Golden Jubilee Celebrations INDIAN COASTAL CONFERENCE Presentation by Mr. Vijay K Sheth Managing Director The Great Eastern Shipping Company Ltd. 15 December, 2001

Shipping Sector today encompasses the entire spectrum - international shipping, coastal shipping and inland waterways each charting its own navigational channels Role of Coastal Shipping in India is accentuated due to : - efficacy of transportation - economic interests - energy security - strategic security

Constituents of Coastal Shipping Passenger Transportation Cargo Movement dry, wet,container - Self propelled - Non propelled vessels- barges etc Oil Field Services - Drilling rigs (self propelled drillships & semi submersible rigs, non propelled drill barges, jackups & submersibles) - support vessels/ ships (AHTSVs, DSVs,PSVs) - Offshore construction and maintenance support crafts (self propelled or non propelled) pipe lay barges, crane barges, accommodation barges Port Flotillas (dredgers, harbour tugs, pilot vessels,- mooring vessels)

An international perspective to Coastal Shipping Countries worldwide including the most developed, have a well defined statute on Coastal Shipping Adaptive Cabotage laws/ practices (indicative.): - Jones Law of total protection (US) - Mandatory local crew (Norway & Australia ) - Flag preference (Indonesia/Malaysia) - Mandatory local business participation including investment (Middle East and Malaysia - “BHUMI PUTRA”) Prevalent customs duty structure and taxation policies protect domestic coastal shipping (globally)

IMPEDIMENTS

Regulatory Absence of long term policy framework Restrictive MS Act,1958 dissonant with the spirit of Cabotage and demands of growth in varied sectors Indian Customs Act, 1962 results in ambiguity in definition of territorial boundaries Unreasonably high safe manning levels (e.g.50% for tugs, 30% for containers) are a deterrent Mandatory coverage of H&M insurance with Indian insurers mars competitiveness

Fiscal Higher corporate tax rates at 35.7% as against low tax regime for the foreign counter parts Applicability of Customs Duty (5%) on tug acquisitions and (65%) on spares Differential depreciation rates Discriminatory taxation on Indian seafarers’ salaries - shifting of talent pool to foreign flags Applicability of sales/service/lease tax resulting in additional burden of %

Allied Lack of Industry stature and recognition though a forex saver and employment generator Port inefficiencies effecting growth of coastal trade Lack of hinterland transportation ( rail & road ) connectivity to major/minor ports Sea time during coastal voyages not recognised

Major Cost Disadvantages to Indian Flag Vessels * On Acquisition Cost : Cost of finance impacted by country rating Manning Costs( except crew accommodation) Tanker Dry Bulk Container ATHSV Tugs Numbers Wage bill $ /day Customs Duty on additional equipment's ($) Container ATHSV Tugs * Cost (in USD) over comparable foreign flagged vessels

SOLUTIONS

Regulatory A comprehensive National Policy/Act on Coastal Shipping addressing every constituent of Coastal Shipping –Passenger Movement –Cargo Transportation –Oil Field Services –Port Flotillas Broadbasing provision of Cabotage Renewal of Indian Customs Act 1962 Rationalisation of safe manning levels Flexibility to access international insurance markets

Fiscal Adoption of tonnage tax regime Employment in Coastal Shipping to be treated at par for Income Tax applicability in case of seafarers employed outside India Enhanced depreciation rates Rationalisation of Sales/Lease/Service tax Fiscal incentives to induce investments and increase participation in coastal activities

Allied Industry status to Coastal Shipping Dedicated berths at ports for coastal vessels Simplification of customs procedures

Imperative Action Sought ! Need for Government to take a pragmatic approach to issues pertaining to coastal shipping and outline a policy framework to create level playing conditions for Indian flag vessels vis-a-vis foreign flag vessels. Critical need for creating a conducive operating environment to trigger tonnage accretion especially in view of the gap in achievement of 9th five year plan Consider the strategic nature of industry, its future perspective, India’s long coastline and aggressive offshore activities for future oil and energy security

Navigation Chart Quick action on policy formulation Strengthen the Regulatory Authority Correctly emphasize the scope of Coastal Shipping Adopt policies to stimulate the sector Fiscal incentives Level playing field by giving first right of refusal to Indian flag vessels versus foreign flags

Looking forward to..... Self Reliance –Technological expertise –Foreign Exchange Saver –Employment Generator –Development of ancillary sectors Energy Security –Development of Oil / Gas field services Fortified second line of Defense Extension of Indian Coastal Shipping operating on foreign coast –Foreign Exchange Earner –Employment Multiplier

THANK YOU