Good news, bad news on ROROs
BIZLINKS - Rey Gamboa (The Philippine Star) - September 11, 2017 - 4:00pm

One of my advocacies even before I started writing this column had been on our local shipping industry. For some years now, I had been zeroing in on roll on, roll off (RORO) ships that are extensively used for inter-island travel by Filipinos.

Being archipelagic in nature, the Philippines has to rely extensively on ROROs – not just for travel, but more importantly to ferry goods, mostly agricultural, from the source to many points in the country. And with the country being perennially in the path of storms, the need for safe ships cannot be undermined.

Sadly, this crusade seems to fall on deaf ears, with the Maritime Industry Authority (MARINA), the government’s designated regulatory agency, not doing enough when so many lives and so much property is at stake.

The Philippines, sadly, continues to harbor maritime disasters year after year, many of them clearly avoidable. There’s a gamut of reasons for the accidents, but for me, the biggest remains to be continued use of old, re-classed and reconditioned ships not fit for our seas.

More than half of our domestic ships are over 35 years of age, some even older than 45 years, which is a clear deviation of international safety standards that place the maximum age of sea-worthiness at 20 years.

Worse, the Philippines has a very relaxed observance of maintenance, especially for ships above 20 years old. This is compounded by the fact that second-hand ROROs have often been retooled to allow more passengers and cargo, making them less stable in local waters.

New memorandum circular

Lately, the industry has been abuzz with the good news, and this is thanks to the current MARINA leadership, that the government has started a modernization plan for RORO vessels and is seriously pursuing the appropriation of various non-fiscal incentives to encourage ship owners to replace their ageing ships with new ones.

Just recently, MARINA came up with a memorandum circular that set a maximum age of 20 years for the importation of second-hand RORO vessels. It would have been better if the maximum age of ship service was 20, but considering the huge investments in shipping, we can take this one small step at a time.

The Land Transportation Franchising and Regulatory Board has already set a maximum age of 15 years for buses. MARINA should do likewise, especially for unclassed

Limit age to 35

There is also talk that the MARINA is studying the mechanics of limiting the age of local passenger vessels, including ROROs, to 35. This, again, is another overdue step to improve safety of sea travel. We hope the regulatory agency will also consider imposing stricter seafaring rules for ships over 20 years of age, to give the public better safety assurance.

The memorandum also states that companies that are thinking of importing ships for local use should have these classed by the Internationally Accredited Classification Society (IACS) at the time of importation.

Perhaps a future MARINA memorandum circular could also stipulate that IACS coverage should be mandatory for all ships, which would pave the way for better insurance protection for both cargo and passengers during accidents.

The circular also states that MARINA will subject imported second hand vessels to ultrasonic thickness gauging to ensure that the hull wastage is not beyond 25 percent of the original thickness of steel plates.

While the regulatory agency inspects unclassed ROROs every year when the vessel is dry-docked, we hope that even such classed vessels will continue to be checked annually. Vigilance must be observed during these inspections, especially with regards hull thickness.

Removal of VAT exemption

Unfortunately, all the good news enumerated above was accompanied by disturbing news, one that would seriously hamper MARINA’s planned RORO modernization program.

Perhaps in its desire to find additional sources of funds to compensate for lost income due to the restructure of corporate and personal income taxes, the government is looking at removing the value-added tax (VAT) exemption on the importation of new builds.

If this happens, ship owners will think twice about buying brand new vessels to modernize their fleets. The planned re-imposition of the 12 percent VAT will make capital layout for a new ship much more expensive since new ones, without worrying about VAT, could easily cost from P400 million to P600 million each.

Luckily, Archipelago Philippine Ferries Group and Starlite Ferries Group had started early with their modernization programs. The two companies had already imported 12 and six brand new ROROs, respectively, that are international class. But if VAT is re-imposed, we could see the last new ones.

Other shipping companies that have been enlightened by the wisdom of investing in new builds may have to put on hold their plans until this issue of additional tax is cleared.

Finance Secretary Sonny Dominguez and his team should rethink the move to re-impose VAT on imported vessels for the sake of the Filipino traveller. When you look at the cost of brand new vessels, having to pay for the 12 percent VAT is definitely not a small matter, and more importantly, the tax will definitely be passed on to the riding public, leading to higher fares.

Two suggestions

Two suggestions come to mind in such a situation. The first is a re-imposition of VAT, but only on the importation of second-hand vessels. This would force ship owners to seriously consider buying brand new ones, especially after realizing that there is more economic benefit when you consider less expensive maintenance and parts replacement of new vessel.

The second suggestion is a moratorium of five to seven years on VAT payments to force shipping companies to start their fleet modernization early, and hopefully in the process, speed up the pace of having new ROROs sailing our seas.

Floating coffins

We understand the pressure on government to come up with more tax money to finance its ambitious Build Build Build infrastructure program. But it must not be at the cost of lost lives and property. The safety of our ships is non-negotiable. We must get rid of all those floating coffins.

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