Deal with Russian ship in muddy waters

In a move which was unusual by most standards, the DoD actually entered into an agreement to charter A.A. Sidorenko for a period of three years for its scientific exploration in the Indian Ocean, at a daily charge of $3,000 (excluding fuel) even though the ship in question had lost its `classification’, or sea-worthiness certification in layman’s terms. But since DoD wanted the ship owned by its MoU partner, and it wasn’t seaworthy, it entered into a tripartite agreement with the owners and agreed to pay a sum of $700,000 to the Western India Shipyard at Goa to overhaul the ship, so that it could become seaworthy again.

When contacted by The Indian Express, DoD secretary A E Muthynayagam defended the move stating that they had got a verygood deal on the hire charges in the bargain and, besides, they would recover the money and cancel the contract if the ship was not sea-worthy at the end of the day.

The Russian owners, he went on to say, had wanted $7,100 per day, but they managed to beat them down. Further, he added, the DoD had chartered the same ship in 1994 at the rate of $4,500 a day, and had paid charges of $8,100 per day in 1997 for M.V. Yuzhmorgeologiya, a ship of the same class as Sidorenko. So to pay $700,000 for getting the ship repaired made commercial sense, since the daily charter rate of $3,000 was very low.

While appealing, the facts, however, appear otherwise. For one, freight rates as well as charters have been coming down ever since 1994 and continue to be low till this day. Freight rates, for example, for coal from Australia to India have come down from around $15 per tonne in 1994 to $10 today. And, as Anil Mishra, a joint secretary in the DoD confirms, even the charges paid by DoD for chartering vessels for itsscientific expedition to the Antarctic have come down. While the DoD paid $14,750 per day for a three-year lease from 1994 to 1997, it paid $13,500 per day for the 1998 charter. The lumpsum fee paid, mobilisation-demobilisation charges in naval jargon, fell from $450,000 to $300,000. While there was no global bidding for the present charter, Mishra admitted that, at today’s rates, the charter rates for such a vessel as Sidorenko would probably be in the region of around $3,800 to $4,000 per day — shipping experts feel it could be even lower.

Till 1994, all chartering for DoD was done through Transchart, the shipping arm of the transport ministry, by a process of global tendering. Transchart did not give its stamp of approval to the 1998 tender, saying that it wasn’t required to do so under law — the DoD signed this under an MoU that it had entered into with State Geological Enterprise, a scientific body under the Russian government.

What makes the whole affair even more curious is the fact that whilethe original agreement was signed on March 23, 1998 and the ship was to be ready by the end of June 1998, all dates on the charter agreement have been cut out and changed subsequently, without the two parties counter-signing the changes. So, March 23, the day of signing is cut out and changed to July 3, and the date of delivery of June 1998 is changed to September. All this was done, probably, because the Russians and the DoD felt that the vessel would not be ready on time. Muthynayagam, however, says negotiations between the two parties kept going on till late and that this cutting out was agreed to by both parties who forgot to counter-sign at each place. This, however, doesn’t explain why the agreement was signed on the earlier date in the first place, especially since none of the other terms such as the hire charges changed during this period. And what’s even more suspicious is the blanking out of clause 58 of the agreement. A clause that says that the ship will not only be sea-worthy, its certificatewill be “fully passed free of notation/qualifications or subjects prior to delivery.” In other words, neither the DoD nor the Russians were too sure that, even after its makeover, the Sidorenko would be fully fit.

Curiously, in 1996, the Gelendzhik City Federal Service on Tax Police announced an auction of several ships belonging to the Russian owners. Among the ships to be auctioned, on January 13, 1997 in the auction hole of the Gelendzhik bread factory was A.A. Sidorenko, at a base price of $400,000. It appears that there was no buyer, since the ship later was made available for a wet lease to the DoD. In other words, the DoD has paid more for hiring a ship which was available for far less on outright purchase. Muthynayagam, however, says that the DoD was not aware of this development at the time they entered into the agreement for charter. What he certainly was aware of, however, was that the Russians were very desperate to give the ship on hire at the time that the charter was signed. For one, rightsince 1994 when the DoD last hired Sidorenko, it had no other takers. The Russians, in fact, were so strapped for cash, that they did not even take the ship back after the DoD released it when the charter ran out in 1994, and subsequently, its classification ran out.