The Hindu Business Line : Bunkering to fuel growth for oil firms

WITH the Indian shipping industry registering an all-time high growth rate, the domestic oil companies are increasingly looking at bunkering business as a potential avenue to increase their fuel sales volume. Oil companies are thinking in terms of tying up with foreign bunkering majors and registering themselves with the International Bunker Industry Association, which has 450 members from over 60 countries.

HPCL, the second largest bunker supplier after Indian Oil Corporation (IOC), has taken the lead in this regard, entering into a preliminary agreement with Chevron Texaco's Fuel and Marine Marketing LLC recently. The agreement will allow HPCL to fuel all Chevron Texaco vessels berthing at Indian ports.

Notwithstanding the potential available in this sector, the bunker market has hardly grown due to high prices and inadequate port infrastructure. The domestic bunker market now stands at a measly 0.5 million tonnes, as against Singapore's, Rotterdam's and Fujairah's bunker volume of 18 million tonnes, 15 million tonnes and 10 million tonnes respectively.

"With so many ships plying between Singapore and Fujairah, we can easily get a chunk of this market, as the ships would find it convenient to replenish their fuel at Indian ports," an oil industry source pointed out.

The major factor for the tardy growth of the bunker market is the price factor. With the bonded bunker prices in India being almost 50 per cent higher than those prevailing at Singapore, Rotterdam or Fujairah ports, foreign vessels uplift bare minimum bunker quantities at Indian ports. Even Indian shipowners procure most of their bunker requirements at foreign ports. Hence, bunker supplies at Indian ports are mostly limited to Indian Navy, merchant ships on coastal run, including tankers that are time chartered by oil companies and Shipping Corporation of India's passenger ships.

While the bunkering prices of fuel oil at Mumbai port is $263 per tonne, at Singapore and Fujairah ports, the prices are less than $193 and $191 per tonne respectively. According to an oil industry analyst, "The bunker prices in India must be brought to international levels if the bunkering potential has to be exploited in a big way. The difference in bunker prices in India and foreign ports significantly increases due to addition of sales tax, which varies from State to State."

A recent study by the Indian Ports Association at Vizag port had shown that while the base price of bunkers at Vizag are comparable to the rates prevailing in Singapore or Fujairah, it is the high taxes and duties that shore up the prices, putting the Indian bunker trade at a disadvantage.

The average tax component has been worked out to be at Rs 1,312 per tonne, which is seen as the major reason for the abysmally low bunker lifting of only 0.55 million tonnes at Indian ports.

Thus, for bunkering activities to pick up at Indian ports, analysts feel that the Government should reduce the tax and duty burden on bunkers.

Inadequate port infrastructure is another reason for the poor offtake of bunkering supplies in India, though bunkering services are available at most of the major ports in India. For the ports to strengthen their bunkering services, it has to be ensured that quality bunkers are supplied at internationally competitive prices with round-the-clock operations.

Further, ports should have designated bunker berths or anchorage with pipeline and barge facilities, backed by a lower port tariff and adequate support services for ship supplies, spares and crew change. Also, it is felt, facilities for mid-stream delivery should be improved, apart from the existing facilities for bunker supply beyond port limits and at tanker berths.

The shipping industry is also increasingly facing the need for upgrading bunkering services at Indian ports, as a major slice of the tonnage engaged in overseas trading continues to depend on foreign ports for its bunkering requirements. Bunker costs constitute 25-35 per cent of the direct operating cost of vessels, taking into consideration a mix of different types of vessels in the fleet.

The oil and shipping industries feel that the Government should come out with a fiscal incentive scheme for making bunkering more attractive and reducing the elaborate procedures involved in Customs documentations.

All these could enable strategic Indian ports to emerge as leading bunker destinations for the international shipping trade passing through the Arabian Sea and Indian Ocean region, apart from reducing the dependence of Indian ship owners on foreign bunkering services.

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