None ready with 5-year fixed price for ONGC
Unsurprisingly, there are no takers for ONGC's plan to secure fixed prices for five years for its upcoming pipeline replacement and platform topside modification jobs in the western offshore.
On March 23 and 24 (2023), ONGC held meetings in Mumbai with steel pipe manufacturers, pipe coating and storage, offshore transportation/installation and platform topside modification contractors. ONGC wanted long-term fixed rates for these jobs.
One positive outcome was that pipe manufacturers and coating contractors, among them Maharashtra Seamless, Jindal Saw, and Welspun, assured ONGC they could supply any pipe quantity meeting the company's steel grade demands. But that was the only good news.
L&T, Sapura Energy, McDermott, Dolphin Offshore, Leighton and Westfield Energy were neither interested in ONGC's proposal to break up pipeline replacement or topside modification assignments nor in offering five-year fixed rates. Leading the opposition, L&T said a piecemeal approach is costlier and more time-consuming than a single EPC contractor managing the entire job.
Even a single EPC contractor often finds coordinating with vendors and sub-contractors challenging. L&T stressed that if ONGC breaks up an assignment, each contractor will take care of only their part of the job.
Nobody will take responsibility for the entire project leading to delays, disputes and cost overruns if any contractor fails to deliver. More, L&T said it's costlier for multiple contractors to buy smaller quantities of pipe than for a single EPC contractor to buy a more significant amount.
'Reputable' EPC contractors might not participate because of the "increased risks and lower value of the split packages," stressed L&T. Contractors also told ONGC they were unwilling to lock in rates for five years because oil and steel prices constantly fluctuate.
At most, contractors might lock rates for two years. ONGC suggested they could link rates of steel pipes and steel for topside modifications to global steel prices and link rates for topside modifications, transportation, and installation to global oil prices.
Sapura and McDermott broadly agreed with L&T. ONGC was also gently reminded that years ago, it prequalified contractors for offshore platform modifications but didn't award a single contract.