SCI: LNG materialises - Views on News from Equitymaster

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SCI: LNG materialises

Mar 19, 2001

The consortium of The Shipping Corporation of India (SCI) and Mitsui OSK Lines of Japan has won the much-awaited Petronet Liquefied Natural Gas (LNG transportation contract). The contract is estimated to be worth US$ 400 m. The other two companies in the SCI-Mitsui consortium include Kawasaki Shipping and NYK. Petronet LNG, which proposes to have two terminals at Dahej and Kochi, would require four LNG vessels for moving 7.5 million metric tonnes of LNG annually. Three Indian shipping lines had already tied up with the foreign consortia for the LNG transportation for Petronet LNG. This includes Shipping Corporation of India (SCI) and Matsui-OSK of Japan, Great Eastern Shipping (GESCO) with SK Shipping of Korea and Varun shipping with Han Jin of Korea.

The transportation contract is expected to commence towards the later half of FY02. The company has already placed orders for a LNG vessel named Laxmi, the 137,100 cubic million tonne LNG carrier, which would be delivered by FY02 (estimated cost US$ 189 m). Besides, the company has also placed orders for three Aframax carriers. To fund the fleet expansion plans, the company raised External Commercial Borrowings (ECB) of US$ 115 m (Rs 5,405 m) from the Royal Bank of Scotland and a three-bank consortium led by Bank of Nova Scotia.

With the Petronet contract SCI has entered into one of the most lucrative segments in the shipping industry. Since Indian shipping companies do not have adequate technical expertise in LNG transportation, the draft LNG policy states that the foreign partner should transfer his technical expertise to its Indian partner after five years. Therefore, after this stipulated period, Indian partner will manage these vessels. As LNG transportation contracts are typically for 25 years, one can expect SCIs cash flow to stabilise, which otherwise is vulnerable to international freight rates.

One of the key beneficiaries of this Petronet LNG contract will be the government. Since SCI is also in the disinvestment list, it will enable the government to fetch better value of the proposed 26% disinvestment in the company. But, given the present state of the government, it seems to be a tough ask.

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