Ferrying oil in Iran ships may violate port rules

Bangalore: The shipping ministry will allow state-run oil refiners to import Iranian crude in ships arranged by the Persian Gulf nation to sidestep a European Union (EU) ban on insurance for such shipments from 1 July, but that may violate new port entry rules notified by the government in April.

The shipping ministry has permitted state-run oil refiners to buy Iranian crude on a so-called cost, insurance and freight (CIF) basis for a period of six months beginning 1 July or until General Insurance Corp. of India (GIC) provides cover or EU-US sanctions are lifted, whichever occurs earlier. Under CIF contracts, the responsibility of shipping the crude lies with the Iranian supplier.

However, this could be at risk from new port entry rules. To execute the plan, crude suppliers in Iran will have to use state-run National Iranian Tanker Co. (NITC) to ship crude to India. NITC itself is covered under sanctions and runs on insurance given by local Iranian companies. The cover provided by Iranian firms to ships from that country is unlikely to be acceptable to India because it does not conform to the rules notified in April, said shipping law experts.

India-registered ships are exempted from these rules.

“The operator of vessels other than Indian vessels shall have a valid protection and indemnity insurance policy against maritime claims to enter into Indian coastal waters,” M.C. Jauhari, joint secretary at the shipping ministry, wrote in the 20 April 2012 gazette notification of the rules. A shipping ministry spokesperson declined to comment.

The notification has defined protection and indemnity insurance as insurance provided by the members of the London-based International Group of Protection and Indemnity Clubs (IG Clubs) or such other insurance company as authorized from time to time by the government of India.

“The waiver contradicts the port entry rules,” said Amitava Majumdar, partner at Mumbai-based shipping law firm Bose and Mitra and Co.

“Unless vessels that carry crude from Iran on CIF basis are covered by IG Clubs, which is unlikely given EU sanctions, or are covered by an approved insurance company as notified under the rules (the list of approved insurers has still not been notified under the said rules till date) or are Indian flag vessels (excluded from the rules but can’t carry crude from Iran due to the EU insurance ban as well as the hull and machinery insurance restrictions imposed by Indian insurance companies), the vessels won’t be allowed into Indian territorial waters or into any port in the country under the port entry rules,” he said.

“Thus, under the present Indian regime, vessels that are hired by the shippers for the carriage of crude from Iran to India, including Iranian ships (which are not insured by IG Clubs), will not be permitted entry into Indian territorial waters,” he said.

In shipping, third-party liabilities arising from operating ships such as oil pollution, wreck removal and damage to port property are commonly referred to as protection and indemnity (P&I). Globally, the third-party risks associated with operating ships are insured with IG Clubs.

Under the proposed EU sanctions, IG Clubs will no longer be able to provide this cover to ships that haul Iranian crude oil from 1 July.

A shipping ministry waiver to allow refiners to buy crude from Iran on CIF basis is necessary because a federal policy mandates all government-owned/controlled cargo to be purchased only on free-on-board (FOB) basis that favour local fleet owners while making the shipping arrangement. In FOB contracts, the responsibility of making the shipping arrangement rests with the (Indian) buyer.

p.manoj@livemint.com