The Shipping Ministry has raised red flag over SCI plans to acquire fresh vessels, cautioning that the state-run firm could face an Air India-like situation as it could lose around $200 million (Rs 980 crore) from the proposed purchases.
According to an internal document of the Shipping Ministry, Shipping Corporation of India (SCI) "is on the brink of financial collapse" and its plans to acquire 33 vessels would lead into a "debt-trap, almost on the lines of Air India".
"SCI, which has had a profitable run for the last 19 years, is on the brink of a financial collapse...The company will be in the red from this year onwards. The large and high cost orders are leading to a debt-trap almost on the lines of Air India," the document said.
According to the document, the is a significant gap emerging between the cost per vessel as per contract and market value of the vessel at present.
"The overall loss to the company on account of such acquisitions, where there are gaps between the contract price and the present market value, is in excess of $200 million," the document said.
As on date, SCI has 33 vessels on order, of which 21 are ordered on Chinese shipyards. The company has been able to tie up the financing in respect to only 10 of these vessels.
"It was in this context that the broad of directors of SCI in its last meeting has desired a complete ban on all fresh acquisitions," it stated.
When contacted, SCI Chairman S Hajara declined to comment on the observations made by the Shipping Ministry.
SCI, which accounts for about one third of the total Indian shipping 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.
The country's accounting watchdog CAG has already pulled up the Navratna company for delays in acquisition plans and said it has resulted in cost overrun to the tune of Rs 2,100 crore.
The document said that despite the critical health of SCI, its management over the last 6-8 months forcefully argued for a series of projects, most of which have not been approved by the Board on the advise of independent directors.
"These project proposals appear to be driven by the prospective JV partners which would invariably have management control. The motivation appears to be either to draw upon the large cash reserves of SCI and/or to deploy SCI vessels as part of SCI equity with valuation done in a non-transparent matter," it said.
Elaborating further, the Ministry said in once such proposal for a joint venture (JV) in the Europe-America-Africa sector, the proposal envisaged procurement of 12 new vessels from China at a price almost $10 million (Rs 50 crore) more than the current market price.
The firm reported a net loss of Rs 5.80 crore in the first quarter of this fiscal against a net profit of Rs 191 crore in the same period last year. The company reported a net profit of Rs 567.30 crore for the last fiscal.
Earlier this month, the Comptroller and Auditor General had slammed Air India's decision to acquire 111 planes through debt as "a recipe for disaster" and said it should have raised alarm in the government.
Terming the move for getting of a "large number" of planes as "risky", CAG said the aircraft acquisition had "contributed predominantly" to the airline's massive debt liability of Rs 38,423 crore as on March 31 last year.