India to get six ships from Iran joint venture3 min read . Updated: 09 Apr 2013, 12:01 AM IST
The move will help ships owned by Irano Hind Shipping avoid Western sanctions imposed on Iran
Bangalore/New Delhi: To help ships owned by Irano Hind Shipping Co. escape Western sanctions, Shipping Corp. of India Ltd will get possession of six of the seven vessels owned by the joint venture after it was wound up last week.
The venture between India’s biggest ocean carrier and Islamic Republic of Iran Shipping Lines was wound up on a proposal put forward by the Iranian government after the sanctions against the oil-rich country for its nuclear programme made it difficult for the fleet to secure business.
All the six ships Shipping Corp. gets after the dissolution will be registered in the country and fly the Indian flag.
“Iran Shipping Lines were very keen to break the joint venture and had moved this resolution in July last year. While they had a 51% stake in it, our stake was 49%. Even as they were not getting much business due to sanctions, the firm had a positive net worth of $75 million, with loans of $80 million," a senior official at India’s shipping ministry said, requesting anonymity.
Since no banking institution was willing to engage the company over the outstanding loans, it was decided that Shipping Corp. will assume liability of repaying the loans and get six vessels as recompensation.
“It was a fair arrangement," the ministry official said.
Curbs imposed by the West on Iran for its suspected nuclear weapons programme have affected the offtake of crude oil from Iran, which has the world’s second largest oil and natural gas reserves. During April-December 2012, India imported 9.69 million tonnes (mt) of crude from Iran valued at ₹ 24,814 crore.
After the sanctions, Iran has slipped to the seventh position (April-December 2012) as a supplier of crude oil to India from the second spot in 2009-10.
Irano Hind Shipping was formed in Iran in March 1975 on the basis of a bilateral agreement between India and Iran. Shipping Corp. invested $490,000 at that time for a 49% stake.
“We have got back the money many times over," a company spokesman said. “The company was paying dividends every year."
Out of the seven ships that formed its fleet at the time of the winding up, three were laid up due to lack of work while the rest were operating in Iran, the spokesman said.
Islamic Republic of Iran Shipping Lines could not be immediately contacted for comment.
India is the world’s fourth largest oil importer and a major customer for Iran’s 1.7 million barrels per day of oil exports. India has been facing difficulty in accessing Iranian energy supplies due to the sanctions. Earlier, state-owned Bharat Petroleum Corp. Ltd could not pay for imports of Iranian crude in 2011-12 on lack of payment options and had to settle it in Indian rupees.
“We cannot totally stop importing crude oil from Iran. We are looking at diversifying our supply base and hence increasing imports from Venezuela and Iraq," a government official said, but declined to be identified. “In fact, Iraq has replaced Iran as the second-most important source of crude oil supplies in our energy basket."
Taking a cue from the US, the EU has banned the purchase, transport, finance and insurance of Iranian oil from 1 July 2012, reacting to Iran’s nuclear programme. Iran claims it is developing nuclear weapons for peaceful purposes.
Following the EU ban, the International Group of Protection and Indemnity Clubs (IG Clubs) has stopped providing third party liability cover to ships hauling Iranian crude. IG Clubs, a 13-member group, insures around 95% of the world’s tankers, placing a $1 billion limit on individual claims that involve pollution damage and wreck removal.
To replace this cover, India’s state-run insurer United India Insurance Co. Ltd started a package providing $50 million in protection and indemnity insurance that covers liabilities such as pollution damage, wreck removal and personal injury claims. It is also providing another $50 million in hull and machinery insurance which covers physical damage to the ship. Mercator Ltd was the only Indian tanker company to accept the United India cover and travel to Iran for hauling crude into India.
Not only have the sanctions made it difficult to get insurance for ships moving cargo to and fro from Iranian shores, even the Indian refineries using Iranian crude are finding it difficult to get insurance. To work around the problem, India plans to set up a fund to back local insurers providing cover for refiners processing Iranian oil.
India needs external sources for energy imports given the limited nature of India’s domestic energy sources. India’s dependence on imports is as high as 80% for crude and 25% for natural gas. The country’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) now to around 1,500 mtoe, according to India’s oil ministry.