New Credit Note Scheme Boosts India’s Ship Recycling Industry
The Indian government has introduced a new ship recycling credit note scheme aimed at promoting vessel recycling and shipbuilding. Under this initiative, vessel owners can redeem credit notes worth up to 5% of a new ship’s cost after scrapping eligible vessels at certified facilities. The scheme is part of the broader Shipbuilding Financial Assistance Scheme, designed to enhance the country’s maritime capabilities.
Details of the Credit Note Scheme
The recently approved credit note mechanism allows vessel owners to receive a credit note equivalent to 40% of the ‘fair scrap value’ when they scrap eligible ships at government-certified recycling facilities. This value is determined based on the lowest of the contract price, fair price, or actual price received by the recycling yard, and must be certified by a chartered accountant. The credit note is valid for three years from the date of scrapping.
An ‘Eligible Ship’ for this scheme includes vessels owned by both Indian and foreign owners, provided they are flagged under any administration and scrapped in accordance with the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships. The credit note can be utilized towards the payment for new vessels being ordered or constructed at Indian shipyards. The government will reimburse the shipyard for the credit note value upon delivery of the new vessel.
The guidelines specify that only one credit note will be issued per scrapped vessel, but owners can accumulate credit notes from multiple recycling contracts. These can be combined to claim credits on new shipbuilding orders, although the total redemption is capped at 5% of the new vessel’s contract value. Importantly, credit notes are indivisible and must be fully utilized against a single contract, with partial applications not permitted.
Redemption and Transfer of Credit Notes
Vessel owners can redeem their credit notes either at the time of placing a new order or before settling the final payment to the shipyard. If a credit note is not used for a new vessel delivery, it can be transferred to another owner who intends to build a ship in India, allowing for potential monetization in the open market. The pricing for such transfers will be mutually agreed upon, with the government not involved in the transaction.
The guidelines also stipulate that if a shipbuilding order is partially canceled, any utilized credit notes will be considered fully consumed, while only entirely unused notes can be returned to the owner or shipyard. Failure to redeem a credit note within the three-year validity period will result in its expiration, releasing the government from any payout obligations.
At the time of delivery of a new vessel, the owner must submit the credit note to the shipyard for final settlement. The shipyard will then claim the corresponding financial assistance from the government, ensuring a streamlined process for both vessel owners and shipyards involved in the recycling and building of ships in India.
