Private shipyards knock on govt door for Rs 50-billion working capital

Twenty-two private shipyards in the country have asked the government to infuse Rs 50 billion in working capital in order to keep the industry afloat. The domestic shipyard industry has about Rs 250 billion of stressed loans. Two big players, Bharati Shipyard and ABG Shipyard, are on the insolvency route.

The private shipyards, including those belonging to Larsen & Toubro (L&T)  and Reliance, under the banner of the Shipyard Association of India (SAI) met Union Minister of Shipping and Ports Nitin Gadkari on Monday.

Among their various demands, one was setting up of a shipbuilding development fund of Rs 150 billion to finance working capital, refinance existing credit and capital expenditure.

They also asked the government to set up an empowered shipbuilding division within the shipping ministry to ensure higher utilisation of capacity and liberalisation of tender terms.

At the meeting, key players in India’s private shipbuilding sought a level playing field between the public and private sectors.

“Indian private sector shipyards have demonstrated world-class quality and workmanship, which we pride ourselves in. Despite this, the industry is in turmoil because of circumstances beyond our control. We strongly urge the government to step in to ensure this strategic sector is nurtured to achieve self sustenance like in China, South Korea, etc.,” said V Kumar, president, SAI.

He said the government was awarding most of its orders to public sector shipyards. Given present capacities, this would mean that the ships will be delivered in about 20 years, leading to vulnerability, he added.

Kumar cited reports of KPMG, PwC, and EY and claimed the industry generated 6.4 times more employment through downstream industry segments.

“The private sector shipyards face extreme hardship and a starvation of orders because of the global meltdown of the shipbuilding market over the past seven or eight years, and deprivation of domestic orders on account of nomination to PSU shipyards,” he said.

He also pointed out that between 2002 and 2007, the government had declared a subsidy scheme for all shipbuilding contracts made during the period. A majority of the contracts, however, were signed at the end of the period, as it took considerable time for Indian shipyards to market their capabilities in the international arena and convert them into orders.

There were still outstanding dues that the government had to pay shipyards. Put together, the total subsidy claim pending under the old scheme (2002-2007) was more than Rs 9 billion.

Suresh said the condition of private shipyards was such that L&T was working at 25 per cent capacity, Reliance Pipavav at 10-12 per cent, and Bharati at 5 per cent though smaller shipyards were slightly better, working at 50-60 per cent capacity.