India plans insurance fund for refiners using Iran oil

India plans to set up a special fund to provide insurance to refineries after European re-insurers refused to cover units that process oil imported from Iran.

Insurance companies in the country have refused insurance cover to refineries processing Iranian oil as they could not get reinsurance from their European counterpart. Reinsurance makes up for 90 per cent of the insurance cover provided.

New Delhi fears that next the insurers would seek a certificate that fuel exports out of India are not out of any of Iranian oil.

“We are told that under European law, reinsurance outside Europe is not hit by (US and western) sanctions (against Iran),” Oil Secretary Vivek Rae told reporters here.

The issue is now being examined in consultation with the Ministry of External Affairs, he said adding that refineries will get insurance cover if New Delhi’s understanding was confirmed by European Union and insurance companies accept it.

“If we get the insurance, it is (oil import from Iran) not a problem,” he said.

Rae said the Department of Financial Services is working on creation of an insurance pool fund in India to provide insurance cover to refineries. The fund will be created by contributions from both insurance companies and oil industry.

“As per the proposal right now, the national insurance companies would contribute some money. The Oil Industry Development Board will contribute some money. What would be the size of the fund, how much are we required to contribute and whether it is enough to cover the reinsurance risk, this is something the reinsurance companies have to work out,” he said.

He said refiners are talking to the reinsurers. “At the moment oil is being imported from Iran. But the problem will arise if the refineries don’t have the insurance cover. We cannot import crude from Iran in such a scenario.”

The move will help all refineries importing crude oil from Iran, particularly Mangalore Refinery & Petrochemicals Ltd, whose current insurance cover is coming to an end in May and has so far not found any insurer willing to hedge its risks.

Presently, Indian general insurers provide cover to oil refiners and then re-insure the risk with global re-insurers.

But under US and EU sanctions, the global insurers provide re-insurance with “sanction clause”, which limit the amount to be paid in case a claim arises.

India will reduce Iranian crude purchases to less than 13 million tonnes in the current financial year from 18.1 million tonnes last fiscal.

“I don’t anticipate stoppage of supply. I am optimist that we will find a solution,” Oil Minister M Veerappa Moily said.