India: Locally Built Ships Priority in Chartering

The government of India has revised guidelines for chartering of ships by providing the right-of-first-refusal (RoFR) to ships built within the country, a move to promote the Make in India initiative and incentivise shipbuilding activity.

Henceforth, whenever a tendering process is undertaken to charter a vessel, a bidder offering a ship built in India will be given the first priority to match the L1 quote. It is expected that this priority given to ships built in India will raise the demand for such vessels, providing them with additional market access and business support.

Prior to the revision of the guidelines, the RoFR was reserved for Indian flag vessels as per the relevant provisions of Merchant Shipping Act, 1958. The existing licensing conditions have been reviewed in consonance with the Government of India’s policy of promoting the Make in India initiative and the Public Procurement and Make in India orders dated 15.6.2017 and 28.05.2018 issued by Department of Industrial Policy and Promotion (DIPP).

The review is also in line with the need to give a long term strategic boost to the domestic shipbuilding industry, the need to encourage the domestic shipping industry to support the domestic shipbuilding industry, and the need to develop self- reliance and a strong synergy between these vital industries for the overall long term development and economic growth of the country.

The Ministry of Shipping has also laid down eligibility conditions and rules for exercise of the RoFR. The RoFR would be exercised only in case the vessel being offered for charter by the lowest bidder (L1) has been built outside India.  

For any bidder to exercise RoFR, his bid should be within the Margin of Purchase Preference, which will be 20% of L1. The two instances under which the RoFR may be exercised are that the L1 bidder is a Foreigner or Company registered outside India, offering a ship not built in India and the L1 bidder is a Citizen of India OR company registered in India OR Society registered in India OR Indian Shipping company/organization with a vessel registered/flagged in India, offering a ship not built in India.

From amongst the bidders eligible to exercise RoFR, the priority to exercise this Right would lie in sequence from the lowest to the highest bidder within the margin of purchase preference.

 The Government of India has taken several steps to promote shipbuilding in India especially by providing long term subsidy for under the Shipbuilding Financial Assistance Policy (2016-2026).