• Cochin Shipyard stuck with three LNG carriers as private companies back out

    State-run Cochin Shipyard may alone have to build three liquefied natural gas (LNG) carriers as private yards baulk, raising the risk of delivery delays for GAIL’s ship charter plan, a key ‘Make in India’ initiative in the oil sector. GAIL plans to charter at least nine LNG vessels to bring home from the US up to 5.8 million ton of gas annually from early 2018. After multiple tenders and extensions, the company has received bids from two Japanese consortiums for this. Each bidder had to bid for at least three ships of which at least one has to be made locally.

    “Bids are not fully aligned with the tender,” a source close to GAIL said. The Japanese consortiums have sought several deviations in their bids and GAIL executives will spend a month or so talking to bidders, understanding their points, persuading them to withdraw those deviations and reach a common ground, sources said. Once the common ground is reached on techno-commercial criteria, probably in two months, GAIL will open price bids, a source said.

    GAIL may award fewer than nine LNG carriers, sources said, as it is looking to partly sell gas at source in the US and may not need to bring the entire commodity home. Since transporting gas from the US is fairly expensive, GAIL is also exploring the option to swap some of its US gas for five years. It has floated tenders seeking vendors interested in taking its gas from the US for own consumption or clients and delivering the equivalent quantity in India. The Japanese consortium of Mitsui OSK Lines Ltd (MOL), Nippon Yusen Kabushiki Kaisha Ltd (NYK Line) and Mitsui & Co Ltd has bid to supply six vessels while the other group of Mitsubishi Corporation, Kawasaki Kisen Kaisha Ltd (K Line), Gas Log Ltd and Foresight Oil Ltd has bid for four ships, sources close to GAIL said.

    Both the consortiums have partnered with Cochin Shipyard to meet the local manufacturing condition, sources said. Cochin Shipyard has no experience in building LNG ships, which require far more sophisticated technology than ordinary carriers. Which is why Cochin has partnered with Samsung, which would help build a third of the LNG ships in India while building the balance at its Korean shipyard. Earlier two other Korean shipmakers – Hyundai and Daewoo – were keen on participating in the process but dropped plans after their local partners L&T and Pipavav shipyards respectively pulled back.

    A source close to GAIL played down fears of delivery risk by allowing Cochin to build all three local vessels, arguing the yard would have nearly six years to deliver the first ship and another year for additional ships. The usual time to build an LNG vessel is 30-33 months, he said, adding that Samsung can do most of its design and engineering at its Korean shipyard and undertake only key construction works at Cochin, helping save time. The vessels from foreign shipyards have to be delivered between January-May 2019 and from Indian shipyards between July 2022 and June 2023, according to the tender document. An LNG vessel on average cost about $200 million. 

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