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Korean shipbuilder Hyundai Heavy Industries is scouting for a new local partner to replace L&T so that it can bid for building liquefied natural gas ships for domestic GAIL India, a key Make-in-India push in the oil sector.
Hyundai has reached out to both private and state-run shipyards, people familiar with the matter said, without confirming whether any tie-up has been firmed up.
If Hyundai is unable to form a consortium with a local shipyard soon, the orders for all nine or more ships might be just split between the two likely contenders, Samsung and Daewoo. This can potentially raise the delivery risk for GAIL, which is already running late in acquiring ships.
Hyundai couldn't be immediately reached for comment. L&T's shipbuilding arm has broken ties with Hyundai for building LNG ships primarily due to a strategic shift towards the defence sector where prospects have brightened with the government's increased resolve to raise local production, said an executive, who did not wish to be identified.
About six months ago, L&T, which operates two shipyards at Kattupalli in Tamil Nadu and Hazira in Gujarat, had signed an initial agreement with Hyundai for technology transfer and joint building of LNG carriers in India. This was a result of the diplomatic push by India, which convinced the Korean government and the companies to agree to transfer complex technology for building LNG ships in India, advancing Prime Minister Narendra Modi's Make-in-India initiative for increased manufacturing in the local economy.
Kochi Shipyard also tied up with Samsung Shipyard and Reliance's Pipavav Shipyard with Daewoo Shipbuilding hoping to bid for GAIL's LNG ships.
GAIL needs to charter at least nine LNG vessels, of which at least a third need to be built in India, to carry home up to 5.8 million tonne annually from the US from December 2017. The ship liners have to bid for GAIL's order and also simultaneously tie-up with shipbuilders such as Hyundai or Samsung that will build at least a third of the vessels in India in partnership with local yards such as Kochi or Pipavav.
GAIL's previous bid to charter LNG ships earlier this year failed to attract foreign bidders reluctant to transfer technology and build ships in India, triggering Indian diplomatic efforts.
Another assurance GAIL has recently given to possible bidders is not to impose penalty on ships for delays in loading and unloading due to congestions at the US or Indian terminals, sources familiar with the matter said.
L&T has decided to shut its commercial shipbuilding activities and not take fresh orders, the executive cited earlier said. The company wants to focus on naval orders as it has the competence and experience in executing those, instead of a LNG carrier where it's a novice, he said.
L&T declined to comment.
L&T's exit means Hyundai must tie up with a local shipyard, without which it can't hope to win a share in the GAIL's LNG vessels order, bids for which are to be submitted by the middle of next month.
According to the GAIL tender document, the vessels from foreign shipyards have to be delivered between January-May 2019 and from Indian shipyards between July 2022 and June 2023. An LNG vessel costs about $200 million on average.
The LNG ships proposed to be built at home will have up to 49 per cent Indian shareholding and a longer construction time compared to overseas carriers, aimed at boosting the confidence of foreign shipyards hoping to manufacture in India.
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