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Business News/ Industry / Energy/  L&T in talks with Hyundai to collaborate on LNG carriers
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L&T in talks with Hyundai to collaborate on LNG carriers

Firms in talks to locally build at least three of the nine LNG carriers to be hired by GAIL to haul gas from US starting September 2017

Indian yards have never built LNG ships before and need to tie up with specialist overseas yards to qualify for the GAIL tender.Premium
Indian yards have never built LNG ships before and need to tie up with specialist overseas yards to qualify for the GAIL tender.

Bengaluru: L&T Shipbuilding Ltd, a unit of Larsen and Toubro Ltd, (L&T Ltd) is said to be in talks with South Korea’s Hyundai Heavy Industries Co. Ltd to locally build at least three of the nine new liquefied natural gas (LNG) carriers to be hired by GAIL (India) Ltd to haul gas from the US starting September 2017.

The tender for these ships was issued by GAIL on 1 August.

Separately, state-run Cochin Shipyard Ltd will begin talks with two South Korean yards in the next few days to build three sophisticated LNG ships locally.

Indian yards have never built LNG ships before and need to tie up with specialist overseas yards to qualify for the GAIL tender. An LNG ship costs about $205 million to build in today’s market, according to a Mumbai-based ship broker who declined to be named.

“L&T has signed a non-disclosure agreement with Hyundai Heavy Industries for a potential collaboration on constructing the LNG carriers," a shipping ministry official briefed on the plan said, requesting anonymity. “A firm collaboration agreement is yet to be signed."

South Korea-based Hyundai Heavy Industries is the world’s biggest shipbuilder.

“L&T is keen to undertake construction of complex commercial ships such as LPG and LNG carriers, chemical tankers, etc. in the shipyard at Kattupalli. We have been interacting with concerned companies and customers," a spokesman for L&T said in response to an email seeking comment on the planned tie-up.

“South Korean yards are at least now willing to talk to us on collaboration," said K. Subramaniam, chairman and managing director of Cochin Shipyard. “This was not the case earlier."

“There is some forward movement now and we will start talks with South Korean yards in the next few days," he said without identifying these yards.

The shipping ministry official mentioned earlier said Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering Co. Ltd have shown willingness to share technology and expertise to build LNG carriers at Cochin Shipyard.

Daewoo Shipbuilding, the world’s second-largest shipbuilder, holds the top slot in constructing LNG ships.

Hyundai and Daewoo could not be reached immediately for comments.

The development is seen as a direct fallout of the visit of India’s foreign minister Sushma Swaraj to South Korea in the last week of December where she met her counterpart to lobby for Indian yards to get technology from private shipbuilders in the world’s biggest shipbuilding nation.

“There are positive leads from the visit of Swaraj which are being followed up," the shipping ministry official said.

To be sure, India’s state-run natural gas firm will not order the nine ships directly from shipyards—overseas or Indian.

It plans to hire the carriers for 20 years starting September 2017 from fleet owners who will have to construct three of the nine ships in India, as per the GAIL tender. The price of the ship is crucial for owners, as it is a big factor in calculating the daily hire rates—one of the criteria for deciding the contract.

Prospective bidders are required to quote for lots of three vessels with a provision that under each lot, one of the vessels shall be built in an Indian yard. Bidders have time till 17 February to submit their technical and commercial bids.

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.

Ship owners winning the contract will have to deliver six ships under the first two lots to GAIL in two batches—four built at overseas yards within a period of eight months between 1 August 2017 and 31 March 2018 and two ships constructed at Indian yards within six years from the award of contract.

The balance three ships have to be delivered to GAIL in two batches—two of them built at overseas yards between 1 February 2018 and 30 September 2018 and one ship from an Indian yard within six years of award of contract.

In effect, overseas yards will have to construct and deliver six LNG carriers for the GAIL contract within 2.5 years, while Indian yards will get six years to build three ships.

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Published: 05 Feb 2015, 12:27 AM IST
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