GOVERNMENT OF INDIA MINISTRY OF SHIPPING (CHARTERING WING) ******** DATED : 04.01.

2012 OFFICE MEMORANDUM SUBJECT : DRAFT PROPOSED CHARTERING METHODOLOGY. The undersigned is directed to place below the draft proposed revised chartering methodology for chartering of vessels for shipment of dry bulk cargoes/liquid bulk cargoes/general liner cargoes/project cargoes by the Chartering Wing (TRANSCHART) on behalf of Government Departments/Public Sector Undertakings and to seek comments/views of all the stakeholders involved in chartering of vessels through TRANSCHART within 15 days from the above given date. The comments/views may be sent to co2.hub@nic.in.

(P. CHHABRA) CHARTERING OFFICER

CHARTERING METHODOLOGY The Ministry has decided to introduce new methodology of chartering ships with the intention to have more transparency and reduction in finalization time of shipping arrangements in response to the indents received from Government Departments and PSUs. The shipping arrangements shall be finalised by the Chartering Committee by following the revised chartering methodology. The following will be the composition of the Chartering Committee: i) Chief Controller of Chartering ii) Dy. Chief Controller of Chartering iii) All Chartering Officers iv) AS&FA or his representative (Director/Deputy Secy. level) v) Joint Secretary(Shipping) or his representative (Director/Deputy Secy. level) METHODOLOGY FOR BULK CARGOES 1) Chartering Committee to meet at 1200 hours and circulate enquiry at 1300 hours on a working day inviting firm offers for reply by 10.30 A.M the next working day. In the event of emergent situation, when the lead time available is insufficient and the requirement is prompt, the Chartering Committee may decide to invite firm offers the same working day by 1600 hours. The offers so received should have the validity of minimum 48 working hours i.e. two working days. 2) The Chartering Wing shall prepare an estimate of the expected freight rate which will be based on the following parameters and to be approved by the Chartering Committee (as above): a) The relevant average time charter rate for the type/size of vessel required as per the latest available Market Reports/Baltic Index; b) Approximate voyage time/Quantity c) Approximate Cost of bunkers as applicable for the relevant area ; d) Approximate port disbursement; e) 2.5% address commission, brokerage commission and any other relevant cost (if applicable). The freight estimate will be broadly calculated as under after taking into account the following: Voyage time (Ballast + loading + discharging + steaming + addl. days) Time charter rate per day Cargo quantity for shipment Time charter for the voyage per MT = a

Cost of bunker per MT Approx. Port disbursement including agency fee (if any) per MT Approximate canal dues (if any) Other charges/taxes on freight (if any) /Uncertainty/inducement factors 2.5% address commission + Brokerage commission per MT Approximate Freight estimate

= = = = =

b c d e f

___________________ = a+b+c+d+e+f ____________________

Freight estimate shall not be calculated for liquid cargoes as the freight market for liquid cargoes like crude oil is highly volatile. f) Only those firm offers which are received by 1030 hours or 1600 hours as the case may be will be considered. No late offers will be permitted/considered irrespective of freight/terms; g) Only those firm offers which conform to the requirement/enquiry terms will be considered. Any offer which does not meet the enquiry parameters will be rejected irrespective of the freight rate/terms quoted. Nevertheless, offers will still be considered if details of vessels mandatory certificates and other documents are not provided; h) Normally the L1 offer fulfilling the enquiry parameters and within 5% range of the estimated freight rate will be accepted without negotiations subject to indenting department/suppliers approval and nominated to the indenting department for lifting all approvals within the validity of offer. The owners of L1 offer shall be required to provide details of all mandatory certificates and other documents immediately, if not provided for nominating the vessel to indenting department for obtaining approvals of loading ports/suppliers and the validity of offer shall be suitably extended from the date when all required information/documents are furnished so as to remain valid for 48 working hours i.e. two working days. i) In case the L1 offer lies outside the 5% range of the estimated freight rate, the Chartering Committee may, in exceptional cases recommend/nominate the L1 offer to the indenting department, provided the Committee is satisfied that the freight rate is reasonable depending upon the prevailing market and available offers. The reasons for recommending the L1 offer shall be recorded by the Chartering Committee; j) In the event the Chartering Committee recommends L1 offer which is outside the 5% range of estimated rate, negotiations with L1 bidder shall be

considered only on a written request from the indenting department indicating the level of freight rate acceptable to them;

k) If the L1 offer lies within the 5% range of estimated rate, there will be no negotiations with L1 bidder and the indenting department shall be obliged to convey all approvals in order within the validity of offer; l) In the event the Chartering Committee feels that the L1 offer outside 5% range of estimated rate is not reasonable, the Chartering Committee will have the right to reject all the offers and invite fresh quotations from the market. In such cases, the reasons for rejecting the offers will be recorded in writing by the Chartering Committee; m) In case of a tie between two or more offers as L1 i.e. identical freight rate, the L1 offer to be accepted will be decided by lower demurrage rate followed by age of the offered vessel and named performing vessel; n) In the meeting at 1200 hours, the Committee to take a decision on the offers received and to announce the same in the meeting; o) In case of Contract of Affreightment(COA) covering substantial quantity of cargo for long spread of time, say, a year or more, the procedure as above will be followed except that the time limit for initial receipt of offers will be 3 working days from the date of circulation of enquiry. The L1 offer accepted by the Chartering Committee will remain valid for minimum 10 working days for obtaining indenting departments/suppliers approvals; p) The policy of extending first right of refusal to the participating Indian ships will continue. The offers of Indian vessels will be considered separately. If L1 foreign offer is less than the L1 Indian offer, the Indian vessel will be asked to match the L1 foreign offer on the basis of take it or leave it within two hours; preference will be given to Indian vessels in the order of freight rate/demurrage offered by them initially; q) In the event a single firm offer is received in response to the enquiry, the same procedure as above will be followed. METHODOLOGY FOR GENERAL LINER CARGOES

r) Container Cargoes upto 500 MT to be given to SCI only. If SCI fails to match the freight limit intimated by indenting departments, the indent to be passed on to Government freight forwarders. In the event of SCI and freight forwarders refusing to match the freight limits, C&F permission will be granted to indenting departments. If there is no freight limit, SCI to arrange shipment at a freight rate agreed between SCI and the indenting department through Transchart failing which shipment to be arranged through Government freight forwarders or C&F permission is to be granted; In case the quantity available/involved for shipment exceeds 500 MT, Transchart to offer cargo to SCI to arrange shipment within the matching freight rate if it operates regular service. If either SCI fails to match the freight rate or there is no regular SCI service, Transchart to enter market to finalise shipping arrangement within the matching freight limit or at competitive freight rate as the case may be based on L1 offer. s) The practice of arranging shipping arrangements of defence cargoes through SCI to continue. However where SCI offer no service/or refuse to ship cargo, shipment to be arranged through Government of India freight forwarder with the prior approval of freight rate etc. by Ministry of Defence; t) Break bulk cargo (other than heavy lift/project cargoes) upto 1000 MT quantity to be offered to SCI to arrange shipment within the matching freight limit, failing which cargo to be offered to Government freight forwarders. If freight limit cannot be matched by SCI/Government freight forwarders, C&F permission to be granted to the indenting department. If there is no freight limit, SCI to arrange shipment at a freight rate agreed between SCI and the indenting department through Transchart failing which shipment to be arranged through Government freight forwarders or C&F permission is to be granted; If the quantity available for shipment exceeds 1000 MT, Transchart shall arrange shipment either within the matching freight rate or at competitive freight rate after entering market or give C&F permission to indenting department. u) In case the Chartering Committee feels that the freight limit intimated by the indenting department is higher than the prevailing market rates or the rate offered by SCI is more than the market rate, Chartering Committee may negotiate the rate with SCI;

v) In case of heavy lift/project cargoes, irrespective of whether freight limit is provided by the indenting department or not, Transchart to finalise shipping arrangement from the market within the available freight limit, if any and SCI to be given the first right of refusal, if they participate in Transchart enquiry;

w) Freight estimate for shipment of containers/break bulk/heavy lift/project cargoes not to be calculated and shipment to be finalized on L1 basis; x) In the event of a specific request from the indenting department to finalise a long term freight rate agreement for shipment of container/break bulk cargoes, the existing practice of negotiating freight rates between SCI and the indenting department under the aegis of Transchart to continue. CHARTERING OF SPECIALIZED VESSELS y) i) Freight estimate for chartering of specialized vessel will not be calculated; Transchart shall enter market to invite firm offers as per the specific requirement given by indenting departments and forward them as received to the indenting department for technical evaluation. Based on the technical evaluation and recommendation of the indenting department, L1 offer as per the price derived by them to be considered without any financial negotiations and to be nominated to the concerned indenting department for final approvals. However, if required, some of the terms other than financial terms may be negotiated as per the decision of the technical committee of the concerned indenting departments.

ii)