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Great Offshore, Bharati Shipyard trade charges over rig delay

Great Offshore, Bharati Shipyard trade charges over rig delay
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First Published: Sat, May 23 2009. 12 04 AM IST

Updated: Sat, May 23 2009. 12 04 AM IST
Bangalore: A dispute has risen over the responsibility for a delay in constructing India’s first indigenous offshore shallow water oil drilling rig between its owner Great Offshore Ltd and builder Bharati Shipyard Ltd.
Roadblocks: The Bharati shipyard. The company is one of the largest shareholders of Great Offshore.
A spokesman for Great Offshore has said the delay was not its making.
However, P.C. Kapoor, managing director of Bharati Shipyard, told Mint that the delay was not on account of Bharati Shipyard. “There were various reasons for the delay, one of them being the hold-up in payments from Great Offshore, which led to deferred equipment supplies,” he told the DNA newspaper.
The rig, costing $168 million (Rs793 crore) was due for completion in April, in time to start work from 15 May on a five-year contract with state-run oil firm Oil and Natural Gas Corp. Ltd (ONGC) at a day rate of $146,000.
Great Offshore could not hand over the rig to ONGC by 14 May and the oil firm encashed the performance bank guarantee of $3.8 million and cancelled the contract. The deal would have fetched Great Offshore $266 million in revenues over five years.
“Since the delay is not on account of Bharati Shipyard, there is no question of any material penalty or any material loss to Bharati Shipyard,” Kapoor told Mint on 8 May.
“How can there be no penalty clause in a multimillion rig building contract for prolonged delay?” asked a Mumbai-based analyst on condition of anonymity. Such penalty clauses are typical in ship-building contracts globally.
“There may be a conflict of interest here as Bharati Shipyard helped Vijay Sheth, promoter of Great Offshore, by giving a loan. In return, Seth might have waived the penalty for (any) delay by writing a new rig building agreement on a later date (that is, new agreement after pledging the shares),” he said.
Bharati Shipyard is now the largest shareholder of Great Offshore, after it acquired a 14.89% strategic stake in the firm, invoking shares that Vijay Sheth, vice-chairman and managing director of Great Offshore, had pledged in return for a loan worth Rs240 crore.
For Great Offshore, the delay would have meant a two-year exclusion from participating in future rig-hiring auctions. ONGC, however, has decided against an exclusion.
“The (ONGC) management has been very considerate. Normally, whenever a rig or any services do not get mobilized, our policy says that we will put the party on a holiday. That means they will not be able to participate in the future tenders,” ONGC chairman R.S. Sharma told CNBC-TV18 in an interview on 21 May, when asked why the firm was being lenient in this case. “Here, we have realized that it (the delay) was not the intent of the party. They wanted to mobilize and the rig did not get completed.”
Escaping the exclusion from ONGC auctions is good news for Great Offshore because the oil firm provides the best chance for getting employment for the rig, though Great Offshore would have to bid for a contract.
Axis Bank Ltd and France’s Natixis SA, which have lent as much as Rs600 crore to Great Offshore to build the rig, will also now have reasons to cheer from this development. Jittery after ONGC cancelled the contract, a major comfort factor in lending the money, the banks opened talks with Great Offshore to find what options it had to employ the rig in order to service the debt.
However, ONGC’s Sharma said: “As per our understanding, it will take another year and a half for the rig to get completed.”
This means further delays in repaying debts and higher interest cost for Great Offshore.
p.manoj@livemint.com
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First Published: Sat, May 23 2009. 12 04 AM IST