Bangalore: India has extended approval by six months, beginning 28 December 2013, for two Iranian ship underwriters to provide insurance for container, tanker and bulk vessels calling at Indian ports.

The three-month approval by India for Iran’s Kish P&I Club and Moallem Insurance Co. to cover Iranian ships calling at Indian ports lapsed on 27 September.

An Indian government committee headed by the director general of shipping, which clears such extensions, also agreed to Iran’s request for more time on India’s demand for a 2,300 crore bank guarantee in Indian rupees as a pre-condition for allowing Iranian ships with Iranian insurance cover to enter Indian ports.

“We have recommended renewing the approval granted to the two Iranian ship underwriters by another six months each," Gautam Chatterjee, India’s director general of shipping (DGS), said.

DGS is India’s maritime regulator.

The approval to the two Iranian underwriters has so far been granted on a quarterly basis beginning March 2013.

“A further extension after a new three-month approval would have come around the time India goes to the polls to elect a new government at the centre. Once the model code of conduct for elections takes effect, no decisions can be taken. Hence, we have recommended a six-month extension this time, and this has been accepted by the government," Chatterjee said.

“Iran has sought additional time to discuss and resolve at the diplomatic level India’s demand for a 2,300 crore bank guarantee in Indian rupees to pay for damages in the event of a mishap. This will take time," Chatterjee said.

In December, the DGS had asked Iran to submit the bank guarantee through an Indian bank to cover any potential liability in the event of maritime accidents occurring in Indian waters.

“A guarantee in any other currency would be meaningless in view of the western sanctions on Iran’s disputed nuclear programme," said a spokesman for India’s shipping ministry in Delhi.

Iran had conveyed to India that its two ship underwriters were backed by a sovereign guarantee from its government.

India, however, was not comfortable with this assurance in the absence of clarity on who will pay and how or in what currency in the event of a mishap, and sought a bank guarantee in rupees.

“Iran has a rupee account with India’s state-owned UCO Bank through which it can give the bank guarantee in rupees," Chatterjee said.

Unlike payments for its oil imports in dollars with other countries, India and Iran have worked out a complex mechanism that allows India to pay for its oil in rupees, which are then converted into physical goods that flow into Iran.

The payments are made to the Kolkata-based UCO Bank where Iran has opened an account.

The rupee deposit is then used to pay Indian exporters, obviating the demand for dollars.

India, the world’s fourth biggest oil importer, has struggled to get tankers and insurance for transporting oil from Iran after the US and the European Union imposed sanctions from July 2012 on the Persian Gulf nation to curb its controversial nuclear programme.

The western sanctions targeting Iran’s disputed nuclear programme have meant insurers based in Europe—who account for the majority of cover for the tanker market—cannot insure Iranian oil and other shipments, leading to the emergence of new, untested insurance providers.

The Gulf nation on 24 November 2013 signed an accord with world powers, agreeing to curtail its nuclear activities in exchange for as much as $7 billion in relief from sanctions.

The partial and temporary easing of sanctions against Iran in November by the US and the European Union in return for a freeze on Iran’s nuclear programme includes the revoking of the shipping insurance ban.

However, with the western insurers yet to receive any official confirmation on the removal of the ban, Indian crude buyers still need to depend on Iranian tankers to receive Iranian crude.

Following the 2012 ban, the National Iranian Tanker Co.’s tankers have been used to ship crude from Iran to buyers in India.

Exporters of non-oil commodities and industrial goods use the vessels of Iran’s Hafiz Darya Shipping Lines (HDS) and Safiran Payam Darya Shipping Lines (SAPID).

India’s imports of Iranian crude fell to 13.3 million tonnes (mt) in the year ended March 2013, from 18.1 mt in the previous fiscal.

Between April-November 2013, India imported around 6.5 mt of crude oil from Iran.

India plans to purchase 11 mt of Iranian crude in the year ending 31 March 2014.