India mulls maritime version of Vehicle Scrappage Policy with Ship Breaking Credit Notes
The shipping ministry is looking to introduce Ship Breaking Credit Notes (SBCN), a scheme that discounts you when ordering brand-new vessels from Indian shipyards after scrapping old ones.
A similar scheme is available for cars in India under the Vehicle Scrappage Policy 2024, where many passenger car brands offer discounts of 1.5 per cent of the ex-showroom price of a new car or Rs 20,000, whichever is less, against the vehicle scrapped by the owner in the last six 6 months.
The committee report on formulation of draft guidelines for Ship Building Financial Assistance Scheme (SBFAS) was published by the Union Ministry of Ports, Shipping, and Waterways (MoPSW) recently. The committee included representatives from the ministry, Directorate General of Shipping (DGS), Shipyard Association of India (SAI), Indian Shipbuilders Association (ISBA), Indian Register of Shipping (IRS), Gujarat Maritime Board (GMB), Shipping Corporation of India (SCI), Ship Recycling Industries Association (SRIA), Cochin Shipyard Limited (CSL), Indian National Shipowners Association (INSA), and ICC Shipowners Association (ICCSA).
The idea is novel—a scheme that turns scrap metal into cash credits—something is expected to lift India's growing shipbuilding sector and an environmentally-compliant ship recycling industry.
How Ship Breaking Credit Notes work
To sum up the SBCN move in the 165-page guidelines report, when a ship (Indian-flagged or foreign-flagged) is scrapped at a certified Indian ship recycling yard following strict environmental standards (such as compliance with the Hong Kong International Convention), the ship owner receives a credit note worth 40 per cent of the scrap value. However, this "discount coupon" comes with a catch and an expiry date.
The credit note is valid for three years, with the date countdown beginning from when the credit is attached to a new shipbuilding contract, not from the date the old ship was dismantled.
However, this is where it gets tricky: ship owners can redeem these credit notes only up to 5 per cent of the cost of a new ship they're ordering. So, if you're buying a new vessel worth Rs 100 crore, you can use your recycling credits for a maximum discount of Rs 5 crore, as per the new draft guidelines.
Flexible credit notes
Even if there are restrictions per new ship, if the scrap ship owner doesn't want to build a new vessel themselves, they can sell or transfer the credit note to another shipowner willing to invest in an Indian shipyard.
Multiple credit notes can also be stacked together for a single vessel order, though each note must be used completely, with no partial redemption allowed, the draft guidelines read.
The MoPSW's latest push comes on the heels of the recently announced Rs 24,736 crore Shipbuilding Financial Assistance Scheme (SBFAS). Out of this, around Rs 4,000 crore has been earmarked for the ship recycling credit note programme.
Fraud prevention and transparency
To prevent fraud and inflated claims, the scrap value is determined by taking the lowest of three independent international valuations, along with the actual scrapping contract price and a chartered accountant's certification.
Moreover, credit notes will only be issued once the ship demolition is 100 per cent completed, not during the recycling process.
Yes, the SBCN has many conditions attached to it, but it improves on the existing system of zero credit.
More importantly, it creates what can be called a financial bridge between the old and the new—old ships contribute to new ship construction, keeping our shipyards busy, creating jobs, and pushing ship owners to dismantle ageing vessels domestically rather than shipping them abroad for cheaper dismantling.
Maritime