Indian shippers wary of state's Iran insurance

India's top shipowners have rejected a government offer to ship Iranian oil, saying insurance provided by the state as sanctions hit alternative cover is inadequate.

Their resistance means refiners will have to use Iran's own insurers and tankers for their imports, which make India the second-biggest buyer of oil from Tehran after China.

EU sanctions from July banned insurers and reinsurers from covering tankers carrying Iranian crude anywhere in the world, forcing New Delhi to draw up its own policy. Around 90 percent of the world's tanker insurance is based in the West.

"There are many problems with the policy being offered ... No, we are not going to use it as long as problems are there," S. Hajara, chairman of Shipping Corp of India, the country's biggest ship owner, told Reuters on Monday.

State-run insurers are providing a cover of $50 million each per voyage against pollution and personal injury claims, also known as protection and indemnity (P&I) insurance, and for hull and machinery to protect ships against physical damage.

The amount is a fraction of the typical $1 billion coverage that a supertanker carrying around 2 million barrels of crude would have from reinsurers against personal injury and pollution claims.

"One of the issues is cover for incident versus voyage. There is no coverage for wayports ... International P&I clubs have tie ups with various ports but India has provided cover for only Iran," said Hajara, who before the policy was introduced, hoped to use the Indian cover.

India is the world's fourth-largest oil importer and Iran is one of its biggest suppliers. On average, there are 10 crude shipments a month from Iran to refineries on the west coast of India.

But it has cut crude imports to secure a waiver from U.S. sanctions aimed at curbing Iran's nuclear ambitions.

Private shipping company Great Eastern Shipping Co (Gesco) has also refused to carry Iranian crude with the insurance available from Indian state-run companies.

"We have conveyed to MRPL that we will not be able to lift cargoes from the sanctions-hit country due to inadequacy of the insurance cover offered by the Indian insurer United India Insurance Co," Gesco spokeswoman Anjali Kumar said.

Hajara also said $50 million hull and machinery cover for a very large crude carrier is not adequate and the shipping companies have asked for higher cover.

An oil ministry official last week said the government is considering doubling hull and machinery cover to $100 million per voyage.

So far private shipper Mercator Ltd has expressed interest in lifting Iran oil and had offered its aframax vessel Omvati Prem in an enquiry floated by state-run refiner MRPL.

"They offered Omvati Prem because it is an old vessel otherwise noone will go to Iran. No shipping company in India or in the world has a balance sheet to bear compensation arising due to a pollution incident," said a shipping expert.

According to Mercator Ltd website Omvati Prem was built in 1994.

"Our preference is to use Gesco, but now it looks like we will be left with no choice than to buy oil from Iran on CIF (Cost Insurance Freight) basis," said an MRPL official.