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In view of the ongoing border skirmishes with China, the Indian National Shipowners’ Association (INSA) has strong opposed the transportation of IndianOil Corporations Ltd’s (IOCL) crude oil by PetroChina, a Chinese government company.
PetroChina is the largest oil and gas producer and distributor in China. It was established as a joint-stock company by China National Petroleum Corporation.
In a letter to Prime Minister Narendra Modi, INSA has said that using PetroChina’s services amounted to a strategic mistake.
The transport of IOCL’s 1.6 million barrels of crude from the US is being done by PetroChina using VLCCs (Very Large Crude Carriers).
INSA’s Chief Executive Anil Devli told BusinessLine that though it was commendable that IOCL managed to buy the crude at a lower price than even Basra light crude, it was surprising that the Indian shipping industry was not even offered an opportunity to transport the cargo, he said.
Basra light crude is a global benchmark for crude oil.
A copy of the letter, which has been reviewed by BusinessLine , said that the contract had been awarded to PetroChina during the Doklam face-off, which shows zero strategic vision.
The letter also said that the contract flies in the face of the entire ‘Make in India’ and ‘Serve from India’ campaign.
India, being a large importer of crude oil, does not even seem to have made up its mind on an important strategic issue like this, INSA said, adding that the award of contract had happened despite concrete evidence that Indian flag ships are cheaper.
INSA said the Chinese government, on the other hand, had aimed at transporting at least 85 per cent of its crude on Chinese-controlled vessels.
Where IOCL erred Devli said that the oil cargo is being imported on Cost, Insurance and Freight (CIF) basis by IOCL. In CIF transaction, the US seller has the liberty to select the shipping line for arranging the transportation of goods between the ports. However, IOCL should have bought the strategic cargo on Free on Board (FOB) basis, under which the sea transporter can be selected by the buyer (IOCL) and it also provides more control on the cargo.
Even if IOCL were to claim that under CIF norms the buyer has negligible control over the transport, current international practice is give nomination with two to three options to the sellers to choose their freight company, said Mathew Antony, Managing Partner, Aditya Consulting.
Indian vessel owning companies have been struggling for business and revenues to service their stressed loans, a few of them being NPAs leading to insolvency, he said.
Devli said Chinese-controlled fleet, which stood at 109.33 million dead weight tonnage (DWT) in 2006, had grown to 246.20 million DWT as of January 2016, a growth of about 125 per cent, which is not possible without the support given to it by its national industries, including the oil refining companies.
IOCL did not comment on the development.
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