With the tender finding few takers, the company now looks to charter vessels for shorter duration
GAIL (India) has cancelled tender to hire newly built ships to ferry liquefied natural gas (LNG) from the US as there have been few takers for the multi-billion dollar contracts. Sources told FE that even though two Japanese consortia participated in the bidding process that lasted two years, they could not be finally selected due to the stringent indigenisation norms.
GAIL, sources said, would now look to charter LNG ships for short terms of three to four years, till a new proposal is made, a senior official told FE. There were no takers for the tender even after an aggressive diplomatic push from India’s external affairs minister Sushma Swaraj and petroleum minister Dharmendra Pradhan. No Indian shipyard has ever built a vessel to transport LNG and foreign giants based in Korea and Japan are not keen to accept India’s request to form a joint venture and transfer technology here.
The delay in finalising the tender could land GAIL in a crisis for not having LNG vessels on time to import gas from the US, which is expected to start from 2017. According to the initial plan, the vessels build overseas are to be delivered between January-May 2019 and one out of three made locally are to be ready between July 2022 and June 2023.
GAIL has floated the latest tender for time-charter hiring of up to 11 ships for 15 to 18 years through international competitive bidding. Exact number of ships to be chartered will be decided in due course. The tender was floated on September 15, 2015 with a due date of submission of December 14, which was later extended till February 29, 2016. The tender was first launched with a cut off date of October 30, 2014, which was later extended several times to December 4, January 6 and February 17 next year.
GAIL did not respond to an email seeking its comments on cancelling the tender.
The two Japanese bidders who participated in the last bid include – a consortium of Mitsui OSK Lines (MOL)-Nippon Yusen Kabushiki Kaisha (NYK Line) and Mitsui & Co. The second consortium comprises Mitsubishi Corporation-Kawasaki Kisen Kaisha Ltd (K Line) and GasLog.
Industry watchers feel the tender conditions are too stringent to be met. This is at a time when most Indian shipmakers do not have the financial muscle to spent capex for upgradation of shipyards. For the shipyards there are two challenges — to find the technology as well as investors. Moreover, such an opportunity has emerged for the first time in India and hence it would take time to fructify.
In December 2011, GAIL signed a deal with Cheniere Energy Partners to buy 3.5 mtpa of LNG from the Sabine Pass Terminal in Louisiana on FoB basis. Deliveries would start between March and August 2018.
In April 2013, GAIL booked another 2.3 mtpa capacity to export LNG from the Dominion Cover Point terminal in Maryland, delivery of which is expected from end-2017.
After a government directive, GAIL was forced to take out a tender with a clause that out of three LNG vessels one has to be built in India. Generally, it takes 30 months for Japanese and Korean companies to deliver an LNG ship.