The special insurance pool arrangement by the Government meant to provide cover for domestic refineries processing crude oil imported from Iran is likely to be a non-starter. This follows the six-month waiver on sanctions imposed on Iran for its nuclear activities, following which global reinsurers could begin providing cover to Iran’s oil trade.

The Government had envisaged setting up a Rs 2,000-crore energy insurance pool, with General Insurance Corporation as its manager, and contributions from state-owned insurance companies and oil refineries.

Speaking to Business Line , Financial Services Secretary Rajiv Takru said, “While the Finance Ministry is ready to set up the pool, the clients (oil companies) are yet to come forward.” He said most oil refineries are waiting for the West to lift the sanctions.

Limits on payout The US on Monday approved a waiver to ease sanctions on Iran, as part of an international deal. This follows Iran taking steps to curb its disputed nuclear programme. However, according to industry officials, it is still not clear whether the earlier restrictions on global re-insurers had been lifted.

At present, Indian general insurers provide cover to oil refiners and then re-insure the risk with global re-insurers. But with Iran under US/EU sanctions, global re-insurers provide cover with a “sanction clause” that limits the payout in case of a claim.

“Currently, most of our reinsurance treaties are with European re-insurers. While they have been saying that sanctions on Iran will be removed, we are waiting for an official declaration from them,” said a senior official from a public sector general insurance company.

The setting up of the proposed energy pool has also been plagued by other issues. While the Finance Ministry has been asking for upfront payment of an initial tranche of Rs 500 crore from the Petroleum Ministry to set up the pool, the Oil Industry Development Board (a subsidiary of the Petroleum Ministry) has been asking them to go ahead with a bank guarantee.

The other big hurdle to the pool is the size of the insurance cover, which is limited to Rs 2,000 crore, which the domestic refiners feel is insufficient.

comment COMMENT NOW