Fresh Insa Plea On Ship Acquisition

The Indian National Shipping Association (Insa) has submitted a revised representation to the surface transport ministry on suspension of ship acquisition through bareboat charters.

Officials said the revised representation seeks differential treatment of vessels and companies. It advocates exemption for companies that have resorted to bareboat charters for financial purposes and suggested that such charters be treated as domestic flag vessels.

The original representation to the ministry had sought suspension of bareboat charters and treatment of vessels so acquired as foreign flag vessels.

Bareboat charter is a method of lease financing vessels. At the end of the lease period, the vessel ownership is transferred to the lessee. During the lease period, the vessel flies the flag of the lessor.

Current regulations demand vessel acquisition through bareboat charters should have a minimum tenor of five years in line with the maturity guidelines for external commercial borrowings. It essentially involves creating an escrow account of the charter rentals of the ship to meet rental payments.

Sources said the revised representation was made following differences within the shipping community. Some members had completely disassociated with the original representation because they had resorted to sale and leaseback of vessels to beef up their balance sheets. The vessels were sold to a special purpose vehicle set up in a tax haven, particularly Mauritius, and then leased back using the bareboat charter. The revised representation includes such companies for treatment as domestic flag vessels for cargo support and for participating in the coastal shipping.

The director-general of shipping has ordered a probe into whether bareboat charters have actually increased tonnage. The report is expected soon.

The surface transport ministry has already tightened controls on such methods of funding by insisting that bareboat operators should have a minimum of 51 per cent equity for becoming eligible for cargo support.