On 28 April 2021, the Ministry of Transport and Infrastructure (‘'The Ministry'') published the Regulation on the Incentivization of the Building of New Ships to Replace Turkish Flagged Ships to be Scrapped (‘'Regulation''). You can find the official text here (available in Turkish only).
The Regulation sets forth the principles and scope of the incentives provided to encourage the building of new ships to replace those that were used in commercial freight transportation and have been scrapped. Through these incentives, the Regulation aims to support the renewal of the maritime merchant fleet and create sustainable transport in cabotage and international waters.
Pursuant to the Regulation, commercial cargo transportation vessels that are 20 years and older and are ranked between 1,000 and 5,000 gross tonnages (GT) in liquid bulk cargo, solid bulk cargo, container, general cargo and special purpose vessel classes that are registered in the Turkish International Ship Registry or the National Ship Registry can benefit from the scrapping incentive.
How will Shipowners Benefit from the Financial Incentives?
Shipowners who meet the conditions and aim to benefit from the financial aid need to apply with the required documents in June of each year. According to the Regulation, a maximum of five vessels, starting with the oldest, will receive consideration to be funded in line with the current budget of the Ministry Circulating Capital Enterprise.
Should the application be granted, the General Directorate of Maritime Affairs (‘'Directorate'') determines the total amount of financial support by multiplying the empty weight of the ship with the scrap price at the time and issues an Incentive Compliance Certificate (‘'Certificate''). Subsequently, the beneficiary needs to submit a shipbuilding contract to the Directorate within four months, otherwise, the Certificate is deemed to have been cancelled.
Ships to be scrapped must have been in the possession of the beneficiary for the six months preceding an application date.
In addition, vessels registered to the National Ship Registry or the Turkish International Ship Registry following the publication date of the Regulation will also be able to benefit from the incentive after being registered for six months.
New Ship Construction
According to the Regulation, the required conditions regarding new ships are as follows:
- New ships must be used for commercial cargo transportation weighing at least 1,000 GT in liquid bulk cargo, solid bulk cargo, container, general cargo (mixed cargo) or special purposes classes.
- Shipbuilding must be completed within three years of the delivery date of a Certificate and new ships must be registered to the National Ship Registry or the Turkish International Ship Registry.
- The domestic contribution rate in the construction process of vessels must be at least 50%, including workmanship and they must be built in Turkey.
- Ships will have to operate under the Turkish flag for at least five years from the date of registration and an annotation will be added in order to prevent the ship from being sold, transferred, or rented for operations under another flag.
A beneficiary must submit a valid insurance policy to protect a ship that is under construction. The policy must cover the construction process and delivery period and it must provide coverage against all foreseeable risks listed in the Regulation, such as damages caused by inaccurate drawings or negligent launching.
Moreover, a Protection and Indemnity (‘'P&I'') insurance policy or a liability insurance policy that covers maritime claims listed in Article 1352 of the Turkish Commercial Code needs to be arranged annually for five years from the launch of the new ship. The shipowner must also provide an annual hull and machinery (‘'H&M'') insurance or a corresponding insurance policy for five years. Copies of the insurance policies need to be submitted to the Administration at each renewal.
In the event of any changes in the insurance policies, the beneficiary must notify the Administration in writing within 30 days.
Scrap Incentive Budget
The financial resource of the scrapping incentive is provided from the Ministry Circulating Capital Enterprise.
As per the Regulation, a first degree and first rank mortgage will be placed on a newly built ship, amounting to 1.5 times the amount of the incentives to be used before the payment.
Lastly, the Regulation stipulates the method of payment to provide funds to beneficiaries as explained below:
- A total of 40% of the financial aid will be allocated in the Turkish monetary unit prior toa vessel being registered in a specific registry covering ships under construction.
- The amount of 30% will be paid after the completion of the shell construction
- The balance will be allocated when a ship is registered.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.