Government's stance prevails; GAIL to hire India-made LNG ships too

NEW DELHI: The government has prevailed upon GAIL India to involve Indian companies in its $7.5-billion 20-year LNG importing plan although the state-run firm had initially resisted the move saying it wanted to charter only foreign vessels, as India has no experience in building the highly specialised vessels required.

“The company on Friday agreed to issue a tender for charter hiring of nine newly build LNG ships in three lots of three ships each. In each lot, one ship will be built in Indian shipyard. While foreign companies will have to deliver ships in three years, domestic shipbuilder will get an extended time of up to six years,” a source with direct knowledge of the matter said.

The decision, which can significantly boost Indian shipping industry, was taken only after the government took a stern stance in the matter, official sources said. GAIL had doubts about domestic shipyards’ technical competence and ability to deliver on time. Any delay in delivery of ships will force the company to pay billions of dollar liabilities to the seller in the US as well as gas buyers back home, company sources said.

Besides the nine new ships, the company has an option to hire two additional ships for importing about 5.8 million tonnes of LNG every year from the US for 20 years, starting September 2017, sources said. In December 2011, GAIL had signed an agreement with Cheniere Energy Partners LP to procure 3.5 million tonnes per annum of LNG for 20 years. Subsequently in April 2013, its US subsidiary booked 2.3 million tonnes per annum liquefaction capacity of Dominion Cove Point LNG, LP at Lusby for 20 years.

“Risks associated with Indianbuilt ships such as delay in delivery, quality, performance and financing risks remain the areas of concern,” a GAIL executive said requesting anonymity. The company fears that building such LNG ship first time in India could escalate the cost of the vessel initially, estimated at $200 million each. One ship has the capacity to 0.5 MT LNG per year.


Oil ministry officials have a different view. “This is the opportunity for our domestic industry to have capability. China has already adopted this model,” one official said. Initially, the oil ministry wanted GAIL to offer contracts of four ships to domestic shipyards, but later it agreed for three ships. L&T and Pipavav are keen to build LNG ships, officials said.