To the Members
Your Directors have pleasure in presenting the 66th Annual Report on the working ofyour Company for the financial year ended 31st March 2016.
The year under report covers a period of 12 months ended on 31st March 2016.
The comparative position of the working results for the year under report vis-a-visearlier year is as under:
| || ||(Rs. in Crores) |
| ||2015-16 ||2014-15 |
|Gross Earnings ||4277 ||4588 |
|Gross Profit (before interest depreciation items relating to earlier years exceptional items & tax) ||1299 ||1239 |
|Less : Interest ||161 ||179 |
|Depreciation and Impairment ||716 ||770 |
| ||877 ||949 |
|Profit before items relating to earlier years exceptional items & tax ||422 ||290 |
|Prior year's adjustments ||2 ||(14) |
|Profit before Extraordinary items & tax ||424 ||276 |
|Extraordinary items ||- ||- |
|Provision for Indian Taxation ||(47) ||(75) |
|Net Profit ||377 ||201 |
The working results for your company for the year 2015-16 after considering priorperiod adjustments show a profit of Rs. 377.29 crores. An amount of Rs.90.0 crores hasbeen transferred to Tonnage Tax Reserve u/s 115VT of the Income Tax Act 1961.
Your Directors propose to make appropriations of Rs. 1.4 crores for FY 2015-16 UnderStaff Welfare Fund.
After adjusting an opening debit balance of Rs. 34.72 crores (being balance profit andloss account brought forward from previous year) there is a credit balance in Profit& Loss A/c of Rs. 251.17 crores.
Brief Analysis of Financial Performance
SCI has reported net profit of Rs.377.29 Crores for financial year 2015-16. Theshrinkage in Bulk carriers and Liner freight rates was offset by increase in Tankerfreight rates. Due to steep fall in Market Prices and Freight rates of some of thevessels the company had to make provision for impairment loss of Rs.136 crores. Reductionin depreciation due to change in useful life of Tankers and Offshore vessels coupled withreduction in bunker cost have contributed positively to the current year profit. Theconsolidated Net Profit of the company for the Financial year 2015 - 16 was Rs. 389.40Crores.
Performance and Financial positions of joint ventures included in consolidatedfinancial statements:
| ||As on 31.12.2015 Fig (Rs. in lacs) |
|Particulars ||ILT 1 ||ILT 2 ||ILT 3 ||ILT 4 |
|Total Income ||15463 ||16795 ||17809 ||- |
|PAT ||3976 ||5207 ||248 ||(158) |
|Equity capital ||15 ||15 ||7 ||10853 |
|Number of equity shares ||10000 ||10000 ||10000 ||12362500 |
|EPS ||.40 ||.52 ||.25 ||- |
|Dividend ||0 ||0 ||0 ||0 |
|Net worth ||9532 ||9629 ||(10156) ||10636 |
ILT 4 is yet to start its operations as the vessel is still under construction.
Net Impact on Consolidated profits is increase of Rs 1211 lacs upon proportionateconsolidation of above joint ventures and on Net worth is decline of Rs 203 lacs.
1.0 Fleet Position during the Year:
During the year under report there has been no addition or deletion of vessels toSCIs fleet. Thus the overall fleet of SCI remained steady at 69 vessels of 5.89million DWT at the end of the year.
Fleet Profile during the Year
|Particulars ||As on 1.4.2015 ||Additions ||Deletions ||As on 31.3.2016 |
| ||No. ||DWT ||No. ||DWT ||No. ||DWT ||No. ||DWT |
|1. (a) Crude Oil Tanker ||21 ||3608001 ||- ||- ||- ||- ||21 ||3608001 |
|(b) Product Tankers ||14 ||908059 ||- ||- ||- ||- ||14 ||908059 |
|(c) Gas Carriers ||2 ||35202 ||- ||- ||- ||- ||2 ||35202 |
|2. Bulk Carriers ||17 ||1113889 ||- ||- ||- ||- ||17 ||1113889 |
|3. Liner Ships ||5 ||202413 ||- ||- ||- ||- ||5 ||202413 |
|4. Offshore Supply Vsls. ||9 ||20150 ||- ||- ||- ||- ||9 ||20150 |
|5. Passenger-Cum-Cargo Vessels ||1 ||5140 ||- ||- ||- ||- ||1 ||5140 |
|Total ||69 ||5892854 ||- ||- ||- ||- ||69 ||5892854 |
2.0 During the period under report no vessel was inducted in SCI fleet: 2.1 During thesame period the no vessels were disposed off from SCI fleet: 2.2 At the end of the year2015-16 the Company had NIL vessels on order.
Particulars of Loans Guarantees and investments.
Details of Loans Guarantees and Investments are given in the notes to financialstatements
Extract of Annual Return
In accordance with section 134 (3) (a) and section 92(3) of the companies Act 2013read with relevant rules an extract of annual return in form MGT-9 as on 31st March 2016is appended to the Directors Report.
Subsidiaries and Associates
Your company has no subsidiary Company and has six Joint Ventures. Pursuant to section129(3) of the Companies Act 2013 a statement containing salient features of ourassociates companies in form AOC-1 is appended to the Directors Report.
In accordance to section 136 of the Companies Act 2013 the audited financialstatements of the company are available on our website www.shipindia.com.
Particulars of contracts/arrangements with related parties
Particulars of contracts or arrangements with related parties referred to in Section188(1) of the Companies Act 2013 in the prescribed form AOC-2 is appended to theDirectors Report. The details are also available in Note 31 to under Notes onFinancial Statement.
Particulars of Employees
In accordance with Ministry of Corporate Affairs notification no. GSR 463(E) dated 5thJune 2015 Government Companies are exempt from Section 197 of the Companies Act 2013and its rules thereof.
In accordance with the section 134(3)(n) of the Companies Act 2013 the Risk Managementis forming a part of the Corporate Governance Report.
Conservation of Energy Technology Absorption
The information pertaining to conservation of energy technology absorption is forminga part of the Management Discussion and Analysis Report.
|Foreign Exchange Earnings and outgo || ||(Rs. in crores) |
|Particulars ||2015-2016 ||2014-2015 |
|Foreign exchange earned and saved including deemed earned and saved ||3771.57 ||4103.73 |
|Foreign exchange used including deemed used ||3678.42 ||4183.32 |
Expenses on Entertainment Foreign tours etc. FY 2015-16
During the year under report your Company spent Rs. 42 lakhs on entertainment Rs.246lakhs on publicity & advertisements and Rs.386 lakhs on foreign tours ofCompanys executives.
MANAGEMENT DISCUSSION AND ANALYSIS.
The overall scenario under which the Shipping Industry operated and which impacted thevarious segments is discussed below;
A. INDUSTRY STRUCTURE AND DEVELOPMENTS i) Global Scenario
The year 2015 was marked by subdued economic activity. In terms of a rebound theglobal recovery vehicle is still far away from its destination. Although the major chunk(around 70%) of global growth is still attributed to economic growths of developing andemerging nations their share in global growth appears to be gradually subdued and waningfor the fifth consecutive year. The major factors influencing global outlook were Chineseslowdown in the infrastructure manufacturing & capital investment sectors marginaltightening of monetary policy by US on the backdrop of their strengthening economy pricesfor energy & power commodities continuing to remain lower. Oil prices declinedsignificantly from September 2015 onwards which benefitted the importers while strainingthe economies of exporters. The US economy remained solid with firm housing & labormarkets & is expected to hold its position in 2017. Europe Japan India and otheremerging economies of Asia reaped the benefits of lower oil prices. As per analysts theChinese economy is shifting from import-export focus to internal consumption &services. After a stellar performance in the FY15-16 the Indian economy is expected tooutperform China again in 16-17 in terms of growth rate. ii) Global GDP
The world GDP grew by an average of 3.1% in 2015 with growth estimates for 2016 and2017 at 3.4% and 3.6% respectively. The growth in US is expected to be 2.6% in 2016-17.Meanwhile Europe & other advanced economies are expected to show moderate to slowrecovery. China continues to face slowdown in its import-export & capital-intensivesectors. Though a paradigm shift towards internal consumption & services is expectedto balance the Chinese economy to some extent still many analysts predict amedium-to-sharp slowdown in Chinese economy which is expected to grow at 6.3% per annum.On the other hand India is expected to again surpass China with a growth rate of 7.5%driven mainly by a stable government & lower oil import costs.
The IMF report forecasts global trade to grow from 2.6% in 2015 to 3.4% and 4.1% in2016 and 2017 respectively owing to steady trade volumes of advanced economies while asignificant growth in trade within emerging economies. Emerging economies are riding onthe lower energy prices which should reduce overall business costs while having theadvantage of growing domestic demand. The global GDP growth directly impacts theinternational trade (export and imports) and a higher GDP in turn would have a positiveimpact on the shipping industry as about 80% of the international trade by volume iscarried by shipping.
iii) Seaborne Trade Fleet & Market
Globally the oil trade (i.e. Crude Oil and Products segments)growth rose by 2.91% compared to 0.5% growth in 2014. In the oil seaborne tradedevelopment the Crude oil trade increased by 2.81% at 2085 million tons in2015 whereas Products trade was 806 million tons in 2015 increasing by3.20%. The tanker fleet expanded by 16.68% in 2015 as compared to 0.56% during theprevious year. Overall for most crude tanker owners 2015 was a very optimistic year assteady demand growth & lag in plugging of demand-supply gap saw freight rates reachingvery healthy levels. The dry bulk trade stood still with nominal increase of 0.08% involume over the course of the year 2015 but oversupply of tonnage continued to plague themarkets and earnings. Consequently the time charter rates took a heavy beating fallingin the range of 21% to 30% across all vessel types with similar sharp declines in spotrates and trip charter rates too. Although there is deceleration in fleet growth withtotal fleet growing at about 2.78% from 5.3% in 2014 and the fleet actually shrinking in2016; the fleet growth is projected at an average 1.5% annually during 2016-18 thuslimiting the prospects for a reversal in the supply demand gap. Most of the gains indemand during 2015 came from the coal and minor bulk trades. China Japan in iron oretrade & India in coal trade were the key drivers of the demand.
Irregular and extreme circumstances specifically the sharp decline in commodity andoil prices and the steep devaluation of currencies against the USD weigheddisproportionally on economic growth and import demand of export-oriented emergingmarkets. They also negatively impacted trade growth in developing Asian economies whilelimiting global investment and curtailing trade demand in advanced economies particularlyin Europe. A combination of slow global demand and tumbling commodity prices led to thedrastic decline in world trade value. Containerized trade was not immune to the events incommodity markets and the ensuing tightness in financial markets which affected thepurchasing power of both emerging and advanced economies. Containerized trade growth 1.7%pace in 2015 is the second lowest-expansion of trade second only to 2009 when tradecontracted during the crisis. Container-capable fleet growth (cellular and non-cellularships trading in container trades) accelerated to 7.5% in 2015 up from a much moremoderate 5.2% annual expansion during the previous two years. Scrapping developmentsslowed down in 2015 though the activity surged by year end as charter markets collapsed.Newbuilding slippages increased towards the year end due to deteriorating marketconditions. Average liner operating profitability after three long years had becamepositive in 2014; however after showing the best 6 month long operating performancebeginning 2015 the freight rates started falling thereafter and collapsed to historicallows in November bringing liner operating profitability down.
iv) INDIAN SCENARIO
As per Central Statistics Office (CSO) Indian economy grew by a robust 7.6%(estimated) in 2015-16 compared to 7.2% growth in 2014-15 on the backdrop of improvementin both services and manufacturing sector marked by confidence in the markets owing to apro-reform government & significant decrease in oil import costs. India overtook Chinain GDP growth this year. According to sources from Ministry of Commerce Indiasexports in value terms fell by 15.57% to US$ 262.03 billion in 2015-16 while imports alsofell by 15.04% to US$ 380.67 billion. As per Press Information Bureau & Indian PortAssociation (IPA) the quantum of Cargo Traffic at Indias 12 major ports rose by3.13% in first three quarters of 2015-16 i.e. from around 433.5 million tons inApril-December 2014 to 447.05 million tons in April-December 2015. The largest commoditygroup in the total traffic was P.O.L. (Petroleum Oil & Lubricants) with around 32%share followed by Container traffic and Coal (21.5% each) Other Cargo (21%)Fertilizers and Iron Ore 2% each. On the other hand the existing non-major portsespecially private ports continue to grow due to factors such as a diversified cargoportfolio superior operating efficiency and infrastructure and the presence of captivecargo streams.
Years of experience in Shipping together with diversified fleet across all majorsegments gives SCI a unique ability to exploit demand growth in any given segment with aquick-mover advantage on the peak of learning curve. New acquisitions have brought downaverage age from 18 years in 2007 to about 10 years presently. Longstanding COArelationships with major Indian Oil Refineries offer cargo security. A strong presence inthe crude and Petroleum sector provided good returns in the year which featured highercargo demand on a moderate tonnage growth.
As the prospects for global economy point to improved growth at about 3.4%-3.6% in2016-17 oil trade demand (both crude and product) will gain support from low oil pricesand changing trade patterns are expected to absorb the modest growth in fleet lendingsupport to positive earnings. One of the major shifts in oil tonnage will be due to waningproduction of crude oil in US thus increasing imports of the country & shifting a lotof tonnage towards the region. While this would allow the tanker market to remain buoyantover the coming year but with a marked increase in tanker supply & only marginalincrease in demand rates and prices for both crude and product tankers are estimated todip downwards on average compared to 2015. Most indicators are likely to stabilize in2017 and from 2018-20 product tanker indicators would hold steady over this period whilecrude tanker rates and prices may come under some pressure due to increasing demand-supplygap. In the dry bulk segment freight rates are expected to undergo severe volatility overthe course of next two years. More specifically freight rates for Supramax Panamax andsmall bulkers are projected to decrease in 2016 before going up in 2017-19 due to surge inthe demand. In the container segment all containerized trades suffered lower growth in2015 with several lanes seeing outright contraction in volumes. Liftings to commodityexport regions like Russia Latin America West and South Africa fell lower than 2014figures as they were negatively affected by developments in commodity prices. Slowdown inChinese economy weighed on economic growth of its Asia-Pacific trade partners which dependon China for their exports. Sharp depreciation of several Asian currencies against USDollar negatively impacted their purchasing power. Containerized trade is however expectedto accelerate in 2016 as commodity prices resume positive growth financial liquidityreturns to the markets investment gains new momentum and economic growth in emergingmarkets bounces back. Effective liner fleet utilization is expected to average 79% in 2016up from 78% in 2015. Market fundamentals are expected to improve in 2017. Charter marketconditions are expected to become better in 2016. Charter fleet utilization is expected toaverage 73% in 2016 modestly higher than 72.3% in 2015 and improve to 74% in 2017. Thereturn of Iran to the global markets and a possible lifting of European sanctions onRussia could also help buttress demand for feeder capacity
vii] OPPORTUNITIES &THREATS
The developing Asia region is expected to perform better in 2016 as compared to 2015with India surpassing China for the first time. The low oil prices are expected to improvethe economic situations of most of the developing Asian nations supporting the basis for aprosperous economic outlook. The Asia region is expected to grow by 6.3 % in 2016slightly down from 6.6% growth in 2015 with India poised to grow at 7.5%. The Europeaneconomy is expected to show modest growth of 1.7% in 2016 with growth coming in primarilyfrom the recovering Euro economies & stronger private consumption due to monetaryeasing. The Japanese economy is expected to grow at a modest rate of about 1% in 2016. Asfar as the container segment is concerned sharp changes in the factors leading todownsizing of trades in 2015 viz. low oil and commodity prices and consequent subduedcommodity demand are expected to abate which in turn would favourably impact thecontainerized trade. Euro and Europe-Russia transshipments are expected to stabilize withan improving Eurozone economy. A projected strong cyclical economic rebound combined witha revival in global investment as commodity prices move higher would help propel tradegrowth. Containerized trade growth is projected to increase from 1.7% pace in 2015 to 4.4%in 2016 and 6.5% in 2017. Container-capable fleet growth is expected to moderate to 5.5%in 2016 and ease further to 4.7% in 2017 a pace considerably lower than the 7.5% annualgrowth of 2015.
viii] RISKS & CONCERNS
Geopolitical tensions the US monetary policy tightening declining industry output andfalling demand in China remain the major macro risks. The gradually deterioratingpolitical & economic situation in Brazil is becoming a cause for concern. The lowcrude oil prices have strained the economies of oil exporting countries both Middle Eastand Russia who in turn may be forced to cut subsidies and consequently hurt demand. Thefalling Russian economy is seen as an example of an economy hit directly by falling oilprices in general. Falling oil prices along with western sanctions continue to keep theRussian economy in recession. The decision of the Chinese Government to increase thepercentage of non fossil fuels in its total energy mix could curtail future oil demandfrom the country. In the event these negative trends strengthen the crude tankers ratesare likely to remain flat during 2015-18.
Similarly in the dry bulk segment the rising interest rates in emerging economiescould lead to slowing import demand. Additionally relatively flat steel production in thedeveloping Asia region due to weaker Chinese economy remains a matter of concern. One moresolid driver of coal trade Japan is also planning to reduce its dependency on coal thuslikely to hamper the corresponding maritime trade.
B. SEGMENT-WISE FLEET & MARKET STUDY
1. BULK CARRIER & TANKER
a) Crude Oil & Product Tankers
The global consumption of Crude Oil registered a marginal increase of 2.7% to 96.30million barrels per day over the previous year. It is forecasted that the demand growth isexpected to come from developing & advanced countries of Asia such as India Thailandand Korea while demand is forecasted to shrink for OECD-Americas & OECD-Asia Oceania.Due to a dip in US production US imports of crude oil from Middle East& West Africaare predicted to be on the rise helping to boost ton-mile demand. However the net flowof global crude trade is forecasted to shift eastwards due to ongoing buildup ofstrategic reserves by China & other Asian countries. These countries are supposed tocontinue their trend of taking advantage of the low crude prices. This surge in strategicreserves is likely to engage some of the tonnage in floating storage mode hence strainingthe supply-side of tanker tonnage. There were deliveries of 7.6 million dwt and 3.0million dwt of newly built crude oil tanker and product tankers respectively in 2015. ForCrude oil tankers the deliveries expected are 22.2 million dwt and 20.0 million dwt in2016 and 2017 respectively. For Product tankers the respective figures are 5.7 milliondwt and 5.0 million dwt each. New building prices for tankers largely remained steady in2015 nominally rising by about 0.1% in 2015 and continuing the stabilization from theearly part of 2015. In ton-mile terms it is estimated that crude trade increased by 3.26%compared to the previous year.
The trade is likely to remain robust on import gains in Asia Pacific and an expectedre-start of US imports. The average spot rate of TD3 route of AG/East for VLCC was US$68600/day in 2015. The future market in this segment seems to be in the range of US$50000-60000/day slightly affected by the supply surge. One Year TC rate for VLCC wasabout US$ 46542/day in 2015 with some fixtures done at higher levels during the latterpart of the year. The Suezmax rate on Black Sea/Med route was in the range of US$48658/day in 2015 which is expected to decrease by about 20% per year over the next 2years. For Aframax the spot rate on AG/Far East route was US$35650/day which has touchedhigher levels during the end of the year and is expected to turn volatile owing to fueloil arbitrage trades. For Product tankers LR1 Spot rates on AG/East was US$ 21700/day in2015 and expected to decrease significantly in 2016. One year TC rate for LR1 was US$24700/day. In MR tankers on Caribs/US route the spot rate was US$ 20400/day in 2015. OneYear TC rate for MR was US$ 18600/day in 2015 and expected to be around US$ 17800/dayfor the next year.
Your company has five VLCCs. 2 of these units were employed under long term timecharter business with Indian Oil with the other three units mainly employed in the spotmarket on Voyage Charter during FY 2015-16. Your Suezmax tankers were mainly deployed withthe Indian oil industry and performed COA voyages except occasionally performing spotvoyages for Indian and foreign charterers. The COA earnings are based on market-linkedindices.
Your product tankers in the Swarajya Series were all well employed with Indiancharterers and their earnings compare well with the market averages.
The two MR product tankers in the Swarna series were gainfully employed with Indiancharterers and their earnings compare well with the market. MT Swarna Mala was deployedwith foreign charterers for short periods during the financial year. The MR product tankerMT BC Chatterjee was employed with Indian charterers and the earnings compare well withthe market averages.
The two LR-II tankers MT Swarna Jayanti and MT Swarna Kamal gave stable returns on timecharter with foreign charterers for a good part of the financial year and are currentlyemployed on spot charter.
Earnings of your coiled / double hull Aframax tankers were in line with the average ofbenchmark yields under TD8 (Arabian Gulf to Singapore) and TD14 (Indo-Australia) routesmainly on the back of COA voyages under TD8 pricing formula and triangulation voyages dueto intermittent fuel oil arbitrage trades which minimized ballast voyages. The Aframaxesmainly performed India centric / Far East / Red Sea voyages.
Out of your companys six LR-I tankers five tankers performed coastal movementsfor transportation of crude oil. One LR-I tanker is deployed under clean trade. Theaverage earnings were in line with the market averages.
With US oil production exhibiting downward trend & European economies trudging ontheir road to recovery showing signs of stabilizing growth in global oil demand isexpected to ride heavily on the Asian nations. It is projected that many Asian economieswill show remarkable growth in the next year. Hence there will be a lot of tonnage presentin the southern Asian region. Additionally Middle East is likely to become a major growthhub for the oil trade. Since the company has much of the trade going on in this regionthis scenario will be beneficial to our company. Net global crude trade flow is expectedto shift eastwards. Due to increasing floating storage increase in refinery capacitiesand policy of building up strategic reserves China is likely to increase its importsleading to an import spike. Many Asian nations are still keen on building up theirstrategic reserves. Although this trend is declining this still presents some usefultonnage in the Asian region.
The constancy in the recent trend of floating oil storage in Asian region is supposedto boost the tonne-miles demand especially in the south-east Asia & Chinese waters.This along with increase in the US imports is likely to create a temporary supply vacuumwhich could positively trigger freight rates in the Middle East region. The abovestructural supply factors are expected to lead to increased tonne-miles as refiners findit economical to float and ship low cost oil over longer miles. The demand generated by USimports is to be met mostly by OPEC countries. This is expected to increase demand forcrude oil tankers majorly in the West Asia Gulf to North America route. The tonnage vacuumthus generated will boost for West Asia Gulf to South East & Far East Asia tradeswhere your tankers mainly operate and are well positioned to exploit the tradeopportunities.
Overall expansion in global refinery outputs as well as notable increases in refinerycapacities in Middle East on backdrop of lower oil prices could render support to the oilproducts trade. Though the rates may face some pressure these attractive refinery marginsare estimated to boost the products trade & expected to ensure moderate clean tankermarkets and your clean tankers will stand to get gainful trades.
ii) Risks and Concerns
As per some recent trends few countries seem to be focusing inwards for economicimpetus which may result in an adverse impact on global trade. Further with a renewedfocus on renewable energy in the emerging economies there may be reduction in use offossil fuels which may slow down the global oil trade. One more reasons for this is thefact that most of the countries have accumulated significant inventories & at somepoint are likely to draw from it instead of importing oil from abroad if their economiesdo not grow substantially. The oil consumption is likely to decline however the fleetgrowth of dirty tankers may not follow suit. The increase in fleet in the face ofdeclining consumption is likely to put the pressure on rates. A dwindling political &economic situation of Brazil and parts of South America may make a dent the South Americantrade. Also the price of crude oil is linked to the international monetary exchange ratesand countries adversely positioned with depreciating currencies would find it difficult toimport in larger quantities. Weakness in oil products demand combined with high oilreserves created by many countries is likely to put pressure on oil products trade. Thefreight rates may dip in the coming year due to higher tanker supply over possiblereduction in demand.
b) Dry Bulk
The benchmark the Baltic Dry Index (BDI) fell to an average of 655 in 2015-16 from 915in 2014-15 registering a steep 28% decrease reaching its lowest level ever by touching290 points on 10.02.2016 and is now hovering around 600.
The global imports of dry bulk stood at 3798 million tons and grew by only 0.1% overprevious year 2015. When compared to 2015 dry bulk trade is estimated to remain fairlyconstant in 2016 with tonne-mile demand growing by an estimated 1.3%. The dry bulk globaltrade is expected to grow on an average of 2.4% for subsequent 3 years.
The dry market remains inundated with tonnage supply with very volatile demand. Alonger wait for recovery is expected with dry bulk fleet growth projected at 0.5% in 2016and an average 2.5% over the next 5 years. Steel & Coal which are the key drivers ofdry bulk trade continue to be affected due to slowdowns & changes in consumptionpatterns. Although the BDI rose somewhat from the abyss in month of March the recovery isexpected to be short lived with market fundamentals still not in place. Hence medium tolong term outlook of the market still remains bleak. Even though there has been acontraction in the dry bulk fleet after a long time it would take quite a while for thecontraction ripples to genuinely impact the markets. The dry bulk segment continues to bebogged down by low profitability due to low earnings causing depressed asset prices caughtin a downward spiral.
Subdued cargo demand has added to the existing woes of the dry bulk market. Theslowdown in Chinese economy is a major factor likely to weigh down the dry bulk trade.Some of the dry bulk vessels being converted into tankers show desperate attempts byowners to bid adieu to low earnings and to switch to worthier options.
Indias iron ore exports slipped to 13.1 mmt in 2014-15 compared to 15.4 mmtexported in 2013-14. With regard to Thermal Coal India is set to see a considerableincrease in its imports rising from 161.5 million tons in 2015 up to a forecast of around167million tons for 2016.
Indias urea imports fell by 3.14% to 84.74 lakh tons last fiscal on stagnantdemand. The country which is among the worlds top three consumers of urea producesabout 22 million tons urea as against the annual domestic demand of 30 MT. India imported8.47 million mt of urea in fiscal 2015-2016 of this 4.24million mt came from China and2.32 million mt from Oman.
Urea movement into India which is a key cargo for dry bulk vessels and is part ofminor dry bulk commodities has for the last few years been a "supporting trade"for bulkers ranging from Handysize to Panamax.
Grain trade is likely to provide a temporary boost to dry segment during the firstquarter of FY15-16. Grain trade is estimated to provide much needed relief to Panamaxeswith exporters of Argentina Australia France Germany Kazakhstan & Eastern Europelikely to step up the exports.
Global steel production declined by 6.8% in the Q1 of 2016 with reduced demand fromEurope and Asia whereas Chinese steel production which hit rock-bottom in 2014projected to slump even lower due to high number of loss making steel companies within thecountry. Fresh anti-dumping duties have been imposed by US & Europe on Chinese steelwith US levying duties as high as 266%. One more reason for suppressed steel market ispolicy shift in many countries such as Vietnam Germany & UK to boost domestic steelproduction & curtailing imports. So far this year 142 dry bulk ships are sold fordemolition as against 407 dry bulkers for the entire last year. So far already 48 Panamaxbulkers have been sold for scrapping in 2016 as compared to 83 in the whole of 2015.Additionally number of ships are out of play and possibly heading for hot or coldlay-ups. As mentioned above dry bulk fleet contracted due to three factors: 1) Increasein demolitions/scrapings as companies fight for their survival or to exit the segmentwhile minimizing the losses. 2) Conversion of vessels into tankers by many owners inquest for a more profitable trade. 3) Drastic increase in lay-ups (almost 250 vessels werelaid up accounting for tonnage of 12 million dwt). Even so the dry bulk fleet registerednominal growth in Q1 of 2016 as it increased by a mere 0.29% from the year-end fleet andstood at 778 million dwt. It is obvious that this growth is on the basis of deliveries ofvessels ordered previously before the dramatic fall in market fortunes. It is estimatedthat demolitions will increase by approximately 5.65% in 2016 from last year because ofthe weak freight market. Your Company owns two older Handymax bulk carriers (average age17 years) of around 45000 dwt eight modern Supramax bulk carriers of around 57000 dwtand seven modern Panamax / Kamsarmax dry carriers of around 80-82000 dwt as on31st March2016. The bulk carriers fleet is very young with an average age of about 5 years. Thedismal state of dry bulk charter market in the year was the cause of soft earning levelsof our fleet. In order to maintain a healthy cash flow your company preferred fixing thebulk carriers on trip time charter and short-to-medium term time charters and minimizelong-term period charters at low charter rates.
Poor freight markets and resultant depressed ordering and conversion of dry bulkcarriers to tankers is expected to significantly slowdown deliveries and fleet growth overthe 2016-2019. The fleet growth is expected to be at an average of just 2% per year overthis period as against the average expected trade growth of 2.97% in terms of volume and3.5% in ton mile terms over the period of 2016-2019. India is going to be an interestingdestination for the dry bulk market. The requirement of coking coal via imports to meetthe countrys increase in steel demand derived from focus on investment andinfrastructure plus projected import of thermal coal by167 MMT would boost shippingactivity. A robust coastal movement of coal owing to increased domestic production wouldstrongly support tonnage demand. Indias coal import trade is gradually shifting thefocus from Indonesia to South Africa. This is a welcome development for our dry bulkships hauling most of the import coal cargoes of India on a longer route therebyincreasing ton-miles. The coking coal markets seem quite favourable for the trade sinceshipping costs for the trade have declined & coking coal prices have enduredsubstantial softening. Indias prime source of coking coal is Australia and hencethis route may see handsome dividends particularly with decrease in tonnage supply. Indiais expected to see a capacity addition in power sector of 80000 MW in the 12th Five-YearPlan (2012-17). It requires around 4.5 million tons (M.T.) of coal to generate 1 MW ofthermal power. This means there will be high investments in power sector and the coalrequirement to run these power plants will contribute to increased demand for shipping.
By the end of 12th five year plan the countrys coal requirement will reach 1000million tons of which approximately 200 million tons of coal will be required to beimported. Indian companies are making huge investments to secure raw materials like coalfor their power plants with acquisitions in East Asia Africa and even the USA. With theseimports in pipeline the shipping sector will stand to benefit from increased importcargoes.
ii) Risks & Concerns
The fresh anti-dumping duties imposed on Chinese steel will further fuel the slowdownbeing experienced by the country. This will create a notable drop in iron ore imports byChina. With policies to boost domestic steel production there may be sharp decline in thesteel imports of UK France & Vietnam. This will free up a lot of tonnage therebyincreasing the oversupply situation. In parallel coal trade may show signs of nervousnessowing to greater concerns on environmental impact of coal. Both India & China the topimporters of coal worldwide are introducing policies to reduce the dependence on importedcoal. China is shifting focus towards renewable energy while India has plans set toincrease domestic coal production.
Grain and fertilizer trades are seasonal and short term in nature with uncertain parcelsizes which require timely positioning of tonnage to exploit the trade. They are alsodriven by catastrophic imbalances in weather which is unpredictable. The global graintrade is likely to be a drag on the dry bulk market through 2016. After growing at astriking 9% pace in 2014 it is expected to grow by just 0.95% in 2016-17 based on thelatest forecast from the International Grains Council.
SCI with critical mass in Panamaxes is catering to transportation of two majorcommodities i.e. Iron ore and coal. In view slowdown in these major trades globally theearnings of Panamaxes may continue to suffer. SCI is exploring options in grain tradebasis opportunities opening up in South America and NOPAC region. The concerns ofoversupply may remain strong as due to recent deliveries the supply of Supramax tonnageincreased to 181 million dwt by March 2016 the highest Supramax tonnage ever. This couldnot come at a worst possible time & even though supply corrections are present in thepipeline the medium term outlook for the market does not bode well for this sector. Themacro economic factors such as interest rate volatility subsidies on petroleum productsvolatile rupee value vis a-vis the dollar and inflation continue to plague the nationaldemand. Shipping being a derived demand will be negatively affected by these factors. c)LNG Transportation
The scope for growth of LNG transportation is high considering that LNG annuallyaccounts for 8% of the total energy mix and is projected to grow up to 20% by 2030. Indiais the 4th largest importer of LNG accounting for 6.06% of the total global trade.Indias LNG demand is projected to soar from 64 million cubic meters (mcm) per day in2015 to over 306 mcm per day by 2021. The expected compound annual growth rate (CAGR) isat 16.89% for the period between 2015- 2021. The lowering of gas prices has led to a surgein demand for gas in India.
The LNG terminal at Kochi became the 4th operational terminal in India while newterminals are planned at Mangalore Mundra Pipapav Ennore and Haldia and furthercapacity additions at Hazira and Dahej. There is optimism about Indias LNG demandtaking into account the drive to increase the share of gas in the power industry.
Pursuant to the MOU signed with GAIL SCI is working closely with GAIL for the tenderto in-charter 9 LNG tankers on a long-term basis. It is expected that LNG tankers would bebuilt in Indian Shipyards in line with the "Make in India" campaign while thefurther tankers would be built in foreign shipyards. SCI will take up a stake in all theLNG tankers for the project.
The Gorgon LNG plant and Gladstone LNG project (Train 2) in Australia is commissionedand has commenced export of LNG. Your company has acquired 26% stake in LNG tanker M.T"Prachi" being built in S.Korea which will be on charter for 19 years withPetronet LNG Ltd. This vessel will ship LNG from Gorgon Terminal to Kochi or Dahej inIndia.
Your Company has developed a pool of trained and experienced officers to operate LNGtankers. This expertise along with the experience of independent technical operation ofLNG tankers has provided the advantage to your company to expand its LNG Ship Managementexpertise.
d) Ratnagiri Gas Power Pvt Ltd (RGPPL) Port and Marine Services
Upon successful completion of first 3-yearly contract with RGPPL for providing port andmarine services at its Dabhol port RGPPL has renewed the contract for a further period of3 years which will earn a revenue of about Rs.116 Crores .
e) LPG Carriers
Your LPG carriers were pre-dominantly deployed under time charter to IOCL at prevailingmarket rates. The process for replacement of these tankers which are over 25 years hasbeen initiated.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
The financial performance of the tanker segment has been largely influenced by goodearnings on the VLCC Suezmax and Aframax segments where SCI has had a mix of cross tradecharters Contracts of Affreightment and Time charter businesses to effectively hedgeemployment and earnings risks. On the smaller segment product carriers and LR I dirtycarriers; the employment was mainly to meet the domestic product and indigenous crudemovements on long term contracts and time charter business. The mix of employment typesand geographical concentration in niche coastal business segments has ensured returns inline with market trends.
The dry bulk segment was subject to severe tonnage over capacity worldwide and loss ofkey cargoes such as Iron ore from India resulting in non profitable ballast voyage legsthereby reducing earnings. Although some relief was offered by coal cargoes & minorbulks earnings remained depressed due to low freight markets. Very few profitable tradesemerged during the year under consideration and the situation is expected to remaindepressed with earnings remaining under pressure.
2. LINER & PASSENGER SERVICES
A. INDUSTRY STRUCTURE AND DEVELOPMENTS
i) Global Scenario:
Record-low rates falling volumes and dismal load factors (vessel utilization) allcombined to push down the liner industry operating profitability. For the year as a wholethe liner industry EBIT margins averaged around zero level with several carriers sufferingoperating losses. Liner freight rates fell to all-time lows and operating lossesincreased. Containership charter rates also tumbled below 2012-13 levels for medium andlarge-size vessels with Panamax and over-Panamax ships rates falling below operatingcosts. Market fundamentals weakened steadily during the course of 2015. Ocean carriersresorted to routine undercutting competition in an effort to lure more business. Whilefalling fuel prices allowed some buffer for freight rates to adjust lower rate declineswere excessive and widespread across all markets. Lackluster trade demand withaccelerating fleet growth brought down the liner fleet utilization. Fleet utilization inAsia-Europe WB (west bound) its main arterial lane collapsed due to contracting tradevolumes and a deluge of mega-ship deliveries despite cascading of the vessels to othermarkets. It held much better in the Transpacific EB (East bound) the other major arteriallane though it fell during the year end as trade growth weakened with robust capacityexpansion. Fleet utilization worsened in other trades outside premier arterial haul-waysas cascading tonnage overpowered demand gains. In all effective liner utilization fellsharply and averaged 78% in 2015 down from 82% in 2014. Charter rates having surged to newhighs in May/June 2015 with the liner operators expectations of fast-risingintra-Asia demand tumbled to near all-time lows by year end as the trade growth remainedweak in the second half of 2015. Charter fleet utilization fell from 74.8% in 2014 to72.3% in 2015 an all-time low level seen during the crisis of 2009.
ii) Indian Scenario
The volume of export and import containers handled at major ports in India rose by2.98% in 2015-16 from the year ago levels and total cargo tonnage inched up 4.31%according to the tentative estimates of Indian Ports Association. Cumulative yearlytraffic totaled nearly 8.2 million TEUs in April 2015 through March 2016 period up from7.9 million TEUs in the previous year. Jawaharlal Nehru port Indias busiestcontainer gateway located near Mumbai handled 4.49 million TEUs and 64.02 million tons ofcargo in the year 2015-16 as compared to 4.46 million TEUs and 63.80 million tons in2014-15.
iii) Opportunities & Threats
Aggressive monetary easing in Europe China and Japan are expected to underpin consumerdemand in these regions in late 2016 and 2017. Commodity prices are also expected to get aboost and economic recovery in emerging markets and the US is expected to accelerate.These would result in containerized trade volumes enjoying strong gains with trade growthnotching 5.6% in 2016 and rising to 7.8% in 2017 and average charter rates climbing upsteadily in 2016 and rapidly in 2017 to approach highs last seen during the market peak of2010 in early 2018. Fleet growth is set to moderate in 2016 and significant gains in tradedemand are expected in main trade-lanes. Market conditions are likely to remain weak inthe major arterial haul-ways particularly in the Asia-Europe WB trade. Trans-Pacific EBfleet utilization is expected to average to 91.2% in 2016 which in turn is expected toallow for a significant rate restoration especially to cargoes heading to the US EastCoast via the new Panama Canal. Competition in the industry is expected to subside afterthe three global alliances commence operations in late March 2017. This coming at a timeof an expected economic and trade rebound and combined with continuous moderation in fleetgrowth is indicative of a freight rate rebound next year. The liner operators howeverhave to survive three challenges this year: (1) weak trade growth; (2) the persistent rateundercutting resorted to by shipowners which deprives carriers the capacity tosustain rates at higher levels after general rate increases (GRIs) and (3) the relentlesspressure from regulators on the liner industry to refrain from improving their bottomline rather than on fleet expansion and the accumulation of more debt.
B SEGMENT-WISE PERFORMANCE
1 Liner Vessels:
Your Companys owned liner fleet having total container carrying capacity of14407 TEU.
As on 31.03.2016 an in-chartered container vessel having total dwt. of 90414 mt. wasoperated by your Company. In addition to the above owned and in-chartered vessel yourCompany also has cargo loading rights on 19 vessels of its partners in various consortiaarrangements that your Company has with leading shipping lines such as MediterraneanShipping Company (MSC) PIL of Singapore K-Line Wan Hai of Taiwan and SimatechShippingSingapore. Your Company continued to deploy its owned / operated Containervessels in the following sectors.
2 Container Services
i) ISE Service
The UK-C Cellular Container Service commenced in 1994 with SCI as a single operatoroperating three vessels with 1800 TEU capacity which was later upgraded to a fixed dayweekly service with three partners operating seven vessels of same capacity. The servicefrom May 2009 is being operated in consortia comprising of two partners with eightvessels of which two vessels have been contributed by SCI. Since Feb 2016 the consortiacontribution has been changed to one SCI vessel. This strategic reduction has been done toimprove profitability of the service. The service is operated on a round voyage of 56days.
ii) IPAK Service
In a slot swap arrangement between SCI and MSC SCI has been allotted 200 TEUs slots byMSC which operates IPAK service in exchange for similar slots allotted to MSC on the ISEservice.
iii) India / Far East Cellular Service (INDFEX 1)
This service commenced in June 2001. Presently it is operated with 5 vessels (1vessel each by three partners viz. K line PIL Simatech and SCI; and 2 vessels by thefourth partner Wan Hai WHG) and was upgraded in September 2012 by replacing a 3500 TEUvessel by a 4400 TEU vessel. The service is presently operated as a weekly direct servicefrom Indias West Coast to Central China Hong Kong Singapore and Malaysia on around voyage schedule of 42 days. The service also links North Chinese ports throughfeeder services via Shanghai.
iv) SCI Middle East India Liner Express (SMILE) Service
The new restructured SMILE Service synergizes SCIs services with Shreyassservices and seamlessly links up Persian Gulf with East Coast of India and West Coast ofIndia thereby strengthening and expanding SCIs presence in the Coastal ShippingSector. The joint operation on this route will be a force multiplier for SCI which willprovide a high quality of Coastal Services on fixed day fixed window basis with potentialfor even bigger expansion in Coastal and near Coastal trades with special emphasis on theEast Coast of India ports. Two services viz. SMILE and PIX2 with their service rotationsmakes it feasible to connect pan-Indian ports with an improved transit time. SCI seeks tocooperate with other Indian companies to work out the best transportation solutions forthe trading community vis-a-vis commercially economically viable and environmentallyfeasible options. SCI is also strengthening their position in the trade by offeringservices to and from Yangon while connecting all the Indian Sub-continent ports as well asMiddle East ports
v) India Myanmar Service (IMS Service)
SCI launched the India Myanmar Service (IMS) in October 2014 inchartering mv "SCIKamal a 1200 teu capacity vessel which linked the East Coast and West Coast of Indiato Myanmar. The service had been initiated at the instance of the Government of India inline with the Look East Policy and the Ministry of External Affairs had granted a subsidyfor operation of this service for 6 months. The service was temporarily suspended on 6thNov 2015 on expiry of Charter Hire agreement of the vessel deployed then after the subsidyamount was exhausted. An adhoc call was however made during February 2016. SCI was grantedadditional subsidy for operation of the service for another three months.
vi) Feeder Operations
SCI makes feeder arrangements with Common Carriers between variousdestinations on the Indian subcontinent.
vii) Slot swap arrangements
SCI enters into slot swap arrangements with service providers depending upon traderequirements.
SCI arranges carriage of breakbulk cargoes on space charter basis from various regionsacross the globe including USA and Far East for imports on account of the Governmentdepartments / PSUs and other commercial organisations which includes Shipments ofOver-Dimensional Cargoes (ODC)/Project cargoes / Heavy Lift cargoes/ IMO Class I Cargoesetc. and also containers.
ix) Coastal Operations Domestic PassengerCumCargo Service
In addition to International operations SCI with its one owned Passenger-cum-Cargovessel and ten (11) managed vessels operates domestic passenger and cargo transportationservices between the Mainland and the Andaman & Nicobar (A&N) group of islands andinter-island on behalf of the Government of India.
x) Other Coastal Services
SCI also manages Oceanographic & Coastal Research vessels on behalf of Governmentagencies/departments viz. three vessels owned by Geological Survey of India under Ministryof Mines and one vessel of National Centre for Antarctic & Ocean Research one vesselof Centre of Marine Living Resources and Ecology and three vessels of National Instituteof Ocean Technology under Ministry of Earth Sciences and one vessel of DGLL.
3 Manned and Managed Vessels
The following table shows the profile of the Passenger-cum-Cargo vessels and othervessels managed by your Company on behalf of the various GovernmentalOrganizations/Departments:
|Type of Ships ||Nos. ||As on 31.03.2015 ||Additions ||Scrap/ Redelivered ||Nos. ||As on 31.03.2016 |
| || ||Pax. Cap. ||Cargo Cap. ||Nos. ||(Nos.) || ||Pax. Cap. ||Cargo Cap. |
| || || ||(m.t) || || || || ||(m.t) |
|Pax-Cum-Cargo Ships ||11 ||7066 ||6200 ||0 ||0 ||10 ||7066 ||6200 |
|Cargo barge || || || || || ||1 || ||500 |
|Other vessels ||11 ||- ||- ||0 ||1 ||10 ||- ||- |
|Total ||22 ||7066 ||6200 ||0 ||0 ||21 ||7066 ||6700 |
The pattern of deployment of these vessels is as follows:
Five (5) vessels for carrying Passengers and cargo between the Mainland and Andamanand Nicobar Islands;
Five (5) vessels and One (1) Cargo Barge for Inter-Islands run (A&N Islands).
One (1) vessel for Fore shore Sector run (A&N Islands).
SCIs marketing team continues to make regular customer calls through its ownoffices and also through agents appointed at various ports in India and abroad in order tomarket its container and break-bulk services. Meetings with the agents are heldperiodically and SCI representatives also participate in various trade meets at importantlocations in India. Your Company has obtained Freight Forwarding and Multimodal TransportOperator (MTO) licences and continues to use its vast experience and large agency networkto render 3PL (Third Party Logistics) services to the customers. This helps your Companyto retain the clients while generating additional revenue.
The gap between demand and supply of container capable fleet is expected to close in2016 as global containerized trade volumes resume a 4.4% growth while capacity expansionmoderates to 5.5%. Accordingly liner markets are expected to enjoy a reprieve in thesecond half of 2016 and would set the stage for a market upturn in 2017 when the tradegrowth is expected to outpace corresponding fleet expansion. Major arterial trades areexpected to see higher fleet utilization climbing to 90% once the market fundamentalsimprove in the second half of 2016 which will allow for rate improvements. Liner idlecapacity is expected to be limited as liner operators compete for market share ahead ofthe reshaping of global alliances at the start of 2017. Slow-steaming practices areexpected to remain firmly in place with slow-steaming capacity absorbing 10% of thecellular fleet capacity providing a respite to the market. With market fundamentalsexpected to improve in 2017 liner fleet utilization is projected to climb to about 81% in2017 and 80% in 2018 prior to moderating to 79% in 2019-2020 as the cyclical upturn intrade growth abates and fleet growth accelerates.
E. RISKS & CONCERNS
Oil and commodity-exporting economies suffered a big blow in 2015 consequent to theslowdown in the Chinese economy and glut of oil supply and aggressive Saudi pricingpolicies resulting in tightening of financial markets and stalling of investments.Currencies in Europe and Asia weakened significantly against the US Dollar and the tradevalue collapsed. Economic uncertainty remains and a lower drift in the commodity pricescould result in continuous turmoil in global financial markets leading to several emergingeconomies sinking deeper into recession. These factors would then lead to muted globalcontainerized trade growth limited to 0.8% in 2016 which would adversely impact thefreight rates and charter rates which would average to near 2009 low levels falling justbelow operating costs level.
F. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
Your Companys liner segment registered a loss of Rs.159 crores in FY 2015-16. TheOperating Income reduced in the current year as compared to the previous year. YourCompany adopted cost-saving measures to mitigate losses accruing to the liner servicesviz. saving considerably on feeder and transshipment costs by not carrying the cargo tonon-base ports saving on leasing and incidental cost by off-hiring containers blankingoff voyages on the INDFEX route resulting in less inland movement changing rotationpattern of ISE service leading to less haulage. Cargo handling expenses a component ofthe direct operating expenses were lower due to lesser number of containers carried.Containers carried to inland locations in Europe were mainly on merchant haulage.
3. TECHNICAL & OFFSHORE SERVICES
I) Global Scenario
The offshore industry is dependent on utilization of rigs oil fields and crude oilE&P activities which in turn depends upon strategic decisions of energy security byoil and gas producers shifts in Government policies demand-supply trends in crude oiltrade countrys import export of crude oil and long term crude oil price trends. Theworlds primary energy consumption is projected to grow at an average of 1.4% p.a.with major part of the growth is in non-OECD countries with Asian countries like Chinaand India accounting for nearly half the growth. During FY 2015-16 Brent crude price fellbelow US$30/barrel level for the first time in 13 years. After touching new low duringquarter four of FY 2015-16 oil prices showed some bounce with an upward move towardsUS$40/barrel level in Q4 of FY2015-16. It is observed from the rig data that out of thetotal available rigs worldwide only about 60% were contractually operational during FY2015-16. In line with the same the worldwide AHTS utilization declined from about 66% atthe start of FY 2015-16 to 60% during end of FY 2015-16 and PSV utilization declined from75% at the start of FY 2015-16 to 60% during end of FY 2015-16. In absence of rigs inoperation and due to oversupply of offshore vessels in world market the freight / charterhire market for offshore vessels has also been under pressure. Further though there weresome signs of recovery in oil prices during last quarter of FY 2015-16 towards amark of $50/barrel the improvement on global front on both consumption and storage sideseems too slow to prompt a sustained oil price rally in the near-term. Theres stilla risk of downward price adjustment in 2H 2016. The industry estimate is that around 30%of current supply comes with a break-even price above $50/barrel and remaining not muchbelow $50/barrel level. Due to the sudden downward movements in oil prices post Q3 of FY2015-16 non-operation of rigs and diminishing E&P activities there was a sudden fallin both asset prices and freight rates for offshore vessels worldwide the assets pricesand freight rates fall roughly around 1/3rd compared with 2 years ago. Considering underutilization of fleet worldwide many offshore asset owners have reduced their offeredrates below breakeven cost or close to breakeven with minimal profit margins in order toavoid loss in terms of DOE and minimize expenses on IOE front.
II) Indian Scenario
Historically Indias domestic production of oil and gas has fallen short of itsburgeoning energy requirements compelling our country to rely on imports. Further fall ininternational Crude Oil price during 2015-16 as compared to FY 2014-15 has substantiallyreduced the burden of importing crude oil by over 43% in terms of value in our country.Taking help of global decline in prices of crude oil India has imported about 202.1million tons of crude oil during FY 2015-16 for US$ 64.4 billion as compared to 189.4million tons during FY 2014-15 for US$112.7 billion. Over the years average per barrelrate of Indian crude oil import has fallen from US$ 105.52 per barrel in 2013-14 to US$84.16 per barrel in 2014-15 to US$ 46.17 per barrel in 2015-16. This has not only resultedin savings on import bill but the quantity imported was increased over the years and hencethe fall in Indigenous crude oil production. Indigenous crude oil production during end ofFY 2015-16 was lower by 5.1 per cent (3.1 million tonnes) than in the previous year.
During 2014-15 though there was global decline in prices of crude oil however thesame had not significantly impacted the performance of Indian E&P industry and theactivities of this sector during 2014-15 were more or less similar to that of the previousyear. However FY 2015-16 has seen the drastic fall in freight rates for the offshorevessels one major reason being that average per barrel import rate for crude oil during2015-16 of US$ 46.17 is at par with cost of production. Taking benefit of low assetsprices worldwide many Indian players are going for asset acquisitions at low prices andso as to secure firm business they are breaking earlier lows of freight rates in almostall categories of offshore vessels.
III) Strengths and Opportunities:
SCI has always focused and succeeded in employing its vessels on long term basis withONGC which is the largest E&P company in India. Your company also has experience insuccessfully offering its offshore services to reputed private sector companies in Indiaand abroad. SCI is now concentrating on expansion of its clientele with various othernational and international offshore operators.
IV) Weaknesses and Threats:
Long term charters of two offshore vessels of SCI with ONGC has already come to an endin 2016. Although SCI is confident to deploy these vessels on long term basis in the meantime your company will have to face the volatility of the spot market. All offshorevessels were employed on long term charter with ONGC during the current year. Hence therewas no risk of idling / un-employment for these vessels. However by the end of the yeartwo vessels had already completed their long term charter. Hence re-employment of them onlong term charter is a concern.
a) Global Outlook:
The crude oil prices are showing downward trend and are expected to remain underpressure during FY 2016-17. Though there was some upward movement in first quarter of FY2016-17 but same is not sustainable. Further with end of Irans sanctions globaloil oversupply is expected to be there for at least next 1-2 years and hence the pressureon global oil prices is expected to remain during FY 2016-17 also. Though the sustainedlevel of $60/barrel is not looking possible in FY 2016-17 but with the present energyscenario industry experts expect sustained $60/barrel level anytime during FY 2017-18.Industry expectations are that the exploration and production activity worldwide will pickup once the oil prices rebound towards $60/barrel.
However considering the sluggish demand and the present over supply of offshore supplyvessels the exploration activities are not expected to pick up during 2016-17 and hencethe international freight / charter hire market for offshore vessels is expected to beunder pressure during 2016-17 also. Further the low asset prices have createdopportunities for established players to buy new assets and employ them initially withlower freight rates but with gainful returns from balance life of these vessels.
b) Indian Outlook
Indias domestic production of hydrocarbon products falls far short of meeting theever-rising energy demand and thus India would continue to import crude oil to bridge thedemand and supply gap. Although the reduction of global crude oil prices would havepositive impact on growing Indian economy self reliance on crude oil production isnecessary to insulate India against unforeseen market volatility as well as from energysecurity point of view. With entry of many low priced assets in Indian market yourcompany expects that during 2016-17 the domestic fixtures for offshore vessels would beon lower side at tight margins. . The competitive market environment has however providedan opportunity to invest into the offshore fleet as the newbuilding / secondhand prices ofvessels have softened. The situation is also favorable for venturing into specializedsegments like well stimulation which command higher charter rates by acquiring/ convertingsuitable offshore vessels. Your company has been closely monitoring the developments inthe offshore segment and plans to take advantage of suitable opportunities for increasingits market share as well as to diversify its activities in this segment
VI) OFFSHORE ACTIVITIES:
i. SCI owned Offshore vessels:
SCIs owned offshore fleet comprises of 3 nos. 80T AHTSVs 4 nos. 120T AHTSVs and2 nos. PSVs. All these 9 vessels were on long term charter with M/s ONGC during the year.Out of these 9 vessels two of the 80T AHTSVs viz SCI Panna and SCI Mukta completed theirlong term charter by the end of the year i.e. SCI Panna on 18.03.2016 and SCI Mukta on29.02.2016. Thereafter both the vessels were offered in Spot market to various clientsfor gainful employment opportunities.
ii. O&M of ONGC owned vessels: Samudrika series OSVs:
Your company has continued to Operate Man & Manage ONGC owned Samudrika seriesOSVs. At the beginning of the year 8 nos. Samudrika series vessels were under O&Mcontract with SCI after disposal of 3 vessels during the previous year. Thereafter duringthe year 2015-16 4 more vessels have been disposed off by ONGC. The O&M contract ofremaining 4 vessels is valid till their disposal which is due in 2016.
iii. Specialized vessels:
Your Company has continued the Operation & Maintenance management (O&M) ofONGCs 2 Multi Support Vessels (MSVs) ("Samudra Sevak" & "SamudraPrabha") and one Geotechnical Vessel (GTV) ("Samudra Sarvekshak") onnomination basis under
Cost plus arrangement. The contracts for O&M of MSVs have now beenextended upto 31.12.2016. The O&M contract for GTV is valid till 31.03.2018.
Your Company has also continued the Operation & Maintenance management (O&M) ofONGC owned Well Stimulation Vessel (WSV) "Samudra Nidhi" on cost plusbasis since the vessels delivery in year 1986. The present contract is valid till31.03.2017.
iv. ONGC owned Offshore vessels built at M/s. PDOEC shipyard:
ONGC had placed orders for 12 new built OSVs at M/s Pipavav Defence and OffshoreEngineering Company Ltd (PDOEC). The O&M of these 12 vessels have contracted to SCI.Your company has successfully included seven ONGC owned vessels under its fleet of managedvessels till date of which two were taken over in FY 2015-16. Pipavav shipyard. Balance 5vessels will also be handed over to SCI under O&M contract as per their respectiveconstruction & delivery schedule.
v. Emergency Towing Vessel (ETV) 2014:
On request of Directorate General of Shipping (DGS) your company had arranged forservices of Emergency Towing Vessel (ETV) during the monsoon period of year 2015. Thevessel "ETV Nand Krishna" was in-chartered by SCI on behalf of DGS for providingemergency services in the monsoon period on West Coast of India for about 31 days from15.08.2015 to 15.09.2015.
vi. DRDO Project:
The Defence Research & Development Organization (DRDO) Government of India (GOI)Ministry of Defence (MOD) had requested your company for hiring of three support vesselsas a platform for ship-borne tracking stations for flight trials over the Bay of Bengaland Indian Ocean. Your company had in-chartered two suitable vessels w.e.f. 27.03.2012 and05.04.2012. The contract for these vessels has now come to an end. The contract for 1stvessel expired on 18.03.2016 and 2nd vessel on 25.03.2016.
Your company is now in the process of acquisition of suitable offshore vessels whichwould be provided on long term charter to DRDO for their above requirement of nationalimportance.
VII) DISCUSSIONS ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:
The Offshore segment recorded revenue of Rs. 339.55 crores in 2015-16 as againstRs.348.91 crores in 2014-15. The profit before tax stood at Rs. 104.01 crores in 2015-16as against Rs. 113.10 crores in 2014-15.
Your company had 9 offshore vessels at the start of the year 2015-16 as against 11vessels (9 new + 2 old) at the start of 2014-15. However there was no significant impacton revenue due to better operational efficiency of new vessels during FY 2015-16. Capacityutilization of offshore vessels for FY 2015-16 was at 89.38% as against 87.92% during FY2014-15.
VIII) Technical Services: i. Technical Consultancy Services:
During the year under report the Company continued to provide technical consultancyservices to A&N Administration UTL Administration Directorate General of LightHouses & Light ships Geological Survey of India Andaman Lakshadweep Harbour Works(ALHW) Union Territory of Daman and Diu Administration (UTDD) and other GovernmentDepartments for their various ship acquisition/retrofit projects. ii. TonnageAcquisition Programme:
The year under report is the fourth year of the countrys 12th Five Year Plan. SCIhad indicated an outlay availability of Rs.5686 crores during the 12th Five Year Planperiod which has been approved by the Government. During the year under report yourcompany had proposed an outlay of Rs.711.54 crore towards acquisition of vessels andinvestment in JVs. Your company had envisaged acquisition of secondhand / resale offshorevessels and LPG carriers and also investment in LNG JV. Tenders were floated foracquisition of these vessels and by the end of the year these tenders are in variousstages of processing. However pending finalization of the tenders the outlay for theyear could not be utilised and the same has been carried forward to the year 2016-17.
Presently the asset prices are comparatively at low levels hence looking at thefavourable market for secondhand / resale vessels your company is endeavouring to buysecondhand / resale vessels to increase the Indian/SCI tonnage and for immediatedeployment in the market. Your company is optimistic to acquire offshore vessels and oiltankers/gas carriers at this opportune time with low asset prices so as to expand itsfleet size.
iii. Eco-Friendly and Conservation of Energy :
As a policy your Company remained committed to environmental protection as perInternational Convention for the Prevention of Pollution from Ships. Necessary steps havebeen taken to minimize air pollution and oil pollution from ships. For the existingvessels your company had developed a Ship Specific energy efficiency management plan tofurther improve and monitor energy efficiency in ship operations. Your company has decidedto implement turbocharger cut out device on some of the Container vessels for optimizingfuel consumption and improved low load propulsion engine efficiency. Further trimoptimization has been implemented on some of the Aframax tankers to reduce fuelconsumption and improve operational efficiency.
Your company had used combustion catalyst in the fuel oil system for fuel savings onone of the Container vessels.
All engines being fitted on board are meeting latest requirement of NOx complianceInstallation of Ballast Water Treatment plants Silt Water Management usage ofeco-friendly refrigerants usage of TBT free paints ship recycling plan etc are some ofthe measures showing your companys commitment to Eco-friendly policies andconservation of energy.
iv. Technology Absorption Adoption and Innovation :
The SCI has taken all steps to comply with requirements of The International MaritimeOrganizations MARPOL Annex-VI aimed at Controlling Air Pollution and setting limitson Emissions to the Atmosphere from Ships. On the new vessels SCI has voluntarily acceptedhigher than mandatory requirements on emission standards.
Your company has taken the lead in ordering vessels with electronically controlled mainpropulsion engines and also equipped with ballast water treatment plants.
The main engines and auxiliaries on board existing vessels in the fleet are beingmodified and equipped to handle low sulphur distillate fuels in order to comply withregulatory fuel sulphur limits in IMO emission control areas ports in the European Unionand ports in the State of California. Various technological solutions such as turbochargercut out devices trim optimization and use of combustion catalyst in the fuel oil systemare being adopted to reduce the fuel consumption of the vessels thereby savings on fuelcost and total emissions from the vessels.
v. Situation in Coastal operation and Offshore areas:
The international crude oil prices remained softened during the period under review.The North Sea region had witnessed softening of rates in 2014-15. Similarly Indianoffshore market also experienced slight softening of rates in year 2015-16. The downturnin foreign offshore markets is expected to result in many foreign flag vessels eyeing forIndian business. With these additional vessels vying for gainful opportunities in Indiathe charter hire rates for offshore vessels are expected to remain stable to soft duringthe next 1-2 years.
In the ONGCs ongoing tender for in-chartering offshore vessels of variouscategories substantial number of foreign flag vessels have shown interest. To sustain thecompetition your company is planning to acquire additional assets at low prices throughthe secondhand/ resale market which can immediately be deployed and leading to increasein revenue for your company.
vi. Measures taken to improve services and operations :
Most of the offshore vessels of your company have utilized their compensable downtimein such an effective manner so as to have minimum chargeable off-hire during most of themonths of FY 2015-16. The experience gained in dealing with numerous new customers/E&Poperators is giving us the confidence to expand further in the challenging offshore sectorbeyond the Indian coast. Further your Company is in advance stage of taking over ONGCowned two Mobile Offshore Drilling Units (MODUs) under marine man management andmaintenance contract. The addition of these MODUs will boost earnings and also meetCompanys larger technical and commercial objective.
4. International Safety Management Cell
The SCI has introduced the Safety Management System by setting up a dedicatedInternational Safety Management (ISM) Cell which has developed structured and documentedprocedures in compliance with the International Management Code for Safe Operation ofShips and for Pollution Prevention (ISM Code) in accordance with the resolution A.788(9)of the International Maritime Organization (IMO) and SOLAS Chapter IX.
The SCI has laid the foundation of the Safety Management System (SMS) by recognisingthat the cornerstone of good Safety Management is a commitment from the top managementcoupled with the competence attitude and motivation of individuals at all levels thatdetermines the expectations of a good Safety Management System.
The SCI has complied with all the functional requirements of the ISM Code whichincludes the Safety Occupational Health & Environment Protection Policy and Drug& Alcohol Policy.
5. Implementation of ISM Code for Phase-I and Phase-II Vessels
Presently SCI holds separate Document of Compliance Certificates (DOC) for individualship-types as under:
Oil Tankers & Gas Carriers
Other Cargo Ships
Under Phase I (Bulk Carriers Oil Tankers Gas Carriers & Passenger Ships) the DOCwas endorsed on 21.01.2016 and is valid till 18.11.2017 subject to periodical verificationby the Administration.
Under Phase II (Other Cargo Ships Liner and Offshore Vessels) the DOC was renewed andissued new DOC on 07.03.2016 and is valid till 14.03.2021.
LNG Ships DOC endorsed by BV on 18.08.2015 and is valid till 26.05.2019.
As regards Safety Management Certificate (SMC) for SCI fleet all ships are put up forperiodical/ renewal SMC audits within time frame and respective SMCs are accordinglyendorsed.
Also the requirements of various amendments to ISM Code and Statutory regulations fromIMO/Flag are also complied with.
6. ISPS Cell
The ISPS Code (International Ship & Port Facility Security Code) was adopted by theIMO in December 2002 and became mandatory from 1st July 2004.
The SCI has successfully implemented the ISPS Code on all vessels on internationalvoyages and the vessels which interface with the vessels on international voyages wellahead of the deadline of 1st July 2004.
The SCI has complied with ISPS Code on all its coastal ships including small passengerships less than 500 GT (M S notice 19 of 2011) which are registered in India.
On an SCI ship the Chief Officer is the designated Ship Security Officer but all DeckOfficers have been imparted approved Ship Security Officers training. Additionallyengineer Officers as and when available are also being put through the above course.
SCI is committed to the following objectives to fulfill the requirements of itssecurity policy:
Security of its ships and their crew passengers and cargo
Support to its ships in implementing and maintaining the Ship Security Plan.
7. Integrated Management System (IMS)
Compliance with Integrated Management System (IMS) (ISO 9001:2008 QualityManagement System ISO 14001:2004 Environmental Management System and OHSAS 18001:2007 Occupational Health and Safety Management System) Certification
The SCI had set a target for compliance of IMS (QMS 9001:2008 EMS 14001:2004 and OHSAS18001: 2007) in SCI for all establishments and ships by way of IMS Certification auditbefore 25th February 2016. SCI implemented the same and was awarded the IMS certificationon 23rd December 2015 well before the deadline.
8. PERSONNEL & ADMINISTRATION
i) Fleet Personnel
During the year your Company like other shipping companies all over the world hasbeen facing shortage of fleet officers mainly in the senior ranks for manning of ourvessels. In order to attract good officers the company has constantly aligned the salaryof Seafarers with the market besides taking other welfare measures. As a long termsolution your Company has continued its thrust in training to increase the supply of theofficers. Your company has trained over 400 nautical and engineering cadets during theyear. The company foresees the supply of senior Navigating and Engineering Officers to begradually improving in coming years but the situation will continue to remain critical inshort term. On ratings side except for mismatch in some isolated cases there is noshortage.
To promote and encourage the culture of safety on your ships your company continued tofelicitate your ships with "Fleet Safety Awards". The award function for theyear 2015 was organized on 08th July 2016 at our institute Maritime Training InstitutePowai. The awards were conferred under eleven categories evaluated on various criteria ofsafety and performance wherein the safest ships from amongst the companys variedfleet of vessels were felicitated.
ii) Maritime Training Institute
Your Companys Training Centre at the Maritime Training Institute at Powai Mumbaihas conducted 429 Courses for 9288 participants and the total man-days trained during thisyear is 94499. These included 81247 man-days for SCIs personnel and 13253 man-daysfor personnel from other companies. In addition to this 134 of SCIs personnel weretrained outside MTI and the additional man-days of training are 602. Every endeavour ismade to ensure that our training institute is self sustaining.
Regular seminars professional development programs and skill enhancement programs arebeing conducted for all ranks of officers petty officers and ratings to enhance theircompetence and build a sense of belonging in them towards the company. Your company inorder to enhance capacity building in maritime education has increased the intake in itsGraduate Marine Engineers (GME) Course from 40 to 80 and in its Diploma in NauticalScience (DNS) Course from 200 to 280. Your company also commenced training of seafaringofficers in Electronic Chart Display and Information System (ECDIS) a geographicinformation system used for nautical navigation.
iii) Shore Personnel
The total manpower as on 01.07.2016 is 778 excluding CMD Four Functional Directors andCVO out of which 672 are officers and 106 are staff members.
Various training programmes both in-house and outside including General ManagementTraining programme have been imparted to employees for development of skill sets andknowledge.
iv) Women Representation
Your company is committed to the principle of equal employment opportunity and strivesto provide employees with a work free of discrimination and harassment which is applied inall Personnel activities including but not limited to recruitment hiring placementpromotion transfer separation compensation benefits and training and have ensuredequal opportunities for skill enhancement and career progression.
Your companys efforts are reflected in the representation of women across variousgrades in the hierarchy. At present women constitute around 21% of total workforce atshore establishments of your company. Your company is the only Shipping company in Indiawhich has been recruiting women in its fleet. Presently two Masters seven ChiefOfficers 23 second/third officers and one Fourth Engineer are women serving on the fleetof ships of your company which is among the highest in the marine workforce world-wide.
Your company encourages active involvement in the activities of the Forum of Women inPublic Sector (WIPS) since its inception. WIPS Western Region under the aegis of SCOPEhas appreciated your companys efforts by conferring the "Best Enterprise Award(Consolation)" under Mahanavratna Navratna Category.
v) Implementation of Official Language Policy
Your Company constantly made all-out efforts during the year towards the spread ofOfficial Language Hindi in its offices. Your Company not only complied with the Hindiimplementation guidelines issued by the Government of India but also organized Hindicompetitions viz. Noting & Drafting Extempore Speech Sulekhan Crosswordcompetitions at a regular interval to create a conducive ambience. A half-day HindiUnicode computer workshops on a monthly basis were also conducted to give confidence tothe employees to work progressively in Hindi.
With a view to promote and popularize the Hindi language amongst employees two issuesof a bi-annual Hindi e-magazine viz. "E-Jagriti" were circulated in soft copyvia email and also placed on SCI Employees web portal during the year. Out of these oneissue was fully dedicated to the cleanliness drives conducted by your Company pursuing the"Swachh Bharat Mission" of the country. Your Company has already introduced aQuarterly Incentive Scheme for doing Hindi correspondence for its employees so as toachieve the target set for the purpose.
Your Company also organized a Hindi Seminar on "Commercialization of Languages inthe wake of Globalization" for the employees of Town Official Language ImplementationCommittee (TOLIC) member organisations in Mumbai. On the occasion of "HindiDay" a Linguistic Harmony Cultural Programme was also staged. Your Company alsoparticipated in TOLIC meetings during the year under report.
vi) Reservation Policy
Your company is complying with all government guidelines as applicable from time totime in respect of reservation policy.
vii) SC/ST/OBC REPORT
Annual Statement showing the representation of SCs STs and OBCs as on 31st March 2016and number of appointments made during the preceding calendar year:
Name of the Public Enterprise: The Shipping Corporation of India Ltd.
|Groups ||Representation of SCs/STs/OBCs (As on 31.3.2016) || |
Number of appointments made during the calendar year 2015
| ||Total no. of employees ||SCs ||STs ||OBCs ||By Direct Recruitment ||By Promotion ||By Deputation/ Absorption |
| || || || || ||Total ||SCs ||STs ||OBCs ||Total ||SCs ||STs ||Total ||SCs ||STs |
|1 Executives ||2 ||3 ||4 ||5 ||6 ||7 ||8 ||9 ||10 ||11 ||12 ||13 ||14 ||15 |
|A Non Executives ||680 ||137 ||54 ||87 ||61 ||16 ||1 ||7 ||50 ||10 ||5 ||4 ||2 ||0 |
|B ||85 ||28 ||4 ||3 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
|C ||24 ||7 ||1 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
|D ||1 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
|Total (Executives in Grade A plus Non - executives) ||790 ||172 ||59 ||90 ||61 ||16 ||1 ||7 ||50 ||10 ||5 ||4 ||2 ||0 |
viii)Corporate Social Responsibility
The Corporate Social Responsibility vision of your company articulates its aim to be acorporate with its strategies policies and actions aligned with wider social concernsthrough initiatives in education public health environment and other areas of socialupliftment. Your company has aligned its CSR policy with the Companies Act 2013 andCompanies (CSR Policy) Rules 2014 notified therein". However your company could notconstitute CSR Committee required under section 135 of Companies Act 2013 due tounavailability of Independent Directors. Since your Company made profit of Rs.200.9 Croresonly in 2014-15 of the last three preceding financial years contribution towards CSRcould not be made within the meaning of the Companies Act.
The CSR Policy is available on our website: www.shipindia.com ix) AWARDS &ACCOLADES
Your company is happy to report that its efforts have been recognised at variousNational and International Levels. Your company has been awarded with followingprestigious awards during the year for its initiatives commitment and pioneering work.
1. Special Jury Award presented to SCI on 21st August 2015 at The Gateway Awards 2015in recognition of the efforts in evacuation of Indian from strife torn Yemen.
2. Winner of Shipowner of the Year - Indian presented to SCI at the 6th AllIndia Maritime and Logistics Awards 2015 on 04th September 2015.
3. Most Compassionate Employer of Indian Seafarers Award presented to SCIat National Maritime Day Celebrations on 05th April 2016.
4. The Indian Shipping Company with Highest Growth of Indian Flag vesselsAward presented to SCI at National Maritime Day Celebrations on 05th April 2016.
5. Award by Ministry of Shipping presented to SCI for Outstanding work in theimplementation of Official language 2016. 6. Organisation with Innovative HRpractices Award presented to SCI by Asia Pacific HRM Congress Awards.
9. RIGHT TO INFORMATION ACT 2005 (RTI ACT 2005)
A suitable mechanism has been put in place for dealing with the requests and appealsunder RTI Act 2005. The RTI manual is posted on the Companys website. Your Companyhas been complying with the provisions of the Act within the stipulated time limitprovided under the Act. As on 31.03.2016 your Company has disposed off most of theapplications and appeals received from the parties.
10. Policy to Prevent Sexual Harassment in Workplace.
SCI endeavours to promote gender equality and has been taking proactive measures toprevent any Sexual Harassment in workplace. A committee has been constituted comprisingsenior women executives of SCI and a lady representative from the NGO Pratham to preventany Sexual Harassment in the workplace. Your directors are happy to state that no cases ofsexual harassment have been reported during the year ended 31st March 2016.
11. JOINT VENTURE COMPANIES i) India LNG Transport Companies:
India LNG Transport Companies No.1 & 2 Ltd are two Joint Venture Companies promotedby the Corporation and three Japanese companies viz. M/s Mitsui O.S.K lines Ltd (MOL)Nippon Yusen Kabushiki Kaisha Ltd (NYK Lines) and M/s Kawasaki Kisen Kaisha Ltd (K Line)along with M/s Qatar Shipping Company (Q Ship) Qatar. SCI and MOL are the largestshareholders each holding 29.08% share. The shares held by all the shareholdersincluding that by the Corporation are held in the two companies are pledged against loansprovided by the lenders to these Companies. Each of the two Companies own and operate oneLNG tanker named as SS Disha and SS Raahi respectively. SCI is managing the entireoperation of the two ships from 2009. India LNG Transport Company No. 3 Ltd is the 3rdJoint Venture Company which owns and operates one LNG tanker MT Aseem. The Company ispromoted by the Corporation and its three Japanese partners viz. MOL NYK lines K Linealong with Qatar Gas Transport Company (QGTC) and M/s Petronet LNG Limited (PLL) who arethe other partners. SCI and MOL are the largest shareholders with 26% share each. Theshares held by the Corporation and other partners have been pledged against loans bylenders to these companies. SCI is managing the entire operation of the ship from April2013.
India LNG Transport Company No. 4 Pvt. Ltd is a Company incorporated in Singapore inNovember 2013 and is promoted by the Corporation with its three Japanese Partners viz.MOL NYK Line and K Line. SCI MOL and NYK hold 26% share each. The Company isconstructing one LNG tanker of 173000 CBM which it would own and operate under a 19 yearTime Charter Agreement with charterers M/s PLL The Tanker is expected to be delivered inNovember 2016 and is likely to be operated to transport LNG from Gorgon Terminal Australiato Kochi & Dahej in India on account of PLL. Keel laying of the fourth LNG JV TankerLNGC "Prachi" was held at Hyundai Heavy Industries South Korea on 20.07.2015.The launching of the vessel was held on 27 November 2015. The vessel is planned toconduct sea and gas trials from end June to 1st week of September 2016.
ii) SAIL SCI Shipping Co. Pvt. Ltd.
SAIL SCI Shipping Co. Pvt. Ltd (SSSPL) a JVC between SCI and SAIL was incorporatedwith the primary objective of providing various shipping related services to SAIL forimporting coking coal and other bulk material from various countries to feed its steelplants located in India. The JVC was incorporated on 19th May 2010. Owing to the depressedbulk carrier freight levels the JVC is unable to acquire vessels. Further view is beingtaken with regard to voluntary dissolution of the Joint Venture Company.
iii) Sethusamudram Corporation Ltd.
The Government of India had constituted Sethusamudram Corporation Limited (SCL) toraise finance and to undertake activities to facilitate operation of a navigable channelfrom Gulf of Mannar to Bay of Bengal through Palk Bay (Sethusamudram Ship ChannelProject). As per the Government directive this project is to be funded by way of equitycontributions from various PSUs including the SCI. As on FY 2015-16
SCI had invested Rs. 50 crore in the project. Work suspended since 17.9.2007 consequentto an interim stay by the Honble Supreme Court for carrying out dredging operationsin Adams bridge area. Pending a final decision on alternative alignment all thedredgers were withdrawn since 27.07.2009. SSCP case was posted for hearing on 26.11.2015but the case was adjourned. The argument on both sides is yet to be commenced. The nexthearing date on the above cases is yet to be announced.
iv) Irano Hind Shipping Co.:
With the lifting of UN sanctions imposed on Iran the feasibility & revival of JVCis being considered based on viable operations of the vessels owned by the company
Memorandum of Understanding (MOU) with the Ministry of Shipping
Your Companys performance based on audited results under the MOU system has beenrated as "Very Good" for the year 2014-15. SCI has finalized the MOU for FY2016-17 as per the guidelines issued by the Department of Public Enterprise (DPE)incorporating performance targets in sync with the changing dynamics of the shippingscenario and signed the MOU for FY 2016-17 with the Ministry of Shipping on 2nd August2016.
12. Details of shares lying unclaimed
The details of the shares issued pursuant to FPO remaining unclaimed and lying in theescrow account the voting rights of which shall remain frozen till the rightful owner ofsuch shares claims the shares are given as under:
|Details ||No. of Shareholders ||No. of Shares |
|1 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 01.04.2015 ||4 ||436 |
|2 Number of shareholders who approached for transfer of shares from suspense account till 31.03.2016 ||0 ||0 |
|3 Number of shareholders to whom shares were transferred from suspense account till 31.03.2016 ||0 ||0 |
|4 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 31.03.2016 ||4 ||436 |
|5 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 30.06.2016 ||4 ||436 |
An Amount of Rs.1556634/-w.r.t.53 applicants has been lying unclaimed in the RefundAccount. The details of the same have been placed on SCI website.
13. Utilization of FPO Proceeds
During the year 2010-11 your Company had come out with a "Further PublicOffer" (FPO) comprising of a fresh issue of 42345365 equity shares inyour company and an offer for sale of 42345365 equity shares by thePresident of India. The FPO proceeds of Rs. 58245 lakhs were fully utilized in thefinancial year 2011-12 as per object of the issue for part financing of capitalexpenditure on nine shipbuilding projects specified for utilization. However due todelays in the projects resulting in default by the shipyards during the period January2014 to May 2014 your Company rescinded contracts for four shipbuilding projects andalso re- negotiated the instalments paid for two projects in order to compress the sameagainst a single project. The investment in the rescinded contracts out of the FPOProceeds was Rs. 330.65 crores. Your Company has till date received back Rs. 330.65 croresof these funds from the shipyards. The shareholders vide the resolution passed throughpostal ballot process on 14.01.2015 approved the proposal to re-deploy the said Rs. 330.65crores received/ to be received as refund from Shipyards towards various shipbuildingprojects including offshore assets (including but not limited to anchor handling tugsupply vessels (AHTSVs) platform supply vessels (PSVs) rigs etc) and liquid petroleumgas (LPG) vessels. Your Company proposes to invest the proceeds judiciously at theappropriate juncture during FY 2016-17.
14. Segment-wise Performance
A report on performance of the various operating segments of the Company (audited) isincluded at Note No. 34 of Notes on Financial Statements (Standalone) for the year ended31st March 2016 which is forming part of the Annual Accounts.
15. Internal Control System
"Internal Control Systems in your Company are being monitored and continuouslyimproved to meet the challenges that arise from time-to-time with the nature and size ofthe operations. Annual Audit Plan is approved by Audit Committee / Finance Committee ofthe Board. Internal Audits are carried out by an independent firm of CharteredAccountants viz. M/s. T.R. Chadha & Co. LLP on concurrent basis. The Internal AuditReports are submitted on quarterly basis together with comments recommendations and itscompliance which are being constantly reviewed and deliberated by a Finance Committeeappointed by the Board in the absence of Audit Committee."
16. Dividend Distribution Policy
The Dividend Distribution Policy of SCI seeks to reward its shareholders for theirtrust & investment in Companys business objectives. The declaration and paymentof dividend will be regulated by the Companies Act 2013 & Govt. of Indiasguidelines as amended from time to time. The quantum of dividend payments will depend onannual consolidated Profits fund requirement for companys expansion plans presentand anticipated future business environment with special reference to Shipping Industryand various other factors impacting companys performance. The dividend distributionwill also be subjected to restrictions / conditions if any imposed by lenders orders ofCourts and / or statutory bodies.
17. ROLE OF VIGILANCE DIVISION IN SCI
During the year under review the Chief Vigilance Officer continued to ensure theintegration of preventive vigilance initiatives in the business process thus strivingtowards higher ethical standards and improved corporate governance standards towardsachieving the stated objective of making your Company corruption-free. Vigilance Divisionachieved a proper balance between preventive and punitive vigilance and simultaneouslyensured good and ethical corporate governance.
Technology has been leveraged for achieving greater transparency and for eliminatingsystemic weaknesses through implemented and ongoing initiatives such as e-paymentspromoting online registration of complaints via the Vigilance Webpage contained in the SCIwebsite; migration to Supplier Relationship Management platform for all procurements;dissemination of important circulars/guidelines on the webpage etc. This was the firstyear in which the employees submitted their Annual Property Return online. VigilanceDivision has been propagating the culture of lodging of complaints under the PublicInterest Disclosure and Protection of Informers Resolutions (PIDPR- popularly knownas Whistle Blowers Resolution) whereby the identity of the complainant would be keptsecret and he/ she would be protected from victimization.
Vigilance Division continued to interact with various employees of SCI as well asvarious stake holders including Suppliers Ship Repair Workshops Vendors Contractorsetc. which has helped in understanding the issues from their perspective as well.
i) Activities of the Vigilance Division carried out in 2015-16:
The important activities that were carried out in 2015-16 by the Vigilance Divisionwere as follows:-
Investigations into complaints of corruption/malpractice were conducted.
Random scrutiny of Annual Property Returns (APRs)
Active monitoring of the implementation of Integrity Pact in SCI with the scopeexpanded from coverage of domestic procurement and services contracts to coverage ofprocurement of goods and services from foreign vendors and foreign dry-docks.
Acted as a catalyst in the implementation of preventive vigilance measures by yourManagement such as e-payments bill tracking systems phased transfers of employees postedin sensitive areas etc.
Conducting surprise and periodic inspections CTE type inspections conducting SystemsStudies and recommending systemic improvements.
Selective scrutiny of Voyage Repairs Bills major works dry-docking bills variousaccounts.
Ensuring training of Vigilance Officers both on vigilance related subjects as well asgeneral management.
Imparting training to fresh recruits on vigilance issues.
For the annual Vigilance Awareness Programme apart from in-house programmes majoremphasis was placed on reaching out to youth through various programmes in schools andcolleges as desired by the Central Vigilance Commission.
An annual Newsletter titled "SCI Voyager" is also brought out on the occasionof Vigilance Awareness Week. This is being done with a view to spreading vigilanceawareness amongst employees.
ii) Vigilance Study Circle Mumbai Chapter:
The Vigilance Study Circle Mumbai Chapter was started on the initiative of SCIVigilance Division on 16-08-2010. It continues to spread Vigilance awareness and developthe knowledge and skills of Vigilance Professionals and provides an ideal platform for theChief Vigilance Officers of Mumbai based PSUs Banks etc. to meet and exchange theirviews/ experiences etc. on a regular basis.
iii) IMS Certification for Vigilance Division of SCI as a part of corporate IMS:
Your company decided to implement Integrated Management System in 2015. As a part ofSCIs corporate assessment for IMS the Vigilance Division was also audited by IRQS.Vigilance Division is thus a part of the corporate Integrated Management System for theQuality standard ISO 9001:2008 for the Environmental standard ISO 14001:2004 andOccupational Health and Safety standard OHSAS 18001:2007.
iv) Integrity Pact in The Shipping Corporation of India Ltd.:
SCI has signed a Memorandum of Understanding (MoU) with Transparency InternationalIndia for the adoption of Integrity Pact. By signing the MoU your Company is committed tohave most ethical and corruption free business dealings with the counterparties whetherthey are bidders contractors or suppliers. The threshold value forimplementation of Integrity Pact in domestic goods and service contracts is Rs. 1 crore.Thus any goods/services contract of Rs. 1 crore and above will be having Integrity Pactthereby assuring the concerned parties of the transparent and ethical practices in SCI.During the year under review the Integrity Pact was monitored by a panel of 2 eminentIndependent External Monitors (IEM)s. Meetings were held periodically with the IEMs toreview the progress of implementation of Integrity Pact in SCI.
18. UNGC compliance
Your company is a signatory to UN Global Compact initiative which signifies ourcommitment to uphold the ten principles of Global Compact on protection of human rightsprevention of child labour protection of environment & anti corruption initiatives.Your company is an equal opportunity employer and does not discriminate on grounds of sexreligion caste creed color etc. The freedom of association is recognised and variousFORAs are encouraged to effectively participate on issues pertaining to welfare ofemployees. Fair labour practices are followed and it is ensured that no child labor isdirectly/indirectly employed. Your company is committed to do business consciously andresponsibly setting sustainable systems to protect the environment. Your company ensurestransparency equity and competitiveness in public procurement through various inbuiltmechanism and anti corruption initiatives.
19. Remuneration Policy
The remuneration to the senior management and other shore employees of your company isgoverned by the Presidential Directives and directives of the Ministry of Shipping issuedfrom time to time which form the remuneration policy of your company.
20. Cautionary Statement
The statements made in the Management Discussion & Analysis describingCompanys objectives projections estimates and expectations may be"forward-looking statements" within the meaning of applicable laws andregulations. Actual results might differ materially from those expressed or implied.
21. Board of Directors
Dr. (Ms.)T. Kumar Special Secretary and Financial Advisor (Ministry of Shipping)ceased to be a Director on the Board of SCI due to superannuation with effect from31.08.2015 and Shri Sanjeev Ranjan Additional Secretary & Financial Advisor(Shipping) was appointed as Director on the Board of SCI with effect from 21.09.2015.
Capt. Sunil Thapar Director (Bulk Carrier and Tanker) ceased to be a Director on theBoard of SCI due to superannuation on 30.09.2015 subsequent to which Shri S.V.Kher wasappointed as Director (Bulk Carrier and Tanker) on 01.10.2015.
Shri A.K.Gupta ceased to be the Chairman & Managing Director on the Board of TheShipping Corporation of India Ltd on 31.12.2015 due to his superannuation. Capt.B.B.SinhaDirector (P&A) holds additional charge of Chairman and Managing Director w.e.f01.01.2016. Shri Arun Balakrishnan and Shri Sukamal Chandra Basu were appointed as NonOfficial Part Time Directors (Independent Directors) on 30.03.2016 and 26.05.2016respectively.
22. Declaration of Independence
The Company has received Declaration from Independent Directors conforming that theymeet the criteria of Independence as prescribed under Companies Act 2013 the SEBI(listing Obligations and Disclosure Requirements) Regulations 2015 & DPE guidelines.
23. Auditors Report
1. The auditors in their audit report for the year ended 31st March 2016 have broughtout that; a) The direct access of overseas foreign agents to fund collected on account offreight and other charges in the absence of adequate bank guarantees in comparison to netoutstanding any policy on fixation of credit limits based on various parameters &factors and regular monitoring mechanism is prone to risk of non / short payment theconsequential effect of which on the statement of profit and loss remains unascertainable.b) Vessel Desh Shobha acquired in the year 2012-13 was undercapitalized by 3.50 millionUSD and the provision for interest @2.5% pa on this amount has not been made in theaccounts from the year 2012-13. This has resulted in understatement of fixed assets by Rs.20.28 crores overstatement of profits by Rs. 4.98 crores and understatement of liabilityof Rs. 25.25 Cr.
The managements views on the above observations are as below: a) The BankGuarantees (BG) are taken from the Agents as per the defined Company Norms in order tomitigate risks in case of delays/ default in non-payment of freight beyond stipulatedperiod. BGs cannot cover entire business risk. These BGs are reviewed on annual basis toensure their adequacy in terms of the company policy. SCI is a commercial organisationengaged in transportation of cargo and credit period given to the Agents for freightcollections is as per local trade practices prevailing in respective countries. Furthercreditworthiness of the agents is reviewed every three years based on their auditedfinancial statements. There is an online system for monitoring of the outstanding from theagents which provide system reports. These reports are used for regular follow up with theagents. b) Since the accounts for FY 2012-13 have already been audited by the statutoryauditors as well as by the C & AG and approved by the Board; the issue ofundercapitalization of Desh Shobha in 2012-13 is being referred to Board for itsconsideration. Depending on the Board decision necessary accounting entries if requiredwill be passed in the books in FY 2016-17. Pending Board decision interest @2.5% pa till31.03.2016 on USD 3.5 million amounting to Rs. 2 crores is shown as contingent liability.In view of foregoing there is no impact on the profit net worth total assets and EPS ofCompany in the FY 2015-16 as the necessary accounting treatment if required will begiven in the next financial year.
24. Secretrial Audit
Pursuant to Section 204 of the Companies Act 2013 and the Companies (Appointment andRemuneration of Managerial personnel) Rules 2014 the Board has appointed Mr. UpendraShukla Practicing Company Secretary to conduct the Secretarial Audit for the Company forFinancial Years 2015-16 and 2016-17. The Secretarial Audit report for the FY 2015-16 isappended to the Directors Report. The secretarial auditor in his report for the yearended 31st March 2016 has bought out that:
The Corporation has complied with the requirements of Corporate Governance asprovided under Clause 49 of the Listing Agreement SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 and DPE Guidelines on Corporate Governancewith the exception of appointment of Independent Directors to the extent of 50% of thetotal strength of the Board. It is clarified by the Corporation that the matter is beingpursued with the Administrative Ministry for appointing required number of IndependentDirectors on the Board and hence Audit Committee Nomination & RemunerationCommittee Stakeholders Relationship Committee and CSR Committee could not bevalidly constituted."
The Board of Directors of the Company is constituted as per the Clause 49 of theListing Agreement and SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 with balance of Executive Director and Non-Executive Directors with the exception ofappointment of Independent Directors to the extent of 50% of the total strength of theBoard. It is clarified by the Corporation that the matter is being pursued with theAdministrative Ministry for appointing required number of Independent Directors on theBoard. The changes in the composition of the Board of Directors that took place during theyear under review were carried out in compliance with the provisions of the Act.
The management views on the above observation are as follows:
Pursuant to letter dated 21.03.2016 from The Ministry of Shipping Shri ArunBalakrishnan and Shri Sukamal Chandra Basu were appointed as Independent Directors onBoard of SCI on 30.03.2016 and 26.05.2016 respectively. On appointment of IndependentDirectors the statutory committees viz. Audit Committee Nomination & RemunerationCommittee Stakeholders Relationship Committee and CSR Committee were constituted bythe Board of Directors on 26.05.2016.
25. Corporate Governance
Pursuant to the SEBI (Listing Obligations & Disclosure Requirements) Regulations2015 report on Corporate Governance is attached to this Report.
26. Directors Responsibility Statement
Pursuant to the requirement under Section 134(5) of the Companies Act 2013 withrespect to Directors Responsibility Statement it is hereby confirmed:
That in the preparation of the annual accounts for the financial year ended 31stMarch 2016 the applicable accounting standards had been followed along with properexplanation relating to material disclosures;
That the Directors had selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company at the end of thefinancial year and of the profit or loss of the Company for that period.
That the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act 2013for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities.
That the Directors had prepared the accounts for the financial year ended 31stMarch 2016 on a "going concern" basis.
That the Directors in case of a listed company had laid down internal financialcontrols to be followed by the company and that such internal financial controls areadequate and were operating effectively.Explanation- For the purposes of this clause theterm "internal financial controls" means the policies and procedures adopted bythe company for ensuring the orderly and efficient conduct of its business includingadherence to companys policies the safeguarding of its assets the prevention anddetention of frauds and errors the accuracy and completeness of the accounting recordsand the timely preparation of reliable financial information;
That the Directors had devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate and operatingeffectively.
Your Directors extend their gratitude to Shri Nitin Gadkari Union Minister ofShipping and Shri Pon Radhakrishnan Minister of State for Shipping and Shri MansukhlalMandaviya Minister of State for Shipping and look forward to their support and guidancein managing the affairs of the Company. Your Directors also extend their gratitude to ShriRajive Kumar Secretary to the Government of India Ministry of Shipping for his guidance.
Your Directors also wish to express their thanks to the officials in the Ministry ofShipping Road Transport & Highways for the unstinted support given by them in variousmatters concerning the Company. Your Directors would also like to convey their thanks toother Ministries Trade Organizations and Shippers Councils who have played avital role in the continued success of your Company.
The Directors thank the shareholders and valued customers for the continued patronageextended by them to your Company.
Last but not the least your Directors wish to record their deep appreciation for thededicated and loyal service of your Companys employees both afloat and ashorewithout whose co-operation and efforts the achievements made by your Company would nothave been possible.
| ||For and on behalf of the Board of Directors |
|Place : Mumbai ||Capt. B.B. Sinha |
|Dated : 18th August 2016 ||Chairman & Managing Director |
Statement Pursuant to Section 129 (3) of the Companies Act 2013 related to AssociateCompanies and Joint Ventures
|Name of Associates/Joint Venture ||India LNG Transport Co. (No. 1) Ltd. ||India LNG Transport Co. (No. 2) Ltd. ||India LNG Transport Co. (No. 3) Ltd. ||India LNG Transport Co. (No. 4) Ltd. ||Irano Hind Shipping Company Ltd. ||SAIL SCI Shipping Pvt. Ltd. |
|1. Latest audited Balance Sheet Date ||31.12.2015 ||31.12.2015 ||31.12.2015 ||31.12.2015 ||19.03.2016 ||31.03.2016 |
|2. Date on which the Associate or Joint Venture was assoclated or acquired ||21.05.2001 ||21.05.2001 ||05.12.2006 ||13.11.2013 ||20.03.1975 ||02.08.2010 |
|3. Shares of Associate/Joint Ventures held by the company at the year end no. ||2908 ||2908 ||2600 ||4268732 ||46060000 ||100000 |
|Amount of Investment in Associates/ Joint Venture (Rs. in lakhs) ||3 ||3 ||1 ||2721 ||39 ||10 |
|Extent of Holding ||29.08% ||29.08% ||26% ||26% ||49% ||50% |
|4. Description of how there is significant influence ||Shareholding ||Shareholding ||Shareholding ||Shareholding ||Shareholding ||Shareholding |
|5. Reason why associate/ joint venture is not consolidated ||N.A. ||N.A. ||N.A. ||N.A. ||IHSC operated under severe long term restrictions on 31.03.2016 which impaired its ability to transfer funds to SCI ||Shares in SAIL SCI JV are held for disposal in the near future |
|6. Networth attributable to shareholding as per latest audited Balance sheet (Rs. in lakhs) ||2772 ||2800 ||(2641) ||(2765) ||(4239) ||7 |
|7. Profit / Loss for the year( Rs. in lakhs) || || || || || || |
|i. Considered in consolidation ||1156 ||1515 ||64 ||(41) ||NA ||NA |
|ii. Not considered in consolidation ||NA ||NA ||NA ||NA ||(5033) ||0 |
FORM NO. AOC-2
(Pursuant to clause (h) of sub-section (3)of section 134 of the Act and Rule 8(2) ofthe Companies (Accounts) Rules 2014)
Form for disclosure of particulars of contracts/arrangements entered into by thecompany with related parties referred to in sub-section (1) of section 188 of theCompanies Act 2013 including certain arms length transactions under third provisothereto 1. Details of contracts or arrangements or transactions not at arms lengthbasis There were no contracts or arrangements or transactions entered into during the yearended 31st March 2016 which were not at arms length basis.
2. Details of material contracts or arrangement or transactions at arms lengthbasis
The details of material contracts or arrangement or transaction at arms lengthbasis for the year ended 31st March 2016 are as follows:
|Name of the related party ||Nature of relationship ||Duration of contracts/ arrangements/ transactions (yr) ||Salient terms of the contracts or arrangements ||Investment (in USD mn) ||Date (s) of approval by the Board if any ||Amount paid as advances if any |
|ILT No. 1 Ltd. ||Joint Venture Company ||till 2028 ||Based on transfer pricing guidelines ||14.23 ||06.05.2001 & 12.12.2008 ||No advances |
|ILT No. 2 Ltd. ||Joint Venture Company ||till 2028 ||Based on transfer pricing guidelines ||13.40 ||06.05.2001 & 12.12.2008 ||No advances |
|ILT No. 3 Ltd. ||Joint Venture Company ||till 2034 ||Based on transfer pricing guidelines ||15.58 ||13.01.2006 & 24.09.2012 ||No advances |
|ILT No. 4 Pvt. Ltd.* ||Joint Venture Company ||till 2035 ||Based on transfer pricing guidelines ||0.55 ||13.11.2013 & 28.03.2014 ||No advances |
*Tanker ILT No. 4 is in building phase and investment of SCI as on March 31st 2016 ispart of total investment committed by SCI.
SECRETARIAL AUDIT REPORT
FOR THE FINANCIAL YEAR ENDED 31st March 2016
[Pursuant to section 204(1) of the Companies Act 2013 and rule no.9 of the Companies(Appointment and Remuneration Personnel) Rules 2014]
To The Members
The Shipping Corporation of India Limited
I have conducted the Secretarial Audit of the compliance of applicable statutoryprovisions and the adherence to good corporate practices by The Shipping CorporationLimited (hereinafter called the Corporation). Secretarial Audit was conductedin a manner that provided me a reasonable basis for evaluating the corporateconducts/statutory compliances and expressing my opinion thereon.
Based on my verification of the Corporations books papers minute books formsand returns filed and other records maintained by the Corporation and also the informationprovided by the Corporation its officers agents and authorized representatives duringthe conduct of secretarial audit I hereby report that in my opinion the Corporation hasduring the audit period covering the financial year ended on 31st March 2016 compliedwith the statutory provisions listed hereunder and also that the Corporation has properBoard process and compliance mechanism in place to the extent in the manner and subjectto the reporting made hereinafter.
I have examined the books papers minute books forms and returns filed and otherrecords maintained by The Shipping Corporation of India Limited for the financial yearended on 31st March 2016 according to the provisions of :
(i) The Companies Act 2013 (the Act) and the rules made thereunder;
(ii) The Securities Contracts (Regulation) Act 1956 (SCRA) and the rulesmade thereunder;
(iii) The Depositories Act 1996 and the Regulations and Bye laws framed thereunder;
(iv) Foreign Exchange Management Act 1999 and the rules and regulations madethereunder to the extent of Foreign Direct Investment Overseas Direct Investment andExternal Commercial borrowing;
(v) The following Regulations and Guidelines prescribed under the Securities andExchange Board of India Act 1992 (SEBI ACT):-
(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares andTakeovers) Regulations 2011;
(b) The Securities and Exchange Board of India (Prohibition of Insider Trading)Regulations 1992 (upto 14th May 2015) and Securities and Exchange Board of India(Prohibition of Insider Trading) Regulations 2015 (with effect from 15th May2015).
(vi) The following Acts / Guidelines specifically applicable to the Company: (a)Merchant Shipping Act
(b) Guidelines on Corporate Governance for Central Public Sector Enterprises 2010; (c)International Safety Management Code (ISM).report that during the year under review therewas no action/event in pursuance of I
(a) The Securities and Exchange Board of India (Issue and Listing of Debts Securities)Regulations 2008 (b) The Securities and Exchange Board of India (Delisting of EquityShares) Regulations 2009; (c) The Securities and Exchange Board of India (Buy-back ofSecurities) Regulations 1998;
(d) The Securities and Exchange Board of India (Employee Stock Option Scheme andEmployee Stock Purchase Scheme) Guidelines 1999; (e) The Securities and Exchange Board ofIndia (Issue of Capital and Disclosure Requirements) Regulations 2009; (f) The Securitiesand Exchange Board of India (Registrar to an Issue and Share Transfer Agents) Regulations1993 regarding the Companies Act and dealing with the client I have also examinedcompliance with the applicable clauses of the following: a) Secretarial Standards withregard to Meeting of the Board of Directors (SS-1) and General Meetings (SS-2) issued bythe Institute of the Company Secretaries of India (effective from 1st July2015); and b)Listing Agreement entered into by the Company with the Stock Exchanges in India and SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 (w.e.f. 1st December2015).
During the period under review the Corporation has complied with the provisions of theAct Rules Regulations Guidelines Standards etc. mentioned above subject to thefollowing observations:
"The Corporation has complied with the requirements of Corporate Governance asprovided under Clause 49 of the Listing Agreement SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 and DPE Guidelines on Corporate Governancewith the exception of appointment of Independent Directors to theextentof50%ofthetotalstrengthoftheBoard.Itisclarifiedby the Corporation that the matter isbeing pursued with the Administrative Ministry for appointing required number ofIndependent Directors on the Board and hence Audit Committee Nomination &Remuneration Committee Stakeholders Relationship Committee and CSR Committee couldnot be validly constituted."
I further report that the compliance by the Company of applicable financial laws likedirect and indirect tax laws has not been reviewed in this audit since the same has beensubject to review by statutory financial audit and other designated professionals.
further report that I
The Board of Directors of the Company is constituted as per the Clause 49 of theListing Agreement and SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 with balance of Executive Director and Non-Executive Directors with the exception ofappointment of Independent Directors to the extent of 50% of the total strength of theBoard. It is clarified by the Corporation that the matter is being pursued with theAdministrative Ministry for appointing required number of Independent Directors on theBoard. The changes in the composition of the Board of Directors that took place during theyear under review were carried out in compliance with the provisions of the Act.
Adequate notice is given to all directors to schedule the Board Meetings agenda anddetailed notes on agenda were sent at least seven days in advance and a system exits forseeking and obtaining further information and clarifications on the agenda items beforethe meeting and for meaningful participation at the meeting.
As per the minutes of the meeting duly recorded and signed by the chairman thedecisions of the Board were unanimous and no dissenting views have been recorded.
I further report that there are adequate systems and processes in the Corporationcommensurate with the size and operation of the Corporation to monitor and ensurecompliance with applicable laws rules regulations and guidelines. I further report thatduring the audit period the Corporation had no specific events/actions having a majorbearing on the Corporations affairs in pursuance to the laws rules regulationsguidelines standards etc. referred to above.
| ||(U.C. SHUKLA) |
| ||COMPANY SECRETARY |
|Place: Mumbai || |
|Date: 26.05.2016 ||FCS: 2727/CP: 1654 |