29-10-2018

India: Shipowners against move allowing PSU oil firms to import crude on CIF/CFR basis

The Indian National Shipowners’ Association (INSA) has written to the Prime Minister seeking reversal of a recent decision of the Shipping Ministry to allow PSU oil companies to buy 35 per cent of crude imports on CIF/CFR basis. It believes that such a decision will lead to an outflow of $771 million (₹5,685 crore) to foreign shipping companies in FY19 and will add further pressure on foreign exchange due to the weakened rupee.

CIF (Cost, Insurance and Freight), CFR (Cost and Freight) and FOB (Free on Board) are international shipping terms. When crude oil is bought on a FOB basis, the oil payment is done in dollars but the transportation is handled by an Indian shipping company, which is compensated in rupees. But in CIF or CFR basis, both purchase of oil and its transportation by a foreign shipping company is made in dollars.

The letter to the PM, which was seen by BusinessLine, said the change in the stand by the Shipping Ministry would double the CIF cargoes bought by the PSU oil refining companies. “India will also have to foot the freight bill payable to foreign shipping in precious foreign exchange, which is completely avoidable,” INSA said.

The letter also pointed out that CIF/CFR purchases are in direct conflict with the FOB import policy of 1957 and Public Procurement Order ( Preference to Make in India) of June 2017.

It also said foreign exchange could be saved by directing all PSU oil companies to award non-spot contracts to companies, that either have Indian flag vessels or those willing to convert their vessels to Indian flags. Such measures will provide more employment to Indian seafarers, augment revenues of Indian insurance companies, Indian classification services and ship-repair companies.

Source: The Hindu Business Line

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