Mercator Lines Chairman H.K. Mittal’s “personal” venture to build two shipyards for cargo-carrying ships in Gujarat and Maharashtra for Rs 2,300 crore is yet to cross the preliminary stage. Mittal blames the delay on the crisis engulfing the shipbuilding industry: “Ships meant for exports are getting cancelled or delayed as buyers are not able to manage finance.”
The fate of the proposed Rs 3,200-crore shipyard in Cuddalore in Tamil Nadu by Chennai-based Goodearth Maritime is unknown. The company managed to raise Rs 260 crore from IDFC Private Equity in 2007-08, but its IPO, which was to bring in a bulk of the money, did not take off. Managing Director S. Madhan could not be reached for comment.

Mumbai-based Dolphin Offshore’s Rs 400-crore plan for a yard to make smaller vessels has also been held up. “We are awaiting clearances from the Gujarat government on our shipbuilding proposal,” says Satpal Singh, managing director of Dolphin Offshore, which is one of the few companies to have acquired land for its project. Tuticorin Port Trust’s Rs 1,400-crore yard proposal is also awaiting clearance from the Ministry of Shipping. “The management is in talks with the government over certain policy issues,” say sources in the Port Trust. The project is behind schedule by at least two years.

Chennai-based Tebma Shipyards has put off its plans to build two yards for Rs 1,000 crore. “We are in the process of acquiring land, as there is no hurry in terms of demand,” says P.K. Balan, chairman of Tebma Shipyards. “We hope demand will recover by 2011, by which time we will expedite the process.” The company has an order book for 16 vessels, which it hopes will take it through the current fiscal.

Among the very few projects that are actually underway is Mumbai-based Pipavav Shipyard’s (PSL) Rs 2,900-crore project to create an offshore fabrication yard by end-2009. PSL is, at present, constructing a number of Panamax bulk carriers (large ships of at least 60,000 DWT in size that can pass through Panama Canal) of 74,500 DWT each, among the largest ships being built in India today. PSL has also received ONGC’s contract for the construction of 12 OSVs. “PSL’s current order-book extends up to 2012,” says a company spokesman. “By that time, economic conditions would have improved following the recovery measures being taken by governments worldwide.”

Also on schedule is ABG’s Rs 1,650-crore project in Dahej. “We have now started building rigs for the oil and gas industry,” says Dhanajay Datar, CFO of ABG. “ABG has completed 40 per cent of the work on the two rig orders it has received from Essar.” However, it has not received any money from Essar for the orders, which is stretching its working capital limits, according to analyst Kejal Mehta of Prabhudas Liladhar.

Struggling: Of the 15 projects announced by Indian companies, only three have got underway

What might be needed to put the ambitious investments back on track? A lot, actually; including the return of the subsidy, easier finance, a more rational tax structure (the industry is subject to 12 different direct and indirect taxes), faster replacement of old and single-hull ships. It will also require “favourable investment policies that would encourage shipbuilding”, says M. Jitendran, managing director of India’s biggest shipbuilder, the state-owned Cochin Shipyards. He adds that one way to beat the downturn is to invest and build capacities that would fetch better business when the tide turns.

That is something companies, who had announced big shipbuilding plans, are not doing. They are just waiting for the economic tide to turn. As Jitendran says, “A pick-up in trade volumes is necessary to inspire freight rates, which will put confidence back in investors.” Yes, but given that many of them were given government land for free, can they afford to wait?

Meanwhile, with only three of the 15 ambitious projects announced having got underway, India’s quest to be the next big shipbuilding destination will also have to wait.

sreevalsan dot menon at abp dot in

(Businessworld Issue Dated 11-17 Aug 2009)