New Growth Areas

Cochin Shipyard to focus on building LNG vessels

The past year has been an eventful one for Cochin Shipyard Limited (CSL). CSL became the first Indian shipyard to receive the Mark III Flex licence for building liquefied natural gas (LNG) vessels. It also entered into technology tie-ups with foreign companies to manufacture LNG vessels and dredgers.

Performance

CSL, which was incorporated in 1972, has a strategic location – it lies about midway on the international sea route connecting east Asia to Europe and west Asia. Over the years, it has evolved into a builder of large-size vessels for the merchant navy and the Indian Navy. It has a shipbuilding and ship repair capacity of 110,000 deadweight tonnage (DWT) and 125,000 DWT respectively.

In 2010, CSL received an order to build 20 fast petrol vessels (FPVs) for the Indian Coast Guard (ICG). Of these, it has delivered 16 ships so far. The rest of the order is being processed ahead of schedule, and the ships are likely to be delivered in 2016.

At present, the shipbuilding industry is going through challenging times the world over, and this has impacted the business of Indian shipyards as well. CSL’s order book shrunk from 34 vessels in 2010-11 to 11 vessels in 2014-15.

In order to emerge as a competitive player in a challenging industry scenario, CSL is investing in technology, skill development, and research and development. CSL received the Mark III Flex technology licence from Gaztransport et Technigaz (GTT) of France for making cargo containment systems for LNG carriers (December 2015). CSL thus become the first shipyard in India to manufacture LNG vessels.

Moreover,  in April 2015, CSL entered into a technology tie-up with Samsung Heavy Industries Limited, Korea, to manufacture LNG vessels. CSL has also entered into a technology tie-up with IHC Holland BV for manufacturing dredgers (March 2015) with a view to diversifying its product portfolio.

Apart from this, CSL has ambitious expansion plans to capture a larger market share. A part of the plan is to build an international ship repair facility (ISRF) at the Cochin Port Trust (CPT). For this, the company has leased about 42 acres of land at CPT for 30 years. The ISRF will be set up at an estimated cost of Rs 9.7 billion and will have a 6,000 tonne ship-lift, a transfer system and allied facilities.

CSL is also proposing to set up a new dry dock at the northern end of the shipyard, at an estimated cost of Rs 15 billion. The new dock would equip CSL to take up the construction of LNG vessels and larger defence ships.

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The way forward

Given the requirement of a large number of ships for both the Indian Navy and the ICG, the defence sector is an attractive market for CSL. The shipyard also has an opportunity in the construction of LNG ships.

The government has taken various initiatives to improve the condition of shipyards in the country. A financial assistance policy for Indian shipyards has been approved for 10 years, commencing from April 1, 2016. Under this policy, financial assistance equal to 20 per cent of the lower of the “contract price” or the “fair price” of each vessel built for a period of at least 10 years commencing from 2015-16 will be granted to shipyards. Further, inputs used in ship manufacturing and repair have been exempted from customs and central excise duties, and the shipbuilding industry has been granted infrastructure status.

All this offers huge opportunities for CSL. The shipyard, however, needs to add capacity, as it faces infrastructure constraints due to the non-availability of a large-sized dock to build ships over 110,000 DWT. The shipyard also needs to face the challenge of growing competition from domestic private shipyards.

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