Shipping Corporation of India Ltd (SCI) has agreed to buy two second-hand very large gas carriers (VLGCs) for some $127 million, the carrier’s first ship purchase in eight years as it shrugs off a privatisation plan that has lost steam. The two VLGCs, each with a capacity to carry about 82,000 cubic metres (CBM) of liquefied petroleum gas (LPG), will add some ₹260 crore in annual revenue to the company at the prevailing time charter rate of about $41-42,000 a day for one-year charter, shipping industry sources said.

These two VLGCs are expected to be inducted into the SCI’s fleet during the current quarter of FY 2025–26,” Shipping Corporation said in a regulatory filing. It did not disclose the details of the ship acquisition, including the price.

However, shipbrokers said that the two VLGCs could be ‘Bu Sidra’ and ‘Lubara’ owned by Milaha VLGC Ltd, a unit of Qatar Navigation Q.P.S.C (Milaha). Both the ships were built in South Korea – ‘Bu Sidra’ in 2008 and ‘Lubara’ in 2009.

Second hand VLGCs are currently valued at some $60-65 million in the global market, almost at all-time highs. On June 13, the Reserve Bank of India (RBI) eased rules, allowing importers to make advance remittance for import of ships without a bank guarantee or an unconditional, irrevocable standby letter of credit for up to $50 million, from the earlier limit of $5 million.

Shipping Corporation is expected to deploy the two VLGCs with one of the state-run oil marketing companies after converting them to the Indian flag. India’s LPG demand is growing at 4-6 per cent per annum. This growth in consumption is met only by imports because local production is stagnant.

That means, this 4-6 per cent growth in consumption leads to about 8 per cent increase in imports. So, there is a requirement for more ships. “India’s LPG volumes are going to grow; so, there is definitely demand for VLGCs,” said a shipping industry source.

SCI will utilise the ₹133.85 crore left from the funds raised through a follow-on public offer (FPO) in December 2010, the proceeds from which were mainly intended to buy ships.

Shipping Corporation of India last expanded its fleet in FY2017 when it acquired four vessels – two platform supply vessels, one VLGC and one Suezmax tanker – all second-hand.

Historically, the carrier has acquired new ships by placing orders at shipyards. Like in FY17, this would be one of the rare instances where it has tapped the second-hand ship market to quickly bolster its fleet.

In December 2020, the Department of Investment and Public Asset Management (DIPAM), the government’s asset sale department, started the process of privatising Shipping Corporation of India, a so-called ‘navratna’ public sector undertaking, by selling the government’s 63.75 per cent stake to a strategic buyer. This put the brakes on the fleet expansion plan.

The sale process, though, is as good as abandoned now.

Shipping Corp is close to buying one container ship and one medium range oil tanker, both second-hand, following a due diligence currently underway, sources said.

SCI is India’s biggest shipping company by fleet size and is the country’s only shipping company that owns very large crude carriers or so-called oil supertankers. It runs 59 ships, including five VLCC’s.

To achieve the objective of ‘Atmanirbhar Bharat’, the Union Cabinet approved a scheme in 2021 to provide ₹1,624 crore as subsidy over a period of five years to Indian shipping companies in global tenders floated by ministries, departments and Central Public Sector Enterprises (CPSEs) for importing government cargo.

The Cabinet has considered crude, liquefied petroleum gas (LPG), coal and fertiliser cargo only for disbursement of subsidy. Of the ₹1,624 crore budgeted, ₹931.46 crore has been earmarked for crude while ₹520.76 has been set aside for LPG shipments. For coal, the subsidy is ₹155.61 crore while for fertilisers, it is ₹16.23 crore.

Under the RoFR rules, local shipping companies get a right to match the lowest rate offered by a foreign flag vessel in tenders issued by state-run firms. If Indian shipping companies decline, then only the foreign flag ship that had quoted the lowest rate is allowed to carry the cargo. The RoFR policy will be triggered only when the rate quoted by the Indian participants in a tender is within the 20 per cent range of the lowest bid offered by a foreign ship owner, per the purchase price preference given by the government to Indian entities.