ageing fleet and enhance cargo capacity in order to simply maintain their 13% share of India’s overseas cargo, Indian shipowners are finding it difficult to muster the funds needed for such an exercise. A couple of the top Indian shipowners
CSL chairman Commodore (Retd.) M Jitendran.
report by KPMG, shipbuilding in India is still in a nascent stage, unlike in Japan and Korea, where the respective governments have extended considerable support to the sector. “Actually, it is quite amazing to find
so many companies in the field of infrastructure coming forward to put up shipyard projects in Gujarat at a time when the Indian shipbuilding industry has not won a newbuilding contract in the course of the last two years,” said Ray Stewart, chief executive officer of Pipavav Shipyard, which is building a large shipyard in the state for the construction of 22 Panamax bulk carriers of 74,500dwt each. “Agreed, that in the economic climate
of 2006 and 2007, many companies came forward with shipyard projects after seeing the numerous incentives that the Gujarat state government offered by way of inexpensive land, support infrastructure and tax breaks. But in the wake of the international financial meltdown, coupled with the cyclical downturn in the fortunes of the shipping industry, it is hard to see all these projects bear fruit.” Tere can be no doubting that shipyards
could mean good business in India. But new projects have to be viewed in the context of global demand in the foreseeable future – and the prognosis there is hardly encouraging. At a time when Chinese shipyards are witnessing a spate of order cancellations and yard sales, and yards in Japan and Korea are barely holding their own, it would be sanguine to expect Indian yards, particularly greenfield ventures, to flourish. The availability of shipping finance is
a major stumbling-block. Saddled with a need to invest a massive $20 billion over the next four years to replace a portion of their
The Naval Architect February 2009
have not been affected by the financial crisis for their short-term plans, and are going ahead with acquisitions. State-run Shipping Corporation of India (SCI), Great Eastern Shipping and Essar Shipping have, between them, placed orders for 58 ships in Korea and China, collectively worth $3.3 billion, and remain bullish on their future orders. Te major reason why these companies
have not been impacted adversely for the liquidity crunch is that most of them have tied up their fund requirements well ahead of time, using the muscle of their respective strong balance sheets. But Great Eastern has since cancelled
orders for two Supramax bulk carriers from China’s Cosco Shipyard. Varun Shipping has decided to play it safe, and has temporarily shelved its vessel acquisition plans. Smaller players have postponed buying plans indefinitely. Tis is bad news for Indian shipyards,
whose wings were clipped in mid-August 2007 by the withdrawal of a 30% shipbuilding subsidy that had been in force for five years from 2002 to 2007. India’s Shipping Ministry is pressing for its reintroduction. “We have prepared a note for reviving
the subsidy; this will be circulated to the cabinet,” said Shipping, Road Transport and Highways Minister T R Baalu, while addressing a recent conference organised by FICCI, Shipyards Association of India and All India Shippers Council. “We will get comments on the note,
which would then be sent to the highest authority for taking a decision. My Ministry had tried extending the subsidy scheme last year itself aſter it was suspended, but the Finance Ministry had struck down the proposal.” The subsidy had helped many more
Indian shipyards to come up and to become more competitive at global level. It had allowed them to benefit immensely in the last couple of years from the overflow caused by the choked order-books of shipbuilders in the Far East.
The future, however, holds plenty of
uncertainty for shipyards the world over. With the global economy going into financial meltdown, and shipping entering a recessionary cycle, the ability of shipowners to obtain easy finance for vessel acquisition has been adversely affected. With scant business expected from
shipowners from any country, Indian yards fear for their future unless the 30% shipbuilding subsidy, which was withdrawn by the government from 14 August, 2007, is re-introduced. “We are not even certain yet of getting
the subsidy for the ships we had started to build before 14 August last year, the last date notified by the Ministry for receipt of applications for eligibility for the subsidy,” says Mr Stewart. “We had based our pricing aſter factoring
in the subsidy…Te governments of most Asian countries had fully supported their fledgling shipyards with subsidies in the initial years when they began competing at world level; the Indian government needs to do likewise.” During the subsidy regime, the turnover of
Indian shipyards had increased from Rs10.17 billion ($208 million at current exchange rates) in 2002 to Rs36.57 billion in 2007. Even so, the Indian industry’s share of
the international shipbuilding market is just over one per cent, and the Shipping Ministry’s goal of taking it to 3% by 2012, and to 5% by 2015, appears to be a pipe dream as the country’s competitiveness has been on the wane. On how the order book of Indian
shipbuilders has been affected, following discontinuation of the subsidy scheme, V Kumar, secretary- general, Shipyards Association of India and managing director of Bharati Shipyard said: “In the 2002-07 period, Indian shipbuilders had received 220 orders. In the year 2007-08, just 22 orders have been received, which include eight optional orders. And since April 2008, there has been no new order.” If the cabinet approves the proposals
couched in the Shipping Ministry’s note, and the Finance Ministry concurs, the subsidy would be extended to ocean-going merchant vessels of over 80m in length if they were manufactured for the domestic market, while all ships being exported would be eligible for the sop. NA
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