Indian shipyards must have a positive net worth if they are to become eligible for exercising a so-called right of first refusal to build/repair ships for government departments/agencies including state-run firms, according to new guidelines issued by the shipping ministry on Thursday.
The shipbuilding policy approved by the cabinet grants a right of first refusal to Indian shipyards on government purchases and ship repairs, whereby local shipbuilders can take up state-funded contracts/works by matching the lowest price offered by overseas entities in a public auction.
The shipyard should have positive net worth during the immediate preceding financial year. In case an Indian shipyard does not have a positive net worth as required during the immediate preceding financial year, it should provide a so-called comfort letter from scheduled banks/ reputed lending institutions indicating to provide necessary financial support (at least 60% of the value of the contract for shipbuilding and 50% of the value of the contract for ship repairs) to execute the project, the ministry wrote in the guidelines issued to implement the financial assistance scheme cleared by the cabinet in December. The scheme took effect from 1 April.
This will put pressure on debt-laden yards that are undergoing financial restructuring, according to a Mumbai-based shipbuilding consultant.
The financial assistance to shipbuilders – both state-owned and private – will be valid for a 10-year period beginning 1 April 2016, scaling down the quantum by three percentage points every three years, starting with 20% during the first three years, 17% for the next three years, 14% for the next three years and 11% in the 10th year.
“From 2025 onwards (when the financial assistance scheme ends), only Indian-built vessels shall be procured by such departments and agencies for governmental purposes or for own purposes. Such departments and agencies have to undertake bulk tendering for their entire vessel related requirements with deliveries starting from 2017-2018. This is in line with international practice where many countries, in order to provide dedicated order-book support to domestic shipyards, place their ship-acquisition and repair requirements on their (local) shipyards,” the shipping ministry said in a statement. Mint reported this plan on 3 March.
Source: Live MintPrevious Next