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Mozambique fails to ratify special regime for gas discoveries-I: Huge setback for India

August 20:  In a huge setback for India, the Mozambique government has failed to ratify a special regime for the gas discoveries made in its offshore Area-1, thereby putting a question mark on the investments made by the Indian companies in the block.
8Without the passing of the special regime in the Mozambique parliament, the Indian consortium -- OVL, OIL and BPRL have 16%, 4% and 10% stake respectively in the offshore block -- will not be able to carry on with the development of the block. Anadarko, having a 26.5% participating interest, is the operator of the block. The other partners are: Mitsui of Japan (20%), PTTEP of Thailand (8.5%) and ENH, the national oil company (NOC) of Mozambique, with 15% share.
 8The Exploration and Production Concession Contract (EPCC or PSC) of Mozambique were designed at a time when huge discoveries were not envisaged in the block which would require monetization through construction of LNG trains and export of LNG.
 8As the projected investment in an LNG terminal runs into billions of dollars, the development of the gas field would require large debt financing, besides long-term LNG offtake arrangements and shipping charter contracts, which would not be possible without the backing of a suitable contractual, legal and fiscal regime.
 8Heads of agreement already entered into with for 6 MMTPA of LNG with prospective buyers will not fall through and getting these buyers back will be difficult as Mozambique will lose credibility in the international market for the volte face on the policy front.
 8Discussions were on going with the Government of Mozambique (GOM) for the last two years to get the Parliament to pass a suitable law, with special regimes, relating to foreign exchange regulation, fiscal, labour, procurement, insurance, ports and financing so that a sufficient leeway could be provided to the stakeholders to make the development of the gas field viable through construction of LNG trains.
 8The Mozambique's upstream regulator, INP, played a spoilsport. The regulator which was initially in the forefront of the negotiations on special regimes, stalled the process and is now showing reluctance to move ahead.
 8Unless a special regime is put in place, all the painstaking efforts made by the Indian companies in Area-1 will come to a naught.

Mozambique fails to ratify special regime for gas discoveries-II: Two fiscal structures were mooted for development of discoveries

August 20: The Government of Mozambique (GOM) had mooted two structures for approving the development of the discovered gas in Area-1:
Net-Back Tolling Structure
 --Under this mechanism, the cost of LNG trains is to be separated from the upstream cost and kept out of the purview of the EPCC.
 --The cost of LNG trains under this structure will be recovered through a tolling charge (determined like a service, by pre-deciding the return on investment) throughout the project life.
Integrated Structure
 --Under this structure, the cost of the LNG trains is to be integrated with the upstream cost and the whole cost will be made recoverable under the EPCC from the revenue streams.
 --The valuation of the Integrated Structure of development of gas would be slightly better than the net-back tolling structure as the cost recovery on LNG trains would be faster in this case, even though the profit share to the government goes upto 70%.
Under both the modes, two LNG trains of 5 MMTPA each have been proposed in the Area-1 for initial development of the discovered gas. In other words, Area-1 would produce 10 MMTPA of LNG initially.
But with the Mozambique parliament stalling approval of an enabling regime, monetization of the offshore area will become that much more difficult.
8Project officials have been trying to meet up with the Mozambique petroleum minister but so far she is avoiding giving an audience.

Underground gas storage-I: Has the time come for it?

August 20: Storage of gas is an entirely new concept in India but the government is looking at it now.
8The demand of natural gas in India does not show seasonal variations. Currently the domestic gas prices are mostly controlled by government and are stable similarly the majority of LNG is imported through long term contract where price and quantities are more or less stable. In India GAIL market around 65% of gas supplied in the country through bundled contracts in which the imbalances charges are taken care by GAIL and the customer doesn't have to pay any imbalances charges. Similarly the seller's obligation of supply is linked with availability of gas. So under such circumstances the chances of development of commercial underground storage of gas has been very bleak in India.
But the situation could be changing. The total requirement of natural gas in the country will be around 606 MMSCMD by 2021-22 which will be met through domestic gas supply of 243 MMSCMD and imports of 288 MMSCMD, so imported natural gas will constitute about 54% of total gas consumption in the country by then.
8It is now argued that with such huge volumes of gas consumption it may be prudent to have strategic gas storage facilities to mitigate interruption in gas supply due to natural calamities, geo-political conflicts, unforeseen delays in LNG supplies due to port logistics and sudden interruptions in domestic gas availability.

Underground gas storage-II: More information

August 20: GAIL and ONGC has been doing some background work on underground storage.
Three types of caverns were investigated and identified for storage of gas across the country. They were:
 --Depleted oil reservoirs
 --Salt caverns
A pre-feasibility study was also conducted by EIL
The best option was found to be a depleted oil and gas reservoir in North Gujarat
Details of the study along with the ranking of various storage options in terms of different parameters is included here.
ONGC and EIL are now in dialogue to take the work ahead
8Details are also given here on current regulations governing underground storage in India
 Click on Details for more

Excise hurdles in Ethanol blending-I: New UP rules hold up blending elsewhere

August 20: Blending of ethanol with petrol is not an easy job for Oil Marketing Companies (OMCs). Not only is there a shortage of ethanol but even for ethanol that is contracted, tedious state excise duty laws stand in the way of free movement of the product to depots operated by the OMCs.
Details of excise problems faced by OMCs in different states:
Ethanol blending in states receiving ethanol from UP come to a standstill for a month every quarter, due to delays in receiving quarterly excise permission
8UP state excise authorities have moved from granting annual to quarterly ethanol permissions to suppliers for interstate ethanol supplies.
8Delays in receiving the permissions at the beginning of every quarter has lead to halt in the supply to OMC locations in Delhi, Haryana, Rajasthan and Punjab for many days at the beginning of every quarter.
8This leads to ethanol blending becoming negligible for almost a month every quarter in these states.
Delay in renewal of annual excise storage license by Punjab and Tamil Nadu leads to no ethanol imports in April and May:
8The two states have taken upto two months to provide yearly renewal of licenses for OMC storage points for ethanol.
8Notably, since application for ethanol imports or receipts can be made only after receiving this license, no receipts have taken place during April and May.

Excise hurdles in Ethanol blending-II: Snafus in Karnataka and West Bengal too

August 20: There were problems in other states too.
Karnataka sees reduced blending due to delay in receipt of enhanced ethanol annual quota
8Delay in receipt of enhanced ethanol annual quota in Karnataka has lead to reduced blending in the state.
8Notably, although the Karnataka government has permitted 10% ethanol blending in MS, the annual ethanol quota for OMC locations, which was earlier fixed considering 5% blending, has not been revised for many locations.
8However, when these OMC locations have started undertaking 10% blends, in anticipating of the revision, which has not come in, they have exhausted their annual quota early, and consequently, the purpose of 10% blending so as to achieve 5% mandated EBP program has been entirely defeated, leading to reduced blending in the state.
EBP in West Bengal fails to start due to anomaly in import duty supposedly applicable and that reflected on the payment online system
8The ethanol blending program in West Bengal failed to take off due to the confusion caused by an anomaly in the import duty applicable for ethanol. This hampered the processing of online applications. 
Notably, as per the West Bengal gazette, the import duty applicable was Rs.250/kl, however, the online system for import duty payment had a provision for payment of Rs.2,500/KL, which was the applicable rate for industrial alcohol.
EBP in Goa takes a hit due to complications caused by limited validity of import and export NOCs issued by state excise department
8EBP in Goa takes a severe hit due to complications caused due to limited validity of import and export NOCs issued by the Goa state excise department.
8Import NOCs are issued with a 30 day validity, based on which the export NOC is issued, which is in turn is based on truckwise import road permits with a validity of 15 days only.
8Notably, the validity of 30 days import NOCs is very short, and most often, the process is not completed within the validity period, leading to the need for restarting the process to get the NOCs revalidated, or obtaining fresh NOCs with heavy charges.

Acquisition of Haldia Petrochemicals: WBDIC returns earnest money but IOC says it is still interested

August 20: There seems to be whole lot of confusion over the acquisition of the Haldia Petrochemicals Ltd (HPL) by IOC.
8While the West Bengal Industrial Development Corporation (WBIDC) has returned the entire earnest money deposit of Rs 20 crore paid for the bid by IOC, the public sector oil company however has continued to express interest in the project.
 8The WBIDC had returned the entire earnest money deposit of Rs 20 crore in June 2014, presuming that IOC was not willing to go ahead with the bid process for picking up stake in the troubled petrochemicals firm.
 8The misunderstanding could have because IOC fired off a letter to the West Bengal government over lack of communication on the further course of action to be adopted towards the transaction as envisaged under the disinvestment process. Also, IOC had sought certain clarifications on issues relating to the acquisition.
 8To mend fences, IOC has sent a communication to WBIDC stating that letter was only meant to seek clarifications and not in the nature of indicating its intention of not going ahead with the bid.
 8It is pertinent to note that IOC, which already has a 9% stake in HPL, had made a bid for the West Bengal government's stake in the company at a price of Rs 25.10 per share. The share transfer process, however, got stuck following the other promoter, the Chatterjee Group's (TCG) opposition to the sale of a 155 million TCG shares that the Bengal government had clubbed along with its own stake-holding for sale.

KG-D6 production update: Average gas output shows a downward trend for week ending July 27, 2014

August 20: Average gas output for the KG-D6 block shows a downward trend for week ending July 27, 2014.
8Figures collated by the DGH for the week ending July 27, 2014 show gas output from the D-6 block at 12.46 MMSCMD, marginally down from 12.4 MMSCMD for the week ending July 20, 2014.
8The production for the week ending July 13, 2014,  July 6, 2014, June 29, 2014 and June 22, 2014 were recorded at 12.53 MMSCMD, 12.65 MMSCMD, 12.74 MMSCMD and 12.84 MMSCMD, respectively. Clearly, the trend is negative.
8Of the total current production of 12.46 MMSCMD, gas production from D1 and D3 fields was about 7.49 MMSCMD, while from the MA field it was about 4.97 MMSCMD.
D1-D3 Field:
8The daily average gas sales from D1-D3 field during the week was about 7.49 MMSCMD down from 7.52 MMSCMD during the previous week.
8Notably, one of the wells A-10, which was work-overed during June 8 to July 3, 2014 is still under observation after the work-over job, and two wells, namely A2a and B4 which were worked over prior to A10 for water-shut off jobs did not meet the desired results. One investigative cum substitute well has now been planned to be drilled to drain the gas from the neighbouring areas of the shut-in well B7. Out of 18 wells, only 8 wells are in production.
D-26 (MA field):
8The daily average gas sales from MA field during the week was about 4.97 MMSCM compared to 4.95 MMSCM during the previous week.
8The daily average oil production from the MA field during the week ending July 27, 2014 was down to about 5,642 barrels per day while condensate production was up to 799 barrels per day as compared to the daily average oil production and daily average condensate production of 5,690 barrels per day and 703 barrels per day, respectively, for the previous week ending July 20, 2014.

Pricing and production of gas in India-I: Q&A

August 20: The website provides here, for reference purposes, a comprehensive document on the pricing and production of gas in India in relation to the world.
Among the questions addressed are:
8What is current availability and consumption of natural gas in the country and source wise details?
8What are the different prices at which gas is sold in the country?
8What are the prices of natural gas in major countries of the world?
8What are the price markers e.g. JKM, Henry Hub, NBP etc. and what is their relevance and prices prevailing as per these markers in these markets in the last 3 years?
8Why Henry hub price is lower than the Asian prices and what would be the landed cost of Henry Hub prices of gas in India?
8What are the contracts entered into by GAIL to procure RLIMG into the country (Sabine Pass, Gorgon, Ras Gas, both quantities and prices)?
8Which are the top 10 consuming countries of RLNG in the world? What is the total gas consumption in world and that of India in comparison to that?
8What is the present status of LNG import terminals/facilities in the country?
8What efforts is GOI undertaking to increase production of natural gas in the Country?
8What is the status of transnational gas pipeline projects?
8What is the projected production of indigenous gas in the coming years?
8What is the projected demand for natural gas in the country in coming years?
8How was the price of KG D6 gas produced under NELP fixed?
8Why has the price of long-term RLNG increased after the Tsunami (role of Japan)?
8What is the spot trade in the world and spot purchases by the developed economies in the last five years (USA, Japan, Europe, Korea etc.)?
8What is the quantity of domestic and imported gas consumed in the country in the last three years?

Pricing and production of gas in India-II: Q&A

August 20: More questions addressed on the pricing and production of gas incliude:
8What is the urgency to revise natural gas prices in the country?
8What is the current formula / basis for pricing of natural gas in the country?
8Is all the natural gas available in the country priced similarly, according to the above formula?
8What is the role of Rangarajan Committee in the gas pricing?
8What are the gas pricing recommendations made by Rangarajan Committee in its report?
8What action was done on the Rangarajan Committee Report submitted in December, 2012?
8How does the Domestic Natural Gas Pricing Guidelines, 2014 notified by the outgoing government affect the natural gas prices?
8Why the Domestic Natural Gas Pricing Guidelines, 2014 were not implemented with effect from 1st April, 2014?
8What action present government has taken on gas prices?
What are the details of natural gas production by the public and private sector?
8What are the details of natural gas production state-wise and company-wise in 2013-14?
8What are the gas prices applicable to national oil companies?
8What is the gas pricing provision under pre-NELP PSCs?
8What are the gas pricing provisions under NELP?
8What are the details of natural gas production in 11th and 12th five year plan?
8What are the steps taken to enhance crude oil and natural gas production?
8What are the reasons for declining gas production from RIL`s KG-D6 block? What action has been taken to enhance production?
8What is the status of shale gas in the country?
8What are the bullet points of study conducted by IHS CERA?

Hedging: IOC makes a gain of Rs 2020 crore

August 20: In the wake of the rupee depreciating steeply against the dollar during 2013-14 and in the first quarter of 2014-15, IOC had been actively resorting to hedging to insulate it from losses arising out of currency volatility.
The company had made a gain of Rs 1,274.90 crore in 2013-14 on account of hedging. This year too, upto June 2014, the company has gained another Rs 745.4 crore, resulting in a total gain of a whopping Rs 2,020.30 crore.
In order to check the rupee-dollar volatility, RBI through a swap window, supplied $8,022 million to IOC during 2013-14.
The entire exposure of $8,022 million was hedged by the company, resulting in a total gain of Rs 2,020.30 crore.
8While the rupee appreciated by about 3.06% during the January-March, 2014 quarter,
it had overall depreciated by 10.37% during the year (2013-14).
 8The total borrowings of the company increased from Rs 80,894 crore as on March 31, 2013, to Rs 83,214 crore as on March 31, 2014.

Investor Conference on Enterprise Exchange Traded Fund: Cash flows and under recovery of oil companies are major concerns

August 20: Goldman Sachs Asset Management (India) Pvt Ltd, which has been appointed by the government to manage Central Public Sector Enterprise Exchange Traded Fund (CPSE ETF) for the purpose of divestment in select PSUs, organized two investor conferences at Singapore and Hong Kong in June 2014. During the conferences, it was observed that while investors' sentiments on India was upbeat following the formation of the Modi government and consequent expectation of reforms taking place at a faster pace, they were also apprehensive that oil sector would continue to be hamstrung by policy uncertainties.
 A range of concerns were expressed when the discussion came around to disinvestment in oil sector enterprises:
Whether a sincere attempt will be made to eliminate subsidy in case of kerosene and LPG through price hikes and de-regulation of diesel
Probability of Oil Marketing Companies (OMCs) bearing the entire burden of subsidy in a scenario of reduced under-recoveries following price hikes of kerosene and LPG
Possibility of rollback of reforms already implemented such as monthly price hikes in diesel and deregulation of petrol.
Preparedness of Indian public sector oil companies in facing marketing competition from the private sector in view of likely deregulation of diesel prices.
8Changes in cash flows and profitability after complete deregulation

Dry dock survey jobs for Sagar Bhushan: Additional surveys take the bill up to Rs 45 crore from Rs 24 crore

August 20: The bill of ONGC's contract for dry docking and tail shaft survey jobs for its rig Sagar Bhushan has shot up to Rs 45.52 crore from the originally approved Rs 23.89 crore, after some additional mandatory survey jobs were carried out for the rig.
 8The contract was awarded to Hindustan Shipyard Limited (HSL) at a total contract value of Rs 23.89 crore on a nomination basis. The scope of work included carrying out the dry dock and tail shaft survey jobs.

8The completion date of the contract was July 14, 2012.
 8However, before the contract was completed, the dry dock cell, in June 2012, made a request for carrying out of some additional mandatory survey jobs over and above the already finalized scope of work.
 8As per the requirement, a total of 12 surveys were carried out along with Condition of Class (COC). Of the 12 surveys, 10 were special periodical surveys of the hull and the machinery, while two were re-testing surveys of the deck cranes.
 8These mandatory surveys were awarded to HSL at a cost of Rs 17.35 crore on a nomination basis. The total cost of the contract thus went up to Rs 41.24 crore.
 8The completion date also had to be extended accordingly, during which some change orders were issued, resulting in the total contract value going up to Rs 45.52 crore.

Stranded gas-based power plants: 14 states seek 73 MMSCMD of gas

August 20: A total of 14 states have requested the petroleum ministry for allocation of 72.82 MMSCMD of gas to bail out their stranded gas-based power plants. The details are:
Haryana: 7.5 MMSCMD for 1500 MW plant at Faridabad
Maharashtra: 6 MMSCMD for BHEL-Mahagenco JV's 1500 MW plant at Latur
Puducherry: 2 MMSCMD for 350 MW plant at Yanam
Uttarakhand: 6 MMSCMD for various power projects in the state
Punjab: 4.5 MMSCMD for 1000 MW plant at Ropar
Andhra Pradesh: 2.8 MMSCMD (at 75% PLF) for 2100 MW plant at Karimnagar
Uttar Pradesh: 5 MMSCMD for SAIL's 1050 MW plant at Jagdishpur
Gujarat: 4.2 MMSCMD (at 70% PLF) for 702 MW and 351 MW plants at Pipavav and Hazira respectively
Kerala: 5.4 MMSCMD for 1200 MW plant at Cheemeni, Kasaragod
Uttar Pradesh, Haryana, Rajasthan, Madhya Pradesh and Gujarat: 24 MMSCMD for six 1000 MW plants falling under the Delhi-Mumbai Industrial Corridor (DMIC)
8Maharashtra: 5.4 MMSCMD for 1220 MW plant at Uran

HPCL's gift acceptance norms for employees: Reporting thresholds raised

August 20: Inflation has had an impact on the the reporting threshold for gifts taken by HPCL employees.
The company has now raised these limits.
8Threshold raised from Rs.1,000 to Rs.25,000: If the value of gifts accepted by employees from near relatives for social occasions such as wedding, anniversaries, funerals or religious functions exceed Rs.25,000 the employees are expected to report the same to the competent authorities
8Threshold raised from Rs.500 to Rs.5,000: Employees accepting gifts from personal friends of value greater than Rs.5,000 for similar occasions are expected to report it to the CMD of the company. The earlier threshold was only Rs.500.
8Threshold raised from Rs.500 to Rs.1,500: For any other case, where employees or members of their family accept any gift above Rs.1,500, they are expected to take company sanction prior to doing so. This is also applicable for accepting gift within a twelve month period from the same person / firm, where, if the aggregate value of the gift exceeds Rs.1,500, the employee needs to take relevant permission.
8The limits have similarly been raised for property transactions and jewellery purchases,
The website carries here, for reference purposes, details of amendments in the conduct, discipline and appeal rules applicable to management employees of HPCL, including property holding and gift acceptance norms for employees under the following heads:
8Rule number
8Details of existing provision
8Approved amendments or addition

ONGC's contracts given on nomination basis: Briefs

August 20: 8ONGC awards Rs.21.8 crore contract to Shiv Ganga Drillers for completion of well: ONGC has awarded a contract of Rs.21.8 crore to Shiv Ganga Drillers Pvt., Indore for completion of one well (air hammer drilling) in the Frontier basin, Dehradun.
The contract has been awarded on a nomination basis due to what is being termed as "technology suitability in view of geological conditions and relative cost savings over actual average drilling cost in adjacent wells". No additional details on the contract was given.
8Aker Engineering, Norway awarded a Rs.12.45 crore contract by ONGC for consultancy services: Aker Engineering and Technology, Norway has been awarded a Rs.12.45 crore contract by ONGC for consultancy services for conceptual and feasibility study for development of G4, KG-DWN-D and KG-DWN-E fields in the east coast of India.
 --Aker has been awarded the contract on a nomination basis, since competitive bidding was not feasible in this case.
 --Aker did the FEED/FDP for Phase-I of RIL KG-D6 field, is one of the leading suppliers of SPS and the OEM for the existing control systems and subsea hardware of the RIL field.
 --Since ONGC proposed to use control infrastructure of RIL, ONGC had to also, necessarily use Aker compatible systems for management and control of subsea infrastructure.
8ONGC awards Rs.3.37 crore contract to DeGolyer and MacNaughton, Dallas: ONGC has awarded a Rs.3.37 crore contract to DeGolyer and MacNaughton (D&M) Dallas, Texas, USA for third party certification of ultimate reserves of 68 ONGC fields.
 --Since ONGC wanted only agencies with prior work association with the company to be considered, and D&M has carried out third party audit of ONGC reserves earlier as well, and also considering the tight time schedule within which the company required results, the contract was awarded on a nomination basis to D&M.
 --The value of contract was $562,500, equal to Rs.3.37 crore by assuming an exchange rate of Rs.60/$.

HPCL Briefs

August 20: 8Reduction in the GRM at HPCL's Vizag refinery causes concern at board level: The HPCL management has raised concern over the reduction in the GRM at the company's Vizag refinery, which has been affected primarily on account of planned shutdown but was accentuated by the collapse of a cooling tower later in the year (2013-14).
 --Notably, this had impacted the crude throughput, and also the pricing cycle was missed.
8HPCL explores opportunities to reduce inventory losses: The HPCL board has raised concerns over the supposedly high levels of inventories carried by the company and discussed ways and means of reducing inventory losses.
 --The option to reduce the inventory cycle was discussed, wherein the internal team submitted that only minimum inventory is kept, and further reduction is not possible.
 --However, the management has now suggested comparison with the inventory cycles of IOC and BPCL to identify whether any further reduction is possible.

Tender Briefs

August 20:  8GAIL floats tender for supply and commissioning of RTUs in KG Basin: GAIL has floated a tender for supply and commissioning of Remote Terminal Units (RTUs) in its Krishna-Godavari basin.
 --A pre-bid conference will be held on August 28, 2014 (at 10:30 hrs).
 --Tender documents can be procured before September 12, 2014 (upto 14:00 hrs).
 --The bid submission date is September 12, 2014 (upto 14:00 hrs).
 --Click here for more information
More tenders: Some more tenders floated by oil and gas companies are:
 --Procurement of portable multi-function pressure calibrators, Vadodara [GAIL] Details
 --Procurement of coke drum structure lift, Barauni refinery [EIL]  Details
 --Gas sale from North Penugoda fields, Rajamundry [ONGC] Details
Supply of butadiene chilling system, Panipat [IOC] Details

News Briefs

August 20:  8Filling up the post of GAIL's Security Adviser: The petroleum ministry has requested the home ministry to send a list of suitable IPS officers who are willing to take up the post of Adviser (Security), GAIL.
 --The petroleum ministry wants candidates whose names have been cleared by the vigilance department.
 --The home ministry has been asked to send the updated Annual Confidential Reports (ACRs) or the Annual Performance Appraisal Reports (APARs), of the willing candidates for the last five years.
 --The appointment will be made on a deputation basis.
8DGH sits with OIL and ONGC on secretary's instruction to discuss ways to increase oil output: The Director General of the DGH, BN Talukdar, got into a huddle with ONGC and OIL experts looking for ways and means to
increase oil and gas production in the country. The following actions points have been identified in this regard:
 --Development of marginal fields of National Oil Companies (NoCs)
 --Implementation of increased and enhanced oil recovery (IOR/EOR) schemes in mature fields
 --Monetization of untapped gas reservoirs in oil fields
 --Revival of old and sick wells
 --Reduction in gas flaring and optimization of internal use of gas.

GAIL forced to order LNG ships from India-I: Cynics say Indian shipyards may not deliver

August 19: GAIL has been forced by the government, particularly by the minister of state Dharmendra Pradhan, under pressure from the powerful shipping lobby, to include a mandatory requirement that three out of a tender for nine LNG vessels be manufactured in Indian shipyards. Of the nine vessels, the requirement is for the India-made vessels to be delivered last, but within six years of the award of contract
Will Indian shipyards be able to develop the capacity to build these hi-tech ships?
The point to note is that GAIL is willing to give a six year slot for Indian shipyards to deliver the vessels whereas the delivery time limit given to foreign shipyards is much narrower.
8Even then, industry watchers are cynical of the capability of Indian shipyards to deliver on time.
Cynics have put forward the following reasons why Indian shipyards may not be able to deliver:
Foreign ship builders who inspected the Indian shipyards were not confident of the quality of the ships to be manufactured in India and were therefore not ready to guarantee the performance of the ships for a 20 years contract period.
Since manufacturing an LNG ship is a capital intensive project and more than 80% of ship cost is financed through financiers with stretched repayment periods, the lenders would be averse to take such large exposures in India.
The foreign ship builders were also concerned that shipyards willing to build ships in India were from private sector and would have no direct government control and guarantees. The question that was asked was whether the government would support ship owners in case of cost overrun and delay in delivery of ships built in India.
Plans to develop the Indian LNG shipbuilding industry should have been set in motion at least 5 years back.
The long-term agenda of developing the capabilities of Indian shipyards is sought to be mixed with the short-term agenda of acquisition of ships against GAIL`s tender.
Even if Indian shipyards secure foreign collaborations, there is no clarity with regard to the extent of support they would receive from a qualified foreign shipyard and whether the foreign shipyard would guarantee performance of these ships.
Indian shipyards should invest in acquiring technology and building infrastructure well in advance to demonstrate skill sets backed by technology transfer in totality from reputed overseas shipyards which have the requisite experience in building LNG ships.
The cynicism notwithstanding, the government has been able to extract a timeline of six years from GAIL for Indian shipyards to build the three LNG vessels in India. Clearly the heavy lobbying by Indian stakeholders, including Gautam Adani, seems to have worked. Indian shipyards claim that the lead time is long enough for them to be able to get their act together and deliver on time. Only time will tell whether that turns out to be true or not.




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