Petronet-LNG splits Kochi terminal contract into three

Vol 11, PW 17 (10 Jan 08) Midstream & Downstream

Petronet-LNG has decided to split into three parts the EPC contract for its proposed 2.5m t/y LNG import and regassification terminal at Kochi in Kerala.

“Instead of one there will now be three EPC contracts,â€‌ a senior Petronet-LNG source tells us. “Our board has decided this is the best way forward.

â€‌ Till now Petronet-LNG was in discussions with the IHI-led consortium for a consolidated EPC contract but talks hit deadlock over the price quoted by IHI for the terminal shore facilities. Project management consultant Engineers India had prepared a single bid package for the Kochi LNG terminal but is now under instructions from Petronet-LNG to split the project into three.

There will be one EPC contract for the two onshore LNG storage tanks; one contract for the shore facilities such as pipelines, high-pressure pumps and pipelines, vaporising plant, control rooms; and one contract for the marine facilities. Petronet-LNG’s logic for splitting the single EPC contract into three is simple: “The moment you consolidate such a large and complex contract you eliminate many bidders who specialise in executing various parts of the project but who may not be comfortable working in a consortium with other bidders or with the (consortium) leader.

â€‌ Splitting the contract brings in more competition. “This is what IOC and ONGC are also doing now for large, complex contracts,â€‌ we are told.

Breaking up the single EPC contract into several smaller contracts also lowers costs. “Within a consortium, the companies carry out their part of the project but bill the consortium leader who then bills Petronet-LNG after adding their margins.

â€‌ When the contract is split, “companies responsible for each part directly bill Petronet-LNG and you eliminate the margins of the consortium leader.â€‌ These margins may be small change for the company that leads the consortium, but for Petronet-LNG they add up to savings in the total project cost.

With the experience of constructing and doubling capacity at Dahej, Petronet-LNG is more confident than before of directly overseeing construction of the proposed Kochi LNG terminal.