State-run gas marketer GAIL India will likely scrap the tender for hiring liquefied natural gas (LNG) ships after failing to negotiate acceptable terms with bidders in what would hurt India’s ambition to build high-tech LNG carriers at home under the ‘Make in India’ programme.
GAIL had issued a tender last September seeking to charter at least nine LNG vessels to bring home from the US up to 5.8 million tonne of gas annually from early 2018. Successful bidders were supposed to locally build a third of all ships they make under the Make in India plan.
GAIL received bids from two Japanese consortiums after the deadlines for submissions were extended more than once. The bids, however, were not fully aligned with the tender and contained several conditions, which the GAIL executives hoped to resolve in negotiations that lasted more than five months with the bidders.
GAIL and the Japanese consortiums have now ended their negotiations after failing to reach a common ground, sources with direct knowledge of the matter said. In the next few days, the board of GAIL will likely consider the proposal to scrap the current tender for LNG carriers and issue a new one to hire ships without any condition on building some ships locally, sources said. The bidders wanted the Indian government to share some of the risks they saw in investing billions of dollars in making LNG carriers.
They sought some form of guarantee that would help compensate them if gas supply from America were to shrink during the contract period, sources said.
Bidders were a little averse to sinking money in building ships at Indian shipyards as it would cost almost triple the amount at a Korean shipyard and therefore also demanded higher equity contribution from the Indian government for these ships, sources said.
GAIL declined to comment for the story.
GAIL is now running out of time to hire ships as the supplies of its contracted gas from the US will start flowing in a little more than a year. A GAIL executive said hiring LNG ships in time wouldn’t be difficult if we were to lift the Make in India condition. Early last year, GAIL had scrapped a previous tender seeking LNG carriers after receiving no response from foreign bidders reluctant to transfer technology and build ships in India. Indian shipyards don’t have LNG carrier building technology.
A diplomatic push finally got some interest from the Korean shipbuilders, who agreed to tie-up with local shipyards to build LNG carriers in India.
The bidders for GAIL ships had to tie-up with shipbuilders who would in turn partner local shipyards. Vessels from foreign shipyards had to be delivered between January and May 2019 and from Indian shipyards between July 2022 and June 2023. An LNG vessel on average costs about $200 million.
The Japanese consortium of Mitsui OSK Lines Ltd, Nippon Yusen Kabushiki Kaisha Ltd and Mitsui & Co Ltd had bid to supply six vessels while the other group of Mitsubishi Corporation, Kawasaki Kisen Kaisha Ltd, GasLog Ltd and Foresight Oil Ltd had bid for four ships.
Both consortiums had partnered with Cochin Shipyard to meet the local manufacturing condition. Two other Korean ship makers – Hyundai and Daewoo – too were earlier keen on participating in the process but dropped off after local partners L&T and Pipavav shipyards respectively pulled out. Ed Dickson JerseyShare This