MRPL pays 70% premium to Mercator to haul Iran crude

MRPL pays 70% premium to Mercator to haul Iran crude

Bangalore: Ship owner Mercator Ltd is hauling crude oil from Iran at a 70% premium to spot market freight rates to Mangalore Refinery and Petrochemicals Ltd after a European Union tanker insurance ban, at a time when transportation costs have fallen on an oversupply of vessels.

Mercator charged a little over $11 a tonne of oil as freight, compared with the $6.7 per tonne market rate when the state-run refiner last week hired its Omvati Prem oil tanker to carry 85,000 tonnes of Iran crude, according to two people with direct knowledge of the shipment.

A Mercator spokesman declined to discuss the rate, citing confidentiality.

Mangalore Refinery managing director P.P. Upadhya said Mercator had initially asked for a rate of worldscale 148, but settled for worldscale 124. This was the rate at which the refiner had finalized an annual contract with Great Eastern Shipping Co. Ltd.

Worldscale points are a percentage of a rate for more than 320,000 routes. These rates, quoted in US dollars a tonne, are revised every year by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates. They make it easier for vessel owners and oil firms to negotiate hire rates.

“My whole purpose is to bring Iran crude. If you think I have paid a premium to Mercator, then I have paid a premium," Upadhya said. “But we will be adjusting the Mercator shipment with the minimum of six shipments a month given to Great Eastern under the annual contract that began in April."

After the European embargo from 1 July, Great Eastern has halted Iran shipments.

Great Eastern stopped shipments from Iran for Mangalore Refinery due to a lack of insurance cover, a company spokeswoman said. The pact has clauses allowing the firm not to ply a route if adequate cover was not available, she said.

“It’s a question of demand and supply," said a top executive with another Mumbai-based tanker owning firm and the second person mentioned earlier. “Availability of ships has been drastically reduced for trading in Iran due to the EU insurance ban." He, too, declined to be identified.

Mercator was the only tanker owner that responded to government ship-chartering department Transchart’s 30 July tender on behalf of Mangalore Refinery for carrying the cargo. Transchart arranges shipping for state-owned firms. The shipping ministry, which oversees Transchart, declined to comment.

“The tanker market now is in the dumps; so even at the rate of worldscale 124, Mercator will not be able to break-even (cover ship-operating expenses) for the voyage," said the second executive.

Mercator is the only local tanker company, among the five operating in India, to accept an emergency insurance scheme by United India Insurance Co. Ltd to replace European insurance cover.

The state-run insurer provided Omvati Prem cover worth $50 million against pollution damage, wreck removal and personal injury claims. It also agreed to provide a separate cover of up to $50 million for hull and machinery to protect ships against physical damage.

Local tanker owners such as Shipping Corp. of India Ltd, Great Eastern, Essar Shipping Ltd and India Steamship stayed away from participating in the Transchart enquiry saying the scope of the United India cover was not adequate enough for them to move crude from Iran.

India, the world’s fourth biggest oil importer, buys about 8-10 shipments a month on an average from Iran, mainly to its refineries on the western coast, but the European Union sanction has crippled the shipments.

The United India cover of $50 million per shipment is just a fraction of the $1 billion cover per claim Indian owners got from European insurers that used to underwrite cover for around 95% of the global tanker fleet.

Omvati Prem is currently loading crude at Kharg Island, Iran’s biggest oil export terminal, before starting its journey to New Mangalore port on India’s western coast.