Foreign shipyards benefit from ONGC tax move

Vol 13, PW 11 (05 Nov 09) People & Policy

Outraged foreign companies bidding for contracts from Indian state-owned companies have long complained about a controversial government directive that gives preferential treatment to domestic contractors even when overseas competitors offer a lower price.

Sympathetic ONGC is now trying to redress the balance by giving foreign shipyards a fair chance in an estimated Rs350cr ($77m) tender to repair and upgrade jack-up Sagar Uday. Disillusioned Indian companies say this move favours their foreign competitors.

Under â€کprice preference’ Indian companies can usually quote up to 10% higher than the lowest foreign bidder and still win the contract. Indian contractors say this is a practice followed the world over to encourage local industry.

But ONGC is trying to balance this out by saying that expected foreign bidders Maritime Industrial Services, Lamprell, ASRY, Keppel, Adyard, CPD Oilwell and Colombo Dockyard need not quote service tax as part of their price bids because they have no permanent establishment in India. However, this facility is not available to Indian companies.

Furious Indian companies also competing for the contract, like Western India (owned by ABG Shipyard), Kochi Shipyard, Larsen & Toubro, Great Offshore, Bharati Shipyard, Pipavav Shipyard, Dolphin Offshore, are predictably unhappy. “ONGC says foreign bidders need not quote service tax in their bids,â€‌ says an angry source.

“This is unfair! Why can’t we get the same benefitâ€‌ ONGC justifies its decision by saying it wants to encourage competition - only two or three Indian yards usually bid for such contracts and they invariably delay the project. “But why is ONGC penalising all Indian yards,â€‌ adds an Indian bidder, “for problems with just one or two existing playersâ€‌ ONGC, he says, is abusing the spirit of the government’s â€کprice preference’ policy meant to help Indian companies compete against better financed foreign rivals.

“ONGC has played into the hands of the foreign yards,â€‌ we are told. “This is not fair for Indian companies.

â€‌ We hear letters are being written to ONGC protesting against this move.