The Hindu Business Line : IOC plan to set up own chartering wing opposed

"In the changed scenario, there is an urgent need to modify the guidelines on import by PSUs, particularly oil companies," the Petroleum Ministry has argued.

New Delhi , Nov. 10

THE Shipping Ministry has opposed a Petroleum Ministry proposal to alter the norms on ocean transportation in case of imports by public sector undertakings (PSUs) to provide freedom to oil PSUs in making shipping arrangements for oil imports.

As per Government policy, approved by the Union Cabinet on October 16, 2001, import of Government-owned/controlled cargoes should be done only on free-on-board (f.o.b)/free-alongside-ship (f.a.s) basis with shipping arrangements finalised through Transchart, the centralised chartering wing attached to the Shipping Ministry.

However, in the case of exports, the PSUs were given the freedom to opt for either f.o.b or cost, insurance and freight (c.i.f) contracts.

In line with this policy, oil PSUs such as IOC, HPCL and BPCL will have to go through Transchart for making shipping arrangements while importing crude on f.o.b basis. Any deviations from the f.o.b import policy can be carried out only after obtaining a no objection certificate (NOC) from Transchart.

However, the Petroleum Ministry feels that the oil PSUs should be granted freedom to make their own chartering arrangements without going through Transchart.

Following the dismantling of the administered price mechanism, it is imminent for the oil PSUs to minimise their ocean freight costs. In a deregulated market, oil PSUs should have the freedom to charter vessels at the most competitive rates either on f.o.b. or on c.i.f. basis depending upon market conditions instead of going through Transchart. "In the changed scenario, there is an urgent need to modify the guidelines on import by PSUs, particularly oil companies," the Petroleum Ministry has argued.

Besides, with the arrival of new private players in the oil industry who handle shipping arrangements on their own, oil PSUs should also be provided a level-playing field regarding shipping. "Hiring tankers through Transchart not only places additional financial burden but also administrative limits on PSUs as Transchart has no stakes in costs or post-fixture disputes and claims no responsibility towards risks and costs," the Petroleum Ministry has contended.

But the Shipping Ministry has refused to play ball. "There is no need to allow freedom to oil PSUs in making shipping arrangements by setting up parallel chartering organisations with additional cost to Government exchequer when such an arrangement already exists in the Government," it has countered.

This would imply a mini Transchart in each Ministry and a multiplicity of chartering organisations in each PSUs adding to cost and confusion, "detrimental to the interest of the Government", the Shipping Ministry has observed.

"The Petroleum Ministry's view that hiring tankers through Transchart places additional financial burden on oil PSUs is not tenable. On the contrary, finalising vessels through Transchart has resulted in savings to the oil industry. In the past three years, IOC alone has benefited to the tune of about Rs 200 crore," said the Shipping Ministry. IOC, a major oil importer, coughs up around Rs 1,200 crore per annum towards shipping costs, and is the main architect behind the Petroleum Ministry proposal.

Further, the risks and liability on fixture terms have to be assumed by the oil PSUs as Transchart is only vested with making shipping arrangements at lowest possible freight rates without charging any fees and without any share in profits/savings made in transportation costs.

Transchart makes shipping arrangements at most competitive freight rates to achieve the desired goal of least cost imports by oil PSUs. Its actions are subject to audit and to that extend has a stake in the import costs. It also assists in resolving post-fixture disputes whenever asked to do so.

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