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Despite scepticism on the terms of the tender, ship owners such as Shipping Corporation of India Ltd, Great Eastern Shipping Co Ltd and Essar Shipping Ltd have applied on separate tenders issued by Indian Oil Corporation Ltd (IOC) and Bharat Petroleum Corporation Ltd (BPCL) to hire an oil super tanker and a Suezmax tanker, respectively, for five years each.
The tenders for the first long-term cargo support contracts to be tried out in India at the behest of the Central government, closed on January 22. The five-year contracts are designed to help shipowners raise funds at low rates to expand fleet.
The tenders incorporate a so-called right of first refusal to Indian shipowners — if Indian fleet owners are not the lowest bidders to haul the cargo, they are offered an opportunity to match the lowest rate quoted by a foreign ship-owner and take the contract.
IOC and BPCL will benchmark the rates for a very large crude carrier (VLCC) and a Suezmax tanker, respectively, they plan to hire to the Clarksons index which are also subject to a floor (minimum rate) and a cap (maximum rate).
IOC has set a floor rate of $18,000 a day and a cap of $40,000 a day for hiring a 10-year old VLCC that can carry as much as 265,000 million tonnes (MT) of Basrah light crude for five years with an option to extend the contract for two years, according to the tender reviewed by BusinessLine .
BPCL has set a floor rate of $15,000 per day and a cap of $27,000 per day for hiring a 10-year old Suezmax tanker that can carry as much as 130,000 mt of crude oil for five years which is extendable by two years, according to the tender issued by BPCL.
The charter hire under the contracts will be linked to one-year time charter rates for 310,000 and 150,000 dead weight tonnes (dwt) vessels indicated in Clarksons Research’s Shipping Intelligence Weekly publication. This weekly market rate shall be averaged out considering all weekly publications during the preceding year from January 1 to December 31 to arrive at the base charter hire rate for the next year.
The fleet owners quoting the maximum discount or lowest premium in percentage on the base charter hire rate so determined will win the deal.
The discount / premium agreed by ship owners shall be valid for the entire duration of contract, including optional period. However, the base charter hire rate shall be reset every year based on immediate previous year’s average of one-year time charter rate indicated in Clarksons Research’s Shipping Intelligence Weekly publication.
Age limitBesides, the state-run oil refiners have set a 10-year age limit for qualifying ships because by the time the five-year contract ends, the ships will be 15-years-old, reaching the threshold prescribed by most of the crude oil loading terminals globally, particularly for VLCCs.
To be sure, fleet owners who don’t have the requisite ships while submitting offers are allowed by IOC and BPCL to participate in the tender by showing relevant proof of acquisition of such ships, which should be converted into Indian flag within six months of winning the contract.
“The returns matrix will not work out for this type of floating rate contracts,” said an executive with an Indian shipping company that has rented ships to oil refiners. “It is not a financially viable proposal for anybody including the banks,” he said.
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