The Shipping Corporation of India (SCI) has firmed up plans to purchase two liquid natural gas (LNG) vessels costing about $520 million. SCI intends making this purchase as part of the fuel transport arrangement for upcoming LNG-based power plants.
SCI chairman P K Srivastava said the company was negotiating with power producers. "The details are being ironed out and we will buy the LNG carriers after power producers complete their fuel supply agreements," he added.
Order for the vessels would be placed after the fuel transport arrangements are tied up, he said. Funding of such vessels is tied on a long-term basis to synchronise with the licence period of power projects. Fuel transport arrangements are typically for a minimum 15 years. The freight tariff for these vessels is fixed so that costs are recovered during the licence period along with a reasonable spread for the shipping company.
Funding for such specialised vessels is done through project finance mechanics. Such purchases are done through special purpose vehicles (SPVs), where the shipping company provides the equity and the debt is raised through this SPV, so that the debt does not reflect on the balance sheet. Earnings from the fuel transport are credited into an international escrow account where the debt financiers will have the first charge.
The modalities are still being worked out, but raising such debt funds internationally is unlikely to require any sovereign guarantees in view of the escrow arrangements with the power producers. Besides, such methods of funding do not involve any foreign currency risks, since the LNG transporters' revenues are in foreign exchange. Such foreign currency debts are available for long tenures unlike normal external commercial borrowings that need to have a minimum maturity profile of five years.
The cost of a 135,000 cubic metre LNG vessel is about $260 million. SCI will thus have to raise about $520 million. SCI is also expected to have other equity partners and sources said one of the potential partners is likely to be Petronet LNG, a consortium of petroleum companies.
Barring Enron's Dabhol Power Corporation no power project has finalised fuel supply or fuel transport arrangements. SCI is targeting these companies and NTPC that also has plans for setting up LNG-based power plants.
The international transport in LNG is dominated by Japanese and the Korean companies that include Mitsubishi, Marubeni and Hyundai. Japan and Korea are also the world's largest importers of LNG. Accordingly, Japanese and Korean yards specialise in building LNG carriers. LNG imports in these countries are reserved for national flag carriers.
The report of the shipping policy committee had also recommended that LNG imports be reserved for national carriers. The ministry of surface transport is, however, yet to take a formal decision on reservation for domestic carriers since none of the shipping companies own such vessels. With LNG import requirements estimated at about 25 billion cubic metres per annum, the LNG fleet requirement is expected to be a minimum of about 12 vessels.
