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New Policy is likely to assure crude oil business for local shipowners

A policy seems to be in the making in the Centre, according to sources, that will go a long way in helping the domestic shipowners hit by poor business scenario; it is likely that public sector oil refineries may be asked to give long-term crude shipment contracts to them.

 As such the initiative is said to be from the PMO, the domestic shipping companies will have a say in getting committed business from PSU refiners Indian Oil Corporation, Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation.


With a firm commitment to port-led development which naturally involves shipping being given priority of significance on possible opportunities, the Centre does not lose sight of any opportunity that might boost the shipping, particularly the local shipping industry.


Almost 80 percent of India’s crude requirements are met through imports. According to the Petroleum Planning and Analysis Cell snapshot of Indian oil and gas data for June 2017, the crude oil import bill is estimated to increase 23 per cent from $70 billion in FY17 to $86 billion in FY18, taking the price at which Indian refiners buy crude at $55 a barrel, and the rupee at 65 versus the dollar.

Though PSU refiners now can source crude oil from the spot market, long-term purchase still seems to be their choice. Indian Oil still procurers about 70 percent of its crude through long-term contracts only.


Sources said IndianOil and BPCL are likely to hire an oil supertanker and a Suezmax carrier respectively on a long-term charter of as many as five years from Indian fleet owners. This would mark the first such policy designed to provide cargo support to local shipowners and help boost Indian tonnage in the carriage of crude oil.

According to two officials who spoke on anonymity, Indian Oil and BPCL will float tenders to hire an Indian-flagged very large crude carrier (VLCC) and a Suezmax tanker and the rates will be benchmarked to the Clarkson index. London-based Clarkson Plc is the world’s biggest ship broker.


The bidder offering the highest discount on the Clarkson rate will win the deal, which may also have a floor and a ceiling rate; the floor rate is the minimum rate that will not bring loss to the shipowner and the ceiling rate is the maximum rate at which the charterers will not incur loss.

The tender will be open to shipowners who already have VLCC and Suezmax tankers on their fleet, as well as to those who don’t have them on their fleet.  Newcomers, though, will have to show MoUs to purchase such foreign-flagged tankers which should be converted into Indian flags within six months of winning the contract.

These tenders for long-term hiring of Indian flag ships is a pilot project before the policy can be implemented on a full scale, said an official.

Interestingly, the Shipping Ministry has granted a so-called no objection certificate (NOC) to the PSU refiners to buy crude from the US on a cost, insurance and freight (CIF) basis, wherein the responsibility of shipping the cargo rests with the seller. The NOC was necessary because it deviated from a government policy that mandates all government-owned/controlled cargo to be purchased on a freight-on-board (FoB) basis, in which the Indian buyer will have to finalise the shipping arrangements.

The PSU refiners have to extend right of first refusal to Indian shipowners — if domestic firms are not the lowest bidders, they are offered an opportunity to match the lowest rate quoted by a foreign shipowner and take the contract.


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