The Hindu Business Line : Ministry asks DG Shipping to amend CoA norms

THE Shipping Ministry has advised the Director General of Shipping to amend the January 14, 2004 circular listing guidelines on the grant of licences to private domestic shipping companies for chartering ships on Contract of Affreightment (CoA) basis.

The minimum Indian tonnage required for exercising the right of first refusal granted to domestic ship-owners "cannot and should not mean that the lowest bid by an Indian shipowner will not be accepted if he does not own one-third Indian tonnage", according to a recent communication issued by the Ministry to the DG Shipping.

"The requirement of one-third Indian tonnage is necessary for a shipowner to be entitled to exercise the right of first refusal. But when the lowest bidder is an Indian shipowner, there is no need to insist on Indian tonnage being owned. The DG (Shipping) has to accept the lowest bid as it is, if it is from an Indian shipowner, irrespective of whether he owns Indian tonnage or not", says the communication.

The Ministry's instruction follows representations from a section of domestic shipping voicing concern over the stiff conditions imposed by the DG (Shipping) to reap the benefit of the Government policy on the right of first refusal granted to them for moving the cargo imported by domestic private entities. The Ministry is of the view that Indian shipping needs to be strengthened and promoted in a competitive environment. When an Indian shipowner is awarded the tender/CoA on becoming the lowest bidder without exercising the right of first refusal, it is necessary to help other shipowners owning the required number of vessels under the Indian flag.

If the condition that the lowest bidder should deploy Indian vessels compulsorily is incorporated in the CoA, there are chances that an unreasonable demand will be made by the Indian shipowner/s offering vessels for deployment to the successful bidder, the Ministry apprehends.

"It is, therefore, necessary for the DG (Shipping) to ensure that the charter hire being quoted by the available Indian shipowner/s should not exceed the lowest charter hire on the basis of which the contract has been awarded to the lowest bidder and/or which may be available to the lowest bidder in the market from a foreign shipowner", the Ministry has advised.

This clause will be triggered when the successful bidder does not have adequate tonnage to fulfil the CoA and would have to charter vessels from other shipowners to meet his contractual obligations as per the CoA.

The Shipping Ministry has also referred to a scenario where the lowest bidder is a foreign shipowner and there are two other bids by Indian shipowners, one of them owning the required percentage of Indian flag tonnage but the other failing to meet the stipulation.

"In such an event, if the bid of the Indian shipowner who does not have the required tonnage is lower than the other domestic bidder, then the right of first refusal to match the lowest foreign bid may first be given to the domestic bidder who owns the required Indian tonnage," the Ministry has suggested to the DG. Besides, there is no reason why an Indian shipowner should not be freely permitted to substitute an Indian flag vessel/s with another Indian flag vessel/s, the Ministry has noted. "The DG (Shipping) has been asked to issue the above clarifications/addendum to the January 14 circular as per the directions of the Ministry", say the Government sources.

As per the fresh guidelines issued by the DG (Shipping) on granting licences for chartering ships under long-term CoA, Indian shipowners will be eligible to exercise the right of first refusal only if they match the lowest price quoted by a foreign shipowner on the basis of an enquiry or International Competitive Bidding (ICB) floated by the domestic private 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 January 14 norms had stated.

If there are more than one Indian shipowner to match the lowest foreign bid, the party who is entitled to participate in the bid and take the contract will be decided on the basis of the original rate quoted.

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

In-chartering norms relaxed

THE DG (Shipping) will allow in-chartering of foreign flag vessels by a domestic charterer even if the charterer is unable to show the cargo lined up for deployment of the said vessels. This follows instructions issued by the Ministry on February 3 to the maritime regulator.

"In shipping, which is a global business, it is a well-known practice among charterers to charter ships as and when they feel the market demands it. If somebody is ready to run the risk of chartering a vessel and then lining up the cargo, the DG (Shipping) should encourage it", the Ministry has instructed.

The fear of Indian shipowners losing business when foreign flag ships are in-chartered is misplaced, it is felt. The Indian shipowners should be able to offer competitive rates vis-à-vis the chartered foreign ship and obtain the contract through fair means instead of pressuring the DG not to allow the chartering of foreign ships.

"If both the Indian flag and foreign flag ships are offered in the same tender, obviously the Indian flag vessel will get the preference, on competitive price alone," it has stated.

At present, the DG Shipping does not allow in-chartering of foreign flag vessels if the charterer is unable to show the cargo lined up for deploying the vessel. "There is no reason for such a stipulation", the Ministry has said.