The much-hyped Indian Energy Insurance Pool (IEIP), meant to provide cover to domestic refineries processing crude oil imported from Iran, could be a non-starter, as oil companies aren’t keen on the government’s offer.
The overall pool wasn’t enough to cover even a single refinery, oil companies said. The government’s reluctance to provide a sovereign guarantee to the pool is also holding companies back. A Hindustan Petroleum Corporation official said, “The cover they are offering may stand at Rs 2,000-5,000 crore for one refinery. How would it be possible for us to buy crude oil with this, unless they assure us a sovereign guarantee on this? Apart from this, there is concern over shipments, too.” Asked about the future of IEIP, Financial Services Secretary Rajiv Takru said, “We offered a fund of Rs 2,000 crore for oil companies which, according to our research, was good enough to cover the risk. We cannot force the companies if they are not happy with it.”
Domestic insurance companies were reluctant to cover the oil imports, as sanctions by the United Nations and the European Union made it difficult for these companies to find reinsurance in European markets, to hedge risks. Reinsurance accounts for about 90 per cent of the overall insurance cover. In the absence of reinsurance hedging, the companies were seeking a sovereign guarantee.
According to a Reuters report, crude oil imports from Iran fell 42.5 per cent during the first half of this year, against the corresponding period of last year. In June, imports dropped 59.4 per cent, against the year-ago period.
An official close to the development said all the companies, except Essar Oil, had stopped crude oil imports from Iran since March.
During 2012-13, Mangalore Refinery and Petrochemicals Limited (MRPL) cut its imports from Iran 39 per cent to 3.8 million tonnes (mt), against 6.2 mt in 2011-12.
According to reports, Iran had offered a sovereign guarantee of up to $1 billion per incident for ships sailing to India. But there was uncertainty on the offer. “There is no clarity regarding the insurance cover they are offering,” said P P Upadhya, managing director, MRPL. “I have not heard anything officially regarding this.”
Because of reinsurance woes, Hindustan Petroleum Corporation, as well as others, were considering other options, including importing from other countries such as Saudi Arabia and Kuwait.
In another development, about 131 members of the US Congress, including Republicans and Democrats, have written to US President Barack Obama, seeking the sanctions it had imposed on Iran be revisited. It is believed with Hassan Rouhani taking charge as president of Iran from August 3, the country’s equations with the US may change, leading to the sanctions being lifted.