With no Indian vessels, oil PSUs at sea on under ₹200-cr deals
State-run oil firms are scrambling to comply with a recent government order to go local while hiring ships to haul crude and petroleum products of value less than ₹200 crore as part of the revised ‘Make in India’ policy on procuring services.
The government move would be a bonanza for local fleet owners such as state-run Shipping Corporation of India Ltd (SCI), The Great Eastern Shipping Co Ltd, Seven Islands Shipping Ltd and Essar Shipping Ltd, but its immediate implementation could pose a problem due to shortage of Indian ships to meet the requirement, government officials said.
“The oil PSUs are working out the modalities but we don’t know whether it would be possible to implement this policy immediately.
“Because we don’t have that many Indian ships to meet the requirement,” said an executive with one of the state-owned refiners based in Mumbai.
Shipping Ministry officials said the policy would come into play when oil PSUs hire ships on spot contracts, which are all less than ₹200 crore. In comparison, long-term time charter contracts are typically valued at more than ₹200 crore. “For instance, 30 per cent of Indian Oil Corporation’s oil shipments are on spot basis, and 70 per cent on long-term deals. Within the 30 per cent spot contracts, as much as 97 per cent are deals below ₹200 crore,” said a Shipping Ministry official.
Mode of purchase
The implementation of this policy will hinge on whether crude oil and products are purchased on free-on-board (FOB) basis or on cost-insurance-freight (CIF) basis. Under FOB deals, the Indian buyer is responsible for making the shipping arrangements, while in CIF contracts, the shipping part is finalised by the supplier.
The type of crude and product purchase contracts have always been points of friction between the oil PSUs and the local fleet owners.
The ‘go-local’ policy can only be enforced when crude and products are purchased on FOB basis.
And, with state-run firms barred from floating global tenders to finalise service contracts below ₹200 crore, even the right of first refusal (RoFR) policy will not be applicable.
Lowest rate offered
Indian fleet owners have a right to match the lowest rate offered by a foreign flag ship in global tenders issued by state-run firms for hiring ships under the chartering guidelines framed by the Director General of Shipping.
Only when Indian shipping companies decline the business can the foreign flag ship, which had quoted the lowest rate, be awarded the transportation contract.
In 2017, the government allowed state-run oil refiners to ship one-third of their annual crude imports on CIF basis, reducing the pie available to Indian shipping companies.
“The oil companies keep arguing that CIF is cheaper, but they will do well to look at what Japan, China and Korea are doing.
“They only want to buy FOB due to security and strategic considerations and to build a strong national fleet,” said the managing director with a Mumbai-listed shipping company.
PCBA to lift closure notice of Baghjan wells: Oil India
This comes a day after Assam Chief Minister Sarbananda Sonowal expressed displeasure over the PCBA order and said authorities to be “more sensible”.
Guwahati: Oil India Ltd (OIL) on Monday claimed the Pollution Control Board, Assam (PCBA) has decided to withdraw its notice asking the company to shut down all operations in Baghjan, where a gas well of the PSU caught fire after a weeks-long blowout. This comes a day after Assam Chief Minister Sarbananda Sonowal expressed displeasure over the PCBA order and said authorities to be “more sensible”.
“Pollution Control Board, Assam served a closure notice directing OIL to close down all the production as well as drilling operations of all installations of Baghjan oil field forthwith.
“Chairman PCBA spoke to CMD-OIL today and the closure notice is in the process of being lifted,” OIL said in a statement.
The PSU had on Sunday said it will approach the Gauhati High Court against the PCBA if it does not withdraw the closure notice.
The Baghjan oil field has a total of 22 producing wells — 18 crude and four gas. The oil field has been in operation since 2003.
Well number 5 at Baghjan in Tinsukia district of Assam has been spewing gas uncontrollably for the last 27 days and it caught fire on June 9, killing two of OIL’s firefighters at the site.
Following the accident, the PCBA sent a show cause notice to the energy major on June 10 seeking details of its operations in Baghjan in the last 15 years, within one week.
Citing a number of violations by the PSU, the PCBA issued the “closure notice” alleging that the company did not obtain required permissions for the Baghjan oil fields. OIL categorically denied the charge and claimed it has the “PCBA’s consent” for its all operations in the state.
On the ongoing process to douse the blaze at the well, OIL said a crucial packing element for the casing hanger will be airlifted from Singapore on Monday.
The consignments being mobilised from outside Assam were stuck at Dalkhota, West Bengal due to a very long waiting queue for COVID testing, it said.
“Vehicles carrying second load of equipment from ONGC, Rajahmundry, three vehicles carrying materials and bulldozer from ONGC-Vadodara are in transit,” it said.
The company informed that various works at the well site have been hampered due to inclement weather and soft ground condition.
“In order to mitigate the delay and make access of vehicles and placement equipment at the site, actions (have been) initiated for mobilising heavy-duty composite porta deck mats from Kolkata and Guwahati. Materials are expected to be loaded today,” it said.
On the loss of production due to agitation by locals, OIL said there was an output drop of 149 metric tonnes (MT) of crude oil and 0.16 million metric standard cubic metres (MMSCM) of natural gas on Sunday due to disruptions in 22 oil wells and one gas well.
“Cumulative production loss since May 27, 2020 due to bandhs and blockades: 8,162 MT crude oil, 10.4 MMSCM of natural gas,” it said.
OIL also said various assessments and impact studies of the blowout, as well as the blaze, in villages and nearby forest areas, are being conducted by multiple agencies such as ERM India, TERI, CSIR-NEIST and Assam Agricultural University.