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Ship-building industry needs shoring up

Sajeev Kumar V.

THE Union Government must act fast to provide a level-playing field for the country's ship-building and ship-repairing sectors in the wake of competition from foreign yards, according to a paper submitted at the convention of marine engineers held in Koc hi recently.

The paper points out that the Korean and Chinese Governments, as part of their long-term strategy, have made huge investments in their yards. As a result, Korea offers ships at throwaway prices -- 30 per cent lower than Europe. In this situation, Indian ship-builders will be hard put to compete in the global market.

To counter the situation, the Indian Government should levy anti-dumping duty on imported ships. A suitable mechanism has to be evolved to ensure that Indian yards get adequate orders at remunerative prices. The study stresses the need for a blueprint fo r ship-building. This will create a strong ship-building base, that can stabilise freight rates by providing value-added manufacturing and services at competitive prices.

However, the Government's incentives to domestic ship-building yards do not provide a level-playing field. As a result, the domestic yards are saddled with a number of issues, both internal and external.

The cost of financing in India is high considering the low interest regime abroad. The stage payments from ship-owners do not meet the working capital requirements of ship construction. Hence, borrowing from the domestic market at prohibitively high cost s becomes inevitable. The paper, therefore, suggests the need for developing separate institutional arrangements for financing the ship-building and ship-repairing sectors.

The Government should set up a corpus to provide capital investment and for disbursement of subsidies to the shipyards.

The Government's insistence on a cut-off rate of 12 per cent IRR as a pre-condition to any project is yet another bottleneck. The profitability in shipping being dependent on the highly volatile freight market, the cut-off rate of return should be linked to capacity of the industry to generate profits in the open market of over an 8 to 10-year life.

The thrust should be to develop at least large greenfield shipyards, one each on the East and West coast by absolving the interest burden on investments and repaying loan for the first 15 years for these yards. Though setting up of greenfield yards could trigger development of ship-building at a faster pace, the existing shipyards with their installed capacities should be helped to substantially improve new building capabilities.

As a maritime nation, India cannot afford to overlook the potentials offered by the ship-building and ship-repair sectors. Governments abroad have identified the maritime industry and the oceans as critical components for achieving a steady growth by way of commercial transportation, resource recovery and recreation. The paper, citing the example of the US Administration, says that with the decline in Defence demands, it has developed a strategy to re-energise American shipyards for a transition from De fence constructions to commercial newbuildings.

Compared to the global new building capacity of 23 million CGT (compensated gross tonnage), India's share is not even one per cent. Japan remains the single largest ship-building centre. Korea's capacity has grown sharply to nearly 4 million CGT. China, making giant strides, has increased its capacity to 0.8 million. This is likely to increase in a couple of years.

The strength of the Indian cargo fleet is 490 ships totalling 7.02 million GRT. Of this, 240 ships totaling 6.21 million GRT is in overseas trade. The growing demands for building infrastructure and higher living standards spell the prospects. Crude oil and products from the Persian Gulf, the Red Sea region or the Indonesian sector will continue to be shipped, and this region will contribute 56 per cent of the global crude exports by 2010. Similarly, the increase in exports from this region is expected to be 205 million tonne between 2005 and 2010.

Only a concerted multi-pronged approach to adopt best practices in design, procurement and production coupled with augmentation of key facilities and a will to exempt shipyards from additional liabilities can provide a stage for Indian yards to compete w ith foreign yards, the paper says.