MUMBAI Intense competition between Indian offshore support vessel (OSV) operators and the presence of older foreign flag ships have helped India’s largest oil explorer, state-owned Oil and Natural Gas Corporation (ONGC ), hire 30 OSVs for a new five-year contract beginning March at below market rate.
Negotiations are currently under way to finalize the deal for which the price bids were opened on 12 January. ONGC deploys OSVs for logistics support to carry water, cement, food and chemicals to its various oil fields located in Mumbai High. These support vessels play a key supporting role in its hunt for oil.
ABG Shipyard Ltd, a relatively new entrant in the field, has quoted the lowest charter rate of $6,300 (Rs2.78 lakh) per day in the category where OSVs are required to have dynamic positioning (DP), fire-fighting capabilities and a pulling power of 60 tonnes. DP system helps maintain a ship’s position and allows anchoring in deep water.
The rate is just $900 per day more than the $5,400 per day paid by ONGC under the existing contract for non-DP vessels. This contract will end soon. As a result, other qualified bidders such as state-owned Shipping Corporation of India (SCI) and the Greatship India Ltd, a wholly-owned subsidiary of the Great Eastern Shipping, will have to match the rate quoted by ABG to win the deal.
Tag Sealogistics Ltd has led the way in the non-fire fighting category of OSVs, with DP and pulling power of 60 tonnes. It has quoted the lowest day charter rate of $6,999, followed by SCI with a rate of $7,500 per day, Greatship with $7,740 per day and Garware Offshore with $8,550 per day. The lowest rate is $2,019 higher than the existing rate of $4,980 per day paid by ONGC for non-DP vessels. Though the charter rates will go up for ONGC from the existing contract, it will not make a great impact on its operating costs.
The market had anticipated the rates ranging from $10,000 to $15,000 per day, or even higher, in these two categories.
Bidders such as SCI, Greatship and Garware are now dreading the possibility of matching the lowest rates quoted by ABG and Tag. Indian firms have quoted charter rates after factoring the depreciation benefits as most of the Indian ships are 15-20 years old.
“ABG has given a very low price. We have bid aggressively to bag the deal. There is hardly any room for further reduction in rates,” an SCI official said.
The difference in rates for the new contract and the existing one has also taken into account the cost of modifying and upgrading the vessels to meet the DP requirements of ONGC. It has tightened the technical norms and made DP compulsory for all vessels working under the new contract after the mishap in Mumbai High last year.
The operating costs for OSV owners have gone up due to modification of vessels to DP standards. The salaries of floating staff have also increased, following a wage pact signed between staff unions and the industry body, Indian National Ship-owners Association, last year. DP requires specially trained operators who are scarce in the current market .
Given the shortage of owned ships, Indian ship-owners have hired vessels from foreign companies to bid for the deal in a bid to tap the opportunity in the booming offshore oil industry where revenue stability from charter rates is a key factor.
SCI, Greatship and Great Offshore have hired foreign vessels to grab a big chunk of the contract. With mature markets in North Sea and the Gulf of Mexico requiring superior and modern vessels, foreign companies are forced to deploy their older vessels in Asian markets.
Though, the law s for operating in Indian waters give preference to Indian vessels, foreign vessels can be hired in case of shortage. “This is a win-win situation for both Indian and foreign firms. Indian owners can make money without committing capital while for others it takes care of utilization of foreign vessels that are not absorbed by mature markets,” an industry official said.
The tender also witnessed both Greatship India and Great Offshore vying for the deal under a common chairman K.M. Sheth. Great Offshore was de-merged from GE Shipping following a family split last year.