipping to enjoy the benefit of the Government policy on right of first refusal granted to them for moving cargo imported by domestic entities.

As per new norms issued by the DG (Shipping) on granting licence for vessels under long-term Contract of Affreightment (CoA), Indian shipowners will be eligible to exercise the right of first refusal only if they match the lowest price quoted by foreign flag vessels through an enquiry or International Competitive Bidding (ICB) floated by the domestic charterer (importer).

The difference in the bid price between the Indian flag vessel exercising the right of first refusal and the lowest rate quoted by the foreign flag vessel will be limited to 10 per cent.

" In case, the difference is more than 10 per cent, the right of first refusal shall cease to exist," the DG (Shipping) said in a circular issued on Wednesday.

If more than one party matches the lowest foreign bid, the party who is eligible to participate in the bid and take the contract will be decided on the basis of the original rate quoted.

If adequate number of Indian flag vessels is not available to perform the CoA, chartering of foreign flag vessels by Indian owners shall be permitted up to two-third of the total requirement of the quantity of the contract.

However, Indian owners will not be entitled to exercise the right of first refusal in case they do not have one-third of the tonnage required to meet the obligations under CoA.

When an Indian owner exercises the right of first refusal, it will be mandatory for him to deploy the same vessel/s for the entire performance of the CoA and he shall not be allowed to offer the same vessel/s for any other CoA.

But, in contingencies, the Indian owner will be allowed to substitute the vessel/s with other Indian flag vessel/s from his own fleet, but not with any foreign flag vessel.

The Indian owners will have to identify and offer their own vessels for the entire performance of the CoA. If the vessel/s offered by the domestic owners is/are under construction, such offers will be considered only against an undertaking furnished by them that the vessel/s will be converted into Indian flags prior to the commencement of the contract.

The licence period of CoA will be normally limited to one year. But, in exceptional cases where the charterer can furnish good and sufficient reasons, it may be extended for a further period of two years.

The maximum permissible period shall not exceed 3 years.

The domestic charterer will have to float an enquiry or invite ICB from ship owners including Indian owners through the Indian National Shipowners' Association (INSA) and Indian Coastal Conference (ICC) for finalising the CoA.

The Indian shipowners will have to intimate the charterer and the DG (Shipping) about the availability of Indian flag vessels to perform the CoA immediately or latest within three working days. Any claim made by the Indian owners thereafter will not be entertained.

In case no offer is received from Indian owners of INSA/ICC within three stipulated working days, the charterer will be free to seek an " in-principle" approval from the DG (Shipping) for chartering foreign flag vessels to move the cargo, the guidelines said.