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LNG vessel: Samsung Heavy Ind frustrated with India’s policy drift

Thursday, 12 October 2017 | 16:00

South Korea’s Samsung Heavy Industries Co Ltd, one of the world’s top three shipbuilders, is keen to help India build liquefied natural gas (LNG) carriers, but is put off by the Central government’s slackness on firming up a plan.

Deal with Cochin Shipyard
Time is also running out for the Shipping Ministry and State-owned Cochin Shipyard Ltd, in particular, as the hard-won technology collaboration pact signed between Samsung and Cochin Shipyard ends in December.

The pact was signed in 2015. In fact, Cochin Shipyard went public in August this year by raising funds to part-fund a new dry dock to build specialised and technologically advanced bigger ships such as LNG carriers.

“Building sophisticated and high-priced LNG ships could be a success story for the ‘Make in India’ plank,” said an industry source.

“But the government is frittering away a golden opportunity for India to enter the LNG shipbuilding space though sheer lack of decision-making. This is particularly galling when a world-class shipbuilder is willing to share technology,” he said.

Many workers from Cochin Shipyard have been trained in LNG ship construction at Samsung after the technology pact was signed, indicating the South Korean chaebol’s seriousness and intent to build LNG ships in Cochin Shipyard.

“If there is no significant progress on the plan by December, the technology pact will lapse,” an executive at Samsung Heavy Industries said. A final decision from the government would also help GAIL (India) Ltd move forward on issuing a tender on hiring ships on long-term basis for hauling 5.8 mmtpa of gas from the US from January next year.

The State-run natural gas firm had purchased gas from US suppliers on a so-called free-on-board (fob) basis, wherein the responsibility for shipping the cargo rests with the Indian buyer.

Make in India initiative
Leveraging this opportunity, the government flagged off a move in 2014 to get some of these tankers built in India as part of the ‘Make in India’ initiative of Prime Minister Narendra Modi.

To implement the plan, the government directed a “reluctant” GAIL to incorporate a clause in the tender conditions. Accordingly, global fleet owners winning the charter deal – estimated worth more than $7 billion to ship gas to India – were mandated to build three of the nine new tankers locally.

The move was also intended to crack open a market now dominated by Japan, South Korea and, of late, China. Cost and high risks, though, scuppered the plans. GAIL had to scrap two tenders to hire ships on long-term and comply with the government directive.

GAIL has now hired an LNG ship for three years (with an option to extend the term by a year) to start lifting the gas, which is on a ‘take or pay’ basis. It is also looking to hire one more carrier for a similar tenure till the government takes a final call on the issue so that it can proceed with the long-term ship hiring tender.

The number of ships required by GAIL on a long-term basis will also become clear once it completes the swap deals of US gas with some other sources, wherein the transportation part could be with the gas supplier.

“China weighed upon BP to build their ships in China as a precondition to import their gas. Now China, too, has the technology to build LNG ships, but the credit goes to their government. Why the Indian government and companies such as GAIL cannot think long-term instead of just one project beats me,” said a person who was involved in China’s first and subsequent LNG ship-building projects.

“Do you also count how many jobs will be created? How much economic activity it will generate to export these tankers? We will see the benefit in monetary terms if these things are also factored in,” said another shipbuilding industry executive.
Source: The Hindu Business Line

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