Mumbai: India’s newest private shipbuilding firm,Pipavav Shipyard Ltd, is the latest in a growing list of firms looking to enter the business of making diesel ship engines in an attempt to meet growing demand for these in India and in other parts of the world, and is talking to two multinational firms for a partnership.
High demand: Employees shift a 20-tonne ship part at Larsen and Toubro’s shipbuilding yard in Hajira. L&T and ABG Shipyard Ltd are also looking to set up ship engine facilities.
“We are in early talks with MAN Diesel SE and Wartsila Corp. for setting up an engine factory. We want more Indian (ship)yards to come up so that there are volumes to justify investment in an engine-making facility in India,” said Ray Stewart, chief executive officer, Pipavav Shipyard Ltd.
MAN Diesel and Wartsila are among the world’s largest makers of ship engines.
Local shipbuilders such as ABG Shipyard Ltd and Larsen and Toubro Ltd are also looking to set up ship engine factories to tap the increasing demand for ship engines in India and overseas. And Mint reported on 28 January that the state-owned shipping firm Shipping Corp. of India Ltd was looking to set up factories to make diesel ship engines in association with several government-owned ports.
Last week, Pipavav Shipyard started work on the first four of 26 Panamax bulk carriers that have been ordered by Norwegian, French and Greek fleetowners for a total of $1.1 billion (Rs4,360 crore).
The contract makes Pipavav the world’s second biggest Panamax size shipbuilder by order size after Japan’s dry bulk cargo shipbuilding specialist Oshima Shipbuilding Co. Ltd.
Panamax carriers can typically carry as much as 80,000 tonnes of dry bulk commodities and are called so because they are the biggest ships that can sail through the Panama Canal when fully laden.
Stewart said Pipavav had ordered engines for the ships it is building from STX Engine Co. Ltd, a unit of South Korean shipbuilder STX Shipbuilding Co. Ltd and HSD Engine Co., an affiliate of Doosan Heavy Industries and Construction Co. Ltd, also of Korea.
However, with global engine makers struggling to cope with orders because of a boom in shipbuilding, companies have to wait a bit for engine deliveries. “There is a serious bottleneck... It will take us as much as two years to get the engines ordered from Doosan,” Stewart added.
Local manufacture of engines would cut costs and waiting time. Indian shipyards are currently building or have orders to build 245 ships worth over Rs20,000 crore.
India’s shipbuilding industry is growing at more than 30% a year, riding on increased demand for ships globally. Besides, shipyards in countries such as South Korea, Japan and Norway are not entertaining orders for relatively smaller ships because of lack of capacity at their facilities.
Pipavav Shipyard, promoted by SKIL Infrastructure Ltd, will benefit from a shipbuilding subsidy scheme that ended on 14 August after a five-year run. Twenty-two of the firm’s total order book of 26 Panamax ships will be eligible for a 30% subsidy from the Indian government because the yard had booked these orders before the scheme ended, Stewart said.
Under this scheme, companies building ships receive 30% of the order value as a grant from the government. Shipbuilding is a labour- and material-intensive industry and this incentive was offered to encourage companies to set up shipyards in the country.
The options for four more Panamax carriers that was exercised by the yard’s customers may also become eligible for the subsidy as and when it is reintroduced by the government with retroactive effect, Stewart added.
Punj Lloyd Ltd, an offshore engineering firms, holds a 25% stake in Pipavav. Other investors in the company include Singapore’s SembCorp Marine, Infrastruture Leasing and Financial Services Ltd, Industrial Development Bank of India Ltd, Exim Bank, UTI Mutual Fund, 2i Capital Pcc, Trinity Capital (Nine) Ltd, New York Life Insurance Fund, New York Life Investment Management India Fund (FVCI) II Llc. (Mauritius), ABN AMRO Asia Merchant Bank (Singapore) Ltd, Blackstone Capital, Merril Lynch, Deutsche Bank and Galleon.
Pipavav plans to raise about Rs800 crore through a public issue and has filed a draft prospectus for approval with the stock market regulator, Securities and Exchange Board of India.