News

Govt set to pull the plug on ‘right of first refusal’ for Indian ships

Local shipping companies says move will hurt their revenue, wipe out some from business

MUMBAI, JUNE 28

The Centre is set to scrap a decades-old right of first refusal (RoFR) benefit granted to local fleet owners to carry export-import oil and bulk cargo for state-run firms.

Currently, local shipping companies get a right to match the lowest rate offered by a foreign flag in tenders issued by state-run firms. If Indian companies decline, a foreign flag ship is allowed to carry the cargo.

India’s cabotage laws allows only Indian registered ships to ply on local routes. Foreign ships can operate only when Indian ships are not available; they need to take a licence from the Director-General of Shipping.

At stake is 125 million tonnes of crude cargo imported by oil PSUs, 300 mt of dry bulk (both private and PSUs/export and import) and 72 mt of pure coastal trade.

The share of PSU crude imports carried on Indian ships rose from 20.9 per cent in 2015 to 33.1 per cent in 2017. Of the 123.8 million tonnes (mt) of crude imported, 41 mt was carried on Indian ships. In the case of petroleum products shipped on local routes in calendar 2017, Indian ships transported 11.6 mt or 84.1 per cent of the total quantity moved. Further, Indian ships carried 30 per cent of LPG imports and 48 per cent of the dry bulk cargo moved on domestic routes.

Since late May, the Shipping Ministry has relaxed the cabotage rule for a variety of cargo segments, opening-up India’s coastal trade to foreign ships.

“RoFR is the only support afforded to Indian shipping companies,” said an official of Shipping Corporation of India. Under ROFR the cargo is never reserved for Indian shipping companies and hence it is no way even close to any form of cabotage, he stated.

“Any dilution/withdrawal of RoFR will work completely against the spirit of the ‘Make in India’ campaign. This will wipe out Indian shipowners who have invested in this highly volatile and challenging sector,” said a spokesperson for Great Eastern Shipping Co Ltd, India’s biggest private fleet owner. “Every time, RoFR was offered to us, we have captured it,” she said.

The shipping industry said it has made large investments on the back of RoFR. The cargo carrying capacity of Indian fleet grew 22 per cent between January 2015 and June 2018 from 7.87 million dead weight tonnes (dwt) to 9.58 million dwt with the addition of 15 crude, product and gas carriers.