Financial Daily from THE HINDU group of publications
Tuesday, Nov 16, 2004
Industry & Economy - Petroleum
Ship owners seek clear LNG transport norms
New Delhi , Nov. 15
BARELY days after issuing a global notification for pre-qualification of ship owners and operators for transportation of LNG, Petronet LNG Ltd (PLL) finds itself flooded with queries from prospective bidders, both domestic and foreign, on certain key aspects of the proposed deal.
The clarifications sought by the ship owners emanate from the recent guidelines issued by the Director General of Shipping on chartering of LNG tankers into the country by LNG project promoters and the rules framed by the Government for those embracing the newly introduced tonnage tax regime.
Though, tonnage tax will provide the much-needed incentive for the successful bidder to register the LNG tankers under the Indian flag, the clause stipulated by the Tonnage Tax Act that those adopting the new tax should set aside 20 per cent of their annual book profits into a separate reserve account for the exclusive use of acquiring ships (new or second-hand ones) may prove to be a dampner, a leading foreign ship owner specialising in LNG trade told Business Line.
According to the global tender, prospective bidders should have owned and operated for the last three years, LNG ships of 138,000 to 165,000 cubic metre capacity along with full experience in both technical management and crewing of such tankers.
With none of the domestic shipping companies, with the exception of state-owned shipping Corporation of India (SCI), meeting this basic pre-qualification criterion, they have to tie-up with experienced foreign LNG operators to bid for the contract.
As per the guidelines issued by the Director General of Shipping, no license shall be granted for chartering an LNG vessel unless it is registered under the Indian flag and the Indian partner owns the tanker either wholly or own not less than 26 per cent of the ownership of the company owning the LNG ship.
In such a scenario, foreign owners will not be eligible to bid for the contract on their own and has to locate an Indian partner to comply with the guidelines.
Foreign owners have told Petronet that it would be difficult for them to register the tankers under the Indian flag even after putting in 74 per cent equity in a joint venture company formed specifically for the project with an Indian partner.
"With India introducing tonnage tax, bringing the tax level to the global level of 1-2 per cent, flying the Indian flag has definitely become attractive. But, asking the Special Purpose Vehicle (SPV) to set aside 20 per cent of its book profits into a separate reserve account for buying ships is not a workable clause," the foreign owner said.
Explaining this point further, he said that the SPV would have no interest in buying more LNG tankers leave alone other types of ships with the help of reserves build up in this manner.
" For the Petronet deal, the SPV will be set up for owning and operating three LNG tankers which costs in excess of $ 600 million at current prices. There will be no requirement for additional tankers during the tenure of the long-term time charter contract. Neither will the SPV be interested in buying other types of ships by utilising funds from the reserve account for the simple reason that it is an entity formed for owning and operating three LNG carriers exclusively for Petronet", he stated.
The norms issued by the maritime regulator and the clause mentioned in the Tonnage Tax Act are working at cross-purposes with the result that it would be impossible for the foreign owners to register the LNG vessels under the Indian flag after putting in 74 per cent equity in the SPV, he said.
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