Govt plans fund to give insurance to refiners using Iran oil

The government is planning to set up a special fund for insurance giants providing cover to oil refining companies for importing crude oil from Iran which otherwise would have to be stopped, petroleum secretary Vivek Rae said on Sunday.

Indian insurance companies depend on European reinsurance firms such as Munich Re and Lloyds of London to spread their risk as they would otherwise end up in deep financial trouble in case they have to make a pay out.

However, European reinsurance companies are no longer willing to do any business linked with Iran as the US and Europe have tightened sanctions against the West Asian country that has been branded as a "rogue state" due to its nuclear ambitions.

Public sector Mangalore Refinery and Petrochemicals Ltd (MRPL) and private company Essar Oil have already threatened to halt imports from Iran due to insurance problems, Rae told journalists.

"According to the proposal, public sector insurance companies and the Oil Industry Development Board under the petroleum ministry would contribute money for the fund that would provide reinsurance for the state-owned insurers," Rae said.

He said the finance ministry would take a final decision on setting up the reinsurance fund. "What will be the size of this fund, how much we are required to contribute, whether it is enough to cover reinsurance -these are the details that insurance companies have to work out," Rae said.

He added supplies from Tehran will also be hit because in the next stage of sanctions refining companies are likely to be asked to certify that their exported products were not produced using Iranian oil.

Rae said at the moment oil is being imported from Iran. But the problem will arise if the refineries don't have the insurance cover. "We cannot import crude from Iran in such a scenario," he added.

The move will help all refineries importing crude oil from Iran, particularly Mangalore Refinery & Petrochemicals Ltd, whose current insurance cover is coming to an end in May and it has so far not found any insurer willing to hedge its risks.

India is Iran's second-largest buyer after China, taking around a quarter of its oil exports worth around $1 billion a month. India's refiners have already slashed imports from Iran as they joined other major Asian buyers in reducing purchases to secure waivers from the sanctions.

Iran is heavily dependent on India and China as it has few takers for its oil due to the sanctions. In return it offers liberal credit terms to the Indian oil companies such as MRPL and Hindustan Petroleum which are able to cut costs.

However, with the sanctions creating problems, MRPL plans to lift 40 per cent less oil under its annual deal with Iran in the fiscal ending March 31, while Essar Oil aims for a 15 per cent reduction.

The two companies have a deal to pick 100,000 oil barrels a day from Iran in 2012-13. The biggest public sector oil refining company Indian Oil imports very little oil from Iran. Similarly, Bharat Petroleum has also reduced its dependence on the Iranian oil.

Courtesy: Mail Today