Rs 2,000 cr insurance to refiners for using Iranian oil soon

After Petroleum Ministry agreed to provide funds, the Finance Ministry has initiated the process of setting up of a Rs 2,000-crore fund to provide insurance cover to domestic refineries that process crude oil imported from Iran.

Petroleum Ministry has agreed to provide first tranche of Rs 500 crore from Oil Industry Development Board (OIDB), a senior official in the Finance Ministry said.

It has also agreed to provide the second tranche of Rs 500 crore as the next tranche, the official said, adding, the process of setting up the fund was held up as money from oil industry had not come so far.

The proposed Indian Energy Insurance Pool (IEIP), created by contributions from both insurance companies and the Oil Industry, would be managed by re-insurer General Insurance Corporation (GIC).

The insurance pool had been necessitated as domestic insurance companies were reluctant to cover to refiners processing Iranian crude, as sanctions by the United Nations and the European Union made it difficult for them to find reinsurance in European markets, to hedge risks.

In the absence of reinsurance hedging, the insurance companies were seeking a sovereign guarantee. Reinsurance makes up for 90% of the insurance cover provided.

The move to create the insurance fund assumes significance in the light of Finance Minister P Chidambaram's recent statement that India may import higher crude within the UN sanctions and save on dollar expenses.

"Within the UN sanctions and fully complying with the sanctions, there may be more space for imports from Iran," he had said in Parliament recently.

Unlike other exporters, India pays Iran in rupees in a Uco Bank branch in Kolkata. Payment for Iranian imports, which may top $1 billion a month, will help cut a part of the $15 billion oil bill every month.

Chidambaram's idea to raise Iranian import is aimed at cutting the burgeoning current account deficit (CAD).

Under the plan, Iranian oil would be purchased with Indian rupees, which Iran would then use to buy Indian goods potentially including food, drugs, consumer products and auto parts for shipment to Iran.

India, the world's fourth-biggest oil importer, has struggled to get tankers and insurance for transporting supplies from Iran after the US and the European Union imposed sanctions on the Persian Gulf nation to curb its controversial nuclear programme.