Local fleet owners are resisting a move by state-run oil refiners seeking government approval allowing them to buy as much as 35 per cent of their annual crude imports on a cost, insurance and freight (cif) basis.
The plan, if accepted by the government, will deny local shipowners a so-called right of first refusal (RoFR) on 35 per cent of the annual crude imported by refiners such as Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. Under cif deals, the responsibility of shipping the cargo rests with the seller/supplier.
Currently, ship owners have the right of first refusal on almost the entire crude imported by state-owned oil firms unless refiners get a no objection certificate (NOC) from a government policy from the Shipping Ministry on individual cargo purchases.
This is because all government-owned/controlled cargo are to be purchased on freight-on-board (fob) basis in which the Indian buyer will have to finalise the shipping arrangements.
While doing so, state-run firms have to extend a right of first refusal to Indian shipowners — if Indian fleet owners are not the lowest bidders in tenders floated to haul the cargo, they are offered an opportunity to match the lowest rate quoted by a foreign ship-owner and take the contract.
Via Transchart
Such contracts were earlier finalised through the now defunct Transchart, the centralised ship chartering wing attached to the Shipping Ministry. State-owned departments and undertakings were bound by a government policy to make their shipping arrangements through Transchart, which gave first preference to Indian ships to move their cargo, provided they matched the lowest rates quoted by foreign ship owners when price quotations are invited.
In 2007, the Cabinet granted freedom to IOC to make its own shipping arrangements for importing crude oil. Similar freedom from using the services of Transchart was subsequently given to HPCL and BPCL and steel PSUs such as SAIL and RINL.
But, while granting such freedom to state-run firms to make shipping arrangements, the Cabinet decided to continue with the ‘buy fob policy’ with the stipulation that any deviation from this would require NOC from the Shipping Ministry.
State-run oil firms have approached the government for permission to buy 35 per cent of their annual crude purchases on cif basis after an earlier proposal to buy half of their crude requirements in this manner was stalled by the fleet owners.
Oil refiners have mooted the proposal as a quid pro quo after agreeing to a government plan to extend long-term cargo support of as much as five years to local fleet owners to help them raise funds at low rates and expand fleet.
Local fleet owners have been lobbying for reserving half of the PSU oil cargo through such long-term contracts.
“What the oil PSUs have been bargaining for was, if 50 per cent had to be exclusively reserved for Indian flag ships, the remaining 50 per cent they wanted to do on cif basis which was not acceptable to domestic ship owners,” a Shipping Ministry official said.
“Earlier, 100 per cent was available to Indian flag ships on a right of first refusal basis. Instead, what they were saying was, 50 per cent we will reserve for Indian flag ships and on the balance 50 per cent you won’t have the RoFR, we will do cif. We said no, we don’t want it that way, we want RoFR on 100 per cent of the cargo so that we could exercise this right whenever our ships are available for such contracts. Hence, it did not go through,” an executive with a Mumbai-based shipping company said.
In an interview to BusinessLine on March 9, KM Sheth, Chairman of The Great Eastern Shipping Co, lamented the lack of incentive from the government to expand fleet while more taxes were heaped on the industry.