Mumbai: India’s largest engineering and construction firm Larsen & Toubro Ltd (L&T) is negotiating with global shipping fleet owners to build ships worth over $1 billion (Rs3,930 crore), but the company cannot finalize these orders because it still hasn’t received the requisite clearances for its shipyard from a local government.

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“We are in talks with shipowners for orders worth over $1 billion, but the orders are yet to be concluded mainly due to delay in getting a clearance from the Tamil Nadu government for the project," said an executive at Larsen & Toubro, who is familiar with the project but did not want to be named.

The chief secretary of Tamil Nadu and the bureaucrat in charge of the project could not be reached for comment.

L&T plans to set up the country’s biggest shipbuilding facility at Kattupalli in Tamil Nadu in an effort to tap growing domestic and global demand for ships.

The company will invest around Rs3,000 crore in the shipyard and port project and will build cargo ships, warships and offshore oil rigs.

The shipyard at Kattupalli will be capable of building 25 big ships in a year and repair another 50-60 ships.

“L&T is an engineering firm and we will focus on building high-end, high-tech ships that are highly engineering intensive.

“We want to do what Japan and (South) Korea are doing—focus on high-end shipbuilding where (the) money is," said M.V. Kotwal, a member of L&T’s board and senior executive vice-president in charge of the heavy engineering business at the company.

Kotwal said that L&T would build very large crude carriers, ships to carry liquefied natural gas and compressed natural gas, car carriers, container ships, warships and frigates. “The new yard will use the latest shipbuilding technology and the most modern processes," Kotwal had said on 26 October.

L&T has hired the Rostock, Germany-based consultant Ingenieurtechnik und Maschinenbau GmbH (IMG) to develop a master plan and design for the shipyard.

The company also plans to bring in a Japanese or South Korean shipyard as a technology partner at a later date, the L&T executive familiar with the project said.

The port facility at Kattupalli will cater to clean cargo and also handle cargo of the nearby special economic zone being developed by the state-owned Tamil Nadu Industrial Development Corporation Ltd (Tidco).

Clean cargo refers to things such as foodgrains, cars and other vehicles, and finished products as opposed to coal, iron ore and the like.

When fully operational, the shipyard and port will employ close to 10,000 people.

L&T plans to begin construction of ships at Kattupalli by the end of 2009 and deliver its first ship a year later.

L&T ventured into the shipbuilding business last year by converting part of its heavy engineering complex at Hazira, near Surat in Gujarat, into a yard that could build three mid-size ships a year with a cargo-carrying capacity of 15,000 to 20,000 tonnes.

Although the company is now expanding the capacity of the Hazira yard to make eight ships a year, it cannot make bigger ships there.

The yard opens into a river that has limited draft (depth in shipping terminology). That explains the company’s decision to build a new yard at Kattupalli, a port owned by the Tamil Nadu government, which has been earmarked for development through private investments.

India has around 20 shipyards, the majority state-owned, but none has the kind of capacity L&T is talking about at its new yard.

Cochin Shipyard Ltd, which can build the largest ships currently, can build ships with a cargo-carrying capacity of 110,000 tonnes.

With capacities in traditional shipbuilding countries such as Japan, South Korea and Norway booked for the next few years, fleet owners have started looking at new destinations such as China, Vietnam and India. Local builders such as ABG Shipyard Ltd, Bharati Shipyard Ltd and L&T are expanding capacities to meet this demand.

India’s share in the global shipbuilding business is expected to grow to around 15%, or $22 billion, by 2020 from the current level of 0.4%, aided mainly by cost competitiveness and abundant supply of skilled manpower, according to a report by Mumbai-based consulting firm i-maritime Consultancy Pvt. Ltd.