With an eye on cutting down the outflow of dollar and increasing the rupee trade for purchase of enhanced crude oil supplies from Iran, the Finance Ministry has asked the Petroleum Ministry to take immediate steps to make the Energy Insurance Pool operational by asking Oil Industry Development Board (OIDB) to provide Rs. 500 crore contribution without any further delay.
In a letter to the Petroleum Secretary, Vivek Rae, the Secretary Financial Services, Rajiv Takru has said the pool to be operated by state-run insurance company GIC would be responsible for discharging the obligations arising from the re-insurance commitments undertaken with regard to the assets of the petroleum importing companies under this arrangement. “The arrangement is immediately aimed at addressing the needs of the four companies importing petroleum from Iran – Indian Oil Corporation, Mangalore Refineries and Petrochemicals Limited (MRPL), Hindustan Petroleum Corporation Limited (HPCL) and private sector player Essar Oil. The facility would cover the sector in general and would be available to other domestic petroleum sector companies also if desired,’’ the communication by Mr. Takru said.
The urgency to make the Energy Insurance Pool operational comes in the background of the resolve by the government to cut down current account deficit (CAD) by reducing the dollar outflow. The Petroleum Minister Veerappa Moily had informed the Prime Minister Manmohan Singh that India should enhance crude oil imports from Iran and hike the purchases from 2 million tonne at present to another 11 MT this fiscal which would save around $8.47 billion in foreign exchange.
The Petroleum Ministry has already agreed to make a contribution of Rs. 1,000 crore through the Oil Industry Development Board to the Energy Insurance Pool. It has informed the Finance Ministry that it would pay Rs. 500 crore at this time and rest of the Rs. 500 crore would be given in April 2014. Similarly, the state-run general insurance companies led by GIC would contribute a matching amount of Rs. 1000 crore to the pool. “As the arrangement has to be announced immediately, it would be greatly appreciated if the Petroleum Ministry nominated a representative to the pro-posed advisory body and release the first instalment of Rs. 500 crore without any further delay,’’ Mr. Takru’s letter to the Petroleum Secretary states.
The Energy Insurance Pool is being created to enable provision of re-insurance services for the assets of petroleum importing companies. The Oil companies would be given the option of obtaining insurance services from a combination of four public sector insurance companies and GIC would be addressing the re-insurance aspect. The insurance companies had conveyed to the government that contracts entered into by them with the traditional offshore insurance companies directly or through GIC and other PSU insurers had become uncertain with regard to whether the claim would be honoured or not on account of sanctions clause being inserted in the contract.