The Hindu Business Line : Foreign flag vessels may bring down LNG import costs

EVEN as the shipping industry is upset over the Government's recent decision to allow foreign flag vessels to import LNG to India, the Ministry of Petroleum and Natural Gas expects this move to significantly reduce LNG transportation costs, which could be passed on to users like the power and fertiliser industries.

Industry sources say that Petronet LNG, which quashed the bids from three consortia for the Rs 3,200-crore charter contract for an LNG tanker for 25 years, now expects a significant reduction in the price bids, when they are submitted afresh later this week.

Petronet, a joint venture promoted by GAIL, ONGC, IOC and BPCL to import LNG and set up LNG terminals in India, had asked the three consortia to submit fresh bids this week. This came a day after the Government directive, issued on December 9, keeping its Shipping Development Circular No 3, dated July 5, 2004, in abeyance, so as to allow charters to employ foreign flag vessels for LNG import.

In fact, Petronet had on December 1 shortlisted a consortium with Varun Shipping, IOC, Exmar Marine and Tecto of Belgium as partners. The other two consortia in the race are Shipping Corporation of India-Mitsui OSK Lines-NYK Lines-K Line and Great Eastern Shipping-Teekay Association.

The petroleum and natural gas industry wanted to employ foreign flag vessels for LNG import, as an Indian flag vessel entailed additional taxes and operational constraints. For example, industry sources point out, the flag state administration registration costs, servicing with regard to classification, surveys and ownership costs of insurance are at present higher in India.

Further, corporate tax, withholding tax, service tax and customs will increase operational costs for Indian flag ships, they point out.

Currently two LNG ships bring gas to India — SS Raahi and SS Disha — both joint venture companies in which SCI has 29 per cent equity, and both flagged in Malta.

The demand for natural gas in India is expected to grow from 151 MMSCMD (million metric standard cubic metres a day) in 2001-02 to 231 MMSCMD in 2006-07 and 313 MMSCMD by 2011-12.

The shipping industry, on the other hand, feels that the Government decision to allow foreign flag LNG vessels will adversely affect its efforts to build an Indian flagged LNG fleet. It estimates that the country will need about 25 and 34 LNG ships by 2012 and 2025 respectively.

"Japan transported about 43 per cent of its total LNG import of 59.1 million tonnes in 2003 on Japanese owned and controlled ships. Similarly, Korea transported about 61 per cent of its LNG imports of 19.3 million tonnes in the same year on Korean controlled ships. In the combined import of Japan and Korea, third-party owned ships constituted only 8.3 per cent," a shipping industry representative said.