The companies including the Shipping Corporation of India (SCI), Essar Shipping, Varun Shipping, Great Eastern Shipping Company and Garware shipping have together deployed 25 offshore supply vessels (OSVs) to ONGC.

These companies are demanding a revision in the cost-reimbursement formula (devised by the directorate general of shipping), under which the OSVs were deployed with ONGC. The daily charter hire of all the vessels deployed by ONGC between 1983 and 1986 was governed by the formula.

The formula took into account return on capital and reimbursement of the vessel cost over 12 years. The economic life of the OSV is taken at 16 years by the government.

In 1995, a committee under the chairmanship of the then joint secretary of the ministry of petroleum and natural gas,AN Saksena, was set up to evaluate the scale of payment beyond 12 years.

Its mandate included finding solutions to disputes while implementing the formula. The committee, which had representatives from the petroleum ministry, ministry of surface transport and the directorate general of shipping, submitted its report in February 1996.

After sitting on the report for over two years, the petroleum ministry finally directed ONGC last week to rework the daily charter hire of the OSVs.

In the past, the charter-hire payments to the shipping companies were made on the basis of the DGS formula (similar to the cost-plus formula).

The shipping companies wanted the duty cycle in the formula to be changed.

The duty cycle was calculated by dividing the cost of operating the OSV for the whole year by 365 (the number of days).

According to the shipping firms, the number of days should be reduced to the actual working days (around 340). This automatically increased the duty-cycle payment a shipping firm isentitled to.

As ONGC was making payments to shipping companies on an ad-hoc basis, the Saksena committee also recommended payment of all outstanding dues. The petroleum ministry has accepted this demand.

The demand of the shipping companies for reimbursements of seamen wages has also been acceded to. The ministry has also agreed to reimburse the overhead expenditure incurred by them.

The petroleum ministry has, however, deferred its decision on the cost recovery factor (CRF). "The factor is an important part of the formula as it will decide how much profit a shipping company would get after its OSV completes 12 years of operations with the ONGC", said a senior official of Varun Shipping.

The CRF takes into account the cost incurred on the vessel including the interest paid on the loans borrowed by the shipping companies to purchase the OSV. The Saksena committee had recommended that a certain percentage of the cost of the vessel be paid to the shipping company as a profit.

"As the profit earned bythe shipowner for the first 12 years was only from re-imbursements of the operating cost, the committee recommended a CRF to be introduced in the DGS to give some profit to the shipowner," he added.