State-run Cochin Shipyard Ltd is seeking a global operations and maintenance (O&M) partner to run its newly opened international ship repair facility at Cochin Port for 30 years, the shipbuilder’s Chairman and Managing Director Madhu Nair has said.
“We are trying to get a global partner for operations and maintenance of the ISRF for which a request for qualification process is on,” Nair said in an interview on the sidelines of the ‘Global Ports and Shipping Summit’ in Mumbai on 26 September.
“Right now, it’s an O&M partnership. Potentially it could move into a joint venture kind of arrangement later,” Nair stated.
Cochin Shipyard, according to the tender document, may decide to undertake the second phase of the international ship repair facility, either independently or in collaboration with a partner, through the joint venture route.
If the JV format is decided, Cochin Shipyard will hold at least 26 percent stake in the JV company which could go up to 49 percent, the shipbuilder wrote in the tender document.
If the JV route is decided for the second phase of the ship repair facility, the O&M entity picked for the first phase will have the right of first refusal for entering into the joint venture arrangement with Cochin Shipyard for the second phase, the tender document said.
“We feel that let’s try to do business a little bit more the international way so that we benchmark ourselves against the best and improve. We are by far the best in India at this stage but then if we can go that extra mile and create more positivity, that’s what we are thinking,” he said.
Mumbai-listed Cochin Shipyard spent some Rs1,000 crores to build the exclusive ship repair facility spread across 8.12 hectares leased from Cochin Port Authority, also state-owned, at Willingdon Island in Kochi.
The facility boasts of a 6,000 tonnage, modern ship lift and transfer system for hoisting, lifting and moving vessels up to 130 x 25 metres length overall from water onto land or vice versa and/or transfer of such vessels to the ship lift and transfer system, a wet berth of about 1,350 metres and a maritime park, other allied facilities, assets and infrastructure.
The ship repair facility started operations in August with three vessels.
“Rather than operating in the classical way with Cochin Shipyard running the show with a set of people and handling everything, we are trying to reach out to one of those large international groups which are active in ship repair elsewhere. If they can come in, team up with us and we hand over this ready infrastructure where we will handle all the basics and we’ll help them with establishing those business in India, run the show but they have to come in with not just the expertise to run it and handle the systems in a 24/7, 365 mode, they also potentially tap their clientele, tap the supply chains, the service providers and also look at much more potential investments along with us as we move forward.” Nair said, explaining why the yard is looking at the O&M model to run the ship repair facility.
“We have seen quite some interest coming in for the O&M arrangement. Hopefully by December, we should onboard the potential partner,” he added.
India’s strategic location along major shipping routes in the Indian Ocean makes it an ideal hub for ship repair and maintenance activities.
India owns a substantial shipping fleet, both in the commercial and defence sector, with the Indian-owned commercial fleet strength standing at over 1,500 ships, thus presenting a significant domestic demand for ship repair and maintenance activities. The Indian ship repair and maintenance market is estimated to grow at 8-10 percent CAGR over the next decade.
Currently, it is estimated that more than 30 percent of vessels within India’s addressable market are being serviced by other global drydocks, due to constraints in infrastructure, turnaround time etc.
Except for a few major shipyards, most of the other yards have a limited ship repair and maintenance ecosystem and supporting market infrastructure to capture market potential.
Under the Maritime India Vision (MIV) 2030, Kochi has been primed for setting up India’s first ship repair cluster, considering the robust ship repair ecosystem at Cochin Shipyard.
The ship repair facility was conceptualized by Cochin Shipyard with the dual objective of decongesting the existing ship repair ecosystem at the yard and focusing on further business opportunities both in the private commercial space and the defence space to tap into the rapid growth in the ship repair and maintenance market over the next 8-10 years.
The ship repair facility is poised to host India’s first ship repair cluster considering its strategic location along the international sea route and proximity to the existing ship repair ecosystem in Kochi. For the facility to operate in sync with latest technology and attain globally competitive efficiency and turnaround time, CSL intends to onboard a global ship repair player, according to the tender issued by Cochin Shipyard.
The Phase-I facilities shall be used for repair and maintenance of vessels up to 130 meters length overall and up to 6,000 tonnes.
Cochin Shipyard plans to pick an experienced O&M entity with well-established credentials in ship repair and maintenance for providing ship repair and maintenance services to prospective clients on revenue sharing basis.
The O&M entity will be required to undertake end-to-end (E2E) operations of the Phase-I facilities by setting up shop facilities, equipment, machinery, systems and processes for providing efficient and timely ship repair and maintenance services of global service standards to clients.
Cochin Shipyard will pay the O&M entity a fixed percentage of the actual amount realized.
The revenue share percentage will be discovered through a competitive bid process. Cochin Shipyard has set a reserve revenue share percentage which is less than or equal to 95 percent of the total amount realized.
The O&M entity will also have to pay a one-time, non-refundable fixed fee prior to execution of the O&M agreement, which will be discovered through the bid process. The reserve upfront fee has been set at $12 million.
Besides, the O&M entity has to pay annual fees (discovered through the bid process) to Cochin Shipyard for utilization of the Phase-I facilities such as cranes and ship lift and transfer system on a non-exclusive basis, which will increase by 5 percent annually. The annual fee floor price for bidding has been set at $2 million and five hundred thousand dollars.
(source: ET Infra)
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