The finalisation of an agreement for a Shipping Corporation of India Ltd-led joint venture ship owning company comprising state-run oil firms has been delayed due to lack of clarity on the participation of Oil and Natural Gas Corporation Ltd (ONGC) and its subsidiaries in the alliance that seeks to cut India’s dependence on foreign ships to haul cargo, save foreign exchange and support local shipbuilding.The joint venture structure has been finalised, under which Shipping Corporation of India Ltd will hold a 50 per cent stake, Indian Oil Corporation Ltd (15 per cent), Bharat Petroleum Corporation Ltd (10 per cent) and Sagarmala Finance Corporation Ltd (10 per cent).
ONGC and its subsidiaries – Hindustan Petroleum Corporation Ltd and Mangalore Refinery and Petrochemicals Ltd – are expected to join as one head with 15 per cent stake, a Delhi-based government source said.
“There is still no clarity on the equity holding of ONGC and its subsidiaries in the JV,” the source added.
Vessel demand sharply revised
The number of ships required by state-owned oil marketing companies over the next 15 years has been halved to 59 from an earlier estimate of 112, per a demand aggregation finalised by the Ministry of Petroleum and Natural Gas last year.Of this, ONGC alone require 28 ships, comprising 11 platform supply vessels, eight anchor handling tug cum supply vessels of 80 tonne bollard pull, two anchor handling tug cum supply vessel of 120 tonne bollard pull, four offshore support vessels, two very large ethane carriers (already finalised through a JV with Japan’s Mitsui O. S. K. Lines, Ltd) and one Aframax tanker.
HPCL needs one very large crude carrier, three Suezmax crude tankers, one medium-range tanker, and two very large gas carriers, while MRPL requires one very large crude carrier, two Suezmax tankers, and three Aframax tankers.
In fact, ONGC’s requirement of 28 offshore vessels is the highest among the vessel demands of state-run oil firms, followed by IOCL with 10 ships, BPCL with six, HPCL with seven, MRPL with six and GAIL with two.
“Out of the 59 ships, if ONGC wants to meet its requirement of 28 ships through the JV, then it makes sense for the oil and gas explorer to come on board as an equity partner. Otherwise, it doesn’t make sense. Then, HPCL and MRPL will pick up stake because they require oil tankers,” the source said.
If ONGC, with a requirement of 28 ships, does not join the JV, the ship acquisition plan of the proposed entity will straightaway reduce to 31 ships.
Secondly, with Shipping Corporation of India and Sagarmala Finance Corporation agreeing to take a combined 60 per cent stake in the JV, ONGC, HPCL, MRPL, IOCL and BPCL will be left with a 40 per cent equity stake, to be split amongst themselves. Hence, the exposure of each of these entities – some of them ‘maharatna’ PSUs – in the JV will be “very negligible”, the source said.
Make in India concerns deepen
If ONGC decides to join the JV, its ship requirements will be finalised by the JV through domestic tenders, which favour local yards. But by floating a global tender on its own to buy four platform supply vessels, ONGC is giving the impression that it is going solo.
“This would have been understandable if it had floated a domestic tender to buy the vessels, thereby extending its support to Make in India and shipbuilding in India. But it has not by floating a global tender for the platform supply vessels. What if ONGC decides to float global tenders also on its own for the balance ships. The JV incorporation has been delayed till clarity emerges on this,” the source said.
ONGC’s stand has thus become crucial in progressing the JV to the incorporation stage.
Ahead of the incorporation of the JV, Shipping Corporation has floated a tender on behalf of the JV for the purchase of four medium-range tankers from local yards. SCI has floated a global expression of interest for buying eight very large gas carriers, also on behalf of the JV, because Indian yards don’t have the capability to build these tankers.
Despite Indian yards having the capability to build platform supply vessels, ONGC issued a global tender to buy these ships on the premise that it was necessary for “price discovery”. To be sure, following a demand from Indian shipyards, ONGC subsequently included a so-called Right of First Refusal (RoFR) clause in the tender, allowing local yards to match the lowest price quoted by a foreign yard and secure the contract.
Industry sources said that ONGC’s decision to ask local yards to match the lowest price quoted by a foreign yard if they want to take the platform supply vessel building contract was “unreasonable” and does not provide a “level playing field”.
Indian yards quote about 40 per cent more for building ships because most components and parts used in construction are imported due to the lack of an ecosystem in the country, and the lead time for building vessels is also longer.
“ONGC’s argument that a global bid was floated to ensure price discovery could be right, but it is not in sync with the government’s goal of encouraging Make in India or shipbuilding in India,” the industry source said.
That, he said, could be why ONGC is not sure it will join the JV and has decided to issue the platform supply vessel tender on its own.
“Because it knows that the prime motivation for the JV is to promote shipbuilding and shipping in India,” the industry source added.
