Solar-electric boats have been widely acknowledged for their positive environmental impact, enhanced comfort for passengers, cost-effectiveness for operators, and potential benefits for the government in terms of foreign exchange savings [1]. Given the aforementioned advantages, it is imperative for the government, both the central and state levels, to prioritise the promotion of solar-electric boats within the nation.
The boat and shipbuilding value chain is intricate, although it may be categorised into three distinct groups: vendors, builders, and customers. Vendors offer services and products to the builder, who in turn combines them to construct the vessel and ultimately delivers it to the vessel owner or operator. There exist various strategies to facilitate the objective of enhancing the production and implementation of solar-electric boats. They are grouped into three categories depending on the type of beneficiary in the value chain.
Supporting Customers (Owners and Operators)
1. Simplifying finance of vessels
The availability of financial resources is a significant obstacle to the acquisition of a boat or ship. In contrast to automobiles, where banks consider the vehicle as the main form of collateral, banks require extra collateral, such as property, for boats. The exemption of maritime and aviation assets is a result of a clause inside the SARFAESI statute [2]. Consequently, banks are unable to recoup the debt by utilising the asset that was financed. This issue has been discussed in several places, and for boatbuilding and shipbuilding to thrive, it is necessary to eliminate this discrepancy and include marine vessel finance inside this legislation.
2. Upgrade infrastructure
The presence of adequate infrastructure for the operation of boats and ships in both inland and coastal waters is a crucial determinant in promoting the development of boatbuilding and shipbuilding inside the nation. Various governmental entities are accountable for assuring the development and upkeep of these waterway infrastructures. Several prominent activities include:
- ensuring adequate water depth to facilitate vessel movement
- navigation strategically placed throughout the canal to facilitate safe sailing
- jetties, both permanent and floating, are strategically placed along the shoreline in regions where vessels require the transfer of goods or people
- maintain vertical clearance under bridges to facilitate the movement of vessels
- maintain the horizontal space between bridge structures (column) to facilitate the transit of vessels.
The primary responsibility for managing waterbodies and addressing the aforementioned needs lies with national and state waterway bodies. However, it is important to note that separate organisations are tasked with the responsibility of managing bridges and jetties. It is an undeniable fact that even national waterways do not fully adhere to the stipulated specifications throughout their entire length.
3. Facilitate the resolution of the “chicken and egg” dilemma about the prioritisation of either the vessel or the cargo/passengers.
Ideally, boat owners or ship owners would seek to invest in assets that offer immediate earning potential, specifically in situations where there is a presence of freight or passenger traffic. Simultaneously, the transfer of goods and passenger from alternative modes would occur once the asset is established. In order to escape this cycle of success and failure, it is necessary to provide owners and operators with incentives to embrace the opportunity of being the initial participants. The government can implement certain measures to mitigate this risk. The following are:
- Creating an ecosystem in an area especially with tourism sector – UPNEDA [3] has undertaken such an exercise by deploying solar electric boats in Ayodhya and Varanasi and Prayagraj to kickstart the ecosystem in that area. This can be accomplished at various sites around India by the individual government departments responsible for tourism, renewable energy, or transportation.
- Policy to push for solar-electric boats in government-controlled operations – The policy aims to promote the use of solar-electric boats in government-controlled operations, specifically in the defence, home, port, and shipping ministries of the central government. They hold positions in the transport, tourism, and port ministries within the state. The effort can involve mandating the proportion of newly constructed vessels to be powered by solar energy. Electric power trains can be utilised by several types of ships, including passenger vessels, RORO vessels, pilot boats, harbour crafts, patrol boats, tug, supply vessels, fishing boats, and short-haul cargo vessels.
- Aggregated and lease – The aggregation of purchasing and leasing electric vehicles (EVs) to government departments has proven to be a successful strategy in the EV market. CESL successfully acquired and leased 1000 electric cars [4].
- Mandate in eco-sensitive areas – In eco-sensitive locations, there exist some waterbodies in India where the act of boating is prohibited due to the utilisation of the water for drinking purposes, such as dams and lakes. The scope of this prohibition should be limited to diesel and petrol boats exclusively, excluding solar electric boats, which are devoid of any environmental damage. If the technology is used in environmentally sensitive areas such as lakes, where there is no water flow, the government can enforce a requirement for the exclusive use of solar-powered boats. This is a practice followed in lakes like Sukhna lake, Chandigarh. Additional locations where this concept might be applied include Chilka lake, Sunderban delta, and the Statue of Unity, among others. In areas such as Varanasi, there is a strong emphasis on the usage of compressed natural gas (CNG). CNG is widely acknowledged as a non-clean fuel due to its methane composition, which nevertheless results in the release of CO2 and particle pollutants. There is potential for the conversion of this drive towards solar electric and hydrogen propelled vessels.
Supporting Builders (Boatbuilders and Shipbuilders)
4. Shipbuilding subsidy
Ever since we built ADITYA in 2017, we have been advocating various central government ministries and departments like Shipping, New and Renewable Energy, Heavy Industries, NITI-Ayog, to come up with a policy support for solar electric boats like FAME [5] which exist for electric vehicles. The most favourable ministry was Shipping where the shipbuilding subsidy was a likely vehicle for support. A specific request was made to extend this subsidy that exist for more than 24 meter length vessel to 12 meters in case of solar electric boats [6]. A span of nearly seven years elapsed without any form of policy assistance. In August 2023, an amendment was implemented, granting a 20% subsidy to solar electric boats measuring 12 metres or more in length. Additionally, boats utilising green fuels like as methanol, ammonia, and hydrogen would receive a 30% subsidy. This is undoubtedly a favourable decision. Nevertheless, there are certain enhancements that can be implemented to accomplish its intended objective.
- The rationale behind increasing the length from the minimum limit of 24 m to 12 m is to accommodate the inclusion of small solar electric boats. The majority of the forty solar boats now in development are not included in this plan due to its delayed implementation. If the objective is to facilitate the production of solar electric boats, it is imperative to provide support to firms that have made diligent efforts to develop the market.
- The majority of small boats are currently operating within inland waters, and in many non-coastal states, there is a lack of a registration system for boats due to the absence of a State Maritime Board. If there is a requirement for subsidies to be granted only upon completion of registration with the marine board, it undermines the intended aim and demonstrates a lack of alignment with the actual circumstances.
5. Open up projects to boatyards and small shipyards
5.1. Avoiding tender through nomination tender and signing MOU[i]
An initial issue arises with the approach to granting contracts to government shipyards, which bypasses the requirement for a competitive procurement procedure involving MSME boat yards. Several government agencies, such as the Inland Waterways of India (IWAI), are well-known for engaging in this behaviour, which they do in order to evade the time and responsibility linked to a procurement procedure. The transfer of this obligation to the recipient business is facilitated by the designation of a government shipbuilder. A separate arrangement dubbed as an MOU is also practiced. That sounds more respectable to steer clear of MSME boatyard ire as opposed to nomination. Some recent instances include the following:
- MOU for six electric ferries in Uttar Pradesh between IWAI and CSL. Each cost on average 14.1 Cr [7] [8] [9].
- MOU for a single electric ferry in Assam between IWAI and CSL. Each cost on average 14.1 Cr [7] [8].
- MOU for a single hydrogen fuel cell ferry in Varanasi, Uttar Pradesh, between IWAI and CSL. A price of 17.5 Cr [7] [9].
- MOU for one electric ferry in West Bengal between the West Bengal government and GRSE [11].
- Kerala Fisheries’ nomination to CSL for three Marine Ambulance. Each one cost 6.08 crore [12].
- Ministry of Fisheries’ nomination to CSL for 16 fishing vessels for Tamil Nadu. Each costs 80 lakhs [13].
- IWAI had nominated CSL for eight RoRo throughout India [14].
- IWAI had nominated CSL for two Ro-Pax throughout India [14].
- Kochi Corporation had nominated CSL for two RoRo. Each cost 7.5 Cr [15].
5.2. Unfair competition and absence of equitable conditions
One further concern pertains to the involvement of large shipyards in boatbuilding endeavours, hence engendering competition with MSME boatyards. It is evident that these large shipyards, due to their costly infrastructure and overhead expenses, would be unable to rival MSME if there were equal opportunities. Nevertheless, the failure of MSMEs can be attributed to two primary challenges: insufficient funding and exorbitant capital costs. MSMEs are unable to undertake initiatives that exceed their yearly income due to insufficient cash, while their elevated cost of capital hinder their ability to compete. In this scenario, the commencement of boat production by major shipyards ultimately leads to the demise of MSMEs.
Another element to consider is the unfair coordination with the awarding organisation. Only large shipyards possess the capability to compete because of the specified conditions. The Kochi Metro project exemplifies a remarkable case. Despite lacking prior experience in constructing electric boats, CSL was pre-qualified as a constructor based on its annual steel consumption and financial turnover. Despite lacking past construction experience GRSE entered into a Memorandum of Understanding (MOU) for the construction of an electric boat. Only boatyards classified as MSME are required to meet these experience standards.
6. Financing for boatyards or favourable terms of payment
Working capital support. The boatbuilding sector has distinct characteristics in comparison to the vehicle industry. Boatbuilding, in contrast to the big centralised manufacturers of road vehicles, is a fragmented industry where the manufacturing is primarily controlled by micro, small, and medium enterprises (MSMEs).Furthermore, the majority of boats are fabricated upon request, typically requiring a duration of approximately six months. The primary obstacle to the growth and survival of boat builders is the same issue faced by all MSMEs, which is limited access to credit and high financial costs. The government should devise more effective strategies to eliminate this obstacle.
Govt. PSUs and payment stages – The matter of Public Sector Undertakings (PSUs) and payment stages is intricately linked to the preceding issue of working capital. Central government departments and PSUs sometimes exhibit a tendency to design tenders with imbalanced stage payments, resulting in a substantial augmentation of working capital. Regrettably, these policies exhibit a bias towards large shipyards, hence impeding the involvement of MSME’s. The central government should provide explicit directives to the PSUs to retain stage payments based on milestones, similar to the approach taken by state governments in Kerala, Orissa, and Maharashtra.
Supporting vendors and technology providers
7. Handhold vendors to grow and flourish
Both Cochin Shipyard (CSL) and Hyundai Heavy Industries (HHI), one of the largest shipyard in the world, were founded in 1972. The contrast between the two is really evident. I am not primarily concerned with the number or size of ships constructed (which is itself significants), but rather with how HHI successfully facilitated the nation-wide change of South Korea and established a network of suppliers and shipyards. After a span of fifty years, CSL’s sole justification for not creating similar impact is the scarcity of such suppliers and the fact that the majority of them fail to match the necessary criteria. The present condition of domestic vendor growth with the major shipyards in India is need to be examined. Unless shipyards are provided with incentives through a combination of rewards and penalties, they will not take action to support domestic vendors.
8. Promote indigenisation
8.1 Ensure level playing field
Numerous governmental initiatives have been implemented to foster the growth of MSMEs, including MakeinIndia and StartupIndia. Nevertheless, the government Public Sector Undertakings (PSUs) have repeatedly set the bidding conditions in a manner that benefits foreign suppliers while disregarding local manufacturers [16]. Foreign corporations can obtain preferential terms over domestic MSME suppliers through three distinct methods. The following are:
- Impact of lower finance costs [17]. MSME incurs significantly higher financial costs. MSME typically finance the supply of equipment or services to government PSU. In the context of boat and shipbuilding, when the project duration ranges from three to six months, the greater cost of borrowing poses a significant competitive disadvantage compared to international competitors who benefit from reduced costs.
- Differential payment terms [18]. There have been several instances in which overseas suppliers receive paid ahead of MSMEs. For international suppliers, money is disbursed prior to the shipment from their country, whilst MSMEs receive 80% payment a month after delivery and 20% payment a month after commissioning.
- Differential currency risk [19]. The shipyards establish tender terms in which foreign suppliers receive payment in either UD dollars or Euros, while Indian vendors receive payments in Indian rupees. Although it may seem rational, in cases when Indian suppliers require the importation of certain components and the contract duration is extended, the currency risk is not mitigated.
Serious action must be taken to ensure that no PSUs may evade accountability for such irresponsible conduct.
- Limited support to develop cutting edge technology (like the European Union grant)
An effective approach to fostering the development of innovative technology, particularly for pioneering projects, is to provide financial support through grants. The European Union grant has shown to be a highly effective approach. The majority of pioneering solar-electric boat projects occur in Europe precisely because of this factor. In the absence of such assistance, only technology and applications that have demonstrated their commercial viability in those nations will be adopted in this context. Indian enterprises will perpetually lag behind. The allocation of government grants are mostly provided to government PSUs and institutions.
9. Financing for vendors or favourable terms of payment
Working capital support. The primary challenge for MSMEs is the accessibility of financial resources. Numerous stakeholder meetings and sessions have brought attention to this matter. The government should devise more effective strategies to eliminate this obstacle.
Govt. PSUs and payment stages – This issue is connected to the earlier problem of working capital. The central government departments and PSUs have a habit of structuring the tender with skewed stage payments that significantly increase the working capital. In most cases the entire product is financed by the supplier. This measure, unfortunately, favour big suppliers at the cost of MSME participation. The central government should provide explicit directives to the PSUs to maintain stage payments based on milestones, similar to the approach taken by state governments for various projects.
Bibliography
[i] Memorandum of Understanding
Sandith Thandasherry 