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Cochin Shipyard in pact with Samsung Heavy Industries

Livemint:  March 19, 2015

Bengaluru: After several months of talks, state-owned Cochin Shipyard Ltd has succeeded in getting South Korea’s Samsung Heavy Industries Co. Ltd to share technology for building liquefied natural gas (LNG) carriers at its yard in Kochi. The move prepares Cochin Shipyard to make itself eligible to bid for a tender to be issued by GAIL (India) Ltd in early April, at least two people briefed on the plan said.

GAIL needs nine LNG carriers to haul natural gas from the US to India beginning December 2017.

“Cochin Shipyard has signed an agreement with Samsung Heavy Industries to collaborate on building LNG ships,” a shipping ministry official, one of the two persons mentioned earlier said, asking not to be named because the deal has not been made public yet due to a non-disclosure clause signed by the two parties.

A spokesperson for Cochin Shipyard declined to comment. Samsung Heavy Industries, the world’s top manufacturer of LNG carriers, could not be reached immediately for comment.

With this, Cochin Shipyard becomes the second local yard to secure a technology tie-up for LNG ships from one of the three top shipbuilders in South Korea, the world’s top shipbuilding nation.

L&T Shipbuilding Ltd, a unit of Larsen & Toubro Ltd, has signed a non-disclosure agreement with South Korea’s Hyundai Heavy Industries Co. Ltd to collaborate on building LNG carriers, Mint reported on 5 February 2015.

The tie-ups are the result of hectic lobbying by India to get technology from overseas specialists in the field. India’s foreign minister Sushma Swaraj had lobbied at the diplomatic level with the South Korean government during a visit to Seoul in December 2014 to help inexperienced Indian yards get the technology to build the ships locally.

GAIL had decided on 17 February to scrap a tender to hire the LNG carriers from fleet owners due to lack of response from bidders.

The tender had stipulated that at least three of the nine LNG ships that GAIL planned to hire from fleet owners for 20 years must be built at local yards, a factor which shipping industry executives believe discouraged bidders from participation.

The tender condition, designed to help Indian yards enter the LNG shipbuilding business, was written in the wake of a directive issued by the government as part of the Make in India initiative of Prime Minister Narendra Modi.

GAIL had given time until 17 February for bidders to put in their techno-commercial quotations.

Local yards, which have never built LNG ships before, need technological tie-ups with South Korean and Japanese specialists to become eligible for constructing the LNG tankers.

The Make in India campaign aims to transform the country into a manufacturing powerhouse, boosting exports by incentivizing import substitution.

GAIL is now considering splitting the tender into two with one tender for hiring six LNG carriers that are to be built at overseas yards and the second for three ships to be constructed locally, according to a shipping industry executive privy to the plan.

“However, splitting the tender will hurt India’s chances to build the three ships locally,” the shipping industry executive said on condition of anonymity because he is not authorized to speak to the media.

“Because the six-ship tender will attract a lot of bidders while the three-ship tender will find no takers due to concerns over ship price and quality. It is better for GAIL to re-issue the tender with the same conditions as in the earlier one to ensure that India gets a foot-hold in the LNG shipbuilding market,” he added.

The planned ship hiring tender of GAIL will be India’s biggest. The nine LNG carriers would cost a combined $2.5 billion to build from scratch for fleet owners. GAIL will have to spend an estimated $7.5 billion to hire the nine ships over a 20-year period, according to the shipping industry executive mentioned earlier.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

x IBEF : India Brand Equity Foundation