Faced with the prospect of a second Presidential directive, state gas utility GAIL India Ltd has decided to buy from Indian shipbuilders a third of the LNG ships for ferrying gas from the US.
GAIL wants 9 ships to ferry liquefied natural gas (LNG) it has contracted from US producers to India. The previous Oil Secretary Vivek Rae saw the GAIL’s chunky contract as an opportunity to push the case for domestic LNG shipbuilding and pushed the company to include Indian shipbuilders, who currently don’t have the technology, in the tender.
After Rae, the current Oil Secretary Saurabh Chandra nudged GAIL to reserve a part of the USD 7.6 billion contract for Indian shippers so that global majors transfer LNG shipbuilding technology to India.
Initially, GAIL resisted saying it will be a time consuming process, but when the ministry mulled issue a Presidential directive it backed down.
“Under the advice of Ministry of Petroleum & Natural gas, GAIL will shortly come out with a LNG ship charter hire tender specifying, inter-alia, that one ship out of every lot of three ships each would be built in India,” GAIL said in a filing to the stock exchanges.
GAIL decided to give Indian shipbuilders six years to deliver the ships as opposed to two-and-half-year deadline for foreign firms.
“Quotes for three such lots of three ships each would be specified in the tender. It is proposed to allow 6 years delivery period for the Indian built ships as against about two and half years for the foreign built ships,” it said.
GAIL had been for past 6-7 months resisting the inclusion of domestic ship makers in the tender on grounds that Indian shipyards would need at least six years and huge finances to develop the capability to build cryogenic LNG carriers.
The Ministry was of the view that GAIL should promote domestic industry and mulled issuing a Presidential directive – an order in the name of the President who is the owner of public sector companies.
In October 2004, a Presidential Directive was issued to GAIL following which it cancelled a Rs 1,400 crore tender for supply of pipes and issue a fresh one incorporating new terms that including more suppliers.
GAIL in the filing said it has signed long term agreements with the US based Cheniere Energy Partner and Dominion Resources for transportation of 5.8 million tonnes per annum of LNG from Sabine Pass and Cove Point terminals.
It plans to charter newly built ships to transport this gas to India.
Worldover, about 379 LNG ships are operating and another 105 ships are being built/ordered. The specialised carriers are mostly built in South Korea and Japan by companies such as Samsung and Daewoo. In recent years, China has also started making LNG ships.
