India: CAG Raps Shipping Corp for Delay in Fleet Acquisition

Pulling up state-run Shipping Corporation of India for not pursuing an ambitious acquisition policy to augment fleet, accounting watchdog CAG today said it has not only resulted in Rs 2,100 crore cost overrun, but also adversely impacted its business growth.

Shortfall in acquisition also delayed modernisation of the navratna company’s fleet capacity at a time when country’s seaborne trade was growing at a pace of 8.5% annually, preventing it to capitalise on it, the Comptroller and Auditor

General (CAG) said.

“The company did not make use of its delegated powers for acquiring vessels resulting in delay in placement of orders with the shipyards. The delay (time taken 14 to 34 months) in getting the approval from the GoI resulted in escalation in the cost of vessels by approximately Rs 2,100 crore,” it said.

This resulted in loss of business opportunity, it said. The company, which accounts for about one third of the total Indian fleet of 9.61 million gross tonnage, planned to acquire 62 vessels during the 11th Five Year Plan (2007-12) but could acquire only 25 vessels.

“Even after considering the orders placed for vessels during 2010-11 there would still be a shortfall of 26 vessels in the achievement targets,” the CAG pointed out. The firm had failed to meet the target for 10th Five-Year Plan (2002-07), too, when it could acquire only 14 vessels as against planned 39.

CAG also noted that average age of company’s vessels was 15.63 years as against 11 years of their immediate competitor in the private sector.

“Out of 76 vessels available with the company, 20 vessels had already outlived their economic life and 16 other vessels were on the verge of completing their economic life. The age of company’s fleet did not compare well either with their nearest competitor or with the average age of the country’s fleet,” it said.

Audit also observed that there were no clear policy guidelines for placement of vessels on short-term or long-term by the firm while profit from bulk segment declined, the company had to close down “liner services in quick succession putting at risk its credibility as a reliable service provider.”

Also, the CAG pointed out that for operating its very large crude carriers (VLCCs) company could not get any business from Indian Oil Corporation during 2007-10 period despite IOC importing 92 million metric tonnes of crude oil through other VLCCs.

“The company has no system of analysing reasons for not encashing such enormous business opportunity available with the country, especially, when earlier most of the oil imports were being done through the company,” CAG said.

(moneycontrol)