09-12-2017

India: IOC, BPCL set rates for VLCC, Suezmax tanker

Indian Oil Corporation Ltd (IOCL) and Bharat Petroleum Corporation Ltd (BPCL) will benchmark the rates for a very large crude carrier (VLCC) and a Suezmax tanker, respectively, they plan to hire from local fleet owners for five years to the Clarksons index that are also subject to a floor (minimum rate) and a cap (maximum rate).

IOCL has set a floor rate of $18,000 per day and a cap of $40,000 per day for hiring a 10-year old VLCC that can carry as much as 265,000 million tonnes of Basrah light crude for five years with an option to extend the contract for two years, according to the tender reviewed by BusinessLine .

BPCL has set a floor rate of $15,000 per day and a cap of $27,000 per day for hiring a ten-year-old Suezmax tanker that can carry as much as 130,000 mt of crude oil for five years that is extendable by two years, according to the tender issued by BPCL.

Charter rates

The charter hire under the contracts will be linked to one-year time charter rates for 310,000 and 150,000 dead weight tonnes (dwt) vessels indicated in Clarksons Research’s Shipping Intelligence Weekly publication. This weekly market rate shall be averaged out considering all weekly publications during the preceding year from January 1 to Decmeber 31 to arrive at the base charter hire rate for the next year.

The fleet owners quoting the maximum discount or lowest premium in percentage on the base charter hire rate so determined will win the deal. The discount / premium agreed by ship owners shall be valid for the entire duration of contract including optional period. However, the base charter hire rate shall be reset every year based on immediate previous year’s average of one-year time charter rate indicated in Clarksons Research’s Shipping Intelligence Weekly publication.

For example, if the average of weekly market rates of one-year time charter published in Clarksons Research’s Shipping Intelligence Weekly publication during this yearthe year 2017 works out to $18,601 per day and the agreed premium is 10 per cent, the charter-hire payable to owners during 2018 shall be 18,601 + 10% = $20,461 per day. Assuming it to be discount, the payable charter-hire during 2018 shall be 18,601-10% = $16,741 per day.

However, if the charter hire net of agreed discount / premium works out to be less than floor rate, the charter hire payable shall be the floor rate. But, if the charter hire net of discount / premium works out to more than the cap rate, then the payable charter hire shall be the cap rate.

Such floor and cap rate will be valid for the entire contract period including optional period.

“It’s is a very aggressive floor and cap set by the state-run oil refiners,” says Pawan Gupta, an independent shipping consultant. “We had suggested a floor rate of $18,000 per day and a cap of $36,000 per day for the VLCC. IOCL made it $18,000 and $40,000. Actually, it is good for ship owners,” he said.

“It is not a win-win situation,” says another Mumbai-based shipping consultant. “It is not in favour of owners because if the market goes up, their ability to get a premium will be restricted to $40,000 for VLCC and $27,000 for Suezmax carriers”. Besides, for financing purposes, this model will be less attractive than a fixed rate. Banks will favour a fixed rate than the floor and cap rate because of the risks involved, he added.

Existing rate

The current market rate for hiring a VLCC for three years is $29,250 per day while the rate for a Suezmax carrier is $22,500 per day, according to Allied Shipping Research.

In the last five years, the VLCC rates had touched $ 57,750 per day for a one-year charter and $45,000 per day for a three-year charter.

In the case of Suezmax tankers, the rate had reached $42,500 per day for a one-year charter and $35,000 per day for a three-year charter.

In hiring mode

IOCL has set a floor rate of $18,000 per day and a cap of $40,000 per day for hiring a 10-year old VLCC

BPCL has fixed a floor rate of $15,000 per day and a cap of $27,000 per day for a ten-year old Suezmax tanker

Source: The Hindu Business Line

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