The Hindu Business Line : Government's buy-f.o.b policy sails into sunset

Under f.o.b deals, the importer or buyer makes the shipping arrangements while in the case of c.i.f contracts the onus of shipping the cargo rests with the exporter or seller.

The buy freight-on-board (fob) policy that was designed and introduced by the Centre in the 1960s to provide cargo support to Indian shipping is sailing into the sunset as the stipulation is being relaxed for more sectors leaving virtually nothing for Indian ship-owners.

The sector where the stipulation has been relaxed just now is foodgrains.

c.i.f. for wheat imports

The Union Food Ministry, through the canalising agency STC, recently floated tenders for importing wheat on cost-insurance-freight (c.i.f) basis, flouting the policy laid down by the Government.

As per policy, all government-owned/controlled cargoes, of departments and PSUs, should be imported only on f.o.b basis with the shipping arrangements finalised through Transchart, the chartering wing of the Government functioning under the Union Ministry of Shipping.

Any deviation in this regard should secure a no-objection certificate (NoC) from the Shipping Ministry.

Where f.o.b and c.i.f differ

Under f.o.b deals, the importer/buyer makes the shipping arrangements while in the case of c.i.f contracts, the onus of shipping the cargo rests with the exporter/seller.

STC defended its decision to import wheat on c.i.f basis arguing that it was done to save time as about one lakh tonnes of wheat had to arrive in India before March 31.

Besides, though the tender was floated on c.i.f basis, STC had put a condition that the supplier should utilise Indian flag vessels as much as possible for shipping the cargo, an official said.

But the domestic shipping industry retorted by saying that this was "just an option and there was no preference to Indian flag carriers to move the wheat cargo."

"The Union Shipping Minister, Mr T. R. Baalu has raised objections to wheat imports on c.i.f basis," an official told Business Line. "This is a very serious violation of Government policy and the matter has to be referred to the Union Cabinet," Mr Baalu is understood to have written on the file that was put up for his approval.

Interestingly, the buy f.o.b policy was first introduced in the 1960s for import of foodgrains and was then extended to other sectors such as crude and fertilisers.

"The buy f.o.b policy that began with foodgrains imports also ends with foodgrain imports," an industry official noted wryly.

Flexibility to oil PSUs

The Union Cabinet had, last November, allowed Petronet LNG Limited (PLL), a natural gas importer promoted by oil PSUs, to import LNG either on f.o.b. or on c.i.f basis.

Earlier, in April 2005, the Cabinet had also granted permission to the biggest domestic refiner Indian Oil Corporation Ltd (IOC) to make shipping arrangements for importing crude on its own without going through Transchart on an experimental basis for a year by adhering to the Government policy.

Since July 2005, IOC has been making its own chartering arrangements for importing crude on f.o.b basis and whenever f.o.b contracts were not possible, it has been seeking waiver from the Shipping Ministry for importing crude on c.i.f basis.

With the freedom granted to IOC for making its own shipping arrangements coming up for review shortly, moves are afoot by the Petroleum Ministry to seek similar freedom for other oil PSUs such as HPCL, BPCL and ONGC for importing crude bypassing Transchart.

Moreover, the Oil Ministry is planning to move the Cabinet to grant flexibility to oil PSUs to import crude either on f.o.b or on c.i.f basis in the wake of a decision to allow such a flexibility to Petronet for importing LNG.

"LNG has already been taken out of the buy f.o.b policy purview. Crude will also go slowly and eventually nothing will be left", a ship-owner remarked.

Significantly, the buy f.o.b policy has been slowly diluted by the Government after the new tonnage tax system was introduced for Indian shipping to enable the domestic shipping industry compete with its global counterparts.

"The Government gives with one hand and takes way with the other," the ship-owner said.

First shipment

The first c.i.f. (cost-insurance-freight) shipment of wheat from Australia is expected to arrive in India only around April 8.

The Government had earlier planned to import about five lakh tonnes of wheat from Australia before May 31 out of which one lakh tonne was expected to arrive in India before March 31.

"Not a single grain will arrive before March 31. The foreign flag vessel Pacific Hope will arrive at Kwinana Port in Southern Australia on March 26 for loading 35,000 tonnes of wheat and is expected to sail with the cargo on March 28 and arrive in India on April 8," officials said.