The proposed sovereign fund, meant to protect local refiners using Iranian crude oil, itself seems to be facing funding issues.
India had decided to set up a sovereign fund to support domestic insurers which were offering cover to local refineries that were importing Iranian crude oil. However, even though a Cabinet note has been circulated, the Ministries of Finance and Petroleum & Natural Gas are yet to reach a consensus on the funding of the corpus.
While the Finance Ministry is insisting on financial support, the Petroleum Ministry has suggested that instead of financial support, the Oil Industry Development Board (OIDB) can extend corporate guarantee.
Industry observers say this could just be delaying tactics on India’s part, as Iran and the US now seem to be on talking terms.
“They (India) could be hoping that if the US and Iran are able to resolve the issues, then the requirement of the fund may not be there,” an industry official said.
Though Indian insurance companies are not governed by the US and the EU sanctions, they do depend on re-insurance from Western companies because of the high risks involved. The sanctions against Iran's disputed nuclear programme discourage global re-insurers from taking on the risk.
The Rs 2,000-crore Indian Energy Insurance Pool is to be created through contributions by public sector insurers and OIDB. While the insurers will together contribute Rs 1,000 crore, the OIDB will bring the remaining amount, according to initial proposal.
“All funds of OIDB are tied up. And since OIDB is a debt-free body, it is being proposed that it will extend corporate guarantee. However, the Finance Ministry is insisting on financial support on the grounds that this was the initial commitment made by the Petroleum & Natural Gas Ministry,” a senior official privy to the developments said.
The OIDB fund is used exclusively to provide financial assistance to the organisations engaged in development programmes of the oil industry. The funds to OIDB are made available by the Central Government from the proceeds of cess collected on indigenous crude oil, which are credited to the Consolidated Fund of India.
The OIDB, as on March 31, 2012, had accumulated approximately Rs 10,498 crore – cess amount received together with internal receipts generated from income on loans given to various oil sector companies and short-term investment of surplus fund.
Today, a major part of OIDB’s investment goes into the construction of strategic crude oil storage through Indian Strategic Petroleum Reserves Ltd. The authorised capital of ISPRL is Rs 2,397 crore. OIDB released about Rs 2,251.88 crore up to December 31, 2012.
Imports from Iran during April-September 2013-14 stood at 4.2 million tonne, despite Mangalore Refinery & Petrochemicals Limited (MRPL), the largest buyer of this crude in India, resuming purchases in August. Insurance issues had compelled MRPL to stop sourcing from Iran.
Though the Government is looking at imports from Iran to be at the same levels as last year (2012-13) at 13.14 million tonne, those involved with the sector feel this may be tough.