Report on Indian Maritime Industry

Prospect for environment friendly technology Opportunities in Shipbuilding, Shipping & Maritime Education

October 2010

All the data and information provided in this document has been taken from public sources. Innovation Norway and its expert consultants have value added with its own insights and understanding. Possession of this information or data does not violet any of the regulation. The user is not liable to be an insider to proprietary information at the time of taking decision.

Disclaimer
The report has been prepared by Innovation Norway in consultation with the experts in the maritime industry in India. The objective and scope of this report was to gather and advise on the broad opportunities for Norwegian companies in India. All due care has been taken to provide accurate data, information and analysis at macro level. However, there would still be several issues at the micro level while evaluating investment on each opportunity. Hence, each recipient of the report must, however, make its independent assessment of the project. The present report due to its broad scope does not discuss the minute details, which companies should consider before making decision.

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CONTENTS

1. INTRODUCTION............................................................................ 8
1.1. 1.2. 1.3. Preface ........................................................................................................... 9 Abbreviation ................................................................................................ 11 Project Objective & Scope of Work........................................................... 13

2. INDIAN SHIPPING....................................................................... 15
2.1. 2.2. 2.1.1. 2.1.2. 2.1.3. 2.1.4. 2.1.5. 2.1.6. 2.3. 2.1.1. 2.1.2. 2.4. 2.5. 2.6. 2.1.1. 2.1.2. 2.1.3. Delivery schedule - Indian Shipping Companies..................................... 16 Opportunities in Shipping .......................................................................... 17 ONGC 17 Shipping Corporation of India 17 Great Eastern Shipping 18 Mercator Lines 18 Great Offshore 19 Greatship (India) 19 Opportunities in Offshore .......................................................................... 19 Chartering Opportunities 20 Opportunities for DP systems 21 Scope for environment friendly technology............................................. 23 Ships with HFO propulsion ........................................................................ 25 Diesel propelled ships ................................................................................ 27 Opportunities with newer Fleet 31 Mid life ships 31 Future opportunity for Newbuilding 32

3. SHIPBUILDING & REPAIR INDUSTRY ...................................... 34

3.1. 3.1.1. 3.1.2. 3.1.3. 3.1.4. 3.2. 3.1.1. 3.1.2. 3.1.3. 3.3. Shipbuilding Industry in India ................................................................... 34 Opportunities with Proposed Shipbuilding & Repair Yard 38 New infrastructure plans of government 39 Private sector opportunities for Norwegian firms 40 Environment friendly technology at Shipyards 40 Orderbook Scenario at Indian Shipyard ................................................... 43 Existing Contracts 44 Delivery scenario at Indian Shipyard 45 Post Slowdown effect 45 Profiling of Shipyard & Opportunities for Norwegians ........................... 47 Page 3 of 104

3.1.1. 3.1.2. 3.1.3. 3.1.4. 3.1.5. 3.1.6. 3.1.7. 3.1.8. 3.4. 3.1.1. 3.1.2. 3.1.3. 3.1.4. 3.5. 3.1.1. 3.1.2.

ABG Shipyard Alcock Ashdown Shipyard Bharati Shipyard Cochin Shipyard L&T Shipyard Pipavav Shipyard Shoft Shipyard Tebma Shipyard

49 49 50 51 51 52 52 52

Tax & Duties in Indian Shipbuilding.......................................................... 53 Service Tax 53 Customs Duty 53 Excise Duty 54 Export sale of ships 54 Benchmark of economic Benefits of Shiprepair Company in India ...... 55 Cochin Shipyard 55 Western India Shipyard 56

4. COASTAL SHIPPING.................................................................. 58
4.1. 4.2. 4.1.1. 4.1.2. 4.3. 4.1.1. 4.1.2. 4.1.3. 4.4. 4.1.1. 4.1.2. 4.1.3. Factors demoting popularity of Coastal Shipping in India..................... 60 Container movement by Coastal Shipping............................................... 60 Opportunities for Coastal Container Shipping 64 Reasons for poor penetration of containers for Indian coastal shipping 64 Market Trends of Coastal Shipping in India ............................................. 66 Opportunities in coastal movement of Iron and Steel Traffic 67 Opportunities in coastal movement of Cement & Clinker 68 Coastal Movement of Coal 69 Opportunities for Norwegian firms in Indian Coastal Shipping ............. 71 Passenger Ferry Service in Mumbai 71 Ferry Service in Gujarat 73 Other Opportunities 74

5. MARITIME EDUCATION AND R&D............................................ 75

5.1. 5.1.1. 5.1.2. 5.2. 5.1.1. 5.1.2. 5.1.3. 5.3. Maritime Education ..................................................................................... 77 Education Related to Seafarers 77 Education Related to Shipbuilding & Naval Architecture 78 Maritime R&D & Opportunities for Norwegian Firms .............................. 81 Independent Research & its outcome in India A case Study 81 Rise and fall of NSDRC as R&D institute 83 Naval Science & Technological Laboratory (NSTL) 86 Opportunities for Norwegian Firms/Institutes ......................................... 88

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5.1.1. 5.1.2. 5.1.3.

Upcoming Institutes in Private Sector Opportunities with IMU Vishakhapatnam Campus Other opportunities in Education sector

88 88 90

6. SHIP DISMANTLING INDUSTRY IN INDIA ................................ 92

6.1. 6.1.1. 6.2. 6.1.1. 6.1.2. 6.1.3. 6.3. 6.1.1. 6.1.2. 6.1.3. 6.1.4. 6.4. Ship Dismantling Industry Opportunities in India ................................... 92 Factors affecting poor environment at ship breaking site 93 Ship scrapping in India............................................................................... 95 Ship Scrapping Process 97 Commercial use of scrap steel 98 Workers Benefit 98 Environment consideration for Ship scrapping ...................................... 99 Government initiatives 99 Statutory Guidelines 100 Legal Framework 100 Supreme Court Ruling on Ship Breaking Industry 100 Conclusion................................................................................................. 102

7. CONCLUSION ........................................................................... 104

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LIST OF TABLES
Table 2-1 Fragmented ownership of Indian Shipping Companies (As on June 2010) .................................... 15 Table 2-2 Ongoing newbuilding activity of Indian Shipping Companies (As on March 2010) ......................... 16 Table 2-3 Ongoing newbuilding activity of Indian Offshore Companies (As on March 2010) ......................... 17 Table 2-4 Offshore fleet with DP System (As on March 2010) ........................................................................ 21 Table 3-1 Financial growth of Shipyards in India (INR mn) ............................................................................. 35 Table 3-1 International Designers and the shipyards they designed in India .................................................. 36 Table 3-2 List of Bidders for Mumbai Port Trust EOI (sep, 2009).................................................................... 38 Table 3-3 Orderbook estimates of Indian Shipyards by Ship type (march, 2010) ........................................... 43 Table 3-4 Infrastructure plans and contracts in hand (Indian Shipyards) ........................................................47 Table 3-5 Existing infrastructures at major Indian Shipyards .......................................................................... 48 Table 3-6 Analysis of the margins of Ship Repair Division of Cochin Shipyard (2008-09).............................. 55 Table 3-7: Analysis of the margins of Western India Shipyard (2008-09) ....................................................... 56 Table 4-1 Fleet distribution of Indian Flagged ships in coastal waters ............................................................ 59 Table 4-2 Comparison of Coastal movement of Containers to total Port traffic .............................................. 61 Table 4-3 Share of rail movement by CONCOR for containers....................................................................... 63 Table 5-1 Flow of Maritime Talent ................................................................................................................... 75 Table 5-2 Statistics related to maritime training institutes in Mumbai.............................................................. 77 Table 5-3 Fleet profile of container feeder vessels in India ............................................................................. 82 Table 5-4 Offshore Vessels currently being built in India ................................................................................ 82

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LIST OF FIGURES
Figure 2-1 Opportunities in short term charter ................................................................................................. 20 Figure 2-2 Medium and large ships with Heavy Fuel oil propulsion (March 2010).......................................... 25 Figure 2-3 Age profile of ships operating in India (March 2010)...................................................................... 27 Figure 2-4 Manufacturer distribution of diesel propelled ships (March 2010).................................................. 28 Figure 2-5 Market Share of Engines in the power range 1000 KW to 4000 KW (March 2010)....................... 28 Figure 2-5 Market Share of Engines in the power less than 1000 KW (March 2010) ..................................... 29 Figure 2-6 Engine manufacturer distribution of diesel propelled ships of less than 10 yrs age (March 2010) 31 Figure 2-7 Engine manufacturer distribution of diesel propelled ships of 10 to 20 yrs age (March 2010) ...... 32 Figure 2-8 Engine manufacturer distribution of diesel propelled ships of more than 20 yrs age (March 2010) .................................................................................................................................................................. 33 Figure 3-1 Geographical location of owners placing orders at Indian Shipyards ............................................ 41 Figure 3-2 Breakup of Newbuilding order book at Indian Shipyard ................................................................. 43 Figure 3-3 Ships on order at Indian shipyards in the order of contracts signed .............................................. 44 Figure 3-4 Delivery from Indian Shipyards since 2007 .................................................................................... 45 Figure 4-1 commodity wise breakup of Coastal movement of cargo............................................................... 58 Figure 4-2 Population density of India and the transportation connectivity .....................................................65 Figure 4-3 Map of Europe ................................................................................................................................ 66 Figure 4-4 Proposed ro-ro/ferry service west coast of Mumbai ....................................................................... 72 Figure 4-5 Proposed ro-ro/ferry service on the Coast of Gujarat and west coast of India ............................. 73

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1.

INTRODUCTION

The high pace industrial and social developments in India has led to an increase in the environment emissions. It has been found that the greenhouse gas emissions in India rose from 1.2 billion tonnes in 1994 to 1.9 billion tonnes in 2007, an increase of close to 60%. Most of these emissions have come from the industrial and transport sector. With these numbers, India is set to be the fourth largest emitter of Greenhouse gas after United States, China and Russia. Indian government and policy makers are quite sensitive to the rising pollution level in the country. It is believed, that the damage caused to the Indian society due to global warming would be far more compared to the developed world. As a large population of India still remains below poverty line, they would find it difficult to fund expensive technologies to escape the heat of global warming. The government has been pitching for accelerating deployment of green technologies to tackle climate change, wherever affordable and wherever possible. Apart from being a global economy, India is poised to be one of the leading maritime nations. It has about 7,212 kms of coast line. India has close to 7% share in the global trade by volume. There are more than 35,000 ships calling to Indian ports in a year for trade. Indian companies are aggressively expanding their fleet to increase their share in the increasing trade from Indian ports. All these developments lead to increase in the maritime activity at the Indian coast. This would also lead to increase in the emission of greenhouse gas from the ships. The requirement for technologies and systems that are environment friendly is eminent. Norway is conducting a market research in the Indian maritime sector, which is exploring reasons for using environment friendly technologies by the shipbuilding and ship scrapping industry. It is also exploring opportunities for the Norwegian technologies and services in the shipbuilding, shipping and Indian maritime education sector.

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1.1. Preface
This report is an effort to detail out the Indian shipping and its associated industries, and take into account the areas that have ample of opportunities for the Norwegian firms. This comprehensive compilation was a result of in-depth analysis and exhaustive interviews conducted with the relevant authorities from various segment of the Indian shipping industry. The report tries to put the Indian economy in the context of shipping industry. Despite the recent downturn, how shipping industry managed to stay afloat and contribute to the Indian economy remains one of the salient features of the report. Moreover, the facet where the industry lags vis--vis its international counterparts and the measures taken to lessen this gap, is also featured in the report. The composition also reflects on all the recent developments in the maritime industry, company performances, their suggested future plans and the committed efforts, coupled with an educated deduction of the industry. Through numerous interviews, analysis and reference to our own maritime repositories, every potential prospect of entering a collaborative effort with various sectors of the maritime industry has been charted out in this literary work. Opportunities in the form of providing updated education systems, technology transfer, training and internships for the up-and-coming local content, infrastructure developments and expansion, and other ancillary services have been laid out as well. The report also comments on the advantages that can be reaped by the Norwegian firms through various tax exemptions, updated regulations and laws, and subsidies in various forms. With such backing from the government throughout a companys operational lifespan in India, the report highlights the length to which both government and private sectors could go to accommodate foreign investors. A section of the report has also been dedicated to Green shipping, and how the present scenario of upholding the environment in the industry leaves a lot to be desired. Despite all the laws and regulations in place and moderate infrastructure, environment still remains an afterthought. An account of how contributions could be made in this segment of the industry, and the need for efficient measures and the relevant technologies has also been mentioned. Theres an admirable amount of degree of willingness from the Indian shipping industry to adopt environment-friendly technologies. Entering into collaboration with such companies would favor the Norwegian firms from their business point of view. The report has benefited immensely from all the officials that were interviewed for the purpose. Officials residing at respectable posts as well as at grass-root levels helped us get an unbiased picture of the Indian maritime industry and the maritime education sector. Their valuable inputs helped us zero in on the scope available for the Norwegians to collaborate with their Indian counterparts. Innovation Norway New Delhi had put in a concerted effort in the production of this report.

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Through this report, it is hoped that the momentous need for a change in the shipping and its associated industries is emphasized. The need of the hour is collaboration with foreign companies to provide services and means that India seems to be falling back on; and Norwegians are a good place to start.

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1.2. Abbreviation
Acronym ABG AHT AHTSV AMET A&N CBM CCDS CFD Class CONCOR DP DNV DWT EOU EOI EPTRI FRP GE GMB GSPCB HIMT HFO IMU IT IIT IITM IITK IACS ICTT INR IMO IMU IPO IRS ISM JNPT KSRI KW Definition Agarwal Business Group Anchor Handling & Towage Anchor Handling Towage & Supply Vessel Academy of Maritime Education & Training Andaman & Nicobar Condition Based Maintenance Currency counting and Detection System Computational Fluid Dynamics Classification Society Container Corporation of India Dynamic Positioning Det Norske Veritas Deadweight Tonnes Export Oriented Unit Expression of Interest Environmental Protection Training and Research Institute Fiber Glass Reinforced Plastic Great Eastern Gujarat Maritime Board Gujarat State Pollution Control Board Hindustan Institute of Maritime Training Heavy Fuel Oil Indian Maritime University Information Technology Indian Institute of Technology Indian Institute of Technology, Madras Indian Institute of Technology, Kharagpur International Association of Classification Societies International Container Transshipment Terminal Indian Rupees International Maritime Organization Indian Maritime University Initial Public Offer Indian Register of Shipping International Safety Management Jawaharlal Nehru Port Trust Krylov Shipbuilding and Research Institute Killo Watt Page 11 of 104

LNG L&T MbPT MDO MH MOU MPP MSV MSRDC NA NMDP NIOT NSDRC NSTL OEM ONGC OSV PCB PMS PPP PSV Ro-Ro SCI SEZ SME SNAME SPCB STCW US$ UN VAT

Liquified Natural Gas Larsen & Toubro Mumbai Port Trust Marine Diesel Oil Maharashtra Memorandum of Understanding Multi Purpose Product Multipurpose Supply Vessel Maharashtra State Road Development Corporation Not Applicable National Maritime Development Program National Institute of Ocean Technology National Ship Design and Research Centre Naval Science & Technological Laboratory Orrigional Equipment Supplier Oil & Natural Gas Corporation Offshore Supply Vessel Pollution Control Board Planned Maintenance System Public Private Partnership Platform Supply Vessel Roll On Roll Off Shipping Corporation of India Special Economic Zones Small and Medium Enterprises Society of Naval Architects and Marine Engineers State Pollution Control Board Standards of Training, Certification and Watch keeping United States Dollor United Nation Value Added Tax

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1.3. Project Objective & Scope of Work

This report aims at listing out the existing opportunities and the ones that can be constructed in the Indian shipping industry. With the expanding and booming shipping industry, India, too, has a mammoth opportunity for any willing and reputable firms, who are ready to invest in various segments of Indian shipping industry. With various shipping companies looking to expand, in terms of infrastructure, fleet strength, etc. opportunities for Norwegian firms are abound. By entering into a collaboration effort with both large and small shipping companies, the report charts out the various sectors and through various avenues with which the Norwegian firms could make their presence felt in India. Same goes for the ship-breaking industries, where, considering the present apathetic scenario, prominent improvements could be made available. The report helps clarify and identify Norwegian service renderers, the opportunity in terms of desperately-needed and improved technology, infrastructure and other ancillary services. Opportunities arent restricted to only the industrial sector of the shipping segment, and these are featured in the report. Indian maritime education deserves a wider and a more comprehensive approach towards educating its local content, which will be at par with the international level. The need for updated syllabus, early exposure to the industry through internship and other training programs, has also been addressed in the report. The report also helps in bringing out the environment concern that has lately been the buzzword, as well as the need of the hour. The impetus that has been put on adopting Green shipping is in its nascent stage in India and hence, is an opportune time for foreign investors to get involved. The report emphasizes on the need for environmentally-friendly technology, especially considering the ageing Indian fleet. Scope of Work: Following are the steps that helped materialize the report: Interviews and surveys conducted in various segments of Indian shipping industry. Reference to existing shipping data and the ones that were the product of our own analysis. Assessing the degree of willingness and interest shown by the shipping industry players. Analyzing past data and trends to identify the scope and the amount of opportunity in the present scenario, as well as the potential ones in the near future. Evaluating the ground reality of ship-breaking industries and framing a decisive outlook, along with the impact an immediate overhauling would create in that particular segment. Identifying the areas in Indian maritime education and R&D segment that can be updated and improved. Amassing various viewpoints in ship-building industries, and reaching a critical conclusion that would cater to the opportunity-seeking foreign investors.

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Identifying the market segment that would allow for technology upgrade in their current fleet, and the reasons why it would work. Studying the present government regulations, reforms and tax laws, and constructing a brief account of how the same could be benefitted by the foreign investors. The current market supplier base in various segments of shipping industry, and the areas it leaves a lot to be desired. Determining the ways in which foreign investors could gain through collaboration and investment of technology, intellectual property, machineries and equipments.

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2.

INDIAN SHIPPING

Several shipping companies in India, both private and government owned, have planned to undertake aggressive fleet expansion drive. The capacity expansion would be undertaken across cargo ships segment such as bulk carriers, tankers, etc. New building of ships to be used for offshore oil & gas exploration, towage and coastal security will also be on the prospective ships going forward. The new building plans of shipping companies open up opportunities for the equipment suppliers and environment friendly technology providers. The recent slowdown did not deter Government owned companies in India from making fresh investments for fleet acquisition. The private sector did not cancel their existing newbuilding orders, unlike their global peers. This shows the robust and long term business opportunities for the shipping companies in the country. In fact, most of the newbuilding orders awarded to Indian shipyards in India at the time of slowdown were from government companies such as ONGC, SCI and other firms such as coast guard, navy, etc. Indian shipping industry opens up window of equal opportunities both for the Indian firms as well as foreign firms. Moreover, even if the ship is built in India, it has large dominance of imported equipments and machinery. Indian shipping industry opens up opportunities both in the newbuilding as well as refurbishment segment for Norwegian equipments and technology providers. The shipping industry in India is highly fragmented. Despite the nature, a substantial portion of the fleet is owned by the organized market in the sector. Following table shows the ownerships details of ships with the age of their fleet. Table 2-1 Fragmented ownership of Indian Shipping Companies (As on June 2010) Shipping Firms Organised Semi Organised Fragmented Total
Source: Mantrana Maritime Advisory

Description More than 10 ship More than 3 ship Less than 3 ship

Owners < 10 20 67 198 285 156 102 48 306

Age Distribution in Years 10 to 19 118 76 44 238 20 to 29 152 94 72 318 > 30 40 44 52 136

Total 466 316 216 998

There are 20 owners in the organized segment of the shipping industry, and their collective fleet strength is 466; close to 50% share of the overall fleet market in India. Each company in this segment commands at least 10 ships. The cohesion that comes into play due to such collaboration makes these companies all the more immune to certain eventualities. For instance, if a particular company were to lose a couple of ships temporarily due to wear-and-tear or some other reason, it would still have enough fleet strength to fall back on. However, the same cannot be said for the other unorganized shipping firms in the industry. The organized segment even seems to be the healthiest, with one-third of its fleet being under 10 years of age. Companies forming this market consortium are more visionary and enterprising than any other in the Page 15 of 104

segment. Carrying out business with such a segment ensures a level of commitment and the ability to deliver. Large ship-owners would provide potential opportunities for Norwegian firms as they undertake more new-building projects. Semi-organized segment fall in close second, with a fleet strength of 316 ships and 67 owners among them. The collaboration in this segment isnt as full-fledged as the previous one. Here, too, ships under 10 years of age are larger in number, 102. Next in line is the fragmented section of the industry. Of the total 285 owners in the industry, this market segment occupies 70% of them, and one-third of its fleet is between 20 years- 29 years of age. With ageing fleet, disordered ownership and business activity, here each owner commands no more 2 ships. This segment is poised to be hit worst during slowdown or any other complications in the shipping industry. These small companies cater to their individual needs, instead of consolidating towards a common goal for the overall benefit of the whole industry. Following section discusses in detail the opportunities associated with Indian shipping companies for Norwegian firms.

2.1. Delivery schedule - Indian Shipping Companies

Indian shipping companies have been expanding their shipping fleet. In the recent downturn, leaving a few odd instances of cancellation by Indian shipping companies, most of the shipping companies in India sticked to their fleet acquisition plans. Following table shows the fleet expansion and proposed delivery schedule of shipping companies. Ships scheduled for delivery in 2010 and 2011 already have all their supplies and systems in place. However, for ships which are scheduled to be delivered post 2012, there lies scope of supplying equipments and materials. Table 2-2 Ongoing newbuilding activity of Indian Shipping Companies (As on March 2010) Year of delivery Shipping Corporation Chowgule Shipping Great Eastern Essar Shipping Good Earth Maritime Adani Group Tata Power Gujarat Ambuja Total
Source: Mantrana Maritime Advisory

2010 5 1 2 4 1 2 19

2011 10 5 3 9 1 1 4 33

2012 6 6 3 5

2013 4

2014 1

Total 21 17 8 14 5

4 4 2

20

75

Similarly in the offshore segment, following is the scheduled delivery of Indian companies. Most of the ships have already tied up with the equipment manufacturer for supply. A large number of ships in this segment are delayed deliveries of previous years. Page 16 of 104

Table 2-3 Ongoing newbuilding activity of Indian Offshore Companies (As on March 2010) Calendar Years Q2 Garware Offshore Great Offshore GreatShip (India) MSV MSV AHTS MSV PSV ONGC Samson Maritime TAG Offshore Shipping Corporation Total
Source: Mantrana Maritime Advisory

2010 Q3 1 1 Q4 Q1

2011 Q2 Q3 Q4 Q1

2012 Q2 Q3 Q4

Total

1 1 1 1 2 4 3 1 1 1 3 1 3 1 3 1 3 2 2 2 1 1 2 2 2 2 12 3 1 1 1 5 6 33 1 1 1 1 1 1 1

1 1

AHTS PSV AHTS AHTS 2 3 1 5

2.2. Opportunities in Shipping

Norwegian equipments suppliers could pitch with the products and services to the companies for newbuilding of their ageing fleet. Shipping companies in their product category have planned to expand their fleet. Following is the details of major investments by the shipping companies.

2.1.1. ONGC
ONGC is Indias largest offshore oil and gas company. ONGC has a fleet of 31 supply vessels which were built in the 80s. Offshore supply not being its core business, the supply vessels are managed by Shipping Corporation. ONGC has placed orders for newbuilding of 12 offshore vessels at Pipavav Shipyard. Offshore vessels intend to outsource the management of these vessels to a 3rd party for operations and management. This is a good opportunity for Norwegian shipping or ship Management Company in the offshore sector, which intends to enter Indian market. As an operator, they would not have to make investments on high value marine assets. ONGC is planning to float a tender to build an MSV class of offshore vessels at the cost of US$ 100 mn. This would be a good opportunity for the Norwegian shipyards and equipment suppliers to look for the tender of ONGC.

2.1.2. Shipping Corporation of India

Shipping Corporation of India (SCI) is the largest shipping company in India. It is a listed company, however majority (about 80%) of its shares are owned by the government of India. SCI has aggressive fleet expansion plans, part of which has already been implemented. The company has proposed investments equivalent to US$ 2 billion. It plans to order 30 vessels in different ship category by 2012. Page 17 of 104

SCI is also planning to raise close to Rs 13 billion (US$300 million) through follow-on offer from the public. Shipping Corporation is also working on a long term tie-up with the Steel Authority of India, Indias largest steel maker for import of coal. If the association is formed through JV as planned, this would provide additional boost to the shipping corporation fleet expansion plans. All the ships in the Bulk Carrier, Product Carriers and Crude oil tankers segment have been ordered at the shipyards based in Korea and China. They are all in the advanced stages of planning and construction. Most of the equipments and machinery make and type has been finalised. Hence, the existing orderbook of Shipping Corporation of India may not offer opportunities for the Norwegian equipment suppliers. In the offshore segment, Shipping Corporation is planning to place orders for 4 more vessels. This could be an opportunity for the Norwegian firms.

2.1.3. Great Eastern Shipping

The Great Eastern Shipping (GE Shipping) is the largest private sector shipping company and the 2nd largest shipping company in India. It owns fleet of Crude oil tankers, Product tankers and bulk carriers. It also has a fully owned subsidiary which has a dedicated fleet in the offshore oil & gas services sector and is also expanding aggressively in the sector.

2.1.4. Mercator Lines

Mercator lines is the 2nd largest private shipping company. It is one of the most aggressive and innovative companies in India. Mercator focussed on the shipping business initially; however, it gradually diversified into other related business which has stable and sustained sources of revenue. This was achieved to mitigate the cyclicity shipping industry has. Some of the related industry Mercator diversified into is: Owning coal mines Offshore oil field services sector Dredging

Mercator lines own a Jackup rig which has been chartered on bareboat to GreatShip India. Indias largest oil and gas company requires the service providers to have a minimum 3 years of experience of operating and managing the asset and services. Since, Mercator lines did not have the requisite experience and credentials to qualify technical criteria laid down by ONGC; they chartered the rigs to Greatship on bareboat charter. Greatship India in turn chartered the rig to ONGC on a long term charter. Being subsidiary of Great Eastern Shipping which had the offshore division working with ONGC could meet the technical and minimum years of experience criteria. Mercator lines have also acquired dredgers to capitalise the rising dredging demand in India.

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A subsidiary of Mercator lines, Mercator Offshore has raised US$ 78.5 m as loans from Axis Bank. The amount will be used to build Floating Production Unit, which has been chartered to UK-based Afren Resources for a period of 7 years. Mercator lines as a company is quite optimist on the growth potential offshore oil field services industry has. However, company plans to focus on non maritime revenue to increase its revenue. Hence, there may not be large opportunities for Norwegian firms from Mercator lines.

2.1.5. Great Offshore

Great Offshore is the largest integrated service provider to the Indian Offshore industry. It undertakes offshore drilling, offshore logistics, offshore construction, etc. on turnkey basis. The company is planning to acquire a fleet of 5 new vessels in the offshore segment at an investment of US$ 150 million. This proposed fleet to be acquired would be a mix of offshore supply vessels and offshore construction vessels. As Bharati Shipyard is the major stake holder in Great Offshore, holding close to 49% shares, the new building orders are bound to be placed at Bharati Shipyard. However, as the proposed fleet will comprise ships servicing offshore sector, this opens up opportunities for Norwegian equipment and technology providers.

2.1.6. Greatship (India)

Greatship India is the most aggressive company in the offshore sector. Among all the OSV companies operating in India, Greatship (India) ltd has proposed the largest investment in the offshore supply vessel segment. It had committed more than US$ 600 million in buying 19 OSV in different segments. The company has ordered OSV to shipyards in India, Sri Lanka and Singapore. Greatship (India) limited has committed a Capital investment of US$ 365 for ongoing fleet expansion. Greatship has proposed to raise close to US$ 100 mn from the public through IPO. With US$ 100 mn equity, the company with its existing brand would easily be able to raise US$ 150 mn to US$ 200 mn as debt. It would be investing close to US$ 250 mn to US$ 300 mn in the offshore segment on fleet expansion.

2.3. Opportunities in Offshore

With an increase in deepwater and ultra-deepwater exploration, its no doubt that AHTSV dominates the Indian fleet. Of the total Indian fleet, 54% are AHTSVs, and the share is only expected to rise in the future. The trend of gradual acquisition and hiring of PSV that started early in 2000, is estimated to continue. The PSV share in the total Indian-flagged ships is 10%, and theyre prominently a young fleet. Fleet acquisition in recent times was dominated by AHTSVs, PSVs and MSVs. With exploration focus shifting towards ultra-deepwater segment, large AHTSVs and MSVs are more likely to be preferred than any other type.

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AHTs that take up 6% of the total Indian-flagged fleet have a small and old fleet. In the last decade, none of the Indian companies ordered AHTs. This shows a decline in this fleet segment, and it will soon be phased out. Such ships are hired on spot basis, and the gap is mainly filled by boats from Singapore. Crewboat and Utility boat are owned by smaller companies, and most of them are generally older fleet. There are 195 Indian-flag vessel that serves the offshore sector. Of the total, 158 are OSVs and 37 are specialized vessels. These specialized vessels undertake geological survey, seismic survey, offshore construction, etc. A bulk of the OSV fleet is owned by ONGC, Institute of Ocean technology, Geological Survey of India, Director of light house and some private firms such as Seamec, Reliance, etc. With ONGC having placed 12 new-building orders at Pipavav Shipyard, there are opportunities for equipment supplies. The company intends to outsource its OSVs management to a third party. This is again an opportunity for the Norwegian firms to manage ONGCs fleet for them. The company is even planning to float a tender to build an MSV for US$100 million; an opportunity for the Norwegian ship-building firms. Shipping Corporation of India (SCI) plans to order 4 more OSVs; an opportunity for the Norwegian firms/shipyards. In order to double its cargo-carrying capacity to 10 million DWT, SCI has decided to invest $4 billion in the next four years. This expansion will provide enough opportunities for the Norwegian firms to provide SCI with the equipments and the technical know-how. Greatship has allotted US$365 million for its ongoing fleet expansion. Greatship is likely to raise US$100 million equity through IPO for its scheduled expansion. It can raise a debt of US$100 million to US$150 million and fund expansion of US$250 million. Great Offshore plans to invest US$150 million to acquire 5 OSVs. Its proposed fleet expansion would be a mix of OSVs and offshore construction vessels. These newbuilds will be ordered at Bharati Shipyard. These slated expansions can provide ample of opportunities in terms of ship-building, technology transfer, and machinery and equipment supplies to the Norwegian firms.

2.1.1. Chartering Opportunities

There were 215 foreign flagged vessels licensed to operate in Indian offshore in 2009. Offshore vessels, comprising of 48% of the total fleet like AHTSV, AHT and PSV, dominate the list of the foreign-flagged vessel that ply the Indian coastline. Anchor Handlers and OSVs dominate the offshore ships that are deployed in India. Following table shows the detailed break up of foreign offshore vessels which was chartered in India Figure 2-1 Opportunities in short term charter

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Offshore VesselsbyNumber

Other, 45

AHT, 44

Survey, 34

AHTSV, 18 MSV, 6 OSV, 68

Source: Compiled by Mantrana

Younger fleets are chosen to be deployed in environmentally harsh conditions, viz. violent tides of the west coast and cyclone-prone east coast of the country. Such fleets also demand higher day rates. Older fleets, on the other hand, are preferred for fair weather season, and hence have lower charter rates. Foreign ship-owners bring their fleet in Indian waters on a spot-charter basis. In FY2009-10, 215 vessels were on spot charter basis at different periods. Generally speaking, this is the requirement every year. With such a requirement available, Norwegian ship owners could as well have their ships run in Indian waters on a spot-charter basis. Young fleets would be an added advantage.

2.1.2. Opportunities for DP systems

Of 113 ships owned by major ship owners, Great Offshore that owns 28 ships has only 8 of them installed with the DP 1 system. Greatship and SCI own 14 and 10 ships respectively, and all of them have DP system installed on them. In fact, except one ship, all of the Greatship ships have DP 2 installed on them. SCI did not have DP systems originally onboard their ships; they got it retrofitted. ONGC owns 31 vessels and none of them are DP capable. Tag Offshore owns 7 ships, all DP 1 enabled. Varun Shipping, Samson Maritime and Garware Offshore own 7, 11 and 10 ships respectively. Of which only 4 ships of each company are DP-enabled. ONGC has placed orders for 12 OSVs to Pipavav Shipyard at close to US$120 million, it is not declared if they have DP system. At such a price, it wouldnt be possible for the ordered OSVs to be made DP capable. Great Offshore, Greatship and SCI have one, seven and six vessels under construction, and all of them will have DP installed on them. Same goes for Samson Maritime and Garware Offshore that have 3 and 2 vessels on order. Table 2-4 Offshore fleet with DP System (As on March 2010)

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Existing Fleet Fleet Great Offshore Greatship Shipping Corporation ONGC Tag Offshore Varun Shipping Samson Maritime Garware Offshore Total
Source: Mantrana Maritime Advisory

Under Construction DP 14 10 10 7 4 4 4 54 3 2 35 3 2 23 Fleet 1 11 6 12 DP 1 11 6 Data not available

28 10 10 31 7 4 10 11 111

Shipping Corporation of India which had its fleet built in the early 80s did not have DP system. They have got the existing fleet converted DP systems. This opens up opportunities for Norwegian firms such as Konsberg to undertake such conversion projects in India.

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2.4. Scope for environment friendly technology

Shipping industry is one of the sources of pollution to air and water. Though the share of pollutants from the shipping industry has been less than 5%, there is a growing concern to reduce the extent of pollutants from ships. Additionally, the use of energy efficient technology and practices would also help to contain environment pollution and also reduce per tonne consumption of fuel and per tonne transportation cost. Various regulations and guidelines have come in force, which have imposed environment friendly technology and products to be installed on the ships. Ship owners, shipyards and equipment manufacturers have together geared to come provide systems to comply with the emissions. However, there are, still, hundreds of ships with older equipments and machinery which need to curtail the emissions of hazardous substances. India has more than 1500 propelled ships, of these about 324 are ocean going, 674 operate in coastal waters, and the rest 518 are pontoons, barges and other category of ships operating in the harbour area and river waters. The classification of these ships is based on the technical classification provided by the statutory body. However, from the prospect and opportunities for Norwegian firms who intend to supply environment friendly products and solutions, the ships can be reclassified based on their geographical presence and also on the functional requirements. All the cargo carriers of the size of Handymax and above use Heavy Fuel oil for propulsion. Vessels of sizes lesser than these, mostly mini bulk carriers or barges have diesel driven engines. Ships which provide services to the maritime industry such as Tugs, ships operating in offshore oil & gas sector, etc. use diesel engines. Ships operating in river waters have diesel engines propulsion, medium size bulk cargo carriers operating in coastal waters use Heavy fuel oil as propulsion, and rest all have diesel propulsion. All the ships used in the marine services sector have different requirements and have diesel driven engines. With growing emphasis on the use of environment friendly technology and reduction of emission from the ships, the older tonnage would be required to upgrade their systems with technologies that would reduce emissions from the ships. However, in the present scenario, it is difficult to replace equipments and machinery in the existing old ships with the new environment friendly equipments and machinery. Ships operating as commercial ships have very robust equipments and machinery which do not require replacement in their lifetime, and owners primarily operate with commercial motives. Hence they would not undertake replacement of their existing equipments and machinery just for environmental causes. However, there are a few add-on systems which could be added to the existing systems and which could help reduce emissions from the ships. Air pollution is mostly generated by engines running on Heavy Fuel Oil (HFO); diesel engines have lesser degree of pollutants. Increasing age of fleet opens up new opportunities for technology intensive Norwegian firms in India. Ageing fleet can have environment friendly technologies installed on them which will mitigate the incremental operating cost due to ageing of the fleet. With the increase in the age of fleet, the equipments and machinery

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have received substantial wear and tear. This leads to the reduction in the output of the engines to the tune of 5% to 10%. It also increases emission of environmentally hazardous exhaust. The Indian shipping industry in the present stage has not been so proactive in embracing the use of environment friendly technologies. The industry has accepted and implemented all the technologies and practices which have become mandatory to be used in the ships. There is large scope for voluntary use of some of the technologies that are friendly to environment and also help in bringing down the operating and maintenance cost of ship. However, the ship owners, in general, are not ready to try the newer technologies unless they find visible and tangible benefits of using them. The primary reason for this is the cyclicity of the shipping industry. Shipping companies 1st tend to expand to newer fleet and sometimes diversify on the gains they make from high charter rates. Rest of the time they try to make their ends meet. This does not leave much room for them to try newer technologies. Most of the companies are conservative in their approach. However, they implement every system and process which has been accepted internationally and has been made legally binding on them. In such a scenario, it will be essential for the Norwegian service providers to first spread the awareness of the economic benefits of using these technologies, before actually selling these to them. In the present competitive environment, the 2nd deterrent factor in the use of environment friendly systems and technologies in the Indian shipping industry is the outsourcing of technical management of ships. A large number of shipping companies, in order to minimize the operating cost of their ships, outsource the technical management of ships to some 3rd party, predominantly called Technical managers. The technical managers optimize the fleet taken from various owners, reducing overall cost involved in the technical management of ships. All decision related to repair and maintenance of ship is undertaken by the technical managers. As these technical managers work against a fixed fee for maintenance of ships, their main objective is to save cost by implementing bare minimum requirement specified on the rule book of classification society or statutory body. This becomes the biggest deterrent for the use of environment friendly technology.

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2.5. Ships with HFO propulsion

Cargo carriers with more than 20,000 DWT contribute more to environment pollution. These ships mostly use Heavy Fuel Oil as their fuel for propulsion. For higher capacity, this is also sometimes used as Generators. India has close to 300 cargo ships which burn Heavy Fuel Oil. They all are registered under DG shipping and operate under Indian flag. Out of these 300 ships, about 20% which is close to 65 ships uses High Viscosity Fuel, the rest use Heavy Fuel oil for propulsion. There is a substantial number of fleet which is ageing. Increasing environmental concerns due to frequent accidents involving old ships in Indian waters and rising operating cost and downtime have forced the ship owners to explore potential opportunities to undertake newbuilding of fleet and scrap aged fleet. Moreover, several companies which have no choice but to run the ship are looking for products and technologies which can bring down their cost of operation. Figure 2-2 Medium and large ships with Heavy Fuel oil propulsion (March 2010)

The chart above shows the broad breakup of the different types of medium and large cargo ships by their age. As can be seen in the chart, 108 ships out of the total of 294 ships are more than 25 years of age, constituting more than 30% of the fleet. Dry bulk carrier followed by petroleum products carrier dominates the ageing fleet. In the drybulk segment, Essar Shipping, Radiant Shipping, Good Earth, Five Star Bulk Carriers, etc. are some of the companies owning older tonnage. This old ship segment in drybulk is a fragmented market; therefore there are several owners with one ship fleet. The product tanker segment has 26 ships of more than 25 years of age. Some of the owners of these ships are Great Eastern which has 6 tankers, Shipping Corporation and Mercator lines which has 4 tankers each, and the rest 12 product tankers are distributed among the 9 shipping companies. Out of the total 75 vessels of above 25 years of age, 19 are crude oil carriers with 13 belonging to Shipping Corporation of India.

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Shipping Corporation of India is owned by Government of India. The company has Navaratan Status, which provides it partial autonomy in financial and operational decision. Still, being government body it would be difficult for the company to undertake innovative decisions with the flexibility a private firm can take. Hence, it is less likely that the shipping corporation of India would consider any out of the box proposals related to environment friendly systems and technologies. Ships falling in the age group of 10 years to 19 years could also be targeted with the environment friendly technologies and services. The possibility of acceptance of these technologies by ships falling in this age group is higher compared to older vessels. These ships are relatively young; hence the owners would not be concerned even if the payback period is longer. One of the reasons for poor acceptance of environment friendly technology is that the ship owners look for immediate tangible benefits of their investment. There could be instances, when the outcome of the investment is visible immediately. Some of the investments show economic benefits gained due to these investments in the long run. It becomes difficult to convince the ship owner to invest on technology and system. Overseas shipping is very cyclical; there is a wide fluctuation in the charter rates and in the earnings for the shipping company. In such a scenario, solutions which have been proved to reduce operating costs have more chances of acceptance. Norwegian service providers, especially ones undertaking propeller maintenance, hull maintenance, engine and other machinery maintenance, could approach companies with older fleet to provide environment friendly technologies and systems. Older machinery needs to upgrade their performance to meet the latest CO2 and NOx norms. These companies would be willing to evaluate technology which would help conserve exhaust to be reused. The ship owners in India are price sensitive; the value for money takes priority over environment. The environment friendly technology either needs to be enforced through international or local laws.

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2.6. Diesel propelled ships

Marine Diesel Oil propelled ships generate less pollutant in the form of exhaust from the ships. The sulphur content in the MDO used in the cargo ships operating in the coastal waters emits less than 30% of pollutants compared to the ships operating on the HFO. For newer ships which have been delivered in the recent past with less than 10 years of age, the extent of pollution is far less. However, ships which are older do not have engines with requisite technology which enable more efficiency and lower emission to environment. This opens up opportunities for technology providers to the Indian market. distribution of close to 700 ships of various categories operating in India. Figure 2-3 Age profile of ships operating in India (March 2010) Following chart shows the age

30 to <35 7%

> 35 9%

< 5 Yr 24%

25 to <30 16% 5 to <10 17% 20 to <25 6% 15 to <20 8% 10 to <15 13%

Source: Mantrana Maritime Advisory

The willingness to adopt environment friendly technology by shipowners would be a function of the economic state of the ships. Ship which are in higher power segment command high charter rates, are more willing to undertake better upkeep of the ship and are also willing to implement technologies and systems which can reduce emission and improve their performance. Such ships could evaluate installing additional equipments which could improve their performance or undertake minor modifications after undertaking cost benefit analysis. The approval of ship owner to undertake modifications to its machinery and system would be in consultation with the OEM and the classification society. For India, Indian Register of Shipping plays role of statutory authority for all Indian flagged vessels. IRS will require undertaking type approval of all the equipments and machinery which would go on board ship. Hence, the Norwegian equipment supplier would 1st have to get registered and type approved with the Indian Register of Shipping. If the equipments have been accepted and approved by any of the IACS (International Association of Classification Society), the type approval with IRS becomes simpler.

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Following figure shows the distribution of engines by the power and make. Figure 2-4 Manufacturer distribution of diesel propelled ships (March 2010)

Daihatsu MTU Greaves 3% 3% 3% Yanmar 6% Wartsila Rolls 4% Royce 5% Niigata 4% MAN 4% Kirloskar 4% Cummins 29% Caterpillar 13%

Others 22%

Source: Mantrana Maritime Advisory

There are close to 700 ships with diesel propulsion registered with Indian registered of shipping. Most of these ships have twin screw propulsion. As a large number of these ships are old there exist opportunities for technology and other service providers to upgrade systems and install newer systems such as exhaust, boilers with technologies to conserve energy and also system which are environment friendly. As can be seen in the above chart on the right, there is a dominance of Cummins engine in the diesel engine segment. These engines are mostly for ships of less than 1000 KW engines. Cummins has its manufacturing units in India. They make engines which are very popular in small ships and barges. Most of these engines do not have latest technologies, etc. This is an opportunity segment for Norwegian technology providers which can tie-up with the engine manufacturer such as Cummins and upgrade their engines with latest technologies such as fuel injection, etc. Most of the ships using these engines operate in restricted waters. Unlike larger ships the environment guidelines are not there for such ships or even if they are present internationally, they may not be applicable in the local conditions. As can be seen in the charts below ships which fall in the power range of 1000 KW to 4000 KW fall mostly in the age range of 10 years to 29 years. There is close to 24% of ships less than 10 years of age. For environment friendly technology the service providers should consider ships which are more than 1000 KW of engines. These ships are capital intensive ships; they have high operating cost. Hence, the shipowner based on the economic benefits of the technology would be willing to undertake upgradation of equipments and machinery in this segment. The ship owners would also be able to accept environment friendly and efficient solution to hull and propeller maintenance. Figure 2-5 Market Share of Engines in the power range 1000 KW to 4000 KW (March 2010)

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Others 23%

Caterpillar 15% Cummins 5% Daihatsu 6%

Yanmar 17% Niigata 10% Rolls Royce 5%

MAN 4% MTU 5%

Wartsila 10%

In addition to the modification to the engines, Norwegian firms could provide modern rudder, propellers, etc to the ships which will enable increase in speed and reduce fuel consumption. Depending upon the cost benefit analysis, Norwegian firms should also pitch for changing system integrated equipments such as Turbo Charger with the engines. These equipments require huge investment and price sensitive ship owners may not be open to undertake extensive modification and refurbishment. However, if the economic benefits of such retrofit and new installation are proved, ship owner could agree to undertake investments. The chart below lists out the engine make for the ships less than 1000 KW. A very significant proportion, 55% of the total market share, is occupied by the Cummins engine for ships with less than 500KW. Owning such a large share of the propulsion segment, Cummins is a healthy prospect for any company looking to invest in the engine segment of Indian shipping industry. Figure 2-6 Market Share of Engines in the power less than 1000 KW (March 2010)

Others 18% Volvo Penta 2% MAN 2% Kirloskar 8%

Caterpillar 10%

Greaves 5%

Cummins 55%

As of now, Norwegians have no presence in the propulsion segment for smaller power engines. Therefore, entering into collaboration with Cummins would give them the visibility and the opportunity on Indian shore. Norwegian engine firms could provide their environmentally friendly technology for engines, such as electronic injection of fuel. Most of these ships operate in restricted waters; mostly in the coastal shipping, Page 29 of 104

movement of goods in harbour area, lighterage, etc. Unlike larger ships, environmental guidelines arent enforced on such small ships; at least not in the local conditions. Most of these ships were build using older standard design, and during the time when environmental impact wasnt much of a concern. So, in addition to modification or renewal of engines, Norwegians could even provide new concept of use of hull forms, propeller, rudder, etc. which will enable increase in speed and reduce fuel consumption. The next company that has a remotely mentionable share is Caterpillar; 10% of the total market share. So, its obvious that ship owners prefer engine of Cummins make more than any other available. So, setting up a deal with such a company would provide the Norwegians a hefty share in the market to provide their services and equipments. Ships with less than 1000 KW engines operate at relatively lower charter rates and lower utilization. There is less awareness and regulations compared to higher powered vessels. It is less likely that ships less than 1000 KW engines would undertake large investments for environment or efficiency. The chart below shows the distribution of the ship makers with more than 4000KW engine. Rolls Royce dominates this segment, with a 37% share in the total 4000KW diesel engine market, whereas the other three mentionable players have a meagre share in the same. About 40% of the total 4000KW diesel engine market has a very fragmented supplier base.

Caterpillar 11% Nohab Diesel 6% Others 40%

Rolls Royce 37% Wartsila 6%

The chart below shows the distribution of the ship makers with more than 4000KW engine. Rolls Royce dominates this segment, with a 37% share in the total 4000KW diesel engine market, whereas the other three mentionable players have a meagre share in the same. About 40% of the total 4000KW diesel engine market has a very fragmented supplier base.

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Getting into a tie-up with Rolls Royce will present the Norwegians the opportunity to supply their technicallyadept services and other auxiliary equipments that would supplement the engines efficiency, productivity, and a reduction in the overall fuel consumption. The ships that are catered by the fragmented segment of the market are very old, and are bound to either head for scrapping or overhauling. These old ships, again, present the opportunities for the Norwegians to provide new hull forms, propellers, rudders, etc. that would help elongate and improve the present engine lifespan of such ships.

2.1.1. Opportunities with newer Fleet

The newer fleet have the least chances of adopting technologies as a large number of these ships have engines which are fitted fuel efficient engines meeting regulatory guidelines. In ships with lower propulsion power segment, there is window for large improvement in the engine power and efficiency and lower emission from the engine. Figure 2-7 Engine manufacturer distribution of diesel propelled ships of less than 10 yrs age (March 2010)

Greaves 3% Yanmar 6% Wartsila 3% Rolls Royce 5% Niigata 6%

Others 15%

Caterpilla r 12%

Cummins 50%

Source: Mantrana Maritime Advisory

More than propulsion and machinery, the ships in this segment could undertake Hull maintenance, improvement of propeller efficiency, etc.

2.1.2. Mid life ships

Electronic fuel injection technology could be pitched for ships which are less than 20 years. A large number of owners in India operate their ships till the age of 30 yrs. Investing in environment friendly technology which would reduce their operating cost could commercially be attractive for ships which are less than 20 years of age as owners still have with them at least 10 years to recover investment.

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These ships could undertake modification to their engines such as introduction of electronic fuel injection, modification or replacement of turbo charger. These modifications would improve the performance of the engine and also reduce the extent of pollutants to environment.

Figure 2-8 Engine manufacturer distribution of diesel propelled ships of 10 to 20 yrs age (March 2010)

Others 15% Greaves 6%

Caterpilla r 16%

Yanmar 10% Cummins 32% Wartsila 10%

Rolls Royce Kirloskar 6% 5%

Source: Mantrana Maritime Advisory

Ship owners in the offshore supply vessels segment would be more open to use of environment friendly technology if it brings down their operating cost. Hence, service providers should target offshore companies and also tugs with large bollard pull. Companies which can be targeted in this segment for environment friendly and higher ship efficiency are ONGC, SCI, Great Offshore, Samson Maritime, Ocean Sparkle, etc. Most of these shipping firms have older fleet which would require performance improvement. The supplier base for engine is limited and hence would be easier for the Norwegian technology provider to work with the OEM and provide the solutions. In most of the cases, an OEM would not provide the mandate to work on the upgradation of their engines or other machinery. In such a scenario, the service providers success would depend upon the decision of the owner and the classification society.

2.1.3. Future opportunity for Newbuilding

As can be seen in the chart placed in the earlier sections, more than 38% of the total fleet of more than 1500 ships are more than 20 years of age. These ships include ocean going large cargo carrier, coastal ships and barges. All these ships were built 20 years ago when there were very few guidelines laid down to promote environment friendly technology. Hence, these ships are the major sources of pollution in the Indian shipping context. However,these ships are nearing the end of their economic life and owners may not agree to undertake major investments on them. The owners of these ships are using them, as these ships continue to earn revenue and there are no guidelines which bar them from operating in the Indian water. Page 32 of 104

Figure 2-9 Engine manufacturer distribution of diesel propelled ships of more than 20 yrs age (March 2010)
Daihatsu 6% Yanmar 5% Wartsila 2% Rolls Royce 5% Niigata 3%

MTU 5%

Caterpillar 13%

MAN 7% Kirloskar 7% Others 41%

Cummins 6%
Source: Mantrana Maritime Advisory

As can be seen in the chart above, ships with diesel engine propulsion with more than 20 years of age have fragmented suppliers base. A large number of models would not be in production in the present day. Many of the engine manufacturers have changed their brand name due to consolidation in the segment. Hence, it would be very difficult for the Norwegian technology providers to provide custom solution to the shipping industry. Less number of engines with fragmented supply base would not justify the scale for Norwegian technology suppliers to supply their products and services. Hence, this segment appears to be less promising to the Norwegian companies in India.

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3.

SHIPBUILDING & REPAIR INDUSTRY

3.1. Shipbuilding Industry in India

India has gained name in the recent past due to piling up of large number of newbuilding orders at the shipyards. However, the delivery schedule has not picked at the same pace as the newbuilding contracts were signed. There are several reasons associated with it. One of the major reasons for the delayed delivery has been the delay in the arrival of equipments and machinery from the suppliers which had been a global phenomenon. The other major reason for the delayed delivery is that the shipyards took more orders than what they could easily execute with the existing infrastructure. Most of the shipyards planned expansion of the existing facility or setup newbuilding yards, which they at later stage failed to keep the scheduled of the expansion plans. There were several reasons for delay in capacity addition; some of them are as follows: Delay in clearance from government for Greenfield Infrastructure Local protests and disruption including land issues Delay in arrival of equipments and machinery Poor planning on part of shipyards Poor implementation of planned infrastructure

ABG shipyards new infrastructure at Dahej and Bharati Shipyards new infrastructure at Mangalore are said to have taken more time in getting clearances than initially estimated. Moreover, Bharati Shipyard at Mangalore had received resistance from the local community; hence, it had to shift the proposed shipyard from Mangalore in Karnataka to Dhabol in Maharashtra. This has led to the planning and implementation of infrastructure at a different location. Moreover, as Bharati shipyard had bought the equipments and machinery of Swan Hunter shipyard to be installed at their Greenfield shipyard in India, there was a delay in the arrival of the dismantled equipments which caused delay in the commissioning of the shipyard. For ABG Shipyard, which had initially planned to setup two dry-docks capable of building capsize bulk carriers, later, changed its plans to installation of Synchrolift facility. This led to a change in the plan and design of the infrastructure. The latest equipments and shipyard commissioning took time. Several other shipyards such as Pipavav Shipyard, Tebma Shipyard and Alcock Shipyard faced newbuilding order cancellations due to delayed delivery. The work practices and the technology adopted for newbuilding of ships are not enough to match the required pace of construction which will allow shipyards to complete the ships on building berth on time. This is one area of opportunities for Norwegian firm, where technology and work practices need to be customised to Indian conditions. This would help local shipyards in India achieve faster turnaround from their shipyards.

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The shipbuilding industry in India needs support on productivity improvement at all levels. The growth to Indian shipbuilding, especially private sector shipyards, has been market driven. Due sudden demand for ships and boom in shipbuilding, newbuilding orders flew to Indian shipyards. The shipyards followed the suit and developed infrastructure and expand their resources to undertake newbuilding of new orders. The time frame of this growth achievement has been very short, unlike other countries such as South Korea, Europe, etc. Hence, the growth of the industry has not been as organised as in case of other counter parts. Since the year 2002 the shipyards in India has been moving up the value chain with building more sophisticated ships. If one considers the case of two shipyards namely Bharati Shipyard and ABG shipyard, both the shipyards had been building ships of the value US$ 12 million to US$ 15 million in the year 2004. However, in the 2006 and 2007 both the companies got orders for US$ 180 mn offshore jackup rigs. The transition from a shipyard building ships of the value US$ 15 mn to US$ 180 mn has been very fast. In both scenarios the way to execute project, the process for higher of equipments and machinery, financial management are far different. As the companies migrated to such large segments in very short period of time, they appear not to have learned the actual process of handling large projects. This leads to delays, as the shipyard is not able to scaleup its execution and other management capabilities. Table 3-1 Financial growth of Shipyards in India (INR mn) 200102 ABG Shipyard Bharati Shipyard 485 200203 2,145 200304 2,743 200405 3,473 200506 5,493 200607 7,044 200708 9,668 200809 14,122 2009-10 8yr CAGR

18,124

57%

594

611

1,217

1,793

2,600

4,250

7,017

9,340

13,484

48%

There has been little scope of training to the middle and senior management. Workers have been trained to an extent to handle shop floor activities. However, there was no time and infrastructure available to train the middle management and senior management personnel. Persons who were building tugs and barges as project manager, in the absence of manpower were given the task to handle projects of building sophisticated offshore vessels. A tug would cost roughly US$ 6 mn and a barge would cost about US$ 1.5 mn, however offshore vessels could cost anything between US$ 15 mn to US$ 70 mn. In the absence of smooth transition both at the middle management level and senior management level, it could be difficult to develop at par expertise with the established shipbuilding countries or shipyards. This is on big opportunity, where Norwegian firms could hand hold Indian companies in training them with the best practices and improving their productivity across all levels. . Shipbuilding industry is a specialised and customised industry. Due to its nature it cannot be automated beyond a certain limit. Unlike automobile or any other light engineering industry where an assembly line can be created which can generate output irrespective of location, every ship at building stage is a new project

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with wide range of variables. This requires meticulous planning and implementation. The knowledge base of managers and skill set of workers play a very important role in the output. Several shipyards in India at various stages have taken help of external experts in planning their shipyards and adopting state of the art work practices. Most of them have achieved partial success in the venture. Following table is a compilation of the shipyards and their designers who played key role in the planning of shipyard at various stages. This would provide insights which will enable Norwegian firms to arrive at optimum solutions which are best suited to the Indian standards and conditions. Table 3-2 International Designers and the shipyards they designed in India Name of Shipyard ABG Shipyard Bharati Shipyard Cochin Shipyard Garden Reach Shipbuilders & Engineers Goa Shipyard Pipavav Shipyard Tebma Shipyard Source: Mantrana Maritime Advisory The selection of equipments and level of automation to be adopted by the shipyards in India should be designed and planned looking at Indian conditions. It should also factor in the environmental conditions and the cultural issues. Most of the shipyards listed above, despite being designed by worlds leading consultants have not been able to deliver the desired output because the design lacked customisation of systems and work process to Indian conditions. The unique advantage of India is moderately skilled work force with low cost. If the shipyard is planned in India with work process and automation similar to what are adopted by Havyyard of Norway or STX, it is less likely to generate desired results. The education, systems and environmental issues would restrict the firm from generating the level of productivity seen at STX or Havyard in Norway. Most of the shipyards believe that it would act to their disadvantage if they fully automate their shipyards to the level of Norwegian Shipyard or Japanese Shipyard. This would take away their advantage of being a low cost destination in the labour intensive shipbuilding industry. The shipyards in India have to adopt an optimum share of labour and technology to achieve high productivity. Mere employment of automation would increase the cost of production without increasing productivity from the shipyard. In such a scenario, the cost of building a supply vessel in India would become more than in Norway. Most of the shipyards as mentioned in the table above has not taken into consideration the local advantages and issues in India. This has led to less than desired results from the newer shipyards. A Norwegian designers and planners would have to customise their solutions to Indian conditions, and then only this will help them to achieve higher productivity. Most of the designers listed in the table above overlooked the local skill level. Location Dahej, Gujarat Dhabol, Maharashtra Cochin, Kerala Kolkata, West Bengal Goa Pipavav, Gujarat Malpe, Karnataka Designer First Marine International Limited First Marine International Limited Mitsubishi Appledore International Appledore International Appledore, KOMAC European Consultant

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All the large shipyards in India have been designed and implemented by experienced consultants of international repute, the technology and optimum automation level is already in place with the existing shipyards. However, there is an urgent need to integrate the latest technology with the skill set available locally. Norwegian firms could undertake improvement of work practices and skill set development leading to an increase in the productivity of the shipyards. The private sector shipyards in India, due to lack of infrastructure, had been employing manual methods of undertaking newbuilding till the year 2004. However, with the increase in newbuilding orders, most of the shipyards bought automated cutting and bending machines. Some of the shipyards began to use latest software such as Foran, Ship-constructor and Tribon for the design and detailed engineering of their ships. Acceptance of higher automation has led to increase in the productivity level at Indian shipyards to a certain extent. If one quantifies it, the time taken to fabricate 1 Ton of steel has come down from 300 man-hours to roughly 220 man-hours, close to increase in the productivity by roughly 25%. However, it is still low compared to the productivity levels found in the international shipyards based in Korea or China. The shipyards in India attribute the causes of low productivity to two main causes. Shipyards in India have been building ships in the specialised segment. The extent of automation is limited leading to lower per ton output from the Indian shipyards. With increase in the equipments and machinery and better interface between the workers and the automated machines, the output per person from the shipyard would increase, increasing productivity from the shipyards. The shipyards also believe that with the increased sizes of ships built at Indian shipyards most of shipbuilding yards in India have adopted automated cutting and bending machines. They also make use of extensive pre outfitting leading less man-hour spend in building ships, increasing productivity. In order to achieve the level of output and productivity similar to International shipyards, Indian shipyards have to work on several more fronts. The shipyards in India would have to increase the skill set available with the workers. These workers could be employees of the shipyard or they could also be on the payrolls of subcontractors working for the shipyard. It also has to increase the planning and execution capabilities of the management. This area opens up opportunities for Norwegian firms, which could design work practices at all fronts, namely detailed engineering, production planning, procurement, inventory management, etc. The Norwegian firms and shipyards have over the years developed technologies and work practices. However, these work practices needs to be customised to Indian conditions. Different shipyards at different locations face wide range of variables. For example, Tebma Shipyard located at Malpe is prone to heavy rains, whereas Dahej Shipyard of ABG is located at a very hot location. The summer temperature, at this yard, rises upto 40 degree. Hence, the infrastructure and work practices have to be designed accordingly. Workers working as welders, fitters, etc. are uneducated, in many cases even illiterate. The technology used at the shipyard has to be friendly for them to use.

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3.1.1. Opportunities with Proposed Shipbuilding & Repair Yard

Mumbai Port Trust has invited EOI for setting up two ship repair yards at Clarke Basin and Indira Docks in September 2009. With the proposal to close down existing dry-docks, MbPT would seriously pursue the current proposal of setting up new repair facilities. Ship repair is not the core focus of MbPT, hence the port trust will certainly not run the ship repair facility themselves. The trust would outsource the infrastructure to a 3rd party on a revenue sharing basis or on an outright lease rentals. Following table shows the list of companies that showed interest in Expression of Interest floated by Mumbai Port Trust. Table 3-3 List of Bidders for Mumbai Port Trust EOI (sep, 2009) Sr. No. 1 2 3 4 5 6 7 8 9 Name of Company M/s Jaisu Shipping Co Pvt Ltd M/s ABG Shipyard Ltd M/s Western India Shipyard M/s OM Metals Infraprojects Ltd (India) M/s West Coast Marine Yacht Services Pvt Ltd M/s Bharati Shipyard Ltd M/s Ava Marine Services Pvt ltd (India) M/s Bombay Marine Engineering Works Pvt Ltd M/s SKS Logistics Dry Dock Slipway

Source: Mumbai Port Trust

All the above listed companies have expressed interest in leasing the facility offered by Mumbai Port Trust. This opens up opportunities for the Norwegian shipyard and ship repair facility designers to join hands with the probable bidders to develop ship repair infrastructure in Mumbai region. There is also a possibility of Norwegian firms leasing the facilities jointly with the bidder to setup ship repair unit or it can as well advice the bidder in infrastructure planning for the proposed ship repair yard. Among the listed companies, ABG Shipyard and Bharati Shipyard are the biggest of all the bidders by financials capabilities and also have two large yards with no prior experience of repairing ships. Though ABG has a subsidiary, Western India shipyard undertaking full fledged ship repair activity in Goa, is still considering an independent bid for the Mumbai ship repair infrastructure. Jaisu shipping is the 3rd largest company. Rest all are comparatively smaller firms. Hence, it would be advantageous for the Norwegian firms to associate with the three above mentioned companies. In addition to the Mumbai Port Trust, Kandla Port Trust and Cochin Port Trust were evaluating the option of setting up ship repair infrastructure. Cochin Port Trust has given up its desire to develop ship repair infrastructure. However, Kandla Port Trust still is pursuing its plans to setup shipbuilding and repair infrastructure at a site in the vicinity of its ports premises. The port trust already has a floating dry-dock which is operated and managed by Jaisu Shipping. Jaisu undertakes repair and newbuilding of ports craft, their own dredgers and vessels owned by the 3rd party. This opens up opportunities for the Norwegian firms Page 38 of 104

in design of shipyard, planning layout and work process at the shipyard. Ship repair industry requires very high turnaround from their slipway or drydocks. The services offered in Indian conditions is not at par international standards for the following major two reasons Systems and processes at the ship repair yard is not designed adequately Lack of local ancillary

The expertise available with the Norwegian firms could help to mitigate the 1st drawback, by providing requisite inputs for the design and process management at the ship repair yard. However, the 2nd parameter would take time. However, there has been visible improvement seen in the recent years as several international OEM suppliers and 3rd party service providers have setup their workshops to assist Indian shiprepair Industry. Some of the example of these ventures is Goltens which has setup its workshop in Turbhe, Navi Mumbai. Rolls-Royce has setup its workshop and service centre at Turbhe in Navi Mumbai, Wartsila has setup a series of workshops at several ports in India. Wartsila has also taken drydock owned by Paradip port trust on a long lease of 5 years to be renewed again at the end of 5 years. With increasing local fleet and growing trade in the Indian subcontinent, the opportunities in the services sector are likely to increase with time. Service providers, especially SME should increase their presence by setting up workshops and service centre. Wartsila in the last 5 years has successfully setup 6 workshops and service centers and one shiprepair unit to repair ships upto 80 m of length.

3.1.2. New infrastructure plans of government

Government of India had proposed setting up 2 international sized shipyards each on the East and the west coast. It had given mandate to two ports namely Mumbai Port Trust and Tuticorin Port Trust to appoint consultants and plan development of two large scale shipyards one each on the East Coast and West Coast of India. However, the selection criteria of consultants were so strict and open ended that the consultants did not participate on the bid exercise. The proposed two shipyards are part of National Maritime Development Program (NMDP). The shipyards have to be setup through public private partnership (PPP). There was no interest from the private sector on the project due to high financial commitment requirement from the private partners. For these reasons, the government of India has, for the time being, put its shipbuilding plan on hold. However, the commercial shipyard owned by the Ministry of shipping namely Hindustan shipyard has been handed over to the ministry of defence and will be used for building ships for the Indian Navy. The shipping ministry is of the view of developing at least one Shipyard in lieu of Hindustan Shipyard which has been transferred to the Ministry of Defence. This could be a serious project by Ministry of Shipping, Government of India. This would generate interest for Norwegian firms which are involved in Shipyard design. It will also be beneficial to the shipyard equipments and machinery suppliers. Most of the equipments and machinery for the shipyards in India have been procured from Norwegian companies. ABG shipyard procured its shiplift

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facility from Norwegian firm; same is true for Indian Navys Karwar facility. The material handling equipments have been procured by ABG Shipyard from TTS, a Norwegian firm.

3.1.3. Private sector opportunities for Norwegian firms

Chowgule Ports and Infrastructure is developing an integrated port cum ship repair yard in Jaigad, Ratnagiri. The company is developing a ship repair yard with a shiplift facility. It will have six repair berths. It will have the capacity to lift ships up to 10,000 DWT. The project is likely to get operational by mid 2011. The project has received financial closure for the phase I of investment. It has also received environment clearance from the environment ministry, Government of India. Chowgule as a group has experience in the shipbuilding and ship repair space, as they have a full fledged shipyard in Goa. However, the Goa yard of Chowgule, undertakes construction of barges and other types of cargo vessels. These are mostly low technology intensive ships. The proposed ship repair yard of Chowgule at Jaigad in Maharastra is targeting offshore supply vessels and other marine assets used to support offshore drilling and production activity. Larsen and Toubro Shipbuilding, has earmarked around INR 1.5 billion to develop close 800 acres of land at Kadipully near Ennore in Chennai for setting up large shipyard. The Kadipully shipyard will also focus on building ships for Indian Navy, in addition to catering to commercial ship segment. This will be the second shipbuilding facility of L&T after Hazira. L&T has acquired about 1,200 acres of land there, of which 800 acres would be used for shipbuilding activities. It would make vessels of size 210 metres long and 46 metres in width

3.1.4. Environment friendly technology at Shipyards

Indian shipbuilding industry is dominated by international orders. For reasons, such as lack of infrastructure and unavailability of favourable delivery slot for new building of ships, several Indian owners have placed orders at the International shipyards. However, as the shipbuilding is a global industry and newbuilding orders flow beyond geographical boundaries, the loss of domestic newbuilding orders are compensated by the export orders. The shipyards use raw materials and work practices of international standards. All the equipments and materials used in the Indian shipyards are approved by the classification society and other regulatory bodies. In recent pasts, newer technologies have been introduced which increases the operational performance of ship. One of them is paints. The choice of using such technology or consumable items rests with the ship owners, as these features would benefit them in the long run. As these items are expensive, till the time owners specify the shipyard to use these items, it is commercially not possible on shipyards part to use such consumables. Majority of the orders placed on Indian shipyards are from European Shipowners. Most of these orders were won after fierce international competition. Some of the newbuilding deliveries are repeat orders, based on

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the track record of previous delivery. This could be considered as a good sign for technical expertise, delivery record at a competitive price by Indian Shipyard. However, the commercial terms and pricing of ships ordered at shipyards have scope for escalation. Hence, in general a yard does not take initiatives for adding additional items which are not provided in the specification of the ship and the cost of adding such items have not been factored during the costing of the ship. The newbuilding orders won by the shipyards in India are after tough competition with the shipyards in China, Vietnam and Europe. The pricing of the ships has no scope for price escalation. The margins in the newbuilding activity are very thin. In such a scenario, if the shipyard starts using raw materials which have 15% to 20% higher price, the cost of producing ship increases. In the present competitive scenario, it is difficult to accommodate any additional feature during newbuilding. The materials and consumables used during new construction of ships are approved by the IMO and other regulatory bodies. Newer innovations have led to the production of environment friendly products like paints, panels etc. which can be used during construction. A ship owner asks for lowest price and earliest delivery from the shipyard. It provides the specification. Till the time, the owner has not specified to use environment friendly raw material in the ship, a shipyard uses materials and consumables which have been approved by the regulatory bodies and classification societies. The following figure shows the geographical distribution of owners, who have placed newbuilding orders at the Indian Shipyards. As can be seen in the map below, majority of the newbuilding orders have come from the ship owners based out of European countries, which are environment conscious and have very high environmental standards on their ships. Figure 3-1 Geographical location of owners placing orders at Indian Shipyards

Source: Mantrana Research

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Indian shipyards have built offshore supply vessels for leading offshore companies such as Deep Sea Supply, Bourbon Offshore, Lamnalco Group, Halul offshore, Maridrive oil, etc. Hence the shipyards are willing to provide additional technologies in the ship, which would provide cost savings during regular operations of ships, if the owner specifies and pays for the added equipment and technology. Presently, the shipyards in India install latest approved equipments and machinery. The technologies adopted and installed on the ships are approved by the regulatory bodies and also comply with the local regulations prevailing in the region ships are desired to operate. Any additional requirement by the ship-owner would be implemented by the shipyard; however, it should be specified in the technical specification of the ship.

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3.2. Orderbook Scenario at Indian Shipyard

India has emerged as one of the leading shipbuilding countries in the recent past. The shipyards in India had aggressively expanded their infrastructure in the recent boom. The existing private sector shipyards such as ABG Shipyard and Bharati Shipyard have setup Greenfield infrastructure at newer location, which would focus on building medium and large ships. Both the shipyards have upgraded their target newbuilding product segments from building ships upto 20,000 DWT to building ships of more than 100,000 DWT and also building specialised rigs. There have also been new entrants in the Indian shipbuilding sectors both in the large as well as in the smaller vessel segment. Following table describes the distribution of newbuilding orders at the Indian Shipyards. Table 3-4 Orderbook estimates of Indian Shipyards by Ship type (march, 2010) Category No Offshore (Oil & Gas) Cargo Navy Others Total 25 13 19 2 59 Domestic Rs bn 50 18 12 7 87 No 43 77 0 9 129 Export Rs bn 40 93 0 15 148 No 68 90 19 10 188 Total Rs bn 90 111 11 22 235

Figure 3-2 Breakup of Newbuilding order book at Indian Shipyard

Navy 5%

Others 9% Offshore (Oil & Gas) 39%

Cargo 47%

Cargo carriers, especially the bulk segment, and ships catering to the offshore oil and gas segment dominate the newbuilding orders of Indian shipyards. All of the orders placed to the Indian shipyards in cargo segment are bulk carriers. All the bulk carriers ordered at the Indian shipyards were contracted in the year 2007. Not much progress has happened since then. These newbuilding orders were placed at Indian shipyards in the year 2006 to 2008. Very few ships have been delivered from by Cochin Shipyard and Hindustan Shipyard.

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Cochin Shipyard delivered all its newbuilding orderbook for cargo carriers and stopped taking new orders. However, Hindstan shipyard still has about 5 bulk carriers to be built. The company has been taken over by the Ministry of Defence and is not likely to undertake newbuilding of commercial ships in future. Other shipyards which have orders for building cargo vessels are ABG Shipyard, Bharati Shipyard and Pipavav Shipyard. ABG shipyard is building ships for Essar Shipping.,

3.1.1. Existing Contracts

Indian shipyards have close to 188 ships on the order book. The following chart shows the contractual and shiptype break up of the orders signed at the Indian shipbuilding yards. Figure 3-3 Ships on order at Indian shipyards in the order of contracts signed
120 100 80 60 40 20 0 2005 AHT AHTS 2006 Bulk 2007 MPP MSV 2008 PSV 2009 Offshore 2010 Others

As can be seen in the chart above, 2007 was the peak year for newbuilding orders flow to the domestic shipyards in India. The majority of the newbuilding orders were bulk carriers. For the 1st half of 2008, contracts were signed with the Indian shipyards. Later there were no new orders placed at Indian shipyards due to slow down effect. However, in the year 2009, orders began to flow to shipyards in India. Most of these new orders were newbuilding orders placed by government owned shipyards. In the year 2009, ONGC placed newbuilding orders to built 12 supply vessels to the Pipavav Shipyard. Shipping Corporation placed orders for building 4 supply vessels to Cochin shipyard on nomination basis. For the first time in 2010, newbuilding orders for commercial ships were placed at the ABG Shipyard. Associated bulk carriers placed newbuilding orders for 3 cement carriers to ABG Shipyard. These cement carriers are on long term charters to Ultratech Cement in India. Shipping Corporation of India is likely to undertake large scale expansion program and would be placing newbuilding orders at various shipyards. In addition, Greatship India limited is likely to raise funds through IPO. This will be used for expansion of their fleet.

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3.1.2. Delivery scenario at Indian Shipyard

Shipyards in India had booked newbuilding orders aggressively during boom time. The orderbooks of the existing shipyards were 6 to 10 times their turnover. Most of the shipyards had signed contracts for building vessels from their Greenfield capacity expansion yards. However, due to various reasons most of the shipyards expansion planned are running behind schedules. This has also impacted the delivery schedules of these shipyards. The shipbuilding orders at Indian shipyards had substantial share of newbuilding of ships in the offshore supply vessels segment. The recent downturn did not affect OSV segment as severely as it hit the cargo, especially the bulk carrier segment. Hence, there were instances of cancellation on account of delayed delivery. However, cancellations from Indian shipyards were less compared to the cancellation at shipyards located in other countries. Figure 3-4 Delivery from Indian Shipyards since 2007
35 30 25 20 15 10 5 0 2007 AHTS Bulk 2008 MPP MSV 2009 PSV Others 2010

The shipyards in India have not received new orders in the bulk segment neither have they delivered any of the existing bulk carrier orders in last 2 years. Going forward the delivery trend of the existing contract would provide guidance for newbuilding order in the segment. Despite orders from the international players, domestic companies are still looking to foreign shipyards for building their ships. Cochin Shipyard has been an exception, and has delivered all its bulk carrier orders to clipper group. It is also delivering offshore vessels order on time.

3.1.3. Post Slowdown effect

The newbuilding orders have moved at a very slow pace since the beginning of 2009. Very few contracts have been signed, mostly by the government owned agencies. Following are the orders that major shipyards have received since Jan 09

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ABG Shipyard has received orders for building 3 numbers Cement carrier of 20,000 DWT. These cement carriers have been ordered by Associated Cement, which has long term contract for charter hire of these ships to Ultratech cement on bareboat in India. Cochin Shipyard has received newbuilding orders for building 2 number offshore supply vessels from Shipping Corporation of India. Both the orders have been placed to Cochin Shipyard on nomination basis. Cochin Shipyard is likely to raise funds for expansion through IPO route. Government owned companies such as Shipping Corporation could place newbuilding orders for more ships to the shipyard to increase valuation. L&T Shipyard has received orders for building 20 number offshore patrol vessels from Indian Coast Guard. The order is being disputed by Cochin Shipyard. Cochin Shipyard is claiming the orders, which may go to Cochin Shipyard. Pipavav Shipyard has setup largest drydock in India. The company has received newbuilding orders from ONGC for building 12 offshore vessels in sept 2009. All the orders have been won at a price of INR 5240 mn (roughly US$ 120 mn). In the present market, the price quoted by Pipavav Shipyard appears to be an act of heavily under quoting. ONGC distributed tenders to the selected party, who were eligible to bid for the project, it is not confirmed whether these ships have Dynamic Positioning System or not. Wartsila ship design is supplying the complete design package. Apart from the ONGC offshore vessels order, the media reports have also mentioned newbuilding orders worth INR 2.6 billion to Pipavav shipyard from Indian Navy.

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3.3. Profiling of Shipyard & Opportunities for Norwegians

This section describes the opportunities for Norwegian firms in wide range of activity. There are opportunities associated with the Indian shipyards from supply of equipments and machinery to infrastructure planning. Apart from supply of equipments and machinery, Norwegian firms could also invest in Indian shipyards as some of the shipyards are looking to raise equity stake to expand and scale-up their infrastructure from strategic investors. Most of these shipyards have fairly low valuation and come for relatively lower price. It could be a good opportunity for Norwegian firm to buy stakes in these companies, which are at the growth phase. Moreover, having a local presence in the shipbuilding segment would increase the likelihood of getting newbuilding orders, especially from Navy and Coast guard which are insisting on the indigenisation of the equipments, materials and selection of shipyards locally for newbuilding of naval orders. Table 3-5 Infrastructure plans and contracts in hand (Indian Shipyards)
SL Name Location Capacity DWT Existing 20,000 12,000 20,000 8,000 110,000 70,000 12,000 NA 6,000 Expansion 120,000 NA 100,000 NA Small Ship NA NA 300,000 NA Orderbook (Rs billion) Domestic 49.4 8.6 14.2 0 2.9 6.8 0 5.3 0 87.3 Export 50.7 0.9 27.9 2.7 5.5 0 14.8 35 10.5 148 Total 100.1 9.6 42.1 2.7 8.4 6.8 14.8 40.4 10.5 235.3

1 2 3 4 5 6 7 8 9

ABG Shipyard Alcock Shipyard Bharati Shipyard Chowgule & Co Cochin Shipyard Hindustan Shipyard Larsen & Toubro Pipavav Shipyard Tebma Shipyard Total

Hazira & Dahej, Gujarat Bhavnagar, Gujarat Mumbai, Ratnagiri(MH), Dhabol (MH), Goa Goa Cochin, Kerala Vizag, AP Hazira, Gujarat Pipavav, Gujarat Mangalore, Karnataka

Pipavav Shipyard has setup the largest shipyard in India, which can build ships upto 300,000 DWT. In addition, shipyards like Tebma Shipyard, Larsen & Toubro, Shoft Shipyard, etc. are targeting to capture small and specialised ship market. With the increase in number of shipyards, other smaller and allied infrastructure has begun to develop by forming clusters in the region. Still, in the present scenario, the extent of import items to be fitted on ships built in India is quite high. With the increase of newbuilding activity and the increase in number of shipyards in the country, the local content in the newbuilding of ships are likely to increase further.

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Table 3-6 Existing infrastructures at major Indian Shipyards Shipyard ABG Shipyard Hazira Hazira Dahej Alcock Shipyard Bhavnagar Chanch Bharati Shipyard Ratnagiri Ghodbunder Goa Kolkata Dhabol Mangalore Chowgule Shipyard Cochin Shipyard Cochin Cochin Larsen & Toubro Pipavav Shipyard Shoft Shipyard Tebma Shipyard Hazira Pipavav Bharuch Malpe 662 x 65 115 x 25 210 x 21.5 255 x 43 x 9 270 x 45 x 12 120 x 22 Goa 220 x 20 x 3.5 220 x 20 155 x 40 200 x 18 100 x 17 80 x 18 120 x 22
Drydock being planned Floating Dock Dock of capacity 60,000 DWT planned supported by 2 construction bay Exploring setting up drydock of 100 m length New building Repair Slipway is existing & Shiplift is planned wet basin 680 x 65 to be converted in to drydock 3 slipway supported by 4 construction bay Shiplift is planned 4 berths

Location

Drydock/Shiplift

Slipway (mxm)

Comments

4500 T - Shiplift 155 x 30 x 7.5 33,000 T - Shiplift 85 x 20 122 x 22 x 4.5

18 building berth

12 ships

Not functional due to heavy siltation up 20,000 DWT

The largest shipyard in private sector, ABG Shipyard, has a yard in Hazira with a shiplift of 4500T capacity, and the yard houses 18 building berths. ABGs yard in Dahej has a shiplift capacity of 33,000T. The yard is capable of building 12 ships at a time. Alcock Shipyard in Bhavnagar hasnt been operational due to heavy siltation. Its yard in Chanch, however, can undertake new-builds of 20,000 DWT. Bharati Shipyard has planned a shiplift at its Ranagiri asset and a drydock at its Kolkata yard. It has a floating dock at its Dhabol yard. Cochin shipyard is exploring the possibilities of setting up a 100m drydock. The yard takes new-building as well as repair activities. Larsen & Toubro (L&T) has a slipway in its Hazira yard, and is planning to set up a shiplift, too. Pipavav Shipyard is planning to convert its wet basin into a drydock. Shoft Shipyard in Bharuch has 3 slipways. While Chowgule Shipyard in Goa is supported by 2 construction bays, Tebma Shipyard in Malpe is supported by 4 construction bays. Page 48 of 104

There are opportunities from planning and constructions of the scheduled shipyard expansions, to entering into a deal with these yards and provide them the technological expertise in new-building and repair activities. Moreover, supply of equipments and machineries is also an area where Norwegian firms could do business with the Indian ship-building industry.

3.1.1. ABG Shipyard

ABG Shipyard is the largest shipyard in the private sector. Though, Pipavav shipyard has developed largest drydock, ABG is larger interms of execution capability, delivery, turnover and orderbook. The company has two yards, one is at Magadalla and other is at Greenfield site at Dahej, which is in the advanced stage of commissioning. ABG Shipyard has also taken over Vipul shipyard located adjacent to its yard at Magdalla. The enhanced capacity would be used for building ships in the offshore supply vessels segment. ABG is setting up ship-lift facility for its Dahej unit; this would be the largest ship-lift in India. The shiplift system is being jointly developed by the TTS and Rolls-Royce. The shiplift has a lifting capacity of 33,000 tonnes. The shipyard is located in a high tidal zone. Itt faces a tidal variation of 13 m to 15 m. This provides a concern for the shipyard as it increases the soil erosion increasing marine infrastructure development and maintenance cost. The Dahej shipyard is spread over 165 acres with 1000 m water front. It has a capacity to build 12 Bulk carriers and about 10 ships of smaller capacity such as offshore vessels, tugs, etc. from its Dahej shipyard. ABG shipyard has faced a few cancellations in the offshore segment. However, the group also has a shipping company. The cancelled ships have been transferred to the books of the shipping company. Hence, the newbuilding schedule of ABG shipyard would not alter to a large extent. The company may continue to build the ships in the segment which can be traded once the economic outlook and offshore services market improves or it can as well charter these ships through their sister concerns. ABG aggressively wants to enter offshore drilling rig building market. Essar oil fields service has ordered two Jackup rigs on ABG shipyard. ABG has bought Western India Shipyard which is the only private yard in India capable of rig repairs.

3.1.2. Alcock Ashdown Shipyard

Alcock Shipyard is owned by the Government of Gujarat. This is the only shipyard outside the control of Ministry of Defence - Government of India, which has the license to build ships for the Indian Navy. The shipyard also has another unique advantage. It has the capability to build FRP boats. It has the largest FRP boat building facility in India. The facility was completely damaged during the Earth Quake of 2002. It could not be completely restored to its previous state. The shipyard provides wide opportunities for the Norwegian firms. The FRP unit can be refurbished and can be used to build passenger crafts and fast boats to be used for coastal security.

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The shipyard is capable of building all types of steel vessels of ocean going / inland / coastal class and Fiber Glass Reinforced Plastic (FRP) boats. The manufacturing units of the Company are located at Bhavnagar and Chanch in Amreli district of Gujarat state. The Company is engaged in the design and manufacture of FRP boats and steel ships upto 12,000 DWT. With the rising requirement for ships in the coast guard and coastal police due to security concerns at Mumbai, the demand for FRP boats has increased. It is likely to increase further in future. Hence, forming a tieup with Alcock Shipyard to manufacture boats opens up huge opportunities, which can be capitalised by the Norwegian firms. The shipyard is primarily into shipbuilding, but has developed the facilities that can be used for the repair of ships upto 20,000 DWT. The yard was declared for disinvestment in the year 2005 and 2007, though it did not take place as the bidders price quote was less than the reserve price set by the Government. Alcock Ashdown caters to the lower and middle segment needs of fleet owners, designs and builds seagoing grade steel vessels for various purposes as well as inland and coastal ships and boats in steel or fibrereinforced plastics (FRP). The shipyards proximity to Mumbai Offshore and the international Gulf-bound shipping routes makes Alcock Ashdowns shipyards ideal for offshore support, fabrication, ship repair or new construction. The outfit jetty has a depth of 4.5 m and can build multi-purpose cargo and passenger ships of up to 20,000 tonne capacity, platform supply vessels, defence production ships, tugs and barges. Alcock shipyard had orders for tankers from Sea Tankers; the ships are cancelled due to delayed delivery. All the equipments and machinery for ships were ordered and most of them have arrived as well. However, as the orders are cancelled there is no major activity. The ships could be available at very cheap rates. A Norwegian firm in the segment could evaluate the possibility of acquiring them. The only risk associated with the transaction is that Alcock being a Government undertaking may face slow decision making.

3.1.3. Bharati Shipyard

Bharati Shipyard is one of the leading private sector shipyards in India. The shipyard is spread over four locations and additionally setting up Greenfield facility at two locations. Working at multiple locations with wide range of product segment is one of the major causes of poor productivity and delayed delivery from Bharati Shipyard. Bharati has taken over Great Offshore, Indias largest integrated offshore drilling and Logistics Company. There are potential opportunities for Norwegian service providers in planning and scheduling of construction at Bharati Shipyard. The shipyard would also require assistance on the material management, inventory control and minimising wastage from its shipyard.

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Bharati shipyard is working on project of building self propelled offshore jackup rig for Great Offshore. The rigs are delayed by more than a year. In addition to the existing six yards, Bharati shipyard jointly with Apeejay group is also setting up a new yard in Bengal. The shipyard faced opposition on the land issue from the locals. Hence, it is currently looking for alternate site in West Bengal and Orissa.

3.1.4. Cochin Shipyard

Cochin Shipyard has got new building order for aircraft carrier. This has occupied large portion of the shipyard capacity. Though the scheduled delivery of the aircraft carrier was 2012, as Cochin shipyard is building an aircraft carrier for the 1st time with multi party technical assistance it could take 2 to 3 years more to deliver the boat than the planned delivery date. Hence, the shipyard drydock is occupied for a longer time. Cochin Shipyard in order to increase the utilization of its shipyard has begun building supply vessels in order to utilize the spare capacity arising due to new building of Air Craft Carrier and has done fairly well. It has delivered ships in time. The Company has an MOU with Tebma Shipyard to build specialized ships in offshore segment jointly. In order to scale up the success of building smaller vessels, Cochin Shipyard is planning to set up a small ship division which will be having the required infrastructure for building small and specialized ships in the offshore segment. The company is planning to raise fund from the public to fund its expansion. It would be good opportunity for the Norwegian firms to capitalise in the planning, supply of equipments and materials for the shipyard. Due to the ongoing newbuilding activity in the offshore segment, there is already a dominance of equipments and suppliers.

3.1.5. L&T Shipyard

L&T has set up its ship building facility at its existing heavy engineering workshop at Hazira. L&T has got orders for building 12 heavy ships for various owners. L&T Shipyard in Hazira can build ships up to 120 Meter long L&T is also setting up an integrated Shipyard complex with a port facility for a total investment of about Rs.30 billion in the Kattupalli village, near Ennore in Tiruvallur District of Tamil Nadu. The shipyard will be spread over a land of 1200 acres and it will have a waterfront of 2 kms. Of 1200 acres of land area, 85 acres will be allocated for shipyard and 350 acres will be allocated for port. The complex will have close to 100 acres for engineering works and offshore fabrication yard. L&T has been awarded a contract by the Ministry of Defence for the design and construction of 36 High Speed Interceptor Boats for the Indian Coast Guard. The contract is valued at Rs 9.77 billion in March 2010. These ships will have aluminium-alloy hull construction with water jet propulsion.

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3.1.6. Pipavav Shipyard

Pipavav shipyard has built up the largest drydock, however till date it is yet to deliver its first ship to the owners from its yard. The newbuilding activity is delayed; several of its ships have entered into dispute with the owners. The shipyard has won projects under quoting for the job. The Offshore vessels ordered by ONGC have been signed by Pipavav shipyard at INR 5340 million (US$ 130 mn) for 12 vessels. This is much below market price for similar vessels. The bulk carrier orders were also signed at roughly 15% to 20% below market rate. The shipyard is now focussing on the newbuilding orders from Indian Navy.

3.1.7. Shoft Shipyard

Shoft shipyard is an upcoming shipyard in Bharuch, Gujarat. The company has small infrastructure spread over 35 acres. The company worked as a sub contractor to other shipyard. It has the capability to scale up its infrastructure to build 12 vessels up to 150 m length, 35 m breadth and a launching draft 4.5 m. However, currently the shipyards can simultaneously build 5 ships. In order to scale up infrastructure, Soft Shipyard is looking for a private equity investor, which would be able to bring on the table strategic values and long term growth perspective for the shipyards. Currently, the shipyard is building ships for Dolphin Offshore, SVS Marine, Goa Shipyard, etc. It is aggressively bidding for other upcoming projects in the commercial sector and also from the government. Norwegian shipping company, Shipyards or investors could evaluate Shoft for becoming equity partner in the shipyard.

3.1.8. Tebma Shipyard

Tebma Shipyard is an upcoming shipyard on the West Coast of India. The shipyard is located at Malpe, roughly around 80 kms away from Manglore in Karnataka. Tebma Shipyard is designed to build offshore supply vessels. It has an annual capacity of building ten offshore supply vessels. The Company has received orders from Trico Marine and DOF Management for building supply vessels at Malpe near Mangalore. The Design and Engineering is provided as package and supported by Wartsila Ship Design. The Company has its Head Office in Chennai. In addition to its recently built shipyard in Malpe, Tebma shipyard also has a small shipyard near Chennai port. It is spread over two acres of land. The shipyard is specialized in building tugs, river dredgers and other coastal vessels at its Chennai facility. But with the expiry of lease at Chennai port premises, Tebma has abundant this space and is focusing on new building activities at Malpe. In addition to this Malpe facility, Tebma shipyard has a workshop in Chennai, which is used for building pressure vessels to be fitted in supply vessels.

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3.4. Tax & Duties in Indian Shipbuilding

The government of India has waived of all the taxes and duties of ships. There are no taxes and duties applicable on the import of equipments, machinery, steel, etc. to be used for shipbuilding in India. On domestically purchased inputs for export sale of ships, refund is available on excise duty and VAT. If the ship is being built for a Norwegian owner, the duties such as excise and VAT charged on the locally procured items are refunded by the government. Government of India does not have different taxation policy on shipbuilding for different countries. The taxes levied on the ships ordered at Indian shipyards by Norwegian shipping companies would be at par with the taxes levied on any other exported ships. Even for the equipments and machinery, importing them from Norway or Norwegian suppliers does not add to any advantage on the taxation front.

3.1.1. Service Tax

With effect from 01 July 03, the Government of India has introduced levy of Service Tax on certain services, including Repair and Maintenance Services. Ship repair activities being included under Maintenance and Repair services fall under the purview of service tax. Further vide Finance Bill 2005 has amended the Service Tax Act to include all repair services under the head Maintenance & Repairs. With effect from 01-07-03, ship repair services may be granted specific exemption from the purview of Service Tax. If ship repair turnover in India is estimated at Rs 3 billion per annum, the taxable services are 40% of INR 3 billion, i.e. INR 1.20 billion. Thus, the service tax is @10.36% on INR 1.20 billion, i.e. INR 124 million.

3.1.2. Customs Duty

All the items imported for building ships indigenously are exempted from payment of Customs duty. Ships built from imported items from Norway are treated as ships imported, and the Customs Department levies Customs duty @ 5% on the ship built indigenously and delivered to Indian owners.. There are no custom duty levied on ships which are built for export. As per Notification No. 21/2006-Cus. Dated 28-02-2006) of Customs Act, customs duty is levied on capital goods imported for ship-building including renewals and replacements of yard facilities. However, customs duty is not levied on the imported capital goods from Norway for ship-repair activities in India.

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According to Section 65 (2) (a) & (b) of Customs Act, customs duty is also levied on the steel scrap generated during the construction of ocean going vessels which is valued at the price of parent materials if the vessels are not exported. Section 61 of Customs Act says that the imported items which are kept under customs bond, if not utilized within a specified time, 1 year in the case of shipbuilding and 90 days in the case of ship repair, for the purpose for which they have been imported are deboned, resulting in the payment of customs duty and interest which ends up in huge loss of the yard.

3.1.3. Excise Duty

As per section 5A(1) of Central Excise Act Notification No. 63/95-CE dated 16-03-95 as amended by Notification No. 62/2003-CE dated 31-07-2003, excise duty is levied on the capital goods required for construction of ships. Excise duty in India is levied @ 16.32% on yearly purchase of the capital goods.. However, capital goods for ship repair are exempted for levy of excise duty. According to section 5A (1) of Central Excise Act, Notification No. 82/84-CE dated 31-03-84 as amended by notification No. 35/2001-CE dated 29-06-01, all raw materials, components and capital goods procured for repair of ocean going vessels falling under chapter headings 89.01, 89.02, 89.04, 89.05 and 89.06 are exempted from Central Excise Duty vide Notification No. 82/84-CE dated 31-03-84 as amended by notification No. 35/2001-CE dated 29-06-01), provided procedures set out in Central Excise, i.e. removal of goods at Concessional Rate of Duty for manufacture of Excisable Goods, Rules, 2001 are followed.

3.1.4. Export sale of ships

On domestically purchased inputs for export sale of ships, refund is available on excise duty and VAT. If the ship is being built for a Norwegian owner, the duties such as excise and VAT charged on the locally procured items are refunded by the government. No excise duty is levied on the sale of ships outside of India. VAT is also not applicable on the sale of ships outside of India.

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3.5. Benchmark of economic Benefits of Shiprepair Company in India

Ship repair is a labour intensive industry. This section analyses the financial of the two shipyards with dedicated ship repair infrastructure. It has been found that in terms of operating profits, the ship repair activity is more rewarding than the ship business. Though the scale of ship repair may not be as high as the shipbuilding sector, the operating profit in the ship repair segment is higher compared to the ship building segment. Norwegian firms could evaluate this as a segment for sustained revenue and long term project. Ship repair is a quite lucrative segment with very few companies operating in the segment. Other than Cochin Shipyard and Western India Shipyard, there is no dedicated ship repair yard in India. There are some Ship repair yards in various stages of planning.

3.1.1. Cochin Shipyard

Cochin shipyard is the largest shipyard in India focusing both on the new building and repair of ships. The following table shows the consolidated and segment-wise reporting of Cochin Shipyard. Table 3-7 Analysis of the margins of Ship Repair Division of Cochin Shipyard (2008-09) Particulars Revenue Less: Expenses Employee Expenses Operational Expenses EBITA Interest and other charges Depreciation Provision for anticipated loss PBT Tax PAT
Source: Cochin Shipyard Annual report 2008-09

Consolidated Rs mn % Share 13,832 100% 1,485 9,044 3,303 190 107 559 2476 876 1,600 11% 65% 24% 1% 1% 4% 18% 6% 12%

Ship Repair Rs mn % Share 2,806 100% 800 29% -

9 21

0.3% 0.5%

The EBITA margin of the Cochin shipyard is 29%. The company has undertaken the refurbishment of offshore Jackup rig Sagar Kiran and Sagar Bhushan of ONGC. It also undertook the repair of INS Viraat, the lone aircraft carrier of the Indian Navy apart from other smaller repairs. The company has not reported the detailed break-up of the ship repair segment. However, under segment results the ship repair division of Cochin Shipyard achieved a turnover of Rs 3.8 billion and generated an operating profit of Rs 0.8 billion.

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Most of the ship repair orders which was taken by Cochin Shipyard are from the Government.. The requirement of opportunities in the segment is on a regular basis. In the absence of other suitable infrastructure in the vicinity, Cochin Shipyard preferably gets to repair Offshore Jackup rigs and Drillship owned by ONGC. This segment is quite promising for the Norwegian service providers as well as the equipment suppliers.

3.1.2. Western India Shipyard

Western India shipyard, located in Goa, is the largest private sector shipyard, exclusively undertaking repair and maintenance of ships. The following table analyses the financials of the Western India shipyard. Table 3-8: Analysis of the margins of Western India Shipyard (2008-09) Particulars Revenue Less: Expenses Employee Expenses Operational Expenses EBITA Interest Depreciation PBT Tax PAT
Source: Western India Shipyard Annual Report 2008-09

Rs mn 747 89 458 200 247 107 -254 1 -213

% Share 100% 12% 61% 27% 33% 14% -34% 0% -29%

Western India shipyard has been a loss-making entity since its inception and has defaulted on all its loans. The primary reason for the mounting losses of the company was the poor management of the company. With huge debts with them, Western India shipyard has been virtually in the hands of ICICI Bank. With the restructuring of the company, the loans were converted into equity, and the control of the company was taken over by ABG Shipyard. The financial performance of the company has begun to improve since then. Currently, the company posts an EBITA margin of 27%; however, its profit after tax is still negative due to very high interest burden on loans taken during its previous years of operation. The interest component of the previous loans of Western India Shipyard is close to 33% of its total revenue, which is very high but is an exceptional case of its kind. The interest component seen in the case of Western India Shipyard is not the industry trend. Though Western India shipyard has the infrastructure to repair ships up to 60,000 DWT, it extensively repairs ships in the offshore segment and other coastal segments. The operating profit of the company is a good indication of how profitable the ship repair industry could be in India.

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Ship repair is a good segment to be in for the Norwegian firms, either as fully fledged firm or as service providers for critical equipments and machinery.

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4.

COASTAL SHIPPING

Coastal Shipping refers to the movement of cargo via ships between different ports along the coastline of India. Ideally, the cost effective, energy efficient and environmental friendly nature, should make coastal shipping one of the most effective mode of transportation in India, which has more than 7,512 kms of coastline. Use of coastal shipping would not only bring down the cost of transportation, but also bring a significant reduction in the congestion on roads and railways. Despite the above mentioned advantages, coastal shipping In India, as compared to the European nations, is still in its nascent stage. Poor infrastructure facilities for loading and unloading cargo at ports, insufficient aid from the maritime states for the development of infrastructure for coastal shipping, poor road connectivity at the minor ports, lack of cargo generating centers at the hinterlands near the ports and such other disadvantages make the coastal shipping industry in India, lag far behind those of its Western counterparts. An analysis of the existing fleet owned and operated in India would give a very good understanding of the influence of coastal shipping in Indian conditions. Indian ports have cumulatively handled about 730 million tonnes of cargo., Of these more than 133 million tonnes are coastal. Hence, coastal shipping accounts for close to 18% of the total port traffic. Following chart shows the breakup of close to 130 million tonnes of Coastal movement of cargo on the Indian Coast. It can be seen in the chart that majority of the cargo moved on the ships using waterways is low value bulk cargo such as Iron ore, Coal, petroleum products, cement, etc. There is little share of clean or value added cargo in using coastal waterways for transportation. Unlike Europe where containerised and finished products dominated transportation using waterways, India waterways transportation is dominated by low value added products. Figure 4-1 commodity wise breakup of Coastal movement of cargo
Cement Others 6% 4%

Iron Ore + Pellet 17%

Pol + Crude 46%

Coal 27%

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As the contribution of value added cargo is small, so is the distribution of fleet for coastal movement of cargo. It is dominated by ships used for specialised services and ships which are used to carry low value cargo such as Coal, Iron Ore, etc. Following table shows the share of coastal ships in various categories.

Table 4-1 Fleet distribution of Indian Flagged ships in coastal waters

Indian Flagged Ships in Coastal waters Offshore Vessels Specialized Vessel Dredgers Tugs Product Tankers Bulk Carrier Crude Oil Carrier General Cargo Vessel Port & Maritime Trusts Passenger Ferries Others Total Coastal Vessels Source: DG Shipping Indias coastal fleet is dominated by ships which are used for services sector. As can be seen in the table above, the Indian coastal shipping fleet is dominated by ships which are used for services sector and not by ships which undertake coastal or cargo trade. Out of the 674 ships which have been licensed to operate in coastal waters, only 98 ships are actually cargo carriers and 83 are passenger ferries. Both constitute only 25% of the total fleet. The cumulative carrying capacity of General cargo coastal ships is less than 200,000 DWT. In terms of numbers, tugs and OSVs form a substantial proportion of the coastal fleet. On the other hand, bulk carriers, though small in number, make a dominant contribution to the overall GRT. These bulk carriers include chiefly, the thermal coal carriers operated by Poompuhar Shipping of Chennai that operate between Haldia/Paradip and Tuticorin. The tugs are engaged mainly in port operations and towage. Since the 1970s (when Bombay High Oil fields became operational) and 1980s (when exploratory drilling operations extended to a number of locations along the Indian coast), the OSVs have emerged as significant contributors to the coastal tonnage. With increasing oil prices and focus of government on Offshore Exploration and Production, demand for OSV has increased substantially. No 110 38 28 220 13 12 2 71 93 83 4 674

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At present, of the total coastal vessels registered with the DG Shipping, almost two-third of the vessels are non-cargo carrying vessels, and only one-third comprise the cargo carrying vessels. The mini bulk carriers transporting cargo like cement, clinkers, iron-ore, iron ore-fines, steel coils, finished iron, gypsum, salt, soda ash etc. form approximately half of the total of cargo carrying vessels.

4.1. Factors demoting popularity of Coastal Shipping in India

Despite its several advantages over the road and the rail modes of transportation, coastal shipping has still not been able to establish a base in the India transport infrastructure system for the reasons mentioned below: Bunker fuel oil used for a coastal vessel costs about 30% more than the bunker oil used for an oceangoing vessel. Coastal vessels, unlike those of the oceangoing vessels have to pay heavy duties on bunker oil. The diesel used in road transport, on the other hand, is highly subsidized. A lot of spares and parts of these coastal vessels have to be imported and they, thus, become highly dutiable. The imported spares can be exempted for taxes only when the ships are repaired in the ship repair units registered with the Director General of Shipping. Coastal vessels have to comply with the specifications of the oceangoing vessels even though they are not subject to the same level of turbulence. This unnecessarily increases the capital costs of coastal vessels and also the operating cost of the coastal vessels. This makes coastal shipping uncompetitive compared to the road and rail transportation. Manning scales, taxes, staff cost on Indian oceangoing vessels are higher than the foreign vessels. Also qualified officers prefer working in oceangoing vessels for the reward them with better remunerations. This makes coastal shipping an unattractive choice for knowledgeable and experienced manpower. Indian seafarers employed on foreign vessels or Indian vessels plying outside of Indian territorial waters for more than 183 days in a year are considered non residents and are not entitled to pay any taxes. Seafarers and officers employed on coastal vessels in India do not have the said advantage. Hence, it becomes tough to attract and retain talent in the coastal shipping. Moreover, companies have to pay additional wages and perks to bring the salary levels at par with the other segments of shipping. This increases the operating cost of running a ship and it renders coastal shipping less attractive. Major consumption centers in India are land locked. A large production base for domestic consumption of goods is based in landlocked regions, which are hundreds of kilometres away from the coast. Moving cargo using waterways is not a commercially viable option for them.

4.2. Container movement by Coastal Shipping

There are very few coastal shipping companies operating containerships. Due to low volume of cargo and poor capacity utilisation of ships, the segment has not been found to be very attractive for shipping

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companies. The market is operated by a very few players working on a very few dedicated routes for coastal movement of containers. Some of the shipping lines also touch the ports in Pakistan and Sri Lanka. Movement of containers on the East Coast and West Coast are more dominant. The coastal vessels mostly ply between different ports on the East Coast and also on the West Coast. However, due to the large distance factor and low volume of containers, the movement of containers between ports of East coast and west coast is restricted. The movement of containers by railways is preferred. Major container routes in India are as follows Mundra International Container Terminal Pipavav Port Trust - Jawaharlal Nehru Port Trust New Mangalore Port Trust - Cochin Port Trust Tuticorin Port Trust Cochin Port Trust Chennai Port Trust- Vizag Port Trust - Haldia Dock Complex- Vizag Port Trust Chennai Port Trust

There are very few companies which operate coastal container vessels in this segment. Some of them are Shreyas Shipping, Jindal Vector, Seaways Shipping, Gati, SKS Logistics, etc. Shreyas is one of the dominant players in the container coastal shipping segment. It owns a fleet of seven vessels and has a combined capacity of nearly 6000 TEUs, of which majority is deployed on the west coast of India. Jindal Vector is a new entrant in the sector. It entered the Indian coastal shipping market for moving containerised coastal shipping by acquiring 5 vessels. Seaway shipping has its dominance on the East Coast of India. It also provides reefer services. SKS Logistics operates 3 container vessels. Three of the vessels are 160 TEU vessels. Container ships of SKS ply between Mumbai Port and JNPT.

Table 4-2 Comparison of Coastal movement of Containers to total Port traffic

PORT Kolkata Haldia Paraip Vishakhapatna Chennai Tuticorin Cochin New Mangalore Mormugao Mumbai J. N. P. T Transhipment 0.299 0.127 0.002 0.074 0.603 0.089 0.211 0.027 0.014 0.000 0.153 Coastal 0.003 0.000 0.000 0.004 0.022 0.056 0.046 0.001 0.000 0.074 0.120 Destination 0.000 0.000 0.000 0.010 0.519 0.294 0.004 0.001 0.000 0.018 3.680 Total mn TEU 0.30 0.13 0.00 0.09 1.14 0.44 0.26 0.03 0.01 0.09 3.95 % share for Coastal 0.99% 0.00% 0.00% 4.55% 1.92% 12.76% 17.62% 3.45% 0.00% 80.43% 3.04%

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Kandla Total

0.043 1.642

0.019 0.345

0.075 4.601

0.14 6.588

13.87% 5.24%

As can be seen in the table above, the coastal movement of containers has over 5% share of the total container handled at major ports in India. Major ports handle close to 6.6 million tonnes of the total 8.0 million TEU of containers handled at the Indian ports. The The coastal movement of containers faces direct competition for the aggressively expanding railways network and operators in India. As a rule of thumb, for distance of less than 300 kms of container movement, roadways is preferred. For distance between 300 kms to 500 kms, the share of road and rail for containers movement is roughly in the ratio of 50%. However, for all distances of more than 500 kms, railways are the preferred mode of transporting containers. In the present scenario, the coastal movement of containers are viable only for the long distance movement of containers. The costal shipping of containers have to compete with railways which is increasing its infrastructure and also with the allotment of licenses to private players for operating container trains. The productivity of rail movement of containers is likely to increase further. Government is also mulling plans to initiate double stacked containers on the train which would double the capacity of the rail infrastructure used for movement of containers and would also bring down per TEU cost of moving containers. This would further make coastal movement of containers unattractive in India. Following is the list of some of the companies which has been awarded license to operate container train in India. Container Corporation of India Adani Logistics Boxtrans Logistics India Central Warehousing Corporation Container Rail Road Services Delhi Assam roadways Gateway Rail Freight Hind Terminal Pipavav Rail Corporation Reliance Infrastructure SICAL logistics

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As can be seen in the list above, the number of operators for containerised trains is more than that of the coastal shipping. The concept of coastal shipping for containers is quite old, but the private participation in the container trains have been initiated initially. Still, there is more enthusiasm among the developers on the container train than the coastal shipping. Container Corporation of India is the largest operator of container trains and containers. As can be seen in the table below, the share of containers moved by Container Corporation of India (CONCOR) is several times higher than the containers moved using coastal shipping, as shown in the table earlier.

Table 4-3 Share of rail movement by CONCOR for containers

Port Kolkata Haldia Paradip Visakhapatnam Chennai Tuticorin Cochin Mangalore Mormugao Mumbai JNPT Kandla Total Container Traffic (mn TEU) Port Traffic 0.30 0.13 0.00 0.09 1.14 0.44 0.26 0.03 0.01 0.09 3.95 0.14 6.59 Concor Traffic 0.02 0.00 0.00 0.01 0.10 0.01 0.01 0.00 0.00 0.00 0.97 0.01 1.13 5.61 0.95 0.00 11.19 8.49 1.67 3.75 0.00 0.00 0.36 24.66 8.20 17.10 % Share

As can be seen in the table above and comparing with the previous table, it clearly shows that rail movement by Indias largest container freight train operator CONCOR has more than 17.1% share in the containerised cargo whereas coastal shipping has only 5.24%. Other private operators all taken together would have a market share of about 5% in the rail movement of containers. Hence, rail share of container in India is roughly between 23% to 25%, whereas coastal shipping accounts for only 5% of the traffic. The railway is running beyond its capacity utilisation. It is difficult to find newer rakes for movement of containers using railways, whereas the coastal container ships are running under-utilised. A few of the ships were sold recently due to lack of volume in the segment.

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4.1.1. Opportunities for Coastal Container Shipping

As seen in the previous table 4.2, transhipment of container shave a major share in the Indias container trade. All major ports alone handled 6.88 million TEU of containers in the financial year 2008-09. Of these close to 1.69 mn TEU are the transhipment of container, which corresponds to close to 25 of the total container handled at the Major ports of India. Most of these containers go to Colombo, Singapore, Dubai, etc. for transhipment as these ports have deep drafts. Currently, large mainline container vessels do not call to container ports of India due to lower draft at these ports. An international container transhipment terminal at the southernmost state of India, Kerala, is being commissioned at a location called Vallardpadam. The adjoining states Karanatka and Andhra Pradesh would be the other beneficiaries of the container terminal as exim container for the region would directly reach them on road from the container terminal. However, long distance cargo especially ones originating from Mumbai and Maharastra region which currently uses JNPT as gateway port would find road movement uneconomical. Containers from ICTT Vallardpadam would adopt coastal movement to JNPT, from where it would be evacuated. With upcoming container terminal at Vallardpadam, large mainline vessels will call to International Container Transhipment Terminal (ICTT), Vallardpadam. This would enable shift of India bound containerised cargo, which are currently handled at the International container terminals such as Colombo, Singapore, etc. Most of this cargo generate from the land locked hinterland which uses major ports as gateway to ship its containers for transhipment to Colombo, Singapore, etc. The containers shifted to Vallardpadam international container transhipment terminal would require to be evacuated to their respective consumption centers. For distance of less than 300 km, road mode of movement would be preferred. However, for distances larger than 500 kms, there will be a competition between rail mode of transporting containers and coastal shipping. Containers which would be bound for central India and northern India would prefer coastal movement of containers, due to possible large volumes and economy of scale. A large number of containers would be required to be shipped to central and north India. There would be two modes of transport for the same. They are Coastal waterways and railways. Already, Vallardpadam has put up request to Ministry of shipping to relax cabotage law for hiring of foreign ships, which can be used to evacuate containers to other coastal cities and ports. Currently, Indian owners do not have enough number of domestic ships to evacuate containers from Vallardpadam to other ports in India. This opens up promising opportunities for Norwegian feeder operators for movement for coastal movement of containers on the Indian coast.

4.1.2. Reasons for poor penetration of containers for Indian coastal shipping
Most of the states in India are landlocked. Movement of containers is always to the consumption center as containers mostly carry finished products or low volume semi finished products which are transported to the factory for final assembly. As can be seen in the maps below, the high density population is located mostly in Page 64 of 104

the North and Central India. There is no seafront connectivity to these land locked regions in India as can be seen in the map on the right showing roadways of India. There have been large investments on improving the road and rail infrastructure across the country. The land locked region now has railways, State Highways, National Highways, expressways at relevant and high movement locations, Golden quadrangle, East West Corridor, North South Corridor. In addition, there are several new industrial corridors planned across the country with the investment of billions of dollars, to name a few Delhi Mumbai Industrial corridor, Freight corridor, etc. This is increasing the productivity divide between land movement of cargo and the coastal movement. Figure 4-2 Population density of India and the transportation connectivity

Coastal movement of finished products to the land locked regions in India requires concept of multi-model transport. This mode is quite successful in European countries as this requires meticulous planning, robust infrastructure and very high efficiency at the transition, wherever there is a change in the mode of transport such as changes from road to coastal or coastal to road or road to rail, etc. As can be seen in the map, the geographical location of countries is favourable to the coastal shipping. In addition to the close vicinity of landlocked regions to the sea, there are several rivers which are used for movement of finished products. The distance of consumption center or production center is not far away from the coast. Whereas, in India the hinterland is most of the times far off from the coast leaving road and rail the only two modes of transport to undertake door to door movement of the finished product. This is one

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of the main reasons, why even the current mode of coastal cargo in containers or breakbulk form is not for the final finished products. In more than 60% cases these are intermediary products which are used in plants to manufacture the final products. Figure 4-3 Map of Europe

Despite the geographical disadvantage, the coastal shipping makes a good opportunity provided corrective steps are taken by the government and developers. When large investments are made on the land based infrastructure, an equal importance ought to be given to the coastal infrastructure such as jetties, connectivity, material handling equipments, etc. Currently, more than monetary disadvantage, time plays a spoilsport for the coastal shipping.

4.3. Market Trends of Coastal Shipping in India

More than 95% of the coastal cargo movement is accounted for by cargo such as Crude, POL products, thermal coal, iron ore and pellets, cement and clinkers and iron & steel. The Norwegian players can target the bulk items movement of coal, clinkers, cement and iron-ore via coastal route, for a number of new power plants is coming up in the country, and also since the country is seeing an expansion of capacities of several of its cement and steel industries. The share of movement of finished goods via coastal routes in India is far less. Therefore, the share of containerised cargo and other finished products movement is not found in the coastal shipping in India. Most of the demand for coastal bulk movement of cargo comes from the cement and steel industries along the coasts of Gujarat and Maharashtra, and the thermal power plants in Tamil Nadu. Such cargo is found in abundant quantities in their respective regions, and are constantly on an increase, whereas, the number of mini-bulk carriers have remained stagnant over the years, with only a few new entrants. If Norwegian players intend to enter the coastal shipping sector, the bulk segment of coastal shipping has more Page 66 of 104

opportunities compared to containerised cargo, other finished products or passenger vessels. The coastal shipping is quite different in India compared to what happens in Europe. There is a very high density of population living in the land locked regions of North India and Central India. All the finished products which are transported to this population are mostly by roads or railways. There is very little scope for coastal shipping. Coastal shipping in India is popular only for large bulk movement of bulk cargo. The finished products are distributed to the consumption center, which is mostly land locked, using road and railways. Large quantities of iron & steel, cement and building materials, too, would need to be exported for building up of infrastructure in the Export oriented units (EOUs) and SEZs along the Indian Coastal areas, and what could be a better option than the coastal shipping getting a substantial share in the transportation of these cargoes! Development of many minor ports along the Indian coastline, too, is in the planning stage. Once the development of these ports begins, it would require cement, steel and other building materials in substantial quantity. Mini bulk carriers for transporting these cargoes are considered the best option, since they need very less draft for berthing. A new coastal shipping entrant can mostly profitably grab the opportunity of providing for the increasing demand of coastal vessels for the development of EOUs, SEZs and minor ports in the country. However, the chances of increasing profitable share are less for other finished products. Indias coastal hinterlands, comprising of 40 districts of five states on the west and four states on the east coast, including Pondicherry, are rich in silica and minerals like bauxite, iron-ore, manganese-ore and limestone. As for example, Goa, the Ratnagiri district of Maharashtra, the North Kanara district of Karnataka, the Calicut district in Kerela, Ongole district in Andhra Pradesh and Cuttack district of Orissa have a rich concentration of iron-ore. Coastal districts of Gujarat contain lime stone in abundant quantity. Likewise, states like Maharashtra and Orissa are rich in bauxite. These regions have the potential of being developed as big industrial units, and once this happens there would be a significant growth in the coastal trade in India. Lakshadweep Island on the west and Andaman and Nicobar Island on the east, too, target coastal shipping for the movement of passengers and cargo between the islands and the main land as well for inter-island movement. Reliance Industries, Gujarat Ambuja Cements, Ultra-tech cements, Essar Sponge Iron, Didvijay Cements, Indo-Gulf Fertilizers Co. Ltd. and such other corporates have their plants on the west coasts and are already operating their own jetties for cargo movement.

4.1.1. Opportunities in coastal movement of Iron and Steel Traffic

Iron-ore is transported from the east coast to the west coast via coastal route. Vishakhapatnam, Paradip and Haldia are some of the major ports in the east coast from where iron-ore is loaded for coastal movement. Pipavav, Hajira, Dharamtar, Revdanda, Magdalla are some of the major locations on the west coast where the cargo is discharged.

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Iron-ore from Vishakhapatnam is also distributed in the form of finished sponge iron to the ports along the west coast. Movement of iron and steel takes place from Revadanda to Mumbai, Cochin and Magdalla. Finished steel is transported from Hazira to ports of Mumbai, Pipavav and Chennai. Also, the distribution of finished steel takes place from Vizag to Kolkata and Chennai on the eastern coast. Vizag-Hajira; Vizag-Paradip, Haldia-Dharamtar; Revdanda-Hajira are some of the coastal routes which can by targeted by the Norwegian Coastal Shipping operators. All of these routes involve south to north movement, the major advantage in such movement being its certainty to fetch return cargo during the return voyage, assuring additional revenue to the vessel chartering operators. Besides, the volume of iron-ore transported via the routes is very large, bringing in huge profit for the vessel chartering service providers. The Goa to Revadanda and Pipavav route can also be targeted by the Norwegian vessels chartering companies, since they, too, have the advantage of bringing return cargo during return trips. The iron and steel companies make use of their own as well as hired mini-bulk carriers and barges for transporting their cargo. Though at present there is coastal movement of finished steel on the east coast, no east to west coastal movement of the product is taking place in the country. In order to cater to the growing steel market in Mumbai, Ahmadabad and Jaipur, the companies are intending to move the product from the east to the west coast, especially to Kandla, via coastal route. Once the movement begins, the situation is sure to become challenging for the steel companies, for they would not be able to get the required number of vessels. . The increased demand for the movement of iron ore from the east coast is leading to a surge in the chartering rates of these vessels. Norwegian vessels chartering companies can target the route, since the route carries large volume of cargo, and also because of the south to north movement of cargo involved which is sure to bring additional revenue for the Norwegian vessel chartering providers. The market for iron ore and finished steel is rapidly growing in India. In order to cater to the increased demand of the coastal movement of iron-ore and steel from various ports, more number of vessels need to be chartered by the companies. Norwegian vessels chartering companies can grab the opportunity and provide for the increasing demand of the vessels.

4.1.2. Opportunities in coastal movement of Cement & Clinker

The cement companies in Gujarat and Maharashtra do make the maximum use of the coastal shipping, for most of these plants are located along the coast. Kodinar (Gujarat), Jaffrabad, Porbandar, Abdasa (Gujarat), Ranavav (Gujarat), Raigarh (Maharashtra), Ratnagiri (Maharashtra) are some of the locations/plant from where the Cement and Clinker companies load

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their cargoes. The major locations where these companies discharge their cargoes are Ulwa-Belapur, Magdalla, Jaffrabad, Ratnagiri, Raigarh, Mumbai, Cochin, Dharamtar, Navalakhi, and Jamnagar. Some of these companies, too, have their captive jetties for the coastal movement of cement and clinkers. These jetties are located at Muldwarka, Hazira (Gujarat), Pipavav, and Jakhau. ABG Shipping, Chowgule Shipping, Vikram Shipping, Garuda Carriers are the private players providing vessels chartering services to these companies. Most of the Cement and Clinker companies do own a fleet of mini bulk, cement and clinker carriers, but they, too, do hire these vessels from the private players as and when required. The authorities of the companies are of the opinion that the existing mini bulk carriers are not sufficient to meet the increasing demand of coastal cargo movement. The carriers are not available when required since most of them are chartered for long term by the vessels chartering operators. Some of the companies are even planning to expand their market in South India. Their existing fleet of mini bulk carriers, though, is catering to the demands of their markets in Gujarat and Maharashtra, would not suffice for the movement of their cargoes to South India, thus, opening scope for the companies to hire more and more number of mini bulk carries. Some of the coast based cement companies located in the states of Maharashtra and Gujarat, though move clinker via coastal route, do not move cement via the route. Once they start moving cement through coastal shipping mode, there is definitely going to be a shortage in the availability of bulk carriers. In general, the companies find the coastal movement of cement and clinker faster and cheaper, for the coastal route is not infested with congestion which is usually the case with most of the rail and road routes at present time. The authorities of the companies are of the view that coastal shipping of cement is soon to see a drastic change in the coming years, for the rising fuel costs is making road transportation only too expensive. Also, the trend reveals that the market for cement and clinker is constantly on the rise. The existing mini bulk and cement and clinker carriers would not suffice to cater to the increasing demand of coastal cargo movement. Norwegian vessels chartering companies can have a big opportunity, here, where they can charter their vessels in order to meet the increasing demand of such vessels in Indian Market. They can see this as an opportunity of entering into the coastal shipping business in India.

4.1.3. Coastal Movement of Coal

The three major load ports for coal are Haldia, Paradip and Vizag, and the two major discharge ports are Ennore and Tuticorin. Coal transportation in India takes place in the eastern coast. Some of the routes on the east coast that the Norwegian coastal shipping operators can target are:

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Tuticorin-Halida/Paradip-Tuticorin Tuticorin-Paradip-Tuticorin Ennore-Haldia/Paradip-Ennore Ennore-Paradip-Ennore Ennore-Vizag-Ennore Vizag-Tuticorin-Vizag

There is a huge requirement of coal in the 4 thermal power stations maintained by the Tamil Nadu Electricity Board (TNEB), viz Ennore, North Chennai, Mettur and Tuticorin, and in order to meet the requirement, a large quantity of coal needs to be transported from the ports of Haldia, Paradip and Vizag. The increased demand of vessels is leading to a number of them being chartered from the private owners. The TNEB, further, plans to increase its capacity and in order to meet the demand of thermal coal would need to increase its shipment. This would require more number of such vessels plying on Indian water. Though the routes are less feasible in terms of economy, as the mini bulk carriers are not much suitable for the movement of coal, and also since there would be no return cargo on the east coast, yet the Norwegian companies can see a good opportunity in chartering their vessels in the routes. Companies are planning to set up thermal power plants at Dharamtar and Dhopawe (Maharashtra), and for meeting the requirements of the plants would be transporting coal from the east coast. Norwegian coastal shipping companies can evaluate the opportunity of entering the segment of bulk transportation of coal and other commodities.

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4.4. Opportunities for Norwegian firms in Indian Coastal Shipping

With the dissolution of the Shipping Development Fund Committee and Shipping Credit and Investment Corporation of India Ltd (having now merged with ICICI), the companies have, now, to depend on the traditional bank funding. These banks are not efficient in dealing with ship financing. Also since this involves high interest rates and short maturity, coastal shipping has been progressing at a negligible pace in the county. DNB Norbank has setup its office and center in India. However, the bank focuses more on the high value and large transaction sizes. There are several opportunities for small fund requirements to the tune of US$ 2 mn to US$ 5 mn, which is not catered to by a dedicated financial institution in India. In the absence of dedicated financial institution, coastal shipping firms mostly have to look towards banks for corporate loans. The cost of funds increases for the companies. This is a good opportunity, where Norwegian firms could cater to Indian shipping segment. Every year close to 18 to 20 small ships are built in the segment, which can be targeted by the Norwegian banks with small ticket lending.

4.1.1. Passenger Ferry Service in Mumbai

Mumbai is an island city. In order to decongest the city, the Government of Maharashtra proposed to develop passenger cum ro-ro services both on the East and West Coast of Maharashtra. The project has received environment clearance from the ministry of environment in the year 2005. MSRDC (Maharashtra State Road Development Corporation) had been awarded the responsibility to act as a nodal agency for implementation of the project. MSRDC had invited bids and it also undertook extensive discussions with various stakeholders. The project on the west coast of Mumbai found more interest among the stakeholders. Hence, Mumbai government has decided to first develop the west coast nodes of the water transport and later work on the East coast project. Ms. Pratibha Industries has been awarded the project for the development of water transport systems on the west coast of Mumbai. The proposed project in the initial stage would begin by running a service between Borivili and Nariman Point. Gradually the project will be extended to other 4 destinations falling between Borivili and Nariman point. The destinations are Marve, Versova, Juhu and Bandra. This would be a good opportunity for Norwegian firms in the passenger ferry and ro-ro shipping to work jointly with the Pratibha Industries.

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Figure 4-4 Proposed ro-ro/ferry service west coast of Mumbai

Source(map): Google The critical part of the project is the speed criteria laid down by MSDRC, which has asked for the Hovercraft services capable to move at a speed of 40 knots and catamaran with design speed of 25 knots to ply in the route at every 15 mins during peek hours of morning and evening. As there is no coastal ferry operator or shipping company who has catamaran or Hovercraft of this specification, it opens up opportunities for Norwegian firms. Moreover, Mumbai has well connected Natural Gas grid, the proposed catamarans could use natural gas as propulsion fuel. This would bring down the operating cost of catamaran. Currently, the natural gas grid of Mumbai is not extended to Jetty and ports. However, for coastal movement of passengers new infrastructure such as jetties, connectivity, etc. are being planned. Norwegian firms could work with the winner of the project, Pratibha Industries to develop these infrastructure with the help of Norwegian design, planning and implementation expertise. This also opens up opportunities for the Norwegian Ship design firms and equipments suppliers, as this would require newbuilding of close to 10 vessels in the phase I, which would rise to close to 35 to 40 vessels at the time of implementation of phase II. Catamaran and Hovercraft available in the secondary market have their limitations and it would not be commercially viable to use them in the present scenario.

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4.1.2. Ferry Service in Gujarat

Government of Gujarat is aggressively pursuing to start ro-ro cum ferry service along its coast. The project would be funded by state and private developers. South Gujarat and Saurashtra region is divided by Gulf of Khambhat. In the absence of coastal routes, it takes 8 to 10 hours for someone to travel from any location in South Gujarat to Saurashtra region by roadways or railways. The proposed ferry service is likely to reduce the time gap for commuters. The government gradually proposes to extend the service to Mumbai and further down Southern India. Following map shows the proposed plans of Gujarat Government for development of coastal ferry service and ro-ro facility in Gujarat. Figure 4-5 Proposed ro-ro/ferry service on the Coast of Gujarat and west coast of India

As seen in the chart above, the government of Gujarat has begun discussion with the private parties and developers to develop the project. Consultants have been appointed to study the viability of the project. Some of the ferry operators and hovercraft operators have also made presentations before government of Gujarat with the proposed interest and plans to run the ferry service. Gujarat Maritime Board (GMB) is the nodal agency to implement all maritime related projects in Gujarat. Proposal to run coastal ferries on high potential routes Dahej Bhavnagar - Pipavav Okha Mundra Bhavnagar Mumbai Page 73 of 104

Hazira Mumbai

There are talks of running ro ro services between north and south India. North India is Hub for companies such as Maruti (Suzuki), GM, Tata, etc. and South India has Hyundai. Currently this is being carried out using railways. The government of Gujarat is highly enterprising and has achieved the maximum number of private port and shipbuilding related developments in India. It is most likely to implement the ferry project. The proposed timelines for completing basic infrastructure such as development of Jetties, etc. is planned to be completed by the end of the year 2011.

4.1.3. Other Opportunities

The coastal ship operators in India viz. United Shippers, ABG Shipping, Garuda Carriers, Chowgule Shipping, SKS Logistics, Mak Lines, Gati, Essar Shipping have been performing excellently in terms of revenue, which is expected to grow even further in the coming years. The companies own mini bulk carriers and coastal barges for transporting a variety of cargo viz. Coal, Cement, Clinker, Iron-Ore pellets, food grains, Steel, Gypsum, HR Coils, Pig-Iron, Steel Pipes, Steel coils, Wood, Vehicles, Building materials, Sand and general cargoes. Some of the companies own a number of barges commanding a charter rate of average INR 60,000 a day. The mini bulk carriers and cement carriers owned by the companies command an average charter rate of INR 110,000 to INR 140,000 per day. The operating margin in the coastal shipping sector depends on factors such as, the kind of cargo carried, the terms of charter (long term charter are profitable than short term charter) and the route of operation. The Indian coastal shipping operators are not able to meet the increased demand of coastal cargo movement on the Indian coasts. There is a dearth of mini bulk carriers in the country, and for it to be able to meet the increased requirements of cargo movement, a lot more such vessels need to ply on the Indian coastal water. The Gulf of Khambhat can be one of the routes which can be targeted by the Norwegian coastal ship operators, for the narrow water channel in the Gulf connects the major production centers in Gujarat with one of the major consumption center in the country i.e. Mumbai, and the chartering companies can, thus, make a huge profit by operating in the route. The Visakhapatnam-Port Blair (Andaman and Nicobar Islands), Vishakhapatnam-Maldives Islands, Maldives-Port Blair routes are not much exploited by our Indian players and can be the potential targets of the Norwegian coastal ship operators. Since the islands are disconnected from the main land, coastal shipping can play a significant role in meeting their cargo requirements.

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5.

MARITIME EDUCATION AND R&D

As has been discussed in earlier sections, the commercial shipbuilding industry in India took shape by the end of 1990s. Prior to this the commercial shipbuilding in India was controlled by government owned and run shipyards. These shipyards received newbuilding orders on nomination basis from government owned shipping companies. There were a few newbuilding orders from the private sector for low value ships such as tugs, barges, etc. Since, the newbuilding orders to these shipyards were not through competitive bidding and the shipyards did not have to compete with other shipyards of similar size, there was no need to improve productivity, undertake research on developing indigenous expertise for building ships of different types. In the late 1980s and early 90s, the students graduating in the Ocean Engineering and Naval Architects from the premier institutes such as IITs in India preferred to move out of the core professions, due to scarcity of opportunities in the sector. The jobs in the shipbuilding sector were low paying; there were lack of visible growth opportunities in future. This was the period when the IT sector took off and provided promising opportunities for the fresh graduates. With the IT boom at the present turn of the decade, the information sector was a sea of opportunities for every graduate. Regardless of the developments and promises other industries had, IT was the default choice for everyone coming fresh out of their institutes. Most of the Ocean Engineer and Naval Architect chose Information Technology as the carrier options. The change of trade or carrier option by the students of Ocean Engineering or students of Naval Architects did not bring any impact on the shipbuilding and shipping sector in India, as there was virtually very little shipbuilding and shipping industry at that time. However, the impact of such an act is felt now. All the shipyards are struggling for talent. There is high degree of poaching by the private sector shipyards and most of government shipyards have lost their workforce to the private shipbuilding industry. Several senior personnels have joined private shipyards at senior level after retirement from their government owned shipyards. Shipping industry, then, wasnt something to write home about. Add to that the towering presence of IT industry, career in shipping was pushed back into oblivion at that point of time. With a lack of interest and a somewhat lack of exposure, too, for the industry, its no wonder why this segment slogged during those years in terms of interest generated in the common masses. But after the IT bubble burst and the subsequent rise of other sectors against the subdued information sector, interest in shipping industry was revitalized in a way, but on a smaller scale. However, after around 2006, shipping industry, too, saw a boom of exponential proportions. That era was marked by overshadowing of every other sector by the shipping industry. With ample of opportunities being doled out by the industry, the academic interest for the same took a turn for the better. With a renewed interest, hopefuls ventured into this sector. This pervasive evolution and flourish in the industry brought along a sea of change, heralding a rise in interest in the maritime sector. Following table summarises the flow of maritime related talent in India Table 5-1 Flow of Maritime Talent

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Timeframe

1985 to 2000

2000 to 2005

2005 onwards

The private firms in the segment The growth of shipbuilding sector Lack Other of than opportunities could scale up their infrastructure due to sudden rise in the government and gradually began moving up the newbuilding orders from the Indian

shipyards which got orders scale to building more sophisticated shipping companies and foreign from government owned vessels. However, as the volume of shipping companies led to large of Naval companies, ships in the segment was initially demand in the there were not many professional commercial shipbuilding did low, opportunities for the shipbuilding and not exist shipping Issues Architect industry.

shipping professionals. However, Several shipping companies due to Commercial shipbuilding in a situation began to change later and their aggressive fleet expansion competitive market remained by end of 2003, there was a drive wanted to place Naval confined to newbuilding of considerable demand for Architects at the newbuilding yard tugs and barges shipbuilding industry. professional in the as Owners representative to supervise construction activity

Shipbuilding option graduates. as Cochin for

and

shipping

As private sector shipyards began to grow their influence by building ships for export and started moving up the value ladder by building ships of higher value and sophistication. The inclination of Naval Architects and other faculty began to consider undertaking jobs in the sector. However, shipbuilding sector was not fully accepted by graduates. Though IT sector had lost its glow, the management and finance related jobs still scored over shipyard jobs

Large

orders,

improvement

in

was the least preferred carrier engineering of the and Some

financials of shipyards with rising salary and perks opened up large opportunities one of the for graduates. choices began with Shipbuilding related jobs became preferred firms Architects Several recruiting Flow India of shipping Naval able

students from colleges such Impact University Andhra University did take-up jobs in shipbuilding. However, they soon moved to places such as Middle East and Singapore for better carrier opportunities

training better carrier prospects. professionals increased to the maritime sector in

Takeaway Opportunities for firms

&

No Opportunities / Wrong Timing

Moderate Opportunities / Entry Time

High Growth Zone / Must Enter

Norwegian

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5.1. Maritime Education

Maritime Education in India can be divided into two sub segments namely education related to shipbuilding and education related to shipping. In the shipbuilding segment, education is provided on design and newbuilding of ships, shipyards, offshore structures. Whereas education related to shipping is undertaken to provide knowhow and expertise required to operate a ship. India has become popular in the later segment than in the former segment. As India has emerged as one of the leading manpower suppliers to the global shipping industry, several institutes in the public and private sector has emerged which undertakes full time education and vocational training to the shipping professionals. There are large opportunities for Norwegian institutes to take projects, consultancy assignments jointly with the Indian Institutes on productivity improvement at shipyards, design and engineering collaborations. The Norwegian institutes could also be visiting faculty to the institutes in India.

5.1.1. Education Related to Seafarers

The Directorate General of Shipping (DG Shipping) is the highest regulator responsible for the operational activities of the maritime industry in India. Being a member of International Maritime Organization (IMO), India implements all its guidelines through DG Shipping. Despite DG Shippings admirable efforts in bolstering maritime education, detractors feel that its endeavours have failed to show the expected results. In fact, DGS hasnt been able to tackle one key issue in maritime education, shipboard training. Before 1995, government bodies undertook the tasks related to maritime education. With the issuance of Standard for Training, Certificate and Watch Keeping (STCW) in 1995 by IMO, DG Shipping called upon the private players to contribute to the maritime education. It was in 1997, when the maritime education saw a boom of sorts, when private players started setting up education and training services on commercial basis. Following are the list of Institutes location wise. It can be seen that Mumbai & Chennai are the hub of Institutes in Maritime Education, followed by Kolkata in distant third. It is estimated that with the coming of IMU lot of institutes are planned in the landlocked areas of the countries with huge potential of supply manpower to the shipping Industry. Table 5-2 Statistics related to maritime training institutes in Mumbai Location Mumbai Chennai Kolkata Goa No of institutes 38 17 11 6

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cochin Pune Others Total

5 4 43 124

India has some reputed institutes, providing maritime training of world-class quality, dispensing seafarers that are absorbed by some elite shipping companies of the world. Interaction with some them during course of the assignment is as follows: Academy of Maritime Education & Training (AMET), Chennai, even has an international collaboration as a joint researcher with Danish Maritime University, and with Norwegian-registered DNV, in the field of shipbuilding among other things. An international institute with inflow of students from Asia and Africa, and judging by the number of students enrolled, it becomes the worlds largest maritime academy. Fleet Management Institute, another Indian maritime training institute, even mans the vessels of Norwegian Principals. Hindustan Institute of Maritime Training (HIMT), Chennai, has the largest training offering in the country for merchant navy officers. Most of these institutes, among other eminent members of the maritime training academies, are on the same page with respect to the advantages the Indian maritime education sector could reap, if the collaboration with foreign parties, excelling in technical aspects and others, were to take form. Most are keen on entering into a joint venture through student exchange, faculty exchange, research in various fields, and other services. However, theres a minority who believes that the venture would only escalate the cost, not to mention the guidelines the foreign service providers would bring along, and if it will be conducive enough to enter into a deal with them.

5.1.2. Education Related to Shipbuilding & Naval Architecture

There are a few institutes that cater to maritime education related to shipbuilding and ship design, imparting students with the knowledge and expertise. Institutions like National Ship Design and Research Center (NSDRC), AMET University, IIT Chennai, Cochin University, IIT Kharagpur, etc. provide courses that serve the naval architecture and marine engineering segment of the shipping industry. NSDRC has recently been converted to maritime institute from a research centre. It delved into ship design, research and development in maritime sector, at a time when these segments were considered a niche, with only handful of players willing to take a plunge in this line. A premier ship designing center in the country, under the administrative control of the ministry of shipping, it has now been merged along with six other eminent maritime academic institutions, into an amalgamation called Indian Maritime University (IMU). IMU plays a key role in the development of human resource for the maritime sector. Being the first of its kind in the country, IMU administers education to the maritime fraternity, providing degree, post graduate degree courses and research programs in all maritime disciplines.

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IIT Chennai Its Department of Ocean Engineering is capable of undertaking R&D in primal areas of ocean engineering, viz., offshore structures, ships and other floating systems, wave hydrodynamics and coastal engineering, to name a few. The institute carries out its research programs in maritime industry through departments varied academic programs and others funded by national organization and industry. Following are some of the areas in which the institute has been carrying out research: Hydrodynamic behavior of floating offshore systems CFD applications and experimental validation in ship powering, propulsion and sea-keeping Marine instrumentation Numerical algorithms for automatic control of ships

Some of the institutes future endeavors in research segment are listed as follows: Development of deepwater technology for oil and gas exploitation and seabed mining Development of compliant offshore structures Underwater vehicles research CFD in marine hydrodynamics

IITM also takes up sponsored research projects, mostly dealing with technology and the ways it could be adopted to innovate maritime activities, to wit, using buoy and altimeter to enhance wave forecasting capabilities, assimilation of satellite data to improve forecast, automatic control of ships, etc. Indian Institute of Technology, Kharagpur (IITK): IITK provides courses like B. Tech in Naval Architecture, PG Diploma in Naval Construction for the Indian Navy, PG MTech program in Ocean Engineering and Naval Architecture. Following are some of the research areas the Ocean Engineering and Naval Architecture department of the institute has dealt in: Marine acoustics, construction, design and production Marine structural engineering Wind-Wave modeling Coastal process

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Turbulence modeling Ship resistance Physical oceanography Mathematical modeling

Some of the facilities that the institute provides to its students in Ocean Engineering and Naval Architecture department are as follows: BSRA ship-hull roughness analyzer Equipments for fabricating propellers up to 300mm in diameter Equipments to carry out vibration experiments Stress analysis lab with equipments for photoelastic studies Resistance and propulsion dynamometers Tensile, compression and bending tests

IITK has also developed its own technology in this segment and has also been deployed in the commercial segment of the industry. For instance, methods for modularization of ship hull, flotilla connector, overloading indicator and speed control for mechanized country boats, have been put to its commercial use.

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5.2. Maritime R&D & Opportunities for Norwegian Firms

In the absence of fully developed shipbuilding industry, the research and development in the commercial shipbuilding segment was virtually not there. The government shipyards built and delivered 2 to 3 ships annually. There was no ship design or research center in India. As research and development, especially for shipping and shipbuilding sector is essential for the long term growth and development of sector in a country. In order to achieve self reliance and long term growth objective, the Government of India, initiated research and development in maritime by setting up two organizations namely NSDRC and NSTL. NSDRC was conceptualized to cater to commercial shipping industry. NSTL was established under Defence Research and Development Organization, Ministry of Defence, Government of India. Apart from the above mentioned two research organisations setup by Government of India. There was ample research activity undertaken mostly at two IITs jointly with government and private shipbuilding companies.

5.1.1. Independent Research & its outcome in India A case Study

A research activity was undertaken IIT Kharagpur with the support from industry bodies such as Alcock Ashdown, Bharati Shipyard, Indian Register of Shipping, etc with the objective to develop a set of designs which are modular in nature and easy to construct in less time and less cost. After lot of iteration, model testing a design form for 600 TEU container vessels was developed. It had three modular components with long parallel midship body, which can be changed to form the full forms of 550 TEU container ships to 700 TEU container ship. The design form could also be changed to tankers or bulk carriers of upto 10,000 DWT. The design form was presented at the SNAME conference in the year 2002 held at Boston. IIT Kharagpur has filed patent for the same, but there are no takers for the same in Indian coastal shipping industry. This was one of successful ship design research program with title, Ship Design for Economy and Efficiency. The primary reason for poor growth and development of research and development in the maritime sector is the small size of Indias shipping industry. Though shipping industry in India has begun to grow aggressively, however, it is still very small compared to global standards. A large number of ships are bought in the secondary market. Except Shipping Corporation which orders ships on newbuilding and operates it till the end of its economic life, all other private players are extensively involved in the asset trade in the secondary market. A large % of the ships acquired by the private sector is from the secondary market. Those who undertake newbuilding activity prefer to buy a readily available approved design than to risk on new design. The design developed by IIT Kharagpur was suitable for Indian conditions and could have been brought to use. Once developed, there were no takers for the developed Hull form and the basic design. Since 2002, several Indian firms have bought container ships in the range. All of these vessels have been bought in the secondary market; none have been built either in India or abroad. Following table shows the list of vessels acquired by shipping companies which have similar carrying capacity trading on Indian Coast. Following Page 81 of 104

table shows the details of ships acquired for coastal trade of containerised cargo in India and also with neighbouring countries. Table 5-3 Fleet profile of container feeder vessels in India Company Jindal Waterways Jindal Waterways Jindal Waterways Jindal Waterways Jindal Waterways Shreyas Shipping Shreyas Shipping Shreyas Shipping Shreyas Shipping Shreyas Shipping Ship Name M.V. Jindal Tara M.V. Jindal Kamla M.V. Jindal Manjula M.V. Jindal Meenakshi M.V. Jindal Meenakshi M.V. OEL Aishwarya M.V. Orient Independence M.V. OEL Victory M.V. OEL Shreyas M.V. OEL Trust Neptune-Warnow-Werft Shin Kurushima Dockyard Shipyard/Country Mawei Shipyard/ PRC Rendsbergh / GMBH Brodogradevna Industries/ Croatia Yichang Shipyard/ China Yichang Shipyard/ China TEU 617 580 336 630 630 513 513 569 1,208 1,050 Built 1995 1986 1997 2007 2009 1982 1982 1989 1991 1992

Apart from container shipping, ships in smaller segments such as offshore vessels have been built in India since 1980s using standard designs from Norwegian firms. A fleet of 32 ships acquired by ONGC had Bergen package. Several offshore vessels being built currently for Indian owners at Indian shipyards, however most of the designers are established, as can be seen in the table below. Table 5-4 Offshore Vessels currently being built in India Company Name Garware Offshore Greatship India Great Offshore ONGC Shipping Corporation Ships on order 1 14 1 12 6 Designers Havyard Rolls Royce Rolls Royce Wartsila Ship Design Rolls Royce, Havyard Place of Build Norway India, Sri Lanka, Singapore India India India

India has to go a long way before, the design and engineering firms and institutes gain the trust for undertaking basic design. One of the hindrances in developing basic design of ship in India is that there are already several standard design forms available internationally. The basic design decides the functional performance and characteristics of ships; hence the shipping companies in India prefer to buy them instead of reinventing the wheel. As newbuilding orders from shipping companies in India is rising, there exists an opportunities for the Norwegian design firms who could collaborate and undertake independent research and development of ship designs. Some of the Norwegian design firms have entered India and have been benefitted by opportunities. VIK Sandvik group was a Norwegian firm which became Wartsilla Ship Design has setup up an office in India. In mere 4 years of its presence in India, the company has got close to 18 out of the total 188 ships being built in India. In 4 years, it has achieved a market share of close to 10% in the sector. Havyard has marketing arrangement with Garware Offshore for marketing of its design in India. The

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company has sold more than 6 ship design packages in India to ABG Shipyard and Bharati Shipyard. Rolls Royce has a large share in the offshore vessels segment which is being built in India. If a Norwegian firm joins hand with an Indian ship design or research center, the design developed jointly would get more visibility and acceptability among Indian owners. However, it is doubtful, why a Norwegian firm share its patented technology and design with an Indian firm, which they can do alone in India. Alternatively, Norwegian firms or Research institutes could tieup with Indian firms to develop some of the designs similar to the one developed by IIT Kharagpur. This could be a mutually beneficial move as the design developed locally in India could gain international visibility due to Norwegian Association. Norwegian firms could benefit by having additional designs in their kitty.

5.1.2. Rise and fall of NSDRC as R&D institute

NSDRC was setup in the year 1989, with an objective to support Indian shipping and shipbuilding industry. Following are the broad objective of creating NSDRC. To promote and develop design and research activities for shipping and shipbuilding To improve efficiency and productivity of shipbuilding and shipping sectors To assimilate knowledge with reference to advancement in maritime technology in the world and dissemination thereof to elevate the Indian Maritime Sector to keep it abreast with international standard. Preparation of long and short term plans for research and development in maritime sector. To promote the development of maritime standards in the field connected with shipping, shipbuilding and other maritime activities. To provide consultancy and training facilities in various fields connected with shipping, shipbuilding and other maritime activities. To attend to any other matters incidental or allied to the above mentioned activities.

At the time NSDRC was created, Indian shipbuilding industry was under government protection. The new building of ships was confined to government shipyards only. Later with liberalization, entry of private sector shipyards in smaller ship segment was allowed. Gradually the barriers from the private shipbuilders were taken off and private shipyards were able to bid and build ships at par with the government shipyards, subject to their own capacity availability. Having a ship design firm at the time, when there were very few ships being built in India was one of the major hindrance in the growth of NSDRC. The institute had mandate to work on long term projects which should fulfil the long term goals of shipping and shipbuilding industry. However, due to limited opportunities, its main focus remained on survival, rather than developing and implementing long term strategic goals and plans for the shipbuilding and shipping sector. Page 83 of 104

In addition to the Indian Government, NSDRC also had a grant from the Netherlands government an amount of Rs 240 million. However, as the shipbuilding and shipping industry was in poor share, it became difficult for NSDRC to undertake projects which had long term goals such as working on the productivity improvement of shipyards. NSDRC undertook design of few ships for government agencies. However, apart from these NSDRC undertook activities related to repair of ships, training of manpower, etc. Some of the work undertaken by NSDRC had no relation to the maritime and should not have been undertaken by them. One of such projects were design and development of "Currency counting and Detection System (CCDS)" which is designed to count and authenticate Indian Currency notes in denomination of INR 10 to INR 1000/- upto about 150 notes at a time. Such an activity has no relation to maritime and it is doubtful if NSDRC had a mandate from Government of India or Reserve bank of India to carry out such activities. The external economic scenario, which was beyond the control of a small R&D and ship design center such as NSDRC, was one of the biggest hindrances to the growth of ship design and maritime research in India. Commercial and competitive shipbuilding was virtually absent in India till late 1990. The few shipyards under government control got newbuilding order for ships mostly on nomination basis from the government owned shipping companies. Most of these orders were bid and build on cost plus basis. There was no need to look for productivity improvement and keep track of delivery schedule of the shipyard. Most of the ships took several years in the shipyards. It is a recognized R&D institution quipped with modern facilities. Its aim is to provide support to the marine transportation sector, utilizing the institutes CAD ship design, marine economics and consultancy and research services. Following are the fields in which NSDRC could initiate research projects to support shipping and shipbuilding industry: 1. Ship design 2. Management of shipyard vessel operation 3. Research in hydrodynamic structures, noise and vibration 4. Ocean water transport economy Some of the major achievements of the institute are as follows: 1. 500-Passenger Vessel for A&N Administration a. Completed the basic design, including the major hull design b. IRS has endorsed the compliance for the design c. Design contract value is at INR 30 mn

2. Buoy Tender cum research vessel for National Institute of Ocean Technology (NIOT) a. NIOT wants to acquire a ship that caters to the deployment and retrieval of data buoys b. NSDRC was approached for the concepts detailed design, model testing and construction supervision Page 84 of 104

c.

The total value of work is about INR 10 mn.

Apart of these projects, NSDRC has also undertaken techno commercial feasibility studies. It had undertaken logistics planning and consultancy for ONGC offshore base in Mumbai Offshore. In order to increase its reach, NSDRC has entered into a MoU with KSRI (Krylov Shipbuilding and Research Institute) and Inter Tech Services, Russia for taking up collaborative work in the field of Ship Design and Infrastructure Development. The centre has also entered into a MoU with Environmental Protection Training and Research Institute (EPTRI) for taking up collaborative work in the field of Environmental Engineering. It also undertook the work of improving the ship handling services at offshore tanker terminal at Visakhapatnam port. Apart from its focus on the ship design work related to newbuilding, NSDRC undertook major repair of ORV Sagar Kanya, a research vessel belonging to the Department of Ocean Development, Government of India. It also supervised the eighteen passenger vessels being built at various yards including four passenger vessels constructed and delivered to A&N Administration, 400 Ton cargo vessel being built at Shalimar (Works) Ltd., Kolkata, two of Orissa Fisheries Control Boats under construction at Wadia Boat Builders in addition to repair work of OSV MV Sindhu-II at Mazagon Dock Ltd. The centre is assisting Research and Development Establishment (Engineers) Pune, to develop an Amphibious Floating Bridge cum Ferry System. NSDRC rarely got ship design projects from private sector. If one could stretch it, the reason could be twofold. Designing a ship is a more meticulous, heavy-duty, and a mammoth enterprise, with almost no margin for error in its construction. For instance, an automobile industry has the luxury of being put through various tests to gauge its operational performance. Its performance is distilled through road tests, crash tests, fuel efficiency test, etc. In fact, even the end user gets the undue advantage of test driving a brand, new car before actually opting to shell out money for it. Ships, however, dont share the same fortune. On account of being a massive construction and no sandbox to actually test the final product in, before being put into operation, the construction is elaborate, expensive and expansive. Its understandable that the owners are wary of entrusting such a colossal project in the hands of ship-designers whove yet to brand their name on international level, or who havent undertaken such a task before. Another reason, a supplementary one, why ship-design hasnt prospered in India, is the unwillingness on ship owners part to let national ship-designers shoulder the whole responsibility. With massive amounts being funnelled for such an endeavour, and years that go into building a ship, no owner would like to take a chance. The high risk shipping industry and owners inability to take risk on a new designer has worked against success of local design firms in India. The scale of operation for the private sector shipyard was very small. Most of them built barges, tugs and other smaller low value vessels. Hence, there was no need to invest in the technology, state of the art work

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practices. It did not make commercial case for even NSDRC or other research organization to work on these fronts. The shipbuilding activity in India began to increase from the early years of 2000. The shipyards began to build more sophisticated ships, both for Indian and foreign owners. This was the time, the research and development institution such as NSDRC could have been roped in to work jointly with the shipyards. However, as most of the newbuilding orders came to the Indian shipyard as fabrication job, where all the designs and production schedules were procured from established international design firms. The local ship design firms in India were given detailed engineering task for the newbuilding. NSDRC was not involved in the planning, scheduling activity. Before, NSDRC could make a pitch and gain on the recent shipbuilding boom, the government of India had run out of patient for the institute and converted it into Maritime institute under IMU. The timing for the NSDRC was not right. It was in existence, when the shipbuilding industry was in a very poor state. However, by the time Indian shipbuilding sector began to pickup international standards, NSDRC was converted to an educational institute. An organisation such as NSDRC could have been of great help in undertaking research and development related to work practices and productivity improvement in Indian shipyards. Being local to the shipyards and understanding their needs and bottlenecks, it could have contributed more positively to the industry.

5.1.3. Naval Science & Technological Laboratory (NSTL)

Established on August 20, 1969, this Vishakhapatnam-based laboratory is the center of excellence for underwater weapon technologies and associated systems. NSTL undertakes design, development, testing, evaluation and production of torpedoes, mines, decoys, targets, simulators and launchers. NSTL also undertakes research and development of underwater mines, torpedoes, fire control systems, weapon launchers, targets and decoys for the Indian Navy. NSTL is involved in developing warship technologies, stealth technology and hydro-dynamic research services. They also develop materials for marine applications that helps mitigate radar, IR, magnetic, acoustic and ELFE signatures for stealthier platforms. NSTL is equipped with modern laboratories and hydrodynamic research facilities, and some of them are as follows: 1. High Speed Towing Tank 2. Large Amplitude Horizontal Planar Motion Mechanism 3. Cavitation Tunnel 4. Wind Tunnel 5. Shock and Vibration Test Facilities

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6. Acoustic Test Facilities All the research activity at NSTL is for defence purposes. However, NSTL shares its infrastructure for research and development activities in the private sector.

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5.3. Opportunities for Norwegian Firms/Institutes

5.1.1. Upcoming Institutes in Private Sector

Norwegian education institutes have large opportunities available with the upcoming maritime institutes in India. Several institutes which are planned in undertake degree level or provide vocational training can benefit from Norwegian faculty in the ship design, ship production, propulsion, machinery etc. Norwegian institutes and research centers can also partner with these institutes for faculty student exchange program. ABG shipyard and Adani group is aggressively pursuing to setup maritime institute in Surat, Gujarat, India. Apart from these two companies, Goa Shipbuilders Association is also considering setting up maritime institute in India. ABG Shipyard is developing its hi-tech Maritime Institute at Ichhapore, Surat. ABG Shipyard has acquired land at a cost of INR 85 million, which is close to their existing shipbuilding facility in Surat. The entire project is estimated to cost INR 1000 million. The Institute plans to offer Four Year diploma courses in ship-building and port-management. They are in the final stages of finalizing the course materials, contents, nature, fees and other formalities. ABG's maritime institute will commence its courses from 2011. The necessary infrastructure is expected to be in place by the end of 2010. The Institute will be admitting students for the academic year 2011-12. Students will have a distinct advantage, given that the maritime institute is going to be close to the ABG shipyard and also to a port. The company is also planning to tie up with South Gujarat University to start courses in shipbuilding, maritime and naval architecture, sources informed. ABG Shipyard is also not ruling out a possible tie-up with a foreign institute. Another leading Gujarat based business conglomerate the Adani Group has also sought 7 to 8 acre of land from Gujarat State government to set up a port management and infrastructure institute. The company envisages offering a PG diploma course and the institute may go for some tie-up. The courses will focus on port management, logistics management and all-round infrastructure development.

5.1.2. Opportunities with IMU Vishakhapatnam Campus

Indian Maritime University Vishakhapatnam Campus is undertaking initiative to undertake projects related to developing technology which is going to be essential to be used for environment friendly shipping, such as paints, Ballast Free ship concept, etc. Some of the projects are undertaken jointly with IIT Kharagpur.

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International Collaborative Project Funded by EU has been completed at IMU, Visakhapatnam campus REVIEW AND REASSESSMENT OF PROPOSED IMO LED BAN ON TBT PAINTS. Salient features of the project were as follows: To make a complete inventory of non-TBT coatings available to the shipping industry Review the performance of non-TBT paints in comparison to TBT paints To make an in-depth study of the status of research and development in antifouling paints and forecast the availability of these paints to the shipping industry To investigate alternative antifouling strategies Prediction of performance of antifouling paints using mathematical models To analyze the costs and benefits of using and not using Organotin compounds Dissemination of information to shipping, fisheries, tourism, industries and general public On-going research work

Ballast free ship concept is being developed in collaboration with IIT Kharagpur under R&D funding from ministry of shipping. The preliminary findings have already been presented in international seminars and conferences. A few slides illustrate the concept: A design solution is needed so that ballast tanks remain empty in fully loaded voyage and full in ballast condition. In ballast condition, ballast tanks can be left open to lose buoyancy and achieve the required drafts. A ship can be designed to have open ballast tanks in ballast condition such that: a) Hull resistance increases marginally. b) There is adequate water flow inside the ballast tanks and the ballast tanks are internally smooth so that there are no stagnant portions and no deposition of sediments. c) Hydrodynamics and structural requirements of the hull form are satisfactory. Design considerations include the following: Draft requirements can be met by following the steps shown below. The ballast draft for the proposed No Ballast Ship can be less than in normal case and can have level trim (instead of trim by aft). Obstruction to the flow through pipes at the E/R is overcome by having a twin screw form.

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Mechanical systems like valves for opening and closing the flow-through pipes and arrangements for de-ballasting these pipes are yet to be developed. The flow-through pipes can be subdivided into a number of segments along the length and each segment can be controlled by valves. This will provide additional means to control the buoyancy and trim of the vessel in case of damage.

Future Plans Various projects have been identified and effort is on to get funding for these projects. Any help from Norwegian Government for any of the projects will be welcome. Control of Invasive species by prevention of fouling due to ship hulls Research in energy efficiency of Marine Power Plant and alternative renewable sources of power Design of ships using alternative fuels Study of Environmental Risk and Remedial measures for Pollution Control in Indian rivers and coast.

5.1.3. Other opportunities in Education sector

India has a total work force of around 500 million of which a large pool is of scientific manpower along with the largest pool of unemployed youth. These youths can be converted into high end asset for the benefit of maritime industry. Providing training and education to these institutes could improve the skill manpower deficit in India Marine based companies in India seen consolidating and expanding their businesses so that they have a larger pie of the total market share. This directly reflects the upcoming need for qualified and trained personnel in this sector. Norwegian institutes and universities could play a promising role in that Manpower costs of Shipping / Logistics companies in India are approximately 8-10% of their overall sales, which translates to roughly INR 500 billion. Its a big revenue potential to be explored by Norwegian institutes. The current group of government and private maritime institutes are able to address only a part of the industry demand for qualified maritime personnel. Hence every year there is a huge demand supply gap. The demand supply gap is further affected by the employee turnover and the employees settling down to on-shore jobs after a period of time. Even on the port side, there is a tremendous need for trained manpower. Demand exists not only for conventional maritime courses but also for courses aligned with shipping and logistics like general management, transportation & logistics and Information technology. There is an increase in number of Maritime institutes are looking at foreign collaborations, faculty /student exchanges and technical knowhow.

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Shipping companies looking at outsourcing the training function will also benefit from a Maritime Institute and make for repeat business. Norway already has a well established bilateral relationship with India and The Research Council of Norway has set up programmes to promote research cooperation between Norway and India. Norway being a sea faring nation and being surrounded by sea has a well established Maritime Industry as well as excellence and solid experience in the area of marine research and fisheries management.

Norway has well established Universities and Colleges that offer courses in Maritime education, right from basic course to Degree, Masters and Ph. D level programmes. Courses offered by the educational institutes in Norway are world class and are recognized across the globe.

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6.

SHIP DISMANTLING INDUSTRY IN INDIA

India has endorsed international regulations related to ship dismantling. The government of India, state governments and judiciary have laid down guidelines for health, disposal of hazardous material and working conditions at par with international standards. Unlike European firms, Indian ship dismantling yard follows beaching method for dismantling of ships. The international regulations have approved the guidelines to be safe, if the wastage generate by them is recycled and disposed off safely. However, as the ship dismantling industry is highly fragmented with lot of smaller players, there are several instances of violation of these guidelines at the ground level by these companies. Though, Government of India and laws in India is for safe working practices. Due to economic reasons, the companies or the workers sometimes ignore these guidelines due to commercial issues. The ship dismantling industry, in the present scenario works in a highly dynamic environment. With the uncertain and changing commodity prices especially steel, the ship scrapping industry. The high fluctuation of steel price from the time ship is bought for scrap till the time scrap is sold in the open market leaves very less room for the ship scrapping company to generate large profits. Hence, these companies compromise on the workers benefits, technologies, environment, etc.

6.1. Ship Dismantling Industry Opportunities in India

Ship dismantling industry in India solely works on the low cost labour available in the local market. Installation of dismantling mechanism practised in European country would increase the capital and operational expense of ship dismantling. Hence, the dismantling yards in India are against installation of drydocks for dismantling of ships. They tend to take advantage of high tidal variation to beach their ships. This leaves little direct opportunity for Norwegian firms to provide services to the ship dismantling industry. However, the government of India especially Gujarat Maritime Board is always looking for newer technologies to install on the ship dismantling yards. Norwegian firms could explore providing technology to government bodies such as pollution control board, Gujarat Maritime Board, etc for safe and environment friendly ship dismantling. Several shipping companies of international repute have sold ships to Alang for scrap. Following are the names of some of the shipping companies, Mediterranean Shipping, Stolt-Nielsen, Ost-West-Handel, Costamare Shipping, IRISL, Mitsui O.S.K. Lines, Gulf Liner Shipping, Zodiac Maritime, Green Ocean, Schulte Group, A.P. Moller, Wilh Wilhelmsen, etc.

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Taking a cue from the Information technology, where the company does not outsource its job to a company which does not use licensed software. Norwegian government and companies can for a lobby not to entertain the ship dismantling yard to sell their ships for scrap, if they do not adhere to the environment guidelines. This would be more appropriate and effective way to implement environment standards in ship dismantling yards in India. Norwegian firms could also customise the equipments and systems which are cost effective and can be procured by the local firms. Spreading awareness among the workers and their employers in the ship dismantling industry is essential. This can be taken up by Norwegian firms jointly with the Government. Following is a brief breakdown of ship breaking industry in India, alongside the factors that smoothen and impedes the process.
Commercial Factor
Freight Markets are Down Younger fleet are available for charter at competitive rate Cost of running ship is high R&M cost increases Ship

Demand Supply Dynamics

Oversupply in the market Trade falls leading to reduced demand for ships Lay-up scenario becomes inevitable

Scrapping
Regulation bans use of certain type of ship Class declares ship beyond repair Downtime of ship increases Charters specify age criteria Risk of accidents increases

Regulatory Factors

Operational Issues & Risks

These two factors demand for immediate scrapping

Freight rates, price of steel scraps and the cost of maintaining ageing fleets are the factors that influence the ship dismantling industry. Low freight rates and high steel prices translate into more number of ships getting scrapped. Price is the sole criteria for selecting a ship dismantling yard for a ship. Higher the price offered to the company by the ship breaker, most likely are the chances for selecting the yard. Depending upon the price of labour and the costs of infrastructure for workers safety and environmental protection, the costs of ship recycling can vary considerably. Being a labour intensive industry, it tends to favour regions having low labour costs; hence the focus has been shifted to Asian countries. In the western countries as the ships are scrapped in dry docks, the cost of dismantling ships are much higher compared to the developed nations where the ships are dismantled on beaches.

6.1.1. Factors affecting poor environment at ship breaking site

Since the dismantling industry doesnt get any subsidy from the government, the dismantling yards keep their financial terms and benefits as the major and top priority. It undertakes the bare minimum activity for environmentally safe dismantling which is mandated.

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Shipping companies, too, expect a healthy payoff from their dying fleet that are on its way to being scrapped. The owners focus is on getting maximum revenue from its fleets scrap, and environmental guidelines are a mere afterthought. Stringent environmental regulations developed countries make it impossible for ship owners, mostly European and US, to have their ships dismantled there. It also does not allow them to export ship with hazardous material to a third country. However, with the present loophole in the system, these owners manage to sell their ships to a third party, who in turn sells them to a location with absence of environment friendly measures.

Shipping Companies
Have to recover residual value of ship Does not want to invest on resource, which has become a liability Avoids investment on cleaning, de-gasification, etc Works with sole mote to sell the ship at maximum price with minimum investment

Dismantling Yard
Has to pay market driven price to secure contract f or ship dismantling Fluctuating steel price increases his risk May buy ship f or scrap at higher price, however price of steel may f all af ter beaching To workout the revenue & cost balance, compromises on wages, saf ety, investment on inf rastructure

Neglecting Health & Environment

Flexible labour laws Loose environment regulations Low cost, un-skilled workf orce High tidal variations Domestic market f or steel Low skill level & high unemployment in the region f orces workers to undertake jobs which could adversely af f ect health Workers ignorant on the health and environment related issues Semi skilled workf orce available at US$6 / day

Location Identification

Workforce

The owners are paid a hefty amount by the dismantling yard, for the ships to be scrapped. Yard owners have very little room to manoeuvre, with respect to the un-skilled, workforce, government enforcements, environmental regulations, and a pre-defined return in the market on the scrapped parts. In such a scenario, where the yard owners buy ageing ships at a high price, in return for miniscule revenue, theyre left with no other option than to cut corners. These compromises come in the form of lapses in infrastructure overhauling, meagre wages, and more importantly, a blatant disregard to the safety and environment policies. These yard owners melt the steel parts and sell them back in the market. This and through reselling of other scrapped parts is how the yard owners earn their revenue. Lack of technology and infrastructure to carry out dismantling on a safer and economical level remains an issue that demands to be addressed. Even if the ship owners were to provide the technology for such tasks, the yard owners wont be in any position to take up the same. The cost implication that would entail would weigh down on the already financially-strapped yard owners.

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Hence, ship owners, in order to keep themselves from investing any more in their dying fleet, turn toward the available means and the lack of it, to have their ships scrapped. Yard owners, with whatever limited resources they have, do their best in converting an expensive proposition of scrapping into decent enough revenue. India being a growing economy and having a huge appetite for various grades of steel, ship recycling becomes an important source of steel in the country. Recycling scrap steel into steel becomes cheaper compared to the extracting steel from iron ore. The other secondary items on board ships are used by various industries; some of such items are generator sets, panels, etc.

6.2. Ship scrapping in India

Half of the worlds ocean-plying ships end their journey on Indias coast. Most of these ships end up at Alang (Bhavnagar district, Gujarat), the most prominent ship-scrapping yard in India, followed by yards in Mumbai, Maharashtra. Alang is the worlds leading ship-breaking yard and a toxic hotspot. Apart from providing cheap labor, the high tides carry the huge vessels on the Alang beach, depositing them in the sand, while doing away with the need for dry docks and jetties. At Mumbai, the beaching is done on plots rented from the Mumbai Port Trust for the period during which demolition is to be undertaken, and a total of 18 vessels can be beached at a time. Since Alang ship breaking yard in Gujarat has the advantage of peculiar marine conditions and high tide, ships are beached up to the yard. Beaching method in ship breaking is most economical and practical, and most major ship breaking countries follow this method. Ship-recycling activities are carried out in the 171 plots located in Alang and Sossia, transforming into a sizeable industry that employs around 40,000 workers directly or indirectly. Majority of the workers are migrants from other states and work on contracts. Due to absence of any trade unions, they have virtually no bargaining power at the worksite. Following chart shows the distribution of ships sold to the Indian ship dismantling yard.

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140 120 100 80 60 40 20 0 Bulk Chem & Oil Container General Cargo 2008 Pass/cargo Tanker Ro-Ro others

2009

2010

Year 2010 has statistics till June, 2010 The year 2009 has seen the record number of dismantling transactions in Alang. The dismantling activity is inversely proportional to the charter rates and demand of ships. As the charter rates and demand for a certain types of ships fall, their dismantling activity increases. Besides providing employment for numerous workers and contributing to the economy, the dismantling activity also poses health risks and environmental degradation. Workers are exposed to toxic substances, for during the scrapping process hazardous wastes are released into the environment. Governments and regulatory bodies had implemented several regulations and statutory guidelines for safe practice of dismantling. However, these measures are not put into practice at ground level; especially by the smaller companies. The demand by the environment supporters that shipping companies ought to be forced by the United Nations International Maritime Organisation to clean up the ships before theyre sent for scrapping, has gone unheeded. Its claimed that decontamination by up to 90% is possible, and yet, ship owners prefer to just dump these ships on the Asian yards just the way they are. There have been several initiatives undertaken by the Government of Gujarat and Gujarat Maritime Board (GMB), a state which dominates Indian ship dismantling industry. The working and living condition in these yards are unsanitary to say the least, with no regards to workers health and their safety.

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6.1.1. Ship Scrapping Process

Ship scrapping in India involves minimal use of technology. Following are the general steps that are carried out by the yards while dismantling a ship: Surveying vessel to identify various compartments and potential hazards Removing fuels, oils and other liquids and combustible materials Removing the equipments Removing and disposing asbestos and PCBs Preparing surface for cutting Metal cutting Recycling or disposal of scrap Reuse

A substantial portion of the recovered material includes re-rollable plates and melting scrap. The equipments and machinery such as motors, pumps, generator, navigation equipments, life saving equipments, furniture, electrical cables, utensils etc. are sold to second hand market. Apart from the reusable parts, dismantling also gives away hazardous substances, both to the environment and health. Due to lack in training in removing and handling such substances, workers are invariably exposed to these hazards. Following are some of the measures which can be initiated by the Norwegian firms which could help promote a safer practice for such tasks: Training program for workers likely to be exposed to such substances For asbestos removal procedures, train the workers in critical barriers and/or negative pressure enclosures. The supervisors, too, need to be trained about the regulation and the means of compliance. Training on PCB sampling during removal of liquid and non-liquid PCBs Training to determine the presence of PCBs in liquid-filled electrical equipment

Besides, there are needs for safe storage area for such harmful substances until its ready to be discharged in an environmentally-sound way, for which technology and proper infrastructure needs to be provided.

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Theres even the need to train the workforce in the face of oil spills. Training that covers aspects like the correct response during a spill and the methods of recovering the spilled oil also need to be implemented. Some of the containment measures that can be undertaken for oil spills are as follows: 1. 2. Mechanical containment or recovery. Chemical and biological methods in conjunction with mechanical means can be used for

containment. Ship-breaking yards in India require investment in terms of technology, infrastructure, training and facilities that cater to the yard workforce. Training, too, is an indispensible part that cant be stressed enough. Present-day workers are ignorant towards the dangers their everyday work possesses, in return for minimum wages.

6.1.2. Commercial use of scrap steel

The demand for scrap steel is very high for recycling by the steel industry. Compared to steel produced from the ore, steel produced by the ships scrapped steel is very high. Ship scrapping industry also flourishes in regions where demand for steel is high, with less access to ore and availability of low cost manpower. Hence, its more profitable to produce steel from scraps by employing low-cost labour, than producing it. Large cargo ships are most sought after as the amount of scrap obtained from these ships are much higher compared to smaller ships. The steel material obtained as scrap could be recycled completely to make fresh steel. Otherwise, it could also be re-rolled to make steel plates and rods which are used in areas where lower quality steel could serve the purpose. The equipments and machinery obtained during scrapping are sold to the existing ship owners looking for replacement of the said item. Several shipping companies currently procure components of equipments and machinery to cope up with emergency breakdown on board ships. These items are available at one tenth the price of original and can be procured immediately. Lead time for these equipments is much less compared to the supplies from Original Equipment Suppliers. Ship recycling industry in India can be a boon to the old ships which require dry-docking, as some of the spares and parts fitted on the ship may no longer be manufactured. Alang yard serves as a repository for such parts. Hence, superior technology suitable for recycling and other necessary treatment for the recovered parts from scrapping is also needed.

6.1.3. Workers Benefit

Ship recycling industry in Alang is unorganised industry, with more than 134 companies involved in ship dismantling spread over 170 plots. Some of the companies are ISO certified and have safety regulations are in place. The ship breaking activity is hazardous and is regulated under the Factory Act, which has laid down

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minimal safety measures to be undertaken while carrying out ship breaking activity. However, there are instances when small companies do not to have adequate safety equipments for the employees. GMB has taken several initiatives to create common infrastructure for the workers involved in the ship breaking activity. It has created Labour Housing Complex to provide suitable accommodation with proper infrastructure facilities. GMB has also acquired land of about 60 acres in Alang and 14 acres at Sosiya. The land will be used by GMB create infrastructure for the ship breaking industry. Sanitation, housing facilities, health care, safety equipments and practices are some of the areas where opportunities for investment remain open.

6.3. Environment consideration for Ship scrapping

To ensure safety of health of personnel involved in the industry and also environment, it is essential to follow the safe mode of dismantling an old ship and also disposal of waste generated after adequate treatment. There are opportunities for firms to provide technology, training and equipment to enable safe and sound disposal of the scrap remains. Even hazardous waste disposal facility can be set up to handle and dispose off without considerable damage to the environment.

6.1.1. Government initiatives

The Central Pollution Control Board in Delhi has prepared environmental guidelines for ship scrapping industries. The aim is to mitigate the effect of such industries on the surrounding environment. The guidelines include a description of the appropriate pollution control measures regarding solid waste, air pollution, water pollution and noise. This also includes aspects of workers safety. The state pollution control board is responsible for regular monitoring and implementation of environment management plan. GMB, the coastal zone authority of the Government of Gujarat, regulates all the ship dismantling yards of Gujarat. They are responsible for designing a system which ensures work safety. Ship scrapping being an unorganised industry, where the safety and environment regulations are not fully implemented, there is a need for meticulous planning of infrastructure and work process. Foreign firms could get involved at the state level for such an enterprise. GMB had commissioned ILFS-Ecosmart to advise and prepare a master plan for the development of environment friendly ship recycling industry at Alang. In addition to these, GMB is the nodal agency on the behalf of Government of Gujarat to ensure environment friendly beaching of ships. The agency has made it mandatory to obtain a gas-free certificate from the third party before beaching ship. Every ship should obtain permission to start the cutting operation from the GMB. Ship breaking industry has several regulations in place for safe and environment friendly recycling of ships. However, due to unorganised nature of the industry, ship breakers dump waste such as chemicals, plastic, iron and wooden scrap with impunity, without proper treatment by small firms. This has been continuing

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despite the fact that GMB has constructed solid and hazard waste management plant. With the introduction of technologically-adept firms, such practices are sure to go down. In order to carry out various developmental activities and provide infrastructure facilities in the yard, GMB has submitted proposals for transferring government land and for acquiring private land in the nearby villages. Here, too, opportunities exist with the state government to work in tandem, and build the infrastructural facilities that the yard so urgently needs.

6.1.2. Statutory Guidelines

Over the last few years, Alang has been receiving a lot of adverse publicity at both national and international levels due to the large number of accidents and deaths of its workers. The strict regulatory guidelines have improved the working conditions at the site. On 31st of August, 2000, GBM introduced new regulations covering safety measures for the beaching of vessels. The overview of the regulations is given below: Documentation gas-free certification. Permission for beaching a vessel. Limitation on the number of ships to be beached and the location of these (distance between

vessels) per plot.

6.1.3. Legal Framework

Steel cutting is one of the most critical and risky activities during dismantling. GMB and Gujarat shipbreakers Association have laid down guidelines for safety and precautions during the cutting operations in the ship-breaking yard. The guidelines cover the initiatives that are to be taken by the ship-breakers on safety, for e.g. The Factories Act, the Explosives Act, the Gas Cylinder Rules, the Static and Mobile Pressure Vessels Rules and are monitored by GMB. The laws enacted by the Gujarat Maritime Board to protect the rights and safety of workers are as follows: (a) The Gujarat Maritime Board (Prevention of Fire and Accidents for safety and Welfare of Workers (b) Protection of Environment during ship-breaking activities Regulations, 2000.

6.1.4. Supreme Court Ruling on Ship Breaking Industry

According to the 14th October, 2003 Indian Supreme Court order on Hazardous Waste Management Rules, the SPCB should ensure that the ship owners properly decontaminate their vessels. The Supreme Court of India in June 2007 established a panel to develop standard procedures and environment protocols for the Indian ship breaking industry. The Court issued the following directives on waste trade: Page 100 of 104

A ship should have proper consent before arrival from the concerned authority or the State Maritime

Board, stating that it does not contain any hazardous waste or radioactive substances. In appropriate cases, AERB should be consulted. owner. Waste generated should be classified under Hazardous and Non-hazardous and the quantity The SPCBs should ensure that the ship, prior to breaking, is properly decontaminated by the ship

should be informed to the State Maritime Board. Waste materials should be properly handled and disposed. Total quantity of asbestos wastes should

be informed to the concerned authorities. The final disposal of asbestos wastes should be authorized by the Gujarat Pollution Control Board. Only if the ship breaking industries have provisions for disposal of the waste in environmentally

sound manner, they should be given authorization. Only if the industry has facilities for disposing waste in an environmentally sound manner, should all the authorization be renewed. The State Maritime Board should see to it that all quantities of wastes and paint chips etc. are taken

to areas outside the beach for safe disposal. Burning of hazardous and non-hazardous materials on the beach should be completely banned. Direction should be given to the State pollution control board of all the coastal states where the ship

breaking activity is conducted including the state of Gujarat, to order closure of all those units that are not authorized under the Hazardous Waste Rules. Unless having the necessary authorization, the plots where currently no activities are being

conducted should not be allowed to conduct any fresh ship breaking activity. As per the standard fixed, continuous monitoring of ambient air, SPM and noise level should be

monitored by the Gujarat PCB. For the installation of proper equipments and infrastructures for inspection of hazardous materials and radio-active substances, the Gujarat pollution control board should be directed, and also the AER should be consulted. Compliances of the new Gujarat maritime Board, such as provisions of fire and accidents for safety

and welfare or workers and protection of environment during ship breaking activities should be ensured by the Gujarat pollution control board. The notification that was issued by GMB in the year 2001 on Gas free for hot work should be made

mandatory and the ship should not be given beaching permission unless this certificate is shown. If any explosion takes place, irrespective of the possession of certificate, it should be dealt sternly and the license

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of the plot holder should be cancelled. For giving false certificate, the explosive inspector should be prosecuted. The ship owners should maintain an inventory of the hazardous waste on board a ship, and no

beaching permission should be granted without such an inventory. For the safe disposal of hazardous and toxic waste the GMB should submit the inventory to the concerned SPCBs. The regular visit of GMB and GSPCB officers to the sites at regular intervals would make the plot

owners realize that these institutions are serious about improvement in operational standards. An interMinisterial Committee should be constituted comprising Ministry of Surface Transport, Ministry of State, Ministry of Labor and Ministry of Environment and Forests with the involvement of labor and environment organizations and representatives of the shipbreaking industry. As per the CPCB guidelines, landfill sites and incinerators should be prepared by the SPCBs with

the involvement of State maritime Boards. This should be done only after the prior approval of the CPCB. India should make an active participation in international meetings on shipbreaking at the level of

International Maritime Organization and the Basel Conventions Technical Working Group, and this participation should be included from Central and state level. The shipbreaking activities in Alang and in other coastal states should continue and expand in

compliance with the above recommendations by the plot-holders.

6.4. Conclusion
With so many laws, regulations and reforms laid down to facilitate a safe and environmentally sound approach and execution of ship dismantling in India, the ground reality still doesnt reflect all of the above measures. Part ignorance and part lack of infrastructure, training and technology are attributed to the nearfailure of responsible undertaking of the ship-dismantling business. The global recession was actually a boon for the ship-breaking industry. Old vessels and financially-hit companies resorted to scrapping their ships, which they could no longer afford to run. Over 200 ships arrived at Alang for dismantling in 2008-09, and the number is expected to shoot up to 300 in 2009-10. Some optimists at Alang estimate that over 600 ships are available for scrapping due to the recent economic turmoil. In fact, The Baltic and International Maritime Council forecasts that demand for ship scrapping will outstrip the existing recycling capacity. Considering the aforesaid potential in the industry itself, coupled with the opportunities existing in the infrastructural development, training and technology supply in India, the time is ripe for a foreign firm to make a foray.

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The Norwegian companies would be required to spread awareness among the ship dismantling companies to undertake mechanisation. The cost benefit analysis of the same has to be shows to them. It could be challenging for persuade ship dismantling yards undertake voluntary implementation of stringent environment laws fallowed in Europe. Most of them fear that their cost would go up forcing them to lose their business to Bangladesh and Pakistan. This problem could be tackled in a different way. Taking cue from the Information Technology business process outsourcing industry, a project is not outsourced to the company which does not uses licensed software. This brings fair competition between all stakes holders. As majority of the ship owners are European companies, a resolution could be passed through their association that the ship owners would not sell their ship for scrap to yards which do not have safe disposal of environmental waste and do not adopt environmental friendly scrapping of ships.

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7.

CONCLUSION

In the wake of recent downturn, Indian shipping industry still managed to hold its own; although not at a scale that was seen prior to the meltdown. The Indian shipping sector exhibited certain immune properties, and after the worst was over, it also showed some resilience to the market fluctuations. In addition to the promises the industry holds at present, and the potentials that foreign investors could bank on in the future, the industry still has a lot of ground to cover. The growth in the shipbuilding industry has been very steep. However, the industry has yet to find the efficiency that would stand shoulder-to-shoulder with that of the international players. Technology has been the sore issue that has played a spoilsport in the overall development of the industry. India has an abundance of manpower. However, the ship industry needs a balancing act; in fact, in present times, the balance should tip a bit in favour of technology. Technology is the area where boundless opportunities could be found and taken advantage of. This entity can play a key role in not just ship-building or ship-scrapping but also in the maritime academies, training and other means of technological assistance. Norwegians, being technologically sound that they are, have a world of opportunities, and can also create limitless ones in this sector. Even the federal and state governments have realized the need of the hour, and have implemented laws and regulations that would benefit the Norwegian participants immensely. All this is meant to build a sturdier and a more conducive environment for foreign investors, and help India put on the world-map as one of the appealing, lucrative and resourceful shipping markets. In India, the coastal shipping, too, has its share of bottlenecks; mostly infrastructural. The existing and coming-up ports would help ease the transportation hurdles. Coupling the upcoming developments with the government-backed enterprising projects, opportunities are available for pickings in the coastal shipping segment. Both the tangible and the intangible needs of the Indian shipping industry are waiting to be addressed. Its inspiring to watch the Indian shipping industry put an effort in modernizing its approach and improving its efficiency. Such exploits have always resulted in bilateral opportunities, where both the involved parties stand to gain; Norwegians would have found another market to expand its operations, and India would have found the assistance it so gravely needs.

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