Financial Daily from THE HINDU group of publications
Tuesday, Aug 31, 2004
Baalu against IOC plans to make its own shipping arrangements
New Delhi , Aug. 30
A CABINET proposal piloted by the Ministry of Petroleum and Natural Gas to grant freedom to Indian Oil Corporation (IOC) in making its own shipping arrangements directly for crude oil imports bypassing the centralised chartering wing - Transchart - will now have to sail past opposition mounted by the Union Shipping Minister, Mr T.R. Baalu.
"There is no need to make any changes in the policy and the existing system should continue for making shipping arrangements through the Chartering Wing of the Ministry of Shipping as long as IOC is a PSU, which will be in the overall interest of the Government," Mr Baalu has said in his comments to the Cabinet note.
As per the existing policy, the import of all Government-owned/controlled cargoes on behalf of Central Government Departments/State Government Departments and PSUs under them are to be finalised only on free-on-board (f.o.b)/ free-alongside-ship (f.a.s) basis with the shipping arrangements done through Transchart.
Under f.o.b. deals, the buyer (importer) makes arrangements for hauling the cargo and the `buy f.o.b policy' was put in place by the Cabinet in December, 1957 and re-affirmed in 2001 to provide cargo support to Indian shipping and to conserve foreign exchange.
The Petroleum Ministry is now seeking Cabinet's approval to amend the existing policy on chartering of ships for imports by PSUs by allowing IOC to charter ships for oil imports directly instead of going through Transchart.
Earlier, the Petroleum Ministry had, in late February, made an unsuccessful attempt to get the proposal cleared by the Cabinet during the previous NDA regime. A note sent to the Cabinet Secretariat in this regard for being listed on the agenda for the Cabinet meetings held in February was returned mainly because the Shipping Ministry had not given its comments to the proposal.
The Shipping Ministry has since given its comments to the proposal when it was re-circulated by the Petroleum Ministry as per convention with the change of Government at the Centre. In its comments, the Shipping Ministry has countered the reasons forwarded by IOC to secure freedom in making its own plans to charter ships for moving crude oil.
The domestic shipping industry has also opposed the plan fearing that IOC may opt for cost, insurance and freight (c.i.f) contracts instead of the mandatory f.o.b contracts if it is granted freedom by the Cabinet to make its own shipping arrangements. In the case of c.i.f contracts, the seller (exporter) undertakes the responsibility of shipping the cargo.
The proposal has been supported by the Ministries of Finance, Commerce and Industry, and the Planning Commission. However, the Planning Commission has sought an assurance from the Petroleum Ministry that IOC will import crude only on f.o.b basis to provide cargo support to Indian shipping.
But, the Oil Ministry has responded by stating that there should not be any restriction on IOC to import only on f.o.b basis.
"In a free market scenario, it is for the oil importing company to optimise on ocean transportation and in case c.i.f basis provides for a better deal as compared to f.o.b basis, it would be inappropriate and unfair to ask IOC to ensure imports only on f.o.b basis", the Petroleum Ministry has argued.
While concurring with the proposal, the Finance Ministry has asked the Oil Ministry to address the issue of increased cost arising out of multiple chartering organisations being set up in different PSUs as compared to the centralised chartering wing of Transchart, functioning under the Shipping Ministry catering to the needs of all.
The Shipping Ministry has argued that merely changing an agency which is in fact acting as a chartering department of IOC providing service free-of-cost will not help in cutting down the transportation costs as claimed by IOC.
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