Dredging Corp strikes Rs 55cr Bahrain deal

To purchase two more dredgers worth Rs 200cr

The Dredging Corporation of India Limited (DCIL) has entered into a long-term lease agreement worth Rs 55 crore with a Bahrain-based firm for undertaking dredging work in Bahrain. DCIL is also slated to take a decision on purchasing two more dredgers worth Rs 200 crore in the next couple of months, according to a senior official of the company.

Speaking to Business Standard, G G Rao, director operations and technical of DCIL, said that the corporation had entered into the deal with the Bahrain-based firm for outsourced dredging work in the oil rich nation.

Two dredgers from the company's fleet would be utilised in dredging operations for the next 21 months.

"This long term lease is a unique opportunity for us in terms of eventually being able to market our dredging services directly. These kind of engagements will be able to help us better gauge what needs to be done in the long term to tap the market opportunity abroad," Rao said.

The lease agreement will see DCIL deploy one dredger for a consideration of about $25,000 per day for a period of 15 months, and another smaller dredger for a fee of $5,000 per day for a period of six months.

DCIL which recently came out with a public issue is transitioning from a protectionist era to one of competition and needs to substantially improve its capacity. After the recent IPO, the government's stake has come down from 98.6 per cent to 78.6 per cent.

DCIL has a stranglehold on the Indian dredging market with an estimated 89 per cent market share of the estimated 65 million cubic metre major port dredging market in India, including 92 per cent of India's major port maintenance dredging market.

This kind of a high market share was due to the government's policy which made DCIL the only organisation that ports could negotiate with for dredging services.

Since April 1, 2004 this policy has been reversed and all ports in the country, except Kolkata Port, can negotiate their own dredging contracts with outside parties.

At present, about 55 per cent of DCIL's income comes from its maintenance of dredging operations at Kolkata Port. A future change in this dredging policy for Kolkata Port, including by opening the port's dredging requirement to competitive bidding, could adversely impact the company.

In addition, any reduction in government dredging funding in the future will reduce its maintenance dredging income from Kolkata Port. As of September 30, 2003 outstanding payments from Kolkata Port stood at a staggering Rs 154.58 crore.

In fiscal 2003, DCIL registered its highest sales Rs 492.80 crore as compared to Rs. 488.96 crore for the previous year. The net profits for the respective periods were Rs 161.83 crore Rs 101.55 crore.

Rao said that DCIL had decided to implement an ERP (enterprise resource planning) software package across the organisation at an estimated cost of about Rs 7 crore by the end of the year.

Rao admitted that DCIL would need to substantially upgrade and expand its current fleet of 12 dredgers which includes two cutter suction dredgers.

"Our fleet is the sixth largest in the world, but a company of our size can easily think of acquiring another five dredgers without having to worry about marketing, because such is the demand for dredging in the region," Rao said.

DCIL is slated to open tenders for the purchase of two dredgers tomorrow and a final decision is expected in the next three months.

Four foreign firms, one each from Netherlands, Spain, Germany, Japan and the state-owned Mazagon Docks Limited have bid for the estimated Rs 200-crore contract.