The benefit of insurance cover for sourcing crude oil from Iran may be extended to private refiners such as Essar, as the Government sets out to have an Indian Energy Insurance Pool. The pool will have a cap and re-insurance will not be given beyond a set limit.
Government officials told Business Line that since the amount which the Government can extend to the refiners is restricted due to fiscal constraints, a limit has to be prescribed.
However, the limit is still being worked out. Though Indian insurance companies are not governed by the US and EU sanctions, they do depend on re-insurance from Western companies, because of the high risks. The sanctions by the West against Iran’s disputed nuclear programme discourage global re-insurers from taking on the risk.
The Rs 2,000-crore fund is to be created through contributions by public sector insurers and the Oil Industry Development Board (OIDB). While the insurers will together contribute Rs 1,000 crore, the OIDB will bring in the balance amount.
However, the oil industry fears that this amount may not be enough to take care of the whole re-insurance cover of the refiners using Iranian crude oil.
Another issue that may affect imports in coming months is Iran’s reluctance to accept rupee payment beyond the current 45 per cent of the total amount. The reason being cited by Iran is that its imports from India may not be large enough to utilise the rupee balance.
India, meanwhile, is trying to identify more goods it can export to Iran without inviting sanctions. “We are looking at all items that are not dual use goods,” a senior Government official said. Dual goods are those which may have civil as well as defence applications.
Meanwhile, oil refiners want the two Governments to decide on a clear payment mechanism. In fact, before the rupee payment was decided upon, India was routing its payment through Turkish Halkbank to pay for more than half of its oil purchase from Iran. The routing stopped when the bank refused to transfer payments fearing US sanctions.
Crude Supplies
Though the Government expects crude oil sourcing from Iran to be at the same level as last year, industry thinks otherwise. This is because while the domestic refiners have been expanding their energy basket, Iran also wants to get a better deal.
According to the latest figures, crude oil imports from Iran till June this fiscal were only 1.83 million tonnes. Though the numbers are expected to improve as Mangalore Refinery and Petrochemicals Ltd in August, after a lag of four months, had resumed supplies from Iran, it may not be at the same level as last year.
Last year, total imports from Iran were at 13.14 million tonnes. MRPL, which was the largest importer of Iranian oil under the term contract, is also sourcing from Saudi Arabia, Kuwait, and Abu Dhabi. It is also sourcing on spot basis from Nigeria, Angola and Egypt, among others. This has helped MRPL mitigate its supply risks.