GAIL India gives option to local yards to buy stake in LNG carriers in fresh tender
Local shipbuilders winning contracts to build the three LNG tankers have the option of acquiring 5-13% stake in each of these tankers
Local shipbuilders in India including state-run Cochin Shipyard Ltd, L&T Shipbuilding Ltd and Pipavav Defence and Offshore Engineering Co. Ltd will have the option to take equity stakes in each of the three new liquefied natural gas (LNG) carriers they are hoping to build for use by GAIL (India) Ltd to ship the commodity from the US beginning January 2019.
This clause has been incorporated by GAIL in a fresh tender it issued on Tuesday for hiring nine new LNG carriers.
Local shipbuilders winning contracts to build the three LNG tankers have the option of acquiring 5-13% stake in each of these tankers, according to the tender documents reviewed by Mint.
The move is part of a government plan to raise the equity stake held by Indian entities to 49% from the earlier 36% in each of the three new LNG carriers that are to be built locally for use by state-run natural gas firm GAIL, in a bid to lessen the risk for global fleet owners owning the balance 51% stake while ordering the new ships in India.
State-run Shipping Corp. of India Ltd (SCI) and GAIL have a step-in right to take at least 26% and 10% stakes, respectively, in each of the nine LNG carriers hired by GAIL.
GAIL will not order the ships directly at shipyards—both overseas and Indian. It plans to time charter the carriers from global fleet owners who will have to construct three of the nine LNG tankers in India as part of the Make in India initiative of Prime Minister Narendra Modi.
Prospective bidders are required to quote for lots of three vessels with a provision that under each lot, one of the vessels shall be built in an Indian yard.
In today’s market, an LNG carrier costs more than $200 million to build from scratch. Bidding groups have time till 14 December to submit their techno-commercial bids.
An earlier tender issued by GAIL last year had to be scrapped after Indian yards failed to sign technical collaboration agreements with experienced global LNG shipbuilders.
Such transfer of technology agreements have been signed since then.
State-run Cochin Shipyard Ltd, Larsen & Toubro Shipbuilding Ltd and Pipavav Defence and Offshore Engineering Co. Ltd have tied up technical collaboration pacts with South Korea’s Samsung Heavy Industries Co. Ltd, Hyundai Heavy Industries Co. Ltd and Daewoo Shipbuilding & Marine Engineering Co. Ltd, respectively.
The technical collaboration agreements should be valid till five years after the ships are delivered, according to the tender terms.
The LNG carriers ordered at overseas yards will have to be constructed and delivered between 1 January and 31 May 2019, while those ordered at Indian yards will have a window period of between 1 July 2022 and 30 June 2023 for delivering the vessels, according to the tender terms.
As a result, each of the six LNG carriers built at overseas yards will be hired by GAIL for a period of 19-and-a-half years while each of the three tankers constructed in India will be hired for 16 years.
