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Two separate tenders floated by state-run Indian Oil Corporation (IOCL) and Bharat Petroleum Corporation (BPCL) to hire an oil super tanker and a Suezmax tanker, respectively, on five-year contracts from local shipowners to provide them a much-awaited long-term cargo support has backfired.
Local fleet owners say that the tender in its present form is “not workable” and “will not achieve the purpose for which the policy was designed after discussions spread over three years”.
BPCL has sought bids to hire a Suezmax tanker and the tender is applicable only to Indian flag ships. While IOCL is looking to hire a very large crude carrier (VLCC) where global shipowners are also allowed to participate with the right of first refusal to match the lowest foreign bid given to Indian flag ships.
Both IOCL and BPCL have set an age limit of 10 years for the tankers to be hired. The contract will have a floating rate – benchmarked every year to the average of the Clarkson rate for the past 12 months on certain specific routes with a floor and ceiling. London-based Clarkson Plc is the world’s biggest ship-broker.
“It will not work out at all. It’s a negative for all the Indian shipowners,” said an official with one of the shipping companies.
Fixed rate contracts
The genesis of the plan was to support local ship-owners, but it works completely to the contrary, he said. The idea behind it was to provide long-term cargo support to Indian owners at fixed rates and that will help them get long-term financing from banks, he noted.
“If you have long-term, fixed-rate contracts, then it’s easier to get financing at better terms. But, IOCL and BPCL have not tendered for fixed rate contracts, they are doing floating rate contracts. Banks will not give funds on floating rate contracts,” said a second shipping industry official.
IOCL’s decision to allow foreign flag ships to participate in the VLCC tender with the right of first refusal to Indian flag ships has also not gone down well.
“If you want to support local owners, then why are you allowing foreign ship owners to bid”, he asked, adding that the outcome of a recent tender finalised by state-run Steel Authority of India Ltd (SAIL) would bear out the consequences of such a decision.
SAIL has sought bids to ship 1.5 million tonnes of coking coal a year for five years, entailing some 20 cargoes a year.
Commodities giant Glencore placed the lowest rate of about $9,000 a day – a big discount to the current market rate- and was awarded the deal after local ship owners, including Shipping Corporation of India and Great Eastern Shipping, declined to match the rate under the policy of right of first refusal.
“In effect, what happened was that none of the Indian ship owners benefitted. Besides, that much cargo has gone out of the system/Indian hands. This cargo which would otherwise have been in the spot or short-term contract market for all of us has gone out for the next five years,” he stated.
Amongst the Indian shipowners, only SCI has VLCCs under 10 years to qualify for bidding. In the case of Suezmax tankers, SCI and Great Eastern has under 10-year-old tankers.
“I cannot bid an 11 or 12 year old vessel to take this cargo which BPCL was happily taking till now. And buying younger, modern ships is more expensive. If I buy a 12-year-old ship today, I can get it at a cheaper rate than what I get a 8-9 year old ship for,” he said.
However, critics say that Indian owners want more than the market rates by demanding a fixed rate at the expense of the PSU charterers.
IOC’s decision to allow foreign flag ships to participate in the VLCC tender with the right of first refusal to Indian flag ships has also not gone down well
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