May also provide for Cost and Freight mode for crude oil imports
The Union government is ‘favourably' looking into the demand of oil marketing companies (OMCs) and state-run Shipping Corporation of India (SCI) for amendment to shipping laws and providing for ‘sovereign guarantee' and Cost and Freight (C&F) mode for crude oil import shipping consignments from Iran.
The government was also actively looking into the issue of exempting payments made to Iran under the agreed rupee mode from imposition of ‘withholding tax' to tackle the sanctions imposed by the U.S. and European Union.
“There has been no cancellation of any kind of crude oil consignment. There was an issue of SCI not able to get an insurer from Europe to get the consignment from Iran covered due to EU sanctions. The consignment belonging to the state-owned Indian Oil Corporation (IOC), to be delivered in February, has been delayed and not cancelled. We are awaiting a response from the government and will soon take a decision on the issue so that normal delivery is resumed,'' a senior Petroleum Ministry official said.
The tanker, Maharaja Agrasen, owned by SCI, was initially booked by refiner IOC to load Iranian crude oil in mid-February, but could not get the necessary insurance coverage.
The European Mutual Protection and Indemnity Club is covering contracts concluded before January 23 on a case-by-case basis up to July 1. They have said they cannot cover contracts finalised after January 23. This particular contract was an on-spot buy after the January 23 deadline.
Under the present law, India allows import of crude oil by OMCs under the FOB mode. Now the OMCs have cited EU and U.S. sanctions and the difficulties being faced in getting insurance cover for the consignments as the reason for the government to invoke the ‘sovereign guarantee' clause and allow delivery under C&F mode.
C&F is a term of sale which means the seller will bear all expenses barring insurance charged up to the named port of destination.
OMCs raised concerns
Recently, reports indicated that India and Iran have agreed to make a substantial part of payment for crude oil under the rupee mode. However, the OMCs raised concerns stating that the whole exercise could turn futile until the Finance Ministry exempted payments from massive local taxes.
“The new mechanism cannot be used unless rupee payments are exempted from withholding tax. If we include other levies total tax liability will translate to over 42 percent tax. This will have to be borne either by us or Iran. We have written to the Petroleum Ministry and in turn the matter has been taken up with the Finance Ministry which is actively considering the matter,'' a senior official remarked.
Iranian supplier, National Iranian Oil Company (NIOC), will be the main mechanism for import of crude into India and for receiving payments.
Shipping Secretary K. Mohandas had recently stated that the government was exploring options like sovereign guarantee and C&F for importing crude from Iran in the wake of European sanctions.
SCI, which has the biggest fleet of tankers, has conveyed to the government that it will not get international insurance cover following EU sanctions.