September 23, 2010

Tax Axe

The Indian Government has deferred the implementation of the new Direct Taxes Code Bill by a year. Just as well, because this Bill in its present form threatens both seafarer wallets and the supply of Indian mariners to the global shipping industry.

I should say at the outset that the DTC, a Code that will replace the old income tax rules in India, was tabled in parliament by the Finance Minister recently and has been referred to a Select Committee for scrutiny. It is not a done deal just yet. But the big change proposed is in the Non Resident rules that Indian seafarers have long used, to- provided they sailed with foreign shipping companies and stayed 182 days out of the country in a financial year- claim Non Resident Indian (NRI) status and therefore not pay any income taxes in India. The fact that a mariner on a contract went out on fresh employment each time added to the strength of his tax-free argument under the old rules. Since a seafarer did not pay any tax elsewhere either, his entire seagoing income was tax-free. Since he and his family lived in India, a mariner working for a foreign company had to just ensure that he spent 182 or days more sailing on a foreign flag ship to claim NRI tax-free status. That was all.

The DTC proposes to slash the 182-day period hitherto allowed to just 60 days. If experts are reading this proposal correctly, an Indian sailor working for a foreign ship will be able to stay just two months (or more precisely, 60 days) a year in India to avoid paying income tax. Price Waterhouse Coopers’ Director (Tax) Kuldeep Kumar says, "With this change, a non-resident would be at greater risk of becoming an ordinary citizen and become liable to pay tax in India as the threshold limit has been reduced."

The amount of tax will depend on a sailor’s income, of course, but back of the envelope calculations tell me that the tax payable by a Master may end up amounting to around 20% of his annual income, if he sails eight months a year. Which is a month and a half’s full wages on a total of eight months income earned. A significant hit, for sure, especially since his present tax liability is precisely zero.

The Direct Tax Code, in its present form, will make seafaring even less attractive for an Indian youngster choosing a career and will encourage older mariners to quit earlier. However, Indian ship owners will not be unhappy at the taxman’s plans: many have long argued, with no success, for seamen sailing in Indian companies to be given the same tax benefits NRI seamen enjoyed in order to support Indian shipping. They may now feel that Indian flagged ships will become more attractive options for mariners. I tend to disagree, because the fact remains that Indian shipping cannot absorb more than a very small percentage of ‘returnees’ from foreign flags. Not that this fact will bother them much: oversupply of officers in the market never worries any ship owner, who usually pays only sailing crew. In any case, foreign ships will remain relatively more attractive, I think, not just because of the money differential that will still exist after the new tax structure but also because many Indian ships, especially those run on the coast or in near trades, are plagued with substandard maintenance and iffy calibre of crews. (After almost thirty years in foreign shipping, when I was contemplating short tenures on the Indian coast, a Chief Engineer friend of mine, with some recent experience of Indian ships, told me bluntly that I wouldn’t be able to do it because the quality of ships and crews was often terrible. So was professionalism and commitment, both ashore and afloat. We agreed that I either would quit or be unceremoniously thrown out in short time.)

I expect some pressure from other lobbies to amend the NRI clause in the DTC. Seafarer travails do not matter to the public or the politicians: our difficulties have always been easy to ignore. But the objections of Indians working in the Gulf will not be as easy to brush aside; those folk will be hit too, and so will other Indian origin people in the US, Canada and the UK who always seem to be preferred NRI’s over mariners (who are second class citizens at best anyway), and who may well force some tinkering to the DTC. The Gulfies have vote banks in India; NRI’s in the West always have disproportionate leverage in domestic policy. OCI and PIO cardholders shuttling between India and elsewhere will put some pressure too. An amendment to the DTC is hardly an impossibility, in which case Indian sailors, usually at the wrong end of collateral damage, may get some collateral relief instead for a change.

But what if the DTC is kept unchanged?

In that case, perhaps the new tax laws will force foreign ship owners to think up new strategies for officer or crew retention and promote long term (can it be, even permanent?) employment. Perhaps they will think of devising seafarer packages on an annual basis that will minimise, to the extent possible, an Indian seafarer’s tax liability. Perhaps they will use the adversity and turn it into an opportunity instead.

Perhaps, but I do not think that will happen too easily. I think that the trend of employing more Filipinos and others instead of Indians, as many ship owners in Europe are already doing, will probably accelerate. Let’s face it: the quality of Indian seafarers is dropping, and fewer managers can justify paying a premium to many Indians sailing today compared to some other nationalities, Direct Tax Code or not.


September 16, 2010

Judas Kiss

Although the headlines have tended to get stuck to the twenty three million dollars Chief Engineer Ioannis Mylonakis is suing his erstwhile employers for, I am more worried about something else that the Georgios M affair has thrown up: the apparent nexus between fake whistleblowers, the Mamidakis group as owners and managers and the US authorities. There is something seriously wrong when seafarers are criminalised after an accident, but it is truly contemptible when collusion between crew, owners and the US- that otherwise champions an individual’s rights-ends up trying to shaft an innocent Chief Engineer. If true, this behaviour deserves to be condemned loudly and widely before the industry’s already shaky reputation is irretrievably damaged any further.

Briefly, the facts appear to be these: Last year, Styga, a Mamidakis group company and managers of the Georgios M, admitted in the US that it used permanently installed magic pipelines hidden below the floor plates of the engine room for dumping oily water at sea, and had been doing so for some time. Styga plea-bargained a $1.25m fine and a three-year probationary inspection programme; it also agreed to assist the US authorities in prosecuting three ex-Chief Engineers. Mylonakis had been Chief Engineer for about three months before he was arrested in February 2009 after Filipino whistleblowers on board accused him of dumping oily water off Texas using a magic pipe; Mylonakis vehemently protested his innocence right through his fifteen month ordeal and detention in the US, saying he did not even know about the permanent magic pipelines installed by Styga below the engine room plates. A Houston jury agreed, acquitting him finally in May this year; additionally, the court found that the fake whistleblowers testified that Mylonakis had used the magic pipe bypass only in exchange for immunity by US authorities. And no doubt for the percentage of any fine, a questionable practice in itself.

Mylonakis has now sued Mamidakis, including many of its biggest honchos - all of whom appear to be interlinked in a typical see-no-evil, hear-no-evil single ship owner-manager nexus, The Chief Engineer accuses the owners of having a deliberate policy of dumping oily water at sea and says that they, in essence, fed an innocent guy (himself) to the sharks in a plea bargain arrangement with US authorities. I presume he cannot sue the entities in the US that authorised his persecution; it would be nice if he could do that.

The entire affair, sleazy and squalid, has many players who have behaved odiously. The owners, for one, who have reportedly colluded with the US authorities as well as- apparently- the crew in a plea bargain arrangement more in keeping with the aftermath of a sordid drug bust than anything else. (The fact that they, admitted polluters, tried to maliciously blame an innocent Chief Engineer deserves nothing but contempt). Half a dozen crewmembers for another, who seem to have perjured themselves in some dirty back-office deal. And the US authorities, of course, who seem to have had no hesitation in prosecuting an innocent foreign officer in a deal some would call shady- as the verdict has shown- have hardly covered themselves with glory either. In fact, of all the players in this drama I find their behaviour the smelliest. Maybe they thought they were going after Al Capone all over again in a C grade Hollywood flick.

Seafarers elsewhere are hardly much better off. Example: the Ukrainian Captain and Mate sentenced to nine years in Venezuela recently after officials found cocaine welded onto their ship’s hull. As far as I know, there is no other evidence directly linking the officers to the cocaine, but that does not seem to matter. Neither does the fact that the practice of drug smugglers using such methods without the ship’s collusion- or even knowledge- is nothing new in that part of the world. There are possibilities that the two mariners may be sent to Margarita, one of the most harsh prison island colonies in the world.

Hugo Chavez’s politics, some say. I say it is just another case of ignoring justice or basic human rights when it comes to mariners; a practice now malignantly sanctioned across the world because States get away with it.

The deficit in trust between owners and managers on one side and seafarers on the other is nothing new, especially when a casualty or an environmental incident is involved. However, widening this atmosphere of suspicion to include crew who may well have ulterior motives for blowing the whistle- or who may not hesitate to fabricate evidence or perjure themselves in exchange for their thirty pieces of silver- introduces a new dimension to this sorry state of affairs. Nightmares of a Judas kiss from shipmates in league with owners, managers and authorities will give many an innocent Master or Chief Engineer sleepless nights aboard. It now appears that a Port State can get into bed with every one of those elements, should they be criminally inclined, and victimise anybody- making a criminal out of him instead.

I hope that a US court awards Mylonakis his millions, provided of course, that Mamidakis is found guilty in the civil suit. I hope that there is a way to bring those fake whistleblowers to justice, and deliver opprobrium to those in authority in the US who approved the plea bargains. And I hope that this case gets huge publicity in shipping circles, if only for the deterrence value: the only thing that will stop some owners thinking along the same lines as Mamidakis have reportedly done is the twenty three million. Nothing gets a ship owner’s or manager’s attention faster than the possibility of a kick in their wallets.

Mylonakis was lucky, in a sense, that he was arrested in a country where the courts had the integrity to find him innocent; we all know there are many other countries where the judiciary will have been part of the corruption, adding another element to the criminal nexus and contributing to the absolutely intolerable behaviour that more and more mariners are exposed to today.

This, in 2010. The year of the seafarer. Hooray and well done, folks.


September 09, 2010

Smoke on the water

There will be no need, really, to bring up shipping again in this piece, because the certain impact of these events on the industry will be obvious to anybody who has not spent the last decade or two on another planet.

There is a covert war in progress right now. Instigated by the US against Al Qaeda linked groups, this is not being waged just in Pakistan or Afghanistan- where, as American analyst Paul Pillar says, “most of Al Qaeda is on one side of the border while our troops and the counterinsurgency are on the other side”- it is happening in Yemen, Somalia, Kenya, North Africa and a few other places across the African continent. And in central Asia.

This is why. The US knows that Al Qaeda has partly (even substantially) melted away from AfPak into Yemen and Somalia and beyond. The reasons are obvious (and, if I may repeat myself, predicted)- there was too much heat in AfPak and the Al Qaeda long term strategy is also to choke trade- particularly oil- moving in the Indian Ocean. Besides, terrorists do not seek territory but havens, and weak or anarchic states are obvious choices. It is so in Pakistan and Afghanistan. It is so in Yemen and Somalia. It will be so elsewhere in future.

A recent Somali story: Ismail Haji Noor, a government official, is reported arriving in Hobyo last month. What he does is this: he calls the Somali pirates brothers, gets photographed with them and asks for their help to fight the Al Qaeda affiliate Al Shabaab. Shabaab controls huge areas of Somalia, by the way, and even most of the capital Mogadishu, with the US backed government writ running in just a few streets of the city. The New York Times has this to say about the Somali government’s new alliance with pirates: “Mr. Noor stood on a beach flanked by dozens of pirate gunmen, two hijacked ships over his shoulder, and announced, “From now on we’ll be working together.” He said the Shabaab was a much greater threat than the pirates were: “Squished between the two, we have to become friends with the pirates. Actually, this is a great opportunity.” For Mr. Noor, maybe; for most of the rest of us it is a threat.

Other reports say that pirates are cordoning off villages along the northern coast to stop the Shabaab coming up from southern Somalia. They also say that some other rival pirate groups in Somalia have agreed to split ransoms with the Shabaab and the Hizbul Islam in exchange for protection and patronage. Pirates are now aligning themselves with either the government or terrorist groups, choosing sides in the long running civil wars in that country. They have used ransom booties to finance thousands of heavily armed militias. Some of these are organised into infantry divisions of a few hundred men each; they are armed with heavy machine guns and anti aircraft guns, in case you visualised a ragtag group traipsing around with just assault rifles. Kalashnikovs are now passé. Everybody is diversifying these days, it seems; it pays better. Not that piracy has stopped; this year promises to be another great year for that growth industry.

So, if I understand all this correctly, a US backed government (there is a parallel with the US’ alliance with Pakistan here) is backing pirate groups on one hand while the US fights the same pirates alongside other coalition navies at sea not far away. Meanwhile, other pirate groups are getting into bed with terrorists linked with Al Qaeda. Sounds like an orgy to me, with nobody knowing who is doing what with (or to) whom.

Will it be a matter of time before Shabaab diversifies into piracy- and maritime terrorism - all on its own? Will we see more MStars, this time off Somalia? Will things get uglier for crews? The Shabaab is particularly savage on land- you know, smashing people with rocks while applying their hardline version of the Sharia law and stuff like that. Will it take its barbarity to hostage crews? Will we be able to negotiate for the release of ships and crews in the same way as we do now- by getting overpriced ‘consultants’ to drop small bales of dollars on to the deck of hijacked ships, or will things get messier?

In this ever-widening conflict, the US has reverted to its old cold war ways of clandestine wars. Even while backing the Somali government that now backs criminals, it has now a wider covert war in full swing. The main event is Yemen, of course, where suspected Al Qaeda training camps and operatives have been regularly targeted. Covert ops, cruise missiles with cluster bombs from US naval ships steaming offshore, Harrier jets and UAV strikes are tactics of choice there right now, but I can bet commando teams, ‘trainers’ and ‘advisors’ are on the ground there and across Africa- and, by some reports, even in the southern ex Soviet republics, dealing with ethnic or religious elements that are problematic to US interests. Reports suggest that military strikes in Somalia have been approved by the US – and clandestine operations are reportedly being run from Kenya. But this conflict goes beyond that. Mauritania, Mali, Sudan, Tajikistan, Iran, Algeria, Morocco, Lebanon, Saudi Arabia and other areas of North Africa is where the shadow war is also being fought. Nothing is official, but some old players are back in action in the US, including Michael Vickers, who was key in the CIA covert war in Afghanistan during the Soviet era.

To give you some further food for thought, some other interesting tidbits from the wider region follow- do consider their possible impact on trade through the Indian Ocean. However, I suggest you sit down with a martini (vodka, not gin) and a map of the Indian Ocean showing all its bordering countries before reading further. Many sailors will have the geography in their heads: for them, just the martini is prescribed. Strong.

All set? Then join these dots:

• In the Ugandan capital of Kampala, at least 15 Pakistanis were arrested after terrorist strikes in July. Amongst them, Muslim preachers whom the Ugandans accuse of spreading radical Islam to others who took part in the three synchronised bomb attacks where 74 died. Al Shabaab from Somalia claimed responsibility for the bombings that targeted foreigners.
• The FBI is reportedly investigating whether Al Shabaab has received training in Pakistan.
• In August, eleven people were killed when the bombs they were making blew up prematurely in Mogadishu, the Somali capital. They were assembling a car bomb and another smaller roadside bomb. Amongst the would be terrorists killed were two Indians, three Pakistanis, one Algerian and one Afghani.
• The attack on the VLCC MStar in Hormuz in end July has long been confirmed as a terrorist attack. Surprisingly (or perhaps not so), there is deafening silence from the UN, the IMO and almost everybody else on that one. What do we plan to do, I wonder. Surely the plan can’t be to stick our heads in the sand forever?
• The fact that Indian coastal security agencies now say that the eight Somalis detained in May on the Lakshadweep islands close to the Western Indian coast are pirates.
• Reports of more than a dozen piracy attacks within four hundred miles of Lakshadweep, according to the same security sources as quoted in the Indian Express.
• Elements in the Pakistani establishment continue to fund, arm and train terrorists who then spread across the globe. Well known and now (finally, and once again) universally and publicly acknowledged, but still demands repetition.
• Somali based Al Qaeda training camps now believed to be attracting increased numbers of radicalised youth from the North American continent. Ditto for Yemen. Déjà vu all over again, eh?

And so on and on and on. The fact is that there is a ring of fire around the Indian Ocean rim today- and I am not even talking of Chinese designs yet (or again). Ignore this at your own peril: there will soon be much more smoke on the water if you do.

What do we tell our mariners now, as we send them out into a massive ocean that is looking increasingly like a war zone? Well, I for one have just one thought for them, and that too for the few that -because of widespread Draconian alcohol policies- still dare or hope to mix a drink at sea.

That thought is this: I do not know how you like your martinis, gentlemen, but you are likely, in the not so distant future, to get them shaken and stirred both.


September 03, 2010

Structured mess

Honestly, given a choice, I would not have employed about half the navigating officers that I was forced to sail with in recent times. Not that all were lousy, but too many were just not good enough. And, although I can well understand the imperative that requires that we put warm certified bodies on ships as fast as we can find them, I cannot understand why the maritime education juggernaut in India is in such a mess, and why precious little is being done about it.

It also appears to me that earlier generations of Indian mariners bulldozed their way into foreign flags because they were better trained and available at a time when demand was picking up. Much of the present lot, it seems to me, are employed only because shipowners seem to have fewer options today.

Ignore the officer shortage numbers for a bit; ignore, too, the separate problem of the decreasing attractiveness of a sea career. It is a separate problem, you know, even though some will correctly say that the calibre of the finished product is a function of the calibre of the entrant. My sense is, however, that we fail to train satisfactorily the youngsters that we do manage to attract- and these numbers are still substantial, if one looks at numbers for Cadet programme intakes in both Indian and foreign courses. Nonetheless, there is a cascading downward spiral of standards in training across the board, and that fact, coupled with the calibre of the entrant, adds up to an assembly line production of substandard officers.

There are huge structural problems, to be sure. Optimists may have thought that the formation of the IMU would address some of these, but the cynics amongst us seem to be winning that argument handsomely so far, even after the uneasy resolution of the spat that went to court in Chennai (Said spat now superseded by allegations of questionable practices by the IMU). Many in the industry are, in addition, concerned about issues of transparency and delivery of training across the Indian Maritime Education business, not to speak of the fact that a lot of old wine seems to have been funnelled into new bottles without a thought towards any improvement in training quality. The result is that the system is embarrassed by hundreds of crores being earmarked by the Government and the private sector for MET infrastructure without any corresponding commitment towards the quality of the finished product. Fund allocation is easy, and so are air conditioners and simulators. However, education, as much else in life, is about people: those that train and those that are trained.

The Ministry of Shipping needs to urgently look at its own backyard first and make up its mind if it is serious about its grandiose plans of raising the much-touted 7 percent number (the Indian global seafarer workforce percentage) triple fold in short time. Quite honestly, it doesn’t even have the beginning of a strategy that will do this. Equally bluntly, we do not have a clean system that will allow the brave and honest to succeed in anything except banging their heads against a brick wall.

The MoS needs to also review its approval programme for private training institutes and factor in independent third party audits. Quality of education audits, not the ISO audits of today that concentrate on documentation and largely ignore delivery of training (reminding me somewhat of shipboard ISM audits, all sound and fury often signifying nothing). Frankly, too many MET institutes are being run by proprietors with no clue about shipping or any commitment to it; the closest they probably get to a ship is when they gaze at the photo-shopped photographs of vessels on their websites. Too many of these employ no one from the merchant navy to teach on a permanent basis. Of those that do, too many of those that teach do so without passion or even interest. Small wonder that the quality of their graduates are making owners question the competency levels of Indian seafarers, or whether they actually deserve the salary premium that Indians have enjoyed so far compared to other nationalities.

The DGS needs to look beyond the ‘DG approved’ tag that many of these institutes hide their incompetence behind; therefore my suggestion for a corruption free third party audit mechanism. Frankly, I am appalled and disheartened by the attitudes of management at some at these institutes. A Government of India approval is hardly any guarantee of quality in any other educational field; often quite the opposite. To expect different in the MET business is wildly optimistic.

Then, there are too many people enrolling in foreign Deck Cadet programmes. They do so because they are ineligible for the Indian ones that have higher academic eligibility requirements (some foreign courses even take Commerce students!). Nevertheless, this does not make sense: these programmes are far more expensive long term, because the Cadet will have to go repeatedly to a foreign country for college and examinations for certification. I don’t know how these youngsters will quit sailing within a decade, as many plan to do: they will have hardly any money saved, what with high expenses of international travel, living abroad for months at a time and college fees. (Somebody should tell them that the colour of their skin will likely determine wages anyway, not the colour of their competency certificate.)

We need to enroll these youngsters in Indian programmes instead. What I would do is this: devise a longer- and special- Pre Sea programme for aspiring cadets who do not meet the more stringent academic requirements today. Address typical shortcomings that they have in Mathematics and some of the Sciences in this programme. Let them go out to sea only after reaching the required higher standards. They will be interested in such a syllabus because by not having to go abroad for certification they save lakhs of rupees.

Why don’t we do this? Disinterest, is why. Quite easily changed. Also easy is making it simpler for Indian ratings, particularly engine ratings, to appear for competency exams in India. For the life of me, I cannot see why we are sitting on our hands here when other countries are encouraging Indian ratings to come to them for officer certification.

Finally, it needs to be mandated to every shipping company operating Indian registered ships and those recruiting officers out of India that training berths are a pre-requisite for being allowed to do so. There is a law of sorts in effect, but it does not cover everybody and seems to be followed more in the breach. Like in much else to do with the MET business, implementation is substandard here too.

Therefore, my four step MET strategy for India: Clean up the government and private act. Put in place tough educational delivery audits. Discourage foreign programmes. Provide training berths. For the job is largely done if we take in the best people we can get, train them well and get them safe trainee positions at the end of the exercise. They will then be supremely placed to compete in the marketplace. They will, as those before them did, shine.

Sounds simple, doesn’t it? Unfortunately, there was a patronising air in the room that suggested that I was being naive the last time I mentioned this plan to a group of my peers. My friends were probably stuck at Step 1: Cleaning up the act is something we want to do only as long as we are asking somebody else to clean up theirs.

My belief is, however, that in the absence of this first step- a clean system- the Indian MET setup is heading for that special junkyard in oblivion reserved for the second-rate.