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Oil companies want the Government to allow them to import crude oil on what is called the cost, insurance and freight (cif) basis, without requiring any approval from the Shipping Ministry.
The move is expected to eventually help more foreign flagged vessels to ship crude oil to India.
Allowing crude imports on cif basis will transfer the power of how crude oil carriers are chosen to the selling party that is, firms in other countries. Booking cargo on cif basis means that the seller bears the cost of insurance and freight.
Indian ship owners, who feel such a proposal will take away their potential business, have opposed the move. If the costs of international ship owners are lower today, it is due to their taxation norms, they feel.
India imports about 170 million tonnes of crude oil a year. Crude oil purchased from various countries is transported on cargo ships. Booking the cargo on what is called the freight-on-board (FoB) basis requires the buyers domestic oil marketing firms to arrange ships and insurance to cover loss or damage to the goods.
According to the Shipping Ministry guidelines, oil marketing firms can source crude oil only on FoB basis. But, some relaxation of norms is permitted. For instance, if the Indian oil marketing firms want to import it on cif basis, they can seek relaxation by showing that the transportation costs provided by foreign flagged vessels are cheaper.
Oil marketing firms say that imports on cif basis should be permitted, as most suppliers now have their own shipping mechanism and prefer to sell on cost including freight basis.
"Many suppliers in Brazil and those in Latin America sell on cif basis, says P.K. Goyal, Director-Finance, Indian Oil. He said the FoB system restricted the canvas of suppliers.
Arguing against any such relaxation, the Indian National Shipowners Associations CEO, Anil Devli, said, "As it is, under current norms, Indian shipowners have to match a lowest discovered price. They should get preference, just as many countries, such as the US and China want their energy products moved in ships of their flags.
Devli said "If Indian shipping firms have higher costs, then it is a function of Indian taxation system. The argument for giving preference to Indian shipowners is the same that prevents us from using cheaper steel from China.
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