Ship repair units see limited benefit in duty exemption

Efficiency, infrastructure also need attention, say industry officials

Government's proposal to exempt excise duty on spare parts used for repairing of ship vessels is not expected to benefit domestic ship repair units in a big way amid drying toplines.

"Revenues from the ship repair business is extremely low. Even if dry docking is compulsory, with not all ships being employed (due to weak trade globally), only those vessels that need regular dry docking come to yards," said a top official with GOL Offshore.

"Thats not all. Those vessels that come for dry docking ask for the main basic services keeping safety priority unlike 4-5 years ago where they would ask for top class repair services," he added.

Dry docking, a compulsory exercise carried out twice in five years, is an activity used for repairs or when a ship is taken to the service yard.

"Ship repair business contribution is already very small to the total revenue (of the company) and many times this also runs into a loss," he said.

Mumbai-based GOL Offshore is into several businesses apart from ship repair services such offshore drilling, port and terminal services among other. The company's ship repair services form just about 5% of the total revenue stream.

"Ship repair units need steps that can boost revenues. This exemption will benefit in the long-term once trade picks up. Currently, the recession is too strong," said Nasir S, technical officier at Lilly Maritime Ship Repair.

Domestic ship repair industry is largely a scattered one and is spread across the 7,500 km coastline.

"Excise duty on capital goods and spares thereof, raw materials, parts, material handling equipment and consumable for repairs of ocean-going vessels by a ship repair unit subject to actual user conditon being exempted," said the Budget for financial year 2016-17 (Apr-Mar).

Apart from this proposed excise duty, the ship repair industry is already enjoying exemption of customs duty on spare parts which was declared a couple of years ago.

Industry officials were also of the view that though the excise duty exemption will lower costs encouraging domestic shipping companies to turn to repair units here, efficiency and existing infrastructure are two other hurdles that the latter needs to deal with.

At present, the cost of dry docking in India is about 15% higher than what it is in Dubai, Sharjah and Colombo, where domestic shipping companies take their vessels regularly.

"In terms of efficiency, if a ship take two weeks to get repaired in Dubai, the same repairs would take 3-4 weeks in an Indian shipyard," said a former general manager of ABG Shipyard.

"It is because of this that it is difficult for domestic shipping companies to switch easily to local ship repair units even if the quality of work is better here than even in Dubai or Sharjah," he added.

Cochin Shipyard, however, is an exception which is better placed among the existing yards in Goa, Gujarat and Andhra Pradesh, said officials.

"The move by the government is a small one but in the right direction. Domestic ship repair yards cannot take big-sized vessels and so the benefit overall is limited. These yards lack infrastructure," said Anoop Sharma, managing director of Essar Shipping.

Among domestic shipping companies, state-owned Shipping Corporation of India has the largest fleet of about 69 vessels comprising bulk, tanker and offshore.

"The pressing need for the shipping industry is to improve earnings per vessel. With crude oil prices on a decline and trade weak , there is no business across the entire shipping-building-repair chain. This part needs urgent attention," said the official with GOL Offshore.