Bengaluru: South Korea’s financially troubled shipbuilder STX Offshore & Shipbuilding Co. Ltd has agreed to lend technology to three Indian shipyards to build liquefied natural gas (LNG) carriers locally, ending India’s search for an experienced global partner to get started in this business.
The first objective is to win a tender issued by GAIL (India) Ltd for hiring nine LNG ships; the second is to promote Prime Minister Narendra Modi’s ‘Make in India’ mission.
GAIL, India’s state-run natural gas firm, will not order the nine ships directly at shipyards. 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 a 1 August tender.
The price of the ship is crucial for ship owners, a big factor in calculating the daily hire rates, which is one of the criteria for deciding the contract.
Prospective bidders are required to quote for lots of three vessels with a provision that in each lot, one of the vessels shall be built in an Indian yard.
The tender condition, designed to help Indian yards enter the LNG shipbuilding business, was written in the wake of a directive issued by the oil ministry that controls GAIL.
None of the top yards in South Korea and Japan that qualify for the GAIL tender showed interest to share technology with local yards such as Cochin Shipyard Ltd, L&T Shipbuilding Ltd and Pipavav Defence & Offshore Engineering Co Ltd before the original deadline ended on 30 October.
GAIL has now extended the deadline for submission of the techno-commercial bids to 4 December to help Indian yards find a technology partner.
STX’s offer, confirmed by at least two people briefed on the plan, is a relief for local shipbuilders who were on the brink of missing the government-backed opportunity due to lack of technology.
STX and the three local yards, though, will have to wait for a few more days before finalizing the technology tie-ups because the Jinhae, South Korea-based yard does not qualify to build the LNG carriers according to the tender conditions stipulated by GAIL, a shipping ministry official, one of the two persons mentioned earlier, said. He did not want to be named because the plan has not been made public yet.
“GAIL will have to relax the financial criteria for yards to allow STX to participate in the tender and build the LNG carriers," said an executive at one of the three local yards and the second person mentioned earlier. He, too, declined to be named because of the sensitive nature of the issue.
This executive said that STX, once South Korea’s fourth largest yard, had built LNG carriers, but its eligibility for the GAIL tender has been hit by its recent financial troubles.
The yard opted for a voluntary normalization programme by creditor banks (equivalent to India’s corporate debt restructuring exercise) in 2013 after being hit by falling ship prices in the wake of the global financial crisis of 2008. South Korean banks have since pumped $7 billion into the yard to help normalize operations.
Korea Development Bank, which now owns 97% of the yard and is its main creditor bank, has submitted a comfort letter to the shipping ministry stating that it would support the yard in building the LNG carriers for the GAIL project, the ministry official said.
STX has said that many fleet owners were willing to build six of the nine LNG carriers required by GAIL at its facility and if the tender conditions are relaxed by GAIL to allow the yard to compete, it would share technology with Indian yards to construct the remaining three LNG carriers locally as stipulated by GAIL, the official mentioned earlier said.
An LNG carrier costs more than $200 million to build from scratch in today’s market. STX, which is undergoing restructuring including selling overseas units and lay-offs, is eying the GAIL project as it seeks to put the yard back on track.
“STX has experience in constructing LNG ships," said a Mumbai-based consultant tracking the LNG shipbuilding sector. “It makes sense for GAIL to relax the criteria. That’s exactly the sort of solution required for Indian yards to enter the niche business."
STX could not be reached immediately for comment.