Essar Shipping prepares to renegotiate vessel contracts

Essar Shipping, which has enjoyed the cushion of putting its fleet on a long-term charter at a time when the sector is sailing in choppy waters, has to decide what to do as some of these agreements reach their final phase next year.

“We are in talks to renew the contract with Bao Steel of China. It was a five-year contract of affreightment. We are seeing how to keep our fleet in continued employment,” A R Ramakrishnan, managing director, told Business Standard. The company is in talks with domestic and international companies for signing more contracts.

About 45 per cent of the Essar fleet capacity is on third-party charter, while the rest is for captive cargo. “We would like to maintain it at a 55:45 range. In shipping, it is necessary to have backhaul cargo lined up,” Ramakrishnan said.

The company is also adding to its fleet, with four mini-cape vessels expected in 2012-13. “These are already backed, for instance for bringing coal from Indonesia to India. We are looking at doing the backhaul cargo from India back to China,” said Ramakrishnan. Currently, the capacity is about 1.9-million dead weight tonnage (DWT), with new vessels expected to add another 350,000 DWT.

SAIL THROUGH

45% of the Essar fleet capacity is on third-party charter

4 mini-cape vessels expected in 2012-13

1.9 mn DWT is the current capacity

350,000 DWT addition may be done by new vessels

OILFIELD BUSINESS

57% increase was seen in 2011-12* to Rs 143.9 crore 

Rs 91.7-cr business seen in the corresponding period of 2010-11

20% growth was seen in the shipping business to Rs 317.4 cr*

$121 mn contract was bagged by Essar to drill offshore wells in Indonesia

*Third quarter of the respective financial year

Experts say long-term contracts have a clause for bunker or currency fluctuation which provide a natural hedge to the company. Essar Shipping is not putting any new orders for ships, as of now. It has also stopped fetching oil from Iran after the European Union sanctions. “We will keep in mind what the EU sanctions say and the UN sanction says,” Ramakrishnan said.

Meanwhile, the company is exploiting growth opportunities in its oilfield business. This increased by 57 per cent to Rs 143.9 crore in the third quarter of 2011-12 as compared to Rs 91.7 crore in the corresponding period last year. In comparison, the shipping business grew 20 per cent in the quarter, registering revenue of Rs 317.4 crore.

The company won a $121-million contract to drill offshore wells in Indonesia. It will drill 11 offshore wells for US-based ConocoPhillips. “Crude oil prices are high, so the exploration and production activity is high. We are now working in Vietnam for a year and a half and in Indonesia,” said Ramakrishnan.