Financial Daily from THE HINDU group of publications
Tuesday, Apr 02, 2002
SCI adding 2 VLCCs to stay fit in new scenario
NEW DELHI, April 1
HAVING lost its nodal agency status for transporting crude cargo from Monday with the dismantling of the Administered Pricing Mechanism (APM) for the petroleum sector, the state-run Shipping Corporation of India (SCI) has started the process of acquiring two new very large crude carriers (VLCCs) to position itself better in an increasingly competitive scenario for crude carriage.
Currently, the SCI does not have a VLCC on its fleet. With the Indian Oil Corporation (IOC) deciding to bring a majority of its crude cargo starting this fiscal from the Persian Gulf on VLCCs to achieve economies of scale, the SCI is inducting VLCCs on its fleet.
"It has invited price quotations from shipbuilding yards for buying two new VLCCs '', a senior Government official said.
According to market sources, the construction of two new VLCCs before June, 2004 would be a difficult task given the bulging order book position of many of the major global yards.
To overcome this hurdle, the SCI has mentioned in its tender that preference would be given to those yards who can deliver the VLCCs as soon as possible.
However, a section within the Government has questioned SCI's move to buy two VLCCs when privatisation of the state shipping line is round the corner.
"Why does SCI has to invest $75 to $80 million per vessel when the disinvestment exercise is in progress and the Government is getting out of SCI. Such vital business plans involving millions of dollars should be better left to the new strategic owner of SCI '', the official said.
The SCI in tandem with the Union Ministry of Shipping has made out a case for continuation of the nodal agency status for crude carriage on the plea that protected business in the form of continued cargo support "would enhance the value of the Government equity being sold in the company''.
According to the Government policy, with the dismantling of the APM for the oil sector from March 31, the nodal agency status granted to IOC for importing crude and to SCI for transporting crude gets dismantled automatically.
"Since individual refineries would be free to purchase and transport cargo on their own, there is no question of giving nodal agency status to anybody in the dismantled scenario'', industry sources said.
In the pre-APM era, the IOC was transporting crude through an arrangement with the SCI at a pre-determined rate based on the AFRA index.
From this fiscal onwards, it would be transporting a major portion of its crude cargo on VLCCs. Instead of going through the SCI nodal agency status, it has finalised its transportation requirements through Transchart.
Industry sources said Transchart had finalised transportation arrangements for bringing IOC crude on competitive market rates on a spot basis.
"IOC has been able to save about 20 to 30 per cent on its freight bill by resorting to this step'', industry sources said.
Instead of paying fixed freight rates based on AFRA index, it can take advantage of the highly fluctuating nature of the crude tanker market and compete with new entrants such as Reliance and Essar.
"As such, nobody can ask IOC to go to SCI for undertaking its crude transportation needs. This will be determined by market forces '', they said.
However, even while going through Transchart for fixing its transportation arrangements, the IOC will have to give first preference to Indian flag vessels as per the Government policy.
While complying with this policy, most of the crude carriage contract would go to the SCI (excluding VLCC cargo) since it has the right kind of tonnage to suit such transportation.
"Thus, the only difference is that instead of a AFRA-indexed freight rate, the SCI will now have to quote market related rates to IOC '', the sources said.
The other two oil refineries HPCL and BPCL have entered into a contract with the SCI for ferrying their crude cargo on a negotiated basis at market rates for six months this fiscal till the corporation is privatised.
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