The Hindu Business Line : SCI: Let it sail free

Constricted autonomy had to an extent choked SCI's earnings last fiscal, as it could not make use of the price dips in the second-hand market. And with the decision-making process being elaborate in the present bureaucratic set-up, it takes SCI about three years to get the new vessel after the first proposal is inked.

NOW THAT the UPA Government has decided to pull India's shipping giant, Shipping Corporation of India (SCI), off the disinvestment list, the focus is once again on the need to give the company more autonomy to cash in on the ever-changing dynamics of the shipping industry.

Though the mood at the SCI headquarters in Mumbai is one of relief after the Government announced that it would not hand over the company to the private sector, there is the feeling that if given more freedom to take decisions, it could extract better economic mileage out of the current boom in the industry.

Indeed, constricted autonomy, especially with regard to acquisition of vessels, had to an extent choked the company's earnings last fiscal, as it could not make use of the price dips in the second-hand market. Bureaucratic hurdles have made it impossible for SCI to tap the second-hand ship market, unlike its competitors in the private sector. And with the decision-making process being elaborate in the present bureaucratic set-up, it takes SCI about three years to get the new vessel after the first proposal is inked.

"Take the case of Great Eastern Shipping. It got a VLCC (Very Large Crude Carrier) within 10 days of taking a decision. In fact, reports have it that the VLCC was not even inspected thoroughly before it joined the fleet. It even went in for single-hull tankers to cash in on the price difference between such tankers and doubled-hulled ones," an SCI official pointed out. It is not that the Government has barred SCI from picking up second-hand vessels, but bureaucratic obstacles make the task impossible for the company.

"After SCI identifies a ship in the second-hand market and puts up the proposal, elaborate questions are asked regarding the price. And by the time the proposal is cleared, either the ship had already been sold or the prices would have increased. The shipping market is volatile and making the right decision at the right time is very important," an industry observer said.

The need for SCI to get more autonomy for ship acquisition becomes all the greater, as a sizable part of its fleet is to be scrapped because of its age. The threat that bureaucratic delays confronting SCI's acquisition programme may pose on its tonnage balance, as it takes its older vessels to the scrapyard in the next two-three years, cannot be taken lightly, analysts feel.

SCI's fleet strength stands at 85 vessels, including 29 crude tankers, 11 product tankers, 23 bulk carriers and two LPG carriers. Of these, 15 vessels are slated to go to the scrap yard by 2010-11. In the bulk carrier segment too, a significant chunk will be scrapped in the next few years.

Given the fact that SCI cannot get a new ship until at least three years after it submits the proposal, the company clearly has to hasten the process of vessel acquisition. "And this can happen only when the company is given more autonomy to function as a profit-oriented organisation," commented an analyst.

SCI is, however, prepared to replenish the tonnage that goes for scrapping. During the next three years, about 20 of its vessels, including bulk carriers, will have to be scrapped. In the light of this, the company has drawn up an acquisition programme, envisaging 31 additions during this period — these include two cape size vessels, six Handymax carriers, six Aframax tankers, eight LRs (Long-range vessels of less than 90,000 DWT) and two more VLCCs. "We are confident of maintaining a healthy tonnage," an SCI official said.

What SCI is planning to do is go in for bigger vessels for replacing the smaller ones that are scrapped so as to maintain the tonnage balance. "In fact, even the domestic oil companies are increasingly taking to movement of crude and products in larger parcels," the official pointed out.

Against this background, industry analysts feel that a shipping company like SCI should be given a free hand to take capital expenditure decisions to enable it make the right choice at the right time.