May 19, 2013

Air SCI?

The same red flag has been raised again, but by an Indian Parliamentary Committee this time; A Parliamentary Standing Committee on Transport, Tourism and Culture has warned that the ‘Navratna’ Public Sector owned (which means taxpayer owned, we must try to remember) Shipping Corporation of India may be going the Air India way- bankrupt, with liabilities set to exceed assets ‘in a short span of time’. 

“The Committee fears that SCI may go the Air India way in case of financial (mis)management,” it said, adding that SCI should urgently review its already placed fleet acquisition orders- about 15 ordered vessels are yet to be delivered. The comparison with Air India is apt; the government owned airline’s troubles magnified after it decided to acquire more than a hundred aircraft in a move the Comptroller and Auditor General lambasted at the time as ‘a recipe for disaster’, and one it said should have had alarm bells ringing in the government. 

Bells often ring in the corridors of power. It is just that it suits people not to hear them.

This is not the first time that SCI’s financial health is being questioned; its liabilities- including interest and loan repayments- have been shooting up over the last few years after a spate of newbuilds were ordered in the boom years. Approximately two years ago, the Shipping Ministry has cautioned the Company in very similar language to the Committee’s, saying that SCI could face ‘an Air India-like situation’ as it could lose around $200 million from the proposed purchases because- with asset prices falling- the market value of the ordered ships was much lower than the contracted value. CAG reports at the time had underlined this fear. An internal document from the Ministry was widely quoted in the media; that document said that SCI was “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’s Board of Directors had supposedly recommended a complete ban on fresh acquisitions at the time, media reports said. 

Question, so why was nothing done for two years? 

Best answer: For the usual mix of reasons that plague government enterprises. Very low levels of accountability. Sluggishness. A professional ethos that feels- like Air India probably did- that one can operate a public sector loss making concern ad infinitum since it is owned by the taxpayer, and that money will continue to be available to the enterprise no matter how much it bleeds. A system hounded by patronage; automatically unprofessional and subject to Ministry interference. The financial (mis)management that the Standing Committee report hints at is not unique to SCI, to be sure, but that hardly solves the problem. 

The paradox is, of course, that- especially in these brutal times- some Government support for SCI would be welcomed by many. But this support cannot be of the type the Indian Government has extended to Air India for so long- trying, one way or another, to prop up a sinking enterprise with public money. Trying- as will be done with SCI too, I am sure- to solve the problem of a leaking bucket by pouring in more and more water into it. 

SCI holds a third of all Indian tonnage. As we all know well, this tonnage is almost inconsequential as a percentage of the global fleet. But it is important- even critical, to a country that is growing and has regional and geopolitical ambitions, however exaggerated those may appear to the cynic. SCI is critical to Indian trade simply because of its size, government backing and because it holds a third of the Indian merchant naval fleet. And, in the hopeful future when Indian inland waterways are organised and become a viable alternative to road and rail for the internal movement of goods, SCI may well have a major role to play. 

For these reasons- and, perhaps, for other jingoistic ones that I don’t really subscribe to- SCI should not be allowed to die. It needs government support, sure, but not of the usual kind. Not the water-in-a-leaking-bucket kind of support- that, as the Air India experience has reconfirmed, is unsustainable and eventually counter-productive. SCI needs support of a different kind. It needs to be restructured and made into a leaner, cleaner, nimbler and more professional organisation that is answerable to the taxpayer through its balance sheet, and not to some babu or politician sitting in New Delhi. The appointments of senior personnel should be transparent and made by a professional board of Directors. Meritocracy and the bottom line should be what counts, nothing else- the way it is supposed to be.

I hesitate to say privatise SCI, because I do not believe that will automatically dig it out of its present quagmire and make it prosper, or, indeed, help the Indian tonnage cause. Perhaps it may be a good idea at a later date, when the company is profitable once again and valued better- who knows?

But for now, I am reasonably convinced that SCI needs support of the kind I speak of. Restructuring may cost some money that the firm does not really have, but I think the taxpayer- the ultimate shareholder- will be better served by going down that route. I, for one, will be happier if my tax rupee is used this way, rather than being poured down the bottomless pit of mismanagement, lethargy, poor decision making and worse.


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