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ABG Shipyard, GTT sign pact for LNG technology

Livemint:  March 31, 2015

Benglauru: ABG Shipyard Ltd has become the third Indian company to secure technology collaboration to build liquefied natural gas (LNG) carriers, as it prepares for a tender set to be issued by GAIL (India) Ltd for hiring nine new LNG ships that will haul gas from the US from December 2017.

ABG has tied up with Gaztransport and Technigaz (GTT) of France, one of the world’s top designers of containment systems for the maritime transportation and storage of LNG.

GAIL will not order the nine ships directly, but plans to time charter or hire the carriers for 20 years from fleet owners who will have to construct three of the nine ships in India.

Recently, Cochin Shipyard Ltd and Larsen & Toubro Shipbuilding Ltd tied up with Samsung Heavy Industries Co. Ltd and Hyundai Heavy Industries Co. Ltd, respectively for LNG ship construction technology.

On 17 February, GAIL scrapped a tender issued on 1 August 2014 to hire the LNG carriers as the Make in India plan deterred global fleet owners from participating in the tender. Local yards, who have never built LNG carriers before, were unsuccessful in forging partnerships with experienced global yards when the tender was scrapped.

“We have signed an agreement with GTT for technology transfer for building LNG ships,” a spokesman for ABG Shipyard said.

Officials at GTT could not be reached for comment immediately. GTT, which does not own a yard, licences its technologies to leading shipyards including the top three yards in South Korea for the construction of LNG carriers and land storage tanks.

“This arrangement will work,” said a Mumbai-based shipping industry executive who tracks the LNG shipbuilding sector. “Technology from the French firm and construction supervision from one of the leading LNG ship operators has proved to work in countries such as China when it started out on building LNG carriers,” he said.

Local shipbuilders have, meanwhile, started lobbying the government to stop GAIL from 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.

Local yards fear that splitting the tender would hurt their chances to build the three carriers in India as global fleet owners would refrain from bidding for the Indian-built ships on price, quality and financing considerations with the result that GAIL would be forced to let fleet owners build all the nine carriers overseas.

“Politically, it would not be possible for the government to go back on its plan to have the three LNG carriers constructed locally with Prime Minister Narendra Modi taking a keen interest in this initiative,” said a Singapore-based shipbuilding consultant, adding that the success of the Make in India plan hinges on GAIL re-issuing the tender with the same conditions as in the earlier tender.

GAIL could not be reached for comment immediately.

The shipping and oil ministries are also discussing a plan to mandate GAIL and state-owned Shipping Corp. of India Ltd (SCI) take a combined 36% stake in each of the three carriers that would act as a comfort for other global fleet owners and incentivize them to bid for the three carriers.

In LNG shipping, each carrier is owned by a special purpose company (SPC) with multiple investors to spread the risk. GAIL and SCI have signed an agreement wherein the state-owned shipping company has a step-in right option, meaning it can take at least a 26% stake in each of the nine LNG carriers when they are hired by GAIL.

GAIL, separately, has the option of taking a 10% stake in each of the LNG carriers it hires.

“Instead of making this optional, the stake purchase by SCI and GAIL should be made mandatory. This will ensure the success of the Make in India plan,” the Singapore consultant said. He did not want to be named.

“We will continue our focus on investing in LNG ships. It has earned steady revenue for us in these difficult market conditions for global shipping,” said a spokesman for SCI. SCI has invested in four LNG carriers.

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