Indian Oil changes track, to buy 10 crude carriers from Shipping Corp JV

New Delhi: Indian Oil Corporation Limited (IOCL) is likely to place an order to buy at least 10 medium-range oil tankers from a Shipping Corporation of India (SCI)-led joint venture, with the vessels to be built at an Indian shipyard, sources said.

The world's third largest oil importing and consuming nation relies heavily on hired ships to ferry its energy supplies. Prodded by a government keen on having secured energy supply lines, IOC and other state-owned oil firms had initially planned to jointly establish a shipping company to build vessels in India.

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Having indigenously built ships was seen as not just helping the cause of energy security but also creating jobs. However, the proposal, floated over a year ago, has remained on the drawing board due to a lack of shipbuilding expertise, three sources with direct knowledge of the matter said.

What also delayed a decision was the Chinese factor - China-made vessels are available at lower costs and in no time. This prompted the firms to weigh if it was essential to build ships in India when the objective of having secured energy supply lines could also be met by simple acquisition of a foreign made vessel. But the government was keen on building ships in the country as it also creates huge employment.

Midway, it was mooted that Indian oil companies should look at setting up a three-way joint venture with a foreign shipyard with expertise in building oil vessels and a shipping line which would operate such vessels.

IOC grabbed that offer and started working, sources said.

But now, the plan seems to have undergone further modification.

IOC is now likely to buy 10 Aframax vessels - ships with a capacity of 80,000 to 120,000 deadweight tons - from a joint venture with state-owned Shipping Corporation of India (SCI) and an Indian shipyard (possibly Cochin Shipyard).

Sources said other oil companies too may follow suit.

The announcement for the order may happen when Prime Minister Narendra Modi on September 20 launches India's bid for global shipbuilding from Gujarat's Bhavnagar - the district headquarters of Alang.

A revamped Ship Building Financial Assistance (SBFA) scheme, and Rs 25,000 crore Maritime Development Fund (MDF) may be among the announcements that are made on that day.

Also on the anvil is a Rs 20,000 crore plan to set up shipbuilding clusters in Gujarat, Andhra Pradesh, Odisha and Maharashtra.

Sources said oil companies will eventually need 112 crude carriers through 2040. These are to replace the current aging fleet that's mostly on-charter from global companies.

Some estimates suggest that more than 85 percent of the USD 100 billion that Indian companies paid as freight costs in recent years, was paid for use of foreign vessels.

The first phase involves procuring 79 ships, of which 30 of them would be medium-range vessels, they said adding the plan is to raise the share of locally built oil tankers in their fleet to 7 percent by 2030 from 5 percent at present and about 70 percent by 2047.

Sources said state-owned oil companies will provide orders and the joint venture will make them at local shipyards. SCI will also operate such a fleet.

South Korea's HD Hyundai Heavy Industries Co and Samsung Heavy Industries Co as well as Japan's Mitsui OSK Line and Nippon Yusen KK (NYK Line) have evinced interest in partnering Indian shipyards such as Cochin Shipyard Ltd for building vessels in India.

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