Shipping Corporation of India Ltd Directors Report.

To the Members,

Your Directors have pleasure in presenting the 69th Annual Report on the working of your Company for the Financial Year ended 31st March, 2019.

Accounting Year

The year under report covers a period of 12 months ended on 31st March, 2019.

FINANCIAL PERFORMANCE

The comparative position of the working results for the year under report vis-a-vis earlier year is as under:

(Rs in Crores)

2018-19 2017-18
Gross Earnings 4144 3617
Gross Profit (before interest, depreciation & exceptional items & tax) 829 820
Less : Interest 246 180
658 610
Depreciation and Impairment 904 790
Profit before exceptional items & tax (75) 30
Exceptional items - -
Provision for Taxation (47) 224
Net Profit (122) 254

The above figures have been extracted from the standalone financial statements as per Indian Accounting Standards (Ind-AS). Appropriations:

The working results for your company for the year 2018-19 shows a net loss of Rs.121.99 crore. After adjusting an opening credit balance of Rs. 422.67 crores (being balance Retained earnings brought forward from previous year) and adding items of other comprehensive income of Rs. 5.64 crores that are recognised directly in retained earnings, there is a credit balance in Retained earnings of Rs. 306.32 crores as on 31st March 2019.

Brief Analysis of Financial Performance

SCI has reported a net loss after tax of Rs. 121.99 crores for the financial year 2018-19. The Bulk & Tanker segment performed better due to better rates and more operating days. The Technical & Offshore segment together with Liner segment have performed adversely due to market conditions. This coupled with increased bunker cost and exchange loss has resulted in overall net loss after tax for the year.

The consolidated net loss for the company for Financial Year 2018-19 was Rs. 62.66 crores.

Performance and Financial positions of joint ventures and subsidiary included in Consolidated Financial Statements:

(Rs in Crores)

Particulars ILT 1 ILT 2 ILT 3 ILT 4 ICSL
As on 31.03.2019 31.03.2019 31.03.2019 31.03.2019 31.03.2019
Total Income 17152 18760 18800 19550 0.33
PAT 7313 8051 717 5633 0.016
Equity capital 15 15 7 29360 5
Number of equity shares 10,000 10,000 10,000 42448300 50000
EPS (Rs/share) 73134 80507 7170 13 0
Dividend 0 0 0 0 0
Net worth 34147 34075 (13391) 29738 (5)

Net Impact on Consolidated profits for the year ended 31st March 2019 is increase of Rs 59.32 crores upon consolidation of above joint ventures and subsidiary and on Net worth is an increase of Rs 202.01 crores.

1.0 Fleet Position during the Year:

During the year under report, while there has been no addition of vessels, five vessels (M.T.G.G. Singh, LPG Nangaparbat, LPG Annapurna, M. V. Tamilnadu, M. V. Lal Bahadur Shastri) have been decommissioned from SCIs fleet. Thus the overall fleet of SCI stood at 61 vessels of 5.606 million DWT at the end of the year.

Fleet Profile during the Year

 

Particulars

As on 1.4.2018

Additions

Deletions

As on 31.3.2019

No. DWT No. DWT No. DWT No. DWT
1. (a) Crude Oil Tanker 21 3,674,024 - - 1 147,474 20 3,526,550
(b) Product Tankers 13 862,925 - - - - 13 862,925
(c) Gas Carriers 3 88,705 - - 2 35,202 1 53,503
2. Bulk Carriers 16 1,068,088 - - 1 45,744 15 1,022,344
3. Liner Ships 3 144,500 - - 1 28,902 2 115,598
4. Offshore Supply Vessels 10 25,238 - - - - 10 25,238
5. Passenger-Cum-Cargo Vessels 0 0 - - - - 0 0
Total 66 5,863,480 - - 5 257,322 61 5,606,158

2.0 During the period under report, the following vessels were disposed off from SCI fleet:

 

Vessel Name Type Year Built DWT
G. G. Singh Crude Oil Tanker 1995 147,474
Nanga Parbat LPG carrier 1991 17,601
Annapurna LPG carrier 1991 17,601
Tamilnadu Bulk carrier 2000 45,744
Lal Bahadur Shastri Container vessel 1993 28,902

2.1 At the end of the year 2018-19, the Company did not have any new build vessels on order.

2.2 Particulars of Loans, Guarantees and investments

Details of Loans, Guarantees and Investments are given in the notes to financial statements.

2.3 Extract of Annual Return

In accordance with section 134 (3) (a) and section 92(3) of the companies Act, 2013 read with relevant rules, an extract of annual return in form MGT-9 as on 31st March, 2019 is appended to the Directors Report. The extract of Annual Return is available at http://www.shipindia . com/investor-relations/Notice_shareholders.aspx

2.4 Subsidiaries and Associates

Your company has one subsidiary Company and has six Joint Ventures. Investment in subsidiary "Inland and Coastal Shipping Limited" was done on 29th September 2016. It is a wholly owned subsidiary of your company. Pursuant to section 129(3) of the Companies Act, 2013, a statement containing salient features of our subsidiary and associates companies in form AOC-1 is appended to the Directors Report.

In accordance to section 136 of the Companies Act, 2013 the Audited Financial Statements of the company are available on our website www.shiDindia.com .

2.5 Particulars of contracts/arrangements with related parties

Particulars of contracts/arrangements with related parties referred to in Section 188(1) of the Companies Act, 2013, in the prescribed form AOC-2, is appended to the Directors Report. The details are also available in Note 30 under ‘Notes to Financial statements.

2.6 Particulars of Employees

In accordance with Ministry of Corporate Affairs notification no. GSR 463(E) dated 5th June, 2015, Government Companies are exempt from Section 197 of the Companies Act, 2013 and its rules thereof.

As per Ministry of Shippings letter no. SS-11013/1/2017-SU dated 22.11.2018, SCI was directed for implementation of pay revision of Staff Members w.e.f 01.01.2017 . The same was implemented in December 2018.

2.7 Companys Policy on Directors appointment and remuneration

The terms of Directors appointment and remuneration are fixed by the Government of India.

Details of Presidential Directives issued by the Central Government and their compliance during the year and also in the last three years are as follows:

Presidential Directive dated 28.02.2018, regarding implementation of Pay revision of Board level and below Board level Executives and Non- Unionized Supervisors of Central Public Sector Enterprises (CPSEs) w.e.f. 01.01.2017, was received and the same was implemented in March 2018.

2.8 Risk Management

SCI has approved Risk Management framework and risk register to build up a strong Risk Management Culture within SCI in achieving companys goals and objectives. The entity level Risk Assessment includes;

i) Strategic Risk

ii) Operational Risk

iii) Financial Risk

iv) Compliance Risk

In specific SCI has identified risks which includes volatility in freight rates, bunker procurement exposure, delay in revenue transfer etc. In SCI, concerted efforts are made for mitigating / containing and controlling risks.

2.9 Conservation of Energy, Technology Absorption

The information pertaining to conservation of energy, technology absorption is forming a part of the Management Discussion and Analysis Report.

3.0 Foreign exchange earnings and outgo

(Rs in crores)

 

Particulars 2018-19 2017-18
Foreign exchange earned* 4035.27 3459.77
Foreign exchange outgo* 4221.69 3767.53

* includes deemed foreign exchange earning and outgo.

3.1 Expenses on entertainment, foreign tours etc - FY 2018-19

During the year under report, your Company spent Rs.35 lakhs on entertainment, Rs. 90 lakhs on publicity & advertisements and Rs. 347 lakhs on foreign tours of Companys executives.

MANAGEMENT DISCUSSION AND ANALYSIS

As per addition of new sub clause (i) under clause 1 in Part B (‘Management Discussion and Analysis) of schedule V of SEBI (LODR) Regulations, 2015, the Company has identified the following ratios as key financial ratios :

 

Particulars

Standalone

Consolidated

2017-18 2018-19 2017-18 2018-19
Debtors Turnover 5.3 6.2 5.3 6.2
Inventory Turnover 7.4 8.0 7.4 8.0
Interest coverage Ratio 1.16 0.70 1.28 1.07
Current Ratio 0.71 0.61 0.71 0.61
Debt Equity 0.61 0.53 0.60 0.51
Operating Profit Margin (%) -0.03 -0.07 -0.02 -0.06
Net Profit Margin (%) 0.07 -0.03 0.09 -0.02
Return on Net worth (%) 3.58 -1.75 4.24 -0.87

Ratio - Details of Significant changes and explanation thereto:

1) Interest coverage Ratio - Interest Coverage ratio for standalone has come down to 0.70 in F.Y 2018-19 as compared to 1.16 in F.Y

2017- 18. This is due to increase in finance cost from Rs. 17979 Lacs in F.Y 2017-18 to Rs. 24586 Lacs in F.Y. 2018-19 whereas EBIT is reduced to Rs 17101 lacs in F.Y. 2018-19 as compared to Rs. 20927 in F.Y 2017-18. Finance cost is increased due to variation in Exchange rate and Libor rate while EBIT is decreased due to high cost of services rendered.

2) Operating Profit Margin (%) - Operating Profit Margin Ratios is decreased as revenue from operation is increased from Rs. 346947 lacs in F.Y. 2017-18 to Rs. 392586 Lacs in F.Y 2018-19. However, Operating loss for standalone has increased to Rs. (29308) lacs in F.Y

2018- 19 from Rs. (11852) lacs in 2017-18 and Operating loss for consolidated has increased to Rs. (23376) lacs in F.Y 2018-19 from Rs. (6577) lacs in 2017-18 due to increased bunker cost and exchange loss impacting operating profit Margin adversely.

3) Net Profit Margin (%) - Net Profit Margin shows significant change as there was reversal of tax expense (DTL) of Rs 28427 lakhs in F.Y 2017-18 when compared to F.Y. 2018-19 which resulted in increased net profit/return of F.Y. 2017-18. Also, increased bunker cost and exchange loss in F.Y 2018-19 impacted net profit Margin adversely.

4) Return on Net worth (%) - Net profit has declined from Rs 25375 lakhs for the F.Y. 2017-18 to Rs (12199) lakhs for the F.Y 2018-19 for standalone and from Rs 30650 lakhs for the F.Y 2017-18 to Rs (6266) lakhs for the F.Y. 2018-19 for consolidated for the reasons as explained above in Net Profit margin.

The overall scenario under which the Shipping industry operated and which impacted the various segments is discussed below.

A. INDUSTRY STRUCTURE AND DEVELOPMENTS

i) World Scenario

The world GDP grew by an average of 3.6% in 2018, compared to the economic expansion of about 3.8% in the previous year. The growth estimates are expected to remain flat for 2019-20. The subdued growth forecast for 2019 has been arrived at on the basis of multiple factors, viz. trade conflict between US and China, uncertainty continuing to persist about Brexit, strain on macro-economic factors in Argentina and Turkey, conservative tilt in credit policies in China, disruption in German automobile sector and ongoing normalization in financial policies of advanced economies leading to overall tightening of global financial flows. The growth outlook for 2019, even though predicted to improve from a weak first half, still carries with it many downside risks, which could hamper the expected recovery in second half of the year. In advanced economies, the economic growth is expected to be subdued till the end of 2019, on account of the continuing trade battle with China & many systemic drags looming over the European economies. Meanwhile, EMDE (Emerging Markets and Developing Economies) are expected to grow by 5% in 2019. However, there are many inherent risks in this forecast due to factors such as possibility of subdued commodity prices, weakened trade cash flows due to slower expansion in advanced economies.

Increasing presence of India & China in the world trade warrants a special mention as these two rising powers continue to grow; they stand to leave an increasingly large footprint on the world stage. China has also put more weight behind the stimulus now that it has to balance the negative impacts of US imposed trade tariffs. Such factors are expected to soften the global expansion in 2019. In the year 2020, the world output is expected to come back on track, with growth returning to 3.6%. This may happen due to stabilization in emerging economies such as Argentina and Turkey, and stronger performances by Indian & Chinese economies. Also, other contributory factors like improved investment sentiment and reductions in drag-like situation in European area are likely to support the return of global growth to normalcy in 2020.

ii) Global GDP

According to IMF, Global Trade Volume growth (goods & services) has been 3.8% in 2018 and is expected to shrink to around 3.4% in 2019. In developed countries, the trade volume growth is expected to remain subdued, at an average of around 2.8%. The trade in euro area slowed down more than expected to 1.8% and is expected to lose momentum further, owing to various country-specific problems being faced by European economies. German automobile market was depressed, in part due to delays in declaring new emission standards for diesel engines. While in France, retail sales & FMCG spending took a hit due to recurring street protests. The United Kingdom economy is still facing a very real threat of a possible No-Deal Brexit aftermath. While in some countries (especially Italy), sovereign banks are under extreme pressure. Japanese economy also remained soft on the backdrop of natural disasters. One silver lining was the Us economy, which remained robust supported by strong consumption based growth.

In the EMDE (Emerging Markets & Developing Economies) area, the growth in trade volume during the year 2018 was 4.6% in imports & 4.0% in exports. China, a major contributor to the global economy, saw its growth decline due to impacts of trade restrictions imposed by US, and tightening of the countrys fiscal policy leading to weak investment sentiments. The correction in macroeconomic imbalances resulted in muted prospects of economies of Argentina and Turkey. The aggregate trade volume outlook in EMDEs remained weak and growth forecast remains cautious, as there are many downside risks to economic and trade recovery. Overall, the worlds total trade volume is forecasted to grow by 3.4% in 2019, on the backdrop of widespread underperformance in recent quarters and impending risk masking the prospects of a swift recovery.

Statistics-wise, IMFs World Economic Outlook states that global trade volume will expand by 3.4% in 2019 and gather momentum thereafter to 3.9% in 2020, as against 3.8% in 2018.

The global GDP growth and corresponding economic activity directly represents the international trade (export and imports) and in turn provides useful pointers to the shipping industry as about 80% of the international trade by volume is carried out by shipping.

iii) Seaborne Trade, Fleet & Market

Globally, the seaborne oil trade (for both crude & refined products) exhibited a growth of 1.58% in 2018 as compared to 2.76% growth in 2017. Within the seaborne oil trade development, the ‘Crude oil trade increased by 1.4% with total figure at 2,384 million tons in 2018, whereas, ‘Product trade (excluding Fuel Oil) was at 702 million tons in 2018, increasing by 1.5%. The crude & product tanker fleets expanded by 0.8% & 0.4% respectively in 2018 (when calculated by gross dwt), as compared to figures of 4.8% & 5.6% during the previous year. Crude & Product Tanker markets are expected to be bullish in the second half of 2019 as charter rates go higher owing to strong growth in diesel trade due to the 2020 IMO regulations and seasonal firm demand towards the end of the year. Additionally, some vessels going to shipyards for fitment of scrubbers will further tighten tonnage availability resulting in an upward scenario for the shipping market.

The dry bulk trade showed a moderate growth of 2.3% in volume over the course of the year 2018, and the forecasts are quite optimistic as the increase in manufacturing activity in China indicates positive views on the dry bulk trade. Revised upward economic outlook and the significant growth in manufacturing sector in China are forecasted to be key factors driving the dry bulk trade. The total dry bulk fleet growth rate was about 2.9% in 2018, which is moderately lower than that in 2017 which was 3.73%. The shrinking bookings and IMO 2020 regulations ensuring inflations in operating costs of aged ships indicate an upturn in the dry bulk market, owing to scrapping of older tonnage, as tonnage demand increases provided cargo growth is maintained.

iv) Indian Scenario

As per Central Statistics Office (CSO), Indian economy grew by a moderate 6.8% (estimated) in FY 2018-19, as compared to the growth rate of 7.2% in 2017-18. The growth numbers have exhibited a downward trend due to the strain caused by multitude of long-term structural economic changes. The agriculture/farming sector exhibited a subdued annual GVA (Gross Value Added) growth of 2.9% in 2018-19, while the sector had registered 5.0% GVA expansion in the earlier period. The power and utility sectors (Electricity, Gas, Water Supply and Other Utility Services) also posted an estimated GVA growth at an annual rate of 7.0% in 2018-19 as compared with 8.6% growth rate in the previous year 2017-18.

According to sources from Ministry of Commerce, Indias exports in value terms improved significantly by 8.75% in 2018-19 while imports also surged up significantly with a spike of 10.41%. One of the main reasons of imports surging up is the increase in fuel prices over the year. As per Press Information Bureau & Indian Port Association (IPA), the quantum of Cargo Traffic at Indias 9 major ports rose by 3.77% in the period April 2018 to December 2018 i.e. cargo traffic rose to around 518.6 million tons in the period April 2018- December 2018 period, as compared to 499.7 million tons in the corresponding period in the previous year. Looking at commodity-wise breakdown of cargo traffic, the largest commodity group in the total traffic was PO.L.(Petroleum, Oil & Lubricants) with around 33.20% share, followed by Container traffic at 20.8%, Thermal & Steam Coal at 15.09%, ‘Other Misc. Cargo (10.48%), Coking & Other Coal (8.27%), Iron Ore & Pellets (5.75%), Other Liquid (4.23%), Finished Fertilizer (1.23%) and FRM (0.94%) respectively. This improvement in import performance is the result of many measures initiated by the Ministry of Shipping focused towards performance of the ports. These include mechanization of the terminals, focus on improving the TAT (turn-around time), introduction of new processes & practices for quick evacuation of cargo, thrust on coastal transportation, expansion/modernization of infrastructure and skill development of employees. On the other hand, the existing non-major ports, especially private ports, continue to grow due to factors such as a diversified cargo portfolio, superior operating efficiency and contemporary infrastructure, and the presence of captive cargo streams.

v) Strengths

Years of experience in Shipping together with diversified fleet across all major segments gives SCI an unique ability to exploit demand growth in any given segment with a quick-mover advantage on the peak of learning curve. New acquisitions have brought down average age from 18 years in 2007 to about 10.08 years presently. Longstanding COA relationships with major Indian Oil Refineries offer cargo security & employment assurance for major part of the tanker fleet.

vi) Opportunities and Threats

In the tanker markets, the crude tanker freight rates are expected to remain flat for next two years. Although the fleet is expected to rise, the rise in crude tonnage demand is supposed to render the improved freight rates to the owners. This bullish scenario is conceptualized basis following 4 major factors: upwards trend in US crude oil production giving boost to ton-mile demand, increased refinery runs as refiners seek to build diesel oil inventories ahead of impending IMO regulations, reshuffling of old and obsolete tonnage as owners gear up for upcoming IMO regulation, and signs of improved tonnage utilization as traders and oil producers turn towards increased floating storage of extant fuel oil expecting sharp decline in its demand. However, there are multiple caveats to this bullish outlook. Major ones amongst them are: escalations in trade tensions between US and China, a stricter US stance on Iran & Venezuela sanctions, continued civil unrest in Libya and

the multilateral effects of IMO regulations.

In the dry bulk market, the earnings are expected to rise across all segments for the next 2-3 years. The demand - supply balances in this market are looking quite healthy. Drewry has maintained their optimistic forecast for the coming year, while also citing a few probable risks which could halt the positivity. The parameters supporting optimistic freight levels include shrinkage in tonnage on the face of looming IMO regulations and a healthy growth in dry cargo demand. Even though the higher rates couldnt materialize in the first half of 2019 due to multiple supply disruptions across the globe owing to natural calamities, most of the cargo loading zones are returning to normalcy and are expected to resume full scale operations in the second half of 2019. One of the major factors as well as the underlying assumption to the upward-trending forecast is the resurgence of Chinese demand. The de-escalation of tensions between US and China is expected to provide a trade boost, thereby generating dry bulk demand.

Also the Chinese government has announced yet another stimulus package, which will positively impact the countrys steel and iron ore demand. China being a major player in the dry bulk market, the growth in Chinese production activity signals handsome growth in dry bulk trade. The owners remain optimistic of the dry bulk markets, while being cautious to the inherent risks.

The US crude oil imports are set to remain low, and the Asian oil demand is expected to increase, banking on strong GDP performances by the corresponding economies & rising refinery throughputs. Therefore, net global crude trade flow is expected to shift eastwards, with Asian appetite being the key driver.

In Indian context, the economy is on the growth track and many government initiatives & schemes, on giving a boost to manufacturing sector, have started to kick in. These factors will translate into a robust oil demand, lending a strong hand to import parcels into the country as well as coastal movements. SCI is uniquely positioned to cater to these trades and reap benefits therein.

Rising inequality, weak investment and rising protectionism in trade offer a huge challenge to the long-term global growth. The return of cyclical monetary policy tightening in European economies, adverse impact of aging population & hence reduced productivity on GDPs of European countries and Japan, the near-constant inflationary pressures hampering growth prospects, looming threat of a no-deal Brexit, unpredictability in US foreign policy as well as timid growth in crude oil demand remain the major macro risks. Also, the possibility of eruption of simmering geopolitical tensions in various regions across the globe poses a significant threat to the economic activity & as such present a significant macro risk. The recent US decision to re-impose sanctions on Iran will marginally disrupt the oil trade requiring the other producers to fill in the gap in oil production and may also result in increased crude oil prices. The rising crude oil prices have strained the economies of oil importing countries in both Africa & Asia who in turn may be forced to cut subsidies and this may consequently hurt secondary demand.

B. SEGMENTWISE FLEET & MARKET STUDY

a) Crude Oil & Product Tankers

In the year 2018 the global consumption of Crude Oil registered a marginal increase of 1.30% to 99.15 mbpd (million barrels per day) over the previous year. It is forecasted that the oil demand growth shall show rising trends over the next 3 years.

The Indian crude oil demand has been steadily rising over the year 2018, at around 4.4 mbpd levels. The rise in crude oil imports of India indicates a busy production activity in the country. The oil demand of the country is likely to grow as the economy gathers pace, but crude oil price increase could be a dampener. While OECD oil demand/consumption is expected to be at subdued levels as that of previous years, China & Asias oil demand is expected to grow at a good pace.

US domestic crude output is likely to increase by about 1 mbpd in 2019, a rise of strong 9.09% over the year. In case of US, the attractive oil prices due to OPEC production cuts, combined with supply problems of its neighboring oil producer Venezuela, will motivate the country to keep its production at high levels. Strong production activity shall also put a dent in US net imports. Meanwhile, OPEC countries & their non-OPEC allies again restricted their production in 2018, on account of further cuts by Saudi Arabia and steep losses in Venezuela. Both these phenomena, along with increase in domestic US production may result in increase in US oil exports, which would boost the tanker ton-mile demand.

The improving tonnage demand-supply situation and some tonnage being taken out from market to cater to IMO 2020 regulations is bound to have a positive effect on freight rates and same is reflected in the forecasts. The average spot rate yield (TCE) of TD3 route of AG/East for VLCC was US$ 21,400/day in 2018. The future market in this segment seems to be in the range of US$ 25,500-28,000/day, impacted significantly by rising US production and increasing crude oil demand in Asia and Middle East, on account of recent refinery capacity enhancements in the region. One Year TC rate for VLCC was about US$ 23,800/day in 2018; with a sharp upwards trend being predicted in the next two years. The Suezmax rate yield on West Africa - North West Europe (TD20) route was about US$ 11,400/day in 2018 which is expected to climb up by about 38.60% year over year. For Aframax, the spot rate on AG/Far East route (TD8) was US$7,000/day. These freight levels were weak, but a significant rise is expected in coming years across all segments, offering a much needed relief to the crude tanker owners. For Product tankers, LR1 Spot rate on AG/East route (TC5) was US$ 8,000/day in 2018 and expected to exhibit a quite sharp upward trend in 2019 & 2020. One year TC rate for LR1 was US$ 13,400/day in 2018, which is an improvement over last years rate, however still not enough for owners to earn sizeable profits. In MR tankers, on US Gulf/UKC route the spot rate was as low as US$ 2,200/

day in 2018. One Year TC rate for MR tankers was US$ 13,300/day in 2018 and is expected to be around US$ 13,800/day over the next year. The product tanker market also renders a bullish outlook on the basis of expected demand surge in diesel oil trade and situational constriction of tonnage due to clean tanker owners opting to briefly take their vessels out of trading for fitment of scrubbers. The bullish forecasts are supported by IEAs (International Energy Agency) estimates of continued year-on-year rise in global oil demand.

Your company has five VLCCs which were mainly employed on a mix of COA voyages & spot voyage charters with Indian as well as foreign charterers. The COA voyages earned reasonable returns, while spot trades faced the wrath of highly depressed markets. Your Suezmax tankers were predominantly deployed with the Indian oil industry and performed COA voyages under the HPCL COA and spot voyages for other Indian charterers. MT Desh Shakti was employed under a time charter with Indian oil PSU. Older Suezmax vessels however, faced a few problems in load port acceptances. The COA earnings are based on AFRA, which has been low to moderate. The time charter and spot voyage rates compare well with market benchmarks.

Five LR-I tankers of the Swarna series were employed on Indian coast, catering to coastal crude movement of the Indian oil industry. They also had a few other kinds of employment such as lighterage operations, FPSO loadings and floating storage etc. Their earnings compare well with market levels. Another LR-I tanker MT Swarna Kaveri was used as a CPP tanker for Product cargoes. It was employed with Scorpio LR1 pool. Your GP product tankers in the Swarajya Series were well employed with Indian charterers on time charter & sporadic voyage charters and their earnings are in line with market averages.

The three MR product tankers in the Swarna series were gainfully employed with Indian as well as Foreign charterers and their earnings are comparable with the market. MT Swarna Mala was deployed on Spot voyages with foreign charterers for long periods during the financial year. MT Swarna Kalash and MT Swarna Pushp were deployed along Indian coast, employed in a profitable mix of time & voyage charters supporting coastal product movements.

The two LR-II tankers MT Swarna Jayanti and MT Swarna Kamal were employed with foreign charterers in a mix of pools & voyage charters. Their returns were stable and in line with available markets.

Earnings of your coiled / double hull Aframax tankers were in line with markets, along with the average of benchmark yields under TD8 (Arabian Gulf to Singapore) and TD14 (Indo-Australia) routes on the back of COA voyages and triangulation spot voyages owing to intermittent fuel oil arbitrage trades which minimized ballast voyages. The Aframaxes mainly performed India centric - AG / Far East / Red Sea voyages.

Outlook

Tanker trade is currently undergoing a paradigm shift. OPECs decision to continue the production cuts, upcoming big increases in the refinery capacities of Middle East and Asia, and rise in US exports due to increased oil prices are some of the major factors which will have significant impact on tanker markets. Rising Asian oil demand shall mean a lot of tonnage shift in that region. Also, US crude oil production is forecasted to increase; hence there will be a spike in US crude exports for near future. Meanwhile rise in Middle Eastern and Asian refinery capacities shall mean a lot of inwards cargo flows being generated in these regions. The ship owners who plan accordingly and position their ships smartly in prospective basins will stand to reap benefits of positional advantage.

The looming IMO 2020 regulations present a challenge as well as an opportunity. The bunker composition change shall generate new demand for Diesel Oil, which mean shifting prominence of established trade routes and formation of some new trade routes. The demand- supply balances are looking reasonably optimistic, thereby offering an opportunity for ship owners to earn handsome returns, provided they operate their fleet efficiently. Due to change in bunker mix owing to IMO 2020 requirements, there will be stockpiling of Diesel Oil and shedding of high sulfur Fuel Oil, which is supposed to generate new cargo flows. Since, Asia & especially China are growth drivers for the product oil demand, trade routes of MEG-SEA, AG-Far East may get lot of employment, especially for Clean MR & LR-I tankers.

With its diversified and modern tanker fleet, your companys vessels stand to secure plenty of gainful employments and the company is well-equipped to withstand contingent market pressures.

Risks and Concerns

The most flagrant cause for concern across all segments of tankers and bulk carriers is the paradigm shift to be caused by IMO 2020 regulations. The fate of a lot of ships will depend on implementation and enforcement framework adopted by IMO. Apart from IMO regulations, the major factors affecting the seaborne trade are mostly geopolitical. The cancellation of waivers by US for trade with Iran, possibility of tensions re-erupting between US and China, continued crisis in Venezuela hampering its oil production and ongoing civil unrest in Libya could hamper overall global trade. This would put a strain on tanker trade, bringing the freight levels down. Also, there are secondary factors such as decrease in European refinery runs, increasing use of pipelines by Russia to export oil.

On products trade front, the threat to oil demand due to geopolitical issues may hamper the trade. The compatibility of vessels with new bunker grades needs to be tested. Possibility of oil movement slowdown due to various trade skirmishes threaten to spoil the party for product tanker owners.

b) Dry Bulk

The benchmark, Baltic Dry Index (BDI) rose marginally to an average of 1252 in 2018-19 against an average of 1204 in 2017-18 registering a moderate 3.99% increase, reaching its highest average monthly value in August 2018

When compared to 2018, dry bulk trade is set to exhibit a trade growth of 1.40% in 2019, with ton-mile demand growing by an estimated 2.03%. The dry bulk global trade is expected to grow on an average of 1.5 - 2.3% for subsequent 3 years. The dry bulk market has been underperforming for the past several years, but for the recent 3 quarters or so. Naturally, this has put a strain on newbuilding orders over the years & the resultantly the fleet growth has slowed down, which has been beneficial for rate levels. In the year 2019, it is projected that 221 dry bulk ships will be sold for demolition as against 61 dry bulkers in the previous year. Such high scrapping numbers are mostly because of impending IMO 2020 regulations and reduced fleet size is an encouraging sign for future dry bulk market.

With regards to trade of dry bulk to and from India, since the indigenously produced iron in China is not of sufficiently high grade, the countrys imports of iron are set to rise, giving boost to ton-mile demand in the region. The probability of demolitions of older tonnage on account of looming IMOs Ballast Water Management System & revised SOx emission guidelines, may further improve the demand-supply balance, lending a supporting hand to the rates.

With regard to Non-Coking Coal, Indias imports are predicted to remain constant, from the levels of 172.96 million tons in 2018 to a forecast of around 183.31 million tons for 2019.

Indias urea imports stood constant, recording a meager 0.1% decline year on year to 49.83 lakh tons last fiscal (data available from April to December 2018) on the basis of steps taken by the government to increase indigenous fertilizer production. The country, which is among the worlds top three consumers of urea, produces about 22 million tons urea as against the annual domestic demand of about 30 MMT. India imported 4.983 million mt of urea in first 3 quarters of fiscal 2018-2019. Urea movements into India, which is a key cargo for dry bulk vessels and is part of minor dry bulk commodities, has for the last few years been a "supporting trade" for bulkers ranging from Handysize to Panamax. Grain trade provided a positive support to the dry segment during the FY18-19. Seaborne trade (imports) of major grains remained constant, recording a negligible decline of 0.3% in the year 2018, with major exporters being USA, Australia, Canada, Russia, Argentina and European Union. On demand side, encouraging trends are there with factors such as growing population, increasing demand from Asian & African countries & increase in ton-miles in the grain trade.

Global steel production is projected to increase by 2.55% in 2019 with strong production from China, India, EU and other countries. The causes of this growth in steel production are overall increase in industrial activity, rise in Global GDP & rise in steel-intensive sectors such as construction & automobiles. Indias steel production is expected to grow at the fastest rate among major steel producers. In 2018, India has become the 2nd largest steel producer in the world.

In the year 2019, One-year Time Charter rate of Handymax is projected to be US$ 9,400/- PDPR, whereas for Supramaxes the same is US$ 11,100/- PDPR. In the Panamax segment, the one-year TC rate in 2019 is forecasted to be US$ 11,100/- PDPR. In the upcoming years, the freight rate estimates exhibit an upward trend, with market forecasts showing handsome increases year-on-year.

The companys dry bulk fleet now comprises of eight modern Supramax vessels of around 57,000 dwt each & seven modern Panamax / Kamsarmax dry carriers of around 80-82,000 dwt as on 31st March, 2019. The bulk carriers fleet is very young with an average age of about 7 years. The earnings of our dry bulk fleet were in line with markets. Our dry bulk carriers were also employed on Indian coast with a few coastal time charters & voyage charters, whose earnings compare well with markets. In order to maintain a healthy cash flow, your company preferred fixing the bulk carriers on trip time charter and short-to-medium term time charters.

Outlook

It is fairly optimistic outlook of the dry bulk markets. The freight levels are expected to be on the rising trend. There is a significant upside to the dry bulk trade as even though there were many disruptions to the dry bulk loadings in the first half of 2019, still the markets maintained reasonably good freight levels. This trend was aptly reflected in BDI in Q4 of 2018-19. BDI opened higher at 1271, and then fell sharply to 595 due to supply disruptions; however it again recovered due to overall positive trend in markets. China plans to boost its economy via a stimulus package to offset the ill-effects of the high trade tariffs imposed by US. The effects of stimulus announcement are already being felt as there is a definite buzz in the Chinese production sector. This is huge opportunity for all the dry bulk owners worldwide. Also, a lot of tonnage is predicted to be offloaded since it would not be economical for much of the older tonnage to operate the vessels profitably, in light of IMO 2020 regulations.

The resurgence of some loading areas is a welcome development in the dry bulk trade. The Brazilian iron ore exports are expected to spike during the next few quarters as approvals from authorities have been obtained. The supply disruptions in Australia and Mozambique are on the path to complete resolution as full resumption of operations is now in sight. The port of Kamsar in Guinea is expected to emerge as a major exporter of bauxite, driving a lot of vessel movement from the West Africa region and this would give a boost to ton miles. Strategically positioned vessels to avail these trade opportunities would provide healthy returns to dry bulk carrier owners.

Indias continued push to phase off pet coke has caused a big spike in its coal imports in the recent years. The Indian coal imports are expected to rise coming year too. This is a welcome development for our dry bulk ships, which are hauling a good chunk of the import coal cargoes for India.

India has launched many schemes such as "Saubhagya Yojna, which plan to electrify all the left out Indian households. Such ambitious plans for boosting domestic electricity, along with focus on creation of Industrial infrastructure is expected to generate a significant demand for electricity. Government has also proposed other projects like ‘Bharatmala which plan to create an unprecedented road network in India by constructing roads spanning thousands of kilometers. The coal, steel & cement needed to implement these schemes will see a high demand growth. This elevated demand will contribute to increased demand for dry bulk tonnage, both for coastal movements as well as for imports. Shrinking fleet profiles due to a high number of scrapings / demolitions (on account of various reasons such as -lack of sustaining capacity, costly overhauls required to comply to IMO regulations etc.) may create tonnage vacuums across the markets & dry bulkers in respective trades stand to take advantage of the same.

Risks & Concerns

In the dry bulk segment, although the freight levels are on the upside the oversupply has not completely vanished yet. There is always a possibility of local oversupply situation in some regular trade routes. Continued occurrence of local volatility is liable to adversely impact the rates. Additionally, the declining cost of renewable energy & its growing acceptance & compatibility remains a concern for the traditional coal importers. In India, Coal India, which is the major coal producer, continues to increase its domestic production and this thrust to reduce coal imports might adversely affect the seaborne coal trade to India. More recently, the high tariffs by the US on its Chinese imports & subsequent retaliatory steps initiated by China may hamper a lot of the dry bulk trade.

Also, natural calamities had caused loading disruptions in a lot of regions in the globe, affecting major loading hubs in Australia, Mozambique and other West African countries, thereby affecting the resultant dry bulk trade. Advent of renewable energy-centric policies & use of renewable energy sources as a means of mass-scale production, poses a significant threat to the dry bulk trade. Many countries are shifting focus from traditional energy sources towards renewable sources & are actively taking strategic initiatives for the same. This will not only reduce the demand for shipping of traditional energy sources like coal & oil, but bring their prices down which will make extant shipping costs unviable. This puts a question mark on future of traditional dry bulk cargo like coal.

IMO 2020 is on the horizon and the concomitant regulatory changes pose a major concern to all dry bulk owners globally. The high cost of scrubbers and uncertainty around rate of return on investment, uncertainty around availability of IMO compliant bunkers and costs of bunkers in the near future constitute major risks for dry bulk carrier operators.

Domestic factors such as ban on iron ore mining in Goa / Karnataka, lengthy legal process involved in clearing the procedures to re-start the mines, high export duty on iron ore, in India will continue to negatively affect the growth of dry bulk demand on India export-centric dry bulk trades.

Supply disruptions due to natural calamities (for example, cyclone Veronica in Australia, Idai in Mozambique) as well as geo-political issues (US-China trade skirmish, delays in obtaining authority approvals for starting operations of Brazilian iron ore mines) could put a strain on cargo stem availability. Limited cargo stems could put pressure on freight levels.

Grain and fertilizer trades are seasonal and could be relatively short term in nature with uncertain parcel sizes which require timely positioning of tonnage to exploit the trade.

SCI with critical mass in Panamaxes is catering to transportation of three major commodities such as Iron ore, coal and grain, which are prone to be affected by economy slowdowns. View slowdown in these major trades globally the earnings of Panamaxes may suffer.

The absence of long-standing COAs & similar assured business opportunities stand to make your companys dry bulk trade volatile & open for adverse impacts by the market forces. One more aspect that may turn charter rates volatile is delayed scrapping of the vessels (especially older tonnage), on account of temporary spikes in freight rates, which could lead to recurrence of over capacity situation in the market.

The macro economic factors such as interest rate volatility, subsidies on petroleum products, volatile rupee value vis a-vis the dollar and inflation continue to plague the National demand. Shipping being a derived demand may be negatively affected by these factors.

LNG Transportation

LNG is playing a major role in the energy markets with many countries turning to natural gas to meet their energy needs. LNG trade has increased from 100 million tonnes in 2000 to 319 million tonnes in 2019.

50% of the global LNG demand growth upto 2035 is expected to come from Asia, with the traditional demand centres remaining relatively stagnant. With the increasing thrust on cleaner fuels, the Asian markets have seen rapid increase in the usage of liquified natural gas (LNG) in 2018, with the global demand for LNG increasing by 27 million tonnes. Pursuant to the increased environmental measures, Chinese imports alone surged by 16 million tonnes in 2018, up by 40% from 2017. The global demand is expected to rise to 384 million tonnes by 2020.

On the supply side, Australian LNG exports are catching up with the long time leading supplier Qatar and are expected to rise by 10 million tonnes in 2019.

Global LNG supply is expected to rise by 35 million tonnes in 2019. Both Europe and the developing economies in Asia are likely to absorb all the additional supply. Investment in new supply projects is picking up, however given the rapid and continued rise in the demand, supplies need to increase pace.

With a situation of over-supply of LNG ships, increased competition and ever changing market dynamics, LNG buyers tended to sign shorter, smaller and flexible contracts from 2014 through 2017. However new LNG projects require long-term LNG sale agreements to secure financing, and in order to enable developers to go ahead with new projects, the mismatch needs to be resolved. Encouragingly the average length of the contracts signed by LNG buyers increased from about 6 years in 2017 to about 13 years in 2018. And the global contracted volume has more than doubled to 600 million tonnes in 2018.

Global proposed liquefaction capacity has reached 875.5 MTPA, with majority in the US and Canada. The global regasification capacity has continued to increase to 851 MTPA in 2018.

The LNG players are simultaneously looking at alternate options such as Floating Storage Regasification Units (FSRUs), Small LNG carriers for coastal LNG shipping, Floating Liquefied Natural Gas (FLNG) carriers etc for quickly addressing the growing demand. Three FSRU projects with regasification capacity of 84 MTPA came online in 2017. In 2018, about 7 FSRUs are under construction for projects in new markets like Bahrain, Bangladesh, India and Panama.

India is targeting to raise the share of natural gas in energy mix to 15% from current 6% by 2025, and for increasing imports the import terminal capacity is expected to double to 47.5 MTPA by 2022. Reducing carbon emissions by increasing use of LNG as a transport fuel is on the priority list of the government and is working in line for setting up the required infrastructure.

Your company jointly owns and operates 3 LNG carriers under long term charters with charterers Petronet LNG Limited, India for transportation of LNG predominantly from Qatar. The 4th LNG carrier is under long term charter to Exxon Mobil LNG Services B.V, Netherlands. In order to ensure its presence in the new areas of the LNG market, your company is exploring opportunities for participation by ownership and in operations of FSRU, small LNG carriers and coastal LNG shipping.

Your company has built up a pool of trained LNG officers and the experience of independent technical operation of LNG tankers has helped to provide ship management services. Your company is jointly working with one of its Japanese partners, and will start training its LNG officers on construction and operations of FSRU from 2019. SCI superintendents have been posted at Korean shipyard for supervision of an under construction FSRU.

SCI and GAIL had signed a Memorandum of Understanding for cooperation in transportation of 5.8 MMTPA LNG sourced by GAIL from U.S. terminals. In line with the objectives under the MOU, SCI has been awarded two contracts, one for assisting GAIL in In-Chartering of LNG ships and the other for Post-fixture Management services to GAIL for their In-chartered vessels which will be carrying LNG from USA to India. The initial contract is for a period of three years effective from 2018. This collaboration between GAIL and SCI aims to augment the natural gas supply through LNG imports.

NTPC Vidyut Vyapar Nigam (NVVN) is coming up with a 50 MW LNG based generation plant in the south Andaman Island, estimated to be operational by mid of 2020 . The plant will be operated through Duel Fuel ie. LNG (sourced from FSRU) or HSD (sourced from IOCL). NVVM is due to come with a tender shortly inviting bids for providing end to end logistics and LNG to the power plant being planned in Adaman & Nicobar islands. The project infrastructure would need construction of a terminal & jetty structure, Floating Storage & Regasification barge (FSRB) and a small-scale LNG carrier about 10,000-20,000 m3 to load LNG from Indian/overseas terminal for discharge at Port Blair. SCI given its experience in operating LNG ships and terminals, is interested in operating the terminal, the FSRB and the small LNGC, in addition to being an investor in the project. SCI is joining hands with Indian and Overseas partners to form a Consortium which will endeavor to participate in ensuing tendering process..

KLPL Terminal Management

Your company has successfully performed the Port and Marine Services Contract at the KLPL Dabhol Terminal for further 4 years i.e. 2015 - 2019. The SCI team successfully handled 72 LNG tanker calls at the Dabhol LNG receiving terminal and the total imported LNG under the contract stands at 13.24 million cbm. The contract is due for renewal.

LPG Carriers

Continued rise in usage and penetration in rural areas has resulted in average growth of 8.4% in Indias LPG consumption, making India the second largest LPG consumer in the world at 22.5 million tonnes. As per the projections, the Indian LPG consumption is expected to grow to 30.3 million tonnes by 2025 and 40.6 million tonnes by 2040. SCI is exploring the possibilities of acquiring additional LPG carriers which would serve the Indian demand. Informatively SCI had acquired VLGC Nandadevi in 2017 to ensure SCIs continued presence in the LPG segment.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance of the tanker segment has been largely influenced by low earnings on the VLCCs, Suezmax and Aframax segments where SCI has had a mix of cross trade charters, market linked Contract of Affreightments and Time charter businesses to effectively hedge employment and earnings risks. On the smaller segment product carriers and LR I dirty carriers; the employment was mainly to meet the domestic product and indigenous crude movements on long term contracts and time charter business. Positive geographical concentration in niche coastal business segments has ensured positive returns. However, with globally weak tanker markets, there was strong competition in coastal & product trades which limited earnings to some extent. Internationally, a sharp fall in market across the companys usual trade routes resulted in very low earnings. Also, a noteworthy chunk of potentially lucrative earnings opportunities was lost due to vessel related incidents and technical issues on the vessels. As a result of the weak market the tankers segment gave a very subdued performance.

The dry bulk segment is still recovering from historically bad period and loss of key cargoes such as Iron ore from India resulting in nonprofitable ballast voyage legs thereby reducing earnings. Although some relief was offered by coal cargoes & minor bulks as well as profitable coastal trades, earnings remained subdued & close to break-even levels due to low freight markets, especially in the latter part of 2018. Few profitable trades emerged during the year where dry bulk charter rates went into profitable levels, but this upturn was short-lived & the markets stabilized to their depressed levels, which are currently below profitable levels. The dry bulk segment therefore had a lackluster performance financially, however the same is showing potential for good earnings in view of lower rate of fleet growth and projected rise in dry bulk trade.

2 LINER & PASSENGER SERVICES

A Industry Structure & Developments

i) World Scenario:

The Shipping industry is undergoing structural changes affecting almost all segments within the industry and impacting the foreseen new building requirements towards year 2035. Apart from ongoing technological advancements and increasing regulatory pressure on the industry, the geopolitical situation, slowing pace of overall seaborne trade growth and general global economic uncertainties have also affected the forecasts.

While the prospects for seaborne trade are positive, these are threatened by the trade wars and increased inward-looking policies. Escalating protectionism and tit-for-tat tariff battles may potentially disrupt the global trading system which underpins demand for maritime transport. Consolidation activity in liner shipping continued unabated i.e the liner shipping industry witnessed further consolidation through mergers and acquisitions and global alliance restructuring.

As of January 2018, the top 15 shipping lines accounted for 70.3% of all capacity. Their share has increased further with the completion of the operational integration of the new mergers in 2018, with the top 10 shipping lines controlling almost 70% of fleet capacity as of June 2018. Liner shipping alliances and vessel upsizing have made the relationship between container shipping lines and ports more complex and triggered new dynamics where shipping lines have a stronger bargaining power and influence. Increases in the size of vessels and the rise of mega-alliances have heightened the requirements for ports to adapt. While liner shipping networks seem to have benefited from efficiency gains arising from consolidation and alliance restructuring, for ports, the benefits did not evolve at the same pace. This dynamic is further complicated by the shipping lines often being involved in port operations which in turn could redefine approaches to terminal concessions. Technological advances in the shipping industry, such as blockchain applications, cargo and vessel tracking, autonomous ships, and the Internet of Things, hold opportunities for the global shipping industry.

ii) Indian Scenario

The Indian ports and shipping industry plays a vital role in sustaining growth in the countrys trade and commerce. India is the sixteenth largest maritime country in the world, with a coastline of about 7,517 km. The Indian Government plays an important role in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100 per cent under the automatic route for port and harbor construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports. The Indian Government plans to develop 10 coastal economic regions as part of plans to revive the countrys Sagarmala (string of ports) project. The zones would be converted into manufacturing hubs, supported by port modernization projects, and could span 300-500 km of the coastline. The government is also looking to develop the inland waterway sector as an alternative to road and rail routes to transport goods to the nations ports and hopes to attract private investment in the sector. This is expected to boost the coastal shipping and SCI is an active partner in the above projects of GOI. Under the Sagarmala Programme, the government has envisioned a total of 189 projects for modernization of ports involving an investment of Rs 1.42 trillion (US$ 22 billion) by the year 2035.

iii) Strength & Weaknesses

Liner Division of SCI has vast experience in the trade which is the most formidable force instilling confidence in the cargo interests / owners who continue to lend their invaluable support to SCI. The customer friendly approach at all the levels and SCIs customized services puts SCI ahead in the league. The wide network of the agents all across the world, provides and facilitates for localized contacts in markets to offer customised logistics solutions. Operating partnerships have been forged with internationally recognized container carriers in select consortia, to enhance coverage and frequency on the major trading routes. SCI is a licensed MTO in India and also has International Freight Forwarding License. Breakbulk operations are largely profitable and passenger services provided by SCI provide stable source of revenue, not to mention the vital link that supports the islanders to the mainland. Efforts are on to expand the India-centric focus to garner the benefits of economies of scale.

iv) Opportunities & Threats

Govt. of India is taking lot of initiatives and is making huge investments to increase the capacity of the Indian ports. Under the Sagarmala Programme, the government has envisioned a total of 189 projects for modernization of ports involving an investment of Rs 1.42 trillion (US$ 22 billion) by the year 2035. Ministry of Shipping has set a target capacity of over 3,130 MMT by 2020, which would be driven by participation from the private sector. Non-major ports are expected to generate over 50 per cent of this capacity. Indias cargo traffic handled by ports is expected to reach 1,695 million metric tonnes by 2021-22, according to a report of the National Transport Development Policy Committee. This is expected to result in significant improvement in operating profitability in the future. New operating alliances are expected to contribute by allowing global carriers to further synergize network efficiencies and vessel deployment optimization bringing about higher savings. Improving economic conditions in the US and Europe is expected to boost market fundamentals and support carriers in their effort to restore freight rates. An improvement in liner operating profitability is also expected to act as a catalyst for higher charter vessel demand and higher charter rates. Despite improving market fundamentals, the industry has to overcome challenges in the year ahead due to increase of mega-ship deliveries. The break bulk sector continues to maintain good potential in respect of ocean freight arrangements of General cargoes, Over-Dimensional Cargoes (ODC), Project cargoes, Heavy Lift cargoes etc. on account of the Government Departments / PSUs and other GOI organizations.

B Segment-Wise Performance

1 Liner Vessels: The table below shows the profile of your Companys owned liner fleet having total container carrying capacity of 8800 TEU.

 

Type of Ships

As on 31.03.2018

Addition

Scrapping

As on 31.03.2019

No. Dwt (MT) No. Dwt. No. Dwt. No. Dwt (MT)
Fully Cellular 3 144500 - - 1 28902 2 115598

Both container vessels namely, MV SCI Chennai and MV SCI Mumbai are 11 yrs old. As on 31.03.2019, 4 in-chartered container vessels having total Net Tonnage of 64978 MT were operated by your Company. In addition to the above owned and in-chartered vessel, your Company also has cargo loading rights on 19 vessels of its partners in various consortia arrangements that your Company has with leading shipping lines, such as Mediterranean Shipping Company (MSC), Shreyas Shipping etc. to name a few. Your Company continued to deploy its owned / operated Container vessels in the following sectors:

2 Container Services

i) Himalaya Service (Erstwhile ISE Service)

The UK-C Cellular Container Service commenced in 1994 with SCI as a single operator operating three vessels with 1,800 TEU capacities, which was later upgraded to a fixed day weekly service operating with seven vessels of similar capacity. The service, from May 2009, was operated in consortia comprising of two partners viz. SCI and mSc, with eight vessels of which two vessels were contributed by SCI. Since end-Feb 2016, the consortia contribution has been changed to one SCI vessel. This strategic reduction has been done to improve profitability of the service. The service is operated on round voyage duration of 56 days.

ii) IPAK Service

In a slot swap arrangement between SCI and MSC, SCI has been allotted 200 TEUs slots by MSC, which operates IPAK service in exchange for similar slots allotted to MSC on the ISE service.

iii) India / Far East Cellular Service (INDFEX 1)

This service was closed in June2018 and M.V Chennai was deployed in PIX2 service.

iv) SCI Middle East India Liner Express (SMILE) Service & Pan India Service (PIX2):

SMILE and PIX2 services seamlessly links up Persian Gulf with East Coast of India and West Coast of India, thereby, strengthening and expanding SCIs presence in the Coastal Shipping Sector. The joint operation on this route will be a force multiplier for SCI which will provide a high quality of Coastal Services on fixed day fixed window basis with potential for even bigger expansion in Coastal and near Coastal trades with special emphasis on the East Coast of India ports. Two services viz. SMILE and PIX2 with their service rotations makes it feasible to connect pan-Indian ports with an improved transit time. SCI seeks to cooperate with other Indian Companies to work out the best transportation solutions for the trading community vis-a-vis commercially, economically viable and environmentally feasible options. SCI connected west coast of India to southern and eastern ports of India viz Katupalli / Krishnapatnam / Vizag / Haldia / Kolkata during 2016-17 and the Pan India service got stabilized during 2017-18, thus, promoting GOI initiative ‘Sagarmala and increased coastal shipping.

v) Portblair Services

Your Company started a new standalone service in Dec2018 with 2 in-chartered vessels connecting Kolkata - Chennai - Port Blair route providing connectivity for cargoes from West and East coast of India to Port Blair.

vi) ECX Service:

Your Company started standalone service in March19 with 1 in-chartered vessel for providing connectivity for WC / ECI cargoes on Tuticorin / Kattupalli / Krishnapatnam/ Haldia route.

vii) Feeder Operations

SCI makes feeder arrangements with ‘Common Carriers between various destinations on the Indian subcontinent.

viii) Slot swap arrangements:

SCI enters into slot swap arrangements with service providers depending upon trade requirements.

ix) Break-Bulk Services

SCI arranges carriage of breakbulk cargoes on space charter basis from various regions across the globe including USA, Europe and Far East for imports on account of the Government Departments / PSUs and other GOI organisations, which includes Shipments of Over-Dimensional Cargoes (ODC) / Project cargoes / Heavy Lift cargoes / IMO Class I Cargoes etc. and also containers.

x) Domestic Passenger-Cum-Cargo Service:

In addition to International operations, SCI with ten (10) managed vessels (owned by A&N Administration) operates domestic passenger and cargo transportation services between the Mainland and the Andaman & Nicobar (A&N) group of islands and inter-islands, on behalf of the Government of India. Also, 17 numbers of Foreshore passenger vessels of A&N Administration are technically managed by SCI.

xi) Other Coastal Services

SCI also manages Oceanographic & Coastal Research vessels on behalf of Government Agencies / Departments viz. three vessels owned by Geological Survey of India, under Ministry of Mines and one vessel of National Centre for Antarctic & Ocean Research, one vessel of Centre of Marine Living Resources and Ecology and three vessels of National Institute of Ocean Technology under Ministry of Earth Sciences.

3 Manned & Managed Vessels

The following table shows the profile of the Passenger-cum-Cargo vessels and other vessels managed by your Company on behalf of the various Governmental Organizations/Departments:

 

Type of Ships

As on 31.03.2018

Additions Nos.

Scrap/ Redelivered (Nos.)

As on 31.03.2019

Nos. Pax. Cap. Cargo Cap. (MT) Nos. Pax. Cap. Cargo Cap. (MT)
Pax-Cum-Cargo 10 6317 5200 0 1 9 5763 4220
Cargo Ships 1 500 0 0 1 400
Other vessels 17 Foreshore & 8 Research 1,599 100 0 0 17 Foreshore & 8 Research 1,601 250
Total 36 7916 5800 0 0 35 7364 4870

The pattern of deployment of these vessels is as follows:

• Three vessels for carrying Passengers and cargo between the Mainland and Andaman and Nicobar Islands.

• Six vessels and One Cargo ship for Inter-Islands run (A&N Islands).

• Seventeen vessels for Fore Shore Sector run (A&N Islands).

• Eight Research vessels of GSI, NCAOR, NIOT, CLMRE carrying out scientific expedition in the Indian Coast.

C Marketing

SCIs marketing team continues to make regular customer calls through its own offices and also through agents appointed at various ports in India and abroad in order to market its container and break-bulk services. Meetings with the agents are held periodically, and SCI representatives also participate in various trade meets at important locations in India. Your Company has obtained Freight Forwarding and Multimodal Transport Operator (MTO) licenses and continues to use its vast experience and large agency network to render 3PL (Third Party Logistics) services to the customers. This helps your Company to retain the clients while generating additional revenue.

D Outlook

Under the new Foreign Trade Policy (2015 - 2020), India aims to increase its share in the global trade to 3.5% by 2020. Incentives to agricultural exports and extension of the same under Merchandise Exports from India Scheme to units in SEZ are part of the new FTP This is aimed to integrate with Make in India and Digital India initiatives. Multiple infrastructure projects, eyeing to improve Indias logistics efficiency and hinterland connectivity, will boost the countrys box trade in the coming years. Some of the key projects that will be a game changer when fully operational is (A) Multi-modal terminal under Jal Marg Vikas project: The 170 crore multi-modal terminal at Varanasi, under the Jal Marg Vikas project will be a major logistics hub connecting North India to North East India. The government will also develop 35 multi-modal logistics parks for freight aggregation and distribution, multi-modal transportation and warehousing. (B) Port based multiproduct SEZ at JNPT, first of its kind, a port-based SEZ at JNPT will be developed with Free Trade Warehousing Zone, Engineering Goods sector, Electronics & Hardware sector and Pharma sector. (C) Dedicated Freight Corridor (DFC), DFC will provide logistics support for the Make in India initiative. Two of the three DFCs are scheduled to be operational in the next three years. DFC will reduce the inland transit time significantly. (D) Sagarmala programme, The Indian government is implementing the Sagarmala programme in phases, spanning over 20 years from 2015-35.

E. Risks & Concerns

The prolonged economic struggles of most shipping lines have made the maritime sector more sensitive to risk than other modes of transport. The most common maritime risks have traditionally been relatively predictable: natural disasters, mechanical failures and human error. Now, however, the incredible growth of international trade and the introduction of new technologies mean that shipping industry risks are evolving.

Once seen as a marginal problem for shipping, cyber risk is now considered one of the top threats. Ship data recorders have shown that human error accounts for about 75% to 90% of marine accidents, amounting to more than $1.6 billion in losses. Numbers like these have spurred interest in autonomous ships that could move cargo more safely. In order for this to work, the industry will need to determine how much human backup would be needed to avoid collisions between manned and unmanned vessels.

The most economic and environment friendly mode of transportation is yet to recover from the effects of boom - bust phase of growth and recession triggered by the recession of 2008. Global demand continues to remain weak amidst heightened uncertainty stemming from factors such as trade policy and low commodity and oil prices. The industry continues to suffer from this weak demand and over capacity environment, which has constrained freight rates and dampened profitability in most shipping market segments. Coupled with the international geopolitical developments viz. rebalancing of Chinese economy towards domestic demand, the emerging trade policy direction of United States of America (USA) and looming trade war between China and USA, continued Brexit conundrum, Spiraling Inflation in Venezuela, Political instability in Turkey, Iran sanctions etc. the world economy and trade has been thrown into an uncertain and challenging territory which could put the global trade recovery at risk with inevitable consequences for wider economy.

F. Discussion on Financial Performance With Respect To Operational Performance

Your Companys liner segment registered a loss of Rs. (89.60) crores in FY 2018-19 as against profit of Rs 79.66 crores in 2017-18. The Operating Income reduced from Rs. 676.38 crores in 2017-18 to Rs. 632.63 crores due to reduced volumes and low freight levels. You may like to note that your Company is adopting various cost saving measures accruing to the liner services viz. considerable saving on feeder and transshipment costs by reducing carrying cargoes to non-base ports, better inventory management, control on repair costs of vessels and containers. However, the volumes and freight levels have not favored thereby resulting in losses. Our on time schedule reliability on our services, particularly in Europe sector continues to be very good and comparable or better than the global players.

G. Measures Taken By Us to Improve Our Services & Operations

Liner Division is ensuring that General Rate Increases are being strictly implemented keeping in mind the market sentiments and demand- supply gap. Performance of each Container Service is being reviewed monthly from the point of view of profitability. Liner division closed its service on Far East sector as it was in continued losses. Ultra slow steaming planned / achieved on the container ships. Fuel additives are also being used to save on fuel consumption. Liner division has already expanded its Coastal and Feeder Services and is trying for further expansion. SCIs strategy has been to use our Indian Flag ships on these routes when Indian Flag commands a premium and to use Foreign Flag vessels on the other routes. Foreign companies dominate in Indian Sub-continent feeder routes and provide seamless connections. By mutual cooperation with the other Indian Companies through slot exchange, it is envisaged that feedering freight would be retained within the country, which would also help in minimizing the working capital requirements for the Division. Further, ports like Kandla and newly emerging container ports in East Coast of India like Kattupalli, Krishnapatnam and Vizag are offering substantial discounts on transshipment costs and storage charges, and by using these ports optimally, substantial system costs reductions are being achieved. Our focus is to maintain right sized leased equipment inventory to optimum levels to make services sustainable and undertaking firm negotiations with leasing companies and vendors for achieving desired results. Aging inventory is being replaced by the younger fleet at better terms. We are identifying niche sectors to commence new services, like feasibility study been done for intended services viz. Ex-India / Maldives, Ex-India / Myanmar / Bangladesh / Thailand, extending Coastal Services to include Iranian port(s) viz. Chabahar & Bandar Abbas. Other feasibility studies been

conducted for services like Ex-India / East African ports. Liner division has slowed down on new acquisitions for now with ISE / Himalaya Service and is continuing to operate with one in-chartered vessel of about 8,500 TEU capacity. No CAPEX expansion planned this year so far. But option are kept open and Division is scouting for second hand vessel(s) if it fits commercial requirements. Engagement with landside Logistics PSU firms viz. CONCOR, Balmer Lawrie, CWC etc. for offering seamless multi-modal services between Inland locations and ports on the Indian Coasts as well as overseas ports. We have also undertaken feasibility study for setting up owned or jointly operated CFS / ICDs for various viable routes and also freight forwarding operations. We are also in discussion with "Inland Waterways Authority of India" for undertaking their commercial operations on NW1 and NW2.

H. Important Developments

Commencement of Portblair services and ECX services by in chartering 3 vessels; 2 vessels are deployed on Portblair services and 1 vessel on ECX service.

I. Information Technology:

SCI has a robust ERP system in place. A Disaster Recovery Site is built at Kolkata office to ensure business continuity during any emergency. Periodic System Audits are carried out on internal controls & cyber security and the recommendations are being implemented. E-tendering platform is being extensively used for procurements, which enable transparency and efficiency in procurement processes. Vendor Bill Tracking & Monitoring system is implemented to have a better control on settling invoices. Systems are GST compliant. New IT system has been implemented to centrally register and track the Vendor invoices seamlessly till the final settlement. The system ensures transparency and efficiency. SCI website www.shipindia.com is completely revamped with a new look and accessibility. Other IT initiatives such as implementation of Business Intelligence Dashboard are being implemented. Hardware refresh project has been kick started to have the latest hardware for a better performance.

3 TECHNICAL & OFFSHORE SERVICES

A) Industry Structure and Developments

i) World scenario

The offshore support vessels industry is dependent on utilization of rigs, E&P activities and other activities in oil fields, which in turn depends upon strategic decisions of energy security by oil and gas producers, shifts in Government policies and long term crude oil price trends. As per industry outlook, global oil demand would continue to grow and is not expected to peak before 2040. The demand for conventional gas is also on the rise in the long term. Offshore upstream capex is set to increase 10% per year through to 2022, driven largely by deepwater spending and offshore LNG projects. The number of offshore rigs under contract rose to 492 in the beginning of 2019, up from 472 in January 2018.

ii) Indian scenario

Historically, Indias domestic production of oil and gas has fallen short of its burgeoning energy requirements, compelling our country to rely on imports. In view of stable crude oil prices, there has been increase in import of crude and private players are avoiding any new exploration and discovery activities. Though, there is an increase in consumption of crude by the country over the years, the requirement is majorly fulfilled by import of crude / petroleum products. The countrys oil consumption grew from 184.7 million tonnes in 2015-16 to 211.6 million tonnes in 2018-19. In contrast, Indias crude oil output fell from 36.9 million tonnes in 2015-16 to 34.2 million tonnes in 2018-19, as per PPAC (Petroleum Planning and Analysis Cell) data. The outcome of ONGC and other E&P operators tender shows that the expected per day rates for offshore assets are firming up in end of 2018-19 and freight market is showing some upward movement. However, rates are still below breakeven for various categories of the vessel requirements.

iii) Outlook:

With crude prices above US$ 67 per barrel mark and considering self-sufficient policy by governments of most of the developed and developing countries for the requirement of energy resources, the E&P activities throughout the world are expected to show upward trend soon and hence the requirement of offshore assets may also rise. Further, several big oil companies shall restart offshore drilling due to the improved efficiency and lower breakeven prices. Industry experts project that the global oil demand shall grow by around 1 million barrels per day (mb/d) on average, each year till 2025, thereafter average annual demand growth is expected to slow down to around 0.25 mb/d. The Indian market, with upward movement of crude oil prices and the Government of Indias intervention on reduction of oil import bill, E&P activities on Indian coast is expected to rise. With more E&P activities more offshore assets will be required.

B OFFSHORE ACTIVITIES:

1 Information relating to the year under review viz 01.04.2018 to 31.03.2019:

1.1 SCI owned Offshore vessels:

Your Companys owned offshore fleet comprises of 10 vessels i.e. 02 nos. 80T Anchor Handling, Towing & Supply Vessels (AHTSVs), 04 nos. 120T AHTSVs, 02 nos. Platform Supply Vessels (PSVs) and 02 nos. Multi-Purpose Support Vessel (MPSV).

DIRECTORS REPORT

During the year, one 120 T BP AHTSV viz. SCI Kundan continued to remain on long term charter with ONGC and 2 MPSVs continued their charter with DRDO. The remaining 2 nos. 80T AHTSVs, 3 nos. 120T AHTSVs and 2 nos. PSVs were predominantly operating in the spot market/short term charter. With continued efforts, your company has been able to successfully obtain business from various reputed national/international/private clients.

2 O&M of ONGC owned vessels

2.1 Mobile Offshore Drilling Units (MODU)

In view of the expertise of your Company in management of offshore vessels, ONGC had awarded long term contract for Marine Man Management services of their two MODUs viz. "Sagar Vijay" and "Sagar Bhushan", respectively, for a period of 06 years.

Your company continued the O&M of these ONGC owned MODU vessels on cost-plus basis and the present contracts are valid till 30.06.2022 and 18.07.2022 respectively.

2.2 Newly acquired OSVs by ONGC

Your company continues to provide Operation & Maintenance (O&M) services of seven OSVs newly built by M/s ONGC at M/s Pipavav Defence and Offshore Engineering Company Ltd. These vessels are being managed by your company since their deliveries, which began from 2013 onwards. These O&M contracts have been awarded, on cost-plus basis, till 31.03.2023.

2.3 Specialized vessels

During the year 2018-19, your Company continued the Operation & Maintenance management (O&M) of ONGCs 2 Multi Support Vessels (MSVs) ("Samudra Sevak" & "Samudra Prabha") and one Geotechnical Vessel (GTV) ("Samudra Sarvekshak") on nomination basis under ‘Cost plus arrangement. The existing contract for GTV is valid upto 31.03.2021. Although the contract for MSV Samudra Prabha was valid till 31.03.2019 and the extension is under process, w.r.t. the contract for MSV Samudra Sevak ONGC invoked the Clause of Special Conditions of Contract and directed handing over of vessel w.e.f. 16.03.2019. Accordingly, your company has handed over Samudra Sevak on 16.03.2019.

Your Company has also continued the Operation & Maintenance management (O&M) of ONGC owned Well Stimulation Vessel (WSV) "Samudra Nidhi" on ‘cost plus basis since the vessels delivery in year 1986. Your company has been awarded 6 years long term contract by ONGC for Samudra Nidhi, valid till 31.03.2023.

3 Emergency Towing Vessel (ETV) 2018

On request of Directorate General of Shipping (DGS), this year also your company provided one Emergency Towing Vessel (ETV), "SCI Panna", for emergency services in the monsoon period, on West Coast of India and East Coast of India, for a total of about 133 days, w.e.f. 21.07.2018 till 30.11.2018.

4 DRDO Project

Defence Research & Development Organization (DRDO) had placed its requirement with SCI for hiring of two support vessels for a firm period of 4 years plus 1 year extension option. Accordingly, SCI had acquired two secondhand/resale MPSVs, "SCI Sabarmati" and "SCI Saraswati", customized to suit requirements of DRDO. These vessels are being utilized to meet support requirements towards DRDOs strategic missions of national importance. Further, in 2018, Indian Navy has availed the services of SCI vessel, ‘SCI Sabarmati for conducting Sea Acceptance Trials (SAT) for its new Deep Submergence Rescue Vehicle (DSRV) equipments. Your company is proud to have been associated & assisted the Indian Navy in successful completion of the trials on the West coast of India.

5 Risks and Concerns

The per day charter hire rates in the spot market is generally higher than the long term rates (industry average), however, there are more operational challenges and loss of employable days during frequent change of charter in spot market for obtaining inspections/ clearances. With majority of assets of your company on spot, it entails the risk of average utilization of assets to be on the lower side. However, despite the same, your company has achieved revenue operating days of 75% compared to the industry average of 60% in Asia- Pacific region.

Entry of new players in the Indian market with low capital expenditure is major concern and challenge for your company. However, your good company is keeping contacts with many E&P operators and EPC contractors with expected future requirement for offshore vessels for their offshore activities. Simultaneously, your company is also continuously on look out for any long term employment for these vessels, not only in the Indian waters but also in Foreign waters.

6 Strengths and Weaknesses

Your company has a diversified fleet of offshore vessels with 02 nos.80T AHTSVs, 04 nos. 120T AHTSVs, 02 nos. PSVs and 02 nos. MPSVs, thus enabling it to cater to requirements of various clients in the offshore market. Your company also owns a fleet of young offshore vessels, thus giving a technological advantage compared to the older vessels in the market.

Your company has always focused on employing its vessels on long term basis with ONGC, which is the biggest E&P Company in India.

However, dependence for majority activities on one client has its own disadvantages, especially considering the de-hiring of vessels by ONGC in 2016. Your company is constantly making efforts to increase its clientele by chartering vessels to other reputed players.

7 Opportunities and Threats

The Government has made some major policy changes in exploration and licensing sector for enhancing domestic exploration & production of oil and gas. Further, with increase in crude oil prices and increase in oil import bill, the E&P activities are expected to rise, thereby creating shipping demand for offshore assets in Indian coast. Also the sanctions on Iran are expected to increase the E&P activities worldwide and so is the demand for offshore assets.

Many marginal and new players have taken advantage of the low prices of distressed assets of troubled offshore players and have entered the Indian market. Entry of new players and availability of old offshore assets at lower price are leading to high competition resulting in charter hire rates in ONGCs recent tenders to be very low and it has not been gainful for offshore assets of your company to be employed at these low levels.

C) Technical Services:

1 Technical Consultancy Services

During the year under report the Company continued to provide technical consultancy services to A&N Administration, Union Territory of Lakshadweep Administration, Geological Survey of India, Union Territory of Daman and Diu Administration (UTDD) and other Government Departments for their various ship acquisition projects. By the end of the year, another Government organization namely M/s. Sardar Sarovar Narmada Nigam Limited (SSNNL) appointed SCI as the consultant for selection of integrated operator for running passenger ferry vessels at Statue of Unity site, Kevadia, Gujarat. Further, SCI expects to add few more clients in its technical consultancy portfolio.

2 Tonnage Acquisition Programme

During the year under report, your company did not make any addition as stated earlier in the Board Report. The reason being the company is cautiously looking into acquisition proposals and impact of the assets. Your company also desires to reduce the gap of gestation and therefore always strives to look at the proposals for second hand acquisitions.

3 Eco-Friendly and Conservation of Energy

As a policy, your Company remained committed to environmental protection as per International Convention for the Prevention of Pollution from Ships. Necessary steps have been taken to minimize air pollution and oil pollution from ships.

Your company has taken necessary steps to meet IMOs fuel oil data collection system directive, as per IMO directives to report fuel oil consumption data from 01st Jan2019.

SCI is getting geared-up to meet IMOs 0.5% sulphur fuel regulation effective from January 2020 and required action is being initiated on all vessels by respective Operating Divisions, to make the fuel tanks ready for bunkering of low sulphur fuel well before the regulation comes in force.

All engines fitted on board are meeting applicable NOx emissions requirements. For the existing vessels, your company had developed a Ship Specific Energy Efficiency Management Plan (SEEMP) to improve and monitor energy efficiency in ship operations. Usage of eco-friendly refrigerants, installation of Ballast Water Treatment plants, availability of Inventory of Hazardous Materials on most of its ships, usage of TBT free paints, etc are some of the measures showing your companys commitment to Eco-friendly policies and conservation of energy.

4 Technology Absorption, Adoption and Innovation

The SCI has taken all steps to comply with requirements of The International Maritime Organizations MARPOL ANNEX VI aimed at Controlling Air Pollution and setting limits on Emissions to the Atmosphere from Ships. On the new vessels SCI has voluntarily accepted higher than mandatory requirements on emission standards.

For 700T oil tanker vessel under construction for UTL Administration, SCI as the technical consultant has recommended various optional features such as double hull protection for the cargo tanks, installation of sewage treatment plant and incinerator onboard, portable tank cleaning machines, cupro-nickel piping for ballast water / sea water systems, etc. which proves your companys commitment to technology absorption.

Similarly, for 500/1200 Passenger vessels under construction for A&N Administration, SCI had recommended adoption of certain technological up gradations for passenger comfort and operational efficiency.

5 Situation in Coastal operation and Offshore areas

The DG Shipping had come out with guidelines on Right of First Refusal (RoFR) which focuses on Indian built vessels over Indian flag tonnage. The revised guideline has potential to impact the Indian shipping industry; however the same is currently in abeyance in the High court.

Further, the low asset prices have prompted many Indian ship owners to test the local offshore markets by aggressively bidding in the ONGC tenders. At the same time, with changes made by Government in awarding blocks for oil & gas would definitely benefit the offshore sector and inturn your company revenues.

6 Measures taken to improve services and operations

During the year greater emphasis has been given on preventive and planned maintenance for cost effective operations and maintenance of OSVs. The available downtime was well utilized for maintenance and overhauls of machinery.

ONGC has changed the technical requirements for deployment of PSVs in their new tender which involves enhanced rescue capabilities. Your company has already initiated steps to upgrade the two PSVs in its fleet, to meet the new technical requirements of ONGC.

Further, your company has already entered into long term rate contracts with Original Equipment Manufacturers (OEMs) of major spare suppliers, so as to benefit from the discounted rates and streamline un-interrupted supply to our vessels.

IV International Safety Management Cell

The SCI has introduced the Safety Management System by setting up a dedicated International Safety Management (ISM) Cell, which has developed, structured and documented procedures in compliance with the International Management Code for Safe Operation of Ships and for Pollution Prevention (ISM Code), in accordance with the resolution A.788(9) of the International Maritime Organization (IMO) and SOLAS, Chapter IX.

The SCI has laid the foundation of the Safety Management System (SMS) by recognising that the cornerstone of good Safety Management is a commitment from the top management, coupled with the competence, attitude and motivation of individuals at all levels, that determines the expectations of a good Safety Management System.

The SCI has complied with all the functional requirements of the ISM Code, which includes the Safety, Occupational Health & Environment Protection Policy and Drug & Alcohol Policy.

As regards, Safety Management Certificate (SMC) for SCI fleet, all ships are put up for periodical/ renewal SMC audits within time frame and respective SMCs are accordingly endorsed.

The requirements of various amendments to ISM Code and Statutory regulations from IMO/Flag are also complied with.

Towards addressing all emergency related issues, dedicated contact numbers remain manned 24 hours in the operating divisions:

The achievement of time-bound certifications was the result of the SCIs strength of professional experience, planning, training, execution, systematic analysis and quality expertise, which is an asset for any world-class ship operator or owner. The SCI is also in a position to provide such management expertise to other national/ international ship operators.

Awards & Appreciation:-

• First Prize for Best Enterprise - Navratna awarded to SCI at the 29th National Meet of Forum of Women in Public Sector (WIPS), on 12th February, 2019

• HR Excellence Award at the Governance Now 6th PSU Awards on 17th January 2019

• Ranked 1st among the Key Organizations under the Swachh Bharat Mission 2019 - Swachh Survekshan initiative of the Ministry of Shipping (assessment exercise conducted by Quality Council of India appointed by the Indian Ports Association).

• AMVER award by U.S. Coast Guards (USCG) for outstanding contribution to AMVER (Automated Mutual-assistance Vessel Rescue) system which ensures quick and efficient rescue of disabled and distressed ships at sea, saving lives and ensuring continuity of shipping operations on 27 August 2018

• Excellence award for "Contribution to women in CPSEs" in recognition of SCIs commitment to the principles of gender diversity and

equality at the workplace reflected by the representation of women across hierarchical grades including SCI Board at ICCs (Indian

Chamber of Commerces) PSE Excellence Awards 2018 on 29th August 2018

• "Best Employer Of the year (Indian Flag) - (Sapphires of the Ocean)" at Seajob Indian Anchor Awards 2018 (organized by Sealine Group) on 20th October 2018 (through Online Polling).

• ‘The Offshore Marine Awards for Owners and Operators" at Sea Trade and Maritime Awards (Middle East, Indian sub-continent & Africa) on 28th October 2018.

• ‘Shipping Company of the Year-Coastal at the 6th Samudra Manthan Awards on 5th December 2018.

• Third prize (Organization Category) under ‘Swachh Sarvekshan conducted by Indian Ports Association

Individual Awards (apart from those bestowed on SCI)

• Capt. Anoop Kumar Sharma, C&MD, SCI was awarded ‘Maritime Personality of the Year 2019 at 4th India Maritime Awards on 21st June 2019 at Mumbai. India Maritime awards is organized by Daily Shipping Times.

• Best Women Employee - Executive awarded to Mrs. Sangeeta Sharma, Director, Liner & Passenger Services of the Shipping Corporation of India Ltd., at the 29th National Meet of Forum of Women in Public Sector (WIPS) on 12th February, 2019

• India Maritime Award for Woman Professional in Shipping & Logistics was conferred upon Mrs. Sangeeta Sharma, Director (Liner & Passenger Services) of the Shipping Corporation of India Ltd., for her outstanding contribution in the shipping business on 22nd June 2018.

• Excellence Award for his ‘Outstanding Contribution to the Indian Public sector was conferred upon Capt. Anoop Kumar Sharma, Chairman & Managing Director of the Shipping Corporation of India Ltd. at ICCs (Indian Chamber of Commerces) PSE Excellence Awards 2018 on 29th August 2018.

• The Maritime Standard Outstanding Achievement Award, prestigious Individual Award, was conferred upon Capt. Anoop Kumar Sharma, Chairman & Managing Director of the Shipping Corporation of India Ltd, at The Fifth Annual Maritime Standard Awards on 15th October 2018.

• "Offshore Marine Award for owners & operators" was awarded to SCI by Seatrade Maritime Award in the category at the function held at The Atlantis, The Palm, Dubai on 28.10.2018.

• Memento received as Note of Thanks from JFD Team to The Captain and Crew of M.V SCI Sabarmati to recognise joint participation with the Indian Navy in the IN DSRV Sea Acceptance Trials - System 1 2018.

• Appreciation from Shri Venkatesan, Scientist G & Head of Ocean Observation System, National Institute of Ocean Technology Ministry of Earth Sciences, Chennai to the Captain, Officers and crew of M.V. Sagar Nidhi in getting valuable data.

• Appreciation letter dated 07.11.2019 from Sri Lanka Navy Headquarters, Colombo to the Master, M.V. Vishva Vijay, for the Assistance rendered to transfer a patient ashore to save a life at sea.

• Corporate Award for HSE Excellence 2017-18 - in recognition to the Professional Excellence and outstanding performance in Health, Safety and Environment Management was adjudged to Rig M.V.Sagar Vijay, as the Best Offshore Drilling Rig received from ONGC on 29.01.2019.

SCIs Drug & Alcohol Policy:-

SCI has implemented new Drug & Alcohol Policy prohibiting drug and alcohol abuse both ashore and afloat for the health and welfare of its employees, operational safety and the environment from 03rd May 2016.

ISPS Cell

The SCI has successfully implemented the ISPS Code on all vessels on international voyages and coastal trade vessel as per the Administration requirement.

SCI is committed to the following objectives to fulfill the requirements of its security policy:

• Security of its ships and their crew, passengers and cargo

• Support to its ships in implementing and maintaining the Ship Security Plan.

Integrated Management System (IMS)

SCI is now in compliance with IMS (ISO 9001:2008 - Quality Management System, ISO 14001:2015 - Environmental Management System and BS OHSAS 18001:2007 - Occupational Health and Safety Management System) on board all vessels and shore establishments.

The required certification was obtained on 27th April, 2018 from IRQS, valid till 22nd December 2019.

V PERSONNEL AND ADMINISTRATION FLEET PERSONNEL

1. There is a shortage of senior Floating Staff officers, especially in the ranks of Masters & Chief Engineer Officers. The Fleet Personnel Department is trying to mitigate the shortage by recruiting officers on direct contract and through manning agents by offering market-related wages which have been revised significantly in the Main Fleet and Offshore Sector.

2. To facilitate development of employees with an aptitude for learning and for improving their in-born skills, the department organized the following seminars and training programmes:

i. Professional Development Course for ratings from 31.01.2019 and 01.02.2019.

ii. Professional Development Seminar for the senior officers on 31.01.2019 and 01.02.2019 covering topics like Maritime Labour Convention, Automation and Control Engineering, SEEMP Risk Management, Vetting Requirements, Safety and Security Issues, Vessel Resource.

3. The Shipping Corporation of India Ltd. (SCI) was awarded with the ‘Most Compassionate Employer of India Seafarers by the NMDC Central Committee for being the pioneer and for continuing to make special efforts for the welfare and development of the Indian seafarers. The Award & Citation was conferred during 56th National Maritime Day Celebrations 2019 held on 05th April 2019 at Y B. Chavan Auditorium, Mumbai.

4. Fleet Personnel department has started conducting a two days Shipboard Orientation Workshop at MTI for fleet officers to enhance the quality of our seafarers and their level of awareness of the continuous evolving shipboard developments. Superintendents from ISM Cell, BNT Vetting and Fleet Personnel Department conduct the workshop. Workshop shall be conducted once in every month improving on the contents with every workshop. This initiative will help us to grow as a knowledge based learning Company.

5. Computer Based Assessment & Evaluation Test was inaugurated by our CMD on 06.03.2019. The Assessment Program is now fully functional. All Floating Officers, including Masters & Chief Engineer Officers are put through the Assessment prior posting on vessels.

MARITIME TRAINING INSTITUTE

Your companys Maritime Training Institute (MTI) at Powai has successfully obtained approvals and commenced four new courses in the year 2018, viz. Second Mate (F.G.) Competency Course, Radar Observers Course (ROC), Automatic Radar Plotting Aids (ARPA) and Electro-Technical Officer (ETO) course. Presently, four batches of Diploma in Nautical Sciences (DNS) at Powai campus are underway. Pilot batch of ETO course consisting of 39 participants, including 5 female participants, commenced from 03rd December, 2018 and successfully completed on 30th April, 2019. SCI-MTI, Powai has commenced one batch of Graduate Marine Engineering (GME) this year. Regular Management Development Programs, Guest lectures, seminars, professional development programs and skill enhancement programs are being conducted for all ranks of officers, petty officers, ratings and shore officers to enhance their competence and build a sense of belonging in them towards the company. Shipboard Orientation Workshops are conducted on monthly basis at SCI-MTI to refresh and enhance competencies and skills of floating personnel of the company. Management Development Programs for mid level and senior level officers, Soft Skill based workshop for Posting Officers, finance for non-finance professionals are conducted to ensure that our institute is self sustaining.

Your Companys Training Centre - Maritime Training Institute at Powai, Mumbai has been assigned GRADE A1 (Outstanding) rating by Class NKK after the inspection as per the Comprehensive Inspection Programme Guidelines of the Director General of Shipping.

Your Companys Training Centre at the Maritime Training Institute at Powai, Mumbai has conducted 326 Courses for 5030 participants and the total man-days trained during this year is 105435. These included 89853 man-days for SCIs personnel and 15582 man-days for personnel from other companies.169 SCI shore personnel were provided 417 man-days of in-house training.

MTI is actively participating in Swachh Bharat drive within the campus and in public places. Cadets, trainees, faculties and staff are involved in the activity- planned at regular intervals. In line with Govt.s vision, SCI-MTI contributed massively in the swacchta pakhwada from 17.09.2018 to 02.10.2018 and organized various cleaning drives, wall painting, poster making competition, essay writing competition, slogan writing, road rallies and nookad nataks in the vicinity of MTI Powai for increasing awareness.

Information towards major achievement during the year under review i.e. FY 2018-19 Academic Achievements:

A. SCI-MTI has commenced four new courses in the year 2018-19:

• Second Mate (F.G.) Competency Course

• Radar Observers Course (ROC)

• Automatic Radar Plotting Aids (ARPA)

• Electro-Technical Officer (ETO) course

B. Pass Percentage of SCI-MTI for DNS batches successfully increased to 82% in June 2018 IMU examination for Semester II. Pass Percentage for DNS students increased to 75% in December 2018 IMU examinations for Semester I.

C. SCI-MTI has commenced customised training program in year 2018-19 for Corporate clients in "Industrial , Marine safety & Survival", including Hindustan Petroleum Corporation Ltd, Larson & Tubro, Mitsui OSK Lines (India) Ltd, Reliance Industries, Cathedral School & Aneri Constructions.

Non-Academic Achievements

D. SCI-MTI became a Wi-Fi enabled campus since June 2018. Wi-Fi facility is provided to course participants for research based assignments and project works.

E. SCI-MTI has continued saving on its electricity bills by approx. 50 - 60% on monthly basis as its solar power generation capacity was enhanced to 0.5 MW in early 2018.

F. SCI-MTI is also utilizing the in-campus natural waste (leaves etc) to create manure and Lake/Well Water for gardening work in MTI campus.

G. SCI-MTI has taken initiative to get PNG connection for Galley and officer quarters. This will help MTI to take another step towards green campus and will also reduce the cost of fuel in the dining block.

Business Development Initiatives

H. SCI-MTI has aggressively communicated about its pre-sea courses (DNS and GME) to various schools, colleges, and coaching institutes for increasing awareness of Merchant Navy as a career and about academic and career opportunities with SCI-Maritime Training Institute.

Others

I. The Fleet Safety Awards function was held at the MTI Auditorium on the 01st February, 2019.

J. SCI-MTI hosted the Maritime Quiz competition under National Maritime Day Celebration (NMDC) on 04.04.2019.

SHORE PERSONNEL

Material developments in Human Resource / Industrial Relations front, including number of people employed

The total manpower as on 01.07.2019 is 675 (excluding CVO and Board level members), out of which 595 are officers and 80 are staff members. One Fire and Security officer was recruited in the financial year 2018-19.

With a view to meet the present and future challenges and be a globally competitive Corporation, a number of capability development initiatives and employee engagement activities were introduced in the year 2018-19. To familiarize the employees with the challenges faced by the organization and encourage them to discuss their concerns and share their ideas/ strategies, a quarterly interactive forum with top Management called ‘SCI LEAP was introduced. ‘SCI-Empower, Chairmans Trophy for Young Managers, was launched to provide a platform to accelerate their development and growth. SCI Explorer, a HR General Management bi-monthly e-magazine, was also launched. SCI Apex award scheme for individual and group achievements was introduced to recognize the performance of the employees. Various training programmes, both in-house and external, including General Management Training programmes have been conducted for the employees for development of their skill sets and domain knowledge.

HR policies have been revamped to ensure the processes are systematized and updated to be on par with the best practices in the industry. The pay revision of Staff Members of SCI w.e.f 01.01.2017 has been implemented in December 2018.

Reservation Policy

Your company is complying with all government guidelines as applicable from time to time in respect of reservation policy so as to empower the weaker sections of the society.

SC/ST/OBC REPORT

Annual Statement showing the representation of SCs, STs and OBCs as on 1st January 2019 and number of appointments made during the preceding calendar year:

Report I

 

Name of the Public Enterprise: The Shipping Corporation of India Ltd.
Groups

Representation of SCs/STs/OBCs (As on 1.1.2019)

Number of appointments made during the calendar year 2018

By Direct Recruitment By Deputation/ Absorption
Total no. of employees SCs STs OBCs Total SCs STs OBCs Total SCs STs
1 2 3 4 5 6 7 8 9 10 11 12
Executives A 600 120 48 93 0 0 0 0 7 1 0
Non Executives B 63 21 4 3 0 0 0 0 0 0 0

Name of the Public Enterprise: The Shipping Corporation of India Ltd.

Groups Representation of SCs/STs/OBCs (As on 1.1.2019) Number of appointments made during the calendar year 2018
By Direct Recruitment By Deputation/ Absorption
Total no. of employees SCs STs OBCs Total SCs STs OBCs Total SCs STs
C 19 6 1 0 0 0 0 0 0 0 0
D 1 0 0 0 0 0 0 0 0 0 0
Total (Executives in Grade A plus Non - executives) 683 147 53 96 0 0 0 0 0 0 0

- At MTI, we have followed centres policy of reservation during the cadet admissions. We had admitted the DNS cadets as per the table below:

 

Intake Batch ST SC OBC GEN
Aug 2018 48 & 49 4 14 26 36
Feb 2019 50 & 51 1 11 36 32
Intake Batch ST SC OBC GEN
Dec 2018 ETO-01 00 07 08 24

Women Representation

Your company is committed to the principle of equal employment opportunity and strives to provide employees with a work place free of discrimination. All HR activities of recruitment, placement, promotion, transfer, separation, compensation, benefits and training ensure equal opportunities for skill enhancement and career progression.

Your companys efforts are reflected in the representation of women across various hierarchical grades. At present women constitute around 20.56% of total workforce at shore establishments of your company.

SCI has been the pioneer in India with regards to recruiting women for jobs on board its fleet. Presently, 2 Masters, 6 Chief Officers, 2 Second Engineers, 34 Second/Third Officers, 6 Third/Fourth Engineers and 2 Nurses are women serving on various types of ships.

Other than above, there are 10 Women Trainee Nautical Officers and 1 Woman Trainee Marine Engineer.

Your company encourages active involvement in the activities of the Forum of Women in Public Sector (WIPS) since its inception. WIPS, Western Region, under the aegis of SCOPE has appreciated your companys efforts by conferring the "Best Enterprise Award (1st Prize)" under Navratna Category.

Policy to prevent sexual harassment in workplace

Your company promotes gender equality and has been taking proactive measures to prevent any Sexual Harassment at workplace. Your company has constituted a committee comprising of senior women executives and a woman representative from the NGO Pratham to enquire into complaints of Sexual Harassment at the workplace.

Corporate Social Responsibility (CSR) and Sustainable Development (SD)

The Corporate Social Responsibility vision of your company articulates its aim to be a corporate with its strategies, policies and actions aligned with wider social concerns, through initiatives in education, public health, women empowerment and other areas of social upliftment. Your company has framed its CSR policy in line with the guidelines contained in the Companies Act 2013 and Companies (CSR Policy) Rules, 2014 notified therein" and constituted a CSR - SD committees as per the act to coordinate and oversee the implementation of CSR initiatives. The Corporate Social Responsibility Policy is available on the website of the company i.e www.shipindia.com under "About us - Policies". The budget available for CSR initiatives in the year 2018 - 19, as per applicable provisions was Rs. 4.20 Crores. Against the available budget, your company allocated Rs. 4.20 Crores against following initiatives in the year 2018 - 19:

1. Promotion of Education -

a) Annual Grants have been awarded to meritorious students from weaker section of the society, viz. SC/ST/BPL candidates, pursuing Ocean Engineering/Naval Architecture/Nautical Science/GME courses at premier institutes (IMUs, IITs & MTI) to encourage and support Maritime Education in the country.

b) Support to Friends of Tribals Society (FTS) for setting up 100 Ekal Vidyalayas under the unique project ‘One Village, One School, One Teacher.

2. Eradicating Hunger & Malnutrition -

Support to Akshaya Patra Foundation for provision of mid-day meals to 2500 school children.

3. Women Empowerment & Gender Equality -

Skill Development training of 201 women in apparel sector in association with Apparel Made-Ups & Home Furnishing Sector Skill Council (AMHSSC).

4. Employment Enhancing Vocational Skills for Divyangjans -

a) Technical Skill Development training to the 197 divyangjans to make them capable and self-dependent in association with National Handicapped Finance & Development Corporation (NHFDC.

b) Empowerment of divyangjans by distribution of assistive devices to them in association with Artificial Limbs Manufacturing Corporation of India (ALIMCO).

5. Promoting Preventive Health Care -

Augmentation of facilities at Kayakalp, an AYUSH Hospital established at Vivekananda Medical Research Institute, Palampur in association with Vivekananda Medical Research Trust, Palampur.

6. Swachh Bharat Abhiyan & Ganga Rejuventaion -

a) Constructions of 19 nos. of schools toilets at various schools run by Bharat Sevashram Sangha.

b) Distribution of re-usable cloth bags at various municipal schools in view to the plastic ban in Maharashtra.

c) Contribution to the Clean Ganga Fund of Government of India for strengthening the National Mission for Clean Ganga.

Against the allocation of Rs. 4.20 Crores, Rs. 2.03 Crores have already been spent and balance will be released on achievement/completion of project specific timelines.

VI. Material Orders of Judicial Bodies / Regulators

Details of significant and material orders passed by any Regulator, Court, Tribunal, Statutory and quasi-judicial body, impacting the going concern status of the company and its future operations shall be disclosed - Nil

VII. Implementation of Official Language Policy

In order to comply with the Official Language policy of the Government, your company reiterated its commitment and made all out efforts to promote and popularize the usage of Hindi in its day-to-day affairs during the year under report. As per the Annual Programme issued by the Ministry of Home Affairs, your Company conducted various Hindi programmes /competitions at a regular interval. Hindi Unicode computer workshops were also held every month to impart training in Hindi typing and translation on computers.

This apart, your Company has also created an atmosphere to spread the usage of Hindi through email correspondence by way of Quarterly Hindi correspondence incentive scheme, under which the eligible employees are being rewarded every quarter with cash incentives.

During Hindi Pakhwara in September 2018, an appeal made by CMD was emailed to all employees to enhance the usage of Hindi in official noting and correspondence. Your Company also attended Town Official Language Implementation Committee (TOLIC) meetings during the year under report.

It is matter of great pleasure that your companys Head Office located in Mumbai has been declared as 2nd prize winner in Region B for its excellent performance in Hindi implementation under the Rajbhasha Shield Scheme of the Ministry of Shipping, for the year 2017-18.

VIII. Procurement of Goods and Services

Your company enters into rate contract on periodical basis for procurement and supply of high value and safety items like Marine Lubes, Marine Paints, Charts, Wire ropes, LSA / FFA, Life Rafts etc, both at Indian ports and major foreign ports, like Singapore and Fujairah. This ensures timely supply of right quality goods / services to the vessels at reasonable price.

During the financial year 2018-19, your Company continues to support the micro and small scale Enterprises (MSEs) by procuring a 25.51% of its supplies of goods and services from MSEs as against the set target of 25% in line with the revised Public Procurement Policy. Further, your company actively participates in the programs organised by the Ministry so as to make MSEs aware of the SCIs requirements.

IX. Protection & Indemnity (P&I) Insurance

Protection and Indemnity (P&I) Insurance cover entered with 3 Group P&I Clubs for your companys fleet for the policy year 2018-19 commencing from 20.02.2018 has been negotiated by your Company. Your Company, after protracted negotiations, was able to obtain a reduction of 3.47% in the renewal premium over the expiring premium resulting in a net reduction of USD 178,727 towards renewal premium for policy year 2018-19.

Further, your company is glad to inform you that Group P&I Clubs have refunded 5% - 10% of the annual premium for the policy year 2017-18 to your company (and other members) in view of their better financial performance.

X. Appointment and Remuneration Policy:

The appointments in your company are done in accordance with Government of India guidelines. The remuneration to the senior management and other shore employees of your company is governed by the Presidential Directives issued by the Ministry of Shipping and Department of Public Enterprises (DPE), from time to time, which form the remuneration policy of your company.

XI. Right to Information Act 2005 (RTI ACT 2005)

A suitable mechanism has been put in place for dealing with the requests and appeals under RTI Act 2005. The RTI manual is posted on the Companys website. Your Company has been complying with the provisions of the Act within the stipulated time limit provided under the Act. As on 31.03.2019, your Company has disposed off most of the applications and appeals received from the parties.

XII. JOINT VENTURE COMPANIES

India LNG Transport Co.(No.1), (No.2) and (No.3) Ltd

SCI has entered into three JVCs with three Japanese Companies viz. Mitsui O.S.K.Lines (MOL), Nippon Yusen Kabushiki Kaisha (NYK) and Kawasaki Kisen Kaisha Ltd (K Line) along with Qatar Shipping Company (Q Ship) in case of ILT No. 1&2 and Qatar Gas Transport Company (QGTC) in case of ILT No. 3, each owning and operating an LNG tanker deployed in the import of a total of 7.5 million metric ton per annum of LNG for the Dahej Terminal of M/s Petronet LNG Ltd (PLL). SCI is the first and only Indian company to enter into the high- technology oriented & sunrise sector of LNG. SCI is the manager for these three companies, managing the techno-commercial operations of 3 LNG tankers.

India LNG Transport Co. No. 4 Ltd

SCI had entered into 4th JV formed in Singapore, with the same three Japanese companies viz. Mitsui O.S.K.Lines (MOL), Nippon Yusen Kabushiki Kaisha (NYK) and Kawasaki Kisen Kaisha Ltd (K Line) along with Petronet LNG Limited (PLL), to own and operate one 173,000 CBM LNG Tanker for transporting 1.44 million metric tons of LNG primarily from Gorgon, Australia to India/China for charterers M/s Exxon Mobil Services B.V., Netherlands. SCI is the manager for this company and is managing the techno-commercial operations of the tanker.

SAIL SCI Shipping Pvt Ltd (SSSPL)

SCI and SAIL had co-promoted a JVC "SAIL SCI Shipping Pvt Ltd" (SSSPL), which was primarily to cater to SAILs shipping requirements. The JVC was incorporated on 19.05.2010. However, due to continued depressed freight levels, the JVC could not justify tonnage acquisition and both the Boards of SCI & SAIL decided to voluntarily wind up the company. The company is in the process of winding up.

Irano Hind Shipping Company Ltd. (IHSC)

The decision for dissolution of the Company taken by the Cabinet has been reiterated by the Ministry of Shipping and steps in this regard are being taken. Determination of assets and liabilities of the Company is being undertaken after which closure of the company as per the process stipulated under the Iranian Commercial Code will be achieved.

XIII. SUBSIDIARY

Inland and Coastal Shipping Limited

India has a long coastline admeasuring 7500 km. and a large network of river systems. Despite this, very little attempt has been made to interlink these natural assets for a seamless, environment friendly transport system. In a bid to remedy this lacuna, during the Maritime India Summit 2016, the Inland Waterways Authority of India (IWAI) entered into a Memorandum of Understanding with The Shipping Corporation of India (SCI) on 15th of April 2016 to develop this field of domestic transport. Both parties agreed to work towards tapping the synergies of high sea shipping, coastal shipping and inland waterways to establish an integrated system of water transportation across the hinterland, the coasts and the high seas.

For this purpose, the SCI Board approved the formation of a dedicated subsidiary company of SCI, based in Kolkata. The Company has been named as "INLAND and COASTAL SHIPPING LIMITED" (ICSL). The subsidiary company is working on development of a viable business plan on this segment.

XIV. SPECIAL PURPOSE VEHICLE Sethusamudram Corporation Ltd.

The Government of India had constituted Sethusamudram Corporation Limited (SCL) to raise finance and to undertake activities to facilitate operation of a navigable channel from Gulf of Mannar to Bay of Bengal through Palk Bay (Sethusamudram Ship Channel Project). As per the

Government directive, this project is to be funded by way of equity contributions from various PSUs including the SCI. As on FY 2016-17, SCI has invested Rs. 50 crore in the project. Work suspended since 17.09.2007 consequent to an interim stay by the Honble Supreme Court for carrying out dredging operations in Adams bridge area. Pending a final decision on alternative alignment, all the dredgers were withdrawn since 27.7.2009. Supreme Courts final hearing on the matter was scheduled on 06.04.2018, however, the hearing was withheld indefinitely. Circular resolution dated 11.03.2019 was passed for seeking additional grant of Rs. 115.72 crores from the Government to settle the dues of Dredging Corporation of India for the dredging works carried out in Sethusamudram Ship Channel Project and also a proposal to Ministry of Shipping for winding up of SCL along with fund position.

XV. Memorandum of Understanding (MOU) with the Ministry of Shipping

The MOU for the financial year 2019-2020 was signed on 10.05.2019. The MOU, finalized as per the guidelines issued by the Department of Public Enterprise (DPE) for the year incorporates performance targets in sync with the changing dynamics of the shipping scenario. Apart from the Financial parameters, as per the DPE requirements, Sector-Specific Operational, Human Resource Management and CPSE Conclave Action Points Parameters have also been incorporated in the MOU for achieving sustained overall growth. SCIs Composite Score for MOU 2017-18 was evaluated by the DPE at 72.07 and SCI was thus graded "Very Good" for FY 2017-18. The MOU for the financial year 2018-19 would be due for evaluation by the DPE in November 2019.

XVI. Details of shares lying unclaimed

The details of the shares issued pursuant to FPO remaining unclaimed and lying in the escrow account, the voting rights of which shall remain frozen till the rightful owner of such shares claims the shares, are given as under:

 

Details No. of Shareholders No. of Shares
1 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 01.04.2018 4 436
2 Number of shareholders who approached for transfer of shares from suspense account till 31.03.2019 2 274
3 Number of shareholders to whom shares were transferred from suspense account till 31.03.2019 2 274
4 Aggregate number of shareholders and the outstanding shares transferred to IEPF on 27.12.2018 2 162
5 Aggregate number of shareholders and the outstanding shares in the suspense account lying as on 31.03.2019 0 0

An amount of Rs.15,14,484/- w.r.t. 46 applicants lying unclaimed in the Refund Account has been transferred to IEPF.

XVII. Utilization of FPO Proceeds

Proceeds from public issues, right issues, preferential issues etc.

During the year 2010-11, your Company had floated a "Further Public Offer" (FPO), comprising of a ‘fresh issue of 42,345,365 equity shares in your company and an ‘offer for sale of 42,345,365 equity shares by the President of India. The FPO proceeds of Rs. 58245 lakhs were fully utilized in the financial year 2011-12 as per object of the issue for part financing of capital expenditure on nine shipbuilding projects. However, due to delays in the projects resulting in default by the shipyards, during the period January 2014 to May 2014, your Company rescinded contracts for four shipbuilding projects and also, re-negotiated the payments for two projects. The investment in the rescinded contracts out of the FPO Proceeds was Rs. 330.65 crores.

Your Company has received back entire sum of Rs. 330.65 crores from the shipyards. The shareholders vide the resolution passed through postal ballot on 11.02.2017 approved the proposal to re-deploy the said sum of Rs. 330.65 crores received as refund from Shipyards, towards various shipbuilding projects including offshore assets and liquid petroleum gas (LPG) vessels and also for acquisition of any other such vessels, on such terms and conditions as the Board would deem fit from time to time as mentioned in the approval of the postal ballot. Further based on the approval granted by the shareholders, the Company can also utilize the sum towards the balance payments remaining due for the tonnage acquisition made by it.

Out of the said amount of Rs.330.65 crs, an amount of Rs. 196.80 crs has been utilized till date as under;

 

Month & Year Rs Crs Utilised for
November 2016 34.37 Equity portion of PSV - SCI Sabarmati
April 2017 63.82 Equity portion of Suezmax Tanker - Desh Abhiman
July 2017 27.63 Equity portion of PSV - SCI Saraswati
September 2017 70.98 Equity Portion of VLGC - Nanda Devi
Total Utilized till date 196.80

The un-utilized FPO proceeds amount of Rs 133.85 crores are kept in fixed deposit.

XVIII. Segment-wise Performance

Report on performance of the various operating segments of the Company (audited) is included at Note No. 32 of Notes on Financial Statements (Standalone) for the year ended 31st March 2019, which is forming part of the Annual Accounts.

XIX. Internal Control System

The company has an internal control system, commensurate with the size, scale and complexity of its operations. Internal audit is carried out by an independent firm of Chartered Accountants by M/s T. R. Chadha and Co. LLP on concurrent basis. The scope and authority of the Internal Audit function is defined in the Internal Audit Plan, which is approved by the Audit Committee. To maintain its objectivity and independence, the Internal Audit function submits quarterly reports to the Audit Committee of the Board. The internal audit examine, evaluate and report on the adequacy and effectiveness of the internal control systems in the Company, its compliance with the laid down policies and procedures and ensure compliance with applicable laws and regulations. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are reviewed, deliberated and presented to the Audit Committee of the Board.

XX. Dividend Distribution Policy

The Dividend Distribution Policy of SCI seeks to reward its shareholders for their trust and investment in Companys business objectives. The declaration and payment of dividend will be regulated by the Companies Act 2013, the SEBI (LoDR) Regulations, 2015 and the guidelines issued by the Govt. of India as amended from time to time. The quantum of dividend payments will depend on annual consolidated Profits, fund requirement for companys expansion plans, present and anticipated future business environment with special reference to Shipping Industry and various other factors impacting companys performance. The dividend distribution will also be subjected to restrictions / conditions, if any, imposed by lenders, orders of Courts and / or statutory bodies. The said Policy is available at SCIs website i.e www. shipindia.com under ‘Policies.

XXI. Role of Vigilance Division in SCI

During the year under review, the Chief Vigilance Officer continued to ensure the integration of preventive vigilance initiatives in the business process thus striving towards greater transparency and towards improved ethical and corporate governance standards. Vigilance Division undertook activities of preventive and punitive vigilance and also ensured adoption of good and ethical corporate governance practices towards achieving the stated objective of making your Company processes fair, transparent and corruption-free. Technology has been leveraged for achieving greater transparency and for eliminating systemic weaknesses through various implemented and ongoing initiatives such as e-payments, promoting online registration of complaints via the Vigilance Webpage contained in the SCI website; migration to Supplier Relationship Management platform for procurements; bill tracking system and dissemination of important circulars/guidelines on the webpage. Vigilance Division has been propagating the culture of lodging of complaints under the Public Interest Disclosure and Protection of Informers Resolution (PIDPI Resolution) whereby the identity of the complainant would be kept secret and he/she would be protected from victimization. Vigilance Division continued to interact with various employees of SCI as well as various stake holders including Vendors, Contractors etc. which has helped in understanding the issues from their perspective as well.

Activities of the Vigilance Division carried out in 2018-19:

During the year under review, the Vigilance Division continued the following normal activities which encompassed the 3 Ps of Vigilance:- • Preventive Vigilance • Punitive Vigilance • Participative Vigilance. The important activities that were carried out in 2018-19 by the Vigilance Division were as follows:-

A) Investigations into complaints of corruption/malpractice were conducted

B) Random scrutiny of Annual Property Returns (APRs)

C) Active monitoring of the implementation of Integrity Pact in SCI

D) Acted as a catalyst in the implementation of preventive vigilance measures by your Management such as e-payments, bill tracking systems, phased transfers of employees posted in sensitive areas etc.

E) Conducting surprise and periodic inspections, CTE type inspections, conducting Systems Studies and recommending systemic improvements

F) Selective scrutiny of Voyage Repairs Bills, dry-docking bills, various accounts

G) Training of Officers on vigilance related subjects as well as CDA Rules. During the year a workshop was held for a panel of Inquiry Officers and Presenting Officers

H) Imparting training to fresh recruits on vigilance

I) For the annual Vigilance Awareness Programme, apart from in-house programmes major emphasis was placed on reaching out to youth through various programmes in schools and colleges as desired by the Central Vigilance Commission

J) The message of Vigilance Division of SCI was spread to the public via an interview of Chief Vigilance Officer in AIR FM Gold during

Vigilance Awareness Week-2018.

K) Awareness campaign on board SCI ships: In order to spread the awareness about Vigilance amongst seafarers, the Integrity pledge was administered on board the ships and banners were displayed.

An annual Newsletter titled "SCI Voyager" was also brought out on the occasion of Vigilance Awareness Week. This is being done with a view to spreading vigilance awareness amongst employees.

During the period under review, the Vigilance Division had investigated 15 complaints (i.e. 10 complaints B/F from previous year + 5 new complaints registered during the period and 13 complaints closed after investigation leaving 2 balance complaints for complete disposal. Vigilance Study Circle Mumbai Chapter:

The Vigilance Study Circle Mumbai Chapter was started on the initiative of SCI Vigilance Division in 2010. It continues to spread Vigilance awareness and develop the knowledge and skills of Vigilance Professionals and provides an ideal platform for the Chief Vigilance Officers of Mumbai based PSUs, Banks etc. to meet and exchange their views/ experiences, etc.. Following activities are carried out by VSC Mumbai chapter during the year 2018-19:

1. Workshop on Overview of Procurement and case studies on procurement was conducted for about 50 senior officials of PSUs / PSBs by VSC - Mumbai in August, 2018. Chief Technical Examiner and a senior official from CBI were the expert speakers for the event. This workshop was attended by middle level and senior level management of the members of VSC - Mumbai

2. The 7th Annual Function of VSC - Mumbai was held on December 21, 2018. Honble Central Vigilance Commissioner, Shri. K V Chowdary was the Chief Guest for the function. A ‘Panel Discussion on the topic "Vigilance & Indias Growth story" was conducted where CMDs of 6 member organizations participated. A "Souvenir" of the VSC - Mumbai was officially released by the Chief Guest.

3. As a part of Vigilance Awareness Week - 2018, a ‘Walkathon was organized by VSC - Mumbai in the BKC area of Mumbai to create more awareness on vigilance related activities. More than 750 personnel from the member organizations participated in this Walkathon. Integrity Pact in the Shipping Corporation of India Ltd.:

SCI had signed a Memorandum of Understanding (MoU) with Transparency International India for the adoption of Integrity Pact. By signing the MoU, your Company is committed to have most ethical and corruption free business dealings with the counterparties whether they are bidders, contractors or suppliers. The ‘threshold value for implementation of Integrity Pact in domestic goods and service contracts is Rs.1 crore. Thus, any goods/services contract of Rs.1 crore and above will incorporate the Integrity Pact thereby assuring the concerned parties of the transparent and ethical practices in SCI. During the year under review, the Integrity Pact was monitored by a panel of 2 eminent Independent External Monitors (IEMs). Meetings were held periodically with the IEMs to review the progress of implementation of Integrity Pact in SCI.

Activity Report of Vigilance Study Circle - Mumbai for the year 2018-19

VSC - Mumbai regularly conducts training / workshop on the topics of concern for the benefit of its members.

1. Workshop on Overview of Procurement and case studies on procurement was conducted by VSC - Mumbai on August 03, 2018 at the office of NABARD, BKC, Mumbai. Chief Technical Examiner and a senior official from CBI were the expert speakers for the event. This workshop was attended by middle level and senior level management of the members of VSC - Mumbai

2. The 7th Annual Function of VSC - Mumbai was held on December 21, 2018 at the Auditorium of NABARD, BKC, Mumbai. Honble Central Vigilance Commissioner, Shri. K V Chowdary was the Chief Guest for the function. A ‘Panel Discussion on the topic "Vigilance & Indias Growth story" was conducted where CMDs of 6 member organizations participated. A "Souvenir" of the VSC - Mumbai was officially released by the Chief Guest.

3. As a part of Vigilance Awareness Week - 2018, a ‘Walkathon was organized by VSC - Mumbai in the BKC area of Mumbai to create more awareness on vigilance related activities. More than 750 personnel from the member organizations participated in this Walkathon.

XXII. UNGC compliance

Your company is signatory to UN Global Compact initiative which signifies our commitment to uphold the ten principles of Global Compact on protection of human rights, prevention of child labour, protection of environment and anti-corruption initiatives. Your company is an equal opportunity employer and does not discriminate on grounds of sex, religion, caste, creed, colour etc. The freedom of association is recognized and allowed. Fair labour practices are followed and it is ensured that no child labour is directly/indirectly employed. Your company is committed to do business consciously and responsibly setting sustainable systems to protect the environment. Your company ensures transparency, equity and competitiveness in public procurement through various inbuilt mechanism and anti-corruption initiatives.

XXIII. Cautionary Statement

The statements made in the Management Discussion and Analysis describing Companys objectives, projections, estimates and expectations may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those expressed or implied.

XXIV. Board of Directors

Mr. Sukamal Chandra Basu ceased to be the Directors on the Board of SCI w.e.f 20.3.2019 upon completion of his tenure. Mrs. Archana Ramsundaram ceased to be the Director on the Board of SCI w.e.f 20.3.2019 on to her appointment as Non-Judicial member of Lokpal.

The Board record its appreciation for the services rendered by the concerned Directors.

Mr. Arun Balakrishnan completed his tenure on 20.3.2019 and ceased to be the Director on the Board of SCI. Subsequently, vide Ministrys letter dated 12.7.2019, Mr. Arun Balakrishnan was reappointed on the Board of SCI on 19.7.2019.

XXV. Declaration of Independence

The Company has received Declaration from Independent Directors conforming that they meet the criteria of Independence and have complied with the Code for Independent Directors as prescribed under Companies Act 2013, the SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015 and DPE guidelines

XXVI. Auditors Report

The Statutory Auditors have given an unqualified report on the Financial Statements of the Company for the Financial Year 2018-19. Further, there are no comments made by Comptroller and Auditor General of India on the Standalone and Consolidated Financial Statements for the year ended 31st March 2019. The Managements reply to the Statutory Auditors observation on Internal Financial Control under section 143(3)(i) of the Companies Act, 2013 is given below;

Statutory Auditors Observations

a) The timely updation and monitoring of the master data, with respect to Fleet Personnel needs to be strengthened.

b) The Control on the timely updation of telegram for booking of bunker consumption in correct voyage & recovery from charterer needs to be strengthened.

c) System for Monitoring and Clearing of Vendor Accounts (Including Agent Prefunding), GR/IR Accounts should be done on timely basis and Legacy Balances should be reconciled.

d) The system has to ensure that the TDS is deducted either at the time of booking of expenses or while making the provisions at cut-off date

Management Reply

a) The Company has taken necessary steps for timely updation of master data as soon as seafarers sign on and sign off. Further, the Company has authorised an officer for making relevant changes in fleet personnel master data after approval from head of fleet personnel department to strengthen the controls in the master data.

b) Masters of the vessels forward the reading of bunker utilized on daily basis via telegram. The Company has put procedure in place to check all the telegrams sent by the vessels to ensure that the consumption is booked on the correct vessel voyage. Any discrepancy is immediately notified to the Master for rectification. At times vessels also face IT system issues, thereby not allowing vessel to make any telegram on time. This issue is addressed through manual posting.

In respect of inchartered vessels, information is received from the vessel and entered into the system by officers. So the mechanism of double check has been put in place to ensure minimal human errors. Further, in case of inchartered vessel if i) there is shortage or excess at the time of redelivery ii) there are claims pertaining to excess consumption of bunkers as against what has been declared at the time of charter party agreement, same is adjusted in the Statement of Accounts (SOA).

c) Efforts are made by the respective divisions to expedite the approvals of FDAs. In order to strengthen clearing and monitoring of GR/IR account and Vendor account, procedure of follow up for pending bills with respective departments has been put in place. The Company is in active process of completing the reconciliation of the legacy balances.

d) The Company is in process of installing a system to ensure that TDS is deducted either at the time of booking of expenses or while making the provisions at cut-off date.

XXVII. Secretarial Audit

Pursuant to Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial personnel) Rules, 2014, the Board has appointed Mr. Upendra Shukla, Practicing Company Secretary to conduct the Secretarial Audit for the Company for Financial Years 2017-18 and 2018-19. The Secretarial Audit report for the FY 2018-19 is appended to the Directors Report. The Secretarial Auditor in his report for the year ended 31st March, 2019 has brought out that:

The Corporation has complied with the requirements of Corporate Governance as provided under Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and DPE Guidelines on Corporate Governance, with the exception of appointment of Independent Directors to the extent of 50% of the total strength of the Board during the period 1st April, 2018 to 17th December, 2018 and 20th March, 2019 onwards. It is clarified by the Corporation that the matter is being pursued with the Administrative Ministry for appointing required number of Independent Directors on the Board within the period prescribed under Section 149 of the Companies Act, 2013 and

Regulation 25(6) of the SEBI (LODR) Regulations, 2015.

The Management views on the above observation are as follows:

As on date, the Board of SCI includes the following six Independent Directors: Dr Gautam Sinha, Shri Raj Kishore Tewari, Dr PKanagasabapathi, Shri Vijay Tulsiramji Jadhao, Shri Arun Balakrishnan and Shri Mavjibhai Sorathia. SCI is following up with The Ministry of Shipping for appointment of required number of Independent Directors.

XXVIII. Corporate Governance

Pursuant to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, report on Corporate Governance is attached to this Report.

XXIX. Directors Responsibility Statement

Pursuant to the requirement under Section 134(5) of the Companies Act, 2013, with respect to Directors Responsibility Statement, it is hereby confirmed:

(a) That in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis; and

(e) the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

Explanation — For the purposes of this clause, the term "internal financial controls" means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information;

(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

XXX. Acknowledgements

Your Directors extend their gratitude to erstwhile Union Minister of Shipping, Shri Nitin Gadkari and Minister of State for Shipping Shri Mansukhlal Mandaviya, existing Union Minister of Shipping, Shri Mansukhlal Mandaviya and look forward to their support and guidance in managing the affairs of the Company. Your Directors also extend their gratitude to Shri Ravikant, former Secretary to the Government of India, Ministry of Shipping and the Secretary, Shri Gopal Krishna, Ministry of Shipping for their guidance.

Your Directors also wish to express their thanks to the officials in the Ministry of Shipping, Road Transport and Highways for the unstinted support given by them in various matters concerning the Company. Your Directors would also like to convey their thanks to other Ministries, Trade Organizations, and Shippers Councils, who have played a vital role in the continued success of your Company. The Directors thank the shareholders and valued customers for the continued patronage extended by them to your Company.

Last but not the least, your Directors wish to record their deep appreciation for the dedicated and loyal service of your Companys employees, both afloat and ashore, without whose co-operation and efforts the achievements made by your Company would not have been possible.

For and on behalf of the Board of Directors
Place : Mumbai Capt. Anoop Kumar Sharma
Dated: 9th August, 2019 Chairman & Managing Director