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Gail scraps failed LNG ship tender as Make in India caveat deters foreign shipbuilders

Gail needs the carriers for a period of 20 years starting 2017, for transporting LNG from US to India. Photo: Mint

3 min read . Updated: 19 Feb 2015, 02:12 PM IST P. Manoj

The tender, floated in 1 August 2014, aimed at hiring nine LNG carriers, with a caveat that three of them be made in India

Bangalore: State-owned Gail India Ltd has scrapped a tender that would have led to the construction of three massive liquefied natural gas (LNG) carriers at Indian shipyards, in a setback for the government’s Make India initiative that seeks to encourage domestic manufacturing.

The tender, floated in 1 August 2014, was aimed at hiring nine LNG carriers, with a caveat that three of them be made in India. However, there were no takers for the tender, since local yards inexperienced in building such ships failed to get expert LNG shipbuilders to share technology for the same.

Gail needs the carriers for a period of 20 years starting 2017, for transporting LNG from US to India. The gas transporter had given time until 17 February for bidders to put in their techno-commercial quotations.

“We decided not to extend the tender as there was no interest from bidders even after four extensions of time. Indian ship yards are yet to have technology tie-ups in place to build the ships locally. There was no point in going on extending the tender when there was no response. As a result, the tender has lapsed," an official at Gail said.

“We will come out with a new tender, the details of which are under discussion," the Gail official added.

Make in India, a pet theme of Prime Minister Narendra Modi, aims to transform the country into a manufacturing powerhouse to create jobs and boost exports.

A shipping ministry official briefed on the matter said that Gail wants to remove the condition for building three LNG carriers locally in the revised tender. This has been Gail’s stand from the time the tender was in the drawing board stage.

A final call on this, though, will have to be taken by the government.

The tender condition, designed to help Indian yards enter the LNG shipbuilding business, was written in the wake of a directive issued by India’s oil ministry that controls Gail.

“Gail will now go the government to apprise it about the situation. Gail had incorporated the condition that three of the nine carriers should be built locally following a directive from the government. Obviously, that has not yielded the desired results. Gail will now seek guidance from the government on what to do," the shipping ministry official said.

“India offers immense potential for the shipbuilding industry," Modi said at the inauguration of General Electric’s multi-modal manufacturing facility at Chakan, Pune on 14 February.

Indian yards such as Cochin Shipyard Ltd, L&T Shipbuilding Ltd and Pipavav Defence and Offshore Engineering Co. Ltd have never built LNG ships before and need a tie-up with overseas yards to qualify and fulfill a government- backed plan to build the three vessels.

Experienced LNG shipbuilders in Japan and South Korea were unwilling to share technology and collaborate with Indian yards to build the three ships locally, putting a spoke in the government’s plan.

L&T Shipbuilding had signed a non-disclosure agreement with South Korea’s Hyundai Heavy Industries Co. Ltd for a potential technology tie-up to build LNG ships, but the discussions between the two firms did not result in a collaboration by the time the tender deadline.

Cochin Shipyard was also holding talks with Hyundai Heavy Industries Co. Ltd and Daewoo Shipbuilding and Marine Engineering Co Ltd for collaboration.

A third executive directly associated with the tendering process but not working with Gail said that the firm may opt for hiring LNG ships from the spot market for 1-2 years to help start shipments from the US, which is on a take or pay basis. This would give Gail more time to finalize a fresh tender to hire LNG carriers on long-term basis to synchronize with the gas purchase agreement with US producers.

“There was willingness on the part of fleet owners to participate in the tender," said a Mumbai-based shipping industry executive tracking the LNG shipping sector. “But the tender conditions put forth by Gail were unreasonable and uncommercial. So, nobody was interested".