Petroleum Ministry Offers Olive Branch To Shipping Cos

The petroleum and natural gas ministry has informed the surface transport ministry that domestic shipping companies will continue to get priority for transport of crude oil imports even after the cost plus formula is removed from April 1.

The surface transport ministry, which had sought a review on the removal of the cost plus formula, was informed that there was no alternative since the administrative pricing mechanism in petroleum products was being dismantled. Besides, new refining capacity was coming up in the private sector, where the rates are entirely market-determined.

The two ministries have set up a two-man committee to work out modalities to address the shipping industrys problems following the elimination of the cost plus formula, sources said. Elimination of the cost plus formula will not automatically result in international shipping companies flooding the country, the sources added.

 

Domestic shipping companies, led by the Shipping Corporation of India, had protested the decision saying it would have a negative impact on their tonnage targets. Under the cost plus formula, the shipping firms were ensured a 12 per cent return on equity.

As it is, the domestic shipping industry is beset with a number of problems and has had to revise downwards its current year tonnage target from 7 million tonnes to 6.8 million tonnes. Besides it was not possible to make fresh acquisitions given the prevailing freight rates, sources said.

They said the petroleum ministry had informed the domestic companies that their interests would be taken care off even after the elimination of the cost plus formula. This would mean that all crude oil imports of the Oil Coordination Committee will be made through domestic flag carriers, though the tariffs would be based on the Baltic Freight Index movements.

Shipping companies prefer voyage charters to time charters. Under a voyage charter, a ship is hired only for a particular voyage, whereas under a time charter the shipper locks into a particular rate at a definite period of time.

At present, international voyage charter rates are around $60 per tonne against $97 per tonne in January 1997.

According to industry sources, even at these rates SCI was better-off than its competitors as it had 27 crude oil tankers with an average age of over seven years. Older vessels are better positioned to quote low rates as opposed to newer vessels.