Indian shipbuilders lack both technology and financial muscle
Having failed to attract any Japanese or Korean shipbuilders to build LNG vessels in India, PSU firm GAIL (India) would reissue the multi-billion dollar tender with “changed norms”. The gas marketing and trading company was forced by the government to buy one-third of LNG ships, required to ferry gas from the US starting 2017, from Indian manufacturers. However, no Indian shipyard has ever built a vessel to transport LNG and foreign giants based in Korea and Japan turned down India’s request to form a joint venture and transfer technology here.
“The tender would be re-issued with changed norms,” a senior government official in the know told FE. The official did not disclose the new deadline for launching the tender considering the sensitivity of the issue. 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.
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. However, 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.
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.
Dhananjay Datar, executive director and CFO, ABG Shipyard, said though the GAIL deal is lucrative from the perspective of shipyards in India and the government’s Make in India efforts, the conditions of the contract are “very stringent making it difficult to meet requirements.”
“There are only a few companies in the world with the required technology to build LNG ships and they do not want to partner with Indian firms. GAIL is only asking for these ships to be operated as charter. However, we need someone who will invest in the ship while GAIL will give the rent for the ships they will use. If GAIL was looking to own the ship then life would have been easy, but they are ready to charter it for a certain number of years with whoever is ready to build it,” Datar told FE.
Domestic players such as L&T and Pipavav are among the obvious beneficiaries of the government’s decision, which is in line with the thrust on domestic manufacturing.
Korean and Japanese shipyards are reluctant to transfer technology to Indian shipyards. They would rather not bid in the tender if they are forced to transfer technology outside their own shipyards. The Koreans claim that government regulations keep them from transferring technology. And the Japanese are more discreet. “GAIL will not own these ships and will only pay for transporting LNG. Hiring ships is the international norm, but these ships require immense capital and expertise in building LNG carriers. Many of these companies are cash strapped and do not have in-house capabilities to deliver LNG ships,” a shipping sector analyst, who did not wish to be named, told FE.
GAIL plans to hire the carriers for 20 years starting September 2017 from fleet owners. The analyst added that it will be a challenge to meet deadlines for completion of the carriers and GAIL might have to rely upon hiring ships from overseas markets to transport LNG from the US.
In December, during Swaraj’s maiden trip to Seoul, she discussed with the Korean minister of trade, industry and energy Yoon Sang-jick about co-production of LNG ships here, as part of the ‘Make in India’ programme. Reports also said Swaraj offered India purchase giant LNG tankers from Korea outright, given its growing energy needs.
On December 8, a meeting was held between Pradhan and ambassador of the Republic of Korea Joon-gyu Lee in Delhi to apprise the ambassador of GAIL’s requirement of charter hiring nine LNG ships for transporting LNG from the US. However, these efforts from India do not seem to have yielded result.