The Hindu Business Line : Age norms for product tankers take effect

THE age norms prescribed by the Director General of Shipping for chartering of crude and product tankers by domestic oil firms took effect from Thursday amidst fears that the guidelines may jack up the freight rates of oil companies.

As per the guidelines issued by the DG (Shipping), domestic oil entities cannot hire crude and product tankers (both foreign and Indian flag) that are more than 25 years of age for hauling their cargo into the country.

Besides, the domestic oil firms can hire crude and product tankers of 20 years and above, but up to 25 years only if such vessels have the mandatory Condition Assessment Programme 2 (CAP 2) rating for hull, machinery and cargo equipment either from a full member of the International Association of Classification Society or the Indian Register of Shipping.

The guidelines will also cover vegetable oil importers as the regulator has clarified that the age norms for crude and product tankers will be strictly enforced irrespective of the cargo carried by them. In other words, if product tankers carry edible oils, such tankers will also be banned from entering Indian waters if they do not conform to the age norms.

Tanker charterers and oil terminal operators fear that the age norms may lead to increase in freight rates due to restricted availability of vessels. "The freight market is always dependant on the demand and supply situation. When there is a restricted availability of vessels in the market, the freight rates go through the roof," said a tanker charterer.

The age norms will also force oil companies to hire younger tankers, which commands a good premium in the market over older tonnage, which generally quotes lower freight rates.

"Crude oil transportation cost constitutes a significant portion of the overall input costs of refineries and the need for controlling such freight costs becomes even more important in a volatile freight market," an official with one of the leading domestic State-owned oil companies pointed out. For instance, the prevailing freight cost from West African countries even through relatively young very large crude tankers (VLCCs) is in the range of $1.50 to $2 per barrel, which constitutes more than 6 per cent of the crude oil cost. On an annualised basis, the oil transportation cost of IOC alone for 2003-04 is expected to be about Rs 1,700 crore.

The DG (Shipping)'s move is mainly to prevent possible environmental hazard from sub-standard foreign flag oil tankers calling at the Indian ports.

With the European Union banning old tankers from their ports following the breaking-up of the oil tanker "Prestige" off the coast of Spain in November 2002, it is feared that many such tankers will be available for trading between the Gulf, Africa and Indian ports, where there is a substantial requirement for chartering of oil tankers. "Our national legislation and deterrent methods need to be tightened to ensure that greater accountability and financial responsibility from such sources of potential risk are in place," a DG (Shipping) official said. But, tanker charterers feel that loading terminals world over are putting restrictions on ships either by age or by imposing standards.

"All the crude imported by India are from countries where the loading terminals have placed age/quality standards on ships. So, there is no need for putting any further age restrictions by our maritime administration," a tanker charterer said.

While another oil importer suggested that the regulator should not ban vessels by age but by setting standards. "For instance, the European Union has banned single hull oil tankers carrying only fuel oil from their shores. Here, the focus of the DG (Shipping) is not on oil pollution, but only on ageing tankers irrespective of the cargo carried by them. This is intriguing," he added.