The Hindu Business Line : Transporting crude

THE state-owned oil refiner, Indian Oil Corporation (IOC), is firm on securing freedom to make its own shipping arrangements (currently arranged through the centralised chartering wing, Transchart, functioning under the Shipping Ministry) for importing crude as one of the ways to maximise its bottomline.

Scotching fears lurking in the domestic shipping industry that this may lead to loss of crude cargo support, the IOC Chairman, Mr M. S. Ramchandran, told Business Line that the company would follow the Government policies and rules to the last point.

"Let the Indian shipowners have no fears on this score. IOC will continue free-on-board (f.o.b) purchase and support Indian tonnage. The only difference is that instead of Transchart doing the job for us, we will do it ourselves once the Cabinet approves the proposal," he stated.

IOC buys about 18 billion worth of crude annually, paying huge amount as freight for transporting the crude to its refineries in India.

With shipping costs on the rise, IOC pays $4-5 million for a VLCC (very large crude carrier) from West Africa. "It comes to a ridiculous 7-8 per cent of the total crude oil cost. In the olden days, the freight was less than 2 per cent of the cost and freight (C&F).

Now, it is substantially more. IOC pays about Rs 2,000 crore towards its annual shipping bill. I am now interested in maximising the bottom line of IOC," Mr Ramchandran disclosed.

According to the Chairman, IOC can do a good job of making its own shipping arrangements. The company had created a shipping group way back in 1974, manned by professionally qualified people.

"This will become a cost centre. They will be held accountable for their activities and responsible for the bottomline. There will be clear targets given to them. Then, they cannot say that somebody else is doing the chartering job for us," he said adding that, today, the blaming game is going-on. "My people are blaming Transchart and Transchart is blaming us," he noted.

Very much a government company, with the Centre holding 82 per cent stake, IOC has to follow the Government policies in toto. "I'm a servant of the Government. I'll be thrown out, if I don't follow the policies," he said.

Mr Ramachandran dismissed fears that IOC will opt for C&F contracts if granted freedom to make its own chartering arrangements. Currently, IOC tenders for both f.o.b and c&f, but buys f.o.b. out of choice. "Invariably, we try f.o.b purchases because we get f.o.b tonnage and the suppliers know that we promote f.o.b purchases. But, as the Petroleum Ministry has pointed out, we should not be denied an opportunity to do c& f if the terms are better than f.o.b," he said.

IOC has told the shipping industry that it had no issues with them.

"As for policy, IOC is no different from Tanschart. "But, execution, leave it to us. Whatever is happening today will happen in our control. We will fix the freight rates and the terms of the charter party. Nothing else will change. I am responsible for my bottomline. Besides, IOC wants to make substantial improvements in the charter party in favour of the charterers because I am a charterer.

"For instance, I must know what is the cargo retention clause in the charter party. We have pre-fixture and post-fixture problems. IOC has been trying its level best to convince Transchart to change the charter party without success," the Chairman explained.

He made it clear that nobody can take any advantage since the operations of IOC are audited by an internal auditor of the company, then there is a company audit followed by a perpetual audit by the Government — the Comptroller and Auditor General of India (CAG), who is supposed to look into the propriety; who is supposed to see whether IOC adheres to the policies of the Government.

Also, there is a Committee on Public Undertakings, which is a multi-party committee; then, a Standing Committee of Parliament, and an Estimates Committee of Parliament.

You can even ask Members of Parliament to raise a question in Parliament that IOC is not following government policies. "IOC is under a constant spotlight," he said.

The IOC chief said that the company was looking at saving money at every stage of the supply chain management right from the acquisition of crude to the time the petrol goes into the motorists tanks. "You hang me by the neck at the nearest lamp pole if I do anything wrong," he asserted.

Mr Ramchandran also revealed that IOC is keen on entering into shipping futures to limit its exposure in an increasingly volatile freight market.