The Hindu Business Line : New Dredging Policy: Competitive thrust

While domestic dredgers do worry about foreign companies resorting to `dumping rates' to win deals, they also believe a competitive scenario would optimise costs for major ports.

A Dredging Corporation of India dredger in operation at Chennai port... While domestic dredgers do worry about foreign companies resorting to `dumping rates' to win deals, they also believe a competitive scenario would optimise costs for major ports. — M. Moorthy

THE new National Dredging Policy announced by the Government on January 19 for a three-year period from April 1 is expected to infuse the much-needed competition for executing dredging works, resulting in lower dredging costs for major ports in the country. But dredging industry officials say it (applicable for both maintenance and capital dredging) does not effectively address certain anomalies, which would have made a much larger impact on the huge dredging costs of major ports.

The public sector DCI would still have the upperhand in undertaking dredging works at the Government-controlled 13 major ports, though, it would get the right of first refusal to take up the contract only when its bid is within 10 per cent of the lowest offer. However, in the case of dredging works at minor ports owned by state governments and private ports, DCI, domestic private dredgers and foreign dredgers are on an equal footing.

Here, DCI and domestic private dredging firms will be given the right of first refusal to match the lowest offer (if it is made by a foreign dredger) on the basis of the original rate quoted, if their bid comes within 10 per cent of the lowest offer. If they can't match, the contract will go to the lowest foreign bidder.

In this case, if the lowest bidder is a domestic private dredger, he will get the contract straightaway, leaving no scope for DCI to claim the right of first refusal to take up the work.

Domestic dredgers say that to come within the 10 per cent range of the lowest foreign offer would be a tough task if foreign dredgers resort to "dumping rates" to win the deal.

But if this competitive scenario comes about, then major ports would benefit greatly in terms of lower annual maintenance dredging costs, which currently run into hundreds of crores. The annual maintenance dredging requirement of major ports alone is around 65 million cubic metres. At current rates, the cost of dredging 1 million cubic metre is around Rs 7-8 crore. "Dredging rates are very high in the market today due to the protection given to DCI. The new policy will help major port trusts in getting very competitive rates," says an industry official.

But foreign dredging firms say it would be "unfair" to allow DCI to match the lowest foreign offer if its bid comes within 10 per cent of the lowest foreign bid.

A foreign bidder, while calculating the bid price, will have to factor in the payment of 5 per cent customs duty on the value of the vessel for bringing a dredger into India and the mobilisation expenses incurred by him for bringing the dredger from a foreign country to the place of work in India.

Still, when a foreign dredger emerges the lowest by quoting, say Rs 100, DCI is granted the right of first refusal to match the lowest foreign bid if its bid is Rs 110 or less (within 10 per cent of the lowest offer).

But ideally DCI should quote in the range of Rs 90-95 or less straightaway since Indian dredgers are not required to pay customs duty and does not incur mobilisation expenses.

"If Indian companies also work effectively and are efficient in deploying dredgers, they can offer far more cheaper rates than the one quoted by foreign dredgers, particularly when they don't have to pay any Customs duty and incur mobilisation expenses," says a foreign dredging company official.

As per the new dredging policy, all the 13 major ports other than Kolkata have to finalise their dredging contracts through a competitive bidding process in which DCI will get the right of first refusal over foreign dredgers and domestic private dredging firms only if its rate is within 10 per cent of the lowest technically qualified offer.Though the Centre has no jurisdiction over minor ports and private ports, the Shipping Ministry has sought to include these also under the new policy by applying the definition that a dredger is a ship and chartering a foreign flag dredger would require in-chartering permission from the Director General of Shipping under Sections 406 and 407 of the Merchant Shipping Act, 1958. The new policy says minor ports and private ports can seek permission from the DG (Shipping) for chartering foreign dredging vessels only if they have followed a competitive bidding process for awarding the contract, wherein Indian dredging companies have been given full opportunity to participate.

The dredging policy followed so far allowed port trusts to finalise their dredging contracts either through an open tendering process or to award the work to DCI on a nomination basis. Under the nomination system, both the port trust concerned and DCI discuss and arrive at a rate that is mutually acceptable to them. If the port trusts opted for the tendering process, DCI was given the benefit of either the Government policy on 10 per cent purchase price preference for PSUs or the right of first refusal granted to Indian flag dredgers.

"DCI had taken advantage of the Government support to secure dredging works at major ports even when its bid price was more than 10 per cent of the lowest offer. This had completely taken away the spirit of the open tendering process," a foreign dredging company official said.

Given this anomaly, foreign dredging companies had said the process of inviting bids for awarding dredging works at major ports was an exercise in futility. "If the port trusts were to give dredging contracts to a bidder other than the lowest one, why call for tenders at all?" he asked.

Foreign dredging firms had shied away from participating in the bidding process because of this situation, leaving the ground clear for DCI to quote rates without any benchmark.

The dredging works already entered into by major ports with DCI will continue till the validity of the contract, after which the new policy would be applicable.

Kolkata, being a riverine port with special requirements of dredging, the dredging works would continue to be met by DCI for the remaining period of the agreement between DCI and KoPT till March 31, 2007.