Bangalore: Billionaire Anil Ambani’s Reliance Power Ltd is in talks with South Korean shipyards to build six ships that will be used to import coal for the 4,000MW power plant it is constructing in Krishnapatnam, Andhra Pradesh, according to two London-based shipbrokers with knowledge of the discussions.
The utility is discussing a possible deal with Hyundai Heavy Industries Co. Ltd, STX Shipbuilding Co. Ltd, Daewoo Shipbuilding and Marine Engineering Co. Ltd and Hanjin Heavy Industries and Construction Co. Ltd to build the so-called dry bulk ships, said the shipbrokers, who didn’t want to be named.
“Reliance is looking to close the deal and Hanjin Heavy Industries is the frontrunner for the contract as it is more inclined to give lower rates among the (South) Korean yards,” one of them said. Hanjin could not be reached for comment.
South Korea is the world’s biggest shipbuilding nation.
“We are in discussions with several top yards in South Korea and Japan. But nothing has been finalized as yet,” said a top executive at Reliance Natural Resources Ltd, or RNRL, another firm in the Reliance-Anil Dhirubhai Ambani Group (R-Adag). Reliance Power will buy the ships through RNRL.
Reliance Power has been scouting the global market since July for six so-called capesize ships that would be used to haul 17 million tonnes of coal a year from Indonesia for the Krishnapatnam power plant. It is also looking to hire three-four capesize ships on a long-term basis to meet its coal transportation requirements.
Capesize ships can typically carry up to 175,000 tonne of coal, steel or iron ore. They must travel around the Cape of Good Hope or Cape Horn because they are too large to use the Suez or Panama canals.
Globally, 856 capesize ships are in operation. Over the next three years, another 500 capesize ships, currently under construction at various global yards, will start trading.
The RNRL executive, who asked not to be named, said the firm is waiting for ship values to fall further before striking a deal. “Definitely prices are bound to fall further.”
Currently, a capesize ship costs $65 million (Rs307 crore) to build.
The first unit of the Krishnapatnam plant is expected to start generating power in September 2013 and the project would be fully operational by October 2015.
Reliance Power had been in discussions with Chinese shipbuilding yards including Qingdao Beihai Shipbuilding Heavy Industry Co. Ltd to purchase the ships, when the price for building a capesize ship was at about $100 million in the global market. But a deal could not be finalized then because of problems faced by Chinese yards in getting finances.
Since then, ship values have crashed following the global slowdown, collapsing freight rates and waning demand for goods. With orders for building new ships reduced to a trickle, and existing orders facing cancellations due to failed financings, yards in South Korea were willing to drop their prices.
“If Reliance Power finalizes the contract at $65 million per vessel, it is a fantastic price,” said an executive at a Mumbai-based shipbroking firm, who did not want to be named. “They will never get a price lower than this.”
Last year, Tata Power Co. Ltd, India’s biggest power utility outside state control, signed a $200 million contract with Qingdao Beihai Shipbuilding to construct two capesize ships, each with a capacity to carry 200,000 tonnes of cargo.