BackMRPL says tanker owners not keen on United India cover
MRPL says tanker owners not keen on United India cover
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Bangalore: Mangalore Refinery and Petrochemicals Ltd (MRPL) said local tanker owners were reluctant to accept state-backed insurance to haul crude from sanctions-hit Iran fearing retribution from European banks that have lent them money to buy ships.
“Indian ship owners have borrowed a lot of money to buy ships from European banks who will question them if they switch cover," P.P. Upadhya, managing director of MRPL, said in a phone interview from Mangalore on Thursday.
Most loans to buy vessels require insurance against risks including spills and collisions, and banks will normally only accept cover provided by members of the London-based International Group of Protection and Indemnity Clubs (IG Clubs), said an executive at a London-based shipping and asset-finance law firm. He did not want his or his firm’s name to be mentioned.
“If the insurance is not in a form that’s acceptable to the bank, that’s an immediate event of default and the bank would have the right to foreclose," the executive said.
Upadhya rejected local tanker owners’ contention that the emergency cover extended by state-run United India Insurance Co. Ltd to ships willing to bring crude from Iran was inadequate. “It’s a cock and bull story," he said. “Even if United India gives them $1 billion cover to replace the one stopped by European insurers they will not go to Iran." S. Hajara, chairman and managing director of state-run Shipping Corp. of India Ltd, said United India’s cover was not acceptable for several reasons besides its size, such as terms providing cover per voyage rather than per incident.
“There are lots of problems with the cover," said Hajara, who is also president of the Indian National Shipowners’ Association.
United India is providing $50 million in protection and indemnity insurance to cover liabilities such as pollution damage, wreck removal and personal injury claims, and another $50 million in hull and machinery insurance.
IG Clubs, on the other hand, offers up to a $1 billion cover on individual claims, including for pollution damage and wreck removal. But the 13-member group, which insures around 95% of the world’s tankers, stopped providing third-party liability cover to ships hauling Iranian crude following the EU ban.
Mercator Ltd is the only local tanker firm to have accepted United India’s cover to travel to Iran for MRPL. But Mercator ’s managing director Atul J. Agarwal too said United India’s emergency policy “is an improper cover," adding that the company was sailing to Iran in “national interest" despite the risks involved.
Great Eastern Shipping Co. Ltd, which was contracted by MRPL to haul crude from Iran, refused to go to the country after the EU sanctions, saying it could not find adequate insurance, rejecting United India’s cover.
Upadhya said that after the EU ban, MRPL had offered to arrange third-party liability cover to ships of Great Eastern through its agents in Iran to help continue the shipments. “But Great Eastern refused this offer from MRPL," he said.
Great Eastern could not be reached immediately for comment.
The MRPL managing director said if local tanker owners continued to avoid trips to Iran, his firm would buy crude from the Persian Gulf nation using ships and insurance arranged by Tehran. The Indian government has allowed this plan on a case-to-case basis to bypass the EU ban.
“If they don’t get their act together and go to Iran with cover extended by United India insurance, we will buy on cost, insurance and freight (CIF) basis," Upadhya said.
“We have already got a CIF shipment from Iran at a rate much less than what was finalized with Mercator last week for a spot shipment on free-on-board (FOB) basis," Upadhya said. “Why should I pay more to Indian shipping companies. If I buy on CIF basis, ultimately they will lose. Their ships will not be used; they will remain idle."
MRPL hired Mercator’s tanker Omvati Prem at $11 a tonne of oil as freight for shipping 85,000 tonnes of crude from Kharg Island to New Mangalore when the prevailing market freight rate for the route is $6.7 a tonne for tankers of a similar capacity. The market rate varies according to the capacity of the tankers.
Under CIF contracts, the responsibility for shipping the cargo rests with the supplier/seller. In the case of FOB deals, the buyer has to make the shipping arrangement.
MRPL has been scrambling to maintain oil imports from Iran after EU sanctions blocked third-party liability cover to ships. As against an average of four shipments a month, MRPL could import only one cargo of 90,000 tonnes in July from Iran. In August so far, it has received one shipment of 93,000 tonnes. Both shipments were carried by Iranian tankers.
United India Insurance said it cannot raise its insurance limit. “There is no scope for enhancing the limit beyond $50 million for each category simply because re-insurance is not available. And we don’t have the financial strength to increase the limit on our own," a spokesman for United India said.
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