Bangalore: Power producers Tata Power Co. Ltd and Reliance Power Ltd have both turned to China’s state-run Qingdao Beihai Shipbuilding Heavy Industry Co. Ltd for dry bulk cargo ships, enticed by the lower prices offered by the firm than its South Korean competitors.
Tata Power recently signed a $200 million (Rs874 crore today) contract with Qingdao Beihai for constructing two so-called capesize ships, each capable of carrying 200,000 tonnes of cargo, said a person familiar with the development.
Assured supply:A Mitsui OSK Lines Ltd dry bulk cargo carrier. Tata Power and Reliance Power are looking to sew up their coal transportation plans in order to beat the soaring freight costs of commodities. Photograph: Bloomberg
The ships were ordered by TPC Energy Asia Pte Ltd, a special purpose vehicle incorporated in Singapore by Tata Power for owning ships and to trade in fuels, this person said, asking not to be named.
The two ships would be ready by 2011 to carry coal for Tata Power’s 4,000MW power plant at Mundra in Gujarat, which starts operations in early 2012.
Billionaire Anil Ambani’s Reliance Power executives are in China discussing a possible contract with Qingdao Beihai for six capesize ships. These ships would be used to haul 17 million tonnes of coal a year for the company’s 4,000MW power plant at Krishnapatnam in Andhra Pradesh, the same person said.
A spokesman for Tata Power could not be reached, and a Reliance Power spokesman declined to comment.
Qingdao Beihai, a shipyard functioning under state-run China Shipbuilding Industry Corp. is located at Haixiwan in the Qingdao economic and technical development zone on the country’s eastern coast.
Capesize ships can carry up to 200,000 tonnes of coal, steel, or iron ore, and are the biggest vessels capable of shipping dry bulk commodities. They must travel via the Cape of Good Hope, or Cape Horn because they are too large to use the Suez Canal or the Panama Canal.
“Despite a slowdown, new ship prices continue to remain high due to rising steel and other material costs,” said U.C. Grover, director of technical and offshore businesses at state-run Shipping Corp. of India Ltd.
Both Tata Power and Reliance Power had earlier held discussions with South Korean yards such as Hyundai Heavy Industries Co. Ltd and STX Shipbuilding Co. Ltd to build the ships, but settled for Qingdao after the Chinese shipbuilder offered lower rates.
While the South Korean shipbuilders quoted about $100 million for a capesize ship capable of carrying 175,000 tonnes of dry bulk cargo, Qingdao Beihai listed the same price for new capsize vessels capable of carrying 200,000 tonnes of cargo.
“Using bigger ships will lead to economies of scale as larger quantities of coal can be imported at a time, thereby reducing the number of ship trips and saving on transportation costs,” said T.V. Shanbhag, who headed the government’s ship chartering wing Transchart for 10 years between 1995 and 2005.
Bigger ships would result in greater savings on ship fuel costs, a key aspect that influences new shipbuilding contracts. Ship fuel, or bunker, accounts for 35-40% of ship operating costs.
Both Tata Power and Reliance Power are in a hurry to sew up their coal transportation plans through a combination of outright purchases of vessels and long-term hire contracts, to avoid delays and offset soaring freight costs for shipping dry bulk commodities.
“Finding shipyards that can build big cargo ships by 2011 is tough, as most of the reputed builders are fully booked till 2012-13,” said Grover.
Tata’s TPC Energy Asia has already finalized long-term contracts for three ships with a Greek shipping company for the Mundra project, the same person mentioned earlier said. Reliance Power is also looking at hiring three, or four ships on a long-term basis, he added.