Gail India may get Presidential Directive on LNG shipping

Gail India, the only company to be issued a Presidential Directive to cancel a project tender and re-issue it with changed terms, could get a second one to amend a Rs 42,370 crore LNG transport tender to promote domestic shipbuilding instead of handing it out totally to foreign companies.

Petroleum secretary Saurabh Chandra, who considers Gail’s chunky contract to be the perfect opportunity for India to exercise buyer’s clout, wants a part of the contract set aside for Indian shippers to kickstart domestic manufacturing by compelling global majors to transfer LNG shipbuilding technology to India.

Gail, which is hell-bent on hiring only foreign tankers, has been resisting since the last six months the induction of Indian shipmakers on grounds that Indian shipyards would need at least six years and huge finances to develop such capability.

And on April 4, its Board approved hiring of up to 11 new build LNG ships leaving the induction of Indian shipbuilders open.

The resolution adopted said the board would “deliberate on the issue of mandatory involvement of Indian shipyards for building one-third of LNG ships in the Indian shipyards, keeping in view the issues and concerns raised and pass suitable directions”.

Enraged by Gail’s decision, Chandra on May 29 decided to invoke a Presidential Directive to end the long-standing feud between Gail and the government over deploying foreign LNG carriers to ship natural gas from the US.

“Please study the National Manufacturing Policy, along with measures approved for improving domestic manufacturing and applicability to this case. The procedure for issuing a Presidential Directive may also be brought out,” Chandra instructed ministry officials.

This would be the fourth Presidential Directive in India’s corporate history with two issued to Coal India Ltd last year to sign fuel supply agreements (FSA) with its power sector buyers to provide at least 80 per cent of the committed coal delivery followed by another to amend the FSA and also import coal to bridge the deficit.

The proposed Presidential Directive could ask Gail to float a tender for nine tankers in three lots of three vessels where one ship in each lot would be built on Indian soil through technology transfer.

Its execution is mandatory except when the board decides not to adopt it for reasons recorded in writing. Its defiance allows the government to dissolve the board of directors of the company.

Unless Gail mends its proposal to include Indian companies, the Presidential Directive would come almost a decade after it was issued orders to cancel a tender for the Dahej-Uran Pipeline Project following controversy over technology specifications for pipelines.

In October 2004, Gail was told to cancel its Rs 1,400-crore tender for supply of line pipes and issue a fresh one incorporating new terms as the previous tender favoured only manufacturers of the Longitudinally Submerged Arc Welded (SAW) technology, to the exclusion of rivals who used competing Helically SAW technique to make pipes.

Gail was further directed to come out with a fresh tender in which both types of manufacturers could put forward their bids. Gail India’s technical specifications for hiring LNG ships were such that only one Japanese and five South Korean shipyards would have qualified for the contract to transport 5.8 million tonnes per annum of LNG imports from the US for 20 years starting 2017.

This prompted the petroleum ministry to instruct Gail on January 21, to provide options for involvement of Indian shipyard in procurement of LNG carriers. Two options were provided by Gail but its Board of Directors on February 6 advised that a team be sent out to Indian shipyards to assess their preparedness in foraying into this sector.

A report prepared by Lloyd’s Register showed that both L&T and Pipavav shipyards “would require minimum five years to deliver the first LNG ship”, a time-frame “which does not meet Gail’s delivery schedule”.

However, the ministry reiterated on February 25 that Gail issues a single tender for nine vessels in three lots with a stipulation to build one ship in each lot in Indian shipyards.

Gail sounded out the ministry’s domestic preference to the prospective bidders, all foreign companies, and met them mid-March. Based on their response, along with Lloyd’s and Gail’s consultant reports, the state-run firm was of the view that “currently Indian shipyards are not capable of building LNG ships and would need time and commitment of large resources before they develop such capability”.

“Therefore, in order to safeguard Gail’s interest and to avoid any commercial implications, it was considered that delivery schedule of the ships to be delivered from Indian shipyards should be segregated from other ships to be built in qualified foreign shipyards,” Gail board was informed on March 20.

The specialised carriers are built mostly in South Korea and Japan and it takes 30 months to deliver an LNG ship. Recently, China has also started making such ships but its did not fit Gail’s needs.

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