NEW DELHI, Feb 5: The Union ministry of surface transport is likely to route the crude oil imported by Oil Coordination Committee (OCC) on FoB (freight on board) basis through its shipping agency -- Transchart from April 1.Sources have revealed that with the `cost plus formula' (CPF) to be discontinued soon, the crude and the petro products will come through the Transchart instead of the Shipping Corporation of India (SCI) which is a government undertaking.
During all these years, SCI was carrying the crude on CPF. However, in a recent meeting between the surface transport and petroleum ministry, SCI had pointed out long term negative impact of the withdrawal of the CPF on the Indian shipping lines in a weak market.
The industry sources are not ready to accept this, as they feel that the crude oil market is buoyant and spot market rates are higher than CPF.Even though Transchart wing in the transport ministry is geared up to take up this gigantic task, industry sources claim that SCI has been holdingdiscussions with other shipping companies for carrying oil and other petroleum products. As of now the SCI has 35 vessels, the Great Eastern Shipping Company (Gesco) and Essar hasve one vessel each.
The question is given the situation who will be making arrangements for movement of the oil. According to the present government policy, if the product is arriving on the FoB basis, then it has to be routed the through centralised shipping agency -- by Tanschart wing in the ministry.Even as the Indian National Shipping Association (INSA) is trying to make arrangements with the OCC on how to bring the crude, some of the ship owners who are not the members of INSA are objecting to this kind of an arrangement.Significant amongst them are Prathiba Shipping Company and the Amar Shipping Company which are already in the tanker business but are wanting to acquire crude tankers.
Sources have suggested three ways of handling this peculiar situation with the basic idea of bringing in fair competition. Firstly, OCC cancharter vessels for a particular period of time as they often do for the movement of cargoes in the coastal regions.
They should advise Transchart to enter into CoA (Contract of Affreightment), depending on their capacity -- usually for a particular quantity for a specified period.
And if still the balance remains, then Transchart could take competitive tonnage from the foreign market. Lastly, OCC can give responsibility to SCI and they can make arrangements to take vessels from Indian and foreign owners.
However, the industry feels while items one and two are more suitable, item three is not suitable at all as that will lead back to cost plus formula, by the back door entry.
The CPF is based on return on capital and actual operating costs incurred by the ship-owners -- capital is divided into equity and debt.
The formula envisages that each ship will be funded by a competition of 20 per cent equity and 80 per cent debt.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
