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Marine Log

December 16, 2007

Indian yards still talk expansion despite subsidy uncertainties

Plans to expand India's shipbuilding capacity continue to gather pace--even as there are signs that India's generous 30 percent shipbuilding subsidy program could be trimmed back.

The program ended on August 14 this year. Since then, only a trickle of newbuilding orders have been announced.

The industry has been pressing for a 10 year extension of the program.

The Shipping Ministry has backed the industry's pleas. However, India's powerful Planning Commission reportedly takes the view that the financial support cannot be continued at its present levels. Instead, it is suggesting that subsidies be reintroduced, but gradually tapered off.

That has been welcome news to the Finance Ministry, which has estimated that were the scheme reintroduced at its previous level, it would cost a staggering $10 billion over the next five years.

None of this seems to have dampened expansion plans.

In the past week, India's biggest private sector shipbuilder ABG Shipyard Ltd has announced plans to invest Rs1,300-1,400 crore (upwards of $300 million) to expand capacity to enable it to build VLCC size ships at its shipyard in Surat, Gujarat. Meantime, it is building a second shipyard at Dahej in Gujarat that will be able to build 120,000 dwt bulkers and, in a second phase, jack-up.

According to the shipyards industry, subsidies are important because shipbuilding, unlike conventional manufacturing, is not protected by tariff barriers and they have to compete with global players for both domestic and export orders.

Keeping observers guessing as to its exact intentions has been Indian and international civil engineering giant Larsen & Toubro.

L&T already has a yard at Hazira in Gujarat, but has plans to invest around $500 million in a new large yard. It is now reported to have narrowed its choice of yard location to three: one near Kakinada, Andhra Pradesh, one near Chenna,Tamil Nadu, and one near Mundra, Gujarat.

Once a final location is chosen, it will take two and a half years for the facility to become operational.

L&T will use the new yard to target the naval sector, CNG and LNG ships and ship repair, according to Indian media reports