Most Seeks Shippers Resolution On Bareboat Charter

The surface transport ministry has asked the Indian National Shippers Association (Insa) to provide it with a copy of an Insa general body resolution demanding the suspension of ship acquisition through bareboat charter-cum-demise methods.

The follows a move by several Insa members to disassociate themselves with the demand to suspend all bareboat charter acquisitions and to treat vessels acquired through this method as foreign vessels.

Among the members who have objected to the move are Pratiba Shipping Company and Amar Shipping Corporation. These two carry out bulk of their acquisitions of tankers and bulk carriers through bareboat charters.

Sunil Pawar, executive director of Prathiba Shipping, said, "We are not in agreement with the Insa move. Any such suspension will have disastrous repercussions for the industry."

These companies have taken the view that a ban on such operators will result in lease rental payment default, leading to repossession of vessels by lessors. But it is not just these two companies that have opposed Insa demand. Sources said Essar Shipping has also disassociated with the Insa demand.

The vessel flies the flag of the lessor till the terminal payment of the lease rental in bareboat chartering which is essentially a lease backed by an escrow of charter rentals. The vessel is transferred to the lessee only after this payment.

About two months ago, the ministry had taken the view that for vessels to be eligible for cargo support, at least 51 per cent of the equity will have to be held by local partners in case of vessels acquired through bareboat charter-cum-demise methods. This provision makes foreign flag vessels eligible for cargo support.

However, the ministry has declined to accept the Insa demand. Surface transport secretary R Vasudevan said, "We cannot accept this demand without examining the merits. We are trying to find out whether this method of financing has actually resulted in increasing the tonnage."

When this method of funding was permitted about four years ago, the purpose was to increase the shipping tonnage in the country. This method had also allowed the vessel acquisition at low costs as opposed to using external commercial borrowings. In ECBs, creditors have no lien on the assets unlike in bare boat charters where the vessel ownership is vested with the lessor till full payments are made. This had also allowed vessel acquisition in line with the maturity profile prescribed by the Ministry of Finance. BBCDs are done for tenors over five years , whereas ECBs are seldom available for maturities over three years in the international markets.