The Hindu Business Line : DGS norms on chartering LNG tankers

The new guidelines issued by the Director-General of Shipping for chartering LNG tankers may drive importers to buy the cargo on cost, insurance and freight basis to circumvent the "restrictions" imposed by the maritime regulator.

FAR FROM achieving the stated objective of promoting Liquefied Natural Gas shipping tonnage under Indian flag, the new guidelines issued by the Director-General of Shipping on July 5 for chartering LNG tankers may drive importers to buy the cargo on cost, insurance and freight (c.i.f) basis to circumvent the "restrictions" imposed by the maritime regulator.

The reason is simple: Under c.i.f contracts, the responsibility of transporting the LNG lies with the seller/supplier who will hire foreign flag tankers. Currently, private entities importing LNG into India are not restricted by law to buy only on free-on-board (f.o.b) basis. They can buy on c.i.f basis too.

"If private LNG importers find that owning a carrier under an Indian flag with an Indian partner holding a minimum of 26 per cent stake in a joint venture company, the seafarer training requirements and the transfer of technology clause restrictive, they will simply go in for c.i.f deals. The new guidelines for chartering of LNG tankers will thus result in importers buying the cargo on c.i.f basis to overcome these restrictions," an industry official said.

In the absence of a policy on LNG shipping, ideally the maritime regulator could have waited for the Union Cabinet to finalise one on the basis of a proposal framed and piloted by the Ministry of Shipping before issuing the guidelines. "This is like putting the cart before the horse," he observed. Moreover, the new DGS guidelines can be operationalised only where LNG importers buy on f.o.b. basis, wherein the transportation responsibility rests with the buyer/importer. In such a case, permission for in-chartering of LNG tankers should be obtained from the regulator. Whereas in c.i.f deals, this is not required as such cases are outside the purview of the DGS. "Hundreds of ships come regularly into India carrying cargo on c.i.f basis without requiring an in-chartering permission. The Director General cannot regulate or oversee such cases. So, if LNG importers bring their cargo on c.i.f basis, nobody can stop them if they don't comply with the conditions attached to the guidelines," the official stated.

"The current law does not make it mandatory for LNG importers to buy on f.o.b basis. So, the Government should have first taken a policy decision that all LNG imports will be on f.o.b basis only. Then, the Director General could have issued the guidelines on chartering of LNG tankers. Unless a "buy f.o.b policy" decision is in place, LNG importers will end up buying cargo on c.i.f basis much to the detriment of Indian shipping", the official reckoned.

Even public sector undertakings and government departments planning to buy LNG would be able to by-pass the DGS' guidelines sans a "buy f.o.b policy". As per a policy decision taken by the Cabinet, PSUs and government departments will have to buy only on f.o.b basis. PSUs and government departments can deviate subject to approval from the Ministry of Shipping. "Under dispensation from the Shipping Ministry, PSUs and Government departments can buy LNG on c.i.f basis as there is no separate policy for LNG", the official said.

PSUs and Government departments will seek permission to buy on c.i.f basis on the plea that they were getting quotations from sellers/suppliers only on c.i.f basis.

As per the regulator's guidelines, no licence shall be granted for chartering an LNG vessel unless registered under the Indian flag and is owned by an Indian entity either wholly or an Indian partner holds not less than 26 per cent stake in the joint venture company owning the LNG carrier.

This clause will be enforced now that the tonnage tax has been introduced by the Finance Minister, Mr P. Chidambaram, in Budget 2004-05. The LNG tankers thus hired on long-term time charter basis must employ a minimum of two Indian officers and two trainee officers/cadets (one each on the engineering and deck side respectively).

All the partners of the LNG tanker owning company must agree to transfer technology to the Indian partner such that within five years of the date of registering the vessel, the LNG carrier will be managed, maintained and operated by the Indian partner with Indian crew/personnel. The LNG importer may be allowed to fix vessels on spot basis provided the total cargo carried on such vessels does not exceed 10 per cent of the total annual imports during a financial year.

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DGS norms on chartering LNG tankers — Importers may go c.i.f way