The Hindu Business Line : LNG shipping deal: Petronet extends RFQ deadline by 15 days

PETRONET LNG Ltd (PLL) has granted a 15-day extension to prospective bidders to submit their request for qualification (RFQ) for the liquefied natural gas (LNG) shipping contract as well as the turnkey engineering, procurement and construction contract for the expansion of the Dahej LNG receiving terminal and a new gas receiving terminal in Kochi.

"We have given the prospective bidders a 15-day extension and have granted them time up to January 17 to submit their RFQs," Mr P. Dasgupta, Director (Finance), PLL told Business Line. As per the global notification issued by PLL on November 7, interested parties were required to submit proposals for pre-qualification by Friday (December 31).

Mr Dasgupta said that PLL was beseeched with requests from foreign bidders for extension of the deadline, since it clashed with the Christmas and New Year holidays. "Many prospective foreign bidders had told us that they were finding it difficult to meet the deadline in view of the holidays," he added.

The extension would give Indian shipping companies a little more time to "decide and declare" their foreign partner to become eligible for the LNG shipping deal.

As per the pre-qualification criteria set by PLL, prospective bidders should have owned and operated for the last three years LNG ships of 1,38,000 to 1,65,000 cubic metre capacity, along with a full experience in the technical management and crewing of LNG tankers.

With none of the domestic shipping companies with adequate gas carrier, crude or product tanker ownership and the experience in meeting this basic criteria stipulated by PLL, they have to necessarily tie up with an experienced foreign LNG tanker operator to pass the pre-qualification test.

On the other hand, foreign LNG ship operators will not be able to bid on their own and will have to take on an Indian shipping entity in view of the guidelines issued by the Director General of Shipping on the grant of permission for chartering LNG vessels into the country.

As per the guidelines, the licence for chartering LNG vessels will be contingent upon the tankers flying the Indian flag with an Indian entity owning the ship either wholly or an Indian partner owning not less than 26 per cent of the company, which owns the LNG carrier.

Though registering LNG tankers under the Indian flag has definitely become attractive with the recent introduction of the tonnage tax, foreign LNG operators have "objected" to the clause that requires tonnage tax companies to set aside 20 per cent of their annual book profits into a separate reserve account for the exclusive use of acquiring ships, both new or second-hand ones.

They feel that this clause is not workable in the case of LNG shipping deals, where the tankers are built for specific projects and executed through a special purpose vehicle (SPV), which would have no interest in buying more LNG carriers or any other ships with the help of reserves built up in this manner.

"If this clause were to be implemented, the SPVs would have to keep adding ships every eight years, even when there is no need or demand for such a requirement," a prominent foreign LNG tanker operator said. Besides, since the profits will be apportioned in the ratio of 74: 26 per cent in line with the share-holding pattern, foreign operators say that the provision to set aside 20 per cent of the book profits of the SPV would mean further "appropriation of profits" from their share, eventually benefiting the Indian partners to acquire more ships.

"The Government cannot dictate our business plans", the foreign operator said, adding that SPVs should be excluded from the clause on transferring 20 per cent of the book profits into a separate reserve account. PLL agrees with the view expressed by the foreign bidders. "This will affect our ability to get the best charter hire rates for the LNG shipping deal," a PLL official said.