`Make in India’ hopes fade for LNG tanker vessels

NITI Aayog, the centre's think-tank, is reported to have advised the government against its 'Make in India' policy for LNG tankers saying the plan is ''not feasible'' in view of the high initial investment and associated risks.

The proposal, which was part of GAIL (India) Ltd tender conditions for hiring about nine new LNG tankers to haul 5.8 mmtpa (million metric tonnes per annum) of gas from the US from January 2018, seems to have finally been scrapped forever.

The NITI Aayog team led by Arvind Pnagariya, which made consultations with stakeholders for nearly 10 months, is reported to have finally recommended scrapping the proposal.

GAIL's tender conditions included that fleet owners winning the charter deal, estimated at over $7 billion (Rs44,558 crore), will have to build three of the nine new tankers locally.

The move intended to foray into a market for these technolocicall-advanced tankers, now dominated by Japan, South Korea and China is as good as scrapped, reports quoting sources said.

GAIL's new tender is likely to exclude the stipulation mandating indigenous construction. The high cost of constructing LNG carriers is cited as the reason.

An attempt was being made to get some of these technologically advanced tankers built locally as part of the 'Make in India' initiative.

In fact, state-owned Cochin Shipyard (CSL) had acquired the necessary technology for building LNG carriers. (See: Cochin Shipyard secures licence to make LNG ships)

CSL had, in December 2015, successfully completed a Mark-III Flex Mock-Up, which has been certified by GTT (Gaztransport et Technigaz), France, thereby completing all requirements to be licensed by GTT to build LNG ships for any client world-wide using their patented membrane containment system known as the Mark-III Technology.

This was part of CSL's expansion plans, which included construction of a new large dry dock of 310 x 75/60 m size within CSL's premises in Kochi, which will provide the yard the capability to build large modern vessels like LNG vessels, large aircraft carriers etc, in addition to undertaking repairs / construction of jack up rigs, semi submersibles etc.

The government has also granted approval for an international ship repair facility. When commissioned, this facility will help the yard substantially increase its ship repair capacities and position Kochi as a major ship repair hub.

For GAIL, however, the part localisation of the LNG fleet involved differential pricing of the tender because of the high cost of construction of these vessels.

Shipping tenders are typically decided on the basis of the lowest charter rate quoted, and shipping companies typically factor in the expenses involved in the building and repair of ships in their quotations.

The initial cost of building an LNG vessel here was estimated at $338 million per carrier, including $100 million in technology cost (but excluding taxes, exemptions and concessions).

Korean shipbuilder Samsung Heavy Industries had agreed to share technology for building the cryogenic tankers with Cochin Shipyard, the only local yard eligible to construct the vessels, for $104 million.

For the second and third carriers, the technology transfer involved amortization of $52 million each, which added $208 million to the cost of building three LNG tankers.

The cost of building the LNG carriers would have dropped to about $220 million after the first two ships were constructed, which is about the cost of such vessels built overseas.