Gail scraps $7-billion LNG tender after bidder disagreed to ‘Make-in-India’ terms

Gail, which was forced by the oil ministry to add the ‘Make-in-India’ condition to its tender, will now hire the ships from the global spot or current market to transport LNG


Gail sought bids to time-charter nine newly built LNG ships lots of three, with the condition that one of the three ship will be built at an Indian shipyard. Photo: Pradeep Gaur/Mint
Gail sought bids to time-charter nine newly built LNG ships lots of three, with the condition that one of the three ship will be built at an Indian shipyard. Photo: Pradeep Gaur/Mint

New Delhi: After dragging for more than two years, state-owned gas utility Gail India Ltd has scrapped a $7 billion tender for hiring newly built ships to ferry liquefied natural gas (LNG) from US after bidders did not agree to ‘Make-in-India’ terms.

Gail, which was forced by the oil ministry to add the ‘Make-in-India’ condition to its tender, will now hire the ships from the global spot or current market to transport LNG, a senior official with knowledge of the matter said.

Two Japanese bidders—a consortium of Mitsui OSK Lines (MOL)-Nippon Yusen Kabushiki Kaisha (NYK Line) and Mitsui and Co. and a consortium comprising Mitsubishi Corporation-Kawasaki Kisen Kaisha Ltd (K Line) and GasLog, had sought several deviations from the tender conditions, which were not agreeable to Gail. “We discussed with both the bidder the deviations they sought for over six months but when they didn’t agree, we were left with no option but to cancel the tender,” the official said.

In the tender, Gail sought to time-charter nine newly built LNG ships of a cargo capacity of 150,000-180,000 cubic meters to LNG it has tied up from Sabine Pass and Cove Point LNG projects in US, with supplies slated to start from December 2017. Bids were sought in lots of three, with the condition that one of the three ship will be built at an Indian shipyard.

The official said since Indian shipyards neither had the technology nor experience of building the highly specialised LNG ships, the bidder sought sovereign performance guarantee for the ones built in India.

After postponing the deadline thrice, Gail had in February last year scrapped the tender to hire nine LNG carriers to ferry gas from the US, with a caveat that three of them be made in India. At that point, no foreign shipyard was willing to share LNG ship-building technology.

Negotiations that followed saw Cochin Shipyard strike a deal with Samsung Heavy Industries Ltd to cooperate in construction of the vessels. It has also been licensed by GTT of France to build LNG carriers with the Mark III membrane containment system.

However, L&T Shipbuilding, which had a deal with Hyundai Heavy Industries, has pulled out of the bidding as it turns its focus to defence projects.

Pipavav Defence and Offshore Engineering has teamed up with Daewoo Shipbuilding and Marine Engineering (DSME) of South Korea for ship-building. The tender was re-floated on September 15, 2015.

After the deadline was postponed thrice, two consortiums put in bids on March 31 this year.

The official said according to the tender condition while two ships were to be built at the shipyards of their foreign collaborators, one carrier has to be built in India. The tender document provides for the Indian shipyard taking 5-13% LNG carrier that it will build. This condition was not there in the original tender floated in 2014.

Also, Gail has a right to take up to 10% equity stake in any or all of the nine ships.

Shipping Corporation of India (SCI), which is to operate the carriers, will have a right to 26% interest, according to the document. Gail has tied up 5.8 million tons per annum of LNG from the US which the newly built ships will ferry.

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