Indian firms seek incentives for shipyard projects

A number of private companies in India have expressed their interest in building two large shipyards planned by the government are now asking for several incentives, including a special economic zone (SEZ) status for the facilities. The companies claim these will help them save on taxes and make them more competitive.

In a wish list submitted to the government last week, these companies have asked for an extension of the 30% subsidy that ended on 14 August, a service tax waiver and exemption from various taxes such as sales tax and entry tax levied by the state governments. In addition to tax incentives and administrative exemptions, being located in an SEZ could also mean flexible labour laws.

ABG is among the firms interested in setting up a shipyard that will eventually be able to build ships up to 300,000 DWT. The subsidy is motivated by the fact that shipbuilding is a capital- and labour-intensive business that, apart from creating jobs, increases demand for materials such as steel. The government wants to create these shipbuilding facilities, one each on the east and west coasts in an effort to give a boost to the local shipbuilding industry. Both shipyards will initially have the capacity to build and repair ships with a cargo carrying capacity of around 175,000 tonnes which will later be expanded to 300,000 tonnes.

South Korea???s STX Shipbuilding Co., the UK-based McNulty Offshore Construction Ltd, Larsen & Toubro Ltd, ABG Shipyard Ltd, Shapoorji Pallonji & Co. Ltd, Essar Constructions, Apeejay Shipping Ltd, Goodearth Maritime Ltd and IMC Ltd have all expressed their interest in setting up the shipyard on the east coast. For the west coast facility, STX, L&T and Bharati Shipyard Ltd have expressed an interest in setting up the shipyard.

In their wish list, the firms have also asked for capital investment grants and the government???s assistance in securing an environment clearance for the project and acquiring land. An executive at Shapoorji Pallonji said the government should take the lead in getting environment clearances for the project and also help the developer acquire land for the project.

The government will play a facilitating role without making substantial investments in the projects said an official in the shipping ministry. The ministry is in the process of hiring consultants to help execute the projects. The government-owned Ennore port and Mumbai port have been nominated the nodal agencies to process the tenders on behalf of the shipping ministry for implementing the projects. Each of the yards will cost around $500 million and be set up as public private partnership projects. Apart from building ships, the yards will also be able to repair 75-80 ships a year.

Local builders such as L&T, ABG, Bharati, Cochin Shipyard Ltd, Hindustan Shipyard and Mazagon Dock Ltd are currently building around 240 ships worth $4.5 billion. However, in absolute terms, India???s share of the global shipbuilding industry by tonnage is around 0.5%. The government???s move to set up the two large shipyards could see India???s share in global shipbuilding go up to 15%, or $22 billion, by 2020 on the back of cost competitiveness and abundant supply of skilled manpower.