Mumbai: Giving a major boost to India’s shipbuilding capabilities, Larsen and Toubro Ltd has chosen Kattupalli port, in Thiruvallur district, near Chennai, as the location to build its over Rs2,000 crore mega shipbuilding yard.
“An announcement in this regard will be made within the next two weeks,” said a person familiar with the development who did not wish to be identified. Kattupalli was chosen over other contenders such as Mundra in Gujarat and Kakinada in Andhra Pradesh.
The new shipyard from India’s largest engineering and construction firm is likely to start building ships by the end of 2008 or in early 2009, and the first ship will be completed in 2010. The proposed facility will be the country’s first shipyard equipped to build very large crude carriers (VLCCs) with a capacity of 3-3.5 lakh dwt (dead weight tonnage or tonnes, a measure of the cargo-carrying capacity of a ship).
India has extremely limited shipbuilding capacity, which has hampered the fleet expansion plans of domestic shipping firms as most global shipbuilding yards too have full order books.
The country has around 20 shipyards, the majority state-owned, but none has the kind of capacity Larsen and Toubro is talking about at its new yard. Cochin Shipyard Ltd, which can build the largest ships currently, can build ships of a capacity up to 1.1 lakh dwt.
Mint had reported on 21 February thatLarsen and Toubro was close to finalizing a location near Chennai as the site for its mega shipbuilding facility. Kattupalli port, one of the 12 minor ports owned by the Tamil Nadu government, has been earmarked for development through private investments.
Larsen and Toubro has hired a European consultant to develop a master plan for the facility. The company also plans to bring in a Japanese or Korean shipyard as a technology partner, the senior official said. Larsen and Toubro is currently scouting for a person to head its shipbuilding business, which will be hived off into a separate subsidiary, in line with Larsen and Toubro ’s strategy to pursue large new businesses through separate companies.
The greenfield yard, spread across 1,500 acres, will have the capacity to build five very large crude carriers, 20 Suezmax carriers and repair 50-60 ships a year. A Suezmax carrier is a tanker that can pass through the Suez Canal when fully loaded and usually has a capacity between 1.2 lakh dwt and two lakh dwt.
The company ventured into shipbuilding last year by converting part of its heavy engineering facility at Hazira, near Surat in Gujarat, into a yard that could build three mid-size ships, of up to 150m in length, and with capacities of between 15,000 dwt and 20,000 dwt in a year. It is currently building four ships worth Rs440 crore in aggregate, for Netherlands-based Rolldock (formerly Zadeko Ship Management Company) in Hazira.
Although the company is now expanding the capacity of the Hazira yard to make eight ships a year, it cannot make bigger ships there. The yard opens into a river that has limited draft (depth, in shipping terminology). That explains its decision to build a new yard at Kattupalli port.
Larsen and Toubro has broadened the scope of its new shipyard to make it into an integrated port-cum-shipyard facility. This will help spread the cost of constructing breakwater and dredging the channel to third-party users of the port as well, which will mean higher profits for the company.
“Larsen and Toubro needs to invest heavily in constructing a breakwater and for dredging the port. It makes commercial sense that the cost be shared by a port and a shipyard”, this person said. Breakwaters are structures constructed on coasts as part of coastal defence or to protect an anchorage from the effects of weather and longshore drift. Dredging helps deepen the channel of a port to allow biggers ships to enter for loading and unloading cargo. These two activities typically account for about half the cost of building a new port.
The cost of breakwater and dredging will be shared by two entities in the Larsen and Toubro fold. The firm already has a port operating subsidiary named International Seaports Ltd, which operates cargo handling facilities at Kakinada port, Haldia port and the upcoming Dhamra port. It also has a dredging joint venture called International Seaport Dredging Ltd with Dutch firm Dredging International NV.
With capacity in traditional shipbuilding countries, such as Japan, Korea and Norway, booked for the next few years, fleet owners have started looking at new destinations, such as China and India.
India shipbuilding industry is expected to grow at 30% a year, according to a report prepared by Mumbai-based consultancy firm i-maritime. India’s share in global shipbuilding is expected to be around 15%, or $22 billion, by 2020 from the current 0.4%, aided mainly by cost competitiveness and ample supply of skilled manpower, the i-maritime report said. Shipbuilding grade steel which used to be imported earlier, is now made by state-run Steel Authority of India Ltd.
Local builders, such as ABG Shipyard Ltd and Bharati Shipyard Ltd, are also expanding by acquiring existing yards or building new ones.