The government may negotiate with Iranian insurers for a partial cover for tankers carrying crude after Indian shippers said state-backed insurance provided by India was inadequate.
India, the third-largest importer of Iranian crude, had arranged for public sector insurers to provide for as much as $100 million of insurance per voyage. But this is just a fraction of the $1-billion cover that the companies had prior to the European Union sanctions.
Before the sanctions came into effect on July 1, the Europe-based Protection and Indemnity (P&I) clubs offered third-party liability cover to 90% of the world?s fleet. Post sanction, they stopped offering cover to ships hauling Iranian cargo.
?The shipping ministry cannot resolve this issue on its own and the ministry of external affairs has seized the matter. Discussions are on with Iran to resolve this,? a source said. Foreign secretary Ranjan Mathai recently held a meeting with his Iranian counterpart in this regard, say sources.
The Indian government may negotiate with Iranian insurers to provide partial coverage for voyages to Iran, sources in the shipping ministry said, adding that the government may also ask the finance ministry to take up the issue with the state-owned insurers. Since the government cannot do much about marine cover being provided by private insurers, it may advise PSU insurers to provide adequate coverage, the sources said.
Shipping Corporation Of India CMD S Hazara told FE that the insurance provided now is not sufficient and the premium is too high. The state-owned company has stopped transporting crude oil from Iran after the EU sanctions were slapped in July. ?The government can give sovereign guarantee to cover all insurance aspects, including for any pollution incidents,? Hazara said.
India shipped in 201,860 barrels per day (bpd) from Iran in July compared with 346,600 bpd in June and about 338,900 bpd in July 2011, a drop of 40%. ?In the short term, the government would be forced to aid the shippers to get the crude supplies. They would have to increase insurance and provide cover. The government may have to be bear a higher level of insurance amount through its nominees,? said Deloitte India senior director Hemant Bhattbhatt.
The US-led sanctions against Iran are costing Opec?s third-largest producer $133 million a day in lost sales, according to Bloomberg. Shipments from Iran have plunged by 1.2 million bpd, or 52%, since the sanctions banning the purchase, transport, financing and insuring of Iranian crude began on July 1.
?Considering national interest, the government could prevail upon PSUs like the SCI to haul crude, despite their reluctance due to insurance inadequacy. However, sooner rather than later, the issue of insurance inadequacy will have to be satisfactorily addressed, rather than bulldoze PSUs to ignore corporate governance concerns and accept risk exposure without adequate insurance coverage,? Bhattbhatt said.
To take care of its long-term energy needs, India has increased its imports from Iraq, Saudi Arabia and UAE to compensate for the loss of crude from Iran. Essar has now entered into a pact with Columbia to import oil. Imports from Venezuela have also increased over the years and the LatAm nation has now become India?s seventh largest oil supplier.