The Hindu Business Line : Deep waters of ship acquisition

THERE ARE ISSUES that divide shipowners but few do with the intensity as the debate on whether to allow foreign flag vessels to operate on the country's coast as well as to carry government cargo. By setting up a panel to draft a policy on the Bare-Boat-Charter-cum-Demise (BBCD), the Government is trying to end the conflict over what was once considered an innovative but subsequently proved to be a controversial method of ship acquisition. The Government is understandably keen to show that there is no slackening on reforms, but it might require special effort to work out a formula that is acceptable to all.

One of the objectives of the BBCD scheme, launched in 1991-92, was to encourage tonnage acquisition particularly when the external commercial borrowing route was not so open to the shipowners. It will be rash to claim that the objective has yet been fulfilled. Between 2001-02 and 2002-03, there was, in fact, a drop in the tonnage. But the BBCD raised its own set of problems that remain unresolved. What flag is a BBCD vessel to fly — the original owner's or India's? One view is that the owner's flag should be used as there may be uncleared loans on the vessel and the lender may not accept a change in the flag. However, the policy is not clear cut. The second issue relates to the crew to be employed on BBCD vessels. Crew of other nations cannot by law be employed on board Indian vessels. It is perhaps time for the Government to consider granting Indian BBCDs the freedom to employ crew of their choice. Another issue is the registration of the vessels. Section 21 of the Merchant Shipping Act defines Indian ships and Section 22 make it obligatory on the part of each such ship to register. The BBCD vessels may not strictly conform to the description as provided under Section 21. If the country expects BBCD vessels to be registered after being taken on lease by Indian citizen, company or society, either necessary amendments to these Sections may have to be carried out to lay down guidelines for registering the vessels in India. There may be conflicts between registration rules in India and the jurisdiction where the vessel is flagged.

The status of BBCD vessels in comparison with Indian or foreign flag ships at the time of granting licences by the Director-General of Shipping especially for coastal trade is yet another issue that deserves careful attention. There is a view that if a foreign flag vessel bags a tender by quoting the lowest rate, there is no reason why the same principle should not apply also to BBCD vessels. But the Indian National Shipowners Association feels that BBCD vessels should rank second to Indian flag ships but higher than foreign flag vessels, and that BBCD chartering must be limited to companies having 49 per cent Indian shareholding. However, all these issues need to be resolved in the present context when the ECB route is easily available and 100 per cent foreign direct investment is allowed for tonnage acquisition.